CPEX Pharmaceuticals' Phase 2a Nasulin trial fails, Arcadia Capital Advisors issues statement

Mar 19 2010

Reiterates Need for CPEX Board to Exercise Independence and Fiduciary Duty

Raises Issue of Possible Fraud Being Perpetrated on CPEX Shareholders

Richard S. Rofe ("Rofe"), who serves as Managing Director for Arcadia Capital Advisors, LLC, and is part of a shareholder group that includes Arcadia with a 9.97 percent ownership interest in CPEX Pharmaceuticals, Inc., (Nasdaq:CPEX), commented on CPEX's recent announcement of failed Phase 2a Nasulin study results.

Rofe issues the following statement: "In announcing that the Nasulin Phase 2a study's primary and secondary endpoints both failed to meet statistical significanceconsistent' with primary), CPEX management achieved a result that is entirely consistent with a previous failed Phase 2 clinical trial first begun nearly three years ago in India. Nasulin has shown no signs to date of significant clinical utility let alone a significant pharmacological effect, yet CPEX management insists on 'hanging its hat' on Nasulin as the rationale to spend millions of dollars in scarce corporate resources that rightly should be available to shareholders. Notwithstanding the dubious motives underlying the unholy alliance between the CPEX Board and CEO John Sedor, we nevertheless highly encourage the Board to rethink its role, move to assert independence and begin to exercise its fiduciary duty to make rational decisions truly consistent with shareholder interests and to eradicate the significant conflicts between interests of shareholders versus those of senior management, including CEO John Sedor's grossly excessive ongoing compensation and the related impact on conflicted management decision-making."

Rofe commented, "We now have even more concrete evidence that Nasulin is a failed drug candidate. CPEX management, however, once again apparently cannot tell the difference between a failed trial and a successful one. In noting the failed results, CPEX also favorably discusses results of meal challenge reductions in maximum serum glucose concentrations and overall glucose load during 60, 90 and 240 minutes after dosing. Notwithstanding that these results were unrelated to both primary and secondary endpoints, CPEX has the temerity to conclude that the 'Company intends to conduct additional analyses on the data from this trial and together with all other Nasulin data will determine the appropriate next steps for the Nasulin program.' In light of all we know about Nasulin, including that it has consistently failed every clinical study to date, this concluding statement from CPEX is self-serving on its face and, to my view, indicative of an intention to 'buy time' for management while also, perhaps, indicative of how far management is intent on perpetrating this money-losing endeavor on the CPEX shareholders who are the owners of this company. We all know insulin dosing works, and various forms of insulin products are already in the market today. CPEX management trumpets the effectiveness of its delivery system, yet this insulin drug candidate, Nasulin, has not shown effectiveness against placebo let alone against other existing insulin delivery methods. We implore CPEX to stop wasting shareholder dollars. Rather, the shareholders of CPEX deserve better treatment than a disconnected and conflicted board allowing wasteful spending by an overcompensated manager. We want our company and our share value protected and secured."

Separately, Rofe notes that even if Nasulin had demonstrated clinical significance, Rofe's independent analysis has exposed that the majority of the useful life of the underlying patent estate around Nasulin will have largely expired prior to any prospective commercialization date which makes the commercial rationale for development of Nasulin tenuous, at best. Absent the conflicted position of senior management, it is difficult if not impossible to see how Nasulin, which first had its patent approved in late 2004, could have ever passed a reasonable return hurdle for assuming the development risk over the past several years given the drug candidate's prospective remaining patent useful life; particularly when management has said a market ready solution would not be available until sometime in 2016. And this date was stated before the struggles with clinical results CPEX only recently disclosed.

Said Rofe, "In the final analysis, if CEO John Sedor and the Board do not abandon Nasulin, one can only assume its ongoing 'development' is a ruse at best, and possibly a prospective fraud on shareholders perpetrated by CPEX management while 'overseen' by a conflicted, lax and exceedingly collusive and excessively compensated Board of Directors. The reality is the underlying Nasulin patent had been sitting on a shelf, unused for many years, and the Nasulin product candidate was only rolled out when CEO John Sedor and CPEX management needed some rationale for being in business in order to reallocate scarce corporate resources for personal benefit. That is, CEO John Sedor has been only too interested in running this Company from its beginning as a personal piggy bank and candy store, and the CPEX Board has been complicit, or at best exceedingly naive, in the orchestration of this charade."

Rofe concluded, "As I move forward with my efforts to help effect positive change for the Company and its maligned shareholders, I appreciate the broad support I have received from both individuals and institutional investors dissatisfied with the current direction and ongoing mismanagement of CPEX Pharmaceuticals. Nasulin Phase 2a results, though long delayed, are now out and represent definitive validation of our earlier public statements regarding this failed Nasulin development strategy that casts further doubt on the rationale and motives for why the CPEX Board and CEO John Sedor refuse to meet with the Company's largest independent shareholder. Moreover, these Phase 2a results reinforce the need for dramatic changes in leadership of the Company. It also remains highly regrettable that CPEX senior management and the CPEX Board have protected and insulated themselves through a 'poison pill' and 'staggered board' which are highly self-serving and not in the best interests of shareholders. Consequently, we call upon non-employee director John W. Spiegel and independent directors James R. Murphy, Miguel Fernandez and Michael McGovern to stand up for what is right and support us in our efforts to protect the interests of all shareholders."