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Expert Financial Analysis and Reporting

Preview of 1Q, 2011 (DNDN, $41.78)

Dendreon will be hosting its first quarter conference call on May 2, 2011 at 4:30 EST. I anticipate that Provenge sales in the 1Q, 2011 will be about $28 million, which is in line with Street expectations.


The key factors to listen for on the call will be: (1) whether the company reaffirms its 2011 sales guidance for Provenge of $350 to $450 million with half of sales coming in 4Q, 2011, (2) how well the company is doing in meeting its year end goal of having 450 infusion centers, and (3) if the manufacturing scale remains on target to reach 120 work stations by the end of the year.

Dendreon began the US launch of Provenge through 50 infusion centers which were those which participated in the clinical trials. The company was capacity constrained and wanted to keep Provenge use in sites that already had product experience. By the end of 2011, Dendreon plans to increase the number of infusion centers by nine fold from 50 to 450. These will include 350 centers that represent approximately 80% of prescription volume for prostate cancer treatment in the US. To achieve $375 million of sales, about 4200 patients will have to be treated. The average number of patients treated per center would be about 9 to meet the 2011 sales goal. Obviously, there will be a wide range around this number

In terms of manufacturing capacity, by the end of 2Q, 2011 or sometime in 3Q, 2011, the original manufacturing facility in New Jersey should have 48 workstations. This would be four times its capacity at the end of 2010. In mid 2011, the company will also bring on new facilities in Atlanta and Los Angeles that will each have 36 workstations. These will be staged, so that by the end of the year, they will have 120 workstations in the three plants. This is 10 times as large as the 12 stations in New Jersey that were operational at the end of 2010...

The 12 New Jersey workstations operational at the end of 2010 could support monthly sales of $9 to $10 million per month or annualized sales of $108 to $120 million. According to Dendreon, by the end of the year, the ten fold increase in capacity will be able to support at least $1.2 billion of sales and through logistical and other efficiencies the company believes that it might support as much as $2.5 billion of revenues. In terms of patients, $100 million of sales represents something over 1100 patients.

I remain a buyer of Dendreon. I think that the performance of the stock will be directly determined by whether the company meets its sales guidance 2011. Provenge was approved in the U.S. on April 29, 2010. It recorded sales of $2.7 million in 2Q, 2010; $20.2 million in 3Q and $25.0 million in 4Q bringing full year 2010 sales to $47.9 million dollars. Dendreon is providing guidance for 2011 sales of $350 to $400 million with half of sales occurring in the fourth quarter. Possible quarterly sales trends in 2011 are as follows: 1Q, $28 million; 2Q, $60 million; 3Q, $99 million; and 4Q, $188 million which would result in full year sales of $375 million.

The company remained capacity constrained in 1Q, 2011 so that it is unlikely those sales will be much different from 4Q, 2011 and if the company reports around $25 to $30 million of sales, it will be in line with analyst expectations and the effect on the stock will be minimal. The 2Q, 2011 will be a critical quarter for the stock. If sales are somewhere around my estimate, I think that DNDN’s guidance for 2011 will be given greater credibility and the stock could have a reasonable up move. Going on into the second half of 2011, if DNDN can meet its guidance, the stock should respond very well on the upside.

On another issue, I am anticipating the approval of JNJ’s abiraterone at any time. There is the potential for competition down the road for some patients between Provenge and abiraterone However, the abiraterone approval has no near term implications for Provenge as the approval will almost certainly be for use in patents who have failed Taxoterre or other chemotherapies. Provenge is indicated for use primarily for patients before they go on chemotherapy. Initially, the drugs will not be competitive, I expect an interim look at data from the trial of abiraterone in the pre-chemotherapy setting in late 2011, but do not expect approval until 2012 at the earliest and more likely 2013. Please refer to my March 21st report “Comparing Medivation’ and Johnson & Johnson’s Prostate Cancer Drugs” for more details on the clinical trial program for abiraterone.

Disclosure: The author of this article owns shares of Dendreon at the time this note was written. This should be taken into account as it may introduce bias into the conclusions and interpretations that are made. In reading this note, you acknowledge that you have not used it as the sole basis of your decision making and that all investment decisions are based on your own analysis. An investment in Dendreon carries substantial risk and investors could potentially lose much of their investment. The reader acknowledges that he/she has carefully read the Investment Approach, Terms/Conditions and Disclosures sections in the About Us section of the website. The reader acknowledges that he/she will not hold SmithOnStocks accountable for any investment loss that may be incurred if a decision is made to invest in Dendreon.

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