Dendreon adds outright; InterMune intends to price notes, shares; Lennar earnings on tap

By Rebecca Melvin

New York, Jan. 14 - The convertible bond market saw muted action on Monday, with trade generally focused on conservative, high-credit-quality names following several weeks of a strongly bid convertibles market and ahead of a potential bout of volatility given the upcoming round of U.S. budget talks, sources said.

"I think people are parking cash," a New York-based trader said, suggesting that investors want to keep funds safe and readily available rather than reaching too far after strength seen the last few weeks.

Among issues that were active were Amgen Inc.'s 0.375% convertibles due 2013, Gilead Sciences Inc.'s 1% convertibles due 2014, Medtronic Inc.'s 1.625% convertibles due 2013 and EMC Corp.'s 1.75% convertibles due 2013. The underlying shares of these names were little changed to narrowly mixed.

Short-dated, yield-to-put paper was in favor, with slim profit margins realized on such trades as investors opted for safe plays, the trader said.

Dendreon Corp.'s convertibles traded about 0.5 point higher outright following the underlying shares, which extended gains after a surge Friday due to the Seattle-based biotechnology company's receiving a ratings upgrade from Sanford C. Bernstein, citing a positive view on the company's Provenge prostate cancer treatment.

MF Global Holdings Ltd. was trading as well, and the notes were steady in pricing at about 63 after the bankrupt company's unsecured creditors on Thursday proposed a liquidation plan that included 42% recovery for the unsecured creditors.

Heading into Tuesday, market players have a new deal to look at in InterMune Inc.'s $85 million of four-year convertible bonds, which launched after the market close and which were seen pricing after the market close Tuesday. The registered deal was talked to yield 3.125% to 3.625% with an initial conversion premium of 25% to 30%.

Also Lennar Corp., the Miami-based homebuilder, with three convertible bond issues outstanding, was on deck for reporting earnings Tuesday.

Equities traded narrowly mixed on the day.

As for budget negotiations and the debt ceiling, "the market seems to think that they will work something out, but it you follow everything in the rumor mill between now and the end of February, you're going to go nuts," a New York-based convertibles analyst said.

Dendreon edges higher

Dendreon's 2.875% convertibles due 2016 traded up about 0.5 point outright to 78.75 on Monday. The paper has moved more than 10 points in the past couple of months.

Dendreon shares extended gains, trading up 24 cents, or 3.9%, to $6.41 on Monday, after a 21% surge on Friday.

Last week, Bernstein analyst Geoffrey Porges upgraded Dendreon shares to "outperform" from "market perform" and upped his price target to $10 from $7, noting that the company could be one of the sector's best performers this year.

Provenge, which received regulatory approval in April 2010, faces increased competition from drugs such as Johnson & Johnson's Zytiga, which was recently approved for pre-chemotherapy use, and Medivation Inc.'s enzalutamide drug, but there is also a growing expectation that despite early hiccups Provenge will hold its own with these alternatives and continue to grow in use.

While the Dendreon convertibles have climbed for the last few months, they have oscillated in recent sessions. A week ago, when the company announced preliminary fourth-quarter revenue that beat expectations the convertibles were quiet but lower at 76.75 bid, 77.13 offered.

Preliminary fourth-quarter revenue included indications that Provenge sales were 5% higher than in recent prior quarters.

InterMune to price

InterMune's planned $85 million of four-year convertible bonds was deemed cheap at first glance, according to a West Coast-based trader, who noted that it is interesting that its maturity date comes before the company's existing 2.5% convertibles of 2018.

"The question will be how many of the old 5% convertibles get exchanged," he said.

The Brisbane, Calif.-based biotech is using proceeds from both the convertible notes and a concurrent share offering to repurchase early or at maturity InterMune's outstanding 5% convertible senior notes due 2015, as well as to fund the commercialization of Esbriet, to fund InterMune's Ascend trial and for general corporate purposes.

The planned convertibles were talked at a coupon of 3.125% to 3.625% and a premium of 25% to 30%.

The registered, off the shelf notes have a $12.75 million greenshoe, and there is an option to purchase up to an additional 1.875 million shares of common stock. Goldman Sachs & Co. and J.P. Morgan Securities LLC are joint bookrunners.

The notes will be non-callable for a year and provisionally callable for 2.5 years if the price of shares is 130% of the conversion price.

InterMune is focused on treatments for pulmonary, infectious and hepatic diseases.

Lennar earnings on deck

Lennar's 3.25% convertibles due 2021, which is a $400 million issue that is the longest dated of the company's trio of convertible bonds, was seen deep-in-the-money at 187 75 bid, 188.125 offered at the close, versus the closing share price of $41.02, according to a New York-based convertibles analyst.

The notes trade on a high 80% to low 90% delta, he said. "That's such a high delta and there are some outright guys in there. It will move with the stock by a decent amount."

Lennar also has a 2% convertible due 2020 and a 2.75% convertible also due 2020.

Homebuilder Lennar will deliver earnings before the open Tuesday.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Dendreon Corp. Nasdaq: DNDN

EMC Corp. NYSE: EMC

Gilead Sciences Inc. Nasdaq: GILD

InterMune Corp. Nasdaq: ITMN

Lennar Corp. NYSE: LEN

Medtronic In. NYSE: MDT

MF Global Holdings Ltd. Pink Sheets: MFGLQ

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