Orexigen (OREX) - failed diet pill brings FAT profit! Contrave's PDUFA, are you in yet?!

As mentioned in my previous blog entry, Orexigen is booked to hear from the FDA concerning its diet pill's approval on Monday Jan. 31, 2011.  To avoid early announcement by the agency (like what happened with Mannkind), investors are recommended to get in on the trade today or tomorrow (Friday at the latest).  I've devised 3 call/put options combos for readers based on individual's risk tolerance level.  Again, obesity is not directly life threatening and terminal like cancer and has many more options, including diet management and exercise, which are risk-free and proven effective.  As a result, to warrant a green light, any new weight loss drug must demonstrate an outstanding efficacy and safety profile, which Orexigen's Contrave does not possess.

Pick your combo now and see if the failure of this diet pill will leave behind a trail of fat greasy profit.

Orexigen (OREX) - call/put options choices for upcoming FDA PDUFA action date for Contrave

Contrave will likely be REJECTED

The FDA is expected to release the final decision on Monday Jan. 31, 2011 regarding the marketing clearance of Orexigen's late-stage diet pill, Contrave (combination of bupropion and naltrexone).  If passed, Contrave will be the first FDA-approved weight loss drug in more than a decade.  Based on the limited effectiveness of Contrave in cutting body weight compared to the placebo ('sugar pill') in addition to the adverse effects found associated with the new medicine in the clinical trials, I maintain my belief that the HIGH risk-to-benefit ratio does not warrant an approval from the agency.  The FDA's request for extra birth defect information on Friday from Orexigen's close competitor, Vivus, concerning the company's investigational diet drug, Qnexa, sent Vivus' shares down more than 16%, dragging down Orexigen's shares along the way.  It is difficult to imagine that the drug regulator will let ANY weight loss pills pass easily at this moment!

Low to high risk call/put options combo

I came up with 3 call/put options combo that can be used based on the individual's comfort level toward risk.  Essentially, we would purchase BOTH call and the put options and, depending on FDA's announcement, there will be 3 different outcomes.

1) Low risk (low return) --> 8% loss vs. 28% gain

2) Medium risk (medium return) --> 44% loss vs. 64% gain

3) High risk (high return) --> 80% loss vs. 100% gain

I didn't specify the price of the call/put options because the % change will be similar more or less regardless of the options price.  The exact price will depend on the timing of purchase.  If you are risk-adversed, then go with combo #1.  However, the information that Contrave is likely to be rejected may substantially 'lower' the risk of combo #3, thereby making it the best choice?  

Note:  FDA may release the announcement anytime between now and Monday Jan. 31, 2011, and therefore one should consider purchasing these options some time around this coming Wednesday Jan. 26, 2011.  

Orexigen (OREX) - FDA to rule on Orexigen's Contrave on Jan. 31, 2011 (yet another rejection?!)

Next one up

Orexigen (OREX) is the next company on the radar.  Scheduled to hear from the FDA in just 6 trading sessions (Mon, Jan 31, 2011) regarding its weight control medicine, Contrave, Orexigen is a prime target for rapid returns.

Trading map

With a HUGE catalyst ahead, expect a mini surge (anywhere from 3-7% in the share price) from now to Jan 31, 2011.  Why not a greater increase?  Well, from the beginning of this year up until last week, the stock had run up approx. 24% before retracting to its current level (roughly down 12% from the peak of $10.03 on Jan 12, 2011).  The is due to investors taking some profit from the run-up.  However, this dip creates a perfect opportunity for OREX to climb again before FDA's announcement.

What to do exactly?

1) Look to purchase Februrary $9 call options ($1.40) immediately, wait for it to rise, and SELL them by FRIDAY Jan 28.  You do NOT want to hang on to these as I anticipate a rejection from the agency.

2) Meanwhile, look to purchase Februry $9 or $10 put options (whichever possible depending on how high the stock runs by next week).  If and when Orexigen receives a complete response letter from FDA, the stock will crash and put options would shoot through the roof.  

To know more about Orexigen and Contrave, see previous blog entries on 155% surge upon FDA Advisory panel recommendation and 138% return on put options in 2 days.    

Mannkind (MNKD) - FDA rejects Mannkind's Afrezza AGAIN

~~~BREAKING NEWS – FDA’s announcement ahead of schedule~~~

The great fall of a long pursuit

As expected, Mannkind got rejected AGAIN!  The FDA handed out a complete response letter to the developer of Afrezza, an inhaled form of insulin, requesting additional information regarding the performance characteristics, usage, handling, shipment and storage of the next-generation device, an update of safety information related to AFREZZA .  The agency also wanted to obtain information on proposed user training and changes to the proposed labeling of the device, blister pack, foil wrap and cartons.  Two additional clinical trials may also be requested. 

Why couldn’t I purchase the options you suggested?

Mannkind’s stock was down ~32% in early trading before settling at $9.11 (-7.32%).  All trading activities were suspended and halted by the SEC for investigation into potential errors in the system.  The suspension included all shares and options and that’s why no one was able to trade after around 11:58 am ET.  

Mannkind (MNKD) - Will FDA approve Afrezza? - I am doubtful (but will show you how to trade)

Update on FDA's delay
In my previous blog entry, I have explained why I was not as optimistic as Mr. Mann about the approval of Mannkind's experimental inhaled insulin drug, Afrezza.  So the FDA was delayed in December 2010, when can we expect to hear the final ruling?  While the FDA did not provide a firm date for the final decision announcement (PDUFA action date), it did indicate that the delay was going to be 4 weeks.  This would be coming up next week roughly Wed. on Jan 26, 2011.  If a complete response letter is issued to the Valencia, Cali-based biotech, which in my opinion will be very likely, then the company history tells us that we're looking at a ~30% drop right off the bat (Mannkind had received its first complete response letter in March 2010 and suffered a blow to its stock value).  The dip may even be greater this time around because a second rejection would put the nail in the coffin for Mannkind's (and largely Alfred Mann's) pursuit of a beathable insulin medicine to treat diabetes.


Trading Map
Despite the 'hype' all over the web about Afrezza's soon-to-be-received approval, I maintain my short position in the stock.  Here is what may be a profitable short play through put options.  Look to purchase February put options at the lowest possible price before Tuesday, Jan. 25 (remember the announcement might be out any time between now and next Wed. Jan 26).  Aim to buy whenever MNKD share price takes another leap as put options price changes in opposite direction to share price.  I know it's expensive right now ($2.15, strike price $9) but it will be worth it!!!!!   If and when Mannkind's Afrezza gets rejected, the put options will seem that much shinier!!!!!


Note:  Because put options become cheaper and cheaper by the day, it may be worth it to wait until the last possible minute before the order is sent in.  The only caveat is that you might miss the play completely in the event that the FDA jumps the gun on decision release.  Weigh your options (no pun intended).  Good luck!

Mannkind (MNKD) - False hype behind Al Mann's insider purchase

Alfred Mann's purchase creates false hype because:

1. He doesn't know the fate of Afrezza (like you and I)

2. The type of purchase was 'indirect'

3. He is restricted by a 'black out' period

--> His purchase was involuntary

Mannkind Corp (MNKD), maker of a new inhaled insulin product candidate (Afrezza), is up more than 10% on news that Alfred Mann, the founder & CEO of the biotech, had purchased 2,800,000 shares of his own company for a total of $22.7 million in 2 months.  Lots of investors see this as a positive indication of Afrezza's potential near term approval and hope to jump on the bandwagon last minute.  In addition, in a recent interview with Bloomberg at the JP Morgan Healthcare conference in San Francisco, Mann indicated that the FDA's delay in December was not surprising and reiterated his optimism in his company's invention.  However, he did say that the FDA's expanded audit process "seems optimistic but [he doesn't] think [one] cannot read too much into it".  This shows that even Al Mann doesn't know the fate of Alfrezza and therefore his 'buying spree' should not be taken as if he has any more information than you and I do.  

Most importantly, what most people fail to notice is that the type of Mann's transaction was 'indirect'.  This means that over time the company automatically converts part of Mann's salary and bonuses into a share purchase program, which acquires Mannkind's shares at certain periods of time.  Also, insiders are constrained by a 'black out' period around sensitive time points such that they are prevented from manipulating stock price.  Therefore, Mann did NOT voluntarily make the trade and may NOT have been willing to do so.  Are you still as excited?  I'm not!