Buy, Sell, or Hold: Dendreon

2011 will be remembered as the year Dendreon (NAS: DNDN) shareholders crawled under the covers and assumed the fetal position. As Foolish colleague Brian Orelli summarized last month, Dendreon's drug launch missteps with Provenge were worthy of a dunce cap.

Despite the terrible year, traders on both sides of the coin have reason to be excited about Dendreon in 2012. Let's take a look at some of the things that could make you want to buy, sell, or possibly hold Dendreon this year, and at the end, I'll weigh in with my take.

Buy
The promise of Provenge, Dendreon's prostate cancer treatment, and the fact there is very little competition are the main reasons to purchase the stock.

Fourth-quarter provenge sales surged to $82 million, a 25% quarter-over-quarter increase, although we should note that full-year sales in 2011 totaled only $228 million -- well below the $350-$400 million that the company had originally predicted. But, it's hard to discount Provenge's potential considering that the market for prostate cancer drugs is estimated to be worth $9 billion.

It's also hard to ignore that Provenge has far fewer side effects than the only other direct rival, Sanofi's (NYS: SNY) Taxotere. There are other treatments out there, including Johnson & Johnson's (NYS: JNJ) Zytiga, Sanofi's Jevtana, and Medivation's (NAS: MDVN) experimental drug MDV3100 (which is currently in late-stage clinical trials), but these either treat different stages of the disease or -- in Medivation's case -- they haven't been approved by the FDA yet. Provenge is simply the head of its class in prostate cancer treatments.

Sell
If you're a seller of Dendreon at this point, your biggest focus is on management's inability to drive demand and doctors' unwillingness to prescribe the treatment.

After completely botching Provenge's launch on so many levels, it's hard to trust that management is fully capable of properly estimating the demand for its treatment. After not having enough capacity to meet initial interest for Provenge in the first half of 2011, it built multiple other facilities to meet a level of demand that simply never materialized.

One reason management overestimated demand is the exorbitant price of the treatment. Provenge, which is infused in three treatments over the course of two weeks, will cost a patient $93,000 (yes, all those zeroes really belong there). Whereas other expensive treatments do exist, Provenge's all come within the same month. Imagine opening that bill! Because of this, doctors have been unwilling to front the treatment bill until they are more certain they will get reimbursed in a timely manner.

Hold
If you're holding Dendreon right now, you've had a great start to the new year. The company's sales guidance in early January appears optimistic, and doctors have slowly been more willing to approve the treatment. Still, the nagging factor has to be whether or not Dendreon can utilize this treatment effectively enough to turn a profit or get purchased by a larger company.

And now for my take...

The verdict
As many of you know I'm usually very opinionated and often willing to take a buy or sell stance on a stock. As for Dendreon, it's a complete draw. Back in late December I saw Dendreon as a possible bargain after it raised $125 million in cash by selling the royalty rights to Merck's (NYS: MRK) hepatitis C drug, Victrelis, to CPP Investment Board. With more than enough cash on hand, I figured Provenge's sales should be enough to carry the company higher.

However, when the company essentially beat Wall Street's expectations for Provenge sales in early January, it took what "value" I saw in the stock and threw it right out the window. Now at $13 per share, the risk and reward of the stock are largely equal in my eyes. I feel Provenge is the best treatment available, but the company will need to continue to work on its approach to get doctors to prescribe the treatment with more regularity.

What's your take on Dendreon? Share your thoughts in the comments section below, and consider adding Dendreon to your free and personalized watchlist so you can keep track of the latest news with the company.

Also, if you're interested in finding another health-care winner, I invite you to download our latest special report: "Discover the Next Rule-Breaking Multibagger." This report highlights a company that our own David Gardner believes could be a resounding success over the next few years. Best of all, this report is completely free for a limited time, so don't miss out!

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Dendron and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's always rated a buy.

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