Pharma Stock Eyes 11th Straight Loss After Short Report

Aurelius Value said traders are paying a "blue sky" premium

The shares of Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) got knocked lower this morning, after Aurelius Value said it's short the stock. The report calls out the newly unsealed details of "one of the most expansive and detailed whistleblower writings we have come across," which claims the company "relied on illegal sales tactics and even outright fraud out of concern for the company's stock price." As such, Aurelius sees "significant downside potential" in VNDA stock, and believes "investors are paying a significant 'blue sky' premium." Against this backdrop, Vanda shares are down 5.3% to trade at $17.95, and options are flying off the shelves ahead of earnings later this week.

VNDA stocksuffered a massive bear gap last Wednesday, Feb. 6, as analysts reacted to the pharma company's complaint against the Food and Drug Administration (FDA). Specifically, Vanda said the FDA "illegally imposed" a partial hold on tradipitant studies in humans without first conducting "unnecessary and unethical" tests on animals, which would result in the death of multiple dogs.Cantor Fitzgerald subsequently downgraded VNDA to "neutral" from "overweight," and expects at least a 12-month delay for the drug's approval.

Vanda shares are on pace for their 11th straight daily loss, and their fourth consecutive close beneath their formerly supportive 200-day moving average. The equity fell as low as $17.09 in early trading today, into territory not charted since last May.

Options traders apparently see even more downside ahead for Vanda, even with earnings expected onWednesday, Feb. 13. While absolute volume is light, VNDA has already seen nearly 850 put options traded today -- 15 times the average intraday pace. Most popular is the February 17 put, which it seems traders are buying to open to bet on a breach of the $17 level by the close on Friday, Feb. 15, when front-month options expire.

Today's appetite for long puts echoes the growing trend. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly four VNDA puts for every call in the past two weeks.