Medical Device Daily National Editor

Casting a potentially disruptive shadow over the otherwise sunny earnings report just issued by aesthetic products developer Artes Medical (San Diego), Dr. H. Michael Shack, a company shareholder, has promised a proxy fight at the company's annual meeting next month, proposing his own slate of five nominees to its board.

Artes has said the demand for its flagship product, Artefill, is growing, and in its report for the second quarter ended June 30, it described what it called "record" revenues and "positive gross profit." Artefill is an injectable type of dermal filler designed to smooth out smile-line types of wrinkles – otherwise known as those nasty nasolabial folds – and last month the company reported more than 10,000 customers treated with the product.

But countering these positives, Shack, in a statement reporting his plan to push for five new company directors, said he was "dissatisfied" with the board and management, citing "poor financial performance, lack of expressed business plan, and questionable changes to key personnel," all preventing achievement of maximum shareholder value.

Artes did not return calls requesting comment concerning Shack's statement.

Artes reported revenues for the quarter of $3.2 million, an increase of $1.1 million (52%) over the year-ago quarter, and a 91% increase over first-quarter revenue from the product. Profit for the quarter was $865,000, compared with what the company termed "negative gross profit" in previous quarters.

And Christopher Reinhard, chairman and interim president/CEO of Artes, said that the reported growth demonstrated "the positive impact" of the company's expanded sales force and new marketing efforts to customers, through both standard print advertising and the Internet. The company late last month reported that more than 10,000 patients have been treated with ArteFill since its launch in February 2007.

Whatever the specifics of Shack's complaints concerning Artes, the company has seen some turbulence of late.

This past April, Artes reported a program to reduce operating costs as it ramped up marketing and sales of Artefill. This is an attempt, it said, to position to reach at least $13 million in sales for the product in calendar 2008 – a figure likely difficult to reach, given its totals for the past two quarters.

Then in May it made key changes in its management team, with the resignation of Diane Goostree, its president, CEO and director, putting in place Reinhard on an interim basis. Reinhard praised Goostree's efforts for the company, which has launched a search to fill her roles.

The company also repositioned a variety of other management assignments.

Shack said that he will solicit proxies for the five new candidates at the meeting, scheduled for Sept. 19. In a filing with the Securities and Exchange Commission, he said he will seek to replace two board members whose terms have expired and remove three current members of the board, offering five of his own nominees. They are: Charles Schliebs, Terry Knapp, MD, Robert Binkele, Barry Vogel, and Eric Donsky.

These five, he said, are characterized by "a proven track record in the personal aesthetic industry to unleash the full potential of ArteFill and position the company for future growth."

Besides reporting quarterly earnings during its conference call, Artefill reviewed a variety of recent initiatives including the addition to its portfolio and marketing of Elevess, through an exclusive U.S. sales and marketing agreement. Elevess is a new FDA-approved hyaluronic acid-based dermal filler with lidocaine, the lidocaine designed to offer patient comfort. Artes said this allows it to offer both short-term and long-lasting solutions for wrinkle correction.

The company acquired the marketing right for Elevess in July through an agreement with Anika Therapeutics (Bedford, Massachusetts), its developer.

Artes also reported the recent addition of Douglas Abel, president/CEO of Manhattan Pharmaceuticals (New York), a developer of skin therapeutics, to "strengthen" its board.

Following are brief bios of the five alternate board nominees provided by Shack in his statement:

Schliebs is the co-founder and managing director of iNetworks Advisors, iNetworks BioOpportunity Fund, and iNetworks Private Fund. iNetworks is a venture capital/private equity group investing primarily in healthcare/life science ventures in North America. Prior to iNetworks, Schliebs, from 1988 through 1999, directed the life sciences practice group of the law firm Jones Day, an international law firm.

Knapp, described by Shack as a "world-renowned" plastic surgeon, was a co-founder of Collagen. He currently is chairman of VisioNetx, a spin-off from AcuNetx (Torrance, California), developing the Hawkeye eye observation technology.

Vogel is president of Canderm (St. Laruent, Quebec), a private skin care company that launched Artecoll, predecessor to ArteFill, in Canada. Shack said that Vogel has "researched numerous fillers available throughout the world ... ."

Donsky is the CEO of OcuSense (San Diego), an in vitro diagnostics company.

Binkele is founder and CEO of the Estate Planning Team, providing service to securities advisors, CPAs and attorneys. He is also an investment advisor for J.P. Turner & Co.

Shack said he has retained MacKenzie Partners (New York) to conduct the proxy solicitation, and he has requested a shareholder list from Artes, to be used for communicating to shareholders concerning the proxy dispute.