Greenbackd

Biotechnology Value Fund (BVF) yesterday filed additional material in the proxy solicitation to remove the existing directors of Avigen Inc (Nasdaq: AVGN) at the special meeting to be held March 27, 2009. BVF is urging stockholders to remove the current members of the AVGN and replace them with BVF’s four “new, stockholder-oriented, independent director nominees.” BVF has called the special meeting “to give stockholders the opportunity to protect what remains of [AVGN]’s assets, which it believes are in danger of being completely wasted by the Board.”

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 activist fund 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. We estimate AVGN’s cash at around $1.22 per share (BVF estimates $1.20 per share), which is around 16% higher than AVGN’s $1.05 close yesterday.

BVF’s press release is set out below:

BIOTECHNOLOGY VALUE FUND, L.P.

March 12, 2009

VOTE THE ENCLOSED GOLD PROXY CARD TO HELP UNLOCK VALUE AT AVIGEN, INC.

ELECT DIRECTORS WHO ARE DEDICATED TO MAXIMIZING VALUE FOR ALL AVIGEN STOCKHOLDERS BY REDUCING CORPORATE WASTE AND PROTECTING STOCKHOLDERS’ DOWNSIDE RISK WHILE MAINTAINING SIGNIFICANT UPSIDE POTENTIAL

Dear Fellow Stockholders:

We, the Biotechnology Value Fund (“BVF”), are the owners of 8,819,600 shares, or approximately 30% of Avigen’s outstanding common stock. Since we took the lead in protecting value for all stockholders of Avigen in October of 2008, the stock price has increased by over 65%. We have successfully caused the Avigen management team and Board to reduce expenses and sell off programs that they do not have the necessary expertise to develop. We now need your participation to secure Avigen’s substantial remaining value by removing the members of the current self-serving Board and electing our independent nominees who are committed to protecting value for all stockholders.

Let me state from the outset that we neither seek, nor would we accept, any consideration or benefit solely for ourselves. Avigen has falsely accused us of this numerous times, even though we have been crystal clear on this fundamental issue all along. We are waging this effort because (a) we feel a sense of responsibility to do so on behalf of all stockholders given our unique position as the largest stockholder and (b) we believe it is the right thing to do, especially in the context of the current economic environment caused, in part, by similar self-serving managements and Boards.

Throughout this process we have sought only three simple things:

1. that Avigen stop recklessly wasting stockholder money;

2. that stockholders be empowered to decide the fate of Avigen’s remaining cash; and

3. that stockholders be guaranteed a quantified worst-case outcome of approximately Avigen’s liquidation value.

Thus far we have made progress with #1 and #2 above. Facing pressure from BVF, Avigen has abandoned, at least temporarily, its plan to spend money on its remaining products. In addition, the Company has now been forced to call a special meeting to finally permit stockholders the opportunity to weigh in. Prior to our intervention, Avigen’s stock traded at a mere 33% of the cash in the bank and at a steep discount to its current price. This is a remarkable reflection on how poorly Avigen was and is viewed by the investment community. Prior to our intervention, Avigen’s plan was to spend all stockholder money over two years on uncompelling products that it has subsequently conceded were not worthy of investment.

It is worth reflecting on some of Avigen’s historical “accomplishments”:

1. Avigen has consumed over $250 million of investor capital, with little value to show for it. Why should they be entrusted with the last $50 million?

2. Avigen selected a Chief Executive Officer who lives in Park City, Utah when the Company is based in California.

3. Avigen has committed to pay significant fees in the form of golden parachutes to its senior executives and multiple investment bankers, lawyers and consultants in an amount that, we believe, could exceed $5 million under certain circumstances.

4. Despite purporting to have reduced their use of cash and working to protect stockholders, we believe Avigen will spend nearly $20 million, or over $0.65 per share, between the time they announced the failure of AV650 and when they supposedly hope to complete a merger.

5. Avigen adopted a “poison pill,” which we believe is just another example of the Board acting first to protect their jobs rather than the stockholders they have a fiduciary duty to represent.

6. Avigen delayed calling the special meeting for approximately two months before setting a rushed meeting date that we believe was set to prevent stockholders from having adequate opportunity to receive and review proxy materials and vote at the special meeting.

We have grown increasingly dismayed that Avigen’s Board and management team, who collectively own little stock, have wasted money on golden parachutes, multiple investment bankers, consultants and lawyers. Had Avigen merely agreed to guarantee a worst case scenario for stockholders, this fight would not have transpired. Thus, we can only conclude that Avigen is likely to gamble stockholders’ remaining capital that, precedent warns, could result in a near total destruction of stockholder value.

We are frankly surprised that the Board has not previously addressed our concerns by affirmatively and unequivocally agreeing to proceed only with a transaction that provides for stockholders to receive no less than the Company’s approximate liquidation value. In fact, it appears to us that the Board is only now even mentioning an undefined intent to provide some merger liquidity in response to our demand for full downside protection for all stockholders. We believe that Avigen’s shares are undervalued by the market as a result of stockholders’ concern about the direction the current Board is taking the Company. New leadership is needed to prevent further erosion of each stockholder’s investment in Avigen, as well as to take advantage of opportunities that exist to maximize stockholder value.

WITHOUT ANY EVIDENT RATIONAL MOTIVE, AVIGEN HAS NOT AGGRESSIVELY PURSUED THE COMPELLING MERGER PROPOSAL BY MEDICINOVA THAT OFFERED BOTH DOWNSIDE PROTECTION AND SIGNIFICANT UPSIDE TO ALL AVIGEN STOCKHOLDERS

Unlike the current Board, we believe that a merger with MediciNova makes sense for all Avigen stockholders and we cannot understand why only lip service was paid to pursue a deal with MediciNova. Among the extraordinary potential benefits we see in a merger with MediciNova are:

• Downside Protection: Based on our analysis, even if a merger with MediciNova is unsuccessful, Avigen stockholders would still receive the approximate current liquidation value of Avigen. This means that, even in the worst-case scenario, the merger would yield an approximate 65% premium to Avigen’s stock price before we submitted our request to the Company to call the special meeting.

• Tremendous Upside Potential: Based on our analysis, if a merger with MediciNova is successful, Avigen stockholders could own a substantial percentage of MediciNova (approximately 45% of the combined company). We believe the Board has not had any substantive discussions with MediciNova. We do not understand why they have dismissed the offer as providing little value.

• Free Option: Under the terms of the proposed merger, stockholders would have at least one year after the merger is consummated to choose whether they want downside protection or upside potential, as described above. We believe this free option period offers stockholders tremendous upside potential with low risk.

Neither BVF nor its nominees have any financial interests in MediciNova. BVF is only interested in the superior transaction for ALL stockholders. We simply believe that in light of similar historical transactions, it is important that stockholders have downside protection. If BVF’s nominees are elected to the Board, stockholders can either tender their shares in the BVF tender, or not tender and participate with BVF in the future of Avigen, whether through a merger with MediciNova, subject to the nominees’ fiduciary obligations, or if the merger is not feasible, to consider liquidation or other similar type transactions. In any case all stockholders will get to choose and have the opportunity to get immediate cash back. The nominees intend to present any potential MediciNova transaction to stockholders for approval – ensuring that stockholders will get a true say in the future of Avigen.

We believe the Board’s failure to commit exclusively to a transaction that offers downside protection based on the Company’s liquidation value suggests that the Board is considering other options, which will put the value of Avigen at risk. As the Company’s largest stockholder, we share the interest of all stockholders in protecting and preserving our investment. Unlike the directors and management, BVF only profits if the stock price goes up and shares the interest of all stockholders to increase share value and limit share loss. We receive no other payments or compensation.

THE VAST MAJORITY OF FAILED BIOTECHNOLOGY COMPANIES THAT HAVE FOUND THEMSELVES IN AVIGEN’S CURRENT SITUATION HAVE MANAGED TO DESTROY BETWEEN 80%-99% OF STOCKHOLDER VALUE FROM THEIR THEN LIQUIDATION VALUE

We are concerned that Avigen will enter into a transaction without downside protection that would end up destroying value. We have good reason to fear this, because most recent mergers involving companies similarly situated to Avigen (e.g., Transcept Pharmaceuticals, Inc., Anesiva, Inc., ARCA biopharma, Inc., Evotec Aktiengesellschaft, Cardiovascular Systems, Inc. and others), managed to destroy stockholder value. In each of these transactions, the stock prices declined over 80% from their liquidation value following the Board’s decision to pursue a transaction, resulting in aggregate lost value in excess of $200 million. Of course the management, directors, and bankers took their millions of dollars of fees in cash rather than stock in the companies they supposedly supported. The directors and management of companies like Avigen deserve recognition: it is quite a feat to destroy 80% of the liquidation value of a company possessing little else but cash! The charts below illustrate these astonishing failures.

* Approximate net cash per share liquidation value at time of negative binary event.

This repeated lost value and waste is a key reason why we believe downside protection is so important for all stockholders. We want to prevent Avigen from joining this long and infamous list of failures. This is a key reason why we believe the MediciNova transaction is so attractive.

WE BELIEVE THE AVIGEN BOARD IS ENTRENCHING ITSELF AS IT PREPARES TO ENTER INTO AN EGREGIOUS TRANSACTION THAT COULD BURN THROUGH OUR COMPANY’S REMAINING CASH

In a shameless example of protecting their own self-interest, in October 2008 Avigen increased its golden parachute payments, allegedly to attract and retain executive talent. Our first question is: which executive employees does Avigen need to retain when, in our view, Avigen does not possess a viable business? We have estimated that the golden parachute payouts total at least $2 million. Payments to consultants, bankers and lawyers are quickly adding up as well. Given the current economic conditions, we find it irresponsible for Avigen to engage in such behavior that amounts to a slap in the face of all Avigen stockholders. The recent addition of a poison pill by the Board adds further insult to stockholders who have already been insulted by a Board that ignores their pleas.

We are afraid that if the current Board remains in place, they will burn through Avigen’s remaining cash by engaging in a transaction that will further destroy stockholder value. For example, any transaction proposed by Avigen is likely to have a substantial and non-refundable breakup fee that will not be returned to stockholders even if a transaction is not approved. Everyday that the current Board remains in place, the cash per share is dwindling.

AFTER DELAYING THE SPECIAL MEETING FOR MONTHS, THE BOARD FINALLY SET AN ACCELERATED MEETING DATE TO TRY AND PREVENT STOCKHOLDERS FROM HAVING AN OPPORTUNITY TO LET THEIR VOICE BE HEARD

The Board has now set March 27, 2009 as the date for the special meeting of stockholders. We delivered our notice to the board demanding that a special meeting be called approximately two months ago. Finally, after nearly two months of delay and significant and unnecessary corporate waste, the Company announced a March 27, 2009 meeting date, which will occur in just over two weeks, barely enough time to deliver our proxy materials to you. At this critical meeting, Avigen stockholders will be given the opportunity to remove the entire Board and elect independent directors who will strive to preserve and enhance value for all Avigen stockholders. We hope that you will support us by immediately voting the enclosed GOLD proxy card. If you Share our Concern for the Future of Our Company, Do Not Delay, Vote Your Gold Proxy Card Today.

TIME IS SHORT

Act Now to Protect Your Investment By Voting The Enclosed Gold Proxy Card Today

Unfortunately, we have come to the conclusion that the current Board is not fit to run our Company and that it will continue to destroy stockholder value if it is not replaced. Please join our campaign to maximize stockholder value by voting the enclosed GOLD proxy card today.

If you have any questions or need assistance in voting your GOLD proxy card, please contact our proxy solicitors, MacKenzie Partners, Inc., Toll-Free at 1-800-322-2885 or 1-212-929-5500 (call collect) or by email at proxy@mackenziepartners.com. We look forward to speaking to many of you during the course of this campaign and hope that we can count on your support.

Sincerely,

/s/ Mark N. Lampert
Mark N. Lampert
Biotechnology Value Fund, L.P.

[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.]

Read Full Post »

Biotechnology Value Fund (BVF) yesterday filed an amended proxy statement in its effort to remove all of the existing directors of Avigen Inc (Nasdaq: AVGN).

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 activist fund 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. We estimate AVGN’s cash at around $1.22 per share (BVF estimates $1.20 per share), which is around 20% higher than AVGN’s $1.02 close yesterday.

The Background to Solicitation portion of the amended proxy statement sets out a potted history of the situation to date:

The members of the BVF Group are currently the beneficial owners of an aggregate of 8,819,600 Shares, representing approximately 29.63% of the issued and outstanding common stock. As significant stockholders of Avigen, we have one goal: to maximize the value and minimize the risk on behalf of all stockholders. A brief synopsis of Avigen corporate history as well as our recent efforts to maximize stockholder value is summarized in the following chronology of events leading up to this proxy solicitation:

We first became a shareholder of Avigen in 2005, the year Avigen sold, for $12 million, its unsuccessful gene therapy business in which the Company had invested over $150 million. The Company, led by its current CEO, Ken Chahine, spent nearly two years running a “process” with the mandate to re-invent the Company by investing in whatever the current management team deemed compelling. In January 2006, this management team chose to acquire its lead development candidate, AV650, because, in their own words, “we believe it is a low risk.” In fact the Company’s entire strategy, then and now, is supposedly “designed to mitigate the risk of bringing innovative therapies to U.S. patients.” $100 million later, on October 21, 2008, Avigen announced the outright failure of its “low risk” bet on AV650, resulting in a collapse in the Company’s stock price. This same management team and Board, which has failed previously, now wishes to bet the substantial remaining stockholder capital on whatever it deems appropriate.

We recently acquired a significant number of Shares and became the largest stockholder of Avigen. We increased our investment in October 2008 based upon our belief that Avigen’s shares were significantly undervalued. In fact, Avigen reported $56 million, or $1.88 per Share, of financial assets as of September 30, 2008, consisting of cash, cash equivalents, available-for-sale securities and restricted investments, while trading at a price well below $1.00 during the two months prior to filing this proxy statement. We believe this depressed trading price, substantially below Avigen’s cash liquidation value, is based upon the market’s concern that management and the existing Board will pursue ill-advised or other value destroying ventures, at stockholders’ expense, while compensating themselves in the process.

Since this time, we have reached out to the Board numerous times, each time raising our concern that Avigen’s existing liquid assets not be wasted or otherwise committed to value destroying ventures.

We have specifically suggested that the Board “guaranty” the worst case outcome for all stockholders. This guaranty could be accomplished in several ways, including by dividending or distributing all excess cash to stockholders at the present time, or by offering to buy back any and all Shares from stockholders that wish to sell at a specific price at a specific future date. At no time have we asked for – nor would we accept – any consideration or benefit for ourselves that would not be offered to all stockholders.

The Board has ignored our attempts to work constructively for the benefit of all stockholders. Avigen responded to our offers by unilaterally increasing and broadening management’s “golden parachute” severance agreements and unilaterally adopting a “poison pill,” raising our concerns about this Board’s and management’s true intentions.

The Board’s “golden parachute” severance agreements with management, approved under the ridiculous justification that such payouts are necessary to “attract and retain key employees,” are particularly outrageous given Avigen’s current circumstances. Our analysis indicates that these payouts, which we believe would be triggered by most “change in control” scenarios, including a liquidation, total at least $2 million, a significant amount of the Company’s entire market value at the time of adoption. The recipients of these golden parachute arrangements include Avigen’s CEO, Ken Chahine, who resides in Park City, Utah, even though the Company is based in California. We question how the Company can justify such actions as necessary to “attract and retain key employees” when Avigen has no real business at this time. These hastily adopted severance arrangements need to be challenged and, if possible, revoked.

In addition, we believe the Board’s implementation of the stockholder rights plan, or “poison pill,” serves no purpose other than to entrench the Board and keep the BVF Group from purchasing additional stock in the Company. We are concerned that management and the Board are more concerned with retaining their jobs and compensation than with maximizing stockholder value. As evidence, Avigen’s stock price fell more than 20% after the adoption of the poison pill. The pill should be redeemed. The Board’s recent actions reveal its true self-interest and leave us concerned that the Board will indeed destroy and/or take all remaining value. Please see “Proposal No. 1 – Reasons for Removing Existing Directors – We believe the unilateral action by the Board to adopt a “poison pill” is an attempt by the Board and management to ensure the retention of their jobs and their compensation” for further discussion of Avigen’s recently adopted stockholder rights plan.

On December 22, 2008, MediciNova, Inc. (“MediciNova”), a company in which we have no economic interest, proposed to merge with Avigen with an innovative and, we believe, compelling downside-protected structure. We believe the proposed merger is uncontrovertibly in the best interest of all stockholders and we had grave concerns that the Board may not negotiate in good faith with MediciNova, if at all. Avigen’s statements apparently rejecting this proposal confirmed our worst fears. We are concerned that the Board’s and management’s self-interest will prevent them from acting in what we believe to clearly be the best interests of all stockholders.

Accordingly, after much consideration we felt compelled to call the Special Meeting to remove the existing directors and to elect new, truly independent directors who, if elected, plan to take actions to benefit all stockholders, including redeeming Avigen’s stockholder rights plan, working to consummate the proposed transaction with MediciNova and/or working to complete a distribution of Avigen’s assets to all stockholders.

Additionally, on January 23, 2009, we commenced a cash tender offer to purchase any and all of the outstanding Shares that we do not own at a price of $1.00 per Share (the “Offer”). The offer price represents a 35% premium over Avigen’s closing stock price of $0.74 on January 8, 2009, the date prior to the date of our announcement that we were seeking to remove all incumbent members of the Board. The Offer was extended on February 20, 2009 and on March 5, 2009 and is currently scheduled to expire at 6:00 p.m., New York City time, on Friday, April 3, 2009, unless it is further extended.

The Offer is conditioned upon, among other things, (i) the Nominees being elected to the Board at the Special Meeting or otherwise being appointed to, and constituting a majority of, the members of the Board, (ii) the Board redeeming the “poison pill,” or our being satisfied in our reasonable discretion that the “poison pill” is otherwise inapplicable to the Offer, the BVF Group or any affiliates or associates of the BVF Group, and (iii) Avigen not having authorized, recommended, proposed, announced its intent to enter into or entered into an agreement with respect to or effected any merger, consolidation, liquidation, dissolution, business combination, acquisition of assets, disposition of assets, alternative strategy or relinquishment of any material contract or other right of Avigen or any comparable event or capital depleting transaction not in the ordinary course of business. The Offer is not subject to any financing condition.

Assuming the conditions to this Offer are satisfied, stockholders would have the choice of (i) tendering their Shares and receiving a fixed cash payment upon the closing of the Offer at a premium to the market price on the day prior to both the announcement of the Offer and the announcement we were seeking to remove the incumbent members of the Board and to elect the Nominees, or (ii) maintaining their investment in the Company and participating in the proposed merger with MediciNova, if it occurs. Regardless of whether or not a stockholder intends to tender their Shares in the Offer, we strongly recommend that all stockholders vote to elect each of the Nominees and in favor of the other proposals set forth in this Proxy Statement.

We encourage you to review the remainder of this Proxy Statement, which describes in greater detail our concerns and the proposals contained herein.

[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.]

Read Full Post »

Avigen Inc (Nasdaq: AVGN) yesterday mailed a letter to stockholders calling on them to reject the proposal to remove AVGN’s board being presented to stockholders by Biotechnology Value Fund (BVF).

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 activist fund 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. We estimate AVGN’s cash at around $1.22 per share (BVF estimates $1.20 per share), which is around 20% higher than AVGN’s $1.02 close yesterday.

The text of AVGN’s letter to stockholders is set out below:

To our stockholders:

We urge you to support your Board of Directors at the upcoming Special Meeting of Avigen Stockholders on March 27, 2009 – by rejecting the proposal to remove your Board of Directors that is being presented to stockholders by Biotechnology Value Fund (BVF).

The Avigen Board is committed to enhancing the value of your investment and has acted consistently and responsibly to protect the company’s value and represent your best interest.

In contrast, BVF, an activist investor, seeks to take direct control of the company with nominees that have conflicts of interest (all but one is a BVF manager or partner), have no insight into the value of Avigen’s assets, have not been forthcoming with other stockholders about their dealings, and have a record of acting in ways that are NOT in the best interests of other stockholders.

Your Board of Directors unanimously recommends that you vote AGAINST the proposal to remove the current Board, using the enclosed WHITE proxy card. This will enable the Board to continue working to maximize Avigen’s value.

AVIGEN’S BOARD HAS WORKED HARD TO EARN YOUR TRUST

Avigen’s Board is executing a plan to maximize the value of your investment. Your vote will allow the Board to complete these efforts:

Our Pledge To Stockholders

Avigen’s Board is committed to protecting your rights and intends to:

1) Continue efforts to capture the financial value of our AV411 pain and addiction program;

2) Present the best merger transaction, if any, for a vote of stockholders;

3) Provide stockholders who have a preference for liquidity in a transaction, the ability to redeem part, if not all, of their shares for cash;

4) Continue to update stockholders on our progress; and

5) Conclude the process in a timely manner – no later than the end of 2009.

1) We’ve preserved cash and protected Avigen stockholders’ upside.

We expect to have cash of more than $40 million at the end of 2009, in part because of the conservative actions we took last year, including cutting headcount by 70% and selling an early-stage program for $7 million in cash. Even before the disappointing clinical trial results last October, we worked hard to maintain a strong and clean balance sheet and to hold the line on expenses. Importantly, in each of the last five years, your Board has met or exceeded its year-end cash projections and we intend to do the same in 2009.

2) We’re conducting a competitive process so stockholders get the most value out of Avigen’s current assets.

Your Board is leading an orderly process to maximize value for the assets of the company and is committed to taking steps to ensure we deliver the best opportunities for stockholders.

Your current Board and management have the necessary know-how to sell or partner our pain and addiction program for its highest value to stockholders. AV411 is a promising therapy that is in government-funded human testing. We are currently in negotiations with multiple interested parties.

3) The Board’s strategic review process is paying off: we have received seven written proposals to date.

Seven companies have made written offers to Avigen. Now, we are carefully negotiating with interested parties. Because this is a competitive process, each of the companies knows they must present their best offer. We are making steady progress in our negotiations and expect to complete the process in the coming months.

4) We intend to give stockholders with a need or preference for liquidity in a transaction an option to redeem at least part, if not all, of their shares for cash

We believe BVF’s need for liquidity greatly outweighs its interest in evaluating opportunities that could lead to increased value for other stockholders. With your best interest in mind, we intend to provide an opportunity for any stockholder to opt-out and redeem at least part, if not all, of their shares for cash in any transaction. We believe this will provide BVF an opportunity to sell part or all of its position and not impose its own agenda on other stockholders.

5) We’re prepared to cash out stockholders if we can’t find a better option.

We recognize that despite our best intentions and efforts, it may not be possible to identify a favorable merger transaction. Therefore, if at any point during this process, your Board of Directors determines that a favorable transaction is unlikely, the Board will continue to consider all other strategic options, including a partial or complete distribution of Avigen’s cash. In any event, we intend to complete the process, including monetizing our pain and addiction program, no later than the end of 2009.

BVF DOES NOT REPRESENT YOUR INTEREST

BVF is trying to seize complete control of your Board and has acted in ways that are not in the best interests of other stockholders.

1) BVF’s interests are different from other stockholders’ interests

Why does BVF oppose the Board’s competitive process – a process that aims to maximize value for all stockholders? We believe it’s because BVF’s interests are different from the interests of all other stockholders.

BVF cannot easily sell its almost 9 million shares of Avigen without causing the stock price to fall. It could avoid this risk, however, if it can force Avigen into any transaction that cashes BVF out of the stock – even if that means accepting a significant discount to our book value and a significantly lower price for you.

In fact, BVF has opposed all plans that don’t fit its self-serving agenda – even when this has meant destroying value for other Avigen stockholders.

2) BVF favors immediate acceptance of the initial acquisition proposal from MediciNova – despite the low initial proposed value per share – apparently without negotiations to improve the terms

BVF immediately supported the initial acquisition proposal by MediciNova without encouraging negotiation to improve the terms. That proposal is estimated to result in potential cash for Avigen stockholders of approximately $0.91 per share1 after being sequestered and unavailable to Avigen stockholders until at least June 2010. The other components of the transaction provide little value. Your Board believes it can deliver more value for your investment through negotiations with MediciNova or through other competitive proposals.

____________________
1 This estimate is based on our good faith assumptions of Avigen’s cash at the close of the transaction and estimated transaction costs.

3) BVF has not been forthcoming with stockholders

The CEO of MediciNova told Avigen’s management that MediciNova was working with BVF in making its acquisition proposal to Avigen. BVF has not disclosed this working relationship with MediciNova to stockholders.

4) BVF activities have hurt other Avigen stockholders

In the face of BVF’s public support for the MediciNova acquisition and its attacks on Avigen’s Board, several potential bidders who have not submitted a written proposal for Avigen’s assets have been reluctant to negotiate with Avigen until BVF’s threats are resolved. One important would-be buyer said they don’t want to spend the time and money in making a proposal that BVF is going to reject out of hand.

Finally, we learned from three separate parties that a BVF manager – and one of BVF’s nominees for the Avigen Board – tried to sabotage Avigen’s confidential discussions with a potential bidder. The BVF nominee contacted Board members of a potential bidder and warned them that BVF would withhold its support for their potential deal with Avigen. These actions undermine the best interest of other stockholders.

In short, BVF’s actions have consistently harmed the interests of other Avigen stockholders. The Board believes BVF would not be an appropriate steward for all stockholders, and urges stockholders to reject the BVF proposal by voting on the WHITE proxy card AGAINST the removal of your Board.

YOUR BOARD IS COMMITTED TO CREATING WEALTH FOR ALL STOCKHOLDERS – AND IS MAKING GOOD ON THIS COMMITMENT

Your Board of Directors is committed to pursuing the strategies that are in the best interest of the majority of our stockholders and to protecting the rights of all stockholders. It is committed to finding a way to work with BVF, our largest stockholder – and has made numerous attempts to reach out to BVF and to accommodate its interests.

We believe that removing, without cause, all six of your directors – and replacing them with BVF’s nominees who lack relevant experience2 and are not independent – is not in the best interests of all of Avigen’s stockholders.

____________________
2 Based on disclosure in BVF’s proxy statement.

Your vote in this proxy contest comes down to one thing: Who can you expect to deliver, to you and all other Avigen stockholders, the full value from Avigen’s assets? We urge you to reject the BVF proposal and support your current Board of Directors, which has over the years earned your trust.

Respectfully,

Signed for the Board of Directors
Zola Horovitz, Ph.D. as Chairman of the Board
Kenneth G. Chahine, Ph.D., J.D. as Chief Executive 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.]

Read Full Post »

Biotechnology Value Fund (BVF) has extended its offer to purchase all of the outstanding shares of Avigen Inc (Nasdaq: AVGN) for $1.00 per share to April 3, 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 activist fund 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. We estimate AVGN’s cash at around $1.22 per share (BVF estimates $1.20 per share), which is around 20% higher than AVGN’s $1.02 close today.

BVF’s press release follows:

BVF ACQUISITION LLC EXTENDS AVIGEN TENDER OFFER TO APRIL 3, 2009

NEW YORK, March 6, 2009 – BVF Acquisition LLC (the “Purchaser”), an affiliate of Biotechnology Value Fund L.P. (“BVF”), which has commenced a cash tender offer to purchase all of the outstanding shares of Avigen, Inc. (Nasdaq: AVGN) (“Avigen”) for $1.00 per share, announced today that it has extended the expiration date for the tender offer to 6:00 p.m., New York City time, on Friday, April 3, 2009. The tender offer was previously set to expire at 6:00 p.m., New York City time, on Friday, March 6, 2009. As of the close of business on March 6, 2009, a total of 2,854,626 shares, including shares tendered by guaranteed delivery, had been tendered in and not withdrawn from the offer, which together with the shares owned by BVF and affiliates, represents approximately 39.2% of the total shares outstanding of Avigen.

[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.]

Read Full Post »

Avigen Inc (Nasdaq: AVGN) has filed amended proxy material in its opposition to the proxy solicitation of Biotechnology Value Fund (BVF).

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 activist fund 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. We estimate AVGN’s cash at around $1.22 per share (BVF estimates $1.20 per share), which is around 26% higher than AVGN’s $0.97 close yesterday.

AVGN’s amended proxy material sets out an interesting background to the proxy solicitation. The background is quite lengthy, so we’ll pick it up from AVGN’s February 11 conference call:

On February 11, 2009, senior management of Avigen hosted a conference call relating to its fiscal year ended December 31, 2008. Senior management also updated stockholders on Avigen’s strategic process and responded to questions and answers.

On February 13, 2009, Dr. Horovitz spoke with Mr. Lampert and attempted to reassure him that Avigen was preserving its assets and that the competitive process to identify potential strategic opportunities was proceeding well. Mr. Horovitz indicated to Mr. Lampert that once the process was complete Avigen would communicate its findings to stockholders and that the Board did not believe that it would be prudent to make public commitments until that time.

On February 20, 2009, Mr. Lampert sent a letter to the Board, again demanding “downside protection” for all stockholders.

On February 21, 2009, Dr. Chahine was informed by multiple parties that Mr. Nodelman, a BVF Nominee, had learned of confidential early negotiations Avigen had with a company, and that during the previous week, Mr. Nodelman contacted one or more of the members of the board of that company to warn that BVF would withhold its support for any potential strategic transaction between Avigen and that company.

On February 23, 2009, the Board sent BVF a letter offering to discuss their differences with a view to arriving at a mutually beneficial outcome for all stockholders. Later that day, Drs. Horovitz and Chahine met with representatives of BVF to discuss whether there was a solution to avoid a proxy contest.

On February 24, 2009, MediciNova and Avigen reached a tentative agreement that they would sign a mutual confidentiality agreement with no standstill, with the understanding that only information that the companies were comfortable disclosing without a standstill would be exchanged.

On February 27, 2009, the Board reiterated to BVF its earlier offer to compromise and conveyed its desire to come to a mutually beneficial outcome for all stockholders and cease the proxy fight. Although no agreement was reached, the Board also reiterated its offer to continue to work collaboratively and professionally with BVF.

[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.]

Read Full Post »