Valeant leads pharma rebound; Platform Specialty off as CEO plans exit; energy names slide

By Paul Deckelman

New York, Oct. 23 – Things were looking up in the recently hard-hit pharmaceuticals and biotechnology sector on Friday.

After several sessions of being whipsawed around at lower levels on questions about its drug-pricing policies and its distribution channels, the holders of Valeant Pharmaceuticals International, Inc.’s bonds finally caught a break on Friday as the beleaguered drug manufacturer’s badly oversold paper bounced off its Thursday closing levels to move higher across the board.

That helped to pull up some of the sector-peer credits that had also gotten beaten up over the past few sessions, including Endo International plc and this week’s new deal from Concordia Healthcare Corp.

The sector-wide rebound also extended to the convertibles market, where Horizon Pharma plc rebounded along with the common shares of the Dublin-based specialty pharmaceutical company. Fellow specialty pharmaceutical company and convertibles issuer DepoMed Inc. was also better, although its convertibles were not as actively traded as those of Horizon’s.

Elsewhere, with the lately struggling pharmaceutical names seen higher, bond traders said that Friday’s big loser in an otherwise mostly positive session was Platform Specialty Products Corp., whose notes slid in very active trading after the chemicals company announced plans for its chief executive officer to retire, although Daniel H. Leever will stay on board until a suitable successor is found.

A short-lived rise in world crude oil prices fizzled out on Friday and they were back on the downside, battering such oil and gas credits as Energy XXI (Bermuda) Ltd., Comstock Resources, Inc. and Seventy Seven Energy Inc. Sector bellwether California Resources Corp. was also lower.

Traders saw Avaya Inc.’s paper moving up for a second straight session.

Back in the convertibles market, Huron Consulting Group Inc.’s 1.25% convertibles were slammed on an outright basis and contracted 0.5 point to 1 point on a swap basis on Friday after disappointing earnings and guidance. Shares of the Chicago-based financial consulting company plunged 24%.

Valeant bounces back

Bond traders said that as has been the case for most of the week, the session’s big name was Valeant Pharmaceuticals – but for the first time in four sessions, the Laval, Quebec-based drug maker’s paper wasn’t heading downward.

“Everything was better today around 1½ to 2 points” a trader said, quoting its most actively traded credit, the 6 1/8% notes due 2025, around the 88 bid level.

A second trader also saw those notes “straddling 88,” while a third saw them trading between 87 and 88½.

More than $78 million of the notes changed hands, making them the busiest junk credit of the day.

Those notes had been trading as high as the par level earlier in the month but had already been hammered down to around a 95ish context last week on the news that federal prosecutors had subpoenaed documents and other information related to the company’s drug pricing and distribution policies.

They stayed in the mid-90s as the week began but plunged as low as 80 bid on Wednesday after short-seller Citron Research released a scathing report accusing the company of fraudulently booking “phantom sales” though a shadowy network of specialty pharmacies. The bonds came off those lows to settle in around the 87-88 level towards the end of the week, with over $180 million traded on Thursday after Valeant denied the accusations and said the trading house was using false and manipulative data. It scheduled a conference call for Monday to explain its side of things.

Other bonds in the Valeant capital structure also ended the week having come off their earlier lows, though still down from the levels they had held at the beginning of the week.

Its 5 7/8% notes due 2023 jumped more than 3 points from their lows earlier in the week to close at 87 5/8 bid, with over $44 million having changed hands.

Its 6¾% notes due 2018 rose about 1½ points to the 94 5/8 bid level, on volume of over $34 million.

Pharma names recover

Friday’s turnaround in Valeant’s bonds had a ripple effect across the pharmaceutical and biotech sector. Even apart from Valeant’s specific troubles, the sector has generally been a favored target of late of politicians blaming “Big Pharma” for inflated health-care costs, although those concerns have been magnified in the wake of all of the negative news about Valeant.

Sector peer Endo International’s 6% notes due 2023, which had slumped by several points in heavy trading around mid-week along with Valeant’s paper, rose on Friday by about ¾ point to 99 bid. More than $21 million of the Irish drug manufacturer’s paper changed hands.

Concordia Healthcare’s 9½% notes due 2022 were likewise better on Friday. A trader quoted them up nearly 1 point at 96½ bid, with over $38 million having traded. Some $790 million of the notes priced at par on Tuesday but were then seen trading in a 96-to-97 bid context, falling even further into the low 90s in heavy trading around midweek, at least partly due to fellow Canadian pharmaceutical name Valeant.

Another trader, seeing them at 96½-97 on Friday, opined that contrary to the narrative heard in some quarters that the bonds had plunged to around the 96-97 level after their pricing, “I think they got placed there from the start, at 96 and change,” even though the bonds were ostensibly issued at par. He suggested that “it was a hung deal,” with the underwriters forced by the market to just resell the bonds at those lower levels to move them out, “but they’ll still make money off it.”

Horizon comes back

In the convertibles market, traders said that Horizon Pharma plc’s paper rebounded along with the common shares of the Dublin-based specialty pharmaceutical company.

They also said that fellow specialty pharmaceutical company and convertibles issuer DepoMed was better, although its convertibles were not as actively traded as those of Horizon’s.

They said that both companies’ convertibles and shares had been negatively affected by all of the controversy around Valeant. Horizon also came under fire this week after publication of a news article critical of its drug pricing and Prescriptions Made Easy program, under which doctors send prescriptions directly to mail-order specialty pharmacy outlets rather than to retail pharmacies.

But on Friday, those names were “coming back” along with the broader markets. “We’re seeing DepoMed, Valeant and Horizon, and things are slowly coming back,” a trader said.

“We may have overshot at the beginning,” a trader said.

Convertibles traders said that the rebound in these names was strong but not as strong as the downdraft that preceded it. Horizon still remains down at least 7 or 8 points on an outright basis and 3 points on swap from a week ago.

Horizon’s 2.25% convertibles traded up to about 90 from 81 or 82 on Thursday. The underlying common shares jumped $3.94, or 30%, to $17.06. But last week, the shares had closed at $19.25 on Friday.

Behind the jump on Friday may have been investors getting comfortable with the idea that the fallout from allegations against specialty pharmacies may be contained, one trader said.

“It may have been a bit of a relief as investors do their due diligence and determine is it legitimate and who does it impact; and they may be seeing that there was an overreaction on the credit; although we don’t know yet,” the trader said.

Horizon put out a statement defending its current drug pricing and its use of specialty pharmacies, saying it does not own or have an ownership stake in any pharmacy and that it does not possess an option to purchase any pharmacy.

“All pharmacies that distribute Horizon branded medicines are fully independent, including those that are part of Horizon’s Prescriptions Made Easy program,” the statement said.

A trader said that he didn’t expect more to come out of Horizon in the near term until it reports earnings on Nov. 6.

“We are getting into their quiet period, and we’re in the center of earnings season,” the trader said.

As for DepoMed, its 2.5% convertibles due 2021 were not as actively traded as Horzion’s convertibles. The Newark, Calif.-based specialty pharmaceutical company’s stock was up 10% at $16.94, and the bonds were quoted at 110.

Avaya improves again

Also on the upside, and for a second straight day, were Avaya’s notes.

A trader saw its 10½% notes due 2021 in a 40-to-41 bid context, though on just a few trades.

On Thursday, those bonds gained 4 points to end at 39 bid, with $15 million traded.

Its 7% notes due 2019 “are now in the low 80s,” a trader said; on Thursday, they had shot up by 5 points to 78 bid, with $12 million changing hands.

There was no fresh news out to explain the rise in the bonds of the Santa Clara, Calif.-based provider of business collaboration and communications services. But one trader, who admitted that he did not know why “all of a sudden the switch was flipped yesterday and the bond rose,” noted that the company will be reporting fourth-quarter and full-year earnings on Nov. 11, with a conference call and webcast for analysts and investors the next day, “so maybe people think they’ll say something good. Maybe they’ll unleash something positive.”

Platform pummeled on CEO plans

On the downside, a trader said that “one of the most active names was Platform Specialty Products,” whose bonds swooned after the West Palm Beach, Fla.-based specialty chemicals manufacturer announced that CEO Daniel Leever plans to retire, although he will stay on the job until a suitable replacement is found.

He said that the company’s 6½% notes due 2022 had closed Thursday at 91¾ bid, fell as low as 87½ bid on Friday morning and finally went home at 88¼ bid. More than $37 million traded.

Oil names remain weak

Oil and natural gas names remained under pressure, in line with a fall in crude oil prices; November-delivery West Texas Intermediate lost 65 cents on the New York Mercantile Exchange on Friday to end at $44.73 per barrel after having risen by 18 cents on Thursday.

One big loser was Energy XXI, whose 11% notes due 2020 were seen down a deuce on the day at just under 54½, on volume of over $13 million.

Other oil-patch downsiders included Comstock Resources, whose 10% notes due 2020 were also down 2 points at just under 71 bid, and Seventy Seven Energy, whose 6 5/8% notes due 2019 lost nearly 2 points to end at the 62 bid level.

California Resources’ 6% notes due 2024 lost 5/16 point to end below 68 bid, with more than $30 million traded.

Huron gets hit

Back among the convertibles, Huron Consulting Group’s 1.25% convertibles fell to the lower 90s from about 104 to 105, ending around 93 bid.

Huron shares fell $14.86, or 23%, to $46.62.

“It was a rich bond to begin with, that is dominated by outright holders,” a New York-based trader said of the Huron convertibles.

The securities fell after the Chicago-based operational and financial consulting services company reported third-quarter earnings that beat estimates by about a cent but missed on revenue. It also lowered its 2015 earnings per share and revenue guidance below consensus.

The company updated its full-year revenue target to $835 million to $850 million. Earnings are now expected to be in the $165 million to $170.5 million range, with adjusted earnings per share in the range of $3.60 to $3.70.

Rebecca Melvin contributed to this review

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