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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

x	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the year ended December 31, 2001

o	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 1-9957

Diagnostic Products Corporation

5700 West 96th Street
Los Angeles, California 90045
(Address of principal executive offices)
Registrant’s telephone number: (310) 645-8200

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

Title of each class		Name of each exchange on which registered
Common Stock, no par value		New York Stock Exchange

     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 ü ]  [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 non-affiliates of the registrant was approximately $845,407,000 as of March 8, 2002.

     The number of shares of Common Stock, no par value, outstanding as of March 8, 2002, was 28,369,040.

Documents Incorporated by Reference

     Portions of the proxy statement for the 2002 Annual Shareholders Meeting are incorporated by reference into Part III of this report.

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PART I

ITEM 1. BUSINESS

     Diagnostic Products Corporation (“DPC’’ or the “Company’’) develops, manufactures, and markets immunodiagnostic systems and immunochemistry kits, which are used throughout the world in hospital, reference and physicians’ office laboratories, as well as in veterinary, forensic, and research facilities.

     The test kits utilize state-of-the-art technology, derived from immunology and molecular biology, to obtain precise, rapid identification and measurement of medically significant chemical substances which are often present at infinitesimal concentrations. These include hormones, cytokines, vitamins, drugs, transport proteins, antibodies, and biochemical markers of viruses and other microorganisms.

     The main clinical applications of DPC’s immunoassays (test kits) relate to the diagnosis and management of thyroid, reproductive, and cardiac disorders; allergies, infectious diseases, anemia, diabetes, and certain types of cancer; bone metabolism disorders and therapeutic drug administration. The testing is performed in vitro: that is, outside the body, in samples of blood, urine, or other bodily fluids and tissues.

     DPC’s IMMULITE® systems consist of instrumentation and software for automating the Company’s immunoassays and for integrating this process with sample handling and data manipulation steps, to improve the accuracy, efficiency, and cost-effectiveness of in vitro diagnostic (IVD) testing in clinical laboratories, large and small.

     The Company, with manufacturing facilities in the United States, the United Kingdom, and China, markets its products through a national sales force and through a worldwide distribution network covering over 100 countries.

     Unless the context otherwise requires, the terms “DPC” and the “Company” include the Company’s consolidated subsidiaries. For information regarding forward-looking statements contained in this report and risks associated with the Company’s business, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward Looking Statements and Certain Risks.”

Automated Laboratory Systems

     A systems provider, DPC designs and manufactures laboratory instruments and software to automate the performance of immunodiagnostic assays, facilitating rapid, accurate results, while reducing labor and reagent costs.

     The Company has two principal immunoassay platforms. DPC’s IMMULITE 2000 addresses the needs of high-volume laboratories, while the IMMULITE serves lower volume facilities and niche markets. At the end of 2001, over 5,300 IMMULITE and over 1,700 IMMULITE 2000 systems had been shipped.

     The original IMMULITE system was first introduced in 1993. Computer-driven, it uses a patented solid-phase wash technology and chemiluminescent detection method, which together are capable of measurements at exceptionally low concentrations, as demonstrated by DPC’s state-of-the-art “third generation” assays for TSH and PSA — key tests related to thyroid disorders and prostate cancer, respectively. The system is totally automated with respect to sample and reagent handling, incubation, washing, and substrate addition. DPC’s IMMULITE has the capacity for walk-away processing of up to 120 samples per hour, on a random access basis — meaning that it can perform any test, or combination of tests, on any patient sample at any time.

     The IMMULITE 2000, DPC’s next generation system, was introduced in the third quarter of 1998. It has a throughput of up to 200 tests per hour, offering the medium- to high-volume laboratory increased efficiency in streamlining its testing workload. The IMMULITE 2000 can run for a full shift without having to replenish on-board supplies. This increased throughput allows DPC to participate in a higher volume segment of the market where the average reagent use per instrument exceeds that of the original IMMULITE. The IMMULITE 2000 includes advanced features such as primary tube sampling and a proprietary autodilution capability. The system can also be interfaced with robotic laboratory sample-handling systems and can be connected to the customer’s computer system for specification of the tests to be run on each sample, as well as for reporting and archiving results. Another innovative feature is its remote diagnostic capability that permits DPC’s service facility to access any IMMULITE 2000 worldwide for the purpose of diagnosing system problems. Enhancements introduced in September 2001 made it possible for laboratories to perform fully automated in vitro allergy testing for the first time in DPC’s history.

     In 2001, as in the previous year, the growth of DPC’s business and the Company’s role as an IVD systems provider for high-volume facilities was driven primarily by ongoing demand for the IMMULITE 2000. In the fourth quarter, orders for IMMULITE 2000 test kits exceeded, for the first time, those for the IMMULITE. Demand for the original IMMULITE continues to be strong and the Company believes that it remains an important complement to the higher throughput, state-of-the-art IMMULITE 2000.

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Immunodiagnostic Test Kits

     DPC manufactures over 400 immunodiagnostic test kits, exploiting several technologies and assay formats. The Company’s monoclonal antibody, molecular engineering, and other basic science capabilities play key roles in optimizing these immunoassays.

     Chemiluminescence-enhanced enzyme immunoassays are the basis for DPC’s automated IMMULITE and IMMULITE 2000 product lines. DPC also manufactures classic radioimmunoassays (RIAs), based on double-antibody, coated-tube, and IRMA formats, as well as enzyme immunoassays (EIAs) in microplate format. Allergy testing uses a proprietary liquid-allergen technology in tube and microplate formats; and it is now fully automated on the IMMULITE 2000. Many of DPC’s assays are available both as manual RIAs and as IMMULITE and IMMULITE 2000 assays.

     The automated, nonisotopic product lines now represent the core of DPC’s business. IMMULITE and IMMULITE 2000 assays, instruments, and service represented 70%, 78%, and 81% of sales in 1999, 2000, and 2001, respectively, a trend that is expected to continue. In fiscal year 2001, DPC’s RIAs accounted for 12% of sales, while allergy and other tests accounted for 7%. (For additional information concerning sales by product line over the last three fiscal years, see “Notes to Consolidated Financial Statements — Note 12.”)

Breadth of Menu

     IMMULITE and IMMULITE 2000 are closed systems; they will not perform other manufacturers’ tests. Accordingly, a most important factor in the successful marketing of these systems is the ability to offer a broad menu of individual assays and assay groups, that is, tests which jointly represent decision-making panels for various disease states, such as thyroid disorders or infertility. Many of the relevant disease states represent either high-volume opportunities in the marketplace, or unique, under-served conditions that allow DPC to fill a market niche.

     As of December 31, 2001, DPC had 92 IMMULITE assays available in the international market, with 72 FDA-cleared for sale in the US. In addition, 60 out of a total of 71 of the most important assays on the second generation IMMULITE 2000 have been released for sale in the US.

     DPC believes that the IMMULITE and IMMULITE 2000 have the most extensive menus of any automated immunoassay systems on the market. The Company’s research and development activities continue to focus on expanding the menus, giving special attention to complete implementations of clinically important assay groups, as well as on developing new generations of instrumentation and software.

The Spectrum of Applications

     Major clinical applications of DPC’s immunoassays include the following areas, where DPC’s extensive and sometimes unique offerings on the IMMULITE and IMMULITE 2000 have enabled the Company to achieve a significant presence in various types of laboratories, large and small.

     Thyroid Disorders — For many hospital and clinical reference laboratories, thyroid testing is a mainstay of their routine immunoassay work. DPC offers a comprehensive spectrum of assays for assessing and monitoring thyroid status on both the IMMULITE and the IMMULITE 2000. The menus include not only assays for free and total thyroid hormones, but also assays with “third generation” capability for thyroid stimulating hormone (TSH) and assays for thyroid autoantibodies and other relevant analytes which are increasingly in demand. This combination represents a complete, high-quality solution for thyroid testing.

     Therapeutic Drug Monitoring (TDM) — There is a large market for TDM assays: tests for the routine monitoring of certain therapeutic drugs. Nine of the ten most frequently monitored drugs are measured by immunoassay. In 2001, DPC introduced assays for most of these and expects to have all nine on both automated systems in early 2002, thus gaining full access to the TDM market.

     Infertility, Pregnancy — DPC has been an innovator and longtime market leader in reproductive hormone testing, providing an unusually broad spectrum of assays for both routine and specialized laboratories, supplemented by studies to aid in the interpretation of results and software to facilitate data manipulation, when appropriate. Some of DPC’s assays reflect the special needs of fertility clinics and in vitro fertilization (IVF) centers. Others are important for the routine assessment of osteoporosis and hormone balance in postmenopausal women and aging men. DPC offers a comprehensive menu of immunoassays for maternal and fetal diagnosis, monitoring, and risk assessment. The Company’s growing menu relates to medical conditions in every phase of reproductive life in men, women, and children of all ages.

     Cancer — DPC has automated a large number of assays for “tumor markers” on the IMMULITE and IMMULITE 2000, more than any of our competitors. In 2001, the FDA granted DPC’s four automated PSA assays pre-market approval for screening. The Company has a number of unique offerings, including “third generation”

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assays capable of measuring the extremely low PSA concentrations encountered after radical prostatectomy and, in partnership with Matritech, DPC is in the final stages of developing an automated assay for NMP22, a marker for bladder cancer.

     Infectious Diseases — Infectious disease testing is one of the fastest growing segments of the IVD market and one which has generally lagged behind in automation. DPC’s commitment in this area is reflected in its development of one of the broadest menus available on an automated platform; it includes some unique assays, e.g. for H. pylori, an organism responsible for stomach ulcers. In 2001, DPC’s automated Toxoplasma, rubella, and CMV assays gained acceptance in some very large reference laboratories in the US; and DPC became the first of the larger IVD companies to receive CE Mark approval in Europe for these and other infectious disease assays, including herpes and hepatitis B.

     Allergy — In vitro allergy testing, representing a worldwide market of approximately $200 million, has been dominated for the last 30 years by Pharmacia-Upjohn. Traditionally, such testing has required special laboratory equipment and has been time- and labor-intensive, and somewhat error prone due to the lack of full automation. With its patented liquid-allergen technology, DPC established itself as the second leading supplier of in vitro allergy test kits. In 2000, the Company introduced assays for selected allergy screening panels on the IMMULITE. Then, in September 2001, DPC introduced a broad spectrum of assays for individual allergens on the IMMULITE 2000, finally making it possible for laboratories to perform high-volume allergy testing along with other routine immunoassays on a fully automated system. As a complement to IMMULITE 2000 Allergy, DPC has developed a product line (AlaBLOT®) of confirmatory Western blotting assays.

     Inflammatory Conditions — Cytokines, often referred to as “hormones of the immune system,” represent potentially important disease markers which are being actively investigated in major centers throughout the world. In Europe and elsewhere, assays for clinically relevant cytokines are already in routine use, e.g. for the management of bacterial sepsis (blood poisoning) in intensive care units. DPC is the only company to offer a significant menu of cytokine assays in an automated format. Moreover, DPC offers some novel tests, having obtained, for example, exclusive rights from XOMA Ltd. to market an automated immunoassay for LBP (Lipopolysaccharide Binding Protein), a marker of inflammation reflecting systemic exposure to gram-negative bacteria.

     Cardiovascular Disease — This is the leading cause of morbidity and mortality in developed nations and represents a $300 million dollar worldwide market, which continues to show very strong annual growth. Both on the IMMULITE and the IMMULITE 2000, DPC now offers the most comprehensive cardiac menu available on a single platform. The three principal assays required on an emergency basis due to their role in diagnosing acute myocardial infarction (Troponin I, CK-MB, and Myoglobin) have been implemented on the IMMULITE with Turbo software, which reduces the assay time to 15 minutes, along with other tests needed in an emergency room or intra-operative setting (HCG, PTH). Additional assays on DPC’s automated systems, including High Sensitivity CRP and Homocysteine, put the Company in an excellent position to address all aspects of cardiac testing, from diagnosis and patient management to risk assessment.

Research and Development Activities

     The Company devotes substantial resources to research and development to update and improve its existing products, as well as to develop new products and technologies. In addition to developing and adding allergy testing capabilities to the IMMULITE 2000, the Company’s research and development activities include the development of the next generation IMMULITE system and new operating software for both the IMMULITE and the IMMULITE 2000. R&D capabilities in the United States include fully staffed departments in organic synthesis, biochemistry, antisera/hybridoma, protein chemistry, molecular biology, and infectious disease, method development, instrumentation, software, and technology development. During the years ended December 31, 1999, 2000, and 2001, the Company spent $24,550,000, $26,464,000, and $31,447,000 on research and development.

     The Company has embarked on an aggressive development program for new instrument systems, including the Sample Management System, a robotic sample-handling device integrated into the IMMULITE 2000; the IMMULITE 1000, an enhanced version of the IMMULITE with Windows-based software, new streamlined casework and new functional capability; the IMMULITE 2500, which incorporates the Turbo function into the IMMULITE 2000; the IMMULITE 3000, a very-high-throughput immunoassay system incorporating several new technologies to deliver optimal assay performance; and the IMMULITE 1500, a scaled-down version of the IMMULITE 3000.

Manufacturing and Service

     The Company’s principal test kit manufacturing facility is located in Los Angeles, California. Approximately 30% of test kit production is conducted at the EURO/DPC facility in the United Kingdom. The Company’s European manufacturing facilities enable the Company to improve its competitiveness in the European Economic

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Union (EEU) by minimizing import duties and freight charges. Certain kits are also manufactured by DPC in China.

     DPC’s instrument division in New Jersey designs and manufactures IMMULITE instrumentation and engages in software development. Component parts, such as computer hardware, are supplied by original equipment manufacturers. The Company provides a one-year warranty that covers parts and labor. Underwriter’s Laboratories Inc. (UL) list the IMMULITE systems. The Company’s and its distributors’ technical service personnel install new units, train customers in the use of the system, and provide maintenance and service for the instrumentation.

     The EURO/DPC Instrumentation Division in the United Kingdom manufactures certain components of the IMMULITE and IMMULITE 2000 instruments that are then assembled into the final instrument in New Jersey.

     DPC’s Los Angeles and New Jersey facilities are International Standards Organization (ISO) 9001 registered. Euro/DPC Limited, the Company’s wholly owned manufacturing subsidiary in Wales, was the first immuno-diagnostics company in the world to be registered under British Standard (BS) 5750. EURO/DPC is also registered to ISO 9001 and European Norm (EN) 46001 standards.

     DPC provides technical support for all its products, including reagents, instruments, and software, via telephone and on-site service.

Marketing and Sales

     The Company markets its products to hospital, clinical, forensic, research, reference, and veterinary laboratories, as well as doctors’ offices and U.S. government agencies. The Company markets its products in the United States directly to laboratories and hospitals through its own sales force. The Company sells to the U.S. doctors’ office market through independent distributors as well as through its own sales force. Sales personnel and distributors are trained to demonstrate the Company’s product line in the customer’s laboratory and are supported by the Company’s Los Angeles and New Jersey-based technical services departments.

     The Company’s products are sold on a worldwide basis through distributors in over 100 foreign countries. These distributors, including Company-owned distributors, also sell other manufacturer’s products that are not directly competitive with the Company’s products. Foreign sales (including export sales, sales to non-consolidated foreign affiliates, and sales of consolidated subsidiaries) represented approximately 79% of sales in 1999, 76% in 2000, and 72% in 2001. Europe accounted for approximately 47%, 44%, and 44% of total sales in 1999, 2000, and 2001, respectively. See Notes 5 and 12 of Notes to Consolidated Financial Statements for information regarding foreign operations.

     Sales of test kits to customers and distributors are made against individual purchase orders as well as through volume purchase arrangements. Products are shipped directly from the Company’s facilities in Los Angeles and Wales and are generally delivered domestically within 24 hours and overseas within 48 hours of receipt of order. The Company sells, leases, or rents the IMMULITE instrumentation to hospitals and reference laboratories that perform volume testing. The Company’s backlog at any date is usually insignificant and not a meaningful indicator of future sales.

     The Company’s foreign operations are subject to various risks, including exposure to currency fluctuations, political and economic instability, and trade restrictions. Because the Company’s consolidated foreign distributors’ sales are in the respective local currencies, the Company’s consolidated financial results are affected by foreign currency translation adjustments (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1 of Notes to Consolidated Financial Statements). In addition, the price competitiveness of the Company’s products abroad is impacted by the relative strength or weakness of the U.S. dollar.

Proprietary and Other Rights

     Substantially all of the Company’s products are based on proprietary technologies and know-how. The Company holds various U.S. and foreign patents, including patents on the washing process used in the IMMULITE system that expire in 2009 and patents on its novel liquid-based amplification methodology which forms the basis of the AlaSTAT product lines which expire in 2005. The Company also obtains licenses for chemical components and technologies used in certain of its assays.

     Patents that may be granted to others in the future could inhibit the Company’s expansion or entry into certain areas, or require it to pay royalty fees to do so. Because of rapid technological developments in the immunodiagnostic industry with concurrent extensive patent coverage and the rapid rate of issuance of new patents, certain of the Company’s products may involve controversy concerning infringement of existing patents or patents that may be issued in the future.

     The Company purchases certain chemical compounds that are key components in the IMMULITE system from Lumigen, Inc. and Tropix, Inc., the sole suppliers of these chemical compounds, pursuant to agreements that expire in 2005. Tropix also supplies the Company with certain other chemical compounds for use in veterinary kits. Upon

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termination of these supply agreements, the Company will be required to enter into new supply agreements or use alternate technologies. There is no assurance that the Company will be able to obtain alternate technology or, if attainable, that such technology will have the same performance characteristics, or that it will be able to obtain such technology from Lumigen/Tropix or others on favorable terms.

Government Regulation

     The Company’s business is affected by government regulations both in the United States and abroad, in particular Western Europe and Japan, aimed at containing the cost of medical services. These regulations have generally had the effect of inhibiting the growth rate of the immunodiagnostic industry. The Company believes that in vitro diagnostic (IVD) testing is an important tool for reducing health care expenditures. By providing early diagnosis and therapy management, IVD tests can reduce the high costs of hospitalization, surgery, and recovery. In response to cost containment measures, hospitals, and laboratories have consolidated and have sought to increase productivity by replacing high cost labor with automated testing systems. The Company’s automated systems address these market needs. The Company also seeks to develop more rapid and sensitive tests, such as DPC’s Third Generation TSH assay, that can eliminate the need for redundant testing.

     Manufacturers of immunodiagnostic tests and other clinical products intended for use as human diagnostics are governed by FDA regulations as well as regulations of state agencies and foreign countries. A new in vitro product that is “substantially equivalent’’ to one already on the market can generally be sold in the United States after it is cleared for marketing by the FDA. Most of the Company’s products fall within the “substantially equivalent” category. Certain medically critical in vitro diagnostic products and totally new in vitro diagnostic products, for which there are no equivalents on the market, must be cleared by the FDA after in-depth review that normally takes about two years prior to marketing. The Company’s products can be marketed without regulatory clearance in many foreign countries. Certain countries such as Brazil, Australia, Japan, and those in the European Union (EU) have their own review procedures.

     The Company’s Los Angeles manufacturing facilities are licensed by the California Department of Health Services and must be operated in conformance with the FDA’s Good Manufacturing Practices governing medical devices. The Company is regulated by the California Department of Health Services with respect to its possession and use of radioactive substances and by the U.S. Drug Enforcement Agency with respect to the use and storage of controlled drugs and pharmaceuticals.

     Given the Company’s high proportion of sales to the European Union countries, the Company has undertaken the necessary steps to comply with the EU In-Vitro Diagnostic Directive (IVDD). The Company was fully compliant with all relevant aspects of the EU IVDD on June 7, 2000 and therefore was qualified to apply the “CE Mark” to most of it’s IVD kits and instruments as mandated by the EU.

Competition

     The Company’s major competitors are broad-based health care companies such as Roche Diagnostics, Abbott Diagnostics (Abbott Laboratories), Bayer, Johnson & Johnson, Beckman Coulter, and Pharmacia/Upjohn (Sweden). The Company competes on a worldwide basis with a number of large corporations that sell diversified lines of products, including immunodiagnostic products, for laboratory, medical, and hospital use. The fact that these companies offer diversified products to the laboratories at times puts the Company at a competitive disadvantage.

     There are currently over 30 domestic suppliers of immunodiagnostic kits. The Company believes that competition in immunoassay testing is based on quality, service, product convenience, and price and that product innovation is an important source for change in market share.

     The principal competitive factors in automated systems are size of menu (the number of assays that can be performed on the system), ease of use, and price (equipment cost, service, and reagent cost). The Company’s IMMULITE system currently offers one of the widest menus of any automated system and the Company is focusing its development efforts on expanding this menu.

Employees

     As of December 31, 2001, the Company (including its consolidated subsidiaries) had 1,955 employees, including 714 in manufacturing, 317 in research and development, 630 in marketing and sales, and 294 in administration. None of the Company’s employees are represented by a labor union, and the Company considers its employee relations to be good. The Company has experienced no significant problems in recruiting qualified technical and operational personnel.

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ITEM 2. PROPERTIES

     The following is a list of significant properties owned and leased by the Company and its consolidated subsidiaries as of December 31, 2001:

     In December 2001, the Company’s instrument systems division moved into a new 89,000 square-foot facility in New Jersey, which represents an almost 50% increase in development, manufacturing, service, and administrative space. The almost 40,000 square-foot manufacturing facility provides increased instrument production capacity and manufacturing efficiencies using state-of-the-art production processes. This facility can be readily expanded to 150,000 square feet to meet future requirements.

     The lease for the Company’s principal facilities in Los Angeles expires at the end of 2002. Our ability to expand our operations at these premises is limited and a planned expansion of the Los Angeles International Airport, if implemented, would require a relocation of these facilities. Accordingly, the Company intends to extend this lease for two years and, as allowed under the current agreement, will continue to evaluate its options for meeting its space requirements in Los Angeles.

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ITEM 3. LEGAL PROCEEDINGS

     The Company is not involved in any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     During the fourth quarter of the last fiscal year, no matter was submitted to a vote of the security holders.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Common Stock of the Company is listed on the New York Stock Exchange and traded under the symbol DP.

     The following table sets forth the quarterly high and low price of the Company’s Common Stock and quarterly dividends per share paid during 2001 and 2000. All share and per share amounts have been adjusted to reflect a 2 for 1 stock split effective June 1, 2001.

As of March 8, 2002, the Company had 258 holders of record of its Common Stock.

ITEM 6. SELECTED FINANCIAL DATA

(In Thousands, except per Share Data)

Income Statement Data

Balance Sheet Data

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements and Certain Risks

     Except for the historical information contained herein, this report and the following discussion in particular contain forward-looking statements (identified by the words “estimate,” “project,” “anticipate,” “plan,” “expect,” “intend,” “believe,” “hope,” and similar expressions) which are based upon management’s current expectations and speak only as of the date made. These forward-looking statements are subject to risks, uncertainties, and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements. These risks and uncertainties include —

	•		the Company’s ability to successfully market new and existing products;
	•		the Company’s ability to keep abreast of technological innovations and successfully incorporate them into new products;
	•		the Company’s current dependence on sole suppliers for key chemical components in the IMMULITE assays;
	•		the risks inherent in the development and release of new products, such as delays, unforeseen costs, technical difficulties, and regulatory approvals;
	•		competitive pressures, including technological advances and patents obtained by competitors;
	•		currency risks based on the relative strength or weakness of the U.S. dollar;
	•		domestic and foreign governmental health care regulation and cost containment measures;
	•		political and economic instability in certain foreign markets;

Results of Operations

Sales

     The Company’s sales increased 14% in 2001 to $283.4 million compared to sales of $247.9 million in 2000, which was a 15% increase over 1999 sales of $188.3 million. 2001 sales of all IMMULITE products (instruments and reagents) were $230.7 million, a 20% increase over 2000. In 2000, sales of all IMMULITE products were $193.1 million, a 28% increase over 1999. Sales of IMMULITE products represented 81% of 2001 sales, 78% of 2000 sales, and 70% of 1999 sales.

     2001 sales of the Company’s original IMMULITE instrument, the IMMULITE One, related reagents, and service were $121.3 million, a 1% decrease from 2000. Sales of IMMULITE One reagents increased 3% to $98.9 million, while instrument and service sales were down 16% to $22.4 million. In 2000, sales of the IMMULITE product line increased 8% to $123.0 million. The IMMULITE 2000 instrument, which became commercially available in March 1998, had sales including reagents of $109.4 million in 2001, a 56% increase over 2000 sales of $70.1 million. Sales of IMMULITE 2000 reagents increased 76% to $83.9 million, while instrument sales and service increased 13% to $25.5 million. In 2000, sales of the IMMULITE 2000 product line increased 88%. The IMMULITE 2000 has a longer sales process than the IMMULITE One due to the higher sales price. The Company has also experienced a longer time delay between instrument placement and the ramp-up of reagent sales with the IMMULITE 2000.

     In 2001, as in the previous year, the growth of DPC’s business was driven primarily by ongoing demand for the IMMULITE 2000. In the fourth quarter, sales of IMMULITE 2000 test kits exceeded, for the first time, those for the IMMULITE. Demand for the original IMMULITE continues to be strong, however, and the Company believes that it remains an important complement to the higher throughput, state-of-the-art IMMULITE 2000.

     As of December 31, 2001, 2000, and 1999, the Company had shipped on a cumulative basis approximately 7,000, 5,900, and 4,900 IMMULITE instruments, respectively. This installed base of instruments and an expanding test kit menu are expected to support continued growth in the coming years.

     Sales of the Company’s mature RIA or isotopic products, with sales of $33.8 million in 2001, were up slightly from $33.7 million in 2000. Sales in 2000 declined 11% from 1999. It is expected that these sales levels will decline in the future.

     Sales of other DPC products, including allergy reagents, decreased 13% to $12.1 million in 2001, compared to $13.9 million in 2000. These sales may be negatively impacted in 2002 due to the September 2001 introduction of a broad spectrum of allergy assays on the IMMULITE 2000. The Company also experienced a decrease in sales of non-DPC products through its consolidated international affiliates from $7.1 million in 2000 to $6.9 million in 2001. It is anticipated that the sale of non-DPC products will continue to decline.

     Domestic sales in 2001 increased 33% over 2000, reflecting in part the Company’s success with larger customers and purchasing organizations.

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     Foreign sales (including U.S. export sales, sales to non-consolidated foreign subsidiaries, and sales of consolidated subsidiaries) as a percentage of total sales were approximately 72%, 76%, and 79% in each of 2001, 2000, and 1999. Europe, the Company’s principal foreign market, represented 41%, 44%, and 47% of sales in 2001, 2000, and 1999, respectively. Sales in Germany increased to $33.3 million in 2001 from $30.1 million in 2000, and $31.5 million in 1999, reflecting the success of the IMMULITE 2000 product line. The United Kingdom, Italy, and China also experienced strong sales increases in 2001. Sales in Brazil accounted for approximately 11% of total sales in 2001, 2000, and 1999. As a result of the devaluation of the Brazilian currency in January 1999, the Company raised its prices in local currency, making its products more expensive in Brazil than they were prior to the devaluation. However, to-date this has not had a significant impact on unit sales.

     Due to the significance of foreign sales, the Company is subject to currency risks based on the relative strength or weakness of the U.S. dollar. In periods when the U.S. dollar is strengthening, the effect of the translation of the financial statements of consolidated foreign affiliates is that of lower sales and net income. Based on comparative exchange rates in the immediately preceding year, the translation adjustments due to the strong U.S. dollar had a 6% negative impact on 2001 sales. In 2000 there was a 5% negative impact on sales and a 9% negative impact in 1999. Due to intense competition, the Company’s foreign distributors are generally unable to increase prices to offset the negative effect when the U.S. dollar is strong.

Cost of Sales

     Gross margin has improved to approximately 57% of sales in 2001, from approximately 55% in 2000 and 1999, due in part to the shift in product mix toward IMMULITE reagents, the shift in customer mix toward domestic end users, and increased manufacturing efficiencies. Although the Company expects these mix trends to continue, it is also experiencing competitive pricing pressures that may negatively impact gross margins.

Operating Expenses and Other

     Total operating expenses (Selling, Research and Development, and General and Administrative) as a percentage of sales fell to 38% in 2001, from 39% in 2000 and 42% in 1999, although all categories increased annually in absolute dollars to support the increased levels of sales.

     Equity in income of affiliates represents the Company’s share of earnings of non-consolidated affiliates, principally the 45%-owned Italian distributor. This amount increased 88% in 2001 relative to 2000 and 24% in 2000 relative to 1999 primarily due to increased earnings of the Italian distributor. Also in 2001, equity in income of affiliates included a one-time $500,000 permanent tax benefit due to a change in the Italian tax laws.

     Net interest and other income represents the excess of interest income and interest earned on equipment contracts relating to IMMULITE placements over interest expense and other amounts of income and expense. Net interest income and other income was an expense of $7,000 in 2001 versus income of $666,000 in 2000. The 2000 amount included, among other things, a gain of $482,000 on the sale of a product line, a gain of $215,000 on the sale of a building, and foreign exchange losses of $500,000. In 1999, net interest and other income was $443,000.

Income Taxes and Minority Interest

     The Company’s effective tax rate (31% in 2001 and 30% in 2000 and 1999) includes Federal, State, and foreign taxes. Minority interest represents the 44% interest in the Company’s Brazilian distributor held by a third party. Increases or decreases in this amount reflect increases or decreases in the profitability of the Brazilian distributor. Net income for 2001 increased 38% over 2000 primarily due to increases in sales and gross profit that were greater than percentage increases in operating expenses.

Critical Accounting Policies

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions include, but are not limited to, allowance for bad debts, allowance for slow moving and obsolete inventories, useful lives selected for depreciating property, plant, and equipment, valuation allowances for deferred income taxes, estimates used in the recoverability of long-lived assets, and accruals for insurance. Management believes that the methodology it utilizes to determine these amounts results in the reporting of reasonable estimates, and that differences between the estimates and actual results are usually minor and are included in the consolidated financial statements by management as soon as they are known.

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Liquidity and Capital Resources

     The Company has adequate working capital and sources of capital to carry on its current business and to meet its existing capital requirements. At December 31, 2000 and December 31, 2001 the Company had $26,395,000 and $31,834,000 in cash and cash equivalents. Included in cash and cash equivalents at December 31, 2000 and 2001 is $14,700,000 and $19,900,000, respectively, of short-term, high-quality, commercial paper.

     Net cash flows from operating activities were $61.7 million in 2001, $41.7 million in 2000, and $28.1 million in 1999. Additions to property, plant, and equipment in 2001 were $27.3 million compared to $9.6 million in 2000 and $9.0 million in 1999. Included in 2001 is $9 million for the completion of a new manufacturing facility in New Jersey and $4 million related to the implementation of a new computer system in Los Angeles. Cash used for the placement of IMMULITE systems under sales-type and operating leases and as rentals (for periods of generally three to five years) increased to $28.0 million in 2001, from $18.0 million in 2000, reflecting a higher number of IMMULITE 2000 instruments being placed under operating lease rather than being sold. In 1999 the cash used for sales and operating type leases and rentals was $15.0 million.

     In 2000, the Company purchased land in New Jersey and in 2001 constructed an 89,000 square foot building for a total cost of $14.8 million; the Company moved into this new manufacturing facility in December 2001. The Company implemented its new computer system in Los Angeles in February 2002 at a capitalized cost of approximately $4.8 million. It is anticipated that the computer systems in the United Kingdom and New Jersey will be converted over the next several years. The Company has no other material commitments for capital expenditures in 2002.

     The Company has a $20 million unsecured line of credit. Standby letters of credit under the line of credit totaled $386,000 at December 31, 2001 and 2000. There were no standby letters of credit outstanding at December 31, 1999. No other borrowings were outstanding at December 31, 2001, 2000, and 1999 under the line of credit. The Company had notes payable (consisting of bank borrowings by the Company’s foreign consolidated subsidiaries payable in the local currency some of which are guaranteed by the U.S. parent company) of $17.0 million at December 31, 2001 compared to $15.6 million at December 31, 2000 and $15.8 million at December 31, 1999. The terms of the loans are described in “ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.”

     The Company has a supply contract with a vendor for chemical compounds that are key components in the IMMULITE system. The Company has agreed to guarantee the vendor’s minimum payment obligations to another company in the annual amount of $600,000 through 2004. The Company’s foreign operations are subject to risks, such as currency devaluations, associated with political and economic instability. The Company has paid a quarterly cash dividend of $.06 per share, on a split-adjusted basis, since 1995.

     The following table discloses the Company’s obligations and commitments to make future payments under contractual obligations at December 31, 2001. These items are discussed in the notes to the “Consolidated Financial Statements.”

Contractual Obligations and Commitments
(Dollars in Thousands)

     The following table discloses the Company’s commercial commitments at December 31, 2001. These amounts consist of stand-by letters of credit (see “Note 6 — Notes Payable”) and guarantees of an affiliated vendor’s minimum payment obligations to another company (see “Note 9 — Commitments and Contingent Liabilities”).

Other Commercial Commitments
(Dollars in Thousands)

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New Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in business combinations occurring prior to June 30, 2001, will cease upon adoption of this statement. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill, and the identification of reporting units for purposes of assessing potential future impairments of goodwill. Under SFAS Nos. 141 and 142, goodwill and other intangibles are initially assessed for impairment upon adoption of the statements with subsequent assessments required annually and when there is reason to suspect that their values have been diminished or impaired, with any corresponding write-downs recognized as necessary.

     The Company was required to implement SFAS No. 141 on July 1, 2001, and has determined that the impact of this statement is not material to its consolidated financial position or results of operations. The Company was required to implement SFAS No. 142 on January 1, 2002 and, as a result, annual goodwill amortization of approximately $1.3 million will cease. Furthermore, a transitional impairment test is required within six months of the adoption of SFAS No. 142. The Company has not completed the transition impairment test and therefore has not determined the impact that this statement will have on its consolidated financial position or results of operations.

     During the third quarter of 2001, the Financial Accounting Standards Board issued SFAS No. 143, “Accounting for Asset Retirement Obligations” and SFAS No. 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.” These new standards clarify and supersede existing guidance for the reporting and accounting for asset impairments and asset retirements. SFAS No. 143 will be effective for the Company beginning January 1, 2003. SFAS No. 144 will be effective for the Company beginning January 1, 2002. The Company is still in the process of evaluating the impact that SFAS No. 143 will have on its consolidated financial position and results of operations. The adoption of SFAS No. 144 was not material to the Company’s consolidated financial position or results of operations.

Euro Conversion

     The Company has significant sales to European countries (the “participating countries”) which converted to a common legal currency (the “Euro”) on January 1, 2002. The conversion to the Euro will eliminate currency exchange risk among the participating countries.

     The Company sells its products in the participating countries through affiliated and non-affiliated distributors that determine sales prices in their respective territories. The use of a single currency in the participating countries may affect this variable pricing in the various European markets because of price transparency. Nevertheless, other market factors such as local taxes, customer preferences, and product assortment may reduce the need for price equalization.

     The Company has significant sales in Europe and will continue to evaluate the business implications of the conversion to the Euro, but at this time the Company does not expect the Euro conversion to have a material impact on its business. The Company has converted or upgraded certain of its European subsidiaries to a similar computer software system that will allow them to operate in the European currency environment and to create a central repository for all European information. The approximate cost of this conversion was $1,000,000 in 2001.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to certain market risks arising from transactions in the normal course of its business, principally risk associated with interest rate and foreign currency fluctuations.

Interest Rate Risk

     The Company periodically invests its excess cash in short-term high-quality commercial paper. At December 31, 2001, the Company had $19,900,000 invested in such securities, which yielded an average annual return of approximately 1.55%. The average maturity of these investments is less than one month.

     Additionally, the Company has debt obligations at its foreign subsidiaries that have primarily fixed interest rates and mature on various dates. Substantially all of the Company’s debt obligations are denominated in European currencies. The table below presents principal cash flows and related interest rates by fiscal year of maturity:

Notes Payable Information December 31, 2001
(U.S. Dollars in Thousands)

Foreign Currency Risk

     The Company may periodically enter into foreign currency contracts in order to manage or reduce foreign currency market risk. The Company’s policies do not permit active trading of or speculation in derivative financial instruments. The Company’s policy is to hedge major foreign currency cash exposures through foreign exchange forward contracts. The Company enters into these contracts with only major financial institutions, which minimizes its risk of credit loss. A discussion of the Company’s primary market risk exposures and the management of those exposures is presented below.

     The Company generates revenues and costs that can fluctuate with changes in foreign currency exchange rates when transactions are denominated in currencies other than the local currency. The Company manufactures its products principally in the United States and the United Kingdom and sells product to distributors, many of which are owned by the Company, throughout the world. Products sold from the United States are denominated in US dollars and products sold from the United Kingdom are denominated in pounds sterling. The distributors in turn

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have foreign currency risk related to their product purchases. Many of the Company’s owned distributors purchase forward currency contracts to offset currency exposures related to these purchase commitments.

     The table below provides information as of December 31, 2001 concerning the Company’s forward currency exchange contracts related to certain commitments of its subsidiaries denominated in foreign currencies. The table presents the contractual amount, the weighted-average expiration date, the weighted-average contract exchange rates, and the values for its currency contracts outstanding.

Foreign Currency Exchange Contracts Outstanding December 31, 2001

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Item 14 for a listing of the consolidated financial statements and supplementary data filed with this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

     The required information is hereby incorporated herein by reference to the sections entitled “Election of Directors”; “Ownership of Common Stock — Section 16 (a) Beneficial Ownership Reporting Compliance”; and “Executive Officers” of the Company’s Proxy Statement for the 2002 Annual Shareholders Meeting.

ITEM 11. EXECUTIVE COMPENSATION

     The required information is hereby incorporated herein by reference to the sections entitled “Election of Directors—Compensation of Directors,” “Executive Compensation,” and “Compensation Committee Interlocks and Insider Participation” of the Company’s Proxy Statement for the 2002 Annual Shareholders Meeting.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The required information is hereby incorporated herein by reference to the section entitled “Ownership of Common Stock” of the Company’s Proxy Statement for the 2002 Annual Shareholders Meeting.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The required information is hereby incorporated herein by reference to the section entitled “Related Transactions” of the Company’s Proxy Statement for the 2002 Annual Shareholders Meeting.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

	(a)		Documents filed as part of Report:
			1.  Financial Statements:
			Independent Auditors’ Report
			Consolidated Balance Sheets as of December 31, 2000 and 2001.
			Consolidated Statements of Income for the three years ended December 31, 2001.
			Consolidated Statements of Shareholders’ Equity for the three years ended December 31, 2001.
			Consolidated Statements of Cash Flows for the three years ended December 31, 2001.
			Notes to Consolidated Financial Statements
			2.     Supplementary Financial Data.
			3.      Exhibits — See “Exhibit Index” which appears after the signature page of this report.
	(b)		Reports on Form 8-K — none filed in the fourth quarter of 2001.

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders:

We have audited the accompanying consolidated balance sheets of Diagnostic Products Corporation and its subsidiaries (the “Company”) as of December 31, 2001 and 2000 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Diagnostic Products Corporation and its subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Los Angeles, California
February 22, 2002

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CONSOLIDATED BALANCE SHEETS

SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.

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CONSOLIDATED STATEMENTS OF INCOME

SEE ACCOMPANYING NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY