SPPI got positive news from FDA but turned negative on the market

This past Friday(8/4/09) the FDA gave Spectrum Pharma(biotech ticker:SPPI) the much anticipated news, in fact it came 3 days before the actual action date, that they approved SPPI’s drug Zevalin for first line use of non-Hodgkin’s lymphoma. The approval of zevalin will enable SPPI to expand the drug beyond their current use and open up to new market potential and hence increasing their company valuation. And one would think that the market will put this new valuation of the company in place and lift their pps higher. Well, to everyone surprised the market did just that, but only for a few minutes, and turned negative and closed near 5% down. So what happened? Why negative on positive news? Is this the case of buy the rumor and sell the news? The market so keen on the valuation and figured that SPII is already priced in or is the something else entirely?

Well, to answer these questions let just take a closer look.
1. There is huge anticipation and speculation of SPII’s FDA action date.
The lesson here is the speculators driving the herds.

2. Why negative and not stayed same?
The lesson here is buying on rumor and sells on news.
Once the price reached it resistance point, speculators a sell off trend, in SPPI case $ 10, so this is the case of a mad sell off to make quick money on the news, and once it started the effect, it also takes out limit, stop loss and combining it with short position into play created the snow ball effect.
However, the snow ball effect didn’t turn into an avalanche effect and only minimized to 5% loss. In my opinion, it is because the news were released 3 days early as suppose to wait until Tuesday where the price could go well over the $10 range and the manipulators/speculators play will inevitably played out and the loss could be in the 25% with huge swing, so I believe the company knew this and to overall protect the interest of the company investors the company released the news early.

3. Is the current price reflected the current valuation for SPPI pps?
The lesson here, don’t buy on hype but buy on a sell off.
The market overall is not a very good at valuating the company in general especially small cap biotech company, and this is where it is most exploited and manipulated. There is no magical formula in the valuation of speculative play in SPPI, no trends (in spite of most claims), statistical indications, or simple rule of thumbs, but it is based purely on speculations of their future valuation. However, one speculation did put to rest, in that SPII got approved on Zevalin and two more to go, with one valuation already played and a massive selloff and price resistance at 7.90-8.10 one can fairly feel confident that this is the new low for SPPI in their upcoming speculative plays.
There you have, now go and play!