SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the fiscal year ended December 31, 2002 or |
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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 000-31923 |
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HARVARD BIOSCIENCE, INC. |
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(Exact Name of Registrant as Specified in Its Charter) |
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Delaware |
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(508) 893-8999 |
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04-3306140 |
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(State or Other Jurisdiction of |
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(Registrant’s telephone |
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(IRS Employer Identification No.) |
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84 October Hill Road, Holliston, MA |
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01746 |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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Securities registered pursuant to Section 12(b) of the Act: None |
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
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The aggregate market value of 17,798,954 shares of voting stock held by non-affiliates of the registrant as of June 30, 2002 was approximately $99,496,153 based on the last sale price of such stock on such date.
Common Stock Outstanding as of March 17, 2003: 30,031,266 shares.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Company’s definitive Proxy Statement in connection with the 2003 Annual Meeting of Stockholders to be held on May 22, 2003 are incorporated by reference into Part III of this Form 10-K.
PART I
This Annual Report on Form 10-K contains statements that are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The forward-looking statements are principally, but not exclusively, contained in “Item 1: Business” and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about our expected research and development spending, the impact of acquisitions on future earnings, the effect of our technology on the drug development process, our intention to strengthen our market position, management’s confidence or expectations, our business strategy, our positioning for revenue and other growth, our ability to reduce the risk of being dependent on a single technology, our ability to avoid competition with major instrument companies, our acquisition strategy (including our ability to accelerate the growth of acquired products through our established brands and distribution channels, our plans and intentions regarding the distribution of our catalog and supplements to our catalog and the availability of attractive acquisition candidates), our expectations regarding future costs of product revenues, the market demand and opportunity for our products, our beliefs regarding our position in comparison to our competitors, our estimates regarding our capital requirements, the timing of future product introductions,or the ability of our patent strategy to protect our current and future products, our expectations in connection with current litigation (including inferences about the finality of the arbitrator’s decision in the Grindle matter and potential appeal of or other challenge to that decision), and our plans, objectives, expectations and intentions that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could, “ “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “potential” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in detail under the heading “Important Factors That May Affect Future Operating Results” beginning on page 30 of this Annual Report on Form 10-K. You should carefully review all of these factors, as well as other risks described in our public filings, and you should be aware that there may be other factors, including factors of which we are not currently aware, that could cause these differences. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the Federal securities laws to update and disclose material developments related to previously disclosed information.
Item 1. Business.
Overview
Harvard Bioscience, a Delaware corporation, is a global developer, manufacturer and marketer of a broad range of specialized products, primarily scientific instruments, used to accelerate drug discovery research at pharmaceutical and biotechnology companies, universities and government laboratories worldwide. We sell our products to thousands of researchers in over 100 countries through our direct sales force, our 1,000 page catalog (and various other specialty catalogs), and through distributors, including Amersham Biosciences and PerkinElmer. We have sales and manufacturing operations in the United States, the United Kingdom, Germany, Austria and Belgium with sales facilities in Japan, France and Canada.
Our History
Our business began in 1901 and has grown over the intervening years with the development and evolution of modern drug discovery tools. Our early inventions include the mechanical syringe pump in the 1950s for drug infusion and the microprocessor controlled syringe pump in the 1980s.
In March 1996, a group of investors led by our current management team acquired a majority of the then existing business of our predecessor, Harvard Apparatus. Following this acquisition, we redirected the focus of the Company to
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participate in the high growth areas (bottlenecks) within drug discovery by acquiring and licensing innovative technologies while continuing to grow the existing business through internal product development and marketing, partnerships and acquisitions. Through December 31, 2002, we have completed thirteen business acquisitions, licensed new technology for in vitro toxicology assays and drug absorption measurement, internally developed new product lines including new generation syringe pumps, ventilators, DNA/RNA/protein calculators, spectrophotometers and plate readers and improved versions of our COPAS model organism screening platform.
Our Strategy
Our mission is to profitably accelerate drug discovery.
Our goal is to become a leading provider in the tools for the drug discovery industry.
Our strategy is to have a broad range of specialized products (currently over 19,000) in strong positions in niche markets focused on the bottlenecks in drug discovery research:
• By having a broad product line we believe we reduce the risk of being dependent on a single technology in an industry characterized by very rapid technological change;
• By having specialized products in niche markets we seek to reduce head-to-head competition with the major instrument companies; and
• By focusing on the bottlenecks we believe we position ourselves for above average revenue growth and above average margins.
We grow this range of products through internal development of new products, acquisitions and strategic partnerships with both pharmaceutical companies (for new product development) and other major life science companies (for expanded distribution).
We use acquisitions to expand our product line because we believe we can use our well established brands and distribution channels to accelerate the growth of these acquired products. We also believe that our expertise in operational management frequently allows us to improve profitability at acquired companies.
Our Products
Today, our broad product range is generally targeted towards four major application areas: ADMET screening; molecular biology; high-throughput/high-content screening for model organisms; and genomics, proteomics and high-throughput screening of potential drugs.
ADMET Screening.
The goal of ADMET screening is to identify compounds that have toxic side effects or undesirable pharmacological properties. These pharmacological properties consist of absorption, distribution, metabolism and elimination, which together with toxicology, form the acronym ADMET. We have a wide range of products that our customers use to help their researchers conduct better experiments on cells, tissues, organs and animals.
These products are primarily sold under the Harvard Apparatus, BTX, Medical Systems, Clark Electromedical, Hugo Sachs and Warner Instruments brand names. The selling price of these products are often under $5,000 but when combined into systems such as the Hugo Sachs isolated organ systems the total sales price can be over $25,000. They are typically sold through our catalogs and web site with support from technical specialists. Some of these products are described below:
Absorption - NaviCyte Diffusion Chambers
A diffusion chamber is a small plastic chamber with a membrane separating the two halves of the chamber used to measure the absorption of a drug into the bloodstream. The membrane can either be tissue such as intestinal tissue or a cultured layer of cells such as human colon cells. This creates a miniaturized model of intestinal absorption. We
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entered this market with our 1999 acquisition of the assets of NaviCyte Inc., a wholly owned subsidiary of Trega Biosciences.
Distribution - 96 Well Equilibrium Dialysis Plate for Serum Protein Binding Assays
Our 96 well equilibrium dialysis plate contains 96 pairs of chambers with each pair separated by a membrane. The protein target is placed on one side of the membrane and the drug on the other. The small molecule drug diffuses through the membrane. If it binds to the target, it cannot diffuse back again. If it does not bind, it will diffuse back and forth until equilibrium is established. Once equilibrium is established, the concentration of the drug can be measured thereby indicating the strength of the binding. This product is principally used for ADMET screening to determine if a drug binds to blood proteins. A certain level of reversible binding is advantageous in order to promote good distribution of a drug through the human body. However, if the binding is too strong, it may impair normal protein function and cause toxic effects.
Metabolism and Elimination - Organ Testing Systems
Organ testing systems use glass or plastic chambers together with stimulators and recording electrodes to study organ function. Organ testing systems enable either whole organs or strips of tissue from organs such as hearts, livers and lungs to be kept functioning outside the body while researchers perform experiments with them. They are typically used in place of live animals. Studies on isolated livers are useful in determining metabolism and studies on kidneys are useful in determining elimination. We have sold basic versions of these systems for many years, but significantly expanded our product offerings through our November 1999 acquisition of Hugo Sachs Elektronik.
Toxicology - Precision Infusion Pumps
Infusion pumps, typically syringe pumps, are used to accurately infuse very small quantities of liquid, commonly drugs. Infusion pumps are generally used for long-term toxicology testing of drugs by infusion into animals, usually laboratory rats. We sell a wide range of different types of syringe pumps.
Cell Injection Systems
Cell injection systems use extremely fine bore glass capillaries to penetrate and inject drugs into or around individual cells. Cell injection systems are used to study the effects of drugs on single cells. Injection is accomplished either with air pressure or, if the drug molecule is electrically charged, by applying an electric current. We entered this market with our 1998 acquisition of the research products of Medical Systems Corporation and considerably expanded our presence in this market with our acquisitions of Clark Electromedical in 1999 and Warner Instruments in 2001.
Ventilators
Ventilators use a piston driven air pump to inflate the lungs of an anesthestised animal. Ventilators are typically used in surgical procedures common in drug discovery. Our advanced Inspira ventilators have significant safety and ease of use features, such as default safety settings.
Electroporation Products
Acquired with our acquisition of the BTX division of Genetronics in January 2003, our electroporation products include systems and generators, electrodes and accessories for research applications including in-vivo, in-ovo and in-vitro gene delivery, electrocell fusion and nuclear transfer cloning. Through the application of precise pulsed electrical signals, electroporation systems open small “pores” in cell membranes allowing genes and/or drugs to pass through. The principal advantages of electroporation over other transfection techniques are speed, and the fact that electroporation does not require harsh chemicals that can interfere or change cell function.
In addition to our proprietary, manufactured products, we buy and resell through our catalog, products that are made by other manufacturers. We have negotiated supply agreements with the majority of the companies that provide our distributed products. These supply agreements specify pricing only and contain no minimum purchase commitments. None of these agreements represented more than two percent of our revenues for the year ended December 31, 2002.
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Distributed products accounted for approximately 14% of our revenues for the year ended December 31, 2002. These distributed products enable us to provide our customers with a single source for their experimental needs. These complementary products consist of a large variety of devices, instruments and consumable items used in experiments involving cells, tissues, organs and animals in the fields of proteomics, physiology, pharmacology, neuroscience, cell biology, molecular biology and toxicology. We believe that our proprietary, manufactured products are often leaders in their fields however, researchers often need complementary products in order to conduct particular experiments. Most of these complementary products come from small companies that do not have our extensive distribution and marketing capabilities.
Molecular Biology.
These products are primarily sold under brand names of the distributors including Amersham Biosciences. They are mainly scientific instruments like spectrophotometers and plate readers that analyze light to detect and quantify a very wide range of molecular and cellular processes or apparatus like gel electrophoresis units. These products are typically in the $5,000 to $10,000 price range. They are typically sold through distributors.
Molecular Biology Spectrophotometers
A spectrophotometer is an instrument widely used in molecular biology and cell biology to quantify the amount of a compound in a sample by shining a beam of white light through a prism or grating to divide it into component wavelengths. Each wavelength in turn is shone through a liquid sample and the spectrophotometer measures the amount of light absorbed at each wavelength. This enables the quantification of the amount of a compound in a sample. We sell a wide range of spectrophotometers under the names UltroSpec, NovaSpec, and Biowave. These products are manufactured by our Biochrom subsidiary and sold primarily through our distribution arrangement with Amersham Biosciences.
DNA/RNA/Protein Calculators
A DNA/RNA/protein calculator is a bench top instrument dedicated to quantifying the amount of DNA, RNA or protein in a sample. It uses a process similar to that of a molecular biology spectrophotometer. These are sold under the names GeneQuant and GeneQuant Pro. Launched in 1993, we believe that it was the first such instrument sold. These products are manufactured by our Biochrom subsidiary and sold primarily through Amersham Biosciences.
Multi-Well Plate Readers
Multi-well plate readers are widely used for high throughput screening assays in the drug discovery process. The most common format is 96 wells per plate. Plate readers use light to detect chemical interactions. We introduced a range of these products in 2001 beginning with absorbance readers and followed by luminescence readers. These products are sold through Amersham Biosciences and other distributors.
Amino Acid Analysis Systems
An amino acid analysis system uses chromatography to separate the amino acids in a sample and then uses a chemical reaction to detect each one in turn as they flow out of the chromatography column. Amino acids are the building blocks of proteins. In June 2000, we acquired substantially all of the amino acid analysis systems business of the Biotronik subsidiary of Eppendorf-Netheler-Hinz GmbH and integrated it with the existing amino acid analysis systems business in our Biochrom subsidiary. These systems are sold through our Biochrom direct sales force and distributors including Amersham Biosciences.
Low Volume, High-Throughput Liquid Dispensers
A liquid dispenser dispenses low volumes of liquids into high density microtitre plates used in high throughput screening processes in drug discovery. Our unique technology enables dispensing to take place without the need for contact between the droplet and the liquid already present in the plate, thereby removing any risk of cross-contamination from the process. These products are primarily marketed by our Asys Hitech subsidiary and sold under distributor brand names. We acquired Asys Hitech in December 2001 through our Biochrom subsidiary. Asys Hitech
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developed and markets both the liquid dispensers and a line of OEM plate readers. For ultra low volume dispensing we sell the Cartesian systems mentioned below.
Gel Electrophoresis Systems
Gel electrophoresis is a method for separation and purifying DNA, RNA and proteins. In gel electrophoresis an electric current is run through a thin slab of gel and the DNA, RNA or protein molecules separate out based on their charge and size. The gel is contained in a plastic tank with an associated power supply. Most of these products were acquired with our November 2001 acquisition of SciePlas Ltd and are sold through distributors.
High-Throughput/High-Content Screening for Model Organisms.
These systems are large scientific instruments that use fluid flow and lasers to analyze small model organisms like nematode worms, fruit flies and fish very rapidly and in large numbers. Model organisms are so called because they are used to model human diseases.
COPAS Systems
The COPASTM system uses large bore flow cytometry and a novel proprietary technique to rapidly analyze and sort the model organisms C. elegans (worm), D. melanogaster (fly), and D. rerio (Zebra fish). Automation of the handling of these organisms through the use of the COPASTM system provides scientists a complete integrated solution to rapidly produce and evaluate model organisms. COPAS systems are typically over $100,000 and are sold by technically specialized salespeople. In May 2001, we acquired Union Biometrica, the inventor and developer of the COPASTM technology.
Genomics, Proteomics and High-Throughput Screening.
These products were mainly acquired with our purchase of Genomic Solutions Inc. in October of 2002 and subsequent to that, in March of 2003 with the acquisition of GeneMachines. They are mainly large scientific instruments that rapidly process and analyze samples of DNA, RNA or proteins. These systems are typically over $25,000 each and are sold by our field sales force and distributors in select countries.
Genomics Products – Arrayers, Hybridization Workstations and Scanners.
Genes contain the DNA code for making proteins. The human genome contains over three billion letters of DNA code that are organized into approximately 30,000 genes that can create approximately 100,000 proteins. Scientists have studied individual genes for decades but the modern discipline of genomics refers to studying many genes simultaneously. Genes are often studied using microarrays – 1” by 3” glass slides covered in many spots, each spot containing a unique piece of known DNA. A sample labeled with a fluorescent dye is then washed over the slide and the DNA in the sample that sticks to the DNA on the slide (by virtue of the complementary pairing of DNA bases) is identified. We make arraying instruments that can precisely spot down onto the slide tiny quantities of DNA and enable large numbers of slides to be automatically manufactured by the scientist. Our hybridization workstations carefully control the addition of reagents and the reaction conditions that enable the automated washing of the sample over the slide to create a robust attachment of the sample DNA to the test DNA. Our slide scanners use lasers to read the intensity of the fluorescent signals to accurately quantify the genes that are present in the sample. Finally, we developed the software to control the process and analyze and present the data. These products are mainly sold under our GeneMachines brand name.
Proteomics Products - 2 Dimensional Gels, Spot Picking Robots and Sample Preparation Robots .
Proteins are a key component of all living cells. Each cell may contain thousands of different proteins. Scientists have studied individual proteins for decades but the modern discipline of proteomics refers to studying many proteins simultaneously. In order to study proteins they must first be purified. We manufacture two-dimensional electrophoresis gels and related apparatus for purifying proteins. Gel electrophoresis uses electric current to separate molecules by size and amount of electric charge they carry. These gels are then processed by automated workstations that use machine vision and robotics to remove individual protein spots from the gels. These spots are further purified using proprietary sample preparation pipette tips combined with robotics to automatically spot the pure proteins onto
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plates that can be analyzed by mass spectrometers. The data from all these processes can then be analyzed and presented by our powerful software. By automating these otherwise manual processes our products make proteomics approaches practical. These products are mainly sold under our Investigator brand name and also under the SciePlas and Amika brand names.
High-Throughput Screening Products – Nanolitre Liquid Handlings.
High throughput screening is the process of testing large numbers (often hundreds of thousands) of potential drug molecules on proteins that are thought to be involved in disease. We manufacture instruments that aspirate and dispense very small quantities (as small as billionths of a litre) of chemicals into test wells (usually either 96, 384 or 1536) on small plastic plates called microtitre plates. We make instruments that can very rapidly, precisely and without cross-contamination add the same compound to each well, or add a different compound to each well. These products are mainly sold under our Cartesian and Asys Hitech brand names. We have considerable intellectual property in this area. In addition, specialized versions of our COPAS systems can be used for high-throughput screening of potential drug molecules as well as high-throughput/high-content screening of model organisms.
Our Customers
Our customers are primarily end-user research scientists at pharmaceutical and biotechnology companies, universities and government laboratories, including the U.S. National Institutes of Health, or NIH. Our largest customers in the United States include Yale University, Aventis, Glaxo SmithKline, Pfizer, University of Pennsylvania, University of North Carolina, Buck Institute for Age Research, University of Texas, Emory University, Carnegie Institute of Washington, Howard Hughes Medical Institute, Rutgers State University, University of Colorado, Merck & Co., and Roche Bioscience.
We conduct direct sales in the United States, the United Kingdom, Germany, France, Belgium, Spain, the Netherlands, Japan and Canada. We also maintain distributors in other countries. Aggregate sales to our largest customer, Amersham Biosciences, a distributor with end users similar to ours, accounted for approximately 18% of our revenues for the year ended December 31, 2002 compared to approximately 30% for the year ended December 2001. We have several thousand customers worldwide and no other customer accounted for more than two percent of our revenues for such period.
Sales and Marketing
Direct Sales
We periodically produce and mail approximately 100,000 copies of our 1,000-page catalog, which contains approximately 10,000 items. We distribute the majority of our products ordered from our catalog, which can also be accessed on our website, through our worldwide subsidiaries. Our manufactured products and revenues from collaboration and research grant products accounted for approximately 86% of our revenues for the year ended December 31, 2002. Our market leadership position in many of our manufactured products create traffic to the catalog and web site and enables cross-selling and facilitates the introduction of new products. In addition to the comprehensive catalog, we create and mail abridged catalogs that focus on specific product areas along with direct mailers, which introduce or promote new products.
With the acquisition of Union Biometrica in May 2001, and continuing in 2002 with the new direct sales in the US of our Biochrom Amino Acid Analyzer, and the acquisition of Genomic Solutions, a significant portion of our revenues are now attributable to a direct sales force and support organization rather than through a catalog or through distribution. Our direct sales force is complemented in the field by our technical support and field service organizations, and together they effectively sell and service our capital equipment product lines such as Union Biometrica COPAS product line, the Biochrom Amino Acid Analyzer and the Genomic Solutions’genomics, proteomics, and high-throughput screening products. Although there are separate and unique sales forces for each of these product lines, we are able to leverage our capabilities by having more individuals be able to connect with and identify more prospective customers.
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Amersham Biosciences Distributor
In August 2001, we entered into a new agreement with Amersham Biosciences. Under the terms of the agreement Amersham Biosciences serves as our exclusive distributor, marketer and seller of a majority of the product of our Biochrom subsidiary. This agreement has a five year finite life and may be terminated by either party upon 18 months prior written notice. Additionally, upon breach of certain terms of the agreement by either party, such as pricing, exclusivity, and delivery, the agreement may be terminated with a 30 day notice period.
Research and Development
Our principal research and development mission is to develop a broad portfolio of technologies, assays, products and core competencies in drug discovery tools, particularly for application in the areas of ADMET screening, molecular biology, genomics, proteomics and high-throughput screening and high-throughput/high-content screening of model organisms.
Our research and development expenditures were $4.1 million (excluding in-process research and development charges of $1.6 million), $3.2 million (excluding in-process research and development charges of $5.4 million) and $1.5 million in 2002, 2001 and 2000, respectively. We anticipate that we will continue to make significant development expenditures as we deem appropriate given the circumstances at such time. We plan to continue to pursue a balanced development portfolio strategy of originating new products from internal research and development programs and business and technology acquisitions.
We maintain development staff in most of our manufacturing facilities to design and develop new products and also to re-engineer existing products to bring them to the next generation level. In-house development is focused on our current technologies. Our European research laboratory in Geel, Belgium is focusing on extending the use of and developing new applications for high-throughput automated microscope imaging. For new technologies, our strategy has been to license or acquire proven technology from universities and pharmaceutical companies and then develop the technology into commercially viable products.
Manufacturing
We manufacture and test the majority of our products in our principal manufacturing facilities located in the United States, the United Kingdom, Austria and Germany. We have considerable manufacturing flexibility at our various facilities, and each facility can manufacture multiple products at the same time. We maintain in-house key manufacturing know-how, technologies and resources. We seek to maintain multiple suppliers for key components that are not manufactured in-house.
Our manufacturing operations are primarily to assemble and test. Our manufacturing of syringe pumps, ventilators, cell injectors, protein purification products and electroporation products (which we acquired from BTX in January, 2003) takes place in Holliston, Massachusetts. The manufacture of our cell biology and electrophysiology products takes place in our Hamden, Connecticut facility. The COPAS™ technology instruments are manufactured in our Somerville, Massachusetts facility. Our genomics, proteomics and high throughput screening products are manufactured at our Irvine and San Carlos, California and Huntingdon, England facilities. Our manufacturing of spectrophotometers and amino acid analysis systems takes place in our Cambridge, England facility which is certified to ISO 9001. Our manufacturing of surgery and anesthesia related products and teaching products takes place in Edenbridge, England. Our manufacturing of complete organ testing systems takes place in March-Hugstetten, Germany. Our electrophoresis products are manufactured at our Warwickshire, England facility and our low volume, high throughput liquid dispensers and our plate readers are manufactured in our facility in Eugendorf, Austria.
Competition
The markets into which we sell our products are highly competitive, and we expect the intensity of competition to continue or increase. We compete with many companies engaged in developing and selling tools for drug discovery. Many of our competitors have greater financial, operational, sales and marketing resources, and more experience in research and development and commercialization than we have. Moreover, competitors may have greater name recognition than we do, and many offer discounts as a competitive tactic. These competitors and other companies may have developed or could in the future develop new technologies that compete with our products which could render our products obsolete. We cannot assure you that we will be able to make the enhancements to our technologies
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necessary to compete successfully with newly emerging technologies. We are not aware of any significant products sold by us which are currently obsolete.
We believe that we offer one of the broadest selections of products to companies engaged in drug discovery. We are not aware of any competitor that offers a product line of comparable breadth across our target markets. We have numerous competitors on a product line basis. We believe that we compete favorably with our competitors on the basis of product performance, including quality, reliability and speed, technical support, price and delivery time. We compete with several companies that provide instruments for ADMET screening, molecular biology, genomics, proteomics and high throughput screening, and high-throughput/high-content screening of model organisms. In the ADMET screening area, we compete with, among others, KD Scientific, Razel Scientific Instruments, Inc., Kent Scientific Corporation, General Valve Company, Eppendorf-Netheler-Hinz GmbH, Ugo Basile and Becton Dickinson and Company. In the molecular biology products, we compete with, among others, Bio Rad Laboratories, Inc. PerkinElmer Instruments, Inc., Invitrogen, Inc., Beckman Coulter, Inc., and Molecular Devices, Inc. In the genomics, protemics and highthroughput screening area, we compete with, among others, Genetix, Inc., Bio Rad Laboratories, Inc., Amersham Biosciences, Inc., PerkinElmer, Inc., Zymark, Inc., Tecan, Inc., Beckman Coulter, Inc. Apogent , Inc., Agilent Technologies, Inc., and Innovadyne, Inc. For our high-throughput/high-content screening for model organisms area, we compete primarily against manual techniques rather than a specific tools provider.
Intellectual Property
To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark and trade-secret laws, as well as confidentiality provisions in our contracts. Many of our new technologies arecovered by patents or patent applications. Most of our more mature product lines are protected by trade names and trade secrets only.
We have implemented a patent strategy designed to provide us with freedom to operate and facilitate commercialization of our current and future products. We currently own 22 issued U.S. patents and have 20 pending applications.
Generally, U.S. patents have a term of 17 years from the date of issue for patents issued from applications filed with the U.S. Patent Office prior to June 8, 1995, and 20 years from the application filing date or earlier claimed priority date in the case of patents issued from applications filed on or after June 8, 1995. Our issued US patents will expire between 2011 and 2020. Our success depends to a significant degree upon our ability to develop proprietary products and technologies. We intend to continue to file patent applications as we develop new products and technologies.
Patents provide some degree of protection for our intellectual property. However, the assertion of patent protection involves complex legal and factual determinations and is therefore uncertain. The scope of any of our issued patents may not be sufficiently broad to offer meaningful protection. In addition, our issued patents or patents licensed to us may be successfully challenged, invalidated, circumvented or unenforceable so that our patent rights would not create an effective competitive barrier. Moreover, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States. In addition, the laws governing patentability and the scope of patent coverage continue to evolve, particularly in areas of interest to us. As a result, there can be no assurance that patents will issue from any of our patent applications or from applications licensed to us. In view of these factors, our intellectual property positions bear some degree of uncertainty.
We also rely in part on trade-secret protection of our intellectual property. We attempt to protect our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. Our employees and consultants also sign agreements requiring that they assign to us their interests in patents and copyrights arising from their work for us. Although, many of our U.S. employees have signed agreements not to compete unfairly with us during their employment and after termination of their employment, through the misuse of confidential information, soliciting employees, soliciting customers and the like, these type of agreements cannot be legally entered into in Europe or in California. However, it is possible that these agreements may be breached or invalidated and if so, there may not be an adequate corrective remedy available. Despite the measures we have taken to protect our intellectual property, we cannot assure you that third parties will not independently discover or invent competing technologies, or reverse engineer our trade secrets or other technologies. Therefore, the measures we are taking to protect our proprietary rights may not be adequate.
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We do not believe that our products infringe on the intellectual property rights of any third party. We cannot assure you, however, that third parties will not claim such infringement by us or our licensors with respect to current or future products and third parties have made such claims. We expect that product developers in our market will increasingly be subject to such claims as the number of products and competitors in our market segment grows and the product functionality in different market segments overlaps. In addition, patents on production and business methods are becoming more common and we expect that more patents will be issued in our technical field. Any such claims, with or without merit, could be time-consuming, result in costly litigation and diversion of management’s attention and resources, cause product shipment delays or require us to enter into royalty or licensing agreements. Moreover, such royalty or licensing agreements, if required, may not be on terms acceptable to us, or at all, which could seriously harm our business or financial condition.
“Harvard” is a registered trademark of Harvard University. The marks “Harvard Apparatus” and “Harvard Bioscience” are being used pursuant to a license agreement entered into in December, 2002 between Harvard University and Harvard Bioscience, Inc.
Government Regulation
We are not subject to direct governmental regulation other than the laws and regulations generally applicable to businesses in the domestic and foreign jurisdictions in which we operate. In particular, we are not subject to regulatory approval by the United States Food and Drug Administration as none of our products are sold for use in diagnostic procedures or on human clinical patients. In addition, we believe we are in compliance with all relevant environmental laws.
Employees
As of December 31, 2002, we had 364 full-time employees and 22 part-time employees, 169 of whom resided in the United States, 169 of whom resided in the United Kingdom, 18 of whom reside in Austria, 13 of whom resided in Germany, four of whom resided in Canada, four of whom resided in Japan, four of whom resided in Belgium, three of whom resided in France, one of whom resided in the Netherlands and one who resided in Spain. None of our employees is subject to any collective bargaining agreement. We believe that our relationship with our employees is good.
Website
Our website is www.harvardbioscience.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished with the Securities and Exchange Commission pursuant to Section 13(a) of the Exchange Act are available for review on our website. Any such materials that we file with, or furnish to, the Securities and Exchange Commission in the future will be available on our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. The information on our website is not incorporated by reference into this Annual Report on Form 10-K.
Item 2. Properties.
Our 12 principal facilities incorporate manufacturing, development, sales and marketing, and administration functions. Our facilities consist of:
• a leased 24,500 square foot facility in Holliston, Massachusetts, which is our corporate headquarters,
• a leased 28,000 square foot facility in Cambridge, England,
• a leased 28,000 square foot facility in Ann Arbor, Michigan,
• a leased 22,000 square foot facility in San Carlos, California,
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• a leased 18,000 square foot facility in Warwickshire, England,
• a leased 18,000 square foot facility in Huntingdon, England,
• an owned 15,500 square foot facility in Edenbridge, England,
• a leased 12,000 square foot facility in Irvine, California,
• a leased 7,800 square foot facility in Somerville, Massachusetts
• a leased 9,000 square foot facility in March-Hugstetten, Germany,
• a leased 7,500 square foot facility in Hamden, Connecticut, and
• a leased 4,700 square foot facility in Eugendorf, Austria,
We also lease additional facilities for development, sales and administrative support in Les Ulix, France; Montreal, Canada; Tokyo, Japan; and Geel, Belgium. We lease facilities in Lansing, Michigan; San Diego, California; and Somerville, Massachusetts each of which are currently vacant. We are in the process of either negotiating lease terminations with the landlords or finding suitable tenants for subleasing some of the vacant space.
Item 3. Legal Proceedings.
On December 26, 2000, Harvard University filed a lawsuit in U.S. District Court, District of Massachusetts alleging that our use of the “Harvard Bioscience” and “Harvard Apparatus” names infringes on Harvard University’s trademarks. Harvard University was seeking both injunctive relief and monetary damages. On April 10, 2001, the U.S. District Court, District of Massachusetts denied Harvard University’s request for a preliminary injunction prohibiting the Company from using the name “Harvard Bioscience” and “Harvard Apparatus”. The Court did issue an order directing the Company not to use the “Harvard” name in the color crimson or in a font similar to the font used by Harvard University. On May 6, 2002, the U.S. District Court, District of Massachusetts issued a partial summary judgment order against Harvard University regarding the Company’s use of the name “Harvard Apparatus”. In December 2002, we settled our dispute with Harvard University and entered into a royalty-free license agreement that allows us to continue using the names Harvard Apparatus, Harvard Bioscience and various Harvard related product names. This license agreement is subject to termination in certain limited circumstances. Harvard Bioscience will continue to be used as the Company’s name and Harvard Apparatus and various Harvard related product names will continue to be used as brand names on products and catalogs. The names will be used subject to various stylistic restrictions, primarily avoiding the use of the color crimson and fonts that are similar to those regularly used by Harvard University.
On February 4, 2002, Paul D. Grindle, the former owner of Harvard Apparatus, Inc., initiated an arbitration proceeding against us and certain directors before JAMS in Boston, Massachusetts. Mr. Grindle’s claims arise out of post-closing purchase price adjustments related to our purchase of the assets and business of Harvard Apparatus by virtue of an Asset Purchase Agreement dated March 15, 1996 and certain related agreements. In the arbitration demand, Mr. Grindle sought the return of 1,563,851 shares of stock in Harvard Bioscience, or the disgorgement of the profits of our sale of the stock, as well as compensatory damages and multiple damages and attorney’s fees under Mass. Gen. Laws, chapter 93A. In a demand letter that was attached to the arbitration demand, Mr. Grindle asserted losses in the amount of $15 million, representing the value of the 1,563,851 shares of Harvard Bioscience’s stock as of January 2, 2002. On October 30, 2002, we received a decision from the arbitrator that we have prevailed on all claims asserted against us and certain of our directors in the arbitration action. Specifically, we received a written decision from the arbitrator granting our motion for summary disposition with respect to all claims brought against all parties in the action. We have filed a complaint in the Massachusetts Superior Court seeking to confirm the arbitrator’s decision. Mr. Grindle filed a complaint in the Massachusetts Superior Court seeking to vacate the arbitrator’s decision. These two matters have been consolidated and are currently pending.
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In September, 2002, our Genomic Solutions subsidiary filed suit against Affymetrix, Inc. in the State of Michigan Circuit Court for the County of Washtenaw for breach of contract, negligent/innocent misrepresentation, tortuous interference with prospective economic advantage and declaratory relief. The action arises out of a License Agreement that Genomic Solutions entered into with Affymetrix with respect to certain Affymetrix patent rights. Genomic Solutions is seeking monetary damages including a return of license and royalty fees previously paid to Affymetrix and declaratory relief providing that no further fees are owing to Affymetrix. In November, 2002, Affymetrix filed a counter-claim against Genomic Solutions alleging breach of contract and requesting approximately $1.45 million in damages for license and other fees and interest allegedly owed. Discovery in the case is on-going. Management believes the counter-claim is without merit and intends to vigorously defend it. The $1.45 million in damages for license and other fees is fully reserved for in the Company’s consolidated financial statements.
In December, 2002, Oxford Gene Technology Ltd. filed suit against our Genomic Solutions subsidiary, Mergen Ltd., Clontech Laboratories, Inc., PerkinElmer Life Sciences, Inc., Axon Instruments, Inc. and BioDiscovery, Inc. in the United States District Court for the District of Delaware seeking unspecified damages as a result of alleged infringement by each of the defendants of a United States Patent issued to Oxford Gene Technology. In March, 2003, Genomic Solutions filed an answer denying the allegations and asserted counter-claims seeking a declaratory judgment of non-infringement and a declaratory judgment of invalidity. Management denies the allegations and will vigorously defend the lawsuit.
From time to time, we may be involved in routine legal matters that arise in the ordinary course of our business. We are not currently a party to any other claims or proceedings which, we believe, would have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 4.A. Executive Officers of the Registrant.
The following table shows information about our executive officers as of December 31, 2002.
|
Name |
|
Age |
|
Position |
|
|
|
|
|
|
|
|
|
Chane Graziano |
|
64 |
|
Chief Executive Officer and Director |
|
|
|
|
|
|
|
|
|
David Green |
|
38 |
|
President and Director |
|
|
|
|
|
|
|
|
|
Susan Luscinski |
|
46 |
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
Mark Norige |
|
48 |
|
Chief Operating Officer |
|
|
|
|
|
|
|
|
|
Jeffrey S. Williams |
|
36 |
|
President of Genomic Solutions Inc and Director |
|
Chane Graziano has served as our Chief Executive Officer and as a member of our board of directors since March 1996. Prior to joining Harvard Bioscience, Mr. Graziano served as the President of Analytical Technology Inc., an analytical electrochemistry instruments company, from 1993 to 1996 and as the President and Chief Executive Officer of its predecessor, Analytical Technology Inc.-Orion, an electrochemistry instruments and laboratory products company, from 1990 until 1993. Mr. Graziano served as the President of Waters Corporation, an analytical instrument manufacturer, from 1985 until 1989. Mr. Graziano has over 39 years experience in the laboratory products and analytical instruments industry.
David Green has served as our President and as a member of our board of directors since March 1996. Prior to joining Harvard Bioscience, Mr. Green was a strategy consultant with Monitor Company, a strategy consulting company, in Cambridge, Massachusetts and Johannesburg, South Africa from June 1991 until September 1995 and a brand manager for household products with Unilever PLC, a packaged consumer goods company, in London from September 1985 to February 1989. Mr. Green graduated from Oxford University with a B.A. Honors degree in physics and holds a M.B.A. degree with distinction from Harvard Business School.
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Susan Luscinski has served as our Chief Financial Officer since August 2001. Ms. Luscinski served as our Vice President of Finance and Administration from May 1999 until August 2001. Ms. Luscinski served as our Corporate Controller from May 1988 until May 1999 and has served in various other positions at our company and its predecessor since January 1985.
Mark Norige has served as our Chief Operating Officer since January 2000 and in various other positions with us since September 1996. Prior to joining Harvard Bioscience, Mr. Norige served as a Business Unit Manager at QuadTech, Inc., an impedance measuring instrument manufacturer, from May 1995 until September 1996. Mr. Norige worked at Waters Corporation from 1977 until May 1995.
Jeffrey S. Williams has served as the President of our Genomic Solutions subsidiary and as a member of our board of directors since the acquisition of Genomic Solutions, Inc. by Harvard Bioscienc