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Archive for the ‘Avigen (NASDAQ:AVGN)’ Category

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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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, 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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Avigen Inc (NASDAQ:AVGN) has filed its assessment of the cash portion of the MediciNova Inc (NASDAQ:MNOV) proposal.

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. 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 AVGN’s press release is set out below:

In filings with the Securities and Exchange Commission on March 10, 11 and 18, 2009, Avigen disclosed that it had assessed the cash portion of the MediciNova proposal described in those filings at approximately $0.91. Avigen arrived at this assessment by taking the estimated net cash and securities at the end of June 2009 to be sequestered by MediciNova of approximately $27.1 million, and dividing it by the approximately 29.8 million shares of Avigen common stock outstanding.

The estimated net cash and securities at the end of June 2009 was arrived at by taking the audited cash and securities balance at the end of December 2008 of $56.8 million, and subtracting therefrom, an estimated:

* $7.0 million in debt,
* $3.1 million of accrued liabilities at December 31, 2008,
* $3.1 million of remaining building lease obligations, net of potential subleases,
* $2.2 million of estimated severance for Named Executive Officers,
* $5.0 million of estimated operating expenses for the six months ended June 30, 2009,
* $2.3 million of estimated winddown and other transaction costs,

and

* $7.0 million that MediciNova would take in exchange for the issuance of 1.75 million shares of MediciNova stock at $4.00 per share, that as of March 13, 2009 were valued at $1.59 per share or $2.8 million in the aggregate, resulting in an immediate loss of $4.2 million of value.

In assessing the adequacy of the offer presented by MediciNova, the Board of Avigen also obtained an opinion, dated March 17, 2009, from RBC Capital Markets Corporation (“RBC”), that, as of the date of such opinion, and subject to certain assumptions, qualifications and other considerations set forth in its written opinion, the consideration being offered by MediciNova in its proposal to acquire Avigen is inadequate, from a financial point of view, to the stockholders of Avigen. RBC’s opinion was provided for the information and assistance of the Board of Avigen. RBC expresses no opinion and makes no recommendation to any stockholder of Avigen. All advice and opinions (written and oral) rendered by RBC were solely for the use and benefit of the Avigen Board and may not be used or relied upon by any other person.

RBC’s opinion does not address the merits of the underlying decision by Avigen to accept or reject the MediciNova offer or the relative merits of the MediciNova offer compared to any alternative business strategy or transaction in which Avigen might engage. RBC does not express any view on, and RBC’s opinion does not address, the fairness, from a financial point of view, of the consideration offered by MediciNova.

A copy of RBC’s opinion is filed below. You are urged to read this opinion in its entirety.

RBC’s analysis included, among other analyses, an assessment of MediciNova’s proposed offer on a per share basis as of the date of the analysis which was based upon certain assumptions and information both publicly available and provided by Avigen management. Such analysis was further limited by the fact that RBC did not have access to any of MediciNova’s non-public financial information (including forecasts) and, as result, valued MediciNova’s common stock solely based on the closing price for such stock on the Nasdaq Global Market on March 13, 2009. The following sets forth a summary of such assessment:

avgn-rbc-mnov-valuation

(3) Black-Scholes calculation based upon certain assumptions for Convertible Security including: MNOV stock price of $1.59 as of March 13, 2009; convertible security exercise price of $4.00; assumed risk-free interest rate of 0.44%; one-year term for convertible security; and standard deviation volatility assumption of 69% based upon MediciNova’s 10-K filed March 17, 2008.

The above assessment of MediciNova’s proposed offer was one of several analyses performed by RBC in connection with its opinion and should not be regarded as critical to the overall conclusion RBC reached. Such assessment has inherent strengths and weaknesses, and the nature of the available information may further affect such assessment. The overall conclusions RBC reached were based on all the analysis and factors presented, taken as a whole, and also on application of RBC’s own experience and judgment. Such conclusions may involve significant elements of subjective judgment and qualitative analysis. RBC therefore gives no opinion as to the value or merit standing alone of the above analysis.

(1) Based upon 29.8 million Avigen shares outstanding per 10-Q filed on November 10, 2008.
(2) Based upon information provided to RBC by Avigen management as of March 15, 2009.

RBC’s summary valuation is set out below:

March 17, 2009

The Board of Directors
Avigen, Inc.1301 Harbor Bay Parkway
Alameda, CA 94502
Members of the Board of Directors:

We understand that MediciNova, Inc., a Delaware corporation, (the “Offeror”) has made a non-binding, publicly disclosed offer (the “Offer”) to acquire, pursuant to a proposed merger transaction, all of the issued and outstanding shares of common stock, par value $0.001 per share (the “Common Stock”) of Avigen, Inc., a Delaware corporation (the “Company”), in exchange for the Consideration (as defined below) pursuant to letters sent by the Offeror to the Company dated December 22, 2008 and February 9, 2009 (the “Letters”), which letters are contained in the Offeror’s Current Reports on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on December 23, 2008 and February 9, 2009, respectively.

You have requested our opinion as to the adequacy, from a financial point of view, of the Consideration to the holders of the Company Common Stock (the “Stockholders”).

The Letters provide, among other things, that each Stockholder would receive (i) a pro rata portion of 1.75 million shares of the Offeror and (ii) a convertible security that would allow each Stockholder at their election to either (a) convert each share of such convertible security into shares of the Offeror at a conversion price of $4.00 per share at certain pre-specified accelerated conversion dates or the later of March 31, 2010 or 12 months from the closing of the proposed merger transaction (the “Final Conversion Date”), or (b) have the convertible security redeemed by the Offeror on the Final Conversion Date for cash in an amount per share which represents each Stockholder’s pro rata interest in the Net Cash Assets (as defined below) of the Company (items (i) and (ii) above, together, constituting the “Consideration”). Pursuant to the Letters, “Net Cash Assets” means the amount of the Company’s cash remaining after the completion of the Company’s wind-up activities, including satisfaction of all of the Company’s obligations by way of indebtedness, severance and related liabilities (provided that the Company will retain all intellectual property assets for the combined companies), minus $7 million in cash that the Offeror will receive in exchange for the stock portion of the Consideration described in item (i) above.

RBC Capital Markets Corporation (“RBC”) is a global, full service securities firm engaged in securities trading and brokerage activities, and providing investment banking, investment management and financial advisory services. In the ordinary course of its trading, brokerage, investment and asset management and financial activities, RBC and its affiliates may hold long or short positions, and may trade or otherwise effect or recommend transactions, for its own account or the accounts of its customers, in debt or equity securities or loans of the Company or any other company that may be involved in a transaction with the Company. Further, in connection with its merchant banking activities, RBC may have made investments in the Company or any other company that may be involved in a transaction with the Company. As a global, full service financial organization, RBC and its affiliates may also provide a broad range of normal course financial products and services to its customers (including, but not limited to investment banking, commercial banking, credit derivative, hedging and foreign exchange products and services), including companies that may be involved in certain transactions with the Company.

We are acting as financial advisor to the Board of Directors of the Company (the “Board”) in connection with its consideration of the Offer and pursuant to an engagement letter between the Company and RBC dated January 13, 2009 (the “Engagement Letter”). We will receive a fee for our services upon delivery of this opinion, which is not contingent upon the Offer being accepted or rejected by the Company. For our services as financial advisor to the Company, if a Transaction (as defined in the Engagement Letter) is successfully completed we will receive an additional larger fee.

We have also been engaged to advise the Company in connection with an unsolicited third party offer to merge with, acquire or purchase the common stock of the Company, and will receive a fee for such services regardless of the outcome of such unsolicited offer. In addition, the Company has agreed to indemnify us for certain liabilities that may arise out of our engagement and to reimburse the reasonable out-of-pocket expenses incurred by us in performing our services (subject to a limit which may not be exceeded without the Company’s written approval). In the ordinary course of business, RBC may act as a market maker and broker in the publicly traded securities of the Company and/or Offeror and receive customary compensation, and may also actively trade securities of the Company and/or Offeror for our own account and the accounts of our customers, and, accordingly, RBC and its affiliates, may hold a long or short position in such securities. RBC may also provide investment banking and other financial services to the Company, Offeror and their respective affiliates in the future, for which we may receive compensation.

For the purposes of rendering our opinion, we have undertaken such review and inquiries as we deemed necessary or appropriate under the circumstances, including the following: (i) we reviewed the financial terms provided in the Letters and other correspondence between the Offeror and the Company; (ii) we reviewed and analyzed certain publicly available financial and other data with respect to the Company and the Offeror and certain other relevant operating data relating to the Company made available to us from the internal records of the Company; (iii) we reviewed publicly available equity research reports and Thomson One Analytics consensus estimates regarding the potential future performance of the Company and Offeror as standalone entities; (iv) we reviewed financial projections and forecasts of the Company (“Forecasts”) prepared by the management of the Company; (v) we conducted discussions with members of the senior management of the Company with respect to the business prospects and financial outlook of the Company as well as the value of the Company’s assets as a standalone entity; (vi) we reviewed the reported prices and trading activity for Company Common Stock and the Offeror common stock, including their trading relative to one another; (vii) we have taken into consideration that the Company has been approached by, and has initiated contact with, other parties who have expressed interest in exploring a transaction involving the Company; and (viii) we considered other information and performed other studies and analyses as we deemed appropriate, including recent developments with respect to the Company’s business.

Several analytical methodologies have been employed and no one method of analysis should be regarded as critical to the overall conclusion we have reached. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The overall conclusions we have reached are based on all the analysis and factors presented, taken as a whole, and also on application of our own experience and judgment. Such conclusions may involve significant elements of subjective judgment and qualitative analysis. We therefore give no opinion as to the value or merit standing alone of any one or more parts of the analyses.

In rendering our opinion, we have assumed and relied upon the accuracy and completeness of all the information that was publicly available to us and all of the financial, legal, tax, operating and other information provided to or discussed with us by the Company (including, without limitation, the financial statements and related notes thereto of the Company), and have not assumed responsibility for independently verifying and have not independently verified such information. We have assumed with your consent that all Forecasts provided to us by the Company were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the future financial performance of the Company, as a standalone entity. We express no opinion as to such Forecasts or the assumptions upon which they were based.

In rendering our opinion, we have not assumed any responsibility to perform, and have not performed, an independent evaluation or appraisal of any of the assets or liabilities of the Company, and we have not been furnished with any such valuations or appraisals. We have not assumed any obligation to conduct, and have not conducted, any physical inspection of the property or facilities of the Company. We have not investigated, and make no assumption regarding, any litigation or other claims affecting the Company. Our opinion does not address any legal, regulatory, tax or accounting matters.

Our opinion speaks only as of the date hereof, is based on the conditions as they exist and information which we have been supplied as of the date hereof, and is without regard to any market, economic, financial, legal, or other circumstances or event of any kind or nature which may exist or occur after such date. We have not undertaken to reaffirm or revise this opinion or otherwise comment upon events occurring after the date hereof and do not have an obligation to update, revise or reaffirm this opinion.

The opinion expressed herein is provided for the information and assistance of the Board in connection with the Offer. We express no opinion and make no recommendation to any Stockholder with respect to the Offer. All advice and opinions (written and oral) rendered by RBC are intended solely for the use and benefit of the Board and may not be used or relied upon by any other person, nor may such advice or opinions be reproduced, summarized, excerpted from or referred to in any public document or given to any other person without the prior written consent of RBC. If required by applicable law, this opinion letter may be included in any disclosure document filed by the Company with the SEC with respect to the Offer; provided, however, that this opinion letter must be reproduced in full and any description of or reference to RBC must be in a form reasonably acceptable to RBC and its counsel. RBC shall have no responsibility for the form or content of any such disclosure document, other than this opinion itself.

Our opinion does not address the merits of the underlying decision by the Company to accept or reject the Offer or the relative merits of the Offer compared to any alternative business strategy or transaction in which the Company might engage. Our opinion addresses solely the adequacy of the Consideration, from a financial point of view, to the Stockholders, as of the date hereof. We do not express any view on, and our opinion does not address, the fairness, from a financial point of view, of the Consideration. We also do not express any view on, and our opinion does not address the adequacy or fairness of the amount or nature of any compensation to be paid or payable to any officers, directors or employees, or class of such persons, whether relative to the compensation proposed to be paid to the public Stockholders or otherwise.

We do not express any opinion as to the price or range of prices at which the Company Common Stock or the Offeror’s common stock may trade at any time.

Our opinion has been approved by RBC’s M&A Opinion Review Committee.

Based upon and subject to the foregoing, including the various assumptions and limitations set forth herein, it is our opinion that, as of the date hereof, the Consideration is inadequate, from a financial point of view, to the Stockholders.

Very truly yours,

RBC CAPITAL MARKETS CORPORATION

[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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Biotechnology Value Fund (BVF) has increased its tender offer for Avigen Inc (NASDAQ:AVGN) from $1.00 per share to $1.20 per share contingent on the election of BVF’s nominees to the board of 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 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 77% from $0.65 to close at $1.15 Friday. 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:

BVF Acquisition LLC Increases Tender Offer Price for Avigen, Inc. to $1.20 Per Share

Friday March 20, 2009, 8:00 am EDT

Why does Avigen refuse to guarantee $1.20 per share in cash?

NEW YORK, March 20 /PRNewswire/ — 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 – News; “Avigen”), announced today that it is increasing its cash tender offer price from $1.00 per share to $1.20 per share. The offer is currently scheduled to expire at 6:00 p.m., New York City time, on Friday, April 3, 2009. The key condition to the offer is the election of BVF’s nominees.

BVF is offering all stockholders $1.20 per share in cash. Why won’t Avigen do the same? Without this protection, how can Avigen be trusted?

BVF has repeatedly called on the Board to guarantee downside protection for stockholders, rather than gambling the remaining stockholder money. This Board has repeatedly refused to commit to proceeding only with a transaction that offers quantifiable downside protection, in cash, of approximately the Company’s liquidation value. The MediciNova merger provides for this; why not Avigen directly? The Board’s refusal to do so should be cause for great concern and suspicion. For example, is Avigen about to give away millions of dollars in “break-up” fees in a flawed, unprotected merger, with full knowledge that stockholders oppose it? BVF has offered stockholders the option to tender their shares for $1.20 per share in cash or participate with BVF in the future of Avigen. BVF’s objective is to protect and maximize its investment in Avigen stock; management’s incentive is to maximize salaries and fees, and to trigger their multimillion-dollar “golden parachute” agreements.

To tender your shares and receive $1.20 per share in cash, BVF’s nominees must be elected. Importantly, should stockholders fail to remove the current Board and replace them with BVF’s stockholder-oriented representatives, the tender offer will expire and no shares will be accepted. Is it possible that Avigen’s stock price could fall significantly without the support of the outstanding BVF tender offer?

We urge stockholders to vote the GOLD proxy to remove the current directors and elect BVF’s stockholder-oriented nominees. BVF believes its nominees offer the best opportunity for stockholders to protect their investment in Avigen. All stockholders are encouraged to act now to protect their investment and vote the GOLD proxy card today.

MacKenzie Partners, Inc. is the Information Agent for the tender offer and any questions or requests for the Offer to Purchase and related materials with respect to the tender offer or the special meeting may be directed to MacKenzie Partners, Inc.

[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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Wes Gray’s Empirical Search Strategies (ESS) has proclaimed its support for a “downside protection” measure described by the Biotechnology Value Fund (BVF) in the Avigen Inc (NASDAQ:AVGN) proxy fight. ESS is the beneficial owner of approximately 2.3% of AVGN’s outstanding common stock.

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 77% from $0.65 to close at $1.15 Friday. 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 ESS’s press release is set out below:

CHICAGO, March 20 /PRNewswire/ — Empirical Search Strategies, LP. (“ESS”), the beneficial owner of approximately 2.3% of the Avigen, Inc.’s (Nasdaq: AVGN – News) outstanding common stock, has proclaimed their support for a “downside protection” measure described by the Biotechnology Value Fund (“BVF”). ESS believes a clearly articulated downside protection measure is beneficial to all shareholders for the following reasons:

* First, offering downside protection guarantees shareholders an opportunity for liquidity. Without a liquidity option, shareholders who decide to exit their Avigen position for individual reasons (or those who view the final transaction unfavorably) will be forced to sell shares into an extremely illiquid market environment. It is not uncommon to see a 5% bid/ask spread in Avigen stock on any given day.

* Second, there is currently excess cash on the balance sheet of approximately $35mm (which includes a healthy, but unwelcome burn rate of approximately $10mm and an estimate of required capital/miscellaneous costs of roughly $2mm throughout 2009). This excess cash is not needed to sustain the sale of AV411 or to pursue the Genzyme partnership. To ensure agency costs are limited, management should publically state they will either (i) distribute this excess cash immediately, or (ii) structure a deal similar to the MediciNova deal that offers shareholders an exit option for a specific amount and at a specific time in the future.

* Third, Avigen is not a bank. Management should focus on selling their value-proposition: experience and know-how in the AV411 program, and continuity and understanding of how to maximize value from the Genzyme partnership. It may seem sensible to bargain for a “good deal” from an acquirer who is in financial distress by offering them a pile of cash. However, if a potential buyer is strapped for cash in this environment, it’s probably not a company Avigen shareholders want to own–even if they offer a slight premium. As a matter of fact, the very thought of owning a distressed company is the main reason ESS values a downside protection measure that is clear and transparent from the beginning.

In conclusion, ESS believes it is not impossible that in a year from now Avigen shareholders will find themselves experiencing a bout of deja vu. We worry that we will be holding a biotech company that is burning cash, selling at .5x liquidation value, and paying management salaries of $500,000 to $1,000,000 a year during the worst economic environment since the Great Depression. In the end, ESS believes the following statement from Avigen (or anything even resembling this statement) would maximize the utility of all Avigen shareholders, and cause BVF to IMMEDIATELY drop their proxy fight, which will save shareholders the fees associated with the proxy battle:

“Dear Avigen Shareholders:

Regardless of the deal we choose to pursue, we will guarantee a downside protection option for all shareholders. Specifically, we will offer all shareholders the opportunity to exchange their shares for $1.10, six months following the closing of a deal. If shareholders find that the NewCo is simply burning cash and providing no value, they will have a 30 day window to exchange their shares for $1.10 per share. If shareholders believe the NewCo is worth more than $1.10, they can maintain their ownership in NewCo and participate in the future of the company.

We believe this arrangement will provide downside protection to shareholders who are risk-averse in the current economic environment, and at the same time, this deal will offer NewCo management an opportunity to prove their worth and earn shareholder trust.

Sincerely,

Avigen Management”

Wesley R. Gray, ESS Portfolio Manager, stated, “I really appreciate the steps management has taken to maximize shareholder value and I value their hard work. I just wish they would listen to shareholder requests more diligently. For the vast majority of shareholders I have spoken to, downside protection and a decent chance for reasonable upside beats the outright ownership of a distressed biotech company–especially in this investment environment.”

[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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We cast our proxy votes on-line today in support of Biotechnology Value Fund’s (BVF) proposal to remove the board 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 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 65% from $0.65 to close at $1.07 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.

BVF’s task is a difficult one. Why? Let’s turn to the proxy material, which states as follows:

To be approved, the Board Removal Proposal must receive “FOR” votes from the holders of at least two-thirds of all of Avigen’s outstanding shares entitled to vote either in person or by proxy at the Special Meeting. If you do not vote or “ABSTAIN” from voting, it will have the same effect as an “AGAINST” vote. Broker non-votes will have the same effect as “AGAINST” votes.

This is an incredibly high threshold. For BVF to unseat the board, it requires two-thirds of all of AVGN’s outstanding shares entitled to vote. This means that BVF’s enemy is likely not stockholders voting against BVF’s proposal, but stockholders not voting at all, because failing to vote has the same effect as voting against BVF. Let us say that again: failing to vote has the same effect as voting against BVF’s proposals. If 10% of AVGN’s voters fail to vote, BVF requires almost three-quarters of the votes from those actually voting.

If the purpose of voting at stockholder meetings is to give voice to the majority (or, in this case, the supermajority) of the stockholders, surely the process should be designed to reflect that will. At present, it is not. The deck is stacked heavily in favor of the incumbent board. At least two-thirds of all of AVGN’s outstanding shares must be voted for BVF. The real threshold is actually higher than two-thirds, because failure to vote equates to a vote against BVF. If even a small proportion of stockholders neglect to vote, BVF’s threshold is proportionately that much higher. Each obstacle reduces the chance that a stockholder votes along with BVF, and that’s a shame. The corporate voting process should function to reflect the will of each stockholder and it does not presently do that.

The special meeting is to be held next Friday, March 27, 2009. If you hold stock in AVGN, you must cast your vote before that date. If you wish to support BVF, you must vote GOLD card.

[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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Avigen Inc (NASDAQ:AVGN) has sent a letter sent to its stockholders saying that Glass Lewis, a “leading independent voting advisory service” has reviewed the Biotechnology Value Fund (BVF) proposal to remove AVGN’s board and has recommended that stockholders vote against the proposal. Glass Lewis make the recommendation on the basis that “…shareholders would be best served by allowing the current board to continue its competitive sale process and to negotiate the highest value agreement for this Company… . We also make this recommendation knowing that there are multiple parties interested in the Company and given the board’s commitment to return value to shareholders by year end 2009 in the event that no strategic agreement is negotiated.” Our two cents? While AVGN has taken steps to crystallize the value of AV411, engaging financial advisors and receiving “seven written proposals” for AVGN or AV411 (we’re not sure which), we believe that much of the credit for this should be properly laid at the feet of BVF. It’s difficult to imagine AVGN taking these steps without BVF’s presence on the share register, and we suspect that it would have been “business as usual” if BVF had not agitated so forcefully for change. We’re supporting 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 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 68% from $0.65 to close at $1.09 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 the letter is set out below:

Leading Independent Advisory Service Urges Avigen Stockholders to Reject BVF’s Proposal

Avigen’s Board Narrows Focus on Strongest Improved Bids Through Ongoing Competitive Process

Dear Shareholders,

We began building the current Board in early 2006 and have consistently followed core principals that reflect fiscal discipline and sound drug development strategies. These characteristics, along with the decisive actions taken last fall to safeguard the company’s resources, have put your Board in a position to serve the interests of all stockholders and maximize the value of your investment.

Since completing the sale of our hemophilia program for $7 million in mid-December, Avigen’s stock has appreciated 50% and we believe that the Board’s current strategy will continue to add value through an open and competitive process to evaluate potential merger transactions and a commitment to bring the strongest deal, if any, to stockholders for a vote.

Leading independent advisory service is recommending stockholders vote AGAINST BVF’s Board removal proposal

Glass Lewis is one of the nation’s leading independent voting advisory services and has reviewed the BVF Proposal to remove the current Avigen Board. As a firm that reviews many contests for control, Glass Lewis believes that an independent and knowledgeable Board is often in the best position to assess a company’s strategic alternatives for the benefit of all its stockholders. In Avigen’s situation, Glass Lewis recommends that “…shareholders would be best served by allowing the current board to continue its competitive sale process and to negotiate the highest value agreement for this Company… . We also make this recommendation knowing that there are multiple parties interested in the Company and given the board’s commitment to return value to shareholders by year end 2009 in the event that no strategic agreement is negotiated.”

The Board is listening to all stockholders and working to find a balance that reflects the range of preferences they have expressed. Avigen’s Board values all stockholders’ perspectives in defining an optimal deal structure and has encouraged BVF to consider accepting board seats or other observers rights that would allow it to participate directly in the process. This would allow the current competitive process to continue uninterrupted and without jeopardizing the most promising opportunities on the table.

Your Board now has several proposals that offer significant “downside protection” and is focusing on evaluating their upside potential

Since issuing our December 22, 2008 letter to stockholders, your Board has maintained its commitment to implement a straightforward strategy to get more value for stockholders than the company’s current cash assets. After initiating an orderly and competitive process to review strategic merger opportunities, your Board has received multiple written proposals that significantly value Avigen above its current stock price.

Your Board believes it is in the best interests of stockholders to pursue a flexible deal structure and bring the most attractive opportunity to a vote of stockholders as soon as possible. In the current environment, we believe investors are most attracted to companies with later-stage products and a lower risk profile. In the last two months we have identified several opportunities that meet these criteria. The strongest proposals received to date include most of the following:
(1) commercial or near commercial products;
(2) revenue or near-revenue generating opportunity;
(3) potential for sustainable operations without the need for equity financings;
(4) sales and marketing support from a strong commercialization partner;
(5) reduced remaining regulatory risk;
(6) attractive growth potential; and
(7) willingness to provide liquidity to Avigen stockholders who need or prefer cash.

Your Board has recently invited all bidders to provide an enhanced competitive “best” offer so that the Board and management can narrow their focus on the strongest proposals and accelerate the next stage of diligence. Several parties have improved their original offers, demonstrating unequivocally the soundness of this strategy and the likelihood that your Board’s efforts will result in greater value for stockholders.

We intend to bring to stockholders the strongest proposal. All proposals contain a significant liquidity option (i.e., “downside protection”) for stockholders that were attracted to that feature in the MediciNova proposal which was publically supported by BVF but, importantly, value Avigen above its current stock price. The Board’s focus is now on identifying which proposal best fits the criteria above and is most likely to provide the greatest upside potential for Avigen stockholders.

BVF’s public support for the MedicNova proposal overlooked the potential for improving the value through competitive negotiations

By unconditionally supporting the MediciNova proposal on December 29, 2008, and encouraging the Board to bring the proposal to “a shareholder vote as soon as practical,” BVF may have overlooked other elements of the proposal that did not fully value all of Avigen’s assets. By taking a measured approach, your Board recognized five factors that it would like to address in negotiations to enhance the value to Avigen’s stockholders:

* MediciNova is an early-stage development company that, in our opinion, is highly likely to need to raise significant additional capital in approximately the next year.

* MediciNova was trading at $1.60 per share on the day of the public statement, and yet proposed that Avigen stockholders to spend $7 million to buy MediciNova stock at $4.00 per share, taking an immediate LOSS of approximately $4.2 million.

* MediciNova proposed holding Avigen’s remaining cash for over a year, in the hopes that Avigen’s stockholders would buy more MediciNova stock at the same fixed price of $4.00 per share or 250% of its then trading price. In other words, the first $25 million in stock appreciation due from Avigen’s other assets (AV411 pain and addition program and the Genzyme milestone) would accrue to MediciNova without providing any upside benefit to Avigen’s stockholders.

* Most likely, these terms would lead to a cash payout to Avigen stockholders in June 2010 or later estimated at approximately $0.91 per share from their original Avigen holdings. During that year, Avigen’s cash would be at risk to MediciNova’s creditors if the company became insolvent, potentially leaving Avigen stockholders with much less.

* Finally, MediciNova is an extremely illiquid stock that most Avigen stockholders would find difficult to trade in the open market without significantly depressing the price, which warranted concessions. For example, during the fourth quarter of 2008, MediciNova traded less than 1,000 shares per day on 48% of the 64 trading days during the quarter and zero shares on 10 of those days.

In short, while recognizing the value of some elements of the MediciNova proposal, your Board was working first to establish an open and competitive review process in which to hold direct negotiations to evaluate and improve those terms. While respecting BVF’s enthusiasm for downside protection, we believe their aggressive early support undermined the ability of your Board to engage MediciNova in an orderly process and may have prevented MediciNova from offering its “best” proposal for all of Avigen’s assets.

Avigen’s Board urges stockholders to reject BVF’s proposal to remove the Board and avoid re-starting the competitive process or jeopardizing the strongest proposals currently under review

BVF made a shrewd investment when it recognized that Avigen’s assets were severely undervalued after the negative clinical trial results reported last October. This allowed BVF to acquire a 29% stake in Avigen at an estimated average price of approximately $0.58 per share which they understandably want to protect. Their best intentions, however, are handicapping the Board’s effort to maximize value for BVF and all stockholders and now risk losing several written proposals by recommending removal of the full Board.

Your Board has reduced expenses, preserved resources and monetized one of the company’s assets. Your Board is also increasing the upside for all stockholders through its efforts to partner or sell Avigen’s AV411 pain and addiction program and in running an open and competitive process designed to identify strategic merger opportunities that we believe ALL stockholders will find attractive.

In the end, your Board is committed to bringing the best transaction, if any, to stockholders for a vote and providing a liquidity option for stockholders that would prefer to redeem part, if not all, of their shares for cash. This process is not intended to extend beyond the fourth quarter and could progress much sooner.

Your Board would like to work with BVF to ensure that all stockholders get the very best outcome for their investment. We encourage stockholders to support this effort and vote AGAINST the BVF proposal on the WHITE proxy card today. Your Board is representing the interests of all stockholders and is in the best position to complete a value maximizing transaction.

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. Do your own research before investing in any security.]

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Avigen Inc (NASDAQ:AVGN) has filed two letters sent to MediciNova Inc (NASDAQ:MNOV) and intends to present the letters at the special meeting “to demonstrate the tone and character of the negotiation discussions between MediciNova and Avigen and its advisors.”

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 Biotechnology Value 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. The stock is up 60% from $0.65 to close at $1.04 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 $10M to $25M or between $0.30 or $0.65 per share.

The first letter is from AVGN:

March 10, 2009

Jeff Himawan, PhD
Chairman of Board
MediciNova
435 Tasso Street
Palo Alto, CA 94301

Dear Jeff,

I write in response to Mr. Moch’s letter dated March 6, 2009, and a follow-up email to Andrew Singer on March 9, 2009.

We have still not heard back from MedicNova on its availability for either a teleconference or face-to-face meeting with the Avigen management to review MedicNova’s development plans and finances. As you know, we offered on Friday, March 6th, and then again on Monday, March 9, 2009, to have such a meeting. This is the initial step taken by all other interested parties and we continue to believe that it is an appropriate next step in our negotiations. Time is of the essence if MediciNova would like to be seriously considered as one of the final proposals we will evaluate and urge you to act accordingly.

As you know, after extensive negotiations on a confidentiality agreement between our two companies, Avigen finally agreed to MediciNova’s demand that the confidentiality agreement between our companies not contain a standstill provision at this time. This, as you know, is unlike the form of confidentiality agreement that the other interested companies have readily signed. Moreover, Avigen and MediciNova share a common asset – ibudilast (AV411 and MN-166). It appears to us that MediciNova does not consider these two facts as warranting any additional precautions for Avigen stockholders. We disagree. Avigen stockholders could be harmed if MediciNova used confidential information in a hostile offer. As a result, and as we agreed with your counsel, Avigen will not share any confidential information regarding ibudilast until we have a more robust confidentiality agreement with a standstill provision. Sharing such information could irreparably harm our stockholder’s AV411 asset by devaluing any competitive advantage that we currently hold through extensive know-how in the areas preclinical and clinical research, as well as intellectual property.

As for sharing of information, therefore, I request that we adhere to our earlier understanding that we will not to share ibudilast related information until our discussions have progressed further, we have a greater level of comfort that a deal may be consummated, and we have a more robust confidentiality agreement with a standstill provision. To that end, I request that you remove all ibudliast material from the electronic data room before we access it. As a precaution, I request that you agree to waive confidentiality on any ibudilast information inadvertently left in the electronic data room. It would also be very helpful if you could provide us with a table of contents so that we can begin to consider how best to review the material if, and when, the time is appropriate.

I urge you to consider scheduling a meeting (teleconference or face-to-face) as soon as practicable. We will make every effort to accommodate your schedule and commit our full attention.

With kind regards,

Kenneth Chahine, Ph.D., J.D.
Chief Executive Officer and President
Avigen, Inc.

cc: Dr. Yuichi Iwaki
Ken Moch

The second letter is from AVGN’s financial advisor:

Jeff Himawan, Ph.D.
Chairman of the Board
MediciNova Inc.
4350 La Jolla Village Drive
Suite 950
San Diego, CA 92122

Dear Jeff,

Thank you again for your proposal and your continued interest in Avigen.

As you are aware, for a couple of months Avigen has been diligently reviewing prospective merger candidates, including MediciNova. The interest in a merger with Avigen has been significant and we have received several written proposals. The Board of Directors of Avigen is now at a point at which it would like to advance the most promising proposals.

To that end, we are asking all interested bidders to provide their best proposal in writing this week so we can take the proposals to the Avigen Board on or about Monday, March 16.

We currently anticipate that the Board will select a subset of the proposals and authorize management to proceed with diligence with only that limited group.

As Avigen is a small company it is simply not feasible for Avigen to move forward with all interested parties at once. We intend to review the proposal that you submit this week in conjunction with all of the other proposals that we receive and “narrow the field” to the most attractive proposals.

As I am sure you can appreciate, the Board will not present to stockholders a transaction unless it is valued above the liquidation value of the company. Currently, we do not believe that MediciNova’s offer is superior to our liquidation threshold. Please keep in mind that for your proposal to be selected you not only will need to provide a proposal which is superior to liquidation, but also one which is superior to the numerous other proposals we have received and may receive in the future.

To assist parties with revising their proposals, we are providing each one with some suggestions (based on a comparison of all existing proposals as well as the Board’s desire to maximize shareholder value) on how their offer might be improved from the shareholders’ perspective.

Accordingly and per your request for detailed feedback, please allow us to provide some specifics on your proposal:

1. You have offered 1.75 million shares of MNOV stock in exchange for $7 million in Avigen cash. Based on yesterday’s closing price of $1.78 per share, those shares are only worth $3.1 million. That is a discount of $3.9 million, or over 50%. Furthermore the MNOV stock is quite illiquid. This illiquidity suggests to us that shareholders would get far less than the $3.1 million “face value” of the offered stock should they choose to sell.

2. The conversion feature in your offer is at a significant premium to the current stock price. The $4.00 per share conversion price currently represents a premium of over 100% and thus we view the Avigen shareholders’ probability of converting as very low. Given the short time frame of the convertible security (one year from close) and the high premium, the option value of the convertible security is only a few cents per Avigen share based on traditional Black-Scholes valuation methodology.

3. You place essentially no value on two of Avigen’s assets: AV411 and milestone payments that Avigen believes are likely to come due from a 2005 transaction with Genzyme. Put differently, under your proposal, because of the high conversion price of the convertible security, MediciNova stockholders prior to the transaction capture much of the future value from AV411 and Genzyme rather than existing Avigen stockholders.

4. The cash underlying the convertible security will still be at risk to a claim by creditors.

There are a number of changes that might make the MediciNova proposal competitive with the other proposals we have received and enhance its attractiveness to Avigen’s shareholders. MediciNova might consider offering:

1. a premium for cash, rather than a significant discount
2. a significantly lower conversion premium on the convertible security
3. more flexible conversion terms that might favor Avigen stockholders
4. a longer term on the convertible security to increase the option value
5. a significant value placed on the AV411 program and Genzyme milestone
6. alternative liquidity option to mitigate the illiquidity of the MNOV stock
7. other structures that do not put the Avigen stockholders’ cash at risk of a default or bankruptcy

We hope you find our feedback and suggestions helpful. We would be happy to have you as one of the parties with whom we move forward but your proposal would need to address our comments in order for us to do that. We truly hope that you will improve your offer and resubmit it by Friday, March 13 to maximize the competitiveness of your proposal with Avigen’s other alternatives. In the meantime, if you have any questions, please feel free to call me.

Sincerely,

Andrew E. Singer
Managing Director
Health Care Investment Banking

[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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Avigen Inc (NASDAQ:AVGN) has filed its 10K for the fiscal year ended December 31, 2008.

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 Biotechnology Value 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. The stock is up 60% from $0.65 to close at $1.04 yesterday. We initially estimated AVGN’s net cash value to be around $1.22 per share (BVF estimates $1.20 per share). We’ve now increased our estimate slightly to $37M or $1.24 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 $10M to $25M or between $0.30 or $0.65 per share.

The value proposition updated

AVGN used net cash in operating activities of $21.1m in 2008. While the cash burn rate has been reduced, it still represents a significant risk for AVGN stockholders. AVGN has attempted to reduce cash burn but expects to incur future expenses in connection with efforts to monetize the AV411 assets and evaluate merger and acquisition proposals. AVGN does expect that expenses for 2009 will be significantly below the spending levels of recent years. Our updated estimate for the company’s net cash value is set out below (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):

avgn-summary-2009-1-31Off-balance sheet arrangements and Contractual obligations

AVGN does not have any off-balance-sheet arrangements. Its total contractual obligations not included in the balance sheet include $3.2M in operating leases and $1.8M in research funding for third parties.

Conclusion

At its $1.04 closing price yesterday, AVGN is trading at a 20% discount to our estimate of its net cash value of $37M or $1.24 per share. The liquidation value could be considerably higher again, as we have not included in the estimate the potential value of the AV411 assets and program, which could be worth an additional $10M to $25M or between $0.30 or $0.65 per share. BVF has made considerable head way, and we believe they have a good chance of securing the AVGN board seats they seek. The stock is up considerably since we initiated the position, but has not yet reached our estimate of value, and so we are maintaining our position.

[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.]

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