ImClone steady despite lack of Bristol-Myers interest; Teva under pressure; Omnicare edges lower

By Rebecca Melvin

Princeton, N.J., Feb. 2 - The convertible market Thursday seemed to switch from a purely earnings focus, which was behind much of the week's trading, to a tack that concentrated on finding the right levels for issues including ImClone Systems Inc. and Omnicare Inc.

ImClone Systems saw its convertibles mostly steady in active trade, despite pressure on its shares, after news that Bristol-Myers Squibb Co., which owns 17.1% of the company, has no plans to acquire the remainder even though ImClone put itself up for sale last week.

Omnicare also traded actively, with players still trying to figure out the significance of news reports that the Michigan attorney general's office raided the company's offices in that state.

The Covington, Ky.-based company, which provides drug services for the elderly, said earlier this month that it has received subpoenas from the U.S. Attorney from Massachusetts investigating allegations related to three generic drugs provided by the company.

Another name trading actively on Thursday was Teva Pharmaceutical Industries Ltd. Its new issues were under pressure, but still higher than at issue last week; and its older issues traded in the wake of the new paper.

Intel Corp.'s convertibles also traded actively, remaining flat in the 90.50 bid, to 91 offered range. Intel shares (Nasdaq: INTC) closed down nearly 35 cents, or 1.6%, to $21.2001.

One Intel trade reported Thursday was at 90.75, versus a share price $21.50. One trade on Wednesday was reported at 90.5 versus $20.25.

The name took a hit Jan. 17 when the Santa Clara, Calif.-based chip giant reported earnings, and it hasn't recovered since, a New York-based sellsider said.

"If you had asked me when this was issued if I thought it would be trading 10 points below par at this point, I would have never guessed," the sellsider said of the Intel paper. Intel priced $1.4 billion of 30-year convertibles to yield 2.95% on Dec. 14.

A few retail names were also in trade on Thursday following the release of "decent" January sales figures, a New York based sellside analyst said.

He added that TJX Cos. Inc. was a standout among the usual suspects, which included Men's Wearhouse Inc., Dress Barn Inc. and Saks Inc.

Overall the convertible market's focus was more in keeping with the type of day it was in the broader markets, the analyst said. "In general, it was weak today, right? Biotech was lower; drug companies were lower. It's not surprising that you had that focus. People were reacting to news and trying to find the right levels for things."

ImClone remains steady

News that Bristol-Myers has no plans to acquire ImClone spurred activity in the biotech's stock and convertibles, with the convertibles mostly steady at about 88 and seemingly independent from stock moves.

Its shares took a huge dive in pre-market action after its top partner expressed lack of interest in the New York-based biotech. Last week, ImClone reported earnings that disappointed Wall Street, mainly based on lower-than-expected sales of the cancer drug Erbitux. It announced that it had hired Lazard LLC to explore the possible sale of the company.

Bristol-Myers and ImClone are partners in Erbitux in an agreement running through 2018, which market watchers said made Bristol-Myers a likely candidate to consider purchasing ImClone. But in a Securities and Exchange Commission filing late Wednesday, Bristol-Myers said it has no plans to undertake any further transaction with ImClone.

In fact, many ImClone players took the filing as a sign that Bristol-Myers is a seller of its ImClone stake.

"I think Bristol-Myers would like to sell its stake in ImClone, they clearly are not interested in buying them at all," said a sellsider.

But regardless of this news, the ImClone 1.375% convertibles remained steady at the same price at which they leveled out on Jan. 24 after news of the possible sale.

The convertibles have a par put on a change of control and "people seem pretty comfortable with the possible 12 points that would be made in the event that that occurs," a Connecticut-based sellside analyst said. "People are not playing it for the stock, they are playing it for the takeover,"

On the other hand, the convertibles haven't dropped with the latest news because they have a bond floor of about 84, and are seen at fair value at 87.

"I don't know: it's in a weird spot. It's moving on the takeover news and there's a limit on how low it can go down," the analyst said.

ImClone shares (Nasdaq: IMCL) were seen at 8:30 a.m. ET off by 3.5% to $36. But the stock closed at $36.49, down 81 cents, or 2.2%.

ImClone expects to bolster Erbitux sales with the anticipated approval next month of its use in head and neck cancer, which would trigger a $250 million payment from Bristol-Myers, and is testing Erbitux in pancreatic and lung cancer.

But there is still uncertainty over the value of Erbitux, which faces competition from Amgen Inc. and Abgenix Inc.'s rival panitumumab, which could reach the market and begin generating sales later this year, an analyst said.

Omnicare edges lower

The Omnicare convertibles moved lower mostly in tandem with its share price on Thursday, traders said, with the 4% convertible down about 0.50 point to 68.25 bid, 68.875, according to one sellside shop, compared to about 68.99 on Wednesday.

The 3.25% convertible due 2035 traded at about 95. Its shares (NYSE: OCR) closed down 54 cents, or 1%, at $52.25.

Omnicare was raided by the Michigan attorney general's office following the company's disclosure Jan. 13 that it had received subpoenas from the U.S. Attorney's Office in Massachusetts.

The company said that government was seeking information regarding the company's relationships with certain manufacturers and distributors of pharmaceutical products.

In addition the federal government and certain states were investigating allegations relating to three generic pharmaceuticals provided by the company in connection with the substitution of capsules for tablets (Ranitidine), tablets for capsules (Fluoxetine) and two 7.5 mg tablets for one 15 mg tablet (Buspirone), the company said.

Teva issues under pressure

The Teva convertibles traded down between 0.50 point and three points on Thursday in active volume. The new C tranche, or 0.25s, was moving more actively than the new D tranche, or 1.75s. And the 0.25s held up a little better trimming about 0.875 from their price to trade at about 101.

The new 1.75s lost about a point with the older issues, including the 0.25% convertibles, the 0.50% convertibles, and the 0.375% convertibles, all down more than a point.

"They were under pressure today but still have expanded since issue," a New York- based sellside trader said, commenting on the strong flow in the issues.

Israel-based Teva priced $1.25 billion of convertibles in two tranches last week, including $750 million of 20-year convertibles to yield 1.75% and $500 million of 20-year convertibles to yield 0.25%.

The Teva 1.75s traded Thursday at 101.75 versus a share price of $42.625.

News in the generic drug space that may have promoted the focus on Teva included Cephalon Inc.'s announcement that it inked a fourth settlement with a generic drug maker protecting its Actiq pain reliever and Provigil sleep disorder treatment from generic version competition.

Teva was among previous companies with which Cephalon achieved settlement agreements.

Thursday's news was tied to Barr Laboratories Inc. Under the deal, Cephalon will license a generic version of Provigil to Barr starting in 2011, unless Cephalon receives an extension of its patent for a children's version of the drug. Also Barr agreed to grant to Cephalon a non-exclusive license to some of its international property rights to modafinil, which is the active ingredient in Provigil, for an upfront payment and Cephalon said it will buy certain inventory from Barr.

For Actiq, Cephalon granted Barr an exclusive, royalty-bearing license to sell a generic version in the United States starting on Dec. 6. Cephalon said it will pay royalties on the drug through February 2007.

In addition to Teva, Cephalon previously resolved similar suits with generic drug producers Ranbaxy Laboratories Ltd. and Mylan Pharmaceuticals Inc.

Teva shares (Nasdaq: TEVA) shares closed down 84 cents, or 1.97%, to $41.77. Cephalon shares (Nasdaq: CEPH) closed up $5.50, or 7.8%, to $76.

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