The Dendreon Opportunity: Upside Has Never Looked So Great

Oct. 2.11 | About: Dendreon Corporation (DNDN)

Dendreon (NASDAQ:DNDN) is falling off a cliff. Being such a volatile stock, it is considered a high risk investment and therefore gets dumped in turbulent times. As investors move their cash to safer assets they consequently shift funds from their riskier assets such as Dendreon. But is Dendreon really risky?

If you go to the casino and bet on red or black, you can double your money or lose it all at almost 50/50 odds. At Dendreon’s current price, the odds have to be better than 50/50. Let's take a look:

Downside possibilities:

  • World goes into global depression (unlikely)
  • Medicare stops coverage of Provenge (very unlikely)
  • Better drug pops up out of nowhere (very unlikely)
  • Provenge doesn’t work and the FDA and Medicare got it wrong (extremely unlikely)

Downside protection:

  • Takeover (Dendreon owns the technology for the first “FDA-approved autologous cellular immunotherapy” treatment. That’s got to be worth something to the big boys)


  • Dendreon comes out with improved earnings (highly likely)
  • Dendreon becomes profitable within 12 months (likely)
  • Dendreon finds a European partner to market and distribute Provenge throughout Europe (likely)
  • Dendreon finds other uses for Provenge or announces promising results for other drugs in its pipeline (likely).

Dendreon has the makings of becoming a major biotechnology company, remembering that all the major players started with one great drug. Sure these are turbulent times, but don’t let the big boys shake you out.

This is not a stock I would buy options on or buy on margin. The smart money is probably shorting the stock right now, even at these low levels. There is no telling how low this stock could go until better earnings start popping up.

Fund managers are starting to manipulate this stock and profit on its volatility during this time of uncertainty. Speculators and options traders hoping for a quick rebound are going to get burned (as they usually do). If “bargain hunting” was a sure road to riches, everyone would be rich. Bargain hunters are probably going to get burned too.

Don’t try to pick the bottom. I would be accumulating shares as the company share price drops, or even as it rises. Just spread out your purchases and don’t buy on margin. Expect the company to go lower. Expect to lose money on paper. At the end of the day it doesn’t matter. The upside of this stock is tremendous, and the downside (losing everything) is a possibility, but an unlikely one.

If you bought a thousand shares at 45, and the company went down 9 points to 36, you would be upset, but still in the game and accept this drop as part of the risk. Right now the stock is trading around 9 dollars a share, so you can buy a thousand shares for around $9000 with a possible 9 point drop to bankruptcy (extremely unlikely).

To me this is a no-brainer. Sure I’ve seen pharmaceutical companies suffer huge drops and never recover. But those were all stocks that failed to get FDA approval and were subsequently destroyed. I’ve never seen a stock get FDA approval after 10 years of blood sweat and tears and then get destroyed because of a lowered short team earnings guidance announcement from a CEO.

Confidence is gone, there’s no question about that, but the fundamentals remain unchanged, and the upside has never been so great (and the downside never so low).

Disclosure: I am long DNDN.