TORONTO, Oct. 6 /PRNewswire-FirstCall/ -- In an effort to streamline operations, the new board of directors of Dimethaid Research Inc. (TSX: DMX) has released initial plans for restructuring the company.
"As we're finding out, beneath all the confusing information, this company has solid products and a basically sound foundation " said Daniel H. Chicoine, the new chairman of the board. "The measures we're taking should have a noticeable impact on fixed costs by the end of the next fiscal quarter and greatly accelerate the time to profitability."
Details of the plan are described in the attached letter to shareholders from the board's restructuring committee and covers the following areas:
- Directors' Compensation
- CEO Appointment and Other Management Changes
- Solvay Revenue Sharing Agreement
- Revamped U.K. Distribution
- Clarified FDA Review Status
- U.S. Distribution Potential
- Improved Short-term Financing
- Long-term Financing Options
The attached letter to shareholders can be found on the company's website at http://www.dimethaid.com/. Shareholders may contact the Investor Relations department of the company by mail: 1405 Denison Street, Markham, Ontario, L3R 5V2; by telephone: (905) 415-1446; or by email: email@example.com to request a copy of the letter to shareholders.
Dimethaid Research Inc. is a publicly traded, Canadian, pharmaceutical company headquartered in Markham, Ontario, with manufacturing facilities in Varennes, Quebec and Wanzleben, Germany. The company develops and commercializes targeted therapeutic drugs designed to produce minimal side effects. Dimethaid's two technology platforms focus on transcellular drug delivery and immune system regulation. Products are aimed at expanding treatment options in rheumatology, dermatology, oncology, immunology, and the therapeutic management of chronic viral infections. For more information, please visit http://www.dimethaid.com/.
This release may contain forward-looking statements, subject to risks and uncertainties beyond management's control. Actual results could differ materially from those expressed here. Risk factors are discussed in the Company's annual information form filed with the securities commissions in each of the provinces of Canada. The Company undertakes no obligation to revise forward-looking statements in light of future events.
Dear Dimethaid Shareholders:
On behalf of Dimethaid's new board of directors, thank you for your support and trust in electing us at the annual shareholders meeting on September 21, 2004. While we face many challenges, you can rest assured that we will work diligently on your behalf and will communicate with you regularly, and as fully and frankly as possible.
Immediately after the annual shareholders meeting, Daniel Chicoine told those present that the new board would update shareholders in two-to-four weeks. This letter represents the first report of the board's restructuring committee. We caution that we have had access to Dimethaid's books, records and personnel for just over two weeks. The documentation we have reviewed and are continuing to review is voluminous; and the company's affairs are complex. While we are trying to get up to speed as quickly as possible, we caution that we are in the midst of an ongoing process.
New Board Appointments
The new board held its first meeting on September 21, 2004 immediately after the annual shareholders meeting. It consists of the following members:
Dr. Henrich Guntermann
Dr. Jacques Messier
Dr. Klaus von Lindeiner
The board appointed Daniel Chicoine as chairman and John London as
The board also established the following committees:
Corporate Governance and Compensation Committee
Klaus von Lindeiner
Audit and Environmental Committee
Klaus von Lindeiner
CEO Appointment and Other Management Changes
At a board meeting held on September 22, 2004, the board appointed Dr. Henrich Guntermann as president and chief executive officer of Dimethaid.
The board has terminated Rebecca E. Keeler as president and CEO and Ruth Huttman as executive director, operations. To streamline operations, we have also reduced the number of personnel at the head office in Markham.
Previously, company board members received $5,000 as an annual retainer, $1,000 per meeting attended and $500 for each telephone meeting. Committee members also received $500 per committee meeting attended and $250 for each telephone meeting. All previous board members received 100,000 stock options upon joining the board and 20,000 stock options at the beginning of each fiscal year.
The new board believes that, given the company's financial position, it is inappropriate for directors to receive cash compensation as an annual retainer or for attending board or committee meetings - at least for the first year. In lieu of cash compensation, we agreed to give each director 50,000 options to acquire common shares of Dimethaid at the prior day's TSX closing price ($0.39 / share on September 20). These options vested on the date they were granted.
In addition, the new board approved options for each director to acquire 100,000 shares at the prior day's TSX closing price, ($0.39 per share on September 20), vesting in three equal instalments. The first instalment vests on the date of grant; the remaining two instalments vest one year and two years after the date of grant.
Company's Financial Position
On September 21, 2004, we were advised that Dimethaid had about $240,000 in cash available and current liabilities of approximately $10.7 million Cdn. Dimethaid senior management was not aware of any firm financing in place to deal with the situation. Obviously, raising funds for the company's short- and longer-term requirements is the new board's first priority.
To meet immediate cash requirements, Dr. F.W. Kuhne - former principal of Oxo Chemie, now Dimethaid AG - has agreed to provide Dimethaid with a short-term loan funded by the sale of Dimethaid shares paid to him as part of the Oxo Chemie acquisition agreement. The transaction has been approved by the Toronto Stock Exchange, and the shares will be sold at prevailing market price. The loan will come due in three months and bear interest at a rate of 6 percent per annum. Dr. Kuhne may, at his option, elect to have all of the principal repaid through the issuance of the same number of Dimethaid common shares he sold to finance the loan. A maximum of one million common shares can be issued to Dr. Kuhne as repayment.
Dr. Kuhne Debt
The company's largest creditor is Dr. Kuhne who is owed approximately $28 million US, which represents the remaining purchase price from Dimethaid's May 2002 acquisition of Oxo Chemie. Payments of $9.24 million U.S. are due in each of November 2004, 2005 and 2006, and may be made in any combination of cash or common shares, at the company's discretion. We have contacted Dr. Kuhne's legal representative to restructure this obligation and believe we can reach a mutually satisfactory arrangement.
Since taking office, we have prepared a revised business plan aimed at determining the nature and amount of long-term financing required by the company, and we are currently evaluating several opportunities.
FDA Approval of Pennsaid
The new board has learned that in August 2002, the U.S. Food and Drug Administration sent the company a complete response letter recommending additional efficacy and long-term safety data, along with an extra, pharmacokinetic study providing more information about how the drug is absorbed and eliminated from the body.
Dimethaid responded within 10 days, indicating it would amend its New Drug Application (NDA). The company agreed to the pharmacokinetic study and completed the work in May 2003.
However, given Dimethaid's limited financial resources and the quality of results already submitted, the company continued to negotiate with the FDA in an effort to persuade the agency that additional efficacy and safety data, or more clinical trials, were unnecessary. In November 2002, the company decided to conduct new clinical trials in accordance with the FDA's suggested design.
Over the past two years, Dimethaid has continued to meet with the FDA to clarify the issues and develop the necessary clinical trials. The company submitted a protocol in November 2003 and following approval, started enrolment in March 2004.
Barring unforeseen delays, we expect to complete the studies by the end of calendar 2005 and submit an amended NDA by mid 2006. According to agency guidelines, the FDA should be expected to respond by early 2007. A positive response at this stage would allow the company to begin marketing Pennsaid three-to-six months later. Throughout this process, Dimethaid will continue negotiating with potential marketing and distribution partners, with the possibility of securing a U.S. licensing agreement in advance of FDA approval.
The new board wanted assurance that the significant cost to complete these trials was justified and that the company, upon completion of the work, could successfully address the FDA's questions. Accordingly, the company retained a former deputy director of the FDA's office of scientific evaluation to obtain an opinion on Pennsaid's approval status and the trials requested by the FDA. After reviewing results from the company's earlier clinical trials and the design of the two current trials, the company was advised, in a written report, that its current add-on and long-term therapy studies are sufficiently well designed to answer all outstanding questions. The report concludes: "Assuming the results are consistent with the safety and efficacy data already submitted, it is my opinion that the FDA will approve Pennsaid."
Based on this expert opinion the board has decided to continue with the two trials requested by the FDA.
Canadian Distribution - Solvay Agreement Status
The relationship between the company's wholly owned subsidiary Dimethaid Health Care Ltd. and Solvay Pharma Inc. is based on a co-promotion agreement whereby Dimethaid and Solvay each contribute equivalent sales forces and promotional funds to market and sell Pennsaid in Canada. The two companies share revenues from Canadian Pennsaid sales according to an agreed percentage formula. On September 16, 2004, Solvay delivered a notice identifying a number of alleged contractual breaches that, unless corrected by Dimethaid, would prompt Solvay to terminate the agreement effective December 10, 2004 and seek damages.
Members of the new Dimethaid board have met with Solvay executives about restructuring the existing agreement. As a result, Solvay has made a proposal and negotiations are ongoing. In the event an agreement is not reached and Solvay does not revoke the notice of termination according to the terms of the current co-promotion arrangement, Dimethaid will be free to partner with another company. Dimethaid has received an unsolicited expression of interest from another company interested in promoting and selling Pennsaid in Canada.
United States Distribution - McNeil Standstill Agreement
Since May 1999, Dimethaid International, the company's wholly owned subsidiary, has been subject to a standstill agreement with McNeil Consumer Healthcare, a division of McNeil-PPC, Inc. Under the terms, Dimethaid International agreed to discuss and negotiate only with McNeil regarding the sale, licensing or distribution of Pennsaid in the United States. Either party was allowed to terminate the agreement on written notice to the other, and Dimethaid International did deliver such a notice to McNeil on October 5, 2004. In anticipation of FDA approval, Dimethaid is now free to begin discussions with other interested parties about sales, licensing and distribution of Pennsaid in the United States.
Impact Of Vioxx Withdrawal From The Market
On Thursday, September 30, 2004 Merck & Co. announced that it was withdrawing Vioxx, its COX-2 inhibitor, from the worldwide market. Vioxx sales represented about 40 percent of the $500 million Cdn market, and 36 percent of the $5.0 billion US market for COX-2 inhibitors. The withdrawal of Vioxx from markets where Pennsaid has been approved for sale may have a positive impact on Dimethaid's sales since Pennsaid is a potential alternative. In the United States, the Vioxx withdrawal will not affect Dimethaid's sales or profits until the FDA approves Pennsaid (see above) or unless the company can negotiate a license or sale of Pennsaid rights before FDA approval.
U.K. Sales Agreement - In2Focus
Dimethaid has been pursing the U.K. market for Pennsaid through a sales representation agreement between In2Focus Sales Development Services Limited and the company's subsidiary Dimethaid International. Under the agreement, Dimethaid International paid a fee in return for In2Focus using its own sales force to promote and sell Pennsaid in the U.K. In the most recent fiscal quarter, marketing and promotion costs amounted to over eight times the total sales revenue.
On September 29, 2004, Dimethaid International notified In2Focus that it was terminating the agreement. Although the termination becomes effective five months after delivery of notice, Dimethaid International has requested that In2Focus take immediate steps to reduce its expenses and Dimethaid's exposure. We have also requested that In2Focus consider a restructured agreement where In2Focus would assume responsibility for sales costs in return for a commission or royalty, based sales. In the absence of a successful renegotiation or a new sales agreement with In2Focus, Dimethaid will seek a traditional marketing and distribution arrangement with a new U.K. partner, which will fund sales expenses and pay Dimethaid a share of revenue.
Varennes Manufacturing Facility
The company's manufacturing facility in Varennes, Quebec is the only source for Pennsaid, and moving production to another facility would take at least six to twelve months. For the longer term, however, we would like to focus on drug development rather than drug manufacturing. Ultimately, our goal is to find a contract manufacturer who can assume operation of the Varennes facility and utilize excess capacity for other products.
Head Office Mortgage
There is a $2 million Cdn mortgage charging the company's Markham head office and bearing interest at a rate of 2 percent per month. This mortgage has matured and is now due.
An experienced, local real estate firm has conducted an initial valuation of the building and believes that Dimethaid could sell the facility for $2.4-$2.8 million Cdn. We have also made enquiries with mortgage brokers and have received an informal offer to replace the current financing with a one-year mortgage bearing interest at 10 percent per annum but requiring a 3-percent upfront payment. We are continuing to explore selling and remortgaging options. We also have about 14,000 square feet of unutilized space, presently listed for sublet.
The restructuring committee of the new board has had a busy and exciting first two weeks. We intend to keep up this pace until Dimethaid is on solid financial ground and positioned to take advantage of its promising products. We will continue to keep you advised of developments.
For the restructuring committee of the board of directors of Dimethaid Research Inc.
John London(signed), chairman of the restructuring committee
Daniel H. Chicoine(signed)
Dimethaid Research Inc.