Assistant Managing Editor

While pledging its support to a merger offer by MediciNova Inc., Avigen shareholder Biotechnology Value Fund (BVF) offered to buy out Avigen shares at a price of $1 per share, with the aim of giving investors a near-term cash payout.

BVF, which owns about 29.6 percent of the Alameda, Calif.-based firm, said earlier this month it is seeking to replace Avigen's existing board with its own group of nominees who would take steps to "benefit all stockholders." Ahead of a special stockholder's meeting, the investment group said it planned to make a tender offer for any and all outstanding shares it currently does not own.

In a statement, BVF general partner Mark Lampert explained that the move is intended to give shareholders a choice. "They can either tender their shares for near-term cash at a premium to the market price, or they can retain their shares and participate with BVF in the future of Avigen, whether through a merger with MediciNova, as hoped, or otherwise."

Avigen said late last month that it received an unsolicited merger offer from San Diego-based MediciNova in an unusual deal structure aimed at giving Avigen shareholders downside protection and potential for upside opportunity. Under the terms, MediciNova would pay Avigen shareholders 1.75 million shares of MediciNova stock in exchange for $7 million cash from Avigen.

On a near-term basis, the deal is less than impressive for Avigen, but shareholders have the opportunity of owning part of MediciNova, a promising but undervalued company. (See BioWorld Today, Dec. 24, 2008.)

MediciNova, which sought Avigen to consolidate rights to a small-molecule drug the companies were developing in different indications, also said it would return Avigen's cash to shareholders. Minus the $7 million payment and other fees to take care of Avigen's debt and other costs, as much as $35 million would be held in escrow for a year. Avigen's shareholders would get a convertible security that would allow them to either take their share in cash or in MediciNova stock priced at $4.

Lampert called the risk/reward profile of the proposed MediciNova merger "extraordinary," and BVF reaffirmed its support for the deal.

Its offering price for Avigen's shares was 13 cents higher than Wednesday's closing price of 87 cents and, according to BVF, represents a 35 percent premium to the closing price of 74 cents per share the day before BVF's petition to replace Avigen's board.

Shares of Avigen (NASDAQ:AVGN) gained 5 cents Thursday to close at 92 cents.

BVF hardly has been shy about expressing its displeasure with some of Avigen's recent activities. The biotech, which suffered serious blows to its share price following the Phase IIb failure of lead drug AV650 in multiple sclerosis last year, slashed 70 percent of its staff and began seeking strategic alternatives. But BVF balked at some of those alternatives and alleged that the board's recently adopted golden parachutes and "poison pill" plan would leave shareholders with nothing. (See BioWorld Today, Oct. 22, 2008.)

Lampert also has objected to Avigen's hiring of two separate financial advisors for the merger deal, calling it "just another example of the board wasting the stockholders' assets."