Though the share price has fallen, the excitement delivered a roughly $900 million valuation to a company with a $362 million deficit and no product.
The deal trades licensing rights for MD Anderson’s non-approved cancer technology for $100 million worth of shares altogether from ZIOP and XON. ZIOP has also committed to paying $15 million to $20 million yearly to the cancer center for research and development for three years, though the press release is fuzzy. ZIOP must pay the first $3.75 million within two months.
Ominous details surround ZIOP’s dollar-and-dilution deal, as well as ZIOP itself. Here are the top five reasons why TheStreetSweeper dislikes this deal and sees loads of downside ahead:
- ZIOP doesn’t have the money to pull off this deal. So we believe ZIOP will have to sell stock, posing imminent dilution.
ZIOP has just $46 million in cash. Its own quarterly report says that’s “sufficient to fund operations into the fourth quarter of 2015.”
But that was before the new agreement. ZIOP is burning over $7 million per quarter. And it is now committed to pay about half that much again - $3.75 million to $4 million quarterly - to The University of Texas MD Anderson Cancer Center in Houston each quarter for three years.
- Shares worth $15 million offered as incentive to speed contract signing.
The day ZIOP was scheduled to present to JP Morgan, Jan. 14, turns out to be the very day ZIOP pulled this licensing announcement out of its ear. JP Morgan acted as underwriter during ZIOP’s roughly $54 million public offering in October 2013 at $3.50 per share. But that timing apparently was no mere coincidence.
The kicker: This “highly sensitive and confidential” letter to a University of Texas vice president of strategic industry ventures describes $15 million worth of incentive shares – 1.6 million ZIOP shares and 278,218 XON shares – not included in the licensing agreement, to hand to MD Anderson to speed up the expected 120-day contract approval process. That way, the chief executives of ZIOP and XON who signed the letter would be able to issue the public announcement during the JP Morgan conference. The letter stated:
“Specifically, the J.P. Morgan Healthcare Conference is being held next week in San Francisco, and on Wednesday during the Conference, the Licensee Group would like to issue a public announcement about the execution of the license agreement. Consequently, the Licensee Group would like to induce and incentivize MD Anderson to undertake any and all extraordinary efforts to expedite and/or shorten its contracting, review and approval processes and to conclude and execute the license agreement on or before 8:00 am PST, on January 14, 2015 (the “Accelerated Closing Deadline”).
- ZIOP has a history of heavy promotion, followed by disappointment.
It goes like this: shares falter so ZIOP runs out a story on a promising technology/drug/update, shares soar, shares collapse on a trial flop (its palifosfamide sarcoma study in 2013), repeat. And so it goes. But at some point, everyone quits falling for the story and waits for results, rather than facing another costly disappointment.
- The MD Anderson technology uses “Sleeping Beauty,” an older way of putting genes into cells.
The body contains T-cells within the immune system that kill a virus or infection. Now, researchers are removing T-cells and putting genes in them that then attack the tumor. But the process produces side-effects that can make the patient very sick. MD Anderson’s technology doesn’t cause a lot of side effects, but a doctor who asked to remain anonymous, said it may be because it’s less effective in killing tumor cells.
- This experimental therapy lagged behind that of bigger competitors at the get-go.
Novartis, Juno Therapeutics and Kite Pharma are all up front with their own “CAR-T” cancer immunotherapy. These massive companies are way ahead of the MD Anderson technology, a doctor who is familiar with the technology told TheStreetSweeper.
“It’s a very competitive space,” he said. “Theirs does not seem like best of breed and they’re way behind.”
Starting out behind is a big problem. It takes many years to conduct trials to even get an experimental drug or technology ready to be considered for Food and Drug Administration approval.
No way is ZIOP a nearly $1 billion company, the doctor told TheStreetSweeper. And we agree. To be worth so much, it would have to be more than a no-name company with nothing but operating losses since inception and mounting financial obligations. A $1 billion company would at least have a product and a recognizable name. But we expect reality will hit and ZIOP’s valuation will swoon back to earth very soon. We don’t expect to wait long.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in ZIOP and stand to profit on any future declines in the stock price.
Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].