Vertex Options Active Ahead of Data Presentation

Vertex (VRTX-NASDAQ) is seeing quite a bit of trading today ahead of a data presentation tomorrow.  This one may have been very active all on its own, but since Dendreon (DNDN-NASDAQ) made its exponential move traders and chat rooms keep placing biotech bets on what they hope is "the next Dendreon." Unfortunately we do not have the super-fresh short interest data, but the short interest rose to 10.44 million shares in MARCH from 8.95 million in February.  There has been a lot of safety concerns, so be sure to keep both sides of the story in mind.

New data supporting the clinical development of telaprevir (VX-950), what Vertex calls ‘one of the most advanced investigational oral protease inhibitors for the treatment of hepatitis C virus (HCV) infection,’will be presented at the 42nd Annual Meeting of the EuropeanAssociation for the Study of the Liver (EASL) in Barcelona on Saturday,April 14 at 5:45 p.m. in Central Europe (so 11:45 AM EST in the U.S.).Shares are down more than 5% at $29.75 today and its 52-week tradingrange is $26.98 to $45.38.

This stock is down some 5% today and the stock has been very volatilethis week.  This one has been all over the place this year, and be sureto keep in mind that some of the data has already been presented thisweek (hence the drop today); some data is supposed to be under pressembargo until tomorrow.  Some of the data can be viewed as the company website here.

The APRIL $35.00 CALLS are the most active contracts and has tradedmore than 5,000 contracts today.  The open interest in the $35.00 CALLSis more than 24,500 and the $30.00 strike has an open interest of morethan 14,521.  There must be some major bets against the stock too,because the APRIL $30.00 strike PUTS have more than 24,800 listed asthe open interest and the APRIL $25.00 strike lists more than 28,900contracts in the open interest.  The APRIL options expire next Friday.The data presentation tomorrow is what people are betting on, becausethe MAY strike prices have light open interest.

Traders often go too far and an extreme event in one stock can create aflood of interest in any and all stocks that are directly related andeven in the ones that have almost no relationship at all.  If you don’tbelieve me you can look at recent activity in Medarex (MEDX-NASDAQ); here is what we sent out on this.  Look at Cell Genesys (CEGE-NASDAQ) and what we noted on their secondary offering.  Cramer even went over Incyte (INCY-NASDAQ) and Nasteck (NSTK-NASDAQ) as potentials for "the next Dendreon." 

VRTX has been public since before 1995 and used to trade north of $80in 2001.  The company is not profitable and is expected to continuelosing money in 2007 and 2008 by all of the street analysts that coverthe stock.  This one has a $3.8 Billion market cap.

Jon C. Ogg
April 13, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.