Amylin active; Theravance better bid; MF Global 'comes in'; RadioShack warns on earnings

By Rebecca Melvin

New York, Jan. 30 - The convertible bond market on Monday was fairly quiet, but Amylin Pharmaceuticals Inc. remained active and extended outright gains notched Friday after the San Diego-based biopharmaceutical company and its partner Alkermes plc received regulatory approval for their once-weekly diabetes shot, Bydureon.

Also in the biopharmaceutical space, Theravance Inc. was better bid by outright buyers on Monday, representing continuing strength in that name from last week, a New York-based trader said.

In light of last week's hostile bid by Roche Holding for Illumina Inc., a San Diego-based developer of genetic research tools, last week, market players are looking at the "consolidation theme in biotechnology and pharmaceuticals," a trader said.

Elsewhere, MF Global Holdings Ltd. contracted a couple of points on negative press for the bankrupt broker dealer regarding customer funds that went missing upon the company's filing for bankruptcy protection from creditors on Oct. 31.

"I think 'vaporized overnight' was the quote used to describe the funds," a New York-based trader said.

Omnicare Inc. was quiet despite news late Friday that the Federal Trade Commission is suing to block the Covington, Ky.-based geriatric pharmaceutical services company's bid to purchase rival PharMerica Corp. for $441 million in cash, saying the combination would harm competition.

Omnicare released a statement saying it strongly disagrees with the FTC.

The Omnicare 3.75% convertibles due 2025, which are still partly in the hands of convertible arb players, and Omnicare's 3.25% convertibles due 2035, weren't heard in active trade, but the 2025 paper was seen up 0.8 point at 134.9, and the 2035 convertibles were unchanged at 95.75, according to pricing sources.

Also quiet in trade was Bedford, Mass.-based medical device maker Hologic Inc., which posted after the market close strong quarterly earnings that beat analysts' estimates. The company also raised its annual earnings outlook.

But RadioShack Corp., which has a 2.5% convertible due 2013, said after the market close that its preliminary quarterly and full-year earnings results were lower expected, news which pulled shares down 19% in after-hours trade.

The company is slated to report final fourth-quarter and 2011 results on Feb. 21.

Overall, the convertible bond market was pretty much in line with underlying equities, finishing flat to slightly better, although the distressed segment was decidedly weaker, market players said.

Nevertheless, given tight supply in the market, "even with weakness in the tape, [convertibles players] are pretty much ignoring it. They know the market is resilient and tending to end up flat even when it's weak to start," a trader said.

Amylin extends move

Amylin's 3% convertible due 2014 traded up to as high as 94.8125 during the session, but was seen more like 94.5 bid, 94.625 offered, near the close, which was still higher by about 0.25 point on the day, market sources said.

A second trading source put them at 94.375 bid, 94.75 offered.

Meanwhile, Amylin shares zoomed up 19% on Monday to $14.26.

The catalyst was approval by the Food and Drug Administration late Friday of the company's long-acting form of the twice-daily Byetta diabetes shot developed with partner Alkermes plc.

On Friday the bonds were about a point higher prior to the drug approval news at 88.75 and then shot up to 93.75 bid, 94.375 offered after the news.

Amylin, which is dedicated to the development of diabetes drugs, lost almost half of its market value last October when the FDA rejected Bydureon for a second time and asked for more study on its effect on cardiac rhythms.

All the trading activity in the bonds might have suggested that the paper would have been bid up further than the 94 plus mark, but one trader pointed out that there's still two-years duration on the paper, which puts a lid on the valuation. Nevertheless, with the stock at $14.15, and using a price of 94.25, the bonds were still at a 300% premium, the trader said.

Theravance gains bidders

Theravance's 3% convertibles due 2015 were better bid by outright buyers on Monday and were marked 100.375 bid, 101.375 offered at the end of the day with the underlying stock at $19.37, a New York-based trader said.

Shares of the San Francisco-based biopharmaceutical company gained nearly 3% on the day.

The Theravance bonds, a small issue compared to Amylin, had improved on Friday and was left 100.125 bid, 100.625 offered that day, the trader said.

"Theravance is getting an underlying bid. It traded Friday and had outright buyers today. Because it's a relatively illiquid tranche, people can tend to make these 2 to 3 points [wide on the bid-ask spread]" the trader said.

But given the sector's consolidation theme and credit strengthening seen last week, these are better bid, he said.

Earlier this month, the Theravance 3% convertibles traded in the low 90s when Theravance shares swooned 33% on the company's mixed phase 3 clinical data for its once-daily treatment for asthma and COPD, called Relovair.

RadioShack warns

RadioShack's 2.5% convertibles due 2013 were seen at 95 bid late Monday after the Fort Worth, Texas-based consumer electronics retailer warned that it beat fourth-quarter revenue estimates but missed profit expectations due to "significant declines" in its Sprint Nextel business.

RadioShack shares, which ended the session at $10.23, up a percentage point, were dragged down sharply in after-hours trade.

The company's preliminary results may not bother the RadioShack convertibles, however, convertibles sources said.

"The thing with RadioShack is that the people who like the name aren't worried about results because they are still OK with the credit," a New York-based trader said.

Nevertheless, the poor preliminary results were "the story tonight," an analyst said, adding, it will "be interesting to see where the bonds hold in."

RadioShack said fourth-quarter revenue rose about 6% to $1.39 billion from $1.31 billion, beating the analysts' consensus estimate of $1.35 billion.

But fourth-quarter earnings of between 11 cents per share and 13 cents per share was sharply below 51 cents per share reported in the 2010 fourth quarter, and well below the estimate of 37 cents per share. In addition, gross profit margin as a percentage of sales fell to 35% from 41% in the year-earlier period.

Mentioned in this article:

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Hologic Inc. Nasdaq: HOLX

Illumina Inc. Nasdaq: ILMN

MF Global Holdings Ltd. Pink Sheets: MFGLQ

Omnicare Inc. NYSE: OCR

RadioShack Corp. NYSE: RSN

Theravance Inc. Nasdaq: THRX

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