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Anti-aging drug enlivens Westside company's stock

Los Angeles Business Journal, Sept 26, 1994 by Morris Newman

'Medical breakthrough' causes price to almost double

A news item about a "breakthrough" in skin care lifted Chantal Pharmaceuticals out of a 12-year torpor and propelled its stock into being the top performer among Los Angeles County's small public companies this summer.

The big break for the West Los Angeles-based concern came on Aug. 2, when Dr. Richard Strick of UCLA Medical Center told fellow physicians at a San Francisco meeting of the American Academy of Dermatologists that a Chantal product, Ethocyn, represented a big advance in skin care.

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Ethocyn, Strick told fellow physicians, is a "breakthrough because it gives us tool to deal with one of the components of the aging process, and we've had no such tool or weapon to deal with that component -- the elasticity of aging skin -- until this time, and without the irritation side effects" of other drugs.

The drug stimulates the production of elastin fibers, which provide tightness and flexibility to skin. Television news reporters quickly picked up on the message, running euphoric stories on the wonder drug that made "wrinkles a thin of the past."

In the following several days, the company was flooded with some 14,000 telephone inquiries from consumers. By the end of August, Chantal had received orders for $810,000 of Ethocyn-based products.

"I think we were a little caught off guard, although we had been preparing" for the demand, said Don Wright, a consultant to the company. "We weren't prepared to handle it all. It was just overwhelming." Now, he added, "we are prepared."

Chantal -- which has survived a series of fizzled licensing deals with major drug companies, long patches without capital and diving stock prices -- suddenl saw its stock value almost double, rising from $1.125 a share on May 31 to $3.062 on Aug. 31. At that point, the company's market capitalization was about $31.54 million.

Prospects are good for Ethocyn, according to one industry expert. "There are a bunch of people out there who will pay a lot for a little help," said Jim McAmant, editor of the Medical Technology Stock Letter, a Berkeley-based investor newsletter.

Chantal's sudden success is doubly remarkable because the company has steered a maverick course. Instead of going to venture capitalists, who often demand majority control in exchange for funding research-and-development efforts, President and CEO Chantal Burnison relied on a family-owned company, CBD Pharmaceutical Corp., to fund initial drug research.

And to raise additional capital, Chantal sidestepped Wall Street underwriters and went directly to institutional investors such as Kemper Financial, Fidelity Funds and Alex. Brown & Sons.

Since 1982, Burnison has raised about $47 million in private placements. Big drug companies, she said, were "fascinated with this company's ability to raise this much money without an investment banker."

The company is further notable as a small entrepreneurial concern that was able to hang on through a decade-long U.S. Food and Drug Administration approval process, choosing to fund clinical drug testing out of its own pocket, rather than taking the more conventional route of licensing its patents to a pharmaceutical giant.

A lawyer and chemist both, Burnison invented a broad group of chemical compound known as X-Androns, working in the back room of a family-owned nail factory on La Cienega Boulevard. In the late 1970s, she obtained patents both on the compounds themselves and on their uses for acne, male pattern baldness and othe skin-related conditions.

Unlike other drugs that work on symptoms, X-Andron drugs work on a cellular level, addressing disorders "at the point of the earliest stage of development, according to Burnison.

In 1982, the directors of Interferon Pharmaceuticals Corp. were looking for a new product to replace interferon, which briefly became a public sensation as a possible cancer therapy but later proved disappointing.

Interferon Pharmaceuticals approached Burnison, who at that time was still working as a lawyer, and offered her 78 percent equity in the company in exchange for the right to develop and distribute products based on her patents. The directors also renamed the company Chantal Pharmaceuticals.

Life became difficult, however, after that promising beginning.

"Developing a drug is a saga," said Burnison in retrospect. A period of stalemate began in 1989, when company directors urged Burnison to obtain a licensing agreement with a major drug company -- a decision she now regrets.

"If I had to do it all again, I would not have licensed (my patents) to the majors, because I lost a few years," she said.

Prospects looked good in 1989, when Chantal struck a rich deal with E.R. Squibb & Sons, licensing the still-unapproved Cyoctol, which helps fight acne and male pattern baldness. The $22 million deal included a payment of $200,000 a month t keep Chantal afloat. A few months later, however, Squibb was acquired by Bristol-Myers Co., which halted the monthly payments.

Business Services Industry

Anti-aging drug enlivens Westside company's stock

Los Angeles Business Journal, Sept 26, 1994 by Morris Newman

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