aaiPharma bonds swoon, although no news seen; Elan, Collins & Aikman continue rebound

By Paul Deckelman

New York, March 8 - The distressed bond market was a contrast between two troubled pharmaceutical companies Tuesday, as aaiPharma Inc.'s bonds were seen sharply lower, although nobody saw or heard any negative news that would explain the slide. On the other hand, Elan Corp.'s bonds for a second day continued their bounce up from the low levels seen last week, after the Irish drug manufacturer reported big troubles with its multiple sclerosis drug, Tysabri.

Bank loan traders meantime reported little or no activity in distressed issues in their market.

A trader saw aaiPharma's 11% notes due 2010 as having "started off offered at 69 first thing in the morning, and then falling to 67, to 64 and finally shaking out at a wide 59 bid, 63 offered," although this trader saw one afternoon trade at 64.

A source at another shop pegged the bonds as having dropped to that same 64 level, from 69.5 previously.

Wilmington, N.C.-based aaiPharma has been wrestling for the past year with the fallout from accounting problems growing out of apparently inflated sales of a key product, as well as what seems to resemble a revolving door in the executive suite, which saw several CEOs and other key executives leave in quick succession over a matter of months last year.

Those problems have beaten the bonds down to their current level from levels around par early last year.

There seemed to be no fresh news out late Tuesday that could explain the renewed drop. The first trader said that there was "no news" - but added "we'll probably see [what's up with the company] tomorrow [Tuesday]."

While aaiPharma was falling flat, Elan, on the other hand, was getting fat.

Its bonds had been badly beaten down last week, when Elan and partner Biogen Idec Inc. first announced that they had suspended supplying and marketing the drug after consultation with the Food and Drug Administration, advising doctors to suspend prescribing the medication and suspending all clinical trial use of it.

The decision to withdraw the drug came after recent reports of two cases of serious effects among patients who used it along with an earlier Biogen Idec MS drug, called Avonex, in clinical trials.

One patient died and a second developed a suspected case of progressive multifocal leukoencephalopathy, a rare and frequently fatal disease of the central nervous system.

After appearing to stabilize after that initial drop - which took Elan's 7¼% senior notes due 2008 all the way down to the high 80s from their prior level above par - the bonds got a second kick in the shins late in the week, when Elan confirmed that the second patient had, indeed, developed the same condition that apparently killed the first one.

But on Monday, the bonds had been seen bouncing back from their apparent oversold condition.

In market activity Tuesday a trader saw the 71/4s up 1½ points at 92 bid, 93 offered.

A source at another desk saw those levels too, and saw the company's subordinated bonds, such as its 7¾% notes and its floating rate notes due 2011, up about a point, at 85 bid 86 offered.

Elan's New York Stock Exchange traded shares - which had jumped nearly 13% on Monday - were up another 69 cents (10.71%) to $7.13 on Tuesday. Volume of 57 million was better than five times the norm.

However, the bounce may be in jeopardy, as lawyers representing disgruntled stock holders and bondholders of the two companies descend on the federal courts. At least five lawsuits seeking class-action status on behalf of shareholders have been filed in federal court in Boston against Cambridge-based Biogen Idec since last week. Two others have been filed in Massachusetts against Dublin-based Elan.

Those suits allege the companies artificially inflated the values of their stocks before last week's withdrawal of the recently approved Tysabri, by supposedly concealing problems indicating the drug could leave patients vulnerable to the rare central nervous system disease.

Elan and Biogen, for their part, contend that they only learned of patient illnesses on Feb. 18, and quickly informed federal regulators amid a rapid investigation leading to the Feb. 28 announcement that they were yanking the drug from the market.

Collins & Aikman's recovery goes on

Elsewhere, Collins & Aikman Products Co.'s bonds continued their own bounce from a badly oversold condition, although it was nowhere near as dramatic as the upturn seen Monday, when the Troy, Mich.-based automotive plastic components manufacturer's 10¾% senior notes due 2011 were seen up three points to at 94 bid, 95 offered, and its 12 7/8% subordinated notes due 2012 jumped a whopping six points to 72 bid, 74 offered.

In Tuesday's dealings, the senior bonds were seen up another half point or so to 94.5 bid, while the subs were up ¾ points to 72.75.

"They've definitely moved up a few points from where they were on Friday," one trader acknowledged.

There was no fresh news seen out on the company either Monday or Tuesday - only a sense that the bonds had been way oversold, as participants reacted to trouble generally in the automotive supplier sector, including poor earnings results issued by other supplier companies, combined with news from Ford Motor Co. and General Motors Corp., two of Collins & Aikman's bread-and-butter customers, of lower production schedules in response to soft sales.

Collins had also been hurt by a story in the Detroit Free Press indicating that the company's finances will be badly affected by continual rising oil prices, which in turn make plastics - derived mostly from petrochemicals - more costly.

Foamex rises

Another automotive name seen on the rebound was Foamex International Inc., which, among other products, makes the foam rubber padding used in auto seats, dashboards and elsewhere in the interior.

Its 9 7/8% notes due 2007 firmed to 65.5 bid from 62 previously, a market source said, while its 10¾% notes due 2009 were a point better at 91 bid. He saw the company's 13½% notes slated to come due later this year unchanged at 96.5.

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