Area Firm Accuses Partner of Fraud in RU-486 Venture

A Beverly Hills company involved in a complicated deal to eventually produce the controversial abortion pill RU-486 in the United States filed suit Thursday contending that a San Diego businessman used the venture as an illegal moneymaking scheme.

Shortly after the suit was filed, the Population Council, which holds U.S. patent rights for the French drug, said it wanted the businessman, Joseph D. Pike, to relinquish control of companies that would be involved in the pill’s American manufacturing.

The suit marks the first disclosure of the companies involved with the drug’s U.S. manufacture. Their identities had been kept secret by the Population Council, a New York-based nonprofit group involved in reproductive research, out of fear of protests by antiabortion groups.

Last month, the U.S. Food and Drug Administration gave preliminary approval to mifepristone, commonly known as RU-486. The pill will enable women to abort pregnancies much earlier in their terms.

The Population Council has said the drug will be available sometime in 1997. It was not immediately clear whether the new lawsuit will affect that.

In the suit, KCC, a unit of Beverly Hills-based Giant Group Ltd., a part owner of the Rallys Hamburger fast-food chain, charged that Pike is “an attorney disbarred for defrauding his clients and a criminal convicted of forgery.”

The suit claims that Pike was disbarred from practicing law in North Carolina in 1993 for “defrauding two clients in a real estate transaction in which he was financially interested and for his own financial gain.”

The suit further claims that Pike pleaded guilty in mid-1996 to forgery charges and was given a two-year prison sentence. It contends that the sentence was suspended pending successful completion of 18 months of probation.

KCC said that “had [it] known the truth about defendant Pike’s background,” it would have objected to him being a partner in NeoGen Investors and several affiliated firms that own the sub-licenses to produce and market RU-486. KCC said it invested $6 million in companies controlled by Pike for a 26% stake in the manufacturing venture.

The suit claims Pike created partnerships to raise more than $27 million to finance the project.

KCC said Pike breached the agreement “by attempting to sell equity interests in the enterprise which aggregate over 100%.”

“We want him to stop this process of trying to sell rights beyond 100%, which would damage the position of our company,” said Terry Christensen, a Beverly Hills attorney for KCC.

Jack Wills, a San Diego attorney representing Pike, told Associated Press that he could not comment on the lawsuit.

The suit contends that the potential marketing rights to RU-486 are “so lucrative that, if placed in the wrong hands, it has the potential to be the biggest fraud scam on investors in the past decade.” The drug, developed as an alternative to surgical abortion, has a potential $100 million market in the U.S., the suit says.

The Population Council said Thursday evening that it had, earlier in the week given Pike “a deadline to sell his controlling interest in the sub-licensees to an acceptable party.” The council said it would take “appropriate action” when the deadline expired.

In the suit filed in Los Angeles County Superior Court in Santa Monica, KCC said it entered into an agreement with Pike, who controls companies that hold sub-licenses to manufacture RU-486. (Other companies will make and distribute the drug under a complex chain of agreements that were designed in part to conceal the identity of the manufacturer.)

KCC charged Pike and the companies with fraud, breach of contract, fraudulent concealment and unfair business practices. The suit seeks at least $20 million in damages.

The Population Council said the action was taken in conjunction with Advances in Health Technology, a nonprofit Washington-based organization licensed to market and distribute mifepristone.

RU-486 was developed in the early 1980s by Roussel Uclaf, a French subsidiary of the German pharmaceutical giant Hoechst. Roussel Uclaf transferred U.S. patent rights to the Population Council.