On Friday, Avigen Inc. (AVGN) announced that it will be purchased by MediciNova, Inc. (MNOV) for $1.24 per share in either cash or secured convertible notes. The deal has been valued at about $37 million.

Approximately $1.19 of the consideration is scheduled be paid to Avigen shareholders upon the closing of the deal. The remaining 5 cents will be paid on June 30, 2010, subject to certain adjustments. Additionally, they will be entitled to a contingent payment right which will enable them to receive certain other payments. The deal is expected to close in the fourth quarter of this year, subject to shareholders' approval.

Avigen has been on the lookout for a buyer ever since its lead candidate AV650 -- for the treatment of spasticity associated with multiple sclerosis (MS) -- failed in a mid-stage trial last October.

The merger will permit the companies to combine their neurological development programs based on anti-inflammatory drug ibudilast. This will expand the development potential for the compound significantly. If developed successfully, patients will be provided with a treatment option for a wide range of neurological indications.

As a reminder, both Avigen and MediciNova are developing ibudilast, albeit for different indications. Avigen is aiming to place the candidate as a treatment alternative for chronic nerve pain, addiction to opioids and methamphetamine, and opioid withdrawal. However, MediciNova is testing it for MS treatment.

MediciNova, which boasts of a diversified pipeline, is currently developing eight compounds for ten different indications, including MS candidate MN-166. The market for MS has a huge unmet need, as only about 36% of MS patients are currently treated with MS drugs. This percentage is expected to increase to 56% by 2014 as new oral MS therapies are launched.