Miami Herald - Monday, December 28 1987
Rosalind Resnick, Herald Business Writer

That's partly because E.F. Hutton, one of the company's underwriters, had fired its investment banking staff just days before the shares were supposed to be offered. The veteran brokerage house, shaken by the October stock market crash, has agreed to merge with Shearson Lehman Brothers. The IVAX offering has been postponed until January.

But the Miami Beach dermatologist who developed Key Pharmaceuticals into a successful firm -- and sold it last year to Madison, N.J. giant Schering-Plough -- isn't worried. Though the stock sale would have raised $10 million to fund and market new products, Frost said the setback on Wall Street won't stop him from reaching his goal -- to turn IVAX into a major pharmaceuticals company.

"For the moment, it doesn't affect us at all," Frost said. "We're moving forward, anyway."

Frost, still a $500,000-a-year consultant to Schering-Plough, wants to go Key Pharmaceuticals one better. While Key made its name in drug-delivery systems, IVAX plans to diversify into more lucrative areas with drugs that treat spinal-cord injuries, breast cancer, heart failure and AIDS.

By grafting a specialty chemicals company onto two small research and development firms, Frost plans to use earnings from the chemicals business to fund development of potentially more profitable drugs.

If Frost's venture succeeds, it could eventually provide new jobs for some of the hundreds of former Key manufacturing workers laid off by Schering-Plough since the merger.

Frost's strategy this time is to build a diversified pharmaceuticals company that will grow rapidly through innovative research and blockbuster drugs. Growth at Key, he said, was hampered by lack of cash and heavy debts.

"Drug-delivery systems are good, and they can lead to products that have lower risk of development," Frost said, "but the major markets are best developed by new (drugs)."

A good example of Frost's approach is the company's AIDS drug. In lab studies, the new drug has proved 50 to 100 times more potent than AZT, an existing AIDS drug, and appears to be safer, Frost said. Both drugs prevent the spread of HIV virus in AIDS patients. The IVAX drug still must undergo clinical trials.

"Competition doesn't mean much in this field," Frost said. "Most of the large companies have whole teams of people. All that really counts is brain power."

The company licensed the drug from the University of Miami Medical School. It recently signed a letter of intent to jointly develop the drug with Schering Corp. Schering will manufacture and market the drug; Frost's company will receive a royalty based on its sales.

Potential profits still lie in the future, however. For the nine months ended Sept. 30, IVAX Corp. posted consolidated net sales of $20.95 million and a net loss of $1.46 million, or a loss of 11 cents a share. Revenues for IVAX Industries, the chemicals division, rose to $10.67 million for the nine-month period from $3.51 million in 1986, though net income dropped to $427,000 from $515,000 the year before.

At Pharmedix, the pharmaceuticals arm, revenues jumped to $168,000 from $39,000 in the first nine months of 1986, though the division's net loss deepened to $931,000 from $42,000 the previous year. Diamedix, formerly Cordis Labs, a diagnostic kit maker, posted revenues of $1.6 million, up from $1.43 million in 1986, while increasing its net loss to $221,000 from $41,000 the previous year.

"The fundamentals of the company are very strong," said Garo Armen, a chemicals industry analyst with Dean Witter, the offering's other underwriter. "The two key ingredients for success are management and product, and IVAX gets very high marks on both counts."

"(The company) was a good value before Phil Frost bought it," he said, "but now it's a growth story."

Armen said he believes three of the company's drugs show the greatest potential: Naloxone, an old drug put to new uses to treat spinal-cord injury and strokes; nalmefene, a drug that acts to reverse overdose and can be used to rouse patients after office surgery, and the AIDS drug.

Both naloxone and nalmefene are in Phase III clinical trials, the final testing stage in which a drug is studied to confirm its safety and effectiveness. The market for naloxone could reach several $100 million, Armen said.

Though the analyst believes it's too early to make projections of IVAX's earnings, he said he expects the company to break even in 1988 and to turn a profit in 1989. He said the company has a chance to be "even more exciting" than Key Pharmaceuticals. The company's shares, which reached a high of $19.50 in its September quarter, closed at 9 7/8 Thursday on the American Stock Exchange. Frost started to put together IVAX even before he sold Key Pharmaceuticals in June 1986. Together with a group of investors, including Joseph Geigel, former director of immunological research at the Dade division of American Hospital Supply, Frost bought Cordis Labs and renamed it Diamedix.

He started Pharmedix last December with Dr. Jack Fishman, formerly senior scientific adviser at Key, and Dr. Charles Hsiao, Key's former director of pharmaceutical research. Funded by a $6.9 million private placement, the company set out to develop, manufacture and market prescription and over-the-counter drugs.

Along the way, Frost also invested in Inland Vacuum Industries, a publicly traded New Jersey company that manufactures vacuum-pump fluids. In August, he added Masury-Columbia Co., a manufacturer of industrial cleaning products and janitorial supplies.

Frost, who is chief of dermatology at Mt. Sinai Medical Center in Miami Beach, quickly realized that running one company would be easier than juggling three. On Dec. 10, shareholders voted to merge IVACO with Pharmedix and Diamedix and to change the company's name to IVAX Corp.

Frost owns 35.2 percent of the merged company's common stock. Hsiao and Fishman each own 17 percent. Together, IVAX's 12 directors and officers own 71.4 percent of the company.

"We want to use (the chemicals business) as a cash cow to have its income support the development of products in the pharmaceuticals industry," Frost said. "It's a conservative approach because it lends balance to the company from the investors' point-of-view."

The company has its infrastructure in place. IVAX recently won a $7.18 million industrial revenue bond from Dade County. Its 74,200-square-foot manufacturing plant at 8800 NW 36th Street in Miami houses Pharmedix's research labs and the company's executive offices. Diamedix operates out of another Miami location. The chemicals division remains in New Jersey.

The company's research efforts are under way. Pharmedix has obtained seven licenses for drugs in various stages of development from early lab research to Phase III clinical trials and has started in-house development on drug-delivery products, Key's old specialty. The company also has developed a line of skin-care products for infants and children.

Frost has reassembled his old team. Of the 31 executives and laboratory employees at the company's headquarters, 15 once worked for Key.

The first IVAX product to come to market will be Granulettes -- cardboard-backed plastic bubbles, similar to airline salt and pepper packages, that dispense accurate dosages of 20 of the most commonly prescribed prescription and over-the-counter drugs. The drugs have no taste, and parents can mix them with their apple sauce or ice cream. Because patents on the cough and cold remedies have expired, IVAX will not have to pay royalties or licensing fees.

Frost said the company plans to start hiring manufacturing employees and a 12-person sales force early next year. The packets should be available within six months, he said. The skin-care line will also be introduced soon.

"We're conservative," Frost said. "We believe in having good assets, profits, and, eventually, dividends."

CAPTION: PHOTO Dr. Phillip FROST checks out a process with Solomon Goll at IVAX.
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