DEPO – Action Ahead Of The AdCom

DepoMed Inc. (DEPO) -Nasdaq

Serada is an investigational formulation of gabapentin, an FDA-approved immediate release pharmaceutical for the treatment of partial epilepsy and management of postherpetic neuralgia (PHN). Recently published studies suggest the potential application of gabapentin for the treatment of menopausal hot flashes. Based on these findings, Depomed has secured exclusive rights to develop and commercialize Serada, an Acuform enhanced formulation, for the treatment of menopausal hot flashes.
On October 15, 2012 DEPO announced that its New Drug Application (NDA) for Serada has been accepted for filing by the FDA.  In addition, the FDA has informed the company that the FDA’s Reproductive Health Drugs Advisory Committee  (AdCom) will discuss the Serada NDA at an Advisory Committee meeting tentatively scheduled for March 4, 2013, while the PDUFA action date on May 31, 2013.

The price started moving within an uptrend channel since mid August, starting at $4.91 and kept soaring to reach the high of $7.15 on Feb 1st, facing a real strong weekly resistance line and retreat to re-test the last resistance line at $6.70 that supposed this time to change its role and be used as a support line.

Click to enlarge
Click to enlarge

If we look at the daily chart, the last strong uptrend was on increasing volume, while the technical correction, on a decreasing volume, that’s a good sign giving us a hint that it is just a technical correction. The MACD still strong and looks like wants more uptrend, but the RSI don’t agree and show us a negative divergence, as there is no strength or momentum on the last move. In the other hand, the technical correction bring the price back with-in the Bollinger Bands and with-in the Fibonacci retracement levels of 38.2% to 50%, this event called a healthy correction by technicians.

What’s Next
We know that the near term catalyst is the AdCom and it’s very close on March 4th, we have only 14 trading days till the AdCom, so we might see more traders coming in to trade the event and give the price another push to bounce back from the $6.70 support line and trying to breakout the $7.15 resistance line in the second try.
In case of breakout, the next target is $7.71 followed by $10.40, the 10 years high that might be challenged in case of a positive panel vote.

But in case of breaking down the $6.70 line and closing bellow it, then we have to watch for these important points, first the Fibonacci 50% line around $6.64 followed by $6.53 as the Fibonacci 61.8% level, and the last support line is the $6.45.

Disclosure: Author Long DEPO shares

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