Qwest, Chesapeake remain active; Celgene up, Emdeon lower; King sideways

By Rebecca Melvin

Princeton, N.J., Nov. 4 - Active trading of the week's new issues continued in the convertibles market Friday, with Qwest Communications International Inc.'s 3.5% notes edging higher, but Chesapeake Energy Corp.'s new issues lower along with their underlying shares as energy prices fell amid mild northeastern U.S. temperatures.

The Chesapeake bonds and preferreds shares, which posted a smart gain on their debut Thursday, closed at about 100.5, while Qwest closed up 0.625 point to 102.625, according to syndicate sources. Qwest shares gained 2.8% on the New York Stock Exchange.

Biotechnology remained mixed, with the convertibles of Chiron Corp. and Human Genome Sciences Inc. mentioned in trade on Friday. Nektar Therapeutics Inc., which has been cheapening in recent days, was characterized as stabilizing; but Watson Pharmaceuticals Inc. was seen as weaker.

Celgene Corp. traded higher a day after the Summit, N.J.-based biotechnology company reported positive results from a mid-stage trial of an ovarian cancer therapy using thalidomide. The company also posted earnings, which missed earning and sales estimates, but raised 2005 guidance on Thursday.

NPS Pharmaceuticals Inc.'s convertibles were eyed after the drug company reported a narrowed third-quarter loss that edged estimates.

Emdeon Corp., formerly part of WebMD Corp., saw its convertibles trade a point or two lower, but not down as sharply as their underlying shares, which slumped 12.4% after the company posted third-quarter results and guidance that disappointed investors.

Minneapolis-based Medtronic Inc., which has been active in recent days and moving mostly higher, remained firm, with its 1.25% convertible due 2021 trading at 101.125 to 101.25 on Friday, compared to trades near 100 on Tuesday and at 98 on Monday. The maker of medical devices, including heart devices, got a boost this week when rival Guidant Corp. saw its merger with Johnson & Johnson thrown into question.

The Men's Wearhouse Inc. remained firm after jumping Thursday when the men's clothing retailer reported strong same-store sales for October.

Earnings reports expected early in the coming week from King Pharmaceuticals Inc., Alpharma Inc. and Six Flags Inc. promoted mixed activity in those convertibles, with Alpharma lower, but Six Flags higher. King saw its 2.75% convertibles change hands at 97.125, little changed compared to a level earlier in the week at 97, 98.

Overall, convertible trading volume was off this week, sources said, citing redemptions, interest rates and other factors for dousing liquidity.

"It continues to be a tough market, though not as bad as in the spring. More and more evidence suggests that a decent amount of redemptions and closings are taking place. In light of that, the market isn't doing that badly," a Connecticut-based buyside source said.

Waves of selling that don't seem consistent with what's going on in related markets suggests money is getting pulled out of the strategy, he said.

New issues buoy activity

Several convertibles of Chesapeake Energy were trading, with both of the old 5% preferreds trading at 103.25, compared to a stock price of $30.25. The new 5% convertibles were reported having closed Friday at 100.0625 bid, 100.5625 offered, compared to a close of 103.5625 bid, 104.0625 offered on Thursday.

The new 2.75s also traded Friday at 103.25, compared to a stock price of $30.25. But later they were seen closing at 100.25 bid, 100.75 offered, compared to the stock's close at $29.04, lower by $1.47, or 4.82%.

Chesapeake, which is a natural gas play, was joined by other convertible names in the energy sector, including Transocean Inc., Diamond Offshore Drilling Inc., Halliburton Co. and Schlumberger Ltd., which were all lower.

Prices for crude oil and heating oil fell on Friday as mild weather in the northern U.S. reduced demand, allowing wholesalers and retailers to replenish stockpiles that were drawn down after hurricanes hurt U.S. gulf coast output in August and September.

Weather forecasts on Friday were predicting warm temperatures in the northeast into next week.

Celgene gains with drug data, earnings

The convertibles of Celgene were up several points Friday - capping off a climb for the week of about 20 points. On Thursday the company reported positive clinical data for its flagship thalidomide drug and standard chemotherapy treatment. The company said that patients taking this treatment had a 50% response rate, more than double the 20% response rate of chemotherapy alone.

"Our clinical findings have shown that thalidomide may slow down the growth of ovarian cancer, which could mean more options for physicians treating ovarian cancer, though further clinical studies are warranted," Levi Downs, MD, assistant professor of gynecologic oncology and researcher at the University of Minnesota's Medical School and Cancer Center who led the study, said in a release.

A larger percentage of the combination therapy group also posted a complete response and the preliminary results suggest that the Thalomid combo increased median survival to 19 months from 15. The study included 69 women who had received prior treatment for ovarian cancer.

Earlier Thursday Celgene reported that its third-quarter profit sank on a combination of charges, higher spending on its late-stage cancer drug and lower-than-expected sales growth.

Net income dropped to $668,000, or break-even per share, from $19 million, or 11 cents per share, a year ago. Excluding certain investment charges and other non-operating items, the company said it would have earned $10.5 million, or six cents per share. Sales grew to $113.9 million from $83.8 million.

During the quarter, Thalomid sales increased 26% to $99.1 million; but that was slightly short of analysts' estimates.

Thalomid's sister drug, Revlimid, is being reviewed by the Food and Drug Administration as a cancer therapy. In addition, Celgene increased research spending on Revlimid during the quarter by about 23% to $49.3 million.

The company forecast year-end adjusted earnings of about 55 cents per share, on sales of $535 million. Celgene previously predicted lower sales of $525 million.

Research and general expenses will be higher than previous guidance to support the final clinical trials and launch of Revlimid, the company said. The company excluded Revlimid items from its adjusted earnings forecast.

Celgene's 1.75% convertibles changed hands on Friday at 252.5, compared to a share price of $59. Shares closed slightly higher at $59.69, a gain of 84 cents, or 1.43%, on the day. On Monday, the Celgene 1.75s were marked at 235.5 bid, 235.9 offered by one sellside shop.

NPS Pharma eyed after earnings

The convertibles of NPS Pharmaceuticals Inc. were quoted higher at 92 bid, 93 offered, according to one sellside shop on Friday, compared to a previous level of 86, 87 after the Salt Lake City-based biotechnology company reported a slightly narrower third quarter loss that edged estimates.

The company said increased royalty revenue from Amgen Inc. on increased sales of cinacalcet HCI helped lift results.

NPS lost $38.3 million, or 95 cents a share, for its third quarter, compared with a loss of 39.2 million or $1.02 a share, for the same period a year ago.

Revenues were higher at $4.7 million compared to $710,000 a year earlier.

Analysts surveyed by Thomson Financial expected a loss per share of $1.17 on revenue of $3.3 million.

"They can possibly be profitable in a year," a sellside research analyst said, referring to positive indications for a drug that the company is developing for osteoporosis.

The NPS 3% convertibles due 2008 were quoted at 92 bid, 93 offered. Its shares slipped five cents, or 0.5%, to $10.4.

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