Biotechnology names lower outright; AMAG Pharmaceuticals moves in line in active trade

By Rebecca Melvin

New York, Sept. 25 – Many biotechnology and health care names fell on an outright basis in the U.S. convertibles market on Friday as those issues followed their underlying shares downward.

Sector selling accelerated into the session close, dragging the S&P 500 stock index and Nasdaq stock index into negative territory following early gains.

“The biotechs are getting beat up. Insurers hurt too,” a New York-based convertibles trader said.

Many of the biotech issues remain at double and triple par as pricing had followed stellar run ups in shares in recent years.

Akorn Inc. saw its 3.5% convertibles fall to about 366 from 403 on Friday as shares of the Buffalo Grove, Ill.-based pharmaceutical company dropped sharply through the afternoon, closing down $3.28, or 9.3%, at $32.06.

Lexicon Pharmaceuticals Inc.’s 5.25% convertibles due 2022, a small issue of $88.5 million, fell to 153 from 165 as shares of the Woodlands, Texas-based firm slumped nearly 10%.

Pacira Pharmaceuticals Inc.’s small issue of $120 million of 3.25% convertibles due 2019 fell to 195 from 209.6 as shares of the Parsippany, N.J.-based specialty pharmaceutical company lost $3.85, or 7.5%, to $47.62.

The BioMarin Pharmaceutical Inc. 1.5% convertibles due 2020 remained active and slipped late in the session to 136.7, which was down on an outright basis from about 141. Shares of the Novato, Calif.-based biopharmaceutical company ended down $4.31, or 3.8%, to $108.69.

Illumina Inc.’s 0% convertibles due 2019, or the A tranche, held in or even expanded on Friday, changing hands at about 113 which was unchanged from Thursday, as shares of the Diego-based developer of genetic research tools fell $12.74, or 6.8%, to $175.54.

AMAG Pharmaceuticals Inc.’s in-the-money 2.5% convertibles due 2019 remained active early Friday, following busy trade on Thursday. The bonds were seen to be moving up in line, or flat, with the underlying shares of the Waltham, Mass.-based specialty pharmaceutical company in the early going, after expanding about a point on a stock move lower on Thursday, according to a convertibles trader. But they fell back in afternoon trading amid a downdraft in biotechnology names.

The AMAG bonds were quoted at 186.5 bid, 187.5 offered versus an underlying share price of $46.00 at late morning. But with the equity down to $43.73, the convertibles were back down to about 173.

The biotechnology downdraft was related to worry over drug pricing that reared its head this week, a convertibles trader said. Presidential candidate Hillary Clinton said that she intends to promote a plan to keep pharmaceutical costs down.

Elsewhere, Energy XXI (Bermuda) Ltd.’s 3% convertibles fell several points to about 9.75 despite higher shares and crude oil prices. The bonds had previously been about 112.50. Shares of the Houston-based energy exploration and production company added 2 cents, or nearly 2%, to $1.11 on the day.

Most of the early trading was in line, a New York-based trader said. He said that activity was slowing down significantly as of late morning because trading personnel in New York were attempting to stay away from Manhattan where security for Pope Francis’ visit was expected to cause transportation gridlock.

AMAG moves lower in line

AMAG’s 2.5% convertibles due 2019 traded last at about 173, which was about where the paper was early Thursday. It had been higher late Thursday, and in the early going Friday, it was quoted at 186.5 bid, 187.5 offered, versus an underlying share price of $46.00.

AMAG shares opened higher and then dragged down to about the unchanged mark at late morning before sinking 8%.

“AMAG is sort of the poster child for abusive pricing. So it has been active,” a convertibles trader said.

The convertibles are “nuking down,” he said.

AMAG owns Makena, a drug that it acquired last year from KV Pharmaceuticals, which subsequently went bankrupt, the trader said.

AMAG disclosed a copy of the official label of the McGuff Pharmaceuticals’ generic version of BMY's (OP) long-since withdrawn hydroxyprogesterone caproate (HPC) Delalutin in an 8-K filing Thursday. AMAG management obtained the label under the freedom of information act.

The label disclosure removes an overhang on potential growth for Makena, Leerink Partners said in the note published Thursday.

It “positions AMAG stock to be extremely attractive at current valuations,” the Leerink note stated.

Investors' focus is expected to shift back now to AMAG's core business with potential upcoming updates in its third-quarter earnings call particularly around Makena's continued growth trajectory, more details of Makena's life cycle extension plans and the likelihood of additional accretive deals such as Cord Blood Registry, the note by Leerink analysts Joseph Schwartz and Mayank Mamtani said.

In addition to the company’s $200 million in-the-money convertibles, AMAG has $350 million in secured debt and $500 million in unsecured debt.

It “should be fine at the end of the day. But there’s a lot of noise right now,” the convertibles trader said.

Mentioned in this article:

Akorn Inc. Nasdaq: AKRX

AMAG Pharmaceuticals Inc. Nasdaq: AMAG

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

Energy XXI (Bermuda) Ltd. Nasdaq: EXXI

Illumina Inc. Nasdaq: ILMN

Lexicon Pharmaceuticals Inc. Nasdaq: LXRX

Pacira Pharmaceuticals Inc. Nasdaq: PCRX

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