Convertible market slides as stock enthusiasm withers, no new deals

By Ronda Fears

Nashville, Tenn., Dec. 7 - Convertible traders said the market declined as stocks lost ground, although there was still optimism since the Nasdaq and Dow both ended the week above key thresholds. Biotech issues fell, sharply in some cases, as a week of mergers began to worry investors about the prognosis for other entities in the group to survive. In a surprise to market players, there were no final terms on the Cambrex Corp. deal, as the East Rutherford, N.J.-based life sciences firm withdrew it suddenly.

"There was a lot of profit taking that contributed to the downturn today, but the markets still capped off the week at a good place, above the key marks," said a convertible trader at a major investment bank in New York.

Traders described the convertible market as slightly lower as the Nasdaq gave in to selling pressure and closed down 33.01, or 1.61%, to 2021.26 and the Dow Jones Industrial Average lost 49.68, or 0.49%, to 10049.46.

Although late Thursday after the close, syndicate sources said nothing had changed and the Cambrex Corp. deal was ready to go, the company pulled the plug at the last minute citing "changed market conditions." The East Rutherford, N.J.-based life sciences company was pitching $125 million of five-year convertible subordinated notes with price talk of a 3.5% to 4.0% yield and a 30% to 34% initial conversion premium. Cambrex shares regained $1.61 to close Friday at $38.59.

Cambrex manufactures and markets specialty chemicals and fine chemicals as well as products and services to the life sciences industry. Some market watchers speculated that the ill effects of two huge mergers in the biotech sector this week - a $2 billion marriage between Millennium Pharmaceuticals Inc. and COR Therapeutics Inc. and MedImmune's $1.5 billion stock merger with Aviron - scared Cambrex off a debt offering, or that the company has marriage hopes itself.

"The health sector has weakened considerably this week, but nothing really was out of whack with Cambrex itself," said a buy-side analyst. "Everyone was kind of caught off-guard by this. The M&A activity this week did cause a lot of concern about the future of some of the smaller biotech names, and has a lot of people speculating about who the best candidates for a takeover might be. Maybe that was something Cambrex was thinking about."

Biotech, drug and healthcare names continued to weaken Friday, for the most part. Traders echoed that investors seemed to be concerned about more mergers in the offing, as well as the impact of consolidation on those firms merging.

COR Therapeutics' converts gave back a lot of ground Friday and Aviron continued southward. COR Therapeutics' 5% convert due 2007 (CCC) lost 2.5 points on the day to 98.25 bid, 99.25 offered and the 4.5% convert due 2006 (CCC) dropped 2 points to 94.5 bid, 95 offered as the underlying common gave up $1.08 to $27.12. Aviron's 5.25% convert due 2008 was quoted down 0.375 points on the day to 98.375 bid, 99.375 offered as the common dropped 33c to $47.43.

Others fell, either on specific news or in sympathy.

Protein Design Labs Inc. on Friday announced what it called positive clinical results from the Phase III trial of its humanized antibody Zamyl in patients with acute myeloid leukemia, but the Street saw it as mixed results. Combined with the negative trend in the biotech sector, that was enough to send Protein Design Labs stock and convertibles plunging. The Protein Design Labs 5.5% convertible due 2007 (CCC) fell 5.5 points on the day to 122.75 bid, 123.75 offered as the common stock closed down $2.62 to $37.95.

Cell Therapeutics' 5.75% convertible due 2008 lost six points on the day to 98.625 bid, 99.625 offered as the stock dropped $2 to $26.21.

New paper from the biotech sector held up rather well, traders said.

Invitrogen Corp.'s new 2.25% convertible due 2006 slid 0.25 point to 99.25 bid, 99.75 offered as the common stock dropped 17c to $64.61. Invitrogen's 5.5% convert due 2007 was quoted flat at 104.5 bid, 105.5 offered. Cephalon Inc.'s new 2.5% convertible due 2006 was flat at 100.75 bid, 101.25 offered with the common up 5c to $67.86. Cephalon's 5.25% convertible due 2006 slipped another 1.5 point on the day to 112.75 bid 113.75 offered.

Other new paper from the tech area did better, but was mixed.

Photronics Inc. new 4.75% convertible due 2006 soared 9.125 points on the day to 112.5 bid, 113.5 offered while the common stock up 74c to $28.69. Tech Data's new 2% converts due 2021 lost 1.375 points on the day to 99.5 bid, 100 offered as the common stock lost 95c to $44.94. Wind River's new 3.75% convertible due 2006 slipped 0.625 point on the day to 103.125 bid, 103.875 with the common stock off 22c to $18.30.

Next week, the market looks to at least $685 million in new paper from AT&T Corp. and Prudential Financial Inc.

End

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