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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: June 30, 2002
Commission File Number: 0-16375
THERMOGENESIS CORP.
(Exact name of Registrant as specified in its charter)
Delaware 94-3018487
(State or Incorporation) (I.R.S. Employer Identification No.)
3146 Gold Camp Drive
Rancho Cordova, California 95670
(Address of principal executive offices) (Zip Code)
(916) 858-5100
(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
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 twelve 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. [X] Yes [ ] No
Indicate by a 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment of this Form 10-K. [X].
Aggregate Market Value of the voting stock held by non-affiliates of the
registrant based on the closing sale price on September 4, 2002 was $58,877,764.
The number of shares of the registrant's common stock, $0.001 par value,
outstanding on September 4, 2002 was 35,256,146.
Documents incorporated by reference: None.
TABLE OF CONTENTS
Page Number
Part I -----------
ITEM 1. Business.........................................................3
(A) General and Historical Development of Business...............3
(B) Market Overview..............................................4
(C) Corporate Strategy..........................................13
(D) Description of the Business.................................17
(E) Clinical Summary Status.....................................20
(F) Competition.................................................22
(G) Research and Development....................................23
(H) Description of Device Manufacturing.........................24
(I) Government Regulation.......................................25
(J) Patents and Proprietary Rights..............................26
(K) Factors Affecting Operating Results.........................27
(L) Licenses and Distribution Rights............................30
(M) Employees...................................................31
ITEM 2. Properties......................................................31
ITEM 3. Legal Proceedings...............................................32
ITEM 4. Submission of Matters to a Vote of Security Holders.............32
Part II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters...........................................33
ITEM 6. Selected Financial Data.........................................34
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................35
(A) Overview....................................................35
(B) Results of Operations.......................................36
(C) Liquidity and Capital Resources.............................38
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk......39
ITEM 8. Financial Statements and Supplementary Data.....................40
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................62
Part III
ITEM 10. Directors and Executive Officers of the Registrant..............62
ITEM 11. Executive Compensation..........................................66
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management....................................................72
ITEM 13. Certain Relationships and Related Transactions..................73
Part IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K...................................................74
(A) Financial Statements........................................74
(B) Reports on Form 8-K.........................................74
(C) Exhibits....................................................74
PART I
ITEM 1. BUSINESS
(A) General and Historical Development of Business
THERMOGENESIS CORP. ("the Company", "we", "our") designs, manufactures and
distributes micro-manufacturing systems consisting of compact robotic devices or
automated devices, and companion sterile single-use disposables that our
customers use to produce products sourced from single units of blood. These
biological products include hematopoietic stem cells for bone marrow rescue
transplants and blood derived proteins to assist surgeons in arresting bleeding
or gluing tissues.
The CryoSeal(R) Fibrin Sealant ("FS") System, which produces and dispenses a
two-component fibrinogen and fibronectin rich protein "glue", received CE Mark
for approval in the European community in March of 2001 and Canadian approval in
May of 2001, thus allowing commercialization activities to begin in each of
these important markets. After careful study of available marketing strategies,
the Company has executed contracts with strategic medical device distributors
and is currently undergoing its European and Canadian market launches. In
addition, in July 2002 the Company announced that an independent Data Safety
Monitoring Board ("DSMB"), comprised of surgeons, a bio-statistician and an
ethicist, recommended proceeding with the multi-center pivotal trial for the
CryoSeal FS System. The DSMB recommendation is based on the demonstrated safety
of the pilot study data from patients undergoing liver resections. As a result
of this recommendation, the Company is finalizing agreements with various
hospitals with large liver resection practices who will conduct the trials. The
Company also continues to support Asahi Medical's efforts in Japan to gain
approval from the Japanese Ministry of Health and Welfare to begin human
clinical trials during the current fiscal year.
The BioArchive(R) System, introduced in 1998, has been purchased by 36 umbilical
cord blood stem cell banks in 17 countries to process, cryopreserve and archive
therapeutic populations of hematopoietic stem cell units harvested from human
placentas/umbilical cord blood to replace the bone marrow of patients suffering
from leukemia, lymphoma and various genetic diseases like sickle cell anemia and
thalassemia. These neonatal stem cells are free of the ethical issues
surrounding embryonic stem cells. To date the Company's sales of BioArchive
Systems to umbilical cord blood stem cell banks has established an available
inventory capacity of more than 160,000 stem cell units. The Company estimates
more than 1,000,000 stem cell units will be required in order to build the stem
cell unit inventory that will contain the Human Leukocyte Antigen ("HLA")
diversity required to meet the world's need for this important new life giving
therapy. More than four years after the initial launch of the BioArchive System,
it remains the only totally integrated stem cell processing and robotic,
cryo-preservation system available to umbilical cord blood banks.
Initially, the Company developed medical devices for ultra rapid freezing and
thawing of blood components, which are manufactured and distributed to blood
banks and hospitals around the world. Beginning in late 1993, and with
accelerated research and development ("R&D") efforts from 1996 to 1999, the
Company completed two new technology platforms (BioArchive System and the
CryoSeal System), each of which is designed to produce multiple biological
products targeted at serious diseases and surgical applications. These two
technology platforms are viewed by the Company as micro-manufacturing systems,
that utilize single use sterile disposable containers to produce biological
products composed of stem cells, proteins, enzymes or growth factors with
potential therapeutic applications for treatment of serious human disease.
The Company's R&D efforts in fiscal year 2002 focused on the development,
manufacturing transfer and regulatory activities of supporting products for the
CryoSeal FS System. The CryoSeal FS System includes a variety of sterile single
use disposable products including the CP-3 plasma processing set, which is used
to harvest both components of the surgical "glue" (cryoprecipitate and thrombin)
from a single unit of autologous (the patient's) or allogeneic (single donor)
plasma when loaded into our automated CS-1 processing device. The Thrombin
Activation Device ("TAD"), which is integrated into the design of the CP-3,
utilizes proprietary enzyme extraction technology to enable the simultaneous
preparation of the second component of the two-component "glue" --- 8.5 ml of
activated thrombin from approximately 10 ml of plasma while the first component,
5 to 8 ml of cryoprecipitate, is simultaneously harvested from the remainder of
the plasma. The cryoprecipitate consists of the concentrated clotting and
adhesive proteins fibrinogen, fibronectin, Factor VIII, von Willebrands factor,
and other wound healing proteins. These two components combine to form a gel
like "glue" when applied to the wound site in any of the Company's specialized
sterile disposable applicators.
Since thrombin can also be used to release growth factors from platelets which
have been reported to accelerate the re-growth of bone defects, the Company also
completed the development of a stand-alone TAD and in 2002 entered into an OEM
agreement with Interpore Cross to supply them with this product for
incorporation into their existing Autologous Growth Factors ("AGF") product. The
Company is pursuing other potential markets for the TAD technology.
From 1987 to 1998, the Company's primary revenues were from sales of ThermoLine
products which are Ultra Rapid Blood Plasma Freezers and Thawers. These high
performance devices are sold directly by the Company to hospitals, blood banks,
blood transfusion centers, and plasma collection centers in the United States
under FDA approval and through distributors in foreign countries. These
ThermoLine products feature innovative hardware and software, but no processing
disposables.
(B) Market Overview
The Company anticipates significant growth during the next several years in the
demand for cell therapy products, surgical sealants and platelet derived growth
factor products sourced from individual units of donated human blood, rather
than pools of thousands of units of bovine or human blood that have been
purchased on the open market, which is the standard industry practice.
Management believes that if the market for cell therapy expands as anticipated,
that the market for its BioArchive System, including its related sterile
disposables (e.g. cell storage containers and bag sets for cell collection,
selection and transplantation), all of which the Company believes meet current
FDA requirements, will also expand.
(i) Cell Therapy Market
Cell therapy will be uniquely "personalized" medicine in that the source
cells will be either harvested directly from the patient (autologous) and
then modified and returned or will come from a single HLA-matched donor.
So, cell based therapy will be the implantation or transplantation of
"patient specific" cell populations to replace, repair, augment, and/or
regulate the biological function of tissues damaged by trauma, disease
processes, or genetic abnormalities.
The emerging cell therapy market will be driven in part by newly developed
enabling technologies that provide cell populations that not only replace
bone marrow, but also regenerate brain, nerve, bone, cartilage, and other
tissues or boost the immune systems ability to combat cancers through the
use of cell derived cancer vaccines. This new strategy for curing disease
has dramatically changed the landscape of new drug development from that of
protein-based (recombinant and fractionated proteins) to cell-based.
Because of the serious potential risk of graft vs. host disease ("GVHD"),
the overwhelming majority of these cell preparations will be
individual-specific doses derived from single units of autologous or an HLA
matched single donor blood. The chart below provides an overview of the
emerging cell therapy market.
Cell Therapy Market Segments
-----------------------------------------------------------------------
| | | |
- ----------------- ----------------- ------------------ --------------------- ---------------------
Enabling Cryopreservation/
Technologies Cell Selection Cell Expansion Cell Modification Archiving
- ----------------- ----------------- ------------------ --------------------- ---------------------
| | | |
----------------------------------|-------------------------------------
----------------------------------|-------------------------------------
| | | |
- ----------------- ----------------- ---------------------- ------------------- -------------------
Bone Marrow Tissue Regenerating Gene Modified Immune Modified
Products Rescue Cells Cells Cells Cells
- ----------------- ----------------- ---------------------- ------------------- -------------------
Target Diseases o Leukemias o Parkinsons o Hemophilia o HIV
o Lymphomas o Multiple Sclerosis o Solid Tumor o Solid Tumor
o Genetic o Spinal Cord Cancers Cancers
Diseases Damage o Alzheimers o Hepatitis
o Stroke o Malaria
o Myocardial
Infarction
- ----------------- ----------------- ---------------------- ------------------- -------------------
- ----------------- ----------------- ---------------------- ------------------- -------------------
Annual Patient
Population 100,000+ 1,000,000+ 1,000,000+ 1,000,000+
- ----------------- ----------------- ---------------------- ------------------- -------------------
Depending on the desired therapy(s), transferred cells may be
patient-derived (autologous) or from a single HLA-typed blood donor
(allogeneic); and be capable of generation of multiple cell types
(pluripotent stem cells) or tissue specific precursors (progenitor cells).
In many cases, cells will be isolated, grown to larger numbers,
physiologically stimulated and/or genetically modified outside the body (ex
vivo) prior to their therapeutic transfer to the patient. Alternatively,
unmodified cells may be transferred to the desired site of action and
treated with drugs, biopharmaceuticals, or gene products delivered locally
(in situ) to stimulate the cells to grow, differentiate, secrete or
otherwise provide the desired cell function (excrete insulin for example).
In some cases, the organization of cells into tissues is facilitated by
biological gels which are gradually eliminated over time (absorbable,
biodegradable) and replaced by normal tissue. In all cases, the goal is to
provide an appropriate mix of functionally differentiated cells in
sufficient numbers and quality to improve the targeted immune system, gene
activity or restore the targeted tissue function(s).
Clinical Value of Umbilical Cord Blood Stem Cells in Bone Marrow Rescue
The Company's BioArchive System has been adopted by most of the world's
leading Cord Blood Stem Cell Banks. The clinical value of transplanting the
hematopoietic stem cells found in umbilical cord blood has been well
documented in the bone marrow rescue treatment of leukemias, lymphomas,
diverse inherited anemias, and hypoproliferative stem cell disorders have
been reported in the following peer review journal articles by our
scientific and clinical collaborators - Dr. Pablo Rubinstein and Dr. Joanne
Kurtzberg:
o Rubinstein, P. "Placental Blood-Derived Hematopoietic Stem Cells for
Unrelated Bone Marrow Reconstruction." Journal of Hematotherapy.
Vol. 2, 1993; 207-210.
o Rubinstein, P et al. "Review: Stored Placental Blood for Unrelated Bone
Marrow Reconstitution." Blood. Vol. 81, No. 7, April 1, 1993; 1679-1690.
o Kurtzberg, J et al. "The Use of Umbilical Cord Blood in mismatched
Related and Unrelated hematopoietic Stem Cell Transplantation." Blood
Cells. Vol. 20, 1994; 275-283.
o Rubinstein, P et al. "Unrelated Placental Blood for Bone Marrow
Reconstitution: Organization of the Placental Blood Program." Blood
Cells. Vol. 20, 1994; 587-600.
o Rubinstein, P et al. "Processing and Cryopreservation of Placental /
Umbilical Cord Blood for Unrelated Bone Marrow Reconstitution."
Proceedings of the National Academy of Sciences. Vol. 92, 1995; 10119-
10122.
o Kurtzberg, J et al. "Placental Blood as a Source of Hematopoietic Stem
Cells for Transplantation into Unrelated Recipients." New England
Journal of Medicine. Vol. 335, 1996; 157-166.
o Rubinstein, P et al. "Initial Results of the Placental / Umbilical Cord
Blood Program for Unrelated Bone Marrow Reconstitution." New England
Journal of Medicine. Vol. 339, 1998; 1565-1577.
o Rubinstein et al. "Outcomes among 562 recipients of placental-blood
transplants from unrelated donors." The New England Journal of Medicine.
Vol. 339, No. 22, November 26, 1998; 1565-1577.
o Kurtzberg J et al. "Hematopoietic Engraftment and Survival in Adult
Recipients of Umbilical-Cord Blood From Unrelated Donors." New England
Journal of Medicine. Vol. 344, 2001; 1815-1822.
The clinical outcome data support the following conclusions:
o Cord blood stem cell transplants regularly engraft, produce low rates of
GVHD and achieve survival rates comparable or superior to those from
unrelated bone marrow transplants.
o Cell dose/Kg patient weight is important for timing and incidence of
engraftment; and
o HLA compatibility is important for engraftment and survival.
o Cord blood stem cells can be collected without risk to any donor, HLA
typed, cryopreserved and archived in banks for extended lengths of time
and be immediately delivered to patients in need, thereby avoiding the
delays inherent in sourcing stem cells from the bone marrow of potential
donors whose names are listed in a registry and must be located and
caused to endure painful procedures to perform the harvest.
In conclusion, the Company believes it is clear that thousands of patients'
lives can be saved each year if a significant inventory of umbilical cord
blood units is cryo-preserved and archived, ready for immediate transplant
as soon as the patient is diagnosed. Estimates vary, but there is some
consensus that a cryopreserved umbilical cord blood inventory of 1 million
(less than 20% of the 5.6 million potential bone marrow donors currently in
the international bone marrow registries) would provide excellent HLA
matches (6 of 6 or 5 of 6) and high cell doses (greater than 2.5 X 107
cells/Kg body mass) to the tens of thousands of patients annually which
physicians wish to treat with a stem cell transplant.
Transplant candidates also include the patients undergoing stem cell
transplants to treat solid tumor cancers (-e.g. breast cancer). It should
be noted that autologous bone marrow transplant outcomes have not been
superior to patients receiving only chemotherapy and radiation, presumably
because at least some of the cancer cells reside within the bone marrow and
are thus returned to the body after the chemotherapy and radiation
treatment and that the patients existing immune cells have already
demonstrated that they were unable to defeat the cancer. This patient
population would now have access to a well-matched unrelated umbilical cord
blood stem cell unit which could establish a new, rather than
previously-defeated, immune system to resist the re-emergence of cancer
cells not killed by the chemotherapy and radiation treatment.
An equally important benefit of this large-standing inventory is that it
would allow the exploration of the treatment of other major diseases that
may well be cured by stem cell transplants, such as sickle-cell anemia
(80,000 patients per year) ("Sickle Cell Anemia." National Heart, Lung, and
Blood Institute (NIH), NIH Publication No. 96-4057, November 1996; p.2),
AIDS (200,000 patients per year) ("Surveillance for AIDS-defining
Opportunistic Illnesses, 1992-1997." Morbidity and Mortality Weekly Report:
CDC Surveillance Summaries. Volume 48, No. SS-2, April 16, 1999) and
thalassemia (600,000 patients per year) ("Thalassemia (Cooley's Anemia)
Clinical Research Network." National Heart, Lung, and Blood Institute
(NIH), RFA HL-99-016, March 11, 1999). An exploratory clinical study
reported an 81% cure rate for treating sickle cell anemia with a stem cell
transplant.
Umbilical Cord Blood vs. other sources of hematopoietic stem cells
There are two typical sources of hematopoietic stem cells currently
utilized in bone marrow rescue therapy: 1) adult stem cells sourced
invasively from the donors bone marrow or peripheral blood, and 2) neonatal
stem cells sourced from placental umbilical cord blood. Clinical consensus
is building that umbilical cord blood is the best source of hematopoietic
stem cells.
- --------------------------------------------------------------------------------
Source Advantages Disadvantages
- --------------------------------------------------------------------------------
Neonatal Stem Cells - Readily available - Number of cells
Umbilical Cord Blood - No donor risks limited by volume
- Long telomeres of collected
- Large proliferative blood (~80 ml)
capacity
- Less GVHD in
allogeneic patients
- Low risk of
infectious disease
- --------------------------------------------------------------------------------
Adult Stem Cells - Readily available - Risk to donor
- Large number of cells during extraction
- Significant risk
of infectious
disease
- Significant
chronic and acute
GVHD
- Short telomeres
- Low proliferative
capacity
- --------------------------------------------------------------------------------
One of the major advantages with umbilical cord blood stem cells is that
they are harvested from the placenta/umbilical cord after birth of a newly
delivered baby and until recently, normally discarded as biologic waste.
Without risk or pain to the donor, harvests can take place in all hospitals
in which babies are born. They can be banked in large numbers throughout
the ethnic populations of the world to optimize the probability of finding
an HLA match for every patient soon after diagnosis.
The Market Need for Umbilical Cord Blood Stem Cell Banks
The Company believes the market for the BioArchive System will be
predominately driven by the demand for umbilical cord blood stem cell
donations to build an HLA diverse inventory sufficient to service the
transplants needed for bone marrow rescue therapy. More recently, umbilical
cord blood has been reported to contain additional stem cells which may
have advantages over embryonic stem cells as a means of producing highly
valuable cell populations to treat many previously incurable lethal
diseases such as Parkinson's disease, Alzheimer's disease and diabetes.
This is a new and still emerging market.
Umbilical cord blood samples are collected by draining blood from the
placenta and umbilical cord, which previously had been considered medical
waste. The stem cells are then concentrated within a final volume of 20 ml
typically using the Company's proprietary sterile disposable processing bag
sets.
In order to achieve an optimum tissue match with patients of diverse ethnic
backgrounds, a large number of umbilical cord blood samples must be banked,
catalogued, and available for retrieval. Statistical analysis suggests that
one million samples, harvested throughout the world, will provide
sufficient volume and diversity to produce a high cell dose and an
excellent tissue match for 95% of the world's patients who may require a
transplant. These two factors, individually, and especially in combination,
significantly increase the likelihood of patient survival. The Company is
aware that the health authorities in most industrialized countries have
already or intend to establish umbilical cord blood stem cell banks which
are building towards this one million sample inventory.
Enabling Technologies for the Cell Therapy Marketplace
The primary driver in cell therapy research will be the development of
critical enabling technologies that advance the science and remove the
limitations of the current cell processing techniques. These enabling
technologies will transform therapies that were experimental, expensive,
and inefficient into a well-structured, attainable, cost effective
alternative to the current protein based treatments.
There are four critical enabling technologies: (1)
cryopreservation/archiving, (2) cell selection, (3) cell expansion and (4)
cell modification, that can best be understood by examining a typical
production cycle for a cell therapy product.
Cell Therapy Product Production Cycle
- ---------------------
Collection of Cells
- ---------------------
|
- --------------------- --------------------- -----------------------
Cell Selection
and/or
Cryopreservation/ __ Cell Expansion __ Cryopreservation/
Archiving and/or Archiving
Cell Modification
- --------------------- --------------------- -----------------------
|
-----------------------
Thawing, Transfusion of
Cells
-----------------------
1. Cryopreservation/Archiving
The ability to deliver cell populations optimized for numbers
(recovery) and viability exactly at the time a patient is optimally
prepared to receive them will be a critical factor in successful
cellular therapy. Compared to proteins that can be lyophilized and
stored at room temperature for long periods of time without loss of
function, the viability of cells at room temperature and even at
refrigerated temperature is short and fragile. The BioArchive
technology enables the processing, cryopreservation and archiving of
single unit patient cell specimens in liquid nitrogen (-196 degree
centigrade) without harmful Transient Warming Events ("TWE's"). This
should be beneficial for the logistical flexibility and therapeutic
efficacy needed to ensure the future growth of the industry.
2. Cell Selection
An adequate supply of high-quality purified cell types requires cell
selection methods capable of isolating rare or unique cells.
In order to remove only a specific cell, scientists had to first be
able to reliably identify the cell. Once the cells could be
identified, it would then be possible to develop techniques that
removed the target cells from other cells in the collection.
Currently, several methods are used for the clinical purification of
cell subsets. These methods can separate cells from bone marrow,
peripheral blood stem cell collection and whole blood (for stem cells
and immune cells, or umbilical cord blood, or embryonic stem cells).
The process of cell selection can be used for the following four
applications:
1. Remove excess red cells and plasma leaving all the mononuclear
cells (which includes the hematopoietic stem cells) in a fixed
small volume.
2. Separate only desired cell type from a population of cells.
3. Extract a stem cell at a specific stage of differentiation or a
dendritic cell at a specific stage of maturation.
4. Deplete tumor cells that may be contaminating the cell preparation.
The major objective of any cell selection or purification system is
the recovery of a pure, viable cell population without significant
loss of target cells. The BioArchive method of cell selection (No.1
above) is embodied in the Company's sterile, single use cell
processing bag sets that are being sold to cord blood banks through
out the world.
3. Cell Expansion
The major challenge for clinical application of hematopoietic stem
cells from cord blood is ex vivo expansion. Expansion of rare cells is
an attractive strategy to ensure that there are enough stem cells for
rapid engraftment, even in large adults, when the initial numbers
collected from a unit of cord blood or a donor are too small to
achieve the required therapeutic benefit.
Although there has been recent progress toward development of
clinically useful protocols for stem cell expansion, there is to date
no clinical trials that confirm the efficacy of such procedures.
Stable in vitro maintenance of the stem cell characteristic over many
doublings of the population would also allow for genetic manipulation.
The Company's proprietary freezer bag which is currently sold
worldwide is specifically designed to address this potentiality.
4. Cell Modification
Cell modification includes the technologies required for: a)
stimulating stem cells to differentiate into the various cell types
required for use as regenerative therapies; b) activating antigens to
immune cells to achieve the desired therapeutic effect; and c) the
insertion of a functional gene to correct the function of an aberrant
gene in the patient.
(ii) The Commercial Fibrin Sealant (Glue) Market
Fibrin sealants are a type of protein gel used by surgeons as hemostatic
agents (material used to control or stop bleeding) or to glue tissue
together during surgery. While sutures and staples will bring tissue edges
together very effectively, they do not have inherent sealing and clotting
activity.
Fibrin sealant is a gel typically formed by mixing purified fibrinogen and
thrombin. Fibrin is completely resorbed by the body. Its
physical/mechanical properties enable it to serve both as a hemostatic
(clot-forming) agent and sealant (biologic glue). The formation of a fibrin
clot is a natural wound healing mechanism of the body, and therefore
completely natural - it is the body's own acute tissue adhesive. Fibrin
dissolves over the four weeks following surgery in such a way as to allow
blood to provide nutrients and healing factors to the cut tissue edge, and
nothing else in the surgeon's armamentarium provides this capability.
Conventional "first generation" fibrin sealants are used today for a wide
variety of surgical procedures. These include the major blood-loss
surgeries of the cardiovascular, pulmonary, and liver regions. Fibrin
sealants are used to seal needle holes, pulmonary leaks, and to seal slow
oozing wounds. Fibrin sealants provide excellent adhesion for skin graft,
plastic surgery procedures, and sealing the dura to prevent cerebral spinal
fluid leaks.
Current Market Spending for Fibrin Sealants
The March 2002 MedMarket Diligence-Worldwide Wound Sealant Market Report
estimated the 2001 worldwide revenue for fibrin sealants to be
approximately $460 million. Calendar year 1999 was the first full year in
which commercial fibrin sealants (Tisseel (Baxter) and HemaSeal (HemaCure)
were sold in the United States. With the expected FDA clearance/approvals
of new products and continued educational efforts by existing fibrin
sealant suppliers driving growth in the number of surgical procedures using
fibrin sealant in the U.S. market, the Company believes worldwide revenues
should grow to over $600 million by 2007.
In Europe and Japan, these "first generation" fibrin sealants, sourced from
pooled blood plasma, have enjoyed a long-term presence and represent about
90% of the procedures utilizing surgical sealants in those markets. The
cost of these fibrin sealants range between $45 and $65 per ml delivered to
the wound site depending on the country and the purchasing plan. Given
their cost they are typically purchased in smaller volumes of about 5 ml
per procedure. Management believes that commercial fibrin sealants are used
in about 300,000 European and 530,000 Japanese surgical procedures.
Baxter's Tissucol (a pre-frozen version of Tisseel) has the largest share
of the European market and Aventis's Beriplast has the largest share of the
Japanese market.
The Need for Biomaterials Prepared From Single Units of Blood - The
automated manufacturing biological products, such as fibrin sealants,
platelet gels, platelet derived growth factors ("PDGF"), thrombin and
cryoprecipitate from individual units of blood or blood plasma, is a
technology pioneered by the Company and possesses significant advantages in
the marketplace. For example, conventional "first generation" fibrin
sealant is prepared from pools of plasma purchased from more than 10,000
individuals. The risk of viral or prion transmission by blood products
continues to increase each year as new infectious viruses or other
pathogens are discovered. This risk rises dramatically when the source
plasma is a pool of 10,000 units rather than a single unit. The potential
for transmission of pathogens has now been documented in the literature.
o "Epidemiologic evidence suggests that more than 20% of uninfected
persons were subsequently infected with HPV B19 by use of fibrin
sealant (commercial pooled) during surgery." Annals Thoracic
Surgery 2002;73:1098-100.
o With this recent knowledge comes concerns for the overall safety of
all blood products in particular those that are pooled. For
example the sometimes lethal Nile River Encephalitis virus
transmitted by mosquitoes has now spread throughout most of the
United States. As there is no screening test for this virus used by
any blood center in the western world, the Center for Disease
Control ("CDC") has now confirmed that our blood supply is being
contaminated by unwitting blood donors who only experienced a
flu like effect. Further, Transfusion Transmitted Virus ("TTV")
is thought to be a form of hepatitis yet to be characterized and
along with Parvovirus B19, is resistant to the most commonly used
solvent detergent ("SD") viral inactivation technology. Prions,
infectious protein particles which cause spongiform
encephalopathies in cows (Mad Cow Disease) and humans (new variant
Creutzfelt Jacob Disease or nvCJD), are 100% lethal to infected
patients, resistant to all known forms of viral inactivation
technology, elude all forms of rapid detection, and cannot be
diagnosed in patients except through a biopsy of the dead victim's
brain.
o Blood products sourced from pools of human plasma often contain
additional proteins, and possibly viruses derived from animals such
as cows (bovine lung aprotinin and bovine thrombin are ingredients
of currently available commercial sealants) or snakes (batroxibin,
which is sourced from snake venom is used as a substitute for human
thrombin by one sealant currently being marketed in Europe). Animal
proteins may provide a vehicle for the contamination of pooled
plasma products by viruses or prions (several cases have been
documented where victims contracted nvCJD as a result of taking
growth hormones containing bovine substances).
o In addition, it has been reported that animal proteins in bovine
source collagen have triggered allergic reactions leading to
anaphylactic shock in exposed patients. Also, Factor V-based
bleeding disorders have occurred in patients exposed to bovine
Factor V present in commercial preparations of bovine thrombin.
o Government restrictions on allowable blood donors has led to a
shortage in the nations blood supply. The August 1999 ruling by the
FDA preventing anyone who had spent extended amounts of time in the
United Kingdom between the years 1980 and the present from donating
blood in U.S. blood centers, was estimated at having eliminated
~500,000 donors from the U.S. donor pool. This ruling was recently
expanded to a two step increase in restrictions, narrowing the
window of visiting the U.K. to 3 months from 6 months, and
expanding the restricted donor list to U.S. personnel stationed
at military bases in Europe, and ultimately expanding the
restrictions to anyone who has lived anywhere in Europe for five or
more years. These restrictions can only increase the magnitude of
the nation's current blood shortage. Concurrent to the ever
increasing shortage of blood donors is a corresponding increase in
the demand for autologous blood products, and / or products which
can reduce the need for allogeneic blood products.
o As a consequence of the ever increasing shortage of blood donors is
a corresponding increase in the demand for autologous blood
products, and/or products which can reduce the need for allogeneic
blood products. The CryoSeal FS Platform is designed to provide a
"second generation" fibrin sealant sourced from a single unit of
autologous or allogeneic plasma, and with a protein composition
enriched in the additional wound healing proteins fibronectin,
Factor VIII, Factor XIII and von Willebrands factor.
(iii) The Ultra Rapid Freezer Market
Blood banks preserve blood and plasma products by freezing them in sterile
plastic bags and then thawing them before use. Blood centers separate whole
blood collected from donors into its components, which includes:
erythrocyte concentrates, platelet concentrates, fresh frozen plasma and
Cryoprecipitated AHF. Fresh frozen plasma ("FFP") contains the labile as
well as the stable components of the coagulation, fibrinolytic, and
complement systems; the proteins that maintain pressure and modulate
immunity; and other proteins that have diverse activities. At specialized
plasma fractionation facilities, frozen plasma is further processed into
plasma derivatives for use in component therapy, such as albumin, Factor
VIII and IX, antithrombin III, immunoglobulins, etc. The typical uses for
FFP are for direct transfusion, and as a source of material for the
preparation of Cryoprecipitated AHF. The use of FFP in the U.S. has reached
almost 2 million units annually in the USA. One reason for the growth is
the widespread acceptance of the concept of specialized component therapy,
which is replacing the transfusion of whole blood.
A unit of plasma is defined as the fluid portion of one unit of human blood
that has been centrifuged to segregate and concentrate the red blood cells
("RBC") and platelets. The plasma fraction is then moved to a satellite bag
and frozen solid at -18 degrees centigrade (or colder) within six hours of
collection. Upon freezing, this plasma is labeled FFP. Ultra-rapid freezing
through the point of fusion provides for optimum recovery of the labile
Factor VIII proteins within FFP.
Conventional freezing systems rely on air blast freezing; however, this
method requires a considerable length of time (90 ~ 120 minutes) to
thoroughly freeze a unit of FFP.
Rapid freezing is one of the easiest steps that a blood bank or center can
take to dramatically improve the quality of their processed plasma. Studies
at blood centers in the Hague (the Netherlands) and Hokkaido (Japan) showed
that the Factor VIII protein yield from cryoprecipitate from plasma could
be increased by as much as 18 to 32% by using the Company's Ultra Rapid
Plasma Freezer instead of air blast freezers.
The market for Ultra Rapid Plasma Freezers is concentrated within the blood
banks, blood transfusion centers, and plasma collection centers around the
world. The Company believes that a blood bank would typically require two
to six freezers depending on facility size and the level of redundant
freezing capacity desired. The Company estimates that there are about 750
blood bank or plasma fractionation facilities that could require a plasma
freezer in the developed world; these facilities would utilize an installed
base of about 2,500 units. Assuming an eight-year life cycle for a freezer,
the available annual market is about 312 units or 12.5% of those in the
field.
Another category of customer is the facilities where plasma fractionators
collect blood plasma from paid donors. These customers require large,
high-capacity freezers. There are approximately 330 such facilities in the
U.S. and Canada. During fiscal year 2002 Aventis BioServices, one of the
world's largest fully integrated plasma collection companies, acquired 30
MP2200 and 9 MP1100 MicroCascade freezers for use in several of its newly
acquired facilities. In fiscal year 1996 and 1997, Aventis purchased 76
MP2000 freezers from the Company for their 32 domestic facilities.
(iv) The Ultra Rapid Thawer Market
Stored Frozen RBC or FFP require thawing before their transfusion. A
process of rapid homogenous thawing of frozen plasma or red blood cells is
desirable so that emergency transfusions can be quickly administrated.
Rapid thawing also reduces the time available for loss of labile proteins
(i.e.--FVIII) or growth of bacteria that may have contaminated the unit
during phlebotomy. Conventional thawing methods often utilize simple 37
degrees centigrade open air water baths which thaw frozen plasma slowly
(i.e. ~30 minutes), and were susceptible to contamination by airborne
bacteria requiring repeated decontamination of the water to maintain an
acceptable environment and conditions for thawing. With the advent of the
Company's Thawer product, which utilize sealed, membrane pocket Thawers,
the hospital blood bank can thaw frozen blood plasma in approximately ten
minutes with substantially reduced maintenance requirements.
Since the market for Thawers is essentially all hospitals that perform
surgery, the number of potential Thawer customers is significantly larger
than the number of potential freezer customers, however, the average sale
price for a Thawer is roughly 1/10th of a typical Ultra Rapid Plasma
Freezer. The Company believes that there are 5,000 potential Thawer
customers in the United States and another 9,000 customers around the
world. The typical Thawer customer has two Thawers on site.
(C) Corporate Strategy
Our goal is to become the dominant developer, manufacturer and distributor of
medical devices and disposables used by our customers to "micro-manufacture"
therapeutically valuable biological products from individual units of blood. The
term micro-manufacture refers specifically to the use of proprietary robotic or
automated medical devices and sterile, single use processing disposables, to
process individual units of blood or blood components into these biological
products in "real time" (approximately 1 hour or less). The Company believes its
enabling technologies provides the means to enter and achieve a significant
market share in each biological product market that the Company enters. The
Company believes that there is a rapidly growing need for these "second
generation" biological products which can be micro-manufactured from individual
units of whole blood, blood plasma, or platelets and has initiated an aggressive
intellectual property program to ensure that the competitive advantage gained by
the introduction of these new novel micro-manufacturing platforms is retained by
the Company.
(i) Strategy for Cell Therapy Market
The BioArchive System has been designed as a special-purpose
cryo-preservation system for blood components. The Company believes that
most collected umbilical cord blood samples will be stored in the Company's
BioArchive Systems. Given that each BioArchive system holds 3,626 samples,
the Company anticipates that approximately 276 Systems, placed in 30
countries, will be required to archive the one million in HLA typed stem
cell units needed to provide optimum transplant units to all patients in
need.
The Company expects that within five years, more than 10,000 patients each
year will be transplanted with umbilical cord blood stem cells for bone
marrow rescue procedures from the global network of umbilical cord blood
stem cell banks utilizing the BioArchive System. If research is able to
utilize other stem cells in cord blood to produce therapeutic populations
of liver, neural, brain and bone cells, the annual use of cord blood units
could grow by several orders of magnitude.
The Company's strategy for establishing the BioArchive System as the market
leader for cryopreserving umbilical cord blood stem cells has eight
components, including:
(a) Provide total solution for the umbilical cord blood stem cell banking
marketplace:
o The BioArchive System (Instrument, computer, ancillary equipment,
and processing disposables) provides the umbilical cord blood stem
cell bank customer with all the sterile bag sets, cryoprotectants
and devices needed to collect, process, cryopreserve, archive,
retrieve and transfuse umbilical cord blood stem cell units for
transplant.
o A Laboratory Applications Specialists with a Ph.D. in blood
transfusion medicine is available to provide total pre- and post-
sales support in the form of training, troubleshooting, process
improvement, assistance with system validation, preparation for
accreditation audit and in-servicing support.
o Field Service Engineers ("FSE's") provide global installation,
problem diagnosis and repair services. As each BioArchive features
a modem connected diagnostic software program, the FSE's can
troubleshoot customer complaints in real time anywhere in the world
and often resolve issues without physically being at the customers
site.
o Web page communication of technical information is available to the
installed BioArchive customer base in real time through downloads
via the Internet.
o Research collaborations with cord blood banks encourage researchers
to consider the Company as a partner for commercializing new
product concepts.
(b) Use of proprietary technology as a barrier to entry, including:
The U.S. Patent Office has issued seven patents to the Company
covering the BioArchive Platform technology base. Six additional
patent applications are currently under review by the U.S. Patent
Office. The BioArchive's most important intellectual property
includes:
o First barcode scanning system (periscope/robotic arm) to read
barcodes in Liquid Nitrogen (LN2), thus enabling positive specimen
identification prior to the specimen being exposed to the cell
damaging effects of TWE's.
o Periscope motion control system enables the periscope to precisely
move between ambient and -196 degrees centigrade (Liquid Nitrogen
temperature) despite undergoing dramatic dimensional changes as a
result of the extreme temperature shift.
o Robotic hardware and software control systems that enable the
periscope/robotic arm to place an umbilical cord blood canister at
any one of 3,626 register hooks within the interior of the system's
dewar with a positional accuracy of 1/1,000ths of an inch.
o Integrated controlled rate freezer ("CRF") modules enable the
BioArchive System to freeze approximately 70% faster than
conventional CRF devices.
o An automatically updated database of specimen records, including
International Society of Blood Transfusion ("ISBT") barcodes and
CRF freeze profiles.
(c) Engage international cord blood bank standards committees to adopt
specifications aligned with the BioArchive Platform design:
o The Company supports the FDA's stated intention to license
hematopoietic stem cells sourced from cord blood as the first stem
cell therapy product and has provided TWE data on these cells to
the FDA docket for their review.
o The Company participates directly, when invited, and indirectly
through its customers who are invited to participate on committees
charged with the development of regional or national standards for
Cord Blood Banking.
(d) Construct compelling economic model which highlights cost
effectiveness of the BioArchive System in comparison to alternative
methods which utilize conventional cryogenic devices.
(e) Create the awareness that the BioArchive cord blood stem cells have
the highest probability of engraftment.
(f) Present BioArchive System's ability to comply with current Good Tissue
Practices ("cGTP") standard cord blood banks as a competitive
advantage for BioArchive customers over cord blood banks who utilize
only conventional cryogenic equipment:
o Detail the BioArchive's features and benefits which are fully
compliant with the FDA's cGTP standards, including:
- Establishment Registration and Listing for Manufacturers of
Human Cellular and Tissue-Based Products (63 FR 26744, May 14,
1998).
- Suitability Determination for Donors of Human Cellular and
Tissue-Based Products (64 FR 52696, September 30, 1999).
- cGTP for Manufacturers of Human Cellular and Tissue-Based
Products; Inspection and Enforcement (66 FR 1508, January 8,
2000).
(g) Rapidly establish global network of BioArchive-based cord blood banks:
o From May of 1998 to June 30, 2002, the Company has installed 45
BioArchive Systems in 36 cord blood banks in 17 countries.
(h) Expand utilization of the BioArchive Platform into other cell therapy
market segments:
o Aggressively interact with researchers and start-up companies in
closely related cell therapy markets, such as cancer vaccines and
tissue regeneration products to understand their customer
requirements in order to integrate the BioArchive System into their
manufacturing processes.
o Utilize enabling technology to gain market share among cell therapy
companies- During 2001, the cell therapy market exploded onto the
financial and ethical arenas. The Company is perfectly positioned
to gain market share in this rapidly evolving marketplace because
of its proprietary positions in key enabling technologies for cell
therapy.
- Cryopreservation and Archiving- The BioArchive System is a
cryopreservation technology that has been developed to enable
the individual-specific cellular therapy strategies where only
unique HLA-matched or autologous cell populations can save an
individual patient's life.
The BioArchive System is able to start and stop "the biological
clock" of cells in order to optimize a verifiable and validated
manufacturing process and to preserve the cells until the
optimum moment to transplant the patient without comprising
cell viability. These capabilities will be critical for a
company seeking FDA licensure for their cell therapy products.
- Cell Selection- The Company, in collaboration with the New York
Blood Center ("NYBC"), has developed a single use disposable bag
set with companion cryoprotectant, that is being used in 17
countries to select therapeutic doses of hematopoietic stem
cells from umbilical cord blood. The Company is seeking partners
or technology to enable the separation of specific subgroups of
stem cells within umbilical cord blood.
- Cell Expansion- The Company and its partner, the NYBC accurately
anticipated the development of cell expansion technology during
the development of its BioArchive Freeze Bag. The BioArchive
Freeze Bag divides the cell specimen into two aliquots, one
large and one small. The small aliquot can be sterilely removed
and used as the starting material for a cell expansion
procedure. As a result, the Company is actively seeking
collaboration partners to explore the integration of a validated
cell expansion protocol into the BioArchive processing and
cryopreservation products. We do not currently have products
directed at this segment of the market.
- Cell Modification- The Company is actively seeking
collaboration partners to explore the integration of validated
cell modifying processes for stem cells into the BioArchive
disposable processing sets.
(ii) Strategy Fibrin Sealant Market
The Company's market penetration strategy for the CryoSeal FS System has
five main elements:
(a) Where regulatory standards permit, the Company will offer either
autologous or allogeneic CryoSeal Fibrin Sealant in order to penetrate
the entire fibrin sealant market.
(b) The target customer for the CryoSeal FS System is the component
producing blood center either within the largest surgery hospital or
regional blood centers that supply blood components to multiple
hospitals.
(c) The Company's blood component producing center distribution strategy
significantly reduces its dependence on large corporate partners.
(d) The newly designed CP-3 processing disposable allows up to four
overwrapped fibrin sealant kits to be produced from one unit of plasma
- thus improving the ease of use and reducing costs.
(e) The CryoSeal Platform lends itself to the development of other
important therapeutic biomaterials from a single unit of human blood,
including: (a) autologous Platelet Derived Growth Factors for the
treatment of chronic skin ulcers, including diabetic skin ulcers,
venous stasis skin ulcers and decubitis (bed sores) skin ulcers, (b)
individual thrombin preparations for use in general hemostasis as well
as in the preparation of platelet gel preparations, and (c) autologous
fibrin sealant in extremely small volumes for use in plastic surgery,
eye surgery, oral surgery, etc. markets unserved by the currently
available commercial fibrin sealants.
In order to implement our strategy the Company signed an exclusive sales
distribution agreement with Dideco for sales in Europe and the Middle East. The
Company has signed a separate agreement for distribution in Sweden and Norway.
In August of 2002 the Company signed an exclusive distribution agreement for
Canada with Minogue Medical, a well-respected surgical specialty device
distributor. Management of the daily sales and marketing efforts of these
distributors will be handled by Company Sales and Marketing Management who are
dedicated to the CryoSeal Launch and are physically located in Europe and North
America.
(iii) Strategy for Ultra Rapid Plasma Freezer & Thawer Markets
The Company's market penetration strategy for the ThermoLine Plasma
Freezers and Thawers includes the following activities:
(a) Hiring a field sales executive for North America to call on National
Accounts including the American Red Cross and United Blood Service.
Our existing telesales personnel have been developed into a
combination of outside and inside sales function providing the Company
with much needed personal interaction with our customer base. The
impact has been increased customer satisfaction, and renewed sales
activities from the installed customer base. Internally, the Company
made incremental investments in the telemarketing personnel, computer
software and contact database(s) to ensure maximum sales coverage and
lead follow-up. Additionally, for the European and Asian markets,
dedicated sales executives were put in place to ensure optimal support
to distributors for the Ultra Rapid Plasma Freezers and Thawers, and
to call on existing and potential new accounts to create more demand
for these products.
(b) Developing incremental improvements to the freezers, including the
development of the:
o MP2200 model features semi-automatic defrost and cleaning
(filtration) of the heat transfer liquid to improve the operational
reliability of the freezer and lower overall system operational
costs. This model was introduced during the fiscal year to our
Aventis customers and has been modified to the requirements of our
customers located in blood centers.
(D) Description of the Business
(i) BioArchive Platform Products
The BioArchive System provides the means for cord blood banks to collect,
process, cryopreserve, and retrieve for transplantation a readily
accessible inventory of individual units of HLA typed, infectious and
genetic disease screened, cord blood stem cell specimens. Cord blood
derived stem cells have been proven to be comparable or superior to bone
marrow derived stem cells for the treatment of diseases such as leukemia,
lymphoma and genetic disorders such as sickle cell anemia and thalassemia.
The BioArchive System was designed to improve, standardize and automate
what had previously been a primitive and totally manual process for
collecting, processing and cryo-preserving cord blood. The Company's
collection and processing disposables are licensed to Pall Corp. for
manufacturing and distribution in the USA and Europe, and Nipro Corporation
in Japan. The proprietary collection and processing bag sets used in
conjunction with the BioArchive System's integrated CRF technology allows a
stem and progenitor cell recovery viability to be greater than 90%. The
NYBC is a co-developer of this technology and has participated in the
validation of key performance parameters of the BioArchive System.
The BioArchive System features a robotic cryogenic device that
automatically freezes, archives and manages an inventory of up to 3,626 PCB
units of stem and progenitor cells for transplant. The proprietary device
also controls and records the freezing profile of each PCB donation in
nitrogen vapor, after which the PCB unit is robotically transferred to a
specified indexed location in liquid nitrogen. The BioArchive System tracks
the storage address of each PCB stem cell unit and assures that only the
specifically chosen, HLA-matched PCB unit is retrieved when selected for a
human transplant recipient without exposing the other archived samples to
detrimental warming effects.
This global standardization is critical to the Company's marketing plan
because it drives repeat purchases as each cord blood bank expands its
inventory, and it improves the probability that second and third tier
purchasers and academic researchers also purchase BioArchive Systems.
The BioArchive System, by virtue of its integrated design, significantly
reduces the incidence of TWEs that occur when conventional cryogenic
equipment are used to process stem cell units.
BioArchive Platform Disposables
In addition to the three bag sets utilized to collect, process and
transfuse umbilical cord blood stem cells which are manufactured and
distributed under license by Pall Medical Corporation for Europe and North
America and Nipro Corporation (formerly known as Nissho Corporation) for
Japan, the Company manufactures and sells three additional disposables for
the protection of the umbilical cord blood units during inter-laboratory
transfers and shipment to the transplant centers which the Company believes
will provide an ongoing revenue stream.
(a) Canisters: The freezing bag is placed in the magnetic stainless steel
canister before it is frozen and it remains in the canister while it
is stored in liquid nitrogen. The thermal properties of the canister
augment heat transfer during freezing and physically protect the unit
when it is removed from the BioArchive System.
(b) Canister Sleeve: The insulated canister sleeve is inserted into the
retrieval cartridge prior to a specimen retrieval. During the
retrieval process, the -196 degrees centigrade canister is robotically
retrieved from its storage address and inserted into the insulated
canister sleeve; where it protects the contents of the canister from
warming and cushions the canister from physical shocks.
(c) Overwrap Bag: The overwrap bag is formed from -200 degrees centigrade
glass transition plastic and provides a secondary barrier against
contamination by pathogens.
(ii) CryoSeal Platform Products
The CryoSeal FS System prepares a surgical sealant, referred to as fibrin
sealant, from a single unit of human plasma in about an hour. The CryoSeal
FS System is comprised of a freestanding, portable instrument, the CS-1,
which in conjunction with the CP-3 plasma processing disposable and a
proprietary reagent, prepares both components (fibrinogen-rich
cryoprecipitate and thrombin) of a fibrin sealant from a single unit of
human plasma. The plasma may be sourced from the patient (autologous) or
from a single donor (allogeneic). The CryoSeal Fibrin Sealant may be
prepared on the day of surgery or up to six months prior to surgery,
providing it is stored frozen at -18 degrees centigrade or colder. Using
allogeneic plasma, each CP-3 enables the operator to prepare up to four
individual Fibrin Sealant kits ranging in volume from 1 ml to 6 mls, from a
single unit of plasma. Additionally, the Company has developed a series of
specially designed disposable fibrin sealant applicators (the FS Applicator
System) to apply the fibrin sealant to the surgical site in the operating
room.
(a) CS-1 Instrument: The CryoSeal FS System instrument (referred to as the
CS-1) is a compact, upright device that semi-automatically prepares
Cryoprecipitate and Thrombin from a single unit of human plasma. The
CS-1 instrument requires the CP-3 plasma processing disposable and
Thrombin Reagent to function. The CS-1 consists of the following key
subsystems:
o Heat transfer plate
o Heat transfer plate rocking mechanism
o Refrigeration unit
o Heater mechanism
o Vacuum system
o Peristaltic pump
o Microprocessor control system
o User interface display panel and operation buttons
o TAD Clips
(b) The CP-3 Plasma Processing Disposable is comprised of three integrated
subsystems, including:
o The cryoprecipitate chamber which consists of a clear, plastic
container pointed at one end, with a flat bottom and raised upper
portion containing a 0.2 micron filtered air vent.
o The TAD which features a tubular reaction chamber where 10 ml of
plasma is mixed with proprietary beads and a proprietary Thrombin
Reagent to form activated thrombin. Two valves control the
directional flow of thrombin solution through a filter to remove
polymerized protein.
Fibrin Sealant Kits: The CP-3 model utilizes four (4) pairs of physically
connected 3 cc syringes to store the Cryoprecipitate and Thrombin (within each
pair of 3cc syringes, one syringe contains Cryoprecipitate and the other an
equal volume of Thrombin). Each pair of syringes is simultaneously filled in
equal volumes from 0.5cc to 3cc. Each pair of 3cc syringes is enclosed in an
individual sterile overwrap. When the filling process has been completed, the
individual overwraps FS kits sterilely are disconnected from the CP-3.
(c) FS Applicator System: FS System's FS Applicator System is designed to
enable the surgeon to efficiently apply the CryoSeal Fibrin Sealant
during a wide array of surgical procedures, including liver
resectioning. The FS Applicator System is comprised of two
applicators, the Metered Applicator, and the Non-Metered Applicator,
as well as the FS Warming Tray.
o The Metered Applicator consists of a pistol-like handle into which
are placed the 3cc syringes containing the thrombin and
cryoprecipitate preparations. The Metered Applicator allows precise
control of the fibrin sealant dosing. The Non-Metered Applicator
consists of the above two 3cc syringes physically connected to one
another by both an end-cap, which doubles as a thumb rest, and a
frame that provides finger holds. The Non-Metered Applicator is
suitable when the surgeon desires to apply fibrin sealant over a
large surface area in minimal time.
o The FS Applicators possess two types of dispensing tips: a) the
Spray Tip, which is offered in 3 styles (ST-2, ST-3, and ST-4),
each providing specific levels of pre-mixing of the CryoSeal Fibrin
Sealant prior to aerosolization, which in turn produces clot times
from instantaneous to several seconds, and b) the Line/Drop Tip,
which is offered in 2 models (DT-5 and DT-10), for laparoscopic
application of CryoSeal Fibrin Sealant. The Spray Tip is designed
to apply a homogeneous layer of CryoSeal Fibrin Sealant over a
large surface area in a short timeframe, while the Line/Drop Tip is
designed to apply CryoSeal Fibrin Sealant to a small surface area.
FS Warming Tray: Experimental studies performed by the Company demonstrated that
pre-warming the cryoprecipitate and thrombin preparations to approximately 37
degrees centigrade immediately prior to application in the surgical field
results in greater clinical efficacy. The FS Warming Tray is designed to quickly
warm three fully assembled Fibrin Sealant Applicators to 37 degrees centigrade.
(iii) ThermoLine Products
(a) Ultra Rapid Plasma Freezers: The Company's line of Ultra Rapid Plasma
Freezers use heat transfer liquids, rather than gases such as air,
carbon dioxide or nitrogen to transfer heat to and from a biological
substance, such as human plasma. The Company's patented thin flexible
plastic membrane system is automatically interposed between the heat
transfer liquid and the container housing the blood component. While
flash-freezing blood plasma, this flexible membrane allows the use
of a non-toxic, low-viscosity silicone heat transfer liquid to be
refrigerated to -40 degrees centigrade and pumped into the freezing
chamber in order to achieve a rapid transfer of heat without leaving
a residue on the exterior surface of the blood container. Tests of the
technology performed by the Hague Center of the Netherlands Red Cross
reports that 300 ml bags of plasma were core frozen in 30 minutes
versus 90 to 120 minutes in air blast freezers which resulted in 18 to
32% more Factor VIII in the cryoprecipitate from the frozen plasma.
Further, the flexible membrane freezing technology also allows the
plasma bag to freeze in a vertical position causing air bubbles to
rise to the top surface of the bag, so that plasma, when frozen, does
not get trapped in the ports and lost when separated from the bags at
the plasma fractionators, a notable advantage over conventional freeze
methods which require the bags to lay on trays and freeze on their
sides.
The Company offers a complete range of Ultra Rapid Plasma Freezers
based on both size and capacity, product format (plasma bag vs.
bottle), condenser/compressor location (integrated or mounted
externally to the outside of the blood center's facility) and
performance (based on size and technology of the condenser/compressor
used). Models include: the MP500, the MP750, the MP1000 external
condenser/compressor, the MP1100 MicroCascade, the MP2000 one liter
bottle system, and the MP2200, the newest model with a new improved
defrost/filtration system.
(b) The Company's Ultra Rapid Plasma Thawers utilize algaecide treated
water to rapidly transfer heat through the patented closed flexible
membrane system into the frozen plasma. In thawing tests performed by
the Company, which compared the performance of the Company's Thawer
versus a microwave Thawer, it was demonstrated that frozen plasma rose
to a transfusable temperature (20 degrees centigrade) faster and more
homogeneously in the Company's Thawer than when thawed in the
microwave Thawer. The Company's proprietary "closed" design
significantly reduces the risk, relative to "open" systems, of
contamination of the blood product by the contaminated water from the
water bath during the thawing cycle.
The Company has three models of Thawers. They vary primarily by
capacity. The MT202 thaws two bags simultaneously, and the MT204 and
MT210 four and ten bags, respectively.
(E) CLINICAL SUMMARY STATUS
(i) BioArchive System:
(a) In Vitro Tests: The PCB stem and progenitor cell processing bag sets
were tested by the NYBC Placental Blood program, the world's largest
Umbilical Cord Blood Stem Cell Bank. The Company believes that the 95%
recovery of viable stem and progenitors cells reported by NYBC are
the highest of any cord blood stem cell processing system available
today.
(b) USA In Vivo Tests: Patient outcome data derived from patients
receiving PCB transplants prepared with the Company's processing bag
sets (manufactured and distributed by Pall Medical Corporation) and
the BioArchive cryopreservation device will be provided to the FDA by
the umbilical cord blood stem cell banks under the terms of their
Investigational New Drugs ("INDs") in the United States. These centers
include the NYBC and the NIH Cord Blood Bank at Duke University
Medical Center.
(c) Foreign In Vivo Tests: It is anticipated that similar patient outcome
data will be provided to the appropriate regulatory authorities
directly by the Cord Blood Banks in each foreign country in which the
BioArchive Systems are in operation.
(ii) CryoSeal FS System:
(1) As of July 15, 2001 the Company successfully completed the three pre-
clinical studies designed to characterize CryoSeal Fibrin Sealant for
our Investigational Device Exemption ("IDE") submission to the FDA:
o Chemical Characterization of the Thrombin and Fibrinogen-rich
Cryoprecipitate. In vitro assays were performed to demonstrate the
reproducibility of the system and its performance across a
significant sampling of donor plasmas, the impact of system
variables on system performance, including fresh vs. frozen plasma,
starting plasma volume and the type of anticoagulant present, the
protein composition as well as the short and long term stability of
the final thrombin and cryoprecipitate preparations.
o Determination of Tensile Strength of the Thrombin and
Fibrinogen-rich Cryoprecipitate. In vitro tensile (mechanical)
strength measurements were performed on CryoSeal Fibrin Sealant,
as well as a commercial fibrin sealant, using equipment designed
for such purpose.
o Demonstration of Pre-Clinical Efficacy of CryoSeal Fibrin Sealant
during Pig Liver Resectioning. An in vivo animal model, pig liver
resectioning, was performed to refine the technique of applying
the CryoSeal Fibrin Sealant to the surgical site, determination
of the time to hemostasis and the demonstration of safety of the
procedure.
(2) In March of 2001, CE Mark approval was granted by the Company, thus
approving the CryoSeal FS System for commercial activities within the
European Community. A number of European clinical studies are planned
during the fiscal year 2003 to demonstrate the product's efficacy with
a wide array of surgical procedures.
(3) In May of 2001, a license was granted by the Canadian government
approving CryoSeal FS System for commercialization within Canada. A
number of Canadian clinical studies are planned during the fiscal year
2003 to demonstrate the product's efficacy with a number of different
surgical procedures.
(4) In August 2001 an IDE was filed with the FDA requesting approval to
initiate phase III human clinical trials for liver resectioning.
The filing and the approval of the results of the phase III clinical
trials will enable the Company to immediately initiate commercial
activities for the CryoSeal FS System in the United States.
(5) On July 31, 2002, the Company announced that an independent DSMB,
comprised of surgeons, a biostatician and an ethicist, recommended
proceeding with the multi-center pivotal trial for the CryoSeal FS
System. Other than initial filing of applications and final agency
approval of such applications, the Company does not comment on the
day-to-day details of ongoing clinical activities.
(F) Competition
(i) Cord Blood Banking and Cell Therapy
The Company believes that the competition for selling equipment and
disposables to the cell therapy market, as well as the commercial and
public umbilical cord blood stem cell banking market is limited to
manufacturers of individual cryogenic components (dewars, controlled rate
freezers, etc.) of conventional systems, such as Taylor Wharton and MVE.
Four years after initiating commercial activities with the first totally
integrated cryopreservation system (BioArchive System) for umbilical cord
blood stem cell banking, the competition is the same: manufacturers of
individual conventional cryogenic equipment such as dewars, controlled rate
freezers, etc. The vast majority of cell therapy companies rushing to
initiate human clinical trials are utilizing a variety of existing cell
selection and cryogenic manufacturing and delivery processes that limit
their attractiveness with regards to product expiration dating, patient
scheduling and actual product design. The Company anticipates greater
demand for the BioArchive System and compatible disposables as cell therapy
companies work to develop products that are more end user friendly and
provide the manufacturer with greater logistical flexibility. This could
lead to other competitors emerging to provide various products which
deliver one or more of the needed enabling technologies for the future
growth of the cell therapy industry.
(ii) Commercial Fibrin Sealants
The Company is aware of six companies which have developed or are
developing commercial fibrin glues: Baxter, Hemacure, Aventis, American Red
Cross, Vivolution and Omrix Pharmaceuticals. To date, only Baxter and
Hemacure have received FDA approval to market their products in the US. In
addition, Cohesion Medical and Fusion Technologies produce similar products
that are biological sealants, but are not true fibrin sealants in that they
do not provide concentrated fibrinogen to the wound site, which
significantly reduces their visco-elastic and burst strength relative to
fibrin sealants. Furthermore, both products contain bovine thrombin and
bovine collagen, which increase the risk of transmission of non-human
viruses and prions. In addition, Focal's FocalSeal-L a synthetic sealant
made from polyethyl glycol ("PEG"), received FDA approval in May 2000 for
sealing air leaks in lungs.
(iii) Freezers: North American Competitors
In North America, the three major manufacturers of plasma freezers are the
Company, SPX/SGA Division and Forma Scientific. ThermoGenesis Corp.
utilizes a liquid heat transfer freezing method while Forma Scientific and
SPX use an air blast freezing method.
(iv) Thawers: North American Competitors
In North America, the four major manufacturers of plasma thawers are the
Company, Helmer, Cytotherm and Genesis. Management's view of the relative
technologies follows:
- ------------------------------------------------------------------------------------------------------------------
Company Thawing Method Advantage Limitations
- ------------------------------------------------------------------------------------------------------------------
THERMOGENESIS CORP. o Membrane pockets o Rapid thaw o Unit capacity
and semi-closed system o Low maintenance limited to number of
o Heat transfer fluid o Plasma is contained pockets
in membrane pocket
- ------------------------------------------------------------------------------------------------------------------
Helmer o Water bath o Contamination of
o Open air system water
o Frequent water
changes
o Longer thaw period
- ------------------------------------------------------------------------------------------------------------------
Cytotherm-Water Bath o Water bath o Same as Helmer
o Open air system
Cytotherm-Dry System o Hot Water bladders o Plasma is not o Unit Capacity
o Sequential exposed to water o Longer thaw period
compression
- ------------------------------------------------------------------------------------------------------------------
Genesis o Water Bath o Same as Helmer
o Open Air System
- ------------------------------------------------------------------------------------------------------------------
(G) Research and Development
The future R&D activities of the Company will be devoted to the completion of
the CryoSeal FS System's human clinical trial for the control of bleeding during
liver resectioning surgery, investigation of the use of the CryoSeal FS product
to include preterm premature rupture of membranes ("PPROM"), and the development
of two new products derived from the BioArchive research programs.
o The Automated Cell Separation System (Smart Bag(TM)) is a new platform
sterile disposable blood processing system that will improve therapeutic
efficacy of hematopoietic stem cell transplantation through improving
recovery and viability of hematopoietic stem cell ("HSCs") and progenitor
isolated from umbilical cord blood ("UCB"). This device and sterile
disposable processing set will be designed with these features: 1) a closed,
sterile system to promote good manufacturing practices ("GMP"); 2) a sensor
with microprocessor controlled intelligence to differentiate blood components
(e.g., plasma, red blood cells, white blood cells, including stem cells)
and meter them into separate containers; 3) a single centrifugation step
to reduce production time, give consistent yields, and improve stem cell
recovery. All separation will occur during the centrifugation process. The
Smart Bag will be targeted at existing BioArchive customers. After the
commercialization of the stem cell device, research will continue developing
a variant for use in the recovery of platelets from whole blood.
o BioArchive Cell Therapy System: The BioArchive platform will be modified to
cryopreserve various classes of human blood cells that have been temporarily
removed from the patient's body. These cells can then be immunogenically or
genetically altered in order to boost the patient's ability to fight off a
deadly disease, such as cancer. The target market is the many start-up
companies that have recently moved into this potentially very large and long
term market.
The Company has incurred R&D expenses of $2,283,000, $1,782,000, and $1,624,000
for fiscal years ending June 30, 2002, 2001 and 2000, respectively.
(H) Description of Device Manufacturing
The Company is currently manufacturing all major instruments and equipment sold
by the Company, as well as manufacturing a limited number of its disposable
products (Thrombin Reagent and the BioArchive Overwrap Bag). The Company
believes that vendors used by the Company are capable of producing sufficient
quantities of all required components. Products manufactured or sold by the
Company are warranted against defect in manufacture for a period of 12 months
from shipment when used for the equipment's intended purpose, which warranties
exclude consequential damages to the extent allowed by law.
Instrument Manufacturing- ThermoGenesis manufactures the BioArchive
instrument, the Auto-Expressor, CS-1 instrument, Ultra Rapid Plasma
Freezers and Ultra Rapid Plasma Thawers at its Rancho Cordova, CA facility.
The Company assembles the hardware from multiple subassemblies supplied by
a wide base of skilled suppliers. However, the Company manufactures certain
sub-assemblies, e.g., the BioArchive robotic, barcode-reading periscope, in
their entirety at the Rancho Cordova facility. All parts and subassemblies
are procured from qualified suppliers. Trained ThermoGenesis employees
assemble products and perform final QC release based on performance
criteria. All processes are monitored and either verified or validated to
ensure non-conforming product is not produced.
Disposables Manufacturing- The Company utilizes contract manufacturers that
we believe have the technical capability and production capacity to
manufacture our CryoSeal and BioArchive disposables.
Thrombin Reagent and BioArchive Overwrap Bag Manufacturing- The
manufacturing process for the Thrombin Reagent occurs at two different
facilities, THERMOGENESIS CORP. and at a contract manufacturer. We perform
the initial manufacturing processes at our manufacturing facilities. After
filling and stoppering of the syringes, the syringes are shipped to our
contract manufacturer where they are terminally sterilized, individually
labeled and packaged. Our Quality Assurance Department is responsible for
final product release. All processes associated with the manufacture of the
BioArchive overwrap bag occur at the Company's manufacturing facility.
The majority of the materials used to produce the Company's products are readily
available from numerous sources. Based upon current information from
manufacturers, the Company does not anticipate any shortage of supply. In 1992,
the Company introduced a replacement heat transfer liquid and refrigerant which
is free of chlorofluro-carbons ("CFC") for use in the Company's proprietary
process. The replacement chemicals are readily available and the Company does
not anticipate any shortages or constraints on supplies. In the event that it
becomes necessary for us to obtain raw materials from an alternative supplier,
we would first be required to qualify the quality assurance systems and product
of that alternative supplier.
We, as well as any third-party manufacturers of our products, are subject to
inspections by the FDA and other regulatory agencies for compliance with
applicable good manufacturing practices, codified in the quality system
regulation, or QSR requirements, which include requirements relating to
manufacturing conditions, extensive testing, control documentation and other
quality assurance procedures. Our facilities have undergone an ISO inspection,
in preparation for obtaining a CE Mark on our products, in addition to annual
renewal inspections. Failure to obtain or maintain necessary regulatory approval
to market our products would have a material adverse impact on our business. See
"Factors Affecting Operating Results".
(I) Government Regulation
The product development, pre-clinical and clinical testing, manufacturing,
labeling, distribution, sales, marketing, advertising and promotion of the
Company's research, investigational, and medical devices are subject to
extensive government regulation in the United States, and also in other
countries. These national agencies and other federal, state and local entities
regulate, among other things, development activities and the testing (in vitro
and in clinical trials), manufacture, safety, effectiveness, labeling, storage,
record keeping, approval, advertising and promotion of our products.
The extent of the process required by the FDA before a medical device may be
marketed in the United States depends on the classification of device. If the
medical device is a Class III such as the CryoSeal FS System, the process
includes the following:
o Extensive pre-clinical laboratory and animal testing;
o Submission of an IDE application;
o Human clinical trials to establish the safety and efficacy of the
medical device for the intended indication; and
o Submission to the FDA for approval of a Premarket Application ("PMA")
Pre-clinical tests include laboratory evaluation of product
chemistry/biochemistry and animal studies to assess the potential efficacy of
the product. Safety testing includes tests such as cytoxicity, biocompatibility,
package integrity and stability. Pre-clinical tests must be performed by
laboratories that comply with the FDA's Good Laboratory Practices ("GLP's")
regulations. The results of the pre-clinical tests are submitted to the FDA as
part of an IDE application and are reviewed by the FDA before human clinical
trials can begin. Human clinical trials can begin when IDE approval is granted.
Clinical trials involve the application of the medical device or biologic
produced by the medical device to patients by a qualified medical investigator
according to an approved protocol and approval from an Institutional Review
Board ("IRB"). Clinical trials are conducted in accordance with FDA regulations
and an approved protocol that detail the objectives of the study, the parameters
to be used to monitor participant safety and efficacy or other criteria to be
evaluated. Each protocol is submitted to the FDA as part of the IDE. Each
clinical study is conducted under the approval of an IRB. The IRB considers,
among other things, ethical factors, the potential risks to subjects
participating in the trial and the possible liability of the institution. The
IRB also approves the consent form signed by the trial participants.
Medical device clinical trials are typically conducted as a phase III clinical
trial. A safety pilot trial may be performed prior to initiating the phase III
clinical trial to determine the safety of the product for specific targeted
indications to determine dosage tolerance, optimal dosage and means of
application and identify possible adverse effects and safety risks. Phase III
trials are undertaken to confirm the clinical efficacy and safety of the product
within an expanded patient population at geographically dispersed clinical study
sites. The FDA, the clinical trial sponsor, the investigators or the IRB may
suspend clinical trials at any time if any one of them believe that study
participants are being exposed to an unacceptable health risk.
The results of product development, pre-clinical studies and clinical studies
are submitted to the FDA as a PMA for approval of the marketing and commercial
shipment of the medical device. The FDA may deny a PMA if applicable regulatory
criteria are not satisfied or may require additional clinical testing. Even if
the appropriate data is submitted, the FDA may ultimately decide the PMA does
not satisfy the criteria for approval. Product approvals, once obtained, may be
withdrawn if compliance with regulatory standards are not maintained or if
safety concerns arise after the product reaches the market. The FDA may require
post-marketing testing and surveillance programs to monitor the effect of the
medical devices that have been commercialized and has the power to prevent or
limit future marketing of the product based on the results of such programs.
Each domestic manufacturing establishment in California must be registered with
and approved by the FDA and the California State Food and Drug Branch. Domestic
manufacturing establishments are subject to biennial inspections by the FDA and
annual inspections by the State of California for compliance with current good
manufacturing practices. We are also subject to U.S. federal, state, and local
regulations regarding workplace safety, environmental protection and hazardous
materials and controlled substance regulations, among others. The Company has a
California Environmental Protection Agency Identification number for the
disposal of bio-hazardous waste from its research and development bio lab.
Some of our products which have a lower potential safety risk to the intended
user or patient, and which have similar, competitive products previously cleared
by the FDA for the same intended indication, may utilize a simpler and shorter
regulatory path called a 510(k) application to gain commercial access to the
marketplace. The 510(k) differs from the PMA process primarily in the lack of a
requirement for performance standards or to perform human clinical trials,
however, laboratory data and safety data for the proposed product are still
required to be submitted to the FDA for review. This regulatory process requires
that the Company demonstrate substantial equivalence to a product which was on
the market prior to May 29, 1976, or which has been found substantially
equivalent after that date.
Some of our products that have minimal risk to the intended user and do not
involve direct patient interaction may be deemed by the FDA as being exempt from
FDA review. These products still require compliance with good manufacturing
practices, also known as the Quality System Regulations ("QSR's"). Products
manufactured in the United States which have not been cleared by the FDA through
a 510(k) submission, or which have not been approved through the PMA process,
must comply with the requirements of Section 801 or Section 802 of the Food Drug
and Cosmetic Act ("FDCA") prior to export. These devices which are capable of
being cleared by the FDA under a 510(k) submission do not require FDA approval
for export; however, the Company's products must still comply with certain
safety and quality system requirements.
Failure to comply with applicable FDA requirements can result in fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, distribution, sales and marketing, or refusal of the
FDA to grant clearance of a PMA or clearance of a 510(k). Actions by the FDA
might also include withdrawal of marketing clearances and criminal prosecution.
Such actions could have a material adverse effect on the Company's business,
financial condition, and results of operation.
(J) Patents and Proprietary Rights
The Company believes that patent protection is important for products and
potential segments of its current and proposed business. In the United States,
the Company currently holds 18 patents, and has nine (9) patents pending to
protect the designs of products which the Company intends to market. There can
be no assurance, however, as to the breadth or degree of protection afforded to
the Company or the competitive advantage derived by the Company from current
patents and future patents, if any. Although the Company believes that its
patents and the Company's existing and proposed products do not infringe upon
patents of other parties, it is possible that the Company's existing patent
rights may be challenged and found invalid or found to violate proprietary
rights of others. In the event any of the Company's products are challenged as
infringing, the Company would be required to modify the design of its product,
obtain a license or litigate the issue. There is no assurance that the Company
would be able to finance costly patent litigation, or that it would be able to
obtain licenses or modify its products in a timely manner. Failure to defend a
patent infringement action or to obtain a license or implementation of
modifications would have a material adverse effect on the Company's continued
operations.
While patents have been issued or are pending, the Company realizes (a) that the
Company will benefit from patents issued only if it is able to market its
products in sufficient quantities of which there is no assurance; (b) that
substitutes for these patented items, if not already in existence, may be
developed (c) that the granting of a patent is not a determination of the
validity of a patent, such validity can be attacked in litigation or the Company
or owner of the patent may be forced to institute legal proceedings to enforce
validity; and (d) that the costs of such litigation, if any, could be
substantial and could adversely affect the Company.
(K) Factors Affecting Operating Results
We Have Incurred Net Losses since Our Inception and Expect Losses to Continue.
Except for net income of $11,246 for fiscal 1994, we have not been profitable
since our inception. For the fiscal year ended June 30, 2002, we had a net loss
of $5,038,000, and an accumulated deficit at June 30, 2002, of $49,110,000. The
report of independent auditors on our June 30, 2002, financial statements
includes an explanatory paragraph indicating there is substantial doubt about
our ability to continue as a going concern. Although we are executing on our
business plan to market launch new products, continuing losses will impair our
ability to fully meet our objectives for new product sales and will further
impair our ability to meet continuing operating expenses that may result in
staff reductions and curtailment of clinical trials currently planned. See Risk
Factor entitled " If We Are Unable to Raise Funds Our Growth May Be Adversely
Affected" below.
If We Are Unable to Raise Funds Our Growth May Be Adversely Affected.
Historically, we have had to seek capital for our growth and operations due to
lack of revenues. Based on net proceeds of approximately $6.8 million received
in our most recent private placement, we believe we will have sufficient working
capital to fund our operations for the next six to twelve months. However, if
actual sales do not meet expectations, or marketing, production and clinical
trial costs increase significantly, we will need additional financing to
complete and implement our long-term business objectives. Further, delays in
obtaining required governmental clearances for, or additional testing
requirements prior to, marketing our new products will result in decreased
revenues and increased costs that may require us to seek additional financing.
In the event that there is a cash shortage and we are unable to obtain a debt
financing, additional equity financing will be required which will have the
effect of diluting the ownership of existing stockholders.
We Have Limited Testing Data and Must Complete Further Testing Successfully in
Order to Gain Food and Drug Administration ("FDA") Approval Required to Market
our CryoSeal Fibrin Sealant System in the United States. The Company has
completed the pilot study and certain in vitro and in vivo testing of its
CryoSeal FS System, and the pivotal trial in the United States is to begin in
the near future with the CryoSeal FS System. Other in vitro studies have
occurred with the BioArchive System and stem cell units processed with the
BioArchive products have been transplanted successfully into humans. While these
studies provide a basis to achieve regulatory permission to promote these
systems for some of the indications that management believes can be achieved,
they do not provide a basis to achieve all of the indications. Further clinical
studies must be performed. There can be no assurance that the clinical studies
can be successfully completed within the Company's expected time frame and
budget, or that the Company's products will prove effective in the required
clinical trials. If the Company is unable to conclude successfully the clinical
trials of its products in development, the Company's business, financial
condition and results of operations could be adversely affected.
Our Failure to Develop New Products Will Adversely Effect Our Future Growth.
Historically, substantially all of our sales have been from products related to
freezing, thawing, and storing of blood plasma. Because we expect this segment
of the blood plasma market to have limited growth potential, new products for
the biotechnology market will have to be successfully developed and marketed for
future growth. We are currently focusing on developing and marketing novel blood
processing systems such as the CryoSeal FS System for the automated production
of autologous or allogeneic blood components used as a fibrin sealant. Although
this product uses technology related to our core competence, it also represents
a departure from our former core blood plasma business. Further, although we
have had discussions with experts in areas of application for this product, it
is still in its development and/or initial market phase. No assurance can be
given that potential products can be successfully developed, and if developed,
that a market will also develop for them.
If We Fail to Maintain Our Listing, Liquidity of the Company's Stockholders Will
Be Adversely Affected. The Nasdaq SmallCap Market on which our common stock is
traded has established certain maintenance listing requirements that must be
satisfied in order for a company's shares to continue to be listed. Currently,
our common stock meets the Nasdaq SmallCap Market maintenance listing
requirements. However, if we continue to incur losses, this may affect our
ability to meet the net tangible assets of $2 million requirement or minimum Bid
Price of $1 per share requirement as set by the Nasdaq SmallCap Market. We
cannot assure that we will always be able to meet the Nasdaq SmallCap Market
listing in the future. Failure to meet the Nasdaq SmallCap Market listing
requirements could result in the delisting of our common stock from the Nasdaq
SmallCap Market which may adversely affect the liquidity of our shares.
Our Business is Heavily Regulated, Resulting in Increased Costs of Operations
and Delays in Product Sales. Most of our products require FDA approval to sell
in the U.S. and will require clearance from comparable agencies to sell our
products in foreign countries. These clearances may limit the U.S. or foreign
market in which our products may be sold or circumscribe applications for U.S.
or foreign markets in which our products may be sold. The majority of our
products related to freezing blood components are currently exempt from the
requirement to file a 510(k) pre-market application. These products are
currently marketed and sold worldwide. Further, our products must be
manufactured under principals of our quality system for continued Certificate
European (CE) marking that allows our products to be marketed and sold in
Europe, which are similar to the quality system regulations of both the FDA and
California Department of Health. Failure to comply with those quality system
requirements and regulations may subject the Company to delays in production
while it corrects any deficiency found by either the FDA, the State of
California or the Company's notifying European body during any audit of our
quality system. With limited working capital and resources there is no assurance
that we will not be found to be out of compliance, resulting in warning letters
or, in worst case, temporary shut down of manufacturing while the
non-conformances are rectified.
Influence By the Government and Insurance Companies May Adversely Impact Sales
of Our Products. Our business may be materially affected by continuing efforts
by government, third party payers such as medicare, medicaid, and private health
insurance plans, to reduce the costs of healthcare. For example, in certain
foreign markets the pricing and profit margins of certain healthcare products
are subject to government controls. In addition, increasing emphasis on managed
care in the U.S. will continue to place pressure on the pricing of healthcare
products. As a result, continuing effort to contain healthcare costs may result
in reduced sales or price reductions for our products. To date, we are not aware
of any direct impact on our pricing or product sales due to such efforts by
governments to contain healthcare costs, and we do not anticipate any immediate
impact in the near future.
Our Inability to Protect Our Patents, Trademarks, and Other Proprietary Rights
could Adversely Impact Our Competitive Position. We believe that our patents,
trademarks, and other proprietary rights are important to our success and our
competitive position. Accordingly, we devote substantial resources to the
establishment and protection of our patents, trademarks, and proprietary rights.
We currently hold patents for products, and have patents pending for additional
products that we market or intend to market. However, our actions to establish
and protect our patents, trademarks, and other proprietary rights may be
inadequate to prevent imitation of our products by others or to prevent others
from claiming violations of their trademarks and proprietary rights by us. If
our products are challenged as infringing upon patents of other parties, we will
be required to modify the design of the product, obtain a license, or litigate
the issue, all of which may have an adverse business effect on us.
Failure to Protect Our Trade Secrets May Assist Our Competitors. We use various
methods, including the use of confidentiality agreements with employees,
vendors, and customers, to protect our trade secrets and proprietary know-how
for our products. However, such methods may not provide complete protection and
there can be no assurance that others will not obtain our know-how, or
independently develop the same or similar technology. We prepare and file for
patent protection on aspects of our technology which we think will be integrated
into final products early in design phases, thereby limiting the potential
risks.
Competition in Our Industry is Intense and Will Likely Involve Companies With
Greater Resources Than We Have. We hope to develop a competitive advantage in
the medical applications of our products, but there are many competitors that
are substantially larger and who possess greater financial resources and
personnel than we have. Our current principal market is the users of ultra-rapid
blood plasma freezing and thawing equipment. There are companies that sell
freezers to the blood plasma freezing industry which are larger and possess
greater financial and other resources than we do. The CryoSeal System may face
competition from major plasma fractionaters that currently sell fibrin glue
sourced from pooled plasma outside the U.S. With regard to the BioArchive
System, numerous larger and better-financed medical device manufacturers may
choose to enter this market as it develops.
We Have a Limited Marketing and Sales Force for New Products Which May Delay Our
Goal of Increased Sales Levels. We currently sell our existing medical devices
through a direct sales and marketing force, and our foreign distribution
network. Although we have entered into exclusive distribution agreements for the
area of the two new platform products and we continue to seek strategic
partners, there are no assurances that the distributors will produce significant
sales of the systems.
Our Lack of Production Experience May Delay Producing Our New Products. We
currently manufacture our blood plasma thawers and freezers that are less
technologically sophisticated products. Although we have redesigned our
manufacturing facility to accommodate the BioArchive System and the CryoSeal
System, we do not have significant experience in manufacturing those more
complex medical devices or in the manufacture of disposables. There can be no
assurance that our current resources and manufacturing facility could handle a
significant increase in orders for either the BioArchive System or the CryoSeal
System. If we are unable to meet demand for sales of the new systems, we would
need to contract with third-party manufacturers for the backlog, and no
assurances can be made that such third-party manufacturers can be retained, or
retained on terms favorable to us and our pricing of the equipment. Inability to
have products manufactured by third parties at a competitive price will erode
anticipated margins for such products, and negatively impact our profitability.
Our New Products Are at Initial Market Introduction, and We Are Not Sure the
Market Will Accept Them. The market acceptance of our new products in
development will depend upon the medical community and third-party payers
accepting the products as clinically useful, reliable, accurate, and cost
effective compared to existing and future products or procedures. Market
acceptance will also depend on our ability to adequately train technicians on
how to use the CryoSeal System and the BioArchive System. Even if our new
product systems are clinically adopted, the use may not be recommended by the
medical profession or hospitals unless acceptable reimbursement from health care
and third party payers is available. Failure of either of these new systems to
achieve significant market share could have material adverse effects on our long
term business, financial condition, and results of operation.
Failure to Keep Our Key Personnel May Adversely Affect Our Operations. Failure
to retain skilled personnel could hinder our operations. Our future success
partially depends upon the continued services of key technical and senior
management personnel. Our future success also depends on our continuing ability
to attract, retain and motivate highly qualified managerial and technical
personnel. The inability to retain or attract qualified personnel could have a
significant negative effect upon our efforts and thereby materially harm our
business and financial condition. We have entered into employment agreements
with each member of our senior management. Specifically, we are dependent upon
the experience and services of Philip H. Coelho, Chairman and Chief Executive
Officer. We have obtained key man life insurance covering Mr. Coelho in the
amount of $2,000,000 as some protection against the risk.
Product Liability and Uninsured Risks May Adversely Affect the Continuing
Operations. We may be liable if any of our products cause injury, illness, or
death. We also may be required to recall certain of our products should they
become damaged or if they are defective. We are not aware of any material
product liability claim against us. Further, we maintain a general liability
policy that includes product liability coverage of $1,000,000 per occurrence and
$2,000,000 per year in the aggregate. However, a product liability claim against
us could have a material adverse effect on our business or financial condition.
De