Macro Tsimmis

intelligently hedged investment

Dendreon (DNDN) update #6

Posted by intelledgement on Tue, 10 Apr 07

What’s up with Dendreon? Clearly something: our January investment is now up 488% in four months. It’s not every day you get 112% of the float traded—that is, the number of shares that changed hands that trading day was 12% higher than the number of shares in circulation…obviously some shares were traded more than once in the same trading session—as happened Friday 30 March when the DNDN was up 148% following the great advisory committee results on 29 March.

In fact, check out the last few trading sessions for DNDN:

29-Mar-07… halted

As you can see, the big news was on Thursday, 29 March and so Friday 30 March was zany and then the volume and appreciation started to tail off…until last Thursday, when, for no apparent reason—no news or analyst endorsement—the volume took off and a buying panic ensued…and that carried thru to yesterday…so what’s up? And, more to the point, given our basis of $4.01 (based on a 10 Jan 07 buy at the close), should we be selling here?

Check out this “Lightbulb” post from Investor Village (a stock message board)…a cogent and plausible explanation of the confluence of strategic and tactical winds driving DNDN’s share price at this point in time. For our part, we are planning to hold on here, unless the short squeeze pushes us north of $40 prior to 15 May (the date by which the FDA is committed to rule on approval for Provenge). If you are long in an account that is immune from short term gain tax issues, you might look to sell on the approval news in the hope of getting back in cheaper following the “sell on the news” reaction…but be nimble in that event, as more good news is coming shortly thereafter in the form of [a] a favorable line of credit expansion that will, along with cash on hand, suffice to tool up Provenge production (it is amazing how many bank doors open up when you have a near-sure-thing product that can profitably generate $1B+ of revenues), [b] an ROW (rest-of-world) partner agreement that will afford Dendreon another infusion of cash, perhaps as much as $50MM, and [c] a shelf registration offering that will be targeted to garner the company funds to restart their pipeline work (Nuevenge—breast cancer—and beyond)…normally, dilution is bad news for existing shareholders but with biotechs in this situation, investors often calculate that the ROI on the funds will make the company more valuable going forward and drives the price per share northwards.

The thing is, there is a chance we might have the holy grail here: a methodology that leads to a cure for cancer. You can’t get more macro than that in biotech land!

The position is not risk free, of course…heck, given the small study, there is at least a 2.5% chance the Provenge survival benefit was a false positive…if so, the whole house of cards collapses.

But we won’t know that until we get final results from 9902B, which are at least a two or three years off. And in the mean time, the upper limit here is not within sight


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