NORTH AMERICAN SCIENTIFIC INC - 10-K Annual Report

Item 1. BUSINESS

INTRODUCTION

Certain statements contained in this Annual Report on Form 10-K, including, without limitation, statements containing the words “believes,” “anticipates,” “estimates,” “expects,” “projections,” and words of similar import, are forward looking as that term is defined by the Private Securities Litigation Reform Act of 1995, or 1995 Act, and releases issued by the Securities and Exchange Commission, or SEC. These statements are being made pursuant to the provisions of the 1995 Act and with the intention of obtaining the benefits of the “Safe Harbor” provisions of the 1995 Act. We caution that any forward looking statements made herein are not guarantees of future performance and that actual results may differ materially from those in such forward looking statements as a result of various factors, including, but not limited to, any risks detailed herein, including the “Risk Factors” section contained in this Item 1, or detailed in our most recent reports on Form 10-Q and Form 8-K and from time to time in our other filings with the SEC and amendments thereto. We are not undertaking any obligation to update publicly any forward looking statements. Readers should not place undue reliance on these forward-looking statements.

We are a Delaware corporation, incorporated in 1990 that designs, develops and produces innovative products for radiation therapy treatment, including brachytherapy seeds, and planning and delivery technology for intensity modulated radiation therapy (“IMRT”) and image guided radiation therapy (“IGRT”). In addition, since 1990, we have applied our expertise in radioisotopes to develop and market products for other medical, environmental, research and industrial applications.

In 1996, we began to focus our research and product development activities primarily on medical products that are useful in the diagnosis, management and treatment of disease such as cancer. This initiative resulted in the development of our first two therapeutic products, iodine-based and palladium-based implantable brachytherapy seeds for the treatment of prostate cancer. We began manufacturing our Iodine-125 seed for commercial use in 1998, and introduced our Palladium-103 seed the following year, thus becoming the first company to manufacture both iodine and palladium brachytherapy seeds. These products were initially marketed under an exclusive third party distribution agreement, which terminated in January 2003. We transitioned to direct sales and marketing of our brachytherapy products during fiscal year 2003, and currently market and sell our Iodine-125 seeds under the trade name Prospera® I-125, and our Palladium-103 seeds under the trade name Prospera® Pd-103.

In August 2003, we acquired substantially all of the assets of Radiation Therapy Products (“RTP”), a manufacturer and distributor of equipment, including steppers and stabilizers, used in prostate brachytherapy procedures. We added RTP to our brachytherapy product portfolio to provide a more complete product offering to customers and prospects. (See Note 4 of Notes to Consolidated Financial Statements)

On May 4, 2004, we acquired NOMOS Corporation (“NOMOS”), a developer, manufacturer and marketer of products and services for IMRT and IGRT. We believe that this acquisition further enhanced our portfolio of products and technologies for the treatment of cancer by allowing us to expand into the external beam radiation market. NOMOS was recognized as the pioneer of the IMRT and IGRT fields and its products are used to treat a variety of cancers at hospitals and free-standing radiation oncology centers. As a result of the acquisition, we are now able to offer a broader complement of products and services to address the needs of the radiation oncologist. (See Note 4 of Notes to Consolidated Financial Statements)

In October 2000, we acquired Theseus Imaging Corporation (“Theseus”), a company engaged in the research and development of a proprietary radiopharmaceutical agent (referred to as “Hynic-Annexin V”). Over the following four years, we made substantial investments in Theseus for clinical trials and additional research. In July and August 2004, we assessed the long-term prospects of the Theseus product candidate and confirmed our previous estimates that the successful completion of development and receipt of

regulatory approvals of Hynic-Annexin V would not occur earlier than 2007 and that the additional costs would be substantial. With limited capital resources and the additional need to fund product development of our recently acquired IMRT and IGRT products, we explored alternative options for Theseus. Discussions with potential financial and strategic partners ceased in August 2004. As a direct result we shut-down the operation in September 2004 (See Note 3 of Notes to Consolidated Financial Statements).

IMRT AND IGRT RADIATION TREATMENT OF CANCER

In contrast to conventional external beam radiation therapy (“EBRT”), in which the patient is treated with relatively large, simple shapes of radiation, IMRT delivers many smaller radiation beams, with the intensity and angle of these radiation beams varied, or modulated, across the treatment target. This enables the doctor to deliver an elevated radiation dose to the tumor, while minimizing the amount of radiation directed at nearby healthy tissue. As a result, IMRT provides the potential for improved outcomes by more effectively treating tumors, and a better quality of life for patients by avoiding the side effects and risks associated with EBRT.

Treatment planning for IMRT is extremely complex due to the number of potential beam angles and intensities. Our IMRT planning software system, CORVUS, addresses this complexity through a technique called inverse planning. CORVUS prompts the doctor to specify the desired radiation dose outcome, both for the tumor and for the surrounding healthy tissue, and then generates a plan to achieve the desired outcome by testing and rejecting millions of potential beam intensities and angles. This is in contrast to conventional radiation planning and those competing IMRT planning systems that rely on a technique called forward planning, in which the doctor essentially builds a treatment plan through a manual, iterative process. We believe that our inverse planning approach results in better treatment plans and reduces the amount of time required for doctors to create these plans when compared to many of the treatment planning systems of our competitors, including competing IMRT systems that use inverse planning techniques.

A device known as a multileaf collimator defines the size, shape and intensity of the radiation beams in IMRT treatments and is also used in some conventional radiation treatments. Our multileaf collimator, MIMiC, was designed specifically for delivering IMRT, and we believe that it offers a number of advantages over competing multileaf collimators, including the ability to deliver radiation from a significantly greater number of angles. MIMiC is primarily sold as a component of our integrated PEACOCK system, but is also sold to existing CORVUS customers.

Customers use IMRT products in conjunction with linear accelerators, which are the machines that generate the energy beams used in radiation therapy. We do not produce linear accelerators. However, our products are designed to be compatible with all linear accelerators currently sold by the major manufacturers. We sell our products both to customers who have the newest, most advanced linear accelerators and to customers with older linear accelerators that do not have IMRT capabilities.

Our IGRT product, BAT, is used in conjunction with external beam radiation to locate targets, including tumors and surrounding organs that may move inside the patient’s body from one treatment session to the next. Customers use PEREGRINE, our radiation dose calculation and simulation software product that uses advanced statistical techniques to simulate the path of radiation particles as they are absorbed by the patient’s body. BAT and PEREGRINE are designed to be used in connection with both IMRT and conventional radiation therapy.

IMRT/IGRT Products

We currently sell five primary IMRT/IGRT products to the radiation therapy market:

CORVUS. The core of our proprietary IMRT treatment planning system is CORVUS. This software-based product uses images from conventional imaging technologies, such as computed tomography (“CT”), magnetic resonance imaging (“MRI”), or positron emission tomography (“PET”), to create a three-dimensional model of the tumor area to be treated. CORVUS, through its three-dimensional on-screen model, prompts the doctor to specify the parameters of the dose outcome desired, both for the tumor and for the surrounding healthy tissues. CORVUS then tests and rejects millions of beam intensities and angles as it builds a plan to achieve the doctor’s desired objectives. This process, called inverse planning, starts with the desired outcome and then builds a plan to achieve it. Once the plan has been approved by the doctor, CORVUS works with the linear accelerator’s multileaf collimator during each treatment session to provide the radiation output in accordance with the plan by dividing its radiation output into a large number of very small beams, each of which can carry a different level of radiation intensity. By hitting the target with these small, variable intensity beams from multiple angles, it becomes possible to deliver a high dose of radiation to the target with great precision, regardless of the shape of the target, while limiting the delivery of high dosage radiation to surrounding healthy structures, regardless of their proximity to the target. CORVUS can be used in conjunction with MIMiC, our multileaf collimator, and is also compatible with most other multileaf collimators on the market. Although there is no reliable independent market data available, we believe that the multileaf collimators with which CORVUS is currently compatible represent a substantial majority of all multileaf collimators in both the United States and worldwide markets. We believe that CORVUS, together with its predecessor, PEACOCK Plan, has been used to plan the treatment of a substantial majority of all IMRT patients worldwide.

We believe the CORVUS process of inverse planning is superior to conventional radiation technology and to competing IMRT technologies that rely on either forward planning or inverse planning. In forward planning, the doctor manually develops a radiation delivery plan and then uses a computer to calculate the results of that plan. This process is often repeated several times until an acceptable plan is obtained. This process is labor-intensive, time-consuming and highly sensitive to the quality and experience of the particular technician or doctor. All inverse planning systems, including those used by our competitors, utilize an algorithm that is designed to replicate the clinical decision-making process of a radiation oncologist. Our algorithm has been developed using clinical feedback received from previous versions of the product, and we believe it represents more closely than our competitors’ systems the important factors used in an experienced clinician’s evaluation. The CORVUS process results in increased accuracy and improved clinical outcomes over competing inverse planning systems, whose optimization strategies and evaluation functions we believe do not have the sophistication embodied in CORVUS. We also believe that our CORVUS planning software develops treatment plans more quickly and with less user interaction than our competitors’ planning systems.

MIMiC. Our multileaf collimator, MIMiC, is primarily sold as a component of our integrated PEACOCK system, but can also be sold to existing CORVUS customers. MIMiC is the first multileaf collimator on the market that was designed exclusively for IMRT delivery. MIMiC was also the first multileaf collimator specifically designed for dynamic or rotational mode treatment, where the head of the linear accelerator is moving during the delivery of radiation. MIMiC can deliver radiation from approximately 54 angles, which is significantly greater than the 5-9 angles of a typical commercial multileaf collimator. This contributes to MIMiC’s ability to conform the radiation beams to the size and shape of a tumor in accordance with the treatment plan. Leakage refers to radiation that escapes from the linear accelerator, or is transmitted through or between the leaves of the multileaf collimator, and is unintentionally absorbed by the patient. A typical multileaf collimator has an average radiation leakage of between 1% and 3%. The actual leakage for MIMiC is typically less than 1%. Although MIMiC can be

used on many linear accelerators that come already equipped with a multi-leaf collimator, the primary market for MIMiC is for the older linear accelerators that do not have a multi-leaf collimator.

MIMiC has 40 tungsten leaves in two rows of 20. Each leaf is capable of defining a beam approximately one centimeter square and can direct these radiation beams to the target. With the addition of our BEAK product, MIMiC’s beam size can be reduced to four-by-ten millimeters. This allows a customer with MIMiC to compete in the radiosurgery market. Radiosurgery is a form of specialized radiation therapy that involves the delivery of radiation to a precise, often small target volume in a limited number of treatment sessions.

PEACOCK. Our integrated IMRT planning and delivery system, PEACOCK, includes CORVUS as its software-based planning component and MIMiC as its multileaf collimator. With these two components, PEACOCK helps the doctor create an optimized treatment plan and then modulates the intensity of a radiation beam to fit the size and shape of a tumor in accordance with the plan. PEACOCK offers customers with older linear accelerators, and others that lack a multileaf collimator, the ability to upgrade their accelerators to enable them to deliver IMRT treatments. PEACOCK typically sells for less than half the cost of a new IMRT-equipped linear accelerator and can be installed with significantly less down time to the treatment center. PEACOCK can be used in delivering IMRT treatments both while the head of the linear accelerator is moving, known as rotational or dynamic mode, and while the head of the linear accelerator is stationary, known as fixed-angle mode.

BAT. BAT uses ultrasound images to confirm the location of target organs and tumor sites within the patient’s body. Some organs, such as the prostate, move within the patient from day to day and even within a given day. As a result, a previously developed treatment plan may no longer be effective. Treatments that require daily localization of this kind include those for cancers of the prostate, female pelvis, pancreas, breast and liver. The conventional approach to this problem is to include in the treatment plan a margin of error, which inevitably leads to exposing healthy tissue to radiation. BAT reduces this margin of error from the currently accepted standard practice of within 2 centimeters to within 2 millimeters. BAT determines the location of the target by means of either a jointed, mechanical arm, at the end of which is an ultrasound probe, or by a camera mounted in the treatment room which tracks passive markers placed on the ultrasound probe. Using a touch-screen monitor and ultrasound images, the practitioner maneuvers the probe to the exact location of the tumor. BAT then calculates the position of the target relative to the delivery point of the radiation beam. BAT can be used in conjunction with IMRT as well as conventional radiation treatment. Currently, BAT is predominantly used by hospitals and clinics in treating prostate cancer.

PEREGRINE. Our radiation dosage calculation software product, PEREGRINE, is used to estimate the amount and distribution of the radiation dose in three dimensions that would be absorbed by a patient from a prescribed plan. The prevailing method of dose calculation is to estimate the absorption of radiation by the patient’s body based on the absorption of radiation by water. This method can be reasonably accurate for areas of homogeneous tissue. However, most tumors are surrounded by heterogeneous tissue structures, such as bones, air sacs or other variants in density, each of which absorbs radiation at a different rate. PEREGRINE is designed to improve the accuracy of both IMRT and conventional radiation treatment planning systems by adjusting for these variables.

PEREGRINE is designed to work simultaneously and seamlessly with CORVUS to calculate and recommend adjustments to the dose distribution determined by the planning software before the radiation treatment plan is actually administered to the patient. In 1999, we acquired exclusive rights to the patents, trademarks and copyrights for the technology used in PEREGRINE through a 10-year licensing agreement with the Lawrence Livermore National Laboratory.

We have made initial sales of PEREGRINE to early adopters who are currently using it for laboratory testing and research purposes. These early adopters are assisting us in completing the final stages of

development of this product. Currently, PEREGRINE can only be used in conjunction with some linear accelerators and treatment planning systems. We are developing additional upgrades for PEREGRINE that we believe, when completed, will allow PEREGRINE to operate with a broader range of linear accelerators, energy levels and radiation planning systems. These upgrades are designed primarily to improve the installation and commissioning process, as opposed to the underlying software function, so as to make it easier for PEREGRINE customers to validate the correct operation of the system.

In addition to our core products discussed above, we also offer accessory products:

· BEAK®. To provide additional market opportunities for MIMiC and PEACOCK, we market BEAK, a device that attaches to MIMiC and reduces MIMiC’s beam size from approximately one centimeter square down to four-by-ten millimeters. This allows MIMiC and PEACOCK to compete with expensive and dedicated radiosurgery systems. Radiosurgery is a form of specialized radiation therapy that typically involves the delivery of radiation to a small target in a limited number of treatment sessions.

· NOMOS CRANE® and AUTOCRANE™. Our NOMOS CRANE family of products is a series of devices used to position patients during radiation therapy. NOMOS CRANE, NOMOS MINI-CRANE, and NOMOS CRANE II are manually operated patient positioning devices that are specifically suited to the requirements of treatments using PEACOCK, which deliver radiation in a slice-by-slice manner. The AUTOCRANE is our newest device, which remotely adjusts the patient’s position during the course of a treatment session as necessary to deliver the radiation in accordance with the treatment plan. This eliminates the need for the radiation therapist to repeatedly enter the treatment room to manually adjust the patient’s position in connection with slice-by-slice IMRT treatments. The AUTOCRANE shortens the average IMRT treatment session using PEACOCK. We received FDA clearance for the NOMOS AUTOCRANE in December 2001, and we began offering it for commercial sale in 2002. We also offer two NOMOS MINICRANES that assist in the positioning of specific body parts such as the head and neck. We license some of the technology underlying our NOMOS CRANE family of products from the University of Texas.

· Other System Accessories. We offer several other system accessories that assist in the positioning and verification of patient alignment. Our TALON® product is a device used to position the head during radiation therapy and radiosurgery, which permits precise repositioning across multiple treatment days. Our radiotherapy table adapter and our computed tomography table adapter are adjustable, rigid structures that attach to a variety of treatment tables and imaging couches to provide a stable and consistent reference base for patient positioning. We also offer our Target Box, which is a device that connects to our radiotherapy table adapter and provides multiple means of achieving precise patient alignment, including the use of laser positioning. We also offer a verification cassette that stores film and which can be used to verify the accuracy of patient treatment dosages. Although sales of these accessory products currently represent a small portion of our revenues, we believe that they enhance our core product offerings and present additional market opportunities for us.

BRACHYTHERAPY SEEDS

Prostate Cancer

The prostate gland, found only in men, is a small walnut-sized gland surrounding the urethra, located under the bladder and in front of the rectum. According to the American Cancer Society, prostate cancer is considered a slow growing cancer relative to other types of cancer. Symptoms of prostate cancer are often not noticed until the cancer has progressed past its early stages. A digital rectal examination during a routine physical examination is the most commonly used test for identifying prostate cancer. Additionally, a blood test to detect a prostate specific antigen (“PSA”) has become an accepted means of detecting

early-stage prostate cancer. The PSA test, which is recommended for men over the age of 50, determines the amount of prostate specific antigen contained in an examinee’s blood. Elevated levels of PSA can result from benign symptoms such as inflammation but can also be indicative of the presence of cancerous cells in the prostate. The emergence of PSA blood testing has greatly improved physicians’ ability to diagnose and treat early stage prostate cancer.

Prostate cancer is the second most prevalent form of cancer in men in the United States and is the second most common cause of cancer death in men. The American Cancer Society estimated that in 2004 approximately 230,000 new cases of prostate cancer would be diagnosed in the United States and approximately 30,000 deaths of men in the United States would be attributable to the disease.

There are several therapies available for the treatment of prostate cancer.

Prostate Brachytherapy

Overview

Brachytherapy is a minimally invasive medical procedure in which sealed radioactive sources are temporarily (High Dose Rate or HDR) or permanently (Low Dose Rate or LDR) implanted into cancerous tissue in the prostate, delivering a therapeutically prescribed dose of radiation that is lethal to the cancerous tissue. In the seeding procedure, generally 60 to 120 rice-sized, low-level radioactive seeds, containing either Iodine-125 or Palladium-103, are permanently implanted into the prostate by a radiation oncologist or urologist to irradiate and destroy cancerous prostatic tissue. Insertion of the seeds is performed under ultrasound guidance that allows the physicians to view the prostate for proper seed implantation. A template, or grid, is positioned in front of the perineum and is fixed to the stabilization unit along with the ultrasound probe to facilitate correct needle placement. Implant needles loaded with seeds are assigned to the appropriate template holes as indicated in a computer generated treatment plan. Each needle is guided through the template and then through the perineum to its predetermined position within the prostate under direct ultrasound visualization. The seeds are implanted as the needle is withdrawn from the prostate. Following completion of the procedure, an x-ray or CT image is viewed to verify seed placement.

LDR brachytherapy patients are generally treated on an outpatient basis and are permitted to go home the same day, as the entire procedure typically takes less than two hours. Most patients are able to return to their normal activities within two or three days following the procedure.

LDR brachytherapy usually results in lower incidences of impotence and incontinence compared to other therapies, and faster recovery times than radical prostatectomy (“RP”). Moreover, studies show that the disease free survival rates ten years after brachytherapy treatment is comparable to those after RP. Brachytherapy is most effective for localized tumors treated in the early stages of the disease. Therefore, we believe that the growing use of PSA tests will help detect prostate cancer at an earlier stage and enhance the attractiveness of brachytherapy as a treatment alternative.

The use of LDR brachytherapy, the newest of the three primary techniques for the treatment of prostate cancer, has grown significantly over the past several years due to its advantages over the other primary therapies, which include RP and EBRT. We believe that the increasing use of this technique reflects the growing acceptance in the medical community and among patients.

Our Brachytherapy Products

We were the first company to manufacture both iodine and palladium based brachytherapy seeds, the two most commonly used seeds for the treatment of prostate cancer. These two products differ in the time each takes to decay, and, consequently, in the rate and intensity at which the radiation dose is delivered.

Because some physicians may prefer iodine seeds and others prefer palladium seeds, we believe that it is advantageous to offer both in order to address the entire brachytherapy seed market.

In June 1997, we executed an exclusive worldwide marketing and distribution agreement with Mentor Corporation (“Mentor”) which granted Mentor an exclusive license to market and sell our brachytherapy seeds for the treatment of prostate cancer. Sales under this five year agreement commenced in January 1998 and concluded in January 2003. We now directly market and sell our brachytherapy seeds, and compete against Mentor. In connection with the January 2003 termination of that agreement, we are now directly marketing and selling our Iodine-125 and Palladium-103 seeds under the trade names Prospera® I-125 and Prospera® Pd-103, respectively. Although our products have primarily been marketed in the United States, in December 2000 we received a CE mark which allows for sales of our seeds in Europe.

· Iodine-125 (Prospera® I-125). In January 1998, we launched our first United States Food and Drug Administration or FDA-approved brachytherapy source, an Iodine-125 based seed, used primarily for the treatment of prostate cancer. Each seed consists of a laser welded biocompatible titanium capsule approximately the size of a grain of rice, containing Iodine-125 absorbed onto four resin beads. The capsule also contains two inactive gold beads that serve as markers for x-ray or CT imaging to identify the source location within the prostate. I-125 seeds have a half-life of 59 days; therefore, they utilize lower activity levels to deliver a therapeutic dose over a longer period of time compared to the Palladium-103 seeds.

· Palladium-103 (Prospera® Pd-103). In April 1999, we introduced our second FDA-approved brachytherapy source, a Palladium-103 based seed, also used primarily for the treatment of prostate cancer. Each palladium seed consists of a laser welded biocompatible titanium capsule containing Palladium-103 absorbed onto four resin beads. The capsule also contains two inactive gold beads that serve as markers for x-ray or CT imaging to identify the source location within the prostate. Pd-103 seeds have a half-life of 17 days; therefore, they utilize higher activity levels to deliver a therapeutic dose over a shorter period of time compared to the Iodine-125 seeds.

The primary products offered by RTP are the STP-110 Precision Stepper and RTP-6000 Precision Stabilizer. This equipment precisely positions and holds the trans-rectal ultra sound probe during the LDR brachytherapy procedure. The Stepper also provides a stable platform for the Template Guide which is used to precisely position the needles during seed implantation. Additional products offered by RTP include radiation shielding and needle loading accessories such as the Horizontal Needle Box, Needle Loading Shield, Needle Loading Box and Needle Loading Carousel. These products offer a natural complement to the brachytherapy seeds. RTP has several active development projects which will provide additional unique accessory products for brachytherapy.

Other Competing Prostate Cancer Treatment Modalities

Radical Prostatectomy

Currently, the most common treatment option for prostate cancer, radical prostatectomy, or RP, is an invasive surgical procedure in which the entire prostate gland is removed. RP is performed under general anesthesia and typically involves a hospital stay of several days for patient observation and recovery.

This procedure is often associated with relatively high rates of impotence and incontinence. For instance, a study published in the Journal of the American Medical Association in January 2000 reported that approximately 60% of men who had received RP reported erectile dysfunction as a result of surgery. The same report found that approximately 40% of the patients studied reported at least occasional incontinence. New bilateral nerve-sparing techniques are currently being used more frequently in order to

address these side effects, but these techniques require a high degree of surgical skill. RP is typically more expensive than other common treatment modalities.

External Beam Radiation Therapy (“EBRT”)

EBRT, allows patients to receive treatment on an outpatient basis and at a lower cost than RP. EBRT involves directing a beam of radiation from outside the body at the prostate gland in order to destroy cancerous tissue. The course of treatment usually takes seven to eight weeks to deliver the total dose of radiation prescribed to kill the tumor.

Studies have shown, however, that the ten-year disease free survival rates with treatment through EBRT are not comparable to the disease free survival rates after RP or brachytherapy treatment. In addition, because the radiation beam travels through the body, affecting both healthy and cancerous tissue alike, other side effects are associated with EBRT. For instance, rectal wall damage caused by the radiation beam is a noted negative side effect. Data suggests that between 30% and 40% of the patients who undergo EBRT suffer problems with erectile dysfunction after treatment.

Cryosurgery

Cryosurgery, a procedure in which tissue is frozen to destroy tumors, is another treatment option for prostate cancer. Currently, this procedure is less widely used, although promising treatment outcomes have been reported. Cryosurgery typically requires a one to two day hospital stay and is associated with higher rates of impotence than brachytherapy.

Other Treatments.

Other treatments include hormone therapy and chemotherapy, which may be used to reduce the size of cancerous tumors. However, these treatments are not intended to ultimately cure a patient of prostate cancer. Instead, such treatment choices are made by physicians in an attempt to extend patients’ lives if the cancer has reached an advanced stage or as ancillary treatment methods used in conjunction with other treatment mechanisms. Common side effects of hormone therapy are impotence, decreased libido and development of breasts, and common side effects of chemotherapy are nausea, hair loss and fatigue.

“Watchful waiting,” while not a treatment, is recommended by some physicians in certain circumstances based on the severity and growth rate of the disease, as well as upon the age and life expectancy of the patient. Physicians and patients who choose watchful waiting are frequently seeking to avoid the negative side effects associated with RP or other treatment modalities. Through careful monitoring of PSA levels and close examination for advancing symptoms of prostate cancer, physicians may choose more active treatments at a later date.

Prospera® for Ocular Melanoma

Intraocular melanoma, a tumor occurring inside the eye, is a relatively rare malignancy. There are approximately 1,500 new cases of this form of melanoma each year in the United States. The two most common means of treating this condition are brachytherapy or enucleation (removal of the eye).

Our line of high activity brachytherapy seeds is also marketed and sold under the trademark Prospera® for use in the treatment of ocular melanoma and other solid tumor applications. Our Prospera® ocular melanoma seed is used with the ultimate goal of destroying the tumor while preserving the eye. We directly market this product line to ophthalmologists and medical physicists. The number of cases occurring annually will limit Prospera® ocular melanoma sales for this application, but we view it as a natural extension of our brachytherapy business and as a service to the oncology community.

OTHER PRODUCTS

By utilizing our expertise in the design, development and manufacturing of radioisotopic products, we have developed or jointly developed the following additional products.

Radiation Calibration and Reference Source Products

Radioactivity is a natural physical property. Each radioisotope emits energy characteristics to that specific isotope. At sites possessing or storing radioactive materials, radiation detection instruments are typically used to monitor the emitted radiation from a given sample (i.e., soil, air, water, etc.) to identify and quantify the radioisotopes present in that sample to help ensure safety to workers and the surrounding environment. In order to determine a particular instrument’s efficiency, an accurately measured and contained amount of a radioactive isotope is required to serve as a calibration reference standard. Each type of sample being monitored by an instrument typically requires a radiation standard of identical form and geometry to the sample.

Our principal products in this category are radiation sources and standards, which are used in a variety of areas for calibration, measurement, analysis and control.

Standards for Nuclear Medicine

Nuclear medicine is practiced at over 5,000 United States hospitals. Consistent performance of imaging and calibration instrumentation is crucial to successful diagnostic and patient management and cannot be maintained without extensive calibration programs. We supply many of the required types of calibration standards.

Standards for Calibration and Control

We manufacture both catalog and customized products for commercial laboratories serving the environmental sector. Calibration standards are critical for accurate environmental analysis of unknown samples collected in the field. Moreover, our products have a variety of industrial uses, ranging from measuring the thickness of materials and gauging fluid levels to electronics stabilization and calibration.

We also sell radiation standards to various organizations, including certain government agency contractors and laboratories. These standards are often designed to meet special requirements, customized configurations or special processing services.

Our commercial customers include federal and state governmental agencies, leading medical equipment manufacturers, nuclear utilities and private organizations. Our radiation sources are also sold through a select group of representatives and distributors in North America and Europe. We support our products through a full product catalog, advertising, telemarketing and trade shows, and engage in direct selling to end users as well as to equipment manufacturers for inclusion in their product lines.

INTELLECTUAL PROPERTY

Patents

We believe that patents and other proprietary rights are important to our business. It is our policy to seek appropriate patent protection both in the United States and abroad for our proprietary technology and to enter into license agreements with various companies to obtain patent rights from them to develop and potentially sell products which use the compounds and technologies protected by those patents.

IMRT/IGRT

Name with Patent Number	Subject	Date of Issuance and Expiration Date
Method and apparatus for patient positioning for radiation therapy (5,622,187)	A method and apparatus for positioning a patient upon a treatment table of a linear accelerator includes a camera secured to the gantry of the linear accelerator and a plurality of light emitting diodes mounted with respect to the patient which are viewed by the camera.	April 22, 1997 until September 30, 2014
Planning method and apparatus for radiation dosimetry (6,038,283)	A method and apparatus for determining an optimized radiation beam arrangement for applying radiation to a tumor target volume while minimizing radiation of a structure volume in a patient, which uses an iterative cost function based on a comparison of desired partial volume data, which may be represented by cumulative dose volume histograms and proposed partial volume data, which may be represented by cumulative dose volume histograms for target tumors and tissue structures for delivery of the optimized radiation beam arrangement to the patient by a conformal radiation therapy apparatus.	March 14, 2000 until October 24, 2017
Noninvasive head fixation method and apparatus (5,207,688)	A noninvasive head fixation method and apparatus uses a flexible and compressible bladder which contacts and is deformed to conform to the shape of the patient’s nasion in order to immobilize the patient’s head during a medical procedure.	May 4, 1993 until October 31, 2011
Tissue compensation method and apparatus (5,368,543)	A tissue compensation system and method for making a tissue compensator utilizes a plurality of elongate rods, one end of which contact the treatment surface on the patient, and the other end of which contact and deform a flexible membrane containing a quantity of a material substantially equivalent to tissue of the patient.	November 29, 1994 until June 17, 2013
Tissue compensation method and apparatus (5,242,372)	A tissue compensation system and method for making a tissue compensator utilizes a plurality of elongate rods, one end of which contact the treatment surface on the patient, and the other end of which contact and deform a flexible membrane containing a quantity of a material substantially equivalent to tissue of the patient.	September 7, 1993 until November 12, 2011
Method and apparatus for conformal radiation therapy (5,596,619)	A method and apparatus for conformal radiation therapy, with a radiation beam having a pre-determined, constant beam intensity, treats the entire tumor volume of a patient’s tumor, and the beam intensity of the radiation beam is	January 21, 1997 until May 17, 2014

	spatially modulated across the tumor, by separating the radiation into a plurality of treatment beam segments and independently modulating the beam intensity of the plurality of radiation beam segments.
Method and apparatus for conformal radiation therapy (5,802,136)	A method and apparatus for conformal radiation therapy, with a radiation beam having a predetermined, constant beam intensity, treats the entire tumor volume of a patient’s tumor, and the beam intensity of the radiation beam is spatially modulated across the tumor, by separating the radiation into an array of at least 3x3 treatment beam segments and independently modulating the beam intensity of the plurality of radiation beam segments.	September 1, 1998 until April 19, 2016
Method and apparatus for target position verification (5,411,026)	A method and apparatus for verifying the position of a lesion in a patient’s body compares the location of the lesion in CT slices with the position of the lesion in ultrasound images taken while the patient lays on the treatment table of a linear accelerator.	May 2, 1995 until October 8, 2013
Planning method and apparatus for radiation dosimetry (6,393,096)	A method and apparatus for determining an optimized radiation beam arrangement for applying radiation to a tumor target volume while minimizing radiation of a structure volume in a patient, comprising: using a computer to computationally obtain a proposed radiation beam arrangement; using the computer to computationally change the proposed radiation beam arrangement iteratively, incorporating a cost function at each iteration to approach correspondence of a CDVH associated with the proposed radiation beam arrangement to a CDVH associated with a pre-determined desired dose prescription; comparing the dose distribution to a prescribed dose for the tumor volume and surrounding tissue structures; and increasing or decreasing radiation beam intensity if the change of the proposed beam arrangement leads to a greater correspondence to the desired dose prescription to obtain an optimized radiation beam arrangement.	May 21, 2002 until May 27, 2019
Method and apparatus for target position verification (6,325,758)	A method and apparatus for verifying the position of a target to be treated by a radiation therapy device may include an ultrasound probe used to generate ultrasound images of the target; a position sensing system for indicating the position of the ultrasound probe with respect to the radiation therapy device, whereby the location of the target with respect to the radiation therapy device is known; and the ultrasound image of the target may be aligned with radiation treatment data.	December 4, 2001 until October 27, 2018

Radiation Sources & Brachytherapy Accessories

Name with Patent Number	Subject	Date of Issuance and Expiration Date
Needle for Imaging and Sampling (5,647,374)	An instrument and method for the biopsy of tumors, such as breast lesions, are disclosed. A stylus comprises a tube having radioactive material in the tip capable of being imaged, the stylus contained within a needle. An image of the tip of the needle can be traced as it penetrates a human body, is guided toward an imaged tissue mass, and is placed within the tumor.	July 15, 1997 until December 30, 2014
Laser Welded Brachytherapy Source and Method of Making the Same (5,997,643)	A brachytherapy source for use in radiation treatment of the body includes radioactive material, and a housing. The housing is used to contain the radioactive materials, and is formed by at least one tube having two ends. The two ends of the tube are sealed by welding such that a radiation distribution of the brachytherapy source approximates a point source that is free of cold zones to minimize underexposure or overexposure of the body to radiation and to simplify the placement of the brachytherapy source in the body.	December 7, 1999 until March 26, 2018
Radioactive Seeds and Method for Using Same (6,440,058)	A system and method of treating an affected region of diseased tissue in a patient is described. A plurality of first radioactive seeds and a plurality of second radioactive seeds are implanted in the affected region.	August 27, 2002 until August 25, 2019
Radioactive Seed with Multiple Markers and Method for Using Same (6,503,186)	A radioactive seed which dis

Delaware		51-0366422
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

			Page
PART I
Item 1.	Business	3
Item 2.	Properties	39
Item 3.	Legal Proceedings	39
Item 4.	Submission of Matters to a Vote of Security Holders	40
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	41
Item 6.	Selected Consolidated Financial Data	42
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	54
Item 8.	Consolidated Financial Statements and Supplementary Data	54
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	54
Item 9A.	Controls and Procedures	54
Item 9B.	Other Information	56
PART III
Item 10.	Directors and Executive Officers of the Company	57
Item 11.	Executive Compensation	61
Item 12.	Security Ownership of Certain Beneficial Owners and Management	65
Item 13.	Certain Relationships and Related Transactions	67
Item 14.	Principal Accounting Fees and Services	68
PART IV
Item 15.	Exhibits, Financial Statement Schedules	69
	Signatures	101