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Xmark Sends Letters to Icagen's Board of Directors: Questions Company's Leadership as Well as Motives Behind Adoption of Poison Pill
Date:1/20/2009

RIDGEFIELD, Conn., Jan. 20 /PRNewswire/ -- On December 1, 2008, Xmark Opportunity Partners, LLC, the sole member of the investment manager of Xmark Opportunity Fund, L.P. and Xmark Opportunity Fund, Ltd., sent the first letter below, dated November 29, 2008, to the Board of Directors of Icagen, Inc. (Nasdaq: ICGN). On January 11, 2009, the second letter below, dated January 9, 2009, was sent to the Board.

XMARK OPPORTUNITY PARTNERS, LLC

90 Grove Street

Suite 201

Ridgefield, Connecticut 06877

November 29, 2008

VIA E-MAIL

Board of Directors

Icagen, Inc.

4222 Emperor Boulevard

Suite 350

Durham, NC 27703

Lady and Gentlemen:

Xmark Opportunity Partners, LLC is the sole member of the investment manager of Xmark Opportunity Fund, L.P. and Xmark Opportunity Fund, Ltd. (together, the "Xmark Funds"). As you are aware, the Xmark Funds are significant shareholders in Icagen, Inc. (the "Company" or "Icagen").

On at least three occasions, we have requested permission to observe a meeting of the Company's Board of Directors in order to (i) gauge the level of the Board's pursuit of strategic alternatives, (ii) observe the interaction between the Board and the Chief Executive Officer for the purpose of evaluating independence, and (iii) evaluate the assumptions relied upon by all Board members with respect to issues of risk, value and time, as all three relate to the equity markets and drug development process. Our requests have been made in separate communications with three members of the Company's Board: Dr. Charles A. Sanders, Dr. Anthony B. Evnin and Dr. P. Kay Wagoner. Surprisingly, our requests have been repeatedly denied, with the primary justification being offered that the Company does not want to "establish a precedent."

Although we have always strongly believed that the Company's core technology has great underlying value and tremendous potential, the combination of the financial crisis in the broader markets and the Company's common stock ritualistically trading at new 52-week lows has given us cause for concern. It was this concern that initially prompted us to request observer status at a Board meeting in order to better understand the Company's strategic plan. As we are aware of the implications of Regulation FD we made clear, to both the Company and its counsel, that we were prepared to sign a confidentiality agreement. Additionally, we offered to agree to a 6-month lock up of our shares; this voluntary concession would have created a temporary benefit for all shareholders of the Company by eliminating a large overhang during a period of great sensitivity in the market. The Company's refusal to grant our request not only heightened our concern regarding the Company's strategic plan, but aroused suspicion as well. Why would a company refuse to allow a large shareholder, who has added value in the past, to observe a single Board meeting? More to the point, why would this Board bar an active and supportive shareholder from visiting the forum in which it safeguards the interests of all shareholders.

The Xmark Funds have been long-only biotech investors since 1996. My partners Mitch Kaye, Alfred Mansour and Alan Tuchman all share my affinity for the sector, and we have all, individually and as a firm, made a great number of friends in the space. However, we take issues of corporate governance seriously. As many of you may be aware -- from our numerous Schedule 13D filings -- we do not hesitate to demand accountability when circumstances dictate. The public record of our shareholder activism, however, only tells half the story. The fact is that in many instances the Xmark Funds have worked cooperatively behind the scenes with management teams and boards. (We would be happy to provide numerous public company references in this regard). Unfortunately, not all management teams and boards are cooperative. Many of them hide behind Regulation FD and use scarce shareholder capital to defend their often indefensible decisions. In such cases, we have always acted to protect our interests. Regrettably, Icagen has become such a case.

By way of background specific to Icagen, the Xmark Funds are one of the Company's largest shareholders, holding in excess of 8% of the outstanding common shares, all of which have been purchased in the open market. Since 2007, we have been buyers in the market on no fewer than 100 trading days and may very well be the largest open-market acquirer of the Company's shares in its history -- at a time when the Company's insiders have purchased a comparatively de minimis number of shares. We have always viewed our role as shareholder to be supportive. To that end, we have: offered suggestions with respect to clinical trial design; made introductions to investment bankers and IR/PR firms; and followed up on the Company's behalf with several noteworthy investors who expressed interest in the Company. And, in fact, the Company has expressly acknowledged these supportive efforts. However, when our suggestions turned to more macro subjects, such as strategic direction, the tone of the conversation changed.

We believe that the Company should conduct a discreet sale process. We made this view clear to the Company and Dr. Sanders several months ago, when the Company had more capital and a much higher stock price. It was our belief then, as it is now, that the Company would be able to command multiples of its share price. Initially, we were open to the possibility that the Company might be able to create shareholder value through alternate methods, namely strategic partnerships. It was in our effort to gain a balanced view of such partnership possibilities that we first asked to attend a Board meeting. Based on the Company's response, we have been left to conclude that the Company has not adequately pursued all available strategic alternatives and we believe that the CEO may be largely to blame.

Over the course of Dr. Wagoner's long tenure, she has presided over an embarrassingly precipitous loss of share value. While Dr. Wagoner is an accomplished scientist and has played a role in consummating respectable corporate partnerships for Icagen, she does not appear to be respected by the capital markets for her acumen as a chief executive. The Board, which has the duty of overseeing corporate direction and execution, has allowed Dr. Wagoner to remain at the helm in spite of a high profile clinical failure, multiple failed strategic partnerships and a stock price that is closer to zero than it is to a dollar. Just as Dr. Wagoner has been at the helm for over a decade, so too have many of the members of the Board.

The challenges facing the healthcare sector today are unprecedented. As record numbers of biotech hedge funds have imploded or liquidated core positions to stay afloat, capital has dried up. Consequently, the cost of capital has skyrocketed. Companies must act aggressively in order to navigate the market's troubled waters. As the cost of capital rose this year, we believe that the Board did not take adequate steps to reduce the Company's costs. Additionally, given the challenging macro-economic environment, we believe that there was a glaring need for the Board and management to act swiftly with respect to the Company's strategic direction. Without our having the benefit of any information to the contrary, we have concluded that they failed to do so. This apparent inaction is particularly surprising as many members of the Board sit on the boards of other public life sciences companies, such as Cephalon, Inc. [CEPH], Genentech, Inc. [DNA], Infinity Pharmaceuticals, Inc. [INFI], Memory Pharmaceuticals Corp., Pharmos Corporation [PARS], Sunesis Pharmaceuticals, Inc. [SNSS] and Vertex Pharmaceuticals Incorporated [VRTX].

At this point, we believe that the Company's only legitimate option to salvage the value of its proprietary technology is to pursue an extraordinary transaction. Given that many large pharmaceutical companies have recently stated that they intend to pursue acquisitions in order to compensate for the dearth of products in their drug development pipelines, we believe that this is actually an ideal time for the Company to pursue a sale, rather than a painfully dilutive, stop-gap capital raise. In speaking with industry experts, the perception of the Company is that management is entrenched and unwilling to formally explore a sale. This is extremely troubling. We have communicated this perception to Drs. Sanders and Evnin but have not received any substantive response. We have been met with platitudes, but nothing else. We are concerned that management may be reluctant to consider a sale because they (x) possibly would lose their historically high salaries and at the same time (y) some would not gain meaningfully through a sale of the Company because they do not own a great deal of common stock.

Please be advised that if the Company decides to raise capital in a dilutive offering, we will have no alternative but to evaluate seriously the viability and propriety of all available options to protect the interests of our limited partners and shareholders, including, inter alia, commencing legal proceedings against the Company to seek rescission of such a transaction and/or damages, as well as an action against the Board for breach of fiduciary duty.

Please also be advised that we are actively considering whether to aggressively push, within the parameters of securities laws and regulations, for the removal of Dr. Wagoner as Chief Executive Officer as we feel that she is ill suited to lead the Company, as well as for the removal of several members of the Board as we feel that the Board has lost touch.

Of course, we are rational investors. Accordingly, even at this juncture, we would commend the Board for taking appropriate steps to benefit all shareholders; it is never too late to do the right thing.

Respectfully submitted,

XMARK OPPORTUNITY PARTNERS, LLC

XMARK OPPORTUNITY PARTNERS, LLC

90 Grove Street

Suite 201

Ridgefield, Connecticut 06877

January 9, 2009

VIA E-MAIL

Board of Directors

Icagen, Inc.

4222 Emperor Boulevard

Suite 350

Durham, NC 27703

Lady and Gentlemen:

Xmark Opportunity Partners, LLC ("Opportunity Partners" or "we" or "us" or "our") is the sole member of the investment manager of Xmark Opportunity Fund, L.P. and Xmark Opportunity Fund, Ltd. (together, the "Xmark Funds"). As you are aware, the Xmark Funds are significant shareholders in Icagen, Inc. (the "Company").

As you also are aware, on September 26, 2008, Opportunity Partners filed a Schedule 13D (the "13D") announcing its intention to evaluate closely the performance of the common shares of the Company, including, without limitation, analyzing and assessing the Company's business, assets, operations, financial condition, capital structure, management and prospects, as well as the fact that it may, from time to time, evaluate various options in order to attempt to influence the performance of the Company and the activities of its Board of Directors. On December 1, 2008, Opportunity Partners filed Amendment No. 1 to the 13D ("13D Amendment No. 1") disclosing the text of a letter, dated November 29, 2008 ("Letter 1"), that it had sent to the Board of Directors that detailed, among other items, (a) our efforts to observe a meeting of the Board of Directors, (b) the Xmark Funds' accumulation of the Company's common shares and (c) our strong belief that an extraordinary transaction is in the best interest of the Company and its shareholders.

On December 2, 2008, just day(s) after we sent Letter 1 and filed 13D Amendment No. 1, the Board of Directors adopted a poison pill. To us, the timing of this move is curious and disturbing to say the least. We strongly believe that this poison pill will deter buyers from the Company to the detriment of the Company's shareholders and to the benefit of existing management. In adopting the poison pill, the Board only reinforced our long-standing belief that management is entrenched and the Board is out of touch. Moreover, management and the Board have not recently announced any cost-cutting initiatives, at a time when companies all over the world, in every industry, are cutting costs aggressively. And, the Company has made only immaterial changes to its material employment agreements.

After receiving Letter 1, the Company offered us an opportunity to sign a set of confidentiality agreements to allow us to evaluate steps, if any, that management has taken from a strategic perspective. Unfortunately, we believe that the conditions of this offer rendered it hollow and illusory. Specifically, the Company conditioned its disclosure of the Company's strategic plans upon our (i) essentially agreeing to lock-up the shares owned by the Xmark Funds (which we always have been willing to do) and (ii) agreeing to remain silent in the public market (including no proxy battle), for a period potentially extending through the next annual meeting (June 2009). The Company attempted to secure our silence. The proposed confidentiality agreements would have undermined a key purpose of our request -- to speak out and take action if we found that management and the Board are not acting responsibly and in the best interests of the Company's shareholders.

Rather than walk away from the table, we sought middle ground and responded to the Company's offer with a compromise in the alternative: (x) we would agree to lock up the shares owned by the Xmark Funds and remain silent in the public market through the next annual meeting if the Company allowed us to attend a single meeting of the Board or (y) we would agree to a lock up for a period of four (4) months, so that we would be able to speak at the next annual meeting. In our view, this was a reasonable compromise. We wanted a voice; the forum for our voice -- the marketplace or the boardroom -- was up to the Company. The Company flatly rejected this proposal.

From this experience, we believe that management and the Board have little or no interest in benefiting the Company's shareholders. The Company has taken action to quell public market activity in its shares, while also requesting silence from its most active shareholder. We continue to be amazed by the behavior of the Board, one that includes luminaries such as Dr. Charles A. Sanders, Lead Director of Genentech, Inc. [(DNA)], Anthony B. Evnin, Managing General Partner of Venrock Associates, and Dr. Dennis B. Gillings, Chairman and Chief Executive Officer of Quintiles Transnational Corp., but, perhaps, nothing should amaze us at this point.

Again, please be advised that if the Company decides to raise capital in a dilutive offering, we will evaluate all available options to protect the interests of our limited partners and shareholders, including, inter alia, commencing legal proceedings against the Company to seek rescission of such a transaction and/or damages, as well as an action against the Board for breach of fiduciary duty.

Respectfully submitted,

XMARK OPPORTUNITY PARTNERS, LLC

About the Xmark Funds

The Xmark Funds are dedicated to making investments in publicly-traded, small-cap life sciences companies and seek to achieve substantial capital appreciation by investing directly in public life sciences companies trading at venture-level valuations. The Xmark Funds conduct extensive fundamental due diligence and tailor their investments to the risk/reward profile of each target.

The team's investment professionals have worked together since founding the investment manager in 2001. The investment team includes life sciences professionals with extensive experience and expertise in clinical research, business development, medical practice, hospital and physician practice management, asset management and law.


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SOURCE Xmark Opportunity Partners, LLC
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