2012 Letter to Shareholders

A Forward Looking Statement from the CEO

(download PDF version)

"We expect our Nano-Base Biosensor to bring the Star Trek Tricorder dream to the daily reality of a handheld device. PKC’s Nano-Biosensor is designed to provide a readout of key health metrics from inside the body for diagnosis of major disease states such as cancer wirelessly to handled device."

Dear Fellow Shareholders:

As we welcome 2012, I am pleased to report that the Pharmaco-Kinesis Corporation (PKC) management team, technical team, and support staff were able to achieve our milestones and accomplish our deliverables for the year.  We made great inroads in proving that our technology delivers the benefits we expect, and have continued to protect our intellectual property portfolio.  We leave the year 2011 with the knowledge that PKC was able to reach the threshold of our goal of product commercialization despite the many micro challenges we faced and the macro global economic downturn, with its slowing influence on the investment climate.  We look forward to dealing with the major challenges of the year ahead, including the regulatory process associated with our Metronomic Biofeedback Pump (MBP) and preparations for its commercialization. 

The major accomplishments of the year were:

-Completion of the human clinical version of our flagship product, the Metronomic Biofeedback Pump (MBP)

-Establishment of our world-class Clinical Advisory Board

-Completion of $5 million Round B funding

-Submission of human clinical trial protocol to La Paz University Hospital in Madrid, Spain

-Proof of concept of our Nano-Based Impedance Biosensor (NIB) technology platform

-Completion of our audited financial reports for 2010 

Round C Milestones  -  We have established a budget of $10.5 million to take us through the next 18 months.  The Company’s main focus is to take the MBP through the regulatory path for obtaining E.U. CE Marking. This strategy will give us approval of the device for use as a delivery vehicle with drugs for various disease indications.  Upon issuance of the E.U. CE Marking, I anticipate initial limited sales of the MBP will commence in the European market.  Our engines will be at full throttle as we push forward.  Our regulatory, clinical, and commercialization objectives include:

-ISO certification

-CE Marking

-Initiation of human clinical trials

-Establishment of manufacturing procedures for the MBP

-Establishment of a distribution and sales network

Revenue Timeline  -  In addition to our planned commercialization of the MBP, we also expect early revenue to be generated by our NIB product in 2012 as we seek to form strategic relationships to develop this product.  We are in active discussions with major companies with the aim of receiving development funding and licensing fees for the NIB technology.

Drivers to PKC Investment Opportunity  -  Cancer testing is one of the most important growth opportunities for the next three to five years in the diagnostics segment.  The National Cancer Institute estimates that about 10 million Americans have or have had some form of cancer. 

Overall costs of the disease are $126 billion annually.  Anticipated technological breakthroughs will determine future market leaders.  We believe the MBP is on the forefront of innovation and offers breakthrough technology.  PKC’s NIB is designed to provide a wireless readout of key health metrics from inside the body to a handheld device for the diagnosis of major disease states such as cancer.  We expect our Biosensor to bring the Star Trek Tricorder dream to a daily reality.

Our Shared Vision  -  When we started this journey, we had a shared vision.  We knew it would not be easy to build the world’s first smart implantable medical device with local delivery capabilities.  With your support, PKC has succeeded in designing and developing our MBP and we are presently readying the pump for human clinical trials.  Together we envisioned that the MBP’s would enable smart metronomic delivery of drugs to treat chronic diseases such as cancer.  We envisioned that this device would be implantable, able to receive physician’s commands wirelessly from outside the patient, have biofeedback capability, and could analyze the effect of drugs using an advanced NIB to identify biomarkers inside the body.  We envisioned that the MBP would positively impact many participants in the healthcare system: patients, physicians, insurance carriers, hospitals, and other healthcare providers by enhancing the process of drug delivery.  This, in turn, is expected to improve patient quality of life and decrease patient morbidity, thereby reducing cost and bringing efficiency to our entire care management system.  Today, I am pleased to report to you that PKC’s flagship product, the MBP, is achieving its initial goals in both in-vitro testing and in-vivo animal trials and is ready for further testing in both animals and humans.

Fundraising Outlook  -   I believe this advance represents a major paradigm shift in the treatment of many chronic diseases.  As PKC moves from a development-stage company to the pre-revenue commercialization stage, we are beginning our C-Round investment opportunity series with great promise.  This opportunity has been buttressed by the agreement we have signed with a Broker Dealer who has a presence in all 50 states and has 130 registered representatives.  We are also in the process of signing up more broker dealers to join our fundraising efforts.

The Road to Commercialization  -  The worldwide infusion pump market is estimated to expand to $5.5 billion by 2017.  We intend to capitalize on this market opportunity.  The prevalence of chronic health conditions, including obesity, diabetes, cancer, and neurological disorders, is increasing by the day in both developed and developing economies.  This trend, together with the need to reduce ever-increasing expenditures within the healthcare industry, has triggered a demand for the development of smart medication delivery systems which are currently nonexistent.  The MBP is expected address several of the unmet needs in these markets. 

In chronic cases such glioblastoma multiforme brain tumors, current treatments include ambulatory and chemotherapy infusion pumps. Today, insurance companies are pressing for shorter hospital stays, and treatment is shifting towards home care and alternate healthcare sites, which fuels the demand for smart drug delivery systems.  The MBP provides far more than its primary benefits of safe and effective drug delivery.  With its biofeedback system and information tracking, collection, analysis, and dissemination, PKC’s MBP is currently the only true smart pump that could customize the delivery of drugs.

Based on our plans for the commencement of human trials of our flagship product, I believe PKC is ready to attract financial institutions.  In preparation for this, we have worked hard to create a true representation of PKC’s future growth potential through collaborative development of its product line.  We are developing a significant strategic collaboration partnership portfolio in discussions with major pharmaceutical companies, the University of California at San Diego (UCSD) Department of Nano-Engineering, a major international industrial equipment manufacturer, and an international industrial food processing company.

Global Economic Environment and Its Impact on PKC  -  The national and international structural economic damage persists in manifold ways: in the U.S. we have high federal and state deficits, ongoing unemployment, initiatives to increase taxation, and a continuing crisis in the real estate market; in Europe the ripple effect of the debt crisis continues, with huge deficits in countries such as Greece, Italy, and Spain, and the uncertainty of the Euro.  Even China, with its economic growth engine, is facing an economic slowdown.  Real GDP growth of the world economy is forecasted at 3.2% for 2012 and 4.1% for 2013.

This adverse global environment is reflected in a shrinking U.S. private equity market and a lack of appetite for investment among high-net-worth individuals. The effect on our fundraising activities was pronounced, resulting in a delay in closing our Round B financing.  Despite the difficulty, on October 17, 2011, we closed our Round B financing of $5 million, which has enabled PKC to continue its product development and value creation for shareholders. 

In this environment I believe PKC stands out as a singular opportunity that can continue to attract equity investors.  There are significant amounts of cash on the sidelines held by banks, financial institutions, venture capitalists, high-net-worth investors, and major U.S. corporations.  Astute investors are looking for alternative opportunities with superior sustainable potential returns compared with conventional choices such as stocks, real estate, emerging market funds, and bonds.  

What This Means to You  -  This difficult national and global economic environment ultimately means that consumers will spend less.  In turn, this creates less demand for goods.  Less spending and purchasing means less growth.  Therefore, the key driver for companies who intend to survive and thrive in this economy is to provide innovative technology and products that meet important, unmet needs in major markets.  In PKC’s case, we are bringing solutions to complex and unmet medical needs in markets with high demand.  We can thus demonstrate to Wall Street as well as Main Street that PKC’s products will be in demand and in turn will achieve accelerated, sustainable growth.  This growth is expected to create a substantial ROI for our shareholders.

Our Exit Strategy  -   Our approach to an exit strategy for our shareholders is to leave all options open while building a company that can ramp up in revenue and conduct profitable operations.  I believe we will create maximum value for shareholders by growing a profitable company prior to having a public offering.  At the same time, we will be alert to opportunities that can provide an exit for shareholders at a valuation commensurate with our opportunities.     

2012 VC Outlook  -  I believe there is a moderate wind in our favor.  An Ernst & Young report is positive on this subject, predicting that fundamentals for the IPO market will finally prevail over uncertainty to get deals rolling in 2012.  According to the E&Y report, these fundamentals, which include robust cash positions among investors, strengthening balance sheets and improved credit markets, combined with a mounting pressure for growth in a low organic growth environment, will result in a sizable uptick in transactions over the next 12 months.  Thirty-eight U.S. venture capital funds raised $5.6 billion in the fourth quarter of 2011, according to Thomson Reuters and the National Venture Capital Association (NVCA).  U.S. venture capital fundraising for all of 2011 totaled $18.17 billion from 169 funds, a 32% increase compared to 2010, with the same number of funds.

Clearing Regulatory Hurdles  -  In the next 18 months the Company’s main efforts and resources will be allocated to obtaining E.U. CE Marking and a U.S. FDA Investigational Device Exemption (IDE) for the MBP.  By early 2013 we anticipate obtaining the CE Mark, which will enable initial commercialization of the MBP in Europe.  We believe this certification and the subsequent commercial sales of the MBP will significantly enhance PKC’s valuation.  Our U.S. regulatory strategy is to utilize FDA fast track approval through the Humanitarian Use Device (HUD) designation by the FDA's Office of Orphan Products Development.

In summary, we believe that the MBP holds great promise for patients and can improve the efficiency of healthcare delivery beginning as early as 2012, and that shortly thereafter our NIB technology will realize applications that can improve detection of pathogens.  We thank you for your continuing support as we make this promise a reality.

Sincerely,

Frank Adell

Chief Executive Officer

March 17, 2011

Forward-looking statements are based on the expectations and opinions of the Company's management on the date the statements are made. The assumptions used in the preparation of such statements, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The Company expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.