The biotechnology sector is a risky investment arena and investing in such companies requires a great deal of patience. Drug companies take years -- even decades and burn a tremendous amount of cash to bring a drug to the market.
In some cases, despite the "astronomical" time and money spent, the drugs never make it to the market, fraying the nerves of investors. Some of the biotech companies with failed drug programs have been pressured by investors to liquidate and return their money. A recent case of such shareholder activism is that of Avigen Inc. (AVGN).
Avigen's much-touted drug for spasticity associated with multiple sclerosis - AV650, flamed out in a mid-stage trial last October. Following the news, on October 21, the stock plunged 81%, closing at 62 cents.
On December 22, the company embarked on a restructuring plan by slashing 70% of its staff, terminated its development program for the failed drug AV650; terminated all contracts with its partner Sanochemia Pharmazeutika AG to avoid future financial obligations; expanded its efforts to find a partner for AV411, a treatment for chronic neurological conditions while deferring a mid-stage trial for neuropathic pain, and added $7 million to its cash reserves by selling its early-stage AV513 program to Baxter. AV513 is an investigational drug for treating hemophilia and other bleeding disorders. The same day, the company received a buyout offer from MediciNova Inc. (MNOV).
Under MediciNova's proposal, each Avigen shareholder will receive a pro rata portion of 1.75 million shares of MediciNova common stock. In consideration for this, MediciNova will receive $7 million of Avigen cash, which represents a price of $4.00 per share of MediciNova common stock.
Avigen's largest shareholder, Biotechnology Value Fund L.P., or BVF, which has not been satisfied with the company's strategic process, has been demanding Avigen to immediately liquidate itself and return cash to its shareholders. Avigen had also remained silent on BVF's request to provide downside protection for all stockholders.
On January 9, BVF requested Avigen to call a special meeting of stockholders to enable the stockholders, to determine the fate of their investment. Two weeks later BVF went a step ahead and announced its desire to replace Avigen's incumbent Board with its own slate of directors. A day later - on January 23, BVF commenced a tender offer for Avigen at $1.00 per share, which represented a premium of 35% over the closing stock price of $0.74 on January 8.
According to BVF, the offer, which is not subject to any financing condition, is intended to give certain stockholders, who desire near-term liquidity, an alternative to the proposed merger with MediciNova. Early this month, BVF extended the tender offer, which was originally set to expire on March 6, to April 3, and also increased its cash tender offer price to $1.20 per share from its earlier offer of $1.00 per share.
Meanwhile, the Avigen story got a new twist, with the company finally caving to BVF's pressure to liquidate itself and fork over its remaining cash to shareholders, offering $1.20 per share. At the special meeting of Avigen stockholders called by BVF on Friday, 58% of stockholders voted overwhelmingly to remove the existing Board of Directors of Avigen and replace them with BVF's nominees. However, the votes were short of the required two-thirds majority to support the ouster of Avigen's Board and therefore the existing board members will remain in place.
Though BVF was not able to replace Avigen's incumbent Board, it was still able to get what it wanted and it has another reason to cheer. In the two months prior to October 21, BVF sold more than 640,000 of Avigen shares, at prices ranging from $3.95 to $4.60 per share. On October 21, the day when Avigen's stock price dropped by more than 80%, following the negative results of AV650, BVF purchased more than eight million shares of Avigen, which equates to nearly 30% stake, at an average price of about $0.58 per share. Now that Avigen has agreed to implement a plan of liquidation and return at least $1.20 per share to all stockholders, BVF also stands to get $1.20 per share.
Commenting on Avigen's decision to return capital to stockholders through liquidation, Mark Lampert, BVF Founder and President stated, "This is a great day for stockholder democracy -- stockholders have spoken and their wishes have prevailed. Avigen's remaining capital will not be squandered but, instead, will be returned to stockholders so that each may decide how best to utilize their capital."
But Avigen is not the lone recent case of shareholder activism where a company has to give in to investors' demand.
Early this year, Northstar Neuroscience Inc. (NSTR), a medical device company agreed to liquidate its assets and dissolve the company, under pressure from one of its largest shareholders, RA Capital. The amount to be returned to shareholders will be between approximately $1.90 and $2.10 per share of common stock.
RA Capital has been urging Northstar to wind up its operations and return its remaining cash to shareholders, following the company's failure last year to develop a device that would help stroke patients regain arm movement.
On January 22, 2008 Northstar's stock plunged 83.6% to $1.37 after the company revealed that its experimental brain-stimulation device for stroke victims, failed to meet its trial goal. The company cut 34% of its workforce and abandoned the development of its device.
Meanwhile, last July, Northstar received a buyout offer of $2.25 per share in cash from one of its largest shareholders - Tang Capital Partners. However, the unsolicited takeover bid was spurned by Northstar.
By the end of 2008, Northstar's stock price had fallen to $1.21. With chances for revival becoming vanishingly small, Northstar has finally decided to liquidate its assets and dissolve the company.
Another company that is facing pressure to cease its ongoing operations and distribute the returns to stockholders is Vanda Pharmaceuticals Inc. (VNDA).
Shares of Vanda plummeted 73% on July 28, 2008 to 90 cents after the FDA rejected the company's schizophrenia treatment, Iloperidone. The regulatory agency requested Vanda to conduct an additional trial comparing Iloperidone to placebo and including an active comparator drug such as Eli Lilly's Zyprexa (Olanzapine).
Meanwhile, last November, the FDA accepted Vanda's resubmission of the Iloperidone New Drug Application. The resubmission was a complete response to the not approvable action letter that Vanda received on July 25, 2008. The FDA's decision on the schizophrenia drug is expected in May.
Vanda, which was trading around $30 during its heydays in January 2007, has not traded above $1 since last October. With Vanda trading well below its net cash value of $1.74, Tang Capital Partners, in February, requested the Board of Directors of Vanda to take action to liquidate the company. In a February 18 regulatory filing, Tang Capital, which holds nearly 15% of Vanda shares, said it has also nominated two directors to stand for election at Vanda's 2009 Annual Meeting of stockholders.
The terms of two current directors of Vanda expire this year. However, Vanda intends to re-elect them to serve another three-year term through 2011. The two directors whose terms will expire this year are Vanda's CEO, Mihael Polymeropoulos, and Chairman of the Board, Argeris Karabelas.
Responding to Tang Capital's filing, on February 23, Vanda, which has not lost hope on its experimental schizophrenia drug, stated that it is disappointed that Tang Capital has opted to conduct an election contest, particularly when the company is so close to receiving a response from the FDA regarding its lead compound, Iloperidone.
Will Tang Capital be patient at least until May when Vanda's fate of the experimental schizophrenia drug will be decided?
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.