Cubist, Health Care REIT trade up in line with shares; Tesla extends drop; NetApp active

By Rebecca Melvin

New York, May 21 - Cubist Pharmaceuticals Inc. traded up in line with the Lexington, Mass.-based biopharmaceutical company's shares on Tuesday after a favorable ruling in its ongoing patent case. The ruling was followed by a couple of analysts' upgrades.

"That traded a lot today," a New York-based trader said of Cubist.

There was trading of Health Care REIT Inc.'s 3% convertibles, which also traded up roughly in line with the underlying shares of the Toledo, Ohio-based real estate investment trust. Shares touched a 52-week high during the session.

Tesla Motors Inc.'s 1.5% convertibles, which debuted Friday, traded down for the third straight day, moving in line with the underlying shares. The bonds were seen at 97.5 on Tuesday, which was down from 99.375 last on Monday.

"People are settling in on Tesla, jockeying and seeing how they want to play it," a New York-based trader said.

Also trading actively were the NetApp Inc. 1.75% convertibles, which mature June 1, ahead of quarterly earnings for the Sunnyvale, Calif.-based data storage company.

Overall, convertibles were quiet, with no action in the primary market for a second straight day.

Traders said that some market players were out of action due to college graduation season, and they anticipated the week would be slow heading into the long holiday weekend in observance of Memorial Day.

"We were very quiet. There wasn't a ton of stuff, and volume was light," said one New York-based trader.

"I was dealing with some non-flow related stuff," a second New York-based trader said.

Stocks traded higher on Tuesday with the Dow Jones industrial average and the S&P 500 stock index closing at all-time highs. Market pundits cited comments from Federal Reserve officials that eased concerns that the central bank could start reducing its stimulus program.

The Dow jumped 52.30 points, or 0.3%, to 15,387.58; the S&P 500 stock index added 2.87 points, or 0.2%, and the Nasdaq stock index gained 5.7 points, or 0.2%, to 3,502.12.

Cubist in line on hedge

Cubist's 2.25% convertibles due 2017 traded up a couple of points outright to about 195 and were later seen at 198.5 bid, 199 offered versus an underlying share price of $55.22, according to a New York-based trader.

The convertibles were right about unchanged on a 90% to 92% delta, the trader said.

Cubist shares rose $1.98, or 3.7%, to $55.46 in extremely heavy volume.

A U.S. federal court ruled in favor of Cubist on the interpretation of patent language in a case involving a generic challenge by Hospira Inc. to its main drug Cubicin, an antibiotic injection used in hospitals to treat bacterial skin infections.

Cubist filed the patent infringement suit in response to Hospira's filing to regulators of its intention of developing a generic version of Cubicin.

In response to the positive development, Cantor Fitzgerald analyst Irina Rivkind upgraded Cubist shares to "hold" from "sell" and raised her target on the stock to $49 from $40, saying that she no longer sees the company as overvalued.

An RBC Capital Markets analyst kept an "outperform" rating on Cubist but raised the price target to $63 from $53, saying that the positive court ruling significantly boosts the prospects for Cubicin and reduces the likelihood of an unfavorable settlement.

Health Care REIT also in line

Health Care REIT's 3% convertibles due 2029 traded up at 254.369 on Tuesday, which was roughly in line with the underlying shares of the Toledo, Ohio-based real estate investment trust.

Shares traded up $1.24, or 1.6%, to $78.98 touching a new 52-week high.

The convertibles were seen at 0.375 point below parity, which was unchanged on the day.

"There was one large, swap holder that sold out of his bonds," a New York-based trader said.

He said outright holders have also been selling the bonds recently ahead of a put in December.

"They're selling it while it's still up," the trader said.

"It's been a boring cash flow trade up until now. It's sticking in right now, although it comes in a little bit each day, but not enough to speak about," the trader said.

NetApp active

NetApp's 1.75% convertibles due June 1 traded during the session at 113.14, which was down 0.9 point from Monday's last print, according to Trace data.

Shares of the Sunnyvale, Calif.-based data storage company traded down 56 cents, or 1.5%, to $36.63 during the session. The shares moved up 87 cents, or 2.4%, to $37.50 in after-hours trade.

"NetApp is dead. It goes away next month and is just going to creep to par," a trader said.

The data storage company reported lower net income that was in line with expectations on revenue that was up 1% for its fiscal fourth quarter.

Net income was $173.8 million, or 47 cents per share, for the quarter, compared to net income of $180.7 million, or 47 cents per share, for the same period a year earlier.

Revenue rose 1% to $172 billion. Analysts were expecting earnings of 68 cents per share on revenue of $1.76 billion.

Mentioned in this article:

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Health Care REIT Inc. NYSE: HCN

NetApp Inc. Nasdaq: NTAP

Tesla Motors Inc. Nasdaq: TSLA

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