What we wanted to check on was the pricing of near-month stock options to try to establish an implied buyout price.  Genzyme stock options are showing right at $2.00 for the AUG-2010 $70 Calls.  The AUG-2010 $65 Puts are at $2.55.

Using current prices alone does not give a 100% accurate read on any implied buyout price indications.  Quite simply, the snapshot of today does not always reflect the trading book of an options market maker.  It does give theoretical pricing and probability.

You also have to consider that we have already now seen a large run-up and the buyout interest that had been indicated could have easily been based upon where shares were… in the low-to-mid-$50′s.  Corporations rarely care about appeasing speculators who invest in and around the potentiality of a merger, but they do have to keep in mind that securing a merger often requires more than just appeasing shareholders who are happy to get a boost from low levels.

After crunching numbers based on options prices today, it seems that $70.00 is the implied theoretical buyout price.  Extra premium on top of this would garner the hope that GSK or J&J would try to jump in with a rival bid or a higher bid.

Again, these prices are merely based on snapshots in time.  Options are merely one component of what is a convoluted situation.  Sometimes these are dead-on, and sometimes they are off by a mile.

As far as this comparison, the Call options are far more active and have a far larger open interest than the Put options.  Generally that is a sign that speculation is for upside rather than downside.   Of the speculative Put strikes in August, we have only seen a bit more than 5,000 contracts trade today versus a prior open interest of 5,877 contracts.  Today’s Calls have seen more than 12,000 contracts trade versus a prior open interest of more than 27,000 contracts.

What Genzyme ultimately fetches, if it garners a deal, points to a high implied bid of around $70.00 by our take.  The value of anything is what someone is willing to pay for it.  That could be far more or far less.  Genzyme’s average share price for last week before the reported bid rumors was close to $53.00.

JON C. OGG

Wedbush’s note calls VIVUS as being one of the most attractive in the mid-cap biotech space.  The firm noted that the $775 million market cap is well below what it should be and could be for a drug that addresses such a large and virtually unmet need of treatment.  The company also still holds all of its own rights, and we’d throw in the note that this puts it among the potential pool of biotech acquisition candidates out there.

After Amgen Inc. (NASDAQ: AMGN) and Sonofi-Aventis (NYSE: SNY) are both reportedly out looking for target acquisitions, it is hard to leave VIVUS entirely off the list of potential buys.  The issue is that the FDA decision is still pending.

With Merck & Co. (NYSE: MRK) having a diabetes drug called Januvia, and with it targeting ‘diabetes and obesity’ it does leave room for speculation that it might want to add in an obesity drug for its pipeline.  That also leaves Orexigen Therapeutics, Inc. (NASDAQ: OREX) and then Arena Pharmaceuticals, Inc. (NASDAQ: ARNA) as potential speculative ‘could-be’ targets in the obesity space, although Arena just partnered with Eisai in Japan just last week.

What is interesting is that this new class of drug candidates for obesity also help with issues such as diabetes, blood pressure, and other ailments that usually come along with years of obesity.

We saw calls from Schaeffer’s Investment Research and Market Intellisearch giving an options alert for VIVUS just yesterday.  VIVUS shares were under $10.00 yesterday, and the rally and options trading helped bring shares higher.  If anything, this seems like it may have been a telegraphed research call; but it is also a situation where you could tie a strong move in an up-market to any of the renewed interest in biotechs with potential blockbuster drugs or which may be acquired.

The stock was under $10.00 while this newest research piece was being compiled and the closing bell price yesterday was $10.67.  The stock traded as high as $11.15 today, and the 52-week range here is $5.55 to $13.68.

With shares down marginally in mid-day trading around $10.60, this is close enough for a call to double to make it count.

JON C. OGG

The company noted specifically this morning that the proceeds from the recently concluded $1 billion debt offering will be used to support this first tranche of Genzyme’s overall $2 billion share repurchase plan announced in May.  Genzyme will now pay $1 billion to Goldman Sachs on June 22, 2010 and will receive approximately 15.5 million shares, which the company said equates to about 80% of the shares to be repurchased based on the closing share price on June 17, 2010.

Henri Termeer, chairman and chief executive officer, calls this part of “a comprehensive five-point plan to increase shareholder value.”  The company also maintains that this is a balanced plan that still includes long-term sustainable growth with a focus on core businesses and its late-stage pipeline.

The problem with share buybacks is that you never know if they work or not.  There have been long studies that have shown both sides of buybacks working and then not working.  The truth is somewhere in the middle.  Buybacks can offset employee share dilution.  The real impact is that if nothing else they are meant to act as a share stabilization mechanism.  Companies cannot generally buy back so much stock in the open market that they create mega-rallies in their shares.  The positive flip-side is that these buybacks do offset share sale imbalances that would otherwise drive shares south.

Here is the biggest issue of all, and there is a value conundrum here.  At 24/7 Wall St., I had previously discussed turning around three biotech giants….  Of course, Genzyme was one of these and Genzyme was under $50 at the time.  You have to wonder if Genzyme should be out looking for acquisitions.  At 13-times forward earnings this one is a fairly cheap stock but still a premium to some turnaround peers.  It could make an acquisition of a smaller player for either a new pipeline or for a new class of drugs it does not target.  The problem is that any such acquisition is likely to be dilutive to earnings because most biotech companies trade at market-premiums.

If Genzyme could buy a new upcoming blockbuster drug, it might do more for the growth side of that long-term shareholder value plan.  The downside is that it would almost certainly come with some earnings dilution.

Share buybacks are generally not considered a total waste.  They just aren’t exactly representative of high-growth companies.

JON C. OGG

The company was also noted as seeking to invest its growing offshore cash position on an intelligent basis and not in any companies that needed to be fixed or turned around with current problems.

As far as too much diversification, that might not be expected either.  Sharer shared that the clinical diagnostics acquisition belief does not really fit with the core operations of the company because it was noted that very few drugs have been directly linked to biomarkers that accurately patient suitability for drug responses.

At face value, Sharer also said that Amgen has a robust mid-stage drug pipeline.  As far as the woes of anemia drugs, Sharer of when or at what level the anemia drug sales of Aranesp and Epogen would come due to Medicare reimbursement changes, pricing pressures, and ultimately the patent expirations. It was just this week that new news came out that Medicare is revisiting anemia drug coverage, and throughout the election and start of the new administration President Obama had noted “generic biologicals” which target this anemia market.

An acquisition could of course be in teh cards here in the U.S. if the drugs have a large international presence and/or a large international opportunity.  The difference is that it seems that Amgen may be looking for new growth opportunities in new markets or in related markets rather than just more of the same.

The United Kingdom’s healthcare cost-effectiveness monitor has also just now recommended that Amgen’s newly-launched drug called Prolia for treating osteoporosis in post-menopausal women who are at increased risk for bone fractures.

We have been waiting for Amgen to make a diversification away into new or tangent markets.  Amgen is likely going to be acquiring.  The question is WHO? Or whom?  Stay tuned.

JON C. OGG

Those are Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL), Human Genome Sciences Inc. (NASDAQ: HGSI), and Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX).  While we have a brief synopsis here in the image from Morningstar, the full article goes into more detail.

Of the three merger candidates here, Human Genome Sciences (HGSI) seems the biggest risk because its shares could have been acquired for far cheaper when it was weak and chasing it now would perhaps only make sense for its existing drup partner companies.

JON C. OGG

• It was last summer when we noted that Array may have a pay-off in its inhibitor pipeline.

After the close, Array announced that it has entered into an agreement with Novartis (NYSE: NVS) that will cover the development of the small-molecule MEK inhibitors ARRY-162, currently in a Phase 1 cancer trial, its back-up, ARRY-300, and other MEK inhibitors.  This is a worldwide partnership valued at $467 million if all conditions come to pass.  Not bad for a $152.7 million market cap.

The terms are of course not a straight payment of $467 million.  In the deal, Array will initially receive $45 million comprising an upfront and milestone payment, and Array is eligible to receive up to an additional $422 million if certain clinical, regulatory and commercial milestones are achieved.

In addition to the payments, Array said it plans to co-develop ARRY-162 in one or more specific indications and that it will fund a portion of the development costs. Seeing as that it had over $100 million in cash and long-term securities at the end of 2009, this is not out of the doable realm even if you consider its debt level.

Array will receive double-digit royalties on sales of approved drugs outside of the U.S., but Array will receive a “significantly higher royalty rate” for U.S. sales provided that Array meets its co-funding obligations.

Array also has a co-detailing right in the U.S. for approved drugs.  These two areas covered are as follows:

• MEK is a key protein kinase in the RAS/RAF/MEK/ERK pathway, which signals cancer cell proliferation and survival. MEK has been shown to be frequently activated in cancer, in particular in tumors that have mutations in the RAS and RAF pathways.
• ARRY-162 is currently in a Phase 1, open-label, multiple dose trial that is designed to determine the maximum tolerated dose and evaluate safety, pharmacokinetics and pharmacodynamics of ARRY-162 following daily oral administration in advanced cancer patients with solid tumors.

If you adjust the $467 million in totality as payments made to a small-cap biotech, you might just wonder why the company was not acquired.  The reason is somewhat simple.  It is cheaper upfront with less risk for Novartis to throw some money at the firm and pay out royalties if the drugs become successful and make it to market.

Today’s regular trading day was a know-nothing, do-nothing day with far less than the average volume of 310,000 shares in a normal day.  Yet here at 7:20 PM, the flat stock close at $3.02 is up a whopping 27% at $3.84 and it has traded over 1 million shares since the 4:00 PM EST closing bell.

The 52-week trading range is $1.68 to $4.65 and the market cap at the closing bell was about $152.7 million.

JON C. OGG

Joe Kunkle of OptionsHawk.com noted, “OSI had a buyer of 2,000 May $55 puts at $0.90 that sold 2,000 May 60/65 call spreads at $1.45… looking for OSI Pharma not to receive a better takeover offer and for the current offer to potentially fall apart, sending shares lower.  The trade was done for a net credit so that bet is more that no other offer comes in and shares remain below $60, but it has added profit potential if things fall apart.”

If you look at the current Astellas hostile offer, this was initially rejected at $3.5 billion or $52.00 per share as inadequate.  That tender offer was initially set to expire last week but was extended to a date of April 23, 2010.

Astellas has been trying to buy OSI Pharma for about a year, but it seems that the predator may have gotten into a one-man bidding show.  OSI was a $70+ stock in 2004 and was a $80+ stock back in 2000.

This is a profitable company targeting with cancer and diabetes/obesity, so with a $3.5 billion market cap and expectations for sales of almost $500 million in 2010 and $536 million in 2011 there may still be some value for someone.  Still, shares have petered out here at $60.00 for almost two weeks.  If another buyer is going to surface, OSI holders better hope that comes fast.

The bet right now is that even a higher bid might not mean a premium to today’s above-offer share prices…. Stay tuned.

JON C. OGG

Ratiopharm is a top generic drug maker in Germany and Pfizer Inc. (NYSE: PFE) was supposed to be one of the other bidders as it has not frowned upon having generic drugs of its own.  Ratiopharm had about 750 drugs and a solid pipeline.

Teva is now one of the top drug companies in the world with most operational sales in North America and in Europe.  Teva’s last big transaction was Barr Pharmaceuticals Inc. for about $7.46 billion.  The company said this deal will allow growth in Germany, as well as higher growth markets in Spain, Italy and France.

Usually companies buying other companies suffer a drop on dilution concerns.  Not Teva.  Shares are up 4% after the open and the $62.58 price hit today was not just a 52-week high.  That marks an all-time high.  Its $55 billion market cap is still far from the mega-cap status of the $100 billion mark.  But there are only a handful of companies there at that level of a mega-cap status. Pfizer Inc. (NYSE: PFE), Novartis AG (NYSE: NVS), Merck & Co. Inc. (NYSE: MRK) and Sanofi-Aventis (NYSE: SNY) are all among those which have a $100 billion market cap and higher.

The last date you have to go back to see a TEVA stock double is December 2006 when the stock was just under $30.00.  Calling for stocks to double yet again is tricky and that is not quite our intent here.  But if the company continues to make acquisitions, the market cap can get there without the stock needing to double.

Teva has shown that it likes to do deals.  Analysts are looking for 10% organic earnings growth ahead as the Thomson Reuters estimate for 2010 is $4.55 EPS versus $5.04 EPS in 2011.  That is not considering the effects of this merger, and the deal is expected to close late this year.

As far as other top drug companies, here is how Teva’s $55 billion market cap compares:

• Pfizer Inc. (NYSE: PFE) $138.9B
• Novartis AG (NYSE: NVS) $124.7B
• Merck & Co. Inc. (NYSE: MRK) $118.6B
• Sanofi-Aventis (NYSE: SNY) $101.6B
• GlaxoSmithKline plc (NYSE: GSK) $95.9B
• Abbott Laboratories (NYSE: ABT) $84.6B
• AstraZeneca plc (NYSE: AZN) $64.9B
• Bristol-Myers Squibb Company (NYSE: BMY) $44.5B
• Eli Lilly & Co. (NYSE: LLY) $39.8B

JON C. OGG

Astellas has said that it is pleased that OSI’s board of directors has finally instructed its management to explore a transaction for the Company.  But it also noted that the Astellas offer gives OSI Pharma shareholders the opportunity to get a full and fair value immediately in cash.  The market is paying $58.00, not $52.00, at least as of this afternoon.

But what Astellas did note was that its offer is not subject to any financing conditions nor to due diligence.  The deal only contains customary conditions to close, as per its own words.

Astellas decided that its best route is to take its offer directly to shareholders of OSI Pharma. Astellas said that it will also nominate a full slate of directors for OSI’s upcoming shareholder meeting, although it is not likely to get a warm reception.  The company further noted that the $52.00 per share cash offer was a 40% premium from the last trading day before Astellas made its offer public.  It further said the deal is a 53% premium to the 3-month average and a 31% premium to the 52-week high.

The problem is wider than today’s share price.  OSI has been public long enough that it is one of the oldest in its class.  For a brief period in 2000 to 2001 its shares hit $80 a share.  Then it even more briefly went up to almost $100.00 per share in 2006 and spent several months north of $60.00 on its own.

The net cost will be about $450 million. In late-2009, Facet turned down a second unsolicited offer from Biogen Idec of $17.50 a share after having rejected a lower offer before that.

Facet has discovery and development partnerships with Biogen Idec for MS, and it also has partnerships with PDL BioPharma (NASDAQ: PDLI) and Roche.

Facet shares are up 66% at $26.96 this morning after last night’s deal.  Its prior 52-week trading range was $5.86 to $18.35.

JON C. OGG