1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended JUNE 30, 1995, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _______________
Commission file number: 0-10640
COLLAGEN CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2300486
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
2500 FABER PLACE, PALO ALTO, CA 94303
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 856-0200
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
(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 month (or 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 X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing price of the Common Stock on September 1,
1995, in the Nasdaq National Market, was approximately $120,941,818. Shares
of Common Stock held by each officer and director and by each person who owns
5% 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.
As of September 1, 1995, Registrant had 8,970,732 shares of Common Stock
outstanding.
Parts of the following documents are incorporated by reference to Parts I, II,
III and IV of this Form 10-K Report: (1) Proxy Statement for Registrant's 1995
Annual Meeting of Stockholders, and (2)
Form 10-K Annual Report for the fiscal year ended March 31, 1995 of
Registrant's unconsolidated affiliate, Target Therapeutics, Inc.
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PART I
ITEM 1. BUSINESS
GENERAL
Collagen develops, manufactures and markets on a worldwide basis high
quality biocompatible products for the treatment of defective, diseased,
traumatized or aging human tissues. Collagen has grown by identifying medical
applications for its technology, developing innovative products and building
markets with respected healthcare professionals, either directly or with
marketing and technology partners. Collagen's core products are principally
used in cosmetic and reconstructive applications, the treatment of stress
urinary incontinence, and bone repair. Collagen focuses on development of new
products based upon biomaterials, especially collagen, for sale in human
healthcare markets worldwide.
CORE TECHNOLOGY
The foundation of Collagen's current business is the collagen protein
family, around which Collagen has developed proprietary technology and patented
materials, processes and uses. Collagen is a family of naturally occurring
proteins that serve as the basic structural building blocks of the tissues
found in skin, cartilage, bone, tendons, ligaments, arterial walls, nerve
sheaths and other organs and tissues of the body. Collagen is present in all
mammals in higher concentration than any other protein and is quite similar
among species. There are at least fifteen types of collagen, the most common of
which is the type primarily used in Collagen's commercial products and products
under development.
Collagen has developed proprietary processes to purify its bovine
(cow)-source collagen on a commercial scale and to manufacture "tissue-like"
implants from the resulting materials. These proprietary processes alter the
immunological profile of the bovine-source collagen, thus minimizing the
potential for causing an allergic reaction. The result is a purified and
sterilized fibrous collagen material that can be easily injected or implanted
into the human body.
The potential for causing an allergic reaction arising from the
injection of bovine-source collagen is relatively low. Based on Collagen's
statistics, approximately 97% of men and women tested show no allergic reaction
to a skin test and can be treated with the bovine-source collagen injection.
The 3% that show an allergic reaction to the skin test display typical symptoms
of hypersensitivity, which include redness, itchiness and swelling. An
additional 1-2% of the people treated develop an allergic reaction after one or
more injections.
In August 1995, the Company entered into an agreement with certain of
the stockholders of LipoMatrix, Incorporated ("LipoMatrix") under which the
Company will acquire, subject to certain conditions, outstanding securities of
LipoMatrix that will increase the Company's ownership position in LipoMatrix
from approximately 40 percent to 90 percent on a fully diluted basis, for an
aggregate of approximately $18 million. The transaction is scheduled to close
in January 1996; however, due to the limited nature of the conditions on
closing, this transaction is being treated for accounting purposes as if it
were completed in the first quarter of fiscal 1995. Accordingly, for purposes
of this report, this transaction shall be deemed to have been completed.
LipoMatrix is developing a proprietary family of biocompatible
products. Trilucent(TM) Breast Implant ("Trilucent implant"), recently
commercially introduced in the U.K, achieves biocompatibility by utilizing
soybean oil, which has a long history of parenteral use in human beings as a
filler. Since the neutral triglycerides of the soybean oil have the same
radiodensity as human fat, Trilucent implant permits meaningful mammograms to
facilitate detection of breast cancer. Laminated into the implant shell is an
electronic transponder, which will allow non-invasive implant identification.
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STRATEGY
Collagen's strategy consists of the following principal elements:
Expand Existing Medical Franchise. Collagen has a 14-year
involvement with the cosmetic procedure-oriented segments of
the plastic surgery and dermatology markets. Medical
procedures for cosmetic indications in those markets are
generally paid for by the patient and therefore are not
commonly subject to reimbursement constraints imposed by third
party payors. The recently developed Trilucent implant is
another example of a high value product for the cosmetic and
reconstructive plastic surgery market. Collagen's objectives
include developing, in-licensing, and acquiring additional
products related to this market.
Broaden Therapeutic Applications. Collagen has developed
innovative medical products that take advantage of the
physical and biological properties of collagen, and has
developed proprietary collagen technology platforms that could
lead to new applications for product development. In addition,
Collagen has implemented an "affiliate" program to expand its
new product development activities outside of the areas of its
core competence, such as interventional cardiology,
ophthalmology, and otology (treatment of ear disorders).
Enhance Biomaterials Technology. Collagen has substantial
research, pre-clinical, clinical and regulatory expertise in
the development of collagen-based medical devices. Collagen's
current objectives include improving the clinical persistence
of current collagen materials and reducing or eliminating
allergic reactions arising from the bovine source of current
collagen products.
PRODUCTS, MARKETS AND METHODS OF DISTRIBUTION
Cosmetic and Reconstructive Surgery. Collagen has three principal
products for the treatment of skin contour defects: Zyderm(R) I Implant
("Zyderm I implant"), Zyderm(R) II Implant ("Zyderm II implant"), a more
concentrated form of injectable collagen, and Zyplast(R) Implant ("Zyplast
implant"), a cross-linked collagen product. These products are sterile devices,
composed of highly purified bovine dermal collagen, dispersed in a saline
solution containing a small amount of lidocaine and packaged in a sterile
syringe. They are injected with a fine gauge needle into depressed layers of
skin to elevate the area to surface contour.
Depending on the indication and the product (or product combination)
used, most patients can achieve considerable correction in one to four
treatment sessions, utilizing an average of 1.5 - 2.0 cc of collagen product.
The implants take on the texture and appearance of normal host tissue and are
subject to similar stresses and aging processes. Consequently, supplemental
treatments are often necessary after initial treatment, depending on the
location and original cause of the skin deformity.
Collagen believes that opportunities exist in the market for
injectable collagen implants based on potential new products and product
applications, potential increases in patient awareness of the procedure and
product price, demand among younger people for cosmetic procedures and
increased physician interest in cosmetic procedures not reimbursed by third
party payors. Factors such as negative publicity, adverse rulings by regulatory
authorities or in connection with product liability lawsuits, introduction of
competitive products by third parties or other loss of market acceptance for
Collagen's principal products may significantly and adversely affect Collagen's
business, financial condition and results of operations.
Collagen markets Zyderm and Zyplast implants primarily to the
approximately 11,000 dermatologists and plastic surgeons in the United States
through a direct sales force. Approximately
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4,000 of these medical professionals have purchased Zyderm and Zyplast implants
from Collagen in the past year. United States sales of Zyderm and Zyplast
implants, which represents approximately 49% of worldwide sales of Zyderm and
Zyplast implants, increased 12% over prior year's sales.
Collagen utilizes a variety of methods to market its dermatological
products. Collagen sponsors a "Partners in Growth" program for plastic surgeons
and dermatologists. This program is designed to identify and support a
committed group of physicians who endorse the appropriate use of injectable
collagen and are skilled in its proper use. Collagen conducts other physician
marketing activities such as direct mail campaigns, physician education,
in-office merchandising and patient seminars. Collagen has emphasized physician
education to ensure proper training in the use of its products and timely
communication of clinical and product use information. To stimulate demand at
the patient level, Collagen also conducts consumer marketing awareness programs
such as public relations events, health and beauty magazine advertising and
direct mailing campaigns.
Collagen markets its Zyderm and Zyplast implants directly to
physicians in 10 European countries, Canada, Australia and New Zealand.
Collagen markets its products through distributors in all other international
markets. Collagen has granted exclusive distribution rights for Zyderm and
Zyplast implants in Japan. Over the past two years, Collagen has appointed a
number of new foreign distributors for its injectable collagen products.
A large portion of Collagen's revenues in recent years has come from
its international operations. Consolidated export sales of Zyderm and Zyplast
implants totaled $26.1, $20.8 and $21.3 million in fiscal 1995, 1994 and 1993
respectively. Export sales for Zyderm and Zyplast implants represented 36%, 32%
and 43% of Collagen's revenues for those fiscal years. Collagen has expanded
and intends to further expand its direct selling efforts in certain
international markets. There can be no assurance that difficulties associated
with a transition to direct marketing efforts would not have an adverse effect
on Collagen's results of operations.
In 1992, Collagen participated in the formation of LipoMatrix, which
intended to research, develop, manufacture, and market medical devices designed
to replace, restore, or augment body structures that consist largely of adipose
(fat) tissues, including the human breast. LipoMatrix recently received
clearance from the FDA to commence clinical studies in the U.S., and in August
1995, introduced the Trilucent implant into the United Kingdom market through
Collagen's U.K subsidiary. LipoMatrix already has gathered clinical data on
its breast implants from more than 100 patients treated in Europe.
Incontinence. According to the National Institutes of Health, more
than ten million Americans suffer from urinary incontinence, or the involuntary
loss of urine. While comprehensive data are not available as to the incidence
of a form of stress urinary incontinence called intrinsic sphincter deficiency
("ISD"). Collagen has estimated, based upon physician survey information, that
as many as one million of these persons suffer from ISD, a poor or
nonfunctioning bladder outlet mechanism that may be helped by a locally
injected bulking agent. Collagen and its marketing and distribution partner,
C.R. Bard, Inc. ("Bard"), received approval from the FDA to produce and market
Contigen(R) Bard collagen implant ("Contigen implant") in September, 1993 for
the treatment of ISD. ISD occurs among all demographic groups, but its
incidence increases with age and is twice as high in women as men. Management
and treatment alternatives have historically included absorbent products,
behavior modification, medication and surgery. Contigen implant injections may
improve stress incontinence caused by stretched pelvic muscles from childbirth,
decreased tone in the pelvic muscles supporting the bladder (often associated
with menopause and aging) and prostate surgery.
Contigen implant is a sterile, highly purified bovine dermal collagen
that is lightly crosslinked and dispersed in a saline solution. Contigen
implant is injected into the submucosal tissues of the urethra and/or bladder
neck, and into the tissues adjacent to the urethra. The injection of Contigen
implant creates increased tissue bulk and subsequent coaptation (joining) of
the urethral lumen. After
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injection, the suspended collagen forms a soft cohesive network of fibers. Over
time, the implant takes on the appearance of normal host tissue.
Pursuant to the terms of an agreement between Collagen and Bard, Bard
purchases commercial products, including Contigen implant, developed under this
agreement. In addition, Collagen receives a percentage of Bard's direct sales
to physician customers. Bard holds exclusive worldwide marketing and
distribution rights to Contigen Implant.
Collagen recorded approximately $16.5 million and $16.7 million of
revenue from sales of Contigen Implant in fiscal 1995 and 1994 respectively. Of
such revenue, $13.4 million and $15.9 million was derived from sales of
Contigen implant to Bard and $3.1 million and $789,000 from Bard's direct sales
to physicians in 1995 and 1994 respectively, compared to $4.4 million of sales
of Contigen implant to Bard recorded in fiscal 1993 (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Product Sales").
Orthopaedics. Collagen and its orthopaedic marketing partner, Zimmer
Inc., a wholly-owned subsidiary of Bristol-Myers Squibb ("Zimmer"), received
approval from the FDA in May 1993 to produce and market Collagraft(R) bone
graft matrix implant ("Collagraft implant"). Collagraft(R) bone graft matrix
strip ("Collagraft strip"), a "premixed" formulation which is an early
"ready-to-mix" Collagraft implant formulation, was subsequently approved in
January 1994. Collagraft implant and Collagraft strip, when used with
autogenous bone marrow, is indicated for use in acute long bone fractures and
traumatic osseous defects to provide a matrix for the repair process of bone.
Bone graft substitute eliminates the need for patients to undergo a painful
autograft bone grafting procedure, which involves harvesting patients' own bone
from another site, and it prevents the transmission of human infectious agents
and inconsistent results from allograft procedures (bone graft supplied through
a bone bank). During surgery Collagraft strip or Collagraft implant is mixed
with the patient's own bone marrow and is placed into the fracture site
providing a scaffolding around which new bone will grow. Medical conditions
which may require bone grafting include acute long bone fractures and certain
tumors and cysts.
Collagraft implant and Collagraft strip are a mixture of purified
fibrillar collagen and hydroxyapatite/tricalcium phosphate ceramic ("HA/TCP"),
and is supplied sterile in both a strip form (premixed) and a ready-to-mix
form. Hydroxyapatite is a substance which is biocompatible and is minimally
resorbed. Tricalcium phosphate is radiopaque, biocompatible and biodegradable.
Its degradation products can be reconstituted by the body to form new bone
mineral allowing for bone deposition.
An agreement between Collagen and Zimmer provides for the development
and distribution of collagen and other biologically-based products for
orthopaedic applications. Collagen will manufacture approved products and sell
them to Zimmer, which has exclusive marketing rights for Collagraft implant and
Collagraft strip in the United States and Asia. Collagen holds marketing rights
for Collagraft implant and Collagraft strip in Europe, Canada, Africa and the
Middle East. Collagraft implant and Collagraft strip are currently sold only in
the United States, and Collagen does not anticipate substantial sales outside
the United States for the foreseeable future.
Sales of Collagraft implant and Collagraft strip to Zimmer in fiscal
1995 totaled $3.0 million compared with $2.7 million in fiscal 1994, the first
full year of sales for these products. The Company had approximately $150,000
of combined Collagraft implant and Collagraft strip sales in fiscal 1993.
A number of uncertainties exist surrounding the marketing and
distribution of Collagen's new products, Contigen implant, Collagraft implant
and Collagraft strip. Collagen's business and financial results could be
adversely affected in the event that either or both of Bard and Zimmer, or
Collagen,
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are unable to effectively market the product, accurately anticipate customer
demand, or effectively manage industry-wide pricing and cost containment
pressures in health care.
Other Medical Products. During fiscal 1995, the Company expanded its
product offerings to include aline of collagen-based materials for research
applications and other custom needs. Sales of these products were not
material.
COMPETITION
The medical device industry is characterized by rapidly evolving
technology and increasing competition under the recent changes in the health
care environment. Collagen faces competition in each of its target product
markets.
Zyderm and Zyplast Implants. Collagen is aware of one commercial
product in the United States that is directly competitive with Zyderm and
Zyplast implants. This product is a gelatin-based (denatured collagen) product
for soft tissue augmentation presently being marketed in the U.S. and Canada.
Collagen is also aware of one foreign company which is marketing a
collagen-based material for soft tissue augmentation internationally. Indirect
competitors to Zyderm and Zyplast implants include, among others, chemical
peels, fat injections, dermabrasion, laser treatment and face lifts. In
addition, several companies are engaged in research and development activities
examining the use of collagen and other biomaterials for the correction of soft
tissue defects. There can be no assurance that Collagen will not face increased
direct and indirect competition in the soft-tissue augmentation market.
Trilucent implant. The principal competitiors of Trilucent implant
are saline implants worldwide, and silicone gel implants outside the U.S. These
products are generally marketed by a few companies wielding greater resources
than the Company, and having substantially more experience in manufacturing and
marketing in the breast implant market.
Contigen. At the present time, autologous fat, silicon micro-implants
and polytetrafluorethane (Teflon paste, or PTFE) are directly competing with
Contigen implant for the treatment of stress incontinence due to ISD. Neither
silicon micro-implants nor PTFE have been approved by the FDA for use in the
United States. Other methods of treatment or amelioration of ISD may be
considered competitive with Contigen implant. These include surgery,
medication, absorbent products and behavior modification.
Collagraft. Bone graft substitutes currently are used in a small
fraction of bone grafting procedures. The vast majority of bone grafting
procedures currently use autograft (autologous bone) taken from the patient's
own body and allograft (bone bank bone taken from deceased donors). Collagraft
implant and Collagraft strip belong to a new family of products called bone
graft substitutes. The most direct competitor to Collagraft implant and
Collagraft strip is Pro-Osteon, a synthetic bone graft substitute made of a
coral-like mineral. A less direct competitor to Collagraft implant and
Collagraft strip is an allograft bone product called Grafton, which is packaged
in a syringe and marketed and priced like a bone graft substitute.
In addition, several companies and institutions are engaged in the
development of collagen-based and other materials, techniques, procedures and
products for use in medical applications anticipated to be addressed by
Collagen's products, including Contigen implant and Collagraft implant
products. Some of these companies and institutions may have substantially
greater capital resources; research and development staffs and facilities; and
experience in conducting clinical trials, obtaining regulatory approvals, and
manufacturing and marketing products similar to those of Collagen. There can be
no assurance that Collagen's competitors will not succeed in developing
technologies and products that are more effective than any which have been or
may be developed by Collagen or that would render Collagen's technology and
products obsolete or non-competitive. There can be no assurance that such
potential competition will not have an adverse effect on the future business or
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financial condition of Collagen. Certain of Collagen's collagen-based products,
including the Zyderm implants, were manufactured and sold pursuant to an
exclusive license from Stanford University under a U.S. patent, which expired
in April 1993, covering the use of native, solubilized collagen for soft-tissue
augmentation. The expiration of this patent may result in increased competition
in the market for injectable collagen implants if and as other companies enter
that market.
MANUFACTURING
Collagen manufactures its collagen-based products utilizing readily
available chemicals and enzymes. The source of its collagen is bovine (cow)
dermis. In an attempt to ensure that the hides are free from any
herd-threatening disease such as Bovine Spongiform Encephalopathy ("BSE"), the
hides are sourced from a closed herd, which requires the physical separation of
the herd from other herds, the tracking of the lineage of each animal and the
maintenance of each animal under a veterinarian program. Collagen obtains
HA/TCP solely from Zimmer for the manufacture of Collagraft Implant. Collagen
believes that the supply of raw materials and processing materials for its
manufacturing operations is and will continue to be adequate for the
foreseeable future and that such materials are available from other sources.
Collagen's principal products have various refrigerated shelf lives of
30 to 36 months. Collagen typically ships products to physicians as orders are
received on an express delivery basis, and has no material backlog. It is
Collagen's policy to maintain levels of finished goods inventory adequate to
allow for the expeditious handling of orders received. Collagen believes its
physician customers typically purchase products on an as-needed basis, while
distributor customers purchase products based on inventory stocking levels.
In November 1990, Collagen commenced manufacture of its collagen-based
products in its facility located in Fremont, California, significantly
increasing its capacity. Collagen has experienced and may continue to
experience disruptions in its manufacturing schedule as it continues to
manufacture products in increasingly larger quantities and with new process
improvements. Collagen's manufacturing facilities are subject to regulatory
requirements and periodic inspection by regulatory authorities such as the Food
and Drug Administration ("FDA") in the United States, and in countries such as
the United Kingdom, outside the United States.
LipoMatrix produces Trilucent implant in Neuchatel, Switzerland, and
its facility there was certified in compliance with ISO9001 and EN46001 by SQS
and TUV Product Services in December 1994. LipoMatrix may experience
disruptions in manufacturing schedules as a consequence of the normal
transitional effects of producing its first product, and as it manufactures
increasingly larger quantities of products. In addition, it may experience a
significant shortage of manufacturing capacity if its facility fails to operate
as planned.
PRODUCT RESEARCH AND DEVELOPMENT
Collagen maintains an active program of technology and new product
development. Collagen intends to continue to devote a significant portion of
revenues to research and product development activities throughout its product
lines to generate significant returns to stockholders. Research and Development
("R & D") expenses for Collagen totaled $9.9 million, $9.4 million, and $8.8
million in fiscal 1995, 1994 and 1993, respectively. R & D expenses
represented 14%, 15%, and 18% of product sales for those years.
Collagen is pursuing a soft tissue augmentation product development
program with the objective of developing new injectable products and
enhancements to existing products for the treatment of skin contour defects.
The types of improvements being focused on relate to one of two performance
criteria: duration of treatment benefit and/or the elimination of local
inflammatory reactions. Collagen is exploring human collagen, which may prove
to be the alternative for the
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potential collagen patients who are allergic to bovine-based products as well
as first choice for patients who elect to minimize this possibility; in
addition, human collagen could become the basis for numerous future products
that currently rely on a bovine collagen foundation. There are two potential
sources for human collagen: placental-sourced human collagen and recombinant
human collagen through transgenic animals. Collagen has an ongoing
collaboration with IMEDEX, a subsidiary of Rhone-Poulenc S.A., to develop new
products based on the use of human placental-collagen. In addition, Collagen
has made an equity investment in and is actively collaborating with GenPharm
International, Inc. for the purpose of developing recombinant human collagen.
LipoMatrix products are designed and developed at its Neuchatel,
Switzerland facility in accordance with EN46001 and ISO9001 and other
international standards, including risk analysis, design dossiers, validation
and testing.
An additional element of Collagen's product development strategy is
the support of research at leading institutions in areas that may broaden
Collagen's basic technology or suggest new clinical applications for Collagen's
products. Collagen enters into contractual research agreements with various
institutions throughout the United States and Europe in the normal course of
business. These agreements typically provide for various levels of funding over
time periods not exceeding two years. These agreements typically give Collagen
rights of first refusal to develop and market any commercial products which may
result from research performed and impose, in some cases, royalty and payment
obligations and marketing restrictions.
In addition to joint development arrangements, Collagen has an active
program for developing new products through affiliated companies in which
Collagen makes equity and debt investments. Collagen believes the formation of
new companies allows each to focus its technology on select market segments, to
bring products efficiently to market and to advance proprietary know-how at a
rapid rate. However, there can be no assurance that these investments will
result in positive returns nor can there be any assurance on the timing of any
return on such investments. Collagen's product development and research
strategy consists of the following principal elements:
New Products in New Market Segments. In fiscal 1994, Collagen,
together with Target, and Celtrix Pharmaceuticals, Inc.,
formed Prograft Medical Inc. ("Prograft"). Prograft focuses on
the development of proprietary vascular grafts, vascular
stents and vascular stent-graft combinations, which may use
certain of Collagen's biomaterials, for use in the repair and
replacement of diseased and damaged blood vessels. As of June
30, 1995, Collagen held approximately 21% of the equity of,
and has also entered into license and supply agreements with,
Prograft. Also in fiscal 1994, Collagen and its founder, Dr.
Rodney Perkins, formed Otogen Corporation, a start-up company
which is currently developing surgical tissue adhesives for
use in general surgical applications in such areas as plastic
surgery, neurology, thoracic surgery and cardiology. In fiscal
1993, Collagen participated in the formation of CollOptics,
Inc. to develop collagen-based lenticules, which are custom-
made contact lenses for refractive errors.
Access to New Technology. In addition, Collagen has made an
equity investment in and is actively collaborating with
GenPharm International, Inc. for the purpose of developing
recombinant human collagen. This technology could provide
Collagen with a source of recombinant human collagen that is
chemically identical to native human collagen.
EMPLOYEES
As of September 1, 1995, Collagen employed 312 full-time employees, of
which 59 were engaged in research and development, 85 were engaged in sales and
marketing, 91 were involved in production and quality control, and 77 were
engaged in finance and administration. None of Collagen's
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employees is covered by a collective bargaining agreement. Collagen also has a
Board of Scientific Advisors which currently consists of five scientists, each
of whom is prominent in his field and serves as a professor at a major academic
institution. Collagen has a consulting agreement with each advisor which ranges
from two to three years.
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EXECUTIVE OFFICERS
The executive officers of the Company as of September 1, 1995 who are
elected by and serve at the discretion of the Board of Directors, are as
follows:
OFFICER
NAME AGE POSITION SINCE
- ---------------------------------------------------------------------------------------------------
Howard D. Palefsky 48 Chairman and Chief Executive Officer 1978
Gary S. Petersmeyer 48 President and Chief Operating Officer 1995
Frank A. DeLustro, Ph.D. 47 Senior Vice President, Scientific Affairs 1990
Ross R. Erickson 50 Vice President, Regulatory Affairs and Quality Assurance 1990
Deborah W. Berard 36 Vice President, Human Resources and Administrative Services 1991
David Foster 38 Vice President, Finance & MIS, and Chief Financial Officer 1990
A. Neville H. Pelletier 54 Vice President and Managing Director, Europe 1992
Michael Levitt 43 Vice President, Operations 1994
Except as set forth below, all of the officers have been associated
with the Company in their present position for more than the past five years.
Mr. Palefsky joined the Company as President, Chief Executive Officer
and Director in March, 1978 and served in such capacities unt il February
1995, when he became the Chairman of the Board and Chief Executive Officer.
From 1973 to March 1978, Mr. Palefsky was employed by Alza Corporation where
his last position was Vice President, Marketing. Prior to 1973, Mr. Palefsky
was employed by Whitehall Laboratories as Assistant to the President. Both
Alza Corporation and Whitehall Laboratories are manufacturers of pharmaceutical
products. Mr. Palefsky is also a director of Calgene, Inc., and Target
Therapeutics, Inc.
Mr. Petersmeyer joined Collagen as President, Chief Operating Officer
and Director in February, 1995. Prior to joining Collagen, Mr. Petersmeyer was
employed by Syntex Corporation, a manufacturer of pharmaceutical products,
from 1991 to January 1995, where he served as Vice President of Managed Health
Care from March 1993 to January 1995, as well as serving at various times as
National Sales Director and Director of Corporate Development. From 1986 to
1990, he served as President and Chief Operating Officer of Beta Phase, Inc., a
medical device manufacturer, and from 1982 to 1986 he was the Executive Vice
President and General Manager, Ophthalmic Products Division, of CooperVision,
Inc., a manufacturer and distributor of ophthalmic products.
Dr. DeLustro joined the Company as Manager of Immunology in June 1983
and served in various positions in the Company. In 1991, Dr. DeLustro was
promoted to Senior Vice President, Scientific Affairs. Prior to 1983, he was
Assistant Professor of Medicine at the Medical University of South Carolina.
Mr. Erickson joined the Company as Program Director in January 1987
and served in various senior regulatory positions. In 1990, Mr. Erickson was
promoted to Vice President, Regulatory Affairs and Quality Assurance. From
1983 to 1986, Mr. Erickson was employed by Laserscope as Director of Biomedical
Affairs. From 1977 to 1983, he was employed by Cobe Laboratories as Manager
of Clinical Evaluations. Both Laserscope and Cobe Laboratories are medical
device manufacturers. From 1970 to 1977, Mr. Erickson was employed by Alza
Corporation.
Mr. Foster joined the Company as Financial Analyst in November 1984
and served in various positions in the Company. In 1992, Mr. Foster was
appointed Chief Financial Officer. From 1979 to 1984, Mr. Foster was employed
by Brown, Vence and Associates, an energy and environmental consulting firm, as
Engineering Project Manager.
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Ms Berard joined the Company as a member of the Finance staff in
February 1982 and served in various Human Resource positions. In 1991, Ms
Berand was promoted to Vice President, Human Resources and Administrative
services. Prior to 1982, Ms Berard held a position in medical development in
the Stanford Medical School.
Mr. Pelletier joined the Company in May of 1991 as Vice President of
Collagen International, Inc. In 1992, he was appointed Vice President and
Managing Director, Europe. From 1979 to 1991, Mr. Pelletier was employed by
Sandoz AG, a manufacturer of food products, where his most recent position was
Senior Vice President, Sandoz Nutrition, Inc. During his time at Sandoz, Mr.
Pelletier was based in Minnesota in the U.S., Australia and Switzerland. Prior
to 1979, Mr. Pelletier held a variety of marketing positions with PepsiCo,
Inc., a manufacturer of beverages; Miles Laboratories, Inc., a manufacturer of
over-the-counter toiletries and micro-nutrients; and Proctor and Gamble, a
manufacturer of consumer products. In addition to Australia and Switzerland,
Mr. Pelletier has spent his international career in Canada, the Philippines,
Venezuela and Spain.
Mr. Levitt joined the Company in July 1994 as Vice President,
Operations. Prior to joining the Company, Mr. Levitt was employed by Eli Lilly
and Company, a manufacturer of pharmaceutical products. During his 18 years
with Eli Lilly and Company, Mr. Levitt held positions in sales, research,
human resources and operations. Mr. Levitt's last position with Eli Lilly and
Company was Director of Pharmaceutical Operations.
ITEM 2. PROPERTIES
Collagen's principal executive, marketing, and research activities are
presently located in three buildings in Palo Alto, California which occupy a
total of approximately 77,000 square feet. Collagen has leased these buildings
under various leases that expire between June 1999 and November 2004 and
contain renewal options. Collagen's international facilities are also leased
under various leases and amount to approximately 10,000 square feet in total.
In 1989, Collagen completed a sale-leaseback transaction relating to
its manufacturing facility in Fremont, California. The facility lease term
extends for fifteen years with four five-year renewal options. Collagen
commenced commercial manufacturing in this facility in November 1990. In
addition, Collagen leases approximately 11,000 square feet of warehouse space
in Fremont, California.
LipoMatrix' administrative, research and development, manufacturing
and quality assurance functions are located in a 12,000 square foot facility in
Neuchatel, Switzerland.
Collagen considers that its facilities are adequate to meet its
requirements for at least the next twelve months.
ITEM 3. LEGAL PROCEEDINGS
Collagen is involved in various legal actions arising in the ordinary
course of business, the majority of which involve product liability claims.
While the outcome of such matters is currently not determinable, it is
management's opinion that these matters, including the matters discussed below,
will not have a material adverse effect on Collagen's future consolidated
financial position, results of operations or cash flows.
Collagen faces an inherent business risk of exposure to product
liability claims alleging that the use of Collagen's technology or products has
resulted in adverse effects. Such risks will exist even
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with respect to those products that have received or in the future may receive
regulatory approval for commercial sale. There can be no assurance that
Collagen will avoid significant product liability claims and attendant negative
publicity. Furthermore, there can be no assurance that present insurance
coverage will be adequate or that adequate insurance coverage will remain
available at acceptable costs, if at all, or that a product liability claim or
recall would not adversely affect the future business or financial condition of
Collagen. It is possible that adverse product liability actions could
negatively affect Collagen's ability to obtain and maintain regulatory approval
for its products.
In light of regulatory investigations surrounding product safety,
Collagen announced in September 1991 that it will indemnify physicians against
damages and legal fees arising from lawsuits brought to a jury trial alleging a
link between collagen injections and Polymyositis and Dermatomyositis. To date,
the impact of this indemnification on Collagen's results of operations has not
been significant. There can be no assurance, however, that any future such
claims would not have a material adverse effect on Collagen's operating
results.
On December 21, 1994, Collagen filed suit in Santa Clara County
Superior Court against Matrix Pharmaceutical, Inc., ("Matrix") alleging fraud,
misappropriation of trade secrets, unfair competition, breach of fiduciary
duty, inducing breach of contract, breach of duty of loyalty and tortious
interference. Collagen alleges that Matrix, which uses collagen for certain
drug delivery applications, unlawfully obtained Collagen's confidential and
proprietary information relating to Collagen's products and operations by
hiring ten former employees that Collagen alleges had access to or were
knowledgeable about Collagen's proprietary information. On February 12, 1995,
Matrix denied Collagen's allegations and filed a cross-complaint charging
Collagen with, among other things, unfair competition, defamation and restraint
of trade. Matrix also has requested certain declaratory relief. Howard
Palefsky, Chairman of the Board and Chief Executive Officer of Collagen, was
personally named as an additional defendant to the Matrix defamation charge.
Collagen intends to vigorously contest Matrix's charges. In September, 1995,
Collagen filed an amended complaint naming two additional former employees, and
alleging the acquisition of additional proprietary information obtained
unlawfully.
ITEM 4. RESULTS OF VOTES BY SECURITY HOLDERS
No matters were submitted to a vote of stockholders of Collagen
Corporation during its fourth fiscal quarter ended June 30, 1995.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
The Company's Common Stock is traded on The Nasdaq Stock Market under
the symbol CGEN. The following table presents the high and low sale prices for
the Company's Common Stock for each fiscal quarter for the fiscal years ended
June 30, 1995 and 1994, as reported by The Nasdaq Stock Market Summary of
Activity(TM).
Fiscal year ended June 30 1995 1994
---- ----
Quarter ended High Low High Low
------------- ---- --- ---- ---
September 30 $22.75 $17.25 $29.00 $21.75
December 31 24.00 19.25 30.25 25.25
March 31 28.25 21.50 31.75 19.00
June 30 22.50 15.00 23.75 17.00
HOLDERS OF RECORD
At September 1, 1995 there were approximately 1,121 holders of record
of the Company's Common Stock.
DIVIDENDS
The Company declared a cash dividend of $.075 per share on its common
stock payable to stockholders of record on June 15, 1995, in addition to a
$.075 per share dividend declared and paid earlier in fiscal 1995. In fiscal
1994, the Company declared a cash dividend of $.10 per share. The Board of
Directors expects to review the potential for future dividends semi-annually.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following data have been derived from consolidated financial
statements that have been audited by Ernst & Young LLP, independent auditors.
The information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Annual
Report on Form 10-K.
Fiscal years ended June 30, 1995(1) 1994(1) 1993(1) 1992(2) 1991(2)
----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
OPERATING RESULTS
Revenues $72,560 $65,552 $49,743 $67,182 $61,382
Research and development expenses 9,943 9,366 8,767 12,023 8,954
Operating income (loss) 11,854 8,607 (3,859) (6,294) 8,657
Gain from investments, net(1) 5,110 -- 20,323 9,439 --
Income from continuing operations 8,760 4,920 9,732 1,408 5,113
Net income (loss) 8,760 4,920 8,743 1,147 (4,349)
Income (loss) per share:
Continuing operations .93 .50 .95 .14 .53
Net income (loss) .93 .50 .85 .11 (.45)
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FINANCIAL POSITION AT JUNE 30,
Cash, cash equivalents and short-term investments $ 9,384 $12,736 $19,630 $44,686 $16,517
Total assets 76,906 74,505 76,206 95,479 67,591
Long-term obligations, excluding minority interest 9,972 9,507 8,784 1,786 10,168
Total stockholders' equity 47,920 49,082 54,936 57,174 37,798
Book value per share at June 30 5.31 5.21 5.64 5.71 3.88
ADDITIONAL INFORMATION:
Cash dividends declared per share .15 .10 -- -- --
(1) As a result of the sale of a portion of the Company's shares of Target
Therapeutics, Inc. ("Target"), the Company's ownership position in Target
decreased to below 50% in December 1992. The fiscal 1995, 1994 and 1993
financial information is presented with Target accounted for under the equity
method. All previous years contain consolidated results of Target (see Notes 1
and 4 to the Consolidated Financial Statements). Gains from the Company's
investment in Target contributed $6,035,000, $20,323,000, and $10,239,000 to
fiscal 1995, 1993 and 1992 pre-tax earnings, respectively.
(2) Includes consolidated results of Target.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Collagen Corporation (the "Company") is a technology-based company that
develops, manufactures and markets biomedical devices for the treatment of
defective, diseased, traumatized or aging human tissues.
The Company's revenues have been derived primarily from the sale of products
used in reconstructive and cosmetic applications for the face, the treatment of
stress urinary incontinence, and in bone repair. The Company markets its
reconstructive and cosmetic products directly and through a network of
international distributors and its stress urinary incontinence and bone repair
products through marketing partners.
In addition to internal research and development ("R&D") and joint product
development arrangements, the Company has an active program for developing new
products through affiliated companies in which the Company makes equity and
debt investments. The Company believes the formation of new companies allows
each to focus its technology on select market segments to bring products to
market efficiently and to expand its proprietary knowledge.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, the percentage
relationship to product sales of
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certain items in the Consolidated Statements of Income and the percentage
changes in the dollar amounts of such items from year to year.
Percent Change
1995 1994
Percent of Product Sales vs. vs.
Year ended June 30, 1995 1994 1993 1994 1993
--------------------------------------- ---- ---- ---- ---- ----
Product sales 100% 100% 100% 11% 30%
Other revenue 1% 2% -- -- --
- ----------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 26% 29% 31% (2%) 21%
Research and development 14% 15% 18% 6% 7%
Selling, general and administrative 45% 44% 59% 12% (2%)
- ----------------------------------------------------------------------------------------------------------
Income (loss) from operations 17% 13% (8%) 38% NM*
- ----------------------------------------------------------------------------------------------------------
* Comparison not meaningful as operating result was positive in fiscal 1994
but negative in fiscal 1993.
PRODUCT SALES. Product sales of $71.6 million in fiscal 1995 increased $7.0
million or 11% over fiscal 1994 sales of $64.6 million, which in turn increased
$14.9 million or 30% over fiscal 1993 sales of $49.7 million. The $7.0 million
increase in fiscal 1995 is primarily due to growth in worldwide sales of
plastic surgery and dermatological products. The $14.9 million increase in
fiscal 1994 was principally attributable to new products, primarily Contigen(R)
Bard collagen implant ("Contigen implant"), Collagraft(R) bone graft matrix
implant ("Collagraft implant") and Collagraft(R) bone graft matrix strip
("Collagraft strip").
Worldwide sales of plastic surgery and dermatological products in fiscal year
1995 were $51.5 million or 18% higher than fiscal 1994 sales of $43.5 million,
compared to a 2% decrease in fiscal 1994 over fiscal 1993 sales of $44.2
million. U.S. sales of plastic surgery and dermatological products increased
12% in fiscal 1995 over fiscal 1994, which was relatively flat compared to the
prior year. The Company believes that the increase in sales in the current
fiscal year was due to a combination of a price increase and a growth in
demand. The increase in unit demand may be attributable to advertising and
public relations campaigns, the introduction of a new injection device in the
second half of the year, and general increased physician interest in cosmetic
procedures not reimbursed by third party payers. The Company believes the lack
of growth in demand in fiscal 1994 was primarily due to competition from
alternative cosmetic procedures such as fat injections and chemical peels, as
well as the lingering effects of adverse publicity in prior years from the news
media on cosmetic procedures in general and to regulatory investigations
specific to the Company. (See--"Factors that May Affect Future Results of
Operations".) U.S. sales represented approximately 49% of worldwide sales in
dollars in fiscal 1995 and 52% in both fiscal years 1994 and 1993.
International unit sales of plastic surgery and dermatological products
increased approximately 29% in fiscal 1995 over fiscal 1994 and 8% in fiscal
1994 over the prior year. The Company believes the improved performance in the
international market is a result of strong distributor sales, especially in
Japan, successful international marketing and public relations efforts by the
Company's subsidiaries, the launch of improved syringe configurations, and
improving economic conditions in Europe. International sales in dollars were
positively impacted by favorable exchange rates in fiscal 1995 by approximately
$1.6 million, whereas in fiscal 1994, international sales in dollars were
negatively impacted by unfavorable foreign exchange rates by approximately $1.6
million compared to the prior year. The Company anticipates continued growth
in future worldwide product sales in dollars in the plastic surgery and
dermatological market, but at rates lower than the 18% achieved in fiscal 1995.
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In September 1993, the Company and its marketing partner, C.R. Bard, Inc.
("Bard"), received final clearance from the U.S. Food and Drug Administration
("FDA") to market Contigen implant. The table below outlines the two
components of product sales for Contigen implant over the three year period.
Years ended June 30, 1995 1994 1993
- ----------------------------------------------------------------------------------------------
(In millions)
Shipments of Contigen implant to Bard $13.4 $15.9 $4.4
Income from Bard's direct sales to physician customers 3.1 .8 --
-------------------------
$16.5 $16.7 $4.4
=========================
The Company did not record any income from Bard's direct sales to physician
customers until fiscal 1994 as Bard's sales to customers commenced late in the
second quarter of fiscal 1994. In the quarter ended December 31, 1994, the
Company's share of Bard's direct sales increased from 5% to 10%, pursuant to
terms of an agreement. Fiscal 1995 sales to Bard represent minimum shipment
levels made in accordance with an agreement between the two companies. There
is no agreement for fiscal 1996 sales to Bard. Bard currently has a
significant inventory of these products and as a result, the Company expects to
make minimal or no shipments to Bard in fiscal 1996. Future income from Bard's
direct sales of Contigen implant to physicians is expected to continue but may
fluctuate significantly due to market demand. As a result of the forgoing,
revenues from Contigen implant during fiscal 1996 are expected to decline by
more than 50 percent compared with fiscal 1995.
In January 1994, the Company and its marketing partner, Zimmer, Inc.
("Zimmer"), received clearance from the FDA to market Collagraft strip, a
second-generation product for the treatment of acute long bone fractures and
traumatic osseous (bony) defects. Combined sales of Collagraft implant and
Collagraft strip to Zimmer totaled $3.0 million in fiscal 1995 and $2.7 million
in fiscal 1994 compared to sales of Collagraft implant of $150,000 in fiscal
1993. Fiscal 1994 represented the first full fiscal year of Collagraft implant
sales.
A number of uncertainties exist surrounding the marketing and distribution of
Contigen implant, Collagraft implant and Collagraft strip. The Company's
primary means of distribution for these products is through third party firms,
Bard, in the case of Contigen implant, and Zimmer, in the case of Collagraft
implant and Collagraft strip. The Company's business and financial results
could be adversely affected in the event that either or both of these parties
are unable to effectively market the products, accurately anticipate customer
demand, or effectively manage industry-wide pricing and cost containment
pressures in health care.
OTHER REVENUE. Other revenue in fiscal years 1995 and 1994 consisted of
milestone payments of $1.0 million in each period from Bard in accordance with
an agreement between the Company and Bard. Under the agreement, Bard is
scheduled to pay a final milestone payment of $2.0 million to the Company on
September 30, 1995.
COST OF SALES. Cost of sales as a percentage of product sales averaged 26%,
29% and 31% in fiscal 1995, 1994 and 1993, respectively. The decrease in cost
of sales as a percentage of product sales over the three year period is
primarily due to increased product revenues resulting from income received from
Bard's direct sales of Contigen implant to physician customers, which lowered
the cost of sales as a percentage of product sales, as well as the favorable
impact of foreign exchange rates on international product sales in fiscal 1995.
Additionally, cost of sales reflects slightly lower unit costs due to increased
production volumes in fiscal 1995 and 1994, primarily from Contigen implant.
Due to the high fixed costs of the Company's manufacturing facility, unit cost
of sales is expected to remain highly dependent on the level of output at the
Company's manufacturing facility, which is heavily dependent on production of
Contigen implant. The Company anticipates that unit cost will be higher in
fiscal 1996 compared to fiscal 1995 as a result of minimal or no shipments of
Contigen implant to
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Bard. Cost of sales as a percentage of sales is also contingent on the product
mix of future sales for which demand and pricing characteristics may vary.
R&D. R&D expenses, which include expenditures for regulatory compliance, were
$9.9 million (14% of product sales) in fiscal 1995, $9.4 million (15% of
product sales) in fiscal 1994, and $8.8 million (18% of product sales) in fiscal
1993. The R&D spending increase in fiscal 1995 over fiscal 1994 was primarily
attributable to advancements in soft tissue programs, including clinical trials
for Zyplast(R) II Implant (a concentrated collagen material for soft tissue
augmentation). The increase in R&D expenses in fiscal 1994 over the prior year
were primarily attributable to the Company devoting additional resources to
expand its capabilities in collagen-based technologies through the hiring of
additional personnel and expanding its facilities. The Company expects internal
R&D spending, both in absolute dollars and as a percentage of product sales, to
increase in fiscal 1996, due to the acquisition of LipoMatrix, Incorporated
("LipoMatrix") securities. (See Equity in earnings/losses of affiliate
companies.) In addition, the Company anticipates that a significant portion of
the LipoMatrix purchase price will be recognized as in-process R&D expense in
the first quarter of fiscal 1996.
SG&A. Selling, general and administrative ("SG&A") expenses totaled $32.2
million in fiscal 1995, $28.6 million in fiscal 1994 and $29.2 million in
fiscal 1993, representing 45%, 44%, and 59% of product sales, respectively.
The $3.5 million, or 12% increase in fiscal 1995 over the prior year was
primarily due to higher international sales and marketing spending, including
the unfavorable impact of foreign exchange rates. The $600,000, or 2%,
decrease in fiscal 1994 from fiscal 1993 was primarily due to lower commission
expenses related to international sales, the favorable impact of foreign
exchange rates, and lower promotional expense for the U.S. plastic surgery and
dermatological products, offset by increased personnel costs. The Company
expects SG&A spending in fiscal 1996, both in absolute dollars and as a
percentage of product sales, to be at substantially higher levels compared to
fiscal 1995 due to the acquisition of LipoMatrix securities (see Equity in
earnings/losses of affiliate companies), costs of launching and marketing a new
product in Europe, Trilucent(TM) implant, and a transition from using a
European inventory logistics vendor to using internal resources.
OPERATING INCOME. Operating income was $11.9 million in fiscal 1995, compared
to operating income of $8.6 million in fiscal 1994 and an operating loss of
$3.9 million in fiscal 1993. The 38% increase in operating income in fiscal
1995 is primarily attributable to improved sales of plastic surgery and
dermatological products, partially offset by increased SG&A expenses. The
turnaround in operating income in fiscal 1994 over the prior year was primarily
the result of increased sales of Contigen implant, Collagraft implant and
Collagraft strip, as well as decreased SG&A expenses.
IMPACT OF FOREIGN EXCHANGE RATES. The impact of foreign exchange rates from
fiscal 1994 to fiscal 1995 resulted in an increase in revenue of approximately
$1.5 million on equivalent local currency sales and an increase in operating
expenses of approximately $1.0 million, resulting in a net increase in
operating income of approximately $500,000 on an equivalent local currency
basis, compared to a reduction of approximately $1.6 million in revenue, a
reduction of approximately $1 million in operating expenses and a net reduction
of approximately $600,000 in operating income from fiscal 1993 to fiscal 1994.
Unhedged net foreign assets were $10.4 million at June 30, 1995. (See Note 1 to
the Consolidated Financial Statements.)
GAIN ON INVESTMENTS. In fiscal 1995, the Company sold 245,000 shares of common
stock of Target Therapeutics, Inc. ("Target") for a pre-tax gain of
approximately $6.0 million. In addition, the Company recorded an investment
reserve of $925,000 to write-down the carrying value of certain equity
investments due to a decline in value determined to be other than temporary.
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EQUITY IN EARNINGS/LOSSES OF AFFILIATE COMPANIES. Equity in earnings of Target
was $2.4 million in fiscal 1995 compared to $1.7 million and $1.5 million in
fiscal 1994 and 1993, respectively. Equity in Target's earnings increased over
the three-year period due to increased earnings of Target, partially offset by
the Company's reduced ownership interest resulting from the sale of Target
shares. Equity in losses of other affiliate companies in fiscal 1995 was $3.6
million compared to $1.9 million in fiscal 1994 and $487,000 in fiscal 1993.
Equity in affiliates' losses increased over the three-year period due to
additional investments made in affiliate companies. The Company intends to
continue to expand its new product development activities through more equity
investments in or loans to affiliate companies. These affiliate companies
typically are in an early stage of development and may be expected to incur
substantial losses which in turn will have an adverse effect on the Company's
operating results. In August 1995, the Company entered into an agreement with
certain of the stockholders in LipoMatrix, in which the Company will acquire,
subject to certain conditions, approximately 50 percent of the outstanding
securities on a fully diluted basis. The purchase increases the Company's
ownership in LipoMatrix from approximately 40 percent to 90 percent of the
outstanding securities on a fully diluted basis. The purchase is scheduled to
close in January 1996.
Due to the Company's increased ownership interest and depending on the
financial and operating results of LipoMatrix in fiscal 1996, the Company's
recognition of its share of losses of LipoMatrix, which was $2.3 million in
fiscal 1995, will increase substantially in the next fiscal year. There can be
no assurance that these investments in affiliates will result in positive
returns nor can there be any assurance on the timing of any return on
investment, or that the Company will not lose its entire investment.
INTEREST INCOME AND EXPENSE. Interest income was $487,000 in fiscal 1995,
$510,000 in fiscal 1994 and $880,000 in fiscal 1993. The decrease in fiscal
1995 over fiscal 1994 was due to lower average investment balances, partially
offset by higher interest rates. The decrease in fiscal 1994 from fiscal 1993
was primarily due to lower average investment balances resulting primarily from
the repurchase of common stock and to lower interest rates. Interest expense
of $91,000 in fiscal 1995 was related primarily to a $7 million revolving
credit facility which the Company established in November 1994.
INCOME TAXES. The Company's effective income tax rate was approximately 46% for
fiscal 1995 compared to 44% for fiscal 1994 and 47% for fiscal 1993. The
increase in fiscal 1995 compared to fiscal 1994 is primarily due to increased
non-deductible equity in losses of affiliates and investment reserves. The
decrease in fiscal 1994 from fiscal 1993 was primarily attributable to a
reduction in unbenefited foreign subsidiary losses and the recognition of tax
credits, partially offset by an increase in non-deductible equity losses of
affiliates. It is expected that the overall effective income tax rate for
fiscal 1996 will be higher compared to fiscal 1995. As the Company continues
its investments in affiliate companies, the effective tax rate for fiscal 1996
is expected to increase as a result of increased non-deductible equity losses
and investment reserves. Effective July 1, 1992, the Company prospectively
changed its method of accounting for income taxes from the deferred method to
the liability method required by SFAS No. 109, "Accounting for Income Taxes".
The cumulative effect of adopting SFAS No. 109 was a charge to earnings of
$989,000 in the first quarter of fiscal 1993. (See Notes 1 and 10 to the
Consolidated Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company's cash, cash equivalents and short-term
investments were $9.4 million compared to $12.7 million at June 30, 1994. Net
cash provided by operating activities was $10.3 million for the fiscal year
ended 1995, compared with $10.7 million provided by operating activities for
the same prior-year period.
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The $10.3 million of cash provided by operating activities in the current
fiscal year was offset by $11.3 million used to repurchase 562,500 shares of
the Company's common stock at an average acquisition price of approximately $20
per share, $5.7 million of additional investments in and loans to affiliate
companies and the payments of aggregate cash dividends of approximately $1.6
million to the Company's stockholders in July 1994 and January 1995. The
purchase price of the aforementioned acquisition of LipoMatrix securities is
approximately $18 million. The Company intends to finance the purchase price
by selling additional shares from its holdings of Target stock, and/or by
borrowing funds, as needed, under its existing or other credit facility. Gains
from the sale of Target stock are expected to offset these additional losses in
part or in whole. The Company anticipates capital expenditures, and additional
equity investments in, and loans to affiliate companies to be approximately
$18.0 million in fiscal 1996. In June 1995, the Company's Board of Directors
authorized the repurchase of an additional 300,000 shares of the Company's
common stock under the stock repurchase program. Also in June 1995, the
Company declared a dividend of 7.5 cents per share for stockholders of record
as of June 15, 1995. This dividend totaled $676,000 and was paid to
stockholders on July 14, 1995.
The Company's principal sources of liquidity include cash generated from
operations and its cash, cash equivalents and short-term investments. In
addition, during the fiscal quarter ended September 30, 1994, the Company's
Board of Directors authorized the Company to sell portions of its holdings of
approximately 2.3 million shares of Target's common stock. In fiscal 1995,
the Company sold an aggregate of 245,000 shares of Target common stock for a
pre-tax gain of approximately $6.0 million. The Company anticipates that stock
sales pursuant to the authorization will be made from time to time, under SEC
Rule 144, with the objective of generating cash, for, among other things,
further investments in both current and new affiliate companies. In addition,
the Company established a $7.0 million revolving credit facility with a bank in
November 1994. The Company may use funds from this source to partially finance
the acquisition of LipoMatrix securities as well as for general corporate
purposes. The Company believes that these sources should be adequate to fund
its anticipated cash needs through at least the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
A large portion of the Company's revenues in recent years has come from its
international operations. As a result, the Company's operations and financial
results could be significantly affected by international factors, including
numerous regulatory agencies, changes in foreign currency exchange rates and
foreign economic and political conditions generally. The Company's operating
strategy takes into account changes in these factors over time; however, the
Company's results of operations could be significantly affected in the short
term by fluctuations in foreign currency exchange rates or disruptions to
shipments.
All of the Company's manufacturing capacity, the majority of its research and
development activities, its corporate headquarters, and other critical business
functions are located near major earthquake faults. In addition, all of the
manufacturing capacity is located in a single facility, with the Company
currently maintaining only limited amounts of finished product inventory.
While the Company has some limited protection in the form of disaster recovery
programs and basic insurance coverages, the Company's operating results and
financial condition would be materially adversely affected in the event of a
major earthquake, fire or other similar calamity.
The Company is involved in various legal actions arising in the course of
business, some of which involve product liability and intellectual property
claims. The Company operates in an industry susceptible to claims that may
allege that the use of the Company's technology or products has resulted in
adverse effects or infringes on third-party technology. With respect to product
liability claims, such
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risks will exist even with respect to those products that have received or in
the future may receive regulatory approval for commercial sale. It is possible
that adverse product liability or intellectual property actions could
negatively affect the Company's future results of operations.
The Company has been and may be in the future the subject of negative
publicity, which can arise from various sources, ranging from the news media on
cosmetic procedures in general to legislative and regulatory investigations
specific to the Company concerning, among other things, the safety and efficacy
of its collagen-based products. The Company is confident of the safety and
effectiveness of its collagen-based products; however, there can be no
assurance that such investigations or negative publicity from such
investigations or from the news media will not result in a material adverse
effect on the Company's future financial position, its results of operations or
the market price of its stock. In addition, significant negative publicity
could result in an increased number of product liability claims.
The Company's manufacturing activities and products sold in the United States
are subject to extensive and rigorous regulations by the FDA and by comparable
agencies in certain foreign countries where these products are manufactured or
distributed. The FDA regulates the manufacture and sale of medical devices in
the U.S., including labeling, advertising and record keeping. Failure to
obtain, or delays in obtaining, the required regulatory approvals for new
products, as well as product recalls, both inside and outside of the U.S. could
adversely affect the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Financial Statements:
Consolidated Balance Sheets at June 30, 1995 and 1994 21
Consolidated Statements of Income for the fiscal years ended June 30, 1995, 1994 and
1993 22
Consolidated Statements of Stockholders' Equity for the fiscal years ended June 30,
1995, 1994, and 1993 23
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1995, 1994, 24
and 1993
Notes to Consolidated Financial Statements 25
Report of Ernst & Young LLP, Independent Auditors 35
Supplementary Quarterly Consolidated Financial Data (Unaudited) 36
Financial Statement Schedule:
For the years ended June 30, 1995, 1994, and 1993:
Schedule II - Valuation and Qualifying Accounts 37
Schedules not listed above have been omitted because they are not
required or the information required to be set forth therein is
included in the Consolidated Financial Statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable
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CONSOLIDATED BALANCE SHEETS
June 30, 1995 1994
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash, cash equivalents and short-term investments $ 9,384 $12,736
Accounts receivable, less allowance for doubtful accounts
($383 in 1995 and $353 in 1994) 13,402 12,241
Inventories 5,056 3,861
Other current assets 5,568 3,305
------- -------
Total current assets 33,410 32,143
Property and equipment, net 16,506 17,108
Intangible assets 2,727 2,243
Investment in Target Therapeutics, Inc. 17,570 17,499
Other investments and assets 6,693 5,512
------- -------
$76,906 $74,505
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,250 $1,420
Accrued compensation 2,908 2,169
Accrued liabilities 7,954 8,076
Income taxes payable 5,902 4,251
------ ------
Total current liabilities 19,014 15,916
Deferred income taxes 8,478 8,240
Other long-term liabilities 1,494 1,267
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value, authorized:
5,000,000 shares; none issued or outstanding -- --
Common shares, $.01 par value, authorized:
28,950,000 shares; issued: 10,519,632 shares
(10,354,633 shares in 1994); outstanding:
9,019,632 shares (9,417,133 shares in 1994) 106 104
Additional paid-in capital 63,855 61,172
Retained earnings 17,273 9,882
Cumulative translation adjustment (604) (648)
Treasury stock, 1,500,000 shares in 1995 (937,500 shares -------- --------
in 1994) (32,710) (21,428)
Total stockholders' equity 47,920 49,082
-------- --------
$ 76,906 $ 74,505
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 21
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CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
REVENUES:
Product sales $71,560 $64,552 $49,743
Other 1,000 1,000 --
72,560 65,552 49,743
COSTS AND EXPENSES:
Cost of sales 18,584 18,940 15,659
Research and development 9,943 9,366 8,767
Selling, general and administrative 32,179 28,639 29,176
------------------------------------
60,706 56,945 53,602
------------------------------------
Income (loss) from operations 11,854 8,607 (3,859)
Other income (expense):
Net gain from investments, principally Target
Therapeutics, Inc. 5,110 -- 20,323
Equity in earnings of Target Therapeutics, Inc. 2,417 1,675 1,455
Equity in losses of other affiliates (3,577) (1,944) (487)
Interest income 487 510 880
Interest expense (91) -- --
Income before income taxes and cumulative effect of -------------------------------------
accounting change 16,200 8,848 18,312
Provision for income taxes 7,440 3,928 8,580
-------------------------------------
Income before cumulative effect of accounting change 8,760 4,920 9,732
Cumulative effect of change in accounting for income
taxes -- -- (989)
-------------------------------------
Net income $8,760 $4,920 $8,743
=====================================
INCOME (LOSS) PER SHARE:
Income before cumulative effect of accounting change $.93 $.50 $.95
Cumulative effect of accounting change -- -- (.10)
-------------------------------------
Net income per share $.93 $.50 $.85
=====================================
Shares used in calculating per share information 9,460 9,896 10,267
=====================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 22
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<Caption)
Retained Total
Additional earnings Cumulative stock-
Common Paid-in (Accumulated translation Treasury holders'
stock Capital deficit) adjustment stock equity
------------------------------------------------------------------------
BALANCE AT JUNE 30, 1992 $100 $59,901 $(2,838) $ 11 $ -- $ 57,174
Change in method of accounting for
income taxes -- (4,346) -- -- -- (4,346)
Sale of common stock under options
and employee stock purchase plan 1 1,009 -- -- -- 1,010
Tax benefit relating to stock options -- 298 -- -- -- 298
Foreign currency translation adjustment
and other -- 63 -- (425) -- (362)
Treasury stock purchased -- -- -- -- (7,581) (7,581)
Net income -- -- 8,743 -- -- 8,743
------------------------------------------------------------------------
BALANCE AT JUNE 30, 1993 101 56,925 5,905 (414) (7,581) 54,936
Sale of common stock under options
and employee stock purchase plan 3 2,909 -- -- -- 2,912
Tax benefit relating to stock options -- 1,338 -- -- -- 1,338
Foreign currency translation adjustment -- -- -- (234) -- (234)
Dividends declared ($.10 per share) -- -- (943) -- -- (943)
Treasury stock purchased -- -- -- -- (13,847) (13,847)
Net income -- -- 4,920 -- -- 4,920
------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 104 61,172 9,882 (648) (21,428) 49,082
Sale of common stock under options
and employee stock purchase plan 2 2,300 -- -- -- 2,302
Tax benefit relating to stock options -- 383 -- -- -- 383
Foreign currency translation adjustment -- -- -- 44 -- 44
Dividends declared ($.15 per share) -- -- (1,369) -- -- (1,369)
Treasury stock purchased -- -- -- -- (11,282) (11,282)
Net income -- -- 8,760 -- -- 8,760
------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 $106 $63,855 $17,273 $ (604) $(32,710) $ 47,920
========================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 23
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CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended June 30, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $8,760 $4,920 $8,743
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in losses (earnings) of affiliates 1,160 269 (968)
Depreciation and amortization 4,368 3,909 3,808
Deferred income taxes 238 553 (4,711)
Tax benefit relating to stock options 383 1,338 298
Gain from investments, net (5,110) -- (20,323)
Cumulative effect of accounting change -- -- 989
Decrease (increase) in assets:
Accounts receivable (1,161) (2,968) (1,588)
Inventories (1,195) 306 2,068
Other (737) 16 4,443
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 1,709 764 (3,650)
Income taxes payable 1,651 1,720 1,854
Other long-term liabilities 224 (126) (21)
------------------------------------
Total adjustments 1,530 5,781 (17,801)
------------------------------------
Net cash provided by (used in) operating activities 10,290 10,701 (9,058)
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of Target Therapeutics, Inc. stock 8,379 -- 28,456
Reduction in cash from deconsolidation of Target Therapeutics,
Inc. -- -- (5,974)
Proceeds from sales and maturities of short-term investments 7,366 15,331 27,561
Purchase of short-term investments (3,126) (12,362) (34,935)
Expenditures for investments in and loans to affiliates (5,737) (2,378) (3,025)
Expenditures for property and equipment (4,385) (4,011) (2,510)
(Increase) in intangible and other assets (1,385) (269) (663)
-------------------------------------
Net cash provided by (used in) investing activities 1,112 (3,689) 8,910
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (11,282) (13,847) (7,581)
Net proceeds from issuance of common stock 2,302 2,910 1,009
Cash dividends paid (1,636) -- --
-------------------------------------
Net cash used in financing activities (10,616) (10,937) (6,572)
-------------------------------------
Net increase (decrease) in cash and cash equivalents 786 (3,925) (6,720)
Cash and cash equivalents at beginning of period 5,369 9,294 16,014
-------------------------------------
Cash and cash equivalents at end of period $6,155 $5,369 $9,294
=====================================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 24
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Collagen
Corporation (the "Company"), a Delaware corporation, and its wholly-owned and
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Investments in unconsolidated subsidiaries,
and other investments in which the Company has a 20% to 50% interest or
otherwise has the ability to exercise significant influence, are accounted for
under the equity method (See Note 4).
Investments in companies in which the Company has less than a 20% interest are
carried at cost or estimated realizable value, if less. In fiscal 1995,
investments were written down by $925,000 to estimated net realizable value.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from date
of purchase of three months or less to be cash equivalents.
Effective July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities". The adoption at July 1, 1994 did not have a material
impact on the Company's financial statements.
Management determines the appropriate classification of investment securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. The Company's investment securities are classified as
available-for-sale and are carried at estimated fair value in cash equivalents
and short-term investments. Material unrealized gains and losses will be
recorded, net of tax, in a separate component of stockholders' equity. Both
realized and unrealized gains and losses were immaterial at and for the year
ended June 30, 1995.
The Company invests its excess cash in deposits with major banks and in money
market securities of companies with strong credit ratings and from a variety of
industries. These securities are typically short-term in nature and,
therefore, bear minimal risk. The Company has not experienced any losses on
its money market investments.
INVENTORIES
Inventories are valued at the lower of cost, determined on a standard cost
basis which approximates average cost, or market.
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment which is stated at cost
are provided on the straight-line method over estimated useful lives as
follows:
Machinery and equipment 5 - 10 years
Leasehold improvements Term of lease
Page 25
26
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method. Patents are
amortized over a seventeen-year period beginning with the effective date or
over the remainder of such period from the date acquired. Trademarks are
amortized over a twenty-year period beginning with the trademark filing dates.
Organization costs are amortized over a five-year period. Purchased product
rights are amortized over their estimated useful lives.
OTHER ASSETS
Other assets include loans to employees and directors totaling $759,000 and
$285,000, at June 30, 1995 and 1994, respectively.
REVENUE RECOGNITION
Revenue from product sales is recognized at time of shipment net of allowances
for estimated future returns.
CONCENTRATION OF CREDIT RISK
The Company sells its plastic surgery and dermatological products primarily to
physicians and pharmacies in North America, Europe and the Pacific Rim. The
Company sells Contigen(R) Bard collagen implant ("Contigen implant") to C.R.
Bard, Inc. ("Bard"), its marketing partner for Contigen implant, and
Collagraft(R) bone graft matrix implant and Collagraft(R) bone graft matrix
strip to Zimmer, Inc., the Company's marketing partner for Collagraft(R)
products. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
The Company allows, on occasion, its customers to return product for credit,
and also allows customers to return defective or damaged product for credit or
replacement. Written authorization from the Company is required to return
merchandise. Some domestic and foreign customers are subject to extended
payment terms. These practices have not had a material effect on the company's
working capital.
ADVERTISING COSTS
The Company charges advertising costs to expense when incurred. Total
advertising expense was $840,000 for 1995, and was not material for fiscal 1994
or 1993.
INCOME TAXES
Effective July 1, 1992, the Company prospectively adopted the liability method
of accounting for income taxes as required by SFAS No. 109, "Accounting for
Income Taxes". Prior to the adoption of SFAS No. 109, the Company accounted
for income taxes under the deferred method of APB No. 11 (See Note 10).
EARNINGS PER SHARE
Earnings per share have been computed based upon the weighted average number of
common and dilutive common equivalent shares outstanding. Common equivalent
shares result from stock options.
FOREIGN CURRENCY TRANSLATION
The functional currency for each foreign subsidiary is its respective foreign
currency. Accordingly, all assets and liabilities related to these operations
are translated at the current exchange rates at the end of each period. The
resulting cumulative translation adjustments are recorded directly to the
accumulated foreign currency translation adjustment account included in
stockholders' equity. Revenues and expenses are translated at average exchange
rates in effect during the period. Foreign currency transaction gains and
losses are included in results of operations.
Page 26
27
Until December, 1994, the Company's policy was to hedge material foreign
currency transaction exposures. At June 30, 1995, no foreign currency
transaction exposures were hedged. Unhedged net foreign assets were $10.4
million.
FORWARD EXCHANGE CONTRACTS
Prior to December 1994, the Company used foreign currency forward exchange
contracts with various issuers to hedge against the effects for fluctuating
currency rates on its net foreign currency position denominated in currencies
other than the United States dollar. The Company's net foreign currency
position is approximately equal to its foreign subsidiary assets minus
liabilities resulting from transaction related exposures. The forward exchange
contracts were denominated in readily tradable major European currencies and
the unhedged exposure on the balance sheet was immaterial. Gains and losses on
forward exchange contracts, based on the difference between the forward
exchange rate and the actual spot rate at the time of valuation, were generally
deferred and accumulated in a separate component of stockholders' equity to the
extent such contracts were designated as hedges of a net investment in a
foreign entity. The Company discontinued its purchase of forward exchange
contracts in December 1994. There were no deferred gains or losses on forward
contracts at June 30, 1994.
RECLASSIFICATION
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation.
2. BALANCE SHEET INFORMATION
June 30, 1995 1994
- -------------------------------------------------------------------------- -----------
(In thousands)
Cash, cash equivalents and short-term investments:
Cash and cash equivalents $6,155 $ 5,369
Short-term investments 3,229 7,367
---------- ----------
$9,384 $12,736
Inventories:
Raw materials $ 684 $ 625
Work-in-process 1,845 1,763
Finished goods 2,527 1,473
---------- ----------
$5,056 $ 3,861
========== ==========
Other current assets:
Deferred taxes $3,142 $ 2,501
Other 2,426 804
---------- ----------
$5,568 $ 3,305
========== ==========
Property and equipment:
Machinery and equipment $ 24,095 $ 21,544
Leasehold improvements 11,937 11,835
---------- ----------
36,032 33,379
Less accumulated depreciation and
amortization (19,526) (16,271)
---------- ----------
$ 16,506 $ 17,108
========== ==========
Page 27
28
Intangible assets:
Patents, trademarks, and other $ 3,840 $ 2,910
Organization costs* 1,677 1,451
---------- ----------
5,517 4,361
Less amortization (2,790) (2,118)
---------- ----------
$ 2,727 $ 2,243
========== ==========
Accrued liabilities:
Dividends payable $ 676 $ 943
Other accrued liabilities 7,278 7,133
------- -------
$ 7,954 $ 8,076
======= =======
* In March 1991, the Company formed Collagen International, Inc., a completely
new and wholly owned subsidiary of the Company, to assume responsibility for
the direct sales and marketing of its plastic surgery and dermatological
products in nine European countries, Australia and New Zealand from Essex
Chemie, A.G., a subsidiary of Schering-Plough Corporation. Organization costs
are related to the formation of Collagen International, Inc.
3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities as of June 30,
1995:
Amortized Cost and Estimated Fair Value
- ----------------------------------------------------------------------
(In thousands)
Cash Equivalents:
Money market funds $ 519
Commercial paper 1,638
-------
$ 2,157
=======
Short-term investments:
Municipal obligations $
Commercial paper 2,257
-------
$3,229
======
During the year ended June 30, 1995, the Company sold available-for-sale
investments with a fair value at the dates of sale of $7,269,000. Both gross
realized and unrealized gains and losses on these securities were
insignificant. The Company uses amortized cost as the basis for recording
gains and losses from securities transactions. Contractual maturities of the
debt securities did not exceed one year at June 30, 1995.
4. INVESTMENT IN TARGET THERAPEUTICS, INC.
In December 1992, the Company sold 1,129,700 shares of common stock of Target
Therapeutics, Inc. ("Target"), for approximately $28.5 million, decreasing its
ownership position from 52% to approximately 34%. The gain before taxes from
the sale of the stock was $20.3 million. Beginning fiscal 1993, the Company's
investment in Target has been accounted for under the equity method. In fiscal
1995, the Company sold an additional 245,000 shares of Target common stock for
a pre-tax gain of approximately $6.0 million. The Company's ownership position
in Target as of June 30, 1995 was approximately 29%. Condensed financial
information for Target is shown below:
Page 28
29
BALANCE SHEET INFORMATION
As of June 30, 1995 1994
- ---------------------------------------------------------------- ---- ----
(In thousands)
Current assets $ 58,002 $ 52,152
Property and equipment 7,704 4,856
Other 6,484 3,296
----- -----
Total assets $ 72,190 $60,304
======== =======
Current liabilities $ 11,110 $ 9,260
Long-term liabilities 107 113
Stockholders' equity 60,973 50,931
------ ------
Total liabilities and stockholders' equity $72,190 $60,304
======= =======
Collagen Corporation's share of net assets $17,570 $17,499
======= =======
STATEMENT OF INCOME INFORMATION
Twelve months ended June 30, 1995 1994 1993
- --------------------------------------------------------------- ---- ---- ----
(in thousands)
Net sales $50,937 $ 38,275 $29,585
Costs and expenses (42,058) (32,260) (24,666)
Interest and other income 2,081 1,894 755
------------------------------------------
Income before income taxes 10,960 7,909 5,674
Provision for income taxes (3,097) (2,780) (1,867)
Cumulative effect of accounting change --- --- 631
------------------------------------------
Net income $7,863 $ 5,129 $4,438
==========================================
Target's common stock is quoted on The Nasdaq Stock Market. The closing price
of Target's stock at June 30, 1995 was $44 per share. The Company held
2,049,194 shares of Target's common stock at June 30, 1995.
5. COMMITMENTS
MINIMUM LEASE PAYMENTS
Future minimum lease payments under noncancelable operating leases at June 30,
1995 are as follows:
(In thousands)
1996 $ 4,886
1997 4,722
1998 4,392
1999 4,181
2000 3,242
Thereafter 13,176
-------
Total minimum lease payments $34,599
=======
Page 29
30
Rental expense for fiscal 1995 was approximately $4,743,000 ($4,643,000 in 1994
and $4,672,000 in 1993).
CREDIT AGREEMENT
In November 1994, the Company entered into a $7 million revolving line of
credit with a bank, secured by shares of Target common stock held by the
Company. The terms of this facility contain certain financial covenants and
restricts the aggregate amount of cash dividends. No amounts were borrowed
under this agreement through June 30, 1995.
FUNDING COMMITMENT
The Company has provided a credit facility of up to $4,000,000 to one of its
affiliates. As of June 30, 1995, a total of $1,790,000 had been disbursed
under this arrangement.
6. LEGAL MATTERS
The Company is involved in legal actions, including product liability and
intellectual property claims, arising in the ordinary course of business.
While the outcome of such matters is currently not determinable, it is
management's opinion that these matters will not have a material adverse effect
on the Company's consolidated financial position or results of its operations.
7. STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Company has various stock option plans under which incentive stock options
or non-statutory stock options may be granted to officers, directors, key
employees and consultants to purchase the Company's common stock. The options
are granted at no less than the fair market value at the dates of grant and
generally expire after ten years. Incentive stock options become exercisable
at the rate of two percent each month beginning the first full month after the
date of grant unless accelerated by the Board of Directors. Non-statutory
stock options become exercisible on a monthly or yearly basis as determined by
the Board of Directors at the date of grant.
At June 30, 1995, the total number of shares of common stock reserved for
issuance under the Company's current stock option plans was 1,900,450. Stock
option activities under the stock option plans were as follows:
- ------------------------------------------------------------------------------------------------------
NUMBER
NUMBER OPTION PRICE OF SHARES
OF SHARES RANGE PER SHARE EXERCISIBLE
- -------------------------------------------------------------------------------------------------------
Outstanding at June 30, 1993 1,285,172 $ 4.69 - $28.25 832,120
Granted 229,760 22.13 - 26.00
Exercised (209,922) 5.13 - 26.50
Canceled or expired (54,030) 7.25 - 28.25
---------
Outstanding at June 30, 1994 1,250,980 4.69 - 28.25 780,412
Granted 142,350 17.88 - 25.00
Exercised (128,918) 5.13 - 22.75
Canceled or expired (46,436) 5.50 - 26.50
--------
Outstanding at June 30, 1995 1,217,976 $4.69 - $28.25 851,702
=========
Available for grant at June 30, 1995 682,474
=======
Page 30
31
STOCK PURCHASE PLAN
In 1985, the Company established an employee stock purchase plan under which
450,000 shares of the Company's common stock were reserved for issuance to
employees. Subsequently, the Company increased the authorization to 600,000
shares. Under the plan, the Company's employees, subject to certain
restrictions, may purchase shares at a price per share that is the lesser of 85
percent of the fair market value as of the beginning or close of the yearly
offering period.
For fiscal 1995, 1994 and 1993, shares issued under the plan were 36,100,
32,741 and 23,103, respectively. The average issuance price per share was
$19.28, $19.00 and $18.27 for fiscal 1995, 1994 and 1993, respectively. At
June 30, 1995, 101,993 shares remained available for future sales under this
plan.
STOCK REPURCHASE PROGRAM
In February 1993, the Company's Board of Directors authorized a stock
repurchase program. In fiscal 1995, 1994 and 1993, the Company repurchased
562,500, 567,500 and 370,000 shares at average acquisition prices of
approximately $20, $24, and $21 per share respectively. In June 1995, the
Board of Directors authorized the repurchase of up to an additional 300,000
shares. The Company plans to retain repurchased shares as treasury stock but
may use a portion of the stock in various company stock benefit plans.
STOCKHOLDER RIGHTS PLAN
In November 1994, the Board of Directors approved a stockholder rights plan
which would entitle stockholders to purchase stock in the Company or in an
acquirer of the Company at a discounted price in the event of certain hostile
efforts to acquire control of the Company. The rights may only be exercised,
if at all, upon the occurrence of certain events unless earlier redeemed
pursuant to the plan. The rights expire on November 28, 2004.
8. INTERNATIONAL SALES AND DISTRIBUTION RIGHTS
Consolidated export sales were $26.1 million in fiscal 1995, $20.8 million in
fiscal 1994 and $21.4 million in fiscal 1993. These export sales are primarily
in Europe, Canada and the Pacific Rim. The Company markets its products
internationally directly in Canada, ten European countries, Australia and New
Zealand and via distributors in other countries. The Company pays commissions
to its former European distributor based upon a percentage of net sales.
9. MAJOR CUSTOMER
During fiscal 1995 and 1994, the Company realized revenues from its marketing
partner, Bard, of $16.5 and $16.7 million respectively, which represented 23%
and 26% of product sales. Bard has exclusive worldwide marketing and
distribution rights for Contigen implant, a product introduced in fiscal 1994.
These amounts were comprised of product sales of $13.4 and $15.9 million of
Contigen implant as well as $3.1 million and $0.8 million of income from Bard's
direct sales of Contigen implant to physicians in 1995 and 1994, respectively.
The Company also recorded $1.0 million other revenue in each year representing
milestone payments from Bard. No other single customer accounted for more than
10% of total product sales in the three years ended June 30, 1995.
Page 31
32
10. INCOME TAXES
The Company prospectively adopted the liability method of accounting for income
taxes required by SFAS No. 109 effective July 1, 1992. The cumulative effect
of adopting SFAS No. 109 in fiscal 1993 was to decrease net income by $989,000.
Previously, income taxes were accounted for under the deferred method under APB
No. 11.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities under SFAS 109 as of June
30, 1995 and June 30, 1994 are presented as follows:
JUNE 30, 1995 1994
- ---------------------------------------------------------------------------------------------------------------
(In thousands)
Deferred tax liabilities:
Property, plant & equipment $ 332 $ 619
Intangible assets 651 587
Investments 7,491 7,034
Foreign earnings and credits (net) 4 --
-------------------
Total deferred tax liabilities $ 8,478 $ 8,240
===================
Deferred tax assets:
Accounts receivable $ 948 $ 672
Inventories 15 495
State income taxes 731 311
Equity in losses of affiliates 3,419 1,416
Non-deductible accruals 1,893 1,995
Other 360 181
Valuation allowance (3,595) (1,597)
--------------------
Total deferred tax assets 3,771 3,473
--------------------
Net deferred tax liabilities $ 4,707 $ 4,767
====================
The valuation allowance increased by $1,998,000 and $717,000 in fiscal 1995 and
1994, respectively. Significant components of the provision for income taxes
are as follows:
YEARS ENDED JUNE 30, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
(In thousands)
Current:
Federal $6,358 $ 2,732 $8,907
Foreign 164 187 250
State 979 456 2,089
--------------------------------------
Total current 7,501 3,375 11,246
--------------------------------------
Deferred:
Federal $ (368) $ 352 $(2,111)
State 307 201 (555)
--------------------------------------
Total deferred (61) 553 (2,666)
--------------------------------------
$7,440 $ 3,928 $ 8,580
======================================
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33
For financial reporting purposes, income before income taxes includes the
following components:
YEARS ENDED JUNE 30, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
(In thousands)
Domestic operations $16,171 $ 8,636 $16,508
Foreign operations 29 212 1,804
-------------------------------------
$16,200 $ 8,848 $18,312
=====================================
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before taxes. The sources and tax
effects of the differences are as follows:
YEARS ENDED JUNE 30, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
(In thousands)
Income before income taxes $16,200 $8,848 $ 18,312
=====================================
Expected tax at 35% or 34% $5,670 $ 3,008 $ 6,226
State income tax, net of federal benefit 832 434 1,012
Net operating losses of subsidiaries for
which no current benefit is realizable 80 (45) 612
Equity in losses of affiliates 1,549 660 165
Tax credits recognized (153) (315) --
Foreign Sales Corporation benefit (102) (150) --
(543) -- --
Benefit from favorable tax settlement
Other 107 336 565
------------------------------------
$7,440 $ 3,928 $ 8,580
====================================
11. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information:
YEARS ENDED JUNE 30, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
(In thousands)
Cash paid during the year for:
Interest (net of capitalized interest) $ 91 $ -- $ --
Income taxes (net of refunds) 5,518 (54) 6,934
Non-cash financing activity:
Dividends declared $ 676 $ 943 $ --
Page 33
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12. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
In August 1995, the Company entered into an agreement to purchase a controlling
interest in LipoMatrix, Incorporated for approximately $18 million, increasing
its equity and debt ownership percentage from approximately 40 percent to
approximately 90 percent. Payment for the shares will be due in January 1996.
The Company anticipates that a significant portion of the purchase price will
be recognized as in-process R&D expense.
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders,
Collagen Corporation
We have audited the accompanying consolidated balance sheets of Collagen
Corporation as of June 30, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Collagen
Corporation at June 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1995 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 10 to the consolidated financial statements, in
1993 the Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Palo Alto, California
August 1, 1995
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SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL 1995, QUARTER ENDED June 30 March 31 December 31 September 30
- -------------------------------------------------------------------------------------------------------------
Product sales $20,226 $17,032 $18,870 $15,432
Other revenue -- -- -- 1,000
Cost of sales 4,917 4,451 4,810 4,406
Research and development expenses 2,672 2,223 2,504 2,534
Selling, general & administrative expenses 9,405 7,443 8,107 7,224
Operating income 3,232 2,905 3,449 2,268
Gain on investments, net 1,766 2,569 775 --
Net income 2,700 2,508 2,245 1,307
Net income per share .29 .26 .24 .14
FISCAL 1994, QUARTER ENDED June 30 March 31 December 31 September 30
- -------------------------------------------------------------------------------------------------------------
Product sales $18,726 $15,588 $16,930 $13,308
Other revenue -- -- -- 1,000
Cost of sales 5,968 4,382 4,892 3,698
Research and development expenses 2,377 2,424 2,339 2,226
Selling, general & administrative expenses 7,666 6,681 7,664 6,628
Operating income 2,715 2,101 2,035 1,756
Net income 1,631 1,252 1,271 766
Net income per share .17 .13 .13 .08
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SCHEDULE II
COLLAGEN CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1993, 1994, and 1995
Balance at Additions charged Balance at
beginning of to costs and end of
Description Period expenses Deductions period
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
1993:
Allowance for doubtful accounts $ 720 $ 84 $ 388 (1) $ 416
1994
Allowance for doubtful accounts $ 416 $ -- $ 63 (2) $ 353
1995
Allowance for doubtful accounts $ 353 $ 46 $ 16 $ 383
__________________________________
1 Includes write-off of uncollectible accounts of $78 and reduction in allowance
for doubtful accounts of $310 of Target Therapeutics, Inc. (Target) due to
change to the equity method of accounting for Target in fiscal 1993.
2 Write-off of uncollectible accounts
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
OF THE REGISTRANT
The information required by this item concerning the Company's
directors is incorporated by reference from pages 3-5 of the Company's Proxy
Statement for its Annual Meeting of Stockholders filed on or about September
21, 1995 (the "Proxy Statement"). See "Business - Executive Officers" in Item
I of this Form 10-K Annual Report for information concerning the Company's
executive officers.
ITEM 11. EXECUTIVE COMPENSATION REGISTRANT
The information required by this item is incorporated by reference
from pages 13-18 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT REGISTRANT
The information required by this item is incorporated by reference
from pages 11-12 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS REGISTRANT
The information required by this item is incorporated by reference
from pages 18-20 of the Proxy Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Collagen Corporation
Financial Statements and Financial Statement Schedule - See
Index to Consolidated Financial Statements at Item 8 of this
report
2. Target Therapeutics, Inc.
The following Consolidated Finacial Statements of Target
Therapeutics, Inc. ("Target") are included as Exhibit 99.1
Consolidated Balance Sheets at March 31, 1995 and 1994
Consolidated Statements of Income for the years ended
March 31, 1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity for the years
ended March 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the years ended
March 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
The Report of Ernst & Young LLP, independent auditors
The following financial statement schedule of Target for the
years ended March 31, 1995, 1994, and 1993 is filed as Exhibit
No. 99.2.
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
required or the information required to be set forth therein is
included in the Consolidated Financial Statements or notes thereto.
3. Exhibits
EXHIBIT
NUMBER NOTES DESCRIPTION
- ------ ----- -----------
3.1 (9) Certificate of Incorporation of Collagen Subsidiary, Inc.
3.2 (9) Certificate of Merger of Collagen Corporation, a California
corporation, into Collagen Subsidiary, Inc., a Delaware corporation
3.3 By-Laws, as amended
10.24 (1) Collaborative Research and Distribution Agreement with Zimmer, Inc.
dated as of June 26, 1985
10.27 (1) Distribution Agreement between Registrant and Lederle (Japan), Ltd.
dated as of June 26, 1985
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40
10.34 (2) Agreement for Sale and Leaseback of Manufacturing Facility between
Registrant and Heleasco Seven, Inc.
10.36 (3) Amended and Restated Development and Distribution Agreement with
C.R. Bard, Inc., dated as of August 4, 1989.
10.38 (4) Agreement for Sale and Leaseback of Manufacturing Facility between
Registrant and Heleasco Seven, Inc. dated September 25, 1989
10.39 (4) Agreement for Sale and Leaseback of Manufacturing Facility between
Registrant and Heleasco Seven, Inc. dated December 29, 1989
10.40 (4) Amended and Restated Promissory Note of Dale A. Stringfellow, dated
September 7, 1990
10.41 (4) Amended and Restated Promissory Note Secured by Deed of Trust by
Dale A. Stringfellow, dated September 7, 1990
10.42 (4) 1984 Incentive Stock Option Plan, as amended.
10.43 (4) 1985 Employee Stock Purchase Plan, as amended.
10.44 1990 Directors' Stock Option Plan, as amended
10.46 (5) Agreement between Registrant and Essex Chemie, A.G. dated November
19, 1990.
10.56 (6) Lease Agreement dated June 1, 1992 by and between Registrant and
Harbor Investment Partners
10.58 (6) License and Option Agreement dated June 30, 1992 between Registrant
and Research Development Foundation.
10.60 (7) Amendments dated February 16, 1993 and February 18, 1993
respectively, to the Product Development and Distribution Agreement
dated January 18, 1985 by and between Registrant and Zimmer, Inc.,
originally filed as Exhibit 10.24 to Registrant's Form 10-K for
the fiscal year ended June 30, 1985.
10.61* (7) Letter Agreement, dated April 26, 1991 and May 21, 1993 by and
between Collagen Corporation and A. Neville Pelletier.
10.62 (8) 1994 Stock Option Plan
10.63 (9) Renewed Lease for 2500 Faber Place, Palo Alto, California dated
December 1, 1992 between Registrant and Leonard Ely, Shirley Ely,
Carl Carlsen and Mary L. Carlsen.
10.65* (9) Promissory Note of Howard D. Palefsky dated August 3, 1994
10.66 (9) Revised Form of Agreement Regarding Proprietary Information and
Inventions between Registrant and all employees or consultants.
10.67 (10) Credit Agreement, dated November 15, 1994, by and between the Bank
of New York and the Registrant, as amended January 24, 1995.
10.68 (10) Letter Agreement, dated October 7, 1994, by and between C.R. Bard.
Inc. and the Registrant, amending the Amended and Restated
Development and Distribution Agreement dated August 4, 1989 between
the Parties originally filed as Exhibit 10.36 to the Registrant's
Form 10-K for the fiscal year ended June 30, 1989.
__________________________________
* Constitutes a management contract or compensatory contract, plan or
arrangement.
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10.70* Letter of Acceptance of Employment by and between Gary Petersmeyer
and the Registrant, dated December 19, 1994.
10.71** License, Supply and Option Agreement, dated March 24, 1995 by and
between LipoMatrix, Incorporated and Regristrant.
10.72** Distributor Agreement dated March 24, 1995 by and between
LipoMatrix, Incorporated and Registrant's wholly owned subsidiary,
Collagen International Incorporated.
10.73** Coordinaton Agreement dated March 24, 1995, by and between
LipoMatrix Incorporated and Registrant's wholly owned subsidiary,
Collagen International Incorporated.
10.74* Promissory Note of Howard D. Palefsky dated June 5, 1995.
10.75** Letter Agreement, dated July 10, 1995 by and between C.R. Bard,
Inc. and the Registrant , amending the Amended and Restated
Development and Distribution Agreement dated August 4, 1989
between the Parties originally filed as Exhibit 10.36 to the
Registrant's Form 10-K for the fiscal year ended June 30, 1989.
10.76 (11) Stock Purchase Agreement dated August 22, 1995 between the
Registrant and certain stockholders of LipoMatrix, Incorporated
11.1 Statement Regarding Weighted Average Common and Common Equivalent
Shares Used in Computation of Per Share Income.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors, with respect to
the consolidated financial statements of Target Therapeutics, Inc.,
for the fiscal years ended March 31, 1995, 1994, and 1993.
24.1 Power of Attorney (see page 40)
27.1 Financial Data Schedule (EDGAR version only)
99.1 Target Therapeutics, Inc. Consolidated Financial Statements for the fiscal
years ended March 31, 1995, 1994, and 1993 with Report of Ernst &
Young LLP, Independent Auditors.
99.2 Financial Statement Schedule of Target Therapeutics Inc., for the
fiscal years ended March 31, 1993, 1994 & 1995
Notes to Exhibits:
(1) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1985.
(2) Incorporated by reference to the same exhibits filed with
Registrant's Current Report on Form 8-K dated March 31,
1989.
(3) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1989.
(4) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1990.
(5) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1991.
(6) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1992.
(7) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1993.
- ---------------
* Constitutes a management contract or compensating contract, plan or
arrangement.
** Confidential treatment requested for a portion of this document.
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(8) Incorporated by reference to Exhibit 4.1 filed with
Registrant's Registration statement of Form S-8 (No.
33-80038) which became effective June 9, 1994.
(9) Incorporated by reference to the same exhibits filed with
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1994
(10) Incorporated by reference to the same exhibits filed with
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1994.
(11) Incorporated by reference to exhibit 2.1 filed with
Registrant's Current Report on Form 8-K dated September
6, 1995.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by
Registrant during the fiscal quarter ended June 30, 1995.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized
COLLAGEN CORPORATION
/s/ Gary S. Petersmeyer
----------------------------
Gary S. Petersmeyer
President and
Chief Operating Officer
Dated: September 28,1995
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Howard D. Palefsky and David Foster, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------------------------------------------------------------------------------------------------
/s/ Howard D. Palefsky Chairman of the Board of Directors and Chief
- --------------------------------- Executive Officer (Principal Executive September 27, 1995
Howard D. Palefsky Officer)
/s/ Gary S. Petersmeyer President, Chief Operating Officer, and
- --------------------------------- Director September 27, 1995
Gary S. Petersmeyer
/s/ David J. Foster Vice President and Chief Financial Officer
- --------------------------------- (Principal Financial and Accounting Officer) September 27, 1995
David J. Foster
/s/ Anne L. Bakar Director September 20, 1995
- ---------------------------------
Anne L. Bakar
/s/ John R. Daniels Director September 27, 1995
- ---------------------------------
John R. Daniels, M.D.
/s/ William G. Davis Director September 27, 1995
- ---------------------------------
William G. Davis
/s/ Reid W. Dennis Director September 20, 1995
- ---------------------------------
Reid W. Dennis
/s/ Craig W. Johnson Director September 27, 1995
- ---------------------------------
Craig W. Johnson, Esq.
/s/ Terry R. Knapp M.D. Director September 27, 1995
- ---------------------------------
Terry R. Knapp, M.D.
/s/ Michael F. Mee Director September 20, 1995
- ---------------------------------
Michael F. Mee
/s/ Rodney Perkins Director September 27, 1995
- ---------------------------------
Rodney Perkins, M.D.
Director September , 1995
- ---------------------------------
Cornelius W. Pettinga, Ph.D.
/s/ Roger H. Salquist Director September 27, 1995
- -----------------------------
Roger H. Salquist
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COLLAGEN CORPORATION
FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED JUNE 30, 1995
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
- --------------------------------------------------------------------------------------------------------------
3.3 By-Laws, as amended
10.44 1990 Directors' Stock Option Plan, as amended
10.70 Letter of Acceptance of Employment by and between Gary Petersmeyer and the
Registrant, dated December 19, 1994.
10.71** License, Supply and Option Agreement, dated March 24, 1995 by and between
LipoMatrix, Incorporated and Regristrant.
10.72** Distributor Agreement dated March 24, 1995 by and between LipoMatrix,
Incorporated and Registrant
10.73** Coordinaton Agreement dated March 24, 1995, by and between LipoMatrix
Incorporated and Registrant.
10.74 Promissory Note of Howard D. Palefsky dated June 5, 1995.
10.75** Letter Agreement, dated July 10, 1995 by and between C.R. Bard, Inc. and the
Registrant, amending the Amended and Restated Development and Distribution
Agreement dated August 4, 1989 between the Parties originally filed as Exhibit
10.36 to the Registrant's Form 10-K for the fiscal year ended June 30, 1989.
11.1 Statement Regarding Weighted Average Common and Common Equivalent Shares Used
in Computation of Per Share Income.
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page X)
23.2 Consent of Ernst & Young LLP, Independent Auditors, with respect to the
consolidated financial statements of Target Therapeutics, Inc., for the fiscal
years ended March 31, 1995, 1994 and 1993.
24.1 Power of Attorney (see page 40)
27.1 Financial Data Schedule (EDGAR version only)
99.1 Target Therapeutics, Inc. Consolidated Financial Statements for the Years Ended
March 31, 1995, 1994, and 1993 with Report of Ernst & Young LLP, Independent
Auditors.
99.2 Financial Statement Schedule of Target Therapeutics Inc., for the fiscal
years ended March 31, 1993, 1994 & 1995
**Confidential treatment requested for a portion of this document.
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