By the following analogy MZEI's stock price may become very volatile if there are successful tests on bed bugs or some other high profile problems.
Upcoming FDA Decisions – Chances for Big Gains (or Big Losses)
By Chris Wood, Casey’s Extraordinary Technology
One of the most exciting (and most terrifying) aspects of investing in biotech is that success or failure of your trade can often hinge on one piece of news (at least in the short run). Good news equals big gains, and bad news equals big losses.
Companies that aren’t yet selling any products routinely see their stocks swing up 100% or more in a single day on good news from a clinical trial or FDA approval of a drug candidate – or watch them tumble 90% if their drug fails to impress the FDA or results from a trial are anything less than glowing.
For instance, on March 18, 2010, Somaxon Pharmaceuticals (SOMX) announced that the FDA approved the New Drug Application (NDA) for Silenor(R) (doxepin) for the treatment of insomnia characterized by difficulty with sleep maintenance. On that day, SOMX closed a full 133.8% above the previous day’s close.
SOMX is not some lone anomaly either. This kind of stuff happens all the time. Just nine days before the news from SOMX, InterMune, Inc. (ITMN) announced that its pulmonary therapy, Esbriet, had been recommended by an FDA advisory panel for approval to sell in the U.S. One of the final steps before official approval – and a recommendation the FDA usually doesn’t go against – it was a very promising sign for the company. Early investors were handsomely rewarded, with the stock leaping as much as 63% higher in the next day’s trading.
Of course, the converse is true as well. When the news is negative, early investors may find themselves holding little more than toilet paper. Take that same company from above, InterMune; just several weeks after its huge one-day jump, it tumbled 75% in one day after the FDA decided to go against the recommendation of the advisory committee by not approving the NDA for Esbriet. Instead the agency issued a complete response letter to InterMune requiring another clinical trial. ITMN stock fell from a close of $45.44 on May 4 to a close $11.38 on May 5.
And then there’s Arena Pharmaceuticals (ARNA). The FDA failed to approve this company’s obesity drug, Lorcaserin, late last year, and the stock fell 80% in the days surrounding the announcement.
