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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 20-F
[x] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number
Haemacure Corporation
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
Canada
(Jurisdiction of incorporation or organization)
2001 University, Suite 430
Montreal, Quebec H3A 2A6 CANADA
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
None.
Securities registered or to be registered
pursuant to Section 12(g) of the Act.
Common Shares, without par value
(Title of Class)
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act.
None.
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by this
regulation. 23,926,132 Common Shares, without par value, as of August 1, 2000.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
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Indicate by check mark which financial statement item the registrant
has elected to follow.
Item 17 X Item 18
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TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS
ITEM 2. DESCRIPTION OF PROPERTY
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. CONTROL OF REGISTRANT
ITEM 5. NATURE OF TRADING MARKET
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
ITEM 7. TAXATION
ITEM 8. SELECTED FINANCIAL DATA
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
SECURITIES AND USE OF PROCEEDS
PART IV
ITEM 17. FINANCIAL STATEMENTS
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
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EXCHANGE RATES
The Company publishes its consolidated financial statements in Canadian Dollars.
The following table sets forth the exchange rates of the Canadian Dollar to the
U.S. Dollar at the end of fiscal years 1995 through 1999 and for the six-month
period ended April 30, 2000, as well as the high, low and average exchange rates
for each of such periods (such rates, expressed in CDN $ to US $1, being the
noon buying rates in New York City for cable as certified for customs purposes
by the Federal Reserve Bank of New York). On July 18, 2000, US $1.00 equaled CDN
$1.48.
Six Months
Ended
Year Ended October 31, April 30,
------------------------------------------------- ----------
1995 1996 1997 1998 1999 2000
------------------ --------- --------- --------- --------- --------- ----------
High $1.42 $1.38 $1.41 $1.58 $1.56 $1.49
Low $1.33 $1.34 $1.33 $1.40 $1.45 $1.44
Average (1) $1.37 $1.36 $1.38 $1.47 $1.49 $1.46
At end of Period $1.34 $1.34 $1.41 $1.54 $1.47 $1.48
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(1) The average of the exchange rates on the last day of each month in the
applicable period.
PART I
Item 1. Description of Business.
Haemacure Corporation ("Haemacure" or the "Company") was incorporated on August
19, 1991 pursuant to the Canada Business Corporations Act. The Company's
principal offices are located at 2001 University, Suite 430, Montreal, Quebec
H3A 2A6, Canada. The Company's shares have been publicly traded on the Toronto
Stock Exchange since June 1996. In 1996, Haemacure created a wholly-owned
subsidiary in the United States, Haemacure, Inc. ("HAE-US"), under the laws of
Delaware, with headquarters in Sarasota, Florida for the purpose of distributing
and marketing Haemacure's products.
Overview
Haemacure is a leader in the development, marketing and sale of surgical
sealants and related medical devices for the acute surgical wound management
market. In order to serve this market, Haemacure has focused on the development
and the commercialization of its proprietary and licensed fibrin sealants and
surgical devices for use in a broad range of applications. Fibrin sealant is a
tissue sealant comprised of fibrinogen and thrombin extracted from human plasma.
It is used in surgical procedures to arrest bleeding and as an adjunct to wound
healing. Fibrin sealants have been used in Europe and Japan for more than a
decade and were approved in 1998 for sale in the United States. Based on
independent market studies, Haemacure estimates that the annual worldwide market
for fibrin sealants will grow to more than US $640 million by 2003.
Hemaseel APR is the first fibrin sealant marketed by Haemacure. Haemacure
acquired a license for the product in 1997 from Immuno International AG
("Immuno") at the time of the acquisition of Immuno by Baxter International,
Inc. ("Baxter"). The product received approval from the United States Food and
Drug Administration (the "FDA") for marketing in May 1998 and was launched
commercially in the United States by Haemacure one month later. Hemaseel APR has
been approved by the FDA for use in heart by-pass surgery, spleen repair surgery
and colostomy closures and is marketed by Haemacure to hospitals and surgeons.
Hemaseel APR contains two human blood components, fibrinogen and thrombin, which
form the essential part of a blood clot, and a third component, aprotinin, which
acts as an anti-fibrinolytic agent. Only one competitive fibrin sealant product
(marketed by Baxter) has been approved for use in the United States. This
provides Haemacure with a significant opportunity to penetrate the United States
tissue sealant market.
Sales of Hemaseel APR have increased each quarter since its launch by Haemacure
in June 1998. During the fiscal year ended October 31, 1999, Haemacure sold
Hemaseel APR to more than 500 accounts in the United States and
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recorded sales of $5.5 million, representing approximately 25% of the current
United States fibrin sealant market, as estimated by Frost & Sullivan.
Haemacure's short-term objective is to increase sales of Hemaseel APR through
marketing initiatives designed to increase the visibility of Hemaseel APR in the
United States surgical community.
Haemacure's second fibrin sealant is Hemaseel APR (FF), also acquired under
license from Immuno. Hemaseel APR (FF) is a frozen formula version of Hemaseel
APR, delivered by way of pre-filled syringes. The Company expects to submit
Hemaseel APR (FF) to the FDA for approval during 2000 and to begin marketing the
product in 2001. Haemacure believes that Hemaseel APR (FF) will be significantly
easier for surgeons to use, in that it requires no reconstitution steps or
preparation other than thawing.
In 1999, Haemacure entered into an agreement with Bio Products Laboratory
("BPL"), an agency of the British National Blood Authority, pursuant to which
BPL will manufacture Hemaseel APR and Hemaseel APR (FF) for Haemacure. The
agreement was recently approved by the British government and a final version of
the agreement was signed. The Company expects that the BPL manufacturing
facility, which is located in Elstree, England, will be operational in 2002 and
that Haemacure will receive FDA approval to market Hemaseel APR manufactured
there in 2002 or 2003. Until that time, Immuno will continue to supply Haemacure
with Hemaseel APR and Hemaseel APR (FF).
Haemacure's third fibrin sealant is Hemaseel HMN, a proprietary product
currently undergoing Phase II studies in preparation for Phase III clinical
trials for vascular applications. Haemacure believes that Hemaseel HMN may be
more appropriate than Hemaseel APR in certain applications, such as
neurosurgery. The pilot studies and clinical trials are being funded and managed
by ZLB Central Laboratory Blood Transfusion Service SRC (Swiss Red Cross) (the
"ZLB") under a June 1999 licensing agreement with Haemacure. At that time, the
ZLB also made an equity investment in Haemacure of US $9.8 million, as a result
of which the ZLB became Haemacure's largest shareholder. Haemacure hopes to have
FDA approval of Hemaseel HMN in 2003.
Under the licensing agreement, the ZLB acquired the right to market Hemaseel HMN
(under a different trademark) in exchange for the ZLB's commitment to fund and
manage the regulatory approval process for Hemaseel HMN in the United States and
Europe, including the completion of Phase III clinical trials. The ZLB will also
pay a royalty to Haemacure on its sales of Hemaseel HMN. Haemacure retains the
right to also market Hemaseel HMN directly.
The June 1999 agreement represented a continuation of the ZLB's long-standing
relationship with Haemacure, which includes: (i) an agreement in 1996 whereby
Haemacure and the ZLB shared the cost of the development of a scaled-up
manufacturing process for Haemacure's fibrin sealant proprietary technology;
(ii) a commitment by the ZLB of US $13.5 million in November 1997 for the
construction of a plant in Bern, Switzerland to manufacture Hemaseel HMN, which
plant is nearing completion; and (iii) an equity investment in July 1998 by the
ZLB of US $4.8 million in Haemacure.
Haemacure is also developing Hemaseel Thrombin, a human plasma-derived topical
hemostat used to arrest bleeding during surgical procedures. At present,
commercially available therapeutic thrombin products are bovine-derived;
Haemacure believes that the introduction of a human thrombin product, such as
Hemaseel Thrombin, would provide significant clinical advantages. Haemacure
anticipates FDA approval for Hemaseel Thrombin in 2003. Haemacure also continues
to develop and market surgical sealant delivery devices. Haemacure expects that
its HemaMyst aerosol delivery system, which the Company expects to make
available in the United States during 2000, is intended to complement
Haemacure's proprietary HemaSyst delivery device, a double-syringe applicator
currently marketed in the United States.
Haemacure has offices in Montreal, Quebec and Sarasota, Florida and laboratories
in Kirkland, Quebec. Haemacure has 46 employees.
Business Strategy
Haemacure's goal is to build on its position as a leader in the development,
marketing and sale of surgical sealants and delivery devices. The following
objectives form part of Haemacure's strategy to achieve this goal:
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o continue to build a sales force dedicated to selling directly to hospitals
and surgeons, the end-users of surgical sealants
o increase sales and market share of Hemaseel APR in its current approved
applications, in part by providing surgeons with comprehensive educational
programs
o accelerate sales of Hemaseel APR through the introduction of Hemaseel APR
(FF), an easier-to-use formulation
o develop and acquire delivery devices for specific surgical applications, so
as to expand the number of applications for Haemacure's fibrin sealants
o introduce Hemaseel HMN, to target a larger number of surgical procedures
for Haemacure's products and develop and introduce Hemaseel HMN (FF).
o license and acquire products that are complementary to Haemacure's fibrin
sealant products
o establish worldwide distribution networks for its products through
licensing and co-marketing arrangements with international organizations
o use its fibrin sealant proprietary technology as a platform, by
incorporating other technologies to develop a variety of innovative
products and delivery devices for the wound closure and therapeutic markets
Haemacure believes that its focus on the acute surgical wound care market
provides it with an advantage over its competitors. Existing European
manufacturers of fibrin sealants and potential United States competitors are
generally plasma fractionation companies, whose core business is not the
production of surgical sealants, but rather the production of plasma protein
factors destined for the blood bank and hematology markets. Haemacure, by
contrast, develops products for, and directs its marketing primarily to,
surgeons in a variety of surgical specialties.
The Wound Management Market
Different types of wounds vary in severity and require a particular wound care
technique, which may change as healing progresses. These wounds can be
classified in four categories: surgical wounds, burn wounds, chronic wounds and
trauma wounds. Surgical wounds are caused intentionally during surgical
procedures. Burn wounds are generally regarded as the most complex and serious
type of skin wound. Chronic wounds (such as diabetic ulcers) are generally
associated with a systemic problem in the patient. Trauma wounds are generally
incurred as a result of an accident or injury. There are two segments to the
wound management market: wound closure (acute surgical wound care products) and
wound healing (therapeutics). Haemacure is involved primarily in the wound
closure market.
Wound Closure
According to Frost & Sullivan, the annual market for wound closure products in
the United States is approximately US $1.4 billion in 1998 and is projected to
grow to more than US $2 billion annually by 2005. Wound closure products are
used to close either surgical or trauma wounds. Until recently, these products
fell into three basic categories: sterile tapes/strips; sutures/surgical gut;
and mechanical devices such as staplers. Recently, a fourth category has
emerged: surgical sealants, including fibrin sealants. Sales of surgical
sealants in the United States are projected to grow at a compounded annual
growth rate of 40%, to reach US $840 million in 2002.
Tissue Sealants: Fibrin Sealants
Fibrin sealants are biological products used to control bleeding, seal air leaks
and strengthen tissue bonding in surgical wound closure procedures. Fibrin
sealants are also used to promote wound healing. Fibrin sealant applications
include general and abdominal surgery, ophthalmic surgery, neurosurgery, ear,
nose and throat surgery, plastic maxillo-facial and dental surgery, thoracic and
cardiovascular surgery, trauma, orthopedics, urology,
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gynecology and obstetrics. The Marketing Research Bureau, Inc. estimates that
approximately 9.9 million procedures annually in the United States could
potentially benefit from the use of fibrin sealants or other tissue sealants.
Fibrin sealants have become an accepted tool in many fields of surgery. In
Europe and Japan, where fibrin sealants have been used extensively for a number
of years, fibrin sealants have complemented certain conventional surgical
techniques, such as partial hepatectomy, end-to-end gastro-intestinal
anastomosis, cardiovascular by-pass surgery, and aerostasis in partial lobectomy
and minor bronchopleural fistulae. Fibrin sealants have also increased pre- and
post-operative safety and made new therapeutic approaches possible. Fibrin
sealants reduce suturing requirements, and in some instances can be used instead
of suturing. The action of the fibrin sealant simulates the last step of the
physiological process of coagulation and depending on its applications, can
arrest bleeding and close the wound, thus reducing the amount of blood required
in transfusions.
Fibrin sealants have the following advantages when compared to traditional wound
closure products such as sutures or staples:
o highly effective as hemostatic and adhesive agents
o consist of human biological components, which are naturally resorbed by the
body
o can serve as carriers for the release of antibiotics and other therapeutic
agents
o can reduce the need for blood transfusions and speed the healing process
As a result of these advantages, fibrin sealants can reduce hospitalization time
and provide cost savings to patients, hospitals and health management
organizations.
The use of fibrin sealants is well established in Europe and Japan, having been
available in these markets for more than a decade. However, fibrin sealant
products were not available for sale in the United States until May 1998, when
Hemaseel APR and a competing fibrin sealant were approved by the FDA. Haemacure
believes that the fibrin sealant market has the potential for rapid growth,
enhanced by increased awareness on the part of surgeons and the development of
second-generation sealants and delivery devices that allow faster and more
effective application and reduced training times for surgeons.
Due to the fact that FDA approval of fibrin sealants is a recent development, a
number of surgeons in the United States continue the practice of creating a
fibrin glue during surgery by mixing cryoprecipitate with a high concentration
of thrombin derived from bovine plasma. The resulting fibrin glue is commonly
referred to as "home brew." The risks associated with this procedure include
potential viral infections which may be caused by using cryoprecipitate that has
not undergone anti-viral treatment, and immunological reactions which may be
caused by the bovine thrombin which is mixed with the cryoprecipitate. In a
small percentage of cases, surgeons will use autologous plasma cryoprecipitate,
that is, one obtained from the patient's own blood. Autologous plasma
cryoprecipitate constitutes an improvement by reducing the risk of viral
infections; however, the use of autologous plasma cryoprecipitate in preparing
fibrin glue requires sophisticated equipment, complex and time-consuming
preparation and yields a low performance tissue adhesive that is often
unreliable and non-reproducible. Haemacure believes that Hemaseel APR and other
fibrin sealants which receive FDA approval will successfully replace the current
forms of cryoprecipitate, due to the fact that they combine safety, reliability
and ease of use.
Arterial Puncture Closure (including PCTA closure)
Another important potential market for fibrin sealants is arterial puncture
closures, including percutaneous transluminal coronary angioplasty ("PCTA")
closures. As reported by Stephens Inc., percutaneous insertion of catheters and
various treatment systems has created a substantial need for a fast,
cost-effective method to stem bleeding following a PCTA procedure. There are
approximately 7.5 million PCTA procedures annually worldwide. Stephens Inc.
further reports that it believes the market for PCTA puncture sealing devices
will prove to be one of the first significant surgical sealant markets, with
annual revenue potential in excess of US $900 million.
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Puncturing a large artery like the femoral artery, which is required as part of
a PCTA procedure, creates a serious bleeding problem. Stemming blood flow is
frequently hampered by the use of anti-coagulant therapies that are routinely
part of any therapeutic coronary procedure. The predominant method of sealing
these puncture wounds is pressure, which can be applied manually (for example,
by a nurse clamping down on the site for hours) or mechanically with sandbags or
clamps; the objective is to form a blood clot to close the puncture site. The
entire process can last four to eight hours and is one of the most unpleasant
and time-consuming aspects of any coronary angioplasty procedure. Haemacure
believes that fibrin sealants can speed the sealing process and reduce its cost.
Adhesion Prevention Agents
Adhesion prevention agents represent another potential market for fibrin
sealants. Adhesions are a type of scar that form an abnormal connection between
two parts of the body, which may result in severe clinical problems. Haemacure
believes that the adhesion prevention segment of the surgical sealant market is
potentially larger than the tissue sealant segment. Frost and Sullivan report
that the United States market for adhesion prevention products was US $39
million in 1998 and is expected to grow at a compound annual rate of 42% through
2005. Fibrin sealant as an adhesion prevention agent can prevent the binding of
two tissues after surgery, which causes hyperthropic scarring; that is, the
growth of scar tissue. By way of example, in spinal surgery, the membrane
covering the spinal cord must remain separated. Studies are currently underway
to demonstrate that fibrin sealants have useful adhesion prevention
characteristics.
With its estimated 25% share of the fibrin sealant market in the United States
in 1999 and its dedication to the development of new sealant preparations and
delivery devices, which are designed to make the application of fibrin sealants
easier and more effective, Haemacure believes that it is well positioned to take
advantage of the potential growth in the United States fibrin sealant market.
Proprietary Technology
The main components of fibrin sealants are fibrinogen and thrombin, which are
extracted from human blood plasma. Haemacure has developed a patented process to
extract fibrinogen and thrombin from human plasma, resulting in Haemacure's
fibrin sealant proprietary technology. This patented process allows a more
gentle separation and purification of proteins, which may produce a higher
quality fibrin sealant. Haemacure believes that this differentiates its fibrin
sealant technology from other fractionation methods. Haemacure's fibrin sealant
proprietary technology led to the development of Hemaseel HMN.
Haemacure's technology incorporates two anti-viral treatments evaluated by
third-party laboratories: (i) a chemical solvent detergent to inactivate
lipid-containing, enveloped viruses; and (ii) a terminal thermal processing on
the finished product. This technology has resulted in products demonstrating a
high level of safety with no adverse events reported in pre-clinical animal
studies and human clinical studies. To Haemacure's knowledge, all other
commercially-produced fibrin sealants are submitted to only one anti-viral
treatment.
One of the distinguishing features of the fibrin sealant resulting from
Haemacure's proprietary technology, such as Hemaseel HMN, is that it does not
contain aprotinin, a bovine-derived fibrinolytic protein inhibitor. The two
current FDA-approved fibrin sealants, including Hemaseel APR, contain aprotinin.
Aprotinin slows the conversion of plasminogen to plasmin; plasmin has the effect
of degrading blood clots created by the sealant. Fibrin sealants containing
aprotinin are better suited for certain surgeries, such as cardiopulmonary
bypass surgery, while fibrin sealants without aprotinin are more appropriate for
other surgeries, such as neurosurgery. Haemacure's proprietary technology
removes plasminogen from its fibrinogen matrix component by using EACA; as a
result, Hemaseel HMN will be free of the bovine-derived aprotinin.
Haemacure's proprietary technology also provides a product that the Company
believes is superior as a delivery agent for incorporation with other
biomaterials, growth factors or drugs. See "Current Products and Product
Development - Hemaseel HMN". Haemacure intends to broaden its position in the
wound management market by combining its proprietary technology with other
proven technologies.
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Haemacure's proprietary technology produces quantities of human thrombin which
surpass the amounts required to produce fibrin sealant. Haemacure intends to
take advantage of this thrombin production to develop and market a human
plasma-derived thrombin product. See "Current Products and Product Development -
Hemaseel Thrombin."
Current Products and Product Development
Hemaseel APR
While fibrin sealants have been commercially available in Europe and Japan for
many years, Hemaseel APR and a competitive product became the first fibrin
sealants marketed in the United States, following their approval by the FDA in
the spring of 1998. Based on the demonstration of safety and efficacy in
controlled clinical trials, Hemaseel APR has been approved by the FDA for use
for hemostasis in surgeries involving cardiopulmonary by-pass and in treatment
of injuries to the spleen caused by abdominal trauma, as well as in sealing of
colostomy closures.
Hemaseel APR is an effective hemostatic agent capable of arresting bleeding,
with the necessary mechanical strength to attach tissues together and to last
through the first phase of the body's healing process. In an open-label
crossover study against controlled topical sealant agents in 489 patients
undergoing cardiovascular re-operation or resternotomy, Hemaseel APR controlled
bleeding in five minutes or less in 65% of the patients, compared to 31% using
current standard methods.
Hemaseel APR is sold in a kit consisting of four vials, two of which are
lyophilized (freeze-dried), and a syringe assembly. The first vial contains
fibrinogen at a concentration of 100 mg/ml. The second vial contains thrombin at
a concentration of 500 international units (IU) for each ml of fibrinogen. The
third vial contains aprotinin at a concentration of 3,000 KIU per ml. The fourth
vial contains calcium chloride, which is mixed with the thrombin. The thrombin
converts the fibrinogen into a fibrin matrix which has hemostatic sealing and
adhesive properties. The aprotinin acts as an anti-fibrinolytic agent to slow
the degradation of the blood clot by reducing the fibrinolysis activity of the
plasminogen.
Hemaseel APR is applied in a simple manner. By way of example, in cardiac
by-pass surgery, after the surgeon joins the arteries, Hemaseel APR is sprayed
by the surgeon over the suture line to prevent bleeding when the heart is
restarted. Approximately 5 ml of Hemaseel APR are used for each by-pass
operation. Typically, a nurse will prepare the Hemaseel APR during the surgery.
This involves the reconstitution of the product and loading of the
double-syringe applicator through which Hemaseel APR is sprayed. The
reconstitution and loading of the applicator requires approximately 10 minutes.
Once reconstituted and loaded in the applicator, Hemaseel APR is stable at room
temperature for approximately four hours. Hemaseel APR can be applied in less
than five minutes and polemerizes or clots within two minutes.
The use of Hemaseel APR has been demonstrated to reduce blood loss during
surgery and the need for additional blood transfusions after surgery.
Post-surgery blood transfusions are common in the case of cardiopulmonary
by-pass surgery and may require several units of blood. A unit of blood (250 ml)
used in a transfusion can cost up to US $600. A blood transfusion also incurs
the risk of an allogenic reaction on the part of the patient, which may
necessitate prolonged hospitalization. By contrast, the cost paid by a hospital
for Hemaseel APR is approximately US $115 per ml. There are some 800,000
cardiopulmonary by-pass surgeries in the United States each year.
Cardiopulmonary by-pass surgery is an FDA-approved application for Hemaseel APR.
Haemacure believes that Hemaseel APR can be beneficial in numerous other
surgical applications. It has come to Haemacure's attention that many surgeons
are using Hemaseel APR in a wide variety of surgeries, such as mastectomies or
gynecological procedures, at the discretion of the surgeon. This is referred to
as "off-label use." In mastectomies, Hemaseel APR is used as a sealant to reduce
the accumulation of serous fluid after dissection for carcinoma in the breast.
Prior to the approval of fibrin sealant, surgeons used conventional methods,
such as suction and the placement of drains to prevent fluid accumulation.
Drains are uncomfortable for the patient, causing pain and limited arm movement.
They also carry the risk of infection because the drain serves as a portal for
bacterial entrance into the body. Local application of Hemaseel APR has been
shown to significantly reduce the accumulation of total drainage and enable
earlier post-operative drain removal.
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There are approximately 185,000 modified radical mastectomies performed each
year in the United States. The Company expects that approximately 5 ml of
Hemaseel APR would be used for this type of procedure. Based on examples such as
this, Haemacure intends to seek FDA approval for several other hemostatic
sealing and adhision prevention applications for Hemaseel APR. These
applications will include surgical specialties such as obstetrics and
gynecology, ear, nose and throat (ENT), burns and plastic surgery.
Haemacure believes that Hemaseel APR can be used for PCTA closure procedures. In
these procedures, Hemaseel APR will be combined with, and reinforced by, the
patient's own blood clot forming at the puncture site. Approximately 0.5 ml of
Hemaseel APR will be needed to seal a PCTA puncture wound, at a cost to a
hospital of approximately US $60; the fibrin sealant will be applied through a
specially designed delivery device that will fit into a PCTA introducer.
Haemacure is currently in discussions with a third party that owns a patent for
a fibrin sealant delivery system for arterial puncture closures and that has
developed prototypes of this device. Haemacure could use this device for
delivery of fibrin sealants in PCTA closure procedures.
Surgeons are currently conducting studies to show the efficacy of Hemaseel APR
as an adhesion prevention agent. The Company hopes that these studies will
broaden awareness among surgeons with respect to the potential of Hemaseel APR
as an adhesion prevention agent.
Hemaseel APR (FF)
When Haemacure and Immuno entered into license and manufacturing agreements in
1997, Haemacure acquired the rights to Immuno's frozen formulation of fibrin
sealant, which Haemacure has named Hemaseel APR (FF). Hemaseel APR (FF) is
identical to Hemaseel APR, except that Hemaseel APR (FF) is delivered in
pre-filled frozen syringes rather than lyophilzed (freeze-dried) vials, which
require reconstitution and loading of the applicator. The Hemaseel APR (FF)
pre-filled frozen syringe is kept in a freezer prior to use and thaws at room
temperature in approximately ten minutes. Frozen formulation fibrin sealants are
already used in a number of European countries; according to a December 1998
report by Medical Data International Inc., in those countries where the frozen
product is available, it is used by more than 95% of fibrin sealant applications
and is priced at a premium of 10% to 15% over the price of the lyophilized
product.. Haemacure believes that the introduction of Hemaseel APR (FF) in the
United States will speed market acceptance and use of fibrin sealants, as
Hemaseel APR (FF) is easier for surgeons to use, requiring no preparation other
than thawing. The Company expects that an application for approval of frozen
formulation fibrin sealant will be submitted to the FDA by Baxter (on its and
Haemacure's behalf) in 2000. Haemacure intends to launch Hemaseel APR (FF)
immediately after FDA approval, expected in 2001.
Hemaseel HMN
Hemaseel HMN is a fibrin sealant produced using Haemacure's proprietary fibrin
sealant technology. Hemaseel HMN is comprised of fibrinogen and thrombin,
without bovine-derived aprotinin.
Hemaseel HMN is delivered in a kit format, containing lyophilized clotting
protein concentrates in vials, and ancillaries (syringes, needles). Haemacure
intends to sell Hemaseel HMN in 1, 2 and 5 ml quantities. The kit consists of
four vials. The first vial contains the fibrinogen matrix that is reconstituted
with sterile water contained in an ancillary vial. Thrombin contained in a third
vial is reconstituted with calcium chloride contained in an ancillary vial. The
reconstituted products are then mixed through a double syringe assembly
immediately prior to application to the recipient surface. The liquid fibrin
sealant resulting therefrom is a viscous solution with strong hemostatic and
tissue-sealing properties.
The following are key features of Hemaseel HMN:
o comprised solely of human proteins, without animal-derived components
o viral inactivation through the use of two validated anti-viral treatments
o tensile strength achieved with a reduced concentration of fibrinogen, thus
potentially enhancing the rate of wound healing
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o reconstitution within ten minutes at room temperature
o shelf life after reconstitution of at least six hours and up to 24 hours
Hemaseel HMN does not contain aprotinin, as plasminogen is removed from the
fibrinogen in the manufacturing process. Aprotinin is therefore not required to
slow the breaking of the clot caused by plasminogen. Further, Hemaseel HMN
achieves the same or greater tensile strength as Hemaseel APR with a lower
concentration of fibrinogen. This makes Hemaseel HMN more suitable for the
delivery of therapeutic drugs. The higher purity and lower concentration of
fibrinogen in Hemaseel HMN reduces the affinity or bond between the drug and the
fibrinogen protein, which permits the extended release and/or targeted delivery
of the drug.
Haemacure initiated Phase III clinical trials of Hemaseel HMN in total knee
replacement in October 1997, after consultation with regulatory authorities. In
February 1998, Haemacure voluntarily suspended the trials due to protocol
violations by surgeons, such as the application of sponges. After a review of
the clinical protocol, the clinical trials were re-instated in September 1998.
In February 1999, Haemacure commenced an interim analysis of the clinical
trials; the interim analysis was completed in July 1999. In the clinical trials,
Haemacure sought results demonstrating that those who received Hemaseel HMN had
less blood loss than those in the control group, who did not receive Hemaseel
HMN. After review of the data and consultation with surgeons involved in the
trials, Haemacure concluded that the surgeons became increasingly efficient in
the use of Hemaseel HMN after using it on three or four patients.
In June 1999, Haemacure signed a new licensing agreement with the ZLB pursuant
to which the ZLB is responsible for the management and cost of the clinical
trials for Hemaseel HMN. Following discussions among Haemacure, the ZLB and the
FDA, a decision was reached to conduct studies of Hemaseel HMN in a broader
clinical application, in order to position Hemaseel HMN for approval as an
adjunct to hemostasis in a wide variety of surgical procedures. New
international multi-center clinical trials will begin in 2000 in a vascular
indication, under the original Investigation New Drug (IND) number. The clinical
trials will be under the direction of the ZLB, with Haemacure's assistance. The
data from the total knee replacement trials will be used in the regulatory
approval process to demonstrate the safety of the product. Haemacure believes
that Hemaseel HMN has potential applications in neurosurgery, PCTA closures and
ear, nose and throat procedures.
Hemaseel HMN (FF)
Similar to Hemaseel APR (FF), Haemacure is also in the process of developing a
frozen formulation of Hemaseel HMN, which is currently produced in a
freeze-dried vial formulation for clinical trials.
The following table sets out certain key features, targeted applications and
regulatory and market status of Hemaseel APR and Haemacure HMN:
<TABLE>
<CAPTION>
--------------------- ------------------------------ --------------------------------
Description Hemaseel APR Hemaseel HMN
--------------------- ------------------------------ --------------------------------
<S> <C> <C>
Product Specification Fibrinogen 75-115 mg/ml Fibrinogen 60mg/ml
Thrombin 500 U.I./ml Thrombin 500 U.I./ml
Aprotinin 3,000 KIU
--------------------- ------------------------------ --------------------------------
Preparation Freeze-dried vials Freeze-dried vials
Warmer/stirring device (37o C)
--------------------- ------------------------------ --------------------------------
Method of Application Double-syringe applicators Double-syringe applicators
Various catheters
Aerosol spray
--------------------- ------------------------------ --------------------------------
Regulatory Status Approved by the FDA - May 1998 Phase II: United States, Europe
BLA filing: expected in 2003
--------------------- ------------------------------ --------------------------------
Clinical Applications Approved: Clinical Studies:
Cardiovascular by-pass Total knee replacement
Spleen repair surgery - safety data obtained
Colostomy closures Vascular
- expected to start in 2000
--------------------- ------------------------------ --------------------------------
Characteristics Hemostatic agent, sealant Hemostatic agent, sealant
--------------------- ------------------------------ --------------------------------
9
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--------------------- ------------------------------ --------------------------------
Description Hemaseel APR Hemaseel HMN
--------------------- ------------------------------ --------------------------------
Other Potential Abdominal surgery Neurosurgery (spine and cranial)
Indications Mastectomies PCTA
PCTA Ear, nose and throat procedures
Adhesion prevention Drug delivery
Adhesion prevention
--------------------- ------------------------------ --------------------------------
Market United States only Worldwide
--------------------- ------------------------------ --------------------------------
New Formulations Hemaseel APR (FF) Hemaseel HMN (FF)
Regulatory Filing Expected in 2000 Expected in 2003
--------------------- ------------------------------ --------------------------------
</TABLE>
Hemaseel Thrombin
Hemaseel Thrombin is a purified human plasma-derived enzyme, obtained through
the conversion of prothrombin using Haemacure's proprietary technology. Thrombin
is used on its own as a topical hemostat to arrest bleeding during surgical
procedures, and is often used in a combination of passive hemostats, such as
gelatin and collagen-based products. In addition, when combined with fibrinogen,
thrombin makes fibrin sealant.
At present, therapeutic thrombin products are sold primarily in the United
States. These products are bovine-derived and the plasma from which such
products is derived is not screened for the detection of viruses and does not
undergo any viral inactivation treatment. The introduction of a human thrombin,
such as Hemaseel Thrombin, would provide significant clinical advantages by
reducing coagulopathy (creation of specific antibodies against the patient's own
coagulation factors), immunological reactions and the potential for
cross-species disease transmission. To Haemacure's knowledge, there is only one
manufacturer of bovine thrombin in the United States. According to Frost &
Sullivan, revenues in the United States from absorbable thrombin were US $24
million in 1998 and are expected to grow at a compounded annual rate of 10% to
reach US $31 million by 2001. Haemacure believes that such projections may be
conservative as Jones Pharma Inc. reported sales of US $33 million of thrombin
products in 1999 and US $12 million for the first quarter of 2000.
In addition to the current market, Haemacure believes that human thrombin would
be an attractive product for other emerging sealant companies, such as Cohesion
Technologies, Inc., Fusion Medical Technologies, Inc., and Harvest and Vascular
Solutions; these companies sell biomaterial-based products mixed or activated
with bovine thrombin. To date, two of these companies have expressed an interest
to Haemacure in human-derived thrombin.
Haemacure's preliminary discussions with the FDA show that it is favorably
disposed to a human-derived thrombin. The safety of Hemaseel Thrombin has
already been demonstrated in the Phase I and Phase III clinical studies of
Hemaseel HMN. Haemacure anticipates developing a clinical protocol that will
compare the efficacy of Hemaseel Thrombin to bovine thrombin.
Delivery Devices
Haemacure believes that the development of fibrin sealant delivery devices is a
critical factor to its long-term success, due to the fact that effectiveness and
ease of use are important elements in market acceptance of fibrin sealants in
surgical applications. In addition to educating surgeons as to the benefits of
using fibrin sealants, Haemacure is striving to provide them with increasingly
efficient and diverse methods of delivering Hemaseel APR. In this regard,
Haemacure negotiated a development and supply agreement with micromedics, Inc.,
an established supplier of medical devices to the cryoprecipitate or "home brew"
market, and has hired a Director of Device Development to address general and
niche surgical applications, with a view to expanding the use of Haemacure's
products. Haemacure's current delivery devices include:
o Duploject equivalent. Duploject is the delivery device which is included in
the Hemaseel APR kit. As part of the license agreement with Immuno,
Haemacure licenses the rights and assets relating to the Duploject delivery
device, other than right to the trademark "Duploject." Immuno currently
supplies Duploject to Haemacure, pursuant to a separate supply agreement,
until such time as Haemacure obtains approval for its equivalent device.
Haemacure hopes to obtain FDA clearance for its equivalent device within
the next year and intends to market the device under a new trademark.
10
<PAGE>
o HemaSyst. Haemacure also offers a double-syringe applicator marketed under
the trademark HemaSyst. This unique delivery system offers a number of
advantages, such as specialized delivery options to meet specific surgical
requirements, tips that keep solutions separate in order to prevent
clogging and a removable plunger link to ensure an accurate solution ratio.
The system includes two proprietary spray devices, malleable or formable
cannula shafts and a rigid laparascopic attachment. HemaSyst can be used in
a wide variety of surgeries.
o HemaMyst. To facilitate ease of use in certain applications, Haemacure has
also developed an aerosol application system, which it intends to market
under the trademark HemaMyst. The Company hopes that the product will be
available in the United States during 2000. HemaMyst is particularly
appropriate for soft tissue surgeries (such as liver, kidney or pancreas)
where fibrin sealant is applied as a fine coating sprayed over the tissue.
The following table sets out the current stage of development of each of
Haemacure's fibrin sealant products and delivery devices:
<TABLE>
<CAPTION>
Current Products and Product Development
Development Status Estimated
Stage Clinical FDA Approval Distribution
----------- -------- ------------ ------------
Biologics/Sealants
<S> <C> <C> <C> <C>
Hemaseel APR...... Completed Completed Approved Direct/distributors
Hemaseel APR (FF). Completed Completed Q1 2001 Direct/distributors
Hemaseel HMN...... Completed Phase II studies 2003 Direct/ZLB/distributors
Hemaseel HMN (FF) Pre-clinical 2003 Direct/distributors
Hemaseel Thrombin. Completed Human safety 2003 Multiple partners
completed
Delivery Devices
Duploject (licensed) Completed Completed Cleared Direct/distributors
Duploject equivalent Pilot production Not applicable Q2 2001 Direct/distributors
HemaSyst Completed Completed Cleared Direct/distributors
HemaMyst Completed 510(k) Cleared Direct/distributors
Arterial closure device Feasibility 2002 Direct/distributors
</TABLE>
Manufacturing
Haemacure's strategy is to have its fibrin sealant components and delivery
device systems produced by experienced manufacturers. This is accomplished by
contract or through strategic manufacturing and marketing alliances.
Hemaseel APR and Hemaseel APR (FF)
The fibrinogen and thrombin in Hemaseel APR come from pooled human plasma that
meets all applicable United States regulatory standards. Products made from
human plasma may contain infectious agents such as viruses. To minimize risk,
the Hemaseel APR manufacturing process includes an integrated series of
procedures designed to assure the highest possible level of viral safety. Only
plasma from United States donors collected at United States-licensed plasma
collection centers is used, and rigorous donor screening and testing procedures
are followed to exclude plasma that may contain infectious agents. Furthermore,
the manufacturing of Hemaseel APR includes steps that remove and/or inactivate
viruses, including a special two-step vapor heat treatment for virus
inactivation. After more than five million applications internationally of an
earlier version of Hemaseel APR, there were no cases of viral transmission.
Since the introduction of the current version of Hemaseel APR in the United
States, there similarly have been no reported cases of viral transmission.
In March 2000, the British government gave final approval to the manufacturing
agreement entered into by Haemacure and BPL in 1999 and a final version of the
agreement was signed. Pursuant to the agreement, BPL will supply Hemaseel APR
and Hemaseel APR (FF) to Haemacure. In addition, BPL will assist Haemacure in
11
<PAGE>
transferring the technology for Hemaseel APR and Hemaseel APR (FF) from Immuno
to BPL's facility in Elstree, England, near London. BPL is an agency of the
British National Blood Authority and an experienced plasma fractionator.
The term of the manufacturing agreement between Haemacure and BPL is five years,
commencing on the date of initial FDA licensing of the product manufactured by
BPL. Haemacure is responsible for the purchase of all equipment and is required
to pay BPL for time and material necessary to redesign and construct the
manufacturing section in its current facility.
The project is managed by a technical committee of personnel from Haemacure, BPL
and Immuno. The technical committee reports to an oversight committee comprised
of senior management from Haemacure and BPL. BPL and Haemacure have been working
with Immuno since June 1999 on the transfer of technology. Substantial progress
has been made, including the ordering of material and equipment and design work.
The project schedule, adopted by the oversight committee, indicates that the
facility will be operational in 2001 and that Haemacure will receive FDA
approval to market Hemaseel APR manufactured at the Elstree facility in 2002 or
2003. However, no assurance can be given that BPL and Haemacure will meet this
timeline.
Haemacure believes that the manufacturing agreement with BPL is a significant
milestone for Haemacure and provides it with the following benefits:
o allows Haemacure to take control of the manufacturing of Hemaseel APR and
meets its obligations under the Hemaseel APR license agreement
o provides Haemacure with a second exclusive manufacturing source for its
fibrin sealants at one of the few fractionation facilities in the world
o provides Haemacure with cost savings of several million dollars, in
comparison to the cost of building an entirely new manufacturing facility
o once the facility is operational, Haemacure will be able to make
independent applications to the FDA for approval for new uses of Hemaseel
APR and Hemaseel APR (FF)
Haemacure intends to replace Immuno's thrombin process with its own proprietary
thrombin process, thereby reducing manufacturing costs.
Hemaseel HMN
Haemacure entered into an agreement with the ZLB in June 1999, pursuant to which
the ZLB will provide the manufacturing for Hemaseel HMN. The production of the
fibrinogen and thrombin components of Hemaseel HMN involves their isolation and
purification from human sourced plasma. Each donated plasma unit is screened by
the plasma supplier, prior to shipment, for the possible presence of viral
markers. For the North American market, Haemacure will purchase plasma from
FDA-approved suppliers and then ship the plasma to the ZLB for processing. For
the European market, the plasma source will originate with the ZLB. On a
worldwide basis, approximately 25 million liters of plasma are collected each
year, far exceeding Haemacure's plasma requirements for the production of
Hemaseel HMN. The fibrinogen and thrombin will be recovered from the plasma
using the patented process developed by Haemacure. The manufacturing process
includes two separate and validated methods for the clearance and inactivation
of a wide variety of viruses.
Work on the ZLB facility began in August 1998. Completion of the facility is
scheduled for mid-2000 and the regulatory applications are expected by 2002. The
term of the agreement between Haemacure and the ZLB is ten years, commencing
from the first approval of Hemaseel HMN by a regulatory body.
The following table sets out certain of the manufacturing features of Hemaseel
APR and Hemaseel HMN.
12
<PAGE>
<TABLE>
<CAPTION>
---------------------------- --------------------------------- -------------------------------------------
Description Hemaseel APR Hemaseel HMN
---------------------------- --------------------------------- -------------------------------------------
<S> <C> <C>
Raw Material Source plasma (human) Sourced recovered plasma (human)
Cost of Raw Material Approximately $100 per liter Approximately $100 per liter
Intermediate Material Cryoprecipitate No intermediate step
---------------------------- --------------------------------- -------------------------------------------
Production Yield (per liter) Fibrinogen; 6 to 9 doses of 1 ml Fibrinogen: 20 doses of 1 ml
o Each ml contains 75-115 mg/ml o Each ml contains 60mg/ml
Thrombin: 25,000 NIH units
Thrombin: obtained from separate
source
Aprotinin: obtained from separate o Each 60 mg of fibrinogen requires
source 500 NIH units of thrombin
o 20 doses of fibrinogen from a liter of
plasma requires 10,000 units of thrombin
o 15,000 NIH units are discarded or
available to produce Hemaseel Thrombin
---------------------------- --------------------------------- -------------------------------------------
Formulation Kit Freeze-dried vials Freeze dried vials
1.0 ml, 2.0 ml., 5.0 ml kits 1.0 ml, 2.0 ml., 5.0 ml kits
---------------------------- --------------------------------- -------------------------------------------
Viral Inactivation o Vapor heat (two-steps) o Solvent detergent
o Dry heat
---------------------------- --------------------------------- -------------------------------------------
Manufacturer Immuno AG, Austria ZLB, Switzerland
BPL, England (commencing 2002)
---------------------------- --------------------------------- -------------------------------------------
Potential revenue yield per US $19.6 million US $57.5 million
25,000 liters of plasma
---------------------------- --------------------------------- -------------------------------------------
</TABLE>
HemaSyst
The HemaSyst delivery system is manufactured for Haemacure by micromedics, Inc.
at its facilities in Minnesota. The manufacturing agreement was signed in March
1999 and is for a term of three years. The agreement will be renewed
automatically for successive one-year terms unless notice to the contrary is
given by either party at least 120 days in advance.
HemaMyst
HemaMyst is manufactured for Haemacure by a third party located in the United
States. There is no formal manufacturing agreement between the parties; when the
product is needed, Haemacure issues purchase orders referencing agreed
specifications. This arrangement provides Haemacure with security of supply with
minimal capital outlay. There are a number of other potential suppliers of this
product.
Sales, Marketing and Distribution
Hemaseel APR is currently distributed in the United States through a combination
of direct sales and independent distributors. Haemacure has a direct sales force
consisting of 16 employees, all of whom have at least eight years of
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<PAGE>
experience in the sale of operating room devices. Haemacure's direct sales
employees are based in major metropolitan cities in the United States and report
to one of two regional managers.
In addition, Haemacure also sells in secondary metropolitan markets in the
United States through 22 independent sales organizations. These distributors
provide a total of 110 additional sales representatives selling Hemaseel APR and
allow Haemacure to ensure complete national coverage in the United States. To
assist customers in using Hemaseel APR, Haemacure has contracted with the
Magellan Group of Minnesota to provide six clinical nurse specialists. These
specialists are located in major cities and focus their efforts on helping
customers understand product reconstitution and application.
Haemacure utilizes DDN Obergfel ("DDN") in Memphis, Tennessee to warehouse and
distribute Hemaseel APR. DDN is FDA licensed for biologic products and provides
safe and rapid delivery to customers.
Haemacure has implemented the following marketing and educational programs
designed to educate medical professionals:
Haemacure Educational Resource Centre (HERC). The program responds to more than
100 inquiries per month from surgical professionals regarding the clinical
application of fibrin sealants in specific surgical procedures.
Haemacure Regional Speaker Programs (HRSP). This program provides physicians for
case presentations during "Grand Rounds" held in major institutions or for
national, regional and local surgical society meetings. These physicians serve
as "advocates" for fibrin sealant.
Clinical grants and programs. This program is designed to support clinical
studies on the use of fibrin sealants. It aims to build a body of clinical
knowledge specific to Hemaseel APR by publishing abstracts, scientific posters
and clinical papers in leading medical journals. The program also promotes
outcome studies demonstrating the cost benefits of using Hemaseel APR. Haemacure
directed US $150,000 to such grants and programs during its 1999 fiscal year.
Commercial and scientific conventions. This program is designed to significantly
increase awareness of Hemaseel APR and Haemacure in the commercial and
scientific communities. Haemacure participated in some 50 surgical professional
society meetings during its 1999 fiscal year. Ancillary scientific programs
conducted at major national society meetings were supported by advertising in
society journals.
For markets outside the United States, given the existing end-user knowledge of
fibrin sealants, Haemacure believes that the use of third-party distributors is
appropriate. As a result, Haemacure intends to enter into distribution
agreements for the sale of its products in specific geographic areas, such as
Europe, Japan and Southeast Asia.
Licensing Agreements and Corporate Alliances
Hemaseel APR
In April 1997, Haemacure entered into license and manufacturing agreements with
Immuno whereby Haemacure acquired the rights to market Immuno's fibrin sealant
in the United States. The agreements with Immuno were required by a consent
order entered into between the United States Federal Trade Commission (the
"FTC") and Baxter. The consent order required Baxter to license the rights to
make, use and sell the Immuno fibrin sealant Tisseel in the United States to a
viable competitor (such as Haemacure) as a condition of the FTC's approval of
Baxter's acquisition of Immuno. At the time of Baxter's proposed acquisition of
Immuno, Baxter's product Surgiseal and Immuno's product Tisseel were believed to
be the only two fibrin sealants ready for FDA approval, an anti-competitive
situation deemed unacceptable by the FTC. Subsequent to the agreement with
Haemacure, approval of Baxter's fibrin sealant product, Surgiseal, was delayed
at the FDA, and has yet to be approved in the United States or elsewhere. After
successful negotiations with Baxter, the license and manufacturing agreements
between Haemacure and Immuno were approved by the FTC in July 1997. Pursuant to
the FTC consent order, the FTC appointed a trustee to oversee compliance by
Baxter and Haemacure with the terms of the license and manufacturing agreements
and Baxter's compliance with the terms of the consent order.
14
<PAGE>
Pursuant to the license agreement, Haemacure received a perpetual license to
make, use, sell, develop and import all assets relating to Immuno's fibrin
sealant product then before the FDA for approval. The assets include eight
patents, trade secrets, know how, clinical data, production information, quality
assurance data and FDA-related information and all rights and assets to the
frozen formulation of Immuno's fibrin sealant product as ultimately approved by
the FDA. The license also provides Haemacure with full rights to reference
Immuno's Biologics License Application before the FDA. Pursuant to the license
agreement, Baxter retained the right to do itself all things that it licensed to
Haemacure. Baxter, however, cannot license the subject assets to third parties
for a period of four years from the date of the license agreement. Haemacure
obtained the right to sub-license the assets to third parties for a one-time
payment. Pursuant to the license agreement, Baxter agreed to: (i) retain the
viability and marketability of the Hemaseel APR assets, including patent
maintenance and infringement defense; (ii) prevent the deterioration or
impairment of the manufacturing facilities of the fibrin sealant; and (iii)
assist Haemacure in the transfer of technology to Haemacure's designated
manufacturing partner, which will be BPL.
The product was approved by the FDA in May 1998 and is marketed by Haemacure
under the trademark Hemaseel APR. Baxter markets the identical fibrin sealant
product in the United States under the trademark Tisseel VH.
The FTC may terminate the license agreement if Haemacure: (i) voluntarily ceases
for 60 days to sell Hemaseel APR; (ii) abandons its efforts to obtain FDA
approval to manufacture Hemaseel APR on its own; or (iii) fails to obtain FDA
approval before July 28, 2001 to manufacture Hemaseel APR itself, provided that
the FTC may extend the license for an additional three years if the trustee
appointed by the FTC to monitor the parties' compliance with the agreements
determines that Haemacure has made good faith efforts to obtain FDA approval for
its manufacturing and that the FDA approval appears likely within that time
period. Haemacure is also required to report to the FTC on a periodic basis with
respect to the status of its efforts to obtain FDA approval to manufacture
Hemaseel APR itself.
Under the license agreement, Haemacure is committed to make milestone payments
to Immuno of US $2.5 million in each of June 2001 and June 2004 and of US $2.75
million in June 2006. In addition, Haemacure must pay US $1.5 million to Immuno
when the FDA approves the manufacture of Hemaseel APR by Haemacure.
The manufacturing agreement between Immuno and Haemacure requires that Immuno
manufacture Hemaseel APR for Haemacure at cost until July 28, 2000 with the
possibility of an extension for an additional four years as described above. The
manufacturing agreement provides that Haemacure is entitled to volume variations
and improvements in manufacturing made during the term of the manufacturing
agreement. The manufacturing agreement also covers Immuno's supply of Hemaseel
APR (FF).
Due to the fact that Immuno improved the frozen formulation after the effective
date of the FTC consent order (March 23, 1997), Haemacure was required to
negotiate with Immuno for a separate license for these improvements. In August
1999, Haemacure and Immuno executed a letter of understanding for the
improvements, providing for a 4% royalty to Immuno with respect to Haemacure's
sales of Hemaseel APR (FF). The terms and conditions of a definitive agreement
will be negotiated after an application for frozen formulation is filed with the
FDA.
ZLB
In March 1996, pursuant to a cooperation and license agreement between the ZLB
and Haemacure, the ZLB began making Hemaseel HMN for clinical trials and started
construction on a dedicated manufacturing facility for this product. The parties
signed a new licensing agreement, dated June 1999, whereby the ZLB acquired the
right to market Hemaseel HMN and a worldwide non-exclusive license to
Haemacure's patents and technology relating to Hemaseel HMN. At the same time,
the ZLB also made an equity investment in Haemacure of US $9.8 million, as a
result of which the ZLB became Haemacure's largest shareholder. The ZLB,
pursuant to the license agreement, assumed all future financial and managerial
responsibilities with respect to the completion of clinical trials for Hemaseel
HMN in the United States and Europe, as well as for the completion of regulatory
submissions and licensing of Hemaseel HMN. The ZLB did not obtain rights to the
trademark Hemaseel.
As part of the new agreements, the ZLB relinquished exclusive manufacturing
rights to Hemaseel HMN, providing Haemacure with greater flexibility in
developing its various fibrin sealant technologies. In addition, Haemacure will
receive a royalty on all products manufactured by the ZLB that incorporating
Haemacure's patents. Haemacure and
15
<PAGE>
the ZLB also entered into a supply agreement, whereby the ZLB agreed to complete
its dedicated manufacturing facility and supply Haemacure with Hemaseel HMN and
improved products based on Haemacure technology for a period of ten years from
the date of first United States or European regulatory approval. Completion of
the facility is scheduled for mid-2000 and the regulatory applications are
expected by 2002. See "Manufacturing - Hemaseel HMN."
On June 7, 2000, the ZLB announced that it had been sold by the Swiss Red Cross
to CSL Limited, identified in the announcement as Australia's largest
manufacturer of biopharmaceutical products. The announcement also stated that
CSL Limited is bound by contract to continue operating the ZLB as an autonomous
company in Bern, Switzerland and employing its present staff. The sale should
not, in Haemacure's view, affect the enforceability of Haemacure's agreements
with the ZLB. Haemacure further believes that the sale should not have a
negative impact on its operations or on the manufacturing of Hemaseel HMN.
However, no assurances can be given in this regard.
Research and Development
Haemacure's long-term research and development strategy includes development of
new products based on its fibrin sealant proprietary technology. In particular,
Haemacure will concentrate on the clinical development of Hemaseel APR and
Hemaseel HMN for additional surgical applications. In this regard, Haemacure
intends to conduct clinical trials in the United States and Europe. Haemacure
will also concentrate on the development of specific delivery devices for its
fibrin sealant products, such as devices for PCTA closures. Haemacure intends to
develop prototypes and carry out clinical trials and studies in conjunction with
hospitals, surgeons and interventional cardiologists.
Haemacure also plans to conduct research and development with respect to its
Hemaseel HMN (FF) formulation. This will be carried out at its facilities in
Kirkland, Quebec.
Finally, Haemacure intends to conduct clinical studies with respect to the
application of Hemaseel APR and Hemaseel HMN as adhesion prevention agents.
These clinical studies will be carried out in the United States in conjunction
with abdominal surgeons, spinal surgeons and neurosurgeons.
Intellectual Property
Patent Protection
Haemacure holds three United States patents with respect to the manufacturing of
the fibrinogen component of its fibrin sealant proprietary technology and
another United States patent with respect to the manufacturing of the thrombin
component of its proprietary technology. These four patents were filed under the
Patent Cooperation Treaty ("PCT"), to which some 50 countries are signatories.
PCT signatory countries will grant Haemacure's patent applications priority over
more recent applications made by third parties for the same invention, provided
that Haemacure has initiated PCT procedures within one year from the filing of
its application with a signatory country. Haemacure also has a patent pending in
the United States with respect to its use of fibrin sealant combined with
hyaluronic acid and holds United States patents for a biocompatible surgical
implant and artificial collagen.
Pursuant to license arrangements with Immuno, Haemacure owns the perpetual right
to eight patents with respect to Hemaseel APR, Hemaseel APR (FF) and the
Duploject equivalent. Immuno is responsible for patent maintenance and
infringement defense and prosecution. Immuno made customary representations
regarding the validity, enforcement and non-infringement of the patents and
technology encompassing the products and assets licensed by Haemacure.
Pursuant to the license agreement with the ZLB, Haemacure granted a
non-exclusive license to make, use and sell fibrin sealant products
incorporating Haemacure's patented technology, including the four patents
covering the process. Haemacure is responsible for patent maintenance and
infringement defense and prosecution. Haemacure made customary representations
regarding the validity, enforcement and non-infringement of the patents and
technology licensed to the ZLB.
16
<PAGE>
Haemacure's policy is to seek patent protection for its technology. Haemacure
believes that patent and trade secret protection is important in its business
and that its success will depend, in part, on its ability to obtain strong
patents, to maintain trade secret protection and to operate without infringing
the proprietary rights of others.
<TABLE>
<CAPTION>
-------------------------------- --------------- ------------- ------------ ------------- ------------- --------------------
Patent
Title Country Filing Date Number Issue Date Expire Date Status
-------------------------------- --------------- ------------- ------------ ------------- ------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Process/fibrin glue production United States 30/10/1997 5,981,254 9/11/1999 10/10/2017 Issued
Australia 30/10/1998 - - 30/10/2018 Filing in progress
Canada 30/10/1998 - - 30/10/2018 Filing in progress
Europe 30/10/1998 - - 30/10/2018 Filing in progress
Israel 30/10/1998 - - 30/10/2018 Filing in progress
India 29/10/1998 - - 29/10/2012 Pending
Japan 30/10/1998 - - 30/10/2018 Filing in progress
Norway 30/10/1998 - - 30/10/2018 Filing in progress
New Zealand 30/10/1998 - - 30/10/2018 Filing in progress
Poland 30/10/1998 - - 30/10/2018 Filing in progress
Russia 30/10/1998 - - 30/10/2018 Filing in progress
-------------------------------- --------------- ------------- ------------ ------------- ------------- --------------------
Process/"salting out" United States 23/2/1993 5,395,923 7/3/1995 7/3/2012 Issued
Canada 18/1/1994 - - 18/1/2014 Pending
Australia 28/2/1994 678,439 1/4/1997 28/2/2014 Issued
Europe 28/2/1994 0,748,337 30/6/1999 28/2/2014 Issued
Japan 28/2/1994 - - 28/2/2014 Pending
Norway 28/2/1994 - - 28/2/2014 Pending
Russia 28/2/1994 2,130,946 27/5/1999 28/2/2014 Issued
-------------------------------- --------------- ------------- ------------ ------------- ------------- --------------------
Process/acidic precipitation United States 23/2/1993 5,290,918 1/3/1994 1/3/2011 Issued
Canada 18/1/1994 - - 18/1/2014 Pending
-------------------------------- --------------- ------------- ------------ ------------- ------------- --------------------
Therapeutic grade thrombin Unites States 21/9/1994 5,506,127 9/4/1996 9/4/2013 Issued
Australia 21/9/1995 711,298 18/8/1999 21/9/2015 Issued
Europe 21/9/1995 - - 21/9/2015 Pending
Japan 21/9/1995 - - 21/9/2015 Pending
Norway 21/9/1995 - - 21/9/2015 Pending
Russia 21/9/1995 2,144,018 - 21/9/2015 Issued
-------------------------------- --------------- ------------- ------------ ------------- ------------- --------------------
Fibrin sealants/hyaluronic acid United States 17/11/1998 - - 17/11/2018 Pending
Canada 17/11/1998 - - 17/11/2018 Pending
Europe 17/11/1998 - - 17/11/2018 Pending
Norway 17/11/1998 - - 17/11/2018 Pending
-------------------------------- --------------- ------------- ------------ ------------- ------------- --------------------
Biocompatible surgical implant United States 26/1/1994 5,630,842 20/5/1997 20/5/2014 Issued
Canada 27/7/1993 - - 27/7/2013 Pending
-------------------------------- --------------- ------------- ------------ ------------- ------------- --------------------
Artificial collagen United States 27/9/1996 5,856,308 5/1/1999 27/9/2116 Issued
-------------------------------- --------------- ------------- ------------ ------------- ------------- --------------------
</TABLE>
On May 1, 2000, the Corporation was advised that an opposition had been filed in
the European Patent Office by a third party with respect to the Corporation's
"salting out" patent. The opposition claims that the "salting out" process
17
<PAGE>
is not patentable due to lack of inventive activity. Haemacure is in the process
of evaluating the opposition but is of the view that the opposition, even if
successful, would not have a material adverse effect to Haemacure's operations.
Trademarks
Haemacure has registered the trademark Hemaseel in Canada, the United States and
the European Community. Haemacure will consider the possibility of filing
applications for registration in respect of Hemaseel APR, Hemaseel APR (FF),
Hemaseel HMN and Hemaseel HMN (FF), even though these may be protected by the
trademark Hemaseel. Haemacure intends to apply for registration of the trademark
HemaMyst in the United States and in other countries as distribution of the
product warrants.
Regulatory Affairs
Haemacure's existing and proposed products, research and development and planned
commercialization activities are subject to regulation by numerous governmental
authorities, principally the FDA in the United States, and corresponding
regulatory agencies in other countries. The United States Food, Drug and
Cosmetic Act, as amended, the regulations promulgated thereunder, and other
federal and state statutes and regulations, govern, among other things, the
pre-clinical and clinical testing, manufacturing conditions, safety, efficacy,
labelling and storage, record keeping, advertising and the promotion of medical
devices, biologics and drugs. Product development and approval within this
regulatory framework can take a number of years and involve the expenditure of
substantial resources.
Additionally, in order for Haemacure to market its products in Europe and other
foreign countries, Haemacure and/or its partners, if any, must obtain required
regulatory approvals and comply with extensive regulations governing safety,
quality and manufacturing processes. These regulations vary significantly from
country to country. The time required to obtain approval to market products
outside the United States may be longer or shorter than that required in the
United States.
Regulation by governmental authorities in the United States, Canada and other
countries is a significant factor in the production and marketing of Haemacure
products.
Biological Products
Hemaseel APR, Hemaseel APR (FF) and Hemaseel HMN are considered biologics by the
FDA and, in the United States, are under the jurisdiction of the Center for
Biologics Evaluation and Research ("CEBR"). In order to obtain regulatory
approval, biological products must go through the following four-step procedure,
generally after successfully completing extensive pre-clinical studies:
(i) an Investigational New Drug Application ("IND") must be filed. An IND is a
request for FDA authorization to administer an investigational new drug to
humans. This step requires 30 days in the United States. This step is not
yet harmonized between the 15 countries of the European Union (the "EU")
and the time required varies from one country to another;
(ii) clinical trials are then conducted. These are generally divided into three
phases. Although, in general, the phases are conducted sequentially, they
may overlap. The three phases are as follows:
(a) Phase I represents the initial introduction of an investigational
new drug into humans. Phase I studies are closely monitored and
conducted in a limited number of patients or volunteer subjects.
These studies are designed to explore biological phenomena, to
determine the metabolism and pharmacologic actions of the product,
the side effects associated with increasing doses and, if possible,
to gain early evidence with respect to effectiveness;
(b) Phase II includes controlled studies conducted on a relatively small
number of patients to evaluate the effectiveness of the product for
a particular indication or application and to determine the common
short-term side effects and risks associated with the product. In
particular, pharmacokinetics (dosage requirements) are determined in
Phase II;
18
<PAGE>
(c) Phase III studies are expanded, randomized and controlled trials
conducted on a relatively large number of patients. They are
performed after preliminary evidence suggesting effectiveness of the
product has been obtained and are intended to gather the additional
information respecting safety and effectiveness necessary to
evaluate the overall benefit-risk relationship of the product and to
provide an adequate basis for labelling;
(iii) upon completion of the final trial, the following are filed: a Biologics
License Application ("BLA") in the United States, and a Market
Authorization Application ("MAA") in the EU; and
(iv) upon satisfactory demonstration of meeting all regulatory requirements, a
Biologics License in the United States, and a Commission Authorization in
the EU are issued, approving the product for market distribution.
Medical Devices
In the United States, medical devices are classified into three different
classes (Class I, Class II and Class III) on the basis of controls deemed
necessary to reasonably ensure the safety and effectiveness of the device. Class
I devices are subject to general controls relating to labelling, pre-market
notification and adherence to the FDA's good manufacturing practices ("GMP"), as
recently codified in quality system regulation requirements. Class II devices
are subject to general and special controls relating to performance standards,
post-market surveillance, patient registries, and FDA guidelines. Class III
devices are those which must receive pre-market approval by the FDA to ensure
their safety and effectiveness. Class III devices are generally life sustaining,
life supporting and implantable devices, or new devices that have been found not
to be substantially equivalent to legally marketed devices.
Unless specifically exempted from these requirements, before a new medical
device can be marketed, marketing clearance must be obtained through a
pre-market notification under Section 510(k) of the United States Food, Drug &
Cosmetic Act or a pre-market approval ("PMA") application under Section 515 of
the said Act. A 510(k) clearance will typically be granted by the FDA if it can
be established that the device is substantially equivalent to a "predicate
device," which is a legally marketed Class I or Class II device or a
pre-amendment Class III device (i.e., one that has been marketed since a date
prior to May 28, 1976) for which the FDA has not called for PMAs. It generally
takes four to twelve months from the date of a 510(k) submission to obtain
clearance, but it may take longer.
A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed Class I or Class II device, or if it is a
pre-amendment Class III device for which the FDA has called for PMAs. A PMA
application must be supported by valid scientific evidence to demonstrate the
safety and effectiveness of the device, typically including the results of
clinical trials, bench tests, and laboratory and animal studies. The FDA review
of a PMA application generally takes one to three years from the date the PMA
application is accepted for filing, but may take significantly longer. If
regulatory requirements have been fulfilled to the satisfaction of the FDA, the
FDA will issue a PMA letter, authorizing marketing of the device for certain
indications.
If human clinical trials of a device are required, either for a 510(k)
pre-market notification or a PMA application, and the device presents a
"significant risk," a sponsor of the trial may be required to file an
investigational device exemption ("IDE") application prior to commencing human
clinical trials.
Compliance
If clearance or approval for a given product is obtained, the product will be
subject to pervasive and continuing regulation by the FDA. For example,
Haemacure and its manufacturing partners will be subject to routine inspection
by the FDA and will have to comply with the host of regulatory requirements that
usually apply to biologics and medical devices marketed in the United States,
such as labelling regulations, applicable GMP requirements, the Adverse Reaction
Reporting regulations (which require a manufacturer to report to the FDA certain
types of adverse events involving its products), and the FDA prohibitions
against promoting products for unapproved or "off-label" uses.
The FDA regulates the manufacturing, product testing, and marketing of both
medical devices and biologics. Manufacturers of biologics and medical devices
are required to comply with applicable GMP, which include
19
<PAGE>
requirements relating to product design, manufacturing processes, product
testing, and quality assurance, as well as the corresponding maintenance of
records and documentation. In addition, Haemacure is required to provide
information to the FDA on death or serious injuries alleged to have been
associated with the use of its biologics and medical devices, as well as product
malfunctions that would likely cause or contribute to death or serious injury if
the malfunction were to recur.
A number of Haemacure's competitors have products that contain thrombin, an
FDA-licensed biological drug. As a result, the FDA considers such products to be
a combination product subject to jurisdiction by CBER and the Center for Devices
and Radiological Health (the "CDRH"). The FDA has assigned lead review
responsibility to the CDRH for these combination products. Haemacure believe
that this decision was significant, as fibrin sealants containing human plasma
are regulated as biological drugs, which may substantially increase the duration
and complexity of their regulatory approval processes compared to that of
combination products of Haemacure's competitors.
Haemacure, as well as any third-party manufacturers of its products, will be
subject to inspections by the FDA for compliance with applicable GMP, recently
codified in the quality system regulation requirements, which include
requirements relating to manufacturing conditions, extensive testing, control
documentation and other quality assurance procedures. Haemacure has not yet
undergone an FDA quality system regulation inspection but expects to do so as
part of the approval process for Hemaseel APR.
Competition
Haemacure believes that fibrin sealants face competition in the United States
from existing methodologies for controlling bleeding and sealing wounds
resulting from surgery, such as hemostatic powders and sponges, as well as from
collagen-based hemostats and traditional sutures and staples marketed by
companies such as Johnson & Johnson, United States Surgical Corporation and
American Home Products Corporation. Certain of these products can be
complementary to fibrin sealants and may increase in effectiveness when used in
combination with fibrin sealants.
With respect to fibrin sealants, Baxter is currently Haemacure's only competitor
in the United States. Both Baxter and Haemacure currently sell the same product
under different trade names. In 1999, Baxter realized approximately 75% of
fibrin sealant sales in the United States compared to Haemacure's 25%. In
addition, both have access to the frozen formulation expected to be introduced
to the market in the United States in 2001.
In the United States, there are several fibrin sealants under development,
including those by Baxter, Aventis Behring, Omrix, the American Red Cross,
Convatec (a subsidiary of Bristol-Myers Squibb Company) and V.I. Technologies,
Inc. (Vitex).
A new generation of fibrin sealants is being developed and introduced in the
market without the anti-fibrinolytic agent aprotinin. Aprotinin, which is
derived from bovine plasma, is being replaced by non-animal based
anti-fibrinolytic agents. The two recognized non-animal based anti-fibrinolytic
agents are Epsilon-amino carproic acid ("EACA") and Tranexamic acid ("TA").
Haemacure's proprietary and patented fibrin sealant manufacturing process uses
EACA. EACA is added in the fibrinogen manufacturing process to extract the
plasminogen, and EACA is then itself removed from the final product.
Due to the fact that Haemacure has patented its manufacturing process, which
involves EACA, a majority of other fibrin sealant manufacturers use TA in their
manufacturing process as an anti-fibrinolytic agent in replacement of aprotinin,
so as to suppress the activity of plasminogen inherent in the fibrinogen
component. TA is used in various concentrations to slow the fibrinolysis
activity.
In October 1999, the Medicines Control Agency of Great Britain issued a warning
against the off-label use of Quixil in neurosurgery and spinal surgery. Quixil,
which is manufactured by Omrix, S.A., is a fibrin sealant containing TA. The
warning was issued as a result of the deaths of two patients in neurosurgery due
to a toxic reaction in association with the use of Quixil. Recent medical
literature has confirmed the toxicity of TA in nuerosurgical application.
Neurosurgery represents a potentially significant market for fibrin sealant.
20
<PAGE>
A number of products have recently been introduced to the United States market
using cyanoacrylates or either collagen or polymer technologies. Certain other
products are still in the clinical stage in the United States and overseas.
Haemacure believes that some of these new products may perform better than
fibrin sealants in particular applications or with respect to one of the four
benefits (hemostatis, tensile strength, sealing ability and tissue bonding), but
the none of these products is likely to perform as well as fibrin sealants in
providing all four benefits.
Item 2. Description of Property.
Haemacure leases the following real properties:
Location Area Purpose Lease Expires
-------- ---- ------- -------------
Kirkland, Quebec........... 20,000 sq. ft. Laboratories March 2005
Montreal, Quebec........... 4,000 sq. ft. Office May 2002
Sarasota, Florida.......... 3,600 sq. ft. Office Yearly
The Corporation has sub-leased part of the Kirkland, Quebec facility to a third
party until the expiration of its own lease in March 2005. The sub-lessee has
the option to terminate the sub-lease on December 31, 2001.
Item 3. Legal Proceedings.
Haemacure is not a party to any material legal proceedings.
Item 4. Control of Registrant.
The following table includes the name of the shareholders owning of record or
beneficially, to the knowledge of the Company, more than 10% of the issued and
outstanding Common Shares of the Company as of August 1, 2000, as well as the
total amount of Common Shares owned of record or beneficially by the directors
and officers of the Company as a group:
Number of
Name and place of residence shares held Percentage
--------------------------- ----------- ----------
ZLB Central Laboratory Blood Transfusion 4,604,332 19.2%
Service SRC (Swiss Red Cross)
Bern, Switzerland
Societe generale de financement du Quebec 2,759,554 11.5%
Montreal, Quebec
Directors and officers as a group 1,390,195 5.8%
Item 5. Nature of Trading Market.
The Common Shares of the Company are traded on the Toronto Stock Exchange
under the symbol "HAE.TO" and were also, until December 3, 1999, listed on the
Montreal Stock Exchange. Currently, the Common Shares are not traded on a United
States exchange or listed for quotation on any United States quotation system.
The following table sets forth, for the periods indicated, the high and low sale
prices per share (in Canadian Dollars) for the Company's Common Shares on both
the Toronto Stock Exchange and the Montreal Stock Exchange for the fiscal
quarters indicated below.
21
<PAGE>
Fiscal 1998 High Low
----------- ---- ---
First Quarter $ 4.50 $ 2.75
Second Quarter $ 6.25 $ 2.30
Third Quarter $ 7.50 $ 4.50
Fourth Quarter $ 6.50 $ 4.70
Fiscal 1999
-----------
First Quarter $ 6.00 $ 4.80
Second Quarter $ 4.85 $ 3.30
Third Quarter $ 4.65 $ 2.75
Fourth Quarter $ 4.00 $ 2.31
Fiscal 2000
-----------
First Quarter $ 3.40 $ 1.80
Second Quarter $ 5.75 $ 2.80
Item 6. Exchange Controls and Other Limitations Affecting Security Holders.
The Company is a Canadian corporation. Most of the directors, controlling
persons and officers of the Company are residents of Canada and a substantial
portion of their assets are located outside of the United States. As a result,
it may be difficult for investors to effect service of process within the United
States upon the directors, controlling persons or officers who are not residents
of the United States or to realize, in the United States, upon judgments of
courts of the United States predicated upon the civil liability under Federal
securities laws of the United States. There is doubt as to enforceability in
Canada against the Company or against any of its directors, controlling persons
or officers who are not residents of the United States, in original actions or
in actions for enforcement of judgments of United States courts, of liabilities
predicated solely upon Federal securities laws of the United States.
There is no law, regulation or governmental decree in Canada that restricts the
export or import of capital, or affects the remittance of dividends, interest or
other payments to a non-resident holder of common stock, other than withholding
tax requirements described in Item 7 below.
There is no limitation imposed by Canadian law or by the charter or other
constituent documents of the Company on the right of a non-resident of Canada to
hold or vote the Company's Common Shares, other than as provided in the
Investment Canada Act. The following summarizes the principal relevant features
of the Investment Canada Act.
Under the Investment Canada Act, the acquisition of control of a Canadian
business by a non-Canadian (which would include an entity organized in the
United States) is subject to notification and could be subject to a review
procedure. A non-Canadian would acquire control of the Company for purposes of
the Investment Canada Act if it acquired a majority of the Common Shares, or
less than a majority, but one-third of the Common Shares, unless it can
demonstrate that it does not thereby control the Company, or if it acquired all
or substantially all of the assets of the Company.
Under the Investment Canada Act, the size of the Canadian business is measured
against thresholds to determine if review or notification is required. In a
transaction that involves a national of a member country of the World Trade
Organization (the "WTO") (which includes the United States), the transaction is
not reviewable, and is subject to the notification requirement only if, on a
direct acquisition of control, the Canadian business has gross assets of less
than a specified amount, currently approximately US $129 million. An indirect
acquisition of control is not reviewable, unless the value of the assets of the
Canadian control is nevertheless subject to notification. In circumstances where
the acquiror is not a WTO investor or the Canadian business falls within a
special category, such as a business involving culture, heritage, transportation
services, financial services or uranium mining, the threshold for review of a
direct acquisition is approximately US $3.4 million and, for an indirect
acquisition, is approximately US $33.7 million. With respect to the direct
acquisition of control of certain businesses related to Canada's cultural
heritage or national identity which are below the threshold, Canada's Governor
in Council has the power to order the review of
22
<PAGE>
such investments. In the case of a reviewable transaction, the acquiror must be
able to demonstrate that the investment is likely to be of "net benefit to
Canada."
A non-Canadian must file a notification each and every time it acquires control
of an existing Canadian business where the acquisition of control is not a
reviewable transaction.
Certain transactions in relation to the Company's Common Shares would be exempt
from the Investment Canada Act, including:
a) an acquisition of Common Shares by a person in the ordinary course
of that person's business as a trader or dealer in securities;
b) an acquisition of control of the Company in connection with the
realization of a security interest granted for a loan or other
financial assistance and not for any purpose related to the
provisions of the Investment Canada Act; and
c) an acquisition of control of the Company by reason of an
amalgamation, merger, consolidation or corporate reorganization
following which the ultimate direct or indirect control of the
Company, through the ownership of voting interests, remains
unchanged.
Item 7. Taxation.
Investors in the Common Shares should consult their own tax advisors with
respect to their particular circumstances and with respect to the effects of
state, local or foreign (including Canadian) tax laws to which they may be
subject.
The brief discussion below summarizes the material Canadian federal income tax
consequences of acquiring, holding and disposing of the Company's Common Shares
for an investor who (i) is not resident in Canada for the purposes of the Income
Tax Act (Canada) (the "Tax Act"), (ii) is resident in the United States and not
resident in Canada for the purposes of the Canada-United States Income Tax
Convention (1980) (the "Convention"), (iii) holds his Common Stock as capital
property, (iv) does not and is not deemed to carry on business in Canada, and
(v) does not and is not deemed to perform independent personal services in
Canada. Such discussion is based on the current provisions of the Tax Act and
the regulations thereunder and on the Company's understanding of the current
administrative practices of Revenue Canada, and takes into account all specific
proposals to amend the Tax Act or regulations made by the Minister of Finance of
Canada before the date hereof. The discussion is general only and is not a
substitute for independent advice from an investor's own tax advisor.
Dividends on Common Shares
Generally, a shareholder of the Company resident in the United States is subject
to Canadian withholding tax at the rate of 15% on dividends paid by the Company.
The rate of Canadian withholding tax is reduced to 5% if the shareholder is a
corporation resident in the United States which beneficially owns at least 10%
of the voting stock of the Company.
Disposition of Common Shares
Generally, a shareholder resident in the United States would not be subject to
Canadian tax on taxable capital gains realized on a disposition of Common
Shares, unless the shareholder, persons with whom the shareholder did not deal
at arm's length, or the shareholder, together with all such persons, owned 25%
or more of the shares of any class of the Company's stock at any time in the
five years preceding the disposition. However, the Convention will generally
relieve United States residents from liability for tax under the Tax Act on
capital gains derived on a disposition of Common Shares unless the value of the
shares of the Company is derived principally from real property in Canada. The
Company does not believe that the value of its shares is currently derived
principally from real property in Canada.
23
<PAGE>
Item 8. Selected Financial Data.
Selected Financial Information
The following table sets forth summary financial data and other financial and
operating data of the Company. The summary financial data for the five years
ended October 31, 1999 are derived from the Consolidated Financial Statements of
the Company, which have been audited by Ernst & Young LLP, independent chartered
accountants. The data should be read in conjunction with the Consolidated
Financial Statements included elsewhere in this registration statement.
The Company's Consolidated Financial Statements have been prepared in accordance
with generally accepted accounting principles as observed in Canada ("Canadian
GAAP"). In certain respects, Canadian GAAP differs from generally accepted
accounting practices obtaining in the United States ("U.S. GAAP"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 15 to the Company's Consolidated Financial Statements,
included elsewhere in this registration statement, for a description of material
differences between U.S. GAAP and Canadian GAAP as they relate to the
Consolidated Financial Statements of the Company and a reconciliation to U.S.
GAAP of the Company's net losses, balance sheets and cash flow statements.
<TABLE>
<CAPTION>
Six Months Ended
April 30, Fiscal Years Ended October 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(unaudited)
(in thousands of Canadian Dollars, except per-share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Amounts in accordance
with Canadian GAAP:
Total Revenue $ 5,944 $ 2,114 $ 5,766 $ 1,063 $ 1,041 $ 652 $ 38
Operating Expenses(1) 10,450 9,292 21,781 14,302 9,620 5,188 2,811
Loss Before Income Taxes (4,903) (7,592) (16,853) (13,631) (8,664) (4,686) (2,915)
Net Loss (4,921) (7,612) (16,916) (13,656) (8,690) (4,494) (2,843)
Net Loss Per Common Share
(Basic) $ (0.31) $ (0.63) $ (1.26) $ (1.24) $ (0.79) $ (0.58) $ (0.51)
Amounts in accordance
with U.S. GAAP(1)
Total Revenue $ 5,944 $ 2,114 $ 5,766 $ 1,063 $ 1,041 $ 652 $ 38
Operating Expenses: 10,495 8,910 21,458 14,932 9,527 5,293 2,842
Loss Before Income Taxes (4,948) (7,210) (16,530) (14,261) (8,571) (4,791) (2,946)
Net Loss (4,966) (7,230) (16,593) (14,286) (8,597) (4,599) (2,874)
Net Loss Per Common Share
(Basic) $ (0.31) $ (0.60) $ (1.24) $ (1.30) $ (0.78) $ (0.59) $ (0.52)
-----------------------------
(1) Operating expenses are defined as total expenses, less the total of interest on other liabilities, interest on
long-term debt, and other financial expenses.
24
<PAGE>
<CAPTION>
At April 30, At October 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(unaudited)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts in accordance
with Canadian GAAP:
Cash and Cash Equivalents $ 1,894 $ 1,921 $ 1,421 $ 2,493 $ 1,166 $ 16,928 $ 450
Temporary Investments 2,864 2,446 9,832 9,656 16,470 10,081 --
Working Capital 7,362 5,578 12,140 11,022 17,368 27,735 745
Total Assets 21,861 22,498 26,525 29,968 22,814 31,665 3,652
Long-term Debt 924 920 918 922 935 1,034 1,108
Other Liabilities 10,590 9,698 10,162 9,840 -- -- --
Share Capital 64,903 50,245 64,878 49,367 42,110 42,110 6,980
Deficit (57,392) (43,168) (52,472) (35,556) (21,900) (13,210) (6,353)
Shareholders' Equity $ 7,511 $ 7,077 $ 12,406 $ 13,811 $ 20,210 $ 28,900 $ 627
Amounts in accordance with
U.S. GAAP:
Cash and Cash Equivalents $ 1,894 $ 1,921 $ 1,421 $ 2,493 $ 1,166 $ 16,928 $ 450
Temporary Investments 2,864 2,446 9,832 9,656 16,470 10,081 --
Working Capital 7,362 5,578 12,140 11,022 17,368 27,735 745
Total Assets 21,634 22,374 26,343 29,154 22,398 31,156 3,423
Long-term Debt 924 920 918 922 935 1,034 1,108
Other Liabilities 10,590 9,698 10,162 9,840 -- -- --
Share Capital(2) 62,697 48,039 62,672 46,852 39,364 39,364 6.597
Deficit (55,414) (41,086) (50,448) (33,855) (19,570) (10,973) (6,199)
Shareholders' Equity $ 7,283 $ 6,953 $ 12,224 $ 12,997 $ 19,794 $ 28,391 $ 398
-----------------------------
(2) Figure for fiscal 1998 includes share capital, paid-up and not issued, amounting to $7,101,544.
</TABLE>
Dividends
To date, the Company has not paid any dividends on its Common Stock and does not
intend to declare any cash dividends in the foreseeable future.
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Special Note Regarding Forward-Looking Statements
Certain statements contained in this registration statement on Form 20-F
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. When used in this document, the words
"anticipate," "believe," "estimate" and "expect" and similar expressions, as
they relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Many factors could cause the actual results,
performance, or achievements that may be expressed or implied by such
forward-looking statements, including, among others, the risks discussed from
time to time in the Company's filings with
25
<PAGE>
regulatory authorities. Should one or more of these risks or uncertainties
materialize, or should assumptions underlying the forward-looking statements
prove incorrect, actual results may vary materially from those described herein.
In such event, Haemacure does not intend, and does not assume any obligation, to
update these forward-looking statements.
The figures appearing in this Item are in Canadian Dollars and United States
Dollar equivalents, based on rates prevailing at the end of the relevant period.
Six Months Ended April 30, 2000 Compared to Six Months Ended April 30, 1999
Revenues for the six-month period ended April 30, 2000 were Cdn. $5.9 million
(US $4.0 million) compared to Cdn. $2.1 million (US $1.4 million) for the same
period in 1999, representing an increase of approximately 181%. Sales were Cdn.
$5.7 million (US $3.8 million) for the first two quarters of fiscal 2000
compared to Cdn. $1.9 million (US $1.3 million) for the same period of fiscal
1999, representing an increase of 200%. The increase was principally due to
increased sales of Hemaseel APR.
Cost of sales, selling and marketing expenses was Cdn. $6.5 million (US $4.4
million) for the first six months of fiscal 2000 compared to Cdn. $4.2 million
(US $2.9 million) for the same period in fiscal 1999, representing an increase
of 55%. The increase in cost of sales, selling and marketing expenses reflected
Haemacure's heightened sales and marketing activities and the cost of additional
product sold.
Research and development expenses were Cdn. $607,000 (US $410,000) for the six
months ended April 30, 2000 compared to Cdn. $2.5 million (US $1.7 million) for
the six-month period ended April 30, 1999, partly attributable to the transfer
of responsibility for Phase III clinical trials of Hemaseel HMN to the ZLB.
General and administrative expenses were Cdn. $2.4 million (US $1.6 million) for
the six months ended April 30, 2000 compared to Cdn. $1.6 million (US $1.1
million) for the six months ended April 30, 1999, representing an increase of
48%. The increase results in part from costs incurred in connection with the
negotiation of the agreement with BPL.
Net loss for the six months ended April 30, 2000 was Cdn. $4.9 million (US $3.3
million) compared to Cdn. $7.6 million (US $5.2 million) for the first two
quarters of fiscal 1999.
Fiscal 1999 Compared to Fiscal 1998
Revenues for the fiscal year ended October 31, 1999 were Cdn. $ 5.8 million (US
$3.9 million) compared to Cdn. 1.1 million (US $0.7 million) for the fiscal year
ended October 31, 1998. Sales were Cdn. $5.5 million (US $3.7 million) in fiscal
1999 compared to Cdn. 318,000 (US $206,000) for fiscal 1998, reflecting the
introduction of Hemaseel APR. Sales of Hemaseel APR rose steadily during each
quarter of fiscal 1999. Investment income was Cdn. $312,000 (US $212,000) in
fiscal 1999 compared to Cdn. $745,000 (US $483,000) in fiscal 1998.
Cost of sales, selling and marketing expenses was Cdn. $12.0 million (US $8.2
million) for fiscal 1999 compared to Cdn. $4.3 million (US $2.8 million) for
fiscal 1998. The significant increase in cost of sales, selling and marketing
expenses reflected Haemacure's greater sales and marketing activities related to
Hemaseel APR and the cost of additional product sold. In addition, in fiscal
1999, there was a provision for outdated inventory in the amount of Cdn. $3.4
million.
General and administrative expenses were Cdn. $3.4 million (US $2.3 million) in
fiscal 1999 compared to Cdn. $4.4 million (US $2.9 million) in fiscal 1998, a
decrease of Cdn. $1.0 million (US $0.6 million), reflecting cost cutting
measures implemented throughout Haemacure. Research and development expenses
decreased to Cdn. $4.3 million (US $2.9 million) in fiscal 1999 from Cdn. $5.4
million (US $3.5 million) in fiscal 1998, attributable in part to the transfer
of responsibility for Phase III clinical trials of Hemaseel HMN to the ZLB.
Interest expenses were Cdn. $838,000 (US $570,000) in fiscal 1999 compared to
Cdn. $391,000 (US $253,000) in fiscal 1998. This increase resulted in large part
from accruing the net present value of future payments under the
26
<PAGE>
Hemaseel APR license agreement. The difference between actual, future payments
and the net present value of those payments is treated as interest and amortized
over ten years.
Net loss for fiscal 1999 was Cdn. $16.9 million (US $11.5 million) compared to a
net loss of Cdn. $13.7 million (US $8.9 million) for fiscal year 1998. The net
loss for fiscal 1999 includes a one-time inventory write-off of Cdn. $3.4
million. Lower than expected sales levels, combined with the manufacturer's
requirements to schedule production six months in advance, resulted in this
provision. The remainder of the increase in net loss is attributable to the rise
in sales and marketing expenses associated with the development and
implementation of promotional and educational programs and services related to
Hemaseel APR.
Fiscal 1998 Compared to Fiscal 1997
Revenues for the fiscal year ended October 31, 1998 were Cdn. $1.1 million (US
$0.7 million) compared to Cdn. $1.0 million (US $0.7 million) for the fiscal
year ended October 31, 1997. Sales of Hemaseel APR commenced at the end of the
third quarter of fiscal 1998 and amounted to Cdn. $318,000 (US $206,000) by
year-end. Sales of Hemaseel APR doubled every month during the final quarter of
the fiscal year. Investment income was Cdn. $745,000 (US $483,000) in fiscal
1998 compared to Cdn. $1.0 million (US $0.7 million) in fiscal 1997.
Investment tax credits were Cdn. $100,000 (US $65,000) in fiscal 1998 compared
to Cdn. $265,000 (US $188,000) in fiscal 1997, reflecting a reduction in
Haemacure's research and development expenditures.
Cost of sales, selling and marketing expenses were Cdn. $4.3 million (US $2.8
million) in fiscal 1998 compared to a nominal amount in fiscal 1997. General and
administrative expenses were Cdn. $4.4 million (US $2.9 million) in fiscal 1998
compared to Cdn. $3.2 million (US $2.3 million) in fiscal 1997.
Research and development costs were Cdn. $5.4 million (US $3.5 million) in
fiscal 1998 compared to Cdn. $7.0 million (US $5.0 million) in fiscal 1997,
reflecting improved cost controls and administration in this area.
As a result of the accrual of discounted future payments to be made under the
Hemaseel APR license agreement, total interest expenses recorded increased to
Cdn. $391,000 (US $253,000) in fiscal 1998 from Cdn. $85,000 (US $60,000) in
fiscal 1997.
Net loss was Cdn. $13.7 million (US $8.9 million) for fiscal 1998 compared to
Cdn. $8.7 million (US $6.2 million) for fiscal 1997. This increase is
attributable to higher expenses offset by only a marginal increase in revenues.
Liquidity and Capital Resources
Prior to the launch of Hemaseel APR, Haemacure funded its operations, research
and development, clinical trials, capital expenditures and investments through
share issuances, long-term debt, refundable tax credits and grants. Since the
launch of Hemaseel APR, sales revenues have also contributed to the financing of
Haemacure's operations. During fiscal 1999, Haemacure devoted a significant
portion of its cash resources to the marketing of Hemaseel APR and the HemaSyst
delivery system, and to the development of increased market share.
Haemacure's cash position, which consists of cash and cash equivalents, was Cdn.
$1.9 million (US $1.3 million) as at April 30, 2000.
On June 19, 2000, the Company closed a public offering of 6,046,595 units, each
consisting of one Common Share and a warrant to purchase one-half of a Common
Share. Net proceeds to the Company from the offering were approximately US Cdn.
$11,325,000, after deduction of the agents' fees and expenses of the offering
amounting to Cdn. $1,675,000. On August 1, 2000, the Company closed an
additional public offering of 1,860,382 units, each consisting of one Common
Share and a warrant to purchase one-half of a Common Share. Net proceeds to the
Company from the offering were approximately Cdn. $3,700,000, after deductions
of the agents' fees and expenses of the offering amounting to approximately Cdn.
$300,000. The Company expects to use approximately Cdn. $12,000,000 of such
amount, over a three-year period, for the purchase of equipment to be used by
BPL in the manufacturing of the Company's products at BPL's facility in England
and for leasehold improvements at such facility. See notes 14(a) and 14(b) of
the Company's Consolidated Financial Statements.
27
<PAGE>
Inflation
Historically, inflation has not had a significant impact on Haemacure's business
or results of operations.
U.S. GAAP Reconciliation
The Consolidated Financial Statements of the Company included in this
registration statement have been prepared in accordance with Canadian GAAP. The
key items affecting the reconciliation of the Company's financial statements to
U.S. GAAP are the treatment of unrealized gains and losses on translation of
U.S.-Dollar long-term debt and the treatment of research and development
equipment. See Note 15 to the Company's Consolidated Financial Statements for a
discussion of the significant differences between U.S. GAAP and Canadian GAAP
relevant to the Company.
Item 9A. Quantitative and Qualitative Disclosures About Market Risk.
Haemacure qualifies as a "small business issuer" under Rule 405 promulgated
under the Securities Exchange Act of 1934 and, therefore, is not obligated to
make disclosures under Item 9A. However, the following sets forth Haemacure's
general exposure to market risk relating to changes in interest rates and
foreign currency exchange rates. This discussion contains forward-looking
statements that are subject to risks and uncertainties. Actual results could
vary as a result of many factors, including material changes in interest rates
and foreign currency exchange rates.
Interest Rate Sensitivity
At June 30, 2000, Haemacure had long-term debt of Cdn $968,000. This debt bears
interest at a variable rate. An increase of 1% in the interest rate will
increase annual interest payments by approximately $10,000.
Haemacure does not currently hedge against interest rate fluctuations.
Foreign Currency Exchange Rate Risk
Haemacure's operating results are set forth in Canadian dollars. Revenues are
typically received from United States sources in United States dollars, while
expenses are paid primarily in United States dollars and, to a lesser extent, in
Canadian dollars. Accordingly, to a certain extent, operating results can be
affected by fluctuations in the United States dollar exchange rate.
In its ordinary course of business, Haemacure enters into transactions
denominated in foreign currencies. As a result, Haemacure is generally subject
to exposure from fluctuations in foreign currency exchange rates. As of June 30,
2000, Haemacure had commitments consisting of approximately 10 million Euros, in
various European currencies, relating to the purchase of equipment for use at
BPL's facility in England.
Haemacure is not currently a party to any foreign exchange forward contracts to
reduce its exposure to foreign currency rate changes. Historically, the effect
of movements in foreign currency exchange rates has not had a material impact on
Haemacure's operating results.
Item 10. Directors and Officers of Registrant.
Management
As of March 31, 2000, Haemacure and HAE-US had a total of 46 employees, of which
27 were engaged directly in sales and marketing, 13 in finance and
administration, and 6 in product development, regulatory affairs and quality
assurance. Haemacure maintains compensation, benefits, equity participation and
work environment policies intended to assist in attracting and retaining
qualified personnel. No employee of Haemacure is represented under a collective
bargaining agreement, nor has Haemacure experienced any work stoppage, or
employee-related litigation.
28
<PAGE>
The following is a summary of the relevant experience of the senior management
and members of the Board of Directors of Haemacure. Each of such persons has
been elected to the offices indicated until his or her successor is duly elected
and qualified.
Marc Paquin, President and Chief Executive Officer
Mr. Paquin was founder, a director, President and Chief Executive Officer of
Autologous Systems, Inc., the first commercial private blood bank to be
established in Canada under the licensing authority of the Bureau of Biologics
of Health and Welfare Canada. During the period from the company's inception in
August 1986 until its sale in January 1989, Mr. Paquin developed the only
operating autologous blood bank in Canada. Prior to founding Autologous Systems,
Inc., Mr. Paquin was Vice-President and General Manager of Syntex Diagnostic
(Canada) Inc. Mr. Paquin was responsible for the initial set-up of the Syntex
Biomedical Division in Canada. Mr. Paquin's education is in general health
sciences and management at McGill University. Mr. Paquin founded the Company in
1991 and has been its President and Chief Executive Officer since that time.
Christian Hours, Ph.D, Vice-President, Quality and Technical Services
Prior to joining Haemacure in 1994, Dr. Hours was Director of Quality Assurance
at IAF BioVac Inc., a subsidiary of BioChem Pharma Inc., where he held various
management positions Dr. Hours' extensive management experience covers quality
assurance, quality control, regulatory affairs and technology transfers. Before
joining the industry, Dr. Hours spent ten years in academic research in
molecular biology and virology. Dr. Hours holds a DEA in biochemistry from
Marseilles-Luminy University, a Ph.D in biochemistry from McGill University and
pursued post-doctoral studies in virology and biochemistry. He also hads a DSA
from Ecole des Hautes Etudes Commerciales in Montreal. Dr. Hours is also the
author of numerous scientific publications.
Dr. David Karp, M.D., Vice-President, Clinical and Medical Affairs
Dr. David Karp, a board-certified orthopedic surgeon, has been involved in the
practice of medicine, medical management and practice management for more than
20 years. After graduating from Albany Medical College in 1977 and completing an
orthopedic surgery residency in 1982, he began the practice of orthopedic
surgery. Dr. Karp established a sports medicine center, as well as a diabetic
foot center. He obtained an MBA from the University of South Florida in 1997.
Dr. Karp has consulted in the biomedical field since 1996. He is an active
member of the Institutional Review Board at Sarasota Memorial Hospital and a
frequent lecturer on medical and biotechnical issues. Dr. Karp joined Haemacure
in July 1997.
Waldron Palmer, Vice-President, Marketing, Sales and Business Development
Mr. Palmer has more than 20 years experience in sales, marketing and management.
Prior to joining Haemacure in February 1998, Mr. Palmer was the Vice-President
of Marketing and Business Development of a division of Pharmaseal, a division of
American Hospital Supply Corporation (Baxter Healthcare). He was also Senior
Vice-President of Business Development for the Edward Weck Division, General
Manager of Argon Division and Senior Vice-President of Sales, Marketing and
Business Development for XOMED Division of Bristol Myers Squibb.
James L. Roberts, Vice-President, Finance and Administration and Chief Financial
Officer
Mr. Roberts' early career was in public accounting with a national firm and with
a manufacturing firm as Chief Financial Officer. From 1984 to 1986, Mr. Roberts
attended Emory University, obtaining an MBA with emphasis in international
finance. Subsequently, he worked for Octel Communications, a software company,
as Director of Finance - EMEA (Europe, Middle East and Africa) and then became
Senior Vice-President and Chief Financial Officer of Racal Datacom, Inc., a
subsidiary of Racal Electronics, PLC, a British public company. Mr. Roberts
joined Haemacure in January 2000.
29
<PAGE>
Elaine Whitmore, Ph.D, Vice-President, Regulatory and Scientific Affairs
Elaine Whitmore pursued undergraduate, graduate and postdoctoral studies at
Northwestern University, earning a B.A. and Ph.D. in Biological Sciences. She
has more than 18 years experience in the field of medical devices and biologics,
including nearly a dozen years with Johnson & Johnson with senior management
responsibility for a variety of functional areas, including research and
development, product development, clinical outcomes and regulatory affairs. Dr.
Whitmore also has provided extensive professional consultation in these areas,
as well as in technology assessment and development portfolio analysis. She is
the author of a book entitled Product Development Planning for Healthcare
Products Regulated by the FDA (ASQ Quality Press, 1997) and holds four issued
United States patents. Dr. Whitmore joined Haemacure in July 1997.
Kevin Hahnen, Director of Device Development
Mr. Hahnen is a mechanical engineer with more than 20 years of industry
experience, with the past twelve years focused in the medical field. As an
accomplished inventor, holding several United States and foreign patents, he has
developed key product lines for major corporations including Johnson & Johnson,
American Home Products, Boston Scientific, and Smith & Nephew. Most recently,
Mr. Hahnen participated in start-up ventures (KeraVision, Embol-X), providing
project management, product design and crafting intellectual property
portfolios. His background encompasses many disciplines, including research and
development, manufacturing operations, business development and regulatory
affairs. Mr. Hahnen has also lectured on Rapid Prototype Development. Mr. Hahnen
joined Haemacure in March 1999.
Patrick Del Medico, Director of Marketing
Prior to joining Haemacure in May 1998, Patrick Del Medico was Marketing Product
Manager for Stryker Corporation in Kalamazoo, Michigan. Mr. Del Medico was
directly responsible for all domestic and international marketing and sales of
surgical instruments and disposables for orthopedic and reconstructive surgery.
Mr. Del Medico's extensive medical sales experience also includes positions held
in sales, marketing and management for C. R. Bard and Baxter International.
Jack Lynch, National Sales Manager
Mr. Lynch has been involved for more than 20 years in the sale of operating room
related products. Mr. Lynch spent 14 years with Ethicon, a division of Johnson &
Johnson, where he acquired experience with respect to new product introduction,
development of a sales force and management of national accounts. Mr. Lynch
joined Haemacure in May 1998.
Directors
Following is a description of the relevant experience of the members of the
Board of Directors of Haemacure (other than Mr. Paquin, Haemacure's President
and Chief Executive Officer, who is described above). Each of such persons has
been elected to serve until the next annual meeting of the Company.
Gerald Andre has been a director of the Company since February 1999. From August
1996 until February 1998, he was Director, Health of Societe generale de
financement du Quebec, and prior to August 1996, a business consultant.
Paul Baehr has been a director of the Company since May 1998. He has been the
Chairman and Chief Executive Officer of Ibex Technologies Inc. since October
1995.
Normand Balthazard has been a director of the Company since 1992. He has been
the President of Gestion BioCapital Inc. since July 1997.
Francis Bellido has been a director of the Company since April 1999. From
January 1998 until March 1999, he was Strategic Asset Manager, Internal Medicine
with Eli Lilly; from January 1996 until January 1998, he was Global
30
<PAGE>
Business Unit Manager, Infectious Diseases for Eli Lilly; and from October 1993
until January 1996, he was Manager, Regulatory Affairs, with Eli Lilly.
Wayne G. Johnson has been a director of the Company since 1994. He has been the
President of Bio Ventures, Inc. since November 1991.
Louis-M. Riopel, the Company's Chairman of the Board, has been a director of the
Company since 1994. He has been the President of Rio-Dev Inc. since April 1997.
Daniel B. Schaffner has been a director of the Company since February 2000. He
has been the Chief Financial Officer of the ZLB Central Laboratory Blood
Transfusion Service since October 1999. Prior to that, he held a number of
positions with Ascom Group, a telecommunications company.
Item 11. Compensation of Directors and Officers.
The following table sets out all annual and long-term compensation for services
in all capacities to the Corporation and its subsidiaries for the fiscal years
ended October 31, 1999, 1998 and 1997, of the Chief Executive Officer and the
four other most highly compensated executive officers (collectively, the "Named
Executive Officers").
<TABLE>
<CAPTION>
-------------------------- ----------------------------------------- -------------------------------- ----------
Annual Compensation Long Term Compensation
-------------------------- ------ ---------- -------- -------------- ---------------------- --------- ----------
Awards Payouts
-------------------------- ------ ---------- -------- -------------- ---------------------- --------- ----------
Number
of Restricted
Name and Salary Bonus Other Annual Options Stock LTIP
Principal Position Year $ $ Compensation Granted Awards Payouts All Other
-------------------------- ------ ---------- -------- -------------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marc Paquin 1999 245,178 30,087 - 100,000 - - -
President and Chief 1998 210,455 98,582 - - - - -
Executive Officer 1997 192,850 76,180 - - - - -
-------------------------- ------ ---------- -------- -------------- --------- ------------ --------- -----------
Elaine Whitmore 1999 213,212 17,910 - 12,400 - - -
Vice-President, 1998 204,918 25,410 - - - - -
Regulatory and 1997 64,526 20,741 - 20,000 - - 23,426(1)
Scientific Affairs
-------------------------- ------ ---------- -------- -------------- --------- ------------ --------- -----------
David Karp(2) 1999 243,671 19,494 - 15,000 - - -
Vice-President, Clinical 1998 173,205 26,347 - - - - -
and Medical Affairs 1997 27,654 6,914 - 40,000 - - -
-------------------------- ------ ---------- -------- -------------- --------- ------------ --------- -----------
Waldron Palmer(3) 1999 227,513 21,841 - 16,000 - - 40,689
Vice-President, Sales 1998 164,666 43,794 - 50,000 - - -
and Marketing 1997 - - - - - - -
-------------------------- ------ ---------- -------- -------------- --------- ------------ --------- -----------
Christian Hours 1999 150,000 15,000 - 16,000 - - -
Vice-President, Quality 1998 93,812 16,000 - 15,250 - - -
and Technical Services 1997 90,640 13,823 - 15,000 - - -
-------------------------- ------ ---------- -------- -------------- --------- ------------ --------- -----------
</TABLE>
--------------------
1. Dr. Whitmore joined Haemacure in July 1997. This sum was paid to Dr.
Whitmore for consulting services provided prior to the commencement of her
employment with Haemacure.
2. Dr. Karp joined Haemacure in July 1997.
3. Mr. Palmer joined Haemacure in February 1998.
Salary, bonus and other annual compensation are paid to the Named Executive
Officers in U.S. funds, with the exception of Dr. Christian Hours, who is paid
in Canadian funds. The amounts shown in the above table are the Canadian dollar
equivalents of U.S. funds paid to the Named Executive Officers.
During the fiscal year ended October 31, 1999, Haemacure paid a total of Cdn.
$1,275,856 in remuneration and Cdn. $108,602 in benefits to seven senior
executives, two of whom are no longer employed by Haemacure.
The following table sets out the details of all grants of options to the Named
Executive Officers during the fiscal year ended October 31, 1999:
31
<PAGE>
--------------- ------- --------------- -------- -------- -----------------
% of Total Market
Options Granted Value on
Options to Employees in Exercise Date of
Name Granted Financial Year Price Grant Expiration Date
--------------- ------- --------------- -------- -------- -----------------
Marc Paquin 100,000 22.70% $4.00 $3.80 September 2, 2009
--------------- ------- --------------- -------- -------- -----------------
Elaine Whitmore 12,400 2.81% $5.60 $5.60 November 17, 2008
--------------- ------- --------------- -------- -------- -----------------
David Karp 15,000 3.41% $5.60 $5.60 November 17, 2008
--------------- ------- --------------- -------- -------- -----------------
Waldron Palmer 16,000 3.63% $5.60 $5.60 November 17, 2008
--------------- ------- --------------- -------- -------- -----------------
Christian Hours 16,000 3.63% $5.60 $5.60 November 17, 2008
--------------- ------- --------------- -------- -------- -----------------
During the fiscal year ended October 31, 1999, the Company paid a total of
approximately US $54,000 to its directors for their services in such capacity.
With the exception of Marc Paquin, directors each receive approximately US
$1,000 per meeting of the Board of Directors, approximately US $500 per meeting
of committees of the Board of Directors as well as reimbursement for travel
expenses. Seven directors also received stock options during fiscal 1999
covering an aggregate of 70,000 Common Shares of the Company at an exercise
price of Cdn. $5.60 per share.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries
In March 1996, the Board of Directors of the Company established the 1996 Stock
Option Plan which provides for the granting of options to acquire Common Shares
to employees, officers and directors of, and service providers to, the Company.
A maximum of 1,098,297 Common Shares may be issued under the 1996 Stock option
Plan. At the annual and special meeting of the shareholders of the Company held
on April 27, 2000, the shareholders approved a resolution increasing the maximum
number of Common Shares which may be issued under the 1996 Stock Option Plan to
1,675,683. The increase in the number of Common Shares which may be issued under
the 1996 Stock Option Plan is subject to regulatory approval.
The exercise price of an option granted under the 1996 Stock Option Plan is set
at the time of the grant of the option, but cannot in any event be less than the
closing sale price of the Common Shares on the Toronto Stock Exchange on the
last business day prior to the day the option is granted. The exercise period of
options granted under the 1996 Stock Option Plan may not exceed ten years from
the date of grant.
Options granted under the 1996 Stock Option Plan are not transferable other than
by will or by the laws of descent and distribution. Under the 1996 Stock Option
Plan, the aggregate number of Common Shares reserved for issuance to any one
person may not exceed 5% of the total number of Common Shares of the Company
issued and outstanding.
Mr. Marc Paquin, the President and Chief Executive Officer of the Company, holds
an option in respect of 150,000 Common Shares at an exercise price of Cdn. $7.00
per share. The option was granted to Mr. Paquin in April 1996 and is not subject
to the 1996 Stock Option Plan.
The following table sets out information with respect to options outstanding as
at July 18, 2000:
32
<PAGE>
Number of Exercise
Common Shares Price Expiry Dates
Optionee Under Option (Cdn. $) of Options
-------------------------------- --------------- ----------- -------------------
Executive officers (7) ......... 549,960 $2.05 to June 2002 to
$7.00 January 2010
Directors (including former
directors, but excluding 190,692 $2.60 to September 2001 to
executive officers) (6) ....... $5.60 December 2009
Employees (22) ................. 178,034 $2.60 to November 2006 to
$6.30 February 2010
Item 13. Interest of Management in Certain Transactions.
Not applicable.
PART II
Item 14. Description of Securities to be Registered.
This registration statement covers the Common Shares of the Company, without par
value. Each such share is entitled to one vote on all matter coming before the
shareholders of the Company. Holders of the Common Stock shall be entitled to
participate ratably in distributions upon the liquidation of the Company.
PART III
Item 15. Defaults Upon Senior Securities.
Not applicable.
Item 16. Changes in Securities, Changes in Security for Registered Securities
and Use of Proceeds.
Not applicable.
33
<PAGE>
PART IV
Item 17. Financial Statements.
INDEX TO FINANCIAL STATEMENTS
Page
----
Auditors' Report 33
Consolidated Balance Sheets of the Company at October 31, 1998 34
and 1999 and at April 30, 2000
Consolidated Statements of Operations for the fiscal years ended 35
October 31, 1997, 1998 and 1999 and for the six-month periods ended
April 30, 1999 and 2000
Consolidated Statements of Deficit for the fiscal years ended 36
October 31, 1997, 1998 and 1999 and for the six-month periods ended
April 30, 1999 and 2000
Consolidated Statements of Cash Flows for the fiscal years ended 37
October 31, 1997, 1998 and 1999 and for the six-month periods ended
April 30, 1999 and 2000
Notes to Consolidated Financial Statements 38
34
<PAGE>
AUDITORS' REPORT
To the Directors of
Haemacure Corporation
We have audited the consolidated balance sheets of Haemacure Corporation as at
October 31, 1999 and 1998 and the consolidated statements of operations, deficit
and cash flows for each of the years in the three-year period ended October 31,
1999. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at October 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the years in the three-year period ended October 31, 1999 in accordance with
accounting principles generally accepted in Canada.
/s/ Ernst & Young LLP
Montreal, Canada, (Signed) Ernst & Young LLP
December 14, 1999. Chartered Accountants
[except as to notes 8 and 14
which are as of August 1, 2000]
35
<PAGE>
Haemacure Corporation
Incorporated under the Canada Business Corporations Act
CONSOLIDATED BALANCE SHEETS
[In Canadian dollars]
As at As at As at
April 30, October 31, October 31,
2000 1999 1998
$ $ $
-------------------------------------------------------------------------------
[unaudited]
ASSETS
Current
Cash and cash equivalents
[note 12] 1,893,892 1,421,161 2,493,488
Temporary investments 2,864,383 9,831,926 9,655,507
Accounts receivable 2,827,420 1,574,105 482,042
Investment tax credits and
income taxes receivable 64,200 -- 960,524
Inventories [note 3] 2,256,947 2,132,663 2,631,531
Prepaid expenses 291,201 219,261 193,864
-------------------------------------------------------------------------------
10,198,043 15,179,116 16,416,956
Capital assets [notes 4 and 6] 2,286,353 1,265,756 1,477,647
-------------------------------------------------------------------------------
Other assets [note 5] 9,287,989 10,052,786 11,582,381
Deferred foreign exchange loss 88,227 27,410 491,020
21,860,612 26,525,068 29,968,004
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued
liabilities 2,792,744 2,987,281 5,344,097
Current portion of long-term debt 43,198 51,457 51,319
-------------------------------------------------------------------------------
2,835,942 3,038,738 5,395,416
Long-term debt [note 6] 923,758 918,005 921,818
Other liabilities [note 7] 10,590,236 10,162,093 9,839,826
-------------------------------------------------------------------------------
14,349,936 14,118,836 16,157,060
-------------------------------------------------------------------------------
Shareholders' equity
Share capital [note 8] 64,902,794 64,877,794 42,265,203
Share capital paid-up and not
issued [note 8] -- -- 7,101,544
Deficit (57,392,118) (52,471,562) (35,555,803)
-------------------------------------------------------------------------------
7,510,676 12,406,232 13,810,944
-------------------------------------------------------------------------------
21,860,612 26,525,068 29,968,004
===============================================================================
See accompanying notes
36
<PAGE>
Haemacure Corporation
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
[In Canadian dollars]
<CAPTION>
Six months ended
April 30, Years ended October 31,
------------------------- -----------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
-----------------------------------------------------------------------------------------------------------------------
[unaudited]
<S> <C> <C> <C> <C> <C>
REVENUES
Sales 5,730,031 1,908,939 5,454,337 317,937 9,958
Investment income 214,175 205,133 311,666 744,975 1,030,665
-----------------------------------------------------------------------------------------------------------------------
5,944,206 2,114,072 5,766,003 1,062,912 1,040,623
-----------------------------------------------------------------------------------------------------------------------
EXPENSES
Cost of sales, selling
and marketing expenses 6,536,144 4,214,988 12,041,054 4,296,634 4,490
Research and development 606,706 2,488,474 4,283,708 5,386,978 6,994,219
General and administrative 2,380,624 1,609,673 3,422,876 4,439,098 3,160,019
Investment tax credits -- -- -- (100,000) (265,000)
Grants -- -- -- -- (24,411)
Amortization of capital and
other assets 900,435 907,903 1,823,254 1,002,216 572,277
Interest on other liabilities 370,803 383,914 760,638 327,000 --
Foreign exchange loss (gain) 26,325 70,920 210,076 (722,693) (822,063)
Interest on long-term debt 26,024 29,034 56,452 52,185 59,656
Other financial expenses 66 1,098 21,244 12,196 25,564
-----------------------------------------------------------------------------------------------------------------------
10,847,127 9,706,004 22,619,302 14,693,614 9,704,751
-----------------------------------------------------------------------------------------------------------------------
Loss before income taxes (4,902,921) (7,591,932) (16,853,299) (13,630,702) (8,664,128)
Provision for income taxes [note 9] 17,635 19,848 62,460 25,000 26,000
-----------------------------------------------------------------------------------------------------------------------
Net loss (4,920,556) (7,611,780) (16,915,759) (13,655,702) (8,690,128)
=======================================================================================================================
Basic loss per common share (0.31) (0.63) (1.26) (1.24) (0.79)
=======================================================================================================================
</TABLE>
See accompanying notes
37
<PAGE>
Haemacure Corporation
<TABLE>
CONSOLIDATED STATEMENTS OF DEFICIT
[In Canadian dollars]
<CAPTION>
Six months ended
April 30, Years ended October 31,
------------------------- ----------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
----------------------------------------------------------------------------------------------------------------------
[unaudited]
<S> <C> <C> <C> <C> <C>
Deficit at beginning of period 52,471,562 35,555,803 35,555,803 21,900,101 13,209,973
----------------------------------------------------------------------------------------------------------------------
Net loss for the period 4,920,556 7,611,780 16,915,759 13,655,702 8,690,128
Deficit at end of period 57,392,118 43,167,583 52,471,562 35,555,803 21,900,101
======================================================================================================================
</TABLE>
See accompanying notes
38
<PAGE>
Haemacure Corporation
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
[In Canadian dollars]
<CAPTION>
Six months ended
April 30, Years ended October 31,
------------------------- -----------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
----------------------------------------------------------------------------------------------------------------------
[unaudited]
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss (4,920,556) (7,611,780) (16,915,759) (13,655,702) (8,690,128)
Items not affecting cash
Amortization of capital assets 135,638 143,106 293,659 345,623 394,534
----------------------------------------------------------------------------------------------------------------------
Amortization of other assets 764,797 764,797 1,529,595 656,593 177,743
Accrued interest on
long-term debt 23,200 24,016 47,645 37,820 32,900
----------------------------------------------------------------------------------------------------------------------
Accrued interest on other
liabilities 370,803 383,914 760,638 327,000 --
Gain on disposal of capital
assets -- (97,897) (97,897) -- --
Foreign exchange (gain) loss 7,953 70,091 (18,196) 185,531 (2,452)
----------------------------------------------------------------------------------------------------------------------
Unrealized foreign exchange (gain) loss (3,477) 17,780 25,239 38,600 --
(3,621,642) (6,305,973) (14,375,076) (12,064,535) (8,087,403)
Net change in non-cash
working capital balances related
to operations (1,708,276) (2,337,841) (2,014,884) 939,500 1,075,859
----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities (5,329,918) (8,643,814) (16,389,960) (11,125,035) (7,011,544)
----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of common shares, net
of issuance costs 25,000 878,047 15,511,046 154,820 --
Subscription for common shares
to be issued -- -- -- 7,101,544 --
Repayment of long-term debt (25,706) (25,644) (51,319) (131,994) (212,681)
----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities (706) 852,403 15,459,727 7,124,370 (212,681)
----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net acquisition of temporary
investments 6,967,543 7,209,638 (176,419) 6,814,105 (6,388,379)
Acquisition of capital assets (1,156,235) (173,221) (236,741) (157,067) (95,123)
Disposal of capital assets -- 252,870 252,870 14,164 11,516
Acquisition of other assets -- -- -- (1,847,246) (2,067,450)
Reimbursement of acquisition
cost of other assets -- -- -- 689,150 --
----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities 5,811,308 7,289,287 (160,290) 5,513,106 (8,539,436)
----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents (7,953) (70,091) 18,196 (185,531) 2,452
----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents 472,731 (572,215) (1,072,327) 1,326,910 (15,761,209)
Cash and cash equivalents
at beginning of period 1,421,161 2,493,488 2,493,488 1,166,578 16,927,787
----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period 1,893,892 1,921,273 1,421,161 2,493,488 1,166,578
======================================================================================================================
Supplemental information
Interest paid 2,824 5,018 8,807 14,365 26,756
Income taxes paid 82,804 9,726 19,452 25,044 --
======================================================================================================================
See accompanying notes
</TABLE>
39
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
The consolidated financial statements of the Corporation have been prepared by
management in accordance with accounting principles generally accepted in Canada
("Canadian GAAP"). The financial statements have, in management's opinion, been
properly prepared using careful judgment within reasonable limits of materiality
and within the framework of the accounting policies summarized hereafter.
As further described under Note 15, the accounting policies followed by the
Corporation differ in certain respects from those that would have been followed
had these financial statements been prepared in conformity with accounting
principles generally accepted in the United States ("U.S. GAAP") and the
accounting principles and practices required by the United States Securities and
Exchange Commission ("SEC").
1. NATURE OF BUSINESS AND CUMULATIVE RESULTS FROM INCEPTION
The Corporation is in the development stage. It specializes in the development,
manufacturing and marketing of biological adhesives and biomaterials for acute
surgical wound care.
The Corporation's activities since incorporation have been to perform research
and development, establish offices and its sales network, build research
facilities, and raise capital. Its planned principal operations have just
commenced; accordingly, the Corporation has not achieved significant revenues to
date. Also, the Corporation has not realized a profit since its inception and
there can be no assurance that it will either achieve or maintain profitability
in the future. The Corporation will require additional financing to fund its
expected growth. Such funding may come from internally-generated cash flow, from
additional equity financing, whether by way of private placement or public
offering, through a strategic alliance or from other sources. No assurance can
be given that such funding will be available.
The Corporation plans to pursue its R&D and marketing activities. These
activities are subject to the risks inherent in any start-up Corporation that
operates in the field of biotechnology. These risks relate to the successful
completion of R&D activities, the marketing of the Corporation's products and
required financing.
40
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
1. NATURE OF BUSINESS AND CUMULATIVE RESULTS FROM INCEPTION [Cont'd]
The following table shows the cumulative results of the Corporation from its
inception to April 30, 2000:
Period from
January 1, 1990
to April 30,
2000
$
------------------------------------------------------------------------------
(unaudited)
Revenues from sales, research contract
and investment income 15,473,397
-----------------------------------------------------------------------------
Expenses
Research and development 27,766,822
Cost of sales, selling and marketing expenses 22,878,322
General and administrative 18,414,052
Amortization of capital and other assets 4,925,893
Interest on long-term debt,
other liabilities and financing costs 1,534,432
-----------------------------------------------------------------------------
75,519,521
Government assistance and investment tax credits (5,247,080)
-----------------------------------------------------------------------------
70,272,441
-----------------------------------------------------------------------------
Cumulative loss before income taxes (54,799,044)
Income taxes recovered 152,905
-----------------------------------------------------------------------------
Cumulative net loss from inception (54,646,139)
Share issue expenses 2,745,979
-----------------------------------------------------------------------------
Deficit accumulated during the development stage (57,392,118)
-----------------------------------------------------------------------------
41
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Corporation
and its wholly owned subsidiaries.
Use of estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at period-end and the reported
amounts of revenues and expenses during the reporting period. Actual results may
differ from the estimates and assumptions used.
Temporary investments
Temporary investments, consisting of money market instruments and fixed-income
securities, are valued at the lower of cost and fair market value.
Inventories
Inventories, which consist of products held for resale, are valued at the lower
of cost, using the first-in, first-out method, and net realizable value, less
allowance for obsolescence in order to reflect the expiration date of the
products.
Capital assets
Capital assets are recorded at cost, net of related government assistance and
investment tax credits, and are amortized over their estimated useful life using
the declining balance method, except for leasehold improvements which are
amortized using the straight-line method, at the following rates:
Laboratory equipment 20%
Office equipment 20%
Computer equipment 30%
Leasehold improvements Lease term
No amount of depreciation is calculated on construction in progress.
Government assistance and investment tax credits
Government assistance and investment tax credits are recorded as a reduction of
the related expenditures or capital assets when there is reasonable assurance of
their ultimate realization.
Income taxes
The Corporation follows the deferred income tax allocation method in accounting
for income taxes. Under this method, timing differences between income for
accounting purposes and income for tax purposes give rise to deferred income
taxes.
42
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
2. SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Other assets
Other assets, mainly comprising manufacturing and distribution rights, are
recorded at cost. Other assets are amortized using the straight-line method over
a period of eight years.
Translation of foreign currencies
Monetary assets and liabilities denominated in a foreign currency are translated
into Canadian dollars at the rate of exchange in effect at the balance sheet
date. Other assets and liabilities as well as revenues and expenses denominated
in a foreign currency are translated at the exchange rate prevailing at the
transaction date. Foreign currency translation gains and losses are included in
the statement of operations of the reporting period, except those related to the
translation of other liabilities which are deferred and amortized over the
remaining life of the other liabilities on a straight-line basis. The accounts
of a foreign subsidiary are translated using the temporal method.
Loss per share
The basic loss per share has been calculated using the weighted average number
of outstanding common shares during the period. The fully diluted loss per share
is not shown since it would have the effect of reducing the loss per share.
Stock option plan
The Corporation has a stock-based compensation plan, which is described in note
8. No compensation expense is recognized for this plan when shares or stock
options are issued to employees or directors. Any consideration paid by the
employees or directors on exercise of stock options or purchase of stock is
credited to share capital. If shares or stock options are repurchased from
employees or directors, the excess of the consideration paid over the carrying
amount of the shares or stock options is charged to deficit.
Consolidated statements of cash flows
Effective November 1, 1998, the Corporation adopted the new recommendations of
the Canadian Institute of Chartered Accountants with respect to the presentation
of cash flow information.
Under the new recommendations, non-cash transactions are excluded from the
statement of cash flows and disclosed elsewhere in the financial statements.
Cash equivalents are restricted to investments that are readily convertible into
a known amount of cash, that are subject to minimal risk of changes in value and
which have an original maturity of three months or less.
Cash flow information for the prior year has been restated to conform to the new
recommendations. The effect of adopting the new recommendations was to decrease
the cash flows from financing activities by $9,021,806 and increase the cash
flows from investing activities by $15,797,311 for the year ended October 31,
1998 [increase the cash flows from investing activities by $6,388,379 for the
year ended October 31, 1997].
43
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
3. INVENTORIES
April 30, October 31, October 31,
2000 1999 1998
$ $ $
-------------------------------------------------------------------------------
[unaudited]
Products held for resale 5,459,977 5,560,377 2,829,737
Less: allowance for obsolescence 3,203,030 3,427,714 198,206
-------------------------------------------------------------------------------
2,256,947 2,132,663 2,631,531
================================================================================
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
April 30, 2000 October 31, 1999 October 31, 1998
---------------------------- --------------------------- ----------------------------
Accumulated Accumulated Accumulated
Cost amortization Cost amortization Cost amortization
$ $ $ $ $ $
-------------------------------- ------------ --------------- ------------ -------------- ------------- --------------
[unaudited]
<S> <C> <C> <C> <C> <C> <C>
Laboratory equipment 1,535,896 880,730 1,518,123 809,908 1,895,391 890,599
Office equipment 342,826 135,693 335,816 113,067 191,322 77,366
Computer equipment 299,060 182,799 269,136 164,923 253,431 136,251
Leasehold improvements 377,617 171,352 377,617 147,038 344,488 102,769
Construction in progress 1,101,528 -- -- -- -- --
-------------------------------- ------------ --------------- ------------ -------------- ------------- --------------
3,656,927 1,370,574 2,500,692 1,234,936 2,684,632 1,206,985
Less: accumulated amortization 1,370,574 1,234,936 1,206,985
-------------------------------- ------------ --------------- ------------ -------------- ------------- --------------
Net book value 2,286,353 1,265,756 1,477,647
================================ ============ =============== ============ ============== ============= ==============
</TABLE>
5. OTHER ASSETS
April 30, October 31, October 31,
2000 1999 1998
$ $ $
--------------------------------------------------------------------------------
[unaudited]
Other assets, at cost [see note 7] 12,553,247 12,553,247 12,553,247
Less: accumulated amortization 3,265,258 2,500,461 970,866
--------------------------------------------------------------------------------
Net book value 9,287,989 10,052,786 11,582,381
================================================================================
44
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
6. LONG-TERM DEBT
April 30, October 31, October 31,
2000 1999 1998
$ $ $
--------------------------------------------------------------------------------
[unaudited]
Loan from Societe de developpement
industriel du Quebec [a] 916,125 892,925 845,280
Bank loan bearing interest at
prime rate plus 1.75%, repayable
in monthly principal installments
of $4,167 until February 2001 [b] 41,666 66,666 116,667
Loan bearing interest at 10%,
repayable in monthly installments
of $198, including principal and
interest, until March 2005 9,165 9,871 11,190
--------------------------------------------------------------------------------
966,956 969,462 973,137
Less: current portion 43,198 51,457 51,319
--------------------------------------------------------------------------------
923,758 918,005 921,818
================================================================================
[a] Under the terms of the agreement with Societe de developpement industriel
du Quebec [SDI], this loan bears interest at a rate equal to the rate
prescribed by the ministere du Revenu du Quebec less 4% [5% as at April 30,
2000, October 31, 1999 and October 31, 1998]. Interests for the six-month
period ended April 30, 2000 amounting to $23,200 [$47,645 and $37,820 for
the years ended October 31, 1999 and 1998 respectively] have been
capitalized to the loan in accordance with the provisions of the loan
agreement. The loan and interest thereon will be repayable in installments
equal to 10% of gross sales of the products stemming from the development
of fibrin sealants. As of April 30, 2000 no such payment is due. After
repayment of the loan and the interest thereon, the Corporation will pay a
royalty equal to 2% of gross sales from the date of final repayment until
the end of a period of 10 years starting with the commencement of the
commercialization of the products.
[b] A charge on equipment, in an initial amount of $300,000, has been provided
to the bank in respect of this loan.
The minimum annual long-term debt principal repayments, excluding those relating
to the SDI loan, are as follows over the next five twelve-month periods ending
on April 30, 2005:
$
--------------------------------------------------------------------------------
2001 43,198
2002 1,692
2003 1,869
2004 2,065
2005 2,007
--------------------------------------------------------------------------------
45
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
7. OTHER LIABILITIES
In April 1997, the Corporation entered into a licensing and manufacturing
agreement to obtain the rights to manufacture and sell Hemaseel APR, a fibrin
sealant, in the United States. Under this agreement, the Corporation is
committed to make milestone payments.
Other liabilities represent the present value, discounted using a rate of 8.25%,
of the milestones payments to be made by the Corporation related to the purchase
of the rights to manufacture and sell fibrin sealant in the United States. As of
April 30, 2000, a total consideration of US $2,250,000 (CAN $3,210,200) has been
paid. These payments along with the discounted value of milestones payments to
be made were included with other assets [see note 5].
Payments to be made are as follows:
US $1,500,000 Upon the Food and Drug Administration's ("FDA") approval for the
Corporation to produce the product;
US $2,500,000 In June 2001, i.e. 36 months following the first delivery of the
product;
US $2,500,000 In June 2004, i.e. 72 months following the first delivery of the
product;
US $2,750,000 In June 2006, i.e. 96 months following the first delivery of the
product.
The Corporation acquired there rights under license and manufacturing agreements
with Immuno International AG ("Immuno"), required by a consent order of the
United States Federal Trade Commission ("FTC") in connection with the
acquisition of Immuno by Baxter International, Inc. The FTC may terminate the
license in certain situations, including if the Corporation fails to obtain FDA
approval before July 28, 2000 to manufacture Hemaseel APR itself, provided that
the FTC may extend the license. It is highly unlikely that the Corporation will
obtain such FDA approval prior to July 28, 2000. Although the Corporation
believes that the FTC will extend the foregoing deadline, there can be no
assurance that it will do so or that it will not terminate the license at a
later date. The termination of the license by the FTC would have a material
adverse effect on the Corporation's business and results of operations.
46
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
8. SHARE CAPITAL
Authorized
Unlimited number of common shares.
Unlimited number of preferred shares, non-voting, issuable in series, with such
rights and conditions as may be determined by the Board of Directors.
Issued and fully paid
<TABLE>
<CAPTION>
April 30, 2000 October 31, 1999 October 31, 1998
Number Amount Number Amount Number Amount
$ $ $
-------------------------------------- ------------ ------------ ------------- ------------ ------------- ------------
[unaudited]
<S> <C> <C> <C> <C> <C> <C>
Common shares
Balance at beginning of period 16,009,155 64,877,794 11,023,168 42,265,203 10,982,968 42,110,383
Issued upon the exercise of
options and warrants 10,000 25,000 381,655 909,047 40,200 154,820
Issuance of common shares -- -- 4,604,332 21,703,544 -- --
-------------------------------------- ------------ ------------- ------------- ------------- ------------- ------------
Total share capital issued and
outstanding at end of period 16,019,155 64,902,794 16,009,155 64,877,794 11,023,168 42,265,203
====================================== ============ ============= ============= ============= ============= ============
</TABLE>
During the six months ended April 30, 2000, the Corporation issued 10,000 shares
for a cash consideration of $25,000.
During the year ended October 31, 1999, the Corporation issued 3,792,727 common
shares for a cash consideration of $14,602,000.
On August 11, 1998, the Corporation received in advance a consideration of
$7,101,544 following a third party's subscription for 811,605 common shares of
the Corporation. The subscription agreement did not include any repayment terms
and, as at October 31, 1998, it was reasonably certain that the issue of these
shares would be approved by the regulatory authorities. Consequently, the
proceeds of this subscription are shown as "share capital paid-up and not
issued" in the Corporation's share capital as at October 31, 1998.
On November 3, 1998, the Corporation obtained the necessary approval from the
regulatory authorities to issue the 811,605 common shares and the shares were
issued on that date. Consequently, these shares are part of the common shares
issued during the year and are shown as "share capital" in the Corporation's
shareholder's equity as at October 31, 1999.
47
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
8. SHARE CAPITAL [Cont'd]
Options
In March 1996, the Board of Directors of the Corporation established the 1996
stock option plan which provides for the granting of options to acquire common
shares to employees, officers and directors of, and service providers to, the
Corporation. A maximum of 1,098,297 common shares may be issued under the 1996
stock option plan. At the annual and special meeting of the shareholders of the
Corporation held on April 27, 2000, the shareholders approved a resolution
increasing the maximum number of common shares which may be issued under the
1996 stock option plan to 1,675,683. The increase in the number of common shares
which may be issued under 1996 stock option plan is subject to regulatory
approval.
The exercise price of an option granted under the 1996 stock option plan is set
at the time of the grant of the option, but cannot in any event be less than the
closing sale price of the common shares on The Toronto Stock Exchange on the
last business day prior to the day the option is granted. The exercise period of
options granted under the 1996 stock option plan may not exceed ten years from
the date of grant.
A summary of the situation as at April 30, 2000, October 31, 1999 and 1998 of
the Corporation's fixed-price stock option plan and the changes made in the
period then ended is shown below:
<TABLE>
<CAPTION>
April 30, 2000 October 31, 1999 October 31, 1998
------------------------------ ----------------------------- -----------------------------
Weighted Weighted Weighted
average average average
Shares exercise price Shares exercise price Shares exercise price
---------------------------- ------------- ---------------- ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding options, at
beginning of period 837,700 5.02 644,601 4.74 385,620 4.90
Granted 296,100 3.06 340,509 5.14 345,281 4.34
Exercised 10,000 2.50 49,560 3.21 40,200 3.85
Cancelled 11,000 5.06 97,850 4.53 46,100 3.88
---------------------------- ------------- ---------------- ------------ ---------------- ------------ ----------------
Outstanding options, at
end of period 1,112,800 4.52 837,700 5.02 644,601 4.74
---------------------------- ------------- ---------------- ------------ ---------------- ------------ ----------------
Exercisable options, at
end of period 871,800 4.69 731,700 5.08 491,601 4.84
============================ ============= ================ ============ ================ ============ ================
</TABLE>
48
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
8. SHARE CAPITAL [Cont'd]
The following table contains information regarding outstanding fixed-price stock
options as at April 30, 2000:
<TABLE>
<CAPTION>
Outstanding options Exercisable options
-------------------------------------------------- ----------------------------------------
Number of Weighted Weighted Number of Weighted
Price range outstanding average years average exercise outstanding average exercise
for the period options as at remaining price exercisable options price
$ 04/30/2000 (years) as at 04/30/2000
---------------- --------------- --------------- ------------------ --------------------- ------------------
<S> <C> <C> <C> <C> <C>
2.01 to 3.00 289,910 7.82 2.55 229,910 2.64
3.01 to 4.00 216,084 9.25 3.79 89,084 3.54
4.01 to 5.00 91,100 8.04 4.27 69,600 4.22
5.01 to 6.00 325,706 7.09 5.46 318,206 5.44
6.01 to 7.00 190,000 6.68 6.85 165,000 6.94
---------------- --------------- --------------- ------------------ --------------------- ------------------
2.01 to 7.00 1,112,800 7.71 4.52 871,800 4.69
---------------- --------------- --------------- ------------------ --------------------- ------------------
</TABLE>
Warrants
Warrants to purchase 332,095 common shares for a consideration of $750,000 were
exercised on December 4, 1998.
In February and March 2000, the Corporation entered into agreements with two of
its suppliers for services to be rendered over the next twelve-month period. As
part of the compensation payable to the suppliers, the Corporation is required
to issue 250,000 warrants, each of which entitles the holder to purchase one
common share, expiring on March 31, 2005. A total of 100,000 of such warrants
are exercisable at a price of $3.95 per share and 150,000 of such warrants are
exercisable at a price of $4.10 per share.
The issuance of the warrants is subject to regulatory approval.
49
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
9. INCOME TAXES
The provision for income taxes represents large corporations tax.
As at October 31, 1999, the Corporation had accumulated deductible temporary
differences for the federal income tax amounting to approximately $5,019,000
which are due mainly to scientific research and experimental development
expenses and share issue expenses, the benefit of which is not recorded in the
consolidated financial statements.
As at October 31, 1999, the Corporation also had not recorded the tax benefits
of tax losses and investment tax credits carried forward for federal income tax
purposes amounting to approximately $21,823,000 and $797,000, respectively, and
which expire as follows:
Investment
Tax losses tax credits
$ $
---------------------------------------- ---------------- -----------------
2000 586,000 3,000
2001 2,574,000 38,000
2002 1,782,000 19,000
2003 1,908,000 57,000
2004 6,886,000 67,000
2005 2,765,000 23,000
2006 5,322,000 328,000
2007 -- 206,000
2008 -- 56,000
--------------------------------------- ---------------- -----------------
50
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
10. COMMITMENTS
[a] Under a licensing agreement relating to technology for use in certain
applications, the Corporation is committed to pay royalties of 4% of net
sales of products derived from the use of the technology until the expiry
of the applicable patents.
[b] As at April 30, 2000, the Corporation was committed under an agreement to
purchase inventories from a supplier during the next six months for a total
of $6,139,000.
[c] The Corporation's total commitments under operating leases amount to
$2,293,000. The minimum payments, before taking into consideration the
sub-lease mentioned below, for the next five twelve-month periods ending
April 30, 2005 are as follows:
$
--------------------------------------------------------------------------------
2001 499,000
2002 499,000
2003 442,000
2004 437,000
2005 416,000
--------------------------------------------------------------------------------
In 1998, the Corporation sub-leased to a third party part of its premises until
the expiry of the head lease, equivalent to its commitment. The sub-lessee has
the option to terminate the sub-lease on December 31, 2001.
11. FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of each class of
financial instruments for which it is practical to estimate a value are as
follows:
Short-term financial assets and liabilities
The carrying amounts of these assets and liabilities are a reasonable estimate
of the fair values because of the short maturity of these instruments.
Short-term financial assets comprise cash and cash equivalents, temporary
investments and accounts receivable.
Short-term financial liabilities comprise accounts payable.
Long-term debt
The fair value is estimated using discounted cash flow analyses, based on the
Corporation's current incremental borrowing rates for similar types of
arrangements. There is no material difference between the carrying value and the
fair value of the long-term debt, including other liabilities, with the
exception of SDI loan for which the fair value is not readily determinable.
51
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
12. STATEMENTS OF CASH FLOWS
Cash and cash equivalents
The cash and cash equivalents consist of cash on hand, bank balances and
investments in money market instruments. The cash and cash equivalents shown in
the cash flow statements include the following balance sheet amounts:
April 30, October 31, October 31,
2000 1999 1998
$ $ $
--------------------------------------------------------------------------------
[unaudited]
Cash on hand and bank balances 1,853,782 759,929 1,401,943
Money market instruments 40,110 661,232 1,091,545
--------------------------------------------------------------------------------
Total cash and cash equivalents 1,893,892 1,421,161 2,493,488
================================================================================
Non-monetary transaction
During the year ended October 31, 1998, the Corporation purchased other assets
by assumption of debt for an amount of $9,512,826.
13. segment disclosures
The Corporation considers it is operating in only one segment, which is the
sector related to the market of acute surgical wound care. The Corporation
allocates revenues to individual countries according to the locations of the
customers.
Geographic information
<TABLE>
<CAPTION>
Revenues Capital assets
--------------------------------------- ---------------------------------------
April 30, October 31, October 31, April 30, October 31, October 31,
2000 1999 1998 2000 1999 1998
$ $ $ $ $ $
-------------- ----------- ----------- ----------- ----------- ----------- -----------
[unaudited] [unaudited]
<S> <C> <C> <C> <C> <C> <C>
Canada 214,175 311,666 744,975 900,570 996,917 1,351,778
United States 5,730,031 5,454,337 317,937 284,255 268,839 125,869
England -- -- -- 1,101,528 -- --
-------------- ----------- ----------- ----------- ----------- ----------- -----------
5,944,206 2,286,353 1,265,756 1,477,647
============== =========== =========== =========== =========== =========== ===========
</TABLE>
52
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
14. SUBSEQUENT EVENTS
[a] On June 19, 2000, the Company closed a public offering of 6,046,595 units,
each consisting of one Common Share and a warrant to purchase one-half of a
Common Share. Net proceeds to the Company from the offering were
approximately Cdn. $11,325,000, after deductions of the agents' fees and
expenses of the offering amounting to Cdn. $1,675,000.
[b] On August 1, 2000, the Company closed a public offering of 1,860,382 units,
each consisting of one Common Share and a warrant to purchase one-half of a
Common Share. Net proceeds to the Company from the offering were
approximately Cdn. $3,700,000, after deductions of the agents' fees and
expenses of the offering amounting to approximately Cdn. $300,000.
[c] In 1999, the Corporation entered into an agreement with Bio Products
Laboratory ("BPL"), an agency of the English National Blood Authority,
pursuant to which BPL will manufacture Hemaseel APR and Hemaseel APR (FF)
for the Corporation. The agreement was recently approved by the British
government and a final version of the agreement was signed. The term of the
manufacturing agreement between the Corporation and BPL is five years,
commencing on the date of initial FDA licensing of the product manufactured
by BPL. The Corporation is responsible for the purchase of all equipment
and is required to pay BPL for time and material necessary to redesign and
construct the manufacturing section in BPL's current facility. The
Corporation will use $12 million from the proceeds of the offerings
mentioned in notes 14[a] and [b] for the purchase, over the three-year
period, of equipment to be used by BPL in the manufacturing process, for
leasehold improvements of the facility and in connection with the
validation of the facility by the Corporation and its subsequent approval
by the FDA.
53
<PAGE>
15. RECONCILIATION OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES
The consolidated financial statements are prepared in accordance with Canadian
GAAP. The following summary sets out the material adjustments to the
Corporation's reported net loss, balance sheets and cash flows statements for
the periods and dates indicated which would be made in order to conform with
U.S. GAAP and the accounting principles and practices required by the SEC.
[a] Net loss
<TABLE>
<CAPTION>
Six months ended Fiscal year ended
April 30, October 31,
------------------------- -------------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
------------------------------------------------- ------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net loss under Canadian GAAP (4,920,556) (7,611,780) (16,915,759) (13,655,702) (8,690,128)
Adjustment related to equipment used in
research and development [i] 15,466 147,097 168,759 92,090 93,025
Adjustment related to deferred foreign
exchange gain (loss) [ii] (60,817) 543,701 463,610 (491,020) --
Adjustment related to stock option plan[iii] -- (309,086) (309,086) (231,172) --
------------------------------------------------- ------------ ------------ -------------- -------------- -------------
Net loss and comprehensive loss under
U.S. GAAP (4,965,907) (7,230,068) (16,592,476) (14,285,804) (8,597,103)
================================================= ============ ============ ============== ============== =============
Net loss per share under U.S. GAAP (0.31) (0.60) (1.24) (1.30) (0.78)
================================================= ============ ============ ============== ============== =============
</TABLE>
[b] Balance sheets
<TABLE>
<CAPTION>
Deferred
foreign Share
Capital assets exchange loss capital Deficit
$ $ $ $
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
April 30, 2000
Balance under Canadian GAAP 2,286,353 88,227 64,902,794 (57,392,118)
Adjustment related to equipment used in
research and development [i] (139,195) -- -- (139,195)
Adjustment related to deferred foreign
exchange loss (gain) [ii] -- (88,227) -- (88,227)
Adjustment related to stock option plan [iii] -- -- 540,258 (540,258)
Adjustment related to share issuance cost[iv] -- -- (2,745,979) 2,745,979
---------------------------------------------------------------------------------------------------------------------
Balance under U.S. GAAP 2,147,158 -- 62,697,073 (55,413,819)
=====================================================================================================================
</TABLE>
54
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
15. RECONCILIATION OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES [Cont'd]
<TABLE>
<CAPTION>
Deferred
foreign Share
Capital assets exchange loss capital Deficit
$ $ $ $
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
October 31, 1999
Balance under Canadian GAAP 1,265,756 27,410 64,877,794 (52,471,562)
Adjustment related to equipment used in
research and development [i] (154,661) -- -- (154,661)
Adjustment related to deferred foreign
exchange loss (gain) [ii] -- (27,410) -- (27,410)
Adjustment related to stock option plan [iii] -- -- 540,258 (540,258)
Adjustment related to share issuance cost[iv] -- -- (2,745,979) 2,745,979
----------------------------------------------------------------------------------------------------------------------
Balance under U.S. GAAP 1,111,095 -- 62,672,073 (50,447,912)
======================================================================================================================
October 31, 1998
Balance under Canadian GAAP 1,477,647 491,020 42,265,203 (35,555,803)
Adjustment related to equipment used in
research and development [i] (323,420) -- -- (323,420)
Adjustment related to deferred foreign
exchange loss (gain) [ii] -- (491,020) -- (491,020)
Adjustment related to stock option plan [iii] -- -- 231,172 (231,172)
Adjustment related to share issuance cost[iv] -- -- (2,745,979) 2,745,979
----------------------------------------------------------------------------------------------------------------------
Balance under U.S. GAAP 1,154,227 -- 39,750,396 (33,855,436)
======================================================================================================================
</TABLE>
55
<PAGE>
Haemacure Corporation
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Information as at, and for the six months ended
April 30, 2000 is unaudited)
[In Canadian dollars]
15. RECONCILIATION OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES [Cont'd]
[c] Statements of cash flows
<TABLE>
<CAPTION>
Six months ended Fiscal year ended
April 30, October 31,
------------------------- -------------------------------------------
2000 1999 1999 1998 1997
$ $ $ $ $
------------------------------------------------- ------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities under
U.S. GAAP (5,329,918) (8,422,904) (16,169,050) (11,105,558) (7,021,191)
Cash flows from investing activities under
U.S. GAAP 5,811,308 7,068,377 381,200 5,493,629 (8,529,789)
------------------------------------------------- ------------ ------------ -------------- ------------- --------------
[i] Under Canadian GAAP, research and development equipment is capitalized and amortized over its estimated useful
life. Under U.S. GAAP, costs to acquire such equipment with no alternative use are charged to operations as
incurred. Any proceeds from disposals of such equipment with no alternative use would be included in income at the
time of sale. This adjustment also includes the reversal of amortization on such assets capitalized under Canadian
GAAP.
[ii] Under Canadian GAAP, the unrealized gains or losses arising from the translation of foreign currency monetary
assets or liabilities that have a fixed or ascertainable life extending beyond one year are deferred and amortized
over the term of the related item. Under U.S. GAAP, unrealized gains or losses arising from the translation of the
Corporation's foreign currency long-term debt would be included in income as they arose.
[iii]Under Canadian GAAP, the issuance of stock options in exchange of consulting services rendered by Directors of the
Corporation is recorded without effect on income. Under U.S. GAAP, the fair value of the consulting services
received or the fair value of stock options issued in exchange thereof is expensed when performance under the
consulting service agreement is completed.
[iv] Share issuance cost are recorded against deficit under Canadian GAAP. Such costs would be recorded against share
capital under U.S. GAAP.
</TABLE>
16. comparative figures
Certain figures for the priors periods have been restated to conform with the
basis of presentation adopted in the current period.
56
<PAGE>
Item 19. Financial Statements and Exhibits.
(a) Financial Statements.
The following financial statements of the Company (together with the notes
thereto) are included in Item 17 of this Registration Statement and are
incorporated by reference herein:
1. Consolidated Balance Sheets of the Company at October 31, 1998 and
1999 and at April 30, 2000.
2. Consolidated Statements of Operations for the fiscal years ended
October 31, 1997, 1998 and 1999 and for the six-month periods ended
April 30, 1999 and 2000.
3. Consolidated Statements of Deficit for the fiscal years ended October
31, 1997, 1998 and 1999 and for the six-month periods ended April 30,
1999 and 2000
4. Consolidated Statements of Cash Flows for the fiscal years ended
October 31, 1997, 1998 and 1999 and for the six-month periods ended
April 30, 1999 and 2000
(b) Exhibits.
1.1 Restated Articles of Incorporation of the Registrant, as amended to
date.
1.2 By-laws of the Registrant.
2.1 Haemacure Corporation 1996 Stock Option Plan
2.2 Shareholders Agreement, dated June 20, 1996, among the Societe en
Commandite Fonds D'Investissement en Biotechnologie Biocapital, the
Societe en Commandite Fonds D'Investissement en Biotechnologie
Biocapital II, Multipede Holdings Inc., Fonds de Solidarite des
Travailleurs du Quebec (F.T.Q.), Industries Devma Inc., Patti Menard
and Marc Paquin.
2.3 Second Shareholders Agreement, dated July 31, 1998, among the Societe
en Commandite Fonds D'Investissement en Biotechnologie Biocapital, the
Societe en Commandite Fonds D'Investissement en Biotechnologie
Biocapital II, Multipede Holdings Inc., Fonds de Solidarite des
Travailleurs du Quebec (F.T.Q.), Industries Devma Inc., and the ZLB
Central Laboratory Blood Transfusion Service SRC, as amended to date.
2.4 Third Shareholders Agreement, dated as of June 15, 1999, among
Investissements Biocapital, Multipede Holdings Inc., Fonds de
Solidarite des Travailleurs du Quebec (F.S.T.Q.), Industries Devma
Inc., and the ZLB Central Laboratory Blood Transfusion Service SRC.
3.1 Employment letter agreement, dated September 9, 1999 between the
Registrant and Marc Paquin.
3.2 Employment letter agreement, dated June 30, 1997 between the
Registrant and David Karp.
3.3 Employment letter agreement, dated October 12, 1994, between the
Registrant and Christian Hours.
3.4 Employment letter agreement, dated February 1, 1998 between the
Registrant and Waldron Palmer.
3.5 Employment letter agreement, dated June 30, 1997 between the
Registrant and Elaine Whitmore.
3.6 Lease, dated December 6, 1994, between the Registrant and Slough
Estates Canada Limited, as amended to date.
57
<PAGE>
3.7 Sublease, dated as of August 7, 1998, between the Registrant and
Cryocath Technologies Inc, as amended to date.
3.8 Sublease, dated March 22, 1999, between the Registrant and AT&T Canada
Enterprises Company.
3.9 License Agreement, dated as of April 21, 1997, between the Registrant
and Immuno International AG.
3.10 Manufacturing Agreement, dated as of April 21, 1997, between the
Registrant and Immuno International AG.
3.11 License Agreement, dated as of April 1999, between the registrant and
the ZLB Central Laboratory Blood Transfusion Service, SRC.
3.12 Supply Agreement, dated as of June 15, 1999, , between the registrant
and the ZLB Central Laboratory Blood Transfusion Service, SRC.
3.13 Manufacturing Agreement, dated as of March 2000, between the
Registrant and Bio Products Laboratory.
4.1 Consent of Ernst & Young LLP
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
HAEMACURE CORPORATION
July 17, 2000 /s/ Marc Paquin
-------------------------------------
Marc Paquin
President and Chief Executive Officer
59
<PAGE>
Exhibit Index
1.1 Restated Articles of Incorporation of the Registrant, as amended to date.
1.2 By-laws of the Registrant.
2.1 Haemacure Corporation 1996 Stock Option Plan
2.2 Shareholders Agreement, dated June 20, 1996, among the Societe en
Commandite Fonds D'Investissement en Biotechnologie Biocapital, the
Societe en Commandite Fonds D'Investissement en Biotechnologie Biocapital
II, Multipede Holdings Inc., Fonds de Solidarite des Travailleurs du
Quebec (F.T.Q.), Industries Devma Inc., Patti Menard and Marc Paquin.
2.3 Second Shareholders Agreement, dated July 31, 1998, among the Societe en
Commandite Fonds D'Investissement en Biotechnologie Biocapital, the
Societe en Commandite Fonds D'Investissement en Biotechnologie Biocapital
II, Multipede Holdings Inc., Fonds de Solidarite des Travailleurs du
Quebec (F.T.Q.), Industries Devma Inc., and the ZLB Central Laboratory
Blood Transfusion Service SRC, as amended to date.
2.4 Third Shareholders Agreement, dated as of June 15, 1999, among
Investissements Biocapital, Multipede Holdings Inc., Fonds de Solidarite
des Travailleurs du Quebec (F.S.T.Q.), Industries Devma Inc., and the ZLB
Central Laboratory Blood Transfusion Service SRC.
3.1 Employment letter agreement, dated September 9, 1999 between the
Registrant and Marc Paquin.
3.2 Employment letter agreement, dated June 30, 1997 between the Registrant
and David Karp.
3.3 Employment letter agreement, dated October 12, 1994, between the
Registrant and Christian Hours.
3.4 Employment letter agreement, dated February 1, 1998 between the Registrant
and Waldron Palmer.
3.5 Employment letter agreement, dated June 30, 1997 between the Registrant
and Elaine Whitmore.
3.6 Lease, dated December 6, 1994, between the Registrant and Slough Estates
Canada Limited, as amended to date.
3.7 Sublease, dated as of August 7, 1998, between the Registrant and Cryocath
Technologies Inc, as amended to date.
3.8 Sublease, dated March 22, 1999, between the Registrant and AT&T Canada
Enterprises Company.
3.9 License Agreement, dated as of April 21, 1997, between the Registrant and
Immuno International AG.
3.10 Manufacturing Agreement, dated as of April 21, 1997, between the
Registrant and Immuno International AG.
3.11 License Agreement, dated as of April 1999, between the registrant and the
ZLB Central Laboratory Blood Transfusion Service, SRC.
3.12 Supply Agreement, dated as of June 15, 1999, , between the registrant and
the ZLB Central Laboratory Blood Transfusion Service, SRC.
3.13 Manufacturing Agreement, dated as of March 2000, between the Registrant
and Bio Products Laboratory.
4.1 Consent of Ernst & Young LLP
60
