Deutsche Bank Directs Bearish Growl At Dendreon

Once, one of the hottest biotech stocks around, Dendreon (DNDN) has become a cautionary tale, warning investors what can happen when a cutting-edge drug turns into a dud.

Now at less than $3 a share, the stock had traded as high as $54 in 2010 as excitement buzzed over the experimental prostate cancer vaccine Provenge. Initially, Wall Street expected peak sales of $3 billion to $4 billion. But insurers balked at the hefty price tag for Provenge, and now, three years after it won FDA approval, analysts see annual sales at roughly $300 million.

Disappointing sales are just one reason Deutsche Bank has joined the bearish voices surrounding this drug maker. Today, analyst Robyn Karnauskas downgraded Dendreon to a Sell and cut the price target to $1, warning that even if the company can significantly reduce costs and drastically restructures, its spending may still outpace revenue growth in the short-term. Karnauskas believes Dendreon may have to refinance its debt, negatively impacting shareholders.

Earlier this month, the company posted a bigger-than-expected second-quarter loss as Provenge sales fell compared to last year. A restructuring plan was unveiled in late July, though analysts say it isn’t enough without revenue growth. Today, Deutsche Bank’s Karnauskas writes: 

…By our math, even with $165M in cost cuts, the co will have to grow current sales from $300M to $525M over next 7 years to support current share price. 2Q13 sales were $73M and DTC campaign does not seem to have a lot of effect to offset impact from competition so that the company could reach profitability in 4Q13. While they note that they plan to cut costs, we are concerned it may be too late. Revenue growth is not occurring quick enough; we note 1Q13 yoy growth was guided and in 2Q13 they noted this was unlikely to occur going fwd. The co's inability to guide growth & provide visibility makes it difficult for us to see sales accelerating sufficiently in next 12-18 months to give equity & debt shareholders confidence.

Today, Dendreon's share price fell 10% to $2.87.