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Stocks in the biotech sector have the tendency to be a bit more speculative than some of your traditional blue-chip drug making companies. For example, a small firm engaged in clinical trials could produce exponential returns on investment if an analyst recommends the stock ahead of an FDA decision or if an FDA approval is granted in any number of bio-pharmaceutical fields. With that said, I'd like to take an alternative approach in an effort to examine two such companies within the bio-pharmaceutical sector that won't be demonstrating such returns in at least the next two quarters if not longer.

Dendreon Corp. (NASDAQ:DNDN) closed trading at $4.63/share on Friday as the company continues to trade downward as a result of yet another dismal quarter. Analysts were expecting DNDN to post a loss of -$0.60/share on revenue of $86 million for the second quarter, but results fell short as DNDN reported EPS of -$0.66/share on revenue of just $80 million dollars. In the wake of the monumental mental miss the company announced plans to restructure by closing its New Jersey facility, instituting automating locations in California, and Georgia, and by cutting nearly 600 jobs. Do I think this is a good thing? No, especially since the business model of DNDN is heavily dependent on the sales and market performance of its only drug, Provenge and since the company has already noted that the outlook in terms of Provenge doesn't look good, what incentive do long-term investors really have? There isn't even a shred of positivity in the sales outlook of Provenge over the next 12 months, which puts DNDN at the very top of my short list over the next 2 quarters. Look at it this way, if the only drug you have isn't selling as fast as it should or customers are looking elsewhere for better resolutions by such drug makers as Johnson & Johnson (NYSE:JNJ) and Medivation (NASDAQ:MDVN), then the answer doesn't lie with your sales team, it lies with your research & development team, which should be the first thing DNDN should focus on.

VIVUS, Inc. (NASDAQ:VVUS) closed trading at $21.60/share on Friday as the company continues to trade downward as a result of yet another dismal quarter due largely in part to the costs behind Qsymia, the second of two weight-loss drugs to be approved by the FDA this year. Does VVUS have a great concept behind its weight-loss drug? Sure it does. I've just done a complete 180 in terms of my position on the stock due largely to two catalysts potential investors seriously need to consider. First and foremost, the company hasn't generated any revenue in the last few quarters and probably won't report any until Qsymia hits the market sometime in fourth quarter of 2012. Is there potential for VVUS to perform fairly well after revenue is generated based on the sale of the drug? Yes, especially since analysts are predicting sales could reach $1 billion over the next few years. Until then, I'd avoid the stock and see if and when Qsymia can meet or exceed analysts' sales estimates for the drug. The second catalyst for VVUS is going to be market share, and since the company will be facing fierce competition from Arena Pharmaceuticals (NASDAQ:ARNA) and its FDA approved weight-loss drug Belviq, things may a bit tougher than first thought. If VVUS had the only drug in the space, then I'd be all over it, I just think that at these levels both ARNA and Orexigen Therapeutics (NASDAQ:OREX) may be better plays not only based on potential drug sales but on the minimum debt each company carries as well as the fact both companies generate revenue.

Final Analysis

For potential investors looking to establish a position in each of these stocks, the key catalyst is going to be drug sales. Both DNDN and VVUS have a single drug of which sales could make or break the company and until sales performance is disclosed I don't see either performing that well over the next several quarters. If things don't begin to pick up for VVUS I could see the stock trading in the $17/share - $18/share range and if things don't pick up (which they aren't estimated to) for DNDN I could see that stock trade well below $3.75/share.

Source: 2 Biotech Stocks Worth Shorting At Current Levels

Additional disclosure: Earlier last week and prior to earnings I was long on VVUS, and as a result of earnings I've since taken a short position on the stock.