Back to GetFilings.com
Draft
6/24/98
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934
For Fiscal Year Ended March 31, 1998
--------------
Commission File Number 0-23252
---------
IGEN International, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-2852543
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16020 INDUSTRIAL DRIVE, GAITHERSBURG, MD 20877
(Address of principal executive offices)(Zip Code)
301-984-8000
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.001 par value
-----------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / X / No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. / X /
The aggregate market value of the voting and non-voting equity held by
non-affiliates of the Registrant as of June 12, 1998, computed by reference to
the closing sale price of such stock quoted on the Nasdaq National Market, was
approximately $315,434,900. For the purposes of this calculation, shares owned
by officers, directors and 5% shareholders known to the Registrant have been
deemed to be owned by affiliates.
The number of shares outstanding of the Registrant's Common Stock as of June 12,
1998 was 15,288,253.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into
the following parts of this Form 10-K. Certain information required in Part III
of this Annual Report on Form 10-K is incorporated from the Company's definitive
Proxy Statement relating to its Annual Meeting of Shareholders to be held on
September 23, 1998.
1
PART I
In addition to historical information this document contains forward-looking
statements within the meaning of the "safe harbor" provision of the Private
Securities Litigation Reform Act of 1995. Reference is made in particular to
statements regarding the potential market for diagnostic products, potential
impact of competitive products, the Company's expectations regarding the level
of anticipated royalty and revenue growth in the future, the potential market
for products in development, the outcome of litigation, the description of the
Company's plans and objectives for future operations, assumptions underlying
such plans and objectives and other forward-looking statements included in
"Managements Discussion and Analysis of Financial Condition and Results of
Operations" ("MD&A"). Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties which
could cause actual results to differ materially from those described in the
forward-looking statements. In particular, careful consideration should be given
to cautionary statements made in the MD&A and in the business section of this
document under the heading "Risk Factors." IGEN disclaims any intent or
obligation to update these forward-looking statements.
ITEM 1. BUSINESS
INTRODUCTION
IGEN International, Inc. ("IGEN" or the "Company") develops, manufactures and
markets diagnostic systems utilizing its patented ORIGEN(R) technology, which is
based on electrochemiluminescence. This versatile technology is used in products
- - developed by IGEN as well as its licensees - to conduct a multitude of
diagnostic tests, including immunoassays, nucleic acid probe and clinical
chemistry tests. The Company believes that ORIGEN-based diagnostic systems offer
significant advantages over existing systems in the combination of speed,
sensitivity, flexibility, throughput and cost effectiveness. The Company is
designing its diagnostic systems to become the industry standard for multiple
segments of the $20 billion worldwide diagnostic market, from hospitals and
clinical reference laboratories to patient point-of-care, life science research,
industrial and in-home testing.
The Company's business strategy is to commercialize certain products in
collaboration with established healthcare and information technology companies
and to develop and market other products either independently or with corporate
partners in the patient point-of-care, life science research, animal health and
industrial markets. There are five ORIGEN-based systems on the market which are
being sold either by IGEN or its licensees and the Company estimates that more
than 4,000 of these systems have been placed with customers. The Company plans
to address many market segments through a new generation of its ORIGEN
technology which is embodied in the recently completed ECL Module (ECLM).
Collaborations with established diagnostic and pharmaceutical companies have
provided the Company with revenues from licensing agreements, as well as access
to large marketing organizations that it believes are well positioned to
maximize market penetration of ORIGEN-based products. The Company has entered
into several strategic alliances, including:
- Roche-Boehringer Mannheim ("Roche-BM") -- the largest worldwide
manufacturer of diagnostic equipment and supplies that is part of F.
Hoffman LaRoche AG, a multinational corporation with annual revenues
exceeding $15 billion -- to commercialize ORIGEN-based clinical
immunodiagnostic and nucleic acid probe systems that are marketed
worldwide to hospitals and clinical reference laboratories. IGEN
previously received $50 million in license fees from Roche-BM and
receives royalties on product sales. Roche-BM presently markets two
ORIGEN-based systems under the Elecsys product line together with a
test menu of more than 30 different assays. The Elecsys 2010 was first
introduced in 1996 and is a system designed to perform multiple
immunoassays in a continuous access mode while simultaneously handling
STAT tests. It can also be integrated with Roche-BM's clinical
chemistry systems. Roche-BM has also introduced the Elecsys 1010, a
sample-selective multi-batch analyzer designed for customers who have a
lower throughput requirement. Roche-BM has several thousand worldwide
customer installations of its Elecsys systems. See Item 3 - "Legal
Proceedings".
2
IGEN has filed a lawsuit in Maryland against Boehringer Mannheim which
claims multiple breaches of the license agreement between the parties
and failure by Boehringer Mannheim to perform its material obligations
under the agreement. The timing or likelihood of resolving this matter
cannot be determined at this time. See Item 3 - "Legal Proceedings."
- Organon Teknika B.V. ("Organon Teknika") -- a company specializing in
hospital and blood bank products, which is a business unit of Akzo
Nobel N.V., a multinational corporation with annual revenues of
approximately $10 billion -- to develop and commercialize ORIGEN-based
nucleic acid probe systems that will be marketed worldwide to clinical
diagnostic and life science research markets. IGEN previously received
$20 million under its agreements with Organon Teknika. Organon Teknika
has combined its proprietory NASBA technology with ORIGEN technology
and markets the NucliSens line of diagnostic virology products together
with test kits for the detection of HIV-1 RNA and CMV (cytomegalo
virus). IGEN receives royalties on product sales.
- Eisai Co., Ltd. ("Eisai") -- the fourth largest Japanese pharmaceutical
company -- to market in Japan an ORIGEN-based diagnostic system for
agreed-upon diagnostic tests. Eisai introduced its first ORIGEN-based
product under the trade name Picolumi during 1997 and IGEN receives
royalties on product sales.
IGEN currently sells the ORIGEN Detection System and related reagents and
services for life science research applications. The Company believes that its
ORIGEN Detection System can replace many of the complex and less sensitive
immunoassay methods presently in use, including radioimmunoassays and that
applications of the ORIGEN technology include point-of-care diagnostic systems
for use outside of central hospital laboratories and clinical reference
laboratories because of speed, simplicity and cost effectiveness. The Company
also anticipates that applications will exist in the field of in-home testing
(patient self-testing), in which IGEN's technology may enable the creation of
compact, inexpensive diagnostic products
IGEN's executive offices, laboratory and manufacturing operations are located at
16020 Industrial Drive, Gaithersburg, Maryland 20877.
Industry Background
In vitro diagnostic testing is the process of analyzing blood, urine and other
specimens to screen for, monitor and diagnose diseases and other medical
conditions or to determine the chemical and microbiological constituents of the
specimens. The major procedures currently used are chemistry, immunodiagnostic,
nucleic acid probe, hematological and microbiological tests.
Chemistry tests utilize established analytical methods for measuring simple
compounds such as glucose and cholesterol, elements such as sodium and
potassium, gases and enzymes. The types of samples that can be analyzed include
biological specimens such as blood and urine as well as environmental materials,
foods and beverages. The results of the analysis can be qualitative, identifying
only the presence or absence of an analyte, or quantitative, identifying also
the precise level of the analyte in the specimen.
Immunodiagnostic tests utilize antibodies to detect specific analytes such as
viruses, hormones, therapeutic drugs and other substances present in the blood
or other specimens in extremely low concentrations. To develop an
immunodiagnostic test, an antibody is created that binds specifically to the
analyte to be detected. The antibody is then coupled to a label that signals to
an instrument the presence of the analyte in a way that can be measured.
Immunodiagnostic tests are characterized by a relatively high rate of
technological change and the frequent introduction of new clinical tests.
Currently, most immunodiagnostic tests are performed in large centralized
hospital laboratories and clinical reference laboratories by skilled technicians
who must process the specimen, measure its volume, add reagents and use
sophisticated machines to read and calculate the results.
Nucleic acid probe tests allow the detection of disease at the fundamental
genetic level. The absence or presence of certain genes or gene mutations have
been found to be reliable indicators of specific cancers, genetic disorders and
3
infectious diseases. Nucleic acid probes provide a direct means of detecting
nucleic acid sequences associated with either infectious agents or certain genes
in a biological sample. One difficulty in the development of nucleic acid-based
diagnostic technology is the low concentration of nucleic acid in the sample,
which generally renders direct detection impractical. Recent solutions to this
problem, including the DNA Polymerase Chain Reaction ("PCR") or Nucleic Acid
Sequence-Based Amplification ("NASBA"), are capable of amplifying trace amounts
of target nucleic acid hundreds of millions of times and allow for the detection
of disease-causing genes before symptoms appear.
Diagnostic procedures are performed primarily in three different markets: the
clinical diagnostic market, including central hospital laboratories, clinical
reference laboratories, blood banks, patient point-of-care testing and home
testing; the life science market, including laboratories in pharmaceutical and
biotechnology companies, universities, private institutes and the government;
and the industrial market, which consists of food and water quality assurance
programs, agricultural diagnostics and animal health testing.
ORIGEN Technology
The ORIGEN technology is a proprietary technology based on
electrochemiluminescence which utilizes labels that, when attached to a
biological substance and electrochemically stimulated, emit light at a
particular wavelength to signal the presence of an analyte. The light emission
can then be measured with a high degree of accuracy to detect and quantify the
analyte. The Company's ORIGEN technology thus provides a uniform assay format to
conduct a multitude of diagnostic tests including immunoassay, nucleic acid
probe and clinical chemistry tests. The ORIGEN technology is protected by
numerous patents in the United States and internationally.
Using the ORIGEN technology as a platform, IGEN and its collaborators are
developing diagnostic systems that offer many advantages over current
technologies. The Company believes that its ORIGEN technology offers improved
speed, sensitivity, flexibility and throughput relative to existing diagnostic
technologies and lowers the cost of diagnostic procedures. The ORIGEN system
directly measures electrochemiluminescence, and does not involve the use of
enzymes common in competing systems, thus permitting a simplified assay format.
The ORIGEN diagnostic systems can be automated to provide in a uniform format a
large number of immunoassay, nucleic acid probe and clinical chemistry tests.
The major features and benefits of proprietary ORIGEN-based diagnostic systems
are:
Feature Benefit
------- -------
Simple Assay Format Reduces time and labor in performing
an assay.
Flexibility Enables a single instrument to perform immunoassays
on large and small molecules and to perform DNA and
RNA probe assays. Permits immunoassays to be
integrated with clinical chemistry systems.
Cost Reduces assay cost per test.
Speed Produces quick results. Enables high throughput
(random access).
Sensitivity Allows detection of analytes at very low
concentrations.
Precision Provides highly-reproducible measurements.
Label Stability Extends reagent shelf life. Improves
measurement accuracy.
The essential component of the ORIGEN system is the measurement module, which
consists of a flow cell containing an electrode and a light detection means such
as a photodiode. The ORIGEN measurement module has been designed so that it can
be easily incorporated into a variety of instruments from large central
laboratory random-access systems to
4
small batch point-of-care ORIGEN. The current design of the ORIGEN measurement
module includes a reusable platinum or gold electrode to generate
electrochemiluminescence. IGEN is also developing disposable electrodes to be
used in portable instruments.
Product Development Strategy
The Company is designing its diagnostic systems to become the industry standard
for all segments of the diagnostic market, from large central laboratories to
patient point-of-care and in-home testing. IGEN has selectively established
corporate alliances with companies that it believes are well positioned to
maximize market penetration in the central laboratory market. In particular, the
Company has established relationships with Roche-BM for the development and
marketing of central hospital laboratories and clinical reference laboratory
systems worldwide; with Organon Teknika for the development and marketing of
nucleic acid probe systems for worldwide use in clinical diagnostic and life
science research markets; and with Eisai for the marketing in Japan of a
specified diagnostic system for certain diagnostic tests. Research activities of
customers and corporate collaborators relating to the development or
improvements of existing products, services or techniques have been ongoing. The
Company believes that over the last several years these amounts may be material;
however, the estimated dollar amount could not be determined.
The Company will exploit either independently or with corporate partners, the
opportunities presented by the expansion of diagnostic testing into patient
point-of-care sites as well as opportunities available in the life science
research and industrial markets. The Company will apply its ORIGEN technology to
the development of a line of quantitative diagnostic products to address the
needs of these markets. IGEN is currently marketing the ORIGEN Detection System
and related reagents and services for life science research applications and is
developing a High Throughput Screening (HTS) system for the market.
The Company believes that as the use of patient point-of-care and in-home
testing systems expands, it will become necessary to integrate the information
that is being generated by these systems into the data and communication
networks that are rapidly expanding as a result of the tremendous improvements
in information handling. The Company expects that it will be required to make
material investments in the development of its products as outlined in the table
appearing below under "Clinical Diagnostic Products."
ORIGEN Products
IGEN and its strategic collaborators are developing a broad range of products
based on its proprietary ORIGEN technology, which are applicable to the clinical
diagnostics, industrial and life science research markets. The Company believes
that its ORIGEN technology is well suited for the development of a family of
instruments to be used in central hospital laboratories and clinical reference
laboratories and in patient point-of-care settings. The technology permits
virtually all clinical chemistry, immunodiagnostic, DNA probe and RNA probe
tests to be performed on the same instrument using the same detection method.
The ORIGEN technology also could serve as the basis for portable hand-held
devices that perform with the efficiency and reliability of larger systems.
During the fourth quarter of fiscal 1997, the Company's license and contract
revenue converted to royalty income based on product sales of corporate
licensee. Revenue from license fees and contract research were substantially
replaced by royalties based on sales.
The table appearing below under "Clinical Diagnostic Products" summarizes the
Company's product and development programs.
Clinical Diagnostic Products
Hospital/Reference Laboratory Systems. One of the most important applications
of the Company's ORIGEN technology is in large, highly-automated clinical
immunoassay systems of the type used in central hospital laboratories, clinical,
reference laboratories and blood banks. Reference laboratories constitute the
vast majority of the clinical diagnostic market today. Reference laboratory
systems must be able to perform a wide variety of immunoassay tests on a large
number of samples both reliably and cost-effectively. The Company and its
corporate collaborators believe that systems
5
based on the ORIGEN technology are well suited to serve this market, and may
surpass those immunoassay and nucleic acid probe systems currently available in
terms of speed, cost effectiveness and simplicity
One of the Company's licensees, Roche-BM, introduced its first ORIGEN-based
random-access immunoassay system, the Elecsys 2010, for the central hospital and
reference laboratory markets in 1996. The Elecsys 2010 is designed to perform
multiple assays in a random-access mode while handling stat tests, i.e., tests
performed on clinical samples where the results are needed immediately, without
interfering with the system workflow. Roche-BM and Hitachi have cooperated in
the development of the Elecsys 2010, building on their successful cooperation in
clinical chemistry instrumentation. The Elecsys 2010 is designed so that it can
be integrated with Roche-BM's clinical chemistry systems. Roche-BM also
introduced the Elecsys 1010 system, which is a system designed for central
hospital and reference lab customers who have a lower throughput requirement.
Roche-BM offers a competitive panel of assays with the Elecsys systems and
continues to develop additional assays for market introduction in the subsequent
months and years. IGEN is collaborating with Roche-BM to develop at least 10
assays, each of which should have applicability to the point-of-care market
pursued by IGEN. IGEN is reimbursed by Roche-BM for certain of these assay
development costs. See Item 3 - "Legal Proceedings."
Organon Teknika is developing nucleic acid probe diagnostic tests that are used
to analyze human gene sequences or to detect the presence of gene sequences of
infectious organisms. IGEN and its corporate collaborators believe that the
ORIGEN technology applied to nucleic acid probe assays will offer the advantages
of greater accuracy and efficiency demanded by the market. Organon Teknika
markets the NucliSen line of diagnostic virology products, which includes the
first nucleic acid probe system based on the ORIGEN technology and Nucleic Acid
Sequence-Based Amplification ("NASBA"), a proprietary nucleic acid amplification
technique.
6
PRODUCT AND DEVELOPMENT PROGRAMS
- -----------------------------------------------------------------------------------------------------------------------------------
MARKET PRODUCT APPLICATION COMMERCIAL STATUS
RIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
Clinical Diagnostic Market
Hospital/Reference Laboratory
Systems Elecsys 2010 Immunoassays Roche-BM Product Sales
Elecsys 1010 Immunoassays Roche-BM Product Sales
NucliSens/NASBA QR Nucleic Acid Probe Organon Teknika Product Sales
Detection
Picolumi Immunoassays (Japan) Eisai (Japan) Product Sales
Random Access Systems Nucleic Acid Probe Organon Teknika; Development
Detection Roche-BM
High Throughput Elecsys Immunoassays Roche-BM Development
System
Patient Point-of-Care Systems Physician's Office/Hospital Immunoassays IGEN Development
Analyzer
Home Self Testing Health Screening and IGEN Research
Monitoring
- -----------------------------------------------------------------------------------------------------------------------------------
Life Science Research Market
ORIGEN Detection System, Immunoassays/Nucleic Acid IGEN Product Sales
Reagents and Services Probe Detection
Cell Culture Reagents Research Biologicals IGEN Product Sales
NucliSens/NASBA QR Nucleic Acid Probe Organon Teknika Product Sales
Detection
ORIGEN High Throughput Immunoassays IGEN Development
System
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial Markets
Environmental/Water Immunoassays and Nucleic IGEN; Development
Testing/Food Processing Acid Probe Detection Organon Teknika
System
Animal Health Systems Immunoassays and Nucleic IGEN Development
Acid Probe Detection
- -----------------------------------------------------------------------------------------------------------------------------------
The NucliSens has four stages which are sample preparation and nucleic acid
isolation, amplification and detection. The NASBA QR System utilizes ORIGEN
technology which provides automated, rapid, specific, sensitive and homogenous
detection. Tests on the market include a product for the direct detection of
HIV-1 RNA, both quantitatively and qualitatively and for the detection of CMV
(cytomegalo virus). Products under development by Organon Teknika include tests
for hepatitis, chlamydia and mycobacteria. In addition to the diagnosis of
infectious disease, the NucliSens has potential applications in the fields of
genetic diseases, oncologic diseases and HLA typing for organ transplants.
For the three fiscal years ended March 31, 1998, revenue from corporate
collaborators, which is represented as product-based royalty income, license
fees and contract revenue, totaled $7.8 million (58%), $9.6 million (60%) and
$11.3 million (71%), respectively.
Patient Point-of-Care Systems. IGEN is independently developing applications of
its ORIGEN technology that can be used to perform immunoassays outside of large
central laboratory settings. This market includes patient point-of-care settings
such as the physician's office, ambulatory clinics, hospital emergency rooms,
surgical and intensive care units,
7
hospital satellite laboratories, nurse's stations or the hospital patient's
bedside. Physicians, patients and third-party payors have created a demand for
bringing laboratory testing to the point of care, closer to the patient so as to
allow the medical practitioner to provide prompt feed-back to the patient.
Immunodiagnostic systems for individual physicians and group practices have had
limited market penetration because of the lengthy turnaround time for test
results (1-2 days), the need for skilled labor in performing tests and high
cost. The Company believes that the emergence of simple, accurate and cost
effective diagnostic products is shifting the site of in vitro diagnostic
testing from the central clinical laboratory to alternate sites.
IGEN believes that significant demand exists for immunodiagnostic products that
reduce turnaround time and cost. IGEN's point-of-care system is being designed
to conduct immunodiagnostic tests that can provide accurate results to the
physician within 15 minutes, thereby permitting the physician to make a timely
decisions regarding the patient's course of treatment. The ORIGEN technology
permits development of a system that is simple to operate at a very low cost per
test. The Company is designing its point-of-care system to consist of a simple,
low cost instrument and a line of reagents packaged in a disposable single test
or panel format. As most immunodiagnostic assays can be conducted on the ORIGEN
system in a uniform format, the Company believes that a broad menu of tests
could be marketed on its point-of-care system.
In-Home Testing. Longer term applications of the ORIGEN technology also exist in
the field of in-home testing (patient self-testing), in which IGEN's technology
may enable the creation of compact, inexpensive diagnostic products. The Company
is exploring the feasibility of using its ORIGEN technology for such products.
Life Science Research Products
Immunoassay Systems. IGEN currently sells the ORIGEN Detection System and a line
of related reagents and services. The ORIGEN Detection System is used by
researchers who wish to perform immunoassays for life science applications. The
ORIGEN Detection System is an open architecture assay platform that quantitates
the binding of any two molecules that come together with specificity. The "open
architecture" component of ORIGEN refers to the researcher's ability to
customize their assays for their particular performance parameters. The System
is optimized for immunoassays, but offers researchers the flexibility to build
other assays for direct detection of nucleic acids, and receptor ligand studies.
Whether the need is for greater sensitivity, faster turnaround time, expanded
linear range, or other key features, a researcher has the flexibility to design
an assay to meet these goals.
ORIGEN is being implemented throughout the life science market as a replacement
technology for Radioimmunoassays (RIA) and Enzyme Linked Immunosorbent Assays
(ELISA), the most commonly used systems, as well as a replacement for newer
chemiluminescent and fluorescent procedures. The change is occurring as
scientists see the enhancements to sensitivity (10-100 fold improvements),
dynamic range of up to 5 logs, and the elimination of time consuming technical
steps, such as assay washes.
IGEN's market focus in bio/pharmaceuticals has resulted in successful
application of ORIGEN technology by customers in drug discovery and development,
compound screening, basic research, clinical trials, quality control and
manufacturing. ORIGEN is often replacing standard technologies such as
radioimmunoassays. Bio/pharmaceutical researchers are benefiting from the ORIGEN
Detection System's sensitivity as well as the reduction of time and labor, and
significantly, the reduction in use of rare assay components such as proprietary
compounds, antibodies, or clinical trial samples. The Company believes that the
ORIGEN Detection System has established itself as a new tool that will help our
customers bring pharmaceutical products to market faster.
Performance is key to new technology implementation by the bio/pharmaceutical
researcher. IGEN has established added value in its customized approach to
customers. The versatility of ORIGEN technology allows for product customization
and IGEN has focused its scientific resources to provide custom support to the
client, based on their specific research needs, often at the customer site. This
approach has spurred growth of complementary businesses such as assay
development, custom compound labeling and assay validation services. To date
there have been over 300 assay applications developed with the ORIGEN Detection
System for over 100 customers.
8
Biopharmaceutical companies have dramatically expanded their drug candidate
libraries, while identifying and acquiring more therapeutic targets. High
Throughput Screening (HTS) is the screening of these libraries against the drug
targets, measuring a specific reaction. The "screeners" are challenged to
develop new target assays while reducing costs, and always performing larger
numbers of samples. IGEN's ORIGEN technology is ideally suited to provide
products to the biopharmaceutical HTS market. The sensitivity-accuracy of ORIGEN
has advantages over competitive screening technology allowing the screener to
quickly adapt ORIGEN to target assays in weeks as compared to the months it
takes today, to reduce the use of their rare reagent, and to be more confident
in their positive and negative results. IGEN's HTS, based on ECLM and in
development, should allow screeners to perform thousand of tests per day, and
the Company believes that screens may be performed faster, at less cost and with
greater reliability. During 1998, IGEN established its first contracts with
customers in the HTS market. Pfizer, Inc., Agouron Pharmaceuticals, Inc., and
Amgen, Inc. have made commitments to acquire pre-production ECLM-based HTS
systems. The Company anticipates a full product launch during 1999.
Because the ORIGEN-based instruments can test for any substance for which a
specificity assay has been created, the Company markets the service to the
instrument users by creating or modifying assays to test for compounds that are
of specific interest to such customer. The Company provides this service either
at its service laboratories or on site at the client's laboratory. The Company
believes that a customized approach to analytical solutions must involve special
chemistry services, such as custom labeling and reagent identification, to allow
for technology transfer to ORIGEN-based assays.
While IGEN's market focus has been with bio/pharmaceutical customers, the
Company has also established customers at government and university research
centers. These customers are performing research in strategic IGEN growth areas
such as food and water quality testing. The Company has also broadened its assay
versatility by expanding into detection of DNA and quantitation of PCR. ORIGEN
technology even offers the unique capability of sensitive detection of DNA
without costly amplification steps.
Other ORIGEN Research Products. The Company will seek to develop with corporate
collaborators other research products based on its ORIGEN technology, including
detectors for column chromatography and capillary zone electrophoresis, and
electrochemiluminescence-based gel readers for DNA sequencers.
Research Biologicals. The Company produces and sells a line of research reagents
under its ORIGEN brand name. The products are purified biological extracts that
promote the growth of certain types of cells used in laboratory investigations.
The Company markets the products directly as well as through distributors.
For the three fiscal years ended March 31, 1998, the Company's ORIGEN Detection
product line generated revenue of $4.9 million (37%), $5.6 million (35%) and
$3.8 mllion (24%), respectively, of total revenue
Industrial Products
The Company is seeking to develop further, either independently or with joint
venture partners, ORIGEN-based products for use in food and water quality
assurance programs and animal health testing. The emergence of simple, accurate
and cost effective products is shifting testing from traditional labor intensive
methods such as gas chromatography, to immunodiagnostics. The Company believes
that its ORIGEN Detection System and reagents together with simpler, low-cost
instruments under development will be particularly suited for these market
applications.
Collaboration and License Agreements
IGEN's business strategy is to develop and market products both independently
and in collaboration with established healthcare and information technology
companies. The Company's ORIGEN technology has already provided near-term
revenues which have enabled the Company to pursue its strategic objectives in
the diagnostic business. IGEN may seek additional corporate collaborators to
provide financial resources, research and manufacturing capabilities and
marketing infrastructure.
9
Roche-Boehringer Mannheim - Roche-BM is a business unit of F. Hoffman LaRoche
AG, a multinational corporation with annual revenues exceeding $15 billion and
the largest worldwide manufacturer of diagnostic equipment and supplies.
Roche-BM's principal strength is in the area of clinical chemistry systems, in
which it is the market leader. The Company entered into an agreement under which
Roche-BM was granted rights to develop and market clinical diagnostic systems in
certain markets worldwide based on the Company's technology. Under the
agreement, IGEN received $50 million in license fees over a five year period
through 1996. Roche-BM pays additional amounts for certain assay product
development being performed by IGEN, and is obligated to pay the Company a
royalty on all product sales
The ORIGEN products being marketed by Roche-BM under the name Elecsys, are a
series of highly-automated diagnostic systems designed for the large clinical
laboratory market - such as central hospital laboratories, clinical reference
laboratories and blood banks. IGEN believes that Elecsys systems will enable
Roche-BM to increase its market presence in immunodiagnostics and to market
systems capable of performing both clinical chemistry and immunodiagnostic
tests. Roche-BM has placed several thousand Elecsys systems with customers since
market introduction in mid-1996. The Company has granted Roche-BM an exclusive
right to market these products to central hospital laboratories and clinical
reference laboratories worldwide, except for rights previously licensed to Eisai
to market in Japan a specific ORIGEN-based system. The Company has also granted
Roche-BM a co-exclusive license to use the ORIGEN technology for nucleic acid
probe tests in the centralized laboratory market. See Item 3 - "Legal
Proceedings".
Organon Teknika B.V. Organon Teknika, a company specializing in hospital and
blood bank products, is a business unit of Akzo Nobel N.V., a multinational
corporation with annual revenues of approximately $10 billion. In 1993, the
Company entered into a $20 million license agreement and a stock purchase
agreement with Organon Teknika. The license agreement provides Organon Teknika
with co-exclusive rights to commercialize certain products utilizing the
Company's ORIGEN technology for detecting nucleic acids in centralized clinical
markets, research markets and for certain pathogens for food testing. Organon
Teknika has combined the Company's ORIGEN technology with NASBA, a proprietary
nucleic acid amplification technique. The agreement provides for royalty
payments to IGEN and for product supply arrangements. The Company also issued
shares of Common Stock to Organon Teknika and agreed to devote specified
resources to research and development activities in the field of clinical
diagnostics. Robert Salsmans, a director of the Company, is President and Chief
Executive Officer of the Organon Teknika group of companies.
Eisai Co., Ltd. Eisai is the fourth largest Japanese pharmaceutical company.
The Company granted a license to Eisai to market in Japan a clinical diagnostic
system based on the Company's ORIGEN technology. Under this agreement, Eisai has
paid $8 million to IGEN as license fees and an additional $2.75 million as an
advance royalty payment. During 1997, Eisai launched an ORIGEN-based product
under the trade name Picolumi which consists of an immunodiagnostic instrument
and certain assays for use in Japan in the market regulated by the Japanese
Ministry of Health and Welfare for use in diagnosing or advising a patient's
clinical condition, health or general make-up. The Company receives royalties
from Eisai's sales.
Research Agreements
In 1993, the Company established HyperGen, a joint venture partnership, with
Hyperion Catalysis International ("Hyperion") to develop and commercialize
biomedical products utilizing advanced materials such as Hyperion's proprietary
Graphite Fibrils(TM) nanotubes. Hyperion, a privately-held company based in
Cambridge, Massachusetts, is engaged in the development and manufacture of
Graphite Fibrils(TM), an innovative carbon-based nanofiber. IGEN has licensed
the exclusive right to use products developed by HyperGen for diagnostic
applications. The Company contributed cash of $3 million for its initial 50%
interest in HyperGen and made additional cumulative payments of $2 million based
on the attainment of certain research milestones. During 1995, the Company
acquired the remaining 50% interest in HyperGen for $3 million. IGEN assumed
operating control of HyperGen and consolidated HyperGen's research and
development programs into the Company's internal programs.
Acquisition of the HyperGen rights to Graphite Fibrils(TM) enabled IGEN to
commence the development of proprietary products to complement its business in
the medical and life science marketplace. One product under investigation by
HyperGen is a filter comprised of Graphite Fibrils(TM) that could be used as a
disposable electrode for
10
electrochemiluminescent measurements for ORIGEN-based products.
During November, 1995 the Company formed a joint venture for the development and
commercialization of advanced diagnostics products utilizing a proprietary
combination of multi-array technology together with the Company's ORIGEN
technology. Products based on these technologies would be used for high
throughput, multiparameter analysis for DNA sequencing, clinical chemistry and
immunodiagnostics. The joint venture is named Meso Scale Diagnostics, LLC
("MSD"), and was formed together with Meso Scale Technologies, LLC ("MST"), a
company based in Maryland. MST is a technology-based company established and
operated by Jacob Wohlstadter, the son of Samuel J. Wohlstadter, the Chief
Executive Officer of the Company. Nadine Wohlstadter, a member of MST, is the
spouse of Samuel J. Wohlstadter. The Company has agreed to provide initial
capital contributions to MSD of $5 million over time, in exchange for its
ownership interest and to fund the organizational and certain ongoing
(non-research) expenses of MSD. The Company will also participate in a
collaborative research program under which no funds have been expended.
MSD's research programs to develop products will be based on multi-array
diagnostic techniques and the ability to control and adapt surface chemistry
reactions on a microscopic level. The process may generate thousands of
reactions on a single chip with diagnostic results presented on an array and
read using electrochemiluminescence. The multiple results would represent an
advance in diagnostic testing enabling researchers and clinicians to explore
complex information rapidly and cost-effectively.
Patents and Proprietary Rights
IGEN pursues a policy of seeking patent protection to preserve its proprietary
technology and its right to capitalize on the results of its research and
development activities and, to the extent it may be necessary or advisable, to
exclude others from appropriating its proprietary technology. IGEN also relies
upon trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. The Company
plans to prosecute and defend its intellectual property, including any patents
that may issue, and proprietary technology. The Company regularly searches for
third-party patents in its fields of endeavor, both to shape its own patent
strategy as effectively as possible and to identify licensing opportunities.
IGEN owns or co-owns and has exclusive rights to 26 issued U.S. patents and 72
pending U.S. applications in the diagnostics field. Worldwide, the Company owns
or co-owns and has exclusive rights to an additional 61 issued patents, and 153
pending patent applications covering the same technology. These patents and
patent applications cover various aspects of IGEN's ORIGEN technology and
products, and the methods for their production and use. IGEN patents will not
begin to expire until 2005. Some IGEN patents will begin to expire between 2008
and 2012. The Company continues to protect its technology with new patent
filings which will further extend its patent coverage.
The patent positions of diagnostic firms, including the Company, are highly
uncertain and involve complex legal and factual questions. Patent applications
in the United States are maintained in secrecy until patents issue and therefore
the Company cannot be certain that it or any party from whom it obtained
licenses was the first creator of inventions covered by issued patents or
pending patent applications or that it or such licensor was the first to file
patent applications for such inventions. The Company may have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to the
Company even if the eventual outcome is favorable to the Company. Consequently,
the Company does not know whether its applications will result in issued patents
or whether its patents will provide significant proprietary protection or will
be circumvented or invalidated.
A number of healthcare and information technology companies and research and
academic institutions have filed patent applications or received patents in the
diagnostic field. Some of these applications or patents may be competitive with
the Company's issued patents or pending patent applications or conflict in
certain respects with claims made in the Company's patents or patent
applications or the Company's ability to practice the technology covered
thereby. Such
11
conflicts could result in a significant reduction of the Company's ability to
practice the inventions covered by its patents and pending patent applications.
In addition, if patents containing competitive or conflicting claims are issued
to others and such claims are ultimately determined to be valid, there can be no
assurance that the Company will be able to obtain licenses to these patents at a
reasonable cost or be able to develop or obtain alternative technology.
In June 1998, Laboratoires Serono S.A., a subsidiary of Ares-Serono, filed a
patent infringement claim against IGEN, Roche-BM and Organon Teknika. This
action claims that a patent for "A Method Assay Employing a Magnetic Electrode"
is being infringed by IGEN. The Company does not believe it infringed on the
Ares-Serono patent and intends to vigorously defend against this claim.
The Company filed an opposition in Europe in 1995 to a patent (EP 0 285 05781)
owned by Enzo Biochem, Inc. This patent covers labeled oligonucleotides useful
in DNA probe assays. Separate oppositions have been lodged by Boehringer
Mannheim and Organon Teknika. The Company is vigorously opposing this patent.
Since the opposition is in a very early stage, it is not possible to predict the
outcome or the effect, if any, on the Company's intellectual property or
products.
Government Regulation
The Company's research and development activities and the future manufacturing
and marketing of products by the Company are subject to regulation by numerous
governmental authorities in the United States and other countries. In the United
States, clinical diagnostic devices are subject to rigorous U.S. Food and Drug
Administration ("FDA") regulation. The Federal Food, Drug and Cosmetic Act and
the Public Health Service Act govern the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising and promotion of the
clinical Company's products. In addition to FDA regulations, the Company is
subject to other federal and state regulations such as the Occupational Safety
and Health Act and the Environmental Protection Act. Product development and
approval within this regulatory framework may take a number of years and
involves the expenditure of substantial resources. In addition, there can be no
assurance that this regulatory framework will not change or that additional
regulation will not arise at any stage of the Company's product development,
which may affect approval or delay an application or require additional
expenditures by the Company.
The Company's regulatory strategy is to pursue development and marketing
approval of its products worldwide, either independently or through corporate
collaborators. The Company intends to seek input from the regulatory authorities
at each stage of the clinical process to facilitate appropriate and timely
clinical development. The clinical development of certain products may be the
responsibility of the Company's collaborators.
Clinical Diagnostic Systems. The manufacture, distribution and sale in the
United States of the Company's products for clinical diagnostic purposes will
require prior authorization by the FDA. The FDA and similar agencies in foreign
countries have promulgated substantial regulations that apply to the testing,
marketing, export and manufacturing of diagnostic products. To obtain FDA
approval of a new product for diagnostic purposes, the Company or its
collaborators will in most cases be required to submit proof of the safety and
efficacy of the product. Such proof typically entails clinical and laboratory
tests. The testing, preparation of necessary applications and processing of
those applications by the FDA is expensive and time consuming. Significant
difficulties or costs may be encountered by the Company in its efforts to obtain
FDA approvals that could delay or preclude the Company from marketing its
products for diagnostic purposes. Furthermore, there can be no assurance that
the FDA will not request the development of additional data following the
original submission. With respect to patented products or technologies, delays
imposed by the governmental approval process may materially reduce the period
during which the Company or its collaborators will have the exclusive right to
exploit those products or technologies.
The Company's and its collaborative partners' diagnostic products, as presently
contemplated, will be regulated as medical devices. Prior to entering commercial
distribution, all medical devices must undergo FDA review under one of two basic
review procedures depending on the type of assay: a Section 510(k) pre-market
notification ("510(k)") or a pre-market approval application ("PMA"). 510(k)
notification is generally a relatively simple filing submitted to demonstrate
that the device in question is "substantially equivalent" to another legally
marketed device and includes tests
12
for therapeutic drugs and hormones. Approval under this procedure may be granted
within 90 days if the product qualifies, but generally takes longer. When the
product does not qualify for approval under the 510(k) procedure, the
manufacturer must file a PMA to show that the product is safe and efficacious,
based on extensive clinical testing among several diverse testing sites and
population groups, and shows acceptable sensitivity and specificity. This
procedure requires much more extensive pre-filing testing than does the 510(k)
procedure and involves a significantly longer FDA review after the date of
filing. In responding to a PMA, the FDA may grant marketing approval, may
request additional information, may set restrictive limits on claims for use or
may deny the application altogether.
After product approvals have been received, they may still be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
after the product reaches the market. The FDA may require surveillance programs
to monitor the effect of products which have been commercialized, and has the
power to prevent or limit further marketing of the products based on the results
of these post-marketing programs. In addition to obtaining FDA approval for each
product, under the PMA guidelines, the Company must seek FDA approval of the
manufacturing facilities and procedures. The FDA will also inspect diagnostic
companies on a routine basis for regulatory compliance with its Good
Manufacturing Practices ("GMP").
The Company's products for the physician's office market will be affected by the
Clinical Laboratory Improvement Amendments of 1988 ("CLIA"), which is intended
to insure the quality and reliability of medical testing and may have the effect
of discouraging, or increasing the cost of, testing in physicians' offices. The
regulations establish requirements for laboratories in the area of
administration, participation in proficiency testing, patient test management,
quality control, personnel, quality assurance and inspection. Under these
regulations, the specific requirements that a laboratory must meet depend upon
the complexity of the tests performed by the laboratory. Laboratory tests are
categorized as either waived tests, tests of moderate complexity or tests of
high complexity. Laboratories that perform either moderate or high complexity
tests must meet standards in all areas, with the major difference in
requirements between moderate and high complexity testing concerning quality
control and personnel standards. Quality control standards for moderate
complexity testing are being implemented in stages. Personnel standards for high
complexity testing are more rigorous then those for moderate complexity testing.
In general, personnel conducting high complexity testing will need more
education and experience than those doing moderate complexity testing. Under the
CLIA regulations, all laboratories performing moderately complex or highly
complex tests will be required to obtain either a registration certificate,
certificate, or certificate of accreditation from the Healthcare Financing
Administration ("HCFA").
Because the regulations' interpretation is uncertain, it is possible that
certain of the Company's products may be categorized as tests of high
complexity, in which case the Company's penetration of the point-of-care market
would be reduced since not all laboratories would meet the standards required to
conduct such tests. The Company understands that laboratories, including
physician office laboratories, will be evaluating the requirements of CLIA in
determining whether to perform certain types of moderate and high complexity
diagnostic tests. The Company believes that the sale of its products will not be
adversely affect by CLIA. However, no assurances can be given that the statute
and its implementing regulations will not have a material adverse impact on the
Company and its ability to market and sell any products that the Company
develops.
Although the Company believes that it will be able to comply with all applicable
regulations regarding the manufacture and sale of diagnostic devices, such
regulations are always subject to change and depend heavily on administrative
interpretations. There can be no assurance that future changes in regulations or
interpretations made by the HHS, FDA, HCFA or other regulatory bodies, with
possible retroactive effect, will not adversely affect the Company. In addition
to the foregoing, the Company is subject to numerous federal, state and local
laws and regulations relating to such matters as safe working conditions,
laboratory and manufacturing practices, environmental, fire hazard control, and
disposal of hazardous or potentially hazardous substances. To date, compliance
with these laws and regulations has not had a material effect on the Company's
financial results, capital requirements or competitive position, and the Company
has no plans for material capital expenditures relating to such matters.
However, there can be no assurance that it will not be required to incur
significant costs to comply with such laws and regulations in the future, or
that such laws or regulations will not have a materially adverse effect upon the
Company's ability to do business.
13
Sales of the Company's products outside the United States are also subject to
extensive regulatory requirements, which vary widely from country to country.
The time required to obtain such approval may be longer or shorter than that
required for FDA approval.
Research Products. The Company's products that are being sold for research use
only must be properly labeled as such, as required by the FDA, but do not
generally require FDA approval prior to marketing. The FDA has recently begun to
impose new distribution requirements and procedures on companies selling
research-only products, such as the requirement that the seller receive
specified certifications from its customers as to the customers' intended use of
the product. The Company expects that the FDA will develop additional
restrictions of this nature. The Company is unable at this time to predict the
form these restrictions may take, their likely magnitude or their ultimate
impact on the Company or its sales.
Environmental Regulation. Due to the nature of its current and proposed
research, development and manufacturing processes, the Company is subject to
stringent federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes. Although the
Company believes that it has complied with these laws and regulations in all
material respects and has not been required to take any action to correct any
noncompliance, there can be no assurance that the Company will not be required
to incur significant costs to comply with environmental and health and safety
regulations as it expands its production operations.
Reimbursement. Third party payors, such as governmental programs and private
insurance plans, can indirectly affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement they will provide for diagnostic testing services. In recent
years, healthcare costs have risen substantially, and third-party payors have
come under increasing pressure to reduce such costs. In this regard, the Federal
government, in an effort to reduce healthcare costs, may take actions which may
involve reductions in reimbursement rates. If the reimbursement amounts for
diagnostic testing services are decreased in the future, it may decrease the
amount which physicians, clinical laboratories and hospitals are able to charge
patients for such services and consequently the price the Company can charge for
its products.
Competition
Competition in the diagnostic industry is intense, and a small number of large
and well established companies are major participants. In view of the nature of
the industry, the Company has elected to rely on alliances with established
companies to exploit fully the advantages of its diagnostic systems. There can
be no assurance, however, that IGEN's corporate collaborators will be successful
in commercializing the ORIGEN technology. Furthermore, academic institutions,
government agencies and other public and private organizations conducting
research may develop potentially competing products or technologies and may
establish collaborative arrangements with competitors of the Company.
The Company's competition will be determined in part by the potential
applications for which the Company's products are developed and ultimately
approved by regulatory authorities. For certain of the Company's future
products, an important factor in competition may be the timing of market
introduction of its own or competing products. Accordingly, the relative speed
with which IGEN or its corporate collaborators can develop products, complete
the clinical trials and approval processes and supply commercial quantities of
the products to the market are expected to be important competitive factors. The
Company expects that competition with products approved for sale will be based,
among other things, on product efficacy, safety, reliability, availability,
price and patent position.
Many of the Company's existing or potential competitors have substantially
greater financial, technical and human resources than the Company and may be
better equipped to develop, manufacture and market products. These companies may
develop and introduce products and processes competitive with or superior to
those of the Company.
The Company's competitive position also depends upon its ability to attract and
retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient capital resources for
the often substantial period between technological conception and commercial
sales.
14
Manufacturing
The Company's current commercial manufacturing operations consist of the
manufacture of the ORIGEN Detection system and related reagents and cell culture
research biologicals as well as quality assurance processes. IGEN operates a
qualified GMP facility. The Company uses a variety of subcontractors and
believes that it does not depend on any single-source supplier that it cannot
replace in the ordinary course of business. The Company has not yet introduced
any clinical diagnostic products. Initial clinical diagnostics products based on
the Company's ORIGEN technology will be manufactured by the Company's corporate
collaborators. Although certain future products may be manufactured by the
Company, it has not yet developed plans for establishing manufacturing
operations for these products.
Sales and Marketing
IGEN markets and sells the ORIGEN Detection System and related reagents and
services directly to the life science research market. In conjunction with its
national launch of this System during 1994, the Company expanded its direct
sales force, including the addition of application specialists and in-house
technical services personnel. The Company continues to develop marketing plans
for Europe and Japan, while currently utilizing a small direct sales force.
Substantial sales and marketing of products based on the Company's ORIGEN
technology is conducted by corporate collaborators. See "Collaboration and
License Agreements". The ORIGEN cell culture products are sold directly and
through distributors.
Human Resources
As of May 31, 1998, IGEN employed 133 individuals full-time, of which 88 were
engaged in research, products development, manufacturing and operations support,
22 in marketing, sales and applications support and 23 in general
administration. Of the Company's employees, 37 have Ph.D. degrees. A significant
number of the Company's management and professional employees have had prior
experience with pharmaceutical, biotechnology, diagnostic or medical products,
computer software or electronics companies. None of the Company's employees is
covered by collective bargaining agreements, and management considers relations
with its employees to be good.
The Company's ability to maintain its competitive position will depend, in part,
upon its continued ability to attract and retain qualified scientific and
managerial personnel. Competition for such personnel is intense.
RISK FACTORS
Reliance on Collaborations and License Agreements. The Company has entered into
collaborative research or licensing agreements with Roche-BM, Organon Teknika
and Eisai pursuant to which these companies are entitled to certain product
manufacturing and marketing rights. Some of these companies have the
responsibility for additional development and, where required, the submission of
applications for the regulatory approval of any products to the FDA and
corresponding regulatory agencies in other countries. Although the Company
believes that its partners in these collaborations have an economic motivation
to succeed in performing their contractual responsibilities, the amount and
timing of resources to be devoted to these activities are not within the control
of the Company. There can be no assurance that such collaborators will perform
their obligations as expected or that the Company will derive any additional
revenue from such arrangements. The Company is currently involved in litigation
against Roche-BM. Moreover, the collaboration agreements may be terminated under
certain circumstnaces. See "Risk Factors - Pending Litigation."
The Company also expects to rely on additional collaboration or license
agreements to develop and commercialize certain future products. There can be no
assurance that the Company will be able to negotiate acceptable collaboration or
license agreements in the future, or that such new agreements or existing
agreements will be successful. In addition, there can be no assurance that the
parties to collaboration or license agreements will not pursue alternative
technologies as a means for developing diagnostic products targeted by the
collaborations or licenses.
15
Pending Litigation. The Company is currently involved in litigation in Maryland
federal court against Boehringer Mannheim GmbH ("BMG"), a business unit of
Roche-BM, in connection with a 1992 License and Technology Development Agreement
("Agreement") between the parties. The Agreement grants BMG an exclusive right
(with the exception of certain exclusive rights in Japan granted to Eisai Co.
Ltd. to manufacture, market, and sell electrochemiluminesence-based instruments,
and related assays, meeting certain criteria for the Japanese clinical
diagnostic market) to market its diagnostic Elecsys systems, which are centered
on the Company's ORIGEN technology, to central hospital laboratories and
clinical reference laboratories. In exchange for those exclusive rights, the
Agreement places various obligations on BMG, including the obligation to make
quarterly royalty payments to the Company. The Company alleges that BMG has
failed to perform material obligations under the Agreement, including
development and commercialization of ORIGEN technology according to the
contractual timetable; exploitation of the License to the extent contemplated by
the parties; phase out of certain non-royalty-bearing product lines;
exploitation of ORIGEN technology only within BMG's licensed fields; proper
treatment of intellectual property rights regarding ORIGEN technology;
maintenance of records essential to the complete computation of royalties; and
proper computation of royalties. The Company seeks several types of relief,
including damages, injunctive relief and a judicial determination that the
Company is entitled to terminate the Agreement based on BMG's material breaches.
The Company has agreed that it will not terminate the Agreement until there is a
judicial determination of the Company's entitlement to do so. The litigation
against BMG may have a material adverse effect upon the Company, as discussed
below, regardless of whether the outcome is favorable or not.
On April 21, 1998, the Company filed a motion for preliminary injunction in its
Maryland lawsuit against BMG. In that motion, the Company has requested that the
court enjoin BMG from marketing, selling, or distributing its Elecsys products
outside of BMG's licensed field of use. The 1992 Agreement granted BMG rights to
develop and commercialize diagnostic systems based on the Company's ORIGEN
technology for use in centralized hospital laboratories and clinical reference
laboratories only. The Company retains the rights to exploit its ORIGEN
technology in all other clinical diagnostic markets. The Company recently
learned that BMG was marketing Elecsys products outside of its licensed field of
use. The Company has therefore asked the court to enjoin BMG from further sales
outside of central hospital laboratories and clinical reference laboratories and
has sought additional relief, including an order requiring BMG to refer all
customers outside of BMG's licensed field to the Company for future reagent
supply needs and to place all revenues derived from unauthorized sales in escrow
pending the outcome of the litigation. The court has set a hearing on the
Company's motion for preliminary injunction on July 27, 1998.
A Japanese subsidiary of the Company is involved in litigation in Japan seeking
to enjoin Hitachi Ltd. ("Hitachi"), BMG's contracted manufacturer of certain
diagnostic instruments, from manufacturing, using or selling the Elecsys 2010
immunoassay instrument based on the Company's Japanese patented technology in
Japan, to enjoin the infringement of the subsidiary's license registration in
connection with the development of the Mosys instrument, a next generation
instrument also based on the Company's Japanese patented technology, and the
destruction of the existing Elecsys and Mosys instruments in Hitachi's
possession.
The Company is vigorously litigating the BMG and Hitachi matters and believes
that its lawsuits are sound. However, there can be no assurance that either
litigation will be resolved favorably to the Company. The Company's failure to
prevail in the BMG litigation with respect to the computation of royalty
revenues could, depending upon the court's findings, have a material adverse
effect on the Company's future royalty revenue from BMG's Elecsys products. The
Company's failure to prevail in the BMG litigation would not have a direct
material adverse effect on the Company's product development, but could
negatively impact the funds available for product development. Although the
litigation does not involve any challenges to the Company's intellectual
property rights, there can be no assurance that a negative result for the
Company in the litigation will not have a material adverse effect on the
Company's intellectual property rights.
The Company has no reason to believe that the existence of the BMG litigation is
materially negatively affecting BMG's sales pursuant to the Agreement or that a
negative result for the Company in the BMG litigation would materially
negatively affect BMG's sales, although there can be no assurance that the
litigation or its outcome would not have such an effect. As it now stands, BMG
will have the right to continue to market its Elecsys products to central
hospital laboratories and clinical reference laboratories during the term of the
Agreement unless and until the Company is
16
determined to have the right to terminate the Agreement and then determines to
terminate the Agreement. If the Company elects to terminate the Agreement, it
would have a material adverse effect on the Company's royalty revenue from
license sales unless and until the Company entered into a strategic partnership
with another company that is able to develop and commercialize diagnostic
instruments to central hospital laboratories and clinical reference
laboratories. There can be no assurance, if the Company decided to terminate the
Agreement, that the Company would be able to enter into such a strategic
partnership on terms favorable to the Company.
The Company does not expect that failure to prevail in the Hitachi litigation
by itself would have a material adverse effect on the Company's revenue or
sales, since Hitachi would continue to manufacture BMG instruments and the
Company would continue to earn royalties in connection therewith. There can
be no assurance that the Company's failure in the Hitachi litigation would
not have a material adverse effect on the Company's intellectual property.
Success by the Company in the Hitachi litigation could have a material
adverse effect on the Company's royalty revenues from sales of Elecsys
products to the extent that BMG's sales of Elecsys (or Mosys) instruments are
hindered because it needs to find a new manufacturer for its instruments.
Early Stage of Development; Accumulated Losses. The Company is at an early stage
of development and is subject to all of the risks inherent in the establishment
of a new business enterprise, including the need for substantial capital to
support the expenses of developing new technologies, the need to attract and
retain qualified management and scientific staff and other risks as outlined in
the following risk factors. Since inception, the Company has been engaged in the
research and development of products based on new technologies, and at March 31,
1998, the Company had an accumulated deficit of approximately $69 million. The
Company's operations may be affected by problems frequently encountered in
connection with the development and utilization of new technologies and by the
competitive environment in which the Company operates. Although certain
ORIGEN-based products have been developed and introduced to the market, there
can be no assurance that the ORIGEN technology will be successfully applied to
the development of additional commercial products for the clinical diagnostic or
other markets. Diagnostic products resulting from the development of the
Company's technology will require significant additional development and
investment prior to their commercialization. There can be no assurance that
products will be successfully developed by the Company or its licensee, meet
applicable regulatory standards, be capable of being manufactured in commercial
quantities at reasonable costs or be marketed successfully.
Technological Change and Competition. The diagnostic industry is subject to
technological change. Competition from diagnostic and pharmaceutical companies
and research and academic institutions is intense and expected to increase.
There can be no assurance that the Company's competitors will not succeed in
developing products that are more effective than any which are being developed
by the Company and its collaborators or which would render the ORIGEN technology
and products obsolete and non-competitive.
Many of the Company's competitors in the diagnostic field have substantially
greater financial, technical and human resources than the Company. In addition,
many of these competitors have significantly greater experience than the Company
in obtaining regulatory approvals of new diagnostic products. Accordingly, the
Company's competitors may succeed in obtaining FDA approval for products more
rapidly than the Company. Furthermore, as the Company expands commercial sales
of products, it will have to become competitive with respect to manufacturing
efficiency and marketing capabilities, areas in which it has limited experience.
Compliance with Government Regulations. The production and marketing of the
Company's products and its ongoing research and development activities are
subject to regulation by governmental authorities in the United States and other
countries. Diagnostic systems utilizing the Company's ORIGEN technology will
require government clearance before being marketed in the United States and in
certain foreign countries. In the United States, the Company or its marketing
collaborators may be required to submit test data from clinical trials to
establish "substantial equivalence" of the ORIGEN diagnostic system with
previously approved systems. In such case, the Company or its collaborators may
commence sales only after the FDA has issued a written order finding such
substantial equivalence, which may take longer than the 90-day period generally
provided for FDA review. There can be no assurance that the Company or its
collaborators will be able to establish substantial equivalence for the ORIGEN
diagnostic systems, or that the FDA or
17
certain corresponding government agencies will permit marketing of such systems
in their respective jurisdictions. Should the Company fail to demonstrate
substantial equivalence, the Company would need to perform extensive clinical
testing to demonstrate safety and efficacy, incurring substantial costs and
delays.
Even if regulatory approval is obtained, a marketed product, its manufacturer
and its manufacturing facilities are subject to continual review and periodic
inspections. The regulatory standards for manufacturing are currently being
applied stringently by the FDA. Discovery of previously unknown problems with a
product, manufacturer or facility may result in restrictions on such product or
manufacturer, including costly recalls or even withdrawal of the product from
the market. The Company is also subject to numerous environmental and safety
laws and regulations, including those governing use of hazardous materials. Any
violation of, and the cost of compliance with, these regulations could adversely
impact the Company's operations.
Reliance of Patents and Proprietary Rights. The Company's success will depend in
part on its ability to obtain and maintain patent protection for its products,
both in the United States and other countries. The patent position of diagnostic
companies is highly uncertain and involves complex legal and factual questions.
There is no consistent policy regarding the breadth of claims allowed in the
medical patents. The Company owns or co-owns and has been granted exclusive
rights to 26 issued U.S. patents and 72 pending U.S. applications in the
diagnostic field. Worldwide, the Company owns or co-owns and has been granted
exclusive rights to an additional 61 issued patents, and 153 pending patent
applications covering the same technology. There can be no assurance that
patents will issue from any present or future applications or that, as to
existing patents or patents which may issue, claims are or will be sufficiently
broad to protect the Company's technology. In addition, there can be no
assurance that the patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection to the Company. IGEN patents will not begin to expire
until 2005. Some IGEN patents will begin to expire between 2008 and 2012. The
Company continues to protect its technology with new patent filings which will
further extend its patent coverage.
The commercial success of the Company will also depend in part on its neither
infringing patents issued to competitors nor breaching the technology licenses
upon which the Company's products might be based. The Company is a licensee
under certain patents and patent applications that it considers necessary for
its business. While the Company is aware of additional third-party patents and
patent applications relating to specific reagents, it is uncertain whether any
of these will require the Company to alter any products or processes, obtain
licenses or cease certain development activities with respect to these reagents.
There can be no assurance that the Company will be able to obtain necessary
licenses at reasonable cost. Failure by the Company to obtain a license to any
technology that it requires to commercialize its products may have a material
adverse impact on the Company. Litigation, which could result in substantial
costs to the Company, may also be necessary to enforce any of its patent rights
or to determine the scope and validity of others' proprietary rights. In
addition, the Company may have substantial costs to determine the propriety of
inventions.
In June 1998, Laboratoires Serono S.A., a subsidiary of Ares-Serono, filed a
patent infringement claim against IGEN, Roche-BM and Organon Teknika. This
action claims that a patent for "A Method Assay Employing a Magnetic Electrode"
is being infringed by IGEN. The Company does not believe it infringed on the
Ares-Serono patent and intends to vigorously defend against this claim.
The Company filed an opposition in Europe in 1995 to a patent (EP 0 285 05781)
owned by Enzo Biochem, Inc. This patent covers labeled oligonucleotides useful
in DNA probe assays. Separate oppositions have been lodged by Boehringer
Mannheim and Organon Teknika. The Company is vigorously opposing this patent.
Since the opposition is in a very early stage, it is not possible to predict the
outcome or the effect, if any, on the Company's intellectual property or
products.
IGEN also protects its proprietary technology and processes in part by
confidentiality agreements with its collaborative partners, employees,
consultants and other advisors. There can be no assurance that these agreements
will not be breached that the Company will have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known or
be independently discovered by competitors.
18
Uncertainty of Pricing, Third-Party Reimbursement and Related Materials. The
Company's business, financial condition and results of operations may be
materially adversely affected by the continuing efforts of government and third
party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets pricing and profitability of
diagnostic products are subject to government control. In the United States, the
Company expects that there will continue to be a number of federal and state
proposals to implement similar government control. In addition, increasing
emphasis on managed care in the United States will continue to put pressure on
the pricing of diagnostic tests. Cost control initiatives could decrease the
price that the Company or any of its strategic partners receives for any
products in the future and have a material adverse effect on the Company's
business, financial condition and results of operations. Further, to the extent
that cost control initiatives have a material adverse effect on the Company's
strategic partners, the Company's ability to commercialize its products and to
realize royalties may be adversely affected.
The ability of the Company and any strategic partner to commercialize diagnostic
products may depend in part on the extent to which reimbursement for the
products will be available from government and health administration
authorities, private health insurers and other third party payors. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products. Third party payors, including Medicare, increasingly are challenging
the prices charged for medical products and services. Government and other third
party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new products. There
can be no assurance that any third party insurance coverage will be available to
patients for any products developed by the Company or its strategic partners. If
adequate coverage and reimbursement level are not provided by government and
other third party payors for the Company's products, the market acceptance of
these products may be reduced, which may have a material adverse effect on the
Company's business, financial conditions and results of operations.
Limited Manufacturing, Sales, Marketing and Distribution Experience. The
Company's clinical diagnostic products must be manufactured in commercial
quantities in compliance with regulatory requirements and at acceptable costs.
The Company has no experience in large-scale manufacturing and currently lacks
the capability to manufacture its diagnostic products in accordance with
regulatory requirements. If the Company is unable to develop or contract for
manufacturing capabilities on acceptable terms, the Company's ability to
manufacture products will be adversely affected, resulting in the delay of
submission of products for regulatory approval, which in turn could adversely
affect the Company's competitive position and financial condition. The Company
also has limited experience in sales, marketing and distribution. To market any
of its clinical diagnostic products directly, the Company must develop a
substantial marketing and sales force with technical expertise and supporting
distribution capability. Alternatively, the Company may obtain the assistance of
established companies, as it has done with certain of its diagnostic products.
There can be no assurance that the Company will be able to establish sales and
distribution capabilities or that it or its collaborators will be successful in
gaining market acceptance for its clinical diagnostics products.
Future Capital Needs; Uncertainty of Additional Funding. The Company may require
substantial additional funds to conduct the research and development and
regulatory testing of its products, to establish commercial scale manufacturing
facilities and to market its products. The Company's future capital requirements
will depend on many factors, including, but not limited to: continued progress
in the development of diagnostic products; the time and costs involved in
obtaining regulatory approvals; the costs involved in filing, prosecuting and
enforcing patent claims; competing technological and market developments; the
ability of the Company to maintain its existing, and to establish new,
collaborative and licensing arrangements; the cost of manufacturing scale-up;
and effective commercialization activities and arrangements.
The Company may be required to seek additional funding either through
collaborative and licensing arrangements or through public or private debt or
equity financing. There can be no assurance that additional financing will be
available in a timely manner or on acceptable terms. If additional funds are
raised by issuing equity securities, further dilution to existing shareholders
may result. If adequate funds are not available, the Company may be required to
delay, scale back or eliminate one or more of its programs or obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates
or products that the Company would not otherwise relinquish.
19
Need to Attract and Retain Key Employees and Consultants. The Company is highly
dependent on the principal members of its scientific and management staff, the
loss of whose services might impede the achievement of its research and
development or strategic objectives. Recruiting and retaining qualified
scientific personnel to perform research and development work in the future will
also be critical to the Company's success. There can be no assurance that the
Company will be able to attract and retain such personnel given the competition
between numerous diagnostic and biotechnology companies and research and
academic institutions for experienced scientists.
The Company's anticipated growth and expansion into areas and activities
requiring additional expertise, such as clinical trials, government approvals,
manufacturing and marketing, are expected to place increased demands on the
Company's resources. These demands are expected to require the addition of new
management personnel and the development of additional expertise by existing
management personnel. The failure to acquire needed personnel or to develop
needed expertise could have a material adverse effect on the Company's prospects
for success. In addition, the Company relies on consultants and advisors to
assist in formulating its research and development strategy. Substantially, all
of the Company's consultants and advisors are employed by entities other than
the Company and may have commitments to or consulting or advisory contracts with
other entities that may affect their ability to contribute to the Company.
Year 2000 Potential Issues. Many of the world's computer systems currently
record years in a two-digit format. Such computer systems will be unable to
interpret properly dates beyond the year 1999 which could lead to business
disruptions in the U.S. and internationally ("Year 2000" issues).
The Company has reviewed its business for Year 2000 issues regarding its
business, financial and accounting systems. The Company believes that
installation of new or upgraded software to address any Year 2000 issues could
be done timely and should not cause any material disruptions, malfunctions or
failures to its business. The Company is currently in the process of assessing
whether its suppliers and collaborators have any Year 2000 issues. There can be
no assurance that the Company's suppliers and collaborators are or will be
timely Year 2000 compliant or that a failure of such timely Year 2000 compliance
would not have a material adverse effect on the Company.
The total cost of the Company of these Year 2000 compliance activities has not
been, and is not anticipated to be, material to its financial position or
results of operations in any given year. These costs and the time at which the
Company plans to complete any Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third party
modification plans and other factors. There can be no assurance that these
estimates will be achieved and actual results could differ from those plans.
Risk of Product Liability; Availability of Insurance. The Company's business
will in the future expose it to potential liability risks that are inherent in
the testing, manufacturing and marketing of diagnostic products. The Company
presently has only limited product liability insurance, and there can be no
assurance that it will be able to maintain such insurance or obtain additional
insurance on acceptable terms or that insurance will provide adequate coverage
against potential liabilities.
Anti-takeover Provisions. The Company's Certificate of Incorporation and Bylaws
require that any action required or permitted to be taken by stockholders of the
Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by written consent. Special meetings of the
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board or the President of the Company. These and other charter
provisions may discourage certain types of transactions involving an actual or
potential change in control of the Company, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current prices, and may limit the ability of the stockholders to approve
transactions they may deem to be in their best interests. In addition, the Board
of Directors has the authority, without action by the stockholders, to fix the
rights and preferences of and to issue shares of Preferred Stock, which also may
have the effect of delaying or preventing a change in control of the Company.
Price Volatility in Public Market. The Company's Common Stock currently trades
on the NASDAQ National Market. The securities markets have from time-to-time
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of particular companies. In addition, the market
prices of the common stock of
20
many publicly traded technology companies have in the past been, and can in the
future be expected to be, especially volatile. Announcements of technological
innovations or new products of the Company or its competitors, developments or
disputes concerning patents or proprietary rights, publicity, competitors,
regulatory developments in both the U.S. and foreign countries, and economic and
other external factors, as well as period-to-period fluctuations in the
Company's operating and product development results, may have a significant
impact on the market price of the Company's Common Stock.
Control by Existing Shareholders. The Company's directors, officers and their
affiliates own beneficially approximately 36% of the outstanding shares of
Common Stock, of which approximately 27% is held by the Company's Chief
Executive Officer. Accordingly, the Company's officers and directors, if they
act in concert, will have the ability to influence significantly the election of
the Company's directors and most other shareholder actions.
Absence of Dividends, Dilution. The Company has not paid any cash dividends
since its inception and does not intend to pay any cash dividends in the
foreseeable future. Dilution will occur upon the exercise of outstanding stock
options of the Company and may occur upon future equity financing of the
Company.
ITEM 2. PROPERTIES
The Company's principal administrative, marketing, manufacturing and research
and development facility consists of an 84,000 square foot building located in
Gaithersburg, Maryland. The Company took occupancy of this newly leased facility
during 1995. The lease expires in 2005 but provides the Company an option to
terminate in 2000. The Company believes that its current facility will be
adequate for anticipated expansion needs.
ITEM 3. LEGAL PROCEEDINGS
On September 15, 1997, the Company filed a lawsuit in Maryland against
Boehringer Mannheim GmbH ("BMG"), a German company, a business unit of Roche-BM,
to which the Company has licensed certain rights to develop and commercialize
diagnostic products based on the Company's ORIGEN technology. That lawsuit is
pending in the Southern Division of the United States District Court for the
District of Maryland. The Company's dispute with BMG arises out of a 1992
License and Technology Development Agreement (the "Agreement"), pursuant to
which BMG developed and launched its "Elecsys" line of diagnostic products,
which is based on ORIGEN technology. The Company alleges that BMG has failed to
perform certain material obligations under the Agreement, including development
and commercialization of ORIGEN technology according to the contractual
timetable; exploitation of the license to the extent contemplated by the
parties; phase out of certain non-royalty-bearing product lines; exploitation of
ORIGEN technology only within BMG's licensed fields; proper treatment of
intellectual property rights regarding ORIGEN technology; maintenance of records
essential to the computation of royalties; and proper computation of royalties.
In its lawsuit, the Company seeks damages as well as injunctive and declaratory
relief, including a judicial determination of its entitlement to terminate the
Agreement. The Company has agreed not to terminate the Agreement unless and
until the Court determines its entitlement to do so.
In December 1997, IGEN International K.K., a Japanese subsidiary of the Company,
filed a lawsuit in Tokyo District Court against Hitachi Ltd. ("Hitachi"). This
lawsuit seeks to enjoin Hitachi from manufacturing, using or selling the Elecsys
2010 immunoassay instrument in Japan. The lawsuit also seeks to enjoin Hitachi
from infringing the subsidiary's license registration, known in Japan as a
"senyo-jisshi-ken," in connection with the development of the Mosys instrument.
Hitachi is the sole manufacturer for BMG of the Elecsys 2010 immunoassay
instrument. BMG is licensed to market the Elecsys 2010 worldwide to central
hospital laboratories and clinical reference laboratories. Hitachi is also
developing for BMG the Mosys instrument. The Company's Japanese subsidiary
alleges that both the Elecsys 2010 and the Mosys are based on ORIGEN technology.
The Company's ORIGEN technology is licensed to its Japanese subsidiary and to
Eisai K.K. pursuant to a "senyo-jisshi-ken." The Company's Japanese subsidiary
further alleges that Hitachi's manufacturing and selling of the Elecsys 2010 and
the development of Mosys violate the "senyo-jisshi-ken." The lawsuit requests
injunctive relief against Hitachi and destruction of the Elecsys 2010 and Mosys
instruments in Hitachi's possession.
21
On April 21, 1998, the Company filed a motion for preliminary injunction in its
Maryland lawsuit against BMG. In that motion, the Company has requested that the
court enjoin BMG from marketing, selling, or distributing its Elecsys products
outside of BMG's licensed field of use. The 1992 Agreement granted BMG rights to
develop and commercialize diagnostic systems based on the Company's ORIGEN
technology for use in centralized hospital laboratories and clinical reference
laboratories only. The Company retains the rights to exploit its ORIGEN
technology in all other clinical diagnostic markets. The Company recently
learned that BMG was marketing Elecsys products outside of its licensed field of
use. The Company has therefore asked the court to enjoin BMG from further sales
outside of central hospital laboratories and clinical reference laboratories and
has sought additional relief, including an order requiring BMG to refer all
customers outside of BMG's licensed field to the Company for future reagent
supply needs and to place all revenues derived from unauthorized sales in escrow
pending the outcome of the litigation. The court has set a hearing on the
Company's motion for preliminary injunction on July 27, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company during the
fourth quarter of the fiscal year covered by this report.
22
EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of all executive officers of the Company at June 12, 1998 and
their respective positions and offices with the Company are set forth below.
Each officer serves without a set term.
Name Age Position
---- --- --------
Samuel J. Wohlstadter 56 Chairman, Chief Executive Officer and Director
Richard J. Massey, Ph.D. 51 President, Chief Operating Officer and Director
Robert Connelly 38 Vice President, Marketing and Sales
George V. Migausky 43 Vice President, Chief Financial Officer
Richard Pytelewski 48 Vice President, Operations
Samuel J. Wohlstadter is a founder of the Company and has been Chairman of the
Board and Chief Executive Officer since its formation in 1982. Mr. Wohlstadter
has been a venture capitalist for more than 20 years and has experience in
founding, supporting and managing high technology companies, including Amgen
Inc., a biopharmaceutical company, and Applied Biosystems, Inc., a medical and
biological research products company. Mr. Wohlstadter is also Chief Executive
Officer of Hyperion Catalysis International, an advanced materials company,
which he founded in 1981, of Pro-Neuron, Inc., a drug discovery company, which
he founded in 1985, of Proteinix Corporation, a development stage company
organized to conduct research in intracellular metabolic processes, which he
founded in 1988 and of Pro-Virus, Inc., a drug discovery company, which
commenced operations in 1994.
Richard J. Massey, Ph.D. is a founder of the Company, has been President and
Chief Operating Officer of the Company since 1992, a Director of the Company
since 1990 and served as Senior Vice President since 1985. From 1981 until he
joined IGEN in 1983, Dr. Massey was a faculty member in the Microbiology and
Immunology Department at Rush Medical Center in Chicago. Prior to that, he was
Senior Research Scientist at the National Cancer Institute, Frederick Cancer
Research Center.
Robert Connelly, has been Vice President of Marketing and Sales since 1994, when
he joined the Company. Previously, Mr. Connelly was the U.S. Marketing Manager
for the Instrument Group at Abbott Laboratories, which he joined in 1983, where
he was responsible for the marketing of chemistry and hematology systems and
point-of-care and near-patient testing instruments.
George V. Migausky has been associated with IGEN as Chief Financial Officer
since 1985, assuming that position on a full-time basis in 1992. Between 1985
and 1992, in addition to serving as Chief Financial Officer of IGEN on a
part-time basis, Mr. Migausky also served as financial advisor to several other
privately held companies. Prior to joining IGEN in 1985, he spent nine years in
financial management and public accounting positions, most recently as a Manager
with the High Technology Group of Deloitte Haskins & Sells.
Richard Pytelewski, has been Vice President of Operations since he joined the
Company in 1994. Previously, Mr. Pytelewski provided operations consulting
support to medical, pharmaceutical and diagnostic ventures from 1992 until
joining the Company. Prior to consulting, Mr. Pytelewski was Vice President of
Operations at Biomira, Inc., in Edmonton, Canada, supporting the worldwide
distribution of in-vitro and in-vivo diagnostic and therapeutic products since
1989.
23
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is quoted on the NASDAQ National Market System under
the symbol IGEN. As of June 12, 1998, there were approximately 2,800 holders of
record of the Company's Common Stock. No cash dividends have been paid on the
Common Stock to date, and the Company currently intends to retain any earnings
for development of the Company's business.
The following table sets forth, for periods indicated, the range of high and low
closing sales prices of the Common Stock as quoted on the NASDAQ National Market
System.
Fiscal 1997 High Low
----------- ---- ---
First Quarter $ 8 1/8 $ 4 5/8
Second Quarter $ 8 1/4 $ 6
Third Quarter $ 7 3/8 $ 4 5/8
Fourth Quarter $ 7 5/8 $ 5
Fiscal 1998
-----------
First Quarter $ 8 $ 4 3/4
Second Quarter $ 13 7/8 $ 7 1/16
Third Quarter $ 15 1/8 $ 10 5/8
Fourth Quarter $ 43 $ 12 1/4
24
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below with respect to the Company's
statements of operations for each of the years in the three year period ended
March 31, 1998 and with respect to the balance sheets at March 31, 1998 and 1997
are derived from, and are qualified by reference to, the financial statements
that have been audited by Deloitte & Touche LLP, independent auditors, and are
included elsewhere in this Form 10-K. The statement of operations data for each
of the years in the two year period ended March 31, 1995, and the balance sheet
data at March 31, 1996, 1995 and 1994 are derived from audited financial
statements not included in this Form 10-K. The following selected financial data
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Form 10-K.
Fiscal Year Ended March 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
(In thousands, except per share data)
Statement of Operations Data:
Revenues:
Product Sales $ 5,614 $ 6,360 $ 4,583 $ 2,555 $ 1,356
Royalty income 5,024 843 75 20 --
License fees and contract revenue 2,795 8,802 11,266 12,259 22,021
-------- -------- -------- -------- ---------
Total 13,433 16,005 15,924 14,834 23,377
-------- -------- -------- -------- ---------
Operating Costs and Expenses:
Products Costs 1,717 2,448 1,848 1,278 658
Research and development 11,615 13,114 14,078 12,267 10,911
Marketing, general and administrative 11,761 10,910 8,725 8,707 4,608
-------- -------- -------- -------- ---------
Total operating expenses 25,093 26,472 24,651 22,252 16,177
-------- -------- -------- -------- ---------
Income (loss) from continuing
operations (11,660) (10,467) (8,727) (7,418) 7,200
Interest Income - net 55 586 1,079 1,489 559
Other expense (225) -- -- -- --
-------- -------- -------- -------- ---------
Income (loss) from continuing operations
before income taxes (11,830) (9,881) (7,648) (5,929) 7,759
Income taxes -- -- -- -- 163
-------- -------- -------- -------- ---------
Income (loss) from continuing
operations (11,830) (9,881) (7,648) (5,929) 7,596
Loss from discontinued operations -- -- -- -- (10,573)
-------- -------- -------- -------- ---------
Net loss $(11,830) $ (9,881) $ (7,648) $ (5,929) $ (2,977)
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Income (loss) per share:
Continuing operations $ (.82) $ (.66) $ (.52) $ (.40) $ .57
Discontinued operations -- -- -- -- (.79)
-------- -------- -------- -------- ---------
Net loss $ (.82) $ (.66) $ (.52) $ (.40) $ (.22)
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Shares used in computing net income
(loss) per share 15,116 14,959 14,779 14,769 13,413
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
March 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
(In thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term
Investments $ 23,123 $ 9,044 $ 20,217 $ 30,226 $ 41,746
Working capital 17,591 4,431 13,700 21,484 31,437
Total assets 30,391 17,794 29,276 37,806 45,364
Long term obligations 146 158 329 418 -
Accumulated deficit (68,530) (56,700) (46,819) (39,171) (33,242)
Shareholders' equity 20,862 7,882 17,435 24,998 31,467
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
The Company has devoted substantially all of its resources to the research and
development of its proprietary technologies, primarily the ORIGEN technology for
clinical diagnostic and life science research products. In 1994, the Company
completed an initial public offering of 2,990,000 shares of common stock from
which it received net proceeds of approximately $32 million and in December
1997, the Company completed an offering of convertible preferred stock from
which it received net proceeds of $23.4 million. In addition to product sales,
the Company's sources of revenue have consisted primarily of license or research
payments pursuant to licensing or collaborative research agreements. The Company
has entered into collaborative arrangements with corporate collaborators that
provide for the development and marketing of certain ORIGEN systems. These
agreements provide fees and royalties payable to the Company in exchange for
licenses to produce and sell the resulting products. In the near term, the
Company may selectively pursue additional strategic alliances although, over
time, it expects an increasing amount of its revenues to be derived from sales
of its products and royalties from corporate collaborations.
Results of Operations
YEARS ENDED MARCH 31, 1998 AND 1997. The Company reported a net loss of $11.8
million ($.82 per share) on revenues of $13.4 million for the year ended March
31, 1998. This compares with a net loss of $9.9 million ($.66 per share) on
revenues of $16 million for the corresponding prior year ended March 31, 1997.
During the current year, $10.6 million (79%) of the Company's revenue was
generated from the sale of products, either directly by IGEN or from royalties
on licensees sales. This represents a 47% increase from the $7.2 million of
revenue recorded last year from comparable sources. During the fourth quarter of
fiscal 1997, the Company's license and contract revenue converted to royalty
income based on product sales of corporate licensees. Revenue from license fees
and contract research were substantially replaced by royalties based on sales.
Therefore, while royalty revenue increased during fiscal 1998, revenue from
license fees and contract research decreased to $2.8 million from $8.8 million
in fiscal 1997.
In 1992, the Company entered into a License and Technology Development Agreement
with Boehringer Mannheim GMbH ("BMG"). Pursuant to the Agreement, BMG launched
its Elecsys product line in 1996, which is based on IGEN's ORIGEN technology.
The Company is involved in litigation with Roche-BM arising out of this
agreement. See Item 3, "Legal Proceedings". One of the disputes at issue in the
litigation relates to the computation of royalties to which the Company is
entitled under the Agreement. The Company recorded royalty income from this
Agreement of $4.4 million and $706,000 for the years ended March 31, 1998 and
1997, respectively. These amounts were offset by a $6 million advance, secured
by future royalties, received from BMG in January 1997. Under the Company's
interpretation of the Agreement which Roche-BM is disputing, estimated
cumulative royalties due from Roche-BM which have not been recorded total at
least $2.6 million.
Product costs were $1.7 million or (31% of product sales) for the year ended
March 31, 1998 compared to $2.4 million (38% of product sales) for the
corresponding prior year. Lower product costs and improved gross margins are
attributable to a change in product mix between instruments, services and
reagents and the reduction of sales to Organon Teknika for which the Company
received no gross margin.
Operating costs, absent product costs, decreased to $23.4 million in the current
year compared to $24 million last year. During fiscal 1998, research and
development costs decreased $1.5 million (11%) to $11.6 million from $13.1
million in fiscal 1997 due to expiring external collaborations. Partially
offsetting this decrease was an $851,000 (8%) increase in marketing, general and
administrative expenses in fiscal 1998 over the prior year due primarily to
professional and legal fees associated with the Company's litigation with BMG.
Interest income, net of other expense, decreased $532,000 from lower interest
income derived from lower cash balances through the first nine months of fiscal
1998 coupled with accrued interest expense associated with the Advanced Royalty
Agreement with BMG initiated during the fourth quarter of fiscal 1997.
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (continued).
Income (loss) from continuing operations over the next several years is likely
to fluctuate substantially from quarter to quarter as a result of differences in
the timing of revenues earned under license and product development agreements,
and associated product development expenses.
As of March 31, 1998, the Company had net operating loss and general business
credit tax carryforwards of approximately $55.3 million and $2.7 million,
respectively. The Company's ability to utilize its net operating loss and
general business credit tax carryforwards may be subject to an annual limitation
in future periods pursuant to the "change in ownership rules" under Section 382
of the Internal Revenue Service Code of 1986, as amended.
The Company has reviewed its business for Year 2000 issues regarding its
business, financial and accounting systems. The Company believes that
installation of new or upgraded software to address any Year 2000 issues could
be done timely and should not cause any material disruptions, malfunctions or
failures to its business. The Company is currently in the process of assessing
whether its suppliers and collaborators have any Year 2000 issues. There can be
no assurance that the Company's suppliers and collaborators are or will be
timely Year 2000 compliant or that a failure of such timely Year 2000 compliance
would not have a material adverse effect on the Company. The total cost to the
Company of these Year 2000 compliance activities has not been, and is not
anticipated to be, material to its financial position or results of operations
in any given year.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, both of which were effective for years
beginning after January 1, 1998. SFAS No. 130 requires businesses to disclose
comprehensive income and its components in the financial statements. SFAS No.
131 redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about the Company's operating
segments. The Company does not believe that adoption of SFAS 130 will have a
material impact on its financial position, and is assessing operating segments
that it may report on upon adoption of SFAS No. 131.
YEARS ENDED MARCH 31, 1997 AND 1996. The Company had revenues of $16 million for
the year ended March 31, 1997, compared to revenues of $15.9 million for the
corresponding period in 1996. Fiscal 1997 revenue reflects a change in the
revenue mix as compared to prior years. During 1997, a significant portion of
the Company's license and contract fees converted to royalty income based on
product sales of corporate partners. Fees from licenses and for contract
research declined by $2.5 million in fiscal 1997 to $8.8 million and revenue
from product sales and royalties increased to $7.2 million in fiscal 1997 from
$4.7 million in the prior year. This transition occurred primarily in the fourth
quarter of fiscal 1997 as license and contract revenue declined by $2.7 million
while product sales and royalty income increased by $228,000 when compared to
1996.
The increase in royalty income is directly attributable to royalties generated
through the Company's License Agreement with BMG which launched its Elecsys
series of immunodiagnostic products in 1996 which are based on the Company's
ORIGEN technology.
Product costs were $2.4 million in the year ended March 31, 1997 (38% of product
sales) and $1.8 million for the corresponding period in 1996 (40% of product
sales) representing a change in the product mix between instruments, services
and reagents. Research and development costs decreased to $13.1 million for the
year ended March 31, 1997 from $14.1 million during 1996. This decrease is
attributable to expiring external collaborations during 1997. Marketing, general
and administrative expenses increased $2.2 million to $10.9 million for the year
ended March 31, 1997 when compared with the same prior year period. This
increase resulted primarily from increased marketing efforts associated with the
ORIGEN Detection System and administrative costs associated with the Company's
re-incorporation in the State of Delaware.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (continued)
Interest income (net) decreased to $586,000 in the year ended March 31, 1997
from $1.1 million in the corresponding period in 1996. The decrease reflects the
lower level of interest income derived from lower cash balances during the 1997
period as well as accrued interest expense attributable under an Advance Royalty
Agreement with Boehringer Mannheim.
Liquidity and Capital Resources
The Company has financed its operations through placements of Preferred and
Common Stock, aggregating approximately $85 million through March 31, 1998. In
December 1997, the Company completed a $25 million convertible preferred stock
financing which included several of the Company's current investors, as well as
new investor groups. Plans for the net proceeds from this financing include
continuing research and development, as well as working capital needs related to
general corporate expenditures, including the sales and marketing efforts
related to current and future products and services. In addition, the Company
has received funds from collaborative research and licensing agreements, and
sales of its ORIGEN line of products. The financial impact of the change in
revenue mix from license and contract fees to royalty payments is that revenue
will be more contingent as it's based on direct sales by corporate collaborators
utilizing the Company's licensed technology. As of March 31, 1998, the Company
had $23.1 million in cash, cash equivalents and short term investments. Working
capital, excluding current deferred revenue which is classified as a current
liability, was $21.7 million at March 31, 1998. Including current deferred
revenue, working capital was $17.6 million.
Net cash used for operating activities was $10 million and $10.4 during the
years ended March 31, 1998 and 1997, respectively. License and collaboration
agreements between the Company and its strategic corporate collaborators
provided cumulative payments to the Company of approximately $80 million through
March 31, 1998. Additionally, the Company received $6 million in January 1997
and $2.75 million in August 1997 under Advance Royalty Agreements with Roche-BM
and Eisai, respectively.
The Company used approximately $751,000, $778,000, and $1.4 million of net cash
for investing activities substantially related to the acquisition of laboratory
equipment, furniture and leasehold improvements during the years ended March 31,
1998, 1997, and 1996, respectively. Additionally, during fiscal years 1998, 1997
and 1996, the Company incurred capital lease obligations of approximately
$80,000, $113,400, and $150,000, respectively, related to acquisition of
laboratory equipment, furniture and leasehold improvements. The Company believes
material commitments for capital expenditures may be required in a variety of
areas, such as product development programs. The Company has not, at this time,
made commitments for any such capital expenditures or secured additional sources
to fund such commitments.
The Company has no reason to believe that the existence of the BMG litigation
is having a material adverse affect on BMG's sales pursuant to the Agreement
or that a negative result for the Company in the BMG litigation would have a
material adverse affect on BMG's sales, although there can be no assurance
that the litigation or its outcome would not have such an effect. As it now
stands, BMG will have the right to continue to market its Elecsys products to
hospitals and clinical reference laboratories during the term of the
Agreement unless and until the Company is determined to have the right to
terminate the Agreement and then determines to terminate the Agreement. If
the Company elects to terminate the Agreement, it would have a material
adverse effect on the Company's royalty revenue from license sales unless and
until the Company entered into a strategic partnership with another company
that is able to develop and commercialize diagnostic instruments to central
hospital laboratories and clinical reference laboratories. There can be no
assurance, if the Company decided to terminate the Agreement, that the
Company would be able to enter into such a strategic partnership on terms
favorable to the Company.
The Company does not expect that failure to prevail in the Hitachi litigation by
itself would have a material adverse effect on the Company's revenue or sales,
since Hitachi would continue to manufacture BMG instruments and the Company
would continue to earn royalties in connection therewith. There can be no
assurance that the Company's failure in the Hitachi litigation would not have a
material adverse effect or the success by the Company in the Hitachi
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (continued)
litigation could have a material adverse effect on the Company's intellectual
property. Success by the Company in the Hitachi litigation could have a material
adverse effect on the Company's royalty revenues from sales of Elecsys products
to the extent that BMG's sales of Elecsys (or Mosys) instruments are hindered
because it needs to find a new manufacturer for its instruments.
The Company has incurred and expects to incur substantial additional research
and development expenses, manufacturing costs and marketing and distribution
expenses and costs related to the Roche-BM litigation in the future. It is the
Company's intention to selectively seek additional collaborative or license
agreements with suitable corporate collaborators, although there can be no
assurance the Company will be able to enter into such agreements or that amounts
received under such agreements will reduce substantially the Company's funding
requirements. Additional equity or debt financing may be required, and there can
be no assurance that these funds may be available on favorable terms, if at all.
The Company's future capital requirements depend on many factors, including
continued scientific progress in its diagnostics programs, the magnitude of
these programs, the time and costs involved in obtaining regulatory approvals,
the costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, changes in its existing license and other
agreements, the ability of the Company to establish development arrangements,
the cost of manufacturing scale-up and effective commercialization activities
and arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements Page
- ----------------------------- ----
Independent Auditors' Report 30
Statements of Operations for the Three Years 31
Ended March 31, 1998, 1997 and 1996.
Balance Sheets at March 31, 1998 and 1997 32
Statements of Cash Flows for the Three Years 33
Ended March 31, 1998, 1997 and 1996.
Statements of Stockholders' Equity for the Three Years 34
Ended March 31, 1998, 1997, and 1996.
Notes to Financial Statements 35
29
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of IGEN International, Inc.:
We have audited the accompanying balance sheets of IGEN International, Inc. (the
Company) as of March 31, 1998 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended March 31, 1998. 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 materials respects, the financial position of the Company as of March 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1998, in conformity with generally
accepted accounting principles.
Deloitte & Touche, LLP Washington, D.C.
May 29, 1998
30
IGEN International, Inc.
STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31,
--------------------------------------------
1998 1997 1996
---- ---- ----
REVENUES (Notes 1 and 2):
Product sales $ 5,614,515 $ 6,359,866 $ 4,582,566
Royalty income 5,023,800 843,356 75,444
License fees and contract revenue 2,795,000 8,801,918 11,266,462
------------ ------------ -------------
Total 13,433,315 16,005,140 15,924,472
------------ ------------ -------------
OPERATING COSTS AND EXPENSES:
Product costs 1,716,437 2,447,714 1,848,363
Research and development (Note 2) 11,615,154 13,114,311 14,077,514
Marketing, general, and administrative 11,761,158 10,910,174 8,725,146
------------ ------------ -------------
Total 25,092,749 26,472,199 24,651,023
------------ ------------ -------------
LOSS FROM OPERATIONS (11,659,434) (10,467,059) (8,726,551)
INTEREST INCOME - NET 54,313 585,951 1,078,777
OTHER EXPENSE (Note 4) 225,000 -- --
------------ ------------ -------------
NET LOSS $(11,830,121) $ (9,881,108) $ (7,647,774)
------------ ------------ -------------
------------ ------------ -------------
LOSS PER SHARE (Note 1):
Basic and Diluted loss per common share $ (.82) $ (.66) $ (.52)
------------ ------------ -------------
------------ ------------ -------------
SHARES USED IN COMPUTING
NET LOSS PER SHARE (Note 1) 15,115,864 14,958,901 14,778,848
------------ ------------ -------------
------------ ------------ -------------
See notes to financial statements.
31
IGEN International, Inc.
BALANCE SHEETS
MARCH 31,
---------------------
1998 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 1,502,233 $ 789,895
Short-term investments (Note 1) 21,620,306 8,254,164
Accounts receivable, net 1,474,346 1,782,884
Notes receivable 77,661 417,459
Inventory (Note 1) 1,435,011 2,074,685
Other current assets (Notes 1, 4 and 6) 863,693 865,706
----------- ------------
Total current assets 26,973,250 14,184,793
----------- ------------
EQUIPMENT, FURNITURE, AND IMPROVEMENTS (Notes 1 and 7) 7,123,719 6,949,687
Accumulated depreciation and amortization (4,110,449) (3,781,171)
----------- ------------
Equipment, furniture, and improvements, net 3,013,270 3,168,516
----------- ------------
OTHER ASSETS (Note 1) 404,364 440,417
----------- ------------
TOTAL $ 30,390,884 $ 17,793,726
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 5,152,070 $ 4,266,165
Deferred revenue (Note 1 and 2) 4,138,751 5,392,507
Obligations under capital leases (Note 7) 91,892 95,051
----------- ------------
Total current liabilities 9,382,713 9,753,723
----------- ------------
OBLIGATIONS UNDER CAPITAL LEASES -
NONCURRENT (Note 7) 146,060 158,303
----------- ------------
COMMITMENTS and CONTINGENCIES (Note 7) -- --
----------- ------------
STOCKHOLDERS' EQUITY: (Notes 1 and 3)
Convertible Preferred Stock, $0.001 par value, 10,000,000 shares authorized,
issuable in Series: Series A, 600,000 shares designated, none issued; Series
B, 25,000 shares issued and outstanding 25 --
Common stock: $.001 par value, 50,000,000 shares authorized; 15,261,240 and
14,987,416 shares issued and outstanding 15,261 14,987
Additional paid-in capital 89,376,548 64,876,126
Accumulated deficit (68,529,723) (56,699,602)
Notes Receivable for Subscribed Stock -- (309,811)
----------- ------------
Total stockholders' equity 20,862,111 7,881,700
----------- ------------
TOTAL $ 30,390,884 $ 17,793,726
----------- ------------
----------- ------------
See notes to financial statements.
32
IGEN International, Inc.
STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31,
-------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATIONS:
Net loss $(11,830,121) $ (9,881,108) $ (7,647,774)
Adjustments to reconcile net loss to net cash used in operating activities:
Interest on note receivable from sale of common stock -- (3,200) (28,700)
Amortization of deferred compensation -- 90,715 108,840
Depreciation and amortization 888,930 1,221,154 1,025,753
Loss on disposal of equipment, furniture, and improvements 53,301 -- --
Deferred revenue (1,253,756) (2,139,674) (505,215)
Add (deduct) items not affecting cash:
Decrease (increase) in accounts receivable 308,538 108,809 (602,564)
Decrease (increase) in notes receivable 339,798 (417,459) --
Decrease (increase) in inventory 639,674 (426,267) (584,172)
Decrease in other assets 2,013 601,230 100,019
Increase (decrease) in accounts payable and accrued expenses 885,905 473,230 (224,824)
------------- ------------- -------------
Net cash used in continuing operating activities (9,965,718) (10,372,570) (8,358,637)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment, furniture, and improvements (750,932) (777,673) (1,418,319)
Sale of short-term investments 8,780,620 30,725,898 8,496,327
Purchase of short-term investments (22,146,762) (22,764,173) (24,712,216)
------------- ------------- -------------
Net cash (used in) provided by investing activities (14,117,074) 7,184,052 (17,634,208)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes receivable from sale of subscribed stock, net 309,811 39,817 106,016
Issuance of convertible preferred stock, net 23,427,878 -- --
Issuances of common stock 1,072,843 200,420 309,594
Repurchases of common stock -- -- (410,550)
Principal payments under capital lease obligations (15,402) (262,971) (237,317)
------------- ------------- -------------
Net cash provided by (used in financing activities 24,795,130 (22,734) (232,257)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 712,338 (3,211,252) (26,225,102)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 789,895 4,001,147 30,226,249
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,502,233 $ 789,895 4,001,147
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid $ 12,491 $ 65,114 $ 64,368
Supplemental Disclosures of Non-cash Investing and Financing Activities:
During the years ended March 31, 1998, 1997 and 1996, the Company incurred
capital lease obligations of approximately $80,000, $113,000 and $150,000 for
equipment, furniture and improvements.
See notes to financial statements.
33
IGEN International, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible Additional
Common Stock Preferred Stock Paid in Accumulated Deferred
Shares Amount Shares Amount Capital Deficit Comp.
---------- -------- ------- ------ ---------- ----------- --------
BALANCE
APRIL 1, 1995 14,781,690 $ 14,782 $64,776,867 $(39,170,720) $(199,555)
Issuance of 207,349
shares of common
stock 207,349 207 309,387 - -
Repurchase of 80,509
shares of common
stock (80,509) (80) (410,470) - -
Amortization of
deferred
compensation - - - - 108,840
Changes in notes
receivable - - - - -
Net loss - - - (7,647,774) -
---------- -------- ----------- ------------- ----------
BALANCE
MARCH 31, 1996 14,908,530 14,909 64,675,784 (46,818,494) $ (90,715)
Issuance of 78,886
shares of common
stock 78,886 78 200,342 - -
Amortization of
deferred
compensation - - - - 90,715
Changes in notes
receivable
Net loss - - (9,881,108) -
---------- -------- ----------- ------------- ----------
BALANCE
MARCH 31, 1997 14,987,416 14,987 64,876,126 (56,699,602) -
Issuance of 273,824
shares of common
stock 273,824 274 1,072,569 - -
Issuance of 25,000
shares of
convertible
preferred stock,
net - - 25,000 25 23,427,853 - -
Changes in notes
receivable - - - - - - -
Net loss - - - - - (11,830,121) -
---------- -------- ------- ------- ----------- ------------- ----------
BALANCE
MARCH 31, 1998 15,261,240 $15,261 25,000 $ 25 $89,376,548 $(68,529,723) $ -
---------- -------- ------- ------- ----------- ------------- ----------
---------- -------- ------- ------- ----------- ------------- ----------
Notes
Receivable
From
Sale of
Subscribed
Stock Total
---------- ------
BALANCE
APRIL 1, 1995 $(423,744) $ 24,997,630
Issuance of 207,349
shares of common
stock - 309,594
Repurchase of 80,509
shares of common
stock - (410,550)
Amortization of
deferred
compensation - 108,840
Changes in notes
receivable 77,316 77,316
Net loss - (7,647,774)
----------- -------------
BALANCE
MARCH 31, 1996 $(346,428) 17,435,056
Issuance of 78,886
shares of common
stock - 200,420
Amortization of
deferred
compensation - 90,715
Changes in notes
receivable 36,617 36,617
Net loss - (9,881,108)
----------- -------------
BALANCE
MARCH 31, 1997 (309,811) 7,881,700
Issuance of 273,824
shares of common
stock - 1,072,843
Issuance of 25,000
shares of
convertible - 23,427,878
preferred stock,
net 309,811 309,811
Changes in notes
receivable - (11,830,121)
Net loss
----------- -------------
BALANCE
MARCH 31, 1998 $ - $20,862,111
----------- -------------
----------- -------------
See notes to financial statements.
34
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Certain amounts from the prior
years have been reclassified to conform to the current year presentation.
Organization and Business Activity - IGEN International, Inc. (the Company)
develops, manufactures, and markets diagnostic systems utilizing its patented
ORIGEN technology, which is based on electrochemiluminescence. During November,
1996, IGEN, Inc. was merged into a newly formed Delaware corporation, IGEN
International, Inc. (the "Company"). These changes do not affect IGEN's business
operations, employees, shareholders or its business locations.
Cash Equivalents and Short-Term Investments - Cash equivalents include cash in
banks, money market funds, securities of the U.S. Treasury, and certificates of
deposit with original maturities of three months or less.
The company has classified its short term investments which consist of U.S.
Government Obligations and Corporate Debt-Securities as "available for sale"
which are recorded at market value. The recorded market value approximates cost
and no unrealized gains or losses have been recorded in the accompanying
financial statements.
Concentration of Credit Risk - The Company has invested its excess cash
generally in securities of the U.S. Treasury, money market funds, certificates
of deposit and corporate bonds. The Company invests its excess cash in
accordance with a policy objective that seeks to ensure both liquidity and
safety of principal. The policy limits investments to certain types of
instruments issued by institutions with strong investment grade credit ratings
and places restrictions on their terms and concentrations by type and issuer.
The Company has not experienced any losses on its investments, due to credit
risk.
Inventory is recorded at the lower of cost or market using the first-in,
first-out method and consists of the following:
1998 1997
---- ----
Finished Goods $ 823,534 $ 1,095,052
Work in process 117,515 150,251
Raw materials 493,962 829,382
------------ -----------
Total $ 1,435,011 $ 2,074,685
------------ -----------
------------ -----------
Equipment, Furniture, and Improvements are carried at cost. Depreciation is
computed over the estimated useful lives of the assets, generally five years,
using accelerated methods. Such property consists of the following:
1998 1997
---- ----
Laboratory equipment $ 2,967,443 $ 3,308,313
Furniture and office equipment 2,652,582 2,176,995
Leasehold improvements 1,503,694 1,464,379
------------ -----------
Total $ 7,123,719 $ 6,949,687
------------ -----------
------------ -----------
35
NOTES TO FINANCIAL STATEMENTS (continued)
Other Assets - The Company amortizes the cost of purchased patent rights on a
straight-line basis over the estimated economic lives of such assets, ranging
from five to twenty-one years. Accumulated amortization on purchased product
technology rights was $223,368, $187,315, and $157,051 at March 31, 1998, 1997
and 1996, respectively.
Revenue Recognition - Nonrefundable license fees and milestone payments in
connection with research and development contracts or commercialization
agreements with corporate partners are recognized when they are earned in
accordance with the applicable performance requirements and contractual terms.
Amounts received in advance of performance under contracts or commercialization
agreements are recorded as deferred revenue until earned. Product sales revenue
is recorded as products are shipped.
The Company derives a significant portion of its revenue from product
development and license agreements with certain companies (see Note 2).
Deferred Income Taxes - Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
Loss Per Share - Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standard No. 128 "Earnings per Share" ("SFAS 128"). The
Company's loss has been adjusted by dividends accumulated at March 31, 1998, on
the Company's Convertible Preferred Series B Stock. There was no change in loss
per share reported in prior periods related to the adoption of SFAS 128. See
Note 3.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, both of which were effective for years
beginning after January 1, 1998. SFAS No. 130 requires businesses to disclose
comprehensive income and its components in the financial statements. SFAS No.
131 redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about the Company's operating
segments. The Company does not believe that adoption of SFAS 130 will have a
material impact on its financial position, and is assessing operating segments
that it may report on upon adoption of SFAS No. 131.
2. LICENSE AND RESEARCH AGREEMENTS
In 1992, the Company entered into an agreement with Boehringer Mannheim GmbH,
under which that company was granted rights to develop and market certain
clinical diagnostic systems worldwide based on the Company's ORIGEN technology.
Under the terms of the agreement, the Company received five $10 million license
payments annually through January 1996 which were recognized as revenue on a
ratable basis through December 1996. This agreement also provides the Company
with additional payments for certain product development work, as well as
royalties on product sales. In January 1997, the Company received $6 million
under an Advance Royalty Agreement with Boehringer Mannheim of which $4.4
million and $706,000 was recognized as revenue in fiscal 1998 and 1997,
respectively. Under the Company's interpretation of the Agreement which BMG is
disputing, estimated cumulative royalties due from BMG which have not been
recorded total at least $2.6 million. The Company is currently in litigation
with Boehringer Mannheim (See Note 8).
36
NOTES TO FINANCIAL STATEMENTS (continued)
During 1993, the Company entered into a $20 million license and stock purchase
agreement with Organon Teknika, B.V. Under this agreement, the Company sold
346,135 shares of common stock, granted a license to develop and market certain
diagnostic systems worldwide utilizing the Company's ORIGEN technology and
agreed to invest $5 million in
research and development under a joint development program. While there were no
contract revenues recognized for the years ended March 31, 1998 and 1997, there
was $1.1 milion of contract revenue recognized during the year ended March 31,
1996. Among other things, the agreement provides for royalty payments to the
Company on product sales and for product supply arrangements between the
parties. Sales to Organon Teknika under this agreement amounted to approximately
$1.3 million, $1.4 million, and $1.1 million for the years ended March 31, 1998,
1997 and 1996, respectively.
During 1990, the Company granted a license to Eisai Co., Ltd., to market in
Japan a certain clinical diagnostic system based on the Company's ORIGEN
technology. The agreement provided license fees of $8 million tied to the
achievement
of product development milestones. This agreement also provides for royalty
payments to the Company on product sales. In August 1997, the Company received
$2.75 million as an advance royalty payment of which $ 290,000 was recognized as
revenue in fiscal 1998.
During November 1995, the Company formed a joint venture for the development and
commercialization of advanced diagnostic products utilizing a proprietary
combination of multi-array technology together with the Company's ORIGEN(R)
technology. Products based on these technologies would be used for high
throughput, multiparameter analysis for DNA sequencing, clinical chemistry and
immunodiagnostics. The joint venture is named Meso Scale Diagnostics, LLC
("MSD"), and was formed together with Meso Scale Technologies, LLC ("MST"),
which is a noncontrolled affiliated company. The Company has agreed to provide
initial capital contributions to MSD of $5 million over time, plus certain start
up costs, in exchange for a 50% interest and to fund the organizational and
certain ongoing (non-research) operating expenses of MSD. The Company will also
participate in a collaborative research program. Through the year ended March
31, 1998, the Company has made cumulative contributions of approximately $2.8
million, of which $2.6 million was made during fiscal 1998. The Company has
accounted for its investments in MSD as research and development funding
arrangements and, accordingly, has recorded its payments as research and
development expense.
3. STOCKHOLDERS' EQUITY
Convertible Preferred Stock - In December 1997, the Company received net
proceeds of $23.4 million from the issuance of 25,000 shares of Series B
Convertible Preferred Stock, stated value $1,000 per share The Series B
Convertible Preferred Stock is convertible into 1,790,831 shares of Common
Stock of the Company at a rate of $13.96 per share in accordance with the
terms of the Certificate of Designation, Powers, Preferences and Rights. The
Series B Convertible Preferred Stock entitles its holders to a dividend
payment of 7.75% compounded annually on the stated value of the stock and the
Company may elect to make the dividends payable in common shares at a rate of
$13.96 per share, rather than making the dividend payment in cash. If the
Company elects to pay such dividends in shares of common stock, the Company
may issue up to 810,174 shares to the holders of Series B Convertible
Preferred Stock. For the purpose of calculating earnings per share for the
year ended March 31, 1998, Net Loss of approximately $11,830,000 has been
adjusted by accumulated dividends on Series B Convertible Preferred Stock
of $541,000 ($.04 per share). The resulting calculation results in Net
Loss Available to Common Shareholders of approximately $12,371,000 ($.82 Net
Loss Per Share).
Shareholder Rights Plan - In November 1996, the Board of Directors adopted a
shareholder rights plan and declared a dividend of one preferred share purchase
right for each outstanding share of common stock par value $.001 per share, of
the Company. The dividend is effective as of November 6, 1996 with respect to
the shareholders of record on that date.
Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $.001 per share, of the Company at a price of $65.00 per one one-hundredth
of a Preferred Share, subject to adjustment. The description and terms of the
Rights are set forth in a Rights Plan, between the Company and The First
National Bank of Boston.
37
NOTES TO FINANCIAL STATEMENTS (continued)
Stock Option Plan - During fiscal 1995, the Company adopted the 1994 Stock
Option Plan under which 1,000,000 shares of Common Stock have been reserved for
issuance upon exercise of options granted to employees or consultants and the
1994 Non-Employee Directors Stock Option Plan under which 150,000 shares of
Common Stock have been reserved for issuance upon exercise of options granted to
Non-Employee Directors. The 1994 Stock Option Plan replaced the 1985 Stock
Option Plan which expired in February 1995 and continues to have unexercised
options.
The Option Plans provide for the granting of both incentive stock options
intended to qualify as such under Section 422 of the Internal Revenue Code of
1986, as amended, and supplemental stock options that do not so qualify.
Generally, the options vest 20% after year one and ratably over the following
16 quarters, expiring ten years from date of grant.
A summary of the Company's Stock Option Plan and summarized Plan activity for
the three years ended March 31, 1998 follows:
Weighted Average Range of
Number of Shares Exercise Price Exercise Price
Outstanding on April 1, 1995 1,754,174 $2.25 $0.29-$ 9.63
Granted 67,800 $5.27 $4.87-$ 6.25
Exercised (207,349) $1.82 $0.29-$ 5.50
Forfeited (122,279) $3.55 $0.57-$ 5.50
----------
Outstanding on March 31, 1996 1,492,346 $2.60 $0.29-$ 9.63
Granted 310,000 $5.00 $ 5.00
Exercised (78,886) $2.80 $0.29-$ 5.50
Forfeited (82,797) $3.90 $0.29-$ 5.50
----------
Outstanding on March 31, 1997 1,640,663 $2.69 $0.29-$ 9.63
Granted 601,350 $6.67 $6.00-$20.00
Exercised (273,824) $3.91 $0.29-$ 8.75
Forfeited (33,265) $5.29 $4.57-$ 5.50
----------
Outstanding on March 31, 1998 1,934,924 $5.52 $0.29-$20.00
(Weighted Average Remaining Contractual ----------
Life - 6.55 years) ----------
At March 31, 1998, there were approximately 1.2 million stock options
exercisable, under the Plan with a Weighted Average Exercise Price of
$4.97.
Stock-Based Compensation - In 1997, the Company adopted Statement of
Financial Accounting Standard No. 123 ("SFAS 123"), Accounting for
Stock-Based Compensation. Upon adoption of SFAS 123, the Company continues to
measure compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by APB No. 25, Accounting for
Stock Issued to Employees, and has provided below pro forma disclosures of
the effect on net loss and loss per share as if the fair value-based method
using the Black-Scholes model prescribed by SFAS 123 had been applied in
measuring compensation expense.
If compensation cost for the Company's 1998, 1997 and 1996 grants for
stock-based compensation had been determined consistent with the fair
value-based method of accoung per SFAS 123, the Company's pro forma net loss and
pro forma loss per share for the years ended December 31, 1998, 1997 and 1996
would be as follows:
1998 1997 1996
---- ---- ----
Net loss
As reported $(11,830,121) $(9,881,108) $(7,647,774)
Pro forma $(12,129,594) $(9,996,268) $(7,684,584)
Basic loss per share
As reported $(.82) $(.66) $(.52)
Pro forma $(.84) $(.67) $(.52)
38
NOTES TO FINANCIAL STATEMENTS (continued)
The fair value of the option grant is estimated on the date of grant using the
Black-Scholes option pricing models with the following assumptions:
1998 1997 1996
---- ---- ----
Expected dividend yield 0% 0% 0%
Expected stock price volatility 53.24% 3.5% 49.0%
Risk-free interest rate 6.74% 6% 5.5%
Expected option term 5 years 5 years 5 years
Notes Receivable For Subscribed Stock - Notes receivable arising from the sale
of common stock (net of subsequent repayments) are presented in the accompanying
financial statements as a reduction of stockholders' equity. The notes, which
had terms of four years and bore interest with a range of 6-8%, were retired in
fiscal 1998.
4. INCOME TAXES
For the years ended March 31, 1998, 1997, and 1996 the Company recorded no
federal or state income tax expense and did not pay federal or state tax, as
calculated by applying statutory rates to pretax income. During fiscal 1998, the
Company received a $4.75 million payment from its Japanese corporate partner,
Eisai, Ltd net of the Japanese tax withholding of $475,000. The Company
recognized revenues of $2.3 million under this arrangement in fiscal 1998 and
recorded the associated foreign tax of $225,000 which is reflected in Other
Expense on the financial statements.
As of March 31, 1998, the Company has available for income tax reporting
purposes net operating loss and general business credit carryforwards
approximating $55.3 million and $2.7 million, respectively. These carryforwards
expire in varying amounts through March 31, 2013. The use of the Company's net
operating loss carryforward may be significantly reduced, if substantial changes
in stock ownership take place. The potential tax benefits of the unused
carryforwards have not been recorded for financial statement purposes because of
the uncertainty of realizing those benefits in the future.
The approximate tax effects of temporary differences that gave rise to the
Company's deferred tax assets and liabilities are as follows:
Year Ended March 31,
1998 1997
---- ----
Deferred tax assets:
Deferred revenue $ 1,571,069 $ 2,046,996
Net operating loss and tax credit carryforwards 23,727,022 18,305,819
Other 61,416 304,221
Less valuation allowance (25,359,507) (20,657,036)
--------------- --------------
Net deferred tax assets $ - $ -
--------------- --------------
--------------- --------------
5. EMPLOYEE SAVINGS PLAN
The Company has an Employee Savings Plan (the Plan) qualifying under Section
401(k) of the Internal Revenue Code and subject to the Employee Retirement
Income Security Act of 1974, as amended. Effective April 1, 1997, the Company
began contributing a 25% match on the first 6% of contributions from qualified
individuals participating in the Plan. This Company contribution totaled
$129,000 for the year ended March 31, 1998.
The Company is not obligated under any other postretirement benefit plan.
39
NOTES TO FINANCIAL STATEMENTS (continued)
6. RELATED PARTIES
Certain shareholders of the Company are also shareholders of several other
companies which are considered affiliates of IGEN for the purpose of this
disclosure. As discussed in Note 2, the Company has entered into transactions
with companies that were affiliated through common shareholders. Amounts due
from affiliated companies for services rendered and certain shared costs were
approximately $43,500 and $58,400 at March 31, 1998 and 1997, respectively.
During 1997 and 1996, the Company incurred approximately $212,500 and $487,500,
respectively, in expenses under a research contract with an affiliate.
Additionally during 1996, the Company prepaid $500,000 for a research and supply
agreement with another affiliate. There were no such expenditures made in fiscal
1998.
The Company has licensed certain diagnostic technologies from affiliated
companies and has licensed certain pharmaceutical technologies to affiliated
companies. No royalties have ever been earned or accrued under these license
agreements.
7. COMMITMENTS AND CONTINGENCIES
Capital Leases - The Company is obligated under capital lease agreements, for
certain equipment, furniture and building improvements. The aggregate discounted
lease payments are recorded as a liability, and the fair market value of the
related leased assets are capitalized and amortized over the assets estimated
useful lives. Total assets capitalized pursuant to such agreements were
approximately $1 million at March 31, 1998.
The future minimum payments under these lease agreements at March 31, 1998 are
as follows:
1999 $ 105,580
2000 99,992
2001 50,677
2002 23,156
2003 19,297
----------
Total minimum payments 298,702
Amount representing interest (60,750)
-----------
Obligations under capital leases 237,952
Current portion (91,892)
-----------
Obligations under capital leases - noncurrent $ 146,060
----------
----------
Operating Leases - During 1995, the Company entered into a lease for an office,
laboratory and manufacturing facility with a term of ten years, and an option to
terminate the lease after five years. Rent expense for facility and equipment
operating leases totaled approximately $1.5 million, $1.5 million, and $1.6
million for the years ended March 31, 1998, 1997, and 1996, respectively.
Research Agreements - The Company has entered into agreements with entities to
fund research and development programs.
40
NOTES TO FINANCIAL STATEMENTS (continued)
At March 31, 1998, the future minimum lease and research payments under these
agreements are as follows:
Research
Operating Leases Agreements
---------------- ----------
1999 $ 1,455,591 $1,000,000
2000 1,478,659 1,000,000
2001 1,523,019 200,000
2002 1,568,838 --
2003 1,615,903 --
Thereafter 3,087,418 --
--------------- -----------
Total $ 10,729,428 $2,200,000
--------------- -----------
--------------- -----------
8. LITIGATION
Boehringer Mannheim
On September 15, 1997, the Company filed a lawsuit in Maryland against
Boehringer Mannheim GmbH ("BMG"), a German company, a business unit of Roche-BM,
to which the Company has licensed certain rights to develop and commercialize
diagnostic products based on the Company's ORIGEN technology. That lawsuit is
pending in the Southern Division of the United States District Court for the
District of Maryland. The Company's dispute with BMG arises out of a 1992
License and Technology Development Agreement (the "Agreement"), pursuant to
which BMG developed and launched its "Elecsys" line of diagnostic products,
which is based on ORIGEN technology. The Company alleges that BMG has failed to
perform certain material obligations under the Agreement, including development
and commercialization of ORIGEN technology according to the contractual
timetable; exploitation of the license to the extent contemplated by the
parties; phase out of certain non-royalty-bearing product lines; exploitation of
ORIGEN technology only within BMG's licensed fields; proper treatment of
intellectual property rights regarding ORIGEN technology; maintenance of records
essential to the computation of royalties; and proper computation of royalties.
In its lawsuit, the Company seeks damages as well as injunctive and declaratory
relief, including a judicial determination of its entitlement to terminate the
Agreement. The Company has agreed not to terminate the Agreement unless and
until the Court determines its entitlement to do so. The litigation against
BMG may have a material adverse effect upon the Company regardless of whether
the outcome is favorable or not.
The Company recorded royalty income from this Agreement of $4.4 million and
$706,000 for the years ended March 31, 1998 and 1997, respectively. These
amounts were offset by a $6 million advance, secured by future royalties,
received from BMG in January 1997.
Hitachi
In December 1997, IGEN International K.K., a Japanese subsidiary of the Company,
filed a lawsuit in Tokyo District Court against Hitachi Ltd. ("Hitachi"). This
lawsuit seeks to enjoin Hitachi from manufacturing, using or selling the Elecsys
2010 immunoassay instrument in Japan. The lawsuit also seeks to enjoin Hitachi
from infringing the subsidiary's license registration, known in Japan as a
"senyo-jisshi-ken," in connection with the development of the Mosys instrument.
Hitachi is the sole manufacturer for BMG of the Elecsys 2010 immunoassay
instrument. BMG sells the Elecsys 2010 worldwide to central hospital
laboratories and clinical reference laboratories. Hitachi is also developing for
BMG the Mosys instrument. The Company's Japanese subsidiary alleges that both
the Elecsys 2010 and the Mosys are based on ORIGEN technology. The Company's
ORIGEN technology is licensed to its Japanese subsidiary and to Eisai K.K.
pursuant to a "senyo-jisshi-ken." The Company's Japanese subsidiary further
alleges that Hitachi's manufacturing and selling of the Elecsys 2010 and the
development of Mosys violate the "senyo-jisshi-ken." The lawsuit requests
injunctive relief against Hitachi and destruction of the Elecsys 2010 and Mosys
instruments in Hitachi's possession.
Other Matters
From time to time, claims and pending legal proceedings arise that generally
involve the Company's technology and possible patent infringement. These
cases are routine matters in which disposition of such proceedings are not
expected to have a material adverse effect on the Company's financial
position or results of operations.
41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
Certain information required by Part III is omitted from this Report in that the
Registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a.) Directors. The information with respect to directors required under
this item is incorporated herein by reference to the section captioned
"Election of Directors" in the Company's Proxy Statement with respect
to the Annual Meeting of Shareholders to be held on September 23, 1998.
(b) Executive Officers. The information with respect to executive officers
required under this item is incorporated herein by reference to Part I
of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated herein by reference to
the sections entitled "Election of Directors -- Compensation for Directors",
"--Compensation of Executive Officers", "--Compensation Arrangements and
Employment Agreements", "-- Report of the Compensation Committee", in the
Company's Proxy Statement with respect to the Annual Meeting of Shareholders to
be held on September 23, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item is incorporated herein by reference to
the section entitled "Principal Shareholders" in the Company's Proxy Statement
with respect to the Annual Meeting of Shareholders to be held on September 23,
1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this item is incorporated herein by reference to
the sections entitled "Election of Directors -- Compensation Arrangements and
Employment Agreements" and "-- Certain Transactions" in the Company's Proxy
Statement with respect to the Annual Meeting of Shareholders to be held on
September 23, 1998.
42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Index to Financial Statements.
The financial statements listed in the Index to Financial Statements are filed
as part of this Annual Report on Form 10-K.
(a)(2) Index to Financial Statement Schedules.
All schedules are omitted because they are not applicable, or not required, or
because the required information is included in the financial statements or
notes thereto.
(a)(3) Index to Exhibits.
The Exhibits filed as part of this Form 10-K are listed on the Exhibit Index
immediately preceding such Exhibits.
(b) Reports on Form 8-K: On April 22, 1998, the Company filed a Form 8-K
announcing the Company's request for injunction against
Roche-Boehringer Mannheim from marketing, selling or distributing its
Elecsys products, which are based on IGEN's proprietary ORIGEN(R)
technology, to physicians' office laboratories.
(c)(1) Exhibits The response to this portion of Item 14 is submitted as a
separate section of this -------- Form 10-K.
(c)(2) Management Contracts and Other Compensatory Arrangements. None
(d) Financial Statement Schedules. All schedules are omitted because they
are not applicable, or not required, or because the required
information is included in the financial statements or notes thereto.
43
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.
IGEN International, Inc.
June 26, 1998 By: /s/ Samuel J. Wohlstadter
-------------------------------
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Samuel J. Wohlstadter, Richard J. Massey and George V.
Migausky as his attorney-in-fact for him in any and all capacities, to sign any
amendments to this report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that the said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Samuel J. Wohlstadter Chief Executive Officer June 26, 1998
- --------------------------- (Principal Executive Officer);
Samuel J. Wohlstadter Director
/s/ George V. Migausky Vice President June 26, 1998
- --------------------------- and Chief Financial Officer
George V. Migausky (Principal Financial and Accounting
Officer)
/s/ Richard J. Massey President, Chief Operating Officer; June 26, 1998
- --------------------------- Director
Richard J. Massey
/s/ Edward Lurier Director June 26, 1998
- ---------------------------
Edward Lurier
/s/ William O'Neill Director June 26, 1998
- ---------------------------
William O'Neill
/s/ Robert Salsmans Director June 26, 1998
- ---------------------------
Robert Salsmans
44
Index to Exhibits
Exhibit
Number Description of Document
- -------- -----------------------
2.1(8) Agreement and Plan of Merger effective November 19, 1996 (by
virtue of a reincorporation), by and between IGEN, Inc., a
California corporation, and IGEN International, Inc. a Delaware
corporation.
3.1(4) Third Amended and Restated Articles of Incorporation of the
Registrant.
3.2(3) Bylaws of the Registrant.
3.3(8) The Registrant's (as successor in interest to IGEN, Inc. by virtue
of a reincorporation effective November 19, 1996) Certificate of
Incorporate, as filed with the Secretary of State of the State of
Delaware on August 30, 1996.
3.4(8) The Registrant's Certificate of Designation of Series A Junior
Participating Preferred Stock, as filed with the Secretary of
State of the State of Delaware on November 18, 1996.
3.5(8) The Registrant's (as successor in interest to IGEN, Inc. by virtue
of a reincorporation effective November 19, 1996) Bylaws, as
currently in effect.
4.1(6) Rights Agreement, dated as of December 21, 1995, between the
Company and the First National Bank of Boston.
4.2(6) Form 8-A, filed December 29, 1995, registering the Preferred Share
Purchase Rights.
4.3 Reference is made to Exhibits 3.1 and 3.2.
4.4(7) Form of Specimen Right Certificate.
4.5(7) Rights Agreement, dated November 6, 1996, between the Registrant
and The First National Bank of Boston.
10.1(2) Registration Agreement between the Registrant and the parties
names therein dated March 17, 1988, as amended through March 30,
1993.
10.2(3) Form of Waiver and Amendment of Registration Agreement executed in
December 1993, amending in certain respects the Registration
Agreement dated as of March 17, 1988.
10.3(3) Agreement between the Registrant and The Perkin-Elmer Corporation
dated March 30, 1990, with Addendum to Agreement dated February
21, 1991 (with certain confidential information deleted).
10.4(3) Agreement between the Registrant and Eisai Co., Ltd. dated May 25,
1990 (with certain confidential information deleted).
10.4.1(1) Supplemental Agreement between Eisai Co., Ltd. and the Registrant
10.5(3) License and Development Technology Agreement between the
Registrant and Boehringer Mannheim GmbH dated September 23, 1992
(with certain confidential information deleted).
10.5.1(2) Advanced Royalty Agreement between the Registrant and Boehringer
Mannheim GmbH dated January 9, 1997 (with certain confidential
information deleted).
10.6(3) License Agreement between the Registrant and Hyperion Catalysis
International ("Hyperion") dated October 10, 1993 as amended March
15, 1990.
10.7(3) Common Stock Purchase Agreement between the Registrant and Organon
Teknika B.V. ("Organon") dated May 19, 1993.
10.8(3) License and Technology Development agreement between the
Registrant and Organon dated May 19, 1993 (with certain
confidential information deleted).
45
Exhibit
Number Description of Document
- -------- -----------------------
10.9(3) Agreement and Plan of Reorganization and Agreement and Plan of
Merger between the Registrant and Molecular Displays, Inc. dated
March 9, 1993.
10.10(3) Term Sheet for Consolidation of Research Projects between the
Registrant and Proteinix Corporation dated December 14, 1993 (with
certain confidential information deleted).
10.11(3) Term Sheet for consolidation of Cancer Research Projects between
the Registrant and Pro-Neuron, Inc. dated December 14, 1993 (with
certain confidential information deleted).
10.12(3) Join Venture Agreement between the Registrant and Hyperion dated
May 28, 1993.
10.13(3) Product Development and Marketing Agreement between the
Registrant, Hyperion and HyperGen dated May 29, 1993.
10.14(3) Form of Indemnity Agreement entered into between the Registrant
and its Directors and Officers.
10.15(3) Registrant's 1985 Stock Option Plan, as amended, and related Form
of Incentive Stock Option Grant and Form of Nonqualified Stock
Option Grant.
10.16(5) Registrant's 1994 Stock Option Plan, and related Form of Incentive
Stock Option Grant.
10.17(5) Registrant's 1994 Non-Employee Directors Stock Option Plan, and
related Form of Incentive Stock Option Grant.
10.18(5) Lease Agreement between the Registrant and W-M 16020 Limited
Partnership dated October 5, 1994.
10.19(5) Agreement for Purchase and Sale of Joint Venture Interest between
Registrant and Hyperion Catalysis International, dated December
28, 1994
10.20(6) Joint Venture Agreement, dated as of November 30, 1995, between
MSD, MST and the Company.
10.21(6) Limited Liability Company Agreement, dated as of November 30,
1995, between MSD, MST and the Company.
10.22(6) IGEN/MSD License Agreement, dated as of November 30, 1995, between
MSD and the Company.
10.23(6) Indemnification Agreement, dated as of November 30, 1995, between
the Company and Jacob Wohlstadter.
11.1 Calculation of net loss per share. Filed herewith.
23.1 Consent of Deloitte & Touche LLP. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
- ----------
(1) Previously filed as an exhibit to the Registrant's Form 10-Q for the
quarter ended September 30, 1997.
(2) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K, as amended, for the fiscal year ended March 31, 1997.
(3) Previously filed as an exhibit to the Registration Statement on Form
S-1, as amended (Registration No. 33-72992) and incorporated by
reference herein.
(4) Previously filed as an exhibit to the Registrant's Form 10-Q for the
quarter ended December 31, 1996.
(5) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995.
(6) Previously filed as an exhibit to the Registrant's Form 10-Q for the
quarter ended December 31, 1995.
(7) Incorporated by reference to Exhibit 1.1 of the Registrant's Form 8-A
filed December 11, 1996.
(8) Previously filed as an exhibit to the Registrant's Form 10-Q for the
quarter ended December 31, 1996.
46