Macro Tsimmis

intelligently hedged investment

SELL Dendreon options (part UKOHA & all UKOTA)

Posted by intelledgement on Tue, 14 Apr 09

Dendreon announced before the market opened today that the results of the Phase 3 IMPACT study of their anti-prostate cancer immunotherapy, Provenge, “met its primary endpoint of improving overall survival compared to a placebo control.” The stock opened up nearly 200% and on very heavy volume has gyrated between +100% and +200% through the day so far.

Management did not reveal any details of the results, which are scheduled to be disseminated at a urology convention in Chicago in two weeks. They did say that it would take them several months to prepare an amended application for approval, and they anticipate filing it with the FDA in 4Q09. The FDA can take up to six months to review the amended application, so if that all tracks as expected, a likely window for an approval decision would be in 12-to-15 months.

Our straddle position consists of seven Aug $5 calls (UKOHA) purchased for $1.50 each and six Aug $5 puts (UKOTA) purchased for $3.29, all back on 29 Jan 09, so our event horizon extends out only four months with respect to this play. We are declaring victory and disposing of all the greatly dissipated puts and three of the seven sharply appreciated calls today. That should get us back our $3100 investment with a modest profit and leaves us with an opportunity to do much better with the four remaining calls should the 28 April data live up to the advance billing or the summer analyst call on sales and production plans for Provenge inspire enthusiasm (or random Brownian motion propel DNDN share values significantly higher in the next month).

We are putting in a GTC order to sell those last four calls at $19.25 (today’s high for the stock so far was $22.10 and for the Aug $5 call option $17). The last time DNDN stock surged—between the March 2007 advisory committee meeting and the May 2007 FDA decision not to approve Provenge—it hit an intraday high of $25.25. If the market concludes that the requirements the FDA laid out for approval have been met—as management evidently have—by mid-May, we should see similar levels, at least fleetingly.

Previous DNDN-related posts:

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One Response to “SELL Dendreon options (part UKOHA & all UKOTA)”

  1. Sold the last four calls today at the open for $20.60. Just exercising them for 400 more DNDN for $2,000 will likely turn out to have been the better play, but the spec fund already owns enough of that stock, and a $7600 profit on a $600 speculative play is impossible to complain about.

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