VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug. 21, 2014) - Med BioGene Inc. (TSX VENTURE:MBI) today responded to the recent assertions made by Iain Weir-Jones, the dissident shareholder who leads the ongoing effort to replace the entire MBI board of directors with his own nominees at the upcoming annual and special meeting (the "Meeting") of MBI shareholders scheduled to be held on September 5, 2014. His note to MBI shareholders contains a number of misrepresentations and provides neither a tangible plan to maximize shareholder value nor a firm commitment to fund the company.
The board of directors of MBI again recommends that shareholders VOTE IN FAVOUR OF MANAGEMENT'S NOMINEES and not for the dissident shareholder's nominees.
Dissidents Still Have Not Released a Substantive Plan for MBI
It appears that the dissidents' simple and naïve plan for MBI is to "cooperate closely with Precision Therapeutics Inc. and UHN to maximize the benefits accruing to MBI's shareholders under the terms of the current license agreement."
The long-term commercial success of GeneFx Lung will depend largely upon the extent to which government payors, specifically Medicare, and other third-party payors reimburse the test. Mr. Weir-Jones provides no substantive details as to how the dissidents would manage and add value and expertise to the partnership with Precision and no evidence that they understand the complexities in the commercialization of high-value molecular diagnostics tests in the United States. Mr. Weir-Jones offers only vague notions and unfounded criticisms, and has no substantive plan for the commercial success of GeneFx Lung and no plan to create value for the shareholders of MBI.
Dissidents Lack the Relevant Experience
Based upon the information provided by Mr. Weir-Jones, it appears that not one of the dissident nominees possesses any experience whatsoever in the commercialization of molecular diagnostics and the management of biotechnology commercial partnerships, nor does it appear that the nominees possess sufficient experience in many of the other relevant areas necessary for MBI's success, including public company operations and financings. Perhaps most tellingly, it appears that none of the dissident nominees have ever commercialized a molecular diagnostic test and, to our knowledge, none have ever been directors of a public company.
The MBI directors, on the other hand, have collectively over 50 years of experience in the molecular diagnostics and biotechnology industries and over 35 years of involvement with public companies. In fact, members of the MBI board are responsible for bringing in more than $10 million to MBI, sourcing and completing the partnership for MBI's key intellectual property with the University Health Network and completing the global commercialization partnership with Precision Therapeutics Inc.
Dissidents Have Provided No Details Regarding Enforcement of MBI's Rights Under the Commercialization Agreement with Precision
As previously announced, MBI believes that the first milestone payment of $500,000 (i.e. $300,000 due now and $200,000 due at the end of the year) relating to Precision's commercialization obligations of GeneFx Lung is owing by Precision. Management of MBI met with management of Precision in early July at its offices in Pittsburgh, and spoke with them again last week, to articulate this position and is currently considering its options to enforce MBI's contractual rights under the commercialization agreement, including, if necessary, initiating binding arbitration proceedings. If re-elected, the board of directors of MBI intends to use the proceeds from the recently proposed financing to provide funding for MBI to enforce its contractual rights under the commercialization agreement with Precision.
The commercialization and marketing of molecular diagnostic tests in the United States is complex. MBI management and the board of directors are tasked with managing the license and rights to GeneFx Lung under the commercialization agreement with Precision. In his note to MBI shareholders, Mr. Weir-Jones has not demonstrated that he understands the complexities of the commercial landscape for molecular diagnostics nor the nuances of the commercialization agreement with Precision. Mr. Weir-Jones has provided no details regarding how the dissident nominees would enforce MBI's rights under the commercialization agreement.
Dissidents Have No Financing Plan
As previously disclosed by MBI, in the event that the dissident nominees are elected as directors at the Meeting, MBI would have minimal remaining available cash.
In response, Mr. Weir-Jones states that "[i]mmediately after the Meeting; and as reasonably necessary thereafter, new management will procure funding sufficient to enable the Company to continue to function under new austerity measures."
Mr. Weir-Jones, however, has not secured legally binding commitments to fund MBI, does not have the funds in-hand and has provided no information to MBI shareholders regarding the structure, conditions and pricing of any purported financing. In other words, Mr. Weir-Jones has provided only hollow promises.
Management of MBI, however, has secured legally binding commitments to fund MBI in the amount of $200,000, has the funds in-hand and has provided to MBI shareholders all relevant details and conditions.
With respect to the financing proposed by MBI, Mr. Weir-Jones asserts that it is "safe to assume that Mr. Broshko is one of the investors in the private placement." Like many of his other assumptions and assertions, this is incorrect. All investors to the financing are at arm's length to MBI.
Mr. Weir-Jones also asserts that "[t]he placement is contingent on the re-election of three of the four incumbent directors, including Mr. Broshko. Such a condition is very unusual." This condition was insisted upon by the key investors as they were prepared to invest in MBI under the stewardship of the current board of directors and not under that of Mr. Weir-Jones and his nominees. In the circumstances, an insistence by investors on a "no change in control" condition is not at all unusual and should, in fact, be expected.
Dissidents Misrepresent MBI Executive and Director Compensation; Compensation is Low for a Public Company and Entirely Reasonable Given Qualifications and Experience
Mr. Weir-Jones' misrepresents to MBI shareholders that MBI is paying to its management and directors "inflated compensation packages."
In describing MBI's executive and director compensation, Mr. Weir-Jones purposefully misrepresents the amount of compensation paid by including the value attributed to stock options issued to management and directors. Under accounting principles and securities laws, public companies are required to use the Black-Scholes option pricing model to ascribe a notional value to stock options, which, in the case of a company like MBI, simply does not reflect the fair value of such options. Mr. Weir Jones knows full well that all stock options are "out-of-the-money". Moreover, no current officer or director has exercised any stock options, including in 2013 when the options were "in-the-money". In short, management and directors of MBI have not received a single penny from the exercise of MBI stock options.
As disclosed by MBI in public filings, including the information circular sent to shareholders in respect of the Meeting, MBI paid its Executive Chairman in 2013 and 2012 salary and benefits of $127,821 and $137,239, respectfully. MBI paid its Chief Financial Officer in 2013 and 2012 salary and benefits of $35,937 and $40,515, respectfully. In the last two years, each non-executive director received an annual retainer of $12,000 plus an additional $3,000 for acting as a member of the audit committee. One director received an additional $5,000 in 2013 for considerable additional efforts in working with management and Precision Therapeutics on certain business matters.
The amounts paid by MBI to its executives and directors for managing and overseeing a publicly-listed company are entirely reasonable and at the low end of what can be expected, especially in light of their qualifications and experience.
Since March 2014, as a result of MBI's cash position, management and directors of MBI voluntarily elected to defer their cash compensation (not including reimbursement of expenses in the ordinary course) to provide an extended runway for the company pending the anticipated payment by Precision of the first milestone payment under the commercialization agreement. The cash compensation owing but not paid to management and directors is being accrued and is due and payable upon demand. The debt amount owing to management and directors as of June 30, 2014 was $50,500 and continues to accrue.
Management and directors of MBI have advised the company that in the event that the replacement of the MBI board by the dissident shareholders appears likely, they will demand payment of the debt owing to them. Under such circumstances, MBI would make such payment and, as of the date of the Meeting, MBI would have minimal remaining available cash.
Dissidents Misrepresent MBI's Operating Expenses; Company Operates in a Very Lean Manner
Mr. Weir-Jones misrepresents to MBI shareholders what he calls MBI's "extraordinarily high corporate overhead".
In 2013 and 2012, MBI's total cash operating expenses were $275,757 (not including legal fees associated with the company defending the lawsuit launched by the dissident shareholders) and $263,549, respectfully.
Not including payments made to MBI management and directors as described above, MBI's cash operating expenses in 2013 and 2012 were only $64,999 and $43,795, respectfully. Such expenses include securities commission and stock exchange filing fees, auditing fees, transfer agent fees, directors and officers liability insurance, communications and press release and SEDAR filing fees, website and email hosting fees and office supplies expenses. MBI does not have a physical office space and does not incur any lease expenses.
MBI initiated significant and focused cost savings in 2011 and continues to run operations in the leanest possible manner. Mr. Weir-Jones' promise of a "dramatic reduction of overhead expenses" shows an astonishing lack of understanding of the operations of a public company and is simply not credible.
It speaks volumes that Mr. Weir-Jones in one breath wrongly speaks of MBI's "extraordinarily high corporate overhead", while in another breath says that, "[f]ollowing the Meeting, Dr. Weir-Jones intends to request that the board of directors of MBI authorize MBI to reimburse Dr. Weir-Jones for his out of pocket expenses in connection with the solicitation of proxies."
In 2013, Weir-Jones Tried a Sneak Attack to Replace the Board of Directors; MBI Board of Directors Protected Interests of All Shareholders
In 2013, consistent with the principles of good corporate governance, the board of directors of MBI adopted an advance notice policy (the "Policy") requiring that any shareholder of MBI wishing to nominate a person as a director at a shareholder meeting must give advance notice of that intention and provide appropriate information of himself and of his nominees. The Policy was put in place to ensure that MBI shareholders have full and complete information in advance of a meeting of shareholders.
Minutes before the Policy's deadline, on April 30, 2013, Mr. Weir-Jones attempted to provide notice of his desire to nominate two directors (including himself) at the May 17, 2013 annual and special meeting (the "2013 Meeting"), but failed in material respects to comply with the Policy. MBI advised him of this non-compliance shortly after receiving the deficient notice.
Nevertheless, weeks later, Mr. Weir-Jones attended the 2013 Meeting and proceeded through a series of motions to take steps designed to, in effect, nominate an entirely new slate of directors (and replace the then current directors) without providing any advance notice to MBI shareholders of his intent to do so. The chair of the 2013 Meeting applied the Policy, did not recognize the deficient nominations by Mr. Weir-Jones and the incumbent directors were re-elected.
To allow this sneak attack by Mr. Weir-Jones would have resulted in the disenfranchisement of the approximately 75% of MBI shareholders who did not have notice of Mr. Weir-Jones' intentions and did not vote at the 2013 Meeting. The Policy was adopted by the board to avoid such a sneak attack and to protect the shareholders of MBI.
Subsequently, Mr. Weir Jones and others, dissatisfied with the result of Mr. Weir-Jones' non-compliance with the Policy, then applied to the British Columbia Supreme Court for a further shareholders meeting and a fresh election to permit them a second opportunity to nominate alternate directors. In other words, Mr. Weir-Jones chose not to comply with the Policy and then sued for a do-over of the meeting.
MBI believed that the legal claims made by Mr. Weir-Jones and others had no merit whatsoever and was compelled to defend the interests of all shareholders by opposing the lawsuit. The actions of Mr. Weir-Jones and others required MBI to expend significant time and money (over $125,000). Only hours before the scheduled court appearance to decide the matter, when all the preparatory work was already completed and almost all of the legal fees were already incurred, Mr. Weir-Jones and others finally discontinued the lawsuit.
Mr. Weir-Jones' actions showed a lack of respect for the shareholders of MBI, for basic corporate governance procedures and for MBI's limited funds.
MBI has acted in Good Faith towards the Dissidents, is Open to Changes in the Board of Directors and Respects the Will of the Shareholders
Mr. Weir-Jones claims that the directors of MBI are trying to "entrench their position." To the contrary, MBI's Executive Chairman has on multiple occasions reached out to Mr. Weir-Jones to try and establish common ground for the parties to work together for the benefit of MBI and its shareholders.
Mr. Weir-Jones falsely represents to MBI shareholders that "Mr. Broshko initially contacted Dr. Weir-Jones by email on July 17, 2014 and offered to discuss "urgent matters" with Dr. Weir-Jones, but only if he would sign a non-disclosure agreement." To be clear, at no point did Mr. Broshko offer to discuss urgent matters with Mr. Weir-Jones. Rather, in an attempt to initiate constructive dialogue between the parties, Mr. Broshko advised Mr. Weir-Jones in the email that MBI was going to hold its annual meeting in August and (because of the timing of the anticipated annual meeting) suggested that they "sit down and talk, sooner rather than later". Mr. Broshko also stated that he would be able to provide to Mr. Weir-Jones "an update", which would require him to sign a standard non-disclosure agreement. The non-disclosure agreement was required to protect MBI from the dissemination of potentially sensitive corporate information.
Over three weeks later, to avoid additional conflict and uncertainty for MBI, Mr. Broshko noted to Mr. Weir-Jones that he would be prepared to go to the MBI board and recommend that one board seat be allocated to a member of the dissidents, should they be able to assist in securing a portion of the funding that MBI needs in the immediate term.
For Mr. Weir-Jones to assert that he made "unsuccessful attempts to arrange an informal meeting around Mr. Broshko's busy schedule" is simply incorrect and certainly disingenuous as Mr. Weir Jones has made it abundantly clear that nothing short of a board of directors consisting solely of his nominees to carry out a "trust me" plan would be acceptable.
The directors are open to changes in the composition of the MBI board that are in the best interests of the company and its shareholders, but are not prepared to simply abandon their fiduciary obligations and agree to a complete replacement of the board with the dissident nominees who lack experience and a substantive plan for MBI. This is a decision that ought to rest with shareholders after being given the opportunity to weigh the competing visions for MBI and the qualifications and experience of the dissident nominees.
About Med BioGene Inc.
MBI is a life science company based in Vancouver, British Columbia that is currently focused on managing the license and rights to GeneFx Lung. MBI's common shares are listed for trading on the TSX Venture Exchange. For more information, please visit www.medbiogene.com.
About GeneFx Lung
GeneFx Lung is a proprietary gene expression-based test to improve upon staging for identifying those patients with early-stage non-small-cell lung cancer (NSCLC) who, following surgical removal of their tumor, are at higher and lower risks of mortality. In an initial study of patient specimens from the National Cancer Institute of Canada Clinical Trials Group JBR.10 trial, published in the Journal of Clinical Oncology, patients classified by GeneFx Lung as high risk benefited from adjuvant chemotherapy, and those classified as low risk did not benefit and may have experienced a detrimental effect from adjuvant chemotherapy. In the same study, GeneFx Lung was validated in predicting patient mortality in four independent studies involving data from tumor specimens totaling 375 untreated early-stage NSCLC patients. As published in the Journal of Thoracic Oncology, GeneFx Lung was also independently validated in a prospective and blinded manner in predicting patient mortality in a study of 181 specimens from untreated NSCLC patients. GeneFx Lung is expected to provide better-informed and personalized treatment decisions to assist in the selection of patients for adjuvant chemotherapy.
About Precision Therapeutics
Precision Therapeutics, a leading life science company based in Pittsburgh, Pennsylvania, is dedicated to improving the outcomes of cancer patients by providing personalized medicine solutions that aim to increase quality of life and cancer survival rates. Precision offers a portfolio of products developed to help guide physicians and patients with difficult clinical decisions throughout the continuum of cancer care.
Precision currently markets a number of tests through its CLIA-certified laboratory, including ChemoFx®, BioSpeciFx® and GeneFx® Colon.
For more information on Precision, please visit www.precisiontherapeutics.com.
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.
Certain information in this release contains forward-looking information and statements ("forward-looking information") of MBI under applicable Canadian and United States legislation. Words such as "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking information, although not all forward-looking information contains these identifying words. Forward looking information includes, but is not limited to, that with respect to the timing, completion and/or results of clinical trials or studies, the timing for commercialization of any products, future profits, future product revenues, future shareholder value, future operations and plans, the completion and use of proceeds from transactions or financings and the prospects for negotiating partnerships or collaborations and their timing. This forward-looking information is only a prediction based upon MBI's current expectations, and actual events or results may differ materially. MBI may not actually achieve the plans, intentions or expectations disclosed in its forward-looking information. Forward-looking information is subject to known and unknown risks and uncertainties and is based upon uncertain assumptions that could cause MBI's actual results and the timing of events to differ materially from those anticipated in such forward-looking information. You are cautioned not to place undue reliance on this forward-looking information, which speak only as of the date of this release. MBI's forward-looking information does not reflect the potential impact of any future partnerships, collaborations, acquisitions, mergers, dispositions, joint ventures or investments that MBI may make. All forward-looking information herein is qualified in its entirety by this cautionary statement and MBI undertakes no obligation to revise or update any such forward-looking information as a result of new information, future events or otherwise after the date of this release, other than as required by applicable law. Certain information included in this release in respect of Precision and its scientific, clinical and/ or commercialization efforts and expectations have been provided to MBI by Precision. MBI may not have been able to confirm the accuracy of such information and you should not place undue reliance on any such information, including any information regarding Precision that may constitute forward-looking information. A redacted copy of the commercialization agreement between MBI and Precision may be found at www.sedar.com. Each trademark, trade name or service mark of any entity appearing in this release belongs to its holder.