Martin Shkreli made a lot of waves challenging the boards of various biotechs and drugmakers a few years ago as a hedge fund manager. Now his rare disease startup, Retrophin, is taking a similarly aggressive approach to M&A.
New York-based Retrophin (OTCBB: RTRX) said just after the market closed today that it has made a hostile bid to acquire Point Richmond, CA-based Transcept Pharmaceuticals (NASDAQ: TSPT) at $4.00 per share. The bid represents a roughly 11 percent premium on Transcept’s $3.59 closing price for today, though shares immediately climbed to $3.94 apiece in after-hours trading. Retrophin, which holds an unspecified number of Transcept shares, will keep the offer on the table until Sept. 30, according to a letter made public this afternoon.
Retrophin revealed today that Transcept rejected an initial $3.50 per share buyout offer made on Sept. 10. In a letter Shkreli wrote to Transcept that day, he indicated that Retrophin would be willing to boost the price if it were allowed to conduct due diligence. Instead, Transcept responded by adopting a poison pill strategy three days later to prevent a buyout. It enacted a “tax benefit preservation plan” that bars investors from acquiring more than 4.99 percent of the company’s stock.
Transcept currently only has one source of revenue: a royalty stream and potential milestone payments tied to sales targets from insomnia pill zolpidem tartrate (Intermezzo), which is sold by partner Purdue Pharma in the U.S. The FDA approved the drug in 2011, and it hit the market in the U.S. in April 2012. The drug, however, hasn’t held up well in a market with plenty of cheap competition—according to Transcept’s last quarterly report on Aug. 8, it had accumulated just $1 million in royalty revenue from the drug through the first six months of the year, and the company suffered a $17.21 million net loss over that timeframe. In addition, a drug candidate Transcept was developing for obsessive compulsive disorder flopped in a mid-stage study in December.
Shkreli, in the letter Retrophin made public today, claimed that Transcept’s largest shareholders have “publicly and privately protested” Transcept’s proposed strategy to turn itself around by making an acquisition of its own. Transcept’s largest shareholders as of April 12 were New Enterprise Associates (11.1 percent), InterWest Partners (10.6 percent), Hamilton BioVentures (5.3 percent), and Roumell Asset Management (5.1 percent), according to a proxy filing.
Shkreli indicated in today’s letter that Retrophin decided to make its new offer public “because we believe that Transcept’s stockholders have the right to consider this improved proposal, to learn about the refusal of Transcept’s Board of Directors to engage us, and to understand that the Board of Directors is placing our proposal at risk by refusing to engage with us on a timely basis.”
Retrophin said that it supports an open auction process for Transcept and would be willing to participate in it.