Update: Endo Pharma to buy Penwest for $5/Share

Kevin Tang has done it again.

Just a few days ago we wrote an article on Penwest Pharma (PPCO) and the possibility of realizing over-average returns in the near term due to Kevin Tang’s push to wind down the company’s operations . The idea was that shareholders could fully realize the OpanaER royalty payments if research and other operating expenses were brought to zero. In such case, shareholders would have been able to realize roughly $23 mm of annual royalty payments until at least 2013, which represented a 21%annual return on investment over those three years based on the enterprise value of $111mm at the time the previous article was written.

Today, Endo Pharmaceutical (ENDO) said it agreed to buy Penwest Pharmaceuticals for about $168 million in cash, to broaden its pain drug portfolio. Endo said it expects the deal at $5 a share, a premium of 32% percent to Penwest’s price at the time the initial article was written. The purchase translates into a 14% return on investment for Endo for the next 3 years, with the opportunity to further develop and expand OpanaER into foreign markets (OpanaER has only been approved in the US).

Endo also said it filed a new drug application with the U.S. Food and Drug Administration for a new extended-release formulation of oxymorphone to treat moderate to severe pain in patients requiring continuous opioid treatment. Penwest shareholders Tang Capital Partners and Perceptive Advisors, and Chief Executive Jennifer Good, who collectively own 38.6 percent of Penwest common stock have committed to tender their shares in the offer, Endo said in a statement.

Out of all the investors we currently follow, Kevin Tang has been by far one of the most skillful at spotting investment opportunities as well as adapting to the conditions of the equity markets. In March 2009, when everyone was fearful to invest, Mr. Tang took a position in VNDA, which paid off handsomely soon after. There is no doubt that we will continue to study Mr. Tang’s approach to investing and spotting investment opportunities.

4 Responses to Update: Endo Pharma to buy Penwest for $5/Share

  1. You forgot to mention Tang’s investments that didn’t work so well: Northstar Neuroscience, Intrabiotics, Aradigm, AP Pharma, Cell Genesys

  2. Jason Savickas

    Sheehs, you guys really are over-hyping this guy. Is Mr. Tang paying you to write these articles? On VNDA, Mr. Tang was dead wrong. He was about to force the company to liquidate assets worth about 800% more than would have been recieved in liquidation. The abnormal returns he recieved were DESPITE his actions, not because of them. And he was hardly alone in buying equities in 2008 or 2009.

    As for this investment, this was a nice activist play. He (and a several other investors) managed to get the job done. This is great, but to say he is “the best of anyone we’ve followed” makes me wonder who you are following. This was not nearly as impressive, in terms of demonstration of skill, as what we see from other elite activist investors – there was no restructuring etc. he just pushed the company to sell itself. Which, again, is a huge accomplishment, but you guys are really over hyping it.

  3. Have you any thoughts on any other of Mr Tangs holdings then? I believe he holds Rxi Pharmaceuticals and La Jolla Pharmaceutical Company

  4. Actually Northstar neuroscience liquidated at a profit. I think La Jolla is now dead money. I think RDEA has potential, over 50% of his portfolio is currently invested in it.

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