Anacor rises amid speculation it’s a target; other health care names better to buy

By Rebecca Melvin

New York, April 6 – Health care names notched gains on Wednesday after the $160 billion merger between Pfizer Inc. and Allergan plc was scrapped on Tuesday, and some energy convertibles were also higher amid a rise in crude oil prices.

Anacor Pharmaceuticals Inc.’s 2% convertibles extended gains for a fourth straight day since that issue’s debut on Friday, as investors pushed this and other health care securities higher in expectation that they might benefit from the cancelled Pfizer-Allergan merger.

The convertibles of Ironwood Pharmaceuticals Inc. also gained as it is viewed as another potential target in lieu of the Pfizer deal.

Health care convertibles were generally better on Wednesday. “There are better buyers across the board with people thinking there is a bounce here,” a New York-based sellsider said.

Among energy names Whiting Petroleum Corp. was higher as the price of oil for May delivery settled up $1.86, or 5%, to $37.75 a barrel.

The rise in oil prices was sparked by an unexpected drawdown in stockpiles as reported by the Energy Information Administration.

Elsewhere, Iconix Brand Group Inc.’s 2.5% convertibles traded unchanged at 99.95 bid, 100 offered, a New York-based trader noted.

The convertible primary market was quiet again on Wednesday. No new deals have priced this week.

In the broader markets, equities were also bolstered by gains in health care and energy. The S&P 500 stock market gained 21.49 points, or 1%, to 2,066.66; the Nasdaq gained 76.78 points, or 1.6%, to 4,920.72 and the Dow Jones industrial average gained 112.73 points, or 0.6%, to 17,716.05.

Anacor runs up

Anacor’s 2% convertibles due 2023 traded up to about 120 Wednesday with shares at about $70.50, a sellsider said.

Shares of the Palo Alto, Calif.-based biopharmaceutical company ended up $10.34, or 16%, at $73.20.

The Anacor convertibles debuted in the market on Friday, and on Tuesday they closed at 112 versus a share price of about $63.00.

“It’s been a nice move,” a sellsider said of the gains in Anacor.

The convertible is going up on an outright basis because the stock is moving up, but it is likely that there has also been expansion on a dollar-neutral, or swap, basis, the sellsider said.

The push higher is on the back of expectations that Anacor may be a likely target of Allergan, which had its planned tie up with Pfizer nixed after a U.S. tax rule change.

The U.S. Treasury Department issued new rules late Monday reducing the advantages of corporate tax inversions.

“People look at Allergan and think Allergan should be buying something,” the sellsider said. There are a lot of names that fit: Ironwood fits but is less likely, he said, given its business relationship with Forest Laboratories Inc., which is owned by Actavis plc, which took over Allergan last year.

Ironwood’s 2.25% convertibles were at 91.5 bid with the underlying shares at $10.80, the sellsider said at late morning. But the Ironwood shares closed higher at $11.74, or higher by 9%, and the Ironwood convertibles were indicated to have closed higher at about 95.

Cambridge, Mass.-based Ironwood priced $337.5 million of the 2.25% convertibles in 2015.

Treasury’s latest rules are the third round of administrative action against inversions, and the tougher restrictions for such deals effectively made the Allergan-Pfizer deal impossible.

Whiting adds with higher oil

Whiting’s 1.25% convertibles due 2020 were seen back up over 60 on Wednesday, with the closing mark indicated at 61, compared to 57 previously.

Shares of the Denver-based energy exploration and production company surged 90 cents, or 12%, to $8.64.

A decline in imports and an increase in refinery activity led to the drop in U.S. crude-oil inventory last week. Crude supplies fell by 4.9 million barrels in the week ended April 1. The week before, stocks had been at their highest level in more than 80 years.

Refineries ran at 91.4% of capacity last week, the EIA said, as production is ramping up to meet summer driving season gasoline demand.

In addition to the new data, some energy market players have renewed optimism that an upcoming meeting April 17 of the Organization of Petroleum Exporting Countries and non-OPEC producers will further initiatives for freezing production levels among those nations and prevent the global oversupply situation from worsening.

Mentioned in this article:

Anacor Pharmaceuticals Inc. Nasdaq: ANAC

Iconix Brand Group Inc. Nasdaq: ICON

Ironwood Pharmaceuticals Inc. Nasdaq: IRWD

Whiting Petroleum Corp. NYSE: WLL

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