CommScope jumps, but Isolagen tumbles amid slightly weaker convertibles market

By Rebecca Melvin

Princeton, N.J., Aug. 1 - The convertibles of CommScope Inc. jumped Monday after the company reported strong earnings a day earlier than expected. But biotechnology company Isolagen Inc. tumbled after announcing disappointing results of a Phase III clinical trial.

Some selling pressure hit issues in the semiconductor patch, including Advanced Micro Devices Inc. and Cypress Semiconductor Corp; but an upgrade helped boost Micron Technology Inc.

Teva Pharmaceutical Industries Ltd. edged up after reporting strong earnings. But Amgen Inc., which impressed convertibles players in July, remained little changed after positive news on a drug approval process. Abgenix Inc., which was also involved in the drug approval process, was quiet.

Overall, the convertibles market was somewhat weaker, if quiet, as Treasuries wavered and then ended lower on a summer Monday.

"It hasn't been especially busy," a New York-based sellside trader said regarding market activity. "In the bond market, yields are up. It feels weaker, and there are sellers out there."

U.S. Treasuries fell Monday, pushing 10-year yields to their highest level since mid-April amid speculation the Federal Reserve will continue to raise interest rates on concern economic gains will spark faster inflation.

Redemption notices also cast a shadow on Monday as some 60-day notices began appearing Friday.

"That concern is going to be out there for a little while," said a New York sellside trader.

"We'll have to wait and see what redemptions are like. I have mixed feelings" about what August will be like, a New York-based hedge fund manager said.

Earnings news is expected Tuesday from UtStarcom Inc., which saw its convertibles remain unchanged on Monday, and from recent new issuers Evergreen Solar Inc. and Oil States International Inc.

Sirius Satellite Radio Inc. and Ford Motor Co., which will also report earnings on Tuesday, saw their convertibles also remain quiet after news that the automaker will factory install Sirius as an option in four of its 2006 models beginning this month, following up on agreement announced last year.

In the primary market, real estate investment trust Affordable Residential Communities Inc., through its operating partnership, Affordable Residential Communities LP, launched a $70 million 200-year convertibles offering, which was talked to yield between 7.25% and 7.75% with an initial conversion premium of between 12.5% and 17.5%, according to a syndicate source.

The offering, via sole bookrunner Merrill Lynch, is expected to price Thursday after the markets close, following a three-day roadshow.

The Denver-based REIT expects to use proceeds to purchase manufactured homes for renting, to pay down obligations under its lease receivables facility and for general corporate purposes.

Meanwhile, no price talk emerged on Conseco Inc.'s $300 million convertibles offering, which was announced a week ago.

The Carmel, Ind.-based insurer said July 25 that it would offer the convertibles as part of an effort to refinance bank debt. The refinancing also included the launch of a new $475 million term loan.

CommScope gyrates

The convertibles of CommScope jumped and its stock surged after the Hickory, N.C.-based network cable maker said its second-quarter profit fell 81%, but topped analysts' estimates. On Friday, CommScope shares dropped 7.5% on no apparent news, traders and analysts said.

"My guess is that there was speculation of poor earnings over raw materials pricing that affects their cost structure," a Connecticut-based buyside analyst said.

"I didn't see any news on Friday that would have indicated the stock down like that. Then the company reported early, seemingly to put investor concerns to rest," the analyst said.

The earnings exceeded guidance and showed good guidance for next quarter, the analyst said.

Quarterly income fell to $16.3 million, or 25 cents per share, from $84.1 million, or $1.16 per share, a year ago.

Excluding charges for cost reduction initiatives in the latest quarter and an after-tax restructuring gain in the year-ago quarter, earnings rose to $17.3 million, or 27 cents per share, from $8.1 million, or 11 cents per share, a year ago.

Analysts surveyed by Thomson Financial expected earnings per share of 18 cents.

Commscope's 1% convertible due 2024 jumped to 102.74 on Monday, up from 95 bid, 96 offered on Friday. Its shares rose $2.09, or 12.3%, to $18.98.

"It was a bit of a surprise that they came out early," the buyside analyst said, regarding earnings. He added that his firm had a market hedge on CommScope that was a money maker in light of the recent activity.

Isolagen drops almost 50%

Isolagen saw its convertibles drop after the Exton, Pa.-based biotechnology company announced disappointing preliminary results from its phase III clinical trial for a dermal filler treatment intended to help skin look younger.

It's a lot more pricey than Botox and it takes several months to accomplish, so there is no immediate gratification for users, a California-based buyside analyst said, who added that his firm hadn't bought any of the bonds.

No live trades were reported in Isolagen's 3.5% convertibles due 2024, which totaled $90 million when issued last autumn. However, the paper was indicated down 30 points to 61.13 bid, 66.13 offered. Shares of Isolagen fell $2.75, or 49.2%, to $2.84.

Micron up, but sector mixed

The convertibles of chip makers traded mixed after the Semiconductor Industry Association reported Monday that sales worldwide of semiconductors declined 0.5% in June to $18.0 billion, from sales of $18.1 billion reported in May.

For the whole second quarter, sales were down 2.1% at $53.9 billion, a sequential decline from $55.1 billion of sales reported in the first quarter.

June compared to the year-earlier period, however, showed sales 0.8% higher from $17.8 billion; and for the whole first half, global chip sales were up 6.5% to $109.0 billion, compared to $102.4 billion in the first half of 2004.

The decline in June sales was caused "in part by inventory adjustments in the distribution channel and price attrition in DRAMs [computer memory chips]," SIA president George Scalise said in a press release.

Scalise said stronger growth is expected in the second half this year compared to 2004. The opposite occurred in 2004, when the first half was strong and the second half was weaker.

The convertibles of Micron Technology gained and its stock was higher after A.G. Edwards raised the Boise, Idaho-based chip maker to "buy" from "hold."

Its 2.5% convertible due 2010 traded Monday at 109.875, compared to a level Friday at 108.61 bid, 108.87 offered. Shares of Micron Technology gained 30 cents, or 2.53%, to $12.18.

Amgen, Abgenix seen unchanged

The convertibles of Amgen and Abgenix were seen unchanged despite gains in their stocks after news that U.S. regulators have granted the colon cancer drug panitumumab fast-track status, bringing the treatment one step closer to U.S. approval.

Amgen and Abgenix are seeking approval for the drug for use in patients with advanced colorectal cancer who have failed standard chemotherapy treatment.

Panitumumab, an antibody-based cancer drug designed to block a protein that helps tumors grow, was shown in a midstage trial to reduce tumors in patients who previously failed to benefit from chemotherapy.

The companies see the drug as a potential competitor to Erbitux, a similar antibody sold by ImClone Systems Inc.

Amgen's 0% convertible due 2032 traded at 78.32 on Monday, little changed from Friday. Its stock rose $1.86, or 2.4%, to $81.63.

The 1.75% convertible of Abgenix due 2011 was seen at 99.6, the same level as Friday.

Abgenix shares rose 33 cents, or 3.18%, to $10.70.

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