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Biotech / Medical : Sepracor-Looks very promising
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To: Bob Swift who wrote (3407)7/4/1999 1:37:00 AM
From: Vector1  Read Replies (1) of 10280
 
Bob,
The convert vs the common; it depends how much risk your are prepared to take. In general as an asset class I do not like public converts. The convert theoretically offers you the additional safety of a security that is senior to equity in the capital structure. In many cases this added downside protection is illusory because the bonds have little covenant protection and for most biotechs if the stock fails the converts will go as well. For example the converts for a company like Aviron are a suckers play. Sepracor is a little different and I think there is some level of saftey in the converts. If you hold them long enough there is a very high likelihood you will get your principal and your coupon. Sepracor has such a diverse portfolio of potential drugs and some existing royalties that notwithstanding the S&P rating it is hard to imagine the converts not getting their coupon even if the stock gets crushed.

On the other hand you pay a steep price for this added level of protection and the converts can be forced to convert to common by the company to redeem the bonds for cash after the call protection period ends. I have not looked at the SEPR bonds so I do not know when the call protection period ends. From my prospective you buy Sepracor because you believe that you have a reasonable shot at a 5 to 10 bagger over a five year period. If you want relative safety plus a built in yield invest in a high yield bond fund.
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