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) 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.
"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."
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.
"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."
Clinton Group encourages its fellow stockholders to review the
materials it has prepared for stockholders, which are available at
https://okapivote.com/clintonxnpt/.
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.
A copy of the letter sent to XenoPort stockholders is included
below:
June 5, 2014
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.
We encourage you to vote for our three nominees, who, if
elected, would be three new, objective directors on a Board of nine
members.
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.
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.
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.
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.
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.
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, 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.
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.
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.
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.
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.
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.
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.
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.
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?
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 testing 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.
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
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/. 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.