Forest Labs Option Trades Bet on Positive FDA Review
By Catherine Larkin and Jeff Kearns
March 31 (Bloomberg) -- Forest Laboratories Inc. investors are betting the experimental lung treatment Daxas will win support from U.S. drug reviewers next week.
Options traders are the most bullish on Forest since July. Outside advisers to the Food and Drug Administration are set to review the drug April 7. If approved, Daxas will have revenue of $581 million in 2016, making it Forest?s top seller, according to the average estimate of five analysts surveyed by Bloomberg.
The New York-based drugmaker needs new products before its top-selling antidepressant Lexapro loses patent protection in 2012, threatening 60 percent of the company?s revenue. The FDA panel will include at least three of the nine outside experts who recommended approval of InterMune Inc.?s pirfenidone on March 9, according to information gathered by Bloomberg.
With a similar panel, there is ?a 75 percent probability of successful approval and launch,? for Daxas, said William Tanner, an analyst with Lazard Capital Markets in New York, in a note to clients today. Tanner?s current target price on the stock is $34. He said shares can rise $1 with an approval recommendation from the panel next week.
The ratio of outstanding puts giving the right to sell shares to calls giving the right to buy has fallen to 0.45 since rising to this year?s high of 1.12 on Feb. 22. The number of outstanding contracts, known as open interest, for bullish contracts has risen 163 percent this month to 38,029 while the level for bearish options has increased 16 percent to 16,968.
April Call Options
The fastest-growing open interest for Forest options over the past two weeks has been in the April $32.50 calls, according to data compiled by Trade Alert LLC, a New York-based provider of option market analytics.
The number of those calls has more than doubled to 13,490 contracts during that period and now is the largest open interest among all options on the company. The stock hasn?t closed above that price since September 2008. Next month?s options expire April 16.
Forest fell 33 cents, or 1 percent, to $31.36 at 4:01 p.m. in New York Stock Exchange composite trading. So far this year, the shares have fallen 2.3 percent, compared with a 2.9 percent gain in the 51-member Standard & Poor?s 500 Health-Care Index. Forest is the sixth-worst performer on the index in 2010.
May FDA Decision
Daxas will be reviewed by the FDA?s Pulmonary-Allergy Drugs Advisory Committee. While the FDA usually follows its advisers? recommendations, it isn?t required to do so.
Forest anticipates a decision from the agency in May for Daxas in chronic obstructive pulmonary disorder. The debilitating lung ailment affects an estimated 24 million Americans, half of whom haven?t been diagnosed, and is the fourth-leading cause of death in the U.S., according to the National, Heart, Lung and Blood Institute.
The once-daily tablet was shown to improve lung function in studies combining it with inhalers Pfizer Inc. and Boehringer Ingelheim GmbH?s Spiriva or Serevent, a component of GlaxoSmithKline Plc?s Advair. Both are standard treatments for COPD. Daxas targets an enzyme involved in inflammation. Side effects include weight loss, nausea and loss of appetite.
?This panel has shown that they recognize that patients need new drugs for lung diseases,? said Corey Davis, a pharmaceutical analyst at Jefferies & Co. in New York, in a phone interview yesterday. ?Given that advisory panels are always dicey, this one for Daxas is about as good as it gets.?
Davis recommends buying Forest shares and doesn?t own any.
Estimated Sales
Forest licensed Daxas for $100 million from Swiss drugmaker Nycomed A/S in August after the new drug application was already submitted.
InterMune, of Brisbane, California, rose a record 65 percent the day after the FDA panel recommended approving pirfenidone, easing investor concerns that more studies were needed because the medicine didn?t delay progression of idiopathic pulmonary fibrosis in a trial. The treatment would be the first for the deadly disease that causes unexplained scarring of lung tissue.
Doctors and scientists on the pulmonary-allergy drugs panel have historically been known to back experimental drugs because ?they don?t like to box FDA in on their decision making,? said Ramsey Baghdadi, a health-care analyst and founding member of Prevision Policy in Washington, in a phone interview yesterday. ?If they vote no, it sort of creates uproar? against the agency if they were to want to approve a product, he said
http://www.bloomberg.com/apps/news?pid=20601202&sid=anWy9DR_JNoY
By Catherine Larkin and Jeff Kearns
March 31 (Bloomberg) -- Forest Laboratories Inc. investors are betting the experimental lung treatment Daxas will win support from U.S. drug reviewers next week.
Options traders are the most bullish on Forest since July. Outside advisers to the Food and Drug Administration are set to review the drug April 7. If approved, Daxas will have revenue of $581 million in 2016, making it Forest?s top seller, according to the average estimate of five analysts surveyed by Bloomberg.
The New York-based drugmaker needs new products before its top-selling antidepressant Lexapro loses patent protection in 2012, threatening 60 percent of the company?s revenue. The FDA panel will include at least three of the nine outside experts who recommended approval of InterMune Inc.?s pirfenidone on March 9, according to information gathered by Bloomberg.
With a similar panel, there is ?a 75 percent probability of successful approval and launch,? for Daxas, said William Tanner, an analyst with Lazard Capital Markets in New York, in a note to clients today. Tanner?s current target price on the stock is $34. He said shares can rise $1 with an approval recommendation from the panel next week.
The ratio of outstanding puts giving the right to sell shares to calls giving the right to buy has fallen to 0.45 since rising to this year?s high of 1.12 on Feb. 22. The number of outstanding contracts, known as open interest, for bullish contracts has risen 163 percent this month to 38,029 while the level for bearish options has increased 16 percent to 16,968.
April Call Options
The fastest-growing open interest for Forest options over the past two weeks has been in the April $32.50 calls, according to data compiled by Trade Alert LLC, a New York-based provider of option market analytics.
The number of those calls has more than doubled to 13,490 contracts during that period and now is the largest open interest among all options on the company. The stock hasn?t closed above that price since September 2008. Next month?s options expire April 16.
Forest fell 33 cents, or 1 percent, to $31.36 at 4:01 p.m. in New York Stock Exchange composite trading. So far this year, the shares have fallen 2.3 percent, compared with a 2.9 percent gain in the 51-member Standard & Poor?s 500 Health-Care Index. Forest is the sixth-worst performer on the index in 2010.
May FDA Decision
Daxas will be reviewed by the FDA?s Pulmonary-Allergy Drugs Advisory Committee. While the FDA usually follows its advisers? recommendations, it isn?t required to do so.
Forest anticipates a decision from the agency in May for Daxas in chronic obstructive pulmonary disorder. The debilitating lung ailment affects an estimated 24 million Americans, half of whom haven?t been diagnosed, and is the fourth-leading cause of death in the U.S., according to the National, Heart, Lung and Blood Institute.
The once-daily tablet was shown to improve lung function in studies combining it with inhalers Pfizer Inc. and Boehringer Ingelheim GmbH?s Spiriva or Serevent, a component of GlaxoSmithKline Plc?s Advair. Both are standard treatments for COPD. Daxas targets an enzyme involved in inflammation. Side effects include weight loss, nausea and loss of appetite.
?This panel has shown that they recognize that patients need new drugs for lung diseases,? said Corey Davis, a pharmaceutical analyst at Jefferies & Co. in New York, in a phone interview yesterday. ?Given that advisory panels are always dicey, this one for Daxas is about as good as it gets.?
Davis recommends buying Forest shares and doesn?t own any.
Estimated Sales
Forest licensed Daxas for $100 million from Swiss drugmaker Nycomed A/S in August after the new drug application was already submitted.
InterMune, of Brisbane, California, rose a record 65 percent the day after the FDA panel recommended approving pirfenidone, easing investor concerns that more studies were needed because the medicine didn?t delay progression of idiopathic pulmonary fibrosis in a trial. The treatment would be the first for the deadly disease that causes unexplained scarring of lung tissue.
Doctors and scientists on the pulmonary-allergy drugs panel have historically been known to back experimental drugs because ?they don?t like to box FDA in on their decision making,? said Ramsey Baghdadi, a health-care analyst and founding member of Prevision Policy in Washington, in a phone interview yesterday. ?If they vote no, it sort of creates uproar? against the agency if they were to want to approve a product, he said
http://www.bloomberg.com/apps/news?pid=20601202&sid=anWy9DR_JNoY