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Potential Liability of Contraceptive Cited : VLI Says Suitor Broke Off Negotiations Over Merger

November 14, 1986|ROBERT HANLEY | Times Staff Writer

Less than two weeks after disclosing that it was discussing its acquisition by another company, VLI Corp. said Thursday that its still-unidentified suitor broke off talks because of the potential product liability associated with VLI's Today contraceptive sponge.

"Basically, they were concerned about the product liability aspect," said Robert Elliott, VLI's chairman and chief executive. "Product liability is a very serious issue here in America."

Trading of VLI stock on NASDAQ was halted for nearly two hours Thursday after the company issued a brief statement on the collapse of the talks.

After trading resumed, shortly before the market's close, Irvine-based VLI plummeted $1.25 to a closing price of $4 a share. More than 262,000 shares changed hands, most during the final minutes of trading.

Elliott, who declined to identify the other firm other than to describe it as a "Fortune 100 company," said the decision last week by the U.S. Supreme Court not to hear an appeal of a $4.2-million product liability judgment against Johnson & Johnson may have played a role in the decision.

The appeal, by Johnson & Johnson's Ortho Pharmaceutical Co. subsidiary, sought to overturn an award made to a couple who blamed Ortho-Gynol contraceptive jelly for their daughter's multiple birth defects.

While the Today sponge uses a different spermicide altogether, Elliott said the other company had speculated that it might be necessary to add new warnings to its packaging, something that could "have a negative impact on sales."

Elliott said VLI has no plans at this time to revise the warnings that already accompany the Today sponge.

Although Elliott has declined to identify the other company, there has been some speculation that the suitor was none other than Johnson & Johnson. Officials of the New Jersey drug and consumer products giant have declined comment.

In late 1983, the Today sponge was linked to several cases of toxic shock syndrome, which eroded both the value of VLI stock and consumer confidence in the product before the Food and Drug Administration exonerated the sponge as "relatively safe."

Despite the negative publicity that surrounded the Today sponge, the device has since rebounded to become the nation's most popular non-prescription female contraceptive. The Today sponge now has just under a 30% share of the market, Elliott said.

In a move to diversify its product line, VLI plans to file for FDA approval of a vaginal sponge that would be used to treat yeast infections. Also, the company recently agreed to be the sole U.S. distributor of a British firm's pregnancy test kit.

"It's good business to be more than just a one-product company," Elliott said. "We believe that we are a super little company and can market other people's products to take advantage of the expertise we have."

Although VLI has yet to post a yearly profit, Elliott said he has "very bullish" expectations for 1987.

Two weeks ago, VLI's share price began climbing sharply amid heavy volume on news of the merger talks, peaking last Friday at $6.25 a share, just off its 12-month high of $6.75. VLI, which once traded as high as $26.75 a share, hit a new low of $3 a share in October.

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