Omnicare, Encysive climb on positive regulatory news; SanDisk gains on upgrade; Synaptics up in line

By Kenneth Lim

Boston, June 15 - The convertible bond market was quiet on Thursday, with positive regulatory news boosting a handful of names.

Omnicare Inc. gained after a statement by the Centers for Medicare and Medicaid Services eased concerns about the company's ability to include certain services in its contracts for long-term care treatments.

Encysive Pharmaceuticals Inc.'s convertible leapt with its stock after the Food and Drug Administration accepted the company's response regarding a drug application and raised hopes that the company's key product could hit the markets earlier than expected.

In the technology sector, SanDisk Corp. improved slightly along with its stock, which was upgraded on bullish expectations for the flash memory pricing outlook.

But the market in general was quieter than usual, market sources said.

"There didn't seem like there was too much going on," a buyside convertible trader said. "The [stock] market was up, so there was definitely something going on, but it wasn't anything much."

The newest Advanced Medical Optics Inc. 3.25% convertible due 2026 continued to be active on Thursday, and was marked at about 104.75 bid, 105.25 offered against a stock price of $48.

Advanced Medical stock (NYSE: EYE) saw some profit taking on Thursday and slid 0.85% or 41 cents to close at $47.95, a sellsider said. Volatility, which spiked the past couple of days, eased slightly.

"The new EYEs, it's been pretty active, they've been better bid the past few days...but volatility came in a little today," the sellsider said.

Advanced Medical is a Santa Ana, Calif.-based maker of medical devices for the eyes.

Also trading on Thursday were the Synaptics Inc. 0.75% convertibles due 2024, which rose modestly with the stock. The convertible gained about 0.875 point outright, changing hands at 83.5 against a stock price of $21.25.

Synaptics stock (Nasdaq: SYNA) added 5.39% or $1.10 and finished at $21.52. Synaptics is a Santa Clara, Calif.-based maker of touch-pads used in electronic devices.

"We traded a lot of these Synaptics, those are kind of in line," the sellsider said.

Omnicare shines as Medicare fog clears

Omnicare's 3.25% convertible due 2035 was up about four points outright on Thursady as the stock shot up by more than a tenth after a regulatory announcement eased fears about the company's ability to continue selling certain products.

The convertible changed hands at 90.5 versus a stock price of $46, while Omnicare stock (NYSE: OCR) jumped 10.42% or $4.37 to close at $46.32.

"Holy mackerel, the stock is up huge," a sellside convertible analyst said.

The U.S. Centers for Medicare and Medicaid Services clarified late Wednesday on its web site that its stance concerning the validity of certain long-term care pharmacy contracts under the Medicare Part D plan allows alternative standards for long-term care patients under certain circumstances.

The agency said there are "instances in which it is appropriate or legally required under our Part D guidance for plans to establish standards that differentiate between enrollees residing in long-term care facilities and ambulatory patients."

The agency's earlier statement in May said some patient protections worked into long-term pharmacy contracts may be in violation of the Part D plans. That sent shares of Omnicare, which supplies drugs to long-term care patients and had sold such contracts, tumbling.

Morgan Stanley equity analyst David Veal said the clarification was "positive for Omnicare shares" because it signaled that the agency was more likely to let Omnicare continue offering those products.

Encysive climbs on FDA progress

Encysive Pharmaceuticals' 2.5% convertibles due 2012 jumped by about nine points outright on Thursday as the stock soared in the afternoon on positive news from the U.S. Food and Drug Administration regarding the biotech's key drug.

The convertible was marked at 84 against a stock price of $6.80. Encysive stock (Nasdaq: ENCY) closed at $7.01, up by 38.81% or $1.96.

Houston-based Encysive said Thursday that the FDA had accepted its response to concerns regarding its application for the pulmonary arterial hypertension drug Thelin, and will decide whether to approve the treatment by July 24.

The FDA in March gave Thelin an "approvable" letter, sending Encysive shares crashing. The letter said a green light was possible provided certain conditions were met, and Encysive said then that more clinical trial work may have been necessary. On May 25, Encysive stock rallied after the company said it had submitted a response to the FDA, boosting hopes that Thelin could be approved without further costly trial work.

Thelin has also been recommended for approval in Europe by the European Medicines Agency, and a decision across the Atlantic is expected within the next three months.

"I take it as a positive, and the market obviously has," a sell-side convertible analyst said, adding that the possibility of an FDA approval is considerably higher now.

Thelin is a key "life or death" drug for Encysive, and approval by July would be a big boost for the company, the analyst said.

"They may be first to market, which will be huge for the company," the analyst said.

While approval will boost Encysive's credit quality, there are still some risks in the name, the analyst noted. First, the FDA still has to give the drug its thumbs up. Encysive also does not have enough cash to take the drug to market, and will have to find a partner to help market Thelin and raise capital.

An approval by the FDA will send Encysive looking for money, but it is still unclear how it will do that, the analyst said.

"Definitely they'll be looking for money, but they may or may not go to the market for it," the analyst said. "They may just get a partner, or if the stock can get back up to $9, they may just do equity."

SanDisk gains on stock upgrade

SanDisk's newest 1% convertible due 2013 improved about two points outright on Thursday after the stock was upgraded by a UBS analyst.

The convertible was marked at 92.5 bid, 92.75 offered against a stock price of $54. SanDisk stock (Nasdaq: SNDK) closed at $54.45 after climbing 5.73% or $2.95 on Thursday.

UBS equity analyst Alex Gauna upgraded SanDisk stock to buy from neutral on Thursday. Gauna wrote in a note saying that "pricing erosion has abated" in the NAND flash memory products that Sunnyvale, Calif.-based SanDisk makes.

"This healthy activity sets the stage for improving fundamentals through year-end 2006," Gauna wrote.

But a buyside convertible analyst was still not convinced that the NAND flash memory sector was going to improve so soon, citing capacity build-ups and inventories that are still high.

"That's what kills the semiconductor sector as well," the analyst said. "They have to clear the channels before the pricing will improve."

There have also been higher-than-seasonal price drops in the sector, which suggests that some of the sales figures reported in the industry are not as rosy as they seem, the analyst said.

"It's right there that you see a problem," the buysider said. "You have to give so many concessions just to move the product."

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