Summary of conversation with Mr. Brown Russell, Gum Tech Director and Investor Relations Contact.
Phone: (602) 252-1617, extension 114
Business Organization Issues
Gel Tech, Inc. was incorporated in the state of CA for the main purpose of researching nasal gels. The company has four officers, two of which are Drs. Charles Hensley and Steven Davidson. Approximately 18 months ago, principles from Gel Tech, Inc. approached Gary Kehoe of Gum Tech, Inc. because Gum Tech was also working on alternative delivery methods for medications. The two companies signed an intellectual property rights agreement and set forth to develop what has now become Zicam.
Once Zicam was ready for distribution, Gel Tech, Inc. and Gum Tech, Inc. formed a limited liability corporation named Gel Tech LLC to market and distribute Zicam. At the same time, Gel Tech, Inc. renamed itself to Biodelivery Technologies, Inc. and Gel Tech, Inc. no longer conducts business under the name Gel Tech. The "Gel Tech" trademark is now owned by Gel Tech LLC. Gum Tech, Inc. owns 60% of Gel Tech LLC and Biodelivery Technologies, Inc. owns the other 40% of Gel Tech LLC.
Gel Tech LLC owns the intellectual property rights to Zicam, and since Gum Tech owns 60% of the assets of Gel Tech LLC, Gum Tech owns 60% of Zicam. Drs. Steven Davidson and Charles Hensley now work primarily for Gel Tech LLC although they may still do research for Biodelivery Technologies. Neither Gum Tech, Inc. nor Gel Tech LLC has any financial or business interest in Biodelivery Technologies. The name "Biodelivery Technologies" is new and may not yet exist in the American Business Information (ABI) database. A search for Gel Tech, Inc. should yield a hit.
I asked Mr. Russell about a company named Gel-Tech Industries, located at 6430 Variel Ave. # 102B, Woodland Hills, CA, 91367-2520, (818) 340-3497, ABI Number 985604685. The ABI database lists R Steven Davidson as the owner. Since the ABI database listed Dr. Stevenson as the “owner”, rather than an “officer”, I assumed that Gel Tech Industries was a sole proprietorship owned by Dr. Stevenson. Mr. Russell was unaware that Dr. Stevenson owned a company by the name of Gel Tech Industries and said that he would call Dr. Stevenson and ask him about it. Mr. Russell called me back about an hour later to tell me that Dr. Stevenson does not own a sole proprietorship by the name of Gel Tech Industries and that there must be an error in the ABI database. I suggested to Mr. Russell that Dr. Davidson contact the editor of the ABI database to see if the error can be corrected. This may be a mute point since Gel Tech, Inc. now conducts business under the name Biodelivery Technologies.
Zicam is being manufactured and packaged by Botanicals International., a widely respected company according to Mr. Russell. Gel Tech LLC will market and distribute the product. Zicam does not contain any gums from Gum Tech so my assumption with regard to this was incorrect.
Advertising, Distribution, Financing, and Marketing Issues
Albertsons and Eckherds bought enough Zicam to supply all their stores. Mr. Russell does not think that these stores intend to test market Zicam in specific areas of the country. In his opinion, the two chains will eventually distribute the product from their central distribution centers to all of their stores. Mr. Russell told me that some stores already ran out of Zicam but neither Albertsons nor Eckherds has reordered the product. The most likely reason for this is that the two chains have not sent Zicam to all their stores and still have some in their distribution centers. Since some of the stores are already out of Zicam, Albertsons and Eckherds will probably order more if they send the Zicam that had been targeted for other stores to the stores that ran out. I find it amazing that some stores are selling out without any formal advertising. The only advertising to date has been from the publicity surrounding the release of the product and word of mouth.
I asked Mr. Russell if Gel Tech has any plans to distribute Zicam outside the United States. He told me that Gel Tech has already been approached by several foreign companies who are interested in marketing and distributing Zicam in Europe. Gel Tech has decided not to pursue foreign distribution until they see how the product sells in the United States. The major consideration is being able to manufacture sufficient quantities to supply the channel domestically before they commit to supplying it overseas. If Gel Tech decides to distribute Zicam overseas, they will most likely do it through companies that specialize in marketing and distribution in foreign countries rather than doing it themselves. I think this is smart.
Mr. Russell graciously declined to answer my questions with regard to estimated revenue projections, costs per unit, and profit margins, saying it was much too early to make estimates given the large size of the market ($1.5 billion) and uncertainty about how Zicam would be received by consumers. He also respectfully declined to give me information about their advertising budget although he did say that they have plans to advertise Zicam. He also declined to answer questions about how the company will finance the manufacturing, distribution, and advertising for Zicam although he said they have plans in this regard.
Science issues
I asked Mr. Russell if Drs. Hensley and Davidson have published any research papers. He said that they have published many papers and that I could call Drs. Hensley or Davidson to obtain a list. Mr. Russell also suggested that I ask Dr. Hensley when the manuscript for Zicam will be finished because he didn't know. With regard to Dr. Grossan's message on the Zicam web site, Mr. Russell told me that Dr. Grossan signed a release that permitted Gel Tech to use his name and the text that appears on Zicam's web site. This was probably just a misunderstanding and Dr. Grossan later sent a retraction, which Mad2 posted to this tread.
With regard to the gum business, Gum Tech has sufficient manufacturing capacity to meet FY99 revenue estimates of $20 million although they need more packaging capacity. The additional packaging capacity has already been ordered. I asked Mr. Russell if the company has any financing issues with the additional packaging capacity and he said no, that it would be paid for out of working capital
My overall impression is that Gum Tech is a company of the highest integrity and I don't think anything fishy is going on here at all. Mr. Russell took as much time as I needed to answer my questions and even called me back to follow up on the issue related to the Gel Tech Industries sole proprietorship. Mr. Russell spent about an hour on the phone with me today and he patiently and gracefully answered all my questions. That is a lot of time to give one investor and I was most impressed. I highly recommend to anybody that has questions, give Mr. Russell a call at (602) 252-1617 ext 114. He genuinely wants investors to understand the business organization and will share any information that he can legally provide.
Finally, I'd like to say that I did my best to honestly put into writing here exactly what Mr. Russell and I discussed and how he answered the questions. If I have misstated Mr. Russell, it was entirely unintentional and I will correct any such misstatements if they are brought to my attention.
Thanks and good luck to all,
Dan |
