Dear New World Investor:
With Dendreon (DNDN) back to what passes for normal at that company, namely lots of noise and heat on the message boards with very little light, we can sit back and watch the analyst upgrades and target price increases work their way through the institutional money managers into the stock price. DNDN could be the poster child for the ancient Chinese curse: “May you live in interesting times.”
In the rest of the world, the advance GDP report for the March quarter, announced yesterday before the open, was so bad that later in the day Chairman Bernanke could say with a straight face that the Fed sees signs the recession might be easing. One would hope that with GDP falling at a 6.1% annual rate in the March quarter, after a 6.3% rate decline in the December quarter, the recession isn’t about to get a lot worse. Because the September quarter also was down, albeit at a relatively mild 0.5% rate, the economy has now been shrinking for three consecutive quarters. That last happened 34 years ago, from the third quarter of 1974 through the first quarter of 1975. I remember it well because we sold the American Express mutual funds to Capital Research & Management in the second quarter of 1974, and I went out on my own with Capital as my largest consulting client.
Bad timing? Not really. By the time President Nixon resigned, the economy and the stock market seemed to be humming that great Richard Farina song Been Down So Long It Looks Like Up To Me. After a very nice multiyear run, the market consolidated back in the beginning of the Reagan years and then took off on the great 17 year bull run. I think in nominal terms we’ll see
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There was not a lot of additional information on the conference call that was not in the press release. Management mentioned that the survival data was consistent in all three Phase III trials. Median survival was 4.5 months in the D9901 study, 3.2 months in D9902A and 4.1 months in this study. Anything over 4 months is very good. The existing therapy, Taxotere, was approved based on a median survival of 2.8 months and, of course, Provenge is safer with almost no meaningful side effects. Taxotere is administered over six months, with each course of therapy flattening the patient for several days. Provenge involves three infusions over one month, with one or two days of flu-like symptoms after each infusion.
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Dendreon (DNDN) suddenly plunged at 1:27 PM EDT and was closed for trading ahead of the press release on the presentation today at the American Urological Association. At the time of the halt, the stock was down $9.74 at $11.81, after touching $25.00. Although Nasdaq has decided to not break the trades, it was obvious that one or a few sellers “ran the stops” to sell all their shares. I’m sure the SEC will examine the trading, including the poster on the Yahoo Message Boards who said there would be a bear raid and got it right almost to the minute.
The conference call is later today, and I will update you on that tonight. The two key numbers are these:
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Flash Alert
Flu Stocks Up Sharply – Trading Opportunity
Market Rally Appears Imminent
The mistakenly-named swine flu outbreak in Mexico that has spread to the U.S., Canada, Australia and other countries has the stock market down this morning, while shares of companies involved in flu treatments or potential vaccines are soaring. Crucell (CRXL) is up almost 9% to over $20 at this writing, while BioCryst (BCRX) is up 90%. I still think CRXL is worth $35 a share in a buyout, and this news makes it a little more likely that we will see a bid this year.
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Dear New World Investor:
For a few years, I’ve been saying that April 19, 2009, would be a significant day in the stock market, based on the work of Martin Armstrong at the Princeton Economics Institute. He analyzed the history of stock market prices based on a number that seems to permeate the natural world: 3.1416, or pi. The result was a remarkably accurate series of major peaks and troughs that were 3,141.6 days apart, with interim peaks and troughs also based on derivatives of pi.
Global Business Cycle
The major peak of 2007.15 was February 24, one trading day before the Shanghai Composite fell 8.8% in a day. Although the major indices set a higher high a few months later, that was the day the world’s attitude towards financial risk began to change, marking the end of the credit- and leverage-fueled boom. The 2008.225 interim trough was March 22, 2008, a few days after Bear Stearns was sold to JPMorgan. While that was a long way from the trough in stock prices, it did mark the introduction of the solution to the problems that the February 24 top revealed: Weaker competitors have to disappear into stronger competitors, one way or another.
So I was watching the April 19/April 20 action with great interest this week. April 19 was a big down day based on doubts about the real profitability of the banks, which are reporting operating earnings more than offset by continued large asset writedowns. April 20 got back much, but not all, of the decline. The message to me is
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Since Dendreon’s (DNDN) conference call on April 13 to announce that the Provenge Phase III IMPACT clinical trial easily met its primary endpoint of a 22% reduction in deaths versus the placebo group, there have been numerous posts, articles and message board flames on both sides about what happens next. Not one of the seven analysts who published a rating on Dendreon’s stock recommended buying it ahead of the release of the positive results, and not one has raised their rating to buy since the conference call. That’s remarkable, not just because this is the first cancer vaccine that will be approved by the FDA, but because Provenge works the way an effective drug should work with no significant side effects. Just in the small group for which it was approved, it is likely to be a billion-dollar drug in the U.S. alone, as I will show in the model below.
My valuation model explained below shows $1.5 billion dollars in Provenge revenue should equate to about $30 on DNDN stock today. Considering the potential for immediate off-label use in earlier stages of prostate cancer, I think
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Dear New World Investor:
Last week I wrote that: “One fundamental that could kickstart a big rally is March quarter earnings that are no worse than the dismal expectations already baked in to stock prices. Although Alcoa and a few others have already reported March quarter results, the crucial tech sector kicks off next week with Intel (INTC). Their management has done a responsible job of keeping expectations low, and Wall Street is looking for only $6.96 billion in sales and two cents a share, with some looking for breakeven or a penny loss. For the June quarter, the consensus expectation is for $7.0 billion and seven cents, with a range from breakeven to 20 cents (an old estimate).”
While yesterday’s drop-and-recovery didn’t look like a big kickstart after Tuesday’s hard test down, today showed good follow-through and I do think that was it. Intel came through with relatively good results, posting $7.1 billion in sales and eight cents a share after adjusting for an unusually low 1% tax rate. They reported 11 cents before my adjustment, and said they will have a 24% tax rate for the remaining three quarters of the year.
The two key take-aways from the conference call were, first,
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Don’t Sell Dendreon Yet!
Dendreon (DNDN) yesterday held a conference call to report that Provenge met the goal of reducing mortality in men with advanced prostate cancer by 22%. This was a big win for the company, and I am going to quote several statement that show how wrong the bears were on this drug. But the company did not report the actual top-line data for Provenge, and here is why you should NOT sell Dendreon yet:
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Dear New World Investor:
It will come as no surprise to you that all the action of the last week until 2:30 PM EDT today was meaningless in itself – just more consolidation in the 800 to 850 range. But the longer a consolidation continues, the more energy builds up for the next move, up or down. At this point, the daily and shorter-term charts are fully consolidated and ready to move, and that move probably started today at 2:30 PM when the S&P 500 broke out over 850. Unless we see a quick retracement that indicates a failure at 850, followed by a sharp break under 815 on the S&P 500 on a closing basis, the move will continue up. I think there is enough energy to move very quickly to
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What’s Up With Dendreon?
Dendreon (DNDN) jumped Friday and this morning after the American Urological Association granted a last-minute request by the company for a time slot to make a presentation on Provenge on Tuesday, April 28 ,at the Association’s annual meeting in Chicago. I confirmed this morning that Doctor Paul Schellhammer, Program Director of the Virginia Prostate Center and Professor of Urology at Eastern Virginia Medical School, will speak during the Late-Breaking Science Forum, along with eight other presentations from1:00 PM to2:30 PM. His presentation title is “Results of the Provenge Trial.”
Squeezing a presentation in at the last minute like this is only done at the request of the researchers, and the betting is that Dendreon would not have asked for special treatment if there was bad news coming – they could give the analysis of a failed trial at any of several meetings later this year. So the move up in the stock probably is appropriate, although
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