Management performance and insider trading at U.S. BioscienceInc. came under sharp scrutiny from analysts and shareholdersTuesday in the aftermath of the rejection of the company'sEthyol product by an FDA advisory committee.

Investors who expected the Food and Drug Administrationpanel to recommend approval of Ethyol last Friday weredismayed when an advisory committee said interim clinicaltrial data were insufficient to warrant approval. U.S. Biosciencestock (AMEX:UBS) plummeted $13.75 on Monday beforerecovering $1.50 to $19.25 on Tuesday.

According to Securities and Exchange Commission records,officers and directors of the company sold about 250,000shares of stock between Nov. 19, when the advisory panelmeeting was announced, and Dec. 30. Based on the $39.63closing price on Nov. 18, gross proceeds from the sales totaledat least $9.9 million.

During that time, the shares rocketed from $39.63 to close at$85 on Jan. 7 before beginning to fall back. The stocksubsequently split 2 for 1 on Jan. 16.

On Tuesday, U.S. Bioscience announced that a stockholder hasfiled a class-action suit in U.S. District Court in Pennsylvaniaagainst the West Conshohocken, Pa., company. The suit allegesthe company committed fraud and negligent misrepresentationin statements about the likelihood of approval last Friday.

"The company and (President and Chief Executive Officer) Dr.Phillip Schein believe that there is no merit to the allegations inthe complaint, and will file a response in the next severaldays," said Robert Kriebel, senior vice president of finance andadministration. "We had every expectation that this productwould be approved, and felt that we had a good submission."

In a blistering comment issued Tuesday, Kidder Peabodyanalyst Robert Kupor said the advisory panel's action "severelyundermined the credibility of both the drug and UBSmanagement. ... We anticipate intense reaction from investorswho purchased the stock at recent high levels on the belief thatthe FDA was anxious to approve Ethyol as quickly as possible(especially because Dr. Schein sold millions of dollars ofpersonal stock in this run-up). Additionally, the FDA's far-reaching criticisms of the Phase III trial's design and analysisraise disturbing questions about the company's competence inits chosen field and its ability to inform investors of itsprogress and problems."

Kupor predicted that Ethyol will be resubmitted to the FDA inthe second half of 1993 and launched with a label restricted toovarian cancer in 1994-95, achieving sales of $50 million by1998. "We believe UBS stock is worth $10 per share, and wehave lowered our rating on the stock to 'underperform' from'hold,' Kupor said.

According to Vickers Weekly Insider Report, a newsletterpublished in Huntington, N.Y., Schein reduced his holdings of500,500 shares by 50,000 shares on Sept. 20, 10 days beforeU.S. Bioscience filed its new drug application for Ethyol, and byanother 50,000 shares from Oct. 18-23.

SEC records indicate Schein sold 100,150 shares between Nov.19 and Dec. 14.

Several other stockholders, listed as officers and directors withthe SEC, eliminated or reduced their holdings since U.S.Bioscience filed its NDA.

The Vickers newsletter rates companies based on insidertrading activity, and gives U.S. Bioscience a rating of -78. That's"one of the 15-20 least enthusiastic ratings" of the 1,000companies included in the index, said editor David Coleman.

"It appears that the insiders had been sending us a warningsignal," Coleman told BioWorld. "They were either getting outfrom the stock completely or selling at least half, if not more, ofwhat they had been holding. Also, there is complete unanimityin their stock trading activities. They are all sellingconsistently. To me, that is a significant warning signal."

Schein and other company insiders have sold stock "strictly asa matter of diversification," Kriebel responded. "It is prudent toconsider diversification efforts, and that is what thoseindividuals have done," he said.

Barbara Scheffler, senior vice president for clinical andregulatory affairs, is holding about 15,000 shares after selling11,500 shares from Dec. 2-4. "It was sold to diversify my networth," Scheffler told BioWorld. "My net worth was all in onebasket, and my accountant recommended that I diversify."

-- Kris Herbst BioWorld Washington Bureau

(c) 1997 American Health Consultants. All rights reserved.