Complete 2012 forensic audit documents - Kansas Bioscience ...

On July 16, 2010, members of KBA’s management team met to discuss Abaxis’ interest in
OmniVet. On September 10, 2010, Mr. Frumkin contacted Terry Osborn and Tony Simpson to
schedule a meeting with “Mike from Abaxis” to ensure there is understanding on how the
currently proposed structure of the initiative relates to a potential relationship with KBA. On
November 16, 2010, Mr. Frumkin asked to see the Letter of Support that had been discussed the
previous week, and asked questions regarding how to fill out the application. On November 16,
2010, KBA’s management (Thornton, Katterhenry and Vranicar) approved a Letter of Support in
the amount of $650,000. The Letter of Support was transmitted to Messrs. Patterson and
Frumkin on December 1, 2010 via email and was addressed to Patterson, Frumkin and Mike
Solomon at Abaxis. Please refer to Exhibit 33 for a copy of the Letter of Support.
The $650,000 grant from KBA was sought by principals of AVRL prior to Abaxis’ signing of
the agreements that created the strategic alliance with KSU and that resulted in the
announcement that AVRL would locate in Kansas and was based on an established business
relationship going back to June 2009. Therefore, the allegation that KBA offered funding for a
“done deal” in order to claim the Outcomes is false. However, Abaxis’ strong December 31,
2010 third quarter financial statements, 58 as well as the long-standing strategic alliance between
the veterinary lab operations Abaxis purchased and KSU and its affiliates, imply that KBA’s
funds were not necessarily a decision factor, but rather a consideration in the decision to locate
AVRL in Kansas.
KBA’s Response:
“OmniVet” was Patterson’s and Frumkin’s name for the business concept that ultimately became
AVRL when Abaxis invested in it. Thus, the KBA’s relationship with AVRL dates to a first
meeting in June 2009, more than 18 months before the decision to locate AVRL in Kansas. That
Abaxis has a strong balance sheet and positive cash flow ought not to make it ineligible for KBA
incentives. Indeed, part of KBA’s mission is to attract established, solid companies to Kansas.
In this case, KBA was an integral part of the Kansas team that did just that.
CyDex Pharmaceuticals
On May 19, 2009, KBA approved a $195,000 grant, payable over one year, to CyDex. CyDex is
a specialty pharmaceutical company based in Lenexa, Kansas. On January 26, 2011, CyDex was
acquired by San Diego-based Ligand Pharmaceuticals. CyDex currently operates as a whollyowned
subsidiary of Ligand.
Allegations have been made that Ligand’s goal is to reduce CyDex’s operations and move it to
California per their business model. The implied assumption is that the state of Kansas will,
therefore, not realize the benefit of KBA’s investment.
In conjunction with the purchase of CyDex by Ligand, KBA waived its right under the grant
agreement to require the repayment of its funds due to the change in control of more than 50% of
the ownership of CyDex on the effective date of the Grant. However, KBA reaffirmed its right
under the grant agreement to require the repayment of its funds if CyDex’s operations leave the
state of Kansas.
58 For the third quarter of 2010, Abaxis reported revenue and net income for the nine-month period of $106.1 million
and $11.2 million, respectively. Furthermore, Abaxis reported cash, cash equivalents and investments of $104.6
million as of December 31, 2010.
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