CV Therapeutics, AtheroGenics gain on data; Equinix higher, Kilroy quiet in gray

By Kenneth Lim

Boston, March 27 - Biotech names dominated an otherwise quiet convertible market on Tuesday, with CV Therapeutics Inc. gaining after newly released data on its angina drug Ranexa boosted hopes of increased sales.

AtheroGenics Inc. also gained on early optimism about its heart disease treatment, which missed late-stage trial targets but received support for further development from trial investigators.

In the gray market, Equinix Inc. gained amid mixed reviews for its planned $200 million offering. But Kilroy Realty Corp. did not spark any gray-market bids - observers blamed a market fatigued with real estate investment trusts.

The rest of the market was noticeably languid, prompting grumbles by convertible traders.

"So quiet!" a sellside convertible trader lamented.

CV Therapeutics higher on data

CV Therapeutics' 2.75% convertible due 2012 gained ½ point outright on Tuesday to trade at 80.5 against a stock price of $8.05 after the company reported slightly promising data on its troubled angina drug Ranexa.

CV Therapeutics stock (Nasdaq: CVTX) jumped 17.93% or $1.21 to close at $7.96.

"The data turned out to be better than expected, especially after the negative report yesterday," a sellside convertible analyst said.

CV Therapeutics, a Palo Alto, Calif.-based drugmaker, said Tuesday that a late-stage study showed that Ranexa did not significantly reduce the combined risk of cardiovascular death, heart attack and recurrent ischemia. But the study demonstrated a significant reduction in recurrent ischemia.

"The key takeaway here is that the drug showed some efficacy in the trial and the safety data appears to be favorable," the analyst said. "The results weren't spectacular, but they could support approval for first line use."

CV Therapeutics stock took a hit on Monday after a Deutsche Bank equity research note suggested that Ranexa was unlikely to get first-line approval. Deutsche Bank downgraded the stock to sell, triggering a sell-off in the stock.

The analyst said the sharp improvement in the stock on Tuesday may not have affected hedged convertible bond holders too much.

"It doesn't look like the bonds have reacted too much yesterday or today," the analyst said. "Actually I wouldn't be surprised if some people made some money from yesterday's drop."

AtheroGenics firms on optimism

AtheroGenics' 4.5% convertible due September 2008 improved about ½ point outright from the previous week's close to change hands at 52.25 against a stock price of $3.58 on Tuesday after trial date for one of the company's drugs was released.

AtheroGenics stock (Nasdaq: AGIX) spiked to an intraday high of $4.50 in the morning before falling back to settle at $3.24, lower by 9.5% or 34 cents.

"There was some optimism earlier because some of the people in the study said the drug was worth studying further," a convertible analyst said. "But then someone came out and said they don't think further development will lead anywhere, so it's down again. But that's just how biotechs work."

AtheroGenics said Tuesday that its heart disease drug AGI-1067 missed the primary target of a late-stage trial but cut the risk of death, heart attack, stroke and risk of diabetes. The primary target was for a reduction of reducing death, heart attack, stroke, the need for revascularization procedures and unstable angina by 20%. But the drug's performance on secondary goals justified further study, said the study's investigators.

AstraZeneca plc, AtheroGenics' partner in the drug, said it has 45 days to review the data and decide whether to continue with the project.

Lehman Brothers equity analyst Jim Birchenough maintained his underweight rating on the stock and said keeping the drug alive would be a challenge.

"With no difference in the prespecified endpoint and mixed results on secondary endpoints we do not believe that AGI-1067 can be resurrected and would sell into today's strength," Birchenough wrote in a report.

The convertible analyst AstraZeneca's decision will be closely watched.

"If the guys on the study say the drug is worth a closer look, there's a chance that could persuade AstraZeneca to stay with the drug," the analyst said. "But if AstraZeneca goes out, then it becomes more of a challenge for AGIX. They might have to raise more capital or look for a buyer. But the consolation here is that if the drug really is worth a closer look, then there's some hope that something could still come out of this."

Equinix gains in gray

Equinix's planned $200 million of five-year convertibles was 100.75 bid, 101.75 offered in the gray market on Tuesday ahead of pricing expected after the market closed.

The deal was talked talk at a coupon of 2.375% to 2.875% and an initial conversion premium of 25% to 30%. The convertibles were offered at par. Equinix stock (Nasdaq: EQIX) slid 4.24% or $3.82 to close at $86.18 on Tuesday.

There is an over-allotment option for a further $30 million.

Citigroup was the bookrunner of the registered offering.

Equinix, a Foster City, Calif.-based information technology network services provider, plans to use the proceeds of the deal for general purposes that include expansion activities.

"It looks like a decent deal," a sellside convertible trader said. "It looks like there's enough there for hedge guys to make some money, but it looks like it's just enough. It's not a great deal, but it's OK."

A convertible analyst thought that the deal modeled half a point to a point rich using a credit spread in the low 400 basis points over Libor region and a volatility in the low 30% range.

"It's possible that my vol is a little low," the analyst noted.

Kilroy pushes against REIT fatigue

Kilroy's planned $400 million offering of five-year exchangeable senior unsecured notes was quiet in the gray market on Tuesday.

The deal was talked at a coupon of 2.75% to 3.25%, an initial exchange premium of 20% to 25% and a reoffered price of 99.

There is an over-allotment option for an additional $60 million.

JP Morgan, Banc of America and Lehman Brothers are the bookrunners of the Rule 144A offering.

Kilroy, a Los Angeles-based real estate investment trust that focuses on office and industrial real estate in southern California suburban markets, said the proceeds of the deal will be used to fund capped call transactions, reduce a $550 million unsecured revolving debt, repay outstanding mortgage indebtedness, partly finance its development pipeline and fund general purposes.

"I thought it looked OK," a sellside convertible analyst said. "It modeled about slightly cheap."

The analyst said the apparent lack of interest was probably due to the large number of REIT deals that came in the past weeks.

"We go through these periods I think in the convertible market when there's just this deluge of REIT deals and by the time you get to the last of them it's just a little bit too much," the analyst said. "And this might be that point."

The analyst said the recent wave of REIT deals have been driven by a spike in volatility.

"First it was the EOP [Equity Office Properties] transaction and then the takeover speculation that followed that, and once the market started going crazy with all the takeovers and subprime stuff, once you got the extra vol in there, it gave issuers the impetus to go out and issue another round of convertible financing."

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