Here's the response (but by the time SI posts this it'll probably be the fourth time it's copied):
Subj: Chromatics Color Sciences Responds to False Allegations
Date: 98-06-11 13:42:52 EDT
From: AOL News
BCC: Ronharv
Sent on: Unknown (No Version)
Chromatics Color Sciences Responds to False Allegations
NEW YORK, June 11 /PRNewswire/ -- Chromatics Color Sciences International, Inc. (Nasdaq: CCSI) today issued the following detailed response to the numerous false allegations relating to the company, its product, the existing market size and other related matters contained in a report issued by Asensio & Company, Inc., a firm that is engaged in short selling activities.
Chromatics also reiterated that it has contacted the Securities and Exchange Commission Enforcement Agency and Nasdaq concerning the recent trading of its securities and related activities by Asensio. Furthermore, the Company confirmed that it is exploring taking all available legal actions.
In a report dated June 9, 1998, Mr. Asensio claimed that the Colormate(TM) TLc-BiliTest(TM) does not contain any new technology and that it can be easily duplicated. He also claimed that CCSI has misrepresented the potential size of the market. The following is an accurate overview of the CCSI technology as it compares competitively as well as detailed rebuttal of Mr. Asensio's allegations.
ASENSIO'S BACKGROUND
The Company's CEO Darby Macfarlane stated today in response to a strong sell recommendation report containing numerous false allegations issued by Asensio & Company, a New York based firm that is engaged in short selling activities. "It seems CCSI is only the latest on the list of Asensio & Company's attempted corporate slaughters. On the Internet alone we found many other Companies attacked by this notorious short seller."
We can see now that we are just the new Company on the hatchet block of highly sophisticated, well-organized people preying on smaller companies. Of course no one from Asensio & Company bothered to contact any of these companies, including CCSI, for any information regarding their allegations. Nor did they bother to speak to world recognized experts on specific subjects addressed in their reports for correction or clarification of their false allegations."
EXPERT REPORT
One such expert, Dr. Jeffrey Maisels, Chairman Dept. of Pediatrics William Beaumont Hospital, Clinical Professor of Pediatrics, Wayne State University School of Medicine and Clinical Professor of Pediatrics and Communicable Diseases, University of Michigan Medical School, who is recognized as one of the world's leading authorities on bilirubin infant jaundice and has published extensively on this subject stated,
"I have been the principal investigator for clinical studies of the Colormate(TM) TLc-BiliTest(TM) non-invasive bilirubinometer at Beaumont Hospital in Detroit, Michigan, and the results of these studies demonstrate the Colormate(TM) TLc-BiliTest(TM) provides a high correlation to the laboratory serum bilirubin test results. It is important for the public to understand that the availability of accurate, non-invasive bilirubin measurements in all races, in full-term as well as premature babies will represent an enormous advance in the care of newborn infants and provide immeasurable benefits to the infants, their parents and pediatricians. This will provide an instantaneous, painless measurement of the serum bilirubin level allowing easy, frequent and painless monitoring of large populations of infants. In this way hyperbilirubinemia can be readily identified, quantified, and, when necessary treated to prevent the possibility of brain damage.
The reason why the monitoring of serum bilirubin levels is so important is that severe hyperbilirubinemia can damage the brain of a newborn infant. When this occurs it has devastating consequences. Because it is almost impossible to accurately assess the bilirubin level by a visual estimate of the infant's skin color, (Moyer et. al. Tayaba et. al) it is necessary to measure the serum bilirubin level in these infants. In Intensive Care Units throughout the country, bilirubin levels are measured daily for at least a week and often longer in every premature infant. Each one of these tests involves a painful heel stick and increases the risk of infection. The availability of an instrument such as the Colormate(TM) TLc-BiliTest(TM) that allows infants to be followed without the necessity for heel sticks, full-term newborns to be tested before they left the nursery and to be followed as outpatients and that provide essential information to parents and pediatricians and helps prevent hyperbilirubinemic brain damage, would represent a major advance in the care of newborns throughout the world." Dr. Maisels further states, "I have reviewed the Asensio report and have the following responses to these ill-informed, misleading or false statements by Asensio & Company."
The Asensio Company has made the following statements:
1. "The potential market for all bilirubinometers is extremely limited...."
Dr. Maisels' response is: "I cannot claim expertise in how "markets" are calculated, but the potential for the use of transcutaneous bilirubinometry involves the majority of babies born in the world. Recent data show that as many as 90% of U.S. infants will have clinical jaundice in the first week. While it is true that only babies that appear jaundiced are currently tested for bilirubin, because most infants are now discharged from hospitals before they are 36 hours old, the overwhelming majority of babies who develop jaundice will be jaundiced when they are seen in their pediatrician's offices (or other clinics) several days after birth. Thus the use of noninvasive bilirubin determinations will not be restricted to the hospital, will likely find as much or more use in the outpatient population. As there are 132,418,000 babies born annually throughout the world (1996 data from UNICEF) it is reasonable to assume that about 90% or 119,176,200 annually will be potential subjects for a bilirubin determination. This does not strike me as being an "extremely limited" market."
2. CCSI's market size estimates are based on an exaggerated estimate of the number of bilirubin tests performed per year.
Dr. Maisels' response is: "In reviewing market studies submitted in business proposals by international medical companies negotiating with CCSI for the Colormate(TM) TLc-BiliTest(TM) distribution, I have found the estimated number of bilirubin tests in the United States to be over 16,000,000 annually."
3. "Since at least as early as 1981, transcutaneous bilirubinometry, using common place Colormate III(TM) type colorimeters, has been extensively tested in hundreds of studies all over the world....However, most of the studies also found that Colormate III(TM) type instruments cannot be used as a substitute for precise bilirubin testing. There are countless colorimeters. Many of these devices are far more advanced than the Colormate III(TM). Simply stated, the Colormate III(TM) is a very simple, easily duplicated device with extremely limited, if any, sales potential"
Dr. Maisels' response is: "I am not aware of "hundreds of studies" being performed using transcutaneous bilirubinometers since 1981, nor am I aware of colorimeters other than the Minolta Jaundice Meter that has been tested in this way. If they do exist, I am unaware of any information to indicate that they are "far more advanced than the Colormate III(TM)." The only commercially available colorimeter for which published data exist in the world literature is the Minolta Jaundice Meter. It is true that the conclusion of most studies using this meter was that it cannot be used as a substitute for bilirubin testing. Although the Minolta Meter has been used in white and black infants, premature infants and low birth weight infants, its use in each of these populations requires generation of a distinct set of data unique to that population. Recognition of the enormous range of background skin pigmentation in Caucasian, Hispanic, African-American, East Asian, etc. peoples gives some idea of how difficult it is to generate reliable data for a single population -- even if it were limited to a defined "racial" group. Furthermore, in dealing with premature infants one would have to generate separate data for infants at each week or two week interval of gestation. This has proved to be totally impractical, if not impossible, to achieve.
The ability of the Colormate III(TM) TLc-BiliTest(TM) to accurately provide an estimate of serum bilirubin levels in babies over a wide range of gestation, in babies of all racial categories and in babies receiving phototherapy, clearly distinguishes it from the only other existing colorimeter with FDA clearance for commercial marketing."
4. "Bilirubin levels in infants who are jaundiced may be monitored to ensure the condition is improving and there are no serious problems in the liver. Repeated testing is not normal. However, non-invasive bilirubinometers cannot replace the need for blood tests."
Dr. Maisels' response is: "Please see my comments above. The statement that repeated testing is not normal is false. Repeated testing of jaundiced babies is the norm, because pediatricians want to know whether the bilirubin is rising or falling. It is in this area that non-invasive (transcutaneous) bilirubinometers will be most useful. There are many babies who develop jaundice in the first week of life (see above) and many of these have repeated bilirubin determinations. Currently, this involves a parent bringing the infant to a hospital or other laboratory to have a serum bilirubin test performed. Repeat testing over 2, 3 or even more days (and sometimes weeks) is not at all rare. Needless to say, both pediatricians and mothers would be very enthusiastic at the prospect of an instrument that can spare the family and newborn infant multiple trips to the laboratory and the trauma of multiple heel sticks. The data generated by the Colormate III(TM) TLc-BiliTest(TM) provides strong evidence that it will be able to replace the need for the majority of bilirubin blood tests in the newborn."
5. "The Colormate III's(TM) clinical test only compared its bilirubin measurement performance to those of a physician's visual assessment."
Dr. Maisels' response is: "This is patently false. If the authors of this document had taken the trouble to read the published data or had spoken to Dr. Ian Holzman the principle investigator in the major clinical studies performed to date they would have seen that the Colormate(TM) measurements were compared to serum bilirubin measurements in newborn infants and found to correlate closely with those measurements. In their study, Dr. Holzman, et. al. showed that visual estimates of jaundice correlate extremely poorly with serum bilirubin measurements, hence the urgent need for an instrument like the Colormate III(TM) TLc-BiliTest(TM) that will non-invasively determine the serum bilirubin levels.(2)(3) The ability to estimate clinical jaundice is notoriously poor. This is the case even for trained observers."(5)
6. CCSI's Colormate like other colorimeters, can only be used to estimate the total amount of bilirubin in the blood. It does not estimate indirect or direct bilirubin levels which are necessary and are commonly provided by blood tests.
Dr. Maisels' response is: "This statement is partly false and certainly misleading. It is true that this instrument provides an estimate of the total bilirubin. In the overwhelming majority of babies in the newborn nursery and those followed after discharge from the hospital, measurements of direct bilirubin levels are unnecessary. All of the current recommendations for management and treatment of jaundiced infants (including the use of phototherapy or exchange transfusion) are based on total bilirubin levels and not indirect bilirubin levels. Measurements of direct bilirubin levels are only needed when there is a suspicion of cholestatic (obstructive) jaundice and are of no relevance until the baby is at least 2-3 weeks old."(4)
7. "These tests require only a small drop of blood and the samples can be accumulated to allow large batches to be automatically processed simultaneously. In addition, most hospitals operate fully automated, computerized, high volume instruments that are used to conduct many different types of blood tests, including hyperbilirubinemia testing, in a fast, highly cost effective manner."
Dr. Maisels' response is: "The most misleading part of this statement is that neonatal serum bilirubin determinations in hospital laboratories are never batched. The reason is that the information for these blood tests is required immediately, thus, specimens cannot be batched to be run either at the beginning or at the end of the day. When a physician wants a bilirubin level, he/she needs the information within an hour or two in order to know whether intervention is necessary."
8. "There are at least 8 competitors in bilirubinometer market..."
Dr. Maisels' response is: "The competitors listed are those companies that make bilirubinometers for measuring serum bilirubin levels in babies. The authors of this report are confused by the term "bilirubinometer" which is widely applied to a device capable of rapidly detecting bilirubin in serum using standard spectrophotometry. These are standard laboratory instruments widely used throughout the world and have no relationship to transcutaneous bilirubinometers such as the Chromatics instrument under discussion. Thus, this description of the bilirubinometer market provided in the Asensio statement is both misleading and entirely irrelevant and deals exclusively with laboratory blood specimens and not noninvasive measurements of bilirubin."
9. "-CCSI's FDA approval is based on the fact that the Colormate III is "substantially equivalent" to other existing colormeters, including one that has been on the market for well over 40 years. The Colormate III's clinical test only compared its bilirubin measurement performance to those physicians' visual assessment."
Dr. Maisels' response is: "This statement is false. The FDA approval was based on the fact that the Colormate III(TM) TLc-BiliTest(TM) provides a numerical index of predicted bilirubin count in mg/dl that has been shown to correlate with the total serum bilirubin concentration within a clinically useful range.(1)
THE COLORMATE(TM) TLc-BiliTest(TM) HISTORY AND BACKGROUND
Mrs. Macfarlane states, "We started the research for a non-invasive bilirubin system when David K. Macfarlane (V.P., R&D CCSI) and I became parents to our 2 lb. premature child. Over the next 6 weeks at Loyola Hospital, Illinois in the NICU our daughter endured heel incisions, hand incisions and eventually head incisions to draw bilirubin blood samples many times each day. Dr. Irwin Gribetz, our pediatrician at Mt. Sinai informed me in 1985 that bilirubin is also detected in the skin, and we then began research and development on technology required for this medical application." Hospital Clinical trials were conducted for 510(k) submission to the FDA from 1988 to 1997 and tests performed on thousands of infants of all races, varying birth weights and gestational ages, and under phototherapy treatment in Mt. Sinai Hospital, NYC and Elmhurst Hospital, NYC. The Company received FDA clearance for commercial marketing of the device which is called the Colormate(TM) TLc-BiliTest(TM) on July 30, 1997. An extensive detailed report of clinical studies has been written by Dr. Ian Holzman, Chief Newborn Medicine, Mt. Sinai Hospital, accepted for publication after peer review in the Pediatric Journal, a presentation of which was made at the P.A.S. conference to thousands of neonatologists and pediatricians showing a 95% correlation coefficient in linear correlation to the blood serum results.
CCSI's device was submitted to the FDA under the "substantial equivalence" 510(k) expedited review procedure but CCSI's device nevertheless represents a technological advance in detecting and monitoring bilirubin. Asensio has misleadingly characterized the FDA's substantial equivalence 510(k) expedited review procedure, falsely alleging that the Company's technology is no different from existing older technology. This misuse makes an accepted, understood term of art established by a U.S. regulatory agency makes clear that Asensio has twisted facts to suit his purposes.
EXISTING NON-INVASIVE TRANSCUTANEOUS BILIRUBINOMETER
Asensio further states that the CCSI device does not contain any new technology and can be easily duplicated. We know of two competitors for non-invasive testing. Dr. Maisels has described the limited capabilities of the Minolta Jaundice Meter marketed by Air-Shields. CCSI patented technology overcame such limitations. The SpectRx Bilicheck licensed by Respironix has yet to receive FDA clearance or publish results of any clinical trials for FDA submission, and SpectRx has made no claim that it has the technology to test infants under phototherapy treatment with any accuracy, which Chromatics' device does and it has received FDA clearance to market.
These facts obviously confirm that CCSI's device does contain new technology and is not easily duplicated. Furthermore, CCSI's technology is patented.
CCSI PATENT
CCSI's U.S. Patent No. 5,671,735 is directed to processes for detecting conditions in persons involving a symptomatic detectable change in the subjects coloration, such as a process of detecting the jaundice caused by hyperbilirubinemia in an infant. Any color measuring instrument performing the claimed process would infringe that patent. Each of the five prior art patents referred to by Asensio were considered by the U.S. Patent and Trademark Office along with over fifty other prior art patents and publications before granting U.S. Patent No. 5,671,735 as claiming inventions that were new and not obvious to those skilled in the art.
Additionally, Dr. Fred W. Billmeyer, Jr., Professor Emeritus of Rensselaer Polytechnic Institute, an internationally recognized expert in the field of color science who has written textbooks on Color Science is one of the inventors of record in the four U.S. color science technology patents CCSI has been granted. Dr. Billmeyer was the President of the International Color Council Society for years and published an article in its Newsletter acclaiming the breakthrough in color science technology achieved by the Colormate(TM) TLc-BiliTest(TM) system.
SIZE OF MARKET ALLEGATION: Asensio & Co. states that "CCSI claims that U.S. Hospitals spend approximately $330 million to $510 million per year on monitoring infant jaundice."
FACTS: CCSI's publicly released estimates of the existing size of market stated that 15,000,000 individual laboratory serum bilirubin tests were conducted in the United States annually for monitoring bilirubin infant jaundice. These estimates were based on publications by the World Health Organization, the American Academy of Pediatrics and the average market estimates included in business proposals from potential marketing partners, who used these market size estimates in calculating their annual performance proposals to CCSI. Additionally, Asensio omits reference to existing size of markets throughout the rest of the world where bilirubin infant jaundice is monitored globally. In Southern China alone there are over 20,000,000 births annually. The Company additionally stated that the hospitals charged between $22-$34 per test in the United States for reimbursement by third party insurance carriers.
ALLEGATION: Asensio & Co. cites a "1995 market research report titled "World Clinical Lab Analytical Instrument Markets" by Frost and Sullivan estimated that the world bilirubinometer market was less than $2.5 million.
FACTS: This is one of the most misleading statements by Asensio & Co. Mr. Asensio's irrelevant citing of the "World Clinical Lab Analytical Instrument Markets," refers only to the laboratory spectrophotometer instruments used in the Hospital laboratories for bilirubin blood tests, and he conveniently neglects to mention that each of these instruments has an additional charge for each test performed, for the reagent kit used for each test conducted, for the cost of each test or a disposable tip for each test. Each test is charged to the patient and billed by the hospital, clinic, etc. Advanced Instruments, cited by Asensio as accounting for "approximately 65% of the world market share for bilirubinometers, states in its web-site that "Low initial and per test costs made the Advanced BR2 (Advanced(TM) Bilirubin Stat Analyzer for blood samples) affordable." These costs per test are in addition to the cost of the instruments which is the subject of the cited Frost & Sullivan's report. Leica Inc. which is stated by Asensio as "the second- leading competitor and has about 18% of the world market" publishes in its instruction manual that "only Leica catalog number 10214 disposable cuvettes may be used with the Unistat bilirubinometer. 10214 cuvettes are for one-time use only and are never to be reused. Fill the cuvette with serum. The cuvette holds approximately 20 UL of serum.
Further, included in the Company's 510(k) submission to the FDA was a sworn affidavit from the Director of Clinical Chemistry of the Mt. Sinai Hospital Laboratory, Laszlo Sarkozi, Ph.D. and Director of the Stat Laboratory of the Mt. Sinai Hospital Laboratory, Ellis Jacobs, Ph.D. since 1975 stating "During the period of Chromatics clinical trials, 1988-1996, the Mt. Sinai Chemical Laboratory employed the following instruments to measure total serum bilirubin." The Beckman CX7, the Bayer Chem-1 and the IL-Monarch laboratory instruments for detection of hyperbilirubinemia in pediatric blood samples are "in vitro chemical analyzers which employ reagent kits and monitors the change in absorbency of Azobilirubin to determine the concentration of total bilirubin in the blood sample. The majority of the blood samples involved in Chromatics clinical trials were taken from 1992-1996. During this time period, there was no change in clinical laboratory equipment."
Similarly, Asensio further neglected to mention that CCSI's Colormate(TM) TLc-BiliTest(TM) requires a proprietary disposable calibration standard which is used for each test performed to prevent cross contamination between patients and ensure the accuracy of each reading. There will be a charge for each test performed by the Colormate(TM) TLc-BiliTest(TM) device, in addition to the instrument cost. Without this charge per test, CCSI would only be selling instruments which CCSI has never considered to be the major income potential for this market, nor even included in the existing market estimates stated by CCSI. Mr. Asensio's statement that the potential market for all bilirubinometers is extremely limited is misleading as he is referring here to the laboratory invasive blood serum test instrument market study for the instrument alone without the charge for each test again.
OTHER CCSI MARKETING EFFORTS/AVON PRODUCTS ALLEGATION: Mr. Asensio states the CCSI medical device was developed over 10 years ago for a failed Avon cosmetics sales program.
FACT: The CCSI medical device was not developed for any cosmetic sales program. However, rather than being a failure, Avon acknowledged that "CCSI's color measurement technology enabled Avon to develop a scientifically measured, 100% color accurate line of color-coordinated cosmetics." -- Avon Color. Additionally in Avon's 1988 Annual Report, Avon stated that Avon Color was a success throughout the country and sales of color cosmetics increased 11 percent!!
Between 1984 and 1986 CCSI licensed its color science technology intellectual property and leased its Colormate Systems to Hanes, Clairol and Avon. In October of 1987 Avon signed an exclusive U.S. license for CCSI's color science technology intellectual properties and leased 2000 Colormate Systems from CCSI for a total payment of over $5.5 million over 3 years, with options for renewal and international licenses. During 1990 Avon shipped its new Avon Color line internationally in what CCSI claimed was a violation of its U.S. license. CCSI filed a formal complaint in Federal Court. Avon withheld payment of its annual licensing fee, and CCSI and Avon were engaged in a patent infringement and breach of contract lawsuit until 1993. CCSI's principals Darby and David Macfarlane financed the majority of this litigation personally until 1992. The Company's 1993 IPO financed the next levels of clinical trials at Mt. Sinai and the Avon lawsuit. |
