PROSPECTUS SUPPLEMENT NO. 1
DATED FEBRUARY 7, 2002
(TO PROSPECTUS DATED JANUARY 3, 2002)
1,018,808 Shares
IGEN INTERNATIONAL, INC.
COMMON STOCK
You should read this prospectus supplement and the accompanying
prospectus carefully before you invest. Both documents contain information you
should consider carefully before making your investment decision.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE S-2 OF THIS PROSPECTUS SUPPLEMENT.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Risk Factors.................................................................S-2
Incorporation of Documents by Reference.....................................S-17
General.....................................................................S-18
PROSPECTUS
About IGEN.....................................................................2
The Offering...................................................................3
Risk Factors...................................................................3
This Prospectus Includes Forward-Looking Information..........................18
Where to Find More Information................................................19
Incorporation of Documents by Reference.......................................19
Selling Stockholders..........................................................20
Use of Proceeds...............................................................21
Plan of Distribution..........................................................22
Legal Matters.................................................................23
Experts.......................................................................23
Indemnification...............................................................23
RISK FACTORS
INVESTING IN OUR COMMON STOCK IS VERY RISKY. YOU SHOULD BE ABLE TO BEAR A
COMPLETE LOSS OF YOUR INVESTMENT. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING
FACTORS IN ADDITION TO OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS
OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS FROM OUR OTHER SEC FILINGS.
THE RISKS AND UNCERTAINTIES BELOW ARE NOT THE ONLY ONES FACING IGEN BECAUSE WE
ARE ALSO SUBJECT TO ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO
US. IF ANY OF THESE RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION,
OPERATING RESULTS OR CASH FLOWS COULD BE HARMED.
IF THE COMPANIES THAT LICENSE TECHNOLOGY FROM US DO NOT EFFECTIVELY DEVELOP
AND MARKET PRODUCTS BASED ON THAT TECHNOLOGY, OUR REVENUE WOULD BE ADVERSELY
AFFECTED.
The success of our business depends, in large part, on how effectively the
companies to which we have licensed our technology develop and market that
technology. If these companies do not effectively develop and market products
based on this technology, our revenues would decrease.
We have licensed our technology to Organon Teknika B.V., Eisai Co., Ltd.,
and Roche Diagnostics GmbH for selected markets and uses. Our license agreements
with each of these companies allow each company to develop products using our
technology and to manufacture and sell those products in selected markets. In
return for the right to use our technology, each of these companies must pay
royalties to us based on revenues they receive from sales of products based on
our technology. These royalties are a significant part of our overall revenue.
For example, they accounted for 52% of our revenue in fiscal year 2001.
We believe that the companies licensing our technology have economic
incentives to continue marketing products using our technology. However, we
cannot be sure that these companies will diligently and effectively market
products that incorporate the technology we have licensed to them. In addition,
we have brought a lawsuit against Roche, one of our licensees, in part because
we believe Roche has not properly calculated and paid royalties to us and
because we believe Roche has not commercialized our technology as diligently as
our license agreement with Roche requires. See the risk factor immediately below
for a more detailed description of this litigation and the risks it poses to us.
We cannot predict whether similar or other problems will arise with other
companies to whom we license our technology.
S-2
WE ARE SUING THE LARGEST LICENSEE OF OUR TECHNOLOGY, AND THE OUTCOME OF
THAT LITIGATION COULD MATERIALLY ADVERSELY AFFECT OUR REVENUES AND FINANCIAL
CONDITION.
We have filed a lawsuit in Maryland Federal court against Roche. Roche is
the largest licensee of our technology in terms of royalty income, accounting
for over 90% of our royalty income in fiscal 2001. The lawsuit centers on
disputes over our license agreement with Roche. We cannot provide any assurance
that we will ultimately prevail in this litigation. If we do not succeed, our
business and revenues could be materially adversely affected.
Our license agreement with Roche gives Roche the exclusive right to
manufacture, market and sell immunodiagnostic products using our patented ORIGEN
technology to a designated field. The license restricts Roche's rights in the
Japanese clinical diagnostic market.
In the lawsuit, we allege that Roche has failed to perform several of its
material obligations under the license agreement, including failure to
diligently commercialize the licensed technology, selling product outside of its
licensed field, failing to provide improvements as required by the agreement and
failing to properly compute and pay royalties owed to us. We also claim that
Roche engaged in unfair competition. We are seeking both monetary damages as
well as a court order declaring that we are entitled to terminate the license
agreement. We have voluntarily agreed not to terminate the license agreement
until an appellate court determines that we are entitled to do so.
Roche has filed a counterclaim against us in the lawsuit, alleging, among
other things, that we breached the Roche license by permitting Eisai Co., Ltd.,
another of our licensees, to market some ORIGEN-based products in Japan.
On January 10, 2002, a jury awarded us $505 million in damages in our case
against Roche including $105 million in compensatory damages and $400 million in
punitive damages. The jury also confirmed our right to Roche's
Elecysy(R)diagnostics product line, which was developed by Roche using our
proprietary ORIGEN biological detection technology, as well as to other
improvements. In addition, the jury's findings that Roche materially breached
the license agreement, if affirmed on appeal, would permit the Company to
terminate the agreement with Roche. Following termination, Roche would not be
able to use ORIGEN in its diagnostics products. The jury also found in our favor
and against Roche on all of Roche's counterclaims, except for one in which we
were ordered to pay $500,000.
We expect post-trial motions will be filed by Roche to set aside some or
all of the jury's findings and that Roche will appeal various decisions in this
case. The jury's decisions, including its finding that Roche materially breached
the license agreement, would be effective if affirmed on appeal. During an
appeal process, which we expect could take approximately 18 months, we would
continue to receive royalties on Roche's sales of royalty-bearing products under
the license.
While we expect to vigorously oppose any appeal filed by Roche, there can
be no assurance that the jury's verdict will not be overturned in whole or in
part or that the district court or an appellate court will not order a new trial
S-3
on some or all of the jury's findings. The risks involved in the litigation
include:
- The district court or an appellate court may modify or overturn
some or all of the jury's findings that were favorable to us
including the finding that Roche materially breached the license
agreement, the scope and extent of the improvements awarded to us,
the amount of compensatory and punitive damages, or the jury's
favorable findings relating to Roche's counterclaims against us.
- The district court or an appellate court could overturn some or
all of the jury's findings and order a new trial on those issues.
For example, if the court orders a new trial on whether or not
Roche miscalculated and underpaid royalties, breached its duty of
good faith and fair dealing, or engaged in unfair competition
against us, the amount of damages awarded in a new trial could be
lower than the amount already awarded to us.
- If the court orders a new trial on any of the issues, we might
need to continue expending significant amounts of money and
management time in pursuing our claims against Roche. This time
and money will then be unavailable for use in the development of
our business.
- If the appellate court upheld the jury's finding that Roche
materially breached the license agreement, and we were able to and
did terminate the agreement, our royalty revenues would suffer
unless and until we were able to introduce new products and
generate revenues on our own or find one or more comparable
replacements for Roche.
- There are no assurances that we could find a suitable replacement
for Roche or successfully introduce new products on our own if we
terminate the license. Our ability to successfully commercialize
new products, including products based on the improvements awarded
to us in this litigation, is subject to numerous risks and
uncertainties including risks relating to:
- the need for governmental approvals;
- our ability to compete effectively;
- our ability to effectively manufacture and market new products;
- our ability to attract and retain employees;
- our need for additional financing;
- our dependence on suppliers; and
- the other risks applicable to our business as more completely
described below and in findings with the SEC.
- While an appeal is pending, Roche may divert its attention from
selling the licensed products that generate royalties to us and
focus its energies instead to find alternative products to develop
and market, especially if Roche believes we may be successful in
obtaining the right to terminate the license agreement.
S-4
- While an appeal is pending, Roche may continue to market and sell
other Roche products that compete with its ORIGEN-based products,
thereby lowering the royalty revenues that we would have otherwise
received if Roche had sold more ORIGEN-based products instead of
its other competing products.
OUR ROYALTY INCOME COULD SUFFER AS A RESULT OF OUR LITIGATION AGAINST
HITACHI.
We are suing Hitachi Ltd. in Japan. Hitachi develops and manufactures
diagnostic equipment based on ORIGEN technology for Roche, to whom we license
our technology. We believe that Hitachi's actions in Japan violate rights that
we originally granted to Eisai Co., Ltd. to develop, manufacture and sell
products using ORIGEN technology to the Japanese clinical diagnostic market. We
have asked the Japanese court to prohibit Hitachi from manufacturing, using or
selling in Japan the Elecsys 2010 Instrument, which Hitachi developed for Roche
based on our technology.
If we lose our lawsuit against Hitachi and Hitachi continues Japanese
manufacturing of products covered by our license with Eisai, Eisai's ability to
sell products based on our technology in Japan could suffer, and the royalty
income we receive from Eisai could decrease as a result. If, on the other hand,
we win the lawsuit against Hitachi, Roche will either have to find a new
manufacturer to make equipment based on ORIGEN technology or make arrangements
for Hitachi to manufacture the equipment outside of Japan. Our royalty income
could suffer if Roche cannot effectively make alternate arrangements.
In connection with our ongoing litigation against Roche, Roche has
attempted to sue us for interfering with its contract with Hitachi because we
filed this lawsuit. That claim was dismissed by the district court. If we lose
our lawsuit against Hitachi, Roche may try to bring this claim against us again.
There can be no assurance that we will be able to successfully dismiss this
claim if reinstated.
FAILURE TO MEET OUR DEBT OBLIGATIONS COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS AND FINANCIAL CONDITION; IN ADDITION, OUR DEBT SERVICE OBLIGATIONS
COULD IMPAIR OUR OPERATING FLEXIBILITY.
We have a substantial amount of indebtedness, and there is a possibility
that we may be unable to generate cash or arrange financing sufficient to pay
the principal of, interest on and other amounts due in respect of our
indebtedness when due, or in the event any of our indebtedness is accelerated.
In addition, our substantial leverage may require that we dedicate a substantial
portion of our expected cash flow from operations to service our indebtedness,
which would reduce the amount of our expected cash flow available for other
purposes, including working capital and capital expenditures.
In March 1999, we entered into a debt financing with John Hancock Mutual
Life Insurance Company under a note purchase agreement in which we received $30
million, and we issued 8.5% senior secured notes due 2006. Principal and
interest installments of $1.7 million are due quarterly through March 2006. The
notes are secured by, among other things, royalty payments and our right to
S-5
receive monies due under our license agreement with Roche and a restricted cash
balance account. If we are unable to meet our obligations under the notes, the
note holders could require us to repay the principal amount of, and accrued
interest on, the subordinated convertible debentures, and we may not have
sufficient financial resources or be able to arrange sufficient financing to
make those payments when required.
In addition, covenants in the note purchase agreement for our 8.5% senior
secured notes require us to comply with annual and quarterly royalty payment
coverage ratios that are tied to royalty payments and debt service. The note
purchase agreement also contains covenants that limit our ability to take
specified actions, including incurring additional secured debt and amending our
license agreement with Roche, which could affect our ability to resolve issues
that are being litigated through an amendment to the existing license agreement
with Roche. These restrictions may limit our operating flexibility, as well as
our ability to raise additional capital.
In January 2000, we sold $35 million in aggregate principal amount of 5%
subordinated convertible debentures due 2005. Unless and until holders of the
debentures convert their debentures into Common Stock, we are required to make
semi-annual interest payments of $875,000 through 2005. If we are unable to meet
our obligations under the subordinated convertible debentures, the debenture
holders could require us to repay the principal amount of, and accrued interest
on, the subordinated convertible debentures, and we may not have sufficient
financial resources or be able to arrange sufficient financing to make those
payments when required.
WE HAVE A HISTORY OF OPERATING LOSSES, EXPECT TO INCUR FUTURE LOSSES AND
CANNOT BE CERTAIN THAT WE WILL BECOME A PROFITABLE COMPANY.
We have experienced significant operating losses in most years since our
inception, and we expect those losses to continue. We also have an accumulated
deficit and negative net worth. Our losses have resulted principally from costs
incurred in research and development and from litigation costs, selling costs
and other general and administrative costs. We expect to incur additional
operating losses as a result of increases in expenses for manufacturing,
marketing and sales capabilities, litigation costs and expenses, research and
product development, general and administrative costs and our share of losses in
Meso Scale Diagnostics (MSD). We cannot assure you that we will ever achieve
profitability in the future. Our ability to become profitable in the future will
depend on, among other things, our ability to:
- expand the commercialization of our existing products;
- upgrade and enhance the M SERIES product capabilities;
- introduce new products into the market;
- develop our marketing capabilities cost-effectively;
- develop sales and distribution capabilities cost-effectively; and
S-6
- establish successful collaborations with corporate partners to
develop and commercialize products that incorporate our
technologies.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND THESE
FLUCTUATIONS MAY CAUSE OUR STOCK PRICE TO FALL.
Our quarterly operating results depend upon:
- the volume and timing of orders for M-SERIES or other products;
- the timing of instrument deliveries and installations;
- the success of M-SERIES upgrades and enhancements;
- variations in revenue recognized from royalties and other contract
revenues;
- our mix of products sold;
- whether our instruments are sold to or placed with customers;
- the timing of our introduction of new products;
- our competitors' introduction of new products;
- variations in expenses we incur in connection with the operation
of our business, including legal fees, research and development
costs, and sales and marketing costs, including costs for
upgrading the M-SERIES products;
- our share of losses in MSD;
- our manufacturing capabilities; and
- the volume and timing of product returns and warranty claims.
These factors may cause our quarterly operating results to fluctuate
significantly, which in turn, may cause our stock price to fall. In addition,
because our revenues and operating results are volatile and difficult to
predict, we believe that period-to-period comparisons of our results of
operations are not a good indication of our future performance.
WE MAY NOT BE ABLE TO RAISE SUFFICIENT ADDITIONAL CAPITAL TO SUCCESSFULLY
DEVELOP OUR BUSINESS.
We need substantial amounts of money to fund our operations. We currently
anticipate that our existing capital resources, together with revenue from
product sales and royalties, will be adequate to fund our operations through
calendar year 2002. Our access to funds could be negatively impacted by
S-7
many factors, including the results of pending litigation, the volatility of the
price of Common Stock, continued losses from operations and other factors.
We may need to raise substantial amounts of money to fund a variety of
future activities integral to the development of our business, including the
following:
- for research and development in order to successfully develop our
technologies;
- to obtain regulatory approval for some of our products;
- to file and prosecute patent applications in order to protect our
technologies;
- to respond to innovations that our competitors develop;
- to continue to aggressively pursue our ongoing litigations against
Roche and Hitachi;
- to retain qualified employees, particularly in light of intense
competition for qualified scientists and engineers;
- to make new arrangements to market our technology, especially if
we terminate our license agreement with Roche;
- to continue to fund investments in MSD;
- to manufacture products ourselves or through a third party; and
- to market different products to different markets, either through
building our own sales and distribution capabilities or relying on
a third party.
We cannot be certain that we will have access to enough funds to
successfully develop our business.
We may try to raise necessary additional capital by issuing additional debt
or equity securities. Holders of debt securities would have priority over our
equity holders with respect to the proceeds from the sale of our assets in the
event of liquidation of our business, and any debt financings we obtain may
contain restrictive terms that limit our operating flexibility. If, on the other
hand, we raise additional capital by selling more common or preferred stock, the
holdings of existing stockholders would be diluted. On December 7, 2001, we
entered into agreements to sell up to $30 million of Common Stock. Pursuant to
those agreements, we sold 1,018,808 shares of Common Stock at an aggregate
purchase price of $29.45 per share.
If we are unable to raise additional capital, we may have to scale back, or
even eliminate, some programs. Alternatively, we may have to consider pursuing
arrangements with other companies, such as granting licenses or entering into
joint ventures. These arrangements could require that we give up substantial
rights to technology or products.
S-8
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST MORE ESTABLISHED
COMPANIES AND INSTITUTIONS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
We are a relatively young company in a highly competitive industry. We
compete against established companies and research and academic institutions,
and we expect this competition to intensify. Many of these companies and
institutions have one or more competitive advantages over us, including:
- more money to invest;
- greater expertise and resources in developing, manufacturing,
marketing and selling products;
- a larger, more experienced workforce; and
- more experience in obtaining regulatory approval for clinical
diagnostic products.
As a result, we may not be able to compete successfully against our current
or future competitors. This could have a material adverse effect on our
business, financial condition and revenue.
WE DEPEND ON CONTINUING PRODUCT DEVELOPMENT.
The market for our products is characterized by rapidly changing
technology, evolving industry standards, the need for updated and effective
technology and new product introduction. Our future success will depend in part
upon our ability to enhance existing products and to develop and introduce new
or enhanced products. There can be no assurance that we will be able to avoid
the obsolescence of our products due to rapid technological change and evolving
industry standards. In general, the development of new or enhanced products is a
complex and uncertain process requiring the accurate anticipation of
technological and market trends as well as precise technological execution. We
have and may continue to experience design, development, implementation and
other difficulties that could delay or prevent our introduction of new or
enhanced products or affect the performance of existing products. These
difficulties and delays have caused, and may continue to cause, our expenses to
increase and our product sales to fluctuate.
WE DEPEND ON HIGHLY TRAINED AND SKILLED EMPLOYEES AND MANAGEMENT, AND
WE CANNOT BE SURE THAT WE WILL BE ABLE TO ATTRACT AND RETAIN SUFFICIENT
PERSONNEL.
We need to hire additional staff and to retain existing staff, both of
which are difficult in today's competitive marketplace. Because we are a
technology company, we depend heavily on scientists and engineers to develop
products and to build a successful business. Research and development efforts
S-9
could suffer if we are not able to hire and retain enough qualified scientists
and engineers.
We cannot be sure that we will succeed in our hiring and retention efforts.
We compete with other technology companies and research and academic
institutions for experienced scientists. Many of these companies and
institutions have greater resources than we do and thus may be in a better
position to attract desirable candidates.
In addition to scientists, we will also need to hire managers as the
business grows. We will need managers who are able to address the need for
regulatory, manufacturing and marketing capabilities. If we are not able to hire
managers with these skills, or develop expertise in these areas, our business
prospects could suffer.
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS FOR MATERIALS USED IN
MANUFACTURING OUR PRODUCTS, AND ANY INTERRUPTION IN THE SUPPLY OF THOSE
MATERIALS COULD HAMPER OUR ABILITY TO MANUFACTURE PRODUCTS AND MEET CUSTOMER
ORDERS.
We depend on vendors to supply key materials that we use in our products.
Some of these materials are available only from limited sources. In the event of
a reduction in, interruption of, or degradation in the quality of the supply of
any of our required materials, or an increase in the cost of obtaining those
materials, we would be forced to locate an alternative source of supply. If no
alternative source were available or if an alternative source were not available
on a timely basis or at a reasonable cost or otherwise on acceptable terms, our
ability to manufacture one or more of our products would be delayed or halted.
Any changes in sources of supply may require additional engineering or technical
development in order to ensure consistent and acceptable performance of the
products. If any of these events occur, product costs may increase, we might be
unable to deliver products timely, we could lose sales as well as customers, and
our business would be significantly harmed as a result.
WE MUST OBTAIN FDA APPROVAL TO MARKET OUR CLINICAL DIAGNOSTIC PRODUCTS,
WHICH IS OFTEN COSTLY AND TIME CONSUMING, AND IF WE DO NOT OBTAIN THE NECESSARY
APPROVAL OUR BUSINESS PROSPECTS WOULD SUFFER.
The FDA regulates many areas in which we conduct research and in which we
develop, produce and market products. In particular, we must obtain FDA approval
before we can market clinical diagnostic products such as those we are currently
developing for the patient care market. The approval process is often costly and
time consuming. In addition, we cannot assure you that we will be successful in
obtaining FDA approval for any of our clinical diagnostic products, which would
materially adversely affect our future prospects.
In order to obtain FDA approval in the United States, we, or the companies
with whom we work, will need to either obtain pre-market application approval or
pre-market notification clearance from the FDA. In order to obtain pre-market
notification clearance, we must submit data from clinical trials demonstrating
that new clinical diagnostic systems are substantially equivalent to diagnostic
S-10
systems that the FDA has already approved. If a product is subject to the
substantial equivalence requirement, neither we, nor any of our licensees can
sell that system for clinical use in the United States until the FDA determines
that a new ORIGEN-based system is substantially equivalent to a previously
approved system. Typically, the FDA review process takes 90 days, but the FDA's
review could take longer. In addition, we cannot be sure that we will be able to
demonstrate substantial equivalence for future diagnostic systems.
If we do not successfully demonstrate substantial equivalence, or if we are
required to obtain pre-market application approval as an initial matter, we will
have to conduct extensive clinical testing of these products, which could take
years to complete. Extensive testing could involve substantial additional costs
and might delay bringing clinical diagnostic products to market, weakening our
competitive position. If we fail to obtain FDA approval for new products
altogether, we will be unable to market our ORIGEN-based systems at all for
clinical use in the United States.
WE ARE SUBJECT TO EXTENSIVE, ONGOING GOVERNMENT REGULATION, WHICH MAY
INVOLVE SIGNIFICANT COSTS AND MAY RESTRICT OUR ABILITY TO CONDUCT BUSINESS.
We expect that we may need to spend a substantial amount of money to comply
on an ongoing basis with the regulations of the FDA and other government
agencies. Government agencies, such as the FDA and the Environmental Protection
Agency, regulate manufacturers of diagnostic products and the manufacturing
process itself. The costs of complying with governmental regulations and any
restrictions that government agencies might impose could have a significant
impact on our business. As we increase our manufacturing, these costs will
increase.
Whether we manufacture products ourselves or contract with another company
to manufacture products based on our technology, the FDA will continually review
and periodically inspect the manufacturing process. If the FDA were to discover
a problem with our products, the manufacturing process or the manufacturing
facility, the FDA could place restrictions on these products and on the
manufacturer. For example, the FDA could require us to recall, or even totally
withdraw, a product from the market or close a manufacturing facility. In
addition to FDA regulations, the process of manufacturing products is subject to
a variety of environmental and safety laws and regulations, including laws and
regulations governing the use and disposal of hazardous materials. If we fail to
comply with these laws or regulations, our business and financial condition
could be materially adversely affected.
WE HAVE LIMITED MANUFACTURING AND MARKETING EXPERIENCE, WHICH PUTS US AT A
COMPETITIVE DISADVANTAGE.
We lack experience in large-scale manufacturing, which could hamper our
ability to manufacture existing products or new products that we develop. We
have two options to address this issue. First, we could expand our internal
ability to manufacture products. Second, we could contract with a third party to
manufacture for us products based on our technology. If, however, we are unable
to expand our own manufacturing capability or find a suitable manufacturer on
S-11
acceptable terms we may be unable to meet demand for existing products and could
be delayed in introducing new products to the market. Failure to meet demand for
existing products or delays in introducing new products could put us at a
competitive disadvantage and could harm our financial condition or our business
prospects.
We will also need to develop greater selling, marketing and distribution
capabilities. To market clinical diagnostic products directly to customers, and
not through a licensee, we need to develop a substantial sales force with
technical expertise. We also need to establish a distribution system to support
the sales force. Alternatively, we could license or contract with another
company to provide sales and distribution services for products, in much the
same way as we have done with Roche, Eisai and Organon Teknika. We cannot be
sure, however, that we will be able to develop a sufficient sales and
distribution force or that we will be able to find a suitable company to fill
that role for us.
THE SUCCESS OF OUR BUSINESS DEPENDS ON PATENTS THAT WILL EXPIRE AND THAT
MUST BE ACTIVELY PURSUED AND PROTECTED.
Our business depends heavily on patents that will expire over time and may
be challenged or circumvented by competitors. Patents allow us to prevent
others, for a time, from using our inventions to compete against us. Our
business success or failure will depend, in part, on our ability to obtain and
maintain adequate patent protection for the ORIGEN technology. We cannot be
certain that current patents or future patents will adequately protect our
technology from being used by our competitors.
Because there is no consistent policy governing the scope of claims in
medical patents, patent protection is uncertain. Companies may, for example,
challenge and invalidate patents or circumvent valid claims in patents, all of
which could make it necessary for us to defend our patents in litigation.
Litigation over patents poses the following risks to our business:
- Litigation costs can be extremely high, which could drain our
financial resources.
- Litigation over our patents could discourage other companies from
working with us to develop and market new products based on
technology covered by these disputed patents.
- If we lose some patent protection as a result of litigation, our
competitive advantage could be eroded.
OUR BUSINESS WOULD BE HARMED IF WE VIOLATE THE PATENT RIGHTS OF OTHERS.
Our business success or failure will also depend, in part, on the patent
rights of others. We license technology from other companies and academic
institutions. Because access to this technology is necessary to our business, we
must be certain that we comply with these license agreements. Our business could
be harmed if we breached any of these license agreements and lost the rights to
use this patented technology or if we were unable to renew existing licenses on
acceptable terms or get additional licenses that we may need on acceptable
terms.
S-12
We must also make sure that we do not infringe the patent rights of others.
If we were to infringe others' patent rights we could be exposed to the
following risks:
- We could be required to alter, or abandon, our products or
processes.
- We could be required to obtain a license from the patent holder.
- We could lose customers that are reluctant to continue using our
products or doing business with us.
- We could be forced to abandon development work that we had begun
with respect to these products.
- We could be required to pay damages that could be substantial.
We cannot be sure that we would be able to alter products or processes or
that we could obtain a license at a reasonable cost, if at all. Our business
could be damaged if we were unable to make necessary alterations or obtain a
necessary license on acceptable terms.
In addition, we may need to litigate the scope and validity of patents held
by others and such litigation could be a substantial cost for us.
WE RELY ON TRADE SECRETS AND OTHER INFORMATION THAT CANNOT BE PROTECTED BY
PATENTS, AND WE FACE RISKS THAT THIS INFORMATION WILL BE DISCLOSED TO OTHERS.
In addition to patents, we also rely in our business on trade secrets,
know-how and other proprietary information. If this information were disclosed
to competitors, our business would suffer. We seek to protect this information,
in part, by entering into confidentiality agreements with licensees, employees
and consultants, which prohibit these parties from disclosing our confidential
information. Despite our entering into these agreements, we cannot be sure that
the agreements will provide adequate protection for our trade secrets, know-how
and other proprietary information or that the information we share with others
during the course of our business will remain confidential. We also cannot be
certain that we would have sufficient legal remedies to correct or compensate
for unauthorized disclosures or sufficient resources to seek redress.
RESTRICTIONS ON HEALTH CARE COSTS AND HEALTH CARE AND INSURANCE FINANCING
PRACTICES COULD LIMIT DEMAND FOR OUR PRODUCTS.
In the United States and elsewhere, demand for clinical diagnostic testing
is dependent, in part, on consumers' ability to be reimbursed for the cost of
the tests by third-party payors, such as government agencies, health maintenance
organizations and private insurers. Medicaid and other third-party payors are
increasingly challenging the prices charged for medical services, including
clinical diagnostic tests. They are also attempting to contain costs by limiting
S-13
their coverage of, and the amount they will reimburse for, clinical diagnostic
tests and other health care products. We cannot be certain that insurers will
provide coverage for clinical diagnostic tests in the future. Without adequate
coverage and reimbursement, consumer demand for clinical diagnostic tests may
decrease. Decreased demand would likely cause sales of our clinical diagnostic
products, and sales by our licensees, to fall since fewer tests would be
performed or prices would be lowered, or both. Reduced sales or royalty income
would hurt our business and our business prospects.
In many foreign markets, governments directly set the prices that clinical
diagnostic companies may charge for their products and services. In the United
States, a number of legislative and regulatory proposals aimed at changing the
health care system have been proposed in recent years. We cannot predict whether
these proposals will be adopted or the effect that these proposals or managed
care efforts may have.
WE ARE EXPOSED TO PRODUCT LIABILITY RISKS.
We may not be able to adequately insure against risk of product liability.
As we begin marketing products, we may face product liability for claims and
lawsuits brought by customers. Damages awarded in product liability cases can be
very large. While we have product liability insurance, this coverage is limited.
We cannot assure you that our current product liability insurance would be
adequate to cover us against our potential liabilities or that we will be able
to maintain current levels of product liability insurance on acceptable terms,
if at all. Claims or losses in excess of our current or future product liability
insurance coverage could have a material adverse effect on our financial
condition.
MANAGEMENT EXERCISES SIGNIFICANT CONTROL OVER IGEN.
Our management has significant control over IGEN through its stock
ownership. Our officers and directors own, or have the right to purchase, about
30% of Common Stock and our Chief Executive Officer owns approximately 23% of
Common Stock at September 30, 2001. Our officers and directors have significant
influence over the election of directors and other stockholders actions.
FAILURE TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS.
We have grown rapidly and expect to continue to grow by hiring new
employees in all areas of our operations, increasing our presence in existing
markets and introducing new products we develop into new potential high-growth
markets. Our growth has placed, and continues to place, a strain on our
management and our operating and financial systems.
As we grow, our personnel, systems, manufacturing capabilities and
resources, procedures and controls may be inadequate to support future
operations. In order to accommodate the increased operations for sales and
marketing, research and development, facilities and administration, we will need
to hire, train and retain the appropriate personnel. We may also need to improve
S-14
our financial and management controls, reporting systems and operating systems.
We may encounter difficulties in developing and implementing other new systems.
In response to our growth, we have recently implemented a new enterprise
resource planning system in order to automate all of our accounting,
manufacturing, sales and purchasing. If the enterprise resource planning system
fails to operate as we expect or experiences delays or interruptions, our
operations, as well as our ability to manage our increased growth, could be
materially adversely affected.
PROVISIONS OF OUR GOVERNING DOCUMENTS MAY DETER OTHERS FROM ATTEMPTING TO
ACQUIRE US.
Our governing documents contain provisions designed to prevent hostile
takeovers, which may limit the ability of stockholders to sell their stock at a
premium in a takeover. According to our governing documents, stockholders can
only act at annual meetings or at special meetings of stockholders. Stockholders
are not allowed to act by written consent. In addition, stockholders are not
allowed to call for a special meeting. Only our board of directors, the chairman
of the board or the president may call a special meeting. These provisions may
make it difficult for stockholders to force us to hold special meetings. These
provisions may also limit the ability of stockholders to consider transactions
that they may want to approve, such as a hostile takeover of us.
Our governing documents also contain other provisions that could make it
more difficult for a change in control to be effected. Our board of directors
can issue preferred stock and can determine the rights of those preferred
stockholders without the approval of holders of Common Stock. For example, our
board of directors could give preferred stockholders one or more votes on issues
on which holders of Common Stock vote. This could have the effect of diluting
the voting rights of holders of Common Stock, which might further discourage
other companies from trying to acquire us.
In addition, our certificate of incorporation contains provisions dividing
our board of directors into three classes. Each class serves until the third
succeeding annual meeting, and one class is elected at each annual meeting of
stockholders. As a result, even if our stockholders might prefer to effect a
change sooner, it could take at least two annual meetings of stockholders to
change a majority of the members of the board of directors.
Furthermore, our certificate of incorporation authorizes, and we have
adopted, a preferred share purchase rights plan, commonly referred to as a
"poison pill." Under the rights plan, we made a dividend distribution to the
stockholders of record on November 6, 1996 of one right to purchase from us one
one-hundredth of a share of our preferred stock for each outstanding share of
Common Stock. The terms of the rights and the circumstances under which they may
be exercised are contained in a rights agreement, which has been filed with the
SEC.
These terms have been designed to deter hostile takeovers of us, even
though our stockholders might favor a takeover, especially if it were to afford
them an opportunity to sell their stock at a price above the prevailing market
rate.
S-15
OUR STOCK PRICE IS VOLATILE AND COULD DROP PRECIPITOUSLY AND UNEXPECTEDLY.
Our Common Stock currently trades on The Nasdaq National Market. The prices
of publicly traded stock often fluctuate. The price of our stock may rise or
fall dramatically, even though our business performance has not changed. In the
past, the stock price of technology companies has been especially volatile. We
expect that this will continue to be the case.
In addition to these fluctuations, an investment in our stock could be
affected by a wide variety of factors that relate to our business and industry,
many of which are outside of our control. For example, the value of Common Stock
could be affected by:
- new product introductions;
- innovations by competitors;
- our competitors' announcements of their financial results;
- the failure of our operating results to meet or exceed the
expectations of investors and analysts;
- changes in financial estimates and recommendations by security
analysts;
- general economic conditions;
- disputes over patents or other proprietary rights;
- new or existing litigation, including our litigation with Roche;
- publicity;
- regulations;
- market conditions; and
- fluctuations in our performance and the performances of our
licensees.
WE DO NOT PLAN TO PAY ANY CASH DIVIDENDS ON OUR COMMON STOCK.
We have never paid cash dividends on Common Stock. We have no plans to pay
cash dividends in the foreseeable future.
S-16
THE VALUE OF THE COMMON STOCK MAY BE DILUTED IN THE FUTURE.
Our officers, directors, employees and consultants have options to purchase
a significant aggregate amount of Common Stock. If they exercise their options
and purchase Common Stock, Common Stock will be diluted. In addition, we
currently have preferred stockholders and convertible debenture holders who have
the right to convert their preferred shares and debentures, as the case may be,
to Common Stock. Common Stock would be diluted if these preferred stockholders
or convertible debenture holders decide to convert their securities in the
future. Moreover, Common Stock could be further diluted if we issue additional
Common Stock or securities convertible into Common Stock in the future, which we
may need to do to raise funds for our business. Sales of additional shares of
Common Stock or the conversion of securities into Common Stock could cause the
market price of Common Stock to decrease.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information that we file
with them. Incorporation by reference allows us to disclose important
information to you by referring you to those other documents. The information
incorporated by reference is an important part of this prospectus supplement and
the accompanying prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We filed a
Registration Statement on Form S-3 under the Securities Act of 1933 with the SEC
with respect to the Common Stock being offered pursuant to this prospectus
supplement and the accompanying prospectus. This prospectus supplement omits
certain information contained in the Registration Statement, as permitted by the
SEC. You should refer to the Registration Statement, including the exhibits, for
further information about us and the Common Stock being offered pursuant to this
prospectus supplement. Statements in this prospectus supplement regarding the
provisions of certain documents filed with, or incorporated by reference in, the
Registration Statement are not necessarily complete and each statement is
qualified in all respects by that reference. Copies of all or any part of the
Registration Statement, including the documents incorporated by reference or the
exhibits, may be obtained upon payment of the prescribed rates at the offices of
the SEC listed above. We incorporate by reference the documents listed below and
any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until we sell all of our shares of Common
Stock covered by the registration statement. The documents we are incorporating
by reference are:
- Annual Report on Form 10-K for the year ended March 31, 2001;
- Quarterly Reports on Form 10-Q for the quarters ended June 30, and
September 30, 2001;
- Proxy Statement filed July 30, 2001;
- Supplement filed September 5, 2001 to the Proxy Statement filed
July 30, 2001;
- Current Report on Form 8-K, dated August 15, 2001;
S-17
- Amendment No. 1 to the Current Report on Form 8-K, dated August
15, 2001;
- Current Report on Form 8-K, dated December 7, 2001;
- Current Report on Form 8-K, dated January 10, 2002; and
- The description of Common Stock contained in our Registration
Statement on Form 8-A filed with the SEC on December 10, 1996
including any amendments or reports filed for the purpose of
updating such description.
Upon request, we will provide without charge to each person to whom a copy
of this prospectus has been delivered a copy of any information that was
incorporated by reference in the prospectus (other than exhibits to documents,
unless the exhibits are specifically incorporated by reference into the
prospectus). We will also provide upon request, without charge to each person to
whom a copy of this prospectus has been delivered, a copy of all documents filed
by us from time to time with the SEC pursuant to the Securities Exchange Act of
1934. Requests for copies should be directed to:
IGEN International, Inc.
16020 Industrial Drive
Gaithersburg, MD 20877
Attention: George Migausky, Chief Financial Officer
Telephone: (301) 869-9800
GENERAL
You should rely only on the information provided or incorporated by reference in
this prospectus supplement and the prospectus. We have not authorized anyone
else to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus supplement is accurate as of any
date other than the date on the front of these documents.
NEITHER THE SECURITIES EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS FEBRUARY 7, 2002
S-18