New Isis Pharmaceuticals trades below par, slips on hedge; Dendreon steady; Home Inns adds

By Rebecca Melvin

New York, Nov. 12 – Isis Pharmaceuticals Inc.’s newly priced 1% convertible bonds traded below par on Wednesday after the Carlsbad, Calif.-based developer of gene-based therapeutic drugs priced $425 million of the seven-year notes at the cheap end of talked terms.

The new Isis 1% convertibles were seen at 99.375 bid, 99.875 offered versus an underlying share price of $51.00, a Connecticut-based trader said at late morning.

“The stock didn’t cooperate, and the bonds were heavy right from the get go,” a New York-based trader said.

On a delta of 75% to 80%, the bonds contracted about 0.25 point even though shares were lower.

The lion’s share of market action on Wednesday was in the new Isis bond. But there was also trading in the health care space. Dendreon Corp.’s convertibles were trading at about 55.5, which was seen as essentially the new reset price after the bonds fell sharply on Monday after the Seattle-based biopharmaceutical company’s Chapter 11 bankruptcy filing.

Also in health care, Allscripts Healthcare Solutions Inc.’s convertibles traded up with higher shares after the Chicago-based medical software company announced that Catholic Health Initiatives has selected Allscripts Hosting Solution to provide enterprise-wide information technology through 2020.

Elsewhere, Home Inns & Hotels Management Inc.’s 2% convertibles, a short-dated, bond floor name, traded better by about 0.5 point even though shares of the Shanghai-based hotel chain were lower after its third-quarter earnings report.

New Isis slips below par

Isis Pharmaceuticals’ new 1% convertibles due 2021 traded down on their debut in the secondary market, with action in those new bonds described as “weak.”

The bonds changed hands at 99.125 at late morning with shares lower by about 1%. Earlier the bonds had traded as low as 98, and they were later quoted at 99.375 bid, 99.875 offered with the underlying shares at $51.00.

That level represented a contraction of 0.25 point on a hedged basis, assuming a delta hedge of 75% to 80%, a New York-based trader said.

Shares opened lower and traded as low as $49.46.

The developer of gene-based therapeutic drugs priced $425 million of the seven-year senior notes late Tuesday at par to yield 1% with an initial conversion premium of 30%.

Pricing of the Rule 144A offering came at the cheap end of talked terms for a 0.5% to 1% coupon and 30% to 35% premium.

The deal has a $75 million over-allotment option, which was upsized from $63.75 million. J.P. Morgan Securities LLC, Stifel Nicolaus Weisel and BMO Capital Markets were the bookrunners.

The bonds traded pretty weakly, a trader said. “It wasn’t a disaster, but there was no real bid to the bonds.”

The stock’s moves hurt the deal after it rallied on Tuesday ahead of pricing, and opened lower on Wednesday, trading weakly all day.

“It didn’t help that the company got a reprieve with a good run up on the stock Tuesday,” the trader said, noting that typically the issuer stock takes a hit after a convertibles deal is launched and ahead of pricing.

Part of the problem was also that market players “were not entirely enamored by the deal in the first place,” the trader said.

“People didn’t like a biotech without a recurring revenue product,” the trader said.

Although the company made milestone payments of $220 million and hit other milestones with partners, “it’s hard to wrap your mind around a credit spread, given there are no recurring cash flows,” the trader said.

Isis shares rallied on Tuesday amid some market players buying some of their short stock back as they were getting out of the old Isis bonds that were being repurchased.

All net proceeds of the new deal will be applied to the repurchase of its older 2.75% convertible senior notes due 2019. Concurrently with the offering, Isis repurchased about $140 million of the 2019 notes through individually negotiated transactions with holders.

Proceeds from the over-allotment option, if exercised, will be used to develop select drugs in its pipeline to later stages prior to partnering, to develop further drugs in its lipid franchise, and for general corporate and working capital purposes.

The notes looked a little rich before pricing, with traders saying they were using a credit spread of 500 basis points over Libor and 40% to 45% vol.

Dendreon steady at 55.5

Dendeon’s 2.875% convertibles due 2016 traded at 55.125 and also at 55.5.

“I’m not sure what the news is out there to get the bonds to trade,” a New York-based trader said. “People must just be re-evaluating the bankruptcy and seeing what the recovery is likely to be.”

On Monday, the Dendreon convertibles fell more than 15 points initially to the upper 40s, but bounced back to the mid 50 level. Dendreon shares fell to $0.18 from $0.94.

Allscripts adds

Allscripts’ 1.25% convertibles due 2020 traded up more than a point to 95 on Wednesday, which was up from 93.25 bid, 94.25 offered late Tuesday.

Allscripts shares jumped 72 cents, or 6.4%, to $11.95 on Wednesday.

Allscripts stock and bonds plunged Friday after the company posted quarterly results that missed estimates.

The bonds had dropped to the 93 or 94 level from 102 to 103.

On Wednesday, the shares and bonds were boosted by news that Catholic Health Initiatives has selected Allscripts Hosting Solution to provide enterprise-wide information technology through 2020.

Catholic Health Initiatives, one of the largest U.S. health systems, plans to migrate its Allscripts mission-critical clinical and financial applications to an Allscripts remote hosting center in Kansas City, Mo.

Catholic Health Initiatives’ chief information officer, Michael O’Rourke, said that Catholic Health expects that remote hosting will reduce costs and improve producer and clinician user experience.

Home Inns gains

Home Inns’ 2% convertibles traded actively in the 98.75 bid, 99 offered context. The shares fell 1.3% to $30.29.

The company reported third-quarter earnings that showed an 8% increase in revenue and net income of $40 million.

Adjusted net income rose 24% to $36.5 million, according to a news release.

“The bonds don’t trade on a delta, but they were up after better-than-expected earnings and the perception that the credit is getting better,” a New York-based trader said.

Mentioned in this article:

Allscripts Healthcare Solutions Inc. Nasdaq: MDRX

Dendreon Corp. Nasdaq: DNDN

Home Inns & Hotels Management Inc. Nasdaq: HMIN

Isis Pharmaceuticals Inc. Nasdaq: ISIS

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