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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2000
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 Number: 0-23678
BIOSPHERE MEDICAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 04-3216867
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
1050 Hingham St., Rockland, Massachusetts 02370
(Address of Principal Executive Offices) (Zip Code)
(781) 681-7900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of voting Common Stock held by non-affiliates of
the registrant was $51,923,849, based on the closing price of the shares as
reported by the Nasdaq National Market as of March 16, 2001
Number of shares outstanding of the registrant's Common Stock on March 16,
2001 was 10,597,422.
Documents incorporated by reference:
Proxy Statement for the 2001 Annual Meeting of Stockholders--Part III.
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PART I
Item 1. BUSINESS
We are pioneering the use of our proprietary bioengineered acrylic beads,
known as microspheres, for medical applications using embolotherapy techniques
and also to develop potential applications in several non-embolotherapy
applications. We believe microsphere technologies, such as our proprietary
microsphere platform, are enabling the rapid development of a new,
''micro-interventional'' market. We expect that micro-interventional devices
will permit clinicians to treat in a more effective and minimally invasive
manner than with catheter-based interventional technologies alone.
Embolotherapy is a minimally invasive procedure in which embolic materials,
such as our microspheres, are delivered through a catheter into the blood
vessels to inhibit blood flow to tumors or vascular defects or to control blood
loss presurgically. Our first products have targeted the treatment of
hypervascularized tumors and arterio-venous malformations (AVM). Hypervascular
tumors are tumors that have a large number of blood vessels feeding them and
include certain tumors affecting the brain and spinal cord, tumors in the
uterus, known as uterine fibroids, and tumors associated with primary liver
cancer. By selectively blocking the tumor's blood supply, embolotherapy is
designed to cause the tumor to shrink and necrose. Based on preliminary
research, we believe that our microsphere technology platform can also be
adapted to deliver drugs, living tissue or genetic material to targeted sites.
Our microspheres have a variety of characteristics that we believe make
them preferable to other embolic materials currently used in embolotherapy.
Specifically, we have designed our product to be easier to use and its delivery
to the tumor more targeted and controlled, which we believe will result in
better procedural outcomes for the patient. By improving the practice and
awareness of embolotherapy and the improved benefits of our products, we believe
that patients currently untreated, surgical candidates and patients considering
treatment with other embolics, may seek treatment with our microsphere
technology.
We believe that our platform microsphere technology also has several
non-embolotherapy applications, such as tissue bulking, repair and regeneration.
In this context, we are exploring and / or developing microspheres for use in
the treatment of a number of conditions, including stress urinary incontinence,
and gastroesophageal reflux disease. Consistent with this focus, in January
2001, we announced a strategic alliance with Inamed Corporation of Santa
Barbara, California, a surgical and medical device company primarily engaged in
the development, manufacturing and marketing of medical devices for the plastic
and reconstructive surgery and aesthetic medicine markets to supply proprietary
microspheres for dermal bulking applications.
BioSphere was originally incorporated as a Delaware corporation in 1993
under the name BioSepra Inc., as a chromatography media company. During 1999, we
strategically refocused our business on the development and commercialization of
our proprietary microspheres for medical applications. During 2000, we
established two wholly-owned subsidiaries to pursue the development of our
microsphere technologies in applications outside of, and complimentary to,
embolotherapy. In May 2000, we established Biosphere Medical Japan, Inc., a
Delaware corporation, to develop and commercialize Embosphere (R) Microspheres
and HepaSphere SAP (TM) Microspheres in the Far East. In December 2000, we
established BSMD Ventures, Inc., also a Delaware corporation, to explore and
develop non-embolotherapy applications for our proprietary microspheres.
INDUSTRY OVERVIEW
Embolotherapy Markets
Embolotherapy has been in use for more than 20 years by interventional
radiologists to mechanically block the flow of blood to treat certain peripheral
tumors and arteriovenous malformations and to control blood loss. Historically,
embolotherapy has been used in various brain-based procedures as a means of
blocking the blood supply to inoperable tumors or to minimize bleeding within
targeted surgical areas. As applications within the brain are considered among
the most medically sensitive and complex, we believe the continued use of
embolotherapy in these high-risk procedures attests to its overall safety and
efficacy. In recent years, interventional radiologists in the United States,
Europe and Japan have begun to expand the scope of embolotherapy to include
uterine artery embolization and the treatment of certain cancers, including
liver cancer. Moreover, a growing number of affected people are taking proactive
steps in seeking alternative treatments, particularly as a result of increased
general awareness brought about by the proliferation of medical Internet sites.
Accordingly, we believe the potential market for embolotherapy continues to
expand beyond niche neurovascular applications into broader medical
opportunities.
In a process we refer to as active embolotherapy, we are also researching
the development of microspheres designed to release embedded drugs or genetic
material specifically at a targeted site.
Uterine Fibroids
Uterine fibroids are non-cancerous tumors growing in or on the uterus.
Their cause is unknown. Most patients with uterine fibroids do not initially
have symptoms and remain untreated until the patient experiences abnormal
bleeding, urinary frequency, pain, swelling or fertility difficulties.
Until now, women suffering from uterine fibroids have had few treatment
options. These existing treatment options include the following:
o Hysterectomy: Hysterectomy is a surgical procedure to remove the
uterus. While hysterectomy has a relatively low complication rate, it
requires a hospital stay of four to five days, a recovery period of up
to six weeks, and results in loss of fertility for women of
child-bearing age. Furthermore, hysterectomies have been tied to
adverse psychological effects, and the onset of early menopause.
o Myomectomy: Myomectomy is the surgical removal of the uterine fibroids
without removal of the uterus. It is usually performed on women who
wish to preserve their fertility. In addition to the invasiveness of
the procedure, the most significant disadvantage of myomectomy is a 20
to 40 percent recurrence rate. Even though a myomectomy has been the
only procedure available to a woman with severe symptoms from uterine
fibroids who wishes to preserve fertility, the recurrence rate and
invasiveness have resulted in resistance from both third party payors
and patients. Relatively few myomectomies are performed in relation to
the number of eligible patients.
o Medical Management and "Watchful Waiting:" About 95 percent of
symptomatic fibroid patients either receive hormone treatment on a
temporary basis to relieve symptoms or remain untreated and tolerate
the symptoms. Even if the patient receives treatment, once treatment
ceases the uterine fibroids usually regrow. While hormone treatment
temporarily reduces symptoms, patients often experience side effects
associated with the accompanying hormonal changes. Moreover, women
cannot conceive while taking the hormones. Women with less severe
symptoms who are, therefore, not candidates for hormone treatment, and
those seeking to conceive have few satisfactory options. In these
circumstances, physicians usually monitor symptoms and will administer
therapy only if the condition worsens.
The therapies currently available for treating uterine fibroids may have
significant drawbacks including:
o temporary or permanent loss of fertility for women of child-bearing
age,
o lengthy recovery periods,
o premature menopause and related symptoms,
o high costs, including costs of medications, surgical procedures, and
frequent and long hospital stays,
o discomfort and side effects from invasive surgical procedures and
hormone therapy, and/or
o risk of recurrence of the fibroids.
Another method of treatment for uterine fibroids, more recently adopted, is
uterine artery embolization. The embolic material most commonly used today in
uterine artery embolization is polyvinyl alcohol, or PVA. Polyvinyl alcohol has
several limitations, including:
o Inconvenience and limited effectiveness. Polyvinyl alcohol often clogs
in the catheter and the blood vessel, resulting in less than optimal
occlusions of the blood supply to targeted tumors as well as undesired
necrosis, or death, of the surrounding tissues. Because of its
imprecise size and shape, polyvinyl alcohol may not fully occlude the
blood vessel, allowing the blood to circumvent the embolic material
and continue to feed the tumor.
o Limited control. Polyvinyl alcohol often fragments and aggregates, or
clumps, in the blood vessel, causing vessel blockages prior to
reaching the desired site of blood flow occlusion. Clumping during
embolization is problematic for two reasons. First, if clumping occurs
in the catheter during the procedure, more frequent catheter flushing
or catheter replacement may be required, adding to the length and cost
of the procedure. Second, if clumping occurs at non-targeted sites in
the vessel after injection into the artery, incomplete embolization
can occur. In addition, occlusions can block normal desired blood
supply to the tissues.
o Chronic inflammatory response. Polyvinyl alcohol often stimulates an
inflammatory response by the body that persists for an extended period
of time.
Based upon the shortcomings in existing technologies and therapies we
discussed above, we believe there are significant opportunities in developing
and commercializing alternative treatments for patients suffering from uterine
fibroids.
Primary Liver Cancer
Primary liver cancer refers to liver cancer originating in the liver,
rather than traveling to the liver from another cancer site in the body. Over 70
percent of primary liver cancers are inoperable and are, therefore, treated
primarily with chemotherapy or radiation. However, due to the destructive nature
of both radiation and chemotherapy, these therapies have traditionally been
associated with the following limitations and side effects:
o Radiation. While radiation therapy can shrink or eliminate certain
individual tumors, its use in treating liver cancer is limited. Since
it is difficult to isolate radiation exposure to the liver tumor,
radiation therapy often results in damage to the surrounding
non-tumorous tissue. Moreover, radiation injury can also damage the
natural anti-tumor defenses of the body,
o Chemotherapy. Chemotherapy seeks to control cancer by selectively
killing the more-rapidly-dividing cancer cells and is widely used for
treating cancer elsewhere in the body. The use of systemically
delivered chemotherapy agents, however, has shown little benefit in
treating liver cancer. Similar to the limitations of radiation
therapy, therapeutic doses of chemotherapy to the cancerous tissue
have a damaging effect on the normal surrounding tissue.
Other treatments currently under investigation to treat primary liver
cancer are radio frequency tumor ablation, which seeks to kill the tumor by
means of destructive electrical energy, and embolization using polyvinyl
alcohol. Interventional radiologists are also currently using chemoembolotherapy
to treat liver cancer. Chemoembolotherapy refers to the delivery of drugs in a
mixture that contains embolic materials to create a higher localized
concentration of the drug.
Non-embolotherapy Applications
Advances in cell biology are resulting in rapid advances in the fields of
organ repair and tissue repair, reconstruction and regeneration, which we
generally refer to as tissue engineering. These developments in tissue
engineering are targeted at persuading the body to heal itself through the
delivery of molecular signals, cells and supporting structures to the
appropriate sites in the body.
In certain conditions including stress urinary incontinence,
gastroesophageal reflux disease, urinary reflux in infants and certain skin
conditions, the normal anatomic supports are not present in the body. By
injecting fillers into the existing structures to bulk them up, referred to as
tissue bulking, the missing anatomic supports are recreated, thereby eliminating
the condition.
Tissue repair and regeneration involves the development of bioartifical
cells, tissues and supporting matrixes, which are scaffolds that hold the cells
or tissues together. These tissue scaffolds may also be developed from synthetic
polymers. Tissue scaffold products have a number of potential applications,
including cartilage and bone repair and organ replacement.
PRODUCTS
Our innovative microsphere technology evolved out of approximately 15 years
of research and development of polymer formulations used in the field of
biological separations and drug purification. In 1999, we made a strategic
decision to focus on microsphere technologies for medical applications. We
believe that our microsphere technology is a platform technology which can be
configured in several different ways to have applications as a pure embolic
material, an embolic material linked to a gene or drug, a bulking agent and a
scaffold for tissue engineering.
Passive Embolotherapy
Embosphere (R) Microspheres
Our initial product, Embosphere Microspheres, is intended for use in
passive embolotherapy to block the blood supply to hypervascularized tumors and
arteriovenous malformations. Embosphere Microspheres have been used in Europe to
treat hypervascularized tumors and arteriovenous malformations and to
presurgically control blood loss. We believe that, pending specific labeling
clearance or approval by the FDA, the principal application of the Embosphere
Microspheres will be as an alternative therapy for uterine fibroids.
Uterine fibroid embolization is a minimally invasive procedure performed by
interventional radiologists. In this procedure, microspheres are injected
through a small catheter into the blood vessels feeding the fibroid tumor,
preferentially blocking the blood supply to the fibroids, but not to the
surrounding healthy tissues. The goal of the uterine fibroid embolization
procedure is to eliminate the flow of blood to the uterine fibroid, thereby
alleviating related symptoms, while preserving normal uterine and ovarian
function.
We believe that embolotherapy is attractive relative to current therapy
alternatives for uterine fibroids, which include invasive surgical procedures,
such as hysterectomy and myomectomy, hormone therapy and "watchful waiting."
Current therapies can have significant side effects including temporary or
permanent loss of fertility, lengthy recovery periods, high costs, discomfort,
side effects and risk of recurrence of fibroids.
Although the effect of uterine artery embolization on future fertility has
not been established, we believe that uterine artery embolization has the
potential to preserve the fertility of the patient that would be lost through
hysterectomy or may be compromised by the use of current therapies or
technologies and to eliminate the risk of recurrence of the uterine fibroid
tumor and the complications associated with myomectomy. Most uterine artery
embolization procedures can be performed in less than one hour, with the patient
being sedated, but awake. The patient generally stays overnight in the hospital
and typically returns to everyday activities within the next few days. In
contrast, hysterectomy patients undergo general anesthesia, stay in the hospital
for four to five days and have a recovery period of up to six weeks.
Current embolotherapy using polyvinyl alcohol also has several limitations
associated with its imprecise size and shape, including less effective occlusion
of the blood supply to the tumor, inflammation and untargeted embolization
resulting in the injury of the surrounding normal tissue. Independent studies
have indicated that Embosphere Microspheres have a variety of characteristics
that may make them preferable to polyvinyl alcohol. These include:
o Perfect spherical shape / calibrated particle size. We are able to
synthesize beads with uniform sizing and a spherical shape. When beads
are irregularly shaped or sized, as is the case with polyvinyl
alcohol, clinicians find vessel targeting more difficult, and the
possibility of unwanted embolization of blood vessels away from the
site of the tumor may increase.
o Compliant and resilient properties. We have developed a soft, elastic
microsphere which has the capability to compress to up to 30 to 50
percent of its original shape. Consequently, clinicians can deliver
these beads through microcatheters. Many clinicians prefer using
microcatheters during embolization as small catheters minimize the
frequency of artery or vessel spasm during the procedure. Vessel spasm
can be of particular concern during uterine artery embolization as it
can disrupt the flow of blood. Clinicians rely on blood flow during
embolization to direct the microspheres to the vessel targeted for
occlusion.
o Hydrophilic properties. Based on the choice of materials used to
manufacture microspheres, our products are hydrophilic, which means
that they absorb moisture. This characteristic is important in that it
prevents the microspheres from clumping in the catheter and the artery
during the procedure.
o Non-biodegradability. Our microspheres are composed of a synthetic
three-component polymer which is compatible with the human body. This
polymer does not dissolve in any solvent, is non-biodegradable and
resistant to absorption or digestion by the body. We believe,
therefore, that our Embosphere Microspheres are an appropriate agent
for permanent vessel occlusion.
o Cell adhesion. Our Embosphere Microspheres are crosslinked with a cell
adhesion promoter composed of gelatin. This material promotes cell
adhesion, resulting in a more rapid, stable and complete occlusion of
the vessel.
o Charged surface property. Our microspheres are positively charged,
enabling them to attach to the negatively-charged blood vessel wall.
This attachment to the vessel wall minimizes the potential for the
microspheres to migrate to non-targeted vessels.
Embosphere Microspheres are currently available in a range of product
sizes, from 40 to 1,200 microns, based on current customer requirements and
targeted applications. They are designed to precisely fit the blood vessels,
resulting in targeted and controlled occlusion. They can be used with existing,
commercially available catheters and delivery systems. We anticipate that
subsequent generations of Embosphere Microspheres will incorporate new product
characteristics, such as improved cell adhesion properties and an improved
ability for the physician to visualize the product on x-rays during
administration.
We received CE Mark approval of our Embosphere Microspheres in the European
Union in 1997 and more recently received marketing approval in Australia and
Canada. In April 2000, we received marketing clearance from the FDA for our
Embosphere Microspheres, through a 510(k) notification for hypervascularized
tumors and arteriovenous malformations. The 510(k) clearance does not include
specific labeling for treating uterine fibroids. We are conducting clinical
trials under an investigation device exemption to support an application for
clearance or approval from the FDA for this specific indication.
HepaSphere SAP (TM) Microspheres
Through our wholly owned subsidiary, Biosphere Medical Japan, Inc., we are
developing HepaSphere SAP Microspheres, which are expandable microspheres for
injection via catheter into the blood vessels feeding the liver cancer tumor.
Once at the tumor site, they are designed to expand by absorbing water from the
blood and effectively plug the blood supply to the tumor. Targeted liver
embolotherapy, referred to as (TLE) is intended to starve the liver tumor,
without damaging the surrounding tissues or causing any adverse side effects on
other parts of the body, such as those associated with chemotherapy and
radiation.
Over 100 primary liver cancer patients have been treated to date with
HepaSphere SAP Microspheres on an investigational basis in Japan. In
September 1999, we obtained a worldwide exclusive license to HepaSphere SAP
Microspheres from its Japanese inventor. We plan to apply to the Japanese
Ministry of Health and Welfare for marketing approval within the next 24 months.
Active Embolotherapy
Viasphere (TM) Microspheres
We are conducting research on our Viasphere Microspheres, which will be
precisely-sized highly hydrophilic microspheres to which are attached genetic
materials or drugs. We are developing these microspheres to be injected into the
blood vessels feeding the tumor. We expect that once the flow of blood to the
tumor has been occluded, Viasphere Microspheres will start delivering
concentrated genes or drugs into the tumor.
We believe that our Viasphere Microspheres may have several advantages over
current gene therapy or drug delivery products, including the following:
o Direct Delivery to Tumor: Our Viasphere Microspheres will be designed
to deliver the drug or gene therapy product directly to the tumor,
avoiding the potential side effects associated with high levels of
circulating drugs or genes after an intravenous infusion through the
blood vessel system. Direct delivery should permit the use of higher,
potentially more effective, dosages of the product.
o Non-Viral: By using our Viasphere Microspheres, the physician may be
able to avoid the risk associated with viruses which are currently
used in the delivery of drug or gene therapy products to increase the
likelihood of killing the cancer cells.
We are currently conducting early-stage research on the development of our
Viasphere Microspheres.
Other Embolization Products
In addition, we intend to seek to develop and commercialize other
embolization products that include:
o delivery systems for embolic materials, such as specialty catheters
and guidewires,
o procedure-enhancing technologies that are designed to improve the
uniformity of microsphere dispersion during injection, reduce
radiation exposure and optimize efficiency of procedure time and
implanted material, and
o additional embolic materials such as innovative coils, embolics that
solidify upon injection and resorbable embolics to treat aneurysms and
large arteriovenous malformations, as well as for specific tumors
based upon their type or location.
Non-Embolothereapy Technologies
MatrX (TM) Microspheres
Our MatrX Microspheres product, currently under preclinical development,
will include highly hydrophilic synthetic microspheres that will be designed to
cause tissue bulking as a means to provide anatomic support in disease
conditions where this support is missing. MatrX Microspheres preparations will
be designed to be easily injectable yet large enough to avoid digestion by the
body. Once injected, we anticipate that the microsphere matrix will be rapidly
populated by surrounding cells and provide a stable, mechanically resistant
tissue bulking effect. Potential applications of MatrX Microspheres preparations
for tissue bulking include:
o Stress Urinary Incontinence: Approximately four million adults in the
U.S. suffer from stress urinary incontinence, which is the involuntary
loss of urine during coughing, laughing, sneezing, jogging, or any
other activity which causes a sufficient increase in pressure within
the abdomen. Stress urinary incontinence is currently treated in a
variety of ways, but the majority of patients are managed with
techniques that treat the symptoms, but do not restore urinary
continence. Most curative approaches to the treatment of urinary
incontinence require significant surgical interventions.
Tissue bulking agents are either biologically derived or synthetic and
are designed to be injected in or near the bladder neck to increase
tissue bulk. While bulking procedures are gaining acceptance,
biologically-derived bulking agents are typically absorbed by the
body, requiring retreatment. Other limitations include migration of
the synthetic agents to other non-affected parts of the body causing
adverse health effects, incompatibility of the synthetic agents with
the human body, and difficulty in injecting the agents into the walls
of the urethra. Accordingly, current available therapies provide only
limited benefit in the treatment of stress urinary incontinence.
We are currently developing our MatrX Microspheres tissue bulking
product, which is designed to be injected into the urethral wall to
reduce or eliminate the incidence of urinary incontinence. We are
conducting preclinical research on the application of our MatrX
Microspheres tissue bulking product for stress urinary incontinence.
o Vesicoureteral Reflux: Vesicoureteral reflux is a condition in which
urine may backflow from the bladder through the ureter and into the
kidneys. This condition affects over one percent of newborn children.
MatrX Microspheres would be used to bulk the area of tissue at the
junction of the ureter and bladder to increase backflow resistance.
o Gastroesophageal Reflux Disease: In many cases, gastroesophageal
reflux disease is attributable to decreased tone of the lower
esophageal muscle tissue or to a congenitally small band of muscle
tissue. We are conducting research relating to the use of our MatrX
Microspheres tissue bulking product under development to be injected
into the muscle tissue to improve its function.
GenS2 (TM) Microspheres Injectable Tissue Scaffold
We are seeking to design our GenS2 Microspheres injectable tissue scaffold
product, which is in the research phase, for such applications as cartilage
repair and other tissue or organ replacement. Several companies are developing
and marketing bioartifical cells, tissues and supporting scaffoldings which hold
the cells or tissues together. However, the existing tissue scaffoldings are
either difficult to inject into the body, are digested by the body over time, or
do not adequately merge into the original tissue. In addition, most procedures
still require surgery to place the bioartifical tissues.
We believe that our microsphere technology can be formulated into
injectable microsphere scaffolds, which we call GenS2 Microspheres, which may
overcome many of the limitations of tissue scaffolds currently commercially
available. We are designing this product to adhere to cells and to be small
enough to be injected, yet large enough after injection to avoid digestion.
Other Non-Strategic Products
In addition to our Embosphere Microspheres products, we sell barium and
other ancillary products. Barium is purchased from Guerbet Medical, Inc. and
resold for use in gastro-intestinal medical tests. We sell other ancillary
devices as complementary medical products for hospital and physician use. We
generated a significant portion of our revenue in 2000 from these non-strategic
products. We do not expect these products to be a significant component of our
future sales.
MARKETING AND SALES
We currently market our embolotherapy products through direct sales efforts
in the United States and Canada and through a combination of direct sales,
distributors, field representatives and direct marketing support in the European
Union and other parts of the world. We are in the process of expanding our sales
and marketing management team in the European Union, the United States and
Japan.
We plan to attend major medical conventions pertaining to our targeted
markets and invest in market development, including physician training and
patient outreach. We are working closely with major academic centers to serve as
centers for excellence for physician training, product evaluation and ongoing
research. Many members of our Medical Advisory Board are associated with these
major academic centers.
RESEARCH AND DEVELOPMENT
Our research and development group consists of direct employees and
consultants. In addition, we have several development agreements with outside
product development contractors and study agreements with several medical
centers.
Our research and development group is focusing on developing our product
technology in three areas:
o continuous improvement of our core technology,
o new embolotherapy materials and platforms,
o complementary embolotherapy products, and
o new initiatives aimed at leveraging our core technology in new market
areas.
Our core technologies include patented and proprietary microsphere
technologies, licenses in the medical field for patented organic and inorganic
polymer and surface chemistries for microsphere design and development, a
license in the medical field for non-viral DNA transfection technology, and
expertise and know-how in microsphere manufacturing.
During the fiscal years ended December 31, 2000, 1999 and 1998, we spent
approximately $2,517,000, $968,000 and $34,000, respectively, on our research
and development efforts. We expect our research and development expenses to
increase in the future as we seek to increase our research and development staff
and related facilities, enhance our existing products and develop additional
products.
COMPETITION
Passive Embolotherapy
The primary competitive embolotherapy product sold by competitors is
polyvinyl alcohol, or PVA, a product introduced into the market more than 20
years ago. We encounter, and expect to continue to encounter, competition in the
sale of our current and future passive embolotherapy products. Our principal
competitors in the field of embolotherapy are Boston Scientific Corporation,
Johnson & Johnson, and Cook, as well as companies selling or developing
non-embolotherapy solutions for the disease states targeted by us. These
competitors have, and our future competitors are likely to have, greater
financial, operational, sales and marketing resources and more experience in
research and development than we have. We compete primarily on the basis of
product performance, ease of use, degree of embolization control, and quality of
patient outcomes. Our future success will depend in large part on our ability to
gain market leadership at the early stage of the development and acceptance of
new procedures, and our ability to continue to develop and bring to market
differentiated products enhancing embolotherapy.
Active Embolotherapy
Although we are not aware of any company selling or marketing active
embolotherapy products, we expect to encounter competition in the future sale of
any active embolotherapy products. We expect that our future competitors in this
area may have greater financial, operational, sales and marketing resources and
more experience in research and development than we have. In addition, we expect
to compete with companies which are developing and marketing other anticancer
therapies and gene therapy drugs. These competitors include several large
pharmaceutical companies. We believe that the principal competitive factors in
the active embolotherapy market will include the ability to deliver a highly
concentrated dose of gene or drug to the tumor without effects on other parts of
the body, product designs facilitating a minimally invasive outpatient
procedure, and a sales and marketing organization which is able to support
interventional radiologists.
Tissue Engineering
In the field of tissue engineering, we believe that competition will come
from companies that are currently developing and marketing tissue bulking and
tissue repair and regeneration products. We believe our principal competitors in
the field of tissue engineering are companies such as Medtronic and Johnson &
Johnson. These competitors have, and our future competitors are likely to have,
greater financial, operational, sales and marketing resources and more
experience in research and development than we have. We believe that the
principal competitive factors in the tissue engineering market will be the
ability to obtain durable effects while reducing the invasiveness of the
procedure.
GOVERNMENT REGULATION
FDA Regulation. The FDA, and other federal, state, local, and foreign
authorities, regulates our products and manufacturing activities. Pursuant to
the Federal Food, Drug, and Cosmetic Act and the regulations promulgated
thereunder, the FDA regulates the development, clinical testing, manufacture,
packaging, labeling, storage, distribution and promotion of medical devices.
Before a new device can be introduced into the market, the manufacturer must
generally obtain marketing clearance through a 510(k) notification or approval
through a premarket approval application, or PMA. We generally will be required
to obtain 510(k) clearance or premarket approval prior to commercial
distribution of future products or future applications of current products. Our
proposed active embolotherapy products will likely be regulated as combination
products, meaning they could be subject to regulation as drugs or biological
products, which may involve more extensive clinical testing and rigorous
premarket approval beyond that required for our microspheres and ancillary
products, and other proposed products.
Classification of Medical Devices. In the United States, medical devices
intended for human use are classified into three categories, Class I, II, or
III, on the basis of the controls deemed reasonably necessary by the FDA to
assure their safety and effectiveness. Class I devices are subject to general
controls, for example, labeling, premarket notification under Section 510(k),
unless exempt, and adherence to the FDA's Good Manufacturing Practice
regulations. Class II devices are subject to general and special controls, for
example, performance standards, postmarket surveillance, patient registries, and
FDA guidelines. Class III is the most stringent regulatory category for medical
devices. Class III devices are those which are subject to premarket approval
requirements and are intended to require, or must require, an FDA approval of
their safety and effectiveness prior to marketing. Class III devices include,
for example, devices which are life-sustaining, life-supporting or implantable
devices, or new devices which have not been found substantially equivalent to
legally marketed devices.
510(k) Clearance. The FDA will clear a device under section 510(k) if the
submitted information establishes that the proposed device is substantially
equivalent to a legally marketed Class I or II medical device, or to a Class III
medical device for which the FDA has not yet called for a PMA. Commercial
distribution can begin only after the FDA issues an order that the device is
substantially equivalent to a device that is legally marketed and not subject to
a premarket approval requirement. The FDA may determine that a proposed device
is not substantially equivalent to a legally marketed device, in which case a
premarket approval will be required to market the device, unless additional
information can be submitted to support a substantial equivalence determination,
or the FDA, pursuant to a request from a timely 510(k) submitter, makes a
risk-based determination that a not-substantially-equivalent device can be
classified into Class I or II. An FDA request for additional data could require
that clinical studies of the device's safety and effectiveness be performed. In
April, 2000, we received 510(k) clearance to market Embosphere Microspheres for
embolization of hypervascularized tumors and arteriovenous malformations, Our
embolotherapy device is classified into Class III by the FDA, which means that
even though we obtained 510(k) clearance to market the device, the FDA could
promulgate a regulation requiring premarket approval of the device to allow it
to remain on the market. A requirement for premarket approval will likely
require us to continue costly clinical trials and there is no guarantee that we
can provide the FDA sufficient data for premarket approval in a timely fashion,
if at all. Failure to obtain premarket approval would result in removal of our
product from the United States market.
Premarket Approval. A premarket approval application must be filed and
approved before a device can be marketed if a proposed device is not
substantially equivalent to a legally marketed device or, as discussed above, if
it is a pre-amendments Class III device, i.e., a device in commercial
distribution prior to May 28, 1976, for which the FDA has called for premarket
approvals. A premarket approval application must be supported by valid
scientific evidence, which typically includes extensive data, including
preclinical and clinical trial data, to demonstrate the safety and
effectiveness of the device. Obtaining approval can take several years and
approval may be conditioned on, among other things, substantial restrictions on
indications for use and the conduct of postmarket surveillance studies.
Notwithstanding the 510(k) and premarket approval pathways to the marketplace,
if human clinical trials of a device are required, and the device presents a
"significant risk," the sponsor, usually the manufacturer or the distributor of
a device, must obtain FDA approval of an investigational device exemption
application prior to commencing human clinical trials. Sponsors of clinical
trials are permitted to charge for devices distributed in the course of a study
provided such charges do not exceed recovery of the costs of manufacture,
research, development and handling, but devices may not be commercialized, i.e.,
promoted as safe or effective, sold for profit or used beyond legitimate
research needs.
On October 4, 1999, the Obstetrics and Gynecology Devices Panel of the
Medical Devices Advisory Committee met to discuss requirements for clinical
studies to support submissions for clearances or approvals for products for
uterine artery embolization and other products used in the treatment of uterine
fibroids. The FDA has not formally classified the use of embolic particles for
this indication and may decide to require a PMA or, alternatively, may allow
commercial clearance via a 510(k) notice together with clinical support that
substantiates product safety and efficacy. We have received an investigational
devices exemption, or IDE, which allows us to commence a clinical study to
investigate the safety and feasibility of the Embosphere Microspheres for
uterine artery embolization. IDE trials are subject to extensive regulation, and
may be placed on hold or terminated by the FDA if, among other reasons, there is
reason to believe the risks do not outweigh the anticipated benefits. The IDE
process may take many years. The Phase II authorizes us to enroll 100 patients
in the study arm involving uterine artery embolization at as many as seven
clinical sites.
Changes in Approved Devices. Device manufacturers must obtain new FDA
510(k) clearance when there is a major change or modification in the intended
use of a legally marketed device or a change or modification, including product
enhancements, and, in some case, manufacturing changes, to a legally marketed
device that could significantly affect its safety or effectiveness. Supplements
for approved premarket approval devices are required for device changes,
including some manufacturing changes, that affect safety or effectiveness. For
devices marketed pursuant to 510(k) determinations of substantial equivalence,
we must obtain FDA clearance of a new 510(k) notification prior to marketing the
modified device; for devices marketed with premarket approval, we must obtain
FDA approval of a supplement to the premarket approval prior to marketing the
modified device.
Good Manufacturing Practices and Reporting. The Federal Food, Drug, and
Cosmetic Act requires us to comply with Good Manufacturing Practices or Quality
Systems regulations. We must comply with various quality control requirements
pertaining to all aspects of our product design and manufacturing process
including requirements for packaging, labeling and record keeping, including
complaint files. The FDA enforces these requirements through periodic
inspections of medical device manufacturing facilities. In addition, the Medical
Device Reporting regulation obligates us to inform the FDA whenever information
reasonably suggests that one of our devices may have caused or contributed to
death or serious injury, or when one of our devices malfunctions and, if the
malfunction were to recur, the device would be likely to cause or contribute to
a death or a serious injury.
Labeling and Advertising. Labeling and promotional activities are also
subject to scrutiny by the FDA. Among other things, labeling is violative of the
law if it is false or misleading in any respect or it fails to contain adequate
directions for use. Moreover, any labeling claims that exceed the
representations either approved or cleared by the FDA will violate the Federal
Food, Drug, and Cosmetic Act.
Our product advertising is also subject to regulation by the Federal Trade
Commission under the Federal Trade Commission Act, which prohibits unfair
methods of competition and unfair or deceptive acts or practices in or affecting
commerce, as well as unfair or deceptive practices such as the dissemination of
any false advertisement pertaining to medical devices. Under the Federal Trade
Commission's substantiation doctrine, an advertiser is required to have a
reasonable basis for all product claims at the time the claims are first used in
advertising or other promotions.
Import Requirements. Imported products must meet the same marketing
standards as domestic goods. The only exception is a product imported for
export. In this case, a product that would otherwise be refused entry can be
imported under certain conditions; specifically, the importer must declare that
the item is intended for incorporation or further processing by the initial
owner or consignee into a device that will be exported. The initial consignee or
owner must maintain records identifying the use of the article, and submit a
report regarding its disposition upon agency request. If an article is not
incorporated or further processed into a device, it must be destroyed or
exported.
To import a device, the importer must file an entry notice and bond with
the U.S. Customs Department pending an FDA decision on the product's
admissibility. All devices are subject to FDA examination before release from
Customs. Any article that appears to be in violation of the Federal Food, Drug,
and Cosmetic Act will be refused admission and a notice of detention and hearing
will be issued. A product also can be detained without physical examination if
the product has a past history or other information indicates that it may be
violative. Foreign firms must register and list before their products may be
imported, and a device must have received 510(k) clearance or be subject to an
approved premaket approval application if required.
Export Requirements. Products for export from Europe and from the United
States are subject to foreign countries' import requirements and the FDA's or
European regulating bodies' exporting requirements. The introduction of our
products in foreign markets may subject them to foreign regulatory clearances,
which may impose additional product standards, packaging and labeling
requirements and import restrictions on devices. Regulatory requirements to
market devices vary from country to country. In addition, each country has its
own tariff regulations, duties, and tax requirements.
In addition to the import requirements of foreign countries, we must also
comply with the United States laws governing the export of products regulated by
the FDA. Devices that have obtained 510(k) clearance or premarket approval and
comply with the law in all other respects may be exported without further FDA
authorization. However, foreign countries often require, among other things, an
FDA certificate for products for export. To obtain this certificate, the device
manufacturer must certify to the FDA that the product has been granted clearance
or approval in the United States and that the manufacturing facilities appeared
to be in compliance with Good Manufacturing Practices regulations at the time of
the last FDA inspection.
Under the FDA Export Reform and Enhancement Act of 1996, an unapproved
Class III device, a device subject to an investigational device exemption, or a
banned device may be exported to any country if the product complies with the
laws of that country and has valid marketing authorization in one of the
following countries or authorities: Australia, Canada, Israel, Japan, New
Zealand, Switzerland, South Africa, the European Union, or a country in the
European Economic Community, or EEC, if the device is marketed in an EEC country
or authorized for general marketing in the EEC. The FDA is authorized to add
countries to this list in the future. Further, a device may be exported under
this provision only if, among other things, it is not adulterated, accords to
the specifications of the foreign purchaser, complies with the laws of the
importing country, is labeled for export, is manufactured in substantial
compliance with Good Manufacturing Practices regulations or recognized
international standards, is not sold in the United States, and meets other
conditions.
Another pathway to export an unapproved Class III device for which a
premarket approval would be required to market the product in the United States
is to satisfy the following requirements:
o the device accords to the specifications of the foreign purchaser,
o the device is not in conflict with the laws of the country to which it
is intended for export,
o the device is labeled that it is intended for export,
o the device is not sold or offered for sale in domestic commerce, and
o the FDA determines that the exportation of the device is not contrary
to the public health and has the approval of the country to which it
is intended for export. Compliance with these requirements will permit
export to countries where marketing authorization from a listed
country or authority is not obtained.
Fines and Penalties for Noncompliance. Our failure to comply with
applicable FDA regulatory requirements could result in, among other things,
premarket approval withdrawal, rescission of a 510(k) clearance, injunctions,
product withdrawals, voluntary or mandatory patient/physician notifications,
recalls, product seizures, civil penalties, fines and criminal prosecutions. In
addition, the Federal Trade Commission has a variety of processes and remedies
available to it for enforcement, both administratively and judicially, including
compulsory process, cease and desist orders and injunctions. Federal Trade
Commission enforcement can result in orders requiring, among other things,
limits on advertising, corrective advertising, consumer redress, divestiture of
assets, rescission of contracts and such other relief as may be deemed
necessary. Violation of such orders could result in substantial financial or
other penalties. Any such action by the FDA or the Federal Trade Commission
could materially adversely affect our ability to successfully market our
products.
Medical device laws are also in effect in many countries outside of the
United States. These range from comprehensive device approval requirements for
some or all of our medical device products to simpler requests for product data
or certification. The number and scope of these requirements are increasing.
Sales of medical devices in the European Union are subject to the European
Medical Device Directive. This directive contains requirements for quality
system and product performance guidelines to which all manufacturers must
comply. These guidelines contain quality system guidelines and preproduction
product design verification that closely resemble current FDA guidelines. In
1997, we obtained ISO 9002/EN46001 international quality systems registration, a
certification showing that our procedures and manufacturing facilities comply
with standards for quality assurance and manufacturing process control. Our
compliance with this registration has been confirmed since 1997 in semi-annual
surveillance audits. The ISO 9002 certification, along with the EN 46001, the
European Medical Device Directive certification, signifies compliance with the
requirements enabling us to affix the CE Mark to our Embosphere Microsphere
product. The CE Mark denotes conformity with European standards for safety and
allows certified devices to be placed on the market in all European Union
countries. After June 1998, medical devices may not be sold in European Union
countries unless they display the CE Mark.
Failure to comply with applicable federal, state and foreign medical device
laws and regulations would likely have a material adverse effect on our
business. In addition, federal, state and foreign regulations regarding the
manufacture and sale of medical devices are subject to future changes. We cannot
predict what impact, if any, such changes might have on our business, but such
change could have a material impact.
We are subject to various federal, state and local laws and regulations
relating to the protection of the environment. In the course of our business, we
are involved in the handling, storage and disposal of certain chemicals. The
laws and regulations applicable to our operations include provisions that
regulate the discharge of materials into the environment. Usually these
environmental laws and regulations impose "strict liability," rendering a person
liable without regard to negligence or fault on the part of such person. Such
environmental laws and regulations may expose us to liability for the conduct
of, or conditions caused by, others, or for acts that were in compliance with
all applicable laws at the time the checks were performed. We do not believe
that we have been required to expend material amounts in connection with our
efforts to comply with environmental requirements or that compliance with such
requirements will have a material adverse effect upon our capital expenditures,
results of operations or competitive position. Because the requirements imposed
by such laws and regulations are frequently changed, we are unable to predict
the cost of compliance with such requirements in the future, or the effect of
such laws on our capital expenditures, results of operations or competitive
position.
PROPRIETARY TECHNOLOGY AND PATENT RIGHTS
To establish and protect our proprietary technologies and products, we rely
on a combination of patent, copyright, trademark and trade secrets laws, as well
as confidentiality provisions in our contracts. We have implemented a patent
strategy designed to maximize our intellectual property rights. We are pursuing
patent coverage in the United States and foreign countries to protect the
technology, inventions and improvements that we consider important to the
development of our products and business.
In connection with our acquisition of a 51% interest in Biosphere Medical
S.A., in April 1999 we assigned to Biosphere Medical S.A. our interest in
several United States and foreign patents and patent applications, including two
United States patents relating to microspheres, which we jointly owned with
L'Assistance Publique-Hopitaux De Paris, referred to as AP-HP. In January 1998,
we entered into an agreement with AP-HP pursuant to which AP-HP has granted us
the exclusive right to use the jointly-owned patents. These rights have since
been assigned to BioSphere Medical S.A. In return, Biosphere Medical S.A. is
required to pay to AP-HP a royalty on the sale of any products which incorporate
Embosphere Microspheres which are covered by the patents. Biosphere Medical S.A.
may sublicense its exclusive rights under the agreement with the prior written
consent of AP-HP, which cannot be unreasonably withheld. The rights granted to
Biosphere Medical S.A. under the contract are for an initial period which ends
on September 16, 2009, and are renewable on the agreement of Biosphere Medical
S.A. and AP-HP. The agreement can be terminated on three months notice by either
party if the other party does not perform one or more of its obligations under
the agreement and fails to cure its nonperformance during the notice period.
These jointly-owned patents will expire in 2014.
In addition, as part of the sale of our former core business to Life
Technologies in May 1999, we entered into a cross-license agreement with Life
Technologies. Under that agreement, Life Technologies has granted to us an
exclusive, worldwide, perpetual, royalty-free license to its technology and
patents relating to our core field of development, including any improvement to
that technology made prior to May 2004. The patents licensed to us by Life
Technologies include a United States composition-of-matter patent relating to
various compounds containing trisacryl monomer, which is used in our Embosphere
Microspheres. This patent expires in June 2001. Under the agreement, we also
granted to Life Technologies an exclusive, worldwide, perpetual, royalty-free
license to any improvements to the technology they have licensed to us which are
useful in Life Technologies' fields of development. The agreement, and all
licenses granted thereunder, can be terminated by either party on sixty day's
notice in the event of a breach of the agreement by the other party.
In 1999, we entered into an agreement with Dr. Shinichi Hori, pursuant to
which we have an exclusive royalty-bearing license to Japanese patent rights to
our HepaSphere SAP Microsphere product. These patents rights expire in 2012.
There are no United States or other international filings corresponding to this
patent.
We have filed two United States method-of-use patent applications relating
to materials and methods for active embolotherapy. In addition, in July 1999, we
entered into an agreement with the Louis Pasteur University in Strasbourg,
France and Centre National de la Recherche Scientifique pursuant to which we
received exclusive, royalty-bearing worldwide rights to two United States
patents relating to active embolotherapy technology.
We have filed three United States patent applications relating to tissue
bulking and the treatment of urinary incontinence, dermal augmentation, skin
wrinkles and gastroesophageal reflux disease. We have also filed a United States
patent application relating to materials and methods for tissue regeneration.
Our success depends to a significant degree upon our ability to develop
proprietary products and technologies and to obtain patent coverage for the
products and technologies. We intend to continue to file patent applications
covering any newly-developed products and technologies. However, as discussed
above, there can be no guarantee that any of our pending or future filed
applications will be issued as patents. There can be no guarantee that the
United States Patent and Trademark Office or some third party will not initiate
an interference proceeding involving any of our pending applications or issued
patents. Finally, there can be no guarantee that our issued patents or future
issued patents, if any, will provide adequate protection from competition, as
further discussed below.
Patents provide some degree of protection for our proprietary technology.
However, the pursuit and assertion of patent rights, particularly in areas like
medical device development, involve complex legal and factual determinations
and, therefore, are characterized by significant uncertainty. In addition, the
laws governing patentability and the scope of patent coverage continue to
evolve, particularly in life sciences. As a result, we cannot assure you that
patents will issue from any of our patent applications or from applications
licensed to us or that any of our issued patents will offer meaningful
protection. In addition, our issued patents or patents licensed to us may be
successfully challenged, invalidated, circumvented or rendered unenforceable so
that our patent rights might not create an effective competitive barrier.
Moreover, the laws of some foreign countries may not protect our proprietary
rights to the same extent as do the laws of the United States. There can be no
assurance that any patents issued to us will provide a legal basis for
establishing an exclusive market for our products or provide us with any
competitive advantages or that the patents of others will not have an adverse
effect on our ability to do business or to continue to use our technologies
freely. In view of these factors, our intellectual property positions bear some
degree of uncertainty.
For a discussion of current patent litigation proceedings, see "-Risk
Factors That May Affect Future Operating Results - Risks Relating to
Intellectual Property" and "Item 3 - Legal Proceeding." In the future, we may be
subject to additional third parties filing claims asserting that our
technologies or products infringe on their intellectual property. We cannot
predict whether third parties will assert such claims against us or our
licensees or against the licensors of technology licensed to us, or whether
those claims, including the claims made in the complaint against or filed by
with Artes Medical, will harm our business. If we are forced to defend against
such claims, including the claims within the Artes Medical complaint, whether
they are with or without any merit, whether they are resolved in favor of or
against us, our licensees or our licensors, we may face costly litigation and
diversion of management's attention and resources. As a result of such disputes,
we may have to develop at a substantial cost non-infringing technology, or enter
into licensing agreements. These agreements, if necessary, may be unavailable on
terms acceptable to us, or at all, which could seriously harm our business or
financial condition.
We also rely in part on trade secret protection of our intellectual
property. We attempt to protect our trade secrets by entering into
confidentiality agreements with third parties, employees and consultants. Our
employees also sign agreements requiring that they assign to us their interests
in inventions and original expressions and any corresponding patents and
copyrights arising from their work for us. However, it is possible that these
agreements may be breached, invalidated or rendered unenforceable and if so our
trade secrets could be disclosed to others, including our competitors, and there
may not be an adequate corrective remedy available. Despite the measures we have
taken to protect our intellectual property, we cannot assure you that parties to
our agreements will not breach the confidentiality provisions in our contracts
or infringe or misappropriate our patents, copyrights, trademarks, trade secrets
and other proprietary rights. In addition, we cannot assure you that third
parties will not independently discover or invent competing technologies or
reverse engineer our trade secrets, or other technology. Therefore, the measures
we are taking to protect our proprietary technology may not be adequate.
EMPLOYEES
As of February 28, 2001, we employed 67 persons. Of these employees, 5 are
primarily engaged in research and development activities, 18 are engaged in
manufacturing, 26 are engaged in sales and marketing, and the remainder are
engaged in finance and administration. Of these 67 persons, 31 are located in
the United States and 36 are located in France.
Our employees in the United States are not covered by a collective
bargaining agreement. In Europe, our employees are covered by the provisions of
an agreement setting forth national guidelines and standards for labor relations
within our industry. We consider our relations with our employees to be good.
RISK FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be considered to be forward-looking statements. Although not
a complete list of words that might identify forward-looking statements, we use
the words "believes," "anticipates," "plans," "expects," "intends," and similar
expressions to identify forward-looking statements. There are a number of
important factors that could cause our actual results to differ materially from
those indicated by forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in this Form 10-K. We expressly disclaim any obligation to
update or alter our forward-looking statements, whether as a result of new
information, future events or otherwise.
RISK RELATING TO OUR FUTURE PROFITABILITY
Because we have a history of losses and our future profitability is uncertain,
our common stock is a highly speculative investment
We have incurred operating losses since our inception and, as of December
31, 2000, had an accumulated deficit of approximately $44.5 million. We expect
to spend substantial funds to continue research and product testing, to
establish sales, marketing, quality control, regulatory and administrative
capabilities, and for other general corporate purposes. We expect to incur
increasing losses over the next several years as we expand our commercialization
efforts.
We may never become profitable. If we do become profitable, we may not
remain profitable on a continuing basis. Our failure to become and remain
profitable would depress the market price of our common stock and impair our
ability to raise capital and continue our operations.
RISKS RELATING TO REGULATORY MATTERS
If we do not obtain the regulatory approvals required to market and sell our
products, then our business will be unsuccessful and the market price of our
stock will substantially decline
We are subject to governmental regulation by national and local government
agencies in the United States and abroad with respect to the manufacture,
packaging, labeling, advertising, promotion, distribution and sale of our
products. For example, our products are subject to approval or clearance by the
FDA prior to marketing in the United States for commercial use. The process of
obtaining necessary regulatory approvals and clearances will be time-consuming
and expensive for us. If we do not receive required regulatory approval or
clearance to market our products, we will not be able to develop and
commercialize our products and become profitable, and the value of our common
stock will substantially decline.
We are focusing our immediate product commercialization efforts on our
Embosphere Microspheres. In April 2000, we obtained marketing clearance from the
FDA to use our Embosphere Microspheres in the United States for the embolization
of hypervascularized tumors and arteriovenous malformations. However, we will
require FDA clearance of either a premarket notification under Section 510(k) of
the Federal Food, Drug and Cosmetic Act, which we refer to as a 510(k)
notification, or approval of a premarket approval application under Section 515
of the Federal Food, Drug and Cosmetic Act, which we refer to as a premarket
approval, before we can market Embosphere Microspheres in the United States for
use in the embolization of uterine fibroids. We do not expect to receive the
required clearance for specific labeling for uterine fibroids until 2002, if at
all. In either case, the FDA will require us to undertake clinical trials, which
may be lengthy and expensive. We currently do not have regulatory approvals or
clearances to market any other product in any country, other than approvals to
market our Embosphere Microspheres in the European Union, Australia and Canada
for the treatment of arteriovenous malformations, hypervascularized tumors and
blood loss.
If the FDA or other regulatory agencies place restrictions on, or impose
additional approval requirements with respect to, products we are then
marketing, we may incur substantial additional costs and experience delays or
difficulties in continuing to market and sell these products
Even if the FDA grants to us approval or clearance with respect to any of
our products, it may place substantial restrictions on the indications for which
we may market the product or to whom we may market the product, which could
result in us achieving less sales and lower revenues. The nature of the
marketing claims we are permitted to make in labeling or advertising regarding
our Embosphere Microspheres is limited to those specified in any FDA clearance
or approval, and if the FDA determines that we have made claims beyond those
cleared or approved by the FDA, then we will be in violation of the Federal
Food, Drug, and Cosmetic Act. For example, our products are not specifically
approved for labeling for use for uterine fibroids, which is one of the uses for
which we anticipate physicians may use our products. We may not initiate
discussions with physicians about this use and, if a physician initiates the
discussion, we may only provide peer-reviewed literature.
We may in the future make modifications to our Embosphere Microspheres
which we determine do not necessitate the filing of a new 510(k) notification.
However, if the FDA does not agree with our determination, it will require us to
make additional filings for the modification, and we will be prohibited from
marketing the modified product until we obtain FDA clearance or approval, which
could delay our ability to introduce product modifications and enhancements into
the market.
Further, the FDA has classified our embolotherapy device into Class III,
which means that even though we have obtained clearance under Section 510(k) of
the Federal Food, Drug and Cosmetic Act to market the device, the FDA could in
the future promulgate a regulation requiring premarket approval of the device
under Section 515 of the Federal Food, Drug and Cosmetic Act to allow it to
remain on the market. We may experience difficulty in providing to the FDA
sufficient data for premarket approval in a timely fashion, if at all. In
addition, the FDA may require us to conduct a post market surveillance study on
our embolotherapy device, which is designed to track specific elements of
patient experience with our Embosphere Microspheres product after we have begun
marketing it. If such a study revealed an unexpected rate of adverse events, the
FDA could place further restrictions on our marketing of the device, or rescind
our clearance.
Our legally-marketed products will be subject to continuing FDA
requirements relating to quality control, quality assurance, maintenance of
records, documentation, labeling and promotion of medical devices. We are also
required to submit medical device reports to the FDA to report device-related
deaths, serious injuries and malfunctions, the recurrence of which would be
likely to cause or contribute to a death or serious injury. These reports are
publicly available and, therefore, can become a basis for private tort suits,
including class actions, with respect to our products. Any of these suits would
be costly and time-consuming and would divert our management's attention from
the continued development of our business.
If we fail to comply with regulatory laws and regulations, we will be subject to
enforcement actions, which will affect our ability to market and sell our
products and may harm our reputation
If we fail to comply with applicable federal, state or foreign laws or
regulations, we could be subject to enforcement actions, which could affect our
ability to develop, market and sell our products successfully and could harm our
reputation and lead to less acceptance of our products by the market. These
enforcement actions include:
- product seizures;
- voluntary or mandatory recalls;
- voluntary or mandatory patient or physician notification;
- withdrawal of product clearances or approvals;
- withdrawal of investigational device exemption approval;
- restrictions on, or prohibitions against, marketing our products;
- fines;
- injunctions;
- civil and criminal penalties; and
- withdrawal of premarket approval or rescission of premarket
notification clearance.
If our clinical trials are not completed successfully, we will not be able to
develop and commercialize our products
Although for planning purposes we forecast the timing of completion of
clinical trials, the actual timing can vary dramatically due to factors such as
delays, scheduling conflicts with participating clinicians and clinical
institutions, the rate of patient accruals and the uncertainties inherent in the
clinical trial process. In addition, because we have limited experience in
conducting clinical trials, we may rely on academic institutions or clinical
research organizations to conduct, supervise or monitor some or all aspects of
clinical trials involving our products. Accordingly, we have less control over
the timing and other aspects of these clinical trials than if we conducted them
entirely on our own. As a result of these factors, we or third parties may not
successfully begin or complete our clinical trials and we may not make
regulatory submissions or receive required regulatory approvals to commence or
continue our clinical trials in the time periods we have forecasted, if at all.
If we or third parties fail to commence or complete, or experience delays in,
any of our planned clinical trials, then we are likely to incur additional costs
and delays in our product development programs, which could cause our stock
price to decrease.
RISKS RELATING TO INTELLECTUAL PROPERTY
Our patent litigation with Artes Medical could be expensive and time consuming
and any adverse decisions by a court could adversely affect our ability to sell
of our microsphere products as well as require payment of monies to Artes.
On February 7, 2001, we, along with our subsidiary, BSMD Ventures, Inc.,
filed a complaint for declaratory judgment in the United States District Court
for the District of Delaware against Artes Medical USA, Inc. The complaint seeks
a declaration that United States Patent No. 5,344,452, which we refer to as the
`452 patent, which Artes claims to have the right to enforce, is invalid and not
infringed by BioSphere and BSMD Ventures. The `452 patent relates to
"..implant[s] based on a biocompatible solid in powder form, in particular a
plastic".
On February 7, 2001, Artes Medical USA filed a complaint against us in the
United States District Court for the Central District of California (Los
Angeles). The complaint claims that we are liable for infringement, inducement
of infringement, and contributory infringement of the '452 patent. Artes seeks
monetary damages as compensation for the alleged infringement and a permanent
injunction against the alleged infringing activity. Artes Medical apparently
asserts that all of our microsphere-related products, including our Embosphere
Microspheres, HepaSphere SAP Microspheres and MatrX Microspheres infringe the
'452 patent.
We can provide no assurance as to the outcome of either our complaint or
Artes Medical's complaint. Court decisions adverse to us in either action could
have a material adverse effect on our ability to successfully develop and
commercialize products based upon our microsphere technology, including our lead
product under development, Embosphere Microspheres. Moreover, we may incur
substantial expenses in pursuing our claim and/or defending against Artes
Medical's claim and, even if we prevail, these claims could divert management's
attention.
If we are unable to obtain patent protection for our discoveries, the value of
our technology and products could decline and we may not be able to develop and
commercialize our products, or the cost of doing so may increase
We may not obtain meaningful protection for our technology and products
with the patents and patent applications that we own or license relating to our
microsphere technology. In particular, our patents and patent applications may
not prevent others from designing products similar to or otherwise competitive
with our Embosphere Microspheres and other products commercialized by us. For
example, one of the three patents related to copolymers used to make our present
Embosphere Microspheres will expire in June 2001 and relates to the copolymers
that are used to make the Embosphere Microspheres. The other two patents that
relate to Embosphere Microspheres relate to materials and methods of performing
embolization. To the extent that our competitors are able to design products
competitive with ours without infringing our intellectual property rights, we
may experience less market penetration with our products and, consequently, we
will have decreased revenues.
We do not know whether competitors have similar United States patent
applications on file, since United States patent applications are secret until
issued. Consequently, the United States Patent and Trademark Office could
initiate interference proceedings involving our owned or licensed United States
patent applications or issued patents. Further, there is a substantial backlog
of patent applications at the United States Patent and Trademark Office, and the
approval or rejection of patent applications may take several years.
We have a license to technology invented by a Japanese inventor. However,
the license is limited to a single Japanese patent application. In other words,
corresponding United States and European patent applications were not filed by
this inventor. We intend to file patent applications directed to improvements of
this inventor's technology. However, patent applications may not issue as
patents, and these patents, if issued, may not provide us with sufficient
protection against competitors. Further, we may be required to obtain additional
licenses concerning the Japanese patent application and any licenses, if
obtained, may not be on terms that are acceptable to us.
If we become involved in additional expensive patent litigation or other
proceedings to enforce our patent rights, we could incur substantial costs and
expenses or substantial liability for damages or be required to stop our product
development and commercialization efforts
In addition to the above-mentioned patent complaints, in order to protect
or enforce our patent rights, we may have to initiate additional legal
proceedings against third parties, such as infringement suits or interference
proceedings. By initiating legal proceedings to enforce our intellectual
property rights, we may also provoke these third parties to assert claims
against us. Furthermore, we may be sued for infringing on the intellectual
property rights of others, and, as a result, our patents could be narrowed,
invalidated or rendered unenforceable by a court. We may find it necessary, if
threatened, to initiate a lawsuit seeking a declaration from a court regarding
the proprietary rights of others. Intellectual property litigation is costly,
and, even if we prevail, could divert management attention and resources away
from our business.
The patent position of companies like us generally is highly uncertain,
involves complex legal and factual questions, and has recently been the subject
of much litigation. We may not prevail in any patent-related proceeding. If we
do not prevail in any litigation, in addition to any damages we might have to
pay, we could be required to stop the infringing activity or obtain a license.
Any required license may not be available to us on acceptable terms, or at all.
In addition, some licenses may be nonexclusive, and therefore, our competitors
may have access to the same technology licensed to us. If we fail to obtain a
required license or are unable to design around a patent, we may be unable to
sell some of our products, which could have a material adverse affect on us.
Our majority-owned French subsidiary, Biosphere Medical S.A., jointly owns
two United States patents and corresponding foreign patents relating to
microsphere technology for use in connection with embolotherapy with
L'Assistance Publique-Hopitaux De Paris, referred to as AP-HP, a French public
health establishment. Pursuant to the terms of a related license agreement with
AP-HP, Biosphere Medical S.A. may be required to seek AP-HP's participation in
any United States legal proceedings it initiates against third parties to
protect or enforce its rights under the jointly-owned patents. If Biosphere
Medical S.A. is not able to obtain the cooperation of AP-HP in any infringement
suit against a third party, then its ability to pursue a law suit and enforce
these patent rights relating to the microspheres could be harmed, which could
have a material adverse effect on us.
If any of our licenses to use third-party technologies in our products are
terminated, we may be unable to develop, market and sell or products
We are dependent on various license agreements relating to each of our
current and proposed products that give us rights under intellectual property
rights of third parties. These licenses impose commercialization, sublicensing,
royalty, insurance and other obligations on us. Our failure, or any third
party's failure, to comply with the terms of any of these licenses could result
in us losing our rights to the license, which could result in us being unable to
develop, manufacture or sell products which contain the licensed technology.
RISKS RELATING TO OUR INDUSTRY, BUSINESS AND STRATEGY
If the market is not receptive to our Embosphere Microspheres product, our
business prospects will be seriously harmed
Our Embosphere Microspheres are based on new technologies and therapeutic
approaches and we only recently began selling our Embosphere Microspheres
product in the European Union, United States, Canada and Australia. Our success
will depend upon the medical community, patients and third party payors
accepting our Embosphere Microspheres product as clinically useful,
cost-effective and safe. In particular, our success will depend upon obstetrics
and gynecology physicians referring patients to interventional radiologists to
receive treatment using our products in lieu of, or in addition to, receiving
other forms of treatment which the obstetrics and gynecology physicians can
provide directly.
In addition, if we receive negative publicity associated with any adverse
medical effects attributed to embolization treatments generally or our product
specifically, the market may not accept our products as safe. For example,
Embosphere Microspheres are designed to remain in the body permanently. As a
result, there may be some risk that some or all of the Embosphere Microspheres
used in a medical procedure may travel in the blood system beyond the intended
site of action and occlude, or block, other blood vessels, resulting in
significant adverse health effects on the patient or even death. Moreover, to
use our Embosphere Microspheres correctly for a particular medical procedure,
physicians must select and use the proper size and quantity of Embosphere
Microspheres. A physician's selection and use of the wrong size or quantity of
Embosphere Microspheres could have significant adverse health effects on the
patient, including death. In addition, there is limited data concerning the
long-term health effects on persons resulting from embolotherapy using our
Embosphere Microspheres. If the market determines or concludes that our product
is not safe or effective for any reason, we may be exposed to product liability
claims, product recalls and fines or other penalties and associated adverse
publicity. In addition, we have provided to our customers a satisfaction
guarantee that requires us to accept the return of any inventory and credit the
entire amount of the original order if a properly-trained customer is not
satisfied with the performance of our microspheres. If we experience adverse
publicity or are subject to product liability claims, excessive guarantee
claims, recalls, fines and the like, we will be unable to commercialize
successfully our products and achieve profitability.
If we experience delays, difficulties or unanticipated costs in establishing the
sales, distribution and marketing capabilities necessary to successfully
commercialize our products, we will have difficulty maintaining and increasing
our sales
We are currently developing sales, distribution and marketing capabilities
in the United States and have only limited sales, distribution and marketing
capabilities in the European Union. It is expensive and time-consuming for us to
develop a global marketing and sales force. Moreover, we may choose or find it
necessary to enter into strategic collaborations to sell, market and distribute
our products. The terms of any collaboration may not be favorable to us. We may
not be able to provide adequate incentive to our sales force, and distribution
and marketing partners to promote our products. If we are unable to successfully
motivate and expand our marketing and sales force and further develop our sales
and marketing capabilities, or if our distributors fail to promote our products,
we will have difficulty maintaining and increasing our sales.
If we are unable to obtain adequate product liability insurance, then we may
have to pay significant monetary damages in a successful product liability claim
against us
Product liability insurance is generally expensive for medical device
companies such as ours. Although we maintain limited product liability insurance
coverage for the clinical trials of our products, it is possible that we will
not be able to obtain further product liability insurance on acceptable terms,
if at all. Insurance we subsequently obtain may not provide us with adequate
coverage against all potential claims. If we are exposed to product liability
claims for which we have insufficient insurance, we may be required to pay
significant damages which would prevent or delay our ability to commercialize
our products.
If we are not able to compete effectively, we may experience decreased demand
for our products which may result in price reductions
We have many competitors in the United States and abroad, including medical
device and therapeutics companies, universities and other private and public
research institutions. Our success depends upon our ability to develop and
maintain a competitive position in the embolotherapy market. Our key competitors
are Cordis Corporation, a Johnson & Johnson company, Boston Scientific
Corporation and Cook. These and many of our other competitors have greater
capabilities, experience and financial resources than we do. As a result, they
may develop products that compete with our Embosphere Microspheres product more
rapidly or at less cost than we can. Currently, the primary products with which
our Embosphere Microspheres compete for some of our applications are polyvinyl
alcohol, polymerizing gels and coils. In addition, our competitors may develop
technologies that render our products obsolete or otherwise noncompetitive.
We may not be able to improve our products or develop new products or
technologies quickly enough to maintain a competitive position in our market and
continue to grow our business. Moreover, we may not be able to compete
effectively, and competitive pressures may result in less demand for our
products and impair our ability to become profitable.
If we fail to maintain, or in some instances obtain, an adequate level of
reimbursement for our products by third-party payors, there may be no
commercially viable markets for our products
The availability and levels of reimbursement by governmental and other
third party payors affects the market for any medical device. We may not be able
to sell our products profitably if reimbursement is unavailable or limited in
scope or amount. Currently, only a limited number of insurance companies fully
or partially reimburse for embolization procedures. These third-party payors
continually attempt to contain or reduce the costs of healthcare by challenging
the prices that companies such as ours charge for medical products. In some
foreign countries, particularly the countries of the European Union where our
Embosphere Microspheres product is currently marketed and sold, the pricing of
medical devices is subject to governmental control and the prices charged for
our products have in some instances been reduced as a result of these controls.
Additionally, in both the United States and some foreign jurisdictions, there
have been a number of legislative and regulatory proposals to change the
healthcare system. Further proposals are likely. These proposals, if adopted,
could result in less sales revenue to us, and could affect our ability to raise
capital and market our products.
If we do not retain our senior management and other key employees, we may not be
able to successfully implement our business strategy
The loss of Jean-Marie Vogel, our Chairman, John M. Carnuccio, our
President and Chief Executive Officer, Jonathan McGrath, our Vice President,
Worldwide Research and Development, or other key members of our staff could harm
us. We also depend on our scientific collaborators and advisors, all of whom
have other commitments that may limit their availability to us. Our success is
substantially dependent on the ability, experience and performance of these
members of our senior management and other key employees, scientific
collaborators and advisors. Because of their ability and experience, if we lose
one or more of these individuals, our ability to implement successfully our
business strategy could be seriously harmed.
If we do not attract and retain skilled personnel, we will not be able to expand
our business
Our future success will depend in large part upon our ability to attract
and retain highly skilled scientific, operational, managerial and marketing
personnel, particularly as we expand our activities in clinical trials, the
regulatory approval process and sales and manufacturing. We face significant
competition for these types of persons from other companies, research and
academic institutions, government entities and other organizations.
Consequently, if we are unable to attract and retain skilled personnel, we will
not be able to expand our business.
If the strategic redirection of our business is not successful, we may be unable
to achieve growth in our business
In early 1999, we decided to exit the chromatography business, which had
constituted our core business, to focus on the commercialization of microspheres
for use in embolotherapy and other medical applications. We have restated our
historical financial statements to reflect the discontinuation of our
chromatography business. In addition, 73% of 1999 revenue and 49% of 2000
revenue included in our consolidated financial statements was derived from the
sale of products we consider to be nonstrategic and which we do not expect to
constitute a significant portion of our revenue on an ongoing basis. Our
strategic shift from the chromatography business to the commercialization of
microspheres may not prove to be successful and, consequently, we may be unable
to grow our business and achieve profitability.
If we make any acquisitions, we will incur a variety of costs and may never
successfully integrate the acquired business into ours
We may attempt to acquire businesses, technologies, services or products
that we believe are a strategic compliment to our business model. We may
encounter operating difficulties and expenditures relating to integrating an
acquired business, technology, service or product. These acquisitions may also
absorb significant management attention that would otherwise be available for
ongoing development of our business. Moreover, we may never realize the
anticipated benefits of any acquisition. We may also make dilutive issuances of
equity securities, incur debt or experience a decrease in the cash available for
our operations, or incur contingent liabilities and/or amortization expenses
related to goodwill and other intangible assets, in connection with any future
acquisitions.
If we are compelled to acquire the remaining interest in Biosphere Medical S.A.,
we may be required to incur indebtedness, or make a significant cash payment,
which may result in a decrease in available cash for our operations
We currently own 85% of the outstanding capital stock of Biosphere Medical
S.A. We have the right to acquire the remaining 15% of Biosphere Medical S.A. in
2004. The purchase price that we are required to pay is equal to the product of
the percentage interest to be purchased and the sum of BMSA's rolling average
twelve-month sales and worldwide Embosphere Microsphere sales as of the date of
exercise. Moreover, the holder of the remaining 15% interest has the option to
require the Company to purchase the remaining 15% interest from December 31,
2003 until December 31, 2004 for an amount equal to the greater of an agreed
upon price (in French Francs) for each percentage interest to be sold or the
amount payable adjusted to a rolling nine-month sales average under the purchase
option. In any event, the price that we are required to pay if the minority
holder exercises its put option shall not be less than FF 551,020 (approximately
$79,000 as of December 31, 2000). If we are compelled by the minority
stockholder to acquire the minority interest at a future date, we could be
required to make a significant payment, which could result in us incurring debt
or a decrease in the cash available to us for our operations.
RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING
We will continue to need substantial additional funds, and if additional capital
is not available, we may have to limit, scale back or cease our operations
We will need to raise additional funds to develop and commercialize our
products successfully. If we cannot raise more funds, we could be required to
reduce our capital expenditures, scale back our product development, reduce our
workforce and license to others products or technologies that we otherwise would
seek to commercialize ourselves. We may not receive additional funding on
reasonable terms or at all. Other than a $2.0 million credit line with a bank,
we have no committed source of capital. Sepracor is the guarantor of this credit
line. We have entered into a security agreement with Sepracor pursuant to which
we have pledged to Sepracor all of our U.S. assets, including our equity
interest in Biosphere Medical S.A., as collateral for Sepracor's guarantee to
the bank. We are likely to raise more money for working capital purposes by
selling additional capital stock, which is a common strategy for companies such
as ours. Any sales of additional shares of our capital stock are likely to
dilute our existing stockholders. Further, if we issue additional equity
securities, the new equity securities may have rights, preferences or privileges
senior to those of existing holders of our common stock. Alternatively, we may
borrow money from commercial lenders, possibly at high interest rates, which
will increase the risk of your investment in us.
If operating results fluctuate significantly from quarter to quarter, then our
stock price may decline
Our operating results could fluctuate significantly from quarter to
quarter. These fluctuations may be due to several factors including the timing
and volume of customer orders for our Embosphere Microspheres, customer
cancellations and general economic conditions. We also expect that our operating
results will be affected by seasonality, since we expect our revenues to decline
substantially in the third quarter of each year from the first two quarters of
each year because we do a significant percentage of our business in the European
Union, which typically experiences a slowdown of business during August. Due to
these fluctuations, our operating results in some quarters may not meet the
expectations of stock market analysts and investors. In that case, our stock
price would probably decline.
In addition, a large portion of our expenses, including expenses for
facilities, equipment and personnel, are relatively fixed. Accordingly, if our
revenue declines or does not grow as much as we anticipate, we might not be able
to improve our operating margins. In addition, we plan to significantly increase
operating expenses in the next several years. Failure to achieve anticipated
levels of revenue could therefore significantly harm our operating results for a
particular fiscal period.
RISKS RELATING TO THE PRODUCTION AND SUPPLY OF OUR PRODUCTS
If we experience manufacturing delays or interruptions in production then we may
experience customer dissatisfaction and our reputation could suffer
If we fail to produce enough products at our own manufacturing facility or
at a third-party manufacturing facility, we may be unable to deliver products to
our customers on a timely basis, which could lead to customer dissatisfaction
and could harm our reputation and ability to compete. We currently produce all
of our Embosphere Microspheres products in one manufacturing facility in France.
We would likely experience significant delays or cessation in producing our
products at this facility if a labor strike, natural disaster, local or regional
conflict or other supply disruption were to occur. If we are unable to
manufacture our products at our facility in France, we may be required to enter
into arrangements with one or more contract manufacturing companies. We have
contingency plans to establish manufacturing in the United States in place but,
we could encounter delays or difficulties establishing relationships with
contract manufacturers or in establishing agreements on terms that are favorable
to us. In addition, if we are required to depend on third-party manufacturers,
our profit margins may be lower, which will make it more difficult for us to
achieve profitability.
Also, manufacturers, including us, must adhere to the FDA's current Good
Manufacturing Practices regulations, which are enforced by the FDA through its
facilities inspection program. Third-party manufacturers may not be able to
comply or maintain compliance with Good Manufacturing Practices regulations. If
third parties fail to comply, their non-compliance could significantly delay our
receipt of 510(k) clearance or premarket approval. For a premarket approval
device, if we change our manufacturing facility or switch to a third-party
manufacturer we will be required to submit a premarket approval application
supplement. For a 510(k) product, a change in our manufacturing location would
require us to change our registration with the FDA.
Because we rely on a limited number of suppliers, we may experience difficulty
in meeting our customers' demands for our products in a timely manner or within
budget
We currently purchase key components of our Embosphere Microspheres from
approximately 16 outside sources. Some of these components may only be available
to us through a few sources. We generally do not have long-term agreements with
any of our suppliers.
Our reliance on our suppliers exposes us to risks, including:
- the possibility that one or more of our suppliers could terminate
their services at any time without penalty;
- the potential inability of our suppliers to obtain required
components;
- the potential delays and expenses of seeking alternative sources of
supply;
- reduced control over pricing, quality and timely delivery due to the
difficulties in switching to alternative suppliers; and
- the possibility that one or more of our suppliers could fail to
satisfy any of the FDA's required current Good Manufacturing Practices
regulations.
Consequently, in the event that our suppliers delay or interrupt the supply
of components for any reason, our ability to produce and supply our products
could be impaired, which could lead to customer dissatisfaction.
RISKS RELATING TO OUR FOREIGN OPERATIONS
If we are unable to meet the operational, legal and financial challenges that we
will encounter in our international operations, we may not be able to grow our
business
Our operations are currently conducted primarily through our French
subsidiary. Furthermore, we currently derive a significant amount of our revenue
from the sale of our Embosphere Microspheres and other products in the European
Union. We are increasingly subject to a number of challenges which specifically
relate to our international business activities. Our international operations
may not be successful if we are unable to meet and overcome these challenges,
which would limit the growth of our business. These challenges include:
- failure of local laws to provide the same degree of protection against
infringement of our intellectual property;
- protectionist laws and business practices that favor local
competitors, which could slow our growth in international markets;
- potentially longer sales cycles to sell products, which could slow our
revenue growth from international sales; and
- potentially longer accounts receivable payment cycles and difficulties
in collecting accounts receivable.
Because we exchange foreign currency received from international sales into U.S.
dollars and are required to make foreign currency payments, we may incur losses
due to fluctuations in foreign currency translations
A significant portion our business is conducted in French francs and the
euro dollar. In 1999 and 2000, we experienced net foreign currency exchange
gains of approximately $24,000 and $21,000, respectively. We recognize foreign
currency gains or losses arising from our operations in the period incurred. As
result, currency fluctuations between the U.S. dollar and the currencies in
which we do business will cause foreign currency translation gains and losses,
which may cause fluctuations in our future operating results. We do not
currently engage in foreign exchange hedging transactions to manage our foreign
currency exposure.
RISKS RELATING TO AN INVESTMENT IN OUR COMMON STOCK
Because the market price of our stock is highly volatile, investments in us
could rapidly lose their value and we may incur significant costs from
class-action litigation
The market price of our stock is highly volatile. As a result, your
investment in us could rapidly lose its value. In addition, the stock market
often experiences extreme price and volume fluctuations, which affect the market
price of many medical device companies and which are often unrelated to the
operating performance of these companies.
Recently, when the market price of a stock has been as volatile as our
stock price has been, holders of that stock have occasionally instituted
securities class action litigation against the company that issued the stock. If
any of our stockholders were to bring a lawsuit of this type against us, even if
the lawsuit is without merit, we could incur substantial costs in defending the
lawsuit. The lawsuit could also divert the time and attention of our management.
Because Sepracor Inc. and our executive officers and directors own a majority of
our common stock, they have substantial control over us
As of December 31, 2000, Sepracor Inc., together with its affiliates,
beneficially owned, in the aggregate, approximately 55% of our outstanding
common stock. In addition, as of December 31, 2000, our executive officers and
directors beneficially owned, in the aggregate, approximately 16% of our
outstanding common stock, excluding shares owned by Sepracor which some of our
directors and executive officers may be deemed to beneficially own. Two of our
directors are executive officers of Sepracor. Sepracor and our executive
officers and directors are able to control all corporate actions requiring
stockholder approval irrespective of how our other stockholders may vote,
including:
- the election of directors;
- the amendment of charter documents;
- the approval of mergers and other significant corporate transactions,
including a sale of substantially all of our assets; and
- the defeat of any non-negotiated takeover attempt that might otherwise
benefit the public stockholders.
This ownership concentration could cause the market price of our common
stock to decline. In addition, conflicts of interest between Sepracor and us may
arise, including with respect to competitive business activities and control of
our management and our affairs.
Item 2. PROPERTIES
We currently lease office and manufacturing facilities in Rockland,
Massachusetts and Louvres, France. Our Rockland, Massachusetts office includes
approximately 13,000 square feet of corporate offices and laboratory space
pursuant to a five-year lease expiring in March of 2005. Our Louvres, France
facility includes approximately 10,000 square feet of office, laboratory and
manufacturing space and is leased through June 2001.
In December 2000, we signed a lease to occupy approximately 18,150 square
feet of manufacturing and office space at another facility in Roissy, France.
The facility is being renovated, and we expect to move all French operations to
the new facility by mid-2001. The duration of this new lease is nine years. If
needed, we have the option to continue the current Louvres, France facility
lease on a month-to-month basis until the renovations of the new facility are
complete.
We believe that our currently-leased facilities in Rockland, Massachusetts
and the space that will be available to us under our new lease in Roissy, France
are suitable to meet our current requirements and that suitable additional or
substitute space will be available to us on commercially reasonable terms, if
needed in the future.
Item 3. LEGAL PROCEEDINGS
On February 7, 2001, we, along with our subsidiary, BSMD Ventures, Inc.,
filed a complaint for declaratory judgment in the United States District Court
for the District of Delaware against Artes Medical USA, Inc. The complaint seeks
a declaration that United States Patent No. 5,344,452, which we refer to as the
`452 patent, which Artes claims to have the right to enforce, is invalid and not
infringed by BioSphere and BSMD Ventures. The `452 patent relates to
"..implant[s] based on a biocompatible solid in powder form, in particular a
plastic".
On February 7, 2001, Artes Medical USA filed a complaint against us in the
United States District Court for the Central District of California (Los
Angeles). The complaint claims that we are liable for infringement, inducement
of infringement, and contributory infringement of the '452 patent. Artes seeks
monetary damages as compensation for the alleged infringement and a permanent
injunction against the alleged infringing activity. Artes Medical apparently
asserts that all of our microsphere-related products, including our Embosphere
Microspheres, HepaSphere SAP Microspheres and MatrX Microspheres infringe the
'452 patent. We believe Artes' claims are without merit and intend to vigorously
defends these claims.
For discussions of certain risks relating to these patent litigation
matters, please see " Business - Risk Factors That May Affect Future Operating
Results - Risks Relating to Intellectual Property."
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company,
through solicitations of proxies or otherwise, during the last quarter of the
year ended December 31, 2000.
EXECUTIVE OFFICERS
The executive officers of BioSphere, their respective ages as of December
31, 2000 and their positions with BioSphere are as follows:
Name Age Position
John M. Carnuccio............... 47 Chief Executive Officer, President and
Director
Jean-Marie Vogel................ 50 Chairman and Director
Alain Brunier................... 56 President, Europe
Jonathan R. McGrath............. 46 Vice President, Worldwide Research and
Development
Robert M. Palladino............. 46 Vice President and Chief Financial
Officer
Robert T. Phelps................ 44 Vice President, U.S Sales and Business
Development
Donald Anderson................. 50 Vice President, U.S Marketing
John M. Carnuccio, age 47, has served as a director of BioSphere since June
1999. From January 1999 until May 1999, Mr. Carnuccio served as Executive Vice
President of BioSepra (renamed, BioSphere) and President of the Medical Products
Business of BioSepra (renamed BioSphere). In May 1999, he was appointed
President and Chief Executive Officer of BioSphere. From 1979 to January 1999,
Mr. Carnuccio served in a number of capacities at Boston Scientific Corporation,
a medical device company, most recently as Vice President, Market Development,
Interventional Gynecology, from April 1998 to January 1999 and as Vice President
and General Manager, Microvasive Urology Division from 1992 to April 1998.
Jean-Marie Vogel, age 50, served as President, Chief Executive Officer and
a director of BioSepra (renamed, BioSphere) from September 1994 until May 1999.
In May 1999, he was appointed Chairman. From January 1994 to September 1994, Mr.
Vogel served as Executive Vice President and Chief Operating Officer of BioSepra
(renamed BioSphere). From 1992 to 1993, Mr. Vogel served as President of the
European Operations of Cuno, Inc., a supplier of filtration processes, equipment
and devices used in the production of biological drugs and food products. From
1977 to 1992, Mr. Vogel served in various capacities with Millipore Corporation,
a manufacturer of membrane filtration-based products, in its international
operations with experience in Asia, Latin America, the former Soviet Union, the
Middle East and Australia, including as Vice President and General Manager of
Millipore's Asian operations. Mr. Vogel is a French citizen.
Alain Brunier, age 56, has served as the President, Europe since June 2000.
From 1996 to May 2000, Mr. Brunier served as Managing Director, France & North
America of St. Jude Medical, a manufacturer of pacemakers and other medical
devices used by cardiologists. From 1990 to 1996, Mr. Brunier served as Vice
President and Chief Executive, Europe, Middle East & Africa of Telectronics, a
manufacturer of pacemakers and implantable defibrillators. Prior to 1990, Mr.
Brunier has also held senior management positions at SMAD - HEMO France and
Baxter-Travenol.
Jonathan R. McGrath, age 46, has served as the Vice President, Worldwide
Research and Development since August 1999. From 1995 to 1998, Mr. McGrath
served as the Vice President of Research and Development at Urologix, a
urological device company. From 1990 to 1995, he served as the Vice President of
Research and Development at Schneider/Pfizer, a cardiovascular device company.
From 1987 to 1990, Mr. McGrath served as the Vice President of Product
Development & Operations at Harbor Medical, a surgical device company. From 1980
to 1987, Mr. McGrath held various positions at Boston Scientific Corporation,
most recently as the Director of Metals Product Development.
Robert M. Palladino, age 46, has served as Chief Financial Officer and Vice
President since December 1999. From March 1999 to December 1999, Mr. Palladino
served as Vice President and Chief Financial Officer of Coretek, Inc. a fiber
optics manufacturer. From 1995 to 1999, he served as Vice President of Finance
at C.P. Clare Corporation, a multinational electronics firm. He also served as
assistant treasurer at the Kendall Company, a health care manufacturer from 1991
to 1995.
Robert T. Phelps, age 44, has served as the Vice President, U.S. Sales and
Business Development since August 1999. From 1993 to 1998, Mr. Phelps served as
the Vice President of Sales, Orthopedic Division at Johnson & Johnson, a
pharmaceutical company. From 1990 to 1993, Mr. Phelps served as the Group
Controller, Orthopedics Division at Johnson & Johnson.
Donald Anderson, age 50, has served as Vice President, U.S. Marketing since
June 2000. From February 1995 to June 2000, Mr. Anderson served as the Vice
President, Marketing of Implemed, Inc., a manufacturer of vascular access and
implantable drug delivery systems. From 1989 to 1995, Mr. Anderson served as the
Vice President, Sales and Marketing of Stratos/Unfusaid (a Pfizer company).
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of the Company traded on the Nasdaq National Market from
March 25, 1994 through January 13, 1999, at which time it moved to NASD's OTC:
Bulletin Board, where it traded from January 14, 1999 through March 29, 2000. On
April 3, 2000, the Common Stock of the Company resumed trading on the Nasdaq
National Market. The Common Stock traded under the symbol BSEP from March 25,
1994 until May 17, 1999, at which time the Company changed the symbol to BSMD.
As of December 31, 2000, the Company had approximately 145 stockholders of
record.
The following table sets forth for the periods indicated the high and low
sales prices per share of the Common Stock as reported for the last two fiscal
years.
2000
--------------------
HIGH LOW
--------------------
First Quarter........................... $50.500 $6.000
Second Quarter.......................... $31.375 $12.250
Third Quarter........................... $18.625 $10.500
Fourth Quarter.......................... $14.563 $9.000
1999
--------------------
HIGH LOW
--------------------
First Quarter........................... $ 1.125 $ 0.688
Second Quarter.......................... $ 1.313 $ 0.703
Third Quarter........................... $ 2.156 $ 0.750
Fourth Quarter.......................... $ 6.375 $ 1.500
BioSphere has not paid any dividends on its Common Stock since its
inception and does not intend to pay any dividends in the foreseeable future.
The Company currently intends to reinvest its earnings, if any, for use in the
business and does not expect to pay cash dividends in the foreseeable future.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and related notes to
those statements and other financial information included elsewhere in this
Annual Report on Form 10-K.
- -----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Statement of Operations Data:
Revenue:
Revenue from product sales..................... $ 3,961 $2,263 $155 $117 $97
License fees................................... -- 3 47 35 25
- -----------------------------------------------------------------------------------------------------
Total Revenue 3,961 2,266 202 152 122
Cost and expenses:
Cost of products sold.......................... 1,461 1,404 95 72 43
Research and development....................... 2,517 968 34 34 39
Selling, general and administrative............ 7,847 4,003 1,364 1,195 1,505
Stock-based compensation to non-employees...... 1,261 -- -- -- --
- -----------------------------------------------------------------------------------------------------
Total cost and expenses 13,086 6,375 1,493 1,301 1,587
- -----------------------------------------------------------------------------------------------------
Loss from operations (9,125) (4,109) (1,291) (1,149) (1,465)
Other income (expense):
Interest income................................ 715 234 30 32 37
Interest expense............................... (54) (134) (222) (72) (214)
Other.......................................... 17 15 -- -- --
- -----------------------------------------------------------------------------------------------------
Net loss from continuing operations $(8,447) $(3,994) $(1,483) $(1,189) $(1,642)
Net loss from discontinued operations........... -- (539) (330) (2,615) (478)
- -----------------------------------------------------------------------------------------------------
NET LOSS $(8,447) $(4,533) $(1,813) $(3,804) $(2,120)
=====================================================================================================
Basic and diluted net loss per common
share from continuing operations............... $(0.87) $(0.47) $(0.17) $(0.14) $(0.21)
Basic and diluted net loss per common
share from discontinued operations............. -- (0.06) (0.04) (0.31) (0.06)
- -----------------------------------------------------------------------------------------------------
Basic and diluted net loss per common share..... $(0.87) $(0.53) $(0.21) $(0.45) $(0.27)
Basic and diluted weighted average number
of common shares outstanding................... 9,700 8,456 8,437 8,423 7,832
=====================================================================================================
- -----------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AS OF DECEMBER 31,
(In thousands) 2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents....................... $15,276 $5,368 $2,235 $2,370 $4,502
Working capital................................. 14,136 4,490 2,552 3,835 3,648
Total assets.................................... 19,306 7,496 12,664 12,787 16,312
Debt and minority interest acquisition
obligation..................................... 575 945 82 164 245
Stockholders' equity............................ 15,686 4,588 9,136 10,716 14,329
=====================================================================================================
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
BioSphere Medical, Inc., ("we," the "Company" or "BioSphere") develops,
markets and manufactures innovative medical device products for the treatment of
hypervascularized tumors and arteriovenous malformations using embolotherapy.
Embolotherapy is a minimally invasive procedure in which materials that inhibit
blood flow, referred to as embolic materials, such as our microspheres, are
injected through a catheter into the blood vessels to inhibit blood flow to
tumors and arteriovenous malformations. By selectively blocking the tumor's
blood supply, embolotherapy is designed to cause the tumor to shrink.
Hypervascularized tumors are tumors that are supplied by a larger number of
blood vessels than the number of blood vessels supplying the tissue surrounding
the tumor. Arteriovenous malformations are abnormal connections between arteries
and veins, frequently characterized by a dense and wide-spread network of
interconnecting blood vessels. Our lead product, Embosphere Microspheres, is an
acrylic bead with a proprietary design that is used as an embolic material.
BioSphere was originally incorporated under the name BioSepra Inc. During
1999, we strategically refocused our business on the development and
commercialization of our proprietary microspheres for medical applications. In
February 1999, we acquired a 51% ownership interest in Biosphere Medical S.A.
("BMSA"), a French societe anonyme. In April 2000, we increased our ownership
interest in BMSA from 51% to 85%. BMSA retains the license to the embolotherapy
device that is the main focus of our business. In May 1999, we sold
substantially all of our assets relating to our former core business,
chromatography, and changed our name to BioSphere Medical, Inc. We have an
option to acquire the remaining 15% of BMSA at a later date. As of December 31,
2000, Sepracor Inc., ("Sepracor") a specialty pharmaceutical company,
beneficially owned approximately 55% of our outstanding common stock.
During 2000, the we established two wholly owned subsidiaries to pursue the
development of other microsphere technologies. In May 2000, Biosphere Medical
Japan, Inc., a Delaware corporation, was established to develop and
commercialize Embosphere Microspheres as well as HepaSphere SAP Microspheres in
the Far East. In December 2000, BSMD Ventures, Inc., also a Delaware
corporation, was established to explore and develop non-embolotherapy
applications with a specific focus on tissue engineering uses. To this end, in
January 2001, BSMD Ventures, Inc. entered into a strategic supply agreement with
Inamed Corporation of Santa Barbara, California, a surgical and medical device
company primarily engaged in the development, manufacturing and marketing of
medical devices for the plastic and reconstructive surgery and aesthetic
medicine markets. Under this multi-year agreement, BioSphere will supply its
proprietary microspheres to Inamed. In exchange, Inamed has agreed to pay to
BioSphere certain up-front distribution access fees as well as milestone
payments upon the successful completion of certain development benchmarks.
BioSphere will also be entitled to royalty payments on net sales of resulting
commercially approved products.
In April 2000, we received clearance from the United States Food and Drug
Administration ("FDA") for embolization of hypervascularized tumors and
arteriovenous malformations. In December 2000, we commenced our pivotal Phase II
clinical testing under an investigational device exemption of the safety and
effectiveness of treating uterine fibroids by Uterine Artery Embolization with
our Embosphere Microspheres. An investigational device exemption is a regulatory
exemption granted by the FDA to medical device manufacturers for the purpose of
conducting clinical studies. We intend, pending FDA clearance for this
indication, to promote our microspheres for the treatment of uterine fibroids.
We do not anticipate receiving this clearance before 2002, if at all.
We received CE Mark approval of our Embosphere Microspheres product in the
European Union in 1997. CE Mark Approval is a certification granted by European
regulatory bodies, or by some manufacturers with satisfactory quality systems,
that substantiates the compliance of products with specific standards of quality
and/or safety. This approval is generally required prior to the
commercialization of a medical device in the European Union. In January 2000, we
received marketing approval of our Embosphere Microspheres product in Australia
and Canada. We expect to file for marketing approval in Japan for our HepaSphere
SAP Microspheres product for the treatment of liver cancer within the next 24
months.
During the year ended December 31, 2000, we continued the implementation of
our new strategic plan to develop our Embosphere Microspheres for the treatment
of hypervascularized tumors and arteriovenous malformations. Our revenue is
primarily generated from product sales of Embosphere Microspheres in the United
States, European Union, Australia, and Canada. Product revenues also include the
sale of barium and other ancillary products manufactured by us or by third
parties.
We have experienced operating losses in each fiscal period since our
inception. As of December 31, 2000, we had an accumulated deficit of $44.5
million. In connection with the execution of our business plan, we expect to
experience continued losses for at least the next twelve-month period. The sale
of our former chromatography business has been presented in the financial
statements in accordance with discontinued operations accounting principles.
Accordingly, the results of all discontinued operations have been excluded from
the continuing operations and presented separately in the accompanying selected
financial data.
Results of Operations
Years Ended December 31, 2000, 1999 and 1998
Total revenue increased to $3,961,000 for the year ended December 31, 2000
from $2,266,000 for the same period in 1999 and $202,000 in 1998. The $1,695,000
increase from 1999 to 2000 is primarily attributable to the initiation of
Embosphere Microsphere sales in the U.S. following receipt of FDA 510(k)
clearance in April 2000. Sales growth during 2000 also increased due to the
initiation of Embosphere Microsphere sales within Australia and Canada, as well
as the further penetration of the European markets. To a lesser extent, the
increase in total revenues for the year ended December 31, 2000 compared to the
same period in 1999 was due to the acquisition of BMSA in February of 1999,
whereby only ten months of revenue was recognized during 1999 versus a full year
in 2000.
Cost of product revenues for the year ended December 31, 2000 was
$1,461,000, compared to $1,404,000 in 1999 and $95,000 in 1998, representing
37%, 62%, and 47% of product revenue, respectively. The $57,000 increase in the
cost of product revenues in the year ended December 31, 2000 was due to
increased sales volume offset by a shift in the sales mix to lower costing
Embosphere Microsphere products.
Gross margin for the year ended December 31, 2000 was $2,500,000 (63% of
revenues) compared with $862,000 (38% of revenues) for the same period in 1999
and $107,000 (53% of revenues) in 1998. The increase in gross margin for the
year ended December 31, 2000 was attributable to a shift in product sales mix to
the higher margin Embosphere Microsphere products, particularly in the U.S., as
well as a reduction in the unit manufacturing costs caused by the full
integration of the Embosphere Microsphere manufacturing process at our French
production facility in the spring of 2000.
Research and development expenses increased to $2,517,000 in 2000 from
$968,000 in 1999 and $34,000 in 1998. The $1,549,000 increase in research and
development expenses from 1999 to 2000 was due primarily to clinical and
regulatory costs incurred relative to seeking Embosphere Microsphere regulatory
approval in the United States. We anticipate future research and development
expenses will increase as a result of the advancement of Embosphere Microsphere
products through its recently initiated Phase II clinical trial for the uterine
artery embolization treatment of uterine fibroids under an investigational
device exemption granted by the FDA. Additional expenses are also expected to
result from the continued development and enhancement of our current products
and product candidates.
Selling, general and administrative expenses, net of non-cash, non-employee
stock option acceleration charges, increased to $7,847,000 for the year ended
December 31, 2000 from $4,003,000 in 1999 and $1,364,000 in 1998. The $3,844,000
increase in selling, general and administrative expenses from 1999 to 2000 was
primarily due to the implementation of our product commercialization plan,
including personnel costs, recruiting expenses, selling, marketing and all other
expenses associated with developing and introducing a new business.
In connection with stock options previously issued to non-employees, the
Company's Board of Directors authorized the Company to accelerate the vesting of
all non-employee advisors' stock options subject to variable accounting
principles. Accordingly, $1,261,000 in non-cash compensation expense was
recorded and presented as a separate line item within the Statement of
Operations for the year ended December 31, 2000. The recorded $1,261,000
aggregate fair value of the non-employee stock options was derived from the
Black-Scholes option-pricing model.
Interest income in the year ended December 31, 2000 was $715,000 compared
to $234,000 in 1999 and $30,000 in 1998. The growth in interest income in each
of the sequential years was due to the continued increase in average-daily
invested cash balances. Increased invested cash primarily resulted from the May
1999 sale of our discontinued chromatography operations and the proceeds from
our February 4, 2000 and July 28, 2000 private equity placements.
Interest expense decreased from $222,000 in 1998 to $134,000 in 1999 and to
$54,000 in 2000. This sequential decrease was due primarily to the retirement of
our significant debt in the second quarter of 1999. Interest expense during 2000
primarily resulted from non-cash interest charges generated from the potential
obligation to purchase the remaining outstanding minority interest in BMSA. (See
Note C to the consolidated financial statements)
Net loss from continuing operations increased to $8,447,000 for the year
ended December 31, 2000 compared to $3,994,000 in 1999 and $1,483,000 in 1998.
The increases are a direct result of the implementation of our strategic plan to
develop, introduce and commercialize our microsphere and other product lines. We
anticipate net losses from operations will continue through at least the next
twelve-month period.
Liquidity and Capital Resources
We have historically funded our operations from product sales, net proceeds
provided by public and private equity offerings, funds provided by the sale of
our former chromatography business, funds from Sepracor, bank financing,
equipment financing leases and to a lesser extent, exercise of stock options. As
of December 31, 2000, we had $15,276,000 of cash and cash equivalents, an
increase of $9,908,000 from $5,368,000 as of December 31, 1999. This increase
primarily resulted from the net proceeds of our two private equity placement
financings in 2000 offset, to a limited extent, by cash used to fund operations.
As of December 31, 2000, we had $14,136,000 in working capital.
For the year ended December 31, 2000, we used $7,017,000 in operating cash
primarily to fund our marketing and product development activities and to
finance working capital requirements. Cash used in operations is expected to
increase in support of the Company's further operational and product development
efforts.
Net cash used in investing activities was $1,483,000 for the year ended
December 31, 2000. Of this amount, $950,000 was used in connection with the
April 2000 purchase of an additional 34% equity interest in our majority-owned
subsidiary, Biosphere Medical, S.A. From this step-acquisition, our total
ownership interest in Biosphere Medical, S.A increased to 85%. The remaining
amount, approximately $533,000, was used to purchase property and equipment
relating to establishing full manufacturing capabilities at BMSA and to obtain
office equipment and furnishings in our new corporate headquarters in Rockland,
Massachusetts. Future capital expenditures are anticipated to increase over the
next twelve-month period consistent with our plan to expand our manufacturing,
sales and marketing presence in the United States, Europe, the Far East,
Australia and Canada. If available on favorable terms, we expect to finance
certain future fixed asset acquisitions through leasing arrangements.
Net cash provided by financing activities was $18,398,000 for the year
ended December 31, 2000. In both February 2000 and in July 2000, we completed
private-equity placements resulting in the issuance of an aggregate 1,868,787
shares of Common Stock for net proceeds of approximately $17,716,000. The
February 2000 private-equity issuance included warrants to purchase a total of
163,468 shares of Common Stock with an exercise price of $20 per share. Cash
provided by financing activities also includes $558,000 received in connection
with the sale of approximately 270,000 shares of common stock through the
exercise of options granted under our incentive stock option plans.
Additionally, in March 2000, BMSA entered into a 1,000,000 French Franc
($143,000 equivalent as of December 31, 2000) term loan with a French national
bank that is payable over five years and accrues interest at 5.4% per annum.
In collaboration with Sepracor, we have available a revolving credit
agreement with a bank under which we may borrow up to $2.0 million, subject to
limitations defined in the agreement and on borrowings outstanding by Sepracor.
There were no borrowings outstanding by either the Company or Sepracor under
this agreement as of December 31, 2000. Interest on any outstanding borrowings
is payable monthly in arrears at prime (9.5% as of December 31, 2000) or the
LIBOR rate (6.0% at December 31, 2000) plus 0.75%. We are required to pay a
commitment fee equal to 0.25% per annum on the average available unused line.
The Company's ability to borrow under this credit line is dependent upon
Sepracor's maintenance of certain financial ratios and levels of cash and cash
equivalents and tangible capital bases. As of December 31, 2000, Sepracor has
informed us that all applicable lines of credit covenants have been
satisfactorily met. Sepracor is guarantor of any amounts outstanding under the
agreement. We have entered into a security agreement with Sepracor pursuant to
which we have pledged to Sepracor all of our U.S. assets, including our equity
ownership of BMSA as collateral for Sepracor's guarantee to the bank. BMSA is
not a party to the agreement with Sepracor and, therefore, has not pledged any
of its assets. The revolving credit agreement will expire on December 31, 2001.
Prior to December 31, 2001, we intend to negotiate a new revolving credit
agreement containing similar terms, rates and conditions.
We believe that our existing cash and other working capital will be
sufficient to fund our operating and capital requirements, as currently planned,
at least through the next twelve-month period. However, our cash requirements
may vary materially from those now planned due to changes in anticipated
research and development efforts, the scope and results of preclinical and
clinical testing, changes in the focus and direction of our research and
development programs, competitive and technological advances, the FDA's
regulatory process, the market's acceptance of any approved products, and other
factors.
We expect to incur substantial additional costs, including costs related to
ongoing research and development activities, preclinical studies, clinical
trials, the expansion of our laboratory and administrative functions as well as
costs relating to further commercialization activities. We may also need
additional funds for possible strategic acquisitions of synergistic businesses,
products and/or technologies or upon exercise of a put option held by the
minority interest holder of BMSA to require us to purchase the remaining
15%
interest. (See Note C to the consolidated financial statements) These additional
funds may be raised from time to time through public or private sales of equity,
through borrowings, or through other financings. There are no assurances that we
will be able to obtain any additional funding that may be required on acceptable
terms, if at all.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk in the form of interest rate risk and
foreign currency risk. The Company's investments in short-term cash equivalents
are subject to interest rate fluctuations. We do not believe that these
exposures are material. The Company sells and distributes its products worldwide
and the payables may be due in French currency or other local currencies.
Therefore, the Company may experience gains or losses upon the payment of these
inter-company obligations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BioSphere Medical, Inc. and
subsidiaries:
We have audited the accompanying consolidated balance sheets of BioSphere
Medical, Inc. (A Delaware Corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. 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 in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BioSphere Medical, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the three years in the period ended December
31, in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 17, 2001, except with respect to matters discussed in Note Q, as to
which the date is February 7, 2001
BIOSPHERE MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
DECEMBER 31,
- ---------------------------------------------------------------------------------
ASSETS 2000 1999
- ---------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents................................. $15,276 $ 5,368
Accounts receivable, net of allowance for doubtful
accounts of $29 and $0 as of December 31, 2000
and 1999, respectively................................... 1,142 564
Inventories............................................... 639 389
Prepaid and other current assets.......................... 124 132
- ---------------------------------------------------------------------------------
Total current assets 17,181 6,453
Property and equipment, net............................... 694 322
Goodwill, net............................................. 1,144 713
Other assets.............................................. 287 8
- ---------------------------------------------------------------------------------
TOTAL ASSETS $19,306 $ 7,496
=================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 924 $ 616
Accrued compensation...................................... 994 400
Other accrued expenses.................................... 1,086 879
Payable to related party.................................. 14 68
Current portion of long term debt......................... 27 --
- ---------------------------------------------------------------------------------
Total current liabilities 3,045 1,963
Minority interest acquisition obligation.................. 478 945
Long-term debt............................................ 97 --
- ---------------------------------------------------------------------------------
Total liabilities 3,620 2,908
Commitments (Note H)
Stockholders' equity:
Common stock, $0.01 par value, 25,000 shares
authorized; 10,595 and 8,456 shares issued and
outstanding as of December 31, 2000 and 1999,
respectively............................................. 106 84
Additional paid-in capital................................ 60,100 40,587
Accumulated deficit....................................... (44,515) (36,068)
Cumulative translation adjustment......................... (5) (15)
- ---------------------------------------------------------------------------------
Total stockholders' equity 15,686 4,588
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,306 $ 7,496
=================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
BIOSPHERE MEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------
Revenues:
Product sales.................................. $ 3,961 $ 2,263 $ 155
License fees................................... -- 3 47
- ---------------------------------------------------------------------------------
Total revenue 3,961 2,266 202
- ---------------------------------------------------------------------------------
Costs and expenses:
Cost of product sales.......................... 1,461 1,404 95
Research and development....................... 2,517 968 34
Selling, general and administrative (1)........ 7,847 4,003 1,364
Stock-based compensation to non-employees...... 1,261 -- --
- ---------------------------------------------------------------------------------
Total costs and expenses 13,086 6,375 1,493
- ---------------------------------------------------------------------------------
Loss from operations (9,125) (4,109) (1,291)
Interest income................................. 715 234 30
Interest expense................................ (54) (134) (222)
Other income.................................... 17 15 --
- ---------------------------------------------------------------------------------
Loss from continuing operations................. (8,447) (3,994) (1,483)
Loss from discontinued operations............... -- (539) (330)
- ---------------------------------------------------------------------------------
NET LOSS $(8,447) $(4,533) $(1,813)
=================================================================================
Basic and diluted net loss per common share:
Continuing operations.......................... $ (0.87) $ (0.47) $ (0.17)
Discontinued operations........................ -- (0.06) (0.04)
- ---------------------------------------------------------------------------------
Total $ (0.87) $ (0.53) $ (0.21)
=================================================================================
Basic and diluted weighted average number
of common shares outstanding................... 9,700 8,456 8,437
=================================================================================
(1) Excludes compensation charges relating to the issuance of stock options
to non-employees.
The accompanying notes are an integral part of these
consolidated financial statements.
BIOSPHERE MEDICAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Accumulated
Common Stock Additional Other Total
-------------- Paid-in Deferred Accumulated Comprehensive Stockholders'
Shares Amount Capital Compensation Deficit Income (Loss) Equity
- --------------------------------- ------ ------ ---------- ------------ ----------- ------------- ------------
Balance at December 31, 1997 8,431 $ 84 $ 40,515 $ (161) $(29,722) $ - $ 10,716
Comprehensive loss:
Net loss........................ - - - - (1,813) - (1,813)
------------
Total comprehensive loss....... (1,813)
Deferred compensation
amortization.................... - - - 161 - - 161
Exercise of stock options........ 25 - 41 - - - 41
Compensation for common
stock warrants.................. - - 31 - - - 31
- --------------------------------- ------ ------ ---------- ------------ ----------- ------------- ------------
Balance at December 31, 1998 8,456 84 40,587 - (31,535) - 9,136
Comprehensive loss:
Net loss - - - - (4,533) - (4,533)
Translation adjustment - - - - - (15) (15)
------------
Total comprehensive loss....... - - - - - - (4,548)
- --------------------------------- ------ ------ ---------- ------------ ----------- ------------- ------------
Balance at December 31, 1999 8,456 84 40,587 - (36,068) (15) 4,588
Comprehensive loss:
Net loss...................... - - - - (8,447) - (8,447)
Translation adjustment........ - - - - - 10 10
------------
Total comprehensive loss (8,437)
Issuance of common stock......... 1,869 19 17,697 - - - 17,716
Issuance of common stock
under employee benefit and
incentive plans................. 270 3 555 - - - 558
Stock-based compensation to
non-employee.................... - - 1,261 - - - 1,261
- --------------------------------- ------ ------ ---------- ------------ ----------- ------------- ------------
Balance at December 31, 2000 10,595 $106 $ 60,100 $ - $(44,515) $ (5) $ 15,686
- --------------------------------- ------ ------ ---------- ------------ ----------- ------------- ------------
The accompanying notes are an integral part of these
consolidated financial statements.
BIOSPHERE MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss.............................................. $(8,447) $(4,533) $(1,813)
Less: Net loss from discontinued operations........... -- (539) (330)
- -----------------------------------------------------------------------------------------
Net loss from continuing operations (8,447) (3,994) (1,483)
- -----------------------------------------------------------------------------------------
Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities:
Provision for doubtful accounts...................... 37 -- --
Depreciation and amortization........................ 279 102 17
Non-cash interest on minority interest obligation.... 19 -- --
Foreign exchange (gain) / loss....................... (85) -- --
Non-cash stock-based compensation for non-employees.. 1,261 -- --
Compensation for common stock warrants............... -- -- 31
Changes in operating assets and liabilities:
Accounts receivable................................ (615) 121 --
Inventories........................................ (250) 5 --
Prepaid and other current assets................... (271) 4 2
Accounts payable................................... 308 103 (346)
Accrued expenses................................... 801 282 27
Related parties payable............................ (54) (362) 105
- -----------------------------------------------------------------------------------------
Net cash used in operating activities (7,017) (3,739) (1,647)
- -----------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment..................... (533) (382) --
Cash paid for 34% interest in Biosphere Medical, S.A... (950) -- --
Decrease in restricted cash............................ -- -- 146
Increase in other assets............................... -- (1) (2)
Cash acquired through acquisition of 51%
of Biosphere Medical, S.A............................. -- 283 --
- -----------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (1,483) (100) 144
- -----------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net............ 17,716 -- 41
Proceeds from stock options exercised.................. 558 -- --
Net (repayments) borrowings under line of
credit agreements..................................... -- (2,000) 2,000
Proceeds (payments) on long-term debt and
capital leases........................................ 124 (664) (454)
- -----------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 18,398 (2,664) 1,587
- -----------------------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents.................................... 10 (7) --
- -----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 9,908 (6,510) 84
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS... -- 9,643 (219)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........... 5,368 2,235 2,370
- -----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $15,276 $ 5,368 $ 2,235
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest.................................. $5 $134 $207
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Acquisition of 51% of Biosphere Medical, SA:
Fair value of assets acquired.......................... $-- $1,493 $ --
Liabilities assumed.................................... -- (1,493) --
Minority interest acquisition obligation............... 188 771 --
- -----------------------------------------------------------------------------------------
Goodwill $188 $ 771 $ --
The accompanying notes are an integral part of these
consolidated financial statements.
BIOSPHERE MEDICAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A - Nature of the Business
BioSphere Medical, Inc ("BioSphere" or the "Company") was incorporated in
Delaware in December 1993 under the name BioSepra Inc. During 1999, the Company
strategically refocused its business on the development and commercialization of
its proprietary Embosphere Microspheres for medical applications. In February
1999, the Company acquired a 51% ownership interest in Biosphere Medical S.A.,
("BMSA") a French societe anonyme. (See Note C) BMSA retains the license to the
embolotherapy device that is the main focus of the Company's business. In May
1999, the Company sold substantially all of its assets relating to its former
core business, chromatography and changed its name to BioSphere Medical, Inc. In
April 2000, the Company increased its ownership interest in BMSA from 51% to
85%. The Company retains the option to acquire the remaining 15% of BMSA at a
later date and the 15% minority interest holder maintains the right to require
the Company to purchase its interest. (See Note C)
During 2000, the Company established two wholly owned subsidiaries to
pursue the development of other microsphere technologies. In May 2000, BioSphere
Medical Japan, Inc., a Delaware corporation, was established to develop and
commercialize Embosphere Microspheres as well as HepaSphere SAP Microsphere in
the Far East. In December 2000, BSMD Ventures, Inc., also a Delaware
corporation, was established to explore and develop alternative applications
with a specific focus on dermal and other tissue engineering uses. To this end,
in January 2001, BSMD Ventures, Inc. entered into a strategic supply agreement
with Inamed Corporation of Santa Barbara, California, a surgical and medical
device company primarily engaged in the development, manufacturing and marketing
of medical devices for the plastic and reconstructive surgery and aesthetic
medicine markets. Under this multi-year agreement, BioSphere will supply its
proprietary microspheres to Inamed for potential use in dermal applications. In
exchange, Inamed has agreed to pay to BioSphere certain up-front distribution
access fees as well milestone payments upon the successful completion of certain
development benchmarks. BioSphere will also be entitled to royalty payments on
net sales of resulting commercially approved products. As of December 31, 2000,
Sepracor Inc. ("Sepracor"), a specialty pharmaceutical company, beneficially
owned approximately 55% of the Company's outstanding common stock.
The Company is subject to risks common to companies in its industry,
including but not limited to obtaining regulatory approval by the FDA,
commercial acceptance of the Company's products, development by the Company or
its competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology and the need to obtain adequate financing
to fund future operations.
B - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its majority owned subsidiary BMSA, as well as its wholly owned
subsidiaries; Biosphere Medical Japan, Inc. and BSMD Ventures, Inc., both
Delaware corporations established in 2000. All material intercompany balances
and transactions have been eliminated in consolidation.
Basis of Presentation
Certain prior period balances have been reclassified to conform to current
reporting formats, including certain the impact of the operations of the Company
that were discontinued. (See Note N)
Translation of Foreign Currencies
The assets and liabilities of the Company's international subsidiaries are
translated into U.S. dollars using the exchange rates in effect as of each
balance sheet date. Statements of operations amounts are translated at average
exchange rates prevailing during each recording period. Resulting translation
adjustments are recorded in the cumulative translation adjustment account in
stockholders' equity. Aggregate foreign exchange transaction gains and losses
are not material and are included in other income in the accompanying statement
of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the following: (1) the reported amounts of
assets and liabilities, (2) the disclosure of contingent assets and liabilities
at the date of the financial statements and (3) the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ from
those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents include $15.2 million and $4.5 million of commercial paper and money
market funds as of December 31, 2000 and 1999, respectively.
Financial Instruments and Concentration of Credit Risk
The Company has no significant off-balance-sheet risk or concentration of
credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. Financial instruments that potentially subject the
Company to credit risk consist primarily of cash and cash equivalents and trade
accounts receivable. BioSphere places its cash and cash equivalents with high
credit quality financial institutions.
Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation based upon expected useful lives using the straight-line method
over the following estimated useful lives:
Machinery and equipment.................. 3-5 years
Computer hardware and software........... 3-5 years
Furniture and fixtures................... 3-5 years
Leasehold improvements................... Shorter of lease term or
estimated useful life
Maintenance and repairs are charged to expense as incurred. Upon retirement
or sale, the cost of disposed assets and the related accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or
charged to non-operating income.
Goodwill and Other Assets
Goodwill represents the difference between the purchase price and the fair
value of the tangible and identifiable intangible net assets acquired when
accounted for in accordance with the purchase method of accounting. In February
1999, the Company recorded goodwill upon the acquisition of 51% of BMSA. (See
Note C) Goodwill associated with this transaction is being amortized over an
estimated ten-year useful life through February 2009. The 1999 BMSA purchase
agreement contained provisions to acquire the remaining 49% minority interest in
BMSA. Accordingly, all goodwill resulting from subsequent BMSA acquisitions
and/or accretion of the minority interest acquisition obligation will be
amortized through February 2009. Accumulated amortization was approximately
$174,000 and $58,000 as of December 31, 2000 and 1999, respectively.
The Company periodically evaluates the potential impairment of its
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. At the occurrence of a
certain event or change in circumstances, the Company evaluates the potential
impairment of an asset based on estimated future undiscounted cash flows. In the
event impairment exists, the Company will measure the amount of such impairment
based on the present value of estimated future cash flows using a discount rate
commensurate with the risks involved. Based on management's assessment as of
December 31, 2000, the Company has determined that no impairment of long-lived
assets exists.
Revenue Recognition
Revenues from product sales are recognized when goods are shipped to
customers. Management establishes reserves for potential sales returns and
evaluates, on a monthly basis, the adequacy of those reserves based upon
realized experience. To date, returns have not been material. The Company
adopted Staff Accounting Bulletin No. 101 in the year ended December 31, 2000
with no material impact to the Company's results of operations.
Research and Development
Research and development costs are expensed in the period incurred.
Income Taxes
The Company uses the asset and liability accounting method whereby deferred
tax assets and liabilities are recognized based on temporary differences between
the financial statements and tax basis of assets and liabilities using current
statutory tax rates. A valuation allowance against net deferred tax assets is
recorded if, based on the available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. Management
evaluates, on a quarterly basis, the ability to recover the deferred tax assets
and the level of the valuation allowance. At such time as it is more likely than
not that deferred tax assets are realizable, the valuation allowance will be
appropriately reduced.
Comprehensive Income /(Loss)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss.) Other comprehensive income (loss) includes certain
changes in equity that are excluded from net income (loss). Specifically, the
effects of foreign currency translation adjustments which are reflected
separately in stockholders' equity, are included in accumulated other
comprehensive income (loss.)
Net Loss Per Share
Basic net loss per share is calculated based on the weighted average number
of common shares outstanding during the period. Diluted net loss per share
incorporates the dilutive effect of common stock equivalent options, warrants
and other convertible securities. Total warrants and options potentially
convertible into common stock as of December 31, 2000, 1999 and 1998 equaled
4,147,000, 3,780,000 and 1,627,000, respectively. Common stock equivalents have
been excluded from the calculation of weighted average number of diluted common
shares, as their effect would be antidilutive for all periods presented.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, which will be effective for the Company in
the first quarter of Fiscal 2001. The adoption of this standard is not expected
to have a material effect on the Company's financial position or operating
results.
C - Acquisition of Biosphere Medical S.A. and Minority Interest Acquisition
Obligation
On February 25, 1999, the Company acquired 51% of the outstanding capital
stock of BMSA. Accordingly, the results of operations of BMSA have been included
in these consolidated financial statements as of the date of acquisition.
Pursuant to a February 25, 1999 purchase agreement, the Company acquired a 51%
ownership interest by granting to BMSA an exclusive sales and manufacturing
license to certain patents and technology primarily relating to the Company's
Embosphere Microsphere technology. The Company was also granted an option to
purchase the remaining 49% interest in BMSA through December 31, 2004 for an
amount equal to the product of the percentage interest to be purchased and the
sum of BMSA's rolling average twelve-month sales and worldwide Embosphere
Microsphere sales as of the date of exercise (the "Purchase Option"). Moreover,
the holder of the remaining 49% interest was also granted an option (the "Put
Option") to require the Company to purchase the remaining 49% interest from
December 31, 2003 until December 31, 2004 for an amount equal to the greater of
an agreed upon price (in French Francs) for each percentage interest to be sold
or the amount payable adjusted to a rolling nine-month sales average under the
Purchase Option. The Put Option represents a contingent purchase consideration
and the Company is accreting the value of this Put Option over the period ending
December 31, 2003.
On April 7, 2000, the Company purchased an additional 34% of BMSA for
$950,000. The transaction was accounted for as a step-acquisition of a minority
interest whereby the fair value in excess of the then recorded accrued
acquisition obligation was treated as an increase to goodwill. As a result of
this step-acquisition, the Company's total ownership interest in BMSA increased
to 85%. As of December 31, 2000, the holder of the 15% minority interest retains
its Put Option with respect to the remaining 15% of the outstanding equity
interest in BMSA pursuant to the terms of the original purchase agreement. The
Company also retains its Purchase Option with respect to the remaining 15%
equity interest in BMSA. As of December 31, 2000 the Company estimated the
present value of the Put Option to be approximately $478,000.
The Company has applied purchase accounting principles to the acquisition
of its interest in BMSA and has allocated the purchase price to the assets
acquired and liabilities assumed. The purchase price in excess of the fair value
of the tangible assets has been allocated to goodwill. There were no
identifiable intangible assets. Goodwill, net as of December 31, 2000 and
December 31, 1999 of $1,144,000 and $713,000, respectively, is being amortized
through February 2009.
D - Related Party Transactions
As of December 31, 2000, Sepracor beneficially owned approximately 55% of
the Company's outstanding common stock. Since the Company's inception, Sepracor
has provided support services of U.S. operations, including certain
administrative support. For these services, BioSphere was charged approximately
$111,000, $119,000 and $155,000 for the years ended December 31, 2000, 1999, and
1998, respectively. Under a separate Sublease Agreement, the Company had the
right to lease office space from Sepracor through 2007 in exchange for a monthly
rent. All related-party charges represent an allocation of the Company's
proportionate share of Sepracor's overhead and facility costs using formulas and
valuations which management believes are reasonable and consistent with similar
arms-length transactions. Net amounts payable to Sepracor, as of December 31,
2000 and 1999 were approximately $14,000 and $68,000, respectively.
In April 2000, BioSphere relocated its research laboratories and corporate
headquarters to a new facility located in Rockland, Massachusetts. Concurrent
with the move, BioSphere and Sepracor mutually agreed to terminate the Sublease
Agreement without contingency.
Sepracor is entitled to certain rights with respect to the registration
under the Securities Act of a total of 4,000,000 shares of BioSphere's Common
Stock. These rights provide that Sepracor may require BioSphere, on two
occasions, to register shares having an aggregate offering price of at least
$5,000,000, subject to certain conditions and limitations. As of December 31,
2000, Sepracor has not exercised such rights.
E - Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following as of:
DECEMBER 31,
------------------
(In thousands) 2000 1999
-------------------------------------------------------------
Raw material............................ $ 156 $ 119
Work in progress........................ 78 25
Finished goods.......................... 405 245
-------------------------------------------------------------
Total inventory $ 639 $ 389
F - Property and Equipment
Property and equipment consists of the following as of:
DECEMBER 31,
------------------
(In thousands) 2000 1999
-------------------------------------------------------------
Office equipment........................ $ 469 $ 289
Laboratory and manufacturing equipment.. 425 72
Leasehold improvements.................. 45 45
------------------------------------------------------------
939 406
Less: accumulated depreciation.......... (245) (84)
-------------------------------------------------------------
Total property and equipment $ 694 $ 322
Depreciation expense was $161,000, $49,000 and $14,000 and for the years
ended December 31, 2000, 1999, and 1998, respectively.
G -Debt and Other Obligations
Debt consists of the following as of:
DECEMBER 31,
(In thousands) 2000 1999
-------------------------------------------------------------
5.4% French Franc term loan payable
to a bank in monthly installments
through March 2005, secured by the
net assets of BMSA..................... $124 $ --
Less: current portion................... (27) --
-------------------------------------------------------------
Total long-term debt $ 97 $ --
In collaboration with Sepracor, the Company has available a revolving
credit agreement with a bank under which it may borrow up to $2.0 million,
subject to limitations defined in the agreement and on borrowings outstanding by
Sepracor. There were no borrowings outstanding by either the Company or Sepracor
under this agreement as of December 31, 2000. Interest on any outstanding
borrowings is payable monthly in arrears at prime (9.5% as of December 31, 2000)
or the LIBOR rate (6.0% at December 31, 2000) plus 0.75%. The Company is
required to pay a commitment fee equal to 0.25% per annum on the average
available unused line. The Company's ability to borrow under this credit line is
dependent upon Sepracor's maintenance of certain financial ratios and levels of
cash and cash equivalents and tangible capital bases. As of December 31, 2000,
Sepracor has informed the Company that all applicable lines of credit covenants
have been satisfactorily met. Sepracor is guarantor of any amounts outstanding
under the agreement. The Company entered into a security agreement with Sepracor
pursuant to which we have pledged to Sepracor all of our U.S. assets, including
our equity ownership of BMSA as collateral for Sepracor's guarantee to the bank.
BMSA is not a party to the agreement with Sepracor and, therefore, has not
pledged any of its assets. The revolving credit agreement will expire on
December 31, 2001. Prior to December 31, 2001, the Company intends to negotiate
a new revolving credit agreement containing similar terms, rates and conditions.
H - Commitments
Prior to April 2000, the Company leased office space from Sepracor in
exchange for monthly payments which increased at various dates and approximated
the Company's proportionate share of Sepracor's cost of providing such
facilities. In January 2000, the Company gave notice and terminated, without
contingency, the Sublease Agreement effective April 30, 2000.
In January 2000, the Company entered into a five-year lease agreement to
occupy 8,000 square feet in Rockland, Massachusetts, commencing in March 2000.
In September 2000, the Company expanded its Rockland office space by
approximately 5,000 square feet, thereby increasing its total leased Rockland
facility to approximately 13,000 square feet.
Under a lease agreement between BMSA and Guerbet Hospital (a former related
party to BMSA), BMSA received rent free-of-charge through April 30, 1999.
Effective May 1, 1999 the lease agreement was amended to reflect a monthly lease
rate of FF30,000 per month (approximately $4,300 as of December 31, 2000)
through June 30, 2000. In December 2000, BMSA signed a new nine-year agreement
to lease approximately 18,150 square feet of manufacturing and office space in a
Roissy, France facility for approximately FF 1,030,400 per year (approximately
$148,000 as of December 31, 2000). The Company also has several operating leases
covering certain pieces of manufacturing and office equipment through March
2005.
Future minimum lease payments for facilities and equipment under
non-cancelable operating leases in effect as of December 31, 2000, are as
follows:
OPERATING
Period LEASES
--------------------------------------------------
(In thousands)
2001.................................. $ 450
2002.................................. 470
2003.................................. 470
2004.................................. 458
2005.................................. 224
Thereafter............................ 653
--------------------------------------------------
Total minimum lease payments $2,725
Total rental expense for the years ended December 31, 2000, 1999 and 1998
was approximately $245,000, $81,000 and $249,000, respectively.
I - Income Taxes
As of December 31, 2000, the Company had net operating loss carryforwards
of approximately $30.8 million, which will expire through the year 2020. As of
December 31, 2000, research and experimentation credit carryforwards
approximated $281,000, which will expire through the year 2014. The components
of the Company's net deferred tax asset are as follows at:
DECEMBER 31,
(In thousands) 2000 1999
--------------------------------------------------------------
Assets
Domestic NOL carryforwards............ $11,470 $ 9,003
Tax credit carryforwards............. 281 342
Other................................. 138 116
Liabilities
Property and equipment................ (44) (6)
--------------------------------------------------------------
Subtotal 11,845 9,455
Valuation allowance................... (11,845) (9,455)
--------------------------------------------------------------
Net deferred tax asset $ -- $ --
J - Segment Information
The Company develops microspheres for use in the treatment of
hypervascularized tumors and malformations. The Company operates exclusively in
the medical device business, which the Company considers as one business
segment. Financial information by geographic area is as follows:
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except per share amounts) 2000 1999 1998
--------------------------------------------- ---------- ---------- ----------
REVENUE
United States
Unaffiliated customers..................... $ 1,266 $ -- $ --
Europe
Unaffiliated customers (Primarily French).. 2,183 1,949 202
Related parties............................ 1,405 -- --
Transfer to other geographic areas......... 512 317 --
--------------------------------------------- ---------- ---------- ----------
5,366 2,266 202
Elimination and adjustments (1,405) -- --
--------------------------------------------- ---------- ---------- ----------
Total revenue $ 3,961 $ 2,266 $ 202
--------------------------------------------- ---------- ---------- ----------
OPERATING LOSSES
United States............................... $(8,976) $ (3,965) $ (1,291)
Europe...................................... (149) (144) --
--------------------------------------------- ---------- ---------- ----------
Total operating loss $(9,125) $ (4,109) $ (1,291)
--------------------------------------------- ---------- ---------- ----------
LONG-LIVED ASSETS
United States............................... $ 2,241 $ 1,324 $ 49
Europe...................................... 412 251 --
Net assets from discontinued operations..... -- -- 6,617
Elimination and adjustments................. (528) (532) --
--------------------------------------------- ---------- ---------- ----------
Total long-lived assets $ 2,125 $ 1,043 $ 6,666
--------------------------------------------- ---------- ---------- ----------
K - Capital Stock
Common Stock
The Company's authorized capital stock includes 25,000,000 shares of common
stock, par value $0.01 per share. As of December 31, 2000, 5.82 million shares
or 55% of the Company's common stock outstanding is held by Sepracor. The common
stock has no preemptive, subscription, redemption or conversion rights.
Preferred Stock
The Company's authorized capital stock includes 1,000,000 shares of
preferred stock, par value $0.01 per share, with such rights, restrictions and
specifications as the Board of Directors may determine. As of December 31, 2000
and 1999, no shares of preferred stock have been issued.
Common Stock Financing
In February 2000, the Company completed a private equity placement of
common stock and warrants for net proceeds of approximately $5.9 million.
Investors purchased 653,887 shares of the Company's common stock at a price of
$9.00 per share, which included warrants to purchase up to an additional 163,468
shares of common stock. Of the total 653,887 common shares sold, unrelated
third-party institutional investors purchased 609,445, or 93%, and 44,442, or
7%, were purchased by executive officers and members of the Company's Board of
Directors. The warrants have an exercise price equal to $20.00 per share and
expire on February 4, 2005. In accordance with the Black-Scholes option-pricing
model, the Company valued the warrants at approximately $929,000 and included
such amount as a component of additional paid-in capital. The Company intends to
use the net proceeds from this private placement for general corporate purposes,
including research and development and sales and marketing activities.
In July 2000, the Company completed an additional private equity placement
of common stock for net proceeds of approximately $11.8 million. Investors
purchased 1,214,900 shares of common stock at $11.00 per share. Of the total
shares sold, Sepracor Inc., the Company's parent company, purchased 454,545
shares, after which its majority ownership decreased to 55%. The Company intends
to use the net proceeds from this private placement for general corporate
purposes, including research and development, sales and marketing activities.
L - Stock Plans and Warrants
Stock Option Plans
The 1994 stock option plan (the "1994 Plan") provides for the grant of both
incentive stock options ("ISOs") and non-statutory stock options ("NSOs") to
officers, directors, advisors and key employees of the Company. The 1994 Plan
also provides for the grant of NSOs to consultants of the Company. The exercise
price for ISOs must be at least equal to the fair market value of the Company's
common stock on the date of grant and the exercise price of NSOs must be at
least equal to 50% of the fair market value of the Company's common stock on the
date of grant. Options generally become exercisable in five equal annual
installments beginning on the first anniversary of the date of grant. ISOs have
a maximum term of ten years from the date of grant. A total of 1.0 million
shares were approved for issuance under the 1994 Plan and as of December 31,
2000, approximately 303,000 shares were available for issuance.
In 1997, the Company's stockholders approved the 1997 Stock Option Plan
(the "1997 Plan"). The 1997 Plan, as amended, provides for the grant of both
ISOs and NSOs to officers, directors, advisors and key employees of the Company.
The 1997 Plan also provides for the grant of NSOs to consultants of the Company.
In September 2000, the Company's Board of Directors approved, subject to
stockholder approval, an amendment to the 1997 Stock Incentive Plan, as amended,
to increase the number of shares of common stock available for issue from
3,125,000 shares to 5,000,000 shares. As of December 31, 2000, approximately
1,632,000 shares under the 1997 plan were available for issuance. Options
generally become exercisable in five equal annual installments beginning on the
first anniversary of the date of grant.
The Director Option Plan (the "Director Plan"), as amended, provides for
the granting of NSOs to directors of the Company who are not officers or
employees of the Company or of any subsidiary of the Company. A total of 300,000
shares of common stock may be issued under the Director Plan subject to
adjustments as provided therein. The exercise price per share will equal the
fair market value of a share of Company's common stock on the date on which the
option is granted. Options granted under the Director Plan will vest in either
two or five equal installments beginning on the first anniversary of the date of
the grant depending on the nature of the grant. A total of 300,000 shares were
approved for issuance under the Director Plan. As of December 31, 2000, there
were 128,000 options available for issuance under the Director Plan.
The following table summarizes all stock option activity under the three
stock option plans for the three years ended December 31, 2000:
OPTIONS ISSUED
UNDER THE PLANS
----------------------
Average
Price
(In thousands, except option price) Shares Per Share
-------------------------------------- ---------- ----------
OUTSTANDING AT DECEMBER 31, 1997 1,543 $ 2.63
-------------------------------------- ---------- ----------
Granted.............................. 294 1.89
Exercised............................ -- --
Canceled............................. (255) 2.76
-------------------------------------- ---------- ----------
OUTSTANDING AT DECEMBER 31, 1998 1,582 $ 2.51
Granted.............................. 2,549 0.94
Exercised............................ -- --
Canceled............................. (393) 2.15
-------------------------------------- ---------- ----------
OUTSTANDING AT DECEMBER 31, 1999 3,738 $ 1.42
Granted.............................. 516 14.88
Exercised............................ (266) 2.09
Canceled............................. (44) 2.79
-------------------------------------- ---------- ----------
OUTSTANDING AT DECEMBER 31, 2000 3,944 $ 3.12
The following options and their respective average prices per share were
outstanding and exercisable at December 31, 2000, 1999 and 1998:
Average Average
Price Price
Outstanding Per Share Exercisable Per Share
----------- --------- ----------- ---------
(In thousands, except option price)
December 31, 2000................ 3,944 $ 3.12 1,147 $ 2.11
December 31, 1999................ 3,738 1.42 1,016 2.39
December 31, 1998................ 1,582 2.51 719 2.60
Options vest at various rates over periods of up to five years and may be
exercised within ten years from the date of grant. The following table
summarizes aggregate information about total stock options under the three
plans, outstanding as of December 31, 2000:
Options Outstanding Options Exercisable
----------------------- ------------------------
Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
------------- ------------- ------------ --------- -------------- --------
(In thousands) (In thousands)
$0.82 - 1.25 2,284 8.13 $ 0.84 137 $0.84
1.26 - 1.89 368 6.96 1.80 353 1.81
1.90 - 2.85 651 5.25 2.20 525 2.18
2.86 - 4.30 90 5.56 3.37 90 3.37
4.31 - 6.50 42 4.81 5.12 42 5.12
9.75 - 14.50 272 9.74 12.01 -- --
14.51 - 21.75 207 9.42 17.80 -- --
21.76 - 27.25 30 9.13 27.25 -- --
------------- --------------
3,944 1,147
The Company applies the Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its Plans. Accordingly, no compensation expense has been
recognized for its employee stock-based compensation plans. Had compensation
costs for the Company's stock-based compensation been determined based on the
fair value at the grant dates as calculated in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net basic and diluted loss per common share for the
years ended December 31, 2000, 1999 and 1998 would have been adjusted to the pro
forma amounts indicated below:
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except per share amounts) 2000 1999 1998
------------------------------------------ ---------- ---------- ----------
Net Loss
As reported.............................. $(8,447) $(4,533) $(1,813)
Pro forma................................ (9,227) (7,612) (2,321)
Basic and diluted loss per share
As reported.............................. (0.87) (0.53) (0.21)
Pro forma................................ (0.95) (0.90) (0.27)
As a result of the May 1999 sale of the Company's former chromatography
business (see Note N), and in accordance with the Company's various stock option
plans, all options granted prior to May 1999, became immediately vested.
Accordingly, the pro forma compensation costs as presented may not be
representative of future pro forma costs.
The average fair value of options granted, $12.38, $0.82 and $1.27 for
fiscal years 2000, 1999 and 1998, respectively, was estimated using the
Black-Scholes option-pricing model using the following weighted-average
assumptions:
2000 1999 1998
------------------------------------------ ---------- ---------- ----------
Dividend Yield............................ None None None
Volatility................................ 110% 106% 65%
Risk-free interest rate................... 5.5%-6.2% 4.9%-6.7% 5.5%-5.9%
Expected life (years)............... 5 7 7
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the use of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimates, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock-based compensation.
Employee Stock Purchase Plan
In 1997, the shareholders approved the 1997 employee stock purchase plan
(the "1997 Plan"). Under the 1997 Plan, an aggregate of 50,000 shares of common
stock may be purchased by employees at 85% of the fair market value on the first
or last day of each six month offering period, whichever is lower. An eligible
employee may elect to have up to a maximum of 10% deducted through payroll
deductions from his or her regular salary. During 2000, 1999 and 1998, there
were 0, 4,876 and 25,478 shares, respectively, issued under the Purchase Plan.
In June 2000, the stockholders approved the 2000 employee stock purchase
plan (the "2000 Plan") to replace the Company's 1997. Under the 2000 Plan, an
aggregate of 50,000 shares of common stock may be purchased by employees at 85%
of the fair market value on the first or last day of each six month offering
period, whichever is lower. During each offering period, the maximum number of
shares which may be purchased by a participating employee is determined on the
first day of the offering period and is equal to the number of shares of common
stock determined by dividing $12,500 by the last reported sale price of the of
the common stock on the Nasdaq National Market on the first day of the offering.
An eligible employee may elect to have up to a maximum of 10% deducted through
payroll deductions from his or her regular salary. During 2000, no shares were
issued under the 2000 Plan.
Stock-Based Compensation to Non-Employees
In connection with stock options previously issued to non-employees, the
Company's Board of Directors authorized the Company to accelerate the vesting of
all non-employee advisors' stock options subject to variable accounting
principles. Accordingly, $1,261,000 in non-cash compensation expense was
recorded and presented as a separate line item within the Statement of
Operations for the year ended December 31, 2000. The recorded $1,261,000
aggregate fair value of the non-employee stock options was derived from the
Black-Scholes option-pricing model.
Stock Warrants
In 1997, the Company issued a warrant to purchase 45,000 shares of the
Company's common stock at $3.00 per share. The warrant expires on June 5, 2002.
As of December 31, 2000, the warrant had vested with respect to 40,000 shares.
The remaining 5,000 shares are not exercisable due to the failure of the holder
to satisfy certain vesting requirements.
M - Employees Savings Plan
The Company adopted a 401(k) savings plan for all domestic employees in
1994. Under the provisions of the plan, employees may voluntarily contribute up
to 15% of their compensation subject to statutory limitations. In addition, the
Company matches 50% of the first $3,000 contributed by employees up to a $1,500
maximum per employee. Employer matching contributions amounted to approximately
$18,000, $11,000 and $20,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
N - Discontinued Operations
On May 17, 1999, the Company sold substantially all of its assets and
business for approximately $11.0 million in cash and the assumption of certain
liabilities. Upon the consummation of the sale, BioSepra Inc. changed its name
to BioSphere Medical, Inc. The Company utilized a portion of the proceeds to pay
approximately $880,000 of transaction costs, to repay approximately $2.0 million
of outstanding bank debt, and to repay approximately $143,000 due to Sepracor.
The net assets included in the sale had a net book value of approximately
$10.5 million on May 17, 1999, which was included in calculating a net loss for
the sale of approximately $70,000. The operations, assets and liabilities of the
business have been presented in accordance with disposal of a segment of a
business and discontinued operations accounting principles in the accompanying
consolidated financial statements. Accordingly, the operating results of the
discontinued business for the years ended December 31, 1999 and 1998 have been
segregated from the continuing operations and reported as a separate line item
on the consolidated statements of operations.
O - Valuation and Qualifying Accounts
A rollforward of the allowance for doubtful accounts for the years ended
December 31, 2000, 1999 and 1998 are as follows:
Balance, Charged to Balance,
Beginning of Costs and End of
(In thousands) Period Expenses Deductions Period
- ---------------------------------------------------------------------------------
Year Ended December 31, 2000.... $ -- $37 $ (8) $ 29
Year Ended December 31, 1999.... 106 -- (106) --
Year Ended December 31, 1998.... 369 1 (264) 106
These allowances for all periods presented are included in Net Assets of
Discontinued Operations as they appear on the balance sheet included herein.
P - Quarterly Financial Data (Unaudited)
The following is a summary of quarterly financial results:
Fourth Third Second First
(In thousands except per share amounts) Quarter Quarter Quarter Quarter
- ----------------------------------------- ------- ------- ------- -------
Net Sales
2000.................................... $ 1,356 $ 1,016 $ 815 $ 774
1999.................................... 679 594 713 280
- ----------------------------------------- ------- ------- ------- -------
Gross Profit
2000.................................... 956 641 411 492
1999.................................... 231 212 285 134
- ----------------------------------------- ------- ------- ------- -------
Net loss
2000 - before discontinued operations... (2,371) (2,453) (2,147) (1,476)
2000 - after discontinued operations... (2,371) (2,453) (2,147) (1,476)
1999 - before discontinued operations... (1,452) (979) (1,025) (538)
1999 - after discontinued operations... (1,452) (979) (1,128) (974)
- ----------------------------------------- ------- ------- ------- -------
Diluted Loss per share
2000 - before discontinued operations... (0.23) (0.24) (0.23) (0.17)
2000 - after discontinued operations... (0.23) (0.24) (0.23) (0.17)
1999 - before discontinued operations... (0.17) (0.12) (0.12) (0.06)
1999 - after discontinued operations... (0.17) (0.12) (0.13) (0.11)
- ----------------------------------------- ------- ------- ------- -------
Q - Subsequent Events
On February 7, 2001, the Company, along with its subsidiary, BSMD Ventures,
Inc., filed a complaint for declaratory judgment in the United States District
Court for the District of Delaware against Artes Medical USA, Inc. The complaint
seeks a declaration that United States Patent No. 5,344,452, which the Company
refers to as the '452 patent, which Artes claims to have the right to enforce,
is invalid and not infringed by BioSphere and BSMD Ventures. The '452 patent
relates to "..implant[s] based on a biocompatible solid in powder form, in
particular a plastic".
On February 7, 2001, Artes Medical USA filed a complaint against the
Company and BSMD Ventures, Inc., in the United States District Court for the
Central District of California (Los Angeles). The complaint claims that the
Company and its subsidiary are liable for infringement, inducement of
infringement, and contributory infringement of the '452 patent. Artes seeks
monetary damages as compensation for the alleged infringement and a permanent
injunction against the alleged infringing activity. Artes Medical apparently
asserts that all of the Company's microsphere-related products, including our
Embosphere Microspheres, HepaSphere SAP Microspheres and MatrX Microspheres
infringe the '452 patent. The Company believes Artes' claims are without merit
and intends to vigorously defend these claims.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEMS 10-13.
The information required for Part III in this Annual Report on Form 10-K is
incorporated by reference from the Company's definitive proxy statement for the
Company's 2001 Annual Meeting of Stockholders. Such information will be
contained in the sections of such proxy statement captioned "Stock Ownership of
Certain Beneficial Owners and Management", "Election of Directors", "Board and
Committee Meetings", "Compensation for Directors", "Compensation of Executive
Officers", "Compliance with Section 16 Reporting Requirements", and "Certain
Relationships and Related Transactions". Information regarding executive
officers of the Company is also furnished in Part I of this Annual Report on
Form 10-K under the heading "Executive Officers."
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are included as part of this Annual Report on Form
10-K.
1. The Schedule listed below and the Reports of Independent Accountants
on financial statement schedules are filed as part of this Annual
Report on Form 10-K.
All other schedules are omitted as the information required is
inapplicable or the information is presented in the consolidated
financial statements or the related notes.
2. The Exhibits listed in the Exhibit Index immediately preceding the
Exhibits are filed as a part of this Annual Report on Form 10-K.
(b) Current Reports on Form 8-K filed during the last quarter of the fiscal
year.
None
-----------
The following trademarks of the Company are mentioned in this Annual Report
on Form 10-K: Biosphere Medical(TM), Embosphere(R), HepaSphere SAP(TM),
MatrX(TM) and GenS2(TM).
Exhibit Index
Exhibit No. Description
----------- -----------------------------------------------------------------
3.1 Certificate of Incorporation, as amended, of the Company.
(Incorporated herein by reference to the Company's Registration
Statement on Form S-1, as amended (File No. 33-75212)).
3.2 By-Laws of the Company. (Incorporated herein by reference to the
Company's Registration Statement on Form S-1, as amended (File
No. 33- 75212))
4(1) Specimen Certificate for shares of Common Stock, $.01 par value,
of the Company.
10.1 1994 Director Option Plan. (Incorporated herein by reference to
the Company's Registration Statement on Form S-1, as amended
(File No. 33- 75212))
10.2 Form of Technology Transfer and License Agreement dated as of
January 1, 1994 between the Company and Sepracor Inc.
(Incorporated herein by reference to the Company's Registration
Statement on Form S-1, as amended (File No. 33-75212))
10.3 Share Purchase Agreement by and between Marie-Paule
Leroy-Landercy and the Company dated December 31, 1998.
(Incorporated herein by reference to the Company's Form 10-K for
the year ended December 31, 1999)
10.4+ Joint Ownership Contract between the Company and L'Assistance
Publique Hopitaux de Paris dated January 5, 1998, together with
amendment dated February 10, 2000 (translated from French).
(Incorporated herein by reference to the Company's Form 10-K for
the year ended December 31, 1999)
10.5+ License of SAP-MS rights, including JP 6056676 between Shinichi
Hori and the Company dated September 21, 1999 (translated from
Japanese). (Incorporated herein by reference to the Company's
Form 10-K for the year ended December 31, 1999)
10.6 Second Amended and Restated Revolving Credit and Security
Agreement by and among Fleet National Bank, Sepracor Inc. and the
Company dated as of December 31, 1999. (Incorporated herein by
reference to the Company's Form 10-K for the year ended December
31, 1999)
10.7 Amendment No. 1 and Consent dated February 14, 2000 to Second
Amended and Restated Revolving Credit Security Agreement by and
among Fleet National Bank, Sepracor Inc. and the Company.
(Incorporated herein by reference to the Company's Form 10-K for
the year ended December 31, 1999)
10.8 Reimbursement and Security Agreement between the Company and
Sepracor Inc. dated December 22, 1999. (Incorporated herein by
reference to the Company's Form 10-K for the year ended December
31, 1999)
10.9+ Exclusive License and Know How Agreement No. L99037 by and
between Le Centre National de la Recherche Scientifique,
L'Universite Louis Pasteur Strasbourg and the Company dated July
15, 1999 (translated from French). (Incorporated herein by
reference to the Company's Form 10-K for the year ended December
31, 1999)
10.10+ Form of Stock and Warrant Purchase Agreement dated as of February
4, 2000, between the Company (together with schedule of
purchasers thereto). (Incorporated herein by reference to the
Company's Form 10-K for the year ended December 31, 1999)
10.11 Form of Warrant Agreement dated as of February 4, 2000, between
the Company and certain purchasers (together with schedule of
purchasers thereto). (Incorporated herein by reference to the
Company's Form 10-K for the year ended December 31, 1999)
10.12 Senior Management Retention Agreement dated October 3, 1997 by
and between the Company and Jean-Marie Vogel. (Incorporated
herein by reference to the Company's Form 10-Q for the quarter
ended September 30, 1997)
10.13 Sublease Agreement between Guerbet S.A. and of Biosphere Medical,
S.A. (translated from French to English). (Incorporated herein by
reference to the Company's Form 10-K for the year ended December
31, 1999.)
10.14 Lease Agreement dated January 7, 2000 by and between 1050 Hingham
Street Realty Trust and the Company. (Incorporated herein by
reference to the Company's Form 10-K for the year ended December
31, 1999.) (Incorporated herein by reference to the Company's
Form 10-K for the year ended December 31, 1999)
10.15* First Amendment to Lease Agreement dated June 27, 2000 by and
between 1050 Hingham Street Realty Trust and the Company.
10.16 Employment Agreement by and between the Company and Jean-Marie
Vogel dated as of May 14, 1999. (Incorporated herein by reference
to the Company's Form 10-Q for the quarter ended March 30, 1999)
10.17 Stock Purchase Agreement dated July 28, 2000 (Incorporated herein
by reference to the Company's Form 10-Q for the quarter ended
June 30, 1999)
10.18 Registration Rights Agreement dated July 28,2000 (Incorporated
herein by reference to the Company's Form 10-Q for the quarter
ended June 30, 1999)
10.19+* Supply Agreement dated January 3, 2001 between BSMD Ventures,
Inc. and Inamed Corporation.
10.20* Lease Agreement dated October 19, 2000 by and between Biosphere
Medical S.A. and Salamandre S.A. (translated from French to
English)
21 Subsidiaries of the Company.
23 Consent of Arthur Andersen LLP
-----------
(1) Management contract or compensatory plan or arrangement filed as an exhibit
to this Form 10-K pursuant to Items 14(a) and 14(c) of Form 10-K.
+ Confidential treatment requested as to certain portions.
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BIOSPHERE MEDICAL, INC.
BY: /S/ JOHN M. CARNUCCIO
--------------------------
John M. Carnuccio
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: March 27, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOHN M. CARNUCCIO President, Chief Executive March 27, 2001
- ------------------------------- Officer, Director (Principal
John M. Carnuccio Executive Officer)
/s/ ROBERT M. PALLADINO Chief Financial Officer March 27, 2001
- ------------------------------- (Principal Financial and
Robert M. Palladino Accounting Officer)
/s/ JEAN-MARIE VOGEL Director, Chairman of March 27, 2001
- ------------------------------- the Board
Jean-Marie Vogel
/s/ TIMOTHY J. BARBERICH Director March 27, 2001
- -------------------------------
Timothy J. Barberich
/s/ William M. Cousins, Jr. Director March 27, 2001
- -------------------------------
William M. Cousins, Jr.
/s/ ALEXANDER M. KLIBANOV Director March 27, 2001
- -------------------------------
Alexander M. Klibanov, Ph.d.
/s/ PAUL A. LOONEY Director March 27, 2001
- -------------------------------
Paul A. Looney
/s/ RICCARDO PIGLIUCCI Director March 27, 2001
- -------------------------------
Riccardo Pigliucci
/s/ DAVID P. SOUTHWELL Director March 27, 2001
- -------------------------------
David P. Southwell
- --------------------------------------------------------------------------------