Penwest reiterates focus on business plan, adopts rights plan amid shareholder unrest

By Jennifer Chiou

New York, March 12 - Penwest Pharmaceuticals Co. said in a letter to shareholders that it is emphasizing its "intense focus" on executing its business plan.

The company also reported that its board adopted a limited-duration shareholder rights plan.

Goals include maximizing the value of Opana ER, advancing the development of A0001, monetizing Penwest's proven drug-delivery technology and drug-formulation expertise and managing its costs.

As already reported, 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 Capital and Perceptive, in a March 3 letter to the company's board, said that 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.

The company said in Thursday's letter that it is eyeing profitability in 2010.

Penwest acknowledged the shareholder letter and said that its board is unanimous in the belief that it would be a mistake to prematurely halt its efforts on the initiatives it has before it.

The company added that it has purposely limited the timeframe of the shareholder rights plan to July 1, 2010 in order for it to expire unless shareholders decide to extend it. The company noted that this will give it time to execute its strategy for 2009 and early 2010 and prevent Tang Capital and Perceptive from "imposing their own self-serving agenda."

The company also deemed that the actions of the dissident shareholders were "costly and disruptive."

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

Tang Capital and Perceptive also already 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.

Together, Tang Capital and Perceptive own 40% of the Danbury, Conn., pharmaceutical products company's outstanding stock. They previously noted that 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.

Tang Capital and Perceptive also previously 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 Capital and Perceptive said they plan to propose bylaw amendments that will require the board to be more accountable to shareholders.

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