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).
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