By Lisa Seachrist

Washington Editor

The FDA is requiring that cash-strapped Interferon Sciences Inc. conduct an additional Phase III clinical study in order to expand the label for its natural-source, multispecies alpha interferon to include the treatment of previously untreated patients infected with the hepatitis C virus.

This is the second setback for the New Brunswick, N.J.-based company, which is trying to expand the label of its FDA-approved interferon - Alferon N injection. In April of last year, the agency determined that the company needed an additional clinical trial to expand the label to include HIV-infected individuals.

With $500,000 cash on hand, Interferon is looking to a New Jersey state program that allows companies to sell their tax assets to other companies. That program, however, has yet to be implemented.

"The program would allow us to use a tax asset earlier than we could otherwise," said Lawrence Gordon, Interferon's CEO. "Getting the money would give us some flexibility in how we proceed. We are just waiting for the implementation."

The program allows certain high-technology and biotechnology companies to transfer unused New Jersey operating loss carryovers to other New Jersey corporation business taxpayers. Interferon would be able to transfer its net operating losses over the last seven years - nearly $85 million. The company purchasing the operating losses would then pay Interferon 75 percent of the losses. Using New Jersey's maximum corporate income tax of 9 percent and the 75 percent minimum transfer price, the unused New Jersey net operating loss carryovers would have a value of at least $5.73 million.

However, the state must determine that Interferon qualifies for the program before any transfer could take place. Gordon noted that several companies have expressed interest in buying Interferon's operating losses.

"This program allows companies without access to the capital markets access to capital nonetheless," Gordon said.

Because the administrative details have yet to be worked out, Interferon has cut its staff and is considering consolidating into one facility. In April 1998, the company ceased manufacturing to cut expenses.

Should the New Jersey law fail to be implemented in time, Gordon said Interferon might have to be sold.

Interferon's lead product is Alferon, which was approved by FDA in 1989 for the treatment of genital warts. The drug is a naturally derived alpha interferon comprised of a specific blend of proteins containing many different species of alpha interferon.

The company tested Alferon against Intron A in an attempt to show that Alferon was superior. The trial, however, didn't show such results. Intron A is sold by Schering-Plough Corp., of Madison, N.J. The drug, developed by Biogen Inc., of Cambridge, Mass., is a recombinant alpha-2b.

Interferon's stock (OTC:IFSC) closed Wednesday at 37.5 cents per share, down 3.125 cents.