Newport Pharmaceuticals Gives Up R&D; on Drug Tested for AIDS-Related Complex

Times Staff Writer

Newport Pharmaceuticals International announced Tuesday that its only drug has proven ineffective as a treatment for AIDS-related complex and said that the company will abandon all research and development efforts.

For 15 years, Newport Pharmaceuticals has pinned its hopes on Isoprinosine, which the firm has tried to develop as a cure for varied maladies, the most recent being ARC, a precursor of acquired immune deficiency syndrome. But the firm learned Tuesday that the results of its most recent clinical study showed that the drug holds no promise in that area.

As a result, the company said it will stop trying to obtain the Food and Drug Administration’s approval of the drug as a treatment for ARC. A similar application was rejected in 1986.

Kenneth E. Smith, the Newport Beach company’s senior vice president for finance, said the company is getting out of research and development on the drug and early next year will start laying off its R&D; staff, which constitutes about half of its 35-member work force.


Newport Pharmaceuticals will now concentrate on selling Isoprinosine in existing overseas markets and developing its drug mail-order business.

The ARC test results, which were reported after the stock market closed Tuesday, are expected to deal a major blow to the company’s stock price, which industry analysts say has long been inflated by investors’ hopes that the firm might have a cure for a major disease.

Steven B. Gerber, an analyst with Bateman Eichler, Hill Richards in Los Angeles, said he anticipates that “over the next 2 days” the price of the stock--which sold for $5.75 a share at the close of trade Tuesday--"could fall 25% or more because of this development.”

Tests of Isoprinosine on 696 ARC patients in the United States and the United Kingdom over 6 months, the company said, showed that “the differences in efficacy between the group of patients taking Isoprinosine and those taking a placebo were not sufficient to warrant continuing with this study.”


“The data will nonetheless be filed with the (FDA), as is required by existing regulations, but the company will not be seeking an approval based on these data for Isoprinosine for ARC patients in the United States,” the company said in a formal statement.

J. Roberts Fosberg, the company’s president and chief executive, said the test results “are clearly disappointing, particularly given the quality and the extensive nature of this study.”

He said the company continues to await results of two other studies still under way in Scandinavia and Australia on patients who have tested positive for antibodies of the AIDS virus but have not yet developed ARC or AIDS. The first results are expected early in 1989.

Depending on the results, Fosberg said, the company may seek FDA approval for using the drug in the United States to treat patients with the AIDS virus.

The company also said it will continue selling Isoprinosine overseas, where it is used mostly in Western Europe to treat such ailments as herpes, genital warts and a rare form of measles. These overseas sales generate $8 million a year in royalties for Newport Pharmaceuticals.

But Smith stressed that the company has no intention of beginning clinical tests to open a market for Isoprinosine or any other new drug in the United States. Isoprinosine has never received FDA approval as a treatment for any disease.

“It is financially prohibitive for a small company to pursue new drug applications,” Smith said.

He said that in the last 2 years alone, the ARC clinical studies have cost the company $6 million, and that research and development costs were responsible for driving the company into the red. In the first 9 months of this year the company posted a loss of $2.8 million on $23.2 million in revenues.


Mail-Order Future

In the future, Smith said, the company will focus developing a mail-order business in prescription drugs that it acquired about 18 months ago in a diversification effort. The company has also acquired 25% interest in IPA Information Service, a company that markets proprietary software as a business management tool for groups of physicians.

Smith said the mail-order drug business called America’s Pharmacy is only “marginally profitable,” but said he expects its performance to improve with expansion.

He said the company will use part of the $11 million in cash it has accumulated, mostly from a public stock offering in 1987, to make small acquisitions that will be compatible with that business.

By shedding drug research and development, Newport Pharmaceuticals could become profitable in 1989, Smith and Steven Gerber of Bateman Eichler said.

As a company involved in health services, Gerber said, Newport Pharmaceuticals “may turn up less in the headlines and be less glamorous, but it may become a more stable and consistent company.”