Stocks to watch – Dendreon (DNDN)

Shares of Dendreon (DNDN) skyrocketed Tuesday after the Seattle biotech company announced positive results in a clinical trial for its prostate cancer drug Provenge.

The stock nearly tripled in early trading before pulling back slightly, indicating that a potent mix of a short squeeze and increased hopes that the Food and Drug Administration will approve the drug were at work on the volatile stock.

Almost 21% of shares were held short, meaning investors bet the stock would go down and were forced to buy shares at rapidly rising prices to get out of their positions.

Although Dendreon seems to be coming along quite nicely with its groundbreaking cancer-therapy drug, the success of the company is all but tied to having the FDA give its final blessing on its use — something that looks likely, but not assured. There’s no “three strikes and you’re out” policy in this market. One strike, and it’s game over — your money’s gone.

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