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Dendreon raises USD 100m but could be overvalued

Dendreon had announced the pricing of its offering of USD 75m aggregate principal amount of convertible senior subordinated notes due 2014

US biopharmaceutical company Dendreon had announced the pricing of its offering of USD 75m aggregate principal amount of convertible senior subordinated notes due 2014, as well as a USD 25m aggregate principal amount.

The offering will be made through a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The notes will bear annual interest at a rate of 4.75 per cent.

Dendreon granted the initial purchaser of the notes a 30-day over-allotment option to purchase up to an additional USD 25m aggregate principal amount of the notes. The sale of the notes closed on 11 June 2007, and was subject to satisfaction of customary closing conditions.

The notes are convertible into shares of Dendreon common stock at an initial conversion rate of 97.2644 shares per USD 1,000 principal amount of notes, equivalent to an initial conversion price of approximately USD 10.28, subject to adjustment.

The initial conversion price represents a premium of approximately 17.5 per cent relative to the last reported sale price of Dendreon common stock on the NASDAQ Global Market of USD 8.75 on 5 June.

Dendreon says it will use the net proceeds of the offering to finance its activities relating to the potential commercialisation of Provenge (sipuleucel-T), expand its manufacturing facilities for the commercial production of Provenge, fund ongoing and new clinical trials for the drug and other product candidates, support research and preclinical development activities for its other potential product candidates, and for general corporate purposes, including working capital.

The news which actually added value to Dendreon's shares was the announcement that Provenge showed a survival benefit in its phase III IMPACT study and would probably gain FDA regulatory approval.

According to a report from the Motley Fool, compared to other biopharmaceutical firms with oncology compounds in similar stages of development, Dendreon shares appear at least USD 150m overvalued on a relative basis with its USD 750m market capitalisation.

The report added that Dendreon had "a completely unproven treatment modality", while Provenge was more than four years away from the market. Dendreon has a market capitalisation nearly two-thirds that of GPC Biotech, despite GPC having a prostate cancer compound on the point of receiving marketing approval in the US in Q3/4 2007. This further suggests that Dendreon is overvalued.

14th June 2007

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