Biopharmaceutical firm GenPhar: Fast start, rapid descent

GenPhar founder Jian-Yun Dong is facing federal charges and more than 100 years in prison for allegedly fleecing the government out of $3.6 million and making illegal political donations.

GRACE BEAHM

MOUNT PLEASANT -- The massive building rises from the woods behind a bustling suburban market, its sleek lines and imposing facade offset by the hip-high weeds and abandoned paint buckets that line its perimeter.

This three-story, $33 million edifice once held the promise of high-paying jobs in a field that could change the very face of world health care. Now, it sits empty and idle, mired in allegations of fraud and theft.

A sign in the darkened lobby welcomes visitors to the future headquarters of GenPhar Inc., a biopharmaceutical company where workers "strive for a better human life."

But it's unlikely that GenPhar's scientists ever will grace the building's sprawling, marble-lined corridors. A bank is looking to foreclose on the place -- if the federal government doesn't snatch it up first to recoup millions of dollars in missing grant money.

A host of heavyweights, from business leaders to congressmen, lined up over the years to help GenPhar gain a lucrative foothold in the search for vaccines to fight Ebola, dengue fever, Marburg virus and other deadly diseases.

But a two-year federal investigation and the resulting indictments have left the company strapped for cash, short on employees and fighting to restore a battered reputation.

Jian-Yun Dong, the company's founder and longtime leader, is facing the prospect of spending more than 100 years in prison for allegedly fleecing the government out of $3.6 million and illegally funneling donations to a key supporter in the U.S. Senate. Dong, 54, denies the charges.

His estranged wife, fellow GenPhar scientist Danher Wang, is charged with making illegal campaign donations as well. Dong and others said Wang also has positioned herself to become the government's star witness in the case against him.

After filing for divorce and surviving a hostile takeover bid this summer, Wang has emerged as Dong's likely successor to lead the company, with support from a Hong Kong-based investment firm.

But with little left of its $20 million in grant funding, just where GenPhar goes from here is anyone's guess.

Wang, 52, did not respond to requests for comment last week.

Steve Hutchinson, a GenPhar co-founder who left the company in 2004, said the firm's vaccines still hold great promise to fight some extremely lethal diseases, if GenPhar can stay in the fight.

"There is strong evidence of the value of the underlying technology," he said. "It's not smoke and mirrors."

Coming to America

Dong, who has been the public face of the company since its inception in 1999, has been variously described as meticulous, difficult, ornery and a genius by folks who have known him.

He came to America from China in 1984, recruited by the University of Alabama to do medical research. He brought with him his new bride, Wang, whom he had met at Capital Medical University in Beijing.

Dong said he welcomed the chance to pursue his work in a country with basic freedoms and constitutional rights. In China, he said, the Communist government persecuted his family because his parents -- a college professor and a physician -- were intellectuals who didn't buy into the establishment's propaganda.

Dong and Wang earned doctoral degrees in cellular and molecular biology in Alabama, and Dong's work drew notice from the University of California-San Francisco, which recruited him to join its faculty in 1994.

The same year, Dong faced sexual-misconduct allegations brought by three Chinese women who were fellow researchers at the University of Alabama. The trio said Dong, who supervised two of the women, forced them to have sex with him on numerous occasions at his home and work.

A municipal judge in Birmingham found Dong guilty of 11 misdemeanor counts of sexual misconduct. Dong appealed the ruling to a county circuit court, where a jury acquitted him of the charges.

The three women sued Dong and the university, and the case dragged on for two years before it was eventually dismissed. Dong said the charges were baseless, and the women ultimately abandoned their suit. No settlement was paid, he said.

"I insisted that they not be paid a penny," he said.

GenPhar takes off

The Medical University of South Carolina apparently had no inkling of the allegations when it invited Dong to join its faculty in 1998. MUSC didn't start mandatory criminal background checks on its employees until four years later, said spokeswoman Heather Woolwine.

By the time MUSC came calling, Dong's scientific achievements had again taken center stage. He had worked with several biotechnology companies in the Bay Area, published extensively in scientific journals and filed a number of patents, drawing the interest of MUSC recruiters.

It wasn't long after his arrival here that the idea for GenPhar -- short for Genetic Pharmaceuticals -- took root, spurred by MUSC's interest in spinning off Dong's drug-resistance technology to generate revenue for the school.

In 1999, Dong founded the company with Wang and Hutchinson, a New York-based private-equity manager.

GenPhar assembled a staff of researchers, recruited an all-star board of scientific advisers and quietly went about its business until 2002, when it suddenly turned up the volume on its efforts to battle HIV, cancer and a host of deadly viruses.

HIV had been GenPhar's original focus. But with the advent of 9/11 and the subsequent anthrax scares, concerns over bio-terrorism drove a surge in demand for vaccines to fight lethal, infectious diseases such as Ebola and Marburg virus.

GenPhar attracted heavy-hitting investors, including Charleston billionaire businessman Jerry Zucker, and hired well-connected Washington lobbyists to help it fight for federal dollars.

Dong and Wang gave generously to conservative politicians in a position to help, including U.S. Sen. Lindsey Graham, who championed the potential of GenPhar's research to protect U.S. troops from biological warfare. Millions of dollars in grant funding poured in.

As the company's fortunes improved, Dong and Wang moved into a five-bedroom, 4,400-square-foot house with stunning marsh views in the exclusive Bluff at Charleston National neighborhood in Mount Pleasant. They bought a vacation home, time shares, luxury cars and boats, court records show.

Then, in 2007, GenPhar announced plans to replace its cramped offices with a new $33 million, 50,000-square-foot headquarters near U.S. Highway 17 and Porcher's Bluff Road. Enamored with the prospect of bringing some 300 high-tech jobs to the area, local governments and the state coughed up tax breaks and money for road and utility work.

"The company's investment will serve as a strong testimonial to attract additional bioscience investment to our community," then-Mayor Harry Hallman said at the time.

Signs of trouble

There were signs, however, that all was not well within GenPhar.

In 2007, as the company plotted its expansion, Wang contemplated divorce from her husband and colleague, citing adultery, court records show. She didn't follow through, but tensions between the two remained.

In May 2008, police were called to company's Seacoast Parkway offices to investigate a fight between Dong and Wang. She claimed he had damaged her phone during an argument, and had grabbed her.

He countered that Wang had scratched and punched him after he confronted her about writing to a potential investor behind his back, according to a police report.

Officers hauled Wang to jail in handcuffs on a charge of criminal domestic violence. The case was later dismissed, authorities said.

The following year, FBI agents and other federal investigators raided the company's offices, seized documents and interviewed employees about the company's finances and spending, Dong and others said.

In early 2010 GenPhar's expansion project hit the skids when the town slapped a stop-work order on the building over design and material issues.

Town officials insisted they were just enforcing the rules; Dong bristled at the interference, saying construction delays were costing GenPhar hundreds of millions of dollars in potential contracts.

Unable to resolve the impasse, the project ground to a halt and GenPhar laid off 15 employees in June 2010.

As it struggled to stay afloat, two shareholders mounted a hostile takeover bid in March and attempted to remove Dong, Wang and others from GenPhar's board of directors, according to court documents.

The company fought back with a lawsuit, arguing that GenPhar's bylaws precluded the move, and ultimately prevailed, its attorney, Dawes Cook, said.

Then, in September, Wang filed for divorce from Dong, accusing her husband of adultery with numerous women, including an ongoing affair with a woman in China. She cited evidence gathered by a private detective she hired to follow Dong during a summer trip to Beijing.

In court papers, Dong countered that it was Wang who had been unfaithful. He further charged that his wife was trying to force him from the company and had made false accusations that he had stolen money and used federal funds to pay for trips to China to see girlfriends.

"Wang used the company to fight her personal battle at the costs of investor's interests and affected the progress of government funded research," he stated in a court motion filed on Sept. 8.

Serious charges

Amid this turmoil, the government last week unsealed a 36-count indictment accusing Dong of improperly using grant money to pay for travel, lobbying, construction costs and other expenses.

He and Wang also got tagged with a seven-count indictment accusing them of using straw donors and foreign cash to funnel $31,000 in illegal contributions to Graham and his political action committee, The Fund for America's Future.

Bill Nettles, U.S. attorney for South Carolina, said there is no evidence that Graham was aware of this alleged wrongdoing when it occurred. Graham has pledged to hand the money over to the U.S. Treasury if it is found to be tainted.

Dong insists he is the victim of a political witch hunt, persecuted by the federal government for book-keeping errors and unfamiliarity with U.S. campaign-finance laws.

"It's very cynical thinking that we donate $31,000 to a congressional leader and they will give you millions of dollars to do whatever you want. It doesn't work that way," he said.

Dong said investigators have no evidence of financial wrongdoing, and prosecutors recently offered to drop those charges if he pleaded guilty to a felony count of making an illegal campaign contribution. Dong said he refused.

"I never caved in," he said. "I am proud to be an American, and I just hope there is justice. I'm looking forward to the trial."

If the past is any precedent, the government is in for a fight. Since his arrival here 13 years ago, Dong has waged several legal battles, with contractors over work disputes and unpaid bills and with his neighbors over his penchant for keeping pigeons, among other issues.

The U.S. attorney's office would not discuss Dong's statements about a potential plea bargain, nor would it respond to his comments about the merits of the case. "He's entitled to his opinion," Nettles said.

An uncertain future

Where GenPhar goes from here remains unclear.

The company changed its website last week to show that Wang has been named interim president and principal scientist. The new chairman of the board is listed as Sony-Yi Zhang, a Yale Law School graduate who heads Hong Kong-based Mandra Capital and serves as an advisory director to Morgan Stanley.

Zhang, like Wang, did not respond to requests for comment.

Dong, who is listed as chief scientific officer, said he is barred by court order from speaking with present and former GenPhar employees, but he remains available to help at the request of GenPhar's board of directors.

Sophia Snyder is lead health-care analyst for IBISWorld Inc., a California-based industry research company. Snyder said GenPhar is a small player in a quickly growing field that is very hot with investors.

Indictments won't help a company's fortunes, but they aren't necessarily a death blow if their vaccines deliver, she said.

"It's certainly something that would show up and be a black mark on their record, but ultimately, if they have a product, that is not going to be a preventative issue," she said.

Harold Margolis, a San Juan-based expert on dengue fever for the Centers for Disease Control and Prevention, said GenPhar is behind other companies that already have vaccines in clinical trials. But the company's work shows promise and could be among future generations of dengue vaccines, of which there is great demand, he said.

"There is quite a bit of room in the field," Margolis said. "It is not going to be one manufacturer takes all."

Hutchinson, the former GenPhar chairman, said the company's vaccines for Marburg and Ebola already have proved extremely effective at protecting animals injected with highly lethal doses of the viruses in military testing.

All the animals injected by the vaccine survived, while those that went unprotected died, he said.

"We were encouraged both by the starkness of the results and the fact the testing was conducted completely by a third party (U.S. Army Research Institute for Infectious Diseases)," he said.

Money remains the big question, and Dong acknowledged that GenPhar needs more of it to complete its headquarters and have a true production facility -- that is, if the government doesn't take it first.

And if he stays out of prison, Dong said he is ready and willing to get back in the fight. He said he doesn't blame his wife for agreeing to testify against him -- "She is scared and afraid for her future" -- and he is willing to work alongside her once again, even if she divorces him.

"We are scientists working for our government and the interests of our investors," he said. "We should not bring our family issues into the company."

Reach Glenn Smith at 937-5556 or Twitter.com/glennsmith5.