Cephalon trades mixed on disappointing drug study news; Tyson slips; TRW Automotive adds

By Rebecca Melvin

New York, Nov. 23 - Cephalon Inc.'s 2% convertibles were down in line with their underlying shares, but the newer Cephalon 2.5% convertibles did slightly better on a dollar neutral basis, after the biopharmaceutical company Monday announced disappointing drug trial results that sent shares lower by 9.5%.

One source said the Cephalon 2.5% convertibles opened up 0.5 point.

Tyson Foods Inc. moved down almost a point as its shares swung higher then weakened after the Springdale, Ark.-based meat producer posted a quarterly loss on a one-time charge on sales that improved some.

TRW Automotive Inc. 3.5% convertibles, which priced last week, extended gains, trading up to 106 versus a share price of $23.40, compared to 104.75 versus a share price of $23.05 on Friday.

Some convertible issues were up with equities, which saw broad-based gains on Monday. But overall, convertibles were fairly quiet, with just under $600 million changing hands by the end of the session, according to a West Coast-based sellsider, citing Trace data.

Traders anticipated the market would quiet down substantially Tuesday and Wednesday ahead of the Thanksgiving holiday.

In equities, major stock indexes were up more than 1% after investors were cheered by the National Association of Realtors' better-than-expected home sales report that showed October home sales rose more than 10%.

The Dow Jones Industrial Average ended up 132.79 points, or 1.3%, to 10,450.95 after losing 120 point over the last three sessions. The Standard & Poor's 500 index rose 14.86, or 1.4%, to 1.106.24, while the Nasdaq Composite index rose 29.97, or 1.4%, to 2.176.01.

Cephalon mixed on study news

Cephalon 2% convertibles due 2015 traded down 10 or 11 points to 125.6 to 126.2 from 136.732 prior to the company's drug study news that came ahead of the markets' opening.

The Cephalon 2% paper traded at 126.20 versus a share price of $54.19 in mid-afternoon trading, versus 136.732 versus a share price of $59.70 ahead of an early trading halt.

"They moved in line. I would have thought that they improved a little bit because of the volatility picked up," a New York based sellside trader said.

But Cephalon's 2% paper is well in the money and unlikely the candidate for much improvement, the sellsider said.

The Cephalon 2.5% convertibles due 2014, which were issued in May, traded down about 5 points but still held above par and were called better by 0.5 point given what happened to its underlying shares. It traded between 100.5 and 101.9 and was 101.625 in late afternoon.

There's not much outstanding of the company's two 0% convertibles, which can be put back to the company in June 2010.

Shares of the Frazer, Pa.-based biopharmaceutical company lost $5.15, or 8.6%, to $54.46.

The company said that a late-stage study for its Cinquil drug to treat pediatric inflammation of the esophagus didn't show significant benefits.

Cinquil was developed by privately held Ception Therapeutics Inc. to treat pediatric eosinophilic esophagitis, or EE.

Ception and Cephalon said the results from a phase 2b/3 clinical trial for Cinquil indicated that patients showed a statistically significant reduction in esophageal eosinophil levels versus placebo.

But in the second co-primary endpoint, patients showed symptom improvements only to the degree that placebo treated patients.

Ception and Cephalon said they will continue to analyze the data and are planning to perform an analysis of an ongoing open-label extension study to further assess the clinical results.

"We are pleased to see a positive biological effect of Cinquil," said Steve Tullman, chief executive officer at Ception Therapeutics, in a news release. "Conducting clinical studies in a new disease area is always challenging. We will continue to review the data from this study and from our ongoing open-label study to find the best path forward for Cinquil for the treatment of eosinophilic esophagitis."

The four-month, double-blind, placebo-controlled clinical trial evaluated the efficacy and safety of Cinquil in 226 pediatric patients between the age of five and 18 with poorly controlled EE.

All active groups also experienced improvement in the physician global assessment of their symptoms. However, the placebo cohort also demonstrated improvement in their physician global assessment; therefore, there were no statistically significant differences between the active groups and the placebo group for this endpoint.

As previously reported, Cephalon has an option to acquire Ception. A phase 2 study of Cinquil in eosinophilic asthma is ongoing. The parties have agreed to extend Cephalon's option exercise period until a specified period of time after delivery of the top-line results for the phase 2 eosinophilic asthma study.

Tyson slips after earnings news

Tyson's 3.25% convertible senior notes due 2013 traded down about a point to 105.625 from 106.75 earlier after the meat producer reported higher sales and said its chicken business was profitable for the second straight quarter.

Tyson 3.25% convertibles traded early at 106.75 versus a share price of $13.05. The paper is a likely candidate for convertible arbitrage and not likely to be of interest to outright investors given the current levels, a West Coast-based sellside trader said.

Tyson also said it expected an improving economy to lead to better demand next year for not only chicken, but beef and pork as well.

A one-time $560 million goodwill charge in the beef segment caused the company to report a loss however for its fiscal fourth quarter ended Oct. 3.

Tyson lost $455 million, or $1.22 per share, compared to a profit of $48 million, or 13 cents a share, in the year-earlier quarter.

Sales rose slightly to $7.21 billion from $7.20 billion, with chicken sales up 11% to $2.64 billion.

Tyson shares ended lower by 19 cents, or 1.5%, to $12.88 on Monday.

TRW trades at 106

TRW Automotive's 3.5% convertibles due 2014 traded at 106 versus a share price of $23.40 on Monday, compared to 104.75 versus a share price of $23.05 on Friday.

Shares of the Livonia, Mich., automotive supplier were mostly in positive territory during the session but slipped into the red late in the day, ending down 12 cents, or 0.53%, at $22.73.

Mentioned in this article:

Cephalon Inc. Nasdaq: CEPH

TRW Automotive Inc. NYSE: TRW

Tyson Foods Inc. NYSE: TSN

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