By Debbie Strickland

With the future of its genital warts drug, AccuSite, in doubt, Matrix Pharmaceutical Inc. is restructuring operations and returning to its origins as a specialist in cancer drug delivery.

"We were founded to utilize novel drug delivery techniques to treat solid tumors," said Peter Dworkin, senior director of investor relations and corporate communications. "We got into dermatological [development] along the way, and AccuSite became our lead product."

The Fremont, Calif., company will lay off 66 of its 183 employees — a majority of the cuts coming from manufacturing operations — by the end of the year. The restructuring is expected to slash operating expenses by 35 percent.

"We will reduce our expenses significantly," pledged newly hired President and CEO Michael Casey in a recent statement.

Casey is a former senior executive with Johnson & Johnson, of New Brunswick, N.J.; Genetic Therapy Inc., of Gaithersburg, Md., which was sold to Sandoz (now Novartis A.G., of Basel, Switzerland) in 1995; and Schein Pharmaceutical Inc., a generic drug company based in Florham Park, N.J.

Interim CEO James Glynn will continue in the positions of chief operating officer and chief financial officer.

As part of the overhaul, the company plans to phase out a northern California factory a year ahead of schedule, closing the facility by the end of 1997. Manufacturing operations will be relocated to a new $23.6 million San Diego facility. Other functions — research and development, clinical trial management, regulatory affairs and administrative activities — will remain at Matrix's Fremont headquarters.

Matrix will take a one-time special charge in the third quarter of 1997 for severance and other restructuring-related expenses. The amount of the charge will be disclosed in the company's third quarter report, slated for a late October release.

The company's shares (NASDAQ:MATX) closed Wednesday at $4.375, down $0.563.

After receiving a second not-approvable letter from the FDA, Matrix last month halted U.S. development of AccuSite (fluorouracil/epinephrine) Injectable Gel, a therapy for genital warts approved in three European countries.

AccuSite also has been clinically tested for basal cell carcinoma and squamous cell carcinoma, achieving response rates of 80 percent and 96 percent, respectively. However, the product's response rates were not competitive with surgery in the basal cell carcinoma indication, and without the other indications, the company has no plans to pursue further development for squamous cell carcinoma.

Now Matrix plans to withdraw AccuSite from the market in the United Kingdom, where it was launched earlier this year for the treatment of genital warts. The European future of the product is unclear.

"It's not economical for us to be manufacturing AccuSite solely for the U.K. market," said Dworkin. "We're waiting for regulatory decisions in France, Germany and Italy, and after having those decisions . . . and meeting with the FDA we'll be in a better position to consider our commercialization options."

In addition to the U.K., AccuSite has been approved for genital warts (but not yet actually marketed) in Ireland and the Netherlands and has received recommendations for marketing clearance in Belgium, Denmark, Finland and Luxembourg.

In its AccuSite rejection letter, the FDA cited the same issue that was raised in the first not-approvable letter, sent in December 1996: the persistence of induration — a bump-like thickening or swelling — at the site of injection in some patients.

Matrix has scheduled a meeting with the FDA later this fall, in which the company will attempt to address the regulators' concerns. Matrix does not plan to conduct additional trials of the drug, which achieved a 78 percent complete response rate in registration-directed clinical trials.

Instead, resources are flowing into development of anticancer agents, such as IntraDose Injectable Gel, now in multinational Phase III studies for head and neck cancer and other accessible tumors and in multinational Phase II trials for liver cancer.

MPI 5020, a locally injected gel designed to enhance the effects of radiation, is in a Phase I/II breast cancer trial.

"We have a solid clinical pipeline," said Dworkin, "with several other compounds in preclinical studies. We're looking for opportunities to augment that pipeline and for collaboration opportunities."

As of June 30, Matrix had $95.9 million in cash, cash equivalents and investments, enough to sustain the company for several years, Dworkin said. The company reported a net loss of $19.53 million in the first half of 1997. *