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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For transition period from __________ to __________
Commission file number 0-20945
ANTARES PHARMA, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1350192
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State or other jurisdiction of (I.R.S.Identification
incorporation or organization Number)
707 Eagle View Blvd, Suite 414, Exton, PA 19341
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 458-6200
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 31, 2002, was approximately $12,981,501 (based upon the
last reported sale price of $3.90 per share on March 28, 2002, on the Nasdaq
Small Cap Market).
There were 9,161,188 shares of common stock outstanding as of March 31, 2002.
1
PART I
Item 1. BUSINESS
General
On January 31, 2001, Antares Pharma, Inc. ("Antares" or the "Company")
(formerly known as Medi-Ject Corporation) completed a business combination to
acquire the three operating subsidiaries of Permatec Holding AG ("Permatec"),
headquartered in Basel, Switzerland. Upon consummation of the transaction, the
acquired Permatec subsidiaries were renamed Antares Pharma AG, Antares Pharma
IPL AG and Antares Pharma NV. The transaction was accounted for as a reverse
acquisition, as Permatec's shareholders initially held approximately 67% of the
outstanding stock of Antares. Accordingly, for accounting purposes, Permatec is
deemed to have acquired Antares. Upon completion of the transaction we changed
our name from Medi-Jet Corporation to Antares Pharma, Inc. The following
discussion of our business incorporates the business combination with Permatec.
The U.S. operation develops, manufactures and markets novel medical
devices, called jet injectors, that allow people to self-inject drugs without
using a needle. The Company makes a small spring-action device and the attached
disposable plastic syringes to hold the drug. A liquid drug is drawn up into the
syringe through a small hole at the end. When the syringe is held against the
body and the spring is released, a piston drives the fluid stream into the
tissues beneath the skin. A person may re-arm the device and repeat the process
or attach a new sterile syringe between injections. Recently the Company has
developed variations of the jet injector by adding a very small hidden needle to
a pre-filled, single-use injector as well as a needle free pre-filled,
single-use injector.
With the Permatec business combination, Antares is also committed to other
methods of drug delivery such as topical gel formulations. Transdermal gels have
advantages in cost, cosmetic elegance, ease of application and lack of irritancy
compared with better-known transdermal patches and have applications in such
therapeutic markets as osteoporosis therapy, cardiovascular therapy, pain
management and central nervous system therapy. This drug delivery method will
become a material part of the business moving forward.
From inception as a combined business entity, the Company had fifty-three
employees with thirty-five research and development personnel, engineers,
formulation chemists and technicians, engaged in designing and formulating new
products for the pharmaceutical industry. We now have fifty-five full-time and 6
part-time employees.
The Company was a pioneer in the invention of home needle-free injection
systems in the late 1970s. Earlier needle-free injection systems were powered by
large air compressors, so their use was limited to vaccinations by the military
or school health programs. Early injectors were painful in comparison to today's
injectors, and their large size made home use difficult. The first home insulin
injector was five times as heavy as the current injector, which weighs five
ounces. Today's insulin injector sells at a retail price of $299 compared to
$799 eight years ago. The first growth hormone injector was introduced in Europe
in 1994. This was the first success in achieving distribution through a license
to a pharmaceutical manufacturer, and it has resulted in significant market
penetration and a very high degree of customer satisfaction. Distribution of
growth hormone injectors has expanded to include Japan and other Asian
countries.
The Swiss operation developed its first topical products in Argentina in
the mid-1990s. This effort resulted in the commercialization of a seven-day
estradiol patch in South America in 2000. Over time, the Argentine research
effort moved away from the crowded transdermal patch field and focused on
topical gel formulations, which allow the delivery of estrogens, progestogens,
testosterone and other drugs in a gel base without the need for an occlusive or
irritating adhesive bandage. The commercial potential for topical gel therapies
is attractive, and several agreements with pharmaceutical companies have led to
the early and successful clinical evaluation of Antares' formulations. The
Argentine operations were moved to Basel, Switzerland in late 1999.
The Company operates in the specialized drug delivery sector of the
pharmaceutical industry. Companies in this sector generally bring technology and
know-how in the area of drug formulation and/or delivery devices to
pharmaceutical manufacturers through licensing and development agreements. The
Company views the pharmaceutical manufacturer as its customer. The Company has
negotiated and executed licensing relationships in the growth hormone segment
(needle-free devices in Europe and Asia), the hormone replacement segment
(transdermal delivery of estradiol
2
in South America) and the topical hormone gels segment (several development
programs in place worldwide). In addition, the Company continues to market
needle-free devices for the home administration of insulin in the U.S. market
while seeking a distribution relationship with an insulin manufacturer.
The Company is a Minnesota corporation incorporated in February 1979. Our
corporate offices are located at 707 Eagleview Boulevard, Exton, Pennsylvania
19341; telephone (610) 458-6200. We have wholly-owned subsidiaries in
Switzerland (Antares Pharma AG and Antares Pharma IPL AG) and the Netherlands
Antilles (Antares Pharma NV).
Industry Trends
Based upon previous experience in the industry, the Company believes the
following significant trends in healthcare have important implications for the
growth of the business.
After a drug loses patent protection, the branded version of the drug often
faces competition from generic alternatives. Often market share may be preserved
by altering the delivery method, e.g., a single daily controlled release dosage
form rather than four pills a day. The Company expects pharmaceutical
manufacturers will continue to seek differentiating delivery characteristics to
defend against generic competition. The altered delivery method may be an
injection device or a novel formulation that offers convenience or improved
dosage schedules.
The increasing trend of pharmaceutical companies marketing directly to
consumers, as well as the recent focus on patient rights may encourage the use
of innovative, user-friendly drug delivery. Part of this trend involves offering
patients a wider choice of dosage forms. The Company believes the
patient-friendly attributes of our topical gel and jet injection technologies
meet these market needs.
The focus on new topical formulations complements our earlier experience
with the new injection methods. The Company envisions our program with topical
gel formulation as second-generation technology, replacing the older transdermal
patch products with more patient-friendly products. Topical gels will offer the
patient more choices and added convenience with no compromise of efficacy.
Although newer, the gel technology is based upon so-called GRAS ("Generally
Recognized as Safe") substances, meaning the toxicology profiles of the
ingredients are known and widely used. This approach has a major regulatory
benefit and may reduce the cost and time of product development.
Many drugs, including selected hormones and protein biopharmaceuticals, are
destroyed in the gastrointestinal tract and may only be administered through the
skin, the lung or by injection. Pulmonary delivery is complex and only in the
early stages of commercialization, and injection remains the mainstay of protein
delivery. Therefore, the growing number of protein biopharmaceuticals requiring
injection may compromise patient compliance with treatment programs. The failure
to take all prescribed injections can lead to increased health complications for
the patient, decreased drug sales for pharmaceutical companies and increased
healthcare costs for our society. In addition, conventional syringe needles
require special and often costly disposal methods.
In addition to the increase in the number of drugs requiring
self-injection, changes in the frequency of insulin injections for the treatment
of diabetes also may contribute to an increase in the number of self-injections.
For many years, standard treatment protocol was for insulin to be administered
once or twice daily for the treatment of diabetes. However, according to recent
studies, tightly controlling the disease by, among other things, administration
of insulin as many as four to six times a day, can decrease its debilitating
effects. The Company believes that as the benefits of tightly controlling
diabetes become more widely known, the number of insulin injections
self-administered by people with diabetes will increase. The need to increase
the number of insulin injections given per day may also motivate diabetics to
seek an alternative to traditional needles and syringes.
The importance of vaccines in industrialized and emerging nations is
expanding as the prevalence of infectious diseases increases. New vaccines and
improved routes of administration are the subject of intense research in the
pharmaceutical industry. In the past, the Company had focused only upon the
injection of medication in the home, but in 2000 the Company began to research
the feasibility of using its devices for vaccines and new vaccine ingredients.
Due to the substantial costs involved, marketing efforts are not currently
focused on drug applications administered by healthcare professionals. Jet
injection systems, however, may be attractive to hospitals, doctors' offices and
clinics, and such applications may be explored in the future. The issues raised
by accidental needle sticks and disposal of used syringes have led to the
development of syringes with sheathed needles as well as the practice of giving
injections
3
through intravenous tubing to reduce the number of contaminated needles. In
1998, the State of California banned the use of exposed needles in hospitals and
doctors' offices, and ten additional states have adopted similar legislation.
The Company believes that needle-free injection systems may be attractive to
healthcare professionals as a further means to reduce accidental needle sticks
and the burdens of disposing of contaminated needles. Furthermore, certain
drugs, particularly experimental DNA vaccines, may actually be more effective if
delivered by jet injection.
Market Opportunity
According to industry sources, an estimated 9 to 12 billion needles and
syringes are sold annually worldwide. The Company believes that a significant
portion of these are used for the administration of drugs that could be
delivered using our injectors, but that only a small percentage of people who
self-administer drugs currently use jet injection systems.
Our focus is on the market for the delivery of self-administered injectable
drugs. The largest and most mature segments of this market consist of the
delivery of insulin for diabetics and human growth hormone for children with
growth retardation. In the U.S., over 3.2 million people inject insulin for the
treatment of diabetes, resulting in an estimated 2.3 billion injections
annually, and we believe that the number of insulin injections will increase
with time as the result of new diabetes management techniques which recommend
more frequent injections. A second attractive market has developed with growth
hormone; children suffering from growth retardation take daily hormone
injections for an average of five years. The numbers of children with growth
retardation are small relative to diabetes, but most children are exceptionally
needle adverse. Our distributors in Europe, Japan and Asia have made significant
inroads using our injectors in their markets. Other injectable drugs that are
presently self-administered and may be suitable for injection with our systems
include therapies for the prevention of blood clots and the treatment of
multiple sclerosis, migraine headaches, impotence, hormone therapy, AIDS and
hepatitis. We also believe that many injectable drugs currently under
development will be administered by self-injection once they reach the market.
According to one industry publication, industry worldwide hormone
replacement revenues, the initial focus of our transdermal patch and topical gel
formulation program, are expected to grow to $4.0 billion by 2002. As of 1998,
only 15% of these sales were composed of transdermal delivery systems in the
U.S. However, the Company believes that the industry is shifting away from oral
systems, as evidenced in Europe, more specifically France, the leading country
in the usage of transdermal hormone replacement therapy. According to an
industry report, 64.8% of treated menopausal women in France used either patch
(44.7%) or gel (20.1%) therapy. In the future, products may be formulated to
address equally large opportunities in other sectors of the pharmaceutical
industry, including cardiovascular, osteoporosis, addiction and central nervous
system therapies.
Products and Technology
Current Needle-Free Injection Systems
The Medi-Jector Vision(R), a smaller, easier to use insulin injector, was
introduced in October 1999, replacing the Medi-Jector Choice(R). The Vision
replaced the Choice in the U.S. insulin market and will gradually replace the
Choice in international growth hormone markets. Each injector model is operated
by first compressing a coil spring mechanism and then filling the attached
disposable plastic syringe from a multi-use medication vial. The proper dosage
is displayed in the dosage window. An injection is given by holding the injector
perpendicular to the skin in a location appropriate for the injection and
pressing the trigger button. Each injector is recommended to be used for 2
years, and the needle-free plastic syringes are recommended for a one-week
usage. The U.S. retail price of the Vision insulin device (excluding the
needle-free syringe) is $299. The total annual cost to the end user of
needle-free syringes and related supplies is approximately $250 per year (based
upon an average of two injections per day). Based in part upon the results of
marketing and clinical studies performed by us, the Company believes that
injections using an Antares injection system are considered more comfortable and
more discreet than injections using a conventional needle and syringe. The
needle-free syringes used with any of the injector systems do not require
special disposal. Once a needle-free syringe is removed from the device portion
of the system, it cannot pierce the skin; consequently, the risk of
cross-infection from discarded needle-free syringes is reduced significantly
from the risk associated with needles.
4
New Device Development
The Company is currently developing three new injector platforms. One
platform, code named the MJ-8, represents a new concept in needle-free delivery,
incorporating a smaller power pack with a self-contained medicinal cartridge.
This device has been designed to compete with cartridge-based pen-like devices,
which use replaceable needles, common in the European insulin market and rapidly
replacing conventional syringes in the U.S. insulin market. A second platform,
referred to as the AJ-1, combines a very low energy power source with a small
hidden needle to offer a totally disposable, single injection system best suited
for high volume doses or medications that require infrequent injections. A
modification of this device is being developed to deliver vaccines to the very
superficial layers of skin, a popular direction of vaccine research. A third
platform, referred to as the MJ-10, is a needle-free version of the disposable
pre-filled injector. This diverse development program will offer pharmaceutical
manufacturers a broad and attractive array of delivery choices while providing
consumers with less expensive and more user-friendly injectors.
MJ-8 Injector. The major obstacle to widespread market acceptance of
needle-free injection systems has been the lack of a suitably compact and easy-
to-use injector. Although the size and complexity of injectors has been reduced
over the years, further reduction in size is possible by limiting delivery of a
single dose to 0.25ml or less. To this end, we have targeted the insulin market
where most people in Europe and a growing number in the U.S. take four
injections daily of 0.10ml to 0.15ml. Smaller doses require less energy and
smaller energy sources. The space conserved by reducing the energy source is
used to store a vial cartridge within the device, adding further user
convenience. Prototypes of this platform were tested in clinical trials during
the fourth quarter of 2001.
AJ-1 Injector. The coil springs of the commercial needle-free injectors
limit injection volume to 0.5ml; larger fluid volumes require larger springs and
are therefore impractical. Nevertheless, injection volumes of 1.0ml or more are
not uncommon. In 1998, our engineers found that they could greatly reduce the
size of the coil spring by adding a very short, hidden needle (mini-needle).
They concluded that breaking the very outer layers of the skin with a small
needle allows very low energy jet injection. At lower energies, the devices
could hold the drug in small, standard, single dose glass cartridges. The
Company built and successfully tested a small, pre-filled, totally disposable
mini-needle injector during 1999, and we have continued to refine this platform
for the needs of interested pharmaceutical companies. Engineers with Elan
Corporation plc ("Elan"), a drug delivery company based in Ireland, developed
additional proprietary technologies that complement the AJ-1 design, and in
November 1998, the Company licensed the Elan technology for certain
applications.
MJ-10 Injector. Several needle-free injection companies and pharmaceutical
manufacturers are pursuing needle-free versions of the AJ-1 device with only
limited success. Our engineers believe that they have identified unique
opportunities in this field, and we are proceeding with product development in
this area.
The Company expended approximately $1,647,000, $939,000 and $3,556,000 on
research and development efforts during fiscal years 1999, 2000 and 2001,
respectively. Of these amounts, approximately $1,352,000, $560,000 and $729,000,
respectively, were funded by third-party sponsored development programs and
licensing fees, which were reflected in revenues.
Current Transdermal Patch Technology
The Company markets a seven-day estradiol patch for hormone replacement
therapy in Brazil and Chile. Patches are small adhesive structures applied to
the skin. The patch allows for the diffusion of one or more active compounds
through the skin during an extended period of time. These patches are based upon
the second generation of technology known as matrix patches where the active
material is dispersed in the adhesive polymer. The seven-day estradiol patches
are manufactured by contract in Germany. The Company commenced sales of the
seven-day estradiol patches in the fourth quarter of 2000.
New Formulation Products
Antares Combi Gel(TM) product containing estradiol and norethindrone
acetate ("NETA") was licensed to Solvay in Europe in 1999 and has progressed
successfully through Phase II clinical evaluation. Phase III studies are
scheduled to commence in 2002. In 2000, the Company signed an exclusive
agreement with BioSante, an early stage U.S. pharmaceutical company, and began
clinical studies of four Combi Gel(TM) hormone formulations for
commercialization in the U.S. and other countries.
5
Patents
When appropriate, the Company actively seeks protection for its products
and proprietary information by means of U.S. and international patents and
trademarks. With the injection device technology, we currently hold 24 patents
and have an additional 40 applications pending in the U.S. and other countries.
With the Company's drug formulation technology we hold 34 patents and an
additional 39 applications, in various countries, are pending. The patents have
expiration dates ranging from 2002 to 2019.
Some of the Company's technology is developed on its behalf by independent
outside contractors. To protect the rights of its proprietary know-how and
technology, our policy requires all employees and consultants with access to
proprietary information to execute confidentiality agreements prohibiting the
disclosure of confidential information to anyone outside the Company. These
agreements also require disclosure and assignment to the Company of discoveries
and inventions made by such individuals while devoted to Company-sponsored
activities. Companies with which we have entered into development agreements
have the right to certain technology developed in connection with such
agreements.
Manufacturing
The Company operates a U.S. device manufacturing facility in compliance
with current Quality System Regulations ("QSR") established by the Food and Drug
Administration ("FDA") and by the centralized European regulatory authority (ISO
9001 and EN 46001). Injector and disposable parts are manufactured by
third-party suppliers and assembled at the facility in Minneapolis, Minnesota.
Quality control and final packaging are performed on-site. The Company may need
to invest in automated assembly equipment if volume increases in the future. The
Company is obligated to allow Becton Dickinson to bid on manufacturing our
disposable plastic components of certain injector systems. The Company pays
Becton Dickinson royalties on sales of plastic components of certain injector
systems.
The Company's transdermal estradiol patches are manufactured in Germany
through a contract arrangement. The Combi Gel(TM) formulations for clinical
studies are currently manufactured by contract under our supervision. The
Company has approximately 3,000 square feet of undeveloped space reserved in its
Basel facility for pilot manufacturing of gel products.
Marketing
The Company's basic business strategy is to develop and manufacture new
products specific to certain pharmaceutical applications and to market through
the existing distribution systems of pharmaceutical and medical device
companies.
During 2001, our international revenue accounted for 62% of our total
revenue. Europe (primarily Germany) accounted for 85% of international revenue
with the remainder coming primarily from Asia. Three customers (Bio Sante,
Ferring, and Solvay) accounted for 71% of worldwide revenue.
Injection Devices
The Company markets needle-free injectors for insulin and growth hormone
delivery through pharmaceutical companies and medical products distributors in
over 20 countries. Device and related disposable product sales in 2001 were
approximately $1.8 million. Historical product development alliances, from which
licensing and development fees were obtained, include those with Becton
Dickinson and Company, Schering-Plough Corporation and the Organon division of
Akzo Nobel.
With respect to current injection device selling efforts, our relationship
with Ferring GmbH best reflects this basic strategy. Ferring is selling human
growth hormone throughout Europe with a marketing campaign tied exclusively to
the Medi-Ject needle-free delivery system. Ferring has been successful in
establishing a user base of more than 1,000 children for its drug using the
Medi-Ject needle-free system. In the Netherlands, where Ferring enjoys its
largest market share, 22% of children taking growth hormone use our injector.
During the past five years, a Japanese pharmaceutical company, JCR, has
distributed small numbers of growth hormone injectors to hospital-based
physicians. In 1999, SciGen Pte Ltd. began distribution in Asia of our growth
hormone injectors along with their drug.
6
The table below summarizes our current collaborative and distribution
agreements in the injection device sector.
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Company Market
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Eli Lilly Company...................................... Feasibility and option agreement
several products
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Pharmacia.............................................. AJ1 Evaluation
(worldwide)
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Organon, a division of Akzo Nobel...................... Undisclosed Development Program
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Becton Dickinson and Company(1) ....................... Manufacturing - All Applications
(worldwide)
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Ferring Pharmaceuticals NV............................. Growth Hormone
(Europe)
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JCR Pharmaceuticals Co., Ltd........................... Growth Hormone
(Japan)
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SciGen Pte Ltd. ....................................... Growth Hormone
(Asia/Pacific)
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Bio-Technology General Corporation..................... Growth Hormone
(United States)
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drugstore.com ......................................... Insulin -E-Commerce
(United States)
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Direct Trading International .......................... Insulin - Distribution
(Czech Republic)
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Comar Cardio Technology srl ........................... Insulin - Distribution
(Italy)
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McKesson Corporation................................... Insulin - Distribution
(United States)
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Care Service (Diabetic Express)........................ Insulin - Distribution - E-Commerce
(United States/Canada)
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(1) Becton Dickinson has certain manufacturing bid rights to our disposable
needle-free syringes.
Over the past year, the Company has taken several steps to increase its
U.S. insulin injector distribution while lowering the associated expense. The
Company has succeeded in lowering expenses, but with no material increase in
sales volumes. In February 1999, the Company established an E-commerce
distribution channel that allows purchase of its products through the Internet,
and in October 1999, the Company began E-commerce distribution with
drugstore.com, a leading Internet pharmacy. The effort to market through the
Internet has proven unsatisfactory. In April 1999, the FDA granted permission to
sell our insulin injectors without requiring a prescription. In February 2000,
the Company transferred responsibility for the majority of our direct sales to
the Home Service Medical division of Chronimed, and more recently, in March
2001, the Company again transferred U.S. distribution to Diabetic Express, a
division of Care Services, Inc. Antares has concluded that the successful
distribution of insulin devices will require additional physician support and
the marketing power of a major insulin manufacturer. However, our current effort
will continue because our devices provide a vital service to the needle-phobic
diabetic and provide the Company with considerable information regarding the
needs of people required to self-administer drugs by injection.
Topical Delivery Products
Currently the Company markets the transdermal estradiol patch in Brazil and
Chile. Market introduction was recent but we estimate that the markets for our
products will remain small because of intense competition in this field. Over
the short term, the majority of revenues generated from topical drug formulation
will be through the fees generated by licensing and development agreements.
7
The following table describes existing pharmaceutical relationships in the
topical delivery sector.
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Pharmaceutical Company
Partner Compound Market Segment Technology
==========================================================================================================================
Solvay NETA/Estradiol Hormone replacement therapy Combi Gel(TM)
(Europe)
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Segix Estradiol Hormone replacement therapy Patch
(Italy)
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Sigmapharma/Novaquimica Estradiol Hormone replacement therapy Patch and Gel
(Brazil)
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Recalcine Estradiol Hormone replacement therapy Patch
(Chile)
- ---------------------------------------- ------------------------ --------------------------------- ----------------------
BioSante Progesterone/Estradiol/ Hormone replacement therapy Combi Gel(TM)and Patch
Testosterone (U.S., Canada, other countries)
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SciTech Estradiol/Testosterone Hormone replacement therapy Combi Gel(TM)
(Asia, Australia & Oceania)
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Pharmacia Ibuprofen Gel Pain Gel
(Sweden)
- --------------------------------------------------------------------------------------------------------------------------
Competition
Competition in the injectable drug delivery market is intensifying. The
Company faces competition from traditional needle syringes, newer pen-like and
sheathed needle syringes and other needle-free injection systems as well as
alternative drug delivery methods including oral, transdermal and pulmonary
delivery systems. Nevertheless, the vast majority of injections are currently
administered using needles. Because injection is typically only used when other
drug delivery methods are not feasible, the needle-free injection systems may be
made obsolete by the development or introduction of drugs or drug delivery
methods which do not require injection for the treatment of conditions the
Company has currently targeted. In addition, because the Company intends to
enter into collaborative arrangements with pharmaceutical companies, the
Company's competitive position will depend upon the competitive position of the
pharmaceutical company with which we collaborate for each drug application.
Three companies currently sell injectors to the U.S. insulin market.
Antares believes that it retained the largest market share in 2001, and competes
on the basis of device size, price and ease of use. In 1998, Bioject, Inc., the
manufacturer of a needle-free vaccine injector, purchased the insulin injector
business of Vitajet, and after some months of redesign, they entered the U.S.
insulin injector market. Equidyne, Inc. entered the worldwide insulin injector
market in mid-2000. Powderject Pharmaceuticals, plc, a British research company,
is developing a needle-free injection system based upon the principle of
injecting a fine dry powder, and Weston Medical Ltd., another U.K. based
company, is developing a single-use needle-free system. Both Powderject and
Weston Medical compete actively and successfully for licensing agreements with
pharmaceutical manufacturers and have accumulated large cash resources.
The Company expects the needle-free injection market to expand, even though
improvements continue to be made in needle syringes, including syringes with
hidden needles and pen-like needle injectors. The Company expects to compete
with existing needle injection methods as well as new delivery methods yet to be
commercialized. For example, Inhale Therapeutic Systems, Inc., in partnership
with Pfizer, Inc. and Aventis Pharmaceuticals, is completing Phase III clinical
testing of inhaled insulin which, if successful, could replace the use of
injection in some patients.
Competition in the formulation sector differs in that the market is
considerably larger, more mature and dominated by much larger companies like
ALZA Corporation and Elan Corporation plc. Other large competitors include
SkyePharma plc and Alkermes, Inc. These companies have substantially greater
capital resources, more experienced research teams, larger facilities and a
broader range of products and technologies. Nevertheless, ALZA and Elan have
focused in recent years on growth through the acquisition and sales of
traditional pharmaceutical products.
Government Regulation
Antares' products and manufacturing operations are subject to extensive
government regulations, both in the United States and abroad. In the United
States, the Food & Drug Administration ("FDA") administers the Federal Food Drug
8
and Cosmetic Act (the "FDC Act") and has adopted various regulations affecting
our business, including those governing the introduction of new medical devices,
the observation of certain standards and practices with respect to the
manufacturing and labeling of medical devices, the maintenance of certain
records and the reporting of device-related deaths, serious injuries and certain
malfunctions to the FDA. Manufacturing facilities and certain company records
are also subject to FDA inspections. The FDA has broad discretion in enforcing
the FDC Act and the regulations thereunder, and noncompliance can result in a
variety of regulatory steps ranging from warning letters, product detentions,
device alerts or field corrections to mandatory recalls, seizures, injunctive
actions and civil or criminal actions or penalties.
Drug delivery systems such as injectors may be approved or cleared for sale
as a medical device or may be evaluated as part of the drug approval process in
connection with a new drug application ("NDA") or a Product License Application
("PLA"). To the extent permitted under the FDC Act and current FDA policy, the
Company intends to seek the required approvals and clearance for the use of our
new injectors, as modified for use in specific drug applications under the
medical device provisions, rather than under the new drug provisions, of the FDC
Act.
Products regulated as medical devices may not be commercially distributed
in the United States unless they have been cleared or approved by the FDA,
unless otherwise exempted from the FDC Act and regulations thereunder. There are
two methods for obtaining such clearance or approvals. Under Section 510(k) of
the FDC Act ("510(k) notification"), certain products qualify for a pre-market
notification of the manufacturer's intention to commence marketing the product.
The manufacturer must, among other things, establish in the 510(k) notification
that the product to be marketed is substantially equivalent to another legally
marketed product (that is, that it has the same intended use and that it is as
safe and effective as a legally marketed device and does not raise questions of
safety and effectiveness that are different from those associated with the
legally marketed device). Marketing may commence when the FDA issues a letter
finding substantial equivalence to such a legally marketed device. The FDA may
require, in connection with a 510(k) notification, that it be provided with
animal and/or human test results. If a medical device does not qualify for the
510(k) procedure, the manufacturer must file a pre-market approval ("PMA")
application under Section 515 of the FDC Act. A PMA must show that the device is
safe and effective and is generally a much more complex submission than a 510(k)
notification, typically requiring more extensive pre-filing testing and a longer
FDA review process. The Company believes that injection systems, when indicated
for use with drugs or biologicals approved by the FDA, will be regulated as
medical devices and are eligible for clearance through the 510(k) notification
process. There can be no assurance, however, that the FDA will not require a PMA
in the future.
In addition to submission when a device is being introduced into the market
for the first time, a 510(k) notification is also required when the manufacturer
makes a change or modification to a previously marketed device that could
significantly affect safety or effectiveness, or where there is a major change
or modification in the intended use or in the manufacture of the device. When
any change or modification is made in a device or its intended use, the
manufacturer is expected to make the initial determination as to whether the
change or modification is of a kind that would necessitate the filing of a new
510(k) notification. The FDA's regulations provide only limited guidance in
making this determination. The Company has received 510(k) marketing clearance
from the FDA to allow marketing of the Medi-Jector Choice and the Medi-Jector
Vision systems. In the future we or our partners will submit 510(k)
notifications with regard to further device design improvements and uses with
additional drug therapies.
If the FDA concludes that any or all of our new injectors must be handled
under the new drug provisions of the FDC Act, substantially greater regulatory
requirements and approval times will be imposed. Use of a modified new product
with a previously unapproved new drug likely will be handled as part of the NDA
for the new drug itself. Under these circumstances, the device component will be
handled as a drug accessory and will be approved, if ever, only when the NDA
itself is approved. Our injectors may be required to be approved as part of the
drug delivery system under a supplemental NDA for use with previously approved
drugs. Under these circumstances, our device could be used with the drug only if
and when the supplemental NDA is approved for this purpose. It is possible that,
for some or even all drugs, the FDA may take the position that a drug-specific
approval must be obtained through a full NDA or supplemental NDA before the
device may be labeled for use with that drug.
To the extent that our modified injectors are handled as drug accessories
or part of a drug delivery system, rather than as medical devices, they are
subject to all of the requirements that apply to new drugs. These include drug
manufacturing requirements, drug adverse reaction reporting requirements, and
all of the restrictions that apply to drug labeling and advertising. In general,
the drug requirements under the FDC Act are more onerous than medical device
9
requirements. These requirements could have a substantial adverse impact on our
ability to commercialize our products and our operations.
In the European Union, a drug delivery device that is an integral
combination with the drug to be delivered is considered part of the medicinal
product and is regulated as a drug. Gels and transdermal patches are drug
delivery devices which are, therefore, regulated as drugs and must comply with
the requirements described in the Medicinal Products Directive 85/65/EEC.
The FDC Act also regulates our quality control and manufacturing procedures
by requiring the Company and its contract manufacturers to demonstrate
compliance with the current Quality System Regulations ("QSR"). The FDA's
interpretation and enforcement of these requirements have been increasingly
strict in recent years and seem likely to be even more stringent in the future.
The FDA monitors compliance with these requirements by requiring manufacturers
to register with the FDA and by conducting periodic FDA inspections of
manufacturing facilities. If the inspector observes conditions that might
violate the QSR, the manufacturer must correct those conditions or explain them
satisfactorily. Failure to adhere to QSR requirements would cause the devices
produced to be considered in violation of the FDA Act and subject to FDA
enforcement action that might include physical removal of the devices from the
marketplace.
The FDA's Medical Device Reporting Regulation requires companies to provide
information to the FDA on the occurrence of any death or serious injuries
alleged to have been associated with the use of their products, as well as any
product malfunction that would likely cause or contribute to a death or serious
injury if the malfunction were to recur. In addition, FDA regulations prohibit a
device from being marketed for unapproved or uncleared indications. If the FDA
believes that a company is not in compliance with these regulations, it could
institute proceedings to detain or seize company products, issue a recall, seek
injunctive relief or assess civil and criminal penalties against the company or
its executive officers, directors or employees.
The Company is also subject to the Occupational Safety and Health Act
("OSHA") and other federal, state and local laws and regulations relating to
such matters as safe working conditions, manufacturing practices, environmental
protection and disposal of hazardous or potentially hazardous substances.
Sales of medical devices outside of the U.S. are subject to foreign legal
and regulatory requirements. The Company's transdermal and injection systems
have been approved for sale only in certain foreign jurisdictions. Legal
restrictions on the sale of imported medical devices and products vary from
country to country. The time required to obtain approval by a foreign country
may be longer or shorter than that required for FDA approval, and the
requirements may differ. We rely upon the companies marketing our injectors in
foreign countries to obtain the necessary regulatory approvals for sales of our
products in those countries. Generally, products having an effective 510(k)
clearance or PMA may be exported without further FDA authorization.
The Company has obtained ISO 9001/EN 46001 qualification for its
manufacturing systems. This certification shows that our procedures and
manufacturing facilities comply with standards for quality assurance and
manufacturing process control. Such certification, along with European Medical
Device Directive certification, evidences compliance with the requirements
enabling the Company to affix the CE Mark to current products. The CE Mark
denotes conformity with European standards for safety and allows certified
devices to be placed on the market in all European Union ("EU") countries.
Semi-annual audits by the British Standards Institute are required to
demonstrate continued compliance.
Forward Looking Statements
We and our representatives may from time to time make written or oral
forward-looking statements with respect to our annual or long-term goals,
including statements contained in our filings with the Securities and Exchange
Commission and in our reports to shareholders.
The words or phrases "will likely result," "are expected to," "will
continue to," "is anticipated," "estimate," "project" or similar expressions
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. We wish
to caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.
10
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, we are identifying the important risk factors
below that could affect our financial performance and could cause our actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements.
We undertake no obligation to publicly revise any forward-looking
statements to reflect future events or circumstances.
Risk Factors
The following "risk factors" contain important information about us and our
business and should be read in their entirety.
Operating History; Lack Of Profitability
The business combination of January 31, 2001 between Medi-Ject Corporation
and Permatec Holding AG, Permatec Pharma AG, Permatec Technology AG and Permatec
NV was accounted for as a reverse acquisition, as Permatec owned approximately
67% of the outstanding shares of Antares common stock after completion of the
transaction. The operating financial history of Antares has become that of
Permatec. Since the mid-1990's, Permatec generated revenue from product
development fees and licensing arrangements and has never been profitable.
Currently, the Company is not profitable. The Company has accumulated
aggregate net losses from the inception of business through December 31, 2001,
of approximately $29,457,033 (this number includes the losses of the combined
businesses following the January 31, 2001 transaction). The costs for research
and product development of our drug delivery technologies along with marketing
and selling expenses and general and administrative expenses have been the
principal causes of our losses. Our ability to achieve and/or sustain profitable
operations depends on a number of factors, many of which are beyond our direct
control. These factors include the following:
. the demand for our technologies;
. our ability to manufacture products efficiently and with the
required quality;
. our ability to increase manufacturing capacity;
. the level of product and price competition;
. our ability to develop additional commercial applications for our
products ;
. our ability to obtain regulatory approvals;
. our ability to control costs; and
. general economic conditions.
The report of the Company's independent accountants contains an explanatory
paragraph expressing substantial doubt about the Company's ability to continue
as a going concern as a result of recurring losses and negative cash flows from
operations. The Company had negative working capital of $2,439,577 and $11,712
at December 31, 2000 and 2001, respectively, and incurred net losses of
$3,967,366, $5,260,387 and $9,499,101 in 1999, 2000 and 2001, respectively. In
addition, the Company has had net losses and has had negative cash flows from
operating activities since inception. The Company expects to report a net loss
for the year ending December 31, 2002, as marketing and development costs
related to bringing future generations of products to market continue. Long-term
capital requirements will depend on numerous factors, including the status of
collaborative arrangements, the progress of research and development programs
and the receipt of revenues from sales of products.
Need For Additional Capital And Capital Requirements
The Company's cash position will be insufficient to fund working capital
requirements beyond mid-2002 and will not be sufficient for us to reach
profitability. Accordingly, the Company will require additional equity and/or
debt financing. There can be no assurance that sufficient additional equity or
debt financing will be available. If the Company cannot obtain financing when
needed, or obtain it on favorable terms, we may be required to curtail
development of new drug technologies or expansion of manufacturing capacity.
11
Uncertainty Of Market Acceptance; Limited Current Market For Injector Drug
Delivery Technologies; Transdermal Patches; Transdermal Gels; Injectable Gels
Our success will depend upon increasing market acceptance of our drug
delivery technologies as an alternative to traditional delivery systems. During
the time period since initial commercial introduction, our products have had
only limited success competing with traditional drug delivery systems because,
we believe, of the size, cost and complexity of use and maintenance of our drug
delivery technologies and the relatively small number of drugs that have been
self-administered. In order to increase market acceptance, we believe that we
must successfully develop improvements in the design and functionality of future
drug delivery technology that will reduce cost and increase appeal to users,
thereby making these technologies desirable despite their premium cost over
traditional drug delivery systems. Projected improvements in functionality and
design may not adequately address the actual or perceived complexity of using
our drug delivery technologies or adequately reduce cost. In addition, we
believe that our future success depends upon our ability to enter into
additional collaborative agreements with drug and medical device manufacturers,
as discussed below. There can be no assurance that we will be successful in
these efforts or that our drug delivery technologies will ever gain sufficient
market acceptance to achieve and/or sustain profitable operations.
Although transdermal patches are a well-accepted method of drug delivery,
many other companies compete in this sector. Because the cost of manufacturing
equipment is high, most manufacturing is done by a limited number of contract
manufacturers. Therefore, our costs will remain high and our pricing options
will be limited. We may develop a superior patch, but we may not be able to
price it competitively, or our margins may not justify maintaining the business
if our market share is low. Patches are not central to our business strategy and
may suffer from lack of attention. There can be no assurance that we will be
successful in the transdermal patch market.
Because transdermal gels are a newer, less understood method of drug
delivery, our potential consumers (the pharmaceutical manufacturers) have little
experience with manufacturing costs or pricing parameters. Our assumption of
higher value may not be shared by the consumer. To date, transdermal gels have
successful entry into only a limited number of markets. There can be no
assurance that transdermal gels will ever gain sufficient market acceptance in
those or other markets to achieve and/or sustain profitable operations.
Although the injectable gel research field is active, there is essentially
no data regarding consumer acceptance. Regulatory compliance and approvals can
take a substantial amount of time due to clinical evaluations that are required
for this type of method but not for other drug delivery methods. There can be no
assurance that injectable gels will ever obtain the necessary regulatory
approvals or gain sufficient market acceptance to achieve and/or sustain
profitable operations.
Expansion Strategy
We intend to continue to enhance our current technologies and pursue
additional proprietary drug delivery technologies. However, we may be unable to
achieve our objectives of revenue growth and profitability. Even if enhanced or
additional technologies appear promising during various stages of development,
we may not be able to develop commercial applications for them because
. the potential technologies may fail clinical studies;
. we may not find a pharmaceutical company to adopt the technologies;
. it may be difficult to apply the technologies on a commercial
scale; or
. the technologies may be uneconomical to market.
Our future success depends to a significant degree on our ability to obtain
regulatory approval for and commercialize the use of our drug delivery
technologies. However, we have not yet completed research and development work
or obtained regulatory approval for such improved systems or for use with any
drugs other than insulin, human growth hormone and estradiol. There can be no
assurance that any development work will ultimately be successful or that
unforeseen difficulties will not occur in research and development, clinical
testing, regulatory submissions and approval, product manufacturing and
commercial scale up, marketing, or product distribution related to any such
improved technologies or new uses. Any such occurrence could materially delay
the commercialization of such improved technologies or new uses or prevent their
market introduction entirely.
12
Dependence On Major Customers
Our revenue currently depends on a limited number of customers. The loss of
any one of these customers could cause revenues to decrease significantly,
resulting in, or increasing, our losses from operations. If we cannot broaden
our customer base, we will continue to depend on a few customers for the
majority of our revenues. We may be unable to negotiate favorable business terms
with customers that represent a significant portion of our revenues. If that
occurs, our revenues and gross profits may be insufficient to allow us to
achieve and/or sustain profitability.
Dependence On Single Source Suppliers
Certain of our technologies contain a number of customized components
manufactured by various third parties. Regulatory requirements applicable to
medical device and transdermal patch manufacturing can make substitution of
suppliers costly and time-consuming. In the event that we could not obtain
adequate quantities of these customized components from our suppliers, there can
be no assurance that we would be able to access alternative sources of such
components within a reasonable period of time, on acceptable terms or at all.
The unavailability of adequate quantities, the inability to develop alternative
sources, a reduction or interruption in supply or a significant increase in the
price of components could have a material adverse effect on our ability to
manufacture and market our products.
Risks Associated With Third-Party Reimbursement Of End Users
Certain sales of our current and proposed technologies in certain markets
are dependent in part on the availability of adequate reimbursement from
third-party healthcare payers. Currently, insurance companies and other
third-party payers reimburse the cost of certain technologies on a case-by-case
basis and may refuse reimbursement if they do not perceive benefits to the
technologies' use in a particular case. Third-party payers are increasingly
challenging the pricing of medical products and services, and there can be no
assurance that such third-party payers will not in the future increasingly
reject claims for coverage of the cost of certain of our technologies. In
addition, there can be no assurance that adequate levels of reimbursement will
be available to enable us to achieve or maintain market acceptance of our
technologies or maintain price levels sufficient to realize profitable
operations. Furthermore, there is a possibility of increased government control
or influence over a broad range of healthcare expenditures in the future. Any
such trend could negatively impact the market for our drug delivery
technologies.
Dependence On Collaborative Agreements With Pharmaceutical Companies
We believe that the introduction and broad acceptance of our drug delivery
technologies is in part dependent upon the success of our current and any future
development and licensing arrangements with pharmaceutical and medical device
companies covering the development, manufacture, use and marketing of drug
delivery technologies with specific parenteral drug therapies. We anticipate
that under these arrangements the pharmaceutical or medical device company will
assist in the development of systems for such drug therapies and collect or
sponsor the collection of the appropriate data for submission for regulatory
approval of the use of the drug delivery technology with the licensed drug
therapy. The pharmaceutical or medical device company also will be responsible
for distribution and marketing of the technologies for these drug therapies
either worldwide or in specific territories. We are currently a party to a
number of such agreements. There can be no assurance that we will be successful
in executing additional agreements with pharmaceutical or medical device
companies or that existing or future agreements will result in increased sales
of our drug delivery technologies. If we do not enter into additional agreements
in the future, or if our current or future agreements do not result in
successful marketing of our products, our business, results of operations and
financial condition could be adversely affected, and our revenues and gross
profits may be insufficient to allow us to achieve and/or sustain profitability.
As a result of these arrangements, we are dependent upon the development, data
collection and marketing efforts of such pharmaceutical and medical device
companies. The amount and timing of resources such pharmaceutical and medical
device companies devote to these efforts are not within our control, and such
pharmaceutical and medical device companies could make material decisions
regarding these efforts that could adversely affect our future financial
condition and results of operations. In addition, factors that adversely impact
the introduction and level of sales of any drug covered by such licensing
arrangements, including competition within the pharmaceutical and medical device
industries, the timing of regulatory or other approvals and intellectual
property litigation, may also negatively affect sales of our drug delivery
technology.
13
Additional risks that we face related to our collaborative agreements
include:
. we may be unable to enter into collaborative agreements to develop
additional products using drug delivery technologies;
. any existing or future collaborative agreements may not result in
additional commercial products;
. additional commercial products that we may develop may not be
successful;
. we may not be able to meet the milestones established in our
current or future collaborative agreements and thus, would not
receive the fees; and
. we may not be able to develop successful new drug delivery
technologies that will be attractive to potential pharmaceutical
company partners.
Limited Manufacturing Experience; Risks Associated With New Materials, New
Assembly Procedures And Increased Production Levels
Our past assembly, testing and manufacturing experience for certain of our
technologies has involved the assembly of products from machined stainless steel
and composite components in limited quantities. Our planned future drug delivery
technologies necessitate significant changes and additions to our manufacturing
and assembly process to accommodate new components. These systems must be
manufactured in compliance with regulatory requirements, in a timely manner and
in sufficient quantities while maintaining quality and acceptable manufacturing
costs. In addition, our plans call for significantly increased levels of
production and a shift to performing more manufacturing functions internally
rather than relying on third-party suppliers, which will require us to
eventually expand beyond our current facilities. In the course of these changes
and additions to our manufacturing and production methods, we may encounter
difficulties, including problems involving yields, quality control and
assurance, product reliability, manufacturing costs, existing and new equipment,
component supplies and shortages of personnel, any of which could result in
significant delays in production. There can be no assurance that we will be able
to successfully produce and manufacture our drug delivery technology. Any
failure to do so would negatively impact our business, financial condition and
results of operations.
Dependence On Third Parties To Develop, Obtain Regulatory Approvals, Market,
Distribute And Sell Our Products
Pharmaceutical company partners help us develop, obtain regulatory
approvals for, manufacture and sell our products. If one or more of these
pharmaceutical company partners fail to pursue the development or marketing of
the products as planned, our revenues and gross profits may not reach
expectations or may decline. We may not be able to control the timing and other
aspects of the development of products because pharmaceutical company partners
may have priorities that differ from ours. Therefore, commercialization of
products under development may be delayed unexpectedly. Further, we may
incorporate certain of our drug delivery technologies into the oral dosage forms
of products marketed and sold by pharmaceutical company partners. We do not have
a direct marketing channel to consumers for drug delivery technologies.
Therefore, the success of the marketing organizations of the pharmaceutical
company partners, as well as the level of priority assigned to the marketing of
the products by these entities, which may differ from our priorities, will
determine the success of the products incorporating our technologies.
Acceptance Of Drug Delivery Technologies By Patients And Physicians
Our revenues depend on ultimate patient and physician acceptance of our
needle-free injectors, gels, patches and our other potential drug delivery
technologies as an alternative to more traditional forms of drug delivery
including injections using a needle, tablets and liquid formulas. If our drug
delivery technologies are not accepted in the marketplace, the pharmaceutical
company partners may be unable to successfully market and sell our products,
which would limit our ability to generate revenues and to achieve and/or sustain
profitability. The degree of acceptance of our drug delivery systems depends on
a number of factors. These factors include:
. demonstrated clinical efficacy and safety;
. cost-effectiveness;
. convenience and ease of administration of injectors, transdermal
gels and patches;
14
. advantages over alternative drug delivery systems; and
. marketing and distribution support.
Physicians may refuse to prescribe products incorporating our drug delivery
technologies if the physicians believe that the active ingredient is better
administered to a patient using alternative drug delivery technologies or the
physicians believe that the delivery method will result in patient
noncompliance. Factors such as allergic reactions, patient perceptions that a
gel is inconvenient and cosmetic considerations about patches may cause patients
to reject our drug delivery technologies.
In addition, we expect that the pharmaceutical company partners will price
products incorporating their drug delivery technologies slightly higher than
conventional methods, which may impair their acceptance. Because only a limited
number of products incorporating our drug delivery technologies are commercially
available, we cannot yet assess the level of market acceptance of our drug
delivery technologies.
Competition; Risk Of Technological Obsolescence
Our current competition comes primarily from traditional hypodermic needles
and syringes that are used for the vast majority of injections administered
today and from transdermal patch and gel products marketed by others. Currently,
competition in the needle-free injection market is limited to small companies
with modest financial and other resources, but the barriers to entry are
currently low, and additional competitors may enter the needle-free injection
systems market, including companies with substantially greater resources and
experience than us. There can be no assurance that we will be able to compete
effectively against our current or potential competitors in the drug delivery
market, or that such competitors will not succeed in developing or marketing
products that will be more accepted in such market. Competition in this market
could also force us to reduce the prices of our technologies below currently
planned levels, which could adversely affect our revenues and future
profitability.
In general, injection is used only with drugs for which other drug delivery
methods are not possible, in particular with biopharmaceutical proteins (drugs
derived from living organisms, such as insulin and human growth hormone) that
cannot currently be delivered orally, transdermally (through the skin) or
pulmonarily (through the lungs). Transdermal patches and gels are also used for
drugs that cannot be delivered orally. Many companies, both large and small, are
engaged in research and development efforts on novel techniques aimed at
delivering such drugs through the skin, either without needle injection or by
patch and gel. The successful development and commercial introduction of such a
non-injection technique would likely have a material adverse effect on our
business, financial condition, results of operations and general prospects.
Protection Of Technology And Proprietary Rights
Our success depends, in part, on our ability to obtain and enforce patents
for our products, processes and technologies and to preserve our trade secrets
and other proprietary information. If we cannot do so, our competitors may
exploit our innovations and deprive us of the ability to realize revenues and
profits from our developments.
Any patent applications we may have made or may make relating to our
potential products, processes and technologies may not result in patents being
issued. Our current patents may not be valid or enforceable and may not protect
us against competitors that challenge our patents, obtain patents that may have
an adverse effect on our ability to conduct business or are able to circumvent
our patents. Further, we may not have the necessary financial resources to
enforce our patents.
To protect our trade secrets and proprietary technologies and processes, we
rely, in part, on confidentiality agreements with employees, consultants and
advisors. These agreements may not provide adequate protection for our trade
secrets and other proprietary information in the event of any unauthorized use
or disclosure, or if others lawfully develop the information.
We May Infringe The Proprietary Rights Of Others
Third parties may claim that the manufacture, use or sale of our drug
delivery technologies infringe their patent rights. If such claims are asserted,
we may have to seek licenses, defend infringement actions or challenge the
validity of those patents in court. If we could not obtain required licenses,
are found liable for infringement or are not able to have these patents declared
invalid, we may be liable for significant monetary damages, encounter
significant delays in
15
bringing products to market or be precluded from participating in the
manufacture, use or sale of products or methods of drug delivery covered by the
patents of others. We may not have identified, or be able to identify in the
future, United States or foreign patents that pose a risk of potential
infringement claims.
We enter into collaborative agreements with pharmaceutical companies to
apply drug delivery technologies to drugs developed by others. Ultimately, we
receive license revenues and product development fees, as well as revenues from
the sale of products incorporating our technologies and royalties. The drugs to
which our drug delivery technologies are applied are generally the property of
the pharmaceutical companies. Those drugs may be the subject of patents or
patent applications and other forms of protection owned by the pharmaceutical
companies or third parties. If those patents or other forms of protection
expire, become ineffective or are subject to the control of third parties, sales
of the drugs by the collaborating pharmaceutical company may be restricted or
may cease. Our revenues, in that event, may decline.
We May Incur Significant Costs Seeking Approval for Our Products
The design, development, testing, manufacturing and marketing of
pharmaceutical compounds, medical nutrition and diagnostic products and medical
devices are subject to regulation by governmental authorities, including the FDA
and comparable regulatory authorities in other countries. The approval process
is generally lengthy, expensive and subject to unanticipated delays. Currently,
we, along with our partners, are actively pursuing marketing approval for a
number of products from regulatory authorities in other countries and anticipate
seeking regulatory approval from the FDA for products developed pursuant to the
agreement with BioSante. Our revenue and profit will depend, in part, on the
successful introduction and marketing of some or all of such products by us or
our partners. There can be no assurance as to when or whether such approvals
from regulatory authorities will be received.
Applicants for FDA approval often must submit extensive clinical data and
supporting information to the FDA. Varying interpretations of the data obtained
from pre-clinical and clinical testing could delay, limit or prevent regulatory
approval of a drug product. Changes in FDA approval policy during the
development period, or changes in regulatory review for each submitted new drug
application also may cause delays or rejection of an approval. Even if the FDA
approves a product, the approval may limit the uses or "indications" for which a
product may be marketed, or may require further studies. The FDA also can
withdraw product clearances and approvals for failure to comply with regulatory
requirements or if unforeseen problems follow initial marketing.
In other jurisdictions, we, and the pharmaceutical companies with whom we
are developing technologies, must obtain required regulatory approvals from
regulatory agencies and comply with extensive regulations regarding safety and
quality. If approvals to market the products are delayed, if we fail to receive
these approvals, or if we lose previously received approvals, our revenues would
be reduced. We may not be able to obtain all necessary regulatory approvals. We
may be required to incur significant costs in obtaining or maintaining
regulatory approvals.
We May Be Subject To Sanctions If We Fail To Comply With Regulatory Requirements
If we, or pharmaceutical companies with whom we are developing
technologies, fail to comply with applicable regulatory requirements, we, and
the pharmaceutical companies, may be subject to sanctions, including the
following:
. warning letters;
. fines;
. product seizures or recalls;
. injunctions;
. refusals to permit products to be imported into or exported out of
the applicable regulatory jurisdiction;
. total or partial suspension of production;
. withdrawals of previously approved marketing applications;
. criminal prosecutions.
16
Our Revenues May Be Limited If The Marketing Claims Asserted About Our Products
Are Not Approved
Once a drug product is approved by the FDA, the Division of Drug Marketing,
Advertising and Communication, the FDA's marketing surveillance department
within the Center for Drugs, must approve marketing claims asserted by our
pharmaceutical company partners. If a pharmaceutical company partner fails to
obtain from the Division of Drug Marketing acceptable marketing claims for a
product incorporating our drug technologies, our revenues from that product may
be limited. Marketing claims are the basis for a product's labeling, advertising
and promotion. The claims the pharmaceutical company partners are asserting
about our drug delivery technologies, or the drug product itself, may not be
approved by the Division of Drug Marketing.
We May Face Product Liability Claims Related To Participation In Clinical Trials
Or The Use Or Misuse Of Our Products
The testing, manufacturing and marketing of products utilizing our drug
delivery technologies may expose us to potential product liability and other
claims resulting from their use. If any such claims against us are successful,
we may be required to make significant compensation payments. Any
indemnification that we have obtained, or may obtain, from contract research
organizations or pharmaceutical companies conducting human clinical trials on
our behalf may not protect us from product liability claims or from the costs of
related litigation. Similarly, any indemnification we have obtained, or may
obtain, from pharmaceutical companies with whom we are developing drug delivery
technologies may not protect us from product liability claims from the consumers
of those products or from the costs of related litigation. If we are subject to
a product liability claim, our product liability insurance may not reimburse us,
or may not be sufficient to reimburse us, for any expenses or losses that may
have been suffered. A successful product liability claim against us, if not
covered by, or if in excess of the product liability insurance, may require us
to make significant compensation payments, which would be reflected as expenses
on our statement of operations. As the result either of adverse claim experience
or of medical device or insurance industry trends, we may in the future have
difficulty in obtaining product liability insurance or be forced to pay very
high premiums, and there can be no assurance that insurance coverage will
continue to be available on commercially reasonable terms or at all.
We Must Keep Pace With The Rapid Technological Change And Meet The Intense
Competition In The Industry
Our success depends, in part, upon maintaining a competitive position in
the development of products and technologies in a rapidly evolving field. If we
cannot maintain competitive products and technologies, our current and potential
pharmaceutical company partners may choose to adopt the drug delivery
technologies of our competitors. Drug delivery companies that compete with our
technologies include Bioject Medical Technologies, Inc., Weston Medical Group
plc, Equidyne Corporation, Bentley Pharmaceuticals, Inc., Cellegy
Pharmaceuticals, Inc., Laboratoires Besins-Iscovesco, MacroChem Corporation,
NexMed, Inc. and Novavax, Inc., along with other companies. We also compete
generally with other drug delivery, biotechnology and pharmaceutical companies
engaged in the development of alternative drug delivery technologies or new drug
research and testing. Many of these competitors have substantially greater
financial, technological, manufacturing, marketing, managerial and research and
development resources and experience than we do, and, therefore, represent
significant competition.
Competitors may succeed in developing competing technologies or obtaining
governmental approval for products before we do. Competitors' products may gain
market acceptance more rapidly than our products. Developments by competitors
may render our products, or potential products, noncompetitive or obsolete.
Quarterly Fluctuations In Operating Results
Our operating results may vary significantly from quarter to quarter, in
part because of changes in consumer buying patterns, aggressive competition, the
timing of the recognition of licensing or development fee payments and the
timing of, and costs related to, any future technology or new drug use
introductions. Our operating results for any particular quarter are not
necessarily indicative of any future results. The uncertainties associated with
the introduction of any new technology or drug use and with general market
trends may limit management's ability to forecast short-term results of
operations accurately. Fluctuations caused by variations in quarterly operating
results or our failure to meet analysts' projections or public expectations as
to results may adversely affect the market price of our Common Stock.
17
Possible Stock Price Volatility
The trading prices of our Common Stock could be subject to wide
fluctuations in response to events or factors, many of which are beyond our
control. These could include, without limitation (i) quarter to quarter
variations in our operating results, (ii) announcements by us or our competitors
regarding the results of regulatory approval filings, clinical trials or
testing, (iii) developments or disputes concerning proprietary rights, (iv)
technological innovations or new commercial products, (v) material changes in
our collaborative arrangements and (vi) general conditions in the medical
technology industry. Moreover, the stock market has experienced extreme price
and volume fluctuations, which have particularly affected the market prices of
many medical technology and device companies and which have often been unrelated
to the operating performance of such companies.
The Integration Of Our Companies
Operating the Switzerland Subsidiaries involves technological, operational
and personnel-related risks. The integration process has been complex,
time-consuming and expensive. We and our subsidiaries will utilize common
information and communication systems, facilities, operating procedures,
financial controls and human resources practices. We may encounter difficulties,
costs and delays involved in integrating these operations, including the
following:
. Integrating the information and communications systems of our companies
may be more challenging, expensive and time-consuming than we
anticipate;
. Combining other operational systems, such as product fulfillment and
customer service, may be more difficult than we anticipate;
. Maintaining the quality of products and services that we and the
Switzerland Subsidiaries have historically provided may be more
challenging that we anticipate;
. Coordinating geographically diverse organizations may be more
challenging, expensive and time-consuming than we anticipate; and
. Integrating our business culture and the Switzerland Subsidiaries'
business culture may be more difficult than we anticipate.
If these difficulties, costs or delays occur, we may fail to realize the
benefits that we currently expect to result from the transaction with the
Switzerland Subsidiaries, and material adverse short and long-term effects on
our operating results and financial condition could result.
Loss Of Certain Key Officers Or Employees; New Chief Executive Officer
The success of our business is materially dependent upon the continued
services of certain of our key officers and employees. The loss of such key
personnel could have a material adverse effect on our business, operating
results or financial condition. We plan on hiring personnel to work in the areas
of regulatory/clinical, device production and administrative support.
Competition for such personnel is intense, and there can be no assurance that we
will be successful in attracting and retaining key personnel in the future.
We have recently appointed Dr. Roger Harrison as chief executive officer to
replace Franklin Pass, M.D., who will continue to serve as our vice chairman.
Dr. Harrison joins us after a successful career with Eli Lilly and Company.
Uncertainties In Realizing Benefits From The Transaction
Even if we are able to integrate the operations of the companies
successfully, there can be no assurance that such integration will result in the
realization of the full benefits that we currently expect to result from such
integration or that such benefits will be achieved within the time frame that we
currently expect. Potential risks, any of which could harm our business, results
of operations or financial condition, relating to the integration of the
companies include the following:
18
. The benefits from the transaction may be offset by costs incurred in
integrating the companies;
. The process of integrating operations could cause an interruption of
our ongoing business activities;
. The benefits from the transaction may also be offset by increases in
other expenses, by operating losses or by problems in the business
unrelated to the transaction; and
. The attention and effort devoted to the integration of the companies
will significantly divert management's attention from other important
issues.
Future Terrorist Attacks Could Substantially Harm Our Business
On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. The U.S. government and media agencies were also
subject to subsequent acts of terrorism through the distribution of anthrax
through the mail. Such attacks and the U.S. government's ongoing response may
lead to further acts of terrorism, bio-terrorism and financial and economic
instability. The precise effects of these attacks, future attacks or the U.S.
government's response to the same are difficult to determine, but they could
have an adverse effect on our business, profitability and financial condition.
A Single Shareholder Owns a Majority of the Voting Power of Our Common Stock
Following our reverse business combination with Permatec in January 2001,
Permatec and its controlling shareholder, Dr. Jacques Gonella, own 62.6% of the
total number of outstanding shares of our common stock. Because of Permatec's
and Dr. Gonella's control of the Company, investors will be unable to affect or
change the management or the direction of the Company. As a result, some
investors may be unwilling to purchase our common stock. If the demand for our
common stock is reduced because of Permatec's and Dr. Gonella's control of the
Company, the price of our common stock could be materially depressed.
Because Permatec and Dr. Gonella own more than 50% of the combined voting
power of our stock, they will be able to generally determine the outcome of all
corporate actions requiring shareholder approval. As a result, Permatec and Dr.
Gonella will be in a position to control all matters affecting the Company,
including decisions as to our corporate direction and policies; future issuances
of our common stock or other securities; our incurrence of debt; amendments to
our articles of incorporation and bylaws; payment of dividends on our common
stock; and acquisitions, sales of our assets, mergers or similar transactions,
including transactions involving a change of control.
Sales of Our Common Stock by Our Officers and Directors May Lower the Market
Price of Our Common Stock
As of March 31, 2002, our officers and directors beneficially owned an
aggregate of 6,250,597 shares (or 65.4%) of our common stock, including stock
options exercisable within 60 days. If our officers and directors, or other
shareholders, sell a substantial amount of our common stock, it could cause the
market price of our common stock to decrease and could hamper our ability to
raise capital through the sale of our equity securities.
We Are Involved in Many International Markets, and This Subjects Us to
Additional Business Risks
We have offices and a research facility in Basel, Switzerland, and we also
have several license and distribution agreements with foreign entities to market
our products in various foreign countries. Our international sales growth in
these markets will be limited if we are unable to establish relationships with
the international distributors. Even if we are able to successfully develop
these relationships, we cannot be certain that we will be able to maintain or
increase international market demand for our products. Our international
operations are subject to a number of risks, including the following:
. Increased complexity and costs of managing international operations;
. Protectionist laws and business practices that favor local companies;
. Dependence on local vendors;
19
. Multiple, conflicting and changing governmental laws and regulations;
. Difficulties in enforcing our legal rights;
. Reduced or limited protections of intellectual property rights; and
. Political and economic instability.
A significant portion of our international revenues is denominated in foreign
currencies. An increase in the value of the U.S. dollar relative to these
currencies may make our products more expensive and, thus, less competitive in
foreign markets.
Employees
As of March 31, 2002, we employed 37 full-time and 2 part-time employees in
Minnesota and Pennsylvania, and the subsidiaries employed 18 full-time and 4
part-time employees in Switzerland. None of our employees are represented by any
labor union or other collective bargaining unit. We believe that our relations
with our employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
---- --- --------
Roger G. Harrison, Ph.D. ...... 54 Chief Executive Officer,
President and Director,
from March 12, 2001
Franklin Pass, M.D. ........... 65 Chief Executive Officer,
Chairman of the Board
of Directors and President
until March 12, 2001;
currently Vice Chairman
of the Board of Directors
Lawrence Christian ............ 59 Chief Financial Officer,
Secretary and Vice
President - Finance
Dario Carrara, Ph.D. .......... 38 Managing Director -
Formulations Group
Peter Sadowski, Ph.D. ......... 54 Vice President -
Devices Group
Roger G. Harrison, Ph.D., joined us as Chief Executive Officer, President
and a member of our Board of Directors in March 2001. Prior to that time, Dr.
Harrison was Director of Alliance Management at Eli Lilly and Company. In this
role he helped to create a renewed focus on generating value from corporate
alliances as part of the company's core business strategy. In his 25-years at
Eli Lilly and Company, his roles also included Global Product Team Leader and
Director, Development Projects Management and Technology Development and
Planning. He is the author of twelve publications, has contributed to four books
and holds nine patents. Dr. Harrison earned a Ph.D. in organic chemistry and a
B.Sc. in chemistry from Leeds University in the United Kingdom and conducted
postdoctoral research work at Zurich University in Switzerland.
Franklin Pass, M.D., joined us as a director and consultant in January 1992
and served as Chief Executive Officer, President and Chairman of the Board of
Directors from February 1993 to January 2001. From 1990 to 1992, Dr. Pass served
as President of International Agricultural Investments, Ltd., an agricultural
technology consulting and investment company. Dr. Pass, a physician and
scientist, was Director of the Division of Dermatology at Albert Einstein
College of Medicine from 1967 to 1973, Secretary and Treasurer of the American
Academy of Dermatology from 1978 to 1981 and the co-founder and Chief Executive
Officer of Molecular Genetics, Inc., now named MGI Pharma, Inc., from 1979 to
1986. He is the author of more than 40 published medical and scientific
articles.
Lawrence Christian is currently Chief Financial Officer, Secretary and Vice
President - Finance. He joined us in March 1999 as Vice President, Finance &
Administration, Chief Financial Officer and Secretary. Mr. Christian took
20
early retirement from 3M after a 16-year career. Since 1996 Mr. Christian had
been 3M Financial Director - World-Wide Corporate R&D and Government Contracts
involved in organizing new business venture units and commercialization of new
technologies. Prior to 1996 Mr. Christian served as Financial Manager -
Government Contracts, European Controller and Division Controller within 3M.
Prior to joining 3M in 1982, Mr. Christian was Vice President/CFO of APC
Industries, Inc., a closely-held telecommunications manufacturing company in
Texas.
Dario Carrara, Ph.D. is currently Managing Director - Formulations Group,
located in Basel, Switzerland. He served as General Manager of Permatec's
Argentinean subsidiary from 1995 until its liquidation in 2000. Prior to joining
Permatec, Dr. Carrara worked as Pharmaceutical Technology Manager for
Laboratorios Beta, a pharmaceutical laboratory in Argentina that ranks among the
top ten pharmaceutical companies in Argentina, between 1986 and 1995. Dr.
Carrara has extensive experience in developing transdermal drug delivery
devices. He earned a double degree in Pharmacy and Biochemistry, as well as a
Ph.D. in Pharmaceutical Technology from the University of Buenos Aires.
Peter Sadowski, Ph.D., is currently Vice President - Devices Group, located
in Minneapolis, Minnesota. He joined us in March 1994 as Vice President, Product
Development. He was promoted to Executive Vice President and Chief Technology
Officer in 1999. From October 1992 to February 1994, Dr. Sadowski served as
Manager, Product Development for GalaGen, Inc., a biopharmaceutical company.
From 1988 to 1992, he was Vice President, Research and Development for American
Biosystems, Inc., a medical device company. Dr. Sadowski holds a Ph.D. in
microbiology.
Liability Insurance
Our business entails the risk of product liability claims. Although we have
not experienced any material product liability claims to date, any such claims
could have a material adverse impact on our business. We maintain product
liability insurance with coverage of $1 million per occurrence and an annual
aggregate maximum of $5 million. We evaluate our insurance requirements on an
ongoing basis.
Item 2. DESCRIPTION OF PROPERTY.
We lease approximately 3,000 square feet of office space in Exton,
Pennsylvania for our corporate headquarters facility. The lease will terminate
in November 2004. We believe this facility will be sufficient to meet our Exton
requirements through the lease period.
We lease approximately 23,000 square feet of office, manufacturing and
warehouse space in Plymouth, a suburb of Minneapolis, Minnesota. The lease will
terminate in April 2004. We believe these facilities will be sufficient to meet
our Minneapolis requirements through the lease period.
We also lease approximately 1,000 square meters of facilities in Basel,
Switzerland, with 300 square meters of laboratories (formulation and analytical)
and an additional 300 square meters in expansion reserve. The lease will
terminate in September 2008. We believe the facilities will be sufficient to
meet our Switzerland requirements through the lease period.
Item 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders during the quarter
ended December 31, 2001.
21
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Our Common Stock has traded on the Nasdaq Small Cap Market of the Nasdaq
Stock Market since March 8, 1999. Prior to that time, the Common Stock traded on
the Nasdaq National Market of the Nasdaq Stock Market. Our Common Stock is
traded under the symbol ANTR. The following table sets forth the per share high
and low sales prices of our Common Stock for each quarterly period during the
two most recent fiscal years. Sale prices are as reported by the Nasdaq Stock
Market.
High Low
---- ---
2000:
First Quarter .......................... $ 7.875 $ 3.250
Second Quarter........................... 5.969 3.500
Third Quarter........................... 5.438 3.250
Fourth Quarter........................... 6.125 3.656
2001:
First Quarter............................ 5.000 2.250
Second Quarter........................... 5.650 2.880
Third Quarter............................ 4.300 1.590
Fourth Quarter........................... 4.050 1.900
Common Shareholders
As of March 31, 2002, we had 106 holders of record of our common stock,
with another estimated 2,960 shareholders whose stock is held in nominee name.
Dividends
We have not paid or declared any cash dividends on our common stock during
the past six years. We have no intention of paying cash dividends in the
foreseeable future on common stock. We are obligated to pay semi-annual
dividends on Series A Convertible Preferred Stock ("Series A") at an annual rate
of 10%, payable on May 10 and November 10 each year. In addition to the stated
10% dividend, we are also obligated to pay foreign tax withholding on the
dividend payment, if paid in cash, which equates to an effective dividend rate
of 14.2%. Such foreign tax withholding payments have been reflected as
dividends, when paid in cash, since they are non-recoverable. The Series A
agreement has a provision which allows us to pay the dividend by issuance of the
same stock when funds are not available. We have exercised this provision for
the last five dividend payments.
Sales of Unregistered Securities
On November 10, 1998, Medi-Ject sold 1,000 shares of Medi-Ject Series A and
warrants to purchase 56,000 shares of common stock to Elan International
Services, Ltd., for total consideration of $1,000,000. Series A remains
outstanding after the Permatec business combination. The Series A carries a 10%
dividend which is payable semi-annually. In addition to the stated 10% dividend,
we are also obligated to pay foreign tax withholding on the dividend payment,
which equates to an effective dividend rate of 14.2%. Such foreign tax
withholding payments have been reflected as dividends since they are
non-recoverable. The Series A is redeemable at our option at any time and is
convertible into common stock for sixty days following the 10th anniversary of
the date of issuance at the lower of $7.50 per share or 95% of the market price
of the common stock. The warrants to purchase common stock may be exercised at
any time prior to November 10, 2005, at a price of $4.51 per share.
On December 22, 1999, the Company sold 250 shares of Series B Convertible
Preferred Stock ("Series B") to Bio-Technology General Corporation for total
consideration of $250,000. The Series B did not carry a dividend rate. Series B
was automatically converted on June 30, 2001, into 100,000 shares of common
stock pursuant to the terms of the Series B stock agreement.
On February 5, 2001 Antares issued 1,194,537 shares of common stock for
$7,000,000, and on March 5, 2001, we issued 511,945 shares of common stock for
$3,000,000 in connection with a private placement of Units. Each Unit, at a
22
price of $23.44, consisted of (i) four shares of our common stock, $0.01 par
value, and (ii) a warrant to purchase one share of our common stock. Each of the
four warrants, to purchase in the aggregate 426,621 shares of common stock,
issued in the private placement is exercisable for a period of five years at an
exercise price of $7.03. The proceeds from the sale of these securities have
been primarily used for working capital. There was no underwriter involved and
no fees were paid to any other parties, except legal and accounting fees, in
connection with this transaction. These securities were exempt from registration
because they were issued to four accredited investors in a private placement in
reliance on Rule 506 of Regulation D under the Securities Act of 1933.
Item 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(In thousands, except per share data)
At December 31,
-----------------------------------------------------------
1997 1998 1999 2000 2001
---------- -------- ------- -------- --------
Balance Sheet Data:
Cash and cash equivalents............................ $ 332 $ 492 $ 675 $ 243 $ 1,965
Working capital (deficit)............................ 114 (109) (569) (2,440) (12)
Total assets......................................... 1,656 2,671 2,284 6,975 11,128
Long-term liabilities, less current maturities....... 3,328 7,918 10,099 17,732 106
Accumulated deficit.................................. (3,767) (8,037) (12,004) (17,264) (29,457)
Total shareholders' equity (deficit)................. $ (2,204) $ (6,518) $ (9,347) $ (13,862) $ 7,468
Year Ended December 31,
-----------------------------------------------------------
1997 1998 1999 2000 2001
---------- -------- -------- -------- --------
Statement of Operations Data:
Sales................................................ $ - $ - $ - $ - $ 2,770
Licensing and product development.................... - 68 1,348 560 729
Contract research with related parties............... 145 179 4 - -
------- -------- --------- -------- --------
Revenues........................................... 145 247 1,352 560 3,499
------- -------- --------- -------- --------
Cost of sales........................................ - - - - 1,863
Research and development............................. 796 1,750 1,647 939 4,504
Sales and marketing.................................. 70 179 213 1,157 1,343
General and administrative........................... 1226 2,431 3,221 2,102 5,359
------- -------- --------- -------- --------
Operating expenses................................. 2,092 4,360 5,081 4,198 11,206
------- -------- --------- ------- --------
Net operating loss................................... (1,947) (4,113) (3,729) (3,638) (9,570)
Net other income (expense)........................... (55) (124) (159) (562) 73
Income tax expense................................... (54) (33) (79) (1) (2)
------- -------- --------- -------- --------
Loss before cumulative effect of change in
accounting principle.............................. (2,056) (4,270) (3,967) (4,201) (9,499)
Cumulative effect of change in accounting
principle......................................... - - - (1,059) -
------- -------- --------- -------- --------
Net loss............................................. (2,056) (4,270) (3,967) (5,260) (9,499)
In-the-money conversion feature-preferred
stock dividend.................................... - - - - (5,314)
Preferred stock dividends............................ - - - - (100)
------- -------- --------- -------- --------
Net loss applicable to common shares................. $(2,056) $ (4,270) $ (3,967) $ (5,260) $(14,913)
======= ======== ========= ======== ========
Net loss per common share (1), (2), (3) .................. $ (.48) $ (.99) $ (.92) $ (1.22) $ (1.76)
======= ======== ========= ======== =========
Weighted average number of
common shares (3) ................................... 4,302 4,321 4,325 4,326 8,495
======= ======== ========= ======== ========
(1) Basic and diluted loss per share amounts are identical as the effect of
potential common shares is anti-dilutive.
(2) We have not paid any dividends on our Common Stock since inception.
(3) All share and per share figures for 1997 through 2000 have been computed
using the previously reported weighted average number of common shares
outstanding for Medi-Ject increased by the 2,900 shares issued in the
business combination.
23
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
In July 2000, Medi-Ject Corporation, now known as Antares Pharma, Inc.
entered into a Purchase Agreement with Permatec Holding AG to purchase three
subsidiaries from Permatec. Pursuant to the Purchase Agreement, Antares
purchased all of the outstanding shares of each subsidiary. As consideration for
the transaction, Antares issued 2,900,000 shares of Antares common stock to
Permatec (the "Share Transaction"). The Share Transaction was consummated on
January 31, 2001, and was accounted for as a reverse acquisition because
Permatec held approximately 67% of the outstanding common stock of Antares
immediately after the Share Transaction. Effective with the consummation of the
Share Transaction the financial statements and related disclosures for all
periods that were previously reported as Medi-Ject's were replaced with the
Permatec financial statements and disclosures.
The Medi-Ject operations, which were acquired by Permatec, consisted
primarily of the development, marketing and sale of needle-free injection
devices and disposables. These operations, including all manufacturing and
substantially all administrative activities, are located in Minneapolis,
Minnesota and are referred to below as Antares/Minnesota. The Permatec
operations are located primarily in Basel, Switzerland and consist of
administration and facilities for the research and development of transdermal
and transmucosal drug delivery products. Permatec's operations have historically
been focused on research and development. In the past two years Permatec has
signed a number of license agreements with pharmaceutical companies for the
application of its drug delivery systems. Permatec generated revenue starting in
1999 with the recognition of license revenues and commenced the sale of licensed
products in 2000. Permatec's operations are referred to below as
Antares/Switzerland.
In December 2001, the Company opened its new corporate headquarters in
Exton, Pennsylvania. The Company's headquarters were formerly located in its
Minneapolis, Minnesota, facility. After the move to Exton, the Minneapolis
location has maintained research facilities and many of the administrative
functions. Certain executives have relocated to the Exton office, while most
other employees have remained at the Company's research facilities in
Minneapolis and Basel, Switzerland.
We expect to report a net loss for the year ending December 31, 2002 as we
continue to incur marketing and development costs related to bringing future
generations of products to market. Our long-term capital requirements will
depend on numerous factors, including the status of collaborative arrangements,
the progress of research and development programs and the receipt of revenues
from sales of products.
Results of Operations
Critical Accounting Policies
In preparing the financial statements in conformity with accounting
principles generally accepted in the United States of America, management must
make decisions which impact reported amounts and related disclosures. Such
decisions include the selection of the appropriate accounting principles to be
applied and the assumptions on which to base accounting estimates. In reaching
such decisions, management applies judgment based on its understanding and
analysis of relevant circumstances. Note 1 to the financial statements provides
a summary of the significant accounting policies followed in the preparation of
the financial statements. The following accounting policies are considered by
management to be the most critical to the presentation of the consolidated
financial statements because they require the most difficult, subjective and
complex judgments.
Revenue Recognition - The majority of the Company's revenue relates to
product sales for which revenue is recognized upon shipment, with limited
judgment required related to product returns. Licensing revenue recognition
requires management to estimate effective terms of agreements and identify
points at which performance is met under the contracts such that the revenue
earnings process is complete. Revenue related to up-front, time-based and
performance-based payments is recognized over the entire contract performance
period. For major licensing contracts, this results in the deferral of
significant revenue amounts (approximately $1,500,000 at December 31, 2001)
where non-refundable cash payments have been received, but the revenue is not
immediately recognized due to the long-term nature of the respective agreements.
Subsequent factors affecting the initial estimate of the effective terms of
agreements could either increase or decrease the period over which the deferred
revenue is recognized.
24
Inventory Reserves - The Company records reserves for inventory shrinkage
and for potentially excess, obsolete and slow moving inventory. The amounts of
these reserves are based upon inventory levels, expected product lives and
forecasted sales demand. Although management believes the likelihood to be
relatively low, results could be materially different if demand for the
Company's products decreased because of economic or competitive conditions, or
if products became obsolete because of technical advancements in the industry or
by the Company. The Company has recorded inventory reserves of approximately
$105,000 at December 31, 2001.
Years Ended December 31, 1999, 2000, 2001
Revenues
Revenues decreased by 59% from $1,351,607 in 1999 to $560,043 in 2000 and
increased $2,938,481 to $3,498,524 in 2001, or 525%. The increase in 2001
revenues was largely due to commencement of product sales in 2001. In 2001,
Antares realized product sales of $2,769,591 of which $1,776,159 and $993,432,
respectively, were attributable to the Antares/Minnesota and Antares/Switzerland
operations.
Antares/Minnesota product sales include sales of injector devices, related
parts, disposable components, and repairs. Since the acquisition of
Antares/Minnesota on January 31, 2001, a total of 2,326 devices were sold at an
average price of approximately $245 per unit. Sales of disposable components in
2001 totaled approximately $1,040,000. Antares/Switzerland product sales include
sales of topical gel and transdermal patch drug delivery products. The gel
product sales were made to licensees in connection with clinical studies and
other development activities under license agreements.
The decrease in revenues in 2000 from 1999 resulted from lower milestone
payments to Antares/Switzerland. In 1999, Antares/Switzerland received
$1,000,000 upon the achievement of a milestone. Effective January 1, 2000, the
Company adopted the cumulative deferral method of accounting and deferred
$1,059,622 of previously recognized license milestone payments. For the years
ended December 31, 2000 and 2001, the Company recognized $277,200 and $267,180,
respectively, of license revenues that were deferred at January 1, 2000, as a
result of the adoption of the cumulative deferral method. Development revenues
recognized during 2000 were $387,807 and license fees were $172,236.
Licensing and product development revenue increased in 2001 by $168,890 to
$728,933, primarily due to a $150,000 payment received by Antares/Minnesota
under a research agreement. The payment was not deferred but was immediately
recognized as revenue because the Company had no continuing obligation under the
agreement.
In April 2001, the Company entered into an exclusive agreement to license
certain drug-delivery technology to SciTech Medical Product Pte Ltd ("SciTech")
in various Asian countries with options to other countries if certain conditions
are met. The Company will receive an aggregate license fee of $600,000 in
milestone payments upon the occurrence of certain events. In addition to the
license fees, the Company will receive a 5% royalty from the sale of licensed
products. At June 30, 2001 $200,000 had been recorded in accounts receivable and
deferred revenue in connection with the SciTech agreement. In the third quarter
the agreement was amended to change the due date of the initial $200,000 payment
from June 30, 2001 to December 31, 2001. The agreement was amended a second time
to change the due date for this payment from December 31, 2001 to June 30, 2002.
The Company recorded no deferred license fee revenue at December 31, 2001 and
recognized no license fee revenue in 2001 in connection with this agreement.
Cost of Sales
Cost of sales in 2001 of $1,862,955 is 67% of total product sales. Cost of
sales for Antares/Minnesota was $1,579,836 or 89% of its product sales, and cost
of sales for Antares/Switzerland was $283,119 or 28% of its product sales. Cost
of sales for Antares/Minnesota is relatively high compared to product sales
primarily because production volume was lower than anticipated resulting in a
higher than expected amount of unabsorbed manufacturing overhead.
Research and Development
Research and development expenses decreased by 43% from $1,647,059 in 1999
to $938,562 in 2000 and, excluding the write-off of acquired in-process research
and development in 2001, increased to $3,555,874 in 2001, an
25
increase of 279%. The decrease from 1999 to 2000 was attributable to the closing
in 1999 of operations in Argentina and France. The 2001 increase is primarily
due to research employee additions at Antares/Switzerland for increased research
activities and research costs of $2,191,999 incurred by Antares/Minnesota since
January 31, 2001. The 2001 expense amount includes a write off of certain molds
and tooling totaling approximately $400,000 after a determination was made by
management late in the fourth quarter of 2001 that these developmental molds
would not be used in future production.
In-Process R