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Why Retrophin Inc. Shares Skyrocketed

By Sean Williams – Feb 13, 2014 at 1:27PM

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Retrophin shares soared after the clinical-stage biopharmaceutical company went shopping. Should shareholders cheer this move or approach it with caution?

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 (TVTX 0.45%), a clinical-stage biopharmaceutical company focused on developing orphan drug therapies to treat rare diseases and disorders, vaulted higher by as much as 50% after announcing an agreement to purchase privately held Manchester Pharmaceuticals after the closing bell last night.

So what: According to the press release, Retrophin will pay Manchester $62.5 million, which includes an upfront payment of $29.5 million, plus royalties that are based on its product sales. The reason investors seem to love this move so much is that Manchester has two products already approved by the Food and Drug Administration: Chenodal, a gallstone medication for those who are unable to have surgery due to health risks or advanced age, and Vecamyl, a therapy designed for moderately severe to severe essential hypertension. Based on this transaction, the previously developmental-stage company released revenue guidance of $10 million-$12 million in 2014 and $19 million-$21 million in 2015. The deal is expected to close by March 1.

Now what: Wall Street is obviously very happy with this purchase, as it will help stem the tide of losses for Retrophin and generate cash flow, which will allow it to continue its ongoing research into rare diseases. Despite agreeing with investors that this is clearly a good move for Retrophin, I'm perhaps a bit taken aback by just how enormous the move to the upside has been. I would personally wait a couple of quarters to assess Retrophin's progress with these two drugs before I'd be willing to even insinuate that it could head even higher.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any companies mentioned in this article. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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