Will FDA turns down a life saving drug?

I betted on Achaogen (AKAO) for its leading antibiotic, plazomicin, a few months ago (see here). As I said, drug-resistance bacterial infection has become a serious problem in the world and the potential market for it is huge if such antibiotics can be commercialized. Plazomicin is such a drug under development and is not under the FDA review for approval. Achaogen submitted two indications for the drug, one for complicated urinary tract infection (cUTI) and the other for BSI (blood stream infection indication. On May 2, the FDA held an advisory committee meeting to assess if the drug was safe and effective for the two indications. For cUTI, given the very strong clinical trial data, there was a unanimous vote in favor of approving it. Unfortunately the vote for BSI was not favorable (11-4 against it). The market reaction was obviously very negative, driving the stock down by 26% following the vote. But I think this is an overreaction and I still think there is a chance the drug may be approved for both indications for the following two reasons:

• The main issue for the negative vote for BSI is lack of sufficient data. Indeed, due to the lack of patients available for this very serious indication, the company could only enroll 69 patients of the originally planned 360 in the study CARE, including only 17 evaluable subjects treated with plazomicin. Strictly the committee was right due to the lack of sufficient clinical data. The thing is BSI is extremely serious with very high mortality without much alternatives. Among this small cohort of patients, plazomicin achieved a relative reduction of 71 percent in all-cause mortality at 28 days versus placebo, an amazingly strong indication of its effectiveness for a serious life-threatening disease. While ideally it is always better to have sufficient patients with stats power to demonstrate the safety and efficacy, in reality for serious disease or rare disease, it is simply not always possible. As such, such indications may still be approvable under exceptional circumstances. We have seen such precedents enough times before.
• Even if the BSI indication is not approved, it is almost a given that the drug will be used off-label for the indication due to its strong efficacy and lack of other alternatives.

Considering the above, I think there is a good chance the FDA may approve both with a mandate for the company to do more studies for BSI. Certainly there is no guarantee but I do believe so. The FDA decision date is Jun 22 but it could come earlier.

So how have I played with AKAO? Well, based on what I have seen, I have been a bit aggressive to bet for AKAO with both long calls and put selling. Fortunately when the advisory committee meeting was approaching, AKAO was elevated quite a lot with many people anticipating a good result I supposed.  So my naked puts had gained about 90% with a profit more than the cost I had for the calls. Due to the high risk involved, it would be stupid for me to still keep the naked puts that had not much left to gain but could easily be wiped out due to the potential negative results. So I did close my puts that have more than enough to cover my calls. I have been just playing the calls for free with some good gains already realized. Obviously due to the overreaction to the partially negative results, my earlier paper gains from the calls have all been wiped out but I’m still holding it. I think there is a good chance I may still get more upside gains from it, considering the chance of a full approval for the drug is not negligible.