Combination will boost development of neurological pipeline based on ibudilast.

MediciNova and Avigen have inked a definitive merger agreement just a couple of months after Avigen first publicly reported the possibility of this take-over. The deal will permit the combination of the companies’ neurological clinical development programs based on ibudilast (Avigen’s AV-411 and MediciNova’s MN-166).

Avigen’s stock fell below $1 in October 2008 after it reported negative Phase II data related to Tolperisone in multiple sclerosis (MS). The firm subsequently let go of 70% of its work force and sold its hemophilia program to Baxter for $7 million.

Since February Avigen has been discussing potential buyouts. Its first offer came in February and was an unsolicited one from Biotechnology Value Fund (BVF) with a $20.5 million price. For almost two months after the proposal, Avigen strongly resisted the take-over. Finally in June, Avigen said that it had a $3 million offer from MediciNova and that it was leaning more toward this latest deal.

Under the terms of the merger agreement, Avigen shareholders will have the right to receive approximately $1.24 per share in either cash or secured convertible notes. Roughly $1.19 of this will be paid at the closing and the rest at June 30, 2010.

In addition, Avigen’s stockholders will be entitled to one contingent payment right that will entitle holders under certain circumstances to a pro rata portion of one or more of the following: (1) in the event the first milestone payment of $6.0 million, or approximately $0.20 per share, under Avigen’s 2005 assignment agreement with Genzyme is achieved in the 20 months following closing, a cash payment of the proceeds (to the extent such cash is received by MediciNova in the 20 months following closing); (2) in the event the Parkinson’s product reverts to MediciNova under the Genzyme Agreement and is subsequently sold, licensed, or otherwise transferred, 50% of the proceeds received in cash in the 20 months following closing; and (3) the amount of money remaining in the plan trust established under Avigen’s management transition plan following termination of such trust. In each case, the payments will be net of any related out-of-pocket costs, damages, fines, penalties, and expenses incurred by MediciNova.

Ibudilast is approved in Japan and other parts of Asia for bronchial asthma and dizziness secondary to cerebral stroke. MN-166 has completed a Phase II trial in MS patients. AV-411 is in a Phase IIa study for the treatment of neuropathic pain.

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