Hair Analysis Firm Facing Its Own Challenge : Health: Psychemedics, which markets a test for illicit drug use, is struggling because of skepticism in the scientific community. It insists that its method works.

It has been a long, frustrating summer for Psychemedics Corp., a 4-year-old firm with operations in Santa Monica that has pioneered the analysis of hair samples, rather than urine, to test for illicit drug use.

In May, a panel of experts convened by the National Institute on Drug Abuse condemned hair testing as “premature” for pre-employment or employee drug screening, the lucrative market on which publicly held Psychemedics has set its sights.

A few days later, the Food and Drug Administration rang in with its own critique. Without naming Psychemedics, which it has no power to regulate, the FDA said hair testing by the company’s technique was “unreliable and is not generally recognized by qualified experts as effective.”

All of a sudden, the surge of new clients that had quadrupled Psychemedics’ sales in a year slowed to a trickle. The company’s soaring stock price, boosted skyward when a group including Blockbuster Entertainment Corp. Chairman H. Wayne Huizenga took control last year, tumbled back to Earth.

And Psychemedics, which figured that 1990 was the year that it would achieve the balance of advanced technology and economic punch that it needed to become a major player in the $350-million drug-testing business, instead finds itself fighting scientific and political firestorms.

It’s a classic example of one of the dilemmas inherent in commercializing science. To fully exploit a discovery, you must get to the market first. But if you’re first, it may seem as if fellow scientists are unwilling to accept your discovery.

“People say there isn’t enough known about hair analysis,” said Werner A. Baumgartner, the chemist who founded Psychemedics after experimenting with hair testing for a decade in his laboratory at the West Los Angeles Veterans Affairs Medical Center. “I say there is a lot known about hair analysis. But unfortunately, we are the only experts. It’s our critics that don’t know enough about it.”

From Psychemedics’ perspective, there isn’t much to know.

Drugs pass into hair follicles from the bloodstream, in proportion to the amounts ingested, according to studies by Baumgartner and other experts. Just as with urinalysis or a blood test, the presence of drugs in a hair sample can be detected and confirmed by standard laboratory procedures.

The critical advantage of hair testing is that the drug residues stay locked in the strand forever. Urinalysis is more effective in detecting drug use a few days before testing. But a hair test can reveal a history of usage limited only by the frequency of an individual’s trips to the barber or beautician.

For commercial purposes, Psychemedics claims to be able to screen for the use of five common drugs of abuse--marijuana, cocaine, PCP, opiates and methamphetamine--in the 90 days before sampling.

That wider window of detection has helped sell dozens of major employers on Psychemedics’ drug-testing services, even though hair testing--at as much as $65 per sample--can cost one-third more than a urine-testing program.

Such companies as Coast Federal Bank, Steelcase Inc. and Harrah’s Lake Tahoe also favor hair testing as being less intrusive and harder to fool. A reliable sample of 50 or 60 hair strands--about the width of a pencil--can be trimmed from a job applicant or employee’s head without the embarrassment that sometimes accompanies the acquisition of a urine sample.

Most compelling, to Psychemedics clients, is that the company’s test appears to deliver on its promise: It detects drug use.

Steelcase, a manufacturer of office furniture based in Grand Rapids, Mich., evaluated Psychemedics’ services by having 774 job applicants last year submit to hair and urine tests.

Only 2.7% tested positive for drug use by urinalysis. But 18% registered positive on Psychemedics’ hair test, according to Thomas E. Hendershot, manager of employee and plant protection services. And nearly all admitted their drug use when confronted, he said.

With an infusion of $3.17 million during the past 17 months by Blockbuster’s Huizenga and his investor group--which includes several officers and directors of the fast-growing video store chain, and of Waste Management Inc., Huizenga’s earlier venture--Psychemedics has been able to tell its story more aggressively to potential customers.

Revenue rose to $409,300 in the three months ending June 30, a 301% increase over the same period in 1989. Losses for the firm have grown apace, however, quadrupling in the same period to $540,650.

Investors, led by the Huizenga group, which controls about 62% of Psychemedics’ common stock, have continued to show faith in the company, however. Although down from its peak, the stock is trading at a level that puts a market value of more than $37 million on the company.

The losses have gotten smaller in recent months, according to Lawrence A. Kaufman, the chief executive and president installed by the investor group. But the barrage of criticism from scientists and regulators won’t make a turnaround of Psychemedics’ fortunes any easier.

Essentially, the critics say Psychemedics has rushed its testing service into commercial use without subjecting either its secret procedures or the basic science of hair testing to the controlled studies and peer review that researchers consider indispensable.

“Too many critical questions remain to be answered before the results can be adequately interpreted,” said a report issued by a committee of the Society of Forensic Toxicologists, the professional group asked by the National Institute on Drug Abuse to assess hair testing. The society’s membership voted earlier this month to endorse the report.

Among the unanswered questions, according to the toxicologists:

By what mechanisms are drugs incorporated into hair? What is the relationship between the amount ingested and the amount deposited in the hair? What is the minimum dose needed to produce a positive drug test? Do age, race, sex or other individual differences affect the way drugs are absorbed into hair? And to what extent does hair absorb drugs from external exposures, such as another person’s marijuana smoke?

Without answers to these and other questions, many scientists say it is senseless to endorse the use of hair testing to make decisions about whether someone will get or keep a job.

“No one has said hair analysis doesn’t work,” said Robert L. Stephenson, a special assistant in NIDA’s division of applied research. “What has been said is that it hasn’t been proven.”

Dozens of articles about hair testing have been published in peer-reviewed journals by Baumgartner and other American, German and Japanese researchers. And hair analysis is being used in a growing list of settings--most prominently, to prove or disprove drug usage in court cases.

But Psychemedics, as the first company to develop a commercially viable hair-testing program, has been reluctant to part with the specifics of the procedure Baumgartner developed to turn hair into a solution and then subject it to testing.

And absent those details, many experts say they cannot even begin to judge Baumgartner’s process, called radioimmunoassay of hair--RIAH, or hair spelled backwards--for which Psychemedics is seeking a patent.

“There’s a concern that a lot of claims are being made, and there’s no science being shown that establishes the validity of the claims,” said Martha R. Harkey, a research pharmacologist at the UC Davis School of Medicine. “And that’s always a cause in the scientific community of suspicion.”

Baumgartner says the objections are evidence of the scientific establishment’s closed-mindedness in the face of new ideas.

“One of the problems these days with innovative science,” the Austrian-born chemist said, “is anything that’s innovative is viewed with suspicion.”

Indeed, Baumgartner says he formed Psychemedics in 1986 and turned to the stock market for financing the next year only because NIDA repeatedly turned down his applications for research support.

Now, with growing numbers of public shareholders and employer clients, more than research grants is at stake in Baumgartner and Psychemedics’ campaign to gain credibility for hair testing.

Without federal acceptance, Psychemedics will remain locked out of public-sector testing and have a harder time selling its services to companies that look to federal standards for guidance, Kaufman acknowledges.

So the company has taken on its critics aggressively, in the scientific and political arenas.

Psychemedics beseeched the FDA to reconsider its negative assessment of hair testing, barraged NIDA officials with letters from its clients and friendly officials, and even made an in-person appeal to Health and Human Services Secretary Louis W. Sullivan, under whose authority both NIDA and the FDA fall.

At best, Psychemedics’ politicking has gotten a mixed reception. The FDA has no plans to revise its negative assessment of hair testing. And NIDA officials mutter that strong-arm tactics won’t build a scientific consensus for hair testing.

Yet Psychemedics has succeeded in getting regulators’ attention. NIDA officials want to spend $500,000 in the coming year on hair-testing research. According to Stephenson, the studies could lead, in time, toward Psychemedics’ goal: a certification program for hair-testing labs similar to an existing one for urinalysis labs.

“(We) created a lot of controversy, but it’s gotten us where we need to get going,” said A. Clinton Allen III, a Boston investment banker with close ties to Huizenga who is Psychemedics’ vice chairman and biggest stockholder.

The company also has sought to placate the skeptics.

Kaufman says Psychemedics is willing to let outside scientists review its proprietary processes, if they are willing to sign secrecy agreements.

For the most part, too, the firm has caved in to outside experts’ insistence that positive RIAH tests be confirmed by a second, more costly procedure, as is required in NIDA-certified urinalysis labs. Clients can still choose to rely exclusively on RIAH for cocaine detection, Kaufman said, because Psychemedics’ track record for that drug is flawless.

A program at Harrah’s Lake Tahoe that combined RIAH screens with confirmatory tests stood up to a Nevada court challenge earlier this month, giving Psychemedics a victory in the first ruling on the use of hair testing in employment.

THE LONG AND THE SHORT OF IT Monthly bid price on the over-the-counter market for Psychemedics Corp. shares. Nov., ‘89: $5.125 Friday: $3.0625 DRUG TESTING USING HAIR Drugs in the bloodstream are deposited in the hair follicle and remain in the hair as it grows out. Drugs first can be detected in a hair sample five to ten days days after ingestion. A typical sample will reveal drug usage in the previous 90 days. Source: Psychemedics Corp.