Dendreon's $75 Million Borrowing, Almost For Free (DNDN)

Dendreon (DNDN-NASDAQ) announced this morning that it did price its $75 million in convertible senior subordinated notes due 2014 via a Rule 144A private placement.  The interest rate is merely 4.75%, and here is the conversion ratio: notes are convertible into DNDN common stock at an initial conversion rate of 97.2644 shares per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $10.28, subject to adjustment. The initial conversion price represents a premium of approximately 17.5% relative to the closing stock price of $8.75 on June 5, 2007. 

The company also may get $25 million more, subject to an overallotment if the underwriters deem the offering cheap.  Shares are down 2.8% at $8.50, but this looks more like a lack of interest or like a drop with a weak stock market more than it does the terms of the borrowing.

Could you imagine walking into your banker and the loan is based on assets that may not have a future value, and that purpose of the loan was to complete studies and pay salaries if your cash gets tight?  And to top it off, that the gatekeeper to your customer base (the FDA in their case) has just issued a huge public delay with a note to potential buyers that they might not ever be allowed to buy the products you want to sell?  That’s what happened here.

The company was already risking it all anyway, and this is pretty cheap money for the company under the current circumstances.  The officers are probably hoping that extra $25 million in the overallotment gets exercised.

Jon C. Ogg
June 6, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.