Supernus’ Short Squeeze, Dendreon’s Ongoing Decline

Two companies with extremely high short interest as of April 30th – Dendreon Corporation (DNDN) and Supernus Pharmaceuticals (SUPN) at 35.4% and 36% of shares short as percentage of float (respectively) saw radically different outcomes throughout the last three weeks.

Dendreon is down about 16% since the start of the month after a disastrous Q1 2013 earnings report in which the company reported deterioration in sales of flagship product Provenge due to competing prostate cancer therapies like Xtandi and Zytiga. Bears who shorted the stock in April are deep in the green at this point, and may see further gains if the broader market loses its strength in the near future.

Although Dendreon is expected to be introduced to the European market, the costs associated with the manufacturing of Provenge in Europe may keep the excitement limited. In addition, they have little faith in the company’s recent DTC (Direct to Consumer) television advertisements for Provenge therapy. At the crux of the bearish argument is the company’s enormous debts and its continuing operational losses, which could lead to a bankruptcy if Provenge sales never improve.

From Dendreon’s recent Q1 earnings release:

“We remain focused on improving PROVENGE utilization by executing our direct-to-consumer campaign which began in March, educating potential patients in the mCRPC market and employing our enhanced sales messaging with our customers,” said John H. Johnson, chairman, president and chief executive officer. “Currently, we are seeing an improvement in enrollments, a trend which began mid-way through the first quarter. As we leverage the power of our DTC campaign, we are confident in our ability to grow PROVENGE year over year.”

Supernus, on the other hand, is up about 24% due to the surprising turnaround in the momentum of drug Oxtellar XR. Although many analysts expected the drug to perform poorly in sales due to the high price point that the company is demanding for their extended release version of anticonvulsant agent Oxcarbazepine, data suggests that sales are up drastically from March 2013 – perhaps as much as 4x on a weekly sales basis. Although the company’s cash burn rate is still tremendous, at ~$18.4M/quarter, the organic sales growth that Oxtellar XR has seen has clearly excited the market, and it seems likely that short sellers are looking to exit the trade.

Having said this, Oxtellar needs to sell many more prescriptions before its parent company Supernus can reach profitability.

From Supernus‘ most recent quarterly earnings release:

“Oxtellar XRTM continues to impress us with its clinical performance in the market. Prescribers are highly satisfied with the product and patients appreciate its key benefits. We are starting to see meaningful growth in the prescriber base and monthly prescriptions as we head into the middle of the second quarter. We also remain excited about our preparations for the upcoming launch of Trokendi XRTM in the third quarter of this year, pending final FDA approval,” said Jack Khattar, President and CEO of Supernus Pharmaceuticals, Inc.