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

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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. (NASDAQ: 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

Posted-In: News

 

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