Gilead Sciences steady ahead of earnings; Medtronic active; SandRidge lower on trust news

By Rebecca Melvin

New York, Feb. 4 - Gilead Sciences Inc.'s deep in-the-money convertibles were active on Monday and trading in line with the underlying shares of the Foster City, Calif.-based biopharmaceutical company, which ended the session down 2.4%. They picked up some in after-hours action when quarterly results came out with an increase in revenue. Earlier the company reported positive trial data of a hepatitis C regimen.

Medtronic Inc. was active and little changed as market players tended to focus Monday on investment-grade type names, and pricing was mostly unchanged.

"I understand the interest in the short-dated Medtronic convertible. There is some gamma there, and with the stock at $43, the strike is close. But for a sleepy stock like Medtronic, 12% is a big move," a New York-based trader said.

Meanwhile, SandRidge Energy Inc.'s 7% and 8.5% convertible perpetual preferred shares were down about 4%, or about 80% of the common stock's 5% move down, an East Coast-based buysider noted.

Shares of the Oklahoma City-based natural gas and oil company were down for the second straight day as investors reacted to disappointing light volumes from the company's Mississippian Trusts reported on Friday. But a buysider said he didn't think the news affected the company's fundamentals any.

Also lower were the underlying shares of Suntech Power Holdings Co. Ltd. The convertibles were not heard in trade. Shares of the Wuxi, China-based company shed 13 cents, or 7.6%, to $1.58.

Amgen Inc.'s benchmark 0.375% convertible notes were conspicuously absent as the Thousand Oaks, Calif.-based biotech giant's formerly large, liquid convertible matured on Friday.

In the primary market, no new issues launched or priced.

Overall, the market was quiet on Monday as equities pulled back from a strong rally on Friday.

"It was the typical, investment-grade names, not a lot of valuation change," the trader said.

"It was not a big deal," he said of the trading session.

As for a potential pull back from the stellar equity market gains of January, one market player said, "We're going to buy the same things that we have been buying recently. There are still a lot of equities that look attractively priced. You shouldn't overreact to one 1% down day," he said.

Headlines regarding higher bond yields in Europe and the resurrection of sovereign debt-related fears weren't something to overreact to either, he said.

The fact is regarding headlines that people are concerned with Europe again is "that concern never went away," he said.

Gilead steady

Gilead's 1.625% convertibles due 2016, or the D series, traded between 178 and 184 and were last seen at 180, which was down 3.75 points on the day, according to Trace data.

Gilead's 1% convertibles due 2014, or the C series, traded between 176 and 179 and were last seen up 2 points on the day at 176.

Gilead shares ended the session down 97 cents, or 2.4%, to $39.59 in average volume.

"They beat slightly," a trader said, regarding Gilead's fourth-quarter earnings out after the market close.

He said that he expected the Gilead convertibles to remain mostly stable as they have for the last couple of years. He didn't expect there to be a big stock move Tuesday related to the earnings, judging from the initial reaction.

The Gilead convertibles are deep in-the-money and trade on about a 90% delta.

The company reported its fourth-quarter net income rose to $762.5 million, or 47 cents per share, from $665.1 million, or 43 cents per share, in the year-earlier period.

Revenue for the quarter rose 18% to $2.59 billion.

Analysts were expecting net profit of 48 cents a share on revenue of $2.4 billion.

Sales of its Atripla HIV drug rose 6% to $917 million, which beat the $874 million expected by analysts. Sales of its HIV drug Truvada rose 12% to $832.7 million.

For full-year 2013, the company forecast product sale of $10 billion to $10.2 billion.

Early Monday, the company also reported results of two late-stage hepatitis drug trials that met their goals.

The studies, Fission and Neutrino, evaluated a 12-week course of once-daily nucleotide sofosbuvir in combination with ribavirin for the Fission study and on combination with ribavirin and pegylated interferon for the Neutrino study.

SandRidge preferreds lower

SandRidge's 8.5% convertible preferred shares were down about 4% at about 100 as were the SandRidge 7% convertible preferreds.

SandRidge shares fell 34 cents, or 5.1%, to $6.28 in average volume.

"The volumes were light in the royalties. But we're not shaken," a buysider said.

The SandRidge Mississippian trust said that for the three months ended Nov. 30, its sales volumes fell 7% compared to the same period a year ago. It declared a distribution of 53.3 cents per unit.

The trust attributed the drop to lower oil production, which was offset by a slight increase in natural gas production.

Raymond James analyst Kevin Smith downgraded SandRidge Mississippian to "underperform" from "outperform." He had expected a distribution of 71 cents per unit, and he noted that the company doubled its drilling program pace in the fourth quarter but production still lagged his estimates by 30%.

Mentioned in this article:

Gilead Sciences Inc. Nasdaq: GILD

Medtronic Inc. NYSE: MDT

SandRidge Energy Inc. NYSE: SD

Suntech Power Holdings Co. Ltd. NYSE: STP

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