Forget the "open window" metaphor. Call it financing with the top down.

Convertible notes are increasingly popular this summer, with more than a dozen roaring down the cash highway so far in June. The list of issuers includes companies big and small, with the larger sales declared by such firms as Cephalon Inc., pricing $600 million in convertible notes, and ICOS Corp. aiming to raise $250 million.

"There is quite an appetite amongst buyers," said William Tanner, analyst with Leerink Swann & Co., noting that favorable terms and an optimistic market are obvious reasons for the upsurge in convertibles.

"And you're selling to a different group, not the typical biotech investor," he noted. Tanner stopped short of suggesting the buyers might be na ve while allowing "there may be an element of that. You could envision they're focused more on the coupon rate, maturity and strike price, more than clinical trial data."

What's more, the convertible way of financing "can be much more quickly done," without the exposure of a road show and negative consequences that could come with an equity-offering bid.

"Everybody knows you're out trying to do a deal," Tanner said.

"Some of the companies that are more marginal will have a harder time getting an equity deal done," he added. "Evaluation could be a bit of an issue. You can avoid those types of concerns [with a convertibles financing]."

Although Tanner's firm doesn't get involved much with convertibles, he started covering again last week a company that was among those planning to raise cash that way: BioMarin Pharmaceutical Inc., which said it aims to raise about $125 million in convertible subordinated notes due 2008.

BioMarin, Tanner said, is not one of the marginal companies - not with the approval in April of Aldurazyme, an enzyme replacement therapy for mucopolysaccharidosis-1 partnered with Genzyme General, of Cambridge, Mass.

If anything, he said, BioMarin has delivered a rather slow news flow, "and a lot of these stocks are news-flow driven," he told BioWorld Financial Watch. "When we re-initiated [coverage], we didn't have a near-term and long-term market rating."

One insider said last week there were indications the convertibles avalanche was ending, but while BioMarin was working on its convertibles deal, about a half dozen other biotechnology companies were making them at the same time.

Terms were hard for investors to pass up, particularly those investors oriented mainly toward the bottom line. Witness Cephalon, which priced its whopping $600 million worth of notes June 8, in a deal that closed several days later.

Robert Grupp, vice president of corporate communications for the company, said it was "taking advantage of the exceptionally strong market out there for convertibles to refinance and buy down our more expensive, high-cost debt," adding that the company was "going to accumulate a little more cash" as part of the deal - about $350 million to advance the firm's merger and acquisition strategy.

"We've got some notes out there that expire three different dates in 2006 and 2007," Grupp said. The new ones, issued in two tranches, included $300 million in notes with a put option that can first be exercised in June 2008 and another $300 million with the first put option time of June 2010.

In both cases, the zero-coupon convertible subordinated notes are due 2033 and carry up to an additional $75 million aggregate principal amount if the initial purchasers' 13-day option to buy more notes is exercised in full. Both are puttable at a price of 100.25 percent of the aggregate principal amount.

The 2008 notes are convertible before maturity, subject to certain conditions, into shares of Cephalon's common stock at a conversion price of $59.50 per share, which is a conversion rate of approximately 16.8067 shares per $1,000 principal amount of notes.

That initial conversion price represents a 23.8 percent premium to the last reported Nasdaq composite bid for Cephalon's stock, $48.05 on June 5.

Under the terms for both tranches, Cephalon may redeem any outstanding 2008 notes for cash on June 15, 2008, at a price equal to 100.25 percent of the principal amount of such notes redeemed after June 15, 2008, at a price equal to 100 percent of the amount.

For the 2010 notes, the early conversion price is $56.50 per share, which works out to about 17.6991 shares per $1,000 principal amount of notes - the initial conversion price being a 17.6 percent premium to the last reported composite bid on June 5.

Cephalon said it would use the money to redeem all of its outstanding 5.25 percent convertible subordinated notes due 2006, which have $174 million aggregate principal amount outstanding, at the price of 103.15 percent of the principal amount, plus accrued and unpaid interest. The company also was buying from Credit Suisse First Boston International a convertible note hedge strategy with respect to Cephalon's common stock, which has the effect of increasing the effective conversion price of the notes to $72.08 per share, a price that represents a 50 percent premium to the June 5 composite bid on Nasdaq.

For certain buyers, Tanner said, convertibles represent "the kind of product they traffic in and they're not seeing a lot of it." The market, remarked another source, was "starved" - even if it was beginning to seem sated last week, and the appetite for convertibles was losing speed.

BioMarin went about remedying the meager news flow described by Tanner. Joshua Grass, manager of investor relations, said the money generated from its notes would be used to increase sites in the Phase III trial with Neutralase, the carbohydrate-modifying enzyme that cleaves heparin and is in development for reversing anticoagulation by heparin in coronary arterial bypass grafting surgery.

The number of sites in the first of two Phase III trials will rise from between 35 and 40 to about 75, and the extra cash will help move the second trial along more quickly, Grass said. BioMarin also wants to put more compounds into the clinic, lease a manufacturing facility and make some acquisitions.

Investor interest in BioMarin, Tanner predicted, will be driven mainly by Aryplase, recombinant human arylsulfatase B, an enzyme replacement therapy for mucopolysaccharidosis-VI, also known as Maroteaux-Lamy syndrome. Pivotal testing is expected to begin in the second half of this year.

"If you're trying to peg some commercial opportunity and put some numbers around it, you could make the argument that you'll have a better near-term opportunity to do that with Neutralase than with Aryplase," Tanner said. "But the interesting part to me is that they're building a small lysosomal storage disorder franchise."

It could get plenty interesting. Tanner noted the 50-50 joint venture for Aldurazyme between BioMarin and Genzyme, which also has a strong presence in enzyme replacement with Cerezyme (recombinant glucocerebrosidase, also known as imiglucerase) for Gaucher's disease.

Genzyme's natural version of the enzyme, called Ceredase, (which was developed first) first drew interest in the possibilities offered by the lysosomal storage disorder treatment area. (See BioWorld Financial Watch, Sept. 30, 2002.)

Acquisitions have been no small part of Genzyme's strategy, Tanner noted.

"The last company was GelTex and they bought GelTex to get the other half of Renagel," he said. Genzyme disclosed the $1 billion merger with GelTex Pharmaceuticals Inc. in the fall of 2000. Renagel is a phosphate binder for dialysis patients.

"You can't really wind [the potential buyout by Genzyme of BioMarin] into a credible investment thesis," Tanner said. "Everybody needs to invest on fundamentals. But more bizarre things have happened."