Getting To The Detail At Kadmon Holdings Inc (NYSE:KDMN)

Since its IPO last year, Kadmon Holdings Inc (NYSE:KDMN) has lost close to 75% of its market capitalization. The latest news is that the company is the subject of a couple of investigations (shareholder rights, LLP-type investigations; not an SEC investigation) and the reporting of this development has knocked close to another 10% off of the company's valuation.The circumstances that underpin this situation are, at a glance, pretty opaque. With this in mind, here's an attempt to add some clarity to the situation.It's all rooted in a drug called Syprine, which is an approved treatment for a condition called Wilson's disease. Patients with Wilson's develop a toxic accumulation of copper in the liver and the condition can lead to death.Between 2010 and 2015, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) increased the price of Syprine from $652 to $21,266 for 100 capsules. The drug was at the center of the company's price hike associated collapse. So what does this have to do with Kadmon? Well, in 2016, Kadmon revealed it was developing a generic version of the drug. In March this year, the company announced the submission of a second ANDA to the FDA for the asset in the above discussed Wilson's. That's good news, right? Sure, but when you dig a little deeper, it's not that simple.Kadmon's Chairman, a guy called Sam Waksal, went to prison for selling shares in a company he headed up back at the end of the last decade. He sold his shares just before the FDA said it wouldn’t approve said company's lead asset. He did his time, came out of prison and started Kadmon. One of the first things Kadmon did was acquire a company called Three Rivers, which shortly before the acquisition had bought a drug called Infergen from Valeant for $6.9 million.When Waksal bought Three Rivers his company acquired the debt owed to Valeant.The two companies (Valeant and Kadmon) subsequently struck a deal that would see them cooperate on the promotion of, you guessed it, Syprine. Basically, Kadmon would get 10% of the net from sales of the drug and would be (as we know now) responsible for pretty much the entire marketing efforts. Across the period subsequent to this agreement, Valeant increased the drug's price as outlined above.So that's the root of the investigation – the suggestion that Kadmon stood to benefit from Valeant raising the price of Syprine, and while the company seemed to be the do-gooder in bringing a generic to market, it's actually not that great.That markets are a little spooked, then, seems reasonable. Reasonable, but in this author's opinion, not justified. Valeant was responsible for the price hikes – something over which Kadmon had no control. There doesn’t look to be any antitrust violation if we assume that the deal was only really put in place to help Kadmon pay the debt it acquired in its acquisition of Three Rivers – something that both companies state is true.Some will argue that the deal looks like an effort by Valeant to stop Kadmon bringing a generic to market, but there was no non-compete in the co-promotion agreement and the contract was terminated (at which point the debt was written off) before there were any generic assets in the pipeline.Additionally, Kadmon, or so it now seems, didn’t ever actually get any money from Valeant. This isn’t going to play into the outcome of any investigations (it's not about whether the thing is profitable as an outcome) but if this was the case from the outset, why would Kadmon wait so long before getting its competitive asset in play?There are two sides to this argument, of course, and we can only base our thesis on the information available. As things stand, however, and despite the sentiment dampening brought about by the latest announcements, this company remains a biotech with household name institutional backers, numerous 2017 catalysts and the only Wilson's generic application with the FDA right now.We will be updating our subscribers as soon as we know more. For the latest updates on KDMN, sign up below!Disclosure: We have no position in any of the securities mentioned and have not been compensated for this article.