A federal Bankruptcy Court judge approved yesterday the potential sale of Hawaii Biotech Inc. and set a July 19 auction date for the financially troubled company that is conducting clinical trials to produce vaccines for dengue fever and the West Nile virus.

"We have already reached out and have a number of potential investors who can keep the company moving forward," said Elliot Parks, Hawaii Biotech chief executive officer.

Auctioning the company through an asset sale provision under Chapter 11 of the Bankruptcy Code will allow Hawaii Biotech to bring in new capital and keep the company operating as a going concern before it exhausts its funding as expected by the end of July, Parks said.

Hawaii Biotech filed for Chapter 11 bankruptcy protection in December and is currently funding its operations with a $2 million line of credit. At the current rate of spending, the credit line is expected to run out by July 31, Parks said.

Interested bidders must submit their qualifications by July 12.

Parks said he expects the company will fetch more than the $2 million credit line it has from lenders.

Bankruptcy Judge Robert Faris said several conditions must be met before Hawaii Biotech can be sold, including having the company pay $187,000 in back rent and fees it owes its landlord since the end of April.

Faris also said he wants Hawaii Biotech to be open and transparent about the process of vetting potential bidders for the company.

"I’m actually more concerned about the unqualified bidders," Faris said.

"If a bidder is disqualified, I want full disclosure of who and why."

Hawaii Biotech filed bankruptcy on Dec. 11 amid expectations that its biggest shareholder would make a power grab for the company at its annual meeting the following week.

At the time of its bankruptcy filing, Hawaii Biotech listed between $1 million and $10 million in assets and liabilities, with more than 200 creditors.

Bill Spencer, president of the Hawaii Venture Capital Association, said determining the value of a company like Hawaii Biotech is a difficult exercise.

"There are a number of different approaches to valuations. It’s one of the most complicated things in venture capital investing," he said.

"You can look at projections of cash flows or values created by achieving milestones, like making it through clinical trials. It’s very difficult."