SEQUEL / BRUCE VORHAUER : The Final Fall : He built a fortune on the contraceptive sponge. But success soon gave way to bankruptcy, political defeat and tragedy. At the end, he couldn’t face the failure.

The news from Montana was brief but startling to those who had known Bruce Ward Vorhauer.

The man who had developed the birth-control sponge in an Irvine warehouse 11 years ago was dead at 50, and by his own hand. He’d run a hose from his car’s exhaust pipe and breathed the fumes until he died.

That ultimate surrender last fall seemed out of character.

After all, this was a man who had struggled for seven years to introduce the first new contraceptive technology in decades. But his hard work paid off. Vorhauer Laboratories Inc., later VLI Corp., went from down-and-out to up-and-coming, and its Today sponge became the most popular over-the-counter contraceptive for women.

“He had so much ambition and intelligence and industry,” said Dr. Earl S. Fuller of Fullerton, one of Vorhauer’s early investors.

“His image of himself was the idealistic genius, the creative entrepreneur who was the golden boy of the family and who was going to be a success.”

Vorhauer, handsome, well-spoken and admired, took to his new wealth like a prisoner to freedom. This was the easy-money ‘80s, when fortunes were being made in a hurry.

But Vorhauer was also a man who, when the going got tough, turned desperate.

He defaulted on loans, forcing longtime friends to pay $600,000 on a note they had guaranteed. And on June 2, 1991, Vorhauer deliberately set fire to his million-dollar yacht to collect on the insurance money. But more than a year later, a judge ruled that the fire was arson and that the insurer did not have to pay.

Then on Sept. 21, less than three weeks after the insurance judgment and the day before his Montana mansion was to be sold at sheriff’s auction, Vorhauer filed for bankruptcy.

Ten days later, he drove to the edge of the lake where his house was built and killed himself. He left a note reportedly confirming that he’d died by his own hand and professing love for his wife, Charlotte, and two sons.

Vorhauer had gone from being “the golden boy” whose personal income fell from $3.3 million in 1987 to $60,000 in only four years at a time when he owed more than $300,000 a year in interest alone.

“When he headed down the slippery slope, I don’t think he could say to himself, ‘I’m a failure, I’m a disaster.’ said Fuller. “I think reality became untenable for him.”

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The son of an airline mechanic and a secretary, Vorhauer grew up in Virginia and worked his way to engineering, biomedical and business degrees. He wound up as director of research and development for American Hospital Supply Corp. working out of its Irvine offices.

His job brought him in contact with a professor who was working on the idea that sponge-like material could be impregnated with spermicide and used as a vaginal contraceptive. When American Hospital Supply rejected the idea, Vorhauer decided to go it alone.

In 1975, he appeared in Bernard E. Schneider’s law office in Newport Beach looking for work space and an investor. He got both. He rented space in the building and was sent to Tim Dobbie, whose biomedical company in Santa Ana had been acquired by a larger firm.

Dobbie signed $400,000 over to Vorhauer, enough to buy the patent on the professor’s sponge. Then VLI began the seven-year march toward Food and Drug Administration approval.

It was a rough road. Raising money wherever he could, Vorhauer kept the company going until, in the summer of 1981, it was about to go broke.

Fuller, an obstetrician and gynecologist, recalls a phone call from Vorhauer: “He said, ‘I’m really up against it. We’re going to fold if we don’t get some money,’ ” Fuller said. “They were still in research and development. It was basically him in a warehouse. He had to have money to start making machines.”

Fuller, impressed by Vorhauer and his idea, invited about 20 of his fellow physicians and their wives to his home to hear Vorhauer make his pitch. The wives’ attendance turned out to be crucial.

“He charmed them right into the fold. The wives were saying on the spot what a great idea it was. Literally, they wrote out half a million dollars in checks that night for 20% of the company.”

Two years later, just after the sponge received FDA approval to go on the market, Vorhauer was featured in Forbes.

“At 41, Vorhauer is sitting pretty,” Forbes declared. “Though his stake in the company lately has been diluted to 11%, it’s still worth about $4 million at prices set by the latest private financing. When VLI goes public, that stake will be worth far more.”

Fuller said Vorhauer “talked about us making big profits in the U.S. and then dropping him and a machine into the jungle and making free sponges for the Third World. Literally. This was going to be the contraceptive for the masses, for the poor.”

But venture capital representatives on the VLI board, who displaced members like Fuller and Dobbie, were interested in profit, not idealism, and it was Vorhauer who adapted, Fuller said.

In 1983, when VLI went public, Vorhauer sold some of his stock and got his first taste of the wealth he had envisioned. Soon he was living it up, unaware that his fortunes had peaked.

Vorhauer, who at the time was divorced, drove expensive cars and partied in Newport Beach, where he was considered a Grade A eligible bachelor.

The setbacks began in December, 1983. Only six months after the Today contraceptive sponge went on the market, a news report linked the sponge and toxic shock syndrome, a potentially lethal ailment previously linked to certain tampons. The reports turned out to be unfounded, but sales and stock value plummeted.

Then in October, 1984, Vorhauer, driving on an icy road in Montana, skidded broadside into a tree, critically injuring his fiancee, Sara Wright. She died in a coma eight months later. Vorhauer took a six-month leave from VLI.

In 1987, Vorhauer began to rebuke the top managers he had brought into the company. By then, VLI stock had fallen from its euphoric high of 26 just after going public to its rock bottom of 3. Although 75 million Today sponges had been sold, the company had yet to show a profit.

But the board of directors sided with management. “Basically, I’ve been excluded from the decision-making in the company,” Vorhauer told a reporter at the time.

More setbacks. In July, 1987, as American Home Products was negotiating to buy the company, VLI lost the patent on the Today contraceptive sponge because it had failed to pay a $150 patent maintenance fee. VLI officers said the firm would eventually re-establish its patent, but in the meantime, VLI’s selling price fell by $9.5 million.

That still netted Vorhauer an estimated $3.75 million. In all, he reaped between $5 million and $7 million from VLI, according to one estimate. He took the money and went to Montana to stay.

*

He wound up in western Montana near Missoula, a university city of about 43,000. He built a 17,000-square-foot mansion that dwarfed everything else. He decorated with art works--about $500,000 worth, according to his bankruptcy declaration.

He was also generous, donating to the University of Montana, to a Missoula hospital and even to a high school basketball team that needed new shoes. He invested in real estate, in a hotel and in fledgling biomedical companies that he expected to build and sell at great profit, as he had with VLI.

“He was very interested in climbing the ladder,” said Fuller. “But I think most likely he moved there so he wouldn’t have to compete with those who are better.”

To Vorhauer--who had harbored political aspirations--Montana must have looked like the Promised Land. The population is so sparse--about 800,000--that the state has one member in the U.S. House of Representatives. It requires only about 156,000 votes to become a senator in Montana. In California, it requires almost 5 million.

By 1989, Vorhauer was traveling in Montana political circles, preparing for a run at the U.S. Senate. He apparently was not discouraged by his tightening financial predicament. He continued spending heavily, taking out the first of a series of loans that would eventually bring him to bankruptcy.

At the governor’s ball, he met Charlotte O’Hara, a Republican activist who had done advance work for Presidents Reagan and Bush and whose brothers had been Montana legislators. Vorhauer announced his engagement and his candidacy in January, 1990, and started his campaign for the Republican nomination.

“Vorhauer was very aggressive,” said Jim Gransbery, political reporter for the Billings Gazette. “He sent out press releases on everything. He went on the road, town to town, and made a point of visiting reporters. He really campaigned.”

But he lost, drawing 35% of the vote, and was left with $168,847 in campaign debts.

Creditors were stirring. To raise money, he tried to sell his mansion, first for $7.5 million, then for $5.5 million. No buyers. His yacht in Seattle, once owned by actress Julie Andrews, went on the market. No buyers. And he was defaulting on loans.

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The turning point was Thursday, May 30, 1991. That day Vorhauer received a phone call from an attorney who told him that unless Vorhauer paid the more than $1 million he owed on his yacht within 24 hours, it would be repossessed the following Monday.

Vorhauer could no longer borrow even modest amounts of money. He drove to Seattle.

On Sunday, June 2, the day before the repossession, Vorhauer’s yacht burned to the waterline. He told fire investigators that he had tried to repair a heat exchanger in a stateroom closet with a propane torch. He said he left the boat with the torch apparently still on.

He filed an insurance claim for $1.3 million, and according to Seattle attorney Paul Daigle, the insurance company was about to hand over the check. But the claims manager gave Daigle the file for a final opinion before paying.

“His story just didn’t make sense,” said Daigle. “It appeared to me that if some guy was going to repossess my car, I wouldn’t wash and wax it for him. . . . That’s what finally prompted us to file.”

In hindsight, Daigle says Vorhauer’s attempt had been clumsy. He told a story that could be proved impossible.

“It was a pretty brassy thing to do, but this guy was a brassy guy.” Daigle said.

It took them more than a year, but in September, 1992, a judge freed the insurance company from obligation to pay. Seattle fire investigators then took their evidence to the county prosecutor’s office. According to senior deputy Marilyn Brenneman, prosecutors had tentatively decided to file arson charges against Vorhauer. Although no one had officially notified him, she believes he knew of the criminal investigation.

With bankruptcy, defaulted loans, an arson investigation and fraud hanging over him, on Oct. 1 Vorhauer killed himself.

What should be Bruce Vorhauer’s epitaph?

Charlotte Vorhauer, his widow: “Some people said Bruce was a dreamer, and I think that’s true. I wish he could have held onto his dreams a little longer. There were problems, but we could have worked them out.”

Schneider, his friend: “No, I wasn’t surprised, because of the intensity. He never seemed to relax. I think he was the kind of guy who could kill himself pretty easily over something you or I wouldn’t.”

Fuller, his former partner: “The problem is, he couldn’t go back any. . . . He started spending, and he didn’t know how to go the other way.”

Dobbie, his former partner: “I never understood the guy. You want to understand him? Good luck.”