Stonepine Capital Management Sends Letter to Board of Directors of
Cornerstone Therapeutics, Inc.
Says Offer From Majority Owner Chiesi Too Low; Urges Independent Directors to
Obtain Significantly Higher Price in an Effort to Protect Minority
SAUSALITO, Calif. -- February 27, 2013
Stonepine Capital Management, LLC (“Stonepine”) sent a letter to the Board of
Directors of Cornerstone Therapeutics, Inc. (“Cornerstone”) on Monday,
February 25. In the letter, Stonepine expressed serious concerns for the
minority shareholders of Cornerstone as it relates to a potential transaction
with its majority owner, Chiesi Farmaceutici S.p.A (“Chiesi”). The full text
of the letter follows:
February 25, 2013
VIA ELECTRONIC DELIVERY & OVERNIGHT MAIL
Board of Directors
c/o Andrew Powell, Corporate Secretary
Cornerstone Therapeutics, Inc.
1255 Crescent Green Drive, Suite 250
Cary, NC 27518
To the Directors of Cornerstone Therapeutics:
We are the principals of Stonepine Capital Management, LLC (“Stonepine”), a
health-care focused investment firm.
We are minority shareholders of Cornerstone Therapeutics, Inc. (“Cornerstone”)
and own 700,000 shares.
We note the recent proposal by Chiesi Farmaceutici S.p.A (“Chiesi”) in which
Chiesi proposes to acquire 100% of the Common Stock of Cornerstone that it
does not already own for $6.40 to $6.70 per share in cash.
As minority shareholders of Cornerstone, we appreciate that Chiesi also sees
tremendous value in Cornerstone and is interested in acquiring the company.
However, we have serious concerns for the minority shareholders as it relates
to this potential transaction:
1. The Chiesi proposal grossly undervalues Cornerstone.
Assuming the high end of the proposed acquisition range, or $6.70 per share,
Cornerstone would be sold for approximately 1.5 times expected 2013 revenues
on an enterprise value basis (taking into consideration the company’s debt)
and 1.1 times expected 2013 revenues on a market capitalization basis. In a
sector where companies and pharmaceutical products are often sold in the range
of 3 to 5 times revenues, Chiesi’s opening offer range is much too low. For
example, an offer for Cornerstone at 3 times expected 2013 revenues on an
enterprise value basis would constitute an offer value far more typical for
the sector, equating to an approximate $16 per share acquisition price for
2. Wall Street believes the Chiesi proposal is a “low-ball offer” that “should
be rejected by Cornerstone shareholders.”
A recent research report by Ladenburg Thalmann (“Ladenburg”), the only
sell-side firm that covers Cornerstone, concludes that the current offer is a
“low ball offer“ and “should be rejected by Cornerstone shareholders.”
Ladenburg conducted “Sum of Parts,” “Peak Sales” and “Discounted Cash Flow”
analyses of the company, resulting in valuations ranging from $11.37 to $17.19
per share, with a $14 per share price target ultimately assigned to the
Chiesi states in their offer letter that “Cornerstone would be best positioned
for long term growth and development as a private company and would benefit
substantially from the synergies and shared resources that would result from
this transaction with Chiesi.” Chiesi is not offering to share enough of this
benefit with Cornerstone’s minority shareholders.
3. Chiesi has effectively blocked the ability of Cornerstone to run an auction
process with other potential bidders or conduct traditional “market checks”
regarding the fair acquisition value of Cornerstone.
We understand that Cornerstone is deemed a “Controlled Company” within the
meaning of the applicable rules of Nasdaq, as more than 50% (in this case 60%)
of the voting power of the company is held by Chiesi. In addition, Chiesi has
certain control rights through Cornerstone’s Certificate of Incorporation,
namely, the ability to block any substantial sale or disposition of
Cornerstone assets. We also understand that Craig Collard, Cornerstone’s CEO,
is subject to a Stockholders Agreement with Chiesi, which requires Mr. Collard
to vote his quite substantial ownership of Cornerstone in favor of a
transaction whereby Chiesi or its affiliates would acquire all of the
outstanding stock of Cornerstone. Lastly, Chiesi made the following quite
clear in its offer letter to Cornerstone: “Please note we are interested in
acquiring the remaining shares of Cornerstone and we have no interest in a
disposition of our controlling interest or in considering any other strategic
transaction involving Cornerstone.”
This collectively has created a situation whereby Chiesi is the only feasible
acquirer of Cornerstone. As a Board you will be unable to effectively conduct
a competitive auction process or conduct meaningful “market checks” to ensure
that the minority shareholders are obtaining the best value for a potential
sale to Chiesi. Consequently, it is incumbent upon the independent Directors
of the Board to ensure that a fair value for Cornerstone is negotiated with
Chiesi compared to Cornerstone remaining a stand-alone entity. We are in favor
of Cornerstone remaining a stand-alone entity if the independent Directors of
Cornerstone cannot obtain a substantial improvement in the offer terms from
4. We are concerned as to whether Cornerstone has established sufficient
governance procedures within the Board of Directors to conduct a robust and
fair negotiation process with Chiesi.
We note from your proxy statement of April, 2012 that the Board has determined
that Mr. Codeanne, Mr. Enright, Mr. Harper, Mr. Heffernan and Mr. Stephan are
“independent directors” as it relates to Nasdaq rules, indicating that such
persons do not have a relationship which would interfere with the exercise of
independent judgment in carrying out the responsibilities of a Director.
However, as a Director of Chiesi Pharmaceuticals Inc., USA, a subsidiary of
Chiesi, we believe that Mr. Stephan is highly conflicted in the current
situation and should be recused from all deliberations and negotiations
regarding the Chiesi proposal. This is particularly important given that a
group of truly independent Directors should be solely responsible for
negotiating a potential transaction with Chiesi in order to manage the obvious
conflicts of interest present in this situation.
We note from your February 25 press release that the Board has established a
Special Committee comprised of five independent Directors in order to
coordinate a response to Chiesi. However, you have not disclosed the Director
composition of the Special Committee. We believe it is important to disclose
to Cornerstone’s minority shareholders the composition of the Special
Committee and that it be comprised of truly independent Directors that are not
5. Chiesi has unique access to advanced, confidential information regarding
Cornerstone; therefore, the minority shareholders are at a substantial
disadvantage in evaluating any deal terms.
Chiesi’s offer letter states that they have “…conducted an extensive review of
Cornerstone based upon publicly available information…” In fact, Chiesi likely
has broad confidential access to Cornerstone’s improving operational and
financial results well in advance of Cornerstone’s quarterly reports to its
For example, two of Cornerstone’s Board members are key executives at Chiesi:
Dr. Anton Giorgio Failla, Head of Corporate Development and Marco Vecchia,
Head of Legal and Corporate Affairs. And a third Cornerstone Board member,
Robert M Stephan, serves as a Board member of Chiesi Pharmaceuticals, Inc., a
subsidiary of Chiesi. These three Cornerstone Board members all have insider
access to Cornerstone’s confidential information while at the same time
performing key roles for Chiesi.
In addition, Chiesi is the licensor of two of Cornerstone’s key products:
Curosurf and Bethkis. By way of the related product license and distribution
agreements between the two companies, Chiesi has unique advanced knowledge
regarding the performance metrics for these products.
These dynamics put Chiesi in the advantageous position of being able to
quickly evaluate and bid on Cornerstone’s improving business, to the potential
detriment of minority shareholders. We sincerely hope that the Board puts the
Company’s minority shareholders on an equal footing with Chiesi as it relates
to the negotiation of Chiesi’s acquisition proposal.
In summary, we view the current offer from Chiesi as grossly undervaluing
Cornerstone. Furthermore, we believe that the construction of the company’s
ownership and Board create unique challenges to navigating this process in a
way that is fair and equitable to the minority shareholders. We appeal to the
independent Directors of the company to thoughtfully consider these issues in
representing the minority shareholders of Cornerstone.
We would be happy to discuss this further with you, or any subset of the
Board, at your convenience.
Timothy P. Lynch Jon M. Plexico
Managing Member Managing Member
Stonepine Capital Management, LLC Stonepine Capital Management, LLC
Stonepine Capital Management, LLC
Matt Carroll, 541-647-5664
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