After yesterday’s FDA Advisory Committee vote 13 to 4 to approve Provenge, and 17 to 0 on the safety issue, I told you to expect Dendreon (DNDN) shares to be up sharply today. And they were definitely up, spiking as high as $18 this morning. The spike is because there is a large short interest in the stock. I’ve reviewed some of the analyst recommendations by those who were negative on the stock, and they are clinging to the idea that the FDA will only issue an approvable letter, requiring the company to finish its current Phase III trial to further demonstrate efficacy before final approval. That data would not be available until 2010.

I believe the approvable letter idea is as wrong as the idea that the Advisory Committee would not approve the drug. But you should expect to see this idea dragged out over and over between now and May 15 to try to beat the stock down so that the hedge funds can cover their shorts. If you have a long-term capital gain in DNDN and you don’t want to go through this emotional roller coaster, I would not blame you if you sold now only at $14 or better and then bought it back sometime before May 15. However, if you sold:

• You may have a tax liability if the stock is not in a tax-sheltered account;
• Dendreon could sign a marketing partnership agreement any day, which would spike the stock again;
• And the stock may not go down much as new buyers who won’t normally even look at a company with unapproved products realize that FDA approval is imminent.

Therefore, what I would do and what most of you should do is nothing. Don’t sell. Sure, DNDN could go back down to $10 — or maybe not. But with FDA approval likely, a partnership agreement or two following that decision (and I do think a partnership will follow approval) and the opportunity to expand the Provenge technology into breast cancer and head & neck cancer, I think DNDN could easily be a $50 stock over the next few years. You wouldn’t want to miss that, so unless you are an agile trader, hold DNDN.