InterMune notches stellar debut; Pacira sees revised terms; Cobalt steady dollar neutral

By Rebecca Melvin

New York, Jan. 16 - InterMune Inc.'s newly priced 2.5% convertibles put in a stellar debut in secondary dealings on Wednesday gaining 5 points plus on a dollar-neutral, or hedged, basis, after the Brisbane, Calif.-based biotech concern priced an upsized $105 million of the notes beyond the tight end of talk for the coupon and at the tight end of talk for the premium.

The new InterMune, which will be used to repurchase the company's existing 5% convertibles, traded up to 108 in the aftermarket amid strong trading in the underlying shares, which were boosted by an upgrade by UBS Securities LLC to "buy" from "neutral" on early indications regarding its Ascend trial, a market source said.

Also in the primary market, Pacira Pharmaceuticals Inc.'s planned $100 million of six-year convertible senior notes was viewed as slightly cheap at revised talk, which was tightened during marketing to a 3.25% coupon and 32% initial conversion premium, from initial talk of a 3.5% to 4% coupon and 27.5% to 32.5% premium.

The Pacira deal was seen pricing late Wednesday after launching late Tuesday.

The Pacira bond has a coupon make-whole feature like that of the Royal Gold Inc. convertible that priced last June in the event that the company calls the bonds.

Meanwhile, Cobalt International Energy Inc.'s recently priced 2.625% convertibles finally took a noticeable bump lower since pricing in mid-December, trading down to 103 outright. But the bonds were said to have held in on swap, an East Coast-based buysider said.

The newer Cobalt traded down to 103 ish from 105 to 106 after the Houston-based oil exploration and development company placed a secondary offering of common stock at 6% below the market.

The offering of 40 million shares of common stock was worth more than $1 billion. Cobalt shares fell nearly 6% in mid-morning trading.

The share sale reduces the holdings of Goldman Sachs and First Reserve Corp. as well as funds owned by Carlyle Group LP and Riverstone Holdings LLC to less than 13% each from about 15%.

The video game publisher THQ Inc. traded up through 20 as buyers bet on a positive outcome of the bankruptcy auction set Jan. 22.

After the market close, there was more action on the primary front. Theravance Inc. launched an offering of $250 million of 10-year convertibles subordinated notes via bookrunner Bank of America Merrill Lynch that was seen pricing with a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%.

InterMune surges on debut

InterMune's newly priced 2.5% convertible bonds closed up at about 109 versus the $10.38 closing share price.

Straight out of the chute, the new deal had moved up to 107 bid, 108 offered, and versus an underlying share price of $10.20, that was seen up 5 points or more on a dollar-neutral, or hedged, basis.

InterMune shares traded strongly as well, lifting 34 cents, or 3.4%.

InterMune shares were boosted by the financing of both the convertible deal and share offering, which were favorable to the company. The convertibles came at a 2.5% coupon, which was much cheaper than the initially talked 3.125% to 3.625% price tag.

Meanwhile, UBS upgraded the shares to "buy" from "neutral," with the bank's analyst basing his rating on a favorable early view of the 52-week Ascend trial, with results expected in the second quarter of 2014, versus a competing treatment, a market source said.

The new convertible was a win-win deal, with so-called "free money" for those who traded it in the aftermarket.

Tight supply in the new issue market was cited for the issue's stellar move. "Does pricing matter or simply supply?" a New York-based trader said.

Even though the new issue was upsized by a considerable 23.5%, the new issue was still considered small at $105 million in size.

The registered, off-the-shelf deal was initially talked at $85 million in size and priced concurrently with 13.5 million shares of common stock at $9.90 per share. The share offering was upsized from an initially talked 12.5 million shares.

Pricing of the notes came well beyond the rich end of talk for the coupon, which was 3.125% to 3.625%, and at the tight end of 25% to 30% premium talk.

There are over-allotment options for up to an additional $15.75 million of notes and up to an additional 2.025 million of common shares.

Goldman Sachs & Co. and J.P. Morgan Securities LLC were the joint bookrunners.

The notes are non-callable until June 20, 2015 and then are provisionally callable if the price of the common stock exceeds 130% of the conversion price for at least 20 days in a 30-day trading period.

This month, InterMune announced preliminary fourth quarter 2012 sales of $8.2 million of Esbriet (pirfenidone), which was the sole contributor to InterMune's total revenue in the last year. The drug, which was launched in Germany in September 2011, is approved for the treatment of idiopathic pulmonary fibrosis, a fatal lung disease.

For the full year 2012, Esbriet's unaudited net sales came in at about $26.1 million, slightly above the higher end of InterMune's 2012 Esbriet guidance range of $20 million to $25 million. The fourth-quarter result included an 11% price decrease in Germany. Total revenue for 2012 was expected to be $29 million.

The company expects to build commercial infrastructure and commence pre-launch preparation for Esbriet in the United States in 2013.

InterMune also revised its 2012 operating expenses guidance. The company narrowed its total operating expenses guidance for 2012 to $205 million to $215 million from previous guidance of $200 million to $235 million.

InterMune's 2012 research and development expenses are expected in the range of $100 million to $105 million, up from previous guidance of $90 million to $105 million; while selling general and administrative expenses are expected in the range of $105 million to $110 million, down from previous guidance of $110 million to $130 million.

The company expects Esbriet sales of $40 million to $70 million in 2013. The guidance includes $40 million to $55 million from countries where the product is currently launched and the rest form the countries where it is yet to be launched. Total revenue estimate was $71 million.

The lion's share of proceeds from the new offering will be used to repurchase early or at maturity the company's outstanding 5% convertible senior notes due 2015.

The company has already received commitments from holders to repurchase about $50 million of notes.

Proceeds may also be used to fund commercialization of Esbriet, to fund the Ascend trial and for general corporate purposes, which may include research and development and working capital.

Brisbane, Calif.-based InterMune is a biotech concern focused on treatments for pulmonary, infectious and hepatic diseases.

Pacira revises talk

Pacira planned to price its convertibles late Wednesday at a coupon of 3.25% and initial conversion premium of 32%, according to a syndicate source.

Initially, the Rule 144A deal was talked at a higher 3.5% to 4% coupon. And the revised premium was toward the rich end of initial 27.5% to 32.5% talk.

The new issue has a coupon make whole like one featured in the seven-year paper of Royal Gold priced last year.

"I just think that companies are looking to have more flexibility and are willing to make the concession," a New York-based syndicate source said.

Parsippany, N.J.-based Pacira is a specialty pharmaceutical company.

Theravance to price

Theravance, a San Francisco-based biopharmaceutical company, launched an offering of $250 million of 10-year convertibles subordinated notes after the market close Thursday.

The deal, with a $37.5 million greenshoe, is non-callable, with no puts.

Proceeds are intended to be used for potential milestone payments to GlaxoSmithKine plc if there is any approval or launch of products under the parties' collaboration, for the potential repayment of debt and for other general corporate purposes.

The company also intends to use a portion of proceeds to pay the cost of entering into capped call transactions with the underwriter and/or affiliates.

Mentioned in this article:

Cobalt International Energy Inc. NYSE: CIE

InterMune Corp. Nasdaq: ITMN

Pacira Pharmaceuticals Inc. Nasdaq: PCRX

Theravance Inc. Nasdaq: THRX

THQ Inc. Pink sheets: THQI

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