Macro Tsimmis

intelligently hedged investment

Dendreon (DNDN) update #3

Posted by intelledgement on Fri, 23 Mar 07

Our DNDN shares and call options are up sharply (and our puts down) over the past couple of days because of an article posted yesterday afternoon on thestreet.com by pharma columnist Adam Feuerstein who did a Provenge revenue projection assuming FDA approval on 15 May. In no way is this “news”—in fact, Feuerstein comes up with a relatively conservative valuation derived from his projections of $27/share—but the silly market is acting like no one ever figured this out before.

The real action for our April options will ensue next week when on Tuesday or Wednesday, the presentation materials for Thursday’s advisory committee meeting will be posted on the FDA website…we expect trading in the stock and associated options to be halted on Thursday afternoon, or perhaps for the whole day…and then climax on Friday after the recommendation has been announced.

We expect that a 10-5 or better vote in favor of approval is likely to drive the stock up to $9+, at which point we will cash in our calls (which at that share price level will be worth way more than the combined cost of buying both the calls and the puts). On the other side of the coin, so to speak, a vote recommending against approval is likely to tank the stock into the $1s, at which point we will cash in our puts. If unbounded optimism or pessimism based on the presentation materials gets us to these levels before the Thursday meeting, then our plan is to cash in earlier.

BTW, the Feurstein article is worth looking at if you are interested in drug revenue models;
his are good and well-explained.

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