Thursday, August 4, 2011

Dendreon (DNDN) - Stock Drops 70%, Vol Doubles on Earnings Release

DNDN is trading $11.67, down 67.4% with IV30™ exploding up 102.2% as of ~10:55am EST. The LIVEVOL® Pro Summary is below.


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Dendreon Corporation (Dendreon) is a biotechnology company focused on the discovery, development and commercialization of therapeutics that may improve cancer treatment options for patients.
The news driving the stock today seems to be fairly simple at first (an earnings miss), but upon further reading, does require some detail. I’ve included a news snippet below.

Dendreon shares are down 60% after the company announced second quarter sales that fell well below investor expectations and withdrew its financial guidance for its only product, the prostate cancer treatment Provenge. Maybe the Seattle biotech company should respond by offering Brad Loncar a seat on its board.

Loncar sent an open letter to the chairman of Dendreon’s board of directors in February pleading that the board name one or two outside directors who come from the ranks of shareholders or are outside the ranks of the biotech industry, saying management “are too narrowly focused” and “do not always have shareholder interest in mind.”

A big part of Loncar’s complaint was that Dendreon was being too bullish about the demand for Provenge, a therapy which re-trains patients own cells to attack prostate tumors, and about how fast sales would ramp up. He noted two occasions in August 2010 when Dendreon’s chief operating officer pledge that Provenge would be provided to 2,000 patients within 12 months. Then he quoted Dendreon CEO Mitchell Gold going even further to support that figure, saying Dendreon could easily make that goal with 25% of the manufacturing capacity of one of its plants. Yet on November 3rd, Loncar says, Dendreon changed its forecast to hitting 2,000 patients in “mid-year” 2011.

Last night, Dendreon went from forecasting sales of $350 million to $400 million to the year to withdrawing guidance because its second quarter sales came in 10% below Wall Street’s $55 million estimate. The reason that relatively small miss is worth $2.5 billion of the company’s market capitalization is that it has never been clear how big a seller Provenge will be.

Investors have waited as Dendreon worked through supply and reimbursement concerns. Now, when the veil was supposed to lift and give everyone a real glimpse of Provenge demand, Provenge has run into a new problem. And there is no way to answer a simple, central question:

How many patients actually want to take Provenge, and how many doctors want to prescribe it?
Source:, THE MEDICINE SHOW, written by Matthew Herper

Well there you have it. A 10% revenue miss which has impacted stock ~65% and might actually be the appropriate response. DNDN is highly active today in the options, where over 43,000 contracts have traded in the first hour on total daily average volume of just 8,475. The Livevol® Pro Stats and Day’s biggest trades snaps are included below.

Let’s look to the Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

It’s interesting to see how DNDN stock started falling into earnings, and then of course, the collapse today. HV is calculated close-to-close (an option industry convention), so that blue line (and the pink line) will pop substantially tomorrow to echo that IV30™ pop. If you ever wanted to see a case when vol rose out of earnings, this would be a pretty good example. Let’s turn to the Skew Tab and look at the month-to-month and line-by-line vols.

This is where the vol reaction gets a bit more interesting. With such a large move in the stock, it makes sense that the nearest term risk (front month vol) would be elevated to the rest. We see that in the term-structures above, where the red line is above the other lines. I do note an upside skew, meaning that the option markets reflect more upside risk than downside, as of right now. Hmmm….

Let's turn to the Options Tab for completeness.

I wrote about this one for (OptionsProfits), so no specific trade analysis here. But the calendar vol diff, the skew vol diff and the downside vol are all very interesting in combination or separate. One giant caveat here, if you're gonna play DNDN, this ain't investing, this is speculation. Tread carefully...

This is trade analysis, not a recommendation.

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