How High Will Dendreon Surge Go?

Shares of Dendreon (NASDAQ:DNDN), a biopharmaceutical company focused on cancer-related treatments, surged 20.98 percent on Friday, closing at $6.17 per share, which is big jump for a company that saw its stock price drop from $50 per share to $5 in a span of two years.

The company hit its all-time high almost three years ago, closing at $54.96 on April 30, 2010. Since then, the stock has been on a generally downward trend.

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Friday’s rally was driven by news that more patients are taking the Seattle-based drug manufacturer’s prostate cancer drug Provenge. In a research note seen by Bloomberg, Sanford C. Bernstein & Co. analyst Geoffrey Porges noted that discussions with doctors show that the drug is being prescribed more and more often. Urologists said they expect a 10 percent to 20 percent increase in the frequency of its use this year. In the previous twelve months, shares of Dendreon dropped 60 percent based on concerns that doctors were not using Provenge often enough…

But Dendreon shares haven’t necessarily begun their return to a $50 price tag. Provenge, the company’s only drug on the market, has several problems to overcome, including the often prohibitive cost of a full round of treatment that runs $93,000. Dendreon’s dependence on Provenge is evident from the timing of the rises and falls in its stock price; when the company’s shares surpassed $50 back in 2010, it was because the Food and Drug Administration had given the treatment approval, and when they fell to $17, it was because the company had lowered the forecast for Provenge sales. In 2011, the company announced that doctors were not confident that insurers would reimburse for the treatment.

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A similar problem has faced Vivus’s (NASDAQ:VVUS) weight-loss drug Qsymia, which had early sales problems because of limited insurance coverage. As with Qsymia, analysts questioned whether Dendreon’s sales strategy was feasible; one reason why Provenge failed to attract customers was that it did not have a strong partner to guide the commercialization of the drug.

However, some upsides exist for the biopharmaceutical company beyond the positive sales forecast for Provenge. Dendreon has announced it will sell its immunotherapy manufacturing facility to Novartis Pharmaceuticals (NYSE:NVS) for $43 million in cash, its shareholders include JPMorgan Chase (NYSE:JPM), and the company is working on new drugs in its pipeline.

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