Convertibles see broad-based action; Dendreon down after rival's drug news; Salesforce steady

By Rebecca Melvin

New York, June 4 - The convertible bond market saw a lot of smaller trades in a myriad of names on Monday.

"It felt like everything was trading, but in small size," a New York-based trader said. "The amount of names with north of $10 million [on Trace] seemed very low."

The action marked a switch from the way the market has been trading generally of late when one or two names have tended to dominate.

There was not much individual news during the session, and possibly traders were doing month-end pricing, a Connecticut-based trader said, explaining reasons behind the pattern.

Equities were mostly weighing on the session and looked like they were going to extend losses notched Friday after the much weaker-than-expected U.S. May jobs report. But stocks were able to pull back into the green by the end of the day on the back of more hopeful sentiment out of Europe about the viability of Spanish banks, one trader noted.

Volumes were light, with one player mentioning that U.K. trading was thin due to the Queen's Diamond Jubilee celebrations, a holiday that will extend into Tuesday.

Dendreon Corp. traded down 2 to 3 points as the underlying shares got slammed on Johnson & Johnson's positive clinical data for a prostate drug that competes with Dendreon's Provenge drug.

The newish 2.625% convertibles of Medivation Inc., a developer of a third prostate cancer drug, looked to have changed hands at 113.447, which was down 3.5 points from previous levels, according to Trace data.

Jefferies on Monday raised its share price target on Medivation to $105 from $97 and kept a "buy" rating on expectations that its drug will match or beat the survival results reported for J&J's Zytiga.

Salesforce.com Inc. held in on Monday after the San Francisco-based cloud computing company said it has agreed to buy social-marketing company Buddy Media in its biggest acquisition to date.

Chesapeake Energy Corp. convertibles were about 0.5 point better on hedge after the Oklahoma City-based natural gas company said it is reconstituting its board of directors in response to pressure from its two largest shareholders, Southeastern Asset Management and Carl C. Icahn. These two holders have about 20% of Chesapeake shares.

Patriot Coal Corp. was not seen in active trade, but market players are keeping an eye on this name and its uncertain refinancing situation. The Patriot convertibles were called 59 bid, 61 offered.

Overall, the market stabilized from Friday's panicky session, but action was muted.

"Some guys are asking for bids, but it feels pretty dicey right now, with no need to step in," one trader said

Dendreon extends losses

Dendreon's 2.875% convertibles due 2016 traded down 2 to 3 points to about 68 on Monday from 70 bid, 71 offered previously.

Shares of the Seattle-based biotech company fell 85 cents, or 12.6%, to $5.91 in heavy volume.

Dendreon has "competitive issues," one convertibles trader said.

On Monday, J&J said that patients who took its Zytiga pill lived twice as long before their cancer worsened compared with patients who took a dummy pill according to clinical trial data.

The patients also appeared to live longer in general although full data was not yet available. The study tested Zytiga in men who had not yet been treated with chemotherapy. Zytiga has a $5,500 a month price tag.

Dendreon's Provenge, which received regulatory approval in April 2010 with great promise for success, has encountered difficulties getting off the ground perhaps due to its high price tag of $93,000 per patient and also because it doesn't extend patients' lives a great deal.

Patients who were treated with Provenge lived about four months longer on average in studies.

The Dendreon convertibles have come off from close to 90 early in the year, and the slide doesn't look likely to slow any time soon. But one strategist pointed out, "Someone will probably step in to buy them eventually."

Salesforce holds in

Salesforce.com's 0.75% convertibles due 2014 traded down a few points on an outright basis, changing hands at 161.43 versus an underling share price of 128.86 during the session, which compared to 161.08 versus 133.49 on Friday.

Later, the convertibles ticked a little higher in tandem with higher Salesforce shares. Shares ended up 23 cents, or 0.2%, at $131.22.

On Monday, the bonds were seen on a delta of 85% to 90%, compared to a delta of 86% on Friday, according to a New York-based trader.

Monday's move was in line with the underlying shares.

"At 160, you need big moves [in the stock] for a dollar-neutral move," a trader said.

Salesforce is buying New York-based Buddy Media in a mostly cash deal for nearly $700 million. The purchase is aimed at helping Salesforce customers manage their marketing campaigns using social media.

"It's a big acquisition for them," a trader said of the Salesforce deal.

He went on to say that Salesforce "is one of those high beta names, and this is the largest acquisition they've ever done and they spent a lot of cash, more than stock, which is concerning for me."

Chesapeake adds 0.5 point

Chesapeake's 2.25 due 2038 was up about 1.5 point outright at 76.75 on Monday, according to Trace data.

Chesapeake's 2.5% due 2037 was up about the same amount at 81.92, and Chesapeake's 2.75% due 2035 was at 88, according to Trace.

Chesapeake shares gained 94 cents, or 6%, to $16.52 in more than average volume.

The Chesapeake straight bonds were up about 0.75 point and the convertibles added about 0.5 point, a New York-based trader said.

Chesapeake said Monday that it has agreed to replace four existing board members with four new directors, heeding the advice of its two largest shareholders.

Three of the new directors are being proposed by Southeastern and the fourth will be Icahn, or a person designated by Icahn.

The company will keep its controversial co-founder, Aubrey McClendon as chief executive officer.

McClendon will step down from his chairmanship role June 22, when a new chairman will be confirmed by the new board. The size of the board will remain at nine directors.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Dendreon Corp. Nasdaq: DNDN

Medivation Inc. Nasdaq: MDVN

Patriot Coal Corp. NYSE: PCX

Salesforce.com Inc. NYSE: CRM

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