Hostile investor cuts CPEX holdings


Richard Rofe has been pulling no punches when it comes to the management of Exeter-based CPEX Pharmaceuticals, but he does seem to be pulling his firm’s money out of the investment firm he manages.Rofe, managing director of New York-based Arcadia Capital, has been increasingly vocal in his efforts both to run for a seat on the CPEX board as well as to the company.But at the same time, he has been selling off his shares, cutting his company’s stake from 12.2 percent (the largest holding of any outside shareholder) to 4.9 percent, according to a Monday filing with the Securities and Exchange Commission.Even before the April 5 sell-off, Rofe was no longer the company’s largest shareholder – his status was diminished as of March 15, according to the company’s preliminary proxy.“I still want to buy the company, but the stock was over the value that I believe I would pay for the company. If they are not going to change their ways, what is the benefit of holding the stock?” Rofe told NHBR.One the hurdles preventing him from buying the company are bylaws that prevent any shareholder from buying up more than 15 percent of shares without the board’s permission. And the board, Rofe said, won’t even agree to meet with him.Rofe said “it remains to be seen” whether he will still run for the board, but his cash offer at $14 a share for the company still stands. “If you are asking me if we are going away, that’s not our intention.”It certainly doesn’t seem that way. As Rofe sold off 52,000 shares on Monday, at a price of $15.80 a share, leaving his company with 124,579 shares of CPEX, he fired off another blast at the management. This time, the issue was a seemingly innocuous April 1 announcement about a deal CPEX’s partner, Serenity Pharmaceuticals, had entered into with Allergan Inc. to develop a nose spray for nocturia (frequent urges to urinate that disrupts sleep). CPEX – which spent $12 million last year in an attempt to develop a nasal insulin spray called Nasulin – would get a royalty on futures sales of such a nocturia drug, but it mainly touted the deal as validation for its drug delivery method. Rofe pointed to it as an example of the company’s mismanagement.Allergan would be paying Serenity Pharmaceuticals $43 million “while in contrast, CPEX receives no (zero) upfront payments,” wrote Rofe.That shows, said Rofe, that CPEX “continues to base shareholder value creation on an unquantifiable belief versus a legitimate plan to generate shareholder value.” Rofe then contrasted Serenity’s record to bringing drugs to market to “total and complete failure with respect to is drug development efforts,” citing a recent study that showed that Nasulin had no statistically significant results compared to a placebo. Rofe went on to repeat his demand for CPEX drop its Nasulin development program.A CPEX spokesperson declined comment, simply referring NHBR to filings with the SEC. The company’s annual statement with the SEC, filed March 31 indicates that the company is rethinking its Nasulin program. Ever since its 2008 spinoff from Bentley Pharmaceuticals, CPEX has spent most of its research and development money on Nasulin.So far, the program has included 15 clinical trials, but the latest results have caused the company to “determine the appropriate next steps for Nasulin.”On the other hand, the statement said, “We expect to incur increased costs from product pipeline development and testing efforts. Additional studies will be required should we continue to advance the Nasulin clinical program.”The concern is where is the money going to come from for any additional studies. Research and development costs topped $12 million last year, compared to $9 million in 2008. Sales of its one product, Testim, are not enough to keep up with those costs, resulting in annual losses of roughly $3 million in each of the last two years, leaving the company with $13.7 million in cash and equivalents at the end of 2009.“We anticipate that we will incur losses for the foreseeable future. We may never achieve or sustain profitability. If additional capital is not available, we may have to curtail or cease operations,” CPEX said in its filingThe company went on to warn shareholders, “We may decide not to conduct further trials of Nasulin. If we do conduct trials, the trials may not be successful and Nasulin may never receive regulatory approval.”CPEX shares closed at $15.97 on Wednesday, down 3 cents. – BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW
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