Dimethaid Research earns $974,000 (U.S.) in Q3
2005-04-14 17:52 ET - News Release
Ms. Jodi Peake reports
DIMETHAID ANNOUNCES THIRD QUARTER FINANCIAL RESULTS
Dimethaid Research Inc. has released its consolidated fiscal 2005 results for the third quarter ended Feb. 28, 2005. All amounts are expressed in U.S. dollars, unless otherwise noted.
Building a strong infrastructure for growth
The company's third quarter was highlighted by continued progress with its financial restructuring, which is now nearing completion. Most significantly, agreements were reached with creditors of Dimethaid Research and its subsidiaries to accept $695,000 in full and final settlement of outstanding obligations totalling $4.1-million. The settlement of these outstanding obligations resulted in a substantial reduction in accounts payable, which is reflected in the company's third quarter fiscal 2005 financial statements.
Since listing the company's head office for sale last quarter, Dimethaid has received three formal offers to purchase the premises. Counter offers have been exchanged, but no final binding agreement has yet been executed. During this process, the company's restructuring team has identified several appropriate-sized leased premises of interest. Dimethaid's goal is to complete this element of the restructuring in the short-medium term. Once completed, the company's monthly expenses will be significantly reduced.
Dimethaid is also looking to divest operations of its non-strategic subsidiary Dioptic Laboratories and it has received expressions of interest from several parties. The Dioptic product line consists of diagnostics or drugs used to examine the eye, and therapeutics used to treat eye infections, irritation, inflammation and glaucoma. The company expects to complete this divestiture next quarter.
Following further in-depth analysis, Dimethaid has decided to discontinue actively pursuing the sale of its Varennes, Que., manufacturing plant for the present. Currently, Varennes is the only FDA-, HPB- and MCA-approved facility for manufacturing Pennsaid. The company is also continuing to explore the option of securing additional contract manufacturing opportunities in an effort to optimize this resource and maximize revenue.
Consistent with Dimethaid's goal of shedding non-core assets in order to eliminate debt, generate cash and further reduce expenses, a second, 50,000-square-foot facility located on its Varennes, Que., property was listed for sale subsequent to quarter-end. This facility has never been operational and is surplus to the company's requirements.
As the restructuring has been substantially completed, the board restructuring committee has been dissolved and its responsibilities assumed by management. Key achievements of the restructuring committee over the last two quarters include:
successfully settling debt obligations, resulting in $3.4-million reduction in accounts payable;
securing financing by raising $11.2-million (Canadian);
finalizing the company's Canadian sales and marketing agreement with Solvay Pharma;
terminating the McNeil Consumer Healthcare standstill agreement, freeing Dimethaid to negotiate with potential U.S. marketing partners for Pennsaid;
terminating the In2Focus agreement covering Pennsaid sales and promotion in the United Kingdom;
restructuring the $28-million debt owed to Dr. Kuhne for the company's 2002 purchase of Oxo Chemie AG;
reducing overall fixed costs by 50 per cent;
downsizing Dimethaid's work force by over 40 per cent;
listing the Markham head office for sale;
listing the company's second, non-core, Quebec-based facility for sale; and
seeking to divest operations of non-strategic subsidiary Dioptic Laboratories.
Growing Pennsaid market share
Total Pennsaid revenue amounted to $1.7-million for the third quarter, up 42 per cent from the same period last year, and down slightly from $1.9-million for the second quarter of fiscal 2005 primarily due to the seasonal decline in the total prescription drug market, including the NSAID market, during the period. Despite this seasonal decline, Pennsaid continued to capture increased market share in Canada due to a drop in overall NSAID sales.
During the third quarter, Dimethaid's marketing partner Jaba Farmaceutica officially launched Pennsaid in Portugal. Pennsaid will compete in an NSAID market valued at approximately 156 million euros. The company also expects its partner Vianex to begin marketing Pennsaid in Greece during the second half of calendar 2005. Dimethaid does not expect significant sales from these territories, at least in the short term.
Canadian market
Breaking out Canadian Pennsaid sales, revenue for the third quarter totalled $1.4-million ($1.7-million (Canadian)), up 38 per cent from the same period last year (approximately 9 per cent due to foreign exchange effect), and down slightly from $1.6-million ($2-million (Canadian)) for the second quarter of fiscal 2005.
During the quarter, the overall Canadian NSAID market size decreased as many patients stopped treatment in light of the uncertainty created by the worldwide Vioxx recall and increased scrutiny on other COX-2 inhibitors. This uncertainty is likely to continue with the recent market withdrawal of Bextra, labelling changes for Celebrex and warnings about oral NSAIDs issued by the FDA and Health Canada. Dimethaid, and its co-promotion partner Solvay Pharma, view this as a great opportunity to increase awareness of Pennsaid's efficacy and safety with Canadian health care practitioners. While the company is disappointed that the changing NSAID market has not resulted in an immediate rise in Canadian Pennsaid sales, it expects sales to grow as health care practitioners and patients become increasingly familiar with Pennsaid's efficacy and safety.
Pennsaid represents a novel treatment idea for many physicians. Solvay is in the process of launching a new marketing and promotional program designed to capitalize on the unique position of Pennsaid among other osteoarthritis medications. Major elements of this comprehensive program include enhancing relationships with key opinion leaders in the area of arthritis, participation in leading medical conferences, partnering with third party advocacy groups, and implementing strategic public relations and consumer campaigns. Included in Solvay's plan is the resubmission of applications to formularies for coverage of Pennsaid to which several responses are expected this year. The company is confident that Solvay will be able to bring its considerable sales and marketing expertise to bear in successfully promoting Pennsaid in Canada.
PMPRB update
In March, 2005, Dimethaid received an update from the Patented Medicine Prices Review Board (PMPRB) on the previously disclosed review of Pennsaid pricing in Canada. Under the review, the PMPRB has initially determined that the price of Pennsaid in Canada exceeds pricing guidelines. On the basis of this determination, the PMPRB has identified excess revenues owing in the amount of $3.5-million ($4.2-million (Canadian)) from the product launch in March, 2003, to December, 2004. A further $900,000 ($1.1-million (Canadian)) may be determined owing from January, 2005, until May 3, 2005, when the company's patent for Pennsaid in Canada expires. After patent expiration, the PMPRB no longer has authority to regulate Pennsaid pricing in Canada for subsequent sales.
Dimethaid has retained an expert consultant in this matter and, subsequent to the quarter, met with the PMPRB. Dimethaid has undertaken to provide the PMPRB with further information not available at the time of the company's original submission and is hopeful that a mutually acceptable resolution can be reached.
International markets
Internationally, the company is continuing to re-evaluate its strategy and identify the major opportunities and challenges for Pennsaid. During the quarter, Dimethaid met with several of its European marketing partners which provided valuable feedback with respect to their individual markets. The company has determined that the necessary investment in premarketing activities was not made, including securing the support of key opinion leaders in the field of arthritis, the absence of clinical studies conducted in Europe, late publication of clinical study results and the improper positioning of Pennsaid against topical rather than oral NSAIDS. The company is still in the early stages of reformulating its European plan, which management expects will continue for the balance of calendar 2005. Dimethaid anticipates international sales will continue to be lower than previously expected until it determines the most effective positioning for Pennsaid in the European market.
Continuing to advance the phase III Pennsaid clinical trials
The company is continuing to make progress with its two Pennsaid clinical phase III trials. During the third quarter, Dimethaid completed patient enrolment in its long-term open label study designed to establish Pennsaid safety for up to 52 weeks of treatment. Enrolment in the three-month add-on therapy study investigating efficacy and safety when using Pennsaid in combination with oral NSAIDs is continuing and the company has opened an additional 18 sites in the United States to meet its aggressive timeline. At the current pace of enrolment, Dimethaid remains on track to submit an amended new drug application to the U.S. Food and Drug Administration by mid-2006. During the clinical trial process, the company's goal is to continue to meet with potential U.S. marketing and distribution partners. Although there is a heightened interest in Pennsaid in the wake of the recent COX-2 controversy, Dimethaid does not anticipate finalizing a U.S. licensing agreement until it gets closer to FDA approval.
Solidifying the long-term research and development strategy
The company's long-term strategy is to build a profitable biotechnology development company focused on research and development and early stage drug development. A key element of this strategy includes partnering with experienced, global pharmaceutical companies for the development of the company's product pipeline.
Drug development is a lengthy, expensive and complex process that can reap considerable rewards for both patients and shareholders. At Dimethaid, management is very fortunate to have drug platforms with tremendous promise in the areas of rheumatology (Pennsaid), dermatology (Penecure), oncology and immune diseases (WF10).
In defining the research and development direction, particularly with respect to WF10 development, the company needs to focus its limited resources on the highest potential, lowest risk opportunities. Key elements of this process include:
in-depth evaluation of the potential markets for the company's products. Clinical work done to date with WF10, the company's immune modulator, has produced sufficient scientific evidence to suggest a number of opportunities for exploiting the technology in such vast areas as oncology and immune diseases. Given the anticipated breadth of this technology platform, it is crucial that the company establishes a clear and focused direction for the long-term;
ensuring the disease indications Dimethaid ultimately decides to pursue are appropriately protected by its existing and evolving intellectual property portfolio; and
leveraging the expertise of some of the brightest medical minds in the fields of drug development and the international regulatory approval process.
While the company is making considerable progress, it is also investing the substantial time required to develop a research and development strategy that will form the road map for Dimethaid's future. Dimethaid expects to be in a position to share its strategic plan with shareholders in late 2005. In the meantime, the company appreciates its continued patience.
Developing the company's new anti-fungal
Both the FDA and Health Canada have approved a protocol for the first phase I/II clinical trial of Penecure, Dimethaid's anti-fungal that will combine the safety of existing topicals with the efficacy of pills. Before the company can begin enrolling patients, it is working with its patent attorney to ensure that Penecure will have appropriate patent protection.
Improving the value of shareholder investment
Having formed the company's new management team just five months ago, management is pleased with the progress made so far in restructuring the company and building a foundation for future growth. The financial position of the company has been strengthened by substantially reducing fixed costs so that management can focus resources on drug development. The successful settlement of several outstanding obligations during the quarter resulted in a major reduction in accounts payable and a strengthened balance sheet as the company nears the completion of the restructuring. In Canada, Dimethaid's co-promotion partner Solvay is launching a fully financed, strategic marketing and promotional program for Pennsaid. In the U.S., Dimethaid is continuing to advance toward submission of an amended NDA for Pennsaid and remains focused on continued discussions with potential marketing partners. Finally, the company is in the process of developing a long-term, focused drug research and development plan. The company has more work to do, but is progressing toward its goal of becoming a lean, effective drug development company positioned to take advantage of its promising product pipeline.
Financial results
Revenue
For the third quarter ended Feb. 28, 2005, total revenue was $1.9-million, up 30 per cent from the same period last year. Revenue for the nine-month period was $5.6-million, an increase of $2-million from the comparable period last year.
Total Pennsaid revenue amounted to $1.7-million for the third quarter, up 42 per cent from the same period last year, and down slightly from $1.9-million for the second quarter of fiscal 2005 primarily due to the seasonal decline in the prescription drug market during the period, as well as a decrease in the size of the Canadian NSAID market related to the COX-2 controversy. Despite these challenges, Pennsaid continued to capture increased market share in Canada.
During the third quarter, Dimethaid's marketing partner Jaba Farmaceutica officially launched Pennsaid in Portugal. Pennsaid will compete in an NSAID market valued at approximately 156 million euros. The company also expects its partner Vianex to begin marketing Pennsaid in Greece during the second half of calendar 2005.
Gross profit for the third quarter was $1-million or 77 per cent of net revenue, compared with $1.2-million or 81 per cent of net revenue, for the same period a year ago. The decrease in margin percentage is due to revenue allocation with Dimethaid's co-promotion partner in Canada. This decrease is more than offset by revenue growth and reduction in sales overhead.
Research and development expenses
Research and development expenses totalled $761,000 for the third quarter ended Feb. 28, 2005, up from $234,000 for the comparable period last year. For the nine-month period, research and development expenses amounted to $2.9-million, compared with $1-million for the same period last year. The three- and nine-month period increases are mainly due to expenses incurred in relation to Pennsaid phase III clinical trials, which the company expects to complete by the end of calendar 2005. Research and development expenses are expected to remain at a level similar to the three-month period ended Feb. 28, 2005.
Selling, general and administrative expenses
Total selling, general and administrative expenses for the quarter were $1.9-million, down 45 per cent from the comparable period last year primarily due to reductions in sales and marketing overhead.
Selling and marketing expenses for the third quarter were $646,000, down significantly from $2.6-million for the comparable period last year. This decrease is mostly due to the termination of the company's Canadian sales force and the cancellation of its U.K. sales and marketing contract. For the nine-month period, selling and marketing expenses amounted to $4.2-million, down from $6.6-million for the same period last year.
Administrative expenses for the quarter ended Feb. 28, 2005, were $980,000 compared with $701,000 for the same period last year. Year-to-date administrative expenses were $2.4-million versus $2-million for the comparable period last year. This increase is mainly due to the expensing of non-cash stock-based compensation.
The company's adoption of the CICA handbook Section 3870 resulted in a $531,000 year-to-date charge to administrative expenses based on the fair value attributed to stock options granted and vested. In prior years the company provided note disclosure of options, rather than a charge to selling, general and administrative expenses.
Manufacturing overhead increased to $301,000 during the third quarter, up from $251,000 from the comparable period last year. Year-to-date manufacturing expenses totalled $822,000, up from $700,000 last year, commensurate with Pennsaid sales volumes.
Amortization
Amortization of property, plant and equipment for the quarter was $103,000, down from $145,000 for the third quarter last year. This reduction is due the company's decision to discontinue expansion of the Varennes facility. Following this decision, packaging machinery acquired last year has been divested, resulting in a continuing reduction in amortization charges.
Amortization of intangibles decreased $95,000 to $246,000 this quarter versus the same period last year. Year-to-date amortization decreased $286,000, compared with the same period last year, reflecting a partial writedown of intangibles on May 31, 2004.
Foreign currency
Foreign exchange loss amounted to $69,000 for the current quarter, compared with $320,000 for the same quarter last year. For the nine-month period, the company recorded a foreign exchange gain of $66,000, versus a loss of $214,000 for the same period last year. The year-to-date foreign exchange gain realized is due to the fluctuation in value of the U.S. dollar.
Interest expense
Interest expense amounted to $294,000 ($630,000 for the nine-month period), compared with $153,000 for the comparable period last year ($296,000 for the nine-month period last year). The increase results primarily from interest charges of $219,000 on debentures issued pursuant to the November, 2004, unit financing. Debenture interest charges year-to-date include: interest paid $24,000, interest accrued $68,355 (payable May, 2005) and a $126,000 non-cash interest accretion charge on unconverted debentures.
Loss from operations
Loss from operations for the quarter ended Feb. 28, 2005, was $2.1-million compared with a $2-million loss for the corresponding period last year. The prior year results included other revenue of $1.2-million received for Pennsaid promotional rights in Canada, Greece and Portugal. Excluding this other revenue, the third quarter loss from operations improved 34 per cent over last year. For the nine months ended Feb. 28, 2005, loss from operations was $8.1-million, compared with $7-million for the prior year.
Gain on debt settlements
For the quarter ended Feb. 28, 2005, the company recognized a $3.4-million gain on debt settlements. Agreements have been reached with creditors of Dimethaid and its subsidiaries to accept approximately $695,000 in full and final settlement of obligations totalling approximately $4.1-million. As at Feb. 28, 2005, approximately $590,000 has been disbursed. The remaining $105,000 was paid in March, 2005. Settled claims include those of the company's former U.K. sales and marketing partners, Provalis Healthcare Ltd. and In2Focus Sales Development Services.
Net income/loss
Net income for the quarter ended Feb. 28, 2005, was $974,000, or nil per share, compared with a net loss of $2.4-million, or four cents per share, for the quarter ended Feb. 29, 2004. For the nine months ended Feb. 28, 2005, the net loss was $10.1-million, or 16 cents per share, compared with $11-million, or 25 cents per share, for the corresponding period last year.
Cash position
Cash and cash equivalents at the end of the third quarter totalled approximately $4.2-million, compared with $305,000 as at May 31, 2004. This increase is mainly a result of funds generated by the Nov. 16, 2004, unit financing, net of the funds applied to operating activities during the period.
The company is currently pursuing a number of initiatives to raise additional capital for the continued development of its product pipeline, which could include equity/debt issues, proceeds from the sale of non-strategic assets and financial arrangements with potential partners interested in developing or acquiring an interest in one or more of the company's products.
Conference call
Dimethaid will host a conference call on Friday, April 15, 2005, at 8 a.m. ET to discuss its third quarter fiscal 2005 results. To access the conference call by telephone, dial 416-640-4127 or 1-800-796-7558. Please connect approximately five minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until Friday, April 22, 2005, at midnight. To access the archived conference call, dial 416-640-1917 or 1-877-289-8525 and enter the reservation No. 21121725 followed by the number sign. A live audio webcast of the conference call will be available at the company's website. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any required software downloads. The webcast will be archived at the website for 90 days.
CONSOLIDATED STATEMENT OF OPERATIONS
AND DEFICIT
Three months ended
(in thousands of U.S. dollars)
02/28/05 02/29/04
Revenue $1,856 $1,426
Revenue allocation (527) -
-------- --------
Net revenue 1,329 1,426
Cost of sales 312 272
-------- --------
Gross profit 1,017 1,154
Other revenue - 1,223
-------- --------
1,017 2,377
Expenses
Research and
development 761 234
Selling, general
and admin 1,927 3,536
Amortization of
property, plant
and equipment 103 145
Foreign currency
(gain) loss 69 320
Interest and other
expense 294 153
-------- --------
3,154 4,388
-------- --------
(Loss) from
operations (2,137) (2,011)
Arbitration ruling - -
Amortization of
intangibles 246 341
Gain on debt
settlements (3,357) -
Restructuring costs - -
-------- --------
Net income (loss)
for the period $974 $(2,352)
======== ========
(Deficit),
beginning of
period $(112,712) $(82,718)
Prior year stock
option adjustment - -
Accretion on
acquisition
commitments (1,026) (1,301)
-------- --------
(Deficit), end of
period $(112,764) $(86,371)
======== ========
Net earnings (loss)
per common share $0.00 $(0.04)
CONSOLIDATED STATEMENT OF OPERATIONS
AND DEFICIT
Nine months ended
(in thousands of U.S. dollars)
02/28/05 02/29/04
Revenue $5,629 $3,646
Revenue allocation (1,556) -
-------- --------
Net revenue 4,073 3,646
Cost of sales 955 664
-------- --------
Gross profit 3,118 2,982
Other revenue - 1,223
-------- --------
3,118 4,205
Expenses
Research and
development 2,886 1,010
Selling, general
and admin 7,402 9,320
Amortization of
property, plant
and equipment 368 343
Foreign currency
(gain) loss (66) 214
Interest and other
expense 630 296
-------- --------
11,220 11,183
-------- --------
(Loss) from
operations (8,102) (6,978)
Arbitration ruling - 3,032
Amortization of
intangibles 738 1,024
Gain on debt
settlements (3,357) -
Restructuring costs 4,605 -
-------- --------
Net income (loss)
for the period $(10,088) $(11,034)
======== ========
(Deficit),
beginning of
period $(96,290) $(70,587)
Prior year stock
option adjustment (1,458) -
Accretion on
acquisition
commitments (4,928) (4,750)
-------- --------
(Deficit), end of
period $(112,764) $(86,371)
======== ========
Net earnings (loss)
per common share $(0.16) $(0.25)
We seek Safe Harbor. |
