Clinton Group Sends Letter to VIVUS CEO, Says Co. Should Do More to Give Info on Strength of 2020 Patents

October 10, 2013Board of DirectorsVivus Inc.1172 Castro StreetMountain View, CA 94040Re: Defending the Company's Intellectual PropertyGentlemen:I write on behalf of Clinton Group, Inc., the investment managerto several partnerships and funds (“Clinton Group”) thatcollectively own more than 1% of the common stock of Vivus Inc.(NASDAQ: VVUS). We intend to continue to buy stock.We own Vivus shares because we believe the Company issignificantly undervalued given the efficacy and marketpotential of Qsymia, seemingly the most effective weight-lossdrug in history. We were enthusiastic supporters of FirstManhattan during the proxy battle and believe the new Board andChief Executive are working effectively to create value for allstockholders.As you know, the Company's intellectual property has beenchallenged by an anonymous blogger and by an analyst at LazardCapital Markets (“Lazard”). We believe these attacks areunwarranted and ill-founded and that the Company should do moreto provide information to the market about the strength of itsintellectual property assets.As investors, we conducted extensive diligence on the Company'spatents, including hiring a nationally recognized law firm whoseintellectual property practice (consisting of more than 125attorneys) is consistently ranked in the top five of all lawfirms in the country. The lawyers who assisted us are litigatorswhose principal practice is attacking the validity ofbiotechnology patents. We asked them for an objective review ofthe Company's 2020 patents.These independent lawyers have provided us with a detailedmemorandum that analyzes the prosecution histories of theCompany's patents (including a review of the prior art citedtherein) and relevant case law. Counsel reached the followingnotable conclusions:- “Based on our analysis, it is our opinion that there is ahigh likelihood of success in defeating any obviousnesschallenge to the validity of the Vivus Qsymia Patents.”- “[A] body of prior art explicitly taught away from theclaimed invention and repeatedly warned against the use ofphentermine in combination therapy. Indeed, the conventionalwisdom in the industry as of the relevant date was phenterminemonotherapy--not phentermine combination therapy.”- “Additionally, in our opinion, any obviousness challenge tothe Vivus Qsymia Patents will likely be defeated in view of theevidence of unexpected results presented to the [United StatesPatent and Trademark Office (the “PTO”)]. .... Duringprosecution, [Vivus] submitted scientifically sound evidence ofunexpected results of the combination. … Such [a] showing,without more, is generally sufficient, as a matter of law, torebut a prima facie case of obviousness. … [A]ny potentialobviousness challenge to the Vivus Qsymia Patents would have torebut the showing of unexpected results currently of recordbefore the PTO, by clear and convincing evidence. And, thischallenge would likely fail.”- “We believe, based on the current record before the UnitedStates Patent and Trademark Office (the “PTO”), any potentialchallenger likely cannot rebut the presumption of validityafforded the issued Vivus Qsymia Patents by clear and convincingevidence. This is especially true here where the challengerwould bear the extra burden of overcoming the deference due tothe Examiner, in view of the detailed findings, substantialevidence and well-reasoned analysis.”Most recently, we asked counsel to comment on the conclusions ofa Lazard research report published on September 4, 2013 (the“Lazard Report”). Counsel provided us with the followingopinion:“[T]he Lazard Report is fundamentally flawed in its analysis asit ignores the totality of evidence before the PTO. The LazardReport is limited as it exclusively focuses on a single priorart reference, while ignoring the balance of the prior art andevidence of record during prosecution establishing the state ofthe art as of the relevant date. On its face, the Lazard Report[also] fails to consider the remainder of the evidencepertaining to the unexpected results associated withphentermine/ topiramate combination as it ostensibly fails toevaluate any of the record evidence.”We encourage the Company to fend off perfunctory analyses, suchas those contained in the Lazard Report. As you undoubtedlyknow, short sellers have been particularly aggressive with theCompany's stock, borrowing and shorting more than 33% of thefloat (according to Bloomberg). (We note that the short interestpeaked immediately prior to the Lazard Report.) We believe theCompany has an obligation to ensure stockholders do not sufferat the hands of specious claims and analyses.We therefore encourage the Company to be more proactive inproviding stockholders with information concerning itsintellectual property. On that score, we look forward to anannouncement from the Company regarding the two new patents ithas seemingly been granted, extending its exclusivity on Qsymiato 2028.Best regards.Gregory P. TaxinPresident