OSI, ImClone wounded; retailers build on strong surge at Lowe's

By Ronda Fears

Nashville, Tenn., Aug. 19 - While buzz continues on potential and likely candidates for new deals, CenturyTel Inc. launched a real new deal that appeared to be getting a nice response. Nextel Communications Inc. was among the list of maybes, but the company said it has no definite plans for a new convertible.

Meanwhile, trading was described as moderate although most of the market shot up on the surge in stocks. Retailers reversed course to higher ground on good earnings and a strong outlook by Lowe's Cos. Inc.

But drugs and biotech names were hurt by AstraZeneca plc's surprise failure of a cancer drug.

OSI Pharmaceuticals Inc. and ImClone Systems Inc. were hardest hit, as they have similar drugs in the works.

"It was a good day but it's still August," said a dealer.

"We'd been hearing the buzz about a couple of new deals, who's doing it, who's bringing it. This (CenturyTel) is a pretty small deal, but it looks like it's going to do well, and maybe it will start off some more deals before Labor Day. That would be very nice."

Part of the optimism that issuance will pick up quickly, even before the holiday, the trader said, is that activity has resumed in straight corporate bond issuance.

CenturyTel is pitching a straight bond alongside its convertible. The convertible is a Rule 144A offering of $150 million 30-year convertible senior notes, with talk at a yield of 5.75% to 6.25% and an initial conversion premium of 43% to 48%. The deal is set to price after the close Tuesday, via joint lead managers Banc of America Securities, JPMorgan and Wachovia Securities. (See story on page 1)

In general, traders said there was a fair amount of activity as the Nasdaq gained 2.46%, the Dow Jones Industrial Average added 2.42% and the S&P 500 gained 2.36%.

For the most part, the mood was positive and the majority of the market was gaining ground

But a surprise trial failure for AstraZeneca's cancer drug, Iressa, cast doubt on prospects for similar drugs under development at ImClone and OSI.

OSI's 4% due 2009 fell 32.75 points to 57.5 bid, 58.5 asked. The common stock plummeted $18.736 to $14.05.

ImClone's 5.5% due 2005 lost 1.375 points to 58 bid, 59 asked. The shares closed down 97.9c to $8.261.

AstraZeneca reported that its Iressa was unsuccessful with lung cancer patients taking it in combination with standard platinum-based chemotherapy. AstraZeneca said it still plans to seek approval worldwide for Iressa as a monotherapy against the most common form of lung cancer as well as to treat other types of tumors.

It works similarly to ImClone's injectible Erbitux and OSI's Tarceva pill, which OSI is developing with Genentech Inc. and Roche Holding Ltd.

The Roche 0% exchangeable due 2015, which converts into Genentech, was quoted slightly lower at 69.5 bid, 70 asked. Genentech shares ended down $1.47 to $34.02.

Lowe's provided a good deal of steam to the market's rise, traders said, with a nice surprise to the upside in earnings. The home improvement retailer reported that net earnings shot up 42%, chiefly due to expansions.

"We're not expecting a collapse in consumer spending that some have predicted" anytime soon, especially for home improvement projects, said Lowe's chief executive Robert Tillman on the company's conference call.

With mortgage rates at all-time lows, baby-boomers aging and Generation X'ers maturing, he said the company expects the home improvement market to grow further in years to come.

Tillman noted that the Home Improvement Institute recently revised its forecast to a 4.25% growth in the home improvement market this year, up from a flat projection earlier.

Lowe's 0% due 2021 rose 4.125 points to 77 bid, 77.5 asked. The 0.861% due 2021 added 3.625 points to 95.5 bid, 96 asked. The common shares climbed $4.21 to $41.

The news at Lowe's gave rise to homebuilders, as well.

Lennar Corp.'s 0% due 2018 gained 1.25 points to 73 bid, 73.375 asked and the 0% due 2021 added 0.625 point to 44 bid, 44.5 asked. Lennar shares closed up $1.64 to $53.49.

D.R. Horton Inc.'s 0% due 2021 rose 1 point to 66 bid, 66.25 asked with the stock up 52 c to $22.52

Other retailers, even clothing merchants, were reversing course after recently moving lower on weak back-to-school sales too.

Gap Inc. and Skechers Inc. were among those seen nicely higher.

Techs were also mostly heading upward, except for a few chip names, traders said.

Agilent Technologies Inc. gained, but more so due to the stock moving higher with the broader market, one trader said.

"They [Agilent] gained sharply during the session, but then the earnings came out after the bell and were really worse than some expected, so the stock began pulling back in after-hours trading almost immediately," the trader said.

Agilent shares closed up $1.48 to $17.44 and the 3% convertible due 2021 added 3.5 points to 87.75 bid, 88.25 asked.

Some interest was also seen in American Tower Corp. and Crown Castle Corp., moving those names higher, one trader said.

Even before wind of the CenturyTel deal, traders said the telecom and telecom equipment groups were doing better.

Nextel was still gaining, though to a lesser degree, on the positive mood created last week on debt buybacks and speculation that it would be a good candidate for a new mandatory.

Paul Blalock, a spokesman for Nextel, however, said there are no definite plans for such a deal.

"We are fully funded," Blalock said. "We're going to be extremely careful abut our refinancing plans, and make sure it's accretive to shareholder value."

Nextel's convertibles were all about 1 point higher. The 4.75% due 2007 was quoted at 62 bid, 63 asked. The 5.25% due 2010 was at 58 bid, 59 asked. And the 6% due 2011 at 61 bid, 62 asked. The common stock closed up 6c to $6.76.

Ford Motor Co. was driving a path northward, traders said, as investors were buying the trust preferred on recent weakness. The 6.5% due 2032 added 1.5 point to 46.05 bid, 46.69 asked as the stock closed higher by 74c to $12.13.

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