Debating Dendreon’s Future Versus Reality (DNDN)
Dendreon Corp. (NASDAQ: DNDN) broke over $40.00 today. This does not just mark a 52-week high. It is an all-time high. The run-up is ahead of the FDA decision on Provenge as a last line of defense in prostate cancer patients being less than a month out. We are watching the options trading and regular stock trading for any added insight here on the future of Provenge in the war against prostate cancer.
Dendreon is no stranger to takeover rumors, and those have never really gone away. The problem is that Dendreon’s $5 billion market cap with no Provenge approval yet means that a buyer would be saddling extreme risks if there is an unexpected adverse FDA event. The reality versus the takeover scenario is that it just seems something that would come AFTER the FDA event. Even then, a takeover shot here may have already been passed up long ago even though anything is possible in the world of biotech M&A.
This stock was touted recently on “Fast Money” on CNBC and the most recent analyst calls have been in support of the stock. This is all despite the notion that the FDA has a history against Provenge. Some even have gone on record noting that the bias against Provenge was not a fair bias due to conflicts of interest.
The FDA nearly killed the company back in 2007 when it went against a FDA panel recommendation for approval. Since it has released all of its Phase III data and gotten back on track for an FDA decision, the company has accumulated a large cash arsenal. Its most recent balance sheet shows over $600 million in cash and short-term and long-term securities. With a $5.3+ billion market cap, that implies that even if the unexpected (another FDA delay) comes it would not wipe the company out in quite the same manner as before. Still, an unexpected FDA decision to delay or deny approval would be devastating for any holders who have bought shares in recent weeks.
It is not fair to ignore the trading volume and open interest seen in the April and May Puts and Calls in the world of options. In the calls, we have seen over 10,000 contracts trade in the April expiration month and over 20,000 contracts in May expiration month so far today. In the Puts, we have seen only about 2,000 contracts trade in the April expiration month and over 15,000 contracts in May expiration month so far today.
A decision is coming. The question boils down to whether or not the good news is now all priced in. The current premise is that Provenge would get approval as a last line of defense rather than a first line of defense drug candidate. Will physicians off-label it because of fewer side effects and because it uses the body’s own immune system? Yes, or at least probably…
The ‘other good news’ for the ultimate Dendreon bulls is that Provenge is also thought to show promise in other cancers as well, although that is a different topic entirely based upon the current activity and interest.
If you want to know just how much bias there is here… look at the straddle options strategy pricing. The April $40.00 straddle would cost $3.25 ($1.55 for Call and $1.70 for Puts, but that does not given enough time compared to the May expiration dates. The May $40 straddle strategy costs $11.75 ($5.75 for the Call and $6.00 for the Puts). In short, buying a straddle into May means that Dendreon has to rise to over $51.75 or fall to under $28.25 to be profitable.
Stay tuned…
JON C. OGG
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i bought MAY 45 call and 30 put lets’ see
I am researching views on strategies for the non-professional investor. Your site helps to understand how strategies work. Is it a good idea for the non-pro to go beyond just buying calls and puts? Indeed, do the trading platforms even allow non-trivial strategies at all for this kind of investor?