WebMD down on warning; Dendreon better on takeout rumor; Virgin Media tighter after earnings

By Rebecca Melvin

New York, July 24 - WebMD Corp.'s convertibles were down on both an outright and dollar-neutral, or hedged, basis Tuesday after the Elmwood Park, N.J.-based provider of online medical information warned that it will swing to a loss for the full year on lower advertising revenue.

Dendreon Corp.'s convertibles traded higher by about a point outright on a takeout rumor and spike in the underlying shares, a New York-based trader said.

"They were better to buy," a New York-based trader said, referring to a stronger bid for the Dendreon paper while the offer remained indistinct.

Gilead Sciences Inc. was active and slightly lower in line with underlying shares after the Foster City, Calif.-based biopharmaceutical company announced phase 3 clinical trial data involving its elvitegravir HIV medication.

The once-a-day elvitegravir treatment was "non-inferior" versus a twice-a-day raltegravir regimen, the company said in a release.

Gilead's 1.625% convertibles due 2016, or the D convertibles, were particularly active, a trader said.

Virgin Media Inc.'s convertibles traded slightly lower in decent trading action for the New York-based provider of communication services in the United Kingdom.

"There were bids and offers on Virgin Media, which was 'in' slightly," a trader said.

Equity markets were down for a third straight session and buyers pushed the 10-year Treasury bond yield to a record low. Investors were nervous about European debt especially after reports that Greece will have to restructure about $242 billion of debt. On the U.S. corporate side, there were earnings and outlooks that also disappointed.

"The market is very touchy at this point," a New York-based trader said of convertibles. "Yesterday was a quiet Monday; a risk off day, if anything. Today, there is more activity, but volume is still light," the trader said.

Liquid issues like Gilead, Medtronic Inc. and Transocean Ltd. are the type of issues that investors want to own, the trader said.

WebMD drops on warning

WebMD's 2.5% convertibles due 2018 traded actively at around 81.25 shortly after midsession. Early in the day, they had traded at 82 and 82.25, which was down about 2 points from late Monday, according to Finra's Trace data.

The WebMD 2.5% convertibles traded very actively, with a significant number of prints going up at 1:30 p.m. ET.

The WebMD 2.25% convertibles due 2016 traded down 0.875 point to 93, according to Trace data, but this bond wasn't actively traded, traders said.

Shares of the Elmwood Park, N.J.-based provider of health information services plunged more than 20% early on and settled lower by $3.27, or 18%, at $14.65 in heavy volume.

"They were 'in' a little, depending on the hedge," a New York-based trader said. "We're on a 50% delta tracking."

WebMD, which provides online medical information, guided for a full-year loss, reversing its previous outlook for a profit, citing loss of advertising revenue related to budget cuts by drug maker customers.

The company said its 2012 loss may be $12.4 million to $23.4 million, reversing previous guidance provided May 1 for a profit of $2.8 million to $19.9 million.

Full-year revenue is now expected to be $455 million to $480 million, down from $500 million to $535 million previously.

For the second quarter, WebMD is expecting a net loss of about $5.8 million, or 12 cents per share, which is in line with previously stated guidance for the quarter. Revenue is expected to be about $112 million, compared to prior financial guidance of $110 million to $115 million.

Analysts, on average, were expecting earnings of 4 cents per share for the quarter on $115.1 million in revenue.

WebMD is slated to release its full results July 31.

WebMD also said its website traffic continued to grow during the quarter, blaming weaker performance on many of its customers reevaluating expenditures in various areas, including marketing, as they deal with both the ongoing and anticipated impact of patent expirations as well as greater-than-expected delays in new product launches due to regulatory approval delays.

Dendreon better bid

Dendreon's 2.875% convertibles due 2016 traded higher by about a point to 70.625 bid, 71.625 offered Tuesday afternoon, after early bids at 70 to 70.5.

Dendreon shares added 30 cents, or 4.9%, at $6.51 on Tuesday.

"The Dendreon bonds were 'better to buy' this morning. There was a buyer running around, bidding 70 and 70.5," a New York-based trader said.

The trader said that Celgene Corp. might be bidding on Dendreon, and the news sent Dendreon shares up 15% briefly at around 10 a.m.; the stock was still up about 5% by the end of the session.

"The stock spiked up 15%. It has people wondering as it has been rumored before," a trader said.

On June 14, the Dendreon convertibles added a point or so to 69 on rumors that Sanofi was mulling a bid for the Seattle-based biotech company.

Dendreon has struggled to launch its Provenge prostate drug therapy and faces competition issues.

Virgin Media trades tighter

Virgin Media's 6.5% convertibles due 2016 traded actively at 155.625 bid, 155.875 offered versus an underlying share price of $25.80.

Shares closed up 72 cents, or 2.9%, at $25.98 on Tuesday.

"They were looking both 'better to buy' and 'better to sell,' making the market tighter," a trader said.

But the bonds were slightly lower.

Virgin Media reported second-quarter net income of £64.7 million, which was down from £98.2 million in the same period of last year. The decline was mainly due to a tax refund in the year-earlier quarter, the company said in a release. Revenue for the quarter was £1.03 billion, which grew at 4%.

Mentioned in this article:

Dendreon Corp. Nasdaq: DNDN

Gilead Sciences Inc. Nasdaq: GILD

Medtronic Inc. NYSE: MDT

Transocean Ltd. NYSE: RIG

Virgin Media Inc. Nasdaq: VMED

WebMD Corp. Nasdaq: WBMD

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