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Investing in Dendreon: Known Knowns and things we know we know...

By Ian Cooper

Leading up to May 2007’s FDA decision on Dendreon’s Provenge drug, we were short DNDN with May 17.50 puts, and smartly speculated that the FDA would not grant approval.  We were spot on, and watched as DNDN refilled its $10 gap up with a $10 gap down on the news.  This was after the company scored big points when a panel of FDA advisers recommended approval for Provenge. 

But how can you approve a drug that didn’t meet is main goals?  This was a known.

Another known, Thursday’s announcement that the FDA would accept either interim or final data from Provenge (which sent the stock up 27% on the day) was already known.  This was nothing new.  No new information regarding Provenge approval was presented.  In fact, the company made investors well aware of this in a Q1 2007 conference call, with a negative realization that interim goals will be difficult to reach. 

Thursday’s news was simple fluff.  It’ll backfire badly, as we expect the $8 stock to sink to $4 when all is said and done.  There’s still growing anxiety over eventual approval of the drug, and fears that study-induced financial hardships will sink the company further.

To sum up what the company said, and Rumsfeld says this better, “There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don't know we don't know."

Take Care,