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Chantal Working to Counter Bad Publicity

Health: Firm promises expert testimony on Ethocyn, will hire auditor.


Reeling from a barrage of negative publicity, Chantal Pharmaceutical Corp. on Tuesday struggled to shore up its reputation amid concerns about its accounting practices and the effectiveness of its only product.

The Los Angeles-based company, whose anti-wrinkle cream, Ethocyn, has been heavily promoted in TV and magazine advertisements, promised to put together within the week an investors conference featuring "nationally recognized dermatologists and skin care experts" to vouch for the product. However, the company said it was not ready to discuss who those experts will be.

Chantal's stock, although it recovered slightly Tuesday, has plunged from a recent high of $28 to about $7. After Barron's magazine this weekend published a highly critical article about the company, Chantal's stock fell $11.81 to $7.31 on Monday--erasing $210 million in market value in a single day.

The company also said it has hired a New York public relations firm specializing in crisis management.

Chantal began its slide last week after health-care giant Johnson & Johnson received Food and Drug Administration approval to market the first prescription product designed to fight wrinkles and other skin problems. That product, Renova, is expected to provide stiff competition for Ethocyn, a more expensive nonprescription product that is sold in drugstores.

Chantal said it will also hire an independent auditing firm to evaluate the company's distribution agreement with Los Angeles-based Stanson Medical Marketing. That move came after the Barron's article questioned Chantal's ties to Stanson, whose president, Frederick Reinstein, is a defendant in several lawsuits accusing him of fraudulent activities.

The magazine article also questions a provision in Chantal's distribution agreement that gave Stanson the option to sell itself to Chantal at any time after Dec. 31, 1995. The article questions whether Ethocyn's reported revenue of $10.9 million for the quarter ended Sept. 30 was meaningful, given that most of those sales were to a distributor it might purchase in the future. If such a purchase occurred, it is possible that sales recorded by Ethocyn would convert back to receivables if, for example, Stanson had unsold product or product returned by drugstores.

On Tuesday, Chantal said Stanson had agreed for now to cancel the option. But Chantal also said it has not entirely ruled out a sale.

"These were real sales," Chantal Burnison, the company's chairwoman and chief executive, said.

Burnison also took issue with reports questioning the effectiveness of Ethocyn. She said studies by a UCLA Medical School researcher have shown that Ethocyn blocks hormone receptors in the skin that cause wrinkles and other signs of aging.

Chantal shares gained 31 cents to $7.625 on Nasdaq on Tuesday in another day of heavy trading. More than 5.38 million shares changed hands.


Serious Slide

Negative publicity over its wrinkle cream and financial statements has sent Chantal Pharmaceutical stock plunging. Monthly highs, except latest:

Tuesday: $7.63, up 31 cents

Note: Shares trade on Nasdaq.

Source: TradeLine

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