Thursday, December 15, 2011

Targacept (TRGT) - Bio-tech Vol Rises 70% in 3 Days, Bullish Bets in Jan After 60% Drop and Failed Phase III Results

TRGT is trading $7.80, up small with IV30™ up 15.3%. The LIVEVOL® Pro Summary is below.


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Targacept, Inc. is a biopharmaceutical company engaged in the design, discovery and development of neuronal nicotinic receptor (NNR) Therapeutics for the treatment of diseases and disorders of the nervous system.

This is an order flow note to go along with the popping vol to go along with upside skew after a disastrous phase III trial.

 The company has traded over 20,000 contracts on total daily average option volume of just 4,695. All but 273 contracts have been calls with the action in the Jan 10/15 call spread trading more than 8,600x for $0.45 and $0.50. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the call spreads are mostly opening (compare OI to trade size). When looking down the entire option chain for TRGT, I don't see any OI larger than 10,000 other than the May 17.5 calls and the Dec 20 calls (expiring tomorrow), so this trade size is large for TRGT.

The Skew Tab snap (below) illustrates the vols by strike by month.

A very cool upward sloping skew reflects greater upside risk (potential) rather than downside risk. For the most part, we can see the front months exhibit elevated vol relative to the back. But, there's more... Check this out:

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

We can see a huge stock drop on 11-8-2011 from $19.12 to $7.61, or over 60%. Whoa. Here's the news that drove that drop:

AstraZeneca and Targacept announced disappointing results from a phase 3 study of a treatment, TC-5214, for major depressive order.

The drug did not meet its primary endpoint of change on the Montgomery-Asberg Depression Rating Scale when used as an adjunct therapy to initial antidepressant treatment, as compared to a placebo.

The companies noted they continue to analyze the data from the study, which is the first of four phase 3 studies planned for the drug.

Source:Frobes: Targacept Plunges on Trial News.

In another article, this one written by Adam Feuerstein from, we get some more color:

If '5214 didn't perform any better than a placebo in alleviating symptoms of depression in this phase III study, the chance that the drug performs any better in the remaining three phase III studies is really low.

And that also means the spectacular data generated from the phase IIb study of TC-5214, conducted largely in India, were a mirage.

Source:Targacept Trial Tragedy Takeaway: Don't Trust Clinical Data From India

Yikes. Well, there are further tests, and what do ya know, someone seems to be betting on a pop above $10 and the vol is climbing. Check out the vol portion -- the IV30™ has been climbing on a steep slope, going from 83.81% to now over 141%, or a nearly 70% increase in just three trading days. Tricky...

This is trade analysis, not a recommendation.

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