KV Pharma takes tumble as company struggles with Makena drug; ATP debt closes steady to softer

By Stephanie N. Rotondo

Phoenix, June 22 - The distressed debt market "just hit a stalemate today," a trader said Friday.

"The stocks were weak yesterday," he noted, which had caused "some stuff to get quoted down." As Friday began, investors were throwing out low bids for paper.

"Nobody was really hitting the down bids," he said, given that the equity market was faring a bit better. Also, the week saw "big inflows," which did little to encourage sellers to sell.

"Sellers are not going to aggressively be moving out of stuff," the trader said. "They know eventually the buyers will come to them."

Notable for the day was a hefty decline in KV Pharmaceutical Inc.'s bonds. Though volume in the name was thin, the notes dropped to the low-30s from the high-40s, seemingly on no fresh news.

However, the company has been having some issues with its Makena drug, a drug designed to help avoid pre-term birth.

Meanwhile, energy names such as Petroleos de Venezuela SA, ATP Oil & Gas Corp. and Arch Coal Inc. were also on the softer side.

KV debt takes hit

A trader said KV Pharmaceutical's 12% notes due 2015 fell to 32 bid, 32½ offered, versus previous levels in the high-40s.

"There were not many trades," he added.

Another market source saw the debt open around 48, only to fall back to the 32-32½ context by day's end.

There was no fresh news out on the St. Louis-based drugmaker. However, the company has had some issues with its Makena drug, a medication approved by the Food and Drug Administration to treat women with a history of pre-term birth.

When KV's drug was approved originally, it was given a seven-year exclusivity on the drug, though without a patent to protect it. KV then began charging $1,500 for the drug, versus the $10 to $20 per week charged by compounding pharmacies.

KV thus received a far bit of backlash on its price and eventually succumbed, lowering the price by over half.

The problems continued, however, as the FDA chose not to enforce KV's exclusivity, thereby allowing compounded versions to remain on the market.

KV has fought this, stating that there are safety concerns involved. The FDA has meantime maintained that there are no such concerns and that its decision was tied to the fact that KV's price was so much higher than the previous compounded version, which had been used for decades.

ATP bonds recommended

ATP Oil & Gas' bonds were unchanged to down a touch, traders reported Friday.

One trader called the 11 7/8% notes due 2015 unchanged around 47, but another said the paper was down a point at 473/4.

There was no fresh news out on the Houston-based oil and gas exploration company, per se. But a Seeking Alpha contributor - known only as "Kraken" - did say in a commentary posted Friday that investors should ditch the company's equity in favor of its bonds.

Kraken noted that some market players believe ATP could wind up in bankruptcy within the next two years if it cannot increase production. In that scenario, and at current levels, the bonds are a good deal, with yields at nearly 48%.

"Typically, if [ATP] restructures, the company would wipe out the equity holders," Kraken wrote. "Even the bondholders may not get everything, but I believe they will get much more than 50 cents on the dollar for the bonds. It's even possible that bondholders could agree to convert to the new equity if ATP defaults. This would cut out interest payments and save the company a $177 million a year."

Energy sector weak

Among other energy names, PDVSA's 8½% notes due 2017 fell 1½ points to 801/4, according to a trader.

The 9% notes due 2021 were down over half a point at 72 1/8.

Also, Arch Coal's 7¼% notes due 2021 dropped over a point to 841/2.

The St. Louis-based coal producer said Thursday that it was cutting 750 jobs, or one-tenth of its work force, due to declining demand for its products.

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