Dendreon drops on outlook; Cheniere gains on Blackstone investment; DealerTrack to price

By Rebecca Melvin

New York, Feb. 27 - Dendreon Corp.'s convertible bonds bounced around but ultimately moved lower on both an outright and a dollar-neutral, or hedged, basis on Monday after the Seattle-based biotech company forecast disappointing sales growth of its Provenge prostate cancer drug in the low, single digits for the first quarter.

Cheniere Energy Inc.'s convertibles gained on word that Blackstone Group LP was stepping in with a $2 billion investment to help the Houston-based natural gas distributor complete terminals that will help it export to higher margin regions.

Micron Technology Inc. saw its shorter-dated convertibles trade a little better on an outright basis, but the name was generally quiet, despite the "good news" that competitor Elpida Memory Inc. of Japan filed for bankruptcy protection from creditors.

Elpida has Regulation S yen-denominated convertibles and also a small U.S. dollar-denominated convertibles issue that weren't heard in trade, a New York-based trader said.

Savient Pharmaceuticals Inc.'s convertibles, which traded a little weaker on Friday, weren't heard in trade on Monday after the East Brunswick, N.J.-based biopharmaceutical company posted quarterly earnings that missed analysts' estimates but exceeded estimates on revenue.

A new deal was launched after the market close: DealerTrack Holdings Inc. plans to price $150 million of five-year senior convertible notes in a Rule 144A deal being sold via bookrunners Barclays Capital Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

Equities were lower in early trading, which put a damper on convertibles in the early going. Dendreon, for example, was harder hit than perhaps it might have been given the weak tape, a trader said.

Later equities rebounded and the Dow Jones industrial average reversed a loss that at one point was around 100 points. It was in positive territory for most of the session before slipping into the red for a close that was down 1.4 points to 12,981.51, just shy of 13,000.

Boosting markets was U.S. housing data that showed the number of buyers of existing homes grew last month by 2% to 97, which was the highest reading in more than a year and a half.

Dendreon drops on outlook

Dendreon's 2.875% convertibles due 2016 were seen at 83.5 bid, 84 offered versus an underlying share price of $11.90 near the end of the session, which was down more than 2 points outright and down 0.5 point to 0.75 point on a dollar-neutral basis, based on a 25% delta, a New York-based trader said.

That drop wasn't seen as particularly surprising especially in light of the underlying shares.

Shares of the Seattle-based biotech fell $3.05, or 20.5%, to $11.81 in ultra-heavy volume.

"It certainly got smoked," a trader said, "It doesn't help that they reported on a weak tape. Things get eviscerated on bad news when the tape is weak."

The bonds trade mostly on an outright basis.

On Monday, the company reported fourth-quarter results were in line or better than expected. Earlier this year the convertibles and shares bounded higher on a pre-announcement of better-than-expected fourth-quarter sales.

That pre-announcement gave investors hope that momentum was gaining for sales of Provenge, which had been disappointing until that point. Perhaps that's why investors reacted so poorly to Monday's weaker outlook.

The company said those improved fourth-quarter sales took a bite out of the current quarter, an indication that the drug may not be gaining momentum as previously thought.

Dendreon earned $38.1 million, or 26 cents a share, in the fourth quarter of 2011, compared to a loss of $91.8 million, or 64 cent a share for the fourth quarter of 2010. Analysts expected Dendreon to report a loss of 36 cents a share.

Revenue rose to $202.1 million, compared to $25 million in the year-earlier period. Of the $202 million, $77 million was from sales of Provenge, which was better than the $76 million in revenue forecast by analysts but slightly below the projection in January for $82 million of sales for the fourth quarter.

The company also got $125 million after selling its royalty interest in Merck & Co.'s hepatitis C drug Victrelis to CPP Investment Board, which manages funds for the Canada Pension Fund.

Analysts expect Dendreon to report $83.6 million in revenue in the first quarter, which represents growth of around 9% from the fourth quarter.

Provenge is among a new class of drugs that uses patients' own cells to stimulate the body's immune system to fight cancer.

However, the treatment is extremely costly at $93,000 for a month-long course, and growth had previously slowed because doctors were not getting reimbursed in a timely manner, burdening the clinics financially.

Cheniere improves

Cheniere's 2.25% convertible due 2012 - which matures in August - gained nearly a point to 98.56, and were seen at 98.375 bid, 98.875 offered at the close, according to a trader. At the mid market, it's a 5.6% yield to maturity, the trader noted.

Shares of the Houston-based liquefied natural gas terminal company jumped $1.66, or 12%, to $15.71 in heavy volume on Monday.

"The Blackstone investment was huge for LNG, helping the credit significantly," a trader said.

A second trader said, "Cheniere bonds moved up about 0.75 point. It still has a lot of premium and the bonds mature in August, so it still looks pretty much just like a fixed income instrument."

Blackstone Group plans to invest $2 billion in Cheniere to help the company build a gas liquefaction plant in Sabine Pass, La.

Micron mostly quiet

Micron's 1.875% convertible due 2014 traded a little better to 100.5 bid, 101.5 offered. Trace had them at 100.875, which was up 1.125 points, but the convertibles were very quiet.

Shares of the Boise, Idaho-based memory chip maker jumped 61 cents, or 7.7%, to $8.56 in active trade on Monday.

"Even though there was 'good news' that a competitor filed for bankruptcy, stuff was pretty quiet," a trader said.

The Micron convertibles, which are a large $1 billion issue, trade outright, contrary to how they traded in the past, which was on a delta with the stock higher. Perhaps with the stock going higher they will trade on a delta again, a trader suggested.

Shares rose on speculation that the company stands to benefit from Elpida's bankruptcy protection filing, which puts its 12% of global DRAM production in question.

Elpida's filing, which was made following the close of markets in Japan, is touted as the biggest bankruptcy filing by a Japanese manufacturer. The company has $5.6 billion in debt.

The majority of flow in Elpida's Japanese-based debt, including the convertibles, may be coming on Tuesday, a trader suggested.

DealerTrack to price

DealerTrack's $150 million offering of five-year senior convertibles was talked to yield 1.5% to 2% with an initial conversion premium of 30% to 35%.

Final terms on the Lake Success, N.Y.-based automotive retail software services company's deal were seen being fixed after the market close on Tuesday.

In addition to bookrunners Barclays Capital Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC, co-managers are Cowen & Co., Craig-Hallum Capital Group, Evercore Partners, KeyBanc Capital Markets LLC and JMP Securities LLC.

The bonds will be non-callable for life with no puts. They will have takeover and dividend protection.

Concurrently with the offering, DealerTrack expects to enter into convertible note hedge and warrant transactions.

A portion of the proceeds of the notes and from the sale of the warrants will be used to fund the cost of the convertible note hedge transactions. Remaining proceeds will be used for working capital and general corporate purposes, which may include repayment of existing debt, acquisitions and investments.

Mentioned in this article:

Cheniere Energy Inc. NYSE: LNG

DealerTrack Holdings Inc. Nasdaq: TRAK

Dendreon Corp. Nasdaq: DNDN

Elpida Memory Inc. Pink Sheets: ELPDF

Micron Technology Inc. NYSE: MU

Savient Pharmaceuticals Inc. Nasdaq: SVNT

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