Subject: Dartmouth Probes Ties to Holding In Biotechnology Date: Published: 8/31/92 (96 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. Dartmouth Probes Ties to Holding In Biotechnology ---- By Susan Pulliam Staff Reporter of The Wall Street Journal Dartmouth College's medical school said it is looking into questions that were raised in an anonymous letter it received about the relationship between the college, certain faculty members and Medarex Inc., a biotechnology company in which it owns a 9% stake. As a result of the review by the college, Medarex, in a highly unusual move, said Friday that it decided to cancel its recent sale of roughly $7 million in common stock even though the sale had been declared effective Thursday. On Thursday afternoon trading in the stock on the National Association of Securities Dealers Automated Quotations system was halted, with the stock quoted at $6.875. The development raises questions about the adequacy of the controls that universities apply to such arrangements with business. Dartmouth defends its current safeguards. "Dartmouth Medical School has procedures and policies for safeguarding integrity in research, research training and other related activities," the university declared. The college said it is seeking advice from the National Institutes of Health and Dr. Daniel Tosteson, dean of the Harvard Medical School, in its review of the allegations of misconduct. Medarex said it is probing the questions raised in the letter but is "confident that the inquiries will show that all of the anonymous charges are wholly without merit." The company said it has started an independent inquiry to look into the charges. Dartmouth, meanwhile, said it viewed the charges with the "utmost seriousness," adding that the faculty members have denied any misconduct. Medarex, based in Princeton, N. J., was formed as a joint venture between several Dartmouth faculty members and Essex Chemical Corp. in 1987 to develop treatments for acquired immune deficiency syndrome, or AIDS, cancer and other diseases. When the company was set up Dartmouth received its stake for technology that was developed at the college. Dartmouth didn't invest any money in the company, getting the stock in exchange for the technology. When Essex was acquired by Dow Chemical Corp. in 1988, Medarex was acquired by several faculty members and former Essex employees. Medarex became publicly owned in an initial stock offering last year and has roughly five million shares outstanding, valued at around $35 million. Neither the company nor Dartmouth would elaborate on the allegations in the anonymous letter, which was received by the college last week. Dartmouth's stake in the company is unusual for a college, however. Unlike most joint ventures between university faculty members and companies, Dartmouth received stock totaling around 9% of the company instead of royalty rights to the technology, as is usually the case. By receiving the stock, currently valued at around $3 million, Dartmouth probably hoped to reap profits from the venture more quickly than through the sale of royalty rights, since Medarex's drug treatments were only in the testing stage and a long way from approval for marketing. Dartmouth's holding is a risky one for a university. After huge gains last year and a spate of popularity with investors, the stocks of many biotechnology companies have sunk in price this year. Too small in many cases to show earnings, these companies find their stocks zigzagging wildly, largely because their futures are tied to clinical trials of drugs and treatments that may or may not be approved for use. In addition to Dartmouth, the company has a star-studded list of other institutional investors. Market-data suppliers list such holders as Gabelli Funds Inc., a company run by the well-known mutual fund manager Mario Gabelli; Fidelity Management & Research Co., a unit of the huge Boston mutual fund company, Fidelity Investments, Bank of Boston Corp. ; Wells Fargo Institutional Trust Co., a unit of Wells Fargo & Co., and Primerica Corp. 's Smith Barney, Harris Upham & Co. securities unit. Other large shareholders of the company are its founders. These include some Dartmouth faculty members -- Dr. Michael Fanger, Dr. Paul Guyre and Dr. Edward D. Ball -- as well as Donald Drakeman, Medarex's president and chief executive officer, who is a former Essex employee; and Charles Schaller, Medarex's chairman, also a former Essex employee. None of the founders returned telephone calls seeking comment. The NASD said it expects the company's stock, under the symbol MEDX, to resume trading at the opening of business today. The company had planned on using the proceeds from the canceled stock offering to speed up testing of its treatments, said a company official. "It was an opportunity to pick up some additional cash to move products more quickly into clinical trials," he said. The NASD said it wouldn't cancel any secondary-market transactions in Medarex's stock made from Aug. 20 through Thursday. But if any subscribers to the offering sold shares before taking physical delivery, they will have to cover their positions, because they technically are short the stock. [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]