Market Overview

SAC Capital Just Got Smashed On Its Dendreon Position!


The big story in Wednesday's after hours trading session is the annihilation of one-time biotech darling Dendreon (NASDAQ: DNDN) after the company reported its second quarter earnings results. It didn't go so well...the stock is down 62% in late trading! No one wants to see this (except the shorts, who are probably taking a well deserved victory lap in their Ferraris). A lot of small investors who believed in the DNDN story are undoubtedly hurting right now - and they aren't the only ones.

Guess who is the largest Dendreon shareholder? A little outfit called SAC Capital. As of their last reporting date, Stevie Cohen's hedge fund held 8,203,470 shares valued at $294 million at the close of today's trading session. Assuming that SAC was still holding the same number of shares heading into the company's earnings release, the firm just lost roughly $187 million. Ouch! It should be noted, however, that SAC is known as a fast trading shop, and may have reduced their position since their last 13-F report, or may have had derivative positions hedging their exposure. The hedge fund, however, has had a significant DNDN position for a long time, so it is safe to assume they got hurt today.

So what went wrong for this former high flier? The company reported an earnings per share loss of $0.79, which compared to analysts' estimates calling for a loss of $0.71. Not good, but it gets worse. Dendreon reported revenue for the quarter of $49.6 million, which was well short of Street consensus estimates of $57.7 million. Bad, but there is more. Management also pulled sales guidance for 2011, saying that its prostate cancer drug Provenge isn't growing as fast as anticipated. If you are unfamiliar with the stock, DNDN=Provenge. The entire market cap of the company is based on the drug's prospects.

Previously, Dendreon had estimated Provenge revenue at $350 to $400 million during the year, and after this quarterly report, that clearly is not going to happen. Chief Executive Officer Mitchell Gold said that the company still believes that there is a sizable market for the drug, but that the company only anticipates modest sales increases in the second half of fiscal 2011. He said that the major hurdle for Provenge has been the lack of knowledge about insurance coverage.

In June, the Centers for Medicare & Medicaid Services issued a final ruling saying that the $93,000 treatment is "reasonable and necessary" for men with advanced prostate tumors resistant to hormone therapy who have minimal or no symptoms. Judging by today's results and the company's commentary, however, doctors and patients, in aggregate, may not be aware of this decision granting Provenge coverage.

In a statement, Gold said that the agency's decision “will have a significant impact on increased physician adoption, however, we believe this will take time, and for the remainder of 2011, the launch trajectory will reflect a more gradual adoption of Provenge as physicians gain confidence in this positive reimbursement landscape.”

By the way, don't worry about Stevie Cohen...he is still richer than every single person on the planet minus 113 fortunate individuals!

Posted-In: Earnings News Guidance Hedge Funds FDA After-Hours Center Movers General Best of Benzinga


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