The Summer Street upgrade could mean several things, and their motivation in upgrading a stock they historically hated is intriguing. Selecting a target of $18 for a $6 stock is more than just an upgrade from the most negative firm on the street, its a billboard screaming "buy". Why did they do this?
Who knows? There are a number of possible reasons.
1. Summer street research covers biotech. They know biotech stocks always get bought out, post approval. At 2.5X current run rate revenue it was clearly a no brainer that the stock was too cheap. But why a $18 price target?
2. They actually believe that the risk in the market franchises is to Zytiga, not Provenge, as the Zytiga data, no matter how you spin it, will be meaningfully below the MDV3100 data , and without Prednisone, MDV will largely displace Zytiga.Meaning all the thoughts of disruption to Provenge would be more appropriately aimed at Zytiga. Hence their coment that Provenge will continue to grow under the new management versus the fears from ASCO.
3. The company is exploring partnerships in Japan and EU. Any potential partner would look at DNDN stock and wonder why they should "partner" when they can buy the whole company for a "small amount more".Maybe they heard something
4. Worldwide acquisitions of Biotechs by Pharma is the norm. Biotechs have become the Pharma companies R&D effort. Let 10 companies do the R&D then just buy the 1 or 2 that get approved. Maybe they heard something.
5. Hedge funds like events that they can bet on, regardless of the market conditions. Asco was a perfect example. The "street" was betting on bad news for DNDN. The pre-release of the embargo allowed a 1 week free look and a great headline to confirm the ASCO bet.
Between now and early 2013 we have very few "competitive events" impacting DNDN with headlines. Zytiga and MDVN are entering the 6 to 12 month FDA pipeline for approval. In the interim DNDN will be valued on its quarterly revenue growth. Additionally it may be impacted by a number of unexpected events. A EU partner, a Japanese partner, better than expected revenue, an unsolicited bid for the company. Given the low expectations in the current valuation any of these events would have a strong impact on the stocks price. Summer street may be saying that the chance of negative news from here over the next 8 months is low, and the chance of a big event might be pretty high.
Its hard to tell their agenda, but given their history with "Immunodepletion" its a very interesting upgrade.
