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Dendreon Looks Like a Buy After Meltdown

Plus, the stock's slide sheds light on important investing lessons

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If you’re reading this, it’s probably safe to say you already know Dendreon (DNDN) has turned into a train wreck of late. Its flagship (and only) drug Provenge — a therapy for prostate cancer — slowly but surely became a big disappointment, and that implosion has been reflected in the stock’s price.

Luckily, there are a handful of lessons that wise investors may want to take away from this rags-to-riches-to-rags saga.

On the off chance you’re not familiar with the stock, though, here’s a quick recap. Dendreon shares plunged 26% on Friday after the company unveiled what can only be categorized as a horrible second quarter. Rather than the anticipated loss of 42 cents, the company lost 45 cents per share. Sales fell 8% to $73.3 million.

While not good, those numbers could have been worse. And they certainly don’t explain a double-digit plunge in the stock’s price. So what torpedoed DNDN last Friday?

More than anything, it was the forecast that Provenge sales are no longer expected to grow this year. For a drug that was excessively-ballyhooed leading up to its approval and that has only been on the market for three years, it’s way too soon to start seeing sales weakness.

See, Provenge isn’t “just another cancer therapy.” It was the first approved cancer treatment that was a true cancer vaccine. Since then, a handful of other cancer vaccines have hit the market, but as they say, the first one tends to be the most memorable.

It also ignited plenty of optimism — perhaps too much optimism. Take a look at some of the now-wild predictions that were made regarding the treatment, which is expected to hold steady with $321 million in sales.

  • “The company now forecasts up to $400 million in sales next year. Some analysts project the sales will ultimately exceed $1 billion a year, making the product a true blockbuster.” –Minyanville, 11/4/10
  • “Should Provenge prove to be as successful as many in the biotech industry think it will be, peak sales of $2.5 billion is possible. This is partly because competition is likely to be minimal since barriers to entry are very high due to the long and arduous developmental cycle a similar product must endure to reach the market.” –Value Line, 12/11/2010

You get the idea. The bar was set pretty high for the drug, not just in terms of revenue, but also in terms of how long the drug would be able to defend its title as the “go-to” name in prostate cancer. Instead, Johnson & Johnson’s (JNJ) Zytiga is looking outstanding as a prostate cancer treatment, and Medivation’s (MDVN) Xtandi (phase 3) holds enormous promise as a prostate cancer therapy.

Article printed from InvestorPlace Media,

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