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Cancer Drug Should Take Dendreon to $360

The biotech's revolutionary treatment has amazing potential

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Last month, biotech company Dendreon Corp. (NASDAQ: DNDN) announced that the cancer vaccine Provenge Phase III IMPACT clinical trial easily met its objective with a 22% reduction in deaths versus the placebo group.

Provenge works the way an effective drug should, with no significant side effects. Just in the small group for which it was approved, it is likely to be a billion-dollar drug in the United States alone.

My valuation model shows $1.5 billion in Provenge revenue should equate to about $30 on DNDN stock today. Shares are trading near $43 currently. Considering the potential for immediate off-label use in earlier stages of prostate cancer, I think there is another $1.5 billion in U.S. revenues.

If the day comes that a doctor says: “Well, would you rather be castrated or try Provenge,” what would you do? And for all those men currently dealing with prostate cancer by “watchful waiting,” how many might be interested in boosting their immune system to fight the illness?

It’s not hard to see how the U.S. market for Provenge in prostate cancer, on- and off-label, will hit $3 billion. That gets DNDN up to $60.

In the next several months — probably sooner than later –Dendreon will sign a marketing agreement for European and possibly Japanese sales of Provenge. The rest-of-world market for most drugs is roughly equal to the U.S. market, so that adds another $3 billion in Provenge sales and gets DNDN up to $120.

Looking Past Prostate Cancer

Provenge’s approval for breast cancer could take up to five years, but the breast cancer market alone is at least as large as prostate cancer, so counting eventual approval and use on- and off-label in the United States and the rest of the world, that’s another $6 billion in revenues. That gets DNDN up to $240 a share.

At the same time, given the financial resources likely to be available to the company without any shareholder dilution, other label-expansion studies for colon, bladder, kidney and multiple other types of cancer can be under way during the same five years.

The markets for all of these put together are at least as large as for breast cancer or prostate cancer, so that’s another $6 billion in revenues worldwide and another $120 a share on DNDN stock, getting it up to $360 a share in seven or eight years.

Article printed from InvestorPlace Media, http://investorplace.com/2011/05/biotech-stock-to-buy-dendreon-corp-nasdaq-dndn/.

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