My opinion and then I would love to hear yours or any one elses.
To the Board of Directors of Cypress:
We are a large stockholder of Cypress Bioscience, Inc. (the "Company"), having beneficial ownership over approximately 2,000,000 shares of the Company's outstanding common stock. We are writing in response to the Company's August 6, 2010 press release that publicly announced that the Board of Directors of the Company (the "Board") rejected the offer previously made by Ramius LLC ("Ramius") to purchase all of the issued and outstanding capital stock of the Company at a price of $4.00 per share. The Company's press release stated that the Board rejected the offer by Ramius because it was not in the best interests of all of the Company's stockholders and that the Company would continue to work with Jefferies & Company, Inc. and Perella Weinberg Partners to evaluate strategic alternatives.
(I agree with CYPB)
We consider the Company's stated objective, to "evaluate strategic alternatives", to be too vague for our comfort given that the Company has just rejected the opportunity to negotiate with a potential acquirer.
(How vague is - 'It's not enough?')
We would like to be explicit about what courses of action we would like the Company to take to represent our best interests so that the Company and the Board do not need to speculate on this matter. Certainly we do not speak for all stockholders but we are confident, given the recent trading history of Cypress stock, that many would agree with our position.
(If that was true you would have filled that large gap up, but you haven't)
We are confident that it would be in the best interests of all stockholders for the Company to enter into immediate negotiations with Ramius and any other party for an acquisition of the Company at a price of $4.00/share or higher. However, even if the best offer the Company could come up with were as low as $3.00/share, taking this offer would represent a better outcome for all shareholders, in our opinion, than continuing to spend the Company's remaining cash and royalty income on the current ill-conceived pipeline and on in-licensing new compounds.
(Whoa there, doggy. I know you are not speaking for the shareholders that recently bought and there were many if we created that gap. Nope... on the 3 buck concept! The game isn't played that way.)
If the Company or the Board decides to contemplate the Company's options for longer than an additional two weeks, we would like to see the Company stop all spending and distribute all current cash immediately to the Company's shareholders, keeping only enough to fund the auction of the Savella royalty, whose proceeds we would also want the Company to distribute as soon as possible.
(WOW... you own just over 5%: I'm thinking you are getting a little bossy under THOSE circumstances.)
If the Company and the Board are convinced that there is value in the Company's pipeline, the Company can try to raise additional capital from investors to fund the development of those programs but the Company most certainly does not have our support in spending the Company's existing cash or royalty income on these new programs.
(Why? Why TRY to raise money when they have the money?)
We think the Company and the Board will discover that there is just as little interest among investors in the Bioline drug when the Company is pitching the story as when Bioline was pitching it in the year preceding the Company's deal with them. The same is true for the other two assets the Company recently in-licensed.
We recognize that the Company and the Board may dismiss our letter in the same manner that the Company and the Board have dismissed Ramius on several occasions.
(Only once. CYPB responded to the first letter and has yet to respond to the second)
Therefore, we would like to take this opportunity to create a public record urging the Company and the Board not to do so and stating very clearly that this is not in the best interests of any of the Company's stockholders.
The Record
As of June 30, 2010, the Company had $2.73/share of cash, royalties exceeding $0.32/share expected over the next 12 months, and a plan to create additional value by spending the cash on new drug development.
However, in the month following the announcement of the Bioline licensing agreement (June 21, 2010), over 37 million shares representing the majority of the Company's float traded below $2.50/share, with 10 days of trading at or below $2.25, and the stock hit a low of $2.09. There is absolutely no question that the overwhelming vote of the shareholders during that period was that the Company had made a mistake. They assigned a negative (less than zero) value to the Company's pipeline and its business plan, and concluded that the Company had destroyed value by committing cash and future resources to the Bioline drug. We know this is what shareholders concluded because of the extensive, deliberate, and prolonged selling of shares by shareholders at a price that reflected a below-cash value of the whole company.
For an entire month, investors weighed the evidence and concluded that the Company and its pipeline were worth less than zero. Had the stock price recovered quickly, within a few days, one could have assumed that the drop in price was due to a transient inefficiency caused by a few investors not appreciating the merits of the licensing deal while savvier investors stepped in to snap up shares and bid them back up to pre-deal price. But to have such high volume selling at stock prices below the cash per share for such a long time is nothing short of damning.
(true. lol)
When on July 19, 2010 Ramius announced their desire to negotiate for an acquisition of Cypress for a price of $4.00/share, the stock rapidly rose to trade over $3.00/share, with 44 million shares trading at an average price of $3.52/share from July 19th through August 25th. Again, there can be no question that the majority vote of the shareholders during that period was that the prospect of being bought out by Ramius or anyone at $4.00/share or higher was more compelling than pursuing the Company's current business plan.
(BS. It was the possibility of a quick gain)
We consider the recent trading history of the stock to be clear evidence that shareholders thought that the Company had a positive enterprise value prior to the Bioline announcement, that it had a negative enterprise value after the Bioline announcement (anticipating that management would burn cash without creating value), and that the only way they will generate a return on their investment is if the Company were sold to Ramius or another acquirer.
In case there was any doubt, one can even see how on August 26th, immediately after the Company announced the in-licensing of two more drugs, the stock sold off again over several days with high volume. Given that Ramius has offered $4.00/share to buy the company, why would shareholders sell the stock on this news for as much as a 22% discount to this price (stock sold for a low of $3.13/share on August 31, 2010) unless, as a result of the news, they were now more fearful than before that management was intent on blocking the sale of the Company to Ramius or another suitor.
(Once again - Gap. Unfilled. IMHO, That doesn't back up the Fear factor)
The fact is that the Company's stock is now held to a large extent by shareholders who believe that there is more value in selling the Company to Ramius or a higher bidder in an expeditious manner than in letting the Company continue to operate as it has been. Management and the Board may think that many of these shareholders bought the stock recently and somehow their interests are less important than the interests of shareholders that the Company considers loyal to its long-term strategy. The fact is that a huge number of these "loyal" shareholders voted with their feet and couldn't sell their stock fast enough well under the $4.00/share Ramius is now offering for the Company.
Had you not disappointed those shareholders who believed your pipeline had value, they may have remained shareholders, you would have had a mandate to continue with your plans to operate the Company as you had been doing, and your stock would have reflected your shareholders' support of your plan by trading with a positive enterprise value.
(That's probably true)
But now, in light of the large trading volume in the stock since the Ramius offer was announced and the fact that the stock price traded up as a result of the Ramius offer, it is clear that many of your current shareholders actually bought stock thinking that it would be a good outcome if the Company were sold at a price of $4.00 per share or higher. The greatest fear of your current stockholders is that management and the Board might actually choose not to sell the Company at a price of $4.00 per share or higher and that all of the Company's cash will be spent on its pipeline. The Company now has a new set of shareholders who see value in a different strategy, and it is the fiduciary duty of the Board and management to consider their best interests.
(Wait? What happened to the "loyals? So it's now screw the remaining loyal shareholders and focus now on the buyout traders...okay. LOL! )
If management or the Board has any doubts that the Company's current shareholders want management and the Board to sell the company for $4.00/share or more to Ramius or another acquirer, then you should call a shareholder meeting and give everyone a chance to vote. But do not claim that rejecting any negotiations with Ramius is somehow in shareholders' best interests; negotiations with Ramius are exactly what shareholders want from management and the Board.
(No. Not I. I want CYPB to be offered a price that takes into account the pipeline, the case on hand and one from anyone other then Ramius - who can go....
elsewhere.)
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