Whew Good News

That feels better. DNDN, the stock that’s most recently been driving my portfolio, was up over 60% this week. That doesn’t put everything back to bright and cheery, but it is a sign that the downside of the irrational market may be receding. There are no guarantees of success, but there are also no guarantees of failure. What went up, then down, apparently has begun going back up. Those last two sentences can describe DNDN, the economy, my mood, and a multitude of over situations.

DNDN’s price history includes wild swings that are incredulous. I posted Incredulous Views to chronicle the ride back in October. Back then my financial situation was dire enough to prompt me to begin applying for jobs. DNDN dropped from there after Dendreon’s next earning’s report. My job search took on a greater urgency. The last two trading days of this week, that 60% jump, merely put me back into October’s situation, though with fewer shares in the portfolio, more debt on the credit card, and dozens more job applications circulating. Claiming that DNDN can rise much more than 60% from here can sound like hype or desperate hope. An unemotional response to mathematics, and a willingness to ignore conventional investing wisdom, allows for another 100%, 200%, or more rise. Yes. I am an optimist. (Someone described me as “that terminally happy guy”, which I appreciate except for the “terminally” part.)

Dendreon’s story is driven by their first FDA approved treatment. Provenge treats prostate cancer by retraining the body’s immune system to fight the cancer with the tools it already has. Provenge is not a panacea, but the trial data suggests that it works better than the existing treatments, has far more benign side effects (ala the flu instead of chemo and radiation pains), and costs less than traditional treatments (all things considered). Unfortunately, medical practices are conservative and can change slowly, there is an entrenched industry based on chemo and radiation, and while the total cost for Provenge is less, the individual treatments are applied in $33,000 events which puts a lot of financial risk on the doctor’s financial statement.

If Provenge revenues continue to rise it is reasonable to estimate that the treatment can be expanded to more patients earlier in their therapy, and it can be expanded to Europe and the rest of the world. Such expansions easily add up to a billion dollar revenue stream, and potentially much higher. Currently the company and the stock are valued based on slow growth and no expansion.

One trick wonders are risky investments. Provenge is not a solo or a trick. The technology behind Provenge may be applicable to treating lung cancer, breast cancer, ovarian cancer, bladder cancer, renal cancer, and colo-rectal cancer. Clinical trials for treating bladder cancer have begun. Those cancers constitute the majority of the cancer patient population. That pipeline expansion is valued at zero.

Use almost any positive rational number besides zero for any of those expansions and the valuation for Dendreon and DNDN result in much higher stock prices. A 60% jump from such a low level is a blip on such a scale.

I am not an expert on Dendreon, Provenge, oncology, or investing. My knowledge is built on persistent casual interest. I also suspect that there are other such stories. AMSC and MVIS come to mind, but I’ll write about them later.

Pessimism has prevailed long enough. One statistic I’ve yet to find is the non-financial GDP trends for the last decade or so. Much of the bad news has been based on banks, lenders, institutions, and central governments mismanaging money. Hiring has begun, and as one friend chimed in within the first few days of 2012, “wow, my calendar is filling up fast!” and then “working through the VERY LONG to-do list“. Variations on that theme are more common in conversations this week. My biggest headache came from being too much in demand. I’ll take it as a compliment that the most common complaint was that I wasn’t spending as much time as they (and there were many “they”s) wanted on their (almost exclusively unpaid) projects. It is far better than, “We’ve seen enough of you. Get out of here!”

Wars are winding down. Hiring that was put on hold during the holidays, has begun again. Stores are busy. I know one that had a stellar New Years Day. Friends are traveling more. Jon Stewart and Stephen Colbert are broadcasting new shows again. Okay, some of those are definitely related to the holidays, but I celebrate good news as much as possible.

DNDN has risen enough to make it easier to sell some stock in my IRA, pay the taxes and penalties, and still be able to make a mortgage payment and maybe another bill or two. As it rises, my anxieties abate and my delayed expenditures are addressed. As our economy recovers we may realize that the non-financial parts were reasonably healthy while we were being distracted by bank failures. We may relax enough to get back to getting the good work done. (And no, repurposing the armed forces from Iraq to Asia is not as impressive as if we repurposed the money to people and infrastructure at home.)

As an optimist I look beyond the initial relaxation and look forward to the days of balanced productivity and easy leisure. Provenge treating a broader geography and populations may mean DNDN ~ $100. Sound incredulous? If expansion creates $1B in US revenues, and $1.5B in European revenues, then the total revenues from Provenge alone are $2.5B. Six times revenues (a conservative ratio for a biotech) results in a $15B market capitalization valuation. There are about 150M shares which means a price of about $100 per share. And then there’s the pipeline of other treatments. A rational market will value them at something greater than zero, which drives estimates higher than $100.

That’s the sort of potential that may finally be revealed for Dendreon and cancer patients; for DNDN and investors. I think that’s the sort of potential we have as a country and a species. That’s the sort of potential I see for me and the people I know. That’s good news.

About Tom Trimbath

real estate broker / consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: https://trimbathcreative.net/about/ and at my amazon author page: http://www.amazon.com/-/e/B0035XVXAA
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4 Responses to Whew Good News

  1. I saw a great report on them in the Wall Street Journal when the price jumped a few days ago. Was thinking that it’s about time you had good news to report on your portfolio. I expect this to be the beginning of a nice improvement in your fortunes so you can forget selling your house and finding a real job and just keep wandering around taking pictures.

  2. Michel Audette says:

    Over what time frame do you see this ascent to $100?

  3. Timing. I wish I knew, and I’m not simply dodging the questions.
    As I said in a previous post
    (Getting Over It – https://trimbathcreative.wordpress.com/2010/10/30/getting-over-it/ ):
    “Within the stock markets, the timing of good news or bad is a way to track whether the investors are bullish or bearish. In a bull market, when expectations are high, the anticipation of good news drives the stock price up before the actual announcement.”
    In more rational times I like “present value of future revenues discounted for risk” (check my book for more details), but these aren’t rational times and the timing of future revenues has been affected by non-technical influences.
    Like I said, I wish I knew too. My mortgage payment and credit card bills would like it now please.

  4. Andy wu says:

    I saw a report released by ValuEngine released on 10-Jan 2012 putting a buy recommendation. Their target price is 27.5 so there is a lot of upside still left in the stock. In my personal opinion it may hit high 20s and then get gobbled up in a hostile takeover bid – a very likely scenario. Provenge has a novel approach to treating cancer something which is too difficult to ignore for the big pharma… I will hold onto my stock for sometime.

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