After seeing how a bunch of recent pharma plays turned out poorly, I started to look into how stocks react to FDA decisions. See the pdf attached to this post for several stocks that had PDUFA dates scheduled for November, and how the stock reacted after FDA news was released (spoiler alert: the stock always ended up lower than the close of that day, regardless of the news being good or bad). I’m wondering if buying puts at close the day of the news release (or even the day before the news release, if we are approaching the target date) would be profitable? Feel free to contribute information so we can see if this theory holds any water. Also, if anyone knows how to back test this in ThinkOrSwim that would be very helpful.
November PDUFA.pdf (797.8 KB)
This is interesting but I’d say that pharma plays require a lot more DD to find true diamonds in the rough.
There are a number of pharma plays that have worked out with great gains after FDA approval - PTGX, CCXI, ANIP, but it’d probably require a bit more work to figure out what company has a good set up for a large gain after approval. Off the top of my head, I’d figure indication, market, and company profile would all factor in - this is why I was out of ETON early and had my concerns about LQDA (patent litigation unresolved). AADI’s indication space is pretty small too.
So we should be looking at PDUFA plays holistically and try to determine if there’s really a potential for a company’s market cap to increase 50%+ on a single approval for a candidate. Was a Hep B vaccine approval which is only a bit better than current standard of care really going to blow anyone away (VBIV)? Probably not and should’ve played it as such, although I was able to get out green. I’ll be a little more critical of PDUFA plays and try to get a little more insight into the company going forward.
I’d love to see if their is a correlation between stock twit volume and p cent change in the Pharma company 1 week out, I think their is a inverse relationship. The more a pharma stock gets the higher the chance of the puts working out on approval. A lot of the pharma plays i’m in had the puts go 300-1000% week after announcement. This happened on ATNP every stock twits comment was #bullish with a insane amount of people saying this is gonna fly. I think it’s all about fading the crowd. The $5 puts went from $0.3 before data drop to $2 a week after the drug showed good results.
The thing is, I’m not talking about the stock going up, I’m talking about it going down so what you are talking about “So we should be looking at PDUFA plays holistically and try to determine if there’s really a potential for a company’s market cap to increase 50%+ on a single approval for a candidate” isn’t really applicable here.
What I am saying is that based on the limited look into the pharmas that had PDUFA approvals scheduled for last month, all of them have a period right after the announcement where puts would have been profitable, and this was regardless of the approval status. Obviously there could be other factors that might cause the price to not go down, which can be looked into though.
I guess I meant more that you were saying “pharma plays playing out poorly” and I’m trying to give a reason why there’s not a pop even on approval. I know what you’re saying though, which is just looking at historic trends and monetizing the likelihood of a ticker drop.
But the problem is twofold - 1) IV will likely increase during a run up to a PDUFA for people trying to play an approval, so you’d need to figure out if the anticipated change/drop on a put would be enough to counteract the high IV going into close, and 2) your data is only for November, which hasn’t had a single pop yet. I’d look at least 3 months back historically, as this month seems a little out of ordinary in terms of approvals.