Feuerstein's Biotech-Stock Mailbag

This week's Biotech Mailbag is dedicated to former InterMune(ITMN Quote) CEO Scott Harkonen, indicted this week by the Feds for alleged wire fraud and the off-label promotion of the drug Actimmune as a treatment for idiopathic pulmonary fibrosis.

Harkonen faces 20 years in the slammer if convicted of the charges.

I go way back with Harkonen and Intermune and its controversial ways with Actimmune. Some of the best stuff is here and here. More juicy stuff can be found here

Good luck, Scott Harkonen. All I can say is karma is a female dog, if you get my drift.

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Moving on. I often get into extended squabbles with readers over certain biotech stocks. I write something that angers someone, emails are sent back and forth, heated words are sometimes used... You get the picture.

Well, Brian and I were in that mode over Vion Pharmaceuticals(VION Quote). He liked the stock; I didn't, and said as much in this column last October. We went back and forth for a while, but I hadn't given Vion any thought lately until receiving another email from Brian.

"You were right about this company," he wrote. "What a disaster... Drug has promise but management has killed this stock. Stock has dropped almost 80% since you wrote about it in the fall but yet the few news items that have come out since then were all positive. Do you think shareholders have any recourse against management? They have failed miserably, taken all the wrong decisions."

First off, I feel Brian's pain and I respect him a lot for coming back to me with a conciliatory email after some of the harsh words we traded. So, Brian, thanks.

Vion's lead drug, cloretazine, is being developed for some blood cancers. The lead indication seeks to treat elderly, high-risk patients with acute myelogenous leukemia, or AML. Vion intends to seek FDA approval for cloretazine later this year.

The problem is that AML is a niche cancer market with a lot of competition. And the data on cloretazine isn't so hot. A pivotal study presented in December looked OK on efficacy, but the side effect and toxicity profile was troublesome.

Let's not forget, the FDA put a hold on a different cloretazine clinical trial because of high on-study mortality. Regulators have since allowed that study to continue, but that doesn't necessarily erase the safety concerns.

Apart from the drug itself, Vion is a mess financially, as Brian points out. Management has loaded up on convertible debt, so the company's net cash position is small. The stock was at 70 cents when I wrote about it last October, then fell to around 40 cents. But the company executed on a 1-for-10 reverse stock split, which is why shares are now trading around $1.80.

Unfortunately for Brian, I don't think there's much recourse for investors here, other than to stay away. This is another example of an iffy drug (at best) being managed poorly by executives with no clue. The best thing to do is learn from it, and try to avoid making similar mistakes in the future.