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Originally published August 17, 2013 at 8:06 PM | Page modified October 28, 2013 at 8:33 AM

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A goose egg for Dendreon, says analyst

Dire forecast for Seattle biotech Dendreon; also, former drugstore.com CEO Dawn Lepore talks about underpaid women executives.


By Rami Grunbaum, deputy business editor, and Times staff

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When analysts make headlines for setting a target price on a stock, it’s usually a large round number — $400 for Amazon in 1998, or $1,100 for Apple last year.

For troubled Seattle biotechnology company Dendreon, however, the newsworthy price target is a very small round number:

Zero.

That harsh forecast from Wedbush Securities’ David Nierengarten followed Dendreon’s latest quarterly results.

How many times has the biotech analyst given a stock the goose egg? Says Nierengarten: “It’s the only one.”

For Dendreon shareholders, whose holdings collectively are still worth about $500 million, Nierengarten’s reasoning will be as disturbing as his target.

The company, once hailed as Seattle’s next breakthrough biotech company, acknowledged Aug. 8 that 2014 sales of its innovative prostate-cancer drug Provenge would not top last year’s level of $325 million. It withdrew any forecasts, disclosed that its chief financial officer would leave by year’s end, and vowed to cut costs further.

But that’s just the tip of the financial iceberg, according to Nierengarten and some others.

Dendreon has $620 million in convertible debt that’s due in 2016, plus a small amount due next year. Its available cash of roughly $280 million is being consumed at a rapid clip — about $50 million a quarter, so by the end of 2014 it would be all but gone, Nierengarten says.

He doesn’t see much likelihood for Provenge sales to significantly improve, given growing competition from an expanding array of prostate cancer treatments. As for selling Dendreon to a bigger company, he writes in a Wedbush research report, “a shrinking top line and overly cost-burdened bottom line are not what acquirers are looking for.”

His conclusion: “There is little ability for shareholders to avoid either bankruptcy or massive dilution via the refinancing of DNDN’s convertible debt.”

In his scenario, current shareholders’ stock might be worth a few cents, Nierengarten concedes. But he says Wedbush likes to deal in round numbers so the target is zero.

Dendreon chairman and CEO John Johnson reiterated in an Aug. 14 session with analysts that the company is making progress on cutting its costs and reaching potential patients directly with a targeted television-advertising campaign. He insisted that the company has enough cash to reach profitability, but wouldn’t give a timeline for that.

Unlike enthusiasts such as J.P. Morgan, whose biotech analysts called Dendreon “our top pick for 2011,” Nierengarten says he’s been a bear on the stock since it was at $42 that year.

“I did not see how they can profitably manufacture Provenge,” he says, given Dendreon’s expensive centralized processing centers that required express-shipping patients’ blood back and forth.

Sid Parakh, head of research at McAdams Wright Ragen in Seattle, says putting a zero price target on a stock “is just a more dramatic way of saying this company is heading toward bankruptcy.”

While analysts don’t often declare that so bluntly, he says, “I’ve seen instances before where analysts say ‘I don’t see value here.’ ”

Parakh’s firm doesn’t cover Dendreon. But looking at any company with such a mountain of debt looming over it, he says, “The question becomes, how are you going to pay back your debt ... in the case that your operations don’t turn around.”

Dendreon did not respond to a request for comment, and Nierengarten says the company hasn’t shared any reaction with him either.

“It’s unfortunate,” he says about Dendreon’s predicament. “I give the company a lot of credit; they did get the product approved. It was a first-in-class therapy. Unfortunately the business model failed them.”

Of course, analysts’ forecasts often prove incorrect. Henry Blodgett’s famous 1998 call for Amazon to hit $400 within a year was fulfilled in just weeks, while an analyst’s prediction last October that Apple would double from the $550 level has — so far — proven wrong.

Dendreon’s shares traded at $4.59 before it reported earnings Aug. 8, and they closed this past week at $3.18. That’s a 31 percent move toward Nierengarten’s target.

—Rami Grunbaum: 206-464-8541 or rgrunbaum@seattletimes.com

CEO didn’t do so badly for herself

She’s the first and only woman to have topped The Seattle Times’ annual ranking of highest-paid CEOs, but no matter:

Dawn Lepore, who led Bellevue-based Drugstore.com from 2004 to 2011, counts herself among the many women who settle for less when it comes to their own pay.

In a Bloomberg story this past week about women executives earning less than men, Lepore recalls taking the helm at Drugstore.com and not wanting to be labeled overly aggressive or self-centered.

“I was always focused on negotiating for my team but never as good at negotiating for myself,” Lepore, who’s now a director at AOL and TJX Cos., says in the article.

“When I think about the way I negotiated my package when I went to Drugstore.com, I thought ‘this is a great opportunity and rather than demand a lot upfront, I’m going to do a great job and then I’ll get rewarded.’ I didn’t want to be greedy, or viewed as out for myself. Maybe women are more collaborative.”

Or maybe Lepore isn’t giving herself enough credit: In her first year at Drugstore.com, she received a salary of $350,000, plus a half-million-dollar bonus and stock options then valued at $14.3 million, putting her total compensation at nearly $15.2 million.

That made her the best-paid CEO among publicly traded Northwest companies, according to The Seattle Times’ 2005 ranking.

It’s worth noting that Drugstore.com never did turn an annual profit during Lepore’s tenure. Founded in 1998, the Internet retailer had reported only four profitable quarters and an accumulated deficit of $775 million when Walgreens came calling in 2011.

In a deal valued at $429 million, Walgreens offered $3.80 in cash for each share of Drugstore.com. That was double the stock’s average closing price in the previous 30 days, but just a fraction of its 1999 IPO price of $65.

At the time of the sale, Lepore stood to walk away with an estimated $9 million in stock and options.

Not too shabby.

— Amy Martinez: 206-464-2923



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