ImClone gains on Bristol-Myers offer; Amylin rises on M&A chatter; Hologic lower after earnings

By Rebecca Melvin

New York, July 31 - The convertibles market was mixed on Thursday, with trades in several biotechnology names spurred by earnings and speculation over potential M&A activity in that sector, while the balance of trade seemed to be made up of financial names that have become typical fare of late.

Overall activity was measured on the last day of the month, with some desks reporting "not much activity," according to market players.

ImClone Systems Inc. convertibles jumped along with their underlying shares on news that the New York-based biotech received a buyout offer from Bristol-Myers Squibb Co. for $60 a share, a 30% premium to ImClone's closing price Wednesday.

Bristol-Myers already owns about 17% of ImClone, and the deal valuing ImClone at about $5.2 billion would enhance the Big Pharma's stake in its fast-growing Erbitux cancer drug.

In a sign that investors were looking for the pace of M&A activity in the biotechnology sector to continue to strengthen, Amylin Pharmaceuticals Inc., which also has a big pharmaceutical partner, jumped.

But Hologic Inc. convertibles were punished after the medical technologies company posted disappointing quarterly earnings and lowered its 2008 sales forecast. Jefferies analyst Arthur Henderson followed up by downgrading the stock to "hold" from "buy."

In financials, Countrywide Financial Corp. convertibles were in play again, with their price off slightly by about 0.125 point. One source recommended selling the Countrywide issues at this point based on where prices are relative to the risk/reward profile.

But another sellsider, who traded quite a bit of the Countrywide series A convertibles Thursday, said he didn't think there was too much risk on the As. "The Bs are a little different story," he said.

A Boston-based sellsider said he was looking more to financial paper issued in recent months that may have slipped between the cracks. "People seem to have forgotten about them," he said, mentioning Provident Bankshares Corp.'s 10% mandatory convertible preferred stock issued in April as an example.

ImClone gains on buyout offer

ImClone 1.375% convertibles due May 15, 2024 closed at 98.16 versus a share price of $63.93 on Thursday, compared with 96.06 versus a share price of $46.44 on Wednesday.

"ImClone traded higher on the BMY deal," a New York-based sellside trader said via e-mail. The convertibles' yield to put went from 6% to 3.3%, "although that price has an asterisk next to it because the assumption is you get paid a few months prior to the actual put in May 2009."

Bristol-Myers Squibb stated in an amended 13-D filing that it is offering to enter into an agreement to acquire ImClone for $60 per share in cash.

"Our all-cash offer represents a premium of approximately 30% over the closing price," according to the filing. "A full combination of Bristol-Myers Squibb and ImClone is a natural fit for both our companies, and we are convinced our proposed price represents a full and fair offer for ImClone."

Bristol-Myers Squibb's board approved the offer, and it believes that with ImClone's cooperation, a definitive agreement can be reached quickly.

"We do not foresee any regulatory or other impediment to closing. Our offer is not conditioned on financing or due diligence," Bristol-Myers said in the filing.

After the market close, ImClone, the maker of the colon and head and neck cancer drug Erbitux, acknowledged that it received an offer letter from Bristol-Myers Squibb and said it is studying the situation.

Shares of ImClone (Nasdaq: IMCL), a New York-based biotech, surged $17.49, or 38%, on Thursday.

Shares of New York-based Bristol-Myers (NYSE: BMY) shed 39 cents, or 1.5%, to $21.12.

Amylin jumps on M&A chatter

Amylin 3% convertibles due June 15, 2014 closed at 84.58 versus a share price of $31.55 on Thursday, compared to 80.5 versus a share price $27.48 on Wednesday.

The Amylin 3% convertibles were reported to trade earlier in the session at 84 versus a share price of $30.50.

Amylin's 2.5% convertibles due April 15, 2011 were seen closing at 108.185 compared with 102.4 earlier.

Speculation that the San Diego, Calif.-based biopharmaceutical company might get bought by Big Pharma partner Eli Lilly sent shares of Amylin (Nasdaq: AMLN) up $4.07, or 15%, to $31.55 in heavy volume Thursday.

Deutsche Bank analyst Mark Schoenebaum mentioned the potential linkup along with other possible deals such as: OSI Pharmaceuticals and Genentech, Vertex Pharmaceuticals and Johnson & Johnson, Human Genome Sciences and Novartis, Onyx Pharmaceuticals and Bayer, and Wyeth and Progenics.

Amylin's quarterly results reported last week showed higher sales of its top-selling drugs Byetta and Symlin but also a wider net loss due to higher expenses associated with sales and administration.

The net loss for the three months ended June 30, 2008 was $64.8 million compared to a net loss of $45.0 million for the same period in 2007. In addition to increases in selling, general and administrative expenses, Amylin mentioned increased collaborative profit-sharing, decreased revenues under collaborative arrangements and increased R&D expenses, partially offset by increased net product sales.

The company reported that for the three months ended June 30, sales of Byetta rose to $177.5 million from $152.1 million and sales of Symlin gained nearly 50% to $22.8 million from $15.2 million. The growth reflected continued growth in patient demand, the company said.

As of June 30, the company had $890.9 million in cash, cash equivalents and short-term investments.

"We may not generate positive operating cash flows for at least the next few years and accordingly, we may need to raise additional funds from outside sources," the company said in its report.

In addition many members of Big Pharma are looking for more sources of product to supplement drying pipelines.

Hologic sinks 7 points

The Hologic 2% convertibles due Dec. 15, 2037 closed at 76.99 versus a share price of $18.47 on Thursday, compared with 84.125 versus a share price of $22.85 on Wednesday.

Earlier in the session, the Hologic 2% convertibles traded at 78 versus a share price of $19.00.

The Bedford, Mass.-based company's shares (Nasdaq: HOLX) dropped $4.38, or 19%, after reporting disappointing results.

The company that focuses primarily on women's health products, said revenue from its Cytyc Corp. buyout last year boosted earnings to $429.5 million from $191.5 million but fell short of expectations. Revenue was $61.4 million for the quarter, compared with $24.7 million in the year-earlier period.

The company also said that Cytyc expects to earn about $1.18 per share this year, which was at the higher end of an earlier projected range of $1.15 to $1.18 per share. Its forecast for revenue for the fiscal year is $1.67 billion, down from an earlier expectation of $1.70 billion.

A New York-based sellsider said Hologic is relatively long-dated paper, without a put until December 2013. "77.75 is a 7% yield. I don't think it's a credit event," he said of Thursday's news.

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