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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number: 0-15360

Bioject Medical Technologies Inc.

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      Indicate by check mark whether the Registrant (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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:     Yes     þ          No     o

      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 Registrant’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.     þ

      The aggregate market value of the voting stock held by non-affiliates of the Registrant was $30,317,241 as of June 14, 2002 based upon the last sales price as reported by the Nasdaq SmallCap System.

      The number of shares outstanding of the Registrant’s Common Stock as of June 14, 2002 was 10,598,826 shares.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive Proxy Statement for the 2002 Annual Shareholders’ Meeting are incorporated by reference into Part III.

Table of Contents

BIOJECT MEDICAL TECHNOLOGIES INC.

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PART I

Item 1.     Business

General

      We commenced operations in 1985. We develop, manufacture and market jet injection systems for needle-free drug delivery. We license our technology to leading pharmaceutical and biotechnology companies for whose products our technology provides potentially increased medical efficacy or enhanced market acceptance. We also sell our products directly to healthcare providers.

      Our needle-free injection technology works by forcing liquid medication at high speed through a tiny orifice held against the skin. This creates a fine stream of high-pressure medication that penetrates the skin, depositing the medication in the tissue beneath.

      Since our formation, we have been engaged principally in organizational, financing, research and development, and marketing activities. Our products and manufacturing operations are subject to extensive government regulation, both in the U.S. and abroad. In the U.S., the development, manufacture, marketing and promotion of medical devices is regulated by the Food and Drug Administration (“FDA”) under section 510(k) of the Federal Food, Drug, and Cosmetic Act (“FFDCA”).

      We are actively pursuing strategic partnering relationships with a number of pharmaceutical and biotechnology companies under which we plan to grant specified rights or licenses to some or all of our products. The strategy anticipates that the rights or licenses will allow strategic partners to i) use the licensed products for specific applications or purposes or ii) market the licensed products in conjunction with certain of their products.

      Currently, we have two strategic partners: Ares-Serono and Alkermes.

      Ares-Serono Group, plc. (“Serono”) licensed our Vitajet® 3 injection system for delivery of Saizen® human growth hormone. The Vitajet® has been customized for use in the pediatric growth market, and is marketed as the cool.click^TM. Serono has exclusive worldwide distribution rights for its Saizen® recombinant human growth hormone and AIDS wasting applications utilizing the Vitajet® 3 device. The SeroJet^TM, a customized version of the Vitajet® 3, has been cleared by the FDA for use with Serostim® for the treatment of AIDS wasting.

      In October 2001, we signed a license and development agreement with Alkermes, Inc., a leader in the development of pharmaceutical products based on advanced drug delivery systems, to develop up to three undisclosed drug compounds as proprietary products using the Iject^TM needle-free drug delivery system.

      We are actively pursuing additional strategic partnering relationships with a number of pharmaceutical and biotechnology companies.

      In addition, a portion of our revenues comes from the direct marketing of our needle-free injection system, the Biojector® 2000, or B-2000, to healthcare professionals, which allows clinicians to inject medications through the skin, both intramuscularly and subcutaneously, without a needle.

      We also market the Vitajet®, a spring-powered, needle-free, self-injection device, which has regulatory clearance for administering injections of insulin.

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      Following is a chronology of significant milestones achieved:

      “Biojector,” “Bioject” and “ Vitajet “ are registered trademarks of Bioject Medical Technologies Inc.

Needle Free Injection

      Medications are currently delivered using various methods, each of which has both advantages and limitations. The most commonly used drug delivery techniques include oral ingestion, intravenous infusion, subcutaneous, intradermal and intramuscular injection, inhalation and transdermal “patch” diffusion. Many drugs are effective only when injected. Published data indicates that more than 1.7 billion needle-syringes are sold annually in the U.S. We believe that approximately 80% of these syringes are used for subcutaneous or intramuscular injections up to 1 ml.

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      Injections using traditional needle-syringes suffer from many shortcomings, including: (i) the risk of needlestick injuries; (ii) the risk of penetrating a patient’s vein; and (iii) the patients’ aversion to needles and discomfort. The most dangerous of these, the contaminated needlestick injury, occurs when a needle that has been exposed to a patient’s blood accidentally penetrates a healthcare worker’s skin. Contaminated needles can transmit deadly blood-borne pathogens including such viruses as HIV and Hepatitis B. Published data estimate that 600,000 to 1,000,000 needlestick injuries occur in the U.S. each year.

      Because of growing awareness in recent years of the danger of blood-borne pathogen transmission, needle safety has become a higher concern for hospitals, healthcare professionals and their patients. As a result, pressure on the healthcare industry to eliminate the risk of contaminated needlestick injuries has increased. For example, the U.S. Occupational Safety and Health Administration (“OSHA”) issued regulations, effective in 1992, which require healthcare institutions to treat all blood and other body fluids as infectious. These regulations were changed by Congress with passage of the Needlestick Safety Prevention Act, which was effective in 2001. These regulations require implementing “engineering and work practice controls” to “isolate or remove blood-borne pathogen hazards from the workplace.” Among the required controls are special handling and disposal of contaminated “sharps” in biohazardous “sharps” containers, safer medical devices, including needleless systems, and follow-up testing for victims of needlestick injuries. To date, 24 states and the U.S. Occupational Safety and Health Administration have adopted legislation or regulations that require health care providers to utilize systems designed to reduce the risk of needlestick injuries.

      The costs resulting from needlestick injuries vary widely. Accidental needlesticks involving sterile needles involve relatively little cost. Needlesticks with contaminated needles require investigation and follow-up. These are much more expensive. Investigation typically includes identifying the source of contamination, testing the source for blood-borne pathogens and repeatedly testing the needlestick victim for infection over an extended period. Some healthcare providers are requiring additional measures, including treating all needlestick injuries as contaminated unless proven otherwise.

      In an effort to protect healthcare workers from needlestick injuries, many healthcare facilities have adopted more expensive, alternative technologies. While these technologies can help to reduce accidental needlesticks, they cannot eliminate the risk.

Description of Our Products

     Biojector® 2000

      Our Biojector® 2000 system consists of two components: a hand-held, reusable jet injector; and a sterile, single-use, disposable plastic syringe capable of delivering variable doses of medication up to 1.0 ml. The B-2000 system is a refinement of jet injection technology that enables healthcare professionals to reliably deliver measured variable doses of medication through the skin, either intramuscularly or subcutaneously, without a needle.

      The first component of the system, the Biojector® 2000, is a portable hand-held device, which is approximately the size of a flashlight. It is designed both for ease of use by healthcare professionals, as well as to be attractive and non-threatening to patients. The Biojector® 2000 injector uses disposable CO² cartridges as a power source. The CO² cartridges, which are purchased from an outside supplier, give an average of ten injections before requiring replacement. The CO² gas provides consistent, reliable pressure on the plunger of the disposable syringe, thereby propelling the medication into the tissue. The CO² propellant does not come into contact with either the patient or the medication. The B-2000 is also available with a tank adapter which allows the device to be attached to a large volume CO² tank. The tank adapter eliminates the need to change CO² cartridges after every ten injections and is an attractive option for applications where a large number of injections are given in a relatively short period of time.

      The second component of the system, the Biojector® single-use disposable syringe, is provided in a sterile, peel-open package and consists of a plastic, needle-free, variable dose syringe, a Vial Adapter needle-free syringe filling device, which is used to fill the syringe, and a safety cap. If requested by a customer, the product can also be supplied with a needle which is used as an alternative to the Vial Adapter for filling the syringe.

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      There are five different Biojector® syringes, each of which is intended for a different injection depth or body type. The syringes are molded using our patented manufacturing process. A trained healthcare worker selects the syringe appropriate for the intended type of injection. One syringe size is for subcutaneous injections, while the others are designed for intramuscular injections, depending on the patient’s body characteristics and the location of the injection.

      Giving an injection with a Biojector® 2000 system is easy and straightforward. The healthcare worker giving the injection checks the CO² pressure on an easy-to-read gauge at the rear of the injector, draws medication up into a disposable plastic syringe using either a needle or the Vial Adapter, inserts the syringe into the Biojector® 2000, presses the syringe tip against the appropriate disinfected surface on the patient’s skin, and then presses an actuator, thereby injecting the medication. A thin stream of medication is expelled at high velocity through a precision molded, small diameter orifice in the syringe. The medication is injected at a velocity sufficient to penetrate the skin and force the medication into the tissue at the desired depth.

      The current suggested retail list price for the Biojector® 2000 professional jet injector is $1,200, and the suggested retail list price for Biojector® syringes is $125 for a box of 100 syringes. CO² cartridges are sold for a suggested retail price of $5.00 for a box of ten. Discounts are offered for volume purchases.

      The Vitajet® is also made-up of two components, a portable injector unit and a disposable syringe. It is smaller and lower in cost than other products in our needle-free offering. The method of operation and drug delivery is similar to the Biojector®, except that the Vitajet® is powered by a spring rather than by CO². Due to its ease of use and lower cost, it is a good solution for home-use self-injection. Vitajet®’s regulatory labeling limits its use to the injection of Insulin. A modified Vitajet®, called the cool.click^TM, has received regulatory clearance for injection of Serono’s human growth hormone Saizen® and another modified Vitajet®, called the SeroJet^TM, has regulatory clearance for administering the Serono human growth hormone Serostim® for the treatment of AIDS Wasting. We believe that the Vitajet® has the potential to achieve regulatory labeling for additional subcutaneous injections.

      The current suggested retail price for the Vitajet® needle-free injector is $250. A three month supply (13-count) of Vitajet® syringes is sold for a suggested retail price of $60.

      We have other products under development, which are intended to address other markets or to enhance the Biojector® 2000 system. See “Research and Product Development.”

Marketing and Competition

      The traditional needle-syringe is currently the primary method for administering intramuscular and subcutaneous injections.

      During the last 20 years, there have been many attempts to develop portable one-shot jet injection hypodermic devices. Problems have arisen in the attempts to develop such devices including: (i) inadequate injection power, (ii) little or no control of pressure and depth of penetration, (iii) complexity of design, with related difficulties in cost and performance, (iv) difficulties in use, including filling and cleaning, and (v) the necessity for sterilization between uses.

      In recent years, several spring-driven, needle-free injectors have been developed and marketed, primarily for injecting Insulin. Current list prices for such injectors range from approximately $250 to $600 per injector. We believe that market acceptance of these devices has been limited due to a combination of the cost of the devices coupled with the difficulties of their use.

      Also in recent years, various versions of a “safety syringe” have been designed and marketed. Most versions of the safety syringe generally involve a standard or modified needle-syringe with a plastic guard or sheath surrounding the needle. Such covering is usually retracted or removed in order to give an injection. The

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      One U.K. company, Weston Medical plc, is developing a device that will likely compete with our jet injection product for certain applications but has not obtained marketing regulatory clearance.

      Our primary sales and marketing objective is to form licensing and supply arrangements with leading pharmaceutical and biotechnology companies, which would ordinarily include some or all of the following components: i) licensing revenues for full or partially exclusive access to our products for a specific application or medical indication; ii) development fees if we customize one of our products for the customer or develop a new product; iii) milestone payments related to the customer’s progress in developing products to be used in conjunction with our products; iv) royalty revenue derived from strategic partners’ drug sales; and v) product revenues from the sale of our products to the customer pursuant to a supply agreement. Product sales through this channel would ordinarily be made to the pharmaceutical or biotechnology company, whose sales force would then sell that company’s injectable pharmaceutical products, along with our products, to end-users.

      We intend to focus the direct sales efforts of our needle-free injection systems on the military and public health markets. To implement our direct sales and marketing efforts, we currently employ a national sales manager, one customer service representative, and three part-time nurse trainers. Our direct sales efforts have resulted in the signing of public health agreements for the states of Alaska and Oklahoma, the New York City Department of Public Health and the County of San Francisco. We have also secured a 5-year contract through the Veterans Administration authorizing direct sales to all branches of the Department of Defense, U.S. Public Health Service and the Federal Bureau of Prisons.

      Selling to new customers in our target markets is often a lengthy process. A new customer is typically adopting our products as a new technology. Accordingly, the purchase approval process usually involves a lengthy product evaluation process, including testing and approval by several individuals or committees within the potential customer’s organization and a thorough cost-benefit analysis.

      The medical equipment market is highly competitive, and competition is likely to intensify. Many of our existing and potential competitors have been in business longer than us and have substantially greater technical, financial, marketing, sales and customer support resources. We believe that the primary competition for the Biojector® 2000 system, and other needle-free jet injection systems we may develop, is the traditional, disposable needle-syringe and the safety syringe. Leading suppliers of needle-syringes include: Becton-Dickinson & Co., Sherwood Medical Co., a subsidiary of American Home Products Corp., and Terumo Corp. of Japan. Manufacturers of traditional needle-syringes compete primarily on price, which generally ranges from approximately $0.08 to $0.22 per unit. Manufacturers of safety syringes compete on features, quality and price. Safety syringes generally are priced in a range of $0.22 to $1.00 per unit. The average price per injection with the B-2000 is approximately $0.65 to $0.90.

      We expect to compete with traditional needle-syringes and safety syringes based on issues of healthcare worker safety, ease of use, reduced cost of disposal, patient comfort, and reduced cost of compliance with OSHA regulations and other legislation. Except in the case of certain safety syringes, we do not expect to compete with needle-syringes based on purchase cost alone. However, we believe that the B-2000 system will compete effectively based on overall cost when all indirect costs, including disposal of syringes and testing, treatment and workers’ compensation expenses related to needlestick injuries, are considered.

      We are aware of other portable, needle-free injectors currently on the market, which are generally focused on subcutaneous self-injection applications of 0.5 ml. or less. These compete primarily with the Vitajet®. We are not aware of any competing products with regulatory approval that have features and benefits comparable to the B-2000 system. The Biojector® is suitable for both intramuscular and subcutaneous injections of up to 1 ml. in the professional and home injection markets. Manufacturers of needle-syringes, as well as other companies, may develop new products that compete directly or indirectly with our products. There can be no assurance that we will be able to compete successfully in this market. A variety of new

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Patents and Proprietary Rights

      We believe that the technology incorporated in our currently marketed Biojector® 2000 and Vitajet® devices and single-dose disposable plastic syringes, as well as the technology of products under development, give us significant advantages over both the manufacturers of competing needle-free jet injection systems and over prospective competitors seeking to develop similar systems. We attempt to protect our technology through a combination of trade secrets, confidentiality agreements and procedures and patent prosecution.

      We have three U.S. patents, which were issued with respect to jet injection technology and that were incorporated in earlier versions of our jet injection systems. These patents expire from July 2007 to November 2008.

      We have a total of 22 U.S. patents granted and 13 foreign patents granted. These cover various devices and methods pertinent to our needle free technology. Additionally, five new U.S. patent applications have been filed on matters specifically related to single use, disposable devices currently under development. We have also filed eight new foreign applications on matters already covered by U.S. patents. We generally file patent applications in Canada, Europe and Japan at the times and under the circumstances that we deem filing to be appropriate in each of those jurisdictions. There can be no assurance that any patents applied for will be granted or that patents held by us will be valid or sufficiently broad to protect our technology or provide a significant competitive advantage. We also rely on trade secrets and proprietary know-how that we seek to protect through confidentiality agreements with our employees, consultants, suppliers and others. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known to, or be developed independently by, competitors. In addition, the laws of foreign countries may not protect our proprietary rights to our technology, including patent rights, to the same extent as the laws of the U.S.

      We believe that we have independently developed our technology and attempt to assure that our products do not infringe on the proprietary rights of others. However, if infringement of the proprietary rights of others is alleged and proved, there can be no assurance that we could obtain necessary licenses to that technology on terms and conditions that would not have an adverse affect. We are not aware of any asserted claim that the Biojector® 2000, Vitajet® or any product under development violates the proprietary rights of any third party.

      If a dispute arises concerning our technology, we could become involved in litigation that might involve substantial cost. Such litigation might also divert substantial management attention away from our operations and into efforts to enforce our patents, protect our trade secrets or know-how or determine the scope of the proprietary rights of others. If a proceeding resulted in adverse findings, we could be subject to significant liabilities to third parties. We might also be required to seek licenses from third parties in order to manufacture or sell our products. Our ability to manufacture and sell our products might also be adversely affected by other unforeseen factors relating to the proceeding or its outcome.

Government Regulation

      Our products and manufacturing operations are subject to extensive government regulations, both in the U.S. and abroad. In the U.S., the FDA administers the FFDCA and has adopted regulations to administer that Act. These regulations include regulations that: i) govern the introduction of new medical devices; ii) require observing certain standards and practices in the manufacture and labeling of medical devices; and iii) require medical device companies to maintain certain records and report device-related deaths, serious injuries and certain malfunctions to the FDA. Our manufacturing facilities and certain of our records are also subject to FDA inspection. The FDA has broad discretion to enforce the FFDCA and related regulations. Noncompliance with the Act or its regulations can result in a variety of regulatory steps including warning letters, product detentions, device alerts or field corrections, mandatory recalls, seizures, injunctive actions and civil or criminal penalties.

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      Unless exempted by regulation, the FFDCA provides that medical devices may not be commercially distributed in the U.S. unless they have been cleared by the FDA. The FFDCA provides two basic review procedures for pre-market clearance of medical devices. Certain products qualify for a submission authorized by Section 510(k) of the FFDCA. Under Section 510(k), manufacturers provide the FDA with a pre-market notification (“510(k) notification”) of the manufacturer’s intent to begin marketing the product. In the 510(k) notification, the manufacturer must establish, among other things, that the product it plans to market is substantially equivalent to another legally marketed product. To be substantially equivalent, a proposed product must have the same intended use and be as safe and effective as a legally marketed device. Further, it may not raise questions of safety and effectiveness that are different from those associated with a legally marketed device. Marketing a medical device may commence when the FDA issues a letter finding substantial equivalence to such a legally marketed device. The FDA may require, in connection with the 510(k) submission, that it be provided with animal and/or human test results.

      If a medical device does not qualify for the 510(k) procedure, the manufacturer must file a pre-market approval application (“PMA”). A PMA must show that the device is safe and effective and is generally a much more complex submission than a 510(k) notification. A PMA typically requires more extensive testing before filing with the FDA and a longer FDA review process.

      A 510(k) notification is required when a device is being introduced into the market for the first time, when the manufacturer makes a change or modification to an already marketed device that could significantly affect the device’s safety or effectiveness, and when there is a major change or modification in the intended use of the device. When any change or modification is made in a device or its intended use, the manufacturer is expected to make the initial determination as to whether the change or modification is of a kind that would require filing a new 510(k) notification. FDA regulations provide only limited guidance in making this determination.

      We are developing the Iject^TM System, a single or multi-use prefilled disposable injector for self injection and pre-filled Biojector® syringes. We plan to seek arrangements with pharmaceutical and biotechnology companies to package their medications in pre-filled Biojector® syringes. See “Research and Product Development.” Before pre-filled Iject^TM or Biojector® syringes may be distributed for use in the U.S., the FDA may require tests to prove that the medication will retain its chemical and pharmacological properties if stored in the pre-filled syringe. It is current FDA policy that such pre-filled syringes are evaluated by the FDA as drugs rather than medical devices. In order to market pre-filled syringes, pharmaceutical companies will be required to gain prior clearance from the FDA by means of a New or Amended Drug Application (“NDA”) or an Abbreviated New Drug Application (“ANDA”). An NDA is a complex submission required to establish that a drug will be safe and effective for its intended uses. An ANDA is a less detailed process, which does not require, among other things, that the applicant provide complete reports of preclinical and clinical studies of safety and efficacy as are required for NDAs. Assuming that the drugs used in the pre-filled syringes have previously been approved by the FDA for injection, we believe that the FDA will likely require ANDAs, rather than NDAs, to be submitted. We believe that if a drug intended to be used in one of our pre-filled syringes was already the subject of an approved NDA or an ANDA for intramuscular or subcutaneous injection, then the main issues affecting clearance for use in the pre-filled syringe would be i) the ability of the syringe to store the drug, ii) the ability of the manufacture to assure the drug’s stability until used, and iii) the ability to demonstrate that the syringe will safely deliver the proper dose.

      The FDA also regulates our quality control and manufacturing procedures. The FDA requires us and our contract manufacturers to demonstrate compliance with current Good Manufacturing Practices (“GMP”) Regulations. These regulations require, among other things, that i) the manufacturing process be regulated and controlled by the use of written procedures, and ii) the ability to produce devices which meet the manufacturer’s specifications be validated by extensive and detailed testing of every aspect of the process. GMPs also require investigating any deficiencies in the manufacturing process or in the products produced and detailed record-keeping. The FDA’s interpretation and enforcement of these requirements has been increasingly strict and will likely continue to be at least as strict in the future. Failure to adhere to GMP requirements would cause the products produced by us to be considered in violation of the FFDCA and subject to enforcement action. The FDA monitors compliance with these requirements by requiring manufacturers to

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      Our manufacturing facility was inspected by the FDA for compliance with Good Manufacturing Practices in August 1998, with no violations indicated.

      The FDA’s Medical Device Reporting Regulation requires that we provide information to the FDA if any death or serious injury alleged to have been associated with the use of our products occurs. In addition, any product malfunction that would likely cause or contribute to a death or serious injury if the malfunction were to occur must also be reported. FDA regulations prohibit a device from being marketed for unapproved or uncleared indications. If the FDA believes that we are not in compliance with these regulations, it may institute proceedings to detain or seize products, issue a product recall, seek injunctive relief or assess civil and criminal penalties.

      The use and manufacture of our products are subject to OSHA and other federal, state and local laws and regulations that relate to such matters as: i) safe working conditions for healthcare workers and other employees; ii) manufacturing practices; iii) environmental protection and disposal of hazardous or potentially hazardous substances; and iv) the policies of hospitals and clinics relating to complying with these laws and regulations. There can be no assurance that we will not be required to incur significant costs to comply with these laws, regulations or policies in the future, or that such laws, regulations or policies will not increase the costs or restrictions related to the use of our products or otherwise have a materially adverse affect upon our ability to do business.

      Laws and regulations regarding the manufacture, sale and use of medical devices are subject to change and depend heavily on administrative interpretation. There can be no assurance that future changes in regulations or interpretations made by the FDA, OSHA or other regulatory bodies, will not adversely affect us.

      Sales of medical devices outside of the United States are subject to foreign regulatory requirements. The requirements for obtaining pre-market clearance by a foreign country may differ from those required for FDA clearance. Devices having an effective 510(k) clearance or PMA may be exported without further FDA authorization. FDA authorization is generally required in order to export other medical devices.

      In June 1998, we received certification from TUV Product Services for our quality system, which meets the requirements of ISO 9001 and EN 46001. In November 1999, we received certification from TUV Product Services for the applicable requirements of EC-Directive 93/42/EEC Annex. II.3 Medical Device Directive. In addition, in April 2002 we received certification for ISO 9001-1994, EN 46001-1996 and ISO 13485-1996, which allows us to label our products with the CE Mark and sell them in the European Community and non European countries.

Research and Product Development

      Research and product development efforts are focused on enhancing our current product offerings and on developing new needle-free injection products. We use clinical, magnetic resonance imaging and tissue studies to determine the reliability and performance of new and existing products. As of March 31, 2002, our research and product development staff, including clinical and regulatory staff members, consisted of 15 employees and one outside contractor.

      A primary focus of our research efforts is on clinical research in the area of DNA-based vaccines and medications. Currently, we believe our devices are being used in more than 30 clinical research projects both within and outside of the United States, approximately 20 of which are DNA-based. These research projects are being conducted by companies leading the development of DNA-based medications as well as by the leading universities and governmental institutions conducting research in this area. There can be no assurance that further clinical studies will prove conclusively that Bioject’s technology is more effective in delivering DNA-based medications than alternative delivery systems that are currently available or that may be developed in the future.

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      Developing DNA-based preventative and therapeutic treatments for a variety of diseases is a very active and growing area of medical research. Researchers hope to develop DNA-based treatments for diseases that have previously not been treatable as well as DNA-based alternatives to therapies currently used in the treatment of other diseases. Most DNA therapies currently being developed require injecting the medication either intramuscularly (into the muscle tissue) or intradermally (just under the skin). The Biojector® 2000 is currently the only jet injection device cleared by the FDA for intramuscular injections. We have developed an adapter for the Biojector® syringe to allow the device to consistently deliver intradermal injections. This adapter is being used in clinical studies to deliver intradermal injections. Initial studies show the adapter to be effective. This adapter has not been cleared by the FDA to be marketed for intradermal injections and is not currently submitted to the FDA to gain clearance for those claims. If our jet injection technology is proven to enhance the performance of DNA-based medications, this area of medicine could present a significant opportunity for us to license our products to pharmaceutical and biotechnology companies for use in conjunction with their DNA-based medications. There can be no assurance that further clinical studies will prove conclusively that our technology is more effective in delivering DNA-based medications than alternative delivery systems that are either currently available or that may be developed in the future. Further, there can be no assurance, should our technology prove to be more effective in delivering DNA-based medications, that regulatory clearance will be gained to deliver any DNA-based medications using our products. Further, should intradermal delivery of DNA-based medications be critical to effective delivery of those compounds, there is no assurance that we will gain regulatory clearance for intradermal delivery DNA-based medications with our products.

      A primary focus of our product development efforts is on developing a new generation of personal injectors (the “Iject^TM”) that are being designed to be smaller, disposable, lightweight and less costly. These devices will target the growing market for patients administering their own injections in the home.

      We anticipate producing a whole family of Iject^TM devices, each specially customized for the delivery of specific injected drugs and vaccines, which could be licensed to pharmaceutical and biotechnology companies for many different non-competing products.

      We are also focusing product development efforts on developing pre-filled syringes for use with our B-2000 product and with other needle-free injectors presently being developed. When the pre-filled technology is perfected, we intend to seek arrangements with pharmaceutical and biotechnology companies under which those companies will sell their medications, pre-packaged in Biojector® pre-filled syringes. Purchasing syringes already filled with medication eliminates the filling and measuring procedures associated with traditional injection of medications and with injections administered with the current Biojector® syringe. Before pre-filled Biojector® syringes may be distributed for use in the U.S., pharmaceutical and biotechnology companies wishing to use these syringes must commit to packaging and distributing their products in the pre-filled syringes and to the time and financial resources necessary to gain regulatory clearance to package and market their products in this manner. This process could be lengthy. In addition, the companies will have to establish that their drugs will remain chemically and pharmacologically stable when packaged and stored in a Biojector® pre-filled syringe and that a drug that is packaged, stored and delivered in this manner is safe and effective for its intended uses. See “Governmental Regulation.”

Manufacturing

      We assemble the Biojector® 2000, the Vitajet®, the cool.click^TM, the SeroJet^TM and related syringes from components purchased from outside suppliers. There can be no assurance that sufficient numbers of qualified manufacturing employees will be available when needed to increase production to meet either foreseen or unforeseen demand for our products. Further, while we believe that we continue to maintain supplier relationships that will provide a sufficient supply of materials to meet demands at full manufacturing capacity, there can be no assurance that such supplier relationships will be sufficient to meet such demand in quantities and at prices and quality levels required for us to operate efficiently and profitably.

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Employees

      As of March 31, 2002, we had 67 full-time employees, with 15 employees engaged in research and product development, 3 in sales and marketing, 11 in technical product support, 22 in manufacturing, and 16 in administration. We engage a limited number of part-time consultants who assist with research and development and sales and marketing activities. As of March 31, 2002, we had 3 consultants and 3 per diem nurses on contract. None of our employees are represented by a labor union.

Product Liability

      We believe that our products reliably inject medications both subcutaneously and intramuscularly when used in accordance with product guidelines. Our current insurance policies provide coverage at least equal to an aggregate limit of $11 million with respect to certain product liability claims. We have experienced one product liability claim to date, and did not incur a significant liability. There can be no assurance, however, that we will not become subject to more such claims, that our current insurance would cover such claims, or that insurance will continue to be available to us in the future. Our business may be adversely affected by product liability claims.

Factors That May Affect Our Business and Our Common Stock

      If our products are not accepted by the market, our business could fail. Our success will depend on market acceptance of our needle-free injection drug delivery systems, the Biojector® 2000 system and the Vitajet® system and on market acceptance of other products under development. If our products do not achieve market acceptance, our business could fail. Currently, the dominant technology used for intramuscular and subcutaneous injections is the hollow-needle syringe. Use of the Biojector® 2000 system for intramuscular and subcutaneous injections eliminates the risk associated with needle syringes; however, the cost per injection is significantly higher. The Biojector® 2000, the Iject^TM system, the Vitajet® system or any of our products under development may be unable to compete successfully with needle-syringes. A previous needle-free injection system manufactured by us did not achieve market acceptance and is no longer being marketed.

      We may be unable to enter into additional strategic corporate licensing and distribution agreements or maintain existing agreements, which could cause our business to suffer. A key component of our sales and marketing strategy is to enter into licensing and supply arrangements with leading pharmaceutical and biotechnology companies for whose products our technology provides either increased medical effectiveness or a higher degree of market acceptance. If we cannot enter into these agreements on terms favorable to us or at all, our business may suffer. In January 1995, we entered into an agreement with Hoffman La Roche Pharmaceuticals, whereby the parties anticipated that the product development phase of the agreement would develop into a supply and distribution agreement between us and Roche. In June 1999, Roche advised us that due to a longer and more costly than expected regulatory process to gain clearance to use the B-2020 in conjunction with Roche’s products, Roche had changed its marketing strategy. In making that change in marketing strategy, Roche abandoned its exclusive distribution rights to the B-2020 and did not seek a supply of the B-2020 from us.

      In July 1998, we entered into an agreement with Merck & Co., whereby the parties anticipated that the initial July 1998 agreement would lead to a long-term licensing and supply agreement between the two companies. In February 1999, Merck & Co. advised us that it would not continue, at that time, to pursue exclusive license to or supply of our products.

      In February 2000, we entered into a clinical development and supply agreement with Amgen, Inc. for our disposable Iject® system for delivery of two undisclosed medical indications. The agreement also gave Amgen options to license the Iject® for additional indications. In October 2001, we amended our agreement with Amgen to develop the Iject® device to include scope changes to the project. In December 2001, we signed a new agreement with Amgen to provide for the exclusive worldwide license of certain patents and intellectual property related to our B2000 System for certain drug indications. Unless extended pursuant to the agreement

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      All of the above agreements resulted in significant short-term revenue. None of the agreements developed into the long-term revenue stream anticipated by our strategic partnering strategy.

      We may be unable to enter into future licensing or supply agreements with major pharmaceutical or biotechnology companies. Even if we enter into these agreements, they may not result in sustainable long-term revenues which, when combined with revenues from product sales, could be sufficient for us to operate profitably.

      We have a history of losses and may never be profitable. Since our formation in 1985, we have incurred significant annual operating losses and negative cash flow. At March 31, 2002, we had an accumulated deficit of $75.6 million. $62.6 million of the accumulated deficit relates to losses incurred in the needle-free segment of our operations. Approximately $13 million of the accumulated deficit relates to losses from our operations to develop the blood glucose monitoring technology, which was discontinued and sold to a third party in fiscal 2000. We may never be profitable, which could have a negative effect on our stock price. Historically, our revenues have been derived primarily from licensing and technology fees and from limited product sales. The product sales were principally sales to dealers in order to stock their inventories and to Homecare Management Inc., a company that we no longer sell to. More recently, we have sold our products to strategic partners, who market our products under their brand name and to end-users such as public health clinics for vaccinations and nursing organizations for flu immunizations. We have not attained profitability at these sales levels. We may never be able to generate significant revenues or achieve profitability.

      We have reduced our sales force and may be unable to penetrate targeted market segments. In late fiscal 1998 and early fiscal 1999, we dramatically reduced our direct product sales force from one national and five district sales managers. We currently have one national sales manager who is focused on specifically targeted market segments. This reduced sales force may not have sufficient resources to adequately penetrate one or more of the targeted market segments. Further, if the sales force is successful in penetrating one or more of the targeted market segments, we are unable to assure you that our products will be accepted in those segments or that product acceptance will result in product revenues which, together with revenues from corporate licensing and supply agreements, will be sufficient for us to operate profitably.

      We have limited manufacturing experience, and may be unable to produce our products at the unit costs necessary for the products to be competitive in the market, which could cause our financial condition to suffer. We have limited experience manufacturing our products in commercially viable quantities. We have increased our production capacity for the Biojector® 2000 system and the Vitajet product line through automation of, and changes in, production methods, in order to achieve savings through higher volumes of production. If we are unable to do so, then our results of operations and financial condition could suffer. The current cost per injection of the Biojector® 2000 system and Vitajet® product line is substantially higher than that of traditional needle-syringes, our principal competition. A key element of our business strategy has been to reduce the overall manufacturing cost through automating production and packaging. There can be no assurance that we will achieve sales and manufacturing volumes necessary to realize cost savings from volume production at levels necessary to result in significant unit manufacturing cost reductions. Failure to do so will continue to make competing with needle-syringes on the basis of cost very difficult and will adversely affect our financial condition and results of operations. We may be unable to successfully manufacture devices at a unit cost that will allow the product to be sold profitably. Failure to do so would adversely affect our financial condition and results of operations.

      We are subject to extensive government regulation and must continue to comply with these regulations or our business could suffer. Our products and manufacturing operations are subject to extensive government regulation in both the U.S. and abroad. If we cannot comply with these regulations, we may be unable to distribute our products, which could cause our business to suffer or fail. In the U.S., the development, manufacture, marketing and promotion of medical devices are regulated by the Food and Drug Administration (“FDA”) under the Federal Food, Drug, and Cosmetic Act (“FFDCA”). In 1987, we received clearance from the FDA under Section 510(k) of the FFDCA to market a hand-held CO²-powered needle-free

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      Future changes to manufacturing procedures could require that we file a new 510(k) notification. Also, future products, product enhancements or changes, or changes in product use may require clearance under Section 510(k), or they may require FDA pre-market approval (“PMA”) or other regulatory clearances. PMAs and regulatory clearances other than 510(k) clearance generally involve more extensive prefiling testing than a 510(k) clearance and a longer FDA review process. Under current FDA policy, applications involving pre-filled syringes would be evaluated by the FDA as drugs rather than devices, requiring FDA new drug applications or abbreviated new drug applications. Depending on the circumstances, drug regulation can be much more extensive and time consuming than device regulation.

      FDA regulatory processes are time consuming and expensive. Product applications submitted by the Company may not be cleared or approved by the FDA. In addition, our products must be manufactured in compliance with Good Manufacturing Practices as specified in regulations under the FFDCA. The FDA has broad discretion in enforcing the FFDCA, and noncompliance with the FFDCA could result in a variety of regulatory actions ranging from product detentions, device alerts or field corrections, to mandatory recalls, seizures, injunctive actions, and civil or criminal penalties.

      If we cannot meet international product standards, we will be unable to distribute our products outside of the United States, which could cause our business to suffer. Distribution of our products in countries other than the U.S. may be subject to regulation in those countries. Failure to satisfy these regulations would impact our ability to sell our products in these countries and could cause our business to suffer. In January 1999, we received certification from TUV Product Services for our quality system, which meets the requirements of ISO 9001 and EN 46001. In November 1999, we received certification from TUV Product Services for the applicable requirements of EC-Directive 93/42/EEC Annex. II.3 Medical Device Directive. This certification allows us to label our products with the CE Mark and sell them in the European Community. We may be unable to continue to meet the standards of ISO 9001 or CE Mark certification.

      If the healthcare industry limits coverage or reimbursement levels, the acceptance of our products could suffer. The price of our products exceeds the price of needle-syringes and if coverage or reimbursement levels are reduced, market acceptance of our products could be harmed. The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare facilities. During the past several years, the healthcare industry has been subject to increased government regulation of reimbursement rates and capital expenditures. Among other things, third party payers are increasingly attempting to contain or reduce healthcare costs by limiting both coverage and levels of reimbursement for healthcare products and procedures. Because the price of the Biojector® 2000 system and Vitajet® product line exceeds the price of a needle-syringe, cost control policies of third party

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      We depend on outside suppliers for manufacturing. Our current manufacturing processes for the Biojector® 2000 jet injector and disposable syringes as well as manufacturing processes to produce the Vitajet® consist primarily of assembling component parts supplied by outside suppliers. Some of these components are currently obtained from single sources, with some components requiring significant production lead times. In the past, we have experienced delays in the delivery of certain components. To date, such delays have not had a material adverse effect on our operations. We may experience delays in the future, and these delays could have a material adverse effect on our financial condition and results of operations.

      If we are unable to manage our growth, our results of operations could suffer. If our products achieve market acceptance or if we are successful in entering into product supply agreements with major pharmaceutical or biotechnology companies, we expect to experience rapid growth. Such growth would require expanded customer service and support, increased personnel, expanded operational and financial systems, and implementing new and expanded control procedures. We may be unable to attract sufficient qualified personnel or successfully manage expanded operations. As we expand, we may periodically experience constraints that would adversely affect our ability to satisfy customer demand in a timely fashion. Failure to manage growth effectively could adversely affect our financial condition and results of operations.

      We may be unable to compete in the medical equipment field, which could cause our business to fail. The medical equipment market is highly competitive and competition is likely to intensify. If we cannot compete, our business will fail. Our products compete primarily with traditional needle-syringes, “safety syringes” and also with other alternative drug delivery systems. While we believe our products provide a superior drug delivery method, there can be no assurance that we will be able to compete successfully with existing or newly developed drug delivery products. Many of our competitors have longer operating histories as well as substantially greater financial, technical, marketing and customer support resources. One or more of these competitors may develop an alternative drug delivery system that competes more directly with our products, and our products may be unable to compete successfully with such a product.

      We are dependent on a single technology, and if it cannot compete or find market acceptance, our business will suffer. Our strategy has been to focus our development and marketing efforts on our needle-free injection technology. Focus on this single technology leaves us vulnerable to competing products and alternative drug delivery systems. If our technology cannot find market acceptance or cannot compete against other technologies, business will suffer. We perceive that healthcare providers’ desire to minimize the use of the traditional needle-syringe has stimulated development of a variety of alternative drug delivery systems such as “safety syringes,” jet injection systems, nasal delivery systems and transdermal diffusion “patches”. In addition, pharmaceutical companies frequently attempt to develop drugs for oral delivery instead of injection. While we believe that for the foreseeable future there will continue to be a significant need for injections, alternative drug delivery methods may be developed which are preferable to injection.

      We rely on patents and proprietary rights to protect our proprietary technology. We rely on a combination of trade secrets, confidentiality agreements and procedures, and patents to protect our proprietary technologies. We have been granted a number of patents in the United States and several patents in other countries covering certain technology embodied in our current jet injection system and certain manufacturing processes. Additional patent applications are pending in the U.S. and certain foreign countries. The claims contained in any patent application may not be allowed, or any patent or our patents collectively may not provide adequate protection for our products and technology. In the absence of patent protection, we may be vulnerable to competitors who attempt to copy our products or gain access to our trade secrets and know-how. In addition, the laws of foreign countries may not protect our proprietary rights to this technology to the same extent as the laws of the U.S. We believe we have independently developed our technology and attempt to ensure that our products do not infringe the proprietary rights of others. We know of no such infringement claims. However, any claims could have a material adverse effect on our financial condition and results of operations.

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      If our products fail or cause harm, we could be subject to substantial product liability, which could cause our business to suffer. Producers of medical devices may face substantial liability for damages in the event of product failure or if it is alleged the product caused harm. We currently maintain product liability insurance and, to date, have experienced only one product liability claim. There can be no assurance, however, that we will not be subject to a number of such claims, that our product liability insurance would cover such claims, or that adequate insurance will continue to be available to us on acceptable terms in the future. Our business could be adversely affected by product liability claims or by the cost of insuring against such claims.

      We are highly dependent on our key employees, and our business could suffer if they were to leave. Our success depends on the retention of our executive officers, Mr. James O’Shea, Mr. John Gandolfo, Mr. Michael Temple, Dr. Richard Stout, Mr. Michael Redmond, and other key employees. Competition exists for qualified personnel and our success will depend, in part, on attracting and retaining qualified personnel. Failure in these efforts could have a material adverse effect on our business, financial condition or results of operations.

      There are a large number of shares eligible for sale into the public market in the near future, which may reduce the price of our common stock. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market, or the perception that such sales could occur. We have a large number of shares of common stock outstanding and available for resale beginning at various points in time in the future. These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. The shares of our common stock currently outstanding will become eligible for sale without registration pursuant to Rule 144 under the Securities Act, subject to certain conditions of Rule 144. Certain holders of our common stock also have certain demand and piggyback registration rights enabling them to register their shares under the Securities Act for sale. We have registered approximately 12.0 million shares for resale on Form S-3 registration statements, including approximately 3.8 million shares issuable upon exercise of warrants and 2.7 million shares issuable upon conversion of preferred stock held by Elan Pharmaceutical Investments, Ltd. In addition, we have approximately 580,000 shares of common stock reserved for future grant under our stock option plan. As of March 31, 2002, options to purchase approximately 1.79 million shares of common stock were outstanding and will be eligible for sale in the public market from time to time subject to vesting. These stock options generally have exercise prices significantly below the current price of our common stock. The possible sale of a significant number of these shares may cause the price of our common stock to fall.

      Our stock price may be highly volatile, which increases the risk of securities litigation. The market for our common stock and for the securities of other early-stage, small market-capitalization companies has been highly volatile in recent years. This increases the risk of securities litigation relating to such volatility. We believe that factors such as quarter-to-quarter fluctuations in financial results, reduction in the number of outstanding shares due to the recent reverse stock split, new product introductions by us or our competition, public announcements, changing regulatory environments, sales of common stock by certain existing shareholders, substantial product orders and announcement of licensing or product supply agreements with major pharmaceutical or biotechnology companies could contribute to the volatility of the price of our common stock, causing it to fluctuate dramatically. General economic trends such as recessionary cycles and changing interest rates may also adversely affect the market price of our common stock.

Item 2.     Properties

      Our principal manufacturing and support facilities are located in Portland, Oregon in approximately 23,000 square feet of leased office and manufacturing space. The lease, which expires March 31, 2004, has a five-year renewal option. The monthly minimum lease obligation for this facility is approximately $16,000. This facility includes our sales and certain administration offices, research and engineering facilities and manufacturing facilities. The manufacturing facilities include a clean room assembly area, assembly line, testing facilities and warehouse area.

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      In December 2001, we purchased a new 5,000 square foot facility in New Jersey, which houses our executives and certain other offices. The purchase price of the facility was $1.375 million and was paid for with existing cash.

      We also lease additional warehouse space, totaling approximately 5,000 square feet, for finished goods storage and shipments to customers. This lease, which expires in September 2004, has a five-year renewal option, and minimum monthly lease obligations totaling $2,000.

      We believe that our current facilities will be sufficient to support our anticipated manufacturing operations and other needs for the next three to five fiscal years. We believe that, if necessary, we will be able to obtain alternative facilities at rates and under terms comparable to those of the current leases.

Item 3.     Legal Proceedings

      As of the date of filing this Form 10-K, we are not a party to any litigation that could have a material adverse affect on our financial position or results of operations.

Item 4.     Submission of Matters to a Vote of Security Holders

      None.

PART II

Item 5.     Market for the Registrant’s Common Equity and Related Stockholder Matters

      Our common stock trades on the Nasdaq SmallCap Market under the Symbol “BJCT.” The following table sets forth the high and low closing sale prices of our common stock.

      As of June 5, 2002, there were 1,152 shareholders of record and approximately 8,300 beneficial shareholders.

      We have not declared any dividends during our history and have no intention of declaring a dividend in the foreseeable future.

      In March 2002, we issued 38,000 shares of our common stock to Mr. Sergio Landau in exchange for services provided. The shares issued to Mr. Landau had a fair market value of $3.85 per share, for a total value of $146,000, on the date of issuance. Mr. Landau represented to us that he is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act of 1933. In issuing these securities, we relied on an exemption from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933.

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Item 6.     Selected Consolidated Financial Data

      The consolidated statement of operations and balance sheet data set forth below for the five fiscal years in the period ended March 31, 2002, have been derived from our consolidated financial statements. The selected consolidated financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.

Selected Consolidated Financial Information

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Overview

      We develop needle-free injection systems that improve the way patients take medications and vaccines.

      Our long-term goal is to become the leading supplier of needle-free injection systems to the pharmaceutical industry. In fiscal 2002, we focused our business development efforts on new and existing licensing and supply agreements with leading pharmaceutical and biotechnology companies. By bundling customized needle-free delivery systems with partners’ injectable medications and vaccines, we can enhance demand for these products in the healthcare provider and end user markets.

      In fiscal 2002, our clinical research efforts were aimed primarily at clinical research collaborations in the areas of vaccines and delivery. Currently, we are involved in collaborations with approximately 30 institutions.

      In fiscal 2002, our other research and development efforts were primarily focused on the development of the smaller, lighter Iject^TM II, and the pre-filled, disposable intradermal injector. The Iject^TM II has been modeled using a more streamlined design, thus making it more cost effective to manufacture while retaining the same flexibility and performance characteristics of the original Iject^TM. The Iject^TM II will be more economical for mid-priced injectable drugs. For vaccine delivery, we are developing a pre-filled, disposable intradermal injector containing a very small power source and drug container, making it ideal for intradermal injections, which are typically 0.1 ml in volume.

      Revenues and results of operations have fluctuated and can be expected to continue to fluctuate significantly from quarter to quarter and from year to year. Various factors may affect quarterly and yearly operating results including: i) the length of time to close product sales; ii) customer budget cycles; iii) the implementation of cost reduction measures; iv) uncertainties and changes in product sales due to third party payer policies and proposals relating to healthcare cost containment; v) the timing and amount of payments under licensing and technology development agreements; and vi) the timing of new product introductions by us and our competitors.

      We do not expect to report net income from operations in fiscal 2003.

Results of Operations

      Product sales increased to $3.2 million in fiscal 2002 from $1.4 million in fiscal 2001 and $702,000 in fiscal 2000. Product sales in fiscal 2001 and 2000 consisted primarily of sales to public health and flu immunization clinics. The increase in product sales in fiscal 2002 is primarily due to sales of our cool.click^TM and SeroJet^TM to Serono. Serono uses the cool.click^TM for administering Saizen® recombinant human growth hormone and uses the SeroJet^TM for AIDS wasting applications. The increase in fiscal 2001 is primarily due to increases in unit sales volumes for B-2000 and cool.click^TM devices and syringes primarily to existing customers.

      License and development fees increased to $2.0 million in fiscal 2002 from $658,000 in fiscal 2001 and $578,000 in fiscal 2000. We signed several license and technology development agreements in fiscal 2002. We received licensing fees from Serono during each quarter of fiscal 2002 and, beginning in the third quarter of fiscal 2002, we also received license fees and/or technology development fees from Alkermes, Elan and Amgen. We received a non-refundable development fee of $1.0 million in the third quarter of fiscal 2002 from Amgen, which was to be recognized over the term of our agreement with them. However, in the fourth quarter of fiscal 2002, Amgen terminated its license and development agreement and, accordingly, we recognized the entire $1.0 million in the fourth quarter of fiscal 2002. No amounts are expected to be received from Amgen under these agreements in fiscal 2003.

      The increase in license and development fees in fiscal 2001 compared to fiscal 2000 is primarily due to the timing of various licensing fees received from existing strategic corporate partnership agreements. In addition, during the third quarter of fiscal 2001, we amended our agreement with Serono to provide them with exclusive worldwide distribution rights for their Saizen® recombinant human growth hormone using a customized version of our Vitajet® needle-free delivery system called the cool.click^TM. In addition, Serono was given

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      Manufacturing expense is made up of the cost of products sold and manufacturing overhead expense related to excess manufacturing capacity. Manufacturing expense increased to $4.7 million in fiscal 2002 from $2.8 million in fiscal 2001 and $1.8 million in fiscal 2000. We experienced increased costs in fiscal 2002 due to an increase in manufacturing personnel and unit sales volumes. In addition, in the third quarter of fiscal 2002 we incurred one-time costs associated with the start-up of production of the SeroJet^TM, which will be used by Serono for AIDS wasting applications. The increase in fiscal 2001 manufacturing expense is due to increased sales volume of B-2000 and cool.click^TM devices and syringes, and production costs related to the commercialization of the cool.click^TM. In addition, in fiscal 2001, we expensed $379,000 related to the disposal of specialized fixed assets no longer being utilized.

      Research and development expense increased to $2.8 million in fiscal 2002 from $2.1 million in fiscal 2001 and $1.3 million in fiscal 2000. The increase in fiscal 2002 compared to fiscal 2001 is primarily due to increased payroll and related expenses and travel expenses associated with research collaborations and the development of the Iject^TM disposable, the Iject^TM II disposable, the intradermal Iject^TM II and various other new product developments and improvements. The increase in fiscal 2001 compared to fiscal 2000 is primarily due to increased activity associated with the development of the Iject^TM disposable and multi-use injectors and increased clinical studies and related activities.

      Selling, general and administrative expense increased to $4.8 million in fiscal 2002 from $2.9 million in fiscal 2001 and $2.5 million in fiscal 2000. Approximately $496,000 of the increase in fiscal 2002 resulted from non-cash charges related primarily to the issuance of common stock, stock options and warrants for consulting services and the issuance of restricted stock to each current non-employee director in lieu of cash compensation. The remaining increase is primarily attributable to increases in payroll and related expenses, travel, recruiting and professional fees. We hired two new executive officers, an Executive Vice President, General Manager and a Chief Financial Officer, in the second and third quarters of fiscal 2002, respectively, which contributed to the overall increase in salaries and related expenses in the second half of fiscal 2002. Increased payroll and related expenses, travel, consulting and accounting related fees and compensation expenses associated with the issuance of warrants and restricted stock accounted for the increase in fiscal 2001 compared to fiscal 2000.

      Interest income increased to $1.2 million in fiscal 2002 from $849,000 in fiscal 2001 and $126,000 in fiscal 2000. The increase in fiscal 2002 compared to fiscal 2001 is due to higher cash balances, partially offset by lower interest rates. The increase in cash and cash equivalent balances in fiscal 2002 resulted from the following:

	•	net proceeds of $14.6 million from the sale of 1.63 million shares in private placements during May and June 2001;
	•	net proceeds of $3.4 million from the private placement of 350,000 shares of common stock in a private placement in December 2001;
	•	net proceeds of $1.9 million from Elan’s exercise of warrants during December 2001; and
	•	a $1.0 million license fee received from Amgen in December 2001.

      These increases were offset in part by:

	•	$1.375 million used for the purchase of a new facility;
	•	$578,000 used for other capital expenditures; and
	•	$6.661 million used in operations during fiscal 2002.

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      The increase in fiscal 2001 is due to increased interest income resulting from increased cash balances, which resulted from net proceeds of $10.3 million from the private placement of 1.43 million shares of common stock in July and August 2000.

      Other expense of $93,000 represents a loss and real estate fees recognized on the resale of a house purchased from our Chief Executive Officer in conjunction with his relocation from Oregon to New Jersey in the fourth quarter of fiscal 2002.

      Preferred dividends of $2.5 million in fiscal 2002 include a non-cash charge of $1.7 million in fiscal 2002 related to the required accounting for changes made to the rights of the outstanding Series A Preferred Stock held by Elan. As of October 15, 2001, the Series A Preferred Stock ceased to accrue a 9% cumulative dividend.

      Loss from discontinued operations in fiscal 2000 relates to the operating loss from our former operations to develop and commercialize blood glucose monitoring technology, the license to which was sold in June 1999.

      Gain on sale of discontinued operations of $2.9 million in fiscal 2000 represents the gain recognized from the sale of our blood glucose monitoring technology, and certain fixed assets related to developing that technology, to a third party on June 30, 1999.

Liquidity and Capital Resources

      Since our inception in 1985, we have financed our operations, working capital needs and capital expenditures primarily from private placements of securities, the exercise of stock options and warrants, proceeds received from our initial public offering in 1986, proceeds received from a public offering of common stock in November 1993, licensing and technology revenues and revenues from sales of products. Net proceeds received from issuance of securities from inception through March 31, 2002 totaled approximately $100 million. We completed a round of equity financing in May and June 2001, selling 1.63 million shares of our common stock for $10.00 per share for net proceeds of $14.6 million. In addition, in December 2001, Elan exercised a warrant for 252,666 shares of our common stock, which resulted in net proceeds of $1.9 million and we completed an equity financing, selling 350,000 shares of our common stock for $11.00 per share, which resulted in net proceeds of $3.4 million.

      Total cash and short and long-term marketable securities at March 31, 2002 were $27.0 million compared to $15.1 million at March 31, 2001. Working capital at March 31, 2002 was $13.4 million compared to $12.9 million at March 31, 2001.

      Net accounts receivable increased to $1.7 million at March 31, 2002 from $440,000 at March 31, 2001. Included in the balance at March 31, 2002, was $1.1 million due from Serono, all of which was collected in the first quarter of fiscal 2003.

      Inventories increased to $1.5 million at March 31, 2002 from $1.0 million at March 31, 2001 due to increases in raw materials and finished goods related to the production of the cool.click^TM and SeroJet^TM.

      Accounts payable increased to $615,000 at March 31, 2002 from $323,000 at March 31, 2001 due primarily to increased inventory purchases.

      Deferred revenue decreased to $386,000 at March 31, 2002 from $469,000 at March 31, 2001 primarily due to the recognition of Serono licensing fee revenues in fiscal 2002. Deferred revenue at March 31, 2002 primarily relates to unrecognized Serono license fees.

      Receivable from related party of $150,000 at March 31, 2002 relates to a three-year, non-interest bearing loan to our Chief Executive Officer, related to his relocation assistance from Oregon to New Jersey. The note will be forgiven over the three-year term of the note at a rate of $50,000 in each of January 2003, 2004 and 2005, so long as he remains Bioject’s Chief Executive Officer.

      Capital expenditures totaled $2.0 million in fiscal 2002, primarily for the purchase of a new office building, an ERP computer system and manufacturing automation and molds. The $1.8 million of assets in

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New Accounting Pronouncements

      In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment. The adoption of SFAS No. 141 did not have a significant impact on our financial condition or results of operations and we expect that the adoption of SFAS No. 142 will not have a significant impact on our financial condition or results of operations.

      In August 2001, the FASB approved SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. In October 2001, the FASB approved SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of ” (“SFAS 121”) and the accounting and reporting provisions of APB No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” for the disposal of a segment of a business. SFAS No. 144 retains many of the fundamental provisions of SFAS No. 121, but resolves certain implementation issues. The provisions of SFAS Nos. 143 and 144 were adopted April 1, 2002 and did not have a significant impact on our financial position or results of operations.

Critical Accounting Policies

      The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Pursuant to December 2001 Securities and Exchange Commission guidance, we have prepared the following discussion of critical accounting policies. See Note 2 to our Consolidated Financial Statements for additional information.

      Our critical accounting policies include the following:

	•	revenue recognition for product development and license fee revenues; and
	•	inventory reserves.

      In accordance with Staff Accounting Bulletin 101 (“SAB 101”), “Revenue Recognition in Financial Statements,” product development revenue is recognized on a percentage of completion basis as qualifying expenditures are incurred and licensing revenues, if separable, are recognized over the term of the license agreement. Should agreements be terminated prior to completion or our estimates of percentage of completion be incorrect, we could have unanticipated fluctuations in our revenue on a quarterly basis. The FASB’s Emerging Issues and Task Force (“EITF”) is evaluating the accounting for multiple element arrangements in

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      We regularly evaluate the realizability of our inventory based on a combination of factors including the following: historical and forecasted sales and usage rates, anticipated technology improvements and product upgrades, as well as other factors. All inventories are reviewed annually to determine if inventory carrying costs exceed market selling prices and if certain components have become obsolete. We record reserves for inventory based on the above factors. If circumstances related to our inventories change, our estimates of the realizability of inventory could materially change.

Forward Looking Statements

      This Form 10-K contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning prospects for future strategic corporate relationships, current corporate partners, prospects for sales of our products into new, high leverage markets, and generally heightened prospects for the adoption and use of needle-free technology. Such forward looking statements (often, but not always, using words or phrases such as “expects” or “does not expect,” “is expected,” “anticipates” or “does not anticipate,” “plans,” “estimates” or “intends,” or stating that certain actions, events or results “may,” “could,” “would,” “might” or “will” be taken, occur or be achieved) involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward looking statements. Some of the risk factors that could cause actual results to differ from those projected in forward looking statements are described under the heading “Factors that May Affect Our Business and Our Common Stock.”

      Forward-looking statements are based on the estimates and opinions of management on the date the statements are made. We assume no obligation to update forward-looking statements if conditions or management’s estimates or opinions should change, even if new information becomes available or other events occur in the future.

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk

      No disclosure is required under this item.

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Item 8.     Consolidated Financial Statements and Supplementary Data

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of Bioject Medical Technologies Inc:

      We have audited the accompanying consolidated balance sheet of Bioject Medical Technologies Inc. (an Oregon Corporation) and subsidiaries as of March 31, 2002 and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

      We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bioject Medical Technologies Inc. and subsidiaries as of March 31, 2002 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

	KPMG LLP

Portland, Oregon

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS*

To the Board of Directors and Shareholders of Bioject Medical Technologies Inc:

      We have audited the accompanying consolidated balance sheets of Bioject Medical Technologies Inc. (an Oregon corporation) and subsidiaries as of March 31, 2001, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the two years in the period ended March 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bioject Medical Technologies Inc. and subsidiaries, as of March 31, 2001, and the results of their operations and their cash flows for each of the two years in the period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States.

	/s/ ARTHUR ANDERSEN LLP

Portland, Oregon

*	This report is a copy of a previously issued Arthur Andersen LLP report and this report has not been reissued by Arthur Andersen LLP.

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BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

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BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements.

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BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY