80 Per-Cent in One Day

Published: December 9th 2010
in Economics » World

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Many companies that are traded in the Health Care and Biotech sector are called "Dream Companies". It usually starts with a brilliant idea but in most cases there is no fund to turn the idea into reality. The company has to raise funds from a private investor or from the public via bonds and shares.


Then starts a very long process that includes: preliminary assessment, research and development, initial experiments, advanced experiments in animals and finally the critical phase of experiments in human beings. If all goes well, a final approval by the FDA is needed in order to turn the product from a dream to a commercial commodity. In many cases the FDA says to the company: "You're approved" or "You're not approved".


If the FDA approves the company's medicine it can move to massive production and start selling its approved product to the public. If the FDA does not approve the medicine then all the investments nay vanish unless another opportunity comes up.


This is one if the reasons that shares in the health care and Biotech sector suffer from high fluctuations.


Orexigen Therapeutics, Inc.


Here is a wonderful example that demonstrates to the investors in the sector how losses can turn into profits at a speed of a lightning and without any previous notice.


Orexigen Therapeutics is one of many Biotech companies. It is traded in the NASDAQ under the name OREX. Since the middle of October, the company's shares dropped by nearly 24 per cent. December 7th closure in New York was $4.87 per share.


Earlier yesterday it was published that an advisory panel to the United States FDA has voted to recommend the FDA to approve a diet drug developed by Orex.


The previous trading day numbers are already forgotten. The investors are not waiting until January 31st 2011 for the final FDA approval. They assume that the diet drug was already approved and as such, we can expect the shares surge in the market.


80 per cent


The shares were traded yesterday at a high peak of $11.15. After a very nervous day the closure of OREX was $8.77 per share, nearly 80 per cent higher than December 7th closure.


The most interesting data is the trading volume. The average daily trading volume for Orex is around $1.5 million. Today, the trading volume was nearly $30 million, 20 times higher than the daily average.


Many investors probably see a significant upside in the company's value. Others say to themselves that 80 per cent in one day is much better than a dream and it's time to sell before shares the fall down again.


Orex is not the only company in the Health Care and Biotech industry that behaves in that manner. Stocks go up and down like a roller coaster, impacted by approvals, news, rumors and hopes.  Therefore, think twice before investing in this sector.


This article does not recommend investing in the capital market

Related articles: (FDA, Orexigen)
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