Doesn't it depend on the exercise price, if low enough, your out of pocket amount could be outweighed by the benefit of a potential capital loss, and low exercise means more ordinary income on exercise which means more shares sold to satisfy withholding. But at higher exercise prices, the exercise doesn't make sense.
E.g., if one had options to acquire 100 shares at $80 each and the stock is trading at $100 and you know that after news of the failed trial comes out the stock will trade at $30, if you exercise, you are out of pocket $8000 and have ordinary income of $2000. Assuming a 40% withholding rate, 8 shares would be sold to produce cash of $800, and you are left with 92 shares and a full tax basis of $100 each, or $9200. When the stock plunges to $30, you can sell and generate a tax loss of 92 x 70 = 6440, worth perhaps $2000, plus sales proceeds of $2100. But you are out of pocket the $8000 exercise price - not a good trade.
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