Novatek's claims seem overstated Firm's stock rose 75% amid series of announcements

No contract, Brazilians say

'They were always pressuring us to sign an order'

November 03, 1996|By Mark Guidera | Mark Guidera,SUN STAFF

In a six-month period this year, Novatek International Inc., a Columbia-based medical products company, announced an exclusive licensing deal and a series of multimillion-dollar contracts that helped propel its stock to a record high. But a review of those claims by The Sun found some of them to be overstated.

The company's claims about its contracts and finances are the focus of a probe by the Securities and Exchange Commission. Nasdaq halted trading in Novatek's stock Oct. 11, and the SEC followed with a similar order Oct. 15.

Since then, the company's president has resigned and Novatek filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

In a series of upbeat announcements that began in March, Novatek, once an unprofitable supplier of a steel-truss building system, said it had completed a merger that gave it exclusive marketing rights in Latin America for a dozen different medical diagnostic tests and signed contracts worth at least $96 million.

Concurrent with those announcements, Novatek's stock gained 75 percent, hitting a trading high of $13.125 in mid-September.

Of the contracts the company claimed to have signed, perhaps the most significant was a 10-year contract in Brazil that Novatek said in an Aug. 16 announcement would generate "revenues in excess of 35 million dollars in the first year and expanding thereafter."

No such contract exists, according to official sources in the Brazilian government and the medical research foundation that Novatek said signed the deal.

"It is absolutely not true; there is no such 10-year agreement," said Marcelo Pitta, a government official in charge of the country's blood bank service, which Novatek claimed was a party to the agreement along with the Oswaldo Cruz Foundation, a respected medical research facility in Rio de Janeiro.

Pitta and Dr. Carlos Medes de Morel, president of the Oswaldo Cruz Foundation, recalled that the two organizations met with Dr. Gaston Oxman, Novatek's president.

Pitta and Morel said their organizations told Oxman they were interested in the HIV diagnostic test kits that Novatek said it was distributing, but agreed only to evaluate them and talk further about a possible order if the technology proved accurate.

"The preliminary evaluations looked good, but we still had more testing to do," Pitta said last week.

"One thing we found strange was that they were always pressuring us to sign an order, but we have a particular protocol to go through before we can decided if equipment is good," Pitta said.

Neither Oxman nor Rockie L. Smith, vice president at Novatek, responded to repeated requests from The Sun for interviews. Anthony Sebro, chief financial officer, and other executives of the company also did not respond to requests for interviews.

Additional inconsistencies

Other inconsistencies The Sun found in contract announcements made by Novatek include:

On Sept. 26, the company said that the Ministry of Health in the Argentine province of Corrientes had signed a five-year agreement to buy medical diagnostic test devices and participate and manage pre-screening programs for communicable diseases. The company projected minimum annual revenues of $3 million from the deal.

However, the agreement, a copy of which was obtained by The Sun through the U.S. Embassy in Buenos Aires, only authorizes Novatek to "organize and participate in programs" that use its medical devices, "including but not limited to a pre-screening program used at blood banks" and to "participate with MOH in establishing screening programs for detection of communicable diseases."

The contract does not spell out any dollar amounts to be paid to Novatek, other than the cost of any test kit purchased: $3.48.

The agreement calls for the Ministry of Health to first conduct its own evaluation of Novatek's equipment before proceeding further.

According to Josette Fiori, an assistant in the commercial service office at the U.S. Embassy in Buenos Aires, ministry officials said last week they have not yet completed their evaluation of Novatek's kits, and are uncertain at this time how many kits, if any, they might order.

On April 11, Novatek announced that it had landed "a five-year agreement with Importadora y Expertadora Accmed Inc., a 12-year-old medical and pharmaceutical company based in Santiago, Chile."

The company said the deal called for a "guaranteed purchase of $5 million per year for five years totaling $25 million (US)" for a rapid diagnostic test for cholera.

However, according to the commercial attache's office, no telephone or address listing could be found for such a company, and a medical industry directory does not list any company by that or any similar name.

Patricia Jaramillo, a medical industry specialist with the commercial attache's office at the embassy, said she had never heard of any pharmaceutical company by the name Importadora y Expertadora Accmed Inc. or anything close to that name.

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