BioMarin paper wanes in wake of new issue; Blackstone dips on add-on; Depomed tanks

By Stephanie N. Rotondo

Seattle, Aug. 8 – Newly priced convertible bond issues were in focus on Tuesday, as deals announced after Monday’s close were getting played.

For its part, BioMarin Pharmaceutical Inc. priced its $450 million sale of 0.599% convertible notes due 2024 late Monday.

The deal priced at 98% of par with an initial conversion premium of 40%.

A trader said it was quoted in a 97.75 to 98 context.

As to the odd terms of the deal – the strange coupon and pricing at a discount – the trader attributed it to the fact that it was a bought deal.

“At 98, the yield to maturity is a hair over 0.9% for seven years, and maybe a 40% premium isn’t impossible for a biotech stock with a history of wild price swings,” opined one market veteran.

“We’re in a richly valued market,” he added.

BofA Merrill Lynch led the deal, with J.P. Morgan Securities LLC and Goldman Sachs & Co. acting as joint bookrunners.

In the wake of the new issue, BioMarin’s older issues were losing ground.

The 0.75% convertible notes due 2018 – the issue the company intends to repay or repurchase with proceeds from the new deal – were seen trading in a 108 to 109 range, off about a point, according to a market source. The 1.5% convertible notes due 2020 were meantime pegged with a 115 handle, which compared to previous levels around 119.5.

The company’s stock wasn’t doing so great either, falling $3.59, or 4.03%, to $85.46.

Meanwhile, Blackstone Mortgage Trust Inc. brought a $100 million add-on to its 4.375% convertible notes due 2022 early Tuesday.

It was not clear what the reoffer price was, though a source had reported Monday that it was marketed in a par to 100.5 context.

Toward the end of the day, the issue was seen at 100.625 bid, 101.125 offered.

In early dealings, the bonds were seen at 100.5 bid, 100.875 offered. That compared to 101.5 bid, 101.625 offered previously.

Blackstone’s equity was slightly better, however, adding 41 cents, or 1.35%, to close at $31.11.

Barclays was the bookrunner.

The company originally sold $250 million of the convertibles at a discounted price of 99 on May 2. A $37.5 million greenshoe was exercised May 23, bringing the total amount out standing to $287.5 million.

Conversions will be settled in cash, class A common stock or a combination of both. The conversion rate is 28.0324 shares per each $1,000 of notes, equal to an initial conversion price of $35.67 a share.

At the time of the initial deal’s pricing, the conversion price represented an initial conversion premium of 15%.

The convertibles are contingently convertible prior to Feb. 1, 2022 and are convertible at any time after that date.

Proceeds will be used to originate and purchase additional commercial mortgage loans and other target assets and investments consistent with its investment strategies and investment guidelines, and for working capital and other general corporate purposes, including repayment of debt.

Depomed dives

Depomed Inc.’s 2.5% convertible notes due 2021 were “taking it in the throat,” a trader said Tuesday after the company reported earnings.

The trader saw the paper trading “either side” of 73.5, which was a loss of about 10 points on the day.

The underlying equity was also under pressure, dropping $3.085, or 33.42%, to $6.145.

For the second quarter, the Newark, Calif.-based pharmaceutical company posted a loss of $26.7 million, or 43 cents per share.

On an adjusted basis, earnings per share came to 8 cents. That was in line with the consensus estimate given by Zacks Investment Research.

Revenue was meantime in line with the company’s expectations at $100.5 million.

However, the company noted the challenging market it is in, given its presence in the opioid market.

“We continue to operate in an environment that is challenging and rapidly evolving,” said Arther Higgins, president and chief executive officer of Depomed, in the earnings release. “The increasing public focus on opioids as well as opioid manufacturers, including by government agencies and other industry stakeholders, will continue to disrupt the opioid markets.

“While our flagship NUCYNTA franchise continues to outperform the long and short-acting markets, it is clearly not immune to these developments,” he added.

One trader likened what was going on in the opioid space to what happened to the tobacco industry and in regards to asbestos once both were deemed potentially unsafe.

“It’s a national problem,” the trader said, noting that investors might be hesitant to climb onboard with a company that could face legal issues in the future.

“If it’s just one part of your business, that’s one thing,” he said of Depomed’s opioid portfolio. “But this is a large part of their business.”

In fact, the company acknowledged those headwinds, which resulted in a downward revision of yearly guidance.

Depomed reduced its revenue forecast to $395 million to $405 million, which compared to previous guidance of $405 million to $425 million.

Mentioned in this article:

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

Blackstone Mortgage Trust Inc. NYSE: BXMT

Depomed Inc. Nasdaq: DEPO

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