Receptos Analyst Defends Company but Sounds Confused

BOSTON (TheStreet) -- I have some beefs with Leerink Partners biotech analyst Joe Schwartz and his research note published Wednesday night in which he attempted to rebut my story about Receptos (RCPT) and why an insider stock sale makes an imminent takeout unlikely.

Schwartz writes:

Today during the afternoon hours of trading, RCPT shares came under pressure following a blog post highlighting the Form 4 filed by LLY Ventures Partner last evening (6/16) disclosing the sale of [approximately] 20% stake (equivalent of $40 million), which, in our opinion, could be indirectly viewed as mgmt's lack of willingness for a potential deal in the near future.

Blog post? No, Joe. It was an article written by a business journalist (me) with 25 years of professional experience, published by a well-known digital media company (TheStreet) founded almost 20 years ago. This particular journalist (me) has been writing about the biotech sector and biotech stocks for 14 years, longer than you've been a working sell-side analyst. So Joe, respect your elders and GET OFF MY LAWN!

"In our opinion"? No, that's my opinion. Sort of. I didn't say Receptos management lacks the will to sell the company in the near future. I wrote that Lilly Ventures is represented on Receptos' board of directors by Managing Partner Ed Torres. If Receptos was right now engaged in active sale negotiations, Torres, as a company director, would know about it. Therefore, the sale of Receptos stock by Lilly Ventures and/or Torres doesn't make any sense.

Maybe you agree with me, which is confusing since your note makes it sound like you don't.

Schwartz writes:

"We do not share this opinion...."

Oh, you disagree with me, but why did you say the exact opposite in the previous sentence?

Schwartz continues:

We do not share this opinion and continue to believe that mgmt is being prudent and patient in identifying the right strategic acquirer/partner who may be best suited to a) unlock near-term value of ozanimod across Central Nervous System (CNS) and Irritable Bowel Disease (IBD) therapeutic areas, and b) nurture an early-stage pipeline.

Okay, in other words, you believe a sale of Receptos is not imminent, which is what I said. You do agree with me.

Schwartz says more:

There should not be much fast money in the stock for M&A, in our view, since management has been clear that they are in no rush to do a deal, given that the company has $645 million in cash and we believe the wherewithal to take the organization to the next level while they execute on ph. 3 program in multiple sclerosis and ulcerative colitis, as well as ph. 2 in Crohn's and 4606 in esophageal eosinophillia.

There's no fast money in Receptos speculating about a near-term takeout? Really?

Receptos' stock price rose 33% (intraday low to intraday high) in the past seven trading days. The move in the stock started with a June 9 unsourced rumor (published in an actual blog post) claiming Receptos was in active sales negotiations with multiple suitors.

Let's look at the chart:

There is no other reasonable explanation for this sudden rise in the value of Receptos' stock price. The company reported no news over the past seven days. The only "news" has been the persistent takeout speculation and analysts responding to same. Sorry, Joe, but there's a lot of fast money in Receptos speculating about a (fast) takeout.

Or, there was a lot of fast money in Receptos. Perhaps not so much now that I pointed out the Lilly Venture insider sale.

More Schwartz:

We believe downside for the stock should be limited because we have confidence that management (who has monetized less attractive assets in the past) will not enter into an unattractive partnership deal.

Receptos closed Wednesday at $177.48, still 20% higher than where the stock was priced when the takeout rumors started one week ago. It's up 4% in premarket trading Thursday. What downside are you referring to?

Schwartz's note continues but I'll stop here because he's clearly confused. Let me help.

I'm not bearish on Receptos. I like the company and its pipeline. Nothing I've written this year about Receptos could be interpreted as being bearish on the future of the company. I even agree with Joe that Receptos is a strong takeout candidate.

However, my Wednesday story was not about the company's long-term potential. It was about how an insider sale of Receptos stock -- by someone who would know if the company was about to sell itself -- contrasts with the unconfirmed speculation of an imminent Receptos takeout that sent the stock up more than 30% in one week.



That might be true.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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