NEW YORK, Dec. 16, 2013
/PRNewswire/ -- Clinton Group, Inc. ("Clinton Group"), one of
the largest owners of Xenoport, Inc. (NASDAQ: XNPT) ("Xenoport"),
sent a letter to the Lead Director of Xenoport, Dr. John G. Freund, following a recent meeting with
Dr. Freund and Dennis Fenton,
another independent director of Xenoport.
In the meeting, the Clinton Group reiterated its view that
Xenoport should be solely focused on the development of its novel
fumaric acid ester compound (known as "829"), which the Clinton
Group believes has the prospect of being a blockbuster drug with a
relatively low risk development path. While the directors defended
the current capital allocation approach – and the test marketing of
gabapentin enacarbil in 40 US markets – they also expressed
recognition that the shareholders own Xenoport and that the Chief
Executive Officer and directors should be held accountable.
In the meeting, and again in today's letter, the Clinton Group
called upon the directors to allow shareholders to vote on each of
the directors each year, as is the practice at a majority of public
companies in the United States,
starting in 2014.
"Xenoport's stock is down more than 35% this year while the
Nasdaq Biotechnology Index has soared more than 50%," said
Gregory P. Taxin, President of
Clinton Group. "And yet, Xenoport may well have one of the most
clinically and commercially significant compounds in its labs. We
believe shareholders are unhappy that Xenoport has not exclusively
focused on 829 and fear further dilution in their ownership of 829
because of the decisions of the Chief Executive and the Board.
While we appreciate that the directors expressed a willingness to
be held accountable to shareholders, Xenoport's charter protects
the Board from real accountability by giving each director a
three-year term. These directors have the power to change that. We
call upon the directors to put themselves (and their strategy,
decisions and track record) on the ballot in 2014, so shareholders
can have an up-or-down vote on this Board's stewardship."
The Clinton Group believes that the best path forward for
Xenoport is to hire a new, accomplished Chief Executive who will
act like an owner and focus entirely on the development of 829. The
Clinton Group would support the current Board at the 2014 Annual
Meeting of Shareholders if the directors move swiftly to identify
and hire such a Chief Executive and focus the Company's efforts on
829.
The complete text of the letter is copied below.
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.
December 16,
2013
Dr. John G. Freund
Lead Director
Xenoport, Inc.
3410 Central Expressway
Santa Clara, CA 95051
Re: Follow
Up From Our Discussion on Friday
Dear Dr. Freund:
I write on behalf of the Clinton Group, Inc., the investment
manager to various funds and partnerships ("Clinton Group") that
collectively own more than 1.3 million shares of the common stock
of Xenoport, Inc. ("Xenoport" or the "Company"). This ownership
stake makes Clinton Group one of the Company's top ten owners,
according to Bloomberg data.
We appreciate the time that you and Dennis Fenton spent with us on Friday. While we
seemingly have numerous disagreements – especially with respect to
the capital allocation decisions of the Board and the continued
employment of Mr. Barrett as Chief Executive Officer – we were
encouraged to hear that the Board is focused on the creation of
shareholder value and is willing to be held accountable to
shareholders. We also appreciate that you welcome the direct input
of other Xenoport shareholders.
As we expressed, we believe the Company has an extremely
valuable compound in XP23829 ("829"). Indeed, as we expressed in
our letter to the Chief Executive Officer, Dr. Ronald Barrett, on October 15, 2013, we believe that the value of
829 far exceeds the market capitalization of the Company. The
development of 829, which is a comparatively low-risk process with
a comparatively high clinical and market potential, should be, in
our view, the sole project pursued by the Company with its limited
capital. We believe that if the Company would dedicate its
resources to the development of 829, the Company would be
significantly more valuable to its shareholders and the stock would
rally to a price closer to the probability-weighed, net present
value of the 829 opportunity, in the $12.50
to $14.50 range.
Based on today's stock price (and its rapid decline this year in
an otherwise buoyant biotechnology market), it is clear that
shareholders have no faith in Dr. Barrett, believe capital has been
misallocated to the Horizant marketing test and that they will
likely suffer dilution in their ownership of 829 to pay for these
mistakes. We agree. We again urge you to replace Dr. Barrett and to
put an end to the Horizant market test or to disclose significantly
more data on its progress and results so that shareholders can
decide for themselves whether this use of capital is a good
one.
In all events, the Board should agree, as we discussed, to be
held accountable to shareholders. We believe the Board should
immediately declassify and that each director should be subject to
annual shareholder ratification, beginning with the 2014 annual
meeting of shareholders, rather than having three-year terms. As
you know, most companies in the S&P 500 have such one-year
director terms and more than 80 of those companies have moved to
annual elections in the past two years alone.
There can be no doubt that annual accountability of directors is
basic, good corporate governance. That is especially true at a
Company whose stock has been a perennial under-performer, like
Xenoport, and in companies in which the directors own very little
stock themselves, also like Xenoport.
Moreover, we are nearly certain that your positions as
fiduciaries for shareholders would be safe if the Board would move
swiftly to hire a new, accomplished Chief Executive Officer and
adopt the capital allocation approach we believe is clearly
supported by shareholders: a focused effort on developing 829 with
no premature dilution. The Board therefore need not fear annual
elections; it just needs to move quickly to correct the mistakes of
the past. Those mistakes, after all, have caused the shareholders
to lose more than $1 billion in
market capitalization since the beginning of 2008.
We appreciate your willingness to consider putting the entire
Board in front of shareholders this Spring for a vote. If you chose
to continue the off-market approach of long, unaccountable director
terms, the clear message you will send to shareholders is that you
do not believe they should have a meaningful say in how their
capital is allocated or in overseeing your efforts as their
fiduciary.
We look forward to hearing from the Board on this topic and to
receiving additional data on the progress of the Horizant test
marketing program, or (better yet) to hearing that you have decided
to adopt the strategy supported by shareholders of focusing the
entirety of the Company's efforts on the extremely promising 829
program.
We are available at any time to discuss these matters
further.
Best regards.
//s//
Gregory P. Taxin
President
SOURCE Clinton Group, Inc.