Sunday, May 1, 2011

Biotech Superstar: Dendreon Corporation (DNDN)

DNDN has one of the most beautiful setups I've seen in the biotech sector. A recent move by VRTX was one that I missed, but IMO DNDN has far greater potential and the cleanest trade setup I've seen in awhile. I  outlined the details in the charts below which I'll discuss in a moment, but what's better than a beautiful chart setup?

The fact that there's 4 major investors (billionaires) that are backing your trade. Here's who owns what in DNDN:

Ken Griffin of Citadel Advisors - $15,000,000 of DNDN shares.
Steve Cohen of SAC Capital - 1 Million shares of DNDN acquired last quarter of 2010.
George Soros - 4 Million shares of DNDN.
David Shaw of DE Shaw - 1,300,000 shares of DNDN.

Even if we can't track exactly when and what price, the third chart below clearly shows volume accompanied accumulation over the last year. I circled the volume bars in the yellow ovals.

Here's a link to a recent Forbes article publishing the above investors' holdings.

As far as recent events are concerned, as most of us know, DNDN received FDA approval for late stage prostate cancer treatment, causing the initial meteoric rise. Another notable recent event is the approval of Medicare to sponsor the expensive $93,000 treatment. I'm more into DNDN currently for the technical setup, but nonetheless it's still important to know the basic fundamentals:

Analyst Consensus for revenues & sales are as follows:
Consensus estimates for DNDN revenues grow from $370M 
in 2011 to $1,883M in 2014 (2011-2014 CAGR: 72%) and $2,331M in 2015 (2011-2014 
CAGR: 58%). It is also expected to have 2.3B in revenues in 2015.

Onto the charts... 

The first chart is my favorite. When JNJ/VRTX announced their competition drug approval, DNDN tanked around 15% after hours. This was a an impulsive-shock type of move as someone panicked and let go shares for cheap. When DNDN opened the very next day, it quickly shrugged off the news like JNJ/VRTX are not even in the picture. In other words, the market doesn't consider their drug as a threat to Provenge.

This second chart shows a pretty little bull flag, that should deliver a 12 point move, once it breaks overhead resistance 
between 44 and 45.

This third chart is the most informative, describing events and price movements over the past year. Notable are the near-cross about to occur on the 50/200-SMA. The blue rectangle indicates the consolidation and accumulation range that big buyers have been acquiring over the past year. The volume bars below are respective of the moves on the big green candles and gaps up. We also have a decisive break on the descending trendline. I do see signs that DNDN has been kept within this trading range as big money has accumulated. Upcoming earnings are the perfect catalyst to propel DNDN out of its current bullish formations

I own DNDN since $36 and $37, where it confirmed the breakout from the year-long descending trendline and crossed over it's 50-SMA. Notice if you view the May options chains, that the open interest is owned in high volumes all the way up to the $50 strike. What's interesting is the activity on the $45 strike, where Friday's volume was nearly 50% of the current open interest. Similar activity is noticeable in the later dated contracts, especially the August contracts. I personally own Aug 45 calls, as well as the shares. The options I'm holding are currently a double from where I've held them. In my opinion, since options have a clearly defined risk, that is the best way to play DNDN, since you can only lose your committed capital. I own the shares, too but I'm prepared to let those go with a tight stop if things turned south quickly. This does not eliminate the risk of a gap down.

Best of luck to all. If you found this information informative or have any suggestions, please join us for discussion in the comments below. 

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Disclaimer: All content within this site is solely the opinion of the author and does not constitute investment advice. Trade at your own risk.