Dendreon's Mysterious Trade

Biotech stocks are supposed to be volatile, but yesterday’s move in Dendreon (DNDN) was a bit much. In a matter of minutes, the biotech stock fell 70%, from 25 to 7.50, before trading was halted at 11.81. The truly strange part: the company was expected to announce the results of tests on its prostate cancer drug at 2pm, about half-an-hour after the selling started (most stocks have large moves after the news is announced). Even rarer, is the speed with which the move happened, just a little over one minute for the stock to fall 16 points. Even more amazing is just how wrong the seller turned out to be.

What is clear is that someone, maybe more than one person, desperately wanted to get out of the stock. Dendreon shares started drifting lower at 1:24, but the drifting turned to hardcore selling around at 1:25:32. An offer to sell 20,000 – large in a stock that typically trades a few million shares a day, though volume would spike to over 30 million – appeared on the tape at 24, and the stock started falling like a rock. Bids were hit — Bloomberg reported that 260,000 shares or 60% of the volume traded at the best-buy price, a sign that an someone really wanted to sell. Eleven seconds later, the Dendreon shares were at 23. Twenty-five seconds later it was trading 20, as the pace of the selling picked up. Blocks of shares continued to trade – 2,000 shares, 5,000 shares – as the stock continued to plummet, with our seller still trying to dump 20,000 shares. Twenty seconds later the stock was trading at 12, and yet it continued to fall. Only after the stock traded 7.50 about 17 seconds later, did shares bottom. In all, it took one minute and 13 seconds for Dendreon’s market cap to fall over 16 points.

NASDAQ halted trading in the stock moments later, with the stock at 11.81. Results of the clinical tests were announced about half-an-hour later. And they were good. Better than good. Late-stage prostate cancer suffers live 4.1 months longer on Provenge, Dendreon said. Serious side-effects occurred 24% of the time, similar to the 23.8% rate with a placebo. FDA approval is expected by 2010 and Dendreon stands to make billions from the drug. On April 29, four analysts upgraded the stock to buy, two to outperform. When trading reopened the next day, the first trade went off at 26.82.

So what happened? What caused Dendreon shares to hit terminal velocity? NASDAQ looked into the trades, suspecting that perhaps they were entered by mistake, in which case they would be cancelled. NASDAQ let them stand. We can rule out a trader hitting the wrong button. Some bloggers speculate it was a bear raid, a group of investors selling a large quantity of shares to push the shares down – though they would have had to cover before the halt to make any money on the trade. Perhaps it was a “Trading Places” situation, where someone thought he had news and just kept selling. Or maybe it really is as simple as the rumor now making its way around Wall Street: a trader had simply misinterpreted a headline and pushed the sell button, causing a cascade of selling by itchy-fingered traders, nervous from the pending announcement.

Whatever it was, even with the stock closing at 22.94 anyone who sold near the lows is nursing a very large loss.

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