Genzyme, Transocean climb on results; Teva gains further on outlook; Archer Daniels Midland plans deal

By Kenneth Lim

Boston, Feb. 14 - Biotech names traded actively on earnings news in an otherwise uneventful convertible session on Wednesday.

Genzyme Corp. rose with its stock after the company reported fourth-quarter results that were slightly above expectations and raised forecasts for the year.

Teva Pharmaceutical Industries Ltd. continued to advance, also on the strength of its results and guidance for the year.

In the primary market, Archer Daniels Midland Co. launched a $1 billion offering of seven-year convertibles expected to price Thursday after the market closes.

Transocean Inc.'s 1.5% convertible due 2021 gained a point outright on Wednesday after the company reported strong growth in its fourth quarter. The convertible traded at 113 against a stock price of $78. Transocean stock (NYSE: RIG) gained Tuesday morning but fell back in the afternoon to close at $77.08, lower by 1.05% or 82 cents.

"Their results were great, but everybody was expecting them to do well," a buyside convertible analyst said. "Everyone already knew about the good parts, and there was nothing to really ease concerns about softening demand and costs. That's why the stock's down today."

Transocean, a Houston-based offshore contract drilling services contractor, on Wednesday reported fourth-quarter profit of $621 million, or $2.05 per share, about four times the $152 million, or 45 cents per share, it earned in the year-ago period. The company also expects day rates to continue improving entering into 2007, citing a record contract backlog and strong market conditions.

The market in general was sluggish on Wednesday, as snowstorms swept across the country's northeast, market sources said.

"There's not a whole lot in the way of converts," a buyside convertible trader said. "No new deals, not much going on. Credit has been very stable - the market in general has been stable, but as far as specific issues, I really can't point to anything noteworthy. It's rather lackluster. Weather-related slowness, maybe."

Genzyme climbs on forecasts

Genzyme's 1.25% convertible due 2023 rose about 2 points outright on Wednesday, getting a boost from better-than-expected results and a positive outlook for the year.

The Genzyme convertible changed hands at 108.25 versus a stock price of $66. Genzyme stock (Nasdaq: GENZ) improved 3.22% or $2.10 to close at $67.30.

"Genzyme was slightly better," a sellside convertible trader said. "It was higher because of their earnings."

Cambridge, Mass.-based Genzyme, a biotechnology company, reported a fourth-quarter net loss of $268.2 million, or $1.02 per share, including $552.9 million of charges related to its acquisition of AnorMED and other items. Excluding items, the company earned $209 million, or 77 cents per share, about two cents per share above Street estimates.

Genzyme also raised its 2007 earnings forecast to between $3.20 and $3.30 per share from its earlier guidance of $3.10 to $3.20 per share. The forecast excludes AnorMED-related charges.

"Their results were OK," a sellside convertible analyst said. "They managed to just beat estimates. Maybe the market was expecting worse, that's why the stock was up."

Although the analyst thought that Genzyme results may not have been as stellar as its stock gains suggested, the company's outlook remains healthy.

"I don't think their results are super, but they're still good," the analyst said. "They raised their forecast slightly, and they're expecting growth in a number of key drugs, so it looks like it's going to be a positive year for them."

Teva keeps climbing

Teva Pharmaceutical's 1.75% convertible due 2026 added ½ point outright for the second day on Wednesday, following the company's strong forecast for 2007.

The convertible traded at 96.625 versus a stock price of $37.65. Teva stock (Nasdaq: TEVA) closed at $37.96, higher by 2.73% or $1.01.

"These are still active, they continue to improve, although it was more active yesterday [Tuesday]," a sellside trader said.

Teva on Tuesday reported a fourth-quarter profit of $460 million, or 56 cents per share, from $305 million, or 45 cents per share, from a year ago. The earnings fell short of Street estimates for 58 cents per share, but Teva also guided for earnings per share of $2.07 to $2.19 in 2007.

"We were surprised by the follow through in the stock especially after the recent run up," wrote Credit Suisse equity analyst Marc Goodman in a report. "We attribute it to the guidance for the 2007-2009 period, which was basically in line with our estimates; however, we obviously didn't appreciate how low investor expectations were for the numbers."

Goodman had a neutral rating on the stock, saying that the current levels are already close to fair value.

"It is difficult to be excited about the name at $37," Goodman wrote.

A sellside convertible analyst said Teva is expected to show strong growth in the next few years, but some of the expectations may already have been priced into the stock and convertible.

"They have a really strong pipeline going into late '07 and '08, so revenue should pick up," the analyst said. "But the stock's been on a really good run and I think most of the growth is already in the stock."

Archer Daniels Midland launches deal

Archer Daniels Midland on Wednesday launched $1 billion of seven-year convertible senior notes that are expected to price Thursday after the market closes.

The notes are talked at a coupon of 0.875% to 1.375% and an initial conversion premium of 17.5% to 22.5%. They will be offered at par.

There is an over-allotment option for a further $150 million.

Citigroup, JP Morgan and Merrill Lynch are the bookrunners of the Rule 144A offering.

Archer Daniels Midland, a Decatur, Ill.-based processor of agricultural products, said it will concurrently buy back up to $400 million of its own stock using the proceeds of the deal. The proceeds will also be used to fund convertible note hedge and warrant transactions and for general purposes.

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