Fast-growing Dendreon watched closely by bulls and bears

One year after federal regulators approved Dendreon's pioneering prostate-cancer therapy, the Seattle biotechnology company is in that precarious zone where the heated expectations for a breakthrough drug mix with the cold reality of operating margins and revenue growth rates.

The resulting turbulence often batters biotechs.

Dendreon reported Tuesday quarterly sales of $28.1 million, compared with zero in last year's first quarter. It reaffirmed projections that sales will rise at least sixfold in 2011 to between $350 million and $400 million.

But one analyst termed it an "underwhelming" performance, and its shares fell 9.9 percent for the week. A few others question whether Dendreon can measure up to the high hopes priced into its current $5.66 billion valuation.

Dendreon has been a rocket-powered roller-coaster ride for years, and right now the rails do point skyward.

"It's a real year of growth for us," says CEO Mitch Gold.

The company went from 180 people to more than 1,600 during the past 18 months to prepare for massive expansion in manufacturing and sales.

In 2011, Dendreon plans to increase tenfold its capacity to produce its Provenge treatment, which is made from a patient's own cells.

The number of doctors' offices administering the drug will also grow from 50 to more than 500.

Even skeptics agree its annual sales will top $1 billion in 2013. That "puts it in the top oncology launches in history," Gold says.

And JPMorgan's biotech team says the stock "remains our top pick for 2011."

So why are some analysts down on Dendreon?

Wedbush Securities, invoking the term for an individually tailored suit, calls Provenge a "bespoke" treatment that won't generate the profit margins of mass-produced therapies.

"Due to its customized nature, we believe that the typical productivity gains seen by drug companies when ramping up sales of a marketed product will not be realized by Dendreon," writes its analyst on the stock. He cut the firm's rating from neutral to underperform.

Credit Suisse, which just began coverage with an underperform rating, sees "near-term upside" but predicts that "in the longer term ... Provenge will not live up to the Street's expectations."

It cites potential competition from new prostate-cancer drugs such as Johnson & Johnson's abiraterone, approved last month as a post-chemotherapy treatment but now in clinical trials as an early stage therapy.

It also notes that European nations are likely to demand steep discounts from Provenge's U.S. price of $90,000 per patient, limiting the benefit of Dendreon's expected 2013 approval there.

And Morgan Joseph TriArtisan analyst Shiv Kapoor, who called the quarterly performance "underwhelming," cautions that "Dendreon's valuation remains stretched."

For every such neutral or sell rating, there are three buy recommendations on Dendreon. Where Credit Suisse pins a 12-month target of $29 on the stock, JPMorgan reiterates its call for the shares to hit $66.

But clearly Dendreon's rapid ramp-up and ambitious future agenda are being watched.

Dendreon's chief scientific officer, David Urdal, says that won't be a problem.

"We're hitting the targets that we set," he says. "Everything we said we're going to do, we're doing."

Provenge is on the cutting edge of personalized medicine, says Gold, and Dendreon now aims to carry its technology into bladder cancer, kidney cancer and other areas.

"Our goal is to build a global leader in oncology, and Provenge is just the beginning of that," he says.

Gold recalls how "we fought for 15 years" through various testing and regulatory setbacks before winning FDA approval on April 29, 2010. "It's never been more gratifying than it is today," he says.

As for the market's mixed reaction to Dendreon's quarterly results, Gold says, "We don't get focused just on the short-term stock swings — we focus on a much bigger picture of changing how cancer is treated, and that's what got us through the dark days."

Financial sector

has room to grow

Washington's financial-services industry has taken some recent blows — chief among them the collapse of Washington Mutual and the sale of Safeco.

But a new study of the financial-services industry in the state finds it supports about 131,800 jobs with $7.5 billion in total wages.

More than half of the sector's jobs are office, administrative support and other "back office" functions, the study found, and banking and insurance firms are major suppliers of family-wage and entry-level jobs.

The study was commissioned by the nonprofit economic-development agency "enterpriseSeattle." Its author, Chris Mefford, president of Seattle consulting firm Community Attributes, analyzed state and federal economic data and interviewed nearly 50 business leaders before presenting the findings Thursday at an industry breakfast in Seattle.

Washington lagged behind the nation in the financial-services industry's job growth from 1995 to 2010. Since 2004, the industry declined in the Seattle metro area, while in Dallas, Denver and Minneapolis the sector kept growing until 2009.

Business leaders "definitely have been bemoaning the loss of Safeco and Washington Mutual," Mefford said. "Several people spoke to the loss of anchors as a big concern."

For now, the biggest financial institution headquartered in the state is Washington Federal, a thrift focused on home loans.

Russell Investments, which moved from Tacoma to Seattle last year, is a household name for investors who follow its indexes — but it's owned by a conglomerate based in the Midwest. Symetra, the publicly traded insurer based in Bellevue, is another cornerstone.

The study's employment tally, if accurate, means roughly one in 20 jobs in the state last year were in the financial-services industry.

Looking into the future, business leaders are hoping to push for changes to state law that would help the industry grow bigger. Not surprisingly, taxes (lower) and regulation (looser) are on the list.

"I believe it's possible for Seattle to be the next Boston," said Andrew Doman, CEO of Russell Investments, speaking at Thursday's gathering.

London used to be the best place in the world for the financial-services industry, he said, but killed its advantage by raising personal and corporate taxes.

Utah persuaded Goldman Sachs to add 1,000 employees there with incentives, said Maud Daudon, president of Seattle-Northwest Securities Corp. According to news reports, the state in 2008 and 2009 authorized tax credits for Goldman worth up to $47 million over 20 years.

But given a $5.1 billion shortfall in Washington's next two-year budget, the financial industry's chance of lowering its taxes seems about as likely as the Federal Reserve declaring a moratorium on closing shaky banks.

— Sanjay Bhatt

sbhatt@seattletimes.com

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