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Genzyme and Transkaryotic active on FDA panel news

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Shares of biotechs Genzyme Corporation (NASDAQ:GENZ) $20.05 +0.9% and Transkaryotic Therapies (NASDAQ:TKTX) $36.45 +7.6% have been active in the last hour of trading after both companies said their biologic license for the treatment of Fabry disease will be reviewed in late September, with Genzyme's (GENZ) Fabrazyme BLS to be reviewed on September 26th, and Transkaryotic's Replagal reviewed on September 27th.

Earlier this afternoon, shares of Genzyme (GENZ) fell to a session low of $17.86 after its chief competitor in the Fabry disease area announced that its license would be reviewed on September 27th. Investors in Genzyme (GENZ) became nervous that Transkaryotic's (TKTX) news implied that Genzyme's license application may have been pushed aside, but that wasn't the case.

Not long after Transkaryotic's announcement, shares of Genzyme surged to an intra-day high of $21.50 in a 30-minute period when it announced that its biologic license was also to be reviewed a day earlier on September 26th.

In recent past, subscribers have been looking to play some straddle and strangle trades in the biotech sectors ahead of these types of FDA panel reviews as positive or negative results from the reviews can drive price action. The strategy of the straddle or strangle option trade puts the trader on both sides of the trade (bullish or bearish) and looks for the decision to eventually provide the meaningful catalyst for price action.

Genzyme Chart - $1 and $0.50 box

With retracement placed on the above chart of Genzyme (GENZ), I priced out an October $20 straddle, whereby a trader would look to buy both the October $20 calls (GZQJD) and $20 puts (GZQVD). However, with market volatility running high and the VIX.X at 31.88, options are expensive.

What I'm going to do is mark in my calendar the FDA reviews of both GENZ's and TKTX for late September. While I like the "idea" of a straddle, I think with time, option volatility will come down (make a straddle more affordable). If GENZ cooperates, and hangs around the $20 level over the next week or so and a trader could get both the puts and calls at around $2.50 (net $5.00), then there's enough "room" either side of $20 to have a trader looking at such a trade. An approval from the FDA could see GENZ jump to the $33.93 level of retracement, while a negative decision could have the stock dropping to the $11 level, which would be the mid-point of regression if extended to late September.

Currently, based on October $20 put/call pricing, a trader would need a net move of about $7.20 either side of $20 to achieve any type of profit potential. With market volatility high right now, I'd wait things out and see if the options don't come down in price.

Today's news and dates for FDA panel review are notable and worth monitoring in the coming weeks as the decisions from the FDA panel review will undoubtedly brink some sharp stock price reactions to both Genzyme (GENZ) and Transkaryotic Therapies (TKTX).

Jeff Bailey
Senior Market Technician
Option Investor

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