New Issue: The Medicines Company (MDCO) $300 million Convertible Senior Notes Due 2022

This is a small biotech company looking to diversify its revenue stream beyond one product.  The $300 million new convertible gets a good overall HOCS of 72, while scoring very well on growth and okay on safety.  Our HOCS slash line measures 72 Overall / 77 Growth / 60 Safety.

The older 1.375% convertible bonds due 2017 get a HOCS slash line of 53 overall / 56 growth / 46 safety, based on a recent quote of 108 ½ with the stock at 24.15.  The new convertible bond is much more attractive primarily due to the extended maturity providing additional time for growth and is probably worth a switch for holders.   

The Medicines Company is a biotech focused on the acute and intensive care hospital markets.  The company has several marketed products, including Angiomax (anticoagulant), Cleviprex (blood pressure), Minocin (bacterial infections), Orbactiv (bacterial skin infections), Preveleak (vascular sealant), and Recothrom Thrombin (mild surgical bleeding).  It also has a ready-to-use formulation of Argatroban (anticoagulant) and a portfolio of 10 generic drugs.  Unfortunately, most of these products generate very little revenue. 

Most of the revenue comes from Angiomax, which accounted for 88% of the total in the latest quarter.  The company has been in litigation with generic pharmaceutical companies for several years to retain exclusivity through May 2019.  So far it has been successful, but litigation continues to presents a significant risk to the company.

MDCO does have a pipeline with four product candidates in Phase 3 trials or with new drug application filings.  Management has also been trying to diversify the revenue stream with acquisitions.  In April 2014 Tenaxis Medical was acquired for $58.9 million in cash and up to an additional $112 million in milestone payments.  Tenaxis had one product, Preveleak (vascular sealant), which is approved in the US and EU, but has only been launched in the EU so far.

MDCO generates positive free cash flow and has a good cash cushion with the new convertible proceeds.  This will buy them some time to work on diversifying the revenue stream.    


Pro Forma Summary Statistics:

Cash: $647 million

Total Debt: $575 million

LTM EBITDA: $59 million

LTM Cash Flow: $77 million

Total Market Cap: $1,590 million

Debt/EBITDA:  9.7x