In an SEC filing on Wednesday, Retrophin (RTRX) CEO Martin Shkreli reported the sale of 292,400 shares of RTRX common stock worth $4.4 million dollars last Friday, nearly 10% of his stake in the company. The sale took place a day after the company announced an $80 million financing and the in-licensing of an orphan and potentially lucrative drug, Thiola (tiopronin), from Mission Pharmacal. It’s also the same day that Shkreli, during a conference call, suggested that the Thiola acquisition was worth $10 in net present value to shareholders, and that progress with Retrophin’s early-stage drug candidate for PKAN, RE-024, was “encouraging.” The stock jumped 25% on that news, though shareholders are now realizing that the CEO sold a meaningful portion of his Retrophin holdings into the strength. The sale certainly isn’t winning over the company’s skeptics.
After a string of small insider buys early this year at prices as high as $22.00, Shkreli offloading a chunk of his RTRX stake in the low-teens doesn’t sit well with shareholders, particularly after his inspirational remarks on the conference call. RTRX is down 30% from Friday morning following the Thiola acquisition, 12% since the sales were reported this week.
According to SEC filings, Shkreli reacquired 176,388 shares of RTRX on May 30 that were previously delivered to a third party. The shares were returned “in consideration for services that were never rendered.” Shkreli sold these and an additional 116,012 shares that day. Investors likely won’t be privy to the reason for the returned shares, or the precise reason for the sale, though the filings indicate that the stock was returned in accordance with an arbitration ruling. As an aside, Retrophin disclosed a lengthy list of belated Change in Ownership filings (including Form 4s) in its annual proxy statement.
Retrophin has its skeptics – criticisms are outlined well here – and the insider sale only lends validation to some of investors’ concerns.
Just last week we outlined how Retrophin had put shareholders in a tough spot, but that Retrophin’s approach to selling pharmaceutical products is intriguing enough to warrant involvement, in our view, despite what many see as a credibility issues:
The re-launch of Syntocinon (synthetic oxytocin) has been delayed twice already this year, and the company doesn’t expect to launch the product until late in 2014 following an end-of-May meeting with the FDA. RE-024 studies in the U.S. faced similarly overly optimistic timelines and have yet to begin, despite early-2014 guidance for initiation “imminently”. In addition, investors have yet to see the Manchester deal deliver, and management’s ability to execute on commercialization remains in question. Investors are wise to take company guidance with a grain of salt given the current track record, though we hope management is learning from early mistakes. For now at $350M, we still like the long bet on this aggressive approach – Retrophin’s aspirations to become a niche specialty pharmaceutical company are intriguing.
The fundamental story at Retrophin hasn’t changed since last week. The company brought in a new asset with plans to meaningfully re-price, and drastically improved the balance sheet on terms that we believe align with its “specialty pharma” business model. Management suggests that results from initial testing of RE-024 in Pantothenate kinase-associated neurodegeneration (PKAN) could be conveyed to investors this month, and that more acquisitions are on the horizon.
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One or more of PropThink’s contributors are long RTRX.
