Diffusion Pharmaceuticals Inc. (NASDAQ: DFFN) (“Diffusion” or the
“Company”), a biopharmaceutical company developing novel therapies
that may enhance the body’s ability to deliver oxygen to areas
where it is needed most, today sent a letter to its stockholders.
The letter highlights the strength, experience and quality of the
Company’s board of directors as it continues to take steps to
unlock stockholder value through a strategic review process. The
letter also summarizes the value-destructive acquisition offer
presented by LifeSci Capital on behalf of a purported client, the
dismal track record of LifeSci Capital and its many affiliates in
the biopharmaceutical space, and LifeSci-affiliated funds’ recent
nomination of an unqualified dissident slate of nominees for
election as directors at the Company’s 2022 Annual Meeting of
Stockholders (the “Annual Meeting”).
Diffusion’s board of directors urges stockholders to
vote “FOR” each of its six nominees for director on your WHITE
proxy card. The Annual Meeting will be held virtually on
December 30, 2022, at 8:00 a.m., Eastern Time. Stockholders of
record as of the close of business on November 1, 2022, are
entitled to vote at the meeting.
The Company’s proxy statement and other important information
related to the Annual Meeting can be found at
investors.diffusionpharma.com
The full text of the letter follows.
December 5, 2022
Dear Fellow Stockholder,
The value of your investment is at stake at Diffusion’s 2022
Annual Meeting of Stockholders, which will be held on December 30,
2022. LifeSci Special Opportunities Master Fund Ltd. (“LifeSci
Master Fund”), a fund affiliated with the investment bank LifeSci
Capital, on behalf of itself and other related entities
(collectively with their respective affiliates, “LifeSci”), and
managed by David Dobkin, the LifeSci Capital banker who previously
delivered an unsolicited, lowball offer to the Company on behalf of
a purported client, is seeking to replace our board of directors
(the “Board”) with its hand-picked, inferior and unqualified slate
of nominees. In contrast to LifeSci’s nominees, our Board has the
required skills and expertise to drive our strategy forward through
its ongoing evaluation of a range of value-creating opportunities
as part of our strategic review process.
DIFFUSION’S BOARD IS DILIGENTLY ADVANCING
THE STRATEGIC REVIEW PROCESS
Our Board has made significant progress to date in its strategic
review of opportunities to enhance value for all stockholders.
Working together with our financial advisor, Canaccord Genuity LLC,
and legal advisor, Dechert LLP, our Board has been driving a
thorough process. We received bids from more than 15 companies, and
we are currently in the process of identifying and negotiating the
most compelling, value-enhancing transaction for
ALL Diffusion stockholders. While we cannot
provide any assurance as to the ultimate outcome of this strategic
review process, we are very encouraged by the level of response
received from interested parties. Our Board and management team are
highly motivated to complete this process expeditiously and bring
an attractive opportunity to our stockholders as soon as possible
within a reasonable timeframe.
DIFFUSION’S BOARD IS LEVERAGING RELEVANT
EXPERIENCE IN CONDUCTING THE STRATEGIC REVIEW
Our Board is currently composed of uniquely qualified leaders
with public company senior leadership experience, including at the
C-level in Fortune 50 companies. A majority of our directors are
independent, and multiple directors – including our Board Chair and
our Chief Executive Officer -- have been added to the Board since
the beginning of 2020. During this same timeframe, our Board has
also overseen significant changes to our management team, with four
of our five current executive officers appointed to their position
since September 2020.
Our Board is highly engaged and actively overseeing the
strategic review process. Stockholders should not be misled by
LifeSci’s claims and self-serving campaign: this is
NOT a board that is entrenching itself. To the
contrary, the Board is diligently reviewing a range of potential
transactions that will likely involve significant changes in the
composition of the Board, including a sale of the Company.
Our current directors have a broad industry network and a deep
understanding of pharmaceutical dealmaking that will be key to
negotiating a transaction that maximizes value for
ALL stockholders, and our board’s experience has
been invaluable in carefully evaluating the proposals received from
interested parties to date. Furthermore, unlike the destructive and
conflict-riddled special purpose acquisition company (“SPAC”)
mergers led by LifeSci in recent years that are described below,
our Board is being advised on this process by a highly qualified
team of independent financial, legal and other advisors.
LifeSci’s nominees on the other hand, with their resumes in the
ammunitions industry, lobbying and private consulting, SPACs or
solar technology – as well as various affiliations with LifeSci and
its principals – lack any relevant industry relationships,
knowledge or experience that could credibly generate any value for
stockholders or pursue anything other than advancing LifeSci’s
self-serving agenda.
Particularly given the poor quality of LifeSci’s nominees, as
well as LifeSci’s questionable motives and misleading statements in
its past dealings with the Company, we believe any changes to our
Board at this critical juncture threaten to seriously jeopardize
the progress and momentum of the ongoing strategic review
process.
LIFESCI HAS A TROUBLING HISTORY OF
STOCKHOLDER VALUE DESTRUCTION AND SELF-DEALING
LifeSci is a nebulous organization with a dismal track record in
the public biopharmaceutical space. Its motivations and actions are
highly unorthodox and laden with conflicts of interest. In contrast
to the Board’s strategic review, we can only guess how LifeSci’s
actions are intended to generate value for Diffusion’s other
stockholders, as they have yet to surface any credible proposal,
only opaque and ever-changing half-truths regarding their
intentions.
For example, LifeSci misled Diffusion’s management team
throughout the parties’ correspondence. It first indicated that it
was a LifeSci client (rather than LifeSci itself)
that was acquiring a position in our stock, then presented
Diffusion with an unsolicited, lowball acquisition offer
purportedly on behalf of a client, only to turn around and nominate
a slate of inexperienced director nominees on its own behalf while
the company is in the middle of a strategic review, a process in
which – despite its earlier requests that Diffusion consider
certain unnamed strategic alternatives with one of its clients --
LifeSci has refused to allow its purported client to participate.
In fact, the same company on behalf of which LifeSci purportedly
submitted the unsolicited offer subsequently approached Diffusion
through a different investment bank about
potentially participating in the Company’s process.
LifeSci’s public statements regarding Diffusion have been
equally confusing and misleading. For example, among other
misrepresentations in LifeSci’s recently filed preliminary proxy
statement:
- LifeSci claims that Mr. Dobkin’s outreach to Diffusion on May
26, 2022 was on behalf of, “an unaffiliated client.” However, in
Mr. Dobkin’s e-mail to management, he stated that his outreach was
on behalf of, “one of your larger shareholders.” Based on LifeSci
Master Fund’s transaction history, it appears this “client” was not
an unaffiliated entity at all, but rather LifeSci
itself.
- LifeSci claims that the intent of its outreach was to encourage
Diffusion to undertake a review of certain strategic alternatives.
However, Diffusion was already engaged in just such a process at
the time of LifeSci’s outreach, has publicly reported its
significant progress in that process over the ensuing months, and
has invited LifeSci’s clients to participate in a competitive bid
process on numerous occasions. Despite this, LifeSci declined to
participate in the process and instead made the decision to
nominate an alternate slate of directors on its own behalf without
any further rationale.
- LifeSci claims that Diffusion refused to engage with LifeSci
beginning on September 27, 2022. On the contrary, it was LifeSci
who went dark from this point on, continuing its refusal to provide
additional details regarding the types of transactions their
purported clients were proposing before submitting their client’s
unsolicited offer.
One thing is crystal clear: in the public biopharma markets,
LifeSci’s record is abysmal. LifeSci has demonstrated on multiple
occasions that it is ill-equipped to evaluate and identify
value-enhancing alternatives or oversee a successful M&A
process. Particularly demonstrative of LifeSci’s penchant for
underperforming transactions and destroying stockholder value is
their recent experience as both a sponsor and financial advisor on
a variety of SPAC merger transactions in the life sciences
sector:
- The LifeSci-affiliated vehicle, LifeSci Acquisition Corp.
(“LSAC”),1 for which David Dobkin served as CFO, merged with
Vincerx Pharma and its stock price has dropped from the merger
closing price of $19.00 on December 23, 2020 to $0.71 as of
December 2, 2022, a decline of approximately
96%.
- The LifeSci-affiliated, LifeSci Acquisition II Corp.,2 for
which David Dobkin served as CFO, merged with Science 37 and its
stock price has dropped from the merger closing price of $9.01 on
October 6, 2021 to $0.60 as of December 2, 2022, a decline
of approximately 93%.
- The LifeSci-affiliated, Petra Acquisition Corp. (“Petra”),3 an
entity with past affiliations to LifeSci Capital, David Dobkin (as
both a director of Petra and in his capacity as a managing director
of LifeSci Capital), and one of its director nominees, Jessica M.
Lockett, who served as counsel to Petra, merged with Revelation
Biosciences Inc. and its stock price has dropped from the merger
closing price of $8.32 on January 10, 2022 to $0.22 as of December
2, 2022, a decline of approximately 97%.
In the aggregate, these three LifeSci-led merger
transactions have resulted in stockholder losses exceeding
$1.3 BILLION over the last two years,
drastically underperforming the broader life sciences
market.
Despite this record of stockholder value destruction, in those
same transactions, LifeSci extracted millions of dollars for itself
through investment banking fees, advisory fees and a tangled web of
additional related party relationships by hiring one or more of
LifeSci’s countless affiliates to act in various other roles, such
as financial advisor, underwriter, and administrative services
provider. In the quintessential example of LifeSci’s
self-interested investing style, LifeSci Capital is currently suing
Revelation seeking to recover more than $5 million in investment
banking fees – an amount that would effectively drain all of
Revelation’s cash reserves – despite the fact that LifeSci itself
held approximately 7% of Revelation’s outstanding stock at the time
the suit was filed.
In all three of the transactions identified above, the merger
parties were purportedly introduced through a combination of Mr.
Paul Yook, the chief investment officer of LifeSci’s venture
capital funds, and Mr. Dobkin. In two of those transactions –
Science 37/LSAQ and Revelation/Petra – in parallel with the SPAC’s
formation and capital raising activities, Mr. Yook’s funds made
pre-merger investments in the private operating companies at
valuations significantly below the valuations assigned to the
company by LifeSci Capital, in its capacity as a financial advisor
on the transactions, and the parties thereto for purposes of the
subsequent business combination.
In certain cases, LifeSci also benefitted from sponsor
arrangements which allow SPAC sponsors to buy shares for pennies on
the dollar and, in many cases, sell those shares at temporarily
inflated valuations following a business combination
transaction.
LIFESCI PRESENTED AN UNSOLICITED OFFER
REPRESENTING APPROXIMATELY HALF OF DIFFUSION’S CASH POSITION AND
HAS REPEATEDLY REFUSED TO ENGAGE WITH OUR BOARD
If LifeSci were interested in value creation for all
stockholders, why haven’t any of their purported clients joined the
strategic review process? Why was LifeSci unwilling to sign a
customary non-disclosure agreement that more than 15 participants
in the process were willing to sign? Why did LifeSci amend its
proxy statement to disclose that Mr. Dobkin, the portfolio
manager of LifeSci Master Fund, “will be entitled
to receive certain fees and related compensation in the event that
the Company completes a transaction with any of [LifeSci] Capital’s
investment banking clients,” due to the fact that he also
serves as a managing director for LifeSci Capital?
LifeSci, rather than constructively engaging in the Company’s
robust process, has instead chosen to selectively engage with
Diffusion offering vague notions of pursuing unidentified potential
transactions with unidentified counterparties. Moreover, throughout
its interactions with Diffusion, LifeSci has obfuscated and misled
Diffusion regarding on whose behalf it was acting, repeatedly
insinuating that LifeSci was acting on behalf of
“client-stockholder” when in fact it was LifeSci itself who was
acquiring our stock.
Following a period of silence after going dark in late
September, LifeSci presented an unsolicited offer, on behalf of one
if its purported clients, to purchase all of Diffusion’s
outstanding common stock for $6.58 per share, or an aggregate
purchase price of approximately $13.4 million, effectively seeking
to use Diffusion’s own cash to buy out Diffusion’s other
stockholders.4 This offer represented an approximate 48%
discount to our cash position of $25.9 million5 as of
September 30, 2022, effectively provided no value for the Company’s
trans sodium crocetinate assets, and offered no opportunity for
Diffusion stockholders to participate in potential future upside of
the enterprise. This is disturbing if this is the new promise of
value creation that LifeSci’s nominees hold for us as stockholders
and contradictory to their own public statements regarding the
significant potential value of Diffusion’s assets.
After deliberation and in consultation with its advisors, and in
the exercise of its fiduciary duty to protect the interests of
ALL Company stockholders, our Board rejected
LifeSci’s offer as woefully inadequate. In our letter to
LifeSci rejecting the offer, the Board encouraged LifeSci to have
its client participate in Diffusion’s strategic review, but
LifeSci’s affiliates once again refused to enter into the customary
non-disclosure agreement signed by more than 15 parties. LifeSci
then went silent. This unwillingness to negotiate at all raises
further questions about the true intent behind LifeSci’s strategy.
Diffusion was particularly surprised when a different investment
bank approached Diffusion regarding having this same company join
our review process.
A few weeks later, in the middle of the strategic review process
and in another potentially destructive attempt to take advantage of
Diffusion and its stockholders, LifeSci announced on November 17,
2022, the commencement of a proxy contest on its own behalf,
nominating a slate of directors for election at our upcoming annual
meeting of stockholders.
We believe that LifeSci is engaged in another attempt to
undertake a conflicted, value-destructive transaction and
is using Diffusion’s annual meeting to cause confusion
and disrupt the positive progress made
during the strategic review process so far in hopes of achieving an
alternative, self-serving outcome.
LIFESCI’S NOMINEES LACK PUBLIC COMPANY
BOARD EXPERIENCE THAT WILL BE CRITICAL TO OVERSEEING A SUCCESSFUL
COMPLETION OF THE STRATEGIC REVIEW PROCESS
While LifeSci’s public company experience is checkered with
conflicts of interest and poor results, the public company
experience of its director nominees is virtually non-existent. Only
two of LifeSci’s nominees have any experience sitting on public
company boards, but that experience does not inspire
confidence:
- Ms. Jessica M. Lockett has served on the board of directors of
an ammunition company, Ammo, Inc, since December 2020. In August
2022, one of Ms. Lockett’s fellow directors launched a proxy
contest seeking to replace her on the board with one of his own
nominees. Her seat on the board was only assured after Ammo
subsequently entered into a settlement agreement with the other
director.
- Dr. John S. Ziegler MD’s only previous public company board
experience consists of approximately one year serving on the board
of directors of LifeSci Acquisition Corp. at a time when it was
effectively a shell company. In September 2020, he and his fellow
directors approved the value-destroying merger with Vincerx.
Furthermore, of the six LifeSci nominees, ZERO
have held an executive role at a publicly traded pharmaceutical
company and three have never worked in the
healthcare industry at all. Further, LifeSci has nominated
individuals with seemingly no connection to pharmaceutical
development, instead involved as consultants and advisors to solar,
real estate and technology industries.
Our board is committed to protecting the interests and
maximizing long-term value for ALL Diffusion
stockholders. We believe that the election of any directors from
LifeSci’s slate threatens to seriously jeopardize the progress of
our strategic review process, and therefore, we strongly
urge stockholders to vote the WHITE proxy card in favor of
Diffusion’s highly qualified and experienced nominees.
On behalf of the Board of Directors, we thank
you for your continued investment in Diffusion.
Sincerely,
Robert J. Cobuzzi, Jr., Ph.D.Jane H.
Hollingsworth
If you have any questions or need assistance in
voting your shares, please contact Innisfree M&A Incorporated,
Inc., our proxy solicitor, at (877) 456-3402.
About Diffusion Pharmaceuticals Inc.
Diffusion Pharmaceuticals Inc. is a biopharmaceutical company
developing novel therapies to enhance the body’s ability to deliver
oxygen to areas where it is needed most. Diffusion’s lead product
candidate, TSC, is being investigated to enhance the diffusion of
oxygen to tissues with low oxygen levels, also known as hypoxia, a
serious complication of many of medicine’s most intractable and
difficult-to-treat conditions, including hypoxic solid tumors like
GBM. For more information, please visit us at
www.diffusionpharma.com.
Forward-Looking StatementsThis press release
includes express and implied forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, as
amended, including: the timing and potential outcome of the
Company’s ongoing strategic alternative review process; the
potential therapeutic value of TSC in cancer and non-cancer
indications; anticipated timelines for the initiation, completion,
and announcement of data from Study 200-208; the Company’s ongoing
and planned clinical trials; the Company’s near-term strategic
priorities with respect to the development of TSC and otherwise;
and the Company’s anticipated cash runway. The Company may, in some
cases, use terms such as “believes,” “estimates,” “anticipates,”
“expects,” “plans,” “intends,” “may,” “could,” “might,” “will,”
“should,” “approximately,” or other words that convey uncertainty
of future events or outcomes to identify these forward-looking
statements. Although the Company believes that it has a reasonable
basis for each forward-looking statement contained herein,
forward-looking statements by their nature involve risks and
uncertainties, known and unknown, many of which are beyond the
Company’s control and, as a result, the Company’s actual results
could differ materially from those expressed or implied in any
forward-looking statement. Particular risks and uncertainties
include, among other things, those related to: the Company’s
ongoing strategic alternative review process; the novelty of the
Company’s Oxygenation Trials’ design and endpoints, the relevance
of trends observed in those studies to any indication, including
hypoxic solid tumors, and the therapeutic value of TSC; the optimal
doses and dosing regimens of TSC in connection with the potential
treatment of GBM; the Company’s ability to design, initiate,
enroll, execute, and complete its planned studies evaluating TSC,
including Study 200-208; the likelihood and timing of regulatory
approval of TSC, if any, for the treatment of solid tumors
complicated by hypoxia or any other indication, or the nature of
any feedback the Company may receive from the U.S. Food and Drug
Administration or other regulatory bodies; the impact of global
supply chain disruptions on the Company’s drug product
manufacturing capabilities, clinical development program, and
associated timelines; the Company’s ability to identify, evaluate
and execute potential business development transactional
opportunities, if any; the Company’s ability to protect and expand
its intellectual property portfolio; the Company’s access to
capital resources: general economic, political, business, industry,
and market conditions, including the ongoing COVID-19 pandemic,
inflationary pressures, and geopolitical conflicts; and the other
factors discussed under the heading “Risk Factors” in the Company’s
filings most recent Annual Report on Form 10-K and other filings
with the U.S. Securities and Exchange Commission. Any
forward-looking statements in this press release speak only as of
the date hereof (or such earlier date as may be identified) and,
except as required by applicable law, rule, or regulation, the
Company undertakes no obligation to update any such statements
after the date hereof.
ContactsGladstone Place PartnersFelipe Ucrós
212-230-5930Tiberend Strategic Advisors, Inc. Daniel
Kontoh-Boateng/Jonathan
Nugentdboateng@tiberend.comjnugent@tiberend.com
Important Additional Information Regarding Proxy
Solicitation
Diffusion intends to file a definitive proxy statement
and associated WHITE proxy card with the U.S. Securities and
Exchange Commission (the “SEC”) in connection with the solicitation
of proxies for the Annual Meeting (the “Proxy Statement”).
Stockholders as of the record date of November 1, 2022 are eligible
to vote at the Annual Meeting. Diffusion, its directors and certain
of its executive officers will be participants in the solicitation
of proxies from stockholders in respect of the Annual Meeting.
Information regarding the names of Diffusion’s directors and
executive officers and their respective interests in Diffusion by
security holdings or otherwise is set forth in Diffusion’s proxy
statement for the 2021 Annual Meeting of Stockholders, filed with
the SEC on April 30, 2021, and the Company’s Annual Report on Form
10-K for the year ended December 31, 2021, filed with the SEC on
March 18, 2022. To the extent holdings of such participants in
Diffusion’s securities have changed since the amounts set forth in
the 2021 proxy statement, such changes have been reflected on
Statements of Change in Ownership on Form 4 or Annual Statement of
Changes in Beneficial Ownership on Form 5 filed with the SEC.
Details concerning the nominees of Diffusion’s Board of Directors
for election at the Annual Meeting will be included in the Proxy
Statement. BEFORE MAKING ANY VOTING DECISION, INVESTORS AND
STOCKHOLDERS OF THE COMPANY ARE URGED TO READ ALL RELEVANT
DOCUMENTS FILED WITH OR FURNISHED TO THE SEC, INCLUDING THE
COMPANY’S DEFINITIVE PROXY STATEMENT AND ACCOMPANYING WHITE PROXY
CARD, AND ANY SUPPLEMENTS THERETO, WHEN THEY BECOME AVAILABLE,
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and
stockholders will be able to obtain a copy of the definitive Proxy
Statement and other relevant documents filed by Diffusion with the
SEC free of charge from the SEC’s website, www.sec.gov., or by
directing a request by mail to Diffusion Pharmaceuticals Inc.,
Attention: Corporate Secretary, at 300 East Main Street, Suite 201,
Charlottesville, Virginia 22902, via e-mail to
proxyrequests@diffusionpharma.com, or by visiting the investor
relations section of Diffusion’s website,
investors.diffusionpharma.com.
1 Now known as Vincerx Pharma, Inc. (“Vincerx”) (NASDAQ: VINC).2
Now known as Science 37 Holdings, Inc. (“Science 37”) (NASDAQ:
SNCE).3 Now known as Revelation Biosciences Inc. (“Revelation”)
(NASDAQ: REVB).4 Based on 2,039,441 shares outstanding as of
November 10, 2022.5 Includes cash equivalents and marketable
securities.
A graphic accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/34121b8e-7909-4692-8340-9cc3ca45d00e
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