Amgen in line to slightly lower on earnings; Gilead, Coinstar in line as well; Amarin off

By Rebecca Melvin

New York, July 27 - As has been the case all week, earnings drove a good amount of trade in the convertible bond market on Friday, with many names moving in line with their underlying equities.

It was a typical summer Friday, however, with thin volumes despite a strong rally in the broader equity markets against expectations that continued lackluster U.S. economic growth will spur further stimulus from the Federal Reserve.

Amgen Inc. was a little higher outright, but in line to slightly lower on a dollar-neutral, or hedged, basis, after the Thousand Oaks, Calif.-based biotech giant posted second-quarter profit that beat estimates and guided higher for the full year. Shares rose nearly 6%.

Gilead Sciences Inc. rose in line to slightly better with higher shares after the Foster City, Calif.-based biopharmaceutical company posted better-than-expected earnings and said it's planning a study of a new Hepatitis C drug.

Coinstar Inc.'s convertibles were also in line after the Bellevue, Wash.-based operator of coin-counting machines and video rental kiosks saw its shares drop on a revenue miss. Earnings were better than expected, however.

Amarin Corp. plc's convertibles were down outright, but in line on a dollar-neutral basis as investors digested news that the Dublin-based drug developer's regulatory approval for Vascepa was not for as wide a range of uses as many had hoped. Shares fell.

Meanwhile, James River Coal Co. continued to drift lower in next to nothing trade despite a bounce in the underlying shares.

James River shares jumped 15% and Bristol, Va.-based Alpha Natural Resources Inc. shares were up 20% following a better-than-expected earnings report from Arch Coal Inc., which posted a narrower-than-expected loss, and forecast improving U.S. demand for thermal coal. Short covering was thought to be behind at least some of the sudden surge.

U.S. equities more than erased losses notched on Monday and Tuesday, with the Dow Jones Industrial average putting in another triple-digit gain to close above 13,000, while the Nasdaq Stock Market improved by more than 2%.

The Commerce Department reported that U.S. economic growth slowed as expected in the second quarter to an annualized rate of 1.5% for the gross economic product.

That news helped fan hopes of further economic stimulus from the Fed. But the moves also represented an extension of gains notched Thursday on assurances from European Central Bank president Mario Draghi that whatever steps are needed to shore up the euro will be taken.

Amgen flat to slightly lower

Amgen's 0.375% convertibles due February 2013 traded up slightly to 110 and were seen at 110.25 versus an underlying share price of $82.50 in early afternoon trade, according to a New York-based trader. The move represented a slight increase outright but left them unchanged to in slightly on a hedged basis, the trader said.

The paper had improved by about 0.5 point in the past two days ahead of earnings.

"They are creeping back in a little bit," the trader said.

The company reported late Thursday that its second-quarter net income rose 8% to $1.27 billion, or $1.61 a share. Excluding items, the result was $1.83 per share, which was significantly better than the $1.55 per share result that analysts expected.

Revenue jumped 14% to $4.5 billion, and the company raised its full-year profit forecast to $6.20 to $6.35 a share, from a previous estimate of $5.90 to $6.15 a share.

Sales of its rheumatoid arthritis drug Enbrel jumped 11% to $1.06 billion, which was better than the $950 million analysts expected; but sales of its anemia drug Aranesp fell 8% to $536 million.

The convertibles, which mature in six months, have tracked higher in recent weeks with the shares. In early June, Amgen's share price was about $68.00.

Gilead flat to higher

The three sister convertibles of Gilead were flat to higher, with Gilead's 0.625% convertibles due 2013, or the B convertibles, little changed at 103.25, and Gilead's 1% convertibles due 2014, or the C convertibles, higher by about 0.125 point on a dollar-neutral basis, while the Gilead 1.625% convertibles due 2016, or the D convertibles, were up 0.25 point.

"There really was not as big a move as one might have expected," a New York-based trader said.

One trader said that recently the Gilead C convertibles have expanded a lot and that is the one of the sister issues that he prefers most.

Gilead posted net earnings of $711.6 million, or 91 cents a share, down from $746.2 million, or 93 cents per share, in the year-earlier quarter. Excluding items, earnings were better than expected at 99 cents, compared to 95 cents a share expected.

Revenue rose 12.5% to $2.41 billion.

The company also said it plans to start a combination study of two drugs in a single pill to treat hepatitis C by the end of the year. It plans to combine GS-7977, which it acquired earlier this year, with GS-5855 in a trial aiming for a one-pill-a-day treatment.

Amarin drops in line

Amarin's 3.5% exchangeables due 2032 traded at 177.5 bid, 178.5 offered versus an underlying share price of $13.66 on Friday. That compared to 190 bid, 191 offered on Thursday with the shares at $15.00.

Shares of the Dublin-based drug developer sidestepped the broader market updraft to slide lower by $1.80, or 12%, to $13.51 on Friday.

That put the bonds trading in line on about an 83% hedge, a trader said.

"There are varying opinions of the labeling of AMR101," he said.

The approval of Amarin's AMR101 cholesterol drug has restrictions that will limit the overall addressable market initially.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Amarin Corp. plc Nasdaq: AMRN

Amgen Inc. Nasdaq: AMGN

Coinstar Inc. Nasdaq: CRST

Gilead Sciences Inc. Nasdaq: GILD

James River Coal Co. Nasdaq: JRCC

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