Dendreon Corporation
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Update from CitiDendreon Corporation (DNDN) 2Q09 Uneventful; Expanding Manuf. Capacity with 2 New Plants What is New — DNDN reported 2Q09 revenues of $0.03M, versus our andStreet consensus estimates of $0.03M and $0.08M, respectively; EPS came at ($1.20), versus our and Street consensus of $(0.18) and $(0.17), respectively. Variance was attributed to $106M of non cash charge related to revaluation of 2008 warrant; excluding this, EPS would have been ($0.20). Manufacturing Updates — In addition to the build-out of the remaining 75% ofthe NJ facility, which is expect to be mostly completed by 4/2010, 2 other manufacturing facilities one in Atlanta, GA and another in Orange County, CA are expected to be commercially ready by 2H11. NJ will be largest facility. PROVENGE BLA Submission Update — DNDN has met with the FDA and theagency has indicated that the IMPACT results are sufficient for BLA resubmission. A Type 2 amendment will be filed, followed by a 6 mo. review. DNDN anticipates a manufacturing inspection on the current 25% of the NJ facility. To date, the FDA has not notified DNDN of a 2 nd Advisory Panel. Cash burn guidance of $150M for 2009 — ~$20M will be used formanufacturing infrastructure, $20M for payment to Diosynth and $30M for precommercial activities and increased headcount. Year-end cash is expected at~ $200M. See inside note for model changes.
Changes to Model — We have revised our model to better reflect currentquarter's results and updated guidance. Total operating expenses for 2009- 2010 are increased to $86M and $216M, respectively, from $82M and $206M. Our 2009-2010 EPS goes to ($1.82) and ($0.85), respectively, from ($0.77) and $(1.14). Dendreon Corporation Company description Dendreon is an oncology focused biopharmaceutical company, developing therapeutics via harnessing the body's own immune response. The company has one lead pipeline product, PROVENGE for the potential treatment of asymptomatic hormone refractory prostate cancer (HRPC). Dendreon received a complete response from the FDA in 2007, in response to its first NDA submission. The agency had requested additional clinical data for assessing the safety and efficacy of the drug, as well as additional information related to the drug's manufacturing. Dendreon has already announced positive IMPACT (Phase 3) data for PROVENGE in HPRC men. The company intends to resubmit its BLA in 4Q09. Prostate cancer, aside from being one of the most commonly diagnosed cancers, is also the leading cause of cancer related death among American males. According to the American Cancer Society (2006), one in six men will be diagnosed with prostate cancer during their lifetime, but one in thirty four will dies of this disease. Effective, early and appropriate treatments has resulted in decrease in mortality rates. While multiple therapeutic approaches are available for treatment of prostate cancer, disease progression and ultimately death occurs despite castrate levels of testosterone within a few years in a majority of cases. Practically, all of these deaths are attributed to the development of androgen-independent and chemotherapy resistant metastatic forms of cancers. Hence there remains a large unmet medical need for additional, more effective treatment options for HRPC patients. Investment strategy We rate DNDN with BUY/Speculative (1S). We believe that PROVENGE has the potential to address a large unmet medical need as a more effective treatment options for HPRC patients, who have are refractory or exhausted all other treatment modalities. The company has one lead pipeline product, PROVENGE for the potential treatment of asymptomatic hormone refractory prostate cancer (HRPC). Dendreon received a complete response from the FDA in 2007, in response to its first NDA submission. The agency had requested additional clinical data for assessing the safety and efficacy of the drug, as well as additional information related to the drug's manufacturing. Dendreon already announced positive IMPACT (Phase 3) data for PROVENGE in HPRC men. The company intends to resubmit its BLA in 4Q09. Aside from PROVENGE, the company has multiple active cellular immunotherapy and small molecule pipeline programs. While these additional pipeline programs may provide upside to our estimates, we have conservatively modeled US PROVENGE sales in HRPC, which grows from $122M in 2009 to $909 M in 2014. Our $35 per share target price is based on using a 33 x P/E multiple on the company’s 2012 EPS estimate of $1.65 with a di
Valuation Our $35 per share target price is based on using a 33 x P/E multiple on the company’s 2012 (second full year of profitability) EPS estimate of $1.65 with a discount rate of 20% per year. Risks We believe a Speculative (S) risk rating for Dendreon is appropriate, given the price volatility and the risk associated with FDA approval of PROVENGE. As with any development-stage biopharmaceutical company, investing in Dendreon involves many clinical, regulatory, commercial, intellectual property (IP) and financial risks. We believe the most important near-to-medium term downside risks consist of: Clinical Risks — The therapeutic potential of pipeline drugs is currently underway by Dendreon. We cannot conclusively predict that any of these programs will be successful with respect to safety or efficacy when the full pivotal data are presented. Regulatory Risks — We cannot fully determine how the regulatory agencies may decide on the approval of PROVENGE or any of Dendreon's pipeline programs. Commercial Risks — We note that the valuation for the stock is dependent on potential revenue opportunity from PROVENGE. Specifically, if lower-thanexpected product sales, lower drug pricing and competing products emerge, this would represent opportunities for the stock price to not achieve our target price. Manufacturing Risks — PROVENGE is manufactured uniquely for each patients at Dendreon's New Jersey facility. Currently, the company has not received FDA approval for the manufacturing of PROVENGE at this plant. Failure for the Dendreon to comply with the chemistry manufacturing and controls (CMC) requirements and to gain FDA approval or material disruptions to the company's sole manufacturing facility's operations may negatively impact the stock price. As well, we cannot fully ascertain whether the company's NJ facility will have the necessary capacity to manufacture sufficient PROVENGE once the drug receives potential FDA approval. Logistic Risk — Since PROVENGE is a personalized therapy, associated with a tight timeline, there will be challenges regarding its logistics. Any hurdles in the logistic of PROVENGE administration may negatively impact PROVENGE revenue potential. Stability of blood samples and drug product (time from obtaining blood sample at leukapheresis centers to Dendreon's New Jersey manufacturing facility and infusion of PROVENGE back into patients) is limited. Reimbursement Risk — We have assumed $50K for PROVENGE's selling price. Dendreon will be dependent on third-party payers, such as private insurance companies, agreeing to reimburse patients for the costs. If third-party payers and government health administration authorities do not reimburse or limit the amount of reimbursement, sales would be below our expectations. scount rate of 20% per year.
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