Dendreon Corporation (DNDN): Targeting Cancer,Transforming Lives™

Market Analysis & Strategic Plan Report

Anam Ali

Jair Campos

Bill Halkiadakis

Biotech Industry Analysis

Growing at the rate of 13.95% yearly U.S Biotechnology industry is expected to touch mark of $131.8 Billion

by the end of 2010. Companies in the Biotech Industry draw heavily upon research in genetic

engineering or recombinant DNA technology to produce biological compounds (such as human insulin or vaccines) in large quantities for commercial use.

Biotechnology will play an important role in Agricultural sector by developing large number of genetically modified seeds.

The biomedical sector accounts for the major share of overall biotech industry in US and will continue to dominate in future as well.

Biotech Industry

Biotech Industry

Distribution

Participants

Customers

Pricing

Marketing& Promotion

RegulationJoint Ventures/

Alliances

Products

R&D and Manufacturing

Competitors

Markets

Biotech & Pharmaceutical Market (worldwide)

Source: IMS World Review 2007Source: IMS World Review 2007

Worldwide Incidence of Prostate Cancer

Prostate cancer kills 200,000 men annually worldwide. Men over fifty or w/familial history are more susceptible

Red and swollen areas indicate a higher rate. North America world leader Europe and Japan close second

Courtesy of Science Creative QuarterlyCourtesy of Science Creative Quarterly

Company Overview

Dendreon was founded in 1992, in Seattle, Washington, and is traded on NASDAQ under the ticker DNDN.

Company is engaged in discovering, developing and commercialization of novel therapeutics that harness the immune system to fight cancer.

Employs about 232 people between their headquarters in Seattle and their manufacturing facility in Morris Plains, NJ.

Dendreon has a market cap of $618.67 million, and reported sales of $111,000.00 million in 2008.

The company's key products and services include the following:– Provenge (sipuleucel-T)– Neuvenge (lapuleucel-T)– Trp-p8– CEA– CA-9– Anti-Serine Protease

Defining the Business

Who is being satisfied?– Individual Patients, Physicians, Large Scale

Purchasers, Governments

What is being satisfied?– Medical treatment for diseases

How are customer needs being satisfied?– Through the discovery and development of

breakthrough medicines

Dendreon’s Purpose

Dendreon’s uniqueness, innovation, and scientific advancement leads to introducing new therapeutic vaccines to treat forms of cancer

Transforming lives, offering hope, and offering reliable, feasible & manageable treatment for men in late stage of prostrate cancer

Heading towards becoming a leader in revolutionizing the treatment of prostrate cancer patients and immunological diseases worldwide

Key Points of the Firm

Provides expertise in antigen identification, engineering and cell processing

Active cellular immunotherapy holds promise providing patients with a clinical benefit, such as survival, and low toxicity

Provenge has shown significant positive results in clinical trials.– Dendreon studied 512 patients, and saw a 22% survival rate increase.

Treatment Cycle for PROVENGE®

1. Active cellular immunotherapy (ACI) is a treatment approach that capitalizes on the power of live human cells to re-engage the patient's own immune system to fight cancer.

2. The goal of Dendreon’s approach is to turn the immune system "back on" to elicit a specific and long-lasting response against cancer.

Our Potential Customers

Late stage prostrate cancer patients

Cancer clinical centers, physicians, hospitals

Research/scientific community

Porter’s Five Forces

Barriers to Entry - High – High Capital requirements, high start up cost, economies of scales offer larger

companies higher competitive advantage, complexity of design.

Buyer’s Power – Medium– Many buyers to choose from, HMO’s & PPO’s dictate what choice of drugs is allotted to

customers

Suppliers Power – Low – Limited amount of products to offer the firm

Threat of Substitutes - Medium – Bio-tech firms can continuously produce more products & more patents can be filed

Nature of Rivalry Within the Industry – High– Intense competition with others in specialty market segment– High exit barriers because of enormous R&D investments

• Innova

tive th

erapeutic

vacc

ine – Late stage

• Less

toxic

vs. c

hemo

• Firs

t move

r adva

ntage

• Exc

lusive patent ri

ghts

• Company size

• Lack of financial resources

• No products out on the market

• At the mercy of the FDA

• FDA re

jection

• Marke

t size

• Take

over b

y larg

er

competito

rs

• Unfavo

rable re

sults

from R

&D & cl

inical

trials

• Future innovation &

technological advances

• Niche products with high

potential market penetration

• No competition from

generics expected for yrs

• Fast growth expected in

incidence of cancer

Firms Problems

Approval delays from FDA - more data required not likely available till 2010.

Rejection & lawsuits from agencies of cancer patients who wanted to access the drug now, investors, and patient advocates. This puts pressure on the firm to allocate more time & funds towards more clinical trials.

Logistics and distribution costs likely to be higher than GVAX, more added steps involved.

Recommendations

Growth Strategy

1. Diversified Product Pipeline - expand portfolio beyond oncology drugs

2. Needs to do financing to get more cash, diluting current investors

3. Raise cash from secondary offering of the common stock. Stock price is high so more cash can be generated this way

4. Market alignment and promotion.

Biotechnology Industry

Very Large Range in Industry Capitalization

Top 6 companies represent 80 percent of the market.

Dramatic increase in revenue (119 percent) over the last 5 years.

Little to Negative Revenue among Startups.

Industry Growth (2004 – 2008)

2004 - 2008 Actual Revenue ($ Millions)

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

1 2 3 4 5

Years

Rev

enue

Actual Revenue Growth

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

1 2 3 4 5

Years

Rat

e of G

row

th

Industry Projections

Financial Analysis Methodology

Projected growth of Revenues are declining since companies are getting more mature.

48 percent increase in revenue over the next years.

Large changes in capitalization & revenue is expected from the smaller companies within market segment. .

Projected Growth (2009 – 2013)

2009 - 2013 Projected Revenue

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

1 2 3 4 5

Years

Rev

enue

Projected Revenue Growth

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

1 2 3 4 5

Years

Rat

e of G

row

th

Evaluation of Industry Trend Growth Results

The Financial Growth of large established Companies can be possibly predicted based on the previous financial results. It can be reasonably predicted in the very short term, but any financial estimates spanning several years most probably will be highly inaccurate.

A five year Analysis may be too unrealistic in a market segment as fluid as Biotechnology. The next Market leader may not even be in the picture.

The Financial Growth of a company like Dendreon cannot be predicted using traditional Industry Trend Growth. The long term growth of Dendreon will be the result of Disruptive New Technologies and Visionary Products that have a huge financial potential for the firm.

Financial Analysis (Stock Price)

Phenomenal Stock Price Explosion in the last 30 days.

$ 4.30 on April 03, 2009

$ 20.08 on April 24, 2009

$ 607 Million Market Cap on April 3

$ 1.97 Billion Market Cap on April 24, 2009.

Company Fundamentals remain the same. The company has not produce a any profit over the last five years.

Financial Analysis (Fundamentals)

Revenues2008 2007 2006 2005

(In Million)

                 

Revenue 0.11 100.0% 0.74 100.0% 0.27 100.0% 0.21 100.0%

Other Revenue 0 0.0% 0 0.0% 0 0.0% 0 0.0%

Total Revenue 0.11 100.00% 0.74 100.00% 0.27 100.00% 0.21 100.00%

Income Statement2008 2007 2006 2005

(In Million)

Total operating Revenue 0.11 52.4% 0.74 352.4% 0.27 128.6% 0.21 100.0%

Total Costs and Expenses 70.59 81.4% 102.36 118.1% 97.63 112.6% 86.67 100.0%

Net Income -70.48 81.5% -101.62 117.5% -97.36 112.6% -86.46 100.0%

For the last four years Dendreon has been consistently loosing money from $ 86.46 Million in 2005 to $ 70.48 Million in 2008.

Ratio Analysis

Financial Analysis (Conclusion)

Do Traditional Financial Analysis Tools apply for a company like Dendreon ?

How does someone perform a valuation analysis for a company that it’s future Growth will be the result of Disruptive New Technologies and Visionary Products?

Questions?