Is There Any Hope for Dendreon?

Dendreon Corporation  shareholders have been on a rollercoaster over the past few years. Dendreon got their lead product Provenge approved for use in metastatic castration-resistant prostate cancer, but has been unable to profitably produce and market the drug, reporting net losses every year that Provenge was on the market. With this in mind, we need to ask ourselves whether this is the end of the line for Dendreon.

Dendreon's debt situation
The biggest indicator of success moving forward will be whether or not Dendreon will be able to meet its rather substantial debt obligations. Dendreon recently announced the payment of its 2014 notes, but these notes are just a tiny fraction of what they will have to pay in 2016.

The 2016 notes represent a large catalyst for shareholders, with $620 million due -- significantly more than the $155 million Dendreon has in cash. Dendreon's cash position continues to worsen, as cash burn was around $30 million last quarter; management estimates a similar burn this coming quarter. And Provenge sales haven't impressed - last quarter, company revenue was $68.8 million, roughly in line with revenue over the past five quarters.

Investors who still hang onto hope regarding Dendreon will point to the opening of the European market. They hope to see significant new sales in Europe, which will begin to ramp up in the fourth quarter of this year. But those sales will require infrastructure, production, and sales force investments that may further strain Dendreon's resources.

What about other options?
The recent departure of Dendreon's CEO John Johnson has left investors hoping for a buyout. But I don't see an unprofitable drug and a large debt pile as attractive to a potential acquirer. Even if another company stepped in to buy Dendreon, I don't think it would necessarily be for any sort of premium -- after all, the company doesn't appear to have many options given its financial straits. And given Dendreon's current market cap of under $400 million, share dilution sufficient to pay off the debt seems like an unattractive alternative for shareholders.

Bottom line
Dendreon will have a hard time meeting its 2016 debt obligations. With continuing losses and no immediate hope to turn them around, I'm not sure that Dendreon will have the cash needed to keep operating. While some investors might see this as a turnaround opportunity, I don't see the oncoming barriers as surmountable, and I think that biotech investors have better places to park their money.