Affymetrix down on quarterly loss; Amgen steady pre-earnings; Countrywide bondholders eye angles

By Rebecca Melvin

New York, July 25 - Affymetrix Inc. convertibles were down in active trade Friday after the biotechnology company swung to a loss for its second quarter, missing estimates, and predicted ongoing weakness in its pharmaceutical revenue.

Amgen Inc. convertibles were also actively traded, but little changed Friday, ahead of the biotech giant's second-quarter earnings report expected Monday.

Countrywide Financial Corp. bonds were in play at levels that were mostly flat as investors continued to weigh potential outcomes related to the mortgage lender being taken over by Bank of America Corp.

Some players believe the outcome will be no different than if Bank of America had never entered the picture and that the bonds will be put back to the company in October and May, as per the original offering covenants.

Others believe that Bank of America is trying to get bondholders to agree to extend the puts in exchange for a higher coupon and Bank of America officially assuming the debt, and possibly getting a lower conversion ratio.

Auto names also remained in play on Friday, with Ford Motor Co. edging higher for much of the session, after the previous session's lower prices. But they ended the day lower yet again.

Ford's 4.25% convertible bonds traded early Friday at 75 versus a share price of $5.25 but closed near the 73.5 bid, 74 offered mark.

Although it has been an "interesting" week with lots of volatility, and Friday's session was definitely better compared with Thursday's unpleasantness, overall volumes were light and activity tapered off midsession, as is typical for a summer Friday, sources said.

Affymetrix sticks around 74

Affymetrix saw its 3.5% convertible senior notes due Jan. 15, 2038 close at 74.5 versus a closing stock price of $7.61, a third of what the stock fetched late last year when the bonds were first offered.

Affymetrix's 0.75% convertibles due 2033, which are putable in November, were at 98.125.

Stock in the Santa Clara, Calif.-based genetic testing equipment manufacturer slid $2.78, or 27% on the day.

The 3.5% convertibles due 2038, which are putable in 4.5 years, represent the more interesting trade for convertible players, a Connecticut-based sellside analyst said. They are yielding 11% to maturity.

Earlier this month, the 3.5% convertibles traded at 80, but now "people were trying to get out, but it's still a decent credit," he said.

"The premium is high now. If you had a hedge, you made money, but if you wanted to buy them today, there's a 188% premium," the analyst said.

Affymetrix reported a second-quarter loss of 5 cents a share compared to a profit of 2 cents a share in the 2007 quarter. Revenue fell to $86.9 million from $88.3 million.

The Santa Clara, Calif.-based biotech group said that because it sees continued weakness in pharmaceutical industry sales, it now sees 2008 revenue of $455 million to $460 million, which includes a one-time payment of $90 million, down from prior guidance of between $490 million and $510 million.

Affymetrix also said it plans to consolidate manufacturing at three of its facilities.

In addition, total gross margin is expected to be about 65%, of which nine points is expected to be attributable to the one-time $90 million payment.

The company expects total operating expenses between $262 million to $267 million, including total restructuring charges of about $32 million and acquisition-related charges of $21 million.

"The credit is not bad: there's a difference between missing numbers and not having cash flow. They have more cash than debt and positive EDITDA," the analyst said.

Amgen little changed

Amgen's 0.125% convertibles due February 2011 traded at 92.875 versus a share price of $53.92. That compared to 92.9 versus a share price of $53.84 on Thursday.

Amgen 0.375% convertible due February 2013 traded at 90, little changed from Thursday; and the Amgen 0% convertibles due 2032 were also little changed at 62.72.

Shares of the Thousand Oaks, Calif.-based biotech (Nasdaq: AMGN) closed up 0.15%.

Amgen convertibles are usually actively traded, but on Friday, the convertibles were among the top three volume names.

The lack of price movement probably indicates that although the company is expected to report earnings per share of $1.02 on total revenue of $3.58 billion, there are mixed views on what will happen for the remainder of the year in terms of drug sales.

Epogen is expected to produce revenue of around $575 million to $600 million; Aranesp sales are expected to produce $725 million to $750 million; Neupogen/Neulasta should report combined sales of around $1.1 billion; and Enbrel sales are expected to reach around $800 million to $850 million.

Of interest will be any talk on Epogen and how the company is facing the overall headwinds as well as the potential market share for Denosumab, which is used for bone density.

The company is in the midst of late-stage studies for Denosumab, with additional data expected in the rest of the year. Meanwhile, the Food and Drug Administration still has to make a decision on the company's blood-clotting disorder drug Nplate. The agency was supposed to make that decision by July 23.

Countrywide bondholders look at angles

Countrywide has two floating-rate convertible debentures outstanding. The series A convertible due April 2037, which pays a coupon of Libor minus 350 basis points, was seen at 97 on Monday, while the series B convertible due May 2037, which pays a coupon of Libor minus 225 bps, traded at 94.

The series A convertible may be put on Oct. 15, 2008, while the B series may be put on May 15, 2009. Holders of both notes will likely put the convertible back to the company.

Some bondholders are attempting to be able to put the bonds on a technical covenant breach or on the change-of-control angle, a New York-based desk analyst said.

The only change is that there had been concerns that Countrywide wouldn't be able to fulfill its obligations regarding the B tranche in May. "But that's not the story now," the desk analyst said.

Ford, GM end lower again

Ford Motor shares slipped into negative territory near the end of the session after attempting to stage a bit of a rebound earlier on.

Ford's 4.25% convertible senior notes due Dec. 15, 2036 closed Friday at 74.5 versus a closing stock price of $5.05. They closed Thursday at 73.5 bid, 74 offered versus a share price of $5.11.

Ford stock (NYSE: F) was down 6 cents, or 1.17%, on the day.

Among news in the auto sector, Chrysler LLC said its financial arm will get out of the auto leasing business by the end of the month because economic conditions have made leasing more expensive than buying, for both consumers and the company.

The GM 6.25% convertibles due 2033 (NYSE: GPM) closed down 33 cents, or 2.6%, at $12.24 versus a closing stock price of $11.90. That compared with $12.57 versus a stock price of $13.00 at the close Tuesday.

The GM 5.25% convertibles due 2032 (NYSE: GBM) dropped 34 cents, or 2.6%, to $12.85 versus a closing stock price of $11.90.

Shares of the Detroit-based carmaker (NYSE: GM) sank $1.10, or 8.5%.

GM said Friday it is extending its employee discount program to a wider group of non-employees in an effort to boost sales in a weak automotive sales environment. GM will allow employees to offer the discount to any one person through July 31. Employee discounts are normally limited to employees and their immediate family.

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