Two more companies placed convertible notes with the same goal in mind: pay off old debt with new debt, but under better terms.
Invitrogen Corp. priced $450 million of 1.5 percent senior convertible notes due 2024, and Incyte Corp. priced $200 million of 3.5 percent convertible subordinated notes due 2011. Both companies placed the notes with qualified institutional buyers.
"Every biotech company has to be opportunistic in the capital markets," said David Hastings, executive vice president and chief financial officer of Incyte.
Incyte, of Wilmington, Del., granted the initial purchasers up to an additional $50 million in notes. The notes will be convertible into shares of Incyte stock at $11.22 per share. Incyte may redeem the notes beginning Feb. 20, 2007.
The company plans to use proceeds from the offering for general corporate purposes, including repayment of outstanding debt.
"We want to ensure that our balance sheet is well positioned for the future," Hastings told BioWorld Today, "and I think this offering, at $200 million, really does that for the company."
Hastings said the new debt will pay off $166.5 million in 5.5 percent convertible notes that originally were issued in February 2000.
Earlier this month, Incyte announced its plans to close its Palo Alto, Calif., facilities and transition from a genomics-based business into a full-time drug discovery and development business. The company cut 57 percent of its work force and about $50 million in annual operating expenses. (See BioWorld Today, Feb. 4, 2004.)
The company also recently released 10-day Phase II data of Reverset, which demonstrated a significant reduction in viral load in treatment-na ve HIV patients. No serious adverse events were seen.
"Those clinical trial results were very good and very promising," Hastings said. "And then on top of that with this convertible debt financing, we placed the balance sheet in a position of strength so we can execute our strategy."
Incyte reported total revenues for 2003 of $47.1 million and a net loss for the year of $166.5 million, or $2.33 per share. As of Dec. 31, the company had cash and short-term investments of about $294 million. Incyte's stock (NASDAQ:INCY) closed Friday at $8.19, down 12 cents.
Invitrogen, of Carlsbad, Calif., granted the initial purchasers of its $450 million in notes a 13-day option to buy up to an additional $67.5 million in notes. The notes will be convertible at a rate of about 9.8 shares per $1,000 in notes, subject to adjustment so the rate is equal to $102.03 per share. The company will pay contingent interest on the notes for six months beginning Feb. 15, 2012, if the average trading price of the notes is above a specified level.
"The purpose of this is to retire some expensive debt by calling our 5.5 percent notes," said Eric Winzer, Invitrogen's chief financial officer, in a conference call Friday. "It's also to improve our debt maturity profile."
The company plans to use $172.5 million of its proceeds to redeem its 5.5 percent convertible subordinated notes due 2007. The rest would be used for potential acquisitions and for general corporate purposes, including repayment of other outstanding debt.
"We just thought this was a prudent time to retire that debt that was due in 2007," Winzer said. "It gives us a much more balanced payment horizon."
Shareholders will initially take a 7 cent hit per share as a result of the company calling the notes early, Winzer said, but that will be made up with a 7 cent or 8 cent per-share savings each year by using the new debt.
Invitrogen has conducted several acquisitions over the last few years. Most recently, it acquired Sequitur Inc., of Natick, Mass., and its Stealth RNAi technology for an undisclosed amount. (See BioWorld Today, Nov. 6, 2003.)
Within the last year, it paid $325 million in cash for Molecular Probes Inc., of Eugene, Ore., adding labeling and detection technologies, and it paid $95 million for biochemical and cellular assay capabilities and a commercial portfolio of reagents, probes and proteins from PanVera LLC, a subsidiary of Cambridge, Mass.-based Vertex Pharmaceuticals Inc.
The company also acquired Genicon Sciences Corp., of San Diego, for $2 million, gaining tools and methods for ultra-sensitive signal generation and detection. Last week, the company acquired BioReliance Corp., of Rockville, Md., for $48 per share, or around $500 million, said Greg Lucier, president and CEO of Invitrogen, gaining an entry into the biologic testing marketplace.
In the fourth quarter, the company introduced the Gateway Technology Open Architecture, a system that allows researchers to create and distribute clones within the scientific community.
"We've made an important step to really free up the use of technologies," Lucier said, "to allow you to move between genes and proteins in a seamless way."
Invitrogen held the conference call to discuss its annual results. For 2003, the company reported revenues of $777.7 million - a 20 percent increase from the previous year. The company posted a net income for the year of $60.1 million, a 26 percent increase over 2002. It posted earnings per share of $1.17. Invitrogen had $998.7 million in cash and investments at the end of 2003.
Invitrogen's stock (NASDAQ:IVGN) closed Friday at $76.33, down 67 cents.