Two key biotechs had a rough day on Friday and these issues will be key to focus on in the coming days. Genzyme Corporation (NASDAQ: GENZ) is showing some very concerning trends, and the first Lupus drug in two generations from Human Genome Sciences Inc. (NYSE: HGSI) may now have some safety concerns. We wanted to take a look at the action in each and offer some outlook and color for further review.
We have previous noted how and why Genzyme Corporation (NASDAQ: GENZ) may be the entire pivot point for the biotech sector in 2011. We conducted an options analysis on Friday evening and have found not just that there was unusual options trading in the company. The options trading reveals that traders are betting on a breakdown in the Sanofi-Aventis (NYSE: SNY) merger and/or that no new bidders will emerge by Christmas.
Genzyme’s stock closed down 0.46% at $69.84 on Friday. This might not seem much on the surface, but this close is now under $70 and that means a dimmer hope of a deal premium above the $69.00 already on the table. Shares had traded under $70 on an intra-day basis since Wednesday, but the low was Friday at $69.51. The $69.84 close is actually the lowest close since going all the way back to the end of August.
Human Genome Sciences Inc. (NYSE: HGSI) is seeing a further breakdown on its Benlysta lupus drug hopes. The stock had a very rough day Friday after the FDA has raised questions about its Lupus drug over safety issues. Shares closed down 10.88% on Friday at $23.60 on 17 million shares.
HGSI’s safety concerns are on mortality rates, questions about three suicides, and on an issue of how the drug may not perform in African Americans well. There was very heavy options trading taking place in HGSI on Friday. At $23.60, its 52-week range is $20.56 to $34.49.
Genzyme is a special situation and it may literally be holding up the entire biotech sector. As far as Human Genome Sciences, our interpretation has been that Benlysta will get FDA approval as there have been no new true lupus treatments in close to a half-century. Our belief has been that a significant improvement in their disease would trump these safety issues.
JON C. OGG
Immunogen Inc. (NASDAQ: IMGN) is seeing a substantial move today on word of TDM-1 under development by Roche and ImmunoGen posted higher response rates and also showed lower toxicity than the blockbuster breast cancer drug Herceptin.
The study is in 137 women with metastatic breast cancer who had no prior chemotherapy. The study was also randomized to treatment with TDM-1 or Herceptin plus the chemotherapy drug Taxotere. Also noted was that the response rate in patients treated with TDM-1 was 48% compared to a 41% response rate in patients that were treated with Herceptin and Taxotere.
This is from results from the first head-to-head study of these two drugs that will be presented at a cancer meeting in Europe on Monday. The data in breast cancer patients is still very early and very preliminary but also suggests that TDM-1 could be the next blockbuster drug and a replacement of Herceptin.
Immunogen shares are up 5.8% as it is Roche’s partner and the $7.09 price compares to a 52-week trading range of $4.96 to $10.90.
Elsewhere, there have been a whopping 5,500 of the OCT-2010 $7.50 CALLS versus a prior open interest of only 1,199 contracts. the NOV-2010 CALLS have also seen more than 1,000 contracts in each the $7 and $8 strike prices and that is far higher than the open interest in each.
JON C. OGG
Amgen Inc. (NASDAQ: AMGN) has seen some unusual options trading and it appears to be based around some upcoming FDA events and on its trends.
Joe Kunkle of OptionsHawk.com noted, “The January $52.50/$47.50 ratio put spread for 3,500X7,000 at $0.95 was an opening trade on September 30 after checking the open interest, and a bearish one with shares at $55.20. Shares of the Biotech giant trade 10.22X earnings, 3.5X sales, and 9.2X cash flow, but have generally underperformed despite the valuation, and have now rallied more than 8% off lows to resistance at $56.50, already rolling over below the 200 day EMA.”
We recently noted how the upcoming reviews could offer Amgen a “Genetech-like Drug Arsenal” if the approvals were met and if the tests go positive.
Kunkle also noted, “As the third attempt at a breakout of the triangle has failed the chances for shares to return to the lower support around $51 are high, and potentially break lower, with this trade looking for a move to $47.50. Earnings are scheduled for October 29th. Stifel started shares a Buy with a $68 target on September 9. Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) is seeking a generic version of Amgen’s Neupogen, a $225M revenue drug, but that has been delayed by the FDA. On October 18th the Cardiovascular and Renal Drugs Advisory Committe will meet to discuss risks and benefits of erythopoeisis-stimulating agents, which could scrutinize Amgen’s Aranesp. Positive news came recently for Amgen, with early studies showing it’s osteoporosis drug may be useful in blocking breast tumors. Amgen also recently recalled certain lots of Epogen, for the treatment of anemia in HIV therapy, a major revenue maker with $2.6B in sales in 2009. The biggest upcoming catalyst is November 18th, when the FDA will weight Prolia for bone complications in cancer patients, previously approved for osteoporosis, but Amgen is seeking further approvals for various cancers.”
OptionsHawk concluded, “As you can see there are a lot of potential hurdles ahead for Amgen, and option traders are positioning for shares to head lower.”
Genzyme Corporation (NASDAQ: GENZ) may have managed to save itself without really saving itself. That is what happens when buyout interest emerges in a struggling situation, particularly in the world biotechnology. With Sanofi-Aventis (NYSE: SNY) first having interest per reports Friday, the stock rose over 15% to $62.52. After the weekend, we have shares up 6.7% at $66.76 on word that Johnson & Johnson (NYSE: JNJ), GlaxoSmithKline plc (NYSE: GSK), or potentially other suitors may be interested.
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
Alkermes, Inc. (NASDAQ: ALKS) is seeing some unusual options trading going into investor presentations this week:
- Bank of America Merrill Lynch S-Mid Cap Conference on Wednesday, June 9, 2010, at 2:30 p.m. EST;
- Jefferies Global Life Sciences Conference on Thursday, June 10, 2010, at 4:30 p.m. EST.
Alkermes (ALKS) with a large bullish covered risk reversal as 5,000 November $10 puts are sold at $1.35 and 5,000 November $12.50/$15 call spreads are bought at $0.95, a net credit of $0.40. Therefore the trader makes $0.40 per spread if shares remain above $10 and can make as much as $2.90 per spread with shares above $15. The trade takes options volume to 7X daily average volume. Alkermes is best known for being partnered with Eli Lilly & Co. (NYSE: LLY) and Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) for the potential blockbuster diabetes drug Byetta, the FDA decision on October 22nd, so this is a bullish bet on that outcome. Alkermes presents at the Lynch Smid Cap Conf. today and Jefferies Conf. tomorrow. Alkermes also is getting an expedited review of it’s Vivitrol for opioid painkillers. So, we have two major catalysts in October for Alkermes, and these large option trades are bullish. Also, Alkermes becomes an obvious takeover target by one of it’s partners on a successful outcome. Shares have held the $10.50 support level, also the 200 day EMA here.
-Joe Kunkle, OptionsHawk.com
VIVUS Inc. (NASDAQ: VVUS) is seeing some bullish action in options….
Joe Kunkle of OptionsHawk.com noted: VVUS saw a late day spread as 20,000 September $20 calls are sold at $0.80 and 10,000 December $20 calls are bought at $1.60, a zero cost ratio calendar spread. The trade plays off the 129% vs 115% IV spread and is also playing for a positive reaction to July 4th FDA PDUFA for its obesity drug, although seeing near term upside at $20 come September, but potential for further upside with partnerships, takeover, etc. later this year. Vivus has seen some bullish buying in OTM May calls today and has recently been rumored as a potential partnership coming, shares near recent highs at $12.50, looking to breakout. The trade is profitable in September all the way to $22.50 for shares. Vivus has 4 upcoming presentations at Investment Conferences this month, and it’s Qnexa looks to have the early edge for the most effective and safest obesity drug.
Shares closed up about 5.6% at $12.10 on the trading day on over 8 million shares. That is more than twice-normal trading volume and the 52-week range is $4.18 to $12.88.
JON C. OGG
We were just given a cautious options alert from Joe Kunkle of OptionsHawk.com on shares of MannKind Corp. (NASDAQ: MNKD). After the unexpected meteoric rise earlier this year and then last night’s and this morning’s unexpected implosion of InterMune, it seems that traders and investors are taking a much more cautious take on many of the biotech and biohealth stocks that have a questionable debate about whether a controversial drug will be approved.
- MannKind (MNKD) saw a large bearish synthetic short as 5,000 November $7 calls are sold and the $7 puts are bought in a $0.45 debit. The Street is undecided on MannKind, with Jefferies having a $2 target, and Rodham having an $18 target, shares at $7. Biodel Inc. (NASDAQ: BIOD), noted yesterday with a bullish article, could be a threat to MannKind’s Afrezza and is seen as safer and more effective, potentially a knock out punch for MannKind. MannKind is preparing to meet with the FDA in June to discuss the issues the FDA has with Afrezza. MannKind is also struggling with liquidity, and without some good news, will not make it past Q1 of next year.
MannKind shares are down almost 3% at $6.92 today on rather light trading volume of about 666,000 shares (12:51 PM EST).
JON C. OGG