I was wrong about DNDN. I invested in Dendreon by buying shares of DNDN because I thought the company had a good chance of succeeding with their prostate cancer treatment (Provenge). The last time I looked, DNDN was down over 90% from its high, they were going to lay off over 40% of the company, and close a facility. I never expected that to happen; especially, after the FDA approved the treatment, the treatment saved lives, and the company had grown to making hundreds of millions of dollars a year. I was so right and so wrong at the same time.

A quick synopsis for those who haven’t followed Dendreon‘s story. Dendreon is a biotech largely based on a technology that trains the patient’s immune system to fight cancer. The patient gives some blood, an antigen specific to the cancer is connected to another molecule that the patient’s immune system will recognize, the result is transferred back into the patient, and in a few days or weeks the patient may find that their cancer is being treated from the inside. The process is far simpler, less painful, and more successful than traditional competition. The surprise for many was that the price of each injection is about $30,000, and the recommended “dose” is for three injections, but even then the treatment is cheaper than the alternatives. Median life extension was conservatively claimed as four months at the start, but as the treatment has entered the field, the data has suggested a much longer extension. Clinical trials have also suggested that the treatment be used earlier and across more of the patient population. This is all good news.

About this time last year Dendreon announced a 20% revenue miss. The stock dropped 80%. (Triple Whammy) I started looking for a job. I’m still looking. (My Jobs Report Month 11 – Anyone need an aerospace engineer who can write, speak, teach, and consult?) Since then growth has fallen short of expectations and upper management has changed. There has been a lot of inaccurate news reporting that hasn’t helped; but, it is a radical new treatment, too good to believe for some, and possibly too much of a threat to convention for others.

I looked forward to Provenge’s success. If it attained the optimistic projections of a billion dollar treatment, I would have more than enough shares to be more than comfortably retired. Even if they only attained half of that, the stock would still be worth more than enough based on “the Present Value of Future Revenues Discounted for Risk.” Provenge’s success in our decade’s old War On Cancer should have benefited the patients, the company, and the shareholders well enough to launch much positive change. The technology probably works for more than prostate cancer. There are good reasons to suggest that it can also work against lung, breast, ovarian, colo-rectal, renal and bladder cancers. Add all of those possible treatments to the Present Value calculation and even a shortfall in Provenge market penetration would be absorbed into an awesome potential.

That’s where I was wrong. Despite being approved by the FDA, despite being more successful than the conventional competition, despite 60% year-to-year growth, DNDN is valued as if it doesn’t work and as if the future treatments won’t happen. The stock is trading for less than it was before the FDA approval. I figured that even if the treatment was only marginally successful and too expensive, the revenues and technology would be valued much more highly after an FDA approval. For a while that was true and DNDN was climbing past $50. I had a partial sell point at $64. Oh well.

There is plenty of speculation about various conspiracies. Were the FDA’s delays bureaucratic resistance to something new, or were there illegal influences at play, or were they merely dutifully acting extremely cautious? Were financial and trading irregularities a result of the company deciding to go it alone and not play the game by selling a portion of the company to a major pharmaceutical firm, or was there a backlash because they didn’t need to rely on conventional funding, or was the flash crash and short selling totally legal? If Dendreon made a billion, would the threat to multiples of that within existing companies and financial institutions be sufficient incentive for unethical acts? If Provenge is as simple to administer as it has been, does it disrupt existing governmental, medical, and charitable bureaucracies?

The basis of the speculations is that the depressed price is retribution for being different, and possibly a drive to set up someone to be able to take credit for a massive recovery in a few quarters. If DNDN climbed back to initial post-approval prices then someone will claim excellent managerial skills.

DNDN is trading at pre-approval prices. Their price-to-sale ratio is less than two; that’s down in the neighborhood of construction firms, not breakthrough biotechs. The only way I thought they’d get here was if the treatment had massive, negative, unseen side effects. That hasn’t been the case. The opposite has been true. From what I can tell, Provenge is a benign, effective, and cost-efficient treatment for one of the most prevalent cancers.

And I am looking for a job and have my home for sale. Two years ago my holdings were about to become more than enough. I probably won’t have any shares left by the end of this year, unless I start selling some of my other depressed stocks or find significant revenues elsewhere. (Did I mention I am hunting for a job, am selling my home, am working every day on my business, and am buying lottery tickets?) If the company survives and the stock recovers, the people who benefit the most are those who didn’t have to sell.

A month and a half ago I posted a comment from the CEO. He was talking at the annual shareholders meeting. (Corporations Meet Owners DNDN 2012)
“In response to a question about the stock price, the CEO noted that no one else in the room wanted the price to go higher than he did. I almost said something out loud, but then remembered the rules for expulsion. In large part because of DNDN’s collapse I have been looking for a job (see My Jobs Report Month 9), am having to sell my house (see Home For Sale Alas), and have never had more uncertainty in my life (see Too Many IFs). I contend that he is not having to sell his house to find money for living expenses, is not looking for a job, and has not had to sell off 66% of his shares and most of an IRA in the interim. I strongly suspect that returning DNDN to $60 would have a much greater affect on my life than it would on his.”

I’ve had to sell so many shares over the last few months that even if DNDN returned to $60 I’d continue with all of my efforts because I have to. He may benefit by making millions. If I have no shares I won’t benefit at all.

Despite the price of DNDN I have confidence in my research abilities. Dendreon did succeed. Provenge is approved. The treatment is treating patients. The technology may work against other cancers. I was wrong about DNDN, but I think it is because the investment community doesn’t know how wrong they are about Dendreon.