Lawsuits Partially Settled, But Obstacles Remain to RU 486 Sales in U.S.

In September 1996, the dangerous RU 486/Cytotec Prostaglandin (RU 486/PG) abortion technique seemed on a fast track to the U.S. market within nine months. Abortion supporters at the U.S. Food and Drug Administration (FDA) had pronounced the method "safe and effective," and the only remaining requirement for the Population Council, the non-profit organization controlling the RU 486 patent, was to provide documentation that RU 486 could be safely manufactured and packaged.

However during the past fourteen months, infighting among investors and patent holders plus the withdrawal of the prospective manufacturer have significantly delayed introduction of RU 486. In fact, the disputes have been so acrimonious that they generated four lawsuits (described as lawsuits A through D in Table A on page 2). The court filings and press accounts have revealed an incredibly tangled web of financial and corporate arrangements behind the distribution and manufacturing side of the RU 486/PG project. (For details, see Dec.1996-Jan. 1997 and Feb.-Mar 1997 issues of RU 486 Report.)

Intense negotiations resolved one of the key lawsuits in February 1997. And on November 12, 1997, another partial settlement of one of the lawsuits brought "New Hope for Abortion Pill," exclaimed the headline in the November 13 New York Times. This development "could lead to new investment for the troubled effort to sell the drug in this country," reported the story.

However, this optimistic forecast was not supported by the information in the article. Settlement of one part of one lawsuit was just a preliminary step. Abortion advocates still must overcome three significant obstacles before RU 486/PG can be marketed here:

• continuing litigation between the Population Council, prospective investors, and the companies that control the sublicense to manufacture and distribute RU 486;

• dissatisfaction among the investors about the extended delays in marketing which threaten the opportunity to turn a profit; and

• the lack of a manufacturer for RU 486.

Let’s examine each of these issues in detail.

Contract Disputes Lead to Two Lawsuits

Press reports have indicated that the Population Council granted an exclusive sublicense for the manufacture and distribution of RU 486 in the United States and other parts of the world to Joseph D. Pike of San Diego in December 1995. During the following months, he solicited funds from investors for the project and set up a complex set of companies, notably Danco Laboratories and NeoGen Investors. Pike raised $14 million of the $28 million in capital needed for the venture, reported an AP story published in the December 17, 1996 Philadelphia Inquirer.

Table A

RU 486 Lawsuits

Lawsuit A

Date Filed: October 31, 1996 Case No. SC044748

Location: Los Angeles Superior Court, Santa Monica, CA

Plaintiff: KCC of Delaware (subsidiary of Giant Group, controlled by Burt Sugarman)

Defendant: Joseph D. Pike, NeoGen Investors, N.D. Management, Population Council, Advances in Health Technology

Issues: Fraud, breach of fiduciary duty, breach of contract, unfair business practices.

Objective: Remove Pike from control of the sublicense to manufacture and distribute RU 486; gain 25% investment in the manufacture and distribute of RU 486 for $6 million; damages of $10+ million

Disposition: Partial settlement announced 11/12/97 with Population Council and Pike, but exact terms not disclosed. Litigation against NeoGen still pending.

Lawsuit B

Date filed: November 4, 1996 Case No. 96605505

Location: Supreme Court, New York City, NY (a trial-level court)

Plaintiff: Population Council, Advances in Health Technology

Defendant: Joseph D. Pike

Issue: Fraud

Objectives: Remove Pike from control of the sublicense to manufacture and distribute RU 486; appoint a receiver to control the sublicense; accounting for the $13 million raised, especially the $1.6 million remaining on hand; payment of unspecified damages

Disposition: Settlement announced 2/12/97. Pike relinquished control and still has financial stake. New company named Advances court)

Plaintiffs: Danco Laboratories

Defendant: Gedeon Richter, LTD (Hungarian drug company)

Issues: Breach of contract to manufacture RU 486 for abortion; negligent misrepresentation of status of progress in developing its manufacturing capabilities

Disposition: Unresolved.

On October 31, 1996, a Los Angeles investment company, KCC of Delaware (a subsidiary of Giant Group headed by Hollywood producer and financier Burt Sugarman) filed suit against Joseph Pike and his companies and the Population Council (Lawsuit A in the table on page 2). Sugarman’s company accused Pike of fraud by concealing his criminal background and planning to sell over 100% of the shares in the partnership. KCC’s suit sought Pike’s removal from participation and enforcement of an agreement that it had made with Pike to obtain an equity interest of between 16% and 26% in the ownership of the sublicenses for RU 486 in return for a payment of $6 million.

A few days later, the Population Council and the non-profit company it had set up to handle RU 486, named Advances in Health Technology, also filed a lawsuit against Pike on November 4, 1996 in New York City (Lawsuit B in table on page 2). This lawsuit charged him with fraud and sought to force him to relinquish control of the sublicense for RU 486.

In rebuttal to KCC’s charges of mismanagement and fraud, Pike filed a lawsuit on November 13, 1996 in San Diego for defamation against Giant Group, KCC, and two of its officers (Lawsuit C in table on page 2).

Three-and-a-half months later, on February 12, 1997, the Population Council announced settlement of its lawsuit with Pike (Lawsuit B). Media accounts described how the limited partners, who normally do not take an active role in management, publicly intervened to negotiate the settlement. Pike relinquished control of the sublicense to a newly formed company, named Advances for Choice, which replaced Advances in Health Technology.

At that point, the lawsuits had delayed marketing at least six months, and the Population Council shifted its sights to beginning sales by the end of 1997. But another development and lawsuit slowed the process further.

Manufacturer’s Withdrawal Triggers Lawsuit

The FDA declared RU 486/PG "safe and effective" for abortion in September 1996, but the agency would not approve a U.S. license until the manufacturer demonstrated the safety and consistency of its production process. On June 11, 1997, the Population Council disclosed that Danco Laboratories had filed a lawsuit on May 9, 1997 in New York Supreme Court against the prospective manufacturer of RU 486 for breach of contract (Lawsuit D in table on page 2). The lawsuit alleges that a leading Hungarian drug company named Gedeon Richter unilaterally withdrew from its contract to produce bulk quantities of RU 486 after receiving $500,000. The lawsuit seeks to compel Gedeon Richter to fulfill the contract and contends that unless this occurs, U.S. introduction of RU 486 could be set back months—or even years. (For details, see the July, 1997 RU 486 Report.)

This breach of contract lawsuit is still unresolved, and the November 13 New York Times reported that in September 1996, the FDA "told the Population Council that its application [for licensing] had not included enough information about the substance [RU 486] from which it could begin synthesizing the drug." Moreover, Sandra Waldman, the Council’s spokesperson, "said the council had not filed any new information with the F.D.A." Since Gedeon Richter backed out, no new manufacturer has been found, reported the Times.

Giant’s Lawsuit Partially Settled

On November 12, 1997, the Giant Group, parent of KCC of Delaware, announced partial settlement of both KCC’s lawsuit against Joseph Pike and the Population Council and the end of Pike’s defamation lawsuit against KCC (Lawsuits A and B). In settling both lawsuits, Giant had only praise for Pike, reported the November 13 New York Times. "The financial terms of the settlement were not disclosed," said the story.

However, Giant Group’s litigation against NeoGen is still pending (Lawsuit A). The key issue is probably Giant’s contention that it has the right to control a sizable portion of the sublicense for RU 486 which NeoGen holds. The New York Times story reported that the lawyer for Giant stated that "[w]e feel we already have an agreement with Neogen [sic] to invest $6 million, and the Population Council has made it clear that they have no objection to that," which probably indicates an amicable settlement is possible. A spokesperson for NeoGen said "he could not comment on the situation," said the story.

Investors Uneasy

The lead paragraph of the November 13, 1997 New York Times story by Tamar Lewin about the settlement indicated that it "could lead to new investment for the troubled effort to sell the drug in this county," but that assertion was not supported by any facts presented later. In fact, the evidence at the end of the story indicated just the opposite.

The Times reporter related how relations between investors "have seriously deteriorated in recent months." In particular, earlier this year when control passed from Pike to three general partners who control the operations of the project, "others who had invested in the deal were promised an option to get their money back," said the story. "But no such rescission offer has yet been made."

Moreover, "some investors say that when they call the general partners, their letters and calls are not being returned," reported the Times. "I’ve called six or eight times in the last 10 days and they don’t return calls," said a man who invested $500,000, and who requested anonymity. "This was supposed to be a wonderful drug for American women," he continued, "a project I was happy to be involved in. Now I think it’s just people smelling a lot of money."

Apparently, the investors are finally getting wise to the abysmal business ethics of the leaders of the project. One of the most significant results of these lawsuits was exposing the incredibly threadbare ethics of the investors who are eager to profit from poisoning unborn children to death. Pike and his potential partners have an abysmal past history that includes criminal convictions and questionable business practices.

Joseph Pike is both a convicted forger and disbarred lawyer who served an 18-month probation on a two-year suspended prison sentence. Giant Group executive officer Burt Sugarman has a very checkered business background too. "Since the mid-1980s, Sugarman and companies he headed have been involved in several bitter corporate takeover attempts," reported the November 6, 1996 Los Angeles Times. "In 1991, Sugarman paid nearly $620,000 in fines to settle Securities and Exchange Commission charges that he failed to follow federal reporting requirements while he amassed a large stake in the Rally’s hamburger chain," said the Times. Moreover, that year, Sugarman was found guilty of civil fraud in Los Angeles Superior Court in a "suit brought by Los Angeles investment banker Michael Tennenbaum, who had advised Sugarman on several investment deals," said the Times.

Another issue that may be raising the apprehensions of the current investors is the expiration of the two U.S. patents to use RU 486 on January 8, 2002. Once the patents end, Advances and its financial backers will lose their exclusive right to control the price. Although this date seems far off, in reality it is just around the corner. Even if RU 486 goes on the market in mid-1998, the question remains whether the Advances and the other sublicensees will be able to charge enough during the remaining three-and-one-half years to recoup the investment of $14+ million and make a profit.

In order to be competitive with surgical abortion, the total RU 486/PG procedure cannot cost the pregnant woman much more than about $300. The Cytotec prostaglandin costs less than $5.00 to purchase. According to media accounts the price of RU 486 has not been set, but it cannot be high because of the other medical expenses associated with the procedure. For example, according to press accounts and the Population Council’s presentation at the FDA advisory committee hearing in July 1996, abortionists will probably provide at least one ultrasound procedure to guarantee that the pregnant woman is no more than seven-weeks pregnant, and a second ultrasound may be necessary to insure that the abortion is complete. Such procedures are relatively costly. In addition, the pregnant woman has three visits to the abortion facility, which requires staff time. And what about the woman who has to have a surgical abortion because the RU 486/PG procedure is either incomplete or a total failure? Does she pay for two abortion procedures, or does the abortion facility prorate a portion of the cost of her surgical abortion into the cost of all the RU 486/PG abortions? There are many unanswered questions.

Conclusion

The settlements announced on November 13, 1997 removed an important roadblock to marketing RU 486 in the U.S. Judging from Giant Group’s aggressive behavior in previous business ventures, the Population Council and the investors dealt with Sugarman to avoid prolonged and possibly expensive litigation under public scrutiny. Giant’s lawsuit against NeoGen is still outstanding, but the news story indicated that it may eventually be settled.

Another important obstacle to U.S. marketing is that despite raising over $14 million, the venture appears to be strapped for cash. The current investors apparently are leery that their millions are being mishandled, and future investors may be frightened off by the prospect that the patent may expire before the profits roll in.

But the lawsuits were relatively minor in comparison with the absolutely crucial requirement to identify a drug company with the technical expertise and equipment to manufacture RU 486 that can pass the FDA requirements. The latest news in the New York Times on November 13 indicates that the Population Council has not made any headway.

Continued pro-life and pro-family pressure is essential to discourage a potential manufacturer and prospective investors from becoming involved with the "death drug." See the back page for details.

Actions Needed To Stop RU 486 Abortion

There is still need for action:

• Write Gedeon Richter company officials to urge them to stay out of the abortion business. Address: Lajos Pillich, Chairman, Gedeon Richter, 19-21 Gyomroi Ut, Budapest H 1103, Hungary.

• Boycott the products of Hoechst Marion Roussel drug company products, especially the antihistamine Allegra. This company and its parent control the use of RU 486 worldwide. The boycott is aimed at pressuring them to withdraw the abortion drug from the market.

• Inform others about the dangers of RU 486/PG abortion.

The dangerous "RU 486" abortion method which kills an unborn baby whose heart has started to beat actually uses two drugs: First, the powerful synthetic steroid RU 486 (generic name "mifepristone") starves the unborn baby to death by causing the lining of the uterus to disintegrate. Second, another powerful synthetic hormone, a prostaglandin known as Cytotec (generic name: "misoprostol"), causes contractions of the womb which expel the dead baby and bloody contents.

Some key facts form the "core message" that pro-life and pro-family advocates need to keep repeating at every opportunity. Contrary to what the general media has usually been saying, the RU 486/PG abortion technique

• is not a "contraceptive" because it causes an abortion by killing an unborn baby whose heart has started to beat;

• is not "safe" and "easy;"

• will injure, and possibly kill, women;

• will possibly deform babies who survive;

• is being rushed on to the market by President Clinton to appease the abortion lobby; and

• will increase the number of abortions beyond the already appalling 1.5 million per year.