Contraceptive Maker Fears Collapse of Buyout Pact : VLI’s Patent for Today Sponge Lapses Because Irvine--Based Company Missed Fee Payment
VLI, the Irvine-based personal products manufacturer, said Wednesday that the loss of a critical patent on its Today brand contraceptive sponge could jeopardize the company’s $86-million acquisition pact with American Home Products of New York.
The acquisition of VLI by American Home Products is contingent on renewal of the Today patent, which lapsed in July, when VLI failed to pay a required maintenance fee on time, the company said.
The U.S. Patent and Trademark Office has rejected an initial petition filed by VLI seeking reinstatement of the patent. But VLI Chairman Robert A. Elliott said the company is preparing a second petition, and the agency could reach a decision on the matter within two weeks.
Elliott said the company failed to pay the maintenance fee because it was not notified of a recent change in federal patent laws involving the payments.
The patent office told VLI that its first reinstatement petition lacked detail in several areas, Elliott said, and requested additional information on “why we didn’t pay the fee.”
Elliott said he thinks that the agency can be persuaded to reinstate the patent. He said VLI and American Home Products are proceeding with their merger plans.
Elliott acknowledged, however, that American Home Products has said it will not buy VLI until it has the patent. He declined to speculate on whether the companies could renegotiate their agreement if VLI fails to regain the patent.
American Home Products officials could not be reached for comment.
The New York pharmaceutical and consumer products company announced on Aug. 31 that it would purchase VLI in a transaction valued at $86 million. The planned buyout capped nearly a year of efforts by VLI to find a financially secure environment for its medical technology and growing line of personal-care products. In its 12-year history, VLI has recorded only two profitable quarters.
The Today sponge, VLI’s principal product, is the nation’s leading non-prescription female contraceptive. The product, a spermicide-treated foam sphere worn internally, has captured about 25% of the over-the-counter market for female contraceptives.
When the Today sponge was linked to several cases of toxic shock syndrome in December, 1983, VLI entered a financial tailspin that continued until the Food and Drug Administration decreed 11 months later that the sponge was “relatively safe.”
Although its sales and stock price stabilized, the company was forced to launch an expensive advertising program to counteract the negative publicity.
When the acquisition agreement was announced, American Home Products officials said they were interested in the market strength and name identification that the Today sponge has achieved in the last four years.
The company also said it was interested in pursuing the use of the sponge as an internally worn delivery system for medicines to treat vaginal diseases.
American Home Products is not the first company to enter into acquisition talks with VLI. An earlier agreement with an unidentified suitor collapsed in November, 1986, because of potential product liability associated with the Today sponge.
The earlier negotiations ended after the U.S. Supreme Court upheld a $4.2-million judgment against Johnson & Johnson’s Ortho Pharmaceutical subsidiary. The unit’s Ortho-Gynol contraceptive jelly was blamed for the multiple birth defects of a couple’s daughter.
