SanDisk lower outright, edges up on swap; Teva below parity; planned Pernix looks cheap

By Rebecca Melvin

New York, April 16 – SanDisk Corp.’s convertibles traded lower on an outright basis but were slightly higher on swap Thursday after the Milpitas, Calif.-based flash memory chip maker reported results that missed estimates.

SanDisk was by far the single most active name in the convertibles space on Thursday. One trader said, “it’s the only name trading.”

Overall there was not much by way of price movement, a second New York-based trader said.

Despite rather weak data in the early going, stocks staged a midsession turnaround, trading in the green for a while before selling into the close, which left the major indices in the red. Treasuries remained locked in a range, and the U.S. dollar was slightly weaker. “There is not much to drive things,” the trader said.

Health care was the exception, and that sector was seeing a continued strong bid, a convertibles trader said. But there were a few losers in the space.

Teva Pharmaceutical Industries Ltd.’s convertibles traded lower outright, and below parity on a hedged basis, as the stock took a hit midday on news that Sandoz has received regulatory approval for a drug that competes with one of Teva’s biggest products, a New York-based trader said.

Pacira Pharmaceuticals Inc.’s convertibles fell outright, although on a hedged basis they remained well over parity, after the Parsippany, N.J.-based company said it received a subpoena from the U.S. Department of Justice for documents pertaining to Exparel, which is a non-opioid local analgesic for postsurgical pain control.

Pacira’s 3.25% convertibles due 2019 dropped about 35 points outright to 338 bid, 340 offered from about 373.35 bid, 375.25 offered previously, a trader said.

Pacira shares fell $8.92, or 9.7%, to $83.47.

But the bond was still trading a couple points over parity.

The health care sector overall is strong, and that strength should continue as long as the current deal making trend continues, a trader said. Companies continue to raise assets to do deals, and market players want to be involved there.

“Horizon is raising capital to acquire assets, as long as that trade keeps up, health care should remain well bid,” he said.

Shares of Horizon Pharma plc notched a 52-week high Thursday after the Dublin, Ireland-based specialty pharmaceutical company priced a secondary stock offering for proceeds of more than $430 million.

In the primary arena, a new issue was expected to price after the market close from Pernix Therapeutics Holdings Inc. The new paper was seen as being pretty cheap, but small-deal size dampened market enthusiasm. The company plans to sell $120 million of the six-year convertible senior notes.

SanDisk lower outright

SanDisk’s 1.5% convertibles due 2017 traded around 142, which was down 7 points, according to Trace data.

SanDisk’s 0.5% convertibles due 2020 traded at 102.625, which was down 2.5 points on the day, according to Trace.

Shares of the Milpitas, Calif.-based data storage chip maker slid 7% in the early going, but were last down $3.21, or 4.5%, at $67.91.

The bonds were both up about 0.25 point on swap, a New York-based trader said.

There were probably some large outright accounts that turned sellers on the news, the trader said.

The earnings report was followed by a equity downgrade at Credit Suisse to “neutral” from “outperform.”

Credit Suisse also slashed its price target on the shares to $65.00 from $75.00.

Late Wednesday, SanDisk reported first-quarter earnings of $39 million, compared to $269 million in the year-earlier period. Excluding items, the company earned 62 cents a share, which was below estimates for earnings of 66 cents a share, on revenue of $1.33 billion.

Teva slips below parity

Teva’s 0.25% convertibles traded lower along with the stock, which took a hit midday after news that Sandoz has received regulatory approval for a drug that competes with one of Teva’s biggest products.

The Teva bonds dropped to about 152 from 156 on an outright basis and were trading below parity – or 0.7 point less parity – on a hedged basis as market players look to hold this paper as a conversion play.

There were swap players buying the bonds and outright holders selling, a trader said.

The bonds were seen lower on an outright basis at about 152 from 156 previously.

Pernix looks cheap

The new Pernix convertibles were seen to be cheap. But given that the company lowered its forward guidance at the same time that it launched the deal, one source said it would have to be cheap.

Pernix shares fell 16% Thursday, or $1.63, to $8.43 ahead of deal terms that were expected to be fixed after the close.

The company cut its full-year 2015 net sales guidance and business outlook. It expects net sales for the three months ended March 31 of between $32 million to $35 million, compared with $19 million for the same period in 2014.

Results were hindered by lower Treximet prescription volume, a reduction in channel inventory related, in part, to lower prescription volume, adjustments to gross-to-net discounts and delays in Treximet patient sample deliveries to the field sales force, according to a release.

The company now expects net sales for 2015 in the range of $220 million to $240 million. The guidance includes and assumes the impact of first-quarter results and positive volume growth for Treximet beginning in the second quarter 2015.

The drop in the share price reduced the specialty pharmaceutical company’s market cap to $320.1 million from $382.7 million on Thursday.

The paper is being marketed under 4 (2) Regulation D, but it will have Rule 144A trading capabilities.

Price talk is for a 3.75% to 4.25% coupon and 27.5% to 32.5% premium.

“I think the deal was largely placed before it was announced,” a trader said. “It should come a bit tight and do well.”

Mentioned in this article:

Horizon Pharma plc Nasdaq: HZNP

Pacira Pharmaceuticals Inc. Nasdaq: PCRX

Pernix Therapeutics Holdings Inc. NYSE: PTX

SanDisk Corp. Nasdaq: SNDK

Teva Pharmaceuticals Industries Ltd. Nasdaq: TEVA

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