Dendreon Seeks Acquirer: Should Investors Buy?

Late Friday, Bloomberg reported that Dendreon (DNDN) was looking to sell itself–a report that has sent the troubled drug maker’s shares shooting higher this morning. From the report:

Bloomberg News

Dendreon, the maker of Provenge, is working with JPMorgan Chase & Co. to find suitors, said one of the people, who asked not to be named as the process is private. The company, whose market value once topped $7 billion, has generated about $2 billion in losses over the past decade. That market capitalization now hovers at about $400 million.

While some analysts find the news promising–Maxim Group upgraded Dendreon’s shares to Buy from Hold with a $10 price target–Credit Suisse warns investors not to expect too much upside. Analysts Lee Kalowski and team write:

If DNDN can be sold, investors should not expect an outsized premium. The enterprise value of DNDN is around $750M ($385M plus $647M in debt principal minus $280M in cash), which equates to around 2.5x sales. But DNDN is facing notable commercial and financial struggles and we don't foresee a big bidding war. Moreover, a sale would resolve the debt overhang, so it's hard to imagine investors not being satisfied — almost regardless of price — since there are very few clear alternatives. A sale would remove a very real scenario of equity holders being wiped out in a debt restructuring.

They believe potential buyers could include Johnson & Johnson (JNJ), Sanofi (SNY), Astellas (ALPMY) and Bayer (BAYRY). 

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Roth Capital Partners Joseph Pantginis is even less enthusiastic about the possibility of a sale. He writes:

Dendreon remains in trouble, in our belief, and is not an attractive asset to purchase. While a nice headline positive we believe that the sale of Dendreon will still present significant hurdles to a potential acquirer and current Provenge revenue will likely by overshadowed by major hurdles discussed below. Provenge is an effective, FDA approved product, representing the first cancer vaccine approved in the U.S. However, it has been a major commercial failure and the increased level of competition in the prostate cancer space (Zytiga and Xtandi) has made it that much more difficult. This is a snapshot, in our belief, of what a potential buyer will be faced with: 1) still see major education and commercial hurdles and would not expect to see rapid turnaround, 2) manufacturing hurdles and COGS issues still need to be addressed, 3) ~$550 million in convertible debt is due in 2016 and 4) the recent E.U. approval was a headline success but the key hurdles include a very diverse reimbursement landscape from country to country and the need to define the manufacturing strategy.

He recommends staying far, far away for Dendreon’s stock.

Shares of Dendreon have gained 11% to $2.80 today.