|Dimethaid's tough medicine|
EXCLUSIVE: Product delays, an unpopular CEO and falling stock price have all plagued the drug maker, writes LEONARD ZEHR
By LEONARD ZEHR
00:00 EST Monday, November 25, 2002
MARKHAM, ONT. -- John Totten struck a raw nerve with Rebecca Keeler when he called for her resignation and an independent audit of her performance as president and chief executive officer of Dimethaid Research Inc. during a raucous annual meeting last year.
"She told me to sell my shares if I wasn't happy with the progress of the company and then she turned off my microphone," he recalls. "That's the first good piece of advice she's ever given me, because I got out at $5 plus."
Dimethaid shares closed at $1.99 on the Toronto Stock Exchange on Friday.
Ms. Keeler didn't put up with any griping at this year's annual meeting. The mercurial executive didn't allow a single question from some 300 shareholders in attendance last month.
Instead, she answered 21 prepared questions that she said had been submitted to the drug developer.
The running battle between Ms. Keeler and many shareholders like Mr. Totten traces its roots to the company's flagship Pennsaid lotion to treat arthritic pain, which has been mired in regulatory review by Health Canada since 1996 and by the U.S. Food and Drug Administration since 1997.
"I've never heard of anything taking that long," said one biotech industry consultant, who asked to remain anonymous.
Dimethaid is a classic biotech saga about an underdog company that's trailing in the ninth inning and waiting for a home run.
It's also a story about undisclosed late-stage testing of Pennsaid, unexplained trading by insiders, the departure of two auditing firms and a European marketing strategy that is running a year behind schedule.
Moreover, Ms. Keeler's management record has many shareholders complaining about inaccurate, incomplete and possibly misleading statements in a bid for corporate survival until regulators decide the fate of Pennsaid.
"This is a good company with good technology that is being destroyed by the CEO," Mr. Totten charges.
A case in point was Ms. Keeler's attempts to control the agenda at the annual meeting last month, which backfired badly, several sources suggest.
Addressing generic competition, one of the prepared questions included incorrect dates for the expiry of the patent on Pennsaid: 2006-07 in the United States and 2008 in Canada.
Rather than correct the question at the meeting, Ms. Keeler repeated the error and discussed how the patent could be extended.
The complete Q&A, including the question containing the error, was then posted on the company's Web site, prompting a flurry of e-mail protests from shareholders.
Eventually, the company corrected the snafu and pointed out that the "patents to our transdermal delivery technology expire in 2004 in the U.S. and 2005 in Canada."
Ms. Keeler, who is the only full-time officer of Dimethaid, contends that the company's position was "to not alter the questions at all but to deal with them exactly as written."
A spokesman for the Ontario Securities Commission said the agency has received a "couple of complaints" about Dimethaid recently.
"Like any other complaint we receive, we will take a look at the information provided before deciding whether to take appropriate action," he added.
Ms. Keeler, a former insolvency lawyer, moved into the executive suite at Dimethaid's predecessor, defunct Clark Pharmaceutical Laboratories Ltd., in 1990, largely because she figured Pennsaid's patent could be exploited.
But in 1992, the company terminated talks with Johnson & Johnson's Ortho-McNeil Inc. and decided to develop Pennsaid by itself, a gutsy move Ms. Keeler calls a "defining moment."
The relationship was revived in 1999, but this time to distribute Pennsaid in the United States.
The signing gave Dimethaid instant credibility, but critics charge that the company was never clear on the details.
The inside cover of Dimethaid's 1999 annual report, for example, twice refers to a "standstill agreement" with the consumer and health products giant that precludes Dimethaid from negotiating with anybody else. But Ms. Keeler's letter to shareholders in the same report twice refers to J&J as Dimethaid's "first corporate alliance."
Today, there is still no marketing pact in place, J&J is the "preferred distributor" and references to J&J have long since disappeared from Dimethaid's press releases.
Nevertheless, Ms. Keeler likes to tell anyone who'll listen that regulatory approval for Pennsaid, which is targeting a $13-billion (U.S.) annual market to treat the pain of osteoarthritis, is right around the corner.
The only problem is, she's been saying it for years.
"The delays have been very disconcerting, but I'm very confident in what we've done," she said. "This can't go on forever. I'm absolutely convinced that we're going to get Pennsaid approved."
Notwithstanding her optimism, she privately sold 1.1 million of her Dimethaid shares in November, 2001, at $3.35 each to hold 210,706 shares at last report.
She declines comment on the sale but maintains that it does not reflect a lack of confidence in the company and its products.
Surprisingly, for a company with a market capitalization of nearly $100-million, no biotech analyst covers it.
"Bay Street has lost interest," one analyst said, adding that blockbuster drugs such as Celebrex are "too big to be affected by a topical lotion, so there isn't a large commercial opportunity."
Dimethaid describes Pennsaid as "proprietary technology." It consists mainly of dimethyl sulfoxide (DMSO), a chemical solvent that carries a generic anti-inflammatory compound called diclofenac, along with a binding agent, through the skin.
While the company's patent covers the function of the formula, according to Ms. Keeler, DMSO has had an alternative medicine cult grow up around it.
One source said the only approved FDA use of DMSO is for interstitial cystitis, a urinary bladder inflammation.
Working in Pennsaid's favour, though, is that existing anti-inflammatory treatments, ranging from Aspirin or ibuprofen to hot-selling Cox-2 inhibitors such as Celebrex or Vioxx, can heighten the risks of bleeding ulcers and other gastrointestinal problems.
"We have demonstrated that Pennsaid can provide pain relief equivalent to oral [anti-inflammatory drugs], without the side effects," Ms. Keeler said, adding that only minute amounts of Pennsaid enter the blood system.
Convincing skeptics in the medical community will take some doing.
"It's a bit of a stretch to think that something you put on the skin is going to penetrate through the subcutaneous tissue, and down into the joint capsule and into the deeper joint tissue, and have a therapeutic effect," said Wayne Marshall, an orthopedic surgeon who is also president and CEO of ChondroGene Inc., a Toronto-based genomics company developing treatments for arthritis.
People who have taken Pennsaid disagree.
Michael Freedland, a Toronto computer software salesman who is also a Dimethaid shareholder, went to England two years ago after Pennsaid was approved by the British Medicines Control Agency and purchased eight bottles of the topical lotion for about $62 (Canadian) each.
"I've used it, my family has used it and I swear by it," he said.
So why has Pennsaid approval stalled in North America?
Working against Pennsaid, sources say, is a long-standing North American preference for pills, which tends to relegate topical treatments to the margins with nominal sales.
Moreover, the FDA wasn't satisfied of Dimethaid's ability to consistently manufacture Pennsaid using two outsourcing firms, a position that forced the company to buy its own plant in Quebec to manufacture Pennsaid. The FDA cleared the plant earlier this year.
Ms. Keeler saves her harshest criticism for Health Canada.
"It is a complete embarrassment that a product invented, developed and manufactured in Canada, after receiving approval from several European countries, has yet to be approved in Canada," she said last February when the agency temporarily suspended its review of Pennsaid for a second time.
A spokesman for Health Canada declined comment on the review but said the agency "will not approve a drug unless it is satisfied that it is safe, efficacious and of high quality, and every drug is assessed individually on its own merits."
According to documents supplied by Dimethaid, 4,213 patients received Pennsaid in a safety study between 1995 and 1999. The company has also conducted five double-blind, placebo-controlled pivotal studies with 1,115 patients, of whom 446 were treated with Pennsaid. All were Phase III trials, the last step before seeking regulatory approval.
Data for the final test were submitted to Health Canada in October, 2000, three months after the agency initially suspended its review of Pennsaid and asked for a new trial.
Sources say the rapid reply indicates the company was in the process of completing a new Phase III trial, which copied the protocol used in Cox-2 trials.
Ms. Keeler acknowledges that the company did not publicly announce that a new Phase III trial had started because "we've been criticized by Health Canada in the past about releasing information about our studies."
One Dimethaid shareholder, who asked not to be identified, said had he known another Phase III trial was being planned, he would have sold his stock.
"A new trial stretches the timelines for approval out by at least two years," he added.
Dimethaid also didn't tell shareholders that it was conducting another clinical trial in March, 2001, with 588 patients suffering from osteoarthritis.
In December of that year, it filed a lawsuit in Ontario Superior Court of Justice to identify three posters on an investment bulletin board that had leaked portions of the protocols for that $2-million (Canadian) trial.
Ms. Keeler calls the 18-month trial a "marketing study" that was designed to compare Pennsaid with oral anti-inflammatory drugs for the first time. The study has not been filed with regulators but will be used to negotiate label claims for Pennsaid after approval, she added.
"Disclosing these trials can create difficulties with competitors and we're already aware of competitor activity against our product in Canada," she said. Moreover, there is always a "risk that regulators will ask for more data. There's never enough."
While Health Canada issued an advisory in 1998 that it wants to see efficacy data comparing topical treatments such as Pennsaid against oral anti-inflammatory drugs, Ms. Keeler said the advisory is "not a mandatory requirement."
Nevertheless, Pennsaid's value as a drug franchise was thrown into question in June, 2002, when Dimethaid terminated an 18-month-old sales and marketing agreement with its British partner Provalis Healthcare Ltd. for failing to meet certain sales targets.
Pennsaid chalked up sales of a paltry $50,000 or so under Provalis, Ms. Keeler acknowledges, adding that Dimethaid is now conducting marketing studies with another potential partner to find the most effective way to sell Pennsaid. She hopes to have a deal in place before the end of the year.
Lisa Baderoon, a Provalis spokeswoman, attributed poor sales to Dimethaid's failure to deliver "additional efficacy data that would have helped us pitch sales better to physicians."
Provalis also began marketing a competing oral anti-inflammatory drug from Pfizer Inc. and those sales "took off," she added.
Earlier this year, Dimethaid signed marketing deals to sell Pennsaid in Italy, Malta, Belgium, Luxembourg and the Netherlands, but a sales launch has been delayed largely because of problems translating labels and product information for each country.
In the Caribbean, Dimethaid announced in mid-2001 that Pennsaid's distribution deal covered 12 countries. But it did not disclose that until Pennsaid is first approved in Canada, it could only be sold in Barbados, Antigua and St. Vincent as an over-the-counter product.
Dimethaid's other drug product, WF-10, also is mired in delay.
WF-10 was developed as part of a 10-year collaboration between Dimethaid and Swiss-based Oxo Chemie AG as a possible treatment to restore normal functioning of the immune system in HIV/AIDS patients.
Oxo completed the third of three trials with WF-10 in 240 late-stage AIDS patients nearly 18 months ago but results have not been released.
At Dimethaid's annual meeting in October, 2001, Ms. Keeler promised shareholders that the test results would be delivered in November, 2001.
Ms. Keeler explains that Oxo was running out of money last year and the contract research organization conducting the Phase III trial refused to collect and analyze the data.
Nevertheless, cash-strapped Dimethaid went ahead in May, 2002, and purchased the 80 per cent of Oxo that it didn't already own for $37-million (U.S.).
"We've been promised that we'll have the data by the end of December," she now says.
WF-10 has been approved in Thailand for cancer patients receiving radiation therapy, and some doctors in Canada are giving it to cancer patients under an emergency drug release program approved by Health Canada.
Dimethaid's purchase of an initial 20-per-cent stake in Oxo for $20-million in 1997 prompted a nasty dispute with the company's auditors Ernst & Young about the accounting treatment for the investment.
Copyright © 2002 The Globe and Mail