OPTIONS TRADING

[Gd2Aussie3]

DNDN is one you might want to do a collar on and the reasoning:

In late May 2006, sheep-like investors piled into shares of Pozen (POZN) with grandiose expectations for outright FDA approval for Trexima, a drug for the acute treatment of migraine. But all wasn’t good for the “sheep,” as the FDA didn’t share in their confidence. Instead, the FDA issued an unexpected June 2006 approvable letter that sent the stock plummeting from about $16 to less than $6.

Could this be the fate of Dendreon on May 15, 2007? Truth is, it could very well be.

20 days and counting… that’s how much time the FDA has remaining on its legal deadline to make a decision that’ll make or break Dendreon. Sure, the company scored big points when a panel of FDA advisers recommended that Provenge (a prostate cancer drug) be approved, but you’re dealing with the unpredictability of FDA politics here, and the fact that approval may have already been priced in.

In my honest opinion, buying this stock ahead of the decision may welcome more trouble than it’s worth. We’re not looking for the FDA to fully reject Provenge. What we are looking for is an approvable FDA letter, which will say that the drug will be approved if conditions are met. And that, my friends, could result in a horrifying gap down.

It doesn’t help that, according to Forbes.com, “Dendreon’s application to the FDA contains two late-stage studies with a combined total of 225 patients. Both studies missed their main goal… and the FDA tends to toss out studies that don’t make their main goal.”

Plus, the drug doesn’t come without criticism. Remember, four of the 17 panelists did not green-light approval. Howard Sher, for one, a urological oncologist, says that the FDA cannot approve the drug based on current data and that approval should be deferred.

In my opinion, there’s a high likelihood that the FDA’s decision will burn Dendreon bulls. I don’t want you to be one of them. We’re looking for an approvable letter, which could result in a gap down by May 15, 2007.

Ian L. Cooper
Editor, Death Cross Trader
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G' day Mates,

Aussie