By Mary Welch

CellPro Inc. reduced its staff by 11 percent in a move designed to keep the company alive while it awaits a decision from the U.S. Court of Appeals on its long-standing patent infringement suit against Baxter Healthcare Corp., Becton Dickinson and Co., and Johns Hopkins University.

Bothell, Wash.,-based CellPro made across-the-board cuts, with the exception of its field sales and technical support teams. In all, about 15 employees got pink slips, and Larry Culver, executive vice president, chief operating officer and chief financial officer, resigned. The company now has about 135 employees.

"While we're in this transitional stage [awaiting the judges' ruling], we decided to reorganize and streamline," said Richard Murdock, CellPro's president and CEO. "This is a positive move because it means that we are intending to stay in business and grow and succeed. Baxter's been telling people and our customers that we will be going out of business. We are not."

CellPro's stock (NASDAQ:CPRO) closed Tuesday at $3.062, up $0.062.

CellPro, which rounded out its 1998 fiscal year March 31, reported a net loss of $22.5 million. The litigation cost the company $17 million for the year.

The company had about $20.2 million in cash on hand. Product sales were $10.7 million.

CellPro's contested product, Ceprate SC Stem Cell Concentration System, is selling well in Europe, is penetrating the U.S. market and is now available in about 80 sites in the U.S., Murdock said.

The system selects and purifies cells and is used to replenish cancer patients' bone marrow, which is destroyed by chemotherapy and radiation. Prior to chemotherapy, a patient's bone marrow is extracted and frozen. The technology removes stem cells from bone marrow by collecting cells that bear the CD34 marker molecule on their surface. These cells, which can reproduce the body's immune system cells, are then returned to the patient following chemotherapy.

The product passed Phase III trials with flying colors and the device was cleared by the FDA in December 1996. In March of this year, an FDA advisory panel recommended that the device receive an expanded label to include its ability to concentrate stem cells from peripheral blood as a support for myeloablatiave chemotherapy.

Expansion of the label could turn the product into a blockbuster tumor-cell-purging device, because physicians are likely to regard the labeling as proof of principle and use it for patients undergoing high-dose chemotherapy for other cancers. (See BioWorld Today, March 25, 1998, p. 1.)

On the other hand, Baxter's competing device, called the Isolex 300 Magnetic Cell Separator System, is in Phase II trials and the company has filed for a premarket approval with the FDA. In the trials, Baxter has tested the bone marrow purification process in patients with breast cancer and lymphoma.

"We had to go through the entire FDA process, which we agree with," Murdock said. "We want to make sure that Baxter is held to the same standards and goes through Phase III trials."

The Baxter stem cell isolation technology was developed by Johns Hopkins with government funds. Johns Hopkins licensed the patents to Becton, which then licensed the technology for therapeutic uses to Baxter Healthcare, the principal U.S. operating subsidiary of Deerfield, Ill.-based Baxter International Inc.

At the heart of Murdock's comments and the reorganization is a bitter six-year patent infringement case dating to 1992. The litigation pits CellPro against Baxter; Becton Dickinson, of Franklin Lakes, N.J.; and Johns Hopkins, of Baltimore.

Appeals Court Ruling May Be Issued By Year's End

The case now centers on two patents covering CD34 monoclonal antibodies and stem cell selection technology. In 1997, a U.S. District judge in Wilmington, Del., ruled CellPro violated the two patents and set a $2.3 million fine. He later imposed punitive damages of $6.7 million, and ordered CellPro to curtail sales and pay a portion of the profits to Baxter.

In July 1997, the judge issued a permanent injunction that required CellPro to, among other things, cut non-U.S. sales of disposable Ceprate-related products by 25 percent per quarter starting in the fourth quarter of 1996. Last February, CellPro was granted a stay allowing it to sell internationally without the phase-down limitations. In addition, CellPro is allowed to market its products only until Baxter's device is available.

As the case now stands, oral arguments were finished in May at the U.S. Court of Appeals, and the three-judge panel's decision could take at least until the end of the year.

"They can do three things," Murdock said. "They can uphold the district court's decision, which we don't believe because there were errors made. They can go back to the jury's verdict, which would be a home run for us. Or they can remand it back for a new trial.

"We'd be happy to go back into court again. If it goes back for re-trial, then our royalties that we've had to pay to Baxter [as part of the district court's ruling] go back to us as does the $9 million that we have in escrow." *