Morning Commentary: Salix trades actively, lower on merger news; Spectrum sinks on patent ruling

By Rebecca Melvin

New York, Feb. 23 – Salix Pharmaceuticals Ltd.’s convertibles were the most actively traded bonds in the U.S. convertibles market early Monday on news that Valeant Pharmaceuticals International Ltd. has agreed to buy the Raleigh, N.C.-based specialty drug company for $158.00 per share, or about $10 billion in cash.

The Salix 1.5% convertibles due 2019 were trading around 140 and change, which is up from about 132 to 133 early last week but down from 142 to 144 on Friday.

Salix shares were also a little lower at about $156.00.

The Salix convertibles were atop Finra’s Trace volume chart. The chunky $690 million deal has been a mainstay of convertibles players in the past year as the company has been involved in an M&A saga worthy of a Jane Austen novel.

In October, Salix scuttled a planned merger with Italy’s Cosmo Pharmaceuticals SpA following new Treasury Department rules aimed at cracking down on so-called inversion deals that seek to take advantage of lower tax rates abroad.

Before that, there were rumors that Allergan Inc. was mulling a takeover of Salix.

Valeant had also been attempting to merge with Allergan, which has now inked a deal with Actavis plc.

In November, Salix shares plunged more than 30% after it reported an earning miss and announced a revision of its accounting of drug inventories. But shares climbed back steadily in the last several months to above where they were in November.

The Valeant-Salix tie up is expected to occur in the second quarter.

Elsewhere, Spectrum Pharmaceuticals Inc.’s 2.75% convertibles due 2018 plunged about 12 points on an outright basis to 87.875 as shares of the Henderson, Nev.-based biopharmaceutical company fell about 18% to $5.65.

The company suffered a negative ruling in patent litigation for its Fusilev cancer drug. Spectrum, which previously sued generic drugmaker Sandoz for allegedly infringing on the claims, said in a filing Monday that it intends to appeal the decision of the U.S. District Court for the District of Nevada.

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