Spherix's sweetener deal turns bitter

Sugar substitute firm seeks monetary damages from holder of license

May 24, 2002|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

Spherix Inc. initiated arbitration proceedings yesterday to seek monetary damages from the licensee of its new low-calorie sweetener, claiming the Danish company was taking too long to bring it to market.

Arla Foods amba, Europe's largest dairy producer, holds the world rights to produce Tagatose, Spherix's sugar substitute. The Food and Drug Adminstration approved Tagatose for use in food last year.

But the Beltsville company claims that Arla is moving too slowly in bringing the sweetener to the world market, where an estimated 130 million tons of sugar will be consumed this year.

"We had hoped that sales would begin, product would be made [after approval last year]... but that was not the case," said Gilbert V. Levin, chief executive officer of Spherix.

"We now find that over a year later, it's still not being sold in the U.S. and to our knowledge it is not being manufactured, nor is there a plant to manufacture it."

Spherix initiated the proceedings with the American Arbitration Association in New York and is still computing a dollar figure for the damages, Levin said. Arla officials could not be reached for comment.

The proceedings are the latest chapter in Spherix's long history of trying to bring the sweetener to market. The company patented Tagatose - a naturally occurring variation of fructose - in 1988 and entered into a licensing agreement with MD Foods amba of Denmark in 1996. MD Foods merged with Arla in 2000.

The Danish company would use whey, a by-product of its cheese manufacturing, to make the sweetener.

Levin said he thought the merger - which created a bigger company with deeper pockets - would help bring Tagatose to market more quickly.

But Arla has acted too conservatively, he said. Spherix had expected Arla to have built the product facility long before now, and to have the product ready for introduction after it cleared regulatory hurdles last year, Levin said.

Details of the royalty agreement have not been disclosed by the companies. But a 1996 regulatory filing by Spherix (then called Biospherics Inc.) said that if Tagatose sales captured 1 percent of the multibillion-dollar world sugar market each year, the Beltsville company could reap royalties of about $200 million.

Tagatose has been a speculative product that "has tried a lot of investors' patience for several years," said Lincoln Werden, a senior investment analyst who follows Spherix for H.G. Wellington & Co. He criticized Arla for "sitting on the rights" to Tagatose and said that "if they can even displace a tiny piece of the sugar market, then the revenue stream is going to be very great."

Spherix still holds the right to produce the sweetener for non-food applications, such as for use in mouthwash. Levin said the company is considering production options at the moment, from making the product itself to entering into a joint venture.

But the company's main thrust is to get Arla moving on the production and sale of Tagatose, Levin said.

"I'd like to convince them to get their foot off first base," Levin said.

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