SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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X ANNUAL REPORT
----- FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
-- or --
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TRANSITION REPORT
----- FOR THE TRANSITION PERIOD FROM ____ TO ____
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OSTEX INTERNATIONAL, INC.
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
0-25250
COMMISSION FILE NUMBER
STATE OF WASHINGTON
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
91-1450247
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:
(none) (none)
Title of Class Each Exchange on Which Registered
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Title of Class
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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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 was approximately $53,089,576 on March 18, 1997, based on the
per-share closing price of $5.31 on the Nasdaq National Market tier of the
Nasdaq Stock Market, as reported by the Wall Street Journal.
The number of shares of Common Stock outstanding as of March 18,
1997 was 12,447,617.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to stockholders for the fiscal year ended December 31,
1996. Incorporated in Part I and Part II.
(2) Proxy Statement for Shareholders Meeting to be held Monday, June 2,
1997 to be filed pursuant to Regulation 14A and incorporated herein pursuant to
general instruction G(3) to Form 10-K. Incorporated in Part I, Part II and Part
III.
...............................................................................
...............................................................................
For the purpose of this Form 10-K, the following capitalized terms shall be
ascribed 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, 1996;
and
"Proxy Statement" shall mean the proxy statement for the 1997
shareholders meeting of Ostex International, Inc. to be held Monday, June 2,
1997 to be filed with the Commission pursuant to Regulation 14A.
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PART I
ITEM 1. BUSINESS
Ostex was incorporated in the State of Washington in 1989. The Company is
engaged in the discovery, development and commercialization of diagnostics and
therapeutics for diseases of the skeleton and connective tissues. The Company
believes that its lead product, the OSTEOMARK-registered trademark- assay,
incorporates innovative new technologY in the area of bone resorption
measurement. The Company is the exclusive licensee of this technology, known
clinically as the NTx assay, which is a simple urine test that can aid in
healthcare decision-making at early menopause and beyond. Ostex has formed
collaborative relationships with a number of leading diagnostic and
pharmaceutical companies to aid in the commercialization of the Osteomark assay.
As of December 31, 1996, the Company had 74 employees.
On May 8, 1995, the Company's Osteomark assay became commercially
available in the United States as a urinary assay 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 assay. The new claims form a basis of important new
messages to help physicians better manage diseases of the aging skeleton. First
and foremost, the new claims allow that an Osteomark test measurement, if taken
prior to the initiation of hormonal anti-resorptive therapy, can be utilized to
predict a patient's response to that therapy, in terms of its effect on skeletal
bone mineral density. Additionally, the claims allow that the test can be used
for therapeutic monitoring of anti-resorptive therapies in postmenopausal women,
as well as individuals diagnosed with osteoporosis and Padget's disease, and
therapeutic monitoring of estrogen-suppressing therapies. Prior to becoming
commercially available, the Osteomark test was available domestically only for
research purposes. The Osteomark test is now marketed in over 22 countries
around the world.
The Osteomark assay is a non-invasive diagnostic test which
quantitatively measures 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 resorptive therapy in postmenopausal women and help
prevent the onset of osteoporosis. The Company also believes that the Osteomark
assay aids clinicians in monitoring the effects of anti-resorptive therapies in
postmenopausal women, as well as in older patients who have already lost
significant bone mass.
The Company is manufacturing and marketing the Osteomark assay initially
in an ELISA format for testing urine samples. Worldwide promotion of the
Osteomark test kits is 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
assay in the existing microtiter plate format and is adapting the urine assay
for use with its automated analyzer. The companies intend to adapt the serum
assay for use on high-speed, high volume, automated instruments typically used
in large clinical laboratories. Ostex will receive royalties on Johnson &
Johnson sales of products incorporating the Ostex technology.
Ostex has also entered into research, development and license agreements
with Mochida Pharmaceutical Co., Ltd. ("Mochida"), a Japanese pharmaceutical
company for the commercialization of the Osteomark assay in Japan. Under the
research and development agreement Mochida has an option to license the NTx
serum assay and has paid Ostex $3,350,000 to date. Future payments of $750,000
under the agreement are contingent upon Mochida's decision to exercise its
option.. Under the license agreement, the Company granted exclusive
manufacturing, marketing and distribution rights to certain of the Company's
products in Japan. Mochida has agreed to pay Ostex $2,500,000 in licensing fees
for the Osteomark assay of which $2,000,000 has been earned to date.
Additionally, Ostex will receive royalties on Mochida sales of products
incorporating the Ostex technology.
Ostex is evaluating other potential collaborators to also adapt the
Osteomark assay to other high speed automated instruments. The Company also
plans to develop the Osteomark assay in other formats, including formats
suitable for use in the physician's office and the home. Toward that end, the
Company has established agreements with Hologic, Inc. ("Hologic"), a worldwide
leader in x-ray and ultrasound bone densitometers used to measure bone density
to assist in the diagnosis and monitoring of osteoporosis and other bone
diseases, and Metrika Laboratories, Inc. ("Metrika") to develop physician office
"point-of-care" Osteomark assay devices.
The Company has two agreements with Hologic. Under the first agreement
the companies will co-promote to physicians a package of products that
incorporates both companies' bone assessment products. The goal of the
co-promotion with Hologic is to advance the companies' mutual products and
technologies as complementary approaches for the diagnosis and management of
bone disorders. Certain of the disease indications that Ostex has chosen for its
initial research and development activities can be diagnosed using existing
x-ray and related technologies. However, Ostex believes that traditional x-ray
is generally regarded as a poor diagnostic tool to screen for risk of fracture
and severe bone loss because, according to industry sources, bone loss must
exceed 30% of bone mass before it can be detected by x-ray. Ostex believes that
the most accepted tool for conducting bone mineral density measurements is
dual-energy x-ray absorptiometry ("DEXA") because it has demonstrated that
it can accurately record bone densities. Hologic is a worldwide leader in DEXA
and untrasound bone densitometers. The agreement calls for the creation and
marketing of an integrated offering to physicians, in which a fee-per-study
leasing agreement will include both Hologic's QDR-4500C bone densitometer and a
specified number of OstIn utilizing the companies' sales forces an eomark tests.
customer bases, Ostex hopes to accelerate the physician education process, as
well as increase the awareness of both companies' diagnostic technologies.
The companies have also agreed to work together to develop a low-cost
point-of-care NTx test for bone resorption based on the Osteomark assay under a
joint development agreement. Under this agreement, the companies, working with
Serex, Inc. ("Serex"), will develop and market a point-of-care Osteomark test,
utilizing a strip-test technology of Serex. The joint product is expected to
reduce the cost and simplify the process of obtaining patient results.
Additionally, the Company has entered into agreements with several
leading clinical laboratories in the U.S. including Corning Clinical
Laboratories ("Corning"), SmithKline Beecham Clinical Laboratories
("SmithKline"), and Labcorp of America ("Labcorp"). Under these agreements, the
laboratories will perform the Osteomark test for their physician clients. These
relationships enable patients and doctors to conveniently access the Osteomark
assay for diagnosis and monitoring of osteoporosis.
Osteoporosis is a significant health problem worldwide. The Company
estimates that approximately 70 million women and 21 million men are at risk of
osteoporotic fracture, and that an additional 35 million people are at risk of
skeletal degradation associated with Paget's disease of bone, cancer that
metastasizes to bone, hyperparathyroidism and renal osteodystrophy. In spite of
the serious human and economic consequences of these diseases (according to the
National Osteoporosis Foundation, 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, which industry sources currently approximate at $2 billion
per year worldwide, will increase dramatically. The Company believes that over
50 new therapeutic products are under development for osteoporosis, many of
which are in late-stage clinical trials. The Company believes that the use of
the Osteomark assay can be used to effectively monitor existing therapies and
other therapies which may be developed.
Outside the field of osteoporosis, the Company is investigating the use
of its Osteomark assay in staging patients diagnosed with breast or prostate
cancer and is developing an assay to identify the degradation of cartilage, with
potential application in the field of arthritis The Company is also developing
an assay to measure the breakdown of vascular tissues with potential
applications in the area of cardiovascular disease. In addition, Ostex is
investigating a novel polypeptide, O-CSF, which has therapeutic implications for
osteoporosis and other bone disorders. Ostex has obtained all rights to its core
technology and to the O-CSF technology through exclusive license agreements with
the University of Washington (the "University") and its non-profit technology
licensing agency, the Washington Research Foundation (the "WRF").
OSTEOMARK and OSTEX are registered United States trademarks of Ostex
International, Inc. The Company has also registered its OSTEOMARK trademark in
31 other countries. Additional trademark applications are pending.
Competition from other biotechnology companies, pharmaceutical companies
and research and academic institutions continues to be intense. Subsequent to
the Osteomark assay becoming commercially available in the United States,
product sales have increased. However, the Company anticipates that it will face
intense competition in attempting to establish market share. Several immunoassay
tests for bone resorption as well as procedures for detection of osteoporosis
and other bone disorders currently exist and others are in development, and the
manufacturers of these tests will continue to improve them. In addition, the
diagnostic industry is subject to rapid technological change and it is likely
that new procedures and technologies will continue to be developed.
The Company's bone resorption assay technology is covered by seven United
States patents, two European patents, two Australian patents, and patents in
Ireland, Spain, Hong Kong, and Singapore. The two European patents are in
opposition proceedings before the European Patent Office. Additional patent
applications are pending in Japan and elsewhere. The Company's cartilage and
vascular connective tissue diagnostics are covered by two U.S. patents and
patents in Australia and Ireland. Additional patent applications are pending.
The Company's Research and Development expenditures, all of which was
funded by the Company, totaled $3,163,000, $3,200,000, and $3,308,000, in 1996,
1995, and 1994, respectively.
The Company's foreign kit sales, all to non-affiliates, totaled
$299,000, $530,000, and $215,000, in 1996, 1995 and 1994, respectively.
ITEM 1A. RISK FACTORS
THE FOLLOWING RISK FACTORS, AMONG OTHERS, COULD CAUSE THE COMPANY'S
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE COMPANY'S
FORWARD-LOOKING STATEMENTS IN THIS REPORT AND PRESENTED ELSEWHERE BY MANAGEMENT
FROM TIME TO TIME.
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's lead product, the Osteomark assay, became commercially
available in May 1995 in the United States and sales of this product have
increased over time. However, there can be no assurance that the Company's
Osteomark assay or any of its other diagnostic or therapeutic 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
developed diagnostic. There can be no assurance that the Company will be able to
develop significant market share for its products, or at all. The inability of
the Company to achieve market acceptance for its products could 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 for bone, cartilage and connective tissue
disorders. 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 significant additional, research and
development to adapt the core technology for serum testing and for 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 developing its
core technology to meet such needs. The Company has not developed physician
office and home-use adaptations of its core technology, and there can be no
assurance that the Company or any of its actual or prospective collaborators
will either develop or obtain any required regulatory approval for a
cost-effective instrument for such use. In addition, technological changes or
medical advancements could diminish or eliminate the commercial viability of the
Osteomark assay 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, could have a material adverse effect on the Company's business,
financial condition and results of operation.
RELIANCE ON COLLABORATIVE AGREEMENTS
The Company has entered into collaborative or co-promotional agreements
with several partners, including, among others, Hologic, Johnson & Johnson and
Mochida. The level of each of such 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 research and the development of 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 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 a national distributor and its own limited sales
force and to market 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 it or
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 depends on its current and future patent position relating to
its core technology and its O-CSF 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, as well as the O-CSF technology. The Company is
dependent upon the WRF for the filing and prosecution of patents and patent
applications licensed to the Company. Claims made under patent applications may
be denied or significantly narrowed, and issued patents may not provide
significant commercial protection to the Company. There is no assurance that the
Company's patents will not be challenged or designed around 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 delivery 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 design around
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.
UNCERTAINTY OF REGULATORY APPROVALS FOR DIAGNOSTIC OR THERAPEUTIC PRODUCTS
The process of obtaining FDA and other required regulatory approvals can
be lengthy and expensive. The time required for FDA approvals is uncertain, and
often depends on the type, complexity and novelty of the product. There can be
no assurance that the FDA will act favorably or quickly in its review of any
submission by the Company, and significant difficulties or costs may be
encountered by the Company in its efforts to obtain FDA approvals that could
delay or preclude the Company from marketing its products. Furthermore, there
can be no assurance that the FDA 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 pre-market approval application
("PMA") 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 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 510(k)
notification. 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.
EARLY STAGE DEVELOPMENT OF O-CSF TECHNOLOGY AND UNCERTAINTY OF REGULATORY
APPROVALS
Research on the Company's O-CSF technology is at an early stage. There
can be no assurance that the Company's O-CSF research and development activities
will result in any commercially viable therapeutic or diagnostic products. Even
if the Company develops therapeutic products from such technology, the process
of obtaining FDA approval for therapeutic products is substantially more costly
and time consuming than for diagnostic products. There can be no assurance that
any potential therapeutic or diagnostic product based on O-CSF technology will
obtain approval by the FDA for any indication.
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 plans to develop adaptations of its core technology for the
home-use market and for use in physicians offices and may depend upon the
efforts of collaborators for this development. Such adaptations have not been
developed 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 its 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 at
December 31, 1996 of approximately $21,864,000. At December 31, 1996, the
Company had a net loss of approximately $8,070,000. The Company expects to incur
additional substantial 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 will continue to require substantial funds for research and
development, commercial-scale manufacturing facilities, and the marketing of its
products. The amount of the Company's future capital requirements will depend on
many factors, including the status of the development of its products, the time
and costs involved in obtaining regulatory approvals, the costs involved in
filing, prosecuting and enforcing patent claims, competing technological and
market developments, the ability of the Company to maintain existing
collaborative and licensing arrangements, and the ability of the Company to
establish new collaborative and licensing arrangements. The Company will require
substantial additional funds to complete the development of its therapeutic
products. The Company expects that its existing capital resources will be
sufficient to fund the Company's activities through 1998. However, the Company
may be required to seek additional financing before the end of 1998. There can
be no assurance that additional funds, whether through additional financings,
collaborative arrangements with corporate sponsors or other sources, will be
available, if at all, in a timely manner or on acceptable terms. If adequate
funds are not available, the Company may be required to delay, scale back or
eliminate one or more of its programs or obtain funds through arrangements that
are unfavorable to the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the principal members of its
scientific and management staff, particularly Dr. David Eyre. The loss of Dr.
Eyre's services may have a material adverse effect on the Company's efforts to
develop additional diagnostic products from its core technology and to develop
products from its O-CSF technology. Recruiting and retaining qualified
scientific personnel to perform research and development work in the future will
also be critical to the Company's operations. There can be no assurance that the
Company will be able to attract and retain such personnel given the competition
for experienced scientists among numerous diagnostic and biotechnology companies
and research and academic institutions.
The Company's continued expansion of its operations, manufacturing and
marketing efforts, research and development activities, and clinical trials is
expected to place increased demands on the Company's resources, and necessitate
the retention and addition of management personnel and the development of
additional expertise by existing management personnel. The failure to retain or
acquire needed personnel or to develop needed expertise could have a material
adverse effect on the Company's operations. In addition, the Company expects to
continue to engage consultants and advisors to assist in formulating its
research and development strategy. All of the Company's consultants and advisors
are employed by entities other than the Company and may have commitments to or
consulting or advisory contracts with other entities that may affect their
ability to contribute to the Company.
INTENSE COMPETITIVE ENVIRONMENT
Competition from biotechnology companies, pharmaceutical companies and
research and academic institutions is intense and is expected to increase. A
number of diagnostic tests and procedures for osteoporosis and other bone
disorders currently exist and others are in development, and the manufacturers
of these tests will continue to 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 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 bone, cartilage and
connective tissue disease, diagnosis and treatment. 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 diagnostic or therapeutic 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.
POTENTIAL VOLATILITY OF STOCK PRICE
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 result 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
competition, 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.
ITEM 1B. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages are as follows:
NAME AGE POSITION
- ----- ----- --------
H. Raymond Cairncross, J.D. 55 Chairman of the Board of Directors and Chief
Executive Officer
Robert J. Glaser, M.B.A. 45 Director, President and Chief Operating Officer
Robert M. Littauer, M.B.A., C.P.A. 48 Senior Vice President, Finance and Administration
Jeffrey J. Miller, Ph.D., J.D. 49 Senior Vice President, Corporate Development and
Secretary
Thomas F. Broderick, M.A., J.D. 48 Vice President, Intellectual Property
Nancy J.S. Mallinak 35 Vice President, Regulatory and Clinical Affairs
William K. Strelke, M.S. 43 Vice President, Sales and Marketing
John Wynne 44 Vice President, European Operations
H. RAYMOND CAIRNCROSS, J.D. is a founder of the Company and has been
Chairman of the Board of Directors since 1989 and Chief Executive Officer since
1991. From 1991 to April 1996, Mr. Cairncross also served as President of the
Company. In 1987, Mr. Cairncross founded Cairncross & Hempelmann, PS., a Seattle
law firm of which he previously served as Managing Partner and currently is
inactive as a shareholder and a director. Mr. Cairncross is a member of the
Board of Directors of Information Optics Corporation, a company developing high
speed computer memory systems, and Omeros Medical Systems, Inc., a company
developing orthopedic surgical devices and products.
ROBERT J. GLASER, M.B.A. has been with the Company as the President and
Chief Operating Officer since April 1996 and as a Director of the Company since
May 1995. Prior to joining Ostex, Mr. Glaser has held a variety of U.S. and
International positions at Merck & Co., Inc., a pharmaceutical company,
including positions as Senior Vice President, Marketing, U.S. Human Health from
January 1994 to April 1996, as Vice President, Marketing, Merck Human Health
Division from June 1993 to January 1994, as Vice President, Merck Vaccine
Division, from March 1993 to June 1993, as Vice President, Sales & Marketing,
Merck Vaccine Division, from 1991 to 1993, and as Executive Director of
Marketing, Merck, Sharp & Dohme, from 1989 to 1991.
ROBERT M. LITTAUER, M.B.A., C.P.A. joined the Company in September 1996
as Senior Vice President, Finance and Administration. Before joining Ostex, Mr.
Littauer was Senior Vice President, Chief Financial Officer and Treasurer of
NeoRx Corporation, a biotechnology company developing therapeutic products for
cancer and cardiovascular diseases ("NeoRx"), from 1987 to September 1996. From
1982 to 1987 Mr. Littauer was Vice President, Chief Financial Officer at
Concept, Inc., a manufacturer of surgical products subsequently acquired by
Bristol Myers-Squibb, and from 1977 to 1982 was Corporate Controller of
Instrumentation Laboratory, Inc. a manufacturer of medical and analytical
testing instruments.
JEFFREY J. MILLER, PH.D., J.D. joined the Company in September 1996 as
Senior Vice President, Corporate Development. Prior to joining Ostex, Dr. Miller
was Senior Vice President of Business Development and Legal Affairs for NeoRx
from 1987 to September 1996. From 1985 to 1987 Dr. Miller was a partner at the
Seattle law firm of Seed and Berry.
THOMAS F. BRODERICK, M.A., J.D. joined the Company in April 1996 as
Patent Counsel and in March 1997 became Vice President, Intellectual Property.
From 1989 to April 1996 Mr. Broderick was a partner at the patent law firm of
Christensen, O'Connor, Johnson & Kindness in Seattle, Washington.
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. From September 1985 to June 1989, Ms. Mallinak was a
supervisor for research and development at Bio Control Systems, Inc., a
diagnostics company.
WILLIAM K. STRELKE, M.S. joined the Company in January 1994 as Director,
Sales and Marketing and in October 1994 became Vice President, Sales and
Marketing. Prior to joining Ostex, Mr. Strelke served from March 1993 to January
1994 at Mitchell International, Inc., a health-care facility design and
construction consulting company, where he was Vice President and Regional
Director. From 1983 to March 1993, Mr. Strelke was responsible for sales and
distribution management with the Scientific Products Division of Baxter
International (previously American Hospital Supply Corporation), a general
healthcare company.
JOHN WYNNE joined the Company in December 1996. From 1992 to 1996 Mr.
Wynne held various positions at IMR... Corporation, a biotechnology company,
including Vice President, Marketing and Business Development from 1993 to 1996,
and Managing Director of their European Subsidiary from 1992 to 1993. From 1988
to 1991 Mr. Wynne was Business Manager of Fresenius Ltd, a German based national
healthcare company.
ITEM 2. PROPERTIES
The Company's research laboratories, manufacturing operations, and
administrative offices are located in Seattle, Washington. The Company leases
approximately 39,000 square feet of space in Seattle under a lease that will
expire in 2005 and a laboratory facility and antibody manufacturing operation in
Portland, Oregon occupying 1,500 square feet under a lease that will expire in
1997. The Company expects to relocate its Portland activities to the Seattle
facility at the expiration of the Portland facility lease. Ostex is currently
utilizing 80% of its leased space.
ITEM 3. LEGAL PROCEEDINGS
Information regarding Legal Proceedings is incorporated herein by
reference to note 11 in the "Notes to Financial Statements" on pages 21-22 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, 1996.
---------------------
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding the Common Stock trading activity for 1996 and 1995
is incorporated herein by reference to the "Shareholder Information" on page 25
of the Annual Report to shareholders.
As of March 18, 1997 there were 12,447,617 shares of Common Stock
outstanding held of record by approximately 170 shareholders. The Company
believes there are a significant number of additional owners of the Common
Stock, who own shares held in street name.
The Company has never paid cash dividends and has no present intention of
paying dividends in the foreseeable future.
TRANSFER AGENT AND REGISTRAR - The transfer agent and registrar for the
Common Stock is ChaseMellon Shareholder Services, L.L.C., Seattle, Washington.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference
to "Selected Financial Data" on page 10 of the Annual Report to shareholders.
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 11-12 of the Annual Report to shareholders.
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
13-22 and "Report of Independent Public Accountants" on page 23 of the Annual
Report to shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
--------------------
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 sections entitled " Management" and
"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 "Notes to Financial
Statements" on pages 18-22 of the Annual Report to shareholders and the section
entitled "Certain Transactions" of the Proxy Statement is incorporated by
reference in response to this item.
--------------------
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
The information contained in the Financial Statements and Notes to
Financial Statements are located on pages 13-22 of the Annual Report to
shareholders and are listed below.
Page within
FINANCIAL STATEMENTS Annual Report
-------------------- -------------
Balance Sheets 13
Statements of Operations 14
Statements of Cash Flows 15
Statements of Shareholders' Equity 16
Notes to Financial Statements 18
Report of Independent Public Accountants 23
(B) REPORTS ON FORM 8-K
None
(C) EXHIBIT INDEX (7)
Exhibit
Number Description
------- ---------------------------------------------------
3.1 Articles of Incorporation, as amended, dated January 1997.
(1)3.2 Bylaws, as amended
(1)4.1 Specimen Common Stock Certificate
Stock Purchase Agreements ("Terms and Provisions" included
in Exhibit 3.1)
(1)4.2A Series A Stock Purchase Agreement dated September 1989
(1)4.2B Series B Stock Purchase Agreement dated June 1992
(1)4.2C Series C Stock Purchase Agreement dated August 1993
(1)4.3 Form of CS First Boston Corporation Warrant
(1)4.4 Form of Invemed Associates, Inc. Warrant
(2)4.5 Shareholder Rights Agreement dated January 21, 1997
(1)10.1A Amended and Restated Stock Option Plan
(1)10.1B Form of Employee Stock Option Agreement
(1)10.1C Form of Director's Stock Option Agreement
(1)10.2 Directors' Nonqualified Stock Option Plan
(1)10.3 1994 Stock Option Plan
Agreements with Hologic, Inc.
(3)10.4A Co-Promotion and Sales Representation Agreement dated
January 14, 1997
(3)10.4B Joint Development, License and Supply Agreement dated
January 14, 1997
(1)10.5 Form of Indemnification Agreement with officers and
directors
(1)10.6 Form of Employee Confidentiality and Invention Agreement
Agreements with H. Raymond Cairncross
(1)10.7A Employment Agreement dated April 15, 1994
(1)10.7B Stock Option Agreements dated June 6, 1991, July 1, 1993,
July 1, 1994, April 15, 1994
(1)10.9 Asset Purchase and Sale Agreement dated May 31, 1994 with
Hybrilogic Corporation
(1)10.10 Cooperation Agreement dated August 11, 1993 with
Merck & Co., Inc.
Agreements with Mochida Pharmaceutical Co., Inc.
(1)10.12A Research and Development Agreement dated August 1992
(1)10.12B Osteomark License Agreement Dated August 1992
(1)10.12C Stock Purchase Agreement dated November 22, 1994
Agreements with The Washington Research Foundation
(1)10.13A Restated Exclusive License Agreement effective June 19,
1992 (Urinary Assay for Measuring Bone Resorption)
(1)10.13B Amendment to Restated Exclusive License Agreement effective
January 1, 1993
(1)10.13C Second Amendment effective June 2, 1994
(1)10.14 Exclusive License Agreement dated February 10, 1994 (O-CSF)
Exhibit
Number Description
------- ---------------------------------------------------
Agreements with the University of Washington
(3)10.15A Research Agreement dated July 26, 1989 (Molecular Markers
of Connective Tissue Degradation)
10.15B Research Agreement dated July 1, 1996 (Molecular Markers of
Connective Tissue Degradation)
(3)10.15C Research Agreement dated October 1, 1996 (Role of O-CSF in
Osteoclast Regulation)
(1)10.16A Know-How Transfer and Consulting Agreement dated
September 18, 1989 with David R. Eyre, Ph.D.
(1)10.16B Extension and Amendment dated May 1, 1992
(1)10.17 Amended and Restated Know-How Transfer and Consulting
Agreement dated February 22, 1993 with Minako Y. Lee, M.D.
(1)10.19 Osteomark EIA Exclusive Distribution License Agreement dated
March 28, 1994 with Technogenetics S.R.L. (division of
Recordati Pharmaceutical)
(1)10.20 Osteomark EIA Distribution License Agreement dated July 12,
1994 with BRAHMS Diagnostic (formerly Henning Berlin GMBH)
(1)10.21 Osteomark EIA Exclusive Distribution License Agreement dated
May 4, 1994 with Shield Diagnostics (Limited)
(1)10.22 Osteomark EIA Exclusive Distribution License Agreement dated
July 1, 1994 with DSL Diagnostic Products, Inc.
(dba INTER Medico)
(1)10.23 Osteomark Agreement dated February 12, 1993, as amended
May 10, 1994, with Nichols Institute Reference Laboratory
(1)10.24 Osteomark EIA Exclusive Distribution License Agreement dated
September 1, 1994 with Immuno Diagnostics
(1)10.25 License Agreement dated July 8, 1994 with Endrocrine
Sciences
(1)10.26 License Agreement dated August 1994 with Pacific Biometrics,
Inc.
Lease Agreements
(4)10.27A Lease Agreement dated October 2, 1995, with David A. Sabey
and Sandra L. Sabey
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.
(5)10.28A Distribution Agreement dated June 7, 1995
(5)10.28B Research, Development, License and Supply Agreement dated
June 7, 1995
(4)10.29 Clinical Laboratory Services License and Supply Agreement
dated October 25, 1995, with SmithKline Beecham Clinical
Laboratories, Inc.
Exhibit
Number Description
------- ---------------------------------------------------
(4)10.30 Promotion Agreement dated September 20, 1995 with
Wyeth-Ayerst Laboratories
(6)10.31 Agreement with Laboratory Corporation of Americao Holdings
(LabCorp), dated January 11, 1996
13.0 Annual Report to stockholders for the year-ended
December 31, 1996
27.1 Financial Data Schedule
Notes to the Exhibits.
(1) 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).
(2) Incorporated herein by reference from Form 8-A filed with the S.E.C.
in January 1997.
(3) Confidential treatment requested.
(4) Incorporated herein by reference from Form 10-K filed with the S.E.C
for the year ended December 31,1995.
(5) Incorporated herein by reference from Form 10-Q filed with the S.E.C
for the quarter ended June 30, 1995.
(6) Incorporated herein by reference from Form 10-Q filed with the S.E.C.
for the quarter ended March 31, 1996.
(7) Copies of exhibits may be obtained at prescribed rates from the Public
Reference Section of the Securities and Exchange Commission at 450 5th Street
NW, Room 1024, Washington, D.C., 20549.
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 25, 1997.
OSTEX INTERNATIONAL, INC.
By /S/ H. RAYMOND CAIRNCROSS
----------------------------
H. Raymond Cairncross
Chairman of the Board of Directors
and Chief Executive Officer
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
--------- ---------- ----
/S/ H. RAYMOND CAIRNCROSS Chairman of the Board of Directors,
- ------------------------- and Chief Executive Officer March 25, 1997
H. Raymond Cairncross (principal executive officer)
/S/ ROBER J. GLASER Director, President and March 25, 1997
- ------------------------- Chief Operating Officer
Robert J. Glaser
/S/ Robert M. Littauer Senior Vice President, March 25, 1997
- ------------------------- Finance and Administration
Robert M. Littauer (principal financial and
principal accounting officer)
Director March 25, 1997
- -------------------------
Thomas J. Cable
/S/ DAVID R. EYRE Director March 25, 1997
- -------------------------
David R. Eyre
/S/ GREGORY D. PHELPS Director March 25, 1997
- -------------------------
Gregory D. Phelps
/S/ GILBERT S. OMENN Director March 25, 1997
- -------------------------
Gilbert S. Omenn