Dendreon drops after bankruptcy filing; Salix recoups some; Isis Pharmaceuticals on tap

By Rebecca Melvin

New York, Nov. 10 – Dendreon Corp.’s convertibles fell sharply on Monday after the Seattle-based biopharmaceutical company announced that it has filed for Chapter 11 bankruptcy protection.

The Dendreon convertibles initially fell more than 15 points to the upper 40s but bounced back to the mid 50 level by late morning, market sources said. Dendreon shares fell to $0.18 from $0.94 on Monday.

Elsewhere, Salix Pharmaceuticals Ltd.’s convertibles were actively traded in carry-through action from Friday when the shares and bonds of the Raleigh, N.C.-based specialty drug company dropped after it posted earnings that missed estimates, and also flagged inventory problems, lowered guidance and announced that its chief financial officer has resigned.

Theravance Inc. was also in focus after the San Francisco-based biopharmaceutical company posted a wider third-quarter loss, but beat expectations for revenue. Shares fell 6%, and the Theravance 2.125% convertibles due 2023 traded at 75.4, which was down nearly 3 points, according to Trace data.

Otherwise, the convertibles market was described as pretty quiet. In the broader markets, U.S. equities were modestly higher but quiet ahead of a market close for the bond markets on Tuesday in observance of Veterans Day.

The Dow Jones industrial average ended up 39.81 points, or 0.2%, to 17.613.74, the S&P 500 stock index rose 6.34 points, or 0.3%, to 2,038.26, and the Nasdaq stock market added 19.08 points, or 0.4%, to 4,651.62, all attaining new record highs.

After the market close, Isis Pharmaceuticals Inc. launched a new deal for $425 million of seven-year convertibles that was seen pricing after the market close Tuesday.

Isis’ existing 2.75% convertibles due 2019 were indicated lower at the market close at 270, down from 287, according to a market source. Isis shares ended up $2.64, or 6%, at $47.23 on the day, and were 0.8% lower in after-hours action.

Dendreon drops

Dendreon’s 2.875% convertibles due January 2016 dropped more than 15 points in early action to 49. But later trades were in the 50 to 55 range.

The $620 million issue of bonds had last traded previously at 66, but it had been offered lower in recent weeks with no trades, a trader said.

In the early going, there were buyers but no sellers of the Dendreon bonds, the trader said.

Shares slumped to $0.18 from $0.94.

Under the company’s restructuring plan, which was negotiated with approval from the majority of convertible note holders, holders will get either equity in the reorganized company, or cash if there is a buyer of the company.

Dendreon had warned in August that its debt load was unsustainable and that it was looking at alternatives, so the filing was not a big surprise, but “the timing was a little bit of a surprise,” the trader said.

The company has enough cash to support operations during its restructuring.

Salix bounces some

Salix’s 1.5% convertibles due 2019 bounced slightly early Monday, trading at 153.829, according to Trace data, after the bonds plunged to 146 bid, 147 offered from the 200s on Friday.

Late Monday the Salix 1.5s were seen at 154.5, which was up nearly 3 points on an outright basis.

Salix was the No. 1 name trading in the convertibles market, followed by Dendreon, said a trader, who is focused on health care convertibles.

Salix’s 2.75% convertibles due 2015 were not heard in trade.

Late last week, the company reported a loss of $88.6 million, or $1.39 per share, for the third quarter. Excluding items, earnings were $1.53 per share, which was about 3 cents below expectations.

Revenue was higher compared to a year ago at $354.7 million but still below expectations.

Salix also announced a revision of its accounting of drug inventories and lowered full-year earnings guidance to $400 million, or $5.20 per share, down from earlier estimates of $475 million, or $6.16 per share.

The company said in its news release that it has had difficulty forecasting revenue on a quarter to quarter basis and in projecting and appropriately budgeting for the level of wholesaler discounts to be incurred during reporting periods.

The company also said that its chief financial officer, Adam Derbyshire, has resigned. It named Timothy Creech as acting CFO until a permanent replacement is found.

Isis to price

Isis Pharmaceuticals plans to price $425 million of seven-year convertible notes late Tuesday via bookrunners J.P. Morgan Securities LLC, Stifel Nicolaus Weisel and BMO Capital Markets.

Coupon talk is much lower than for its existing convertibles at 0.5% to 1%. Talk for the initial conversion premium is 30% to 35%.

The Rule 144A deal has a $63.75 million over-allotment option.

The notes are non-callable for life with no puts. There is takeover and dividend protection.

The deal is coming with a call spread.

Proceeds will be used to repurchase up to $140 million of the company’s outstanding 2.75% convertible senior notes due 2019 through individually negotiated transactions with holders, with remaining proceeds to develop select drugs in its pipeline, to develop and potentially commercialize the drugs in its lipid franchise and for general corporate and working capital purposes.

Isis is a Carlsbad, Calif.-based drug maker.

Mentioned in this article:

Dendreon Corp. Nasdaq: DNDN

Isis Pharmaceuticals Inc. Nasdaq: ISIS

Salix Pharmaceuticals Ltd. Nasdaq: SLXP

Theravance Inc. Nasdaq: THRX

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