DOV Pharmaceutical convertibles tumble; Atherogenics adds; Agilent active on call news

By Rebecca Melvin

Princeton, N.J., Aug. 26 - The convertibles of DOV Pharmaceuticals Inc. tumbled Friday a day after announcing suspension of the clinical trial of an experimental anti-anxiety drug.

Another biotechnology name, Atherogenics Inc., edged up on takeover chatter; while semiconductor company Credence Systems Corp. slumped on disappointing earnings and a downgrade.

Agilent Inc. convertibles were active after updated call news; and the paper of International Rectifier Corp., Reckson Associates and Capitalsource Inc. traded.

Nevertheless, trading was thin in a very slow session that capped off a very slow week, market participants said.

"Most of my names are red today. It's pretty ugly. I'm buying some on hedge, buying shares, making delta trades. But it's very slow," said a Connecticut-based buysider.

"It will get worse before it gets better," a buyside analyst said this week, referring to another slow period during the week of Aug. 29 anticipated before things pick up again after Labor Day.

Then traders hope some of "the money sitting on the sidelines" will go back to work.

"The money is there. It's a matter of these big guys getting comfortable with the market," said a sellside convertibles research director.

Suspended trial sends DOV down

The convertibles of Hackensack, N.J.-based DOV Pharmaceuticals lost about 9.5 points on Friday and its stock tumbled after it said concerns about liver enzyme levels in test subjects caused it to suspend further dosing in a clinical trial of ocinaplon, its experimental anti-anxiety agent.

The company said it would likely take several months before a decision on whether to continue the trial is made.

"It got crushed," a buysider said.

The DOV Pharmaceutical 2.5% convertibles traded Friday at 89 versus a stock price of $15.30. Later, it traded at 88.50, compared with a level of about 97.50 on Thursday.

Shares of the biotech concern, which is focused on neurological and cardiovascular treatments, closed Friday down $2.98, or 16.6%, at $14.99.

Takeover chatter boosts Atherogenics

The two convertible issues of Alpharetta, Ga.-based Atherogenics gained Friday, but only by about 0.25 point on a delta neutral basis, after a report in the Sept. 5 issue of Business Week said a possible takeover is in the works, with Merck Co. Inc. the likely acquirer.

"They've been trying to partner for three years. We wish them well. We hope it works this time," said an outright buyside trader, who said he didn't hold the Atherogenics convertibles, both of which have takeover protection features.

"Apparently Big Pharma has looked them over, seen the data, and passed them over," he said, but he added that Merck, even with its recent Vioxx woes, is cash rich enough to swallow easily the acquisition.

Atherogenics' 1.50% convertible due 2012 traded at 85.5 bid, 86 offered, and its 4.5% convertibles due 2008 changed hands at 126.50 bid, 127 offered.

Atherogenics shares closed up Friday by $1.08, or 6.6%, at $17.42.

The worst deal of the week, said the buysider, who was still smarting from the decision, was OSI Pharmaceutical Inc's move to buy Eyetech Pharmaceuticals Inc. for $935 million, the news of which emerged Monday.

"I haven't met anybody that can explain the logic of that to me. Why management would do that is beyond me. There are no synergies," he said. On Monday, the OSI convertible bonds came in a couple of points but then recovered as its stock plunged.

The bonds of the Melville, N.Y.-based biotechnology company remained below par on Friday.

Active trade seen in Agilent

The convertibles of Agilent Inc. were flat in active trade a day after the Palo Alto, Calif.-based technology company said it would redeem the entire $1.125 billion issue of 3% convertibles on Sept. 9.

The company had initially announced the call Aug. 15; but news of the specific date seemed to take people by surprise. Normally there is a 30-day period between announcing the call and making the redemption. In this case that period is slimmer by about seven days.

One sellside shop trader said that Agilent was the most actively traded issue of the early session.

"The date wasn't expected," he said.

When the call was announced as part of a restructuring initiative, the issue edged up a little more than a point to around par, while the underlying stock zoomed up nearly 15%, but convertible arbitrage players were hit in the crossfire, as they were holding it on a delta hedge of around 80%.

On Friday, the 3s traded flat at 100.25. Meanwhile, the shares rose almost 1% to $31.10.

Credence earnings disappoint

The convertibles of Credence Systems were lower Friday but were better on a dollar neutral basis after the Milpitas, Calif.-based company announced disappointing earnings on Thursday and was downgraded Friday by Adams Harkness to "buy" from "strong buy."

The company, which makes testing equipment and software for semiconductor production, posted a wider third-quarter loss due to restructuring and acquisition costs and a 32% drop in sales.

Losses totaled $41.7 million, compared with a loss of $33.2 million last year.

The company also forecast a fourth-quarter loss in the range of 5 cents to 9 cents per share on revenue between $112 million and $120 million. Excluding items, the company sees a profit of up to four cents per share for the fourth quarter, in line with expectations.

The Credence 1.5% convertible lost 2 to 3 points to 97.50 bid, 98 offered on Friday, from about par. Shares of the company tumbled $1.81, or 17.3%, to $8.67.

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