Illumina 'rips' higher outright, expands on hedge; Life, Human Genome move in sympathy

By Rebecca Melvin

New York, Jan. 25 - Illumina Inc.'s convertibles jumped sharply on an outright and hedged basis Wednesday on news that Swiss drugmaker Roche Holding made a hostile offer to buy the San Diego-based developer of genetic research tools for $44.50 per share, or $5.7 billion, representing an 18% premium on the closing price of shares on Tuesday.

Illumina's convertibles jumped 11 points outright to about 96 and expanded 3 or 4 points on a hedged basis using about a 40% delta.

Illumina shares zoomed up 46% to $55.15, suggesting that investors think that Roche or another entity will have to come up with a higher price to get the deal done.

The convertibles of sector rival Life Technologies Corp. were also active in trade, while strength in the underlying shares of the Carlsbad, Calif.-based company was attributed to the implications for the overall sector of the Roche offer. But even though the convertibles looked higher by about 0.5 point to a point outright, those bonds have been called and weren't seen being affected by the Roche news.

"I don't think there is much to do in those, but they are active," a New York-based trader said about the Life Technologies convertibles.

Also in sympathy with the buyout offer, Human Genome Sciences Inc.'s 3% convertibles jumped by about 5 points outright and 2 points on a dollar-neutral basis to 106.875 versus an underlying share price of $9.80. They closed lower at 102.

Also in the biopharmaceutical sector, Dendreon Corp.'s convertibles rose again to around 85 for a 3.5-point climb in a week, a New York-based trader said.

Meanwhile NuVasive Inc., a San Diego-based medical device maker of products primarily for the spines, traded up to 82.5 bid, 83.5 offered, according to one trading source, amid a pop in the underlying shares.

A federal court tentatively denied a motion by Medtronic Inc. to stop sales of NuVasive's spinal products due to alleged patent infringement. A hearing is slated for Thursday.

Elsewhere, Petroplus Holdings AG's 4% convertibles continued to trade actively, adding a couple of points to 31, in action spurred by the Switzerland-based refiner's insolvency claims.

Petroplus "was the name of the morning. It ran up then dropped back to about 31 last," a New York-based trader said.

Equities were higher on Wednesday, boosted in the afternoon hours by statements by the Federal Reserve. In its FOMC statement it said it expects interest rates to stay at exceptionally low levels until at least late 2014, more than a year longer than previously predicted.

The Fed's economic forecast was released later, providing data on when the Fed would first raise rates. The Fed said the economy continued to expand at a moderate pace and noted the recent improvement in overall labor market conditions, but said unemployment remains elevated.

The move reversed early weakness in equities on concerns about ongoing debt restructuring agreement between Greece and its private creditors.

Illumina pops on Roche offer

Illumina's newer 0.25% convertibles due 2016, which priced in March 2011, "ripped" higher to 95.5 bid, 96 offered on news that Roche is offering to buy the San Diego-based maker of genetic modeling tools, a New York-based trader said.

Previously the price was about 85, so it gained about 11 points outright, and using a delta of about 40%, the bonds expanded on a dollar-neutral, or hedged basis, by 3 or 4 points.

Illumina shares also zoomed higher to $55.15, which was significantly higher than the $44.50 Roche offer price.

The Illumina convertibles and underlying shares had skidded lower in the fall on an earnings warning related to continuing uncertainty about research funding levels both at home and abroad given economic doldrums.

At that point, the newer Illumina bonds were trading just above their bond floor, which based on a 550 basis points credit spread was 75.25.

Early Wednesday, Roche said it would pay $44.50 a share in cash through a tender offer, which represented a price 18% above Illumina's closing share price on Tuesday.

Illumina said it has to evaluate the bid.

Assuming a successful acquisition, Roche will bolster its diagnostics business with the purchase. Illumina is the leading vender of the current generation of high-speed DNA sequencing machines. The cost of sequencing is dropping, so although public and privately funded research levels are in question, there may be new opportunities in more widespread use by clinics. Roche said it hopes the merger could help expand the distribution of Illumina products beyond major academic centers and government labs.

NuVasive up on court action

NuVasive's 2.75% convertibles due 2017 traded on Wednesday between 82.5 bid, 83.5 offered on Wednesday as shares zoomed higher. Earlier this month, the NuVasive convertibles were in the mid to upper 70s.

NuVasive shares gained $2.61, or 19%, to $16.31 in heavier-than-average volume on Wednesday.

On Wednesday, a judge from the U.S. District Court, Southern District of California in San Diego delivered tentative and non-binding rulings on various post-trial motions, including Medtronic Sofamor Danek USA, Inc.'s request for an injunction against NuVasive.

The company said in a release that it continues to anticipate that a final judgment regarding Medtronic's injunction request and the remainder of the issues and motions under dispute in the post-trial motion process will be delivered by the end of the first quarter or early in the second quarter.

In September, a jury awarded a $101 million verdict to Medtronic after it found that NuVasive had infringed three of its patents.

Also on Wednesday, the federal judge denied motions to overturn awards granted to both NuVasive and Medtronic on their patent claims against each other and a plea for additional damages from Medtronic's Warsaw Orthopedic unit. Medtronic plans to argue its case in court on Thursday, according to Reuters news service.

Mentioned in this article:

Dendreon Corp. Nasdaq: DNDN

Illumina Inc. Nasdaq: ILMN

Life Technologies Corp. Nasdaq: LIFE

NuVasive Inc. Nasdaq: NUVA

Petroplus Holdings AG Nasdaq: PPHNSW

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