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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For fiscal year ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-10961
QUIDEL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2573850
(State or other jurisdiction (I.R.S. Employer
or incorporation or organization) Identification No.)
10165 McKellar Court, 92121
San Diego, California
(Address of (zip code)
principal executive offices)
Registrant's telephone number, including area code (619) 552-1100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $0.001 par value
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 the voting stock held by nonaffiliates of
the Registrant as of June 10, 1998 was approximately $80,953,000. For the
purposes of this calculation, shares owned by officers, directors and 5%
stockholders known to the Registrant have been deemed to be owned by affiliates.
The number of shares outstanding of the Registrant's Common Stock as of
June 10, 1998 was 23,767,616.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on July 28, 1998 (the "Proxy Statement"),
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of the Registrant's fiscal year ended March 31, 1998
("Fiscal 98"), are incorporated herein as provided in Part III, and portions of
the Registrant's Annual Report to Stockholders for fiscal 1998 (the "1998 Annual
Report"), are incorporated herein as provided in Parts I, II and IV.
Except for the historical information contained herein, the matters
discussed in this report are by their nature forward-looking. For the reasons
stated in this report or in the Company's Securities and Exchange Commission
filings, or for various unanticipated reasons, actual results may differ
materially. The Company's operating results may continue to fluctuate on a
quarter-to-quarter basis as a result of a number of factors, including
seasonality, the competitive and economic factors affecting the Company's
domestic and international markets, actions of our major distributors,
manufacturing and production delays or difficulties, adverse actions or delays
in product reviews by United States Food and Drug Administration, and the degree
of acceptance that our new products achieve during the year.
PART I
Item 1. BUSINESS
Quidel Corporation discovers, develops, manufactures and markets rapid
immunodiagnostic products for point-of-care detection of human medical
conditions and illnesses. These products provide simple, accurate and
cost-effective diagnoses of acute and chronic conditions in the areas of
reproductive and women's health, infectious diseases, gastrointestinal and
autoimmune disorders. Quidel's products are sold to professionals for use in the
physician's office and clinical laboratory, and to consumers through retail drug
stores. When used in this Report, "Quidel," the "Company" and the "Registrant"
refer to Quidel Corporation.
Quidel commenced its operations in 1979 and launched its first products,
dipstick-based pregnancy tests, in 1984. The Company has expanded its product
base through internal development and acquisition in the areas of pregnancy and
ovulation, infectious disease, gastrointestinal and autoimmune products for
professional and home use. Quidel markets its products in the United States and
in over 60 other countries worldwide through a broad network of national and
regional distributors, supported by the Company's direct sales force.
Fiscal 1998 was a year of significant developments at the Company. In
March of 1998, Steven T. Frankel, President and Chief Executive Officer,
resigned. On June 10, 1998, the Board of Directors announced that Andre de
Bruin, Vice Chairman of the Board and then a part-time employee, had been
appointed President and Chief Executive Officer.
In June of 1997, the Company settled a lawsuit filed against it by
Becton Dickinson and Co. which alleged that the Company's strep and chlamydia
products and certain of its pregnancy and ovulation products (the "Products")
infringed two patents held by Becton Dickinson. As part of the
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settlement agreement, the Company received a license from the plaintiff under
both patents in exchange for a cash license fee, a royalty on net sales of the
Products as of April 1, 1997, and a royalty-bearing license back to Becton
Dickinson for the Company's Q-Label technology. While the Company denied the
allegations in the complaint and admitted no liability as part of the lawsuit's
resolution, the Company believed the settlement was warranted when balanced
against the anticipated defense costs, the uncertainties of patent litigation in
general, and the expected diversion of management's time and attention over an
extended period of time.
Declining international subsidiary profitability led management to
decide to discontinue the operations of certain European subsidiaries. It is the
Company's intention to continue the sales in these areas through distributors.
As a result of the Company's decision to discontinue certain European
subsidiaries, a non-cash charge of approximately $3,058,000 was recorded in the
fourth quarter.
In the second half of the fiscal year, the Company developed a new
strategic plan. In the near term, the company will focus on two priorities: 1)
to substantially improve the Company's base of operations to improve performance
and increase predictability and consistency of operations; and 2) to rationalize
existing product lines while expanding the Company's overall new product and
technology portfolio. The Company estimates that additional charges of up to
$1.5 million will be incurred as restructuring plans for domestic and foreign
operations are implemented during the first half of fiscal 1999. The mission for
fiscal 1999 and beyond is to establish the Company as a leader in rapid in-vitro
diagnostics for the decentralized point-of-care market.
The Company's executive offices are located at 10165 McKellar Court, San
Diego, California 92121 and its telephone number is (619) 552-1100.
INDUSTRY OVERVIEW
The Overall Market for In-Vitro Diagnostics:
The worldwide market for In-Vitro Diagnostic ("IVD") products is
estimated to have been about $18 billion in 1997. Typically, the market is
segmented by the underlying technology involved in a test, with the largest
segments being clinical chemistry and immunodiagnostics, accounting for about
40% and 25% of the total IVD market respectively. Geographically, North America
accounts for about 40% of the market, Europe 33%, Japan 13% and the rest of the
world 14%. Total IVD revenues are growing approximately 5% per year while
underlying testing volume is growing closer to 10% which illustrates the
maturity of the market in aggregate.
The customers for IVD products are quite varied, but are dominated by
large centralized laboratories, either freestanding or in the hospital. In the
U.S., central labs represent only 10% of total number of testing facilities, but
account for 70% of test volume and 80% of revenues.
From a healthcare provider's standpoint, the testing process typically
involves sending a patient to a facility, which draws the blood and sends to a
central lab. The lab then tests the sample in a large batch and sends the
results to the provider. Typically the healthcare provider receives the results
several days after seeing the patient, although in some cases it may only be
several hours, particularly in a hospital setting. In any event, the result of
this process is that diagnostic tests
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generally are disconnected from the routine care and dialogue that is the
substance of a visit between a healthcare provider and his/her patient.
Three basic forces have driven the market for central lab testing: 1)
technical requirements for accurate testing often require large, sophisticated
pieces of equipment; 2) the cost to run a test on these large scale instruments
is very low; and 3) the Clinical Laboratory Improvement Amendments ("CLIA") of
1988 and subsequent Health Care Financing Administration regulations subject all
labs, regardless of size, to set standards. Most physicians and smaller labs
found these regulations prohibitive and largely stopped testing in the 1990's.
Together, these factors have led to the current dominance of centralized labs in
diagnostic testing.
The over-the-counter ("OTC")/self-test market has not been as affected
by these trends. The U.S. OTC test market was estimated to be approximately $1
billion in 1997 and growing at approximately 10% annually. Two test categories,
pregnancy and glucose (for diabetes), dominate this market.
The Point-of-Care ("POC") Market and Rapid/Waived Tests:
POC testing is the alternative to central lab and self-testing. The POC
market is comprised of two general segments: hospital testing and decentralized
testing . Hospital POC testing is a growing practice and is generally an
extension of the hospital's central lab. A number of diagnostic tests done in
the hospital are much more effectively done at the bedside, stat-lab or in the
Emergency Room ("ER"). For example, stat-labs provide rapid turnaround of
critical measures like blood gasses in real time to physicians and nurses
treating critically ill patients. Other examples include drug screens or
pregnancy tests in the ER. Overall, the U.S. hospital POC market was estimated
to be about $400MM in sales in 1996 and growing at a rate of about 15% per year.
The second segment is the "decentralized" POC market, which consists of
physician's office labs, nursing homes, pharmacies and other non-institutional
settings in which healthcare providers perform diagnostic tests. This market
segment was estimated to be about $550MM in sales in 1996 and growing at about
6% annually. The decentralized POC market encompasses a large variety of IVD
products ranging from sophisticated instrumented diagnostic systems serving
larger group practices to very simple, single-use, disposable tests for
physician's office. POC testing in both the hospital and decentralized segments
are increasing in popularity.
This POC testing growth is in part the result of technological
improvements creating easy-to-use, high quality tests capable of being waived
from CLIA regulations, and thereby available to the 36,000 or so office labs
approved to conduct CLIA waived tests.
BUSINESS STRATEGY
The Company believes that the increasing trend among health care
providers to adopt POC testing is important and lasting. More and more
employers, health plans, and payors are recognizing that the point-of-care is a
primary focal point for improving the quality, patient satisfaction and cost
effectiveness of healthcare delivery. Further, improvements in technology are
making diagnostic tests that combine clinical lab accuracy with OTC ease-of-use
for a growing number of types of tests. It is Quidel's mission to establish a
significant leadership position in rapid in-vitro diagnostics
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for the decentralized POC market. In order to accomplish this mission the
Company has defined the following strategic goals:
- - Focus on the U.S. Professional market and establish an undisputed
leadership position in rapid IVD products
- - Establish international sales distribution through major corporate
partners
- - When financially attractive in the short term (within a one to two year
period), expand into other business segments primarily through
collaborations
- - Build/strengthen the Company's infrastructure and operations to reliably
and efficiently support planned growth
- - Actively collaborate with others to accelerate expansion and to provide
complementary products, technologies, market positions, and expertise
TECHNOLOGY
Immunoassays utilize commercially produced protein molecules called
antibodies, which react with or bind to specific antigens, such as other
antibodies, viruses, bacteria, hormones and drugs. The antibodies produced in
response to a particular antigen bind specifically to that antigen. This
characteristic allows antibodies to be used in a wide range of diagnostic
applications.
The ability to detect the binding of antibodies to target antigens forms
the basis for immunoassay testing. In immunoassays, antibodies are typically
deposited onto a solid substrate. A chemical label is then either incorporated
onto the solid substrate or added separately once the solid substrate has been
exposed to the test sample. If the target antigen is present in the test sample,
the chemical label produces a visually identifiable color change in response to
the resulting antibody reaction with the antigen. This provides a clear color
endpoint for easy visual verification of the test results.
Quidel incorporates antibody technology and biochemistry into uniquely
designed and engineered products. Quidel has developed four primary delivery
system formats: dipsticks, flow-through cassettes, microwell tests and a
one-step lateral flow delivery system. Although each is based on the same
general antibody-antigen based approach, the four formats differ in terms of
speed, ease-of-use and sensitivity, and, as a result, address the particular
needs of different end-user markets.
PRODUCTS
The Company provides rapid point-of-care diagnostic tests under brand
names such as Q-Test(R), QuickVue(R), OvuQuick(R), Conceive(R), and
Concise(R),which are directed at the following medical conditions:
- Pregnancy Tests. This is one of the largest rapid testing market
segments. The early detection of pregnancy allows the physician
and patient to institute proper prenatal care, helping to ensure
the health of both the developing embryo and the mother.
Pregnancy test sales represented 37% of the Company's total net
sales in fiscal 1998.
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- Group A Streptococci. Each year millions of people in the United
States are tested for Group A streptococcal infections,
commonly referred to as strep throat. Group A streptococci are
organisms that typically cause illnesses such as tonsillitis,
pharyngitis and scarlet fever which, if left untreated, can
progress to complications such as rheumatic fever. Sales of the
Company's products have increased significantly, principally as
a result of receiving CLIA waived status in March 1996 for the
Quidel QuickVue(R) In-Line One-Step Strep A Test, which
represented 31% of the Company's fiscal 1998 net sales.
- Ovulation Prediction. Tests in this category are for couples
affected by infertility or the desire to control the timing of
their pregnancies. These tests predict or confirm the occurrence
of ovulation and are important tests for both the fertility
specialist and the consumer. This product category represented
11% of fiscal 1998 net sales.
- H. pylori. Helicobacter pylori (H. pylori) is the bacterium
responsible for 80% of the five million ulcers in the U.S. It is
implicated in chronic gastritis and is recognized by the World
Health Organization as a Class 1 carcinogen that increases a
person's risk of developing stomach cancer. Once the H. pylori
infection is detected, antibiotic therapy is administered to
kill the organism and promote a cure of the ulcer condition. The
Company's rapid test utilizes whole blood samples from a finger
prick. It is a serological test, a test that measures antibodies
circulating in the blood caused by the H. pylori infection.
Quidel's test, which was the first to receive CLIA waived
status, has progressively increased in sales and accounted for
8% of the Company's total net sales in fiscal 1998.
- Other Products. The balance of the Company's sales include rapid
infectious disease tests to detect chlamydia and mononucleosis,
allergy screening tests and clinical laboratory tests used in
the measurement of circulating immune complexes.
For further sales information, please see pages 3, 11 and 12 of
the Company's 1998 Annual Report.
PRODUCT LIFE CYCLES
The Company's results can be significantly affected by the phase-out of
older products near the end of their product life cycles, as well as the timing
and success of new product introductions. A successful new product launch can
result in strong initial sales as inventories are built up during the pipeline
fill period, followed by a decline in sales before reaching normalized levels.
The ability of the Company to compete successfully in the rapid diagnostics
market depends on the continual development and introduction of new products and
the improvement of existing products. There can be no assurance that the Company
will be able to develop sufficient new product entries to replace older products
in a timely manner, or that its new products will gain significant market
acceptance.
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VARIABILITY IN DEMAND
Sales levels for several of the Company's products are affected by
seasonal demand trends. Group A strep tests, for example, which currently
account for approximately 31% of the Company's total annual sales, are used
primarily in the fall and winter and tend to benefit the third and fourth fiscal
quarters. As a result of these demand trends, the Company generally may achieve
lower results in the first and second quarters and higher results in the third
and fourth quarters of the fiscal year.
RESEARCH AND DEVELOPMENT
The Company is focusing its development efforts on two areas: 1) the
creation of new and improved products for its existing product markets; and 2)
products for new markets developed under pharmaceutical company collaborations.
For further information about these specific investments, see pages 4 and 5 of
the Company's 1998 Annual Report.
These pharmaceutical collaborations were undertaken with the goal of
creating differential diagnostics for use in identifying patients most likely to
benefit from the therapeutic product provided by the pharmaceutical company.
With this "test and treat" approach, it is believed that costs related to
inappropriate therapy can be avoided, while increasing the efficiency of therapy
among those patients most in need.
The most significant effort of the Company's research collaborations are
focused on the development of an influenza A and B diagnostic test and two tests
to detect genital herpes, both of which are multi-year programs funded under an
agreement with Glaxo Group, Ltd., a wholly-owned subsidiary of Glaxo Wellcome.
If these programs are successful the resulting diagnostics tests will be sold by
Quidel under the Quidel brand name. In return for funding this development,
Glaxo will receive royalties on the sales of the related product. For further
information about these agreements, see note 8 "Commitments" on page 15 of the
Company's 1998 Annual Report.
The collaboration with Bayer Corporation's Business Group Diagnostics is
continuing however, no assurance can be given as to the sustainability of the
current agreements.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries to represent years. For example, the year "1998"
would be represented by "98". These systems and products will need to be able to
accept four digit entries to distinguish years beginning with 2000 from prior
years. As a result, systems and products that do not accept four digit year
entries will need to be upgraded or replaced to comply with such "Year 2000"
requirements. The Company believes that its internal systems are Year 2000
compliant or will be upgraded or replaced in connection with previously planned
changes to information systems prior to the need to comply with Year 2000
requirements without material cost or expense. The anticipated costs of any Year
2000 modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources and
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other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to the availability or cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties. In addition, there can be no assurance that Year 2000 compliance
problems will not be revealed in the future which could have a material adverse
affect on the Company's business, financial condition and results of operations.
Many of the Company's customers and suppliers may be affected by Year 2000
issues that may require them to expend significant resources to modify or
replace their existing systems. This may result in those customers having
reduced funds to purchase the Company's products or in those suppliers
experiencing difficulties in producing or shipping key components to the Company
on a timely basis or at all.
MARKETING AND DISTRIBUTION
In contrast to the central lab market, the domestic decentralized POC
market is highly fragmented, consisting of tens of thousands of small customers,
rather than a few large customers. Quidel has designed its business around
serving the unique needs of this market segment. To reach these customers the
Company utilizes a network of national and region distributors, which are
supported by the Company's sales force.
The Company has developed priority status with many of the major
distributors in the U.S., causing the Company's products to be the sole
preferred products these distributors offer in Quidel's core product areas.
Internationally, markets vary considerably country by country. The
extent of rapid IVD product penetration, the acceptance of testing outside the
central lab and the importance of the OTC and self-test markets differ markedly.
Overall, Quidel's international presence is substantially lower as a percentage
of its total business than is generally characteristic of the IVD market. Some
of this difference is due to the fact that the POC market is more developed in
the U.S. relative to the overall IVD market in other countries. Also, Quidel's
ability to address the international markets is reduced due to limited resources
and capital.
The Company generally ships products to its customers within 15 days of
receipt of purchase orders. Shipments to international distributors are made
under purchase orders received from 30 to 90 days in advance of shipment.
Because the amounts ordered and the lead times specified vary widely from
order-to-order and period-to-period, the Company does not consider backlog to be
a meaningful indicator of future revenues.
MANUFACTURING
Quidel's manufacturing facilities, located in San Diego, California,
consist of laboratories devoted to tissue culture and immunochemistry, and
production areas dedicated to packaging and filling. In the manufacturing
process, the Company uses biological, chemical and packaging supplies and
equipment, which are generally available from several competing suppliers.
The Company believes that its manufacturing is conducted in compliance
with the "Good Manufacturing Practices" ("GMP") regulations of the FDA governing
the manufacture of medical
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devices. Quidel has registered its facility with the FDA and with the Department
of Health Services of the State of California and has passed routine federal and
state inspections confirming the Company's compliance with the GMP regulatory
requirements for in vitro diagnostic products.
The manufacture of medical diagnostic products is difficult,
particularly with respect to the stability and consistency of complex biological
components. Because of these complexities, manufacturing difficulties
occasionally occur that delay the introduction of products, result in excess
manufacturing costs or require the replacement of products already introduced
into the distribution channel.
GOVERNMENT REGULATION
The manufacture and marketing of medical devices, including in vitro
diagnostic test kits, are regulated under the 1976 Medical Device Amendments to
the Federal Food, Drug and Cosmetic Act and its amended and/or new provisions
under the Safe Medical Act of 1990. These regulations are administered by the
FDA. While these regulations are demanding, they are considerably less
burdensome than those applicable to the manufacture and marketing of drugs or
monoclonal antibodies for in vivo (within the living body) applications. In
addition to the foregoing, the Company's present and future operations or
products may be subject to regulation under the Occupational Safety and Health
Act, Environmental Protection Act, Resource Conversion and Recovery Act, Toxic
Substances Control Act, Clinical Laboratory Improvement Act and other present or
possible future legislation and regulations, as well as by governmental agencies
with regulatory authority relating to the Company's business.
PATENTS AND TRADE SECRETS
Because of the length of time and the expense associated with bringing
healthcare products through development and government approval to the
marketplace, the healthcare industry has traditionally placed considerable
importance on obtaining and maintaining patent and trade secret protection for
significant new technologies, products and processes. Quidel and other companies
engaged in research and development of new diagnostic products using advanced
biomedical technologies are actively pursuing patents for their technologies,
which they consider novel and patentable. However, important legal issues remain
to be resolved as to the extent and scope of available patent protection in the
United States and in other important markets worldwide. The resolution of these
issues and their effect upon the long-term success of Quidel and other
biotechnology firms cannot be determined.
It has been Quidel's policy to file for patent protection in the United
States and other countries with significant markets, such as Western European
countries and Japan, if the economics are deemed to justify such filing and
Quidel's patent counsel determines that a strong patent position can be
obtained. No assurance can be given that patents will be issued to Quidel
pursuant to its patent applications in the United States and abroad or that
Quidel's patent portfolio will provide Quidel with a meaningful level of
commercial protection.
A large number of individuals and commercial enterprises seek patent
protection for technologies, products and processes in fields related to
Quidel's areas of product development. To the extent such efforts are
successful, Quidel may be required to obtain licenses in order to exploit
certain of its product strategies. There can be no assurance that such licenses
will be available to
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Quidel at all or if so, on acceptable terms.
Quidel is aware of certain issued and filed patents, issued to various
developers of diagnostic products with potential applicability to Quidel's
diagnostic technology. The Company has licensed certain rights from companies
such as Syntex and Becton Dickinson. For more information concerning the Becton
Dickinson license, see Note 10, "Legal Proceeding" on page 15 of the Company's
Annual Report. There can be no assurance that Quidel would prevail if a patent
infringement claim were to be asserted against Quidel.
Quidel seeks to protect its trade secrets and nonproprietary technology
by entering into confidentiality agreements with employees and third parties
(such as potential licensees, customers, joint ventures and consultants). In
addition, Quidel has taken certain security measures in its laboratories and
offices. Despite such efforts, no assurance can be given that the
confidentiality of Quidel's proprietary information can be maintained. Also, to
the extent that consultants or contracting parties apply technical or scientific
information independently developed by them to Quidel projects, disputes may
arise as to the proprietary rights to such data.
Under certain of its distribution agreements, Quidel has agreed to
indemnify the distributor against costs and liabilities arising out of any
patent infringement claim by a third party relating to products sold under those
agreements. In some cases, the distributor has agreed to share the costs of
defending such a claim and will be reimbursed for the amount of its contribution
if the infringement claim is found to be valid.
COMPETITION
The Company believes that the competitive factors in the rapid
diagnostic market include convenience, price and product performance as well as
the distribution, advertising, promotion and brand name recognition of the
marketer. Competition in the development and marketing of diagnostic products is
intense and diagnostic technologies have been subject to rapid change.
Management believes that Quidel's success will depend on its ability to remain
abreast of technological advances, to introduce technologically advanced
products, and to attract and retain experienced technical personnel, who are in
great demand. Many of the Company's current and prospective competitors,
including several large pharmaceutical and diversified health care companies,
have substantially greater financial, marketing and other resources than Quidel.
These competitors include Abbott Laboratories, SmithKline Diagnostics, and
Becton Dickinson. There can be no assurance that technological advances by
competitors will not render the Company's products obsolete, or that it will be
able to compete successfully in the marketing of products.
HUMAN RESOURCES
As of March 31, 1998, the Company had 312 employees, none of whom are
represented by a labor union. The Company has experienced no work stoppages and
believes that its employee relations are good.
Item 2. PROPERTIES
The Company's executive, administrative, manufacturing and research and
development facilities are located in San Diego, California. On February 8,
1994, the Company purchased the
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land underlying such facilities and the 65,000 square-foot building located
thereon for approximately $7,700,000. Effective September 1, 1997, the Company
entered into a lease of a 7,245 square-foot research facility located in San
Diego, California. The lease provides for an initial term of two years and
options to renew for three consecutive one-year periods. The Company believes
that its current facilities are adequate for its present needs.
Item 3. LEGAL PROCEEDINGS
The Company received a letter dated April 24, 1992 from the United
States Environmental Protection Agency (the "EPA") notifying the Company that it
is a potentially responsible party for cleanup costs at a federal Superfund
site, the Marco of Iota Drum Site (the "Marco Site"), near Iota, Louisiana.
Documents gathered in response to such letter indicate that the Company sent a
small amount of hazardous waste to facilities in Illinois. It is possible that
subsequently, such waste could have been transshipped to the Marco Site. The EPA
letter indicates that a similar notice regarding the Marco Site was sent by the
EPA to over 500 other parties. At this time, the Company does not know how much
of its waste may have reached the Marco Site, the total volume of waste at the
Marco Site or the likely site remediation costs. There is, as in the case of
most environmental litigation, the theoretical possibility of joint and several
liability being imposed upon the Company for damages that may be awarded.
In April 1997, Becton Dickinson and Co. (the "plaintiff") filed a
lawsuit against the Company alleging that the Company's strep and chlamydia
products and certain of its pregnancy and ovulation products (collectively, the
"Products") infringe two patents of the plaintiff. The Products in issue
represent a substantial majority of the Company's current revenues. In June
1997, the Company entered into a settlement agreement with the plaintiff. As a
part of that agreement, the Company received a license from the plaintiff under
both patents in exchange for a cash license fee, a royalty on net sales of the
Products after April 1, 1997, and a license of the Company's Q-Label technology
back to plaintiff (with a royalty on future net sales). The Company currently
estimates that the annual amortization of the license fee and royalty payments
(based on current sales levels of the Products) will result in an annual expense
of approximately $2,000,000 per year. While the Company denied the allegations
in the complaint and admitted no liability as part of the suit's resolution, the
Company believed the settlement was warranted when balanced against the
anticipated defense costs, the uncertainties of litigation in general, and the
expected diversion of management's time and attention over an extended period.
The Company is involved in litigation matters from time to time in the
ordinary course of business. Management believes that any and all such actions,
in the aggregate, will not have a material adverse effect on the Company. The
Company maintains insurance, including coverage for product liability claims, in
amounts which management believes appropriate given the nature of the Company's
business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all executive officers of the Company
as of June 10, 1998 are listed below, followed by a brief account of their
business experience during the past five years. Officers are normally appointed
annually by the Board of Directors at a meeting of the directors immediately
following the Annual Meeting of Stockholders. There are no family relationships
among these officers, nor any arrangements or understandings between any officer
and any other person pursuant to which an officer was selected. None of these
officers has been involved in any court or administrative proceeding within the
past five years adversely reflecting on the officer's ability or integrity.
Andre de Bruin, 51, was appointed President and Chief Executive officer
of the Company on June 10, 1998. Since June 23, 1997, Mr. de Bruin has been Vice
Chairman of the Board and a part-time employee of the Company. Mr. de Bruin was
appointed President and Chief Executive Officer of Somatogen, Inc. of Boulder,
Colorado, in July 1994, and was elected as Chairman in January 1996. Baxter
International acquired Somatogen in May 1998. Immediately prior to joining
Somatogen, he was Chairman, President and Chief Executive Officer of Boehringer
Mannheim Corporation, Indianapolis, Indiana, a U.S. subsidiary of Cornage Ltd.,
a private, global health care corporation with sales exceeding $3 billion. He
held that position since 1989. Mr. de Bruin serves on the Board of Directors of
Diametrics Medical, Inc., a public company that manufactures and markets
proprietary critical blood and tissue analysis systems, and Metabolex, Inc., a
privately held company founded to develop therapeutics for diabetes and related
metabolic diseases. He has been involved in the global health care industry for
more than twenty-seven years in pharmaceuticals, devices and diagnostics.
Steven C. Burke, 53, Vice President - Finance and Administration and
Chief Financial Officer, joined Quidel in 1986. From May 1984 until August 1986,
he was Vice President, Controller of American Bentley, a subsidiary of American
Hospital Supply. Mr. Burke is a Certified Public Accountant.
Darryll J. Getzlaff, 47, Vice President - Human Resources, joined Quidel
in April 1987 with 10 years of personnel management experience, with special
expertise in recruiting, management development and equal opportunity. Mr.
Getzlaff was Personnel Director, Corporate Marketing, for the Ernest & Julio
Gallo Winery from December 1984 until March 1987.
Glenn Holmes, 49, Vice President - Sales and Marketing, joined Quidel in
July 1997. Mr. Holmes has over twenty years of health care experience. Prior to
joining Quidel, Glenn was Director of Sales and Marketing with MDS AutoLab,
Canada's largest health and life sciences corporation. From 1981 to 1995, Glenn
was employed by Abbott Laboratories in various management positions.
Lauren G. Otsuki, 45, Vice President and Business Manager,
International, joined Quidel in May 1983 and held numerous positions in
Operations from 1983 to 1989, including Manager of Quality Control, Manager of
Process Development and Director of Manufacturing. From November 1989 to January
1992 she was the Director of Business Development and from January 1992 to June
1998 was the Vice President of Operations.
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Mark E. Paiz, 36, Vice President - Operations, joined Quidel in December
1997. He has 13 years experience in manufacturing, quality assurance, and
product development. From 1995 to 1997, Mr. Paiz served as Director of Research
and Development and Project Manager at Medtronic Interventional Vascular,
responsible for the development and manufacture of catheter and coronary stent
delivery devices. From 1992 to 1995, he served as a manager at Hybritech, Inc.
with various responsibilities including quality engineering, materials
management, supplier development and inspection.
John D. Tamerius, Ph.D., 52, Vice President - Clinical Laboratory
Business since March 1998; Interim Vice President - Research & Development,
joined Quidel in August 1989 and assumed responsibility for quality assurance
and clinical and regulatory affairs. In April 1994, Dr. Tamerius became
responsible for the research and development, manufacture and sales and
marketing activities for the Company's clinical laboratory business. From 1983
to 1989, Dr. Tamerius served as Vice President of Research and Development for
Cytotech, Inc. where he was in charge of Corporate Research Programs and
Clinical and Regulatory Affairs. Before co-founding Cytotech, Inc., Dr. Tamerius
was a Research Associate in the Department of Molecular Immunology at the
Research Institute of Scripps Clinic in San Diego, California from 1978 to 1983
and a postdoctoral fellow at the Fred Hutchinson Research Center in Seattle,
Washington from 1976 to 1978 and. Dr. Tamerius received his M.S. and Ph.D.
degrees in Microbiology and Immunology from the University of Washington in
1976.
Robin G. Weiner, 42, Vice President - Clinical Development and
Regulatory Affairs, joined Quidel in March 1982. She has over thirteen years
experience in regulatory affairs and has held numerous management positions at
Quidel in Operations and Clinical/Regulatory, and Quality Assurance. From
December 1992 to July 1995 she was Senior Director of Clinical, Regulatory and
Quality Systems and in July 1995 was promoted to Vice President.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is included on page 16 of the
Registrant's 1998 Annual Report and is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
The information required by this item is included on the inside front
cover of the Registrant's 1998 Annual Report and is incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is included on pages 3 - 6 of the
Registrant's 1998 Annual Report and is incorporated herein by reference.
The Company does not and did not invest in market risk sensitive
instruments in fiscal
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1998. The Company had and has no exposure to market risk with regard to changes
in interest rates. The Company does not and has not used derivative financial
instruments for any purpose, including hedging or mitigating interest rate risk.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included on pages 7 - 15 of the
Registrant's 1998 Annual Report and is incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is included in the sections
entitled "Election of Directors" and "Executive Compensation and Other
Information - Compliance with Section 16(a) of the Exchange Act" of the Proxy
Statement which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal 1997 year and is incorporated
herein by reference and is included in the section entitled "Executive Officers
of the Registrant" in Part I of this Report.
Item 11. EXECUTIVE COMPENSATION
The Company maintains certain employee benefit plans and programs in
which its executive officers are participants. Copies of these plans and
programs are set forth or incorporated by reference as Exhibits 10.1, 10.4,
10.5, 10.6, and 10.8 to this report. The additional information required by this
item is included in the section entitled "Executive Compensation and Other
Information" of the Proxy Statement which will be filed with the Securities and
Exchange Commission no later than 120 days after the close of the fiscal 1997
year and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the sections
entitled "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" of the Proxy Statement which will be filed with the
Securities and Exchange Commission no later than 120 days after the close of the
fiscal 1998 year and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and
Exhibits
I. Financial Statements. The following Financial
Statements of the Registrant listed below are incorporated herein by reference
from the following pages of the 1998 Annual Report:
PAGE IN
ANNUAL REPORT
-------------
1. Report of Ernst & Young LLP, Independent Auditors 16
2. Consolidated Balance Sheets --
March 31, 1998 and 1997 7
3. Consolidated Statements of Operations --
Years ended March 31, 1998, 1997 and 1996 9
4. Consolidated Statements of Stockholders' Equity --
Years Ended March 31, 1998, 1997 and 1996 9
5. Consolidated Statements of Cash Flows --
Years Ended March 31, 1998, 1997 and 1996 8
6. Notes to Consolidated Financial Statements 11 - 15
II. Financial Schedules. All schedules for which provision
is made in the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable
and therefore have been omitted.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal
1998:
Form 8K filed March 5, 1998 concerning the resignation of Steven
T. Frankel as President, Chief Executive Officer and Director of the Company
effective March 2, 1998.
(c) Exhibits:
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16
Exhibit
Number
- ------
3.1 Certificate of Incorporation, as amended. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Current Report on
Form 8-K dated February 26, 1991.)
3.2 Amended and Restated Bylaws. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Current Report on Form 8-K dated
June 16, 1995.)
10.1 Registrant's 1983 Employee Stock Purchase Plan, as amended.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K dated February 26, 1991.)
10.2 Form of Indemnification Agreement - Corporate Officer.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Form 10-K dated March 31, 1995.)
10.2.1 Form of Indemnification Agreement - Corporate Director.
(Incorporated by reference to Exhibit 10.2.1 to the Registrant's
Form 10-K dated March 31, 1995.)
10.3 Form of Warrant Agreement between Registrant and American Stock
Transfer & Trust Company. (Incorporated by reference to Exhibit
10.3 to the Registrant's Form 10-K dated March 31, 1995.)
10.4 Registrant's 1990 Employee Stock Option Plan. (Incorporated by
reference to Exhibit 10.3 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1990.)
10.5 Registrant's 1990 Director Option Plan. (Incorporated by
reference to Exhibit 10.4 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1990.)
10.6 Registrant's Amended 1981 Stock Option Plan, as revised.
(Incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1990.)
10.8 Registrant's Amended and Restated 1982 Incentive and
Nonstatutory Stock Option Plans, including Form of Option
Agreement. (Incorporated by reference to Exhibit 10.28 to the
Registrant's Registration Statement No. 33-38324 on Form S-4
filed on December 20, 1990.)
10.9 Form of Registration Rights Agreement of the Registrant.
(Incorporated by reference to Appendix C to the final Joint
Proxy Statement/Prospectus dated January 4, 1991 included within
Amendment No. 2 to the Registrant's Registration Statement No.
33-38324 on Form S-4 filed on January 4, 1991.)
10.11 Assumption Agreement dated January 31, 1991. (Incorporated by
reference to Exhibit 10.52.1 to the Registrant's Current Report
on Form 8-K dated February 26, 1991.)
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Exhibit
Number
- ------
10.13 Warrant to Purchase Common Stock issued to Imperial Bank. Issued
February 8, 1994, 117,871 shares with an initial exercise price
of $5.94 per share. Warrant expires February 8, 1999.
(Incorporated by reference to Exhibit 10.43 to the Registrant's
Form 10-Q dated December 31, 1993.)
10.14 Consulting Agreement, dated May 12, 1994, between the Registrant
and Scott L. Glenn and SR Associates. (Incorporated by reference
to Exhibit 10.45 to the Registrant's Form 10-K dated March 31,
1994.)
10.15 Trademark License Agreement dated October 1, 1994 between the
Registrant and Becton Dickinson and Company regarding the Q-Test
trademark. (Incorporated by reference to Exhibit 10.15 to the
Registrant's Form 10-K dated March 31, 1995.)
10.16 Warrant to Purchase 275,000 Shares of Common Stock issued to
Genesis Merchant Group Securities on May 16, 1995 at an initial
exercise price of $4.50 per share. Warrant expires January 15,
2000. (Incorporated by reference to Exhibit 10.17 to the
Registrant's Form 10-K dated March 31, 1995.)
10.17 Stock Purchase Agreement dated January 5, 1995 between
Registrant and Eli Lilly & Company for the sale of all the
outstanding capital stock of Pacific Biotech, Inc. (Incorporated
by reference to Exhibit 2.1 to the Registrant's Form 8-K dated
January 5, 1995.)
10.18 Settlement Agreement effective April 1, 1997 between the
Registrant and Becton Dickinson and Company.
10.19 Campbell License Agreement effective April 1, 1997 between the
Registrant and Becton Dickinson and Company
10.20 Rosenstein License Agreement effective April 1, 1997 between the
Registrant and Becton Dickinson and Company.
10.21 Employment Agreement dated June 23, 1997 between the Registrant
and Andre de Bruin.
10.22 Stock Option Agreement dated June 23, 1997 between the
Registrant and Andre de Bruin to purchase 300,000 shares issued
under the Registrant's General Nonstatutory Stock Option Plan.
13.1* Certain portions of the 1998 Annual Report to Stockholders for
the fiscal year ended March 31, 1998 which have been
incorporated herein by reference.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
27* Financial Data Schedule.
* Filed herewith
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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.
QUIDEL CORPORATION
Date: June 29, 1998 By: /S/ STEVEN C. BURKE
--------------------------------
Steven C. Burke
Vice Pres. - Finance and
Administration
(Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: June 29, 1998
/S/ ANDRE DE BRUIN
- ------------------------------------
Andre de Bruin, President and
Chief Executive Officer (Principal /S/ MARGARET G. McGLYNN
Executive Officer); Vice Chairman -----------------------------------
Margaret G. McGlynn, Director
of the Board
/S/ RICHARD C.E. MORGAN
/S/ STEVEN C. BURKE -----------------------------------
- ------------------------------------ Richard C.E. Morgan
Steven C. Burke Chairman of the Board
Vice Pres. - Finance and Administration
(Principal Financial Officer and
Principal Accounting Officer)
/S/ MARY LAKE POLAN
-----------------------------------
Mary Lake Polan, Director
/S/ JOHN D. DIEKMAN
- ------------------------------------
John D. Diekman, Director
/S/ FAYE WATTLETON
-----------------------------------
Faye Wattleton, Director
/S/ THOMAS A. GLAZE
- ------------------------------------
Thomas A. Glaze, Director
18