The Proxy Battle Between Broadfin Capital and Cardica (CRDC) Is Heating Up Just As New CEO Is Unveiled

The battle between Broadfin Capital and the Board of Cardica, Inc. (NASDAQ:CRDC) is heating up. As promised in a recent letter, Broadfin Capital and manager Kevin Kotler have stepped up their activist efforts and have issued a proxy statement, seeking shareholder support at the company’s next annual meeting. According to a recent filing with the Securities and Exchange Commission, Broadfin and Kotler are seeking an overhaul of the company’s Board, having put together a list of eight nominees. In 2014, Cardica shareholders elected three members nominated by Broadfin and now Kotler is looking to have them re-elected and replace the remaining five directors. Together, Broadfin Capital holds 8.97 million shares of Cardica, or 10.1% of its common stock, which makes it the largest shareholder.

Broadfin Capital has celebrated its 10th anniversary this year, having grown into a fund with a public equity portfolio valued at more than $1.8 billion at the end of the second quarter. Kevin Kotler is mainly interested in bio-technology companies, having invested 81% of said funds in the healthcare sector, while also holding some finance stocks, which account for 12% of his public portfolio. At the end of the second quarter, his largest equity position was in Horizon Pharma PLC (NASDAQ:HZNP), despite having made a 32% reduction in it, to 4.81 million shares. Kotler also dumped 27% of his holding of Retrophin Inc (NASDAQ:RTRX), leaving Broadfin with 2.16 million shares, but increased his bet on Flamel Technologies S.A. (ADR) (NASDAQ:FLML) by 6% to amass 4.97 million shares.

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Broadfin and Kotler are accusing the five board members they seek to offload of incompetency and of intentionally marginalizing the three members that were nominated in 2014: Gregory D. Casciaro, R. Michael Kleine and Samuel E. Navarro. Furthermore, Broadfin criticized the board’s attitude towards shareholders, their poor use of cash, and missed expectations in a presentation alongside its latest filing. As a result, Broadfin has now compiled a list of eight director nominees, including Kotler, to be elected at the company’s next annual shareholder meeting. The fund is also pushing for a revision of the executive compensation schemes, as well as the election of a new audit company, BDO USA, LLP, for Cardica, Inc. (NASDAQ:CRDC)’s fiscal year ending June 30, 2016.

Cardica today announced the appointment of Julian Nikolchev as CEO, President and member of the Board of Directors, effective October 15. Nikolchev is replacing Bernard A. Hausen, M.D., Ph.D., and co-founder of Cardica, who stepped down in August. In connection to this appointment, the company has also pushed back the annual shareholder meeting, with it now set to take place on January 29, 2016. According to Gary Petersmeyer, Cardica’s Chairman of the Board, Nikolchev is being allowed time to settle in and assess the company’s budget and operation plan. The board is also using this opportunity to “finalize its proposed slate of directors to represent the interests of all of the stockholders of Cardica,” a clear sign it intends to take Broadfin head-on in this proxy battle.

Hedge fund sentiment towards Cardica, Inc. (NASDAQ:CRDC) slumped during the second quarter, with the number of funds holding long positions at the end of June having decreased to six from seven during the second quarter. Their combined holdings account for 29.4% of the company’s common stock and carried a value in excess of $15 million, down by 20% during the quarter. Phil Frohlich as well as Stephen Dubois are also betting big on Cardica, holding 3.26 million shares and 8.37 million shares respectively, having made no changes to their positions during the April-to-June period. Hal Mintz, the manager of Sabby Capital, increased his bet by 8%, accumulating 4.13 million shares according to the fund’s latest 13F filing.

Cardica’s stock has been battered so far this year, having lost 66% of its value and currently trades at $0.23 per share. For the second quarter of 2015, the company reported revenues of $700,000, down by 31% year-over-year, and a loss per share of $0.40 compared to the loss of $0.08 per share reported for the second quarter of 2014. Wall Street does not expect radical changes in the near future, estimating revenues of $700,000 and a loss of $0.05 per share for the third quarter. Cardica is set to release its next quarterly financial report on November 2.

Disclosure: None