Akorn trades up on debut; NetApp gains outright after raised guidance; Cubist in action

By Rebecca Melvin

New York, May 26 - Akorn Inc.'s newly priced 3.5% convertibles traded up to 102 to 103 on their debut Thursday and were steady at that level for pretty much the whole session despite sharply lower shares.

The Illinois-based pharmaceutical company priced $100 million of the five-year senior notes late Wednesday at the tight end of talk. Shares came under pressure early Thursday as mostly outright participants flipped to hedge funds, but toward the market close, the stock surged back to end lower by only 2.7%.

"It did well," a syndicate source said.

The secondary market was quiet as trading ranks were thinning before the long Memorial Day weekend.

NetApp Inc.'s 1.75% convertibles traded actively after the Sunnyvale, Calif.-based data-storage equipment maker surprised to the upside in both earnings and its fiscal first-quarter earnings forecast.

Cubist Pharmaceuticals Inc.'s 2.5% convertibles traded as shares of the Lexington, Mass.-based drug developer bounced higher amid continuing speculation of a possible takeover by Shire plc.

Elsewhere, Fifth Third Bancorp's 8.5% convertible preferred traded Thursday at 141.75 versus a share price of $12.70 and was later called 143, compared to 141 on Monday.

The 8.5% convertibles are non-callable for two more years.

On Wednesday, the Cincinnati-based regional bank's announced that it's going to compensate investors who bought its 8.875% trust preferred securities in a two-day period last week before it publicly announced that the notes would be retired.

Akorn deal trades up

Akorn's newly priced 3.5% convertibles due 2016 traded up to 102 to 103 and stayed there despite a 7% down move on six-times normal volume in the underlying shares of the Buffalo Grove, Ill.-based pharmaceutical company.

Later shares stabilized at down about 2%.

"Frankly, the price of the bond hasn't fluctuated. The deal was heavily outright focused so the movement in the stock isn't translating into the bond," a syndicate source said.

But the paper was flipped to hedge funds, which put pressure on the shares, a sellside trader said.

"Definitely [there is] some hedge fund involvement today," the trader said.

Akorn focuses on diagnostics and therapeutics in the areas of ophthalmology, antidotes, anti-infectives and controlled substances for pain management and anesthesia.

"The deal was launched off of a two-year high at $7.03. The stock hasn't been there since early 2008 and the conversion price is a 10-year high. That was part of what investors were looking at - that the stock has had a good run," the syndicate source said.

Deutsche Bank Securities Inc. was the active bookrunner, with Citigroup Global Markets Inc. and Piper Jaffray & Co. as passive bookrunners.

Akorn priced $100 million of five-year convertible senior notes, and there is a $20 million greenshoe.

The Rule 144A offering priced at the tight end of talk, which was 3.5% to 4% for the coupon and 25% to 30% for the initial conversion premium.

The five-year bullets have an initial conversion price of $8.76 per share and will be convertible into shares of Akorn stock, cash or a combination. There is takeover protection.

Proceeds will be used for general corporate purposes, including potential future acquisitions and strategic transactions.

NetApp rides higher

NetApp's 1.75% convertible notes due 2013 traded at 176.5 during the session, which was up 9 points outright.

Shares of the Sunnyvale, Calif.-based data-storage equipment maker jumped but settled back slightly for a $3.59, or 7%, gain to $55.32 at the close Thursday.

NetApp reported an 11% increase in fourth-quarter earnings after the close Wednesday. Profits at the company totaled $160.6 million, or 40 cents per share, compared to $145.1 million, or 40 cents per share, last year.

Adjusted earnings of 59 cents per share was better than last year's 50-cent-a share quarter and beat a 53-cent-per-share estimate.

Revenue was up to $1.43 billion from $1.17 billion in the prior year's quarter.

NetApp, which is gaining market share from rivals such as HP and EMC, is forecasting adjusted earnings of 52 cents to 57 cents per share for the fiscal first quarter, ahead of a 50 cent estimate, and with revenue forecast at $1.5 billion give or take 3%, compared to a $1.49 billion forecast.

Cubist in focus again

Cubist's newer 2.5% convertibles due 2017 traded up to 149 on Thursday, which was up 7 points outright on the day. Earlier in the week the paper was marked 140 to 141 versus the $36.21 share price, which represented a 0.5 point drop on a hedged basis.

Shares of the Lexington, Mass.-based drug developer jumped $1.54, or 4%, to $38.30 on Thursday.

The jump was attributed to takeover speculation that has gained steam after surfacing on Monday. The Daily Telegraph reported that Shire plc may acquire the drug company for $2 billion.

Cubist is the maker of cubicin, which is used to treat severe skin and bloodstream infections; and Shire makes various drugs, including Adderall XR for the treatment for attention deficit hyperactivity disorder.

Mentioned in this article:

Akorn Inc. Nasdaq: AKRX

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Fifth Third Bancorp Nasdaq: FITB

NetApp Inc. Nasdaq: NTAP

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