Long-term Senomyx Shareholder Sends Open Letter to the Senomyx Board of Directors

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 confidentin 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