Press Release (ePRNews.com) - ANDOVER, Mass. - Sep 14, 2017 - Vasuda Capital Management has launched an activist campaign targeted at a sale or liquidation of Inotek Pharmaceuticals (with the support of a group of investors holding more than 350K Inotek shares). In our view, this exit strategy is likely to provide maximum value to Inotek Shareholders who may be able to get about $1.90/share in this scenario.
Yesterday, Inotek management announced its plans to do a reverse merger with privately owned Rocket Pharmaceuticals. In a conference call today, the management described this reverse merger as the best option for Inotek shareholders. We disagree with Rocket Pharmaceuticals’ valuation of $200M. The company’s pipeline is still in preclinical stage and years away from reaching the commercial stage. Moreover, the probability of a drug to reach the market at the preclinical stage is just 10% according to Pharmaceutical Research and Manufacturers of America (actual figures are expected to be even lower). Considering these statistics, Rocket Pharma’s claim of being a ‘leader’ in developing first-in-the class gene therapies appears delusional. The combined company is likely to burn cash for years even if it is lucky enough to bring a product to the market with 1 in 10 odds. A study by Tufts Medical Center found that lyg the average cost of bringing a new drug to the market is about $2.6 billion. Considering these statistics, the combined company from this merger is very likely to require frequent capital raise efforts and extreme dilution for Inotek stockholders. Reverse mergers are considered a questionable and ‘backdoor’ way to get access to the public markets. In the past, several Chinese companies used this backdoor method to go public in the US and later, were delisted due to fraud allegations. We wonder why the ‘leader’ in gene therapy Rocket Pharma is using this ‘backdoor’ method of a reverse merger to go public when it can use a more transparent method of filing for an IPO.
Inotek management and its Board have clearly failed in performing its fiduciary duty to the company’s shareholders. Fiduciary duty is the highest standard of duty. A company’s Board is required by law to act as fiduciaries for shareholders, i.e. put the shareholders’ interests before their own interests. By planning this reverse merger, Inotek’s management and Board have shown that they are only concerned about their own interests. Inotek’s CEO David Southwell has taken a step which will ensure a career in the combined company for him. He will be joining the Board of the combined company as a Director. We doubt the nature of his intentions considering that he has appointed his friends and acquaintances as ‘Independent’ Board directors at Inotek, clearly in the violations of corporate governance ethics and maybe even violating Sarbanes Oxley Act of 2002.
The planned merger is likely to close in Q1, 2018 subject to conditions including approval by shareholders of both companies. We urge all Inotek shareholders to vote against this merger. Inotek will mail communication regarding the vote to all shareholders soon. We have also contacted the largest institutional shareholders for Inotek regarding this matter. Source :
Vasuda Capital Management