Centocor Calls Crackling on Rumors

Desks are chattering about a deal for the oft-rumored biotech firm.
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Rumors that biotechnology company

Centocor

(CNTO)

was on the block hit the company's stock and options like a fireball on an otherwise middling trading day.

Centocor shares rocketed 18% to 41 5/8 on nearly four times normal volume. Its call options, particularly the May 45 calls, saw heavy buying this morning, traders said.

Centocor representatives weren't immediately available for comment.

At midday, May 45 calls were up 1 3/4 ($175) to 1 7/8 ($187.50) on volume of 1,588 contracts, compared with open interest of just 386 contracts. The rising premiums show investors have little regard for price and want to jump into any rise precipitated by a rumored deal.

Johnson & Johnson

(JNJ) - Get Report

was the rumored suitor of the day.

Traders in the Centocor pit said the rumor was "all over the desks" on Wednesday, though one in Chicago added that "people could be just guessing, especially because

Eli Lilly

(LLY) - Get Report

is a more logical choice."

"Lilly has said in the past that they liked the relationship with Centocor as it stood," one Philadelphia options trader said.

"Options activity may be following the rumor; it didn't create the rumor," said Michele Skupp, half of the Siedman-Skupp options team at

Miller Tabak Hirsch

. "I don't think it's classically odd activity that would be associated with a takeover." If Johnson & Johnson is the suitor, as the rumormongers are guessing, its stock is trading "a little rich for the occasion," she said.

Johnson & Johnson stock neared its 52-week high of 99 11/16, gaining 2 1/2 to 98 3/4 on slightly heavier-than-normal volume.

One of Centocor's key products is ReoPro, a drug used to prevent blood clotting in patients undergoing angioplasty. In the latest period, Centocor's sales of ReoPro to its marketing partner Lilly rose 27% to $58 million. Lilly reported that total sales of the drug rose 44% to $101 million.

"The options are trading as they should, wagering about a 50-50 chance Centocor will get bought," said the Philly trader. "Let's face it. Big drug companies don't buy second-tier biotechs if they don't have to. But that doesn't mean it won't happen."

Meantime, professionals were somewhat skeptical that a Centocor deal was imminent. "The rumor has spread so far around the Streeet, I have to believe it's a short squeeze," said one hedge fund manager who requested anonymity.

But there is a feeling that Centocor and many of its biotech brethren are on the block and that the investment banking community is shopping M&A packages because investors don't have the appetite for further equity offerings.

Separately, the options market stayed cool to the stock market's hot breath on

Lycos

(LCOS)

, which made hay Wednesday out of a new report that Lycos Network surpassed the

Yahoo!

(YHOO)

sites to become the most visited hub on the Web, with 51.8% audience reach, according to the latest

Media Metrix

report for March 1999.

The Lycos Network, a Web portal, now attracts 31.9 million unique visitors monthly, the report said.

"Page views are the equivalent number people may be using" in place of earnings for Internet stocks, said Mike Riley, the

American Stock Exchange

specialist in Yahoo! options.

He said there hadn't been any out-of-the-ordinary call-buying in either Yahoo! or Lycos, despite the fact that Lycos stock was up 15 1/8 to 89, or that Yahoo! was up 4 5/8 to 175 5/8.