Convertibles settle down; ‘rough tape’ for recent biotech deals; Lam Research tumbles

By Abigail W. Adams

Portland, Me., Feb. 2 – The week that saw $1.9 billion in new paper enter the convertibles space ended quietly. Trading activity was again subdued on Friday after a mid-week traffic jam of new paper.

“There’s nothing out of the ordinary today,” a market source said.

While still in focus, the flurry of activity surrounding Western Digital Corp.’s new 1.5% notes due 2024 was again slow on Friday with the notes relatively unchanged from their previous 1.5-point expansion, a market source said.

However, recently priced deals from biotechnology names have not been so lucky.

Alder BioPharmaceuticals, Inc.’s 2.5% convertible notes due 2025, Insmed, Inc.’s 1.75% convertible notes due 2025 and Exact Sciences Corp.’s 1% convertible notes due 2025 are all languishing below par.

While there has been minimal trading of Senseonics Holdings Inc.’s small offering of 5.25% convertible notes due 2023, those notes are also below par, a market source said.

While the “tape has been weak,” it is not necessarily a foreboding sign for the future, the source said.

“People have forgotten what down days look like. There’s a little bit of volatility and people get panicky,” the source said.

And there were plenty of down days, as equities saw their worst week in two years.

Equity-sensitive tech sector names took a hit on Friday alongside their stock. Lam Research Corp.’s 1.25% convertible notes due 2018 tumbled more than 10 points and 2.625% notes were down more than 28 points on an outright basis in scattered trading on Friday, according to a market source.

Bad days for biotech

Of the recent deals that fell apart, biotechnology names are featured prominently with every recent deal from a biotechnology company stuck below par.

Insmed’s 1.75% notes remained contracted about 1.5-point on a dollar-neutral basis for much of the week.

The deal from the Bridgewater, N.J.-based biopharmaceutical company, which is focused on rare diseases, was in high demand during the bookbuilding process, pricing an upsized $400 million deal at the rich end of coupon talk and richer than talk for an initial conversion premium.

The notes performed well on their debut but slipped below par earlier in the week with trades in the 96 to 98 range.

Exact Sciences’ 1% convertible notes due 2025 remain in the 96 range.

The Madison, Wis.-based molecular diagnostics company, which is focused on the early detection of colorectal cancer, priced $600 million of seven-year convertible notes with a 1% coupon and fixed conversion premium of 37% at an issue price of 98.75 after market close on Jan. 11.

The $90 million greenshoe was fully exercised.

While initially well received, the 1% notes got slaughtered their second week in the market, dropping to the 96 range after previously trading above par. While the notes showed signs of a rebound, it was short lived.

Alder’s recently priced 2.5% notes also continue to languish in the 97 to 98 range after being in high demand during the bookbuilding process.

The Bothell, Wash.-based pharmaceutical development company, which is focused on treatments for migraines, priced an upsized $250 million of seven-year notes at the rich end of revised price talk after the market close on Monday.

The revised talk had in turn been moved richer from the initial price talk. However, the deal fell apart on its market debut and the 2.5% notes have been stuck in the 97 to 98 range since.

“It’s certainly a rough tape with all of these new issues under par,” a market source said.

Lam Research down

However, the rough tape was not limited to recent biotech deals on Friday as the Dow Jones industrial average closed the week with its worst percentage decline since 2016.

Lam Research’s 1.25% convertible notes were down almost 13 points on an outright basis in scattered trading on Friday. The notes were trading at 300 versus an equity price of $181.06 mid-afternoon, a market source said.

Lam Research’s 2.625% paper dropped more than 28 points to 536 on Friday, another source said. Lam stock closed Friday at $179.06, a decrease of 5.31%.

Mentioned in this article:

Alder BioPharmaceutical Corp. Nasdaq: ALDR

Exact Sciences Corp. Nasdaq: EXAS

Insmed, Inc. Nasdaq: INSM

Lam Research Corp. Nasdaq: LRCX

Senseonics Holdings Inc. AMEX: SENS

Western Digital Corp. Nasdaq: WDC

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