Twitter drops outright, mixed to lower on hedge; Medicines opens up; Synergy to price

By Rebecca Melvin

New York, Oct. 28 – Twitter Inc.’s convertibles fell on an outright basis and traded mixed to lower on a dollar-neutral, or hedged, basis, sources said on Tuesday, after the San Francisco-based social media company posted quarterly earnings that met or beat estimates but disappointed on user growth and certain guidance going forward.

Medicines Co.’s convertibles popped along with shares on an outright basis and opened up as much as a point on swap after news the Parsippany, N.J.-based pharmaceutical company won a favorable judgment in patent suit litigation.

Other health care names were in focus as their shares surged, including Clovis Oncology Inc. and Solazyme Inc. Those shares jumped 6% and 10%, respectively.

Meanwhile, Wright Medical Group Inc.’s convertibles were in focus after news that the medical device maker and Tornier NV have agreed to combine in an all-stock deal that would move Wright’s headquarters to the Netherlands.

Driving gains in health care and biopharmaceutical companies was “continuation,” a trader who is focused on the sector said. “The market was up. Everyone has their hats back on to buy more paper,” he said.

In the primary market, Synergy Pharmaceuticals Inc. launched an offering of up to $150 million of five-year convertible senior notes in an overnight deal talked to yield a fixed 7.5% and with an initial conversion price of $3.11, which matched the stock’s close on Tuesday, according to market sources.

Elsewhere, Tesla Motors Inc.’s convertibles bounced back a little bit depending on the delta hedge on which the bonds were held, a New York-based trader said. The Tesla A tranche was seen higher by 0.25 point on hedge, and the Tesla Bs were seen higher by 0.5 point to 0.75 point.

Twitter comes in

Twitter’s 0.25% convertibles due 2019, or the A tranche, traded down about 5 points at 92.50 versus an underlying share price of $42.50. That was down about 0.25 point to 0.5 point on swap, a New York-based trader said.

Twitter’s 1% convertibles due 2021, or the B tranche, were seen at 92.25 versus the same stock price, and that also represented a contraction on swap of about 0.25 point to 0.5 point, the trader said.

Shares had been down 13% but closed down $4.78, or 10%, at $43.78.

“The As are outperforming the Bs on swap,” the trader said, but both were down compared to Monday’s close.

A second trader said that on a 50% delta, the A tranche bonds were unchanged, and for the Bs on a 58% delta, the paper expanded 0.125 point to 0.25 point.

“Certainly disappointing,” nevertheless, given a 12% stock move, the second trader said.

A third trader said “on the right hedge these bonds are not down.”

Twitter reported average monthly active users of 284 million, which grew at a 23% pace, which was much slower than in the year-earlier period. Also timeline views per user fell 7%.

For the quarter, it reported a net loss of $175 million, or 29 cents per share. Excluding one-time items, the loss was $7 million, or a penny, which was in line with expectations.

Revenue was up at $361 million, which was better than expectations.

Looking ahead, revenue was projected to be $440 million to $450 million for the fourth quarter. Adjusted EBITDA is expected to be between $100 million to $105 million. Full-year revenue is expected to be $1,365,000,000 to $1,375,000,000, and adjusted EBITDA was projected to be in the range of $260 million to $265 million.

Following earnings, Stifel Nicolaus downgraded Twitter to sell, citing “sluggish user growth and declining engagement metrics.” Other banks also cut their ratings on the company.

Twitter priced the $1.89 billion, dual-tranche convertible offering last month. It came with a 47.5% premium and was priced via joint bookrunners Morgan Stanley & Co. LLC, Goldman Sachs & Co. and J.P. Morgan Securities LLC.

Medicines opens up

Medicines’ 1.375% convertibles due 2017 were seen last at 113 bid, 113.75 offered versus an underlying share price of $25.86, according to a biotech convertibles trader.

Previously the bonds were seen around 106. Shares of the company surged, to close up $3.67, or 16.5%, at $25.86.

The bonds opened up by about 0.75 point to a point on a 50% delta, the trader said.

News drove the gains in the securities. The U.S. District Court for northern Illinois rejected Mylan’s claim that several of Medicine’s patent claims were invalid. Medicines filed the lawsuit in February 2011 against Mylan’s proposed bivalirudin drug, which Medicines said infringed its patent on Angiomax. Mylan had argued that several of Medicines’ patent claims were invalid.

Synergy to price

Synergy Pharmaceuticals, a New York-based biopharmaceutical company focused primarily on drugs to treat gastrointestinal diseases, launched an offering of up to $150 million of five-year convertible senior notes.

The overnight deal was expected to price before the market open Wednesday at a fixed 7.5% and a 0% premium.

The Rule 144A deal, which has a $22.5 million greenshoe, was being placed via bookrunner BofA Merrill Lynch.

The notes are non-callable for life with no puts. Settlement will be in stock, and there is change-of-control protection and dividend protection via a conversion ratio adjustment for any dividends.

Mentioned in this article:

Clovis Oncology Inc. Nasdaq: CLVS

Medicines Co. Nasdaq: MDCO

Solazyme Inc. Nasdaq: SZYM

Synergy Pharmaceuticals Inc. Nasdaq: SGYP

Tesla Motors Inc. Nasdaq: TSLA

Twitter Inc. Nasdaq: TWTR

Wright Medical Group Inc. Nasdaq: WMGI

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