Tug Of War Over An Aids Test
Sometimes, the little guy gets a break. On July 15, an arbitrator ordered Johnson & Johnson to relinquish all assets of home HIV test maker Direct Access Diagnostics (DAD) to Elliot J. Millenson, who had founded the company and then sold it to J&J in 1993. The New Jersey-based arbitrator, retired Judge John J. Gibbons, found that Millenson, who had stayed on as the unit's chief executive after the sale, had been fired without cause after just two years of a three-year contract. Gibbons based his order largely on Millenson's employment agreement, which stipulated the return of all DAD assets to him if he was terminated without cause.
Rather than hand Millenson the company, which it bought for $2 million and then invested $60 million more in, J&J sought to vacate the award. But on Oct. 22, New Jersey State Superior Court Judge Wilfred Diana denied the company's bid to overturn Gibbons' decision. J&J lawyers were given 45 days to decide whether to appeal this decision, too. "The real issue for J&J is whether they're going to comply with the inevitable or try to put off the inevitable," says J. Alan Galbraith, the Washington attorney who is handling Millenson's case. A company spokesman would say only that J&J is "evaluating the decision and will determine the appropriate next steps."
J&J's problems may get even messier. Partner Chiron Corp. of Emeryville, Calif., isn't ruling out legal action, says a spokesman. Chiron, which anted up $20 million of the development money for Confide, DAD's HIV test kit, could lose its investment if Confide goes to Millenson. "We're working with J&J to sort out Chiron's interest in this business," says the Chiron spokesman.
The whole DAD wrangle began in February, 1995, when Millenson was fired. The reason, according to a letter given to Millenson at that time, was his "failure to follow express directions," from Gary V. Parlin, a J&J group chairman who oversees Ortho and DAD. The "directions" were in a Nov. 18, 1994, memo Parlin sent to Millenson telling him to seek prior approval for political contributions over $1,000. In firing Millenson, the company charged that he made contributions, without Parlin's permission, to Newt Gingrich's Progress & Freedom Foundation and that this had led to negative publicity about J&J.
The publicity stemmed from a January, 1995, article in Roll Call that linked DAD's donation to a letter written by Gingrich asking White House Chief of Staff Leon E. Panetta to help win approval from the Food & Drug Administration for Confide. A congressional investigation later cleared Gingrich of any impropriety, and DAD records, included in the arbitrator's decision, show that the $5,000 donation in question came before Parlin's memo and therefore was not in defiance of "express directions." In his decision, Gibbons found that J&J had slapped together these charges--which were found to be groundless--to get rid of an irksome employee. But J&J also may have been sensitive about bad publicity at that point. In January, 1995, Ortho pleaded guilty to destroying documents related to an FDA investigation into promotion of its antiwrinkle drug.
Ironically, J&J is fighting to keep an outfit that may bring it only modest profits. Analyst Eli Kammerman at Salomon Brothers Inc. estimates the market for home HIV tests at just $300 million. One company, Home Access Health Corp., is selling a test in some drugstores, and two other kits are under development.
J&J has never launched a major ad campaign for the product. The $50 test is sold in drugstores nationwide and via a toll-free number. Users send blood from a finger prick off to a lab for testing. Using another toll-free number, the customer enters a secret code to get results and counseling over the phone.
Millenson, who successfully sued J&J for $1.7 million plus stock in back pay and bonuses, is talking to potential partners. If J&J doesn't appeal, he could sell DAD or seek other funding. His plan would be to boost Confide sales by cutting its price and backing it with more advertising. "I just want to see this product successfully marketed," he says. So do thousands of potential customers worried about their HIV status.