XMARK OPPORTUNITY PARTNERS, LLC
90 Grove Street
Suite 201
VIA E-MAIL
Board of Directors
Icagen, Inc.
4222 Emperor Boulevard
Suite 350
Lady and Gentlemen:
Xmark Opportunity Partners, LLC is the sole member of the investment manager of Xmark Opportunity Fund, L.P. and Xmark Opportunity Fund, Ltd. (together, the "Xmark Funds"). As you are aware, the Xmark Funds are significant shareholders in Icagen, Inc. (the "Company" or "Icagen").
On at least three occasions, we have requested permission to observe a meeting of the Company's Board of Directors in order to (i) gauge the level of the Board's pursuit of strategic alternatives, (ii) observe the interaction between the Board and the Chief Executive Officer for the purpose of evaluating independence, and (iii) evaluate the assumptions relied upon by all Board members with respect to issues of risk, value and time, as all three relate to the equity markets and drug development process. Our requests have been made in separate communications with three members of the Company's Board: Dr.
Although we have always strongly believed that the Company's core technology has great underlying value and tremendous potential, the combination of the financial crisis in the broader markets and the Company's common stock ritualistically trading at new 52-week lows has given us cause for concern. It was this concern that initially prompted us to request observer status at a Board meeting in order to better understand the Company's strategic plan. As we are aware of the implications of Regulation FD we made clear, to both the Company and its counsel, that we were prepared to sign a confidentiality agreement. Additionally, we offered to agree to a 6-month lock up of our shares; this voluntary concession would have created a temporary benefit for all shareholders of the Company by eliminating a large overhang during a period of great sensitivity in the market. The Company's refusal to grant our request not only heightened our concern regarding the Company's strategic plan, but aroused suspicion as well. Why would a company refuse to allow a large shareholder, who has added value in the past, to observe a single Board meeting? More to the point, why would this Board bar an active and supportive shareholder from visiting the forum in which it safeguards the interests of all shareholders.
The Xmark Funds have been long-only biotech investors since 1996. My partners
By way of background specific to Icagen, the Xmark Funds are one of the Company's largest shareholders, holding in excess of 8% of the outstanding common shares, all of which have been purchased in the open market. Since 2007, we have been buyers in the market on no fewer than 100 trading days and may very well be the largest open-market acquirer of the Company's shares in its history -- at a time when the Company's insiders have purchased a comparatively de minimis number of shares. We have always viewed our role as shareholder to be supportive. To that end, we have: offered suggestions with respect to clinical trial design; made introductions to investment bankers and IR/PR firms; and followed up on the Company's behalf with several noteworthy investors who expressed interest in the Company. And, in fact, the Company has expressly acknowledged these supportive efforts. However, when our suggestions turned to more macro subjects, such as strategic direction, the tone of the conversation changed.
We believe that the Company should conduct a discreet sale process. We made this view clear to the Company and Dr. Sanders several months ago, when the Company had more capital and a much higher stock price. It was our belief then, as it is now, that the Company would be able to command multiples of its share price. Initially, we were open to the possibility that the Company might be able to create shareholder value through alternate methods, namely strategic partnerships. It was in our effort to gain a balanced view of such partnership possibilities that we first asked to attend a Board meeting. Based on the Company's response, we have been left to conclude that the Company has not adequately pursued all available strategic alternatives and we believe that the CEO may be largely to blame.
Over the course of Dr. Wagoner's long tenure, she has presided over an embarrassingly precipitous loss of share value. While Dr. Wagoner is an accomplished scientist and has played a role in consummating respectable corporate partnerships for Icagen, she does not appear to be respected by the capital markets for her acumen as a chief executive. The Board, which has the duty of overseeing corporate direction and execution, has allowed Dr. Wagoner to remain at the helm in spite of a high profile clinical failure, multiple failed strategic partnerships and a stock price that is closer to zero than it is to a dollar. Just as Dr. Wagoner has been at the helm for over a decade, so too have many of the members of the Board.
The challenges facing the healthcare sector today are unprecedented. As record numbers of biotech hedge funds have imploded or liquidated core positions to stay afloat, capital has dried up. Consequently, the cost of capital has skyrocketed. Companies must act aggressively in order to navigate the market's troubled waters. As the cost of capital rose this year, we believe that the Board did not take adequate steps to reduce the Company's costs. Additionally, given the challenging macro-economic environment, we believe that there was a glaring need for the Board and management to act swiftly with respect to the Company's strategic direction. Without our having the benefit of any information to the contrary, we have concluded that they failed to do so. This apparent inaction is particularly surprising as many members of the Board sit on the boards of other public life sciences companies, such as Cephalon, Inc. [CEPH], Genentech, Inc. [DNA], Infinity Pharmaceuticals, Inc. [INFI], Memory Pharmaceuticals Corp., Pharmos Corporation [PARS], Sunesis Pharmaceuticals, Inc. [SNSS] and Vertex Pharmaceuticals Incorporated [VRTX].
At this point, we believe that the Company's only legitimate option to salvage the value of its proprietary technology is to pursue an extraordinary transaction. Given that many large pharmaceutical companies have recently stated that they intend to pursue acquisitions in order to compensate for the dearth of products in their drug development pipelines, we believe that this is actually an ideal time for the Company to pursue a sale, rather than a painfully dilutive, stop-gap capital raise. In speaking with industry experts, the perception of the Company is that management is entrenched and unwilling to formally explore a sale. This is extremely troubling. We have communicated this perception to Drs. Sanders and Evnin but have not received any substantive response. We have been met with platitudes, but nothing else. We are concerned that management may be reluctant to consider a sale because they (x) possibly would lose their historically high salaries and at the same time (y) some would not gain meaningfully through a sale of the Company because they do not own a great deal of common stock.
Please be advised that if the Company decides to raise capital in a dilutive offering, we will have no alternative but to evaluate seriously the viability and propriety of all available options to protect the interests of our limited partners and shareholders, including, inter alia, commencing legal proceedings against the Company to seek rescission of such a transaction and/or damages, as well as an action against the Board for breach of fiduciary duty.
Please also be advised that we are actively considering whether to aggressively push, within the parameters of securities laws and regulations, for the removal of Dr. Wagoner as Chief Executive Officer as we feel that she is ill suited to lead the Company, as well as for the removal of several members of the Board as we feel that the Board has lost touch.
Of course, we are rational investors. Accordingly, even at this juncture, we would commend the Board for taking appropriate steps to benefit all shareholders; it is never too late to do the right thing.
Respectfully submitted,
XMARK OPPORTUNITY PARTNERS, LLC
XMARK OPPORTUNITY PARTNERS, LLC
90 Grove Street
Suite 201
VIA E-MAIL
Board of Directors
Icagen, Inc.
4222 Emperor Boulevard
Suite 350
Lady and Gentlemen:
Xmark Opportunity Partners, LLC ("Opportunity Partners" or "we" or "us" or "our") is the sole member of the investment manager of Xmark Opportunity Fund, L.P. and Xmark Opportunity Fund, Ltd. (together, the "Xmark Funds"). As you are aware, the Xmark Funds are significant shareholders in Icagen, Inc. (the "Company").
As you also are aware, on
On
After receiving Letter 1, the Company offered us an opportunity to sign a set of confidentiality agreements to allow us to evaluate steps, if any, that management has taken from a strategic perspective. Unfortunately, we believe that the conditions of this offer rendered it hollow and illusory. Specifically, the Company conditioned its disclosure of the Company's strategic plans upon our (i) essentially agreeing to lock-up the shares owned by the Xmark Funds (which we always have been willing to do) and (ii) agreeing to remain silent in the public market (including no proxy battle), for a period potentially extending through the next annual meeting (
Rather than walk away from the table, we sought middle ground and responded to the Company's offer with a compromise in the alternative: (x) we would agree to lock up the shares owned by the Xmark Funds and remain silent in the public market through the next annual meeting if the Company allowed us to attend a single meeting of the Board or (y) we would agree to a lock up for a period of four (4) months, so that we would be able to speak at the next annual meeting. In our view, this was a reasonable compromise. We wanted a voice; the forum for our voice -- the marketplace or the boardroom -- was up to the Company. The Company flatly rejected this proposal.
From this experience, we believe that management and the Board have little or no interest in benefiting the Company's shareholders. The Company has taken action to quell public market activity in its shares, while also requesting silence from its most active shareholder. We continue to be amazed by the behavior of the Board, one that includes luminaries such as Dr.
Again, please be advised that if the Company decides to raise capital in a dilutive offering, we will evaluate all available options to protect the interests of our limited partners and shareholders, including, inter alia, commencing legal proceedings against the Company to seek rescission of such a transaction and/or damages, as well as an action against the Board for breach of fiduciary duty.
Respectfully submitted,
XMARK OPPORTUNITY PARTNERS, LLC
About the Xmark Funds
The Xmark Funds are dedicated to making investments in publicly-traded, small-cap life sciences companies and seek to achieve substantial capital appreciation by investing directly in public life sciences companies trading at venture-level valuations. The Xmark Funds conduct extensive fundamental due diligence and tailor their investments to the risk/reward profile of each target.
The team's investment professionals have worked together since founding the investment manager in 2001. The investment team includes life sciences professionals with extensive experience and expertise in clinical research, business development, medical practice, hospital and physician practice management, asset management and law.
SOURCE Xmark Opportunity Partners, LLC