By Ronda Fears
Nashville, Jan. 10 - Since Shire Pharmaceutical's convertible has made such a run over the past four months, Merrill Lynch & Co. has removed it as a yield alternative in its model portfolio.
The issue was added in early August 2002 when it was trading at 89.25 and the stock was at $24.56.
"With the convertible up 4.5% despite a 25.3% drop in the stock since being added, we believe the convert is fairly priced and the 6.45% YTP properly compensates investors given the company's fundamental outlook and risk profile," said Merrill convertible analyst Marc Malloy in a report Friday.
He noted that Shire was downgraded by Merrill pharmaceuticals analyst Nigel Barnes also on Friday from buy to neutral because of the recent news that a company is seeking approval for a generic alternative to Adderall XR. This, Barnes said, will further impact sentiment, which has already been dented by management succession issues.
Merrill estimates that Adderall XR will account for around 30% of Shire's total revenues in 2002 with $295 million of sales, increasing to around 33% of group sales, or $540 million, in 2005.
It is expected that Shire will litigate against the generic company, which will trigger a 30-month stay in the application. This would mean, on a worst case, a generic Adderall XR could not be introduced before mid-2005.
However, Merrill believes the prospects for trading remain excellent, potentially boosted by imminent approvals of Fozrenol in Europe and in the USA in mid-February. Merrill also thinks the odds are in favor of Shire's Adderall XR patent being upheld, so the firm is positive on the shares longer term.
Shire 2% convertible due 2011
Price: 93.25
Stock price: $18.34
Current yield: 2.14%
| Yield to maturity: | 2.89%
|
| Call: | August 2004 at 100
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| Yield to call: | 6.45%
|
| Put: | August 2004 at 100
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| Yield to put: | 6.45%
|
| Parity: | 30.33
|
| Premium: | 207.42%
|
| Ratio: | 16.5392
|
| Theoretical value: | 96.24
|
| Volatility cap: | 35%
|
| Spread: | 307 basis points (five-year)
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