MELA Sciences, Inc. (MELA)

[tdksp84]

Here is an interesting find regarding MELA's rise.. May not be all that it is cracked up to be.


http://seekingalpha.com/article/296071-buy-and-sell-ideas-based-on-monday-s-top-gainers?source=yahoo


Sell MELA Sciences Inc. (MELA): MELA is a medical device company developing a non-invasive, point-of-care system to assist in the detection of early melanoma. Its flagship product, MelaFind®, features a hand-held imaging device that emits multiple wavelengths of light to capture images of suspicious pigmented skin lesions, and extracts the data. The extracted data are then analyzed using automatic image analysis and statistical pattern recognition to help identify lesions to be considered for biopsy to rule out melanoma.

MELA shares soared 55.0% yesterday to $4.93 on news that the FDA issued an Approvable Letter for the Pre-Market Approval (PMA) of its flagship product, the MelaFind® hand-held melanoma detector. The success comes after a rather spotty record after the FDA first issued a not approvable letter for MelaFind® in March 2010, and then in November 2010 the stock got hit again when an FDA panel review raised safety and efficacy issues. The stock, trading as low as $1.75 last month, surged over a three-and-a-half fold to an intra-day high of $6.20 yesterday, rising first in early September when MelaFind® received the CE mark to begin selling the device in the European market, and then yesterday on the FDA news.

We believe that the risk/reward profile does not favor a buy at these levels, and that shares may have peaked at the $6.20 intra-day high yesterday, at least until the company begins releasing more promising commercial sales data after a possible approval early next year. Melanoma is a serious disease that affects over 70,000 new patients every year, and the demand for early detection is high given that the cure rate for surgical removal after early detection is virtually 100% while the five-year survival rate for patients with Stage IV melanoma is less than 15%.

However, there are significant risks to the commercial success of MelaFind® that are still uncertain. For one, MELA has received an approvable, not an approval, rating. Hence, there is still some risk, however insignificant, that the FDA could require a costly huge post-approval study. Second, the labeling indications for MelaFind® is very stringent, requiring that it be used by only dermatologists who have successfully completed a training program in its appropriate use, and that too only to obtain additional information for a decision to biopsy and not to confirm a clinical diagnosis of Melanoma.

We believe that these labeling requirements have the potential of severely restricting the use of MelaFind® once approved, and reduce the addressable market that is available for capture by MelaFind®. For example, the restricting of the program to only dermatologists would exclude plastic surgeons, primary care physicians, and others. Furthermore, the restriction to only dermatologists who have successfully completed a training program in its appropriate use should prove challenging, and could prove to be the most serious impediment to its adoption given how busy physicians are.

And finally, the restriction that it be used only to obtain additional information, and not to confirm a diagnosis, significantly reduces its potential use than what would be possible with the wider indication. Hence, we believe that shares have peaked for now at yesterday’s intra-day high of $6.20, and that further price appreciation is likely only if commercial sales data in 2012 and 2013 are more promising than what can be inferred right now based on the more restrictive indication.