Palatin Technologies Inc (NYSEMKT:PTN)

I'm loathe to pump stocks, especially sketchy biopharmas, but I'd be lying if I said I wasn't excited about the new zzporte position in Palatin. This is a stock I'd given up on following more than a year ago when the demands of parenting had grown to the point where curating a 250 stock database had become unrealistic. Those demands haven't stopped growing, but I did manage to find a half hour to refamiliarize with the company after the stock spiked from its 0.9 baseline to as high as 1.6 in the premarket last Friday following the surprising positive Ad Comm vote for filbanserin for female low libido. Part of that spike was due to false reports that flibanserin is being developed by Palatin, when it actually belongs to private pharma Sprout. The spike declined precipitously as it became more clear that flibanserin is actually a competitor of Palatin's drug bremelanotide.

This is the point where it pays off to be a dedicated student of market psychology. There's no easy way to trade Sprout, so Palatin is the play for retail investors ahead of massive upcoming catalysts later this year. I initially reviewed Palatin for a short on the premarket spike, and rejected it because I saw the potential for massive further appreciation in the short-term. When I was quickly proved wrong on that point, I immediately switched gears and started to look at it as a long. It is critical to understand who or what was buying Palatin Friday morning and who or what was selling it all through the regular session. The answer? Uninformed momentum traders and algos trying to find a dumber, greedier buyer. When the buyers evaporated, the programs switched from buy to sell and down the price went. In this game, the profits go to the first in and first out. I am not quick or savvy enough to do better than random chance at the day trading game, so I stay out and look for another chance to get in before things get wild again.

Will Palatin get wild again or will they remain forgotten and quiescent, perhaps to decay down to 50 cents as the street ignores the stock? The answer is that yes, the stock will get wild again. The fact that the momos flooded in and out of the stock based on poor comprehension and faulty information has no bearing on the reality that Palatin and bremelanotide are in fact intimately associated with the future of flibanserin. The first critical date is August 18, the PDUFA for flibanserin. If flibanserin is approved by the FDA, Palatin's share price will spike again. Why is FDA approval of a competitor good news for Palatin? Because flibanserin sucks as a libido enhancer and the potential market is huge.

Lost in all the hype about "female Viagra" is the simple fact that flibanserin had a minute effect on the sex life of female subjects in clinical trials. The women receiving flibanserin reported that the average number of times they had “satisfying sexual events” rose from 2.8 to 4.5 times a month. However, women receiving placebo reported also an increase of “satisfying sexual events” from 2.7 to 3.7 times a month. The difference between flibanserin and placebo is about ten satisfying sexual events a year, or less than one a month. Also, both clinical trials of flibanserin failed to demonstrate a statistically significant improvement on the co-primary endpoint of sexual desire. In order to achieve these dubious results women have to take flibanserin every day of their lives, not just when they wish to have sex. In return, they are liable to experience such adverse events as dizziness, nausea, fatigue, somnolence and insomnia.

Despite the 18-6 positive Ad Comm vote, I think there's still at least a 50/50 chance the FDA rejects flibanserin. The FDA has been consistently negative about female libido-enhancing pharmaceuticals, even questioning the designation of female low libido as a disease process. The flibanserin Ad Comm vote was believed to have been affected by testimony from the public, much of which was provided by activists directly sponsored by Sprout. The FDA has historically been much more resistant to public opinion campaigns than their Advisory Committees, but they are also statistically likely to follow the Ad Comm recommendations.

An FDA rejection will definitely hurt Palatin in the near term, because it will convince a lot of people that the FDA has no intention of ever approving a female libido drug and Palatin stock is worth less than cash. But the good news there is that Palatin actually has 37M in cash as of the end of Q1, which is equivalent to about 0.85/share. If the stock declines substantially below that level on a flibanserin rejection, it becomes a great buy for a run up into topline data from the two ongoing phase III trials of bremelanotide in mid 2016. Bremelanotide works via a completely different mechanism from flibanserin and there's a good chance it will show an improved safety and efficacy profile. Traders should realize well before that data comes out that the FDA's distaste for flibanserin may not translate to a drug with a better therapeutic profile.

I didn't buy Palatin right away because I wanted to be sure all the uninformed short-term technical traders had left the stock. Portefeuille and I are a little different that way. He decides a stock is a good buy mid to long term likes and opens a small position early on, increasing the size if the price action works against him. I hate the mindless momos and don't want any of my money to end up in their pockets so I do everything I can to avoid getting in too early, even at the expense of missing some good opportunities. Needless to say, Portefeuille's approach works better but there are some psychological blocks I still have a hard time to overcome. In the case of Palatin, I got lucky in that the stock dipped below my arbitrary threshold of 1.1 long enough for me to add 10000 shares at 1.08 yesterday. That doesn't mean it won't go lower, of course, but now that I'm in I feel comfortable adding for a hopeful run into the flibanserin PDUFA. What we do with the position ahead of that catalyst remains to be determined.