SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2002 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission file number 0-32501
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MACROPORE BIOSURGERY, INC. |
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(Exact name of Registrant as Specified in Its Charter) |
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DELAWARE |
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33-0827593 |
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(State or Other Jurisdiction |
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(I.R.S. Employer |
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6740 TOP GUN STREET, SAN DIEGO, CALIFORNIA |
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92121 |
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(Address of principal executive offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code: (858) 458-0900 |
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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, par value $0.001
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 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. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant on June 28, 2002 (the last business day of the registrant’s most recently completed second fiscal quarter was $48,263,520 based on the average of the reported high and low sales price of the registrant’s common stock on June 28, 2002 as reported on the Frankfurt Stock Exchange, of 4.25 Euros, or $4.22 per share, based on the exchange rate in effect as of such date.
As of January 31, 2003, there were 14,522,685 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the 2003 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of the year ended December 31, 2002, are incorporated by reference in Part III, Items 10, 11, 12 and 13 of this Form 10-K.
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain statements that may be deemed “forward-looking statements” within the meaning of United States securities laws. All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. The forward-looking statements included in this report are also subject to a number of material risks and uncertainties, including but not limited to the risks described under “Risk Factors” in the Management’s Discussion and Analysis of Financial Conditions and Results of Operations. We encourage you to read those descriptions carefully. We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements.
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PART I
General
We were initially formed as a California general partnership in July 1996, and incorporated in the State of Delaware in May 1997. Our two platform technologies include biomaterials (bioresorbable implants) and biologics (regenerative medicine). Within our biomaterials platform we design, develop, manufacture and market bioresorbable polymer implants for use in the reconstruction, repair and regeneration of hard tissue (bone) and soft tissue throughout the body. Additionally, we design, develop, and manufacture related instruments and accessories used in connection with our implants. Our bioresorbable implants are used in spine, orthopedic, neurosurgical, and other musculoskeletal reconstructive surgical applications, while our bioresorbable thin films are used for soft tissue applications.
In 2002 we sold our craniomaxillofacial “CMF” (skull and face) bone fixation implant and accessory product line to a subsidiary of Medtronic, Inc. “Medtronic”. We will continue to be a backup supplier for the acquired products during a brief transition period.
In November 2002, we acquired StemSource, Inc. “StemSource”, a California company specializing in stem cell bioengineering, research and technology. This has allowed us to begin developing our biologics platform technology of regenerative (stem cell) therapies using adult stem cells derived from a patient’s own adipose (fat) tissue. In addition, this acquisition provides us technology in the field of stem cell preservation and banking, offering the opportunity for people worldwide to bank their stem cells for later personal use.
Our bioresorbable implants are made from a polylactide copolymer composed of lactic acid similar to that which occurs naturally in the human body. The polymer implant maintains its strength during the healing process, while slowly breaking down in the body through hydrolysis. The polymer fragments into single lactic acid molecules, and the lactic acid molecules are then metabolized by the liver into carbon dioxide and water, and released from the body through the lungs.
We believe the benefits of using a bioresorbable material in bone healing and regenerating applications include:
• no long-term growth restrictions such as those related to the use of metallic plates and screws in pediatric patients
• no distortion of diagnostic and therapeutic imaging and no creation of imaging artifacts such as are commonly encountered with metal systems
• no long-term patient palpation
• no interference with x-rays
• virtually eliminates thermal sensitivity from temperature changes
• reduced risk of migration of plates and screws during the bone healing process
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• lowered risk of infection
• strength appropriate for specific applications
• predictable resorption rate
• avoids risk of disease transmission associated with human or animal materials
• may eliminate additional surgery to remove non-bioresorbable implants
• encouragement of normal bone growth and increased strength of regenerated bone compared to non-bioresorbable products, particularly metal, that may shield the bone from the stress that facilitates bone growth and bone strength
In addition, because of the thermoplastic properties, bioresorbable products can be easily shaped, sized and applied to varying anatomical structures. We believe this ease-of-use along with the versatility capabilities allows the surgeon to save time in the operating room.
We have received regulatory clearance or approval to market and sell some of our bioresorbable implant products in the United States, Canada, Europe and other countries.
In January 2000, we entered into an exclusive worldwide Distribution Agreement with Medtronic, Inc. for the global marketing and distribution of some of our products for use in CMF applications. We also entered into a Development and Supply Agreement, in January 2000 with Medtronic, to co-develop bioresorbable implants for use in spinal fixation, stabilization and fusion applications and supply any such new implants to Medtronic as the distributor. In September 2002, we entered into an agreement to sell substantially all of the assets related to the CMF line of business to a subsidiary of Medtronic. The sale included a perpetual exclusive license to certain intangible assets to be used in the CMF surgical field, along with use of our bioresorbable implants for repair of the bone harvest site in the iliac crest. We retained all other rights to use the intangible assets in other parts of the body. In another agreement with Medtronic on the same day, we extended the term of our existing co-development and supply agreement for spinal implants to 2012, and obtained a waiver of the right of first offer to market our bioresorbable films in certain fields.
We are continuing development of new products and materials useful for the repair and regeneration of bone. We are currently engaged in a clinical study related to our new faster-resorbing polymer (FRP) which may be particularly useful in treating pediatric patients due to their rapid rate of bone growth, and we are developing additional products for use in spinal fusion procedures, long-bone repair, healing of nonunion fractures and cyst or tumor removal site repair, among other things. These future products may require further development and regulatory clearance or approval, potentially including clinical trials, prior to marketing and commercial use.
Building on our initial biomaterials platform technology, we have developed the SurgiWrap™ and CardioWrap™ families of bioresorbable surgical thin film. These products are constructed from the same polylactide copolymer as our other implants. Our bioresorbable thin films have present and potential clinical applications across multiple surgical specialties in which the primary intended market includes the control of postsurgical adhesions in cardiothoracic, general, spinal and obstetric surgeries. We have not yet obtained clearance for these indications in the United States, although we have in Europe and in other countries. In addition to its soft tissue reinforcement properties, extensive preclinical research has demonstrated that our bioresorbable film also acts as a barrier, controlling the formation of fibrous bands which cause adhesions. Such scarring is historically problematic in almost every kind of operation, often
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leading to significant pain, and specific anatomic functional impairments, such as bowel obstruction and female infertility. In many cases, additional surgery is required to remove damaging adhesions, but with limited long-term clinical success. Advantages of our bioresorbable thin films include:
• transparent, ultra thin profile to allow simplified intraoperative placement and repositioning without obscuring visualization of underlying tissues
• significant strength retention for up to 8 weeks to maintain support throughout critical healing period
• bioresorbable/biocompatible material provides safe resorption and metabolization with minimal risk of inflammatory reaction
• no human or animal components, avoids the risk of disease transmission
In 2001 we received our first regulatory clearances from the FDA to market our SurgiWrap™ bioresorbable film for reinforcement of soft tissues throughout the body and as a bridging material where indicated. Some of the uses include, but are not limited to, repair of fascial defects including vaginal prolapse repair, colon and rectal prolapse repair, and reconstruction of the pelvic floor. Additional U.S. clearance includes the prevention of postsurgical adhesions in specific ear, nose and throat (“ENT”) procedures. In June 2002, we hired a direct sales force in the U.S. to sell SurgiWrap™ film as an adhesion control product for specified ENT procedures and for soft tissue support. The initial 16-person sales team covered all the major metropolitan areas in the U.S. market.
In 2002 we received the CE Mark (marketing clearance in Europe) to market our bioresorbable film for the prevention of postsurgical adhesions in cardiothoracic, general, spinal and gynecological & obstetric (“OB/GYN”) surgeries. In Canada, Thailand, Korea and Australia we have received clearance to market our surgical film for the prevention of adhesions in the heart, spine, peritoneal cavity (including bowels and organs) and OB/GYN surgeries. To date we have established distribution agreements with a network of 28 independent international distributors to sell our bioresorbable surgical film throughout Europe, South America, the Middle East and the Far East.
Through the acquisition of StemSource, Inc. in November 2002, we are moving to advance stem cell therapies that promote the healing or regeneration of the patient’s own tissues with the patient’s own stem cells. We believe adult stem cells, harvested from the patient’s fat tissue through a liposuction procedure, have the ability to offer replacement cells to treat life-altering or life-threatening disorders. StemSource’s approach has significant advantages over many other stem cell technologies. StemSource developed devices and techniques to harvest adult stem cells from fat, and demonstrated the ability of adipose (fat)-derived stem cells to differentiate into a variety of tissues in vitro.
A stem cell is an unspecialized cell that can become many of the two-hundred-plus tissues that make up the body. Of the two types of stem cells, adult (found in various tissues after birth), and embryonic (fetal tissue), our efforts are exclusively directed toward adult stem cell autologous transplantation, separating the stem cells from a person’s fat and delivering them back to the same person where needed. We believe the prospective benefits of using adult stem cells (derived from fat) for the regeneration of one’s own tissue include:
• adult stem cells derived from adipose (fat) tissue have demonstrated the ability to differentiate into a variety of tissues, in vitro
• fat tissue is expendable and accessible
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• potential benefits could encompass a variety of medical applications
• by using one’s own cells, the recipient can avoid the problems of disease transmission and rejection associated with donor tissue
The acquisition of StemSource has also provided us California state-licensed tissue bank facility for the preservation of extracted stem cells. Typically arranged through a patient’s physician, stem cell banking is the process by which adult stem cells, taken from a liposuction or other procedure, are stored (cryopreserved) in a liquid nitrogen freezer at -320°F (-196°C) exclusively for the particular patient who banked them. The banked stem cells, frozen in suspended animation, can be preserved for the life of the individual.
We are required to obtain from the Food and Drug Administration regulatory clearance of our medical device products that we market in the United States. In addition, we must obtain marketing authorization for our products that we market in Europe, Canada, Mexico and certain other non-U.S. jurisdictions. During 2002 and in the first two months of 2003, we received additional regulatory clearance or marketing authorization for our products from various jurisdictions, for the following indications:
• the use of our SurgiWrapTM surgical barrier film to cover orbital implants used in enucleation (eye removal) surgery and to protect the surrounding orbital tissue from the surface of the implant (U.S.)
• the use of our HYDROSORB™ TELAMON™ device to maintain the relative position of bone graft material and to promote fusion in the lumbar spine (in Europe – HYDROSORB™ is a trademark of Medtronic, Inc.)
• the use of our bioresorbable adhesion barrier film to prevent the formation or reformation of adhesions and promote the formation of a surgical dissection plane to include the following anatomical regions: pericardium, epicardium, and retrosternal (Canada, Thailand, Korea, Australia)
• the use of our bioresorbable adhesion barrier film (in Europe) as a temporary physical barrier to separate opposing tissues and prevent the in growth of scar tissues and the formation or reformation of adhesions immediately adjacent to the barrier film; aid in reoperation procedures by promoting the formation of a surgical dissection plane immediately adjacent to the barrier film; prevent the formation or reformation of adhesions and promote the formation of a surgical dissection plane to include the following anatomical regions:
a) Pericardium, epicardium, and retrosternal
b) Peritoneum, peritoneal cavity, bowels, cecum, organs
c) Dura, spinal dura, peridural, epidural
d) OB/GYN (e.g. female pelvic, reproductive organs, ovaries, uterus, uterine tubes, etc.)
• The use of our orthopedic graft containment products (OS Trauma) to support weak bony tissue in orthopedic reconstruction procedures including iliac crest and rib reconstructions
We are also developing additional products for use in spinal fusion procedures, soft tissue repair, adhesion control products and long-bone repair, among other things. These future products may require further development and regulatory clearance or approval, potentially including clinical trials, prior to marketing and commercial use.
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We continue to seek patent protection for our new products as evidenced by our recent receipt of a U.S. patent (No. 6,531,146) for our family of bioresorbable thin films (SurgiWrapTM/CardioWrapTM) for the control of postsurgical adhesions, as well as a new patent in Australia (No. 752357) for our macro-porous mesh.
Products and Services
We manufacture our bioresorbable implant products solely in the United States at our San Diego facility. We currently market the product lines specified below in the United States, Europe and/or other countries for repair and regeneration of bone, and for soft tissue repair in various locations throughout the body. We anticipate the launch of three additional musculoskeletal reconstructive products in conjunction with our distributor Medtronic in 2003, and one new product to aid in the repair and regeneration of soft tissues. All HYDROSORB™ branded products are manufactured by us and distributed exclusively by Medtronic HYDROSORB™, CORNERSTONE™, and TELAMON™ are each a trademark of Medtronic. In the case of our thin film products, Medtronic and we both market the products, but only the units which are sold through Medtronic are branded HYDROSORB™. Product lines marked by an asterisk (*) have been sold to Medtronic PS Medical for all craniomaxillofacial “CMF” (skull and face) bone fixation and iliac crest reconstruction purposes. We temporarily serve as a back-up supplier of these products to Medtronic. We retain the rights to these products for all other purposes, though many of these products will not have any significant application for us outside of the field of use for which they were sold.
Our current product lines are:
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SurgiWrap™ HYDROSORB™ |
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bioresorbable barrier |
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for the reinforcement of soft tissues throughout the body and as a bridging material where indicated; some of the uses include, but are not limited to, repair of fascial defects including vaginal prolapse repair, colon and rectal prolapse repair, and reconstruction of the pelvic floor |
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SurgiWrapi™ CardioWrapi™ HYDROSORB™ |
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bioresorbable adhesion barrier film |
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to separate opposing tissues and prevent the in growth of scar tissues and the formation or reformation of adhesions immediately adjacent to the barrier film; aid in reoperation procedures by promoting the formation of a surgical dissection plane immediately adjacent to the barrier film; prevent the formation or reformation of adhesions and promote the formation of a surgical dissection plane. |
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HYDROSORB™ CR |
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bioresorbable cement restrictor |
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to prevent extrusion of bone cement in hip arthroplasty procedures |
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HYDROSORB™ Mesh (U.S.) |
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bioresorbable mesh/ screws |
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to support weak bony tissue in orthopedic procedures and for iliac crest / rib reconstruction |
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CORNERSTONE™
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bioresorbable pre-formed cylinders/ sleeves |
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to support weak bony tissue in orthopedic procedures and for iliac crest / rib reconstruction |
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HYDROSORB™ TELAMON™
HYDROSORB™ |
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bioresorbable pre-formed cylinders/sleeves |
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to promote spinal fusion in the lumbar spine by maintaining the relative position of bone graft material and/or growth factors by assisting in maintaining the space between adjacent vertebral bodies in the treatment of spinal disorders such as degenerative disc disease, disc herniation, scoliosis, failed previous surgeries, etc. |
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MacroPore OS Spine™ |
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bioresorbable macroporous sheets of various shapes and sizes, together with instruments, accessories and bioresorbable screws and tacks |
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for the containment of bone grafts or bone graft substitutes in spinal fusion procedures in conjunction with traditional rigid fixation |
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MacroPore FX™* |
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over 120 bioresorbable components, including specially designed plates, screws, tacks and mesh, as well as instruments and accessories |
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for use in adult and pediatric patients in trauma, reconstructive procedures, and other surgeries for craniomaxillofacial and neurosurgical applications |
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MacroPore PS* |
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bioresorbable macroporous sheets of various shapes and sizes, as well as instruments and accessories |
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for use in adult and pediatric patients to facilitate healing and bone regeneration in the skeletal system by, among other things, maintaining the position of bony fragments in trauma and bone graft procedures, and maintaining space beneath soft tissues and allowing bone growth to occur in a protected environment |
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MacroPore OS™* |
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bioresorbable macroporous sheets of various shapes and sizes, together with instruments, accessories and bioresorbable screws and tacks |
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for the containment of bone grafts other than in the spine, and for reconstruction of the iliac crest, or hip, bone graft donor site |
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MacroPore NS™* |
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specially designed bioresorbable plates |
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in cranial reconstruction or cranial closure following neurosurgical applications |
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MacroPore LP™* |
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specially designed bioresorbable macroporous sheets of various shapes and sizes, with related instruments, accessories and low profile bioresorbable screws and tacks |
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in pediatric and adult patients in plastic, reconstructive, and neurosurgical procedures, as well as other specialized surgical applications |
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MacroPore MX™* |
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specially designed bioresorbable plates and screws with templates and various specialized instrumentation |
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for mandibular fracture fixation |
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MacroPore DX* |
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fully and partially bioresorbable craniofacial distraction device, together with specialty instruments and accessories |
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to gradually lengthen the midface cranial skeleton to correct cranial skeleton growth disorders |
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CONERSTONE, HYDROSORB and TELAMON are trademarks of Medtronic, Inc. All other trademarks are owned by MacroPore Biosurgery, Inc.
Revenues realized from the sale of our musculoskeletal bone fixation products in the years ended December 31, 2002, 2001 and 2000 accounted for 58%, 27% and 0% respectively, of our total revenues. Revenues realized from the sale of our CMF bone fixation products in the years ended December 31, 2002, 2001 and 2000 accounted for 31%, 67% and 95% respectively, of our total revenues. Since all of our products are developed and sold for use in the medical device industry and have similar purposes, production processes, markets and regulatory requirements, we report them as a single industry segment.
We provide a range of support services to our customers, to distributors and to surgeons interested in, and who are currently using our products, including:
• producing promotional, educational and instructional materials and literature
• producing scientific publications
• demonstrating our products
• training at our San Diego headquarters
• teaching regional and on-site training seminars and symposia
• providing support personnel to advise surgeons during surgery on the use of our products
Plan of Operation
During 2003, we intend to focus our efforts on:
• streamlining our business operations and implementing new cost controls to reduce spending to increase value for our shareholders
• enhancing production planning and manufacturing processes to reduce costs and increase efficiency of our high volume spinal / reconstructive products
• further expanding of our international distribution network for sales of our bioresorbable surgical film products
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