Gilead adds on hedge on positive drug data; Tyson contracts on hedge; MannKind drops deal

By Rebecca Melvin

New York, Feb. 3 - Aside from a few notable exceptions, convertible bonds strengthened considerably in the past week as equities continued to lift in the face of improving U.S. economic data.

On Friday, Gilead Sciences Inc. was a name of the day, with all three sister convertible issues of the Foster City, Calif.-based biopharmaceutical company jumping in active trade on news of favorable clinical trial data for a hepatitis C drug that Gilead acquired when it bought Pharmasset Inc. last month for $10.8 billion.

Tyson Foods Inc. paper was higher outright, but contracted on a dollar-neutral, or hedged, basis after the Springdale, Ark.-based meat processor posted lower earnings that were crimped by higher commodity prices.

Meanwhile China Medical Technologies Inc.'s 4% convertibles due 2013, which dropped off a cliff on Wednesday, were quiet but improved slightly by Friday to about 28.5 from 25. Previously the convertibles were around 50.

Traders were still waiting for "some kind of news" regarding the Beijing-based medical device maker's coupon payment default on a separate convertibles issue.

Other names that improved this past week were Textron Inc. and Terex Corp. Both names have gotten better on a dollar-neutral basis in recent weeks. Terex, in particular, is a lot better and trades on an 80% to 85% delta, a New York-based trader said.

No new issues

There were no new issues in the primary market this past week and that continues to be a sore spot for the market despite rapidly rising valuations, which one trader described as being "on fire."

The one deal on tap was scuttled at the 11th hour due to the inability of investors and the company to agree on final terms. MannKind Corp. decided not to pursue a previously disclosed offering of convertible notes at this time, the company said in a regulatory filing Friday.

The Valencia, Calif.-based biopharmaceutical company launched the private offering for up to $161 million of secured convertible notes due 2019, along with a registered public offering of units, including common stock and warrants, earlier this week.

However, internationally, there was a smattering of new deals in southeast Asia and one from African Minerals Ltd., a Bermuda-headquartered company with mining interests in Sierra Leone, Africa.

Back in the U.S. on Friday, good economic data fueled renewed enthusiasm for stocks, lifting indices to levels not seen in years.

Among the data, non-farm payrolls grew by 243,000 jobs in January, which was almost double an expected 140,000 of additional jobs. The additional jobs combined with people dropping out of the workforce lowered the unemployment rate to 8.3% from 8.5%.

In addition, the Institute for Supply Management's non-manufacturing index came in at 56.8 last month, up from a revised 53 first reported as 52.6 in December, signaling improving sentiment. Meanwhile, December factory orders increased 1.1%, versus an expected 1.5% rise.

The Dow Jones industrial average gained 157 points, or 1.2%, to 12,862.23; but the S&P 500 stock index ended higher by 19 points, or 1.5%, at 1,344.90 and the Nasdaq Stock Market ended up by 46 points, or 1.6%, to 2,905.66. The last time the Nasdaq was at that level was in December 2000.

Gilead jumps on trial data

Gilead's 1.625% convertibles due 2016 were the most active Gilead convertibles on Friday, shooting up more than 8 points outright to 135.168, or up about 0.5 point on a hedged basis, a New York-based trader said.

Gilead's sister issues also improved about 0.5 point on hedge, the trader said.

Gilead's 1% convertibles due 2014, or the C convertibles, added 7 points to 129; and Gilead's 0.625% convertibles due 2013 jumped up 11.375 points to 144.5.

Shares of the company jumped $5.38, or 11%, to $54.69.

Gilead said Thursday that in a clinical trial, two groups of patients who were treated with a hepatitis C treatment called GS-7977 had undetectable levels of the hepatitis C virus after four weeks. The patients took GSI-7977 and ribavirin, an older treatment for the virus, and they had either failed to respond to previous therapies or had not been treated before. In November, Pharmasset Inc., which developed the drug and was acquired by Gilead in January, said 100% of patients in a study responded to the drug.

Tyson slips on hedge

Tyson's 3.25% convertibles due 2013 traded higher outright on the day, with a print going up on Trace data at 126.463, which was higher by 3.6 points. But the paper was lower on a hedged basis by about 0.25 point to 0.375 point, given trading on about a 70% delta, a New York-based sellsider said.

Shares of the Springdale, Ark.-based meat producer gave up some gains going in the session close, but still ended the day up 0.76 points, or 3%, at $19.38.

For Tyson's fiscal first quarter ended Dec. 31, the company earned $156 million, or 42 cents a share, down 48% from $298 million, or 78 cents a share, from a year earlier.

Revenue was higher by 9.4% at $8.3 billion even though the volume of sales fell 5%. The higher revenue was due to higher prices charged during the quarter compared to a year earlier.

The price for beef rose 19%, for example, Tyson said, while the price for pork rose 16%, and the price for chicken rose 11%.

Commodity costs remain a challenge for meat processors as live cattle prices, for example, rose faster than beef prices in the last quarter.

MannKind pulls deal

Proceeds of the planned Rule 144A MannKind convertible were to have been used to repay MannKind's 3.75% convertibles that come due in 2013.

Those convertibles remain outstanding at this time, a syndicate source said.

The deal was unable to be completed even though a 7% coupon was being offered and they were to have been secured by a first-priority lien on substantially all of the company's assets, excluding its insulin inventory.

A breakdown in negotiations on pricing was cited for the cancelation. On the other hand, the Valencia, Calif.-based biopharmaceutical company completed an upsized units and warrants offering for $75 million of proceeds, or 31.25 million units, at $240 per unit.

Initially, the units offering was going to be $50 million in size. The warrants will be exercisable at $2.40 per share and expire four years from issuance.

MannKind shares fell 12% to $2.17 on Friday on the Nasdaq Stock Exchange.

MannKind also issued to the Mann Group LLC, which is controlled by MannKind's chief executive Alfred E. Mann, restricted shares of common stock in exchange for cancellation of outstanding debt.

Jefferies & Co. Inc., Piper Jaffray & Co. and Cowen and Co. LLC were acting as joint bookrunners of the offerings.

Proceeds of the units are earmarked for general corporate purposes, including research and development, capital expenditures, working capital, and general administrative expenses.

Existing MannKind quiet

MannKind's 3.75% convertibles due December 2013 weren't heard in trade on Friday and were last seen at 60.25 earlier this week after being quoted at 53 bid, 65 offered.

MannKind 5.75% convertibles due 2015weren't heard in trade, but generally they are quoted a little higher than the 2013 bonds.

The longer-dated paper is quoted higher due to its higher coupon, a trader said.

MannKind is a development-stage enterprise and has incurred significant losses since its inception in 1991; nevertheless, one trader said of the MannKind bonds, "people that own them, kind of believe in the story."

As of Sept. 30, 2011, MannKind incurred a cumulative net loss of $1.9 billion and an accumulated stockholders' deficit of $280.8 million, according to a regulatory filing.

"To date, we have not generated any product revenues and have funded our operations primarily through the sake of equity securities, convertible debt and borrowings under a party loan. If we are unable to obtain additional funding in the future, there will be substantial doubt about our ability to continue as a going concern," MannKind stated in the filing.

Mentioned in this article:

China Medical Technologies Inc. Nasdaq: CMED

Gilead Sciences Inc. Nasdaq: GILD

MannKind Corp. Nasdaq: MNKD

Terex Corp. NYSE TEX

Textron Inc. NYSE: TXT

Tyson Foods Inc. NYSE: TSN

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