CEO Message

Dear Shareholders,

As the second anniversary marking the U.S. approval of Silenor approaches, it is a fitting time to provide an update on our commercial progress.

Frankly, while Silenor net product sales of $16.2 million in the first full year of marketing was below our plan, we were able to consistently grow both prescriptions and wholesaler orders in each quarter of 2011 (details regarding our 2011 financial results may be found here). With these successes, however, it became evident that a revised commercial strategy was required that would enable us to focus on high-value Silenor prescribers while also significantly reducing operating expenses. This revamped strategy was deployed in the fourth quarter of 2011.

For 2012, we are committed to leveraging the promotional sensitivity of Silenor while maintaining our operating expenses at levels that will drive Somaxon’s operations toward positive cash flow and profitability. We also will continue to seek to maximize the value of Silenor for our stockholders through our previously announced strategic alternatives process led by our advisor Stifel Nicolaus Weisel.

We started the year with a more streamlined commercial operation and a reduced, yet highly focused, field force of 30 territories, all of which have been re-trained and re-deployed. For the month of January, we retained over 85% of existing Silenor prescriptions.

As we move forward we are focused on two main areas to drive Silenor prescription growth. First, through a focused and effective sales effort, we will continue to educate physicians and reinforce our key Silenor messages in order to increase their current prescribing of Silenor; and second, to maximize the potential for Silenor prescriptions to be filled through a combination of intelligent managed care contracting with payers and broad co-pay assistance and other programs to facilitate positive results at the pharmacy level. Each aspect of our 2012 commercial plan is geared toward one or both of these areas and our resources will be primarily allocated toward those activities that provide us with the highest potential return on investment.

In addition to leveraging Silenor’s promotional sensitivity in the U.S., will continue to seek to generate value from over-the-counter (OTC) and ex-U.S. rights to Silenor. In February, Health Canada notified our licensee Paladin Labs that the New Drug Submission for Silenor in Canada has been accepted for review. If approved, Silenor is expected to be the first and only prescription product approved for the treatment of insomnia in Canada that is not a controlled substance. Our deal with Paladin represents our commitment to partnering to derive Silenor revenue from multiple markets. We will continue to seek partnerships in other ex-US regions where there is an unmet need for a highly differentiated insomnia treatment.

Also, we have made good progress toward a potential OTC version of Silenor. In a meeting with the FDA that we jointly attended with Procter & Gamble, the FDA provided clinical and regulatory guidance relating to a Silenor OTC program that we believe provides a clear path forward for this important Silenor life cycle management opportunity. As we have stated before, we believe that Silenor’s characteristics, including its lack of addiction potential and its clinical efficacy and safety profile, make it an ideal candidate to be the first prescription insomnia therapy to be converted to an OTC product.

We and P&G are currently working together to evaluate the potential to develop and commercialize an OTC version of Silenor, including conducting market research on a desired product profile at P&G’s expense. If P&G notifies us of its interest in negotiating for rights to an OTC version of Silenor at any time prior to March 31, 2012, P&G will have the exclusive right to negotiate with Somaxon relating to such rights for 120 days, or such longer period as may be mutually agreed by us and P&G.

In conclusion, we continue to believe that Silenor is a commercially-viable product with the potential for growth through intelligent deployment of commercial resources and/or partnering. We intend to continue to strive to maximize the value of Silenor for the benefit of our stockholders.

As always, we appreciate your continued support and we look forward to sharing our successes with you throughout 2012.

Best regards,

Richard Pascoe
President & CEO
Somaxon Pharmaceuticals, Inc.