Exelixis jumps outright, expands on hedge on positive trial data; Depomed better on hedge

By Rebecca Melvin

New York, July 20 – Exelixis Inc. was the name of the day in the convertibles market on Monday as its 4.25% convertibles surged more than 30 points on an outright basis and expanded about 3 points on swap in active trade after the South San Francisco, Calif.-based biotechnology company announced positive results for a phase 3 trial of a kidney cancer drug. Shares of the company surged 50%.

Exelixis said the trial comparing cabozantinib to everolimus in 658 patients with metastatic renal cell carcinoma met its primary endpoint.

The drug is not a first line treatment, but, if approved, would be used under certain circumstances, a convertibles trader said.

Depomed Inc.’s convertibles outperformed the underlying shares of the Newark, Calif.-based pharmaceutical company. Last week, the company adopted a poison pill in response to a hostile takeover bid from Horizon Pharma plc. The bid represented a 42% premium over Depomed’s share price on the day it was announced.

Horizon Pharma also has convertible bonds, but the 2.5% convertible issue was not heard in trade on Monday.

Illumina Inc.’s convertibles were quiet. The San Diego-based developer of genetic research tools was set to report quarterly results after the market close on Tuesday.

Illumina’s 0% convertible notes due 2019 traded last at 122, which was little changed compared to Friday.

Illumina’s 0.5% convertible notes due 2021 had traded up to 130 during the session, according to Trace data. But the bond was last at 128, which was little changed compared to Friday.

Elsewhere, there were buyers of UTi Worldwide Inc. Those bonds traded at 98, which was little changed on an outright basis from previous trades. UTi Worldwide shares were down 22 cents, or 2.5%, at $8.60.

Exelixis shoots higher

Exelixis’ 4.25% convertibles due 2019 ended the session at 119 bid, 120 offered versus an underlying share price off $5.88, a trader said.

That was up from about 87 on Friday and represented a 3-point expansion on swap, the trader said.

The Exelixis shares surged $1.97, or 50%, to $5.88.

The bonds were being quoted on a 75% delta at the end of the day, after having started out the session on a lighter 65% delta, the trader said.

The Exelixis bonds jumped out of the chute to trade early at 114.23 versus an underlying share price of $5.49. That was up about 24 points on an outright basis, and with the underlying shares up 42%, it represented a 3-point expansion on swap, market sources said.

The company said that its cabozantinib drug reduced the risk of disease progression or death by 42% compared to the everolimus arm.

The company had a trial failure previously and this trial was designed differently, the trader said. “Going into it, we were 50-50.”

As for how much further the securities could run, the trader said he didn’t think the stock would go from a $5.88 to $15.00 tock, and that the convertibles would “settle in” at the current level.

Depomed expands 0.5 point

Depomed’s 2.5% convertibles due 2021 closed at 180 bid, 180.75 offered with the underlying shares at $32.73, a trader said.

That was up about 0.5 point on a dollar-neutral, or hedged, basis.

The bonds had also traded higher at 181.125, which was up 2.25 points outright, when the underlying shares of the company were up 1.2%.

Depomed shares closed up only 0.7%.

“The company has been in the news as a takeout candidate and there was rumor of another bid, a topping bid [compared to the original Horizon Pharma bid],” the trader said.

“Depo is in play,” the trader said.

As a poison pill, Depomed enacted an agreement that gives one right for each outstanding share to stockholders of record on July 23.

Mentioned in this article:

Depomed Inc. Nasdaq: DEPO

Exelixis Inc. Nasdaq: EXEL

Horizon Pharma plc Nasdaq: HNZP

Illumina Inc. Nasdaq: ILMN

UTi Worldwide Inc. Nasdaq: UTIW

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