I'm trying to take a break from
but the emails keep coming: It seems plenty of investors are wringing their hands with worry because Dendreon's stock price isn't as high as they expected.
"Can you give us some updates on Dendreon," Karen W. asks. "This company is getting all the upgrades to 'Buy' and yet the stock is going down... I thought it would be at least $30 with the news."
Ben. L.M. writes similarly: "I don't understand what's going on with Dendreon since the release of their impressive Provenge data on Tuesday. The stock is down considerably from its $27-plus share price after the news was released... Is this a classic case of sell the news or is there some rumored skepticism about the quality of the study?"
Dendreon isn't going to $30 overnight. All is well. The stock will probably work higher over time. Sensibly, hopefully, once the drama (insanity might be a more apt description) of this past week subsides.
Look at this way: For the past two years, Dendreon has been largely a trading vehicle, exquisitely sensitive to all types of rumors and innuendo. It takes time to transition from that short-term mindset to a stock that is more suitable for investment.
Dendreon is in the transition period now. This week brought
that Provenge extends the lives of men with prostate cancer. The data are good and consistent. As I said earlier this week, Wall Street spent Tuesday afternoon looking for
, but came up with very little of consequence.
Provenge is not a risk-free bet for approval, no drug carries that absolute level of certainty. But the
than they were a month ago or longer. And with that, investors can start building financial models and building confidence in Dendreon's value over the long term. As I have shown -- similar to what sell-side analysts have done too, -- it's not hard to build a conservative model for Dendreon that values the
. Easy, but it won't happen immediately.
That's because some investors are going to take profits. If I were a long-suffering Dendreonite with a cost basis in the single digits, I'd be ringing the cash register this week, at least partially. And why not? In this market, you should be making money where and when you can.
After the excitement of this week subsides, Dendreon goes into a quiet period. The data from the Provenge study is being collected and crafted into a resubmission to the FDA that won't happen until the fourth quarter. I know that many of you believe the FDA should turn around and approve Provenge within 24 hours of that re-submission, but that isn't going to happen.
The FDA will take a good bit, if not all, of its six-month review period. That's just the way the agency works. My guess (and I'm not the first to have this thought) is that Provenge manufacturing issues and concerns will be more paramount to the FDA than the clinical side of the story.
That's probably what you hear most from the Dendreon bears now that they can't harp on Provenge's survival benefit so much. It's a valid concern. I've long recommended
in my newsletter's model portfolio, so I know from experience that drug manufacturing isn't a trivial matter. (AMAG announced -- finally --
but it's been a long time coming.)
And heck, look at
for proof of how unresolved manufacturing issues can lead to total disaster.
Understand two things about manufacturing: First, separate groups within the FDA conduct manufacturing and clinical reviews. Final drug approval can't be granted until both sides agree.
Second, manufacturing issues might delay but will not stop Provenge's approval. No way. I'm not trying to suggest or predict a manufacturing delay for Provenge. For all I know, the FDA has no remaining issues with Dendreon's facility. I'm just saying that if a delay were to occur due to manufacturing issues, take it in stride, and in fact, look at it as a buying opportunity if the stock falls as a result. That's what savvy investors did with AMAG and it worked out great.
Finally, Dendreon is going to raise money, so understand that a financing overhang can weigh on the stock price until the deal gets done. When I talked to Dendreon CEO Mitch Gold Tuesday night, he was non-committal about when a financing would take place. (He also said he wants to raise money non-dilutively through the sales of Provenge's ex-U.S. rights.)
At this point, however, the Street's expectation is for a stock sale in the near future, so many institutional investors are likely sitting on the Dendreon sidelines looking for the ideal price.
Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
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