Recently Issued Accounting
Standards
See Note
1, Unaudited Interim Financial Statements -
Recent Accounting Pronouncements,
in
the Notes to Condensed Financial Statements for a discussion of recent
accounting pronouncements and their effect, if any, on us, which discussion is
incorporated by reference here.
Deferred Income Tax Assets
In
accordance with FAS 109,
Accounting for Income
Taxes
, we have calculated a deferred tax
asset based on the potential future tax benefit we may be able to realize in
future periods as a result of the significant tax losses experienced since our
inception. The value of such deferred tax asset must be calculated using the tax
rates expected to apply to the taxable income in the years in which such income
occurs. Since we have no history of earnings, and cannot reliably predict when
we might generate taxable income, if at all, we have recorded a valuation
allowance for the full amount of our deferred tax assets. Federal and state laws
limit the use of net operating loss and tax credit carryforwards in certain
situations where changes occur in the stock ownership of a company. In 2008 and
2007, we conducted an Internal Revenue Code (IRC) Section 382 study and have
reported our deferred tax assets related to net operating loss and research
credit carryforwards after recognizing change of control limitations in 2008 and
2006. Utilization of our net operating loss and research and development credit
carryforwards may still be subject to substantial annual limitations due to
ownership change limitations after December 31, 2008.
Liquidity and Capital Resources
Since our
inception in 1992, cash expenditures have significantly exceeded our revenue. We
have funded our operations primarily through public offerings and private
placements of our equity securities. Between May 1996, the date of our initial
public offering, and June 30, 2009, we raised $235.7 million from private
placements and public offerings of our common stock and warrants to purchase our
common stock.
In
December 2008, we received $7.1 million in cash proceeds from Baxter Healthcare
Corporation in connection with the sale of the rights to our early stage blood
coagulation compound, AV513.
We have
attempted to contain costs and reduce cash flow by renting facilities,
subleasing facilities no longer critical to our future operations, contracting
with third parties to conduct research and development and using consultants,
where appropriate. In November 2008, we completed a significant restructuring
and staff reduction intended to reduce our future expenses and preserve our
financial resources. We expect to incur future expenses in connection with
efforts to sell our company or monetize our AV411 assets and develop a plan of
dissolution and we do not intend to initiate Phase 2 clinical trials for AV411
for neuropathic pain. As a result, we expect full-year 2009 expenses to be
significantly below the spending levels of recent fiscal years related to our
previous research and development activities, and expenses for the second half
of 2009 to be significantly below the expenses incurred for the six months ended
June 30, 2009, which included significant legal and advisory expenses associated
with our response to a proxy fight and unsolicited tender offer and our review
of strategic merger and acquisition opportunities in the three months ended
March 31, 2009.
At June
30, 2009, we had cash, cash equivalents, available-for-sale securities, and
restricted cash and investments, of approximately $41.6 million, compared to
approximately $56.8 million at December 31, 2008. In March 2009 we repaid the
$7.0 million of outstanding borrowings under our credit facility, which
accounted for approximately half of this reduction. At June 30, 2009, we
reported approximately $3.4 million of restricted cash and investments in
current assets associated with monies placed in a trust account in connection
with severance obligations under our Management Transition Plan. At June 30,
2009 and December 2008, we reported $2.0 million of restricted investments with
non-current assets which represents the portion of our investment portfolio
pledged as collateral to secure a letter of credit which serves as the security
deposit on a building lease. Also at December 31, 2008, we reported restricted
cash and investments with current assets of $7.0 million representing the
portion of our investment portfolio pledged as collateral for outstanding
borrowings against our credit facility. These outstanding bank borrowings were
fully repaid in March 2009 and the corresponding restricted investments reduced.
We do not consider our restricted cash and investments a current source of
additional liquidity.
24
As of
June 30, 2009, our commitments under building leases, net of scheduled cost
recoveries under sublease agreements, were significantly lower than our net
commitments reported as of December 31, 2008 due to the additional sublease
agreement entered into during the first quarter of 2009. As of June 30, 2009, we
had net future minimum commitments under non-cancellable building leases
totaling approximately $1.1 million, payable in varying amounts through November
2010 (See Note 7 of Notes to our Condensed Financial Statements in Item
1).
Operating Activities.
Net cash used in
operating activities was $8.2 million during the six months ended June 30, 2009.
Net cash used in operating activities during this period was primarily used to
fund costs associated with our response to a proxy fight and hostile tender
offer, and winding down clinical research and development activities, including
non-clinical studies and clinical trials performed by third parties.
Investing and Financing Activities
.
Net cash provided by investing activities and used in financing activities
during the six months ended June 30, 2009 was $16.1 million and $7.0 million,
respectively. The cash provided by investing activities consisted primarily of
maturities of available-for-sale securities, net of purchases and a net decrease
in restricted cash and investments of approximately $3.6 million. This reduction
in restricted cash and investments resulted from the release of $7.0 million in
collateral in connection with the repayment of our bank borrowings, partially
offset by monies placed in an irrevocable grantor trust in connection with
severance obligations under the companys Management Transition Plan. The cash
used in financing activities represented the repayment of our outstanding bank
borrowings.
We
anticipate that our existing capital resources as of June 30, 2009, after
considering our anticipated decrease in spending as a result of restructurings
and staff reductions since November 2008, will allow us to pursue a plan of
dissolution that could deliver significant value to our stockholders. However,
if we are unable to monetize our remaining assets or reduce our remaining
building lease obligations, we may not be able to deliver value to our
stockholders at or above our net cash assets at June 30, 2009 less wind up
costs. Our ability to return capital to stockholders will depend on many
factors, including:
-
how successful, if at all, we are at selling
assets, including our AV411 drug development program, or
entering into an agreement to sell the
company;
-
the costs involved in winding up our remaining
ongoing research and development activities;
-
the costs involved in filing, prosecuting and
enforcing patent claims and other intellectual property
rights;
-
the costs involved with winding up any corporate
obligations associated with a plan of dissolution; and
-
other factors which may not be within our
control.
Risks Related to Our
Business
We are in the process of pursuing
a dissolution or sale of Avigen, which we may not be able to do on terms we
believe we should be able to for our stockholders
We are
pursuing on separate tracks the sale of Avigen or the dissolution of the
company. We may not be able to negotiate a sale of the company on favorable
terms, or our stockholders may not approve such sale, in which case we will
pursue a dissolution of the company. Our ability to return the value of our
company to our stockholders that we believe the company is worth in a
dissolution will depend upon our ability to monetize our AV411 product and our
agreement with Genzyme, which we may not be able to do on terms we believe are
favorable, as described below.
We are in the process of pursuing
a monetization of our AV411 product, which we may not be able to do on terms we
believe we should be able to obtain for this product
We are
pursuing the sale of our AV411 product in the event that we are not able to sell
the company. We believe that this product has substantial value, but given the
current economic climate, as well as the fact that we are in the process of
winding down the company, we may not be able to find a buyer that is willing to
pay what we believe is the fair value for AV411. If we are not able to obtain
significant value for the sale of AV411 or the sale of the company, we will not
be able to return to our stockholders the value that we believe we should be
able to obtain for AV411.
25
We are in the process of pursuing
a monetization of our rights under our Genzyme agreement, which we may not be
able to do on terms we believe we should be able to obtain
We are
pursuing discussions with Genzyme to have Genzyme purchase from us the rights
under our existing agreement with Genzyme, and are seeking in the alternative to
sell these rights to another party. We believe that these rights have
substantial value, but given the fact that we are in the process of winding down
the company, we may not be able to find a buyer that is willing to pay what we
believe is the fair value for these rights, and Genzyme may not be willing to
purchase these rights for the value that we believe they are worth. If we are
not able to monetize these rights or obtain value for these rights in an
acquisition of the company on the terms that we believe they are worth, we will
not be able to return to our stockholders the value that we believe we should be
able to obtain for these rights.
We will incur costs as we pursue
the sale or dissolution of Avigen, which may be more than we expect, which could
result in a return to our stockholders of less than we expect
We will
continue to incur operating costs as we pursue the sale or dissolution of the
company. We are being very frugal with respect to the costs we are incurring,
but we will need to continue to incur costs of operations as we wind down the
company. We have incurred costs in negotiations with MediciNova regarding a
potential sale of the company, and as of August 7, 2009, continue to be in
negotiations with MediciNova. If we pursue this transaction, we will incur
substantial costs in negotiating the transaction and seeking stockholder
approval. Even in a dissolution, we will need to solicit stockholder approval,
which will take time and we will incur costs in such solicitation. If these
costs are more than we expect, it will decrease the amount that we currently
expect to be able to return to our stockholders.
Other persons may assert rights
to our proprietary technology, which could be costly to contest or settle
Third
parties may assert patent or other intellectual property infringement claims
against us with respect to our products, technologies, or other matters. Any
claims against us, with or without merit, as well as claims initiated by us
against third parties, can be time-consuming and expensive to defend or
prosecute and resolve. There may be third-party patents and other intellectual
property relevant to our products and technology which are not known to us. We
have not been accused of infringing any third party's patent rights or other
intellectual property, but we cannot assure you that litigation asserting claims
will not be initiated, that we would prevail in any litigation, or that we would
be able to obtain any necessary licenses on reasonable terms, if at all. If our
competitors prepare and file patent applications in the United States that claim
technology also claimed by us, we may have to participate in interference
proceedings declared by the Patent and Trademark Office to determine priority of
invention, which could result in substantial cost to us, even if the outcome is
favorable to us. In addition, to the extent outside collaborators apply
technological information developed independently by them or by others to our
product development programs or apply our technologies to other projects,
disputes may arise as to the ownership of proprietary rights to these
technologies.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Our
market risk disclosures set forth in Item 7A of our Annual Report on Form 10-K
for the year ended December 31, 2008, as filed with the SEC on March 16, 2009,
have not changed significantly. We have evaluated the risk associated with our
portfolios of investments in marketable securities and have deemed this market
risk to be immaterial. If market interest rates were to increase by 100 basis
points, or 1%, from their June 30, 2009 levels, we estimate that the fair value
of our securities portfolio would decline by approximately $123,000 compared to
our estimated exposure of $341,000 at December 31, 2008, primarily due to the
reduction in size and average duration of our overall portfolio.
26
Item 4.
Controls and Procedures
Evaluation of disclosure controls and procedures
. With the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we have evaluated the effectiveness of our disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934, Rules 13a-15(e)
and 15(d)-15(e)), as of June 30, 2009. Based on that evaluation, the principal
executive officer and principal financial officer have concluded that these
disclosure controls and procedures were effective to ensure, at a reasonable
assurance level, that the information required to be disclosed by us in reports
we file with the SEC is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and instructions for such
reports.
Changes in Internal Control over Financial Reporting
. There were no changes in our internal control over financial
reporting during the quarter ended June 30, 2009, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 4T.
Controls and Procedures
Not applicable.
27
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
Not
applicable.
Item 1A.
Risk Factors
We include in
Part I, Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations Risks Related to Our Business a description of risk
factors related to our business in order to enable readers to assess, and be
appropriately apprised of, many of the risks and uncertainties applicable to the
forward-looking statements made in this Quarterly Report on Form 10-Q. We do not
claim that the risks and uncertainties set forth in that section are all of the
risks and uncertainties facing our business, but do believe that they reflect
the more important ones.
In March
2009, we announced that we had discontinued strategic merger discussions and
intended to develop a plan of dissolution. In June 2009, we announced that we
had reached an understanding with MediciNova, Inc. on key terms for a proposed
acquisition of Avigen by MediciNova, and we continue to be in negotiations over
final details of the proposed acquisition. We believe this has significantly
changed our risk profile, including the risk factors set forth in Part I, Item
1A of our Annual Report on Form 10-K for the year ended December 31, 2008, as
filed with the SEC on March 16, 2009. The risks relating to our business now
relate primarily to preserving the value, and monetizing, our assets as we seek
to sell or dissolve the company. We have updated these risk factors in Part 1,
Item 2 of this Quarterly Report on Form 10-Q under the caption Risks Related to
Our Business to take into account these recent developments.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
Item 5.
Other Information
Avigen
has not held its 2009 Annual Meeting of Stockholders within 30 days of the first
anniversary of last years annual meeting, and has not currently scheduled its
annual meeting. To be considered for inclusion in Avigens proxy materials for
the 2009 Annual Meeting of Stockholders, a stockholder proposal must be
submitted in writing to Avigens Secretary at 1301 Harbor Bay Parkway, Alameda
California 94502, a reasonable time prior to the time Avigen begins to print and
mail its proxy materials. Stockholders wishing to bring a proposal before the
stockholders at the 2009 Annual Meeting of Stockholders that is not included in
Avigens proxy materials for the 2009 Annual Meeting of Stockholders must notify
Avigens Secretary, in writing, not later than the later of 60 days prior to
Avigens 2009 Annual Meeting of Stockholders or, if Avigen makes a public
announcement of the date of Avigens 2009 Annual Meeting of Stockholders fewer
than 70 days prior to the date of Avigens 2009 Annual Meeting of Stockholders,
then the close of business on the 10th day following the day on which Avigen
makes such public announcement. Stockholders should review Avigens Bylaws,
which contain additional requirements about advance notice of stockholder
proposals and director nominations. Stockholders that do not comply with these
requirements will not be able to make a stockholder proposal or director
nomination at Avigens 2009 Annual Meeting of Stockholders.
28
Item 6.
Exhibits
See the
Exhibit Index which follows the signature page of this Quarterly Report on Form
10-Q, which is incorporated herein by reference.
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AVIGEN, INC.
Date: August 7,
2008
|
|
By:
|
/s/ ANDREW A.
SAUTER
|
|
|
|
Andrew
A. Sauter
|
|
|
|
Chief
Executive Officer, President and
|
|
|
|
Chief Financial
Officer
|
29
EXHIBIT INDEX
Exhibit
Number
|
|
Exhibits
|
2
|
.1(5)
|
|
Assignment Agreement, dated December 19, 2005, by and between
Genzyme Corporation and Avigen
|
2
|
.2(7)
|
|
Asset Purchase Agreement, dated
December 17, 2008, by and between Baxter Healthcare Corporation, Baxter
International Inc., and Baxter Healthcare S.A. (collectively Baxter) and
Avigen
|
3
|
.1(8)
|
|
Amended and Restated Certificate of Incorporation
|
3
|
.1.1(2)
|
|
Certificate
of Amendment to Certificate of Incorporation
|
3
|
.1.2(3)
|
|
Certificate of Amendment to Certificate of
Incorporation
|
3
|
.1.3(8)
|
|
Certificate
of Designation
|
3
|
.2(6)
|
|
Restated Bylaws of the Registrant
|
4
|
.1(1)
|
|
Specimen
Common Stock Certificate
|
10
|
.1(9)
|
|
Compensation Agreements with Named Executive Officers
|
31
|
.1
|
|
CEO
Certification required by Rule 13a-14(a) or Rule 15d-14(a)
|
31
|
.2
|
|
CFO Certification required by Rule 13a-14(a) or Rule
15d-14(a)
|
32
|
.1(4)
|
|
Certification required by Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United States Code (18
U.S.C. §1350)
|
____________________
(1)
|
|
Filed as an exhibit to the
Registrants Registration Statement on Form S-1 (No. 333-03220) and
incorporated herein by reference.
|
|
(2)
|
|
Incorporated by reference from
such document filed with the SEC as an exhibit to Avigens Quarterly
Report on Form 10-Q for the quarter ended December 31, 2000, as filed with
the SEC on February 13, 2001 (Commission File No.
000-28272).
|
|
(3)
|
|
Incorporated by reference from
such document filed as an exhibit to Avigens Current Report on Form 8-K
filed with the SEC on June 26, 2007 (Commission File No.
000-28272).
|
|
(4)
|
|
This certification accompanies
the Form 10-Q to which it relates, is not deemed filed with the Securities
and Exchange Commission and is not to be incorporated by reference into
any filing of Avigen under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (whether made before or after
the date of the Form 10-Q), irrespective of any general incorporation
language contained in such filing.
|
|
(5)
|
|
Incorporated by reference from
such document filed with the SEC as an exhibit to Avigens Annual Report
on Form 10-K for the year ended December 31, 2005, as filed with the SEC
on March 16, 2006 (Commission File No. 000-28272). Portions of this
exhibit have been omitted pursuant to a grant of confidential
treatment.
|
|
(6)
|
|
Incorporated by reference from
such document filed with the SEC as an exhibit to Avigens Quarterly
Report on Form 10-Q for the quarter ended September 30, 2007, as filed
with the SEC on November 8, 2007 (Commission File No.
000-28272).
|
|
(7)
|
|
Incorporated by reference from
such document filed with the SEC as an exhibit to Avigens Annual Report
on Form 10-K for the year ended December 31, 2008, as filed with the SEC
on March 16, 2009 (Commission File No. 000-28272). Portions of this
exhibit have been omitted pursuant to request for confidential
treatment.
|
|
|
|
(8)
|
|
Incorporated by reference from
such document filed as an exhibit to Avigens Current Report on Form 8-K
filed with the SEC on November 24, 2008 (Commission File No.
000-28272).
|
|
(9)
|
|
Incorporated by reference from
such document filed with the SEC as an exhibit to Avigens Annual Report
on Form 10-K for the year ended December 31, 2008, as filed with the SEC
on March 16, 2009, and to the disclosure in Item 5.02 of Avigens Current
Report on Form 8-K filed with the SEC on April 22, 2009 (Commission File
No. 000-28272).
|
30
Avigen (MM) (NASDAQ:AVGN)
Historical Stock Chart
From May 2024 to Jun 2024
Avigen (MM) (NASDAQ:AVGN)
Historical Stock Chart
From Jun 2023 to Jun 2024