Dendreon Buyout Chatter Back After Drop Under $5

You know that if one sector has continued to consolidate through time, it is the biotech sector.  We often hear rumors about “the next biotech buyout.”  Today’s rumor mill around biotech is around Dendreon Corporation (NASDAQ: DNDN), which was just mentioned by CNBC.

The interesting issue here is that shares have been so much higher in the past that a buyout might not even be possible here.  In fact, this $5.00 stock was above $40 as recently as early 2011 before the persistent woes of PROVENGE sales have come on more and more frequently. One thing that CNBC noted is one thing we would bring up even before the rumor gambling analysts… about 27% of the float is short.  We noted just last Friday that the most recent short interest saw another gain, up to 40.8 million shares, versus 38.2 million shares on July 13.  This was the largest short interest in months.

If anyone is every worried that a buyout may come about, they may or may not speculate on the chances.  But if they are short, very few short sellers want to be short a stock that is being talked about as a buyout candidate.

Dendreon shares are now up 7.7% at $5.02 against a 52-week range of $4.17 to $17.04.   Another word of caution is needed here.  Trading volume is often bad in summer, but the volume of 4.2 million shares is still 2 million shares short of a full day’s average trading volume.  If we are going to really take buyout rumors seriously we would be looking for the move to be on much stronger volume.

JON C. OGG