Chantal Falls 62% as Investors Sour on Anti-Wrinkle Product
Chantal Pharmaceutical Corp.’s shares plunged 62% on Monday as investors soured on the prospects of the company’s flagship anti-wrinkle product.
A Barron’s magazine article questioned the product’s potential and raised concerns about the company’s ties to a distributor who is the target of several fraud suits.
Los Angeles-based Chantal’s stock sank $11.81 to close at $7.31 on Nasdaq in trading of 7.7 million shares--making it the most actively traded stock in the United States on Monday.
The stock recently had soared to $28.125 on optimism about the company’s main product, Ethocyn, marketed as an anti-wrinkle cream.
But Ethocyn has come under closer scrutiny since a competing and far less expensive prescription product from Johnson & Johnson last week received approval from the Food and Drug Administration.
In the wake of the FDA decision on J&J;’s Renova cream, Chantal said it had dropped its seven-year effort to get FDA approval for Ethocyn and will continue to market it simply as a cosmetic.
Although it filed an investigational new-drug application with the FDA, Chantal never submitted data to the FDA to back up its application. Some regulators have expressed skepticism about Chantal’s claims that Ethocyn blocks hormone receptors in the skin that cause aging.
A two-month supply of Chantal’s Ethocyn costs $120, compared with $20 to $30 for J&J;’s Renova.
Chantal Burnison, company chairwoman and chief executive, said that “to go through the extensive drug development process . . . is not something that this company needs to do at this time with this product.”
The Barron’s article reported that Fred Reinstein, hired by Chantal to distribute Ethocyn, is a defendant in numerous lawsuits, three of which accuse him of fraudulent business conduct. It also questioned an agreement between Chantal and Reinstein that allows Reinstein to sell his firm to Chantal any time after Dec. 31, 1995.
If Chantal bought Reinstein’s company, it could end up buying back inventory it had already booked as sales to Reinstein.
Barron’s also said that a registration statement covering Chantal’s offering of 2.455 million new shares took effect Friday. The statement allows 1.455 million shares to be sold immediately and 1 million shares to be sold within 90 days. Chantal has 17.8 million shares outstanding.
As its stock plunged Monday, Chantal released a statement saying that “the article in this week’s Barron’s is inaccurate with respect both to facts and innuendo,” but it did not provide a specific rebuttal. “The company has no further comment,” the release said.
Chantal stock has soared from a low of $1.875 last year as the company has touted Ethocyn’s potential. The company says that as of Dec. 31, it had shipped Ethocyn to more than 14,000 stores and that “reorders have been exponentially increasing.”
