The founders of a pharmaceutical company that’s been based in Greenwood for 16 years plan to relinquish ownership in order to get enough cash to save the business from collapse.
A group of private investors who have bankrolled other pharmaceutical companies has reached a tentative agreement to buy all the stock in Elona Biotechnologies, a firm that’s developed generic versions of insulin and other protein-based drugs it hopes to sell worldwide, said attorney Sam Hodson, who’s been representing the city in the negotiations.
The firm will get enough funding to stay open and complete clinical trials that are needed for U.S. Food and Drug Administration approval of its low-cost insulin.
The deal is tentative and won’t be finalized for at least a week, Hodson said. The new owners don’t think Elona should manufacture its generic insulin in a 50,000-square-foot facility the company built with property tax dollars, so Greenwood won’t get the 70 jobs that Elona originally promised.
The investment group, which the city is not yet naming, wants the insulin manufacturing done at a larger facility because they don’t think Elona’s new building would be big enough to mass-produce a drug that would be sold worldwide.
Elona will keep 11 jobs in the city, mostly management and research and development, Hodson said. The company will have to pay Greenwood back an additional $2 million because it no longer will bring manufacturing jobs to the city, he said
Investors have agreed to repay Greenwood the added money with a lump sum payment that will come due in five years, as part of a proposed agreement that includes more time to start repaying the debt, Hodson said.
Elona also has pledged additional patents on generic drugs and all future patents the company develops to Greenwood as added security for its $8.4 million in incentives. Greenwood could take and sell off those patents to try to recoup the incentive money if the company went into default again, such as if it failed to get FDA approval or couldn’t repay the loans.
“The deal greatly enhances our security interests,” Hodson said.
The city will give Elona and its new owners an additional year to start paying back the incentives, so it has more time to get FDA approval needed to sell a generic insulin in the United States. Elona won’t have to start making payments until 2015 under the new deal.
Investors are doing due diligence by checking out Elona’s patents and financial records, Hodson said. The city will expect to see cash upfront as proof that the investors can provide what they say they can, he said.
The Greenwood Redevelopment Commission unanimously approved allowing president Mike Tapp to agree to a restructured deal with Elona. That would mean a deal could be approved by Tapp, and without a vote of the full board. The board recently found the company in default on $8.4 million in incentives after company officials came to the city and said they were running out of money and struggling to find investors.
Greenwood’s original agreement required that the company remain financially viable. City officials decided the company was in default because it was in such bad financial shape that it couldn’t meet its payroll.
In 2010, the city gave the company a $6.4 million loan to build a new production facility in the Precedent South Business Center on the city’s east side, $1.5 million to pursue FDA approval and $500,000 for new equipment. Elona, founded by two former Eli Lilly and Co. scientists, promised to hire 70 employees at an average salary of $55,000 in order to make a generic insulin it would sell worldwide in Greenwood.
But the company has struggled financially recently, has been unable to pay its rent for office space in the Sierra Business Center since the summer and hasn’t paid its employees since the fall, said attorney Wendy Brewer, who represented the city in the negotiations.
Elona’s new owners are investors who have helped fund other biotechnology companies, Hodson said.
City officials aren’t disclosing who they are or how much they’re investing.
Hodson said they would invest several million dollars, enough to settle $1.5 million in debt the company has racked up and another $2 million it will now owe to the city. The investors also have committed enough funds to pay for the clinical trials that will be needed to get the approval to sell the generic insulin in the United States, he said.
They’ll take over full ownership of the company but let company founders Ron and Donna Zimmerman remain with the firm, Hodson said. He didn’t know what roles they would play or if they would continue to manage the company.
The proposed deal
Elona Biotechnologies has faced financial difficulties, and a new investor says it can’t fulfill its original promises. Here’s a look at a tentative deal being considered:
Investment: A private investment group would contribute millions of dollars, enough to pay off Elona’s debt and cover the cost of clinical trials and other operating expenses it would have while pursuing U.S. Food and Drug Administration approval for a generic insulin.
Ownership: The investors would get 100 percent of the shares in the company, but founders Ron and Donna Zimmerman would remain working for the company.
Jobs: Elona no longer would bring 70 jobs to Greenwood and would not manufacture the generic insulin in the city because the investor says a larger facility would be needed.
Plant: The new 50,000-square-foot facility built in Greenwood would be used for research and development, instead of production of the new insulin.
Incentives: Elona will get another year before making payments on the $8.4 million in incentives, which include a $6.4 million construction loan, $1.5 million for costs related to FDA approval and a $500,000 loan for equipment. The company won’t have to start repaying the construction loan until 2015, and the investors will repay the $1.5 million and $500,000 incentives with a lump sum payment in five years.
Added security: Greenwood will get extra collateral on the $8.4 million in incentives. Elona is pledging more patents for generic drugs and all future patents the company gets. Greenwood could sell the patents off if the company went into default again, such as if it were unable to repay its debt.