Salesforce ends week slightly better; MannKind trades as shares creep up; Cubist mixed

By Rebecca Melvin

New York, May 27 - Similar to the prior week, this past trading week started out under pressure with the broader markets focused on Europe's sovereign debt problems.

Contrary to the previous week - when volatility spurred trading action midweek - this past week petered out to end on a very quiet note ahead of the long holiday weekend for Memorial Day.

"The tone was overall softer in convertibles this week on light volumes heading into the upcoming Memorial Day holiday," the Citigroup convertibles trading desk said in commentary Friday.

"In-the-money vol. names held well this week, slightly outperforming credit names. Flushout candidates continued to be well bid on the back of the last week's Liberty Global Inc. flushout announcement. Some investment-grade issues like Microsoft and Intel, which had been previously beloved by outrights, have been offered well as that momentum has dissipated," the Citi convertibles desk wrote.

Salesforce.com Inc.'s convertibles were pretty active all week long, ending a little better than where they started out, as the underlying shares of the San Francisco-based cloud computing company moved up steadily on continuing favorable sentiment on the heels of its' raised revenue forecast on faster growth in customer additions.

Credit play MannKind Corp.'s older 3.75% convertibles due 2013 found a buyer during the week at the 56 bid, 56.5 offered level as the underlying shares of the Valencia, Calif.-based biopharmaceutical company have been slowly creeping up, a New York-based sellside trader said.

Cubist Pharmaceuticals Inc.'s underlying shares moved up about 5% in the past week, and the Cubist convertibles were higher outright, but mixed on a hedged basis amid speculation that the Lexington, Mass.-based drug developer may be taken over by Shire plc.

Overall, convertible bonds Friday put in a quiet session, which was light in news flow and trading volume.

Salesforce active all week

Salesforce.com's 0.75% convertible bonds due 2015 were seen around 184 during Friday's session, compared to 186.5 previously, but it was slightly stronger to close out the week, nonetheless.

Shares of the cloud computing company were a little lower Friday after posting solid gains Monday through Thursday.

Salesforce "has been active. There was a lot of noise in the stock. They move on a bit higher delta now at 88% to 90%, but still around 8 points of premium," a New York-based sellside trader said.

Wall Street seems to be very favorably disposed to the client relationship management company's cloud computing basis right now. And of course the fundamentals don't hurt: Salesforce's sales are projected to increase by 31% this year and another 23% next year. Earnings are estimated to increase by 7% this year, but by a huge 43% next year followed by 27.56% annually for the next five years. The company has been burning through its cash for acquisitions lately, however, according to a Seeking Alpha article dated May 26.

MannKind finds a buyer

The older MannKind 3.75% convertibles traded at 56.5 this week, which was up 2.5 points outright.

The newer 5.75% convertibles weren't heard in trade but are indicated at 83.5.

Given that MannKind's shares are very difficult to borrow, it is not known as a convert arb name.

It is a distressed, pure credit play, a New York-based sellside trader said.

A second trader said, "MannKind is a name I think most avoid like the plague because it can't be shorted."

Shares of the Valencia, Calif.-based biopharmaceutical company were slightly lower on Friday but have been slowly creeping up in general, the first sellsider said.

MannKind has heard from U.S. regulators exactly what they need in new trials to achieve approval for its Afrezza, an inhalable diabetes drug. But with funds running low there has been speculation about the company receiving a partnership or additional financing in the near to medium term.

Cubist in focus again

Cubist's newer 2.5% convertibles due 2017 were at 145.5 versus a share price of $37.80 on Friday, compared to 137.5 versus a share price of $35.20 a week ago, a New York-based sellside desk analyst said.

In terns of points of premium over parity, the 2.5% convertibles are at 15.9 points now, compared to 16.9 points a week ago.

Cubist's 2.25% convertibles stood at 132 versus a share price of 437.80 on Friday, compared to 127 versus a share price of $35.20 a week ago. That issue has 9.2 points of premium over parity now, compared to 12.6 points a week ago.

Shares of the Lexington, Mass.-based drug developer were down slightly in thin volume on Friday as was the case with MannKind and Salesforce.com.

Shares climbed as much as 9.7% this week after a Daily Telegraph early in the week sparked rumors that Ireland's Shire plc may pay $44.50 per share to acquire the company.

Other possible suitors include AstraZeneca plc, Teva Pharmaceuticals and Johnson & Johnson, according to Citigroup's convertibles trading desk.

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:

Cubist Pharmaceuticals Inc. Nasdaq: CBST

MannKind Corp. Nasdaq: MNKD

Salesforce.com Inc. NYSE: CRM

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