Biotech names eyed after Medivation takeout news; BioMarin convertibles add with shares

By Rebecca Melvin

New York, Aug. 22 – Convertibles traders were eyeing U.S. biotechnology-sector convertibles on Monday after Pfizer Inc. said that it has agreed to buy Medivation Inc. for about $14 billion, or $81.50 per share, representing a 21% premium to Medivation’s most recent common-share price.

Medivation, which makes one of the market’s leading prostate cancer drugs, Xtandi, is a former convertibles issuer but has no convertible issue currently outstanding. News of the takeover agreement signaled the potential that other buyout agreements may follow suit, which could impact the pricing of the convertible paper of those companies.

Potential candidates for follow-on M&A activity are other oncology companies such as Incyte Corp., Clovis Oncology Inc., Array BioPharma Inc., Tesaro Inc. and Exelixis Inc., a convertibles trader said.

Of the convertibles of those companies, the Clovis and Array convertibles that currently trade below par were seen as most worthwhile to dig in to, according to the trader.

By contrast, the Incyte and Tesaro convertibles are very expensive and deep in the money, so unlikely to make any significant gains in the event of a takeover bid, and the Exelixis convertibles were being converted and have no real conversion premium, the trader said.

One biotechnology name not on the oncology short list, but which was trading on Monday, was BioMarin Pharmaceutical Inc., and that company’s two series of convertibles bonds were higher on an outright basis, and looking about in line on a dollar-neutral, or hedged, basis, along with a gain in the underlying shares of the San Rafael, Calif.-based company. A third BioMarin convertible was indicated higher but not seen to have traded.

Elsewhere, convertibles overall were mostly quiet as equity and bond markets traded narrowly mixed and oil prices came down as the height of the summer slowdown period locked in.

“Not a peep,” a New York-based sellside trader said about convertibles trading early Monday, noting that it was the beginning of the slowest, two-week period of the year.

Vacation schedules have thinned the ranks of market personnel, and the expectation is that business is pretty much on hold until after Labor Day, market players said.

Even some of the more active issues of late were radio silent early Monday such as Illumina Inc.’s 0.5% convertibles due 2021, which ultimately traded last at 105.75 on Monday but were untraded as of noon, following a busy week and leaving off at 106.7 on Friday.

In the equity markets, the Dow Jones industrial average ended down 23.15 points, or 0.1%, at 18,529.42, the S&P 500 index was down 1.23 points at 2,182.64 and the Nasdaq Composite was up 6.22 points, or 0.1%, at 5,244.60.

BioMarins higher outright

The BioMarin 0.75% convertibles due 2018 traded up to about 125.25 on Monday from 122.73 on Friday.

The BioMarin 1.5% convertibles due 2020 traded up to 128.55 from about 125 to 126 when they traded last on Thursday.

And the BioMarin 1.875% convertibles, which are the shortest-dated convertibles, with an April 23, 2017 maturity, were indicated up at 479.34 from 449.375 previously but were not seen to have traded.

The common shares of BioMarin jumped $6.18, or 6.7%, to $98.17.

BioMarin makes a drug for a rare, genetic muscular dystrophy disease and has been the subject of speculation about a takeover for some time. Early last month the bonds expanded on swap after a report that Swiss pharmaceutical company Roche is mulling a buyout offer and before that there were reports that French pharmaceutical giant Sanofi was interested in the company as an alternative to its abandoned Medivation takeover.

Prior to that, there were rumors that Allergan was looking at the BioMarin biotech, which now has a market capitalization of $15.7 billion. The 52-week range for the common shares of BioMarin is $62.12 to $136.85.

Exelixis exchange

Exelixis is doing an exchange, or conversion, and will issue stock and pay cash in exchange for $71.3 million of its 4.25% convertible senior subordinated notes due 2019, according to an 8-K filing with the Securities and Exchange Commission.

On Aug. 19, the company entered into separate, privately negotiated exchange agreements with some noteholders, who agreed to exchange their notes for 13,424,945 shares of the company’s common stock and a $700,000 cash payment.

The exchange is expected to close Aug. 25 and will leave about $48.1 million principal amount of the convertibles outstanding.

Exelixis is a South San Francisco, Calif.-based biotechnology company.

Mentioned in this article:

ArrayBioPharma Inc. Nasdaq: ARRY

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

Clovis Oncology Inc. Nasdaq: CLVS

Exelixis Inc. Nasdaq: EXEL

Illumina Inc. Nasdaq: ILMN

Incyte Corp. Nasdaq: INCY

Tesaro Inc. Nasdaq: TSRO

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