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Executive Summary

BLOCK DRUG WILL PAY "UP TO $10 MIL." FOR CHEMEX' ACTINEX skin lesion therapy based on an agreement announced July 16 by the Denver-based dermatological R&D firm Chemex. Under the agreement, Block will pay $1 mil. up front with the rest of the payments conditional on the drug reaching certain regulatory milestones. Block's purchase includes U.S. and overseas rights to Actinex (masoprocol,) a topical application of nordihydroguaiaretic acid, for the treatment of actinic keratoses, a type of sun-induced premalignant skin lesion. An NDA for Actinex has been at FDA since December 1988 ("The Pink Sheet" Jan. 16, 1989, T&G-7). Chemex said that Block has agreed to pay $1 mil. upon approval of the sale by Chemex shareholders, who will meet on Sept. 14; $1 mil. as the drug nears approval, $1 mil. on receipt of an "approvable" letter from FDA; $3 mil. on FDA approval of the drug; $2 mil. on the first sales of the drug; and the final$2 mil. in the two years following the drug's introduction, if worldwide sales of Actinex "reach target goals." The first $2 mil. represents an advance against royalties for the product, which are set at 5% in all countries in which patents to the drug hold and 2.5% where no patents apply, Chemex explained. The U.S. patent for Actinex expires in September 2004. Actinex, a new prescription dermatological with a relatively narrow indication, represents new territory for Block, which is best known for its lines of established OTC products, including Nytol, BC Powder, and dental products such as Polident and Promise toothpaste. However, Block's ethical pharmaceutical subsidiary, Reed & Carnrick, does market several Rx topical products, including Kwell scabies lotion; Cortifoam, Epifoam, and Proctocream hydrocortisone products; and OTCs, Tegrin shampoo for dandruff and R&C lice killer. Although the agreement only covers Actinex, Block's new relationship with the dermatological R&D firm augurs well for possible future deals between the two firms. Chemex' other R&D projects include acne and psoriasis therapies with OTC potential. OTCs and consumer products make up 85% of Block's sales currently. At this point, Chemex said, Block has not acquired any rights or options on other Chemex products. In a press release on the Actinex sale Chemex says it is developing "proprietary and prescription products for dermatological use." However, a Chemex spokesperson noted that OTC potential for products in its pipeline, which also include a topical retinoid for photo-aging, are "further down the line." Chemex is retaining the rights to other possible indications for Actinex, which include use as a surgical adjuvant in treatment of skin tumors. Actinex is Chemex' lead R&D compound, with an NDA pending at FDA since December 1988. Chemex also announced on July 16 that it has completed a private equity placement worth $2 mil. with the David Blech Group. Blech, a New York City venture capital firm, has previously invested in a number of health-related R&D start-ups, including Nova Pharmaceutical and Cambridge Bioscience. Blech will receive 2 mil. shares of Chemex stock, or approximately 13% of outstanding shares, for $1 a share. The David Blech Group will also be entitled to two representatives on the firm's board. Chemex has been under pressure in recent months to come up with additional funding. In May, a research agreement between Chemex and Yale University was terminated and in the same month Chemex president and Chief Operating Officer Edward Neiss resigned. The company says it has no plans to replace Neiss. Last November, the firm announced to shareholders that $1.65 mil. in netproceeds from a Nov. 7 stock offering "were less than the Company hoped to raise." At that time, Chemex said it was "taking all measures to constructively reduce overhead while concentrating all efforts on the approval of Actinex" and the clinical development of two other agents, Spectinomycin for allergic reactions and psoriasis and Amlexanox for skin infections and acne. Chemex' 1989 annual report and financial statements for the first two quarters of 1990 have not yet been sent out, but will be released within several weeks now that the agreements with Block Drug and the Blech venture capital group have been finalized, Chemex said.

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