SAN DIEGO, June 12, 2018 /PRNewswire/ -- Matthew Turk,
one of the largest individual shareholders of Senomyx, Inc (NASDAQ:
SNMX) (the "Company"), beneficially owning approximately 4.0% of
the Company's outstanding common stock, today delivered an open
letter to the Senomyx Board of Directors (the "Board"). Mr.
Turk had sent a draft of the letter privately to the Board in the
hopes of engaging in meaningful discussions with the Board to
address the Company's dismal stock price performance, management's
failure to obtain corporate partnerships and his concerns with the
lack of accountability for the Company's poor performance.
Instead, the Board, responding through its legal counsel rather
than directly, refused to provide any feedback to the legitimate
concerns raised by Mr. Turk, leaving him no choice but to release
his letter publicly.
The full text of the letter follows:
June 12, 2018
Board of Directors of Senomyx, Inc.
4767 Nexus Center Dr.
San Diego, CA 92121
Attention: Corporate Secretary
CASH IS BURNING. TRUST IS GONE.
TIME IS UP.
- Senomyx shareholders have suffered a 78% loss in stock value
since Senomyx's IPO in 2004
- Management has failed to sign a single "partnership" since
September 2016 despite claiming to
have interest from at least 25 companies
- Senomyx shareholders expressed their dissatisfaction at the
last annual meeting, with Chairman Snyder receiving more WITHHOLD
votes than FOR votes – Chairman Snyder should resign
- The Board owns just 1.3% of the Company, with 5 of the 7
Board members owning combined only 11,500 shares – a shareholder
representative must be immediately added to the
Board
To Chairman Snyder, CEO Poyhonen, and the Senomyx Board of
Directors:
I am a long-term shareholder of the Company, having first
purchased shares in April 2014. I currently own 1,954,534
shares of common stock of Senomyx, Inc. ("Senomyx" or the
"Company"), constituting approximately 4.0% of the Company's
outstanding common stock. Unfortunately, given the repeated
rejection of my requests to assist the Board, I have no choice but
to write this letter following the devastating shareholder vote at
last month's Annual Meeting, where a majority of shareholders
withheld support for Mr. Snyder as Chairman and barely supported
Mr. Poyhonen or the rest of the Board for re-election. In
addition, a majority of shareholders voted against the proposed
compensation plan for senior management and voted against amending
the employee stock purchase plan. Given these results,
shareholders are clearly dissatisfied with the Board.
Dramatic change is required to preserve and maximize shareholder
value.
I believe the best path forward for shareholders includes the
following actions:
- Chairman Kent Snyder should
immediately resign;
- the Board should immediately appoint a shareholder
representative to the Board; and
- the Board should authorize its advisors to immediately initiate
a comprehensive sale process.
THE CURRENT BOARD AND MANAGEMENT TEAM HAVE DESTROYED
SHAREHOLDER VALUE
In the past 14 years since Senomyx went public, the performance
of the Company's share price under the leadership of Mr. Snyder (as
CEO and Board member since 2003 and Chairman since 2008) and Mr.
Poyhonen (as CFO since 2004, President since 2009, and CEO since
2014) has been nothing short of a disaster. On June 22, 2004, when the Company went public, the
share price was $6.00, as compared
with the $1.30 it was on June 11, 2018. $10,000 invested in Senomyx at its IPO would be
worth only $2,168 today. The
same amount invested in the Russell 2000® index (IWM) would be
worth $29,186 a 1,345%
difference.
CORPORATE PARTNERSHIPS - WHAT HAPPENED?
Senomyx has depended on corporate partnerships since its
inception. Most recently on September
30, 2016, the Company entered into a revised partnership
agreement with its longstanding exclusive partner, PepsiCo, which
resulted in a decline in the annual funding provided to the
Company. In return, Senomyx was allowed to pursue
partnerships with other companies, thus making the agreement
non-exclusive. This change, coupled with Senomyx's
non-beverage partner, Firmenich, declining to renew its partnership
in the summer of 2016, resulted in a significant decline in annual
development funding. Specifically, in 2015, the last full
year with the old PepsiCo & Firmenich partnerships in place,
Senomyx produced $17.8 million in
development revenues. The revised PepsiCo agreement was
projected to bring in approximately $6
million annually, with the Company relying on new partners
to bridge the new funding gap. The Board's idea, as told to
shareholders, was that a syndicate of multiple parties would be
formed to bring in substantial additional revenues. Senomyx
has failed to deliver a single new partnership since ending its
exclusive partnership with PepsiCo, and development revenues
decreased by more than half to $7.8
million in 2017. The Company has failed to deliver on
these new partnerships despite its claims that it had upwards of 25
potential collaboration candidates:
- On an October 27, 2016 conference
call to discuss the new PepsiCo agreement, Mr. Poyhonen said: "This
represents a significant shift in strategy, from our
initial agreement, which granted exclusive rights in non-alcoholic
beverages. We're now excited to now have the ability to expand
the non-alcoholic beverage market, the most valuable category for
our products. We think the ability to share our preparatory
flavored ingredients and natural sweeteners with other companies,
will not only contribute to revenue growth, but also has the
potential to play key role in addressing [ph] global health
initiatives in a larger scale."
- On a March 2, 2017 conference
call, investors were told: "We have about 15 excellent
collaboration candidates and of that, six have actually tasted
siratose. It was tasted in a blinded [sic] taste test in a simple
solution and the feedback was outstanding."
- On an April 27, 2017 conference
call: "Potential partners continue to express significant interest
in our natural sweet program as they view it as an initiative that
can support their calorie reduction goals, while maintaining the
great taste of their product offerings. We have built a pipeline
of about 20 excellent collaboration candidates and we remain
confident in our ability to begin adding partners to our
syndicate during 2017."
- On a July 27, 2017 conference
call: "Potential partners continue to express significant interest
in our natural sweet program as they view it as an initiative that
can support their calorie reduction goals, while maintaining the
great taste of their product offerings. We have built a pipeline
of over 25 excellent collaboration candidates and importantly we
have also grown the number of term sheet proposals under discussion
with these companies. We remain confident in our ability to
be an [sic] adding partner's [sic] to our syndicate during
2017."
- On a November 3, 2017 conference
call, with just 2 months left in 2017: "During the third quarter,
our business development efforts have focused on advancing
negotiations with the most promising collaboration candidates.
We remain confident in our ability to begin adding funding
partners to our syndicate during 2017."
- In the January 18, 2018
presentation at Needham, the deck claimed that the Company was
"Pursuing R&D Funding Syndicate with select companies"
and in "Ongoing discussions with ~30 candidates"
- Despite all that, on a March 8,
2018 conference call, after all the promises and information
provided, shareholders were finally told: "Looking back at our
business development goals, our confidence to deliver new research
funding for our natural sweet program was based on advanced
negotiations, but circumstances outside of our control resulted
in changes to key financial terms and we decided to pass on the
collaboration at this time. We remain on track with our
development timeline for Siratose."
From the beginning, shareholders were told that there were going
to be numerous additional partners, a "syndicate."
Shareholders deserve answers for how the Company failed to sign
even one new partner since September
2016 despite claiming in March
2017 to have "15 excellent collaboration candidates," a
number that increased just a month later to "a pipeline of about 20
excellent collaboration candidates" and then further increased to
"over 25" in July 2017 and "~30" as
recently as January 2018.
Without any prior warning, shareholders were then told in
March 2018 that "circumstances
outside of management's control" derailed every potential
partnership. On a March 9, 2018
call with management, I was told that an employee's death at a
potential partner caused negotiations to derail. Even if this
is true, what happened to the other "~29" companies that management
was negotiating with? Something went terribly wrong and
management needs to be held accountable for their failure to
accomplish this critical milestone that is necessary to drive the
business forward and to secure crucial non-dilutive funding.
MANAGEMENT HAS NOT BEEN HELD ACCOUNTABLE BY THE BOARD
Why has the Board regularly rewarded management with excessive
stock options despite continued value destruction? When Mr.
Poyhonen became CEO in Jan 2014, he
was granted 500,000 options at $6.67
per share. In 2015 he was granted 240,000 more at $4.41. In 2016 he was granted 266,000 more
at $2.97. In 2017 he was granted
417,000 at $1.02. In each
year from 2014 to 2017, Mr. Poyhonen has been granted
options, and in each year the option price has been lower, thus
rewarding management's ineptitude at the expense of shareholders.
Again in March 2018, he was
granted 363,000 more options at a price of $1.05, essentially the same price as the previous
year despite failing to sign a single additional partner. In
addition, in 2017 and 2018, the Company granted Mr. Poyhonen more
options than they did in 2015 and 2016 despite the fact that the
Company's stock price was materially lower. Instead of
being penalized for a plummeting stock price and failure to
accomplish critical goals, Mr. Poyhonen has been
consistently rewarded with a larger share of the Company.
Despite a lack of execution of the Company's basic strategies,
the Board seems content to continue to reward this poor
performance, with $1 million plus
compensation packages for Mr. Poyhonen.
THE BOARD AND MANAGEMENT TEAM ARE NOT ALIGNED WITH
SHAREHOLDERS
Together, despite having been at the Company for a combined 29
years, Mr. Poyhonen and Chairman Snyder collectively own just 1.3%
of the outstanding shares of Senomyx, with the majority of these
shares being accumulated via the exercise of 2003 stock options
priced at just 74 cents. The
five remaining independent directors joined the Board between
March 2005 and March 2018, and own only 11,500 shares
combined, worth $15,755 and
representing only 2/100ths of 1% of the Company despite a combined
34 years on the Board and total Board fees of more than
$1.3 million. Where is the
shareholder representation or alignment with Company
shareholders? Given the long history between Chairman Snyder
and Mr. Poyhonen, together with the complete lack of Board
ownership, one must ask: Is Senomyx being properly overseen and
governed by its Board for the benefit of shareholders?
ENOUGH IS ENOUGH
Clearly, it's time for a change in approach to the management of
Senomyx. In communications I have had with them,
management has told me they "value my opinion as a large
shareholder and believe they have provided me with consistent
access to senior management to share my views." I don't
merely want management to hear shareholders' views, I want them to
listen to its shareholders and act in their best interests.
I have tried to be of assistance to the Company. I first
asked for a Board seat in April 2018,
which would be more than justified by my overall level of
investment and lack of shareholder representation on the Board.
The Board did not take the time to even meet with me, but
instead I was denied via email. I then asked to be an unpaid
Board observer so shareholders would have representation during the
Company's strategic review process. In a May 14, 2018 meeting with Chairman Snyder, he
questioned why boards even need shareholder representation, but
promised to bring my request to a vote by the full Board. To
no one's surprise, both requests were officially rejected on
May 29, 2018, with Mr. Snyder stating
in a letter that the requests were "not in the best interests of
all shareholders," with no further explanation.
It has become clear to me that a series of actions need to take
place immediately in order to change the trajectory of Senomyx and
to prevent the Company from running out of cash by as early as
June 2019.
I hereby demand the following:
- Immediate resignation of Mr. Snyder as Chairman.
At the 2018 annual meeting of shareholders, Mr. Snyder
received 10,172,969 votes FOR and 11,101,816 WITHHELD. Mr.
Snyder has been at the Company for 15 years and has failed to
preserve, let alone create, shareholder value. Shareholders
have spoken with their vote, and it is the duty of the Board to act
accordingly.
- Immediately appoint a major shareholder to the
Board. The appointment of a shareholder representative
and a corresponding commitment to allowing open nominations to the
Board next year from candidates suggested by major shareholders, is
necessary to ensure that the Board's interests are aligned with the
Company's shareholders. Without any shareholder
representation or meaningful ownership on the Board, we cannot
trust that the current directors are acting in the best interest of
shareholders to undertake a comprehensive strategic review.
- Immediately undertake a comprehensive sale process.
Although the Board and management announced a strategic
review process earlier this year, shareholders have a right to be
skeptical of its sincerity and the Board's ability to act in
shareholders' best interests. As I have outlined, the
Chairman, CEO and Board have no significant economic risk at stake
to do anything other than preserve their positions.
The language in the March 8, 2018
press release by the Company is highly concerning in that it states
"engaging an advisor enables us to consider all possible options
to support the growth of our business in order to maximize
value for our shareholders." How can a full sale of the
Company be on the table if the purpose of the review is to support
the growth of the business? Further, upon meeting with Mr.
Snyder on May 14, 2018, he stated
that it is possible the Company might pursue a partial
sale/monetization to fund future cash burn, similar to what they
did in November 2017 when they raised
$10 million. This is also
highly concerning given that shareholders could see the Company
slowly liquidated over a number of years to support management and
the Board's salaries.
There must not be a slow liquidation of Senomyx, but rather a
complete sale either in whole or in parts as quickly as possible to
preserve remaining shareholder value. Proceeds from those
transactions should be returned to shareholders and not retained by
the Company to further enrich management and the Board.
One thing I am sure we all can agree on: SHAREHOLDERS - THE
TRUE OWNERS OF THE COMPANY - DESERVE BETTER. Mr. Snyder's
May 29, 2018 letter stated "The
Senomyx Board of Directors and Management are committed to acting
in the best interests of shareholders and enhancing long-term value
for all shareholders". Mr. Snyder and Mr. Poyhonen have
had 14 years to accomplish this and the stock is down 78%.
How long do we have to wait?
I challenge the Board to find a single shareholder who owns
greater than 1% of the Company that disagrees with the contents of
this letter. Unfortunately, they will have to look outside of
the Boardroom for the answer.
I remain ready to work with the Board to substantially improve
shareholder value and hope that the Board will act with urgency to
take the actions set forth herein. I look forward to a more
meaningful response.
Sincerely,
Matthew Turk
senomyxshareholder@outlook.com
CC: Steve Wolosky, Elizabeth Gonzalez-Sussman, Olshan Frome Wolosky
LLP
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SOURCE Matthew Turk