Business Context and Reporting Period
MediciNova, Inc. filed this Form 8-K on August 20, 2009, to disclose the entry into a Material Definitive Agreement. On this date, MediciNova, its wholly-owned subsidiary Absolute Merger, Inc., and Avigen, Inc. signed an Agreement and Plan of Merger. The transaction proposes that Avigen will merge into the subsidiary, becoming a wholly-owned subsidiary of MediciNova. The closing is anticipated to occur in the fourth quarter of 2009, subject to stockholder approvals and other customary conditions.
Key Financial Metrics and Transaction Terms
This filing details the structure of the merger consideration rather than historical financial performance metrics such as revenue or profit. Key financial terms include:
- First Payment Consideration: Approximately $1.19 per share of Avigen common stock, calculated as $35,461,000 divided by the number of shares outstanding. This amount is subject to downward adjustment if Avigen's liquidation proceeds from marketable securities and restricted investments (as of June 30, 2009) are less than $27,721,000.
- Second Payment Consideration: Derived from an escrow account. Avigen will deposit $1,500,000 (approx. $0.05 per share) plus any excess cash liquidation proceeds over $28,021,000. MediciNova may also deposit future royalties and excess subtenant cash.
- Escrow Mechanics: MediciNova may demand funds from the escrow account by June 30, 2010, to cover additional liabilities. Remaining funds are released to former Avigen stockholders.
- Convertible Notes: Stockholders may elect to receive secured convertible notes instead of cash. The notes mature 18 months after closing and have an initial conversion price of $6.80 per share of MediciNova common stock.
- Contingent Payment Rights (CPR): Each Avigen share receives one CPR. Potential payouts include up to $6,000,000 if a Genzyme milestone is met within 20 months, 50% of net proceeds if the Parkinson's Product is sold within 20 months, or approximately $550,000 if a specific trust is terminated.
Material Changes and Conditions
The filing represents a material change in corporate structure pending the merger's consummation. The transaction is subject to several conditions, including:
- Adoption of the Merger Agreement by stockholders of both MediciNova and Avigen.
- Approval of the issuance of Convertible Notes by MediciNova stockholders.
- Effectiveness of releases from certain Avigen directors and executives.
- Absence of a material adverse effect on Avigen.
Avigen has agreed to operate in the ordinary course and not solicit alternative proposals, subject to a "superior offer" exception. If the merger fails due to Avigen accepting a superior offer, Avigen must reimburse MediciNova for 50% of out-of-pocket expenses up to $500,000.
Outlook, Risks, and Management Commentary
Management anticipates closing the merger in the fourth quarter of 2009. The filing includes standard forward-looking statements regarding the expected timing and financial benefits of the merger, noting that actual results may differ due to risks such as the failure to close or the inability to achieve anticipated synergies.
Key risks and contingencies identified include:
- Regulatory and Stockholder Approval: The deal requires approval from both companies' stockholders and the absence of regulatory orders prohibiting the merger.
- Financial Adjustments: The First Payment Consideration is variable based on Avigen's asset liquidation proceeds and potential sales of rights under the Genzyme Agreement.
- Escrow Disputes: Disputes regarding the "Demand Amount" from the escrow account will be resolved by an independent accounting firm.
- Convertible Note Terms: The notes are secured obligations, but the Indenture does not limit MediciNova from incurring other indebtedness.
Investor Verification Checklist
- Verify the final number of Avigen shares outstanding to confirm the exact First Payment Consideration per share.
- Review the upcoming joint proxy statement/prospectus (Form S-4) for detailed financial data and voting instructions.
- Confirm the status of Avigen's marketable securities and restricted investments as of June 30, 2009, to assess potential downward adjustments to the cash consideration.
- Monitor the timeline for stockholder meetings to ensure the merger closes in the anticipated fourth quarter of 2009.
- Assess the terms of the Convertible Notes, specifically the $6.80 conversion price and the 18-month maturity, if electing non-cash consideration.