PharmaKinetics begins to recover from debt, scandal

MAKING A COMEBACK

April 13, 1993|By Liz Bowie | Liz Bowie,Staff Writer

Here's the challenge for V. Brewster Jones: Take a company that's been plagued by scandal, has $11.5 million of debt and whose revenues have been cut in half and rejuvenate it.

In 1990, the task looked nearly impossible. But the chief executive has PharmaKinetics Laboratories Inc. at least breathing again, even if it still isn't healthy.

Earlier this month, the U.S. bankruptcy court approved the company's plan to fully pay off its creditors and emerge from a Chapter 11 reorganization.

Revenues have increased by 40 percent over last year. It has wooed back some of the generic drug manufacturers that were its former clients, and is finding new ones. It hired 30 new employees last year and now has 148 working full and part time.

While the company won't estimate when it will become profitable, the bankruptcy agreement forecasts the company will have $14 million in revenues and $2.3 million in earnings in 1995.

Mr. Jones came on board in the summer of 1990 to rescue PharmaKinetics from financial problems.

"The company was on the precipice of a cash disaster," he said.

Within months, the company was implicated by federal investigators in a generic drug testing scandal that prompted the loss of 45 percent of its business, driving it into bankruptcy.

"The problem became that no one wanted to deal with them because they were tainted," said Jerry Treppel, an analyst with Furman Selz in New York.

"They will probably come back, but it will take a long time."

Based in a seven-story building on West Fayette Street downtown, the 17-year-old company's main business is testing generic drugs. The company pays roughly 200 people, usually young students and seasonally unemployed people, between $500 and $1,000 to spend a weekend at the facility as test subjects.

The company was doing well financially until 1990 when it had purchased both a German subsidiary, International Bio Research, and the Fayette Street building, accumulating $11.5 million in debt in the process. At the same time, Mr. Jones said, revenues declined as the generic drug industry was enveloped in a national scandal that eventually saw seven drug companies and 29 individuals convicted on various charges. PharmaKinetics' former chief scientific officer and executive vice president pleaded guilty to charges that he failed to tell the Food and Drug Administration that the company's biggest client, Bolar Pharmaceutical Co. Inc., submitted false data on drug tests.

About 50 percent of its clients backed away, not wanting to deal with a tainted company. The company stock, once as high as $10 a share, fell sharply in 1990, was later delisted and is now at $1 a share on the pink sheets in over-the-counter trading. U.S. revenues of just under $20 million in 1990 plummeted to just under $7 million the following year. The company incurred substantial legal fees, and the downturn in the commercial real estate market kept it from selling its new headquarters building to raise cash.

After Mr. Jones came on board in November 1990, the company laid off 100 people and put its German subsidiary up for sale.

But a financial windfall came from the least likely of sources, Royce Laboratories Inc., a small company that itself was suffering financial problems and owed PharmaKinetics about $900,000. PharmaKinetics decided to accept $400,000 in cash and $270,000 worth of stock in the company.

Royce bounced back quickly, and PharmaKinetics recently sold its equity in the company for $6.2 million. "It basically is our whole purse for paying back creditors," Mr. Jones said.

Under the agreement, the company will pay Maryland National Bank $5.95 million in cash and give it a term note of $2.4 million. The bank will provide the company with $500,000 in working capital and a $500,000 line of credit. Other creditors will receive $836,695 in cash and 1.5 million shares of common stock.

The company still has to rebuild both the FDA's and customers' confidence in it. Mr. Jones said the company has made a good start and is adding new drug manufacturers to its list of clients.

Three generic drugs, including amoxicillin, a chewable antibiotic, have been approved by FDA in 1992 based on testing done in part at PharmaKinetics. In addition, the company hopes to expand the range of testing it does in its laboratories.

It is also looking for a boost from growth in the generic drug market.

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