Dendreon Reliant on One Drug
Positive interim results of Dendreon Corp's (DNDN) key product candidate, Provenge, from the ongoing IMPACT phase III trial in the second half of 2008 will enable the company to amend the filing of its biologic license application for the prostate cancer vaccine. The approval of Provenge is critical for the company's financial performance because it has blockbuster status and successful commercialization can drive a company of Dendreon's size to strong profitability.
Unless Dendreon signs a commercialization deal for Provenge, the only upcoming positive catalyst is the presentation of interim results from the IMPACT trial. However, since this will take not take place till the second half of the year, we expect the share price to remain volatile. Therefore, we maintain our Hold rating on the stock.
We are very concerned about the company's weak pipeline. Besides Provenge, only Neuvenge entered into phase I clinical trial for the treatment of breast, ovarian, and colorectal cancers. Should something go wrong with with the clinical programs for Provenge, Dendreon has very little to fall back on. Neuvenge is still many years away from reaching the market while D3263, a compound for advanced cancers, is not expected to enter into clinical trials before 2009.
Our target price is $5.50 which assumes the shares show a decent appreciation over the next several months. We come at this price by using a P/S ratio of 4.6x, times our estimated revenue of $170.1 million in 2010, discounted at 30 percent for two years.
Ahead of Results, Hold Magellan
We are reiterating our Hold recommendation for Magellan Midstream Partners, L.P. (MMP) units ahead of the partnership's second-quarter results, primarily reflecting the partnership's premium valuation relative to the peer pipeline MLP group.
However, we are raising our earnings estimates to reflect contribution from increased transportation tariffs. Our new 2008 and 2009 earnings estimates are $3.02 and $3.18 per unit, increased from $2.82 and $2.90 per unit, respectively.
Importantly, the management remains committed to annual distribution growth in the 8%-10% range through 2010. Magellan plans to invest $240 million to build a refined petroleum products pipeline from Port Arthur to Houston, which will generate attractive growth opportunities for unit holders. The pipeline has a capacity to transport 150,000 barrels per day and is expected to be fully operational by 2011.
Moreover, the partnership intends to construct an additional 1.2 million barrels of storage and three additional truck rack lanes at its East Houston terminal and 200,000 barrels of storage at its Frost, Texas, facility.
