Tesaro surges after positive drug data; Tesla lower; Intercept Pharmaceuticals on tap

By Rebecca Melvin

New York, June 29 – Tesaro Inc.’s convertibles surged about 100 points on Wednesday in tandem with a 100% gain in the underlying shares of the Waltham, Mass.-based biopharmaceutical company after news of positive late-stage study results for its experimental niraparib ovarian cancer drug, a New York-based sellsider said.

Tesaro’s 3% convertibles surged to about 234 to 235 versus underlying shares for the Waltham, Mass.-based biopharmaceutical oncology company at $78.30.

On an 80% delta hedge last night, the bonds are up about 10 points on a dollar-neutral, or swap, basis, the sellsider said. The expansion was delta dependent however, he noted.

Trading in the Tesaro bonds dominated early action in the U.S. convertibles market. The bonds were previously 131 to 135.

Tesaro said that its niraparib drug met the main goal of prolonging survival in patients without the disease worsening. The positive news also boosted competitor Clovis Oncology Inc., which is developing a similar drug, and the Clovis 2.5% convertibles were indicated up to 72.5 from about 66 previously. Clovis shares jumped $2.71, or 22%, to $15.06.

Tesla Motors Inc.’s convertibles were higher on an outright basis but lower on swap, a New York-based trader said, citing deteriorating stock borrow for putting pressure on the deep in-the-money Tesla 1.5% convertible tranche in particular.

The Tesla bonds were trading at about parity early Wednesday but were last down 1 point to 1.5 points on a dollar-neutral basis, a New York-based trader said. Tesla shares gained $8.40, or 4%, to $210.19 on Wednesday.

In primary market action, Intercept Pharmaceuticals Inc. launched an offering of $400 million of seven-year convertibles after the market close for pricing overnight. Price talk was for a coupon of 3% to 3.5% with an initial conversion premium of 30% to 35%, according to market sources, and terms were expected to be set before the market open on Thursday.

In the broader markets, U.S. equities rose as fears over economic disruptions related to the British people’s vote to leave the European Union dissipated. The Dow Jones industrial average climbed 284.96 points, or 1.6%, to 17,694.68; the S&P 500 index gained 34.68 points, or 1.7%, to 2,070.77; and the Nasdaq stock market gained 87.38 points, or 1.9%, to 4,779.25.

West Texas intermediate crude extended gains, climbing 3.5% to $49.54 a barrel on top of a 3.3% gain on Tuesday. The Energy Information Administration said U.S. crude supplies declined by 4.05 million barrels last week, which was a greater-than-anticipated reduction in stock.

Tesaro surges

Tesaro’s 3% convertibles due 2021 jumped more than 100 points on an outright basis to 235 from 131 to 135 previously. The bonds added about 10 points on a swap basis, assuming a delta of about 80%.

Tesaro shares gained $40.19, or 108%, to $77.40.

The company reported the results of a phase 3 study that showed its ovarian cancer drug extended the time elapsed between treatment and tumor progression.

In patients with the BRCA gene, progression free survival was 21 months versus 5.5 months for those given a placebo. Patients without the BRCA gene had progression free survival of 9.3 months compared to 3.9 months for those who had a placebo.

Intercept to price

Intercept Pharmaceuticals plans to price $400 million of seven-year convertibles before the market open on Thursday to yield 3% to 3.5% with an initial conversion premium of 30% to 35%, according to market sources.

The New York-based biopharmaceutical company develops novel therapeutics to treat non-viral, progressive liver diseases with high unmet medical need.

Its registered convertibles deal has a $60 million greenshoe and was being sold via joint bookrunners RBC Capital Markets LLC, UBS Investment Bank, BofA Merrill Lynch, Citigroup Global Markets Inc., and Credit Suisse Securities (USA) LLC.

The bonds are non-callable until July 6, 2021 and then are provisionally callable if shares exceed 130% of the conversion price. There are no investor puts besides a takeover protection put. There is also dividend protection.

Settlement will be in cash, shares or a combination of cash and shares.

In connection with the pricing of the notes, Intercept plans to enter into privately negotiated capped call transactions with one or more option counterparties. The capped call transactions are expected generally to reduce potential dilution to existing stockholders and/or offset, potential cash payments Intercept would be required to make in excess of the principal amount of the notes upon conversion.

Proceeds will be used to fund the purchase of a capped call transaction, commercialization and continued clinical development of Ocaliva and for general corporate purposes and working capital.

Mentioned in this article:

Clovis Oncology Inc. Nasdaq: CLVS

Intercept Pharmaceuticals Inc. Nasdaq: INPT

Tesaro Inc. Nasdaqq: TSRO

Tesla Motors Inc. Nasdaq: TSLA

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