CADX - FDA Delay --> Vol Drop Unusual

Discussion in 'Trading' started by livevol_ophir, Feb 11, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    CADX is trading 9.92 with vol down 61 points.

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    This is the news (from AP):
    SAN DIEGO (AP) -- A pain and fever drug being developed by Cadence Pharmaceuticals was not approved by federal regulators because of manufacturing problems at a facility where the drug is made, the company said Thursday.

    The Food and Drug Administration notified the company that it will not approve the drug until the manufacturing problems are resolved.

    Cadence said the FDA inspected a third party manufacturing facility on Friday. It is seeking approval to sell the drug to treat pain and fever in adults and children, using the trade name Ofirmev.

    Cadence said the manufacturer will respond, and Cadence plans to meet with the FDA to make sure the problems have been addressed. The drugmaker said the FDA did not ask Cadence to run any more studies on the drug itself.
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    The Options and Charts Tab snapshots are included in the article.

    For reference if you aren't familiar with this stock, here is how the vols have moved from yesterday (ATM calls):

    Feb 10: 182 --> 69
    Mar 10: 131 --> 66
    May 10: 97 --> 69
    Aug 10: 94 --> 74

    Vol was up because there was a possibility (an expectation?) of an FDA decision for approval (yes/no) of a drug. Vol is down because the news has been delayed. The interesting thing about the vol here is that May and August are crushed as well. The ruling was more of a "delay" of decision - i.e. the news isn't really out yet. If the event pushed back month vol up 30% (ish) with the dilution of several "non-news vol days" then what would that vol be if the decision is actually in May or August?

    Cadence has asked the FDA for delays before (see November). Re-iterating a news point, here is a snippet from Reuters:

    The U.S. Food and Drug Administration did not cite any safety or efficacy issues for acetaminophen, nor did it request any additional studies to be conducted prior to approval, the company said.

    The FDA approval process is arduous, confusing and, for bio-tech/medical outsiders, pretty unpredictable -----> volatility. May and August are just 3 and 8 vol points higher than March (respectively). Hmm...

    This is trade analysis, not recommendations.

    Details, charts, prices, vols here:
    http://livevol.blogspot.com/2010/02/cadx.html