Macro Tsimmis

intelligently hedged investment

Dendreon (DNDN) update #7

Posted by intelledgement on Wed, 11 Apr 07

LOL well here it is two trading sessions later, and now we have to wonder, what’s wrong with DNDN? At the close of $18.23 today, the stock is now down 23% in two days…on no news.

Get used to speculation.

With no material news event likely for up to five weeks—the FDA ruling being expected by 15 May—DNDN has evidently transcended the realm of fundamental valuation and moved into the ethereal world of market psychology.  In the absence of news, the driver day-to-day is an ineffable congruence of queuing theory and crowd psychology. What starts out as a random walk in either direction may or may not develop into a panicked forced march, depending on who happens to be paying attention at that moment. This is completely unpredictable, except to say that there will be sharp moves up and down.

Thus, the $64,000 question: if you didn’t get your fill of DNDN back when we rec’ced it in January at $4.01—or you are tempted to recommend it someone else—where to enter now? We see a 50-50 chance the bleeding will drag us down in to the mid-$15s before it spends itself. And probably a 10% chance we could see the $12s. Thus if you are looking for an entry, we suggest dividing your dry powder into two piles. If they are not equal, then the first one should be the larger. Place a GTC in the low-mid $15s for the first pile. As for the second pile…a drive into the $12s, if it happens, is likely to be fleeting…you are not going to get a fill at $12.02 even if the price gets that low…so place the second GTC just below $13, or if you are feeling particularly lucky, around $12.50. You will probably end up chasing the stock as we close in on 15 May with the second pile, if not both of them, assuming you still want in wherever it is then. But at least this will give you a fighting second chance at a lower entry point or two.

Caveat: The inmates are in control of the asylum now but this $12-to-$25 range is a fleeting opportunity. The press releases rule: the day that the FDA announces their decision, this stock is headed to the $40s if Provenge is approved—or the $4s if it is not.

Another caveat: Anything you or anyone else puts into DNDN now is still speculation. The company has no product and no income at this point…and a plentitude of expenses and debt. In the long run—say, 2010 or later—should Provenge prove efficacious and presuming Dendreon solve any scaling production issues, then we will be looking at a company with a monopoly on a product that is a matter of life and death to millions of men in the USA (100% of the rights) and Europe (marketed with a strong partner) with the probability of expanding the label beyond the initial $1B target, a company with proprietary cassette delivery technology for customized immuno therapy, a company with patents on key antigens, a company with a pipeline of potential anti-cancer therapies starting with Neuvenge (breast cancer)…a company approaching $2B in revenues with tremendous growth prospects…a company likely to command a multiple of 10x sales or better based on the experience of other biotech companies with blockbuster products…a company potentially worth $240+/share. Accordingly, the right thing to do with any investment money—which generally we prefer not to put in individual company stocks—is to forgo the roller coaster and pre-approval uncertainty, wait until the FDA speaks, and then if the word is “yes”, pay whatever is asked for some shares and stuff them away for three years (excepting only the need to hit the eject button if 9902B crashes and burns).


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