Well, we've got quite the pi**ing match going on:
Dimethaid sets the record straight on dissident circular
TORONTO, Sept. 14 /CNW/ - Pharmaceutical developer Dimethaid Research
Inc. (TSX:DMX) has responded to an information circular released September 7th
by a group of dissident shareholders attempting to seize control of the
company by soliciting proxies for the upcoming Annual General Meeting.
1. Share Price Decline
- Dimethaid's stock price has declined some 70 percent since the
dissidents first approached the board of directors on January 7th.
- On May 7th, an investment bank sent Dimethaid a term sheet
offering to raise $10 million Cdn. Once the dissidents learned
about the deal, they took immediate steps to block it, prompting a
number of institutional investors to withdraw their commitment and
forcing the company to raise a smaller amount on less favourable
terms.
- The dissidents have continued to repeat negative comments in the
media and investment community about Dimethaid's financial
position, and they have reinforced that theme throughout their
shareholder communications. As a result, the company's stock price
has not recovered despite such positive events as the approval of
Penecure(TM) development, the significant year-over-year increase
in Pennsaid(R) sales, and the peer-reviewed publication of
clinical results.
- Investors should ask themselves whether the dissidents' conduct is
in the shareholders' best interests.
2. Corporate Governance
- Dr. Kuhne has a particular stake in gaining access to Dimethaid's
board and senior management. (See Dissident conflict, below.)
- The dissident circular has failed to disclose that Dr. Kuhne and
Dr. von Lindeiner, a nominee for the dissident board, are family
relatives.
- The dissident circular has failed to disclose that Dr. Kuhne and
Dr. Guntermann - a nominee for the dissident board as well as CEO-
have a long-standing business relationship. In May 2001, Dr. Kuhne
and Dr. Guntermann signed an agreement retaining Dr. Guntermann's
firm to raise financing of 10-30 million euros for Oxo Chemie.
Under the terms, Dr. Guntermann was to be paid 8,000 euros per
month, plus 240,000 euros after completion of a financing deal.
From the books and records on hand, monthly fees were paid but no
financing was ever completed.
3. Leadership
Dimethaid management's record
- Since 2000, Dimethaid has launched a top-ten drug in Canada while
surviving twelve other biotech/pharma companies most of which have
gone bankrupt, disappeared through acquisition, or turned into oil
and gas companies.
- Dimethaid is one of the only Canadian, publicly traded pharma
companies to develop and bring a drug to market entirely on its
own. Despite a tough business climate for pharmaceutical
companies, existing management has brought the company to the
threshold of commercial success, beating the 1-in-5,000 odds of
taking a drug from the laboratory to the market.
- Dimethaid is poised to repeat this successful record with its
second product, Penecure, which has received clearance to conduct
its first clinical study from regulatory agencies in Canada and
the United States.
Dissident competence
- The dissidents' circular underscores a complete lack of experience
in guiding a public pharmaceutical company. The majority of their
nominees are from the auto industry. And while their plans might
be appropriate for an auto parts supplier, they make little sense
for a pharmaceutical company, illustrating how poorly the
dissidents are equipped to direct Dimethaid's future. (See
Business Strategy.)
- The dissident circular neglects to mention if Dr. Guntermann has
ever served as a CEO or board member of any company - public or
private - in any industry. Nor does it suggest he has any
knowledge whatsoever of Canadian capital markets.
- Although CEO is usually considered a full-time position, the
dissidents have not disclosed how Dr. Guntermann might divide his
time between Dimethaid in Canada and his consulting practice in
Germany. Nor does their circular provide an explanation of why Dr.
Guntermann would be willing to leave his current position for a
country where he has no declared business contacts, an asset most
CEOs consider essential to attracting investment funds.
- The dissidents have blamed their failure to raise capital on an
inability to access confidential insider information. The fact is:
term sheets for every Dimethaid financing to date have been
initiated entirely on the strength of publicly disclosed
information.
Dissident confusion
- The dissidents' circular represents the third time in eight months
that this group has rethought its agenda, trying to sort out who
might actually run the company. Initially the dissidents proposed
an unnamed interim CEO. Later they put forward Mr. Chicoine as CEO
and Mr. London as executive CEO. Now they have proposed yet
another possible CEO and changed their lineup of board nominees
yet again.
- The dissidents have remained as vague as ever about who would be
in charge of Dimethaid's future. Would it be Mr. Chicoine,
directing Dimethaid from an office at Magna? Would it be Dr. Kuhne
using his influence with board members to steer funds toward
additional WF10 research at the expense of Pennsaid? Or would it
be Dr. Guntermann, who as CEO might be expected to have difficulty
attracting support from Canadian investors, while based overseas?
- The dissident circular fails to disclose any long-term leadership
plans. If Dr. Guntermann does turn out to be in charge, would his
appointment be permanent, or would he be installed temporarily to
oversee the liquidation of Dimethaid? During his tenure, would he
move to Canada, or would Dimethaid pay regular commuting costs?
Or, after selling the plant and head office, and after cutting
staff, would the dissidents expect whatever is left of the company
to move to Germany? If Dimethaid does relocate to Europe, current
shareholders should ask themselves what will happen to their
investment.
- The remuneration to Dr. Guntermann is still either unsettled or
undisclosed. Shareholders deserve to know what this leadership
might cost and how the dissidents intend to pay for it, given
their demonstrated lack of ability to raise appropriate funding.
- Eight months after starting a drive to dismantle Dimethaid, the
dissidents remain unable to back up their proposals with any show
of solid financing. In May 2004, they claimed to have better
financing in place - where is the money? Possessing neither
concrete plans nor the knowledge to grow the business, the
dissidents appear to have chosen what, for them, is the easiest
possible course: auction off as many Dimethaid resources as they
can.
Dissident conflict
- At least two dissident board nominees - including the proposed
CEO - have been hand-picked by Dr. Kuhne. The dissidents' circular
indicates they intend to renegotiate the Oxo Chemie acquisition
payments. Investors should ask if this negotiation will be
conducted for the benefit of all Dimethaid shareholders. Or will
it primarily benefit Dr. Kuhne who has been steadily selling
shares over the last two years?
- Management believes Dr. Kuhne has an obvious, though undisclosed,
interest in influencing Dimethaid board decisions. At the 2003
AGM, Dr. von Lindeiner, acting as Dr. Kuhne's representative,
expressed dissatisfaction with Dimethaid's strategy to focus on
Pennsaid sales for the immediate future and temporarily delay
analysis of WF10 trial results. On three occasions since then
(January, May and June 2004) management offered to sell WF10 back
to Dr. Kuhne, so he could pursue development on his own schedule.
All three offers were rejected, signaling what management believes
to be Dr. Kuhne's wish to develop WF10 using Pennsaid revenues.
4. Business Strategy
- While the dissidents have complained about the time Pennsaid has
spent under FDA review, they have not presented any strategy for
accelerating the process. Instead, their plan to sell the
manufacturing plant reflects a failure to understand how changing
manufacturers can delay the process. Management is confident that
it has the expertise to obtain U.S. regulatory approval just as it
did in Canada, the U.K. and Europe.
- The dissidents propose selling the Varennes plant - a move that
will, in effect, double Pennsaid production costs. Unlike auto
parts suppliers, third-party pharmaceutical manufacturers must get
government approvals covering every jurisdiction where the product
is marketed, a process that for Pennsaid would consume 9-12
months, plus another 9-18 months for the U.S. The dissidents' plan
would be equivalent to reapplying for regulatory approvals where
the company has already earned them. Meanwhile, Dimethaid would
have to continue production in Varennes to avoid violating its
distribution contracts including upcoming launches in Greece and
Portugal.
- The dissidents suggest terminating Dimethaid's sales force, the
group responsible for generating most of the company's current
revenue. Even if the dissidents could outsource sales, doing so
would add substantially to Dimethaid's expenses while compromising
the ability to educate customers and build awareness - Pennsaid is
more than another new product; it is an entirely different
approach to treatment, calling for a thoroughly trained,
professional sales team. The dissidents have failed to understand
that it typically takes 3 to 5 years for a new drug to break even
in the Canadian market, whether the sales force is kept in-house
or subcontracted. Instead of cutting costs, the dissidents'
proposal would have the effect of shrinking profit margins, a move
that would almost certainly drive down Dimethaid's share price.
Current management is determined to restore shareholder value. Its slate
of directors has the skill, experience and motivation to grow Dimethaid's
business. And management's information circular outlines a realistic plan for
doing that. In contrast, the dissidents have provided little evidence that
they are capable of running the company, or that they even intend to run the
company for the benefit of all shareholders.
Dimethaid urges all shareholders to vote FOR management's slate of
directors, a recommendation endorsed by Fairvest Corporation, Canada's leading
independent proxy advisory firm. If they have not already done so,
shareholders should sign, date and return their BLUE proxy, before 9:00 a.m.
EST on Friday, September 17, 2004.
A copy of Dimethaid's management information circular and the
accompanying BLUE proxy form have been mailed. Shareholders who have not
received this package should immediately contact Kingsdale Shareholder
Services, toll free, at 1-866-749-5464. Shareholders who have voted for the
dissidents can change their vote to support management by contacting
Kingsdale.
____________
My first impression is that this is a remarkably unprofessional NR.
However, it does provide some food for thought. |
