Genentech (DNA, $96.00, up $1.35) continued higher throughout the week as it awaits word from a “special committee” that is evaluating the $44 billion bid to buy the company. Swiss pharmaceutical giant Roche is on the other end of that bid and is also waiting for an answer to its $89 a share offer. The “special committee” is made up of Genentech’s three independent board members which have to review the offer with their lawyers.

I mentioned the tug-of-war the two sides would play and Genentech said Thursday that neither it nor the “special committee” has any commitment to agree to a deal with Roche. Genentech also called the offer “unsolicited and unexpected.” Basically it’s Genentech’s way of saying, “Thanks for the slap in the face. We really appreciate your offer but no thanks.”

Roche’s offering price didn’t even register a premium of 10% based on Genentech’s closing price on the Friday preceding the offer. No matter what kind of homework you do, as some of these research firms claim they do, it still doesn’t add up to a fair price based on the premium.

There was a time where many deals on Wall Street seemed to get done fairly quickly with a 50% offer. Of course, that was back in the Internet boom and crash days of the stock market but the point is Genentech is hardly an Internet start-up company. I estimated (guessed) Roche would have to bid somewhere in the $125 a share neighborhood and it now looks like it will be anywhere from $100-$110. Still not $125 but you never know.

When I said it would cost $1.59 to buy one euro last Tuesday, I should have switched it around. In other words, Roche’s bid of $89 a share is around 56 euros which is the currency Roche would use to finance the deal. As you can see, Roche came in with a really low-ball offer and it can easily afford to raise its bid. And if you really want my opinion, Roche needs Genentech more than Genentech needs Roche. Genentech’s drug, Avastin, is the key to everything and Wall Street’s estimates could be rising for the drug if other cures are found.

I mentioned how there weren’t many calls available above the 100 strike price last week but that has all changed. The August 95 calls (DWNHS, $2.20, up $0.64) were at $1.50 when I profiled them but they were risky because they expired in three weeks. For those of you who took on the added risk, you have been rewarded with a 50% gain so far. I liked the September 100 calls (DWNIT, $1.75, up $0.55) a little better and they were cheaper at $0.65 a contract. Sometimes it pays to buy cheap out-of-the-money options and it appears like this is one of those times. A stop of $1.30 gets you at least a 100% return.

We should have a clearer picture this week on what’s next between the two companies.

Rick Rouse