National Patent Development Corporation - Company Profile, Information, Business Description, History, Background Information on National Patent Development Corporation

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History of National Patent Development Corporation

National Patent Development Corporation (NPD), incorporated in Delaware in 1959, is primarily a holding company, a legal entity separate and distinct from its various operating subsidiaries. NPD's operations comprise three business segments: Physical Science, Distribution, and Optical Plastics. In addition, National Patent has numerous investments in the domestic health care, biopharmaceutical, and environmental technology industries and holds 54 percent of outstanding shares of common stock in a company distributing pharmaceutical products in Russia.

In 1959, three New York City lawyers, Jerome Feldman, Martin M. Pollak, and Jess Larson, began NPD as a scouting service for dormant patents. Their idea originated in 1958 after Feldman and Pollak heard about a new resin plasticizer developed and put on hold by a company unsure about the product's marketability. The partners believed the resin offered a superior base material for the manufacture of lipstick and they offered to arrange a licensing agreement. Although the partners found a major cosmetics manufacturer, problems arose when each company told them to get their fee from the other.

While the deal ultimately fell through, Feldman and Pollak saw profit potential in the patent exchange business and decided to form a company that could act, under contract, as a middleman. They found a third partner in Jess Larson, an attorney with considerable government experience, having formerly served as Administrator of the General Services Administration, War Assets Administrator, and Brigadier General in the Air Force Reserve. Larson also saw the possibility of reaping substantial profits developing new commercial products from forgotten patents.

From the beginning NPD focused on screening and buying patents on various devices, technologies, and materials, and then licensing them to other companies or trying to market the products themselves. To screen the thousands of patents lying idle in corporate files, the partners formed a consulting board consisting of patent lawyers, scientists, and engineers.

National Patent began gaining momentum in 1961, a year before the Cuban Missile Crisis, after Feldman and Pollak wrote a letter to then-Soviet Premier Nikita Khrushchev asking for rights to Soviet inventions. Surprisingly, despite Cold War tensions, the Soviets were willing to deal to obtain American dollars and invited them to visit. After three weeks in Russia, NPD experts screened Soviet developments by conferring with some 250 Russian scientists and technicians and won patent rights to market 14 innovations in the United States. National Patent then signed an agreement with Amtorg, the U.S.-based Soviet trade wing.

While some Soviet-acquired innovations proved profitable, others flopped. A surgical stapling device that replaced needle-and-thread suturing earned enough for Feldman to start a medical instrument business. That venture--U.S. Surgical--was later sold off and grew into a multi-million dollar corporation. Unfortunately, most products were far less successful, like an electric eyepad touted as inducing a blissful nap.

Using their Kremlin link, NPD made inquiries in other Communist bloc countries; in Czechoslovakia they met Otto Wichterle, polymer chemist at the Czechoslovak Academy of Sciences. Wichterle devised a novel application for a new plastic compound called Hema, which turned soft and pliable when infused with a liquid. Hema was originally intended for making artificial veins and body organs, but Wichterle found that spinning a droplet of Hema in a thimble-size dish could produce a soft contact lens.

In the West, contact lenses were still produced of hard plastic. By purchasing the spinning technology and the rights to make and market Hema, NPD found its first important product. Nevertheless, for two years the company experimented with the compound, prevented by scarce capital from marketing its new product. Then in 1966 NPD concluded a licensing agreement with Bausch & Lomb of Rochester, New York, a major player in the optical business and well aware of the potential market for soft lenses. The agreement gave Bausch & Lomb exclusive license to the new lens material and Wichterle's spinning and manufacturing technology. In return, NPD would receive a licensing fee plus half of all Bausch & Lomb's domestic lens profits.

After the Bausch & Lomb agreement, Feldman searched for other uses for Hema, which had been trademarked as Hydron. While National Patent licensed the rights to Hydron for contact lenses, it retained rights to use the compound for other applications and to produce new products. The company's labs produced a range of new Hydron-based products, including nail polish, burn-wound dressings, dental root-canal fillers, artificial breasts, and algae-resistant boat paint.

Most promising of all was a reactive chemical that showed potential for dissolving tooth decay, thus replacing drilling. Feldman found the compound at Tufts University, bought the patent rights, and offered the product to Warner-Lambert, which anticipated a use for the product as a plaque-removal agent in mouthwash. NPD's stock shot up from less than $10 in 1971 to $67 a share in 1972, one year after the Food & Drug Administration (FDA) approved Bausch & Lomb's new soft lens.

NPD shareholders' rising expectations proved false when the company's fortunes turned sour. Bausch & Lomb royalties proved disappointing, prompting National Patent to file suit in a protracted legal battle that threatened to end NPD's royalties entirely. Then Warner-Lambert announced that trial tests on schoolchildren showed their new mouthwash to be a failure as a plaque remover. NPD's stock collapsed to just $4 a share in 1973. Responding to these disappointments, Feldman diversified the company into gardening supplies, sporting equipment, solar energy, medical instruments, and contact lenses, planning to make NPD more independent. He also recruited a Russian professor to train company chemists in the production of interferons, a group of proteins produced by the body's immune system to help combat disease. This erratic strategy proved a dismal failure, causing a decade of poor earnings and a blighted reputation for the company. Feldman later recalled this period as the "dark years."

Through the 1970s, National Patent's fortunes rested on a $14 million settlement from Bausch & Lomb. Charles Allen, a world-class deal-maker and founder of Allen & Co., also figured prominently in the company's survival. Allen took Feldman as a client, arranged private infusions of cash, and bought NPD stock even when times appeared bleakest. He soon controlled one of the largest interests in NPD after the combined holdings of Feldman and Pollak. In spite of Allen's help, NPD continued to be plagued by marketing mishaps and technological failures. For example, a malfunction in an intravenous control system forced an expensive recall, and the company fell more than a year behind schedule in developing and marketing a solar energy cell. As a result, Feldman cut corporate staff and sold off NPD's medical equipment and solar energy ventures.

Pollak had better luck with American Hydron, NPD's contact-lens subsidiary. Established in 1979 as International Hydron Corporation to manufacture and sell contact lenses in the United States, the subsidiary produced its first earnings in 1982. A year later industry leader Bausch & Lomb considered American Hydron its major competitor in the sale of daily-wear soft contacts. Pollak's clever marketing strategy--offering Mercedes-Benzes, videocassette recorders, and gold coins to optometrists who placed large orders--caused the subsidiary's second-year shipments to double.

Despite intense competition, American Hydron fared well in producing high-quality lenses at a low cost. By the end of 1983, the subsidiary unveiled a new, compact, spincast system that could make lenses similar to Bausch & Lomb's most popular line. American Hydron also began testing collagen, a protein produced from cowhide, in an attempt to displace Hydron in low-cost lens production. By 1987, American Hydron was producing contact lenses using three distinct methods--lathing, cast molding, and spincasting, each having its own production and marketing advantages. While lens lathing was labor intensive, it proved superior for specialty lenses and low production. Cast molding maintained high optical lens quality but was more efficient in large-volume production. Spincasting was particularly suited for large-volume manufacture with low labor costs.

At the same time, NPD's Interferon Sciences, Inc. (ISI) subsidiary was moving toward marketing a host of interferon-based treatments for viral diseases. Production problems stemming from inefficiencies in extracting interferon from leukocytes, or white blood cells, were helped by the company's Czech connection. Pollak was vice-chairman of the Czechoslovak-U.S. Economic Council, a bilateral organization formed to promote trade between the two countries. This role introduced him to council chairman Fred Kuhlmann, vice-president of Anheuser-Busch, a St. Louis-based brewery that used Czechoslovakian hops to make beer. Anheuser's advanced fermentation technology for cultivating yeast cells proved to be the solution to the interferon production problem. Through the innovative process of "transformation," DNA molecules containing the genetic code for interferon could be extracted from human white blood cells and inserted into yeast cells, thereby producing interferon on a large scale.

Mutual interest in this process led both companies to embark on a joint production enterprise. ISI would alter individual yeast cells for use by Anheuser to produce billions of offspring. In return for the option of making new interferon products, Anheuser would provide ISI $6 million for research and development. This money aided Interferon Sciences' clinical trials of an interferon ointment for treating genital herpes--which afflicted an estimated 20 million in the United States alone--and allowed the company to begin testing a treatment for genital warts.

Feldman's typical business strategy was to spin off new technological ventures into separate companies while retaining most of their stock. By doing so, he transformed NPD into a holding company benefitted by the rising asset value of satellite companies taken public. In 1981, Feldman spun off ISI into a public company while retaining 75 percent of the shares. Two years later he spun off NPS Waste Technologies, an innovator in particle-glass filtering mechanisms for radioactive waste.

By 1987, NPD essentially operated through various subsidiaries and affiliates as a manufacturer and distributer of a wide array of products and services. The company's operations consisted primarily of four business segments, as well as various research and development programs that were not yet commercially viable. The company's Ophthalmic Products Group produced and marketed soft contact lenses and accessories. The Medical Science Group produced and distributed first aid products, surgical dressings, and various other hospital and medical products primarily through three subsidiaries, Acme Cotton Products, Chaston Medical & Surgical Products, and Abbey Medical, Inc. In addition to its interferon subsidiary, the Medical Group included dental products, such as the Caridex (R) Caries Removal System. An FDA-approved product that showed promise in removing tooth decay without the need for drilling, Caridex was the same failed dental plaque remover that had shown false promise a decade earlier.

NPD's Consumer and Service Group distributed home and garden products, as well as produced paint, paint specialties, coated and molded plastic products, and electronic components through several subsidiaries: J. Levin & Co., Inc., E. Rabinowe & Co., Inc., acquired in 1985, and Interstate Paint Distributors Inc., acquired in 1986. The Physical Science Group provided training, operations, engineering, and maintenance services to the electrical power industry and the U.S. Navy. In addition, this group also developed, manufactured, and marketed products and services used in the clean-up of low-level radioactive material from waste water at utility-operated nuclear power plants.

In 1987, NPD sold its interest in both International Hydron and Abbey Medical, Inc., a renter and seller of durable medical equipment. In 1989, the Medical Group introduced a new quick-opening adhesive bandage, STAT STRIP, to the hospital and medical markets. Interferon Sciences (ISI), received FDA approval of its Alferon N Injection, an alpha interferon product derived from human leukocytes developed for the treatment of recurring genital warts in patients 18 years or older. This achievement essentially transformed ISI from a research and development firm into an operating pharmaceutical company. An agreement was made with the Purdue Fredrick Company, a privately owned multinational drug company, to market Alferon N Injections in the United States and abroad. In addition, ISI acquired the worldwide rights from Amarillo Cell Culture for the oral administration of natural interferon, apparently effective in boosting the immune system. In addition, NPD's consumer and service group, collectively known as the Five Star Group, acquired State Leed, a distributor of various paint items. Together these companies, comprising J. Levin, E. Rabinowe, and Interstate Paint Distributors, had become the largest U.S. distributor of paint specialties, including interior and exterior stains, brushes, rollers, and caulking compounds.

By 1995, NPD had developed into three primary business segments: Physical Science, Distribution, and Optical Plastics. The company also had investments in Hydro Med Sciences (HMS), a health care business, and GTS Duratek, Inc., an environmental technology firm, as well as continuing investments in ISI.

The Physical Science Group consisted of SGLG, Inc. (formerly GPS Technologies), of which NPD had a 91 percent controlling interest; and General Physics Corporation, approximately 51 percent owned. General Physics provided numerous services, including personnel training and engineering, environmental, and technical support, to commercial nuclear and power utilities, the U.S. Departments of Defense and Energy, Fortune 500 companies, and other commercial and governmental clients. SGLG was a holding company with a 35 percent interest in GSE Systems, a company specializing in simulator software. In 1995 General Physics acquired Cygna Energy Services, a provider of design engineering, materials management, and safety analysis services to the nuclear power industry. General Physics also acquired all of the assets of SGLG, Inc. for approximately $34 million. In response to federal cutbacks in the Departments of Defense and Energy, General Physics began focusing on expanding its management and technical training services as well as specialized engineering services to manufacturers and federal agencies.

Five Star operated as a wholesale distributor of home decorating, hardware, and finishing products. Through the mid-1990s, Five Star remained the largest distributor in the United States of paint products and accessories, caulking compounds, and other items, despite intense competition from considerably larger hardware franchises, including Servistar and True Value.

The Optical Plastics Group operated through NPD's wholly owned subsidiary MXL Industries, a producer of molded and coated optical and non-optical products. MXL also made state-of-the-art injection molding tools, using polycarbonate resin to make shields, face masks, and lenses for over 55 clients in the safety, recreation, and military industries.

NPD's Hydro Med Sciences subsidiary manufactured medical devices, drugs, and cosmetic polymer products. HMS was established to explore the application of HydronR polymers for biomedical purposes. Since the 1970s HMS was involved in the development of human and veterinary drugs and dental and medical devices. The company developed the Syncro-Mate BR implant for the synchronized breeding of bovine heifers, the first veterinary implant drug to be approved by the FDA. HMS also produced a water-soluble HydronR polymer for commercial applications in cosmetic products, including body lotions, moisturizers, and sunscreens.

ISI, a biopharmaceutical company, continued to be involved principally in the production and sale of Alferon N Injections. In 1995, the product still represented the only FDA-approved drug based on a natural source for the treatment of certain types of genital warts. ISI also explored new applications for its injectable, topical, and oral formulations of natural alpha interferon for the treatment of HIV, hepatitis C, hepatitis B, multiple sclerosis, cancers, and other diseases. In the biomedical industry, various alpha interferon drugs have been approved for 17 different medical uses in more than 60 countries. As a group, sales of these biopharmaceuticals approached $2 billion in 1994. Gaining approval to sell the product in Mexico in the mid-1990s, ISI also sought regulatory approval to market Alferon N Injections in Austria, Canada, Hong Kong, Israel, Singapore, and the United Kingdom.

ISI's other products under development included Alferon N Gel and Alferon LDO. Alferon N Gel, a topical application, had potential for treating cervical dysplasia, recurrent genital herpes, other viral diseases, and cancers. Alferon LDO constituted a low oral dose of liquid alpha interferon, possibly proving beneficial in treating HIV and other viral diseases. These products were undergoing clinical trials during the mid-1990s.

NPD organized its American Drug Company (ADC) subsidiary in 1993 to distribute general pharmaceuticals and medical products in Russia and the Commonwealth of Independent States (CIS), the former Soviet republic. ADC was formed from NPD Trading (USA), Inc., which had been set up in 1990 to provide consulting services to Western businesses in Russia and Eastern Europe. NPD Trading would continue to operate as a subsidiary of the newly formed ADC, providing a broad range of business services to many American and Western corporations. Through NPD Trading, ADC's various activities involved developing and assisting Western businesses to create trading, manufacturing, and investment opportunities in Russia, the Czech and Slovak Republics, and other countries in Eastern Europe and the CIS. ADC also focused on marketing American-made pharmaceuticals and health care products--antibiotic ointments, pain-relief medication, vitamins, bandages, prescription injectable anti-cancer drugs, antibiotics, and other prescription drugs--under its own label in Russia and the CIS. To distribute these products, ADC initiated marketing ventures with hospitals, pharmacies, and clinics throughout Russia and the CIS.

NPD's interests in environmental technology centered on GTS Duratek, Inc. As of March 1, 1995, NPD decreased its holdings of Duratek's outstanding shares of common stock from 61 to 40 percent. Incorporated in Delaware in December 1982, Duratek's operations comprised two principal groups: the Technology Group converted radioactive and hazardous waste to glass by means of in-furnace vitrification processes, as well as specializing in removing radioactive and hazardous contaminants from waste water through a filtration and ion process. The Services Group provided consulting, engineering, and training services, as well as technical personnel, assistance with nuclear power outages and operations, and Department of Energy environmental restoration projects. As of 1995, major customers for these services included Duke Power Company, Vermont Yankee Nuclear Power Corporation, New York Power Authority, Tennessee Valley Authority, GPU Nuclear Corporation, PECO Energy Company, and FERMCO.

Principal Subsidiaries: GPS Technologies; GTS Duratek, Inc.; General Physics Corporation; Interferon Sciences, Inc.; Five Star Group, Inc.; MXL Industries, Inc.; American Drug Company.

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Further Reference

Curan, John J., "National Patent Rises Again," Fortune, August 8, 1983, pp. 98--102.Marcial, Gene G., and Jeffery M. Laderman, "Why National Patent Is Feeling No Pain," Business Week, January 13, 1986."National Patent Development Corp: Soft Lenses Now Mean Hard Profits for This Fallen Angel," Financial World, February 1, 1976, p. 3."Russian Grab Bag," Newsweek, July 31, 1961, pp. 60--63."The Riches in Dormant Patents," Business Week, April 15, 1961, p. 96.

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