MPM BioEquities Demands VaxGen Drop Merger Plan with Raven
On November 12, VaxGen announced its intention to merge with Raven biotechnologies, a privately held biotechnology company, in a merger of equals. In its letter, MPM said, "VaxGen had over $75 million in cash and marketable securities, or over $2.30 per diluted share at the time of the proposed merger, yet management is still supportive of a merger with the stock trading at a market value of approximately $15 million, or $0.42 a share. Even with an outstanding convertible loan due in 2010, VaxGen owns other substantial assets, including a state-of-the-art biologics manufacturing facility, a clinical- ready anthrax program, and significant tax loss assets that net to a substantial premium over the current market valuation. In any scenario other than the current merger proposal, we believe VaxGen is worth over $2.00 per share."
MPM supports the termination of the proposed merger immediately, the sale of the manufacturing assets (which is currently in process), the licensing of the anthrax vaccine program, and the placement of VaxGen's corporate assets into a holding company to be managed by a third party until all assets and obligations are accounted for and can be distributed to shareholders or sold.
MPM is also aware of a new draft proposal from the Health and Human Services for 25 million doses of anthrax vaccine. As VaxGen already has extensive clinical and commercial experience in developing its state-of-the-art rPA anthrax vaccine, MPM said it believes this asset carries new additional value that is not accounted for by the company in the current merger terms.
MPM has also requested that the board not fund the proposed $6M bridge loan to Raven without a shareholder vote on the merger itself. VaxGen has agreed, without the approval of shareholders, to begin an asset transfer of VaxGen's cash in the form of a bridge loan to Raven starting on December 1. As cash is VaxGen's key asset, the distribution of cash to another company at this time is inconsistent with preserving VaxGen's own shareholder value in the opinion of MPM, particularly as Raven will benefit disproportionately from this non-recourse loan even if the merger is approved.
Kurt von Emster, Portfolio Manager of the MPM BioEquities Fund stated, "VaxGen has tremendous asset value that will be severely diluted by this merger. Wall Street's reaction to the proposed transaction proves that value is destroyed by the board's merger plan and that the board must immediately respond by reversing its course and refocus on optimizing its current assets through a sale."
MPM has asked to meet with the board to discuss its conclusions.
MPM BioEquities Adviser, LLC operates the MPM BioEquities Fund and has offices in San Francisco, New York, and Boston. The MPM BioEquities Fund is a biotechnology focused investment fund invested primarily public and to a lesser extent private biotechnology securities. The Fund is managed by Kurt von Emster from its South San Francisco headquarters.
MPM BioEquities Fund
Kurt von Emster, 650-553-3300
CFA, Portfolio Manager
Posted: December 2007