I know, I know they had a lot of debt, but still I think there were other options to filing for Bankruptcy. So what were they? Well first, its important to note that Vion’s situation was at best really really terrible, but still most pharma companies can get financing when they need it. So let’s take a quick look at what exactly Vion had to offer possible bailout investors.
Onrigin for AML
Seriously, this was actually a very viable product in terms of pipeline drugs. Onrigin in case your not familiar is one of the drugs that I profiled in my race to get a new AML drug approved. The company previously tried to get the drug through the FDA process with an undrandomized Phase II trial for AML, but was told by the FDA to run another clinical trial. The thing is, filing for bankruptcy will no doubt slow down the process towards conducting a Phase III trial, which Vion has submitted an application for a Special Protocol Assessment (SPA) with the FDA for the Phase III trial. That trial should qualm the fears of the FDA and if the drug performs well in it, then it may get approved. The problem the company faced in the Phase II trial was that Vion started giving patients other chemotherapy drugs which made it hard for the FDA to tell if the drug was actually working. The Overall Response Rate was pretty good at 32%, but the mortality data was not so great. In a nutshell, Origin had a problem with patients passing away early in the treatment process. In fact, fourteen percent of the patient population treated with Onrigin died about a month into treatment. This however, is normal in AML patients, but the FDA still needed to err on the side of caution here.
Was the Bankruptcy Necessary?
In all honesty, I don’t think it was. Here’s the deal, the company had a pathetic balance sheet, I’ll agree with everyone on that. With $65 million in debt and only $19.2 million in total assets the balance sheet needed to be fixed. But here’s the thing, the assets are extremely undervalued given the way GAAP accounting works. You see, with developmental pharma companies you don’t have a lot of leeway to value their developmental pipeline on its balance sheet even though that is where they derive their entire market capitalization from. And it’s my opinion that Vion is selling itself short. Granted the company only has 19 million in cash, but the potential for Onrigin if it passes Phase III trials is huge, so I am a little miffed at how the company cannot find another potential investor to help ease its debt burden for a piece of the larger pie. In pharma investing, companies can usually refinance their debt burdens by finding an investor willing to take on more risk than the previous financer was and in many scenarios pharma companies will simply offer a larger piece of the potential pie to the next investor so they can satisfy the previous one. I have seen company after company do this (Genta comes to mind), with products that are a lot less viable than Onrigin. If you look at it this way, basically Vion needed to come up with $65 million to satisfy its debt covenants in the long run and the average going price of a developmental drug like Onrigin would be at the very least $100-150 million (think how much CTIC paid for Pixantrone 10 years ago, the price was $150 million). So in a sense you could give the next guy a 50% cut of the selling price on Onrigin after it finishes Phase III trials for $65 million up front. But Vion couldn’t make that happen, heck the company could have arranged this by issuing death spiral bonds (granted this would have put added pressure on the share price, but look what happened now) which would have protected potential bailout investors in the company.
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