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Avalon Portfolio wrote a letter to the board Tuesday saying while the firm is a longtime believer and investor in TomoTherapy, "several strategic missteps by management" since the May 2007 initial public stock offering have "ill-served a superior product offering and squandered a once enviable market position, to the significant detriment of shareholders."
Avalon, which owns 4 percent of TomoTherapy's shares, says it has tried numerous times to talk to the board and to chief executive Fred Robertson about the possibility of selling the company, or engaging in a joint venture or licensing deal, but has been repeatedly rebuffed.
"Instead of engaging in a meaningful dialogue with us, the board has instead recently increased executive compensation and restricted shareholder rights," the letter said.
TomoTherapy issued a statement in response, saying the company appreciates "constructive input" from shareholders and takes Avalon's views seriously. "The board continues to be actively engaged with management on a strategic plan to address business challenges and opportunities to maximize the potential of our technology and products," the response says.
TomoTherapy also disputes some of Avalon's claims, saying the investment group was offered a chance to meet with several independent directors but turned that down. The company also says the board recently approved a shareholder-friendly declassification of the board.
In its latest quarterly report, TomoTherapy reported a net loss of $13 million, or 26 cents a share, on $27.4 million in revenue for the third quarter, a sharp drop from net income of $2.6 million, or 5 cents a share, on $59.2 million in revenue for the same quarter last year.
Shares of TomoTherapy, a Madison company that makes specialized cancer radiation treatment machines, have fallen from a high of more than $27 in July 2007. On Tuesday, the stock closed at $2.48, down 8 cents, after trading as high as $2.75.
With employment at 721 as of Sept. 30, up from 618 a year ago, TomoTherapy should not be beefing up sales and service staff at this time of tight credit and declining market demand, Avalon said.
"We do agree that significantly better treatment plans and clinical outcomes are available with TomoTherapy products and technology. However, it is one matter to be proud of the technological superiority of your product, and an entirely different matter to allow that pride to guide the management at the expense of shareholder value," the letter said. "Rather than living in the glory days of the past, management and the board must wake up to the harsh reality of the current situation."
Avalon Capital Group, which manages Avalon Portfolio, is based in La Jolla, Calif., and is the private investment company of Ted Waitt, co-founder of Gateway.
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