Alkermes $100 million overnighter talked to yield 2.0-2.5%, up 10-15%

Nashville, Aug. 18 - Alkermes Inc. launched an overnight issue, pitching $100 million of 20-year convertible notes talked to yield 2.0% to 2.5% with a 10% to 15% initial conversion premium over the closing stock bid of $12.59.

Alkermes shares closed up 50c, or 4.12%, to $12.64.

USBancorp Piper Jaffray is bookrunner of the Rule 144A deal.

The subordinated notes will be non-callable for three years with a 150% threshold. There is a make-whole provision for the coupon, less interest already paid.

There also are puts in years five, 10 and 15, in cash only.

Holders will have full dividend protection.

Merrill Lynch & Co. analysts put the issue 0.4% cheap, at the midpoint of guidance, using a credit spread of 1,000 basis points over the five-year Treasury and a 45% stock volatility.

"Given that we see new issues now coming to market at 2-3% cheap, we expect that this bond will have to be done on the cheap side or sweetened, and/or reoffered below par," said Tatyana Hube, convertible analyst at Merrill.

Deutsche Bank Securities analysts put the new Alkermes convert 5.74% cheap, using a credit spread of 1,100 bps over Libor and a 60% stock volatility.

Alkermes continues to burn a significant amount of cash - $31 million in the last quarter and $94 million over the past 12 months, Deutsche analysts noted.

In its last 10-Q filing with the Securities and Exchange Commission, the Deutsche analysts added, Alkermes stated that it expects to continue to burn cash over the next few years. And, they said, the latest filing does not account for the forced conversion of the Alkermes 6.52% senior convertibles, which occurred on July 18.

Last fall, Alkermes exchanged its old 3.75% convertibles due 2007 for the new 6.52% convertibles due 2009.

Alkermes said it plans to use proceeds from the new issue for research, development and clinical trial activities, manufacturing facilities and equipment, potential acquisitions - although none are currently contemplated - working capital and general corporate purposes.

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