Confidence in ONXX/AMGN Deal

Headquartered in San Francisco, CA, Onyx Pharmaceuticals (ONXX) is a biopharmaceutical company involved in the development of therapies that target molecular mechanisms that cause cancer. Shares have outperformed in 2013 and are up 52.5% year-to-date to $115.22. Some players in the options market seem to be anticipating additional gains for the stock in the weeks ahead, as Sep 120 and 125 calls on the stock drew heavy trading Friday.

ONXX gapped up 54.1% on July 1st on reports Amgen (AMGN) wants to buy the company for $120 per share. The stock rallied to a record high of $136.87 through July 8 and remained well above the offering price in the weeks that followed on expectations other bidders might top AMGN's offer. On July 16, ONXX said it was expecting to see interest from roughly five parties, including Pfizer (PFE).

ONXX is down $0.40 to $115.40 today and took a 7.3% hit last Thursday after Bloomberg reported that the biotech's merger talks with AMGN might have hit a snag. The article noted that, while AMGN is possibly willing to raise its offer to $130 per share, the deal might collapse over AMGN's put to access data related to ONXX blood cancer treatment Kyprolis, the company's key attraction.

While ONXX shares are now trading well below the $120 original offer on concerns the deal might collapse, some players in the options market seem to be expecting a deal announcement in the weeks ahead. On Friday, 53,000 calls and 31,000 puts traded on the stock. Much of the focus was on September 120 and 125 calls, with buyers taking new positions. Some of the activity might have been to replace August upside calls on ONXX that expired last week. Nevertheless, the activity seems to be expressing confidence that a deal could take place at a price much higher than current levels and an announcement will happen before the September expiration.

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At the time of publication, Henry Schwartz held no positions in the stocks or issues mentioned.