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Rule 424(b)(3)
File No. 333-42390
PROSPECTUS
HYPERTENSION DIAGNOSTICS, INC.
1,568,175 SHARES OF COMMON STOCK
The shareholders of Hypertension Diagnostics, Inc. listed below (the
"Selling Shareholders") are entitled to and may offer and sell up to 1,568,175
shares of common stock (the "Shares") under this prospectus. We will not receive
any of the proceeds from the sale of the securities by the Selling Shareholders.
The Shares covered by this prospectus have been issued to, or are
issuable to, the Selling Shareholders under the terms of our stock options for
issuance of common stock, which we granted to the Selling Shareholders in
private transactions, and our warrants to purchase common stock, which we issued
to the Selling Shareholders in connection with private placements and our
initial public offering. The Selling Shareholders will receive the Shares
covered by this prospectus if, and when, they voluntarily exercise their option
agreements and warrants to purchase Shares.
The Selling Shareholders may offer their Shares at prevailing market
prices in public transactions on The Nasdaq SmallCap Market, or in privately
negotiated transactions. No period of time has been fixed within which the
Shares may be offered or sold.
The price of our common stock in this offering may not reflect the
market price of our common stock after the offering.
Our common stock is quoted on The Nasdaq SmallCap Market under the
symbol "HDII." On August 23, 2000, the last reported sales price of our common
stock on The Nasdaq SmallCap Market was $7.94.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN OUR COMMON STOCK, PLEASE SEE "RISK FACTORS"
BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
The Selling Shareholders may from time to time sell all or a portion of
the securities offered by this prospectus in transactions on The Nasdaq SmallCap
Market at market prices at the time of sale, or otherwise as described in this
prospectus. The Selling Shareholders may effect these transactions by selling
the securities directly to purchasers or through dealers or agents who may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers of the securities for whom they
may act as agents. See "Plan of Distribution."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS AS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------
THIS PROSPECTUS IS DATED AUGUST 25, 2000
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TABLE OF CONTENTS
Page
----
About this Prospectus........................................... 1
Where You Can Find More Information
and Incorporation by Reference.............................. 1
Summary ........................................................ 3
Risk Factors.................................................... 6
The Company..................................................... 17
Use of Proceeds................................................. 33
Selling Shareholders........................................... 33
Plan of Distribution............................................ 36
Related Party Transactions...................................... 37
Subsequent Events............................................... 37
Legal Opinions.................................................. 37
Experts ....................................................... 37
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities............... 38
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3,
including amendments, accompanying exhibits and schedules, which we have filed
with the Securities and Exchange Commission under the Securities Act of 1933,
relating to the shares offered by this prospectus. The registration statement
contains additional information about us and the securities offered under this
prospectus and can be read at the Commission's web site or at the Commission's
offices mentioned under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
AND INCORPORATION BY REFERENCE
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. Our filings,
including the registration statement to which this prospectus relates, are
available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file with the SEC
at its public reference facilities at 450 Fifth Street N.W., Washington, D.C.
20549, 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You
can also obtain copies of the documents at prescribed rates by writing to the
Public Reference Section of the SEC at 450 Fifth Street N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference facilities.
We "incorporate by reference" into this prospectus the information we
file with the SEC, under File No. 0-24635, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus.
Information that we file subsequently with the SEC will automatically update
this prospectus. We incorporate by reference the documents listed below, and any
filings we make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 after the initial filing of the registration
statement that contains this prospectus and before the time that we sell all the
securities
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offered by this prospectus:
- Annual Report on Form 10-KSB for the year ended June 30, 1999;
- Quarterly Reports on Form 10-QSB for the quarters ended
September 30, 1999, December 31, 1999 and March 31, 2000;
- Current Report on Form 8-K filed with the SEC to report the
resignation, effective April 21, 2000, of Dennis L. Sellke as
a director of the company;
- Definitive notice and proxy statement for our annual meeting
of shareholders held on November 30, 1999; and
- The description of our common stock in our Form 8-A12G
registration statement filed on July 16, 1998, which
incorporated the material under "Description of Capital Stock"
in our registration statement on Form SB-2, as originally
filed on May 19, 1998 (Registration No. 333-53025) and
subsequently amended, including any amendment or report filed
for the purpose of updating the description.
You may request a copy of these filings at no cost, by writing to or
telephoning us at the following address:
Hypertension Diagnostics, Inc.
Attn: James S. Murphy, Chief Financial Officer
2915 Waters Road, Suite 108
Eagan, Minnesota 55121-1562
Telephone: (651) 687-9999
You may also contact us via our web site at http://www.hdi-pulsewave.com.
Our common stock is quoted on The Nasdaq SmallCap Market, and some of
our reports, proxy materials and other information may also be available for
inspection at the offices of Nasdaq at 1735 K Street N.W., Washington, D.C.
20006.
You should rely only on the information included or incorporated by
reference in this prospectus. We have not authorized anyone else to provide you
with different information. We may only sell these securities if we provide this
prospectus to prospective purchasers. We are only offering these securities in
states where the offer is permitted. You should not assume that the information
in this prospectus is accurate as of any date other than the dates on the front
of this document. Information on our web site is not a part of this prospectus.
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SUMMARY
Because this is a summary, it does not contain all of the information
that may be important to you. Please read the entire prospectus and carefully
consider among other things the more detailed information appearing elsewhere in
this prospectus and in documents incorporated in this prospectus by reference,
before you decide to invest in our company.
THE BUSINESS
We are engaged in the design, development, assembly and marketing of a
proprietary medical device that we believe will non-invasively detect subtle
changes in the elasticity of large and small arteries. Vascular compliance or
elasticity has been studied for many years and clinical investigations suggest
that a lack of arterial elasticity may be an early indicator of underlying
vascular disease. We have already developed two versions of our CardioVascular
Profiling System and have a third in development (the "Product"):
- The HDI/PulseWave(TM)CR-2000 Research CardioVascular Profiling
System is intended "for research purposes only" in the United
States (that is, it is not for screening, diagnosing,
monitoring or determining treatment of patients). We believe
the CR-2000 Research System does not require United States
Food and Drug Administration (the "FDA") clearance to market
and it is currently being marketed. We have obtained a CE Mark
certification (that is, CE 0123), indicating that the CR-2000
Research System has met the Medical Device Directive
requirements, complies with applicable safety standards and is
approved for sale throughout the European Union.
- The CVProfilor(TM)DO-2020 CardioVascular Profiling System is
intended for use by primary care physicians and other health
care professionals for screening patients with underlying
vascular disease. It is subject to FDA regulation and must be
cleared by the FDA before we can market it in the United
States. We have forwarded a 510(k) Premarket Notification
submission to the FDA for review, and if it is accepted, we
will then be able to market the CVProfilor(TM)DO-2020 System
in the United States. We anticipate that the
CVProfilor(TM)DO-2020 System will eventually generate the
majority of our revenues.
- The CVProfilor(TM)MD-3000 CardioVascular Profiling System
(formerly the Model DO-2020i) will provide physicians outside
the United States with certain clinically beneficial
cardiovascular parameters. We believe these parameters will
provide information useful in screening and diagnosing
individuals who may be at risk for future cardiovascular
disease and in monitoring the effectiveness of treatment of
patients with previously diagnosed cardiovascular disease. We
are pursuing additional registrations and approvals that will
permit us to market the CVProfilor(TM)MD-3000 System in
several foreign markets.
Our company was incorporated in 1988 under the laws of the State of
Minnesota. Our main office is located at 2915 Waters Road, Suite 108, Eagan,
Minnesota 55121-1562. Our telephone number is (651) 687-9999 and our fax number
is (651) 687-0485.
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THE OFFERING
Securities Offered. This prospectus relates to the offer and sale of up to
1,568,175 shares of our common stock (the "Shares") by some of our shareholders
(the "Selling Shareholders"). The shares are issuable to the Selling
Shareholders as follows:
<TABLE>
<S> <C>
Common stock issuable upon exercise of options .........................................1,035,275 shares
Common stock issued or issuable upon exercise of warrants,
including common stock purchase warrants and
Class A Redeemable Warrants to purchase common stock.....................................532,900 shares
Securities Outstanding. We have the following securities outstanding:
Common Stock(1) ........................................................................5,180,197 shares
Units(2)................................................................................2,587,500 units
Warrants to purchase common stock(3).......................................................68,438 shares
Warrants to purchase common stock(4).......................................................36,350 shares
Warrants to purchase common stock(5).......................................................13,650 shares
Warrant to purchase Units(6)..............................................................350,000 shares
Class A Redeemable Warrants to purchase common stock (7)...............................2 ,587,500 shares
Options to purchase common stock(8).....................................................1,035,275 shares
The Nasdaq SmallCap Market symbols:
Common stock ....................................................................................HDII
Class A Redeemable Warrants......................................................................HDIIW
Units............................................................................................HDIIU
</TABLE>
(1) Excludes up to 400,000 shares of common stock reserved for issuance
under our 1995 stock option plan and 750,000 shares of common stock
reserved for issuance under our 1998 stock option plan, of which
options covering 381,500 shares and 293,980 shares, respectively, were
outstanding as of June 30, 2000; also excludes up to 1,110,275 shares
of common stock issuable under options granted outside of our stock
option plans, all of which options were outstanding as of June 30,
2000. Includes 64,462 shares of common stock issued to one person who
exercised an agent's warrant at an exercise price of $2.00 per share.
(2) Units, each consisting of one share of common stock and one Class A
Redeemable Warrant.
(3) Each warrant entitles its holder to purchase one share of common stock,
at an exercise price of $2.00 per share, at any time prior to October
30, 2000.
(4) Each warrant entitles its holder to purchase one share of common stock,
at an exercise price of $4.95 per share, at any time prior to February
2004.
(5) Each warrant entitles its holder to purchase one share of common stock,
at an exercise price of $4.95 per share, at any time prior to March
2004.
(6) Underwriter's warrant entitling the holder to purchase 175,000 units,
each consisting of one share of common stock and one Class A Redeemable
Warrant, at a purchase price of $4.95 per unit, at any time prior to
July 22, 2003. The warrant component of the units is exercisable at a
purchase price of $5.50 per share.
(7) Class A Redeemable Warrants, each entitling the holder to purchase one
share of common stock, at a purchase price of $5.50 per share, subject
to adjustment, at any time prior to July 22, 2002.
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(8) These options entitled holders to purchase shares of common stock, at
purchase prices ranging from $1.70 to $2.00 per share. These options
are all exercisable as of the date of this prospectus and expire on
various dates during the period October 30, 2005 through June 30, 2007.
Use of Proceeds. We will not receive any proceeds from the sale of the
common stock sold by the Selling Shareholders.
Risk Factors. See "Risk Factors" for a discussion of some risks that
you should consider when determining whether to invest in our company.
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RISK FACTORS
Purchasing shares of common stock of Hypertension Diagnostics, Inc. is
risky. You should be able to bear the complete loss of your investment. If you
are considering a purchase of our common stock offered by this prospectus, you
should read the entire prospectus and consider carefully all the information
contained in this prospectus and especially the following risk factors.
FORWARD-LOOKING STATEMENTS
This prospectus, and our public documents to which we refer, contain
forward-looking statements that involve risks and uncertainties. In addition, we
may make forward-looking statements orally in the future by or on behalf of the
company. When used in this prospectus, the words "believe," "expect," "will,"
"can," "estimate," "anticipate" and similar expressions are intended to identify
forward-looking statements. We wish to caution readers not to place undue
reliance on any forward-looking statements and to recognize that the statements
are not predictions of actual future results. Actual results could differ
materially from those anticipated in the forward-looking statements due to the
risks and uncertainties set forth in our 1999 Annual Report on Form 10-KSB under
the caption "Risk Factors," as well as others not now anticipated. These risks
and uncertainties include, without limitation, our ability to receive regulatory
approval for our CVProfilor(TM) DO-2020 System; the availability of third-party
reimbursements; market acceptance of our products; the ability to operate and
maintain the Central Data Management Facility ("CDMF") on a commercial scale;
regulatory restrictions pertaining to data privacy issues in utilizing the CDMF;
the ability to manufacture our products on a commercial scale and in compliance
with regulatory requirements; the availability of integral components for our
products; our ability to develop distribution channels; increased competition;
changes in government regulation; health care reforms; exposure to potential
product liability; and our ability to protect our proprietary technology. You
should consider these risks, and carefully review the risk factors described in
this prospectus, before you purchase shares of our common stock. We do not
intend to update any forward-looking statements.
RISKS RELATED TO OUR BUSINESS
WE ARE A DEVELOPMENT STAGE COMPANY AND ARE NOT PRESENTLY GENERATING ANY
SIGNIFICANT REVENUES. We cannot assure you that we will ever be able to generate
significant revenues, attain or maintain profitable operations or successfully
implement our business plan or current development opportunities. As of March
31, 2000, we had a deficit accumulated during the development stage of
$(7,833,838), attributable primarily to research and development and general and
administrative expenses. Until we are able to generate significant revenues from
our activities, we expect to continue to incur operating losses.
We plan to market three versions of our Product: the HDI/PulseWave(TM)
CR-2000 Research CardioVascular Profiling System, the CVProfilor(TM) DO-2020
CardioVascular Profiling System and the CVProfilor(TM) MD-3000 CardioVascular
Profiling System (previously referred to as the Model DO-2020i). We believe that
the CR-2000 Research System, intended for research use only in the United States
(that is, not for screening, diagnosing, monitoring or determining the treatment
of patients), does not require FDA clearance to market, and marketing and
distribution activities have commenced worldwide. The CVProfilor(TM) DO-2020
System, intended for use by physicians to screen patients for the presence of
underlying vascular disease, is an FDA regulated medical device. We are unable
to market the CVProfilor(TM) DO-2020 System in the United States until FDA
clearance to market is obtained.
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The likelihood of our success must be considered in light of the expenses,
difficulties and delays that development stage businesses like ours frequently
encounter and the competitive environment in which we operate. Our profitability
is dependent in large part on obtaining timely FDA clearance for our
CVProfilor(TM) DO-2020 System, the availability of third-party reimbursement,
gaining market acceptance of our Product, establishing distribution channels and
developing the capacity to manufacture and sell our Product successfully. We
cannot assure you that we will successfully meet all of these goals.
WE HAVE LIMITED FINANCIAL RESOURCES AND MAY NEED ADDITIONAL FINANCING TO
CONTINUE OUR BUSINESS. Our ability to execute our business strategy depends to a
significant degree on our ability to obtain substantial equity capital and other
financing. Our business strategy requires a large capital outlay for equipment
which we plan to place in physicians' offices without charge. Consequently, we
must first build up and maintain an inventory of System components and equipment
before we will know whether our business strategy will be successful. We
anticipate that the proceeds from our initial public offering in 1998 will be
sufficient to fund our operations through the next six to nine months. Although
we expect that these proceeds will be sufficient to allow initial marketing of
all versions of our Product, we can give no assurance that they will be
sufficient. Any unforeseen contingencies, including, but not limited to, delays
in FDA clearance of the CVProfilor(TM) DO-2020 System, unavailability of third
party reimbursement, delayed or limited market acceptance, delays in
establishment of distribution channels, shortage of System components or delays
in manufacturing may impede our marketing efforts. We may be required to seek
additional funds through another offering of our equity securities or by
incurring indebtedness. We cannot assure you that any additional funds will be
available on terms acceptable to us or our security holders, or at all, or that
any future capital that is available will be raised on terms that are not
dilutive to investors. Our business plan and financing needs are subject to
change depending on, among other things, market conditions, business
opportunities and cash flow from operations, if any.
FAILURE TO OBTAIN FDA CLEARANCE FOR OUR PRODUCT WILL AFFECT OUR BUSINESS. We
believe that the HDI PulseWave(TM) CR-2000 Research System does not require
either FDA clearance or approval before we begin marketing it to research
institutions and medical research centers for research use only. However, the
FDA could disagree with us and require that we submit a 510(k) Premarket
Notification or Pre-Market Approval ("PMA") submission for the HDI/PulseWave(TM)
CR-2000 Research System. In that event, it is possible that the FDA may not
clear or approve the CR-2000 Research System, or may clear or approve it subject
to significant limitations on the intended uses for which it is marketed. In
contrast, our CVProfilor(TM) DO-2020 System is regulated by the FDA as a medical
device and will require FDA clearance or approval prior to being marketed in the
United States. We recently forwarded a new 510(k) Premarket Notification
submission to the FDA for review. We have not yet received clearance from the
FDA and we cannot market the CVProfilor(TM) DO-2020 System until we receive the
same. However, the FDA may decide that one or more of our proposed claims or
indications for use of the CVProfilor(TM) DO-2020 System cannot be cleared by
means of the 510(k) process. In that event, the FDA might require that we seek
approval for the device or the particular claims or indications by means of a
PMA submission. This could substantially delay marketing the device or our use
of the claims or indications for marketing purposes by several months or even
years and it could be a prohibitively expensive endeavor for our company.
Obtaining FDA clearance or approval can be a lengthy process and may
require additional clinical testing, financial expenditures and other
substantial resources. The timing of the clearance or approval process is
unpredictable and we cannot assure you that our 510(k) submission for marketing
the CVProfilor(TM) DO-2020 System will ultimately receive FDA clearance. Even if
granted, the FDA clearance or approval may include significant limitations on
the intended uses for which the CVProfilor(TM) DO-2020 System may be marketed.
FDA enforcement policy strictly prohibits the
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promotion of cleared or approved medical devices for non-approved or "off-label"
uses. In addition, the FDA may withdraw product clearances if the CVProfilor(TM)
DO-2020 System fails to comply with regulatory standards or we encounter
unforeseen problems following initial marketing. Failure to receive necessary
regulatory clearances or approvals or a lengthy approval process would have a
material adverse effect on our business, financial condition and results of
operations.
WE ARE DEPENDENT UPON THIRD-PARTY REIMBURSEMENT AND/OR DIRECT PATIENT PAYMENT
FOR OUR REVENUES. Our financial performance will largely depend on the
availability of reimbursement, if any, for the cost of medical products and
services from government health administration authorities, private health
coverage insurers and other payer organizations. No third-party payer has yet
approved reimbursement for use of our CVProfilor(TM) DO-2020 System. Significant
uncertainty exists as to the pricing, availability of distribution channels and
reimbursement status of new medical products, and we cannot assure you that
adequate third-party reimbursement will be available for the CVProfilor(TM)
DO-2020 System. In foreign markets, pricing or profitability of health care
products is subject to government control. Our inability to obtain third-party
reimbursement and/or direct patient payment for the CVProfilor(TM) DO-2020
System would have a material adverse effect on our business, financial condition
and results of operations.
BECAUSE WE HAVE A NEW PRODUCT, THE UNCERTAINTY OF MARKET ACCEPTANCE OF OUR
PRODUCT OR MEDICAL APPLICATION OF THE TECHNOLOGY WILL AFFECT OUR BUSINESS. Our
financial performance will depend in large part upon FDA clearance of the
CVProfilor(TM) DO-2020 System. It will also largely depend upon the extent to
which the respective versions of our Product are accepted by researchers (for
the CR-2000 Research System) as being useful, and by physicians and other health
care providers as being effective, reliable and safe for use in screening
patients (regarding the DO-2020 System) and for use in screening, diagnosing and
monitoring the treatment of patients with vascular disease (regarding the
MD-3000 System.) If the CVProfilor(TM) DO-2020 System does not achieve market
acceptance due to lack of appropriate third-party reimbursement, FDA clearance,
acceptance of test data as reliable and beneficial, operational problems with
the Central Data Management Facility or any other factors which prohibit
acceptance by physicians, we will likely be required to cease operations. We are
unable to predict how quickly or how broadly any versions of our Product will be
accepted by the market, if at all, or if accepted, what the demand for them
could be. Achieving market acceptance will require that we educate the
marketplace about the anticipated benefits associated with the use of our
Product and may also require us to obtain and disseminate additional data
acceptable to the medical community as evidence of our Product's clinical
benefits. Because our Product represents a new approach for evaluating vascular
disease, there may be a greater reluctance to accept our Product than would
occur with products utilizing more traditional technologies or methods of
diagnosis. This may result in longer sales cycles and slower revenue growth than
currently anticipated. We cannot assure you that we will be successful in
educating the marketplace about our Product or that available data concerning
these benefits will create a demand by the research or medical community for our
Product. Furthermore, our Product will be substantially more expensive to
operate than the traditional blood pressure testing instrument, the
sphygmomanometer. We cannot assure you that physicians will utilize the
CVProfilor(TM) DO-2020 System once installed, or that our services will be
profitable to or become generally accepted by these physicians. In addition, our
Product is premised on the medical assumption that a loss of arterial elasticity
is an indicator for the early onset of vascular disease. While we believe, based
on our clinical studies, that the loss of arterial elasticity is an indicator
for the early onset of vascular disease, we cannot assure you that our claims
will be accepted by the medical community.
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BECAUSE WE LACK MANUFACTURING EXPERIENCE, WE MUST DEPEND UPON THIRD-PARTY
SUB-ASSEMBLY MANUFACTURERS. To date, we have relied on independent contractors
and consultants for component sub-assembly manufacturing of all versions of our
Product. For our Product to be financially successful, it must be manufactured
in accordance with strict regulatory requirements, in commercial quantities, at
appropriate quality levels and at acceptable costs. To date, our Product has
been manufactured in limited quantities and not on a commercial scale. As a
result, we cannot assure you that we will not encounter difficulties in
obtaining reliable and affordable contract sub-assembly manufacturing assistance
and/or in scaling up our manufacturing capabilities. This may include problems
involving production yields, per-unit manufacturing costs, quality control,
component supply and shortages of qualified manufacturing personnel. In
addition, we cannot assure you that we will not encounter problems relating to
integration of components if changes are made in the configuration of the
present Product versions. Any of these difficulties could result in our
inability to satisfy any customer demand for our Product in a cost-effective
manner and would likely have a material adverse effect on our business,
financial condition and results of operations.
BECAUSE WE HAVE A SINGLE SOURCE SUPPLIER OF SENSOR AND OTHER COMPONENTS, FAILURE
TO OBTAIN THIS SUPPLY COULD MATERIALLY AFFECT OUR BUSINESS. An integral
component of our Product is our proprietary arterial pulse pressure or waveform
sensor (the "Sensor"). We currently obtain this Sensor through a manufacturing
services agreement with Apollo Research Corp., our sole supplier. The term of
the manufacturing services agreement expires in 2008. We presently have no
reason to believe that this relationship will be disrupted or terminated.
However, either event could have a material adverse effect on our operations.
If, in the future, we are unable to obtain sufficient quantities of the Sensor
that meet our standards of reliability, accuracy and performance or were unable
to develop alternative sources of the Sensor in a timely and cost effective
manner, it would adversely affect our operations until new sources of the Sensor
became available, if at all. In addition, while the Sensor utilized in
prototypes and initial production units of our Product has performed reliably,
we cannot assure you that reliable Sensors will be available continuously on a
relatively large-scale commercial basis. If we are unable to obtain an adequate
supply of Sensors or other components meeting our standards of reliability,
accuracy and performance, we would be materially adversely affected. This may
include delays due to the unavailability of our Product to sell, delays in
obtaining FDA clearance of the CVProfilor(TM) DO-2020 System and the necessity
of obtaining new patent applications.
WE OPERATE IN AN INTENSELY COMPETITIVE MARKET. Competition from medical devices
that are used to screen, diagnose and monitor the treatment of patients with
cardiovascular disease is intense and likely to increase. We compete with
manufacturers of, for example, non-invasive blood pressure monitoring equipment
and instruments, and may compete with manufacturers of other non-invasive
devices. In addition, our Product will also compete with traditional blood
pressure testing by means of a standard sphygmomanometer which is substantially
less expensive than our Product. Many of our competitors and potential
competitors have substantially greater capital resources, name recognition,
research and development experience and more extensive regulatory, manufacturing
and marketing capabilities than we do. Many of these competitors offer
well-established, broad product lines and ancillary services that we do not
offer. Some of our competitors have long-term or preferential supply
arrangements with physicians and hospitals which may act as a barrier to market
entry for our Product. In addition, other large health care companies or medical
instrument firms may enter the non-invasive vascular product market in the
future. Competing companies may succeed in developing products that are more
efficacious or less costly than any that we may produce, and these companies
also may be more successful than we are in producing and marketing their new or
existing products. Competing companies may also introduce competitive pricing
pressures that may adversely affect our sales levels and margins.
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As a result, we cannot assure you that we will be able to compete successfully
with existing or new competitors.
OUR STRATEGIC SUCCESS IS DEPENDENT UPON A SINGLE UNITED STATES PRODUCT, AND THE
CVPROFILOR(TM) DO-2020 SYSTEM PRICING STRUCTURE HAS NOT YET BEEN DETERMINED. Our
financial success is dependent upon the marketing of the CR-2000 Research System
and the CVProfilor(TM) DO-2020 System versions of the Product. We expect that
the DO-2020 System will eventually generate the majority of our revenues. We
cannot assure you that we will be able to successfully develop any additional
products. In addition, we have not yet finalized the pricing structure for the
DO-2020 System. While we intend to offer the DO-2020 System at terms that we
believe will be competitive in the market, higher than expected manufacturing,
marketing and distribution costs, lower than expected reimbursement levels or
other competitive forces may require us to raise or lower our prices or alter
our terms in a manner that could have a material and adverse effect on us.
WE LACK ESTABLISHED SALES AND DISTRIBUTION CHANNELS. We commenced marketing of
the HDI/PulseWave(TM) CR-2000 Research System in April 1998 and currently have a
limited sales force. We have not yet fully developed a distribution system for
our Product. We cannot assure you that we will be able to develop an effective
sales force with the requisite knowledge and skill to fully exploit the sales
potential of our Product. We also cannot assure you that our sales force will be
able to establish distribution channels to promote market acceptance of, and
create demand for, our Product. Even if we enter into an agreement with
distributors, we cannot assure you that the distributors will devote the
resources necessary to provide effective sales and promotional support of our
Product. Our ability to expand Product sales will largely depend on our ability
to develop relationships with distributors who are willing to devote the
resources necessary to provide effective sales and promotional support and to
educate and train both a sales force and the medical community. We cannot assure
you that we will be able to accomplish these objectives. We also cannot assure
you that our financial condition will allow us to withstand long sales cycles
for our CR-2000, DO-2020 or MD-3000 Systems.
IF WE DO NOT ADAPT TO RAPID TECHNOLOGICAL CHANGE, OUR BUSINESS WILL SUFFER. The
medical device market is characterized by intensive development efforts and
rapidly advancing technology. Our success will largely depend upon our ability
to anticipate and keep pace with advancing technology and competitive
innovations. We cannot assure you that we will be successful in identifying,
developing and marketing new products or enhancing our existing Product. In
addition, we cannot assure you that new products or alternative screening and
diagnostic techniques will not be developed that will render our current or
planned products obsolete or inferior. Rapid technological development by
competitors may result in our Product becoming obsolete before we recover a
significant portion of our research, development and commercialization expenses.
WE ARE SUBJECT TO PRODUCT LIABILITY EXPOSURE AND HAVE LIMITED INSURANCE
COVERAGE. We face an inherent business risk of exposure to product liability
claims in the event that the use of our Product is alleged to have resulted in
adverse effects. We have obtained a general liability insurance policy that
covers potential product liability claims. We cannot assure you that liability
claims will not be excluded from these policies, will not exceed the coverage
limits of these policies, or that the insurance will continue to be available on
commercially reasonable terms or at all. Consequently, a product liability claim
or other claim with respect to uninsured liabilities or in excess of insured
liabilities would have a material adverse effect on our business, financial
condition and results of operations.
THE UNCERTAINTY OF HEALTH CARE REFORM MAY HAVE A MATERIAL IMPACT UPON OUR
BUSINESS. The levels of revenue and profitability of medical device companies
may be affected by the efforts of government and
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third party payers to contain or reduce the costs of health care through various
means. In the United States there have been, and we expect that there will
continue to be, a number of federal, state and private proposals to control
health care costs. These proposals may contain measures intended to control
public and private spending on health care as well as to provide universal
public access to the health care system. If enacted, these proposals may result
in a substantial restructuring of the health care delivery system. Significant
changes in the nation's health care system are likely to have a substantial
impact over time on the manner in which we conduct our business and could have a
material adverse effect on our business, financial condition and results of
operations.
FAILURE TO EFFECTIVELY MANAGE THE GROWTH OF OUR BUSINESS WOULD HAVE AN ADVERSE
EFFECT ON OUR BUSINESS. The execution of our business plan will likely place
increasing demands on our existing management and operations. Our future growth
and profitability will depend on our ability to successfully attract, train,
motivate, manage and retain new employees and to continue to improve our
operational, financial and management information systems. We cannot assure you
that we will be able to effectively manage any expansion of our business. Our
inability to effectively manage our growth could have a material adverse effect
on our business, financial condition and results of operations.
WE DEPEND UPON KEY PERSONNEL AND MUST HIRE AND RETAIN QUALIFIED PERSONNEL TO BE
SUCCESSFUL. We are highly dependent on a limited number of key management and
technical personnel, particularly our President, Greg H. Guettler and our
Executive Vice President and Chief Technology Officer, Charles F. Chesney,
D.V.M., Ph.D., R.A.C. We do not have key-person life insurance on Mr. Guettler
or Dr. Chesney. Effective in December 1999, we entered into employment
agreements with Dr. Chesney, Mr. Guettler and James S. Murphy, our Senior Vice
President, Finance and Administration and Chief Financial Officer, which contain
confidentiality obligations. Our future success will depend on our ability to
attract and retain highly qualified personnel. We compete for qualified
personnel with other companies, academic institutions, government entities and
organizations. We cannot assure you that we will be successful in hiring or
retaining qualified personnel. The loss of key personnel or an inability to hire
or retain qualified personnel could have a material adverse effect on our
business, financial condition and results of operations.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, OUR BUSINESS WILL
SUFFER. Our success depends, in part, on our ability to maintain patent
protection for our Product and processes, preserve our trade secrets and operate
without infringing the property rights of third parties. We are the exclusive
assignee for three issued United States patents and have obtained the exclusive
rights to commercialize inventions (on a worldwide basis) described by four
other United States patents and one European patent issued to the Regents of the
University of Minnesota. These eight patents relate to our blood pressure
waveform analysis procedures, our cardiovascular profiling technology, the
non-invasive determination of cardiac output, and overall technology and
operation of our Product. The license for each patent licensed from the
University of Minnesota expires with the term of each patent (the most recently
issued one is expected to expire during 2016). Patent applications regarding one
or more of these United States issued patents are currently pending in Japan as
well as in Germany, France and the United Kingdom. We have three patent
applications that have been submitted regarding other aspects and components of
our Product. Besides seeking patents, we intend to rely to the fullest extent
possible on trade secrets, proprietary "know-how," and our ongoing endeavors
involving product improvement and enhancement to protect our proprietary
knowledge.
The validity and breadth of claims coverage in medical technology patents
involve complex legal and factual questions and, therefore, may be highly
uncertain. We cannot assure you that our current patent and licenses will
provide a competitive advantage, that the pending applications will result in
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patents being issued, or that our competitors will not design around any patents
or licenses issued to us. In addition, we cannot assure you that our
nondisclosure agreements and invention assignment agreements will protect our
proprietary information and know-how or provide adequate remedies in the event
of unauthorized use or disclosure of our information, or that others will not be
able to develop this information independently. We cannot assure you that
allegations of infringement of the proprietary rights of third parties will not
be made, or that if made the allegations will not be sustained if litigated.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device industry. Litigation may be necessary to
enforce patents issued to us, to protect trade secrets or know-how we own, to
defend us against claimed infringement of the rights of others or to determine
the ownership, scope or validity of our proprietary rights and the rights of
others. Any of these claims may require us to incur substantial litigation
expenses and to divert substantial time and effort of management personnel. An
adverse determination in litigation involving the proprietary rights of others
could subject us to significant liabilities to third parties, could require us
to seek licenses from third parties, and could prevent us from manufacturing,
selling or using our Product. The occurrence of this litigation or the effect of
an adverse determination in any of this type of litigation could have a material
adverse effect on our business, financial condition and results of operations.
RISKS RELATED TO THIS OFFERING
IF WE DO NOT ISSUE A CURRENT PROSPECTUS AND MEET STATE REGISTRATION
REQUIREMENTS, OUR CLASS A REDEEMABLE WARRANT HOLDERS WILL NOT BE ABLE TO
EXERCISE THEIR WARRANTS. IF WE REDEEM THE CLASS A REDEEMABLE WARRANTS, OUR
WARRANT HOLDERS MAY BE DISADVANTAGED. Class A Redeemable Warrant holders will be
able to exercise their Class A Redeemable Warrants only if a current prospectus
relating to the shares of our common stock underlying the Class A Redeemable
Warrants is then in effect and only if the shares are qualified for sale or
exempt from qualification under the applicable securities laws of the states in
which the various holders of Class A Redeemable Warrants reside.
We have the right to redeem the Class A Redeemable Warrants at any time at
$.01 per Class A Redeemable Warrant, on 30 days prior written notice, if the
closing bid price of the our common stock exceeds $6.50 (subject to adjustment)
for 14 consecutive trading days. The 30 days prior written notice must be sent
within ten business days of the 14 consececutive trading day period. The 30 days
prior written notice must be sent within ten business days of the 14 consecutive
trading day period. If the Class A Redeemable Warrants are redeemed, Class A
Redeemable Warrant holders will lose their right to exercise the Warrants except
during a 30-day redemption period. Redemption of the Class A Redeemable Warrants
could force the holders to exercise the Class A Redeemable Warrants at a time
when it may be disadvantageous for the holders to do so or to sell the Class A
Redeemable Warrants at the then market price or accept the redemption price,
which likely would be substantially less than the market value of the Class A
Redeemable Warrants at the time of redemption.
BENEFICIAL OWNERSHIP BY MANAGEMENT AND PROVISIONS IN OUR ARTICLES OF
INCORPORATION MAY DELAY OR PREVENT CHANGES OF CONTROL OR IN MANAGEMENT. As of
June 30, 2000, our officers and directors as a group beneficially owned 20.5% of
our outstanding shares. Consequently, they are in a position to influence the
outcome of shareholder votes, including the election of directors. In addition,
our articles of incorporation provide that the board of directors will be
divided into three classes, with each class to be elected in successive years
for a term of three years. These factors and other provisions in our articles of
incorporation could have the effect of delaying or preventing changes of control
or in management.
ACTUAL OR PERCEIVED SALES OF A SIGNIFICANT NUMBER OF OUR SECURITIES IN THE
PUBLIC MARKET COULD ADVERSELY AFFECT THE PRICE OF OUR SECURITIES. As of August
25, 2000, there were 5,180,197 shares of our
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common stock issued and outstanding. All outstanding shares are either freely
tradable or eligible for sale under either Rule 144 or Rule 144K. We also have
1,785,755 shares of our common stock purchasable through the exercise of
outstanding options, exercisable at per share exercise prices ranging from $1.70
to $7.06. In addition, there are 468,438 shares purchasable through the exercise
of the outstanding private placement and underwriter warrants at exercise prices
of $2.00 to $4.95 per warrant, and 2,587,500 shares purchasable through the
exercise of Class A Redeemable Warrants at an exercise price of $5.50 per
Warrant. We have registered all the shares of our common stock purchasable
through our 1995 Long-Term Incentive and Stock Option Plan and our 1998 Stock
Option Plan, 2,762,500 shares purchasable through the exercise of our Class A
Redeemable Warrants, 118,438 shares purchasable through other issued warrants
and 1,035,275 purchasable through exercise of stock options (649,257 of which
shares are currently held in escrow until July 23, 2001 pursuant to Minnesota
state securities laws and regulations, and may not be sold before their release
without the approval of the State of Minnesota)(collectively, the "Convertible
Securities"). At any time our common stock trades at prices in excess of the
exercise price of the Convertible Securities it is possible that the holders of
the Convertible Securities may exercise their conversion or purchase privileges.
If any of these events occur, the number of shares of our outstanding common
stock could increase substantially. This increase, in turn, could dilute future
earnings per share, if any, and could depress the market value of our common
stock.
IF WE FAIL TO MEET NASDAQ'S LISTING REQUIREMENTS, WE MAY BE DE-LISTED AND OUR
SECURITIES MAY THEN BECOME ILLIQUID. Our common stock, Class A Redeemable
Warrants and units are quoted on The Nasdaq SmallCap Market. If in the future we
fail to satisfy the Nasdaq requirements to maintain our listing on Nasdaq, our
securities will likely be quoted in the over-the-counter market in the so-called
"pink sheets" or the OTC Bulletin Board. In addition, the securities would be
subject to the rules promulgated under the Securities Exchange Act of 1934
relating to "penny stocks." These rules require brokers who sell securities that
are subject to the rules and who sell to other than established customers and
institutional accredited investors to complete required documentation, make
suitability inquiries of investors and provide investors with information
concerning the risks of trading in the security. Consequently, we believe an
investor would find it more difficult to buy or sell our securities in the open
market.
OUR FINANCIAL RESULTS AND THE MARKET PRICE OF OUR SECURITIES ARE SUBJECT TO
SIGNIFICANT FLUCTUATIONS, WHICH MAY AFFECT THE PRICE OF OUR SECURITIES. Our
quarterly results and the market price of our securities may be subject to
significant fluctuations due to numerous factors, such as variations in our
revenues, earnings and cash flow, the ability to meet market expectations, the
status of the FDA clearance process, the availability of Product components,
market acceptance, changes in price, terms or Product mix, changes in
manufacturing costs or the introduction of new products by us or our
competitors. Until we receive FDA clearance, our inability to market the
CVProfilor(TM) DO-2020 System will adversely affect our financial results which
may have an adverse effect on the market price of our securities. We cannot
assure you that we will ever generate significant revenues or that our revenues
or income will ever improve on a quarterly basis or that any improvements from
quarter to quarter will be indicative of future performance. In addition, our
expenses are based in part on expectations of future revenues. As a result,
expenses may not match revenues on a quarterly basis, and a delay in future
revenues would adversely affect our operating results. In addition, the stock
markets have experienced price and volume fluctuations, resulting in change in
the market prices of the stocks of many companies that may not have been
directly related to the operating performance of these companies. These broad
market fluctuations may adversely affect the market price of our securities.
RISKS RELATED TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTY
OUR BUSINESS IS SUBJECT TO STRICT GOVERNMENT REGULATION. Medical devices,
including our CVProfilor(TM)
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DO-2020 System, are subject to strict regulation by state and federal
authorities, including the FDA and comparable authorities in certain states.
Under the 1976 amendments to the Federal Food, Drug and Cosmetic Act (the
"FDCA") and related regulations, manufacturers of medical devices are required
to comply with very specific rules and regulations concerning the testing,
manufacturing, packaging, labeling and marketing of medical devices. Failure to
comply with the FDCA and any applicable regulatory requirements could result in,
among other things, civil and criminal fines, product recalls, detentions,
seizures, injunctions and criminal prosecutions.
DELAYS IN PRE-MARKET APPROVAL. Before a new medical device may be introduced
into the United States market, the manufacturer generally must obtain prior
authorization from the FDA. This authorization is based on a review by the FDA
of the medical device's safety and effectiveness for its intended uses. Medical
devices may be authorized by the FDA for marketing in the United States either
pursuant to a 510(k) Pre-Market Notification ("510(k)") submission or a PMA
("Premarket Approval") submission. The process of obtaining clearances or
approvals from the FDA and other applicable regulatory authorities can be
expensive, uncertain and time consuming, frequently requiring several years from
the commencement of clinical trials or submission of data to regulatory
acceptance.
A 510(k) submission requires an applicant to show that a medical device is
"substantially equivalent" in terms of safety and effectiveness to a predicate
product marketed prior to 1976 or to a medical device already cleared by the FDA
for marketing in the United States. In practice, clearance of products often
takes substantially longer than the statutory 510(k) application review period
of 90 days. On the other hand, a PMA submission consists of information provided
to the FDA sufficient to establish independently that a medical device is safe
and effective for its intended use. By statute, the FDA is required to respond
to a PMA submission within 180 days from the date of its submission. However,
the approval process usually takes substantially longer, often as long as
several years.
LIMITATIONS ON APPROVALS. FDA clearances and approvals, if granted, may include
significant limitations on the intended uses for which a product may be
marketed. FDA enforcement policy strictly prohibits the promotion of cleared or
approved medical devices for nonapproved or "off-label" uses. In addition,
product clearances or approvals may be withdrawn for failure to comply with
regulatory standards or the occurrence of unforeseen problems following initial
marketing.
Marketing of the CVProfilor(TM) DO-2020 System in the United States will
require clearance or approval by the FDA. We have already forwarded a 510(k)
Premarket Notification submission to the FDA. However, the FDA may decide that
one or more of the proposed claims or indications for use of the CVProfilor(TM)
DO-2020 System cannot be cleared by means of the 510(k) process. In that case,
the FDA might require that we seek approval for the device or particular claims
or indications by means of a PMA application which could substantially delay
using those claims or indications or marketing the DO-2020 System. We cannot
assure you that the FDA will clear or approve the CVProfilor(TM) DO-2020 System.
The HDI/PulseWave(TM) CR-2000 Research System is intended for use in
research markets and therefore we believe it does not require FDA clearance. The
FDA could disagree with our interpretation of the regulations and require a
510(k) submission or PMA submission which, if pursued, may not be cleared or
approved or, if so approved, may contain significant limitations on the intended
uses for which the product is marketed.
UNITED STATES AND FOREIGN REGULATORY REQUIREMENTS. Sales of medical
devices outside of the United States are subject to foreign regulatory
requirements that vary from country to country. The time
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required to obtain clearance by a foreign country may be longer or shorter than
that required for FDA clearance, and the requirements may differ. Export sales
of certain devices that have not received FDA marketing clearance generally are
subject to both FDA export permit requirements and, in some cases, general
United States export regulations. In order to obtain an FDA export permit, we
may be required to provide the FDA with documentation from the medical device
regulatory authority of the country in which the purchaser is located. We cannot
assure you that foreign regulatory clearances or approvals will be granted on a
timely basis, if ever, or that we will not be required to incur significant
costs in obtaining or maintaining our foreign regulatory clearance or approvals.
REGULATIONS EXTENDING TO OUR CONTRACTORS AND CUSTOMERS. Our company and the
design and manufacturing organizations with whom we contract are subject to
regulation by the FDA relating to the design and manufacture of the
CVProfilor(TM) DO-2020 System. This regulation includes, but is not limited to,
required compliance with the FDA's Quality System Regulation ("QSR") and
equivalent state and foreign regulations. Our failure, or the failure of any of
these organizations, to comply with FDA regulations may subject one or more of
us, or the medical device designed and produced for and by us, to regulatory
action. A regulatory action could threaten or cut off our source of supply or
cause the FDA to order the removal of the DO-2020 System from the market. While
we believe we could locate and qualify other sources to design or manufacture
our products, supply interruptions in the meantime would have a materially
adverse effect on our business, financial condition and results of operations.
In addition to the regulations directly pertaining to us and our products,
many of our potential customers are subject to extensive regulation and
governmental oversight. Regulatory changes in the healthcare industry that
adversely affect the business of our customers could have a material adverse
effect on our business, financial condition and results of operations.
FUTURE REGULATORY REQUIREMENTS. Federal, state and foreign regulations regarding
the manufacture and sale of healthcare products and diagnostic devices are
subject to future change. We cannot predict what material impact, if any, these
changes might have on our business. Future changes in regulations or enforcement
policies could impose more stringent requirements on us, compliance with which
could adversely affect our business. These changes may relax some requirements,
which could prove beneficial to our competitors and thus adversely affect our
business. In addition, regulations of the FDA and state and foreign laws and
regulations depend heavily on administrative interpretations. We cannot assure
you that future interpretations made by the FDA, or other regulatory
authorities, with possible retroactive effect, will not adversely affect our
business, financial condition and results of operations.
We cannot assure you that we will be able to obtain necessary regulatory
clearances or approvals in the United States or internationally on a timely
basis, if at all. Delays in the receipt of, or failure to receive, these
clearances or approvals, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on our business, financial
condition and results of operations.
IF WE FAIL TO MEET FOREIGN REGULATORY REQUIREMENTS, WE WILL NOT BE ABLE TO
COMPETE INTERNATIONALLY. As a part of our marketing strategy, we intend to
pursue commercialization of our Product in international markets. Our Product
will be subject to regulations that vary from country to country. The process of
obtaining foreign regulatory approvals in certain countries can be lengthy and
require the expenditure of substantial resources. Until FDA clearance or
approval is obtained for the CVProfilor(TM) DO-2020 System, it also must comply
with the export requirements of the FDCA before it can be exported. We cannot
assure you that we will be able to meet FDCA requirements or obtain necessary
foreign regulatory clearances or approvals for our Product on a timely basis or
at all. The facilities and manner
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in which we operate and do business involve a specific quality system and
approach which is presently ISO-9002, EM-46002 and ISO-13488 registered. Our
Product has been extensively tested and is entitled to be UL Listed (that is,
the DO-2020 System) or display the CE Mark (that is, CE 1023 for the CR-2000
Research System). The CR-2000 Research System conforms to European Council
Directive (93/42/EEC) regarding Medical Devices. In order to achieve market
acceptance for the CVProfilor(TM) MD-3000 System in Europe, we will need to seek
and obtain the approval for its displaying the CE Mark. In Japan, approval to
market our Product will require acceptance of a formal registration to the
Ministry of Health and Welfare. Delays in receipt of or failure to receive
foreign clearances or approvals, or failure to comply with existing or future
regulatory requirements and quality system regulations, would have a material
adverse effect on our business, financial condition and results of operations.
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THE COMPANY
GENERAL
Hypertension Diagnostics, Inc. is engaged in the design, development,
assembly and marketing of a proprietary medical device that it believes will
non-invasively detect subtle changes in the elasticity of large and small
arteries. Vascular compliance or elasticity has been researched for many years
and clinical studies suggest that a lack of arterial elasticity is an early
indicator of vascular disease. We plan to market three versions of our Product:
the HDI/PulseWave(TM) CR-2000 Research CardioVascular Profiling System, the
CVProfilor(TM) DO-2020 CardioVascular Profiling System and the CVProfilor(TM)
MD-3000 CardioVascular Profiling System (previously referred to as the Model
DO-2020i). The CR-2000 Research System is for research purposes only (that is,
not for screening, diagnosing, monitoring or determining treatment of patients),
and is currently being marketed. The CVProfilor(TM) DO-2020 System is for
primary care physicians and other health care professionals, and will require
FDA clearance to market in the United States. The CVProfilor(TM) MD-3000 System
will provide physicians outside the United States with key cardiovascular
parameters, which we believe will provide clinically beneficial information
useful in screening and diagnosing individuals who may be at risk for future
cardiovascular disease and in monitoring the effectiveness of treatment of
individuals with previously diagnosed cardiovascular disease. We have forwarded
a submission to the FDA to market the CVProfilor(TM) DO-2020 System. The
CVProfilor(TM) MD-3000 System requires that we obtain a CE Mark in order for it
to be marketed inside the European Union and will require regulatory approval to
be marketed in Japan. We expect that the CVProfilor(TM) DO-2020 System will
eventually generate the majority of our revenues.
BACKGROUND
Vascular Disease
Disease of the blood vessels (vascular disease) is the leading cause of
death and a primary cause of heart attacks and strokes in the United States.
Vascular disease can manifest itself in many ways, including: hypertension,
coronary artery disease, peripheral artery disease, atherosclerosis, aneurysm,
stroke, kidney failure and retinopathy. According to a Fall 1997 memo by the
National Heart, Lung and Blood Institute, 58 million Americans have some form of
cardiovascular disease and hypertension is the leading cardiovascular disease.
Coronary artery disease affects 13.9 million Americans and is the nation's
number one killer. Stroke is ranked number three. According to a 1997 release by
the National Heart, Lung and Blood Institute, approximately 50 million Americans
(about 28% of the adult population in the United States) have been diagnosed as
suffering from hypertension, typically defined as blood pressure measuring
greater than 140 millimeters of mercury ("mmHg") systolic pressure and/or
greater than 90 mmHg diastolic pressure. Nearly 75% of these hypertensive
individuals (or 37.5 million) are not properly treated for the condition and
thus face significantly increased risk for heart and kidney disease and strokes.
According to the Johns Hopkins White Papers on Hypertension (1998), an
additional 30 million Americans are estimated to have "high-normal hypertension"
(sometimes referred to as "borderline hypertension"), defined as a blood
pressure reading at or slightly above 130/85 mmHg. These individuals are twice
as likely to develop hypertension and they have a greater risk of cardiovascular
events than people with lower blood pressure. In fact, high-normal hypertension
is so common in the United States that the majority of cardiovascular events
attributable to high blood pressure occur in people who demonstrate this
condition.
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Hypertension can easily go undetected and has been called the "silent
killer" because it usually produces no symptoms until after it seriously damages
the heart, kidneys, brain or another vital organ. Elevated blood pressure
indicates that the heart is working harder than normal, putting both the heart
and the arteries under greater strain. Over time, these arteries become scarred,
hardened and less elastic, accelerating the process of atherosclerosis and
ateriosclerosis, and leaving one more susceptible to heart attacks, strokes,
kidney failure and eye damage. According to the Archives of Internal Medicine
(March 24, 1997), high blood pressure is of particular concern to older adults,
because it increases with age, and therefore is present in more than half of
Americans 60 years of age or older. The seriousness of this problem increases as
the population grows older because individuals with sustained high blood
pressure have an increased overall death rate from stroke, heart attack and
kidney disease.
Hypertension is a deadly disease that damages both large and small
arteries, leading to pathological changes in the tissues or organs supplied by
these damaged arteries, and accelerating the development of atherosclerosis (the
formation of plaque and the accumulation of fatty deposits lining the walls of
the artery which affect blood flow) in large blood vessels, and in the arteries
supplying blood to the brain, heart, kidneys and legs. Atherosclerotic plaques
can cause mini-strokes (transient ischemic attacks) due to diminished blood flow
(ischemia) to parts of the brain; angina from partly obstructed coronary
arteries; or pain in the leg muscles when walking, a result of poor blood supply
to the legs (peripheral arterial disease). Blood clots, which tend to occur at
the sites of atherosclerotic narrowing, can totally block a vessel and cause a
stroke or heart attack.
Atherosclerosis begins in the wall of the artery with an early abnormality
in the lining of the arterial wall called the endothelium. The endothelium helps
to maintain the flexibility or elasticity of the artery and normally inhibits
the accumulation of lipid and cellular deposits into the wall of the artery.
Abnormal function of the endothelium and the associated structural changes in
the wall result in a loss of elasticity of the small arteries. Detection of this
loss in elasticity can identify individuals with abnormal arterial structure and
function long before plaque formation can cause morbid cardiovascular events
(that is, heart attacks or strokes). Furthermore, demonstration of normal
arterial structure and function might suggest that the individual does not have
early atherosclerosis and may not need aggressive risk factor management.
A number of risk factors for atherosclerosis have been identified,
including elevated blood pressure, elevated cholesterol level, smoking, diabetes
and family history of atherosclerosis. Clinical events associated with
atherosclerosis, including heart attacks (that is, myocardial infarctions),
strokes, angina (that is, myocardial ischemia or loss of oxygenation of the
heart muscle), peripheral vascular ischemia (known as claudication) and renal
failure are late manifestations of the disease as a result of plaque formation
that decreases blood flow. The absence of a clinically applicable method to
detect the presence of atherosclerosis prior to plaque obstruction of arterial
lumens (that is, the inner space in the blood vessel through which blood flows)
has led to widespread efforts to identify the risk factors in the entire
population and to intervene on those who harbor these risk factors. The problem
with this approach is two-fold: (a) patients without these risk factors will not
be identified even though up to half of the atherosclerotic clinical events
occur in individuals without any of the traditional risk factors; and (b)
patients who have one or more risk factors may be subjected to intensive therapy
even though they do not have the atherosclerotic process the therapy is designed
to inhibit.
The Clinical Problem
Cardiovascular specialists spend considerable effort on evaluating heart
function, including the clinical use of electrocardiograms (ECGs),
echocardiograms and stress tests, but have been unable to
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assess the functional and structural abnormality of the arteries prior to the
late phase of arterial obstruction. Blood pressure measurement is a very
insensitive, nonspecific and unreliable means of assessing the condition of the
arteries. Traditionally, a patient's arterial blood pressure is obtained
clinically by using a sphygmomanometer which involves a cuff placed on the
patient's upper arm that is pressurized to occlude blood flow. As the cuff
pressure is gradually reduced, sounds are generated in the artery below the cuff
and these are identified by using a stethoscope placed over that artery. The
initial occurrence of sound as the cuff is deflated reflects the "systolic blood
pressure" or the highest pressure generated during the heart's contraction, and
the pressure at which the sounds finally disappear is taken as the "diastolic
blood pressure," or the lowest pressure reached before the next cardiac cycle.
Although an elevated blood pressure is associated with a higher risk for
cardiovascular events, the elevated blood pressure is not the disease but merely
a crude marker for the likelihood of disease. Furthermore, blood pressure itself
is highly variable from moment to moment and day to day in most individuals.
Measurement of ambulatory blood pressure throughout the day provides a more
accurate assessment of the actual pressure but it is a cumbersome and expensive
technique and still does not demonstrate the disease in the blood vessels it is
attempting to identify. Elevated cholesterol, especially an increase in the
low-density lipoproteins/high-density lipoproteins ("LDL/HDL") ratio, also is
associated with a higher risk for morbid cardiovascular events, but this
measurement does not identify blood vessel disease directly. Instead, a high
ratio identifies a factor that might accelerate blood vessel disease if it is
present. Thus, the only methods in routine use by physicians today to identify
individuals who need treatment are methods that are neither sensitive nor
specific in detecting the blood vessel disease that leads to morbid
cardiovascular events such as heart attacks and strokes.
The Company's Solution
The traditional systolic-diastolic method for measuring blood pressure
provides the physician with very limited clinical information about the
patient's vascular health. In contrast, our Product evaluates a blood pressure
waveform produced by the beating heart that we believe can be analyzed to
provide an assessment of arterial elasticity. When the aortic valve closes after
the heart has ejected its stroke volume of blood (that is, the blood ejected
during each heart beat), the decay or decrease of blood pressure within the
arteries prior to the next heart beat forms a pressure curve or waveform which
is indicative of arterial elasticity. Subtle changes in arterial elasticity
introduce changes in the arterial system that are reflected in the arterial
blood pressure waveform. Such changes in the function and structure of the
arterial wall precede the development of coronary artery disease, and the
premature stiffening of the small arteries appears to be an early clinical
marker for cardiovascular disease.
Incorporating the physiological phenomena associated with blood pressure
waveforms, Drs. Jay N. Cohn and Stanley M. Finkelstein, Professors at the
University of Minnesota Medical School in Minneapolis, and two of our founders,
developed a clinically useful procedure in the early 1980's for determining a
measure of elasticity in both large and small arteries. The technique involved
placing a catheter connected to a pressure transducer into a patient's artery in
order to obtain a blood pressure waveform that could be analyzed using a
modified Windkessel model (that is, a well-established mathematical model which
describes the pressure changes during the diastolic phase of the cardiac cycle
in the circulatory system.)
This "blood pressure waveform" or "pulse contour analysis" method provided
an independent assessment of the elasticity or flexibility of the large arteries
which expand to briefly store blood ejected by the heart, and of the small and
very small arteries (that is, the arterioles) which produce oscillations or
reflections in response to the blood pressure waveform generated during each
heart beat.
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By assessing the elasticity of the arterial system, clinical investigators
have been able to identify a reduction in arterial elasticity in patients
without evidence of traditional risk factors, suggesting the early presence of
underlying vascular disease. Furthermore, worldwide clinical research data has
demonstrated that individuals with heart failure, coronary artery disease,
hypertension and diabetes, typically exhibit a loss of arterial elasticity.
These abnormal blood vessel changes often appear to precede overt signs of
cardiovascular disease and the occurrence of a heart attack or stroke by many
years. Clinical investigators have also demonstrated an age-related loss of
elasticity of both the large and small arteries suggesting that premature
stiffening of an individual's arteries is an apparent marker for the early onset
of cardiovascular disease.
THE PRODUCT
Although the aorta and large arteries can be visualized by various
non-invasive techniques, such as radiology (or taking X-ray pictures), magnetic
resonance imaging ("MRI"), computerized tomography ("CT") scans and
ultrasonography, we believe there is currently no clinical way to evaluate the
elasticity of the small and very small arteries which appear to be the first
blood vessels to become altered in hypertension and other vascular diseases. For
this reason, we sought an easy to use, non-invasive solution that could assess
the status of these small blood vessels.
Our Product incorporates a patented and proprietary instrument and
procedures which painlessly and non-invasively collects 30 seconds of blood
pressure waveform data, automatically analyzes this data by means of an embedded
computer and generates a CardioVascular Profile Report. All versions of our
Product consist of four primary components: (a) a non-invasive arterial pulse
pressure or waveform sensor placed over the radial artery at the wrist; (b) an
upper-arm blood pressure cuff connected to an oscillometric blood pressure
module; (c) an enclosure which contains a computer, a touch-screen display and
other electronics and software programs; and (d) an external printer.
Product Versions
We currently have two versions of our Product and a third in development:
HDI/PulseWave(TM) CR-2000 Research CardioVascular Profiling System
The CR-2000 Research System is for clinical research purposes only. It
non-invasively collects blood pressure waveform data, performs a pulse contour
analysis on the digitized data, and generates a Research CardioVascular Profile
Report (some report parameters are displayed on the screen and the entire report
is generated by an external printer). A standard computer output port is
included to allow research investigators to send blood pressure waveform data
and analyzed CardioVascular Profile Report results to computer systems within
the researcher's facilities.
The CR-2000 Research System is being marketed to medical directors and
research investigators at pharmaceutical firms and academic and medical research
centers on a worldwide basis. These organizations are in the business of
conducting cardiovascular research and have an interest in a non-invasive means
of gathering information from human research subjects.
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CVProfilor(TM) DO-2020 CardioVascular Profiling System
Pending FDA clearance, physicians and health care providers will be able to
use the CVProfilor(TM) DO-2020 System to measure blood pressure (systolic,
diastolic and mean arterial pressure) and heart pulse rate. The DO-2020 System
also calculates pulse pressure, body surface area and body mass index, and
provides indications of arterial compliance. The indications of arterial
compliance (or elasticity indices) can be used as an initial screening device to
determine if patients have potential underlying vascular disease that might
require more specific diagnostic evaluations. A brief medical history of the
patient is recorded by the user and an internal modem transmits this history and
the results of a profile test via a toll-free telephone line to our Central Data
Management Facility (the "CDMF").
Our CDMF is currently capable of handling 48 simultaneous physician
transmissions from DO-2020 Systems in physicians' offices which are immediately
integrated with our tracking, billing and production systems. Our CDMF is
capable of storing cardiovascular profile information on hundreds of thousands
of patients from different age groups and with different disease states.
Although our CDMF has yet to be stress tested under maximum line load, we
believe that it is fully operational. We expect to utilize the information
transmitted to our CDMF from patients free of disease (and separated by age and
gender), in order to establish a reference range of parameters which will be
clinically beneficial to us and to physicians. We believe such a database may
also prove helpful to physicians in terms of archiving patient profiles and
trending individual patient profile results over time, enhancing the accuracy of
ranges for CardioVascular Profile Report parameters, and providing continuity of
CardioVascular Profile Report information for patients who may have been seen
over a period of time by several physicians in different parts of the United
States. Further, the receipt of a patient's profile results at our CDMF will
trigger an accounting event for the purposes of invoicing physicians on a
"pay-as-you-use" basis.
We may explore the possibility of offering an Internet link to physicians
(with security protection) via our web site, allowing physicians to make direct
inquiries into the database regarding their patient records at some future date.
Following FDA clearance, the CVProfilor(TM) DO-2020 System will initially
be marketed to physicians specializing in internal medicine, general and family
practitioners, cardiologists, nephrologists, cardiovascular specialists and
other physicians in medical practices throughout the United States. Because the
DO-2020 System provides indices of a patient's arterial elasticity, we believe
that it could assist physicians in screening patients with underlying vascular
disease with more reliability than other methods currently available. With the
DO-2020 System, physicians could have a simple, painless and non-invasive
procedure easily used in their offices and clinics in order to obtain clinical
information on the vascular status of patients. We also believe that such
information might be of assistance to physicians and other health care providers
in support of their efforts to identify individual patients at risk for
developing cardiovascular disease. We expect that the CVProfilor(TM) DO-2020
System will eventually generate the majority of our revenues derived from
"per-test" or "per-patient" physician billings.
CVProfilor(TM) MD-3000 CardioVascular Profiling System
An international version of our physician-use Product is currently in
development and following the receipt of CE Mark certification, it will be
marketed to cardiovascular specialists, internists, cardiologists and family and
general practice physicians outside the United States.
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The Product, currently designated the CVProfilor(TM) MD-3000 System, is
intended for use in screening, diagnosing and monitoring the treatment of
patients with cardiovascular disease. It will provide physicians outside the
United States with the ability to immediately print a CardioVascular Profile
Report containing a patient-specific reference range for each parameter on the
Report in their office. Due to fundamental differences in physician
reimbursement, patient data transfer regulations and telephone communication
technologies, this international CVProfilor(TM) MD-3000 System will be marketed
to physicians as a capital purchase without transmitting to a Central Data
Management Facility linkage.
Products marketed in the European Union (EU) require a medical device CE
Mark (conformance to Council Directive MDD 93/42/EEC) prior to importation into
the EU and we anticipate obtaining a medical device CE Mark for the MD-3000
System. Other countries have similar requirements based on conformance to
quality standards consistent with our ISO-9002, EN-46002, and ISO-13488
certifications.
CARDIOVASCULAR PROFILE REPORT
The CardioVascular Profile Report currently generated by the CR-2000
Research System presents the following parameters: a 1.5 Second Blood Pressure
Waveform Graph, Body Surface Area (BSA), Body Mass Index (BMI), Systolic Blood
Pressure (mmHg), Diastolic Blood Pressure (mmHg), Mean Arterial Pressure (mmHg),
Pulse Pressure (mmHg), Pulse Rate (beats/minute), Estimated Cardiac Ejection
Time (milli-seconds), Estimated Stroke Volume (ml/beat), Estimated Stroke Volume
Index (ml/beat/m2), Estimated Cardiac Output (Liters/minute), Estimated Cardiac
Index (L/min/m2), Large Artery Elasticity Index (ml/mmHg x 10), Small Artery
Elasticity Index (ml/mmHg x100), Systemic Vascular Resistance (dynesosecocm-5),
and Total Vascular Impedance (dynesosecocm-5).
Clinical research suggests that the arterial elasticity indices can be used
to determine the clinical age of the body's arteries and that these values, when
viewed in combination with a medical history, physical examination and/or other
tests, may provide a meaningful picture of vascular health for patients 15 years
of age and older. The large and small artery elasticity indices are of
particular clinical importance in this assessment. These indices indicate the
elasticity or flexibility of the patient's arteries, which may be beneficial in
assessing vascular disease. These indices also provide valuable information to
physicians in screening patients who may be at risk for underlying vascular
disease and thereby have a potential for life-threatening cardiovascular events.
PUBLISHED CLINICAL RESEARCH UPDATE
A number of references have been published in medical journals which
utilize the basic methodology incorporated in our Product. Since June 1998, we
have added these to the bibliography of published titles, abstracts and articles
which relate to the general topic of arterial elasticity. These new references
are listed here:
Duprez, D.A.; DeBuyzere, M.L.; Rietzschel, E.R.; Teas, Y.; Clement, D.L.;
Morgan, D.; and Cohn, J.N. "Inverse Relationship between Aldosterone and Large
Artery Compliance in Chronically Treated Heart Failure Patients." EUROPEAN HEART
JOURNAL 19:1371-1376, 1998.
Bratteli, C.W.; Alinder, C.; Morgan, D.; McVeigh, G.; Finkelstein, S.; Cohn,
J.N. "Determinants of Large and Small Artery Compliance." Presented at the
International Society of Hypertension Conference, Amsterdam, June 1998.
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DeBuyzere, M.; Van DeVeire, N.; Duprez, D.A.; Clement, D.L.; Morgan, D.;
Finkelstein, S.; Chesney, C.; Cohn, J.N. "The Carotid Artery Intima-Media
Thickness is related to the Distal Arterial Compliance but not to the Proximal
Arterial Compliance in Borderline Hypertension." Presented at the International
Society of Hypertension Conference, Amsterdam, June 1998.
Glasser, S.P.; Arnett, D.K.; McVeigh, G.E.; Finkelstein, S.M.; Bank, A.K.;
Morgan, D.J.; and Cohn, J.N. "The Importance of Arterial Compliance in
Cardiovascular Drug Therapy." JOURNAL of CLINICAL PHARMACOLOGY 38:202-212, 1998.
Bratteli, C.W.; Finkelstein, S.M.; Alinder, C.; Cohn, J.N. "Analysis of Aging
Effects on the Arterial Pulse Contour Using an Artificial Neural Network."
Accepted IEEE ENGINEERING in MEDICINE and BIOLOGY SOCIETY Conference, October
1998.
McVeigh, Gary E. "Evaluation of Arterial Compliance." Published in: Izzo, J.L.
and Black, H.R., Eds. HYPERTENSION RIMER Publication by Council on High Blood
Pressure Research, American Heart Association 1998, Chapter 114, pp. 327-329.
Bratteli, C.W.; Alinder, C.M.; Cohn, J.N. "Contrasting Arterial Compliance
Effects of Enalapril and Amlodipine in Normotensive Elderly Subjects." AMERICAN
JOURNAL of HYPERTENSION 12 (4, Part 2), Abstract No. B015, April 1999.
Duprez, D.; DeBuyzere, M.; DeBruyne, L.; Clement, D.L.; Cohn, J.N. "Small Artery
Elasticity Index is Positively Related to Ankle/Brachial Index in Peripheral
Arterial Occlusive Disease." AMERICAN JOURNAL of HYPERTENSION 12 (4, Part 2),
Abstract No. B017, April 1999. JOURNAL of HYPERTENSION 17 (Suppl. 3): Poster No.
P2.45, May 1999.
Duprez, D.; DeBuyzere, M.; Van De Viere, N.; Tuyttens, C.; Rottiers, R.;
Clement, D.L.; Cohn, J.N. "Small Artery Elasticity Index but not Large Artery
Elasticity Index is Related to the Disease Duration in Early Onset Insulin
Dependent Diabetes Mellitus." AMERICAN JOURNAL of HYPERTENSION 12 (4, Part 2),
Abstract No. B016, April 1999. JOURNAL of HYPERTENSION 17 (Suppl. 3): Abstract
No. 95, May 1999. (Presented at the Ninth European Meeting on Hypertension and
published in the Scientific Programme and Abstracts on Large Artery Structure
and Function, Milan, Italy, June 1999). Noortgate, N. Van Den; Afschrift, M.;
Achten, E.; Simoens, J.; DeBuyzere, M.; Duprez, D., Cohn, J.N. "Cerebral White
Matter Lesions are Associated with Decreased Elasticity of Arteries in the
Elderly." JOURNAL of HYPERTENSION 17: (Suppl. 3): Poster No. P2.31, May 1999.
Resnick, Lawrence M. "Pulse Wave Velocity and Other Markers of Arterial Wall
Stiffness: Methods and Clinical Relevance." (Presented at the Ninth European
Meeting on Hypertension and published in the Scientific Programme and Abstracts
on Large Artery Structure and Function, Milan, Italy, June 1999).
Resnick, L.M.; Chesney, C.F.; Lester, M.A. "Physiologic Correlates of Arterial
Compliance in Essential Hypertension." (Published in the Ninth European Meeting
on Hypertension, Scientific Programme and Abstracts on Large Artery Structure
and Function, Milan, Italy, June 1999).
McVeigh, Gary E.; Bratteli, Christopher W.; Morgan, Dennis J.; Alinder, Cheryl
M.; Glassner, Stephen P.; Finkelstein, Stanley M.; Cohn, Jay N. "Age-Related
Abnormalities in Arterial Compliance Identified by Pressure Pulse Contour
Analysis." HYPERTENSION 33:1392-1398, June 1999.
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Resnick, L.M.; Lester, M.H.; Chesney, C.F. "Differential Effects of
Antihypertensive Drug Therapy on Arterial Compliance." (Presented at the
Fifteenth Scientific Meeting of the American Society of Hypertension and
Published in AMERICAN JOURNAL of HYPERTENSION 13:(4, Part 2), pg. 20A, April
2000).
Gilani, M.: Alinder, C.; Kaiser, D.; Rajala, S.; Bank, A.J.; CDohn, J.N.
"Differences in Large and Small Artery Response to Acute Inhibition of Nitric
Oxide Synthase in Human Subjects." AMERICAN JOURNAL of HYPERTENSION, 13: (4,
Part 2), Abstract No. B003, April 2000.
Lane, K.V.; Prisant, M.E.; Prisant, L.M. "Noninvasive Vascular Compliance:
Short-Term Assessment of test Repeatability." AMERICAN JOURNAL of HYPERTENSION
13: (4, Part 2), Abstract No. B015, April 2000.
DeBacker, T.L.; DeBuyzere, M.L.; Duprez, D.A.; Clement, D.L.; Cohn, J.N. "Large
Artery but Not Small Artery Elasticity Index is Increased in Athletic Sports Men
Versus Control Subjects." AMERICAN JOURNAL of HYPERTENSION 13: (4, Part 2,),
Abstract No. B022, April 2000.
Zimmerman, A.; VanAuker, M.D.; Zakari, A.; Strom, J.A.; Weber, M.A. "Loss of
Oscillatory Arterial Compliance is Detectable in Young Patients by Radial Artery
Pulse Contour Analysis." AMERICAN JOURNAL of HYPERTENSION 13: (4, Part 2),
Abstract No. B026, April 2000.
Winer, N.; Mitri, O.; Saradih, H.; Shah, C. "Influence of Cardiovascular Risk
Factors and Gender on Vascular Elascticity and Metabolic Parameters." AMERICAN
HOURNAL of HYPERTENSION 13: (4, Part 2), Abstract No. B028, April 2000.
Kaiser, D.R.; Gilani, M.; Alinder, C.; Rajala, S.; Cohn, J.N. "Intravenous
Infusion of L-Name Does Not Alter Brachial Artery Area or Compliance." AMERICAN
JOURNAL of HYPERTENSION 13: (4, Part 2,), Abstract No. B029, April 2000.
Grey, E.; Bratteli, C.; Glasser, S.P.; Alinder, C.; Finkelstein, S.M.; Lindgren,
B.; Cohn, J.N. "Small but Not Large Artery Compliance Predicts Cardiovascular
Events." AMERICAN JOURNAL of HYPERTENSION 13: (4, Part 2), Abstract No. B059,
April 2000.
MARKETING, SALES AND DISTRIBUTION
Within the United States health care industry, which is estimated at
approximately $1 trillion in annual sales by the United States Department of
Health and Human Services (December 15, 1997), cardiovascular disease is
expected to account for $326 billion (or 27%) in 1998, with approximately $28
billion of that spent on physician and other professional services, according to
American Heart Association estimates. Although significant advances have been
made in the prevention and treatment of heart attacks and strokes during the
past couple of decades, these diseases remain among the leading causes of death
in the United States and many other countries. Consider the following:
- According to the American Heart Association, cardiovascular disease is
the leading cause of death in the United States accounting for more
than one-half of all deaths (over one million) every year.
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- More than one million Americans suffer heart attacks annually, and it
is the first sign of cardiovascular disease in 20% to 40% of these
patients. (Sources: 1997 Heart and Stroke Statistical Update, American
Heart Association, 1996; Johns Hopkins Coronary Heart Disease).
- According to a 1997 release by the National Heart, Lung and Blood
Institute, approximately 50 million adults (about 28% of the adult
American population) are currently diagnosed with high blood pressure,
with nearly 75% of those (or 37.5 million) not properly treated for the
condition.
- According to the Johns Hopkins White Papers on Hypertension (1998), an
additional 30 million American adults are estimated to have
"high-normal or borderline hypertension."
- Hypertension is present in more than 50% of Americans age 60 or older.
(Source: Archives of Internal Medicine, Volume 157, Number 6, March 24,
1997).
- Stroke accounts for about one in every 15 deaths in the United States.
(Sources: 1997 Health Care Almanac & Yearbook; 1997 Heart and Stroke
Statistical Update, American Heart Association).
- According to a March 1997 survey by the Pharmaceutical Research and
Manufacturers of America, research expenditures within the United
States by all research-based pharmaceutical companies is estimated at
$15 billion in 1997.
- Cardiovascular research and development is estimated to account for
approximately $3.1 billion to $3.97 billion (or 16% to 21% of all
United States research and development spending in 1997). (Source:
Parexel's Pharmaceutical R&D Statistical Sourcebook, 1997).
- In 1998, more than 180 million adults in the seven major markets
including the United States, France, Germany, Italy, Spain, United
Kingdom and Japan, suffered from hypertension and the market for
anti-hypertensive therapy is expected to reach $22 billion by the year
2008. (Source: Decision Resources, Inc., Hypertension Report, 1999).
Because of the magnitude and impact cardiovascular disease has on the
worldwide population, we believe that our Product offers a significant
opportunity for providing a more accurate and effective means with which to
screen patients for potential underlying vascular disease. Furthermore,
cardiovascular disease is a major cause of death in the United States and nearly
every other developed country throughout the world.
The Research Market
The HDI/PulseWave(TM) CR-2000 Research CardioVascular Profiling System
is being marketed to medical directors and research investigators at
pharmaceutical firms and academic centers on a worldwide basis, yielding 100% of
our revenues to date. These research customers have expressed a keen interest in
a non-invasive means of gathering information from human research subjects.
According to the Tufts Center for the Study of Drug Development and a
February 1993 report by the U.S. Congressional Office of Technology Assessment,
it costs a company, on average, $359 million and about fifteen years to get one
new drug from the laboratory bench to the pharmacist's shelf. According to the
Pharmaceutical Research and Manufacturers of America, only five in 5,000
chemical
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compounds that enter pre- or non-clinical testing are ultimately subjected to
human testing and only one in five of those is ultimately approved. We believe
the CR-2000 Research System provides a new means for gathering information on
additional variables during such research endeavors.
The clinical research market is diverse, with pharmaceutical companies,
the federal government and medical device manufacturers funding the vast
majority of research. According to annual surveys by the Pharmaceutical Research
and Manufacturers of America, pharmaceutical companies spent an estimated $13.6
billion and $15 billion on all research and development within the United States
in 1996 and 1997, respectively. Of this amount, spending on clinical development
in Phases I to IV of research was approximately $4.8 billion in 1996. In most
cases, the direct costs of physician payments and the costs of additional
medical care due to the trial are paid directly to the provider organization by
the pharmaceutical study sponsor.
The Practicing Physician Market
The CVProfilor(TM) DO-2020 CardioVascular Profiling System is intended
to be used by physicians or trained medical personnel. Our focus will be on the
practice of cardiovascular medicine within these facilities and, in particular,
those health care professionals and providers who are directly involved in
screening of patients for potential underlying vascular disease. Current
American Medical Association estimates indicate there are approximately 650,000
to 700,000 active physicians in the United States, approximately 250,000 of
which fall into the target market as potential users of the CVProfilor(TM)
DO-2020 System:
- Approximately 120,000 internal medicine physicians
- Approximately 80,000 general and family practice physicians
- Approximately 30,000 medical sub-specialty physicians
- Approximately 20,000 cardiovascular disease specialists
We have identified three markets for the CR-2000 Research System:
Pharmaceutical Companies. There are approximately 1,950 firms conducting
clinical research trials in the United States alone. Nonetheless, according to
Parexel's Pharmaceutical R&D Statistical Sourcebook (1997), a small number of
pharmaceutical firms in the world accounted for the majority of all research and
development spending. These pharmaceutical firms often seek new ways to gather
additional information non-invasively on human subjects during clinical research
trials.
Academic Centers. Hundreds of universities throughout the world conduct research
under grants supplied by government agencies, disease management foundations and
private sponsors. Universities with research centers conducting clinical trials
in the areas of preventative cardiology, nephrology and epidemiology are a
particular target market for the CR-2000 Research System. Many references in the
peer reviewed medical literature illustrate the growing body of knowledge
regarding arterial elasticity measurements and the implications of such
measurements for the management of cardiovascular disease.
The U.S. Government. The National Institutes of Health and Veterans' Affairs
Medical Centers, the Agency for Health Care Policy and Research and the Centers
for Disease Control and Prevention often conduct large-scale research projects.
These organizations represent a market opportunity for the CR-2000 Research
System.
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We anticipate that use of the CR-2000 Research System in research
settings will not only provide information contributing to the advancement of
significant cardiovascular research, but also will likely lead to the
publication of favorable articles in respected medical journals that will
promote a greater awareness of arterial elasticity and its correlation with
cardiovascular disease.
MARKETING STRATEGY
Our primary objective is to establish our Product as the standard for
non-invasive patient vascular screening.
CR-2000 Research System
We are currently using various methods to market the CR-2000 Research
System including our website (www.hdi-pulsewave.com), direct mail, attendance at
major medical conventions and the use of a limited sales force to market the
CR-2000 Research System to pharmaceutical companies, academic centers and major
cardiovascular research centers worldwide. Following geography-specific
regulatory clearance, we anticipate using a core direct sales force to sell the
CR-2000 Research System in the United States and to identify and manage
independent medical distribution firms for marketing it internationally. We have
established a United States sale price of $20,750 for the CR-2000 Research
System. Higher than expected manufacturing, marketing or distribution costs or
competitive pressures may, however, force us to raise or lower the price of the
CR-2000 Research System, respectively.
CVProfilor(TM) DO-2020 System
After we obtain FDA clearance to market the DO-2020 System in the
United States, we intend to direct its sales and marketing efforts at physicians
who screen patients for potential underlying vascular disease. We will seek to
gain DO-2020 System acceptance by implementing a strategy that promotes its
benefits directly to people who have, or are at risk for developing,
cardiovascular disease, and to educate healthcare professionals, managed care
decision makers and insurers as to the potential advantages involved in early
detection of vascular disease. Our education and awareness strategy will also
focus on the publication of additional research studies covering performance and
utility of the DO-2020 System and attendance at major cardiovascular
conventions.
The introduction of the DO-2020 System will occur in two stages. The
first will consist of a controlled introduction to key opinion leaders in the
United States in order to allow us sufficient time to develop a strong referral
base. Second, we will focus early marketing and education efforts on United
States physicians who evaluate individuals at risk for developing vascular
disease. In an effort to encourage rapid acceptance of the DO-2020 System, we
anticipate offering it to physicians on a "per-patient" or "per-report" billing
basis. Invoices for physician use of the DO-2020 System will be generated based
on the number of CardioVascular Profile Reports that are transmitted to our
Central Data Management Facility each month.
We anticipate using a core direct sales force to call on key
cardiovascular opinion leaders and to establish distribution arrangements with
independent and/or contract sales representatives and medical companies with
complementary distribution networks. Long term, we intend to promote the DO-2020
System to people at risk for developing cardiovascular disease through public
relations materials, advertising and our Internet website
(www.hdi-pulsewave.com).
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CVProfilor(TM) MD-3000 System
Following receipt of CE Mark certification for the MD-3000 System, we
will utilize a network of independent international distributors to market it to
cardiovascular specialists, cardiologists and family physicians for use in
screening, diagnosing and monitoring the treatment of patients with
cardiovascular disease within key international markets.
Our primary focus will be on the creation of a distribution network
covering the European Union, Japan and other parts of Asia. Secondary
distribution efforts will focus on South America, Canada and the Pacific Rim. We
anticipate signing a multi-year agreement with distributors to represent us in a
specific territory - generally anticipated to be at least a single country. The
MD-3000 System will be sold to distributors who will re-sell and service it in
their territory. Our distributors have the right to set the selling price of the
MD-3000 System within their territory.
Distributor appointments will generally be based on the distributor's
ability to manage the financial aspects of currency fluctuations, their
demonstration of ethical conduct consistent with United States business
practices, their ability to market to and support key differences in physician
practice patterns, their ability to assist us in obtaining sufficient MD-3000
System reimbursement, and their ability to satisfy government regulations
pertaining to use of medical devices that exist within their territory. We
anticipate that these distributors will be firms that distribute complementary
cardiovascular or general medical products and that have the ability to
designate specialist support for marketing the MD-3000 System. We currently have
executed distribution agreements covering Japan, Norway, Sweden, Denmark, Italy
and Taiwan.
PRODUCTION
The design, development and integration of all of the components
necessary to fabricate and manufacture our Product was undertaken on our behalf
by a contract design engineering firm. We have completed a production run for
fiscal year 2000 CR-2000 Research System sales. According to testing performed
at TUV Product Services, Inc., the CR-2000 Research System has been found to be
in full compliance with the electromagnetic compatibility immunity and emissions
requirements and the requirements for displaying the CE Mark. The CVProfilor(TM)
DO-2020 System was also evaluated by Underwriters Laboratories, Inc., and is UL
listed with a license to display the UL label.
On November 30, 1999, we announced that our Quality Assurance System
was registered to ISO-9002, EN-46002 and ISO-13488 by TUV Product Services, Inc.
Our CR-2000 Research CardioVascular Profiling System now displays the `CE0123'
mark, indicating that the CR-2000 Research System is certified for sale
throughout the European Union and that the product complies with applicable
safety standards. We are currently pursuing foreign registrations and approvals
that will allow marketing of a similar product to physicians, the CVProfilor(TM)
MD-3000 System, in foreign markets.
We have now brought in-house assembly, testing, packaging and shipping
operations for our Product. Improved Product and service quality and
manufacturing cost reductions have been incorporated into our operating plans.
In the interest of flexibility and efficiency, we are conducting final
Product assembly, testing and packaging at our facility in Eagan, Minnesota, in
compliance in all material respects with the FDA's Quality System Regulations
("QSR").
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An integral component of our Product is the Sensor. While Sensors
utilized in our Product have performed reliably, we are uncertain as to whether
Sensors will be available on a commercial basis, and if available, whether an
adequate supply of Sensors meeting our standards of reliability, accuracy and
performance will be available. We currently obtain the Sensor from a single
vendor and have a manufacturing services agreement with this vendor. Disruption
or termination of this relationship would have a material adverse effect on our
business and results of operations.
COMPETITION
Competition in the medical device industry is intense and many of our
competitors have substantially greater financial, manufacturing, marketing,
distribution and technical resources than we do. We compete directly with
manufacturers of sphygmomanometers, as well as drug, medical instrument and
health care companies. In addition, we are aware of other companies that are
developing products that measure arterial elasticity. A technology called the
"Complior" has been developed in France and has been reported in the general
medical literature to measure "arterial stiffness" (versus elasticity). Research
in a number of centers continues, supported by the "Complior," although the
status of commercial sales are unknown at this time. The "Complior" device is
based on "pulse wave velocity" (while our Product provides analysis of pulse
waveforms).
To the best of our knowledge, no products which measure both large and
small artery elasticity have yet obtained either CE Mark or FDA clearances to
market, and no other products being developed or being marketed appear capable
of providing both large artery and small artery elasticity values. We are aware
of six other firms that are developing products that attempt to measure vascular
elasticity and which may be viewed as competitive alternatives. The six firms
are International Medical Device Partners (Las Vegas, Nevada), ASULAB Research
Labs of the SMH Group (Neuchatel, Switzerland), Pulse Metric, Inc. (San Diego,
California), PWV Medical Ltd. (Sydney, Australia), Specaway Pty Ltd. (St. Pauls
New South Wales, Sydney, Australia) and Novacor (Paris, France). One such firm
has received FDA clearance to market a device which claims to evaluate a
patient's general cardiovascular condition.
GOVERNMENT REGULATION
Medical devices including our CVProfilor(TM) DO-2020 System are subject
to strict regulation by state and federal authorities, including the FDA and
comparable authorities in certain states. Under the 1976 amendments to the
Federal Food, Drug and Cosmetic Act (the "FDCA") and the regulations promulgated
thereunder, manufacturers of medical devices are required to comply with very
specific rules and regulations concerning the testing, manufacturing, packaging,
labeling and marketing of medical devices. Failure to comply with the FDCA and
any applicable regulatory requirements could result in, among other things,
civil and criminal fines, product recalls, detentions, seizures, injunctions and
criminal prosecutions.
Before a new medical device may be introduced into the United States
market, the manufacturer generally must obtain prior authorization from the FDA.
This authorization is based on a review by the FDA of the medical device's
safety and effectiveness for its intended uses. Medical devices may be
authorized by the FDA for marketing in the United States either pursuant to a
510(k) Pre-Market Notification ("510(k)") submission or a Premarket Approval
("PMA") submission. The process of obtaining clearances or approvals from the
FDA and other applicable regulatory authorities can be expensive, uncertain and
time consuming, frequently requiring several years from the commencement of
clinical trials or submission of data to regulatory acceptance.
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<PAGE> 31
A PMA submission consists of information provided to the FDA sufficient
to establish independently that a device is safe and effective for its intended
use. By statute, the FDA is required to respond to a PMA submission within 180
days from the date of its submission; however, the approval process usually
takes substantially longer, often as long as several years. On the other hand, a
510(k) submission requires an applicant to show that a medical device is
"substantially equivalent" in terms of safety and effectiveness to a predicate
product marketed prior to 1976 or to a medical device already cleared by the FDA
for marketing in the United States. In practice, clearance of products often
takes substantially longer than the statutory 510(k) submission review period of
90 days.
FDA clearances and approvals, if granted, may include significant
limitations on the intended uses for which a product may be marketed. FDA
enforcement policy strictly prohibits the promotion of cleared or approved
medical devices for non-approved or "off-label" uses. In addition, product
clearances or approvals may be withdrawn for failure to comply with regulatory
standards or the occurrence of unforeseen problems following initial marketing.
We are seeking clearance from the FDA to market the CVProfilor(TM)
DO-2020 System in the United States and have previously submitted a 510(k)
Premarket Notification submission to the FDA. In January 2000, we were notified
by the FDA that it would not grant an extension of time to the 510(k) Premarket
Notification as we had previously submitted. Instead, the FDA has asked that we
submit a new 510(k) which will include additional information as previously
agreed upon with the FDA. We forwarded a new 510(k) Premarket Notification
submission to the FDA during June 2000. However, we cannot predict how long the
FDA will take to review our 510(k) submission, or when the FDA will clear the
DO-2020 System for marketing in the United States, if at all.
Federal, state and foreign regulations regarding the manufacture and
sale of healthcare products and diagnostic devices are subject to future change.
We cannot predict what material impact, if any, these changes might have on our
business. Future changes in regulations or enforcement policies could impose
more stringent requirements on us, compliance with which could adversely affect
our business. These changes may relax certain requirements, which could prove
beneficial to our competitors and thus adversely affect our business. In
addition, regulations of the FDA and state and federal and foreign laws and
regulations depend heavily on administrative interpretations, and we cannot
assure you that future interpretations made by the FDA, or other regulatory
authorities, with possible retroactive effect, will not adversely affect us.
In addition to the regulations directly pertaining to us and our
products, many of our potential customers are subject to extensive regulation
and governmental oversight. Regulatory changes in the healthcare industry that
adversely affect the business of our customers could have a material adverse
effect on our business, financial condition and results of operations.
We can give no assurance that we will be able to obtain necessary
regulatory clearances or approvals in the United States or internationally on a
timely basis, if ever. Delays in the receipt of, or failure to receive, these
clearances or approvals, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on our business, financial
condition and results of operations.
REIMBURSEMENT
We anticipate that most revenue affiliated with physician use of the
CVProfilor(TM) DO-2020
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System will ultimately be derived from insurance coverage and third-party
payers. The patient payer marketplace includes commercial insurers, Blue
Cross/Blue Shield plans and Health Maintenance Organizations ("HMOs"), with
Medicare, other federally funded and "self-pay" plans accounting for a smaller
percentage of the payers. Each payer group establishes its own coverage and
procedure payment schedule resulting in a range of allowable payments. Physician
reimbursement is an important aspect in the DO-2020 System's success. Without
adequate levels of reimbursement, physicians may be reluctant to try the DO-2020
System, if at all. There is no assurance that adequate third-party reimbursement
for the DO-2020 System will be available.
The Health Care Financing Administration ("HCFA") a division of the U.S.
Department of Health and Human Services ("HHS"), has established three levels of
coding for health care products and services:
- Level I, Current Procedural Terminology ("CPT") codes for
physicians' services;
- Level II, National Codes for supplies and certain services; and
- Level III, local codes.
The coding system applicable to the CVProfilor(TM) DO-2020 System is Level I.
Insurers require physicians to report their services with the CPT coding system.
Following FDA clearance for the CVProfilor(TM) DO-2020 System, we will
interact with the American Medical Association ("AMA") to determine whether the
DO-2020 System falls within any existing CPT codes or whether it requires a new
code application or code revision. In the event the AMA determines that none of
the existing CPT codes are appropriate for the DO-2020 System, we believe that
it may take two or more years to obtain a DO-2020 System technology-specific CPT
code. During this time, physicians may be required to use a "miscellaneous code"
for patient billing purposes, although the level of reimbursement they receive,
if any, will depend on each individual payer's assessment of the procedure.
Physicians may also require payment directly from patients for the procedure in
various markets until we gain widespread reimbursement, if ever.
PATENTS AND PROPRIETARY TECHNOLOGY
Our success depends, in part, on our ability to maintain patent
protection for our Product and processes, preserve our trade secrets and operate
without infringing the property rights of third parties. We are the exclusive
assignee for three issued United States patents and have obtained an exclusive
license to rights under five United States patents issued to the Regents of the
University of Minnesota. These eight patents relate to our blood pressure
waveform analysis procedures, our cardiovascular profiling technology, the
non-invasive determination of cardiac output, and the overall technology and
operation of our Product. The license from the University of Minnesota expires
with the term of their patents (currently expected to be during 2016). One or
more patent applications relating to these United States issued patents are
currently pending in Japan, Germany, France and the United Kingdom. We have
three patent applications that have been submitted regarding other aspects and
components of our Product. We can give no assurance that our current patents and
licenses will provide a competitive advantage, that the pending applications
will result in patents being issued, or that our competitors will not design
around any patents or licenses issued to us.
Besides seeking additional patents, we intend to rely to the fullest
extent possible on trade secrets, proprietary "know-how", and our ongoing
endeavors involving product improvement and enhancement. We can give no
assurance that nondisclosure agreements and invention assignment
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<PAGE> 33
agreements will protect our proprietary information and know-how or provide
adequate remedies in the event of unauthorized use or disclosure of that
information, or that others will not be able to independently develop that
information.
UNIVERSITY OF MINNESOTA RESEARCH AND LICENSE AGREEMENT
On September 23, 1988, we entered into a Research and License Agreement
(the "University License Agreement") with the University of Minnesota (the
"University"), pursuant to which the University granted to us an exclusive,
worldwide license under the patents that relate to our Product for diagnostic,
therapeutic, monitoring and related uses. The University License Agreement
expires with the last to expire of the patents related to the licensed
technology (currently expected to be during 2016). We also have the right to
grant sub-licenses under the University's patents.
In consideration of the University License Agreement, we conducted expanded
clinical trials of arterial compliance technology and are continuing to use our
best efforts to develop commercial medical devices. We must pay a royalty on
revenue from commercialization of our Product (or future products, which
incorporate the licensed arterial compliance technology), in the amount of 3% of
gross revenue (less certain reductions, such as returned goods).
EMPLOYEES AND CONSULTANTS
We currently employ 12 full-time employees. We anticipate hiring
approximately 8 additional employees during the next 12 months in the areas of
marketing and sales, plant operations and assembly tasks, computer software and
database development, and for clinical and customer support needs including
accounting and administrative staff. We believe that our employee relations are
good.
In addition to vendors under contract to us for specific product-related
tasks, we have consultant relationships with several experts including:
- Several experts in regulatory affairs and FDA matters;
- Jay N. Cohn, M.D. as our Chief Clinical Consultant;
- Stanley M. Finkelstein, Ph.D. as our Chief Technical Consultant;
- a consulting firm for computer software engineering design and
programming;
- a consulting firm for medical electronic manufacturing and production
engineering tasks;
- consulting firms for third-party reimbursement; and
- several experts in sales and marketing.
We may retain additional consultants as necessary to accommodate our need for
experts in selected areas of product-related activities.
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USE OF PROCEEDS
The shares of our common stock offered with this prospectus will be
offered solely by the Selling Shareholders, who will receive all of the proceeds
from the sale of the Shares. We will not receive any of the proceeds from the
sale of the Shares.
SELLING SHAREHOLDERS
We have agreed with the Selling Shareholders to register the following
Shares: (i) Shares issuable to the Selling Shareholders upon exercise of
outstanding non-qualified stock options that we granted to our officers,
directors and consultants; (ii) Shares issued to or issuable to the Selling
Shareholders upon exercise of warrants issued to our agents in connection with
private placements in 1995-1996 and 1997 - 1998; and (iii) Shares issuable on
exercise of the Underwriter's warrant and the Class A Redeemable Warrants
underlying the Underwriter's warrant. Our registration of the Shares does not
necessarily mean that the Selling Shareholders will sell all or any of the
Shares.
The shares of common stock being offered by the Selling Shareholders
were issued to them in connection with various transactions, including private
placements of common stock and warrants, awards of option grants and our initial
public offering of units, common stock and Class A Redeemable Warrants. The
Selling Shareholders include the following persons who have acquired our
securities:
- Eight individuals who acquired rights to purchase a total of 386,018
shares of our common stock, at an exercise price of $1.70 per share,
pursuant to non-qualified stock option agreements dated October 30,
1995. The shares issuable upon exercise of these stock options are
covered by this prospectus as a result of registration rights granted
to the option holders;
- Four individuals who are directors of our company and who acquired
rights to purchase a total of 649,257 shares of our common stock
pursuant to non-qualified stock option agreements dated October 30,
1995, at an exercise price of $1.70 per share, January 1, 1996, at an
exercise price of $2.00 per share, and July 1, 1997, at an exercise
price of $2.00 per share. The shares of common stock underlying these
options, which are currently held in escrow pursuant to Minnesota
state securities laws and regulations until July 23, 2001 and may not
be sold until that time absent approval of the State of Minnesota, are
covered by this prospectus as a result of registration rights granted
to the directors in connection with issuance of the options;
- Three individuals who acquired rights to purchase a total of 132,900
shares of our common stock at a purchase price of $2.00 per share,
pursuant to common stock purchase warrants originally issued to a
placement agent as compensation for its placement services performed
in connection with a private placement we effected in May 1996. One
person has exercised a portion of those warrants and acquired 64,462
shares. The shares issued and issuable upon exercise of the warrants
are covered by this prospectus as a result of registration rights
granted to the warrant holders;
- Nineteen individuals who acquired rights to purchase a total of 50,000
shares of our common stock for a purchase price of $4.95 per share,
pursuant to common stock purchase warrants originally issued to a
placement agent as compensation for its placement services performed
in connection with a private placement we effected in March 1998. The
shares issuable upon exercise of these warrants are covered by this
prospectus as a result of registration rights granted to the warrant
holders; and
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<PAGE> 35
- Twenty-four individuals who acquired rights to purchase a total of
175,000 units, each consisting of one share of common stock and one
Class A Redeemable Warrant for the purchase of common stock, at a
purchase price of $4.95 per unit, pursuant to a warrant originally
issued to an underwriter as compensation for underwriting services in
connection with our initial public offering effected in July 1998.
The Class A Redeemable Warrant component of the units is exercisable
at a purchase price of $5.50 per share. The shares issuable upon
exercise of the warrant are covered by this prospectus as a result of
registration rights granted to the warrant holders.
<TABLE>
<CAPTION>
Beneficial Ownership of Beneficial Ownership of
Shares Before the Offering Shares After the Offering
------------------------------- -------------------------
Name and Relationship Warrant Option Number of
to the Company, if any Shares Shares Shares Shares Offered Number (1) % (1)
---------------------- ------ ------ ------ -------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Melville R. Bois (2), Director 25,000 -- 59,000 50,000 34,000 *
Stanley M. Finkelstein, Ph.D. (3) 54,383 -- 257,688 257,688 54,383 1.0%
Kenneth W. Brimmer (2), 41,000 6,000 43,000 25,000 65,000 1.2%
Chairman of the Board
Charles F. Chesney, D.V.M., Ph.D., 53,000 -- 327,474 222,046 158,428 2.9%
(2), Executive Vice
President, Chief Technology
Officer, Secretary and Director
Ernest Andberg (6) 1,500 1,500 -- 3,000 0 *
Duane F. Anderson (6) 79 79 -- 158 0 *
Vicki Lynn Anderson (5),(6) 630 1,620 -- 2,250 0 *
Constance Berman (4),(5),(6) 79,982 16,361 -- 89,343 7,000 *
James Bjornlie (6) 259 259 -- 518 0 *
Miles Braufman (5),(6) 4,260 5,168 -- 9,428 0 *
Joseph Buska (6) 7,822 7,822 -- 15,644 0 *
Mark D. Bystrom (6) 700 700 -- 1,400 0 *
Amy Chesney Dvorak (3) 1,000 -- 20,000 20,000 1,000 *
Jason A. Chesney (3) 1,000 -- 20,000 20,000 1,000 *
Cynthia Cohn (3) 4,706 -- 19,312 19,312 4,706 *
Jay N. Cohn, M.D. (2) 74,174 -- 460,211 352,211 182,174 3.2%
Joshua Cohn (3) 15,000 -- 9,018 9,018 15,000 *
William Crolley (5) -- 1,000 -- 1,000 0 *
Cynthia Cornetet (5) -- 500 -- 500 0 *
David F. Dalvey (5),(6) 5,043 6,053 -- 11,096 0 *
John E. Feltl (5),(6) 113,526 118,846 -- 222,372 10,000 *
Alan Finkelstein (3) -- -- 20,000 20,000 0 *
Jon Finkelstein (3) -- -- 20,000 20,000 0 *
Victor Greenstein (6) 240 240 -- 480 0 *
Dennis Hanish (5),(6) 51 71 -- 122 0 *
Thomas E. Jamison (5),(6) 5,043 6,043 -- 11,086 0 *
David A. Lantz (5),(6) 5,043 6,043 -- 11,086 0 *
Bruce LeDuc (6) 72 72 -- 144 0 *
William Milkes (5) -- 1,250 -- 1,250 0 *
Wayne Mills (6),(7) 235,000 150,000 -- 23,464 361,536 6.8%
Richard Morrill (4),(5) -- 8,975 -- 8,975 0 *
Dennis E. Nielsen (6) 700 700 -- 1,400 0 *
Jack E. Nielsen (6) 700 700 -- 1,400 0 *
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
Beneficial Ownership of Beneficial Ownership of
Shares Before the Offering Shares After the Offering
------------------------------- --------------------------
Name and Relationship Warrant Option Number of
to the Company, if any Shares Shares Shares Shares Offered Number (1) % (1)
---------------------- ------ ------ ------ -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Paula Olson (5) -- 250 -- 250 0 *
Holly B. Ouellette (3) 1,000 -- 20,000 20,000 1,000 *
Brent R. Peacock (6) 700 700 -- 1,400 0 *
Douglas Pritchard (6) 368 368 -- 736 0 *
John Ryden (5),(6) 51 71 -- 122 0 *
Todd L. Schachtman (5) -- 750 -- 750 0 *
Patrick Sidders (5),(6) 1,741 2,741 -- 4482 0 *
Barbara Steinkamp (5),(8) 1,667 100 -- 100 1,667 *
Donald Steinkamp(5),(8) 1,667 200 -- 200 1,667 *
Jan David Wald (6) 700 700 -- 1,400 0 *
Bernard T. Weber (4),(5),(6) 62,620 111,424 -- 107,344 66,700 1.3%
------------------
*less than 1%
</TABLE>
(1) Assumes the sale of all of the Shares offered by this prospectus.
(2) These individuals are directors who were granted non-qualified options to
purchase common stock pursuant to non-qualified stock option agreements
dated: October 30, 1995, at an exercise price of $1.70 per share; January
1, 1996, at an exercise price of $2.00 per share; and July 1, 1997, at an
exercise price of $2.00 per share. The shares of common stock underlying
these options are currently held in escrow until July 23, 2001.
(3) These individuals were granted non-qualified options to purchase common
stock at an exercise price of $1.70 per share pursuant to non-qualified
stock option agreements granted October 30, 1995.
(4) These individuals were issued common stock purchase warrants for purchase
of up to 132,900 shares of our common stock, at an exercise price of $2.00
per share, as a result of agent's warrants originally issued in a private
placement we effected in May 1996. One person has exercised a portion of
those warrants and acquired 64,462 shares of common stock.
(5) These individuals were issued common stock purchase warrants for purchase
of up to 50,000 shares of common stock, at an exercise price of $4.95 per
share, as a result of agent's warrants originally issued to R. J. Steichen
& Co. in connection with a private placement we effected in March 1998.
(6) These individuals were issued a warrant to purchase units, each unit for
the purchase of one share of common stock and one Class A Redeemable
Warrant for purchase of common stock, at a purchase price of $4.95 per
unit, as a result of a warrant originally issued to R. J. Steichen & Co.
as compensation for underwriting services in connection with our initial
public offering effected in July 1998. The warrant component of the units
is exercisable at a purchase price of $5.50 per share.
(7) Mr. Mills reported his beneficial ownership on a Schedule 13G filed with
the Securities and Exchange Commission on July 10, 2000. The filing
indicates Mr. Mills has sole voting power for 385,000 shares and sole
dispositive power for 385,000 shares. According to the Schedule 13G, Mr.
Mills has no shared voting power and no shared dispositive power.
(8) Reflects beneficial joint ownership of 1,667 shares.
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<PAGE> 37
PLAN OF DISTRIBUTION
We have not engaged an underwriter in connection with this offering and
we will receive no proceeds from the sale of any common stock being issued. The
shares of common stock are being offered by the Selling Shareholders on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act. By
separate filing of a second registration statement, the shares of common stock
are also being offered to our holders of outstanding warrants in connection with
the exercise of their rights to purchase shares under the warrants. We have
agreed to pay all expenses incurred in connection with the registration of the
shares offered by the Selling Shareholders except that the Selling Shareholders
are exclusively liable to pay all commissions, discounts and other payments to
broker-dealers incurred in connection with their sale of common stock.
The common stock held by the Selling Shareholders may be sold or
distributed from time to time by the Selling Shareholders, or by pledgees,
donees or transferees of, or other successors in interest to the Selling
Shareholders, directly to one or more purchasers (including pledgees) or through
brokers, dealers or underwriters who may act solely as agents or may acquire
common stock as principals, at market prices prevailing at the time of sale, at
prices related to the prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed.
The shares may be sold by one or more of the following:
- ordinary brokerage transactions and transactions in
which the broker solicits purchasers;
- purchases by a broker or dealer as principal and resale
by that broker or dealer for its account pursuant to this
prospectus;
- transactions involving cross or block trades or otherwise on The
Nasdaq SmallCap Market;
- "at the market" to or through market makers or into an existing
market for the shares;
- in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
- through transactions in options, swaps or other derivatives
(whether exchange-listed or otherwise); or
- any combination of the foregoing.
In addition, the Selling Shareholders or their successors in interest
may enter into hedging transactions with broker-dealers who may engage in short
sales of the common stock in the course of hedging the positions they assume
with the Selling Shareholders. The Selling Shareholders or their successors in
interest may also enter into option or other transactions with broker-dealers
that require the broker-dealers to deliver common stock, which may be resold
thereafter pursuant to this prospectus. The Selling Shareholders or their
successors in interest may also pledge the common stock in connection with
hedging transactions or other transactions.
As of the date of this prospectus, the Selling Shareholders have made
no arrangement with any broker for the sale of the shares. Underwriters, brokers
or dealers may participate in sale transactions as agents and may receive
brokerage commissions in that capacity from the Selling Shareholders or
purchasers of the shares (which compensation as to a particular broker-dealer
may be less than or in excess of customary commissions). These underwriters,
brokers or dealers may also purchase shares and resell these shares for their
own account as described above. The Selling Shareholders and the underwriters,
brokers or dealers may be considered underwriters as that term is defined by the
Securities
36
<PAGE> 38
Act of 1933. However, the Selling Shareholders disclaim any status as
underwriters. Any commissions, discounts or profits received by underwriters,
brokers or dealers in the foregoing transactions described above may be
considered underwriting discounts and commissions under the Securities Act of
1933.
RELATED PARTY TRANSACTIONS
On October 30, 1995, we entered into a four-year consulting agreement
with Jay N. Cohn, M.D., a member of the board of directors. Dr. Cohn is also one
of the founders of our company and serves as our Chief Clinical Consultant and
Chairman of our Scientific and Clinical Advisory Board. The agreement is
cancellable for any reason by either us or Dr. Cohn upon 60 days prior notice.
Under the terms of the agreement, we agreed to grant Dr. Cohn non-qualified
stock options to purchase 449,265 shares, which are exercisable for a period of
ten years at an exercise price of $1.70 per share, to serve as clinical liaison
and spokesman for our arterial compliance technology and to use his best efforts
to forward the research, clinical penetration and marketing of our Product. All
of the shares underlying these options have been fully vested. Dr. Cohn is
entitled to certain registration rights with respect to the shares underlying
these options.
Effective August 31, 1998, we amended Dr. Cohn's consulting agreement.
Under the amended consulting agreement, Dr. Cohn will perform marketing, sales
and public relations activities. As consideration for such additional services,
we agreed to grant to Dr. Cohn an option to purchase 100,000 shares of common
stock under our 1998 Stock Option Plan, with an exercise price equal to $3.656
per share (which was the fair market value of our common stock on the date of
grant). The option vests in three equal annual installments commencing on the
date of grant. The consulting agreement has been extended through August 2001.
Our management believes that the terms of these transactions are no less
favorable to us than would have been obtained from a nonaffiliated third party
for similar services. Any future transactions between us and any of our
officers, directors or affiliates will be on terms no less favorable to us than
could be obtained from unaffiliated third parties. All future material
transactions with officers, directors or affiliates must first be approved by a
majority of the independent outside members of our board of directors who do not
have an interest in the transactions.
SUBSEQUENT EVENTS
Except as may be reflected in this prospectus, there have been no
material changes in our affairs since the filing of the reports that have been
incorporated herein by reference.
LEGAL OPINIONS
Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota will give its
opinion about the validity of the issuance of the common stock offered under
this prospectus.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our annual report on Form 10-KSB for the year ended June
30, 1999, as set forth in their report, which is incorporated by reference in
this prospectus and elsewhere in the registration statement. Our financial
statements are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their
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<PAGE> 39
authority as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our articles of incorporation, as amended, eliminate or limit certain
liabilities of our directors, officers, employees and agents in certain
instances. Insofar as exculpation of, or indemnification for, liabilities
arising under the Securities Act may be permitted to directors, officers or
persons controlling us pursuant to the foregoing provisions, or otherwise, we
have been informed that, in the opinion of the Securities and Exchange
Commission, the exculpation or indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
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<PAGE> 40
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFERING MADE
HEREBY, AND, IF GIVEN OR MADE, THAT INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO
BUY, ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION WHERE THE
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
AND ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
1,568,175 SHARES
OF COMMON STOCK
HYPERTENSION
DIAGNOSTICS, INC.
PROSPECTUS
August 25, 2000
39
