Invitrogen launches $300 million convertible; Connetics, Cephalon stir market; Northwest hits turbulence

By Rebecca Melvin

Princeton, N.J., June 13 - A $300 million convertible issue from biotechnology firm Invitrogen Corp. is scheduled to price just 24 hours after its launch on Monday, and other issues in the same sector traded swiftly on company-specific news in an otherwise quiet session.

Also, Northwest Airlines Corp.'s convertibles fell 4 points amid several bad news items, including a newspaper report suggesting the carrier could be close to bankruptcy.

Invitrogen announced the new issue of senior convertible notes due 2025 a day after MetLife Inc. launched its super-sized $1.8 billion mandatory issue on Friday; but Invitrogen will price its issue on Tuesday, a day earlier than MetLife, which will wait until Wednesday for pricing.

Meanwhile, trading got off to a slow start on Monday, but activity built slightly throughout the morning on news reports from a handful of disparate drug development companies.

"It was quiet; but the summer is coming on, and book-end days - Monday and Friday - are always going to be slow. People are out. There wasn't much, except story specific trading," a sellside trader in New York said.

Cephalon Inc. and Connetics Corp. convertibles were lower. Cephalon announced it was buying a new drug from Cell Therapeutics Inc., and Connetics revised its earnings and revenue forecasts downward.

Viropharma Inc., however, continued its impressive move upward. And Durect Corp.'s $60 million issue of 6.25% convertibles traded higher at 148.5, versus a stock price of $4.20, possibly on speculation of a takeover or partnership, one trader said. Durect develops therapies for the treatment of chronic diseases and conditions.

Airline issues lost points after an article in Monday's edition of The Wall Street Journal reported that Northwest Airlines is close to bankruptcy. Other news also added to the airline's woes, including a $50 fare increase that wasn't matched by other carriers and a regulatory filing that showed chairman Gary L. Wilson has sold nearly 60% of his stake in the company.

Meanwhile several financial convertible issues, including Fannie Mae and American Express, edged higher.

Also in the financial sector, MetLife's new issue was before investors on Monday, but no gray market activity was reported.

MetLife's $1.8 billion offering of mandatory convertibles was well received for its decent yield but unappreciated because it's yet another issue from the financial sector, of which "we have enough already," a buyside source said. The offering's dividend is talked at 6% to 6.75% with a 20% to 25% initial conversion premium.

Nevertheless the deal looks like it will be "reasonably cheap" for a mandatory issue, at about 3%, another buyside analyst suggested.

Invitrogen sparks fly

Invitrogen Corp.'s senior convertible notes due 2025 were launched for a total $300 million issue. Price talk was at 2.75% to 3.25% with an initial conversion premium of 27.5% to 32.5%. The Rule 144A issue has a "six call, six put" structure, meaning that the notes are non-callable for six years, with puts in years six, 10, and 15.

UBS and Bank of America are the lead bookrunners for the Carlsbad, Calif.-based biotech company's deal. Proceeds will be used to pay down debt.

Connetics trades down

Connetics' convertible issues were lower in moderately active trade after news that the specialty pharmaceutical company cut its 2005 earnings and revenue forecasts.

The Palo Alto, Calif.-based company took the action in response to the U.S. Food and Drug Administration's rejection of its experimental acne treatment, Velac gel, over concerns that the treatment could cause cancer.

Connetics, which sold a new issue of 2% convertibles this spring, makes a number of treatments for skin diseases. The Velac news follows the FDA's rejection of Connetics' experimental treatment for fungal infections last year.

Its 2005 revenue forecast was cut to between $182 million to $188 million from its previous forecast of $195 million to $206 million. Its earnings per share estimate for 2005 was cut to the range of 66 cents to 70 cents, down from 88 cents to 92 cents.

Connetics' 2% senior unsecured notes due 2015 traded down 4 points to the 77-78 range. Early in the day it was down 2 points at 80 bid, 81 offered. The company's older 2.25% convertible senior notes due 2008 traded at 93. Shares of Connetics on the Nasdaq tumbled $5.64, or 27.2%, to $15.13.

Cephalon, Cell Therapeutics move

Cephalon convertibles slipped lower and Cell Therapeutics was indicated higher after news that Cephalon will purchase the blood cancer drug Trisenox from Cell Therapeutics for $170 million to boost its oncology business.

Cephalon, based in Frazer, Pa, will pay $70 million for the Trisenox assets, with the remaining $100 million paid in cash if certain sales and regulatory objectives are met.

Trisenox is designed to treat leukemia. The company is looking to build a fully integrated oncology business by adding Trisenox and a second pending acquisition, Treanda for non-Hodgkin's lymphoma, to its promise of the CEP-701 treatment for acute myeloid leukemia.

Cephalon's 2% convertible slipped to 96.5 while its 2.25% convertible, which was improved in the swap, was at 97.5. The stock dipped $0.05 on the day to close at $38.80.

Cell Therapeutics' 4% senior subordinated notes due 2010 were indicated at 65.35 bid, 67.13 offered at a stock price of $2.62. Its 5.75s due 2008 were indicated at 72.10 bid, 78.10 offered.

ViroPharma issues up

ViroPharma Inc.'s convertibles continued to be a hot item as buybacks and conversions, which both serve to lower outstanding debt levels, fueled interest in the biotech story.

One sellside trader pointed out that ViroPharma shares closed off the highs of the day at $6.60, after shooting up as far as $6.85, but still ended the session at a new 52-week high of $6.60, and he added that the shares have shot up from around $4.10 just since the beginning of June. The stock gained 73 cents on the day, or 12.44%.

ViroPharma's 6% convertible due 2007 - a target for buybacks by the company - were seen by one trader Monday at 98.75 bid, 99.50 offered with the stock at $6.70, and another sellsider closed the issue up 1.25 points on the day at 98.25 bid. ViroPharma's 6% convertibles due 2009 - which have seen increasing levels of conversions recently - were pegged at 284 bid, 286 offered.

The Exton, Pa., biotech firm has bought back a good portion of the 2007 convertibles over the years, but as recently as mid-May said there still was about $99 million outstanding. Traders have noted, though, that buybacks by the company may trail off as the bonds approach par, as many of the historical open market purchases have been at deeply discounted prices.

Conversions in the 2009 issue have been steady recently, traders observed. On Monday, the company reported that holders of $5.5 million of the notes notified the company of conversions between June 7 and June 10. That followed conversions of $11.8 million from June 1 through June 6 and $4.25 million from May 27 through June 1. Following the latest conversions, ViroPharma said about $44 million remained outstanding.

ViroPharma's acquisition of Vancocin Pulvules - an oral antibiotic used to treat colitis - from Eli Lilly & Co. for $110 million in November has been credited largely with the company's turnaround. The drug produced annual revenues of $40 million for Eli Lilly in 2003.

With the boost to revenues from Vancocin, company officials have remarked that it has focused on improving its capital structure, with the 2007 convertible issue as a primary target for debt reduction, as well as work on its business model.

Durect shares hit 52-week high

Another biotech, Durect Corp., hit a new 52-week high Monday and the convertibles ran up with the stock, prompting one sellside trader to suggest the company should look at flushing the bonds out. If the company were to make such a move, the in-the-money issue would be looking attractive.

The 6.25% convertible due 2008 was pegged early afternoon at 147.75 bid, 149.75 offered with the stock at $4.20, which the trader said put terms at 4.2%, up 11.5%. The stock climbed as high as $4.30 during the session but came off that to settle at $4.09, still a new high. The shares were up 19 cents on the day, or 4.87%.

No news was on the tape about Durect, a Cupertino, Calif.-based biotech firm with operations directed to pain relief therapies as well as central nervous system disorders, cardiovascular disease, and cancer treatments. Market sources said there may be rumors of takeover or partnership moving Durect securities, however.

The company's strategic partners include BioPartners GmbH; Voyager Pharmaceutical Corp.; Pain Therapeutics Inc.; Endo Pharmaceuticals Holdings Inc.; and Thorn BioSciences LLC. One market source said there is keen interest in Durect as a Voyager play as that venture "will be a big part of Durect's rise over the next few months and years to come."

Voyager, he said, is just about finished with a second round of Phase II studies for an Alzheimer's drug, and the rumor mill has it that the company will launch an initial public offering of stock just ahead of the drug going into commercialization. Both would be good for Durect holders, he added.

"It's always a big 'IF' but a cure for Alzheimer's is HUGE," he said. "Durect will ride Voyager's coat tails. Today was a good start."

Northwest, Delta tumble

Northwest Airlines' 7.625% convertible cash-to-zero notes due 2023 dropped about 4 points to 47.5, while its 6.625% convertible cash-to-zero notes dropped by the same amount to 53.4 after The Wall Street Journal reported that Northwest is struggling to keep its head above water amid high costs and pension woes and may have to file for Chapter 11.

While Northwest, the nation's fourth-largest airline by passenger traffic, is being hurt by a troubling trio plaguing the whole industry, including weak pricing, high fuel prices and the growth of discount airlines, the newspaper article suggested Northwest has another problem: it has failed to negotiate some of the labor concessions that its competitors have achieved. So it has the bad fortune of having the highest labor costs in the industry.

Shares of Northwest plunged 75 cents, or 12%, to $5.58.

Delta Air Lines Inc. sank in the down draft, one trader, said. Its 8% convertibles due 2024 traded down a point to 38, and its 2.875% notes due 2024 traded down a point to 36. Delta shares were down 19 cents, or 5%, at $3.96.

American Airlines parent AMR Corp.'s 4.5% convertible due 2024 was indicated at 83.70 bid, 84.70 offered and its 4.25% convertibles due 2023 at 91.3 bid, 92.3 offered.

Ronda Fears contributed to this article

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.