The fatal anthrax mail attacks in the aftermath of 9/11 turned out, apparently, to be the efforts of a troubled Maryland researcher. That doesn’t mean the deadly bacteria might not be attractive to various terrorists and troublemakers.

A little company called Human Genome Sciences (HGSI) -- whose main business once seemed to be the steady production of new convertible bonds -- is trying to protect us from any further anthrax damage. The company announced this morning that it has begun delivery of its ABthrax drug for treating inhalation of anthrax. HGSI is expecting a $150-million infusion from the government from its first ABthrax deliveries.

While HGSI’s equity-market capitalization of less than $300 million makes the stock an interesting speculative play, investors also might want to take a look at the 2 convertible bonds HGSI has outstanding. Both of them carry modest 2.25% coupons, but since they're trading between $0.30 and $0.40 on the dollar, the current income they generate is significantly higher.

Still, you wouldn’t be buying these bonds for current income, rather, in the hopes that the company’s Anthrax drug and its other pipeline products will enable it to make good on these 2 bonds - 1 of which matures in 2 years, the other in 3 years. The debt adds up to face value of just over $500 million. The company’s cash has been running low (it's been burning about $40 million per quarter), so the coming infusion will be more than welcome. But refinancing is a major risk. That’s why, after all, the bonds are trading in the 30s - depressed levels even in today’s market.

One of the attractions to beaten-down convertibles in general -- and particularly those of micro-cap biotech companies -- is the “poison put” feature. I've written about this in the past, and it’s worth noting in the case of HGSI.

The stock is currently trading around $2. If a major pharmaceutical company buys HGSI for cash -- a distinct possibility -- it's required to pay off the convertibles at 100. So even if the company were to be taken out at no premium (or even a discount) to the current market price, the convertibles would roughly triple in value.

The HGSI convertibles maturing in 2011 are, naturally, the higher priced bonds and are identifiable by CUSIP #444903AK4. The 2012 bonds carry the CUSIP #444903AM0.