Merck Makes Big Move For Cancer Drug Developer

Merck is acquiring ArQule for $20 per share

by Patrick Martin

Published on Dec 9, 2019 at 10:16 AM
Updated on Dec 9, 2019 at 12:45 PM

Drugmaker and blue chip Merck & Co, Inc. (NYSE:MRK) made a splash on the M&A front this morning, after acquiring Massachusetts-based cancer drug developer ArQule (ARQL) for $2.7 billion cash, or $20 per share. The deal implies a premium of 107% based on ARQL's Friday close of $9.66. Analysts have been quick to comment, with Cantor Fitzgerald calling it smart and strategic and SVB Leerink analyst Jonathan Chang claiming it will be "unlocking value for investors."

Nevertheless, Merck stock is down 0.3% to trade at $88.62, on track to snap a four-day winning streak that culminated in a nearly 19-year high of $89.24 on Friday. The shares have slowly and steadily carved out a channel of higher highs and lows in 2019, with recent support emerging at their 200-day moving average the last three months. 

Despite the ascension, options traders have been more bearish than usual toward Merck. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.58 ranks in the elevated 75th annual percentile. So, while calls have outpaced puts on an absolute basis, the rate of put buying relative to call buying has been accelerated.

Options are certainly the right move for anyone looking to invest in the Dow stock. The security's Schaeffer's Volatility Index (SVI) of 15% sits in the 12th percentile of its annual range. This means short-term options are pricing in extremely low volatility expectations right now.

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