Markets with multi-million dollar potential

Healthcare
Biotechnology & Drugs
NASD:  FMTI

Forbes Medi-Tech, Inc.

750 West Pender Street - Suite 200
Vancouver, B.C., Canada V6C 2T8
Phone:  604-689-5899
Fax:  604-689-7641

Tazdin Esmail
Chairman and
Chief Executive Officer

Interview conducted by:
Diane Reynolds, Co-Publisher

CEOCFOinterview.com
November 2001

 

Biography -Tazdin Esmail:

Mr. Esmail brings to the Company over 20 years experience in the biomedical and pharmaceutical fields. Prior to joining the Company, Mr. Esmail was Vice President, Medical Operations of QLT Photo Therapeutics Inc., a Vancouver-based biotechnology company. Prior to QLT, he was with Cyanamid Canada Inc., a subsidiary of American Cyanamid Company, in its Lederie multinational pharmaceutical division where he held several progressive senior management positions in areas such as strategic planning, sales and marketing, new product development, marketing research and management training.

CEOCFOinterviews – Can you tell us about your company and the technology that is being used here?

Mr. Esmail – Forbes Medi-Tech is a diversified health sciences company dedicated to research, development and commercialization of innovative therapeutic agents to prevent and treat cardiovascular disease.  Forbes is developing a suite of products that run the spectrum of cardiovascular disease treatment and prevention ranging from functional foods, over-the-counter products to prescription pharmaceuticals. 

The scientific platform is based on sterol technology.  Sterols are basically lipid-like compounds found in plants, fruits and vegetables.  They are essentially plant fats.  The company has developed technology to extract sterols from plants, which are used to produce a number of useful products such as food ingredients, pharmaceuticals and fine chemicals that are used to manufacture various medications.  The company is targeting three major markets each with multi-million dollar potential.

 The first one is functional foods.  These are foods or beverages with an added ingredient that provides a medicinal benefit or helps prevent disease.  The Nutrition Business Journal estimated that the functional foods market is projected to reach over 80 billion dollars by the year 2005.  In the functional foods area, there is a line of cholesterol-lowering food products from The Quaker Oats Company incorporating Forbes’ plant sterol-based food ingredient that are currently being test marketed in the upstate New York area.  Twin-Lab Corporation has also launched a cholesterol-lowering dietary supplement called Cholesterol Success™. enriched with a Forbes’ sterol ingredient under the brand name  Reducolä.   Cholesterol Success™ is available exclusively through health food stores in the U.S.

More recently, Pharmavite Corporation, one of North America’s leading nutritional supplement manufacturers and distributors, has launched Nature Made Cholest-Off™, a cholesterol-lowering dietary supplement containing Forbes’ proprietary  Plant sterol based ingredient Reducol™  Cholest-Off will be sold exclusively in food, drug, mass merchandise and club stores in the U.S. and will be available to consumers beginning November 2001. Additional product launches are anticipated in 2002.

Our second major focus is in the prescription pharmaceuticals area.  The American Heart Association estimates that more that 100 million Americans have high or moderately high cholesterol levels.  In the U.S. more that 2,600 people die each day as a result of cardiovascular disease.  An average of one death occurs every 33 seconds. Forbes has a unique sterol based cholesterol lowering pharmaceutical in development called FM-VP4, which has shown dramatic lipid lowering properties in animal studies.

Forbes recently announced the start of Phase I and Phase II clinical trials of FM-VP4 to prove safety and effectiveness in humans.  Cholesterol lowering pharmaceuticals represent a potentially huge market for Forbes.  The U.S. Food and Drug Administration estimates that more than 35% of U.S. adults are candidates for prevention attributes of a cholesterol-lowering agent.  The annual worldwide market for prescription pharmaceuticals directed at reducing cholesterol is estimated to be close to 16 billion dollars for the year 2000 and is growing quite rapidly. 

The third focus of our company is the fine steroidal chemical intermediates market. Forbes has produced a line of fine chemical intermediates called Androstenedioine and Androstadienedione commonly referred to as (AD) and (ADD), which are used to make steroid-based pharmaceuticals.  Essentially these chemicals are the raw materials used to make birth control pills, anti-inflammatories and hormone replacement medications.  The world market for these products is estimated to be over 500 million dollars annually.  Forbes anticipates generating revenues from AD sales in this calendar year. 

CEOCFOinterviews - Functional Foods is an over the counter drug and is grown organically, so would there be no side effects with this?

Mr. Esmail – The products that we have are made out of plant sterols and are generally very safe.  Sterols exist in plants and fruits in low quantities.  Most people consume 200 to 300 milligrams per day of plant sterols as part of a normal healthy diet.  Numerous research studies have shown that consumption of an additional one to two grams of plant sterols on a daily basis can safely and effectively block cholesterol absorption and lower blood cholesterol levels significantly. The safety aspect of these compounds is well established. 

CEOCFOinterviews – Where is the majority of your revenue coming from?

Mr. Esmail – We are just beginning to generate revenues in the functional foods area.  As I mentioned earlier, we have already begun to test market products in some food products through Quaker Oats.  We are testing several products in the state of New York and once they have been established and we get positive results from the test market by the end of November, we anticipate that there will be a wider distribution of these products.

In the short term, the revenues are going to be coming from the functional food sales.  There are a number of companies that we are in discussions with that are going to be launching new products on a national basis.  Longer term there is going to be revenues generated from the fine chemical sales.

CEOCFOinterviews – Although you are based out of British Columbia, I noticed you are starting your sales here in the U.S. in New York.  How is this being received in Canada?

Mr. Esmail – First of all, from a business perspective, the U.S. is a large market so that is the market we would initially want to enter.  Secondly, plant sterols are cleared for sale in the U.S. by the FDA under the GRAS designation, which is Generally Recognized as Safe indication.  So we can market these sterol products in the U.S. under GRAS.  In Canada, unfortunately, the Canadian government does not have a regulatory review process in place for the sale of functional foods, specifically sterol-based products. At this point in time, our focus is not the Canadian market but the U.S. and European markets. 

CEOCFOinterviews – You mentioned that you are in with different companies.  Is this how you are going to do your commercialization, through partnerships?

Mr. Esmail – Yes, this is our strategy.  Basically, we will develop the products and we will find distributors who are experts in these areas to distribute these products for us worldwide. 

The plant sterols we produce are used as functional food ingredients and we consider ourselves to be an ingredient manufacturer.  We work with name brand food manufacturers on food formulations, helping them incorporate our ingredient into their food products and then we license the technology and sell the ingredient to them.  They, in turn, launch the branded product with this cholesterol-lowering ingredient. 

CEOCFOinterviews – Where is the manufacturing of the products done?

Mr. Esmail – Our sterol-based ingredient is being manufactured in the U.S., in Texas.  We recently entered into a joint venture with Chusei (U.S.A.) Inc. in Pasadena, Texas and we are currently building a dedicated manufacturing wood sterol manufacturing plant there.  We anticipate that the capacity of this plant will be about 1,000 metric tons a year which would make us one of the largest, if not the largest, wood-based sterol producers in the world.  All our sterol compositions are expected to come from this plant.

CEOCFOinterviews – You being in Canada and your plant in Texas, how do you control the quality of the product?  How do you do that from such a long distance?

Mr. Esmail – Our partners in Texas are already experts in manufacturing.  They already have an existing plant.  They had been making sterols and they are well established in manufacturing good quality products.  We would be focusing on marketing the sterols and Chusei would be focusing on manufacturing the product.

CEOCFOinterviews – Technology has played a great part in the manufacturing and development of this product.  Would you be as far as you are today without it?

Mr. Esmail – The technology that we have developed at Forbes has really been transferred to the manufacturing facility and we are using this unique technology to make the product.  I don’t believe we would be at the stage that we are at today without the expertise and the technology that we have developed.

CEOCFOinterviews – What exactly is Tall Oil “Soap”?

Mr. Esmail – Tall Oil “Soap” is a white, frothy substance -- a residue that is left over during the paper pulping process.  We extract sterols from the Tall Oil Soap.  We also use Pitch, which is a black, tarry substance that is also a residue of the paper pulping process.  Both substances are very rich in phytosterols.  We extract phytosterols from the Pitch and we refine them to produce this white, tasteless, odorless powder that has been clinically proven to reduce cholesterol by up to 24% if you consume 1-2 grams a day as part of a healthy diet.

CEOCFOinterviews – A couple years ago there was a disease affecting some of the trees.  How do you control something like this?

Mr. Esmail – Essentially, we use the residue that comes out of the pulping process.  To begin with, if the trees are at all diseased, it does not matter because any bugs that are present are eliminated in the pulping process anyway.  Generally, we don’t anticipate that there is going to be any kind of disease that is not going to be controlled in a reasonable period of time to cause us any concern in terms of our supply.  In the whole scheme of things, the amount of trees that would be directly attributed to our product is a very small percentage of the whole paper pulping industry.  From a supply standpoint, we are not concerned at all in getting the quality raw materials required. 

The supply of coniferous trees and the supply of Pitch or Tall Oil Soap comes from mostly the Southwestern U.S. and from Canada.  So we have a number of areas where we get supplies of our raw materials for this product.   

CEOCFOinterviews – Is your product going to be manufactured for example, like Cheerios.  Where they claim it will lower your cholesterol?  Is that true of Cheerios?

Mr. Esmail – There are various degrees of cholesterol lowering and there have been a number of studies that show that oatmeal and various fiber based cereals can lower your cholesterol to a degree.  We’ve conducted dozens of clinical studies on our product that indicate that our product reduces cholesterol by up to 24% when taken with a healthy diet. I think that the degree of cholesterol lowering of oatmeal or Cheerios or other fiber based cereals would be significantly lower than that. 

CEOCFOinterviews – How much do you spend on R&D?

Mr. Esmail – Currently, Forbes spends in the region of 3-4 million dollars a quarter on R&D activities.  We anticipate that this will remain constant as we develop all our products.

CEOCFOinterviews – What sets your company apart from others entering the area or who are already in that sector?

Mr. Esmail – In the functional foods sector, there are a number of competing products already on the market, particularly margarine-based spreads with sterol esters. The use of these products, based on sterol esters, is limited as they generally can only be incorporated into fat based products like margarine and salad dressings. What is unique about our product is that it can be incorporated into just about any food product both low and high fat foods.  It can be incorporated into granola bars, cookies, breads, chocolates, milk, various fruit juices, cereals, and cheese, among other products.  There is a wider range of food products that our cholesterol lowering food ingredient can go into. Hence, we have potentially a much wider market. From a cholesterol-lowering standpoint, there are more food choices available to consumers. People don’t carry around tubs of margarine or salad dressings with them if they’re taking it 3 times a day to lower their cholesterol. It’s very easy to put a granola bar or a box of granola bars in your desk drawer or in your gym bag, which makes compliance a lot easier for someone trying to lower their cholesterol.  We believe that is our competitive advantage. 

CEOCFOinterviews – Is there such a thing as too much?

Mr. Esmail – We have tested very high doses and we had no adverse reactions reported.  The human body has its own mechanism for controlling cholesterol in terms of its metabolism.  What our product really does is that it blocks the uptake of cholesterol in your blood stream.  The molecule of this product is very similar to a molecule of cholesterol.  So when you ingest cholesterol through foods, the cholesterol has specific sights in your gut through which it gets absorbed in your blood stream.  What our product does is it actually blocks that site where the cholesterol is absorbed.  We do not see any scientific evidence that you can have too much of plant sterols because it basically works as a blocking mechanism.  We haven’t seen anything in our clinical studies that there would be adverse effects from taking too much.  These are natural products that are found in fruits and vegetables and all we’re doing is extracting them from a wood source and constituting them into a concentrated form.  The research on plant sterols has been going on since the 1950s and there have been no cases of side effects with people consuming plant sterols in very large quantities that we are aware of. 

CFOCEOinterviews – Would acquisitions be in the scenario for the growth of this company?

Mr. Esmail – In our business we are always actively looking at synergies to give us more of a base in terms of our business operations.  Acquisitions, collaborations and the like are not out of the question at all.  We are constantly looking for opportunities that would add value to the company and the shareholders.

CEOCFOinterviews – Does this company going forward have the cash and or credit available to them to continue the growth?

Mr. Esmail – We are comfortable with our situation, both from an R&D standpoint and future growth in terms of sales as well as our cash requirements.

CEOCFOinterviews – You leave a lot of the advertising up to your partners.  Is there a portion of this that you work on with them on as far as what or how they advertise?     

Mr. Esmail – We obviously coordinate whatever communications we are doing via public relations or advertising with our partners.  Primarily it is their product that they are marketing, so the marketing is largely left up to them.  Most of our marketing and advertising is directed at the food manufacturers themselves.  We attend a number of trade shows around the world targeted at the various food manufacturers.  We advertise in technical journals and that is really where our marketing is focused.    

CEOCFOinterviews - What would you tell a potential new investor?

Mr. Esmail – One of the advantages we see in our Company is that within our core technology we are very diversified.  We are now beginning to generate revenues.  We believe that Forbes represents a good investment opportunity because of multiple product revenue streams and multi million dollar market opportunities is in all our businesses.  We have a strong competitive position in the three sectors of our business.  We have expanding alliances with credible partners.  We have a very strong R&D pipeline for continued growth.  We are well positioned for commercialization and focused on delivering shareholder value.  So we feel that on a competitive basis we are on a very sound footing in terms of what our R&D pipeline has in the works as well as our products ready for commercialization which gives the company a more diversified portfolio based on our core technology.

One of the things that I would like to talk about is our cholesterol lowering pharmaceutical drug FM-VP4.  We have had very good results in animal studies lowering cholesterol levels by 55 – 75%, which is very significant compared to the other cardiovascular drugs on the market.   The market potential is huge.  Sales of cardiovascular drugs reached upwards of 16 billion dollars worldwide in 2000. We feel this product can actually make a significant impact in the market place.  We recently announced that we are starting our human studies in Amsterdam, Phase I and Phase II studies simultaneously.  We plan to aggressively pursue the development of this product through the regulatory process.  With the potential advantages we feel FM-VP4 has over the existing cardiovascular medications on the market plus the size of the market itself, we feel FM-VP4 could be a very exciting product for the company and for potentially increasing shareholder value.