Health care in focus as sector lifts; Softbank mandatory exchangeable into Alibaba on tap

By Rebecca Melvin

New York, May 31 – U.S. convertibles were trading mildly Tuesday on the last day of the month following a long holiday weekend. The health care space commanded attention after news that Jazz Pharmaceuticals plc has agreed to acquire Celator Pharmaceuticals Inc. for $30.25 per share, or about $1.5 billion.

Financial markets were closed on Monday in observance of Memorial Day.

The shares of Celator, a leukemia drug company, which is not a convertibles issuer, were up 70%.

“There is a melt up in health care,” a convertibles trader said, referring to the Celator deal and also an upcoming conference of the American Society of Cancer and Oncology as forces driving some of the attention.

“There is a definite bid, but not too much volume yet after the long holiday weekend,” the trader said.

In particular, Array BioPharma Inc. and Ariad Pharmaceuticals Inc., two cancer drug companies, were getting a look and the shares of those companies were up 7% and 8.5%, respectively, the trader said.

Array’s 3% convertibles due 2020 were last at 86.93, according to Trace data.

Jazz Pharmaceuticals’ 1.875% convertibles due 2021 were not trading actively but were last at 112.28, which was down about 0.5 point on an outright basis from a print at 112.8 on Friday.

Meanwhile, after the market close, in primary action, Softbank Group Corp., through a newly formed independent trust incorporated in the United States, launched a $5 billion offering of mandatory securities exchangeable into Alibaba Group Holding Ltd. stock.

The ultra-large issue was expected to price after the market close on Wednesday and were talked to yield 5.25% to 5.75% with an initial exchange premium of 17.5% to 22.5%.

Back in the secondary market, Exelixis Inc.’s convertibles were also mentioned as a name on Tuesday, but a second source said that the South San Francisco, Calif.-based biotechnology company was not notably better bid on Tuesday but had been stronger last week also when positive phase 2 data on its kidney cancer therapy was announced.

Acorda Therapeutics Inc.’s 1.75% convertibles due 2021 were pulled into trade Tuesday and were up more than a point to 92.5 for a while before easing a bit to 92.125 bid, 92.25 offered against shares of the Ardsley, N.Y.-based spinal cord and nervous system therapeutics company that were up $1.16, or 4.3%, to $28.45.

But one trader said that there wasn’t much of a better bid in Acorda or Ionis Pharmaceuticals Inc.

Last week, Ionis plunged after news that GlaxoSmithKline, the co-developer of its therapy for patients with TTR amyloid cardiomyopathy, has decided not to initiate a phase 3 study with the Carlsbad, Calif.-based developer of gene-based drugs.

In addition to the Celator acquisition news, there is a conference starting on Friday of the American Society of Cancer and Oncology that is increasing the market’s attention on health care. And in addition, news early Tuesday that billionaire investor Carl Icahn has taken a large stake in Allergan plc has also increased focus, a trader said.

“There is a lot of stuff going on. Health care was late to the market rally and now there is a real bid,” the trader said.

Alibaba mandatory on tap

Mandatory Exchangeable Trust, a newly formed, independent trust, plans to price $5 billion of mandatory securities exchangeable into Alibaba stock after the market close on Wednesday that were being talked to yield 5.25% to 5.75% with an initial exchange premium of 17.5% to 22.5%, according to market sources.

Based in Hangzhou, China, Alibaba is an online and mobile commerce company in the People’s Republic of China and internationally.

The Rule 144A exchangeable deal has a 20% greenshoe and is being sold via joint bookrunners Morgan Stanley & Co. LLC and Deutsche Bank Securities Inc.,

Under a collateral agreement, a wholly owned subsidiary of Japan’s Softbank called West Raptor will initially pledge a number of ordinary shares underlying the maximum number of American Depositary Shares deliverable upon maturity of the exchangeables under the forward purchase agreement.

The shareholder may elect to deliver in whole or in part cash instead of ADSs.

Proceeds will be used to pay the purchase price to the shareholder under the forward purchase agreement and to purchase a portfolio of stripped U.S. Treasury securities with face amounts and maturities corresponding to the quarterly distributions.

Mentioned in this article:

Acorda Therapeutics Inc. Nasdaq: ACOR

Alibaba Group Holding Ltd. Nasdaq: BABA

Ariad Pharmaceuticals Inc. Nasdaq: ARIA

Array BioPharma Inc. Nasdaq: ARRY

Exelixis Inc. Nasdaq: EXEL

Ionic Pharmaceuticals Inc. Nasdaq: IONS

Jazz Pharmaceuticals plc Nasdaq: JAZZ

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