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What the heck do you do on days like this? Cash out? Stand pat? Never buy in?

Dendreon (Nasdaq: DNDN  ) , everyone's favorite tiny biotech, got bigger today. A lot bigger! The stock was up a lot today -- as much as 203% (that's a one-day triple!) -- but it seems to have settled up about 135%. Even better for some, it is currently a six-bagger from its lowest close of $2.61 last month. All this because positive phase 3 results for its prostate cancer treatment, Provenge, were announced this morning. You've got to love those breakout biotechs.

The huge jump, of course, begs the question: Is Dendreon overpriced at this new level, meaning you should sell? Or should you buy? While I cautioned readers that the price last week didn't justify the risk of the trial flopping, with the data now out, most of the risk has vanished.

We'll have to wait and see the full details of the trial when they're presented at the American Urological Association's annual meeting at the end of the month, but things sure look promising for Food and Drug Administration approval. The FDA already signed off on the trial design, and Provenge met its primary endpoint of extending overall survival, which should be enough to get a thumbs-up from the agency. The company expects to submit the data to the FDA by the end of the year, so a six-month review would result in a decision by June of next year.

You'll recall that Dendreon submitted a marketing application for Provenge a few years ago. In 2007, an FDA advisory panel recommended approval of the drug, and the market cap ran up to around $1.9 billion. This was before the FDA went on its run of not approving drugs recommended by its advisors, including Schering-Plough's (NYSE: SGP  ) Bridion, Theravance's (Nasdaq: THRX  ) telavancin, and Remoxy from King Pharmaceuticals (NYSE: KG  ) and Pain Therapeutics (Nasdaq: PTIE  ) (just to name a few). So while there was some risk of rejection (which is what happened), many investors obviously thought an approval was imminent. With the company having met its latest phase 3 goal, a similar market cap seems justified at this point.

Another way to look at the potential value of Dendreon is to compare it to other one-drug wonders. Onyx Pharmaceuticals (Nasdaq: ONXX  ) , for instance, sports a market cap of about $1.5 billion, but it's only entitled to half of the revenue from its oncology drug Nexavar. The drug managed only $678 million in sales last year because of relatively small treatment areas and competition from Pfizer's (NYSE: PFE  ) Sutent. That's much less than I'd estimate Provenge is capable of, given the potentially large market -- prostate cancer is the most common type of cancer after skin (nonmelanoma) and lung -- and the probable high price tag. This should give plenty of room for the stock to run if Provenge gets on the market.

Dendreon doesn't look overpriced here, but with any FDA approval more than a year away, there's plenty of time to buy in.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a recommendation of the Inside Value newsletter. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 14, 2009, at 6:49 PM, TSIF wrote:

    Wanna bet that approval gets fast tracked. This is not your "last presidents" FDA.

  • Report this Comment On April 15, 2009, at 11:47 AM, Vinman2 wrote:

    Orelli wrote that Nexavar had "only" $678 million in sales last year that it must split with Bayer, and that Nexavar is in a small indication and has competition with Sutent whereas Provenge has a much larger potential market. The latter might be true assuming Provenge will be approved, and then have the approval expanded to all prostate cancer, but the still unseen data was from hormone refractory protate cancer only. I wish good luck to all DNDN investors.

    Whether or not DNDN is a better buy than ONXX isn't the point. Orelli has posted the same negative and misleading comments about Nexavar more than once in the recent past. First, Nexavar is approved for both liver and kidney cancers, but Sutent is currently only in competiton with Nexavar in kidney cancer. Second, kidney cancer is the smaller of the two indications. Third, Nexavar sales for liver cancer market is expected to keep growing due to recent approvals in Asia where Liver cancer is far more prevalent than in the US and Europe. This should keep driving sales higher. Fourth, Nexavar is now in trials for longer term usage in liver cancer after tumor removal. Finally, I could talk about how many other trials Nexavar is currently in for larger cancer indications. I could talk about a recently small study which indicated that kidney cancer patients had more benefits from recieving Nexavar first and then Stutent, but it doesn't seem like Orelli is interested in doing some detailed analyses. I just wish to thank him for helping depress ONXX prices so that I can keep adding to my position.

  • Report this Comment On April 16, 2009, at 6:46 AM, wroundtree wrote:


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