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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 0-18044
PROCYTE CORPORATION
(exact name of registrant as specified in its charter)
WASHINGTON 91-1307460
- ---------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
12040-115th AVENUE N.E., SUITE 210, KIRKLAND, WA 98034-6900
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (206)820-4548
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Securities registered pursuant to Section 12(b) of the Act NONE
Securities registered pursuant to the Section 12(g) of the Act: COMMON STOCK,
PAR VALUE $.01
PER SHARE
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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 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to the filing requirements for the
past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquency filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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 Form10-K { }.
As of March 21, 1996, there were issued and outstanding 13,338,965 shares of
common stock, par value $.01 per share.
The aggregate market value of common stock held by non-affiliates as of March
20, 1996 was $43,014,175, based upon the average of the closing high and low
prices of such stock as reported by the Nasdaq Stock Market.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in Parts I, II,
III and IV of this Form 10-K report (1) the Proxy Statement for the Registrant's
1996 Annual Meeting of Shareholders scheduled to be held May 14, 1996, and (2)
the Registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1995.
PROCYTE CORPORATION
1995 FORM10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1: Business
1
Item 2: Properties
10
Item 3: Legal Proceedings 10
Item 4: Submission of Matters to a
Vote of Security Holders 10
PART II
Item 5: Market for the Company's Common Stock and
Related Shareholder Matters 10
Item 6: Selected Financial Data 11
Item 7: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Item 8: Financial Statements 11
Item 9: Changes in and Disagreements
with Accountants 11
PART III
Item 10: Directors and Executive Officers
of the Company 12
Item 11: Executive Compensation 12
Item 12: Security Ownership of Certain Beneficial Owners 12
Item 13: Certain Relationships and Related Transactions 12
PART IV
Item 14: Exhibits, Financial Statements Schedules,
and Reports on From 8-K 12
PART I
ITEM 1: BUSINESS
Certain of the information required by this Part is incorporated by
reference to the information under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" on pages 10-14 of
the Registrant's 1995 Annual Report to Shareholders.
INTRODUCTION
ProCyte's mission is to become a fully integrated healthcare products
and services company through continued pursuit of its threefold strategy which
the Company implemented in 1995 in an effort to build long-term shareholder
value. This strategy includes: (1) continued development of certain of the
Company's proprietary family of copper-based compounds for therapeutic and other
applications; (2) utilization of the Company's manufacturing facility to serve
both the Company's own clinical and commercial needs as well as to address the
contract manufacturing needs of selected industry clients; (3) continued
evaluation and, as appropriate, acquisition, of in-licensing or cross-licensing
of technologies or products which complement the Company's wound care product
focus. In addition, the Company will continue to seek corporate partners or
out-licensing opportunities to develop and/or distribute certain of its
technology or products.
In 1995, the Company, with its corporate partners, had three copper-
based drug candidates in clinical development. The Company commenced and
completed a Phase I safety assessment in humans of PC1358, tradenamed
Tricomin-Registered Trademark- solution. In October 1995, the Company commenced
a Phase II study of this compound to continue to study its safety in human use
and to begin to evaluate the effect of the compound versus placebo in treatment
of early to mid-stage androgenetic alopecia (male pattern baldness).
In 1995, the Company also commenced an expanded Phase I/II safety and
initial effectiveness study in humans of PC1020, administered via retention
enema, for the potential treatment of mild to moderate ulcerative colitis. The
study of this compound, tradenamed Iamin-IB-Registered Trademark- solution,
continued through 1995 and is expected to be completed in 1996.
ProCyte's partner for the development of its Iamin-Registered
Trademark- gel wound healing technology in Japan, Taiwan, China and Korea is
Kissei Pharmaceutical Co., Ltd. In 1995, Kissei commenced a Phase I safety
evaluation of Iamin-Registered Trademark- gel in Japan.
In August 1995, ProCyte submitted a 510(k) pre-market notification to
the United States Food and Drug Administration (FDA) for clearance to market
Iamin-Registered Trademark- gel in the United States as a topical gel for the
care and management of chronic and acute wounds. The FDA granted ProCyte
clearance to market this over-the-counter product in February 1996 for all wound
types with the exception of third degree burns.
ProCyte presently is planning IN VITRO and/or human clinical studies
or has such studies in progress in the U.S. and/or the U.K. for the continued
evaluation of Iamin-Registered Trademark- gel as a potential therapeutic agent.
ProCyte and its collaborators at various government and academic
institutions continued research on the Company's phenanthroline compounds in
1995. This family of copper-containing compounds has been shown in IN VITRO
studies to inhibit a variety of disease-causing viruses by one of several
mechanisms, including cell-cell fusion. Currently, the Company has relegated
further effort in this area of research primarily to a smaller role within the
Company given ProCyte's internal resource commitment to wound care and contract
manufacturing priorities.
1
ProCyte Corporation is a Washington corporation organized in 1986.
There can be no assurance that the Company will commence or
successfully complete preclinical or clinical testing or commercial development,
including commercial-scale manufacturing and market launch of any of the product
candidates identified above, or that, if successfully developed, such product
candidates will be approved or cleared for sale by the FDA for sale in the
United States or by comparable regulatory authorities for sale in other
countries. Approval of a product for marketing in one country does not ensure
approval for marketing in other countries. Launch of a product does not ensure
market acceptance. The results of Phase I, Phase II or Phase III studies are
not necessarily indicative of efficacy or safety of a commercial product for
human use.
ProCyte's second strategic goal in 1995 was to expand the utilization
of the Company's manufacturing plant, which was commissioned in 1994, by
providing contract manufacturing services to industry clientele. The Company
currently utilizes the plant for the clinical and planned commercial manufacture
of the Company's own bulk drug candidates and planned wound care products.
Additionally, in 1995, the Company began to offer contract manufacturing
services to clients in the biotechnology, pharmaceutical, fine chemical and food
products industries.
By year end 1995, ProCyte had provided or was still performing
contract manufacturing services on behalf of ten clients, including two
multinational pharmaceutical companies and several biotechnology companies.
Given the risks and uncertain timelines associated with pharmaceutical and
biotechnology products being developed, tested, reviewed or sold by clients of
the manufacturing facility, the Company will be required to strive to maintain
sufficient clientele to counter the effect that regulatory delays, product
failures, product recalls, and other such circumstances may have on its contract
manufacturing capabilities and revenues.
ProCyte expects to continue to provide contract manufacturing services
in the future, and to produce clinical and commercial quantities of certain of
its peptide-copper compounds for its use and those of present or future
partners. The Company expects to utilize approximately 85% of the plant's
current capacity for these endeavors in 1996, though, for the reasons outlined
above, and including such things as unexpected or unsuccessful plant audits or
regulatory inspections, the potential impact of adverse weather conditions on
plant operations, the decision of a client to manufacture its own products or
have them manufactured elsewhere, market acceptance of clients' products, and
competition, there can be no assurance that it will be successful.
The third primary area of business focus being pursued by the Company
builds upon the Company's pioneering research expertise in the complex field of
wound care and healing. In November 1995, the Company acquired the exclusive
worldwide rights, outside of Asia, to a novel polymer technology, known as
HYPAN-Registered Trademark-, and five FDA-cleared wound care products based on
this technology. ProCyte also acquired the rights to a sixth FDA-cleared wound
care product, known as HyFil, for which it shares non-exclusive distribution
rights in North America with B. Braun Medical Supplies, Inc. Additionally,
ProCyte acquired the exclusive worldwide rights for the use of the technology
for future drug delivery applications in the field of wound healing.
At present, Company scientists are actively investigating uses of the
HYPAN-Registered Trademark- technology, while ProCyte's manufacturing team is
seeking to develop cost-effective commercialization processes. While the FDA
has cleared six HYPAN-Registered Trademark--based wound care products for
marketing, these products may or may not be among the first introduced by
ProCyte. ProCyte is charting new territory in the development of polymer
manufacturing processes and anticipates that initial development will take at
least six months to successfully devise pilot scale production methodology for
HYPAN-Registered Trademark--based products. However, given such things as
unexpected difficulties in scaling-up the full scale commercial manufacturing
processes, obtaining suitable
2
raw materials, and staffing the production operation, there can be no assurance
that the Company will be able to commercialize the technology in a cost-
effective, timely manner, if at all.
PATENTS AND PROPRIETARY RIGHTS
ProCyte's success depends in part upon its ability to protect its
products and technology under intellectual property laws in the Unites States
and abroad. As of December 31, 1995, the Company had 16 issued United States
patents expiring between 2005 and 2010, and 123 issued foreign patents and
patent registrations. The patents relate to use of the Company's copper-based
technology for a variety of healthcare applications, and to the composition of
certain biologically active, synthesized compounds. The Company's strategy has
been to apply for patent protection for certain compounds and their discovered
uses that are believed to have potential commercial value in countries which
offer significant market potential.
The Company currently holds several registered trademarks for its
product candidates. There can be no assurance as to the breadth or degree of
protection that the Company's existing trademarks or patents, or any additional
trademarks or patents that may be granted in the future, will afford the
Company, or that any additional trademarks or patents will be issued to the
Company. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary technology that is
not covered by the Company's patents or that others will not be issued patents
that may prevent the Company's manufacture, sale or use of the Company's
proposed products or require licensing and the payment of significant fees or
royalties by the Company for the pursuit of its business. Litigation, which
could result in substantial cost to the Company, may be necessary to enforce the
Company's patents or to determine the scope and validity of other parties'
proprietary rights. If the outcome of any such litigation were adverse, the
Company's business could be materially affected. The Company is unable to
predict how courts would resolve any future issues relating to the validity and
scope of the Company's patents or trademarks should they be challenged.
The Company also intends to rely on its unpatented proprietary know-
how, and there can be no assurance that others will not develop or acquire
equivalent proprietary information. To the extent that corporate partners or
consultants apply Company technological information independently developed by
them or by others to Company projects or apply Company technology or know-how to
other projects, disputes may arise as to the ownership of proprietary rights to
such information.
EXISTING CORPORATE LICENSE AGREEMENTS
HYMEDIX INTERNATIONAL, INC.
In November 1995, ProCyte entered into a license agreement with
Hymedix International Inc. ("Hymedix") in which the Company acquired the
exclusive worldwide rights, outside of Asia, to five FDA-cleared wound care
products developed by Hymedix, as well as exclusive rights to the use of the
underlying technology in the territory for future wound care products.
Additionally, the Company acquired, on a non-exclusive basis, the rights to a
sixth FDA-cleared wound care product in the same territory. The Company shares
marketing rights to the sixth product with B. Braun Medical, Inc. The Company
also acquired exclusive worldwide rights to the drug delivery application of
Hymedix's polymer-based technology for wound healing applications.
Under the terms of the agreement with Hymedix, the Company is
obligated to pay certain upfront, milestone and royalty payments. The Company's
upfront payment included 200,000 shares of the Company's common stock,
releasable over a two-year period in four equal assignments of 50,000 shares
each, unless Hymedix has materially breached the license agreement or the
Company has terminated the license agreement. The stock is subject to SEC Rule
144 restrictions and has piggyback registration rights for a
3
limited period of time. The Company may terminate the agreement at any time
upon sixty days' written notice.
KISSEI PHARMACEUTICAL CO., LTD.
In November 1993, the Company entered into a license agreement with
Kissei Pharmaceutical Co., Ltd. ("Kissei"). Under the terms of the agreement,
the Company granted to Kissei an exclusive license to make, have made, use and
sell the Company's Iamin-Registered Trademark- compound in Japan, China, Taiwan,
and Korea for topical wound healing applications, including chronic human dermal
wounds such as diabetic ulcers, venous stasis ulcers, pressure sores, surgical
wounds and burns.
Pursuant to the terms of the agreement with Kissei, the Company will
manufacture Kissei's requirements for the Iamin-Registered Trademark- compound
for Kissei's product development and for Kissei's clinical trials for the first
approved use of the Iamin-Registered Trademark- compound in Japan. In addition,
Kissei is responsible for making certain research and development, milestone and
royalty payments to the Company subject to the terms of the agreement. As of
third quarter 1995, Kissei had satisfied all of its research and development
payment requirements which it was obligated under the agreement to pay to the
Company. In January 1996, Kissei paid the Company a $1.0 million milestone
payment owing under the agreement. Kissei may terminate the agreement at any
time upon sixty days' written notice.
As part of its license agreement with the Company, Kissei also entered
into a stock purchase agreement with the Company wherein it purchased 155,461
shares of ProCyte common stock at a price of $25.73 per share.
KAKEN PHARMACEUTICAL CO., LTD.
In December 1992, the Company entered into an agreement with Kaken
Pharmaceutical Co., Ltd. ("Kaken") for development, manufacturing and marketing
of the company's peptide-copper compounds for hair growth and hair loss
prevention applications in Asia. Under the terms of the agreement, Kaken was
responsible for making certain research and development, milestone and royalty
payments to the Company. As of second quarter 1995, Kaken had satisfied all of
its research and development payment requirements which it was obligated to pay
to the Company.
On January 31, 1996, the Company's license agreement with Kaken was
terminated. The termination came about in large part due to the position taken
by the Japanese regulatory agency with regard to its regulation of hair growth
compounds. The agency has presently determined that it will not consider
androgenetic alopecia a disease and, therefore, will not approve as "drugs" any
compounds to be used in the treatment of male pattern baldness. As a result of
the license termination, ProCyte regained all rights to the use of its
technology for hair growth and hair loss prevention applications. No monies
paid by Kaken to the Company during the period of the agreement were refundable
to Kaken. Kaken filed a patent on the technology which was assigned to the
Company at conclusion of the partnership for a nominal fee.
ProCyte intends to seek to establish corporate alliances with others
who are capable of pursuing alternative registrations of the Company's hair
technology in Asia and elsewhere. There can be no assurance that the Company
will be successful in attracting or retaining corporate alliances on terms
favorable to the Company, whether for the Company's hair technology or
otherwise, or that the interests and motivations of any corporate partner or
licensee would be or remain consistent with those of the Company, or that such
partners or licensees would successfully perform the technology transfer,
clinical development, regulatory compliance, manufacturing, marketing or other
obligations. Suspension or termination of agreements with the Company's current
or future partners or licensees could have a material adverse effect on the
development of the Company's proposed products and could adversely effect the
Company's financial position.
4
COMPETITION
Competition in the Company's planned area of initial product launch,
wound care, is particularly intense, involving a number of well-established,
major pharmaceutical and healthcare companies, such as Bristol Myers Squibb,
Kendall Healthcare Company, and Johnson and Johnson. A significant number of
smaller companies as well are developing or marketing competitive wound care
products, some of which may have an entirely different approach than products
being developed by the Company.
Wound care is an evolving field as far as technology, regulations, and
products are concerned. The Company believes that its most substantial
competition with respect to its planned wound care product line will come from
established pharmaceutical and healthcare companies, which are significantly
larger than the Company and have substantially greater financial resources,
marketing and sales staffs, and experience in obtaining regulatory approvals, as
well as in manufacturing and marketing wound care products, and where they have
considerable years of experience, and established reputations, promoting to
healthcare providers.
Competition in the Company's other areas of interest, as well as wound
care, is based on scientific and technological advances, the availability of
patent protection, access to adequate capital, the requirement for and ability
to obtain government approval for new products or testing, timing and scope of
regulatory approvals, product pricing, manufacturing and marketing capability.
There can be no assurance that the Company's competitors will not succeed in
bringing to market technologies and/or products that may make the proposed
products being developed by the Company obsolete or noncompetitive. Some of the
Company's competitors may achieve product commercialization earlier than the
Company, which may adversely affect market introductions and sales of the
Company's proposed products. Competition for highly qualified scientific,
technical, and managerial personnel, consultants and advisors on whose services
the Company depends is also intense.
The contract manufacturing service business also is highly
competitive. Competitors include major chemical and pharmaceutical companies,
as well as specialized biotechnology firms, smaller contract chemical
manufacturers and some universities. Many of these companies or institutions
have greater financial, technical and marketing resources than the Company.
The chemical, commodity-products and pharmaceutical industries have
undergone and are expected to continue to undergo significant technological and
strategic change, and the Company expects the competition to intensify as
technical advances or business alliances are made by others in fields of
interest to the Company. The Company believes that its success in competing
with others will depend on such things as its ability to retain scientific
expertise and capable, experienced management, and identifying and pursuing
scientifically feasible, medically relevant, and commercially viable
opportunities.
EMPLOYEES
At December 31, 1995, the Company had 44 full-time employees, of whom
eight hold Ph.D. degrees. The Company restructured its operations in late 1994
and again in 1995 in order to preserve capital needed to staff a future sales
staff and expand manufacturing operations. At year end, 18 employees were
engaged in research and development, ten in manufacturing, eight in regulatory
and clinical affairs, one in marketing, and seven in accounting, finance and
administration. The Company expects to add sales and marketing staff in 1995
and to recruit additional plant operations and related personnel for the
manufacturing facility. The Company will need to compete with companies that
have established product lines, sales and marketing organizations and bonus and
commission schedules in recruiting for its planned sales staff. With regard to
recruitment of manufacturing personnel, the Company will need to search for
candidates on a nationwide basis, and attract and retain staff from profitable
plants with established clients. There can be no assurance
5
that the Company will be able to compete against other companies in recruiting
such personnel. The Company believes that its relations with its employees are
good.
GOVERNMENT REGULATION
The manufacture and marketing of ProCyte's products, whether
internally developed and licensed-in, and its research and development
activities in general, are subject to extensive regulation in the United States
by the federal government, principally by the FDA, and in other countries by
similar health and regulatory authorities. The Federal Food, Drug and Cosmetic
Act and the regulations promulgated thereunder, and other federal and state
statutes govern, among other things, the testing, manufacture, safety, labeling,
storage, recordkeeping, advertising and promotion of pharmaceutical products and
medical devices. Product development and approval or clearance within the
regulatory framework requires a number of years and involves the expenditure of
substantial resources.
In order to obtain FDA approval to market a new drug in the United
States for use in humans, it is necessary to proceed through several stages of
product testing, including research and development, preclinical trials, the
filing of an investigational new drug application ("IND"), with the FDA to
obtain authorization to conduct human clinical trials, extensive clinical
testing under the Code of Federal Regulations guidelines, which are subject to
the agency's change and/or interpretation at any time, and ultimately, if the
pivotal trials are successful, submission to and FDA approval of a new drug
application ("NDA") or 510(k) pre-market notification clearance. The Company's
product candidates may be regulated by any of a number of divisions of the FDA.
Before human testing of product candidate may commence, the FDA, and
like agencies in other countries, generally require certain preclinical testing,
such as toxicology studies in animals, to begin to establish product safety.
Results of such studies are submitted as part of the IND application.
Preclinical testing is not necessarily indicative of the safety or effectiveness
of a product candidate for human use.
Human clinical trials of an investigational therapeutic compound in
the United States typically involve a three-phase process. Following the IND
submission period, Phase I trials may be conducted with a small group of healthy
volunteers or, in some instances, patients, to determine the early safety
profile and the pattern of drug absorption, distribution and metabolism. Phase
II trials are conducted with groups of patients afflicted with a specific
disease or specific element of a disease to determine preliminary effectiveness,
optimal dosage and treatment regimens and expanded evidence of safety. Phase
III comparative trials are conducted with a larger number of patients at
multiple test sites to gather information about safety and effectiveness that is
needed to evaluate the overall benefit-risk relationship of the compound and to
provide an adequate basis for proposed product labeling.
The results of clinical trials are submitted to the FDA, and to
similar agencies in other countries, in the form of an of NDA or like
submission, for approval to commence commercial distribution of the product.
The regulatory agencies may take one to two years or more to act on an NDA or
like submission, if they elect to act at all. The final decision rests with the
regulatory agency as to whether or not approval will be granted. The regulatory
agencies, at their discretion, may request further testing, additional data, or
may deny approval if the agency determines that regulatory approval criteria are
not sufficiently satisfied. As such, there can be no assurance that any
approvals of the Company's proposed candidates would be granted on a timely
basis, if at all, following completion of clinical testing.
In the United States, products that do not seek to make effectiveness
claims based on human clinical evaluation, may be subject to review and
regulation under the FDA's 510(k) medical device guidelines. Such products,
which include wound care dressings, ointments and gels, must show safety and
substantial equivalency with predicate products already cleared to be marketed
by the FDA. There can be no assurance
6
that such product pre-market notification applications submitted to the FDA for
clearance will receive clearance to be marketed under these guidelines, or that
the labeling claims sought will be approved, or that, if cleared, such products
will be commercially successful.
In addition to obtaining FDA approval or clearance to market a
product, the prospective manufacturer's quality control and manufacturing
procedures must conform to current good manufacturing practices ("cGMPs")
guidelines, when appropriate. In complying with standards set forth in these
regulations, which are subject to change at any time without notice to the
Company, manufacturers must continue to expend time, monies and effort in
production and quality control. Manufacturing establishments, such as ProCyte's
manufacturing plant, are also subject to regulations from and inspections by
other foreign, federal, state or local agencies, such as the Drug Enforcement
Agency, the city water and waste treatment agencies, and state and federal
safety and health regulations. There can be no assurance that the Company's
manufacturing facility or its operations for the manufacture of its own product
candidates or the bulk products manufactured and processes followed by the
Company on behalf of its clients will be able to meet all appropriate guidelines
or to pass inspections by any government agency. If the Company's manufacturing
operations should fail to pass an inspection, for any reason, the possible
resultant outcome on the plant's continuing operations, and the financial impact
on the Company's overall reputation and operations could be severely adversely
affected.
The Company also is or may become subject to various other foreign,
U.S., state and local laws, regulations and policies relating to, among other
things, safe working conditions, good laboratory practices, animal welfare, and
the use and disposal of hazardous or potentially hazardous substances used in
connection with research, development and/or manufacturing.
FACTORS AFFECTING STOCK PRICE
The market prices for healthcare, commodity products, pharmaceutical
and biotechnology companies are subject to volatility, and the market has from
time to time experienced significant fluctuations that are unrelated to the
operations of the Company.
ProCyte's market price has fluctuated over a wide range since the
Company's initial public offering in 1989. Announcements concerning the Company
or its competitors, including changes in research and development program
direction, results of clinical trials, addition or deletion of corporate
partnerships, technology licenses, clearance or approval to market products,
government regulations, healthcare reform, litigation concerning business
operations or intellectual property, or public concern as to safety of products,
as well as changes in general market conditions, may have a significant effect
on the market price of ProCyte's common stock.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Joseph Ashley(1) 68 Chairman of the Board,
President, Chief Executive
Officer
Jules Blake, Ph.D. (1)(2) 71 Director
Gordon W. Duncan , Ph.D. 63 Vice President, Research
7
Director, Secretary
David Fulle 38 Vice President,
Manufacturing Operations,
Principal Accounting Officer
Karen L. Hedine 42 Vice President
Business Development &
Administration; Assistant
Secretary
C. Brian Melonakos 45 Vice President, Marketing
Robert E. Patterson (1)(2) 53 Director
William M. Sullivan (1)(2) 61 Director
Thomas E. Tierney 68 Director
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
JOSEPH ASHLEY, age 68, Chairman of the Board, January 1991 to present;
President, Chief Executive Officer, a Director of the Company and Treasurer,
January 1987-present. President and Chief Operating Officer of Genetic Systems
Corporation, a biotechnology company from 1984-1986. In various management
capacities with Beckman Instruments, Division of SmithKline Beckman Corporation,
a diversified healthcare and life sciences company, 1954-1984, including Group
Vice President of Diagnostics, 1981-84. Mr. Ashley received a Certificate of
Executive Management from the University of California at Los Angeles Graduate
School of Business and a B.A. in Mechanical Engineering from City College, New
York.
JULES BLAKE, PH.D., age 71, was elected a Director of the Company in
1991. He served as Vice President of Corporate Scientific Affairs (1987-1989)
and Vice President of Research and Development (1973-1987) for Colgate-
Palmolive, a consumer products company. Director, Martek Biosciences
Corporation, a biotechnology company, 1990-present; Member of the Board of
Overseers of Forsyth Dental Center, 1994-present. Trustee of the Medical
College of Pennsylvania Hahnemann University; and a member of the Science
Advisory Board of International Specialty Products, a specialty chemical
company, 1992-present. Dr. Blake has served as the Chairman of the Compensation
Committee, 1991-present, and is a member of the Audit Committee. Dr. Blake
received his Ph.D. in Organic Chemistry and his M.S. and B.S. in Chemistry from
the University of Pennsylvania.
GORDON W. DUNCAN, PH.D., age 63, Vice President, Research, January
1991 - present; was elected a Director of the Company in 1991. He has served as
Secretary of the Company, May, 1991 - present. Prior to joining ProCyte in
April 1991, as Vice President, Research, Dr. Duncan was Vice President, Research
Administration for The Upjohn Company, a pharmaceutical company, where he held
various scientific and management positions for twenty years. Director of PATH,
a not-for-profit international healthcare organization, 1991-present. Dr.
Duncan is presently employed as a part-time employee by the Company. Dr. Duncan
received his Ph.D. and M.S. in Reproductive Physiology from Iowa State
University and his B.S. in Animal Science from Cornell University.
DAVID FULLE, age 38, joined ProCyte in 1989 as Controller, and held
responsibility for the Company's corporate accounting, finance and management
information systems, as well as facilities, from that time until
8
December 1995 when he was promoted to Vice President, Manufacturing Operations,
responsible for the Company's overall manufacturing operations. Prior to
ProCyte, Mr. Fulle was the Assistant Controller/MIS Coordinator for Zimmer
Corporation, a manufacturing company (1984-1989). Mr. Fulle holds a B.S. in
Health Administration from Indiana University.
KAREN L. HEDINE, age 42, has been Vice President, Business Development
and Administration of the Company since October 1989, having served as a
management consultant to the Company, 1987-1989. She is responsible for general
corporate operations, including corporate governance, government liaison,
business development, legal, investor/public relations, and human resources.
From 1986-1988, she was Vice President, Administration and Human Resources of
Ecova Corporation, a hazardous waste remediation company. From 1984-1986, Ms.
Hedine was Director of Human Resources for Genetic Systems. She is past
chairperson, vice president and a member of the Board of the Washington State
Biotechnology and Biomedical Association. Ms. Hedine received an M.A. in
Personnel Administration from Indiana University and a B.A. in English from the
University of Washington.
C. BRIAN MELONAKOS, age 45, joined ProCyte in October 1993 as Vice
President, Marketing. He previously held executive positions at Pilkington
Barnes Hind ("PBH"), 1987-1993, and Collagen Corporation, 1982-1987. At PBH,
Mr. Melonakos served as Vice President of Marketing and as the Canadian
Division's Chief Operating Officer and General Manager. He earned an M.B.A. in
Marketing and Finance from the University of Michigan and a B.A. in Economics
from Brigham Young University.
ROBERT E. PATTERSON, J.D., age 53, was elected a director of the
Company in 1994. He serves as a Managing Director of Thompson Clive, Inc., a
U.K.-based venture capital firm, (1983 - present), and is a partner in the legal
services firm of Graham & James (1972 - present). Mr. Patterson currently
serves on the board of several private businesses, including QuestGen
Corporation, a biotechnology company. He is a member of the Compensation
Committee and has served as chairman of the Audit Committee of the Board, 1995-
present. Mr. Patterson completed the Executive Program at the Stanford Graduate
School of Business in 1986; he obtained his law degree from Stanford Law School
and holds a B.A. in Physics from the University of California at Los Angeles.
WILLIAM M. SULLIVAN, J.D., age 61, was elected a Director of the
Company in 1991. He served as Chairman, President and CEO of Burroughs Wellcome
Co., a pharmaceutical and consumer products company, 1981-1986. Mr. Sullivan
served in various management and corporate legal positions, 1974-1980. He is
Chairman of the Board of Sparta Pharmaceuticals, Inc., a publicly-traded
development stage pharmaceutical company, 1991-present. He served as President
and CEO of Sparta from 1991 to March 1996. Chairman of the Board, The Immune
Response Corporation, a biotechnology company, 1987-1994; Director 1994-present;
a Director of BioVentures, Inc., a diagnostic company, 1989-present; and a
Director of Research Corporation Technologies, a technology transfer company,
1995-present. Mr. Sullivan is a member of the Audit and Compensation
Committees. Mr. Sullivan holds a J.D. from Harvard Law School and an A.B. from
the University of Notre Dame.
THOMAS E. TIERNEY, age 68, was elected a director of the Company in
1996. From 1951-1988, he served in various sales, marketing and general
management positions including Vice President and General Manager, Hospital
Products Business, Group Vice President, Healthcare Business and Executive Vice
President of Kendall Company and Group Executive, Worldwide Healthcare, until
his retirement in 1988. Member of the Board of Directors of Uromed, a
development-stage healthcare company. Mr. Tierney is a member of the
Compensation and Audit committees of ProCyte's Board of Directors. Mr. Tierney
received a B.A. in General Sciences from Colgate University in 1951 and attended
the Harvard Business School Advanced Management Program.
9
ITEM 2. PROPERTIES
The Company presently leases approximately 28,000 square feet of
laboratory and office space at it corporate offices in Kirkland, Washington. On
October 1, 1993, the Company also executed a 79-month operating lease, effective
January 1, 1994, for approximately 16,000 square feet of manufacturing and
expansion space in Redmond, Washington. The Company is presently using this
space for its commercial-scale bulk substance manufacturing for its own clinical
and commercial needs, as well as for toll manufacturing operations for clients
in the pharmaceutical, biotechnology, fine chemical and food products
industries. The Company expects to build out some of the available expansion
space in the plant in 1996 to accommodate commercial-scale manufacturing and
method development of the technology the Company acquired from Hymedix. Delays
in obtaining building permits, cost overruns in the facility expansion and
construction delays could adversely effect the Company's commercialization
efforts, and significantly delay product launch plans.
ITEM 3. LEGAL PROCEEDINGS
On March 5, 1996, the Company announced that a tentative settlement
had been reached in the shareholder lawsuit filed in October 1994 against the
Company and certain of its officers and directors. The Company continues to
believe that there was no wrongdoing on the part of the Company and/or any of
its officers and directors, but reached the tentative settlement agreement in an
effort to focus management's attention and corporate financial resources on the
important business of building long-term shareholder value in the Company.
The tentative settlement, which is subject to court approval, is for
$7.75 million, of which at least $2.5 million will be paid in cash, with the
remainder payable, at the Company's discretion, in cash or shares of ProCyte
common stock. The amount, if any, of the stock portion would be dependent upon
the market price of ProCyte common stock during the six-month period following
final court approval of the settlement. The tentative settlement is conditioned
upon the Company receiving an appropriate contribution to the settlement from
its insurance carriers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No matters were submitted to the shareholders for vote during fourth
quarter 1995
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The Company's common stock trades on the Nasdaq Stock Market under the
symbol "PRCY." At the close of business on March 8, 1996, there were 513
shareholders of record.
ProCyte has not paid any cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
10
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
information contained under the caption, "Financial Highlights," located on the
inside front cover page of the Registrant's 1995 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the
information under the caption, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" located on pages 10-14, of the
Registrant's 1995 Annual Report to Shareholders.
Item 8. FINANCIAL STATEMENTS
See Item 14 for an Index to Financial Statement sand Financial Statement
Schedules. Such Financial Statements are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
11
PART III
See "Directors and Executive Officers of the Registrant" under Item I
- - Part I above. The remaining information called for by Items 10, 11, 12 and 13
is included in the Company's Proxy Statement relating to the Company's annual
meeting of shareholders, and is incorporated herein by reference. The
information appears in the Proxy Statement under the captions "Elections of
Directors," "Executive Compensation," and "Principal Shareholders and Management
Ownership." Such Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days of the Company's last fiscal year end, December 31,
1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
a. (1) and (2) Index to Financial Statements and Financial Statement
Schedules
(1) FINANCIAL STATEMENTS
The following financial statements and Independent Auditors' Report
are incorporated by reference to pages 15-28 of the Registrant's 1995
Annual Report to Shareholders.
Balance Sheets as of December 31, 1995, and 1994..
Statements of Operations for the years ended December 31, 1995, 1994,
and 1993, and the period January 1, 1985 (Predecessor inception) to
December 31, 1995.
Statements of Cash Flows for the years ended December 31, 1995, 1994,
and 1993, and the period January 1, 1985 (Predecessor inception) to
December 31, 1995.
Statements of Stockholders' Equity for the years ended December 31,
1995, 1994, and 1993, and the period January 1, 1985 (Predecessor
inception) to December 31, 1995.
Notes to Financial Statements
Independent Auditors' Report
(2) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules have been omitted because of the absence
of conditions under which they are required or because the required
information is included in the Financial Statements or notes thereto.
With the exception of the pages listed in the above Index to Financial
Statements and Financial Statements Schedules and the portion of
suchreport referred to in Items 5, 6 and 7 of the Annual Report on
Form 10-K, the 1995 Annual Report to Shareholders is not deemed filed
as part of this report.
12
(3) INDEX TO EXHIBITS
Exhibit Description Note
- ---------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Registrant . . . . . .(A)
3.2 Restated Bylaws of the Registrant. . . . . . . . . . . . . . . .(A)
10.1* 1987 Stock Benefit Plan of ProCyte Corporation . . . . . . . . .(A)
10.2* ProCyte Corporation 1989 Restated Stock Option Plan. . . . . . .(B)
10.3* ProCyte Corporation 1991 Stock Option Plan for
Nonemployee Directors. . . . . . . . . . . . . . . . . . . . . .(B)
10.4 Kirkland Limited Partnership IV Lease dated as of
January 15, 1990 . . . . . . . . . . . . . . . . . . . . . . . .(C)
10.5 Teachers Insurance & Annuity Association Lease dated
as of October 1, 1993. . . . . . . . . . . . . . . . . . . . . .(D)
10.6 License Agreement dated as of November 15, 1995 between
ProCyte Corporation and Hymedix International, Inc, containing
an exhibit within, of the Stock Acquisition Agreement dated
as of November 15, 1995 between ProCyte Corporationand Hymedix
International, Inc.(1)(E)
10.8 License Agreement dated as of November 30, 1993 between ProCyte
Corporation and Kissei Pharmaceutical Co., Ltd. (1). . . . . . .(D)
10.9 ProCyte Corporation Common Stock Purchase Agreement dated as of
November 30, 1993 by and between ProCyte Corporation and Kissei
Pharmaceutical Co., Ltd. . . . . . . . . . . . . . . . . . . . .(D)
10.10* Change of Control Agreement for Mr. Joseph Ashley. . . . . . . .(F)
10.11* Change of Control Agreement for Ms. Karen L. Hedine. . . . . . .(F)
10.12* Change of Control Agreement for Mr. C. Brian Melonakos . . . . .(F)
10.13* Change of Control Agreement for Mr. David Fulle. . . . . . . . .(F)
10.14* Form of Indemnity Agreement dated February 23, 1995 between the
Registrant and each of Mr. Ashley, Dr. Blake, Dr. Duncan,
Ms. Hedine, Mr. Melonakos, Mr. Patterson & Mr. Sullivan. . . . .(F)
10.15* Form of Indemnity Agreement dated January 20, 1996 between the
Registrant and each of Mr. Fulle and Mr. Tierney . . . . . . . .(F)
10.16* Severance Agreement for Mr. Joseph Ashley. . . . . . . . . . . .(F)
10.17* Severance Agreement for Ms. Karen Hedine . . . . . . . . . . . .(F)
10.18* Severance Agreement for Mr. Brian Melonakos. . . . . . . . . . .(F)
10.19* Severance Agreement for Mr. David Fulle. . . . . . . . . . . . .(F)
10.20 Memorandum of Understanding for Settlement of In Re ProCyte
Securities Litigation. . . . . . . . . . . . . . . . . . . . . .(E)
13.1 1995 Annual Report to Shareholders . . . . . . . . . . . . . . .(E)
23.1 Consent of Deloitte & Touche LLP . . . . . . . . . . . . . . . .(E)
27.1 Financial Data Schedule. . . . . . . . . . . . . . . . . . . . .(E)
- ---------------------------------------------------------------------------
* Management contract or compensatory plan or arrangement
(A) Incorporated by reference to the Registrant's Registration Statement
of Form S-1 (No. 33-31353).
(B) Incorporated by reference to the Registrant's Registration Statement
of Form S-1 (No. 33-46364).
(C) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 30, 1990 (No 0-18044).
(D) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 30, 1993
(E) Filed herewith
(F) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 30, 1994
(1) Confidential treatment has been granted or requested with respect to
portions of this exhibit.
b. REPORTS ON FORM 8-K
None
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PROCYTE CORPORATION
(REGISTRANT)
Date: March 20, 1996 By /s/ Joseph Ashley
-------------------
Joseph Ashley,
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Joseph Ashley Chairman of the Board March 20, 1996
- ------------------
Joseph Ashley President and Chief Executive
Officer
(Principal Executive Officer
and Principal Financial Officer)
/s/ Jules Blake Director March 20, 1996
- ------------------------
Jules Blake
/s/ Gordon W. Duncan Director March 20, 1996
- ------------------------
Gordon W. Duncan
/s/ Robert E. Patterson Director March 20, 1996
- ------------------------
Robert E. Patterson
/s/ William M. Sullivan Director March 20, 1996
- ------------------------
William M. Sullivan
/s/ Thomas E. Tierney Director March 20, 1996
- ------------------------
Thomas E. Tierney
/s/ David H. Fulle Vice President, March 20, 1996
- ------------------------ Manufacturing Operations
David H. Fulle (Principal Accounting Officer)
14