PharmChem, Inc. (OTC:PCHM)

Pharmchem Labs (PINK:PCHM) ($3.40; $15.8M market cap) announced a special dividend of $0.25 to shareholders on record as of October 10, 2024 with an October 17, 2024 payable date. 

“The board of PharmChem is committed to managing shareholder capital in a wise manner. Based on a number of factors, including the recent lack of liquidity in the stock and the large bid/ask spread, the board has determined that a special dividend is in the best interests of shareholders.”

PharmChem together with its Distributors are the sole source providers of the PharmChek® Sweat Patch used to detect drugs of abuse.

Pharmchem Labs (PINK:PCHM) a drug detection company, announced Q2 2024 results:

• Sales of $1.5 million vs $1.5 million in the prior year

• EPS of $0.07 vs EPS of $0.03

As we noted in the past, our largest customer had significantly reduced orders in recent quarters. Excluding our former largest customer, patch sales in the first six months of 2024 increased 7.1% versus the first six months of 2023. Screens increased by 2.2%. We have redirected efforts in hopes of increasing our screen utilization

Pharmchem Labs (PINK:PCHM) ($2.25; $11.2M market cap), a drug detection company, announced Q4 2023 results:

• Sales of $1.43 million vs $1.37 million in the prior year
• EPS of $0.04 vs EPS of $0.04

“The fourth quarter is typically our softest quarter due to the holidays. While revenue failed to grow sequentially from the third quarter, we are pleased that revenue grew from the prior year period. We are optimistic that revenue can grow in 2024.”

Pharmchem Labs (PINK:PCHM) ($2.85; $14.4M market cap), a drug detection company, announced Q1 2023 results

• Sales of $1.5 million vs $1.5 million in the prior year
• EPS of $0.02 vs EPS of $0.05

Ongoing Partial Customer Disruption

“Our Chief Revenue Officer Kerri Wagner and our sales team, specifically our Senior Account Manager Matthew Hartley, have pulled off a phenomenal outcome saving our largest single customer relationship. As recently as Q3 2022, we feared this source of >10% of our revenue would no longer be a customer at all. This quarter, this customer is now at ~2/3rds of its Q1 2022 revenue. This missing 1/3 is approximately 5% of our Q1 2023 sales. We tentatively expect this customer to stay in this range of dollar sales going forward. “

The Path Forward

“We are relieved to see revenue stabilize and rebound. Cash flow from our legacy criminal justice business provides us with the runway to make measured decisions about growth spend to apply our product to new customers and new markets. We continue to evaluate these expenditures as uses of shareholder capital, and hope to have some conclusions on core sales, Private Employer, and DTC, possibly by year end 2023.” 

Pharmchem Labs (PINK:PCHM) ($3.10; $15.6M market cap), a drug detection company announced Q2 2022 results

• Sales of $1.5 million vs $1.5 million in the prior year
• EPS of $0.02 vs EPS of $0.06

“Our Q2 2022 sales were slightly down vs. 2021 (down 2%). Without our ongoing salesforce efforts, revenue would have been down nearly 7% as we continue to decline off our COVID peak. Our expenses were much higher, including our continued efforts to grow revenue…

…Our single largest customer has notified us that their funding will not permit any purchases in Q3 2022. This customer represents approximately 10% of our revenue. This is a federal customer, and our degree of customer concentration with them is a historical anomaly of this business. Excluding this customer, federal sales are now a small percentage of our ongoing business. We have no further information on whether they will continue purchases in October 2022 when their funding resumes.”

Pharmchem Labs (PINK:PCHM) ($4.50; $22.9M market cap), a drug detection company provided announced Q1 2022 results:

• Sales of $1.54 million vs $1.64 million in the prior year
• EPS of $0.06 vs $0.06 in the prior year

"We have hired five salespeople since October, but only three remain employed with the company at present. It is still not clear whether the gross margin dollars produced by new sales per salesperson justify the expense. You will see the sales force investment reflected in higher operating expenses in this quarter’s financials. For the quarter, sales were slightly down y.o.y., possibly reflecting an ongoing normalization from the COVID boom in demand for the PharmChek product. We hope to come to a quantitative result about the ROIC from our salesforce investment over the next 6-9 months.

While we are continuing to onboard many smaller new customers, we believe we have come to an agreement with a material new distribution customer (>10% of sales) resulting from our salesforce’s efforts. This relationship has not yet yielded an order, and we have no certainty if or when it will."

Pharmchem Labs (PINK:PCHM) ($4.63; $27.0M market cap), a drug detection company, announced first half 2021 results:

• Sales of $3.1 million vs $3.4 million in the prior year
• EPS of $0.13 vs $0.16 in the prior year

“Product sales were lower by 27% revealing that 2020 was clearly an atypical year. Product sales during the first half of 2020 increased 47% (versus a three-year average increase of 10.6%), a culmination of the unavailability of the Sweat Patch at the end of 2019 stemming from late deliveries by our supplier following the conversion to the Unique Device Identification protocol as mandated by the F.D.A. Sales that normally would have occurred in 2019 spilled over into the first quarter of 2020. This was exacerbated by new customers purchasing the Sweat Patch during the height of the COVID-19 pandemic as other forms of drug testing were curtailed due to social distancing protocols of the pandemic, thereby inflating Sweat Patch sales.” 

There is also a proxy battle in which investors are trying to nominate board members that the company opposes. The company will be holding its annual meeting on August 31, 2021.  For more details on the first half of 2021 and the proxy battle, we encourage you to read the full letter to shareholders here. 

"...

During 2017, we consistently communicated the unique features of the PharmChek® Sweat Patch to federal, state probation and parole offices, state drug courts, re-entry programs and various treatment and recovery courts throughout the U.S. Our message is to promote long-term and continuous monitoring of drugs of abuse with emphasis on the distinct advantages of the Sweat Patch. We attended 14 state conferences and seven prominent national conferences--in
each case highlighting our device and related lab services, thereby reinforcing our presence and awareness in these markets. Also, we serviced customers in 47 states and opened 83 new accounts. As customers take advantage of our online introduction and training modules, they become familiar and comfortable with our device and then commence the ordering process. We continued to concentrate our sales and marketing efforts among those states actively engaged
in a justice reinvestment model or those operating a recently funded 24/7 sobriety program. Thirteen states applied for grant determinations from NHTSA’s 2018 funding cycle, of which seven were awarded funding for drugs of abuse testing. Of these, we currently provide services to FL, MT, ND, and SD, and we expect IA, ID and WY to follow suit shortly. Five other states applied but were not funded.

Our growth in 2018 is expected to ease somewhat but still achieve growth comparable to that previously experienced. Nearly every segment of our customer base has slowed their testing due, we believe, to the uncertainty of continued federal funding and the impact of the lab price increase we announced in late 2017. Our price action followed cost increases taken by the lab which screens our customers’ specimens.

The recent passage of the SUPPORT for Patients and Communities Act is a wide-ranging bill designed to address the opioid crisis. The opportunities for our business to expand in this category appear to be limited. Rather, the major beneficiaries of this bill are geared towards the medical community where we cannot currently participate.

Sweat testing for drugs of abuse can be beneficial to medical professionals in the pain management field as the application of one patch provides continuous and cumulative monitoring for 7 to 14 days. Testing using urine or blood does not accomplish such an extended window of detection. However, the processes to enter this market would be quite involved as the development of new assays and protocols would be necessary. Further, it is likely a new device may be required. All of these steps would require FDA clearance, be time-consuming, quite expensive and not without risk.

Our plans for 2019 include the expansion of our existing opioid panel by as many as four additional drugs (including fentanyl, buprenorphine, methadone and tramadol) and quite possibly six additional benzodiazepines. This work will also be costly and require FDA clearances. These clearances (known as lab determined tests or LTD’s) should not be as difficult, the time horizon should not be as lengthy, and the costs would be more manageable than those expected under the pain management processes described above. However, as is common with these types of processes, there is no assurance that FDA clearances will be obtained or if customers will accept the expanded panels and their higher pricing.

The lack of other available certified laboratories could hamper these plans, but this issue will be carefully evaluated as we move forward. Updates on this and our expansion efforts will be forthcoming as they develop.

I appreciate your continued support and future updates will be made as conditions warrant.
Joseph W. Halligan

..."

Source: https://materials.proxyvote.com/Approved/717133/20181206/SHLTR_377151.PDF

December 5, 2017

Dear Stockholder:

I am pleased to furnish you with the sixth update on PharmChem, Inc. (the “Company”), our results for
the year ended December 31, 2016 and to announce that the Board of Directors approved the declaration
of its second dividend of five cents per share to stockholders of record on December 21, 2017, payable on
January 8, 2018. As more fully described below, there continue to be several risk factors (as well as some
opportunities) and investment requirements facing us. However, after careful consideration of these
issues and our projection of future operations and cash flow, we believe this return to our stockholders is
appropriate at this time.

We continue to broadcast the attributes of our Sweat Patch for continuous and long-term monitoring of
drug dependent clients within federal and state community supervision programs, state managed drug
courts, re-entry courts and various treatment programs throughout the U.S.

During 2016, we concentrated our sales and marketing efforts among drug/mental health, tribal, veterans’
and re-entry courts and states operating National Highway Traffic Safety Administration (NHTSA)
funded 24/7 sobriety programs or those contemplating such sobriety programs. Four states were awarded
new funding under the 2018 NHTSA’s program and another three were awarded continued funding.

Attention to these specific customer channels together with our presence within the federal courts resulted
in another year of double digit sales growth. We attended 11 state conferences and presented our device
and related lab services at six prominent national conferences where our marketing efforts have reinforced
our presence and awareness in these markets. During 2016, we opened 83 new customer accounts.

Another opportunity for us would seemingly be in programs designed to confront the opioid epidemic
facing our country. However, many if not all the programs that would counter these addictions will rely
heavily on federal funding. The amount of such funding and to whom it will be directed is uncertain at
this time. If such funding is allocated to state and local treatment centers as opposed to the medical and
mental health communities, we could benefit.

Summary audited financial statements for 2016 and 2015 are attached. Sales increased 29%; operating
income rose 58%; net income was up 67%; and cash and cash equivalents increased $624,996. In 2016,
we sold our product and related services in 46 states and four foreign countries—the latter related mainly
to research. Our growth in 2017 is expected to ease somewhat but still achieve a double digit increase in
sales.

During 2017, we completed the installation of a new IT platform whereby all our computer operations
have been outsourced. Also, the complete revamping of our website went live in mid-2017.

The risk factors and challenges facing us continue. The Company needs to invest in further research and
development to keep abreast of current trends, new technologies and heavily regulated protocols to which
our business continues to be subjected. New FDA regulations relating to recalls and serialization may
affect us. However, the adoption by the FDA of regulations related to serialization have been delayed
indefinitely. Also, new screening assays will most likely be needed in the near future. We recently renewed                                                                            our current laboratory contract which extends the agreement to the end of 2020 with automatic renewals thereafter.

This renewed agreement calls for, among other things, upward and downward pricing depending upon the
percentage of specimens screening positive over a certain number of consecutive months. Passing on
upward pricing to our customers may prove to be difficult.

Additionally, we renewed our contract with the manufacturer of our Sweat Patch which assures us the
ongoing supply of our device and includes automatic annual renewals.

We continue to explore opportunities to present PharmChem, its franchise and strategic value to those
companies that can benefit from acquiring us at the appropriate valuation.

Lastly, Dave Lattanzio, our Vice President of Finance, has announced he will wind down his involvement
in the day-to-day responsibilities after over 20 years with the Company. Most of his duties and
responsibilities will be assumed by our recently hired Vice President & Controller, Shana Veale. Dave
will continue to assist Shana and me in selected day-to-day operations while retaining his seat on the
Board of Directors.

I appreciate your continued support. Future updates will be made as conditions warrant.
Joseph W. Halligan
President & Chief Executive Officer
jhalligan@pharmchem.com

December 2, 2016

Dear Stockholder:

I am pleased to provide you with the fifth update on PharmChem, Inc. (the “Company”), our results for the year ended December 31, 2015 and to announce that the Board of Directors approved the declaration of a five cents per share dividend to stockholders of record on December 13, 2016, payable on January 4, 2017.  As more fully described below, there are a number of risk factors and investment requirements facing us.  However, after careful consideration of these issues and our projection of future operations and cash flow, we believe this return to our stockholders is appropriate at this time, and, in the future, should conditions permit.

The Company continues to emphasize its product and services to state and local supervisory and rehabilitation programs where the ongoing monitoring attributes of our device have proven to be quite popular and cost effective. 

During 2015 (and in 2016, as well), we continue to focus our sales and marketing efforts on state and local drug courts, related rehabilitation centers, 24/7 sobriety programs and evidence-based programs.  These programs coupled with the resurgence of our business with U.S. Courts, have resulted in a greater presence and awareness of our Sweat Patch, thereby driving our double digit sales growth.  Further, our marketing and training programs have successfully reinforced our emphasis in these markets and our expectations are to continue similar programs in the future. As an example of our commitment, in 2015 we attended 12 state and local conferences and presented the Sweat Patch to community stakeholders at five prominent national conferences.

A number of states have or are contemplating the adoption of sobriety programs mirroring somewhat those currently in place in Montana, and North and South Dakota, where we currently enjoy a significant presence. We are, of course, optimistic about this expansion and are planning specific marketing, training and other programs to enhance the use of the Sweat Patch by these states.  However, there is no assurance these states will utilize our device as part of their protocols.    

Summary audited financial statements for 2015 and 2014 are attached.  From 2014 to 2015, sales increased 28%; operating income rose 38%; net income was up 40%; and cash and cash equivalents increased $682,637.  In 2015, we sold our product and related services in 46 states and seven foreign countries—the latter related mainly to research.  And, we are seeing similar sales growth in 2016.

Merger and acquisition activity remains one of the Company’s priorities to further optimize stockholder value.  We continue to explore opportunities to present PharmChem and its strategic value to those companies that can benefit from acquiring us at the appropriate valuation.  We are also looking at acquiring businesses where synergies would be beneficial.  

There has been little change in the risk factors and challenges facing us.  The Company needs to invest in further research and development in order to keep abreast of current trends and heavily regulated protocols to which our business continues to be subjected.  Also, new FDA regulations relating to recalls and serialization may affect the Company’s performance.  We will also likely need new screening assays in the near future.  And, the Company must continue to address the dilemma of developing other certified laboratories capable of testing its Sweat Patch.

We are in the preliminary stages of converting our current contractual forensic toxicologist to a full-time position to complement our sales growth, evaluate our research into using our Sweat Patch to screen for other substances and the initial assessment of developing new screening assays. These efforts would require a considerable investment.  Further, the Company is investing in a new IT platform and related software to support our growth and we will launch a major revamp to our web site in early 2017 to support current and potential new customers.

Potential buyers likely view these regulatory and risk factors as impediments to acquiring the Company. However, given our sales growth, the initiation of research and development into new screening assays and the screening of other substances, it is believed that the Company’s franchise has an inherent value not yet reflected in the market. 

I appreciate your continued support.  Future updates will be made as conditions warrant. 

Joseph W. Halligan
President & Chief Executive Officer
jhalligan@pharmchem.com

November 23, 2015

Dear Stockholder

I am pleased to provide you with the fourth update on PharmChem, Inc. (the “Company”) as well as the Company’s results for the year ending December 31, 2014.

As discussed in last year’s update, the Company has shifted its customer base from those customers who are federally directed to state-funded Drug Court monitoring programs, including rehabilitation facilities. In concert with this shift, the Company further committed and fashioned its marketing efforts to demonstrate that its PharmChek® Sweat Patch would provide valuable assistance in the monitoring of offenders on probation or seeking help.

This commitment has been further emphasized by the Company’s hiring of Kerri S. Wagner as President of the PharmChek® Sweat Patch Division. In this position, Ms. Wagner is responsible for sales, customer service, marketing, and training, as well as managing the Company’s growth and expansion efforts. Ms. Wagner began a 13-year career as a Police Officer in South Dakota in 1992, before transferring in 2005 to the South Dakota Department of Corrections. In 2006, Ms. Wagner was charged with the management and oversight of the Department’s 24/7 Sobriety Program, where the Sweat Patch technology is actively utilized. In 2013, she was promoted to Senior Parole Agent for the Department of Corrections. Ms. Wagner has provided consulting, training and related services to the Company since 2011.
 
The Company estimates that the number of Drug Courts (as well as those dealing with DWI/DUI’s and the treatment of veterans) now number approximately 2,900. The Company estimates that these Drug Courts receive approximately $104 million in federal funding and $260 million in state funding. This funding, complemented by the requirement of participants to provide financial assistance for their treatment, has accelerated the use of the Sweat Patch when drugs of abuse are a concern.

The Company’s 2014 results reflect the successes it has experienced by building upon the shift in its customer base, thereby improving financial results and growing market share.

Some of the Company’s accomplishments include: sales were $2,522,857, an increase over 2013 of 42%; operating income more than tripled to $471,809; net income grew to $433,995; and cash and cash equivalents increased $563,906. Over the past two years, we’ve secured 133 new customers and, in 2014, we sold our product and related services in 42 states and six foreign countries—the latter related mainly to research.

Also, the Company completed an audit of its 2014 financial statements as well as an independent FDA compliance review.

Attached are summary financial statements for 2014 and 2013.

As previously discussed, merger and acquisition activity remains one of the Company’s highest priorities. The Company is not waiting for an exit opportunity to arise; rather, it is proactively seeking to present PharmChem, Inc. and its strategic value to the few larger entities that can benefit from acquiring the Company at the appropriate valuation. However, the industry’s appetite for acquisitions has dampened—particularly for those which are priced fairly.

Going forward, certain risk factors and challenges remain. The Company needs a sizeable investment for further research and development in order to keep abreast of current trends and heavily regulated protocols to which the Company’s business continues to be subjected. Also, new FDA regulations relating to recalls and serialization may affect the Company’s performance. The Company will also likely need new screening assays in the near future. Moreover, PharmChem continues to monitor certain contractual disputes inherited by the Company years ago. Finally, the Company must continue to address the dilemma of developing other certified laboratories capable of testing its Sweat Patch.

Potential buyers likely view these regulatory and risk factors as impediments to acquiring the Company. However, given the Company’s sales growth of 8% in 2013, 42% in 2014, and an expected double-digit increase in 2015, it is believed that the Company’s franchise has an inherent value not yet reflected in the market.

I appreciate your continued support. Future updates will be made as conditions warrant.

Joseph W. Halligan
President & Chief Executive Officer
jhalligan@pharmchem.com

May 01, 2014

Dear Stockholder:

I am pleased to provide you with an update on the performance of PharmChem, Inc. (PharmChem) for the year ending December 31, 2013.

As I prepared to write this update, I reviewed the previous letters to stockholders.  Generally, I spoke about how PharmChem was dealing with the self-liquidation and complexities of monetizing its last remaining asset -- the PharmChek® Drugs of Abuse Sweat Patch Business.

We have made significant progress on the self-liquidation as we have settled amounts owed to secured and unsecured creditors, and have reached the end of the required record keeping time frame as mandated for federal drug testing contracts.

Clearly, a self-liquidation can take several forms including a sale, wind down or a combination thereof.  The Board of Directors continues to be committed to an exit strategy which will maximize stockholders’ value.  Thus far, our efforts to sell the Sweat Patch Business have been unsuccessful. 

PharmChem exited 2013 facing a shift in its customer base from federally directed programs to state-funded initiatives as the emphasis on drugs of abuse testing at the federal level waned. For example federal probation sales have decreased from 45% to just 27% of our total sales.
 
Our 2013 results, in my opinion, reflect the success we experienced by building upon this shift in our customer base thereby improving financial results and growing market share. 

Please note a few of our accomplishments:

Over the past several years, the Company has successfully targeted the Sweat Patch Business to the state and local level as drug testing by federal probation has, in our view, become a lower level priority resulting from either change in philosophy, funding, or both.
The Company expanded its sales and marketing efforts to focus more closely on state and local agencies where drug testing in general, and the Sweat Patch Business in particular, have demonstrated growth opportunities.  The Company began emphasizing professional training, attendance at shows and seminars, and has revamped its web site and related marketing material.
As a result of this effort, the Company secured 121 new customers during the past two years.
In March 2014, the Company announced it would expand its drug testing panel to include certain so-called “synthetic opiates” – hydrocodone, hydromorphone, oxycodone and oxymorphone.  There is no assurance this action will be well received by our customers.
Finally, I was very pleased with our financial results.  A few highlights are as follows:
 a.) Sales were $1,778,500, an improvement of 8% over 2012. 
 b.) Operating income was $130,792, up 132% over 2012’s level. 
 c.) Year over year, cash and securities increased $105,041.
We’ve attached summary financial statements for 2013 and 2012.   
Again, I am very pleased with our operational and financial performance this past year.  Where do we go from here?  First, we need to continue our growth and enhance market share in state and local-sponsored testing; second, grow the sales of our current product offering with our newly expanded opiate testing panel; third, focus on continuing our evaluation of strategic alliances that may enable more diverse sales; and fourth, continue our objective to cultivate an exit opportunity. 

As mentioned above, we have been unable to successfully sell the Sweat Patch Business—our last remaining asset.  We believe this is due to previously discussed issues including provisions in certain contracts that would affect a sale; the small niche market in which the Sweat Patch operates; the heavily-regulated protocols to which the Business is subject; the likelihood that a potential buyer of the Business would have to invest in further research and development to keep pace with current trends and regulatory compliance; and the unavailability of certified laboratories capable of testing the Sweat Patch.

I appreciate your continued support.  Future updates will be made as conditions warrant. 

Joseph W. Halligan
President & Chief Executive Officer
jhalligan@pharmchem.com

Dear Stockholder:

On November 16, 2004, PharmChem, Inc. (the “Company”) held a special meeting of the stockholders, at which the following resolution was adopted:
 
RESOLVED, that in accordance with the provisions of the Delaware General Corporation Law, the Company be voluntarily dissolved and liquidated, and the Company’s business and affairs be wound up at such time, if any, as the Board of Directors should determine.
 
The Company has previously consummated the sale of all its assets, except for those assets relating directly to the PharmChek® Sweat Patch division (the “PharmChek Division”). The PharmChek Division has continued to operate while the Company has sought to market the division as a going concern in an effort to maximize the value of the division for the benefit of its stockholders.
 
To date, the Company has been unable to enter into a suitable sale arrangement for the PharmChek Division for a number of reasons, including (i) provisions in certain contracts that affect the sale of the PharmChek Division; (ii) the small, niche market in which the PharmChek Division operates; (iii) the heavily-regulated protocols to which the PharmChek Division is subject, and (iv) the likelihood that a potential buyer of the PharmChek Division would have to invest in further research and development to keep pace with current trends and regulatory compliance.
 
At this time, the PharmChek Division continues to generate revenue, which has been used to satisfy the Company’s debts and obligations (including those debts and obligations arising out of the continued operation of the PharmChek Division) and build cash reserves. As it is anticipated that the Company will continue to generate revenue, the Company believes that it is in the best interest of its stockholders to continue to operate the PharmChek Division until the earlier to occur of (i) the sale of the PharmChek Division or (ii) such time as the operation of the PharmChek Division ceases to be profitable or the required regulatory compliance becomes untenable. Upon the occurrence of either of these events, the Company will file Articles of Dissolution and consummate the final dissolution of the Company or take such other actions as it deems appropriate based on the facts and circumstances at that time. The Company shall continue to operate (and the board shall act) pursuant to the November 16, 2004, stockholder resolutions. In the event the board determines it is in the best interest of the Company to abandon dissolution, it will notice a meeting of stockholders in accordance with applicable law.

It should be noted that in March of 2013, the federal judiciary’s policy arm reduced by 20% or $350 million the account used to pay for drugs of abuse treatments as well as other related services. The Company is unable to predict at this time the impact the sequestration will have on the approximately 36% of its revenue generated by the Federal Probation Department within the federal judiciary.
 
The Company does not believe that it is subject to the Securities Exchange Commission’s reporting requirements. Nonetheless, this letter contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933 (“Forward-looking Statements”), which are subject to the “safe harbor” created by these Sections. Forward-looking statements are statements about future financial results, future products or services and other events that have not yet occurred. These forward-looking statements contain words such as, but not limited to, “expect”, “anticipate”, “estimate”, “believe”, “will”, “may” or “might”. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties about the future. We will not necessarily update the information in this letter if any forward-looking statement later turns out to be inaccurate.
 
Future updates will be made as conditions warrant.
 
Joseph W. Halligan
President & Chief Executive Officer
joe_halligan@pharmchem.com