Biotechs up as convertibles find footing after early dip; airlines down; some oil and gas names extend gains

By Rebecca Melvin

Princeton, N.J., July 7 - A number of convertibles in the biotechnology and pharmaceutical sectors, including Amgen Inc., CV Therapeutics Inc., and Watson Pharmaceuticals Inc., found early buyers Thursday as some volatility-sensitive issues strengthened. But airlines and other sectors lagged amid confusion in the broader markets after four bomb blasts linked to terrorism killed and injured people in London and disrupted that city's transportation systems.

But although many sectors sagged in the immediate aftermath of the attacks, buyers later came back, lifting markets, including convertibles.

"Higher grade credit names did well. The more volatility sensitive issues were bid up. There was not a bad tone," said a Connecticut-based sellside trader.

"We were seeing a lot of buying. At first it was short covering, but then some real buying started," a New York sellside trader said.

Not everyone agreed however. Some said the tone of the market was to the down side.

"What happened in London got people to sell. I think there was a lot of reshuffling of portfolios," a Connecticut-based trader said.

Guidance lifts RF Micro

The day's tragedy didn't put a damper on issues where company-specific news was deemed favorable by investors. The convertible of RF Micro Devices Inc. gained nearly three points after the Greensboro, N.C.-based chip maker boosted its guidance for revenue for its first quarter ended June 30.

Citing stronger-than-expected demand for cell phone parts, the company now expects revenue will be $159.3 million including a $5 million charge, or $164.3 million excluding the charge. That's higher than the $156 million expected by Thomson First Call analysts.

RF Micro's 1.5% convertible due 2010 closed up about 2¾ points at 96.414 bid, 96.914 offered, compared with a close of 93.62 bid, 94.12 offered on Wednesday.

Upgrade lifts Amgen

Amgen's convertible added more than half a point, making it a stand out in early trading after UBS upgraded the Thousand Oaks, Calif.-based biotechnology company to "buy" from "neutral."

UBS equity analyst David Molowa raised his price target on the stock to $80 from $63 previously, saying investors have been amiss in viewing Amgen as "a decelerating growth company fraught with risks."

"A shift in investor focus from threats to opportunities for future growth will result in a revaluation of the company's shares," Molowa wrote.

It seems some convertible bond investors had also been looking ahead to earnings season and expected the best.

"I think what's going to happen in the next couple of weeks is that Amgen and others like Genentech are going to show incredible earnings. The momentum is there on the large-cap biotech side," said a buyside analyst on the West Coast.

Amgen's 0% convertible due 2032 closed up 0.6 point Thursday at 73.657 bid, 74.157 offered, compared to 73.065 bid, 73.565 offered Wednesday, according to one sellside shop. Meanwhile, the company's shares surged 5.24% to a new 52-week high of $66.93.

Another biotech name that found favor among convertible traders on Thursday was CV Therapeutics. The Palo Alto, Calif.-based company's 2.75% convertible due 2012 surged three points in trade to close at 148.502 bid, 149.002 offered, compared with a close Wednesday of 145.601 bid, 146.101 offered. Shares of the company added 33 cents, or 1.4%, to $23.87.

No activity was reported for its new 3.25% convertible, issued just last week, and its 4.75% paper due 2007 was seen unchanged at 98.75 bid, 99.25 offered.

Meanwhile Watson Pharmaceuticals Inc. saw a better than half point increase in its 1.75% convertible after the Corona, Calif.-based drugmaker and Mylan Laboratories Inc. said that U.S. regulators have okayed their application for a depression treatment administered through the skin.

Watson's 1.75 due 2023 traded up 0.6 point to close at 93.175 bid, 93.425, according to a New York sellside shop. Its share price closed at $29.34.

Drugmaker Wyeth saw activity in its floater convertible due 2024, with trades at 102.953 bid, 103.078 offered versus its closing stock price of $44.

Bombings lower airlines

The convertibles of Northwest Airlines Inc. traded down nearly three points before strengthening somewhat toward the end of the session and other carriers saw their convertibles soften after the deadly attacks that targeted London's Underground and a city bus.

The death toll at the end of trading Thursday was about 40 and hundreds of injuries were reported, spurring concerns about terrorism and its potential to curtail travel and tourism this summer.

"Northwest Airlines was in about a point," said a Connecticut-based sellside trader, who reported the carrier's 7.625% convertible due 2023 closing at 37.25. An earlier trade was reported at 37.5 versus a stock price of $4.

But a third shop put the Northwest 7.625s going home at 40.203, versus its share price close of $4.13.

The Connecticut trader also reported Northwest's 6.625% convertible due 2023 traded at 42.50.

Meanwhile, two convertibles each for both Delta Air Lines Inc. and AMR Corp., parent company of American Airlines, softened.

AMR's 4.25% convertible due 2023 closed down about 0.5 point Thursday to 87.138 bid, 87.638 offered, compared to 87.656 bid, 88.156 offered. Its shares were off 1% at $12.08.

Its 4.5% convertible due 2024 closed at 75.778 bid, 76.278 offered, compared to 76.141 bid, 76.641 offered.

Delta's 2.875% convertible due 2024 closed at 33.467 bid, 33.967 offered, compared to 33.982 bid, 34.482 offered. Delta shares fell 10 cents, or 2.87%, to $3.38.

Oil names flat to higher

Early on traders were not reporting any activity in oil and gas convertible names, but by the end of the session, some issues had pulled ahead to extend gains notched yesterday.

"Oil is all over the place, and the inventory numbers are mixed," said one sellside shop trader, by way of explaining a lack of early activity.

In fact crude oil prices notched their biggest intraday price swing in 14 years, according to Bloomberg business news. Crude prices reached a peak ahead of the trading session Thursday amid concerns that Hurricane Dennis will disrupt production in the U.S. Gulf. Then they plunged after the London bombings raised concerns about demand in Europe.

"Schlumberger [convertibles] were moving and they weren't weaker," said a sellside trader. Nothing in oil came off dramatically."

Schlumberger Ltd. saw its convertibles strengthen before day's end. The oil service company's 1.5% convertible A tranche due 2023 closed at 117.398 bid, 117.897 offered, compared with a close of 116.756 bid, 117.256 offered on Wednesday.

Its 2.125% convertible B tranche due 2023 closed at 114.24 bid, 114. 74 offered Thursday, up from 113.853 bid, 114.353 offered Wednesday.

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