October 10, 2013
Board of Directors
Vivus Inc.
1172 Castro Street
Mountain View, CA 94040
Re: Defending the Company's Intellectual Property
Gentlemen:
I write on behalf of Clinton Group, Inc., the investment manager
to several partnerships and funds (“Clinton Group”) that
collectively own more than 1% of the common stock of Vivus Inc.
VVUS. We intend to continue to buy stock.
We own Vivus shares because we believe the Company is
significantly undervalued given the efficacy and market
potential of Qsymia, seemingly the most effective weight-loss
drug in history. We were enthusiastic supporters of First
Manhattan during the proxy battle and believe the new Board and
Chief Executive are working effectively to create value for all
stockholders.
As you know, the Company's intellectual property has been
challenged by an anonymous blogger and by an analyst at Lazard
Capital Markets (“Lazard”). We believe these attacks are
unwarranted and ill-founded and that the Company should do more
to provide information to the market about the strength of its
intellectual property assets.
As investors, we conducted extensive diligence on the Company's
patents, including hiring a nationally recognized law firm whose
intellectual property practice (consisting of more than 125
attorneys) is consistently ranked in the top five of all law
firms in the country. The lawyers who assisted us are litigators
whose principal practice is attacking the validity of
biotechnology patents. We asked them for an objective review of
the Company's 2020 patents.
These independent lawyers have provided us with a detailed
memorandum that analyzes the prosecution histories of the
Company's patents (including a review of the prior art cited
therein) and relevant case law. Counsel reached the following
notable conclusions:
- “Based on our analysis, it is our opinion that there is a
high likelihood of success in defeating any obviousness
challenge to the validity of the Vivus Qsymia Patents.”
- “[A] body of prior art explicitly taught away from the
claimed invention and repeatedly warned against the use of
phentermine in combination therapy. Indeed, the conventional
wisdom in the industry as of the relevant date was phentermine
monotherapy--not phentermine combination therapy.”
- “Additionally, in our opinion, any obviousness challenge to
the Vivus Qsymia Patents will likely be defeated in view of the
evidence of unexpected results presented to the [United States
Patent and Trademark Office (the “PTO”)]. .... During
prosecution, [Vivus] submitted scientifically sound evidence of
unexpected results of the combination. … Such [a] showing,
without more, is generally sufficient, as a matter of law, to
rebut a prima facie case of obviousness. … [A]ny potential
obviousness challenge to the Vivus Qsymia Patents would have to
rebut the showing of unexpected results currently of record
before the PTO, by clear and convincing evidence. And, this
challenge would likely fail.”
- “We believe, based on the current record before the United
States Patent and Trademark Office (the “PTO”), any potential
challenger likely cannot rebut the presumption of validity
afforded the issued Vivus Qsymia Patents by clear and convincing
evidence. This is especially true here where the challenger
would bear the extra burden of overcoming the deference due to
the Examiner, in view of the detailed findings, substantial
evidence and well-reasoned analysis.”
Most recently, we asked counsel to comment on the conclusions of
a Lazard research report published on September 4, 2013 (the
“Lazard Report”). Counsel provided us with the following
opinion:
“[T]he Lazard Report is fundamentally flawed in its analysis as
it ignores the totality of evidence before the PTO. The Lazard
Report is limited as it exclusively focuses on a single prior
art reference, while ignoring the balance of the prior art and
evidence of record during prosecution establishing the state of
the art as of the relevant date. On its face, the Lazard Report
[also] fails to consider the remainder of the evidence
pertaining to the unexpected results associated with
phentermine/ topiramate combination as it ostensibly fails to
evaluate any of the record evidence.”
We encourage the Company to fend off perfunctory analyses, such
as those contained in the Lazard Report. As you undoubtedly
know, short sellers have been particularly aggressive with the
Company's stock, borrowing and shorting more than 33% of the
float (according to Bloomberg). (We note that the short interest
peaked immediately prior to the Lazard Report.) We believe the
Company has an obligation to ensure stockholders do not suffer
at the hands of specious claims and analyses.
We therefore encourage the Company to be more proactive in
providing stockholders with information concerning its
intellectual property. On that score, we look forward to an
announcement from the Company regarding the two new patents it
has seemingly been granted, extending its exclusivity on Qsymia
to 2028.
Best regards.
Gregory P. Taxin
President
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