PTC Therapeutics collapses; SanDisk steady after lowered deal price; Stone Energy drops

By Rebecca Melvin

New York, Feb. 23 – PTC Therapeutics Inc.’s convertibles dropped more than 25 points on Tuesday as the bond’s underlying common shares fell an eye-popping 62% after regulators pulled the rug out from under the South Plainfield, N.J.-based pharmaceutical company’s application to market the Translarna drug.

The U.S. Food and Drug Administration’s refuse-to-file letter said that the application was not up to standards needed to permit a substantive review.

SanDisk Corp.’s two convertible bonds were mostly steady in trade after news that Western Digital is cutting its merger offer to $15.8 billion, or $78.50 a share in cash and stock, after losing its own $3.78 billion infusion from China’s Unisplendour outfit.

Western Digital lost the China investment amid growing expectation that regulatory scrutiny would likely upend China’s participation in the U.S. technology company.

In the energy patch, Stone Energy Corp. reported worse-than-expected quarterly results, and its bonds sank 9 points on a 23% drop in in the underlying shares. But the moves in other energy convertibles were more muted, a New York-based trader said.

Whiting Petroleum Corp.’s convertibles were a bit lower, with a big trade at 35, a Connecticut-based trader said.

Traders were also turning their attention to Chesapeake Energy Corp., which was slated to report fourth-quarter results on Wednesday. The Chesapeake 2.5% convertibles traded at 35 near the end of the session.

The market is mostly interested to know whether Chesapeake has been able to make progress on asset sales or taken other moves to reduce its cash flow burn.

Overall the market was weighed down on Tuesday by lower oil prices and equities. But the price in oil gapped sharply lower after news that U.S. crude oil supplies rose by a greater-than-expected 7.1 million barrels for the period ended Feb. 19, according the American Petroleum Institute. Analyst had expected supplies to rise about 3 million barrels.

Meanwhile the oil ministers of Saudi Arabia and Iran were making headlines with statements that indicated that those oil-producing nations intended to continue pumping oil at levels that exceed market demand.

West Texas Intermediate crude for April delivery fell about 6% to $31.28 a barrel on the New York Mercantile Exchange.

The convertibles of Jakks Pacific Inc. and Vitamin Shoppe Inc., among other convertible issuers, were being eyed after those companies posted mixed earnings reports.

The 4.875% convertibles of Jakks Pacific, a Malibu, Calif.-based toy and leisure products company, were indicated lower at 85.3 from about 96.6 as the underlying shares slid 17%. The Jakks Pacific 4.25% convertibles were seen lower at about 93 from 103.

PCT Therapeutics collapses

PTC Therapeutics’ 3% convertibles dropped to about 55.5 from 81.30 previously. PTC shares lost two-thirds of their value, falling $17.42, or 62%, to $10.84.

The FDA said that the company’s marketing application for its muscular dystrophy drug was insufficient.

PTC’s drug, Translarna, is being evaluated in patients with Duchenne muscular dystrophy (DMD), a progressive degenerative disorder that hampers muscle movement and affects one in 3,600 newborn boys.

The condition has no approved treatment in the United States. But the Translarna treatment is already being sold in the European Union.

In October, the drug failed to meet the main goal in a keenly watched late-stage study, but the company said data from all trials on the drug supported a U.S. marketing application.

SanDisk holds in

SanDisk’s 0.5% convertibles due 2020 traded around par, and the SanDisk’s 1.5% convertibles due 2017 traded down about a point from Monday to 142.68, according to Trace data.

SanDisk shares were off $1.48, or 2%, to $66.22 in early trading.

“SanDisk held up fairly well,” a trader said.

The SanDisk news was not considered a credit issue. “It’s more an issue of if the deal will get done or not. There is still risk there. On top of that, if the deal breaks, the where does the stock go? It’s hard to tell,” a New York-based convertibles analyst said.

U.S. regulators that investigate purchases by foreign entities signaled they would scrutinize the Western Resources transaction with China’s Tsinghua Unisplendour, and the implication was that it would probably be blocked. Western still wants to do the deal with SanDisk, the Milpitas, Calif.-based storage chip maker but reduced its offer price.

Stone drops

Stone Energy’s 1.75 convertibles dropped back down to 55 from about 64. They had dropped in to the 50s earlier this year.

“It came in about 9 points,” a New York-based trader said of the Stone bond. Shares of the Lafayette, La.-based oil exploration and production company fell 43 cents, or 23%, to $1.42.

The company reported earnings that missed estimates by 6 cents and revenue that was in line with expectations.

Overall however the moves in energy on Tuesday were “fairly muted, given the move in only on Monday, which was up by a decent amount and we didn’t see energy convertibles moves higher,” a trader said.

Chesapeake earnings on tap

Chesapeake’s 2.5% convertibles and 2.25% convertibles were seen at 35 and 18, respectively.

There is not as much trading of the Chesapeake convertible preferreds, a lot of which has been converted out since they started trading below parity after the company suspended its dividend.

The company is expected to report earnings on Wednesday and is a widely anticipated “data point” for traders.

As of the end of the third quarter, Chesapeake had burned through more than $2 billion of cash last year, having started 2015 with more than $4 billion in cash on its balance sheet. Despite ongoing worsening of natural gas prices in the fourth quarter, the market is hoping that the pace of degradation of its cash balance slowed.

During the last quarter, the company tried to address its debt problems by undertaking a second-lien debt exchange. The exchange was intended to push back near-term debt maturities, but it wasn’t overly successful.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Jakks Pacific Corp. Nasdaq: JAKK

PTC Therapeutics Inc. Nasdaq: PTCT

SanDisk Corp. Nasdaq: SNDK

Stone Energy Corp. NYSE: SGY

Vitamin Shoppe Inc. NYSE: VSI

Whiting Petroleum Corp. NYSE: WLL

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