UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
INVERNESS MEDICAL INNOVATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware (State or other jurisdiction of incorporation or organization) |
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04-3565120 (I.R.S. Employer Identification No.) |
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51 Sawyer Road, Suite 200, Waltham, Massachusetts (Address of principal executive offices) |
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02453 (Zip Code) |
(781) 647-3900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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Common Stock, $0.001 per share par value |
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American Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
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 ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
The aggregate market value of the voting common stock held by non-affiliates of the registrant based on the closing price of the registrant’s stock on the American Stock Exchange on March 25, 2002 was $141,787,813.
As of March 25, 2002, the registrant had 9,126,440 shares of common stock, par value $0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 30, 2002 are incorporated by reference into Part III of this Form 10-K.
This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can identify these statements by forward-looking words such as “may”, “could”, “should”, “would”, “intend”, “will”, “expect”, “anticipate”, “believe”, “estimate”, “continue” or similar words. There are a number of important factors that could cause actual results of Inverness Medical Innovations, Inc. and its subsidiaries to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, challenges in operating as a stand-alone company as a result of our split-off from Inverness Medical Technology, Inc., our former parent company, which was merged with a subsidiary of Johnson & Johnson on November 21, 2001, difficulties in integrating acquired entities and operating them profitably, the inability to consummate proposed acquisition transactions, difficulties in obtaining financing on satisfactory terms, manufacturing and shipping problems or delays, the risks of product defects and failure to meet strict regulatory requirements both in the United States and abroad, intense competition and economic trends, which could reduce our market share, limit our ability to increase market share or decrease our operation margins as a result of competitive pricing pressures, as well as and other risk factors detailed in this annual report on Form 10-K and other risk factors identified from time to time in our periodic filings with the Securities and Exchange Commission. Readers should carefully review the factors discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Certain Factors Affecting Future Results” and "Special Statement Regarding Forward-Looking Statements" beginning on pages 26 and 39, respectively, in this annual report on Form 10-K and should not place undue reliance on our forward-looking statements. These forward-looking statements were based on information, plans and estimates at the date of this report. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.
Unless the context requires otherwise, references in this annual report on Form 10-K to “we”, “us” and “our” refer to Inverness Medical Innovations, Inc. and its subsidiaries.
ITEM 1. BUSINESS
OVERVIEW
On November 21, 2001, pursuant to an agreement and plan of split-off and merger dated May 23, 2001, Johnson & Johnson acquired Inverness Medical Technology, Inc. (IMT), our former parent, in a merger transaction and, simultaneously, our company, Inverness Medical Innovations, Inc., was split off from IMT as a separate publicly traded company. Immediately prior to the consummation of these transactions, IMT restructured its operations so that we and our subsidiaries would hold all of IMT’s non-diabetes businesses (women health, nutritional supplements and clinical diagnostics). At the closing of the transaction, all of the shares of our common stock held by IMT were split-off from IMT in a pro rata distribution to IMT’s stockholders and IMT (which then consisted primarily of its diabetes business) merged with and became a wholly-owned subsidiary of Johnson & Johnson. We were initially incorporated on May 11, 2001 for the purpose of receiving IMT’s contribution of its non-diabetes businesses.
We develop, manufacture and market consumer healthcare products, including self-test diagnostic products for the women’s health market and vitamins and nutritional supplements. To a lesser extent, we develop, manufacture and market clinical diagnostic products for use by medical professionals. Our consumer self-test diagnostic products allow individuals to obtain accurate information regarding various medical conditions on a confidential, non-prescription basis, without the expense, inconvenience and delay associated with physician visits or laboratory testing. This information gives individuals greater control over their health and their lives, allowing them to make informed decisions and take action to protect their health, alone or in consultation with healthcare professionals. Our existing self-test products are targeted at the women’s health market, one of the largest existing markets for self-care diagnostics, and include home pregnancy detection tests and ovulation prediction tests. We also sell a wide variety of vitamins and nutritional supplements. Our clinical diagnostic products include test kits used by smaller laboratories, physicians’ offices and other point-of-care sites for the detection of pregnancy and a wide variety of infectious diseases.
Our principal executive offices are located at 51 Sawyer Road, Suite 200, Waltham, MA 02453 and our telephone number is (781) 647-3900.
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RECENT DEVELOPMENTS
Acquisition of Unipath
On December 20, 2001, we acquired Unipath Limited, a global leader in home pregnancy and ovulation testing and natural family planning, and its associated companies and assets (the Unipath business) from Unilever PLC (Unilever) and certain affiliated entities (the Unilever group). The Unipath acquisition provides us with leading brand name consumer diagnostic products that compliment our existing value branded and private label home pregnancy detection and ovulation prediction products. The Unipath business is comprised primarily of five former subsidiaries of the Unilever group, specifically Unipath Limited, Unipath Management, Ltd., Unipath Diagnostics GmbH, Unipath Scandinavia A.B. and Unipath B.V., and certain assets. Included in the acquired assets are facilities in Bedford, England, United States marketing and sales operations in Princeton, New Jersey and rights to certain antibody clones and other intellectual property.
The consideration paid to Unilever for the Unipath business was 103 million pounds sterling (approximately 150 million United States dollars or 166 million Euros) in cash, subject to certain adjustments provided for in the sale agreement. We financed the acquisition through a combination of cash on hand and the proceeds from three separate financing transactions, consisting of the private sale of 1,995,000 shares of Series A Convertible Preferred Stock for an aggregate purchase price of $59.85 million, the private sale of approximately $20.0 million of subordinated promissory notes and warrants and the establishment of senior and mezzanine credit facilities with The Royal Bank of Scotland plc and related entities for an aggregate principal amount of $62.5 million. The terms of these financing transactions are described in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Notes 4 and 6 of the “Notes to Consolidated Financial Statements,” which are included elsewhere in this report.
Prior to the acquisition, the Unilever group used the assets of the Unipath business for the research, development, manufacturing and distribution of home pregnancy and ovulation testing products and natural family planning products. We intend to continue to use these assets for this purpose. In addition, we intend to use the acquired assets, together with our existing assets, to research, develop and commercialize new products and advanced medical device technologies for the consumer diagnostics and other markets, as well as to supplement our existing product distribution network.
Acquisition of IVC Industries, Inc.
On March 19, 2002, we acquired IVC Industries, Inc. (IVC), a manufacturer and distributor of vitamins and nutritional supplements, in a merger transaction. Under the terms of the merger agreement, each stockholder of IVC received $2.50 in cash for each share of IVC common stock. Accordingly, the aggregate cash payment to IVC's stockholders was approximately $5.6 million, based upon IVC’s approximately 2.25 million shares outstanding. In addition, IVC had outstanding debt and capital lease obligations as of closing of approximately $18.7 million. IVC manufactures and sells hundreds of different vitamin and nutritional supplement products under brand names and through private label arrangements with retailers. We intend to continue IVC’s present operations. We are in the process of consolidating our vitamin and nutritional supplement manufacturing at IVC and discontinuing most of our outsourced manufacturing arrangements.
BUSINESS SEGMENTS AND GEOGRAPHIC AREA
Our major reportable operating segments are consumer products and clinical diagnostics. Our consumer products are further divisible into self-test diagnostic products and vitamins and nutritional supplements. We further categorize our sales by major geographic areas of the world. Below are discussions of each of our operating segments. Financial information about our business segments is provided in Note 12 of the “Notes to Consolidated Financial Statements,” which are included elsewhere in this report.
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Industry
Consumer Products
Consumer Diagnostic Products. Our current consumer diagnostic products target the women’s health market. Home pregnancy detection tests represent approximately 85% and ovulation prediction tests represent approximately 15% of the women's health self-test products available to consumers. We believe that the demand for ovulation prediction products is growing steadily because of increased awareness of the incidence of infertility, as well as a desire on the part of couples to plan conception with more certainty. The demand for pregnancy test products is growing also, but at a slower pace. We also market Persona®, a diagnostic contraceptive device that is a unique product and does not fit into the traditional women’s health or contraceptive market.
There are numerous pregnancy self-tests on the market, which are typically urine-based tests and provide results in less than five minutes. Ovulation prediction urine-based tests inform women of the best time to conceive a baby by detecting the surge of the luteinizing hormone, which precedes ovulation. Ovulation prediction tests are generally easy to use and are becoming widely accepted by professional fertility care providers and the general public.
Vitamins and Nutritional Supplements. The Dietary Supplement Information Bureau estimates the total mass retail sales of vitamins and nutritional supplements in the United States during 2000 at $5.7 billion. Growth in the industry is driven by media commentary regarding the quality and efficacy of nutritional supplements. Positive media attention resulting from new scientific studies or announcements can spur rapid growth in demand, and also impact individual brands. Conversely, news that challenges individual segments or products can have a negative impact on the industry overall, as well as on sales of the challenged segments or products. These dramatic positive and negative changes generally affect new products and new product segments. Well-established market segments, where competition is greater and media commentary less frequent, generally experience relatively slow and stable growth. There has been little or no growth in the overall nutritional supplements industry over the last year, as the decline of the herbal supplement segment, which was extremely active in the past, has offset the growth in particular new mineral and non-herbal supplements. Slow growth has resulted in retailers reducing shelf space for nutritional supplements and forced many under-performing items out of distribution, including several broad product lines. Sales growth of store brand (private label) products has outpaced the overall industry growth, as retailers continue to add to the number of private label nutritional products on their shelves.
Clinical Diagnostics
The clinical diagnostics market consists of products designed to assist medical professionals in analyzing human body fluids or other materials for markers of pregnancy or disease or the presence of agents that may signal disease.
Customers can be divided into two increasingly polarized segments. One segment consists of centralized laboratories that increasingly benefit from computerization and automation. The second segment consists of small and medium-sized non-centralized laboratories and testing locations, including small blood banks, doctors’ offices and some rapid response laboratories in larger medical centers. Our clinical diagnostics products are rapid result, point-of-care tests that serve this second segment by offering an alternative to traditional high volume, multi-step immunoassays (which use antibodies to measure hormone levels) that require skilled operators and centralized processing.
We believe that the demand for infectious disease diagnostic products is growing faster than demand in other segments of the point-of-care immunoassay market due to the increasing incidence of certain diseases or groups of diseases, including viral hepatitis, acquired immuno deficiency syndrome, tuberculosis, as well as chlamydia and other sexually transmitted diseases.
We also believe there is a growing demand in the clinical diagnostics market for fast, high-quality, inexpensive, self-contained diagnostic kits resulting in part from efforts in many nations to control health care expenditures.
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Products
Consumer Products
Consumer Diagnostics. Our consumer diagnostics business currently develops, manufactures and markets home pregnancy and ovulation prediction tests under our own brands and under various private labels. United States sales of over-the-counter pregnancy and ovulation prediction products were estimated by A.C. Neilson & Co. at approximately $278 million for the 52 weeks ending March 2, 2002. Our ClearBlue® brand of home pregnancy detection tests and our ClearPlan® brand of ovulations prediction tests are global leaders in terms of both sales and technology, though ClearBlue is a smaller player in the United States. Our Inverness Medical® branded products are marketed to value-oriented consumers in the United States. In addition, we are a major United States supplier of private label home pregnancy detection and ovulation prediction products. We also sell Persona®, a contraceptive monitoring device sold overseas, primarily in Germany and the United Kingdom.
Pregnancy Test Products. We market our pregnancy self-test kits in both stick and cassette versions. The stick version has an exposed wick which absorbs urine when placed in the urine stream. The cassette version requires the user to first collect a urine sample in a cup and then use an enclosed dropper to place the urine sample in the test well. Both versions employ identical technology enabling the display of visual results in approximately three minutes. We manufacture our pregnancy test kits at our facilities in Bedford, England and Galway, Ireland and sell them over-the-counter through drug store chains, grocery chains and mass merchandisers under their own store brand label as well as under our own brand names.
Ovulation Prediction Products. We market our ovulation prediction self-test kits in stick and cassette versions, each of which operates in a manner similar to the comparable version of our pregnancy self-test kits. We market our ovulation prediction test kits under our own brand names and under various store brand labels of retail drugstore chains, grocery stores and mass merchandisers. Our ovulation prediction test kit provides 24 to 48 hours notice of when ovulation is likely to occur. By identifying the days when a woman is most fertile, these products assist couples in their family planning. Clinically accurate results are available in approximately three minutes.
We also market an advanced ovulation prediction self-test device called the ClearPlan Easy® Fertility Monitor. The Fertility Monitor not only detects the surge of the luteinizing hormone, which causes ovulation, but it also identifies additional days when a woman can conceive by detecting a rise in estrogen levels. The Fertility Monitor is comprised of a hand held monitoring device and disposable urine test sticks. This product is sold primarily in the United States and Canada.
Our ovulation prediction products are primarily manufactured at our facilities in Bedford, England and Galway, Ireland, except for the Fertility Monitor hand held monitoring device which we purchase from third party suppliers.
Persona. Persona is an in-vitro diagnostic monitoring device that serves as a natural method of contraception by allowing the user to monitor her menstrual cycle. Persona is comprised of a hand held monitoring device and disposable urine test sticks. Persona is sold in Europe, primarily in Germany and the United Kingdom, where it is classed as a contraceptive device. Persona does not currently have regulatory approval in the United States.
Vitamins and Nutritional Supplements. As a result of our recent acquisition of IVC we now market a wider variety of vitamins and nutritional supplements through retail drug store chains, mass merchandisers, food stores and warehouse clubs. Through IVC we acquired a comprehensive assortment of vitamin, mineral and nutritional supplement products, which include
• Multi-vitamin formulas — for both children and adults;
• Single-letter vitamins — such as A, B-complex, C and E;
• Minerals — such as calcium, phosphorus, magnesium, potassium and zinc;
• Herbal products — such as echinacea, St. John’s wort, ginko biloba, saw palmetto, garlic and ginseng; and
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• Non-herbal supplements — such as glucosamine-chondroitin, Co-Q10, and MSM.
These products will be marketed under the Inverness Medical tradename, as well as under store brands (private-label) and are positioned as high quality, lower priced alternatives to nationally advertised brands. The acquired IVC-branded products are high quality products sold at moderate prices through national and regional drug store, club stores, supermarket and mass merchandising chains. A “Synergy Plus®” line of products is sold primarily in health food stores. The acquisition of IVC also expands our vitamin and nutritional supplements business outside of United States for the first time because the products we acquired from IVC are marketed internationally.
Our nutritional supplement products that predate our acquisition of IVC include:
• Stresstabs®, a B-complex vitamin with added antioxidants;
• Ferro-Sequels®, a time release iron supplement;
• Protegra®, an antioxidant vitamin and mineral supplement;
• Posture®, a calcium supplement;
• ALLBEE®, a line of B-complex vitamins;
• Z-BEC®, a zinc supplement with B-complex vitamins and added antioxidants; and
• SoyCare®, a line of soy-based supplements.
We also market the SmartCare® program, which assists consumers in matching their health concerns to the appropriate supplement products that we sell. SmartCare provides the supplement line with a means of linking the various products, allowing for greater efficiencies in advertising, promotion and merchandising. We have not yet determined whether we will be able to expand this program to include products that we acquired from IVC.
Many companies in this market are substantially larger than we are and, therefore, may possess greater resources for advertising and promotion. Stresstabs, Ferro-Sequels, Posture, Protegra, ALLBEE, Z-BEC and SoyCare are registered trademarks of Inverness Medical, Inc. and Fields of Nature, LiquaFil, Rybutol Nature’s Wonder and Synergy Plus are registered trademarks of IVC.
Clinical Diagnostic Products
Clearview Products. Through our acquisition of the Unipath business, we acquired and currently develop, manufacture and sell 6 qualitative, visually-interpreted rapid diagnostic tests for use by medical professionals. These products, which are primarily sold under the Clearview® label, are used in point-of-care environments where a rapid response is desired or where the volume of testing is too low to warrant high volume methods.
The six Clearview products are:
• Clearview HCG II and Easy HCG. These tests are used to confirm pregnancy and also to rule out pregnancy in patients with abdominal pain, late menses and spotting.
• Clearview Chlamydia MF. This test provides a protocol to rapidly detect Chlamydia trachomatis infection in men (urine specimen) and women (endocervical swab). The test delivers comparable performance of laboratory immunoassays, but takes only 30 minutes to achieve a result. In the United States, this product is approved for evaluation of females only.
• Clearview Strep A. The test is used to detect Streptococcal Group A in pharyngeal swabs from patients with sore throat and other symptoms. The test gives results in just 5 minutes, allowing the physician to perform a test during a patient office visit.
• Clearview IM. This test is used to diagnose or rule out infectious mononucleosis. Results are available in 5 minutes for serum plasma specimen and 15 minutes for whole blood. This test is not sold in the United States.
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• Clearview C Diff A. This test is used to diagnose Clostridium difficile-associated diarrhea (CDAD) and to monitor the effectiveness of antibiotic treatment. CDAD is a major clinical problem in cancer patients, elderly patients and patients who are on long term antibiotic therapy. The test is sold under the Clearview brand in the United States. We also manufacture and supply this test to an unrelated third party for sale outside the United States.
• Listeria. This test is used to detect the presence of Listeria monocytogenes, a microorganism, in foods and raw materials used in the food industry. We manufacture and supply this test for an unrelated third party who markets it globally under its own brand name.
Clearview is a trademark of Inverness Medical Switzerland GmbH.
Orgenics Products. Our wholly-owned subsidiary, Orgenics Ltd., which is located in Yavne, Israel, develops, manufactures and sells clinical diagnostic products based on several proprietary technological platforms. These platforms are used to detect a wide variety of infectious diseases, including HIV-1, HIV-2, hepatitis, chlamydia and TORCH. The products are designed to enable small to medium-sized laboratories to economically analyze low volumes of test specimens.
Our Orgenics clinical diagnostic products are based on three primary platforms: ImmunoComb™, DoubleCheck™ and ImmunoGold™. ImmunoComb is our main platform and currently serves as the basis for 25 diagnostic products. The platform is based upon a plastic “comb” with twelve projections upon which antigens or antibodies are applied and which is inserted into a vessel containing a patient’s specimen. This manual testing platform provides the sensitivity, accuracy and versatility of more expensive automated testing platforms at lower prices. DoubleCheck is a single test device through which a specimen migrates to a reaction zone where it filters through and subsequently binds to immobilized antigens or antibodies. DoubleCheck produces results in less than 15 minutes. ImmunoGold consists of a strip containing antigens or antibodies immobilized along a line to which a pad containing gold conjugate is attached. When rehydrated by the liquid specimen the gold particles migrate laterally along the strip where they react with immobilized reagents to produce a sharp red line. ImmunoGold produces results in about 5 minutes and has the advantages of not requiring refrigerated storage or addition of reagents during the test procedure. ImmunoComb, DoubleCheck and ImmunoGold are trademarks of Orgenics Ltd.
Marketing and Sales
Consumer Products
Consumer Diagnostic Products. We market and sell our consumer diagnostic products under our own trade and brand names as well as under store brands. Our customers include retail drug store chains, drug wholesalers, grocery retailers and mass merchandisers in North America and Europe. Our ClearBlue and ClearPlan brand products are leading brands both in the United States and globally. With the exception of ClearBlue in the United States, our ClearBlue and ClearPlan products are marketed as premium products and compete intensively with other premium brand name products. Persona is also marketed as a premium product in Europe. Marketing of premium branded products focuses on brand awareness and feature and performance differentiation. This is achieved primarily through mass media TV advertising. Within the United States, where our ClearBlue brand has not established the high level of brand awareness and brand loyalty typical of a premium brand, we are attempting to build market share by offering value-oriented pricing as well as by aggressively advertising the brand. Our Inverness Medical branded products compete primarily based on price and are not heavily advertised. Private label arrangements accounted for 63% of our consumer diagnostics revenues during 2001 without reference to the Unipath business, which was not acquired until December 20, 2001. Our three largest customers are Walgreen Co., CVS Corporation and Rite Aid Corporation, each of which sells both branded and private label products purchased from us.
Vitamins and Nutritional Supplements. We primarily market and sell our vitamins and nutritional supplements under our own brand names to retail drug store chains, drug wholesalers, grocery retailers and mass merchandisers in the United States and Canada. We also have distribution agreements in place to support the sale of certain of our products in the Middle East, Mexico, South Africa, Europe and the Pacific Rim. Our three largest customers during 2001 were Walgreen Co., Wal-Mart Stores, Inc. and McKesson Corporation. IVC’s largest customer has historically been Costco Wholesale, which accounted for 57% of IVC’s sales during its fiscal year
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ending July 31, 2001. Our rights to the trademarks Stresstabs, Ferro-Sequels, Posture, Protegra, ALLBEE and Z-BEC are limited to use in North America, but we are not restricted from marketing the formulations sold under those brand names in North America under other brand names outside of North America.
Clinical Diagnostic Products
Our Clearview products are sold worldwide through third party distributors and in Germany by our own sales force. However, we sell our C Diff A test under our Clearview brand only in the United States. We otherwise manufacture and sell our C Diff A test, as well as our Listeria test product, to an unaffiliated company who markets the products under its own brands. That arrangement prohibits us from selling these tests directly or to other resellers. Five countries, the United States, Germany, the United Kingdom, Japan and China, represent 80% of our sales of Clearview products. Our Orgenics business has sales offices in Israel, France, Russia, Brazil, Nigeria and Colombia which market our clinical diagnostics products to smaller laboratories, blood banks, physicians’ offices and other patient point-of-care sites in more than 90 countries, principally in Europe, Latin America, Africa and Asia.
Manufacturing
Consumer Products
Consumer Diagnostic Products. We produce nearly all of our disposable consumer diagnostic products at our facilities in Bedford, England and Galway, Ireland. Both facilities are ISO 9001 and EN 46001 certified, FDA registered establishments that employ modern production techniques to produce consistent, high-quality components. A significant portion of our products produced and assembled at our Galway plant are subsequently packaged by a third party in the United States. We rely on third parties for nearly all our production materials. We purchase our electronic, consumer diagnostic products, the Fertility Monitor and Persona, to our specifications from third party suppliers in Europe for distribution in Europe and the United States. We also purchase a small number of low cost, disposable products from third party suppliers for distribution in Europe. Because most components of our diagnostic products are produced to our specifications, some of our suppliers are single source suppliers with few, if any, alternative sources immediately available.
We own one-half and lease one-half of our Galway facility and are currently using the Bedford facility pursuant to an agreement with Unilever entered into in connection with our acquisition of the Unipath business. For more information regarding our use of the Bedford facility and the risks associated with our arrangement to use this facility see “Item 2 — Description of Property” and the related risk factor on page 28.
Vitamins and Nutritional Supplements. Through our acquisition of IVC, we acquired manufacturing facilities in Freehold and Irvington, New Jersey. IVC manufactured substantially all of its products at these locations. The facilities located in Freehold, New Jersey are equipped with large-volume blending, tableting and coating equipment, high-speed packaging equipment, including “cartoning,” “stretch carding” and “blister carding” equipment, and testing and quality control laboratories. IVC internally manufactured all of its softgel requirements at the Irvington facility. We intend to consolidate manufacturing of substantially all of our vitamin and nutritional supplement products in these acquired facilities, both of which currently have substantial additional capacity. These facilities have been certified by an independent auditing firm to be in compliance with Good Manufacturing Practices. We currently manufacture our non-IVC nutritional supplement products domestically through third parties.
Clinical Diagnostics Products.
Our clinical diagnostic products are manufactured at our facilities in Bedford, England, which is described above, and in Yavne, Israel. The Yavne manufacturing facility is ISO 9001 and EN 46001 certified, as well as Good Manufacturing Practices certified by the Israeli Ministry of Health.
Research and Development
We intend to focus our research and development efforts on the development of new products and enhanced features for our lines of women’s health and clinical diagnostics products, as well as the development of product lines targeting new markets. Most of our research and development activities are carried out in Bedford, England, Galway, Ireland and Yavne, Israel. We may, from time to time, supplement our internal research and development efforts with third parties’ efforts either through co-development or licensing arrangements, or through product or
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technology acquisitions. In connection with co-development or licensing activities that we may enter into in the future, we may provide financial development assistance to these parties and may also utilize our own research and development resources to design certain portions of such products.
Foreign Operations
Our business relies heavily on our foreign operations. Three of our manufacturing facilities are outside the United States, in Bedford, England, Galway, Ireland and Yavne, Israel. Orgenics has always made substantially all of its sales outside of the United States. Through our recent acquisitions of the Unipath business and IVC, we expect foreign sales to grow significantly. The Unipath business generated approximately 70% of its net product sales outside of the United States during 2001 and IVC generated almost 14% of its net product sales outside of the United States during its fiscal year ending July 31, 2001.
Competition
General
We have existing competitors, as well as a number of potential new competitors, who have greater name recognition, and significantly greater financial, technical and marketing resources than we do. These strengths may allow them to devote greater resources than we can to the development, marketing and sales of products. These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies and make more attractive offers to existing and potential employees, customers and clients.
We expect that industry forces will impact us and our competitors. Our competitors will likely strive to improve their product offerings and price competitiveness. We also expect our competitors to develop new strategic relationships with providers, referral sources and payors, which could result in increased competition. The introduction of new and enhanced services, acquisitions and industry consolidation, and the development of strategic relationships by our competitors could cause a decline in sales or loss of market acceptance of our products, intensify price competition or make our products less attractive. We cannot assure you that we will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on our business, financial condition and results of operations.
Consumer Products
Consumer Diagnostic Products. Competition in the pregnancy detection and ovulation prediction market is intense. Our competitors in the United States, and worldwide, are numerous and include, among others, large medical and consumer products companies as well as numerous private label manufacturers. Our competitors for the sale of pregnancy test products include Abbott Laboratories, Acon Laboratories, Advanced Biotechnologies, Becton Dickinson, Biotech Atlantic, Armkel, London International Holdings, Inc., Pfizer, Inc., Princeton BioMeditech Corporation, Syntron Bioresearch and Quidel Corp. Our competitors for the sale of ovulation predictors include Becton Dickinson, Armkel, Princeton Biomeditech, Syntron and Quidel. Competition among branded consumer diagnostics products is based on brand recognition and price. Products sold under well-established or “premium” brand names can demand higher prices and maintain high market shares due to brand loyalty. Outside of the United States, ClearBlue is a premium brand and is a market leader. In the United States, where ClearBlue is less well-established, although still a leading brand, the premium brands can demand higher pricing than we can. Our ClearPlan ovulation prediction products qualify as premium brands worldwide and are market leaders both in the United States and globally. Our Inverness Medical branded consumer products compete based on price and do not attempt to compete based on brand recognition. For private label manufacturers, competition is based primarily on the delivery of products at lower prices that have substantially the same features and performance as brand name products. ClearPlan Fertility Monitor and Persona are unique products and their competitors or markets are not easily defined.
Many of our competitors have substantially greater financial, production, marketing and distribution resources than we do. However, we believe that we can continue to compete effectively in the consumer diagnostics market based
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on our research and development capabilities, advanced manufacturing expertise, diversified product positioning, global market presence and established wholesale and retail distribution networks.
Vitamins and Nutritional Supplements. In the branded nutritional supplements industry, competition is based principally upon brand name recognition, price, quality, customer service and marketing support. There are numerous companies in this industry selling products to retailers. A number of these companies, particularly manufacturers of nationally advertised brand name products, are substantially larger than we are and have greater financial resources. Among the major competitors of our branded products that are sold though supermarkets and other mass retailers are Wyeth, formerly known as American Home Products, Pharmavite, Leiner Health Products, Royal Numico and SmithKline Beecham. There are also several manufacturers that produce store brand nutritional supplements with formulations very similar to those of nationally marketed brands, including ours. Major competitors of our Synergy Plus brand which is sold through health food stores and independent drug stores include Twinlab Corporation, Wyeth and Weider Nutritional International.
The market for private label vitamins and nutritional supplements is extremely price sensitive, with quality, customer service and marketing support also being important. Many of the companies listed above as competitors of our mass marketed branded vitamins and nutritionals also sell to private label customers and constitute our major competitors for private label business. In addition, there are several companies, such as Perrigo and Contract Pharmacal, that compete only in the private label business.
Clinical Diagnostic Products
Clearview Products. Our main competitors in the point-of-care immunoassay market are Abbott Laboratories and Quidel Corporation. Other notable competitors in all or some product segments are Thermo Biostar, Biosite Diagnostics, Beckman Coulter, Becton Dickinson, and a host of small but aggressive companies such as Syntron Bioresearch, Princeton BioMeditech Corporation, Applied Biotech, Vedalab and Trinity Biotech. Some automated immunoassay systems can be considered as competitors when labor shortages force laboratories to automate or when the costs of such systems are lower. Such systems are provided by Abbott, Bayer, Roche Diagnostics, Beckman and other large diagnostic companies. In the infectious disease area, new technologies utilizing simplification techniques for analyzing molecular DNA gene sequences such as lygase chain reaction or polymerase chain reaction from Abbott, Roche and Gen-Probe are making in-roads into this market.
Orgenics Products. The main competitors of our ImmunoComb products are standard enzyme linked immuno sorbent assay, or ELISA, systems, such as those produced by Organon, Inc., Bio-Rad, Abbott, Ortho, Roche and others. ELISA tests are generally used by high-volume batch processors such as blood banks and other centralized laboratories. The primary competitors of our other rapid test platforms also include multinational corporations that tend to concentrate their efforts on sales of automated diagnostic systems to centralized laboratories. These multinational corporations have greater resources and more extensive sales networks than we have. Other competitors include Trinity Biotech, Savyon, Gull Laboratories and SDS, which are smaller companies operating primarily in our niche market. Some of these companies do not have the international sales network or the number of products that we have.
Patents and Proprietary Technology; Trademarks
The medical products industry, including the diagnostic testing industry, places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success will depend, in part, on our ability to obtain patent protection for our products and manufacturing processes to preserve our trade secrets and to avoid infringing the proprietary rights of third parties.
We hold certain patent rights and expect to seek patents in the future. However, we cannot assure you as to the success or timeliness in obtaining any such patents or as to the breadth or degree of protection that any such patents might afford us. The patent position of medical products and diagnostic testing firms is often highly uncertain and usually involves complex legal and factual questions. There is a substantial backlog of patents at the United States Patent and Trademark Office and in other patent registration offices around the world. No consistent policy has emerged regarding the breadth of claims covered in medical product patents. Accordingly, we cannot assure you that patent applications relating to our products or technology will result in patents being issued, that, if issued, such
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patents will afford adequate protection to our products or that our competitors will not be able to design around such patents.
The medical products industry, including the diagnostic testing industry, historically has been characterized by extensive litigation regarding patents, licenses and other intellectual property rights. We could and have incurred substantial costs in defending ourselves against patent infringement claims and in asserting such claims against others. To determine the priority of inventions, we may also have to participate in interference proceedings declared by the United States Patent and Trademark Office or foreign patent and trademark authorities, which could also result in substantial costs to us. If the outcome of any such litigation is adverse to us, our business could be materially adversely affected.
In addition, we sometimes obtain licenses to patents or other proprietary rights of third parties to manufacture and market our products. We cannot assure you that licenses required under any such patents or proprietary rights would be made available on terms acceptable to us, if at all. If we do not obtain such licenses, we may encounter delays in product market introductions while we attempt to design around such patents or other rights, or we may be unable to develop, manufacture or sell such products in certain countries, or at all.
We also seek to protect our proprietary technology, including technology that may not be patented or patentable, in part through confidentiality agreements and, if applicable, inventors’ rights agreements with collaborators, advisors, employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our trade secrets will not otherwise be disclosed to, or discovered by, competitors or potential competitors. Moreover, we may from time to time conduct research through academic advisors and collaborators who are prohibited by their academic institutions from entering into confidentiality or inventors’ rights agreements.
Finally, we believe that certain of our trademarks in our consumer products product lines are valuable assets and are important to the marketing of our products. Substantially all of these trademarks have been registered with the United States Patent and Trademark Office or internationally, as appropriate. We cannot assure you, however, that registrations will afford us adequate protection and will not be challenged as unenforceable or invalid, or will not be infringed. In addition, we could incur substantial costs in defending suits brought against us or in prosecuting suits in which we assert rights under such registrations.
Government Regulation
Our research, development and clinical programs, as well as our manufacturing and marketing operations, are subject to extensive regulation by numerous governmental authorities in the United States and other countries. Most of our self-test products require governmental approvals for commercialization. Future products may require pre-clinical and clinical trials. Manufacturing and marketing of many of our products are subject to the rigorous testing and approval process of the Food and Drug Administration (FDA) and corresponding foreign regulatory authorities. The marketing of our consumer diagnostic products is also subject to regulation by the Federal Trade Commission. Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations that could delay, limit or prevent regulatory approval. In addition, we may encounter delays or rejection as a result of changes in, or additions to, regulatory policies for device marketing authorization during the period of product development and regulatory review. Delays in obtaining such approvals could adversely affect our marketing of products developed and our ability to generate commercial product revenues.
In addition, we are required to meet regulatory requirements in countries outside the United States, which can change rapidly with relatively short notice, resulting in our products being banned in certain countries and an associated loss of revenues and income. Foreign regulatory agencies can also introduce test format changes which, if we do not quickly address, can result in restrictions on sales of our products. Such changes are not uncommon due to advances in basic research.
The manufacturing, processing, formulation, packaging, labeling and advertising of our nutritional supplements is subject to regulation by one or more federal agencies, including the FDA, the Federal Trade Commission and the Consumer Product Safety Commission. These activities are also regulated by various agencies of the states, localities and foreign countries in which our nutritional supplements are now sold or may be sold in the future. In
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particular, the FDA regulates the safety, manufacturing, labeling and distribution of dietary supplements, including vitamins, minerals and herbs, as well as food additives, over-the-counter and prescription drugs and cosmetics. The Good Manufacturing Practices promulgated by the FDA are different for nutritional supplement, drug and device products. In addition, the FTC has jurisdiction with the FDA to regulate the promotion and advertising of dietary supplements, over-the-counter drugs, cosmetics and foods.
Product Liability and Limited Insurance Coverage
The testing, manufacturing and marketing of consumer and clinical diagnostic devices entail an inherent risk of product liability claims. In addition, the marketing of our vitamins and nutritional supplements may subject us to various product liability claims, including, among others, claims that our products have inadequate warnings concerning side effects and interactions with other substances. Potential product liability claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of the policy. We cannot be assured that existing insurance can be renewed at a cost and level of coverage comparable to that presently in effect, if at all. In the event that we are held liable for a claim, against which we are not indemnified or for damages exceeding the limits of our insurance coverage, such claim could have a material adverse effect on our business, financial condition and results of operations.
Employees
As of March 25, 2002, we had a total of 1,171 full-time employees, of which 454 employees are located in the United States. In addition, we utilize the services of a number of consultants specializing in research and development in our targeted markets, regulatory compliance, strategic planning, marketing and legal matters.
ITEM 2. DESCRIPTION OF PROPERTY
Our principal corporate administrative office, together with the administrative office for most of our United States operations, are housed in approximately 20,600 square feet of leased space located at 51 Sawyer Road, Waltham, Massachusetts at a monthly rent of approximately $74,000. The sublease covering this space expires on May 30, 2003. For transitional purposes, we have agreed to provide Johnson & Johnson with a limited license to occupy a portion of our principal office for up to 9 months following our split-off from IMT on November 21, 2001.
Our European operations, as well as our Unipath business, are currently administered from a 150,000 square foot facility located in Bedford, England. The Bedford facility is also currently providing the manufacturing for our Unipath operations and serving as our research and development center. This facility contains fully automated assembly equipment, and state-of-the-art research laboratories, with excess space and capacity to support potential future expansion. We are currently using the Bedford facility pursuant to an agreement with Unilever entered into in connection with our acquisition of the Unipath business. Unilever currently leases this facility from a third party landlord. Pursuant to Unilever’s lease, Unilever is not permitted to assign the lease to us or sublet the Bedford facility to us without obtaining the prior written consent of the landlord (which consent may not be unreasonably withheld). Unilever is, however, obligated to use its best efforts to obtain the landlord’s consent to assignment and then to pursue the assignment, and, if necessary, a sublease through the courts. Unilever has also agreed to permit us to use the Bedford facility until such time as the lease is assigned to us or the facility is subleased to us by Unilever for the remaining term of the lease, which expires on December 11, 2021. Under the terms of this agreement, we are required to pay all amounts owed under the lease and otherwise comply with the terms of the lease. The annual rent for the Bedford facility after accounting for the most recent adjustment in September, 2001 is expected to be between £1.3 million and £1.75 million (approximately, $1.85 million and $2.5 million) and is upwardly adjustable every five years. If Unilever is unable to successfully assign the lease to us or otherwise enable us to realize the benefit of its lease of the Bedford facility, we may be forced to renegotiate a lease of this facility on substantially less favorable terms, seek alternative, more costly means of producing our products or suffer other adverse effects to our business.
We also have manufacturing operations in Freehold, New Jersey, Irvington, New Jersey, Galway, Ireland and Yavne, Israel. We own a 160,000 square foot manufacturing facility in Freehold, New Jersey and lease a 35,000 square foot facility in Irvington, New Jersey. The Irvington lease has a current term of 5 years expiring on December 31, 2006, with an option to extend for an additional 5 years, and the monthly rent is currently approximately $18,100. The New Jersey facilities manufacture the vitamin and nutritional supplement products that we
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acquired with IVC and we intend to consolidate manufacturing of substantially all of our vitamin and nutritional supplement products in these facilities. Our facility in Galway, Ireland consists of a 40,000 square foot space. We own half of the Galway facility and lease the other half from a private developer under a lease that expires in 2026. The Galway facility houses the manufacturing and warehousing, as well as some research and development, of Inverness Medical brand and most of our private label pregnancy detection and ovulation prediction test products. Additionally, the Galway facility will for a limited period of time continue to perform certain diabetes-related packaging work for IMT in accordance with our transition services agreement with IMT. Aggregate annual mortgage and lease payments for our Galway facility total approximately $197,000.
The FDA regulates companies that manufacture commercial medical devices and requires that such companies manufacture such devices in a properly designed and validated environment. A registered facility is required to submit to an FDA inspection not less than once every two years. As required by the regulations, each of the above described facilities have been registered with the FDA and are Good Manufacturing Practices compliant. The Bedford facility operates to international standards of Good Manufacturing Practice, Good Laboratory Practice, Good Clinical Practice and Quality Assurance (ISO 9001 and EN 46001). Our Galway facility is a registered FDA facility and is ISO 9001, EN 46001 and ISO 13485 certified.
We also house the administrative offices and development and manufacturing operations of our Orgenics clinical diagnostics business in a leased facility of approximately 10,000 square feet in Yavne, Israel. The lease for this facility expires in 2006 and carries rent of approximately $25,000 per month. The facility includes a number of specialized features and equipment, including environmentally controlled areas, customized production equipment, and computerized systems for purchasing, inventory management and materials tracking. Our Yavne facility is ISO 9001, EN 46001 and Good Manufacturing Practices certified.
We also lease a 130,000 square foot facility in Freehold, New Jersey, which has served as IVC’s primary warehouse and distribution facility. This lease expires on July 27, 2008 and the current monthly rent is approximately $43,333. We sublease approximately 30,000 square feet of this facility to a third party. We also have leases or other arrangements for smaller offices and warehouses to support our consumer products business in Princeton, New Jersey, Springfield, New Jersey, Surrey, British Columbia, Sint-Niklaas, Belgium, Quebec, Canada, Koln, Germany, Oxford, England and Lund, Sweden. Our Israeli subsidiary also maintains small sales offices in Paris, France, Sao Paulo, Brazil, St. Petersburg, Russia and Bogota, Columbia, and is in the process of establishing additional sales offices in Nigeria, Kenya and Argentina. We believe that our facilities are adequate to support the operations of our businesses in the foreseeable future. We have insurance coverage for the properties and equipment that we own or lease.
ITEM 3. LEGAL PROCEEDINGS
Abbott Laboratories v. Selfcare, Inc. and Princeton BioMeditech Corporation
In April 1998, Abbott commenced a lawsuit against IMT (formerly known as Selfcare, Inc.) and Princeton BioMeditech Corporation (PBM), which manufactured certain products for IMT, in an action filed in the United States District Court for the District of Massachusetts (District Court), asserting patent infringement arising from IMT’s and PBM’s manufacture, use and sale of products that Abbott claims are covered by one or more of the claims of U.S. Patent Nos. 5,073,484 and 5,654,162 (the Pregnancy Test Patents), to which Abbott asserts that it is the exclusive licensee. Abbott claims that certain of IMT’s products relating to pregnancy detection and ovulation prediction (now our products to the extent they are still sold) infringe the Pregnancy Test Patents. Abbott is seeking an order finding that IMT and PBM infringe the Pregnancy Test Patents, an order permanently enjoining IMT and PBM from infringing the Pregnancy Test Patents, compensatory damages to be determined at trial, treble damages, costs, prejudgment and post-judgment interest on Abbott’s compensatory damages, attorneys’ fees, and a recall of all of existing products found to infringe the Pregnancy Test Patents. On August 5, 1998, the court denied Abbott’s motion for a preliminary injunction. On March 31, 1999, the District Court granted a motion by IMT, PBM, and PBM-Selfcare LLC (the LLC), a joint venture between PBM and IMT, filed to amend IMT’s counterclaim against Abbott, asserting that Abbott is infringing U.S. Patent Nos. 5,559,041 (the 041 patent) and 5,728,587 (the 587 patent), which are owned by the LLC, and seeking a declaration that Abbott infringes the patents and that IMT is entitled to permanent injunctive relief, money damages and attorneys’ fees. On November 5, 1998, Abbott filed suit in the United States District Court for the Northern District of Illinois seeking a declaratory judgment of non-
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infringement, unenforceability and invalidity of the 041 patent and the 587 patent. The Illinois court granted IMT’s motion to transfer the aforementioned Illinois action to Massachusetts. IMT and its co-defendant moved for summary judgment on its defense that the Abbott patents are invalid, and on September 29, 2000, the court granted partial summary judgment, holding that certain key claims in Abbott’s patents are invalid as a matter of law. The court refused to grant summary judgment on Abbott’s claims of infringement or IMT’s remaining claims of invalidity. On December 17, 2001, the court denied a motion by Abbott seeking reconsideration of the court’s partial summary judgment in favor of IMT and PBM. Abbott renewed this motion on February 15, 2002. The court has not ruled on this motion. No trial date has been set at this time. In connection with our split-off from IMT, we assumed all obligations and liabilities of IMT arising out of this matter. We believe that we have strong defenses against Abbott’s claims and we will continue to defend the case vigorously; however, a final ruling against IMT or us could have a material adverse impact on our sales, operations or financial performance.
Becton, Dickinson and Company v. Selfcare, Inc. et. al.
On January 3, 2000, Becton, Dickinson and Company (Becton Dickinson) filed suit against IMT (formerly known as Selfcare, Inc.) in the U.S. District Court for the District of Delaware (Case No: 00-001) alleging that certain pregnancy and ovulation test kits sold by IMT (and now by us) infringe U.S. Patent Nos. 4,703,017 and 5,591,645. IMT was served with Becton Dickinson’s complaint in April 2000 and filed its answer on May 30, 2000, and subsequently added counterclaims alleging violations of state and federal antitrust laws. Becton Dickinson has since lost its rights to U.S. Patent No. 5,591,645 and is no longer asserting claims for infringement of that patent. In August 2001, IMT moved for summary judgment of non-infringement, but that motion was denied. IMT subsequently filed a second motion for summary judgment, which is still pending before the court. In connection with our split-off from IMT, we agreed to assume all obligations and liabilities of IMT arising out of this matter and we have assumed its defense. While a final ruling against IMT or us could have a material adverse impact on our sales, operations or financial performance, we believe that we have strong defenses and we intend to defend this litigation vigorously.
Cambridge Biotech Corporation and Cambridge Affiliate Corporation v. Ron Zwanziger, Selfcare, Inc., Cambridge Diagnostics Ireland, Ltd., Trinity Biotech, plc and Pasteur Sanofi Diagnostics
As of November 19, 2001, the parties to this litigation, (Civil Action No. 99-378) pending in the Middlesex County Massachusetts Superior Court, agreed to settle all claims in connection with this suit brought by Cambridge Biotech Corporation (CBC) and Cambridge Affiliate Corporation (CAC) against IMT, Ron Zwanziger, our subsidiary in Ireland, Cambridge Diagnostics Ireland, Ltd. (CDIL), Trinity Biotech plc (Trinity) and Pasteur Sanofi Diagnostics (Pasteur) arising out of the sale of certain HIV technology to Trinity. The settlement includes releases between the plaintiffs and the defendants and between IMT, CDIL and Ron Zwanziger and Trinity. Under the terms of the settlement IMT and CDIL have paid $500,000 to CBC, and Trinity has paid $50,000 to CBC. IMT and CDIL have also paid $1,500,000 to Trinity. The settlement also includes an agreement for IMT and CDIL to partially indemnify CBC up to a maximum of $1,125,000, and for Trinity to partially indemnify CBC up to a maximum of $75,000. CBC has agreed to partially indemnify IMT, CDIL, Ron Zwanziger and Trinity. Trinity, through a subsidiary, will transfer certain technology to CDIL and has agreed to produce certain antigens for CDIL. In connection with our split-off from IMT, we agreed to assume all obligations and liabilities of IMT arising out of this matter and its settlement.
Intervention, Inc v. Selfcare, Inc. and Companion Cases
In May 1999, Intervention, Inc., a California corporation, filed separate suits, which were subsequently consolidated, in California Contra Costa County Superior Court against IMT (formerly known as Selfcare, Inc.), four of its private label customers (now our customers) and its major competitors (now our competitors) and their private label customers alleging that, under Section 17200 of the California Business and Professions Code, the defendants’ labeling on their home pregnancy tests is misleading as to the level of accuracy under certain conditions. The plaintiff seeks restitution of profits on behalf of the general public, injunctive relief and attorneys’ fees. Conopco, Inc. (Conopco), predecessor to one of our subsidiaries, Unipath Diagostics, Inc. (Unipath Diagnostics), was also a defendant in this litigation. In connection with our split-off from IMT and our acquisition of the Unipath business
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from Unilever, we have assumed the defense of IMT and Unipath Diagnostics and agreed to assume all obligations and liabilities of IMT and Unilever arising out of this matter. More recently the case has been split such that Unipath Diagnostics is a defendant in one case and we and our private label customers are defendants in another case. The case in which we and our private label customers are parties is scheduled for trial in June 2002. No trial date has been established for the case in which Unipath Diagnostics is a party. We are defending our private label customers under agreement. We do not believe that an adverse ruling against our company, our private label customers or Unipath Diagnostics would have a material adverse impact on our sales, operations or financial performance.
Persona Litigation
In April 2001, 69 consumers brought an action in London claiming defects in Unipath’s Persona contraceptive device, negligence and breach of contract, all allegedly leading to unwanted pregnancies by the claimants at or prior to 1998. The case is expected to be ready for trial to a judge in the latter half of 2003. We believe that there are substantial defenses to the claims and we intend to vigorously defend this litigation. Formal documentary and other discovery permitted under the law in the United Kingdom has not yet commenced, but is anticipated to be conducted during the second half of 2002 and into 2003. The case is insured, in the aggregate, by Unilever’s product liability insurance up to 50 million British Pounds Sterling or more, depending on when the events giving rise to the consumers’ suit occurred. As a result, we do not believe that an adverse ruling would have a material adverse impact on our sales, operations or financial performance.
Other Pending and Potential Litigation
Because of the nature of our business, we may be subject at any particular time to consumer product claims or various other lawsuits arising in the ordinary course of our business, including employment matters, and we expect that this will continue to be the case in the future. These lawsuits generally seek damages, sometimes in substantial amounts, for personal injuries or other commercial or employment claims. We believe that any adverse ruling in such lawsuits would not have a material adverse effect on our sales, operations or financial performance. In addition, we aggressively defend our patent and other intellectual property rights. This often involves bringing infringement or other commercial claims against third parties, which can be expensive and often results in counterclaims challenging the validity of our patents and other rights. We are currently a plaintiff in a number of cases filed around the world against competitors who we believe to be selling products that infringe our propriety rights. These outstanding cases do not involve material counterclaims. In particular, on March 7, 2002, we filed suit against Pfizer, Inc. (Pfizer) in the United States District Court for the District of New Jersey alleging that Pfizer’s e.p.t ® brand pregnancy tests infringe Unipath’s United States Patent Number 6,352,862 and seeking injunctive relief against further infringement as well as damages. This case compliments two existing infringement cases that we have pending against Pfizer based on other Unipath patents.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Set forth below is a summary of the actions taken by our stockholders during the three months ended December 31, 2001. Until November 21, 2001, when we were split off from IMT as a separate publicly traded company, our company was a subsidiary controlled by IMT and the only other stockholder was Ron Zwanziger.
On November 16, 2001, the stockholders approved the matters set forth below by written consent in lieu of special meeting. The stockholders (i) approved a private placement of convertible preferred stock and warrants to purchase common stock for the purpose of raising up to $80 million, (ii) approved a private placement of subordinated convertible capital notes and warrants to purchase common stock for the purpose of raising up to $20 million and (iii) approved a private placement of capital notes and related warrants to purchase common stock for the purpose of raising up to $25 million.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On November 23, 2001, our common stock began trading on the American Stock Exchange (AMEX) under the symbol “IMA.” Prior to that date, there was no established public trading market for shares of our common stock. The following table sets forth, for the period indicated, the high and low closing sale prices of our common stock on AMEX.
|
|
High |
Low |
|
Year ended December 31, 2001 |
|
|
|
4th Quarter (beginning November 23) |
$19.35 |
$15.47 |
On March 25, 2002, there were 275 holders of record of our common stock. The closing price of our common stock on March 25, 2002 was $21.50.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain earnings to support our growth strategy and do not anticipate paying cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, on our common stock will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion.