SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934
For Fiscal Year Ended March 31, 2002
Commission File Number 0-23252
IGEN INTERNATIONAL, INC.
(Exact name of Company as specified in its charter)
DELAWARE 94-2852543 (State or other jurisdiction of (IRS Employer
Identification No.)
incorporation or organization)
16020 INDUSTRIAL DRIVE, GAITHERSBURG, MD 20877
(Address of principal executive offices) (Zip Code)
301/869-9800
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock $0.001
par value
-------------------
(Title of Class)
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X___ No _______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___X_____
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Company as of June 17, 2002, computed by reference to the
closing sale price of such stock quoted on the Nasdaq National Market, was
approximately $628,877,000.
The number of shares outstanding of the Company's Common Stock as of June 17,
2002 was 23,215,738.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into
the following parts of this Form 10-K. Certain information required in Part III
of this Annual Report on Form 10-K is incorporated from the Company's definitive
Proxy Statement relating to its Annual Meeting of Shareholders to be held on
August 28, 2002.
IGEN International, Inc., hereby amends Part I, Item 1 (Business) and Part IV,
Item 14(c)(Exhibits) of its Annual Report on Form 10-K for the year ended March
31, 2002 to include corrected information and Exhibit 23.2 (Consent of Deloitte
& Touche LLP).
PART I
IN ADDITION TO HISTORICAL INFORMATION, THIS FORM 10-K CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. REFERENCE IS MADE IN PARTICULAR TO
STATEMENTS REGARDING THE MARKETS AND POTENTIAL MARKETS, AND MARKET GROWTH, FOR
DIAGNOSTIC PRODUCTS, POTENTIAL IMPACT OF COMPETITIVE PRODUCTS, THE COMPANY'S
EXPECTATIONS REGARDING THE LEVEL OF ANTICIPATED ROYALTY AND REVENUE GROWTH IN
THE FUTURE, THE POTENTIAL MARKET FOR PRODUCTS IN DEVELOPMENT, FINANCING PLANS,
THE OUTCOME OF LITIGATION, THE DESCRIPTION OF THE COMPANY'S PLANS AND OBJECTIVES
FOR FUTURE OPERATIONS, ASSUMPTIONS UNDERLYING SUCH PLANS AND OBJECTIVES, THE
NEED FOR AND AVAILABILITY OF ADDITIONAL CAPITAL AND OTHER FORWARD-LOOKING
STATEMENTS INCLUDED IN ITEM 7 - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" ("MD&A"). THE WORDS "MAY,"
"SHOULD," "WILL," "EXPECT," "COULD," "ANTICIPATE," "BELIEVE," "ESTIMATE,"
"PLAN," "INTEND" AND SIMILAR EXPRESSIONS HAVE BEEN USED IN THIS DOCUMENT TO
IDENTIFY FORWARD-LOOKING STATEMENTS. WE HAVE BASED THESE FORWARD-LOOKING
STATEMENTS ON OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL
PERFORMANCE. SUCH STATEMENTS ARE BASED ON MANAGEMENT'S CURRENT EXPECTATIONS AND
ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING
STATEMENTS. IN PARTICULAR, CAREFUL CONSIDERATION SHOULD BE GIVEN TO CAUTIONARY
STATEMENTS MADE IN ITEM 7 - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND IN ITEM 1 - "BUSINESS" UNDER THE
HEADING "RISK FACTORS." IGEN DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE THESE
FORWARD-LOOKING STATEMENTS.
ITEM 1. BUSINESS
SUMMARY
We develop and market products that incorporate our proprietary
electrochemiluminescence (ORIGEN (R)) technology, which permits the detection
and measurement of biological substances. We believe that ORIGEN offers
significant advantages over competing detection methods by providing a unique
combination of speed, sensitivity, flexibility and throughput in a single
technology platform. ORIGEN is incorporated into instrument systems and related
consumable reagents, and we also offer assay development and other services used
to perform analytical testing. Products based on our ORIGEN technology currently
address the following worldwide markets:
o LIFE SCIENCE - drug discovery and development, performed by pharmaceutical
and biotechnology companies, universities and other research organizations;
o CLINICAL TESTING - in vitro diagnostic testing of patient samples to
measure the presence of disease and monitor medical conditions. This
testing is performed at facilities, such as central hospital and clinical
reference laboratories, and at other locations, including sites closer to
where patient care is delivered. These sites include clinics, emergency
rooms, intensive care units and physician offices; and
o INDUSTRIAL TESTING - the testing of food and environmental samples for
safety and quality assurance purposes, products for fighting bioterrorism,
as well as agricultural and animal health testing.
We and our corporate collaborators have commercialized multiple product lines to
serve these markets. We estimate that approximately over 8,000 ORIGEN-based
systems have been sold or placed with customers. These sales and placements have
been made predominantly through our license arrangement with Roche Diagnostics
GmbH ("Roche"), the world's leading provider of clinical diagnostic products.
Roche has adopted ORIGEN as the integral technology for its Elecsys
immunodiagnostic product line. Roche has a license to commercialize the ORIGEN
technology solely for central hospital and clinical reference laboratories and
blood banks. For a discussion of the Roche litigation, see ITEM 3, "Legal
Proceedings".
The M-SERIES(TM) System, our product line for use by pharmaceutical and
biotechnology companies in drug discovery and development, may be used in all
phases of drug discovery, including (1) validating targets identified through
genomics, (2) screening of large numbers of compounds generated through
combinatorial chemistry, (3) re-testing and optimization of lead compounds, and
(4) clinical trial testing of drug candidates. We believe the M-SERIES System
provides a number of advantages relative to other drug discovery technologies,
including enhanced sensitivity and greater ease and speed of assay formatting.
These features are designed to enable our customers to test new biological
targets against potential drug compounds with higher levels of accuracy and
specificity and may perform highly sensitive tests more quickly and with less
cost. This should permit a drug candidate to move more rapidly into the later
stages of drug development and ultimately into the market.
The M-SERIES System is the first product that features our
electrochemiluminescence module, which we have trademarked as TRICORDER(R). The
TRICORDER, which resulted from our extensive research and development efforts,
is a self-contained, analytical operating system. By combining all of the
features necessary to perform ORIGEN-based testing in a single compact module,
the TRICORDER provides a relatively simple-to-use, highly accurate and
cost-effective system. The TRICORDER's modular nature is expected to reduce the
development time and cost required to incorporate ORIGEN technology into future
diagnostic and analytical instruments. We believe that the TRICORDER, through
its flexibility as a detection tool and its modular nature, will be the core
component for additional products that we plan to develop.
Our M-SERIES customers include many of the major pharmaceutical and
biotechnology companies in the United States and Europe. We offer our customers
the option of buying M-SERIES Systems or renting them under reagent purchase
plans. Under either option, our customers typically make commitments for
purchases of proprietary reagents. We also provide custom assay development
services based on our existing library of more than 300 assays. We market the
M-SERIES System through our sales, marketing and applications team dedicated to
the life science market.
We have also applied our ORIGEN technology to the rapidly growing market for the
detection of food and water disease causing pathogens, as well as for
bio-defense, the detection of microbes, toxins and toxic agents that may pose a
military or public health threat. We have begun commercializing our first
products for this market, the PATHIGEN panel of tests for Salmonella,
Campylobacter, Listeria and E. Coli O157, which are sold primarily as a quality
control test method to food producers, food processors and contract laboratories
for the food industry. The E. Coli test, for example, is significantly more
sensitive than any other test on the market and we believe it offers
unprecedented precision and rapid results in detecting this dangerous strain of
the food-borne pathogen. In addition, our Salmonella test was recently approved
by the National Poultry Improvement Plan as the first rapid method for the
detection of Salmonella in live poultry.
Our executive offices are located at 16020 Industrial Drive, Gaithersburg,
Maryland 20877.
ORIGEN TECHNOLOGY
ORIGEN is a proprietary technology based on electrochemiluminescence. ORIGEN
permits the detection and measurement of a biological substance within a given
sample. It works by labeling the targeted substance within a sample using a
compound and binding the newly labeled substance to magnetizable beads. The
beads can then be separated from the rest of the sample using a magnet. When
this newly labeled substance is stimulated, the label emits light at a
particular wavelength. The light emission can be measured with a high degree of
accuracy. The level of intensity of the light emitted depends on how much of the
label is present, which in turn is determined by how much of the targeted
substance is present for the label to attach itself to. Thus, the light
emissions permit the accurate detection and measurement of the targeted
substance. ORIGEN technology provides a single basic format that can be used to
conduct a multitude of tests, including immunodiagnostic tests, nucleic acid
probe tests and clinical chemistry tests. The ORIGEN technology is protected by
numerous patents in the United States and internationally.
We and our licensees are using the ORIGEN technology to develop and
commercialize analytical systems that offer many advantages over current
detection technologies. We believe that ORIGEN technology offers a unique
combination of improved speed, sensitivity, flexibility and output relative to
existing technologies. ORIGEN technology also generally lowers the cost of
diagnostic procedures by reducing the number of steps required in preparing a
sample for testing. Because the ORIGEN system directly measures
electrochemiluminescence, and does not require the use of enzymes in the
detection process as is common in competing systems, the ORIGEN system provides
a simplified and more stable format that can be used to test a broad range of
substances. The ORIGEN-based systems can be automated to provide in a uniform
format a large number of immunoassay, nucleic acid probe and clinical chemistry
tests. The essential component of an ORIGEN-based system is the flow cell, which
contains a magnet to separate the labeled substance from the sample being
tested, and a light detector to measure the electrochemiluminescence. The ORIGEN
flow cell has been designed so that it can be incorporated into a variety of
instruments, ranging from large central laboratory random-access systems to
small batch systems.
The major features and benefits of proprietary ORIGEN-based systems are:
o Simple Testing Format: reduces time and labor in performing a test or
series of tests. Complete automation of testing process possible.
o Flexibility: enables a single instrument to perform immunodiagnostic tests
on large and small molecules and to perform DNA and RNA tests.
o Cost: reduces costs per test by minimizing the amount of expensive reagents
needed.
o Speed: reduced time from assay set-up to detection produces rapid results.
Enables high sample throughput.
o Sensitivity: allows detection of targeted specimens at very low
concentrations.
o Precision: provides highly-reproducible measurements.
o Label Stability: extends the shelf-life of the reagent that contains the
label used in testing. Improves measurement accuracy.
ORIGEN-BASED PRODUCTS AND MARKETS
We believe that our ORIGEN technology is well suited for the development and
commercialization of families of instruments that can be used in all of our
target markets. The technology should permit virtually all immunodiagnostic and
nucleic acid tests to be performed on similar instrumentation using the same
detection method.
The following table summarizes ORIGEN-based products and development programs.
CUSTOMER COMMERCIAL
MARKET PRODUCT APPLICATION STATUS RIGHTS
LIFE SCIENCE MARKET M-SERIES Drug Discovery/ Development Product Sales IGEN
(M8 & M384 Analyzer and
Reagents)
M-SERIES (M-1 Drug Discovery/ Pre-Launch IGEN
Research Analyzer) Development
ORIGEN Detection System Drug Discovery/ Development Product Sales IGEN
and Reagents
C
Cell Culture Reagents Research Biologicals Product Sales IGEN
NucliSens/NASBA QR Nucleic Acid Probe Tests Product Sales BioMerieux
Sector HTS/
Sector PR High Throughput Drug Pre-Launch/ Meso Scale
Discovery/ Beta Joint Venture
Development
CLINICAL TESTING MARKET
Central Hospital/Clinical Elecsys 2010 Immunodiagnostic Tests Product Sales Roche
Reference Laboratory
Systems
Elecsys 1010 Immunodiagnostic Tests Product Sales Roche
MODULAR / E170 Immunodiagnostic Tests Product Sales Roche
NucliSens/NASBA QR Nucleic Acid Probe Tests Product Sales BioMerieux
Picolumi Immunodiagnostic Tests Product Sales Eisai (Japan)
(Japan)
Patient Care Systems Elecsys 2010/1010 Physicians' Office Lab Product Sales IGEN (1)
Immunodiagnostic Tests
M-SERIES (M-1 Portable Physicians' Office Development IGEN
Clinical Analyzer) Lab / Hospital
Immunodiagnostic Tests
Home Self-Testing Health Screening and Research IGEN
Monitoring
INDUSTRIAL MARKETS PATHIGEN Panel of Tests Detection of Food and Product Sales IGEN
(ORIGEN Detection System) Beverage Contaminants
M-SERIES (M-1 Analyzer) Detection of Food and Pre-Launch IGEN
Beverage Contaminants and
Biological Toxins
(1) IGEN is currently servicing customers pursuant to court judgment issued in
the litigation described in ITEM 3 - "Legal Proceedings".
LIFE SCIENCE PRODUCTS AND MARKET
The life science market focuses on providing products and services for the
discovery and development of new drugs. Our commercialization efforts in this
market center on the M-SERIES System and the ORIGEN Detection System.
Advances in the field of combinatorial chemistry, which is based on the effects
of combining different compounds to make potentially new drugs, and in the field
of biotechnology have revolutionized drug discovery. Pharmaceutical and
biotechnology companies have dramatically expanded their libraries of potential
drug candidates. Researchers have completed sequencing of the human genome,
which has greatly increased scientists' understanding of how diseases work and
the causes of disease, which in turn should provide novel targets for fighting
disease.
In order to exploit these advances, pharmaceutical and biotechnology companies
are re-engineering their drug development processes. An example of this is the
use of automation and the latest advances in technology to accelerate the
screening of existing drug compounds against the disease targets of interest.
Researchers are challenged to develop new drug screening procedures that are
faster and more efficient while reducing costs and processing larger numbers of
samples.
After identifying disease targets and synthesizing chemical compounds,
researchers attempt to find compounds that are drug candidates. This drug
discovery process involves developing the test, or assay, to determine whether a
particular compound has the desired effect on a target and then screening
compounds using that assay. Compounds of interest from the screening process
become drug candidates, which undergo further testing as part of "lead
optimization". These drug candidates are then subjected to pre-clinical and
clinical trials before becoming a drug.
M-SERIES SYSTEM. We believe that the need of pharmaceutical and biotechnology
companies to rapidly identify therapeutic targets; screen thousands of compounds
per day against those targets and then optimize the leads, has created new
opportunities for our ORIGEN technology systems in the pharmaceutical and
biotechnology industry. The M-SERIES Systems, based on the TRICORDER, build on
the applications of the ORIGEN Detection System and provide simultaneous
processing of multiple samples using ORIGEN assays. The first M-SERIES System is
the M8 Analyzer, which is compatible with multi-well microplates that are
commonly used in drug discovery and development laboratories.
The M8 Analyzer has been updated and is named the M-SERIES 384 Analyzer. It is
in the process of being introduced to the market with new features. Both systems
can be fully integrated with many existing automation and robotic systems and
are designed to enable researchers to test new biological targets against
potential drug compounds with higher levels of accuracy and specificity. They
may also perform highly sensitive tests more quickly and with less cost. This
may permit a drug candidate to move more rapidly into the later stages of drug
development, clinical trials and ultimately into the market.
We believe that the sensitivity and accuracy of the M-SERIES System create
advantages over many competitive detection technologies. The M-SERIES System
allows the user (1) to quickly adapt the ORIGEN technology to develop and then
perform the specific, desired assays, compared to the longer periods required by
other existing competing technologies, (2) to reduce the use of rare components,
such as proprietary compounds, antibodies or clinical trial samples, that must
be used to run assays and (3) to be more confident in the positive and negative
results the tests produce. Our expertise in developing assays allows us to
assist customers in determining whether a proposed assay is feasible and to
assist with the development and performance of assays that comply fully with the
U.S. Food and Drug Administration's (FDA) Good Manufacturing Practices (GMP).
Our M-SERIES customers include many of the major pharmaceutical and
biotechnology companies in the United States and Europe. In addition to the
M-SERIES Analyzers we sell or place, we typically receive commitments from our
customers for purchases of proprietary reagents. We also offer M-SERIES Analyzer
users custom assay development services based on our existing library of more
than 300 assays. We market the M-SERIES Analyzer directly through our sales,
marketing and applications team dedicated to the life science market.
The second product in the M-SERIES family is the M-1, which is in final
pre-launch development. The M-1 is being designed as a smaller and lower cost
M-SERIES system for use in drug discovery and development, as well as for basic
biology research such as the study of general biological processes, proteomics
and the understanding of the molecular basis of disease. In addition to
pharmaceutical and biotechnology researchers, the M-1 may be used by scientists
at academic and government research institutions. Academic customers typically
work from small research grants and a lower priced single detector system that
works with the standard microplate format is expected to be an alternative to
the use of radioisotopic assays or less sensitive ELISA based methods. ORIGEN
technology, with its mix and read assay format and high sensitivity should allow
researchers to perform multiple experiments more quickly.
ORIGEN DETECTION SYSTEM. Our strategic links with pharmaceutical and
biotechnology companies and with customers in government and academic research
centers were initially forged with the launch of the ORIGEN Detection System.
The ORIGEN Detection System is the precursor to the M-SERIES System and
established ORIGEN as a powerful detection technology for applications in life
science research. Some of these customers are performing research in areas that
are key to our strategic growth. The ORIGEN Detection System has been important
for our developments with the U.S. military and the application of ORIGEN
technology to bio-defense.
CLINICAL DIAGNOSTIC PRODUCTS AND MARKET
One of the markets that we have and will continue to target by developing and
marketing products and services based on our ORIGEN technology is the clinical
diagnostic market. The clinical diagnostic market utilizes in vitro diagnostic
testing, which is the process of analyzing blood, urine and other samples to
screen for, monitor and diagnose diseases and other medical conditions or to
determine the chemical and microbiological constituents of the samples.
This market is composed of various areas of clinical diagnostic testing,
including testing by central hospital laboratories and clinical reference
laboratories, as well as testing at satellite hospital laboratories and at or
near patient care centers.
HOSPITAL/REFERENCE LABORATORY SYSTEMS. One of the significant applications of
our ORIGEN technology is in large, highly automated clinical immunodiagnostic
systems used in central hospital laboratories, clinical reference laboratories
and blood banks. These laboratories constitute the vast majority of the clinical
diagnostic market today. To serve these laboratories, systems must be able to
perform a wide variety of immunodiagnostic tests on a large number of samples
reliably, cost-effectively and quickly. We and our licensees believe that
systems based on the ORIGEN technology are well-suited to serve this market and
may surpass other systems currently available in central hospital laboratories,
clinical reference laboratories and blood banks in terms of speed, cost
effectiveness and ease of use.
Roche, one of the companies that licenses our technology, presently sells three
ORIGEN-based immunoassay systems for the central hospital and clinical reference
laboratory markets: the Elecsys 1010, Elecsys 2010 and the Modular E170. The
Elecsys 2010 is designed to perform multiple screenings in a random-access mode,
while simultaneously handling tests performed on clinical samples for which
immediate results are needed, without interfering with the system workflow. The
Elecsys 2010 is designed so that it can be integrated with Roche's clinical
chemistry systems. The Elecsys 1010 is a system designed for central hospital
and clinical reference laboratory customers that have a lower output
requirement. Roche has also developed a third instrument system, the
MODULAR/E170, which incorporates ORIGEN technology. The E170 is part of Roche's
new MODULAR system that allows laboratories to create customized workstations
and has the features of the existing Elecsys line together with expanded
throughput capabilities.
Roche presently offers a panel of approximately 50 screening tests or assays,
with the Elecsys and E170 systems, including assays for infectious diseases,
anemia, cancer, heart attacks, thyroid disease and fertility/pregnancy. Roche
continues to develop additional assays that are expected to be introduced to the
market in the future. We continue to work with Roche to develop assays, for
which Roche reimburses us a portion of our development costs.
See ITEM 3 - "Legal Proceedings" for a description of our litigation with Roche.
PATIENT CARE SYSTEMS. We are independently developing ORIGEN-based products that
can be used to perform immunodiagnostic tests and chemistry tests outside of
central hospital laboratories and clinical reference laboratories. This market
includes patient care centers such as physicians' offices, ambulatory clinics,
hospital emergency rooms, surgical and intensive care units, hospital satellite
laboratories, and nurses' stations. Physicians, patients and third-party payers
have created a demand for bringing laboratory testing closer to the patient in
order to provide the medical practitioner with faster results and, in turn,
prompt feed-back to the patient. Most immunodiagnostic systems for individual
physicians and group practices have had limited market penetration because of
the lengthy turnaround time for test results, the need for skilled labor in
performing the tests and the high cost of tests. We believe that the emergence
of simple and more accurate and cost-effective diagnostic products is shifting
the site of in vitro diagnostic testing from clinical reference and central
hospital laboratories to alternative sites.
We believe that significant demand exists for clinical diagnostic products that
reduce turnaround time and cost. Our patient care system is being designed to
create tests that can provide accurate results to a physician rapidly, thereby
permitting the physician to make a more timely decision regarding the patient's
course of treatment.
The ORIGEN technology permits development of a system that is compact and simple
to operate at a low cost per test and the initial clinical ORIGEN-based system
being developed by the Company is utilizing the TRICORDER product platform
currently used in the life science market. The broad menu of immunoassays that
we, and companies working with us, developed for the first generation of
ORIGEN-based products can be performed on, and are expected to be available for
use with, TRICORDER-based systems. We are currently exploring collaborative
business arrangements to accelerate the commercialization of TRICORDER-based
products for multiple point-of-care applications.
We presently distribute clinical assays to approximately 60 physicians' office
laboratories in the United States that utilize Roche's Elecsys systems. Under
the final order of judgment issued in our litigation with Roche, the Court
enjoined Roche from marketing, selling, or distributing its Elecsys products
outside of Roche's licensed field of use, including to physicians' office
laboratories (POL's). We and Roche signed an agreement under which all of
Roche's POL customers in the United States were transferred to us, and Roche
provides us with reagent supply for these customers pending final resolution of
the litigation.
INDUSTRIAL PRODUCTS
We are seeking to develop further, either independently or with others,
ORIGEN-based products for use in food and water quality assurance programs and
agricultural and animal health testing. We believe that our ORIGEN-based
technology and the reagents employed to run tests, together with an easy to use,
low-cost, instrument platform, such as the M-1 System under development, should
be well-suited for these market applications.
We have recently commenced sales of our PATHIGEN panel of food pathogen tests.
This panel includes tests for E. Coli O157, Salmonella, Listeria and
Campylobacter. These tests are used as a quality control method for testing food
and beverage products, such as the meat used in hamburger, for the bacteria that
have caused numerous outbreaks of gastrointestinal and kidney-related disease
worldwide. The PATHIGEN tests are semi-automated and create a permanent record
of test results. According to published studies by the USDA and an independent
analytical laboratory in the United Kingdom, the PATHIGEN E. Coli O157 test is
significantly more sensitive than conventional tests commonly used to screen
food. Major food and beverage producers, as well as contract testing
laboratories, could become primary users of the PATHIGEN test panel. The major
advantage of the PATHIGEN tests are their ability to perform in complex samples,
like hamburger meat, in less time, and with greater sensitivity than other
available methods. Our PATHIGEN tests offers food producers the ability to
efficiently test many more food samples than with other currently available
methods.
We have also expanded our ORIGEN-based product offering to address bio-defense,
or the detection of microbes, toxins, and toxic agents that might pose a
military or public health threat. ORIGEN-based tests developed by researchers in
the U.S. Army are being used as a bio-defense detection method. We believe there
will be an increasing opportunity for use of our ORIGEN technology as a
bio-defense tool in military organizations around the world, as well as in
public health. We plan to further develop ORIGEN-based products for this
emerging market.
COLLABORATIONS
We have entered into collaborations with established diagnostic and
pharmaceutical companies. These collaborations have provided us with $84 million
in license fees over an eight-year period and product development and marketing
resources. In addition, we receive ongoing royalties from collaborators' product
sales.
For the three fiscal years ended March 31, 2002, 2001 and 2000 revenue from
corporate collaborators, which is represented as product-based royalty income
and contract revenue, totaled $27.5 million (65%), $20.4 million (65%) and $12.9
million (63%), respectively.
ROCHE DIAGNOSTICS GMBH. In 1992, we entered into a contract with Roche
Diagnostics GmbH (then known as Boehringer Mannheim GmbH), the largest worldwide
manufacturer of diagnostic equipment and supplies, to commercialize ORIGEN-based
clinical immunodiagnostic and nucleic acid probe systems. From fiscal year 1992
through fiscal year 2002, we generated a total of approximately $118 million in
license fees, royalties and assay development fees from Roche. Roche currently
markets three ORIGEN-based systems together with a test menu of approximately 50
different assays, including tests for infectious diseases, anemia, cancer, heart
attacks, thyroid disease and fertility/pregnancy. Roche has placed or sold
approximately 8,000 Elecsys and E170 systems worldwide.
In 1997, we filed a lawsuit in Maryland federal court against Roche Diagnostics
and in February 2002, the Court issued a final order of judgment against Roche.
See ITEM 3 - "Legal Proceedings".
We recorded royalty income from the Roche agreement of $25.7 million (61%),
$15.3 million (49%) and $11.1 million (54%) for the three fiscal years ended
March 31, 2002, 2001 and 2000 respectively.
BIOMERIEUX. We have an agreement with BioMerieux (formerly Organon Teknika B.V.)
for development and worldwide commercialization of ORIGEN-based nucleic acid
probe systems to the clinical diagnostic and life science markets. BioMerieux
specializes in hospital and blood bank products and has combined its proprietary
nucleic acid sequence based amplification technology with ORIGEN technology and
markets the NucliSens line of diagnostic virology products together with test
kits for the detection of HIV-1 RNA and CMV (cytomegalovirus). We have received
$20 million under our agreement with BioMerieux and currently receive royalties
on product sales.
EISAI CO., LTD. We have a collaboration with Eisai Co., Ltd., a leading Japanese
pharmaceutical company, to market an ORIGEN-based diagnostic system for the
clinical diagnostic market in Japan. Eisai introduced its first ORIGEN-based
product under the trade name Picolumi during 1997, and we receive royalties on
product sales. Eisai is currently marketing the Picolumi product with assays
focused primarily in the area of cancer diagnosis.
MESO SCALE DIAGNOSTICS, LLC. During August 2001, we entered into agreements with
Meso Scale Technologies, LLC. ("MST") continuing Meso Scale Diagnostics, LLC.
("MSD"), a joint venture formed solely by MST and us in 1995. MSD was formed for
the development and commercialization of products utilizing a proprietary
combination of MST's multi-array technology together with ORIGEN and other
technologies owned by us. MST is a company established and wholly-owned by the
son of IGEN's Chief Executive Officer. Under most circumstances, significant MSD
governance matters require the approval of both us and MST.
Under the amended agreements that were negotiated by an independent committee of
our Board of Directors, we hold a 31% voting equity interest in MSD, and are
entitled to a preferred return on $36.4 million of the funds previously invested
in MSD through March 31, 2002 and on additional funds we invest thereafter. This
preferred return would be payable out of a portion of both future profits and
certain third-party financings, before any payments are made to other equity
holders. MST owns the remaining 69% of the voting equity interest in MSD. We
agreed, subject to certain conditions, to fund the joint venture through
November 2003. During the 2002 calendar year, we agreed to fund MSD $21.5
million, subject to a permitted variance of fifteen percent. As of March 31,
2002, the Company has satisfied $5.3 million of this funding commitment. The
2003 calendar year funding commitment would be based on an annual budget to be
approved by a committee of our Board of Directors.
The funding commitment may be satisfied in part through in-kind contributions of
scientific and administrative personnel and shared facilities. If the 2003
budget is not approved by our Board of Directors, we would be required to
provide transitional funding for an additional six months, estimated at $11.0
million, and under certain conditions, MSD and MST have the right to terminate
the joint venture prior to November 2003 under certain circumstances, including
a change in control of the Company, as defined. Upon termination, expiration or
non-renewal of the joint venture agreement, MSD and MST have the right to
purchase our interest in MSD at fair market value less certain discounts.
MSD has developed two instrument systems, the Sector PR and the Sector HTS,
along with a variety of consumables which were initially introduced to the life
science market in September 2001. The first MSD beta test site was established
in March 2002.
For the years ended March 31, 2002, 2001 and 2000, we made total contributions
to MSD of $19.6 million, $8.3 million and $4.5 million, respectively. See ITEM 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and ITEM 13 "Certain Relationships and Related Transactions."
PATENTS AND OTHER PROPRIETARY RIGHTS
We pursue a policy of seeking patent protection to preserve our proprietary
technology and our right to capitalize on the results of our research and
development activities and, to the extent it may be necessary or advisable, to
exclude others from appropriating our proprietary technology. We also rely on
trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain our competitive position.
We prosecute and defend our intellectual property, including our patents, trade
secrets and know-how. We regularly search for third-party patents in our fields
of endeavor, both to shape our own patent strategy as effectively as possible
and to identify licensing opportunities.
As of March 31, 2002, we owned 63 issued U.S. patents and had 23 pending U.S.
patent applications in the diagnostics field. As of that date, we owned 130
additional issued patents outside of the United States and had 68 pending patent
applications. These patents and patent applications are important to our
business and cover various aspects of our ORIGEN technology and products, as
well as the methods for their production and use. The pending patent
applications may not be granted and others may challenge our existing patents.
Our business could be harmed if we lose the patent protection we currently enjoy
or if our pending patents are not issued.
Our patents will not begin to expire until 2005; core ORIGEN patents will extend
through 2015. We continue to protect our technology with new patent filings,
which could further extend our patent coverage.
GOVERNMENT REGULATION
Our research and development, manufacturing and marketing activities of both
existing and future products are subject to regulation by numerous governmental
authorities in the United States and other countries. In the United States,
clinical diagnostic devices are subject to rigorous FDA regulation. The Federal
Food, Drug and Cosmetic Act and the Public Health Service Act govern the
testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising and promotion of our clinical products.
In addition to FDA regulations, we are subject to other federal and state
regulations such as occupational safety and health regulations and environmental
regulations. Product development and approval within this regulatory framework
may take a number of years and involves the expenditure of substantial
resources.
In addition, this regulatory framework may change or additional regulation may
arise at any stage of our product development, which may affect approval of or
delay an application or require additional expenditures by us.
Our regulatory strategy is to pursue development and marketing approval of
products worldwide, either independently or through corporate collaborators. We
intend to seek input from the regulatory authorities at each stage of the
clinical process to facilitate appropriate and timely clinical development. The
clinical development of certain products may be the responsibility of our
collaborators.
Clinical Diagnostic Systems
The manufacture, distribution and sale in the United States of our products for
clinical diagnostic purposes will require prior authorization by the FDA. The
FDA and similar agencies in foreign countries have promulgated substantial
regulations that apply to the testing, marketing, export and manufacturing of
diagnostic products. To obtain FDA approval of a new product for diagnostic
purposes, we or our collaborators will in most cases be required to submit proof
of the safety and efficacy of the product, or its "substantial equivalence" to
previously marketed products. Such proof typically entails clinical and
laboratory tests. The testing, preparation of necessary applications and
processing of those applications by the FDA is expensive and time consuming.
Significant difficulties or costs may be encountered in order to obtain FDA
approvals and that could delay or preclude us from marketing products for
diagnostic purposes. Furthermore the FDA may request additional data following
the original submission. Delays imposed by the governmental approval process may
materially reduce the period during which we or our collaborators will have the
exclusive right to exploit our products or technologies.
Our clinical diagnostic products are regulated as medical devices. The Roche
Elecsys clinical diagnostic products have received FDA approval. Prior to
entering commercial distribution, all medical devices must undergo FDA review
under one of two basic review procedures depending on the type of assay: a
Section 510(k) pre-market notification ("510(k)") or a pre-market approval
application ("PMA"). 510(k) notification is generally a relatively simple filing
submitted to demonstrate that the device in question is "substantially
equivalent" to another legally marketed device. Approval under this procedure
may be granted within 90 days if the product qualifies, but generally takes
longer, and may require clinical testing.
When the product does not qualify for approval under the 510(k) procedure, the
manufacturer must file a PMA to show that the product is safe and efficacious,
based on extensive clinical testing among several diverse testing sites and
population groups, and shows acceptable sensitivity and specificity. This
procedure requires much more extensive pre-filing testing than does the 510(k)
procedure and involves a significantly longer FDA review after the date of
filing. In responding to a PMA, the FDA may grant marketing approval, may
request additional information, may set restrictive limits on claims for use or
may deny the application altogether.
After product approvals have been received, they may still be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
after the product reaches the market. The FDA may require surveillance programs
to monitor the effect of products that have been commercialized, and has the
power to prevent or limit further marketing of the products based on the results
of these post-marketing programs.
In addition to obtaining FDA approval for each product, under the PMA
guidelines, the Company must seek FDA approval of the manufacturing facilities
and procedures. The FDA will also inspect diagnostic companies on a routine
basis for regulatory compliance with its GMP.
Our products for the physician's office market will be affected by the Clinical
Laboratory Improvement Amendments of 1988 ("CLIA"), which is intended to insure
the quality and reliability of medical testing and may have the effect of
discouraging, or increasing the cost of, testing in physicians' offices.
The regulations establish requirements for laboratories in the area of
administration, participation in proficiency testing, patient test management,
quality control, personnel, quality assurance and inspection. Under these
regulations, the specific requirements that a laboratory must meet depend upon
the complexity of the tests performed by the laboratory.
Laboratory tests are categorized as either waived tests, tests of moderate
complexity or tests of high complexity. Laboratories that perform either
moderate or high complexity tests must meet standards in all areas, with the
major difference in requirements between moderate and high complexity testing
concerning quality control and personnel standards. Quality control standards
for moderate complexity testing are being implemented in stages. Personnel
standards for high complexity testing are more rigorous then those for moderate
complexity testing. In general, personnel conducting high complexity testing
will need more education and experience than those doing moderate complexity
testing. Under the CLIA regulations, all laboratories performing moderately
complex or highly complex tests will be required to obtain either a registration
certificate or certificate of accreditation from the Healthcare Financing
Administration ("HCFA").
Because the regulations' interpretation is uncertain, it is possible that
certain of our products may be categorized as tests of high complexity, in which
case penetration of the point-of-care market would be reduced since not all
laboratories would meet the standards required to conduct such tests. We
understand that laboratories, including physician office laboratories, will be
evaluating the requirements of CLIA in determining whether to perform certain
types of moderate and high complexity diagnostic tests.
Although we believe that we will be able to comply with all applicable
regulations regarding the manufacture and sale of diagnostic devices, such
regulations are always subject to change and depend heavily on administrative
interpretations. Future changes in regulations or interpretations made by the
U.S. Department of Health and Human Services, FDA, HCFA or other regulatory
bodies, with possible retroactive effect, may adversely affect us.
In addition to the foregoing, we are subject to numerous federal, state and
local laws and regulations relating to such matters as safe working conditions,
laboratory and manufacturing practices, environmental, fire hazard control, and
disposal of hazardous or potentially hazardous substances. To date, compliance
with these laws and regulations has not had a material effect on our financial
results, capital requirements or competitive position, and we have no plans for
material capital expenditures relating to such matters. However, we may be
required to incur significant costs to comply with such laws and regulations in
the future, and such laws or regulations may have a material adverse effect upon
our ability to do business.
Sales of the Company's products outside the United States are also subject to
extensive regulatory requirements, which vary widely from country to country.
The time required to obtain such approval may be longer or shorter than that
required for FDA approval.
Research Products
Our products that are being sold for research use only, including the M-SERIES
System, must be properly labeled as such, as required by the FDA, but do not
generally require FDA approval prior to marketing. The FDA has begun to impose
new distribution requirements and procedures on companies selling research-only
products, such as the requirement that the seller receive specified
certifications from its customers as to the customers' intended use of the
product. We expect that the FDA will develop additional restrictions of this
nature that may adversely affect us.
Environmental Regulation
Due to the nature of our current and proposed research, development and
manufacturing processes, we are subject to stringent federal, state and local
laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials and wastes. Although we believe that we have complied with
these laws and regulations in all material respects and have not been required
to take any action to correct any noncompliance,we may be required to incur
significant costs to comply with environmental and health and safety regulations
in the future.
Reimbursement
Third-party payers, such as governmental programs and private insurance plans,
can indirectly affect the pricing or the relative attractiveness of our products
by regulating the maximum amount of reimbursement they will provide for
diagnostic testing services. In recent years, healthcare costs have risen
substantially, and third-party payers have come under increasing pressure to
reduce such costs.
In this regard, the Federal government, in an effort to reduce healthcare costs,
may take actions that may involve reductions in reimbursement rates. If the
reimbursement amounts for diagnostic testing services are decreased in the
future, it may decrease the amount which physicians, clinical laboratories and
hospitals are able to charge patients for such services and consequently the
price we and our collaborators can charge for our products.
COMPETITION
Competition varies in the three markets in which we operate. In the life science
market, competition is fragmented. To be competitive, a company must be able to
address the needs of pharmaceutical and biotechnology companies, which are
facing pressure to increase productivity while decreasing drug discovery costs
and timelines. These drug discovery companies favor detection systems that
combine automation and enhanced sensitivity with integrated equipment and
consumables.
Because our ORIGEN system encompasses all of these elements, we believe it
offers significant advantages over competing systems. In addition, we, unlike
some of our competitors, offer our customers assay development services, which
we believe enhance the speed and robustness of their screening operations.
The clinical testing market is dominated by a few large multi-national
companies, including Abbott Laboratories, Roche, Bayer and Johnson & Johnson. We
participate in this market through our license arrangements with Roche, the
world's largest provider of diagnostics products, BioMerieux and Eisai.
The industrial testing market is highly fragmented. While existing testing
methods are relatively inexpensive, these technologies are time consuming and
produce non-specific test results that are often unreliable.
As in the life science market, we are developing a portfolio of tests that would
offer enhanced speed, reliability and specificity in detecting pathogens and
other microbial contaminants in food, water and other industrial samples being
tested. We believe this will allow us to position ORIGEN competitively as the
detection method of choice for the industrial testing market.
Our competition will be determined in part by the potential applications for
which our products are developed and ultimately approved by regulatory
authorities. For certain of our future products, an important factor in
competition may be the timing of market introduction of our own or competing
products. Accordingly, the relative speed with which we or our corporate
collaborators can develop products, complete the clinical trials and approval
processes and supply commercial quantities of the products to the market are
expected to be important competitive factors.
We expect that competition with products approved for sale will be based, among
other things, on product efficacy, safety, reliability, availability, price and
patent protection.
Many of our existing or potential competitors have substantially greater
financial, technical and human resources than we do and may be better equipped
to develop, manufacture and market products. These companies may develop and
introduce products and processes competitive with or superior to ours.
Our competitive position also depends upon our ability to attract and retain
qualified personnel, obtain patent protection or otherwise develop proprietary
products or processes and secure sufficient capital resources for the often
substantial period between technological conception and commercial sales.
We do not hold a leading competitive position in the three principal markets in
which we compete.
MANUFACTURING
Our current commercial manufacturing operations consist of the manufacture of
the M-SERIES System and related reagents, PATHIGEN products and cell culture
research biologicals. We operate a qualified GMP and ISO 9001 facility. We use a
variety of suppliers and believe that we do not depend on any supplier that
cannot be replaced in the ordinary course of business.
Any changes in source of supply may require additional engineering or technical
development, with costs and delays that could be significant, in order to ensure
consistent and acceptable performance of the products.
We have not yet introduced clinical diagnostic products that are manufactured by
us. Initial clinical diagnostic products, based on our ORIGEN technology, are
being manufactured by corporate collaborators. We are presently evaluating plans
for future manufacturing of clinical diagnostic products that include direct or
third party manufacturing.
SALES AND MARKETING
We market the M-SERIES System and the ORIGEN Detection System, together with
related reagents and services, directly to the life science research market. In
conjunction with the U.S. and European launch of the M-SERIES System, we have
expanded our direct sales force, including the addition of application
specialists and in-house technical service personnel. We also utilize
distributors in Japan and Scandanavia. The ORIGEN cell culture products are sold
directly and through distributors. Substantial sales and marketing of products
based on our ORIGEN technology is conducted by corporate collaborators. See
"Collaborations."
HUMAN RESOURCES
As of May 31, 2002, IGEN employed 370 individuals full-time, of whom 277 were
engaged in research, product development, manufacturing and operations support,
55 in marketing, sales and applications support and 38 in general
administration. Of our employees, 64 have Ph.D. degrees. A significant number of
our management and professional employees have had prior experience with
pharmaceutical, biotechnology, diagnostic or medical products, computer software
or electronics companies. None of our employees are covered by collective
bargaining agreements, and management considers relations with its employees to
be good.
The ability to maintain our competitive position will depend, in part, upon our
continued ability to attract and retain qualified scientific, technical and
managerial personnel. Competition for such personnel is intense.
GEOGRAPHIC SEGMENTS
Information on domestic and foreign product sales is incorporated herein by
reference to ITEM 8 - Consolidated Financial Statements - Notes to Consolidated
Financial Statements - Note 11.
EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of all executive officers at May 31, 2002 and their
respective positions and offices with us are set forth below. Each officer
serves without a set term.
NAME AGE POSITION
Samuel J. Wohlstadter 60 Chairman, Chief Executive Officer and
Director
Richard J. Massey, Ph.D. 55 President, Chief Operating Officer and
Director
George V. Migausky 47 Vice President, Chief Financial Officer and
Secretary
SAMUEL J. WOHLSTADTER is a founder of IGEN and has been our Chairman of the
Board and Chief Executive Officer since 1982. Mr. Wohlstadter has been a venture
capitalist for more than 25 years and has experience in founding, supporting and
managing high technology companies, including Amgen Inc., a biotechnology
company, and Applied Biosystems, Inc., a medical and biological research
products company. Mr. Wohlstadter is also Chief Executive Officer of Hyperion
Catalysis International, an advanced materials company, which he founded in
1981; of Pro-Neuron, Inc., a drug discovery company, which he founded in 1985;
of Proteinix Corporation, a development stage company organized to conduct
research in intracellular metabolic processes, which he founded in 1988; and of
Pro-Virus, Inc., a drug discovery company, which commenced operations in 1984.
RICHARD J. MASSEY, Ph.D. is one of our founders and has been President and Chief
Operating Officer since February 1992 and a director since 1990. He served as
Senior Vice President from 1985 to 1992. From 1981 until he joined us in 1983,
Dr. Massey was a faculty member in the Microbiology and Immunology Department at
Rush Medical Center in Chicago. Prior to that, he was Senior Research Scientist
at the Fredrick Cancer Center/National Cancer Institute.
GEORGE V. MIGAUSKY has been our Chief Financial Officer since 1985, assuming
that position on a full-time basis in 1992. Between 1985 and 1992, in addition
to serving as our Chief Financial Officer on a part-time basis, Mr. Migausky
also served as financial advisor to several other privately held companies.
Prior to joining us in 1985, he spent nine years in financial management and
public accounting positions, most recently as a Manager with the High Technology
Group of Deloitte & Touche.
OTHER KEY MANAGEMENT
In addition to our executive officers and directors, we have the following
managers directing key functions:
NAME AGE POSITION
Daniel Abdun-Nabi................ 47 General Counsel
Gerald Andros.................... 40 Director of Sales
David Boudreau................... 45 Director of Operations
R. Don Elsey..................... 48 Director of Finance and Administration
Stephen Kondor................... 47 General Manager - Clinical Diagnostics
Robert Proulx.................... 45 General Manager - Life Science Business
DANIEL ABDUN-NABI joined us in September 1999 as General Counsel. He is
responsible for all areas of corporate law, including advising us about our
domestic and international legal matters, and he provides guidance in developing
legal and business strategies and negotiating financial transactions. From 1990
to September 1999, Mr. Abdun-Nabi was Senior Vice President - Legal Affairs &
General Counsel for North American Vaccine, Inc., where he oversaw domestic and
international legal issues for that pharmaceutical company and its operating
subsidiaries. Prior to that, Mr. Abdun-Nabi spent several years in private
practice in Washington, D.C. and served for three years as an attorney with the
Division of Corporation Finance at the SEC.
GERALD ANDROS has been our Director of Sales for Life Science since 1994. He is
responsible for sales of ORIGEN products both in the United States and
internationally. Prior to joining us, Mr. Andros spent six years working in
sales management, marketing and sales training for Abbott Laboratories, where he
focused on sales of immunoassay, chemistry and hematology product lines.
DAVID BOUDREAU joined us in August 1999 as Director of Operations. He is
responsible for manufacturing, logistics and inventory management. From 1995 to
August 1999, Mr. Boudreau served as Director of Manufacturing Operations at
i-Stat, a medical diagnostics company, where he handled operational planning and
supply chain management for the United States and Canada. Prior to that he held
the position of Manufacturing Manager at Analog Devices Inc. and worked as a
process engineer at Chevron USA.
R. DON ELSEY joined us in May 2000 as Director of Finance and Administration. He
is responsible for the accounting, treasury, risk management, and human
resources functions for us. From April 1998 to February 2000, Mr. Elsey served
as Director of Finance at PE Biosystems. From 1980 to April 1998, Mr. Elsey held
a variety of financial management positions with International Business
Machines, Inc.
STEPHEN KONDOR joined us in September 2001 as General Manager, Clinical
Diagnostics. He has 22 years experience in the medical device, clinical
diagnostic, and life science markets, including 14 years for Abbott Labs
Diagnostic Products Division where during his tenure, he held various sales,
marketing, and business general management positions most recently as Worldwide
Commercial Director for the Hematology Business Unit. Mr. Kondor was Senior Vice
President at Avocet Medical from January 2000 until joining us in September
2001, where he was responsible for marketing products to the point of care
clinical diagnostic community. From 1996 to 2000, he was Executive Vice
President World Wide Marketing & Sales at Biometric Imaging, Inc.
ROBERT PROULX joined us in March 2000 as General Manager of the Life Sciences
Business. Mr. Proulx has primary responsibility for managing sales, marketing
and product development efforts for our life science research
business. From 1989 to February 2000 Mr. Proulx held various positions at
Packard Instrument Company, Inc., which specializes in instrumentation and
reagents for the life science research market. Immediately prior to leaving
Packard, Mr. Proulx served as Vice President, Marketing.
RISK FACTORS
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 BioMerieux, 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 64% of our revenue in fiscal year 2002. 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. See the risk
factor immediately below for a more detailed description of this litigation and
the risks it poses to us. Similar or other problems may arise with other
companies to whom we license our technology.
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 an ongoing lawsuit against Roche, which is the largest licensee of our
technology in terms of royalty income accounting for over 90% of our royalty
income in fiscal 2002. The lawsuit centers on a number of claims we assert
against Roche in which we allege that they failed to comply with the terms of
our license agreement with them. Roche filed a counterclaim against us in the
lawsuit alleging, among other things, that we breached the Roche license
agreement by permitting Eisai Co. Ltd., another of our licensees, to market some
ORIGEN-based products in Japan.
The United States District Court issued a final order of judgment in our case
against Roche that awarded us $105 million in compensatory damages and $400
million in punitive damages, confirmed our right to terminate the Roche license
agreement, directed and commanded Roche to grant to us for use in our retained
fields a license to all improvements developed by Roche under the agreement,
including Roche's Elecsys(R) diagnostics product line, and barred Roche from
marketing, selling, placing or distributing outside of its licensed field any
products, including its Elecsys diagnostics product line, that are based on our
ORIGEN(R) technology. We have voluntarily agreed not to terminate the license
agreement until an appellate court determines that we are entitled to do so;
however, we have already notified Roche that the license agreement will
terminate automatically once the judgment is affirmed by the Court of Appeals.
The final judgment issued in this case 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. Roche has filed a notice of appeal. During the appeal process, Roche
is obligated to continue to comply with the terms of the license agreement.
The risks involved in the litigation include:
- The appellate court may modify or overturn some or all of the judgment
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 favorable findings
relating to Roche's counterclaims against us.
- The appellate court could overturn some or all of the judgment 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 upholds the judgment that Roche materially breached
the license agreement, and the license agreement is terminated, 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.
- We may not be able to find a suitable replacement for Roche or successfully
introduce new products on our own following termination of 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 herein and in other filings 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.
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.
We also sued Hitachi Ltd. which manufactures diagnostic equipment based on
ORIGEN technology for Roche. On June 13, 2002, we and Hitachi reached agreement
that settled this lawsuit. In the past, Roche has attempted to sue us for
interfering with its contract with Hitachi because we filed this lawsuit. That
claim was twice dismissed by the court. Roche may, following this settlement
agreement, try to bring this claim against us again.
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 total debt balance at March 31, 2002 of $53.2 million. 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.
Termination of the license agreement with Roche would cause approximately $23.1
million of our debt payment obligations as of March 31, 2002, under our 8.5%
senior secured notes to accelerate. The note purchase agreement for the 8.5%
senior secured notes 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 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 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 AND EXPECT TO INCUR FUTURE LOSSES.
We have experienced significant operating losses each year since our inception,
and we expect those losses to continue. We also have an accumulated deficit. Our
losses have resulted principally from costs incurred in research and
development, 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, the transfer
and commercialization of improvements from Roche, general and administrative
costs and our share of losses in MSD.
We may not 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, including products for the markets
currently served by Roche following termination of Roche's license with us;
- develop our marketing capabilities cost-effectively;
- develop sales and distribution capabilities cost-effectively; and
- 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 costs associated with the transfer of improvements from
Roche to us, research and development costs including costs associated with
developing and commercializing new products for the markets currently
served by Roche, 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. Our access to funds
could be negatively impacted by many factors, including the results of pending
litigation, the volatility of the price of Common Stock, continued losses from
operations, acceleration of debt payment obligations resulting from termination
of the license agreement with Roche 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, including to develop new products for the clinical diagnostic
markets that are currently being served by Roche;
- to obtain regulatory approval for some of our products;
- to file and prosecute patent applications in order to protect our
technology;
- to respond to innovations that our competitors develop;
- to continue to aggressively pursue our ongoing litigation against Roche;
- to retain qualified employees, particularly in light of intense competition
for qualified scientists and engineers;
- to make new arrangements to market our technology, including the markets
currently being served by Roche following the termination of 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 may not 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.
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, which may not be on terms favorable to us.
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.
OUR PRODUCTS MAY BECOME OBSOLETE IF WE EXPERIENCE DIFFICULTIES OR DELAYS IN
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. We may not be able to avoid the obsolescence of our products
due to rapid technological change and evolving industry standards. 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 MAY NOT
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 could suffer if
we are not able to hire and retain enough qualified scientists and engineers. 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. We may not 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
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 may not 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
acceptable terms in a timely manner, 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 BioMerieux. We may not be able to
develop a sufficient sales and distribution force or 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. Our current patents or
future patents may not 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.
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.
If we infringe others' patent rights, 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. These agreements may not provide adequate protection for our trade
secrets, know-how and other proprietary information or ensure that the
information we share with others during the course of our business will remain
confidential. We may not have sufficient legal remedies under the agreements or
otherwise 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 payers, such as government agencies, health maintenance
organizations and private insurers. Medicaid and other third-party payers are
increasingly challenging the prices charged for medical services, including
clinical diagnostic tests. They are also attempting to contain costs by limiting
their coverage of, and the amount they will reimburse for, clinical diagnostic
tests and other health care products.
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. Foreign and domestic
legislative and regulatory initiatives that limit health care coverage may have
a materially adverse effect on our business and our business prospects.
WE ARE EXPOSED TO PRODUCT LIABILITY RISKS THAT, IF NOT ADEQUATELY COVERED BY
INSURANCE, MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION.
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
may not have adequate product liability insurance to cover us against our
potential liabilities or 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.
MEMBERS OF OUR MANAGEMENT TEAM EXERCISE SIGNIFICANT CONTROL OVER IGEN AND MAY BE
ABLE TO CONTROL THE OUTCOME OF PROPOSED CORPORATE ACTIONS SUPPORTED OR OPPOSED
BY OTHER IGEN STOCKHOLDERS.
Our officers and directors in aggregate, own or have the right to purchase,
approximately 28% of Common Stock and our Chief Executive Officer owns
approximately 21% of the Common Stock at January 17, 2002. As a result, certain
of our officers and directors have significant influence over the election of
directors and may be able to control the outcome of proposed corporate actions
supported or opposed by other IGEN stockholders.
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 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 our 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.
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 our 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.
On May 22, 2002, we notified holders of the outstanding Series B shares that we
plan to redeem those shares on July 9, 2002 for their liquidation value. We
expect that holders will elect to convert their Series B shares into our common
stock prior to that date, which could lead to volatility in our stock price.
WE DO NOT PLAN TO PAY ANY CASH DIVIDENDS ON OUR COMMON STOCK.
We have never paid cash dividends on our Common Stock and we have no plans to
pay cash dividends in the foreseeable future.
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 our Common Stock. If they exercise their options
and purchase Common Stock, our 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. Our Common Stock would be diluted if these preferred
stockholders or convertible debenture holders decide to convert their securities
in the future. Moreover, our 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 our Common Stock or the conversion of securities
into our Common Stock could cause the market price of our Common Stock to
decrease.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(c) Exhibits. The Exhibits filed as part of this Form 10-K are listed
on and incorporated by reference to the Exhibit Index immediatly following the
Signature page on this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
IGEN International, Inc.
July 17, 2002 By:/s/ Samuel J. Wohlstadter
------------------------
Samuel J. Wohlstadter
Chief Executive Officer
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
2.1(4) Agreement and Plan of Merger effective November 19, 1996 (by virtue
of a reincorporation), by and between IGEN, Inc., a California
corporation and IGEN International, Inc. a Delaware corporation.
3.1(4) Certificate of Incorporation, as filed with the Secretary of State of
the State of Delaware on August 30, 1996.
3.2(4) Certificate of Designation of Series A Junior Participating Preferred
Stock, as filed with the Secretary of State of the State of Delaware
on November 18, 1996.
3.3(8) Certificate of Designation of Series B Convertible Preferred Stock, as
filed with the Secretary of State of the State of Delaware on
December 18, 1997.
3.4(4) Bylaws, as currently in effect.
4.1(7) Form of Specimen Right Certificate.
4.2(7) Rights Agreement, dated November 6, 1996, between the Company and The
First National Bank of Boston.
4.3(9) Note Purchase Agreement between the Company and the purchasers named
therein dated as of March 22, 1999.
4.4(10) Securities Purchase Agreement, dated as of January 11, 2000, among
Company and the Purchasers listed on Schedule I thereto.
4.5(8) Purchase Agreement for the Series B Convertible Preferred Stock
between the Company and the purchasers named therein dated as of
December 16, 1997.
10.1(11) Common Stock Purchase Agreement between IGEN International, Inc. and
Acqua Wellington North American Equities Fund, Ltd. dated as of
February 9, 2001.
10.2(11) Common Stock Purchase Agreement between IGEN International, Inc. and
Acqua Wellington North American Equities Fund, Ltd. dated February 9,
2001.
10.3(3*) Agreement between the Company and Eisai Co., Ltd. dated May 25, 1990.
10.4(1) Supplemental Agreement between Eisai Co., Ltd. and the Company.
10.5(3*) License and Development Technology Agreement between the Company and
Boehringer Mannheim GmbH dated September 23, 1992.
10.6(2) Advanced Royalty Agreement between the Company and Boehringer
Mannheim GmbH dated January 9, 1997.
10.7(3) License Agreement between the Company and Hyperion Catalysis
International ("Hyperion") dated October 10, 1993 as amended
March 15, 1990.
10.8(3) Common Stock Purchase Agreement between the Company and Organon
Teknika B.V. ("Organon") dated May 19, 1993.
10.9(3*) License and Technology Development agreement between the Company and
Organon dated May 19, 1993.
10.10(3*) Term Sheet for Consolidation of Research Projects between the Company
and Proteinix Corporation dated December 14, 1993.
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
10.11(3*) Term Sheet for consolidation of Cancer Research Projects between the
Company and Pro-Neuron, Inc. dated December 14, 1993.
10.12(3) Form of Indemnity Agreement entered into between the Company and its
directors and officers.
10.13(3+) 1985 Stock Option Plan, as amended, and related Form of Incentive
Stock Option Grant and Form of Nonqualified Stock Option Grant.
10.14(5+) 1994 Stock Option Plan as amended in 1998.
10.15(5+) 1994 Non-Employee Directors Stock Option Plan, and related Form of
Incentive Stock Option Grant.
10.16(5) Lease Agreement between the Company and W-M 16020 Limited Partnership
dated October 5, 1994.
10.17(5) Agreement for Purchase and Sale of Joint Venture Interest between the
Company and Hyperion, dated December 28, 1994.
10.18(6*) Joint Venture Agreement, dated as of November 30, 1995, between Meso
Scale Diagnostics, LLC. ("MSD"), Meso Scale Technologies, LLC.
("MST") and the Company.
10.19(6) Limited Liability Company Agreement, dated as of November 30, 1995,
between MSD, MST and the Company.
10.20(6*) IGEN/MSD License Agreement, dated as of November 30, 1995, between MSD
and the Company.
10.21(6+) Indemnification Agreement, dated as of November 30, 1995, between the
Company and Jacob Wohlstadter.
10.22(12) Letter Agreement dated November 29, 2000 between Meso Scale
Technologies, LLC., Meso Scale Diagnostics, LLC. and IGEN
International, Inc.
10.23(15*)Amendment No.1 to Joint Venture Agreement between Meso Scale
Diagnostics, LLC., Meso Scale Technologies, LLC., and IGEN
International, Inc. dated August 15, 2001.
10.24(15) First Amendment of Limited Liability Company Agreement of Meso Scale
Diagnostics, LLC. dated August 15, 2001 between IGEN International,
Inc. and Meso Scale Technologies, LLC.
10.25(15*)Amendment No.1 to IGEN/MSD License Agreement dated August 15, 2001
between Meso Scale Diagnostics, LLC. and IGEN International, Inc.
10.26(15) MSD/MST Sublicense Agreement dated November 31, 1995 between Meso
Scale Diagnostics, LLC. and Meso Scale Technologies, LLC.
10.27(15*)Amendment No. 1 to MSD/MST Sublicense Agreement dated August 15, 2001
between Meso Scale Technologies, LLC. and IGEN International, Inc.
10.28(15+)Consulting Agreement between IGEN International, Inc. and Jacob N.
Wohlstadter dated November 31, 1996.
10.29(15+)Indemnification Agreement between IGEN International, Inc., Jacob N.
Wohlstadter and JW Consulting Services, LLC. dated November 30, 1996.
10.30(15+*)Employment Agreement between Meso Scale Diagnostics, LLC., IGEN
International, Inc., Meso Scale Technologies, LLC. and Jacob
N. Wohlstadter dated August 15, 2001.
10.31(19+)Indemnification Agreement between IGEN International, Inc. and Jacob
N. Wohlstadter dated October 6, 2001.
10.32(13+)Amended Restated Promissory Note effective as of July 22, 2000
between Samuel J. Wohlstadter and the Company.
10.33(13+)Stock Pledge Agreement effective as of July 22, 2000 between Samuel
J. Wohlstadter and the Company.
10.34(13+)Amended Restated Promissory Note effective as of July 22, 2000
between Richard J. Massey and the Company.
10.35(13+)Stock Pledge Agreement effective as of July 22, 2000 between Richard
J. Massey and the Company.
10.36(18+)IGEN International, Inc. 2001 Broad Based Stock Option Plan .
10.37(17) Common Stock Purchase Agreement between IGEN International, Inc. and
Acqua Wellington Private Placement Fund, Ltd. dated December 17, 2001.
10.38(17) Common Stock Purchase Agreement between IGEN International, Inc. and
Acqua Wellington Opportunity I Limited dated December 17, 2001.
10.39(17) Registration Rights Agreement between IGEN International, Inc. and
Acqua Wellington Private Placement Fund, Ltd. dated December 17, 2001.
10.40(17) Registration Rights Agreement between IGEN International, Inc. and
Acqua Wellington Opportunity I Limited dated December 17, 2001.
10.41(22) Common Stock Purchase Agreement between IGEN International, Inc. and
Brown Simpson Partners I, Ltd. dated December 26, 2001.
10.42(22) Registration Rights Agreement between IGEN International, Inc. and
Brown Simpson Partners I, Ltd. dated December 26, 2001.
10.43(21) Common Stock Purchase Agreement between IGEN International, Inc. and
Acqua Wellington Private Placement Fund, Ltd. dated March 8, 2002.
10.44(21) Common Stock Purchase Agreement between IGEN International, Inc. and
Acqua Wellington Opportunity I Limited dated March 8, 2002.
10.45(21) Registration Rights Agreement between IGEN International Inc. and
Acqua Wellington Private Placement Fund, Ltd. dated March 8, 2002.
10.46(21) Registration Rights Agreement between IGEN International, Inc. and
Acqua Wellington Opportunity I Limited dated March 8, 2002.
10.47(14+)Amended 1994 Non-Employee Directors' Stock Option Plan dated June 6,
2001.
10.48(19+)Termination Protection Program.
10.49(20) Final Order of Judgment issued in IGEN International, Inc. v. Roche
Diagnostics GmbH dated February 15, 2002.
99.1(23) Meso Scale Diagnostics LLC.(A Development Stage Company), Financial
Statements at December 31, 2001 and 2000, and for the Three Years
Ended December 31, 2001, and for the period November 30, 1995
(Inception) Through December 31, 2001, and Independent Auditors'
Report.
23.1(23) Consent of Deloitte & Touche LLP.
23.2 Consent of Deloitte & Touche LLP. Filed herewith.
------------------------------------------------------------
------------------------------------------------------------
+ Denotes management contract or compensatory plan or arrangement.
* Denotes confidential treatment applied.
(1) Previously filed as an exhibit to the Company's Form 10-Q for the
quarter ended September 30, 1997.
(2) Previously filed as an exhibit to the Company's Annual Report on Form
10-K, as amended, for the fiscal year ended March 31, 1997.
(3) Previously filed as an exhibit to the Registration Statement on Form
S-1, as amended (Registration No. 33-72992).
(4) Previously filed as an exhibit to the Company's Form 10-Q for the
quarter ended November 14, 2000.
(5) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1995.
(6) Previously filed as an exhibit to the Company's Form 10-Q for the
quarter ended December 31, 1995.
(7) Previously filed as an exhibit to the Company's Form 8-A filed
December 10, 1996.
(8) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3, as amended (Registration No. 333-45355).
(9) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended March 31, 1999.
(10) Previously filed as an exhibit to the Company's Form 8-K on January
12, 2000.
(11) Previously filed as an exhibit to the Company's Form 8-K on February
12, 2001.
(12) Previously filed as an exhibit to the Company's Form 8-K on December
12, 2000.
(13) Previously filed as an exhibit to the Company's Form 10-K for the
fiscal year ended March 31, 2001.
(14) Previously filed as an exhibit to the Company's Form 10-Q for the
quarter ended June 30, 2001.
(15) Previously filed as an exhibit to the Company's Form 8-K as amended on
September 5, 2001.
(16) Previously filed as an exhibit to the Company's Form 10-Q for the
quarter ended September 30, 2001.
(17) Previously filed as an exhibit to the Company's Form 8-K on December
19, 2001.
(18) Previously filed as an exhibit to the Company's Registration Statement
on Form S-8 (Registration No. 333-76624).
(19) Previously filed as an exhibit to the Company's Form 10-Q for the
quarter ended December 31, 2001.
(20) Previously filed as an exhibit to the Company's Form 8-K on February
20, 2002.
(21) Previously filed as an exhibit to the Company's Form 8-K on March 15,
2002.
(22) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 (Registration No. 333-76760).
(23) Previously filed an an exhibit to the Company's Form 10-K for the
fiscal year ended March 31, 2002.