Correlogic regroups, files for Chapter 11

Germantown company develops cancer tests
Fri, 07/23/2010

For the second time in a month, a Maryland bioscience company has filed for bankruptcy.

But unlike Cyto Pulse Sciences of Glen Burnie, which filed for Chapter 7 liquidation, Correlogic of Germantown has filed for Chapter 11 protection and plans to soldier on with its cancer test candidate.

The company, which develops software for blood assays that look at multiple biomarkers for cancer, recently won approval from European regulators for its OvaCheck early detection test for ovarian cancer. Executives are negotiating deals with European labs to use the test.

But domestically, the Food and Drug Administration has "moved the goal posts" on Correlogic, says CEO and co-founder Peter J. Levine. A year ago, the FDA ordered more studies before approving the test for use in the U.S.

"The FDA issue was not about results of the trial — there were no questions about that — but an arcane issue of the clinical trial population," Levine said in an interview. "There was no question about the fact that it worked."

Correlogic now is conducting a "second arm" of the trial on a slightly different population to address the FDA's concerns.

"We're in the middle of that," Levine said. "Assuming we get funding, we're probably about six to eight months from resubmitting to the FDA. We thought we'd be to market a year ago."

The company has struggled for years with the FDA, partly over whether OvaCheck should be defined as a medical device, which would put it under the agency's purview.

"We're in the Valley of Death — that's what [the National Institutes of Health] calls it," he said. "We have a product, we've spent tens of millions of dollars, we've proven it, but we're in a regulatory tug of war. The FDA has been moving the goal posts. It can't make up its mind. I don't question its good faith, but when the agency twitches, it has ramifications for industry and ultimately the public."

The FDA's rejection last year forced the privately held company to tighten its budget. It cut its staff from 18 to 10 full-timers and two part-timers and moved from Rockville to the business incubator on Montgomery College's campus in Germantown.

It also decided to file for Chapter 11 bankruptcy protection last week.

The company lists assets and liabilities of $1 million to $10 million. Most of its debt is back pay totaling $1.1 million owed to its employees, including $414,663 to Levine himself.

That so many Correlogic employees have worked without pay is a "testimonial to the loyalty and professionalism of the staff," Levine said. "We've had very rough times over the last year, but the staff hung in there."

The Chapter 11 filing also allowed Correlogic to get out of two contracts that were hamstringing its research and development efforts, Levine said. One of the contracts was with one of the company's investors, Quest Diagnostics of Teterboro, New Jersey, which owns 2.89 million shares of B preferred stock, according to Correlogic's website.

On Monday, the bankruptcy court granted Correlogic's motion to reject those contracts.

"That was a strategic move," Levine said. "It gives us more flexibility in how our product goes to market. It makes it more likely to have other investors come in and opens a wider range of how you ultimately finance this last leg of the long journey to get to market."

by Robert Rand | Staff Writer
Business Gazette (gazette.net)