Affymax Revisited

Feb.25.13 | About: Affymax, Inc. (AFFY)

Earlier this month, I wrote an article concerning Affymax (NASDAQ:AFFY) and its main drug candidate Omontys (Peginesatide). The article's primary focus was the effect on Affymax futures if the company is able to sign a contract with Fresenius (NYSE:FMS) to market its drug Omontys after a trial run with the major dialysis service provider. In my last article, I advised investors to purchase a straddle for AFFY to expire in May, but it so happened that my predictions have come into fruition much earlier than I had expected before.

As mentioned in my article, Fresenius was scheduled to announce its decision to sign a long term contract with Affymax sometime in April, but earlier this month it released news that it had undergone sufficient study and would end the trial period earlier. It was this news that initially spawned me to write the article about Affymax in the first place. I advised a straddle at that time because a signed contract with Fresenius would propel the stock to highs in the twenties and a decline on a long term contract would destroy the stock to single digit levels. This morning, Affymax plummeted to single digit levels and is currently trading at $2.62.

On Saturday, Affymax partners announced that they were voluntarily withdrawing Omontys due to a number of deaths related with its drug. With this news, it is clear as day that Affymax will no longer sign that coveted long term contract with Fresenius.

For those of you who carried through with my advice or went short on Affymax, I say kudos and I hope you continue to invest your hard earned money in other positions that will generate such positive return. With shares falling over 84%, any even straddle should have been extremely profitable. For those of you that are long Affymax, I hope you had sold early enough to at least reduce losses.

In regards to the obvious question at hand, I do not think Affymax has a future left. This company reminds me very much of the notorious Celsion (NASDAQ:CLSN) and how it also plummeted overnight upon news that the Phase III trials of Thermodox did not meet the necessary criterion. What Affymax and Celsion have in common is that both companies have been pioneering one primary drug (Omontys and Thermodox respectively), and one bad press release wiped out all hope investors had harbored for the companies. This is why it is financially imprudent to put all your eggs in one basket, so to speak, because in the event of a bad scenario, all those eggs will break at once.

If I were an investor who currently still has Affymax shares left, I would stop hoping for a miracle and face reality that Affymax is not going to come back anytime soon (if it ever does). Actually, what I would do is sell the shares for a loss and then have those capital losses reduce the amount of capital gains taxes you would have to pay in April.

Disclosure: I am long ZIOP, KERX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.