MannKind drops on partnership deal delay; Medtronic, Transocean gain; Avis, AirTran plan deals

By Kenneth Lim

Boston, Oct. 6 - MannKind Corp. fell sharply on Tuesday in an otherwise slow day for convertibles.

MannKind raised concerns about a key drug candidate after the company said its search for a marketing partner would not be concluded as quickly as expected.

Most of the names seen moving on Tuesday were carryovers from earlier in the week.

Medtronic Inc. was slightly weaker earlier in the day but ended better after the company eased fears that an earnings warning from rival St. Jude Medical Inc. would hit others in the industry.

Transocean Ltd. gained with its stock, which got a boost from the broader market and oil prices.

Incyte Corp.'s new 4.75% convertibles due 2015 were also seen better bid. The Wilmington, Del.-based drug company saw its common stock gain 1.05% or $0.07 to close at $6.75 on Tuesday.

"That one continues to trade up a little," a sellside convertible trader said.

After the closing bell, Avis Budget Group, Inc. and AirTran Holdings, Inc. announced new deals expected to price Wednesday after the market closes.

Volumes on Tuesday remained light with the market seen as relatively rich, one trader said.

"There's not a lot going on in converts today," the trader said. "Everybody seems to be saying the same thing. The universe is pretty fully priced right now."

MannKind tanks on delay

MannKind's 3.75% convertible due 2013 fell almost 10 points outright with its stock after the company said it will not find a marketing partner for its inhaled insulin drug Afresa this year.

The convertible was seen trading at about 69.5 with its stock at $6.50 on Tuesday. The common stock closed at $6.31, lower by 31.49% or $2.90.

MannKind is a Valencia, Calif.-based biotech.

"Those really fell today," a trader said. "They said they couldn't find a partner for their drug, so the stock just collapsed."

There was a "substantial hedge presence" in the convertibles, and those investors probably took a hit on Tuesday, the trader said.

"I think most of the holders probably came out a little worse," the trader said.

MannKind said Tuesday that it had been in talks with a potential partner but decided to complete the marketing partnership after the Food and Drug Administration approves the drug, which is expected to take place in January. The company had hoped to have a deal in place by the end of the third quarter.

A convertible analyst said the announcement was troublesome especially because the company had built up expectations earlier.

"Usually if the trials are good and you give a date saying, well, we're going to get it done in the next six months, and then you say your partner wants to wait, it raises the question of, is there something wrong?" the analyst said.

Hedged investors were not necessarily protected because "credit also crumbles on something like this," the analyst said.

"I asked our traders, and as usual, it depends on what you have on a hedge," the analyst said. "If you had a heavy hedge, you would have done much better, on a 75% you probably did a little better, but probably people were lighter than that, especially with their earlier announcement about the partnership."

Medtronic up slightly

Medtronic's 1.5% convertible due 2011 was up by about ½ point outright at 99.375 against a stock price of $36.20, while its 1.625% convertible due 2013 also added ½ point to trade at 98.25 versus the same stock price.

The company's common stock slipped 0.71% or $0.26 to close at $36.19 on Tuesday.

Medtronic is a Minneapolis-based medical device maker.

"Medtronic's usually pretty active," a trader said. "There was some concern about the St. Jude warning earlier today, but the company came out and said we're OK, so it's come back up."

St. Jude Medical, a St. Paul, Minn.-based medical device maker, on Tuesday warned that its third-quarter profit would miss its previous forecast because of slower buying from hospitals. The warning raised concerns that its competitors also faced poor business during the quarter, but Medtronic spokesman Steven Cragle told media that the company did not change its expectations during the past three months.

Transocean higher with stock

Transocean's 1.5% convertible due 2037 added about ½ point outright to trade at 95.5 versus a common stock price of $86.10 on Tuesday as its stock got a boost from the broader market and higher oil prices.

The common stock closed at $85.61, gaining 2.58% or $2.15.

"Another name you see a lot," the convertible trader said. "Pretty volatile stock, moves up and down with oil prices. I think today they were also just tracking the rest of the stock market higher."

Avis, AirTran plan deals

Avis and AirTran could add another $325 million of convertibles to the market when they price Wednesday after the close.

Avis plans to price $250 million of five-year convertible senior notes with price talk at a coupon of 3.5% to 4% and an initial conversion premium of 25% to 30%.

The notes will be offered at par.

Barclays Capital, Citigroup, Deutsche Bank, JPMorgan and Merrill Lynch are the bookrunners of the Rule 144A offering.

Proceeds will be used for general corporate purposes, to repay debt and to fund a convertible note hedge.

Avis is a Parsippany, N.J.-based car and truck rental company.

AirTran's $75 million offering of seven-year convertible senior notes is talked at a coupon of 5.25% to 5.75% and an initial conversion premium of 15% to 20%.

The notes will be offered at par. There is a concurrent public offering for 9 million shares of common stock.

Morgan Stanley & Co. Inc. is the bookrunner of the registered offering.

Proceeds will be used for general corporate purposes, which may include working capital, capital expenditures or debt retirement.

AirTran is an Orlando, Fla.-based airline.

Mentioned in this article

MannKind Corp. Nasdaq: MNKD

Medtronic Inc. NYSE: MDT

Transocean Ltd. NYSE: RIG

Incyte Corp. Nasdaq: INCY

Avis Budget Group, Inc. NYSE: CAR

AirTran Holdings, Inc. NYSE: AAI

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