Sickle cell drug mired in controversy
[ABUJA] A high-profile Nigerian initiative to produce large quantities of a new sickle cell anaemia drug has become mired in accusations of fraud and corruption.
Both the Nigerian branch of the private US-based company Xechem International and its state-owned partner, the Sheda Science and Technology Complex (SHESTCO) are under investigation by the country's Economic and Financial Crime Commission (EFCC) over an alleged fraud involving 400 million Nigerian naira (US$3.5 million) of public funds.
The Nigerian government funded SHESTCO to help Xechem Nigeria produce and commercialise Nicosan, a drug based on a local herbal medication that combats the painful symptoms of sickle cell anaemia, the inherited red blood cell disease.
Meanwhile, question marks surround the spending of separate loans previously obtained for Nicosan production from Nigerian and US banks, whilst Xechem International is embroiled in a legal battle with its founder and former chief executive Ramesh Pandey.
The early days of Nicosan
According to the International Biomedical Research Institute (IBRI) in Abuja, about 70 per cent of sickle cell anaemia patients reside in Africa — estimated at over 12 million people. About 80 per cent of rural babies with the genetic illness die by five years of age in Africa. Charles Wambebe, chief executive officer of IBRI, says the disease is "probably the most neglected serious public health disorder in Africa".
Nigeria's population is amongst the worst affected by the disease. Nigerian Minister of State for Science and Technology Alhassan Zaku says that there are four million sufferers in the country.
Nicosan, developed by Nigeria's National Institute for Pharmaceutical Research Development as Niprisan, is based on extracts from local West African plants. In 2003, Xechem bought the rights to develop the drug under the trade name Nicosan in a controversial deal (see Row over Nigeria sickle cell patent).
At the time of the sale, the drug had only passed early stages of clinical trials. But results were so positive that by 2005 both the US Food and Drug Administration (FDA) and the European Medicine Evaluation Agency (EMEA) had given the treatment 'orphan drug' status — qualifying it for financial incentives to produce drugs considered too expensive or unprofitable to develop.
The drug also received the personal backing of Olusegun Obasanjo, then president of Nigeria, who pledged to help fast track its production in the country.
Nicosan received approval from the Nigerian Food and Drug Administration in March 2006 and, according to Xechem, was first produced two months later (6 July 2006) "on a limited basis".
Xechem International announced in 2007 that it was also pursuing regulatory approval to market Nicosan in the United States and Europe as Hemoxin.
By February this year, according to a report in Nigerian newspaper the Daily Trust, Iretiolu Oniyide, managing director of Xechem Nigeria, claimed that 50,000 capsules of the drug were being produced daily, with full scale-up expected to produce one million capsules a day.
Sickle cell anaemia is characterised by sickle-shaped cells NIH
Sickle cell anaemia is characterised by sickle-shaped cells
Xechem secured two loans from the federal government-owned Nigerian Export-Import Bank (Nexim), starting with US$1.15 million in June 2006 and an additional US$2.7 million in April 2007. A Xechem press release stated that these were for "construction of manufacturing facility-related costs".
In addition, a further loan of US$9.38 million from the US bank UPS was obtained (21 May 2007), guaranteed by the Export-Import Bank, the official export credit agency of the United States federal government, which provides financing for high-risk transactions.
The US loan, like the Nigerian loan, was meant to "purchase the US manufactured prefabricated corporate offices, warehouse, plant equipment and machinery needed by Xechem Nigeria to establish a state-of-the-art facility in the outskirts of Abuja".
According to the Xechem press release, the factory was due to be completed in the fourth quarter of 2007 and would "enable Xechem Nigeria to produce commercial scale quantities of Nicosan".
But a visit (12 March 2008) by SciDev.Net to the site found no activity at the facility and construction appeared to have been stopped.
On top of the bank loans, Xechem also obtained public funding from the Nigerian government.
But on 7 March 2008 a fraud complaint was formally brought before the EFCC against Xechem Nigeria. According to a source within the commission, who wished to remain anonymous, the complaint alleges that none of the US$3.5 million of public money was spent on drug manufacture.
An EFCC spokesperson told SciDev.Net that the commission would not comment on the allegations until after the investigation had been carried out and an interim report was complete. He could not confirm when that report would be available.
A staff member of Xechem Nigeria, who also asked to remain anonymous, told SciDev.Net that the money was spent instead, among other things, on buying luxury cars for the directors of SHESTCO and Xechem Nigeria.
Oniyide denies this, telling SciDev.Net that SHESTCO collected the government money and Xechem Nigeria had no control of the public funds.
He claims that the public funds were used by SHESTCO to support research and development on a separate Xechem project to produce vitamin C, glucose and ethanol from cassava starch and peels, as well as to support Xechem's staff with items such as a club house and company cars.
Several attempts to contact Ayodele Coker, director-general of SHESTCO, for comment were unsuccessful. On SciDev.Net's most recent effort to speak to Coker, staff said that he had gone abroad.
An international affair
Further confusion surrounds the status of Xechem International, its subsidiaries and its founder, northern India-born Ramesh Pandey.
Pandey is the founder, chairman and president of the G. D. Pandey Ayurvedic University, an organisation investigating India's traditional medicine which he set up in 2001. The organisation is based in the New Brunswick Technology Center in New Jersey in the United States — the same site that has housed the offices of Xechem.
Pandey founded Xechem International Inc. in the United States in 1994. By 2002, he was in an arrangement with the State Industries Promotion Corporation of Tamil Nadu in India for a Xechem factory to produce the anti-cancer compound paclitaxel in India, a deal that appeared to fall through.
He founded Xechem Pharmaceuticals Nigeria in 2003, primarily to develop Nicosan. But in July 2007, Pandey was forced out as a member of Xechem Nigeria's board of directors. And on 7 December 2007, Xechem International announced in a press release that Pandey had been replaced as chairman and chief executive officer of the company, although he remains a member of the board of Xechem International.
At the same time, Xechem International announced a cost-cutting plan to "increase the focus on its Nigerian operations". This would see the closure of the company's US headquarters, with a move to smaller facilities in the United States.
American biochemist and banker Robert Swift, who joined the board in May 2007 and succeeded Pandey as chief executive three months later, said in the press release that, "The Board feels that all available resources must be focused on production of Nicosan at our Nigerian operation".
Xechem confirmed the downsizing in a statement on 4 June 2008. The company maintains an office in New Jersey with three full time employees, two employees at Rutgers University in New Jersey and "several people part time". Xechem is currently utilising laboratories at Rutgers for the further development of Nicosan, as well as another sickle cell treatment, 5HMF.
The statement also points to the transfer of laboratory equipment worth over US$2 million from its US premises to Xechem Nigeria.
According to Pandey, his removal from the Xechem International board was the result of false accusations over misappropriated funds. He claims that the move was brought about by some recent investors in Xechem and members of the Xechem Nigeria board, who "falsely blamed" him for misappropriating funds at Xechem Nigeria.
"It is unfortunate that some of the old board members and the people whom I brought in [to] Xechem Nigeria were also part of this coup. They thought that since the drug is already standardised and ready to be launched, why do we need to keep Dr. Pandey in the company and share the reward," Pandey told SciDev.Net.
But according to Xechem Nigeria's Oniyide, there are questions over the use of the Nigerian and American loans Pandey obtained to build the drug production factory in Nigeria.
Oniyide claims that the Nexim and UPS loans were instead used to establish a parallel facility in India to produce Nicosan.
According to documents filed with the US Securities and Exchange Commission (SEC) in February this year by Swift, in his capacity as Xechem's chief foresight officer, Xechem's financial statements from 2002 to 2007 "may be inaccurate due to unrecorded financial issues related to Xechem (India)" as no documents tracing ownership could be found and loans from Xechem International to an Indian company have not been properly accounted for.
"It should be noted that the company has not engaged in any active operations of the [Indian] subsidiary since Dr. Pandey's departure as CEO", the report to the SEC says. The report also says Xechem International has proceeded to litigation in India against Pandey and others named as shareholders of Xechem India.
According to Oniyide, Xechem is taking court action because the Indian subsidiary was registered under Pandey's own name.
A second SEC document from a few days later (27 February 2008), also signed by Swift, states that Xechem International is "in default on its Debentures with Investors" totalling US$7 million and "cannot determine now whether it will be able to cure any or all of the defaults" as the company "does not have funds or revenues sufficient".
Pandey denies rerouting funds, saying the loans from Nexim were used for the "construction of the buildings and purchase of some equipment" for a commercial-scale production facility at SHESTCO in Nigeria, with extra equipment purchased using the US loans.
Nicosan rolls on
Meanwhile, Oniyide says Xechem International can no longer raise funds in the United States as investors have suspicions about the company.
He adds that Xechem Nigeria currently lacks the resources to scale up operations, although he says the company continues to produce 10,000–15,000 capsules a day from limited facilities installed by Pandey at SHESTCO.
Stephen Burg, director at Xechem International, confirmed with SciDev.Net that Nicosan is still available on the Nigerian market. He said production at the Xechem facility at SHESTCO near Abuja remains small-scale but that they were meeting demand, although he would not confirm the volumes being produced.
According to a Xechem International press statement (4 June 2008), Xechem Nigeria is currently able to produce about 50 million Naira (US$420,000) of Nicosan a month. According to the statement, Nicosan shipped to three out of the 36 Nigerian states (Niger, Nassarawa and Ondo) in 2008, generating revenue of around $350,000, which Xechem Nigeria say is enough support day to day operations but not to service any of its debt to Xechem International, Nexim or UPS.
The statement says that Nicosan Xechem Nigeria currently employs around 90 people and has made "improvements" to the Nicosan production pricess, allowing it to "support a greater number of regular customers" than in 2007.
Xechem Nigeria is currently able to produce about 50 million Naira (US$420,000) of Nicosan a month Flickr/quiquemendizabal
Xechem Nigeria is currently able to produce about 50 million Naira (US$420,000) of Nicosan a month
Burg confirmed that Pandey is still a member of the Xechem International board as an "outside director" with no direct influence on the day-to-day running of the company. Athough Burg says Pandey still participates in board meetings, he could not confirm when Pandey last attended a Xechem meeting.
Burg says that due to ongoing legal cases, he cannot reveal further details of Xechem International, its subsidiaries or the court action taking place in India.
Xechem International's statement of 4 June 2008 confirmed that the company is still involved in several lawsuits, including that with Pandey, and "still in settlement discussions in India with respect to stock ownership of Xechem India".
Xechem say they have developed a tablet form of Nicosan for sale in the United States, and identified a US manufacturing facility for production. It expects the drug to be on the market later in 2008, "if there is sufficient working capital".
However, the statement confirms that Xechem International is still experiencing debt problems and "difficulty in raising working capital necessary to run its operations". The company estimates it needs "up to an additional US$1million to continue operations in 2008" and holds debts of over US$14 million. The statement also reveals that Swift has lent two sums of US$28,676 and US$118,255 of his own money to Xechem.
The company warns that there is a "substantial risk that Xechem International will not be able to obtain sufficient proceeds from capital raising efforts or other sources to enable it to continue to operate" and that it may need court protection from creditors if it is unable to raise additional capital "in the very near future". Bankruptcy is mentioned as a possible option.
The statement also advises that the SEC, in a letter dated 30 May 2008, has threatened to deregister Xechem from the stock market if it is unable to meet its public filing requirements.
Additional reporting by David Dickson and Mun-Keat Looi