Activity in Neurochem
Signals Hope for Stock
By MOHAMMED HADI
April 12, 2007; [WSJ] Page C4
"All hope is not lost," the options market seemed to say yesterday, even as shares of Canadian drug developer Neurochem Inc. dropped sharply.
The stock price fell $1.76, almost 12%, to $13.24 in Nasdaq trading after the company announced that the U.S. Food and Drug Administration has delayed by three months a key decision on one of the company's drugs for a fatal disorder called Amyloid A, or AA, amyloidosis. The delay was announced so that the FDA can review additional data, Neurochem said. The regulator's decision had previously been expected next week.
As the stock slid, more than 60,000 call options and 57,000 put options on Neurochem changed hands.
Despite the activity, the price of options on Neurochem sent an unusual signal to investors, noted William Lefkowitz, chief options strategist at vFinance Investments. The message was that Neurochem shares could soon recover their losses.
Call options that convey the right to buy Neurochem shares for as much as $22.50 and $25 in the next week continued to be priced as if investors thought there was a chance that the stock could jump to or near that level between now and next Friday, when these options expire, Mr. Lefkowitz said.
At the close of trading yesterday, the April 22.50 call options had a bid price of 60 cents. With the stock dropping $1.76, these options had lost 85 cents from Tuesday's closing price, but the fact that they had any value at all was surprising. Just over 1,000 of these call options changed hands yesterday.
One factor the call options may be pricing in is that clinical trial results for another drug Neurochem is developing are expected this spring. A spokeswoman for the company reiterated that expectation, but declined to be more specific.
Regardless, for traders like Mr. Lefkowitz, the fact that any value remains in these calls represents an opportunity. He was advising clients to sell the options, he said, with the hope that they can buy them back within a few days.
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