Dendreon Investors Learn a Hard Lesson in Stop-Loss Orders

We now have more data on Dendreon’s (DNDN) results for their prostate cancer therapy Provenge, and the numbers do, in fact, look good. This isn't a cure for refractory prostate cancer, but there seems to be a real statistical improvement in survival, with side effects no worse than the placebo group, and that should be enough for the FDA. In oncology you have to take what you can get.

What’s bizarre is the trading that went on in the company’s stock just before they started presenting on Tuesday. For reasons that are still unclear, a horrendous wave of selling hit within the space of a few minutes, and the stock went down as if hit with a club. Having risen to nearly $25 by about 1 PM, trading was halted in the stock at 1:27, with it now going for $11.81. As the company’s shareholders raved and cursed in utter consternation, the company was detailing exactly the results they’d been hoping to hear.

Wednesday, the stock shot straight back up to its former levels, but that doesn’t help the many people who (prudently, they thought) had put stop-loss orders in and had thus already been sold out. This Bloomberg story has a fellow who was cashed out at $9.31, which must make him wonder (1) just what the hell was going on, anyway, and (2) just what it means to halt trading in a stock, if you’re going to find yourself traded out of it at an even lower price.

I can’t help out with question (1) – I have to say, I’d like to know the answer to that one myself. But as for (2), that’s the problem with stop-loss orders, particularly in a stock that doesn’t have much of a float. Movements, especially downward ones, come suddenly and discontinuously, and the stock doesn't hit all the grace notes on the way down (as Fred Schwed used to say).

So good luck to Dendreon, and to the patients who will use Provenge. Dendreon's investors, on the other hand, have probably been through the power-wash and spin cycle so many times that they hardly know what's hit them.

Comments

[Frankie62:]

That fiasco was possibly criminal - just because you can do something doesn't make it moral. I was one who saw my portfolio significantly impacted by that one minute period. But you left out what happened the next day - DNDN closed at 22.94 a share. We only had to wait. Over and over on the IV message board experienced investors have screamed not to buy DNDN on margin and not to use stop losses. Besides the "phantom" shares problem which causes margin shares to be lent out, a stop loss can cause what happened the day before. Expensive lessons for some DNDN investors.

DNDN's Provenge will change the standard of care for cancer - it is being tested on breast cancer and other tumors as well as for earlier stage prostate cancer. Side effects are very mild, i.e. slight fever, unlike devastating chemotherapy and radiation - and the patient lives longer.

Apr 30 09:55 AM

[Joseph Bern...:]

Many people are totally misrepresenting the science and economics with a motive that can only point to attempting to destroy the company for the benefit of short sellers. In this imperfect world science evolves and giving Dendreon money to pursue a new science is the way our world works. Provenge's "scientific" numbers are much better than Taxotere in all respects. This story does not begin and end with Provenge and terminal prostate cancer. Open your eyes and take note of the many other forms of cancer or earlier stages of cancer this kind of drug can help fight. The several trials yielded similar results which included:
1. Extended median survival by 4.1 months compared to placebo;
2. Improved 3 year survival by 38% compared to placebo;
3. Impact study achieved a p-value of .032, successfully exceeding the pre-specified level of statistical significance; and
4. Provenge exhibited a favorable safety profile consistent with prior trials - nothing more than sweat, chills, and fever for 2-3 days.

What part of this science don't short sellers understand? I hope they lose a lot of money because people that don't accept the true facts deserve to lose. Happy investing. Mark my words - this stock will hit $50/share in the next couple of weeks.

Apr 30 10:39 AM

[evergreen433:]

When DNDN dropped 45% in an instant on good news about it's drug, Matt Nesto at CNBC commented that maybe prostate doctors knew something about the released findings that told them the drug wasn't as good as the reports indicated and that could be the reason for the huge sell off.
In other words, there's a group of prostate doctors who gathered together, went over the released findings in one minute, decided they weren't all they were cracked up to be, and institutional investors were immediately informed of this difference by that group of doctors, so massive selling hit one minute later.
If institutional investors have access to a group of super speed reading and immediate decision making prostate experts who then contact numerous investors in seconds that shows an unimaginable conspiracy. How much do the expert prostate doctors get paid to stop their regular work, gather together in a conference call in advance of the news release and offer buy or sell recommendations to these investors?
Criminal act is indeed the concept at work here if Matt Nestor is correct.
Then, for who knows what reason, the findings of those expert prostate doctors are overridden and massive buy orders pour in for after hours trading.
Rubbish...all of it. Wall street has just witnessed and perpetrated yet one more of thousands of immoral manipulations of a stock to purposely screw the little guy and rake in all their greedy, cheating sick minds can gather.
Where the hell is the SEC? Actually they're just doing what they always do...assisting the super rich in their bloodletting of the commoners. Super computers executing massive sell offs on good news then buying it all back after hours after wiping out the innocents? It should be criminal but is probably perfectly legal according to the bought and paid for bastards running Washington for decades. They think that's capitalism when it's actually fascism.

Apr 30 12:17 PM

[Speedspirit:]

Criminal actions yes but I had luckily had a stop in at 23.65 and so after the dust cleared I really didnt lose too much. The Boyz are in control play smart and dont get greedy.

Apr 30 10:09 PM

[Bob228:]

The SEC and other Agencies did nothing on the Bernie Maddoff matter and fell down on the expanded Subprime issue (involving the valuation and sale of the CDO's and SIV's, etc). The trading of the Dendreon stock doesn't pass the smell test and seems RICO like in nature. Business Law is based on commercially reasonable standards. The SEC's pronounced backing of "Plain English" and the continual talk of transparency by all parties, speak to the ilegatamacy of the obviously orchestrated stock manipulation.

Conspire means 'to breath with'. The common sentiment of the Country will propel legal action to remedy this matter. Those who are smugly claiming their right to bully, manipulate, and confiscate other peoples money are likely in for a just surprise. All it will take is continual outcries from those who are outraged. The policing Agencies cannot be silent or inactive in this. Their track record will not permit that.

At times the law is slow - and sometimes ineffective. In this case, it will come about and it will be harsh.

May 01 02:24 AM

[PaperGains:]

You had to know there would be shenanigans in this stock on that day. This has been one of the most controversial stocks traded on any exchange in the past 2 years.

I'm not surprised by the action or by the inaction of the NASDAQ and probably the SEC. No one looks out for the retail investor, so we need to look out for ourselves.

In the future, with a volatile stock like DNDN, don't use stops. It was all or nothing anyway. Stops are meaningless with a stock like this unless you are ready to exit and you know the market is normal that day (i.e. no announcements).

papergains

May 01 02:38 AM

[wholesalecd:]

I knew that was going to happen and did a limit order of 11.75 and bought ton of shares. Fun times. Sold in afterhours and doubled my money.

Jay boy billy

May 01 02:59 AM

[Marianthi:]

Thanks for the article...had not thought of that problem with stops...

nice...wish I had been home in time that day...wanted to do the same thing...totally agree it was serious shenanigans and should not be allowed...but the SEC is asleep...especially sucks to be the people stopped out for $9...

May 01 10:28 AM

[the_lazy_ob...:]

someone said "No one will pay 50-80k for 4 months of life. Save it for a nice funeral and leave a little for the kids"

all i can say is: really? i bet if you were in this situation, you'll give up all your earthly belongings just to have one MINUTE more with your kids.

May 01 10:44 AM

[optionsgirl:]

Puts generally work better than stop losses in such volatile markets.

May 01 04:42 PM

[Bill S. Friend:]

Buy on the rumor sell on the news. A sure 45% in one day is motive enough to sell. Then the stock halted and gapped up after hours where the average investor couldnt touch it. Ridiculous. Why hasnt there been public outcry regarding after hours trading?

May 03 08:30 AM

[Market Sniper:]

Absolutely, optionsgirl! One of the better uses for naked option positions. Instead of using a stop, hedge with the put.

May 03 01:47 PM

[Michael Murphy:]

I sent the following to the Enforcement Division of the SEC. Yahoo has deleted the original post in an attempt to obliterate history, so let it live on Seeking Alpha:

This sort of organized market manipulation rarely leaves tracks, but this time it did. A new poster on the Yahoo Message Board for DNDN warned of a bear raid almost to the minute. How did he know? Who does he work for?

Here is his first post:
28-Apr-09 11:07 am   32.  URGENT ALERT BEAR RAID @ 12 30 pm central Today 
Expect Massive BEAR RAID this afternoon @ 12 30 pm central last trade 24 suggest you sell short into strength MASSIVE BEAR RAID coming.. TODAY
Business & Finance > Investments > Stocks (A to Z) > Stocks D  >  Dendreon Corporation (DNDN) monthaphumchare...

Here are some others from the same morning:

27.  as a COURTESY I am alerting this board DNDN BEAR RAID today 
u should be positioning on the short side of DNDN right now at 24 and on any additional strength ahead of conference by 12 30 stock will be in the throes of a MASSIVE BEAR RAID smart $ has a BIG...
Business & Finance > Investments > Stocks (A to Z) > Stocks D  >  Dendreon Corporation (DNDN)   monthaphumchare...   28-Apr-09 11:27 am   28.  See u @ 17 today MASSIVE BEAR RAID 
suggest you position @ current price 24.08 for expected massive bear raid today 12 30 pm central
Business & Finance > Investments > Stocks (A to Z) > Stocks D  >  Dendreon Corporation (DNDN)   monthaphumchare...   28-Apr-09 11:20 am   29.  CNBC suckering U in Bear Raid coming 
MASSIVE BEAR RAID today 12 30 pm central
Business & Finance > Investments > Stocks (A to Z) > Stocks D  >  Dendreon Corporation (DNDN)   monthaphumchare...   28-Apr-09 11:12 am   30.  Re: URGENT ALERT BEAR RAID @ 12 30 pm central Today 
HIGH Probability stock trades down to 17 today on Bear Raid after presentation Outside chance stock drops 50 %
Business & Finance > Investments > Stocks (A to Z) > Stocks D  >  Dendreon Corporation (DNDN)   monthaphumchare...   28-Apr-09 11:10 am   31.  Re: URGENT ALERT BEAR RAID @ 12 30 pm central Today 
Suggest you SELL SHORT last trade 24.09 continue to sell short on any additional strength ahead of 12 20 pm presentation by 12 30 pm today you will witness a MASSIVE BEAR RAID DNDN
Business & Finance > Investments > Stocks (A to Z) > Stocks D  >  Dendreon Corporation (DNDN)   monthaphumchare...  

May 20 02:56 AM

[dakyne:]

Obvious criminal manipulation occurred--and not by just one party. Shorts, market makers, hedgies had to collude to take DNDN down for that split second before being halted. Shorts got a quick escape hatch, and their friends let them escape. Longs got a better price.

Solution?

1) do not tell your broker your stop losses--keep them mental. If you tell your broker, the MM's will steal your shares. If you're going to trade volatile biotechs, this is especially applicable.
2) if you do use stop losses, make sure you understand the difference between a stop order and a stop limit order. A stop limit order would have prevented you from being stopped out at $8--in fact, you wouldn't have been stopped out at all that day. A stop order is basically a stop market order--once triggered, your sell order becomes a market order. In a bear raid, look out below.

May 20 07:07 PM