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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-K
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended March 31, 1999
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from __________ to ________
Commission File No. 0-15360
BIOJECT MEDICAL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1099680
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(State of other jurisdiction of (I.R.S. identification no.)
incorporation or organization)
7620 SW Bridgeport Road
Portland, Oregon 97224
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(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including areas code) (503) 639-7221
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
----------------------------
Common Stock, no par value
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of voting stock held by non-affiliates of the
registrant, as of May 31, 1999: $50,594,111
Indicate the number of shares outstanding of each of tFhe registrant's classes
of common stock, as of May 29, 1999: Common Stock, no par value, 29,011,236
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1999 Annual
Shareholders' Meeting are incorporated by reference into Part III.
Table of Contents
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Consolidated Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements concern, among other things, future product development plans,
anticipated revenues from product sales and licensing and technology fees,
anticipated proceeds from the sale of the Company's blood glucose monitoring
technology, expected sufficiency of capital resources, future sources of working
capital, and Year 2000 issues. These forward-looking statements are often
identified with a cross-reference to this section. Such forward-looking
statements are based on expectations, assumptions, estimates and projections
about the Company and the industry in which the Company operates that involve
risks and uncertainties. These forward-looking statements are usually
accompanied by words such as "believe", "anticipate", "plan", "seek", "expect",
"intend" and similar expressions. These forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the Company's
actual results or industry results to be materially different from the results,
performance, or achievements discussed or implied in the forward-looking
statements. These risks, uncertainties and other factors include, without
limitation and inclusive of risks, those described in the "Business - Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" sections of this annual report. Forward-looking
statements are based on the estimates and opinions of management on the date the
statements are made. The Company assumes 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.
GENERAL
Bioject Medical Technologies Inc. ("Bioject" or the "Company") develops,
manufactures and markets jet injection systems for needle-free drug delivery.
The Company sells its products directly to healthcare providers. The Company
also licenses its technology to leading pharmaceutical and biotechnology
companies for whose products the Company's technology provides increased medical
efficacy or enhanced market acceptance.
The Company manufactures and markets a professional needle-free injection
system, the Biojector(R) 2000, which allows healthcare professionals to inject
medications through the skin, both intramuscularly and subcutaneously, without a
needle. Using this technology to administer injections virtually eliminates the
risk of contaminated needlestick injuries and the resulting blood-borne pathogen
transmission, which is a major concern throughout the healthcare industry. The
Biojector 2000 system consists of two components: a handheld, reusable
jet-injector (the "Biojector 2000" or "B-2000") and a sterile, single-use
disposable syringe (the "Biojector syringe"). The Company also manufactures and
markets a device that allows the Biojector syringe to be filled without a needle
(the "Vial Adapter"). The Vial Adapter may be purchased either separately or as
a pre-packaged component of the B-2000 system. The B-2000 system is capable of
delivering needle-free injections in varying doses up to 1 ml. The Company has
also developed the B-2020 and B-4000 jet-injection systems. The B-2020 system is
similar in design and intended use to the B-2000 system except that it is
designed to deliver injections in varying doses up to 1.5 ml. The B-4000 system
is intended to be used by non-professionals to self-administer injections of
various medications in varying doses up to 1 ml. The Company has not yet
1
received regulatory clearance to begin selling either the B-2020 or the B-4000
systems. See "Business - Governmental Regulation".
The Company also markets the Vitajet 3 (R),("Vitajet") a spring-powered,
needle-free self-injection device, the rights to which were acquired in a
transaction with Vitajet Corporation in March 1998. The Vitajet currently has
regulatory clearance for administering injections of insulin. See "Business -
Research and Product Development".
Under a January 1995 agreement with Hoffman LaRoche Inc. ("Roche") the Company
agreed to develop a needle-free injection system for Roche to use with certain
of its products. The B-2020 system was designed as a result of this agreement.
The Company and Roche intended that Roche would be granted worldwide rights to
distribute the B-2020 for a specific class of medications. In June 1999, after
the end of the fiscal year, Roche advised the Company that because of the
additional time and cost required to gain regulatory clearance to use the B-2020
in conjunction with the Roche drugs and because of an overall change in its
marketing strategy for the drugs in question, it does not intend to pursue
distributing the B-2020 and is relinquishing its exclusive rights to the
product. See "Business - Research and Product Development", "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
In October 1997, the Company entered into a license agreement with Elan
Corporation, plc ("Elan"). Under this agreement, the Company licensed certain
blood glucose monitoring technology from Elan and formed a new subsidiary of the
Company, Marathon Medical Technologies Inc. ("Marathon Medical") (formerly
Bioject JV Subsidiary Inc.), to develop and commercialize the licensed
technology. As part of the transaction, Elan acquired common and preferred stock
of the Company and a 19.9 percent interest in Marathon Medical. In May 1999,
rather than continue to fund the cost of its development, the Company
entertained a preliminary proposal from a third party to purchase Marathon
Medical's blood glucose monitoring technology. Pursuant to the proposal, the
Company intends to enter into an agreement to sell the license to the blood
glucose monitoring technology, along with certain fixed assets. During the
period of March through May 1999, it became increasingly clear that the
technology would take longer and require greater resources to commercialize than
the Company had anticipated. At the same time, the Company concluded that it
would be unable to finance its required contributions to Marathon Medical
through sales of equity securities without very substantial dilution to the
Company's existing shareholders. The completion of the transaction is subject to
negotiation and execution of definitive agreements and satisfaction of certain
conditions, so there can be no assurance that the transaction will be completed
on the terms anticipated by the Company or at all. If the proposed transaction
is not completed, the Company intends to pursue other means to dispose of the
blood glucose monitoring technology. Accordingly, Marathon Medical's operation
is reported as "Discontinued Operations" in the financial statements and other
financial information included as a part of this report. See "Risk Factors
Uncertainty of the Sale of the Blood Glucose Monitoring Technology",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and "Consolidated Financial Statements and Supplementary Data Notes
to Consolidated Financial Statements".
Since licensing the blood glucose monitoring technology from Elan, the Company
has operated as two distinct business segments: the needle-free injection
business and the blood glucose monitoring business. Because the Company has
reached a decision to entertain a preliminary proposal from a third party to
purchase the license to the blood glucose monitoring technology this annual
report does not contemplate the Company's continued activity in that business
segment. Accordingly, this annual report refers to the activity of the blood
glucose monitoring business as Discontinued Operations.
In July 1998, the Company entered into an agreement with Merck & Co. ("Merck")
which provided Merck limited-term rights to use the B-2000 needle-free injection
system with selected Merck vaccines. As part of the agreement, the Company also
granted Merck exclusive rights to negotiate a long-term license to the B-2000
for certain medical indications. The Company received $1.5 million
in non-refundable fees under this agreement in the year ended March 31, 1999. In
February 1999, citing a refinement in its vaccine development
2
strategy, Merck advised the Company that it would not continue discussions to
seek long-term license rights to the Company's technology. No further fees are
due to the Company from Merck pursuant to the agreement.
Also in July 1998, the Company entered into a collaborative research agreement
with GeneMedicine Inc. (now owned by Valentis Inc.), a developer of DNA-based
medicines and genetic vaccine technologies for treatment or prevention of a wide
range of diseases. This collaboration involves the continued refinement of the
Biojector 2000 jet injection system coupled with GeneMedicine's gene-based
delivery platforms to create a combined product that is intended to enhance the
delivery and activity of plasmid-based genetic vaccines. "See Research and
Product Development".
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. The Company believes
that approximately 80% of these syringes are used for subcutaneous or
intramuscular injections up to 1 ml.
Injections using traditional needle-syringes suffer from many shortcoming,
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 approximately 800,000 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 require implementing "engineering and work practice controls"
to "isolate or remove blood-borne pathogen hazard from the workplace." Among the
required controls are special handling and disposal of contaminated "sharps" in
biohazardous "sharps" containers and follow-up testing for victims of
needlestick injuries.
The State of California has enacted healthcare worker safety legislation that is
going into effect in 1999. This legislation requires healthcare providers to
evaluate the various uses of needle-syringes in their facilities and to begin
using alternative injection systems to protect healthcare worker safety where
appropriate. Under the law, healthcare providers can be held liable to their
workers if a worker becomes infected from a needlestick injury and suitable
alternatives to needle-syringes were available but not used.
The costs resulting from needlestick injuries vary widely. Accidental
needlesticks involving sterile needles involve relatively little cost.
3
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 some
circumstances, procedures require administering prophylactic treatment such as
zidovudine (AZT) or other drugs. If a needlestick injury results in the
healthcare worker actually becoming infected with life-threatening pathogens,
such as HIV or hepatitis B, the cost of that injury is dramatically higher.
In an effort to protect healthcare workers from needlestick injuries, many
healthcare facilities have adopted more expensive, alternative technologies. One
such technology is an intravenous ("IV") port that permits medication to be
injected directly into an IV line without requiring the use of a sharp needle
for each administration. Another is use of one of a variety of "safety
syringes". These are generally disposable needle-syringes with a plastic sheath
mechanism intended to cover the needle after use or with a needle that retracts
after use. While these technologies can help to reduce accidental needlesticks,
they cannot eliminate the risk.
The Company's long-term goal is to establish its needle-free injection systems
as the preferred drug delivery method for all medications administered by
intramuscular or subcutaneous injection. The Company focuses its current product
sales efforts for the Biojector 2000 system on: i) flu immunization clinics and
providers; ii) healthcare providers in states such as California, where
legislation is in place that favors alternatives to needle-syringes; iii)
potentially high volume, national accounts that will use or distribute the
Company's products across a large region; and iv) the U.S. military. The Company
is also focusing efforts to sell the B-2000 to multiple sclerosis patients
through a distributor.
The Company has established manufacturing capability for the Vitajet at its
manufacturing facility in Portland, Oregon, and plans to enter into agreements
with distributors to sell the Vitajet to insulin users. The Company is also
exploring various strategies to sell the Vitajet directly to end-users at some
time in the future.
The Company is actively pursuing strategic partnering relationships with a
number of pharmaceutical and biotechnology companies under which the Company
plans to grant specified rights or licenses to some or all of its 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. An
example of these strategic partnerships is the collaborative research agreement
with GeneMedicine Inc. that involves combining GeneMedicine's technology and the
Company's needle-free injection technology with the goal of enhancing the
delivery and activity of plasmid-based genetic vaccines.
A primary focus of the Company's research efforts is on clinical research in the
area of DNA-based vaccines and medications. At the beginning of fiscal 1999, to
the best of the Company's knowledge, its jet injection device was being used in
two clinical studies relating to development of DNA-based medications.
Currently, to the best of the Company's knowledge, its devices are being used in
more than fifteen DNA-related clinical research projects both within and outside
of the United States. These research projects are being conducted by companies
leading the development of DNA-based medications as well as by the leading
universities and
4
governmental institutions conducting research in this area. Included in these
studies are a Phase I clinical trial of a DNA-based lymphoma vaccine being
conducted at Stanford University and a Phase I clinical trial of a DNA-based
malaria vaccine being conducted at the U.S. Naval Medical Research Center.
Preliminary data from clinical studies with animals indicates that the use of
the Biojector technology may result in better performance of some DNA-based
medications than can be achieved through use of conventional needle-syringes.
There can be no assurance that further clinical studies will prove conclusively
that the Company'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. See "Forward Looking Statements", "Research
and Product Development", and "Risk Factors - Uncertainty of Strategic Corporate
Licensing and Supply Agreements".
THE COMPANY
The Company's needle-free operations are conducted by Bioject Inc., an Oregon
corporation, which is a wholly owned subsidiary of Bioject Medical Technologies
Inc., an Oregon corporation. The Company's blood glucose monitoring development
operations have been conducted by an 80.1% owned subsidiary, Marathon Medical
Technologies Inc. ("Marathon Medical") (formerly Bioject JV Subsidiary Inc.), an
Oregon corporation.
Bioject Inc. commenced operations in 1985. Bioject Medical Technologies Inc. was
formed in December 1992 for the sole purpose of acquiring all the capital stock
of Bioject Medical Systems Ltd., a company organized under the laws of British
Columbia, Canada, in a stock-for-stock exchange. This stock acquisition
established the Company, a U.S. domestic corporation, as the publicly-traded
parent company of Bioject Inc. and Bioject Medical Systems Ltd. Bioject Medical
Systems Ltd. was then terminated in fiscal 1997. Marathon Medical was formed in
October 1997 in connection with a joint venture arrangement with Elan
Corporation, plc ("Elan"). All references to the Company herein are to Bioject
Medical Technologies Inc. and its subsidiaries, unless the context requires
otherwise. The Company's executive offices and operations are located at 7620 SW
Bridgeport Road, Portland, Oregon 97224, and its telephone number is (503)
639-7221.
"Biojector," "Bioject," "Vitajet" and "Medivax" are registered trademarks of the
Company.
DESCRIPTION OF THE COMPANY'S PRODUCTS
The 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 ml. The Biojector 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. In 1993, the Biojector 2000 won the 1993 Gold
Industrial Design Excellence Award given by the Industrial Designers Society of
America for its aesthetically pleasing and ergonomic design. In July 1994, the
Biojector 2000 also received the Alliance of Children's Hospitals
5
Seal of Approval. The Biojector 2000 injector uses disposable CO2 cartridges as
a power source. The CO2 cartridges, which are purchased by the Company 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 Biojector 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 needle-free syringe filling device (the
"Vial Adapter"), 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. The body of
the syringe is transparent and has graduated markings to aid accurate filling by
healthcare workers.
There are five different Biojector syringes, each of which is intended for a
different injection depth or body type. The syringes are molded using the
Company's 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 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 the
Company's 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. It is designed for self-injection and was acquired to fill a gap in
the Company's product line for a low-cost, home use, needle-free device.
Vitajet's current regulatory labeling limits its use to the injection of
insulin. The Company believes that the product has the potential to achieve
regulatory labeling for additional subcutaneous injections. See "Forward Looking
Statements" and "Risk Factors Government Regulation".
The current suggested retail list price for the Biojector 2000 professional jet
injector is $995, and the suggested retail list price for Biojector syringes is
$1.00 each. CO2 cartridges are sold for a suggested retail price of $0.50 per
cartridge and average ten injections per cartridge. Discounts are offered for
volume purchases. The current suggested retail price for the Vitajet 3
6
needle-free injector is $399. A three month supply (13-count) of Vitajet
syringes is sold for a suggested retail price of $60.
The Company has other products in 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. Some problems have arisen in the
attempts to develop such devices including: (a) inadequate injection power, (b)
little or no control of pressure and depth of penetration, (c) complexity of
design, with related difficulties in cost and performance, (d) difficulties in
use, including filling and cleaning; and (e) 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 $400 to $600 per injector. The Company
believes 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 intent of the safety syringe is to reduce or eliminate
needlestick injuries. However, while the safety syringe is in use and before the
needle has been covered, a safety syringe still poses a risk of needlestick
injury. Additionally, some safety syringes require manipulation after injection
and pose the risk of needlestick injury during that manipulation. Safety
syringes are also often bulky and add to contaminated waste disposal costs.
Two U.K. companies, Powderject Pharmaceuticals PLC and Weston Medical PLC are
developing devices that will likely compete with the Company's jet injection
products for certain applications. Neither of these companies has yet obtained
regulatory clearance to market jet injection products that compete with the
Company's products.
In late fiscal 1998 and early fiscal 1999, the Company dramatically reduced its
direct product sales force from one national and five district sales managers to
one national sales manager and a vice president of business development. In
conjunction with this sales force restructuring the Company chose to focus its
sales and marketing efforts for the Biojector system in two directions: i)
direct sales and sales through distributors to specifically targeted end-user
markets, and ii) long-term licensing and supply agreements with pharmaceutical
and biotechnology companies.
Direct sales efforts are specifically targeting: i) sales to existing markets,
specifically flu immunization providers, public health agencies and public
school systems; ii) sales in markets such as the State of California, where the
Company believes that needle-syringe safety legislation makes the Company's
products more price competitive; iii) potentially high volume, national accounts
that will use or distribute the Company's products across a large region; and
iv) sales to the U.S. military. Sales through distributors are targeting the
home, self-injection market.
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The Company's second sales and marketing focus area targets creating licensing
and supply arrangements with leading pharmaceutical and biotechnology companies
whose products the Biojector technology provides either increased medical
efficacy or a higher degree of market acceptance. Agreements under this type of
arrangement would ordinarily include some or all of the following components:
i)licensing revenues for full or partially exclusive access to the Company's
products for a specific application or medical indication; ii) development fees
if the Company is customizing one of its products for the customer or developing
a new product; iii) milestone payments related to the customer's progress in
developing products to be used in conjunction with the Company's products; and
iv) product revenues from sale of the Company's 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 own products along with the Company's
products to end users.
The Company's current sales and marketing effort is limited primarily to the
United States. Pursuing both of these marketing strategies, the Company intends
to eventually expand into international markets.
To implement its direct sales and marketing efforts, the Company currently
employs a national sales manager, a staff of two full-time nurse trainers, four
part-time nurse trainers and a product manager. Bioject's direct sales efforts
have resulted in the signing of public health agreements for the state of North
Carolina, the New York City Middle Schools, and the health departments in the
states of New Mexico, Oklahoma and Illinois. The Company has a national contract
with the Visiting Nurses Associations of America to promote the use the
Biojector 2000 system in the association's flu immunization programs.
In August 1994, Bioject signed an agreement with Homecare Management, Inc.
("HMI"), that granted HMI exclusive rights to purchase the Biojector 2000 system
for use in the home healthcare market. Sales to HMI commenced in August 1994. In
return for HMI's commitment to purchase a minimum of 8,000 Biojector units over
the ensuing two years, the Company granted volume pricing discounts to HMI.
Throughout the term of the contract the selling price of Biojectors to HMI
exceeded their standard cost. During fiscal 1995 and 1996, the Company sold
approximately 2,100 and 4,300 Biojectors to HMI for total sales revenue
including syringes of $1.1 million and $2.2 million in each of those years,
respectively. HMI purchased the devices but delayed placing most of the
Biojectors with patients until they completed negotiations with pharmaceutical
companies for certain pricing concessions on medication that they planned to
administer with the Biojectors. In January 1996, HMI requested that the Company
suspend further shipments under the contract. In February 1996, the Company
learned from HMI's press releases that HMI expected to default under credit
obligations and take significant write-offs for accounts receivable and
inventories, planned operational consolidations, and would restate certain prior
period financial statements. In fiscal 1997, the Company agreed to repurchase
certain of the Biojector inventories (including up to 6,000 devices) which HMI
had on hand for a total of $660,000 including $322,000 of forgiveness of
accounts receivable and payment of $338,000 in two installments, one-half of
which was paid in July 1996. The balance remains outstanding. The Company was
under no obligation to repurchase these inventories. The repurchase was at a
substantial discount to the original selling price to HMI.
Selling to new customers in the Company's target markets is often a lengthy
process. A new customer is typically adopting the Company's products as a new
8
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
thorough cost-benefit analysis.
The medical equipment market is highly competitive, and competition is likely to
intensify. Many of the Company's existing and potential competitors have been in
business longer than the Company and have substantially greater technical,
financial, marketing, sales and customer support resources. The Company believes
the primary competition for the Biojector 2000 system and other needle-free jet
injection systems it 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 $0.07 to $0.15 per unit. Manufacturers of safety syringes compete
on features, quality and price. Safety syringes generally are priced in a range
of $0.20 to $0.50 per unit. The average price per injection with the B-2000 is
approximately $0.60.
The Company expects 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, the Company does not expect to compete with needle-syringes based on
purchase cost alone. However, the Company believes that the Biojector 2000
system will compete effectively based on overall cost when all indirect costs,
including disposal of syringes and testing, treatment and workers' compensation
expense related to needlestick injuries, are considered. See "Forward Looking
Statements" and "Risk Factors".
The Company is 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. The Company is not
aware of any competing products with regulatory approval that have features and
benefits comparable to the Biojector 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 the Company's products. There can be no assurance that the
Company will be able to compete successfully in this market. See "Risk Factors -
Competition,- "Dependence on One Technology". A variety of new technologies (for
example, transdermal patches) are being developed as alternatives to injection
for drug delivery. While the Company does not believe such technologies have
significantly affected the use of injection for drug delivery to date, there can
be no assurance that they will not do so in the future.
PATENTS AND PROPRIETARY RIGHTS
The Company believes that the technology incorporated in its currently marketed
B-2000 and Vitajet devices and single-dose disposable plastic syringes as well
as the technology of products under development give it significant advantages
over both the manufacturers of competing needle-free jet injection systems and
over prospective competitors seeking to develop similar systems. The Company
attempts to protect its technology through a
9
combination of trade secrets, confidentiality agreements and procedures and
patent prosecution.
The Company has three U.S. patents which were issued with respect to jet
injection technology and that were incorporated in earlier versions of the
Company's jet injection systems and which expire from July 2007 to November
2008.
Seven additional U.S. patents have been issued which protect developments
incorporated in the Biojector 2000 system. Claims included in these patents
include claims regarding the needle-free injection system's design, method of
operation, certain aspects of the syringe design and the method of manufacturing
the syringe orifice. The Company has also been granted a patent relating to the
a dual-size drug vial access device. The Company has made additional patent
filings regarding pre-filled syringe technologies, adapters for drug vial access
and new self-injector devices under development. The Company generally files
patent applications in Canada, Europe and Japan at the times and under the
circumstances that it deems 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 the Company will be valid or sufficiently broad
to protect the Company's technology or provide a significant competitive
advantage. See "Risk Factors". The Company also relies on trade secrets and
proprietary know-how that it seeks to protect through confidentiality agreements
with its employees, consultants, suppliers and others. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known to or be developed independently by competitors. In addition, the
laws of foreign countries may not protect the Company's proprietary rights to
its technology, including patent rights, to the same extent as the laws of the
United States.
The Company believes that it has independently developed its technology and
attempts to assure that its products do not infringe the proprietary rights of
others. However, if infringement of the proprietary rights of others is alleged
and proved, there can be no assurance that the Company could obtain necessary
licenses to that technology on terms and conditions that would not have an
adverse affect on the Company. The Company is 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 the Company's technology, the Company could
become involved in litigation that might involve substantial cost to the
Company. Such litigation might also divert substantial management attention away
from Company operations and into efforts to enforce the Company's patents,
protect its trade secrets or know-how or determine the scope of the proprietary
rights of others. If a proceeding resulted in adverse findings the Company could
be subject to significant liabilities to third parties. The Company might also
be required to seek licenses from third parties in order to manufacture or sell
its products. The Company's ability to manufacture and sell its products might
also be adversely affected by other unforeseen factors relating to the
proceeding or its outcome. See "Risk Factors".
GOVERNMENTAL REGULATION
The Company's products and manufacturing operations are subject to extensive
government regulations, both in the U.S. and abroad. In the U.S., the Food and
10
Drug Administration ("FDA") administers the Federal Food, Drug and Cosmetic Act
(the "FD&C") 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. Manufacturing facilities and certain Company
records are also subject to FDA inspection. The FDA has broad discretion to
enforce the FD&C and the 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.
Unless exempted by regulation, the FD&C provides that medical devices may not be
commercially distributed in the U.S. unless they have been cleared or approved
by the FDA. The FD&C provides two basic review procedures for pre-market
clearance or approval of medical devices. Certain products qualify for a
submission authorized by Section 510(k) of the FD&C. Under Section 510(k),
manufacturer provides the FDA with a premarket 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 premarket approval ("PMA") application. 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. A 510(k) notification is also required when the
manufacturer makes a change or modification to an already marketed device that
could significantly affect the device's safety or effectiveness, or 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.
The FDA's regulations provide only limited guidance in making this
determination.
In April 1987, the Company received 510(k) marketing clearance from the FDA
allowing the Company to market a hand-held CO2-powered jet injection system. The
Biojector 2000 system incorporates changes from the system for which the
Company's 1987 510(k) marketing clearance was received and expands its intended
use. The Company made the determination that these were not major changes or
modifications in intended use or changes in the device that could significantly
affect the safety or effectiveness of the device. Accordingly, the Company
concluded that the 1987 510(k) clearance permitted the Company to market the
Biojector 2000 system in the U.S. In June 1994, the Company
11
received clearance from the FDA under 510(k) to market a version of its
Biojector 2000 system in a configuration targeted at high volume injection
applications. In October 1996, the Company received 510(k) clearance for a
non-needle disposable vial access device. In March 1997, the Company received
additional 510(k) clearance for certain enhancements to its Biojector 2000
system. The Company currently has applications pending before the FDA for 510(k)
clearance of the B-2020 1.5 ml. jet injector. The Company has temporarily
withdrawn its previously submitted 510(k) application for the B-4000
self-injector. There can be no assurance that the FDA will concur with the
Company's determination that its products can be qualified by means of a 510(k)
submission. See "Risk Factors - Governmental Regulation".
The Company is developing pre-filled Biojector syringes and plans 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 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, the
Company believes that the FDA will likely require ANDAs, rather than NDAs, to be
submitted. The Company believes that if a drug intended to be used in the
Company's pre-filled syringe was already the subject of an approved NDA or ANDA
for intramuscular or subcutaneous injection, then the main issue affecting
clearance for use in the pre-filled syringe would be the ability of the syringe
to store the drug, assure its stability until used and safely deliver the proper
dose. See "Forward Looking Statements" and "Risk Factors Government Regulation".
The FDA also regulates the Company's quality control and manufacturing
procedures. It requires the Company and its contract manufacturers to
demonstrate compliance with current Good Manufacturing Practices ("GMP")
Regulations. These regulations require, among other things, that (i) the
manufacturing process must be regulated and controlled by the use of written
procedures, and (ii) the ability to produce devices which meet the
manufacturer's specifications must 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 in recent years 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 the Company to be considered
in violation of the Act and subject to enforcement action. The FDA monitors
compliance with these requirements by requiring manufacturers to register with
the FDA, and by subjecting them to periodic FDA inspections of manufacturing
facilities. If the inspector observes conditions that might be violated, the
manufacturer must correct those conditions or explain them satisfactorily.
Otherwise the manufacturer may face potential regulatory action which might
include physical recall of the product from the marketplace.
12
In August 1998, the Company's manufacturing facility was inspected by the FDA
for compliance with Good Manufacturing Practices. The Company received no
inspectional observations as a result of the inspection.
The FDA's Medical Device Reporting Regulation requires that the Company provide
information to the FDA if any death or serious injuries alleged to have been
associated with the use of the Company's products occur. 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. In addition, FDA regulations
prohibit a device from being marketed for unapproved or uncleared indications.
If the FDA believes that the company is 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
against the violating company.
The use and manufacture of the Company's 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 Company 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 the Company 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 on the
use of the Company's products or otherwise have a materially adverse effect upon
the Company's ability to do business. See "Risk Factors".
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 the
Company.
Sales of medical devices outside of the United States are subject to foreign
regulatory requirements. The requirements for obtaining premarket 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, the Company received certification from TUV Product Services for
the Company's quality system, which meets the requirements of ISO 9001 and EN
46001. In June 1999, TUV Product Services audited the Company's quality system
and found that it still meets the requirements of ISO 9001. Also in June 1999,
the company was recommended for certification from TUV Product Services for the
applicable requirements of EC-Directive 93/42/EEC Annex. II.3 Medical Device
Directive. This certification will allow the Company to label its products with
the CE Mark and sell them in the European Community. See "Risk Factors -
International Distribution".
RESEARCH AND PRODUCT DEVELOPMENT
Research and development efforts are focused on enhancing the Company's current
product offerings and on developing new needle-free injection products. The
13
Company uses clinical, magnetic resonance imaging and tissue studies to
determine the reliability and performance of new and existing products. As of
March 31, 1999, the Company's research and product development staff, including
clinical and regulatory staff members, consisted of six employees and one
outside contractor.
In March 1994, the Company entered into an agreement with Schering AG, Germany
("Schering"), to develop a self-injection device for delivery of Betaseron (R)
to multiple sclerosis patients. During fiscal years 1995 through 1997,the
Company developed prototype devices to Schering specifications which were
accepted by Schering. During fiscal 1997, the Company entered into a supply
agreement with Schering and commenced activities to prepare for full production
of the self injector. Schering loaned the Company a total of $1.6 million to
purchase molds and tooling to produce the product. In January 1997, Schering
notified the Company that the contract with Schering would be cancelled. Under
the contract provisions, Schering had the option to cancel the agreement if the
FDA required extensive clinical studies beyond an originally planned safety
study. Schering received a review letter from the FDA which would have required
Schering to conduct additional extensive clinical studies before the FDA would
grant clearance to use non-traditional delivery mechanisms with its Betaseron
(R) product. In accordance with its contract with the Company, Schering
converted its $1.6 million note due from Bioject into approximately 460,000
shares of Bioject common stock at a conversion price of $3.50 per share. In
addition, $106,000 of accrued interest was converted into approximately 27,000
shares of Bioject common stock at a conversion price of $3.50 per share. The
Company retained ownership of the molds and tooling. The B-4000 self-injector,
which was developed as a result of the Schering agreement, had been submitted to
the FDA for regulatory clearance prior to marketing. At the present time, the
Company has temporarily withdrawn its FDA submittal on the B-4000 in order to
concentrate its regulatory resources on gaining clearance for the B-2020 . See
"Risk Factors - Governmental Regulation".
In January 1995, the Company signed a joint development agreement with
Hoffman-La Roche ("Roche") to develop a proprietary drug delivery system for one
of Roche's products. The agreement provided for Bioject to develop and
manufacture a Biojector jet injection drug delivery system designed to Roche
specifications and anticipated a supply agreement under which those devices
would be sold to Roche. In return, Bioject granted Roche exclusive worldwide
rights to distribute the system and its components for use with certain Roche
products. Hoffman-La Roche Inc. is the United States affiliate of the
multinational group of companies headed by Roche Holding of Basel, Switzerland,
one of the world's leading, research-intensive healthcare companies.
As of 1995 fiscal year end, the Company had commenced design of a prototype
device and had agreed with Roche on product specifications. During fiscal 1996,
the Company developed and delivered to Roche preproduction prototypes for
testing and developed the clinical preproduction prototypes which were delivered
to Roche in April 1996. The device developed for Roche is the B-2020, a device
similar to the B-2000 in design and function, but which is capable of delivering
1.5 ml. of medication either intramuscularly or subcutaneously. As of fiscal
1997 year end, the Company and Roche were finalizing their submission to obtain
regulatory clearance to market the product. The Company submitted the B-2020 for
regulatory clearance in May 1998.
14
In February 1995, Roche paid a one-time licensing fee of $500,000. The agreement
also provided for specified product development fees on an agreed upon schedule
of which $400,000 was recognized in fiscal 1996, $500,000 was recognized in
fiscal 1997 and $500,000 was recognized in fiscal 1998. In June 1999, Roche
advised the Company that because of a change in its marketing strategy and
because of the additional time and cost required to obtain regulatory clearance
to use the B-2020, it does not intend to pursue distributing the B-2020 and is
relinquishing its exclusive rights to the product. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
In March 1998, the Company acquired the assets of Vitajet Corporation in a
stock-for-assets exchange. The Company paid 100,000 shares of its common stock
for certain molds, tooling, patent rights and customer lists, the value of which
totaled $134,400 at the date of acquisition. In addition to shares already paid,
the Company is obligated to issue 60,000 shares of its common stock in each of
the three years subsequent to the acquisition if certain development milestones
are met. The Company issued 60,000 shares of common stock in March 1999 in
payment for milestones met in the first contract year. Up to an additional
90,000 shares is also payable subject to the Company realizing specified,
aggregate levels of incremental revenue during the three years subsequent to the
Vitajet acquisition as a result of sales of products acquired from or developed
by Vitajet. During fiscal 1999, the Company re-engineered certain aspects of the
Vitajet to improve the efficiency of its manufacture.
In July 1998, the Company entered into a collaborative research agreement with
GeneMedicine Inc. (now owned by Valentis Inc.) a developer of gene medicines and
genetic vaccine technologies for treatment or prevention of a wide range of
diseases. The collaboration involves the continued refinement of the Biojector
2000 jet injection system coupled with GeneMedicine's unique gene-based delivery
platforms to create a combined product that will enhance the delivery and
activity of plasmid-based genetic vaccines. The agreement anticipates that
combined products developed as a result of the research collaboration will be
marketed to third party corporate partners for commercialization and sale rather
than being commercialized or sold by either Bioject or GeneMedicine. There can
be no assurance that the collaborative alliance will result in marketable
products. Further, if marketable products are developed as a result of the
collaborative alliance, there can be no assurance that the companies will be
successful either at locating appropriate third party corporate partners or at
entering into the necessary agreements with those partners to commercialize and
sell the products so developed. See "Forward Looking Statements". In addition,
if such products are developed, there can be no assurance that they will receive
the required regulatory clearances. See "Governmental Regulation".
A primary focus of the Company's research efforts is on clinical research in the
area of DNA-based vaccines and medications. In April 1998, to the best of the
Company's knowledge, its jet injection device was being used in two clinical
studies relating to development of DNA - based medications. The Company's
devices are currently being used in more than fifteen DNA-related clinical
research projects both within and outside of the United States. 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. Included in these studies are a Phase I
clinical trial of a DNA-based lymphoma vaccine being conducted at Stanford
University and a Phase I clinical trial of a DNA-based malaria vaccine being
conducted at the U.S. Naval Medical Research Center. The Company participates
15
in these clinical collaborations under Research Agreements that provide the
clinical researchers access to both existing and developing Biojector technology
and to the Company's clinical research staff. Under these agreements, the
Company is typically granted access to the results of the study as they pertain
to the effectiveness of the Company's products. Preliminary data from clinical
studies with animals indicates that the Biojector technology may significantly
enhance the performance of some DNA-based medications. See "Forward Looking
Statements".
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. The
Company is developing an adapter for the Biojector syringe to allow the device
to consistently deliver intradermal injections. Prototypes of the device are
being used in clinical studies to deliver intradermal injections. 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 the
Company's jet injection technology is proven to enhance the performance of
DNA-based medications, this area of medicine could present a significant
opportunity for the Company to license its products to pharmaceutical and
biotechnology companies for use in conjunction with their DNA-based medications.
See "Forward Looking Statements". There can be no assurance that further
clinical studies will prove conclusively that the Company's 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 the Company's technology prove to be
more effective in delivering DNA-based medications, that regulatory clearance
will be gained to deliver any DNA-based medications using the Company's
products. Further, should intradermal delivery of DNA-based medications be
critical to effective delivery of those compounds, there is no assurance that
the Company will gain regulatory clearance for intradermal delivery DNA-based
medications with its products. See "Risk Factors - Governmental Regulation" and
"Risk Factors - Uncertainty of Strategic Corporate Licensing and Supply
Agreements".
A second major focus of the Company's product development efforts is on
developing a new generation of personal injectors that are being designed to be
smaller, disposable, more lightweight and less costly to build than the B-4000
self-injector and intended to complement the marketing of the B-4000. These
devices will target the growing market for patients administering their own
injections in the home. The Company is seeking collaborations with
pharmaceutical and biotechnology companies that will help fund the cost of this
new generation of products. See "Forward Looking Statements".
The Company is also focusing product development efforts on developing
pre-filled syringes for use with its B-2000 product and with other needle-free
injectors presently being developed. When the pre-filled technology is
perfected, the Company intends 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. The Company also believes that
it will be able to
16
manufacture the pre-filled Biojector syringes at a lower cost than current
Biojector syringes. See "Forward Looking Statements". 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 "Business - Governmental
Regulation". There can be no assurance that pharmaceutical or biotechnology will
be willing to commit efforts to develop pre-filled packaging and pursue
regulatory clearance or that regulatory clearance of pre-filled Biojector
syringes will be obtained. Further, if such companies are willing to commit
efforts and resources to gaining regulatory clearance to package and distribute
their drugs in Biojector pre-filled syringes, there can be no assurance as to
the number of drugs that will prove chemically and pharmacologically stable in a
Biojector pre-filled syringe or of the number of drugs that will prove to be
safe and effective for their intended use when packaged, stored and delivered in
this manner.
MANUFACTURING
The Company assembles the Biojector 2000, the Vitajet and related syringes from
components purchased from outside suppliers. During fiscal 1998, having a
sufficient inventory of B-2000 devices on-hand as a result of the repurchase of
product from HMI, the Company focused manufacturing efforts on refining the
manufacturing processes and efficiencies of the syringe manufacturing line. See
"Marketing and Competition - Needle-Free Injection Business". On account of
excess inventories of both B-2000 devices and Biojector syringes, the Company
ceased manufacturing any material quantity of new products in July 1998. All but
four employees directly involved in manufacturing were either laid off or
transferred to other functions within the Company. The Company intends to
manufacture Vitajet devices and syringes in fiscal 2000. The Company believes
that inventory on-hand of B-2000 devices and syringes will, in most product
categories, be sufficient to meet product demand through fiscal 2000.
Accordingly, the Company does not plan to manufacture material quantities of
B-2000 devices or syringes in fiscal 2000. If demand for the Company's products
increases, the Company will need to attract and rehire a manufacturing workforce
and reestablish relationships with suppliers that can deliver large quantities
of components that meet the Company's quality standards in a timely and reliable
manner at acceptable prices. 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 the Company's
products. Further, while the Company believes that it continues to maintain
supplier relationships that will provide 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 by the Company to operate efficiently and
profitably. See "Forward Looking Statements" and "Management Discussion and
Analysis of Financial Conditions and Results of Operations".
17
EMPLOYEES
As of March 31, 1999, the Company had thirty full-time employees, with six
employees engaged in research and product development, four in sales and
marketing, two in technical product support, nine in manufacturing, seven in
administration and two developing the blood glucose monitor. The Company engages
a limited number of part-time consultants who assist with regulatory and sales
and marketing activities. As of March 31, 1999, there was one consultant and
four per diem nurses on contract with the Company. None of the Company's
employees are represented by a labor union.
PRODUCT LIABILITY
The Company believes that its products reliably inject medications both
subcutaneously and intramuscularly when used in accordance with product
guidelines. The Company's current insurance policies provide coverage at least
equal to an aggregate limit of $11 million with respect to certain product
liability claims. The Company has experienced one product liability claim to
date, and does not expect to incur significant liability pursuant to that claim.
There can be no assurance, however, that the Company will not become subject to
more such claims, that the Company's current insurance would cover such claims,
or that insurance will continue to be available to the Company in the future.
The Company's business may be adversely affected by product liability claims.
RISK FACTORS
Investing in the securities of the Company involves a high degree of risk. In
addition to the other information in this annual report, the following factors
should be considered carefully in evaluating the Company and its business. The
Company cautions the reader that this list of factors may not be exhaustive.
Uncertainty of Market Acceptance. The Company's success will depend on market
acceptance of its needle-free injection drug delivery systems, the Biojector
2000 system and the Vitajet system and on market acceptance of other products
under development. Currently, the dominant technology used for intramuscular and
subcutaneous injections is the hollow-needle syringe. Needle-syringes, while low
in cost, have limitations, particularly relating to contaminated needlestick
injuries. Use of the Biojector 2000 system for intramuscular and subcutaneous
injections eliminates the associated risk of these injuries; however, the cost
per injection is significantly higher. There can be no assurance that the
Biojector 2000, the Vitajet system or any of the Company's products under
development will compete successfully with needle-syringes. A previous
needle-free injection system manufactured by the Company did not achieve market
acceptance and is no longer being marketed. The Biojector 2000 was introduced in
January 1993. To date, the major portion of sales have been to HMI, and those
units were not placed in service. The Company repurchased most of those units at
a substantial discount to the original selling price after canceling its
agreement with HMI. Failure of the Biojector 2000 system to gain market
acceptance would have a material adverse effect on the Company's financial
condition and results of operations.
Reduced Sales Force. In late fiscal 1998 and early fiscal 1999, the Company
dramatically reduced its direct product sales force from one national and five
district sales managers to one national sales manager who is focused on
specifically targeted market segments. See "Business - Marketing and
Competition". There is no assurance that this reduced sales force will have
sufficient resources to adequately penetrate one or more of the targeted market
18
segments. Further, if the sales force is successful in penetrating one or more
of the targeted market segments, there is no assurance that the Company's
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 the Company to operate
profitably.
Uncertainty of Strategic Corporate Licensing and Supply Agreements. A key
component of the Company's sales and marketing strategy is to enter into
licensing and supply arrangements with leading pharmaceutical and biotechnology
companies whose products the Company's technology provides either increased
medical effectiveness or a higher degree of market acceptance. Two examples of
these types of agreements are the agreement entered into with Hoffman-LaRoche in
January 1995 and the preliminary agreement entered into with Merck & Co. in July
1998. In the case of the Roche agreement, the parties anticipated that the
product development phase of the agreement would develop into a supply and
distribution agreement between the Company and Roche. In June 1999, Roche
advised the Company 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 it marketing strategy. In making that change
in marketing strategy, Roche was abandoning its exclusive distribution rights to
the B-2020 and would not be seeking a supply of the B-2020 from Bioject. In the
case of the Merck & Co. agreement, 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 the Company that it
would not continue, at the present time, to pursue exclusive license to or
supply of the Company's products. Both agreements resulted in significant
short-term revenue to the Company. Neither agreement developed into the
long-term revenue stream anticipated by the Company's strategic partnering
strategy. There can be no assurance that the Company will be successful in
entering into future licensing or supply agreements with major pharmaceutical or
biotechnology companies. Further there can be no assurance that those
agreements, if entered into, will result in sustainable long-term revenues
which, when combined with revenues from product sales, will be sufficient for
the Company to operate profitably.
An important component of the Company's corporate licensing and supply agreement
strategy is specifically targeted at entering into agreements of this nature
with pharmaceutical and biotechnology companies developing DNA-based vaccines
and medications. The component of the strategy which focuses on companies
developing DNA-based therapies arises in great part from preliminary data from
clinical studies with animals which indicates that use of the Biojector
technology may result in better performance of some DNA-based medications than
can be achieved through the use of traditional needle-syringes. See "Forward
Looking Statements". There can be no assurance that further clinical studies
will prove conclusively that the Company's 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 the Company's technology prove to be more
effective in delivering DNA-based medications, that regulatory clearance will be
gained to deliver any DNA-based medications using the Company's products.
Further, should intradermal delivery of DNA-based medications be critical to
effective delivery of those compounds, there is no assurance that the Company
will gain regulatory clearance for intradermal delivery of DNA-based medications
with its products. See "Research and Development' and "Risk Factors -
Governmental Regulation". In addition, there can be no assurance that any
company will be successful in developing one or more DNA-based therapies or
successful in bringing those therapies to market. Further, should any companies
19
be successful in developing and marketing DNA-based therapies, there is no
assurance that the Company will be successful at entering into long-term license
or supply agreements with any such company.
Uncertainty of the Sale of the Blood Glucose Monitoring Technology. In May 1999,
rather than continue to fund the cost of its development, the Company
entertained a preliminary proposal from a third party to purchase Marathon
Medical's blood glucose monitoring technology. Pursuant to the proposal, the
Company intends to enter into an agreement to sell the license to the blood
glucose monitoring technology, along with certain fixed assets. The completion
of the transaction is subject to negotiation and execution of definitive
agreements and satisfaction of certain conditions, so there can be no assurance
that the transaction will be completed on the terms anticipated by the Company
or at all. If the proposed transaction is not completed, the Company intends to
pursue other means to dispose of the blood glucose monitoring technology. In the
event that the sale is not completed, there can be no assurance that the Company
will be able to find another buyer for the technology on terms similar to those
of the proposed sale or on any terms at all. If the proposed sale is not
completed and the Company is unable to very shortly thereafter to find another
buyer for the technology, it is highly unlikely that the Company will have
sufficient resources to continue to fund development of the blood glucose
monitoring technology. In that case, Marathon Medical or the Company will be
forced either to i)raise significant amounts of additional capital to fund
continued development of the technology or ii) abandon development of the blood
glucose monitoring technology altogether. Raising additional capital will
require the Company or Marathon Medical to issue debt or equity securities which
could be highly dilutive to the ownership interests of the Company's
shareholders. See "Risk Factors - Need for Additional Capital".
Uncertainty of Product Development Under the GeneMedicine Agreement. The
Company's collaborative research agreement with GeneMedicine involves the
continued refinement of the Biojector 2000 needle-free injection system coupled
with GeneMedicine's unique gene-based delivery platforms to create a combined
product that will enhance the delivery and activity of plasmid-based genetic
vaccines. The agreement anticipates that combined products developed as a result
of the research collaboration will be marketed to third party corporate partners
for commercialization and sale rather than being commercialized or sold by
either Bioject or GeneMedicine. See "Research and Product Development". There
can be no assurance that the collaborative alliance will result in marketable
products. Further, should such marketable products be developed, there can be no
assurance that the companies will be successful either at locating appropriate
third party corporate partners or at entering into the necessary agreements with
those partners to commercialize or sell the products so developed. See "Forward
Looking Statements". Additionally there can be no assurance, should such
products be developed, that such products would receive the required
governmental clearance. See "Business Governmental Regulation".
History of Losses; Uncertain Profitability. Since its formation in 1985, the
Company has incurred significant annual operating losses and negative cash flow.
At March 31, 1999, the Company had an accumulated deficit of $58 million. $43
million of the accumulated deficit relates to losses incurred in the needle-free
segment of the Company's operations. $15 million of the accumulated deficit
relates to losses from the Company's operations to develop the blood glucose
monitoring technology. $12 million of the losses related to the blood glucose
monitoring technology arose from the write-off, after minority interest, in
fiscal 1998, of in-process research and development acquired in connection
licensing the blood glucose monitoring technology from Elan. Historically, the
Company's revenues have been derived primarily from licensing and technology
fees and from limited product sales. The product sales
20
were principally sales to dealers in order to stock their inventories and to
HMI. More recently, the Company has sold its products to end-users, primarily to
public health clinics for vaccinations and to nursing organizations for flu
immunizations. The Company has not attained profitability at these sales levels.
There can be no assurance that the Company will be able to generate significant
revenues or achieve profitability. Because of these uncertainties, the Company's
independent public accountants have qualified their opinion with respect to the
Company's ability to continue as a going concern. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
Need for Additional Financing. To date, the Company's revenues from operations
have not been sufficient to meet its cash requirements. As a result, since its
inception in 1985, the Company has financed its operations, working capital
needs and capital expenditures primarily from private placements of securities,
exercises of stock options, proceeds received from its initial public offering
in 1986, proceeds received from a public offering of Common Stock in November
1993, licensing and technology revenues, equity investments from Elan and more
recently through sales of products. The Company plans to fund its future cash
requirements through revenues, debt, sales of equity securities, and its share
of the net proceeds, if any, from the proposed sale of the license to the blood
glucose monitoring technology. See "Risk Factors - Uncertainty of the Sale of
the Blood Glucose Monitoring Technology". There can be no assurance that
financing sufficient to fund the Company's business activities will be obtained
on favorable terms or at all. Failure to obtain adequate financing would have a
material adverse impact on the Company's business. If the proposed sale of the
blood glucose monitoring technology is not completed and another buyer for the
blood glucose monitoring technology is not found, failure to obtain adequate
financing could also result in default on the Company's or Marathon Medical's
obligations relating to the Elan transactions, including loss of Marathon
Medical's rights to the technology under the License, dilution of the Company's
interest in Marathon Medical or the need to severely curtail or cease operations
of Marathon Medical while the Company seeks to dispose of the blood glucose
monitoring technology. In addition, sale of the Company's equity securities on
unfavorable terms to meet the Company's obligations could result in material
dilution to the existing shareholders.
Effects of Convertible Preferred Stock. The Company's Common Stock is subject to
the rights and preferences of the Series A, B and C Convertible Preferred Stock,
which has a liquidation preference of $14.8 million plus accrued and unpaid
dividends. The Series A and B Convertible Preferred Stock is convertible to
Common Stock at a conversion price of $1.50 per share at any time. The Series C
Preferred Stock is convertible to Common Stock at a conversion price of $0.6125
per share at any time. At the end of seven years, unless its is converted
earlier by the holders or redeemed by the Company, the shares Series A, B and C
Convertible Preferred Stock and accrued but unpaid dividends convert
automatically into Common Stock at the conversion price equal to the lesser of
$1.50 per share or 80% of the then prevailing market price of Common Stock.
Accordingly, conversion of Series A, B and C Convertible Preferred Stock to
Common Stock could result in issuances of significant amounts of Common Stock at
prices lower than prevailing market prices at the time of conversion. Should the
Company issue Series D Convertible Preferred Stock or other similar series of
Preferred Stock to Elan to enable the Company to fund capital contributions to
Marathon Medical, the aggregate amount of Preferred Stock liquidation
preferences and Common Stock issuable upon conversion of Preferred Stock would
increase.
Limited Manufacturing Experience. The Company has limited experience
manufacturing its products in commercially viable quantities. The Company has
21
increased its production capacity for the Biojector 2000 system through
automation of, and changes in, production methods. The current cost per
injection of the Biojector 2000 system is substantially higher than that of
traditional needle-syringes, its principal competition. A key element of the
Company's business strategy has been to reduce the overall manufacturing cost
through automating production and packaging. This automation is substantially
complete. There can be no assurance that the Company 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 the Company's financial
condition and results of operations. While the Company believes that its
experience manufacturing the Biojector enhances the probability of its success
in manufacturing the Vitajet, the Company has limited experience manufacturing
the Vitajet and as of March 31, 1999, has only recently completed installing a
manufacturing line to produce the Vitajet. There can be no assurance that the
Company will be able to successfully manufacture the Vitajet at a unit cost that
will allow the product to be sold profitably. Failure to do so would adversely
affect the Company's financial condition and results of operation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Manufacturing".
Governmental Regulation. The Company's products and manufacturing operations are
subject to extensive government regulation in both the U.S. and abroad. 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 ("FD&C"). In 1987, the Company received clearance
from the FDA under Section 510(k) of the FD&C to market a hand-held CO2-powered
needle-free injection system. The FD&C provides that new premarket notifications
under Section 510(k) of the FD&C are required to be filed when, among other
things, there is a major change or modification in the intended use of a device
or a change or modification to a legally marketed device that could
significantly affect its safety or effectiveness. A device manufacturer is
expected to make the initial determination as to whether the change to its
device or its intended use is of a kind that would necessitate the filing of a
new 510(k) notification. Although the Biojector 2000 system incorporates changes
from the system with respect to which the Company's 1987 510(k) marketing
clearance was received and expands its intended use, the Company made the
determination that these were not major changes or modifications in intended use
or changes in the device that could significantly affect the safety or
effectiveness of the device. Accordingly, the Company further concluded that the
1987 510(k) clearance permitted the Company to market the Biojector 2000 system
in the U.S. In June 1994, the Company received clearance from the FDA under
510(k) to market a version of its Biojector 2000 system in a configuration
targeted at high volume injection applications. In October 1996, the Company
received 510(k) clearance for a needle-free disposable vial access device. In
March 1997, the Company received additional 510(k) clearance for certain
enhancements to its Biojector 2000 system. The Company currently has
applications pending before the FDA for 510(k) clearance of the B-2020 1.5 ml.
jet injector. There can be no assurance that the FDA will concur with the
Company's determination that its current and future products can be qualified by
means of a 510(k) submission.
Future changes to manufacturing procedures could require that the Company 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 premarket approval ("PMA") or other regulatory
22
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 ("NDAS") or ANDAs. Depending on the circumstances,
drug regulation can be much more extensive and time consuming than device
regulation. See "Business - Governmental Regulation".
FDA regulatory processes are time consuming and expensive. There can be no
assurance that product applications submitted by the Company will be cleared or
approved by the FDA. In addition, the Company's products must be manufactured in
compliance with Good Manufacturing Practices ("GMP") as specified in regulations
under the FDA Act. The FDA has broad discretion in enforcing the FDA Act, and
noncompliance with the Act 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.
International Distribution. Distribution of the Company's products in countries
other than the U.S. may be subject to regulation in those countries. In June
1998, the Company received certification from TUV Product Services for the
Company's quality system, which meets the requirements of ISO 9001 and EN 46001.
In June 1999, TUV Product Services audited the Company's quality system and
found that it still meets the requirements of ISO 9001. Also in June 1999, the
company was recommended for certification from TUV Product Services for the
applicable requirements of EC-Directive 93/42/EEC Annex. II.3 Medical Device
Directive. This certification will allow the Company to label its products with
the CE Mark and sell them in the European Community. Before this certification
is granted, the Company must submit certain additional information to TUV
Product Services. There can be no assurance that final Medical Device Directive
certification will be received or that the Company will continue to meet the
standards of ISO 9001. See "Governmental Regulations".
Uncertainty in Healthcare Industry. 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 exceeds
the price of needle-syringe, cost control policies of third party payers,
including government agencies, may adversely affect acceptance and use of the
Biojector 2000 system.
Dependence on Third-Party Relationships. The Company is dependent on third
parties for distribution of the Biojector 2000 system to certain market
segments, for the manufacture of component parts, and for assistance with the
development and distribution of future application-specific systems.
The Company's 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. Certain of these components are currently obtained from single
sources, with some components requiring significant production lead times. In
the past, the Company has experienced delays in the delivery of certain
components, To date such delays have not had a material adverse effect on the
23
Company's operations. There can be no assurance that the Company will not
experience delays in the future, or that such delays would not have a material
adverse effect on the Company's financial condition and result of operations.
See "Manufacturing".
In the past, the Company has entered into agreements with certain major
pharmaceutical or biotechnology companies for development and distribution of
needle-free injection systems and for use of the Company's needle-free injection
systems in conjunction with the pharmaceutical companies' products. In all cases
to date these companies have had the right to terminate those agreements at
certain phases as defined in the agreements. In several instances, those
agreements have been terminated before yielding sustained long-term licensing or
product sales revenues. Entering into agreements of this nature is an important
part of the Company's overall business strategy. There can be no assurance that,
in the future, the Company will be able to interest any major pharmaceutical or
biotechnology companies in entering into such agreements. If interested parties
are found, there can be no assurance that the Company will be successful at
negotiating and entering into long-term licensing and supply agreements with the
interested parties. Further, if such agreements are entered into, there can be
no assurance that the companies' interest and participation in the agreements
and projects will continue and result in long-term, sustainable revenues as
contemplated by this aspect of the Company's overall business strategy. Failure
to enter into future licensing and product supply agreements with major
pharmaceutical or biotechnology companies and failure of those future agreements
to result in significant, sustainable long-term revenues could adversely affect
the Company's financial condition.
Ability to Manage Growth. If the Company's products achieve market acceptance or
if it is successful in entering into product supply agreements with major
pharmaceutical or biotechnology companies, the Company expects to experience
rapid growth. Such growth would require expanded customer service and support,
increased personnel throughout the Company, expanded operational and financial
systems, and implementing new and expanded control procedures. There can be no
assurance that the Company will be able to attract sufficient qualified
personnel or successfully manage expanded operations. As the Company expands, it
may periodically experience constraints that would adversely affect its ability
to satisfy customer demand in a timely fashion. Failure to manage growth
effectively could adversely affect the Company's financial condition and results
of operations.
Competition. The medical equipment market is highly competitive and competition
is likely to intensify. The Company's products compete primarily with
traditional needle-syringes, "safety syringes" and also with other alternative
drug delivery systems. While the Company believes its products provide a
superior drug delivery method, there can be no assurance that the Company will
be able to compete successfully with existing or newly developed drug delivery
products. Many of the Company's competitors have longer operating histories as
well as substantially greater financial, technical, marketing and customer
support resources than the Company. There can be no assurance that one or more
of these competitors will not develop an alternative drug delivery system that
competes more directly with the Company's products, or that the Company's
products would be able to compete successfully with such a product.
Dependence on a Single Technology. The Company's strategy has been to focus its
development and marketing efforts on its needle-free injection technology. Focus
on this single technology leaves the Company vulnerable to competing
24
products and alternative drug delivery systems. The Company perceives 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 the Company believes that for the foreseeable future
there will continue be a significant need for injections, there can be no
assurance that alternative drug delivery methods will not be developed which are
preferable to injection. See "Forward Looking Statements".
Patents and Proprietary Rights. The Company relies on a combination of trade
secrets, confidentiality agreements and procedures, and patents to protect its
proprietary technologies. The Company has been granted a number of patents in
the United States and several patents in other countries covering certain
technology embodied in its current jet injection system and certain
manufacturing processes. Additional patent applications are pending in the U.S.
and certain foreign countries. There can be no assurance that the claims
contained in any patent application will be allowed, or that any patent or the
Company's patents collectively will provide adequate protection for the
Company's products and technology. In the absence of patent protection, the
Company may be vulnerable to competitors who attempt to copy the Company's
products or gain access to its trade secrets and know-how. In addition, the laws
of foreign countries may not protect the Company's proprietary rights to this
technology to the same extent as the laws of the U.S. The Company believes that
it has independently developed its technology and attempts to ensure that its
products do not infringe the proprietary rights of others. The Company knows of
no such infringement claims. However, any such claims could have a material
adverse affect on the Company's financial condition and results of operations.
Product Liability. 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. The Company currently maintains product liability insurance and, to
date, has experienced only one product liability claim. There can be no
assurance, however, that the Company will not be subject to a number of such
claims, that the Company's products liability insurance would cover such claims,
or that adequate insurance will continue to be available to the Company on
acceptable terms in the future. The Company's business could be adversely
affected by product liability claims or by the cost of insuring against such
claims.
Dependence on Key Employees. The Company's success depends on the retention of
its executive officers and other key employees. Competition exists for qualified
personnel and the Company's success will depend, in part, on attracting and
retaining such personnel. Failure in these efforts could have a material adverse
effect on the Company's business, financial condition or results of operations.
Shares Eligible For Future Sale. In December 1996, the Company completed a
private placement of 3,434,493 units (each unit representing one share of common
stock and a warrant to purchase one share of common stock). The Company also
granted a warrant to its placement agent in the private placement to purchase
156,000 shares of common stock. The shares issued in the private placement and
the underlying shares issuable upon exercise of the warrants were registered for
resale on a Form S-3 registration statement. In June and July 1997, the Company
completed a private placement of 2,906,977 units, each unit consisting of one
share of Common Stock and one warrant to purchase
25
one-half share of Common Stock. In May 1997, in return for services provided,
the Company granted a consultant a warrant to purchase 25,000 shares of Common
Stock. The shares issued in the private placement and the underlying shares
issuable upon exercise of the warrants were registered for resale on a Form S-3
registration statement. In connection with the Elan transactions in October
1997, Elan purchased 2,727,273 shares of Common Stock and was granted a five
year warrant to purchase 1.75 million shares of common stock. In January, 1998,
the shares issued to Elan as well as the 487,390 shares issued to Schering (see
"Research and Product Development - Needle-free Injection Business") were
registered for resale on a Form S-3 registration statement. In October, 1997,
the Company granted warrants to purchase 350,000 shares of stock to an
individual in connection with a his guarantee of an equity investment in the
Company. In February, 1998, the Company granted a management consulting company
which introduced Elan to the Company, a warrant to purchase 100,000 shares of
Common Stock. In June 1998, the Company granted warrants to purchase 130,243
shares of stock to an individual in return for services to the Company. In April
1998, the warrants issued in the June and July 1997 private placement were
exercised, in exchange for which the Company issued 147,850 new warrants. In May
1999, the Company issued warrants to purchase 80,000 shares of common stock to
an advisory firm in exchange for financial advisory services. Sales of
substantial numbers of common stock in the public market, or the availability of
such shares for sale, could adversely affect the market price for the common
stock and make it more difficult for the Company to raise funds through equity
offerings in the future.
Possible Adverse Effects on Trading Market. The Company's Common Stock is quoted
on the NASDAQ National Market. There are a number of continuing requirements
that must be met in order for the Common Stock to remain eligible for quotation
on the NASDAQ National Market or the NASDAQ SmallCap Market. The failure to meet
the maintenance criteria in the future could result in the delisting of the
Company's Common Stock from NASDAQ. In such event, trading, if any, in the
Common Stock may then continue to be conducted in the non- NASDAQ
over-the-counter market. As a result, an investor may find it more difficult to
dispose of or to obtain accurate quotations as to the market value of the
Company's Common Stock. In addition, if the Common Stock were delisted from
trading on NASDAQ and the trading price of the Common Stock were less than $5.00
per share, trading in the Common Stock would also be subject to the requirements
of certain rules promulgated under the Exchange Act, which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock. The additional burdens imposed on broker-dealers may
discourage broker-dealers from effecting transactions in penny stocks, which
could reduce the liquidity of the shares of Common Stock and thereby have a
material adverse effect on the trading market for the securities. On April 9,
1999, the Company was advised by NASDAQ that it is out of compliance with the
NASDAQ rule that requires companies listed on the exchange to maintain a minimum
bid price of $1.00 for their stock. The Company is pursuing a variety of courses
of action to bring the bid price of its stock back into compliance with NASDAQ
requirements. There can be no assurance that the Company will be successful in
these efforts within the timeframes prescribed by NASDAQ or at all.
26
Possible Volatility of Stock Price. The market for the Company's Common Stock
and for the securities of other early-stage, small market-capitalization
companies has been highly volatile in recent years. The Company believes that
factors such as quarter-to-quarter fluctuations in financial results, new
product introductions by the Company or its 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 the Company's 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 the Company's Common Stock.
Item 2. PROPERTIES
The Company's principal offices are located in Portland, Oregon in approximately
23,000 square feet of leased office and manufacturing space under a lease which
expires in September 2002. The monthly minimum lease obligation for this
facility is approximately $15,000. These facilities include the Company's sales
and administration offices and equipment, research and engineering facilities, a
clean room assembly area, assembly line, testing facilities and a warehouse
area.
The Company leases additional warehouse space totaling approximately 5,000
square feet for finished goods storage and shipments to customers. This lease,
which also expires in September 2002, has minimum monthly lease obligations
totaling $2,000.
The Company believes its current facilities will be sufficient to support its
operations for the next 3-5 fiscal years. As the Company requires additional
space to accommodate growth in its sales and manufacturing activities, it is the
Company's intention to lease additional facilities adjacent to or near its
present operations. The Company believes that, if necessary, it will be able to
obtain facilities at rates and under terms comparable to those of the current
leases. See "Forward Looking Statements".
Item 3. LEGAL PROCEEDINGS
The Company is named as co-defendant in a product liability suit alleging injury
and unspecified damages in excess of $50,000 to the plaintiff in connection with
an injection administered using the B-2000. The Company believes that the suit
is without merit. The Company's insurer for product liability has undertaken
defense of the claim on the Company's behalf.
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
The Company's Common Stock is traded on the NASDAQ National Market under the
Symbol "BJCT". The following table sets forth the high and low closing sale
prices of the Company's Common Stock on the NASDAQ National Market.
27
High Low
----- -----
Fiscal year Ended March 31, 1997:
First Quarter 1.41 1.28
Second Quarter 1.03 0.97
Third Quarter 0.78 0.75
Fourth Quarter 0.78 0.63
Fiscal Year Ended March 31, 1998:
First Quarter .94 .47
Second Quarter 1.03 .59
Third Quarter 1.57 1.19
Fourth Quarter 1.50 1.09
Fiscal Year Ended March 31, 1999:
First Quarter 2.09 1.34
Second Quarter 2.06 0.88
Third Quarter 1.72 1.06
Fourth Quarter 1.72 .56
The closing sale price on June 25, 1999, as reported on the NASDAQ National
Market, was $0.625 per share.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
FINANCIAL DATA
The statement of operations and balance sheet data set forth below for the five
fiscal years in the period ended March 31, 1999, have been derived from the
consolidated financial statements of the Company. 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 detailed consolidated financial statements and notes thereto included
elsewhere in this Report.
28
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
YEAR ENDED MARCH 31,
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Statement of Operations Data:
Revenues $ 2,631 $ 1,935 $ 2,235 $ 4,209 $ 2,924
Operating expenses 5,405 6,061 6,637 9,851 9,008
Net loss:
Continuing operations (4,064) (4,518) (4,296) (5,431) (5,656)
Discontinued operations (3,012) (12,112) -- -- --
Net loss allocable
to common shareholders (7,076) (16,630) (4,296) (5,431) (5,656)
Net loss per share:
Continuing operations (0.14) (0.20) (0.26) (0.39) (0.43)
Discontinued operations (0.11) (0.52) -- -- --
Net loss per share allocable
to common shareholders (.025) (0.72) (0.26) (0.39) (0.43)
Shares used in per
share calculation 28,315 23,151 16,705 14,074 13,167
YEAR ENDED MARCH 31,
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Balance Sheet Data:
Working capital $ 3,038 $ 3,019 $ 2,858 $ 4,327 $ 6,404
Total assets 8,591 6,978 7,088 7,519 9,498
Long-term debt -- -- -- -- --
Shareholders' equity 5,748 5,975 5,766 6,027 7,964
In fiscal 1998, the Company acquired blood glucose monitoring technology from
Elan for an up-front licensing fee of $15 million which was required to be
expensed in the year paid. As a result, the 1998 net loss from discontinued
operations includes a $12 million, net of minority interest, one-time charge for
acquired in-process research and development.
In May 1999, rather than continue to fund the cost of its development, the
Company entertained a preliminary proposal from a third party to purchase
Marathon Medical's blood glucose monitoring technology. Pursuant to the
proposal, the Company intends to enter into an agreement to sell the license to
the blood glucose monitoring technology, along with certain fixed assets.
Accordingly, Marathon Medical's operation is reported as "Discontinued
Operations" in the accompanying financial statements. See Note 3 - "Discontinued
Operations".
The Company has declared no dividends during its history and has no intention of
declaring a dividend in the foreseeable future.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Operating losses have resulted in an accumulated deficit of approximately $58
million as of March 31, 1999. In fiscal 1996, the Company incurred significantly
increased costs associated with the production and sale of the Biojector 2000
system, including sales and marketing efforts, manufacturing ramp-up and
inventory build-up. In September 1997, the Company acquired rights to the blood
glucose monitoring technology from Elan for an initial payment of $15 million.
In fiscal 1998, the $15 million up front payment was expensed as acquired
in-process research and development, net of minority interest allocation. In
March 1998, the
29
Company acquired the rights to the Vitajet self-injector, along with certain
other assets, in a stock-for-assets transaction with Vitajet Corporation. The
Company's ability to achieve and sustain profitability will depend on: i)
customers accepting the Biojector 2000 system; ii) forming strategic
relationships with major pharmaceutical and biotechnology companies that result
in significant license and product supply agreements; iii) realizing
volume-related manufacturing cost efficiencies; and iv) otherwise attaining
revenues sufficient to support profitable operations.
In August 1994, Bioject signed an agreement with Health Management, Inc.
("HMI"), granting HMI exclusive rights to purchase Bioject's Needle-Free
Injection Management System (R), the Biojector 2000, for use in the home
healthcare market. In return for HMI's commitment to purchase a minimum of 8,000
Biojector units over the ensuing two years, the Company granted volume pricing
discounts to HMI. During the term of the contract, the selling price of
Biojectors to HMI exceeded their standard cost. During fiscal 1996 and 1997, the
Company sold approximately 6,400 Biojectors to HMI for total sales revenue
including syringes of $3.3 million. HMI did not place the great majority of
these Biojectors with patients, pending completion of negotiations with
pharmaceutical companies for certain pricing concessions for medication to be
administered with the Biojectors. In January 1996 HMI requested that Bioject
suspend shipments to HMI. In February 1996, the Company learned from HMI's press
releases that HMI expected to default on its debts, anticipated taking
significant write-offs relating to accounts receivable and inventories, planned
operational consolidations, and would restate certain prior period financial
statements. In fiscal 1997, although not obligated to do so, the Company agreed
to repurchase certain of the HMI inventories, including up to 6,000 Biojector
units, for cash and forgiveness of accounts receivable totaling $660,000. The
repurchase of these inventories was at a substantial discount to the original
selling price to HMI.
In March 1994, the Company entered into an agreement with Schering AG
("Schering"), Germany, for the development of a self-injection device (the
"Self-Injector") for delivery of Betaseron (R) to multiple sclerosis patients.
During fiscal 1996, the Company delivered preproduction clinical prototypes to
Schering and worked on finalizing the production prototype design. During fiscal
1997, the Company entered into a supply agreement with Schering AG and commenced
activities related to full production of the self-injector. Schering loaned the
Company a total of $1.6 million to purchase molds and tooling to produce the
product. In January 1997, the Company received notice that its contract with
Schering AG would be cancelled. Under provisions of the contract, Schering AG
had the option of canceling the agreement if the FDA required extensive clinical
studies beyond an originally planned safety study. Schering AG received a review
letter from the FDA which would have required Schering to conduct additional,
material clinical studies in order to use non-traditional delivery mechanisms
with its Betaseron (R) product. Under terms of the contract, Schering was
required to convert its $1.6 million note due from Bioject plus accrued interest
into approximately 487,000 shares of Bioject common stock at a conversion price
of $3.50 per share. In addition, Schering was obligated to pay Bioject for the
cost of product ordered through the date of cancellation of the contract, which
payment was made in June 1997.
In January 1995, the Company signed a joint development agreement with
Hoffman-La Roche to develop proprietary drug delivery systems for Roche
products. The agreement provided for Bioject to develop, manufacture and sell
Biojector needle-free injection drug delivery systems designed to Roche
30
specifications. The B-2020 1.5 ml. needle-free injector was developed as a
result of this agreement. In return, Bioject granted Roche exclusive worldwide
rights to distribute these systems and their components for use with certain
Roche products. Hoffman-LaRoche Inc. is the United States affiliate of the
multinational group of companies headed by Roche Holding of Basel, Switzerland,
one of the world's leading research-intensive healthcare companies. As of the
1995 fiscal year end, the Company had commenced design of a prototype device and
had agreed with Roche on product specifications. During fiscal 1996, the Company
developed and delivered preproduction prototypes to Roche for testing and
developed the clinical preproduction prototypes which were delivered to Roche in
April 1996. At March 31, 1998, the Company and Hoffman-LaRoche were finalizing
their submission to obtain regulatory clearance to market the product. The
regulatory submission was made in May 1998. In June 1999, after the end of the
fiscal year, Roche advised the Company that because of the additional time and
cost required to gain regulatory clearance to use the B-2020 in conjunction with
the Roche drugs and because of an overall change in its marketing strategy for
the drugs in question, it does not intend to pursue distributing the B-2020 and
is relinquishing its exclusive rights to the product.
In September 1997, the Company and Elan Corporation signed a licensing and joint
development agreement for the development and commercialization of certain
continuous blood glucose monitoring technology licensed from Elan. Under terms
of the agreement, the Company borrowed $12.015 million from Elan(subsequently
converted to Series A and B convertible preferred stock) and Elan invested
$2.985 million in a new subsidiary of the Company, Marathon Medical Technologies
Inc. ("Marathon Medical") (formerly Bioject JV Subsidiary Inc.), created for the
purpose of developing the technology. Marathon Medical, owned 80.1% by the
Company and 19.9% by Elan, paid Elan $15 million for rights to the technology
and was committed to pay an additional $15.5 million to Elan as future
milestones were achieved as well as royalties on future sales of the product.
The new subsidiary was to develop the blood glucose monitoring technology and
seek regulatory clearance for the its sale. In October 1997, as part of the
agreement, Elan acquired 2.7 million shares of common stock and 1.75 million
warrants to purchase the Company's common stock at $2.50 per share for $3
million. In addition, Elan agreed to underwrite the Company's contractual
obligation to fund development of the blood glucose monitoring technology by
purchasing up to a total of $4 million of the Company's Series C convertible
preferred stock. Elan also agreed to purchase up to a maximum of an additional
$1 million of Marathon Medical's stock. As a separate part of the agreement,
Elan also committed to fund development of the Company's pre-filled syringe
technology through a grant of up to $500,000.
In March 1999, Elan subscribed to purchase $2.4 million of the Company's Series
C preferred stock and $597,000 of the stock in Marathon Medical. In May 1999,
after the end of the fiscal year, the Company decided to seek a buyer for the
blood glucose monitoring technology rather than continue to fund the cost of its
development. In May 1999, rather than continue to fund the cost of its
development, the Company entertained a preliminary proposal from a third party
to purchase Marathon Medical's blood glucose monitoring technology. Pursuant to
the proposal, the Company intends to enter into an agreement to sell the license
to the blood glucose monitoring technology, along with certain fixed assets.
Accordingly, Marathon Medical's operation is reported as "Discontinued
Operations" in the financial statements and other financial information included
as a part of this Report. See "Risk Factors - Uncertainty of the Sale of the
Blood Glucose Monitoring Technology", and "Consolidated Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements".
31
In March 1998, in a transaction with Vitajet Corporation, the Company paid
100,000 shares of its common stock for certain molds, tooling, patent rights and
customer lists, the value of which totaled $134,400 at the date of acquisition.
In addition to shares already paid, the Company is obligated to issue 60,000
shares of its common stock each year in each of the three years subsequent to
the acquisition if certain development milestones are met. The Company issued
60,000 shares in March 1999 in payment for milestones met in the first contract
year. Up to an additional 90,000 shares are also payable subject to the Company
realizing specified, aggregate levels of incremental revenue during the three
years subsequent to the Vitajet acquisition as a result of sales of products
acquired from or developed by Vitajet.
In July 1998, the Company entered into an agreement with Merck & Co. ("Merck")
which provided Merck limited-term rights to use the B-2000 needle-free injection
system with selected Merck vaccines. As part of the agreement, the Company also
granted Merck exclusive rights to negotiate a long-term license to the B-2000
for certain medical indications. The Company received $1.5 million in
non-refundable fees under this agreement in the year ended March 31, 1999. In
February 1999, citing a refinement in its vaccine development strategy, Merck
advised the Company that it would not continue discussions to seek long-term
license rights to the Company's technology. No further fees are due to the
Company under this agreement.
Also in July 1998, the Company entered into a collaborative research agreement
with GeneMedicine Inc. (now owned by Valentis Inc.), a developer of DNA-based
medicines and genetic vaccine technologies for treatment or prevention of a wide
range of diseases. This collaboration involves the continued refinement of the
Biojector 2000 jet injection system coupled with GeneMedicine's gene-based
delivery platforms to create a combined product that is intended to enhance the
delivery and activity of plasmid-based genetic vaccines. The agreement
anticipates that combined products developed as a result of the research
collaboration will be marketed to third party corporate partners for
commercialization and sale rather than being commercialized or sold by either
Bioject or GeneMedicine. See "Forward Looking Statements", "Research and
Development - Needle-free Injection Business" and "Risk Factors - Uncertainty of
Product Development Under the GeneMedicine Agreement".
During fiscal 1996, the Company implemented a plan to increase manufacturing
capacity and refine production methods to meet anticipated future demand and to
reduce product costs. During fiscal 1997, the Company's manufacturing activities
focused on retesting the devices repurchased from HMI to ensure their continuing
compliance with new product standards and elective upgrade of certain of these
units to current version configuration. Also during fiscal 1997, manufacturing
focused on finalizing product engineering and on planning for, designing and
installing manufacturing lines for the new self injector device in advance of
the launch of that product. During fiscal 1998, having a sufficient inventory of
jet injectors on-hand as a result of the repurchase of product from HMI, the
Company focused its manufacturing efforts on refining manufacturing processes
and efficiencies of the disposable syringe manufacturing line. On account of
excess inventories of both B-2000 devices and Biojector syringes, the Company
ceased manufacturing any material quantity of new products in July 1998. All but
four employees directly involved in manufacturing were either laid off or
transferred to other functions within the Company. The Company will manufacture
Vitajet devices and syringes in fiscal 2000. The Company believes that inventory
on-hand of B-2000 devices and syringes will, in most product categories, be
sufficient to meet product demand through fiscal 2000. Accordingly, the Company
does not plan to
32
manufacture material quantities of B-2000 devices or syringes in fiscal 2000.
See "Forward Looking Statements" and "Risk Factors - Limited Manufacturing
Experience".
The Company's revenues to date have not been sufficient to cover manufacturing
and operating expenses. However, the Company believes that if its products
attain significantly greater general market acceptance and if the Company is
able to enter into large volume supply agreements with major pharmaceutical and
biotechnology companies, the Company's product sales volume would increase.
Significantly higher product sales volumes should allow the Company to realize
volume-related manufacturing cost efficiencies. This, in turn, should result in
a reduced costs of goods as a percentage of sales, which could eventually
allowing the Company to achieve positive gross profit. The Company believes that
positive gross profit from product sales, together with licensing and technology
revenues from agreements entered into with large pharmaceutical and
biotechnology companies would eventually allow the Company to operate
profitably. See "Forward Looking Statements". The level of revenues required to
generate net income will be affected by a number of factors including the mix of
revenues between product sales and licensing and technology fees, pricing of the
Company's products, its ability to attain volume-related and automation-related
manufacturing efficiencies, and the impact of inflation on the Company's
manufacturing and other operating costs. There can be no assurance that the
Company will achieve sufficient cost reductions or sell its products at prices
or in volumes sufficient to achieve profitability or offset increases in its
costs should they occur. See "Risk Factors - Limited Manufacturing Experience".
Further, there can be no assurance that, in the future, the Company will be able
to interest major pharmaceutical or biotechnology companies in entering
licensing or supply agreements. See "Risk Factors - Dependence on Third-Party
Relationships".
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) length of time to close product sales; (ii) customer budget
cycles; (iii) implementing cost reduction measures; (iv) uncertainties and
changes in product sales due to third party payer policies and proposals
relating to healthcare cost containment; (v) timing and amount of payments under
licensing and technology development agreements; and (vii)timing of new product
introductions by the Company and its competition.
In the future, the Company may incur a non-cash charge to compensation expense
in connection with the issuance of 100,000 shares of Common Stock to the
Company's Chief Executive Officer and 15,000 shares of common stock to the
Company's Chief Financial Officer. Under terms of their employment agreements,
each will receive the shares of common stock when the Company first achieves two
consecutive quarters of positive earnings per share. Upon issuance of such
shares the Company will record a non-cash charge to compensation at the fair
33
market value of the stock on the last day of the quarter in which the shares are
earned.
During the next fiscal year, the Company will target its direct sales efforts
toward: i) sales to existing markets, specifically flu immunization providers,
public health agencies and public school systems; ii) sales in markets such as
the State of California, where the Company believes that needle-syringe safety
legislation makes the Company's products more price competitive; and iii) sales
to the U.S. military. Sales through distributors will target the home,
self-injection market. See "Forward Looking Statements", "Business - Marketing
and Competition" and "Risk Factors".
The Company will also focus sales and marketing efforts on entering into
licensing and supply arrangements with leading pharmaceutical and biotechnology
companies whose products the Biojector technology provides either increased
medical efficacy or a higher degree of market acceptance. Agreements under this
type of arrangement would ordinarily include some or all of the following
components: i)licensing revenues for full or partially exclusive access to the
Company's products for a specific application or medical indication; ii)
development fees if the Company is customizing one of its products for the
customer or developing a new product; iii) milestone payments related to the
customer's progress in developing products to be used in conjunction with the
Company's products; and iv) product revenues from sale of the Company's products
to the customer pursuant to a supply agreement. See "Forward Looking
Statements", "Business - Marketing and Competition" and "Risk Factors".
In fiscal 2000, the Company's clinical research efforts will be aimed primarily
at clinical research collaborations in the area of DNA-based vaccines and
medications. Product development efforts will focus primarily in three areas: i)
developing self-injectors targeted for the home use market, both through
pursuing regulatory approval of the B-4000 and through continuing to develop a
new generation of smaller, lightweight, lower cost self-injectors; ii)
developing pre-filled syringes for use with the B-2000 and with other
needle-free injectors presently being developed; and iii) furthering development
of the intradermal adapter for the B-2000. See "Forward Looking Statements" and
"Business - Research and Development".
Also during the next fiscal year, the Company will commence the manufacture and
sale of the Vitajet and conserve its fiscal resources. The Company does not
expect to report net income from operations in fiscal 2000. See "Forward Looking
Statements" and "Risk Factors".
RESULTS OF OPERATIONS
Product sales increased from $1.3 million in fiscal 1997 to $1.4 million in
fiscal 1998 and decreased to $587,000 in fiscal 1999. Product sales in each of
the three fiscal years consisted primarily of sales to public health and flu
immunization clinics. The sales decrease in fiscal 1999 was due to a reduction
in fiscal 1999 flu season orders, a significant portion of which was
attributable to certain customers using inventory acquired but not used in
earlier periods to meet their current year flu season requirements and also due
to a reduced direct sales force. Also contributing to the product sales decline
in fiscal 1999 was certain customers misinterpreting regulatory labeling on
certain flu vaccines and choosing not to use jet injection with that flu vaccine
as a result of that labeling misinterpretation. The Company believes that the
34
label interpretation problem is resolved and will not reoccur in the fiscal 2000
flu season. See "Forward Looking Statements".
License and technology fees decreased from $966,000 in fiscal 1997 to $500,000
in fiscal 1998 and increased to $2.0 million in fiscal 1999. The fiscal 1997
fees consisted principally of product development revenues for work performed
under the Schering and Hoffman-LaRoche agreements. The fiscal 1998 revenues
related to work on the Hoffman-LaRoche project. The fiscal 1999 revenues
consisted primarily of development revenues for work on the pre-filled syringe
technology under the Elan agreement and licensing fees received under the July
1998 agreement with Merck.
Manufacturing expense is made up of the cost of products sold and manufacturing
overhead expense related to excess manufacturing capacity. The total of these
costs decreased from $1.9 million in fiscal 1997 to $1.7 million in fiscal 1998
and increased to $1.9 million in fiscal 1999. The decrease in manufacturing
expense from fiscal 1997 to fiscal 1998 reflects reductions in the cost of
materials and labor for injectors and syringes as well as reductions in fixed
and variable manufacturing overhead expense. The increase in manufacturing
expense from fiscal 1998 to fiscal 1999 reflects: i)reduced inventory buildup
resulting in less manufacturing overhead being absorbed; ii) increased
depreciation expense; and iii) a reduction in the carrying value of raw material
and finished goods inventories to levels estimated to be equal to one year's
supply based upon sales activity for the years ended March 31, 1999 and 1998.
Manufacturing overhead totaled $1.2 million, $981,000, and $1.0 million in
fiscal years 1997, 1998, and 1999,respectively.
Research and development expense decreased from $1.6 million in fiscal 1997 to
$884,000 in fiscal 1998, (exclusive of acquired in-process research and
development) and increased to $979,000 in fiscal 1999. Fiscal 1997 research and
development expenditures were principally related to final design and transfer
to manufacturing of the Schering device and to development work on the B-2020
Hoffman-LaRoche system. Fiscal 1998 expenditures related principally to further
development of the B-4000 Self Injector and to pursuing regulatory clearance for
the Vial Adapter. The Company expended $979,000 in fiscal 1999 on needle-free
research and development, related principally to: i) pursuing regulatory
clearance for the B-2020; ii) pursuing clinical research in delivering DNA-based
medications; iii) developing the low-cost self injector; and iv) developing
pre-filled Biojector syringes. See "Research & Development".
Selling, general and administrative expense increased from $3.2 million in
fiscal 1997 to $3.4 million in fiscal 1998 and decreased to $2.5 million in
fiscal 1999. During that time period, expenses related to sales, marketing and
business development were $1.6 million for each of fiscal years 1997 and 1998
and $868,000 for fiscal 1999. The decline of $726,000 in sales and marketing
expense in fiscal 1999 was principally due to reducing the Company's direct
sales force. See "Business - Marketing and Competition". General and
administrative expense increased from $1.6 million in fiscal 1997 to $1.8
million in fiscal 1998. This increase was due principally to consulting fees and
an increase in travel expenses. General and administrative expenses for fiscal
1999 totaled $1.6 million, a decrease of $193,000 from fiscal 1998.
Interest expense of $390,000 in fiscal 1998 relates to the $12.015 million debt
due to Elan for the period from October 15, 1997 through March 2, 1998 when the
note and accrued interest was converted to Series A and Series B convertible
preferred stock.
35
Other income consists of earnings on available cash balances. Other income
varied as a result of changes in cash balances and interest rates from year to
year.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1985, the Company has financed its operations, working
capital needs and capital expenditures primarily from private placements of
securities, exercises of stock options, proceeds received from its initial
public offering in 1986, proceeds received from a public offering of Common
Stock in November 1993, proceeds from sale of equity securities to Elan,
licensing and technology revenues, and more recently through sales of products.
Net proceeds received upon issuance of securities from inception through March
31, 1999, totaled approximately $59.8 million. The Company has no long-term
debt.
Cash, cash equivalents and marketable securities totaled $1.9 million at March
31, 1998 and $1.3 million at March 31, 1999. The decrease resulted from
operating losses and capital expenditures which were partly offset by
approximately $3 million in net proceeds from the exercise of stock warrants and
stock options.
Inventories decreased from $1.9 million at March 31, 1998 to $1.3 million at
March 31, 1999, primarily due to a reduction in the carrying value of raw
material and finished goods inventories to levels estimated to be equal to one
year's supply based upon sales activity for the years ended March 31, 1999, and
1998.
The Company has fixed commitments for facilities rent and equipment leases which
total approximately $226,000 for fiscal 2000.
The Company purchased capital equipment for use on the needle-free side of the
business of approximately $110,000 and $112,000 in fiscal 1998 and 1999,
respectively.
The Company believes that its current cash position, together with net proceeds
which may be received from the proposed sale of the blood glucose monitoring
technology, combined with revenues and other cash receipts will be sufficient to
fund the Company's operations through the first quarter of fiscal 2001. The sale
of the blood glucose monitoring technology is subject to negotiation and
execution of definitive agreements and satisfaction of certain conditions, so
there can be no assurance that the transaction will be completed on the terms
anticipated by the Company or at all. In addition, the Company is pursuing a
number of additional financing sources. See "Forward Looking Statements". Even
if the Company is successful in raising additional financing, unforeseen costs
and expenses or lower than anticipated cash receipts from product sales or
research and development activities could accelerate or increase the financing
requirements. The Company has been successful in raising additional financing in
the past and believes that sufficient funds will be available to fund future
operations. See "Forward Looking Statements". However, there can be no assurance
that the Company's efforts will be successful, and there can be no assurance
that such financing will be available on terms which are not significantly
dilutive to existing shareholders. Failure to obtain needed additional capital
on terms acceptable to the Company, or at all, would significantly restrict the
Company's operations and ability to continue product development and growth and
would have a material adverse affect the Company's business. The Company has no
banking line of credit or other established source of borrowing. Because of
these uncertainties, the Company's independent public accountants have qualified
their opinion with respect to the Company's ability to continue as a going
concern. See "Risk Factors - Need for Additional Financing and Uncertainty of
the Sale of the Blood Glucose Monitoring Technology".
36
YEAR 2000 ISSUES
The Company is in the process of assessing and implementing remedial action with
regards to its Year 2000 ("Y2K") issues. The assessment includes steps to review
and obtain vendor certification of Y2K compliance of current systems, testing
system compliance and implementing corrective action where necessary. A Y2K team
composed of manager-level members from Manufacturing, Purchasing, Information
Services and Finance is continuing to conduct the assessment. Assessment of the
compliance of all critical systems, plans for remedial action, if any, and
estimates of the cost of such remedial action have been completed. The cost to
address the Company's Y2K issues have been estimated to be insignificant and
funds expended are expected to be derived from normal maintenance and upgrade
operating budgets.
Products
The Company's products do not incorporate either application or embedded
software and are therefore not subject to Y2K issues.
Information Systems
The Company utilizes packaged application software for all critical information
systems functions which have been certified by the vendors as being Y2K
compliant. This includes financial software, operating and networking systems,
application and data servers, PC and communications hardware and core office
automation software. The company is in the process of testing the reliability of
the application software and expects this to be complete by mid August.
Manufacturing Systems
The Company has received manufacturer certification of Y2K compliance for all
critical automated components used in manufacturing the Company's products.
Supplier Base
The Company has implemented a Y2K audit program of suppliers critical to the
Company's operations. These suppliers have certified Y2K compliance of systems
critical to maintaining a continuing source of supply to the Company.
Risk
The Company will be at risk from external infrastructure failures that could
arise from Y2K failures, including failure of electrical power and
telecommunications. Investigation and assessment of the risk of failure of such
infrastructure is beyond the scope and resources of the Company. The Company
intends to rely on vendor certification of Y2K compliance and does not plan to
audit vendor systems to test their compliance. The Company will be at risk with
respect to vendors who certify their systems as being Y2K compliant but who are
unable to deliver potentially critical supplies and services to the Company on
account of Y2K noncompliance.
Business risks to the Company of not successfully identifying Y2K issues and
undertaking effective remedial action include the inability to ship product,
delay or loss of revenue and delay in manufacturing operations. The Company
believes that it has successfully identified critical Y2K issues and has
substantially completed required remedial action. Other than risks created by
infrastructure failures or by the Company's dealings with third parties, where
the actions of such third parties are beyond the Company's control, the Company
believes that it will have no material business risk from Y2K issues. There can
be no assurance that infrastructure failures will not occur or that third
37
parties, over which the Company has no control will successfully address their
own Y2K issues.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS TO FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets at March 31, 1999 and 1998
Consolidated Statements of Operations for the years ended
March 31, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Supplementary Data (none required)
38
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, 1999
and 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1999. 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 generally accepted auditing
standards. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and, at March 31, 1999, has an accumulated deficit of $58 million that raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plan in regards to these matters is also described in Note 1. The
financial statements do not include any adjustments relating to recoverability
and classification of asset carrying amounts that might result should the
Company be unable to continue as a going concern.
/S/ ARTHUR ANDERSEN LLP
Portland, Oregon
May 7, 1999 (Except with respect to the matter discussed in Note 3, for which
the date is May 25, 1999)
39
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
1999 1998
------------ ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,274,311 $1,900,839
Accounts receivable, net of allowance for
doubtful accounts of $64,000 and $83,000,
respectively 305,064 153,721
Stock subscription receivable 2,400,000 --
Inventories 1,251,186 1,891,970
Other current assets 53,599 75,292
Current assets of
discontinued operations (Note 5) 597,000 --
------------ -----------
Total current assets 5,881,160 4,021,822
------------ -----------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,235,733 2,241,904
Production molds 2,051,697 1,945,267
Furniture and fixtures 170,436 158,477
Leasehold improvements 94,115 94,115
------------ -----------
4,551,981 4,439,763
Less - accumulated depreciation (2,615,536) (1,947,006)
------------ -----------
1,936,445 2,492,757
OTHER ASSETS 535,092 463,031
NON-CURRENT ASSETS OF DISCONTINUED
OPERATIONS 238,583 --
------------ -----------
$8,591,280 $6,977,610
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 190,676 $ 497,180
Accrued payroll 135,445 218,424
Other accrued liabilities 54,388 277,122
Deferred revenue -- 10,000
Current liabilities of
discontinued operations 2,462,906 --
------------ -----------
Total current liabilities 2,843,415 1,002,726
------------ -----------
COMMITMENTS (Note 6)
SHAREHOLDERS' EQUITY:
Preferred stock, no par, 10,000,000 shares
authorized; issued and outstanding
Series A Convertible-692,694 shares,
$15 stated value 9,163,025 7,826,157
Series B Convertible -134,333 shares,
$15 stated value 1,566,762 1,491,289
Series C Convertible -391,830 shares,
No stated value 2,400,000 --
Common stock, no par, 100,000,000 shares
authorized; issued and outstanding 29,011,236
and 25,503,038 shares at March 31, 1999 and
1998, respectively 50,594,111 47,557,297
Accumulated deficit (57,976,033) (50,899,859)
------------ -----------
Total shareholders' equity 5,747,865 5,974,884
------------ -----------
$8,591,280 $6,977,610
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
40
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended March 31,
1999 1998 1997
---------- ---------- ----------
REVENUES:
Net sales of products $ 587,131 $1,435,107 $1,269,882
Licensing/technology fees 2,043,841 500,000 965,500
---------- ---------- ----------
2,630,972 1,935,107 2,235,382
---------- ---------- ----------
OPERATING EXPENSES:
Manufacturing 1,915,729 1,749,064 1,862,922
Research and development 978,683 883,632 1,596,708
Selling, general and
administrative 2,510,485 3,428,321 3,177,228
---------- ---------- ----------
Total operating expenses 5,404,897 6,061,017 6,636,858
---------- ---------- ----------
Operating loss (2,773,925) (4,125,910) (4,401,476)
Interest expense -- (390,411) --
Other income 122,020 109,983 105,149
---------- ----------- ----------
LOSS BEFORE TAXES (2,651,905) (4,406,338) (4,296,327)
PROVISION FOR INCOME TAXES -- -- --
---------- ---------- ----------
LOSS FROM CONTINUING
OPERATIONS BEFORE PREFERRED
STOCK DIVIDEND (2,651,905) (4,406,338) (4,296,327)
PREFERRED STOCK DIVIDEND (1,412,341) (112,035) --
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS
ALLOCABLE TO COMMON SHAREHOLDERS (4,064,246) (4,518,373) (4,296,327)
---------- ---------- ----------
LOSS FROM DISCONTINUED OPERATIONS
ALLOCABLE TO COMMON SHAREHOLDERS
BEFORE MINORITY INTEREST (Note 8) (3,608,928) (15,096,294) --
MINORITY INTEREST ALLOCATION 597,000 2,985,000 --
---------- ----------- ----------
LOSS FROM DISCONTINUED OPERATIONS
ALLOCABLE TO COMMON SHAREOLDERS (3,011,928) (12,111,294) --
---------- ----------- ----------
NET LOSS ALLOCABLE
TO COMMON SHAREHOLDERS $(7,076,174) $(16,629,667) $(4,296,327)
========== =========== ==========
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.25) $ (0.72) $ (0.26)
========== =========== ==========
SHARES USED IN PER SHARE CALCULATION 28,315,239 23,151,135 16,705,274
========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements
41
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PREFERRED STOCK
---------------
Series A Series B Series C
-------- -------- --------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
BALANCES, MARCH 31, 1996 ........... -- -- -- -- -- --
Issuance of common stock in
exchange for services ............. -- -- -- -- -- --
Issuance of common stock
and warrants in a private
placement in December 1996 ........ -- -- -- -- -- --
Issuance of stock to Schering AG
in exchange for debt .............. -- -- -- -- -- --
Net loss allocable to
common shareholders ............... -- -- -- -- -- --
BALANCES, MARCH 31, 1997 ........... -- -- -- -- -- --
Issuance of common stock in
exchange for services ............. -- -- -- -- -- --
Issuance of common stock
and warrants in a private
placement in June and
July 1997 ......................... -- -- -- -- -- --
Issuance of common stock
and warrants in a private
placement in October 1997 ......... -- -- -- -- -- --
Issuance of common stock pursuant
to stock option exercises ......... -- -- -- -- -- --
Issuance of common stock under
401(k) matching plan .............. -- -- -- -- -- --
Issuance of warrants in
exchange for services ............. -- -- -- -- -- --
Issuance of common stock
in acquisition of assets .......... -- -- -- -- -- --
Issuance of preferred stock
in exchange for debt, net
of expenses ....................... 692,694 10,220,411 134,333 1,985,000 -- --
Adjustment for inherent
dividend .......................... -- (2,500,000) -- (500,000) -- --
Preferred stock dividend ........... -- 105,746 -- 6,289 -- --
Net loss allocable to
common shareholders ............... -- -- -- -- -- --
BALANCES, MARCH 31, 1998 ........... 692,694 $ 7,826,157 134,333 $ 1,491,289 -- --
Issuance of common stock pursuant
to warrant exercises .............. -- -- -- -- -- --
Issuance of common stock pursuant
to stock option exercises ......... -- -- -- -- -- --
Issuance of warrants in
exchange for services ............. -- -- -- -- -- --
Issuance of common stock
in acquisition of assets .......... -- -- -- -- -- --
Preferred stock dividend ........... -- 1,336,868 -- 75,473 -- --
Issuance of preferred stock pursuant
to joint venture agreement ........ -- -- -- -- 391,830 2,400,000
Net loss allocable to
common shareholders ............... -- -- -- -- -- --
BALANCES, MARCH 31, 1999 ........... 692,694 $ 9,163,025 134,333 $ 1,566,762 391,830 $ 2,400,000
COMMON STOCK
------------
Accumulated
Shares Amount Deficit Total
------ ------ ------- -----
BALANCES, MARCH 31, 1996 ........... 15,585,232 36,001,158 (29,973,865) 6,027,293
Issuance of common stock in
exchange for services ............. 33,298 159,350 -- 159,350
Issuance of common stock
and warrants in a private
placement in December 1996 ........ 3,434,493 2,163,000 -- 2,163,000
Issuance of stock to Schering AG
in exchange for debt .............. 487,390 1,712,228 -- 1,712,228
Net loss allocable to
common shareholders ............... -- (4,296,327) (4,296,327)
BALANCES, MARCH 31, 1997 ........... 19,540,413 40,035,736 (34,270,192) 5,765,544
Issuance of common stock in
exchange for services ............. 49,646 94,936 -- 94,936
Issuance of common stock
and warrants in a private
placement in June and
July 1997 ......................... 2,906,977 1,225,000 -- 1,225,000
Issuance of common stock
and warrants in a private
placement in October 1997 ......... 2,727,273 2,800,000 -- 2,800,000
Issuance of common stock pursuant
to stock option exercises ......... 136,098 154,869 -- 154,869
Issuance of common stock under
401(k) matching plan .............. 42,631 31,006 -- 31,006
Issuance of warrants in
exchange for services ............. -- 81,350 -- 81,350
Issuance of common stock
in acquisition of assets .......... 100,000 134,400 -- 134,400
Issuance of preferred stock
in exchange for debt, net
of expenses ....................... -- -- -- 12,205,411
Adjustment for inherent
dividend .......................... -- 3,000,000 -- --
Preferred stock dividend ........... -- -- -- 112,035
Net loss allocable to
common shareholders ............... -- -- (16,629,667) (16,629,667)
BALANCES, MARCH 31, 1998 ........... 25,503,038 $ 47,557,297 $(50,899,859) $ 5,974,884
Issuance of common stock pursuant
to warrant exercises .............. 3,090,061 2,642,221 -- 2,642,221
Issuance of common stock pursuant
to stock option exercises ......... 358,137 326,711 -- 326,711
Issuance of warrants in
exchange for services ............. -- 32,242 -- 32,242
Issuance of common stock
in acquisition of assets .......... 60,000 35,640 -- 35,640
Preferred stock dividend ........... -- -- -- 1,412,341
Issuance of preferred stock pursuant
to joint venture agreement ........ -- -- -- 2,400,000
Net loss allocable to
common shareholders ............... -- -- (7,076,174) (7,076,174)
BALANCES, MARCH 31, 1999 ........... 29,011,236 $ 50,594,111 $(57,976,033) $ 5,747,865
The accompanying notes are an integral part of these consolidated financial
statements.
42
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended March 31,
1999 1998 1997
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss allocable to
common shareholders $(7,076,174) $(16,629,667) $(4,296,327)
Adjustments to reconcile net loss to
net cash used in operating activities
from continuing operations:
Net loss from discontinued
operations 3,011,928 12,111,294 --
Depreciation and amortization 707,494 514,668 443,700
Contributed capital for services 32,242 207,292 159,350
Preferred stock dividends 1,412,341 112,035 --
Interest paid on preferred stock -- 390,411 --
Net changes in assets and liabilities:
Accounts receivable (151,343) 158,135 113,003
Inventories 640,784 (455,514) (450,511)
Other current assets 21,693 (30,070) 492
Accounts payable (306,505) (162,793) 109,799
Accrued payroll (82,979) 5,294 54,905
Other accrued liabilities (222,734) 77,738 (17,540)
Deferred revenue (10,000) (240,000) (316,000)
---------- ---------- ----------
Net cash used in operating activities
of continuing operations (2,023,253) (3,941,177) (4,199,129)
Net cash used in operating activities
of discontinued operations (1,102,875) (96,294) --
---------- ---------- ----------
Net cash used in operating activities (3,126,128) (4,037,471) --
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities sold -- -- 993,056
Capital expenditures of
continuing operations (76,578) (110,387) (1,617,052)
Capital expenditures of
discontinued operations (281,729) (15,000,000) --
Other assets (111,025) (47,650) (33,876)
---------- ---------- ----------
Net cash used in investing activities (469,332) (15,158,037) (657,872)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from common stock 2,968,932 4,179,869 2,163,000
Borrowing from long-term debt
subsequently converted to common stock -- -- 1,712,228
Issuance of preferred stock -- 12,015,000 --
Preferred stock issuance costs -- (200,000) --
Minority interest capital
contribution to discontinued
operations -- 2,985,000 --
---------- ---------- ----------
Net cash provided by financing
activities 2,968,932 18,979,869 3,875,228
---------- ---------- ----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash
and cash equivalents (626,528) (215,639) (981,773)
Cash and cash equivalents at
beginning of year 1,900,839 2,116,478 3,098,251
--------- ------------ ----------
Cash and cash equivalents at
end of year $1,274,311 $1,900,839 $2,116,478
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ -- $ --
Cash paid for income taxes -- -- --
Purchase of goodwill for stock -- 134,400 --
Purchase of fixed assets for stock 35,640 -- --
Stock subscription receivable 2,400,000 -- --
--------- -------- ---------
$2,435,640 $134,400 $ --
========== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
43
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
The consolidated financial statements of Bioject Medical Technologies Inc. (the
"Company" or "Bioject"), include the accounts of Bioject Medical Technologies
Inc. ("BMT"), an Oregon corporation, its wholly owned subsidiary, Bioject Inc.,
an Oregon corporation ("BI"), and its 80.1% owned subsidiary, Marathon Medical
Technologies Inc. ("Marathon Medical") (formerly Bioject JV Subsidiary Inc.), an
Oregon corporation. All significant intercompany transactions have been
eliminated. Bioject Inc. commenced operations in 1985. Bioject Medical
Technologies Inc. was formed in December 1992 for the purpose of acquiring all
of the capital stock of Bioject Medical Systems Ltd., a Company organized under
the laws of British Columbia, Canada, in a stock-for-stock exchange in order to
establish a U.S. domestic corporation as the publicly traded parent company of
Bioject Inc. and Bioject Medical Systems Ltd. Bioject Medical Systems Ltd. was
terminated in fiscal 1997. Marathon Medical was formed in October 1997 in
connection with a joint venture arrangement with Elan Corporation, plc ("Elan").
Marathon Medical was formed to acquire, develop and commercialize blood glucose
monitoring technology acquired from Elan. All references to the Company include
Bioject Medical Technologies Inc. and its subsidiaries, unless the context
requires otherwise.
The Company commenced operations in 1985 for the purpose of developing,
manufacturing and distributing a new drug delivery system. Since its formation,
the Company has been engaged principally in organizational, financing, research
and development, and marketing activities. In the last quarter of fiscal 1993,
the Company launched U.S. distribution of its Biojector 2000 system primarily to
the hospital and large clinic market. The Company's 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
the Federal Food, Drug, and Cosmetic Act (the "FD&C"). In 1987, the Company
received 510(k) marketing clearance from the FDA allowing the Company to market
a hand-held CO2-powered jet injection system. In June 1994, the Company received
clearance from the FDA under 510(k) to market a version of its Biojector (r)
2000 system in a configuration targeted at high volume injection applications.
In October 1996, the Company received 510(k) clearance for a non needle
disposable vial access device. In March 1997, the Company received additional
510(k) clearance for certain enhancements to its Biojector 2000 system. On
September 30, 1997, the Company entered into a joint venture agreement with Elan
to develop and commercialize certain blood glucose monitoring technology, which
the Company licensed from Elan (see Note 2 regarding "Accounting
Policies-Research and Development and Licensing/Technology Revenues"). The blood
glucose monitoring technology is also subject to government regulation in the
U.S. by the FDA and abroad by various agencies. In May 1999, rather than
continue to fund the cost of its development, the Company entertained a
preliminary proposal from a third party to purchase Marathon Medical's blood
glucose monitoring technology. Pursuant to the proposal, the Company intends to
enter into an agreement to sell the license to the blood glucose monitoring
technology, along with certain fixed assets. Accordingly, Marathon Medical's
operation is reported as "Discontinued Operations" in the accompanying financial
statements.
44
Since its inception the Company has incurred operating losses and at March 31,
1999, has an accumulated deficit of approximately $58 million. The Company's
revenues to date have been derived primarily from licensing and technology fees
for the jet injection technology and from limited product sales of the Biojector
2000 system and Biojector syringes. The product sales were principally sales to
dealers to stock their inventories. More recently, the Company has sold its
products to end-users, primarily public health clinics for vaccinations and to
nursing organizations for flu immunization. Future revenues will depend upon
acceptance and use by healthcare providers and on the Company successfully
entering into license and supply agreements with major pharmaceutical and
biotechnology companies. Uncertainties over government regulation and
competition in the healthcare industry may impact healthcare provider
expenditures and third party payer reimbursements and, accordingly, the Company
cannot predict what impact, if any, subsequent healthcare reforms and industry
trends might have on its business. In the future the Company is likely to
require substantial additional financing. Failure to obtain such financing on
favorable terms could adversely affect the Company's business.
To date, the Company's revenues have not been sufficient to cover manufacturing
and operating expenses. However, the Company believes that if its products
attain significantly greater general market acceptance and if the Company is
able to enter into large volume supply agreements with major pharmaceutical and
biotechnology companies, the Company's product sales volume will increase.
Significantly higher product sales volumes will allow the Company to realize
volume-related manufacturing cost efficiencies. This, in turn, will result in a
reduced costs of goods as a percentage of sales, eventually allowing the Company
to achieve positive gross profit. The Company believes that positive gross
profit from product sales, together with licensing and technology revenues from
agreements entered into with large pharmaceutical and biotechnology companies
will eventually allow the Company to operate profitably. The level of revenues
required to generate net income will be affected by a number of factors
including the mix of revenues between product sales and licensing and technology
fees, pricing of the Company's products, its ability to attain volume-related
and automation-related manufacturing efficiencies, and the impact of inflation
on the Company's manufacturing and other operating costs. There can be no
assurance that the Company will achieve sufficient cost reductions or sell its
products at prices or in volumes sufficient to achieve profitability or offset
increases in its costs should they occur.
The Company believes that its current cash position, together with estimated net
proceeds which may be received from the proposed sale of the blood glucose
monitoring technology, combined with revenues and other cash receipts will be
sufficient to fund the Company's operations through the first quarter of fiscal
2001. In addition, the Company is pursuing a number of additional financing
sources. Even if the Company is successful in raising additional financing,
unforeseen costs and expenses or lower than anticipated cash receipts from
product sales or research and development activities could accelerate or
increase the financing requirements. The Company has been successful in raising
additional financing in the past and believes that sufficient funds will be
available to fund future operations. However, there can be no assurance that the
Company's efforts will be successful, and there can be no assurance that such
financing will be available on terms which are not significantly dilutive to
existing shareholders. Failure to obtain needed additional capital on terms
acceptable to the Company, or at all, would significantly restrict the Company's
operations and ability to continue product development and growth and would have
a material adverse affect the Company's business.
45
2. ACCOUNTING POLICIES:
CASH EQUIVALENTS
The Company considers cash equivalents to consist of short-term, highly liquid
investments with an original maturity of less than three months.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined in a
manner which approximates the first-in, first out (FIFO) method. Costs utilized
for inventory valuation purposes include labor, materials and manufacturing
overhead. Net inventories consist of the following:
March 31,
1999 1998
---------- ----------
Raw Materials $ 289,214 $ 754,715
Work in Process -- 9,763
Finished Goods 961,972 1,127,492
---------- ----------
$1,251,186 $1,891,970
========== ==========
PROPERTY AND EQUIPMENT
For financial statement purposes, depreciation expense on property and equipment
is computed on the straight-line method using the following lives:
Furniture and Fixtures............................5 years
Machinery and Equipment...........................7 years
Computer Equipment................................3 years
Production Molds..................................5 years
Leasehold improvements are amortized on the straight-line method over the
shorter of the remaining term of the related lease or the estimated useful lives
of the assets.
Included in machinery and equipment and production molds are molds, tooling and
production fixtures constructed or acquired by the Company under a supply
agreement with Schering AG for the manufacture and sale of a needle-free
self-injection system. The construction of these assets commenced in May and
June 1996 and continued until January 1997 when they were ready for their
intended use. Schering loaned the Company $1.6 million to fund acquisition of
the assets, and therefore, in accordance with SFAS 34, the Company has
capitalized $106,000 of interest incurred on this debt.
OTHER ASSETS
Other assets include costs incurred for the application for patents, totaling
$614,369 and $503,344 March 31, 1999 and 1998, respectively. These costs are
amortized on a straight-line basis over 17 years. Accumulated amortization
totaled $204,713 and $174,713 at March 31, 1999 and 1998, respectively.
Amortization expense for the years ended March 31, 1999, 1998 and 1997 totaled
$30,000 for each year.
Also included in other assets is the cost of assets acquired from Vitajet
Corporation in a stock for assets exchange. In March 1998, the Company paid
100,000 shares of its common stock for certain molds, tooling, patent rights and
customer lists, the value of which totaled $134,400 at the date of acquisition
and is being amortized over 15 years. In addition to the shares already paid,
the Company is obligated to issue 60,000 shares of its common stock each year,
in each of the three years subsequent to the acquisition, if certain development
milestones are met. In March 1999, the Company issued the second payment of
60,000 shares of common stock valued at $35,640. Up to an additional 90,000
shares is also payable subject to the Company realizing specified, aggregate
levels of incremental revenue during the three years subsequent to the Vitajet
acquisition as a result of sales of products acquired from or developed by
Vitajet.
46
ACCOUNTING FOR LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of"(SFAS 121), which requires the Company to review for
impairment of its long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount of
an asset might not be recoverable. The Company does not believe that an
adjustment to the carrying value of its long-lived assets is necessary, based on
its strategic plan. However, if the Company is unable to raise additional
capital and continue as a going concern, certain adjustments to the carrying
value of the long-lived assets may be necessary.
REVENUE RECOGNITION FOR PRODUCT SALES
The Company records revenue from sales of its products upon shipment. In fiscal
1999, 1998 and 1997, sales to one customer (different for each period presented)
accounted for 7%, 12% and 17%, respectively, of net sales of products. At March
31, 1999, 1998 and 1997 accounts receivable from one customer (different for
each period presented) accounted for 68%, 19%, and 62%, respectively, of total
accounts receivable. See Note 7 - "Related Party Transactions".
RESEARCH AND DEVELOPMENT AND LICENSING/TECHNOLOGY REVENUES
Licensing fees are recognized as revenue when due and payable. All licensing
revenue recognized is non-refundable and imposes no future performance
requirements or other obligations on the Company. Product development revenue is
recognized as qualifying expenditures are incurred. Expenditures for research
and development are charged to expense as incurred.
SCHERING AG. In March 1994, the Company entered into a joint development
agreement with Schering AG, a major pharmaceutical manufacturer, for the
development of an application-specific self injection system (the
"Self-Injector"). Under terms of the agreement, the Company received a $500,000
licensing fee in April 1994 and received partial funding of product development
expenses on an agreed schedule. In fiscal 1995, the Company received a total of
$1.1 million from Schering, consisting of $500,000 in licensing fees, which were
recognized as revenue during fiscal 1995, and $600,000 of Phase I product
development revenues, $444,000 of which were recognized as revenue in fiscal
1995. In fiscal 1996, the Company received an additional $660,000 and a total of
$751,000 was recognized as revenue. In fiscal 1997, the Company received final
product development payments totaling $349,500 and recognized revenue of
$414,500. During fiscal 1997, the Company entered into a supply agreement with
Schering and commenced activities related to preparing for production of the
Self Injector. Schering loaned the Company a total of $1.6 million to purchase
molds and tooling to produce the product. In January 1997, the Company received
notice that its contract with Schering would be cancelled. Under provisions of
the contract, Schering had the option of canceling the agreement if the FDA
required extensive clinical studies beyond an originally planned safety study.
Schering received a review letter from the FDA which would have required
Schering to conduct additional material clinical studies in order to use
non-traditional delivery mechanisms with its Betaseron (R) product. Under terms
of the contract, Schering was required to convert its $1.6 million note due from
Bioject into approximately 460,000 shares of Bioject common stock at a
conversion price of $3.50 per share. In addition, $106,000 of accrued interest
was converted into approximately 27,000 shares of Bioject common stock at a
conversion price of $3.50 per share. Additionally, Schering was obligated to pay
47
Bioject for the cost of product ordered through the date of cancellation of the
contract.
HOFFMAN-LA ROCHE. In January 1995, the Company entered into a joint development
and exclusive licensing and distribution agreement with Hoffman-LaRoche, a major
pharmaceutical company. Under the terms of the agreement, the Company agreed to
develop the B-2020, a product with specific application to certain Roche
products. The Company received a licensing fee totaling $500,000 which was
recognized as revenue in fiscal 1995. The Company also received product
development fees on an agreed schedule. In fiscal 1996, the Company received
$900,000, of which $399,000 was recognized as revenue. In fiscal 1997, the
Company received $250,000 in product development fees and recognized revenue of
$501,000. In fiscal 1998, the Company received $250,000 in product development
fees and recognized revenue of $500,000. In June 1999, after the end of the
fiscal year, Roche advised the Company that because of the additional time and
cost required to gain regulatory clearance to use the B-2020 in conjunction with
the Roche products and because of an overall change in its marketing strategy
for the products in question, it does not intend to pursue distributing the
B-2020 and is relinquishing its exclusive rights to the product.
ELAN CORPORATION. On September 30, 1997, the Company signed a binding letter
agreement (the "Agreement") with Elan Corporation, plc the goals of which
included the development and commercialization of Elan's blood glucose
monitoring technology and a collaborative arrangement to further develop the
Company's jet injection technology. Among various terms, all of which were
determined in arms-length negotiation, the Agreement provided for:
- - Elan investing $3 million in Bioject in exchange for approximately 2.7 million
shares of common stock and a five year warrant to purchase 1.75 million shares
of common stock at $2.50 per share.
- - Formation of Marathon Medical, which is owned 80.1% by Bioject and 19.9% by
Elan, to further develop and commercialize the blood glucose monitoring
technology.
- - Payment of a $15 million up front fee and future milestone payments totaling
$15.5 million and royalties on net sales in exchange for North American rights
to Elan's blood glucose monitoring technology.
- - The loan of $12.015 million to Bioject on a long-term promissory note bearing
interest at 9% per annum through December 31, 1997 and 12% thereafter for the
purpose of Bioject's investment in the new subsidiary's common stock.
- - The investment by Elan of $2.985 million in Marathon Medical's common stock.
- - The commitment by Elan to further develop the blood glucose monitoring
technology until the earlier of human clinical trials, March 31, 1998 or $2.5
million is expended by Elan.
- - The submission to Bioject's shareholders of a proposal to approve the exchange
of the long-term promissory note for $10 million plus accrued interest for the
Company's Series A Convertible Preferred Stock and $2.015 million for Series B
Convertible Preferred Stock, with the Series A Convertible Preferred Stock
accruing dividends at the rate of 9% per annum (compounded semi-annually) and
the Series B Convertible Preferred Stock accruing no mandatory dividends.
48
- - The submission to Bioject's shareholders of a proposal to approve the issuance
of up to $4 million of Bioject's Series C Convertible Preferred Stock to Elan
to provide Bioject with funds to contribute toward Marathon Medical's
additional development funding needs.
- - The agreement by Elan to extend the license on a worldwide basis if the
shareholders approved the exchange of the $12.015 million promissory note for
convertible preferred stock.
- - The agreement by Elan to provide a grant of $500,000 toward development of
Bioject's jet injection technology in a pre-filled application.
Final closing agreements were signed among the Company, Elan and the Company's
new subsidiary on October 15, 1997. On that date the $3 million investment in
the Company was made by Elan and approximately 2.7 million shares of common
stock and a warrant to purchase 1.75 million shares at $2.50 per share were
issued. Elan loaned Bioject $12.015 million which Bioject transferred to the new
subsidiary in exchange for 801,000 shares of the subsidiary's common stock. Elan
invested $2.985 million in the new subsidiary in exchange for 199,000 shares of
the subsidiary's common stock. The new subsidiary paid $15 million to Elan as
its initial payment on the licensing agreement.
On February 20, 1998, the Company's shareholders approved the exchange of the
long-term promissory note plus accrued interest for Series A and Series B
Convertible Preferred Stock and the issuance to Elan of Series C Convertible
Preferred Stock or other similar convertible preferred stock to fund Marathon
Medical's development work. Accordingly, on March 2, 1998, a total of 692,694
shares of Series A Convertible Preferred Stock and 134,333 shares of Series B
Convertible Preferred Stock were issued to Elan and the promissory note was
cancelled.
As of September 30, 1997, the Company recorded an expense of $15 million related
to acquired in-process research and development expenditures. Such expense
related to the blood glucose monitoring technology that had not yet established
technological feasibility and at that time had no alternate future uses.
Accounting rules required that such costs be charged to expense as incurred.
In May 1999, rather than continue to fund the cost of its development, the
Company entertained a preliminary proposal from a third party to purchase
Marathon Medical's blood glucose monitoring technology. Pursuant to the
proposal, the Company intends to enter into an agreement to sell the license to
the blood glucose monitoring technology, along with certain fixed assets. See
Note 3 - "Discontinued Operations".
MERCK & CO. In July 1998, the Company entered into an agreement with Merck & Co.
which provided Merck limited-term rights to use the B-2000 needle-free injection
system with selected Merck vaccines. As part of the agreement, the Company also
granted Merck exclusive rights to negotiate a long-term license to the B-2000
for certain medical indications. The Company received $1.5 million in fees under
this agreement in the year ended March 31, 1999. In February 1999, citing a
refinement in its vaccine development strategy, Merck advised the Company that
it would not continue discussions to seek long-term license rights to the
Company's technology.
49
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting For Income Taxes (SFAS 109). Under the
liability method specified by SFAS 109, deferred tax assets and liabilities are
determined based on the temporary differences between the financial statement
and tax bases of assets and liabilities as measured by the enacted tax rates for
the years in which the taxes are expected to be paid. At March 31, 1999, the
Company had total deferred tax assets of approximately $19.1 million, consisting
principally of available net operating loss carryforwards. No benefit for these
operating losses has been reflected in the accompanying financial statements as
they do not satisfy the recognition criteria set forth in SFAS 109. Total
deferred tax liabilities were insignificant as of March 31, 1999.
As of March 31, 1999, BMT has net operating loss carryforwards of approximately
$3.5 million available to reduce future federal taxable income, which expire in
2008 through 2019. BI has net operating loss carryforwards of approximately
$42.8 million available to reduce future federal taxable income, which expire in
2001 through 2019. Marathon Medical has net operating loss carryforwards of
approximately $2.7 million available to reduce future federal taxable income,
which expire in 2018 through 2019. Approximately $3.0 million of BI's
carryforwards were generated as a result of deductions related to exercises of
stock options. When utilized, this portion of BI's carryforwards, as tax
effected, will be accounted for as a direct increase to contributed capital
rather than as a reduction of that year's provision for income taxes. The
principal differences between net operating loss carryforwards for tax purposes
and the accumulated deficit result from capitalization of certain start-up costs
and deductions related to the exercise of stock options for income tax purposes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' expenses to conform
to the current year's presentation.
COMPREHENSIVE INCOME REPORTING
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The objective of SFAS 130
is to report a measure of all changes in the equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of fiscal 1999. Comprehensive loss did not differ from currently reported net
loss in the periods presented.
50
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for all
derivative instruments. SFAS 133 is effective for fiscal years beginning after
June 15, 1999. The Company does not have any derivative instruments and,
accordingly, the adoption of SFAS 133 will have no impact on the Company's
financial position or results of operations.
NET LOSS PER SHARE
Beginning with fiscal 1998, basic earnings per shares ("EPS") and diluted EPS
are computed using the methods required by Statement of Financial Accounting
Standard No. 128, Earnings per Share ("SFAS 128"). Under SFAS 128, basic EPS is
calculated using the weighted average number of common shares outstanding for
the period. The computation of diluted earnings per share includes the effects
of stock options, warrants and convertible preferred stock, if such effect is
dilutive. Prior period amounts have been restated to conform with the
presentation requirements of SFAS 128. For the periods presented, the Company
has been in a loss position and, accordingly there is no difference between
basic EPS and diluted EPS since the common stock equivalents and the effect of
convertible preferred stock under the "if-converted" method would be
antidilutive. All earnings per share amounts in the following table are
presented to conform to the SFAS 128 requirement:
Year ended March 31,
1999 1998 1997
------------ ------------ ------------
Loss from:
Continuing operations $(4,064,246) $ (4,518,373) $(4,296,327)
Discontinued operations (3,011,928) (12,111,294) --
Net loss allocable
to common shareholders (7,076,174) (16,629,667) (4,296,327)
Weighted average number
of shares of common stock and
common stock equivalents
outstanding:
Weighted average number of
common shares outstanding
for computing basic earnings
per share 28,315,239 23,151,135 16,705,274
Dilutive effect of warrants
and stock options after
applications of the
treasury stock method * * *
------------ ------------ ------------
Weighted average number of
common shares outstanding
for computing diluted earnings
per share 28,315,239 23,151,135 16,705,274
============ ============ ============
Net loss per share
basic and diluted:
Continuing operations ($ 0.14) ($ 0.20) ($ 0.26)
Discontinued operations ($ 0.11) ($ 0.52) --
Net loss per share allocable
to common shareholders ($ 0.25) ($ 0.72) ($ 0.26)
============ ============ ============
*The following common stock equivalents are excluded from earnings per share
calculations as their effect would have been antidilutive:
Year ended March 31, 1999 1998 1997
Warrants and stock options 8,508,601 11,578,490 7,962,146
Convertible preferred stock 12,877,845 8,270,270 --
---------- ---------- ---------
21,386,446 19,848,760 7,962,146
========== ========== =========
51
3. DISCONTINUED OPERATIONS
As discussed in Note 2, in May 1999, rather than continue to fund the cost of
its development, the Company entertained a preliminary proposal from a third
party to purchase Marathon Medical's blood glucose monitoring technology.
Pursuant to the proposal, the Company intends to enter into an agreement to sell
the license to the blood glucose monitoring technology, along with certain fixed
assets. Accordingly Marathon Medical's assets, liabilities, loss from operations
and cash flows for the years ended March 31, 1999 and 1998 are reported as
Discontinued Operations in the accompanying financial statements.
4. 401(K) RETIREMENT BENEFIT PLAN:
The Company has a 401(k) Retirement Benefit Plan for its employees. All
employees, subject to certain age and length of service requirements, are
eligible to participate. The plan permits certain voluntary employee
contributions to be excluded from the employees' current taxable income under
provisions of the Internal Revenue Code Section 401(k) and regulations
thereunder. Effective January 1, 1996, the Company amended the plan to provide
for voluntary employer matches of employee contributions up to 6% of salary and
for discretionary profit sharing contributions to all employees. Such employer
matches and contributions may be either in cash or Company common stock. For
calendar 1997, 1998 and 1999, the Company agreed to match 37.5% of employee
contributions up to 6% of salary with Company stock. In fiscal 1999, 1998, and
1997, the Company recorded an expense of $29,884, $21,755, and $25,000,
respectively, related to voluntary employer matches under the 401(k) Plan. The
Board of Directors has reserved up to 200,000 shares of common stock for these
voluntary employer matches of which 42,631 shares have been issued and 63,272
shares have been committed through March 31, 1999.
5. SHAREHOLDERS' EQUITY:
PREFERRED STOCK
The Company has authorized 10 million shares of preferred stock to be issued
from time to time with such designations and preferences and other special
rights and qualifications, limitations and restrictions thereon, as permitted by
law and as fixed from time to time by resolution of the Board of Directors.
During fiscal 1998, as described in Note 2 regarding the Elan transactions, the
Company borrowed $12.015 million from Elan for the purpose of investing such
funds in Marathon Medical. On February 20, 1998, the Company's shareholders
approved the exchange of this debt, plus accrued interest, for Series A and
Series B convertible preferred stock and approved the future issuance of Series
C Convertible Preferred Stock. At March 31, 1999, the Company had preferred
stock authorized and outstanding as follows:
Series A Convertible Preferred Stock. Series A preferred stock accumulates
dividends at 9% per annum, compounded semi-annually, payable in additional
Series A Convertible Preferred Stock. Each original share may be converted at
the holder's election into 10 shares of common stock and may be redeemed at the
Company's election on the third, fourth and fifth anniversaries of issuance if
the trading price of the Company's common stock is greater than or equal to
$2.25 per share. The stock may be redeemed by paying the holder an amount equal
to the original issuance price plus accumulated dividends thereon. If not
earlier converted or redeemed, the original issuance price of the Series A
Convertible Stock plus accumulated dividends thereon must be converted into
common stock of the Company on October 15, 2004 at the lesser of $1.50 or 80% of
the average of the closing prices of common stock for the ten trading days
ending on October 13, 2004. The Series A Convertible Preferred Stock has
preference in liquidation to the common stock of the Company. A total of 692,694
shares with an original issuance value of $15.00 per share were issued.
52
Series B Convertible Preferred Stock. Series B preferred stock has all of the
rights and preferences of the Series A Convertible Preferred Stock including
optional conversion, optional redemption and mandatory conversion except that it
does not accrue a mandatory dividend. It participates in any dividends paid
dividends pro rata with the common shareholders. A total of 134,333 shares of
Series B Convertible Preferred Stock with an original issuance value of $15.00
per share were issued.
Series C Convertible Stock. Series C preferred stock has all of the rights and
preferences of the Series A Convertible Preferred Stock including optional
conversion, optional redemption and mandatory conversion except that it does not
accrue a mandatory dividend. It participates in any dividends paid pro rata with
the common shareholders. Its issuance price is equal to ten times market value
at the time it is issued. Its conversion price is equal to one-tenth of its
issuance price. Proceeds are restricted for use in developing the blood glucose
monitoring technology. A total of 391,830 shares of Series C Convertible
Preferred Stock with an original issuance value of $6.125 per share were
subscribed at March 31, 1999.
Inherent dividend. As described above, under certain conditions the Series A and
Series B Convertible Preferred Stock is convertible into common stock of the
Company at a price which represents a 20% discount to its par value of $15.00
per share. The value of this inherent dividend has been recorded as a discount
to preferred stock and an increase to common stock totaling $3 million and is
being accreted as additional preferred stock dividends on a straight-line basis
from March 2, 1998, until mandatory conversion on October 15, 2004.
Stock Subscription Receivable. The Company had stock subscriptions receivable
totaling approximately $3 million at March 31, 1999. A stock subscription
receivable for the Company's Series C preferred stock in the amount of $2.4
million is included under the caption "stock subscription receivable" in the
accompanying consolidated balance sheet. A second stock subscription receivable
for the common stock of Marathon Medical in the amount of $597,000 is included
under the caption "current assets of discontinued operations" in the
accompanying consolidated balance sheet. Both stock subscriptions are from Elan
pursuant to the provisions of the 1997 securities purchase agreements between
the Company and Elan. Both subscriptions were paid in April 1999. The use of the
proceeds of both the $2.4 million and $597,000 stock subscriptions receivable
are restricted to payment of Marathon Medical's obligations and operating
expenses.
COMMON STOCK
Holders of common stock are entitled to one vote for each share of record held
on all matters to be voted on by shareholders. No shares have been issued
subject to assessment, and there are no preemptive or conversion rights and no
provision for redemption, purchase or cancellation, surrender or sinking or
purchase funds. Holders of common stock are not entitled to cumulate their
shares in the election of directors. A total of 200,000 shares of common stock
have been reserved by the Board of Directors for issuance to 401(k) plan
participants (see Note 4) of which 42,631 shares have been issued and 63,272
shares are committed to be issued through March 31, 1999.
53
STOCK OPTIONS
Options may be granted to directors, officers and employees of the Company by
the Board of Directors under terms of the Bioject Medical Technologies Inc. 1992
Stock Incentive Plan (the "Plan"), which was approved by the Company's
shareholders on November 20, 1992 and adopted by the Board effective December
17, 1992. Under the terms of the Plan, eligible employees may receive statutory
and nonstatutory stock options, stock bonuses and stock appreciation rights for
purchase of shares of the Company's common stock at prices and vesting as
determined by a committee of the Board. Except for options whose terms were
extended, options granted under a prior plan maintain their previous option
price, vesting and expiration dates. As amended in fiscal 1999, a total of up to
4,500,000 shares of the Company's common stock, including options outstanding at
the date of initial shareholder approval of the Plan, may be granted under the
Plan. Options outstanding at March 31, 1999, expire through April 2007.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), which establishes a
fair value-based method of accounting for stock-based compensation plans and
requires additional disclosures for those companies that elect not to adopt the
new method of accounting. The Company has elected to continue to account for
stock options under APB Opinion No. 25, Accounting for Stock Issued to
Employees. However, as prescribed by SFAS 123 the Company has computed, for
proforma disclosure purposes, the value of all options granted during fiscal
1999, 1998 and 1997 using the Black-Scholes option pricing model and the
following weighted average assumptions:
Year ended March 31,
1999 1998 1997
-------- -------- --------
Risk-free interest rate 6% 6% 6%
Expected dividend yield 0% 0% 0%
Expected life 1.5 yrs. 1.5 yrs. 1.5 yrs.
Expected volatility 97% 78% 47%
The total value of options granted during fiscal 1999, 1998 and 1997 would be
amortized on a pro forma basis over the vesting period of the options. Options
generally vest equally over three years. If the Company had accounted for these
plans in accordance with SFAS 123, the Company's net loss and net loss per share
would have increased as reflected in the following pro forma amounts (in
thousands of $):
Year ended March 31,
1999 1998 1997
----------- ---------- ----------
Net loss:
As reported $ (7,076) $ (16,630) $ (4,296)
Pro forma $ (7,378) $ (16,969) $ (4,480)
Net loss per share:
As reported $ (0.25) $ (0.72) $ (0.26)
Pro forma $ (0.26) $ (0.73) $ (0.27)
The above determination of proforma expense has been calculated consistent with
SFAS 123 which does not take into consideration limitations on exercisability
and transferability imposed by the Company's Stock Incentive Plan. Further, the
valuation model is heavily weighted to stock price volatility, even with a
declining stock price, which tends to increase calculated value. The actual
value, if any, and, therefore, imputed proforma expense will vary based on the
exercise date and the market price of the related common stock when sold.
54
Stock option activity is summarized as follows:
Exercise
Shares Price Amount
---------- ------------ -----------
Balances - March 31, 1996 1,698,939 1.25-4.50 4,733,812
Options granted 705,525 1.00-1.30 830,006
Options exercised -- -- --
Options canceled or expired (472,906) 1.00-4.00 (809,880)
---------- ---------- -----------
Balances March 31, 1997 1,931,558 1.00-4.50 4,753,938
Options granted 2,086,642 .625-1.25 1,506,818
Options exercised (136,098) .75-1.31 (154,869)
Options canceled or expired (1,567,179) 1.00-4.88 (4,179,757)
---------- ---------- -----------
Balances - March 31, 1998 2,314,923 .625-4.88 1,926,130
Options granted 341,075 .72 -1.75 464,170
Options exercised (358,137) .625-1.30 (326,711)
Options canceled or expired (110,616) .625-2.50 (122,280)
---------- ---------- -----------
Balances - March 31, 1999 2,187,245 $.625-2.50 $ 1,941,309
The following table sets forth as of March 31, 1999 the number of shares
outstanding, exercise price, weighted average remaining contractual life,
weighted average exercise price, number of exercisable shares and weighted
average exercise price of exercisable options by groups of similar price and
grant date:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Exercise Outstanding Weighted Average Weighted Exercisable Weighted
Price shares Remaining Average Options Average
at 3/31/99 Contractual Exercise Exercise
Life(Years) Price Price
- ------------ ----------- ----------- -------- --------- --------
$0.625 - 0.99 1,695,821 5.60 $0.71 1,260,259 $0.72
1.00 - 1.25 266,474 5.72 1.03 193,575 1.04
1.26 - 3.75 189,950 4.04 1.67 32,883 1.38
3.76 - 4.09 35,000 1.64 4.09 35,000 4.09
55
WARRANTS
Warrant activity is summarized as follows:
Exercise
Shares Price Amount
--------- ------------ ----------
Balances - March 31, 1996 2,440,095 1.97 - 2.00 4,875,906
Warrants issued in a private
placement expiring Dec. 2001 3,590,493 .82 - 1.00 3,562,413
Warrants exercised - - -
Warrants canceled or expired - - -
--------- ------------ ----------
Balances - March 31, 1997 6,030,588 .82 - 2.00 8,438,319
Warrants issued in a private
placement expiring June 2002 1,478,488 .50 - .71 1,044,476
Warrants issued in a private
placement expiring Sep. 2002 450,000 .85 - 1.10 450,000
Warrants issued in a private
placement expiring Oct. 2002 1,750,000 2.50 4,375,000
Warrants issued for services
expiring September 2002 130,243 1.10 143,267
Warrants exercised - - -
Warrants canceled or expired (575,752) 2.00 (1,151,505)
--------- ------------ -----------
Balances - March 31, 1998 9,263,567 .50 - 2.50 13,299,557
Warrants issued in 10% reload
expiring March 2003 147,850 1.35 199,302
Warrants exercised (3,090,061) .50 - 1.00 (2,642,221)
--------- ------------ -----------
Balances - March 31, 1999 6,321,356 .50 - 1.35 $10,856,638
========= ============ ===========
Warrants issued for services are accounted for in accordance with SFAS 123,
"Accounting for Stock-Based Compensation," and accordingly, an expense totaling
$32,242 and $81,350 has been recorded in the financial statements for the years
ended March 31, 1999 and 1998 respectively. All other warrants have been issued
in connection with equity transactions.
56
6. COMMITMENTS:
Leases. BI has operating leases for its manufacturing, sales and administrative
facilities and warehouse facilities with options to renew for an additional
five-year term upon expiration. BI also leases office equipment under operating
leases for periods up to five years. At March 31, 1999, future minimum payments
under noncancellable operating leases with terms in excess of one year are as
follows:
Year Ending March 31, Facilities Equipment
---------- ---------
2000 216,856 9,132
2001 216,888 9,132
2002 108,624 8,501
Thereafter 95,424 3,565
Lease expense for the years ended March 31, 1999, 1998 and 1997 totaled
$232,000, $255,000 and $283,000 respectively.
7. RELATED PARTY TRANSACTIONS:
On October 22, 1997, Robert Gonnelli was elected Chairman of Marathon Medical's
Board of Directors. From October 1997 through April 1998 he received no fees for
such services but will participate in any future subsidiary director stock
incentive plans. From May 1, 1998, through September 30, 1998 Mr. Gonnelli
served as interim president of Marathon Medical and received compensation
totaling $15,000 per month.
In addition to his position on the Marathon Medical, Mr. Gonnelli served as a
consultant to the Company from October, 1997 through October, 1998. For his
consulting services, Mr. Gonnelli was paid monthly consulting fees of $8,500
through April, 1998, totaling $8,500 and $50,500 in fiscal 1999 and 1998,
respectively. In fiscal 1998, he was granted 350,000 five year warrants to
purchase the Company's stock in connection with the private equity placement
completed with Elan Corporation. The Company also granted him 130,243 warrants
for investor relations and sales consulting services in fiscal 1999. The Company
has committed to issue up 30,342 warrants for his investor relations and sales
consulting services in fiscal 1999. The fair market value for the services has
been expensed.
A significant portion of the research and development expenses of the blood
glucose monitoring business segment are incurred by Elan and billed to the
Company under a contractual arrangement between the two companies. Included in
accounts payable and other accrued liabilities at March 31, 1999, is
approximately $2.4 million owed to Elan under this arrangement.
Included in accounts receivable at March 31, 1999, is $250,000 due from Elan for
fees relating to development of the Company's needle-free technology.
8. SUBSEQUENT EVENTS
See subsequent events described in Note 2 - "Research and Development and
Licensing/Technology Revenues - Hoffman LaRoche" and in Note 3 - "Discontinued
Operations".
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
57
PART III
The Company has omitted from Part III the information that will appear in the
Company's definitive proxy statement for its annual meeting of shareholders to
be held on September 16, 1999 (the "Proxy Statement"), which will be filed
within 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
information under the caption "DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT" in the Proxy Statement.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
information under the caption "EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS" in
the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
information under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT" in the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
information under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
in the Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements and Report of Independent Public
Accountants are included under Item 8, in Part II.
(2) Consolidated Financial Statement Schedules and Report of Independent Public
Accountants on those schedules:
None required
(3) Exhibits: The following exhibits are filed as part of this report. An
asterisk (*) beside the exhibit number indicates the subset of the exhibits
containing each management contract, compensatory plan, or arrangement
required to be identified separately in this report.
58
Exhibit
Number Exhibit Description
- ------- -----------------------------------------------------------------
3.1 Articles of Incorporation of Bioject Medical Technologies Inc.
incorporated by reference to the same exhibit number of the Company's
Form 10-K for the year ended January 31, 1993.
3.1.1 Articles of Amendment to the Articles of Incorporation of the
Incorporation of the Company incorporated by reference to the Same
exhibit number of the Company's Form 8-K filed March 6, 1998.
3.1.2 Articles of Amendment to the Articles of Incorporation of the
Incorporation of the Company dated September 11, 1998, and filed
October 15, 1998, incorporated by reference to the Same exhibit number
of the Company's Form 8-K filed April 20, 1999.
3.1.3 Articles of Amendment to the Articles of Incorporation of the
Incorporation of the Company dated March 18, 1999, and filed March 24,
1999, incorporated by reference to the Same exhibit number of the
Company's Form 8-K filed April 20, 1999.
3.2 Amended and Restated By-laws of Bioject Medical Technologies Inc.
Incorporated by reference to the same exhibit number of the Company's
Form 10-Q for the quarter ended September 30, 1994.
4.3* Bioject Medical Technologies Inc. 1992 Stock Incentive Plan, as
amended through April 3, 1997. Incorporated by reference to the same
exhibit number of the Company's From 10-Q for the year ended December
31, 1997.
10.4 Lease Agreement dated March 21, 1989 between Spieker-Hosford-
Eddy-Souther #174, Limited Partnership and Bioject Inc. for the
Portland, Oregon facility incorporated by reference to the same
exhibit number of Company's Form 10-K for the year ended January 31,
1989.
10.4.1 Amended Lease Agreement dated June 18, 1992 between Bridgeport Woods
Investors (successors in interest to Spieker-Hosford-Eddy- Souther
#174 Limited Partnership) and Bioject Inc. for the Portland, Oregon
facility incorporated by reference to the same exhibit number of the
Company's Form 10-K for the year ended January 31, 1993.
10.4.2 Lease Agreement dated September 10, 1996 between Bridgeport Woods
Business park and Bioject Inc. for the Portland, Oregon facility.
Incorporated by reference to the same exhibit number of the Company's
Form 10-Q for the period ended September 30, 1996.
10.5 Lease Extension Agreement dated October 4, 1994, between Earl J. Itel
and Loris Itel Trust and Bioject Inc., for the 6000 sq. ft. Tualatin,
Oregon warehouse. Incorporated by reference to the same exhibit number
of the Company's Form 10-Q/A for the period ended December 31, 1996.
10.7* Executive Employment Contract with Peggy J. Miller, dated January 18,
1993 incorporated by reference to the same exhibit number of the
Company's Form 10-K for the year ended January 31, 1993.
10.8* Executive Employment Contract with J. Michael Redmond, dated February
8, 1996. Incorporated by reference to the same exhibit number of the
Company's Form 10-K for the year ended March 31, 1996.
59
Exhibit
Number Exhibit Description
- ------- -----------------------------------------------------------------
10.14 Common Stock Purchase Agreement between Eli Lilly and Company and
Bioject Medical Systems Ltd. dated April 29, 1992 incorporated by
reference to the same exhibit number of Company's Form 8, dated May
28, 1992, amending Company's Form 10-K for the year ended January 31,
1992.
10.17 Development and Licensing Agreement between Eli Lilly & Company and
Bioject Inc., dated April 29, 1992 incorporated by reference to the
same exhibit number of Company's Form 8, dated October 9, 1992,
amending Company's Form 10-Q for the quarter ended April 30, 1992.
Confidential treatment has been granted with respect to certain
portions of this exhibit pursuant to an Application for Confidential
Treatment filed with the Commission under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
10.17.1 Amendment to Development and Licensing Agreement between Eli Lilly and
Company and Bioject Inc., effective May 5, 1993 incorporated by
reference to the same exhibit number of Company's Form S-1, No.
33-68846, dated November 1, 1993. Confidential treatment has been
granted with respect to certain portions of this exhibit pursuant to
an Application for Confidential Treatment filed with the Commission
under Rule 406 under the Securities Act of 1933, as amended.
Confidential treatment has been granted with respect to certain
portions of this exhibit pursuant to an Application for Confidential
Treatment filed with the Commission under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
10.23 Development and Licensing Agreement between Schering, AG, Bioject Inc.
and Bioject Medical Technologies Inc. dated March 28, 1994
incorporated by reference to the same exhibit number of the Company's
Form 10-K for the year ended March 31, 1994. Confidential treatment
has been granted with respect to certain portions of this exhibit
pursuant to an Application for Confidential Treatment filed with the
Commission under Rule 24b-2 under the Securities exchange Act of 1934,
as amended.
10.26 Heads of Agreement between Hoffman-La Roche Inc. and Bioject Inc.
dated January 10, 1995. Confidential treatment has been granted with
respect to certain portions of this exhibit pursuant to an Application
for Confidential Treatment filed with the Commission under Rule 24b-2
under the Securities Exchange Act of 1934 as amended.
10.27* Employment Agreement with James C. O'Shea dated October 3, 1995
incorporated by reference to the same exhibit number of the Company's
Form 10-Q for the quarter ended September 30, 1995.
10.28 Form of Amended and Restated Registration Rights Agreement between
Bioject Medical Technologies Inc. and the participants in the 1995
private placement incorporated by reference to exhibit 4.2 of the
Company's Registration Statement on Form S-3 (No. 33-80679).
10.29 Form of Amended and Restated Series "A" Common Stock Purchase Warrant
incorporated by reference to exhibit 4.3 of the Company's Registration
Statement on Form S-3 (No. 33-80679).
10.30 Form of Series "B" Common Stock Purchase Warrant incorporated by
reference to exhibit 4.4. of the Company's Registration Statement on
Form S-3 (No. 33-80679).
10.31 Form of Amended and Restated Series "C" Common Stock Purchase Warrant
incorporated by reference to exhibit 4.5 of the Company's Registration
Statement on Form S-3 (No. 33-80679). Confidential treatment has been
granted with respect to certain portions of this exhibit pursuant to
an Application for Confidential Treatment filed with the Commission
under Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
60
Exhibit
Number Exhibit Description
- ------- -----------------------------------------------------------------
10.32 Supply Agreement dated June 26, 1996 between Bioject Inc. and Schering
Aktiengesellschaft. Incorporated by reference to the same exhibit
number of the Company's Form 8-K/A dated June 26, 1996. Confidential
treatment has been granted with respect to certain portions of this
exhibit pursuant to an Application for Confidential Treatment filed
with the Commission under Rule 24b-2 under the Securities exchange Act
of 1934, as amended.
10.32.1 Security Agreement dated June 26, 1996 between Bioject Inc. and
Schering Aktiengesellschaft. Incorporated by reference to the same
exhibit number of the Company's Form 10-Q for the period ended June
30, 1996.
10.33 Form of Series "D" Common Stock Purchase Warrant. Incorporated by
reference to exhibit 4.6 of the Company's form 8-K dated December 11,
1996.
10.34 Form of Series "E" Common Stock Purchase Warrant. Incorporated by
reference to exhibit 4.7 of the Company's Form 8-K dated December 11,
1996.
10.35 Form of Registration Rights Agreement between Bioject Medical
Technologies Inc. and the participants in the 1996 private placement.
Incorporated by reference to exhibit 4.8 of the Company's Form 8-K
dated December 11, 1996.
10.36 Form of Series "F" Common Stock Purchase Warrant.
10.37 Form of Series "G" Common Stock Purchase Warrant.
10.38 Form of Registration Rights Agreement between Bioject Medical
Technologies Inc. and the participants in the 1997 private placement.
Incorporated by reference to the same exhibit number of the Company's
Form 10-K for the year ended March 31, 1997.
10.39 Agreement between Elan Corporation, plc, Elan International Services,
Ltd. and Bioject Medical Technologies, Inc. dated September 30, 1997.
Incorporated by reference to the same exhibit number of the Company's
Form 8-K filed October 3, 1997. Confidential treatment has been
requested with respect to certain portions of this exhibit pursuant to
an Application for Confidential Treatment filed with the Commission
under Rule 24b-2(b) under the Securities Exchange Act of 1934, as
amended.
10.40 License Agreement between Elan Corporation, plc and Bioject JV
Subsidiary Inc. dated October 15, 1997. Incorporated by reference to
the same exhibit number of the Company's Form 8-K/A filed January 22,
1998. Confidential treatment has been granted with respect to certain
portions of this exhibit pursuant to an application for Confidential
Treatment filed with the Commission under Rule 24b-2(b) under the
Securities Exchange Act of 1934, as amended.
10.40.1 Amendment to License Agreement between Elan Corporation, plc and
Bioject JV Subsidiary Inc. dated October 15, 1997 incorporated by
reference to the same exhibit number of the Company's Form 8-K filed
on November 3, 1997.
10.41 Securities Purchase Agreement between Elan International Services,
Ltd. and Bioject Medical Technologies Inc. dated October 15, 1997.
61
Exhibit
Number Exhibit Description
- ------- -----------------------------------------------------------------
10.41.1 Amendment to Securities Purchase Agreement between Elan International
Services, Ltd. and Bioject Medical Technologies Inc. dated October 15,
1997 incorporated by reference to the same exhibit number of the
Company's Form 8-K filed on November 3, 1997.
10.42 Bioject Medical Technologies Inc. Registration Rights Agreement
between Elan International Services, Ltd. and Bioject Medical
Technologies Inc. dated October 15, 1997. Incorporated by reference to
the same exhibit number of the Company's Form 8-K filed October 31,
1997.
10.43 Series K Warrant to Purchase Shares of Common Stock dated October 15,
1997. Incorporated by reference to the same exhibit number of the
Company's Form 8-K filed October 31, 1997.
10.44 Promissory Note dated October 15, 1997 in favor of Elan International
Services, Ltd. Incorporated by reference to the same exhibit number of
the Company's Form 8-K filed on November 3, 1997.
10.45 Newco Subscription and Stockholders Agreement between Elan
International Services, Ltd., Bioject Medical Technologies Inc. and
Bioject JV Subsidiary Inc. dated October 15, 1997. Incorporated by
Reference to the same exhibit number of the Company's Form 8-K/A filed
January 22, 1998.
10.45.1 Amendment to Newco Subscription and Stockholders Agreement between
Elan International Services, Ltd., Bioject Medical Technologies Inc.
and Bioject JV Subsidiary Inc. dated October 15, 1997 incorporated by
reference to the same exhibit number of the Company's Form 8-K filed
on November 3, 1997.
10.46 Bioject JV Subsidiary Inc. Registration Rights Agreement between Elan
International Services, Ltd. and Bioject JV Subsidiary Inc. dated
October 15, 1997. Incorporated by reference to the same exhibit number
of the Company's Form 8-K filed November 3, 1997.
10.47 Form of Series "H" Common Stock Purchase Warrant.
10.48 Form of Series "I" Common Stock Purchase Warrant.
10.49 Form of Series "J" Common Stock Purchase Warrant.
10.50 Form of Series "L" Common Stock Purchase Warrant.
10.51 Form of Series "M" Common Stock Purchase Warrant.
10.52 Form of Series "N" Common Stock Purchase Warrant.
10.53 Asset Purchase Agreement among Bioject Medical Technologies, Inc.
Vitajet Corporation and Sergio Landau and Mara C. Landau dated March
23, 1998.
10.54* Executive Employment Agreement dated April 17, 1998, between
Bioject
Medical Technologies Inc., Bioject Inc., and Michael A. Temple.
10.55* Form of Termination Agreement between Bioject Technologies, Inc. and
Peggy Miller.
10.56 Form of Massachusetts Biotechnology Research Park, Three Biotech
Park, Space Lease dated April 20, 1998.
10.57 Amendment to Massachusetts Biotechnology Research Park Space Lease.
10.58 Restated 1992 Stock Incentive Plan.
62
Exhibit
Number Exhibit Description
- ------- -----------------------------------------------------------------
10.59 Supply and Option Agreement between Merck & Co., Inc. and Bioject
Medical Technologies Inc., effective as of June 8, 1998. Confidential
treatment has been requested with respect to certain portions of this
exhibit pursuant to an Application for Confidential Treatment filed
with the Commission under Rule 24b-2 under the Securities Exchange Act
of 1934, as amended.
10.60 Collaborative Alliance Agreement between GeneMedicine, Inc. and
Bioject, Inc., made as of June 26, 1998. Confidential treatment has
been requested with respect to certain portions of this exhibit
pursuant to an Application for Confidential Treatment filed with the
Commission under Rule 24b-2 under the Securities Exchange Act of 1934,
as amended.
10.61* Employment Contract between Bioject JV Subsidiary Inc. and
Bradley J. Enegren.
10.62* Confidentiality/Inventions/Noncompetition Agreement between
Bioject JV Subsidiary Inc. and Bradley J. Enegren
10.63 Form of Series "O" Common Stock Purchase Warrant.
21 List of Subsidiaries
23 Consent of Independent Public Accountants
27 Financial Data Schedule
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Bioject Medical Technologies Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized:
BIOJECT MEDICAL TECHNOLOGIES INC.
(Registrant)
By: /S/ JAMES C. O'SHEA
James C. O'Shea
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the request of the Securities Exchange Act of 1934, this report has
been signed below on behalf of the Registrant and in the capacities indicated on
the dates shown.
SIGNATURE TITLE
/S/ JAMES C. O'SHEA Chairman of the Board, President
James C. O'Shea and Chief Executive
Officer
/S/ MICHAEL A. TEMPLE Vice President, Chief Financial
Michael A. Temple Officer and Secretary/Treasurer
/s/ DAVID H. DE WEESE Director
David H. de Weese
/S/ GRACE K. FEY Director
Grace K. Fey
/S/ WILLIAM A. GOUVEIA Director
William A. Gouveia
/S/ ERIC T. HERFINDAL Director
Eric T. Herfindal
/S/ RICHARD PLESTINA Director
Richard Plestina
/S/ JOHN RUEDY, M.D. Director
John Ruedy, M.D.
/S/ MICHAEL SEMBER Director
Michael Sember
64
INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
- ------- -----------------------------------------------------------------
3.1 Articles of Incorporation of Bioject Medical Technologies Inc.
incorporated by reference to the same exhibit number of the Company's
Form 10-K for the year ended January 31, 1993.
3.1.1 Articles of Amendment to the Articles of Incorporation of the
Incorporation of the Company incorporated by reference to the Same
exhibit number of the Company's Form 8-K filed March 6, 1998.
3.1.2 Articles of Amendment to the Articles of Incorporation of the
Incorporation of the Company dated September 11, 1998 and filed
October 15, 1998, incorporated by reference to the Same exhibit number
of the Company's Form 8-K filed April 20, 1999.
3.1.3 Articles of Amendment to the Articles of Incorporation of the
Incorporation of the Company dated March 18, 1999, and filed March 24,
1999, incorporated by reference to the Same exhibit number of the
Company's Form 8-K filed April 20, 1999.
3.2 Amended and Restated By-laws of Bioject Medical Technologies Inc.
Incorporated by reference to the same exhibit number of the Company's
Form 10-Q for the quarter ended September 30, 1994.
4.3* Bioject Medical Technologies Inc. 1992 Stock Incentive Plan, as
amended through April 3, 1997. Incorporated by reference to the same
exhibit number of the Company's From 10-Q for the year ended December
31, 1997.
10.4 Lease Agreement dated March 21, 1989 between Spieker-Hosford-
Eddy-Souther #174, Limited Partnership and Bioject Inc. for the
Portland, Oregon facility incorporated by reference to the same
exhibit number of Company's Form 10-K for the year ended January 31,
1989.
10.4.1 Amended Lease Agreement dated June 18, 1992 between Bridgeport Woods
Investors (successors in interest to Spieker-Hosford-Eddy- Souther
#174 Limited Partnership) and Bioject Inc. for the Portland, Oregon
facility incorporated by reference to the same exhibit number of the
Company's Form 10-K for the year ended January 31, 1993.
10.4.2 Lease Agreement dated September 10, 1996 between Bridgeport Woods
Business park and Bioject Inc. for the Portland, Oregon facility.
Incorporated by reference to the same exhibit number of the Company's
Form 10-Q for the period ended September 30, 1996.
10.5 Lease Extension Agreement dated October 4, 1994, between Earl J. Itel
and Loris Itel Trust and Bioject Inc., for the 6000 sq. ft. Tualatin,
Oregon warehouse. Incorporated by reference to the same exhibit number
of the Company's Form 10-Q/A for the period ended December 31, 1996.
10.7* Executive Employment Contract with Peggy J. Miller, dated January 18,
1993 incorporated by reference to the same exhibit number of the
Company's Form 10-K for the year ended January 31, 1993.
10.8* Executive Employment Contract with J. Michael Redmond, dated February
8, 1996. Incorporated by reference to the same exhibit number of the
Company's Form 10-K for the year ended March 31, 1996.
10.14 Common Stock Purchase Agreement between Eli Lilly and Company and
Bioject Medical Systems Ltd. dated April 29, 1992 incorporated by
reference to the same exhibit number of Company's Form 8, dated May
28, 1992, amending Company's Form 10-K for the year ended January 31,
1992.
Exhibit
Number Exhibit Description
- ------- -----------------------------------------------------------------
10.17 Development and Licensing Agreement between Eli Lilly & Company and
Bioject Inc., dated April 29, 1992 incorporated by reference to the
same exhibit number of Company's Form 8, dated October 9, 1992,
amending Company's Form 10-Q for the quarter ended April 30, 1992.
Confidential treatment has been granted with respect to certain
portions of this exhibit pursuant to an Application for Confidential
Treatment filed with the Commission under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
10.17.1 Amendment to Development and Licensing Agreement between Eli Lilly and
Company and Bioject Inc., effective May 5, 1993 incorporated by
reference to the same exhibit number of Company's Form S-1, No.
33-68846, dated November 1, 1993. Confidential treatment has been
granted with respect to certain portions of this exhibit pursuant to
an Application for Confidential Treatment filed with the Commission
under Rule 406 under the Securities Act of 1933, as amended.
Confidential treatment has been granted with respect to certain
portions of this exhibit pursuant to an Application for Confidential
Treatment filed with the Commission under Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
10.23 Development and Licensing Agreement between Schering, AG, Bioject Inc.
and Bioject Medical Technologies Inc. dated March 28, 1994
incorporated by reference to the same exhibit number of the Company's
Form 10-K for the year ended March 31, 1994. Confidential treatment
has been granted with respect to certain portions of this exhibit
pursuant to an Application for Confidential Treatment filed with the
Commission under Rule 24b-2 under the Securities exchange Act of 1934,
as amended.
10.26 Heads of Agreement between Hoffman-La Roche Inc. and Bioject Inc.
dated January 10, 1995. Confidential treatment has been granted with
respect to certain portions of this exhibit pursuant to an Application
for Confidential Treatment filed with the Commission under Rule 24b-2
under the Securities Exchange Act of 1934 as amended.
10.27* Employment Agreement with James C. O'Shea dated October 3, 1995
incorporated by reference to the same exhibit number of the Company's
Form 10-Q for the quarter ended September 30, 1995.
10.28 Form of Amended and Restated Registration Rights Agreement between
Bioject Medical Technologies Inc. and the participants in the 1995
private placement incorporated by reference to exhibit 4.2 of the
Company's Registration Statement on Form S-3 (No. 33-80679).
10.29 Form of Amended and Restated Series "A" Common Stock Purchase Warrant
incorporated by reference to exhibit 4.3 of the Company's Registration
Statement on Form S-3 (No. 33-80679).
10.30 Form of Series "B" Common Stock Purchase Warrant incorporated by
reference to exhibit 4.4. of the Company's Registration Statement on
Form S-3 (No. 33-80679).
10.31 Form of Amended and Restated Series "C" Common Stock Purchase Warrant
incorporated by reference to exhibit 4.5 of the Company's Registration
Statement on Form S-3 (No. 33-80679). Confidential treatment has been
granted with respect to certain portions of this exhibit pursuant to
an Application for Confidential Treatment filed with the Commission
under Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
10.32 Supply Agreement dated June 26, 1996 between Bioject Inc. and Schering
Aktiengesellschaft. Incorporated by reference to the same exhibit
number of the Company's Form 8-K/A dated June 26, 1996. Confidential
treatment has been granted with respect to certain portions of this
exhibit pursuant to an Application for Confidential Treatment filed
with the Commission under Rule 24b-2 under the Securities exchange Act
of 1934, as amended.
Exhibit
Number Exhibit Description
- ------- -----------------------------------------------------------------
10.32.1 Security Agreement dated June 26, 1996 between Bioject Inc. and
Schering Aktiengesellschaft. Incorporated by reference to the same
exhibit number of the Company's Form 10-Q for the period ended June
30, 1996.
10.33 Form of Series "D" Common Stock Purchase Warrant. Incorporated by
reference to exhibit 4.6 of the Company's form 8-K dated December 11,
1996.
10.34 Form of Series "E" Common Stock Purchase Warrant. Incorporated by
reference to exhibit 4.7 of the Company's Form 8-K dated December 11,
1996.
10.35 Form of Registration Rights Agreement between Bioject Medical
Technologies Inc. and the participants in the 1996 private placement.
Incorporated by reference to exhibit 4.8 of the Company's Form 8-K
dated December 11, 1996.
10.36 Form of Series "F" Common Stock Purchase Warrant.
10.37 Form of Series "G" Common Stock Purchase Warrant.
10.38 Form of Registration Rights Agreement between Bioject Medical
Technologies Inc. and the participants in the 1997 private placement.
Incorporated by reference to the same exhibit number of the Company's
Form 10-K for the year ended March 31, 1997.
10.39 Agreement between Elan Corporation, plc, Elan International Services,
Ltd. and Bioject Medical Technologies, Inc. dated September 30, 1997.
Incorporated by reference to the same exhibit number of the Company's
Form 8-K filed October 3, 1997. Confidential treatment has been
requested with respect to certain portions of this exhibit pursuant to
an Application for Confidential Treatment filed with the Commission
under Rule 24b-2(b) under the Securities Exchange Act of 1934, as
amended.
10.40 License Agreement between Elan Corporation, plc and Bioject JV
Subsidiary Inc. dated October 15, 1997. Incorporated by reference to
the same exhibit number of the Company's Form 8-K/A filed January 22,
1998. Confidential treatment has been granted with respect to certain
portions of this exhibit pursuant to an application for Confidential
Treatment filed with the Commission under Rule 24b-2(b) under the
Securities Exchange Act of 1934, as amended.
10.40.1 Amendment to License Agreement between Elan Corporation, plc and
Bioject JV Subsidiary Inc. dated October 15, 1997 incorporated by
reference to the same exhibit number of the Company's Form 8-K filed
on November 3, 1997.
10.41 Securities Purchase Agreement between Elan International Services,
Ltd. and Bioject Medical Technologies Inc. dated October 15, 1997.
10.41.1 Amendment to Securities Purchase Agreement between Elan International
Services, Ltd. and Bioject Medical Technologies Inc. dated October 15,
1997 incorporated by reference to the same exhibit number of the
Company's Form 8-K filed on November 3, 1997.
10.42 Bioject Medical Technologies Inc. Registration Rights Agreement
between Elan International Services, Ltd. and Bioject Medical
Technologies Inc. dated October 15, 1997. Incorporated by reference to
the same exhibit number of the Company's Form 8-K filed October 31,
1997.
10.43 Series K Warrant to Purchase Shares of Common Stock dated October 15,
1997. Incorporated by reference to the same exhibit number of the
Company's Form 8-K filed October 31, 1997.
Exhibit
Number Exhibit Description
- ------- -----------------------------------------------------------------
10.44 Promissory Note dated October 15, 1997 in favor of Elan International
Services, Ltd. Incorporated by reference to the same exhibit number of
the Company's Form 8-K filed on November 3, 1997.
10.45 Newco Subscription and Stockholders Agreement between Elan
International Services, Ltd., Bioject Medical Technologies Inc. and
Bioject JV Subsidiary Inc. dated October 15, 1997. Incorporated by
Reference to the same exhibit number of the Company's Form 8-K/A filed
January 22, 1998.
10.45.1 Amendment to Newco Subscription and Stockholders Agreement between
Elan International Services, Ltd., Bioject Medical Technologies Inc.
and Bioject JV Subsidiary Inc. dated October 15, 1997 incorporated by
reference to the same exhibit number of the Company's Form 8-K filed
on November 3, 1997.
10.46 Bioject JV Subsidiary Inc. Registration Rights Agreement between Elan
International Services, Ltd. and Bioject JV Subsidiary Inc. dated
October 15, 1997. Incorporated by reference to the same exhibit number
of the Company's Form 8-K filed November 3, 1997.
10.47 Form of Series "H" Common Stock Purchase Warrant.
10.48 Form of Series "I" Common Stock Purchase Warrant.
10.49 Form of Series "J" Common Stock Purchase Warrant.
10.50 Form of Series "L" Common Stock Purchase Warrant.
10.51 Form of Series "M" Common Stock Purchase Warrant.
10.52 Form of Series "N" Common Stock Purchase Warrant.
10.53 Asset Purchase Agreement among Bioject Medical Technologies, Inc.
Vitajet Corporation and Sergio Landau and Mara C. Landau dated March
23, 1998.
10.54* Executive Employment Agreement dated April 17, 1998 between Bioject
Medical Technologies Inc., Bioject Inc., and Michael A. Temple.
10.55* Form of Termination Agreement between Bioject Technologies, Inc. and
Peggy Miller.
10.56 Form of Massachusetts Biotechnology Research Park, Three Biotech
Park, Space Lease dated April 20, 1998.
10.57 Amendment to Massachusetts Biotechnology Research Park Space Lease.
10.58 Restated 1992 Stock Incentive Plan.
10.59 Supply and Option Agreement between Merck & Co., Inc. and Bioject
Medical Technologies, Inc., effective as of June 8, 1998. Confidential
treatment has been requested with respect to certain portions of this
exhibit pursuant to an Application for Confidential Treatment filed
with the Commission under Rule 24b-2 under the Securities Exchange Act
of 1934, as amended.
10.60 Collaborative Alliance Agreement between GeneMedicine, Inc. and
Bioject, Inc., made as of June 26, 1998. Confidential treatment has
been requested with respect to certain portions of this exhibit
pursuant to an Application for Confidential Treatment filed with the
Commission under Rule 24b-2 under the Securities Exchange Act of 1934,
as amended.
10.61* Employment Contract between Bioject JV Subsidiary Inc. and
Bradley J. Enegren.
10.62* Confidentiality/Inventions/Noncompetition Agreement between
Bioject JV Subsidiary Inc. and Bradley J. Enegren
10.63 Form of Series "O" Common Stock Purchase Warrant.
21 List of Subsidiaries
23 Consent of Independent Public Accountants
27 Financial Data Schedule