Nutanix, Patrick convertibles eyed; Genocea prices; Exact Sciences is ‘murder today’

By Abigail W. Adams

Portland, Me., Jan. 17 – Genocea Biosciences Inc. priced a small offering of convertible preferreds before the market open on Wednesday, but two bigger deals are in the works with plans to price after the market close.

Both Nutanix Inc.’s $400 million of five-year convertible notes and Patrick Industries Inc.’s $125 million of five-year convertible notes looked cheap from the mid-point of talk, according to a market source.

As the secondary market awaits new deals, new paper from Exact Sciences Corp. got hammered in active trading.

The 1% convertible notes due 2025, which made their debut on the secondary market on Friday, dropped about 5 points in active trading on Wednesday as the underlying equity tanked in response to a positive clinical trial from a Taiwan-based competitor.

“Exact Sciences is murder today,” a market source said.

Genocea’s offering

Genocea Biosciences priced $1.6 million of series A convertible preferred stock and accompanying class A warrants prior to the market open on Wednesday.

The convertible preferred stock priced alongside a concurrent offering of $53.4 million in common stock and class A warrants at a price of $1.00 per share, according to a company news release.

The 1,635 shares of series A convertible preferred stock are convertible into 1,635,000 shares of common stock.

The accompanying class A warrants are exercisable for 0.5 of a share each for a total of 817,500 shares of common stock.

The warrants expire after five years from the date of issuance and have a strike price of $1.20, according to a company news release.

Cantor Fitzgerald & Co. is the bookrunner.

New Enterprise Associates and Vivo Capital are significant investors in the Cambridge, Mass-based biopharmaceutical company’s offerings.

Vivo Capital participated in the preferred and common stock offering, and New Enterprise Associates participated in the common stock offering.

New deals look cheap

Nutanix plans to price $400 million of five-year convertible notes with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 25% to 30%, according to a market source.

Using a credit spread of 350 basis points over Libor and a 40% volatility, the Nutanix deal looked to be about 2.25 points cheap at the mid-point of talk, a market source said.

“I think Nutanix will do really well,” the source added. The San Jose, Calif.-based cloud computing software company is a first-time issuer of convertible notes.

BofA Merrill Lynch and Morgan Stanley & Co. LLC are bookrunners for the Rule 144A deal, which carries a greenshoe of $60 million, according to a company news release.

Patrick Industries plans to price $125 million of five-year convertible notes with price talk for a coupon of 0.875% to 1.375% and an initial conversion premium of 25% to 30%, according to a market source.

Using a credit spread of 275 bps and a 33% volatility, the deal looks to be about 1 point cheap at the mid-point of talk, a market source said.

“It should do OK in this market,” the source commented.

The Elkhart, Ind.-based manufacturer and distributor of component products for the recreational vehicle, manufactured housing and marine industries is also a first-time issuer of convertible notes.

The industrial company is an outlier in a convertibles market dominated by the tech and health care sectors, but with a shortage of new paper, buyers may be interested in some diversified offerings.

BofA Merrill Lynch and Wells Fargo Securities LLC are bookrunners for the Rule 144A deal, which carries a greenshoe of $18.75 million, according to a company news release.

Exact Sciences

Exact Sciences’ 1% convertible notes dominated trading activity on Wednesday as the notes dropped 5 points to trade well below par. The notes were trading in the 96 to 97 range for most of the day.

Exact Sciences stock closed the market Wednesday at $47.68, a decrease of 9.95%.

The notes were trading in line and were up slightly on a dollar-neutral basis, a market source said. While the notes were up for arbitrageurs, that is expected to be short-lived, a market source said. The drop is terrible for outright players, the source said.

Exact Sciences “just stuffed the whole convertibles market,” the source said. “If the stock keeps cracking, nobody will be happy about it.”

The Madison, Wis.-based molecular diagnostics company, which is focused on the early detection of colorectal cancer, priced $600 million of seven-year convertible notes with a 1% coupon and fixed conversion premium of 37% at an issue price of 98.75 after market close on Jan. 11.

The deal carries a $90 million greenshoe.

The notes solidified around 102 prior to Wednesday’s sell-off, which was triggered by positive results in a clinical study from a Taiwan-based competitor.

The clinical study for a blood-based colorectal cancer screening test appeared to offer better results in a less obtrusive manner than Cologuard, a stool based test that is Exact Sciences’ only product on the market.

Analysts have lined up to defend Exact Sciences with many calling the sell-off “overdone.” The impact the rival clinical study had on Exact Sciences stock, in addition to the outpouring of support for the company, also mystified some market sources.

“I don’t know why it went down as hard as it did,” a market source said. “It still hasn’t been tested here and it’ll be years before it makes it to the market.”

Mentioned in this article:

Exact Sciences Corp. Nasdaq: EXAS

Genocea Biosciences Inc. Nasdaq: GNCA

Nutanix Inc. Nasdaq: NTNX

Patrick Industries Inc. Nasdaq: PATK

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