Up 95%, but Still Risky as Heck

MELA Sciences (Nasdaq: MELA  ) is back from the dead today, but a walking zombie still doesn't have much chance at a Food and Drug Administration approval.

After the FDA released its briefing documents for the advisory committee on Tuesday, shares fell more than 54%. Investors had laid MELA and its melanoma detection device, MelaFind, in the coffin, waiting for the advisory panel to nail it shut.

Instead, the advisory committee pried off the lid, grabbed a defibrillator, and jolted MelaFind back to life. Well, just over half of the members did, anyway. The panel of outside experts voted 8-7 that the overall benefits of the MelaFind outweighed the risk.

Will that narrow vote be enough to sway the FDA's vote? I doubt it. In March, the FDA wasn't able to approve the application for MelaFind, sending MELA Sciences additional questions. I doubt a nearly split decision is going to change its mind, especially considering the negative view the FDA expressed in the briefing documents.

All you have to do is look at Dendreon's (Nasdaq: DNDN  ) Provenge -- the first time -- or InterMune's (Nasdaq: ITMN  ) pirfenidone to see what happens when the FDA is negative going into an advisory panel event. Even if the panel votes in favor of the drug, the FDA has the final say. Always.

The only example I can think of when the panel seemed to change the FDA's mind was Genentech's Avastin, but in that case, it wasn't so much that the FDA was negative as that it was unsure. The FDA ended up giving the drug a conditional approval -- called an accelerated approval -- which requires the drugmaker to complete more studies to keep the drug on the market. I don't know of a corresponding accelerated approval process available on the medical device side, but even if there were, I'm not sure MelaFind meets an unmet need, which is one of the requirements of an accelerated approval.

Anything is possible, though, and investors are right to be valuing MELA higher today than yesterday. As I see it, the chance of an approval went from very, very, very, very, very slim to just very, very, very slim.

If you've got some money burning a hole in your pocket, speculating on MELA Sciences could bring a rich reward if the company gets lucky with the FDA. At a market cap of $125 million, there's plenty of room to the upside.

But with money you don't want to gamble with, I'd look for a medical devices company with better prospects, such as Intuitive Surgical (Nasdaq: ISRG  ) . In my view, MELA Sciences still has one foot in the grave.

Looking for better investment ideas? The Million Dollar Portfolio team is willing to share its top picks with you. Just enter your email in the box below to get "Motley Fool Top Picks & Perspectives 2011," a new free report with stock recommendations and portfolio guidance for the year.

Intuitive Surgical is a Motley Fool Rule Breakers recommendation. The Fool has bought calls on MELA Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 19, 2010, at 8:18 PM, jrusso9722 wrote:

    Motley, Bad......all bad. Defend yourself on this, point by point.

    "Walking zombie still does'nt have much chance at an FDA approval".....Who in the hell allows this type of crap to be posted? Motley, I have thanked you for providing the opportunity for us to post, but this is profiteering. "MelaFind is in the coffin", awaiting for the; FDA to nail it shut"...garbage, not worthy. "I doubt it". So, you have the power of your office to proclaim a statement such as this. When many people did the same on Nov. 17, 2010. I think you are short MELA and looking to buy it lower so you can provide it to others you sold to. I don't like this phony, critique, then say "investors are right to value the stock higher". Not fooling anyone, Motley Fool, a pretty good site, has revealed itself to be short, and hoping to drop MelaFind. Mela Sciences has one foot in the grave...........dispicable...revealing, junior varsity commentator. What does Mela Sciences have to do??. Motley Fool, do you have a loved one, suspicious of Melanoma??. I hope not, but if it sadly occurs, YOU WILL WANT THE LOVED ONE'S DOCTOR TO SCAN WITH MELAFIND. Going back to your byline...."Up 95%, but Still Risky as Heck." 150,000 new cases of Melanoma a year, one person dieing each day. Motley Fool had better settle up with the American People. Stop this BullS---. MATASTISED LIVER, COLON, LIVER, BRAIN, LUNG MELANOMA is STILL RISKEY AS HECK!! YOU CAN DO BETTER!

  • Report this Comment On November 20, 2010, at 5:18 AM, Carl4397 wrote:

    Yes, I do believe you are short. I took my profits today and am delighted after buying on Wed. for a hefty 90% gain, plus an intraday short of another 12%. I am quite disappointed at your junior way of analyzing Mela's potential. Barron's does a far superior job. No offense, but you do sound mickey mouse, but keep on trunkin' because a few short-sighted investors might even believe you (and of course miss out in the long run).

  • Report this Comment On November 20, 2010, at 8:13 AM, rads2005 wrote:

    you people are out of your mind. this article is spot on. I actually believe MELAfind would be decently useful on uncertain lesions that the physician is thinking of following and NOT biopsying, cost considerations aside.

    however, the FDA is going to reject this again. Their stance was that this device was harmful to the public health. That is the strongest statement a government regulatory agency is capable of making. They're basically saying that by approving this device, we're killing people who would otherwise be alive.

    An 8-7 vote with 1 abstention is not going to change their minds. a 15-0 vote would not have changed their minds. they went through this process on the request of MELA.

    this company is in trouble. buy puts and short while you can. I can't because I don't have a margin account or options account.

  • Report this Comment On November 20, 2010, at 8:58 PM, czosnak wrote:

    All the Bears should just suck up and cut their losses. Mela has a great future. I,m an x-ray, mri tech for eight years. According to the current FDA attitude first CT or Mri wouldn't have been approved. The images of the first MRI's were very limited. Thanks to progress in electronics and soft ware , and technology you can see amazing things that you can't compare to the past. Both modalities have some safety requirements. CT can deliver high dosage of radiation, MRI can't b be performed on people, with pace makers, old aneurism clips and some electronic devices. The images have to be read by radiologists. In the case of Mela, the technology itself is showing effectiveness in the way we image skin. So it was with MRI and CT. They were showing many things but many thing could be misted. So claims about Mela can miss some lesions and that's why useless is just bogus. Mele will progress like other imaging technics. It is a great starting point to detect melanoma. It works on a very high and sophisticated principals of physics and computer modeling like MRI and CT or ultrasound. The Bears are counting on the incompetence and sloppiness of FDA. I read the agreement that was signed by both parties. It is clear that FDA screwed up. They don't want to admit it officially but they know it. They will admit their mistake by approving MELA with regulation, labels, training programs, warning. It will be their way to safe their face. Playing on irrational fears, scare tactics by Bears already failed. And it will again. Off course they will try to kill the stock so they could flip and by it cheap. But they are wrong. Their tactic has been tested and revealed. Some of the bear are in a big dump, and they will do everything to limit damage. First of all lie and write crap. The people from BARON know it.

  • Report this Comment On November 21, 2010, at 9:25 AM, SamuelHasson wrote:

    Brian, you said, "I'm not sure MelaFind meets an unmewt need." Brian, you're not sure. But the doctors in the field who work with this ailment every day testified otherwise. The opening statement of your opinion revealed your bias towards a secondary or tertiary level of political consideration. Why not stay honest in the first instance and reside there in your "intellectual deliberations?" The CEO did a solid job of summarizing the focus of the issue at the end, and the panel members, once realizing that they gone too far into lala land with their psychobabble, voted accordingly. Given the great need for an adjunct to doctors evaluation efforts, an accelerated approval would cover all bets and real practical, outstanding questions.

  • Report this Comment On November 21, 2010, at 6:21 PM, dynam000 wrote:

    First, the device has officially recieved a non approvable letter from the FDA. There is no timeline at this point by which the FDA must make a decision in favor or against melafind. I'm sure the Mgmt team at mela knows this and the FDA will tell them to either concede and propose another phase iii protocol or get put on clinical hold. FDA speak for death sentence.

    Second, If this did get approved would you have any faith that the current Mgmt team could execute on their commercial strategy.

    Not me.

  • Report this Comment On November 22, 2010, at 7:36 AM, jrusso9722 wrote:

    dynamo000, Appears that you don't WANT to have faith, that you have another agenda. God forbid it, but if I, or you, saw a scary, discolored, ragged-edged mole on our shoulder, I would want a MelaFind scan, and I believe you, and everyone else who shorted this stock, would suddently come to their senses.

  • Report this Comment On November 22, 2010, at 7:38 PM, dynam000 wrote:

    No, Jrusso0722, just a realist that deals with the FDA and new technology on a daily basis. Read a few of my prior posts on the motley fool website.

    First, I wish I had shares to short. I probably would pull the trigger on that transaction.

    Second, having a wife whom has had several pre cancerous and melanomas removed I have a interest in these types of technologies. Having a regulatory background assists me in being objective and not led by my heart. You might wish to do the same. The last thing we need is a technology that is rushed to market where the sensitivity or specificity simply do not warrant approval.

  • Report this Comment On November 29, 2010, at 6:32 AM, jrusso9722 wrote:

    dynamOOO, being a realist has nothing to do with individual decisions of the FDA.

    If you want to short a stock, you don't have to own it, you can borrow the shares.

    A regulatory background is a choice. What's important is your wife's opinion, and her doctor. "simply do not warrant approval" is an opinion, lacking objectivity.

  • Report this Comment On December 02, 2010, at 2:33 PM, jrusso9722 wrote:

    Keeping MelaFind from scanning those lesions that the DOCTOR, or PATIENT, deem suspicious, would be a heinous action. These shorts had better buy the stock now, because MelaFind will be placed into the hands of professionals--DOCTORS. Saving lives is what it's all about, and no amount of stock dumping, shorting is going to change that. Poster Samuel Hassan has it correct. Read it over and over again.

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