SUWANEE, Ga. and
PETERBOROUGH, N.H., Jan. 24, 2018 /PRNewswire/ -- Digirad
Corporation, East Hill Management Company, LLC and Thomas M. Clay (collectively with certain other
participants in the solicitation, the "Concerned Aviragen
Shareholders Group", the "CAS Group", "we" or "us"), are
significant stockholders of Aviragen Therapeutics, Inc., a
Delaware corporation ("Aviragen",
"AVIR" or the "Company") (NASDAQ: AVIR), and collectively
beneficially own in the aggregate approximately 8.3% of AVIR's
outstanding shares of common stock, delivered a letter to the
stockholders of AVIR today setting forth our serious concerns with
the proposed merger between Aviragen and Vaxart, Inc. The
full text of the letter is set forth below:
The Proposed Merger between Aviragen and
Vaxart is Not in the Best Interests of Stockholders and We Urge
Stockholders to Vote AGAINST the Merger at the Special
Meeting
We Believe the Incentives of Aviragen's
Management and Directors Regarding the Proposed Merger are Not
Fully-Aligned with those of Stockholders
We Believe Vaxart's True Value is Lower
than that Indicated in the Proposed Merger and that Vaxart is Not
Ready to be a Public Company
Aviragen Management Has Overseen Disastrous
Operational Failures and the Board Has Failed to Take the Necessary
Steps to Address these Failures and Enhance Value for all
Stockholders
VOTE THE BLUE PROXY CARD TODAY TO VOTE AGAINST
THE PROPOSED MERGER AND SEND A MESSAGE TO THE AVIRAGEN
BOARD
January 24,
2018
Dear Fellow Aviragen Stockholders:
Digirad Corporation, a Delaware
corporation ("Digirad"), East Hill Management Company, LLC, a
Delaware limited liability company
("East Hill Management") and Thomas M.
Clay (collectively with certain other participants in the
solicitation, the "Concerned Aviragen Shareholders Group", the "CAS
Group", "we" or "us") are significant stockholders of Aviragen
Therapeutics, Inc., a Delaware
corporation ("Aviragen", "AVIR" or the "Company"), beneficially
owning approximately 8.3% of its outstanding shares of common
stock, $0.10 par value per share (the
"Shares"). The CAS Group is writing to you in connection with
the proposed merger (the "Merger") between Aviragen and Vaxart,
Inc., a Delaware corporation
("Vaxart"). The Board of Directors of Aviragen (the "Board")
has scheduled a special meeting of stockholders for the purpose of
approving certain proposals relating to the proposed Merger (the
"Special Meeting"). The Special Meeting is currently
scheduled to be held on February 6,
2018 at 9:00 a.m., local time,
at 2500 Northwinds Parkway, Suite 100, Alpharetta, Georgia 30009. In connection
with the proposed Merger, Aviragen entered into an Agreement and
Plan of Merger and Reorganization, dated as of October 27, 2017 (the "Merger Agreement"), with
Vaxart and Agora Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of Aviragen ("Merger Sub").
WHY WE THINK YOU SHOULD VOTE AGAINST THE MERGER:
We believe that the proposed merger between Aviragen and
Vaxart is not in the best interests of Aviragen stockholders for
numerous reasons:
- We believe the Process that Led to the Signing of the Merger
Agreement was Flawed and that the Incentives of Aviragen's
Leadership are Not Fully-Aligned with those of
Stockholders
Aviragen Management's Misaligned Incentives
Aviragen's senior management is highly incentivized to complete
a transaction in which Aviragen experiences a change of control,
which will trigger various enhanced severance obligations to
Aviragen's CEO and CFO. The total payments for Dr. Patti are
$1,077,196 and for Mr. Colonnese are
$556,439 in each case in connection
with their termination following a change in control. In
addition, while Aviragen has already paid its financial advisor
Stifel, Nicolaus & Company, Incorporated ("Stifel")
$500,000, Stifel also has an
incentive in seeing the proposed Merger consummated since it would
be entitled to an additional $750,000
payment that is contingent upon the closing of the
Merger.
There were Potentially Better Options Available
As disclosed in the Company's proxy
statement/prospectus/information statement on Form S-4, filed with
the U.S. Securities and Exchange Commission (the "SEC") on
December 29, 2017, as amended (the
"Aviragen Merger Proxy Statement"), in September 2017, Aviragen's transaction committee
discussed a nonbinding offer from a "Party F" to acquire Aviragen
for $0.81 cash per share, which was
later increased to $0.84 cash and
included contingent value rights payable on approval of any
Aviragen program by the FDA. Rather than solicit
stockholders' views on the attractiveness of this offer, the
Aviragen Board kept this offer confidential and refused to
negotiate with Party F unless it agreed to a standstill provision
which would prevent it from making a tender offer directly to
stockholders. The Board also instructed counsel to begin
preparation of a shareholder rights plan (more commonly known as a
"poison pill"). On the date we filed our joint Schedule 13D,
the stock market valued Aviragen's share of the combined company
resulting from a merger with Vaxart at $0.57 per share, compared with cash offers of
more than $0.80. Furthermore,
as an additional measure, the Board agreed to pay a whopping
$1.95 million (i.e., 5.7% of the
outstanding cash balance as of September 30,
2017) if Aviragen terminated the Merger Agreement with
Vaxart and entered into a merger agreement with another
company. We believe this is detrimental to Aviragen
shareholders and also potential suitors, such as "Party F."
We Believe Each of the Valuation Approaches Used by Aviragen
are Problematic
In our view, the various methods of valuation used by Aviragen
to value Aviragen and Vaxart, and as disclosed in the Aviragen
Merger Proxy Statement, are extremely subjective and unjustifiably
inflate the value of Vaxart and deflate the value of
Aviragen. With respect to the comparable and the precedent
analysis used by Aviragen and its financial advisor, it is utterly
confusing as to why certain companies were included or excluded.
For instance, in the comparable analysis we believe that the
higher values Stifel attributes to Vaxart's "vaccine" comparable
company group compared with Aviragen's "infectious disease"
comparable company group are driven by companies with advanced
assets in the cancer vaccine space, in which there is currently
large investor interest. In fact, Vaxart's clinical assets
all target infectious diseases and its sole program related to
cancer is a preclinical asset targeting HPV. We believe it is
flawed to value Vaxart based on oncology companies' market
valuations when Vaxart's sole oncology program has not yet begun
human clinical trials. Removing these companies from Vaxart's
comparable group brings down the median and mean of that peer group
enormously. Furthermore, the precedent analysis with respect
to Aviragen excludes companies acquired for HCV programs, which
means that the sale of Inhibitex to Bristol-Myers Squibb was not
included, despite the fact that Aviragen's senior management joined
the Company from Inhibitex. What's more, the precedent
analysis with respect to Vaxart includes companies with approved
(even if not yet marketed) products at the time of their
acquisition, whereas the Aviragen group was restricted to companies
with lead assets in Phase 2. Neither Aviragen nor Vaxart have
clinical assets more advanced than Phase 2, though Aviragen enjoys
royalties on two marketed products. Incredibly, in the
precedent analysis for Vaxart, the Company's financial advisor
valued not the acquirers but the targets of precedent
vaccine company acquisitions, whose prices obviously include a
control premium. While the current Vaxart entity will indeed
become a subsidiary of Aviragen, we believe that Vaxart really is
the acquirer of Aviragen in the Merger. We also believe the
IPO analysis and discounted cash flow analysis were equally
flawed.
- Vaxart is Not an Attractive Merger Partner in Our View and
We Believe the Merger Overvalues Vaxart and Undervalues
Aviragen
If stockholders do not act now to put a stop to this Merger, the
Vaxart-led combined company may be plagued with significant
financial issues right out of the gate, which will further diminish
value.
Poor Financial Position
Based on our review of the Aviragen Merger Proxy Statement, we
believe Vaxart's financial situation is precarious, and it is
rapidly running out of cash. We believe that the terms of the
deal struck between Aviragen's Board and Vaxart are extremely
favorable to Vaxart and do not reflect effective bargaining
considering Vaxart's extremely weak financial position.
Vaxart is being propped up by significant levels of high-interest
debt and Vaxart's auditor even expressed substantial doubt about
Vaxart's ability to continue as a going concern. In fact, the
Aviragen Merger Proxy Statement shows that Vaxart had $5.3 million cash and short term investments at
September 30, 2017, compared with
cash used in operating activities of $7.8
million over the nine months ended September 30, 2017. Assuming constant cash
use of $0.9 million per month, this
implies that Vaxart will run out of cash near the end of the first
quarter of 2018. In addition, Vaxart reported $44.5 million of liabilities, including
$38.4 million of long term debt, on
September 30, 2017.
Vaxart's Auditor Questions its Ability to Continue as a Going
Concern Citing Material Weaknesses
Vaxart's independent accountant has expressed doubt about
Vaxart's ability to continue as a going concern. According to
the Aviragen Merger Proxy Statement, Vaxart's auditors identified a
material weakness in internal controls over financial reporting in
both 2015 and 2016. The material weakness related to Vaxart
lacking sufficient qualified resources and adequate processes,
thereby impacting Vaxart's ability to appropriately segregate
duties and perform effective and timely review of account
reconciliations and nonroutine transactions.
We Believe Vaxart's True Value is Significantly Lower
As discussed above, we believe that the $90 million valuation assigned to Vaxart in the
Merger is unrealistically high and the Company and its financial
advisor failed to take into account various factors that we believe
negatively impact Vaxart's true value. These include the very
costly clinical trials and its unexpected announcement that it
recently terminated its relationship with its long-time third-party
manufacturer and intends to perform these tasks in-house.
Indeed, our review of the trends in Vaxart's financing,
particularly from raising equity financing, to issuing convertible
securities to eventually seeking secured bank financing at a 10.5%
effective interest rate plus warrants, reveals to us that the true
value of Vaxart is significantly lower than the value attributed to
it in the Aviragen Merger Proxy Statement. Furthermore, the
implied value assigned to Vaxart by the stock market is vastly
lower than that proposed by the Company. Aviragen's current
market cap of $22 million implies
that the combined company will be worth $55
million (since 40% of $55
million is $22 million).
The combined company will have $30
million cash according to the Merger announcement conference
call, so the market is valuing the assets of the combined company
(including Aviragen's own program BTA074) at $25 million. In our view, this is far from
Stifel's valuations.
In Our View, the Best Choice Right Now is to Vote AGAINST the
Merger
The CAS Group believes stockholders should vote against the
current proposed Merger with Vaxart given the lack of compelling
value delivered versus Aviragen's standalone value, liquidation
value or the value of other potential strategic alternatives.
We believe that the liquidation and status quo valuations presented
in the Aviragen Merger Proxy Statement are unrealistic,
inconsistent, and understated to bolster the attractiveness of the
Vaxart Merger. For instance, they include costs associated
with the Anaconda Pharma contingent payment, but appear to exclude
the associated benefits, which, if included, would produce a
significant upward swing in the valuation assigned to a standalone
scenario.
We have Nominated Directors in Connection with the Annual
Meeting
The Company's last meeting of stockholders to elect directors
was well over a year ago. Indeed, we had to file a lawsuit in
the Delaware Court of Chancery to
compel the Company set a date for such a meeting. The Board
has now set a date for an annual meeting for the election of
directors as of April 11, 2018 (the
"Annual Meeting"). Clearly, this is after this Special
Meeting, which prevents stockholders from being able to take action
to reconstitute the Board prior to the Special Meeting to prevent
the Company from following-through with the Merger. The CAS
Group believes that the board of directors of a public company
should put the company and its stockholders first (rather than
management) in reviewing available strategic alternatives. We
believe that a new Board will be able to do this more effectively
and therefore the CAS Group has nominated a slate of directors at
the Annual Meeting who are truly independent and who will fully
explore all available strategies to enhance value for Aviragen
stockholders. It is the CAS Group's intention to let the new
Board come to its own conclusions with respect to the best path for
the Company and its stockholders and that is why we are pushing for
the Company to hold an Annual Meeting as soon as possible.
FURTHER CONSIDERATIONS:
There are numerous other reasons why we think now is the
time for AVIR stockholders to make their voice heard at the Special
Meeting by voting AGAINST the Merger:
- Management Has Overseen Disastrous Operational Failures at
Aviragen and the Board has Failed to Take the Necessary Steps to
Address these Failures and Enhance Value for all
Stockholders
Aviragen Failed to Develop its Most Valuable Asset and Lost
its BARDA Contract
As of the 2012 year end, Aviragen had a positive outlook.
It had two revenue-generating royalty assets, two Phase 2
clinical development programs (laninamivir octanoate for influenza
and vapendavir for human rhinovirus), a $231
million contract with the U.S. Office of Biomedical Advanced
Research and Development ("BARDA") to fund clinical development of
laninamivir octanoate, numerous preclinical development programs
and $74 million in cash.
However, over the next two years, BARDA terminated its contract
with Aviragen due to "product manufacturing, clinical study
enrollment pace, costs, and contractor performance" issues in
connection with the project, all of which were Aviragen's
responsibility, and despite being successful in Japan, Aviragen was not able to successfully
develop laninamivir octanoate. Despite rebranding itself and
attempting to develop BTA585, that venture also failed due to
similar issues.
Aviragen Has Underperformed its Peers, its Industry and the
Market Generally
In addition, Aviragen has underperformed its most recent proxy
peer group and the general market over the past year.
Aviragen's 1-year return is an astounding -53% while the
median 1-year return for its proxy peer group is -18.6% and the
1-year return for the Wells Fargo Small Cap Biotech Index and the
Russell 2000 Index is approximately 38.3% and 14.9%,
respectively.
The Board Failed to Remedy Failures and Enhance Value for
Stockholders
In our opinion, the tremendous failure of laninamivir octanoate
and the BARDA contract necessitated CEO Plumb's departure from the
CEO role. But, rather than clean house, in September 2014, the Board elevated Plumb to the
newly-created role of Executive Chairman, and Dr. Patti became CEO
of the Company. It is shocking to us that someone who
directly oversaw such disastrous operational results, was not only
permitted to remain at the Company, but was moved to a position
with even greater power. To add insult to injury, to
our knowledge the Company has made no cuts to the base compensation
of management or the Board since these catastrophic operational
failures. Even after announcing that the Company was seeking
strategic alternatives, the Company did not reduce compensation in
line with its dramatic reduction of employees, assets, and
activities. Instead, on April 3,
2017, the day before the Company announced its review of
strategic alternatives, the Board awarded Messrs. Patti and
Colonnese a combined 1,050,000 options with exercise prices of
$0.656 and which vest over 12
months. What justification is there to pay these
individuals the same amount of compensation for significantly less
work and poor performance and even reward operational failure with
low-priced options over 2.7% of the Company?
Vaxart's Management is Not Credible or Proven
Vaxart's management will be the management of the combined
company following the Merger. Given their prior failures in
this industry, we believe that they have not shown themselves to be
credible or proven managers in this space. Is this really the
team that AVIR stockholders want to hire to manage their
investment?
AS STOCKHOLDERS OF AVIRAGEN, ASK YOURSELVES:
WHO REALLY BENEFITS FROM THIS MERGER? WE DON'T THINK IT IS
AVIR STOCKHOLDERS.
WE URGE YOU TO VOTE AGAINST THE MERGER ON THE
BLUE PROXY CARD
We are seeking your support on the BLUE proxy card
AGAINST the Merger at Aviragen's annual meeting of
stockholders, scheduled for February 6,
2018.
As one of AVIR's largest stockholders, our interests are
directly aligned with those of all AVIR stockholders. It is
up to us, the stockholders of AVIR, to take control of this Company
and choose the best strategic options to maximize OUR
interests. Protect the value of your investment and vote on
the BLUE proxy card at the Special Meeting on February 6, 2018. We look forward to your
support at the Special Meeting.
Best Regards,
Concerned Aviragen Shareholders
Group
_______________________
VOTE TO PROTECT YOUR INVESTMENT!
PLEASE SIGN, DATE AND RETURN THE ENCLOSED BLUE
PROXY CARD TODAY
If you have any
questions, require assistance in voting your BLUE proxy
card, or need additional copies of the CAS Group's proxy
materials, please contact InvestorCom at the phone
numbers listed below.
InvestorCom
SHAREHOLDER INTELLIGENCE
65 Locust Avenue,
Suite 302
New Canaan, CT 06840
Shareholders call toll free at (877) 972-0090
Banks and Brokers may call collect at (203) 972-9300
You may find more
information
at: www.icommaterials.com/CAS
|
About Digirad
Digirad delivers convenient, effective, and efficient healthcare
solutions on an as needed, when needed, and where needed
basis. Digirad is one of the largest national providers of
in-office nuclear cardiology and ultrasound imaging services, and
also provides cardiac event monitoring services. These
services are provided to physician practices, hospitals and imaging
centers through its Diagnostic Services business. Digirad
also sells medical diagnostic imaging systems, including
solid-state gamma cameras, for nuclear cardiology and general
nuclear medicine applications, as well as provides service on the
products sold through its Diagnostic Imaging business. For more
information, please visit www.digirad.com.
About East Hill Management Company
East Hill Management Company, LLC is a registered investment
adviser with the Securities and Exchange Commission.
Investor Contact:
John Glenn
Grau
InvestorCom
(203) 295-7841
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SOURCE Digirad Corporation