Amylin, Cell Genesys fall on product bombshells; Bristol-Myers stands pat; Fannie Mae extends gains

By Rebecca Melvin

New York, Aug. 27 - A pair of biotech names splintered during Wednesday's trading session after the companies announced patient deaths possibly related to products that they make.

Amylin Pharmaceuticals Inc. convertibles were sharply lower outright, but dropped in line on a hedged basis, sources said, a day after Amylin and its marketing partner Eli Lilly Co. said four more patients died while taking the diabetes drug Byetta.

The news followed on the heels of last week's revelation that two users of Byetta had died from complications of pancreatitis, a severe inflammation of the pancreas.

Cell Genesys Inc. convertibles sank 20 to 25 points as its underlying shares plunged 72% after the company announced it terminated the second of two phase 3 clinical trials of GVAX immunotherapy for prostate cancer because a greater-than-expected number of deaths had occurred among patients taking the therapy.

Meanwhile, Bristol-Myers Squibb Co.'s floating-rate convertibles were basically unchanged after the drug maker together with marketing partner Pfizer Inc. released disappointing early results from a phase 3 study for their new anti-blood clotting drug apixaban.

The Bristol-Myers convertibles are putable in two weeks, and the news wasn't seen affecting Bristol-Myers' credit, convertibles players said.

Among financial names, beaten down Fannie Mae notched its fifth consecutive gain after last week's turmoil, pulling the convertible preferreds' premium over parity at 4.75 points, up from about 4 points on Tuesday and 3 points on Monday.

Fannie Mae is one of several names over which uncertainty is weighing on the convertibles market.

"I think there are three significant data points overhanging the convertibles market right now - and they are Countrywide, Lehman and Fannie Mae - and once you get some kind of resolution on those - which we should have by Oct. 15 - then there's the potential that the whole convert market will be so much better," said Mark Henriquez, director of convertibles trading at Kellogg Partners Institutional Services in New York.

"So it's 45 days that you have risk, and if things work out positively, [i.e. Countrywide holders get paid, there's an answer on Lehman, and there's a much better idea on Fannie] credit spreads will tighten, and the market will get better, pricing will get better," Henriquez said.

But not everyone agreed completely: "While I agree that a favorable outcome on those issues would boost the convert market; I'm not sure I agree that things will be 'so much better' by Oct. 15," a New York-based sellside analyst said, listing other issuers raising concerns among convertibles players such as Bank of America, Ford, General Motors and Citigroup, as well as Washington Mutual and Wachovia.

Henriquez had also mentioned Washington Mutual and Wachovia as troublesome for convertible players.

Amylin comes in with stock

Amylin's 3% convertible senior notes due 2014 traded down to 73 bid, 74 offered by the close, versus a share price of $20.48, compared to about 81 versus a share price of $27.34 on Tuesday.

Shares of the San Diego, Calif.-based biopharmaceutical company (Nasdaq: AMLN) fell $6.76, or 25%.

In the past few days analysts have come out saying that negative reaction to the Byetta news last week may have been overdone, but on Wednesday analysts were more cautious given the serious nature of more patient deaths.

Analysts at Soleil Securities Group downgraded shares of Amylin to "sell" from "hold."

Robert W. Baird analyst Thomas Russo wrote, "We are reducing our rating to neutral, as we are incrementally more cautious on the commercial performance of Byetta following the latest update. We cannot conclude whether pancreatitis is any more an issue with Byetta than other diabetes drugs. However, we think meaningful gains in the stock will require proof Amylin/Lilly can jump start its growth in the second half 2008 against these latest headwinds and no negative new news from the ongoing healthcare database analysis."

Convertibles players said a heavy hedge blunted the pain associated with Wednesday's stock move.

"It's almost six-year paper, and I imagine they came in a couple of points on a 30% to 40% hedge," a West Coast-based sellside trader said. But a second sellsider said that he thought a typical hedge coming into the day would have been heavier, at 60% to 65%.

The 3% convertibles first traded at 77.325 and progressively collapsed to 74, 73, sources said. But the initial selloff action on the convertibles tapered off as the session went on, players said.

None of the Amylin 2.5% convertibles were seen in trade.

The companies' executives disclosed that four more suspected deaths have been reported among Byetta users; although none of the deaths were directly attributable to pancreatitis, all of the patients had experienced the condition at some point in their lives, they said.

On Aug. 18, the Food and Drug Administration advised doctors to discontinue use of Byetta in patients who exhibit symptoms of the condition.

Byetta's label was updated in October 2007 to advise that cases of acute pancreatitis had been reported in some users of Byetta, which is used to treat type 2 diabetes.

Amylin and Lilly executives on Tuesday pegged the incidence rate of pancreatitis among Byetta users at about one in 3,000, adding that those with diabetes run a significantly higher risk in general of developing pancreatitis.

Byetta, also known as exenatide, belongs to a new class of diabetes drugs known as GLP-1 analogues.

Cell Genesys skids to mid-40s

Cell Genesys 3.125% convertible senior notes due 2011 were seen at 40 bid, 45 offered at the close versus a share price of $0.79, compared to an indicated level of 66 versus a share price of $2.80 on Tuesday.

Shares of the South San Francisco, Calif.-based biotechnology company (Nasdaq: CEGE) fell $2.01, or 72%.

"There was Cell Genesys offered in the morning, but there are questions whether this company is going to make it," a sellsider trader said.

To date, the VITAL-2 phase 3 trial enrolled 408 patients, the company said, basing its recommendation to cancel the test on 114 deaths, of which 67 occurred in the GVAX plus Taxotere combination treatment arm of the trial and 47 deaths occurred in the Taxotere control arm.

"At this time, a specific cause for the imbalance in deaths has not been identified and the IDMC reported no new safety issues for GVAX when administered in combination with Taxotere," the company said in a release.

The distressed biotech group said it will now ask researchers to analyze data gathered from the study to determine "the overall prospects for ongoing development for this product" and will adjust its business plan in response to the clinical trial termination.

Bristol-Myers unmoved by news

Bristol-Myers' floating-rate convertibles due 2023 were right around 99.90 versus a share price of $21.52, which was unchanged from the last time the issue traded earlier this month.

Bristol-Myers stock (NYSE: BMY) finished down 2%, or $0.46.

The Bristol-Myers floaters are putable on Sept. 15, and people are not concerned about the credit of the company, convertibles players said.

New York-based Bristol-Myers and its New York-based partner Pfizer Inc. said its blood thinner drug apixaban failed a late-stage study.

The companies had been planning to apply late next year for FDA approval to sell the drug to prevent life-threatening blood clots, called venous thromboembolisms, in patients having knee replacement surgery.

But in the study, apixaban was about as effective as an older drug, called enoxaparin, which is the name for France-based Sanofi-Aventis' Lovenox. Other development programs with apixaban are ongoing, but the companies said they will have to consider different parameters in any future study on knee surgery patients.

Fannie Mae moves up again

Fannie Mae's newer 8.75% mandatory preferreds traded at 16.20 versus a share price of $6.30 during the session. This compared with 14 bid, 15 offered on Tuesday.

Shares of Fannie Mae (NYSE: FNM) closed up 86 cents, or 15%, at $6.48.

The preferreds were 4.75 points over parity on Wednesday, compared to 4 points over parity on Tuesday and 3 points over parity in trade on Monday.

Current yield is 17% on the straight preferreds, which is an open-ended horizon and subordinated structure compared to a bond.

"Everything is against it, and it is also distressed, and people are accepting less return. But it has been much better in the last two days," a sellside trader said.

The credit is tighter by about 100 basis points.

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