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`CEO Has Special Incen ive to Spend on Horizant, Says Clinton Group -- NEW YORK, June 5, 2014 /PRNewswire/ --
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`CEO Has Special Incentive to Spend on Horizant, Says Clinton
`Group
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`NEW YORK, June 5, 2014 /PRNewswire/ -- Clinton Group, Inc. ("Clinton Group") announced today that it has
`sent a letter to the stockholders of XenoPort, Inc. (Nasdaq: XNPT (http://studio-5.financialcontent.com/prnews?
`Page=Quote&Ticker=XNPT)) in advance of the June 11, 2014 XenoPort annual meeting in which it expresses
`its view that XenoPort should focus on its core competencies, namely scientific discovery and clinical trials. The
`Clinton Group has nominated three independent professionals for the Board of Directors and is asking for the
`support of its fellow XenoPort stockholders.
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`"In our view, XenoPort's spending on Horizant has cost stockholders significantly in the form of a lower stock
`price and dilution," said Gregory P. Taxin, President of Clinton Group. "Moreover, the analysts who cover the
`Company now regard Horizant as being less valuable than before XenoPort started spending its precious
`capital on the drug."
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`In its letter to stockholders, Clinton Group notes that XenoPort's Chief Executive Officer has stock options that
`vest only if the Company achieves a commercial milestone with Horizant. Clinton Group says it believes this
`gives the Chief Executive Officer an incentive to spend XenoPort's capital on Horizant, even if such spending
`has a poor expected return. Clinton Group notes, by contrast, there does not appear to be any economic
`incentive for the Chief Executive Officer to partner or sell Horizant.
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`"We believe Dr. Barrett's incentives are not aligned with stockholders," continued Mr. Taxin. "Perhaps that is
`why the Company spent $8 million last quarter on Horizant commercialization, only generated an incremental
`$220,000 in sales and wants to keep doing this. We would prefer to see this science-based company focus on
`science, not marketing drugs to consumers and doctors."
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`Clinton Group encourages its fellow stockholders to review the materials it has prepared for stockholders,
`which are available at https://okapivote.com/clintonxnpt/ (https://okapivote.com/clintonxnpt/).
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`SENJU EXHIBIT 2309
`LUPIN v. SENJU
`IPR2015-01100
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`Page 1 of 5
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`CEO Has Special Incentive to Spend on Horizant, Says Clinton Group -- NEW YORK, June 5, 2014 /PRNewswire/ --
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`Clinton Group urges stockholders to vote for change at the annual meeting by using the GOLD proxy card.
`Stockholders with questions should contact Okapi Partners LLC at (212) 297-0720 or Toll-Free (855) 305-
`0857 or by email to XNPT@clinton.com (mailto:XNPT@clinton.com).
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`A copy of the letter sent to XenoPort stockholders is included below:
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`June 5, 2014
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`To Our Fellow Stockholders of XenoPort:
`
`I write on behalf of the Clinton Group Inc., which together with funds it manages ("Clinton Group"), is one of the
`largest investors in XenoPort, Inc. ("XenoPort" or the "Company"). As you probably know by now, we are
`unhappy with the Company's capital allocation decisions and stock price performance, and have nominated
`three independent professionals to the Board of Directors.
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`We encourage you to vote for our three nominees, who, if elected, would be three new, objective directors on
`a Board of nine members.
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`There is no question that the Company has not performed well for stockholders. For the five years ended
`yesterday, the stock is down more than 80%. In 2014 alone, the stock has declined more than 35% while the
`Nasdaq Biotechnology Index has risen 6%. The Company's stock has been moving, and continues to move, in
`the wrong direction.
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`The Company's incumbent Board would have stockholders believe the Company is misunderstood or that the
`stock price once embedded unrealistic expectations. Hogwash. The stock has underperformed in nearly any
`period one examines, short- or long-term. It has underperformed even since the failure of one of the
`Company's compounds, arbaclofen placarbil, was priced into the stock about one year ago. The stock has
`underperformed since the Company decided to turn itself from a science-based enterprise into a full
`commercial company for the purpose of marketing Horizant, as well.
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`The stock price performance actually tells the story. The Company has continually disappointed, and diluted,
`stockholders. To us, there is, unfortunately, no reason to think things will be different going forward without
`some fresh thinking and change on the Board.
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`Our biggest disagreement with the incumbent Board boils down to whether this small, undercapitalized
`company should be spending its precious capital on building and operating a commercial effort for Horizant
`(the Board's contention) or whether XenoPort should find a partner who already has those expensive
`operations (sales, marketing, FDA compliance and such) in place, collaborate on Horizant, and then focus
`XenoPort on activities involving its core competency, scientific development and clinical testing.
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`XenoPort has a very promising science and clinical project in XP23829. We believe it is a perfect focus for the
`Company, given XenoPort's historical strengths, personnel and core competence. There is no doubt that "829"
`will require significant additional capital for future clinical testing and development. We believe the Company
`should preserve its limited capital so that it can perform these future studies, de-risking the compound and
`creating additional value, through science, in 829.
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`To maximize value for stockholders, the Company should not sell or partner 829 too early or sell additional
`equity in the Company, diluting the current stockholders' ownership of 829. We strongly believe that by
`focusing the Company's capital spending and human resources on 829, the Company will preserve its capital,
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`CEO Has Special Incentive to Spend on Horizant, Says Clinton Group -- NEW YORK, June 5, 2014 /PRNewswire/ --
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`develop 829 as much as possible, ensure the current stockholders continue to own all of 829 and then, at the
`optimal time, sell or partner 829.
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`The alternative, supported by the incumbent team, is to spend the Company's limited capital to push the rock
`that is Horizant up a hill. Everyone agrees that the drug's initial launch in the United States was not a success.
`Whatever the cause, history is clear that it is very hard to re-launch a drug that has had an initial failed launch.
`The evidence from Japan (where the launch partner was different than the US partner) is also sobering: there,
`the sales appear to be declining and the Company's Asian partner has decided not to pursue marketing the
`drug in the five other Asian countries to which it had rights.
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`Yet, the Company's management team and Board – the same people whose actions have brought the stock to
`its knees – insist that this small biotechnology company should perform a commercial experiment. They
`support spending tens of millions more to see whether Horizant is promotionally sensitive. If it is, they argue,
`they will be able to sell or partner Horizant for more money than they can get for it today.
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`To us, there is no reason to think this is a good experiment. Pharmaceutical companies can see the data on
`Horizant already. They know the market and have read the research. They, like Wall Street analysts, can value
`the asset today based on all the probabilities of commercial success that one can know. The Company has no
`special insight into whether Horizant will succeed commercially or be "promotionally sensitive". And, of course,
`the Company has an extremely high cost of capital compared to pharmaceutical companies. In short, the
`Company has no objective reason to be more bullish than others and has a much higher cost of
`experimentation. And yet the Company pushes on. To us, this seems like bad economics.
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`After all, if spending $30-$40 million on a Horizant commercial experiment was a good idea (i.e. it had great,
`risk-adjusted expected returns), it seems clear to us that there would be dozens of parties willing to run the
`commercial experiment (all of whom have a lower cost of capital and substantial existing infrastructure to lower
`the cost of the experiment) and pay XenoPort for the right to do so. Where are they? If they have approached
`the Company and the Company has not done a deal with them, it can only be because the Company believes
`it has special insight into how Horizant will perform commercially. Why would that be? The Company is filled
`with scientists, not marketers. If no other party has shown up to partner or buy Horizant, well, then, the
`Company again must believe it has special insight. Or, as we suspect, misplaced confidence in Horizant.
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`We do not believe hubris should drive the allocation of shareholder capital. The Company has no rational basis
`that we can identify for believing Horizant will be more successful than other parties believe. This spending is
`therefore a gamble, not an investment.
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`So far, the gamble has not worked. The analysts who cover XenoPort value Horizant lower today than they did
`before this commercialization experiment began.* With every dollar XenoPort spends, the analysts appear to
`realize there is no great commercial opportunity: growth in the prescriptions is too low and the spending is not
`effective. The experiment that only XenoPort thought was a good one, is failing.
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`XenoPort says it should not abandon its experiment even though $8 million in spending during the First
`Quarter only produced $220,000 in incremental Horizant revenue. We believe the Company should stop this
`unproductive spend. At the current pace, the Company will spend many millions more, prescriptions will grow
`just modestly and Horizant will be regarded as worth even less.
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`CEO Has Special Incentive to Spend on Horizant, Says Clinton Group -- NEW YORK, June 5, 2014 /PRNewswire/ --
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`Why not run a competitive process and let the market of smart, well-capitalized, checkbook-wielding
`pharmaceutical companies tell us what Horizant is worth? Why does the Board believe its unique view of value
`is right? What great insight does the Company have that it is unable to communicate to potential partners or
`buyers?
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`We cannot help but offer one possible explanation. Dr. Barrett, XenoPort's Chief Executive Officer, has
`incentives that are different than those of stockholders. Half of Dr. Barrett's 2013 "performance-based" stock
`option grant vests only if the Company achieves a certain, unstated commercial milestone on Horizant. Dr.
`Barrett has an incentive to achieve that milestone – we suspect it is revenue or prescription-count based – no
`matter what it costs to do so. Dr. Barrett appears to get nothing if he sells or partners Horizant now. What is
`good for Dr. Barrett (already one of the highest paid executives at a biotech or health care company of this
`size) – continuing to commercialize Horizant at any cost and not selling or partnering the drug – is not
`necessarily good for stockholders. But it does appear to be the path the Company is on.
`
`We believe this small biotechnology company should not be attempting to prove commercial viability of
`Horizant. To us, it is a fool's errand that has already destroyed significant stockholder value and led to the
`need for additional capital, which diluted our ownership of 829. But even if we are wrong, we believe it would
`be enormously valuable to have some new professionals on the Board to help the Company consider these
`important capital allocation questions with a fresh perspective. Certainly, aligning incentives would be good.
`
`We believe value at XenoPort will be created by its scientific and clinical test ng prowess. The Company has a
`great compound on which to focus those efforts and could spend all of its capital, productively, moving that
`compound through the various phases of testing and development. That is where, we believe, the Company
`can best spend its capital.
`
`Please return the GOLD proxy card and call Okapi Partners with any questions. They can be reached at 855-
`305-0857 or XNPT@okapipartners.com (mailto:XNPT@okapipartners.com).
`
`Sincerely,
`
`Gregory P. Taxin
`President
`
`* Source: Wall Street research. Credit Suisse lowered its per share valuation of Horizant from $5.50 to $3.00 in
`reports dated March 11, 2013 and May 8, 2014; RBC Capital lowered its per share valuation of Horizant from
`$5.00 to $3.00 in reports dated April 24, 2013 and May 9, 2014; Wells Fargo lowered its per share valuation of
`$3.00-$4.00 for Horizant/AP to $1.00 for Horizant in a report dated March 12, 2013 and as indicated in a
`model as of May 5, 2014.
`
`About Clinton Group, Inc.
`
`Clinton Group, Inc. is a Registered Investment Advisor based in New York City. The firm has been investing in
`global markets since its inception in 1991 with expertise that spans a wide range of investment styles and
`asset classes.
`
`Important Additional Information
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`CEO Has Special Incentive to Spend on Horizant, Says Clinton Group -- NEW YORK, June 5, 2014 /PRNewswire/ --
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`CLINTON RELATIONAL OPPORTUNITY MASTER FUND, L.P., CLINTON MAGNOLIA MASTER FUND, LTD.,
`GEH CAPITAL, INC., CLINTON RELATIONAL OPPORTUNITY, LLC, CLINTON GROUP, INC. AND GEORGE
`E. HALL (COLLECTIVELY, "CLINTON") AND KEVIN J. CAMERON, RAEL MAZANSKY, M.D. AND CHARLES A.
`ROWLAND, JR. (TOGETHER WITH CLINTON, THE "PARTICIPANTS") FILED WITH THE SECURITIES AND
`EXCHANGE COMMISSION (THE "SEC") ON APRIL 25, 2014 A DEFINITIVE PROXY STATEMENT AND
`ACCOMPANYING FORM OF PROXY CARD TO BE USED IN CONNECTION WITH THE PARTICIPANTS'
`SOLICITATION OF PROXIES FROM THE STOCKHOLDERS OF XENOPORT, INC. (THE "COMPANY") FOR
`USE AT THE COMPANY'S 2014 ANNUAL MEETING OF STOCKHOLDERS (THE "PROXY SOLICITATION").
`ALL STOCKHOLDERS OF THE COMPANY ARE ADVISED TO READ THE DEFINITIVE PROXY STATEMENT
`AND OTHER DOCUMENTS RELATED TO THE PROXY SOLICITATION BY THE PARTICIPANTS BECAUSE
`THEY CONTAIN IMPORTANT INFORMATION, INCLUDING ADDITIONAL INFORMATION RELATED TO THE
`PARTICIPANTS. THE DEFINITIVE PROXY STATEMENT AND ACCOMPANYING PROXY CARD HAVE BEEN
`FURNISHED TO SOME OR ALL OF THE COMPANY'S STOCKHOLDERS AND ARE, ALONG WITH OTHER
`RELEVANT DOCUMENTS, AVAILABLE AT NO CHARGE ON THE SEC'S WEB SITE AT
`HTTP://WWW.SEC.GOV/ (HTTP://WWW.SEC.GOV/). IN ADDITION, OKAPI PARTNERS LLC, CLINTON'S
`PROXY SOLICITOR, WILL PROVIDE COPIES OF THE DEFINITIVE PROXY STATEMENT AND
`ACCOMPANYING PROXY CARD WITHOUT CHARGE UPON REQUEST BY CALLING (212) 297-0720 OR
`TOLL-FREE AT (855) 208-8902.
`
`INFORMATION ABOUT THE PARTICIPANTS AND A DESCRIPTION OF THEIR DIRECT OR INDIRECT
`INTERESTS BY SECURITY HOLDINGS IS CONTAINED IN THE DEFINITIVE PROXY STATEMENT ON
`SCHEDULE 14A FILED BY CLINTON WITH THE SEC ON APRIL 25, 2014. THIS DOCUMENT CAN BE
`OBTAINED FREE OF CHARGE FROM THE SOURCES INDICATED ABOVE.
`
`SOURCE Clinton Group, Inc.
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`http://www.prnewswire.com/news-releases/ceo-has-special-incentive-to-spend-on-horizant-says-clinton-group-261964151 html
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