The LaboPharm Dump? Print E-mail
By Vinny Cassano   
Thursday, 04 February 2010 03:59

Shares of LaboPharm, Inc. (Nasdaq: DDSS) dropped after the company announced on Wednesday that the US FDA had approved OLEPTRO, the company's treatment for major depressive disorder in adults. OLEPTRO is a once-daily formulation of trazodone and utilizes the LaboPharm's controlled release technology, CONTRAMID.

According to the early Wednesday morning press release, the company said it had expected to have OLEPTRO available for prescription in the United States later this year.

After spiking to nearly $3 on the market open, shares of DDSS traded down roughly and the downturn saw DDSS trade for as low as $2.17, before closing the day at $2.21. Volume remained very strong throughout the day, as expected after such news.

It's not unusual to see such a drop in price after positive FDA approval news (see: BDSI, NRIFF.PK, etc), and although it's a bit nerve-shattering for longs to watch, it's actually nothing to complain about because it gives small investors the chance to buy shares of a company with an approved drug for the same price - or less - that just days before would have bought a more speculative company with an uncertain FDA decision looming.

Even when the stock trades down after positive news, it's still a better buy today than it was yesterday because of the increased certainty that the company will be able to generate revenue over the mid to long term.

However, scenarios like this demonstrate the need for the small investor to base investment decisions on his or her own DD - and not the message boards, blogs or unexpected price swings. In the confusion it's a whole lot easier to sell into the uncertainty and move on, but an investor who is confident in the DD will have the fortitude to stick it out, maybe add some shares on the dip, and look towards the future.

The small investor cannot influence the stock price, the stock price will do what the big boys want it to do; it's up to the small investor to be on top of his or her game and to take advantage of the volatility and manipulation (if in fact manipulation is at play) . In this case it's a buying opportunity that has been presented, in my opinion.

When discussing possible manipulation, you can't ignore the fact that when the big boys want a stock to drop, they get their minions to swarm the message boards with multiple user IDs whose orders are to create a mood of confusion, panic, fear and uncertainty. Many small investors cannot handle the desperation that comes with all of those emotions and will therefore sell their shares (either for a loss or not as much profit as they could have banked by selling earlier) and play right into the hands of the riff-raff.

Once the stock has dropped and the riff-raff are somewhat satisfied with the amount of shares that they've shaken loose, they disappear off the message boards just as quickly as they showed up. Many will deny that such manipulation takes place, but after seeing the same game quite a few times, you'll feel a lot more comfortable holding through the storm, and possibly even adding a few shares.

Don't get me wrong, if something changes with the company that you're investing in that fits your 'exit strategy' protocol, then it may be wise to completely bail out. But if it's a secondary variable that is impacting the share price of your stock, and not actually events related to the company, then rely on your DD and stick to your entry/exit strategies.

It always comes back to DD and patience - and to not being afraid to take some profit off the table when the opportunity arises.

In the case of DDSS - as is usually the case immediately after FDA approvals- the time between approval and commercial launch is usually months, and that is why - in my opinion - there is time for these games to be played; because even after a commercial launch, it'll still be months before the investor has a good idea of how much revenue is coming in.

That's why these days the small investor can't count on banking some profits immediately after approval - we need to have a longer term outlook to realize the expected gains; however, with that said, there is usually plenty of volatility leading up to the FDA approval that allows investors to do a bit of trading in order to end up on house money by the time D-day comes.

If you were positive on DDSS before the FDA decision, then there's no reason to change your position now - just keep patient and look for news regarding a partnership announcement, commercial launch and ultimately, the revenue generation for OLEPTRO could be significant.

All just my opinion, each investor should do his or her own DD.


Disclosure: long DDSS

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