Medicines on tap; Neurocrine Biosciences expands; Splunk tops par; Tilray yield crosses 11%

By Abigail W. Adams

Portland, Me., Dec. 12 – The convertibles primary market returned to action on Wednesday with a new deal on the horizon.

Medicines Co. plans to price $150 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3% to 3.5% and an initial conversion premium of 25% to 30%, according to a market source.

J.P. Morgan Securities LLC is the bookrunner for the Rule 144A offering, which carries a greenshoe of $22.5 million.

The secondary space also saw an uptick in trading activity with equity markets remaining in the green throughout the session.

However, activity centered primarily on one name – Neurocrine Biosciences Inc.

Neurocrine’s 2.25% convertible notes due 2024 plummeted outright but made large gains on a dollar-neutral, or hedged, basis as stock tanked after the failure of a clinical trial.

Splunk Inc.’s two tranches of convertible notes popped above par for the first time since their initial days in the market with stock continuing to ride positive momentum from its third-quarter earnings report.

While few names outside of Neurocrine saw concentrated trading activity, there continued to be activity in names with large yields, a market source said, which has been a theme for much of the week.

Tilray Inc.’s 5% convertible notes due 2023 saw renewed attention on Wednesday with the notes dropping outright and the yield pushing past 11%.

Neurocrine expands

Neurocrine’s 2.25% convertible notes due 2024 dominated trading activity in the secondary space, accounting for a large portion of the overall trading volume.

The notes were down about 16 points outright to trade at 116 early in the session, a market source said.

They were seen at 115 bid, 115.5 offered versus a stock price of $67 in the mid-afternoon, posting about a 3 point gain dollar-neutral.

The 2.25% notes were trading on an 80% delta on Tuesday and moved to a 72% delta on Wednesday.

“It worked,” a market source said of the notes’ performance on hedge. “This one worked.”

The notes rose in the afternoon to close at 122 as the stock pared its losses.

Stock traded to a new 52-week low of $64.72 but closed the day at $73.83, a decline of 13.91%.

Neurocrine stock plummeted after the company announced the mid-stage clinical trial for its treatment of Tourette syndrome in children failed to meet its endpoints.

There are only about 200,000 children and adolescents diagnosed with the severe form of Tourette’s the medication targeted.

Some sources were surprised the stock got as beaten as it did, given the small size of the market.

Splunk breaks par

Splunk’s convertible notes popped above par on Wednesday for the first time since their initial days in the market.

The software company’s 1.125% convertible notes due 2025 were among the volume movers on Wednesday with about $7 million on the tape.

They rose about 2 points outright to 100.75.

The notes have languished below par for the majority of their existence and traded as low as 89.5 as recently as Nov. 20, according to Trace data.

Splunk’s 0.5% convertible notes due 2023 also gained about 2 points outright to trade up to 100.625.

The notes have moved largely in line with the longer duration tranche and were trading in the low 90s as recently as Nov. 20.

However, both tranches of convertible notes staged a recovery as stock soared after a top and bottom line earnings beat on Nov. 30.

Splunk stock continued its upward momentum as equity markets regained footing on Wednesday.

Splunk stock traded as high as $111.75 but came in as the session progressed to close the day at $109.40, an increase of 2.93%.

Splunk’s two-tranche convertible notes offering was the largest deal of the year with the company pricing $2.13 billion at par in September.

Tilray’s yield

Tilray’s 5% convertible notes due 2023 saw renewed focus in the secondary space with the notes again under pressure as stock dropped more than 10%.

The notes dropped about 6 points outright to change hands at 76. The yield on the notes is now well past 11%, a market source said.

The cannabis company’s stock was again under pressure on Wednesday, closing the day at $84.48, a decrease of 10.19%.

However, there is still no borrow on the stock with the trading activity all outright accounts, a market source said.

It would cost about $1,000 a day to finance a short position on the stock, another source said.

However, Tilray, which went public in July, is approaching the expiration of its IPO lock-up, which will help to improve the cost of the borrow.

The name will still be difficult for hedge accounts to play, given the extreme volatility of the stock.

Tilray’s stock was $145.57 when the 5% notes priced in October.

Mentioned in this article:

Neurocrine Biosciences Inc. Nasdaq: NBIX

Splunk Inc. Nasdaq: SPLK

Medicines Co. Nasdaq: MDCO

Tilray Inc. Nasdaq: TLRY

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