Penwest investors ask company to wind down, preserve revenue stream

By Lisa Kerner

Charlotte, N.C., March 3 - Penwest Pharmaceuticals Co. shareholders Tang Capital Partners, LP and Perceptive Life Sciences Master Fund Ltd. urged the company's board of directors to "stop wasting corporate assets" and take action by March 10 to substantially wind down Penwest's operations.

Tang and Perceptive, in a March 3 letter to the company's board, said they believe the move will allow Penwest shareholders to realize the full value of the company's one principal asset, the royalty earned on the sale of Opana ER by licensee Endo Pharmaceuticals Holdings Inc.

Penwest is expected to earn royalty income of approximately $19 million to $25 million this year and $45 million to $55 million next year, according to Tang and Perceptive. A generic version of Opana ER could launch in July 2011, the letter said.

"Importantly, whether one is optimistic or pessimistic about the ultimate sustainability and value of this income stream, our position on what is the best course of action for shareholders does not change. To put this in simple terms, whether one has $100 or $200 in one's pocket, it is equally unadvisable to waste $100," Tang and Perceptive said in the letter.

Tang and Perceptive also commented on Penwest's balance sheet, which has an estimated $6 million to $8 million of net cash left as of Dec. 31 and noted the "greater-than-usual challenges" faced by Penwest in developing A0001 for the treatment of mitochondrial diseases.

"Based on the lack of rational explanation for the company's enthusiasm behind A0001 and the remarkable magnitude of spending at the company, others have begun to speculate on what the strategy of the company actually is, and whether there are other motives, which are perhaps diametrically opposed to that of creating shareholder value, afoot," said Tang and Perceptive.

Together, Tang and Perceptive own 40% of the Danbury, Conn., pharmaceutical products company's outstanding stock. Current officers and directors have invested "substantially zero dollars in the company's stock since July 1, 2003" but have realized $2.2 million in profits through the sale of Penwest stock obtained by exercising incentives, according to Tang and Perceptive.

The shareholders said they may request access to documentation related to, among other things, Penwest's development of A0001 and the circumstances surrounding the recent departure of the company's chief financial officer.

Tang and Perceptive also asked Penwest to confirm their Jan. 12 intent to nominate three persons for election to the Penwest board, Joseph Edelman, Kevin C. Tang and Andrew D. Levin, M.D., Ph.D.

As previously reported, Edelman is the chief executive officer and portfolio manager of Perceptive Advisors, LLC. Tang is the managing director of Tang Capital Management, LLC. Levin has been a principal at Tang Capital Management.

In addition, Tang and Perceptive said they plan to propose bylaw amendments that will require the board to be more accountable shareholders.

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