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Business

KTEC invested in company that reports it is struggling financially

April 22, 2009, 11:47 a.m. Updated April 22, 2009, 1:10 p.m.

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A state economic development agency has invested nearly a quarter of a million dollars in a company that according to the firm’s annual report is struggling and may seek bankruptcy.

Urigen Pharmaceuticals Inc. states that it had a deficit of $9.64 million, including a net loss of $4.84 million in that fiscal year, according to the October 2008 filing with the Securities and Exchange Commission.

The report states that the company will need additional financial resources to complete its development plan.

“If we are unable to obtain the required additional financial resources to enable us to fund current development projects or completion of the strategic opportunities that may be available to us, or if we are otherwise unsuccessful in completing any strategic alternative, our business, results of operation and financial condition would be materially adversely affected and we may be required to seek bankruptcy protection,” according to the statement.

The Kansas Technology Enterprise Corp., called KTEC, has invested $240,444 in Urigen, according to KTEC’s annual report. Urigen plans to make products to treat urological problems.

KTEC officials say it is not unusual to invest in a company such as Urigen. They say it is part of what KTEC was set up to do — investing in early-stage technology companies.

In a statement from KTEC, the agency said it assessed Urigen, like all its investment opportunities, through a due diligence process.

“It was deemed that the upside potential was worth the risk with this now, publicly traded company. Investments in early-stage companies take time to come to fruition and are approved by the KTEC Investment committee, in addition to the KTEC board of directors.

“All equity markets are being challenged in this recession; however there are many national thought leaders, who believe these types of companies will lead us out of the economic downturn,” the KTEC statement said.

KTEC’s president and chief executive officer Tracy Taylor also serves as chairman of Urigen’s board of directors. KTEC leaders say that is not unusual and helps protect the investment.

“KTEC has observer and or voting rights on multiple boards of directors for the KTEC portfolio. For the last four years, KTEC requires a minimum of observer rights prior to making an investment," according to KTEC. " “This access to boards allows KTEC to directly assist companies and protect Kansas’ investment. KTEC staff regularly updates the KTEC board of directors on our role with these boards.”

Taylor, according to Urigen financial statements, was compensated $37,500 for his board work, but Taylor and Urigen officials have denied that was the case.

Urigen officials said for accounting purposes the company’s SEC filing included how much compensation was accrued, but that Taylor had made it clear he did not want to be paid. Urigen has conducted trials for drugs in Kansas.

KTEC is in the middle of fierce battle to stay alive. Gov. Kathleen Sebelius vetoed its $12 million state appropriation. She says the agency’s functions could be brought under the Kansas Department of Commerce. But legislative leaders have said they will put KTEC’s funding back in the final budget bill that will be hashed out when lawmakers return for the wrap-up session April 29.

Comments

Branden Bell 5 years, 11 months ago

I like how this article turns into a trivia contest in paragraph 11. I don't know, who /did/ say it?

KU_cynic 5 years, 11 months ago

In response to an earlier story about Taylor's directorship, I drew attention to the financial condition of Urigen. Either independently or as a result the LJW has picked up on that.

Let me add a couple things:

  1. In my original posting, I was merely drawing attention to the fact that providing an unsecured loan to a developmental biotech company was a bit unusual. Most funding for such firms -- except for equipment leasing or equipment purchases secured by collateral assets -- is via equity, not debt, precisely because of the speculative nature of the firm's operations and prospects.

  2. The language used by Urigen in its financial statements is quite typical for a developmental biotech firm. Naturally, when institutional investors such as venture capital funds and specialty biotech funds invest in a portfolio of biotech firms they expect that a good number of them might not make it. Instead, it is hoped that some portion of the firms in the portfolio will reach critical milestones such as successful clinical trials, licensing and other forms of contracting with Big Pharma, and perhaps even merger bids from Big Pharma. In that sense, Urigen is not atypical.

What "smells" in this case is the conflict of interest between Taylor as president of KTEC and Taylor as a director of Urigen. Is his duty to the Urigen shareholders, or to KTEC's investment? Does it matter? A legal opinion on this matter should be on file both at Urigen and at KTEC. An explanation should not be have to be fabricated on an ad hoc basis now.

KUchick 5 years, 11 months ago

KTEC did make an investment in Urigen, and the reporter should have been diligent enough to figure that out for the article yesterday. (I guess he was trying to make it a two-parter?) That's how they got their seat on the Urigen board, as this article states. That is not unusual in the least in the world of early-stage investments. People, whether individuals or entities, want to keep an eye on their investment in a company like Urigen.

The "revelation" in this article that KTEC invested in this company is the only non-shocking, above-board aspect of this debacle. While a Kansas company, they received a legitimate investment from KTEC. Where's the story there? What is off here is the unsecured loan. That is not what KTEC is set up or authorized to do with state funds.

The point of this article seems to be that KTEC invested in a company that is now floundering. Welcome to the world of investing! Sometimes you make the wrong choice, whether it is with your own personal investments or in this case, with state dollars. Other times you pick a winner. That's how it goes.

kugrad 5 years, 11 months ago

“All equity markets are being challenged in this recession; however there are many national thought leaders, who believe these types of companies will lead us out of the economic downturn,” the KTEC statement said.

  • Classic BS. Many "national thought leaders?"
    As kids like to say, 'what the?'

Lee Eldridge 5 years, 11 months ago

Wait, I thought green energy was going to lead us out of this recession. Or was it building highways. I forget.

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