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Halftime Pt. 2: Reports of Potential M&A Boost Biotech

Sanofi-Aventis , a Paris-based pharmaceutical company, is reportedly preparing to spend $20 billion for a US drug maker.

In the past year and a half, this company has spent roughly $17 billion in acquisitions, says Pete Najarian of optionMONSTER.com. It is trying to replace drugs that will soon lose patents.

Reports of yet another acquisition are pushing pharmaceutical names higher, says Najarian, including Biogen Idec , Allergan and Genzyme . He thinks investors are trying to guess which company Sanofi-Aventis might acquire.

"Unbelievable options activity on a really slow day," comments Najarian.

Looking forward, consider the biotech space, says Najarian. But don't buy into one of the aforementioned companies and expect it to get bought out.

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CALL TO THE FLOOR: ARENA PHARMACUETICALS

Shares of Arena Pharmeceuticals rose sharply following news Thursday that the San Diego-based company signed a deal with Japanese drug maker Eisai to sell an experimental weight-loss drug in the US.

The drug, lorcaserin, will soon be evaluated by the Food and Drug Administration. A decision on the drug should come by Oct. 22. Completing a deal to market the drug before its improved should give Arena a credit boost, said JPMorgan Chase in a recent note, but adds that the benefits of the deal are backloaded with $50 million now and $90 million later.

"We think that the deal is an over-the-top deal," says Arena CEO Jack Lief while appearing on Friday's Fast Money Halftime Report. "It's the right deal and it's the right time for us to do this deal."

CNBC's Simon Hobbs, filling in for host Melissa Lee, asked Lief why he picked a Japanese company to market lorcaserin in the US instead of an American company, Merck or Pfizer .

"Eisai has a very good history of blockbuster, new drugs in the US," says Lief. "Certainly we've talked to most of the larger companies, but we think that Eisai is the perfect partner."

Lief downplayed investors, who are shorting his company's stock over concerns about how the FDA will rule on lorcaserin.

"I think that lorcaserin has the right combination of both safety, efficacy and tolerability to make this a very, very important drug in medical management of obesity," says Lief.

What's the Trade?

At these levels, Najarian thinks Arena is an upside call. The danger is that lorcaserin is the company's first drug going to market.

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CALL THE CLOSE

"Going into this long weekend, I'll I want to be long is hot dogs and beer," joked Patty Edwards of Storehouse Partners.

Joe Terranova of Virtus Investment Partners thinks a weak tape will end the week.

Steve Grasso of Stuart Frankel remains a seller of the market.

Pete Najarian of optionMONSTER.com is sitting on the bench.

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Trader disclosure: On July 2, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Terranova Owns (FCX), (MON), (AGU), (KO), (XOM), (TEVA), (RDS.A), (GMCR), (UPL), (GS); Terranova is short gold; Terranova owns (GLD) July 123 puts; Terranova owns (GS) JULY 130 CALLS; Terranova owns (GS) JULY 135 CALLS; Najarian Owns (PFE); Najarian Owns (CELG); Grasso owns (ASTM), (ABK), (BAC), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST)

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Edwards Owns (AAPL) For Clients
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For Joe Terranova
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For Steve Grasso
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Stuart Frankel & Co and it’s partners own (RDC)
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Stuart Frankel & Co and it’s partners own (TBT)
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Stuart Frankel & Co and it’s partners own (TRV)
Stuart Frankel & Co and it’s partners own (XRX)
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Stuart Frankel & Co and it’s partners are short (QQQQ)
Stuart Frankel & Co and it’s partners are short (AAPL)

Mark Chandler
***No Disclosures

Mike Boyd
***No Dislcosures

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