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Retrophin Raises Offer to Acquire Transcept Pharmaceuticals to $4 Per Share

By  +Follow September 19, 2013 8:51AM
Tickers Mentioned:

Retrophin, Inc. (RTRX) is not giving up on its pursuit to acquire the shares of specialty drug maker Transcept Pharmaceuticals, Inc. (TSPT) that it does not already own.  Last week, Retrophin delivered a letter to the board of directors of Transcept offering to buy the remaining shares for $3.50 each in cash.  The offer was rejected. 

To defend itself from a hostile takeover, Transcept has adopted a shareholder rights plan, often called a “poison pill,” which keeps a shareholder from acquiring more than 4.99 percent of the company.

On Wednesday, Retrophin bumped the offer up to $4.00 per share, with Retrophin chief executive Martin Shkreli sending a letter to the board members of Transcept.

Transcept is focused on development of neuroscience drugs with its only FDA approval being the oral sleep aid Intermezzo (zolpidem tartrate).  Purdue Pharma holds commercialization and development right for Intermezzo in the U.S.  Royalty revenue for Transcept from Intermezzo in the first six months of 2013 was $1.0 million, up from $500,000 in the year prior period. 

Net loss for the six months ended June 30, 2013 was approximately $17.2 million, or $0.92 per share, versus a net loss of approximately $10.3 million, or $0.67 per share, for the six months of 2012.

Retrophin has four drugs in its pipeline with RE-021 the only one in the clinical stage, being researched in a mid-stage trial for Focal Segmental Glomerulosclerosis, a disease that can cause nephrotic syndrome in children and kidney failure in adults.  The company’s other compounds are targeting hard-to-treat diseases like Pantothenate Kinase-Associated Neurodegeneration (PKAN) and Duchenne Muscular Dystrophy.

In recent weeks, three major shareholders of Transcept have publicly stated their disapproval of Transcept’s current strategy.  Activist investor Peter Collery of SC Fundamental LLC, which owns a 6.7-percent stake in Transcept, sent a letter to Transcept chief executive, president and director Glenn Oclassen (read the SEC filing) saying that the company needs to use $60 million of its cash to conduct a share repurchase to build value, not pursue “simply wrongheaded,” (but unnamed) projects.

Collery didn’t hold back much in expressing his feelings toward Transept management.  Such as:

“I should note how troubled we are by your presumption that the company’s money is yours to do with as you see fit. You and your fellow directors have a fiduciary duty to company shareholders.”


“I’d like, in closing, also to express my displeasure with the company’s recent grant of nearly 600,000 management stock options with a strike price of $2.93 per share. As described above, the company’s shares may have a current realizable value of $5 or so. Were Transcept to implement a buyback program, that value might rise to $6. Essentially no management skill would be required to realize these values. That the shares trade for less than $3 is a function of shareholders’ distrust of management. It is incredible that management should be granted undervalued stock options as a “reward” for having created that distrust and I would expect that an inquiry into the deliberations surrounding this recent option grant, and particularly, the suitability of the strike price would be quite interesting.”

Roumell Asset Management, LLC, the largest Transcept shareholder at 12.3 percent of the company, has also filed a 13D with the SEC criticizing the management and demanding a share buy-back plan, not an unidentified acquisition.

The new proposal by Retrophin offers to buy Transcept at a 20-percent premium to Tuesday’s closing price.  The price is still lower than the $6 mark that Collery believes can be attained by performing a share repurchase, but this is a little to-may-toes/to-ma-toes because a merged company could benefit similarly, so investors will have to see where the support falls with the new proposal.

“Our proposal represents an attractive premium to Transcept’s trading performance, and we believe that the proposal offers a compelling opportunity for Transcept’s stockholders, particularly in light of Transcept’s risky and controversial acquisition strategy,” stated Martin Shkreli, Chief Executive Officer of Retrophin. “We hope that Transcept’s Board of Directors will respect its stockholders’ wishes and quickly commence discussions with us regarding the proposed transaction.”

Retrophin wants a transaction to be entered into by the end of September.

Shares of TSPT are down about 18 percent in 2013 thanks to a run-up from lows of $2.52 late in August with the acquisition chatter.  At lows, the stock was off about 40 percent.  Shares rose by 8 percent in Wednesday trading to close at $3.59.  In extended trading, shares rose to $3.98.  Retrophin shares edged up about 1 percent on the day to $6.88.  Shares have more than doubled in 2013.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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By  +Follow September 19, 2013 8:51AM



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