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Natural-Drug Firm's Stock Sale Pays Off

Pharmaceuticals: ABT Global of Irvine will spend $13 million it raised to create and test plant-based treatments.


IRVINE — A tiny company with big ambitions raised $13 million in an initial public offering this week to develop extracts from medicinal plants that could pass regulatory standards for full-fledged drugs.

ABT Global Pharmaceutical Corp. sold 3 million shares at its hoped-for initial price of $5 a share after the Nasdaq market closed Wednesday. The stock generally traded in the $5-to-$6 range Thursday in its debut on the Nasdaq market before moving up to $6.25 at the close.

ABT aims to make money by unlocking the secrets of natural medicines--an increasingly popular pursuit in an industry that includes university researchers and garage tinkerers, makers of vitamins and dietary supplements, and even some of the world's largest drug companies.

The company has licensed technology from USC Medical School to create recipes for active ingredients in natural treatments for such diseases as AIDS, cancer and prostate enlargement. The company's founder and chairman, Tasneem A. Khwaja, a USC researcher, has already formulated extracts from mistletoe that the company believes can be injected to treat AIDS.

It plans to use funds raised in its $15-million offering to push ahead this fall with clinical trials of those extracts in Thailand. The company is also collaborating with another researcher to develop a treatment from extracts of saw palmetto berries for benign prostate enlargement.

However, analysts and medicinal experts predicted that it will be years before ABT can hope to prove to the Food and Drug Administration that its formulations are safe and effective. Though natural medicines have been used since ancient times as treatments, few have passed muster with federal regulators or physicians. The biochemical makeup of each plant is as individual as a fingerprint, making it tough both to document a plant's curative effects or manufacture drugs of predictable potency.

"This company is at square one on a very long and expensive board game," said Robert McCaleb, president of Herb Research Foundation, a nonprofit organization in Boulder, Colo.

Like many fledgling biotech outfits, ABT has little more to go on than technology developed by its founder. It has no revenue. It has lost $1.8 million since its inception two years ago and management expects operating losses will increase in the near future as it pursues its research and development plans.

Though herbal medicines filled the nation's pharmacies at the turn of the century, they fell out of popularity as chemically formulated drugs gained market share. In recent years, however, herbal medicines have come back in vogue. They are available through health stores and other outlets, and the federal government is even encouraging research into natural therapies.

Industry analysts note that ABT is one of many companies looking for ways to standardize medicines made from plants. But many herbal medicines haven't gone through the FDA, partly because it's hard to get a patent on a plant product.

ABT's Khwaja, the largest shareholder with a 26.6% stake, worked for 20 years at USC to develop the technology that is the cornerstone of the company.

ABT, which has seven employees, has headquarters in Irvine and lab operations at USC. A group of executives, directors and other existing investors now hold nearly 73% of the company's stock, according to its prospectus for the stock offering.

The company appears likely to receive U.S. patents on two AIDS treatments, according to the company and the U.S. Patent and Trademark Office. And it believes its technology will enable it to make identical batches of extracts from different plants.

But it's difficult for any drug that contains multiple chemicals--plant extracts included--to get past regulators.

"There's not a lot of clinical data available on these products," an FDA spokesman noted. "It's a situation where a lot of people are curious about them, but there isn't a lot of scientific information we have to validate them."

As a result, many botanical products that are sold overseas as drugs are marketed here through natural food stores as vitamins or dietary supplements.

For instance, saw palmetto extract is available through health food stores here as a prostate treatment. And mistletoe extracts are used throughout Europe to treat AIDS.

Analysts said ABT's success eventually will depend on its ability to develop treatments that work better than those on the market and, in a nation driven to control health-care costs, are cheaper.

Robert Mescal, a research analyst at New Issues who reviewed ABT's offering statement, said he has yet to be persuaded that the company's technology could lead to more economical remedies than are now available.

"Will this be cheaper? I can't visualize it," Mescal said.


ABT Global Pharmaceutical Corp.

Headquarters: Irvine

Business: Develops natural medicines from herbs and other plants

Employees: 7

Incorporated: 1994

Revenue: None

Fiscal 1996 net loss: $1.3

Expected IPO proceeds: $13 million

Current projects: Prostate gland medication from saw palmetto berries, AIDS treatment from European and Asian mistletoe

Source: M.H. Meyerson & Co., Inc.

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