Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
|_| TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934. FOR THE TRANSITION PERIOD _____________ TO ____________.
Commission File Number: 0-20727
Novoste Corporation
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-2787476
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4350-C International Blvd., Norcross, GA 30093
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: (770) 717-0904
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Rights to Purchase Preferred Shares
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosures 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 |X|.
As of February 28, 1997, there were 8,430,375 shares of Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the Registrant was approximately $67,435,826 based upon the closing sales
price of the Common Stock on February 28, 1997 on the NASDAQ National Market.
Shares of Common Stock held by each officer, director, and holder of five
percent or more of the Common Stock outstanding as of February 28, 1997 have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information is incorporated into Part III of this report by reference to
the Proxy Statement for the Registrant's 1996 annual meeting of stockholders to
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this Form
10-K.
NOVOSTE CORPORATION
FORM 10-K
INDEX
PART I
Item 1. Business
The Company
Industry Overview
Novoste Solution
The Beta-CathTM System
Other Intracoronary Radiation Therapy Approaches
Novoste Business Strategy
Clinical Trial and Regulatory Status
Product Development
Marketing and Distribution
Manufacturing and Materials
Competition
Patents and Proprietary Technology
Government Regulation
Third-Party Reimbursement
Product Liability Insurance
Employees and Consultants
Additional Risk Factors
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of The Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
2
PART I
Item 1. BUSINESS
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many uncertainties and risks which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties and risks include, but are not limited to, whether the Beta-CathTM
System, the Company's primary product in development, will prove safe and
effective; whether and when the Company will obtain approval of the Beta-Cath TM
System from the United States Food and Drug Administration (FDA) and
corresponding foreign agencies; the Company's need to achieve manufacturing
scale-up in a timely manner, and its need to provide for the efficient
manufacturing of sufficient quantities of its products; the Company's dependence
on the Beta-Cath TM System as the primary source of future revenue; the lack of
an alternative source of supply for the radiation source materials used in the
Beta-CathTM System; the Company's patent and intellectual property position; the
Company's need to develop the marketing, distribution, customer service and
technical support and other functions critical to the success of the Company's
business plan; the effectiveness and ultimate market acceptance of the
Beta-CathTM System; limitations on third party reimbursement; and competition
between rival developers of restenosis reduction products. These risks are
discussed under "Item 1 - Business" and "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations." Additional risk
factors include those that may be set forth in reports filed by the Company from
time to time on Forms 10-Q and 8-K. The Company does not undertake any
obligation to update any forward-looking statements.
The Company
Novoste, a development stage company with minimal revenues to date, was
incorporated in Florida in January 1987 and was first capitalized and commenced
operations in May 1992.
Novoste is developing the Beta-CathTM System, an intraluminal beta radiation
catheter delivery system designed to reduce the frequency of restenosis
subsequent to percutaneous transluminal coronary angioplasty ("PTCA"). The
Beta-CathTM System applies localized beta radiation to the site of the vascular
injury caused by a PTCA procedure and is designed to inhibit long-term cell
proliferation ("hyperplasia") and vascular remodeling, each primary causes of
restenosis. The Beta-CathTM System was developed in collaboration with certain
physicians at Emory University Hospital, including its Director of
Interventional Cardiology, Dr. Spencer B. King, III. The Company has completed
patient enrollment for a Phase I human clinical trial at Emory and Rhode Island
University Hospital under an Investigational Device Exemption ("IDE") granted by
the FDA to determine the clinical safety of the Beta-CathTM System for use in
coronary arteries. Sixteen of the twenty-three patients enrolled into the study
have now returned for their six month follow-up visit. Of these sixteen
patients, two have required an additional procedure at the original treatment
site.
Industry Overview
Coronary Artery Disease. Coronary artery disease is the leading cause of death
in the United States. More than 13 million people in the United States currently
have been diagnosed with coronary artery disease, which is generally
characterized by the progressive accumulation of plaque as a result of the
deposit of cholesterol and other fatty materials on the walls of the arteries.
The accumulation of plaque leads to a narrowing of the interior passage, or
lumen, of the arteries, reducing blood flow to the heart muscle. When
3
blood flow to the heart muscle becomes insufficient, oxygen supply is restricted
and a heart attack and death may result. Each year more than 1 million
revascularization procedures are performed in the United States, and
approximately 1.8 million of such procedures are performed worldwide, to treat
coronary artery disease to increase blood flow to the heart muscle.
Coronary Artery Bypass Graft. Coronary artery bypass graft ("CABG") surgery was
introduced as a treatment for coronary artery disease in the 1950s, when
technology was developed to enable physicians to stop a patient's heart during
surgery. CABG is a highly invasive, open surgical procedure in which blood
vessel grafts are used to bypass the site of a blocked artery, thereby restoring
blood flow. CABG, still considered the most effective and long-lasting treatment
for coronary artery disease, is generally the primary treatment for severe
coronary artery disease involving multiple vessels. In addition, CABG is often a
treatment of last resort for patients who have undergone other less invasive
procedures but require reintervention. However, CABG has significant
limitations, including medical complications, such as stroke, multiple organ
dysfunction, inflammatory response, respiratory failure and post-operative
bleeding, each of which may result in death. In addition, CABG is a very
expensive procedure and requires a long recovery period. In the United States,
the average cost of undergoing CABG is approximately $36,000, the average
post-operative hospital stay following CABG is approximately five to seven days
and the average recuperation period following discharge from the hospital is
approximately six to eight weeks. In 1995, approximately 400,000 CABG procedures
were performed in the United States. Currently, several minimally invasive
surgical techniques are being developed to lessen the cost and trauma of CABG
procedures.
PTCA and Other Catheter Based Technologies. Since its clinical introduction in
the late 1970s, PTCA has emerged as the principal, less invasive alternative to
CABG. PTCA is a procedure performed in a cath lab by an interventional
cardiologist. During PTCA, a guidewire is inserted into a blood vessel through a
puncture in the leg (or arm in some cases) and guided through the vasculature to
a diseased site in the coronary artery. A balloon-tipped catheter is then guided
over the wire to the deposit of plaque ("lesion") occluding the artery. Once the
balloon is positioned across the lesion inside the vessel, the balloon is
inflated and deflated several times. Frequently, successively larger balloons
are inflated at the lesion site, requiring the use of multiple balloon
catheters. The inflation of the balloon cracks or reshapes the plaque and the
arterial wall, thereby expanding the arterial lumen. Though injury to the
arterial wall often occurs under balloon pressure, PTCA typically results in
increased blood flow without the actual removal of any plaque. In 1996, it is
estimated that more than 500,000 PTCA procedures were performed in the United
States and approximately another 450,000 procedures were performed outside the
United States. The average cost of each PTCA procedure in the United States is
approximately $15,000, or less than one-half of the average cost of CABG, and
the length of stay and recuperation period are substantially less than those
required for CABG.
Though PTCA has grown rapidly as a highly effective, less invasive therapy to
treat coronary artery disease, the principal limitation of PTCA is the high rate
of restenosis, a re-narrowing of a treated artery, which generally requires
reintervention. Due to the effects of restenosis, the long-term
cost-effectiveness of PTCA has not proven greater than that of CABG for
multi-vessel diseases. Studies have indicated that, within six months after
PTCA, between 25% and 45% of PTCA patients experience restenosis. In addition,
45% of patients with multi-vessel coronary artery disease who received PTCA have
been shown to require reintervention within three years of treatment. Finally,
although the average cost of PTCA is less than one-half of that of CABG, a
recent study indicated that three years after the procedure, PTCA has no cost
advantage over CABG due to the need for subsequent interventional treatment.
A variety of other catheter-based, minimally invasive, interventional devices
for coronary artery disease have been developed in an attempt to reduce the
frequency of restenosis following PTCA. These devices include atherectomy
devices (catheter devices that cut and remove plaque from the arterial wall),
rotational ablation devices (catheter devices which use a rotating burr to
remove plaque), and laser catheter devices (devices that use laser energy to
reduce plaque in arteries). Although these new approaches to coronary
4
artery disease have been found to be effective in certain lesion types and in
certain locations in the coronary arteries, like PTCA they also exhibit high
rates of restenosis.
Pathology of Restenosis. Clinical restenosis is typically defined as a
renarrowing of a coronary artery within six months of a revascularization
treatment to less than 50% of its original size. Restenosis is a vascular
response to arterial injury and occurs frequently after a revascularization
procedure, which stretches coronary arteries or otherwise damages the treated
segment of the artery. Due to multiple mechanisms controlling vascular repair,
restenosis may occur within a short period after a revascularization procedure
or may develop over the course of months or years. Restenosis that occurs
shortly after a revascularization procedure is usually attributed to elastic
recoil (acute loss of lumen diameter) of the artery.
Longer term, restenosis may result from excessive proliferation of cells at the
treatment site ("hyperplasia") or from a generalized geometric remodeling of the
arterial segment, the causes of which are not well understood. Hyperplasia is a
physiological response to injury, similar to scarring which occurs in wound
healing. In response to an arterial injury from revascularization, the body sets
off a biochemical response to repair the injury site and protect it from further
harm. This response will include a signal to adjacent cells of the arterial wall
to multiply. Often this cell proliferation goes unchecked, resulting in a much
thicker and inelastic arterial wall and in reduced blood flow. The Company
believes that hyperplasia and vascular remodeling are responsible for a large
portion of the overall effect of restenosis.
Coronary Stenting. Coronary stents are expandable, implantable metal devices
permanently deployed at a lesion site. Stents maintain increased lumen diameter
by mechanically supporting the diseased site in a coronary artery. Of all the
non-surgical treatments which have sought to improve upon PTCA, stents have
demonstrated the best results in reducing the rate of restenosis. In a typical
stent procedure, the artery is pre-dilated at the lesion site with a balloon
catheter and the stent is delivered to the site of the lesion and deployed with
the use of a second balloon catheter, which expands the stent and firmly
positions it in place. This positioning is often followed by a third dilatation
using a high pressure balloon to fully expand and secure the stent. Once placed,
stents exert radial force against the walls of the coronary artery to enable the
artery to remain open and functional.
Recent studies have concluded that the rate of restenosis in patients who
receive coronary stents following PTCA is approximately 30% lower than in
patients treated only by PTCA. Additional clinical studies with stents which
incorporate a specialized coating may show a greater reduction in the rate of
restenosis. Stents appear to be effective in reducing the frequency of
restenosis resulting from elastic recoil and vascular remodeling but they
increase hyperplasia.
The use of stents has grown rapidly since commercial introduction in the United
States in 1994, and it is estimated that they were utilized in approximately
150,000 of the approximately 500,000 PTCA procedures performed in the United
States in 1996. It is also estimated that over 600,000 stents were utilized
worldwide in 1996. Despite their rapid adoption, stents have certain drawbacks.
Not only are they permanent implants which may result in unforeseen long-term
adverse effects, but they cannot be used in cases where the coronary arteries
are too tortuous or too narrow. In addition, the use of stents significantly
increases the cost of a PTCA procedure and restenosis may still occur, often
requiring reintervention in patients who receive stents.
The Novoste Solution
The Company's Beta-Cath System is designed to reduce the frequency of restenosis
following PTCA by applying localized beta radiation to the treatment site in the
coronary artery. The Beta-Cath System is designed to be safe and cost-effective
and to fit well with techniques currently used by interventional cardiologists
in the cardiac catheterization lab. The Beta-Cath System targets the primary
causes of restenosis by attempting to prevent or inhibit hyperplasia and
long-term vascular remodeling. Its localized
5
beta radiation sources can be handled with little risk to the health care
workers or to the patients because the penetration of electrons associated with
beta radiation is quite limited and easily shielded. The Company expects that
the Beta-Cath System will provide significant cost savings, principally by
reducing the costs associated with reintervention required following PTCA and
coronary stenting.
The Beta-Cath System is founded on the Company's belief, based on recent
clinical and pre-clinical studies, that localized beta radiation is likely to
reduce coronary artery restenosis rates by inhibiting cell proliferation which
occurs in response to PTCA. Radiation has been used therapeutically in medicine
for more than 50 years, and is extensively used for the treatment of
proliferative cell diseases, such as cancer. Cancer therapy has primarily
involved the use of gamma radiation, which is highly penetrating and may be
dangerous unless handled and used with great care. The Company has designed the
Beta-Cath System to use beta radiation, which is much less penetrating and thus
easier to use and control than gamma radiation while providing equivalent
efficacy. Beta radiation has been used less frequently in medicine (primarily in
a topical application to treat certain skin and eye disorders) because of its
more limited depth of penetration, but is viewed by the Company as well-suited
for intraluminal use following PTCA, where the objective is to treat the inner
surface and the wall of the artery with minimal exposure to adjacent tissues.
The Company is aware of five coronary clinical studies of the use of
intraluminal radiation to reduce the frequency of restenosis in humans. Three of
these studies have been conducted outside the United States: two used gamma
radiation delivered using methods and equipment designed for use in cancer
therapy, and one applied beta radiation using a wire positioned through the
lumen of a special balloon catheter. The results of the fourth study which was
conducted in the United States and used a combination of stents and gamma
radiation, were recently published in November 1996. In this study a total of 26
patients were treated with gamma radiation and the results showed a significant
reduction in restenosis compared to a control group of 29 patients. Enrollment
for a fifth clinical study, performed in the United States using a beta emitting
radioactive stent, was recently completed in January 1997. However, no clinical
data has yet been published for this study. These studies, while involving a
limited number of patients, tend to show a reduction in restenosis rates and no
adverse effects from intraluminal radiation. In addition, the Company's animal
studies, conducted at Emory University under the direction of Dr. Spencer King
and his colleagues, Ron Waksman, M.D., Ian Crocker, M.D. and Keith Robinson,
Ph.D., have also supported the conclusion that intraluminal radiation, and
particularly beta radiation, can be effective in reducing the frequency of
restenosis whether used alone following PTCA or as a combination therapy with
coronary stenting. See "--Clinical Trial and Regulatory Status."
The Beta-Cath System
The Beta-Cath System is designed to deliver localized, intraluminal beta
radiation to reduce the frequency of restenosis following PTCA.
The primary components of the Beta-Cath System are:
Radiation Source Train. The beta radiation administered by the Beta-Cath
System emanates from a "train" of several miniature cylindrical sealed
sources ("radiation sources") containing Strontium 90 ( Strontium/
Yttrium), a beta emitting radioisotope. The use of beta, rather than gamma,
radiation is intended to make the Beta-Cath System safer and less invasive.
The delivered dose of the Company's radiation sources has been validated by
standards established by the U.S. Department of Commerce National Institute
of Standards and Technology, enabling a physician to accurately determine
appropriate dosing levels. In addition, due to their long half lives
(approximately 28 years) and because they will not come into contact with a
patient's blood or tissue, the radiation sources are expected to be reused
for numerous patients. Beta radiation from the Strontium 90 source can be
easily shielded from health care workers by the use of approximately
one-half inch thick quartz in the transfer device.
6
Transfer Device. The transfer device is a multiple use, hand held
instrument used to store the radiation sources when not in use. The
transfer device (i) transfers the radiation sources to and from the
delivery catheter via a mechanical gating system, (ii) contains a switching
device that directs hydraulic force to move the radiation sources to or
from the treatment zone and (iii) completely shields the beta radiation
energy from health care workers while being handled in the hospital
setting.
Delivery Catheter. The delivery catheter is a single use, disposable,
multi-lumen catheter which provides a pathway for the radiation sources to
be rapidly delivered and retrieved from the coronary arterial segment to be
treated. The delivery catheter is positioned by advancing it over the same
guidewire used during the immediately preceding PTCA procedure. The
radiation sources are delivered through a dual lumen closed hydraulic
circuit, which is powered by a standard syringe.
The Beta-Cath System is intended to be used in a cath lab by an interventional
cardiologist immediately after a PTCA procedure. The cardiologist uses a
previously positioned guidewire utilized in the PTCA procedure to direct the
delivery catheter into the vasculature of the patient until the treatment zone
of the delivery catheter reaches the targeted site. The radiation sources are
hydraulically driven from the transfer device to the target site in a matter of
seconds through the radiation source train lumen of the delivery catheter. The
radiation sources remain at the targeted site for less than five minutes to
deliver a predetermined dose of radiation. They are then returned, through the
same lumen, by the use of positive hydraulic pressure applied through the
delivery catheter's fluid lumen. Upon completion of the procedure, the train of
radiation sources is stored safely inside the transfer device and delivered to a
designated radiation storage site within the hospital for safekeeping before use
with another procedure. The procedure currently requires the participation of
both an interventional cardiologist and a physician licensed to prescribe
radiation therapy. While the need for two physicians is expected to result in
increased costs associated with the Beta-Cath System, the Company believes the
Beta-Cath System will be cost-effective, principally by reducing the costs
associated with reinterventional procedures.
The Company believes the Beta-Cath System, when fully developed and tested, will
have the following advantages:
Non-implantable, Site-specific Therapy. The Beta-Cath System was
designed to accurately treat only the area required to prevent
restenosis without leaving a permanent implant in the body. The length
of the radiation source train may be varied to coincide with lesion
length.
Utilization of Existing PTCA Techniques. Although intracoronary
radiation is a new concept in coronary artery disease treatment, the
Beta-Cath System was designed to be easily adopted and used by the
cardiologist. The delivery catheter is very similar to a balloon
angioplasty catheter, and it is positioned by advancing it over the
guidewire already in place from the previous PTCA procedure.
Flexibility. The cylinders that make up the Beta-Cath System's
radiation source train, as well as the Beta-Cath System's delivery
catheter material, are designed to be very flexible, giving the
Beta-Cath System a very tight radius of curvature and the capability
of navigating tortuous coronary anatomies.
Short Procedure Times. The Beta-Cath System was designed to enhance
patient safety and comfort by delivering the recommended dosage in
less than five minutes of radiation exposure time per lesion.
Multiple Use System. The radiation source train can be reused for
numerous patients due to the long half-life of the isotope and because
the source train does not come into contact with the patient's blood.
As a result, inventory planning will be very straightforward,
procedure costs will
7
be attractive and last minute treatment decisions can be made. In
addition, a single delivery catheter and source train may be used to
treat multiple lesions within the same patient.
Ease and Accuracy of Dosing. Because of the long half-life of the
Company's radiation sources, prescribed treatment times will remain
stable over the approved shelf life of the isotope. Intracoronary
radiation systems which utilize short half-life isotopes are likely to
require complex case by case dose calculations based on the current
decay state of the isotope.
Designed for Safety. The Beta-Cath System utilizes localized beta
radiation, which results in total body radiation exposure
significantly less than that received during routine x-ray during
PTCA. Other safety mechanisms include: a closed source train lumen,
special locking mechanisms to connect the delivery catheter to the
transfer device and sufficient shielding in the transfer device to
protect health care workers from radiation exposure.
Other Intracoronary Radiation Therapy Approaches
The Company is aware of two other types of medical devices currently under
development to deliver intracoronary radiation therapy: (i) a radioactive tipped
guidewire, and (ii) a radioactive stent. Guidewires with gamma-emitting
radioactive tips have been used for some time in cancer therapy, and some
researchers have used them to deliver intracoronary radiation to prevent
restenosis. Gamma radiation is more penetrating and therefore more hazardous
than beta radiation. Accordingly, this method requires the automated
administration of radiation with a complex and expensive piece of computerized
equipment (an "afterloader"), while healthcare workers are out of the room
behind a protective barrier. The Company believes this method is impractical,
because the use of gamma radiation subjects patients and healthcare workers to
excessive radiation exposure and the use of an afterloader does not fit easily
into the cath lab. The Company is also aware of at least one company developing
a beta radiation tipped guidewire, perhaps to be used in conjunction with an
afterloader.
Novoste is also aware of at least one company developing a radioactive stent. In
theory, such a stent would address both elastic recoil and vascular remodeling
and inhibit longer term hyperplasia. However, this method retains the problems
inherent in leaving a permanent implant in the coronary artery. In addition,
this approach might not effectively treat areas of the artery beyond the ends of
the stent, areas which have been known to be restenotic. Finally, because it is
a permanent implant, a radioactive stent would likely require the use of a
radiation source with a short half-life. As a result, a hospital would have
difficulty keeping an inventory of stents that have sufficient radioactivity at
the time of implant.
The Novoste Business Strategy
The Company's objective is to become the leader in the commercialization of
intravascular radiation devices for the treatment of restenosis. Elements of the
Company's strategy include:
Achieve First to Market Position in the United States. Novoste intends
to be the first to market in the United States an intracoronary
radiation device to treat coronary restenosis. The Company has
completed enrollment in a human clinical trial in the United States
under an IDE granted by the FDA to determine the clinical safety of
the Beta-Cath System for use in coronary arteries. The Company expects
to file for a second IDE study, to determine the clinical efficacy of
the Beta-Cath System, prior to March 31, 1997.
Establish Beta Radiation Therapy as the Standard Therapy to Prevent
Restenosis. The Company's strategy is to introduce the Beta-Cath
System into the cath lab as standard therapy to reduce the frequency
of restenosis following PTCA, either on a stand-alone basis or in
conjunction with coronary stenting. The Company seeks to establish
interventional cardiologists as the primary providers of this therapy
and plans to target top tier medical institutions and
8
leading cardiologists for sale of the Beta-Cath System. In addition,
the Company intends to conduct intensive physician training seminars
to familiarize the cardiologists with the use of the Beta-Cath System.
International Commercialization. The Company seeks to obtain required
regulatory approvals as early as possible, particularly in countries
with favorable regulatory environments. The Company anticipates
marketing the Beta-Cath System in Canada and Europe through
international distributors or corporate partners prior to its receipt
of pre-marketing approval in the United States. A human clinical
safety study, similar to the initial study recently completed at Emory
University Hospital and Rhode Island Hospital, was commenced at a
single site in Canada on February 19, 1997, and an additional study is
expected to commence in The Netherlands in April 1997.
Establish Radiation Therapy for Peripheral Vascular Applications.
Restenosis is common following angioplasty of the peripheral arteries.
In addition, a similar phenomena frequently occurs in veins adjacent
to an arterial-venous shunt used for patients undergoing hemodialysis
for end stage renal disease. The Company intends to leverage its core
catheter and localized radiation technologies to expand its product
offerings to other vascular markets where cell proliferation is of
clinical significance.
Protect and Enhance Proprietary Technology. The Company believes that
its patent position may offer a significant competitive advantage. The
Company has received a Notice of Allowance covering key aspects of the
Beta-Cath System. The Company has also filed a counterpart application
under the Patent Cooperation Treaty preserving the Company's right to
file applications in the European Patent Office and certain other
countries. The Company intends to obtain further protection of its
proprietary technology and to defend its intellectual property rights
against infringement.
Clinical Trial and Regulatory Status
In June 1995 the Company applied for an IDE to conduct a human clinical trial to
determine the short-term clinical safety of the Beta-Cath System for use in the
coronary arteries, and received such approval 29 days later. The IDE was based
upon the Company's animal studies, conducted at Emory University Hospital under
the direction of Dr. Spencer King and his colleagues Drs. Ron Waksman, Ian
Crocker and Keith Robinson. These studies have supported the conclusion that
intraluminal radiation, and particularly localized beta radiation, may be
effective in reducing the frequency of restenosis whether used alone or as a
combination therapy with coronary stenting. The Company has sponsored three such
studies, the results of which have been published in three articles in
Circulation, a primary cardiology journal. The objectives of the first two sets
of animal experiments were to evaluate the effect of intraluminal gamma and beta
radiation on neointimal cell formation in pig coronary arteries following
balloon overstretch injury, a widely accepted method of modeling the restenosis
response, and to determine whether the results would be similar using beta or
gamma radiation. In both experiments, arteries treated with beta or gamma
radiation equally demonstrated significantly decreased neointimal formation
compared with control arteries, and a dose-response relationship was
demonstrated. The objective of the third set of experiments was to determine
whether intravascular radiation prior to stent implantation would also impact
neointimal formation. Both gamma radiation and beta radiation were used with
equal effectiveness to reduce the levels of neointimal formation after stent
implantation.
As approved in July 1995, the IDE authorized the Company to conduct a single
site human clinical trial at Emory University Hospital on a total of 15
patients, each of whom had a single vessel de novo (previously untreated)
lesion. In April 1996 the IDE was amended to authorize the Company to conduct a
parallel feasibility study utilizing substantially the same protocol on a total
of 8 patients at a second site at Rhode Island Hospital in Providence. The IDE
protocol provided that the patients be treated with standard PTCA
9
and immediately thereafter with intravascular radiation using the Beta-Cath
System. A follow-up review of the patient 30 days after treatment and a
follow-up angiogram six months after the initial treatment are being performed
to observe the treated artery. The IDE had four objectives: (i) to examine the
safety of different dosing parameters; (ii) to evaluate the feasibility of the
Beta-Cath System to deliver beta radiation to the coronary arteries; (iii) to
confirm the operational specifications of the Beta-Cath System; and (iv) to
compare the incidence of restenosis following PTCA coupled with the Beta-Cath
System to results of a comparable trial showing the incidence of restenosis
following PTCA alone.
As of December 31, 1996 the enrollment at both sites had been completed and a
total of 23 patients had been treated. As of February 4, 1997, 16 of the 23
patients enrolled into the study had returned for their six month follow-up
visit. Of these 16 patients, two have required an additional procedure at the
original treatment site. On February 19, 1997, the Company commenced a similar
feasibility study in Canada and expects to commence an additional study in The
Netherlands in April 1997. The Company anticipates commencing a multicenter,
triple-blinded, randomized human clinical trial in the United States in 1997,
subject to FDA approval of an additional IDE. There can be no assurance that
these or other trials will demonstrate the safety or efficacy of the Beta-Cath
System.
Product Development
Research and development activities are performed by a 20 person product
development team. The Company has also retained consultants to assist in many
research and development activities, including design of the Beta-Cath System,
designing, conducting and monitoring the clinical trials relating to the
Beta-Cath System and advising on key aspects of radiation health physics and
dosimetry. On June 27, 1996 the Company signed an agreement with a medical
diagnostic engineering, development and design company to provide products and
services to be used in the Company's product development. The agreement calls
for aggregate payments of approximately $1.3 million through April 1997, of
which $277,000 was paid in 1996.
The focus of the Company's current development efforts is to design future
generation components of the Beta-Cath System. The commercial design of the
delivery catheter will have a smaller outer diameter and be more flexible than
the design currently being used in clinical trials. Likewise, the transfer
device will be modified to have a more ergonomic design and to incorporate
additional safety features. Future development efforts will focus on modifying
the Beta-Cath System for use in peripheral vascular applications and potentially
in arterial-venous shunt applications. There can be no assurance that the
Company will be successful in developing these or other products.
Research and development expenses for the years ended December 31, 1996, 1995,
and 1994 were approximately $4.6 million, $2.1 million, and $1.4 million,
respectively.
In addition to the resources dedicated to the product development process, the
Company has an internal regulatory affairs and clinical monitoring staff, which
has responsibility for establishing, monitoring, collecting and analyzing data
relating to clinical trials and regulatory approvals for the Beta-Cath System in
the United States and abroad.
Marketing and Distribution
The Company anticipates marketing the Beta-Cath System through a direct sales
force in the United States and through a combination of international
distributors and corporate marketing partners outside the United States. If
marketing approval is obtained, the Company plans to focus its United States
marketing efforts on a top tier of approximately 200 hospitals where the Company
believes a vast majority of the PTCA procedures in the United States are
performed, and on leading cardiologists at those institutions. Through this
effort the Company initially aims to identify well-respected clinical supporters
for the Beta-Cath System and to leverage their reputation in the clinical
community to generate wider demand. The Company
10
will also conduct physician training seminars to educate physicians about the
Beta-Cath System. The Company believes that it can market the Beta-Cath System
to these hospitals and cardiologists with a moderately sized direct sales
organization, initially consisting of the Vice President of Marketing and Sales
and approximately 8 to 10 sales representatives, augmented by a small number of
clinical specialists. The Company's business and future operating results will
depend in significant part upon its ability to attract and retain skilled sales
and marketing personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting or
retaining such personnel. The Company's inability to attract and retain skilled
sales and marketing personnel, as needed, could materially adversely affect the
Company's business, financial condition and results of operations. In addition,
the Company plans to utilize distributors and/or one or more corporate marketing
partners to market products outside the United States. The Company believes such
distribution or corporate partnering arrangements will be cost-effective, will
be implemented more quickly than a direct sales force established by the Company
in such countries and will enable the Company to capitalize on local marketing
expertise in such countries.
The Company intends to select one or more established market leaders in the
radiation isotope business to inventory and deliver the radiation sources and to
provide related training, delivery, testing and disposal services to the
purchasing hospital. Novoste does not intend to inventory or deliver the
radiation sources used in the Beta-Cath System. There can be no assurance that
the Company will be able to secure any arrangements with international
distributors, corporate marketing partners or radiation isotope providers on
satisfactory terms or at all.
Manufacturing and Materials
Near term the Company will focus its manufacturing resources on the production
of the Beta-Cath System. The Company anticipates that it will manufacture the
delivery catheter component of the Beta-Cath System directly and manufacture the
transfer device jointly with third parties. The radiation source trains are
being supplied by a third party. The Company intends to manufacture its products
at its 25,600 square foot facility in Norcross, Georgia. The Company believes
that, if marketing approvals of the Beta-Cath System are obtained, it will be
able to utilize its existing facility and the expertise of its management to
manufacture commercial quantities of the catheter-based components of the
Beta-Cath System at a reasonable cost. However, to date, the Company has not yet
commercialized any of its products and its manufacturing activities have
consisted of building a small number of prototypes of the Beta-Cath System for
use in pre-clinical and clinical trials, and the Company does not have
experience in manufacturing the Beta-Cath system in commercial quantities.
The Company currently executes all critical assembly operations in controlled
environment rooms in which bacterial and airborne particulate levels are
monitored. The Company believes that its current space will be sufficient to
serve its needs through at least 1998. The Company could rely on some outside
sources for catheter components and from time to time the Company could
experience shortages of certain supplied materials that could significantly
affect its ability to produce enough product to satisfy market demand. As the
Company grows, it will be required to scale-up its production and to increase
its manufacturing capacity.
Any products of the Company, for which FDA clearances or approvals have been
obtained, must be manufactured in accordance with Good Manufacturing Practices
("GMP") regulations which would impose certain procedural and documentation
requirements upon the Company with respect to manufacturing and quality
assurance activities. The Company will rely on independent suppliers for certain
components of the Beta-Cath System. Such components are either standard
throughout the industry or will be built to the Company's specifications. All
suppliers of such components also must be in compliance with GMP regulations.
11
The Company has obtained all of its requirements of radiation source materials
pursuant to an exclusive agreement (the "Supply Agreement") with a single
supplier, Bebig Isotopentechnik und Umweltdiagnostik GmbH, a German corporation
(the "Supplier"). Under the Supply Agreement, as amended on November 15, 1996,
the Company agreed to advance the supplier a monthly investment grant of 100,000
Deutsche Mark (approximately $65,000) for a period of 15 months from November
1996 through March 1998 to build and equip a production site for the exclusive
production of radioactive materials for the Company. The supplier has agreed to
manufacture radiation source "trains" at an agreed upon base price. The Supplier
is required to comply with various regulatory requirements with respect to the
supply of radiation sources.
Under the Supply Agreement, which has an initial term ending in the year 2000
and renews automatically for one year unless notice of termination is given six
months prior to the end of each calendar year, the supplier has agreed not to
sell, lease, license or otherwise transfer radioactive sources of a similar
isotope to any other party for use in the treatment of restenosis. The Company,
in turn, has agreed not to purchase, lease, or otherwise acquire directly or
indirectly more than 30% of its annual requirement for radioactive sources of
"like" isotope for use in the treatment of restenosis from any other party.
Although the Supply Agreement permits the Company to use an alternative source
for 30% of its annual isotope requirements, the Company believes that because of
the technical expertise and capital investment required to manufacture the
radiation source materials, it would be extremely difficult and expensive to
find an alternate source of supply in the event that the Supplier is unable to
provide the materials. In addition, portions of the process used to manufacture
the materials may be proprietary to the Supplier, who has no obligation to make
any of its know-how or technology available to any potential alternate source of
supply.
The Company holds an option to purchase those tangible and intangible assets of
the supplier used or useful in producing the radioactive isotopes sold to the
Company by the supplier in connection with the Beta-Cath System. The option is
exercisable at any time on or prior to August 22, 2002, for $5,000,000, 50% of
which is payable upon exercise and the balance in 12 equal consecutive monthly
installments following such exercise, and provides that the $90,000 payment made
to obtain the option and the aforementioned investment grants of 1.5 million
Deutsche Marks, to the extent paid at the time of exercise, will be credited
against the purchase price of the assets. Upon the exercise of the option, the
supplier is obligated for a period of up to three months, to assign personnel to
assist the Company in facilitating the transfer of the assets, both for purposes
of technical training and operations and for administrative and regulatory
matters relating to licensing and governmental approvals. Nevertheless, the
exercise of such option and the transfer of the required technology and
expertise to the Company or an alternative source would be costly, time
consuming, and uncertain of success.
While the Company anticipates that the radiation source materials it purchases
from the Supplier will be able to be used for numerous patients, the inability
of the Supplier to provide radiation source materials would limit the Company's
ability to increase its business beyond its then existing inventory of such
radiation source material. As a result of the foregoing, any failure or
disruption in the ability of the Supplier to provide the radiation source
materials could have a material adverse effect on the business, financial
condition and results of operation of the Company.
Competition
Competition in the medical device industry, and specifically the markets for
cardiovascular devices and devices to improve the outcome of coronary
revascularization procedures, is intense. Guidant Corporation, Boston Scientific
Corporation, Medtronic Inc. and Johnson & Johnson, among others, are developing
devices to improve the outcome of coronary revascularization procedures. Many
companies are developing therapies to reduce the frequency of restenosis.
Johnson & Johnson, among others, currently markets coronary stents which have
been successful in reducing the frequency of restenosis. Other companies,
including a private company Isostent, have various radiation therapy products
under development to reduce
12
restenosis. In addition, drugs, gene therapy and other minimally invasive
catheter-based procedures are currently being developed. Many of the Company's
competitors and potential competitors have substantially greater capital
resources than does the Company and also have greater resources and expertise in
the areas of research and development, obtaining regulatory approvals,
manufacturing and marketing. There can be no assurance that the Company's
competitors and potential competitors will not succeed in developing, marketing
and distributing technologies and products that are more effective than those
developed and marketed by the Company or that would render the Company's
technology and products obsolete or noncompetitive. Additionally, there is no
assurance that the Company will be able to compete effectively against such
competitors and potential competitors in terms of manufacturing, marketing and
sales.
Any product developed by the Company that gains regulatory clearance or approval
will have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which the Company can develop
products, gain regulatory approval and reimbursement acceptance and supply
commercial quantities of the product to the market are expected to be important
competitive factors. In addition, the Company believes that the primary
competitive factors for products addressing restenosis include safety, efficacy,
ease of use, reliability, suitability for use in cath labs, service and price.
The Company also believes that physician relationships, especially relationships
with leaders in the interventional cardiology community, are important
competitive factors. Although the Company is the first company in the United
States to have initiated an FDA-approved human clinical trial of a radiation
system for reducing the frequency of restenosis, there can be no assurance that
the Company will be first to market such a system in the United States or to
market such a system effectively.
Patents and Proprietary Technology
The Company's policy is to protect its proprietary position by, among other
methods, filing United States and foreign patent applications. On February 25,
1997 the Company received a Notice of Allowance from the U.S. Patent and
Trademark Office ("USPTO"), indicating that the Company's first patent
application for its Beta-Cath system has been allowed for issuance as a United
States patent. Typically, a United States patent issues within a few months of
its Notice of Allowance. The Company has filed a counterpart application under
the Patent Cooperation Treaty preserving the Company's right to file
applications in the European Patent Office and certain other countries. The
Company also holds seven issued United States patents and one issued foreign
patent, and has nine United States patent applications pending and has filed, or
will file, counterpart applications in several foreign countries with respect to
other products. The Company employs a full time manager of intellectual property
to prepare invention records and to coordinate the prosecution of new
intellectual property.
There can be no assurance that the claims under the Company's pending U.S.
patent applications covering certain aspects of the Beta-Cath System will be
allowed, or if allowed, will offer any protection to the Company. In addition,
there can be no assurance that the Company's United States and foreign patents
or other pending applications will offer any protection or that they will not be
rejected, challenged, reexamined, invalidated or circumvented. In addition,
there can be no assurance that competitors will not obtain patents that will
prevent, limit or interfere with the Company's ability to make, use or sell its
products in either the United States or international markets.
The Company received a letter from NeoCardia, L.L.C. ("NeoCardia") dated July 7,
1995 in which NeoCardia notified the Company that NeoCardia is the exclusive
licensee of U.S. Patent No. 5,199,939 (the "Dake Patent") and requested that the
Company confirm that its products did not infringe the claims of the Dake
Patent. The Company had previously concluded based upon advice of patent counsel
that the Company's proposed Beta-Cath System would not infringe any valid claim
of the Dake Patent. On August 22, 1995, on behalf of the Company, its patent
counsel responded that the Company did not infringe the Dake Patent.
13
The USPTO is currently reexamining the Dake Patent and on such reexamination
preliminarily rejected all claims of the Dake Patent. In accordance with the
reexamination procedure, in April 1996 the holder of the Dake Patent submitted a
response to the USPTO reasserting that the claims of the Dake Patent are valid
and submitting additional claims as well. A second reexamination request was
subsequently filed with the USPTO and the request was accepted. Both
reexamination requests have now been combined and are being reviewed by the same
examiner. Under the reexamination, the USPTO will again consider the
patentability of the claims and may confirm the patentability of the original
claims, allow new or amended claims which narrow or broaden the original claims,
or reject the claims once again. The holder of the Dake Patent has the right to
appeal any final rejection of its patent claims and the outcome of the
reexamination procedure cannot be predicted. Any or all claims of the Dake
Patent and new claims requested may be rejected or may be accepted and
confirmed. The validity of patent claims which survive a reexamination procedure
may be more difficult to challenge in a later dispute than claims which have
never been reexamined based upon the same prior art.
There can be no assurance that the Company's products will not infringe any
original, amended or new claims of the Dake Patent which survive the
reexamination proceeding, or that NeoCardia will not sue the Company for patent
infringement and obtain damages from the Company and/or injunctive relief
restraining the Company from commercializing the Beta-Cath System, or that the
Company will not be required to obtain a license from NeoCardia, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations or could result in cessation of the
Company's business.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement claims or litigation or interference
proceedings declared by the USPTO to determine the priority of inventions. The
defense and prosecution of intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are both costly and
time-consuming. Litigation may be necessary to enforce patents issued to the
Company, to protect trade secrets or know-how owned by the Company or to
determine the enforceability, scope and validity of the proprietary rights of
others. Any litigation or interference proceedings will result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties or require the Company to redesign its
products or processes to avoid infringement or prevent the Company from selling
its products in certain markets, if at all. Although patent and intellectual
property disputes regarding medical devices have often been settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. Furthermore, there can be no
assurance that the necessary licenses would be available to the Company on
satisfactory terms, if at all, or that the Company could redesign its products
or processes to avoid infringement. Any adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
the Company from manufacturing and selling its products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Patent applications in the United States are maintained in secrecy until patents
issue and patent applications in foreign countries are maintained in secrecy for
a period after filing. Accordingly, there can be no assurance that current and
potential competitors or other third parties have not or will not file
applications for, or have not or will not receive, patents and will not obtain
additional proprietary rights relating to materials or processes used or
proposed to be used by the Company.
14
The Company has developed certain of its patent and proprietary rights relating
to the Beta-Cath System in conjunction with Emory University Hospital, a leader
in the use of intravascular radiation therapy. To obtain the exclusive rights to
commercialize the Beta-Cath System for the treatment of restenosis, the Company
entered into a license agreement with Emory, under which Emory assigned to the
Company all of Emory's rights to one pending U.S. patent application, as to
which Emory made no representation or warranty with respect to its ownership
thereof, and licensed other technology thereunder relating to the Beta-Cath
System, but made only limited representations as to the ownership of such other
technology. Under the agreement Emory will be entitled to royalty payments based
upon net sales of the Beta-Cath System. The term of the agreement runs through
the later of (i) the expiration of the last patent covered by the agreement to
expire or (ii) January 2016 (unless earlier terminated as provided in the
agreement). Any inventions developed jointly by personnel of the Company and
Emory during the term of the license agreement are owned jointly by the Company
and Emory. If the agreement were terminated by Emory as a result of the
Company's failure to pay such royalties or any other breach of its obligations
under such agreement, the Company's rights to use jointly owned patents
(including any patent covering the continuation-in-part application which has
been filed) would become non-exclusive, it would have no rights to practice
future patents owned exclusively by Emory and the Company could be required by
Emory to cooperate in licensing the pending U.S. patent application and its
foreign counterparts to third parties so that they would be able to
commercialize and sell the Beta-Cath System.
All of the physicians on staff at Emory who were involved in the development of
the Beta-Cath System, including Spencer B. King, III, M.D., have assigned their
rights in the technology, if any, to Novoste and/or Emory.
In addition, the Company has entered into a license agreement with Dr. King
pursuant to which Dr. King is entitled to receive a royalty on the net sales of
the Beta-Cath System (excluding consideration paid for the radioactive isotope),
subject to a maximum of $5,000,000 to be paid to Dr. King, in exchange for the
right granted thereunder to the Company to use his name in connection with sales
and marketing of the Beta-Cath System.
The Company typically obtains confidentiality and invention assignment
agreements in connection with employment, consulting and advisory relationships.
These agreements generally provide that all confidential information developed
or made known to the individual by the Company during the course of the
individual's relationship with the Company, is to be kept confidential and not
disclosed to third parties, except in specific circumstances. There can be no
assurance, however, that these agreements will provide meaningful protection or
adequate remedies for the Company in the event of unauthorized use, transfer or
disclosure of such information or inventions. Furthermore, no assurance can be
given that competitors will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
proprietary technology, or that the Company can meaningfully protect its rights
in unpatented proprietary technology.
Government Regulation
United States
The Company's Beta-Cath System is regulated in the United States as a medical
device. As such, the Company is subject to extensive regulation by the FDA and
in some instances by foreign governments. The FDA regulates the clinical
testing, manufacture, labeling, distribution and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals,
a recommendation by the FDA that the Company not be permitted to enter into
government contracts and criminal prosecution. The FDA also has the authority to
request repair, replacement or refund of the cost of any device manufactured or
distributed by the Company.
15
In the United States, medical devices are classified into one of three classes
(Class I, II or III) on the basis of the controls deemed necessary by the FDA to
reasonably assure their safety and efficacy. Under FDA regulations Class I
devices are subject to general controls (for example, labeling, premarket
notification and adherence to GMPs) and Class II devices are subject to general
and special controls (for example, performance standards, patient registries,
and FDA guidelines). Generally, Class III devices are those that must receive
premarket approval by the FDA after evaluation of their safety and efficacy (for
example, life-sustaining, life-supporting and implantable devices, or new
devices that have not been found substantially equivalent to legally marketed
devices). The Beta-Cath System is a Class III device which will require
pre-market approval ("PMA") by the FDA prior to its commercialization.
A PMA application must be supported by valid scientific evidence which typically
includes extensive data, including preclinical and human clinical trial data to
demonstrate safety and efficacy of the device. If human clinical trials of a
device are required and the device presents a "significant risk," the sponsor of
the trial (usually the manufacturer or the distributor of the device) is
required to file an IDE application with the FDA prior to commencing human
clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA.
The PMA application must also contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling, advertising literature and training methods (if required).
Upon receipt of a PMA application, the FDA makes a threshold determination as to
whether the application is sufficiently complete to permit a substantive review.
If the FDA determines that the PMA application is sufficiently complete to
permit a substantive review, the FDA will accept the application for filing and
begin an in-depth review of the PMA. An FDA review of a PMA application
generally takes one to two years from the date the PMA application is accepted
for filing, but may take significantly longer. The review time is often
significantly extended by the FDA asking for more information or clarification
of information previously submitted. During the review period an advisory
committee, primarily comprised of clinicians, will likely be convened to review
and evaluate the application and provide recommendations to the FDA as to
whether the device should be approved. The FDA is not bound by those
recommendations. Toward the end of the PMA review process, the FDA generally
will conduct an inspection of the manufacturer's facilities to ensure that the
facilities are in compliance with the applicable GMP requirements.
If the FDA's evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA will either issue an approval letter or an
"approvable letter" containing a number of conditions which must be satisfied in
order to secure the final approval of the PMA. When and if those conditions have
been fulfilled to the satisfaction of the FDA, the agency will issue a PMA
approval letter authorizing commercial marketing of the device for certain
indications. If the FDA's evaluation of the PMA application or manufacturing
facilities is not favorable, the FDA will deny approval of the PMA application
or issue a "not approvable letter." The FDA may also determine that additional
clinical trials are necessary, in which case PMA approval could be delayed for
several years while additional clinical trials are conducted and submitted in an
amendment to the PMA. The PMA process can be expensive, uncertain and lengthy,
and a number of devices for which FDA approval has been sought by other
companies have never been approved for marketing.
To date the Company has obtained an IDE for a feasibility clinical trial to
collect data necessary to gain FDA approval to begin a multi-center, randomized,
prospective clinical trial needed to support a PMA application. There can be no
assurance as to when, or if, the Company will complete clinical trials of its
Beta-Cath System or that data from such trials, if completed, will be adequate
to support approval of a PMA. Furthermore, there can be no assurance that the
Company will be able to obtain PMA approval on a
16
timely basis, or at all, and delays in the receipt of, or failure to receive,
such approvals would have a material adverse effect on the Company's business,
financial condition and results of operations, and could result in cessation of
the Company's business.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including record keeping requirements and reporting of adverse
experiences with the use of the device. Device manufacturers are required to
register their establishments and list their devices with the FDA and certain
state agencies, and are subject to periodic inspections by the FDA and certain
state agencies. The FDA Act requires devices to be manufactured in accordance
with GMP regulations which impose certain procedural and documentation
requirements upon the Company with respect to manufacturing and quality
assurance activities. The FDA has proposed changes to the GMP regulations that
would, among other things, require design controls and maintenance of service
records, which if finalized, would likely increase the cost of complying with
GMP requirements.
Because the Beta-Cath System utilizes radiation sources, its manufacture,
distribution, transportation, import/export, use and disposal will also be
subject to federal, state and/or local laws and regulations relating to the use
and handling of radioactive materials. Specifically, after PMA approval is
obtained, approval by the U.S. Nuclear Regulatory Commission ("NRC"), or an
equivalent state agency, of the Company's radiation sources for certain medical
uses will be required to commercially distribute the radiation sources to
licensed recipients in the United States. In addition, the Company and/or its
supplier of radiation sources must obtain a specific license from the NRC to
commercially distribute such radiation sources as well as comply with all
applicable regulations. The Company and/or its supplier of radiation sources
must also comply with NRC and U.S. Department of Transportation regulations on
the labeling and packaging requirements for shipment of radiation sources to
hospitals or other users of the Beta-Cath System. In addition, hospitals may be
required to obtain or expand their licenses to use and handle beta radiation
prior to receiving radiation sources for use in the Beta-Cath System. Comparable
radiation regulatory requirements and/or approvals are anticipated in markets
outside the United States. If any of the foregoing approvals are significantly
delayed or not obtained, the Company's business, financial condition and results
of operations could be materially adversely affected.
The Company is also subject to numerous federal, state and local laws relating
to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations now or in the future or that such laws or regulations will not have
a material adverse effect upon the Company's ability to do business.
Changes in existing requirements or adoption of new requirements or policies
could adversely affect the ability of the Company to comply with regulatory
requirements. Failure to comply with regulatory requirements could have a
material adverse effect on the Company's business, financial condition or
results of operations. There can be no assurance that the Company will not be
required to incur significant costs to comply with laws and regulations in the
future or that laws and regulations will not have a material adverse effect upon
the Company's business, financial condition or results of operations.
International
Sales of the Beta-Cath System outside the United States are subject to
regulatory requirements that vary from country to country. The time required to
obtain approval for sale in foreign countries may be longer or shorter than that
required for FDA approval and the requirements may differ. In addition, there
may be foreign regulatory barriers other than premarket approval (including
regulations concerning the distribution, use and handling of the radiation
sources), and the FDA must approve exports of devices that require a PMA but are
not yet approved domestically. The current rules provide that, in order to
obtain FDA export approval, the Company must provide the FDA with documentation
related to the medical
17
device. On February 19, 1997 the Company commenced a feasibility study in Canada
and expects to commence an additional study in The Netherlands in April 1997. In
Europe, commencing in 1998 the Company will be required to obtain certifications
necessary to enable the CE mark to be affixed to the Beta-Cath System, to market
the Beta-Cath System throughout the European Union. Additionally, to market
products in Europe, the Company is required to maintain ISO 9001/EN 46001
certification subject to periodic surveillance audits.
Other countries in which the Company intends to market the Beta-Cath System may
adopt regulations in the future that could prevent the Company from marketing
its Beta-Cath System in those countries. In addition, the Company may be
required to spend significant amounts of capital in order to respond to requests
for additional information by foreign regulatory bodies or may otherwise be
required to spend significant amounts of capital in order to obtain foreign
regulatory approvals. Any such events could substantially delay or preclude the
Company from marketing the Beta-Cath System in foreign countries.
Third-Party Reimbursement
The Beta-Cath System, if approved for commercial sale, will be purchased
primarily by hospitals. Hospitals and physicians bill various third-party
payors, such as government health programs, private health insurance plans,
managed care organizations and other similar programs, for the health care
services provided to their patients. The FDA has classified the Beta-Cath System
as an experimental device and accordingly its use in the human clinical trials
will not be reimbursable under the Medicare program or by private insurers until
the PMA approval is achieved, if ever. The classification of the Beta-Cath
System as experimental will materially increase the costs of conducting clinical
trials in the United States, and such costs could have a material adverse effect
on the Company's business, financial condition and results of operations. Such
classification may cause the Company to conduct the majority of its clinical
trials outside the United States. Relying on foreign clinical trials may subject
the Company to certain risks, including the necessity to obtain FDA approval to
export the products from the United States, the risk that the FDA may not accept
data from certain foreign countries, the difficulty in identifying clinical
sites able to conform to FDA requirements, foreign medical regulations and
foreign radiation regulations. Even if the Beta-Cath System were to receive
approval for marketing by the FDA, there can be no assurance that third-party
payors will cover the Beta-Cath System, or, if covered, that third-party payors
will not place certain restrictions on the circumstances in which coverage will
be available. In addition, payors may deny reimbursement if they determine that
a product was not used in accordance with established payor protocol regarding
cost-effective treatment methods or was used for an unapproved indication.
Third-party payors are also increasingly challenging the prices charged for
medical products and services and in some instances have put pressure on medical
device suppliers to lower their prices. The Company is unable to predict what
changes will be made in the reimbursement methods used by third-party health
care payors. There can be no assurance that the Beta-Cath System will be
considered cost effective by third-party payors, that reimbursement for the
Beta-Cath System will be available or, if available, that payors' reimbursement
levels will not adversely affect the Company's ability to sell the Beta-Cath
System on a profitable basis. In addition, the cost of health care has risen
significantly over the past decade and there have been and may continue to be
proposals by legislators, regulators and third-party payors to curb these costs.
Failure by hospitals and physicians to obtain reimbursement from third-party
payors, changes in third-party payors' policies toward reimbursement for the
Beta-Cath System or legislative action could have a material adverse effect on
the Company's business, financial condition and results of operations.
Product Liability and Insurance
The business of the Company entails the risk of product liability claims.
Although the Company has not experienced any product liability claims to date,
there can be no assurance that such claims will not be asserted or that the
Company will have sufficient resources to satisfy any liability resulting from
such claims through 1996. Through December 31, 1996 the Company maintained
product liability insurance with coverage of an annual aggregate maximum of $2
million. Effective January 1997 this insurance was
18
increased to $4 million. There can be no assurance that product liability claims
will not exceed such insurance coverage limits, that such insurance will
continue to be available on commercially reasonable terms or at all, or that a
product liability claim would not materially adversely affect the business,
financial condition or results of operations of the Company.
Employees and Consultants
As of December 31, 1996 the Company directly employed 35 full-time individuals.
Most of the Company's employees have prior experience with medical device or
pharmaceutical companies. The Company believes it maintains good relations with
its employees. None of the Company's employees is represented by a union or
covered by a collective bargaining agreement. The Company's success will depend
in large part upon its ability to attract and retain qualified employees. The
Company faces competition in this regard from other companies, research and
academic institutions and other organizations.
The Company maintains continuing relationships with a number of independent
consultants that have contributed to the development of the Company's products
and work on specific development projects. These relationships are integral to
the continued success of the Company and the generation of new products from the
research and development departments.
Executive Officers of the Company
The executive officers of the Registrant, who are elected by the board of
directors, are as follows:
Name Age Position
- ---- --- --------
Thomas D. Weldon.............41 President, Chief Executive Officer and
Director
Charles E. Larsen............45 Senior Vice President, Chief Technical Officer
and Director
David N. Gill................42 Vice President-Finance, Chief Operating
Officer, Chief Financial
Officer and Treasurer
Thomas K. Brooks.............40 Vice President, Sales, Marketing and Business
Development
Cheryl R. Johnson............34 Vice President, Corporate Planning and
Secretary
Joan M. Macdonald, Ph.D......39 Vice President, Regulatory and Clinical
Affairs
Jonathan J. Rosen, Ph.D.. (1)49 Vice President, Product Development
(1) Resigned as an officer effective February 28, 1997.
Thomas D. Weldon. Mr. Weldon co-founded the Company and has served as its
President and Chief Executive Officer and as a Director since its capitalization
in May 1992. Mr. Weldon co-founded and was President, Chief Executive Officer
and a Director of Novoste Puerto Rico Inc. ("Novoste Puerto Rico"), a
manufacturer of disposable cardiovascular medical devices, from 1987 to May
1992, prior to its sale. Previous responsibilities included management positions
at Arthur Young & Company and Key Pharmaceuticals. Mr. Weldon received a B.S. in
Industrial Engineering from Purdue University and an M.B.A. in Operations and
Systems Management from Indiana University.
Charles E. Larsen. Mr. Larsen co-founded the Company and has served as its
Senior Vice President and as a Director since its capitalization in May 1992.
Since February 28, 1997, Mr. Larsen has been Chief Technical Officer of the
Company, having served from May 1992 through February 1997 as its Chief
Operating Officer. Mr. Larsen co-founded and was Vice President and Director of
Novoste Puerto Rico from 1987 to May 1992. From 1983 through 1987, Mr. Larsen
was a manager of manufacturing engineering at Cordis Corporation. Mr. Larsen
received a B.S. in Mechanical Engineering from New Jersey Institute of
Technology.
19
David N. Gill. Mr. Gill has served as the Company's Vice President of Finance,
Chief Financial Officer and Treasurer since July 1996 and as Chief Operating
Officer since February 28, 1997. From August 1995 to June 1996, Mr. Gill served
as Chief Financial Officer of SPEA Software AG. From 1992 to 1995 Mr. Gill
served as President and Director of Dornier Medical Systems, Inc. and from 1990
to 1992 as its Vice President of Finance. Mr. Gill received an M.B.A. from Emory
University and a B.S. degree in Accounting from Wake Forest University.
Thomas K. Brooks. Mr. Brooks has served as the Company's Vice President, Sales,
Marketing and Business Development since January 1995. From 1986 through
December 1994, Mr. Brooks served in various sales, marketing, and business
development positions with Boston Scientific Corporation, a manufacturer of
medical devices, most recently as manager of new business development. From 1983
through 1986, Mr. Brooks held various sales positions for Ethicon Endo-Surgery
Division of Johnson & Johnson. Mr. Brooks received a B.A. in Business
Administration from Monmouth College.
Cheryl R. Johnson. Ms. Johnson joined the Company in July 1992 as Director of
Marketing and Business Development and Secretary and has served as Director of
Administration and Business Development of the Company since January 1996. From
August 1989 to June 1992, Ms. Johnson worked in planning and business
development capacities at BOC Health Care, most recently as its business
development manager. Ms. Johnson received an M.B.A. from the Kellogg School at
Northwestern University and a B.S. degree in Chemical Engineering from the
Georgia Institute of Technology.
Joan M. Macdonald, Ph.D. Dr. Macdonald joined the Company in January 1994, as
its Director of Regulatory Affairs, and has been its Vice President, Regulatory
and Clinical Affairs since January 1996. From September 1990 through September
1993, Dr. Macdonald worked for CIBA Vision Corporation, a manufacturer of
ophthalmic products, having served most recently as Director, Worldwide
Regulatory Strategy. Dr. Macdonald received a Ph.D. degree in physiology from
the Medical College of Wisconsin, and M.S. and B.S. degrees in Zoology from the
University of Wisconsin and has currently completed more than 50% of the course
work for an M.P.H. degree at Emory University.
Jonathan J. Rosen, Ph.D. Dr. Rosen has served as Vice President, Product
Development of the Company since July 1992. From March 1990 until joining the
Company, Dr. Rosen was President and Director of CDX Corporation, a
publicly-traded medical device company. From 1979 through March 1990, Dr. Rosen
served in various senior management product development capacities at Johnson &
Johnson. Dr. Rosen received the following degrees: a Ph.D. in Biomaterials
Science from Case Western Reserve University, an M.S. in Business Policy from
Columbia University, and an M.S. in Materials Science and a B.S.E. in
Metallurgical Engineering from the University of Michigan. Mr. Rosen resigned as
an officer of the Company effective February 28, 1997.
Additional Risk Factors
LIMITED OPERATING HISTORY. The Company has a limited history of operations.
Since its inception in May 1992 the Company has been primarily engaged in
research and development of its Beta-Cath System. The Company has generated only
limited revenue and does not have experience in manufacturing, marketing or
selling its products in quantities necessary for achieving profitability. There
can be no assurance that the Company's product systems will be commercialized or
that the Company will achieve significant revenues from either international or
United States sales. In addition, there can be no assurance that the Company
will achieve or sustain profitability in the future.
HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES. The Company has experienced
significant operating losses since inception and as of December 31, 1996 had an
accumulated deficit of $13.4 million. The development and further
commercialization of the Company's current products and other new products, if
any, will require substantial development, clinical, regulatory, manufacturing
and
20
other expenditures. The Company expects its operating losses to continue for at
least the next two years as the Company continues to expand its product
development, clinical trials, and marketing efforts.
FLUCTUATIONS IN OPERATING RESULTS. The Company's results of operations may
fluctuate significantly from quarter to quarter and will depend upon numerous
factors, including product development efforts, actions relating to regulatory
and reimbursement matters, progress of clinical trials, the extent to which the
Company's products gain market acceptance, and competition.
DEPENDENCE ON BETA CATH SYSTEM. The Company anticipates that for the foreseeable
future it will be solely dependent on the successful development and
commercialization of the Beta-Cath System. The Beta-Cath System will require
further development, as well as regulatory clearance or approval, before it can
be marketed in the United States or internationally. There can be no assurance
that the Company's development efforts will be successful or that the Beta-Cath
System will be shown to be safe or effective, cleared or approved by regulatory
authorities, capable of being manufactured in commercial quantities at
acceptable costs, approved by payors for reimbursement or successfully marketed.
In addition, there can be no assurance that demand for the Beta-Cath System will
be sufficient to allow profitable operations. Failure of the Beta-Cath System to
be successfully commercialized would have a material adverse effect on the
Company's business, financial condition and results of operations.
LIMITED SALES AND MARKETING EXPERIENCE. At present the Company has no sales and
a limited marketing and sales capability. The Company intends to sell its
products in the United States directly and outside the United States through
international distributors and corporate partners. There can be no assurance
that the Company will be able to recruit and train adequate sales and marketing
personnel to successfully commercialize the Beta-Cath System in the United
States. The inability to recruit or retain suitable international distributors
or corporate partners could also have a material adverse effect on the Company's
business, financial condition and results of operations. The Company intends to
select one or more established market leaders in the radiation isotope business
to inventory and deliver the radiation sources and provide related training,
testing and support services to hospitals in both the United States and
international markets. The inability to recruit or retain one or more such
entities for this purpose could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISK OF INADEQUATE FUNDING. The Company anticipates that its operating losses
will continue through at least 1998 because it plans to expend substantial
resources in funding clinical trials in support of regulatory approvals, and
continues to expand research and development and marketing activities. Novoste
believes that current cash balances and short-term investments, together with
interest thereon, will be sufficient to meet the Company's operating and capital
requirements through calendar 1997. However, the Company's future liquidity and
capital requirements will depend upon numerous factors, including the progress
of the Company's clinical research and product development programs; the receipt
of and the time required to obtain regulatory clearances and approvals; the
resources required to gain approvals; the resources the Company devotes to the
development, manufacture, and marketing of its products; the resources required
to hire and develop a direct sales force in the United States, develop
distributors internationally, and to expand manufacturing capacity; facilities
requirements; market acceptance and demand for its products; and other factors.
Novoste may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. There can be
no assurance that additional financing, if required, will be available on
satisfactory terms, or at all.
DEPENDENCE UPON KEY PERSONNEL. The Company is dependent upon a number of key
management and technical personnel. The loss of the services of one or more key
employees could have a material adverse effect on the Company. The Company's
success will also depend on its ability to attract and retain additional highly
qualified management and technical personnel. The Company faces intense
competition for qualified personnel, many of whom are often subject to competing
employment offers, and there can be no assurance that the Company will be able
to attract and retain such personnel. Furthermore, the Company relies on the
services of several medical and scientific consultants, all of whom are employed
21
on a full-time basis by hospitals or academic or research institutions. Such
consultants are therefore not available to devote their full time or attention
to the Company's affairs.
POSSIBLE VOLATILITY OF STOCK PRICE. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In
addition, the market price of the shares of Common Stock is likely to be highly
volatile. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, FDA and international regulatory actions, actions with respect to
reimbursement matters, developments with respect to patents or proprietary
rights, public concern as to the safety of products developed by the Company or
others, changes in health care policy in the United States and internationally,
changes in stock market analyst recommendations regarding the Company, other
medical device companies or the medical device industry generally and general
market conditions may have a significant effect on the market price of the
Common Stock.
Item 2. PROPERTIES
The Company leases approximately 25,600 square feet of office and laboratory
space in an office park in Norcross, Georgia under a five-year lease expiring in
2000. All of the Company's operations (other than clinical research activities
and services of its consultants) are conducted in that facility. The Company
believes that its facility is adequate to serve its needs through at least 1998,
but additional facilities may be needed thereafter to commercialize the
Beta-Cath System.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National Market (Nasdaq
symbol: NOVT). The number of record holders of the Company's Common Stock at
February 28, 1997 was 137, excluding beneficial owners of shares registered in
nominee or street name. The Company has not paid any dividends since its
inception, other than the distribution of the Shareholder Right described in
Note 6 of the Notes to the Financial Statements, and does not intend to pay any
dividends in the foreseeable future.
The range of high and low closing sale prices for the Common Stock is as
follows:
Quarter Ended High Low
- -------------------------------- ------------------ ------------------
June 30, 1996 (from May 23, 1996) $ 15.50 $ 8.75
September 30, 1996 $ 13.75 $ 7.00
December 31, 1996 $ 16.75 $11.875
On February 28, 1997, the last reported sale price for the Common Stock was
$16.25.
22
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected statement of operations and balance
sheet data for the fiscal years ended December 31, 1996, 1995, 1994, and 1993,
and for the period from inception (May 22, 1992) through December 31, 1992 and
for the period from inception through December 31, 1996. The selected financial
data for each such fiscal year listed below has been derived from the financial
statements of the Company for those years, which have been audited by Ernst &
Young LLP, independent auditors, whose report on the Company's financial
statements as of December 31, 1996 and 1995, for each of the three years in the
period ended December 31, 1996 and for the period from inception (May 22, 1992)
through December 31, 1996 is included elsewhere herein. Certain prior years'
expense amounts have been reclassed in the Statement of Operations for 1995,
1994, 1993, for the period from inception through December 31, 1992 and for the
period from inception through December 31, 1996. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Financial Statements and
related Notes and other financial information included herein.
Period from Period from
inception inception
(May 22, 1992) (May 22, 1992)
Year Ended December 31, through through
-------------------------------------------- December 31, December 31,
1996 1995 1994 1993 1992 1996
--------------------------------------------------------------------------
Statement of
Operations Data:
Revenues $ -- $ 17 $ 72 $ -- $ 200 291
Costs and expenses:
Research and
development 4,647 2,089 1,404 545 202 8,887
General and
administrative 1,575 466 526 785 735 4,088
Marketing 581 659 291 -- -- 1,532
-------------------------------------------- --------------------------
Loss from
operations (6,803) (3,197) (2,149) (1,330) (737) (14,216)
Net interest income
(expense) 864 (21) (47) 5 9 810
-------------------------------------------- --------------------------
Net loss $ (5,939) $ (3,218) $ (2,196) $ (1,325) $ (728) $(13,406)
Net loss per ============================================ ===========================
share (1) $ (0.88) $ (0.69) $ (0.54) $ (0.38) $ (0.24)
Shares used to ============================================ ==========
compute net loss
per share (1) 6,748 4,671 4,031 3,443 3,030
(1) See Note 1 of the Notes to the Financial Statements for an explanation of
the method used to determine the number of shares to compute net loss per share.
23
December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Balance Sheet Data:
Working capital (deficit) $ 26,849 $ (906) $ (1,267) $ (149) $ 455
Total assets 29,255 2,057 982 1,583 1,157
Total liabilities 821 1,739 1,396 976 306
Deficit accumulated during development stage (13,406) (7,467) (4,249) (2,053) (728)
Total shareholders' equity (deficit) 28,434 318 (413) 608 851
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many uncertainties and risks which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties and risks include, but are not limited to, whether the Beta-Cath
System, the Company's primary product in development, will prove safe and
effective; whether and when the Company will obtain approval of the Beta-Cath
System from the United States Food and Drug Administration (FDA) and
corresponding foreign agencies; the Company's need to achieve manufacturing
scale-up in a timely manner, and its need to provide for the efficient
manufacturing of sufficient quantities of its products; the Company's dependence
on the Beta-Cath System as the primary source of future revenue; the lack of an
alternative source of supply for the radiation source materials used in the
Beta-Cath System; the Company's patent and intellectual property position; the
Company's need to develop the marketing, distribution, customer service and
technical support and other functions critical to the success of the Company's
business plan; the effectiveness and ultimate market acceptance of the Beta-Cath
System; limitations on third party reimbursement; and competition between rival
developers of restenosis reduction products. Additional risk factors include
those discussed in the section entitled "Item 1 - Business" as well as those
that may be set forth in reports filed by the Company from time to time on Forms
10-Q and 8-K. The Company does not undertake any obligation to update any
forward-looking statements.
Overview
Novoste, incorporated in January 1987, was first capitalized and commenced
operations in May 1992. To date the Company has been engaged primarily in
research and development efforts and clinical trials in interventional
cardiology, electrophysiology and critical care products. Commencing in 1994 the
Company has devoted its efforts to developing the Beta-Cath System, an
intraluminal beta radiation catheter delivery system designed to reduce the
frequency of restenosis subsequent to percutaneous transluminal coronary
angioplasty ("PTCA"). The Beta-Cath System applies localized beta radiation to
the site of the vascular injury caused by a PTCA procedure and is designed to
inhibit long-term cell proliferation ("hyperplasia") and vascular remodeling,
each primary causes of restenosis. The Beta-Cath System was developed at Emory
University Hospital in collaboration with certain physicians, including its
Director of Interventional Cardiology, Dr. Spencer B. King, III.
24
The research, manufacture, sale and distribution of medical devices such as the
Company's Beta-Cath System are subject to numerous regulations imposed by
governmental authorities, principally the U.S. Food and Drug Administration
("FDA") and corresponding state and foreign agencies. The regulatory process is
lengthy, expensive and uncertain. FDA approval of a Pre Market Approval ("PMA")
application is required before any Beta-Cath System can be marketed in the
United States. Securing FDA approvals will require submission to the FDA of
extensive clinical data and technical information. The Company is conducting
Phase I human clinical trials at Emory and Rhode Island Hospital under an
Investigational Device Exemption ("IDE") granted by the FDA to determine the
clinical safety of the Beta-Cath System for use in coronary arteries. Patient
enrollment for the clinical trial at Emory was completed on July 31, 1996 and
the enrollment at Rhode Island was completed on October 25, 1996. The six-month
follow-up has not been completed on all patients. The Company anticipates
commencing human clinical safety studies at a single site in Canada and The
Netherlands by the end of April 1997.
For the period since its capitalization to December 31, 1996 the Company has
earned minimal non-recurring revenues from the sale of patent and option rights
and license and contract fees and experienced significant losses in each period.
At December 31, 1996 the Company had an accumulated deficit of approximately
$13.4 million. Further, Novoste expects to continue to incur significant
operating losses through at least 1998 and expects cumulative losses to increase
significantly as the Company continues to initiate new research and development
projects, conduct its clinical trials in the United States, Canada and Europe,
seek regulatory approval or clearance for its products, expand its sales and
marketing efforts in contemplation of product introduction and market
development and increase its administrative activities to support growth of the
Company.
There can be no assurance that the Company's research and development efforts
will be successfully completed. Additionally, as clinical testing has only
recently commenced, there can be no assurance that the Beta-Cath System will be
safe and effective. There can be no assurance that the Beta-Cath System will be
approved by the FDA or any foreign government agency or that the Beta-Cath
System or any other product developed by Novoste will be successfully introduced
or attain any significant level of market acceptance. There can be no assurance
that the Company will ever achieve either significant revenues from sales of its
Beta-Cath System or ever achieve or sustain profitability.
Results of Operations
FISCAL YEARS ENDED DECEMBER 31, 1996 AND 1995
Net loss for the year ended December 31, 1996 was $5,939,000, or ($0.88) per
share, as compared to $3,218,000, or ($0.69) per share, for the year ended
December 31, 1995. The increase in net loss in the year ended December 31, 1996
compared to the year earlier is due to increased spending for research and
development and general and administrative expenses related to the Company's
development of its Beta-Cath System, offset by increased interest income earned
from the investment of the net proceeds of the initial public offering in May
1996.
Revenues. No revenues were earned in the year ended December 31, 1996 as
compared to $16,507 of miscellaneous sales in the year ended December
31, 1995.
Research and Development Expense. Research and development expenses increased
122% to $4,647,000 for the year ended December 31, 1996 from $2,089,000 for the
year ended December 31, 1995. These increases were primarily a result of
continued product development and the Company's Phase I clinical trials of the
Beta-Cath System, which were initiated in 1996. The Company expects research and
development expenses to continue to increase in the future as the Company
initiates Phase II clinical trials of its Beta-Cath System both in the U.S. and
selected foreign countries.
25
General and Administrative Expense. General and administrative expenses
increased 238% to $1,575,000 for the year ended December 31, 1996 from $466,000
for the year ended December 31, 1995. These increases were primarily a result of
increased personnel, higher salaries, accrued severance and increased costs
associated with being a public company such as director and officers liability
insurance. The Company expects general and administrative expenses to increase
in the future in support of a higher level of operations and to support
obligations associated with being a public company.
Marketing Expense. Marketing expenses decreased 12% to $581,000 for the year
ended December 31, 1996 from $659,000 for the year ended December 31, 1995 due
to a start-up bonus and relocation allowance paid in 1995 to a new management
employee. The Company expects sales and marketing expenses to increase in the
future in support of a direct sales force in the United States and international
distributors to market the product.
Interest Income and Expense. Net interest income was $863,000 for the year ended
December 31, 1996 whereas net interest expense of $21,000 was incurred during
the year ended December 31, 1995. The increase in interest income were primarily
due to investing the proceeds of the Company's initial public offering in cash
equivalents and short-term investments.
FISCAL YEARS ENDED DECEMBER 31, 1995 AND 1994
Net loss for the year ended December 31, 1995 was $3,218,000, or ($0.69) per
share, as compared to $2,196,000, or ($0.54) per share, for the year ended
December 31, 1994. The increase in net loss in the year ended December 31, 1995
compared to the year earlier is due to increased spending for research and
development and general and administrative expenses related to the Company's
development of its Beta-Cath System.
Revenues. Revenues decreased to $17,000 in 1995 from $72,000 in 1994 as the
Company did not receive any contract or license fee revenue in 1995.
Research and Development Expense. Research and development expenses increased
49% to $2,089,000 for the year ended December 31, 1995 from $1,404,000 for the
year ended December 31, 1994. This increase in expenses was due to the hiring of
additional personnel, an increase in outside consulting and services
attributable to the development of the Beta-Cath System, and the support of
pre-clinical studies.
General and Administrative Expense. General and administrative expenses
decreased 11% to $466,000 for the year ended December 31, 1995 from $526,000 for
the year ended December 31, 1994. There were no significant changes in any one
expense category.
Marketing Expense. Marketing expenses increased 126% to $659,000 for the year
ended December 31, 1995 from $291,000 for the year ended December 31, 1994 due
to additions to the Company's management to support increased marketing efforts.
Interest Income and Expense. Net interest expense decreased 54% to $21,000 for
the year ended December 31, 1995 from $46,000 for the year ended December 31,
1994. This was due to increased interest income during the year ended December
31, 1995 from amounts invested in money market accounts and certain government
securities arising from additional equity financing.
Liquidity and Capital Resources
The Company financed its activities since inception up to May 29, 1996, the date
of the Company's initial public offering, through private placements of its
Common Stock, Class B Common Stock and promissory notes. Since inception through
December 31, 1996, the Company obtained funds aggregating approximately $38.1
million in net proceeds from the issuance of Common Stock and Class B Common
26
Stock (including approximately $30.6 million in net proceeds from its initial
public offering which closed in May 1996), and approximately $1.8 million in net
proceeds from the issuance of convertible promissory notes.
During the year ended December 31, 1996 and 1995, the Company used cash to fund
operations of $4.8 million and $2.7 million, respectively. Cash used to fund
operations since inception was approximately $10.5 million. The increases in
cash used in operations were due primarily to higher expenses associated with
increased research and development activities, initiation of marketing and sales
activities and increased general and administrative expenses to support
increased operations. The Company's expenditures for equipment and improvements
have aggregated $1.8 million since inception. Future cash needs for operating
activities are anticipated to be higher than historical levels because of the
development, manufacturing scale-up and commercialization of the Beta-Cath
System, subject to the factors discussed above.
The Company's principal source of liquidity at December 31, 1996 consisted of
cash, cash equivalents and short-term investments of $27.5 million. The Company
did not have any credit lines available or outstanding borrowings at December
31, 1996. On June 27, 1996 the Company signed an agreement with a medical
diagnostic engineering, development, and design company to provide products and
services to be used in the Company's product development. The agreement provides
for aggregate payments of $1.3 million through April 30, 1997 of which $277,000
was paid in 1996. This commitment will be funded through existing cash balances.
The Company anticipates that its operating losses will continue through at least
1998 because it plans to expend substantial resources in funding clinical trials
in support of regulatory approvals, and continues to expand research and
development and marketing activities. Novoste believes that current cash
balances and short-term investments, together with interest thereon, will be
sufficient to meet the Company's operating and capital requirements through
calendar 1997. However, the Company's future liquidity and capital requirements
will depend upon numerous factors, including the progress of the Company's
clinical research and product development programs; the receipt of and the time
required to obtain regulatory clearances and approvals; the resources required
to gain approvals; the resources the Company devotes to the development,
manufacture and marketing of its products; the resources required to hire and
develop a direct sales force in the United States, develop distributors
internationally, and to expand manufacturing capacity; facilities requirements;
market acceptance and demand for its products; and other factors. Novoste may in
the future seek to raise additional funds through bank facilities, debt or
equity offerings or other sources of capital. There can be no assurance that
additional financing, if required, will be available on satisfactory terms, or
at all.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, with the report of the independent auditors, listed in
Item 14, are included in this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING FINANCIAL DISCLOSURE
Not applicable.
27
PART III
Certain information required by Part III is omitted from this Report on Form
10-K in that the Registrant will file a definitive proxy statement within 120
days after the end of its fiscal year pursuant to Regulation 14A with respect to
the 1997 Annual Meeting of Stockholders (the "Proxy Statement") to be held on
June 20, 1997 and certain information included therein is incorporated herein by
reference.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item relating to directors is incorporated by
reference in the information under the caption Election of Directors in the
Proxy Statement. See also Item 1 - Business - "Executive Officers of the
Company."
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information under the caption Executive Compensation in the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information under the caption Security Ownership of Certain Beneficial Owners
and Management in the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item in incorporated by reference to the
information under the caption Certain Relationships and Related Transactions in
the Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements of the Company and Report of Ernst &
Young LLP, Independent Auditors are included in this report:
Report of Independent Auditors
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the Years Ended December 31, 1996, 1995, and
1994 and from Inception (May 22, 1992) through December 31, 1996
Statements of Stockholders' Equity from Inception (May 22, 1992) through
December 31, 1996
Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and
1994 and from Inception (May 22, 1992) through December 31, 1996
Notes to Consolidated Financial Statements
28
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Novoste Corporation
We have audited the accompanying balance sheets of Novoste Corporation (a
Development Stage Company) (the "Company") as of December 31, 1996 and 1995, and
the related statements of operations, shareholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1996 and for
the period from inception (May 22, 1992) through December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 and for the period from
inception (May 22, 1992) through December 31, 1996 in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
February 1, 1997
29
NOVOSTE CORPORATION
(A Development Stage Company)
BALANCE SHEETS
December 31,
1996 1995
-------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 19,954,827 $ 817,587
Short-term investments 7,588,693 --
Prepaid expenses 126,349 14,628
------------ ------------
Total current assets 27,669,869 832,215
Property and equipment, net 1,128,031 932,681
License agreements, net 153,396 166,934
Other assets 303,642 125,388
------------ ------------
$ 29,254,938 $ 2,057,218
============ ============
Liabilities and stockholders' equity
Current liabilities:
Fixed rate convertible promissory notes
with related parties $ -- $ 1,038,450
Accounts payable 155,946 217,543
Accrued expenses and taxes withheld 665,175 482,584
------------ ------------
Total current liabilities 821,121 1,738,577
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized at December 31, 1996, no
shares issued and outstanding; none authorized
at December 31, 1995
Common stock, $.01 par value, 25,000,000 and
14,000,000 shares authorized at
December 31, 1996 and 1995, respectively;
8,257,967 and 2,482,622 shares issued 82,580 24,826
Class B common stock, $.01 par value, none
authorized and outstanding at December 31, 1996
and 6,000,000 shares authorized, 1,611,269 shares
issued and outstanding at December 31, 1995 -- 16,113
Additional paid-in capital 41,772,791 7,760,175
Deficit accumulated during the development stage (13,405,714) (7,466,633)
------------ ------------
28,449,657 334,481
Less treasury stock, 5,280 shares of common stock, at cost (15,840) (15,840)
------------ ------------
Total stockholders' equity 28,433,817 318,641
------------ ------------
$ 29,254,938 $ 2,057,218
============ ============
See accompanying notes
30
NOVOSTE CORPORATION
(A Development Stage Company)
Statements of Operations
From inception
(May 22, 1992)
through
Year ended December 31, December 31,
1996 1995 1994 1996
------------------------------------------------------------
Revenues:
Miscellaneous sales $ -- $ 16,507 $ 71,777 $ 290,887
Operating expenses:
Research and development 4,646,583 2,088,822 1,404,429 8,887,032
General and administrative 1,574,678 465,670 525,656 4,087,541
Marketing 581,280 659,361 291,470 1,532,111
------------------------------------------------------------
6,802,541 3,213,853 2,221,555 14,506,684
------------------------------------------------------------
Loss from operations (6,802,541) (3,197,346) (2,149,778) (14,215,797)
Interest income 950,791 15,427 768 991,842
Interest expense (87,331) (36,107) (46,679) (181,759)
------------------------------------------------------------
Net loss $(5,939,081) $(3,218,026) $ (2,195,689) $(13,405,714)
------------------------------------------------------------
Net loss per share $ (0.88) $ (0.69) $ (0.54)
=============================================
Weighted average shares outstanding 6,748,492 4,671,147 4,031,307
=============================================
See accompanying notes.
31
NOVOSTE CORPORATION
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the period from inception (May 22, 1992) through December 31, 1996
Deficit
Accumulated
Class B Additional During the
Common Stock Common Stock Paid-in Development Treasury
Shares Amount Shares Amount Capital Stage Stock Total
--------- -------- --------- ------- ---------- ------------- ---------- -----------
Exchange of stock for license
agreement at $.25 per share ....... 746,894 $ 7,469 -- $ -- $ 179,255 $ -- $ -- $ 186,724
Sale of stock at $1.00 per share .... 820,000 8,200 -- -- 811,800 -- -- 820,000
Sale of stock at $3.00 per share .... 86,667 867 -- -- 259,133 -- -- 260,000
Exercise of stock options at
$.25 per share .................... 205,000 2,050 -- -- 49,200 -- -- 51,250
Issuance of stock for consulting
services, 117,500 shares at $.25
per share, 88,500 shares at $1.00
per share and 37,585 shares at
$3.00 per share ................... 243,585 2,435 -- -- 228,195 -- -- 230,630
Issuance of stock to employees
for settlement of obligation for
consulting services, at $3.00
per share ......................... 10,000 100 -- -- 29,900 -- -- 30,000
Net loss ............................ -- -- -- -- -- (727,688) -- (727,688)
--------- -------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1992 ........ 2,112,146 21,121 -- -- 1,557,483 (727,688) -- 850,916
Sale of stock at $3.20 per
share, net of $138,932 of offering
costs.............................. 331,250 3,312 -- -- 917,756 -- -- 921,068
Exercise of stock options at
$.25 to $1.00 per share ........... 67,875 679 -- -- 23,790 -- -- 24,469
Issuance of stock for consulting
services, at $3.00 per share ...... 50,862 509 -- -- 152,077 -- -- 152,586
Repurchase of stock at $3.00 per
share ............................. (5,280) -- -- -- -- -- (15,840) (15,840)
Net loss ............................ -- -- -- -- -- (1,325,230) -- (1,325,230)
--------- -------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1993 ........ 2,556,853 25,621 -- -- 2,651,106 (2,052,918) (15,840) 607,969
Sale of stock at $3.20 per share .... 312,500 3,125 -- -- 996,875 -- -- 1,000,000
Exercise of stock options at
$.25 to $1.00 per share ........... 35,500 355 -- -- 12,270 -- -- 12,625
Issuance of stock for consulting
services, at $3.20 per share ...... 50,626 506 -- -- 161,494 -- -- 162,000
Net loss ............................ -- -- -- -- -- (2,195,689) -- (2,195,689)
--------- -------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1994 ........ 2,955,479 29,607 -- -- 3,821,745 (4,248,607) (15,840) (413,095)
Sale of stock at $3.75 per
share, net of $191,274 of offering
costs.............................. -- -- 986,269 9,863 3,497,372 -- -- 3,507,235
Exercise of stock options at
$.25 per share .................... 9,300 93 -- -- 2,232 -- -- 2,325
Issuance of stock for consulting
services, at $3.20 per share ...... 27,813 278 -- -- 88,724 -- -- 89,002
Issuance of stock for compensation
to an employee, at $3.20 per share. 16,000 160 -- -- 51,040 -- -- 51,200
Conversion of debt to common ........ 93,750 938 -- -- 299,062 -- -- 300,000
Exchange of common for Class B
common ............................ (625,000) (6,250) 625,000 6,250 -- -- -- --
Net loss ............................ -- -- -- -- -- (3,218,026) -- (3,218,026)
--------- -------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1995 ........ 2,477,342 $ 24,826 1,611,269 $16,113 $7,760,175 $(7,466,633) $(15,840) $ 318,641
--------- -------- --------- ------- ---------- ----------- -------- -----------
32
Deficit
Accumulated
Class B Additional During the
Common Stock Common Stock Paid-in Development Treasury
Shares Amount Shares Amount Capital Stage Stock Total
--------- ------- --------- --------- ----------- ------------ ----------- ------------
Balance at December 31, 1995 ... 2,477,342 $24,826 1,611,269 $ 16,113 $ 7,760,175 $ (7,466,633) $ (15,840) $ 318,641
Issuance of stock for consulting
services 2,422 shares at $6.00
per share, 33,520 shares at
$6.38 per share, 678 shares
at $9.50 per share, and 435
shares at $9.375 per share ... 37,066 371 -- -- 407,667 -- -- 408,038
Issuance of stock for deferred
compensation to employees at
$3.20 per share ............ 102,945 1,029 -- -- 328,395 -- -- 329,424
Conversion of debt to common
stock ...................... 497,349 4,974 -- -- 1,860,109 -- -- 1,865,083
Exchange of Class B for
common stock ............... 1,611,269 16,113 (1,611,269) (16,113) -- -- -- --
Exercise of stock warrants at
$4.00 to $4.50 per share ..... 62,104 621 -- -- 267,597 -- -- 268,218
Cashless exercise of warrants .. 889,912 8,899 -- -- (8,899) -- -- --
Issuance of stock in initial
public offering at $14.00 per
share, net of issuance costs of
$2,973,746 ................... 2,400,000 24,000 -- -- 30,602,254 -- -- 30,626,254
Exercise of stock options at
$3.00 to $3.20 per share ..... 174,700 1,747 -- -- 555,493 -- -- 557,240
Net loss ....................... -- -- -- -- -- (5,939,081) -- (5,939,081)
--------- ------- --------- --------- ----------- ------------ ----------- ------------
Balance at December 31, 1996 ... 8,252,687 $82,580 -- $ -- $41,772,791 $(13,405,714) $ (15,840) $ 28,433,817
=================================================================================================
See accompanying notes
33
NOVOSTE CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From inception
(May 22, 1992)
through
Year ended December 31, December 31,
1996 1995 1994 1996
------------------------------------------------------------------------
Cash flows from operating activities
Net loss $(5,939,081) $(3,218,026) $(2,195,689) $(13,405,714)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 316,082 227,373 204,373 877,875
Issuance of stock for services or compensation 408,038 140,202 162,000 947,318
Change in assets and liabilities:
Prepaid expenses and other (111,721) 34,041 (18,866) (133,808)
Accounts payable (61,597) 95,386 48,249 155,946
Accrued expenses and taxes withheld 577,098 59,230 33,677 1,059,682
------------------------------------------------------------------------
Net cash used by operations (4,811,181) (2,661,794) (1,766,256) (10,498,701)
------------------------------------------------------------------------
Cash flows from investing activities
(Purchase) sale of short-term investments (7,588,693) - 194,280 (7,588,693)
Purchase of property and equipment, net (449,730) (484,346) (510,939) (1,752,426)
Other (226,418) (113,779) - (356,037)
------------------------------------------------------------------------
Net cash used by investing activities (8,264,841) (598,125) (316,659) (9,697,156)
------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issuance of notes payable 2,561,700 1,358,450 550,000 4,770,150
Repayment of notes payable (1,800,150) (870,000) - (2,970,150)
Proceeds from issuance of common stock 31,183,494 3,509,560 1,012,625 38,082,466
Exercise of warrants 268,218 268,218
------------------------------------------------------------------------
Net cash provided by financing activities 32,213,262 3,998,010 1,562,625 40,150,684
------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 19,137,240 738,091 (520,290) 19,954,827
Cash and cash equivalents at beginning of period 817,587 79,496 599,786 -
------------------------------------------------------------------------
Cash and cash equivalents at end of period $19,954,827 $ 817,587 $ 79,496 $19,954,827
========================================================================
Supplemental disclosures of cash flow
information
Cash paid for interest $ 101,312 $ 38,741 $ 25,084 $ 165,137
========================================================================
Conversion of fixed rate promissory notes to
related parties and accrued interest to common
stock $1,865,083 $1,865,083
================== =================
Conversion of deferred compensation to
common stock $ 329,424 $ 329,424
================== ==================
See accompanying notes.
34
NOVOSTE CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Organization and Basis of Presentation
Novoste Corporation (the "Company") was incorporated on January 8, 1987 and
remained dormant until May 22, 1992 (date of inception) at which time it was
capitalized. The Company is a development stage enterprise that is engaged in
developing the Beta-Cath System, an intraluminal beta radiation catheter
delivery system designed to reduce restenosis subsequent to percutaneous
transluminal coronary angioplasty.
The majority of the Company's efforts to date have been in the organization of
the Company, establishing its management team, raising capital and initiating
product development. The Company's initial public offering became effective on
May 23, 1996 and closed on May 29, 1996 with the issuance of 2,400,000 shares of
Common Stock and net proceeds (after underwriting discounts) of $31,248,000
before related expenses of approximately $622,000. All revenues received to date
have been from the sale of certain patent rights, option payments made by a
potential strategic partner to the Company in exchange for the sole right for
the potential partner to enter into future agreements with the Company, and
contract fees. Substantially all of the Company's products are in various stages
of development. To achieve profitable operations, the Company must successfully
complete the development and clinical trials of its products, obtain required
regulatory approvals and achieve market acceptance. There can be no assurance
that these efforts will be successful.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Net Loss Per Share
The net loss per share is computed based on the weighted average number of
common shares outstanding after giving effect to certain adjustments described
below. Common equivalent shares are not included in the per share calculations
where the effect of their inclusion would be antidilutive, except that, in
accordance with Securities and Exchange Commission requirements, common and
common stock equivalent shares issued during the twelve-month period preceding
the initial public offering in May 1996 have been included in the calculation
through March 31, 1996 as if they were outstanding for all periods, using the
treasury stock method and the actual initial public offering price of $14.00 per
share.
35
Historical net loss per share information presented in accordance with
generally accepted accounting principles is as follows:
Years ended December 31
1996 1995 1994
---------------------------------------------------
Net loss per share $ (0.91) $ (0.87) $ (0.77)
===================================================
Shares used in computing
historical net loss per share 6,543,129 3,679,361 2,836,896
===================================================
Cash and Short-Term Investments
Cash equivalents are comprised of certain highly liquid investments with
maturities of less than three months. In addition to cash equivalents, the
Company has investments in commercial paper that are classified as short-term
(mature in more than 90 days but less than one year). Such investments are
classified as held-to-maturity, as the Company has the ability and intent to
hold them until maturity. Investments held-to-maturity are carried at amortized
cost, adjusted for the amortization or accretion of premiums or discounts
without recognition of gains or losses that are deemed to be temporary. Premiums
and discounts are amortized or accreted over the life of the related instruments
as an adjustment to yield using the straight-line method, which approximates the
effective interest method. Interest income is recognized when earned. Fair value
approximates carrying value for all cash equivalents and investments.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method based on the estimated useful lives of the related assets
ranging from 5 to 7 years. Leasehold improvements are amortized over the
remaining term of the related lease using the straight-line method. Repairs and
maintenance are expensed as incurred.
Property and equipment is comprised of the following:
1996 1995
-----------------------------------
Furniture and fixtures $ 303,958 $ 232,112
Office equipment 356,269 220,851
Laboratory equipment 134,735 98,001
Leasehold improvements 454,016 334,162
Production equipment 482,334 412,382
-----------------------------------
1,731,312 1,297,508
Less: Accumulated depreciation
and amortization (603,281) (364,827)
-----------------------------------
$ 1,128,031 $ 932,681
===================================
36
Other Assets
License agreements are amortized on a straight-line basis over periods ranging
from fifteen to twenty years. The amortization periods are based on the lives of
the license agreements or the approximate remaining lives of the related
patents, whichever is appropriate. Accumulated amortization on license
agreements at December 31, 1996 and 1995 totaled $65,368 and $43,569,
respectively.
At December 31, 1996 other assets includes $90,000 paid to a German supplier for
an option, exercisable through August 25, 2002, to purchase certain assets of
the vendor for $5,000,000. Other assets also include $130,720 advanced to the
same vendor. For additional discussion of these amounts see Note 3 "Commitments
and Concentrations".
Research and Development
All research and development costs are charged to operations as incurred.
Patent Costs
Legal fees and other direct costs incurred in obtaining and protecting patents
are expensed as incurred.
Stock Based Compensation
The Company grants stock options generally for a fixed number of shares to
employees, directors, consultants and independent contractors with an exercise
price equal to the fair value of the shares at the date of grant. The Company
has elected to follow Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25") and related Interpretations in accounting
for its employee stock options. Under APB 25, no compensation expense is
recognized for stock option grants for which the terms are fixed. Compensation
expense is recognized for increases in the estimated fair value of common stock
for any stock options with variable terms.
In October 1995 the FASB issued Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("Statement 123"), which changes
the accounting for stock based compensation to non-employees and provides an
alternative to APB 25 in accounting for stock-based compensation to employees.
However, the Company elected to continue to account for stock-based compensation
to employees in accordance with APB 25 and to disclose the impact of the
alternative accounting (see Note 6).
Reclassification
Certain prior year expense amounts have been reclassified in the Statements of
Operations for 1995 and 1994 and for the period from inception through December
31, 1996 to conform with current year classifications.
2. Consulting Agreements
The Company has agreements with the members of its Scientific Advisory Board,
various consultants and others with terms ranging from one to five years.
Substantially all of these agreements provide for stock grants on the
37
agreement dates with such shares valued at the fair market value on the date of
grant and include certain registration rights.
During 1996, 1995 and 1994 approximately $46,000, $21,300, and $50,000,
respectively, were charged to operations as amortization of the deferred
compensation capitalized under these agreements ($187,751 from inception through
December 31, 1996).
3. Commitments and Concentrations
Commitments
The Company is committed under operating leases for its facility and various
office equipment. Rent expense was approximately $143,192, $116,400, and $62,400
for 1996, 1995 and 1994, respectively ($416,392 from inception through December
31, 1996). The total future minimum rental payments are as follows:
1997 $174,097
1998 174,097
1999 167,692
2000 64,553
-------------
$580,439
=============
The Company has entered into a license agreement with a physician pursuant to
which he is entitled to receive a royalty on the net sales of the Beta-Cath
System (excluding consideration paid for the radioactive isotope), subject to a
maximum of $5,000,000, to be paid in exchange for the right granted thereunder
to the Company to use his name in connection with sales and marketing of the
Beta-Cath System.
On January 30, 1996 the Company entered into a license agreement whereby the
licensor assigned its claim to certain of the Company's technology back to the
Company for royalties based on net sales (as defined in the agreement) of
products derived from such technology, subject to certain minimum royalties. The
royalty agreement term is consistent with the life of the related patent and
applies to assignments of the patent technology to a third party. The royalty
agreement provides for a reduction of the royalty fees and term of the agreement
if the patent for the technology is not received within three years of execution
of the agreement.
On June 27, 1996 the Company signed an agreement with a medical diagnostic
engineering, development, and design company to provide products and services to
be used in the Company's product development. The agreement provides for
aggregate payments of $1.3 million through April 30, 1997 of which $277,000 was
paid in 1996.
On November 15, 1996 an agreement was signed under which the Company agreed to
advance a German supplier a monthly investment grant of 100,000 Deutsche Mark
(approximately $65,000) for a period of 15 months from November 1996 through
March 1998 to build and equip a production site for the exclusive production of
radioactive materials to be supplied to the Company. At December 31, 1996
advances aggregated $131,000 under this agreement. All grant advances, and the
amount paid for the option described in Note 1 are included in other assets and
will be credited toward the purchase price of the assets upon exercise of the
option. Absent the
38
Company's decision to exercise the option, all amounts paid to the vendor will
be amortized over the three year remaining life of the agreement once production
of commercial volumes of radioactive materials commences.
Concentrations of Suppliers
Significant proportions of key components and processes relating to the
Company's products are purchased from single sources due to technology,
availability, price, quality, and other considerations. Key components and
processes currently obtained from single sources include isotopes, catheters,
protective tubing for catheters, proprietary connectors, and certain plastics
used in the design and manufacture of the transfer device. In the event a supply
of a key single-sourced material or component were delayed or curtailed, the
Company's ability to produce the related product in a timely manner could be
adversely affected. The Company attempts to mitigate these risks by working
closely with key suppliers regarding the Company's product needs and the
maintenance of strategic inventory levels.
4. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts used for income tax purposes. Significant
components of the Company's deferred tax assets for federal and state income
taxes are as follows:
December 31,
1996 1995
-----------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 5,095,822 $ 2,697,752
R&D tax credit carryforwards 219,840 127,069
Other 102,272 140,504
-----------------------------------
5,417,934 2,965,325
Valuation allowance (5,417,934) (2,965,325)
-----------------------------------
$ -- $ --
===================================
At December 31, 1996 and 1995 no deferred tax assets were recorded as their
future benefit is not assured. No income taxes were paid for 1996, 1995 or 1994.
The Company has approximately $13,375,000 of net operating losses for federal
income tax purposes available to offset future taxable income. Such losses
expire $470,000 in 2007, $1,335,000 in 2008, $2,140,000 in 2009, $3,120,000 in
2010, and $6,310,000 in 2011 and are subject to certain limitations in the event
of a change in ownership. Approximately $574,000 of the net operating loss
carryforwards will result in a credit to contributed capital when recognized.
Additionally, the Company has approximately $220,000 in research and development
tax credits which expire $24,000 in 2008, $47,000 in 2009, $56,000 in 2010, and
$93,000 in 2011 unless utilized earlier.
39
5. Short-Term Debt
As of December 31, 1995 the fixed rate convertible promissory notes with related
parties bore interest at the rate of 8% and were payable to certain
shareholders, together with accrued interest, on June 1, 1996. At any time prior
to the payment of these notes, the holders had the option to convert all or any
portion of the outstanding principal balance (plus accrued interest) into Class
B common stock at the rate of $3.75 per share. The conversion price of $3.75 per
share was subject to adjustment in the event the Company issued or sold, or was
deemed to have issued or sold, any of its common stock for consideration of less
than $3.75 per share. In connection with the placement of this indebtedness, the
Company issued to a third party a warrant for the purchase of 9,395 shares of
common stock at $3.75 per share exercisable through December 31, 2000. The
carrying amounts of the promissory notes approximated their fair values at
December 31, 1995. Subsequent to December 31, 1995, the Company issued to
certain other shareholders $761,550 of additional fixed rate convertible
promissory notes with the same terms.
On May 28, 1996 fixed rate convertible promissory notes payable to related
parties in the amount of $1,800,000 plus accrued interest of $65,083 were
converted into 497,349 shares of Common Stock. On May 31, 1996 a portion of the
proceeds from the initial public offering was used to pay in full fixed rate
promissory notes to related parties totaling $1,500,150 and a note payable to a
bank in the amount of $300,000. At December 31, 1996 there are no loans or debt
outstanding.
On June 15, 1995 the Company entered into a line-of-credit arrangement for
short-term debt with a bank under which the Company could borrow up to $300,000
at the prime rate plus one percent. The line-of-credit, which expired on June
15, 1996, was subject to commitment fees of .65% of the unused line-of-credit
and borrowings thereunder were guaranteed up to $100,000 each by three
officer/directors of the Company. No borrowings were outstanding at December 31,
1995 under this line-of credit.
6. Shareholders' Equity
Recapitalization
On May 28, 1996 all of the 1,611,269 outstanding shares of Class B Common Stock
were converted on a one-for-one basis into shares of Common Stock and accrued
salaries of $320,624 were converted into 100,195 shares of Common Stock. In
addition, on May 28, 1996 the holders of warrants for 1,261,899 shares made
cashless exercises thereof to purchase an aggregate of 889,912 shares of Common
Stock (after giving effect to the conversion on a one-for-one basis of shares of
Class B Common Stock issued upon exercise of such warrants). Holders of
additional warrants exercised such warrants in full to purchase 62,104 shares of
Common Stock for $268,218 on or prior to May 28, 1996.
On May 28, 1996 the Company filed an amendment to its Articles of Incorporation
whereby the number of authorized shares of Common Stock was increased from
14,000,000 to 25,000,000, the Class B Common Stock was eliminated and 5,000,000
shares of Preferred Stock were authorized.
40
Shareholder Rights Plan
On October 25, 1996 the Company's Board of Directors declared a dividend of one
Right for each share of Common Stock held of record at the close of business on
November 25, 1996. The Rights are generally not exercisable until 10 days after
an announcement by the Company that a person has acquired at least 15% of the
Company's Common Stock. Each Right, should it become exercisable, will entitle
the owner to buy 1/100th of a share of new Series A participating preferred
stock at an exercise price of $85. The Rights, which do not have any voting
rights, may be redeemed by the Company at a price of $.01 per Right at any time
prior to a person's or group's acquisition of 15% or more of the Company's
common stock.
In the event the rights become exercisable as a result of the acquisition of at
least 15% of the Company's Common Stock, each Right will entitle the owner,
other than the acquiring person, to buy at the Rights' then current exercise
price a number of shares of Common Stock with a market value equal to twice the
exercise price. In addition, unless the acquiring person owns more than 50% of
the outstanding shares of Common Stock, the Board of Directors may elect to
exchange all outstanding Rights (other than those owned by such acquiring person
or affiliates thereof) at an exchange ratio of one share of Common Stock per
Right. The Rights expire on November 25, 2006 unless they are earlier exercised,
redeemed, or exchanged. As a result of the adoption of the Shareholders' Rights
Plan, 1,000,000 shares of authorized preferred stock have been reserved and
designated as Series A Participating Preferred Stock.
Stock Option Plan
The Company's Board of Directors adopted on May 26, 1992 the Novoste Corporation
Stock Option Plan (the "Plan") under which options designated as either
incentive or non-qualified stock options may be issued to employees, officers,
directors, consultants and independent contractors of the Company or any parent,
subsidiary or affiliate of the Company. Options granted under the Plan are at
prices not less than the fair market value on the date of grant and may be
exercised for a period of ten years from the date of grant. Options granted
under the Plan have vesting periods ranging from immediately to four years. On
August 20, 1996 the Plan was amended subject to shareholder approval to include
a provision for options to accelerate and become immediately and fully
exercisable upon a 50% or more change in control as defined in the Amended and
Restated Stock Option Plan. The Company has reserved 2,500,000 shares of Common
Stock for issuance under the Plan. As of December 31, 1996 there are 248,350
shares available for issuance.
On August 20, 1996 the Stock Option and Compensation Committee of the Board of
Directors of the Company adopted a Non-Employee Director Stock Option Plan,
subject to shareholder approval. Concurrently, stock options covering 52,500
shares were granted, which vest over a three year period and exercises thereof
are contingent upon the individuals' continued service as directors. The Company
has reserved 100,000 shares of Common Stock for issuance under the Plan.
41
Activity under the Plans are summarized as follows:
Number of Price Per Weighted-
Share Shares Average Price
--------- ------------ -------------
Outstanding at January 1, 1994 1,330,125 $ .25 - 3.20
Options granted 166,000 3.00 - 3.20
Options exercised (35,500) .25 - 1.00
Options canceled (16,000) 3.20
---------
Outstanding at December 31, 1994 1,444,625 .25 - 3.20
Options granted 359,750 3.20
Options exercised (9,300) .25
---------
Outstanding at December 31, 1995 1,795,075 .25 - 3.20
Options granted 209,250 8.00 -14.00 $ 10.23
Options exercised (174,700) 3.00 - 3.25 3.19
Options forfeited (17,850) 3.25 3.20
---------
Outstanding at December 31, 1996 1,811,775 $ .25 -14.00 2.29
=========
Exercisable at December 31, 1996 1,267,937 $ .25 - 3.20 $ 0.74
=========
The following table summarizes information concerning currently outstanding and
exercisable options:
Options Outstanding Options Exercisable
- ------------------------------------------------ ----------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------- ----------- ------------ --------- ----------- ---------
$ .25-$ 3.20 1,602,525 6.3 $ 1.25 1,267,937 $ .74
$ 8.00-$ 9.75 143,250 9.6 8.85 -- --
$12.25-$14.00 66,000 9.6 13.22 -- --
--------- ---------
1,811,775 6.8 $ 2.29 1,267,937 $ .74
========= =========
On May 20, 1996 the Company amended an option to purchase 100,000 shares of
Common Stock at $3.20 per share of which options for 75,000 shares had not yet
become exercisable. As amended, options to purchase such 75,000 shares become
exercisable at the annual rate of 25,000 shares beginning May 20, 1997, subject
to acceleration upon the achievement of three specified milestones at the rate
of 25,000 shares per milestone. The Company is recording total non-cash
compensation expense of $810,000 ratably over the three year period ending May
19, 1999, subject to acceleration if the specified milestones are met at earlier
dates; $168,750 was expensed in 1996 relating to these options.
Pro forma information regarding net loss and net loss per share is required by
Statement 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options granted
42
subsequent to December 31, 1994 under the fair value method prescribed by that
Statement. The fair value for options granted prior to the initial public
offering was estimated at the date of grant using the Minimum Value pricing
model. The fair value for options granted subsequent to the initial public
offering was estimated at the date of grant using the Black-Scholes option
pricing model. The following weighted-average assumptions were used in the
appropriate models for 1996 and 1995: risk-free interest rates of 6.69% and
6.32%, respectively; no dividend yields; volatility factor of the expected
market price of the Company's common stock of 0.928 in 1996 (not applicable in
1995); and a weighted-average expected life of the option of 6 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1996 1995
-----------------------------------
Pro forma net loss $ (6,175,817) $ (3,317,068)
Pro forma net loss per share $ (0.92) $ (0.71)
Weighted-average fair value of
options granted $ 1.01 $ 6.97
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1999.
7. Employee Benefit Plan
Effective January 1, 1997, the Company adopted a Defined Contribution 401(k)
Plan in which all employees who are at least 21 years of age are eligible to
participate. Contributions of up to 15% of compensation to the 401(k) Plan will
be made by employees through salary withholdings. Company contributions are
discretionary.
Beta-Cath(TM) is a trademark of Novoste Corporation.
43
14 (a) 2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable or not required.
14 (a) 3. EXHIBITS
See Index to Exhibits on page 46.
15. RECENT SALES OF UNREGISTERED SECURITIES
On June 28, 1996, Registrant issued 678 shares of Common Stock to Ian Crocker,
M.D., for consulting services rendered in the second quarter of 1996 valued at
$6,450 (or $9.50 per share).
On August 30, 1996, Registrant issued 435 shares of Common Stock to Ian Crocker,
M.D., for consulting services rendered in the third quarter of 1996 valued at
$4,300 (or $9.875 per share).
The foregoing transactions of Registrant were exempt from registration under the
Securities Act of 1933, as amended, under Section 4(2) thereunder, and all stock
certificates issued in connection therewith were legended to reflect their
restricted status.
44
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, on March 10, 1997.
NOVOSTE CORPORATION
By: s/Thomas D. Weldon
------------------
Thomas D. Weldon
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 10, 1997.
s/Norman R. Weldon Chairman of the Board and Director
- ----------------------
Norman R. Weldon, PhD.
s/Thomas D. Weldon President, Chief Executive Officer
- ---------------------- and Director
Thomas D. Weldon (Principal Executive Officer)
s/David N. Gill Vice President-Finance and Chief
- ---------------------- Financial Officer (Principal
David N. Gill Financial and Accounting Officer)
s/Charles E. Larsen Director
- ----------------------
Charles E. Larsen
s/J. Stephen Holmes Director
- ----------------------
J. Stephen Holmes
s/Richard M. Johnston Director
- ----------------------
Richard M. Johnston
s/Pieter J. Schiller Director
- ----------------------
Pieter J. Schiller
s/Jack R. Kelly, Jr. Director
- ----------------------
Jack R. Kelly, Jr.
s/William E. Whitmer Director
- ----------------------
William E. Whitmer
s/Stephen I. Shapiro Director
- ----------------------
Stephen I. Shapiro
45
INDEX TO EXHIBITS
Exhibit
Numbers Description
- -------
3.1 Articles of Incorporation of Registrant, as amended.(1)
3.2 Form of Amended and Restated Articles of Incorporation of Registrant
filed on May 28, 1996.(1)
3.2(a) Copy of First Amendment to Amended and Restated Articles of
Incorporation of Novoste Corporation filed with the Department of
State of the State of Florida on November 1, 1996.(2)
3.3(a) Copy of Amended and Restated By-Laws of Registrant adopted December
20, 1996.
4.1 Form of Specimen Common Stock Certificate of Registrant.(1)
4.2 Registration Rights Agreement, dated July 28, 1995, by and among
Registrant, Norman R. Weldon, Thomas D. Weldon, Charles E. Larsen, the
Hillman Investors (as defined therein), Noro-Moseley Partners-III,
L.P. and Advanced Technology Ventures IV, L.P.(1)
4.3 Registration Rights Agreement, dated April 26, 1995, between
Registrant and ABS Employees' Venture Fund Limited Partnership.(1)
4.4 Registration Rights Agreement, dated September 20, 1995, between
Registrant and Karen C. Vinjamuri.(1)
4.5 Stock Purchase Warrant, dated September 24, 1993, between Registrant
and The Kriegsman Group.(1)
4.6 Stock Purchase Warrant, dated March 24, 1994, between Registrant and
The Kriegsman Group.(1)
4.7 Stock Purchase Warrant, dated August 1995, between Registrant and The
Kriegsman Group.(1)
4.9 Consulting Agreement, dated July 30, 1992, between Registrant and
Spencer B. King III, M.D.(1)
4.10 Consulting Agreement, dated February 1, 1996, between Registrant and
Spencer B. King III, M.D.(1)
4.11 Consulting Agreement, dated February 1, 1993, between Registrant and
Harry A. Kopelman, M.D.(1)
4.12 Consulting Agreement, dated October 4, 1992, between Registrant and
Robert Langer.(1)
4.13 Consulting Agreement, dated July 30, 1992, between Registrant and John
B. Martin.(1)
4.14 Consulting Agreement, dated November 4, 1992, between Registrant and
Raphael Meloul.(1)
4.15 Consulting Agreement, dated June 30, 1992, between Registrant and
David O. Williams, M.D.(1)
4.16 Form of Fixed Rate Promissory Notes by Registrant, in the aggregate
principal amount of $1,500,150, at the interest rate of 8.0%
compounded annually.(1)
4.17(a) Form of Rights Agreement, dated as of October 25, 1996, between
Novoste Corporation and American Stock Transfer & Trust Company, which
includes as Exhibit B thereto the Form of Right Certificate. Pursuant
to the Rights Agreement, the Right Certificates will not be mailed
until after the earlier of (i) the first date of a public announcement
that a person or group of affiliated or associated persons has
acquired, or obtained the right to acquire, beneficial ownership of
15% or more of the outstanding Common Shares, or (ii) 10 business days
following the commencement of, or announcement of an intention to
commence, a tender or exchange offer the consummation of which would
result in a person or group beneficially owning 15% or more of such
outstanding Common Shares.(2)
4.17(b) Summary of Rights to Purchase Preferred Shares of Novoste
Corporation.(2)
46
*10.1 Copy of Stock Option Plan of Registrant, as amended as of February 28,
1997, subject to shareholder approval.
+10.2 License Agreement, dated January 30, 1996, between Emory University
and Registrant.(1)
+10.3 Clinical Research Study Agreement, dated January 30, 1996, by Emory
University And Registrant.(1)
+10.4 License Agreement, dated January 31, 1996, between Spencer B. King
III, M.D. and Registrant.(1)
+10.5 Restenosis Therapy Project Development and Supply Agreement, dated
November 28, 1994, with Registrant, relating to the supply of
radioactive beta isotopes.(1)
10.6 Option to Purchase Assets Agreement dated August 22, 1995, with
Registrant relating to the purchase of assets of Registrant's supplier
of radioactive beta isotopes.(1)
10.7 License/Product Supply Agreement, dated as of May 11, 1992, by and
among Sumitomo Bakelite Co., Ltd., Sumitomo Plastics America, Inc.,
Norman R. Weldon, Thomas D. Weldon, Charles E. Larsen and
Registrant.(1)
10.8 Lease, dated July 9, 1992, between Weeks Master Partnership, L.P. and
Registrant, as amended.(1)
10.9(a) Agreement, dated June 15, 1995, between NationsBank of Georgia, N.A.
and Registrant, superseding the indebtedness originally evidenced by
documents dated September 1994.(1)
10.9(b) Continuing and Unconditional Guaranty dated September 15, 1994, by
Charles Larsen.(1)
10.9(c) Continuing and Unconditional Guaranty dated September 15, 1994, by
Thomas D. Weldon.(1)
10.9(d) Continuing and Unconditional Guaranty, dated June 15, 1995, by Norman
R. Weldon.(1)
++10.10 Frame Agreement with Bebig Isotopentechnik und Umweltdiagnostik GmbH
regarding purchases and investment grant
*10.11 Agreement and Release dated November 4, 1996, between Registrant and
Jonathan J. Rosen, Ph.D.
*10.12 Copy of Non-Employee Director Stock Option Plan, subject to
shareholder approval.
11 Computation of Per Share Earnings.
23.1 Consent of Ernst & Young LLP relating to the Registrant's Registration
Statement on Form S-8 (File No. 333-12717).
27 Financial Data Schedule.
- ----------
+ Portions have been omitted and filed separately with the Securities and
Exchange Commission pursuant to an order granting confidential treatment.
++ Portions have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
(1) Filed as same numbered Exhibit to the Registrant's Registration Statement
on Form S-1 (File No. 333-4988).
(2) Filed as same numbered Exhibit to the Registrant's Registration Statement
on Form 8-A filed on November 5, 1996.
* Constitutes a compensatory plan, contract or arrangement.
47