Human Genome surges on lupus trial; Lincare trades before earnings; CIT busy; Intel to price

By Rebecca Melvin

New York, July 20 - Human Genome Sciences Inc. was undoubtedly the name of the day in convertibles Monday, with the Rockville, Md.-based biopharmaceutical company's two converts spiking more than 30 points each in heavy volume as shares surged by nearly 300% on successful late-stage trial data for an experimental lupus drug.

"It was a real binary event that surprised a lot of people," a Connecticut-based sellside analyst said of the trial data. The next trial results are expected in November, he said.

Cubist Pharmaceuticals Inc. was steady to higher, also on trial data. This one was a mid-stage study in which an experimental respiratory-infection drug met its primary goal.

Allergan Inc. was also said to be very active, although the catalyst driving activity was unclear.

Lincare Holdings Inc. was in trade ahead of earnings that were released after the market close. The Clearwater, Fla.-based respiratory-therapy services company's profit fell, but beat estimates by 2 cents.

CIT Group Inc.'s convertible preferred and convertible mandatory shares also continued to trade actively, with its preferreds significantly higher on news that bondholders were providing bridge financing to help avert an imminent bankruptcy. But its mandatory convertibles were a little lower.

Equities extended last week's rally as positive earnings data encouraged investors.

In convertibles, the market remained tighter, as it has been, but with some players saying it was necessary to work a little harder to find appealing names.

"The market is such that a lot of paper has already priced to ho hum levels. Where are they going to go to from here? There's a point when something reaches the end of its tether," a New York-based sellside trader said.

The sellsider said new issuance would help resolve the developing situation.

And in the primary market after the close, Intel Corp. launched an offering of $1.5 billion of 30-year convertibles that were seen pricing after the end of business on Tuesday to yield 3% to 3.5%, with an initial conversion premium of 18% to 22%.

Human Genome spikes

Human Genome's 2.25% convertible due October 2011 surged to 96.5 bid, 97 offered as its shares gained nearly 300% to $12.41, which compared to 61.5 versus $3.99 on Thursday.

Human Genome's 2.25% convertibles due 2012 jumped by about the same amount - 30-plus points - to the upper 80s from the mid 50s.

Distressed funds that had been holding the paper did well, becoming sellers at these new levels.

The trigger for the surge was results from Bliss-52, the first of two phase-3 trials for its Benlysta drug in patients with serologically active systemic lupus erythematosus. Human Genome and GlaxoSmithKline plc announced their experimental lupus drug met the primary endpoint.

In the placebo-controlled Bliss-52 study, results showed that Benlysta plus standard of care achieved a clinically and statistically significant improvement in patient response rate at week 52, compared with standard care alone.

Study results showed that belimumab was generally well tolerated, with adverse event rates comparable between the drug and placebo treatment groups.

"They have one thing here that works," a sellsider said of the company. "Now they can get financing. It changes the whole picture."

Last Thursday, the Human Genome convertibles, which bumped up possibly on a leak of the data that was forthcoming on Monday, were extremely distressed, with a yield to maturity of 26.5% on its 2011 paper.

Now the yield is just under 4%. The parity went up. "But the real thing is that the credit improved," the sellsider said.

The coverts were the No.1 most active, according to Trace data, with $46 million of bonds having changed hands by about midsession.

The Human Genomes weren't traded on swap before the latest price spike, but now they can be.

Citigroup upgraded the company's stock to "buy" from "hold," and Lazard Capital Markets upgraded the company's shares to "hold" from "sell."

Cubist flat to a little higher

Cubist 2.25% convertibles due 2013 traded at 87.5 versus a stock price of $18 on its news, a New York-based sellside trader said.

The paper had previously traded on July 14 at 83.91 versus a stock price of $16.73 and on July 8 at 84.21, on a dollar neutral basis, a sellside analyst said.

The acute care-focused therapeutics company, together with Alnylam Pharmaceuticals, a RNAi therapeutics company, reported that ALN-RSV01, an RNAi therapeutic for the treatment of RSV met the primary objective in a phase-two trial.

Shares of the Cubist, a Lexington, Mass.-based biopharmaceutical company, ended lower by 13 cents, or 0.71%, at $18.11.

The sellside analyst said that ramping up sales of its main drug Cubicin, a bacteria killer, was more important than the successful phase-two trial of the RSV drug. The converts were "roughly where they were yesterday," the sellsider sid.

CIT remains volatile

CIT's 8.75% perpetual convertible preferred shares, or the C shares, were up substantially to 6.38 on Monday, which was improved from 2.98 on Friday.

The CIT 7.75% mandatory convertibles due 2015 moved down 1.4 point to 7.35, from 9.20 on Friday.

A sellsider said he had been active in the name.

CIT bondholders will provide $3 billion in financing to stave off bankruptcy, according to news reports. The deal is expected to act as bridge financing to buy the company time to launch a coercive exchange offer to restructure its debt.

In a report from independent research firm CreditSights, analysts said: "We believe the deal is a clear win for short-dated bondholders including the $1 billion August floater. For intermediate and long dated bondholders, we believe the support may prove to be costly to recovery prospects."

CreditSights said that CIT may still be at risk for filing for bankruptcy even after receiving emergency financing because it lacks a "viable funding model."

The firm believes CIT's short-term solution for liquidity needs may be an exchange offer to raise capital. It said CIT may need to raise $4.6 billion to $7.6 billion of capital to maintain its 13% total capital ratio that the Federal Reserve mandated that the company maintain when it converted into a bank holding company.

CreditSights said the move may look similar to a ResCap exchange in which it offers a first lien to shorter-dated maturities, a second lien to longer-dated maturities; while the hybrids and subordinated debt could receive a third lien claim or possibly equity.

Shares of the New York-based lender to small- and mid-size businesses surged again in what has become characteristically volatile trading. The shares ended up 55 cents, or 79%, to $1.25.

Mentioned in this article:

Allergan Inc. NYSE: AGN

CIT Group Inc. NYSE: CIT

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Human Genome Sciences Inc. NYSE: HGSI

Lincare Holdings Inc. Nasdaq: LNCR

Teva Pharmaceutical Industries Ltd. Nasdaq: TEVA

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