UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2002
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TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 000-21873
BIOSITE INCORPORATED
(Exact name of registrant as specified in its charter)
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Delaware |
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33-0288606 |
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(I.R.S. Employer |
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11030 Roselle Street |
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92121 |
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Registrant’s telephone number, including area code: (858) 455-4808 |
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Securities registered pursuant to Section 12(b) of the Act: |
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NONE |
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Securities registered pursuant to Section 12(g) of the Act: |
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Common Stock $.01 par value |
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Preferred Stock Purchase Rights |
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(Title of Class) |
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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. ý
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes ý No o
The aggregate market value of the shares of Common Stock held by non-affiliates of the Company, based upon the closing price of the Common Stock on June 28, 2002 as reported on the Nasdaq National Market, was approximately $309,000,000. Shares of Common Stock held by each executive officer and director and by each person who owned 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The determination of who was a 10% stockholder and the number of shares held by such person is based on SEC Schedule 13G filings as of June 28, 2002.
As of March 1, 2003, there were 14,936,985 shares of the Registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the Registrant’s 2003 Annual Meeting of Stockholders is incorporated by reference in Part III, Item 10 (as to directors), 11, 12 and 13 of this Form 10-K.
BIOSITE INCORPORATED
FORM 10-K
INDEX
Biosite®, Triage® and Omniclonal® are registered trademarks of Biosite Incorporated. New Dimensions in Diagnosis ™ and the Company’s logo are trademarks of Biosite Incorporated. Cardio ProfilER and ProfilER are the subject of pending trademark applications by Biosite Incorporated.
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Except for the historical information contained herein, the matters discussed in this Annual Report on Form 10-K are forward-looking statements that involve risks and uncertainties, including the extent to which our products and products under development are successfully developed and gain market acceptance; the impact of competition, including the introduction of products competitive with our Triage BNP Test, from diagnostic companies with greater capital and resources; manufacturing capacity constraints, backlog, delays or inefficiencies; regulatory changes, uncertainties or delays; changing market conditions and the other risk and uncertainties under “Risk Factors” and throughout this Annual Report on Form 10-K. Actual results may differ materially from those projected. These forward-looking statements represent our judgment as of the date of the filing of this Form 10-K. We disclaim any intent or obligation to update these forward-looking statements.
BACKGROUND
Founded in 1988, Biosite® Incorporated is a leading provider of novel, rapid medical diagnostics that improve a physician’s ability to diagnose critical diseases and health conditions. We believe that improvements in diagnosis of high-acuity diseases and conditions can positively impact medical decisions, improve the quality of patient care and contribute to cost-effective medical treatment. We focus on disease categories that are in need of improved diagnosis and monitoring.
Striving for sustained growth, we have adopted a strategy that encompasses the diagnostic continuum from protein validation to point of care diagnostics. Through combined expertise in diagnostic discovery and commercialization we are able to select large market opportunities, access potential markers of disease, identify proteins with high diagnostic utility, apply validated disease markers to advanced testing platforms, bring products to market, and educate physicians and other clinicians on new approaches to diagnosis, thereby benefiting patients. Underlying strengths that enable us to carry out this strategy include:
• Expertise in rapid, high-capacity antibody development, enabling high throughput screening of potential diagnostic markers and cost-efficient development of high affinity antibodies for use in commercialized products
• Extensive knowledge of analyte cloning and synthesis, signaling chemistry and microcapillary fluidics, which has contributed to the successful invention of proprietary testing platforms
• Track record for successfully moving novel diagnostic tests through the development pipeline and obtaining United States Food & Drug Administration, or FDA, clearance or approval
• Extensive professional interaction and collaboration with customers, clinical researchers and the medical community; and
• Positive cash flow position and a proven financial record.
With products in more than 50% of U.S. hospitals, Biosite is a profitable, growing company. In 2002, net revenues exceeded $100 million, representing growth of 60% over the previous year. This growth resulted largely from sales of our Triage® BNP Test, which aids in the diagnosis of congestive heart failure, or CHF, and impacts nearly five million people in the United States. The test, launched domestically in 2001, was the first blood test available to aid in the detection of CHF and has benefited from a semi-exclusive position in the market. We believe that the combination of innovation, medical importance and semi-exclusivity has contributed to the success of the Triage BNP Test and we seek to replicate this model for future products we hope to commercialize.
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Through 2001, we focused on developing advanced, rapid testing platforms designed to accelerate diagnosis by providing accurate results in minutes. With several of these tests commercialized, our focus has recently expanded to the search for proprietary disease markers that can be applied to our testing platforms. To that end, we are pursuing a new approach to the discovery and validation of protein markers such as BNP, which could serve as the basis for a pipeline of proprietary diagnostic products.
In 1999, we launched Biosite Discovery, a program dedicated to the validation of targets with novel therapeutic and/or diagnostic applications. Through Biosite Discovery, we leverage our expertise in phage display antibody development to access protein targets via internal research, licensing or collaborations with clinical institutions or commercial companies. Once protein targets are selected, we develop immunoassays for these targets and then conduct high throughput screening using patient samples procured from clinical collaborators, often leading medical institutions. This process, which we refer to as marker mining, enables us to determine diagnostic utility and explore interrelations among multiple markers. If the diagnostic utility of a marker or panel of markers is established, the marker or panel is then assessed for commercialization potential, with high-value markers or panels added to our product development pipeline.
We believe Biosite Discovery is a unique program within the diagnostics industry. It is enabled largely by our expertise in antibody development, which has provided us with the ability to develop high volumes of high-affinity antibodies that can be used to validate large numbers of marker candidates. Additionally, we have the capacity to offer antibody development services to pharmaceutical and biotechnology companies seeking high-affinity antibodies for use in their drug research. In return, we seek diagnostic licenses to their targets. Biosite Discovery has also attracted the interest of leading clinical collaborators, who provide patient samples and assist in the analysis of clinical data.
Though relatively new, Biosite Discovery has already yielded results. To date, we have validated a novel panel of markers that can potentially be used to diagnose stroke. We identified more than 50 markers that appeared to be related to stroke. Through our marker mining process, we found five markers within those 50 markers that are highly correlated with stroke and we initiated product development in the second half of 2001. That product is currently in development and we intend to conduct clinical studies in 2003 with the intention of submitting data to the FDA. Through Biosite Discovery, we also validated the utility of using BNP for the assessment of risk in acute coronary syndromes. In 2002, we secured FDA clearance for this application. Currently, we are evaluating many protein targets in various disease categories including, stroke, cardiovascular disease, pulmonary disease and sepsis.
In selecting market opportunities, we primarily target large categories of disease that lack accurate or timely diagnostic methods, or protein markers. Currently, we offer tests for drug screening, heart attack, congestive heart failure, acute coronary syndromes, and certain bacterial and parasitic infections. Our tests are sold worldwide, primarily for use in hospitals, the principal market for our products. The discovery of new disease markers and the extension of applications for existing products could lead us to expand into other health care market segments, such as physicians office laboratories, in the future.
In selling our products, we work with individuals from a variety of areas within the hospital, including laboratory administrators, who are generally the primary purchasers, emergency room physicians, specialists and administrative personnel. To market our products, we utilize a clinically astute direct sales team that focuses its efforts primarily on larger centers with more than 200 beds. The Fisher HealthCare Division of the Fisher Scientific Company, or Fisher, distributes all of our products in U.S. hospitals and supports our direct sales force, particularly in smaller hospitals. A field-based network of clinically experienced individuals supports the sales effort by providing pre- and post- sale education and training. In international markets, we utilize a network of country-specific and regional distributors, as well as a small direct sales force.
The term of our Fisher distribution agreement expires on December 31, 2003 and automatically renews for an additional two years unless a notice of non-renewal is delivered by either company. We are in discussions with Fisher regarding options for a continued relationship. Sales to Fisher represented 87% of our product sales in 2002. Fisher reported to us that end-user sales of our products by Fisher were $103.6 million in 2002. Fisher’s end-user sales are not directly comparable to our product sales because of the timing of shipments from Biosite to Fisher may not match the timing of shipments from Fisher to the end-user hospitals and due to the change in quantities of our products that Fisher purchases and stocks in its inventory.
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INDUSTRY BACKGROUND
Testing Platforms
Testing platforms have historically been the basis for commercial success in the in vitro diagnostics industry, and competition centers on improved cost-effectiveness, higher throughput and superior ability to precisely measure disease markers. Testing platform development usually involves relatively low technical risk and platforms are typically marketed to clinical laboratories that run tests, rather than to the physicians who order diagnostics. Because there are a variety of testing platforms for clinical laboratories to choose from and menus are typically not proprietary, competition is intense and the industry suffers from low margins compared to other medical devices. Industry leaders tend to be those companies with low cost positions and the marketing mass to succeed with commodity product lines.
Within hospitals, diagnosis is typically accomplished through a battery of testing methods, including immunoassays. Historically, the majority of immunoassay testing has been accomplished through a centralized process using large automated analyzers housed in the central laboratory. These immunoassay analyzers utilize automated liquid handling mechanisms and pipetting systems for reagent addition. Modern immunoassay analyzers are capable of storing and selecting multiple reagents for a variety of analytes, including drugs, hormones and cancer antigens. They also provide accurate and highly sensitive test results and help to simplify the performance of immunoassays. However, centralized testing using immunoassay analyzers may lead to lengthy turnaround times to accommodate transport of the sample to the testing laboratory, time consuming sample preparation to obtain serum or plasma and delivery of results to the physician. Additionally, immunoassay analyzers require high volumes of sample throughput to justify the investment in equipment, training, staffing and other costs required to operate and support the systems.
In recent years, there has been a movement from the use of conventional analyzer systems to more technologically advanced rapid testing methods that can be performed in minutes by less skilled personnel. Simple, rapid immunoassays are capable of detecting a single analyte marker with a color change that can be visually interpreted. Formats such as dipsticks, test tubes and membrane test cartridges have been used to provide fast, non-instrument read results for conditions where a single analyte marker is present in high concentrations and where a simple yes/no non-numeric answer is clinically relevant. Rapid color change test formats are widely available for drugs of abuse, pregnancy, strep throat and ovulation prediction. Until recently, simple test formats have remained incapable of precise, multi-analyte detection or highly sensitive, quantitative measurements. As a result, medical conditions where the detection of one or more analytes is required or where the precise measurement of the analyte marker is required have remained the domain of immunoassay analyzers.
We believe that significant market potential exists for rapid diagnostic products with novel applications that are capable of precise quantitative measurement of single or multiple analytes. Rapid testing, including point-of-care testing, may help to reduce overall health care delivery costs and can improve patient outcomes by providing diagnosis in a reduced period of time, thereby minimizing the time to medical intervention. Patients undergoing emergency procedures can benefit from more timely and accurate testing results, both of which enhance correct decision-making, which could limit unnecessary use of costly inpatient care. Quicker diagnosis of infectious agents can also permit earlier prescription of appropriate medications, potentially shortening the duration of illness. Furthermore, the development of new tests for diseases that lack accurate diagnostics could improve treatment and provide better outcomes.
Disease Markers
Human blood contains thousands of analytes, which are molecules that can be measured by testing platforms. A blood analyte target becomes a disease marker when its concentration can be interpreted to provide useful information about the presence or progress of a disease. Most markers in clinical use signal disease when their concentrations rise above normal. For example, above-normal concentrations of the following markers result in a positive disease diagnosis:
• Glucose: diabetes
• Prostate specific antigen: prostate cancer
• Hepatitis surface antigen: hepatitis B; and
• B-type natriuretic peptide: congestive heart failure.
On rare occasions, a single diagnostic company has enjoyed a period of market exclusivity for an important disease marker. These proprietary disease markers have been among the most profitable products in the medical device industry, with sales revenues and gross margins comparable to modest-sized drugs. In spite of these few successes, many marker discovery programs have not been productive for a variety of reasons including the lack of robust discovery platforms, narrow focus on single analyte panels, lack of commercial infrastructure and dependence on equity capital.
Given the low returns to date, marker discovery has historically been viewed as an expensive, time consuming and risky undertaking for commercial enterprises. As a result, large diagnostic companies generally look to academic researchers for new marker validation or rely on clinically proven markers in developing their testing menus.
We believe that our “discovery to diagnostics” model is significantly different from discovery methods employed by other companies. Some of our differentiating qualities include:
Rapid Antibody Development: Generally, development of antibodies for use in research, diagnostics or therapeutics may take nine months or more. Use of our proprietary process and expertise in rapid, high capacity antibody development can result in development of high affinity antibodies within three months.
High Throughput Capacity: Because we utilize a highly efficient antibody technology and have automated the most significant liquid handling steps, we currently have the capacity to develop high affinity antibodies for up to 1,400 targets per year. With this high throughput capacity, we are able to generate antibodies to a substantial number of targets in a cost efficient manner. This permits us to take on significant discovery endeavors, such as the stroke program, to identify, validate and develop novel diagnostic panels.
Broad Disease Management Approach: We focus on serious health problems that are in need of improved diagnosis and monitoring. We collaborate with commercial companies and clinical institutions to gain access to large numbers of protein targets and clinically documented samples that can be studied for association with selected diseases.
Proven ability to rapidly bring novel products to market: We have a track record of successfully moving novel diagnostic tests through the development pipeline, including the Triage BNP Test and Triage Cardiac Panel. We commercialized the first portable quantitative immunoassay platform and were the first to receive FDA clearance for a diagnostic test for the measurement of BNP as an aid in the diagnosis of CHF.
Self-funded Program: We leverage development efficiencies to contain costs, and our discovery efforts are subsidized by revenues generated from collaborations.
Technology
Historically, we have invested significantly in research and development, exceeding traditional industry standards. This investment has yielded several proprietary advances in the biological and physical sciences that make practical the development and manufacture of rapid, accurate and cost-effective diagnostics that form the basis of our diagnostic marker discovery platform and rapid testing technology. Our products integrate our expertise in several core scientific and engineering disciplines, including antibody development and engineering, analyte cloning and synthesis, signaling chemistry and microcapillary fluidics, each of which is described below. Our research and development program is supported by 84 employees, including 21 Ph.D.s with expertise in our core technologies. By combining research capabilities in each of these areas, we create novel single and multi-analyte diagnostics that overcome the limitations of traditional diagnostic technologies and seek to address the significant unmet need for effective, real-time diagnostic information.
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Antibody Development
Traditionally, antibodies have been recognized as valuable tools for the characterization of protein targets because they can be used to localize the protein in tissues, to quantify the protein in body fluids and to modulate the biological activity of the protein by, for example, binding to the protein and blocking its natural function. Antibodies have traditionally been derived from immunization of animals and either the harvest of antiserum containing antibodies or the development of monoclonal antibodies using hybridoma technology. Antisera were generally of limited utility and monoclonal antibody technology is labor intensive and not cost-effective for the validation of large numbers of protein targets. In 1990, the phage display of antibodies was invented and over the past decade it has enabled the development of antibodies with much greater efficiency than the previous methods.
We believe that our internal antibody development capabilities allow rapid identification and development of antibodies with optimal specificity, affinity and stability characteristics. We initially utilized hybridoma technology for the selection and production of our novel antibodies. However, hybridoma technology has distinct disadvantages that include the length of time required to develop antibody candidates, the higher costs associated with the use of this technology and the need to restart the antibody development process when unwanted characteristics such as cross reactivities are discovered.
We developed a proprietary process utilizing phage display of antibodies that enables the selection and production of antibodies more rapidly and efficiently than is possible using hybridoma technology. The technology enables the high throughput generation of custom Omniclonal® antibody libraries containing genes encoding antibodies specific to the target analyte. Omniclonal antibodies produced from such libraries can contain thousands of different antibodies that bind to a target analyte with high affinity. High affinity refers to an antibody’s ability to bind tightly to targets, and is a highly desired attribute. Monoclonal antibody candidates can be rapidly selected from an Omniclonal antibody library and produced in quantities sufficient for product development. During the course of product development, unexpected antibody cross reactivities often require additional selection of antibodies to improve the assay specificity. Unlike hybridoma technology, Omniclonal antibody libraries can rapidly provide additional antibody candidates in these circumstances.
Analyte Cloning and Synthesis
Our molecular biology capabilities include the cloning and identification of specific proteins useful in the development of immunoassays. We developed proprietary expression vectors that enable the production and purification of these proteins for the development of antibodies and for use as calibrators and controls in our immunoassay products. In addition, our considerable expertise in synthetic organic chemistry allows the synthesis of targets and useful derivatives. We develop products where the targeted analyte is small (i.e., haptens, such as drugs) or large (i.e., proteins, such as cardiac enzymes). We believe that the ability to develop, stabilize and manufacture the target analyte or its analogues is key to the development of highly accurate immunoassays.
Highly Sensitive Fluorescence Energy Transfer Dyes
Immunoassays require the attachment of a detectable label to an antibody or target analyte. We developed a variety of labels for use in our products. For our qualitative tests, a visual label that produces color is attached to antibodies or analytes through either non-covalent or covalent chemical methods to provide yes/no results. For our meter platform products, we developed novel fluorescent dyes that are attached to antibodies or analytes using both noncovalent and covalent chemical means. Although fluorescence is a potentially powerful label for use in immunoassays, its potential has been limited by the lack of available dyes that are stable and have no sample interference, and by the requirement of a complex instrument for detection. We have invented our own proprietary dyes which satisfy three criteria: (1) they are usable with complex biological samples such as serum, plasma, and whole blood; (2) they are stable for the dating period of the product; (3) they utilize fluorescence energy transfer, which results in a substantial phase shift away from background fluorescence in samples; and (4) they are excited at near infrared wavelengths chosen to be compatible with inexpensive solid state components.
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Microcapillary/Protein Array Technology
We developed proprietary technology to design, develop and manufacture protein arrays containing microcapillaries to control the flow of fluids in immunoassay processes. The qualitative device format uses microcapillaries to draw fluids through a membrane that contains immobilized antibody zones for the detection of specific substances. The protein array format uses several different microcapillary designs to control the contact of sample with reagents and to control the flow of fluid throughout the protein array. When a sample is added to the protein array, a filter contained within the array separates blood cells from plasma, which capillary forces then direct into a chamber that contains dried immunoassay reagents. After an incubation time that is determined by another microcapillary element of the array, the volume of sample that contacted the reagents flows down a capillary path that brings it into contact with an antibody array. The binding of fluorescent reagents at the protein array is detected by an instrument and is related to the concentration of the substance being tested for in the sample. We also developed the engineering capability to design unique microcapillary structures in plastic parts and to fabricate them in commercial scale quantities using injection molding processes.
Sample Handling
We developed proprietary technology relating to sample handling and preparation, including technology that allows whole-blood to be passively separated into its plasma component or to be passively lysed to release the target analyte. We developed technologies for the handling of stool samples that concentrate and purify the target analytes or organisms from solid stool materials. In addition, we developed technologies that can be used to assay urine samples.
Commercialized Products
Our products are principally sold to hospitals, which number approximately 5,000 in the United States. To market our products we utilize a clinically astute direct sales team that focuses its efforts on larger centers with more than 200 beds. Fisher distributes all of our products in U.S. hospitals and supports our direct sales force, particularly in smaller hospitals. A field-based network of clinically experienced individuals supports the sales effort by providing pre- and post- sale education and training. In international markets, we utilize a network of country-specific and regional distributors, as well as a small direct sales force.
Triage Drugs of Abuse Product Line
Drug abuse plays a significant role in emergency medicine cases, either as a primary cause or as a contributing factor. A diagnostic dilemma confronts physicians when patients present with symptoms that could be either drug related or non-drug related. For instance, a patient brought into hospital emergency department in a coma may be under the influence of narcotics or sedatives, thus requiring a certain type of treatment or intervention. Conversely, the same patient may have had a stroke or suffered some form of trauma requiring a completely different type of care. The ability to obtain a differential diagnosis in a timely manner greatly aids the course of treatment.
We introduced the Triage Drugs of Abuse Panel in 1992. In January 2002, we launched the Triage TOX Drug Screen, a second-generation drug test. The Triage Drugs of Abuse Panel and Triage TOX Drug Screen are rapid, qualitative urine screens that analyze a single test sample for up to eight different illicit and prescription drugs or drug classes, and provide results in approximately 10 to 15 minutes. The Triage Drugs of Abuse Panel and Triage TOX Drug Screen contain built-in controls for accuracy and are capable of a high degree of specificity.
Prior to the introduction of the Triage Drugs of Abuse Panel, drug or toxicology screening was primarily accomplished using automated immunoassays and Gas Chromatography/Mass Spectroscopy or GC/MS. Although GC/MS is the most specific identification method commercially available, it is time consuming, requiring an average of approximately three hours per test, complex and expensive, and is generally reserved for final confirmation of specimens that have been screened positive by an immunoassay. Automated immunoassays, although less expensive than those performed by GC/MS, also require significant amounts of time, approximately one to two hours, to route and prepare samples, perform the tests and deliver results. Turnaround time may be longer if the equipment required to perform an immunoassay is not accessible on an immediate or rapid basis.
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Illicit drugs detected by the Triage Drugs of Abuse Panel and Triage TOX Drug Screen include:
• amphetamines/methamphetamines (ecstasy, speed, crystal)
• cocaine (crack)
• opiates (heroin)
• phencyclidine (angel dust), and
• tetrahydrocannabinol (pot, marijuana).
Prescription drugs tested by the Triage Drugs of Abuse Panel include:
• barbiturates (Phenobarbital)
• benzodiazepines (Valium, Librium, Halcion)
• tricyclic antidepressants (Elavil, Tofranil), and
• methadone.
The Triage Drugs of Abuse Panel is configured to test for various combinations of the above drugs and provides a visual result. The Triage TOX Drug Screen can screen for all eight classes using a single test panel and produces a yes/no result.
Triage BNP Test
Congestive Heart Failure, or CHF, also known as heart failure, is a chronic inability of the heart to maintain an adequate output of blood from one or both ventricles of the heart, resulting in congestion or swelling of certain veins or organs, and an inadequate blood supply to the body. According to the American Heart Association, nearly 5 million people in the United States live with CHF. With approximately 550,000 new cases diagnosed annually, CHF imposes a growing toll, in terms of disability and mortality. In 2002, CHF contributed to 262,000 deaths and hospital discharges for CHF rose from 377,000 in 1979 to 999,000 in 2000, an increase of 165%. The direct and indirect costs of CHF in the United States in 2002 are estimated to total $24.3 billion.
Each year, approximately 5 million individuals visit emergency departments with complaints of breathing difficulties. Because many of these patients are among the elderly, a patient population subject to multiple overlapping diseases, physician must consider several possible causes. Standard clinical guidelines include the evaluation of patient history and symptoms and typically an x-ray is also administered along with an exam. These subjective methods may detect CHF in patients at the most advanced stages, but are not always effective in patients who are not severely ill. Patients who are suspected of having CHF might receive an echocardiogram, which is used to detect left ventricular dysfunction. Although echocardiogram is the “gold standard” for diagnosis of CHF, the accuracy of the procedure is highly dependent on the expertise of the person administering the test. Additionally, echocardiograms typically cost between $400-800 per procedure and are not always readily available in all hospitals. We believe traditional clinical diagnostic techniques for CHF can result in delayed treatment, misdiagnosis and emergency department inefficiency.
BNP is a hormone elevated in circulating blood plasma in response to ventricular volume expansion and pressure overload associated with CHF in both symptomatic and asymptomatic patients. We obtained a semi-exclusive license (worldwide, except Japan) to technology and patents developed by Scios, Inc. for use in developing a test that would provide measurements of B-type Natriuretic Peptide, or BNP, a hormone made primarily in the ventricles of the heart. Scios, Inc. is in the process of being acquired by Johnson & Johnson, subject to certain conditions. In December 2000, we launched the Triage BNP Test to provide physicians with a cost-effective tool to easily, rapidly and accurately measure BNP levels to aid in the diagnosis of CHF. Clinical studies have demonstrated that BNP is a highly reliable indicator of CHF and that the protein marker is found in increasingly higher levels as disease progression occurs. Currently, the Triage BNP Test is most applicable for differentiating CHF from other diseases that cause similar symptoms, especially breathing difficulty and fatigue. The test provides physicians with an objective tool for differentiating CHF from the host of other possible diseases that mimic the condition. The test may also be used in assessing the severity of disease in CHF patients.
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Prior to the introduction of the Triage BNP Test, there was no blood test available in the United States to aid in the diagnosis of CHF. For patients suffering from CHF, timely diagnosis is critical to relieving stress on the heart, which can occur as a result of severe congestion, and to initiating treatment that would impact the progression of the disease. Misdiagnosis, or failure to diagnose, could result in improper treatment and/or recurring visits to the emergency department. This, in turn, could contribute to emergency department traffic and to the costs of patient treatment, since treatment alternatives become more expensive as CHF progresses. We believe that the Triage BNP Test can accurately aid in the diagnosis of CHF and, if used at the point-of-care, reduce time to treatment and enhance emergency department efficiency.
Subsequent to the November 2000 FDA clearance of the Triage BNP Test as an aid in the diagnosis of CHF, Biosite received FDA clearance for an additional application of the Triage BNP Test. In July 2002, the test was cleared for the risk stratification of patients with acute coronary syndromes, another cardiovascular condition. We believe that the Triage BNP Test may also be applicable for the management or monitoring of heart failure therapy. We are currently supporting clinical trials intended to explore this possible application. A decision to pursue this or other new applications would most likely require that we seek additional clearances for our test from the FDA.
We are also exploring the possibility of marketing the Triage BNP Test for use in physician offices or physician office labs. We are currently in negotiations with potential distribution partners for this market segment and plan to focus our initial efforts on the estimated 20,000 physician office laboratories that are licensed to perform non-waived tests, which is the existing classification for the Triage BNP Test. We are also preparing to submit a pre-market approval (PMA) application to the FDA for Prescription Home Use of the Triage BNP Test. Should we receive approval, the available market for the Triage BNP Test would be significantly expanded.
We believe that the medical community will require a significant degree of validation in order to achieve widespread acceptance of a new marker for CHF and to accept use of the marker at the point-of-care. While significant interest is already apparent, we have and intend to continue to sponsor multiple clinical studies of varying sizes in order to demonstrate the diagnostic utility of our Triage BNP Test. Additionally, we are investing in other educational programs and resources.
The Triage BNP Test is currently only one of two FDA approved tests used to aid in the diagnosis of congestive heart failure. Roche Diagnostics, which offers a test that measures NT-proBNP, a marker associated with congestive heart failure, received FDA clearance to market its competitive product in November 2002. Abbott Laboratories, Bayer Diagnostics and Shionogyi & Co. Ltd have certain diagnostic rights to the BNP protein and we anticipate competition from these companies in the future. These competitors may succeed in developing or marketing products that are more effective or commercially attractive than the Triage BNP Test. Moreover, we may not have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully with these and other competitors in the future.
The Triage Cardiac Panel
Chest pain complaints represent the second leading reason for visits to U.S. emergency rooms. Information from the National Hospital Ambulatory Medical Care Survey suggests that in 1998, there were over 5 million emergency department, ED, visits made by adults suffering from chest pain. That number is believed to have since increased to at least 6 million visits. Among chest pain patients, the highest acuity is associated with those suffering a heart attack. For these patients, time is a significant factor in the race to save their heart muscle and their lives. We believe that frequent, quantitative, serial measurements of multiple cardiac protein markers may improve a physician’s ability to manage, diagnose and treat patients suffering from chest pain.
It is estimated that in the United States, hospitalization of over 3 million chest pain patients costs between $3-4 billion yearly for those found to be disease free or suffering from lower acuity conditions. Of the patients presenting to EDs with chest pain, approximately 40% will be admitted to hospitals. Ultimately, only a minor number of these individuals will be diagnosed with a heart attack. The incidence of chest pain visits to hospital EDs may also contribute to overcrowding which, in dire situations, can result in hospitals diverting patients to other hospitals. This results in additional healthcare costs.
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A variety of cardiac disease markers can be used in detecting and diagnosing heart attack, which is generally caused by blocking or “occlusion” of an artery providing oxygen-enriched blood. Without oxygen, the heart muscle is destroyed, with prolonged occlusion resulting in additional muscle damage. The destruction of cells in the heart muscle results in the release of several proteins into the bloodstream, including CK-MB, troponin I and myoglobin. Studies have shown that concentrations of myoglobin are elevated most quickly post-heart attack, therefore, myoglobin is recognized as a good early marker of an event. However, since myoglobin is not cardiac specific, the use of CK-MB and troponin I are necessary to accurately diagnosis a heart attack. In patients with a heart attack, CK-MB and troponin I are detectable several hours after myoglobin elevation. Since troponin I is cardiac specific, an elevated level of this marker is a strong indication of a heart attack.
In diagnosing heart attacks, clinicians generally rely on patient history, physical exam, electrocardiograms and the measurement of cardiac protein markers. CK-MB and troponin I are the most widely used cardiac markers, while studies suggest that myoglobin is also a useful adjunct in the early detection of heart attacks. Given the temporal patterns of cardiac protein markers, we believe that frequent measurements of multiple cardiac markers provide the best information from which to diagnose a heart attack.
We believe that frequent, serial, quantitative measurement of multiple cardiac markers can have a positive impact on an emergency physician’s ability to make medical decisions relative to chest pain patients. Accordingly, our Triage Cardiac Panel is designed to quantitatively measure the levels of CK-MB, troponin I and myoglobin within 20 minutes using a single test panel and whole-blood sample. We designed the Triage Cardiac Panel to provide results of these measurements in the central laboratoryor optimally at the point-of-care to aid in the detection of heart attack. Providing easy access to measurements of cardiac markers enables physicians to make timely treatment decisions.
The adoption of new protocols for evaluating chest pain patients in the ED is not yet widespread and we believe that education of the medical community will be a key factor in penetrating the market. Associations such as the American Heart Association and American College of Cardiology, AHA/ACC, have issued guidelines recommending greater use of cardiac markers in evaluating chest pain in the ED. The AHA/ACC has recommended the use of at least two markers (an early marker and a specific marker) and has stated that if results cannot be obtained from a laboratory within 60 minutes then testing should be performed at the point-of-care. Guidelines such as these have caused more hospitals to explore new protocols incorporating rapid, serial testing of all three markers. We are investing in clinical studies and in a significant physician education effort in order to help the medical community better understand the need for, and benefits associated with, frequent, serial testing of cardiac markers.
Several diagnostic tests have been developed to quantitatively measure the blood levels of cardiac markers. These are most commonly available on large, automated immunoassay platforms marketed by companies such at Abbott Laboratories, Dade-Behring, Roche Diagnostics, Beckman Coulter, Bayer Diagnostics and others. These systems cannot directly analyze whole-blood and are not always available on a rapid basis. Since turnaround time is critical to enabling frequent, serial testing of cardiac markers, current immunoassay systems may not satisfy physician needs. Nevertheless, these systems are predominant in the market today. Smaller automated systems have recently been developed, however these are not portable, have low throughput and often cannot provide results for all three markers in less than 20 minutes.
Products Under Development
Our strategy for potential future products, including our current products under development, is to focus our attention on large market opportunities where we could potentially achieve market leadership and/or a proprietary patent position related to protein targets with novel therapeutic and/or diagnostic applications. Our development efforts focus on new marker mining as well as on the investigation of new applications for existing markers and/or combinations of existing markers. To support our efforts we utilize a variety of means, such as internal research, licensing and collaborations, to gain access to potential markers. We are currently researching many potential disease marker candidates. Additionally, we have established clinical collaborations with at least seven leading medical institutions that provide samples for use in our research efforts. Among the diagnostic assays with novel therapeutic and/or diagnostic applications we are attempting to develop are assays for diagnosing stroke and acute coronary syndromes.
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Stroke
Among the nation’s costliest diseases, stroke affects the vessels supplying blood to the brain, which requires a constant flow of blood in order to function properly. A stroke occurs when the blood supply to the brain is disrupted due to a blood clot blocking a blood vessel (ischemic stroke), or when a blood vessel breaks, interrupting blood flow to an area of the brain (hemorrhagic stroke). Approximately 80% of stroke patients have ischemic stroke and 20% hemorrhagic.
Approximately 4.7 million stroke survivors are currently living in the United States and approximately 700,000 people suffer a new or recurrent stroke each year. Stroke is currently the leading cause of serious, long-term disability in the United States. During 1988-1997, total hospitalizations for stroke increased nearly 37%. The direct and indirect costs associated with stroke were estimated to total $51.2 billion in 2003.
Typically, stroke is diagnosed through clinical evaluation and through use of a CT scan, a diagnostic imaging technique. However, CT scans are typically not highly sensitive in the early hours after onset of an ischemic stroke. Given the narrow window of opportunity for aggressive therapeutic intervention following a stroke, we believe that the availability of better and faster methods of detection could substantially impact clinical outcomes.
Through independent research we identified more than 50 markers that appeared to be related to stroke. Using hundreds of samples provided by Duke University, we validated five markers that are highly correlated with stroke and initiated product development in the second half of 2001. Preliminary data from a retrospective study, comprising of 36 ischemic stroke patients, suggest that our panel of five markers is more accurate than a CT scan in detecting ischemic stroke in the early hours after onset. We intend to initiate clinical studies in the second half of 2003 and, if successful, we will file a pre-market approval application, or PMA, with the FDA.
We are continuing to gain access to, and researching, additional stroke markers that could potentially be added to our stroke panel in the future.
Cardiovascular Disease
Cardiovascular disease is a primary focus area of our research and development efforts and product development is underway in a number of different areas. In addition to developing diagnostics that can be used to detect a specific disease, we are also concentrating our efforts on the development of symptom panels that can be used with patients exhibiting symptoms that could be associated with a variety of diseases. These panels are intended to help physicians quickly and accurately distinguish between causes of symptoms using only a single test panel.
Acute coronary syndromes, or ACS, encompasses the many permutations of ischemic heart disease. Each year over 5 million people present to emergency departments with chest pain, however studies report that up to 50% of these individuals do not receive a definitive diagnosis. Because ACS is not easily detectable, we believe that many of these individuals could possibly suffer from ACS and therefore could be at risk for heart attacks. We believe there is a need for a diagnostic test that can detect acute coronary syndromes ensuring that patients receive appropriate therapies in a timely manner.
We have developed the Triage Cardio ProfilER as an initial screening tool for chest pain patients, who may be suffering from acute coronary syndromes, heart attack or congestive heart failure. The Triage Cardio ProfilER includes BNP, CK-MB, myoglobin and an improved troponin I assay. Studies suggest that low levels of troponin I, a cardiac marker, present in a patient’s bloodstream could be indicative of ACS. Additionally, BNP has received FDA clearance to be used as a risk stratification tool for patients with ACS. The product is intended to serve as an enhancement to our existing Triage Cardiac Panel and as a complement to the Triage BNP Test. We received FDA clearance for the Triage Cardio ProfilER in February 2003 and intend to commence marketing of the product in the second quarter of 2003.
We are continuing to analyze other protein targets believed to be associated with ACS and other cardiovascular diseases. In conducting this analysis we are working with clinical collaborators, including the TIMI Group, an organization that has been at the forefront of clinical research in acute coronary syndromes over the past two decades.
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Sepsis
Sepsis, or endotoemia, occurs when gram-negative bacteria infect the bloodstream. An inflammatory reaction initiated by these bacteria and their associated endotoxin can cause widespread damage to the blood vessels leading to circulatory shock, organ failure, gangrene of extremities and death. The complications associated with sepsis can advance quickly. We are currently collecting patient samples for use in evaluating potential disease markers of sepsis.
The market in which we compete is intensely competitive. Our competitors include:
• manufacturers of laboratory-based tests and analyzers
• clinical reference laboratories, and
• other rapid diagnostic test manufacturers.
Currently, the majority of diagnostic tests used by physicians and other health care providers are performed by independent clinical reference laboratories and hospital-based laboratories. We expect that these laboratories will compete vigorously to maintain their dominance of the testing market. In order to achieve market acceptance for our products, we will be required to demonstrate that our products provide cost-effective and time saving alternatives to tests performed by clinical reference laboratories or traditional hospital-based laboratory procedures. This will require physicians to change their established means of having such tests performed. Our products may not be able to compete with the testing services provided by traditional laboratory services.
In addition, companies with a significant presence in the diagnostic market, such as:
• Abbott Laboratories
• Roche Diagnostics
• Dade Behring
• Bayer Diagnostics, and
• Beckman Coulter
have developed or are developing diagnostic products that do or will compete with our products. These competitors have substantially greater financial, technical, research and other resources and larger, more established marketing, sales, distribution and service organizations than us. Moreover, these competitors offer broader product lines and have greater name recognition than us, and offer discounts as a competitive tactic. In addition, several smaller companies are currently making or developing products that compete with or will compete with our products. The Triage BNP Test is currently only one of two FDA approved tests used to aid in the diagnosis of congestive heart failure. Roche Diagnostics, which offers a test that measures NT-proBNP, a marker associated with congestive heart failure, received FDA clearance to market its competitive product in November 2002. Abbott Laboratories, Bayer Diagnostics and Shionogyi & Co. Ltd have certain diagnostic rights to the BNP protein and we anticipate competition from these companies in the future.
We obtained a semi-exclusive license (worldwide, except Japan) to technology and patents developed by Scios, Inc. for use in developing a test that would provide measurements of B-type Natriuretic Peptide, or BNP, a hormone made primarily in the ventricles of the heart. Scios, Inc. is in the process of being acquired by Johnson & Johnson, subject to certain conditions.
Our competitors may succeed in developing or marketing technologies or products that are more effective or commercially attractive than our products, or that would render our technologies and products obsolete. Moreover, we may not have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully in the future. In addition, competitors, many of which have made substantial investments in competing technologies, may be more effective than us or may prevent, limit or interfere with our ability to make, use or sell our products either in the United States or in international markets. See “Technology” and “Commercialized Products”.
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