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Vion Pharmaceuticals Inc.
4 Science Park
New Haven, CT 06511
203-498-4210
http://www.vionpharm.com
Chairman: William R. Miller
President and CEO: John A. Spears
Market capitalization: $30 million
Operating revenues (1997):
$5.3 million
Earnings (1997): $5.3 million loss
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Business New Haven
4/6/1998
By: BNH
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Vion is one of the many start-up biotech firms that have made Connecticut home, drawing particularly on the resources of Yale University to develop and test new and promising drugs. Small high-tech companies are inherently volatile, but even investors with strong stomachs have to be concerned about Vion's drop of almost 50 percent from its autumn peak of 6 1/8 to just over 3.
Is this dip a chance to buy on weakness or a sign of danger?
At first blush, Vion's revenue reports look strong. For example, 1997 revenues of $5.3 million were 102 times greater than 1996 revenues of only $52,000. This is of course a distorted way of looking at a small drug developer. Companies like Vion do not expect to make a profit for years or even decades. Vion's hefty jump in revenues did not come from actually selling anything, but instead primarily from licensing fees paid for the use of Vion's technology.
So although a fourth quarter windfall pushed Vion into the black to the tune of 27 cents per share for the quarter, and reduced per-share losses for the year to 62 cents from $1 in the previous year, investors should not expect regular
profits.
The keys for investors to evaluate biotech firm are first, the chances of getting a drug to such an advanced stage of testing that the firm can either market the drug itself or sell the drug to a large pharmaceutical firm and thereby reap the reward for its work. The second factor is whether the company has enough cash and support to survive years without profits until a drug finally achieves success.
On the first question, Vion has a surprisingly wide portfolio of products for such a small firm - two dozen scientists on staff. Its most advanced drug is Promycin, a cancer treatment currently in clinical trials. Vion already has a development deal for Promycin with the German firm Boehringer Ingelheim.
Another potential cancer treatment, Triapine, is in an earlier stage of trials.
Three other major research projects may eventually bear fruit. TAPET uses genetically-engineered bacteria to deliver drugs directly to tumor sites, while a series of alkalyting agent prodrugs aim at making chemotherapy more effective by reducing side effects. Vion is also developing a series of antiviral nucleoside analogs to treat hepatitis B and HIV.
Investors' real worries come with the second question: Does Vion have enough resources to survive? A yearly loss of $5.3 million is worrisome when revenues are limited, research and development expenses are growing, and reserves of cash and securities total only $11 million.
On the bright side, those reserves grew by over $2 million from 1996, while liabilities remain low. Further, Vion's links with Boehringer Ingelheim and Yale bode well for its future.
The conclusion for investors is that small biotech companies bear watching. If cash runs low, or the pace of drugs to final approval slows, it's time to exit.
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