Brother, can you spare a dime?
In and of itself, that may not come as a surprise, as bankers set the conversion price above the then-current market price of the stock. But some of the current conversion deltas are wide: of the 15 underwater deals, seven stocks would have to at least double in price to hit their convert prices. Furthest under water is Affymetrix (AFFX), which is $166.50 beneath its $321 conversion price based on Friday's close at $154.50. And Human Genome'smost recent note deal is $133.25 below its $219 conversion price, using HGSI's Friday close of $85.75.
The question is what will drive the stock prices back over the top, and in what time frame. Three of the 19 converts are from pure toolkit plays without traditional product-driven milestones.
In the meantime, companies will pay the annual interest or hope for a more attractive rate environment in order to refinance. Some of the annual coupons are sizable. Millennium (MLNM) is on the hook for $22 million a year if the $400 million of notes it sold in January accrue interest at the 5.5 percent coupon. MLNM's near-term product driver is its Campath alemtuzumab humanized monoclonal antibody, which is under review in the U.S. and Europe to treat chronic lymphocytic leukemia. The product is partnered with Ilex Oncology (ILXO).
Many of the companies, however, won't have to dole out cash to cover