mark t et al: here is the interview in total with Peter Block--IR for DMX. It is a goodie.
Dimethaid Research Inc. To Announce A Marketing Deal With A Multinational Pharmaceutical Powerhouse: Deal Expected Soon
Dimethaid Research Inc. (Toronto: DMX) is a pharmaceutical company engaged in the development and commercialization of innovative therapeutic products that work with the body's healing mechanisms.
With a strong company-wide commercial focus, Dimethaid is developing a patented site-specific, transdermal delivery system. The first commercial product utilizing this carrier is PENNSAID Lotion, a safer treatment alternative formulated for the relief of osteoarthritic pain and the first topical non-steroidal anti-inflammatory drug (NSAID) targeting the more than $4 billion North American arthritis market. To visit the Dimethaid Research, Inc. website, click here (www.dimethaid.com).
StockHouse interviewed Peter Block, Investor Relations at Dimethaid, on May 4th about their global expansion plans, their products, and of their pending agreement with one of the big multinationals.
StockHouse: Tell me about Dimethaid and your current products.
Block: We had a discovery made by someone who turned out to be one of our founding directors, Dr. Sandborne. Within each cell there is a transportation system called microtubule and can be used to transport drugs from cell to cell. He was the first to discover this transportation system within the cell and got an honorary doctorate degree for this discovery and is widely known in microbiology circles. It's not widely known in medicine. The connection was made because Sandborne was also a medical doctor and he quickly came to the realization that if there is this transportation system within cells, and if you could penetrate the cell, you could actually transport drugs. The benefit of doing that is you avoid systemic delivery and if you're dealing with a lot of people who have arthritis - typically with osteoarthritis which is the most common-type - the current treatment even up until now, you take pills - a non-steroidal anti-inflammatory drug (NSAID) of which there are about 20 of them out there. They are very good at reducing and relieving the pain; the only problem is that whenever you take an oral medication, particularly an NSAID, they can cause all kinds of trouble with your gastrointestinal tract and your kidneys.
What Sanborne realized was, if you have a bad knee, you only really need to get the drug to your knee, you don't need to take it systemically and have it go everywhere in the body. He started working with a compounding pharmacist, Dr. David Garshowitz, who also became a director of this company. The two of them came up with a carrier that could penetrate the cell membrane, and combined it with an anti-inflammatory, and together they came up with this product Pennsaid.
If you're a smoker and you want to quit, you put a nicotine patch on, the idea being a slow drip and getting the nicotine throughout the body. There are a lot of things that try to avoid oral tablets to distribute drugs and usually they are designed for systemic purposes. Our point is not systemic; our point is that we've come up with something unique in that it can deliver topically but very localized. The benefit of that is not only do you treat only the joint, right now you take a pill as with osteoarthritis, but the drug goes absolutely everywhere.
What we have done is come up with an anti-arthritic product which will not be our only product. We're looking at other products such as a topical anti-fungal. Again, if you have a fungal infection, why take an antibiotic for 6 months when you can take something and apply it right on the area, which makes a lot more sense. The whole idea is to minimize what gets into the body; it's a chemical and not a biological substance. The body is a very complicated piece of machinery and the more you interfere with it, it causes other problems so if you can avoid the systemic pickup, you can avoid a lot of the side effects.
Studies have been done using our drug, Pennsaid, if you took a whole bottle and bathed in it at all at once, you would get about 150 times less of the active ingredient in your bloodstream than if you took one 50mg pill. So it's quite significant and at the same time is providing pain relief.
StockHouse: How do you deal with a population that takes pills to solve their ills?
Block: That could be the biggest hurdle we have to face. I would say you take a pill in many cases because there is no alternative.
You walk into any pharmacy today and you see a whole shelf of homeopathic remedies and alternative treatments because a lot of people are starting to say "Wait a minute, I don't want to take a pill anymore.' Keep in mind that arthritis is a chronic condition. You get it and it doesn't go away. Our treatment is not a cure, it's a pain reliever; it treats the symptoms, not the disease.
Other side effects of typical pills can include upset stomach, heartburn, bloating and generally it's uncomfortable. If every time the patient takes a pill, they get an upset stomach, it's a fairly persistent reminder that this is an uncomfortable treatment and you'd like to take something else. If there was an alternative that provided pain relief... [but] that's the problem in that there are other topicals but they don't provide pain relief.
In answer to your question, people take a pill because there is no alternative, not because they necessarily want to. Yes, it's convenient and easy, but if given a choice between a pill that is easier than a topical but that might cause hospitalization or even death and in the best case just cause an upset stomach, versus something that will provide the same level of pain relief without any of those side effects. There maybe a little itchiness where you apply it to the skin, but it's a pretty easy try to take ours first.
That's the whole approach we're taking - try it first and see if it provides you the pain relief that is necessary. We're in the unique position of being able to say "You don't have to believe us."
Health Canada, in March 1995, allowed us to do an open-label study. Typically, you do all your clinical trials over years, you submit data to the authorities and they look at it and say, "Statistically you're numbers are good; on a safety level you have tested the drug on hundreds of people." They have to extrapolate what happens when thousands of people are tested. A lot of times the health authorities will say that you have approval, and would like you to do a post-marketing study to monitor people for safety reasons.
When a drug has not been approved yet, as is the case with Pennsaid, a doctor in Canada can write to Health Canada and say, "I want to use this experimental drug on this patient," and the doctor's judgement is never questioned. There are so many physicians requesting Pennsaid that the authorities came to us and said do this open-label study now, do it before you get approval. Over the last four years we have now had close to 3600 people who have used the drug and 1100 physicians prescribe it. We have not had a single gastrointestinal or kidney complication in the entire time they have taken it.
"We are very confident that we will have an announcement out before the end of our fiscal year, which is May 31. We have been in negotiations with one very big company for some time. We think we have just about everything signed up and ready to go so, we will announce the deal very shortly."
StockHouse: What is the main side effect?
Block: About 2% of those on Pennsaid experienced a mild skin irritation on the site of application. If the application spot is the same, the irritation goes away after a period of application when the skin gets used to it.
We've done a lot of sensitivity studies all along and previous equivalent topical applications out of Europe have caused allergic reaction and have not been approved. The sensitization rate in our studies was 0.8%, so very few people will get an outright allergic reaction. It can happen but is rare, the most common being itchiness or dryness at the site.
Keep in mind osteoarthritis strikes those who are older, and as you get older you're used to taking pills for other things. Who knows what reactions the patient will have taking multiple drugs. With our drug, it goes into the body but not very much is being circulated, so again, you reduce that potential problem, too.
Safety is one thing but does it work? The open label study we have been doing, we're a small company and we haven't been able to afford to give the drug to people. Since it's considered an experimental drug, people have to reach into their pockets and pay for it. Over the years, patients have reached into their pockets at about $60 per month to get the drug. When you consider that the alternative for many would be either a provincial drug plan or a work drug plan that would pay for a drug, you may have to pay a small dispensing fee, versus paying $60.
There are several patients who have been on Pennsaid for over a year. Our sense of that is that it is real life market validation. You've got several hundred people who, for a year, have reached into their pocket and paid $60 to get a drug, where they can get the pill that you were talking about earlier for free, but they aren't, they're taking this instead. So if people are willing to put their money where their mouth is, then that suggests to us that there is an acceptance here.
StockHouse: What about regulatory approval?
Block: We have completed all of our formal clinical trials and we have submitted for regulatory approval in Canada, UK and the US. We expect all three to come back with approval at some point this year. We know the US only has to do an inspection of our manufacturing facility. In Britain we are close to completing the whole regulatory review process. Canada will probably follow Britain or the US in terms of getting approval; we're very close.
StockHouse: How long has it been since you first filed?
Block: In Canada it has been since October 1996. In the US, just over 1 year and in Britain, just over 2 years. The wait is, for the most part, over.
The big question is, let's say you get approval, how do you sell it? We don't have the ability to go out into the world and compete against the 22 other firms, head to head. We would last about 15 seconds at that rate.
Therefore, we are in the midst of negotiating what will likely be a US deal first, with a major multinational. We are very confident that we will have an announcement out before the end of our fiscal year, which is May 31. We have been in negotiations with one very big company for some time, we think we have just about everything signed up and ready to go, so we will announce the deal very shortly.
What I think that will signal to many is a real sense of due diligence in that this thing can really take off now. In the US, it's not uncommon for a drug company to spend upwards of $100 million in promoting a single product, just on the marketing cost. Never mind the number of sales reps they have calling on the doctors, etc. So we definitely need a partner with deep pockets who can call on the doctors.
This is a massive market that affects about 1 in 7 people who have arthritis and about 90% of those cases suffer from osteoarthritis. In the US, we're talking roughly 30 million people with arthritis and about 23 million with osteoarthritis. The market is estimated to be in the range of $4-6 billion that people will spend on medication each year, so you don't have to capture a very big piece of that market to have a huge return, particularly to a company our size.
We are working on a distribution deal with a major. We will follow that with a European marketing partnership shortly thereafter. Our intention now is either through our US partner or through our own network. We can market it ourselves in Canada, but for the rest of the world we will use marketing alliances.
As I say, this is product number one. Products two, three and four are also using site-specific delivery. The two that we are focusing on right now are an anti-fungal; the other area we're looking at is male-pattern baldness. Both are massive markets, and again it's very localized.
StockHouse: Tell us about WF10.
Block: We invested a few years back in a company called Oxo Chemie, a private company based out of Switzerland that is developing an immune-therapeutic drug called WF10. What WF10 is attempting to do is restore the proper balance in the immune system.
Once you get infected with HIV, it attacks the immune system. What WF10 is trying to do is restore the immune system balance by focusing on one particular cell, which is the last surviving cell in the immune system. The HIV virus is replicating at a billion copies per day in the body. The antivirals are a roadblock you put up, but at 1 billion replications per day it's only a question of when the virus will figure out a way around.
What you have right now is called the 'cocktail therapy,' which is a combination of three, four or five drugs in which you can rearrange the cocktail to try and outsmart the virus. Eventually you will run out of drugs, or the virus will outsmart your system and you start getting new strains of the virus. AIDS has so many strains of the virus, and the treatments can actually lead to new strains from its mutation. We're not advocating people stop taking the antiviral, but taking the cocktail with WF10 could be quite a good combination.
The healthier and stronger your immune system, the more likely you will keep the virus in check. The thinking behind WF10 is that it can help restore the immune system and restore the imbalance while the antivirals attack the virus. It's in a Phase 3 trial right now at over twenty sites in the US and two in Canada. Trials to date have been very successful. Phase 3 is the pivotal trial, which means if it works and the results are positive, that's good enough to make your submission to the FDA and other regulatory agencies for approval. They can be very quick on approving AIDS drugs or other fatal disease drugs. We own 20% of Oxo Chemie.
StockHouse: Are you going to increase that stake?
Block: We own 20%, plus all the Canadian rights to it. We originally had an option to go to 25% and our board recently decided that it didn't make sense to go from 20% to 25%. We have a lot of rights we get at 20% such as a seat on the board, a lot of financial control that 25% doesn't change.
One of the things we are looking at as we move forward is increasing our product pipeline. We have Pennsaid soon to be on market . We need to start developing other products. One of them is WF10. If it proves successful at controlling an improper immune system, that could mean treatment for a number of diseases that are caused by an improper immune system. AIDS and cancer are only two - [others include} multiple sclerosis, Crohn's disease, etc.
We have a close relationship with Oxo and we could possibly make a further investment in that company. Perhaps the most encouraging part of WF10 is that there have been few side effects reported. It's an IV drug and some people can get flu like symptoms when on the drip for two hours a day, which can be one of the side effects, but no reported serious side effects.
With the 20% and the Canadian rights, we have a very healthy stake in that company. We each have a seat on each other's board and have a close working relationship.
StockHouse: Are you making any money or are you still in the growth stage?
Block: We're still in the growth stage; we're not making money. We have a line of eye care treatment products that net us in the neighborhood of $1 million per year, which gives us some cash and marketing experience.
StockHouse: What about your R&D expenses?
Block: Our 20% investment in Oxo cost us US$20 million, which we are writing off as R&D expenses. R&D specified for AIDS and cancer research, if you put the two together, we just had our third quarter report out for the end of February and it showed about $9 million in the nine months. Averaged out over 12 months, you're looking at close to $12 million per year.
StockHouse: What is your current cash balance?
Block: The R&D expense doesn't affect our cash since we have paid the cash up front. Now we're just writing down that investment. Our cash position at the end of February was $4.3 million. We have a cash burn rate of about $400,000 per month.
We are very confident that between now and the end of the year, we will have regulatory approval in several countries and start making revenue by selling the drug. Secondly, by that time, completed more than one marketing agreement and, typically, in addition to royalties, you get some up-front money. We have more than enough cash to carry us through to the commercialization of our lead product.
StockHouse: How many shares are outstanding?
Block: 38.2 million.
StockHouse: Are you looking at doing a private placement?
Block: What we're looking at doing, in order to maximize shareholder value, we have to be in the US market, so we are considering a NASDAQ listing. We've been down talking to a number of people about a NASDAQ listing. Doing a NASDAQ listing in and of itself will get you absolutely nowhere except increased expenses. You must do an offering in conjunction with that in order to get any attention in that very crowded market.
The plan as it stands right now, and it's not definitive, is to do a public offering in the US. We would certainly have a Canadian component to it, but it would primarily be a US offering in conjunction with a NASDAQ listing.
StockHouse: What percentage of your shareholders are US based?
Block: Right now, no more than 20%, maybe 15%. It's primarily a retail stock, which is quite interesting. Usually in this sector it's just about all institutional. We're about 70-75% retail held and a big part of that reason is this open-label trial.
A lot of physicians and patients, who have used the drug, liked the results and bought shares. We've only done one public placement and had done private placements up to 1997 and it was in many cases physicians who took out $150,000 investments.
StockHouse: Do you have a major shareholder?
Block: Dundee Bancorp owns about 10% of our stock in different funds and would be our biggest shareholder.
StockHouse: Projections for FY2000?
Block: No formal projections but we certainly expect that the operating loss will no longer exist. We have a $41 million deficit right now, so we will still have a deficit a year from now. Unless things go extremely well, we should be able to turn any operating loss into a small profit depending on regulatory approval.
Today's
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StockHouse: The major marketing deal with a major multinational - are we talking big like a Glaxo?
Block: We're talking very big size, a name that everybody will know.
StockHouse: Thank you, Mr. Block.
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