MannKind (MNKD) - Stock stays up after FDA delay (for now). Time to buy or sell?!?!

FDA Delays Key Decision Date

Mannkind Corporation (MNKD), the inhaled insulin-developing biotech led by billionaire entrepreneur Alfred E. Mann, was supposed to hear from the FDA tomorrow regarding the potential marketing approval of the company's experimental diabetes medicine.  However, the drug regulator announced that it will postpone the announcement for another 4 weeks.

Stock Trend

MannKind (MNKD) traded up ~12% in early session, peaking at $8.88, before settling in the $8.20 - $8.25 range.  The tremendous bearish sentiment around MNKD's inhaled insulin product candidate, Afrezza, is being counteracted by investors who are not ready to give up yet.

Outlook/Trading Strategy

It appears that the bulls are reluctant to throw away their shares before the rescheduled PDUFA action date in 4 weeks (~ Jan. 25, 2011).  There's just been too much invested leading up to this critical point!!!  This may create a mini bump in share price, pushing it above $9 in the next few weeks.  I'm hoping to purchase some beaten up January call options ($9 strike) with the expiry date just prior to Jan. 25, 2011.  These options have taken a hit this morning, falling 80% from $1.54 to $0.31.  My target price is $0.25.  Then, in the unexpected case of Afrezz's approval, I'll be playing my post-approval drop strategy by racking up some cheap put options.  Keep your eyes open in the next several weeks to see how Alfred Mann's quest for alternative insulin winds down!

Mannkind Corp (MNKD) - on the move to higher ground as PDUFA approaches

Mannkind Corp (MNKD) has gained an incredible ~40% in the past 5 days as the biotech awaits FDA's final call on it's experimental inhaled insulin drug, Afrezza.  The PDUFA is scheduled for Dec. 29, 2010.  

Keep your eyes open for some beaten down put options if Afrezza does get approved.  This would be a play similar to what we've done with MELA and OREX.  Essentially we want to capitalize on the post-approval drop in Mannkind's share price.    

Orexigen (OREX) - put options yielded 138% return since FDA advisory committee meeting

Orexigen`s December put options with $10 strike price were traded at $0.65 on the morning after the company`s met with the FDA`s advisory panel (Dec. 8, 2010) regarding Orexigen`s late phase obesity drug, Contrave.  At one point the options skyrocketed to $1.90 before settling at $1.55 at Friday`s close.  Because it was rightly predicted that OREX would come down significantly from the post-approval hype, those who purchased put options profited from the fall of OREX`s share value.  So how much profit is that?  Well, let's look at an example:

# of contracts purchased:  10 (options to sell 10 x 100 = 1,000 share)
Cost of purchase:  $0.65 x 1000 = $650
Investment return:  $1.55 x 1000 = $1,550
Net gain:  $1,550 - $650 = $900
% gain:  138%

Not bad for 2 days of waiting?  I certainly think so!

Orexigen (OREX) - fat profit for short sellers (30% gain in 48 hrs)

BEFORE - $12.42 (shown in 'after hours' price)

AFTER - 30% drop in 2 days (profit for short sellers)

Once again, short selling pays.  Orexigen has shed 30% of its post-advisory meeting peak value, $12.42, in just 2 days.  This is mainly the result of a correction to the post-advisory meeting hype, which is observed almost always shortly after a huge catalyst passes.

OREX was recommended as a target for short selling 2 days ago.

   

Orexigen Therapeutics (OREX) - up 155% on FDA advisory panel vote (13 to 7) for approval of Contrave

~~~Breaking news~~~

Orexigen's (OREX) stock surged 155% in post market trading after the advisory panel voted 13 to 7 for recommending Contrave's approval.  Contrave is Orexigen's experimental diet pill currently in final stage review by the FDA.  The agency is scheduled to announce the final call on Jan. 31, 2011.  Keep in mind that, although it usually does, the drug regulator does not have to adhere to the panel's recommendation.  After the unfavorable review of Arena Pharmaceuticals' Lorcaserin (Orexigen's close competitor), it was recommended that Orexigen (OREX) would be a great buy.  

What to do now?

SHORT the stock!!!  Anticipate a 10-20% sell-off in the near future as investors scramble to cash out.  Just like Mela Sciences (MELA), the spectacular rise in OREX right now is the result of market overreaction, which almost always evaporates sooner or later.  Want some examples?  Take a look at AVNR, DNDN and SOMX!!! 

Avanir Pharmaceuticals (AVNR)

Pre-approval run-up

Post-approval drop (-19%)

Dendreon Corp (DNDN)

Pre-approval run-up

Post-approval drop (-31%)

Somaxon Pharmaceuticals (SOMX)

Pre-approval run-up

Post-approval drop (-70%)

Mela Sciences (MELA) - short sellers reap 33% profit from falling biotech

Mela Sciences (MELA) jumped a hefty 109% after receiving a 'not-all-completely negative' recommendation from FDA's advisory panel on Nov. 19, 2010.  This is 48 hours post FDA's warning against Mela's experimental medical device and the alleged violation against federal securities laws by company executives.  Spotting an overreaction by the market immediately after the close to split votes by the medical experts on the panel, goldbiopharma recommended that MELA was a ripe opportunity for short selling.  

"MELA's shares more than doubled in pre-market trading.  This may be a good opportunity to SHORT the stock as this overreaction is expected to wean in the next few weeks."   

To date, the stock has fallen 33% - not a bad return in ~2 weeks for short sellers!!!