Salix Pharmaceuticals slumps outright, adds on heavy deltas; Allcripts Healthcare drops

By Rebecca Melvin

New York, Nov. 7 – Salix Pharmaceuticals Ltd.’s convertibles dropped sharply on an outright basis but expanded at heavier deltas on a hedged basis on Friday after the Raleigh, N.C.-based specialty drug company posted earnings that missed estimates.

Salix also flagged inventory problems, lowered guidance, and announced that its chief financial officer has resigned. The news sent shares down 34% and was followed by multiple downgrades.

The in-the-money convertibles dropped with the underlying shares; meanwhile, while on heavy deltas of about 95% to 96%, the bonds expanded, but at light deltas, the bonds contracted.

Allscripts Healthcare Solutions Inc.’s convertibles plunged outright along with the underlying shares of the Chicago-based medical software company after the company posted quarterly results that missed estimates.

Overall trading action was light on Friday, with Salix accounting for a good chunk of total volume, sources said.

Herbalife Ltd.’s convertibles, which were also shot down on disappointing earnings this week, were last seen at 75 bid, 75.75 offered, according to a New York-based trader on Friday.

That was down some 12 or 13 points on an outright basis for the week, which occurred as shares of the Cayman Islands-based nutrition supplements company fell to $37.50 on Friday from about $55.00 on Monday.

LinkedIn Corp.’s 0.5% convertibles, which debuted in the market on Thursday, were seen firm at 103. The Mountain View, Calif.-based business-oriented social networking service priced $1.15 billion of the five-year senior notes at the cheap end and beyond the cheap end of initial talk late Wednesday.

In the broader markets, equities were little changed, but the Dow Jones industrial average and the S&P 500 stock index both closed at record highs, and U.S. Treasuries were higher.

For October, the U.S. added 214,000 jobs, and tallies for August and September were higher than first reported by 31,000, according to the Labor Department’s monthly report. The unemployment rate fell to 5.8%.

Salix adds at heavier deltas

The Salix 1.5% convertibles due 2019 were quoted at 146 bid, 147 offered versus an underlying share price of $87.50. The bonds had been in the 200s previously, a trader said.

On a delta of about 95% to 96%, the 1.5% convertibles expanded by about 5 points, according to one New York-based trader.

A second source said that the bonds expanded 2 points if holders were on a 95% delta on Thursday. The delta dropped to 85% on Friday, the source said.

At lighter deltas, which holders may have been on if they viewed the company as a takeover target, the bonds would have come in, a trader said.

Salix’s 2.75% convertibles due 2015 were seen at 189 bid, 190 offered versus an underlying share price of $87.50. These bonds were close to 300 previously, according to a trader.

“Guys that were at 95% to 96% were up 5 points on hedge on the 1.5s,” the first trader said.

Salix shares opened down at $90.20 after closing Thursday at $138.55. The shares were last at $91.47, which was down $47.08, or 34%.

The company reported a loss of $88.6 million, or $1.39 per share, for the third quarter. Excluding items, earnings were $1.53 per share, which was about 3 cents below expectations

Revenue was higher compared to a year ago at $354.7 million, but still below expectations.

Salix also announced a revision of its accounting of drug inventories and lowered full-year earnings guidance to $400 million, or $5.20 per share, down from earlier estimates of $475 million, or $6.16 per share.

The company said in its release that it has had difficulty forecasting revenue on a quarter to quarter basis, and in projecting and appropriately budgeting for the level of wholesaler discounts to be incurred during reporting periods.

To remedy the situation, the company said it would work to put in place a distribution services arrangement with wholesalers.

Salix believes these agreements will improve its visibility into inventory and inventory management.

The company also said that its chief financial officer, Adam Derbyshire, has resigned. It named Timothy Creech as acting CFO until a permanent replacement is found.

Allscripts drops

Allscripts Healthcare’s 1.25% convertibles due 2020 slumped more than 8 points to 93.7 during the session, according to Trace data. The bond was last seen at 94.25 bid, 94.75 offered with the underlying shares at about $11.50, according to a New York-based sellsider.

Shares of the health care software company fell $2.01, or 15%, to $11.54 after reporting a loss of $25.8 million, or 15 cents a share.

Adjusted earnings were 6 cents, and revenue came in at $345.4 million, which was better than the same period last year but short of analysts’ estimates.

Mentioned in this article:

Allscrips Healthcare Solutions Inc. Nasdaq: MDRX

Herbalife Ltd. NYSE: HLF

LinkedIn Corp. Nasdaq: LNKD

Salix Pharmaceuticals Ltd. Nasdaq: SLXP

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