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Archive for March, 2009

NTII on the block; engages financial adviser

Posted in Activist Investors, Biotechnology Value Fund, Neurobiological Technologies Inc (NASDAQ:NTII), Stocks, tagged , , , on March 31, 2009| Leave a Comment »

Neurobiological Technologies Inc (NASDAQ:NTII) has engaged a financial adviser to explore a sale of the company or its major assets to determine “if there is a transaction more beneficial to our shareholders than a liquidation,” according to its CEO, William Fletcher.

We’ve been following NTII (see our post archive here) because it’s trading at a substantial discount to our estimate of its liquidating value and stockholders representing at least 45% of its stock (one stockholder estimates 65%) have called for its liquidation. NTII is up 25% from $0.53 when we started following it to close yesterday at $0.66. At yesterday’s close, NTII has a market capitalization of just $17.8M, which is around 80% of our estimate of its $21.9M or $0.81 per share liquidation value. There exists the possibility that its liquidation value is significantly higher again if NTII receives a portion of the net proceeds paid to Celtic Pharmaceuticals upon a sale of XERECEPT. The company’s decision to explore a sale or liquidation is welcome news. With Biotechnology Value Fund, Millennium Technology Value Partners and Highland Capital Management, holding approximately 45% of NTII’s outstanding stock and calling for its liquidation, we feel the company will be under some pressure to accede and that should lead to a reasonably quick resolution.

Reuters has the article:

March 26 (Reuters) – Neurobiological Technologies Inc (NTII.O) said it was evaluating a potential sale of the company or its major assets and had hired a financial adviser to help with the process.

“We have retained RBC Capital Markets to assist us in efficiently determining if there is a transaction more beneficial to our shareholders than a liquidation,” acting Chief Executive William Fletcher said.

In January, the company had suspended further development of Viprinex, its drug for acute ischemic stroke, and cut about 75 percent of its workforce.

Thanks JM.

[Full Disclosure:  We do not have a holding in NTII. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Carl Icahn says that financial crisis caused by laws that disenfranchised shareholders

Posted in Activist Investors, Carl Icahn, tagged , , on March 31, 2009| Leave a Comment »

In an opinion piece for the New York Times titled, We’re Not the Boss of A.I.G., Carl Icahn argues that the legal “devices” that disenfranchise shareholders “can be found at the root of today’s financial crisis:”

The legal landscape is filled with devices designed by state legislators and courts to prevent shareholders from influencing how companies are run and so allow management free rein. Legal mechanisms known as poison pills, permitted under the laws of most states, effectively prohibit shareholders from accumulating a large position in a company or working with other large shareholders to influence the company.

Furthermore, public corporations may legally adopt a staggered board, whereby board members are grouped into classes, with each one representing about a third of the total number of directors, so that only one class comes up for election in a year.

This means that seriously shaking up a board would require at least two very expensive proxy contests over two years. And current state laws permit incumbent board members access to the corporate treasury, allowing them to spend millions of dollars, to hire lawyers and public relations firms, run ads and mail materials to prevent shareholders from adding their designees to the board of directors.

One problem identified by Icahn is complex “advance notice” requirements that enable companies to derail efforts to elect shareholder-nominated board members:

Although a majority shareholder like the government may be able to get its nominees onto the A.I.G. board without a fight, typically even a large shareholder must conduct an expensive proxy contest to elect its nominees – that is, he needs to solicit enough votes from other shareholders. This is accomplished by mailing a statement describing the shareholder’s positions, and a card on which to vote. At a large public company, mailing, printing and other costs can run into the millions of dollars.

Icahm has a typically straight-forward solution to the problem:

Those costs could be reduced, and the election process could be made more open, if the Securities and Exchange Commission would allow “proxy access.”

Proxy access would permit shareholders to solicit votes for the election of their nominees by including the names and other relevant information about those nominees in their company’s annual proxy statement, and thus save the cost of sending additional documents. But so far the S.E.C. has said no to proxy access for the election of directors nominated by shareholders, though its new chairwoman, Mary Schapiro, said on Thursday that the commission will take up the issue in the coming months.

Echoing his thoughts in an earlier essay published in the Wall Street Journal, Icahn also argues that allowing shareholders to vote by simple majority to migrate a company from its state of incorporation to more shareholder-friendly states would stop many of the abuses:

With some exceptions, our public corporations are increasingly unable to compete globally, they pay excessive compensation to top brass and they are generally unaccountable to shareholders. The best hope to change this situation is to allow shareholders the power to move the state of incorporation of public companies from one state to another. For example, North Dakota passed a law in 2007 that, among other things, provides for proxy access and for the reimbursement of expenses to a shareholder who runs a successful proxy fight. A move to North Dakota would greatly advance shareholder rights for any company.

But under current state law shareholders can elect to move their company to another jurisdiction only if the existing board of directors approves such a move — and those incumbent boards will want to stay in the management-friendly states they already inhabit.

Federal legislation could correct this absurdity and permit shareholders to move the corporations they own to another state by a simple majority vote. Such legislation would override the restrictions of state laws that prevent such a change of jurisdiction unless approved by the board of directors. Most important, it would encourage the states, which profit from the tax revenues that flow from corporations, to compete with one another by reorienting their laws on corporate governance to benefit shareholders.

According to Icahn, a possible silver lining to the A.I.G. mess is that it will “alert Washington to the lamentable state of corporate governance in America:”

Our legislators will find – as I have as a shareholder who has waged many battles to get on corporate boards – that the rights of the shareholders are quite circumscribed.

…

It is time to remove the many devices that managements use to entrench their power, and give shareholders real power. The “ownership” rights that the government, as a shareholder, is now talking about are the same ones that activist shareholders have been demanding for years.

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ACLS completes sale of SEN Corp interest to SHI

Posted in Activist Investors, Axcelis Technologies Inc (NASDAQ:ACLS), Sterling Capital Management, Stocks, tagged , , , on March 31, 2009| 2 Comments »

Axcelis Technologies Inc (NASDAQ:ACLS) has completed the sale of its 50% interest in SEN Corporation, its joint venture with Sumitomo Heavy Industries, Ltd. (SHI) to SHI for proceeds of $122.3 million. ACLS received around $35.9M in cash after applying $86.4M of the proceeds to meet obligations to the holders of the company’s 4.25% Convertible Senior Subordinated Notes, upon which ACLS defaulted in January.

We started following ACLS on January 8 this year because it is an undervalued asset play with an activist investor, Sterling Capital Management, holding 10.7% of its outstanding stock. In our initial post we estimated ACLS’s liquidating value at around $134.9M, or $1.31 per share. We’ve now updated our estimate following completion of the sale to $147M or $1.43 per share, which is more than 250% higher than its close yesterday of $0.41.

Streetinsider.com has the article:

Axcelis Technologies, Inc. (Nasdaq: ACLS) has completed the sale of its 50% interest in SEN Corporation, an SHI and Axcelis Company (SEN), to Sumitomo Heavy Industries, Ltd. (SHI). The Company received net proceeds from the sale of approximately $122.3 million after advisor fees and other expenses and will recognize a gain on the sale of approximately $1.2 million in the first quarter of 2009.

Axcelis has applied $86.4 million of the sale proceeds to meet its obligations on its 4.25% Convertible Senior Subordinated Notes, which were due in January. As a result of the payment, the trustee for the notes will withdraw litigation filed in connection with Axcelis’ default on the notes.

The sale was completed pursuant to a Share Purchase Agreement that Axcelis and SHI entered into on February 26, 2009. SEN was licensed by Axcelis to manufacture and sell certain implant products in Japan. Prior to the completion of the sale, it was owned 50/50 by Axcelis and SHI.

Hat tip to manny.

[Full Disclosure:  We have a holding in ACLS. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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BVF fails to tip AVGN board

Posted in Activist Investors, Avigen (NASDAQ:AVGN), Biotechnology Value Fund, Net Cash Stocks, Stocks, tagged , , , , on March 30, 2009| 1 Comment »

Biotechnology Value Fund (BVF) failed in its bid to remove Avigen Inc’s (NASDAQ:AVGN) board at Friday’s special meeting of stockholders, despite 58% of stockholders voting in favor of removing the board and only 12% voting in favor of retaining the incumbents.

The outcome highlights the difficulties faced by stockholders in selecting rival slates of directors. To succeed, BVF required affirmative votes from two-thirds of all AVGN’s stockholders, which, as we’ve pointed out previously, was a very high threshold. To use the example we used last time, if only 10% of AVGN’s voters failed to vote, BVF required almost three-quarters of the vote from those actually casting a ballot. With 30% of stockholders failing to cast a ballot at the special meeting Friday, BVF’s task was herculean, requiring 96% of the ballots cast to be in BVF’s favor. It’s possible that stockholders who didn’t vote at all purposely abstained knowing that it would count against BVF, and they did therefore express their voting intentions. It’s also possible that they failed to vote for myriad other reasons, including not receiving the documents in time, not understanding the documents, not caring or not understanding that failing to vote counted as a vote for the incumbents. Of the stockholders casting a ballot, their intentions were clear. BVF received approximately 83% of the votes actually cast by AVGN stockholders (58%/70%). Excluding BVF’s own ballots from the calculation above (~30%), BVF still received approximately 70% of the votes (28%/40%). In either case, a strong endorsement of BVF’s slate, but insufficient to carry the day.

Despite BVF’s failure to remove the board, we’re going to maintain our position in AVGN. BVF has won a number of important concessions from the board that make AVGN a much more attractive stock than it was when we started following it in December last year (see archived posts here). The stock price also reflects this: AVGN is up 89% from $0.65 when we initiated the position to close on Friday at $1.23. We opened our position because AVGN was a net cash stock (i.e. it’s trading at less than the value of its cash after deducting all liabilities), albeit a cash burning net cash stock, and BVF was pushing it to liquidate and return its cash to shareholders. While BVF’s slate was not successful at the special meeting, AVGN’s board now plans to develop its own plan of liquidation, which should put a floor on AVGN’s stock at around its net cash value of $37M or $1.24 per share less wind down costs. There exists a good chance that AVGN will yield considerably more than its net cash value. The net cash estimate does not take into account AVGN’s AV411 assets and program or near term payments from Genzyme, which could be worth as much as $6M to $25M or between $0.18 or $0.75 per share more (Thanks Double F). With the downside protected, and a good chance at a substantial $0.18 or $0.75 per share upside from here, we think AVGN still represents good value, and we’re going to maintain our position accordingly.

BVF’s press release is as follows:

Biotechnology Value Fund, L.P. Announces Overwhelming Support to Remove the Board of Directors of Avigen, Inc. at Special Meeting of Stockholders

Friday March 27, 2009, 1:10 pm EDT

Concurs with Avigen’s decision to return capital to stockholders through liquidation

A decisive victory for stockholder democracy

SAN FRANCISCO, March 27 /PRNewswire/ — Biotechnology Value Fund, L.P. (“BVF”), today announced that stockholders of Avigen (Nasdaq: AVGN – News) voted overwhelmingly to remove the existing Board of Directors of Avigen and replace them with BVF’s nominees. The vote took place earlier today at the special meeting of Avigen stockholders called by BVF. The preliminary vote count was approximately 58% in favor of removing Avigen’s entire Board and 12% against removal.

Additionally, yesterday Avigen finally offered what BVF and stockholders have consistently sought but Avigen had steadfastly resisted: quantified downside protection. Specifically, Avigen announced yesterday that it would terminate merger discussions, implement a plan of liquidation and return at least $1.20 per share to all stockholders. BVF supports Avigen’s decision, albeit a late one, and intends to work constructively with the Board to maximize the return to stockholders. Since the removal of the Board required the affirmative vote of 66 2/3% of the outstanding shares — a very high hurdle — the existing Board will remain in office and manage the liquidation.

Mark Lampert, BVF Founder and President stated, “This is a great day for stockholder democracy — stockholders have spoken and their wishes have prevailed. Avigen’s remaining capital will not be squandered but, instead, will be returned to stockholders so that each may decide how best to utilize their capital. For our part, we will look to reinvest the proceeds into the most promising small cap biotechnology companies that have the greatest potential to improve peoples’ lives. In the current economic environment, the capital preserved through Avigen’s liquidation may be the difference between success and failure of important new medicines.”

Oleg Nodelman, a Portfolio Manager with BVF added, “We are deeply appreciative of the trust and support placed in us by the majority of Avigen stockholders. We believe their resounding support was directly responsible for the Board’s decision to discontinue its risky merger discussions and to commence with a plan of liquidation. We are disappointed that Avigen did not offer downside protection sooner so that the significant capital consumed during this proxy contest could have been returned to stockholders months ago. We also wish to acknowledge the constructive and bold efforts of MediciNova throughout this process. We encourage Avigen to engage with MediciNova during the liquidation process; we intend to be helpful in this regard.”

BVF’s existing tender offer will terminate because BVF’s nominees were not elected at the special meeting.

[Full Disclosure: We have a holding in AVGN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Network Engines Inc (NASDAQ:NENG) position exited for 47.4% gain

Posted in Activist Investors, Net Net Stocks, Network Engines Inc (NASDAQ:NENG), Stocks, Trinad Management, tagged , , , on March 27, 2009| Leave a Comment »

We’ve decided to exit our position in Network Engines Inc (NASDAQ:NENG) at its $0.56 close yesterday. We opened the position on January 13, 2009 when it was trading at $0.38, so we’re up 47.4% in about two-and-a-half months on an absolute basis, which is a pleasing outcome. The S&P500 Index was trading at 870.26 when we opened the position in NENG, and closed yesterday at 832.86, which means we’re up 51.7% on an relative basis, which is also a good outcome.

We’ve started following NENG (see post archive here) when it was trading at $0.38, which gave it a market capitalization of $16.5M. We initially estimated the company’s liquidation valuation to be around $25.5M or $0.59 per share, but we reduced that estimate to $23.8M or $0.55 per share after reviewing the December 10Q. At its $0.56 close yesterday, the company has a market capitalization of $24.2M, which exceeds our estimate of its liquidation value. We were attracted to the stock because Trinad Management had been pushing the company to “immediately [implement] a share buy-back program.” The company initially demurred and saw its stock sink to all-time lows, but has recently reinstated that stock repurchase program.

Although the company has indicated it will undertake a $5M stock buyback, which will likely push the stock price up further, the stock has reached our estimate of its liquidation value, so the buyback will not increase the per share liquidation value at this level. We’re also mindful that NENG is a perennial net net, and at higher prices than presently prevail, so we think there’s a good chance NENG could be back in net net territory again in the not-too-distant future.

[Full Disclosure:  We do not have a holding in NENG. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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AVGN ends merger discussions; terminates CEO and other officers

Posted in Activist Investors, Avigen (NASDAQ:AVGN), Biotechnology Value Fund, Net Cash Stocks, Stocks, tagged , , , , on March 27, 2009| 3 Comments »

Avigen Inc (NASDAQ:AVGN) has discontinued its merger discussions and terminated its Chief Executive Officer and President, Kenneth Chahine, its Chief Business Officer, Michael Coffee, and its General Counsel, M. Christina Thomson, ahead of the special meeting of stockholders to be held today. Stockholders are to vote on BVF’s proposal to remove the board of AVGN and elect Biotechnology Value Fund’s (BVF) slate of director nominees. AVGN “intends to develop a plan of liquidation” following the special meeting if BVF’s nominees are not elected to the board, which now seems unlikely.

We’ve been following AVGN (see archived posts here) because it’s a net cash stock (i.e. it’s trading at less than the value of its cash after deducting all liabilities) and specialist biotechnology investor BVF has been pushing it to liquidate and return its cash to shareholders. MediciNova Inc (NASDAQ:MNOV) has made an offer for AVGN that we think represents a clever way for AVGN’s stockholders to receive cash equivalent to that which they would receive in a liquidation (less $7M to be paid to MNOV) with the possibility for “an extraordinary, uncapped return” if MNOV is successful post-merger. BVF has offered $1.20 for each share of AVGN, which is up from its initial offer of $1.00. The stock is up 81.5% from $0.65 to close at $1.18 yesterday. We estimate AVGN’s net cash value to be $37M or $1.24 per share (BVF estimates $1.20 per share). The net cash estimate does not take into account AVGN’s AV411 assets and program, which could be worth considerably more, perhaps as much as $5M to $20M or between $0.15 or $0.60 per share.

AVGN’s amended proxy filing sets out a series of discussions between AVGN and BVF leading up to yesterday’s announcement:

…

Later in the day on March 20, 2009, RBC contacted BVF with the intent to negotiate an increase in the Offer price to compensate the remaining stockholders for the value of Avigen’s AV411 assets and potential Genzyme milestone payments that Avigen believed were not reflected in the revised Offer price.

Over the weekend of March 20-22, 2009 Avigen’s advisors and BVF discussed a proposal by Avigen to work together to maximize stockholder value. Among other things, Avigen’s advisors proposed that Avigen would share with BVF for its consideration and input, following execution by BVF of an appropriate confidentiality agreement, the proposals received by Avigen relating to potential strategic transactions.

On March 23, 2009, BVF requested that Avigen have its counsel and financial advisors prepare an agreement between Avigen and BVF that would allow BVF to actively review and participate in negotiating the strategic proposals under consideration, including the proposal from MediciNova, to determine if Avigen and BVF could jointly agree on a proposal to present to stockholders for a vote, and with the other terms provided below, as well as the terms of a joint press release announcing these arrangements.

The draft agreement prepared on behalf of Avigen and submitted to BVF on March 24, 2009 provided that if the parties agreed on a strategic transaction, BVF would sign a tender and/or voting agreement in favor of the transaction recommended by the Board and presented to stockholders for approval. The draft agreement further provided that if no agreement for a strategic transaction were signed with a third party by May 8, 2009, Avigen would begin a formal liquidation process, with the goal of distributing at least $1.00 per Share to stockholders. Avigen’s obligations under the draft agreement were explicitly subject to a customary fiduciary out.

The draft agreement also provided that BVF would not modify its revised Offer of $1.20 per Share and that Avigen would reserve the right at any time during the process to terminate the Rights Agreement, support the revised Offer and support the BVF nominees, if the Board determined that such actions were in the best interests of stockholders.

On March 24, 2009, a representative of BVF stated to a representative of Avigen that it would not enter into the draft agreement.

On March 25, 2009, the Board met and reviewed Avigen’s alternatives, in light of BVF’s rejection of the draft agreement and the difficulty of obtaining stockholder approval for any strategic transaction without BVF’s support.

On March 26, 2009, Avigen issued a press release announcing the Board’s recommendation with respect to the revised Offer and the termination of the employment of certain corporate officers.

…

The AVGN press release is as follows:

Avigen Board Discontinues Strategic Merger Discussions to Develop a Plan for Liquidation

Avigen Board Neutral on Tender Offer

Alameda, CA, March 26, 2009 – Avigen, Inc. (Nasdaq: AVGN), a biopharmaceutical company, today announced that its Board of Directors has discontinued its strategic merger discussions and intends to develop a plan of liquidation following the special meeting of stockholders on March 27, 2009 if the BVF Nominees are not elected to the Board. The Board also announced that it reviewed the conditional offer from BVF Acquisition LLC and its affiliates to acquire all of the outstanding shares of Avigen. The Board, after a thorough review with management and its financial and legal advisors, is expressing no opinion and is remaining neutral with regard to the tender offer.

In taking a neutral stance on the tender offer, the Board noted the following:

* The Board believes that the offer price of $1.20 per share is approximately the company’s current net cash value less wind down costs, but does not reflect the value for the company’s other assets, including its AV411 pain and addiction program and rights to future payments from Genzyme Corporation.

* The Board recognizes the preference of some shareholders for immediate and certain liquidity.

* The Board believes it can deliver more than $1.20 per share from net cash assets less wind down costs, rights to approximately $6 million ($0.20 per share) of near-term Genzyme payments and the sale of AV411.

* BVF has stated that it intends to pursue a transaction with MediciNova, which the Board does not believe under the current terms would be in the best interests of stockholders.

“Based on the actions taken by BVF, Avigen’s Board believes its ability to pursue the strategic alternatives that the Board believes will increase stockholder value is all but foreclosed,” stated Zola Horovitz, Ph.D., Avigen’s Chairman of the Board. “Our Board has established a responsible pattern for dealing decisively with strategic issues, as demonstrated following the negative data from the company’s AV650 clinical trial in October 2008. While our Board considers the inability to continue its strategic process unfortunate, it has abandoned discussions for a strategic transaction and intends to develop a plan that will maximize liquidation value. As such, the Board determined that the company no longer needs to retain the services of the majority of its employees that were supporting strategic discussions and has reduced its headcount accordingly.”

The officers of the company included in the headcount reduction were Kenneth Chahine, Chief Executive Officer and President, Michael Coffee, Chief Business Officer, and M. Christina Thomson, General Counsel. Taking over as Chief Executive Officer and President is Andrew Sauter, the company’s Chief Financial Officer.

[Full Disclosure: We have a holding in AVGN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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VaxGen Inc (OTC:VXGN)

Posted in Net Cash Stocks, Stocks, VaxGen Inc (OTC:VXGN), tagged , , on March 26, 2009| 15 Comments »

VaxGen Inc (OTC:VXGN) is a bread-and-butter play for us. The company is trading at a substantial discount to its net cash position, has ended its cash-burning product development activities and is now “seeking to maximize the value of its remaining assets through a strategic transaction or series of strategic transactions.” If the company is unable to identify and complete an alternate strategic transaction, it proposes to liquidate. At its $0.48 close yesterday, VXGN has a market capitalization of $15.9M. We estimate the net cash value to be around 80% higher at $27.7M or $0.84 per share. VXGN has other potentially valuable assets, including a “a state-of-the-art biopharmaceutical manufacturing facility with a 1,000-liter bioreactor that can be used to make cell culture or microbial biologic products” and rights to specified percentages of future net sales relating to its anthrax vaccine product candidate and related technology.  We’ve added it to the Greenbackd Portfolio.

About VXGN

VXGN is a biopharmaceutical company based in South San Francisco, California. The company was incorporated on November 27, 1995. During 2002 through 2006, VXGN developed vaccines against inhalation anthrax and smallpox for the purpose of biodefense. In December 2006, the Department of Health and Human Services (HHS) terminated its contract with VXGN for the development and delivery of a next-generation anthrax vaccine. Following the HHS decision, VXGN ceased actively developing its anthrax vaccine, scaled back its biodefense activities and began pursuing strategic and other alternatives. The company has now ended all product development activities and sold or otherwise terminated its drug development programs.

The value proposition

VXGN’s earnings and cash flow history is emblematic of many biotechnology companies. In its almost two decades in existence, it has produced no marketable products, raised around $300M and burned through almost $270M of that amount. VXGN has now taken steps to minimize its cash burn, reducing its workforce to three employees, terminating its anthrax and smallpox development activities and selling the assets related to its anthrax product candidate. The company’s value rests on its vestigial holding of cash and equivalents (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

vxgn-summaryWe estimate the liquidation value to be around $28.4M or $0.86 and the net cash value to be around $27.7M or $0.86 per share.

There is the possibility that VXGN is worth considerably more than this amount. Under the terms of the sale of its assets and rights relating to its anthrax vaccine product candidate and related technology to Emergent BioSolutions Inc, (Emergent), Emergent may be obligated to pay VXGN up to an additional $7M in milestone payments, plus specified percentages of future net sales for 12.5 years beginning from the first commercial sale. VXGN has also listed its “a state-of-the-art biopharmaceutical manufacturing facility with a 1,000-liter bioreactor that can be used to make cell culture or microbial biologic products.”

Off-balance sheet arrangements and contractual obligations

According to VXGN’s 10K for the year ended December 31, 2008, it has no off-balance sheet arrangements.

One concern for us is the lawsuit against VXGN by its landlords, in which they seek $22.4M:

In February 2009, a lawsuit was filed against VaxGen by plaintiffs, Oyster Point Tech Center, LLC. The plaintiffs generally allege that the Company defaulted on the lease on the 349 Oyster Point, South San Francisco facility. The complaint seeks possession of the premises and the balance of lease plus unpaid rent and expenses totaling $22.4 million, as well as an award of plaintiffs’ attorneys’ fees and costs.

We may incur substantial expenses in defending against such claim, and it is not presently possible to accurately forecast the outcome. We do not believe, based on current knowledge, that the foregoing legal proceeding are likely to have a material adverse effect on its financial position, results of operations or cash flows. In the event of a determination adverse to VaxGen, we may incur substantial monetary liability that could have a material adverse effect on the Company’s financial position, results of operations or cash flows.

If the lawsuit is succesful, then VXGN has next to no value.

Catalyst

According to the 10K, the company is considering various alternate strategic transactions to return value to its stockholders. VXGN has ended all product development activities, sold or otherwise terminated its drug development programs and is now seeking to maximize the value of its remaining assets through a strategic transaction or series of strategic transactions. If the company is unable to identify and complete an alternate strategic transaction, the company will liquidate. A Harper’s Magazine article, “Flaws in the BioShield: VaxGen looks for another federal bailout,” details a sordid history of “disturbing ethical failures in the area of human-subject drug testing” and management incompetence.  The article concludes:

Based on VaxGen’s string of failures, giving the firm another stay of execution might not just be wasteful, but criminally negligent as well.

That was in 2006. The company has managed to limp along since then, but we think it’s time to take this rooster to the chopping block.

Conclusion

With its stock at a substantial discount to its net cash position, its cash-burning product development activities at an end and a proposal to identify and complete an alternate strategic transaction or liquidate, VXGN is a good prospect. At its $0.48 close yesterday, it has a market capitalization of $15.9M. We estimate the net cash value to be around 80% higher at $27.7M or $0.84 per share. VXGN has other potentially valuable assets, including rights to portion of future net sales on its anthrax technology and a state-of-the-art biopharmaceutical manufacturing facility. One concern is that the company may seek to continue as a biotechnology company, rather than liquidating. We hope this outcome doesn’t eventuate. We’ve added it to the Greenbackd Portfolio.

VXGN closed yesterday at $0.48.

The S&P500 Index closed yesterday at 831.88.

Hat tip to Wes Gray.

[Full Disclosure:  We do not have a holding in VXGN. We now have a holding in VXGN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Catalyst Investment Research on AVGN

Posted in Activist Investors, Avigen (NASDAQ:AVGN), Biotechnology Value Fund, Net Cash Stocks, tagged , , , , on March 25, 2009| Leave a Comment »

Hedge Fund Solutions, which produces The Official Activist Investing Blog, recently announced the launch of a new investment research product, Catalyst Investment Research, which is “dedicated to uncovering undervalued publicly traded companies that could have the potential to generate outsized returns due to an activist investor’s involvement.” Sounds like a good idea to us.

Catalyst Investment Research is a collaboration between Damien J. Park of Hedge Fund Solutions and The Official Activist Investing Blog, and Jonathan Heller, CFA, who writes Cheap Stocks, which was one of the inspirations for this site.

Click here to download a complimentary copy (.pdf) of the recently published Catalyst Investment Research analysis for Avigen Inc (NASDAQ:AVGN).

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AVGN to explore settlement with BVF

Posted in Activist Investors, Avigen (NASDAQ:AVGN), Biotechnology Value Fund, Net Cash Stocks, Stocks, tagged , , , , on March 24, 2009| Leave a Comment »

Avigen Inc (NASDAQ:AVGN) has authorized its CEO, Dr. Chahine, and RBC to contact Biotechnology Value Fund (BVF) to explore the possibility of negotiating a settlement between BVF and AVGN with respect to BVF’s increased $1.20 per share offer for AVGN. AVGN shareholders are to decide on BVF’s proposal to remove the board of AVGN and elect Biotechnology Value Fund’s (BVF) slate of director nominees at a special meeting of stockholders to be held this Friday, March 27, 2009.

We’ve been following AVGN (see archived posts here) because it’s a net cash stock (i.e. it’s trading at less than the value of its cash after deducting all liabilities) and specialist biotechnology investor BVF has been pushing it to liquidate and return its cash to shareholders. MediciNova Inc (NASDAQ:MNOV) has made an offer for AVGN that we think represents a clever way for AVGN’s stockholders to receive cash equivalent to that which they would receive in a liquidation (less $7M to be paid to MNOV) with the possibility for “an extraordinary, uncapped return” if MNOV is successful post-merger. BVF has offered $1.20 for each share of AVGN, which is up from its initial offer of $1.00. The stock is up 72.3% from $0.65 to close at $1.12 yesterday. We estimate AVGN’s net cash value to be $37M or $1.24 per share (BVF estimates $1.20 per share). The net cash estimate does not take into account AVGN’s AV411 assets and program, which could be worth considerably more, perhaps as much as $5M to $20M or between $0.15 or $0.60 per share.

The text of AVGN’s press release is set out below:

On March 20, 2009, BVF issued a press release announcing that the Purchaser had increased the Offer price from $1.00 per share to $1.20 per share in cash.

Later in the day on March 20, 2009, the Board authorized Dr. Chahine and RBC to contact BVF to explore the possibility of negotiating a settlement between BVF and Avigen with respect to the Offer and the proxy contest.

The Board is currently reviewing the revised Offer price and will provide its recommendation, or determination that it does not have a recommendation, after the Board has had sufficient time to review thoroughly BVF’s amended Offer and make its recommendation with respect thereto.

Avigen has continued discussions with third parties, including MediciNova, regarding potential strategic transactions. Avigen intends to continue such discussions, and does not intend to provide public updates on the status of such discussions until such time as a definitive agreement with respect to a strategic transaction has been reached with a third party or all such discussions are terminated. There can be no assurance that any discussions will lead to an agreement or transaction.

[Full Disclosure: We have a holding in AVGN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Proxy Governance recommends AVGN shareholders support BVF

Posted in Activist Investors, Avigen (NASDAQ:AVGN), Biotechnology Value Fund, Stocks, tagged , , , , on March 24, 2009| Leave a Comment »

Proxy Governance, a proxy advisory firm, has recommended that Avigen Inc (NASDAQ:AVGN) shareholders vote to remove the board of AVGN and elect  Biotechnology Value Fund’s (BVF) slate of director nominees at the special meeting of stockholders to be held on March 27, 2009.

We’ve been following AVGN (see archived posts here) because it’s a net cash stock (i.e. it’s trading at less than the value of its cash after deducting all liabilities) and specialist biotechnology investor BVF has been pushing it to liquidate and return its cash to shareholders. MediciNova Inc (NASDAQ:MNOV) has made an offer for AVGN that we think represents a clever way for AVGN’s stockholders to receive cash equivalent to that which they would receive in a liquidation (less $7M to be paid to MNOV) with the possibility for “an extraordinary, uncapped return” if MNOV is successful post-merger. The stock is up 72.3% from $0.65 to close at $1.12 yesterday. We estimate AVGN’s net cash value to be $37M or $1.24 per share (BVF estimates $1.20 per share). The net cash estimate does not take into account AVGN’s AV411 assets and program, which could be worth considerably more, perhaps as much as $5M to $20M or between $0.15 or $0.60 per share.

The text of BVF’s press release is set out below:

Leading Advisory Firm, PROXY Governance, Recommends
Avigen Shareholders Vote on GOLD Card to Remove Incumbent
Directors and Elect BVF’s Stockholder-Oriented Nominees

Monday March 23, 2009, 8:00 am EDT

NEW YORK, March 23 /PRNewswire/ — Biotechnology Value Fund, L.P. (“BVF”) today announced that PROXY Governance, widely recognized as a leading independent proxy advisory firm, has recommended that shareholders vote for all BVF Proposals on the GOLD proxy card for the special meeting of Avigen, Inc. (Nasdaq: AVGN – News) to be held on March 27, 2009.

In its report PROXY Governance notes, “Under ordinary circumstances we believe the dissidents (BVF) must clear a high bar to justify a change in control of the board, and a still higher bar to remove a sitting CEO from the board. Given that the company is now in hibernation mode and a sale or liquidation is imminent, however – and the strong argument the dissidents have presented that shareholders face substantial risk if the board will not guarantee downside protection for their liquidity option – we believe shareholders would be best served by replacing the incumbent board with the dissident slate of nominees.”

The report further notes, “that shareholders best interests are better served by the dissidents. We take the dissidents at their word that they would pursue the best offer which guaranteed the liquidity downside because – as a fund with a clear fiduciary obligation to its investors, and no economic relationship with MediciNova – their interests are clearly aligned with all other shareholders in the pursuit of that goal.”

Mark Lampert, BVF Partner, stated, “We are gratified that PROXY Governance, a leader among the proxy advisory services, after thoughtful and insightful analysis, has recommended Avigen stockholders support our efforts to remove the current Board of Directors and replace them with our stockholder-oriented director nominees. We once again urge all stockholders to vote the GOLD proxy card for all BVF Proposals today.”

RiskMetrics Group, another leading independent proxy advisory service stated in their report, “the underperformance to peer indexes, positive market reaction to dissident involvement, the reactive nature of the company, governance concerns and the likely diverging incentive and risk tolerance of management and other shareholders such as BVF, we believe some change is needed and the board could benefit from greater shareholder representation.” Mr. Lampert commented, “While we disagree with RiskMetrics’ reluctance to recommend replacing the full Avigen Board, we do agree with the report’s description of the Board’s many failings. We encourage all shareholders to read these independent reports carefully.”

[Full Disclosure:  We have a holding in AVGN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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