UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|
ý |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2003
OR
|
o |
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)
|
Delaware |
|
33-0288606 |
|
(State or other jurisdiction of |
|
(I.R.S. Employer |
|
|
|
|
|
11030 Roselle Street |
|
92121 |
|
(Address of principal executive offices) |
|
(Zip Code) |
|
|
|
|
|
Registrant’s telephone number, including area code: (858) 455-4808 |
||
|
|
|
|
|
Securities registered pursuant to Section 12(b) of the Act: |
||
|
NONE |
||
|
|
|
|
|
Securities registered pursuant to Section 12(g) of the Act: |
||
|
Common Stock, $.01 par value |
||
|
Preferred Stock Purchase Rights |
||
|
(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. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the 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 30, 2003 as reported on the Nasdaq National Market, was approximately $604,000,000. 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 Schedule 13G filings with the Securities and Exchange Commission, or SEC, as of June 30, 2003.
As of March 1, 2004, there were 15,631,120 shares of the Registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information from Registrant’s Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for the Registrant’s 2004 Annual Meeting of Stockholders is incorporated by reference in Part III of this Form 10-K.
BIOSITE INCORPORATED
FORM 10-K
Biosite®, Triage®, Omniclonal® and New Dimensions in Diagnosis® are registered trademarks of Biosite Incorporated. Cardio ProfilER™ and the Company’s logos are trademarks of Biosite Incorporated. Beckman Coulter® is a registered trademark of Beckman Coulter, Inc. This Annual Report on Form 10-K also contains trademarks and trade names of other companies.
i
Forward-looking Statements
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 impact of competition, including products competitive with our Triage® BNP Test, from diagnostic companies with greater capital and resources; our ability to effectively promote our products, whether directly or through distributors; the extent to which our products and products under development are successfully developed and gain market acceptance; manufacturing inefficiencies, capacity constraints, backlog or delays; the timing of significant orders or the impact of seasonality; regulatory changes, uncertainties or delays; potential contract disputes or patent conflicts; changing market conditions and the other risks 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.
Overview
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 help healthcare providers make better 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 commercialized diagnostics. Through combined expertise in diagnostic discovery and commercialization, we focus on large market opportunities, access potential markers of disease, identify proteins with high diagnostic utility, apply validated disease markers to 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;
• a track record for successfully moving novel diagnostic tests through the development pipeline and obtaining United States Food & Drug Administration, or FDA, clearance or approval;
• substantial professional interaction and collaboration with customers, clinical researchers and the medical community; and
• greater than 60% growth in both revenues and earnings over the past two years.
We currently have products in over 50% of U.S. hospitals. In 2003, net revenues were $173.4 million, representing a 65% increase over 2002. This growth resulted largely from increased sales of our Triage® BNP Test, which represented 61% of our total product sales in 2003. The Triage BNP Test aids in the stratification of acute coronary syndrome patients and in the diagnosis and severity assessment of CHF, or CHF, a disease that affects nearly five million people in the United States. This diagnostic, launched domestically in 2001, was the first blood test available to
1
aid in the detection of CHF and benefited from a semi-exclusive position in the market until the entry of direct competition in June 2003. 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.
From our inception through 2001, we focused on developing advanced, rapid medical diagnostics designed to accelerate diagnosis by providing accurate results in minutes. After commercializing several of these diagnostics, our focus expanded to include the search for proprietary disease markers that could potentially be applied to our testing platforms or to platforms marketed by other diagnostic companies, with whom we might collaborate. To that end, we implemented 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 diagnostics.
In 1999, we launched Biosite Discovery, a research program dedicated to the identification and evaluation 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 collaborations with clinical institutions or commercial companies. We also access targets via internal research and licensing programs. Once protein targets are selected, we utilize our antibody development capabilities to develop immunoassays for these targets and then conduct high throughput screening using patient samples collected from clinical collaborators, often leading medical institutions. This process, which we refer to as “marker mining,” enables us to determine which targets have diagnostic utility and are therefore disease “markers.” It also allows us to 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 represents a unique research approach 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 evaluate 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 therapeutic pharmaceutical research. In return, we seek to obtain 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 identified and evaluated a novel panel of markers that can potentially be used to diagnose stroke. In conducting this research, we identified more than 50 markers that appeared to be related to stroke. Through our marker mining process, we narrowed those 50 markers to ones that are highly correlated with stroke. We have selected six of those markers for our planned stroke diagnostic. We initiated product development in the second half of 2001 and intend to conduct clinical studies in 2004 with the intention of submitting data to the FDA for potential market clearance to sell a stroke diagnostic. Through Biosite Discovery, we also validated the utility of using b-type natriuretic peptide, or BNP, for the assessment of risk in acute coronary syndromes. In 2002, we received FDA clearance for this application. Currently, we are evaluating protein targets in various disease categories, including stroke, cardiovascular diseases, pulmonary disease and sepsis.
In selecting market opportunities, we primarily target large categories of disease that lack accurate or timely diagnostic methods. Currently, we offer diagnostics for drug screening, heart attack, CHF, acute coronary syndromes, and certain bacterial and parasitic infections. Our diagnostics are sold worldwide, primarily for use in hospitals and physician offices, the principal markets for our products. The discovery of new disease markers and the extension of applications for existing products could lead us to expand our product sales into other healthcare market segments.
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, such as cardiologists and administrative management. To market our products, we utilize a clinically astute direct sales team that focuses its efforts primarily on larger hospital centers with more than 200 beds and higher volume users of our products in smaller hospitals. 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. In the physician offices market segment, we employ a small direct sales team and utilize Physician Sales and Service of PSS World Medical, Inc., or PSS, to distribute our products. A field-based network of clinically experienced individuals supports the sales effort by
2
providing pre- and post- sale education and training. In international markets, we have established direct selling efforts in several countries and utilize a network of country-specific and regional distributors in other areas.
Sales to Fisher represented 90% of our product sales in 2003. Fisher reported to us that end-user sales of our products by Fisher were $184 million in 2003. Fisher’s end-user sales are not directly comparable to our product sales because the quantities and timing of shipments from Biosite to Fisher may not match the quantities and timing of shipments from Fisher to the end-user hospitals.
Industry Background
Disease Markers
Human blood contains analytes, which includes thousands of proteins, peptides, enzymes, hormones and other molecules that can be measured by testing platforms. A blood-borne molecule 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:
|
Marker |
|
Disease |
|
Glucose |
|
diabetes |
|
Prostate specific antigen |
|
prostate cancer |
|
Hepatitis surface antigen |
|
hepatitis B |
|
B-type natriuretic peptide, or BNP |
|
CHF |
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 diagnostics 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 testing, lack of commercial infrastructure and insufficient 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, 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 believe we currently have a high throughput capacity to develop high affinity antibodies. 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 our stroke program, to identify, evaluate and develop novel diagnostics.
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 collect large numbers of protein targets and clinically documented samples that can be studied for association with selected diseases.
Proven Commercialization Capability: We have a track record of successfully moving novel diagnostics through the development pipeline, including the Triage BNP Test. We commercialized the first portable
3
fluorescence-based quantitative immunoassay platform and were the first to receive FDA clearance for a diagnostic for the measurement of BNP as an aid in the diagnosis of CHF.
Self-funded Program: We leverage development efficiencies to contain costs, and subsidize our discovery efforts with revenues generated from collaborations.
Testing Platforms
Generally, automated analyzers have been the preferred diagnostic testing platform 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 automated analyzers 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 centralized immunoassay analyzers utilize automated liquid handling mechanisms and pipetting systems for reagent addition. Modern centralized 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. Where testing using centralized immunoassay analyzers may meet hospitals’ routine testing needs, the use of centralized automation 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, centralized 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, rapid testing methods that can be performed in minutes with minimal training have emerged to complement centralized automated testing. 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. Many of these tests utilize compact, portable testing platforms that enable testing to occur at the point-of-care.
We believe that significant market potential exists for rapid diagnostics with novel applications that are capable of precise quantitative measurement of single or multiple analytes. Studies, including one published in the New England Journal of Medicine, have shown that rapid testing, including point-of-care testing, may help to reduce overall healthcare 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 improve 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 diagnostics for diseases that lack accurate diagnostic could improve treatment and provide better outcomes.
We believe that rapid, point-of-care testing is optimal to significantly improve patient care and reduce healthcare costs, especially for acute conditions. However, diagnostic needs and objectives vary from hospital to hospital. Therefore, we have made our Triage BNP Test available on a centralized automated testing platform in addition to our existing rapid platform. In June 2003, we announced an agreement under which Beckman Coulter, Inc.® would manufacture and we would commercialize a BNP test for Beckman Coulter’s centralized immunoassay systems. The product, the Triage BNP Test for Beckman Coulter Immunoassay Systems, was granted clearance by the FDA in December 2003. We began selling the product in Europe in December 2003 and in the United States in January 2004. In the future, we may also choose to offer other products for use on centralized automated platforms.
4
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 serve as the basis for our diagnostic marker discovery platform and make practical the development and manufacture of rapid, accurate and cost-effective diagnostics. 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. 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.
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, including 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 the phage display of antibodies, which enables faster and more efficient selection and production of antibodies 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
5
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 four criteria:
• they are usable with complex biological samples such as serum, plasma, and whole-blood;
• they are stable for the dating period of the product;
• they utilize fluorescence energy transfer, which results in a substantial phase shift away from background fluorescence in samples; and
• they are excited at near infrared wavelengths chosen to be compatible with inexpensive solid state components.
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 samples 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 also 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 5,400 in the United States. To market our products we utilize a direct sales team that focuses its efforts on larger centers with more than 200 beds and smaller hospitals that are high volume users of our products. Fisher distributes all of our products in U.S. hospitals and supports our direct sales force, particularly in smaller hospitals. PSS distributes our product in U.S. physician offices. 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 have established direct selling efforts in several countries and utilize a network of country-specific and regional distributors in other areas.
Triage MeterPlus
Our Triage MeterPlus is designed to provide rapid quantitative or qualitative results for immunoassays using urine, whole-blood, serum or plasma. The Triage MeterPlus consists of a proprietary, compact, fluorescent meter that can be used in laboratories or at the point-of-care. After a sample is applied to a Triage panel product, the panel is inserted into the meter, which is designed to automatically and simultaneously detect multiple analytes and display the numerical results on an electronic read-out. The meter incorporates proprietary software in erasable, programmable, read-only memory (EPROM) chips, which are plugged into the meter. This software allows a single meter to be used for performing different tests. The software may also provide important information about the analyte being measured, such as normal or abnormal levels of a marker, which could then be used to diagnose disease or manage patient therapy. In January 2004, we announced the commencement of a platform development program intended to
6
miniaturize the Triage MeterPlus Platform. The program is intended to yield a state-of-the-art testing platform with enhanced speed, accuracy and precision.
Triage BNP Test
CHF, also known as heart failure, is a chronic inability of the heart to maintain an adequate output of blood from one or both of its ventricles, 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 five million people in the United States currently live with CHF. With approximately 550,000 new cases diagnosed annually in the United States alone, CHF imposes a growing toll, in terms of disability and mortality. In 2001, CHF contributed to 266,400 deaths, and hospital discharges for CHF increased 164% between 1979 and 2001. The direct and indirect costs of CHF in the United States in 2004 are expected to exceed $28 billion.
The 2001 National Hospital Ambulatory Medical Care Survey suggests that each year approximately four million individuals visit emergency departments, or EDs, with complaints of shortness of breath or breathing difficulties. Because many of these patients are among the elderly, a patient population subject to multiple overlapping diseases, physicians must consider several possible diagnoses. Standard clinical diagnostic guidelines include the evaluation of patient history and symptoms and typically an x-ray. 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 suspected of having CHF might receive an echocardiogram, which is used to detect left ventricular dysfunction. Studies have shown that traditional clinical diagnostic techniques for CHF can result in delayed treatment, misdiagnosis and ED inefficiency.
We obtained a semi-exclusive license (worldwide, except Japan) to technology and patents developed by Scios, Inc., a subsidiary of Johnson & Johnson, for use in developing a test that would provide measurements of BNP. In December 2000, we launched our first 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. Our Triage BNP Test is used with our Triage MeterPlus to produce a quantitative measurement of BNP in a blood sample of 250 micro liters obtained either venously or through a finger prick. 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. 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 primarily used to differentiate CHF from other diseases that share symptoms similar to those associated with CHF. The diagnostic provides physicians with an objective tool for differentiating CHF from the host of other possible diseases that mimic the condition. The diagnostic may also be used in assessing the severity of disease in CHF patients and for risk stratification of patients with acute coronary syndrome, or ACS.
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. Clinical studies suggest that for patients suffering from CHF, timely diagnosis is critical to initiating treatment to relieve stress on the heart, in order to improve outcomes. Misdiagnosis, or failure to diagnose, could result in improper treatment, lengthy hospitalization and/or recurring visits to the ED. This, in turn, could contribute to ED traffic and to the costs of patient treatment, since treatment alternatives become more expensive as CHF progresses. Studies have shown that the Triage BNP Test can accurately aid in the diagnosis of CHF and, if used at point-of-care locations such as the ED, accelerate the evaluation and treatment of patients with shortness of breath, thus reducing the time to discharge and the total cost of treatment.
Subsequent to the November 2000 FDA clearance of the Triage BNP Test as an aid in the diagnosis of CHF, Biosite received FDA clearances for additional applications of the Triage BNP Test. The diagnostic was cleared for the risk stratification of patients with ACS, another cardiovascular condition, and for the assessment of disease severity in patients with CHF. We are currently supporting clinical studies intended to explore other possible applications. A decision to pursue these or other new applications would most likely require that we seek additional clearances for our test from the FDA.
In 2003, we began to market the Triage BNP Test for use in physician offices. We have formed a small direct sales force specifically focusing on the physician office market and have signed an agreement granting PSS certain distribution rights in this market segment. We may also engage other distributors for this market in the future. We are currently targeting the estimated 20,000 physician office laboratories that are licensed to perform non-waived tests,
7
which is the existing classification for the Triage BNP Test. These laboratories primarily serve cardiology practices, as well as internal medicine and family practice physicians, who see large numbers of CHF patients. We have submitted a pre-market approval, or 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 significant validation of the Triage BNP Test in physician offices will be necessary in order to achieve widespread acceptance of this diagnostic, particularly among family practice and internal medicine physicians, who are likely to be familiar with BNP. Additionally, in order to promote use of the diagnostic at the point-of-care, it will be necessary to demonstrate clinical and economic value for physicians. 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.
Since hospitals have a variety of diagnostic needs and objectives, more recently we made our Triage BNP Test available on a centralized automated testing platform. In December 2003, we received FDA clearance to market the Triage BNP Test for Beckman Coulter Immunoassay Systems and we began selling the product in Europe in December 2003 and in the U.S. in January 2004. Consequently, a customer can perform BNP testing using either our rapid, portable Triage MeterPlus system or any of Beckman Coulter’s automated immunoassay testing platforms. We believe that combining Biosite’s successful rapid diagnostic for BNP with Beckman Coulter’s automated testing capability gives health services providers a broad set of testing options that can be tailored to meet specific needs. We may choose to make the Triage BNP Test available on additional centralized automated testing platforms. We do not sell any Beckman Coulter immunoassay systems, which are available exclusively through Beckman Coulter and its authorized distributors.
Our two formats of the Triage BNP Tests are currently among several FDA cleared tests used to aid in the diagnosis of CHF. Our chief competitors are Abbott Laboratories, Bayer Diagnostics and Roche Diagnostics. We have experienced significant competition from these competitors, and they 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 2001 National Hospital Ambulatory Medical Care Survey indicates that in 2001, there were over five million ED visits in the United States by adults suffering from chest pain. 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.
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 and risks.
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 analysis of CK-MB and troponin I levels is also necessary to accurately diagnose 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.
8
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 these measurements using our Triage MeterPlus in the central laboratory or, optimally, at the point-of-care. Providing easy access to measurements of cardiac markers aids in the detection of heart attack and 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 National Academy of Clinical Biochemistry, or NACB, have issued guidelines recommending greater use of cardiac markers in evaluating chest pain in the ED. The NACB 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 diagnostics have been developed to quantitatively measure the blood levels of cardiac markers. These are most commonly available on large, automated immunoassay analyzers marketed by companies such as Abbott Laboratories, Dade-Behring, Roche Diagnostics, Beckman Coulter, Bayer Diagnostics and others. These systems cannot directly analyze whole-blood and results 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.
Triage Cardio ProfilER™
As our product offerings expand, we expect to divide our products into Symptom Panel and Disease Panel categories. Symptom Panels are diagnostics, employing multiple markers, that are intended to help physicians determine the cause of a particular symptom that is common to a variety of diseases. Such symptoms include shortness of breath and chest pain. Disease Panels are intended to help a physician rule-in or rule-out a particular suspected disease. We believe that Symptom Panels can be particularly useful for initial diagnosis in the ED, with follow-up testing then performed using the applicable Disease Panel. Because the use of symptom panels will represent a new approach to diagnosis, we expect their adoption to be modest in 2004.
We have developed the Triage Cardio ProfilER as an initial Symptom Panel for chest pain patients, who may be suffering from ACS, heart attack or CHF. The Triage Cardio ProfilER, which includes BNP, CK-MB, myoglobin and a more analytically sensitive troponin I assay, quantitatively measures each of these markers within twenty minutes using a single diagnostic. Studies suggest that low levels of troponin I, a cardiac marker, present in a patient’s bloodstream could be indicative of ACS. Additionally, our Triage BNP Test has received FDA clearance to be used as a risk stratification tool for patients with ACS. The Triage Cardio ProfilER 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 commenced marketing of the product in the second quarter of 2003. In 2004, we expect to add additional features to the product in order to differentiate it from competitors and heighten its appeal among customers. Because this diagnostic enables customers to test for several markers simultaneously within 20 minutes, at a reasonable cost, we believe it can be competitive with automated testing methods.
9
Triage Drugs of Abuse Product Lines
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 an ED in a coma may be under the influence of narcotics or sedatives, thus requiring a certain type of treatment o