Chesapeake, Qwest trade higher; Abgenix, Amgen rise, but ImClone lower; SFBC plunges

By Rebecca Melvin

Princeton, N.J., Nov. 3 - Three large new issues of convertibles paper traded actively Thursday, with two of the new deals coming from serial issuer Chesapeake Energy Corp., which were especially well received. There was also a new issue of 3.5% convertibles from Qwest Communications International Inc., which jumped out of the gate at 102.5 but closed 0.5 point lower at 102, according to syndicate sources.

The Chesapeake preferreds lifted the most, albeit not significantly higher than its convertible bond sister, to close at 103.5625 bid, 104.0625 offered. Shares of the Oklahoma City-based natural gas company also had a good showing, though, so if you back out of the 1.5% gain in the shares, the new paper traded at 102 on the bid side, a syndicate source said.

The bonds also strengthened on the day, closing at 103.375 bid, or at 101.8 versus the stock move.

In biotechnology names, phase 3 study trial news released early by Amgen Inc. and Abgenix Inc. sent the shares and convertibles of those companies higher, with Abgenix' 1.75% convertibles up more than 15 points on a 38% move in their underlying shares.

But ImClone Systems Inc., which makes a rival drug, saw its 1.375% convertibles traded down a couple of points to 81.5 from about the 83 level.

Meanwhile, SFBC International Inc.'s convertibles plunged more than 17 points after a negative news story about the contract research services business and release of its earnings report.

Among generic drug makers, Teva Pharmaceutical Industries Ltd. convertibles were seen higher after news that Wyeth plans to allow Teva to sell generic versions of Effexor in return for percentages of gross profit from sales. But Watson Pharmaceuticals Inc. was lower ahead of the Corona, Calif.-based generic drug maker's third-quarter earnings posted after the close.

Interest was also seen in convertibles names in the insurance, energy and semiconductor sectors; but activity was mild.

Qwest rises

The new 3.5% convertibles of Qwest didn't appear to trade as vigorously as the new paper from Chesapeake Energy despite the fact that they were seen a little cheaper as five-year paper compared to the Chesapeake bonds, which have a 10-year call/put.

The 3.5s still ended the day higher at 102, according to a syndicate source.

"I didn't play in them," said a Chicago-based buyside source, who added that he bought the Chesapeake bonds, which were "very cheap, even although it was a 10-year bond."

Qwest was a new face in the convertibles market, compared to Chesapeake, which has seven convertible issues in the market and has been an issuer 11 times in the last 12 months.

Quest, the Denver-based telecommunications services provider, priced late Wednesday $1.1 billion of 20-year senior convertible notes at par to yield 3.5% with an initial conversion premium of 30%, according to a syndicate source.

The notes, sold via bookrunner Goldman Sachs & Co., priced at the cheap end of talk, which was for a 3% to 3.5% coupon and an initial conversion premium of 30% to 35%.

The notes are non-callable for three years and provisionally callable at a 130% trigger, with a coupon make-whole in years four and five. Investor puts are in years five, 10 and 15.

The notes also have contingent conversion at 120% and full dividend and change-of-control protection.

Proceeds are being used primarily to help fund a tender offer for its 13% senior subordinated secured notes due 2007, its 13.5% senior subordinated secured notes due 2010 and its 14% senior subordinated secured notes due 2014, issued by its subsidiary Qwest Services Corp.

Chesapeake gets warm reception

Several convertibles issues of Chesapeake traded on Thursday after the company priced two concurrent convertibles deals totaling $900 million, which were warmly received.

The energy company's $600 million 30-year contingent convertibles priced at par to yield 2.75% with an initial conversion premium of 30%, according to syndicate source.

The issue came cheaper than talk, which was for a coupon of 1.875% to 2.375% and an initial conversion premium of 35% to 40%.

Meanwhile, Chesapeake also priced $500 million of cumulative convertible preferred shares at par to yield 5%, with a 30% initial conversion premium, according to a syndicate source.

The shares also came cheaper than talk, which was for a dividend of 4.125% to 4.625% and an initial conversion premium of 35% to 40%.

Bookrunners for the Rule 144A offerings, and a concurrent offering of convertible preferreds, were Deutsche Bank Securities, which was the stabilization agent, plus Banc of America Securities LLC, Credit Suisse First Boston, Lehman Brothers and UBS Investment Bank.

Proceeds from the two convertible offerings, together with proceeds from a concurrent offering of senior notes, will fund part of the company's previously announced acquisition of Columbia Natural Resources, LLC for $2.2 billion in cash.

The $600 million contingent convertibles have an over-allotment option for $90 million. And the $500 million issue has an over-allotment option for $75 million.

The bonds are non-callable for 10 years and have puts in years 10, 15, 20 and 25. They will be convertible into a combination of cash and Chesapeake common stock at an initial conversion price of $39.07, or 25.5951 common shares per $1,000 principal amount of convertible notes.

The perpetual shares are non-callable for five years, and the company may force mandatory conversion after year five on Nov. 15, 2010, subject to a 130% trigger.

In addition to the new 5% preferred and the 2.75% bond, older issues of the company traded mixed, including the 4.5% preferred, which closed a bit lower at 94 bid, 94.5 offered, and the newer 5% issue, which traded at 139 bid, 140 offered.

Abgenix, Amgen gain on trial news

The convertibles of Abgenix and Amgen gained after their drug panitumumab met the primary endpoint of improving progression-free survival in patients with metastatic colorectal cancer in a pivotal study.

In a randomized phase 3 trial involving 463 patients who had failed standard chemotherapy, those who received panitumumab every two weeks showed a 46% decrease in tumor progression, compared with those who received best supportive care alone. The result exceeded expectations for a 33% decrease in tumor progression rate, the companies said.

Abgenix, based in Fremont, Calif., and Amgen, based in Thousand Oaks, Calif., said that they plan to finish filing for regulatory approval of panitumumab during the first quarter of 2006.

The 1.75% convertibles of Abgenix surged to about 114.5, compared to levels seen below par recently. The company also has a 3.5% convertible bond that is busted and wasn't reported in trade, but it was recently seen at about the 97.25 bid, 98.25 offered level.

Prior to today, Agenix shares were lagging and the convertibles had been lower for about two weeks. During that time, the 1.75s had dropped from 107 to the mid 90s, according to a Connecticut-based sellside source.

Meanwhile, "the 3.5s are so out-of-the-money that they won't move until the company can prove that the credit picture is improving. But it [the company] is moving in that direction," a West Coast-based buyside health care analyst said.

The next numbers on the panitumumab study should come in about weeks and that would be the next big push for the shares, the analyst said. "But I think the investors were saying that panitumumab should rule over Erbitux."

Shares of Abgenix surged during the session, closing off its highs but up a hefty $3.53, or 37.7%, at $12.90.

Amgen's move, albeit more muted, was higher too. Its 0% convertible traded at about 78, up between 1 to 2 points from 76.5 bid, 77 offered on Wednesday. Its shares climbed $3.61, or 4.88%, to $77.51.

The panitumumab news had the opposite effect on ImClone Systems Inc., which is the developer of Erbitux, a colon cancer fighter, which was approved by the Federal Drug Administration last year. Panitumumab is predicted to compete with the annual sales of that company's sole blockbuster.

ImClone's 1.375% convertibles traded down a couple of points to 81.5 from about the 83 level.

ImClone shares, which had been lifting in recent days after it announced it had filed to have Erbitux approved for the treatment of head and neck cancers, fell $7.46, or 20.7%, to $28.65.

SFBC plunges after article, earnings

Another big loser on Thursday was SFBC, a contract research services company, which saw its shares "blow up" and its convertibles trade below par after the Miami, Fla.-based company reported sales and earnings that were better than estimates but showed a backlog in orders.

"But honestly that's [the earnings report and backlog] not the reason it sold off," an analyst said. Rather it was management's seeming disregard in putting investors at ease following a negative article published Wednesday on the contract researcher business by Bloomberg, the analyst said.

"President Lisa Krinsky was insincere on the call. That was not the time to read a prepared statement. Instead she should have been ready to answer investor questions and put people at ease," he said.

SFBC's third-quarter profit increased 74% to $9.2 million, or 48 cents per share, from $5.3 million, or 34 cents per share, a year ago. Excluding items, the company reported adjusted earnings of $10 million, or 52 cents per share.

Revenue nearly tripled to $109.9 million from $40.4 million last year.

But backlog dropped sequentially because certain oral agreements had yet to be signed and therefore could not be counted in the third quarter.

SFBC's 2.25% convertibles traded down more than 17 points to 93.5 from a level of 110 bid, 111 offered on Wednesday. Its shares fell $9.98, or 26.3%, to $27.91.

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