Biological Disaster

Zonagen Inc. took its name from Bonnie Dunbar's groundbreaking research into contraceptive vaccines. Then, when she wasn't looking, the company took her research.

Whether Vasomax will ever put a nick in Viagra's market share is a matter of no small conjecture. The company was hit with more than a dozen lawsuits earlier this year from investors who claim Podolski and other Zonagen officials did not disclose the existence of scientific studies that suggest phentolamine is ineffective in treating impotence. The lawsuits were recently lumped together in a class-action suit that further alleges that Zonagen's key clinical trials, which supposedly produced "positive results," were run by consultants paid with company stock options.

Last September, Zonagen was sued by its former staff immunologist, Balbir Bhogal, who claims the company filed a fraudulent patent application for its "ImmuMax" compound (see sidebar). Bhogal alleges that ImmuMax is nothing more than a naturally occurring substance called chitosan, and that Zonagen's claim that it will enhance the body's immune response to a vaccine is already protected by existing patents. Bhogal's lawsuit spurred more legal action by investors, who complain that Zonagen did not reveal ImmuMax's potential patent problems when Zonagen sold 2.25 million shares of common stock in July 1997, an offering that raised $67.5 million.

Podolski says the investors' allegations are false and that he expects FDA approval of Vasomax by the end of the year. As for the complaints about ImmuMax, the Zonagen president describes Bhogal as a "disgruntled employee who is trying to sue us to get back-wages." Podolski defends Zonagen's patent application by pointing to a recent notice from the U.S Patent and Trade Office that, for now at least, grants some of the company's claims for ImmuMax.

"You can't patent chitosan," Podolski explains. "All you can do with chitosan is patent a use for it or a formulation of it. Our patent gives us a formulation, of which chitosan is one of the components. There is no patent fraud."

Likewise, Podolski, who has countersued Dunbar for defamation, dismisses any notion that Dunbar wasn't informed that Zonagen would own her technology after it was transferred to the company on December 31, 1987. That said, Podolski, a chemical engineer who came to Zonagen from NutraSweet, where he was in charge of the company's failed fat substitute Simplesse, seems to have little regard for that research.

He claims Dunbar's vaccine technology was not as far along as she had led the company to believe, and that in trying to "reproduce" her work, Zonagen's scientists encountered "flaws and other basic technical problems." For one thing, Podolski says, Dunbar's vaccine did not eliminate mating behavior, and therefore might not be a marketable alternative to spaying.

Podolski also claims that Dunbar's research on the zona pellucida was limited to the rabbit, which, he says, was not the "target." As a result, Zonagen "started cloning the dog and the cat and the cow." That kind of independent research gave the company confidence that the vaccine had "a real application for humans," Podolski claims, and made further collaboration with Dunbar unnecessary.

"In this lab, we've cloned about 15, 16, 17 genes from a variety of species, including all three human genes," Podolski says. "And we had separate patent applications for those. Now, that work pretty much hacked Bonnie off, because she views the zona pellucida as her life's work. That was part of the fallout between us and her."

What Podolski neglects to mention, however, is that the U.S. Patent and Trade Office rejected his applications as nothing more than an attempt to claim Dunbar's invention as his own. Patent examiners disallowed Podolski's claims, citing the prior art of Dunbar's 1991 patent.

"My patent was novel in that I was the first to do it with the strategies that were used," Dunbar explains. "It just so happened that the clones I isolated and describe in my patent were from a rabbit. All they did was try to claim every other animal for themselves. Nowadays, you can pay companies to do this. They call it 'clone-by-phone.' "

Podolski says Zonagen will continue to seek patent protection for several "new" zona pellucida DNA sequences identified by Jeff Harris, a company researcher. And he insists the loss of Dunbar's expertise has in no way hurt the company's chances to eventually market a contraceptive vaccine.

"There were things that needed to get done to turn it into product," Podolski says. "It's the difference between academia and business. We're not interested in a bunch of journal articles. You have to generate products, gotta generate cash flow or you're not a company."

That's an interesting statement, considering that almost 11 years after the formation of Zonagen, the company still has no products to sell. Nor has it produced a nickel of earnings for shareholders, while running up an accumulated operating deficit of nearly $40 million and counting. Zonagen has certainly been masterful at raising money, though. The company's secret is to hype the potential of its products right around the time it makes a pitch to investors for additional capital -- a tactic known on Wall Street as "pump and dump."

Zonagen discovered the value of this strategy before it ever sold its first share of public stock. A pro forma document dated June 1989 projected sales in the neighborhood of $50 million for an animal contraceptive vaccine by 1995. Not coincidentally, perhaps, at a June 13, 1989, meeting of Zonagen's board of directors, chief executive officer David McWilliams asked the company's original backers -- Martin Sutter of The Woodlands Venture Capital Company, Lloyd Bentsen III and H. Ross Perot --for an additional $350,000 in financing.

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