Amylin sinks on severed Lilly alliance; Radian, DryShips improve; CEDC steady in trade

By Rebecca Melvin

New York, Nov. 8 - Amylin Pharmaceuticals Inc.'s convertibles 'came in' about 3 points on Tuesday on news that the San Diego, Calif.-based drug discovery company agreed to end its alliance with Ely Lilly and Co. for its exenatide diabetes drug. The companies also agreed to resolve outstanding litigation between them.

Several lower-credit-quality names gained on what was otherwise characterized as a generally quiet day in the convertibles market.

Radian Group Inc.'s bonds traded up about 5 points outright as the underlying shares of the Philadelphia-based mortgage insurer jumped 15%. Traders mentioned the move being in sympathy with MGIC Investment Corp., which also gained.

DryShips Inc. convertibles were up 3 points to 77.67 after the Athens-based shipping company reported earnings and management talked about purchasing bonds back.

Central European Distribution Corp.'s convertibles were unchanged, trading at 54 in follow through trade from Friday when that paper took a 15-point dive on the Polish vodka maker's earnings miss and lowered outlook.

Elsewhere, some in-the-money names, which trade in step with their underlying shares, were a bit higher. Equities rallied into the close on headlines coming out of Italy viewed as positive for that nation's sovereign debt troubles.

EMC Corp.'s B series convertibles, which have two more years to maturity, were higher on Tuesday as shares of the Hopkinton, Mass.-based IT infrastructure provider edged higher.

Priceline.com Inc. saw its convertibles trade at 185 versus an underlying share price of $536 after the discount online travel company reported positive results that is said were boosted by better hotel reservation and rental car demand.

Amylin comes in

Amylin's 3% convertibles due 2014 fell about 3 points to 85 from about 88, a New York-based trader said. A second pricing source had the previous market at 93, which would have amounted to an 8-point decline.

The second source put the Amylin market prior to Tuesday's announcement at 93 versus an underlying share price of $10.95.

Amylin shares fell $1.20, or 11%, to $9.73 on the news that Amylin will now be going it alone to develop and market exenatide in the United States, starting Nov. 30, and progressing to global markets by the end of 2013.

The news was "credit negative," a New York-based sellside analyst said, causing the stock and bonds to come in.

Under the agreement, Amylin will make a one-time, upfront payment to Lilly of $250 million. Amylin will also agree to make future revenue sharing payments to Lilly in an amount equal to 15% of global net sales of exenatide products until Amylin has made total payments to Lilly of $1.2 billion plus interest.

Amylin will issue a $1.2 billion secured note to Lilly, under which any revenue sharing payments made to Lilly will reduce amounts outstanding under the note.

If Amylin's investigational once-weekly version of exenatide, Bydureon, doesn't receive U.S. Food and Drug Administration approval by mid 2014, Amylin's revenue sharing obligations will end and Amylin will pay Lilly 8% of sales going forward.

Amylin will also pay a $150 million milestone to Lilly contingent on FDA approval of a once monthly suspension version of exenatide that is in phase 2 of trial study.

The $165 million line of credit that Amylin drew from Lilly earlier in the year will be extended two years until 2016.

Amylin will guarantee that Lilly does not experience losses on exenatide-related activities during the transition period, up to a total cap of $60 million.

Amylin and Eli Lilly had been partners for nearly 10 years. They said the alliance termination was mutual and in the best interest of all parties.

Amylin president and chief executive Daniel Bradbury said in the release that the two companies were pioneers in the GLP-1 market, and that he was proud of the innovative diabetes products the two companies had developed.

Radian gains 5 points

Radian's 3% convertibles due 2017 traded at 56.25, which was up 5 points on the day, according to a Connecticut-based sellside trader. He said the Radian convertibles were "better."

A trade earlier in the session was reported at 54.5.

Shares of the Philadelphia-based mortgage insurer added as much as 48 cents during the session, but they settled up 43 cents, or 14.5%, at $3.40.

There was no obvious news in the name, but traders thought the move was in sympathy with MGIC, which saw its shares zoom up 10%.

The Wall Street Journal reported on comments by Haymen Capital Management portfolio manager J. Kyle Bass, regarding a 4.9% stake his firm has taken in MGIC stock.

Bass said his bet reflected his view that the housing market's losses are largely behind it, and so too, those of mortgage insurers, the Journal reported.

Central Distribution steady

Central European's 3% convertibles due 2013 traded at 54 on Tuesday, which was unchanged and represented "follow through trade" from Friday, a trader said.

Investors were unnerved after the company, which has shed more than a third of its market value this year, cut its full-year outlook for earnings to 24 cents to 45 cents a share and reduced projected revenue to $850 million to $950 million. That is down from previous guidance - which was also a cut from original guidance - of 80 cents to $1 of profit on sales of $900 million to $1.05 billion.

On Tuesday, Moody's Investors Service said it downgraded the vodka maker and beverage distributor to B3 from B2 for the corporate family and probability of default ratings, following the weaker-than-expected results during the first nine months of the year.

Moody's said the company's operating performance will remain under pressure over the intermediate term, and as a result, the group will be challenged to maintain a pro forma financial leverage in line with a B2 rating by the end of year.

A trader said he thought the Moody's downgrade would have no effect on the convertibles.

Mentioned in this article:

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Central European Distribution Corp. Nasdaq: CEDC

DryShips Inc. Nasdaq: DRYS

EMC Corp. NYSE: EMC

MGIC Investment Corp. NYSE: MTG

Radian Group Inc. NYSE: RDN

Priceline.com Inc. Nasdaq: PLCN

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