Illumina (ILMN) - Hostile Bid Spurned Again; Third Parties Support Current Board; Risk Rising as Uncertainty Persists

ILMN is trading $52.33, down 0.6% with IV30™ up 5.1% as of ~10:20am EST. The LIVEVOL® Pro Summary is below.



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Illumina, Inc. (Illumina) is a developer and manufacturer of life science tools and integrated systems for the analysis of genetic variation and function. The Company provides a line of genetic analysis solutions, with products and services that serve a range of interconnected markets, including sequencing, genotyping, gene expression, and molecular diagnostics.

This is one of the most interesting vol stories out there right now, IMHO. The story starts with a hostile takeover bid… Then a re-upped bid… then a stand by the Board of Directors spurning even the second bid. Let’s start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). Then we’ll go to the news.



On 1-25-2012, ILMN stock popped from $37.69 to $55.15 or 46.3% in a day. Here’s that news:

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Roche Holdings Ltd. (Other OTC:RHHBY.PK - News) recently announced that it has placed a bid to acquire all the outstanding shares of Illumina Inc. Roche’s offer of $44.50 per share (aggregate value $5.7 billion) in cash represents a 64% premium over Illumina’s stock price on December 21, 2011.

On December 22, 2011, rumors in the market about a potential transaction between Roche and Illumina had pushed up Illumina’s stock price significantly.

We note that Roche had made multiple efforts in the past to strike a deal with Illumina, but the latter was unwilling to participate in substantive discussions. This led Roche to commence a tender offer to purchase Illumina’s outstanding shares.
Source: ZACKS via Yahoo! Finance -- Roche Aims for Illumina
---

Then on 1-26-2012:
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U.S. gene sequencing company Illumina (ILMN.O) on Thursday unveiled a "poison pill" defense strategy against a hostile bid from Swiss drugmaker Roche (ROG.VX), saying it would trigger a rights agreement if any party bought 15 percent of its stock.

Basel-based Roche is offering $5.7 billion in cash for Illumina but the Californian group is resisting the unsolicited approach.
Source: Reuters via Yahoo! Finance -- Illumina unveils poison pill to stave off Roche
---

Then some board nominations by Roche… And four different letters sent directly to ILMN shareholders highlighting the growth prospects for the combined firm.

Not enough? Try these awesome headlines all within the last three weeks:

3-22-2012: Roche seen extending its Illumina offer once again Reuters

3-26-2012: Roche Extends Illumina Bid Again Zacks

3-29-2012: Roche Raises Illumina Bid to $51, Seeking Faster Deal at Bloomberg

3-29-2012: Roche may raise bid again if Illumina engaged: source at Reuters

3-29-2012: Analysts expect higher Roche bid for Illumina at MarketWatch

3-30-2012: For Illumina, Roche's Third Offer Not So Charming at Seeking Alpha

4-1-2012: Roche May Drop Its Offer for Illumina, Sonntags Zeitung Reports at Bloomberg

4-2-2012: Illumnia Rejects Roche’s Revised Offer of $51 a Share at Bloomberg

4-3-2012: Illumina to Shareholders: We Are Like Apple, Would You Sell Apple? at The Wall Street Journal

Then over the last two days:

4-9-2012: Illumina sends letter that recommends stockholders reject Roche's (RHHBY) offer and vote white proxy card. Provided by Briefing.com (www.briefing.com).

4-10-2012: Illumina: Proxy advisory firm Glass Lewis recommends stockholders vote for the election of all illumina nominees using management’s white proxy card. Provided by Briefing.com (www.briefing.com)

So, there you go – a wild ride. For more fun, ILMN has an earnings release due out either right near Apr expo, or early in May expo. Yeah, either one – unknown.

Let’s look more carefully at the IV30™ -- to highlight another trend. This chart is the same time horizon as the one above, but it looks only at the implied:



I’ve highlighted the recent move in IV30™, namely, up. Yeah, risk is rising. Note that the implied may well be on a path back to the original value before the takeover bid… and maybe even higher.

Let’s turn to the Skew Tab.



Most notably, we can see the front month is elevated to the back, and quite substantially at some points. The last two earnings releases in calendar Q2 for ILMN have been 4-28-2010 and 4-26-2011. It’s a reasonable bet that the next earnings release will in fact be inside May expiry and outside Apr. And now we have an even more compelling term structure comp between Apr and May.

News is coming – one way or the other on this bid / spurn dance. The question, is it coming out before Apr expo, or is there a larger announcement due out in the earnings release. Will the company (ILMN) disclose some extraordinarily rosy “stuff” in the next earnings release intended not so much for outsiders, but for current shareholders? -- You know, a compelling argument for a higher valuation – well above the bid(s)…

Finally, let’s turn to the Options Tab, for completeness.



I wrote about this one for TheStreet.com (OptionProfits), so no specific trade analysis here. Across the top we can see that Apr is priced to 58.20%, while May is priced to 50.32%, even though earnings are likely in the Mat expiry (but not in Apr). Just to throw another possibility out there, what if another company bids for ILMN – or even more interesting, if ILMN approaches another company and therefore solicits a bid?

Also, ILMN may be dangerously close to breaching its fiduciary responsibility by refusing to meet with Roche. Couldn’t a shareholder complain that at least a meeting is in place? How about two, or three, or four?.. Careful, that makes a “class,” as in “class-action” lawsuit.

The equity market has ILMN priced over the second bid ($51), but what is fair value if the bid disappears? Or if a class of shareholders demand meetings? Or.. if earnings are bad? All in all, this is incredibly interesting, but in the same vein, incredibly risky.

This is trade analysis, not a recommendation.

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Molycorp (MCP) - Depressed Vol into Earnings; Lower Highs in Earnings Vol

MCP is trading $33.98, up 1.1% with IV30™ down 7.5%. The LIVEVOL® Pro Summary is below.



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Molycorp, Inc. (Molycorp) is a rare earth oxide (REO) producer in the Western hemisphere. The Company owns developed rare earth projects outside of China. The Company also owns rare earth oxide and rare metal producer in Europe.

I found MCP using a real-time custom scan. This one hunts for low vols.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.



The goal with this scan is to identify short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not purchasing depressed IV30™ relative to HV20 simply because of a large earnings move.

The MCP Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).



The stock has seen a low of $23.46 and a high of $42.29 in six months, so, a rather large(ish) range. But, as the custom would indicate, this is a vol story. Several things I note:

1. The implied is well below the short-term (HV20™) and the long-term (HV180™) historical realized vols. Specifically:

IV30™: 53.25%
HV20™: 83.07%
HV180™: 82.36%

So, IV30™ is depressed relative to the short-term and long-term realized movement of the stock. I do note that the HV20™ appears to be a bit "artificially" elevated due to the large move on 3-8-2012.  The stock went from $25.98 to $30.89, or up nearly 19%.

2. The IV30™ is also depressed relative to its own annual history. The 52 wk range in IV30™ is [45.86%, 116.18%], putting the current level in the 10th percentile.

3. There's a pretty noticeable trend in IV30™, namely, down. I've included a larger image focusing on just the IV30™, but for the same horizon as above (six months).



I added that ever so helpful yellow arrow pointing out the down trend. Note how the last two earnings cycles  ("E" icon) have hit lower peaks.

Let's turn to the Skew Tab.



There's a noteworthy parabolic skew to MCP across all of those three expiries pictured. I checked he historical skew and there was a similar parabolic skew that emerged in MCP off and on, though the vols in the tails weren't quite as high (relative to ATM). Even with the depressed implied, the option market does reflect that the likelihood of both upside and downside moves is about equal (unlike "normal" skew).

One last note is that the next earnings date for MCP is likely in the May expiry (just a projection on my part), and that event risk is embedded in the May options -- and thus the higher ATM vol relative to the other two expiries pictured.

Finally, let's look to the Options Tab (below).



We can see May is priced to 56.68% vs Apr (monthly) priced to 51.56% vol. Again, that's probably earnings related. That 56% number would still be in the 14th percentile for IV30™ (annual).

This is trade analysis, not a recommendation.

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Norfolk Southern (NSC) - Depressed Vol into Earnings; Vol "Agnosticism?"

NSC is trading $67.30, up 0.5% with IV30™ down 1.5% as of ~10:45am EST. The LIVEVOL® Pro Summary is below.



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Norfolk Southern Corporation (Norfolk Southern) is a Virginia based company that controls a railroad, Norfolk Southern Railway Company.

This is a vol note with earnings approaching. Let’s start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



Keeping in mind that this is a 24% vol stock, look to the stock portion. The ride has been a bit bumpy over the last six months. We can see an earnings gap on 10-27-2011, when the stock went from $69.77 to $75.16. Two quarters prior to that, the stock gapped as well, going from $68.41 to $73.87 (4-28-2011).

Looking to the vol portion, we can see that the implied has been dipping for the last six months. The 52 wk range in IV30™ is [19.35%, 48.31%], putting the current level in the 15th percentile. While we see depressed vol right now, note that the next earnings release for NSC is confirmed by Livevol® for 4-24-2012 (AMC).

Let’s turn to the Skew Tab.



We can see a normal skew shape across the front expiries. Apr vol is slightly depressed to May (with earnings), as is Jun. I do note that the ATM vols are quite similar across the expiries – odd given the earnings event and its certainty (in terms of date).

Finally, let’s turn to the Options Tab, for completeness.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. Looking across the top of the tab, we can see 22.34%, 25.54% and 24.82% for the Apr, May and Jun expiries, respectively. The 52 wk range in stock price for NSC is [$56.86, $77.99], so the current level is pretty much in the middle. Being totally vol agnostic, it feels like a 50-50 bet that the stock moves big on earnings given the last four earnings cycles... but of course, there's no such thing as vol agnosticism trading options.

This is trade analysis, not a recommendation.

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Deutsche Bank (DB) - Vol Pops; Analysts Disagree, Vol Diff to Earnings Disappears

DB is trading $46.53, down 3.6% with IV30™ up 12.4%. The LIVEVOL® Pro Summary is below.



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Deutsche Bank AG is a Germany-based global investment bank. The Company diversifies its activities into three group divisions: Corporate & Investment Bank (CIB); Private Clients and Asset Management (PCAM), and Corporate Investments (CI).

This is a vol note in a dipping stock with somewhat ambiguous perceptions from analysts. I found DB using a custom scan searching for names where IV30™ is up at least 10% on the day. The scan details are below with a snapshot if you want to build it yourself in Livevol® Pro.

Custom Scan Details
Stock Price GTE 10
Average Option Volume GTE 1,200
Days After Earnings GTE 5 and LTE 60
IV30™ Percent Change GTE 10%
IV30™ GTE 10

The goal here is find stocks more than $10, with a greater than 10% rise in IV30™ (short-term implied) that is not due to an earnings date, with enough option liquidity to trade.



Let's start with the ambiguous news.

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4-3-2012: Deutsche Bank downgraded before the open to Underperform from Neutral at Macquarie

3-23-2012: Deutsche Bank: Upgrade details
As mentioned earlier RBC Capital Mkts upgraded DB to Outperform from Sector Perform noting capital remains in focus and they see scope for Deutsche Bank to bring the capital deficit (EUR6.4 bln relative to 10% CET1 2013) down from their current estimate via the sale of legacy assets, which could help by 60bp. Firm says their forecasts already include some impact of deleveraging on the top line with zero fixed income revenue growth forecast for 2012 in USD terms

Source: Provided by Briefing.com (www.briefing.com)
---

See.. ambiguous...

The DB Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side, there's sort of the unmissable recent drop, exacerbated by today's move down. On 3-26-2012 the stock closed at $52.16. As of this writing the stock is down 12.1% in those six (and a half) trading days.

On the vol side, we can see how depressed both the short-term historical realized (HV20™) and short-term implied (IV30™) got. Just two days ago, IV30™ closed at 36.52%. A day later (yesterday), HV20™ closed at 36.27%. So, in a sense, the implied and historical vols agreed on a "fair value." With the moves yesterday and today, HV20™ should pop over 45% by tomorrow (it's calculated close-to-close). IV30™ is up 17% in just two and a half days. Vol is on the move... and so is the stock.

The Skew Tab (below) illustrates the vols by strike by month.



We can see how all three of the front expiries lie essentially on top of each other. Livevol® has confirmed that the next earnings release is due out 4-26-2012, which is outside of Apr expiry, yet Apr and May vol are almost the same. Hmmm...

Let's turn to the Options Tab, for completeness.



Putting some numbers to the vols, we can see 42.74%, 44.14% and 43.80% for Apr, May and Jul expiries, respectively. I do note that even the OTM puts in the earnings month are priced to vol substantially below the HV180™ (70.76%).

This is trade analysis, not a recommendation.

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Fushi International (FSIN) - Vol Explodes, Stock Drops, News is... Silent on Chinese Small Cap

FSIN is trading $7.01, down 2.0% with IV30™ up 9.4% as of ~10:15am EST. The LIVEVOL® Pro Summary is below.



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Fushi Copperweld, Inc. (Fushi) is a producer of bimetallic wire products, principally copper-clad aluminum (CCA) and copper-clad steel (CCS) products. CCA and CCS conductors are generally used as a substitute for solid copper conductors in applications for which either cost savings or specific electrical or physical attributes are necessary.

The company’s contact information reads an HQ location in Beijing, China.

This is a vol and stock movement note of epic proportions… Ok, I dunno if it’s epic but I really love that word. What I can say is that the vol has exploded from the 30% range to now over 135% in a few weeks, while the stock has seen prices near $8.50 and $5.50 in the same time period with what appears to be, no news.

Let’s start with the Charts Tab (six months), below.



The stock drop looks worse than it actually is in one way – that gap down yesterday to $5.76 was temporary, the stock closed at $7.15. On the vol side, it’s hard to miss the incredible rise of late. The HV180™ is 50.46% and the HV20™ is 33.51% -- so, in English, the stock movement is in the ~43% range taking an average of short-term and long-term historical realized vol. Clearly, the implied reflects a massive gain in risk premium of late.

Let’s turn to the Skew Tab to examine the month-to-month and line-by-line vols.



First, we can see a consistent and normal skew shape across the front three expiries – the option market does not reflect any kind of upside bias, or single strike vol irregularities. Second, we can see a clear monotonic vol increase from the back to the front across the three expiries. The risk reflected by the options is highest in the Apr expiry.

It’s noteworthy that the last two earnings in calendar Q2 were 5-4-2010 and 5-4-2011, which would put the earnings cycle this year in the May options and outside of the Apr options. So… that Apr vol priced above May is even more indicative of an expectation of risk in the near-term (Apr over May).

Let’s turn to the Options Tab, for completeness.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. We can put some numbers to the vol diff by expiry. Apr, May, Jun and Sep are priced to 166.95%, 127.85%, 113.18% and 87.30%, respectively. Again, note that earnings are likely in May.

Here’s what worries me about this stock.

1.Small cap Chinese company stocks scare me. Transparency is low creating rather large information disparity between those that know and those that don’t
2. Whatever this news is, it clearly has more impact on enterprise value than an earnings release if you trust the option market. So, in English, owning May vs Apr isn't necessarily a good do.
3. What the hell is going on with company anyway?... Why did it go to $5.75 yesterday and then bounce back 23%? Why is vol up 250% in less than a month?

This is trade analysis, not a recommendation.

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Sears Holdings (SHLD) - Vol Pops, Near-term Skews Open Vol Diff to Upside

SHLD is trading $67.73, up 1.6% with IV30™ up 9.3%. The LIVEVOL® Pro Summary is below.



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Sears Holdings Corporation (Holdings) is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). Holdings is broadline retailer with 2,201 full-line and 1,354 specialty retail stores in the United States operating through Kmart and Sears and 483 full-line and specialty retail stores in Canada operating through Sears Canada Inc.

This is a vol note -- focusing both on the move today and in the near-term skew. Let's start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see that the stock price is actually almost exactly where it was six months ago, but the ride has been bumpy, seeing a six month closing low of $29.20 (1-6-2012), and a closing high of $83.43 (3-15-2012). The 52 wk range in SHLD is [$28.89, $87.66].

Looking to the vol, we can see a similarly bumpy ride, with an annual range in IV30™ of [31.82%, 112.46%], putting the current level in the 43rd percentile -- so pretty close to the middle. On 3-26-2012, IV30™ dropped to 53.87% and has risen since then by nearly 25% (~14 percentage points). Today the vol is up 9.3% on seemingly little news. But, it's the near-term skew comps that really caught my attention.

Let's turn to the Skew Tab.



I've only included the weekly options expiring this Friday and the Apr monthlies. Both of these expiries show a parabolic skew, reflecting essentially equal risk of a downside slide or an upside pop. Much of that is tied to the fact that SHLD is perpetually hard-to-borrow (HTB).

Looking a bit closer at the skews, notice how the Apr monthly vols are flatter for more strikes relative to the rather abrupt upside skew in the weeklies. While the ATM vol is higher in the weeklies relative to the monthlies, that upside skew difference opens up an even larger vol diff.

Finally, let's turn to the Options Tab, below.



Assigning a single number to each expiration, we can see that Apr weeklies (80.25%) are priced about 13 vol points higher than the Apr monthlies (67.20%). But, walking up the strikes to the 75 line (for example), that vol diff opens to over 20%.

This is trade analysis, not a recommendation.

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Pandora Media (P) - Vol Hits New Low Weeks After Earnings Implosion

P is trading $10.43, up 2.8% with IV30™ down 0.9% as of ~10:15am EST. The LIVEVOL® Pro Summary is below.



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Pandora Media, Inc. (Pandora) is an Internet radio in the United States. As of January 31, 2011, it had over 80 million registered users. The Music Genome Project and its playlist generating algorithms enable it to deliver personalized radio to its listeners.

In fact, I’m listening to Pandora right now…

This is a vol note, specifically a new annual low in implied after a cataclysmic earnings move. Let’s start with the Charts tab (six months). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



The stock chart is rather… bumpy. We can see a rally into the most recent earnings release, and then an implosion after the news. P went from $14.27 down to $10.86 in one day – a 23.9% drop. The stock meandered lower to close at $10.03 on 3-29-2012, and now seems to have found an equilibrium in the mid $10 level. But, ultimately, it’s the vol that caught my eye. Looking to the bottom portion of the chart, we can see how the implied fell off of earnings (normal), and has continued to drop since. The 52 wk range in IV30™ is [48.20%, 132.16%], or in English, the level today is right on an annual low.

Let’s turn to the Skew Tab to examine the month-to-month and line-by-line vols.



We can see a monotonic vol decrease from the back to the front. The next earnings release is due out in late May. For now, the option market reflects a greater probability that the event will be in the Jun expiry, but outside of May (Friday of expo week is May 18th).

Finally, let’s turn to the Options Tab, for completeness.



I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. Looking across the top of the image we can see the monthly vols are priced to 47.81%, 51.85% and 56.74% for Apr, May and Jun, respectively. Looking back to the Charts Tab, we can see that P has been quite volatile, even without earnings results. The HV180™ is 73.68% -- keep that number in mind relative to the implied vols for each expiry.

This is trade analysis, not a recommendation.

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Infosys Technologies (INFY) - Put Buyer as Earnings Approach, Vol Remains Depressed

INFY is trading $57.29, up 0.5% with IV30™ down 0.9%. The LIVEVOL® Pro Summary is below.



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Infosys Limited (Infosys), formerly Infosys Technologies Limited, is a global technology services company. The Company provides business consulting, technology, engineering and outsourcing services to help clients in over 30 countries.

This is an order flow note just ahead of earnings. The company has traded over 12,000 contracts on total daily average option volume of just 2,308. All but 200 contracts traded have been puts, yielding a 56.6:1 put:call ratio. The action has been in the Apr 55 puts, where 9,433 have traded as of this writing. The Stats Tab and Day's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that the Apr puts are mostly opening (compare OI to trade size). You'll note that the May 52.5 puts also show that 9,000 size, but looking back to the day's biggest trades snap, we can see those were cancelled. It's an odd reality -- either that Apr trade was in fact a spread (as indicated from PHLX), or it was one leg. Either way, I see long Apr puts and if anything, short the lower strike in May.  With stock volume below the daily average (so the puts weren't turned into synthetic calls), this looks like a bet to the downside on the next earnings date, which Livevol® confirms for 4-13-2012 BMO.



The Skew Tab snap (below) illustrates the vols by strike by month.



The skew across all three front expiries is quite pretty. Apr is elevated due to the earnings release due out. No single strike shows odd behavior -- at least yet.

Finally, the Charts Tab (six months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



The stock has been quite calm of late. HV10™ is just 22.45%.. In fact, HV30™ is sub 20% (19.97%). That's in contradiction to the HV180™ which is 38.46%. The current implied is just in the 33rd percentile (annual) and earnings are approaching with a large put buyer in play.

NB: The 52 wk range in IV30™ is [23.63%, 56.25%].

This is trade analysis, not a recommendation.

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Keryx Biopharmaceuticals (KERX) - Trial Results Crush Stock; But is it Priced to Fair Value?

KERX is trading $1.72, down 65.6% with IV30™ down 34.2%. The LIVEVOL® Pro Summary is below.



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Keryx Biopharmaceuticals, Inc. (Keryx) is a biopharmaceutical company focused on the acquisition, development and commercialization of pharmaceutical products for the treatment of cancer and renal disease.

This is a bio-tech with trial news that was, in all fairness, devastating. Let's start with teh news:

---
(Reuters) - Keryx Biopharmaceuticals Inc (NAQ:KERX - News) and Aeterna Zentaris (TOR:AEZ.TO - News) (NMQ:AEZS - News) said their experimental drug for colorectal cancer did not meet the main goal of prolonging survival in a late-stage trial.

[...]

The 468-patient trial showed that the companies' drug, KRX-0401 (perifosine), failed to improve overall survival in patients with refractory advanced colorectal cancer when compared with the control arm.

The drug is also being tested in patients with multiple myeloma.

With a negative outcome from the late-stage colorectal study, we believe recruitment into the multiple myeloma study could become increasingly difficult, the company said in a conference call.

"We will evaluate whether our Phase 3 study of Perifosine in relapsed/refractory multiple myeloma will continue as planned," Keryx's Chief Executive Ron Bentsur said in a statement.

Keryx holds the North American rights to the experimental cancer drug KRX-0401 (perifosine), through a licensing deal with Canadian biotech company Aeterna Zentaris.

[...]

Keryx will now focus its efforts on its drug Zerenex, for treatment of hyperphosphatemia in patients with renal disease on dialysis.

Zerenex is currently undergoing a second late stage trial, and topline data from this trial is expected by the year-end.

The drug could target a market of $1.5 billion worldwide and $700 to $750 million in the United States, Ladenburg Thalmann analyst Matthew Kaplan told Reuters.

Source: Reuters via Yahoo!Finance Keryx, Aeterna cancer drug fails trial, shares tank, reporting by Balaji Sridharan in Bangalore; Editing by Joyjeet Das.
---

Devastating news for the drug, and for all of the potential patients involved. As we go through the pieces that are left, keep in mind the end of that article -- the potential for drug Zerenex and it's hypothetical ~$1 billion market.

Let's start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see how the stock rose quite abruptly into this news release (results). On 2-22-2012, the stock closed at $3.04. Friday the stock closed at $4.98 -- so that's 39% in less than a month on expectations. You'll note there was an earnings result in that time frame. That earnings report was received well, but basically all it really disclosed was that the trial results would be delayed a bit. Then the speculation began... Here's a news snippet from 3-5-2012, the day the stock exploded.

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Shares of Canada's AEterna Zentaris (US:aezs) and partner Keryx Biopharmaceuticals (US:kerx) soared Monday in the wake of an opinion piece on the company that appeared on the investor site Seeking Alpha on Friday. The piece, which was written by a fund manager, said that upcoming Phase III data for the company's cancer-fighting agent Perifosine should be positive, which in turn should drive shares higher.

Source: MarketWatch via Yahoo! Finance -- AEterna, Keryx soar on study speculation, written by Val Brickates Kennedy.
---

Unfortunately, the spec turned out to be wrong...

Looking to the vol, it's interesting to see how the implied stayed relatively tame as the stock was going up, even through the earnings and speculation time frame. Of course, today, with the ultimate news out, vol has collapsed.

Let's turn to the Skew Tab.



I've included all six expiries going all the way out to Jan 2014. There's a nice monotonic vol relationship across expiries, namely, higher vol to shorter expirations. There's an upside tilt to the OTM calls for all of the months other than the Jan 2014 LEAPS.

Finally, let's turn to the Options Tab, and examine what this firm looks like as a going concern.



We can see 141.74%, 123.15%, 115.92%, 108.98%, 103.05% and 100.61%, respectively for Apr, May. Jun, Sep, Jan '13 and Jan '14.

So, now what?... Fair question and obviously I have no idea. The current $1.72 valuation, assuming it's somewhere near equilibrium until the next valuation moving news, event represents a few things:

1. The expected value stemming from the potential that another "re-test" has different results.
2. The expected value of his same drug treating the other ailment (multiple myeloma).
3. The expected value of the drug Zerenex (that potential market was discussed in the first news article near the end).
4. The expected value of any "new" drugs, etc.

With $1.72 to apportion and the news today, it's pretty clear that the vast majority of this firm's potential as a going concern now surrounds items #2 and #3. The CEO was quite upfront about the issue surrounding even completing a trial for item #2, not to speak of the likelihood of positive results.

Now the real question, is KERX fairly valued?  If we assign probabilities and expected payouts of the above four items, hypothetically we could assign our own valuation to KERX.  Just messin' with some numbers, if we assign 0% chance of success for #1, #2 and #4, and assign a 10% chance of full success in #3, that would result in ~$100 million a year for the firm (I have no idea what the split of that revenue would be).  I got the $100 million number as 10% (chance of success) of a $1 billion market.  Right now, KERX is valued at $128 million which would be a 1:1 annual sales:valuation ratio.

NB: This was just a silly back of the envelope calculation -- not intended in any way to be representative of actual real world results.

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