Editor’s note: BioWatch is a regular feature on Fridays.aaiPharma (Nasdaq: AAII), which said earlier this week it will delay filing it’s quarterly SEC report, may face a lingering market suspicion even if it’s largely or partly vindicated in court, a Raleigh attorney says.

“The suit creates a where-there’s-smoke-there’s-fire mentality,” Christopher Matton, a partner with Kilpatrick Stockton, Raleigh, tells Local Tech Wire. “If and when the suits are resolved in a manner favorable to the company, the market can have a hard time shaking the taint of irregularities.”

Matton says that the fact the company hired a law firm to conduct an independent investigation into what it called “unusual sales,” is not enough evidence to assume the worst.

“People tend to hire law firms under this type of circumstance. There are important legal and public relations reasons for a company to hire a law firm. A lot of companies may or may not be aware of everything their employees are doing,” Matton says.

aaiPharma faced class action lawsuits alleging it inflated its sales expectations even before issuing a statement in February saying it was conducting an investigation of sales irregularities and might have to restate earnings for the last quarter of 2003 and the year, as well as current expectations.

The company is accused of stuffing its sales channels to inflate sales figures in the second half of 2003. Analysts at Raymond James & Associates made the same charge last year prior to any suits being filed.

The company’s stock slid precipitously following the announcement it was conducting an investigation, dropping 65 percent to the $9 range. The Internet financial boards hummed with comments pro and con on the company and its prospects. One writer on AOL’s finance boards wrote: “This company has more cheap suits than a third rate lawyer.”

Others defended it, saying the stock might rebound in as little as 10 days – a mistaken prediction.

About a week ago, the financial weekly Barrons said the stock was worth $5 a share.

Matton says that while the company and its shareholders would probably rather have the class action suits settled and out of the way, they could actually take years to resolve.

Get by it and prosper

“There’s no question that an adverse result in a shareholders’ suit would be a bad thing for any company and its share price,” Matton says.

“That said, there are degrees of how bad a result can be. You can imagine a lot of channel stuffing or hardly any but still some. In both cases the company might lose, but the result might be better news than the market anticipates today.”

Matton says trying to predict what will happen at this stage is like reading tea leaves. “These fire storms come up,” he says. “As a general rule, they’re usually something a company can get over. It’s too early to say it’s going to be a disaster.”

The exception, he notes, is when management is guilty of benefiting from actual fraud, such as in the Tyco case. “Otherwise, companies can get by it and prosper.”

One thing to look for, Matton suggests, is possible take-over attempts. “Corporate America is survival of the fittest and if someone had a particular desire to acquire the company, they might say, ‘why not now?'”

“Timely as it gets”

Synthon Pharmaceuticals USA, based in Chapel Hill, launched a cheaper alternative to certain anti-depression drugs, including the popular Paxil, Thursday. The company says it may be the first of many less expensive prescription drugs to come.

Synthon changes the chemistry of drugs without changing their effectiveness or safety profile, making it possible to offer cheaper alternatives to some.

Andrew D. Shales, director of sales and marketing at Synthon, tells Local Tech Wire, “With all the news about people trying to get cheaper drugs in Canada and seniors not able to afford prescription drugs, this is as timely as it gets.”

The company has a pipeline of drugs with the next likely filing in late 2005, Shales says. The pipeline includes drugs for cardio-vascular and central nervous system disorders, he says.

Shales declined to offer any more information about what specific types of drugs Synthon might be in the pipeline.

But cholesterol lowering drugs such as statins are among the most expensive and best-selling on today’s prescription marketplace, so we wouldn’t be surprised if something like that were in the hamper.

The company, a wholly owned U.S. subsidiary of a Holland holding company, employs 40 people at its Chapel Hill USA headquarters. It has representatives nationally, including one each in Greensboro, the Research Triangle, and Charlotte.

Shales says that marketing its first product, Pexeva, will produce revenue to help the company fuel future growth and future hiring. Last year, patients spent $2.7 billion on Paxil and $10.6 billion on its type of anti-depression drugs. Pexeva sells for 31 percent less than Paxil.

The Synthon drug, which has been sold in Europe for more than three years, uses a different inactive salt and the same active ingredient as Paxil.

The Synthon group of companies sells 56 products in 38 countries. Pexeva is its first U.S. launch. Shales said the companies did about $200 million in sales last year. Synthon will market the drug through Ventiv Health Inc., a New Jersey based sales and marketing team.

“The sales team actually reports to us. Over time, we hope to fill their bags with more products from Synthon and eventually have them become Synthon employees,” says Shales.

Synthon USA: www.synthon-usa.com

Kilpatrick Stockton: www.kilstock.com