We'll probably never know who the person was that bought all of the puts right before Friday's FDA information was released on Amarin's coming advisory meeting. One thing is for sure, I was more than likely right when I penned my article "Does Someone Have Bad News About Amarin?"
The previous article revolved around a small "sign" - the fact that Amarin (NASDAQ:AMRN) had started the past week by trading down two days in a row on heavy volume.
It struck a chord with me for a couple of reasons:
- The trading was done at increasing volume, over twice the 100 day volume average for the stock. More than once I've noticed with telegraphing trends that the volume is a key component.
- The company obviously has a major binary event coming up in less than a week - in which hangs the short term well being of the company as we know it.
- The movement also goes against the general sentiment of biotechs leading up to a binary event. Stocks in this position (especially biotechs) usually will inch up in anticipation of potential good news coming. With Amarin trading at extremely low prices comparative to what it was priced at for its initial FDA approval, I'm befuddled as to why the price isn't continuing to walk up in anticipation of the coming news.
I then laid out the obligatory counterpoint, stating that it could just be longs profit taking - but, it's looking more and more like somebody had some insider information, and was acting on it to avoid Friday's apocalyptic trading.
I had also previously noted that this ADCOM meeting was going to definitely move the stock one way or another, in another recent article of mine. I recommended a $7 options straddle as a possible trade, one that would likely be in the money on this volatility:
An alternate trading strategy, instead of simply going bullish on Amarin, would be to play an options spread. This is the perfect situation to play a straddle, as again - we get the impression that the stock is going to be anywhere but $7 come 2014.
A spread reduces risks because instead of betting on the stock to move one direction or another, you're simply betting on the volatility - the fact that the stock is going to be moving a considerable amount in one direction or another.
Should the stock rebound, it might be possible to cash both sides of a spread that was initiated before the week started.
On Friday, the FDA advisory committee released their briefing documents to the public (available here through the FDA's website) - and shortly thereafter, the stock was trading significantly lower on almost 10 times the daily average volume.
The FDA review cited the previous May 2013 Italian risk and prevention study that had long been debated on this site and amongst Amarin bulls and bears:
In May 2013, the completed Italian Risk and Prevention Study (R&P study) reported that treatment with one capsule daily containing 1 g of omega-3 FA (EPA/DHA content ≥85%, in a ratio that could range from 0.9:1 to 1.5:1) did not reduce the risk for cardiovascular death or hospitalization for cardiovascular causes, compared with an olive oil placebo, among 12,505 adults with multiple CV risk factors
On page 87 of the review, it sounds a lot like the reviewers could put a hold on ANCHOR approval, as they seek more data:
EMDAC members should consider what implications these recent non-statin CV outcome trials may have when opining whether to recommend expanding the treatment indication for VASCEPA prior to confirming its cardiovascular benefit.
If they do decide to wait for the CVOT data, that's going to put ANCHOR off until at least 2016, and deal a crippling blow to Amarin's stock in the short term.
As Seeking Alpha pointed out in their Market Currents, there's been a lot of interest in a few of the paragraphs in the document, namely this one (page 57):
The changes in lipid and lipoprotein parameters from baseline to week 12 in the mineral oil placebo group are rather atypical for a trial that included a stabilization period for diet and lipid-lowering therapy, raising the possibility that mineral oil may not be as inert as assumed. If true, the treatment effects observed with AMR101 may be overestimated.
That line basically suggests that treatment effects on which the basis of the drugs approval hinge could have already been overestimated and read incorrectly. This could spell bad, worse - or possibly just delayed news - for Amarin longs.
There also seems to be concern about mineral oil on placebo (page 57):
The changes in lipid and lipoprotein parameters from baseline to Week 12 in the mineral oil placebo group are rather atypical for a trial that included a stabilization period for diet and lipid-lowering therapy, raising the possibility that mineral oil may not be as inert as assumed. If true, the treatment effects observed with AMR101 may be overestimated.
The bulls feel like they've been through the mineral oil issue before, and that it doesn't seem to have a leg to stand on. Other bulls have made the argument that the review documentation, in and of itself doesn't deliver a decision - and should be generally regarded as exactly what was expected for this type of document.
Other parts of the document (pages 102-104) read like continued endorsements for the efficacy of Vascepa:
Vascepa has been shown to be a safe and effective therapy when added to statin therapy to signficantly reduce TG, while meeting the FDA-agreed pre-specified non-inferiority assessment for LDL-C.
I'm staying on the sidelines still for this one.
As I pointed out with the week's crazy trading, there are generally no coincidences, and dumping on heavy volume usually means something. However, it wouldn't be the most surprising thing I've ever seen if the FDA panel comes back next week with a favorable outlook.
If you don't like risk, this isn't a trade you should be involved in. Next week's movement is likely to make today's trading look tame, whatever direction the stock heads in. The best play for the day could possibly be going long here and then writing a ton of calls that expire next week. $6 calls could yield you 20% insurance against a long position here, with expiration in 5 trading days.
That strategy - for the bold only. We won't know more until next week - it's going to be a weekend full of dissecting all the bits and pieces of this FDA review, and judging accordingly.
I wish all Amarin investors the best of luck here.