2 Drug Stocks Diving on FDA News

LXRX and IMMU options are flying off the shelves today

Jan 18, 2019 at 10:59 AM
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The shares of Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) and Immunomedics, Inc. (NASDAQ:IMMU) are getting walloped this morning, as traders react to Food and Drug Administration (FDA) news. Specifically, LXRX is plunging after an FDA advisory panel was split (8-8) on whether to recommend approval of Lexicon's sotagliflozin, a type 1 diabetes drug. The FDA is expected to make a decision before March 22. IMMU stock, meanwhile, is reacting to the regulatory body's rejection of its breast cancer drug. Against this backdrop, options traders are piling on.

Lexicon Stock Plunges to Record Low

LXRX stock was last seen 28.8% lower to trade at $5.48, and earlier touched an all-time low of $5.29. The equity has been in a channel of lower highs and lows since its June peak near $14, with the 60-day moving average halting rebound attempts.

In light of the FDA panel split -- the result of concerns about a life-threatening side effect -- Needham said, "We now believe FDA approval in this indication is possible, but not probable." Stifel, meanwhile, slashed its price target to $14 from $21, though that's still more than double the equity's current perch.

Despite the uncertainty surrounding the diabetes drug, LXRX options traders today are betting on a bounce. Already this morning, the shares have seen almost 900 calls cross the tape -- 12 times the average intraday clip, and pacing for an annual high. It appears speculators are buying to open April 7 calls, which will move into the money if Lexicon shares rebound north of $7 by April options expiration -- which encompasses the expected FDA decision.

IMMU Stock Set for Worst Day in Years

Immunomedics stock is among the worst of the Nasdaq today, down 32.2% to trade at $12.27, and just off a fresh annual low of $11.55. IMMU has been in a channel of lower highs and lows since its July acme of $27.33, and is pacing for its worst session since November 2003. What's more, the equity recently flashed a historic sell signal, after running up to its 80-day moving average.

While IMMU is on the short-sale restricted (SSR) list today, several shorts are likely cheering today's plunge. Short interest represents more than a quarter of the security's total available float, after increasing 11% in the past two reporting periods.

So far today, more than 17,500 IMMU puts have changed hands -- 12 times the average intraday pace, and on track for an annual high. Seeing notable activity are the now in-the-money January 2019 14-strike puts, which expire today. It appears some option bears may be cashing in their winning positions ahead of options expiration at the close today.

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