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Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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« A New FDA? | Main | Safer Every Day! »

May 10, 2007

Alas, Dendreon

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Posted by Derek

If you'd like some more proof that investing in pharma and biotech stocks on the basis of pending FDA rulings is a strategy best suited for clowns, take a look at Dendreon. Remember them? Everyone's shoulda-bought-that stock from a few weeks ago, prostate cancer vaccine, unexpectedly favorable FDA panel ruling?

Well, now they've been handed the dread "approvable" letter by the agency, asking for more efficacy data. The stock. . .ah, the stock didn't take it well. If you look at the chart over the last couple of months, you find that on March 28, DNDN was at 5.22. On April 4, it broke 15, and on the 9th it closed at about 23 1/2. Champagne, waiter! It hovered between 15 and 20 after that, and as of last Tuesday was at a nice solid 17.74. Thursday's close, though, was 5.54, completing a spectacular hair-bleaching round trip in just over a month.

Not quite a round trip, actually. . .if you'd bought at the March 28th close, and held on through the whole power wash and spin cycle, after the onlookers pried your fingers out of the wallboard you'd have found yourself with what is still a very respectable return. No, I mean it - 5.54 versus 5.22 is just over 6 per cent, and six per cent per month would make you very, very rich were you able somehow to lock it in. It sure doesn't seem that way when you've just experienced four or five hundred per cent in a month, but it's true.

At any rate, my condolences to those who bought the stock in the double digits. You really had no business doing that, but I'm sorry for you, anyway. The problem is, most of the near-term gains (in case of an approval) were probably in the stock already, while the risk of what just happened was always there. It's worth repeating: betting on FDA rulings is rubber-nose, midget-car, rainbow-wig clown territory. No matter how tempting it looks. . .

Comments (18) + TrackBacks (0) | Category: Business and Markets


1. Cat Herder on May 11, 2007 8:33 AM writes...

As crass as it sounds, the only reason the stock market is an attractive investment vehicle is that people are decidedly irrational when it comes to news and "opportunities" such as those that Dendreon offered (or maybe still does). If these events aren't a strong argument against the efficient market hypothesis, I don't know what is.

That said, my condolences to those who bought after the news was priced in.

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2. Anonymous on May 11, 2007 9:00 AM writes...


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3. Derek Lowe on May 11, 2007 10:04 AM writes...

Not so, Anonymous. I can't make Dendreon stock do much of anything. You'll want to mail this same useful comment to the FDA, though, where sympathy will doubtless flow like wine.

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4. Anonymous on May 11, 2007 10:46 AM writes...

It's all timing, the play was about 2 months ago when it was at 5 dollars, the n the next day shot up to 18 on the the FDA hype. That was the only window of opportunity and I made a lot of money.

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5. Cracker on May 11, 2007 11:22 AM writes...

Bought it at 4.07 and sold it at 24.01., Nice!

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6. Sleepless in SSF on May 11, 2007 11:23 AM writes...

Interestingly, the DNDN boards are full of true believers who have convinced themselves that shorts, hedge fund managers and the FDA conspired to tank their stock with the approvable letter. Viewed objectively, I find it amazing that they can believe that the FDA would have approved Provenge on the basis of the current phase 3 data. I mean, it failed its primary endpoints and a reanalysis based on only 127 patients showed a barely significant increase in survival -- an endpoint the study was not designed to measure. The advisory panel was in the process of voting against efficacy when they put their heads together and changed the wording of the question they were answering -- from "effective" to "shows substantial evidence of efficacy" -- to allow them to vote 13-4 in favor.

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7. the insider on May 11, 2007 11:45 AM writes...

Both longs and shorts had good reasons to take a position in this stock. It's easy to rationalize now on how wrong the longs were. I unfortunately was on the wrong side of the trade, but things could of been different as they sometimes are. Would I then be a clown as I watch the shorts run for cover and finance my new Ferari. I DON'T THINK SO! There was risk and lots of it but there was also a ton of rewards.

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8. Derek Lowe on May 11, 2007 12:02 PM writes...

If both the long and short investors had equally good reasons to take their positions, what I'm trying to say is that that's a good reason not to take a position in the stock at all, because that means that it's a coin flip.

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9. Hap on May 11, 2007 12:44 PM writes...

I think that the strategy is more like riding rollercoasters for people who happen to have lots of money lying around. If you're investing the kids' college money or your IRA, though, it seems like a path to working until you die, either because you won't be able to retire or because you'll have a fatal heart attack after watching another stock burrow its way through New York bedrock.

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10. Brian on May 11, 2007 1:15 PM writes...

"You really had no business doing that, but I'm sorry for you, anyway."

Oh man, Derek, I couldn't have said it better myself.

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11. Still Scared of Dinosaurs on May 11, 2007 6:47 PM writes...

I just GOTTA ask...when you titled this post were you thinking of the title of Pat Frank's classic post-apocalyptic novel (where the MD thinks distilling whiskey is a good use of extra corn [in and of itself a bizarre idea in a post-nuclear community]) Alas, Babylon?
Please, please say "Yes".

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12. Not so irrational on May 11, 2007 7:21 PM writes...

Actually the options market priced this pretty well, not that that was all that difficult. The May 17 1/2 straddle (Buy Call, Buy Put) was trading around 11 the day the news came out.

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13. Derek Lowe on May 11, 2007 8:03 PM writes...

SSD, my brain tossed up the title on its own. I thought for a moment that the phrase had a nice ring to it, before realizing why that was. My wife and I had just seen a new paperback edition of "Alas, Babylon" in a bookstore a few days ago, so I'm sure that's where it came from, unconsciously.

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14. Still Scared of Dinosaurs on May 12, 2007 12:49 AM writes...

Well, if that's the worst mental hairball your unconscious yacked up this week you are a lucky, lucky man.

Oh, man, the concept of a "mental hairball" is going to entertain me for days...ummm, maybe I'm sharing too much.

And here's a shout out to your wife, AKA "The Bread Winner"...or am I assuming too much by placing you in the newly traditional two-income family? One year ago mine was in the same position and didn't throw me out of the house. I think she was concerned about getting the muffin tins off the top shelf without me around or something.

I never asked why.

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15. daen on May 12, 2007 9:39 AM writes...

"If these events aren't a strong argument against the efficient market hypothesis, I don't know what is." Not so, CatHerder. All the EMH states is that the value of a security takes into account all available current information. If anything, Dendreon's rollercoaster ride seems to fit the semi-strong form of the EMH.

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16. TNC on May 12, 2007 7:33 PM writes...

Derek, are you going to post about the melamine scare? While I prefer my triazines in a flask and not in my pet, the level of chemophobia is getting pretty high.

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17. the insider on May 13, 2007 4:36 PM writes...

Point well taken. Minus the gambling aspect the stock market would not be so profitable. All I'm trying to find out is what would this article be about had the FDA clearly approved the drug. Hindsight is always 20/20. The drastic sell off is in my opinion not called for. But that's the market.

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18. daen on May 31, 2007 4:49 PM writes...

... and up again ...

"Shares of Dendreon shot up 42 percent this morning after the company announced that the FDA would accept interim data analysis from an ongoing clinical trial to supplement its stalled application for Provenge."

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