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Dendreon Down on Default Risk, Reports Narrower Q2 Loss

Zacks Equity Research

Shares of Dendreon Corporation (DNDN) were down significantly after the company warned that it will not be able to repay or refinance its notes due 2016.

The company also noted in its regulatory filing that it is currently considering alternatives to the repayment of notes due in 2016. As per the company, the alternatives to repay the debt might also leave its current stockholders with little or no financial ownership of Dendreon.

The principal amount for the notes currently stands at $620 million. Dendreon also cited that its stock price of $2.12 is well below the effective conversion price of $51.24. Hence, it is unlikely that the debt holders will exercise their conversion right. Consequently, Dendreon is at a high chance of default.

Second Quarter Results

The news overshadowed the company’s second-quarter results. Dendreon reported a net loss of 10 cents in the second quarter of 2014, narrower than the Zacks Consensus Estimate of 18 cents and the year-ago loss of 45 cents.

Total revenue in the reported quarter was up 12.1% year over year to $82.2 million. Revenues in the reported quarter benefited from higher Provenge sales. Revenues beat the Zacks Consensus Estimate of $74 million.

Provenge sales during the reported quarter were up 12.1% year over year to $82.1 million.

Provenge, a therapeutic vaccine, was launched in the U.S. in May 2010, for treating advanced prostate cancer. In Sep 2013, Provenge was approved in the EU for the treatment of asymptomatic or minimally symptomatic metastatic (non-visceral) castrate resistant prostate cancer in adults. 

Dendreon’s research & development (R&D) expenses in the reported quarter came in at $13.6 million, down 25.2% year over year. The decrease in R&D expenses in the quarter was due to the company’s restructuring initiatives taken in Nov 2013. Selling, general & administrative (SG&A) expenses decreased 32.7% year over year to $44.9 million. The decrease in SG&A expenses was due to headcount reduction as a result of the company’s strategic restructuring plans.

Our Take

The news of a probable default by Dendreon was disappointing and pretty much eclipsed second quarter results. Although Dendreon has sufficient cash to meet its ordinary course obligations for at least the next twelve months, the company will surely not be able to repay or refinance its debt due in 2016. We expect investor focus on further updates regarding the same. We expect shares to tumble further.

Dendreon carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Allergan (AGN), Actelion Ltd. (ALIOF) and Gilead Sciences (GILD). All three stocks sport a Zacks Rank #1 (Strong Buy).

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