Gilead falls after positive earnings; Medtronic drags down St. Jude; AMD weighs down Intel; Yahoo! gives back

By Evan Weinberger

New York, Oct. 19 - Gilead Sciences Inc. led the way into lower territory Friday, but those convertibles weren't alone in their descent on the day. St. Jude Medical Inc. and Medtronic Inc. both tumbled as investors and analysts looked askance at the defibrillator and medical device industry in general.

Moving to the power sector, SunPower Corp. and Nabors Industries Inc. were both down. SunPower was down on slightly lower earnings, while oil services firm Nabors was down as oil prices continued to rise.

Normally buoyant tech sector convertibles were down almost across the board. Advanced Micro Devices Inc. announced its third-quarter earnings were down, which dragged down Intel Corp. At the same time, internet services provider Yahoo! Inc. gave back some of its gains from earlier in the week.

Astute observers might notice a trend in convertibles prices Friday. Traders and analysts reported that there wasn't much activity as investors hunkered down while the stock markets tried to pull the ripcord.

Early in the day, an analyst reported similar stalled activity. "Nothing kind of jumps off, no extraordinary situations today," he said.

At the end of the day, as the stock losses settled in, a trader had a similar assessment. "I didn't see a lot of trading. I saw some asks, but not much from the other side," he said. "I think people are holding tight because they see a lot of volatility coming."

The volatility the trader was talking about came from the losses incurred on the equity markets Friday. While the trader pointed out that compared to the losses 20 years ago to the day, Friday's fall wasn't much. He did warn that people shouldn't get too comfortable yet.

Mixed earnings, rising oil prices, fears of further credit woes and increased wariness of a recession combined to drop the Dow Jones Industrial Average 366.94 points, or 2.64%, to 13,522.02.

The Nasdaq did a little worse. The tech-heavy market dropped 74.15 points, or 2.65%, to 2,725.16. The Standard & Poor's 500 didn't have a banner day either, closing at 1,500.63. That's a loss of 39.45, or 2.56%.

Two new issues came in Friday.

Pharming NV priced €70 million in 6.875% senior unsecured convertible bonds due Oct. 31, 2012 Friday with an initial conversion premium of 22.6%. The convertibles were talked at a coupon of 6.5% to 7% and an initial conversion premium of 20% to 30%.

The conversion price is €4.40. There is a put on Oct. 31, 2010, and the convertibles are callable beginning Nov. 14, 2010.

Pharming is a Leiden, Netherlands-based pharmaceutical manufacturer. Proceeds will be used to terminate Pharming's existing licensing agreement with Paul Capital Healthcare, formerly Paul Royalty Fund II, LP.

ZAO IFD Kapital Group priced $1.25 billion in DECS due Nov. 17, 2010 Thursday. The DECS have a coupon of 6.75% and are exchangeable into 20.155 million American Depositary Receipts of OAO Lukoil. The DECS have an upper strike of 48% and a lower strike of 70%. The coupon had been talked at 6% to 6.75% and the upper strike at 48% to 52%.

The DECS are being offered through Cayman Exchangeable Funding Ltd., a newly organized company incorporated in the Cayman Islands. There is a $125 million greenshoe, as well as a subsidiary of a Russian bank based in Cyprus serving as the counterparty.

The DECS are backed by zero-coupon U.S. Treasuries and an agreement with counterparties to the new issue. The settlement date is Oct. 24.

ZAO IFD Kapital is a Moscow-based investment group owned by Lukoil executives Vagit Alekperov and Leonid Fedun. Lukoil plans to use the proceeds to partially fund Lukoil's purchase of Russian utility firm OAO TGK-8.

Gilead down, earnings up

Late Thursday, Foster City, Calif.-based pharmaceutical firm Gilead announced earnings of 42 cents per share for the third quarter. Gilead's 41% earnings rise, which beat analysts' estimates by 3 cents per share, was driven by improved sales in the company's HIV/AIDS treatments.

And yet, the company's stock and convertibles couldn't escape the downward pull of the rest of the market. Gilead's 0.625% convertible senior notes due May 1, 2013 closed Friday at 122.972 versus a closing stock price of $42. They closed Thursday at 126 versus a stock price of $43.51.

Gilead stock (Nasdaq: GILD) lost $1.51, or 3.47%, on Friday.

Medtronic drags down St. Jude

The problems generated by Minneapolis-based Medtronic's recall of heart defibrillators Monday appear to be having a drag on the rest of the medical device sector. And that's hurting its Twin City neighbor St. Jude Medical. Boston Scientific Corp., which produces heart stents among other products, announced a third-quarter loss Thursday, although one smaller than had been expected.

St. Paul, Minn.-based St. Jude fell again Friday despite a positive earnings report Thursday. St. Jude's 1.22% convertible senior debentures due Dec. 15, 2008 closed Friday at 99.7065 versus a closing stock price of $40.78. They closed Thursday at 101.285 versus a stock price of $43.12.

St. Jude stock (NYSE: STJ) was off $2.34, or 5.43% on the day.

Medtronic's 1.5% convertible senior notes due April 15, 2011 closed Friday at 102.3 versus a closing stock price of $47.48. They closed Thursday at 103.023 versus a stock price of $48.94.

Medtronic's 1.625% convertible senior notes due April 15, 2013 closed Friday at 101.803 versus a stock price of $47.48. They finished trading Thursday at 103.235 versus a stock price of $48.94.

Medtronic stock (NYSE: MDT) gave up $1.46, or 2.98%, on the day.

SunPower has cloudy day

San Jose, Calif.-base SunPower, a solar energy services provider, announced Thursday that its third-quarter earnings were down 12% over 2006 due to increased operating costs.

And the company's stock and convertibles have been hurt ever since. SunPower's 1.25% convertible senior notes due Feb. 15, 2027 closed Friday at 175.613 versus a closing stock price of $95.56. They closed Thursday at 177.005 versus a stock price of $97.01.

SunPower stock (Nasdaq: SPWR) stumbled down $1.45, or 1.49%, on Friday.

Oil prices up, Nabors down

Hamilton, Bermuda-based oil and gas services firm Nabors Industries doesn't announce its earnings until Oct. 24. But the company has warned investors that it expects its earnings to come in below market estimates despite record high oil prices.

And so, the company's stock and convertibles joined the parade down. Nabors' 0.94% exchangeable senior notes due May 15, 2011 closed Friday at 94.3938 versus a closing stock price of $28.75. They finished trading Thursday at 95.0961 versus a stock price of $29.81.

Nabors stock (NYSE: NBR) fell $1.06, or 3.56%, on Friday.

AMD earnings weigh down semiconductors

After the market close Thursday, Sunnyvale, Calif.-based semiconductor producer Advanced Micro Devices announced a third-quarter loss of 71 cents per share. The company did post a revenue increase and upped sales for the quarter, but that didn't make much difference to investors.

AMD's 6% convertible senior notes due May 1, 2015 closed Friday at 91.2188 versus a stock price of $13.80. They closed Thursday at 92.5977 versus a stock price of $14.55.

AMD stock (NYSE: AMD) fell 75 cents, or 5.15%, on the day.

AMD's earning statement raised concerns about the entire semiconductor sector, and Santa Clara, Calif.-based Intel, which posted strong third-quarter gains earlier in the week, felt the pinch.

Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed Friday at 104.843 versus a closing stock price of $26.30. They closed Thursday at 105.577 versus a stock price of $26.97.

Intel stock (Nasdaq: INTC) dropped 67 cents, or 2.48%, on the day.

Yahoo! gives back gains

Earlier in the week, Sunnyvale, Calif.-based Yahoo! posted a third-quarter loss that wasn't quite as bad as Wall Street expected. The company's stock and convertibles soared as a result.

Friday, as the rest of the market capitulated to worries, Yahoo! gave back some of those gains.

Yahoo!'s zero-coupon convertible senior notes due April 1, 2008 closed Friday at 142.6 versus a closing stock price of $29.03. They finished trading at 144.075 versus a stock price of $29.35 on Thursday.

Yahoo! stock (Nasdaq: YHOO) gave back 32 cents, or 1.09%, on Friday.

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