Krensavage Asset Management Urges Juniper Pharmaceuticals to Consider Sale of Company

The lidocaine debacle follows Juniper's failed bid to develop a progesterone gel, Prochieve, to prevent preterm birth.  Physicians embrace progesterone as a prophylactic against premature labor. Juniper and a partner, the former Watson Pharmaceuticals, spent almost a decade and tens of millions of dollars testing Prochieve on more than 1,000 pregnant women. Regulators in 2012 rejected the drug.

Now Juniper is threatening to repeat this pattern by testing a drug that delivers progesterone via a vaginal ring. Its development likely would consume tens of millions of dollars and take at least five years while providing no guarantees of safety and efficacy.

Even if Juniper's progesterone ring were to win approval, it likely would compete with clones of an injectable progesterone approved in 2011, Makena. The prospects are slim that Juniper would ever recover its investment.

Juniper also is considering the development of a vaginal ring for incontinence. At first blush, its potential tantalizes: The ring would bypass the body's first-pass metabolism and spare the patient side effects such as dry mouth.

But a competing patch and gel that also avoids first-pass side effects have generated disappointing sales, perhaps because they compete with generic pills that retail for pennies. A patch sells over the counter for $30 a month. Teva Pharmaceutical Industries Limited abandoned its oxybutynin vaginal ring. Juniper should do the same.

Juniper, with a market value less than $50 million, seems to have forgotten the difficulty small companies face promoting drugs. Management during its third-quarter earnings call on Nov. 15 said it would consider buying commercial operations.

In 2003, Juniper built a 122-person sales force to promote its testosterone supplement, Striant. Its revenue totaled $14.8 million when Juniper divested it in 2011. The list of small companies that failed to launch medicines includes Dendreon Corp., and Savient Pharmaceuticals Inc.

Any efforts by Juniper to develop or promote drugs likely would detract from the company's intrinsic value, we estimate, of almost $9 a share.

Juniper's most-valuable asset, in our opinion, is its pharmaceutical-services business. We value it at more than $36 million, or $3.35 a share. Juniper in 2013 paid $27 million for the business, based in the United Kingdom. Its revenues have since grown 45%. Molecular Profiles can operate independently. It doesn't need supervision from a team of executives in the United States.

Juniper also has a supply agreement with Merck KGaA on Crinone, a progesterone approved to help women become pregnant. The Merck contract, in our opinion, probably is worth at least $3.30 a share, or twice that were Juniper to extend the Merck agreement beyond its expiration of May, 2020.

Other Juniper assets include net cash of more than $2 a share. We exclude the value of $156 million of tax-loss carryforwards because we find them difficult to assess.

Juniper management has an incentive to maintain the status quo, with its top-four executives earning $2.3 million a year and its non-employee directors earning more than $736,000 in 2015, according to the proxy.

Shareholders are paying executives more than 6% of the market capitalization a year. On April 11, the stock hit a record low.  While the company's executives continue to draw rich compensation, its investors suffer. We implore the company to act now and stop the downward spiral.

Regards,

Michael P. Krensavage
Founder
Krensavage Asset Management LLC

(1)   Bloomberg as of Dec. 31.
(2)   See Per-Share Valuation table

Contact:
David W. Walbert
Analyst
Krensavage Asset Management LLC
Office: (212) 706-0589
david.walbert@krensavage.com

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SOURCE Krensavage Asset Management LLC