Dendreon Stock Tumbles As Company Projects ‘Moderate’ Sales Growth

Xconomy Seattle — 

Dendreon is finding out just how much investors love the precision of hard facts, and how irritated they can get with the squishiness of communicating in adjectives.

The Seattle-based biotech company (NASDAQ: DNDN) saw its stock plummet about 21 percent today after saying in its quarterly financial update that it expects only “moderate” sales growth this quarter, in the “single-digit” range over the previous three-month period. The company has previously used adjective-laden terms like “modest quarter-over-quarter” growth, which has translated into more than 20 percent growth, which investors have begun to expect.

Shares of Dendreon dropped $3.05, to $11.81 at the close of trading today following the fourth-quarter and full-year financial report.

The company, which makes a first-of-its-kind drug that stimulates the immune system to fight prostate cancer like a virus, came back to earth today after it surprised investors with a stronger-than-expected sales report on Jan. 5. The company said in that announcement that gross sales of sipuleucel-T (Provenge) reached $82 million in the fourth quarter, which easily exceeded analyst expectations at the time, and sent Dendreon shares soaring more than 20 percent that day. But today, the company offered more details to explain that performance. Essentially, there was an unusual spike in demand before the holidays, as patients and doctors sought to schedule Provenge infusions ahead of planned office closures, and to help manage issues some patients had with insurance deductibles before the end of the year. That surge meant that $2 million to $3 million worth of sales that otherwise would have come in January, ended up being booked in December—which strengthened the fourth quarter of 2011, and weakened the first quarter of 2012.

As a result of those end-of-year maneuvers, Dendreon entered the first quarter with “a softer order book” than it otherwise would have, new CEO John Johnson said on a conference call with analysts earlier today. Based on that performance, he said the company’s forecast for first-quarter sales will amount to “moderate” growth, which will be a “single digit” percentage over the prior quarter.

The company has been gun-shy about being any more specific about sales estimates since August, when it revealed that it would fall dramatically short of its previously stated goal of $350 million to $400 million in full-year sales in 2011. Actual sales were $213 million for the full year.

“The struggle here has consistently been what’s moderate. They say moderate, and then sometimes it’s 20-30 percent,” said David Miller, president of Seattle-based Biotech Stock Research, and a longtime Dendreon bull. “I think we’ll get more clarity over the next few quarters.” He added that Johnson, the new CEO, “is a no nonsense guy, a lot more operationally oriented,” than his predecessor, Mitch Gold.

Chris Raymond, an analyst with Robert W. Baird & Co, who rates the company “Neutral” with a price target of $14, said he was unimpressed with the latest disclosure, and that it’s a sign Dendreon needs to do a better job of persuading its current base of physician customers to start prescribing the drug more avidly. “For us to get more constructive on the stock, we would need to see tangible evidence of an inflection point in Provenge account penetration,” he wrote. Raymond said he forecasts $355 million in revenue for the drug in 2012.

Dendreon repeated its own financial forecast on a conference call today, in which it said it believes it can achieve $500 million in annual sales of Provenge, that it can lower the cost of raw materials down to 50 percent of revenue from its current state of more than 70 percent, and that combination of sales and expense management will enable it to reach cash-flow break even. Greg Schiffman, the chief financial officer, didn’t release a timetable for reaching cash-flow break even. But he did say the company burned $75 million in cash in the most recent quarter, down from its previous average cash burn of $106 million a quarter. The company said today that it had $618 million in cash and investments left at the end of December, and that it should reach cash-flow break even without having to raise more capital from investors, Schiffman said.

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