UPDATE: Optimer's antibiotic received FDA approval on Fri. What a ride since then!!!

Finally, Optimer Pharma's (OPTR) antibiotic drug candidate, fidaxomicin, was approved by the US drug regulator.  Because of the unique timing of the announcement, being very late on a Friday just before the Memorial Day long weekend, a 'strange' trading pattern had immediately followed the drug approval.

Optimer Pharmaceuticals (OPTR): clock ticks as FDA decision nears. Could it be today?

Optimer (OPTR) hitting new 52-week high on decision day
Optimer Pharmaceuticals' (OPTR) shares have once again experienced wild swings in the past few days ahead of FDA's decision on the marketing right of the company's antibiotic candidate, fidaxomicin.  A new 52-week high of $13.40 was reached just now as the investment community expects to hear positive news today.  Optimer's CEO is upbeat about the potential approval and ready to ramp up the sales forces for the product launch.  According to his recent interview, the drug, being the first new therapy for C. diff infection in 25 years, will have its own category and become universally endorsed.  What investors are most concerned with now is the labeling of fidaxomicin post approval, an issue that may play a significant role in the upside potential of OPTR after the news release.

Options strategy
I used some of the money earned during OPTR's run-up or pre-PDUFA 'Hike' to set up the following options play:

The way these options have been arranged allows me to walk away with no less money than I begin with (i.e. $6205) REGARDLESS of FDA's decision.  It is set up such that my calls are fully hedged and my profit will range from $6275 (rejection) to $9585 (approval, high aim).  Remember, this is ALL profit for me because I am using the money earned from the run-up (basically riding 'free' through PDUFA).  Hopefully, a decision will be announced sometime before the market closes today so everyone can have a stress-free long weekend.  Good luck!

UPDATE: Optimer Pharmaceuticals (OPTR) - how I plan to trade in the next 2 days before FDA's approval decision

Optimer Pharmaceuticals (OPTR) has a PDUFA on May 30, but since May 30 is a US holiday, the FDA is expected to announce their ruling on the marketing approval of OPTR's fidaxomicin either on FRI May 27 or TUE May 31.  At this point, the consensus among investors is that the news will be out this FRI.  Assuming this is correct, we are merely 2 trading sessions away from potentially hearing fidaxomicin's approval by the FDA!


Fidaxomicin is a novel antibiotic for C. difficile infection (read here and here).  


Today's trend

OPTR has been hovering around $14 for the past few days.  Today, the stock finally broke through $14 and reached a 52-week high of $14.20, at which time a lot of traders offloaded their shares to lessen their risk profile ahead of Friday.  This caused OPTR to drop sharply from the peak down to $13.79.  During the downtrend, I sent out a tweet with the following message - "should see another $OPTR pop later today".  Indeed, from that point on OPTR started climbing back up and eventually touching $14.07 at 12:06 p.m. PT.  This second intraday peak stayed around for 6 minutes, an interval during which I sold all of my June $17.5 calls (67% profit) and half of my $15 calls (100% profit) (see my tweet).  I still believe that OPTR's drug will receive FDA's approval and that there is another $1-2 upside, but I wanted to lower the risk of not being able to sell my large position immediately after news release (especially the $17.5 calls), and this was the basis of my trade today.


Trading map
There are 4 strategies I may use to trade OPTR between tomorrow and FRI (or TUE):    
1) Sell the rest of my $15 calls IF OPTR pops above $14.5
2) Sell the rest of my $15 calls and buy back cheap $15 calls IF a bear raid happens on FRI*
3) Sell the rest of my $15 calls post approval IF/WHEN approval is announced
4) Buy puts with a strike closest to the post-approval peak EXPECTING a post-approval drop (the 'Slide')


*This is a little tricky because one needs to make the assumption that a bear raid will occur (my feeling, based on what happened to a few other companies including SPPI, is that there is a ~70% chance that a bear raid may take place)


I may use one or a combination of the above strategies, which I think will maximize the profit from trading OPTR.  


Follow me on Twitter (@michaeljuan01) for instant updates.


Disclaimer: At times when I am unable to send out 'instant' updates, I will try to tweet my trades ASAP!  

Optimer Pharmaceuticals (OPTR) - odds of fidaxomicin approval based on previous record

Unanimous support - approval odds?
Optimer pharmaceuticals (OPTR) has a PDUFA action date on May 30.  Its investigational antibiotic, fidaxomicin, already had full support from the FDA advisory panel.  How likely will it be approved?  Let's look.  

Below is a quick list of companies whose drug candidates were unanimously recommended by the FDA advisory panel for approval during 2010-2011.  The panel meeting dates, vote results, and final FDA decisions are provided.   

AstraZeneca plc (AZN) 12/2/10, 10-0 for approval, approved (4/7/11)

Bayer AG (BAYRY.PK) 1/21/11, 16-0 for approval, approved (3/15/11)

Valeant Pharmaceuticals International (VRX), 8/25/10, 13-0 for approval, CRL (12/1/10)

Thera technologies (TH.TO) 6/10/10, 16-0 for approval, approved (11/11/10)

Boehringer Ingelheim (non-public), 10/6/10, 9-0 for approval, approved (10/19/10)

HRA Pharma (non-public), 6/16/10, 11-0 for approval, approved (8/13/10)

5/6 companies with full panel support
ultimately received approval

As you may already discern, 5 out 6 (83%) of these companies, whose experimental drugs were collectively agreed upon by the members of the FDA advisory committee as being safe and effective for patients, ultimately gained an approval from the US drug regulator.  Will OPTR be added to the list of successful companies granted a drug approval on May 30?  While the FDA is well known for being extremely unpredictable in its rulings, often evaluating multiple factors such as labelling, REMS, safety, and efficacy altogether, I believe OPTR does have a 83% chance of seeing FDA's nod with its experimental antibiotic, fidaxomicin.  Therefore expect people to buy the dips any time between now and May 30.  


My June $15 calls are up 88% and $17.5 calls up 34% so far and I plan to hold them through until next week.  

Disclosure: June $15 and $17.5 calls

REVIEW: Biomimetic Therapeutics (BMTI) sliding on lukewarm panel review

Biomimetic Therapeutics received a 'not-completely-negative' panel review

Last week Biomimetic Therapeutics (BMTI), developer of the Augment bone graft, saw a wild roller coaster ride in its share price ahead of the FDA advisory panel.  Biomimetic's Augment product was approved for sale in Canada in Nov 2009.  Augment bone graft is indicated for use in orthopaedic surgery in replacement of an autograft.  The company is currently seeking US FDA approval for Augment.  The wild swing of BMTI began with the release of a concerning FDA document last Tuesday (2 days before the scheduled FDA panel meeting), questioning the design of BMTI's clinical study, which was ineffective in providing meaningful data to support Augment's safety and efficacy as an alternative to autograft in hindfoot and ankle fusion procedures.  Following the release of this document, BMTI plunged almost 35%, as fearful investors immediately equated the negative sentiment to the possibility of  a negative panel review.  However, there have been cases in the past where the panel ignored FDA's document and voted in favor of the product candidate's approval.  Mela Sciences (MELA) was one of them (bouncing back 110% immediately after panel meeting).  On the morning after BMTI's drop due to the FDA's comment, I sent out a tweet (May 11), pointing out that BMTI might bounce back like Mela Sciences (MELA) did if BMTI were to receive a 'not-completely-negative' panel review.  This was exactly what happened 2 days later - the FDA advisory panel voted 10-8 in favour of Augment's benefit over risk.  Based on this and the beaten down share price before the panel, it was widely anticipated that BMTI would surge on Friday, May 13 (a day after BMTI's trading halt due to panel meeting) in pre-market and in early trading. 

Which options to buy? - some number crunching

My trading experience tells me that if one goes against what everyone else is doing, 9 out of 10 times he will be rewarded!  Since most people were scrambling to BUY BMTI on 'positive' news, what I did was SELL.  Purchasing put options, contracts that give one the right but not the obligation to sell the underlying equity at the strike, is a tremendously versatile strategy that takes advantage of a falling stock price (read more on options).  Did I expect the BMTI to fall?  ABSOLUTELY!!!  Investor overreaction almost always causes a rising stock price to overshoot its 'fair market value', a phenomenon that is only resolved by a quick pullback (i.e. fall in share price).  The above strategy could be tremendously profitable, but the most difficult part is to predict the peak of the overshoot.  Only with a correct estimate of the peak can investors purchase the closest out-of-the-money put options at a CHEAP price (before everyone else does) to reap high % gains.  My estimate was as follows:

Average pop following positive news: 10-30% (depending on company, drug, previous run-up… etc.)

BMTI share price pre-FDA document release: $13.40

BMTI share price at the end of Wed (before the halt today): $9.20

% drop: 32% (will likely be re-gained fully)

Estimated % surge tomorrow: 32% + 10-12% (BMTI-specific pop) = 42-44%

Estimated PEAK before share price drop: $9.20 x 1.42 or 1.44 = $13.06-$13.25

Keep in mind that I tend to keep my estimate conservative.  In other words, I try to assume the highest % surge when arriving at the target peak of $13.06 - $13.25.  This will prevent me from taking a loss should the price goes much higher than my estimate.  If the price is much higher than my estimate, then it might never come down to my strike (minus premium) and my put options will expire worthless.  On the other hand, the worse that could have happened with my conservative estimate was to miss a trade (much much more preferable to losing money).

Profiting from a falling stock - how did I do it?

'The morning after' is the best part of trading biotech stocks.  With a major catalyst (e.g. PDUFA, PDA panel, clinical results) taking place the previous day, there is alway a ton of opportunity to be had the next day - especially in the morning!  Watching the stock closely in pre-market trading, I sensed that there was NOT going to be a huge run-up after the opening bell because BMTI had only gained less than 7% (this was far from my anticipation of a 42-44% pop).  The absence of an extreme price jump arose from 1) loss of investors' confidence due to FDA's harsh comment, 2) mediocre panel support, and 3) negative outlook and a potential long wait until Augment approval.  As trading began, BMTI immediately dropped from the high 9's down to the high 8's before settling at around $9.  By that time, I sent out a tweet disclosing my order for May $8 puts at $0.35 (avg fill @ $0.34).  I could have gone for the $9 puts but I felt like the price was too high and the % gain would not have been as great compared to the $8 puts if BMTI continued to bleed.  Since there was not going to be any upcoming catalyst for BMTI, I figured the $8 puts were safe and profitable.  It turned out I was right.  The 'slide' occurred in a catastrophic fashion - more than 18% of BMTI's peak value was lost in 2 trading sessions since Friday's open.  As a result, my $8 puts grew from $0.34 to $0.60, representing a 76.5% profit in TWO trading days.  


Check out my Profit.ly updates and follow me on Twitter (@michaeljuan01) to see my next investment targets!

Optimer Pharmaceuticals (OPTR) - after unanimous FDA endorsement, is Optimer's drug approval in sight?

San Diego-based Optimer Pharmaceuticals (OPTR) will be handed the final call by the US drug regulator on the approval of fidaxomicin (DEFICID), a novel, macrocyclic antibiotic indicated for treatment of Clostridium difficile infection.  Published in the New England Journal of Medicine (N Engl J Med. 2011 Feb 3;364(5):422-31.), Optimer's late stage top-line clinical trial results demonstrate that fidaxomicin not only showed similar effectiveness (i.e. noninferiority) compared to the standard treatment, vancomycin, with respect to the clinical resolution of acute diarrheal disease due to C. difficile infection, it also achieved more sustained or durable resolution of the disease (i.e. global cure) – video.  

Vancomycin, approved by the FDA for C. difficile in 1986 under the brand name Vancocin, is one of two standard C. difficile treatments.  The other is an unapproved use of metronidazole, sold by Pfizer Inc. (PFE) as Flagyl and available in generic form.  ViroPharma bought Vancocin from Eli Lilly & Co. (LLY) in 2004.  Fidaxomicin would be San Diego-based Optimer’s initial product and the first drug cleared in more than 25 years for C. difficile, which can cause severe diarrhea and attack the lining of the colon.

George Farmer, an analyst at Canaccord Adams Inc. in New York, forecast sales of fidaxomicin to potentially reach $250 million by 2016.  Farmer also indicated in his notes to investors that the FDA appears “highly predisposed” to approve the drug and recommended Optimer as a buy. 

Clinical trial

A total of 2 phase III trials were conducted.  The first trial (published in NEJM) consists of a multicenter, double-blind, randomized, parallel-group study, involving 629 patients with C. difficile infection.  The primary endpoint was *clinical cure and the secondary endpoints were recurrence of C. difficile infection and **global cure.  

* Resolution of symptoms and no need for further therapy for C. difficile infection as of the second day after the need of the course of therapy

** Cure with no recurrence

Patients were randomized to receive study medication orally for 10 days.  One arm received 200 mg fidaxomicin every 12 hours (n = 302); the other arm received 125 mg every 6 hours (n = 327).  The results are summarized as follows:

• Clinical cure rates following fidaxomicin and vancomycin treatments were 92.1 and 89.8%, respectively (p = 0.05; not statistically significant).
• Recurrence rates following the respective drug treatments were 13.3 and 24.0% - 45% relative reduction (fidaxomicin vs. vancomycin; p = 0.004).
• Global cure rates were 77.7% and 67.1% (fidaxomicin vs. vancomycin; p = 0.006).

In the second phase III trial, Optimer collected additional positive data showing a clinically meaningful reduction in recurrence rates and higher global cure rates following fidaxomicin treatment compared to Vancocin in both the hyper-virulent BI/NAP1/027 and the non-BI strain type subgroups.  Clinical cure rates for fidaxomicin and Vancocin were similar in these two strain type subgroups.

About fidaxomicin

Fidaxomicin is a new antibiotic with a novel mechanism of action being developed for the treatment of C. difficile infection or CDI, the most common hospital acquired, diarrhea.  Fidaxomicin acts by inhibiting RNA polymerase, a bacterial enzyme, which results in the death of specific bacteria such as C. difficile.  Optimer believes that Fidaxomicin offers advantages over current treatments due to its demonstrated activity against C. difficile, low rates of recurrence, evidence of low C. difficile resistance, minimal systemic exposure, limited disruption of normally occurring gastrointestinal bacteria (i.e. narrow antimicrobial spectrum), and convenient dosing regimen.  In contrast, the two current standard C. difficile treatments, metronidazole and vancomycin, are both broad-spectrum antibiotics that disrupt the intestine’s normal protective bacteria, leaving patients vulnerable to relapse. 

Source

FDA panel meeting results

Last month (Apr. 5, 2011), during the FDA advisory panel meeting, the panel members unanimously agreed that fidaxomicin is safe and effective for curing C. difficile infection in a 13-0 vote.  The panel later divided equally (6-6) on whether the drug works better than standard treatments in preventing relapses.  One abstaining member later asked to be recorded as a “no” vote.  Importantly, an opinion that recurrence data lacked clinical significance wouldn’t prevent the drug from being approved, Edward Cox, director of the FDA’s Office of Antimicrobial Products, told reporters after the meeting.  

History of drug approval with 100% panel support

Out of the 27 NDAs receiving advisory panel review during 2010-2011, only ONE company (Valeant; drug candidate: ezogabine) was issued a complete response letter by the FDA despite unanimous panel recommendation for approval (13-0).  While the agency does not have to adhere to the panel’s recommendation, it usually does.  Of note, companies that were recommended against by the advisory panel were all unsuccessful in winning FDA’s approval later on, while companies that were recommended for were not all successful in winning FDA’s approval.   

Trading map

Even though it’s not 100%, odds are pretty good that Optimer’s fidaxomicin, given its unanimous panel backing as well as the need for a new antibiotic specifically treating C. dificile infection, will be cleared.  I am willing to believe that the odds of approval are as high as 90-95%.  With this in mind, buying call options NOW before the PDUFA on May 30 should be a safe move based on the Hike-n-Slide strategy, which takes advantage of the pre-PDUFA hype (the ‘Hike’).  

June $15 and $17.5 calls were trading at $0.55 and $0.15, respectively, with high open interest (10808 and 1650) as of May 11, 2011.  Considering that OPTR touched $13.88 on advisory meeting result alone, the pre-PDUFA price should easily surpass that level and may even reach $15, market condition permitting.  On approval, OPTR should run to a target range of $16-18.  With this projected momentum, both calls mentioned above seem to be priced relatively low still and definitely have room for a nice run-up ahead of the May 30 PDUFA.  Today OPTR gained as much as 1.2% on a -130 Dow Jones day before flattening by at end of the day, signaling the strength behind the stock.  This should give us a nice ‘Hike’ in the next 2 weeks!

UPDATE: Huge GAIN from Spectrum Pharma (SPPI) post-approval slide

Stock of Spectrum Pharmaceuticals falls as expected

Spectrum Pharmaceuticals (SPPI) drops for a second day today following FDA's approval of its drug, Fusilev.  Surprised?  Not really (read here to know why).  Investors pulled out of the stock, worrying about the slow sales growth of Spectrum's non-Hodgekin's lymphoma drug, Zevalin, suggested in the 1Q earnings released today.  Even though the company's earnings were 496%  higher compared to the same quarter last year ($41M vs $7M), the sales of Zevalin had remained unchanged meanwhile ($6M).  Since the excess profit seems to be solely due to the sales of Fusilev during a time of shortage, investors do not buy into the persistence of Spectrum's strong earnings.  Most people imagine that when leucovorin becomes available again, patients will undoubtedly choose the generic version over Spectrum's drug, which is roughly 10x more expensive.  

How I trade?

Expecting a quick slide of SPPI post-FDA's approval of Fusilev, I sent out a tweet (@michaeljuan01) on Sunday, May 1, the weekend before the market had an opportunity to react to SPPI's late Friday announcement.  The tweet also contained a link showing the price estimates of SPPI following Fusilev's approval based on analysis of the data collected from 3 of the most recent and popular biotech stocks following an FDA approval.  Given this information, I recommended buying either the May $10 and $9 or June $9 put options.  The next morning, I was able to have my May $9 and June $9 put orders filled @ $0.5 and $0.78, respectively (see my tweet), which I thought could be lower.  It wasn't long until SPPI fell as expected, losing 11% of its peak value in 2 days.  This morning I sold my options at the steepest share price drop and profited 140% (sold @ $1.20) and 61% (sold @ $1.25) for the May and June $9 puts, respectively.  This is how I trade - A strict system that allows me to follow a predictable pattern and enables me to allocate a small portion of my fund to a relatively low risk/high reward trade at a rapid pace.  

Follow me on Twitter (@michaeljuan01) for my next trade targets.

UPDATE: Neoprobe's (NEOP) Lymphoseek® (Tilmanocept) Meets All Endpoints in NEO3-09 Phase 3 Study

** Data Demonstrate Superiority to Vital Blue Dye; NDA filing on track for 3Q11 **

DUBLIN, Ohio--(BUSINESS WIRE)--Neoprobe Corporation (NYSE Amex: NEOP), a diversified developer of innovative oncology diagnostic products, today announced top-line results from its Lymphoseek® (tilmanocept) NEO3-09 study. The NEO3-09 study met all primary and secondary endpoints and highlighted the superior performance by Lymphoseek compared to vital blue dye in intraoperative lymphatic mapping (ILM), a procedure in which lymph nodes are identified for biopsy to assess for the presence of tumor. The NEO3-09 Phase 3 clinical study, the Company’s second successful Phase 3 study for Lymphoseek, enrolled over 150 subjects with either breast cancer or melanoma within the intent-to-treat (ITT) population. Lymphoseek performed equally well in both cancer types. As previously disclosed by the Company, the full NEO3-09 data set will be presented at the 2011 Annual Meeting of the American Society of Clinical Oncology, June 3-7, in Chicago.

“Lymphoseek also showed superiority in detecting lymph nodes that contained tumor. This is important because detecting lymph nodes bearing tumor is the underlying reason for performing ILM procedures to enable lymph-node biopsy.”
“The results from NEO3-09 are important not only in that they demonstrate that Lymphoseek is safe and well-tolerated but in many ways that it is a clinically superior lymphatic mapping agent to vital blue dye,” said Dr. Vernon K. Sondak, Chief of the Division of Cutaneous Oncology at the H. Lee Moffitt Cancer Center and Research Institute. “Currently, vital blue dyes like isosulfan blue are the only FDA-approved agents for ILM. These blue dyes are helpful, but have significant limitations. Lymphoseek provided clinically meaningful advantages over the blue dyes and I believe it will be a useful agent in ILM.”

The primary endpoint of this study was the comparison, or concordance rate, of Lymphoseek versus vital blue dye in ILM, where vital blue dye was designated as the “Truth Standard” comparator. NEO3-09 study subjects yielded over 200 lymph nodes stained with vital blue dye. Of the vital blue dye stained nodes, Lymphoseek detected all of them, a concordance rate of 100%, which is highly statistically significant. This concordance rate was consistent with the rate observed in the NEO3-05 Phase 3 study of approximately 98%, which also was highly statistically significant.

Using Lymphoseek as the Truth Standard, the reverse concordance rate for vital blue dye was approximately 60%, a finding similar to the retrospective reverse concordance rate observed in the NEO3-05 Phase 3 study of approximately 69%. These data demonstrate that in these studies vital blue dye statistically was not equivalent to, and in fact was inferior to, Lymphoseek in this measure of lymph node detection.

Use of the concordance data and reverse concordance data in a pre-specified, prospective test of superiority showed that Lymphoseek’s performance was statistically superior to vital blue dye in lymph node detection.

Lymphoseek also demonstrated a superior ability to detect lymph nodes that contained cancer. In NEO3-09, the ILM procedures found pathology-confirmed, cancer-positive lymph nodes at a rate consistent with the general rate of nodal involvement typically observed in these cancer types. Of these pathology-confirmed, cancer-positive nodes, Lymphoseek detected all of them, for a failed detection rate of 0%. In contrast, vital blue missed over 25% of cancer-positive nodes. This prospective analysis confirmed the lower failed detection rate for Lymphoseek observed retrospectively in the NEO3-05 Phase 3 study. Lymphoseek’s substantially lower failed detection rate means that it missed fewer lymph nodes containing cancer, a key finding given that the objective of ILM is to determine if the cancer has spread to the lymph nodes.

In both NEO3-09 and NEO3-05, Lymphoseek demonstrated no drug-related serious adverse events or clinically significant adverse events, whereas vital blue dye showed several significant drug-related adverse events. In over 500 subjects receiving Lymphoseek to date, no clinically significant drug-related adverse events have been reported.

In a full regional lymph node dissection procedure, a patient with breast cancer or melanoma may have as many as 20 to 30 lymph nodes removed in order to determine whether or not cancer has spread to other parts of their body. This very invasive procedure frequently causes significant side effects. In the NEO3-05 and NEO3-09 studies combined, Lymphoseek detected an average of 2.4 lymph nodes per patient, whereas vital blue dye detected a similar average of approximately 1.5 lymph nodes per patient. With this relatively small difference in number of nodes removed, Lymphoseek exhibited superior performance in detecting lymph nodes containing cancer, as evidenced by its lower failed detection rate noted above. The average number of lymph nodes detected by Lymphoseek in a much less invasive manner is still far below the number of lymph nodes removed in full regional node dissection procedures, thus potentially sparing the patient the morbidity and side effects commonly associated with more complete regional nodal dissection procedures.

“The NEO3-09 Phase 3 study met its endpoints and confirmed the previous findings of high concordance and superiority demonstrated in the first Phase 3 study, NEO3-05,” said Dr. Fred Cope, Neoprobe’s Senior Vice President, Pharmaceutical Research and Clinical Development. “Lymphoseek also showed superiority in detecting lymph nodes that contained tumor. This is important because detecting lymph nodes bearing tumor is the underlying reason for performing ILM procedures to enable lymph-node biopsy.”

"In clinical studies, Lymphoseek has been shown to be a safe and effective tool for superior detection of lymph nodes and offers an enhanced ability to accurately identify nodes with a high potential of tumor metastases” stated Dr. Mark Pykett, Neoprobe’s President and CEO. “This results in lower failed detection rates than the current standard approach in intraoperative lymphatic mapping using vital blue dye. With these encouraging data, our plans are on track to submit the Lymphoseek New Drug Application to the FDA in the third quarter.”

Drs. Pykett and Cope will host an investor conference call to discuss the NEO3-09 top-line results at 9:00 AM ET tomorrow, Wednesday, May 4th, 2011. The conference call can be accessed as follows:

Neoprobe also announced that it will release its earnings for the first quarter of 2011 on Monday, May 9, 2011 after the close of the financial markets. This release will be followed by a conference call with the investment community the following morning at 9:00 AM ET.

Contacts
Neoprobe Corporation
Brent Larson, 614-822-2330
Sr. VP & CFO
or
Investor Relations:
LifeSci Advisors
Michael Rice, 201-408-4923
or
Public Relations/Media Relations:
Makovsky & Co.
Mark Marmur, 212-508-9670

Source

UPDATE: Neoprobe (NEOP) to hold conference call on May 4, 2011

** Neoprobe conference call in 2 days (9 am ET) **

I first wrote about Neoprobe (NEOP) on Apr. 27, 2011 (read more).  The biotech will be holding a conference call discussing updates of their pivotal clinical trial data on Lymphoseek, a radioactive tracing agent to be used in lymph node detection.  The call is scheduled to begin at 9 am ET before market open.  NEOP is up 1.9% today ahead of the news announcement (up another 1.2% in after hours).  It should cross the $5 level tomorrow as more investors take notice of the conference call.  Judging from the company's confidence in Lymphoseek (see NEOP press release) as well as the intentional pre-market timing of the conference call, positive data should be expected.  Therefore, I plan to hold my June $5 call options through the event, expecting it to rise further as the American Society of Clinical Oncology (ASCO) meeting approaches (June 2011).   June $5 calls are a great buy - still relative cheap at $0.55 in advance of major catalyst in 2 days (conference call) and in June (ASCO meeting).

Spectrum Pharmaceuticals (SPPI): the morning after... FDA's approval

Approval, finally!

Having experienced the roller coaster ride of Spectrum Pharma's share price (SPPI) on Friday ahead of key FDA announcement (see below), long investors were finally relieved to confirm the approval of Fusilev's use in colorectal cancer late Friday (read about my approval rate estimate).  There was already a substantial amount of interest in SPPI ahead of FDA's announcement and the dramatically increased trading volume further adds to the volatility of the stock.  What makes it even more interesting is the timing of the news release, taking place late Friday and preventing traders to take any action even in after-hour trading.  As a result, considerable buying and purchasing orders will be submitted while call and put options will be swapped between investors come Monday morning.  

Trading map

As mention before, I anticipate an early pop (~10 to 15%) in SPPI early in the morning (beginning pre-market trading), followed by a sell-off.  This leaves just a narrow window to purchase put options before the stock tanks.  Therefore, investors should already have in mind which options to buy before Monday's market open.  The most important question then becomes: which options are the SAFEST and MOST PROFITABLE?  Here, I've compiled the data from some of the most recent and popular biotech companies gaining an FDA approval and the fate of their stock price post approval.  I thought this would provide a better understanding regarding the rate of share price DECLINE (as opposed to INCLINE which most beginner traders wrongly expect following positive news coming from the FDA).  The companies analyzed were Avanir (AVNR), Dendreon (DNDN), and Somaxon (SOMX).  Each of these 3 companies had amazing run-ups before the PDUFA, punctuated with a post-approval surge.  However, also common among these three companies was the post-approval slide in their stock prices within a short time following the regulatory approval of their investigational drugs.  The date of approval, stock price immediately pre- and post-approval, the price increase on approval, and the time it took for stock price to drop 10, 15, 20, and 25% are tabulated below.  

Another way to analyze the trend would be focusing on the % change in stock price post-approval in a given time period (i.e. 1, 2, 3, 4 weeks).  This information is shown below.  Personally, I think these data are tremendously valuable for choosing not only the MOST PROFITABLE but also the LEAST RISKY options to purchase.  

Since sample size is small, the range of stock price change is quite large.  Nevertheless, the information above can still serve as a rough guideline for how to trade around SPPI's approval.  Here's the breakdown of what I anticipate to take place tomorrow:

Post-approval spike

$9 (current price) x 1.125 (12.5% (avg btw 10 and 15%) pop tomorrow morning) = $10.13  

Price at 2 weeks post-approval

$10.13 (see above) x 0.9 (estimate of 10% drop) = $9.12

Price at 4 weeks post-approval

$10.13 x 0.85 (estimate of 15% drop) = $8.61

Based on these estimates, I will look into buying May $10 or $9 puts AND June $9 puts.  Since many are looking to buy put options in anticipation of a quick plunge of SPPI, I would be cautious to buy if options prices are too high.  As of Friday, the prices for May $10, $9 and June $9 puts were $1.80, $1.25, and $1.25, respectively.  I think these are very expensive and I will be buying tomorrow morning at price drop.

Follow me on Twitter @michaeljuan01 for instant order alert!

Good luck everyone!