Biotech space firm; Sarepta convertible skyrockets; Ionis notes gain; Lumentum up again

By Abigail W. Adams

Portland, Me., Dec. 13 – While news of a pending phase 1 trade deal between the United States and China buoyed equity markets, it was the biotech space that was in focus in the convertibles universe.

While previously an underperformer in 2019, the biotech/health care space has reversed course and stood poised to close the year as one of the best performing sectors in the convertibles space, sources said.

Sarepta Therapeutics Inc.’s 1.5% convertible notes due 2024 skyrocketed on both an outright and dollar-neutral basis as stock soared on Friday following news of Food and Drug Administration approval of a once rejected drug.

Ionis Pharmaceuticals, Inc.’s new 0.125% convertible notes due 2024 continued to gain in active trading their second day in the market.

Outside of the biotech space, Lumentum Holdings Inc.’s new 0.5% convertible notes due 2026 remained a major volume mover with the notes again gaining strength on both an outright and dollar-neutral, or hedged, basis.

Biotech strong

While an underperformer for much of 2019, the biotech space reversed course toward year-end and was second only to the tech sector in terms of total returns.

Health care accounted for 3.7% of the 20% returns seen in 2019, according to the Barclays report “Room to Run.”

It was the next best performer after the tech sector, which contributed 8.6% to the total return.

“Biotech’s been really strong recently on the back of drug discovery and M&A activity,” a market source said.

Some recent high-profile mergers and acquisitions have put a bid in to the space, the source said.

Medicines Co.’s buyout by Novartis and Wright Medical Group NV’s acquisition by Stryker were just two of the recent takeovers in the convertibles universe that have helped buoy the overall sector.

There has also been strong data coming out of clinical trials from companies in the sector that cut across therapeutic categories, the source said.

Sarepta soars

Sarepta’s 1.5% convertible notes due 2024 were a case in point about the recent strength of the health care sector.

The equity sensitive 1.5% convertible notes rose more than 45 points on an outright basis to trade well above double par.

They were expanded more than 3 points dollar-neutral.

The 1.5% convertible notes were changing hands at 200.25 with stock up more than 30% early in the session.

The notes continued to climb and were changing hands at 103.125 in the mid-afternoon.

The notes saw more than $18 million in reported volume during Friday’s session.

Sarepta stock traded to a low of $125.50 and a high of $138.79 before closing the day at $132.05, an increase of 31.58%.

Stock soared after the FDA reversed course on Sarepta’s previously rejected treatment for muscular dystrophy and approved Vyondys 53.

Stock was $52.44 when the convertible notes priced in November of 2017.

The biopharmaceutical company also announced Friday that it had secured a $500 million debt facility with funds managed by Pharmakon Advisors, LP.

Ionis gains again

Ionis’ recently priced 0.125% convertible notes due 2024 continued to gain after a strong secondary market debut on Thursday.

The 0.125% notes were marked at 103¼ bid, 103¾ offered in the early afternoon. They continued to rise and traded up to 104 shortly before the market close.

After a large dollar-neutral expansion on Thursday, the notes were up another 1 point on hedge.

Ionis stock traded as high as $65.25 before closing the day at $63.05, an increase of 1.33%.

The 0.125% notes expanded 2.75 points on their secondary market debut on Thursday.

Ionis priced $398 million of the 0.125% convertible notes in a privately negotiated exchange for its 1% convertible notes due 2021.

The company also plans to issue an additional $109.5 million of the 0.125% convertible notes for cash.

The Carlsbad, Calif.-based pharmaceutical company announced Friday that it priced an additional $41.4 million of the 0.125% convertible notes in exchange for $35.4 million of the 1% convertible notes.

Lumentum up again

Lumentum’s new 0.5% convertible notes due 2024 remained major volume movers in the secondary space on Friday with the notes again improving.

The notes traded up to a 104 handle on Friday. They were up another 0.25 point dollar-neutral, a market source said.

Lumentum stock traded to a high of $76.17 and a low of $74.18 before closing the day at $74.43, a decrease of 0.8%.

The notes have expanded 1.25 points on a dollar-neutral basis since pricing, a market source said.

The 0.5% notes saw a lackluster secondary market debut on Tuesday with the notes dropping below par and trading flat on swap.

However, they have steadily gained as the week progressed.

Lumentum priced $900 million of the 0.5% notes after the market close on Monday. It is expected to be the last large deal of 2019.

Mentioned in this article:

Ionis Pharmaceuticals, Inc. Nasdaq: IONS

Lumentum Holdings Inc. Nasdaq: LITE

Sarepta Therapeutics Inc. Nasdaq: SRPT

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