CV Therapeutics drops on downgrade; Freeport-McMoran leads new deals; Nortel, SL Green, Vornado slip

By Kenneth Lim

Boston, March 26 - CV Therapeutics Inc.'s convertibles tumbled on Monday with its stock after a broker downgraded the stock and warned that the company may face a cash crunch if a key drug fails to reach trial targets.

The rest of the convertible market was more subdued, with volume thinning on recent new issues from Freeport-McMoran Copper and Gold Inc. and Nortel Networks Corp.

SL Green Realty Corp. and Vornado Realty Trust also continued to flounder amid selling pressure.

The week began with investors taking stock of the wave of new deals that hit the market in the past few days just as the quarter draws to a close.

"Things are really quiet today," a sellsider said. "We saw some trading in the FCXs from last week, and a handful of the other usual names, but there's nothing significant moving today. It's a pretty different scene from last week."

A buyside convertible trader said investors were busy preparing for the end of the month.

"We're just marking down our books, like everybody else," the buysider said.

CV drops on downgrade

CV Therapeutics' 3.25% convertible due 2013 fell about 5 points outright to trade at 73 against a stock price of $6.625 on Monday as the stock lost more than a fifth of its value following a downgrade by Deutsche Bank.

"The stock took a pretty big hit today," a sellsider said. "The bonds were down, but I didn't see that many trading. They don't look very attractive at all at the moment. If there's no buy interest, it probably won't see a lot of trading."

CV Therapeutics stock (Nasdaq: CVTX) closed at $6.75 after losing 21.24% or $1.82.

Deutsche Bank equity analysts Jennifer Chao and Weeteck Yeo said CV Therapeutics is likely to present data on Tuesday showing that its angina drug Ranexa failed to meet important efficacy targets during trials.

"We now believe Ranexa ACC data will fall short of generating sufficient positive data trends for supporting Ranexa's outlook even as an approved niche chronic angina agent...Ranexa's comparable safety profile v. standard of care is not enough to make Ranexa's profile compelling on a reward/risk analysis in our view," the analysts wrote in a report.

Deutsche cut its recommendation on the stock to sell with a price target of $2 per share.

Palo Alto, Calif.-based CV Therapeutics needs to raise more cash if it wants to continue developing Ranexa, but doing so would be difficult if Ranexa's trial data is not satisfactory, the analysts added. The drug maker also has about $399.5 million of senior subordinated convertible debt, of which $100 million under the 2% convertible due 2023 may be put in May 2010, and the company could face "increasing pressure" to remain solvent, the analysts wrote.

"With a current cash balance of ~$270M (assuming 1Q07 DB projected cash burn), we anticipate an impending significant corporate restructuring will be required to dramatically reduce commercial expenses, as well as potentially negotiating with the holders of the 2% debt," the analysts wrote. "Even with corporate restructuring, it may be challenging for CVTX to achieve earnings profitability and to continue to satisfy its debt obligations."

A convertible trader said CV Therapeutics has always been a problematic biotech, and agreed that if the Ranexa data does not work out the company may need to raise more money.

"Which means they're going to come back to the market," the trader said.

But the trader said the possibility of CV Therapeutics trying to negotiate with current holders of its convertibles anytime soon is unlikely.

"People look at these biotechs, they don't realize that a few years can mean forever," the trader said. "The put is not until 2010 on the 2s. There's a long window there...I don't see why they would [negotiate] right now. It doesn't make sense. It's three years away."

A convertible analyst also noted that any liquidity crunch and capital raising is dependent on how the Ranexa data turns out, and preferred to wait a day to see the data rather than speculate on it.

"This is just speculation by the analysts about the consequences of a very slow, incremental data," the convertible analyst said. "They're not saying they spoke with management or with debt holders saying they're going to negotiate, they're saying that if what they say comes true tomorrow then maybe they'll have to raise money and maybe deal with the debt holders."

The convertible analyst said there is not consensus on how where the data will land.

"The FDA has to make a decision on whether they're going to get first-line for the indication that they already have, which is for chronic angina, which according to some other analysts it seems like they're going to get. I just don't know. I'd rather wait a day before I go out and print something. But in the meantime everything's getting whacked because if Deutsche Bank is right the credit's worse and the future sales numbers are worse than what people are expecting."

Freeport, Nortel cool down

The major new deals from the previous week saw more sell interest on Monday as investors took a breather from the recent flood of new paper.

Freeport-McMoran's new 6.75% mandatory convertible preferred due 2010 improved about 1.5 points outright in line with gains in its stock. The new convertible traded at 104 against a stock price of $64. Shares of Freeport-McMoran (NYSE: FCX) gained 3.85% or $2.40 to close at $64.70. Freeport-McMoran is a New Orleans, La.-based copper, gold and silver mining company.

Nortel's 1.75% convertible senior unsecured notes due 2012 slipped ½ point to 100.375 versus a stock price of $24, while its 2.125% convertible due 2014 also retreated about a point to 100.5 against the same stock price. Nortel stock (NYSE: NT) closed at $24.15, up by 0.33% or 8 cents.

Nortel is a Toronto-based supplier of networking solutions.

"Nothing's trading up," a buysider said of the recent new issues. "Not one of them is trading up. It's all better sellers today."

The buysider said the primary market calendar was calm after more than $8 billion of new convertibles came to the market the previous week. But there was talk that more could be in the pipeline.

"There's not a whole lot at the moment, but the rumor is that things might be coming in again," the buysider said. "But I can't confirm or deny the rumors."

Recently priced convertibles from real estate investment trusts continued to struggle. The SL Green 3% exchangeable due 2027 changed hands at 98.875 against a stock price of $137, about a quarter-point lower outright. SL Green stock (NYSE: SLG) closed at $137.24, off by 1% or $1.38. SL Green is a New York-based REIT with a portfolio of Manhattan properties.

Vornado Realty Trust's 2.85% convertible due 2027 fell below its reoffered price of 97.5, trading at 96.5 against a stock price of $120.25. Shares of New York-based Vornado (NYSE: VNO), which focuses on office and retail properties, declined 1.21% or $1.48 on Monday to close at $120.69.

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