Convertible Bonds

1

• Convertible Bonds
• in the Biotech Industry
• Cases in Sepracor Inc. and
• Human Genome Inc.-

Elizabeth Groves Jonathan ODonnell Andy Suh
April 8, 2002
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Contents
I
ndustry
C
ompanies
C
onvertible Bonds

C
onclusion
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Industry Overview

• The Biotech Industry
• Contingent on the Technology Patents
• Less Hard Assets
• High Cash Burning Ratio
• Convertible bonds preferred

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Sepracor Inc. (SEPR)

• Sepracor is a developmental stage pharmaceutical
  specializing in patenting and developing
  Improved Chemical Entities (ICEs), which are
  improved versions of existing drugs.
• Over the past decade, Sepracor developed a
  portfolio of 16 of these Improved Chemical
  Entities (ICEs). The parents of these ICEs had
  over 12 billion in sales in 2000.
• Credit Rating

5
Sepracor Financials
( Million)
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Human Genome Science Inc.(HGSI)

• HGS licenses its gene database to such
  pharmaceuticals as GlaxoSmithKline and
  Schering-Plough.
• HGS is now focused on developing its own
  pipeline of gene-based therapeutics from its gene
  database.
• Credit Rating

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Human Genome Financials
( Million)
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Sepracor Financial Summary
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Sepracor Convertible Issuance History
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Sepracor Stock and Bond Prices, 7
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Human Genome Financial Summary
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Human Genome Convertible Issuance History
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Human Genome Convertible Debt Over Time
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Human Genome Stock and Bond Prices, 3.75
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Convertible Debt is attractive for the Biotech
industry

• This industry is extremely volatile but still has
  a steady need for funds
• For the most part these companies do not have
  many tangible assets
• Ability to access capital markets can quickly
  change

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Need of funds and risk of business can make
traditional debt expensive

• Growth of Business
• Research and Development
• Operating Expenses
• Regulatory Hurdles
• Expansion of Sales and Marketing forces
• Intellectual Capital

• Countered by High Risks
• Failure to create viable drugs
• Lack of control over manufacturing facilities
• Possible legal liability
• FDA Approval
• Lack of Sales and Marketing experience
• Intellectual Capital

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The convertible debt for Sepracor and Human
Genome has held its value better than its equity
Sepracor Cumulative Returns March 2001- March
2002 Equity 8 Bond 12
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The convertible debt for Sepracor and Human
Genome has held its value better than its equity
Human Genome Cumulative Returns March 2001-
March 2002 Equity -85 Bond -16
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• Q A