Convertibles mostly quiet; Gilead comes in slightly; Vertex static; Endo moves up a little

By Rebecca Melvin

New York, Aug. 24 - Action in the convertible bond market virtually ground to a halt Friday ahead of one of this year's last coveted summer weekends.

"Guys are just away," a New York-based trader said, which puts a chill on "any names that we might have an axe in."

Gilead Sciences Inc., which has three liquid issues, was higher outright, but lower on a dollar-neutral, or hedged basis as shares of the Foster City, Calif.-based biopharmaceutical company were a bit higher, seemingly boosted by the negative news of competitor Bristol-Myers Squibb, which officially shut down study of its Inhibitex hepatitis C treatment.

Gilead has several hepatitis C drug trials underway, including at least one similar to Bristol-Myers'.

Vertex Pharmaceuticals Inc., which also has its hat in the ring of hepatitis C treatment, saw steady pricing in light trade Friday.

Also in the health care space, Endo Health Solutions Inc. was in focus but not really trading after word that generic drugmaker Watson Pharmaceuticals has gotten the go ahead from the U.S. Food and Drug Administration to produce a generic version of Endo's lidocaine pain patch.

One trader said he had anticipated the convertible of the Chadds Ford, Pa.-based specialty drug maker to have expanded, but instead it was pretty much in line to higher by only a teeny to 0.125 point, a second trader said.

Of the market overall, one trader commented that Gilead and Amgen Inc. were among the top volume names. The Amgen convertibles were off slightly but still touching the 110 mark.

Navistar International Corp.'s convertibles were also able to retain levels above 90, which was little changed from Thursday, despite continuing pressure from news that the Lisle, Ill.-based truck and engine maker lost out to competitors on an important military light vehicle contract.

Many of the market's ongoing trends remained in play: convertible players were stretching for yield. SanDisk Corp.'s 1% convertibles traded, and that paper has a 2.2% yield to maturity with eight months left.

Some of the weaker names in the convert universe did improve in the week, and some didn't.

"It was a mixed bag, which it is supposed to be," said a New York-based trader, noting that volumes weren't good.

Gilead slips on hedge

Gilead's 1.625% convertibles due 2016 were up about 0.8 point outright, but at 140.961 against a $57.27 stock price, compared to 139.964 versus an underlying share price of $56.27 Thursday, the paper looked "in" slightly by about 0.5 point, a New York-based trader said.

The move was measured on a 75% delta.

Gilead's 1% convertibles due 2014 traded at 134.875, which was up 1.275 points on the day.

The Gilead 1.625% convertibles were the most active with the Gilead 1% paper less so.

"This is one of those monster names that nobody is making much money in," the trader said. Traders just hope for big stock-moving news, he said.

Gilead has several drug trials underway for treatments of hepatitis C, including fighting the disease with NS5B polymerase inhibitor, the same brand of treatment that Bristol-Myers was developing and stopped due to a patient death and patient hospitalizations resulting from testing of the treatment.

Gilead's version of the treatment is supposedly safer, a trader said. Nevertheless, the failed Bristol-Myers trial looks likely to increase regulatory scrutiny.

Vertex steady

Vertex Pharmaceuticals' 3.35% convertibles due 2015 traded around 11 a.m. ET at 126.3 and was then seen at 125.5 bid, 126.5 offered with the stock at $53.50, a New York-based trader said.

That compared to 127.25 versus an underlying share price of $54.63 on Thursday. The Thursday trade was done on a 60% delta.

Vertex is still due to report final phase two results of a trial, which helped drive shares up in May when interim results were released.

"It looks like the valuation has stayed the same. It didn't move that much," the trader said.

The paper trades on about a 60% and part of the reason behind that is that there is a provisional call coming up and if the stock runs up, that call will be triggered, he said.

"It's not that liquid here," the trader said.

Endo in line to higher

Endo's 1.75% convertibles due 2015 traded at 122.69, down 1.46 points on the day, and were seen at 122.40 versus an underlying share price of $31.59, which was up a teeny to 0.125 point on a hedged basis.

Endo shares reversed early losses to end the day up 29 cents, or 0.9%, at $32.17.

"I was surprised there was not more activity in Endo Pharma. I would have thought they would have expanded with the drug coming off patent with Watson Pharmaceuticals."

A second trader said that the market anticipated the drug coming off patent and felt that neither the stock nor the convertible moved much. "People know years ahead of time," the trader said.

Endo issued a statement expressing disappointment that the FDA is allowing Watson to produce a generic version of Lidoderm, a locally acting topical medication for the relief of pain associated with post-herpetic neuralgia.

"The company believes that the approval of a generic version of Lidoderm without requiring clinical endpoint studies is inadequate to establish the safety and efficacy of this locally acting topical medication. The company anticipated the possibility of generic competition for Lidoderm in September of 2013 pursuant to its settlement agreement with Watson Pharmaceuticals and has been proactively preparing for the event," Endo said in a release.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Endo Health Solutions Inc. Nasdaq: ENDP

Gilead Sciences Inc. Nasdaq: GILD

Navistar International Inc. NYSE: NAV

Vertex Pharmaceuticals Inc. Nasdaq: VRTX

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