Firm Headed by Ex-Interior Secretary Fights Proxy Bid
Disease Detection International, a tiny Irvine medical technology firm headed by former Interior Secretary James G. Watt, has postponed its annual shareholders meeting as it prepares to fight off a proxy contest initiated by its former parent company.
Environmental Diagnostics Inc., which founded Disease Detection in 1985 and spun it off in a public offering in January, 1987, wants to nominate its own slate of DDI directors in a feud with its offspring over rights to certain technologies. EDI owns about 25% of DDI’s stock.
DDI said it was delaying its annual meeting, originally scheduled for Tuesday, until Aug. 31 because of EDI’s proxy challenge.
The two companies make diagnostic test kits: Environmental Diagnostics kits detect the presence of toxic chemicals and pesticides in the environment and Disease Detection’s are designed to identify certain parasites and infectious diseases in humans and animals.
The battle could affect the futures, if not the fortunes, of Watt and another former high-profile figure from the Reagan Administration. Los Angeles industrialist William A. Wilson, who served as U.S. ambassador to the Vatican from 1984 until 1986, is a DDI director. Wilson resigned as Vatican ambassador after it was disclosed that he had conducted several private talks with Libyan leader Moammar Kadafi without informing the Reagan Administration.
Additionally, several of Disease Detection’s directors and at least one top officer are former EDI officials.
Neither company is very large and, to date, neither has made significant commercial inroads or ever posted a profit. Between them, the two have lost about $10 million since 1983.
DDI officials all were reportedly in meetings Tuesday and were unavailable to answer questions. Environmental Diagnostics vice president and chief financial officer, Diane Balcom, said she was unable to answer many questions until the Securities and Exchange Commission grants its approval of the company’s proposed proxy solicitation.
But according to press releases issued in recent days, Environmental Diagnostics is angry because it believes that Disease Detection is violating a technology sharing agreement that was signed when DDI went public last year.
For its part, Disease Detection maintains that it developed its own technology for its new test kits and did not rely on technology originally developed while it was owned by Environmental Diagnostics.
The new DDI kits, most of which are awaiting Food and Drug Administration approval, are used to determine pregnancy and to diagnose certain infectious diseases, such as rubella and herpes.
DDI President H. Thad Morris said in a prepared statement released Tuesday that Environmental Diagnostics is attempting to seize control of the Irvine company’s management.
But Balcom said Environmental Diagnostics has no intention of controlling DDI. Only two of the five people it wants to nominate to the company’s board are affiliated with Environmental Diagnostics, she said, and both would abstain on any votes “that relate to the two companies, to avoid a conflict of interest.”
She would not identify any of Environmental Diagnostics’s intended nominees.
Rift Developed Earlier
While the fight between the two companies centers on DDI’s claim that it is not required to share its new technology with Environmental Diagnostics, it appears that the rift between the two companies actually began sometime early last year.
Environmental Diagnostics moved from Irvine, where it was founded in 1983, to new headquarters in Burlington, N.C., in 1986, leaving the small staff of its Disease Detection unit behind to work on the new product line it was developing.
At the time, Arden A. Kelton was Environmental Diagnostics president, a position he had held since the firm was founded, and Watt was chairman of the board.
Watt remained EDI chairman after Disease Detection went public in January, 1987, but took on the role of DDI chairman as well. Kelton left Environmental Diagnostics in May, 1987, to become president of DDI, a post he has since resigned, although he remains on the DDI board.
In November, 1987, Watt resigned as Environmental Diagnostics chairman but remained at the helm of Disease Detection’s board and stayed on as an EDI director. Four months ago, however, he resigned from the EDI board completely. He now is chairman and chief executive officer of DDI, although the company’s 1987 annual report says he devotes only about 20% of his time to the company, spending the rest with his private consulting firm, James G. Watt Co.
A third former EDI official, Charles Peach, left his post as secretary and treasurer of that company in March, 1987, to cast his lot with the newly independent DDI.
None of the three could be reached for comment on their reasons for severing their relationships with EDI, and EDI’s Balcom declined to comment.
In October, 1987, DDI closed the research facility it maintained in Burlington and eliminated six positions as it consolidated all of its operations in Irvine. The company now has 12 employees.
THE COMPANIES AT A GLANCE DISEASE DETECTION INTERNATIONAL Headquarters Irvine Chairman James G. Watt President H. Thad Morris Employees 12 Founded 1985* Went Public 1987 Cash Raised in IPO Products Test kits for detection of disease in humans and animals Recent Stock Price $0.12 1/2 ENVIRONMENTAL INTERNATIONAL DIAGNOSTICS INC. Headquarters Burlington, N.C. Chairman Samuel C. Powell President James D. Skinner Employees 51 Founded 1983 Went Public 1984 Cash Raised in IPO $2.8 million Products Test kits for detection of toxic chemicals pesticides Recent Stock Price $0.62 1/2 * Founded as a unit of Environmental Diagnostics Inc.
DISEASE DETECTION INTERNATIONAL
Financial Results Revenue Profit/(Loss) (thousands) (thousands) 1987 $200 ($948) 1986 262 (344) 1985 61 (203) 1984 0 -- 1983 0 --
ENVIRONMENTAL DIAGNOSTICS INC
Financial Results Revenue Profit/(Loss) (thousands) (thousands) 1987 $1,999 ($3,684) 1986 1,487 (3,798) 1985 190 (1,897) 1984 55 (520) 1983 7 (104)
