Sure sounds that way - but 'it's for the good of the shareholders'.
BTW - Never have I seen this action before.
Some CRAZY stuff in here.
Are they "appealing" to them ...or attacking each one personally and publically? Possibly even threatening them?
This to me was BAD with a capital B A D.
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Appeal to Individual Board Members
We feel it is necessary to appeal to each of you individually to make sure that you understand that shareholders hold you personally responsible, as members of the Board and presumed fiduciaries, and that each of you will be to blame if you continue to allow the Company to neglect shareholders' best interests by spurning direct negotiations with interested potential acquirers such as Ramius.
Mr. Roger Hawley, you are currently the CEO of a private company, Zogenix, which has just filed an S-1 to go public. Zogenix, no doubt, has investors to whom you answer and whose interests you represent. You are also on the board of other companies that depend on the support of investors. What message are you sending current investors and prospective investors of all your other companies when, against the publicly expressed wishes of major shareholders of the Company, you continue to support a business plan for the Company that is preventing the Company's shareholders from realizing a return on their investment? The Company has for years now been wasting its resources on one failed in-licensed program after another, as was outlined clearly in Arcadia Capital Advisors's most recent letter (September 7, 2010) to the Board. Management has a track record that suggests to us that they have been running the company as their own personal non-profit CRO. We ask that you put a stop to this ongoing violation of Cypress shareholders' interests. If you do not, should current and future shareholders of Zogenix worry that the same thing is going to happen to them someday?
Dr. Amil Kalali, given your current role as Vice President of Medical and Scientific Services at Quintiles, a respected global CRO, we can appreciate that you are an insightful board member when it comes to matters of how to run clinical trials. We see from your bio that you sit on many scientific advisory boards and on the boards of non-profit organizations. But, from your bio, it would appear that serving on the Cypress board is among the first of your experiences as a fiduciary of a public company. We ask that you give very careful consideration to whether you are currently representing shareholders' best interests when you support the Company's plan to spend its cash and royalty stream on clinical programs. You must have a great appreciation for the risks of drug development. What we have tried to make clear in this letter is that the Company's shareholders do not want to see the Company risk its current cash and the value of its royalty stream on these programs. In light of this, why are you continuing to substitute your judgment for that of the shareholders' as to what is in their best interests?
Mr. Jon McGarity, your biography mentioned that you run EthiX Associates, which specializes in pharmaceutical business planning and strategy. You clearly understand the risks of drug development, the value of cash, and the importance of taking shareholders' perspective into account when risking their cash on drug development. You have the expertise to appreciate that Cypress could very well lose all of its cash and squander its royalty stream on these new programs that better capitalized companies were willing to pass on (Note: It is clear that Bioline, Alexza, and Marina had all shopped them around; all three are public companies eager to maximize value). CNS drugs, in particular, are extremely difficult to bring to market because of the high safety hurdles, difficultly in finding good animal models, and especially the subjective endpoints susceptible to placebo-effect. It's up to the management team to match the right investors with their plan. However, management does not have the support of the Company's shareholders, who would prefer to see management preserve cash and sell the Company. Maybe the key question is, if you bundled Cypress' three new drugs into a brand new company, would you be able to raise capital from new investors to fund further development? If you think so, then we urge you to spearhead this effort. However, the current shareholders are clearly distressed at the prospect of the Company pursuing this agenda using shareholders' current cash and royalty stream. While shareholders are unable to call a Special Meeting in which to voice their best interests, we are confident that, with your years of experience, you must have a good sense of what shareholders would say if you were to ask them. We therefore ask you to do the right thing and stop the Company from risking current shareholders' capital on these new programs and grant shareholders the opportunity to realize a return on their investment by selling the Company to Ramius or a higher bidder.
Dr. Perry Molinoff, your bio highlights your considerable experience in neuroscience and CNS drug development. We know you appreciate the risks involved in this field, especially since you also presided over the challenging development of Palatin's melanocortin agonist and the associated loss of shareholders' capital. We ask that you explain to your fellow board members the tremendous risks involved in each of the three programs that the company wants to pursue, including schizophrenia, smoking cessation, and autism. The last indication in particular may as well be a science project given the lack of validated endpoints and untested regulatory process. These indications do represent areas of great unmet need, but if pharmaceutical companies flush with cash did not see fit to spend a tiny fraction of their billions of dollars developing these drugs, why are you prepared to allow a small and clearly under-capitalized company like Cypress to spend what little cash it has on such risky programs? Why are you and the rest of the Board so willing to take the risk of supporting this strategy in the face of clear shareholder opposition? We ask that you participate in a frank and open discussion of the risks of pursuing CNS drug development with your fellow board members and then vote to allow shareholders to realize the upside of letting Ramius or a higher bidder acquire the company and dispatch the pipeline as they see fit; if those drugs have any value, someone else will bid on them.
Dr. Tina Nova, you serve on a number of boards and have been involved with many companies and therefore have the experience to know that supporting the Company's plan to spend shareholders' capital in the hope of hitting a home run despite the opposition of shareholders is a losing proposition. Any company looking for additional board members will consider the message it would be sending to its shareholders if it were to appoint a Cypress Board member. If you want that message to be that the Cypress Board knows the value of shareholders' capital and how not to waste it, then please consider that the proper course of action is to put a stop to the Company's wasteful strategy immediately and push through the sale of the Company.
Mr. Daniel Petree, your biography shows that you have experience in investment banking and manage a boutique firm, which no doubt gives you expertise in executing transactions not unlike the three Cypress recently completed. We assume that you supported the Bioline deal but didn't realize at the time that shareholders would disapprove of it and would vote against it by selling the shares to the point where the Company's enterprise value was negative. Now you know how unhappy shareholders are about the deal, which you and Jay Kranzler spearheaded as the only two members of both the Finance Committee and Strategic Committee, an arrangement we think was unwise and which the rest of the board should not have condoned. And now that you know, we believe that it is incumbent on you to serve as a proper fiduciary to your shareholders, even if that means voting in favor of making the best effort to sell the Company quickly and therefore negotiating with Ramius. If the assets you helped identify have clinical value, they will find a new home.
And finally, Dr. Jay Kranzler, it was our sincere hope that you would have done the right thing by entering into discussions with Ramius after their first letter and quickly sought other buyers. But the fact that you both rejected Ramius' request to enter into discussions and then in-licensed two more drugs demonstrated a shocking disregard of the interests of Cypress shareholders. You teach a course on the business of biotechnology at The Rady School of Management at UC San Diego and are its sole Executive in Residence; you could still be remembered as a recognized authority on the drug repurposing paradigm but if you continue down this path we think that you will most likely be remembered as a poignant business lesson to students and executives alike on what not to do when at the helm of a company. We wish your board had steered you better.
From our conversations with you over the years, we felt that you understood the importance of having a mandate from your shareholders to risk capital on drug development in a calculated and prudent manner. Instead, we have watched you steer Cypress towards excessively risky programs, squandering the resources of the Company, and cause the Company' stock to trade for less than cash value. This Company is not your personal non-profit research organization. Yes, it would be wonderful to find a treatment for autism, help people stop smoking, and give patients with schizophrenia respite from their debilitating symptoms. Under the right circumstances, we might have offered to provide funding to one or more of these programs provided the rest of the business plan were well thought out. But the Company only gets to pursue those goals if it first wins over the shareholders. Instead, you and the Company have been dismissive of the shareholders, not bothering to win their support for the Company's agenda. The fact that the Company's stock dropped as much as it did and stayed down for as long as it did after the Bioline announcement is proof that the Company does not have shareholders' support. The fact that shareholders sold the stock when they saw the Company in-license two more drugs after rejecting Ramius' offer was proof that they would have preferred that the Company negotiated with Ramius than pursue a scorched-earth policy, spending all the cash so that acquirers lose interest.
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