Dendreon: Provenge's Shortcomings Have the Shorts Coming

| About: Dendreon Corporation (DNDN)

Perhaps one of the fastest stocks being shorted this past week and this coming week will be the one and only Dendreon Corporation (NASDAQ:DNDN). That's right, this was the one that soared a few hundred percent a few weeks back as FDA advisors recommended the approval of their prostate cancer drug. You see how I emphasized 'recommended'? That's because the actual FDA regulators haven't actually given the final approval. And now there have been plenty of signs pointing to the possibility that they'll get a big red stamp on their application papers stating either rejected, turned-down, or even dismissed.

Before I move on to the juicy indicators on a possible drop in share prices, understand that Dendreon Corporation is a biotechnology company that spends all its time trying to develop and make a business out of therapeutics (a.k.a. chemicals) that boost up the human immune system's ability to fight evil cancers of all forms. Their biggest and potentially biggest cash-cow is their "Provenge (sipuleucel-T)", which is explained as " active cellular immunotherapy that has completed two Phase III trials for the treatment of asymptomatic, metastatic, androgen-independent prostate cancer..." - in plain English, it means it's medicine for men's prostate cancer. It is expected to generate at least $1 billion in sales if formally approved, and on March 29, when the advisory panel to the FDA had recommended it for approval, their stock prices went up over $20 dollars, to later drop back to $15.

More on the Advisory Panel: They're basically an aggregate of "experts", being scientists and doctors that give the thumbs up or down, and then the FDA comes out to make the decision formal. After so much publicity on DNDN's Provenge drug, experts have come out to reiterate what the news was all about. And life wouldn't be interesting without tons of criticism, and that's exactly what's been happening. While studies have shown that the drug prolongs the lives of patients with advanced prostatecancer, it doesn't show that it slows the spread of the disease (cancer cells still spreads to other major organs) - which is supposing the primary objective. The FDA comes out with their decision on May 15.

Now the Indicators: Do you believe in inside information? Well you better start if you don't! One of the biggest indicators that I watch when looking at stocks is the holding and transaction activities carried out by the company's management. For DNDN, several big time management guys sold off their share holdings:

  • The CEO, Mitchelle Gold, sold 202,090 shares of the company early in April - over 50% of his total holdings
  • Two Directors, Ruth Kunath and Bogdan Dziurzynski, sold close to 100,000 throughout the month
  • My question is, if these prominent company officials sold so many shares to capture the gains, does that mean that they know something we don't? Maybe the possibility that the share prices might drop soon? You see, if it was just this stand-alone incident, maybe I wouldn't have been so boggled, but there were more. For example, how does this sound? Already made public is the fact that three of the 17 FDA panelists that were questioned came out to say that they're against recommending an approval. And then you also have other analysts like Jonathan Aschoff from Brean Murray Carret & Co. says that he expects the unsuccessful decision by the FDA. Others like Charles Duncan, an analyst at JMP Securities hints at the fact that he expects the FDA to ask for more support, trials and other need-bes.

    So we got some disapprovals from within the FDA, we've got some analyst doubts, what else? How about top oncologists advising the U.S. Food and Drug Administration to delay the approval of the drug. Maha Hussain and Howard Scher are a couple I can think of that are against it, both saying that the existing clinical trials for the drug just don't cut it for approval.

    Meanwhile, about 44% of the Company's shares are sold short. This number comes mid-April, and for all we know it could have gone up already - it definitely won't make any sense for the existing to cover their shorts as the price since that time has stayed relatively stagnant. This certainly implies that the market, if not several major fund houses, are bare on their expected chances of an approval.

    Finally, guess what DNDN's own researchers commented on the drug? "...the research data is less than perfect."

    You know what I think? I'm not a biotech or cancer expert, but I think the indicators speak for themselves. I'm going along with the short-sellers on betting that the FDA won't go along with the panel.

    DNDN 1-yr chart


    Disclosure: none