<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Chemex Pharmaceuticals, Inc.
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(Name of Registrant as Specified In Its Charter)
Chemex Pharmaceuticals, Inc.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
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2) Aggregate number of securities to which transaction applies:
N/A
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
$500.00 Filing Fee calculated in accordance with Exchange Act Rule
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0-11 as one-fiftieth of one percent of $2,500,000.00 cash to be
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received by the Company upon the closing of an Asset Purchase
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Agreement relating to the sale of certain assets of the Company.**
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4) Proposed maximum aggregate value of transaction:
$2,500,000.00
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*Set forth the amount on which the filing fee is calculated and state how
it was determined.
**Fee previously paid with initial filing of proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
N/A
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2) Form, Schedule or Registration Statement No.:
N/A
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3) Filing Party:
N/A
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4) Date Filed:
N/A
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<PAGE>
CHEMEX PHARMACEUTICALS, INC.
NOTICE OF SPECIAL MEETING
PLEASE TAKE NOTICE that a Special Meeting of Stockholders of Chemex
Pharmaceuticals, Inc. (the "Company" or "Chemex") will be held on September 14,
1995 at the Marriott at Glenpointe, 100 Frank W. Burr Boulevard, Teaneck, NJ.
The meeting will convene at 10:00 AM for the following purpose:
1. To consider and act upon a proposal to approve the sale to Block Drug
Company, Inc. of the Company's interest in the drug AMLEXANOX, including
all the tangible and intangible property related thereto, and to ratify the
actions taken by the Company's Board of Directors in connection with such
sale.
2. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on August 10, 1995, the record
date for the Special Meeting, are entitled to receive notice of, and to vote at,
the Special Meeting and any adjournment or postponement thereof.
By Order of the Board of Directors
Herbert H. McDade, Jr.
Chairman of the Board of Directors
Fort Lee, NJ
August 11, 1995
Stockholders are cordially invited to attend the Special Meeting in person.
YOUR VOTE IS IMPORTANT. If you do not expect to attend the Special Meeting, or
if you do plan to attend but wish to vote by proxy, please complete, date, sign
and mail the enclosed proxy card in the return envelope provided addressed to
Chemex Pharmaceuticals, Inc. c/o American Stock Transfer & Trust Co., 40 Wall
Street, 46th Floor, New York, NY 10005 ("American Stock Transfer"). Proxies
will also be accepted by transmission of a telegram, cablegram or telecopy
provided that such telegram, cablegram or telecopy contains sufficient
information from which it can be determined that the transmission was authorized
by the stockholder. The telecopy number for American Stock Transfer is (718)
234-2287.
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CHEMEX PHARMACEUTICALS, INC.
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
September 14, 1995
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of Chemex Pharmaceuticals, Inc. (the "Company" or "Chemex")
of proxies to be voted at the Special Meeting (the "Special Meeting") of
Stockholders to be held on September 14, 1995, at 10:00 AM, and at any
adjournment thereof. The Special Meeting will be held at the Marriott at
Glenpointe, 100 Frank W. Burr Boulevard, Teaneck, NJ. This proxy statement and
the accompanying form of proxy were first mailed to Stockholders on or about
August 14, 1995. The Company's principal executive offices are located at Fort
Lee Executive Park 1, One Executive Drive, Fort Lee, NJ.
A stockholder signing and returning the enclosed proxy may revoke it at any time
before it is exercised by voting in person at the Special Meeting, by submitting
another proxy bearing a later date or by giving notice in writing to the
Secretary of the Company not later than the day prior to the Special Meeting.
All proxies returned prior to the Special Meeting will be voted in accordance
with the instructions contained therein.
At the close of business on August 10, 1995, the record date established for
determining the stockholders entitled notice of and to vote at the Special
Meeting and adjournment thereof, there were outstanding and entitled to vote
8,708,726 shares of Common Stock (the "Common Stock") of the Company. The
Company has no other outstanding voting securities. Each outstanding share of
Common Stock is entitled to one vote. A complete list of stockholders entitled
to vote at the Special Meeting will be available for examination by any
stockholder for any purpose germane to the Special Meeting at the Company's
principal executive offices, during normal business hours, at least ten days
prior to the Special Meeting. The Bylaws of the Company require that a majority
of the shares entitled to vote, present in person or by proxy, shall constitute
a quorum for the conduct of business at the Special Meeting. A broker who holds
shares in street name will not be entitled to vote on the proposed sale (the
"Sale") of the Company's interest in Amlexanox to Block Drug Company, Inc.
("Block") without instructions from the beneficial owner. This inability to
vote is referred to as a broker non-vote. Abstentions and broker non-votes will
be counted for purposes of determining the existence of a quorum at the Special
Meeting. However, since the proposal for approval of the Sale to be considered
at the Special Meeting requires the affirmative vote of a least a majority of
the shares of the Company's Common Stock outstanding as of the record date,
abstentions and broker non-votes will have the effect of a negative vote with
respect to such proposal. If a stockholder (other than a broker which holds
shares in street name for its customers) returns a signed proxy card, but does
not indicate how his or her shares are to be voted, the shares represented by
the proxy card will be voted "FOR" the proposal to approve the Sale.
The Board of Directors does not specifically know of any matters which will be
brought before the Special Meeting other than those matters specifically set
forth in the notice of Special Meeting. However, if any other matter properly
comes before the Special Meeting, it is intended that the persons named in the
enclosed form of Proxy, or their substitutes acting thereunder, will vote on any
such matter in accordance with their best
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judgment. Shareholders have no appraisal or dissenters' rights in connection
with the matters to be acted on at the Special Meeting.
The proxy card also confers discretionary authority on the individuals appointed
by the Board of Directors and named on the proxy card to vote the shares
represented thereby on any other matter incidental to the Special Meeting that
is properly presented for action at the Special Meeting or any adjournment or
postponement thereof.
All expenses in connection with solicitation of proxies will be borne by the
Company. The Company will also request brokers, dealers, banks and voting
trustees, and their nominees, to forward this Proxy Statement, the accompanying
form of proxy, the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (the "Form 10-K") and the Company's quarterly report on Form
10-Q for the quarter ended March 31, 1995 (the "Form 10-Q") to beneficial owners
and will reimburse such record holders for their expense in forwarding
solicitation material. The Company and its officers, directors and regular
employees may solicit proxies in person, by telephone or by telecopy. In
addition, the Company has engaged D.F. King & Co., Inc. as proxy solicitors.
The anticipated cost for their services is a base fee of $4,000 plus out of
pocket costs estimated to be approximately $4,000. D.F. King & Co., Inc. will
solicit all significant stockholders including those whose shares are held in
nominee name and who have not objected to such solicitation. Each of the
members of the Board of Directors has agreed to vote outstanding shares owned by
him or her in favor of the Sale.
This proxy statement should be read in conjunction with the Form 10-K including
financial statements and management's discussion and analysis of financial
condition and results of operations for the fiscal year ended December 31, 1994
and the Form 10-Q for the quarter ended March 31, 1995 which accompany this
Proxy Statement.
The Common Stock of the Company is listed on the Nasdaq Bulletin Board under the
symbol CHMX. On June 6, 1995, the last trading day before the signing of the
Asset Purchase and Royalty Agreement, the last bid and ask prices of the
Company's Common Stock as reported by the OTC Bulletin Board were $.09 and $.16
respectively.
Representatives of KPMG Peat Marwick, independent public accountants to the
Company are not expected to be present at the Special Meeting and therefore are
not expected to make a statement on the Sale or to be available at the Special
Meeting to respond to questions.
SUMMARY
The Company currently jointly owns with Block the rights to the proprietary
drug Amlexanox. Pursuant to the current ownership arrangements with Block, the
Company is required to share certain research and development and other expenses
relating to the commercialization of Amlexanox on a 50/50 basis with Block. In
the event the Company is unable to fund its share of such expenses, the
arrangement with Block provides that Chemex will only be entitled to receive
royalties from future sales of Amlexanox. Due to the Company's current cash
position, the Company does not believe that it will be able to fund its share of
the expenses required for commercialization of Amlexanox. Therefore, the
Company has agreed to sell (the "Sale") its interests in Amlexanox to Block for
an upfront prepaid royalty of $2,500,000 plus future royalties on sales of
Amlexanox, if any. As a condition to the Sale, Block has required that Chemex
obtain shareholder approval of the Sale.
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DISCUSSION OF ADVANTAGES AND DISADVANTAGES
OF PROPOSED SALE OF RIGHTS
TO AMLEXANOX TO BLOCK DRUG COMPANY, INC.
The proposal to be acted upon by the shareholders at the Special Meeting
involves approval of the proposed sale of the Company's share of its rights to
Amlexanox, a drug for the treatment of canker sores, currently awaiting approval
by the Food & Drug Administration ("FDA"). An NDA for the approval of Amlexanox
was refiled with the FDA on April 17, 1995 and such filing has been accepted by
the FDA. The Company anticipates that FDA approval of Amlexanox could be
received as early as November 1, 1995, however, there can be no assurance that
approval will be received on a timely basis, if at all. The Company anticipates
that commercial sales of Amlexanox would commence approximately four months
after FDA approval of Amlexanox is obtained. The Company does not believe that
there are any other material requirements (other than FDA approval) that must be
met before commercial sales of Amlexanox could be made.
Chemex currently owns the rights to Amlexanox jointly with Block under a license
from Takeda Chemical Industries, Ltd. ("Takeda"). Shareholder approval is being
sought for the Sale for two reasons. First, the Sale could be construed as a
sale of substantially all of the Company's assets which, under Delaware law,
requires shareholder approval. Second, Block has required shareholder approval
as a prerequisite to the closing of the Sale.
Set forth below is a discussion of some of the advantages and disadvantages to
the Company and its shareholders of approving the Sale. Shareholders should
carefully consider such advantages and disadvantages in making their decision to
approve the Sale. Such discussion is in addition to, and not a substitution for
information regarding the Sale which appears elsewhere in this proxy statement.
See "Proposal seeking stockholder approval for Sale of Chemex's interest in
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Amlexanox to Block Drug Company, Inc."
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ADVANTAGES
The Sale will immediately provide $2,500,000 to the Company which is vital to
its continued economic viability. Current cash on hand will only cover expenses
of the Company through September 30, 1995 (including advances from Block
described below). The Company has been unable to secure additional financing
through the equity markets. Such funds from the Sale would allow the Company to
continue to seek a merger partner which has been a stated objective of the
Company.
While the Company currently owns a 50% interest in Amlexanox, under its current
arrangements with Block, it is currently required to share certain additional
research and development and expenses and profits or losses from the
commercialization of Amlexanox on a 50/50 basis with Block. It is anticipated
that a majority of any additional research expenses for the development of
Amlexanox would be related to the foreign registration of the product in
international markets where the potential use of the product would justify the
incremental expenses to register the product in such country. The Sale would
allow the Company to avoid any additional product expenses
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for Amlexanox, while providing the Company with an up-front payment of
$2,500,000 and still allowing the Company to enjoy the potential of future
royalties.
The current joint ownership arrangement calls for the sharing of certain profits
or losses from the product (over and above research and development expenses and
subject to certain limitations on losses for the Company as described below).
Since Amlexanox will be the only product with the medical claim of accelerating
healing and relief of pain associated with canker sores, there is expected to be
significant upfront marketing and selling expenses to establish the product in
each market where it is commercialized. In addition to the Company's current
cash needs, it remains doubtful that the Company could secure additional
financing to be able to absorb its share of marketing and selling expenses to
establish the product with dentists and other medical practitioners. As such,
the Company currently does not have the ability to finance such initial product
expenses. Pursuant to the current joint ownership arrangement, if the Company
were unable to finance such initial losses, Block would have the right to
convert the current arrangement into a royalty arrangement which royalty
arrangement would be without the upfront payment of $2,500,000 which would be
made pursuant to the Sale.
The Company has also negotiated with Block that Block will advance up to
$250,000 of the upfront non-refundable prepaid royalty prior to shareholder
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approval as a means to "bridge" the Company's cash position up to the date of
shareholder approval. The advance of $250,000 will be deducted from the total
gross payment of $2,500,000, so that Block will pay a net amount upon
shareholder approval of $2,250,000. The prepaid royalty by Block will enable
the Company to continue operations while it seeks a merger partner (see "Plan
for Future Company Operations" below).
DISADVANTAGES
Although the Company will receive an upfront non-refundable $2,500,000 prepaid
royalty and possible future royalties, the Company, by selling its share of
Amlexanox, will relinquish the potential for long term sharing of profits of the
product. The patent for the use of Amlexanox for canker sores was issued in the
United States in late 1994 and is still pending in Europe.
The Sale would also transfer rights to the most advanced product in the
Company's drug development portfolio. Other products in the Company's
development portfolio are only as advanced as Phase I/II human clinical trials
and are at least two to three years (the most advanced drug) from filing with
the FDA for approval. Further, the time and expense related to development of
such products make it doubtful that the Company can effectively commercialize
such products without significant equity investment, which under the current
market conditions is extremely unlikely. The Company is currently attempting to
negotiate for a merger or sale of the Company although no definitive agreement
has been negotiated. The Sale may diminish the consideration a third party
would pay to acquire the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth beneficial ownership of the Company's Common
Stock as of June 1, 1995 by all Directors and Executive Officers of the Company
and all Directors
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and Executive Officers as a group, and all owners of 5% or more of the Company's
Common Stock:
Common Stock Beneficially Owned
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<TABLE>
<CAPTION>
Name Number of Shares /(1)/ % of Class
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<S> <C> <C>
Herbert H. McDade, Jr. 289,157 /(2)/ 3.2%
S andford D. Smith 6,667 /(3)/ .1
Charles G. Smith, Ph.D. 102,458 /(4)/ 1.2
Vernon Taylor III 412,671 /(5)/ 4.6
J. Michael Flinn 68,791 /(6)/ .8
Atul S. Khandwala, Ph.D. 232,653 /(7)/ 2 .6
Leonard F. Stigliano 123,080 /(8)/ 1.4
Paul P. Woolard 23,800 /(9)/ .3
Elizabeth M. Greetham 21,067/(10)/ .2
David Blech and Affiliates 3,275,700/(11)/ 30.0
All Directors and Executives
Officers as a group (consisting of
the 9 persons named above, other 1,280,344 14.4%
than Mr. Blech)
</TABLE>
(1) Includes common stock outstanding plus all options exercisable within 60
days after June 1,1995. Unless otherwise indicated, the persons listed have
sole voting and investment powers with respect to all such shares.
(2) Including presently exercisable options for the purchase of 17,550 shares
of common stock pursuant to the Company's Non-Employee Director Stock
Option Plan (the "Non-Employee Director Plan"), and 141,508 shares of
Common Stock and 51,829 SARs exercisable pursuant to the Company's 1987
Stock Option Plan (the "1987 Plan") and 69,270 shares issued in connection
with the Company's ESOP. Does not include 100,000 SARs that would vest in
the event of a merger or sale of the Company.
(3) Including presently exercisable options for the purchase of 5,000 shares of
Common Stock pursuant to the Non-Employee Director Plan.
(4) Including presently exercisable options for the purchase of 51,375 shares
of Common Stock pursuant to the Non-Employee Director Plan and 333 shares
issuable upon the exercise of warrants.
(5) As of March 1, 1995, Mr. Taylor is the owner of record of 227,460 shares
and 1,500 shares owned of record by Mr. Taylor's minor son, over which he
has sole voting and investment power. Also included are 61,047 shares
which Mr. Taylor has the present right to acquire under the 1987 Plan,
77,664 shares issuable upon the exercise of warrants, and 30,000 shares
issuable upon the exercise of options to purchase 12,500 units consisting
of one share of Common Stock, one warrant, and 4/10 of a warrant. Lastly,
includes 15,000 exercisable options for the purchase of shares of Common
Stock pursuant to Non-Employee Director Plan.
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(6) Including presently exercisable options for the purchase of 56,125 shares
of Common Stock pursuant to the Non-Employee Director Plan, and 3,166
shares issuable upon the exercise of warrants.
(7) Including presently exercisable options for the purchase of 152,916 shares
and 1,000 SARs pursuant to the 1987 Plan and 76,737 shares issued in
connection with the ESOP. Does not include 60,000 SARs that would vest in
the event of a merger or sale of the Company.
(8) Including presently exercisable options for the purchase of 47,082 shares
and 1,842 SARs pursuant to the 1987 Plan, and 44,156 shares issued in
connection with the ESOP. Mr. Stigliano resigned as Vice President,
Finance and Administration of the Company effective June 9, 1995 to pursue
other interests, and has agreed to serve as a part time employee of the
Company until September 1995. Does not include 60,000 SARs that would vest
in the event of a merger or sale of the Company.
(9) Including presently exercisable options for the purchase of 13,400 shares
of Common Stock pursuant to the Non-Employee Director Plan.
(10) Including presently exercisable options for the purchase of 15,067 shares
of Common Stock pursuant to the Non-Employee Director Plan.
(11) Sentinel Charitable Remainder Trust ("Sentinel"), 599 Lexington Avenue, New
York, New York, is known to the Company to be the beneficial owner of more
than five percent of the Company's Common Stock. Mr. David Blech is the
direct and indirect owner of 1,075,700 shares of Common Stock which
represents 12.4% of the outstanding shares of Chemex Common Stock as of
June 1, 1995. Of such shares, 5,000 (.06%) are owned directly by Mr.
Blech, 1,020,000 (11.75%) are owned by Sentinel, 25,950 (.30%) are owned by
Lake Charitable Remainder Trust and 24,750 (.29%) are owned by Ocean
Charitable Remainder Trust. Mr. Blech is the sole income beneficiary of
the trusts, and as such may be deemed to be the beneficial owner of the
securities held by them. Mr. Nicholas Madonia is the trustee of the trusts
and as such may be deemed to be a beneficial owner of the securities held
by them.
In addition to the 1,020,000 shares of Common Stock held by Sentinel,
Sentinel has the right to acquire 1,000,000 shares upon the exercise of
currently exercisable warrants. Sentinel additionally has an option to
purchase up to 500,000 units consisting of 500,000 shares of Common Stock
and 700,000 warrants. Assuming the exercise of all of the options and
warrants described above, Mr. Blech would have a beneficial ownership
interest in the Company of 30.0%. Information is based on Form 4 as filed
by D. Blech in October 1994 and has been verified with Mr. Blech in June
1995.
<PAGE>
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PROPOSAL SEEKING STOCKHOLDER APPROVAL
FOR THE SALE OF CHEMEX'S INTEREST
IN AMLEXANOX TO BLOCK DRUG COMPANY, INC.
BACKGROUND
In June 1990, the Company sold its lead drug, Actinex, a drug developed by
Chemex for the treatment of actinic keratoses (pre-malignant lesions of the
skin) to Block for a total of $8 million in milestone payments plus future
royalties. The Company received $2 million at signing and a total of $6 million
in 1992 for achieving certain milestones including FDA approval for the drug.
In addition, Block agreed to pay a 2.5% royalty on all cumulative sales up to
$40 million, and 5% thereafter on all sales in patent protected countries (2.5%
in non-patented countries). Since commercialization of the drug in late 1992,
royalties from sales of Actinex have been less than anticipated by the Company;
through March 1995 a total of $127,000 in royalties have been received by the
Company on Actinex sales.
The Company entered into a Joint Venture with Block in June 1991, principally to
conduct research and development for new drugs in the field of dermatology for
up to a maximum of $17 million over a five year research and development
agreement. The thrust of the Joint Venture was to utilize Chemex's ability to
develop new drugs and to process them through the FDA approval cycle and to have
Block manufacture and market any resulting products. Block made an initial $2
million payment for the proprietary rights of the products contributed by Chemex
and paid for the first $3 million of research conducted by the Joint Venture.
After the initial $3 million of research spending of the Joint Venture, each
party was obligated to contribute 50% of research expenses. In addition, each
party was obligated to offer all of their respective new dermatological products
to the Joint Venture during the five year period.
Accordingly, in March 1993, Block assigned the rights to certain products
licensed from Penderm, Inc. to the Joint Venture. These products included a
sunscreen which was currently on the market and the rights to a retinoid acid
product for the treatment of acne. In December 1993, after incremental losses
were incurred by Block in the marketing and selling of the sunscreen, the
parties agreed that Chemex would return its share of the sunscreen product to
Block in return for reducing its share of ownership of the retinoid acid product
from 50% to 40%.
In June 1994, the Company agreed to sell 10% of its ownership of the Joint
Venture to Block for consideration of $1.7 million. Accordingly, Chemex reduced
its ownership share of the products in its dermatology drug portfolio from 50%
to 40% (except the retinoid acid product which was reduced from 40% to 30%).
As of December 31, 1994, Chemex and Block mutually agreed to dissolve the Joint
Venture. Block and Chemex concluded several agreements as part of the Joint
Venture dissolution, including: (1) an Asset Distribution Agreement ("ADA")
which effectively dissolved the Joint Venture and specified the distribution of
assets of the Joint Venture including the following:
(a) Chemex agreed to repurchase 10% of its interest in the Joint Venture
from Block for $1,700,000;
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(b) All licenses between the Joint Venture, on the one hand, and Block and
Chemex, on the other hand, were terminated;
(c) Chemex transferred to Block its interest in an agreement with Penderm,
Inc. relating to retinoic acid products;
(d) Chemex granted to Block an exclusive three-year license to manufacture
certain Amlexanox products in consideration for $2,600,000 payable by
(i) $1,700,000 in cash and (ii) transferring for an agreed value of
$900,000 Block's interest in certain assets of the Joint Venture;
(2) a Product Development Agreement ("PDA") and Manufacturing, Marketing and
Distribution Agreement ("MMS") which established the joint ownership of
Amlexanox and the responsibilities of each party; and (3) a separate agreement
giving Chemex an option (the "Option") to transfer its share of the ownership
rights to Amlexanox to Block for a non-refundable upfront payment of $2,500,000
plus future royalties.
The Company has been actively seeking a merger partner which has the financial
resources to enable the Company to advance its drug portfolio through the
necessary testing and human clinical trials as prescribed by the FDA. The Joint
Venture with Block proved to be a hindrance in this effort because pursuant to
the Joint Venture, essentially half of the assets of Chemex (the dermatology
drug portfolio) were encumbered by another party, making it difficult to enter a
new relationship with a third party. Further, as a result of the Company's
limited cash resources, the Company was unable to continue funding research
projects under the Joint Venture. These factors were the primary reasons Chemex
sought the dissolution of the Joint Venture.
JOINT OWNERSHIP OF AMLEXANOX WITH BLOCK
The PDA and MMS agreements call for Chemex to conduct all research and
regulatory aspects of the on-going development and product registration of
Amlexanox while Block is fully responsible for the manufacturing, marketing and
distribution of any and all Amlexanox oral products worldwide. For the major
markets where Block and Chemex have rights to sell Amlexanox (North America,
Europe and Latin America), the MMS agreement calls for a 50/50 split on any
ensuing profits or losses. The parties also agreed to a ceiling on Chemex's
share on any losses (in aggregate) in a given year as follows: in the United
States in year one - $1 million; year two - $500,000; and no losses thereafter.
For international markets, Chemex losses are to be limited by a ratio by market,
calculated by dividing the number of practicing dentists in each market by the
number of practicing dentists in the United States. The resulting fraction
would then be multiplied by $1 million the first year, $500,000 the second year
and no loss thereafter to determine the individual market loss ceiling. All
research related spending would be split on a 50/50 basis. Under certain
circumstances Block's exclusive license to market Amlexanox in certain countries
may become semi-exclusive and Block and Chemex may enter into a semi-exclusive
license with another party to market Amlexanox in certain countries.
The Company estimates that near term expenses relating to the commercialization
of Amlexanox will amount to a minimum of $3 million, including: (1)
approximately $250,000 of expenses in connection with registering the product
for sale in the United States (including a $104,000 FDA filing fee); (2)
$750,000 to register the product for sale in major countries in Europe; and (3)
an anticipated $2 million in first year marketing
<PAGE>
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losses for the U.S. market alone. If the Company cannot fund its portion of the
research expenses or any anticipated early losses from the product, the Company
would be in default of the PDA and/or MMS, resulting in the Company being forced
into a straight royalty on sales of the product, as opposed to a 50/50% split on
any profit or losses. Further, there would be no non-refundable upfront prepaid
royalty of $2,500,000 as contemplated by the Sale.
THE CHEMEX OPTION TO SELL ITS RIGHTS TO AMLEXANOX TO BLOCK
Block granted to Chemex the Option to sell its share of its rights to Amlexanox
for a non-refundable upfront prepaid royalty of $2.5 million plus possible
future royalties. The Option was to expire on May 30, 1995 and required the
consent of Takeda (the licensor of Amlexanox) to the Sale. Management believes
that the Sale terms were negotiated on an arms-length basis and the Sale and the
transactions contemplated thereby have been approved by the Board of Directors
of the Company.
The Company had been unable to (a) raise additional equity financing and (b)
reach agreement, by letter of intent or otherwise, on a merger transaction with
a third party. As a result, the Company on May 30, 1995 exercised its option to
sell its rights to Amlexanox to Block. The Company has received the consent of
Takeda, the licensor of the drug, to transfer Chemex's share of the rights to
Amlexanox to Block and is now seeking the required shareholder approval of the
Sale. If shareholder approval of the Sale is not obtained, it is probable that
the Company will default in its obligations to fund its share of the costs of
commercialization of Amlexanox and upon such default Block would have the right
to convert the current arrangement into a royalty arrangement which royalty
arrangement would be without the upfront payment of $2,500,000 which would be
made pursuant to the Sale. Further, the Company would be without funds to
continue its operations.
As consideration for the Sale, Block will be obligated to make the following
payments to Chemex:
(a) Initial Prepaid Royalty. Upon execution of the Agreement for the sale of
------------------------
Amlexanox to Block (the "Agreement"), Block delivered to an Escrow Agent $2.5
million (less advances made to Chemex--described below). The payment is an
advance against royalties earned as outlined in the Royalty section below, and
will be delivered to Chemex upon the approval of the Sale by Chemex
shareholders. Block advanced Chemex a total of $125,000 as of the signing of
the agreement for working capital needs and advanced an additional $125,000 on
July 1, 1995 while Chemex awaits shareholder approval of the Sale. Accordingly,
the prepaid royalty payment to be made to Chemex upon shareholder approval has
been adjusted to a net amount of $2,250,000. If the Sale is not approved,
Chemex will be obligated to repay such $250,000 advance to Block.
(b) Additional Prepaid Royalty. Block will pay to Chemex $1.5 million as a
---------------------------
prepaid royalty after the end of the calendar month during which Block together
with any sublicensee has achieved cumulative worldwide sales of Amlexanox oral
products of $25 million. After such royalty payment Chemex would be entitled to
receive royalties under (c)(i) and (c)(ii) below.
<PAGE>
-11-
Royalties are to be paid by Block as follows:
(a) Ten (10%) percent on the first $25 million of sales of Amlexanox oral
products, to be paid in a lump sum non-refundable prepaid amount of $2.5 million
(which amount would be prepaid upon the closing of the Sale as described above).
(b) Seven and one-half (7.5%) percent of cumulative worldwide sales of
Amlexanox oral products between $25 million and $45 million which is to be
prepaid upon the achievement of cumulative worldwide sales of $25 million (as
described above).
(c) For all sales in excess of cumulative worldwide sales of Amlexanox oral
products of $45 million, Block will pay Chemex the following royalties on sales
of Amlexanox oral products:
(i) For countries where a valid and enforceable Takeda patent or Amlexanox
patent for canker sores is in effect at the time of sale:
Ethical formulations: 5%
Over the Counter ("OTC") formulations: 2.5%
(ii) For countries where there is no valid and enforceable Takeda patent
or Amlexanox patent for canker sores in effect at the time of a sale:
Ethical formulations: 2.5%
OTC formulations: 1.25%
After the Sale is consummated, the Company's obligations under the PDA and MMS
agreements will cease. However, Block, at its option, may request Chemex to
conduct further research, development and regulatory studies at Chemex's full
cost plus 6%, for a period of three years; provided, however, that if Atul
Khandwala, the Company's Executive Vice President, becomes an employee of or
consultant to Block, then Chemex's obligations shall be limited to performing
reasonable activities in support of obtaining FDA approval of Amlexanox until
the earlier of (i) three years after FDA approval of Amlexanox, or (ii) the
liquidation or dissolution of Chemex. The Company has been informed that Mr.
Khandwala has agreed to become an employee of Block as of September 1, 1995.
Under the joint ownership of Amlexanox, Block and Chemex agreed to purchase
active material from Takeda for future use in production of Amlexanox. Both
parties have agreed that if any material is used for production validation
purposes which will be required by the FDA and if subsequent to such production
this material cannot be sold commercially, the parties will split the cost of
the material 50/50. Under this circumstance, Chemex could be liable for up to
$50,000. If the FDA requires production of materials prior to the issuance of
an NDA and the material may be sold for commercial purposes, Chemex would be
required to pay for one-half of the material cost of approximately $150,000, but
would be reimbursed for such costs when the finished product is eventually sold
by Block. If any of such amounts are required to be paid by Chemex prior to the
Sale, Block has the right to deduct such amount from the $2,250,000 payable upon
the closing of the Sale.
<PAGE>
-12-
The Company expects to receive payment of the $2,250,000 upon shareholder
approval of the Sale. Estimations of when, if at all, the Company expects
payment of the next pre-payment amount of $1.5 million as well as future
royalties, if at all, is not possible at this time because of a number of
factors which are beyond the control of the Company, including, but not limited
to, regulatory approvals in various countries worldwide, the diligence and
efforts of Block in marketing Amlexanox, future developments relating to pending
patents covering Amlexanox for use in canker sores and the possibility of the
introduction of new drugs which may affect the future marketability or viability
of Amlexanox. If in the future the Company were to liquidate and distribute its
assets to its shareholders, Block would remain obligated to pay any future
royalties to the successor entity to the Company or to an entity to which the
Company's rights are assigned.
A U.S. patent for the use of Amlexanox for the treatment of canker sores was
issued in late 1994. In addition, patents have been filed with the European
Patent Organization which covers all western European countries.
BLOCK DRUG COMPANY, INC.
Block Drug Company, Inc. develops, manufactures and sells products which can be
classified into the following major product lines: (1) Dental Products, such as
POLIDENT, POLI-GRIP, AND SENSODYNE; (2) Consumer Products, including proprietary
over-the-counter products such as TEGRIN, NYTOL, and PHAZYME; and (3) Ethical
Pharmaceuticals, such as COLYTE. Block also has a research and development
program that supports and conducts development of new products for each of these
product lines. In May 1995, Block announced the acquisition of the CARPET FRESH
product line from Rickett and Coleman, Ltd., and on June 7, 1995, Block
announced the sale of its ethical pharmaceutical division to Schwartz Pharma
A.G. Block's principal place of business is located at 257 Cornelison Avenue,
Jersey City, New Jersey 07302 and the telephone number of its principal
executive offices is (201) 434-3000.
Block is subject to the information requirements of the Security Exchange Act of
1934 (the "Exchange Act"), and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Reports and other information filed by Block with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at nine Regional Offices.
Copies of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Block is a publicly-held corporation, the Class A Common Stock of which
is traded on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the stock symbol "BLOCA". Reports and other information
can also be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Set forth below is certain summary consolidated financial information derived
from Block's Annual Report on Form 10-K for the fiscal year ended March 31,
1995. Such summary financial information is qualified in its entirety by
reference to such report and should be considered in connection with the more
comprehensive financial information in such report and other publicly available
reports and documents filed by Block with the Commission. This information is
provided herein solely for the purpose
<PAGE>
-13-
of enabling the Company's shareholders to evaluate Block's financial ability to
perform its obligations under the Agreement and subsequently to market Amlexanox
oral products. Company shareholders will not acquire any equity interest in
Block by virtue of the Sale or its approval by Company shareholders.
BLOCK DRUG COMPANY, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
($ FIGURES IN THOUSANDS)
<TABLE>
<CAPTION>
==============================================================================================
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
Net Sales $669,854 $613,283 $624,826 $562,932 $512,884
----------------------------------------------------------------------------------------------
Income, Dividends and other income $ 23,026 $ 23,383 $ 26,490 $ 22,328 $ 17,970
----------------------------------------------------------------------------------------------
Income before taxes $ 63,649 $ 57,114 $ 77,713 $ 68,454 $ 69,062
----------------------------------------------------------------------------------------------
Income Taxes $ 13,280 $ 9,262 $ 16,167 $ 11,187 $ 15,852
----------------------------------------------------------------------------------------------
Net Income $ 50,369 $ 47,852 $ 61,546 $ 57,267 $ 53,210
----------------------------------------------------------------------------------------------
Ave. No. of common shares outstanding 20,148 19,529 19,504 19,490 19,606
----------------------------------------------------------------------------------------------
Net income per share of common stock $ 2.50 $ 2.45 $ 3.16 $ 2.94 $ 2.71
----------------------------------------------------------------------------------------------
Cash dividends declared/share of Class $ 1.06 $ 1.02 $ .95 $ .85 $ .75
A common
----------------------------------------------------------------------------------------------
Stock dividends declared/share of Class 3% 3% 3% 3% 3%
A common
----------------------------------------------------------------------------------------------
Stock dividends declared/share of Class 3% 3% 3% 3% 3%
B common
----------------------------------------------------------------------------------------------
Depreciation $ 16,031 $ 13,560 $ 10,727 $ 9,059 $ 8,215
----------------------------------------------------------------------------------------------
Working Capital $ 26,095 $ 32,637 $ 51,203 $ 69,653 $ 88,620
----------------------------------------------------------------------------------------------
Current ratio 1.1 1.2 1.3 1.4 1.8
----------------------------------------------------------------------------------------------
Total assets $871,320 $771,068 $726,497 $649,608 $550,735
----------------------------------------------------------------------------------------------
Long-term debt and notes payable $ 15,273 $ 17,880 $ 19,160 $ 19,435 $ 19,459
----------------------------------------------------------------------------------------------
Shareholders' Equity $562,531 $515,121 $485,298 $446,550 $298,736
----------------------------------------------------------------------------------------------
No. of employees 3,521 3,491 3,505 3,301 3,105
==============================================================================================
</TABLE>
ACCOUNTING TREATMENT AND TAX CONSEQUENCES RESULTING FROM THE SALE OF THE
AMLEXANOX RIGHTS
The following discussion summarizes the principal Federal income tax
consequences associated with the Sale under the Internal Revenue Code of 1986,
as amended (the "Code"), assuming that the Sale is consummated as described
herein. The discussion is based upon currently existing provisions of the Code,
existing and proposed Department
<PAGE>
-14-
of Treasury regulations thereunder, and current administrative rulings and court
decisions. All the foregoing is subject to change and any such change could
affect the continuing validity of this discussion. No rulings have been or will
be requested from the Internal Revenue Service (the "IRS") with regard to any of
the matters discussed herein.
The amounts payable by Block to the Company pursuant to the Agreement will be
recognized as revenue when they are due (the initial and second lump sum
payments as well as future royalty payments). The Company as of June 30, 1995
has approximately $38 million of net operating losses that are carried forward,
although the loss carryforward has an annual limitation of approximately $1.5
million per year. However, the Company believes that the combination of its
current operating loss and federal and state loss carryforwards, even with the
annual loss limitation, will offset any gains recorded with respect to the
$2,500,000 upfront royalty payment. However, for federal tax purposes the tax
loss carryforward will offset only 90% of the income recognized for alternative
minimum tax purposes. The Company believes that its tax liability in fiscal
1995 will not be greater than approximately $25,000. There will be no tax
consequences directly to the shareholders of the Company as a result of the
Sale.
JUSTIFICATION FOR THE SALE OF AMLEXANOX RIGHTS
As described in the "Background" section above, the Company has been
unsuccessful in its attempt to raise additional equity financing over the past
three years which reflects the general difficulty of biotechnology and
pharmaceutical research and development companies to obtain such financing. The
Company is actively pursuing several merger possibilities with the objective to
maximize shareholder value through a merger with a third party that either has
adequate financial resources to continue the research and development of the
Company's dermatology drugs or with a company with significant technology that
would give the Chemex shareholders some "upside" possibility in terms of share
value. To date these efforts have not resulted in any letter of intent or
definitive agreement and there is no certainty that such activities will result
in a merger or sale of the Company.
As the cash situation of the Company has become more critical, the Board of
Directors has carefully reviewed the situation and determined that the only
viable alternative to enable the Company to continue operations at this time was
to exercise the Option to sell to Block Chemex's share of its rights to
Amlexanox. This decision was based in part on the fact that Amlexanox is the
Company's most advanced product in the regulatory approval process, that Block
has made a bona fide offer to purchase Chemex's interest in the drug, and that
the Company would not have the prospects of being able to finance the product
launch expenses if the Company remained on a 50/50 profit/loss split with Block.
The Board of Directors after careful deliberation decided not to retain an
investment banker to render a fairness opinion as to the value assigned to
Amlexanox pursuant to the terms of the Agreement. The Company has had several
discussions with multi-national companies with market presence in dental
products and had received only one informal offer for the product at a value for
the product of less than the value under the Sale agreement. As mentioned
above, given the circumstances which culminated in the Board's decision to
pursue the Sale, the Board believes at this time that the sale of rights to
Amlexanox is the best alternative available to accomplish the Company's goals of
continuing operations while seeking a merger partner. Based upon its evaluation
of the Agreement and other information requested or otherwise made available to
them,
<PAGE>
-15-
including but not limited to initial loss projections relating to the
commercialization of Amlexanox, cash flow projections for the Company, and
details of the offer to purchase the Company's rights in Amlexanox from a multi-
national company, management and the Board of Directors believe that the value
assigned to the rights to Amlexanox as negotiated by the Company and Block is
fair and reasonable.
PLAN FOR FUTURE COMPANY OPERATIONS
Company management intends to use the proceeds from the Sale to fund limited
operations while the Company seeks a merger partner. As of July 31, 1995 the
Company's research and development operations ceased and the Company's operating
expenses will be reduced significantly. The Company currently intends to
continue to pursue a merger strategy for up to the next 6 months as the funding
from the Sale is not sufficient to complete all necessary research and testing
of any one compound to complete an New Drug Application. On a limited
operations basis, the Company believes that the proceeds from the Sale could
support the Company's limited operations for approximately eighteen months.
However, if the prospects to merge or sell the Company do not improve over the
next 6 months, the Company may consider liquidation of its assets and a
distribution of such proceeds to its shareholders. The current arrangements
with Block provide that Block will be required to continue to pay royalties in
the event that the Company is liquidated or dissolved.
THE PROPOSAL WILL BE APPROVED IF IT RECEIVES THE AFFIRMATIVE VOTE OF A MAJORITY
OF THE OUTSTANDING SHARES ENTITLED TO VOTE. UNLESS OTHERWISE INDICATED THEREON,
THE ACCOMPANYING PROXY WILL BE VOTED FOR APPROVAL OF THE PROPOSAL TO SELL
CHEMEX'S SHARE OF ITS RIGHTS TO AMLEXANOX TO BLOCK. THE BOARD OF DIRECTORS
UNANIMOUSLY APPROVED THE PROPOSAL AND RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSAL.
RESEARCH AND DEVELOPMENT STRATEGY AND PRODUCT PORTFOLIO
The Company's research strategy has been to in-license existing drugs which are
being developed for non-dermatological medical indications for application to
dermatology. This strategy has enabled the Company to bypass much of the drug
discovery phase and preclinical research which reduces both time and cost to
develop a new drug.
The Company's current product portfolio consists of six compounds (one of which
is an option to license and on hold) at various stages of development. Five of
the six drugs are targeted for topical and/or dermatology indications, and the
remaining one is targeted for anti-tumor activity. The drugs in the portfolio
have either been developed by Chemex or licensed for the field of dermatology
from pharmaceutical companies. With the exception of Actinex(R) and Amlexanox,
the rights to all of the dermatology drugs are owned by Chemex (see Form 10-K
and Form 10-Q for a detailed status by project). Actinex(R) was sold to Block
in June 1990 for the indication of actinic keratoses and basal cell carcinoma.
The rights to Amlexanox are currently owned jointly by Block and Chemex but as
------
part of the above PROPOSAL, Chemex intends to sell its rights to Amlexanox to
-----------------------------------------------------------------------------
Block.
-----
<PAGE>
-16-
Effectively, all research projects have been suspended pending the Sale and will
be reviewed after the PROPOSAL is approved to determine which projects, if any,
will be funded and at what spending rate (see the Form 10-K and Form 10-Q and
Management's Discussion and Analysis of Financial Condition for a more detailed
discussion of the Company's financial condition and prospects).
<TABLE>
<CAPTION>
====================================================================================
CHEMEX DRUG PORTFOLIO
====================================================================================
Compound Originator Indication FDA Filing Clinical Stage
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Royalty
-------
Actine x/(1)/ Chemex Actinic keratoses FDA approved Completed
Block/Chemex
------------
Joint Ownership Takeda Oral ulcers IND filed 1990 NDA filed
--------------- Apr il 1995
Amle xanox/(4)/
(CHX-3673)
Chemex Proprietary
------------------ Senju Atopic dermatitis IND filed 1992 Phase I/II
EP C-K\\1\\ Prev ention of
(CHX-3107 ) photo-aging of
skin
CHX-108 Chemex Psoriasis IND filed 1987 Phase I/II
CHX-100/(2)/ Chemex Prevention of IND filed 1993 Phase II
photo-aging of
skin
Masoprocol/(2)/ Chemex Anti-tumor Development Preclinical
(Can cer)
Hypericin/(3)/ VimRx Psoriasis VimRx IND Phase I
====================================================================================
</TABLE>
(1) Sold to Block Drug.
(2) Involves the use of NDGA and may be developed by the Company pursuant to
the royalty-free, worldwide, exclusive license from Block to the Company.
(3) Option to license compound for dermatological use from VimRx
Pharmaceuticals.
(4) Chemex has exercised the option to transfer its rights to Amlexanox to
Block for a non-refundable upfront payment plus future royalties, subject
to Chemex shareholder approval.
PLEASE REFER TO THE PRODUCT DEVELOPMENT DESCRIPTIONS, RELATED LICENSING
AGREEMENTS AND STATUS OF PROJECTS OUTLINED IN THE FORM 10-K AS OF DECEMBER
31, 1994 AND FORM 10-Q AS OF MARCH 31, 1995.
<PAGE>
-17-
GENERAL
Each stockholder is urged to complete, date, sign and return the enclosed proxy
card in the enclosed envelope provided for that purpose and addressed to:
Chemex Pharmaceuticals, Inc.
c/o American Stock Transfer and Trust Company
40 Wall Street
46th Floor
New York, New York 10005
A prompt response is helpful and your cooperation will be appreciated.
By Order of The Board of Directors
August 11, 1995 Herbert H. McDade Jr., Chairman
