Dendreon Tames Short Sellers, Transforms Itself into Old-School Buy-and-Hold Stock

6/30/09Follow @xconomy

Dendreon has had enough of the fast money world. The short sellers who hope to profit from a falling stock, and the hedge fund players who thrive on volatility that comes from rumors and speculation, turned this Seattle-based biotech company into one of Wall Street’s great running dramas of the past two years.

Not anymore. At least if the company has its way.

Dendreon, as part of its plan to morph into a full-fledged company that discovers, develops, and markets cancer drugs, has worked behind the scenes to transform its shareholder base from a Wild West gallery into a roster of backers you might expect from a blue-chip biotech. Of course, publicly-traded companies have limited power to influence who buys and sells their stock, but Dendreon (NASDAQ: DNDN) was able to engineer an important switch toward buy-and-hold funds last month as part of its $221 million secondary stock offering through Deutsche Bank, says chief financial officer Greg Schiffman. He wouldn’t name names until they enter the public record, although he did say many are big name healthcare funds with reputations for long-term investing, who had never before bought into Dendreon.

“Dendreon is a stock with very strong emotions, among people who are very supportive or people who don’t support us at all. It was all very passionate on both sides,” Schiffman says. “We have seen a transition in our shareholder base.”

Notice how he used the past tense. Dendreon’s executives have sought to make their stock less of a classic battleground for bulls and bears. This is a sign of a company transitioning toward a more mature, commercial phase, like Cambridge, MA-based Vertex Pharmaceuticals (NASDAQ: VRTX) did earlier this year.

“Having an investor base that wants to work with you is valuable—having a long-term, focused shareholder base supporting the company is important for meeting capital needs,” Schiffman says.

The results of this effort to tame the Dendreon shareholder base have been striking so far. Volatility is down since the Deutsche Bank financing closed on May 13. Shares have steadily climbed from $20.46 that day to $25.49 at yesterday’s close. More than 21 million shares of Dendreon were held in a short position on April 15, out of 100 million shares outstanding in its most recent quarterly report. The number of shares being sold short was almost cut in half over the next two months, down to about 12 million shares, according to data compiled by NASDAQ.

Trading volume has come down quite a bit as well. About 9 million shares a day of Dendreon changed hands over the past three months, but that has dropped to 6 million in the past 10 trading days, according to data compiled by Yahoo Finance. That’s still providing enough liquidity so that big investors can get into a stock without driving up the stock price—an important feature to many blue-blooded funds—but isn’t anything like the superheated environment of the past two years. It was so wild in 2007 that Dendreon, a little company of 200 employees with no products on the market, was the second-most traded biotech stock on the entire NASDAQ that year, behind Amgen, the world’s largest biotech company, which had more than $14 billion a year in revenue.

One of the curious byproducts of this transformation is that Dendreon is now getting a lot higher-caliber questioning from investors. Instead of spending hours of meetings with people asking questions about rumors—to correct misinformation, or to comment on why the FDA delayed its drug—Dendreon executives are getting serious inquiries now from investors about its future game plan for marketing Provenge, its prostate cancer drug, and for its manufacturing plans, Schiffman says. This sounds like it is keeping the company on its toes, or at least keeping it focused on stuff that’s more important (or at least not a big waste of time).

“These are valid discussions, and they are important for us to have,” Schiffman says.

Schiffman joined the company in December 2006 from Santa Clara, CA-based Affymetrix, just about a month after Dendreon filed its original application to the FDA. He lived through the heady days of late March 2007 when an FDA advisory panel said the drug was safe and effective, then experienced the colossal letdown two months later when the FDA said it needed more evidence from an ongoing clinical trial before it would clear the drug for the market. That regulatory delay wiped out more than $1 billion of paper wealth in one day.

Now that’s all behind the company since the 512-patient clinical trial in April showed Provenge was able to help men with terminal prostate cancer live a median time of 4.1 months longer than if they got a placebo, with minimal side effects. The result confirmed the earlier trial of 127 men that the company submitted to the FDA two years earlier. The longtime Dendreon bulls suffered through some very dark days—the stock traded below $3 as recently as February—but now no one is really questioning whether the drug has a solid base of evidence behind it, CEO Mitchell Gold said earlier this month at the annual shareholder meeting.

With all that data out in the public domain putting speculation to rest, Dendreon might now just be too boring for the hedge fund set. Marketing and manufacturing are bound to be prominent themes of the company’s upcoming investor day later this summer, Schiffman says. The company is going on a hiring binge—with 76 job openings at latest count—to do all the blocking and tackling it will need to make Provenge a success. It’s even prompted Dendreon executives to start talking again about how Dendreon could be the next big biotech success in Seattle after Immunex in the late 1990s.

“We have the potential to become a large biotech company. We have 100 percent ownership of our lead product candidate, and we have a platform behind that with many more opportunities,” Schiffman says. “I don’t think we ever should have had the drama that we had the past two years.”

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  • http://na Steven

    From Schiffman’s quote…

    “We have the potential to become a large biotech company. We have 100 percent ownership of our lead product candidate, and we have a platform behind that with many more opportunities,” Schiffman says. “I don’t think we ever should have had the drama that we had the past two years.”

    Luke, Again thanks for the even handed reporting. Just the facts is all I want and I got them in this article.

    So tired of the rif raf….!

    Amgen partnered Epogen world wide including the U.S. and didn’t know what they had until the cancer application was discovered. They fought with J&J for years in court.

    ICOS partnered world wide and IMHO gave up the store to LLY who eventually bought ICOS for a song and left an empty parking lot in Bothel where once a good company stood.

    Imunex had a blockbuster,Embrel, for rheumatoid arthritus that they couldn’t produce in quantity…and therefore could not remain independant.

    Dendreon may have learned from the mistakes of the past. They wish to own all the rights to Provenge in this country and they will be able to manufacture all the Provenge they will need.

    Some interesting possibilities for little Dendreon, that company that never gave up when many others might have.

    Thanks again…Steven

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  • http://www.xconomy.com/author/ltimmerman/ Luke Timmerman

    Steve, you make a very astute comment about stumbles that Immunex and Icos made that led them to end up getting acquired rather than remaining independent. Dendreon is in a rare position as a biotech to still be holding onto 100 percent ownership of a drug with $1 billion U.S. sales potential, that has passed Phase III clinical trials.