Auxilium 'comes in' on disappointing quarter; Cemex slips on earnings; Theravance in focus

By Rebecca Melvin

New York, April 29 - Convertible bonds were mostly quiet on Monday as stocks rallied and as earnings news drove some trading action, sources said.

Auxilium Pharmaceuticals Inc.'s convertibles traded down on an outright and dollar-neutral, or hedged, basis, after the Malvern, Pa.-based specialty pharmaceutical company reported a quarterly loss and revenue that missed estimates. Auxilium also lowered forward guidance and said it bought a urology drug company for $585 million.

Cemex SAB de CV's 4.875% convertibles due 2015 slipped about 0.5 point on a 2% move down in the underlying shares after the Monterrey, Mexico-based cement company reported a wider loss on weak sales for the first quarter on Friday.

LifePoint Hospitals Inc.'s 3.5% convertibles due 2014 also traded and were 2 points higher on an outright basis with shares up 5% after the Brentwood, Tenn.-based rural hospital owner and operator also reported earnings Friday.

"LifePoint traded weirdly: the 3.5% convertibles traded at 109 on a bid hit, which means guys were selling them," a source said.

Another health-care-related name, Health Care REIT Inc. saw its 6.5% convertible perpetual preferreds trade at 66.40 versus an underlying share price of $74.25, which was in line with where they had traded previously.

Theravance Inc.'s convertible bond issues were still in focus with the 2.125% convertibles higher in line with shares as market players continued to assess how the San Francisco-based biotechnology company's move to split itself into two publicly traded companies will ultimately affect the convertibles.

NetApp Inc. was another big trader on the day, and pricing of the bonds moved in step with the underlying shares of the Sunnyvale, Calif.-based storage and data management company.

There were no new issues launched or priced in the United States. But in Australia, a subsidiary of Drillsearch Energy Ltd. launched a Regulation S offering of $100 million of five-year convertible notes that were expected to price Wednesday.

The Sydney-based oil and gas exploration and development company is expected to price the notes with a 5% to 6% coupon and a 35% initial conversion premium.

Overall, convertibles players said the market was quiet, with investors remaining open to all opportunities.

"It is a function of what's in the marketplace and what makes sense," a New York-based sellsider said. "People are trying to stay away from making a trade for the sake of making a trade on a quiet day."

Equities rallied. The S&P 500 stock index hit an all-time high of 1,593.61, which was up 11.37 points, or 0.7%. The Dow Jones industrial average ended up 106.2 points, which was also up 0.7%, at 14,818.75; while the Nasdaq stock market added 27.76 points, or 0.9%, to 3,307.02.

Stronger-than-expected housing data as well as the formation of a new government in Italy, ending several months of uncertainty, were said to be catalysts for the rise in stocks.

The National Association of Realtors said pending home sales rose 1.5% in March. There had been expectations for a 1% rise.

Auxilium 'comes in' a point

Auxilium's 1.5% convertibles due 2018 traded at 91.625 bid, 92.875 offered versus an underlying share price of $14.25 on Monday.

The bond was down by 5 points or more on an outright basis and had contracted on a hedged basis by about 1 point dollar neutral, sources said.

"They were trading on a theoretical delta of 55% at the end of the day," a Connecticut-based trader said.

Auxilium shares fell $2.03, or 12.7%, to $14.00.

As for why the relatively new $350 million bond issue, which priced in January, didn't hold up better, one source said, "When the stock comes down enough, credit quality becomes more of an issue, and people get worried about the credit."

Auxilium reported a loss of $8.2 million, or 17 cents per share, in the first quarter, compared to a loss of $1.7 million, or 4 cents per share, in the year-earlier period. Excluding one-time charges, the company said it lost 5 cents per share in the latest quarter.

Revenue fell 10% to $66.2 million from $73.6 million. Analysts were expecting net income of 3 cents per share and $334.6 million in revenue.

Sales of its two approved drugs, Xiaflex and Testim, both decreased because of lower sales in the United States, and Auxilium said both drugs appear to be losing market share. Sales expectations for both products were reduced.

Auxilium lowered its sales forecast for Testim by more than $30 million to a range of $210 million to $240 million and cut its sales estimate for Xiaflex by $10 million to a range of $65 million to $80 million.

The company had expected $325 million to $355 million in revenue for the year. On average analysts are forecasting $334.6 million in revenue.

The company also said it bought urology drug company Actient Holdings LLC from private equity firm GTCR for $585 million. With the deal, Auxilium will get two testosterone drugs, impotence treatments and two respiratory drugs.

Cemex edges lower

Cemex' 4.875% convertibles due 2015 traded down 0.5 point to just under 120 with the underlying shares around $11.30, which was down 2%.

Cemex shares ended the day down 28 cents, or 2.4% to $11.23.

The company's other convertibles, a 3.25% convertible due 2016 and a 3.75% convertible due 2018, were not active in trade.

"The 3.75% convertible traded in a small amount under $5 million, but the 4.875% bond was active.

"Don't forget, that bond traded all the way down to the 70s, and rallied to 120," a New York-based sellsider said.

Cemex reported a wider first-quarter loss on Friday, hurt by a drop in cement sales that offset cost-cutting efforts.

The company's loss grew to $281 million from $30 million a year earlier and was wider than analysts' expectations of a $178 million loss.

Theravance remains in focus

Theravance's 2.125% convertibles due 2023 traded at 142.625 versus an underlying share price of $34.25 on Monday, which was in line with trades on Friday. On Friday, the bond was seen 137 bid, 137.5 offered versus an underlying share price of $33.20.

The Theravance 3% convertibles of 2015 were not active in trade.

Theravance shares gained 61 cents, or 1.8%, to $34.61.

The bonds remained in focus as convertible players tried to nail down what it will mean to have the convertibles in a royalty stream company without the developing drug pipeline.

"We are of the opinion that the split is an indication that Glaxo is going to buy them out, at least the part that has the respiratory drugs - the royalty company, but it's still not clear exactly what that will mean," a New York-based trader said.

Last week, Theravance said it intends to create two new independent publicly traded companies with differing business objectives and opportunities. One company, referred to as the Royalty Management Co., will continue to manage the late-stage partnered respiratory assets and associated potential royalty revenues as well as retain the convertible bond debt, with the intention of returning capital to stockholders.

The other company will be a separate biopharmaceutical company, referred to as Theravance Biopharma, and it will focus on discovery, development and commercialization of small-molecule medicines in areas of unmet medical need, the company said in its release.

GlaxoSmithKline is Theravance's partner for the respiratory drugs.

Mentioned in this article:

Auxilium Pharmaceuticals Inc. Nasdaq: AUXL

Cemex SAB de CV NYSE: CX

Drillsearch Energy Inc. Australia: DLS

Health Care REIT Inc. NYSE: HCN

LifePoint Hospitals Inc. Nasdaq: LPNT

NetApp Inc. Nasdaq: NTAP

Theravance Inc. Nasdaq: THRX

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