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Dendreon's D-Day

As I write this, Dendreon isabout to cross the 100,000,000 trading volume threshold. If Cisco hadn't made news as well, DNDN would easily be the most active stock on any of the major exchanges today. Yesterday the FDA sent Dendreon what's called an "approvable letter". I've called it a euphemism for "delay", but essentially it means the agency says it might eventually approve a product if or when the company provides whatever other information it wants. At this point, Dendreon says in a press release, "The FDA has requested additional clinical data in support of the efficacy claim....The company is seeking a clarification from the FDA as to the nature of the data that is being requested."

Most analysts think the FDA wants the ongoing, larger clinical trial results and that translates into another three or four year wait. For those who might not be familiar with the Dendreon story it is seeking approval of a therapeutic cancer vaccine called Provenge for advanced prostate cancer. Tests showed it extended the lives of some men by about four-and-a-half months, but the studies were relatively small and didn't meet their main goals. That's why hedge funds have been heavily shorting the stock--betting the share price would fall. They got burned several weeks ago when an FDA Advisory Committee said Provenge was safe and effective and recommended the agency approve it. But today they're popping the champagne corks, recouping their losses and maybe then some.

When the FDA panel voted favorably the company held a conference call for analysts and investors and we landed a "First on CNBC" live interview with Dendreon's CEO Dr. Mitchell Gold early the next morning on "Squawk Box". No such luck this time. No conference call. No interview. A spokesperson says they're still trying to get their arms around the situation. According to Paul Latta, an analyst at McAdams Wright Ragen in Seattle where he follows local biotech companies, Dendreon has $121 million in cash or what amounts to $1.60 a share. He forecasts that the company will burn through $60 million to $70 million in cash this year. The firm would like to bank Dendreon. Latta, in a research note to clients today writes, "Outside of full rejection, this is almost a worst case scenario." He also points out that Dendreon should be out with its first-quarter results soon and should hold a conference call at that time.

And I just got an email from Michael Shulman at "ChangeWave Biotech Investor"--a longtime bull on Dendreon and Provenge--who is now telling his subscribers, "It's time to close the position at market. The floor value that many traders and optimists have been using--$7.50--has not held. The next stop could be as low as $1.50. Time to go."

In the meantime, Dendreon says patients are caught in the middle. Dr. Gold is quoted in the company press release as saying, "...we are disappointed that this decision will cause a delay in the availability of PROVENGE for patients who suffer from advanced prostate cancer." Indeed, several patients spoke at the recent FDA panel meeting in what was one of the most emotional public comment sections of any Advisory Committee meeting I've ever witnessed. But, for now, only patients in Dendreon's clinical trial will have access to it. The rest with a certain type of metastatic prostate cancer will have to rely on Sanofi-Aventis' Taxotere and hormone therapy--both of which are very unpleasant.

This is what they mean when they talk about the "risk and reward" of biotech investing.

Questions? Comments? Pharma@cnbc.com

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