SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
JUNE 21, 1999
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(Date of Report)
ENTROPIN, INC.
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(Exact Name of Registrant as specified in its charter)
COLORADO 33-23693 84-1090424
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
45926 OASIS STREET, INDIO, CA 92201
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(Address of principal executive offices including zip code)
(760) 775-8333
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(Registrant's telephone number including area code)
21550 OXNARD STREET, SUITE 810, WOODLAND HILLS, CA 91367
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(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
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Registrant mailed to its shareholders the following Executive Summary
which contains certain forward looking statements that are not historical
or current facts and are "Forward- Looking Statements" made pursuant to the
Safe Harbor Provisions in the Federal Securities Laws. These statements
often can be identified by the use of terms such as "may," "will,"
"expect," "anticipate," "estimate," or "continue," or the negative thereof.
Such forward-looking statements speak only as of the date made. Any
forward-looking statements represents management's best judgment as to what
may occur in the future. However, forward-looking statements are subject
to risks, uncertainties and important facts beyond the control of the
Company that could cause actual results and events to differ materially
from historical results of operations and events and those presently
anticipated or projected. These factors include, but are not limited to
those discussed under the caption "risk factors" in Item 1 of the Company's
form 10-KSB for the year ending December 31, 1998. The Company disclaims
any obligation subsequently to revise any forward-looking statements to
reflect events or circumstances after the date of such statement or to
reflect the occurrence of anticipated or unanticipated events.
EXECUTIVE SUMMARY
(ETOP: OTC BB)
BUSINESS PLAN
COMPANY OVERVIEW. Entropin(R), Inc. ( ETOP: OTC BB) is currently engaged
in pharmaceutical research and is continuing to develop a patented
medicinal preparation known as Esterom(R) for sale to the public. The
Company is the beneficiary of more than 19 years of extensive research and
development perfecting Esterom(R), originally undertaken by Lowell M.
Somers, M.D., the inventor, and James E. Wynn, Ph.D., now one of the
Company's scientific advisors. The Company has been assigned seven patents
issued by the U.S. Patent Office, has six approved international patents,
and is seeking international patent protection in 23 other foreign
countries. The Company is currently pursuing approval of the product with
the U.S. Food and Drug Administration ("FDA"). Entropin(R) has a current
and open Investigational New Drug (IND) file with the FDA and Phase III
clinical trials are scheduled to start summer of 1999.
Esterom(R) is a medicinal preparation that is effective in the treatment of
impaired range of motion (ROM) associated with acute lower back sprain and
acute painful shoulder. Dr. Somers' original investigations focused on the
treatment of rheumatoid arthritis and related conditions. Although not
controlled clinical trials, these studies provided anecdotal evidence for
effectiveness in treating impaired range of motion associated with
arthritis and related conditions, and led to the development of the current
product, Esterom(R). In subsequent controlled Phase II Clinical Trials two
topical applications of Esterom(R) separated by 24 hours have demonstrated
effectiveness in the treatment of impaired range of motion associated with
both acute painful shoulder and acute lower back sprain. In these trials
the range of motion for both indications has been shown to improve
significantly compared to patients receiving applications of the placebo.
The Company is currently completing preparations for Phase III studies to
further evaluate Esterom(R)'s safety and effectiveness in the treatment of
limited ROM associated with acute painful shoulder. Subsequent to FDA
approval for this single indication, approval will be sought for treatment
of limited ROM associated with acute back sprain. Aftermarket studies will
be conducted to support the use of Esterom(R) in the treatment of limited
ROM associated with arthritis and related conditions.
<PAGE>
According to a recent market survey performed by Front Line Strategic
Management Consultants, Inc. nearly 17.5 million Americans are affected by
acute shoulder or back strain and related conditions each year. Current
options for treating limited ROM in the painful shoulder and acute back are
limited. No treatment other that palliative therapy is recognized for
acute back sprain as reported by the U.S. Agency for Health Care Policy and
Research. The application of Esterom(R) represents a potentially superior
treatment for painful shoulder and the only drug treatment to effectively
improve ROM in acute back sprain. The total annual cost of these
conditions, including lost productivity, exceeds $50 billion (U.S. Agency
for Health Care Policy and Research). Given FDA approvals, the Company
feels that there is a multibillion dollar market for Esterom(R).
The Company has concentrated its effort in the development and
commercialization of Esterom(R) and has incurred operating loses
commensurate with this development work. The Company anticipates
generating meaningful commercial revenues and profits in 2002 following
approval by the FDA of the Company's NDA for Esterom(R).
Entropin(R) is a bio-pharmaceutical firm aggressively pursuing a very large
unaddressed healthcare market in the U.S. and throughout the world.
Entropin(R) is a publicly held company that files periodic reports,
including Annual Reports containing consolidated financial statements of
the Company audited by independent public accountants, and quarterly
reports, which contain unaudited financial statements, with the Securities
and Exchange Commission. Copies of such reports can be obtained by writing
to the Commission, Public Reference Section, 450 Fifth Street, NW,
Washington, D.C. 20549. Below is a summary of some of the primary
characteristics of the Company:
* ETOP, A UNIQUE BIO-PHARMACEUTICAL FIRM, IS PURSUING A MULTIBILLION
DOLLAR U.S. MARKET. At this time, treatment options for restricted
ROM associated with acute painful shoulder or back sprain are limited
at best. For acute back sprain only palliative therapy exists which
serves a limited transitional need and ignores the underlying
therapeutic condition of the patient. Treatments for limited ROM
associated with acute painful shoulder as well as other joints
involves the use of drugs that have many side effects and generally
provide limited if any improvement in ROM of the affected joint.
Because of the unique effectiveness and safety profile of its product
Esterom(R), the Company projects that it will become an important
player in this health field. The Company feels that the increase in
the number of senior citizens due to the aging "baby boomers",
expansion of its application to the treatment of arthritic conditions,
expansion into the international market place, and expansion into
veterinary uses will be significant factors in increasing Esterom(R)'s
future markets.
* PATENT PROTECTED TECHNOLOGY AND THE START OF FDA PHASE III CLINICAL
TRIALS SUMMER 1999. The Company has secured seven U.S. patents.
Patents for Entropin(R)'s basic composition patent have been issued
in Japan, China, Australia, New Zealand, Israel, and South Africa and
is pending in 23 other foreign countries. Based upon the Company's
statistically significant clinical results in Phase I and Phase II,
the U.S. Food and Drug Administration has recently permitted the
Company to commence Phase III clinical trials which should end in 2000
with the NDA filed in 2001. Thus, a substantial portion of the risk
related to governmental approval and commercialization of this
technology has been absorbed by the Company through its development
efforts.
<PAGE>
* FDA APPROVAL EXPECTED 2001; ETOP COMMERCIAL SALES BY 2002. Based upon
the Company's commencement of Phase III clinical trials in summer of
1999, ETOP expects to submit a new drug application for FDA approval
by 2001, with sales to occur in 2002. The Company's management
believes the projected revenues from commercial sales in the U.S.
should increase materially upon introduction of Esterom(R) for the
years 2002 and beyond.
* ONLY $4.8 MILLION IN R&D SPENT BY ETOP TO DATE COMPARED TO $25 MILLION
AS AN INDUSTRY AVERAGE. Based upon the Company's continuing focus of
sustaining a low burn rate and maintaining its working capital, ETOP
has achieved a distinction few other companies enjoy. The Company has
spent a fraction of the total working capital normally required to
reach Phase III; thereby, minimizing common stock dilution and
conserving cash.
* USE OF "VIRTUAL COMPANY MODEL" HAS CUT ETOP'S BURN RATE WITHOUT
ERODING PERFORMANCE. The innovative approach which the Company has
undertaken, utilizing a "virtual company model", has served it well.
By drawing upon seasoned pharmaceutical and industrial executives,
ETOP has succeeded in proving that outsourcing can be economical and
managerially efficient. The Company expects the transition to formal,
full time management to occur over the next eighteen months as it
prepares for commercialization of Esterom(R). The use of this "virtual
company model" has maintained a substantially lower than expected burn
rate for ETOP and contrasts favorably with other comparable bio-
pharmaceutical firms which have consumed far greater amounts of
capital at this stage of development.
* ETOP EXPECTS SIGNIFICANT COMMERCIAL REVENUES AND PROFITS IN 2002. ETOP
projects its commercial revenues to increase each year following FDA
approval of its NDA in 2002. The Company's projected cash flow should
increase shareholder value. This contemplates ETOP's completion of one
or more commercial strategic alliances and the continued relationship
with its major manufacturing partner, Mallinckrodt, Inc. (NYSE:MKG).
THE ESTEROM(R) TECHNOLOGY. Dr. Somers originally discovered Esterom(R) in
1979. The product name is derived from its chemical identity and medical
purpose since it is an ester that improves the range of motion of patients
suffering from a painful shoulder or back sprain/strain. Dr. Wynn developed
a manufacturing method that produced a consistent and stable product which
satisfies FDA requirements. The reproducible hydrolytic process that Dr.
Wynn developed led to the discovery of three new molecules in 1993. The
three newly discovered molecules are a novel class of new compounds which
have been patented in the U.S. and internationally in Japan, Australia, New
Zealand, Israel, and South Africa with patents pending in 24 other countries.
Because a component of Esterom(R) is a cocaine derivative, the product is
presently a Schedule II controlled substance. However, the results of Phase
I and Phase II clinical trials showed no adverse side effects or related
substance-dependent tendencies, including no central nervous system
activity, elevated blood pressure, increase in heart rate or euphoria.
Results of pre-clinical, Phase I and II trials indicate that the components
of this medicine do not cross the blood barrier. Consequently, no
potential for abuse is anticipated. An application has been made to the
Drug Enforcement Administration ("DEA") to reclassify Esterom(R) and delist
it as a controlled substance.
CLINICAL TRIAL RESULTS. An Investigational New Drug ("IND") application
was filed with the FDA on March 9, 1987, seeking permission to commence
human clinical testing of Esterom(R). The results of four pre-clinical
animal studies, with no toxicity noted, were incorporated within the IND
<PAGE>
Application for FDA approval to allow ETOP to begin human clinical trials.
The Company's Phase I clinical study involved 24 healthy male subjects and
was concluded with no meaningful toxicity observed. Since Esterom(R)
maintained a clear toxicity profile and was shown to be safe in both
animals and in healthy male volunteers when applied topically, the FDA
approved a protocol for a Phase II Clinical Study.
The Phase II study involved a double-blind, randomized, placebo-controlled
investigation designed to continue to look for adverse effects and to
determine the efficacy of Esterom(R) in patients who have an impaired range
of motion resulting from acute lower back sprain and strain and acute
painful shoulder or following the removal of cast. The Phase II clinical
study involved 97 patients, each received two applications of Esterom(R) or
placebo, with the second application being performed 24 hours after the
first. Overall, Esterom(R) provided statistical significant improved ROM
for both the back and shoulder patients which was sustained for at least
seven days. There was no clinically observed local anesthetic or analgesic
effect.
Entropin(R) is scheduled to begin Phase III clinical trials in summer of
1999. Phase III studies prior to completion of an NDA are required by the
FDA for final approval of a new prescription drug. As currently planned,
the Phase III studies will include multiple trials in a number of clinical
site study centers in differing geographic areas of the U.S. Approximately
600 patients will be selected for the study of which approximately 400
patients will receive one of two strengths (a single and double strength
formulation) of Esterom(R) and 200 patients will receive the placebo. The
studies will be double-blind and placebo-controlled. Each study will
include a regimen of two applications, with the second application 24 hours
after the first and a seven day, thirty day follow up for the acute study
and six month follow-up for the chronic study.
Based on its Phase I and II clinical studies, the Company believes that
Esterom(R) may involve a new and unique mechanism of action. The Phase I
study demonstrated that the product did not cause detectable systemic
effects including no effect on the cardiovascular system. During the study,
Esterom(R) caused no significant adverse events and was observed to be
safe. The Company confirmed that in Phase I and Phase II trials, no local
anesthetic activity or vasoconstrictive activity was observed. While the
precise mechanism of Esterom(R) is not known, additional studies will be
undertaken during the course of the Phase III clinical trials to determine
the mechanism of action for this product.
MANUFACTURING RELATIONSHIPS. Mallinckrodt, Inc. ("Mallinckrodt"), a
leading manufacturer of chemicals and drugs has agreed to continue to
develop Esterom(R) to meet all FDA requirements, to develop a Drug Master
File, file all appropriate chemistry and related manufacturing ("CMC")
documentation with the FDA, and manufacture the bulk drug product for a
multi-year period.
As noted earlier, Esterom(R) is made by the hydrolysis of cocaine in
propylene glycol and water. Cocaine is controlled by the DEA under strict
importation regulations specified in law. Stepan Company ("Stepan") is the
only U.S. company that can legally import coca leaves and process them for
the extraction of the cocaine base. This base is shipped to Mallinckrodt
for purification and sale in the medical and scientific markets. Stepan and
Mallinckrodt work with the DEA to set annual quotas for importing the coca
leaves related to projected use and sale of the processed cocaine. Because
of Federal restrictions, Esterom(R) cannot be manufactured outside of the
United States for sale in the United States. As a result, Mallinckrodt is
currently the sole source for cocaine and for producing Esterom(R).
<PAGE>
To date, Mallinckrodt has supplied all of the Company's cocaine for the
laboratory manufacture of the product for use in research and clinical
trials, and has been aware of the development of the drug since the IND
application was filed. In this connection, the Company has entered into a
ten year manufacturing contract with Mallinckrodt. Mallinckrodt has
successfully scaled up Esterom(R) from the laboratory to manufacturing
batch sizes and believes it can increase the coca leaf importation quotas
to supply the bulk active material as required.
COMMERCIALIZATION STRATEGIES. Entropin(R) intends to aggressively pursue
strategic alliance and/or joint venture opportunities with large worldwide
pharmaceutical firms in an effort to maximize the commercialization
potential of Esterom(R) throughout the world. In this connection, the
Company plans to undertake discussions with international FORTUNE 100
medical and pharmaceutical firms. As a result, the Company is seeking one
or more commercial partners which can aggressively market and commercialize
Esterom(R) world wide.
Specifically, the Company anticipates a substantial financial commitment
from one or more of the strategic commercial partners. Also, it is
projected that there will be ongoing gross profit sharing among the
corporate alliance partners depending upon the areas of the world that are
licensed and the partner's respective responsibilities for commercializing
Esterom(R). The Company's financial forecasts contemplate the inclusion of
one or more such strategic partners to assist the Company in its
commercialization of Esterom(R).
MARKETS FOR ESTEROM(R). Back pain is the second most frequent reason
Americans seek medical assistance. Currently, 17.5 million persons in the
U.S. annually suffer from impaired range-of-motion due to back, shoulder
disorders, and other related conditions. It is quantified that the total
annualized "cost" of range-of-motion impairment, including lost industrial
productivity and direct medical payments, approaches $50 billion in the
United States alone.
Of the 17.5 million people currently taking prescription medicines for back
and shoulder strains and related disorders in the U.S., nearly half, or 8.1
million, of these people possess conditions which are treatable with
Esterom(R). Based upon the foregoing, the Company has established a
commercialization strategy to develop and procure FDA market approval
quickly and relatively inexpensively. Initially, the focused claim for
Esterom(R) is expected to include only shoulder disorders and then
broadened to include back sprains and other related disorders following
initial FDA approval. In this fashion, the Company expects to aggressively
commercialize its technology utilizing key strategic partners throughout
the world. Throughout the commercial evolution of Esterom(R), the Company
intends to continuously evaluate joint venture and/or acquisition
opportunities with third parties with a view to maximize overall
shareholder value.
COMPANY MANAGEMENT. As previously mentioned, Entropin(R) has used a
"virtual" company model to minimize its consumption of working capital and
at the same time has recruited the highest quality personnel without
increasing its burn rate. This has resulted in an atypically low burn rate
when compared to traditional bio-pharmaceutical companies. The advantage
of utilizing this "virtual" company model includes the employment of a
small tactical executive team, who are compensated using equity. In
addition, this model affords flexibility in corporate decision-making and
allows for specific expertise to be focused on operating issues on a case-by-
case basis. However, the Company intends to transition from this
outsourcing and "virtual" company model to a permanent operating platform
next year as it approaches full commercialization of Esterom(R). The goal
of employing this "virtual" model is to enhance shareholder value. The
Company's management includes well known pharmaceutical and industrial
executives including:
<PAGE>
Higgins D. Bailey, Ed.D., CHAIRMAN - Former President and CEO of a
corporation owning a college, hospital, and clinics; President and CEO
(Interim) Medical University of South Carolina's Pharmaceutical Foundation.
Donald Hunter, CEO - Former President and COO of Louisiana Power and Light
and while Senior Vice President of Entergy Corporation consummated a 4
billion dollar merger of energy companies in southeastern states.
Daniel L. Azarnoff, M.D., PRESIDENT - Former President of G.D. Searle's
Research and Development Company and Senior Vice President of Searle.
Roy S. Azarnoff, Ph.D., COO - Former Director of Office of Research at
California State University.
Lois Rezler, Ph.D., VP- SCIENTIFIC AND REGULATORY AFFAIRS - Consultant to
many FORTUNE 100 pharmaceutical firms and participated in the
regulatory/scientific process of over 200 drugs.
Wellington A. Ewen, CPA, MBA, CFO - Former senior manager - Coopers &
Lybrand and Arthur Andersen.
James E. Wynn, Ph.D., DIRECTOR AND SCIENTIFIC ADVISOR - Co-Inventor of
Esterom(R), Professor of Pharmaceutical Science and Former Assistant Dean
of Research of the Medical University of South Carolina, College of Pharmacy
In addition to an outstanding experienced management team, the Company has
attracted a world renowned Scientific and Medical Advisory Board ("SMAB")
of scientists and medical advisors. Entropin(R) has utilized equity to
recruit these experts. The members of SMAB are committed and actively
involved long term in the development and future success of Esterom(R).
Arthur H. Hayes, M.D., CHAIRMAN OF SMAB - Former commissioner of FDA and
Assistant Surgeon General; CEO of E. Merck & Co. subsidiary company.
Gerhard Levy, Pharm.D., MEMBER - Distinguished Professor Emeritus, School
of Pharmacy; S.U.N.Y.; member of 15 scientific journal editorial boards.
Kenneth L. Melmon, M.D., MEMBER - Professor and Associate Dean of the
Stanford University School of Medicine; member of 12 scientific journal
editorial boards.
Lester A. Mitscher, M.D., MEMBER - Distinguished Professor, Department of
Medicinal Chemistry; University of Kansas; Divisional Chair of the American
Chemical Society.
William C. McMaster, Ph.D., MEMBER - Chief, Orthopedic Surgery Department
at U.C.- Irvine and team physician for the U.S. Olympic Swim Team.
The Company currently utilizes other outside resources and consultants to
complement its existing management and scientific/medical advisors.
FINANCIAL OVERVIEW. The Company is a development stage bio-pharmaceutical
company and has not generated any revenues from operations for the period
from August 27, 1984 (inception) through December 31, 1998. Entropin(R) has
devoted substantially all its resources to the procurement of
<PAGE>
patents, research and development of Esterom(R), and expenses related to
the start-up of its commercial business. Due to this, the Company has been
unprofitable since inception and expects to incur substantial additional
operating losses for the next several years, as it increases expenditures
on research and development and allocates significant and increasing
resources to clinical testing, marketing and other activities. In 1998 and
early 1999, Entropin(R) successfully completed private placements of both
common and preferred stock, preceded by a reverse acquisition, accounted
for as a recapitalization of Entropin(R), all of which provided working
capital to fund Entropin(R).
Entropin(R)'s historical and anticipated future financial performance is
summarized in the table below. The revenue forecast is based on analysis
of shoulder and back ROM disorders in the U.S. and contains what the
company considers conservative estimates for market penetration, pricing,
and increase in patient population as well as other assumptions. For
additional information concerning these projections, the Company can
provide detailed assumptions and related financial data upon request.
<TABLE>
<CAPTION>
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Entropin(R), Inc.
Summary of Projected Financial Performance
($in millions)
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Years 1999 2000 2001 2002 2003 2004 2005 2006
(December 31)
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Revenues ---- ---- $5.0(1) $25.9(1) $65.3 $205.1 $256.0 $310.8
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Cost of Producing Revenues ---- ---- ---- 11.2 33.0 103.6 129.0 156.1
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Operating Profit ---- ---- 5.0* 14.7 32.3 101.5 127.0 154.2
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Research and Development 4.0 1.5 2.0 0.8 1.0 2.2 1.0 1.0
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General and
Administrative(2) 4.9 2.8 2.5 3.3 3.5 4.4 0.8 (3.1)
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After Tax Profit (8.9) (4.3) 0.5 10.6 17.5 57.0 75.1 93.8
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</TABLE>
1. Includes $5 million in revenue in 2001 and 2002 from a corporate
alliance partner
2. Includes interest income
For additional information, please contact Entropin(R) at the address
below:
Entropin(R) Inc.
45-926 Oasis Street
Indio, California 92201
Telephone: (760) 775-8333
Fax: (760) 347-6563
(ETOP: OTC BB)
<PAGE>
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: June 21, 1999 ENTROPIN, INC.
By /s/ HIGGINS D. BAILEY
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Higgins D. Bailey
Chairman of the Board
