In what came as no real surprise to industry watchers, medical products maker Gliatech Inc., struggling since the FDA began investigating questionable erasures and writeovers of clinical trial data for its Adcon-L anti-scarring gel, has filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Northern District of Ohio.

Gliatech, of Cleveland, whose revenues also were hurt by a voluntary worldwide recall of its primary products, had said recently it doubted that the proceeds of any sale would raise enough cash to finance continued operations of the company. It has $2.4 million on hand, enough to pay for operations only through May.

"This is not the situation we were hoping for," said Adam Gridley, director of business development. "We have done everything we can and this is probably the best alternative for us at this point." He noted that the company is seeking possible sale of all of its assets via the Chapter 11 route.

FDA questions about the company's clinical trials that called into doubt trial results served to foil a proposed $203 million merger between Gliatech and Guilford Pharmaceuticals, of Baltimore, in August 2000, one of several setbacks the company endured.

The company's fate was apparently sealed in October when new FDA tests of the company's Adcon-L gel showed it did not prove effective in reducing post-surgical scarring, thus confirming the agency's allegations.

As a result of the FDA re-read, the company in April was compelled to plead guilty in U.S. District Court to providing false or incomplete information to that agency. U.S. District Magistrate Judge Jack Streepy gave the company the maximum $1.2 million fine for six violations of the Food, Drug and Cosmetic Act.

To make matters worse, the company's stock was delisted from the Nasdaq National Market on Jan. 18 due to its financial problems and when the company reported at the end of last month that it was not able to secure any new financing, the end appeared near.

"We've been very forthright with our investors regarding our cash position," Gridley said. "And you have to be. There's a risk when you're dealing with the industry that we're in." He noted that when the non-binding term sheet for the failed financing did not go through, the company decided that selling the assets would be the best way to realize the most value from its various programs.

Gliatech's only other marketed product was Adcon-T/N for treatment after tendon and peripheral nerve surgeries. Both products were recalled worldwide, but the company attributed the recalls to a raw materials problem with its manufacturer.

As a result of the recall, the company reported a loss of about $23.7 million last year, compared to a net loss of just under $13 million in 2000.

Gridley noted that the Adcon gel products are back on the international market and the products have been used in more than 200,000 procedures worldwide. "We're going to do everything we can to make sure that we can at least get the product back out [in the U.S.] in some form or fashion."

Gliatech said it has had discussions with several potential buyers regarding a sale of all or parts of the Adcon family of products.

The company also said it has entered into an agreement with an unnamed strategic partner on the sale of $5 million of its assets related to its other drug candidates and programs.

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