OSI Pharma skyrockets amid buying frenzy as stock shoots up 139%; 4 new deals emerge

By Ronda Fears

Nashville, April 26 - OSI Pharmaceuticals Inc. was a screamer Monday as buyers tripped over each other to get involved in the convertible as the underlying stock more than doubled on news of a positive trial result in a lung cancer drug developed with Genentech Inc. and Roche Holding AG.

Several other issues participated in the biotech party, like the new Decode Genetics Inc. convertible, which gained about 2.5 points to 104.5 as stock in the Reykjavik, Iceland-based drug company rose 3%. But other cancer drug names were the biggest party-goers, such as Abgenix Inc., Corixa Corp. and Celgene Corp.

TXU Corp.'s converts also got a shot in the arm on news of more than $4 billion in asset sales and a boosted outlook from the Dallas-based power company. Reliant Energy Inc., formerly Reliant Resources Inc., was a tad higher in sympathy.

The primary market sprang back to life, as well, with a foursome of new deals totaling $585 million, including a $300 million overnighter from Reebok. Also pitching new paper were Medarex Inc., Lithia Motors Inc. and Matria Healthcare Inc.

Gray market activity was virtually nonexistent for the new paper, however, what with so much excitement going on in the secondary. Conseco Inc. also is coming to market this week with its $500 million mandatory.

OSI Pharma up 74, 91.5 points

The climb in OSI Pharma's securities - both the stock and the convertibles - was described by one dealer as "off the charts, meteoric."

While the stock rose 138.86%, shooting up $52.93 to $91.10, the converts added 74 to 91.5 points on the day.

"It was just wild. There was one wave after another of people getting in and getting out," the dealer said.

"The news was on the tape when everybody got in this morning. It hit my radar screen, but really I didn't see this coming, didn't expect such a fantastic reaction."

But soon, he said, the pre-open market had moved OSI Pharma shares up something like 85% and the converts were moving in tandem.

"There was this initial spike, which was incredible - 40, 50, 60 points - but these things [the OSI Pharma converts] just kept right on going, tit-for-tat with the stock.

"First, there was a wave of buying to get involved. Then, there was a wave of taking profits. Those cycles just kept repeating all day. It was, it is, insane."

When the dust settled at the end of the day, the OSI Pharma 3.25% convertibles due 2023 had gained 91.5 points to 203.875 bid, 204.375 offered and the 4% converts due 2009 had risen 73.8125 points to 182.6875 bid, 183.1875 offered.

The insanity, the dealer said, is that there isn't a drug actually going to market until "at least summer, and a lot of things can happen in the course of three or four or six months."

OSI Pharma announced, with partners Genentech and Roche, that a Phase III study of Tarceva, an investigational treatment for non-small cell lung cancer, met its primary endpoint of improving overall survival chances of patients. OSI, which sponsored the international study, will work with the Food and Drug Administration to complete the new drug application for Tarceva during the summer.

Colin Goddard, chief executive of OSI Pharma, said the drug was granted a fast-track designation from the FDA.

Cancer drug developers join in

Several other biotechnology companies with cancer drugs in development found bids as a result of the buying frenzy created by OSI Pharma.

Corixa's 4.25% convertible due 2008 was one of the biggest gainers on the day, rising to 107.375 bid, 108.375 offered Monday from the 102 bid, 103 offered neighborhood Friday. The underlying stock rose 10.76% on the day, or 69 cents, to $7.10.

Seattle-based Corixa has one product on the market in Canada and with its partners is conducting late-stage clinical trials for several product candidates targeting a range of cancers, infectious diseases and autoimmune diseases.

"This [Corixa convert] has to be one of the cheapest plays out there," said a market source in the outright community, who added, "I still like Abgenix."

Abgenix has a colon cancer drug in late-stage clinical trials.

The Abgenix 3.5% convertible due 2007 was quoted at 101 bid, 102 offered at the close with the stock up $3, or 20.41%, at $17.70.

Celgene was mentioned by another market source, as it also has cancer drugs in late-stage clinical trials. Celgene has a couple of drugs in commercial stages and a licensing agreement with Novartis for the entire Ritalin family of drugs.

Celgene's 1.75% convertible due 2008 was quoted up 3.625 points to 138.25 bid, 138.75 offered, as the stock closed up $2.56 , or 4.5%, to $59.50.

Medarex another cancer play

Medarex - another cancer play - launched a new deal Monday that was described as cheap - but with reservations.

The new Medarex convertible "looks cheap relative to the rest [of the new deals] but for a reason," said a market source.

Medarex launched $125 million of seven-year convertible notes talked to yield 2.25% to 2.75% with a 25% to 30% initial conversion premium with proceeds earmarked to take out all or part of its 4.5% convertibles. Pricing is slated for after the close Tuesday.

There is $142 million outstanding on that issue, according to the Princeton, N.J., biotech firm.

Medarex posted a 2003 net loss of $129.3 million, or $1.65 per share, compared to a net loss of $157.5 million, or $2.09 per share, in 2002. The 2003 loss includes a non-cash impairment charge of $1.4 million related to a write-down of Medarex's investments in partners and a write-off of in-process technology of $6.5 million associated with an asset acquisition from Corixa and a related license with Kyowa Hakko Kogyo Co. Ltd. Revenues in 2003 dropped to $11.2 million from $39.5 million.

The Medarex 4.5% converts due 2006 were quoted up Monday to around par from the 96.75 bid, 97.75 offered area on Friday. Medarex shares closed up 40 cents, or 3.81%, to $10.90 and in after-hours trading rose another dime.

Reebok offered at plus 2 points

Reebok was in the market with an overnight $300 million of 20-year convertible notes talked to yield 1.75% to 2.25% with a 35% to 40% initial conversion premium. Proceeds are earmarked to take out all or part of its 4.25% convertibles.

The Reebok 4.25s snapped back on the news, a dealer said, after trading at around 104 last week.

A buyside trader said the new Reebok issue was offered at 2 points over issue price in the gray market, which he said was "pretty optimistic."

The Canton, Mass.-based shoemaker intends to use proceeds to refinance existing debt, repurchase stock and finance acquisitions, including the proposed purchase of The Hockey Co. Holdings Inc., as well as for general corporate purposes. Reebok currently intends to redeem its $250 million of 4.25% convertible debentures due 2021, subject to completion of the offering and market conditions.

On Monday, Reebok shares closed off 43 cents, or 1.12%, to $37.97. In after-hours trading, the stock was down another 77 cents, or another 2%.

Lithia Motors, Metria in mix

Another pair of small new deals was on the table for this week, too, but neither was seen in the gray market.

Lithia Motors launched $85 million of 10-year convertible notes talked to yield 2.75% to 3.25% with a 35% to 40% initial conversion premium with pricing set for after the close Tuesday.

"The credit is pretty solid," said a buyside market source, referring to Lithia Motors. "But this is one where you buy it and put it away."

Proceeds will be used to pay down lines of credit used to finance prior acquisitions, and vehicle inventories.

In first quarter, the Medford, Ore.-based dealership company completed two acquisitions; a Chrysler-Jeep store in Reno, Nev., and a Chevrolet store in Helena, Mont. The two stores have about $95 million in annualized revenues.

Also Monday, Matria Healthcare launched $75 million of 20-year convertible notes talked to yield 4.625% to 5.125% with a 42.5% to 47.5% initial conversion premium for Thursday's business.

Proceeds are earmarked to fund the redemption of Matria's $122 million of 11% senior notes. On Friday, the company extended the tender offer for those notes, which had been due to expire Tuesday, until noon on May 28. As of midnight April 22, the company said it had received valid tenders from holders of $120 million of the notes.

TXU soars on asset sale

TXU shot up Monday on news of a couple of asset sales that will aide the company's plans to trim its debt, as well as the power company's boosted earning guidance.

The Dallas-based company announced the sale of its Australian unit for $3.72 billion and a deal to sell its gas transportation unit TXU Fuel Co. for $502 million. Also, the company said it plans to sell TXU Gas Co., its gas transmission and distribution unit, in the next 30 to 60 days.

TXU aims to cut its debt load by about 40% to $8 billion by year-end, following a $1.8 billion reduction in debt in 2003, said chief executive John Wilder, in a news release. Furthering those efforts, the company also announced Monday that it has repurchased a 9% exchangeable preferred that was a private placement for $1.84 billion.

As a result of the asset sales and debt buyback, TXU revised its 2004 forecast for operating earnings to $2.45 to $2.55 a share, up from its previous estimate of $2.15. Earnings from continuing operations are forecast at $1.74 to $1.84 a share.

For first quarter, the company expects earnings per share of 59 cents.

TXU is scheduled to report results May 6.

In February, TXU surprised the financial markets by naming a new chief executive not from within its ranks, as many expected, but selecting John Wilder, who was chief financial officer at Entergy Corp. during its financial about-face. And, he wowed the markets, as TXU's securities rallied strongly on that news and have continued to rise in the wake of his hire.

On Monday, the TXU floater, sold last July to yield the three-month Libor plus 150 basis points, gained 6 points to 123.75 bid, 124.25 offered. The TXU 8.125% mandatory issue due 2006 climbed 3.625 points to 42 bid, 42.5 offered, and the 8.75% mandatory issue due 2005 rose 3 points to 41.875 bid, 42.375 offered.

TXU shares added $3.90 on the day, or 13.16%, to $33.53.

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