29 Dec Activist TomoTherapy shareholder nominates four to serve on board
Madison, Wis. – In the latest round of an intensifying proxy fight for control of TomoTherapy’s strategic direction, the California-based Avalon Portfolio, LLC has nominated four new directors to serve on the board of directors of TomoTherapy, a Madison-based medical device manufacturer.
Avalon Portfolio, the investment arm of Avalon Capital Group, characterized the move as its latest step to generate greater value for shareholders in the wake of what it called “a precipitous fall” in TomoTherapy’s stock price.
Avalon, based in La Jolla, Calif., owns about four percent of TomoTherapy stock.
Last month, Avalon demanded a change in TomoTherapy’s business strategy, but TomoTherapy executives have failed to “seriously engage us in a discussion regarding our views to improve shareholder value,” according to Jonathan McCloskey, Avalon’s portfolio manager and one of the four people nominated to serve on the TomoTherapy board.
Avalon noted that TomoTherapy has lost 85 percent of its year-to-date value, with most of the erosion occurring prior to the decline of the financial markets. Unless new management and directors join the company, McCloskey said that TomoTherapy will continue to squander its technological and market leadership.
He is confident that a majority of shareholders agree with that view. “I’ll let other shareholders speak for themselves,” he said, “but I can’t imagine how any shareholder would be happy with the performance of the company and the valuation the market is putting on it right now.”
Steve Hathaway, chief financial officer for TomoTherapy, said the company would not comment on Avalon’s latest announcement. He also declined to talk about the company’s financial situation, given how close it is to the end of the fourth quarter and annual financial periods.
In addition to McCloskey, Avalon’s board nominees include Timothy Dooling, portfolio analyst for Avalon; H. Michael Collins, principal of Collins MacVean, LLC, a San Diego wealth management firm; and Andrew Jones, CEO and president of Argus Systems Group, a software security vendor based in Savoy, Ill.
Based on TomoTherapy’s recent announcements, Avalon believes that nine directors will be up for election at the next shareholder’s meeting. TomoTherapy has set Thursday, May 1, 2009, as the date for its annual shareholders meeting, but has yet to identify a venue. The meeting will be held in Madison, Hathaway said.
TomoTherapy markets the Hi-Art radiation therapy system for a variety of cancers. The technology, an integrated CT scanning and radiation therapy system, was developed in the 1990s by scientists at the University of Wisconsin-Madison.
After raising $223 million and netting $180 million in a May 2007 initial public offering, TomoTherapy’s stock opened at $24 per share. However, the company has struggled to maintain its early momentum, posting a net loss of $26 million for the first nine months of 2008. Between Nov. 9, 2007 and the market close on Dec. 26 of this year, Avalon said TomoTherapy’s stock price plummeted from $20.51 to $2.41.
As of the close of trading on Dec. 29, TomoTherapy’s share price had dropped by five cents to $2.35 on the NASDAQ Stock Market. Its 52-week high this year was $20.16 per share.
In calling for a new business strategy, Avalon last month recommended that TomoTherapy’s board focus on monetizing TomoTherapy’s Hi-Art radiation therapy technology through the outright sale of the company, a joint venture, or a licensing deal.
Avalon’s Tim Dooling has said that while the investment firm still believes that TomoTherapy’s core technology remains superior to the technology of its competitors, the company is not in a good position to compete with Varian, Inc., a Bay Area rival, in commercial medical centers. He cited Varian’s ability to leverage its broader product lines with its RapidArc radiation therapy system as a reason why TomoTherapy has not achieved the same market penetration in commercial, single-unit carrier centers that it did in academic and research centers.
Following Avalon’s November call for a change in strategic direction, TomoTherapy said Avalon was offered the opportunity to meet directly with several of the company’s independent directors, but it did not agree to the meeting. Hathaway said that original offer still stands, and added, “we have not received any response to our offer.”
TomoTherapy also said its board was actively engaged with management on a strategic plan to address its business challenges, but Hathaway declined to offer any specific details about its business plans.
Earlier this month, TomoTherapy said it had reduced its workforce by approximately 12 percent through a combination of layoffs and the elimination of open positions. The company, which had 721 employees as of Sept. 30, 2008, said it would incur $1.8 million in severance-related costs in the fourth quarter of 2008, and that the workforce reduction would bring an estimated annual savings of $5.4 million beginning in 2009.
While few shareholder meetings evolve into dramatic showdowns, TomoTherapy’s 2009 shareholder meeting could well be shaping up as a clash of competing visions. McCloskey said it’s not unusual for shareholders to at least offer a divergent vision from that of company management, but he didn’t rule out something more dramatic. “In general, they don’t get that far,” he said, “but we’re heading down that path this time.”
- TomoTherapy announces retirement of Paul Reckwerdt as president, director
- TomoTherapy shareholder Avalon Portfolio demands change in business strategy