12:00 AM
Dec 15, 2008
 |  BioCentury  |  Finance

Ebb & Flow

In good economic times, companies that run into problems can often avoid tough decisions - such as dropping programs or employees, or shutting their doors - by raising money from less savvy investors. Meanwhile, disgruntled investors can simply move money to more attractive opportunities. These days, however, the choices seem to be both more stark and more contentious, as investors have fewer ways to make money.

Maneuvering around four companies last week illustrated the various permutations.

Biotechnology Value Fund's Mark Lampert called on the board of Avigen (NASDAQ:AVGN) to return the company's cash to shareholders; Elan(NYSE:ELN) announced a restructuring that was rumored to be spurred in part by shareholder complaints; Curalogic (CSE:CUR) decided to shut down; and activist shareholders told Trinity Biotech (NASDAQ:TRIB) they would not be deterred from their planned board coup d'etat.

Curalogic(al) decision

Having spent most of the year thinking about its strategic options after deciding to halt all its oral immunotherapy programs, Curalogic has concluded that its best choice is to throw in the towel and return the remaining cash to shareholders.

Chairman Jakob Schmidt told Ebb & Flow that for the past 11 months management had been in discussions with companies in both the U.S. and Europe regarding its remaining assets.

Schmidt noted that while there were little to no clinical assets left, there was significant interest not only in the company's cash - expected to be DKK281 million ($48.6 million) at YE08 - but also in its public listing on the Copenhagen Stock Exchange and its unused tax loss carry forward, which at Dec. 31, 2007, was DKK66 million ($12.9 million).

"However, in our attempts to find a suitable company to reverse merge into Curalogic, we noticed a significant discrepancy between valuations of publicly listed companies versus the anticipated value of private companies. There are a number of well-positioned public biotechs being valued below their cash position, whereas private entities still believed their assets were worthy of a high valuation," he told Ebb & Flow.

Management concluded that this implied putting the cash of the public entity into a more highly valued private entity - arguably short-changing Curalogic's existing stockholders by diluting their ownership. "The board concluded that it was in the best interest of the shareholders to return the money and let them make the decision whether or not to re-invest elsewhere, rather than have management make that decision for them," Schmidt said.

Curalogic, which was founded in 2004, raised $3 million in a small venture round, DKK187.5 million ($32.1 million) in an IPO in 2006 and DKK306 million ($55 million) in a follow-on in 2007. Pending the exercise of about 3.3 million outstanding warrants and given its expected cash position, the company believes it will return about DKK280.4 million ($48.5 million) to shareholders.

Investors holding more than 5% stakes in Curalogic include IPC International; Nordic Biotech; ATP Capital, a Danish pension fund; and LD Pension Fund.

Show me the money

In the case of Avigen, BVF's Lampert also wants money back. Earlier this month, he called on the company's board and management to "immediately reduce its expenses to as low a level as possible, partner or sell its remaining assets without further investment and take actions to distribute to Avigen's stockholders as much of the resulting cash as possible."

His latest ire was apparently triggered by comments by company President and CEO Ken Chahine at the RBC Capital Markets Healthcare Conference last Wednesday. Chahine said he was looking to use the company's cash to acquire new opportunities. At Sept. 30, Avigen had $48.3 million in cash, or $1.62 per share.

"To be clear, we do not seek to impose our own agenda on Avigen, we only ask that shareholders be empowered to decide the fate of the company's residual cash, rather than the management and board of a company which has repeatedly tried and failed to create any shareholder value whatsoever," Lampert wrote in a second letter to the board last week.

He noted Avigen trades at less than one-third of its net per share cash value.

On Oct. 21, the company had announced that its tolperisone (AV650) failed in a Phase IIb trial to treat spasticity associated with multiple sclerosis (MS), sending the shares down $2.68 (81%) to $0.62 that day.

In November, Avigen announced a 70% workforce reduction, giving it sufficient cash to fund operations for over four years.


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