Bloomberg News

Dendreon Put-Options Trading Surges Before Medicare Approval

June 30, 2011

(Updates with Medicare decision, late trading throughout.)

June 30 (Bloomberg) -- Trading of put options on Dendreon Corp., the drugmaker whose only product is Provenge, rose to a seven-month high before Medicare approved paying for the prostate cancer treatment.

Almost 19,000 contracts giving the right to sell the stock changed hands as of 4 p.m. in New York, 10 times the four-week average, as the shares slumped 2.6 percent to $39.44. They gained 1.8 percent to $40.14 as of 4:14 p.m. in late trading after the approval announcement. The most-active contracts were July $38 puts, which accounted for almost a third of put trades. The shares haven’t closed below $38 since May 17.

The Centers for Medicare & Medicaid Services issued a final ruling today saying the $93,000 treatment is “reasonable and necessary” for men with advanced, prostate tumors resistant to hormone therapy who have minimal or no symptoms. The decision is in line with prescribing information for the drug approved in April 2010. Dendreon, based in Seattle, may generate sales of $2.1 billion in 2014, according to the average estimate of four analysts surveyed by Bloomberg.

“Any kind of uncertainty like that will drive up interest in options,” said Caitlin Duffy, an options analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc. “There’s a lot of fresh positioning and a lot of buying indicating some need for protection or outright bearish outlook in the short term.”

--With assistance from Sasha Damouni in New York and Catherine Larkin in Washington. Editors: Nick Baker, Joanna Ossinger

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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