Dendreon’s Stock Activity

Dendreon (DNDN-NASDAQ) started making a mystery move at the end of the day, but you have to look at its calendar to see why it moved.  It appears that the company has an FDA ADVISORY COMMITTEE review next week and it is seeking approval for a cancer vaccine Provenge for the treatment of prostate cancer.  Does someone know something?  Most likely not, but that won’t keep traders from speculating with cash.

The $320 million market cap makes this one a microcap, and these are the most volatile going into "FDA" events.  It closed up roughly 6% at $3.95 today, and its 52-week trading range is $3.57 to $5.77.  Over the last 5 years the shares have been as high as $15.00 and as low as $2.00.  This is nearly a "biotech zombie" because they have no products on market and do virtually no revenues.  It has been public since 2000.

If DNDN gets its vaccine approved this could be a major win for the company, and if not then you will have to use the net cash after liabilities and back out another 6 to 12 months of cash burn to try to figure out a floor.  That would be over $60 million in net liquidity plus another $40 million to $50 million in longer-term assets as of 12/31/06.  It has been burning roughly $100 million in R&D and general expenses, so you’d have to try to predict what the company would do with its R&D expenses if this was snubbed to determine the value.  So this is make or break for the company.  You can find as many believers as you can doubters, so we won’t even make a guess on trying to predict the FDA outcome on such an unknown event.  The issue on evaluating the cash and liquidity is that it has a large shelf filing of $146 million pending, which can be another wildcard.

DNDN is a battleground stock with about 16.8 million of its 71 million share float listed in the short interest as of February.  It also has some major open interest in the options for MAY CALLS: 16,984 for the MAY $2.50; 46,735 contracts for the MAY $5.00; 30,100 for teh MAY $7.50; and 32,716 for the MAY $12.50.  The PUT OPTIONS are large too with 33,119 contracts open in the MAY $2.50 PUTS and 16,028 in the MAY $5.00 PUTS; another 10 contracts between the MAY $7.50 and $10.00 PUTS are there.  So this still leaves more than 70,000 contracts open for the stock on a net-net basis for MAY alone.  There are another 50,000 contracts open in AUG.

Jon C. Ogg
March 22, 2007

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