SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
-- or --
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
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FOR THE TRANSITION PERIOD FROM TO
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0-25250
COMMISSION FILE NUMBER
OSTEX INTERNATIONAL, INC.
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
STATE OF WASHINGTON 91-1450247
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION I.R.S. EMPLOYER IDENTIFICATION NUMBER
2203 AIRPORT WAY SOUTH, SUITE 400, SEATTLE, WASHINGTON 98134
206-292-8082
ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(g) of the
(none) (none) Act:
TITLE OF CLASS EACH EXCHANGE ON WHICH REGISTERED COMMON STOCK, $.01 PAR VALUE
TITLE OF CLASS
Indicate by check mark whether the registrant (1) has filed all Yes [ X ]
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing No [ ]
requirements for the past 90 days.
Indicate by check mark if disclosure of delinquent filers [ X ]
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.
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant was approximately $47,833,000 on March 16,
2000, based on the per-share closing price of $4.81 on the Nasdaq National
Market.
The number of shares of Common Stock outstanding as of March 16, 2000 was
12,479,139.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1999 is incorporated by reference into Part I, Part
II and Part III of this Form 10-K.
(2) Portions of the Registrant's Proxy Statement for the Registrant's Annual
Shareholders Meeting to be held Wednesday, May 24, 2000, to be filed
pursuant to Regulation 14A is incorporated by reference into Part III of
this Form 10-K.
OSTEX INTERNATIONAL, INC.
INDEX TO FORM 10-K
PART I
PAGE
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ITEM 1 BUSINESS 2
ITEM 1A RISK FACTORS 4
ITEM 1B EXECUTIVE OFFICERS OF THE REGISTRANT 9
ITEM 2 PROPERTIES 10
ITEM 3 LEGAL PROCEEDINGS 10
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 11
ITEM 6 SELECTED FINANCIAL DATA 12
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 12
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 12
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 12
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 13
ITEM 11 EXECUTIVE COMPENSATION 13
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 13
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 13
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K 14
SIGNATURES 17
For the purpose of this Form 10-K, the following capitalized terms shall have
the following meanings:
"Company" or "Ostex" shall mean Ostex International, Inc., a Washington
corporation;
"Annual Report to Shareholders" shall mean the annual report to
shareholders of Ostex International, Inc. for the year ended December 31, 1999;
and
"Proxy Statement" shall mean the proxy statement for the 2000
shareholders meeting of Ostex International, Inc. to be held Wednesday, May 24,
2000, to be filed with the Securities and Exchange Commission (the "Commission")
pursuant to Regulation 14A.
PART I
When used in this report and in the Company's Annual Report to
Shareholders (which discussion has been incorporated herein by reference), the
words "believes," "intends", "anticipates," "plans to" and "expects" and similar
expressions are intended to qualify as forward-looking statements. Such
statements are subject to certain risks and uncertainties and there are a number
of important factors that could cause actual results to differ materially from
those projected. These factors include, among others, the factors described
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Other Factors that May Affect Operating Results" in the Company's
Annual Report to Shareholders and the risk factors included herein. Readers are
cautioned not to place undue reliance on such forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
release publicly the results of any revisions to such forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
ITEM 1. BUSINESS
Ostex was incorporated in the State of Washington in 1989. The Company is
engaged in the discovery and commercialization of products associated with
osteoporosis and other collagen-related diseases. The Company believes that its
lead product, the OSTEOMARK-registered trademark- test, incorporates
breakthrough and patented technology in the area of bone resorption measurement.
Ostex has formed collaborative relationships with leading diagnostic and
pharmaceutical companies to aid in the commercialization of Osteomark. As of
December 31, 1999, the Company had 35 employees.
Osteoporosis is a significant health problem. According to the National
Osteoporosis Foundation (the "NOF"), osteoporosis afflicts approximately 30
million people in the U.S. alone. Additionally, millions of people are at risk
of skeletal degradation associated with Paget's disease of bone, cancer that
metastasizes to bone, hyperparathyroidism (overactivity of the parathyroid
gland, characterized by a reduction of bone mass) and renal osteodystrophy. In
spite of the serious human and economic consequences of these diseases
(according to the NOF, the direct healthcare and indirect lost productivity
costs of osteoporosis exceed $10 billion annually in the U.S. alone), medical
intervention usually commences only after pain, immobility, fractures, or other
symptoms have appeared. The Company expects the osteoporosis therapeutic market
will increase significantly. The Company also believes new therapeutic products
are under development for osteoporosis, some of which are in late-stage clinical
trials, and that the Osteomark test can be used to effectively predict a
patient's response to osteoporosis therapy and monitor existing therapies and
other therapies which may be developed.
The Company is the exclusive licensee of the Osteomark technology, known
clinically as the NTx test, which is available in urine and serum formats that
can aid in healthcare decision-making at early menopause and beyond. The
Osteomark test is a non-invasive diagnostic test which quantitatively indicates
the level of bone resorption. Individuals who are losing bone collagen at
accelerated rates may indicate a condition which typically results in
osteoporosis. The Company believes that early identification of high levels of
bone resorption provides the opportunity to predict skeletal response (bone
mineral density) to hormonal antiresorptive and other osteoporosis therapies in
postmenopausal women and helps prevent the onset of osteoporosis. The Company
also believes that the Osteomark test aids clinicians in monitoring the
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effects of antiresorptive therapies in postmenopausal women, as well as in older
patients who have already lost significant bone mass.
On May 8, 1995, the Company's Osteomark test became commercially
available in the United States as a urinary test that provides a quantitative
measure of the excretion of cross-linked N-telopeptides of Type I collagen (NTx)
as an indicator of human bone resorption, and in July 1996 the Company received
expanded claims for the test. The 1996 claims allow that an Osteomark test
measurement, if taken prior to the initiation of hormonal antiresorptive
therapy, can be utilized to predict a patient's response to that therapy, in
terms of its effect on bone mineral density. Additionally, the claims allow that
the test can be used for therapeutic monitoring of antiresorptive therapies in
postmenopausal women, as well as individuals diagnosed with osteoporosis and
Paget's disease, and for therapeutic monitoring of estrogen-suppressing
therapies. In March 1998, the claims were further expanded by allowing that, in
addition to the 1996 claims, an Osteomark test measurement can identify the
probability for a decrease in bone mineral density in postmenopausal women
taking calcium supplements relative to those treated with hormonal
antiresorptive therapy. The Company is manufacturing and marketing the Osteomark
test in an Enzyme-linked Immunosorbent Assay ("ELISA") format for testing urine
or serum samples.
In February 1999, the Company began commercially marketing Osteomark NTx
Serum. Osteomark NTx Serum is the first and only commercially available test in
the United States that measures specific bone breakdown by osteoclasts using a
blood sample. The Company believes that the use of a serum NTx test provides a
number of advantages to testing laboratories, including the elimination of the
requirement to normalize NTx values to creatinine concentration.
Worldwide promotion of the Osteomark urine test kits is also supported by
Johnson & Johnson Clinical Diagnostics, Inc. ("Johnson & Johnson"). In 1995 the
Company entered into research, development, license and supply agreements with
Johnson & Johnson. These agreements grant Johnson & Johnson a license to
manufacture, sell and distribute certain products using Ostex's bone resorption
technology. Currently, Johnson & Johnson distributes in the United States and
certain foreign countries the Osteomark test in the existing microtiter plate
format and has adapted the urine test for use with its automated analyzer. Ostex
receives royalties on Johnson & Johnson's sales of products incorporating the
Ostex technology.
Under the Johnson & Johnson license agreement, the Company has the right
to license its technology for use on automated instruments to one other company
in addition to Johnson & Johnson. The Company is currently evaluating other
potential collaborators to adapt the Osteomark test to other high-speed
automated instruments.
In the year ended December 31, 1999, the Company's largest customer,
Johnson & Johnson, accounted for approximately 14% of the Company's product
sales. The termination of the Company's relationship with Johnson & Johnson
could have a material adverse effect on the Company's results of operations. See
"Risk Factors - Reliance on Collaborative Agreements and Certain Relationships".
In 1992, Ostex entered into a research and development agreement and a
license agreement with Mochida Pharmaceutical Co., Ltd. ("Mochida"), a Japanese
pharmaceutical company, for the commercialization of the Osteomark test in
Japan. Under the research and development agreement, Mochida has an option to
license the NTx serum test and has paid Ostex $3,350,000 in development fees to
date. Future payments of $750,000 under the agreement are contingent upon
Mochida's decision to exercise its option. Under the license agreement, Ostex
granted Mochida exclusive marketing and distribution rights to certain Ostex
products in Japan. Since 1992, Mochida has paid Ostex $2,500,000 in licensing
fees for the Osteomark test. In January 1998, Mochida launched the Osteomark
test in Japan for the management of patients with hyperparathyroidism and for
patients with metastatic bone tumors. During 1999, Ostex sold Mochida the
critical reagents to be assembled into finished products in Japan by Mochida.
Beginning in 2000, Ostex will sell the finished product to Mochida.
The Company also plans to develop and market the Osteomark test in other
formats, including formats suitable for use in the physician's office. The
Company has an agreement with Metrika, Inc. ("Metrika"), a diagnostic device
company, to develop a physician's office "point-of-care" Osteomark test device.
The
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Company and Metrika have developed this fully disposable point-of-care NTx
test as an indicator of bone resorption that computes an NTx value and displays
it digitally.
OSTEOMARK and OSTEX are registered United States ("U.S.") trademarks of
the Company. The Company has also registered its OSTEOMARK trademark in 46 other
countries. Additional trademark applications are pending.
The Company's collagen breakdown test technology is covered by 29 U. S.
patents, 4 European patents, 5 Japanese patents, and patents in Australia,
Canada, Ireland, Korea, Russia, Spain, Hong Kong, and Singapore. Three of the
European patents and two of the Japanese patents are in opposition proceedings.
Additional patent applications are pending. See "Risk Factors - Dependence on
Licensed Patents and Proprietary Rights". The Company's patents are variously
directed to type I collagen breakdown products including NTx, CTx, and
deoxypyridinoline, as well as related breakdown products of type II and type III
collagen. The Company's patents will expire in 2007 or later.
The Company's research and development expenditures, all of which were
funded by the Company, totaled $1,734,000, $2,901,000, and $4,470,000, in 1999,
1998 and 1997, respectively.
The Company's product sales from external customers in foreign countries
totaled $822,000, $517,000, and $652,000, in 1999, 1998 and 1997, respectively.
Foreign sales were primarily to Europe, Canada and South America.
The Company's international business is subject to risks of currency
fluctuations, governmental actions and other governmental proceedings abroad.
The Company does not regard these risks as a deterrent to further expansions of
its operations abroad. However, the Company closely reviews its methods of
operations and adopts strategies responsive to changing economic and political
conditions.
The Company is developing an assay for Type II collagen degradation.
Type II collagen is a primary constituent of joint cartilage. Osteoarthritis, a
degenerative disease of joint cartilage, affects over 15 million people in the
United States alone. The disease first appears in a limited number of joints.
The first symptom, joint pain, occurs after substantial cartilage damage has
taken place. Eventually, pain and tenderness increase and the joint motion
becomes diminished. The Ostex Type II collagen degradation test under
development has been designed to allow reliable monitoring of joint cartilage
changes for validating the effectiveness of drugs under development and for
identifying patients with early-stage disease. In addition, similar to the
Osteomark test used in connection with osteoporosis, the Company believes that
the Type II collagen degradation test will aid in the clinical management of
osteoarthritis patients by monitoring the effectiveness of therapy.
Ostex is investigating the use of its NTx test in cancer patient
management. Independent researchers have shown that the level of bone resorption
increases significantly when cancer metastasizes to bone. A patient's NTx level
may be useful to identify cancer patients with elevated bone turnover who might
warrant a bone scan to detect metastatic bone disease.
Ostex is also in the early stages of developing an assay for measuring
Type III collagen degradation. Type III collagen is a significant constituent of
blood vessels such as coronary arteries. Measuring degradation of this type of
collagen may be useful in identifying cardiovascular disease.
ITEM 1A. RISK FACTORS
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's lead product, the Osteomark test, became commercially
available in May 1995 in the U.S. and sales have not been significant enough to
generate net income. There can be no assurance that the Company's Osteomark test
or any of its other products will gain acceptance from the medical community,
clinical or hospital laboratories, physicians or patients as readily as other
forms of diagnosis or any newly
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developed diagnostic. There can be no assurance that the Company will be able to
develop significant market share for its products, or any market share at all.
Inability of the Company to achieve market acceptance for its products would
have a material adverse effect on the Company's business, financial condition
and results of operation.
DEPENDENCE ON CORE TECHNOLOGY; UNCERTAINTY OF ADAPTATION TO DIFFERENT FORMATS
The Company currently relies exclusively upon its core technology for the
development of diagnostic products associated with osteoporosis and other
collagen-related diseases. There can be no assurance that competitors of the
Company will not be successful in developing new or more efficient or
cost-effective diagnostics that are more readily accepted than the Company's
products. The Company is in the process of undertaking ongoing and additional
research and development to adapt its core technology to different formats,
instruments and other delivery platforms that currently exist or may be
developed. In particular, additional research and development will be required
to adapt its core technology to high-speed, high-volume automated instruments
typically used in large clinical laboratories or companies through which the
Company may seek to expand the market for its products. There can be no
assurance that the Company will be successful in adapting and further developing
its core technology to meet such needs. The Company is developing physician
office adaptations of its core technology. There can be no assurance that the
Company or its development partner will either successfully develop or obtain
required regulatory approval for a cost-effective instrument for physician
office use. In addition, technological changes or medical advancements could
diminish or eliminate the commercial viability of the Osteomark test or future
products based upon the Company's core technology. The failure to adapt the
Company's core technology to different formats, instruments and other delivery
platforms, or otherwise to commercialize such core technology, would have a
material adverse effect on the Company's business, financial condition and
results of operation.
RELIANCE ON COLLABORATIVE AGREEMENTS AND CERTAIN RELATIONSHIPS
The Company has entered into collaborative or co-promotional agreements
with several partners, including, among others, Johnson & Johnson, Mochida and
Wyeth-Ayerst Laboratories, and intends to appoint a second international
distributor for its automated instrument application. The level of each
partner's involvement and support and the amount and timing of resources that
these collaborators devote to these activities are not within the control of the
Company and can significantly impact the Company's ability to achieve its
objectives. There can be no assurance that these collaborators will perform
their contractual obligations as expected or that the Company will derive any
additional revenue from such arrangements. Moreover, the agreements may be
terminated under certain circumstances. The Company expects to rely on these and
additional agreements to develop and commercialize its future products. There
can be no assurance that the Company will be able to negotiate acceptable
collaborative agreements in the future or that such new agreements or existing
agreements will be successful. In addition, there can be no assurance that the
parties to the agreements will not pursue alternative technologies.
LIMITED SALES AND MARKETING EXPERIENCE
The Company has limited experience in sales, marketing and distribution.
To market any of its products directly, the Company must develop and implement a
substantial marketing and sales effort with technical expertise and supporting
distribution capability. The Company intends to continue to market and sell its
products in the U.S. through research and clinical laboratories, other
companies, and collaborative arrangements and sell its products in other markets
through distributors or collaborative arrangements. There can be no assurance
that the Company will be able to establish effective sales and distribution
capabilities or that its collaborators will be successful in gaining market
acceptance for the Company's products or that the Company will achieve or
maintain significant market share for its products.
DEPENDENCE ON LICENSED PATENTS AND PROPRIETARY RIGHTS
The Company's success depends, in large part, on its current and future
patent position relating to its core technology. The Company's patent position
involves complex legal and factual questions. The Company is the exclusive
licensee of certain patents within and outside of the U.S. relating to the
Company's core technology. Claims made under patent applications may be denied
or significantly narrowed, and
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issued patents may not provide significant commercial protection to the Company.
There is no assurance that the Company's patents will not be successfully
challenged or circumvented by others. The Company could incur substantial costs
in proceedings before the U.S. Patent Office, including interference
proceedings. These proceedings could also result in adverse decisions as to the
patentability of the Company's licensed or assigned inventions. There can be no
assurance that the Company's products do not or will not infringe on the patent
or proprietary rights of others. The Company may be required to obtain
additional licenses to the patents or other proprietary rights of others. The
Company may also require licenses from the inventors of certain processes,
technologies and assay formats in order to successfully market certain products.
There can be no assurance that any such licenses would be made available on
terms acceptable to the Company, if at all. If the Company needs and cannot or
does not obtain such licenses, it could encounter delays in product
introductions while it attempts to circumvent such patents or the development,
manufacture, or sale of products requiring such licenses could be precluded. The
Company believes there will continue to be significant litigation in the
industry regarding patent and other intellectual property rights.
The Company is aware of competitors that are developing products that may
be covered by claims made in patents or patent applications of the Company.
Because certain foreign patents are subject to third-party opposition following
the date of grant of such patents, there can be no assurance that claims of the
Company's foreign patents, once granted, will survive such opposition without
cancellation or significant modification. Because U.S. applications are
confidential until a patent issues, the Company cannot be assured that its
patent claims have priority in the U.S. or will be entitled to patent
protection.
The Company also relies on trade secrets and other unpatented proprietary
technology. No assurance can be given that the Company can meaningfully protect
its rights in such unpatented technology or that others will not independently
develop substantially equivalent products and processes or otherwise gain access
to the Company's technology. The Company seeks to protect its trade secrets and
proprietary know-how, in part, with confidentiality agreements with its
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known or be
independently developed by competitors. In addition, protracted and costly
litigation may be necessary to enforce and determine the scope and validity of
the Company's proprietary rights.
LENGTHY REGULATORY PROCESSES AND UNCERTAINTY OF REGULATORY APPROVALS
The process of obtaining Food and Drug Administration (FDA) and other
required regulatory approvals can be lengthy and expensive. The time required
for approvals is uncertain, and often depends on the type, complexity and
novelty of the product. There can be no assurance that regulatory agencies will
act favorably or quickly in their review of any submission by the Company, and
significant difficulties or costs may be encountered by the Company in its
efforts to obtain approvals that could delay or preclude the Company from
marketing its products. Furthermore, there can be no assurance that the agency
will not request the development of additional data following original
submissions, causing the Company to incur further cost and delay. Nor can there
be any assurance that the FDA will not restrict the intended use of a submitted
product as a condition for clearance.
If the FDA concludes that a device is not substantially equivalent to
another legally marketed device, submission of a premarket approval ("PMA")
application will be required. If the FDA indicates that a PMA is required for
any product of the Company, the application will require submission of results
of clinical studies and manufacturing information, and likely a review by a
panel of experts outside of the FDA. Clinical studies would need to be conducted
in accordance with FDA requirements. The failure to comply would result in the
FDA's refusal to accept the data or the imposition of regulatory sanctions. FDA
review of a PMA application can take significantly longer than that for a
premarket notification "510(k)" application to demonstrate "substantial
equivalence" to a legally marketed product. Further, if a company wishes to
propose modifications to a product subsequent to FDA approval of a PMA
application, including changes in indications or other significant modifications
to labeling, or modifications to the manufacturing process, or if a company
wishes to change its manufacturing facility, a PMA supplement must first be
submitted to the FDA for its review and approval.
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EXTENSIVE CONTINUING GOVERNMENT REGULATION
The research, development, manufacturing and marketing of the Company's
products are subject to extensive continuing regulation by numerous governmental
authorities in the U.S. and certain other countries, and the Company, its
products, and its manufacturing facilities are subject to continual review and
periodic inspection. The regulatory standards for manufacturing are applied
stringently by the FDA. Discovery of previously unknown problems with a product,
manufacturer, or facility may result in restrictions on such product or
manufacturer or facility, including warning letters, fines, suspensions of
regulatory approvals, product recalls, operating restrictions, delays in
obtaining new product approvals, withdrawal of the product from the market, and
criminal prosecution. Other violations of FDA requirements can result in similar
penalties. The Company is also subject to numerous environmental, health and
workplace safety laws and regulations, including those governing laboratory
procedures, exposure to blood-borne pathogens, and the handling of biohazardous
materials. Any violation of, and the cost of compliance with, these laws and
regulations could adversely impact the Company's operations. The Company is
unable to predict the extent or likelihood of adverse government regulation that
might arise from future U.S. or foreign government action.
LIMITED MANUFACTURING EXPERIENCE
The Company is developing adaptations of its core technology for use
in physicians' offices and depends upon the efforts of collaborators for this
development. Such adaptations have not been fully completed and there can be no
assurance that, if developed, such adaptations could be manufactured in a
commercially viable manner. Unless the Company develops additional in-house
manufacturing capability for such products, it will be dependent upon outside
sources for the manufacture of such products. There can be no assurance that the
Company's reliance on others for the manufacture of its products will not result
in problems with product supply. Interruptions in the availability of products
could delay or prevent the development and commercial marketing of the Company's
products.
HISTORY OF LOSSES AND LIMITED OPERATING HISTORY
The Company has a limited operating history and had a retained deficit
through December 31, 1999 of $33,793,000. For the year-end December 31, 1999,
the Company had a net loss of $1,570,000. The Company expects to incur
additional costs as it continues with its operations, marketing efforts,
research and development activities, and clinical trials. The Company expects to
continue to incur losses in future periods and the Company is unable to predict
when, if at all, it will achieve profitability.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING
The Company's future capital requirements depend upon many factors,
including the effectiveness of Osteomark NTx Serum and Urine tests
commercialization activities and arrangements; continued scientific progress in
its research and development programs; the costs involved in filing, prosecuting
and enforcing patent claims; the manufacturing needs for new products; and the
time and costs involved in obtaining regulatory approvals. Additional funds from
equity or debt financing may be required. There can be no assurance that such
additional funds will be available on favorable terms, if at all. Because of the
Company's significant long-term cash requirements, it may seek to raise
additional capital if conditions in the public equity markets are favorable or
through private placements, even if the Company does not have an immediate need
for additional cash at that time. If additional financing is not available, the
Company believes that its existing available cash, its future license and
research revenues from existing collaboration agreements, its current level of
product sales and interest income from short-term investments will be adequate
to fund operations into the foreseeable future.
INTENSE COMPETITIVE ENVIRONMENT
Competition from biotechnology companies, diagnostic companies,
pharmaceutical companies, and research and academic institutions is intense and
is based on price as well as product performance. A number of diagnostic tests
and procedures, and other non-invasive tests for osteoporosis and other bone
disorders currently exist and others are in development, and the manufacturers
of these tests will continue to
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improve them. In addition, the diagnostic industry is subject to rapid
technological change. There can be no assurance that the Company's competitors
will not succeed in developing products that are more effective or less
expensive than those which have been or are being developed by the Company or
which would render the Company's core technology obsolete or non-competitive.
Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company. In addition, many of these
competitors have significantly greater experience and resources than the Company
in undertaking clinical trials and other regulatory approval procedures as well
as in marketing and achieving manufacturing efficiencies. There are also small
companies, academic institutions, governmental agencies and other research
organizations that are conducting research in the area of osteoporosis and other
collagen-related diseases. These entities may also market commercial products
either on their own or through collaborative efforts. The Company's competitors
may develop technologies and products that are available for sale prior to the
Company's products or at a lower cost or with better technical characteristics
rendering the Company's products less competitive.
DEPENDENCE ON THERAPEUTICS DEVELOPED BY OTHERS
Acceptance of and demand for the diagnostic products that the Company is
developing will be affected by the need perceived by physicians to diagnose
bone, cartilage and connective tissue disorders for the purposes of treatment.
There are currently a limited number of therapies that are effective in
preventing osteoporosis or other bone, cartilage or connective tissue disorders,
or in treating these disorders once diagnosed. In the event new therapies do not
receive regulatory approval or experience delayed market acceptance, the Company
could be adversely affected. Unfavorable publicity concerning a product of the
Company or therapeutic products for osteoporosis could also have an adverse
effect on the Company's ability to obtain regulatory approvals or to achieve
market acceptance.
UNCERTAINTY OF HEALTHCARE REIMBURSEMENT
The Company's ability to commercialize its products will depend in part
on the extent to which reimbursement for the cost of such products and related
treatment will be available from third-party payors, such as government health
administration authorities, private health coverage insurers and other
organizations. The status of the scope of healthcare programs worldwide is
uncertain and there can be no assurance that adequate third-party coverage will
be available for the Company to maintain price levels sufficient for realization
of an appropriate return on its investment in product development. Third-party
payors are increasingly challenging the price and cost effectiveness of medical
products and services. If the Company succeeds in bringing one or more products
to the market, there can be no assurance that these products will be considered
cost effective and that reimbursement to the consumer will be available or
sufficient to allow the Company to sell its products on a competitive basis.
VOLATILITY OF STOCK PRICE
The volatility of the Company's stock price has been significant since it
first became publicly traded in January 1995. The stock market may experience
significant price and volume fluctuations unrelated to the operating performance
of particular companies. Factors such as any loss of key management, the results
of the Company's clinical trials or those of its competitors, adverse regulatory
actions or decisions, evidence regarding the safety or efficacy of the Company's
products or those of its competitors, announcements of technological innovations
or new products by the Company or its competitors, governmental regulation,
developments with respect to patents or other proprietary rights, product or
patent litigation or public concern as to the safety of products developed by
the Company may have a volatile effect on the market price of the Company's
Common Stock.
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ITEM 1B. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages are as follows:
NAME AGE POSITION
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Thomas A. Bologna 51 Chairman, President and Chief Executive
Officer
Thomas F. Broderick 51 Vice President, Patent and General Counsel
J. Daniel Clemens 43 Vice President, Product Development
Michael C. Perry 55 Vice President, Sales and Marketing
Nancy J.S. Mallinak 38 Vice President, Regulatory and Clinical
Affairs
Cory J. Smith 49 Vice President, Manufacturing
There were no family relationships between any executive officers of the
Company.
THOMAS A. BOLOGNA joined the Company in July 1997 as the President and
Chief Executive Officer and as a member of the Board of Directors. From January
1996 to July 1997 Mr. Bologna was a principal in Healthcare Venture Associates,
a consulting firm. From January 1994 to January 1996 Mr. Bologna was President
and Chief Executive Officer for Scriptgen Pharmaceuticals, Inc., a biotechnology
company with proprietary drug screening and development technology that is
developing orally active drugs to regulate gene expression, and from July 1987
to January 1994 Mr. Bologna was the Chairman of the Board of Directors and
President and Chief Executive Officer of Gen-Probe Incorporated, a biotechnology
company commercializing genetic-probe-based technology for diagnostic and
therapeutic applications.
THOMAS F. BRODERICK was named the Vice President, Patent and General
Counsel in November 1997. Mr. Broderick was Vice President, Intellectual
Property from March 1997 to November 1997 and was Patent Counsel for the Company
from April 1996 to March 1997. From 1989 to March 1996, Mr. Broderick was a
partner at the patent law firm of Christensen, O'Connor, Johnson & Kindness in
Seattle, Washington.
J. DANIEL CLEMENS was named the Vice President, Product Development in
September 1998. Mr. Clemens was Director of Research & Development for the
Company from May 1992 to September 1998 and Manager of Product Development from
October 1990 to May 1992. Prior to joining Ostex, Mr. Clemens was Senior
Research & Development Scientist from February 1987 to October 1990 at Genetic
Systems Corporation/Sanofi.
MICHAEL C. PERRY joined the Company in February 2000 as Vice President,
Sales and Marketing. Prior to joining Ostex, Mr. Perry was National Sales
Manager for Sarstedt, Inc., a privately held company. Prior to Sarstedt, Mr.
Perry was with Organon Teknika Corporation for over 20 years.
NANCY J.S. MALLINAK was named Vice President, Regulatory and Clinical
Affairs of the Company in February 1997. Ms. Mallinak was Director, Regulatory
and Clinical Affairs for the Company from June 1995 to February 1997 and was
Manager, Regulatory and Clinical Affairs for the Company from December 1992 to
June 1995. From June 1989 to December 1992, Ms. Mallinak was Manager, Clinical
Product Development in the Diagnostics Group of Baxter International, Inc., a
general healthcare company.
CORY J. SMITH was named Vice President, Manufacturing in September 1998.
Mr. Smith was Director of Manufacturing for the Company from October 1993 to
September 1998 and was the Manufacturing Engineer for the Company from September
1992 to October 1993. Prior to joining Ostex,
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Mr. Smith was the Quality Assurance Manager from June 1991 to September 1992 at
Genetic Systems Corporation/Sanofi.
ITEM 2. PROPERTIES
The Company's research laboratories, manufacturing operations, and
administrative offices are located in Seattle, Washington. The Company leases
approximately 32,000 square feet of space in Seattle under a lease that will
expire in 2005. The Seattle facility has adequate capacity for the Company's
present needs.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings is incorporated herein by
reference to note 10 in the "Notes to Financial Statements" on page 28 of the
Annual Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter ended December 31, 1999.
-10-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET PRICE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National
Market-registered trademark- under the symbol "OSTX". The following table lists
the high and low trading prices for the Company's Common Stock as reported on
the Nasdaq National Market.
1999 HIGH LOW
-------------------------------------- ------- --------
1st quarter $2.44 $0.44
2nd quarter 1.75 0.97
3rd quarter 1.37 1.00
4th quarter 4.88 0.94
1998 HIGH LOW
-------------------------------------- ------- --------
1st quarter $3.06 $1.88
2nd quarter 3.00 1.25
3rd quarter 2.00 0.31
4th quarter 1.00 0.34
The closing price of the Common Stock on December 31, 1999 was $3.00.
HOLDERS OF COMMON STOCK
As of March 16, 2000, there were 12,479,139 shares of Common Stock
outstanding held of record by approximately 133 shareholders. The Company
believes there are approximately 3,700 additional owners of Common Stock who own
shares held in street name.
DIVIDEND POLICY
The Company has never paid cash dividends and has no present intention of
paying dividends in the foreseeable future.
COMMON STOCK WARRANT
During the period covered by this report on Form 10-K, the Company
granted an unregistered warrant to an outside consultant for the purchase of
100,000 shares of Common Stock at an exercise price of $2.00, in exchange for
services to be provided to the Company. The warrant vests in twelve equal
monthly installments beginning one month after the grant date, March 23, 1999,
and expires three years from the grant date, March 22, 2002.
This warrant was exempt from registration under the Securities Act
pursuant to Section 4 (2) of the Securities Act on the basis that the
transaction did not involve a public offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., Seattle, Washington.
-11-
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference
to "Selected Financial Data" on page 16 of the Annual Report to Shareholders,
which is included as Exhibit 13.0 to this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated herein by reference
to pages 17-19 of the Annual Report to Shareholders, which is included as
Exhibit 13.0 to this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference
to the Financial Statements and "Notes to Financial Statements" on pages 20-29,
and "Report of Independent Public Accountants" on page 30, of the Annual Report
to Shareholders, which is included as Exhibit 13.0 to this Annual Report on Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-12-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a. Directors
The information contained in the section entitled "Election of Directors
and Director Information" of the Proxy Statement is incorporated herein by
reference in response to this item.
b. Executive Officers of the Registrant
Information required by this item is contained in Part I of this Annual
Report on Form 10-K in the section entitled "Executive Officers of the
Registrant."
c. Compliance With Section 16(a)
Information contained in the section entitled "Compliance with Section
16(a) of the Exchange Act" of the Proxy Statement is incorporated herein by
reference in response to this item.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the section entitled "Executive
Compensation" of the Proxy Statement is incorporated herein by reference in
response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the section entitled "Security Ownership of
Certain Beneficial Owners and Management" of the Proxy Statement is incorporated
herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the section entitled "Compensation Committee
Interlocks and Insider Participation" of the Proxy Statement is incorporated
herein by reference in response to this item.
-13-
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND
REPORTS ON FORM 8-K
A. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
(1) FINANCIAL STATEMENTS
The following financial statements and "Report on Independent
Public Accountants" are incorporated by reference to pages 20 through 30 of the
Annual Report to Shareholders and are listed below. Certain information provided
in the Annual Report to Shareholders is included as Exhibit 13.0 to this Annual
Report on Form 10-K.
Page within
FINANCIAL STATEMENTS ANNUAL REPORT
Balance Sheets 20
Statements of Operations 21
Statements of Cash Flows 22
Statements of Shareholders' Equity 23
Notes to Financial Statements 24
Report of Independent Public Accountants 30
(2) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules have been omitted because of the
absence of conditions under which they are required or because the required
information is included in the financial statements or notes thereto.
(3) Exhibit Index (see note (1))
EXHIBIT INDEX
Exhibit
NUMBER DESCRIPTION NOTES
------ ----------- -----
3.1 Articles of Incorporation, as amended, dated January 1997 (2)
3.2 Bylaws, as amended (3)
4.1 Specimen Common Stock Certificate (3)
10.1A Amended and Restated Stock Option Plan* (3)
10.1B Form of Employee Stock Option Agreement* (3)
10.1C Form of Director's Stock Option Agreement* (3)
10.2 Amended and Restated Directors' Nonqualified Stock Option Plan dated July 16, (4)
1997*
10.3 Amended and Restated 1994 Stock Option Plan* (4)
AGREEMENTS WITH HOLOGIC, INC.
10.4A Co-Promotion and Sales Representation Agreement dated January 14, 1997 (5)(6)
10.4B Joint Development, License and Supply Agreement dated January 14, 1997 (5)(6)
10.5 Form of Indemnification Agreement with officers and directors* (3)
10.7 Agreement with Thomas A. Bologna Executive Employment Agreement dated July 16, (7)
1997*
-14-
Exhibit
NUMBER DESCRIPTION NOTES
------ ----------- -----
AGREEMENTS WITH MOCHIDA PHARMACEUTICAL CO., LTD.
10.12A Research and Development Agreement dated August 1992 (3)
10.12B Osteomark License Agreement Dated August 1992 (3)
10.12D Second Amendment to Osteomark License Agreement dated December 24, 1997 (5)
AGREEMENTS WITH THE WASHINGTON RESEARCH FOUNDATION
10.13A Restated Exclusive License Agreement effective June 19, 1992 (Urinary (3)
Assay for Measuring Bone Resorption)
10.13B Amendment to Restated Exclusive License Agreement effective January 1, (3)
1993
10.13C Second Amendment effective June 2, 1994 (3)
10.14 Exclusive License Agreement dated February 10, 1994 (O-CSF)
AGREEMENTS WITH THE UNIVERSITY OF WASHINGTON
10.15A Research Agreement dated July 1, 1996 (Molecular Markers of Connective (5)(6)
Tissue Degradation)
10.15B Research Agreement dated October 1, 1996 (Role of O-CSF in Osteoclast (5)(6)
Regulation)
10.16A Know-How Transfer and Consulting Agreement dated September 18, 1989 with (3)
David R. Eyre, Ph.D.*
10.16B Extension and Amendment dated May 1, 1992* (3)
10.19 Osteomark EIA Exclusive Distribution License Agreement dated March 28, (3)
1994 with Technogenetics S.R.L.
10.20 Osteomark EIA Distribution License Agreement dated July 12, 1994 with (3)
BRAHMS Diagnostic (formerly Henning Berlin GmbH)
10.23 Osteomark Agreement dated February 12, 1993, as amended May 10, 1994, (3)
with Nichols Institute Reference Laboratory
LEASE AGREEMENTS
10.27A Lease Agreement dated October 2, 1995, with David A. Sabey and Sandra L. (8)
Sabey (2)
10.27B First Amendment of Lease dated October 15, 1996, with the City of
Seattle, successor-in-interest to David A. Sabey and Sandra L. Sabey
AGREEMENTS WITH JOHNSON & JOHNSON CLINICAL DIAGNOSTICS, INC.
10.28A Distribution Agreement dated June 7, 1995 (9)
10.28B Research, Development, License and Supply Agreement dated June 7, 1995 (9)
10.29 Clinical Laboratory Services License and Supply Agreement
dated October (8) 25, 1995, with SmithKline Beecham Clinical
Laboratories, Inc.
10.30 Promotion Agreement dated September 30, 1997 with Wyeth-Ayerst (7)
Laboratories
10.31 Agreement with Laboratory Corporation of America-TM-Holdings (LabCorp), (10)
dated January 11, 1996
10.32A Joint Development, License and Co-Marketing Agreement dated April 10, (11)
1997 with Metrika, Inc.
10.33 Form of CS First Boston Corporation Warrant (12)
10.34 Form of Invemed Associates, Inc. Warrant (13)
-15-
Exhibit
NUMBER DESCRIPTION NOTES
------ ----------- -----
10.35 Shareholder Rights Agreement dated January 21, 1997 (14)
10.36 Physician Sales and Service Dealership Agreement dated October 1, 1999 (15)
13.0 Selected Financial Data, Management's Discussion and Analysis
of Financial Condition and Results of Operations, Financial
Statements and Notes to the Financial Statements from the
Company's Annual Report to Shareholders for the year ended
December 31, 1999
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
- -----------------------------
* Management contract or compensatory plan or agreement.
(1) Copies of exhibits may be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 5th Street NW, Room 1024,
Washington, D.C. 20549, or through the Commission's Edgar system located
on the internet at www.sec.gov.
(2) Incorporated herein by reference to exhibit of the same number filed with
Form 10-K with the Commission for the year ended December 31, 1996
(3) Incorporated herein by reference from Item 16(a) of Registrant's Form S-1
Registration Statement as declared effective January 24, 1995 (No.
33-86118).
(4) Incorporated herein by reference to exhibit of the same number filed with
Form S-8 with the Commission on January 13, 1998.
(5) Confidential treatment requested. Exhibit omits information that has been
filed separately with the Commission.
(6) Incorporated herein by reference to exhibits of the same number filed
with Form 10-K with the Commission for the year ended December 31, 1996,
and as amended with Form 10-K/A on October 17, 1997.
(7) Incorporated herein by reference to exhibits of the same number filed
with Form 10-K with the Commission for the year ended December 31, 1997.
(8) Incorporated herein by reference to exhibit of the same number filed with
Form 10-K with the Commission for the year ended December 31, 1995.
(9) Incorporated herein by reference to exhibit of the same number filed with
Form 10-Q with the Commission for the quarter ended June 30, 1995
(10) Incorporated herein by reference to exhibit of the same number filed with
Form 10-Q with the Commission for the quarter ended March 31, 1996.
(11) Incorporated herein by reference to exhibit of the same number filed with
Form 10-Q with the Commission for the quarter ended September 30, 1997.
(12) Incorporated herein by reference to exhibit number 1.1A filed with the
Registrant's Form S-1 Registration Statement as declared effective
January 24, 1995 (No. 33-86118).
(13) Incorporated herein by reference to exhibit number 1.1B filed with the
Registrant's Form S-1 Registration Statement as declared effective
January 24, 1995 (No. 33-86118).
(14) Incorporated herein by reference to exhibit number 4.5 filed with Form
8-A with the Commission in January 1997.
(15) Confidential treatment has been granted or requested with respect to
portions of this exhibit.
(B) REPORTS ON FORM 8-K
None
-16-
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 on March 24, 2000.
OSTEX INTERNATIONAL, INC.
By /s/ THOMAS A BOLOGNA
----------------------------------
Thomas A. Bologna
Chairman, President and Chief
Executive Officer and Director
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 CAPACITIES DATE
--------- ---------- ----
Chairman, President and
/S/ THOMAS A. BOLOGNA Chief Executive Officer March 24, 2000
- ---------------------------------------- (principal executive officer and
Thomas A. Bologna principal financial officer)
/S/ THOMAS J. CABLE Director March 24, 2000
- ----------------------------------------
Thomas J. Cable
/S/ ELISABETH L. EVANS Director March 24, 2000
- ----------------------------------------
Elisabeth L. Evans
/S/ DAVID R. EYRE Director March 24, 2000
- ----------------------------------------
David R. Eyre
/S/ FREDRIC J. FELDMAN Director March 24, 2000
- ----------------------------------------
Fredric J. Feldman
/S/ GREGORY D. PHELPS Director March 24, 2000
- ----------------------------------------
Gregory D. Phelps
/S/ JOHN H. TRIMMER Director March 24, 2000
- ----------------------------------------
John H. Trimmer