IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF...

Case 1:14-cv-00687-LPS Document 1 Filed 05/30/14 of 69 PageID #: 1

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF DELAWARE

GREGORY SCHMIDT, on Behalf of Himself and All Others Similarly Situated,

Plaintiff,

v.

CHELSEA THERAPEUTICS INTERNATIONAL, LTD., JOSEPH G. OLIVETO, MICHAEL WEISER, KEVAN CLEMENS, ROGER STOLL, and WILLIAM D. RUECKERT,

Defendants.

Case No.

VERIFIED CLASS ACTION COMPLAINT

OF COUNSEL: ROBBINS ARROYO LLP BRIAN J. ROBBINS STEPHEN J. ODDO EDWARD B. GERARD JUSTIN D. RIEGER 600 B Street, Suite 1900 San Diego, CA 92101 (619) 525-3990 [email protected] [email protected] [email protected] [email protected]

COOCH AND TAYLOR P.A. BLAKE A. BENNETT (#5133) The Brandywine Building 1000 West Street, 10th Floor P.O. Box 1680 Wilmington, DE 19899-1680 Telephone: (302) 984-3889 Facsimile: (302) 984-3939 [email protected]

May 30, 2014


Plaintiff Gregory Schmidt, in this Verified Class Action Complaint, alleges the following

on information and belief, except as to the allegations specifically pertaining to plaintiff, which

are based on personal knowledge, as follows:

NATURE AND SUMMARY OF THE ACTION

1. This shareholder class action is brought by plaintiff on behalf of himself and all

similarly situated holders of Chelsea Therapeutics International, Ltd. ("Chelsea" or the

"Company") common stock (the "Class") against the Company and its Board of Directors (the

"Board" or the "Individual Defendants"). This action arises out of defendants' violations of

sections 14(e) and 20(a) of the U.S. Securities and Exchange Act of 1934 (the "Exchange Act")

and U.S. Securities and Exchange Commission ("SEC") Rule 14a-9 promulgated thereunder.

2. This action seeks to enjoin defendants from pursuing a sale of the Company to H.

Lundbeck A/S ("Lundbeck") 1 (the "Proposed Acquisition") unless and until the Company

discloses all material information necessary for plaintiff and the class to make an informed

decision regarding whether to tender their shares to Lundbeck. Defendants announced on May 8,

2014, that the Board had agreed to sell Chelsea to Lundbeck pursuant to a tender offer for an up-

front consideration of $6.44 per share in cash, plus the possibility of three additional contingent

value rights ("CVRs") that may pay up to an additional $0.50 each per CVR upon achievement

of certain commercial milestones over the next several years. If all such milestones are

achieved, the total potential consideration will reach a maximum value of $7.94 per share, with

the last CVR payment made sometime in 2018 (the "Proposed Consideration"). Based on the up-

1 Lundbeck is a global pharmaceutical company specializing in brain diseases, including alcohol dependence, Alzheimer's disease, depression/anxiety, epilepsy, Huntington's disease, Parkinson's disease, schizophrenia, and stroke. Charlie Acquisition Corp. ("Acquisition Sub") is a Delaware corporation and an indirect wholly owned subsidiary of Lundbeck. Upon completion of the Proposed Acquisition, Acquisition Sub will merge with and into defendant Chelsea and cease its separate corporate existence.

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front consideration of $6.44 per share in cash, the transaction is valued at approximately $504.9

million, providing a premium of only 28.8% over Chelsea's closing price of $5 per share the day

before the Proposed Acquisition was announced. Based on the full potential premium of $7.94,

which includes the full value of the CVRs, the transaction is valued at approximately $622.5

million.

3. Chelsea is a biopharmaceutical company that acquires and develops innovative

products for the treatment of a variety of human diseases, including central nervous system

disorders. Although Chelsea has not generated revenue since its inception, the Company is

transitioning from a development stage company to a substantial revenue generating company.

In February 2014, the U.S. Food and Drug Administration ("FDA") granted accelerated approval

of one of Chelsea's licensed drugs, droxidopa, which goes by the trade name "Northera."

Northera is a therapeutic agent for the treatment of symptomatic neurogenic orthostatic

hypotension ("NOH") in patients with primary autonomic failure, dopamine beta hydroxylase

deficiency, and non-diabetic autonomic neuropathy. The NOH disorder currently affects an

estimated 80,000 to 150,000 individuals in the United States.

4. Significantly, Northera is the first and only therapy approved by the FDA that

demonstrates symptomatic benefits in adult patients with NOH . The Northera approval was

granted under the FDA's accelerated approval program, which allows for conditional approval of

a medicine that fills a serious unmet medical need, provided additional confirmatory studies are

conducted. Orphan drugs, 2 such as Northera, are extremely valuable as revenue generators.

Indeed, in August 2012, a report from Thomson Reuters found that the orphan drug market was

worth slightly more than $50 billion worldwide at the end of 2011. The report also found that of

2 An orphan drug is a pharmaceutical agent that has been developed specifically to treat a rare medical condition.

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the eighty-six orphan drugs included in the study, twenty-five were blockbusters, which meant

that 29% generated annual sales greater than $1 billion. In fact, last year alone, there were at

least five newly approved orphan drugs priced at least $150,000 per patient per year, with three

priced at or above $300,000 per patient per year.

5. Chelsea predicts that Northera will also generate significant revenue and has

forecasted sales of the drug to reach an impressive $300 million to $375 million within three to

five years of launch. At least one analyst has predicted significantly higher sales, peaking at

$450 million in the United States and $100 million in the rest of the world. More, as noted by

the Company in a recent presentation, the market for Northera is growing due to an aging U.S.

population. Accordingly, the Proposed Consideration of approximately $504.9 million to $622.5

million significantly undervalues Chelsea's unique market position and significant growth

potential.

6. Additional factors further demonstrate that the Proposed Consideration is too

low. For example, between the time that Northera was approved by the FDA and the time the

Proposed Acquisition was announced, at least six analysts predicted target prices above both the

up-front offer price of $6.44 and the highest possible contingent price of $7.94 (which at best

case will not be paid in full until sometime in 2018). The target values from these analysts range

from $8 to $12; as much as 86% more than the up-front offer price, and 51% more than the

highest possible contingent price. The average target price for these six analysts was $9.17, over

42% more than the up-front offer price, and 15% more than the highest possible contingent price.

7. The Proposed Consideration is also minimal when compared to similar

transactions. The median one-month premium to a target's stock price for transactions valued

between $100 million and $1 billion announced in the last year in the biotechnology industry is

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over 34.5%. In comparison, the up-front one-month premium Lundbeck is offering Chelsea

shareholders here is a mere 20.8%—less than 61% of the median in comparable transactions.

8. The Individual Defendants were enticed with additional personal benefits

afforded them (but not the Company's public stockholders) in the Proposed Acquisition. For

example, under the Company's Executive Retention Bonus Plan effective as of April 16, 2013,

several Chelsea executives, including defendant Joseph G. Oliveto ("Oliveto"), Chelsea's

President, Chief Executive Officer ("CEO"), and a director, are entitled to receive a bonus of

50% of their base salary if a "Sale Event" occurs. Based on defendant Oliveto's 2014 base salary

of $350,000, he will receive a $175,000 bonus upon consummation of the Proposed Acquisition.

Significantly, this bonus was only available to defendant Oliveto if the Sale Event occurred by

the end of 2014. Upon completion of the Proposed Acquisition, each Board member will also

receive a cash bonus equaling to 50% of the cash compensation paid to such director in 2013.

Further, the non-employee Board members each recently received tens of thousands of options

worth hundreds of thousands of dollars that will only vest upon a change in control and will

otherwise expire at the end of the year.

9. In order to secure these benefits for themselves, the Individual Defendants

adopted numerous preclusive and onerous deal protection devices, set forth in the Agreement and

Plan of Merger the Company entered into on May 7, 2014 (the "Merger Agreement"). These

provisions, which collectively preclude any competing offers for the Company, include: (i) a

termination fee of $18.55 million if the Company accepts a competing bid; (ii) a no-solicitation

clause; and (ii) a three business-day matching rights period during which Lundbeck can match

any superior proposal received by the Company.

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10. On May 23, 2014, the Company filed a Form 14D-9

solicitation/recommendation statement (the "Solicitation Statement") with the SEC, and

disseminated it to Chelsea shareholders. The Solicitation Statement, which recommended that

Chelsea shareholders tender their shares to Lundbeck pursuant to the terms of the Proposed

Acquisition, misrepresents and omits material information necessary for Chelsea shareholders to

make an informed decision on whether to tender their shares pursuant to the Proposed

Acquisition in violation of sections 14(e) and 20(a) of the Exchange Act. Specifically, the

defendants have failed to provide the Company's shareholders with material information and/or

have provided them with materially misleading information concerning, among other things: (i)

the process leading to the Proposed Acquisition; (ii) the financial analyses performed by

Deutsche Bank Securities Inc. ("Deutsche Bank") and Torreya Capital ("Torreya"), the

Company's financial advisors; and (iii) the financial projections of Chelsea that were relied upon

by Deutsche Bank and Torreya for their financial analyses. As detailed herein, the Solicitation

Statement also revealed that both Torreya and Deutsche Bank were conflicted in their roles as

financial advisors.

11. To remedy defendants' misconduct, plaintiff seeks, among other things,

injunctive relief preventing consummation of the Proposed Acquisition, unless and until the

Company discloses all material information necessary for plaintiff and the Class to make an

informed decision regarding whether to tender their shares to Lundbeck.

JURISDICTION AND VENUE

12. This Court has jurisdiction over the subject matter of this action pursuant to

section 27 of the Exchange Act for violations of sections 14(e) and 20(a) of the Exchange Act

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and SEC Rule 14a-9 promulgated thereunder. This Court has supplemental jurisdiction under 28

U.S.C. §1367, over the state law claims.

13. This Court has jurisdiction over each defendant named herein because each

defendant is either a corporation that conducts business in and maintains operations in this

District, or is an individual who has sufficient minimum contacts with this District to render the

exercise of jurisdiction by the District courts permissible under traditional notions of fair play

and substantial justice.

14. Venue is proper in this Court pursuant to 28 U.S.C. §1391(a) because: (i) the

Company is incorporated in this District; (ii) a substantial portion of the transactions and wrongs

complained of herein, including defendants' primary participation in the wrongful acts detailed

herein had an impact on this District; and (iii) defendants have received substantial compensation

in this District by doing business here and engaging in numerous activities that had an effect in

this District.

PARTIES

15. Plaintiff Gregory Schmidt is, and has been, a Chelsea shareholder at all times

relevant hereto.

16. Defendant Chelsea is a Delaware corporation with principal executive offices

located at 3530 Toringdon Way, Suite 200, Charlotte, North Carolina. Defendant Chelsea is a

biopharmaceutical company that acquires and develops innovative products for the treatment of a

variety of human diseases, including central nervous system disorders. The Company's lead

product, Northera, recently gained FDA approval for the treatment of symptomatic NOH.

Northera is the first and only FDA-approved therapy of its kind, and is expected to be launched

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later in 2014. Upon completion of the Proposed Acquisition, defendant Chelsea will become an

indirect wholly owned subsidiary of Lundbeck.

17. Defendant Oliveto is Chelsea's President, CEO, and a director and has been

since January 2014. Defendant Oliveto was also Chelsea's Interim President and CEO from July

2012 to January 2014 and Vice President of Operations from June 2008 to July 2012.

18. Defendant Michael Weiser ("Weiser") is Chelsea's Chairman of the Board and has

been since July 2012 and a director and has been since April 2002. Defendant Weiser was also

Chelsea's Interim President from April 2002 to October 2003.

19. Defendant Kevan Clemens ("Clemens") is a Chelsea director and has been since

September 2004. Defendant Clemens was also Chelsea's Chairman of the Board from

September 2004 to July 2012.

20. Defendant Roger Stoll is a Chelsea director and has been since February 2008.

21. Defendant William D. Rueckert is a Chelsea director and has been since July

2009.

THE INDIVIDUAL DEFENDANTS AGREE TO SELL CHELSEA AT AN UNFAIR PRICE THROUGH AN UNFAIR AND

SELF-SERVING PROCESS

22. The Individual Defendants' eagerness to enter into an acquisition with Lundbeck

resulted in a sales process that was not designed to obtain the maximum price for Chelsea

shareholders. Indeed, the Proposed Consideration does not reflect the true inherent value of the

Company as known to the Individual Defendants, Chelsea, and Lundbeck at the time the

Proposed Acquisition was announced.

Company Overview

23. Chelsea was founded in 2002, with a mission to "to create long-term stockholder

value by acquiring, developing and commercializing innovative products for the treatment of a

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variety of human diseases that address important unmet medical needs or offer improved, cost-

effective alternatives to current methods of treatment." Although Chelsea has not generated

revenue since its inception, the Company is transitioning from a development stage company to a

substantial revenue generating company. Indeed, as noted in the Company's most recent 2013

Annual Report on Form-10-K filed with the SEC on March 11, 2014, since the Company's

inception, Chelsea has primarily focused its efforts, in part, on the Company's organizing and

staffing, negotiating in-licensing agreements with its partners, raising capital, acquiring,

developing, and securing its proprietary technology, and undertaking preclinical and clinical

trials of product candidates.

24. The Company's development stage costs are currently winding down

significantly, leaving Chelsea well positioned to capitalize on the imbedded infrastructure and

benefit from previous investments. For the twelve months ended December 31, 2013, Chelsea

reported: (i) a 48% improvement in net loss of $16.4 million, compared to a net loss of $31.7

million for the same period in 2012; and (ii) significantly lower research and development

expenses of $10.4 million, versus $16.7 million for 2012, primarily due to the completion of

multiple studies in both the droxidopa and antifolate development programs during 2012,

contributing to significantly reduced research and development spending during the first three

quarters of 2013. More impressively, although the Company has yet to generate profit, Chelsea

ended the year with $45.3 million in cash and cash equivalents compared to $28.4 million, as of

December 31, 2012. Chelsea also reported comparable adjusted earnings per share and

comparable adjusted net income, respectively, which beat analyst estimates.

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25. Importantly, the above noted financial improvements all occurred before the

Company received FDA approval for Northera. As detailed below, with the FDA approval of

Northera, Chelsea is now well positioned for explosive growth.

Northera Overview

26. In May 2006, the Company entered into an exclusive license including certain

rights to proprietary information and intellectual property with Dainippon Sumitomo Pharma

Co., Ltd. for the global development and commercialization of Northera, excluding rights in

Japan, Korea, China, and Taiwan. Droxidopa, the pharmaceutical name for Northera, was

originally developed for the treatment of hypotension, including NOH. NOH is a rare, chronic,

and often debilitating drop in blood pressure upon standing that is associated with Parkinson's

disease, multiple-system atrophy, and pure autonomic failure. Droxidopa has been effectively

used in Japan and some surrounding Asian areas since 1989. In 2007, the FDA granted

droxidopa orphan drug status, which provides benefits for the development of products that are

specifically developed to treat rare medical conditions.

27. In addition to the treatment of NOH, the Company is also pursuing other uses for

droxidopa including for the treatment of intradialytic hypotension 3 and fibromyalgia.4 The

Company has completed a Phase II study for the use droxidopa concerning fibromyalgia and is

underway with a Phase II study concerning its use for IDH. The Company is also researching a

number of other prospective therapeutic areas in which droxidopa may provide clinical benefit,

3 Intradialytic hypotension ("IDH") is a common adverse event during routine hemodialysis. Yet at this point in time, there are no FDA approved therapeutic agents for the treatment of IDH in the U.S.

4 Fibromyalgia is characterized by chronic, widespread musculoskeletal pain, multiple tender points, abnormal pain sensitivity, and is often accompanied by severe fatigue, insomnia, and mood symptoms. Fibromyalgia is one of the most commonly diagnosed rheumatologic conditions and is estimated to affect 2% - 4% of people, mostly women.

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and has at least two additional portfolios of compounds in its research and development pipeline

outside of droxidopa/Northera.

Background of the Proposed Acquisition

28. In September 2011, the Company submitted a Northera new drug application

("NDA") to the FDA for the treatment of NOH. In March 2012, the Company received a

complete response letter ("CRL") from the FDA with respect to the NDA. The CRL did not

identify any outstanding safety concerns, but requested certain additional data from Chelsea in

connection with the NDA approval. With Northera's NDA approval pending, in July 2012, the

Board authorized a plan to explore and evaluate strategic alternatives for the Company.

29. In August 2012, the Board engaged Torreya to advise the Board on Chelsea's

strategic alternatives and directed Torreya to begin identifying and contacting prospective

merger or other strategic partners. According to the Solicitation Statement, Torreya's

engagement letter provided for a monthly retainer of $15,000 for a period of six months, along

with a "success fee" equivalent to either 1.5% or 3% of the total value of any strategic

transaction involving the Company. Whether Torreya was paid 1.5% or 3% was dependent on

which company ultimately engaged in a strategic transaction with Chelsea. In particular,

Torreya would receive the substantially lower success fee of 1.5% in the event that the strategic

transaction involved "certain enumerated counterparties." The Solicitation Statement does not

disclose which strategic transactions would trigger the lower success fee, nor the criteria for

deciding which parties triggered which fees. In any event, the tiered success fee created a

significant conflict and encouraged Torreya to only seek strategic transactions with parties that

could bring the 3% payment. Worse, the Board allowed Torreya to serve as the primary

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intermediary in negotiating with potential buyers. This all but assured that none of the "certain

enumerated counterparties" would receive fair treatment in the negotiations.

30. Between July and October 2013, the Company sold approximately 3.6 million

shares of common stock, resulting in net proceeds of approximately $10.4 million. In November

2013, the Company sold another 7.7 million shares in a registered offering, resulting in net

proceeds of approximately $21.4 million. Despite raising $31.8 million in a few months, enough

to remain independent while pursuing the approval and launch of Northera, the Board continued

to aggressively shop the Company to potential buyers.

31. By the end of 2013, most companies had suspended their diligence efforts in

evaluating a transaction with Chelsea pending the outcome of an upcoming meeting with the

Cardiovascular and Renal Drug Advisory Committee (the "CRDAC") to review the Northera

NDA. On January 14, 2014, the CRDAC recommended approval of Northera for the treatment

of NOH in a sixteen to one vote. On February 18, 2014, the FDA granted accelerated approval

of Northera. These milestone achievements all but assured that the Company would soon begin

to generate substantial revenue. There is no indication, however, that the Board made any

attempt to re-evaluate the benefits of remaining independent at this time. Instead, at the direction

of the Board, in January and February, Torreya reached out to several potentially interested

companies, including new prospects and companies that had previously declined to pursue a

strategic transaction with the Company.

32. The Board did not re-evaluate the possibility of commercializing Northera on a

standalone basis until March 5, 2014. The Solicitation Statement, however, does not disclose

any information regarding the evaluation, including the reasons why the Board decided to

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continue to aggressively attempt to sell the Company rather than capitalize on Northera's

potential long-term revenue generation.

33. On March 6, 2014, the Company sent a bid process letter to twelve interested

companies that Torreya and the Board determined would be best positioned to acquire the

Company, including Lundbeck. The Solicitation Statement does not identify how these

companies were identified, and does not disclose which of these companies, if any, were in the

"certain enumerated companies" category that would bring Torreya the lower 1.5% success fee.

34. On March 18, 2014, the Company engaged Deutsche Bank to serve as an

additional financial advisor to the Board and assist in identifying and evaluating companies that

may be interested in a strategic transaction with Chelsea. The Solicitation Statement notes that a

director of Lundbeck serves as a consultant to an affiliate of Deutsche Bank, but does not

disclose the identity of the director or whether and to what extent he/she has or had a relationship

with any member of the Deutsche Bank team which advised the Board in connection with the

Proposed Acquisition. The Solicitation Statement also notes that Deutsche Bank has performed

certain services for Lundbeck over the last two years, but does not disclose the nature of the

services performed or the total amount of compensation Lundbeck paid Deutsche Bank for such

services.

35. By March 24, 2014, five of the twelve companies that received the March 6, 2014

bid process letter continued to actively participate in the bid process, including Lundbeck. On

March 31, 2014, the deadline set forth in the bid process letter, Torreya received one bid

proposal to acquire the Company, which was from Lundbeck. Lundbeck offered consideration

of $6.44 per share in cash with no CVRs.

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36. Despite the fact that only Lundbeck submitted a bid by the deadline, several

companies continued to express interest in pursuing a strategic transaction with Chelsea.

According to the Solicitation Statement, several of the companies that remained in negotiations

with Chelsea's advisors disclosed that any potential transactions would likely include a "large" or

"substantial" equity component, with less upfront cash than was proposed by Lundbeck. The

Solicitation Statement, however, does not disclose the potential total value of any of these

transactions. Instead, it merely states that the Board was not interested in these potential offers

because the Board wanted more cash up front. Another Company identified in the Solicitation

Statement as "Company H" indicated that it was interested in Chelsea, and that Northera could

be a good fit for an undisclosed product that Company H was in the process of acquiring from a

large-cap pharmaceutical company. Company H, however, noted that the transaction with the

large-cap pharmaceutical company would delay their due diligence efforts with respect to

Chelsea. The Solicitation Statement does not disclose whether the Board inquired about the

potential valuation of a transaction with Company H.

37. Because the above noted companies were discouraged from continuing

substantive negotiations, they were effectively removed from a competitive bidding process, thus

providing significant leverage to Lundbeck as the sole bidder. In April and May 2014, advisors

at Chelsea and Lundbeck continued to negotiate the proposed transaction, including the addition

of potential CVRs, while paying lip service to the other companies that were prepared to offer

smaller upfront cash payments with undisclosed "large" or "substantial" equity components.

38. On May 7, 2014, the Board unanimously approved the Merger Agreement and the

CVR Agreement (as defined in the Solicitation Statement). Under the terms of Torreya's

engagement letter, Torreya will receive a 3% success fee, currently estimated by Chelsea to be

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$15.75 million, with up to an additional $4.5 million payable in the event of a maximum payout

under the CVRs.

The Proposed Acquisition

39. On May 8, 2014, Chelsea and Lundbeck jointly issued a press release announcing

that the Individual Defendants had agreed to sell Chelsea to Lundbeck in a tender offer for $6.44

per share in cash and CVRs that may pay up to $1.50 over the course of several years, for a total

potential consideration of $7.74 per share. The press release stated, in relevant part:

VALBY, Denmark and CHARLOTTE, N.C., May 8, 2014 (GLOBE NEWSWIRE) -- H. Lundbeck A/S (Lundbeck) and Chelsea Therapeutics International, Ltd. (Chelsea) (Nasdaq:CHTP) today announced that the companies have entered into a definitive agreement under which Lundbeck will acquire Chelsea.

Under the terms of the agreement, Lundbeck will commence a tender offer for all outstanding shares of Chelsea, whereby Chelsea stockholders will be offered an upfront payment and contingent value rights (CVRs), representing a total potential consideration of up to USD 7.94 per share, or USD 658 million (approximately DKK 3.54 billion) on a fully diluted basis. The total potential consideration represents an attractive premium of 59% over the closing price of Chelsea shares on 7 May 2014.

Consideration includes USD 6.44 per share in cash, or approximately USD 530 million (approximately DKK 2.8 billion) on a fully diluted basis, as well as CVRs that may pay up to a total of an additional USD 1.50 upon achievement of certain commercial milestones related to NORTHERA's commercial performance in the period 2015-2017. The proposed upfront per-share price represents a premium of approximately 29% over Chelsea's closing price of USD $5.00 on 7 May 2014.

The terms of the CVR payments reflect the parties' agreement over the sharing of potential economic upside benefits from certain future net sales of NORTHERA as described in the CVR agreement and do not necessarily reflect anticipated sales of the product. There can be no assurance such levels of net sales will occur or that any or all of the contingent payments will be made.

Lundbeck intends to acquire any shares of Chelsea not tendered into the tender offer through a merger for the same per share consideration as will be payable in the tender offer. The merger will be effected as soon as possible after the closing of the tender offer.

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The transaction will allow Lundbeck to leverage its expertise in rare neurologic disorders in the U.S. through the upcoming launch of NORTHERA, which was approved by the FDA on 18 February 2014 for the treatment of symptomatic neurogenic orthostatic hypotension (NOH). NORTHERA is the first and only therapy approved by the FDA that demonstrates symptomatic benefit in adult patients with NOH caused by primary autonomic failure (Parkinson's disease, multiple system atrophy and pure autonomic failure), dopamine beta hydroxylase deficiency and non-diabetic autonomic neuropathy. NORTHERA is expected to be launched in the second half of 2014 and will strengthen Lundbeck's existing neurology franchise in the U.S., which currently includes Onfi, Sabril and Xenazine, and ahead of potential future products like desmoteplase and Lu AE58054 currently in clinical phase III.

"I believe this offer represents an attractive offer to the stockholders of Chelsea and is consistent with Lundbeck's strategic and disciplined approach to acquisitions," said Ulf Wiinberg, President & Chief Executive Officer of Lundbeck. He continued, "The proposed strategic acquisition of Chelsea—and the launch of its lead therapy, NORTHERA—aligns with Lundbeck's core strengths in addressing rare and challenging neurological disorders. As a company committed to people living with brain disorders, we are uniquely positioned to make NORTHERA available to those who need it most."

Joseph G. Oliveto, President & Chief Executive Officer of Chelsea Therapeutics, stated, "This transaction provides attractive and certain upfront value to our stockholders, and enables them to participate in the potential commercial upside of NORTHERA. Lundbeck's expertise in commercializing rare disorder [central nervous system] products will enable a rapid and successful launch of NORTHERA into the U.S. market and ultimately will provide added benefit to patients suffering from NOH."

The transaction is expected to be financed by Lundbeck's existing cash reserves.

The board of directors of Chelsea has unanimously approved the transaction. The transaction is expected to close in the third quarter of 2014, subject to the tender of a majority of Chelsea's outstanding shares in the tender offer, and the receipt of customary regulatory approvals, including a Hart-Scott-Rodino review in the U.S. The terms and conditions of the tender offer will be described in the tender offer documents, which will be filed with the U.S. Securities and Exchange Commission (SEC).

Moelis & Company acted as financial advisor and Cravath, Swaine & Moore LLP provided legal advice to Lundbeck. Deutsche Bank Securities Inc. and Torreya Capital acted as financial advisors, and Morgan, Lewis & Bockius LLP provided legal advice to Chelsea.

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Financial guidance

If closed, this acquisition of Chelsea will impact Lundbeck's financial guidance for 2014.

While the transaction is not expected to have a material positive impact on revenue in 2014, it is expected to be dilutive to both cash flow and [earnings before interest and taxes] for the year, and cash flow accretive in 2015. The expected impact on Lundbeck's profitability in 2014 will depend on the timing of the closing of the transaction. However, on a pro forma basis assuming the transaction is closed on 1 July 2014, Lundbeck expects to incur costs of approximately DKK 500 million in incremental costs related to the acquisition of Chelsea. Approximately half of the costs are related to amortization expenses.

40. Also on May 8, 2014, the Company filed a Current Report on Form

8-K with the SEC wherein it disclosed the Form of Contingent Value Rights Agreement, which

details the terms of the potential CVR payments. In particular, the Form of Contingent Value

Rights Agreement specifies that; (i) holders of CVRs will be entitled to receive a payment of up

to $0.50 per CVR based on the amount, if any, by which worldwide net sales of Northera

(excluding Japan, Korea, China, and Taiwan) exceed $100 million during the period

commencing January 1, 2015 to and including December 31, 2015; (ii) holders of the CVRs will

be entitled to receive a payment of up to $0.50 per CVR based on the amount, if any, by which

worldwide net sales of Northera (excluding Japan, Korea, China, and Taiwan) exceed $200

million during the period commencing January 1, 2016 to and including December 31, 2016; and

(iii) holders of the CVRs will be entitled to receive a payment for each CVR of up to $0.50 based

on the amount, if any, by which worldwide net sales of Northera (excluding Japan, Korea, China,

and Taiwan) exceed $300 million during the period commencing January 1, 2017 to and

including December 31, 2017.

41. The Form 8-K also disclosed the Merger Agreement. The Merger Agreement

contains a number of draconian deal protection devices designed to preclude any competing bids

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for Chelsea from emerging in the period following the announcement of the Proposed

Acquisition—effectively locking-up the deal in favor of Lundbeck.

42. Under the Merger Agreement, the Individual Defendants agreed that if Lundbeck

owns at least 50% of the outstanding Company common stock after the tender offer is executed,

Lundbeck will execute a short-form merger for the remaining shares, which will not require the

consent of the Company's stockholders. Chelsea is also subject to a no-solicitation clause that

prohibits the Company from seeking a superior offer for its shareholders. Specifically, section

6.2(a) and (b) of the Merger Agreement states:

No Solicitation.

(a) The Company and its Subsidiaries shall, and shall cause their Representatives to, immediately (i) cease any and all existing discussions or negotiations with any Persons conducted heretofore with respect to any proposal that constitutes or would reasonably be expected to lead to an Acquisition Proposal, (ii) request the prompt return or destruction of all confidential information previously furnished to any Person within the last 12 months for the purposes of evaluating a possible Acquisition Proposal and (iii) prohibit any third party from accessing any physical or electronic data room relating to a possible Acquisition Proposal.

(b) Subject to Section 6.2(c) and Section 10.1(d), at all times during the period commencing upon the execution and delivery of this Agreement and continuing until the earlier to occur of the termination of this Agreement pursuant to Section 10.1 and the Effective Time, the Company and its Subsidiaries shall not, nor shall they authorize, direct or permit any of their respective directors, officers or other employees, controlled affiliates, or any investment banker, attorney or other authorized agent or representative (collectively, "Representatives") to, directly or indirectly, (i) solicit, initiate or knowingly induce the making, submission or announcement of, or knowingly encourage or assist, an Acquisition Proposal or any inquiries that would reasonably be expected to lead to an Acquisition Proposal, (ii) furnish to any Person (other than Parent, Acquisition Sub or any designees of Parent or Acquisition Sub) any non-public information relating to the Company or any of its Subsidiaries, in any such case to knowingly induce or facilitate the making, submission or announcement of, or to knowingly encourage or assist, an Acquisition Proposal or any inquiries or the making of any proposal that would reasonably be expected to lead to an Acquisition Proposal, (iii) participate or engage in discussions or negotiations with any Person with respect to an Acquisition Proposal, (iv) approve, endorse or recommend, or propose publicly to approve, endorse or recommend, an Acquisition Proposal, or (v) approve, authorize the entry into or enter into any Contract contemplating or

17 -


otherwise relating to an Acquisition Transaction (other than an Acceptable Confidentiality Agreement pursuant to Section 6.2(c)); provided, however, that nothing in this Section 6.2(b) shall prohibit the Company or its Representatives from contacting in writing any Persons or groups of Persons who have made an unsolicited Acquisition Proposal after the date of this Agreement solely to request clarification of the terms and conditions thereof so as to determine whether such Acquisition Proposal is, or could reasonably be expected to lead to, a Superior Proposal, and any such actions shall not be a breach of this Section 6.2. Without limiting the foregoing, it is agreed that any violation of the restrictions set forth in the preceding sentence by any Representative of the Company or any of its Subsidiaries, whether or not such Person is purporting to act on behalf of the Company or its Subsidiary or otherwise, shall be deemed to be a breach of this Section 6.2(b) by the Company; provided, that, in the case of any violation by any Representative that is not a director, officer or other employee of the Company or any of its Subsidiaries, only a material violation thereby shall be so deemed a breach.

43. Though the Merger Agreement ostensibly has a "fiduciary out" provision that

allows the Company to negotiate with other bidders, this provision would require a potential

acquirer to first make an unsolicited offer. Without access to non-public information, which the

Company is prevented from offering under the Merger Agreement prior to the receipt of an offer

that the Company reasonably expects to lead to a superior deal, no other bidders will emerge to

make a superior proposal.

44. Furthermore, under section 6.3(a) of the Merger Agreement, should it receive an

unsolicited bid, the Company must notify Lundbeck of the bidder's offer. Thereafter, should the

Board determine that the unsolicited offer is superior, Lundbeck is granted three business days to

amend the terms of the Merger Agreement to make a counter offer that only needs to be as

favorable to the Company's shareholders as the unsolicited offer. Lundbeck will be able to

match the unsolicited offer because it is granted unfettered access to the unsolicited offer, in its

entirety, eliminating any leverage the Company has in receiving the unsolicited offer.

45. Also, pursuant to section 10.3 of the Merger Agreement, Chelsea must pay

Lundbeck a $18.55 million termination fee if it accepts a superior proposal. The termination fee

- 18 -


equates to approximately $0.24 per Chelsea share that will be paid directly to Lundbeck rather

than Chelsea shareholders, thereby making it even more difficult for any competing bidder to

acquire the Company. This termination fee amounts to 3.6% of the Proposed Acquisition's value

without the CVRs and 3% with all three CVRs paid in full.

46. These onerous and preclusive deal protection devices, which will operate to

unreasonably deter and discourage superior offers from other interested parties, were agreed to

by the Individual Defendants to help secure the personal benefits and unfair profits afforded to

them. By negotiating for such personal benefits in connection with the consummation of the

Proposed Acquisition, the Individual Defendants placed their own personal interests before those

of the Company's shareholders thus resulting in the Proposed Acquisition being presented to

Chelsea shareholders at an untenable and inadequate offer price.

The Proposed Acquisition Undervalues Northera's "Significant Market Opportunity"

47. In September 2011, the Company submitted the NDA with the FDA seeking

approval for sales of Northera in the United States. In February 2014, the FDA granted Northera

accelerated approval for treating symptomatic NOH. The FDA approval made Northera the first

and only therapy approved by the FDA that demonstrates symptomatic benefits in patients with

NOH, a disorder that affects an estimated 80,000 to 150,000 individuals in the United States,

with a growing market due to aging U.S. population. As Chelsea's CEO, defendant Oliveto,

recently noted in a press release announcing the Company's fourth quarter and full-year 2013

results:

FDA approval of NORTHERATM (droxidopa) this February for symptomatic neurogenic orthostatic hypotension is Chelsea Therapeutics' most important milestone to date ... NORTHERA is the first new treatment option approved for this indication in nearly two decades, representing a significant market opportunity .

- 19 -


Lundbeck's CEO has also recognized the substantial value of Northera. During a May 8, 2014

conference call concerning the Proposed Acquisition, he noted that "Northera has the potential to

be the largest of the products we have in our 5/14/2014 presentation portfolio." Also, in a

presentation dated May 14, 2014, Lundbeck stated that acquiring the rights to Northera would

"[s]ignificantly enhance Lundbeck US' platform for long-term growth."

48. Indeed, the revenue generating potential of Northera is enormous. In August

2012, a report from Thomson Reuters found that the orphan drug market was worth slightly more

than $50 billion worldwide by the end of 2011. The report also found that of the eighty-six

orphan drugs included in the study, twenty-five were blockbusters, which meant that 29%

generated annual sales greater than $1 billion. In fact, last year alone, there were at least five

newly approved orphan drugs priced at least $150,000 per patient per year, with three priced at

or above $300,000 per patient per year.

49. Chelsea has predicted that Northera, like many other orphan drugs, will also

generate significant revenue. The Company has forecasted sales of the drug to reach an

impressive $300 million to $375 million within three to five years of launch. These projections,

however, appear to be reserved. On February 14, 2014, an analyst at Deutsche Bank, the

Company's own financial advisor, predicted significantly higher sales, peaking at $450 million in

the United States and $100 million in the rest of the world. Accordingly, the Proposed

Consideration of approximately $504.9 million to $622.5 million significantly undervalues

Chelsea's unique market position and significant growth potential.

50. Additional factors further demonstrate that the Proposed Consideration is

woefully inadequate. For example, between the time that Northera was approved by the FDA

and the time the Proposed Acquisition was announced, at least six analysts predicted target

- 20 -


prices above both the up-front offer price of $6.44 and the highest possible contingent price of

$7.94 (which at best case will not be paid in full until sometime in 2018). These targets include:

(i) a $12 target set by JMP Securities; (ii) a $10 target set by Needham & Co.; (iii) a $9 target set

by Ladenburg Thalmann & Co.; and (iv) three $8 targets set by Wedbush Securities, Inc., Roth

Capital Partners, and Deutsche Bank, the Company's own financial advisor. The average target

price for these six analysts was $9.17, over 42% more than the up-front offer price, and 15%

more than the highest possible contingent price.

51. The Proposed Consideration is also minimal when compared to recent similar

transactions in the biotechnology industry. The median one-month premium to a target's stock

price for transactions valued between $100 million and $1 billion announced in the last year in

the biotechnology industry is over 34.5%. In comparison, the up-front one-month premium

Lundbeck is offering Chelsea shareholders here is a mere 20.8%—less than 61% of the median

in comparable transactions.

The Proposed Consideration Undervalues the Substantial Synergies of the Combined

Company

52. The Proposed Consideration also fails to adequately compensate Chelsea

shareholders for the significant synergies that Lundbeck will enjoy upon completion of the

Proposed Acquisition. As noted by Lundbeck's CEO in the press release announcing the deal:

The proposed strategic acquisition of Chelsea – and the launch of its lead therapy, NORTHERA – aligns with Lundbeck's core strengths in addressing rare and challenging neurological disorders. As a company committed to people living with brain disorders, we are uniquely positioned to make NORTHERA available to those who need it most.

53. On May 8, 2014, Chelsea hosted a conference call to discuss the Proposed

Acquisition. During the call, defendant Oliveto further touted the substantial synergies expected

from the transaction. Specifically, defendant Oliveto stated, in relevant part:

- 21 -


... Lundbeck is uniquely positioned to realize the value of NORTHERA, thereby enhancing the potential for payouts under the CVR. NORTHERA complements Lundbeck's existing neurology franchise in the U.S., which currently includes three therapies for patients with rare disorders, and NORTHERA will be a meaningful addition to its portfolio.

Lundbeck has a leading [central nervous system] sales force that covers a large segment of anticipated NORTHERA prescribers and we expect will be committed to targeting these key NOH prescribers. In addition, Lundbeck has the scale and expertise to support a rapid and successful launch of NORTHERA, thereby realizing its value over the seven-year exclusivity period under orphan drug designation.

54. Lundbeck also hosted a separate conference call on May 8, 2014. During the call,

Lundbeck's CEO boasted about the "great commercial synergy" in the transaction and noted that

Northera "represents a low risk opportunity since all we have to do is launch it within our

neurological portfolio."

55. As stated above, the consideration offered in the Proposed Acquisition does not

reflect the true inherent value of the Company that was known only to defendants, as directors

and/or officers of Chelsea and Lundbeck at the time the Proposed Acquisition was announced.

Given the above-mentioned factors, the $6.44 to $7.94 per share Proposed Consideration grossly

undervalues Chelsea and would unfairly divest its shareholders of their interest in the Company.

THE MATERIALLY MISLEADING SOLICITATION STATEMENT

56. In order to convince shareholders to tender their shares to Lundbeck, defendants

filed with the SEC, and disseminated to shareholders, the Solicitation Statement on May 23,

2014. The Solicitation Statement misrepresents and/or omits material information necessary for

Chelsea's public shareholders to make an informed decision regarding whether to tender their

shares to Lundbeck in violation of sections 14(e) and 20(a) of the Exchange Act. Specifically, as

set forth below, defendants fail to provide the Company's shareholders with material information

and/or provide them with materially misleading information concerning: (i) the process leading

- 22 -


to the Proposed Acquisition; (ii) the financial analyses performed by Deutsche Bank; and (iii) the

Company's financial projections.

The Sales Process Leading to the Proposed Acquisition

57. With respect to the process that led to the Proposed Acquisition, the Solicitation

Statement is materially deficient and misleading because it fails to disclose:

(a) the reasons why the Board agreed to a two-tiered compensation structure

for its engagement of financial advisor Torreya whereby Torreya would receive a success fee of

3% of the total value of a strategic transaction if the Company merged with certain companies

(the "Higher Fee Parties") and only 1.5% if it merged with certain others (the "Lower Fee

Parties");

(b) whether the list of parties contacted by the Company and its advisers

included any of the Lower Fee Parties and if so, the identities of such parties (e.g., Company A,

B, etc.), when they were contacted, who contacted them, and the results of these contacts;

(c) whether during the sales process the Board identified the conflict of

interest presented by its retention of a financial adviser with a two-tiered compensation structure

to run the sales process and if so, whether it took any steps to avoid or mitigate this conflict of

interest, and if so, what steps it took;

(d) the criteria used by Torreya to identify the initial list of parties contacted

during the sales process;

(e) the criteria used by the Board and/or Torreya to narrow the list of bidders

down to twelve in March 2014;

(f) whether the filing of a derivative lawsuit on behalf of the Company

against certain directors and executive officers in May 2012 had any impact on the Board's

- 23 -


decision to explore a potential sale of the Company three months later and ultimately sell the

Company;

(g) the reason(s) why the Board decided to hire a second financial advisor

Deutsche Bank to advise it in connection with the sales process;

(h) the reason(s) why the party referenced in the Solicitation Statement as

Company B "elected not to continue in the strategic transaction process";

(i) whether the Board approached the contacted parties about any strategic

transactions other than a merger (e.g., partnership or licensing arrangements);

(j) a full description of the efforts taken by the Company to secure additional

financing or take other steps that would allow it to remain a standalone company;

(k) the identity of the director of Lundbeck who serves as a consultant to an

affiliate of Deutsche Bank and whether, and to what extent, this Lundbeck director has or had a

relationship with any member of the Deutsche Bank team which advised the Board in connection

with the Proposed Acquisition;

(l) whether Deutsche Bank held an equity interest in either Lundbeck or

Chelsea at any time during the sales process, and if so, the amount of that equity interest;

(m) the nature of the financial services Deutsche Bank has performed for

Lundbeck over the last two years and the total amount of compensation received for such

services rendered; and

(n) Whether Torreya has performed any financial services for Lundbeck over

the last two years and if so, the nature of the services and the amount of compensation received.

58. The omission of this information makes the following statements in the

Solicitation Statement materially misleading:

- 24 -


(a) on page 14 of the Solicitation Statement, the statements:

In August 2012, the Company Board engaged Torreya Capital ("Torreya") to advise the Board on the Company's strategic alternatives and directed Torreya to begin identifying prospective merger or other strategic partners. Torreya's engagement letter provided for a monthly retainer of $15,000 for a period of six months, along with a "success fee" equivalent to 3% of the total value of any strategic transaction involving the Company, except in the case of any such transaction involving certain enumerated counterparties, in which event the success fee would be 1.5% of the total value.

Between August 2012 and October 2012, the Company Board held numerous meetings at which Torreya presented regular updates on the companies contacted in connection with the strategic transaction process and the status of any diligence being undertaken by such companies. In each case, Torreya noted that there had been no discussions with such companies as to potential transaction structures or terms.

(b) on pages 15-16 of the Solicitation Statement, the statements:

On February 27, 2013, the Company Board held a meeting at which Dr. Michael Roberts, the Company's Vice President of Business Development, and Torreya gave presentations regarding the Company's strategic alternatives, including a discussion of partnering/collaboration opportunities and merger opportunities. Dr. Roberts updated the Board on the status of the discussions that he and Torreya had had with numerous companies at the J.P. Morgan Healthcare Conference in San Francisco in January 2013. It was noted that, if the Company were to remain independent while pursuing approval and launch of Northera, the Company would likely need to raise significant additional capital, in excess of $30 million. The Board agreed that the Company should continue to pursue a standalone strategy while also seeking out, through Torreya, strategic transaction alternatives, including a sale or merger of the Company and collaborations and partnerships. Torreya then discussed the process and general timing expectations of pursuing a strategic transaction, and the Company's outside counsel, Morgan, Lewis & Bockius LLP ("Morgan Lewis"), discussed the Board's fiduciary duties in the context of a strategic transaction. In light of the Company's ongoing evaluation of its strategic alternatives and the inherent uncertainty associated with such a process, the Board asked senior management to consider possible retention and severance arrangements for the existing management and staff that would provide adequate incentive to remain with the Company, to properly execute on the plan for the resubmission of the NDA and to otherwise enhance the value of the Company.

* * *

On April 1, 2013, the Company Board held a telephonic meeting at which Torreya presented an update on the Company's strategic transaction process.

- 25 -


Torreya noted that 20 companies had been contacted regarding a potential strategic transaction with the Company, including Parent. Torreya further noted that four of these companies, none of which were Parent, had entered into confidentiality agreements and begun conducting due diligence through the online data room (the "Dataroom") provided by the Company. Following the April 1, 2013 meeting, Torreya continued to reach out to additional companies concerning a potential strategic transaction with the Company.

* * *

On May 20, 2013, the Company Board held a telephonic meeting at which Torreya provided an update on the strategic transaction process. Torreya noted that 25 companies had been contacted regarding a potential strategic transaction with the Company, of which 10 had entered into confidentiality agreements and 13 had declined to pursue a strategic transaction with the Company. Torreya indicated that most companies were concerned over the degree of regulatory risk surrounding Northera and the Company, as well as the potential financial exposure of an additional Phase III study requirement for Northera that could be imposed by the FDA. In light of the lack of interest in a strategic transaction among the companies contacted to date, the Board directed Torreya to consider other strategic alternatives available to the Company for discussion at the next Board meeting.

(c) on page 16 of the Solicitation Statement, the statements:

On May 28, 2013, the Company Board held a telephonic meeting at which Torreya provided a further update on the strategic transaction process, noting that, since its engagement in August 2012, it had contacted a total of 65 companies concerning a potential strategic transaction with the Company. Torreya noted that they were not optimistic that a successful strategic transaction could be concluded in the current environment. While there were still seven companies engaged in the due diligence process, Torreya only considered four of these companies, including Parent, to be seriously considering a possible strategic transaction. Torreya presented two alternative potential transaction structures with the Board, a partnering/licensing transaction in regard to Northera, and a standalone strategy with a capital raise, which the Board considered and discussed.

* * *

Between July 2013 and September 2013, the Company continued to provide access to the Dataroom and conduct management diligence meetings on various aspects of the Company's operations with the five interested companies, including Parent, who remained active in the strategic transaction process. The Company Board held meetings in July, August and September where Torreya and Company senior management provided updates on the progress of the diligence, in each case reporting that no companies had indicated interest in discussing transaction structures, valuation or the submission of a proposal to acquire the Company.

- 26 -


During this period, Torreya also presented, and the Board considered, alternative licensing structures and financing alternatives, including debt financing, which were discussed and ultimately deemed by the Board not to be in the best interests of the Company or its stockholders at such time.

(d) on pages 17-18 of the Solicitation Statement, the statements:

In total, between August 2012 and December 2013, Torreya contacted 65 companies, including Parent, that the Company Board, with the advice of the Company's senior management and Torreya, determined might have a potential interest in a strategic transaction with the Company. The Company executed confidentiality agreements with 14 of these companies and conducted one or more diligence meetings with 11 of these companies, including two in-person meetings with Parent. However, through December 2013, none of these companies submitted a proposal to acquire the Company.

* * *

On January 22, 2014, the Company Board held a meeting at which Torreya presented an update on the strategic transaction process and discussed possible timelines and processes for any transaction. Torreya indicated that it had re-initiated contact with 40 companies in light of the CRDAC recommendation. Together with the 14 companies that had previously executed confidentiality agreement, Torreya noted that a total of 54 companies were either engaged in diligence or reviewing the opportunity to participate in the strategic transaction process. Among the 14 companies that had executed confidentiality agreements, Torreya indicated that Parent remained highly interested in a possible strategic transaction with the Company, and that Company A had also conducted extensive due diligence and had indicated it remained interested in the Company. Torreya discussed options with respect to the process for and form of any transaction. The Board noted its view that it would be important for the large majority of the consideration involved in any merger transaction to be in the form of cash, rather than equity or other contingent consideration, to ensure receipt of timely and certain value by the Company's stockholders, and instructed Torreya to communicate the same to any potentially interested companies. Torreya also reviewed with the Board certain financial information relating to the Company. Following this discussion, the Board determined that it would be beneficial for the Company to engage a marketing consultant to assess the potential market for Northera, including any potential value beyond the initial indication in the U.S., and the Company subsequently engaged such a consultant to conduct such an assessment. The Company's management presented an update to the Board on the Company's commercialization plans and financing that would be required to launch Northera on a standalone basis. In addition, the Board appointed Mr. Oliveto as the Company's President and Chief Executive Officer and as a member of the Board.

(e) on page 18 of the Solicitation Statement, the statements:

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On February 18, 2014, the FDA granted accelerated approval of Northera. Following the approval, the Company and Torreya began reaching out to numerous potentially interested companies, including new prospects and companies that had previously declined to pursue a strategic transaction with the Company.

* * *

On March 5, 2014, the Company Board held a meeting at Morgan Lewis's offices in New York at which members of the Company's senior management and representatives of Torreya and Morgan Lewis participated. The Board discussed the status of the strategic transaction process and possible alternative strategic transaction structures, as well as select activities required and the risks associated with commercializing Northera on a standalone basis. Torreya updated the Board on the status of interested companies, and Morgan Lewis discussed with the Board a draft bid process letter and merger agreement that were intended to be distributed later in the week to 12 interested companies to initiate a final bid process among such companies. There was a discussion of the potential benefits of engaging an additional investment advisor to, among other things, evaluate the companies contacted in connection with the strategic transaction process to date and identify additional potentially interested companies, and to provide a fairness opinion in connection with any eventual strategic transaction, and the Board delegated authority to Dr. Weiser and Mr. Rueckert to conduct interviews with investment banking firms that could provide such services in connection with any proposed transaction. Morgan Lewis again advised the Board of its fiduciary duties and their application in connection with any change in control transaction.

(f) on pages 19-20 of the Solicitation Statement, the statements:

On March 24, 2014 the Company Board met telephonically with members of the Company's senior management and representatives of Deutsche Bank, Torreya and Morgan Lewis. Representatives of Deutsche Bank and Torreya updated the Board on the status of the strategic transaction process, noting that a total of 81 companies had been contacted to date regarding a possible strategic transaction with the Company, and that five (including Parent, Company A and Company C) of the 12 companies who had received the March 6, 2014 bid process letter continued to actively participate in the bid process. The representatives of Deutsche Bank and Torreya also reported that Parent was the furthest along of these five companies, having indicated that it had substantially completed its diligence review, engaged Moelis and engaged outside legal counsel. The representatives of Deutsche Bank and Torreya also informed the Board that Parent had indicated that it would be prepared to submit a bid after its own board of directors meeting that week, and had requested a call to discuss deal structure and the possible inclusion of CVRs as a portion of the consideration. The representatives of Deutsche Bank and Torreya also updated the Board on a second group of potential bidders that had not yet been active in the process, and the representatives of Deutsche Bank updated the Board on a third group of potential

- 28 -


bidders to which Deutsche Bank had reached out subsequent to its engagement and which were encouraged to move quickly in order to catch up to other potential bidders already in the bid process.

(g) on page 21 of the Solicitation Statement, the statements:

Also on April 3, 2014, the Company Board held a meeting at Morgan Lewis's offices in New York, at which representatives of Deutsche Bank, Torreya and Morgan Lewis were present and in which representatives of Morris Nichols participated telephonically. Deutsche Bank provided an overview of the strategic transaction process to date, noting that, between August 2012 and Deutsche Bank's engagement on March 18, 2014, Torreya had contacted a total of 79 companies with respect to a possible strategic transaction with the Company, and further noting that, since Deutsche Bank's engagement, Deutsche Bank and Torreya had either contacted or received inbound interest from 18 companies, of which five companies had not previously been contacted in connection with the strategic transaction process. Representatives of Deutsche Bank and Torreya discussed the levels of interest expressed by the remaining companies and the likelihood of any of such companies submitting a bid. The representatives of Deutsche Bank indicated that only Company B was still conducting due diligence, but that Company B had said that it would not be able to provide any indication regarding its interest in a potential strategic transaction until April 8, 2014. The Board and the advisors also discussed factors that might impact the ability of Company B to make a bid on a timely basis. The representatives of Deutsche Bank and Torreya also reported that the interest level of Companies D, J, and K, each of which had only recently indicated some potential interest in the Company, was unclear, and that none of them had negotiated or signed a confidentiality agreement despite having had sufficient time to have done so. The Company Board and the advisors then discussed the likelihood that any of these parties would submit a competing proposal. The Company Board discussed Parent's bid proposal, the Company's strategic alternatives, the Company management's financial projections, and the assessment of the market for Northera prepared by the marketing consultant. Representatives of Deutsche Bank reviewed with the Company Board certain financial information relating to the Company. Representatives of Deutsche Bank also reviewed with the Board published research analyst price targets for the Common Stock and discussed certain considerations that the Board should take into account when considering such price targets in comparison to Parent's bid proposal. In addition, the Company Board discussed with Deutsche Bank and Torreya the history of midodrine, the only other currently approved drug for the treatment of orthostatic hypotension and certain projections prepared by management of the Company assuming that midodrine was taken off the market or would have a restriction for use added to its label by the FDA (the "no-midodrine case"). The Company Board concluded that the no-midodrine case was highly speculative and, accordingly, not quantifiable and instructed Deutsche Bank not to take such case into account in its financial analysis. The Board further discussed Parent's proposal, including the fact that the premium over the Company's then-current stock price was

- 29 -


comparatively lower than certain precedent transactions, but that such comparison did not account for potential CVR value. The Board instructed Deutsche Bank and Torreya to advise Parent that its current bid proposal was insufficient and that the Board might be willing to consider different forms of additional consideration, including CVRs, as a form of increase to Parent's bid.

(h) on page 23 of the Solicitation Statement, the statements:

Also on April 15, 2014, Company B called Deutsche Bank and Torreya to inform them that Company B's management had met earlier that day and elected not to continue in the strategic transaction process.

On the morning of April 16, 2014, the Company Board held a telephonic meeting with the Company's senior management and representatives of Deutsche Bank, Torreya and Morgan Lewis. After informing the Company Board that Company B had passed on the opportunity to participate in the strategic transaction process on the previous day, representatives of Deutsche Bank reviewed certain financial information relating to potential counterproposals the Company might make to Parent's revised proposal, including raising the CVR caps and adding an additional sales milestone for sales in 2017. The representatives of Deutsche Bank informed the Company Board that they have been advised that EY had concluded that the value to Parent of the Company's NOLs was lower than Parent had previously assumed. The Company Board discussed the potential for certain research tax credits to offset any impact of Parent's revised view of the NOLs, but agreed to refrain from contacting Parent until representatives of Deutsche Bank spoke with Moelis that afternoon. The Company Board also discussed and decided against re-approaching Company O or Company P taking into account, among other things, that neither had suggested it would proceed at a price that was competitive with Parent's bid proposal.

(i) on page 25 of the Solicitation Statement, the statements:

Also on May 2, 2014, the Company Board held a telephonic meeting at which Morgan Lewis updated the Company Board on the status of negotiations with Cravath regarding the draft Merger Agreement, CVR Agreement and related documentation and noted that Cravath had indicated Parent was targeting a signing and announcement of the transaction on either Tuesday, May 6, or Wednesday, May 7. Additionally, a representative of Morris Nichols provided an update on the status of the pending stockholder derivative suit that had been filed in May 2012 in the Delaware Court of Chancery.

(j) on pages 42-43 of the Solicitation Statement, the statements:

Deutsche Bank is an internationally recognized investment banking firm experienced in providing advice in connection with mergers and acquisitions and related transactions. Deutsche Bank is an affiliate of Deutsche Bank AG, which, together with its affiliates, is referred to as the "DB Group". One or more

- 30 -


members of the DB Group have, from time to time, provided, and are currently providing, investment banking, commercial banking (including extension of credit) and other financial services to Parent or its affiliates for which they have received compensation of less than 250,000 in respect of financial advisory, financing and commercial banking services since January 1, 2012, and for which they may receive compensation in the future. Further, a member of the board of directors of Parent serves as a consultant to a member of the DB Group. In addition, one or more members of the DB Group have, from time to time, provided investment banking, commercial banking (including extension of credit) and other financial services to the Company or its affiliates unrelated to the Offer and the Merger for which they have received compensation; however, no member of the DB Group received any compensation from the Company for any such services during the two-year period immediately prior to Deutsche Bank's engagement in connection with the Offer and the Merger.

The DB Group may also provide investment banking, commercial banking and other financial services to Parent, the Company, and their respective affiliates in the future, for which Deutsche Bank would expect the DB Group to receive compensation. In the ordinary course of business, members of the DB Group may actively trade in the securities and other instruments and obligations of Parent, the Company and their respective affiliates for their own accounts and for the accounts of their customers. Accordingly, the DB Group may at any time hold a long or short position in such securities, instruments and obligations.

59. These statements are rendered misleading by the omissions because they give a

materially incomplete and distorted picture of the sales process, and in particular the extent to

which Torreya's conflict of interest impacted the sales process.

Deutsche Bank's Financial Analyses

60. Deutsche Bank's Analysis of the Merger Consideration. The description of

Deutsche Bank's Analysis of the Merger Consideration on pages 35-36 is materially deficient

and misleading because it fails to disclose the specific inputs and assumptions used to derive the

discount rates (8% - 12%) used to compute the present value of the CVR, including, but not

limited to, the betas and selected companies used in the analysis.

61. The omission of this information renders the following statements in the



- 31 -


At the May 7, 2014, meeting of the Company Board, Deutsche Bank delivered its oral opinion to the Company Board, confirmed by delivery of a written opinion dated as of May 7, 2014, to the effect that, as of the date of such opinion, and based upon and subject to the assumptions, limitations, qualifications and conditions described in Deutsche Bank's opinion, the Merger Consideration to be paid to the holders of Common Stock (other than Parent and its affiliates) pursuant to the Merger Agreement was fair from a financial point of view to such holders.


Deutsche Bank conducted an analysis of the per Share consideration to be paid to holders of the Common Stock in the Offer and the Merger. Such consideration includes (i) an upfront payment of $6.44 in cash per Share, plus (ii) the contingent right to three payments of up to $0.50 each, which could deliver up to an additional $1.50 in cash per Share, to be determined and paid pursuant to, and in the time frames set forth in, the CVR Agreement and described under " Item 2. Identity and Background of Filing Person — Tender Offer ". For analytical purposes, Deutsche Bank calculated present values for the CVR payments under both the Illustrative low Parent case and Illustrative high Parent case included in the Parent Launch Plan Projections described above under "— Selected Company Management Projections". Based upon these estimates of net sales, Deutsche Bank calculated the CVR payments to be received by holders of Common Stock pursuant to the terms of the CVR Agreement and applied discount rates ranging from 8.0% to 12.0% to such future payments to calculate the present value of such payments discounted from the applicable date of payment under the CVR Agreement to March 31, 2014. Because any payments under the CVRs would depend upon Northera net sales in the hands of Parent, Deutsche Bank derived the foregoing range of discount rates to reflect the risk for a company, such as Parent, which had experience commercializing products similar to Northera by utilizing a weighted-average cost of capital analysis based on certain financial metrics, including betas, for Parent and selected companies which exhibited similar characteristics to Parent. The results of this analysis are summarized below (and reflect rounding to the nearest whole cent):

IIIutiative low Parent case IIIimhative high Parent case 201E 216E 2017E Tot.I !OSE 116E 2017E Total

Nominal CVR payment per Share $ O.O $ 0.17 $ 0.25 $ 050 $0.33 $ 0.50 $ ft50 $ 133 Prenot Value of CYR payment

Illustrative &% $O7 $014 S 019 039 $028 $040 $037 S 10 Discount 10.0% S 0.06 Q.13 $ 0.17 S Oil S 0.27 $038 S 04 S 049 Rate I2.0 .• $0.06 $0.12 $O.] $0.34 $ 0.26 $ 0.36 $0.32 S 04

Deutsche Bank noted that the combined value of the upfront consideration of $6.44 per Share and the calculated present values of the CVR payments ranged from a low of approximately $6.78 per Share based upon the Illustrative low Parent case included in the Parent Launch Plan Projections and a discount rate of

- 32 -


12.0% to a high of approximately $7.49 per Share based upon the Illustrative high Parent case included in the Parent Launch Plan Projections and a discount rate of 8.0%. We sometimes refer to this range of values per Share as the "adjusted CVR valuation range". Deutsche Bank also noted that the combined value of the upfront consideration and the maximum aggregate payout under the CVR Agreement (without taking into account any present value discount) was $7.94 per Share. However, there is no guarantee that the net sales thresholds required for payments to be made under the CVR Agreement will be achieved.

62. Analyst Price Targets. The description of the Analyst Price Targets on page 36

is materially deficient because it fails to disclose any information about the individual stock price

targets reviewed by Deutsche Bank, including the identities of the Wall Street analyst firms, the

dates of the price targets, and the prices.





(b) on page 36 of the Solicitation Statement, the statements:

Deutsche Bank reviewed the stock price targets for the Common Stock published by six Wall Street research analysts, which ranged from $8.00 to $12.00 per Share. Deutsche Bank noted that the Cash Consideration is $6.44 per Share, that the adjusted CVR valuation range ranges from $6.78 to $7.49 per Share and that the total potential Merger Consideration (without taking into account any present value discount) is $7.94 per Share.

64. Deutsche Bank's Discounted Cash Flow Analyses. The description of Deutsche

Bank's Discounted Cash Flow Analyses on pages 36-37 of the Solicitation Statement and other

- 33 -


information disclosed about this analysis in the Solicitation Statement are materially deficient

because they omit:

(a) the inputs and assumptions used to derive the range of discount rates

(14%-18%) used in the analyses, including but not limited to the betas and selected companies;

(b) the inputs and assumptions used to calculate the perpetuity growth rate

range (-20% to 0%) used in the analyses;

(c) how stock-based compensation was treated in the analyses (i.e., as a cash

or non-cash expense);

(d) the inputs and assumptions used to calculate the net operating losses

("NOLs") and estimated research and development tax credits used in the analyses; and

(e) the basis of the assumption used in the analyses that the Company would

need to raise between $60 million and $100 million through the issuance of additional common

stock in order to finance the Company's business plan on a standalone basis.






Deutsche Bank performed discounted cash flow analyses to determine ranges of implied net present values per Share as of March 31, 2014 using a mid-year discounting convention based upon financial projections prepared by the

- 34 -


Company's management under both the Base Case Projections and the Adjusted Base Case Projections, in each case as described in the section entitled "— Selected Company Management Projections ". Deutsche Bank calculated the discounted cash flow value for the Company as the sum of the net present value of (i) the estimated future unlevered free cash flow, calculated as earnings before interest expense and taxes, less cash taxes, referred to as tax adjusted EBIT, minus capital expenditures, plus or minus changes in net working capital, and plus depreciation and amortization expense, that the Company will generate for the period beginning with the second quarter of 2014 through 2023 under each case, plus (ii) NOLs and research and development ("R&D") credits plus (iii) the value of the Company at the end of such period, or the terminal value. The estimated future cash flows, NOLs and R&D credits were based on financial projections for the Company prepared by its management as described under "— Selected Company Management Projections ". The terminal value of the Company was calculated using perpetuity growth rates ranging from (20.0%) to 0.0%, reflecting the potential for declining sales following the commencement of generic competition after the end of the seven-year exclusivity period for Northera. Deutsche Bank applied discount rates ranging from 14.0% to 18.0% to the Company's future cash flows, NOLs, R&D credits and terminal value. Deutsche Bank derived the foregoing range of discount rates to reflect the risk for a company which had no existing commercial infrastructure or experience commercializing a new product by utilizing a weighted-average cost of capital analysis based on certain financial metrics, including betas, for the Company and selected companies which exhibited similar characteristics to the Company. This analysis resulted in a range of implied net present value per Share of approximately $4.26 to $5.67 per Share under the Base Case Projections and a range of implied net present value per Share of approximately $4.46 to $6.08 under the Adjusted Base Case Projections, in each case without taking into account the impact of any financing required to be obtained by the Company to fund its business plan.

Using the same perpetuity growth rates and discount rates described above, Deutsche Bank performed similar discounted cash flow analyses taking into account the effect of the Company's raising between $60 million and $100 million through the issuance of additional Common Stock in order to finance the Company's business plan on a standalone basis taking into account the negative cash flow for years 2014 and 2015 reflected in the management projections and taking into account the Company's current cash balance. The analysis assumed that the additional shares would be issued at a discount of between 0.0% to 20.0% to either the 20-day trading average of the Common Stock as of May 7, 2014 or the closing price of the Common Stock on May 7, 2014 and a 5.9% underwriter's discount (determined based on Deutsche Bank's prior experience). The results of this analysis are summarized below:

- 35 -


Implied Net Present Value per Share Dicouut to 20-Day Average Discount to May 7, 2014

Price 20.0% to 0% Price 20.0 1%. to 0!'.

Perpetuity Groh Rate Perpetuity Growth Rote (20.0%) - 0% 420.0%) - 0% Discount Rate Discount Rate 18% - 14% 18% - 14%

Net Proceeds from Offering Base Case $ Projections $

$ Adjusted Base $ Case $ Projections $

601%1 $OM

lOOM 60M som

lOOM

$ $

$ $

$

$

4.17 - $5.54 415 - $5,50 4.1 - 4.35 - $59 41 -

4.29 - $5.80

$

$

$ $

$

$

4.18 - $5,54 4,16 - $5.51

4.14 - $5.48 435 . $59

4.2 - $5.85

4.29 - $5.80

Deutsche Bank noted that the upfront consideration in the Offer and the Merger is $6.44 per Share, that the adjusted CVR valuation range ranges from $6.78 to $7.49 per Share and that the combined value of the upfront consideration and the maximum aggregate payout under the CVR Agreement (without taking into account any present value discount) was $7.94 per Share.

66. Deutsche Bank's Selected Public Companies Analysis. The description of

Deutsche Bank's Selected Public Companies Analysis on pages 38-39 of the Solicitation

Statement is materially deficient because it omits:

(a) the 2015 and 2016 total enterprise value/revenue multiples for each of the

comparable public companies selected by Deutsche Bank in its analysis; and

(b) whether, and to what extent, Deutsche Bank conducted any kind of

benchmarking analysis for Chelsea in relation to the selected comparable companies.




At the May 7, 2014, meeting of the Company Board, Deutsche Bank delivered its oral opinion to the Company Board, confirmed by delivery of a written opinion dated as of May 7, 2014, to the effect that, as of the date of such opinion, and based upon and subject to the assumptions, limitations, qualifications and conditions described in Deutsche Bank's opinion, the Merger Consideration to be paid to the holders of Common Stock (other than Parent and its affiliates)

- 36 -


pursuant to the Merger Agreement was fair from a financial point of view to such holders.


Selected Public Companies Analysis

Deutsche Bank reviewed and compared certain financial information and commonly used valuation measurements for the Company with corresponding financial information and valuation measurements for the following selected publicly traded small- to mid-cap companies whose main product addresses central nervous system disorders and had been recently commercialized:

• Acorda Therapeutics, Inc.

• Avanir Pharmaceuticals, Inc.

• Supernus Pharmaceuticals, Inc.

• XenoPort, Inc.

• Zogenix, Inc.

Although none of the selected companies is directly comparable to the Company, the companies included were chosen because they are U.S.-listed publicly traded companies with operations that, for purposes of analysis, may be considered similar to certain operations of the Company. Accordingly, the analysis of publicly traded companies was not simply mathematical. Rather, it involved complex considerations and qualitative judgments, reflected in the opinion of Deutsche Bank, concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of such companies.

Based on the closing price of the Common Stock and the common stock of each of the selected companies on May 7, 2014, the last trading day prior to announcement of the Offer and the Merger, the $6.44 Cash Consideration, the adjusted CVR valuation range of $6.78 to $7.49 per Share, the maximum Merger Consideration of $7.94 per Share, information contained in the most recent public filings of the selected companies, analyst consensus estimates of 2015 and 2016 revenue for the Company and the selected companies, and estimates of 2015 and 2016 revenue for the Company provided by management of the Company under the Base Case Projections and the Adjusted Base Case Projections, Deutsche Bank calculated the following multiples with respect to the Company and each of the selected companies:

• total enterprise value (defined as equity value plus net debt), which we refer to as "TEV", as a multiple of estimated revenue for 2015; and

• TEV, as a multiple of estimated revenue for 2016.

- 37 -


The cash balance for the Company was adjusted to take into account an approximately $4.6 million payment for active pharmaceutical ingredients made in April 2014.

The results of this analysis are summarized as follows:

TEYtRcveniw 2015E 201E

Selected Companies: Acorda Therapeutics, Inc. 2.4x

2,lx

Avanir Pharmaceuticals, Inc. 3.5x

2.6x Supemus Pharmaceuticals, Inc. 2.2x

1.6x

XenoPort, Inc. 14x

1.5x Zogenix, Inc. 2.8x

1.6x

Mean

2.6x

1.9X Median

2.4x

1.6x Company - Analyst Estimates (at $5.00 per Share on May 7, 2014)

6.7x

28x

6.44 Upfront Consideration Analyst Estimates Management

Base Case Projections Adjusted Base Case Projections Adjusted CVR Valuation Range

Analyst Estimates Management

Base Case Projections Adjusted Base Case Projections Upfront Consideration and Maximum CVR Payout


Base Case Projections Adjusted Base Case Projections

1EV/Revenue 2015E 2016E

8.8x 3.7x

S.9x 2.9x 5.9x 28x

9.4x- 10.4x 19x-4.3x

63x-7.Ox 3. lx-34x 6,3x - 7.Ox lOx - 3.3x

11.lx 4.6x

7.5x 3.7x 75x 16x

68. Deutsche Bank's Selected Transactions Analysis. The description of Deutsche

Bank's Selected Transactions Analysis on pages 39-40 of the Solicitation Statement and other

information disclosed about this analysis in the Solicitation Statement are materially deficient

because they omit whether, and to what extent, Deutsche Bank conducted any kind of

benchmarking analysis for Chelsea in relation to the selected transactions.

- 38 -







Selected Transactions Analysis

Deutsche Bank reviewed publicly available information relating to the following selected acquisition transactions in the pharmaceutical industry announced since 2011 involving largely single-product target companies with a soon-to-be or recently approved product. We refer to these transactions as the "selected transactions".

AIquir&r Target Forest Laboratories, Inc. Fiiriex Pharmaceuticals, Inc.

Dale Announced April 28, 2014 January 21, 2014 July 30, 2013 May 28, 2013 January 22, 2013 October 22, 2012 February 22, 2011

Teva Pharmaceutical Industries Ltd. Cubist Pharmaceuticals, Inc. Zeneca, Inc. Allergan, Inc. Pfizer Inc. Forest Laboratories, Inc.

NiiPalhc Inc. Optimer Pharmaceuticals, Inc. Omthera Pharmaceuticals, Inc. MAP Pharmaceuticals, Inc. NextWave Pharmaceuticals, Inc. Clinical Data, Inc.

Although none of the selected transactions is directly comparable to the Offer and the Merger, the companies that participated in the selected transactions are such that, for the purposes of analysis, the selected transactions may be considered similar to the Offer and the Merger. Both upfront and contingent consideration was analyzed in this analysis.

With respect to each selected transaction (other than the acquisitions of Furiex Pharmaceuticals, Inc. and NextWave Pharmaceuticals, Inc., as to which information was not available), Deutsche Bank calculated the multiples of the target's TEV to revenue for the second and third fiscal years following product launch and to peak revenues expected to be achieved by the target company, which is defined as the maximum annual net revenue expected to be achieved in the projection period on a standalone basis.

- 39 -


For each of such selected transactions, Deutsche Bank calculated these multiples based on upfront consideration excluding any contingent payments, upfront consideration plus the adjusted value for any contingent payments (based on the adjusted value for such contingent payments as calculated by the financial advisor to the target company and described in the disclosure documents relating to the transaction) and upfront consideration plus the maximum value of any contingent payments. Deutsche Bank also calculated the same multiples for the Company based upon the Base Case Projections and the Adjusted Base Case Projections, the $6.44 Cash Consideration, the $6.78 to $7.49 adjusted CVR valuation range and the $7.94 maximum Merger Consideration.

The results of the analysis are summarized as follows:

1EV (excluding

TLV (adjusted value ofconthigeiil ntingenI Payments) payments)

1EV (maximum vaIuc

TEVIRveiiue

TEV!Reveiiue

U V/Revenue FY 2 FY 3 Peak

FY 2 FY 3 Peak

FY 2 FY 3 Peak Selected Transactions Forest Laboratories, mci

Furicx Pharmaceuticals, Inc. NA N/A N/A Teva Pharmaceutical Industries

Ltd./NuPathe Inc. 46x 1.x OAx

Cubist Pharmaceuticals, 1tcJ Oplimer Pharmaceuticals, Inc. 22x 1.3x 09x

Ze.nea, Inc ./Ornthra Pharmaceuticals, Inc. 23x 1.6x 06x

A11rgan, Inc/MAP

N/A N/A N/A NA NA NA

6.9x 2.3x 0.6x 8.6x 2.9x 0.7x

3. IX l.9x l3x 3.4x 2Ox l.4x

3.6x 2.Ix 0.7x 4.Ox 2.4x O.8x

Pharmaceuticals, Inc. 93x 49x lix 9.3x 4.9x lix 9.3x 4.9x lix Pfizer IneINe.xWave

Pharmaceuticals, Inc. N/A N/A N/A N/A N/A N/A N/A N/A N/A Forest Laboratories, Inc./

Clinical Data, Inc. 104x 49x LOx 11.5x 5.4 lix 12.5x 5.9x 1.2x Mean 5.x 2.9x 0.8x 6.9x 3.3x lOx lix 3.6x lix Median 46x 16x 09x 6x 2x lix 86x 2x lix

The Offer and the Merger Base Case Projections 5.9x 2.9x LOx 6.3-7Mx 3.1 -34x Li - 1.2x 7.5x 37x 1.3x Adjusted Base Case

Projections 5.9x 2.x 0.9x 6.3-7.Ox 3.O-3.3x 0.9-lOx 7.5x 3.6x lix

70. Deutsche Bank's Premium Analysis. The description of Deutsche Bank's

Premium Analysis in the "Other Information" section on pages 40-41 of the Solicitation

Statement and other information disclosed about this analysis in the Solicitation Statement are

materially deficient because they omit:

(a) the individual premiums for the selected transactions; and

- 40 -


(b) whether, and to what extent, Deutsche Bank conducted any kind of

benchmarking analysis for Chelsea in relation to the selected transactions.

71. The omission of this information rendered the following statements in the


Other Information

Deutsche Bank also noted for the Company Board certain additional factors that were not considered part of its financial analysis with respect to its opinion but were refere nced for informational purposes.

Specifically, Deutsche Bank reviewed the premiums paid in the following 21 selected transactions involving U.S. life sciences companies with transaction values between $200 million and $1.5 billion announced since 2010 (inc luding the selected transactions described above other than the acquisition of NextWave Pharmaceuticals , Inc., which was a private company), seven of which included at least some portion of contingent consideration.

Date Announced April 28, 2014 February 11, 2014 January 21, 2014 September 5, 203 August 27, 2013 July 30, 2013 July 30, 2013 May 28, 2013 April 3, 2013 January 22, 2013 November 8, 2012 April 23, 2012 March 26, 2012 January 26, 2012 October 24, 2011 April 5, 2011

Acquiror Forest Laboratories, Inc. Ma1linkrodt plc Teva Pharmaceutical Industries Lid. Otsuka Pharmaceutical Co., Ltd. Akorri. Inc. Cubist Pharmaceuticals, Inc. Cubist Pharmaceuticals, Inc. Zeneca, Inc. Valeant Pharmaceuticals International, Inc. Allergan, Inc. Sun Pharmaceutical Industries Limited AstraZeneca PLC Bausch & Lomb Incorporated Amgen Inc. Cubist Pharmaceuticals, Inc. Merck & Co., Inc.

Ta rget Furiex Pharmaceuticals, Inc. Cadence Pharmaceuticals, Inc, NuPathe Inc. Astex Pharmaceuticals, Inc. Hi-Tech Phannacal Co., Inc. Trius Therapeutics, Inc. Optirner Pharmaceuticals, Inc. Omthera Pharmaceuticals, Inc. Obagi Medical Products, Inc. MAP Pharmaceuticals, Inc. DUSA Pharmaceuticals, Inc. Ardea Biosciences, inc. ISTA Pharmaceuticals, Inc. McromeI, Inc. Adolor Corporation Inspire Pharmaceuticals, Inc.

Date AimounJ iguircr T]rget Febmary2.2.. 21011 Forest Laboratories, Inc.. Clinical Data Inc.. December21 2010 Konirikljike DS•! N.V. Corporation December L2OlO Ax-can Phamia Holding B.V. EdN.V. September 7,2010 Bn5tol-MVer5 SqLubbC.ompnv Z.vmoGetletic5, Inc.. Mrc.h 9 2010 Abbott Laboratories Facet Biotech Corp oration

- 41 -


The premiums in this analysis were calculated by comparing the per share acquisition price in each transaction to the closing price of the target company’s common stock for the date one day prior to the earlier of the date of announcement of the transaction or the date of release of a press report referencing a potential transaction, to the closing price of the target company’s common stock on the 30th day prior to such date and to the 52-week high closing price of the target company’s common stock prior to such date. For the seven transactions including a contingent component of consideration, Deutsche Bank calculated these premiums based upon the upfront consideration, the upfront consideration plus the adjusted value of the contingent payments as calculated by the financial adviso r to the target company and described in the disclosure documents relating to the transaction (other than the acquisition of NextWave Pharmaceuticals, Inc., for which such information was not available), and the maximum potential consideration (without tak ing into account any present value discount). The following table presents the results of this analysis:

Premium

Prniium i1JpfruI Prrnium i:Tnd. Max. CVR

CrnsidraIian OnI i:inI. AdjusLed CVR Value) Payment)

52- Si- weQk

I-da 3I:-da- high I-da 3':-da- high i-i- 3M3,vhugh Life Sciences Transactions

High MeBL Median Lav

Transaction

296% 17% 63% 58% 65% 16% 3% :5% 15%

% i:2°'::•

291/6 21% 3%

2% 2.21% .S3%

46% 9% 90.

36— 27- 5 WO 4O3;

106% 36% 4i:% 21 P/6 21% Só% 6% W . 24% 4% 62% 241/6

i:42 °i;::• 9°1 E11.

20% Q11.

The high, mean, median and low premiums described in the columns entitled "Premium incl. adjusted CVR Value" and "Premium incl. Max. CVR Payment" abo ve were calculated for all 21 transactions and not just for the seven transactions involving contingent payments.

In addition, Deutsche Bank reviewed the premium represented by the upfront consideration in 20 life sciences transactions involving contingent consideration announced since 2008, and noted that the premium of upfront consideration to the unaffected price per share of common stock of the target company was less than 20% in six of such transactions, between 20% and 50% in seven of such transactions and more than 50% in seven of such transactions. Deutsche Bank noted that the $6.44 Cash Consideration represented a 29% premium to the $5.00 closing price per Share on May 7, 2014.

Financial Projections

72. According to pages 30-33 of the Solicitation Statement, Deutsche Bank relied

upon certain financial forecasts for the Company, including the Base Case Projections, the

- 42 -


Adjusted Base Case Projections, and the Parent Launch Plan Projections (collectively, the

"Projections"). The Solicitation Statement, however, does not disclose the following:

(a) whether the Board considered which set of projections was the most and

least reliable, and if so, the Board's conclusions on these matters;

(b) whether management made any other adjustments (besides assuming a

larger sales force size and a longer period of time to achieve peak market share) in preparing the

Adjusted Base Case Projections and if so, what these adjustments were;

(c) the basis of the following assumptions made in preparing the Projections:

(i) 24% expansion in the market for Northera due to new product;

(ii) $50 per day average blended price for Northera, with 8% annual

price increases;

(iii) 70% prescription fill rate; and

(iv) the size of the sales force for each set of Projections;

(d) the following financial data for each set of the Projections:

(i) NOLs and research and development ("R&D") tax credit

utilization (as separate line items rather than combined); and

(ii) stock-based compensation expense;

(e) the definition of "Adjusted Net Sales," as used in the Base Case

Projections and Adjusted Base Case Projections and whether the "US Net sales" numbers for the

Parent Launch Plan Projections were calculated the same way as these numbers;

(f) the reasons why the Board concluded that a certain set of projections

prepared by management and referenced on page 21 of the Solicitation Statement as the "no-

midodrine" forecast was "highly speculative" and "not quantifiable"; and

- 43 -


(g) the following financial data for management's no-midodrine projections:

(i) earnings before interest and taxes;

(ii) taxes;

(iii) depreciation and amortization;

(iv) capital expenditures;

(v) changes to net working capital;

(vi) NOLs;

(vii) R&D tax credit utilization; and

(viii) free cash flows.






Selected Company Management Projections

Important Information Concerning the Company Management Projections

The Company does not, as a matter of course, publicly disclose long-term forecasts or internal projections as to future performance, earnings or other results, and the Company is particularly concerned with making such forecasts and projections due to the unpredictability of the underlying assumptions and estimates. In connection with the strategic transaction process, the Company's management prepared certain "base case" financial projections for the Company on a standalone basis for the years 2014 through 2023 ("the "Base Case Projections"). The Company's management also prepared adjusted base case

- 44 -


financial projections (the "Adjusted Base Case Projections" and, together with the Base Case Projections, the "Long-Term Financial Projections") for the same period as the Base Case Projections. In addition, in April 2014, in connection with the negotiations relating to the CVRs, Parent provided the Company with certain preliminary information with respect to the marketing launch plan developed by Parent with respect to Northera that included certain sales force estimates. Based on the sales force estimates included in Parent's preliminary launch plan (and using the other assumptions underlying the Long-Term Financial Projections, other than those indicated below under "— The Projections"), the Company's management prepared additional net sales projections for the years 2015 through 2017 (the "Parent Launch Plan Projections" and, together with the Long-Term Financial Projections, the "Projections").

The Company's management provided the Projections to the Company Board and to Deutsche Bank in connection with the rendering of Deutsche Bank's fairness opinion to the Board and in performing its related financial analysis, as described below under the heading " Opinion of Deutsche Bank Securities Inc. ". Prior to the execution of the Merger Agreement, the Company did not provide the Projections to Parent or Acquisition Sub; however, the Company did provide to Parent certain earlier financial projections that had been prepared by the Company's management for the years 2014 and 2015. These earlier projections, which were prepared prior to the receipt of FDA approval of Northera, were not considered by the Board or Deutsche Bank and were superseded by the Projections and the assumptions related thereto.

The summary of the Projections is included in this Statement solely to give Company stockholders access to certain financial projections that were made available to the Company Board and to Deutsche Bank and is not being included in this Statement to influence a Company stockholder's decision whether to tender Shares in the Offer or for any other purpose. The Projections were not developed with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial data, published guidelines of the SEC regarding forward-looking statements or GAAP. The Projections are forward-looking statements.

All of the Projections summarized in this section were prepared by and are the responsibility of the management of the Company. Neither Ernst & Young LLP, the Company's independent registered public accounting firm, nor any other independent registered public accounting firm provided any assistance in preparing the Projections. Accordingly, neither Ernst & Young LLP nor any other independent registered public accounting firm has examined, compiled or otherwise performed any procedures with respect to the Projections or expressed any opinion or given any other form of assurance with respect thereto, and they assume no responsibility for the information contained in the Projections. The Ernst & Young LLP reports included in the Company's Annual Report on Form

- 45 -


10-K for the fiscal year ended December 31, 2013 relate solely to the historical financial information of the Company and to an assessment of the Company's internal control over financial reporting. Such reports do not extend to the Projections and should not be read to do so.

By including the Projections in this Statement, neither the Company nor any of its representatives has made or makes any representation to any person regarding the ultimate performance of Parent, the Surviving Corporation or any of their affiliates compared to the information contained in the Projections.

The Company has made no representation to Parent or Acquisition Sub, in the Merger Agreement or otherwise, concerning the Projections. As noted above, neither Parent nor Acquisition Sub was provided the Projections prior to the execution of the Merger Agreement. Parent and Acquisition Sub each acknowledge and agree in the Merger Agreement with respect to estimates, projections, forecasts and other forward-looking information that they or their respective stockholders, directors, officers, employees, agents, representatives or advisors have received or may continue to receive that (i) there are uncertainties inherent in attempting to make such estimates, projections, forecasts and other forward-looking statements with which Parent and Acquisition Sub are familiar, (ii) Parent and Acquisition Sub are taking full responsibility for making their own evaluation of the adequacy, accuracy and completeness of all estimates, projections, forecasts and other forward-looking information furnished to them (including the reasonableness of the assumptions underlying such estimates, projections, forecasts, forward-looking information or business plans), and (iii) Parent and Acquisition Sub will have no claim, other than those arising out of fraud, against the Company or any of its subsidiaries, or any of their respective affiliates, stockholders, directors, officers, employees, agents, representatives or advisors, or any other person, with respect to such information.

Important factors that may affect actual results and result in projections of future revenue, gross profit and cash flows contained in the Projections not being achieved include, but are not limited to, the accuracy of the assumptions described below under " The Projections"; the Company's ability to increase revenue from sales of Northera and the relatively low incidence and prevalence rates of NOH; acceptance of Northera by doctors prior to the time results from the Company's post-approval studies are available or other long-term data regarding efficacy and safety exists; results from the Company's post-approval study should such study fail to verify the durability of the clinical benefit of Northera for the treatment of NOH or support additional regulatory approvals; reimbursement and coverage policies of government and private payers such as Medicare, Medicaid, insurance companies, health maintenance organizations and other plan administrators; the challenges associated with obtaining regulatory approvals for Northera in Europe and elsewhere and successful commercialization of Northera following the receipt of regulatory approvals; reliance on third parties for the successful commercialization of Northera; enforceability and costs of enforcement of the Company's patents; potential

- 46 -


infringements of patents of third parties by the Company and its products; the effect on the Company's business of competitive products and therapies; the Company's need for additional funds to finance its commercialization efforts; the potential costs of patent, products liability or other litigation; future equity compensation expenses; changes in accounting rules; the costs of negotiating and consummating the Offer and the Merger; and the other factors set forth in the Company's SEC filings, including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, and described under the sections entitled "Risk Factors" and "Cautionary Statements Regarding Forward-Looking Statements" therein.

The assumptions and estimates underlying the Projections, all of which are difficult to predict and many of which are beyond the control of Company, may not be realized. There can be no assurance that the underlying assumptions will prove to be accurate or that the forecasted results will be realized, and actual results likely will differ, and may differ materially, from those reflected in the Projections, whether or not the Offer and the Merger are completed.

The Long-Term Financial Projections were developed for the Company on a standalone basis without giving effect to the Offer and the Merger, and therefore none of the Long-Term Financial Projections gives effect to the Offer, the Merger or any changes to the Company's operations or strategy that may be implemented after the consummation of the Offer and the Merger, including cost synergies realized as a result of the Offer and the Merger, or to any costs incurred in connection with the Offer and the Merger. The Parent Launch Plan Projections were prepared by the Company's management and provided to Deutsche Bank and discussed with the Board for purposes of estimating the potential payouts under the CVRs; accordingly, the Parent Launch Plan Projections assume that Parent would follow the marketing strategy for Northera set forth in the preliminary launch plan provided to the Company, which Parent is under no obligation to do.

The Projections summarized in this section were prepared during the periods described above and have not been updated to reflect any changes since the date of the Merger Agreement or any actual results of operations of the Company since December 31, 2013. The Company undertakes no obligation, except as required by law, to update or otherwise revise the Projections to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.

In light of the foregoing factors and the uncertainties inherent in the Projections and the Company's operating plans, stockholders are cautioned not to place undue, if any, reliance on the Projections.

- 47 -


The Projections

The Long-Term Financial Projections, including the Base Case Projections and the Adjusted Base Case Projections, reflect a level of projected revenue, gross profits and cash flows of the Company for 2014 through 2023 that assumes certain continuing limitations on the business and operations of the Company, including a limited amount of cash resources, which impacts sales force size, marketing and promotional spend and other commercial activities, and the Company's commercialization of only one product, Northera. The Projections assume that the Company can raise sufficient capital to support the level of operations, including the launch and commercialization of Northera, necessary to achieve the projected sales and revenue reflected in the Projections. In addition, the Projections reflect the following assumptions, except as otherwise indicated below:

• Sales of Northera commencing in September 2014;

• Knowledge by physicians of Northera's ability to reduce patient falls in the Parkinson's disease NOH population by 20% through the Company's publication efforts;

• 68% patient compliance rate with prescribed dosages;

• 70% prescription fill rate;

• 0.9% annual general population growth;

• 24% expansion in the market for Northera due to new product;

• $50 per day average blended price for Northera, with 8% annual price increases;

• No revenues or research and development expenses associated with QD (once daily) or other indications;

• No revenue or expense specifically associated with European development or any European Medicines Agency filing;

• Net sales presented included net of foundation and patient assistance program expense; and

• With respect to the Long-Term Financial Projections only, a December 31, 2013 NOL balance of $209 million, increased by $9 million for loss generated in the first quarter of 2014, as well as estimated research and development tax credits of $19.1 million. NOL utilization may be limited by Section 382 limitation as a result of ownership changes in 2006, 2009 and 2011.

- 48 -


The Base Case Projections reflect an assumed sales force of 85 representatives that remains static throughout the projection period and a period of 36 months to achieve peak market share. The Adjusted Base Case Projections reflect a higher level of net sales than assumed in the Base Case Projections as a result of an increase in the size of the sales force from 85 representatives in 2014 to 150 representatives in 2015 through 2023 and a period of 48 months to achieve peak market share.

Other than as set forth above, the Parent Launch Plan Projections are based on the same assumptions reflected in the Long-Term Financial Projections, except that the Parent Launch Plan Projections reflect estimated sales of Northera by Parent, assuming Parent follows the marketing strategy set forth in its preliminary launch plan provided to the Company in April 2014, which Parent is under no obligation to do. The numbers of "P1" and "P2" sales representatives reflected in the Parent Launch Plan Projections were provided by Parent as a component of its preliminary launch plan. P1 sales representatives are sales representatives that would sell Northera as their primary product. P2 sales representatives are sales representatives that would sell Northera as their secondary product. For purposes of the Parent Launch Plan Projections, the Company's management assumed that both P1 and P2 sales representatives would sell Northera, but that P2 representatives would be 60% as effective as P1 representatives in the case of the "Illustrative low Parent case", and 75% as effective as P1 representatives in the case of the "Illustrative high Parent case".

Base Case Projections

Q2 – Q4 $ in millions 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Adjusted Net Sales $ 12 $ 84 $ 171 $ 266 $ 343 $ 412 $ 474 $ 142 $ 85 $ 64 Gross Profit 11 69 142 222 287 347 402 117 70 53 EBITDA (46) (19) 58 146 211 275 339 94 63 46

Less: Depreciation and amortization (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) EBIT (47) (19) 57 146 211 275 338 94 63 46

Less: Taxes 0 0 (22) (54) (78) (102) (125) (35) (23) (17) Plus: Depreciation and amortization 0 0 0 0 0 0 0 0 0 0 Less: Capital expenditures (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) Less: Increase (decrease) in net working

capital (6) (19) (23) (25) (20) (18) (16) 86 15 6 Free Cash Flow $ (53) $ (38) $ 13 $ 67 $ 113 $ 156 $ 197 $ 145 $ 55 $ 34 NOL/R&D tax credit utilization $ 0 $ 0 $ 57 $ 146 $ 121 $ 10 $ 5 $ 0 $ 0 $ 0

Adjusted Base Case Projections

Q2 – Q4 $ in millions 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Adjusted Net Sales $ 12 $ 84 $ 175 $ 274 $ 367 $ 473 $ 567 $ 170 $ 102 $ 77 Gross Profit 10 69 146 229 308 399 480 140 84 63 EBITDA (46) (25) 44 136 215 312 403 115 77 56

Less: Depreciation and amortization (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) EBIT (46) (26) 44 136 214 311 403 115 77 56

Less: Taxes 0 0 (16) (50) (79) (115) (149) (43) (28) (21) Plus: Depreciation and amortization 0 0 0 0 0 0 0 0 0 0 Less: Capital expenditures (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) Less: Increase (decrease) in net working

capital (6) (18) (24) (25) (24) (27) (24) 102 17 7 Free Cash Flow $ (53) $ (44) $ 4 $ 60 $ 111 $ 169 $ 230 $ 175 $ 66 $ 42 NOL/R&D tax credit utilization $ 0 $ 0 $ 44 $ 136 $ 151 $ 10 $ 5 $ 0 $ 0 $ 0

- 49 -


Parent Launch Plan Projections

$ in millions 2015 2016 2017 US net sales

Illustrative low Parent case (1)

$ 113 $ 229 $ 344

Illustrative high Parent case (2)

$ 157 $ 312 $ 447

(1) Parent's preliminary launch plan assumed 80 P1 sales representatives and 65 P2 sales representatives; the Company's management assumed that P2 sales representatives would be 60% as effective as P1 sales representative.

(2) Parent's preliminary launch plan assumed 110 P1 sales representatives and 85 P2 sales representatives; the Company's management assumed that P2 sales representatives would be 75% as effective as P1 sales representatives.

Opinion of Deutsche Bank Securities Inc.


The full text of Deutsche Bank's written opinion, dated as of May 7, 2014, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Deutsche Bank in connection with the opinion, is included in this Statement as Annex A and is incorporated herein by reference. The summary of Deutsche Bank's opinion set forth in this Statement is qualified in its entirety by reference to the full text of the opinion. Deutsche Bank's opinion was approved and authorized for issuance by a Deutsche Bank fairness opinion review committee and was addressed to, and was for the use and benefit of, the Company Board in connection with and for the purpose of its evaluation of the Offer and the Merger. Deutsche Bank expressed no opinion, and its opinion does not constitute a recommendation, as to whether or not any holder of Common Stock should tender Shares pursuant to the Offer or, if applicable, how any holder of Shares should vote with respect to the Merger. Deutsche Bank's opinion was limited to the fairness, from a financial point of view, to the holders of Common Stock (other than Parent and its affiliates) of the Merger Consideration to be paid to such holders pursuant to the Merger Agreement as of the date of the opinion. Deutsche Bank's opinion did not address any other terms of the Offer or the Merger, the Merger Agreement or the CVR Agreement, including with respect to the form or terms of the CVRs relating to the lack of transferability, illiquidity or otherwise. Deutsche Bank

- 50 -


was not asked to, and Deutsche Bank's opinion did not, address the fairness of the Offer or the Merger, or any consideration received in connection therewith, to the holders of any other class of securities, creditors or other constituencies of the Company, nor did it address the fairness of the contemplated benefits of the Offer or the Merger. Deutsche Bank expressed no opinion as to the merits of the underlying decision by the Company to engage in the Offer and the Merger or the relative merits of the Offer and the Merger as compared to any alternative transactions or business strategies. Also, Deutsche Bank did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of the Company's officers, directors or employees, or any class of such persons, in connection with the Offer and the Merger relative to the Merger Consideration to be paid to holders of Common Stock pursuant to the Merger Agreement or otherwise.

In connection with its opinion, Deutsche Bank reviewed certain publicly available financial and other information concerning the Company and certain internal analyses, financial forecasts and other information relating to the Company prepared by management of the Company, including sales forecasts prepared by management of the Company taking into account information provided by management of Parent regarding its preliminary marketing plans for Northera. Deutsche Bank also held discussions with certain senior officers and other representatives and advisors of the Company regarding the businesses and prospects of the Company and Parent's preliminary plans with respect to marketing Northera. In addition, Deutsche Bank:

• reviewed the reported prices and trading activity for the Common Stock;

• compared certain financial and stock market information for the Company with, to the extent publicly available, similar information for certain other companies it considered relevant whose securities are publicly traded;

• reviewed, to the extent publicly available, the financial terms of certain recent business combinations which it deemed relevant;

• reviewed the Merger Agreement and the CVR Agreement attached as an exhibit thereto; and

• performed such other studies and analyses and considered such other factors as it deemed appropriate.

Deutsche Bank did not assume responsibility for independent verification of, and did not independently verify, any information, whether publicly available or furnished to it, concerning the Company or Parent, including, without limitation, any financial information considered in connection with the rendering of its opinion.

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Accordingly, for purposes of its opinion, Deutsche Bank, with the knowledge and permission of the Company Board, assumed and relied upon the accuracy and completeness of all such information. Deutsche Bank did not conduct a physical inspection of any of the properties or assets, and did not prepare, obtain or review any independent evaluation or appraisal of any of the assets or liabilities (including any contingent, derivative or off-balance-sheet assets or liabilities), of the Company, Parent or any of their respective subsidiaries, nor did Deutsche Bank evaluate the solvency or fair value of the Company, Parent or the combined company under any law relating to bankruptcy, insolvency or similar matters. With respect to the financial forecasts made available to Deutsche Bank and used in its analyses, Deutsche Bank assumed, with the knowledge and permission of the Company Board, that such forecasts had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as to the matters covered thereby under each of the individual cases included in such forecasts. In rendering its opinion, Deutsche Bank expressed no view as to the reasonableness of such forecasts and projections or the assumptions on which they are based. Deutsche Bank's opinion was necessarily based upon economic, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion. Deutsche Bank expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion of which it becomes aware after the date of its opinion.

For purposes of rendering its opinion, Deutsche Bank assumed, with the knowledge and permission of the Company Board, that in all respects material to its analysis, the Offer and the Merger would be consummated in accordance with the terms of the Merger Agreement and the CVR Agreement, without any waiver, modification or amendment of any term, condition or agreement that would be material to its analysis. Deutsche Bank also assumed, with the knowledge and permission of the Company Board, that all material governmental, regulatory or other approvals and consents required in connection with the consummation of the Offer and the Merger would be obtained and that in connection with obtaining any necessary governmental, regulatory or other approvals and consents, no restrictions, terms or conditions would be imposed that would be material to its analysis. Deutsche Bank is not a legal, regulatory, tax or accounting expert and Deutsche Bank relied on the assessments made by the Company and its other advisors with respect to such issues.

The following is a summary of the material financial analyses presented by Deutsche Bank to the Company Board at its meeting held on May 7, 2014, and that were used in connection with rendering its opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Deutsche Bank, nor does the order in which the analyses are described represent the relative importance or weight given to the analyses by Deutsche Bank. Some of the summaries of financial analyses below include information presented in tabular format. In order to fully understand the analyses, the tables must be read together with the text of

- 52 -


each summary. The tables alone do not constitute a complete description of the analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before May 7, 2014, and is not necessarily indicative of current market conditions.

Analysis of the Merger Consideration

Deutsche Bank conducted an analysis of the per Share consideration to be paid to holders of the Common Stock in the Offer and the Merger. Such consideration includes (i) an upfront payment of $6.44 in cash per Share, plus (ii) the contingent right to three payments of up to $0.50 each, which could deliver up to an additional $1.50 in cash per Share, to be determined and paid pursuant to, and in the time frames set forth in, the CVR Agreement and described under " Item 2. Identity and Background of Filing Person — Tender Offer." For analytical purposes, Deutsche Bank calculated present values for the CVR payments under both the Illustrative low Parent case and Illustrative high Parent case included in the Parent Launch Plan Projections described above under " Selected Company Management Projections". Based upon these estimates of net sales, Deutsche Bank calculated the CVR payments to be received by holders of Common Stock pursuant to the terms of the CVR Agreement and applied discount rates ranging from 8.0% to 12.0% to such future payments to calculate the present value of such payments discounted from the applicable date of payment under the CVR Agreement to March 31, 2014. Because any payments under the CVRs would depend upon Northera net sales in the hands of Parent, Deutsche Bank derived the foregoing range of discount rates to reflect the risk for a company, such as Parent, which had experience commercializing products similar to Northera by utilizing a weighted-average cost of capital analysis based on certain financial metrics, including betas, for Parent and selected companies which exhibited similar characteristics to Parent. The results of this analysis are summarized below (and reflect rounding to the nearest whole cent):

NiiminI CVR piiaut per Shirt p

[iUith Loint Rite

Illustrative Iiw Par.t ciii Illustrative hii Parit case

2015t. 21 II 2017! Total 2015E. 21E 21117E Total

S O.OS S 0.17 $0.25 0.50 SC ia 50.50 S l.

$IHJ1 $014 $ 0.19 39 $O-2S $040 $02.7 $ ii IOAP% S 0.06 0.13 S 017 0.37 1 0.27 $0.38 5 0.34 I 0.99

110% $ 0.06 0.12 16 0i4 1C.26 $ $O2 I ON

Deutsche Bank noted that the combined value of the upfront consideration of $6.44 per Share and the calculated present values of the CVR payments ranged from a low of approximately $6.78 per Share based upon the Illustrative low Parent case included in the Parent Launch Plan Projections and a discount rate of 12.0% to a high of approximately $7.49 per Share based upon the Illustrative

- 53 -


high Parent case included in the Parent Launch Plan Projections and a discount rate of 8.0%. We sometimes refer to this range of values per Share as the "adjusted CVR valuation range". Deutsche Bank also noted that the combined value of the upfront consideration and the maximum aggregate payout under the CVR Agreement (without taking into account any present value discount) was $7.94 per Share. However, there is no guarantee that the net sales thresholds required for payments to be made under the CVR Agreement will be achieved.

Historical Trading Analysis

Deutsche Bank reviewed the historical closing trading prices for the Common Stock for the period from January 10, 2014 (a recent date prior to the January 14, 2014 recommendation by the CRDAC that Northera be approved for the treatment of symptomatic NOH) to May 7, 2014. Deutsche Bank noted that the closing price of the Common Stock on May 7, 2014 was $5.00 per Share. In addition, Deutsche Bank noted that the 10-day and 20-day average closing prices of the Common Stock as of May 7, 2014 were $4.98 per Share and $4.97 per Share, respectively. Further, Deutsche Bank noted that the closing price of the Common Stock has averaged (i) $5.23 per Share since January 14, 2014, the date on which the CRDAC recommended that the FDA approve Northera for the treatment of symptomatic NOH, and (ii) $5.45 per Share since February 18, 2014, the date on which the Company received accelerated FDA approval of Northera for the treatment of symptomatic NOH. Deutsche Bank noted that the Cash Consideration is $6.44 per Share, that the adjusted CVR valuation range ranges from $6.78 to $7.49 per Share and that the total potential Merger Consideration (without taking into account any present value discount) is $7.94 per Share.

Analyst Price Targets

Deutsche Bank reviewed the stock price targets for the Common Stock published by six Wall Street research analysts, which ranged from $8.00 to $12.00 per Share. Deutsche Bank noted that the Cash Consideration is $6.44 per Share, that the adjusted CVR valuation range ranges from $6.78 to $7.49 per Share and that the total potential Merger Consideration (without taking into account any present value discount) is $7.94 per Share.

Discounted Cash Flow Analyses

Deutsche Bank performed discounted cash flow analyses to determine ranges of implied net present values per Share as of March 31, 2014 using a mid-year discounting convention based upon financial projections prepared by the Company's management under both the Base Case Projections and the Adjusted Base Case Projections, in each case as described in the section entitled "– Selected Company Management Projections ". Deutsche Bank calculated the discounted cash flow value for the Company as the sum of the net present value of (i) the estimated future unlevered free cash flow, calculated as earnings before interest expense and taxes, less cash taxes, referred to as tax adjusted EBIT, minus

- 54 -


capital expenditures, plus or minus changes in net working capital, and plus depreciation and amortization expense, that the Company will generate for the period beginning with the second quarter of 2014 through 2023 under each case, plus (ii) NOLs and research and development ("R&D") credits plus (iii) the value of the Company at the end of such period, or the terminal value. The estimated future cash flows, NOLs and R&D credits were based on financial projections for the Company prepared by its management as described under "— Selected Company Management Projections ". The terminal value of the Company was calculated using perpetuity growth rates ranging from (20.0%) to 0.0%, reflecting the potential for declining sales following the commencement of generic competition after the end of the seven-year exclusivity period for Northera. Deutsche Bank applied discount rates ranging from 14.0% to 18.0% to the Company's future cash flows, NOLs, R&D credits and terminal value. Deutsche Bank derived the foregoing range of discount rates to reflect the risk for a company which had no existing commercial infrastructure or experience commercializing a new product by utilizing a weighted-average cost of capital analysis based on certain financial metrics, including betas, for the Company and selected companies which exhibited similar characteristics to the Company. This analysis resulted in a range of implied net present value per Share of approximately $4.26 to $5.67 per Share under the Base Case Projections and a range of implied net present value per Share of approximately $4.46 to $6.08 under the Adjusted Base Case Projections, in each case without taking into account the impact of any financing required to be obtained by the Company to fund its business plan.

Using the same perpetuity growth rates and discount rates described above, Deutsche Bank performed similar discounted cash flow analyses taking into account the effect of the Company's raising between $60 million and $100 million through the issuance of additional Common Stock in order to finance the Company's business plan on a standalone basis taking into account the negative cash flow for years 2014 and 2015 reflected in the management projections and taking into account the Company's current cash balance. The analysis assumed that the additional shares would be issued at a discount of between 0.0% to 20.0% to either the 20-day trading average of the Common Stock as of May 7, 2014 or the closing price of the Common Stock on May 7, 2014 and a 5.9% underwriter's discount (determined based on Deutsche Bank's prior experience). The results of this analysis are summarized below:

IMd Net Prnt V!ipr SOar Uictxiut U2D-Day Aeti Diimunt tD May 7 OI4

Piic 1LO% toI% NICE iO to 0% PErF1ity C.Towd REe Perptmily Griih RUt

iotiI Ralt Dbciot Rt 18%-14% IN-14%

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Net Fr(weeds froni Offering

Projeiion

Adjusted Base

Case Projections

60M S OM

1fHJM 60M som

1IOM $

417 - I.54 S 415 - 4A3 - 47 S

4_35 - S 4,31 - 584 S 429 - S5.80 S

418 - S534 416 - $151

414 -

435 - 432 - 429 -

Deutsche Bank noted that the upfront consideration in the Offer and the Merger is $6.44 per Share, that the adjusted CVR valuation range ranges from $6.78 to $7.49 per Share and that the combined value of the upfront consideration and the maximum aggregate payout under the CVR Agreement (without taking into account any present value discount) was $7.94 per Share.

Selected Public Companies Analysis

Deutsche Bank reviewed and compared certain financial information and commonly used valuation measurements for the Company with corresponding financial information and valuation measurements for the following selected publicly traded small- to mid-cap companies whose main product addresses central nervous system disorders and had been recently commercialized:

• Acorda Therapeutics, Inc.

• Avanir Pharmaceuticals, Inc.

• Supernus Pharmaceuticals, Inc.

• XenoPort, Inc.

• Zogenix, Inc.

Although none of the selected companies is directly comparable to the Company, the companies included were chosen because they are U.S.-listed publicly traded companies with operations that, for purposes of analysis, may be considered similar to certain operations of the Company. Accordingly, the analysis of publicly traded companies was not simply mathematical. Rather, it involved complex considerations and qualitative judgments, reflected in the opinion of Deutsche Bank, concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of such companies.

Based on the closing price of the Common Stock and the common stock of each of the selected companies on May 7, 2014, the last trading day prior to announcement of the Offer and the Merger, the $6.44 Cash Consideration, the adjusted CVR valuation range of $6.78 to $7.49 per Share, the maximum Merger Consideration of $7.94 per Share, information contained in the most recent public filings of the selected companies, analyst consensus estimates of 2015 and 2016 revenue for the Company and the selected companies, and

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estimates of 2015 and 2016 revenue for the Company provided by management of the Company under the Base Case Projections and the Adjusted Base Case Projections, Deutsche Bank calculated the following multiples with respect to the Company and each of the selected companies:

• total enterprise value (defined as equity value plus net debt), which we refer to as "TEV", as a multiple of estimated revenue for 2015; and

• TEV, as a multiple of estimated revenue for 2016.

The cash balance for the Company was adjusted to take into account an approximately $4.6 million payment for active pharmaceutical ingredients made in April 2014.

The results of this analysis are summarized as follows:

2I:igL. 2016E Sele':ted Companies:

Ac.orda Therapeutic... Iiic

24x

21x -.anir Pharmaceuticals, Inc. 3. 2.6x Sup emus Phalmaceutic.a15, Inc. 22x

1 6x

XenoPort. Inc. 2..4x

1. ix Zogenix, Inc- 2Sx

IAX

Mean

2.6x

lQx Median

24x

Ifix C.ompaiv - Anal st Estimates (at 5j. 00 per Share on May. 1 1 2014-)

1.. 2.. x

5 ,6 44 Upfront Consideration Analyst Estimates MmIagelaeal

Ekase Case ProjIion Adjusted Base Case Prcjtion Adjusted CVR Vahadim R2nge


BseCaProjection AdjusedBae Case Projtions Upfront Consideration and Maximum CVR Prout

Analyst Estimates

Be Case Projtion Adjusted Be Case Projections

Th rikQ.te 2015E 2016E

9-8X IN

59x 29x 59x 2Sx

94 - 104 19x 43x

63x-7ikx 31-34x 63x-7x 30x-1Jx

MAX 46x

7ix 17x 75x 36x

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Selected Transactions Analysis

Deutsche Bank reviewed publicly available information relating to the following selected acquisition transactions in the pharmaceutical industry announced since 2011 involving largely single-product target companies with a soon-to-be or recently approved product. We refer to these transactions as the "selected transactions".

DteAuounied Aquhor ThrgrL April 2 2014 Fore oratories, Inc Furie.x Pharrn€utica]s, Inc. January 2, 2014 Teva PIirmace.uticâ1 Indacthes Ltd NuPathe Inc. July 30, 2013 Cubist Pliannaceuticals, inc. 00mer Phamiaceuticah, Inc. My 28 2I 3 Zeneca, Inc- Ornthera Phanammitm1s, Inc. January 22 2013 A1Iergin, Inc. MAP PIianrice.ufica1s, Inc - October 22 2012 Pfizer Inc. 1'lexfWave Phan aceutic1s, Inc. Febivaiy 22, 2011 Forest Laboratorie Inc (1inica1 Data, Inc

Although none of the selected transactions is directly comparable to the Offer and the Merger, the companies that participated in the selected transactions are such that, for the purposes of analysis, the selected transactions may be considered similar to the Offer and the Merger. Both upfront and contingent consideration was analyzed in this analysis.

With respect to each selected transaction (other than the acquisitions of Furiex Pharmaceuticals, Inc. and NextWave Pharmaceuticals, Inc., as to which information was not available), Deutsche Bank calculated the multiples of the target's TEV to revenue for the second and third fiscal years following product launch and to peak revenues expected to be achieved by the target company, which is defined as the maximum annual net revenue expected to be achieved in the projection period on a standalone basis.

For each of such selected transactions, Deutsche Bank calculated these multiples based on upfront consideration excluding any contingent payments, upfront consideration plus the adjusted value for any contingent payments (based on the adjusted value for such contingent payments as calculated by the financial advisor to the target company and described in the disclosure documents relating to the transaction) and upfront consideration plus the maximum value of any contingent payments. Deutsche Bank also calculated the same multiples for the Company based upon the Base Case Projections and the Adjusted Base Case Projections, the $6.44 Cash Consideration, the $6.78 to $7.49 adjusted CVR valuation range and the $7.94 maximum Merger Consideration.

The results of the analysis are summarized as follows:

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TEY ciduding TEV (adjued value olconthigeut effldnRentplyukent IJn1rts) TEV mI1imLhIE

1tV/l(renue 1'EViI(nenue TEWREVEUuE

F'r 2 FYI Pk FY I FY 3 Pk FY 2 FV I Pk

S1ete4 TjicIion

FL Lrri, md Funei PharrraucuticA% Inc. NA NA VA NA N/A NA NA NA N/A

Tcva PhmnmoruEnd Indadiics LidiNuPitht loc. 4 15x 04 69x 13x O& 9.6x 29x 0A

Cubist Pharmaceuticals, hid O4ne1- PhmIaceuticaI5. Inc. 22x 13i 09x 3.Ix L9x 1.3x 3.41 2.Ox lAx

Zn bJOthr PfiannaccIfiea1, IlK. 17 16x 06x 36x lix 07x 40 24x 0 8

At1trran,1nt. ..MAP Thrmcithc.aLs,Tii. 93x 4.9x lix 93x 49x 1. Ix 9.3x 4.9m Lix

Pfizer IDLYQ PmcificaLs,Tii. NA N/A N/A NA N/A N/A N/A N/A N/A

FL Laboraibries, Iid CIinici D, Inc. I0.4x 4.9i lOx 115x 5AX 1. Ix 12.Sm 5.9x Ilx Mzi 5x 2.9jL Ox 69x 3.3x Lih 75x 3j6x 1. Ix

4Ax 1.6i 09x 69 2ix 1. Ix 9.6x 2.9x lix ThOffd thMti1.t

Elam Case Prujedion 5.9x 2.9i LOx 6.3 — .7 31— 3Ax 11 - 1.2x 7.5 x 17x Lii

Adus1edBaecas Prt±om 5 2x 04x 3O-33x 0-9 — I.Ox 75x 16 [i

Other Information

Deutsche Bank also noted for the Company Board certain additional factors that were not considered part of its financial analysis with respect to its opinion but were referenced for informational purposes.

Specifically, Deutsche Bank reviewed the premiums paid in the following 21 selected transactions involving U.S. life sciences companies with transaction values between $200 million and $1.5 billion announced since 2010 (including the selected transactions described above other than the acquisition of NextWave Pharmaceuticals, Inc., which was a private company), seven of which included at least some portion of contingent consideration.

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DEe Annuned

April 2, 2014 Febnry 11, 2014 January 21, 2014 September 5. 2013 August 27, 20I3 Jubr 30 2013 JI.Lbr 30, 2013 May 28, 2013 April 3, 2013 January 22, 2013 November 8, 2012 April 23, 2012 March 26, 2012 January 26, 2012 Octob& 24,2W 1 April 52011

Forest Laboratories, Inc. Mallinckrodt pk Teva Nrrnace.uical Industries Ltd Otsuka Phanreutic1 Co- Lk1 Akam, Inc. Cubist PharmaceuticaL, Inc. Cubist PharmaceuticaLs, Inc. Zerieca, Inc. Valeant PhamiaccuUciIs Internationid, Inc. Al1erganIrc. Sun Phrmaceiitica1 Indijsljies Limited A.traZeneca PLC Bausth & Lomb Incorporated Amgen Inc. Cubist Pharmaceuticals, Inc. Merck & Co., Inc.

Funex Pharmaceuticals, Inc. Cadence Pharmaceuticals, Inc. NuPathe Inc. Mtex Phnmicuticak, Inc-Hi-Tech PhimacaI Co., line. Trims Therapeutics, Inc. Optinier Pharmaceuticals, Inc. Omthera Pharmaceuticals, Inc. Obagi Medical Prochwtc, Inc. MAP Pharmaceuticals, Inc. DUSA Ptirmaceiitica1, Tn Ardea Biocierice, Inc. ISTA Pharmaceuticals, Inc. Microruel, Inc. Adolor Corporation. Inspire Pharmaceuticals, Inc.

DaIeAnhIunNd

Aq.irr

February 22, 2011 Forest Laboratories, Inc. Clinical Dan, Inc. December 21, 2010 KDiiiiiklijke DSMNV. Martek Bioscieic Corporation December 1, 2010 AxcanPharma Holding WV. EurandNV. September 7,2010 BristDbMyers Squibb Company Zyino(3enetks, Inc. March 9, 2010 Abbott Laboratories Facet Biotech Corporation

The premiums in this analysis were calculated by comparing the per share acquisition price in each transaction to the closing price of the target company's common stock for the date one day prior to the earlier of the date of announcement of the transaction or the date of release of a press report referencing a potential transaction, to the closing price of the target company's common stock on the 30th day prior to such date and to the 52-week high closing price of the target company's common stock prior to such date. For the seven transactions including a contingent component of consideration, Deutsche Bank calculated these premiums based upon the upfront consideration, the upfront consideration plus the adjusted value of the contingent payments as calculated by the financial advisor to the target company and described in the disclosure documents relating to the transaction (other than the acquisition of NextWave Pharmaceuticals, Inc., for which such information was not available), and the maximum potential consideration (without taking into account any present value discount). The following table presents the results of this analysis:

rnum (Upfro.t Pm1um Premium Cothkritloii O1)) (]nL Adj.Id CVR Value) ML CYR Panieut)

1-doy 3{J-div b1 1-day 3I-day bIII 1-day -da ugh Life Sciences Tranadins

Higb Mean Medijt Low

TrinsicIin

206% 170% 63% 20% 221% 106% 356% 400% 218%

65% 16% 7% R3 % 27% 6% 96% 36%

39% 55% 15% 460A 9% 24% 54% 62% 24% fj4 % (41%) 9 Q (41%) 9% 9% i42%

29% 21% 3% 36-0% 27-40% 8-20% 59% 49% 27%

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The high, mean, median and low premiums described in the columns entitled "Premium incl. adjusted CVR Value" and "Premium incl. Max. CVR Payment" above were calculated for all 21 transactions and not just for the seven transactions involving contingent payments.

In addition, Deutsche Bank reviewed the premium represented by the upfront consideration in 20 life sciences transactions involving contingent consideration announced since 2008, and noted that the premium of upfront consideration to the unaffected price per share of common stock of the target company was less than 20% in six of such transactions, between 20% and 50% in seven of such transactions and more than 50% in seven of such transactions. Deutsche Bank noted that the $6.44 Cash Consideration represented a 29% premium to the $5.00 closing price per Share on May 7, 2014.

74. The omissions in the Company's financial projections render the above statements

materially misleading because without full access to the estimates of Chelsea's future cash flows

and the underlying assumptions for such projections, Chelsea shareholders cannot reliably

compare the intrinsic value of the Company to the consideration offered by the Proposed

Acquisition, and thus cannot determine whether the Proposed Acquisition is indeed fair, as

defendants and their financial advisors claim.

INSIDER BENEFITS

75. By reason of their positions with Chelsea, the Individual Defendants have access

to non-public information concerning the financial condition and prospects of Chelsea. Thus,

there exists an imbalance and disparity of knowledge and economic power between the

Individual Defendants and the public shareholders of Chelsea. Therefore, it is inherently unfair

for the Individual Defendants to execute and pursue any Proposed Acquisition agreement under

which they will reap disproportionate benefits to the exclusion of obtaining the best value for

shareholders.

76. The Individual Defendants disloyally placed their own interests first, and tailored

the terms and conditions of the Proposed Acquisition to meet their own personal needs and

objectives. For instance, under the Company's Executive Retention Bonus Plan effective as of

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April 16, 2013, several Chelsea executives, including defendant Oliveto, are entitled to receive a

bonus of 50% of their base salary if a Sale Event occurs. Based on defendant Oliveto's 2014

base salary of $350,000, he will receive a $175,000 bonus upon consummation of the Proposed

Acquisition. Significantly, this bonus was only available to defendant Oliveto if the Sale Event

occurred by December 31, 2014.

77. Upon completion of the Proposed Acquisition, each Board member will also

receive a cash bonus equaling to 50% of the cash compensation paid to such director in 2013.

Further, in April 2013, the non-employee Board members were each granted options for the

aggregate purchase of 200,000 shares of common stock ("Non-Employee Director Options"), or

options on 50,000 shares per non-employee director. These options, which are worth between

$233,500 and $308,500 per non-employee director, will only vest upon a change in control and

will otherwise expire on December 31, 2014.

78. The above noted benefits, which are not shared with the Company's stockholders,

created additional incentives for the Individual Defendants to accept a lower price. The

Proposed Acquisition is wrongful, unfair, and harmful to Chelsea's public stockholders, and

represents an effort by the Individual Defendants to aggrandize their own financial position and

interests at the expense of and to the detriment of the Class. Specifically, defendants are

attempting to deny plaintiff and the Class their shareholder rights through the sale of Chelsea via

an unfair process. Accordingly, the Proposed Acquisition will benefit the Individual Defendants

at the expense of Chelsea shareholders.

79. In order to meet their fiduciary duties, the Individual Defendants are obligated to

explore transactions that will maximize shareholder value, and not structure a preferential deal

for themselves. Due to the Individual Defendants' eagerness to enter into a transaction with

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Lundbeck, they issued the Solicitation Statement which misrepresents and/or omits material

information necessary for Chelsea's public shareholders to make an informed decision regarding

whether to tender their shares to Lundbeck and failed to implement a process to obtain the

maximum price for Chelsea shareholders.

CLASS ACTION ALLEGATIONS

80. Plaintiff brings this action on behalf of himself and all other members of the

Class that have been or will be harmed by the conduct described herein. Excluded from the

Class are the defendants and any individual or entity affiliated with any of the defendants.

81. This action is properly maintainable as a class action.

82. The Class is so numerous that joinder of all members is impracticable.

According to Merger Agreement, there were more than 78.9 million shares of Chelsea stock

issued and outstanding as of May 2, 2014.

83. There are questions of law and fact that are common to the Class and which

predominate over questions affecting any individual Class member. The common questions

include, among other things, the following:

(a) whether the Solicitation Statement contains material misstatements or

omissions in violation of sections 14(e) and 20(a) of the Exchange Act;

(b) whether the Individual Defendants are conflicted or otherwise engaging in

self-dealing in connection with the Proposed Acquisition;

(c) whether the Individual Defendants are unjustly enriching themselves

and/or the other insiders/affiliates of Chelsea in connection with the Proposed Acquisition;

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(d) whether the Individual Defendants, in bad faith and for improper motives,

impeded or erected barriers designed to discourage other potentially interested parties from

making an offer to acquire the Company or its assets; and

(e) whether plaintiff and the other members of the Class would suffer

irreparable injury were the Proposed Acquisition consummated without the actions complained

of herein being corrected.

84. Plaintiff's claims are typical of the claims of the other members of the Class and

plaintiff does not have any interests adverse to the Class.

85. Plaintiff is an adequate representative of the Class, has retained competent

counsel experienced in litigation of this nature, and will fairly and adequately represent and

protect the interests of the Class.

86. The prosecution of separate actions by individual members of the Class would

create a risk of inconsistent or varying adjudications with respect to individual Class members

that would establish incompatible standards of conduct for defendants.

87. Plaintiff anticipates that there will be no difficulty in the management of this

litigation as a class action. Indeed, a class action is superior to the other available methods for

the fair and efficient adjudication of this controversy.

88. Defendants have acted on grounds generally applicable to the Class with respect

to the matters complained of herein, thereby making appropriate the relief sought herein with

respect to the Class as a whole.

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COUNT I

Against the Individual Defendants and Chelsea for Violations of Section 14(e) of the Exchange Act and SEC Rule 14a-9 Promulgated Thereunder

89. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

90. The Individual Defendants and Chelsea disseminated the false and misleading

Solicitation Statement specified above, which failed to disclose material facts necessary in order

to make the statements made, in light of the circumstances under which they were made, not

misleading.

91. The Solicitation Statement was prepared, reviewed, and/or disseminated by the

Individual Defendants and Chelsea. The Solicitation Statement misrepresented and/or omitted

material facts, including material information about the actual intrinsic value of the Company.

92. In so doing, the Individual Defendants and Chelsea made untrue statements of

material facts and omitted to state material facts necessary to make the statements that were

made not misleading in violation of section 14(e) of the Exchange Act and SEC Rule 14a-9

promulgated thereunder.

93. The Individual Defendants and Chelsea were at least negligent in filing the

Solicitation Statement with these materially false and misleading statements.

94. The omissions and false and misleading statements in the Solicitation Statement

are material in that a reasonable shareholder would consider them important in deciding how to

vote on the Proposed Acquisition. In addition, a reasonable investor would view a full and

accurate disclosure as significantly altering the "total mix" of information made available in the

Solicitation Statement and in other information reasonably available to shareholders.

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95. By reason of the foregoing, the Individual Defendants and Chelsea have violated

section 14(e) of the Exchange Act and SEC Rule 14a-9(a) promulgated thereunder.

96. Because of the false and misleading statements in the Solicitation Statement,

plaintiff is threatened with irreparable harm, rendering money damages inadequate. Therefore,

injunctive relief is appropriate to ensure defendants' misconduct is corrected.

COUNT II

Against the Individual Defendants for Violation of Section 20(a) of the Exchange Act

97. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

98. The Individual Defendants acted as controlling persons of Chelsea within the

meaning of section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as

officers and/or directors of Chelsea, and participation in and/or awareness of the Company's

operations and/or intimate knowledge of the false statements contained in the Solicitation

Statement filed with the SEC, they had the power to influence and control, and did influence and

control, directly or indirectly, the decision-making of the Company, including the content and

dissemination of the various statements which plaintiff contends are false and misleading.

99. Each of the Individual Defendants was provided with or had unlimited access to

copies of the Solicitation Statement and other statements alleged by plaintiff to be misleading

prior to and/or shortly after these statements were issued and had the ability to prevent the

issuance of the statements or cause the statements to be corrected.

100. In particular, each of the Individual Defendants had direct and supervisory

involvement in the day-to-day operations of the Company, and, therefore, each is presumed to

have had the power to control or influence the particular transactions giving rise to the securities

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violations as alleged herein, and exercised the same. The Solicitation Statement at issue contains

the unanimous recommendation of each of the Individual Defendants to approve the Proposed

Acquisition. They were, thus, directly involved in the making of the Solicitation Statement.

101. In addition, as the Solicitation Statement sets forth at length, and as described

herein, the Individual Defendants were each involved in negotiating, reviewing, and approving

the Proposed Acquisition. The Solicitation Statement purports to describe the various issues and

information that they reviewed and considered, descriptions of which had input from the

directors. By virtue of the foregoing, the Individual Defendants have violated section 20(a) of

the Exchange Act.

102. As set forth above, the Individual Defendants had the ability to exercise control

over and did control a person or persons who have each violated section 14(e) and SEC Rule

14a-9, by their acts and omissions as alleged herein. By virtue of their positions as controlling

persons, these defendants are liable pursuant to section 20(a) of the Exchange Act.

PRAYER FOR RELIEF

WHEREFORE, plaintiff demands injunctive relief, in his favor and in favor of the Class

and against defendants as follows:

A. Declaring that this action is properly maintainable as a class action;

B. Declaring and decreeing that defendants have acted and are acting in an

oppressive manner with respect to the Class;

C. Enjoining defendants, their agents, counsel, employees, and all persons acting in

concert with them from consummating the Proposed Acquisition, unless and until the Company

discloses all material information necessary for plaintiff and the Class to make an informed

decision regarding whether to tender their shares to Lundbeck;

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D. Imposition of a constructive trust, in favor of plaintiff and members of the Class,

upon any benefits improperly received by defendants as a result of their wrongful conduct;

E. Awarding plaintiff the costs and disbursements of this action, including

reasonable attorneys' and experts' fees; and

F. Granting such other and further equitable relief as this Court may deem just and

proper.

Dated: May 30, 2014 COOCH AND TAYLOR, P.A.

/s/ Blake A. Bennett Blake A. Bennett (#5133) The Brandywine Building 1000 West Street, 10th Floor Wilmington, DE 19801 Telephone: (302) 984-3889 Facsimile: (302) 984-3939 [email protected]

Attorneys for Plaintiff

OF COUNSEL:

ROBBINS ARROYO LLP Brian J. Robbins Stephen J. Oddo Edward B. Gerard Justin D. Rieger 600 B Street, Suite 1900 San Diego, CA 92101 (619) 525-3990 [email protected] [email protected] [email protected] [email protected]

956723

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