There are literally hundreds of new drugs hitting the market each year. Why write about this particular drug? The drug bears discussion because it is the first one in 50 years to treat a disease called Lupus. Lupus is an autoimmune disease in which the immune system turns against part of the body it is designated to protect. It causes debilitating joint pain, organ damage and skin rashes. Up to now the key medication used to treat Lupus are steroids.

A team of researchers from Human Genome Sciences (HGSI) headed by William Haseltine started looking at genes and their special functions. The problem was that there was no gene known to cause Lupus. So they started thinking outside the box. Instead of finding the gene first and then its function, they looked for the function then found the gene called BLyS that is elevated in Lupus. The new drug is called Benlysta.

Human Genome Sciences (HGSI - option chain) stock is trading lower today after briefing materials for an FDA advisory panel were released that questioned whether the benefits of Benlysta, a proposed lupus treatment from HGSI and GlaxoSmithKline (GSK), outweighed its risks. The panel will potentially vote next week on whether it thinks Benlysta should be approved, but its early skepticism might not be a good sign for HGSI and GSK and speculation surrounding the event has driven option prices through the sky. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on HGSI.

Human Genome (NASDAQ: HGSI) is recently trading at $11.07 in pre-open trading, above its close of $3.32. Human Genome Sciences and GlaxoSmithKline (NYSE: GSK) announced that BENLYSTA met the primary endpoint in BLISS-52, the first of two pivotal Phase 3 trials in patients with serologically active systemic lupus erythematosus. HGSI August 2.5 straddle is priced at $2.45, October 2.5 straddle is priced at $2.75, January 2.5 straddle is priced at $3.25 according to Track Data, suggesting large price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com