Subject: Du Pont's Big Drive To Enter Drug Field Proves Disappointing Date: Published: 1/16/89 (325 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. Medical Problems: Du Pont's Big Drive To Enter Drug Field Proves Disappointing --- Moreover, a Partner in Effort To Develop an AIDS Cure Is Ensnared in Messy Fight --- A Few Modest Success Stories ---- By Laurie Hays Staff Reporter of The Wall Street Journal For about two years, Du Pont Co. poured enormous effort into developing Ampligen, an experimental AIDS drug that it hoped would become a major beachhead in a planned broad invasion of the drug business. More than 150 researchers and engineers were assigned to work on it. And, gambling that government approval would come quickly, Du Pont was already planning factories for production. But a second clinical trial failed to prove the drug's effectiveness, and last year a chagrined Du Pont pulled the plug on the project. Moreover, the company's partner in the venture, HEM Research Inc., has subsequently become embroiled in scandal. HEM fired its chief executive last fall and, in response to his lawsuit over his dismissal, accused him of mismanaging the clinical trials by failing to complete preliminary studies. Also, according to HEM's counterclaim, the executive extorted $1 million from an AIDS victim desperately seeking to be included in the project. Although no criminal charges have been filed, a congressional subcommittee is looking into the allegations. The Food and Drug Administration says such allegations, if true, would indicate violations of its regulations governing clinical trials. Du Pont declines) to comment on the charges. Edgar S. Woolard Jr., who will take over as Du Pont's chief executive in April, calls the Ampligen experience "a very major detour." Indeed, the episode is the latest in a series of disappointments that have kept Du Pont from realizing its dream of building a multibillion-dollar drug business practically from scratch. Few companies could muster the huge amounts of money and talent that Du Pont has devoted to its eight-year effort, let alone afford to gamble it all on an unknown payoff. The chemicals giant lured highly prized managers from other companies, recruited more than 1,000 scientists and spent more than $1 billion primarily to hunt for cures for many major diseases. But so far, the payoffs have been slight. Despite sales of $977 million in the first nine months of 1988, Du Pont's biomedical-products business showed operating losses of about $10 million. Two sizable acquisitions have fallen short of expectations. Major, old-line products that were supposed to support the start-up effort have encountered unexpected, damaging competition. Some apparently good bets in the pipeline haven't worked out, and the next ones due out of it are still far from sure things. Overall, Du Pont's biomedical-products business "is a disappointment," Mr. Woolard concedes. "It hasn't provided us with the growth spark we're looking for." Adds Louis Lasagna, the dean of Tufts University Sackler School of Graduate Biomedical Science and a member of Du Pont's research advisory board: "If Du Pont wants to be one of the biggies five years from now, it should probably think about acquiring another company, because the products I see aren't going to allow it to be a major player in that time frame." Du Pont's troubles have attracted plenty of attention. Many on Wall Street expect it to end its biomedical investment soon; they ask repeatedly when the company will cut the cord. Says Patricia O'Brien, an analyst at Anatha Raman & Co., "If they want to get shareholders excited, they should stop pouring money down that dark hole." She and others worry that Du Pont will take an opposite tack and make an extravagant acquisition in a move to bolster its position. Top company officials and some board members are also getting impatient. And after several years of expansive research projects, managers are re-evaluating them and looking for ways to cut costs. The latest plan is to home in on and develop only the most promising prospects. Some outside partnerships will be scrapped. Mark Suwyn, a tough manager who is known for meeting short-term goals efficiently and was recently named group vice president for the unit, vows that this year "we'll shape up where we're going." As for another acquisition, Mr. Woolard says he will assess Du Pont's chances without one. He says he also will look into more joint ventures that could "get some products into the system a little bit more quickly." But he emphasizes that he doesn't consider an acceptable alternative "just simply to wait for 10 years and hope all these things {products in the development pipeline} come out successfully." The fits and starts aren't all Du Pont's fault. Competition and federal cost-containment regulations have made it much harder to turn a profit in health care. The whole biotechnology industry has suffered from red tape and patent disputes. Almost every pharmaceutical concern has been hurt by generic-drug competition. Moreover, Du Pont has chalked up a few successes. The company is marketing a blood-screening test for antibodies to the AIDS virus in collaboration with Biotech Research Laboratories Inc. of Rockville, Md. It recently received marketing approval for a genetically altered mouse, developed with scientists at Harvard and expected to aid cancer research. And it recently introduced two new clinical analyzers for tests on body fluids. Du Pont says it has 15 to 20 products in various stages of development that offer innovative approaches for treating major diseases, including cancer, Alzheimer's, hypertension and heart trouble. Robert Weinberg, a professor at Massachusetts Institute of Technology who serves on Du Pont's research advisory board, says he is "very optimistic" about the company's future product lines). But developing a drug business from ground zero is strenuous, demanding business; getting even one drug to market can take at least 10 years, and most fail along the way. Some other chemical companies, such as Dow and Monsanto, started out with big acquisitions -- Richardson-Merrell and G. D. Searle, respectively -- that had already produced profitable drugs. Du Pont's decision to go it alone, with the help of some joint ventures and a couple of modest acquisitions along the way, has posed numerous problems and obstacles. "We don't have the well-oiled machine in place," concedes Joseph Mollica, Du Pont's vice president for pharmaceuticals. Adds David Moobery, the recently retired group vice president for the business: "What's the difference between us and Merck? Twenty years." Du Pont made its initial foray into pharmaceuticals with its 1969 acquisition of Endo Laboratories. Endo provided some drugs that did well for many years, including Percodan, a painkiller; Coumadin, an anticoagulant, and Narcan, which can revive victims of certain drug overdoses. Du Pont also has long held the No. 2 market position for X-ray film and run a respected diagnostics group that supplies hospitals. Both businesses have been merged with the biomedical-products unit. The big push to become a major player in that field began in the early 1980s. At the time, then-Chairman Edward Jefferson said he believed such an effort by Du Pont could "transform the world." The company drew on researchers in its fibers and polymer sectors to develop drug-delivery systems. It began financing big research programs at Harvard, Duke and MIT. An $85 million research facility devoted to health and agricultural sciences was opened near Du Pont's headquarters in Wilmington in 1984. But by then, Du Pont already had committed what turned out to be its first miscalculation. In 1981, it had acquired a spunky Boston firm, New England Nuclear, which specialized in making radiopharmaceuticals and radioactive chemicals. The firm had many superior inventions, including thallium, an early workhorse of nuclear imaging used to determine the damage from a heart attack. New England Nuclear had put itself on the block because it needed more capital, but its employees, accustomed to an academic, entrepreneurial atmosphere in which scientists padded around in blue jeans, disliked Du Pont's style. They were irritated by its layers of management, its button-down atmosphere and, especially, what they saw as its heavy-handed meddling. Early on, Du Pont irked them by imposing one of its ubiquitous safety programs. It tried to teach them not only workplace precautions but also such things as how to ground electrical outlets in their homes and how to go skiing safely. In addition, Du Pont soon faced a much more threatening prospect: the imminent collapse of the entire radiopharmaceutical industry. Two of Du Pont's biggest competitors in the field received FDA approval to market thallium. The subsequent overcapacity depressed prices for thallium and for similar drugs that hit the market. Then came the new CAT scans, an imaging process that takes exquisite pictures of organs without the injection of dyes. Hospitals, pressured by new payment guidelines) for Medicare and Medicaid, prepared to scuttle nuclear-medicine departments. The outlook was so bleak that Du Pont considered getting out of the business. But instead, it launched a huge program to teach hospitals, doctors and medical schools the advantages of nuclear medicine, especially its ability to image organ function as well as the organ itself. It also showed hospitals how to cut costs to make nuclear medicine more affordable. By 1985, thallium prices started to inch up again. Moreover, New England Nuclear came up with two new heart- and brain-imaging drugs, Cardiolight and Neurolight. Du Pont has high hopes for the drugs, which are awaiting FDA approval, but many inside and outside of Du Pont still view the acquisition of the firm skeptically. Dr. Lasagna calls the new drugs "respectable, but not blockbusters." Meanwhile, Du Pont has had its own difficulties in the laboratory. The large, eclectic group of top-notch scientists recruited from around the country has taken a while to develop team spirit. Among other things, these scientists had to learn to focus research on specific product goals rather than pursue, as they did in academia, the most exciting projects they dreamed up. Like many pharmaceutical research efforts, Du Pont's have headed down many blind alleys. For example, it invested aggressively in monoclonal antibodies, once seen as a sophisticated diagnostic tool for certain types of diseases, but that program has been dropped. In addition, three promising drugs on which Du Pont was counting failed for various reasons. Some at Du Pont also question whether American Critical Care, acquired in 1986 from Baxter Travenol Laboratories, was a good fit because Du Pont isn't planning to emphasize hospital-care products. Some other problems: All of Endo's old drugs now face generic competitors and reduced profitability. The diagnostics group isn't pulling in the expected profits. The new clinical analyzers had expensive start-up costs. Still searching for a blockbuster, Du Pont locked onto a potential drug in 1986 that it believed would not only solve its problems but also cure AIDS -- Ampligen. Acknowledging now that the bet on Ampligen "really was a flier," Mr. Mooberry says it was partly driven by moral obligation. "If anybody could do this, Du Pont could," he says. "Somebody had to find out if Ampligen worked." Holding the rights to it was HEM Research, a small, private biotechnology firm in Philadelphia. William A. Carter, one of Ampligen's inventors and also HEM's chairman, had been looking for some time for a partner to help develop the drug. A number of companies turned him down because of his difficult personality, according to James Wells, Du Pont's manager for advanced therapeutic projects. Others had scientific doubts about the drug, he adds. After getting a call from Dr. Carter, Du Pont arranged a meeting. Its scientists say they found the early data on the drug promising. Although Ampligen had been tried in only 10 patients, it seemed to stabilize their immune systems and diminish the AIDS virus in their blood without serious side effects. It also had been shown effective in laboratory test tubes and mice since its invention in the early 1970s. Du Pont jumped in with both feet. Its officials believed that Ampligen would work and that it might offer an opportunity to bring in a drug at an advanced stage of development while Du Pont's own research continued to build its own products. It acquired 6% of HEM's stock for $10 million and agreed to finance part of a 300-person clinical study. The company hasn't disclosed its total investment in Ampligen. Anticipating heavy demand if the FDA approved use of Ampligen, Du Pont also embarked on a two-prong production strategy to make the drug in quantity. Six to eight small producers that could make the complicated drug on short notice were lined up to produce it while Du Pont expanded its own manufacturing capability. But trouble soon developed. Aided by consultants, Du Pont last summer scrutinized some early Ampligen studies and the larger study in progress. The conclusion: Ampligen wasn't up to expectations. Daniel Hoth, the head of the National Allergy and Infectious Disease's AIDS drug program and one of the consultants, says Du Pont performed a public service by analyzing Ampligen and determining that it didn't seem to work. But, he adds, Ampligen shouldn't have proceded to such a large trial. "No professional drug company with any degree of professionalism would ever develop Ampligen the way it was developed by HEM," Dr. Hoth says, citing problems such as a failure to determine the right dosage. Meanwhile, according to HEM's counterclaim to the lawsuit Dr. Carter filed in the Court of Common Pleas in Philadelphia, the executive questioned the motives and honesty of Du Pont's interpretation of the data from the clinical studies. HEM, in turn, charges that Dr. Carter improperly designed the studies. In addition to the dosage problem, HEM raised questions in its suit about the formulation, packaging, storage and temperature of the Ampligen used in the studies. The company also contends that Dr. Carter didn't end the trials when the apparently disappointing results indicated such a step was warranted. In another stunning allegation, HEM's suit accuses Dr. Carter of selling some of his HEM stock for $1 million to a desperate AIDS patient who wanted to be added, along with a friend, to a 1987 pilot study of Ampligen in Houston. The study was full, HEM says. According to HEM, Dr. Carter told the patient who bought the stock that the money would be used to expand the study, but, instead, Dr. Carter deposited the money in his personal bank account. HEM's suit says Dr. Carter didn't disclose to board members that he had sold the stock to an AIDS patient in the clinical study. It adds that he also misled the board by saying the sale price had been about $1.50 a share, the fair value of the stock that the board had previously assessed for employee stock options. Instead, Dr. Carter sold 46,348 shares for $21.50 a share, HEM states in the suit. Robert S. Frank Jr., a Boston attorney representing Dr. Carter in the lawsuits, denies HEM's charges against his client and says he will soon file an answer in court. "The complaint is an exercise in taking certain facts and matters which individually are correct and reorganizing them or omitting them to leave one with the incorrect impressions," Mr. Frank says. For example, although Dr. Carter did sell stock to a patient involved in the study for $1 million and deposit the money in his own bank account, the transaction didn't take place as a condition for the patient being admitted to the study, Mr. Frank says. He adds that the study wasn't full and that there was no reason for the patient to pay to be admitted. In addition, HEM's claim that the clinical study wasn't designed properly is "completely false," Mr. Frank says. Du Pont says it knew nothing of the stock sale until it recently turned up in the court documents; it declines) to comment on it. The company says it has learned that it should look more skeptically at early drug-test data. Its own resources for such an evaluation were weak at the time, concedes Mr. Wells, the Du Pont manager. "It's a good lesson for anybody in this business that early data from uncontrolled studies in small numbers of people can be very misleading," Mr. Wells says. Adds Mr. Mollica, the vice president, "Ampligen was a baptism under fire." --- [11 lines irrelevant to AIDS have been removed. -- sysop] [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]