Healthcare flies higher as out-of-favor sector enjoys resurgence; DepoMed, BioMarin improve

By Rebecca Melvin

New York, April 7 – Healthcare convertibles continued to be better bid on Thursday as a rebound in that sector spilled over into a third day, a New York-based trader said.

“Healthcare is absolutely flying,” the trader said, estimating that in the last two or three days, central healthcare names in the convert space have added about a point a day on a dollar-neutral, or swap, basis.

Those names included Tesaro Inc., Horizon Pharma plc, Jazz Pharmaceuticals plc and DepoMed Inc. among others on Thursday, the trader said. But liquidity remained tight, and the rally was on thin volume, he added.

There was some obvious investor reaction to the news that Pfizer Inc. and Allergan plc scrapped their $160 billion merger plan in the face of new U.S. Treasury Department rules that discourage corporate tax inversions. But for the most part, reasons posited for the recovery in healthcare were indefinite, such as market fickleness.

“What is going on is that the sector has underperformed for a while, and some of the unloved ones are tending to bounce the most, a trader said.

Healthcare has been lagging since the 2015 fourth quarter and this week a couple of big buyers have stepped in and bid these names higher, he said.

There are not as many sellers as buyers, however, and trading is light.

BioMarin Pharmaceutical Inc. was also a name in focus on Thursday. Shares of the San Rafael, Calif.-based pharmaceutical company, maker of a drug for a rare, genetic muscular dystrophy disease, were lower by nearly 2% at $87.64 in the early going, but the BioMarin 0.75% convertible notes due 2018 were notably higher at 120 to 121, up from 117 to 120 previously.

Anacor Pharmaceuticals Inc.’s 2% convertible, which debuted in the market on Friday, has been an obvious winner. Those bonds are trading in the 120s after only five days in the market.

Elsewhere, Herbalife Ltd.’s convertible remained well bid after that issue gained a couple of points on Wednesday in response to the name being added to the Thomson Reuters Convertibles index. The inclusion is effective April 13.

Herbalife’s 2% convertibles traded right at par – after having gained about 2 points on Wednesday – as its stock was little changed.

“They moved up a couple of points in the afternoon [Wednesday], and whether people were underweight and add on the index addition or not, there were a decent amount of crossover sellers,” a trader said.

EZCorp Inc., which was in the crosshairs of convertibles traders on Tuesday, was again in focus, with the EZCorp 2.125% convertibles, of which $200 million priced in 2014, indicated up at about 72 from about 68 previously as shares of the Austin, Texas-based small loan and pawn loan provider surged higher by 63 cents, or 19%, to $4.03 on Thursday.

But Clean Energy Fuels Corp.’s 5.25% convertibles were indicated down to 53 from 60.25 as shares of the Seal Harbor, Calif.-based owner and operator of natural-gas fueling stations slipped a nickel, or 1.7%, to $2.83.

In the broader markets, equities turned lower after healthcare and energy fostered gains on Wednesday. The S&P 500 stock market fell 24.75 points, or 1.2%, to 2,041.91; the Nasdaq lost 72.25 points, or 1.5%, to 4,848.37 and the Dow Jones industrial average gained 174.09 points, or 1.0%, to 17,541.96.

DepoMed jumps with sector

DepoMed’s 2.5% convertibles due 2021 ended the session at 99.5 bid, 100.25 offered, with the underlying shares at $15.00, a New York-based trader said.

Shares of the Newark, Calif.-based specialty pharmaceutical company, which develops and sells pain products, started lifting on Wednesday. But the shares are still not near the highs reached in early March.

As for the convertibles, the bonds were up from about 97 on Wednesday and trades as low as 94 on that day.

DepoMed develops and commercializes products for pain and disorders of the central nervous system.

There was no company-specific news that buoyed the bonds. But the name had been out of favor and there were buyers stepping back in.

These bonds were better to buy, a trader said, indicating that there was a strong bid and a nebulous offer side.

“It’s a function of where dealers are offering things out. They are bid only; there are not a whole lot of natural sellers in the market and liquidity is tight,” the trader said about the healthcare space in general in convertibles.

BioMarin adds on swap

The BioMarin bonds were seen better by 0.375 point on a dollar-neutral basis, a New York-based trader said on Thursday.

The BioMarin 1.5% convertible notes due 2020 were last at 121.375 and the BioMarin 1.875% convertibles due 2017 were about triple par.

BioMarin shares ended the day down $1.55, or 1.7%, to $87.79 in slightly lighter than average volume.

The idea that Allergan may be looking to make acquisitions is definitely helping, a traders said.

Mentioned in this article:

Anacor Pharmaceuticals Inc. Nasdaq: ANAC

BioMarin Pharmaceuticals Inc. Nasdaq: BMRN

Clean Energy Fuels Corp. Nasdaq: CLNE

DepoMed Inc. Nasdaq: DEPO

EZCorp Inc. Nasdaq: EZPW

Herbalife Inc. NYSE: HLF

Horizon Pharma plc Nasdaq: HZNP

Jazz Pharmaceuticals plc Nasdaq: JAZZ

Tesaro Inc. Nasdaq: TSRO

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