Why Retrophin Inc. Shares Blasted Off

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Retrophin (NASDAQ: RTRX  ) , a biopharmaceutical company focused on developing therapies to treat rare disease, soared as much as 31% after announcing a double-dose of good news after the closing bell last night.

So what: First, Retrophin announced that it had arranged for $80 million worth of term loans. Generally speaking debt issuance is frowned upon, however, both of its offerings (two $40 million loans) allow for the conversion of warrants or notes into common stock at a premium to yesterday's closing price. Its $40 million senior secured loan issued the lender 300,000 warrants with an exercise price of $13.93, while its $40 million senior convertible notes offer an initial conversion price of $17.41 per share. Simply put, these higher conversion prices imply expected upside in the company over the coming years.

In addition, Retrophin entered into a U.S. license agreement with privately held Mission Pharmacal Co. for the marketing rights to Thiola, a treatment for cystinuria, a rare genetic cysteine transport disorder. As Martin Shkreli, founder and CEO of Retrophin commented, "Thiola adds another commercial product to our portfolio and is a strategic fit with our focus on rare disease, particularly renal disease." Financial terms of the licensing agreement were not disclosed.

Now what: Like I said, it was a double-dose of good news for Retrophin. First, the company gets financing to continue researching serious and rare disease therapies, all while ensuring that shareholders don't get diluted by a share offering. Also, the addition of Thiola should immediately impact Retrophin's top-line and help reduce its cash burn, which prior to last night's licensing agreement announcement looked as if it would top $30 million in 2015. Make no mistake about it; these are both positive developments for Retrophin. As for me, I'm still not overly excited by its pipeline and would prefer to remain on the sidelines until Retrophin gets a lot closer to profitability.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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Retrophin, Inc. CAPS Rating: **