SAN DIEGO, Calif., March 19, 2009 (GLOBE NEWSWIRE) -- MediciNova, Inc., a biopharmaceutical company that is publicly traded on the Nasdaq Global Market (Nasdaq:MNOV) and the Hercules Market of the Osaka Securities Exchange (Code Number: 4875), today sent the following letter to the Board of Directors of Avigen, Inc.:
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MediciNova, Inc.
4350 La Jolla Village Drive, Suite 950
San Diego, CA 92122
March 19, 2009
Board of Directors
Avigen, Inc.
1301 Harbor Bay Parkway
Alameda, CA 94502
Dear Members of the Board:
We feel compelled to publicly express our extreme disappointment with
the process by which Avigen, to date, has reviewed our offer to
pursue a proposed merger with Avigen. Yesterday, members of senior
management of MediciNova, Inc. met with your management team and
financial advisor in San Francisco to formally present the case for
our proposal. As you are aware, this was our first face-to-face
meeting despite our repeated requests for such a meeting since we
first made public our proposal back in December 2008.
Unfortunately, as has been the case throughout this process, your
management team has so far refused to grant us access to the due
diligence materials and management guidance that we believe Avigen
has made available to the other three bidders. In our meeting
yesterday, your management team repeatedly stated that Avigen, "as a
small company," does not have the capacity to continue to evaluate
multiple offers. Frankly, we now believe that your management team
had no bona fide interest in evaluating our proposal from the outset,
and your management team's statements and actions so far confirm for
us this opinion.
From time to time, management teams of public companies run sales
processes that, in retrospect, are ill-conceived and incapable of
obtaining the best value for shareholders. In our opinion, the
Avigen sales process is just such a situation. In case your
management team has not apprised you of their actions through March
18, we wish to make you and the Avigen shareholders aware of the
following matters that we believe you, on behalf of the Avigen
shareholders, should independently verify and, where appropriate,
rectify.
1. Lack of a Fair Evaluation of the MediciNova Offer in an Honest
and Open Process
Over the past three months, we have repeatedly attempted to initiate
a dialogue with your management team about our merger proposal. We
have continually been met, in our opinion, with delays and
misrepresentations. For example:
* Your management team did not provide a draft confidentiality
agreement to us until six weeks after our initial offer letter of
December 9, 2008.
* Your management team spent six additional weeks negotiating the
terms and conditions of the confidentiality agreement, which was
finally executed on March 4, 2009.
* Your financial advisor provided us with a due diligence request
list on February 27, 2009. We populated a data room for your
review over the weekend following execution of the confidentiality
agreement. However, as of the date of this letter, our data room
has not been accessed by any members of your management team or
your financial advisor.
* We provided our due diligence request to your management team on
March 6, 2009. On March 10, 2009, we were told by your financial
advisor that Avigen would not provide ANY information to us under
this due diligence request, a statement that was confirmed in a
March 10 letter from your CEO, Ken Chahine, to our Chairman.
Interestingly, we received an email from Avigen's financial
advisor (RBC Capital) earlier today which states: "We are
preparing some financial diligence. A more formal communication
on our thoughts to follow." We are hopeful that we will be given
access to the Avigen due diligence we need to increase the value
of our proposal. However, in light of all the past delays, we
expect to remain on standby.
* The efforts of your financial advisor in arranging yesterday's
meeting were indicative of how MediciNova believes it has been
treated throughout this process. Although we proposed an all-
hands meeting for March 18 in our letter to you last week, your
financial advisor gave us less than 24 hours advance notice of the
proposed meeting in San Francisco at 3:00 p.m. the next day. We
attempted to obtain clarification from Avigen's financial advisor
as to the urgency of the meeting (after a full six days following
our initial request) given that our CEO had only returned from
Japan that day but, when no clarification was given, we ultimately
decided that night to rearrange our schedules in order to attend
this first face-to-face meeting. Our team flew the next morning
from San Diego, Los Angeles and Flagstaff, Arizona to meet with
your management team and financial advisor; however, upon arriving
in San Francisco, your financial advisor advised us that the
meeting had been postponed until sometime later in the afternoon
so that your CEO, Ken Chahine, could participate in a call with an
investor. To put it mildly, we were shocked by such
unprofessional and discourteous behavior.
* Interestingly, when we made clear that we would not reschedule our
meeting, we were then told that Mr. Chahine's investor call was
postponed and the meeting eventually commenced at 3:30 p.m. We
ask that, for any future meetings, we please be provided with the
courtesy of more customary advance notice.
2. Public Misstatements with No Means of Rebuttal
Instead of an honest and open evaluation process, you and your
management team have chosen to criticize our proposal in your public
filings. Beyond the fact that we believe that your statements
contain material misrepresentations and misleading inaccuracies, it
is disappointing that your management team and financial advisor have
actively resisted any discussions regarding these inaccuracies. For
example:
* Your public statements ignore the fact that the potential upside
of the MediciNova offer is an ownership position of up to
approximately 45% of the combined company.
* The valuation that you assign to our proposal lacks an important
valuation component (relating to the securities component of our
proposal), and does so in a way which makes our offer seem
meaningfully lower. In fact, we pointed out to your management
team that, by analyzing our offer only on a "cash" basis in your
proxy statement, this was potentially misleading because it
ignored the value assigned to securities which are necessarily
non-cash. Your management team stated that they were comfortable
with showing a "cash" valuation but omitting a "total" valuation,
a view which we disagree with on several levels.
* The statements you make regarding the risk of bankruptcy impacting
the escrowed funds are, on the level of the biotech industry,
fear-mongering and grossly inaccurate. This issue, which we
believe is without merit due to the more than two-year cash
position of MediciNova, can be easily addressed by the ultimate
legal structure of a merger transaction.
* The statements you make regarding the potential upside from the
Genzyme agreement ignore the size of the potential payment, the
risk associated with product development, and the fact that you
never provided us with information by which to evaluate how this
asset might be incorporated into our proposal.
3. Failure to Provide Us Due Diligence Materials in Order to Improve
Our Offer:
At the meeting yesterday, we were told that we must improve our offer.
In response, we indicated the following:
* We were in a position to improve aspects of our offer immediately
as described below; and
* Upon receipt of the due diligence materials that we previously
requested following our mutual agreement on a two-stage due
diligence process, we would commit to complete our due diligence
in a 10-day period and would submit our final improved proposal at
that time.
Unfortunately, as noted above, your management team and financial
advisor advised us that they were unwilling to abide by our previous
agreement regarding any staged due diligence. In fact, we were told
by your management team that certain other interested parties had
improved their offers without access to such materials. When we
asked if any other bidder had been given access to Avigen due
diligence materials, we were specifically told by your financial
advisor that your team was "not at liberty to say" - the clear
implication being that some bidders in fact had been given meaningful
access to Avigen due diligence materials as we would have expected in
a public company auction - and that your management team was, at this
late stage in the auction process, "too busy" evaluating the other
proposals to cooperate in a meaningful exchange of information at
this time.
We find this exclusionary behavior unsustainable. Put simply, we
believe that it is manifestly unreasonable for your management team
and financial advisor to refuse to provide us with the requested due
diligence materials in accordance with our previously-agreed staged
due diligence process. How can it be appropriate for Avigen,
consistent with Delaware law, to arbitrarily and prematurely
terminate an auction process that would in several weeks time
generate a superior offer from MediciNova if run properly?
Furthermore, we are very interested in learning how difficult it
would be for Avigen: (1) to allow us access to the Avigen electronic
data room that we believe must already exist for other bidders or (2)
to access our electronic data to which we provided access several
weeks ago but which has not yet been accessed by any member of the
Avigen team.
4. MediciNova's Improved Offer:
At the meeting yesterday, and in our previous letters and
communications, we stressed that we were prepared to meaningfully
increase the value of our offer upon receipt of the requested due
diligence materials. However, in advance of receipt of any such
materials, we did outline three immediate improvements to our offer:
* Minimum Cash Distribution for Your Shareholders. We stated to
your management team and financial advisor that we are prepared to
consider minimum cash distribution levels once we are provided
access to your financial position and current and expected cash
burns and projected positive cash streams (e.g., monthly lease
payments, royalty streams, "golden parachutes", management bonuses
and management severance arrangements, other post-termination
employee benefits and ongoing operating costs). We believe that
if we are able to quickly consummate our proposed merger, your
stockholders will benefit from the reduction of legal, banker and
other fees you are incurring in your fight with Biotechnology
Value Fund, and your shareholders will also benefit by directly
receiving funds that will otherwise be spent on your underlying
cash burn rate while you are evaluating offers.
* No Break Fee. In order to maximize the potential cash
distribution for Avigen shareholders, we are prepared to enter
into a mutually-satisfactory merger agreement which will not
contain a "break fee" provision (which under Delaware law may be
as high as 3-5% of the aggregate purchase price) in the event that
your shareholders voted down our deal or otherwise approved
another transaction post-signing. We believe such a "break fee"-
free offer, if part of a mutually-agreed merger agreement, will
provide your shareholders with the freedom to reject our offer on
a cost-free basis and also avoid a situation where a portion of
the topping bid is diverted to us as the initial merger party who
is terminated for any superior bid. We believe that this "break
fee"-free offer of ours is extremely unusual in the context of a
public M&A transaction and that you should impose this highly-
valuable feature for Avigen's shareholders on any third-party
merger candidate. To our surprise, your management team and
financial advisor dismissed this proposal from MediciNova as
fundamentally valueless, calling it "just another negotiated deal
term."
* Committed Funds. We are prepared to commit that any Avigen net
cash proceeds (after payment of the $7.0 million from Avigen to
MediciNova in consideration for the issuance of 1.75 million
MediciNova shares to be distributed to Avigen's shareholders on a
pro rata basis) are deposited in an independently monitored escrow
fund for the sole benefit of your shareholders who elect to
receive the "downside protection" cash feature of our proposal.
Once you commit to negotiate the terms and conditions of a merger
agreement in good faith with us, we will direct our legal counsel
to work with your legal counsel in investigating any other
reasonable assurances in this regard. As we previously explained
to you, we have in excess of two years of cash and liquidity;
therefore, we do not understand why you believe, and continue to
state publicly, that there are any solvency risks associated with
our proposal.
5. Next Steps:
Notwithstanding the disappointing absence of progress to date, we
believe it is time to move forward on a more positive note. Given
that your largest shareholder, Biotechnology Value Fund, continues to
support our initial proposal even before today's improvements, we ask
that you direct your management team to provide us with the requested
due diligence materials and that you avoid ending this sales process
prematurely. In particular, we are committed to completing our due
diligence review within 10 days following receipt of these materials,
and we asked your management team to refrain from entering into any
third party merger agreement during this period of our diligence
review while we developed an improved bid. As you are aware, your
fiduciary duties require you to run a sales process that is designed
to solicit the highest price reasonably attainable, and we continue
to believe that we can offer a superior offer for your shareholders
given the appropriate opportunity. We strongly believe that
requiring your management team to allow us 10 days of due diligence
as described above is eminently reasonable. We hope that you agree.
Sincerely,
Yuichi Iwaki, M.D., Ph.D.
President and Chief Executive Officer
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About MediciNova
MediciNova, Inc. is a publicly-traded biopharmaceutical company focused on acquiring and developing novel, small-molecule therapeutics for the treatment of diseases with unmet need with a specific focus on the U.S. market. Through strategic alliances primarily with Japanese pharmaceutical companies, MediciNova holds rights to a diversified portfolio of clinical and preclinical product candidates, each of which MediciNova believes has a well-characterized and differentiated therapeutic profile, attractive commercial potential and patent assets having claims of commercially adequate scope. MediciNova's pipeline includes six clinical-stage compounds for the treatment of acute exacerbations of asthma, multiple sclerosis, asthma, interstitial cystitis, solid tumor cancers, Generalized Anxiety Disorder, preterm labor and urinary incontinence and two preclinical-stage compounds for the treatment of thrombotic disorders. MediciNova's current strategy is to focus its resources on its two prioritized product candidates, MN-221 for the treatment of acute exacerbations of asthma and MN-166 for the treatment of multiple sclerosis, and either pursue development independently, in the case of MN-221, or establish a strategic collaboration to support further development, in the case of MN-166. MediciNova will seek to monetize its other product candidates at key value inflection points. For more information on MediciNova, Inc., please visit www.medicinova.com.
The MediciNova, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3135
Statements in this press release that are not historical in nature constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially because of risks and uncertainties associated with MediciNova's business and the proposed transaction, the timing to consummate the proposed transaction and any necessary actions to obtain required regulatory approvals, and the diversion of management time on transaction-related issues. For further information regarding risks and uncertainties associated with MediciNova's business, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of MediciNova's SEC filings, including, but not limited to, its annual report on Form 10-K for the year ended December 31, 2007 and its subsequent periodic reports on Forms 10-Q and 8-K, copies of which may be obtained by contacting MediciNova's Investor Relations department at (858) 373-1500 or at MediciNova's website at http://www.medicinova.com. These forward-looking statements involve a number of risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied by such forward-looking statements. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof.
MediciNova disclaims any intent or obligation to revise or update these forward-looking statements.
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This material is not a substitute for the prospectus/proxy statement MediciNova, Inc. would file with the SEC if an agreement between MediciNova, Inc. and Avigen, Inc. is reached or any other documents which MediciNova, Inc. may file with the SEC and send to Avigen, Inc. shareholders in connection with the proposed transaction. INVESTORS AND SECURITY HOLDERS OF AVIGEN, INC. ARE URGED TO READ ANY SUCH DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders will be able to obtain free copies of any documents filed with the SEC by MediciNova, Inc. through the website maintained by the SEC at http://www.sec.gov. Free copies of any such documents can also be obtained by directing a request to Investor Relations Department, MediciNova, Inc., 4350 La Jolla Village Drive, Suite 950, San Diego, CA 92122, USA.
MediciNova, Inc. and its directors and executive officers and other persons may be deemed to be participants in any solicitation of proxies in respect of the proposed transaction. Information regarding MediciNova, Inc.'s directors and executive officers is available in its Annual Report on Form 10-K for the year ended December 31, 2007, which was filed with the SEC on March 17, 2008, and its proxy statement for its 2008 annual meeting of stockholders, which was filed with the SEC on April 29, 2008. Other information regarding the participants in any proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in any proxy statement filed in connection with the proposed transaction.