Dendreon (NASDAQ: DNDN) soared almost 40% in value, or $3.02 a share, in active trading on Thursday after announcing that fourth-quarter revenue from its Provenge prostate-cancer vaccine would exceed earlier forecasts. Looking to 2012, however, chief executive officer Mitchell Gold said he expected only “modest quarter-over-quarter growth.” Consequently, investor enthusiasm could prove fleeting and the stock-price rally short-lived.
The Seattle-based biotech announced sequential revenue growth for the fourth quarter ended December 31 of approximately 25% to $82 million, above the consensus estimate of $72 million. For full-year 2011, Dendreon said sales of Provenge (sipuleucel-T) would total approximately $228 million. Gold credited an improved Provenge reimbursement landscape and ongoing physician education initiatives for the stronger results.
Investors were initially bullish on the growth prospects of the vaccine, which was approved in April 2010 for the treatment of advanced (hormone-refractory) prostate cancer. And with good reason: The first therapy in the U.S. designed to induce the body’s own immune system to attack prostatic tumor cells, Provenge’s side-effects are less toxic than traditional chemo-based treatments for advanced prostate cancer, such as Sanofi’s (NYSE: SNY) taxotere (docetaxel). And, unlike the plethora of drugs in the treatment paradigm for metastatic, castrate-resistant (hormone-refractory) prostate cancer, such as AstraZeneca’s (NYSE: AZN) Zoladex or Abbott’s (NYSE: ABT) wildly popular Lupron injection, Provenge does not focus on reducing testosterone levels, the male hormone fueling growth of tumor cells.
From a high of $42 a share in April 2011, the stock price tumbled more than 80% last fall after the company withdrew prior guidance of $400 million in annual sales, the result of prolonged delays in federal and private insurance reimbursements.
“It’s not what we don’t know that hurts us, it’s what we know for certain that just ain’t so.” ~ American author and humorist Mark Twain
Analysts attribute the dramatic spike in Dendreon’s stock price to the positive shift in insurance coverage — including a reduction in average time to payment of less than 30 days for providers. “We believe that this progress may help clear some of the fog surrounding the Provenge sales trajectory,” said Joseph Pantginis, Roth Capital Partners.
An oft-repeated tragicomedy that befalls investors is how the unabashed certitudes of Wall St. dissemblers result in trading losses for those of us who pile into stocks after the “good” news is out. Not to pick on Pantginis exclusively, but improving trends in reimbursement for Provenge is old news: In a 10Q Detective column posted last November, I noted that CEO Gold had previously mentioned that average (insurance) reimbursement times had fallen from “90 days down to 30 days.”
Though I do not doubt prescription uptake of Provenge by urologists and oncologists is trending higher (read my bullish article, posted on November 17, 2011: Dendreon Buyout, How Imminent?), more likely, the breathtaking climb in Dendreon’s share price was unintentionally engineered by short-sellers closing out open positions. According to NASDAQ, short interest in Dendreon common stock was 31.3 million (as of December 15), about 21% of the stock’s float.
Further exacerbating a combustible trading environment, days to cover had jumped to seven, from 3.9 the month prior.
Need more convincing evidence that Dendreon’s stock price overreacted to acknowledged “modest” growth expectations? On Thursday, January 5, approximately 44.9 million shares changed hands, a 700% increase over its 65-day average volume.
Looking to go long Dendreon stock? Free advice — stand clear, at least for now.
David Phillips
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