Cure for the Common Cold? As Quiqley shares soar, questions arise
About medical studies, shady associates
By Bill Alpert
01/13/1997
Barron's
Page 18
(Copyright (c) 1997, Dow Jones & Company, Inc.)
With much of America covered in snow and seemingly half the folks in the
Northeast sniffling on these blustery winter days, it may be appropriate
that one of the hottest stocks trading on the NASD's bulletin board is
Quigley Corp., a little outfit that offers a cure for the common cold. In
just the past seven months, Quigley shares have risen from 62 cents to as
high as $37, making for a gain of nearly 6,000%. Almost half of that gain
came in the past week, giving the tiny Doylestown, Pa., company a market
value of about $250 million.
Quigley 's shares began to surge last summer after the company's product, a
zinc lozenge called Cold-Eeze, was found to shorten the duration of cold
symptoms by 42% for patients who took it. Those findings, in a study
performed by the Cleveland Clinic Foundation in Ohio, were followed by
laudatory stories on Good Morning America and CNN, as well as in USA Today
and a host of local newspapers.
The ensuing demand from the nation's sneezers has been phenomenal.
Walgreen's and Revco have ordered millions of dollars' worth of Quigley 's
lozenges, and for the most part they are being forced to wait while Quigley
ramps up production.
The gush of orders is a long-awaited tonic for Quigley , which for the
fiscal year ended September posted a loss of $694,000 on revenues of $1.05
million. And even those scanty sales were a leap above the previous year, in
which Quigley reported a loss of $150,000 on revenues of $502,000.
As you might expect, Quigley 's "breakthrough" has inspired considerable
controversy. Noted common-cold researchers question the validity of the
Cleveland study, as well as a study done several years earlier at Dartmouth
College. Investors who sold Quigley shares short, noting that a considerable
number of people connected to Quigley have less-than-pristine Wall Street
histories, have been clobbered. Yet Barron's research indicates that a
chilling number of those involved in boosting Quigley shares have been
censured, barred or jailed by securities authorities for stock fraud.
The more jaded of Quigley 's backers argue that it matters not that the
company's science or its associations may be questionable. The fact is, the
public right now is beating down the doors to get Quigley 's zinc lozenges,
and that can't help but send Quigley 's profits skyward.
Whatever Quigley 's zinc pills have done for cold sufferers, they have made
a happy man of the company's founder, one Guy Quigley . His shares in the
company are now valued at about $40 million. Quigley had one of his first
entrepreneurial adventures in the 1970s in Northern Rhodesia, now known as
Zambia. Quigley says he helped black herdsmen market their beef, gaining
them a bigger share of a market that was dominated by white ranchers.
When revolution drove him to seek safety in the U.S., Quigley says he then
became the first to import "resemblance perfumes," the high-falutin' term
for reasonably-priced knockoffs of famous fragrances. In 1989, he started
Quigley Corp., with the goal of marketing health-food snacks called GQ Alpha
I nutri-bars. He hired as his operations chief Chuck Phillips, a one-time
gemcutter who had also spent several years in Africa until civil war forced
him back to the States.
But the young company learned that profits, and even sales for that matter,
were hard to come by. Despite endorsements by paid advisers like Benihana
Restaurants' founder Rocky Aoki, NFL veteran Joe Klecko and the world's best
"one-club" golfer (who broke par with only a 5 iron), Quigley 's sales were
just $36,000 as recently as the year ended September 1993. The firm lost
$220,000.
"We were up against stiff competition that we couldn't override," says
Quigley . "We didn't have the advertising dollars."
The company had hardly any dollars. The two men drew no salaries, and after
a 1991 public offering of 15-cent units, the firm used stock, stock options
and warrants to pay for advertising, legal services, rent and sales
representation.
But in '92, Quigley cut a licensing deal with some researchers with a patent
on zinc lozenges for treating symptoms of the common cold. Chemist John
Godfrey and his wife, Nancy, had helped conduct a study with 73 people at
the Dartmouth College Health Service. Their report, in a European medical
journal, said that by sucking on the zinc lozenges, cold sufferers ended
their symptoms 42% sooner.
In July 1996, the medical journal Annals of Internal Medicine published
results of another study of Quigley 's zinc remedy, this one performed at
the Cleveland Clinic. Somewhat larger than the earlier Dartmouth study, and
better controlled, the Cleveland Clinic research showed the same dramatic
impact on colds, with the zinc takers freed of cold symptoms 42% faster than
placebo takers.
That's when the press whirlwind picked up Quigley , his company and his
stock. Purchase orders have piled up. On Dec. 26, Quigley had $7.5 million
of outstanding purchase orders, according to the firm's 10K report. Just
five days later, purchase orders had topped $11 million, according to a
press release in which the firm predicted December-quarter revenues of $3.9
million and finally some earnings, to the tune of $1.8 million, or 30 cents
a share.
As Quigley shares have kept rising, the market makers who've shorted them
have been sledgehammered. One of the biggest hammerers was Jerry Rosen, an
Aventura, Fla., trader for a Los Angeles firm, J. Alexander. An aggressive
buyer of the shares, Rosen frequently called traders that he thought were
short Quigley , delivering Wall Street's version of trash talk. "I hope your
cattle die," he told a Texas market maker. "I hope you get hoof-and-mouth
disease!" Rosen taunted another short-seller: "Get everybody you want to
start shorting the stock. But when you start shorting a stock that has a
cure for the cold, man, good luck, you're on your own!"
Personal experience and testimonials can ensure strong demand for
non-prescription remedies like antihistamines or Cold-Eeze, whether or not
the products work. But the lead author of the Cleveland Clinic zinc study,
Dr. Michael Macknin, warns that testimonials "approach being worthless,"
when it comes to a self-limited illness like the cold, where symptoms are
remarkably subjective and can resolve by themselves after a day.
Quigley 's Internet World Wide Web page, to be found at www.quigleyco.com,
says the reported medical studies on Quigley 's zinc lozenges completely
meet the stringent criteria of scientific proof of the scientific community.
Yet Macknin is less sure. "We only studied 100 patients, during a one-month
period of time, in one location, in one institution," says Macknin, who
chairs the Clinic's pediatrics department. "What if the one virus going
around the Cleveland Clinic that month was unusually susceptible to zinc?"
Although half of all colds are caused by a rhinovirus, over 200 different
viruses can bring on a cold. Unlike other cold studies, the Cleveland trial
didn't test subjects to identify viruses, nor did it measure improvement
objectively, by weighing tissues, for instance.
That said, Macknin says his statistical analysis shows that odds are less
than one in 1,000 that the large reduction in cold symptoms of his zinc
recipients resulted from chance and not the zinc. Macknin was surprised at
such strong results, because a series of earlier zinc studies had found that
zinc had no effect on colds.
The leader of the most rigorous of those studies was Dr. Jack Gwaltney, head
of epidemiology and virology at the University of Virginia Health Sciences
Center. And Gwaltney has major criticisms of the Cleveland study's design.
Gwaltney doubts the Cleveland subjects were successfully kept in the dark as
to whether they got the zinc lozenge or a calcium lactate placebo. Unlike
earlier zinc studies, the Cleveland researchers didn't do pilot studies to
ensure their placebo seemed similar to the real zinc lozenges. Indeed,
Macknin's team reported that their placebo tasted less astringent and bitter
than the zinc product, and had less of an aftertaste. The placebo group also
lodged significantly fewer reports of nausea and bad taste.
Zinc patients who saw through the masking might report that they felt
better, even if objective measures would have showed otherwise. Dr. Robert
Betts, a cold researcher at the University of Rochester, notes that a
profound "placebo effect" led patients in other studies who thought they'd
gotten Vitamin C to report sharp improvement in their colds, even though
they'd gotten a placebo.
And statistical claims showing 1,000-to-1 odds against getting a result like
the Cleveland study, based on chance alone, notes Gwaltney, don't address
the question of whether the patients saw through the blinding and biased
their reports.
Barron's own research into various business associates that have helped
Quigley Corp. in the public markets also raises questions of chance
association. Guy Quigley concedes meeting with Raphael D. Bloom, a disbarred
stockbroker who already had a 20-year history of disciplinary sanctions
before he was convicted in 1989 of mail fraud, stock fraud and perjury for
manipulating the stock of a car dealership, along with a Chicago organized
crime figure, Sam Sarcinelli. Quigley says that Bloom introduced Quigley
Corp. to a firm Quigley hired as its financial and public-relations adviser,
a Florida outfit called Diversified Corporate Consulting Group.
"Bloom never received one penny from us," says Quigley , an answer that's
echoed by Bloom himself from the office near Wall Street where he now works
as a financial consultant and the operator of an employment agency.
Diversified Corporate Consulting, however, is interesting in its own right,
because its managing member was William A. Calvo III, a securities lawyer
disbarred in Florida, New York and the federal courts after the SEC won a
suit charging him with aiding and abetting a scheme that employed sham loans
to complete a stock offering. Calvo also did securities lawyering for the
convicted swindler James Anthony Laiacona.
For Quigley , Calvo's firm recruited the financial public-relations firm
Carousel Consultants, of Kingston, N.Y. Carousel is staffed by a former
stockbroker, Joseph Radcliffe, and his son Michael. After a career at
notorious brokerage firms like Blinder Robinson, Greentree Securities and
Prestige Investors -- where he partnered up with raging Quigley bull trader
Jerry Rosen -- Joe Radcliffe started a public company called Madison Sports
& Entertainment. Madison earned attention, but never profits, claiming
interests in snowboard companies and boxing. Now, Madison's stock is one of
a dozen whose trading is the subject of a federal grand jury inquiry in
South Florida.
For some reason, Pennsylvania-based Quigley has used as its outside auditor
Nachum Blumenfrucht, of East 22nd St., Brooklyn, N.Y. Blumenfrucht was the
auditor for the notorious stock promoter Phil Abramo.
Quigley Corp.'s securities lawyer in its first years as a public company was
Abramo securities lawyer, Barbara R. Mittman, who practiced with now banned
lawyer Edward Grushko, well known by regulators for his work with Calvo
client Laiacona, as well as convicted stock swindlers like Thomas Quinn,
Arnold Kimmes and Benjamin Sprecher.
Quigley denies he knew of these people's records when he fell in with them,
and he adds that he's dropped Diversified and Carousel.
With Quigley shares trading around $31 on Friday, short-sellers were
complaining that the stock was being squeezed higher by bullish
market-makers who were refusing to let short-sellers buy shares to cover
their losses.
But don't expect Quigley 's stock to levitate forever. On Friday morning the
Miami office of the SEC sent out letters asking market-makers for all their
records on trading in Quigley shares.
***
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