Dendreon's Last Day (Ahead of the FDA)

Dendreon (DNDN-NASDAQ) has only 1 trading day left before its FDA panel meeting over the potential backing of its Provenge tomorrow.  The FDA issued some critical postings last night ahead of its review that bring into question the real effectiveness of Provenge.  The key difference in reality is going to be the accuracy of Dendreon’s tests and the real measurement of time that this adds to life.  Provenge is not a cure for prostate cancer, but some studies from the company have shown this to extend life for late stage prostate cancer patients.

As expected, the FDA has given the proverbial curveball.  It noted that Dendreon failed to meet certain effectiveness targets, but noted that two studies taken together do show some evidence that would support use of the vaccine.  I have seen some very split reads on this: there are some mega-bulls and some mega-shorts in the name.  As of March, its short interest grew to 26.4 million shares from a reading of 20.3 million shares in February; so now this represents 32% of the float.  Combine that with all of the open interest in stock options between April and May and you can just expect one truly wild stock ride after the panel decision is released Thursday.

If the panel backs this, then there is going to be a core following that gets behind Dendreon similar to that of Imclone, albeit on perhaps a smaller scale because of the market capitalization and analyst coverage differentials.  If it fails to win panel backing, we showed how the street would try to evaluate it.  The third possible scenario is that the FDA simply delays a decision by asking for more data, therefore keeping its hopes alive with what would amount to delays.

The company also has its securities shelf filing active, so if it gets the "request for more data" or even an approval then it could be presumed that they will raise cash.  Expect shares to be halted all of Thursday for the FDA panel review.

The options were quite active with the APR07 $5.00 CALLS trading 41,923 contracts (close of $1.12) and the APR07 $5.00 PUTS trading 24,737 contracts $1.72 close).  With DNDN closing at $4.62, this one is still pricing in a hell of a move. Tuesday’s volume was again strong, with more than 10 million shares changing hands.

Jon C. Ogg
March 28, 2007

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