07-09-07

PANC:a HIV play?

Today we would like to present a young and small biotech firm. PANACOS PHARMA (PANC - USD 2.89) engages in the discovery and development of small-molecule oral drugs designed to treat Human Immunodeficiency Virus (HIV) and other human viral diseases. Its lead product candidate, ‘bevirimat‘ , under Phase 2 clinical trials, is a class of drug candidates that works by a novel mechanism of action called maturation inhibition. The company's discovery technologies focus on novel targets in the virus life cycle, including virus maturation and virus fusion. PANC was founded in 1999 and has a market cap of USD 154 million. The stock, currently trading at USD 2.89, is just above year lows of USD 2.41 (on August 7th). The high over the last year was USD 7.23 back in November 2006. There is some scepticism about bevirimat’s future because of delays in the trials, but results so far have been rather promising. We therefore give an order to sell 10 puts PANC January 2008 with strike USD 2.20 at a price of USD 0.35. If the order is executed we receive an upfront optionpremium of USD 350 (10*100*0.35). As a 100% margin USD 2.500 is blocked on the account. The September USD 10.00 puts on EVERGREEN SOLAR (ESLR - USD 9.20) we had sold at 1.15, are trading ITM (in-the-money). We prefer to close the trade with a small profit, rather than to be assigned in 2 weeks. We give a closing order to buy 10 puts back at a limit of USD 0.75. If done, we would realize a profit of USD 400 on the trade (10*100*(1.15-0.75)). We can then reassess the situation and consider a new short put position. To summarize, here the 2 orders:

1. Open Sell 10 puts PANC January 2008 USD 2.50 at a price of USD 0.35 (actual price: http://finance.yahoo.com/q?s=PBQMZ.X);

2. Close Buy 10 put ESLR September 2007 USD 10.00 at a price of USD 0.75 (actual price: http://finance.yahoo.com/q?s=QLUUB.X).

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