Shareholders Sue Procyte Corp. After Fda Halts Testing Of Drug -- Seven Patients Died During Trials Of Firm's Wound-Healing Product

Kirkland-based ProCyte Corp. is the target of two lawsuits claiming the company failed to tell shareholders that some patients were dying in clinical studies on ProCyte's wound-healing drug.

The shareholder suits allege that ProCyte's top executives artificially inflated the company's stock price by failing to disclose that data it had on patient deaths could cause the Federal Drug Administration to halt tests on its key drug.

The FDA ordered ProCyte on Friday to stop tests on Iamin, used for topical treatment of foot ulcers in diabetic patients, after seven patients died.

As a result, the company postponed an offering of 2.5 million shares of common stock, which would have raised more than $35 million.

The FDA action led to a 30 percent decline in ProCyte's stock price yesterday. The stock rebounded by the end of the day, closing at $11 per share, up 12.5 cents on heavy trading volume.

The suits were filed in U.S. District Court in Seattle for three out-of-state shareholders, Robert Schachter of New York and Lawrence and Sandy Thierolf of Pennsylvania.

Their lawyer is Steve Berman, a Seattle attorney known for shareholder suits against many Seattle-area companies.

"They've been pumping the stock up with a lot of positive statements. (Then) they announced they were doing an offering. Then, boom, the drug falls out" of the picture, Berman said.

ProCyte claims the deaths were not caused by Iamin. "We believe

this is a very safe drug," said Karen Hedine, ProCyte vice president.

The company has said all seven patients had "a history of multiple, pre-existing cardiovascular complications."

Hedine said yesterday that Iamin was also involved in tests at the University of Washington to treat colitis. "We have treated 12 patients to date. There has been marked improvement overall" among those receiving the drug, she said.

The patients have had "no adverse effects to date," she added.

The FDA's order specifically covered the tests on foot ulcers, which are in the final, Phase III, stage of testing before approval. The order does not apply to the colitis tests, which are in earlier, Phase I and Phase II, stages.

Hedine, named as a defendant along with ProCyte and its chairman, Joseph Ashley, said she hadn't seen a copy of the suit. But she added: "Certainly we will defend ourselves. . . . The company has done everything that is appropriate."