Great Expectations

First, a little background.
STOCK INVESTING IS NOT A GAME TO ME. I have a day job, two kids, and a wife who equates the stock market to a casino. Two years ago, I let myself accumulate just over 13,000 shares in a little biotech company called Dendreon. At a cost basis of about $4.50 a share, this $60K, spread between my IRA and brokerage account, was a SIGNIFICANT fraction of my assets – a much higher percentage than I, who pride myself on my personal finance knowledge, would ever recommend anyone investing in one risky stock.

Why did I do this? Lots of little reasons… but it boiled down to a couple reasons. I believed in the drug that was up for FDA approval, and it made me feel good to invest in something that has potential to save lives. (Provenge is an immunotherapeutic vaccine for prostate cancer)

Now, built into that “belief” was an enormous amount of due diligence. The final block of shares that I bought was after the FDA released the briefing docs that the Advisory Committee it had convened would be using to aid them in their discussion. Routinely negative and devoted to picking apart data, these briefing docs in Dendreon’s case were actually mildly approving in spots. My expectations were met when the AC voted at the end of the day 17-0 for safety and 13-4 for efficacy. The stock price went from $5ish to nearly $13 the next day, and over the next month hit $25.

And the drug was not even approved yet! The AC vote means nothing – it is simply advisory. But the FDA had never, in the case of a terminal illness with few options, overridden an AC recommendation with rejection. Given my research, the potential market indicated that future sales even discounted back to present value, should yield a share price of around $40 to $50 very soon. Imagine that! Dendreon, within my IRA, was already nearly a quarter of a million dollars. I was having visions of paying off my house within a year from my brokerage account.

My wife started asking, “So when are you going to sell some?” My answer: “After approval.”

The rude awakening came when the FDA did say no, in the form of a Complete Response (or “approvable”) Letter, where the answer was: “Complete the ongoing trial and show us MORE proof”. The stock tumbled back to $7, and then to $5, and has bounced around since then. Me? I mostly got out around $6, as that ongoing trial wasn’t going to end until 2010. My wife still says, “I told you so,” occasionally.

So why dredge this up now? Dendreon amended their agreement on that ongoing trial and final results are now expected by April of this year. I’ve been building my position back up, as I still believe in the drug. However, given the market’s performance in the last year, and my promise to my wife to never concentrate our holdings quite so much again, I don’t have as many shares now as I did then. And I am revisiting my reasons for holding, AND my projected reasons for selling.

I still believe in Provenge. At the “interim” look at the data, it showed a 20% reduction in risk of death compared to the placebo group. In the prior trials, it showed a similar benefit at a similar time point… and later on an increasing benefit over time. There are extremely few and mild side effects, especially compared to the chemo alternative. But recall my second reason for investing – it made me feel “good”. I CANNOT allow myself anymore to use that as a reason for investing – biotech investors in particular are advised to “never fall in love with a stock”. So now that we are getting close to potential approval again, I have to decide when I will sell what percentage of my stake, and at what prices. I need this decided BEFOREHAND, so there is no emotion involved at the time. Note: I am fine with the risks of non-approval with the amount that I hold now! This decision is only for if approved.

My decision? I will sell a quarter of my holdings at $30, and another quarter of what I have remaining at $40. After that, when the company releases pricing and manufacturing capability, I’ll have more data to use to decide where to go from there. But my limit orders to sell are set, and honestly? I slept much better last night.