VitalMedix Inc., a promising drug company spun out of the University of Minnesota, has shut down and will liquidate its remaining assets, according to sources and documents filed with U.S. District Court in Minneapolis.
The company filed for Chapter 7 bankruptcy Monday because it could not attract enough investors, said CEO Bill Brown, blaming a weak economy that has scared off venture capital firms across the country.
“Early stage capital appears to have been abandoned by the capital markets,” Brown said. “I consider this to be a business failure, not a technology failure. VitalMedix had to spend so much time trying to raise money that the technology was not getting developed.”
The company, which transferred its intellectual property back to the university prior to filing Chapter 7, listed $51,024 in assets and $916,865 in debts, documents show.
Spun out of the university in 2008, VitalMedix was a potent example of promising medical start-ups fleeing Minnesota because it could not find investors willing to fund risky technology, especially outside medical devices. The company was developing a hemorrhagic shock drug called Tamiasyn that could keep patients temporarily alive even if they suffered catastrophic blood loss such as soldiers wounded in a bomb attack or a motorist involved in a major car accident.
Unable to raise enough money in Minnesota, VitalMedix moved across the river to Hudson, Wisconsin where it hoped to find angels willing to exploit the state’s generous tax credits for early stage investors. The start-up also hired Brown and John McDonald, two former top executives at MGI Pharma, to find capital.
The company soon became a rallying cry for supporters of a long elusive Minnesota angel credit that could make the state more competitive with Wisconsin and other 26 other states with similar incentives. A bill establishing a three year, $40 million credit is advancing through the Minnesota legislature and will likely pass this year.
Wisconsin’s tax credits helped VitalMedix raise $800,000 in angel money on top of the $600,000 in bridge loans the company secured in Minnesota, Brown said. But it was not nearly enough. Brown estimated the company ultimately needed $15 million to advance the technology to a point where it could be sold to a large pharmaceutical manufacturer, including $6 million just to move the drug from animal studies to a Phase I human clinical trial.
In many ways, VitalMedix embodies the unique difficulties for inventors of a novel drug therapy to convert their ideas into real markets. Getting federal approval for drugs is even tougher than medical devices, though investors say it’s increasingly difficult to earn a return on either product. Early stage drug firms often die because they can’t afford to develop the technology to a stage where a larger venture capital firm or a pharma company would be willing to assume the remaining risk.
The university will continue to develop Tamiaysn with the help of federal research money, said Doug Johnson, head of the university’s Venture Center who also sits on VitalMedix’s board of directors. The school owned about a 20 percent stake in the company.
The likely scenario is to eventually license the drug to an outside pharma company, he said. The real question, though, is how long that will take. And of course, how much money that will cost.