Morning Commentary: Collegium Pharmaceuticals expands on debut; Revance, DISH eyed

By Abigail W. Adams

Portland, Me., Feb. 11 – The convertible secondary space was active on Tuesday with new paper hitting the market and topical news spurring activity in outstanding issues.

Collegium Pharmaceutical, Inc. priced $125 million of six-year convertible notes after the market close on Monday.

The new paper was making large gains on both an outright and dollar-neutral basis, a market source said.

While the new paper was active in the secondary space, the primary market was prepping another offering from the biotech sector.

Revance Therapeutics Inc. plans to price $200 million of seven-year convertible notes after the market close on Tuesday.

The deal modeled cheap although the company was highly speculative, sources said.

Meanwhile, markets were buzzing following news of a court ruling in favor of the T-Mobile/Sprint merger, which cleared one of the final hurdles to closing the deal.

DISH Network Corp.’s convertible notes were in focus and making large gains on a dollar-neutral basis following the news.

Collegium expands

Collegium Pharmaceutical’s newly priced convertible notes were active and making large gains on both an outright and dollar-neutral basis early Tuesday.

Collegium priced $125 million of six-year convertible notes after the market close on Monday at the rich end of talk with coupon of 2.625% and an initial conversion premium of 35%.

Price talk had been for a coupon of 2.625% to 3.125% and an initial conversion premium of 30% to 35%, according to a market source.

The new paper skyrocketed in the secondary space.

The notes traded as high as 105.5 soon after the opening bell but was changing hands around 104.75 with stock flat about one hour into the session.

“People love it,” a market source said.

Collegium’s stock was changing hands at $21.62 shortly before 11 a.m. ET, which was unchanged from Monday’s close.

Revance eyed

As new paper from Collegium skyrocketed in the aftermarket, more new paper from the biotech sector was in the works.

Revance Therapeutics plans to price $200 million of seven-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%.

Using assumptions of 700 basis points over Libor and a 45% vol., the deal modeled about 2.5 points cheap at the midpoint of talk, a market source said.

While other sources felt the credit spread could be tighter, Revance is a “highly speculative company,” a market source said.

The company does not generate much revenue and has negative earnings per share.

The company does most likely have a couple more years of losses, another source said.

However, some of its clinical trials are far in the process and the company does have good visibility.

Proceeds from the offering will be used to fund the commercial launch and pre-commercialization of its dermal filler products.

The biotech company hopes to position itself as a leader in the U.S. facial injectable market with its products. The market is valued at $2 billion.

Revance stock has had some “crazy moves” in recent days, a source said.

Stock was up 13% last week but was down more than 7% early Tuesday on news of the convertible notes offering.

DISH expands

Outside of new paper, DISH Network’s convertible notes were making large gains in high-volume activity following news a federal judge had approved the T-Mobile/Sprint merger.

DISH’s 2.375% notes due 2024 traded up to 94.5 on the news. The 3.375% convertible notes due 2026 topped par for the first time in recent history.

The 3.375% notes traded north of 102 soon after the opening bell but was changing hands at 100.625 about one hour into the session.

Both notes were expanded about 2 points dollar-neutral, a market source said.

DISH stock traded up to $38.76, an increase of 5.24%, shortly before 11 a.m. ET.

The satellite broadcaster will purchase some divested assets from T-Mobile and Sprint to launch its own mobile network.

DISH becoming a wireless network operator was a key component to Sprint and T-Mobile wining regulatory approval for the merger.

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