Transcept Pharmaceuticals News: Roumell Asset Management’s Thoughts on Retrophin

Transcept Pharmaceuticals news: Transcept Pharmaceuticals Inc (NASDAQ:TSPT) is a small-cap stock that recently was cut slightly in the equity portfolio of Roumell Asset Management, a hedge fund managed by Jim Roumell. In a recent amendment to the 13D filing with the SEC, filed yesterday, Roumell expressed his position regarding Retrophin’s intention to acquire Transcept Pharmaceuticals, which states that the offering price of $4 per share offered by Retrophin is too small, and has no value in regard to Transcept’s first FDA-approved product, Intermezzo.

James Roumell

Earlier in September, Roumell Asset Management disclosed ownership of around 2.0 million shares of Transcept, the value of the position amounting to some $7.5 million. In comparison with the latest 13F filed by the hedge fund, Roumell dropped around 318,200 shares.

“Roumell Asset Management is Transcept’s largest shareholder.  In light of Retrophin, Inc.’s offer to purchase the company on September 18, 2013, it is incumbent upon the Board to hire an investment banker to solicit additional interest.  It is the fiduciary duty of this Board to begin this process immediately.  We believe the Retrophin offer of $4 per share is woefully inadequate, as it is basically a return of the company’s cash with little or no value ascribed to Intermezzo.  To be clear, we no longer, at current prices, believe the company should buy back stock, but rather begin a fair and open auction process for a sale of the entire company,” the hedge fund said in the filing.

“In our minds, if the company is able to get back the full rights of Intermezzo from Purdue Pharma, and thus roughly $18 million in revenue, there will be material interest in purchasing this revenue stream.  A company like Retrophin can very profitably add such a stream to its portfolio, while incurring minimal marketing costs.  Transcept’s bloated cost structure will make profitability extremely challenging, if not unlikely, as it currently exists.

“We believe there is a solid chance to reclaim Intermezzo from Purdue given that Purdue is no longer actively marketing the drug and the valid reputational concern that it not be viewed as just sitting on the drug without meeting its contractual obligations.  We believe Intermezzo’s current revenue is sticky and would be highly profitable for the right buyer.

“A price of $60 million for Intermezzo, which would result in roughly $7 per share for Transcept shareholders, would still leave a buyer with a likely free cash flow yield exceeding 20%.  This analysis is based on industry contacts who have informed us that a 90% gross margin would not be unrealistic for Intermezzo.  If Transcept is unable to repossess Intermezzo on its own, we believe there are companies willing to put their efforts toward that end and will pay for that optionality,” the filing added.

Aside from Roumell, Renaissance Technologies, managed by Jim Simons, Israel Englander’s Millennium Management, and D. E. Shaw’s D E Shaw & Co are long. Stay tuned for updates on any further Transcept Pharmaceuticals news from the hedge fund world.

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Disclosure: none