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3 Biotech Stocks Battle the "Dendreon Corporation (DNDN) Effect"

8/19/2011 7:50:16 AM

BOSTON (MarketWatch) — Dendreon Corp.’s recent tepid sales report has not only chilled trading in the company’s once-hot stock but also managed to frost investors in three biotechs in the middle of highly anticipated product launches: Savient Pharmaceuticals, Human Genome Sciences Inc. and InterMune Inc.

Call it guilt by association. Call it the “Dendreon Effect.”

“Pretty much every company that had just launched a product or was about to launch a product got crushed,” said Leerink Swann analyst Howard Liang. Liang was talking about the sell-off in the wake of the Aug. 3 release of Dendreon’s /quotes/zigman/83175/quotes/nls/dndn DNDN -2.26% quarterly report, which showed weaker-than-expected sales for the company’s new prostate-cancer vaccine Provenge.

While Savient, Human Genome and InterMune have incurred the greatest collateral damage, Liang notes that shares of Vertex Pharmaceuticals /quotes/zigman/79675/quotes/nls/vrtx VRTX +0.35% and Seattle Genetics Inc. /quotes/zigman/85432/quotes/nls/sgen SGEN +2.51% were also dinged.

“It shows the risk when expectations have to be pared back,” said Liang. He added, however, that Dendreon's sales issues are largely Provenge-specific, given the complexity and high-cost of the product. Provenge, which is synthesized from a patient’s own immune cells, costs about $93,000 per treatment.

The Dendreon Effect sell-off comes at a time when rest of the biotech sector is struggling to crawl back from series of sharp pullbacks in the broader market fueled by fears over the state of the global economy.

For the month of August, the NYSE Arca Biotechnology Index /quotes/zigman/6017893 BTK -0.34% fell 18.5%, compared with the S&P 500 Index /quotes/zigman/3870025 SPX -0.68% , down 11.7% by Thursday’s close. The Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA -0.81% , which lost 420 points on Thursday to close at 10,991, is off 9.5% for the month.

Sales report is catalyst

The Dendreon Effect started on Aug. 3, when the company reported lackluster sales for Provenge, which recently won U.S. regulatory approval after a lengthy and controversial review, and subsequently withdrew its sales forecast. Dendreon attributed the slow ramp-up in sales in part to lingering insurance reimbursement issues.

Dendreon stock, notoriously volatile in recent years, tanked on the news. The stock remains down nearly 70% from the beginning of August, closing at $11.97 on Thursday.

Investor disappointment, fueled by a greater sensitivity to risk given the state of the broader market, quickly spilled over into shares of Savient and InterMune, which had the unfortunate luck of reporting their quarterly earnings around the same time as Dendreon. And it hastened the selling of Human Genome shares, which had been under pressure since the company unveiled its quarterly report in late July.

Savient Pharmaceuticals /quotes/zigman/90527/quotes/nls/svnt SVNT +1.24% was hardest hit, with shares plunging after it issued an update on the launch of its newly approved gout drug Krystexxa. The stock is off 42% this month, closing at $4.05 on Thursday.

According to Tanner, Savient also has been hurt by the inability to find a suitable buyer. The biotech reportedly said earlier this year it would seek out a suitor once Krystexxa won regulatory approval.

“It was probably a mistake for the company to put out a ‘for-sale’ sign,” said Tanner, adding Lazard has a neutral rating on the stock.

Read at Market Watch

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