Evan Greebel, former lawyer for companies run by Martin Skhreli, could be headed to prison. A jury convicted him of helping “Pharma Bro” defraud investors of Retrophin (RTRX) to help pay outside debts owed by Skhreli:
A former lawyer for Martin Shkreli’s companies might be heading to prison after a jury convicted him of conspiring with the former biotech executive to defraud investors.
Evan Greebel, who advised companies including Retrophin Inc., was found guilty Wednesday of helping Shkreli steal $11 million to pay back investors after the hedge-fund-manager-turned-drug-executive lost their money in risky trades … Shkreli, who was convicted in August of defrauding investors, is being held in prison while he awaits sentencing. He was ousted from Retrophin in September 2014 and went on to found Turing Pharmaceuticals, where he incited public outrage by jacking up the price of a life-saving drug more than 5,000%. Four months later, in December 2015, he was arrested and charged with fraud.
Greebel was accused of conspiring to help Shkreli create sham settlement and consulting contracts to bilk assets from Retrophin to repay losses to the Shkreli-controlled hedge fund. Most of the witnesses from Shkreli’s case also testified against Greebel.
Price-gouging became a point of contention after Senator Bernie Sanders’s HCV rant in 2015. Hillary Clinton picked up the mantle and accused Valeant (VRX), Turing and others of price-gouging. In 2016 the Senate Special Committee on Aging produced a 130 page report that focused on (1) price-gouging orchestrated by Turing, Retrophin, Valeant and Rodelis Therapeutics and (2) how to combat their business practices. Since, the FDA has streamlined the process of bringing generic drugs to market, to help tamp down rising drug prices.
Lost in all of the Shkreli drama has been Retrophin. The biotech company is still delivering and providing research & development for life-changing therapies for people living with rare diseases. The company markets Chenodal (chenodial), Cholbam (cholic acid), and Thiola (tiopronin). Chenodal is a synthetic oral form of chenodeoxycholic acid – bile acid synthesized from cholesterol in the liver – indicated to treat radiolucent stones in gallbladders – in patients who face risks from surgery due to systemic disease or age. The drug has also received organ designation for the treatment of cerebrotendinous xanthomatosis (“CTX”), a rare autosomal recessive lipid storage disease.
Cholbam is approved for the treatment of bile acid synthesis disorders due to single enzyme defects, and for adjunctive treatment of patients with peroxisomal disorders. Meanwhile, Thiola is indicated for the treatment of cystinuria, a rare genetic cystine transport disorder that causes high cystine levels in the urine and the formation of recurring kidney stones.
In Q3 2017 Retrophin generated revenue of $40 million, up 19% Y/Y. ItsEBITDA was -$0.5 million. The company lacks scale, but it also plows a large of amount of revenue into R&D. R&D as a percentage of revenue as 49% in Q3 2017 versus 54% in the year earlier period. Such costs include salaries and bonuses, non-cash share based compensation, and costs paid to third-parties to perform research and conduct clinical trials. SG&A expense makes up over 60% of revenue. Until Retrophin can monetize its pipeline the company will likely remain unprofitable.
The company’s R&D pipeline includes the following drugs:
The company is developing fosmetpantotenate as a potential treatment for pantothenate kinase-associated neurodegeneration (“PKAN”). PKAN is a genetic neurodegenerative disorder typically diagnosed in the first decade of a person’s life. The disease can lead to dystonia, dysarthria, rigidity, retinal degeneration, and digestive problems. It affects about 5,000 people worldwide and there are currently no viable treatments. The company is enrolling patients with PKAN in phase 3 clinical trials with approximately 82 patients.
Sparsetan is an investigational therapeutic agent which acts as a angiotensin receptor blocker (“ARB”) and a endothelin receptor antagonist (“ERA”). Retrophin is developing sparsetan to treat focal segmental glomerulosclerosis (“FSGS”), a leading cause of end-stage renal disease and nephrotic syndrome (“NS”). There are about 5,400 patients diagnosed with FSGS and the company estimates there are up to 40,000 FSGS patients in the U.S. In 2017 Retrophin announced plans to initiate Phase 3 clinical trials for the drug.
Is Retrophin An M&A Target?
Retrophin has an equity market capitalization of $828 million. It has a net cash position (including contingent consideration related to business combinations) of $183 million and an enterprise value of $642 million. Though its EBITDA is negative a chunk of its expenses represent share-based compensation. The company has been cash flow positive this year and it has working capital of $242 million. President Trump’s tax cut could lead to repatriation of capital by several drug companies. The extra cash flow could also help spur biotech M&A, and Barron’s believes Retrophin could become an M&A target.
I also find the company attractive. Its focus on rare drugs gives it a niche with very little competition. If drugs for PKAN or FSGS ever receive FDA approval then they could give Retophin major market share in niche spaces where it can enjoy pricing power. With an EV of less than $700 million Retrophin could be very cheap for Gilead (GILD), Celgene (CELG) or other large biotechs with billions in capital. Gilead and Celgene also specialize in performing due diligence on companies with drugs in late stage clinical trials, assessing their risks, and pricing these transactions accordingly.
Retrophin has two drugs in phase 3 clinical trials. It has strong liquidity and a solid balance sheet and is not desperate to do a deal. It represents a cheap, speculative play. If one of its late stage drugs wins approval the opportunity to buy in at an attractive price could evaporate.
On Trump And The Global Economy
Trump And The Global Economy Town Hall took place October 24th in Fort Greene. It Featured Professor Lance Brofman, Coconut Rob (Coconut Rob Smoothies), Wuyi Jacobs (AfroBeats Radio) and Ralph Baker, author of Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead.
The event was well-received by the community. We parsed through President Trump’s proposed tax plan and [i] how it was pure economic folly and [ii] high net worth individuals could potentially game the system by shifting income around. Apparently, Kansas Coach Bill Self did this when the state of Kansas cut taxes in the past. We discussed the pros and cons of technology on workers and the economy. How will the economy and country prosper under Trump’s leadership vis-a-vis Obama? What’s behind the verbal sparring with black athletes, ESPN’s Jemele Hill and North Korea’s Kim Jong Un?