Thursday, January 5, 2012

Dendreon (DNDN) - Pre-announcement Sends Bio-tech Soaring; Vol Pops, Upside Skew is Bid

DNDN is trading $10.77, up 41.7% with IV30™ up 39.1% as of ~10:30am EST. The LIVEVOL® Pro Summary is included below.


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Dendreon Corporation (Dendreon) is a biotechnology company focused on the discovery, development and commercialization of therapeutics that may improve cancer treatment options for patients.

So this one has a tremendously involved history – a history I won’t recount in completeness, but only on the surface to motivate the article. Here it is, in super short, super ugly form with a two-year chart included below to help motivate the discussion. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

Starting simple – this is a bio-tech with its major product a prostate cancer drug called PROVENGE®. Obviously the company had massive ups and downs during the FDA review process and ultimate FDA approval. The potential market is enormous for this drug, as, for those of you that don’t know, essentially every male that survives long enough will almost certainly develop prostate cancer. Yeah, all of us…A market that large pushed the stock to over $50, with some claims so extraordinary about the market size in the future that it was… well, it was unbelievable.

The fight wasn’t over after FDA approval though because the drug is extraordinarily expensive – upwards of $100,000 / year. That’s a lot – and well out of reach for the majority of Americans (not to speak of other nationals). Another big news day came when the company won Medicare payment acceptance – in English, it’s on health insurers to pay for this thing which means the market (or potential market) opened up significantly.

Then… not so good news on sales figures – the lofty forecasts were missed, at times dramatically. Doctor acceptance was poor or slow, the stock was in the single digits after being over $50. Then, today happened.

As promised by the CEO, while the initial sales figures were poor, ultimately the drug works, and there really aren’t alternatives. So, it may have been slow to adopt, but, it’s happenin’ now. Here are some details from an article written by Adam Feuerstein of

Provenge gross sales for the December quarter totaled $82 million or 25% growth over third quarter sales, Dendreon said. On a net basis, analysts were expecting Provenge sales of about $70 million in the fourth quarter. Despite the apples-to-oranges comparisons, Provenge sales appear to have outperformed expectations.


"We had a strong fourth quarter that exceeded our expectations," said Dendreon CEO Mitch Gold in a statement. "As we look to 2012, we expect modest quarter-over-quarter growth while we focus on bringing additional clinics on board and converting them into steady prescribers."

Deustsche Bank analyst Robyn Karnauskas spoke to Dendreon management this morning. "They want to caution investors to continue to expect MODEST growth early next year, while still expecting 2Q/3Q uptick," she writes in an email note.

Well, there you go. At the very lest, while it’s good news, you can see why the company didn’t pop back to $50.

Looking back at that Chart (above), it’s interesting to note that the IV30™ has exploded to just under an annual high. This isn’t good news that deflates risk – this is good news that elevates risk further. The 52 wk range for IV30™ is [36.07%, 124.95%]. On as side note, 36% -- WTH!!!

Let’s turn to the Skew Tab below to examine the month-to-month and line-by-line vols.

We can see the monotonic vol increases from the back to the front. Further, we can see a distinct upside skew in Jan – the option market reflects substantial upside near-term potential / risk.

Earnings for DNDN are likely in the Mar cycle (when it comes out) and in the May cycle. Having said that, with bio-techs, it’s the stuff that happens in between earnings that can be the catalyst for movement (see today, for example). DNDN is unique in that it does have a product selling for tens of millions or even hundreds of millions of dollars, so earnings do matter. It’s the pre-announcements that kinda cause a frenzy.

Finally. Let’s turn to the Options Tab, for completeness.

I wrote about this one for (OptionsProfits), so no specific trade analysis here. I will say that taking a holistic approach to the news over the last several years, it's reasonable to ask whether or not you think this company is going to make it. I don’t know if it’s a $50 stock (or more), but the article from (quoted above) reads that the CEO wants to temper projections yet the quarter over quarter results show a 25% increase. Ummm, 25% growth in 3 months is "modest?" Ok...

This company feels like it's going to survive (if not flourish). Whether it survives as a $2 stock or a $50 stock (or higher), is just... a guess...

This is trade analysis, not a recommendation.

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1 comment:

  1. 14/15 jan bull vertical spread looks like a good risk reward payoff. if this thing moves...