Hologic higher on earnings, forecast; Vale, Human Genome gain after upgrades; Onyx plans deal

By Kenneth Lim

Boston, Aug. 4 - Earnings-related trading drove action in the convertible market on Tuesday, as Hologic, Inc. improved slightly after the company's third-quarter results beat Street estimates.

Analysts' upgrades helped to push Vale SA's convertibles higher, while Human Genome Sciences Inc. also saw better levels on a positive research note and a strong common stock offering.

In the primary market, Onyx Pharmaceuticals, Inc. announced a $200 million offering of seven-year convertibles.

Volumes in general were stronger on Tuesday after a lackluster start to the week, market sources said.

"The market seems OK," a desk analyst said. "It's mixed. Some things are down, but overall a good level of activity. There are quite a few names trading, we're seeing some earnings-driven stuff."

Hologic firmer with results

Hologic's 2% convertible due 2037 was up about ¼ point outright at 77.75 against a stock price of $14.75 on Tuesday.

The common stock closed at $14.86, up by 0.2%, or $0.03, after a sharp drop early in the morning.

"They were all over the place in the morning, I think now they've settled a little, mostly unchanged," a sellside analyst said. "I think there was a bit of selling on the news, and they were mostly in line with the market, which is also kind of all over the place."

Hologic reported a fiscal-third quarter profit of $41 million, or 16 cents per share, down from $61.4 million, or 24 cents per share, in the year-ago period. Excluding items, earnings for the quarter was 29 cents per share, beating Street estimates of about 26 cents per share.

The Bedford, Mass.-based maker of medical devices for women's healthcare needs, also raised its full-year earnings forecast to $1.14 to $1.16 per share. Its previous estimate was for $1.10 to $1.15 per share. Analysts were expecting a full-year profit of around $1.12 per share.

"I thought their results were pretty decent, but it's nothing to shout about," the analyst said. "They just beat the Street, and they're still profitable, but their earnings is still lower than last year's, so it's a bit of a mixed bag there."

The company's raised forecast also came as little surprise, the analyst said.

"It's not a very big increase, and it's still very close to what the Street's expecting," the analyst said.

The common stock appears to be reflecting all the good news at the moment, and there could be little upside for outright investors at the moment, the analyst added.

"It looks fully valued," the analyst said. "Their sales are kind of affected right now by the economy, and it doesn't look like something that's going to clear up within the next few months, so we could see them hanging around this level for some time. And the next put isn't until 2013, so there's really nothing to drive a big move in this name for a while. It's OK to hold, but very little that's compelling enough for a buy."

Vale higher with upgrades

Vale's 6.75% series VALE.P-2012 convertibles due 2012 gained about 1.5 points outright to trade at 63.5 versus a common stock price of $18.15, while its 6.75% series VALE-2012 convertibles due 2012 were up by about 0.75 points at 63.25 against a $20.75 stock price.

The common stock gained 0.82% or $0.17 to close at $20.94.

Dahlman Rose upgraded the common stock of Rio de Janeiro, Brazil-based Vale, a metals and mining company, to Buy from Hold on Tuesday, while UBS recommended that Petrobras investors switch to Vale.

"They're getting a bit of interest because of guys bullish about the commodity space," a sellside trader said. "It's a good company credit wise, volatility is still high, it's a decent piece of paper."

Human Genome marked up

Human Genome Sciences' 2.25% convertible due 2011 was marked at 121 against a stock price of $15.50, up by about 7 points outright, after the stock rallied on Tuesday.

The common stock closed at $14.98, up by 5.12% or $0.73.

"Human Genome had a good day, stock shot up after they closed their offering, saw the headlines on an upgrade," a trader said.

Human Genome said late Monday that it raised about $357 million through an upsized public offering of common stock at $14 apiece.

The Rockville, Md.-based company's lupus treatment recently received positive late-stage data, prompting ThinkEquity analyst Jason Kolbert on Tuesday to upgrade the stock to Buy. Kolbert cited optimism about the drug's efficacy and the size of the market for the move.

Onyx plans $200 million deal

Onyx Pharmaceuticals plans to price $200 million of seven-year convertible senior notes on Thursday after the market closes to yield 4% to 4.5% with an initial conversion premium of 20% to 25%, market sources said.

Bookrunner Goldman Sachs & Co. has an over-allotment option for an additional $30 million in the registered offering.

There is a concurrent public offering of 4 million common shares with a greenshoe of 600,000 shares.

Onyx is an Emeryville, Calif.-based biopharmaceutical company that focuses on cancer treatments.

Mentioned in this article:

Hologic, Inc. Nasdaq: HOLX

Human Genome Sciences Inc. Nasdaq: HSGI

Onyx Pharmaceuticals, Inc. Nasdaq: ONXX

Vale SA NYSE: VALE

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