<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 00021873
BIOSITE DIAGNOSTICS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 330288606
[State or other jurisdiction [I.R.S. Employer Identification No.]
of incorporation or organization]
11030 Roselle Street
San Diego, California 92121
[Address of principal executive offices] [Zip Code]
Registrant's telephone number, including area code: (619) 4554808
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 X No
_________ _________
The number of shares of the Registrant's Common Stock, $0.01 par value,
outstanding at April 30, 1998 was 12,962,972
<PAGE>
BIOSITE DIAGNOSTICS INCORPORATED
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of March 31, 1998
(Unaudited) and December 31, 1997 ............................ 1
Condensed Statements of Operations (Unaudited)
for the three months ended March 31, 1998 and 1997............ 2
Condensed Statements of Cash Flows (Unaudited) for the
three months ended March 31, 1998 and 1997.................... 3
Notes to Condensed Financial Statements (Unaudited)............ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 6
Item 3. Quantitative and Qualitative Disclosure about
Market Risk .......................................... Not Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................. 17
Item 2. Changes in Securities and Use of Proceeds ..................... 17
Item 3. Defaults Upon Senior Securities ....................... Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders ... Not Applicable
Item 5. Other Information ..................................... Not Applicable
Item 6. Exhibits and Reports on Form 8-K .............................. 17
Signatures ............................................................. 18
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOSITE DIAGNOSTICS INCORPORATED
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,309,304 $ 2,330,274
Marketable securities, available-for-sale 38,380,817 36,927,167
Accounts receivable 5,467,095 5,931,164
Inventory 3,085,213 2,169,896
Other current assets 3,914,959 3,677,348
------------ ------------
Total current assets 53,157,388 51,035,849
Property, equipment and leasehold improvements, net 7,716,890 7,216,983
Patents and license rights, net 3,567,226 3,720,035
Other assets 852,587 1,338,341
------------ ------------
$ 65,294,091 $ 63,311,208
------------ ------------
------------ ------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,023,328 $ 1,420,969
Accrued salaries and other 1,083,695 1,107,476
Accrued contract payable 563,812 563,812
Current portion of long-term obligations 1,424,629 1,332,200
------------ ------------
Total current liabilities 6,095,464 4,424,457
Long-term obligations 4,024,352 3,796,975
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding at
March 31, 1998 and December 31, 1997 -- --
Common stock, $.01 par value, 25,000,000 shares authorized;
12,932,943 and 12,864,745 shares issued and outstanding
at March 31, 1998 and December 31, 1997, respectively 129,329 128,647
Additional paid-in capital 54,261,713 53,684,302
Unrealized net gain (loss) on marketable securities,
net of related tax effect (14,516) 5,658
Deferred compensation (290,534) (317,595)
Retained earnings 1,088,283 1,588,764
------------ ------------
Total stockholders' equity 55,174,275 55,089,776
------------ ------------
$ 65,294,091 $ 63,311,208
------------ ------------
------------ ------------
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
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<PAGE>
BIOSITE DIAGNOSTICS INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 7,883,961 $ 7,533,068
Cost of sales 1,755,061 1,624,246
------------ ------------
Gross profit 6,128,900 5,908,822
Operating Expenses:
Research and development 2,964,702 2,737,946
Selling, general and administrative 3,951,424 2,283,220
Defense of patent matters 849,163 20,000
------------ ------------
7,765,289 5,041,166
------------ ------------
Operating income (loss) (1,636,389) 867,656
Other income:
Interest and other income 611,908 323,816
Contract revenue-related party -- 336,007
Contract revenue 300,000 --
------------ ------------
Income (loss) before benefit (provision) for
income taxes (724,481) 1,527,479
Benefit (provision) for income taxes 224,000 (535,000)
------------ ------------
Net income (loss) $ (500,481) $ 992,479
------------ ------------
------------ ------------
Net income (loss) per share
- Basic $ (0.04) $ 0.09
------------ ------------
------------ ------------
- Diluted $ (0.04) $ 0.08
------------ ------------
------------ ------------
Shares used in calculating per share amounts
- Basic 12,906,000 11,113,000
------------ ------------
------------ ------------
- Diluted 12,906,000 11,886,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
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<PAGE>
BIOSITE DIAGNOSTICS INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities $ 1,339,982 $ 232,548
INVESTING ACTIVITIES
Proceeds from sales and maturities of
marketable securities 12,364,404 3,593,626
Purchase of marketable securities (13,851,677) (27,038,767)
Purchase of property, equipment and
leasehold improvements (1,178,922) (1,119,797)
Patents, license rights, deposits and other assets 407,344 136,424
------------ ------------
Net cash used in investing activities (2,258,851) (24,428,514)
FINANCING ACTIVITIES
Proceeds from issuance of financing obligations 661,406 1,169,503
Principal payments under financing obligations (341,600) (365,288)
Proceeds from issuance of convertible debenture 500,000 --
Proceeds from issuance of stock, net 78,093 30,021,316
------------ ------------
Net cash provided by financing activities 897,899 30,825,531
------------ ------------
Increase (decrease) in cash and cash equivalents (20,970) 6,629,565
Cash and cash equivalents at beginning of period 2,330,274 1,609,861
------------ ------------
Cash and cash equivalents at end of period $ 2,309,304 $ 8,239,426
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 103,721 $ 83,493
------------ ------------
------------ ------------
Income taxes paid $ 4,800 $ 278,250
------------ ------------
------------ ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of convertible debenture into
common stock $ 499,992 $ 1,110,904
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
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<PAGE>
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The accompanying financial
statements reflect all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, considered necessary for a fair
presentation of the results for the interim periods presented. Interim
results are not necessarily indicative of results for a full year. The
Company has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations in sales, expenses and net
income or losses will continue.
The financial statements and related disclosures have been prepared
with the presumption that users of the interim financial information have
read or have access to the audited financial statements for the preceding
fiscal year. Accordingly, these financial statements should be read in
conjunction with the audited financial statements and the related notes
thereto contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
("Statement No. 128"). Statement No. 128 applies to entities with publicly
held common stock or potential common stock and is effective for financial
statements issued for periods ending after December 15, 1997. Statement No.
128 replaces APB Opinion 15, Earnings per Share ("EPS"). Statement No. 128
requires dual presentation of basic and diluted earnings per share by
entities with complex capital structures. Basic EPS includes no dilution and
is computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in the earnings of the Company such
as common stock which may be issuable upon exercise of outstanding common
stock options.
Pursuant to the requirements of the Securities and Exchange
Commission, the calculation of the shares used in computing basic and diluted
EPS include the convertible preferred stock which converted into 8,328,847
shares of common stock and an outstanding $1.0 million convertible debenture
and related accrued interest which converted into 92,575 common shares (based
on the initial public offering ("IPO") price of $12.00 per share) upon the
completion of the initial public offering, as if they were converted into
common stock as of the original dates of issuance.
Shares used in calculating basic and diluted earnings per share were as
follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
----------------------------
<S> <C> <C>
Weighted average common shares outstanding 12,906 6,621
Effect of the assumed conversion of preferred shares -- 4,442
Effect of the assumed conversion of convertible debenture -- 50
----------------------------
Shares used in calculating per share amounts - Basic 12,906 11,113
Net effect of dilutive common share equivalents using
the treasury stock method -- 773
----------------------------
Shares used in calculating per share amounts - Diluted 12,906 11,886
----------------------------
</TABLE>
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<PAGE>
3. BALANCE SHEET INFORMATION
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials $1,104,505 $ 779,965
Work in process 1,568,076 1,214,894
Finished goods 412,632 175,037
---------- ----------
$3,085,213 $2,169,896
---------- ----------
---------- ----------
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking
statements that involve risks and uncertainties, including the timely
development, introduction and acceptance of new products, dependence on
others, the impact of competitive products, patent issues, changing market
conditions and the other risks detailed under "Factors that May Affect
Results," and throughout the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. Actual results may differ materially from those
projected. These forward-looking statements represent the Company's judgment
as of the date of the filing of this Form 10-Q and its Form 10-K,
respectively. The Company disclaims any intent or obligation to update these
forward-looking statements.
OVERVIEW
Since the Company's inception in 1988, the Company has been primarily
involved in the research, development, manufacturing and marketing of rapid
diagnostic tests. The Company began commercial sales of the Company's primary
product, Triage Panel for Drugs of Abuse ("Triage DOA Panel"), in February
1992 and currently markets the product worldwide primarily through
distributors supported by a direct sales force. The Company is engaged in
research and development of additional rapid diagnostic products in the
microbiology, cardiology and therapeutic drug monitoring fields.
The Company anticipates that its results of operations may fluctuate
for the foreseeable future due to several factors, including whether and when
new products are successfully developed and introduced by the Company, market
acceptance of current or new products, defense and resolution of patent
matters, regulatory delays, product recalls, manufacturing delays, shipment
problems, seasonal customer demand, the timing of significant orders, changes
in reimbursement policies, competitive pressures on average selling prices
and changes in the mix of products sold. The Company has incurred and will
continue to incur significant costs associated with its defense of patent
matters. The magnitude and timing of such costs are primarily dependent on
unpredictable activities associated with the lawsuits. If the Company's
Triage DOA Panel or Triage Cardiac products were found to infringe patents,
and if an acceptable license was not available, the Company would be
materially and adversely affected. Operating results would also be adversely
affected by a downturn in the market for the Company's current and future
products, if any, order cancellations or order rescheduling. The Company
currently manufactures and ships product shortly after receipt of orders and
anticipates that it will do so in the future. Accordingly, the Company has
not developed a significant backlog and does not anticipate it will develop a
material backlog in the future. Because the Company is continuing to increase
its operating expenses primarily for personnel and activities supporting
newly-introduced products and new product development, the Company's
operating results would be adversely affected if its sales did not
correspondingly increase or if its product development efforts are
unsuccessful or are subject to delays. The Company's limited operating
history makes accurate prediction of future operating results difficult or
impossible. Although the Company has experienced growth in recent years,
there can be no assurance that, in the future, the Company will sustain
revenue growth or remain profitable on a quarterly or annual basis or that
its operating results will be consistent with predictions made by securities
analysts.
RECENT DEVELOPMENTS
NEW PRODUCTS
In January 1998, the Company received final approval from the U.S.
Food and Drug Administration ("FDA") to market the Triage Cardiac Panel and
the Triage Meter in the United States (together called "Triage Cardiac
System"). The Triage Cardiac System may aid in the diagnosis of Acute
Myocardial Infarction ("AMI") and provide physicians with an enhanced ability
to make treatment decisions in a timely manner. Used in conjunction with the
Triage Meter, the Triage Cardiac Panel is a rapid diagnostic product that
quantitatively measures, in a single test device, the level of CK-MB,
troponin I and myoglobin from a whole-blood sample. In March 1998, the
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<PAGE>
Company received final clearance from the FDA to market the Triage C.
DIFFICILE Panel, a new rapid test designed to identify CLOSTRIDIUM DIFFICILE,
an opportunistic pathogen of the intestinal tract that may thrive as a result
of broad spectrum antibiotic treatment. The Company began selling the Triage
C. DIFFICILE Panel in March.
RESEARCH AND DEVELOPMENT
The Company successfully completed feasibility studies for the
Triage Neoral System under its antibody license agreement with Novartis. As a
result of this milestone achievement, Novartis invested, in January 1998, an
additional $500,000 in Biosite in exchange for a convertible debenture. The
convertible debenture was immediately converted into 41,666 shares of common
stock of the Company based on the initial public offering price of $12.00 per
share. Additionally, the Company and Novartis entered into an agreement to
expand the scope of the collaborative development of the Triage Neoral
System. The expansion of the collaboration may result in payments to Biosite
upon attainment of certain milestones
PRODUCT DISTRIBUTION AGREEMENTS
With the potential launch of new products from the Company's
development pipeline, the Company is evaluating distribution alternatives for
its current products and potential new products. As a result, the Company has
increased the size of its sales force in the U.S. and negotiated a new
long-term distribution agreement with the Fisher HealthCare Division
("Fisher") of the Fisher Scientific Company, the Company's distributor of the
Triage DOA Panel products in the U.S. hospital market segment. This long-term
distribution agreement expanded Fisher's role to include the distribution of
the Triage Cardiac System and Triage C. DIFFICILE Panel and certain of the
potential new products in the U.S. medical market.
As a result of a decision by Merck to refocus away from certain
aspects of the human diagnostic business, the Company terminated the
development and distribution agreement for the Triage Cardiac System with
Merck in December 1997 and terminated the distribution agreement with Merck
for the Triage DOA Panel product line, effective no earlier than December
1998. The Company is continuing to evaluate product distribution alternatives
for the international markets, including, among other things, alliances with
other distribution partners and the establishment of a direct sales force in
certain European countries.
The Company anticipates that it may, if appropriate, enter into
additional distribution agreements with respect to its current products,
products currently under development and products that it may develop in the
future, if any of such products receive the requisite regulatory clearance or
approvals.
There can be no assurance that the Company will be able to enter into
these or other distribution agreements on acceptable terms, if at all. If the
Company elects to distribute products directly, there can be no assurance
that the Company's direct sales, marketing and distribution efforts would be
successful. A failure to enter into acceptable distribution agreements or a
failure of the Company to successfully market its products would have a
material and adverse effect on the Company.
LITIGATION
In September 1997, the Company was named in a lawsuit filed by
Behring Diagnostics GmbH and Behring Diagnostics, Inc. ("Behring") alleging
that the Company's Triage DOA Panel products infringe a patent held by the
plaintiffs, which expires in August 2000. The plaintiffs seek to recover
damages of an unspecified amount and to enjoin future sales of the Triage DOA
Panel products by the Company. The Company has reviewed the cited patent and
believes it has meritorious defenses. The Company intends to vigorously
defend its position, and has incurred and will incur significant legal costs in
executing its defense. In January 1998, the Company amended its answer to the
claims of the Behring lawsuit to include antitrust counterclaims against
Behring. The Company seeks an injunction requiring Dade International Inc. to
divest itself of its recent acquisition of Behring Diagnostics, Inc. and
Behring Diagnostics GmbH, treble monetary damages and attorney fees. If the
Company's Triage DOA Panel products were found to infringe such patents, and
if an acceptable license was not available, the Company would be materially
and adversely affected. The Company's Triage Meter product platform,
including the Triage Cardiac System is not the subject of the patent
infringement claims as filed. Spectral Diagnostics, Inc. ("Spectral") filed
suit
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<PAGE>
against the Company on April 28, 1998, alleging that the Company's Triage
Cardiac Panel infringes U.S. patent 5,744,358 which was issued on the date
the suit was filed. Spectral seeks a preliminary and permanent injunction and
damages. The Company is currently reviewing this patent matter. At this
preliminary stage, the Company believes it has meritorious defenses to the
suit and intends to vigorously defend its position.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of net
sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
-------- --------
<S> <C> <C>
Net sales 100% 100%
Cost of sales 22 22
---- ----
Gross profit 78 78
Operating Expenses:
Research and development 38 36
Selling, general and administrative 50 30
Defense of patent matters 11 --
---- ----
Total operating expenses 99 66
Income (loss) from operations (21) 12
Interest and other income, net 12 8
---- ----
Income (loss) before benefit (provision) for income taxes (9) 20
Benefit (provision) for income taxes 3 (7)
---- ----
Net income (loss) (6)% 13%
---- ----
---- ----
</TABLE>
NET SALES. Net sales increased 5% to $7.9 million for the three months
ended March 31, 1998 from $7.5 million for the three months ended March 31,
1997. The increase in net sales, as compared to the first quarter of 1997,
was primarily attributable to a greater proportion of products sold during
the first quarter of 1998 consisting of higher-priced Triage DOA products
than the mix of products being sold in the first quarter of 1997. During the
first quarter of 1997, a greater proportion of the net sales represented
lower-priced products sold internationally. The Company believes that the
overall growth in sales of the Triage DOA Panel products is slowing as the
available U.S. market becomes saturated and competitive pressures become more
prominent in a maturing market. Sales of the Triage C. DIFFICILE Panel began
in March 1998 and were a very small percentage of the total revenues for the
quarter.
GROSS PROFIT. Gross profit increased 4% to $6.1 million for the first
quarter of 1998 from $5.9 million for the same period in 1997. Gross margins
were comparable with those of the first quarter of 1997 at 78%. The Company
expects that gross margins will decrease as a result of competitive pricing
pressures and the introduction of new products, including the Triage C.
DIFFICILE Panel and Triage Cardiac System. Such new products are expected to
realize lower gross margins during the early stages of their
commercialization as incremental manufacturing costs are spread over smaller
sales volumes.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 8% to $3.0 million for the three months ended March 31, 1998 from
$2.7 million for the same period in 1997. This increase resulted primarily
from the expansion of the Company's research and development and
manufacturing scale-up efforts on its cardiac, microbiology, and therapeutic
drug monitoring products under development. During the first quarter of 1998,
the Company received FDA approval to market the Triage Cardiac System and the
Triage C. DIFFICILE Panel. The Company continued to expend significant
efforts on activities related to manufacturing scale-up and product
optimization for these two products, while increasing research and
development activities related to other products under development. The
Company expects that its level of investment in research and development
expenses will continue to increase in 1998, as compared to 1997. The
increased expenditures are expected to primarily relate to preclinical and
clinical studies, hiring additional personnel, product development efforts
and manufacturing scale-up activities for other potential products. The
timing of such expenditures and their magnitude are primarily dependent
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<PAGE>
on the progress and success of the research and development, clinical studies
and the timing of potential product launches. With the FDA approval of the
Triage Cardiac System, manufacturing scale-up activities related to this
product continued into the second quarter of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 73% to $4.0 million for the first quarter
of 1998 from $2.3 million for the first quarter of 1997. The 1998 increases
were primarily a result of the costs of expanding the Company's sales force,
increased marketing activities in preparation of the introduction of new
products and the expansion of the administrative functions to support the
Company's expanded operations and public reporting responsibilities. During
the first quarter of 1998, the Company expended significant efforts in
preparation of the Triage Cardiac System and Triage C. DIFFICILE Panel
product launches, including expansion of its sales force and marketing and
new product awareness activities. The Company expects selling, general and
administrative costs in 1998 to remain significantly higher than in 1997, as
the Company continues to expand its operations and in anticipation of
potential changes in its operations resulting from, among other things, the
introduction of new products and the Company's obligations as a public
reporting entity. The timing of such increased expenditures and their
magnitude are primarily dependent on the commercial success and sales growth
of the Triage C. DIFFICILE Panel and Triage Cardiac System products, the
development of other potential new products and the timing of their
commercialization, and international distribution strategies.
DEFENSE OF PATENT MATTERS. Legal costs associated with the Behring
litigation and other patent disputes increased to $849,000 for the first
quarter of 1998 from $20,000 for the same period in 1997. The Company intends
to vigorously defend itself in these matters and expects that total legal
costs associated in executing its defenses for 1998 will be substantially
higher than in 1997 and may continue to be significant in 1999.
INTEREST AND OTHER INCOME. Interest income increased 83% to $595,000 for
the three months ended March 31, 1998 from $324,000 for the same period in
1997. The increase resulted primarily from the higher average balance of cash
and marketable securities during the first quarter of 1998 as compared to the
same period in 1997. In February 1997, the Company received net proceeds from
its initial public offering of approximately $29.8 million. Contract revenues
decreased by $36,000 as contract revenues in the first quarter of 1997
consisted of $336,000 from Merck related to the development of the Triage
Cardiac System while contract revenues recognized in the first quarter of
1998 consisted of $300,000 from Novartis related to the development of the
Triage Neoral System.
BENEFIT (PROVISION) FOR INCOME TAXES. As a result of the pre-tax loss
recorded in the first quarter of 1998, the Company recorded a benefit for
income taxes of $224,000 while for the same period in 1997, the Company
recorded a provision for income taxes of $535,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations principally through a public
offering, private placements of equity securities, revenues from operations,
debt and capital lease financing and interest income earned on the net
proceeds from the public offering and private placements. Since its
inception, the Company has raised over $21.7 million in net proceeds from the
private placement of equity securities and $1.0 million from the issuance of
convertible debentures. In February 1997, the Company raised approximately
$29.8 million in net proceeds from its initial public offering of 2,760,000
shares of common stock. At March 31, 1998, the Company had cash, cash
equivalents, and marketable securities of approximately $40.7 million
compared to $39.3 million at December 31, 1997.
The increase in cash, cash equivalents, and marketable securities during
the three months ended March 31, 1998 is largely attributable to cash
generated from operating activities of $1.3 million for the quarter as
compared to net cash generated from operating activities of $178,000 for the
quarter ended March 31, 1997. Significant sources of cash for the quarter
ended March 31, 1998 included proceeds from the issuance of a convertible
debenture to Novartis for $500,000 (which was immediately converted into
common stock) and the receipt of $661,000 in proceeds from equipment
financing. Significant uses of cash for the quarter ended March 31, 1998
included expenditures of $1.2 million for capital equipment and leasehold
improvements and principal payments under equipment financing obligations of
$342,000.
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<PAGE>
The Company's primary short-term needs for capital, which are subject to
change, are for expansion of its direct sales force and marketing programs
related to new products, potential procurement and enforcement of patents,
defense and resolution of patent matters, including potential licensing of
certain technologies patented by others, expansion of its manufacturing
capacity for potential new products, and the continued advancement of
research and development efforts. The Company utilizes credit arrangements
with financial institutions to finance the purchase of capital equipment. As
of May 8, 1998, the Company had equipment financing lines of credit with
financial institutions totaling $6.0 million, all of which was available for
future borrowing. The $4.0 million and $2.0 million lines of credit expire on
June 1, 1999 and March 31, 1999, respectively. Additionally, the Company
utilizes cash generated from operating activities to meet its capital
requirements.
The Company is negotiating with various parties for the leasing of a new
campus corporate facility to be constructed in San Diego, which would be
adequate for its foreseeable future needs. The Company does not anticipate
relocating its operations to the new facility prior to January 2000. This may
result in an increase in rent upon occupancy.
The Company believes that its available cash, cash from operations and
funds from existing credit arrangements will be sufficient to satisfy its
funding needs for at least the next 24 months. Thereafter, if cash generated
from operations is insufficient to satisfy the Company's working capital and
capital expenditure requirements, the Company may be required to sell
additional equity or debt securities or obtain additional credit facilities.
There can be no assurance that such additional capital, if needed, will be
available on satisfactory terms, if at all. Furthermore, any additional
equity financing may be dilutive to stockholders, and debt financing, if
available, may include restrictive covenants. The Company's future liquidity
and capital funding requirements will depend on numerous factors, including
the extent to which the Company's new products and products under development
are successfully developed, gain market acceptance and become and remain
competitive, the timing and results of clinical studies and regulatory
actions regarding the Company's potential products, the costs and timing of
expansion of sales, marketing and manufacturing activities, facilities
expansion needs, and the costs and timing associated with the enforcement,
defense and resolution of patent matters, including potential licensing of
certain technologies patented by others. The failure by the Company to raise
capital on acceptable terms when needed could have a material adverse effect
on the Company's business, financial condition and results of operations.
IMPACT OF YEAR 2000 ISSUE
The Company is currently developing a plan to ensure its system and
software infrastructure will function properly with respect to the dates in
the year 2000 and thereafter. Key financial, information and operational
systems will be assessed and plans will be developed to address required
systems modifications. The Company will coordinate these activities with
suppliers, distributors, financial institutions and others with whom it does
business. The Company believes that, with modifications to existing software
and conversions to new software, the Year 2000 Issue will not pose
significant operational problems for its computer systems and will not have a
material adverse effect on the Company's business. However, if such
modifications and conversions are not made or are not completed in a timely
fashion, the Year 2000 Issue could have a material impact on the operations
of the Company. Additionally, there is no guarantee that the systems of other
companies on which Biosite's systems rely will be timely converted and would
not have an adverse effect on the Company's systems. For example, to the
extent that customers would be unable to order products or pay invoices or
suppliers would be unable to manufacture or deliver product, the Company's
operations would be affected.
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<PAGE>
FACTORS THAT MAY AFFECT RESULTS
This report includes certain forward-looking statements about the Company's
business and results of operations which are subject to risks and
uncertainties that could cause the Company's actual results to vary
materially from that indicated from such forward-looking statements. Factors
that could cause or contribute to such differences include those discussed
below, as well as those discussed elsewhere herein and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. The factors
discussed below should be read in conjunction with the risk factors discussed
in the Company's Annual Report on Form 10-K, which are incorporated by
reference.
- - DEPENDENCE ON DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS FOR REVENUE
GROWTH AND PROFITABILITY
Except for the Triage DOA Panel, Triage C. DIFFICILE Panel and Triage
Cardiac System, all of the Company's products are still under development,
and there can be no assurance that such products will be successfully
developed or commercialized on a timely basis, if at all.
The Company believes that its revenue growth and profitability will
substantially depend upon its ability to complete development of and
successfully introduce these new products. In addition, the successful
development of some of these new products will depend on the development of
new technologies. The Company will be required to undertake time-consuming
and costly development activities and seek regulatory approval for these new
products. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these new products, that regulatory clearance
or approval of any new products will be granted by the U.S. Food and Drug
Administration or foreign regulatory authorities on a timely basis, if at
all, or that the new products will be successfully commercialized. The
Company has limited resources to devote to the development of all its
potential products and consequently a delay in the development of one product
may delay the development of other products. In order to successfully
commercialize any new products, the Company will be required to establish and
maintain reliable, cost-efficient, high-volume manufacturing capacity and a
cost effective sales force and administrative infrastructure and an effective
product distribution system for such products. If the Company is unable, for
technological or other reasons, to complete the development, introduction or
scale-up of manufacturing for any new product or if any new product is not
approved for marketing or does not achieve a significant level of market
acceptance, the Company's business, financial condition and results of
operations would be materially and adversely affected.
- - LIMITED HISTORY OF PROFITABILITY; POTENTIAL QUARTERLY FLUCTUATIONS IN FUTURE
OPERATING RESULTS
The Company first achieved profitability in fiscal 1994 and prior to
that time incurred significant operating losses. The Company experienced
operating profits on a quarterly basis in 1995. However, the Company incurred
an operating loss for the first quarter of 1996 and then returned to
operating profitability for the remaining quarters of 1996 and into 1997. The
Company incurred an operating loss for the fourth quarter of 1997 and the
first quarter of 1998. There can be no assurance that the Company will return
to profitability on a quarterly or annual basis in the future. The Company
believes that future operating results will be subject to quarterly
fluctuations due to a variety of factors, including whether and when new
products are successfully developed and introduced by the Company, market
acceptance of current or new products, regulatory delays, product recalls,
manufacturing delays, shipment problems, seasonal customer demand, the timing
of significant orders, changes in reimbursement policies, competitive
pressures on average selling prices, changes in the mix of products sold and
defense and resolution of patent matters. The Company has and will continue
to incur significant costs associated with its defense of patent matters. The
magnitude and timing of such costs are primarily dependent on unpredictable
activities associated with the Behring and Spectral lawsuits. If the
Company's Triage DOA Panel or Triage Cardiac products were found to infringe
such patents, and if an acceptable license was not available, the Company
would be materially and adversely affected. Operating results would also be
adversely affected by a downturn in the market for the Company's current and
future products, if there are any, order cancellations or order rescheduling.
Because the Company is continuing to increase its operating expenses for
personnel, including the expansion of its sales force, manufacturing scale-up
costs and new product development, the Company's operating results would be
adversely affected if its sales did not correspondingly increase or if its
product development efforts are unsuccessful or subject to delays. The
Company's limited operating history makes accurate prediction of future
operating results difficult
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or impossible. Although the Company has experienced growth in recent years,
there can be no assurance that, in the future, the Company will sustain
revenue growth or remain profitable on a quarterly or annual basis or that
its growth will be consistent with predictions made by securities analysts.
- - NEAR-TERM DEPENDENCE OF THE COMPANY ON THE TRIAGE DOA PANEL PRODUCTS
Sales of the Triage DOA Panel products have to date accounted for almost
all of the Company's sales. The Company expects its revenue and profitability
will substantially depend on the sale of the Triage DOA Panel products for
the foreseeable future. A reduction in demand for the Triage DOA Panel
products would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company believes that
growth in sales of the Triage DOA Panel products is slowing as the available
U.S. market becomes saturated. Competitive pressures could also erode the
Company's profit margins for the Triage DOA Panel products. The Company's
continued growth will depend on its ability to successfully develop and
commercialize other products, including the Triage C. DIFFICILE Panel, and
Triage Cardiac System, and to gain additional acceptance of the Triage DOA
Panel products in new market segments, such as occupational health.
The Company has received FDA approval to market the Triage C. DIFFICILE
Panel and the Triage Cardiac System. Sales of the Triage C. DIFFICILE Panel
began in March 1998 and were a very small percentage of the total revenues
for the quarter.
There can be no assurance that the Company will be able to successfully
develop and commercialize new products, including the Triage C. DIFFICILE
Panel, and Triage Cardiac System, or that the Company will be able to
maintain or expand its share of the drug-testing market. Technological change
or the development of new or improved diagnostic technologies could result in
the Company's products becoming obsolete or noncompetitive.
- - DEPENDENCE ON KEY DISTRIBUTORS; LIMITED DIRECT SALES EXPERIENCE
The Company relies upon key distributor alliances, such as with Fisher,
to distribute the Triage DOA Panel products, Triage C. DIFFICILE Panel and
Triage Cardiac System and may rely upon distributors to distribute products
under development. The Triage DOA Panel products is currently marketed
pursuant to exclusive distribution agreements in the U.S. hospital market
segment by Fisher (which accounted for 80% of product sales in 1997) and in
certain countries in Europe, Latin America, the Middle East, Asia and Africa
by Merck. The loss or termination of either of these distributors could have
a material adverse effect on the Company's sales unless suitable alternatives
can be arranged.
As a result of a decision by Merck to refocus away from certain aspects
of the human diagnostic business, the Company terminated the development and
distribution agreement for the Triage Cardiac Panel with Merck and effective
no earlier than December 1998, the Company terminated its agreement with
Merck regarding international distribution rights for the Triage DOA Panel
product line. The Company is continuing to evaluate product distribution
alternatives for the international markets, including, among other things,
alliances with other distribution partners and the establishment of a direct
sales force in certain European countries.
With the potential launch of new products from the Company's development
pipeline, the Company has increased the size of its sales force in the U.S.
and negotiated a new long-term distribution agreement with Fisher. This
long-term distribution agreement expands Fisher's role to include the
distribution of the Triage Cardiac System, the Triage C. DIFFICILE Panel and
certain of the potential new products in the U.S. medical market.
There can be no assurance that the Company will be able to enter into
these or other distribution agreements on acceptable terms, if at all. If the
Company elects to distribute products directly, there can be no assurance
that the Company's direct sales, marketing and distribution efforts would be
successful. A failure to enter into acceptable distribution agreements or a
failure of the Company to successfully market its products would have a
material and adverse effect on the Company.
If any of the Company's distribution or marketing agreements are
terminated and the Company is unable to enter into replacement agreements or
if the Company elects to distribute new products directly, the Company would
have
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to invest in additional sales and marketing resources, including additional
field sales personnel, which would significantly increase future sales and
marketing expenses. The Company currently has limited experience in direct
sales, marketing and distribution of its products. There can be no assurance
that the Company's direct sales, marketing and distribution efforts would be
successful or that revenue from such efforts would exceed expenses. Further,
there can be no assurance that Biosite would be able to enter into new
distribution or marketing agreements on satisfactory terms, if at all, or if
the Company elects to distribute potential new products directly that the
Company's direct sales, marketing and distribution efforts would be
successful.
The Company anticipates that it may, if appropriate, enter into
additional distribution agreements with respect to its products currently
under development and products that it develops in the future, if any of such
products receive the requisite regulatory clearance or approvals. There can
be no assurance that the Company will be able to enter into such agreements
on acceptable terms, if at all.
- - INTENSELY COMPETITIVE INDUSTRY; RAPID TECHNOLOGICAL CHANGE
The market in which the Company competes is intensely competitive.
Biosite's competitors include health care companies that manufacture
laboratory-based tests and analyzers, as well as clinical reference
laboratories. Currently, the majority of diagnostic tests used by physicians
and other health care providers are performed by independent clinical
reference laboratories and hospital-based laboratories. The Company expects
that these laboratories will compete vigorously to maintain their dominance
of the testing market. In order to achieve market acceptance for its
products, the Company will be required to demonstrate that its products
provide cost-effective and time saving alternatives to tests performed by
clinical reference laboratories or traditional hospital-based laboratory
procedures. This will require physicians to change their established means of
having such tests performed. There can be no assurance that the Company's
products will be able to compete with the testing services provided by
traditional laboratory services. In addition, companies with a significant
presence in the diagnostic market, such as Abbott Laboratories, Roche
Boehringer Mannheim Corporation, Chiron Diagnostics, Ortho Clinical
Diagnostics, a division of Johnson & Johnson, and DADE Behring Marburg Gmbh,
have developed or are developing diagnostic products that do or will compete
with the Company's products. These competitors have substantially greater
financial, technical, research and other resources and larger, more
established marketing, sales, distribution and service organizations than the
Company. Moreover, such competitors offer broader product lines and have
greater name recognition than the Company, and offer discounts as a
competitive tactic. In addition, several smaller companies are currently
making or developing products that compete with or will compete with those of
the Company. There can be no assurance that the Company's competitors will
not succeed in developing or marketing technologies or products that are more
effective or commercially attractive than the Company's current or future
products, or that would render the Company's technologies and products
obsolete. Moreover, there can be no assurance that the Company will have the
financial resources, technical expertise or marketing, distribution or
support capabilities to compete successfully in the future. In addition,
there can be no assurance that competitors, many of which have made
substantial investments in competing technologies that may be more effective
than the Company's technologies, will not prevent, limit or interfere with
the Company's ability to make, use or sell its products either in the United
States or in international markets.
- - UNCERTAINTY OF PATENT AND PROPRIETARY TECHNOLOGY PROTECTION; POTENTIAL
INABILITY TO LICENSE TECHNOLOGY FROM THIRD PARTIES
The Company's ability to compete effectively will depend in part on its
ability to develop and maintain proprietary aspects of its technology, and to
operate without infringing the proprietary rights of others or to obtain
licenses to such proprietary rights. Biosite has U.S. and foreign issued
patents and is currently prosecuting patent applications in the United States
and with certain foreign patent offices. There can be no assurance that any
of the Company's pending patent applications will result in the issuance of
any patents, that the Company's patent applications will have priority over
others' applications, or that, if issued, any of the Company's patents will
offer protection against competitors with similar technology. There can be no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented in the future or that the rights created
thereunder will provide a competitive advantage.
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<PAGE>
The Triage DOA Panel, Triage C. DIFFICILE Panel, Triage Cardiac System
and products under development may incorporate technologies that are the
subject of patents issued to, and patent applications filed by, others. The
Company has obtained licenses for certain technologies and is negotiating to
obtain licenses for technologies patented by others. However, there can be no
assurance that the Company will be able to obtain licenses for technology
patented by others on commercially reasonable terms, if at all, that it will
be able to develop alternative approaches if it is unable to obtain licenses
or that the Company's current and future licenses will be adequate for the
operation of Biosite's business. The failure to obtain necessary licenses or
to identify and implement alternative approaches would prevent the Company
from commercializing certain of its products under development and would have
a material adverse effect on the Company's business, financial condition and
results of operations.
Litigation may be necessary to enforce any patents issued to the
Company, to protect trade secrets or know-how owned by the Company or to
determine the enforceability, scope and validity of the proprietary rights of
others. In March 1996, the Company settled a potential patent infringement
claim by obtaining a license to the contested patent in return for a one-time
payment of $2.2 million. In September 1996, the Company settled a patent
infringement claim filed by Abbott Laboratories and obtained a license to the
contested patent in return for the payment of $5.5 million and the agreement
to pay certain royalties. In September 1997, the Company was named in a
lawsuit filed by Behring Diagnostics GmbH and Behring Diagnostics, Inc.
("Behring") alleging that the Company's Triage DOA Panel products infringe a
patent held by the plaintiffs, which expires in August, 2000. The plaintiffs
seek to recover damages of an unspecified amount and to enjoin future sales
of the Triage DOA Panel products by the Company. The Company has reviewed the
cited patent and believes it has meritorious defenses. The Company intends to
vigorously defend its position, and has and will incur significant legal
costs in executing its defense. In January 1998, the Company amended its
answer to the claims of the Behring lawsuit to include antitrust
counterclaims against Behring. The Company has sought an injunction requiring
Dade International Inc. to divest itself of its recent acquisition of Behring
Diagnostics, Inc. and Behring Diagnostics GmbH, treble monetary damages and
attorney fees. If the Company's Triage DOA Panel products were found to
infringe such patent, and if an acceptable license was not available, the
Company would be materially and adversely affected. The Company's Triage
Meter platform, including the Triage Cardiac System is not the subject of the
patent infringement claims as filed. Spectral Diagnostics, Inc. ("Spectral")
filed suit against the Company on April 28, 1998, alleging that the Company's
Triage Cardiac Panel infringes U.S. patent 5,744,358 which was issued on the
date the suit was filed. Spectral seeks a preliminary and permanent
injunction and damages. The Company is currently reviewing this patent
matter. At this preliminary stage, the Company believes it has meritorious
defenses to the suit and intends to vigorously defend its position. The
Company may become subject to additional patent infringement claims and
litigation or interference proceedings conducted in the U.S. Patent and
Trademark Office ("USPTO") to determine the priority of inventions.
The Company also has received correspondence from other parties calling
to the Company's attention the existence of certain patents for which they
believe Biosite's products and products under development may incorporate
technologies that are the subject of such patents. Such correspondence has in
certain instances included offers to negotiate the licensing of the patented
technologies. There can be no assurance that such matters will not result in
litigation to determine the enforceability, scope, and validity of the
patents. Litigation, if initiated, could seek to recover damages as a result
of any sales of the products and to enjoin further sales of such products.
The Behring and Spectral litigation and any other litigation that could
be brought forth by other parties may result in material expenses to the
Company and significant diversion of effort by the Company's technical and
management personnel, regardless of the outcome. The outcome of litigation is
inherently uncertain and there can be no assurance that a court would not
find the third-party claims valid and that the Company had no successful
defense to such claims. An adverse outcome in litigation or the failure to
obtain a necessary license could subject the Company to significant liability
and could prevent the Company from selling the Triage DOA Panel, Triage C.
DIFFICILE Panel or the Triage Cardiac System, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company also relies upon trade secrets, technical know-how and
continuing invention to develop and maintain its competitive position. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or
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<PAGE>
disclose such technology, or that the Company can meaningfully protect its
trade secrets, or that the Company will be capable of protecting its rights
to its trade secrets.
Others may have filed and in the future are likely to file patent
applications that are similar or identical to those of the Company. To
determine the priority of inventions, the Company may have to participate in
interference proceedings declared by the USPTO that could result in
substantial cost to the Company. No assurance can be given that any patent
application of another will not have priority over patent applications filed
by the Company.
The commercial success of the Company also depends in part on the
Company neither infringing patents or proprietary rights of third parties nor
breaching any licenses that may relate to the Company's technologies and
products. The Company is aware of several third-party patents that may relate
to the Company's technology. There can be no assurance that the Company does
not or will not infringe these patents, or other patents or proprietary
rights of third parties. In addition, the Company has received and may in the
future receive notices claiming infringement from third parties as well as
invitations to take licenses under third party patents. Any legal action
against the Company or its collaborative partners claiming damages and
seeking to enjoin commercial activities relating to the Company's products
and processes affected by third party rights, in addition to subjecting the
Company to potential liability for damages, may require the Company or its
collaborative partner to obtain a license in order to continue to manufacture
or market the affected products and processes. There can be no assurance that
the Company or its collaborative partners would prevail in any such action or
that any license (including licenses proposed by third parties) required
under any such patent would be made available on commercially acceptable
terms, if at all. There are a significant number of U.S. and foreign patents
and patent applications in the Company's areas of interest, and the Company
believes that there may be significant litigation in the industry regarding
patent and other intellectual property rights. Litigation concerning patent
and other intellectual property rights could consume a substantial portion of
the Company's managerial and financial resources, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
- - LIMITED MANUFACTURING EXPERIENCE; POTENTIAL INABILITY TO SCALE-UP
MANUFACTURING
To be successful, the Company must manufacture its current and future
products in compliance with regulatory requirements, in sufficient quantities
and on a timely basis, while maintaining product quality and acceptable
manufacturing costs. The Company has limited experience manufacturing
products other than the Triage DOA Panel products. To achieve the level of
production necessary for commercialization of Biosite's products under
development, the Company will need to scale-up current manufacturing
capabilities. Significant additional work will be required for the scaling-up
of each potential Biosite product prior to commercialization, and there can
be no assurance that such work can be completed successfully. In addition,
although the Company expects that certain of its products under development
will share certain production attributes with the Triage DOA Panel, Triage C.
DIFFICILE Panel or Triage Cardiac System, production of such products may
require the development of new manufacturing technologies and expertise.
There can be no assurance that such products can be manufactured by the
Company or any other party at a cost or in quantities to make such products
commercially viable. If the Company is unable to develop or contract for
manufacturing capabilities on acceptable terms for its products under
development, the Company's ability to conduct preclinical and clinical
testing will be adversely affected, resulting in the delay of submission of
products for regulatory clearance or approval and initiation of new
development programs, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company anticipates making significant expenditures to develop high
volume manufacturing capabilities required for each of its products currently
under development, if such products are successfully developed. There can be
no assurance that manufacturing and quality control problems will not arise
as the Company attempts to scale-up its manufacturing or that such scale-up
can be achieved in a timely manner or at a commercially reasonable cost, if
at all.
The Company's manufacturing facilities and those of its contract
manufacturers are or will be subject to periodic regulatory inspections by
the FDA and other federal and state regulatory agencies and such facilities
are subject to QSR requirements of the FDA. There can be no assurance that
the Company or its contractors will satisfy such
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<PAGE>
regulatory requirements, and any failure to do so would have a material
adverse effect on the Company's business, financial condition and results of
operations.
- - POSSIBLE FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
While the Company believes that its available cash, cash from operations
and funds from existing credit arrangements will be sufficient to satisfy its
funding needs for at least the next 24 months, there can be no assurance the
Company will not require additional capital. The Company's future liquidity
and capital funding requirements will depend on numerous factors, including
the extent to which the Company's products under development are successfully
developed and gain market acceptance, the timing of regulatory actions
regarding the Company's potential products, the costs and timing of expansion
of sales, marketing and manufacturing activities, facilities expansion needs,
procurement and enforcement of patents important to the Company's business,
defense and resolution of patent matters, results of clinical investigations
and competition. There can be no assurance that such additional capital, if
needed, will be available on terms acceptable to the Company, if at all.
Certain funding arrangements may require the Company to relinquish its rights
to certain of its technologies, products or marketing territories.
Furthermore, any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may include restrictive covenants. The
failure by the Company to raise capital on acceptable terms when needed could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
- - IMPACT OF YEAR 2000 ISSUE
The Company is currently developing a plan to ensure its system and
software infrastructure will function properly with respect to the dates in
the year 2000 and thereafter. Key financial, information and operational
systems will be assessed and plans will be developed to address required
systems modifications. The Company will coordinate these activities with
suppliers, distributors, financial institutions and others with whom it does
business. The Company believes that, with modifications to existing software
and conversions to new software, the Year 2000 Issue will not pose
significant operational problems for its computer systems and will not have a
material adverse effect on the Company's business. However, if such
modifications and conversions are not made or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Company. Additionally, there is no guarantee that the systems of other
companies on which Biosite's systems rely will be timely converted and would
not have an adverse effect on the Company's systems. For example, to the
extent that customers would be unable to order products or pay invoices or
suppliers would be unable to manufacture or deliver product, the Company's
operations would be affected.
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<PAGE>
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS
In September 1997, the Company was named in a lawsuit filed by
Behring Diagnostics GmbH and Behring Diagnostics, Inc. ("Behring") alleging
that the Company's Triage DOA Panel products infringe a patent held by the
plaintiffs, which expires in August, 2000. The plaintiffs seek to recover
damages of an unspecified amount and to enjoin future sales of the Triage DOA
Panel products by the Company. The Company has reviewed the cited patent and
believes it has meritorious defenses. The Company intends to vigorously
defend its position, and may incur significant legal costs in executing its
defense. In January 1998, the Company amended its answer to the claims of the
Behring lawsuit to include antitrust counterclaims against Behring. The
Company seeks an injunction requiring Dade International Inc. to divest
itself of its recent acquisition of Behring Diagnostics, Inc. and Behring
Diagnostics GmbH, treble monetary damages and attorney fees. If the Company's
Triage DOA Panel products were found to infringe such patents, and if an
acceptable license was not available, the Company would be materially and
adversely affected. The Company's Triage Meter platform, including the Triage
Cardiac System is not the subject of the patent infringement claims as filed.
Spectral Diagnostics, Inc. ("Spectral") filed suit against the Company
on April 28, 1998, alleging that the Company's Triage Cardiac Panel infringes
U.S. patent 5,744,358 which was issued on the date the suit was filed. Spectral
seeks a preliminary and permanent injunction and damages. The Company is
currently reviewing this patent matter. At this preliminary stage, the Company
believes it has meritorious defenses to the suit and intends to vigorously
defend its position.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As a result of milestone achievements under its antibody license
agreement with Novartis, the Company, in January 1998, sold a convertible
debenture to Novartis in return for $500,000. The convertible debenture was
immediately converted by Novartis into 41,666 shares of Common Stock of the
Company. The Company relied upon the exemption provided by Section 4(2) of
the Securities Act of 1933, as amended, in making this sale because of the
nature of the transaction and the purchaser.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.28(++) Distributorship Agreement between the Company and
Fisher Scientific Company L.L.C. dated April 3, 1998
27.1 Financial Data Schedule
(++) Confidential treatment has been requested for
certain portions of this exhibit
(b) Reports on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 13, 1998 BIOSITE DIAGNOSTICS INCORPORATED
By: /S/ CHRISTOPHER J. TWOMEY
-------------------------
Christopher J. Twomey
Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- --------- -----------
10.28(++) Distributorship Agreement between the Company and Fisher
Scientific Company L.L.C. dated April 3, 1998
27.1 Financial Data Schedule
(++) Confidential treatment has been requested for certain
portions of this exhibit.
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<PAGE>
EXHIBIT 10.28
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT effective as of January 1, 1998 (this
"Agreement"), is entered into between BIOSITE DIAGNOSTICS INCORPORATED, a
corporation under the laws of the State of Delaware ("Biosite"), having a
place of business at 11030 Roselle Street, Suite D, San Diego, California
92121, and FISHER SCIENTIFIC COMPANY L.L.C., a Delaware Limited Liability
Company represented by its CURTIN MATHESON SCIENTIFIC division ("CMS"),
having a place of business at 9999 Veterans Memorial Drive, Houston, Texas
77038.
W I T N E S S E T H
WHEREAS, Biosite and CMS entered into the Distribution Agreement dated as
of November 11, 1991 (as amended to date, the "1991 Distribution Agreement").
WHEREAS, Biosite and CMS now desire to enter into a new agreement setting
forth the terms of their business relationship and concurrently to terminate the
1991 Distribution Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective covenants of the parties herein set forth, the parties hereby
terminate the 1991 Distribution Agreement and agree as follows:
1. PRODUCTS.
(a) For purposes of this Agreement, the "Products" shall mean the DOA
Products, the Micro Products and the Cardiac Products.
The "DOA Products" shall mean the products described in
Schedule A.
The "Micro Products" shall mean the products described in
Schedule B.
The "Cardiac Products" shall mean the products described in
Schedule C, including the Cardiac Panels and the Triage Meters. The "Cardiac
Panels" shall mean the Triage Cardiac Panels more fully described in Schedule C,
and the "Triage Meters" shall mean the Triage Meters as more fully described in
Schedule C.
(b) During the term of this Agreement, Biosite shall make available
to CMS any improved or updated versions of the Products under the same terms and
conditions (other than price) as set forth herein.
(c) Biosite shall provide all required Material Safety Data Sheets,
if any, for any Product containing hazardous chemicals or otherwise as required
by federal, state or local law.
2. GRANT OF DISTRIBUTORSHIP.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, Biosite hereby appoints CMS, and CMS accepts appointment, as the
exclusive distributor of the Products in the Territory (as defined below) during
the term of this Agreement; provided, however, that Biosite reserves certain
rights to promote, market, sell and distribute the Products in the Reserved
Market Segments (as defined below). Additionally, CMS shall have nonexclusive
distribution rights to ***.
(b) The "Territory" shall mean the Medical Segment (as defined below)
in the United States and its territories. The "Medical Segment" shall mean:
hospitals (including nonprofit, religious, government, university, military and
psychiatric hospitals); reference laboratories; occupational health centers or
clinics that are part of a hospital facility; chest pain centers or clinics that
are part of a hospital facility; drug rehabilitation centers and chest pain
centers that are part of a hospital facility; planned parenthood centers; and
physician group practices of forty (40) or more physicians. The Territory shall
NOT include, and CMS shall not be permitted to sell the Products in, any areas
or to any market segment not described in this Section 2(b) without the prior
written consent of Biosite, which consent
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
may be withheld at Biosite's sole discretion. CMS shall take reasonable
steps to limit the likelihood that CMS's customers in the Territory purchase
Products for resale in the Reserved Market Segments (as defined below).
(c) All areas and market segments not included in the definition
of the Territory shall be hereinafter referred to as the "Reserved Market
Segments." Biosite shall retain all rights to promote, market, sell and
distribute (either directly or through others) the Products in the Reserved
Market Segments. Except as otherwise set forth in this Agreement, Biosite
shall not be permitted to sell the Products in the Territory and shall take
reasonable steps to limit the likelihood that Biosite's customers in the
Reserved Market Segments purchase Products for resale into the Territory.
Included in the Reserved Market Segments, without limitation, are all market
segments in countries outside of the United States and its territories and
the following customer groups in the United States and its territories:
free-standing drug rehabilitation centers and chest pain centers not part of
a hospital facility; prisons and prison hospitals; physician practices of
less than forty (40) physicians; probation and parole programs; public and
private sector workplace testing; non-hospital based occupational health
centers or clinics; industrial laboratories; non-hospital military on-site
testing programs (i.e., ADCO, recruiting centers); high school, college,
university and professional sports programs; government agencies; public
carriers; and veterinary clinics and animal testing.
(d) Nothing herein shall be deemed to prohibit Biosite (i) from
distributing, selling, promoting and marketing the DOA Products to ***
without restriction, or (ii) from distributing (but not selling) the Products
within the Territory only for purposes of pre-market clinical testing or
evaluation of the Products or testing of Product improvements or enhancements
prior to market introduction.
(e) Nothing herein shall prohibit Biosite from promoting,
marketing, and soliciting and receiving orders for the sale (but not selling)
of, the Cardiac Products to hospitals within the Territory ***.
3. CONDUCT OF CMS.
(a) CMS shall use its good faith commercial efforts and facilities
to promote, market, distribute and sell the Products and to take no action
which would interfere with Biosite's efforts to develop and maintain the
reputation of and goodwill with respect to the Products within the Territory
during the term of this Agreement. CMS shall provide not less than an
aggregate of two (2) full pages of advertising for available Products in its
1998-99 General Catalog. CMS shall permit Biosite access to its sales
representatives for the purpose of providing training of CMS's sales
representatives in the demonstration and use of the Products on such dates
and in such locations as may be mutually acceptable to the parties. CMS
shall provide Biosite with samples of any such Product advertising and sales
literature prior to printing and distribution of same, and Biosite shall have
the right to approve the Product advertisement(s), which approval shall not
be unreasonably withheld or delayed. CMS shall use its good faith commercial
efforts to inform customers and potential customers of the availability and
desirability of the Product; to handle promptly all inquiries, quotations,
correspondence and orders; and to assist customers in the proper use of the
Products and the referral of customers to Biosite for the solution of
technical application problems.
(b) Except as otherwise set forth in this Section 3(b), CMS shall
not market, advertise, distribute or sell any products in the Territory that
are directly competitive with the Products as to which CMS enjoys exclusive
distribution rights. Notwithstanding the foregoing, CMS shall have the right
to distribute and sell (i) products of a third party, competitive with the
Products, which third party products CMS sells or distributes as of the date
of this Agreement, (ii) any products of such third party which are
subsequently added by such third party to its line of products, which are
competitive with the Products, (iii) any products that may include
competitive assays to the Products that are based on an automated random
access instrument platform (with the exception of those instruments
manufactured by or on behalf of *** with a broad based menu of analytes such
as chemistries, fertility, thyroid function, oncology, infectious disease,
TDM, DOA, allergy, etc. and (iv) competitive products in the event Biosite
provides notice of nonrenewal as described in Section 6(a) of this Agreement.
Additionally, nothing contained in this Agreement shall restrict the
activities of CMS outside the Territory with respect to competing products.
(c) CMS shall provide Biosite, on a monthly basis, with a written
forecast of CMS's estimated purchase requirements for each month in the
ensuing three-month period for DOA Products, Micro Products and Cardiac
Products (other than Triage Meters), and in the ensuing six-month period for
Triage Meters. Forecasted quantities for the first and second month of each
forecast period shall be binding, subject however to a variance of plus or
minus ten percent (10%) for the second month of each forecast and provided
that in the first six (6) months following the date of first Product shipment
for any new Product, the second month forecast shall be subject to a variance
of plus or minus thirty percent (30%). Biosite shall use its good faith
commercial efforts to sell such quantities to CMS.
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
(d) CMS may return, for full credit or replacement, any Product
for which CMS is required to give a customer credit or replacement Product
due to a claimed defect or deficiency in the Product, provided that CMS first
obtains from Biosite a returned goods authorization which shall not be
unreasonably withheld or delayed by Biosite.
(e) Biosite shall review and advise CMS on compliance with all FDA
requirements regarding the Products contained in CMS's advertising and sales
literature.
(f) CMS hereby represents and warrants that neither CMS nor its
agents or employees will make any representations or claims with respect to
the Products which are not authorized in writing by Biosite. Subject to the
provisions of Section 6(h) hereof, CMS agrees to and shall indemnify Biosite
against, and hold Biosite harmless from, all claims, actions, costs, expenses
and damages (including without limitation reasonable attorneys' fees and
expenses) arising out of: (i) representations or claims by CMS with respect
to the Products which are not authorized by Biosite; (ii) CMS's willful act
or omission in connection with the sale, marketing, promotion or distribution
of the Products; or (iii) any claim or failure by CMS to comply with
governmental regulatory requirements relating to the Products which are
applicable to distributors of products; provided, however, in each case
Biosite gives CMS prompt notice of any such claim, permits CMS to assume sole
control of the defense thereof and provides all reasonable assistance in
connection with the defense of such claim. Biosite shall have the right to
retain its own counsel and to participate in such defense, with the fees and
expenses to be paid by CMS, if representation of Biosite by counsel retained
by CMS would be inappropriate due to actual differing interests between
Biosite and CMS or any other party represented by such counsel in such
proceeding.
(g) Each shipment from Biosite shall contain numbers identifying
the manufacturing lot or lots for control purposes. CMS shall keep accurate
records that will enable CMS to determine the Product lots received by
specific customers of the Product. CMS shall make such information available
to Biosite in the event of a Product recall or Product corrective action
requested by Biosite or required by any governmental agency. CMS shall use
reasonable effort to provide Biosite with information regarding the prior
month's sales to include the account number, account name, city, state, zip
code, catalog number, Product description, sales dollars, sales quantity,
gross profit dollars and gross profit percent free of charge by the tenth
(10th) of each month, and shall provide Biosite with such information in no
event later than the last day of the month, during the term of this
Agreement. Any and all such information referred to in this Section 3(g) may
be used by Biosite for market analysis and in the course of its performance
under this Agreement and for no other purpose, subject to the provisions of
Section 9 of this Agreement.
(h) CMS shall comply with Biosite's instructions regarding the
storage and handling of the Products, and except as otherwise provided in
this Agreement, CMS shall be solely responsible for the cost thereof.
(i) At Biosite's request, CMS shall submit to Biosite such other
reports, free of charge, as are customarily provided by CMS to suppliers
similarly situated with Biosite.
(j) Both parties shall keep accurate records sufficient to permit
verification of sales data for the Products. Upon written request and upon
reasonable notice during regularbusiness hours, each party shall permit an
independent certified public accountant or other acceptable representative of
the requesting party to inspect such records in order to verify any sales or
recall information reasonably required by the provisions of this Agreement,
provided that only one such inspection annually shall be permitted and the
parties shall not be required to keep such records for longer than five (5)
years. All information received as a result of such inspections shall be
subject to Paragraph 9 of this Agreement.
(k) CMS shall promptly advise Biosite of any changes in CMS's
organization or personnel which may materially, adversely affect CMS's
ability to perform under this Agreement, as well as any material changes
affecting ownership or control of CMS.
(l) At all times during the term of this Agreement, CMS shall
maintain a current inventory of each Product sufficient to satisfy not less
than CMS's requirements for its reasonably forecasted sales of such Product
for the immediately following thirty (30) days.
(m) At all times during the term of this Agreement CMS shall treat
the Products as "focus products" or comparable status as defined at the
start of this Agreement for purposes of compensation of CMS sales
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
representatives.
4. CONDUCT OF BIOSITE.
(a) Biosite shall ship promptly CMS's orders for Products, but in
any event not later than sixty (60) days from receipt of each order for DOA
Products and Micro Products, and not later than ninety (90) days from receipt
of each order for Cardiac Products (other than Triage Meters). Biosite shall
use its reasonable efforts to ship CMS's orders for Triage Meters not later
than one hundred twenty (120) days from receipt of each order for Triage
Meters. Subject to the provisions of Section 11 hereof, Biosite shall ship
CMS orders for Products f.o.b. Biosite's facility in San Diego, California
(at which point title and risk of loss shall pass from Biosite to CMS), to
CMS's warehouse or to such other CMS location(s) as CMS may designate,
insurance prepaid. Biosite shall cooperate with CMS in arranging drop
shipments of Products to customers on a case by case basis to include
Products designated by Biosite as drop ship Products. CMS shall pay all
freight costs for shipping Products by CMS customary means or by any other
means specified by CMS in a purchase order. Biosite shall pay all freight
costs for shipping Products by any means other than CMS customary means or
the means specified by CMS in a purchase order. Biosite shall pay all
insurance costs for shipping Products ordered by CMS hereunder.
(b) Biosite shall notify CMS immediately in writing should Biosite
become aware of any defect or condition which may render any Product in
violation of any statute or regulation, or which in any way materially alters
the specifications or quality of such Product.
(c) Biosite shall provide to CMS's sales personnel, at CMS's
premises or such other location as the parties may agree, such training in
the demonstration and use of the Products as may be reasonably requested by
CMS. All training material, instructors, demonstration/training
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Products and other training costs and expenses therefor shall be borne by
Biosite; provided however, CMS shall, at its expense, provide transportation
and lodging for CMS personnel attending such training.
(d) Biosite shall provide technical support to CMS's sales
personnel and customers and promptly provide to CMS such additional
technical information developed or acquired by Biosite from time to time as
may reasonably be expected to be of assistance to CMS in fulfilling its
obligations hereunder. Biosite will provide, at its own expense, a toll free
long distance telephone service for technical support for CMS customers and
sales representatives.
(e) Biosite shall provide at its expense reasonable quantities of
such instruction manuals and point of sale literature as may from time to
time be requested by CMS for use in connection with the distribution of the
Products. Subject to CMS's and Biosite's prior written approval, the CMS name
will be incorporated in Biosite's advertising and literature intended for
distribution in the Territory by CMS sales representatives. If requested to
do so by CMS, Biosite shall furnish CMS with suitable copy and photographs
for use by CMS in cataloging the Product.
(f) During the period that CMS has the exclusive right to
distribute the Products in the Territory under this Agreement, Biosite shall
provide CMS, upon request, with up to the number of Samples (as defined
below) of each Product set forth on Schedule D, to be used by CMS solely in
connection with the promotion and marketing of such Product. A "Sample"
shall mean, with respect to a Product, a sample unit of such Product sold by
Biosite to CMS solely for the purpose of marketing and promoting such
Product, and not for the purpose of commercial resale. Such Samples may not
be sold by CMS and shall be marked by Biosite with the following legend:
"FOR EVALUATION PURPOSES ONLY - NOT FOR RESALE."
(g) Any Products owned by CMS and rendered unsalable, in CMS's
reasonable commercial judgment, due to a change in any Product specification,
discontinuation or elimination by Biosite of any Product from its product
offering, release by Biosite of any materially improved or updated version of
any Product, or any other material change in the Product outside of CMS's
control shall be repurchased from CMS by Biosite within thirty (30) days
following CMS's request therefor at the price paid for such Product(s) by
CMS. Biosite shall additionally pay for return freight and related
transportation and insurance charges for all such Products. Biosite's
release of a Product which has a longer shelf life shall not be deemed a
material improvement under this Section 4(g).
(h) Biosite shall promptly provide CMS with leads concerning
prospective purchasers of the Products within the Territory in a format to be
mutually agreed upon between the parties.
(i) Biosite shall provide full and accurate written instructions
on the Bill of Lading regarding the storage and handling of the Products.
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
(j) Biosite shall ship Product so that 70% of current DOA Products
shelf life and 60% of Micro Products shelf life will be remaining at the time
of receipt at CMS's facility, or at CMS's customer's facility, if drop
shipped. Biosite shall take back for full credit plus shipping charges any
dated Products shipped contrary to this provision.
5. PRICE AND PAYMENT TERMS.
(a) Biosite shall charge CMS a transfer price for each Sample
equal to the Sample Price (as defined below) for such Sample in effect on the
date of CMS's purchase order therefor.
(b) Biosite shall charge CMS the following transfer price per unit
for each Product (other than Samples):
DOA PRODUCTS MICRO PRODUCTS CARDIAC PRODUCTS
*** *** ***
*** *** ***
The parties shall meet yearly and attempt to reach mutually acceptable
agreement on any necessary revisions to the applicable discounts from List
Price set forth in the table above per Product category to reflect an attempt
to minimize additional payments from CMS to Biosite and/or rebates from
Biosite to CMS. If the transfer price is adjusted on this basis, the Target
Purchase Obligations for subsequent calendar quarters under Schedule E shall
be adjusted proportionately.
(c) Biosite shall have the right to amend the Sample Prices and
the List Prices set forth on Schedules A, B, C, and D from time to time in
its sole discretion; provided, however, that Biosite shall give at least
ninety (90) days' prior written notice of any such amendment. Biosite shall
honor CMS's existing purchase orders at the transfer prices in effect
immediately prior to the effective date of each amendment.
(d) CMS's payment terms for Samples and Products purchased
pursuant to this Agreement shall be *** from receipt of an accurate invoice
from Biosite.
(e) CMS shall be entitled to resell the Products on such terms as
it may, in its sole discretion, determine, including, without limitation,
price, returns, credit and discounts.
(f) For purposes of this Section 5, the following definitions
shall apply:
"Actual Selling Margin" shall mean Actual Selling Price - Transfer
Price.
"Actual Selling Margin Rate" or "ASMR" shall mean:
[Actual Selling Price - Transfer Price]
-------------------------------------------
Actual Selling Price
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
"Actual Selling Price" shall mean, with respect to any Product (other
than Samples), the invoiced sales price, net of any discounts actually
taken, which CMS or its affiliate charges to an unaffiliated customer for
purchase of such Product.
"Guaranteed Selling Margin Rate" or "GSMR" shall mean, with respect to
any Product (other than Samples), the margin rate that is set forth in
Section 5(h) below for such Product.
"List Price" shall mean, with respect to any Product (other than
Samples), the price therefor set forth on Schedule A, B or C (as
applicable), as amended from time to time pursuant to Section 5(c) or 5(j).
"Sample Price" shall mean, with respect to any Sample, the price
therefor set forth on Schedule D, as amended from time to time pursuant to
Section 5(c).
"Target Dollar Sales" shall mean, with respect to any Product
category, the target dollar sales obligation for such Product category set
forth on Schedule E, as amended from time to time pursuant thereto.
"Transfer Price" shall mean, with respect to any Product (other than
Samples), the price calculated pursuant to Section 5(b) above which CMS is
obligated to pay to Biosite for purchase of such Product.
(g) Subject to the provisions of Section 5(j) below, CMS shall
receive the Guaranteed Selling Margin Rate on Products per the matrix set
forth in Section 5(h) below for the term of this Agreement. In accordance
with the payment terms set forth in Section 5(d) above, Biosite shall receive
payment of the Transfer Price for Products shipped to CMS. Subject to the
provisions of Section 5(j) below, should the Actual Selling Margin Rate be
less than the GSMR for a Product unit, CMS is entitled to a rebate from
Biosite for such Product unit. The rebate is calculated as follows:
Rebate = [GSMR - ASMR] X Actual Selling Price
Subject to the provisions of Section 5(j) below, should the ASMR exceed the
GSMR for a Product unit, CMS will make an additional payment to Biosite for
such Product unit. The additional payment is calculated as follows:
Additional Payment = [ASMR - GSMR] X Actual Selling Price
The following is a numerical example to illustrate the calculations above:
A. No rebate or additional payment
***
(h) The GSMR for each Product category shall be as set forth below:
***
(i) Within ten (10) days after the end of each calendar month, CMS
shall prepare and provide Biosite with a reasonably detailed written sales
report which shall (i) set forth on a Product-by-Product basis the sales of
Products by CMS and its affiliates to unaffiliated customers, and (ii)
calculate on a Product-by-Product basis the Actual Selling Price, the ASMR
and the GSMR therefor, and the net amount (if any) of the additional payments
from CMS to Biosite and/or the rebates from Biosite to CMS owing under
Section 5(g) for such calendar month. Such report shall be based on sales by
CMS and its affiliates, as reflected on CMS's Key Supplier Report, on each
Product during each calendar month. CMS shall pay to Biosite any such
additional payment, and Biosite shall pay to CMS any such rebate, owing under
Section 5(g) for each calendar month on or before the later of the fifteenth
(15th) day of the following calendar month or ten (10) days after Biosite's
receipt of the applicable sales report for such calendar month. Biosite and
its agents shall have the right, on reasonable notice and not more than twice
in each calendar year, to inspect and audit the books and records of CMS and
any of its relevant affiliates to verify the accuracy of such sales reports.
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Biosite shall pay the fees and expenses of such audit; provided, however, if
such audit reveals that the aggregate amount (net of any rebates from
Biosite) payable by CMS to Biosite for the audited period is more than one
hundred five percent (105%) of the aggregate amount (net of any rebates from
Biosite) actually paid by CMS to Biosite for the audited period, CMS shall
pay the reasonable fees and expenses of such audit.
(j) Except as set forth below in this Section 5(j) or as the
parties otherwise mutually agree, if the Actual Selling Price of any Product
unit is less than the applicable amount set forth below, then for purposes of
calculating ASMR and GSMR, and the amount of any rebate or additional
payments under Section 5(g), the Actual Selling Price of such Product unit
shall be deemed to be the applicable amount set forth below:
DOA PRODUCTS MICRO PRODUCTS CARDIAC PRODUCTS
*** *** ***
The foregoing limitation on the calculation of Actual Sales Price shall not
apply to (a) any sales made by CMS or its affiliates prior to March 1, 1998,
(b) to continuation of the discount rate or net price to existing customers
during the term of this Agreement, (c) any sales made pursuant quarters to
binding agreements between CMS and unaffiliated customers entered into prior
to March 1, 1998, or (d) to discounts beyond such levels approved by Biosite.
Further, in the event CMS gives Biosite not less than three (3) working days
prior written notice of its good faith request for a discount rate from the
List Price in excess of the amount set forth above and Biosite fails to
approve the requested discount rate and, as a result, one or more existing
customers of CMS thereafter fails to purchase further Products from CMS, CMS
shall receive a credit(s) against its quarterly Minimum Purchase Obligations
equivalent at cost to the volume of Product sale lost for each calendar
quarter during the remaining term of this Agreement equal to the quarterly
average (based on the immediately preceding four (4) calendar quarters or, if
less than four (4) quarters, the actual sales annualized and divided by 4) of
the dollar volume of DOA Products and Micro Products purchased by such
customer or customers.
6. TERM, TERMINATION AND LOSS OF EXCLUSIVITY.
(a) The initial term of this Agreement shall be for a period of
*** years ("Initial Term") from the date first set forth above, unless
terminated sooner as provided herein. Thereafter, this Agreement shall ***
("Extended Term") unless notice of nonrenewal is given by one party to the
other at least ninety (90) days prior to the expiration of the Initial Term.
(b) This Agreement shall terminate for cause, without liability to
either party, immediately if either party (i) files a voluntary petition in
bankruptcy or is adjudged a bankrupt in any involuntary proceeding, (ii) is
generally unable to pay its debts as they become due, (iii) has a receiver or
judicial trustee or custodian appointed for it, or (iv) fails to cure any
material breach in the provisions of this Agreement within thirty (30) days
after receipt of written notice of such breach from the other party.
(c) Furthermore, this Agreement may be terminated for cause by
Biosite if CMS fails to purchase at least the aggregate dollar amount of DOA
Products and Micro Products (collectively, the "Minimum Purchase Obligation")
equal to *** of the aggregate of the applicable Target Purchase Obligations
set forth on Schedule E for DOA Products and Micro Products (excluding
Samples) ***. In the event CMS fails to purchase the applicable Minimum
Purchase Obligation for any such period, Biosite may give CMS written notice
termination of this Agreement within sixty (60) days' after the end of the
applicable period, which termination shall be effective one hundred eighty
(180) days' after CMS's receipt of such written notice of termination.
Immediately upon receipt of such termination notice, the distribution rights
of CMS shall become nonexclusive with the effective date of such. The
remedies provided for in this section shall be Biosite's sole and exclusive
remedies for CMS's failure to purchase the applicable Minimum Purchase
Obligation for such period. Notwithstanding the foregoing, if CMS is unable
to purchase the applicable Minimum Purchase Obligation for any such period
due solely to an act or omission of Biosite, such failure shall not
constitute grounds for termination with cause pursuant to this Section 6(c)
with respect to such period. For the purposes of this Section 6(c), Product
shall be deemed purchased when a firm purchase order has been received by
Biosite for delivery of Products within sixty (60) days.
(d) Biosite's inability to provide Product necessary for CMS to
meet the Minimum Purchase Obligation for any Product due to an event of force
majeure shall not be deemed to be a breach of this Agreement. The occurrence
of any event of force majeure shall extend the time for performance and term
of this Agreement for a period
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
of time equal to the length of the force majeure delay.
(e) In the event that Biosite fails for whatever reason(s) to
deliver the quantities of Product units ordered by CMS to meet the Minimum
Purchase Obligation for such Product for any two (2) consecutive calendar
quarters in any calendar year, then CMS may, within thirty (30) days before
or after the end of such period, give Biosite written notice of Fisher's
intent to sell competitive products. Biosite must, within ten (10) days
after receipt of such notice of intent, either (a) provide information to the
reasonable satisfaction of CMS that it will be back in production at a run
rate sufficient to satisfy the Minimum Purchase Obligation within ninety (90)
days thereafter, (b) make CMS nonexclusive as to that Product, or (c) remove
the Product from this Agreement. Notwithstanding anything in this Agreement
to the contrary, in the event Biosite fails to timely make its election, CMS
shall have the right to terminate this Agreement as to any such Product by
providing written notice thereof to Biosite, with such termination being
effective sixty (60) days after such notice to Biosite from CMS.
(f) Biosite may also terminate this Agreement at any time without
cause if, upon termination, Biosite pays CMS a one-time payment (the "Buy-out
Amount") equal to the following:
(i) if Biosite gives not less than one hundred eighty (180) days
prior written notice of such termination, the Buy-out Amount shall equal
***
(ii) if Biosite gives at least sixty (60) days but less than one
hundred eighty (180) days prior written notice of such termination, the
Buy-out Amount shall equal ***. In no event may Biosite terminate this
Agreement with less than sixty (60) days notice.
Except as provided in Section 6(g), payment of any sums calculated under this
Section 6(f) shall constitute CMS's sole and exclusive remedy in the event
Biosite terminates this Agreement without cause.
(g) Upon termination of this Agreement, CMS shall return to
Biosite all CMS's unused Samples, in substantially the same condition as
received, and unsold inventory of Products, f.o.b. CMS's warehouse(s);
provided, however, that Biosite shall not be obligated to repurchase expired
Samples and Product. Biosite shall refund to CMS the cost of such Samples and
Product. If this Agreement is terminated by Biosite under Section 6(e) or
6(f), Biosite shall pay the return freight and insurance therefor.
Otherwise, CMS shall pay the return freight and insurance therefor.
(h) The rights and duties of each party under Sections 3(d), 3(f),
6(g), 7, 8, 9, 10, 14, 15, 19 and 25 of this Agreement and Biosite's
obligations under the Continuing Guaranty as referred to in Section 10(a)
hereof, shall survive and be enforceable in accordance with their terms.
(i) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY
CONTINGENT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF THE OTHER PARTY, OR ANY
LOSS OF PROFITS OR REVENUE OF THE OTHER PARTY, WHETHER ARISING IN CONTRACT,
TORT (INCLUDING NEGLIGENCE), WARRANTY, STRICT LIABILITY OR OTHERWISE.
7. TRADEMARKS.
(a) All Product units sold by Biosite to CMS will bear one or more
of the trademarks or trade names (including, but not limited to, the name
Triage-TM-) relating to such Product owned by or licensed to Biosite
(collectively, the "Biosite Marks"), and CMS shall not alter, remove or
modify the Biosite Marks, nor affix any other trademark to the Product,
without the prior express written consent of Biosite. CMS shall not utilize
any of the Biosite Marks in connection with any promotional brochures or
advertising materials relating to the Products without the prior express
written consent of Biosite, which consent shall not be unreasonably withheld,
delayed or conditioned. Biosite's consent to the use of the Biosite Marks
shall be conditioned upon such brochure or advertising materials clearly
indicating Biosite's ownership of the Biosite Marks.
(b) All Product units purchased by CMS hereunder shall be marketed
by it in the original packages under the original labels provided by Biosite,
and CMS shall make no modifications, or alterations to such Product units or
labels; provided, however, that CMS may affix labels or other indices which
serve to identify CMS as a distributor of the Product, so long as they do not
cover and are not inconsistent with any of Biosite's Product labels or
markings.
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
(c) Nothing in this Agreement shall be construed as granting CMS
any license or interest in the Biosite Marks, and CMS acknowledges that it
has been advised by Biosite of Biosite's claim of ownership of the Biosite
Marks. CMS agrees that it will do nothing inconsistent with such ownership
and that all use of the Biosite Marks will inure to the benefit of and be on
behalf of Biosite. Specifically, CMS agrees that: it will not challenge the
validity of, or Biosite's ownership of, any of the Biosite Marks; it will not
take any action that is inconsistent with, or may impair, Biosite's right,
title and interest to the Biosite Marks; it will not represent to any third
party that it has any ownership interest in the Biosite Marks; it will not
adopt any trademarks that are confusingly or deceptively similar to the
Biosite Marks; and it will, at Biosite's sole cost and expense, execute and
deliver to Biosite any and all documents which Biosite may request to confirm
in Biosite all right, title and interest in the Biosite Marks.
(d) CMS shall make no statement to the press relating or referring
to the Products without the prior express written approval of Biosite.
(e) CMS shall promptly notify Biosite in writing of any challenges
to the validity, infringement on or unauthorized use of any of the Biosite
Marks, actual or threatened, that may come to CMS's attention. Biosite shall
be responsible for and shall assume all expenses of the enforcement of the
Biosite Marks.
(f) Biosite recognizes that CMS is the owner of the trademarks and
trade names denoting CMS or CMS products, which it may elect to use in the
promotion and sale of the Products, and that Biosite has no right or interest
in such trademarks or trade names; provided, however, that except as
otherwise set forth in Section 7(b) hereof, no CMS labels, package inserts or
other material shall accompany the Products without the prior express written
approval of Biosite.
(g) Upon termination of this Agreement, CMS shall continue to be
entitled to utilize the Biosite Marks on the terms agreed to previously by
the parties in connection with CMS's promotion, marketing, distribution and
sale of units of Products remaining in CMS's inventory and not repurchased by
Biosite. Thereafter, CMS shall terminate all use of Biosite Marks, and shall
at Biosite's request and at Biosite's expense, destroy or return to Biosite
all literature and other advertising and promotional materials bearing the
Biosite Marks. In the event of termination or expiration of this Agreement,
CMS agrees to cooperate with Biosite and to execute any and all documents
requested by Biosite for the purpose of canceling any registered user or
other rights with respect to Biosite's name and the Biosite Marks that CMS
may have acquired in operating hereunder, or, at Biosite's election, in
transferring such rights to Biosite or its designee. CMS also agrees to
cooperate with Biosite in transferring any appropriate rights in connection
with the Biosite Marks to Biosite and/or Biosite's designee, at Biosite's
sole cost and expense, if Biosite desires to sell or have sold products in
the Territory (other than the Products), other than by CMS.
8. COPYRIGHTS.
(a) CMS hereby acknowledges that Biosite may claim copyright
protection with respect to its package inserts and other supporting materials
which it includes with each of the Product units, and CMS further
acknowledges the validity of Biosite's right to claim the copyright
protection to such materials. CMS further acknowledges that Biosite has
advised CMS that it has the sole and exclusive right to claim the copyright
protection with respect to all of its package inserts and other supporting
materials included with the Products, and CMS shall take no action which is
in any way inconsistent with Biosite's claim of copyright protection that it
expects to make with respect to such materials.
(b) In order to protect against infringement of Biosite's
copyright through unauthorized reproduction or duplication of its copyrighted
materials, such materials included with the units of Products sold by Biosite
to CMS shall bear appropriate copyright markings. Nothing contained in this
Section 8 shall prohibit CMS from copying and distributing to its sales
representatives Product advertising, literature and other materials prepared
by or on behalf of Biosite for the purpose of fulfilling CMS's obligations
under this Agreement.
(c) CMS shall promptly notify Biosite in writing of any
infringements, whether within or without the Territory, of any of Biosite's
copyrights which come to the attention of CMS. CMS shall, at Biosite's
request, provide Biosite with all reasonable assistance in initiating and
prosecuting any legal action against any infringer of Biosite's copyrights
within the Territory; provided, however, that all costs incurred in
connection with any such copyright infringement action shall be borne solely
by Biosite.
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
9. TRADE SECRETS AND CONFIDENTIAL INFORMATION.
(a) CMS may receive various trade secrets of Biosite and other
information of Biosite of a confidential nature (including but not limited to
specific technical information concerning the Products). CMS agrees that it
will not disclose to anyone, directly or indirectly, any of such trade
secrets or other confidential information, or use such trade secrets or other
confidential information other than as reasonably required in the course of
its performance under this Agreement. Notwithstanding the foregoing, CMS may
disclose such trade secrets or other confidential information to the extent
required by applicable law, regulation or court order, provided that CMS
shall give Biosite reasonable notice of any such required disclosure and
shall give Biosite an opportunity to object to any such disclosure or to
request confidential treatment thereof. CMS shall, at Biosite's option,
return such information to Biosite or destroy all such data having physical
form and all copies thereof. The obligations set forth in this Section 9(a)
shall survive any termination of this Agreement for a period of three (3)
years.
(b) Biosite may receive various trade secrets of CMS and other
information of CMS of a confidential nature (including, but not limited to
the names of CMS's customers and sales data). Biosite agrees that it will
not disclose to anyone, directly or indirectly, any of such trade secrets or
other confidential information, or use such trade secrets or other
confidential information other than as reasonably required in the course of
its performance under this Agreement. Notwithstanding the foregoing, Biosite
may disclose such trade secrets or other confidential information to the
extent required by applicable law, regulation or court order, provided that
Biosite shall give CMS reasonable notice of any such required disclosure and
shall give CMS an opportunity to object to any such disclosure or to request
confidential treatment thereof. Biosite shall, at CMS's option, return such
information to CMS or destroy all such data having physical form and all
copies thereof. The obligations set forth in this Section 9(b) shall survive
any termination of this Agreement for a period of three (3) years.
(c) Notwithstanding any provision set forth in this Section 9 to
the contrary, the parties' obligations under this Section 9 shall not apply
to the extent that: (i) the confidential information, or any relevant part
of it, can be shown to be in the public domain prior to the date of this
Agreement; (ii) the confidential information, or any relevant part of it,
becomes part of the public domain, other than by some unauthorized act or
omission, after the date hereof; (iii) the confidential information, or any
relevant part of it, is disclosed to such party by a third party who has the
right to make such disclosure; (iv) express written permission to disclose
the confidential information, or any relevant part of it, or to make use of
same, is obtained from the non-disclosing party by the disclosing party; or
(v) the information is developed independently of the confidential
information by the other party based on written records maintained in the
ordinary course.
10. BIOSITE'S WARRANTIES; DISCLAIMER OF WARRANTIES.
(a) Biosite agrees that it shall execute and warrants that it
shall abide by the terms of CMS's Continuing Guaranty, a copy of which is
attached hereto as Exhibit A and which guaranty is incorporated herein by
reference. The terms and provisions of the Continuing Guaranty shall survive
the termination of this Agreement. Prior to the first shipment of Product to
CMS, Biosite shall provide CMS with certificates of insurance which meet the
requirements of paragraph D of the Continuing Guaranty. Biosite's insurance
carriers shall at all times during the term of this Agreement be rated by
Best's as B+ or superior. Biosite is not aware after due inquiry of any
circumstance which would prevent the issuance of such policy.
(b) In addition to the warranties of Biosite set forth in this
Agreement and in the Continuing Guaranty, Biosite warrants that each of the
Products will conform to the specifications set forth in Product literature
prepared by or on behalf of Biosite and that the Products will comply and be
manufactured, packaged, sterilized (if applicable), labeled and shipped in
compliance with all applicable federal, state and local laws, orders,
regulations and standards.
(c) Biosite and CMS shall extend to customers only the Product
Warranty embodied in Exhibit B hereto; provided that Biosite may modify such
Product Warranty with CMS's consent, which consent shall not be unreasonably
withheld. Biosite shall not modify or amend the warranty during the term of
this Agreement without providing CMS with sixty (60) days' prior written
notice. Biosite warrants and represents that the Products will perform in
accordance with Biosite's warranty.
(d) Except for the Product warranty which is described in Section
10(c) hereof, Biosite MAKES NO WARRANTIES TO CUSTOMERS AND CMS SHALL NOT MAKE
ANY OTHER WARRANTIES
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
TO CUSTOMERS AS TO THE MERCHANTABILITY OR FITNESS OF THE PRODUCT FOR A
PARTICULAR USE.
11. FORCE MAJEURE.
The obligations of either party to perform under this Agreement
shall be excused during each period of delay to the extent caused by such
matters as strikes, shortages of power or raw materials, government orders or
acts of God, which are reasonably beyond the control of the party obligated
to perform. The affected party shall make all commercially reasonable
efforts to remedy the effects of such force majeure. Any force majeure event
shall not excuse performance by the party but shall delay performance, unless
such force majeure continues for a period in excess of ninety (90) days. In
such event, the party seeking performance may cancel its obligations
hereunder.
12. NOTICES.
Any notice required by this Agreement shall be in writing, and may
be delivered in person, by nationally recognized overnight delivery service
or by any lawful means to the party for whom intended at its address set
forth below, and shall be effective on receipt.
If to Biosite: Biosite Diagnostics Incorporated
11030 Roselle Street, Suite D
San Diego, California 92121
Telecopy: (619) 445-4815
Attn: Kim Blickenstaff
with a copy to: Pillsbury Madison & Sutro LLP
235 Montgomery Street, 15th Floor
San Francisco, California 94104
Telecopy: (415) 983-7396
Attn: Thomas E. Sparks, Jr., Esq.
If to CMS: Fisher Scientific Company
9999 Veterans Memorial Drive
Houston, Texas 77038
Telecopy: (281) 878-2293
Attn: Legal Department
with a copy to: Fisher Scientific Company
2000 Park Lane
Pittsburgh, Pennsylvania 15275
Telecopy: (412) 490-8885
Attn: General Counsel
or such other address as provided in writing in the manner provided by this
Section.
13. ENTIRE AGREEMENT.
This Agreement, including Schedules and Exhibits, constitutes the
entire agreement between the parties relating to the subject matter hereof
and supersedes all prior agreements, understandings and representations,
whether written or oral, between the parties with respect to such subject
matter. Without limiting the generality of the foregoing, Biosite and CMS
each releases the other from its obligation to pay any unpaid amounts owing
pursuant to Section 6(b) of the Amendment executed as of March 12, 1996, to
the 1991 Distribution Agreement. In ordering and delivery of the Products,
the parties may employ their standard forms, but nothing in those forms shall
be construed to modify or amend the terms of this Agreement.
14. ATTORNEYS' FEES.
In the event any claim or counterclaim is asserted or action is
commenced to enforce any of the rights
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
or obligations of the parties under this Agreement, the prevailing party
shall be entitled to collect from the other party, as part of the judgment
rendered with respect to such claim or action, reasonable attorneys' fees,
expenses and court costs.
15. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CALIFORNIA CHOICE
OF LAW PROVISIONS.
16. COMPLIANCE WITH APPLICABLE LAWS.
In connection with the sale of the Products hereunder, Biosite and
CMS shall comply with all applicable laws, regulations and orders of
governmental bodies having jurisdiction in respect of activities contemplated
by or covered under this Agreement, including without limitation, obtaining
all necessary permits, licenses and regulations. CMS shall cooperate fully
with Biosite, at Biosite's sole cost and expense, in connection with securing
and maintaining any governmental registration or other governmental permits
required with respect to marketing the Products in the Territory and CMS will
notify Biosite of any local laws affecting the Products which may come to its
attention.
17. ASSIGNMENTS.
(a) Subject to Section 17(b) below, neither party shall assign or
transfer this Agreement, by operation of law or otherwise, in whole or in
part without the prior written consent of the other party in each and every
instance, which consent may not be unreasonably withheld. If either party
wishes to assign or otherwise transfer this Agreement, as aforesaid, in each
instance the party seeking to assign or otherwise transfer this Agreement
shall submit to the other party for such party's review and approval as soon
as practicable such information as the other party may reasonably request
concerning the assignee or transferee and the party from which consent is
sought shall have thirty (30) days following receipt of the fully responsive
materials in which to review the same and approve or reject the assignment
or transfer. In any event in which the party from which consent is sought
reasonably rejects the assignment or transfer, this Agreement shall terminate
one hundred eighty (180) days following the date on which the rejection is
received by the party seeking to assign or transfer. The parties shall make
best efforts to promptly and amicably wind up all outstanding matters
concerning the subject matter of this Agreement.
(b) Notwithstanding Section 17(a) above, a merger, reorganization,
recapitalization, sale or transfer of all or substantially all of the assets,
change of control, or similar transaction of a party shall not be deemed an
assignment or transfer of this Agreement subject to the provisions of Section
17(a) above.
18. AMENDMENTS.
No amendment or modification of the terms of this Agreement shall
be binding on either party unless reduced to writing and signed by an
authorized officer of the party to be bound.
19. EXISTING OBLIGATIONS.
Each party represents and warrants that the terms of this Agreement
do not violate any existing obligations or contracts of it. Each party shall
defend, indemnify and hold harmless the other party from and against any and
all claims, demands, liabilities and causes of action that are hereafter made
or brought against the other party that allege any such violation.
20. RELATIONSHIP OF THE PARTIES.
(a) For the purposes of this Agreement, CMS and Biosite are deemed
to be independent contractors and not the agent or employee of the other.
Neither CMS nor Biosite shall have the authority to make any statements,
representations or commitments of any kind, or take any action, which shall
be binding on the other, except as provided for herein or authorized in
writing by the party to be bound.
(b) This Agreement does not grant any license from Biosite to CMS
or from CMS to Biosite
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
except as expressly provided herein.
21. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns.
22. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original for all purposes.
23. APPROVALS AND CONSENTS.
Each of the parties represents to the other that all necessary
approvals of any third persons, the granting of which are necessary for the
consummation of the transactions contemplated hereby, or for preventing the
termination of any right, privilege, license or agreement or any right
granted hereunder have been received by both parties to this Agreement.
24. MISCELLANEOUS.
Any payment obligation under this Agreement which shall be due from
Biosite to CMS and for which no date of payment is specified in this
Agreement shall be payable on the thirtieth (30th) day following the day on
which the event occurs which triggers Biosite's obligation to make any such
payment.
25. FURTHER ASSURANCES.
Biosite and CMS each shall perform any and all further acts and
execute and deliver any and all further documents and instruments that may be
reasonably necessary to carry out the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have, by their duly authorized
officers, executed this Agreement on the date first set forth above.
BIOSITE DIAGNOSTICS INCORPORATED
By: /S/ KIM D. BLICKENSTAFF
-----------------------
Title: PRESIDENT
-----------------------
FISHER SCIENTIFIC COMPANY L.L.C.
By: /S/ CHARLES V. WOZNIAK
----------------------
Title: PRESIDENT
----------------------
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
SCHEDULE A
DOA PRODUCTS
* * *
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
SCHEDULE B
MICRO PRODUCTS
* * *
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
SCHEDULE C
CARDIAC PRODUCTS
* * *
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
SCHEDULE D
SAMPLE QUANTITIES AND PRICES
* * *
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
SCHEDULE E
TARGET OBLIGATIONS
* * *
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT A
CONTINUING GUARANTY
A. __________________________________________________________________
(hereinafter referred to as "Seller"), having its principal office and
place of business at _________________________________________________
______________________________________________________________________
____________________, hereby guarantees that all Products (including
their packaging, labeling and shipping) comprising each shipment or
other delivery hereinafter made by Seller (hereinafter referred to as
"Products") to or on the order of Fisher Scientific Company L.L.C., a
Delaware limited liability company, having its principal place of business
at 2000 Park Lane, Pittsburgh, Pennsylvania 15275, or to any of its
branches, divisions, subsidiaries, affiliates, or any of their customers
(hereinafter collectively referred to as "Fisher"), pursuant to that certain
Distribution Agreement effective as of January 1, 1998 (the "Distribution
Agreement"), between Seller and Fisher Scientific Company L.L.C., a Delaware
limited liability company represented by its Curtin Matheson Scientific
division, are, as of the date of such shipment or delivery, in compliance
with applicable federal, state and local laws, and any regulations, rules,
declarations, interpretations and orders issued thereunder, including,
without limitation, the Federal Food, Drug and Cosmetic Act, as amended,
and conform to representations and warranties made by Seller in its
advertising, product labeling and literature.
B. Further, with respect to any Product that is privately labeled for Fisher,
Seller agrees to make no change in such Products or the Fisher artwork on
the labeling or packaging relating thereto without first obtaining the
written consent of Fisher. Seller recognizes that Fisher is the owner of
the trademarks and trade names connoting Fisher which it may elect to use in
the promotion and sale of such private label Products and that Seller has
no right or interest in such trademarks or trade names. Seller shall
periodically analyze and review packaging and labeling for any Products
which are private labeled for Fisher to ensure conformity with the provisions
of paragraph A hereof and the adequacy of Product warnings and instructions.
C. Seller hereby agrees that it will reimburse Fisher Scientific Company
L.L.C., a Delaware limited liability company, for all reasonable
out-of-pocket costs and expenses incurred in connection with any product
corrective action or recall relating to the Products which is requested
by Seller or required by any governmental entity.
D. Seller agrees to procure and maintain product liability insurance with
respect to the Products and contractual liability coverage relating to this
Guaranty, with insurer(s) having Best's rating(s) of A- or better, naming
Fisher as an additional insured (Broad Form Vendors Endorsement), with
minimum limits in each case of $3,000,000. Seller shall promptly furnish to
Fisher Scientific Company L.L.C., a Delaware limited liability company, a
certificate of insurance and renewal certificates of insurance evidencing
the foregoing coverages and limits. The insurance shall not be canceled,
reduced or otherwise changed without providing Fisher with at least ten (10)
days prior written notice.
E. Subject to the provisions of Section 6 (i) of the Distribution Agreement,
Seller agrees to and shall protect, defend, indemnify and hold harmless
Fisher Scientific Company L.L.C., a Delaware limited liability company,
(and with respect to Subparagraph E. (i) below, the customers of Fisher
Scientific Company L.L.C., a Delaware limited liability company) from any
and all claims, actions, costs, expenses and damages, including reasonable
attorney's fees and expenses arising out of: (i) any actual or alleged
patent, trademark or copyright infringement in the design, composition,
use, sale, advertising or packaging of the Products; (ii) any breach of
the representations or warranties set forth in this Guaranty; (iii) the
sale or use of the Products where such liability results from the act or
omission of Seller (whether for breach of warranty, strict liability in tort,
negligence or otherwise). In each such case, Fisher shall give Seller
prompt written notice of any such claim, shall permit Seller to assume
sole control of the defense thereof and shall provide all reasonable
assistance in connection with the defense of such claim. Fisher shall
have the right to retain its own counsel and to participate in such defense,
with the fees and expenses of such counsel to be paid by Seller, if
representation of Fisher by counsel retained by Seller would be
inappropriate due to actual differing interests between Fisher and any
other party represented by such counsel in such proceeding.
F. Seller agrees to and shall provide to Fisher Material Safety Data Sheets
and other information concerning any Product as required by then
applicable federal, state or local law.
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
G. Seller agrees to and shall accept, at its facility, all of Fisher's unsold
or expired Products containing hazardous chemicals, materials or substances
for disposal, recycling or use. Fisher shall be responsible for packing and
transportation costs to Seller. Seller shall be responsible for all other
costs, including, without limitation, any costs associated with Seller's
disposal, recycling or use.
H. If the Products to be furnished by Seller are to be used in the
performance of a U.S. government contract or subcontract, those clauses of
the applicable U.S. Government procurement regulation which are
mandatorily required by Federal Statute to be included in U.S. Government
subcontracts shall be incorporated herein by reference including, without
limitation, the Fair Labor Standards Act of 1938, as amended.
I. The representations and obligations set forth herein shall be continuing
and shall be binding upon the Seller and his or its heirs, executors,
administrators, successors and/or assigns, whichever the case may be, and
shall inure to the benefit of Fisher Scientific Company L.L.C., a Delaware
limited liability company, its successors and assigns and to the benefit
of its officers, directors, agents and employees and their heirs,
executors, administrators, and assigns.
J. The agreements and obligations of Seller set forth in this Guaranty are in
consideration of purchases made by Fisher from Seller and said obligations
are in addition to (and supersede to the extent of any conflict) any
obligations of Seller to Fisher or Fisher to Seller. This Guaranty shall
be effective upon the first sale to Fisher of any Product by Seller, and
the obligations of Seller under this Guaranty shall survive and be
enforceable in accordance with its terms.
SELLER
BIOSITE DIAGNOSTICS INCORPORATED
- -----------------------------------------------
- -----------------------------------------------
Name Under Which Seller's Business is Conducted
/s/ KIM D. BLICKENSTAFF
- -----------------------------------------------
Signature of Authorized Representative
PRESIDENT 4/3/98
- -----------------------------------------------
Title Date
FISHER SCIENTIFIC COMPANY L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
/s/ CHARLES V. WOZNIAK
- -----------------------------------------------
Signature of Authorized Representative
PRESIDENT
- -----------------------------------------------
Title
*** CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT B
PRODUCT WARRANTY
Biosite's express and implied warranties (including implied warranties of
merchantability and fitness) are conditioned upon observance of Biosite's
published directions with respect to the use of Biosite's diagnostic
products. Remedies against Biosite for breach of warranty or other duty are
limited solely to replacement or return of the purchase price of the affected
products. Any such claim against Biosite must be made in writing and promptly
pursued within one year from the date of delivery of the goods. UNDER NO
CIRCUMSTANCES WHATSOEVER SHALL BIOSITE BE LIABLE FOR ANY INDIRECT OR
CONSEQUENTIAL DAMAGES.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE REGISTRANT'S FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S 1997 ANNUAL REPORT ON
FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,309
<SECURITIES> 38,381
<RECEIVABLES> 5,467
<ALLOWANCES> 0
<INVENTORY> 3,085
<CURRENT-ASSETS> 65,294
<PP&E> 15,236
<DEPRECIATION> 7,519
<TOTAL-ASSETS> 65,294
<CURRENT-LIABILITIES> 6,095
<BONDS> 4,024
0
0
<COMMON> 129
<OTHER-SE> 55,045
<TOTAL-LIABILITY-AND-EQUITY> 65,294
<SALES> 7,884
<TOTAL-REVENUES> 8,796
<CGS> 1,755
<TOTAL-COSTS> 7,765
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (724)
<INCOME-TAX> 224
<INCOME-CONTINUING> (500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (500)
<EPS-PRIMARY> 0.04<F1>
<EPS-DILUTED> 0.04
<FN>
<F1>EARNINGS PER SHARE IS CALCULATED BASED UPON PRO FORMA SHARES OUTSTANDING.
SEE NOTE 1 OF NOTES TO FINANCIAL STATEMENTS.
</FN>
</TABLE>
