Xenoport, Inc. (XNPT) - a myriad of failures spells doom for XNPT on upcoming PDUFA date

Update

On Mar. 21, 2011, I first wrote about Xenoport.  At that time, the company had just announced negative results from its phase II clinical trial (GERD), which sent the stock plunging 12% at market opening ($5.82).  The drop, contrary to the belief held by disaapointed traders, was identified as an opportunitic entry point ahead of the upcoming major catalyst (PDUFA: 2011-04-06).  Two days later, the stock indeed recovered to as high as $6.54 before the bears kept it steady around $6.20-6.30.  

Selling short

The track record of Xenoport has not been too promising.  First, gabapentin enacarbil, the approval of which FDA will announce on Apr 6, 2011, had in fact been rejected once by the drug regulator last year (Feb 18, 2010).  Second, the same drug also failed in a phase II trial against migraine on July 7, 2010.  Finally, more negative news came last week when Xenoport decided to drop the development of arbaclofen placarbil (Xenoport's other drug) against heartburn due to yet another failed phase II trial.  The upcoming PDUFA will be pivotal for the struggling biotech.  My belief is that Xenoport's gapapentin enacarbil, which FDA rejected based on concerns of pancreatic acinar cell tumors found in rats, will have a hard time scoring an approval next week despite Xenoport's effort to remedy FDA's first ruling.  The 'bothersome' indication such restless leg syndrome (RLS), as opposed to deadly metastatic cancers, will require an unchallengeable safety profile in order to please the FDA.

Trading map

In my mind, Xenoport's gabapentin enacarbil's risk to benefit ratio is too high for the indication of RLS.  For this reason, coupled with the company's unimpressive track record with drug development, I will be purchasing Apr $6 put options and hold through the PDUFA (expecting a rejection).  Since it is not uncommon for the FDA to announce the result early (likely Mon Apr. 4), I will look into buying the put options on Friday, Apr. 1 at the latest.        

UPDATE: FDA approves Bristol-Meyers Squibb's new skin cancer drug, ipilimumab (Yervoy)

http://www.businessweek.com/news/2011-03-25/bristol-myers-squibb-wins-u-s-approval-for-melanoma-drug.html

Bristol-Meyers Squibb (BMY) - Goldman Saches says BUY

Goldman Sachs says to buy Bristol-Myers Squibb Company (NYSE: BMY) ahead of the release of ipi PDUFA. Goldman has a $30 price target on shares

Read more: http://www.benzinga.com/analyst-ratings/analyst-color/11/03/952216/goldman-sachs-says-buy-bristol-myers-squibb-company-bmy#ixzz1HcUAtOPq

BMY was first mentioned in my previous blog post.  

Bristol-Meyers Squibb (BMY) - first in class advanced skin cancer treatment soon on the market?!

A major catalyst is coming up for Bristol-Meyers Squibb's (BMY) experimental chemotherapy, ipilimumab, in 2 days!!!

I know I don't usually invest in large cap pharmas but BMY's investigational drug has the potential to gain FDA's approval as a first in class therapy for advanced skin cancer as soon as this coming Friday. BMY's ipilimumab modulates the body's immune system through a novel mechanism to attack tumor cells. In the latest clinical trial, ipilimumab extended cancer patients' lives by nearly 4 months compared to the control. This is remarkable given that these are late stage (unresectable stage III or IV) melanoma patients with poor prognosis who had received multiple treatments before. It is also the first time that a drug shows increased survival in this patient population in a phase III study. While the end point of the trial, improved survival, was met, there were more side effects including colitis, gastrointestinal irritation, diarrhea, skin rash, and 14 deaths out of 403 patients compared to the control arm.

Catalyst: PDUFA 2011-03-26

What to do?
Based on the need for a new treatment for a severe disease such as advanced melanoma, I believe that the efficacy demonstrated by ipilimumab, despite having characteristic side effects, is sufficient for the drug to pass FDA's strict standard and gain an approval. I'm planning to purchase Apr $26 call and hold through the catalyst.

Xenoport Inc. (XNPT) - worries from restless investors present great entry point

Company:  Xenoport, Inc. (XNPT)

Catalyst:  PDUFA 2011-04-06 (in 2 weeks!!!!!)

Product candidate:  Horizant  (gabapentin enacarbil)

Indication:  Restless leg syndrome

Recent movement:

The expected run-up to the PDUFA, usually taking place 1-3 months before, did not happen for Xenoport.  Most investors are disappointed by this, some even moving their funds out of the stock in advance of the major FDA announcement.  Adding to this, today Xenoport announced negative results from the phase II trial of their other drug, arbaclofen placarbil, intended for heartburn or gastroesophageal reflux disease (GERD).  Without meeting the endpoint, the drug was immediately removed from Xenoport's drug development program.  Xenoport's share price tumbled and dropped more 12% on the news as traders overreacted to the announcement.  

How is this an opportunity? 

While most people look at the drop in Xenoport's stock price as a downside, I actually think that this presents a perfect opportunity.  Here is why:
1) the negative data from the Phase II trial have nothing to do with the drug being assessed by the FDA right now (Horizant) and should not affect Horizant's odds of approval,
2) overreactions such as one seen today are usually corrected within a short time,
3) a 6% recovery from the trough of the drop had already taken place (suggesting high investor confidence), and
4) a major catalyst is just around the corner (2011-04-06).  

What to do now?

Purchase and hold Apr $7 call options @ $1.25 until just before the catalyst.  Sell before the PDUFA to avoid excessive risk.  Keep in mind that options are more profitable than actual stock shares as they react more dramatically to market news; however, with high reward also comes high risk.  So, purchasing the stock outright may be a better choice for risk adversed investors.  XNPT is currently trading at $6.26.  

UPDATE: Syneron (ELOS) drops > 12% since recommendation for shorting

Since recommendation on Feb 20, Syneron has dropped more than 12%, sliding from its 52-week peak of $14.92.  The recommendation was based on the Hike and Slide model devised to capitalize on sudden major movement that puts the stock price out of line.  The anticipation when this type of deviation takes place is that price will eventually return to its normal level.  Following this model allows short sellers to identify targets, such as Syneron (ELOS), for shorting.

UPDATE: Mela Sciences (MELA) down more than 12% since recommendation for shorting

Mela Sciences (MELA) continues to be on a downward trend since the company's re-submission of its PMA (pre-market approval application) for the skin cancer finder, MelaFind, on Mar. 2, 2011.  There was a 20% pop in Mela's stock that day as traders overreacted to the news.  Since then, as rightly suggested in my Mar. 2 post, MELA has given up 10.75% of its value, making short sellers profit (once again).  While the stock took a dive, the put options remain thinly traded.  Therefore, I've decided to sell my Apr. $3 put options (bought on Mar. 3 for $.45) at $.5 for a quick 11% gain.  

Fibrocell Science (OTC:FCSC) - smoothing out wrinkles with cells of your own

Company:  Fibrocell Science, Inc. (OTC: FCSC)

Catalyst:  PDUFA 2011-06-22

Product candidate:  azficel-T (Laviv TM)

Indication:  Nasolabial fold wrinkles

Recent news:

Jan. 12, 2011

The U.S. Food & Drug Administration (FDA) has accepted for review the Company’s complete response submission for azficel-T, proposed brand name laViv®, for the treatment of moderate to severe nasolabial folds and wrinkles. The Prescription Drug User Fee Act (PDUFA) date is June 22, 2011 (read full press release).

Feb. 15, 2011

Fibrocell completed $7.8 million of capital raise.  The company's stock was diluted, offering 2,960,000 shares of Company common stock at an exercise price of $0.50 per share (read full press release). 

Recent trend:  + 49% in a month

Current price:  $0.895

Price target:  low to mid $1 range

About azficel-T

Fibroblasts are cells that contribute to the formation of connective tissue fibers, and regenerative fibroblast cells may have potential in use for broad aesthetic, medical and scientific applications.

Fibrocell Science’s lead therapy, azficel-T, is an investigational autologous (personalized) cell therapy. In the Fibrocell Science patented process, a patient's own natural fibroblasts are extracted, multiplied and re-injected as personalized therapy to regenerate skin. Azficel-T is currently under review by the U.S. Food & Drug Administration (FDA) for the treatment of moderate to severe nasolabial fold wrinkles. Also, the Company recently submitted a clinical study report to the FDA for a Phase II/III trial of azficel-T in acne scarring.

About Fibrocell Science, Inc.

Fibrocell Science, Inc. (OTCBB: FCSC) is a biotechnology company focused on the development of autologous (personalized) cell therapies for aesthetic, medical and scientific applications. Fibrocell Science is committed to advancing the scientific, medical and commercial potential of autologous skin and tissue, as well its innovative cellular processing technology and manufacturing excellence. For additional information, please visit www.fibrocellscience.com.

Mela Sciences (MELA) - April $3 put options trading lower at $.45

This morning the April $3 put options started trading at $.45.  I submitted an order this morning!  Good luck!

Mela Sciences (MELA) - giving skin cancer detector another try? Why won't they listen to the FDA!?!?

Volatility to the extreme

The New York-based medical device developer, Mela Sciences (MELA), resubmitted a pre-market approval application for their skin cancer detector, MelaFind, to the US drug regulator.  Back in November, the FDA had made a public announcement, stating that MelaFind 'may potentially cause more harm than good' in its review of the melanoma detecting device.  

This device has not with the current data demonstrated any true clinical trade-off and may potentially cause more harm than good to the health of the public

This sent MELA's shares down 60% on the news.  Two days later, MELA managed to bounce back more than 100% after FDA's advisory panel (consists of external medical panelists) voted 8-7 for recommendation of MelaFind's approval.  Identifying that the surge was mainly due to market overreaction, I recommended shorting the stock.  MELA turned out dropping more than 30% in a short period of two weeks, making short sellers smile with a handsome gain.  

Déjà vu

Today, shares of Mela Sciences jumped again (+20.4%) on news of the company's resubmission of MelaFind's approval.  I think the story is going to repeat itself in the next few weeks.  I can see MELA trickling down to the $2.5 support level soon and possibly breaking that level.  Honestly, getting past the FDA's ever rising bar is becoming more and more challenging.  A device which had received negative reviews by the agency in the past is especially unlikely to gain FDA's favor down the road no matter how many attempts are made.  In my opinion, this is just a waste of time and money, BUT certainly not a bad opportunity for short sellers to profit.  

What to buy?

April $3 put options (trading at $0.5 as of Mar. 2, 2011).