Morning Commentary: Sarepta convertible notes active amid recent stock volatility

By Abigail W. Adams

Portland, Me., June 29 – It was a quiet start to the day in the convertibles secondary space with equity markets mixed amid the latest wave of data, which pointed to a surprisingly resilient economy.

While recession fears continue to recede, markets continue to grapple with rate risk with a GDP print that exceeded expectations by a large margin, supporting future Fed rate increases.

The Dow Jones industrial average was up 131 points, or 0.39%, the S&P 500 index was up 0.03%, the Nasdaq Composite index was down 0.26% and the Russell 2000 index was up 1.21% shortly before 11 a.m. ET.

There was $75 million of convertibles trading on the tape about one hour into the session with a wide range of names in play.

Sarepta Therapeutics Inc.’s 1.25% convertible notes due 2027 were gaining strength on an outright and dollar-neutral basis after a recent bout of stock volatility surrounding Food and Drug Administration approval for the biotech’s gene therapy treatment for muscular dystrophy.

The 1.25% notes were changing hands at 107 versus a stock price of $111.54 early in the session, according to a market source.

The notes continued to gain strength as stock climbed as the session progressed and were seen at 107.5 shortly before 11 a.m. ET.

Sarepta’s stock was trading at $114.11, an increase of 1.97%, shortly before 11 a.m. ET.

Sarepta’s convertible notes and stock have been volatile in the past surrounding the FDA approval process for a product in its pipeline.

While stock fluctuated between gains and losses as the FDA approval process went through unexpected hurdles, the stock has nosedived since the drug was formally approved on June 22, due to a warning that kept approval of the treatment Elevidys under a cloud of ambiguity.

While the FDA approved the treatment, it also issued a warning that it would withdraw its approval based on the results of an ongoing Phase 3 trial.

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