Shares in Achillion Pharmaceuticals (Ticker: ACHN) are spiking for a second consecutive session on Tuesday, up more than 60% today to $6.89, and adding to Monday’s near 60% run from $2.87 as of the close on Friday up to $4.25 at yesterday’s close. Shares in the name jumped Monday on speculation the maker of experimental drugs could be a takeover target following news that Merck & Co. (Ticker: MRK) has agreed to purchase Idenix Pharmaceuticals Inc. (Ticker: IDIX) for $3.85 billion. Achillion continued to rally on Tuesday after the company said in a press release that the U.S. Food and Drug Administration has removed the clinical hold on sovaprevir, a drug being developed for the potential treatment of chronic hepatitis C viral infection (HCV), to allow the company to conduct trials in patients with HCV. Merck paid a big premium for Idenix, buying the company for $24.50 a share in cash versus Friday’s closing price for IDIX of $7.22, to acquire Idenix’s lead drug, IDX21437, to treat hepatitis C.
Some traders speculating that shares in Achillion may continue to push higher looked to the options market to position for further upside. Bullish trades initiated yesterday have in some cases resulted in significant overnight profits. In particular, buyers of around 2,000 of the Jun 5.0 strike calls on Monday paid an average asking price of $0.22 apiece for those contracts. Today, the Jun 5.0 strike calls are changing hands at $1.85 each as of 11:30 a.m. ET. Traders looking for fresh highs appear to be targeting the Jul 7.0 strike calls, with upwards of 2,100 contracts in play at present versus open interest of just 11 contracts. Time and sales data suggests most of the volume was purchased at an average premium of $1.10 apiece during the first half of the session. Buyers of the Jul 7.0 strike calls stand ready to profit at expiration next month in the event that ACHN shares rally another 22% over the current price of $6.65 to exceed the average breakeven point at $8.10.
Overall options volume on Achillion is well above normal levels, with nearly 24,000 contracts traded on the stock versus average daily volume of around 220 contracts. Both puts and calls are active on ACHN as evidenced by the put/call ratio of 1.0 as of the time of this writing.
Chart – Achillion shares up 140% this week
