Apex Silver hovers around par; Amkor firms as bids hit; NPS Pharma, biotechs suffer

By Ronda Fears

Nashville, Oct. 12 - Apex Silver Ltd. slipped an overnighter into the market after a light Columbus Day session, and it was upsized but didn't trade far above par Tuesday. Meanwhile, after the close another small $100 million deal was launched by Cell Genesys Inc. for Thursday's business.

Apex Silver sold the $100 million issue, upped from $75 million, to yield 4.0% with a 36% initial conversion premium. Three years of collateralized coupons was a draw for buyers, but as some hedge funds found the stock borrow tough, market sources said players consisted mostly of buy-and-hold outright funds.

Bookrunner Citigroup closed the new deal at 100.125 bid, 100.375 offered while the underlying stock dropped $1.55, or 7.36%, to $19.50. The Apex Silver 2.875% convertibles, issued in March, were pegged at 92.5 bid, 93 offered.

Sirius Satellite Radio Inc.'s new convertible also continued to climb on ongoing market buzz that Viacom Inc. might make a takeover play for the broadcast company in the wake of Sirius wooing shock jock Howard Stern from Viacom last week. The 3.25% issue was pegged at 105 with the stock up 6.5% to $3.75.

The only other sizable gain was at Level 3 Communications Inc. on a contract win from Northrop Grumman Corp., as the market was pressured by languishing stocks amid high oil prices and high anxiety on pending Yahoo! Inc. and Intel Corp. earnings. Level 3's 6% due 2009 added 1 to 1.5 points, and the higher-delta 2.875% issue gained 3.5 points as the stock rose 10.74% to $3.30.

That said, Amkor Technology Inc., Chiron Corp. and MedImmune Inc. were weathering bad news and held firm or gained slightly Tuesday, while others like CommScope Inc., NPS Pharmaceuticals Inc. and Allied Waste Industries Ltd. sank in the face of negative headlines.

Calpine Corp. and Goodyear Tire & Rubber Co. also were lower along with Ford Motor Co.

Cell Genesys launches deal

Shortly after the closing bell, Cell Genesys Inc. launched $100 million of seven-year convertible notes talked to yield 2.625% to 3.125% with a 30% to 35% initial conversion premium for Thursday's business.

The South San Francisco-based cancer drug company said it would use proceeds to repay two bank loans totaling $95 million in order to eliminate restrictions on $60 million of its current cash balance. The company expects to end third quarter with about $152.6 million in cash and equivalents and short-term investments, including about 6.6 million shares in former subsidiary Abgenix Inc.

Cell Genesys also said Tuesday it expects to report revenues of about $3.2 million and a net loss of around $24 million, or 54 cents per share, for third quarter. The company is slated to report third quarter results after the market close on Oct. 25, with a conference call the following day.

Cell Genesys shares ended off a penny, or 0.12%, to $8.51, but on news of the convertible deal, the stock was down another 92 cents, or 10.69%, in after-hours trading.

Chiron convertibles "interesting"

The "evolving Chiron saga," as one sellside market source put it, continued to unfold Tuesday as the company received a grand jury subpoena from the U.S. Attorney's Office in New York regarding the decision by U.K. authorities to halt manufacturing of its flu vaccine Fluvirin, specifically seeking when the company knew of the problem.

Chiron, which has been slammed since news broke a week ago, said it will cooperate with the investigation, and there are still believers in the story. The sellside source said Chiron's credit is still "pretty decent, I think."

Relatively low leverage of about 30%, lots of cash - some $1 billion - and acceptable coverage ratios (estimated 2004 interest coverage about 15 times and fixed charge coverage of about 2.3 times) makes Chiron "interesting...even assuming loss of flu vaccine business," which accounts for some 20% of the company's revenues, he said.

Chiron's 1.625% convertibles and the 2.75% convertibles are both trading around 3s up 90%, he added. The 1.625s ended Tuesday steady at 94.625 bid and the 2.75s at 97.125 bid, a sellside trader said, while the stock plunged another 51 cents, or 1.49%, to $33.74.

The suspension of manufacturing at Chiron's Liverpool plant means it will miss out on the upcoming flu season and the revenues connected to the 48 million flu vaccine doses targeted for the United States.

MedImmune faith increases

MedImmune, also, was finding some buyers who now think the company could capitalize on Chiron's situation. Initially last week, it was thought that the company would find no opportunity for increased business because it already had committed to specific FluMist production numbers that couldn't easily be altered.

Tuesday, however, an optimistic light was shed on the MedImmune story by a Morgan Stanley equity analyst suggesting that MedImmune may see significant upside growth in 2005 sales for FluMist if Chiron is unable to remedy its troubles in time for next year's flu season. In addition, it could see another boost if the U.S. government commits to a minimum purchase order to prevent a shortage next year.

U.S. government agencies already have expressed goals of increasing the number of flu vaccine manufacturers in coming years.

MedImmune's 1% convertible gained 1.25 points Tuesday to 95 bid, 95.5 offered with the stock up 51 cents, or 1.95%, to $26.73.

NPS Pharma pounded on trial

After Monday's close, NPS Pharma said that an experimental migraine headaches drug failed to meet its goal in a trial study, so on Tuesday the NPS 3% convertible was pounded alongside the stock.

NPS Pharma said the primary goal of isovaleramide was to significantly reduce headache pain at two hours after administration, but now will be explored for other uses. Salt Lake City based NPS Pharma has at least three other drug candidates in various stages - cinacalcet HCl for the treatment of hyperparathyroidism, Preos, for the treatment of osteoporosis and teduglutide.

The 3% convert dropped about 3 to 4 points to 90 bid on the news but the small $100 million issue saw little traffic, traders said. NPS Pharma shares fell $1.66, or 8%, to 18.93 on heavy volume, however.

Amkor bids on 5.75s find hits

Before the market opened, Amkor revealed that federal regulators were conducting an informal inquiry into trading in its securities, which the company said may be related to insider trading activity. That caused considerable pressure for Amkor early in the session, as the chip sector was generally weaker ahead of Intel's news.

But later in the afternoon, a sellside trader said the Amkor 5.75% convertibles were "doing better, definitely better." The issue had been down by 1 to 1.5 points early in the day, to around 90.25 bid, then rebounded as bids were hit. The convert recouped the entire downdraft to close steady to maybe a quarter-point higher at 91.25 bid.

West Chester, Pa.-based Amkor makes chips and silicon sensor devices used in digital cameras and cellular telephones, among other electronics, which is why it was sensitive to the pending Intel news.

Amkor is due to report third quarter earnings in a couple of weeks, after the market closes Oct. 26.

Several telecom equipment names were weaker Tuesday in addition to Amkor in the wake of Agere Systems Inc.'s guidance for the December quarter and softness inferred by remarks from Nortel Networks Corp.

Lucent Technologies Inc., for example, saw a 1- to 2-point drop in its convertibles as the underlying stock slipped 6 cents, or 1.74%, to $3.38. Lucent is due to report third quarter earnings next Wednesday before the market open.

CommScope "whacked"

Elsewhere in the tech sector, CommScope - which makes coaxial and fiber-optic cable for television, telephony, internet access, wireless communications and other broadband services - was "whacked" Tuesday after the company warned about third quarter results after the market closed Monday.

The 1% convertible due 2024, which was just issued in March, plummeted to 105.5625 bid, 106.0625 offered, down 11.5 points from 118.0625 bid, 118.5625 offered on Monday. The stock Tuesday fell $3.80, or 17.27%, to $18.20.

CommScope narrowed its third-quarter revenue forecast to $307 million to $311 million from a previous estimate of between $300 million and $320 million, which put it below First Call analysts' consensus projection for $315.3 million. The company also said it expects fourth-quarter sales to be sequentially lower by about 5% to 10%.

Goodyear tracking Ford lower

Goodyear's convertibles followed Ford lower, traders said Tuesday, although there was no immediate reasoning. Yet, a buyside trader strived to explain, saying "a lot of pedestrian holders of one [of these names] like the other, so whichever way one goes, the other will follow."

Goodyear's 4% convertible bond dropped about 2 points to the 110 area, he said, and Ford's 6.5% convertible preferred fell similarly, losing a half-point to 51 bid.

The buyside trader also pointed to a research report by GimmeCredit that put a negative light on Goodyear that may have sparked some selling.

"We have referred to Goodyear's problems as "speed bumps" but they should probably be described as potholes: huge pension liabilities, rising raw materials prices and a high cost structure," the GimmeCredit report said. "Because of Goodyear's problems, we don't see much upside from here, and we still believe only the longer term bonds (yielding 8.6%) offer adequate compensation for the credit risk."

Late Tuesday, too, Moody's affirmed Ford's ratings, but with a negative outlook. The rating agency said Ford has been relatively successful in implementing its revitalization plan since 2001 and competitive position, earnings and cash generation, while still weak, have improved in line with expectations.

Also late Tuesday, however, Moody's put General Motors Corp. ratings on review for possible downgrade, citing weak credits metrics for the Baa1 long-term rating. Still, GM stock and its three convertibles were steady to slightly higher in trade Tuesday.

GM convertibles, though, were flat to slightly higher.

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