Dendreon's Blowup Spreads Across Biotech

BOSTON ( TheStreet) -- The Dendreon ( DNDN) flu is contaminating the entire biotech sector.The Nasdaq Biotechnology Index (NBI) slumped more than 4% Thursday amidst broader market selling as biotech investors react in panic to last night's surprise disclosure by Dendreon that sales of its prostate cancer drug Provenge are growing much slower than expected.

Dendreon is taking the brunt of the pain, down $23.06, or 64%, to $12.78, but other biotech stocks, particularly those with drug launches commenced or soon to start, are also getting "Provenged."

Human Genome Sciences ( HGSI), which just launched the Benlysta lupus drug, is down $1.59, or 9%, to $16.47. Intermune ( ITMN), readying a European launch of a lung disease drug, is down down $3.23, or 10%, to $28.01. Other "drug launch" stocks in similar situations like Seattle Genetics ( SGEN), Regeneron Pharmaceuticals ( REGN) and Savient Pharmaceuticals ( SVNT), are also getting hit.

Dendreon's blow up could not have come at a worse time for the biotech sector. Investors already wary about investing in new biotech drug launches are now even more scared or skeptical. The overall market is on shaky ground and concerns about new cuts to Medicare have re-surfaced in the wake of the debt ceiling and budget battles in Washington.

If the Nasdaq Biotechnology Index falls below 970, it will go red for the year.

Likely contributing to the weakness in biotech Thursday is the fact that many investors who were long Dendreon going into last night are now being forced to sell other biotech holdings to make up for heavy loss. It remains to be seen whether opportunistic buyers step in to pick up stocks oversold on the Dendreon selling.

SAC Capital, run by renowned hedge fund manager Steve Cohen, is (or was) Dendreon's largest shareholder. On paper, SAC lost around $180 million when Dendreon tanked Thursday.

Early stage biotechs aren't being spared, with stocks likes Celsion ( CLSN)down 12% and Biocryst Pharmaceuticals ( BCRX) falling 18%.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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