A group of investors in VaxGen Inc (OTC:VXGN) have formed the “VaxGen Full Value Committee” to conduct a proxy contest to replace the current board of VXGN at the next annual shareholders meeting. The group, comprising BA Value Investors’ Steven N. Bronson and ROI Capital Management’s Mark T. Boyer and Mitchell J. Soboleski, intends to replace the current board with directors who will focus on the following objectives:
1. Returning capital to [VXGN]’s shareholders, including an immediate distribution of $10,000,000 in cash;
2. Terminating [VXGN]’s lease with its landlord, Oyster Point Tech Center, LLC, and settling with the landlord the obligations of [VXGN] on the remaining lease payments;
3. Exploring ways to monetize [VXGN] as a “public shell,” including the utilization of [VXGN]’s Substantial Net Operating Losses; and
4. Protecting for the benefit of shareholders royalty payments receivable from the sale of [VXGN]’s intellectual property.
We’ve been following VXGN (see our post archive here) because it is trading at a substantial discount to its net cash position, has ended its cash-burning product development activities and is “seeking to maximize the value of its remaining assets through a strategic transaction or series of strategic transactions.” Management has said that, if the company is unable to identify and complete an alternate strategic transaction, it proposes to liquidate. One concern of ours has been a lawsuit against VXGN by its landlords, in which they sought $22.4M. That lawsuit was dismissed in May, so the path for VXGN to liquidate has now hopefully cleared. The board has, however, been dragging its feet on the liquidation. Given their relatively high compensation and almost non-existent shareholding, it’s not hard to see why.
BA Value Investors had previously disclosed an activist holding and, in a June 12 letter to the board, called on VXGN to “act promptly to reduce the size of the board to three directors; reduce director compensation; change to a smaller audit firm; terminate the lease of its facilities; otherwise cut costs; make an immediate $10 million distribution to shareholders; make a subsequent distribution of substantially all the remaining cash after settling the lease termination; distribute any royalty income to shareholders; and explore ways to monetize the public company value of the Issuer and use of its net operating losses.”
Another group led by Spencer Capital and styling itself “Value Investors for Change” has also filed preliminary proxy documents to remove the board. In the proxy documents, Value Investors for Change call out VXGN’s board on its “track record of failure and exorbitant cash compensation”:
VaxGen does not have any operations, other than preparing public reports. The Company has three employees, including the part-time principal executive officer and director, and four non-employee directors. Since the Company’s failed merger with Raven Biotechnologies, Inc. in March 2008, the Board has publicly disclosed that it would either pursue a strategic transaction or a series of strategic transactions or dissolve the Company. The Company has done neither. In the meantime, members of the Board have treated themselves to exorbitant cash compensation. Until July 2009, two non-employee members of the Board were paid over $300,000 per year in compensation. The principal executive officer will likely receive over $400,000 in cash compensation this year.
VXGN is up 31.3% since we initiated the position. At its $0.63 close yesterday, it has a market capitalization of $20.9M. We last estimated the company’s liquidation value to be around $25.4M or $0.77 per share. VXGN has other potentially valuable assets, including 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. The authors of a letter sent to the board on July 14 of this year adjudge VXGN’s liquidation value to be significantly higher at $2.12 per share:
Excluding the lease obligations, the net financial assets alone of $37.2 million equate to $1.12 per share. The EBS royalties (assuming a 6% royalty rate and a $500 million contract as contemplated by NIH/HHS and EBS) of $30 million and milestones of $6 million total $36 million of potential additional future value (based clearly on assumptions, none of which are assured), or $1.09 per share. Adding $1.12 and $1.09 equals $2.21 per share.
The entry of the VaxGen Full Value Committee into the proxy contest will certainly make the next meeting an interesting spectacle, and, with any luck, we will see a liquidation of VXGN soon, either at the hands of the present board, by Value Investors for Change or the VaxGen Full Value Committee.
The Purpose of Transaction portion of the amended 13D filing is set out below:
The Reporting Persons acquired the shares of Common Stock to which this statement relates for investment purposes.
On June 12, 2009, Mr. Bronson, on behalf of BA Value Investors, LLC, sent a letter to the Board of Directors of the Issuer. In the letter, Mr. Bronson stated that the Company must act promptly to reduce the size of the board to three directors; reduce director compensation; change to a smaller audit firm; terminate the lease of its facilities; otherwise cut costs; make an immediate $10 million distribution to shareholders; make a subsequent distribution of substantially all the remaining cash after settling the lease termination; distribute any royalty income to shareholders; and explore ways to monetize the public company value of the Issuer and use of its net operating losses. A copy of the letter to the Issuer has been filed as Exhibit 1 to the Statement.
On August 21, 2009, the Reporting Persons formed a committee called the “VaxGen Full Value Committee.” The VaxGen Full Value Committee intends to conduct a proxy contest to replace the current Board of Directors at the next annual shareholders meeting with directors who will focus on the following objectives:
1. Returning capital to the Issuer’s shareholders, including an immediate distribution of $10,000,000 in cash;
2. Terminating the Issuer’s lease with its landlord, Oyster Point Tech Center, LLC, and settling with the landlord the obligations of the Issuer on the remaining lease payments;
3. Exploring ways to monetize the Issuer as a “public shell,” including the utilization of the Issuer’s Substantial Net Operating Losses; and
4. Protecting for the benefit of shareholders royalty payments receivable from the sale of the Issuer’s intellectual property.
[Full Disclosure: We 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.]
From FT: http://www.ft.com/cms/s/0/8950e4d6-a8d2-11de-b8bd-00144feabdc0.html
SNY has developed am HIV vaccine that was “safe and modestly effective” in preventing HIV infection. It should also be noted that the vaccine was developed with VaxGen (VXGN). Here is an excerpt from the Financial Times story that was run on the subject: ‘The regimen that was tested is based on drugs developed by Sanofi-Aventis and VaxGen (VXGN) and comes in two parts: a modified canarypox virus — known as Alvac — that had been genetically manipulated to carry synthetic versions of three HIV genes to prime the immune system, followed by a booster known as AidsVAX B/E, a formulation that had previously been tested on its own without showing any benefit for patients.’
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Some more info on the AIDS vaccine: “They are ALVAC, from Sanofi Pasteur, the vaccine division of French drugmaker Sanofi-Aventis; and AIDSVAX, originally developed by VaxGen, and now held by Global Solutions for Infectious Diseases, a non-profit founded by some former VaxGen employees.” Doesn’t look like VXGN holds any IP in the vaccine anymore.
On other news its up over 8% today on some big volume.
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amazing to see the action in the stock today – hitting $1.00 and then cascading down from there – I assume as folks began to realize VXGN didn’t have any economic benefit..
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no economic benefit, yet the stock still trades several cents higher than it did before the vaccine announcement. interesting.
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Assuming it traded up because of uniformed buyers maybe we will luck out and there will be a sell off that offers bargains.
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VXGN does have economic rights to the vaccine. See VXGN press release today. Benefits will at best be realized in a number of years, but it’s more gravy on top of liquidation value…
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http://finance.yahoo.com/news/The-VaxGen-Full-Value-bw-3933427104.html?x=0&.v=1
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What do you mean “it seems”? Have you seen some material recently that leads you to believe the lease is still a serious problem?
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It seems that there is still a potential serious material cost associated with winding down the lease. Yes, the lawsuit is resolved, but they still have to negotiate with the landlord to get out of their lease, and that’s got to result in a millions of dollars charge, right?
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