<PAGE>
- - --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1997
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 0-27558
CYTYC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 02-0407755
-------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
85 Swanson Road, Boxborough, MA 01719
-------------------------------------
(Address of principal executive offices, including Zip Code)
(508) 263-8000
--------------
(Registrant's telephone number, including area code)
----------------------------
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 [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: The number of shares of the
issuer's Common Stock, $0.01 par value per share, outstanding as of July 31,
1997 was 17,293,799.
Total Number of Pages:
Exhibit Index is on Page
- - --------------------------------------------------------------------------------
<PAGE>
CYTYC CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1996 and June 30, 1997 3
Consolidated Statements of Operations
for the three months and six months ended
June 30, 1996 and 1997 4
Consolidated Statements of Cash Flows
for the three months and six months ended
June 30, 1996 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II Other Information
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
</TABLE>
<PAGE>
Part I Financial Information
Item 1. Consolidated Financial Statements
Cytyc Corporation
Consolidated Balance Sheets
(in thousands, except share and per share data)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
---- ----
<S> <C> <C>
Assets:
Current assets
Cash and cash equivalents $ 27,572 $ 49,762
Short-term investments 11,485 49,385
Accounts receivable, net 2,682 3,775
Inventories 1,463 1,810
Prepaid expenses and other current assets 771 757
---------- ----------
Total current assets 43,973 105,489
---------- ----------
Property and equipment, net 5,251 5,602
Other assets 959 1,264
---------- ----------
Total assets $ 50,183 $ 112,355
========== ==========
Liabilities:
Current liabilities
Accounts payable $ 1,034 $ 830
Accrued expenses 1,944 6,418
Deferred revenue 524 781
---------- ----------
Total current liabilities 3,502 8,029
---------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value-
Authorized 5,000,000 shares
No shares issued or outstanding - -
Common stock, $0.01 par value-
Authorized 60,000,000 shares
Issued and outstanding 14,013,002 shares
in 1996 and 17,280,599 at June 30, 1997 140 173
Additional paid-in capital 93,648 164,521
Accumulated deficit (47,107) (60,368)
---------- ----------
Total stockholders' equity 46,681 104,326
---------- ----------
Total liabilities and stockholders' equity $ 50,183 $ 112,355
========== ==========
</TABLE>
See accompanying notes.
Page 3
<PAGE>
Cytyc Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- --------------------------
June 30, June 30, June 30, June 30,
1996 1997 1996 1997
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
Net sales $ 1,680 $ 5,161 $ 2,794 $ 8,601
Cost of sales 1,091 1,853 1,825 3,363
--------- --------- -------- ----------
Gross profit 589 3,308 969 5,238
--------- --------- -------- ----------
Operating expenses:
Research and development 1,311 1,441 2,177 2,976
Sales, marketing and customer support 1,962 8,058 3,670 14,690
General and administrative 795 1,895 1,439 3,291
--------- --------- -------- ----------
Total operating expenses 4,068 11,394 7,286 20,957
--------- --------- -------- ----------
Loss from operations (3,479) (8,086) (6,317) (15,719)
Interest income, net 715 1,420 885 2,458
--------- --------- -------- ----------
Net loss $ (2,764) $ (6,666) $ (5,432) $ (13,261)
--------- --------- -------- ----------
Net loss per share $ (0.20) $ (0.39) $ (0.44) $ (0.80)
--------- --------- -------- ----------
Shares used in computing net loss per share 13,612 17,256 12,246 16,487
--------- --------- -------- ----------
</TABLE>
See accompanying notes.
Page 4
<PAGE>
Cytyc Corporation
Statements of Cash Flows
(in thousands)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ -------------------------
June 30, June 30, June 30, June 30,
1996 1997 1996 1997
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,764) $ (6,666) $ (5,432) $ (13,261)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 116 151 199 453
Changes in assets and liabilities --
Accounts receivable (196) (1,092) 367 (1,093)
Inventories (109) (182) (237) (347)
Prepaid expenses and other assets (416) (192) (452) 14
Accounts payable 544 (577) 449 (204)
Accrued expenses 189 2,684 773 4,474
Deferred revenue 51 27 50 257
--------- --------- --------- ----------
Net cash used in operating activities (2,585) (5,847) (4,283) (9,707)
--------- --------- --------- ----------
Cash flows from investing activities:
Increase in other assets (262) (215) (372) (305)
Purchase of property and equipment (1,780) (399) (3,042) (804)
Purchases of short-term investments (13,719) (22,955) (13,719) (49,756)
Proceeds from sale and maturity of short-term investments 1,468 7,878 1,468 11,856
--------- --------- --------- ----------
Net cash used in investing activities (14,293) (15,691) (15,665) (39,009)
--------- --------- --------- ----------
Cash flows from financing activities:
Proceeds from employee stock purchase program - 109 - 109
Proceeds from exercise of stock options 76 34 81 217
Proceeds from sale of common stock 6,696 - 49,986 70,580
--------- --------- --------- ----------
Net cash provided by financing activities 6,772 143 50,067 70,906
--------- --------- --------- ----------
Net increase (decrease) in cash (10,106) (21,395) 30,119 22,190
Cash and cash equivalents, beginning of period 45,890 71,157 5,665 27,572
--------- --------- --------- ----------
Cash and cash equivalents, end of period $ 35,784 $ 49,762 $ 35,784 $ 49,762
========= ========= ========= ==========
</TABLE>
See accompanying notes.
Page 5
<PAGE>
Cytyc Corporation
Notes to Consolidated Financial Statements
NOTES
1. Significant Accounting Policies
The notes and accompanying consolidated financial statements are unaudited.
They have been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission and are subject to year end audit by
independent public accountants. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. It is suggested that the financial statements be read in
conjunction with the financial statements and notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 (File No.
0-27558).
The information furnished reflects all adjustments which, in the opinion of
management, are necessary for a fair presentation of results for the interim
periods. Such adjustments consisted only of normal recurring items. It should
also be noted that results for the interim periods are not necessarily
indicative of the results expected for the full year or any future period.
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. Cash and Cash Equivalents
Cash equivalents consist of money market mutual funds, commercial paper and
U.S. Government securities with original maturities of three months or less.
3. Short-term Investments
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities.
Short-term investments consist of U.S. Government securities with original
maturities between three and twelve months. The Company classifies these
short-term investments as held-to-maturity, and accordingly, they are carried at
amortized cost, which approximates market.
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
Cost Holding Gains Holding Losses Value
June 30, 1997 ---- ------------- -------------- -----
- - ------------- (in thousands)
<S> <C> <C> <C> <C>
U.S. Government and Agency
securities (average maturity of
.53 years)................................ $49,385 $116 - $49,501
======= ==== = =======
December 31, 1996
- - -----------------
U.S. Government and Agency
securities (average maturity of
.44 years.................................. $11,485 $66 - $11,551
======= === = =======
</TABLE>
Page 6
<PAGE>
4. Net Loss Per Share
Net loss per share for the three months and six months ended June 30, 1997
are computed based upon the weighted average number of common shares outstanding
during the period. Common stock equivalents consist of stock options and
warrants and are not included in the calculation of earnings per share because
their effect would be antidilutive. Fully diluted earnings per share have not
been presented, as the amounts would not differ significantly from primary
earnings per share.
5. Follow-on Public Offering of Securities
On February 6, 1997, the Company sold through an underwritten follow-on
public offering 2,650,000 shares of common stock at a price to the public of
$23.50 per share, while existing shareholders sold 1,000,000 shares of common
stock. On February 20, 1997, the underwriters of the follow-on public offering
exercised their over-allotment option in full to purchase an additional 547,500
shares of the Company's common stock at a price to the public of $23.50 per
share.
6. New Accounting Standard
On March 31, 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. SFAS No. 128 is effective for fiscal years
ending after December 15, 1997 and early adoption is not permitted. When adopted
by the Company, SFAS No. 128 will require restatement of prior years' earnings
per share. The Company will adopt SFAS No. 128 for its fiscal year ended
December 31, 1997. The Company believes that the adoption of SFAS No. 128 will
not have a material effect on its financial statements.
Page 7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The Company designs, develops, manufactures and markets a sample
preparation system for medical diagnostic applications. The ThinPrep System
consists of the ThinPrep 2000 Processor, and related disposable reagents,
filters and other supplies. The Company has marketed the ThinPrep System for use
in non-gynecological testing applications since 1991. On May 20, 1996, the
Company received premarket approval ("PMA") from the United States Food and Drug
Administration ("FDA") to market the ThinPrep System for cervical cancer
screening as a replacement for the conventional Pap smear method. On November 6,
1996, the FDA cleared expanded product labeling for the ThinPrep System to
include the claim that the ThinPrep System is significantly more effective in
detecting low grade and more severe lesions than the conventional Pap smear
method in a variety of patient populations. The expanded labeling also indicates
that the specimen quality using the ThinPrep System is significantly improved
over that of the conventional Pap smear method.
Since inception, the Company has incurred substantial losses, principally
from expenses associated with obtaining FDA approval of the Company's ThinPrep
System for cervical cancer screening, engineering and development efforts
related to the ThinPrep System, expansion of the Company's manufacturing
capabilities, and the establishment of a marketing and sales organization. The
Company expects such losses to continue for the foreseeable future as it expands
its domestic and establishes its international marketing and sales activities,
continues its product development efforts, and commences full-scale
manufacturing of the ThinPrep System for cervical cancer screening. The
operating results of the Company have fluctuated significantly in the past on an
annual and a quarterly basis. The Company expects that its operating results
will fluctuate significantly from quarter to quarter in the future and will
depend on a number of factors, including the extent to which the Company's
products gain market acceptance, the rate and size of expenditures incurred as
the Company expands its domestic and establishes its international sales and
distribution networks, the timing of any approvals of the ThinPrep System for
reimbursement by third-party payors, and other factors, many of which are
outside the Company's control.
The Company will continue to increase the amount of expenditures for
marketing, sales and customer support activities, principally in support of the
full-scale commercial launch of the ThinPrep System for cervical cancer
screening in the United States, which commenced in early 1997. During the three
months ended June 30, 1997, the Company entered into a number of agreements in
connection with its marketing and sales activities, including a co-promotion
agreement with Mead Johnson & Company, a division of Bristol-Myers Squibb, to
promote the ThinPrep Pap Test to obstetricians in the United States, and an
agreement with Quest Diagnostics Incorporated to provide ThinPrep Pap Testing at
its clinical laboratories in the United States. The Quest Diagnostic agreement
is exclusive in that Quest will only provide other liquid-based mono or thin
layer sample preparation technologies if FDA labeling claims for such products
exceed the FDA labeling claims of the ThinPrep System and will only provide
computer aided rescreening upon customer initiated request. Quest Diagnostics
and the Company agreed to coordinate their efforts in planning and marketing the
ThinPrep Tests to medical professionals and third party payors. There can be no
assurance that such marketing, sales and customer support activities will result
in increased net sales, that the agreements with Mead Johnson & Company, Quest
Diagnostics Incorporated or other third parties will be successful, that the
Company's direct sales force will succeed in promoting the ThinPrep System to
health care providers, third-party payors or clinical laboratories, or that
additional marketing and sales channels will be successfully established.
The Company believes that sales of the ThinPrep System for cervical cancer
screening in the United States will depend on the availability of adequate
reimbursement from third-party payors such as private insurance plans, managed
care organizations and Medicare and Medicaid. The Company believes that in the
United States the current rate of reimbursement of laboratories from insurance
companies, managed care organizations and other third-party payors to screen
conventional Pap smears ranges from $6.00 to $36.00, with $17.00 the most common
rate of reimbursement. The Company believes that the cost per ThinPrep Pap Test,
plus a laboratory mark-up, will be billed to third-party payors and result in a
higher cost than the current charge for a conventional pap test.
The Company believes that its expanded FDA labeling supported by clinical
field and trial results may assist in the establishment of increased
reimbursement for the ThinPrep Pap Test. There can be no assurance that third-
party payors will provide such coverage, that reimbursement levels will be
adequate, or that health care providers or clinical laboratories will use the
ThinPrep System for cervical cancer screening in lieu of the conventional Pap
smear method.
Page 8
<PAGE>
The company will continue to increase its expenditures for research and
development to fund the development of follow-on products and additional
applications of the ThinPrep technology. The Company will continue to increase
the amount of expenditures for administrative activities, principally for the
employment of additional administrative personnel, increased business insurance
costs, legal expenses and professional fees.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 and 1996
Net sales increased 207.2% to $5.2 million in the second quarter of 1997
from $1.7 million for the same period of 1996. This increase in net sales was
primarily due to an increase in the number of ThinPrep Processors sold, sales of
the Company's ThinPrep Pap Test for cervical cancer screening, and additional
sales of related reagents, filters and other supplies for non-gynecological and
gynecological testing. Gross profit increased 461.6% to $3.3 million in the
second quarter of 1997 from $589,000 for the same period of 1996, and the gross
margin increased to 64.1% in the second quarter of 1997 from 35.0% for the same
period of 1996. Management attributes the increase in gross margin in 1997 to
the introduction and sales of the ThinPrep Pap Test beginning in the later part
of 1996 and increased sale prices for non-gynecological tests and ThinPrep 2000
Processors.
Total operating expenses increased to $11.4 million for the three months
ended June 30, 1997 from $4.1 million in the same period of 1996, an increase of
180.0%. Research and development costs increased to $1.4 million in 1997 from
$1.3 million in the same period of 1996, an increase of 9.9%, as a result of
employment of additional research and development personnel. Sales, marketing
and customer support increased to $8.1 million in the second quarter of 1997
from $2.0 million in the same period of 1996, an increase of 310.7%. The
increase in sales, marketing and customer support costs reflects the employment
of additional sales and customer support personnel, increased commission
expenses, expenses associated with the Mead Johnson co-promotion agreement, and
additional marketing consulting costs related to the commercial launch of the
ThinPrep Pap Test. General and administrative costs increased to $1.9 million in
the second quarter of 1997 from $795,000 in the same period of 1996, an increase
of 138.4%, due to the employment of additional administrative personnel,
increased business insurance costs, and legal expenses.
Net interest income increased to $1.4 million in the second quarter of 1997
from $715,000 for the same period of 1996, an increase of 98.6%, due to an
increase in the average cash balance available for investment.
Six Months Ended June 30, 1997 and 1996
Net sales increased 207.8% to $8.6 million in the first half of 1997 from
$2.8 million for the same period of 1996. This increase in net sales was
primarily due to an increase in the number of ThinPrep Processors sold, sales of
the Company's ThinPrep Pap Test for cervical cancer screening, and additional
sales of related reagents, filters and other supplies for non-gynecological and
gynecological testing. Gross profit increased 440.6% to $5.2 million in the
first half of 1997 from $969,000 for the same period of 1996, and the gross
margin increased to 60.9% in the first half of 1997 from 34.7% for the same
period of 1996. Management attributes the increase in gross margin in 1997 to
the introduction and sales of the ThinPrep Pap Test beginning in the later part
of 1996 and increased sale prices for non-gynecological tests and ThinPrep 2000
Processors.
Total operating expenses increased to $21.0 million for the six months
ended June 30, 1997 from $7.3 million in the same period of 1996, an increase of
187.6%. Research and development costs increased to $3.0 million in 1997 from
$2.2 million in the same period of 1996, an increase of 36.7%, as a result of
employment of additional research and development personnel. Sales, marketing
and customer support increased to $14.7 million in the first half of 1997 from
$3.7 million in the same period of 1996, an increase of 300.3%. The increase in
sales, marketing and customer support costs reflects the employment of
additional sales and customer support personnel, increased commission expenses,
expenses associated with the Mead Johnson co-promotion agreement, and additional
marketing consulting costs related to the commercial launch of the ThinPrep Pap
Test. General and administrative costs increased to $3.3 million in the first
half of 1997 from $1.4 million in the same period of 1996, an increase of
128.7%, due to the employment of additional administrative personnel, increased
business insurance costs, and legal expenses.
Net interest income increased to $2.5 million in the first half of 1997
from $885,000 for the same period of 1996, an increase of 177.7%, due to an
increase in the average cash balance available for investment.
Page 9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have significantly exceeded its
revenue, resulting in an accumulated deficit of $60.4 million as of June 30,
1997. The Company has funded its operations primarily through the private
placement and public sale of equity securities aggregating $164.7 million, net
of offering expenses. At June 30, 1997, the Company had cash, cash equivalents
and short-term investments of $99.1 million. Cash, cash equivalents and
short-term investments increased during 1997 primarily due to the issuance of
3,197,500 shares of Common Stock in connection with the Company's follow-on
public offering for aggregate net proceeds of approximately $70.6 million. Cash
used in the Company's operations during the second quarter of 1997 was $5.8
million compared to $2.6 million in the second quarter of 1996, an increase of
126.1%. The increase in cash used in operations in the second quarter of 1997
was due to increased levels of operating activities, primarily for the expansion
of its marketing, sales and customer support organizations.
The Company's capital expenditures for the quarters ended June 30, 1997 and
1996 were $399,000 and $1.8 million, respectively. The higher level of capital
expenditures in the second quarter ended June 30, 1996 was due primarily to
amounts paid for customized manufacturing equipment and leasehold improvements
for the Company's larger facility.
The Company is the exclusive licensee of certain patented technology used
in the ThinPrep System. In consideration for this license, the Company has
agreed to pay a royalty equal to 1% of net sales of the ThinPrep Processor,
filter cylinder disposable products which are used with the ThinPrep System, and
improvements made by the Company relating to such items. There are no minimum
royalty payments in connection with this license.
Accounts receivable increased $1.1 million from December 31, 1996 to June
30, 1997 due to increased sales, partially offset by improved collection
efforts. Inventories increased approximately $347,000 to $1.8 million from
December 31, 1996 to June 30, 1997 due primarily to the Company's planned sales
increase in ThinPrep 2000 Processors and related reagents, filters and other
supplies. Stockholders' equity increased approximately $57.6 million from
December 31, 1996 to June 30, 1997 primarily due to the sale of 3,197,500 shares
of Common Stock in connection with the Company's follow-on public offering in
February 1997, which was offset by the net loss of $13.3 million.
The Company's future liquidity and capital requirements will depend upon
numerous factors, including the resources required to further develop its
marketing and sales capabilities, both domestic and international, the resources
required to expand manufacturing capacity, and the extent to which the ThinPrep
System for cervical cancer screening generates market acceptance and demand. The
Company's capital requirements will also depend upon the progress of the
Company's research and development programs including clinical trials, the
receipt of and the time required to obtain regulatory clearances and approvals,
and the resources the Company devotes to developing, manufacturing and marketing
its products. There can be no assurance that the Company will not require
additional financing or will not in the future seek to raise additional funds
through bank facilities, debt or equity offerings or other sources of capital.
Additional funding may not be available when needed or on terms acceptable to
the Company, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Page 10
<PAGE>
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
The Company does not provide financial performance forecasts. The forward
looking statements in this Form 10-Q are made under the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company's operating
results and financial condition have varied and may in the future vary
significantly depending on a number of factors. The statements contained in this
report which are not strictly historical information, including, without
limitation, statements regarding current or future financial performance, the
implementation of the Company's full-scale marketing and sales activities,
availability of reimbursement for the Company's product, management's plans and
objectives for future operations, product plans and performance, potential
savings to the health care system, management's assessment of market factors, as
well as statements regarding the strategy and plans of the Company, constitute
forward looking statements which involve risks and uncertainties. The following
factors, among others, could cause actual results to differ materially from
those contained in forward-looking statements made in this report and presented
elsewhere by management from time to time. The Company's risk factors include
its dependence on a single product, uncertainty of market acceptance and
additional cost, a limited number of customers and a lengthy sales cycle, a
limited operating history, risks associated with commercialization, dependence
on third party reimbursement, limited marketing and sales experience, a history
of losses, potential fluctuations in future quarterly results, intense
competition, uncertainty of additional applications, extensive government
regulation, limited manufacturing experience, dependence on patents and
copyrights, licenses and proprietary rights, risk of third party claims of
infringement, and dependence on single source suppliers. Such factors, among
others, may have a material adverse effect upon the Company's business, results
of operations and financial condition. Because of these and other factors, past
financial performance should not be considered an indication of future
performance.
Page 11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
On April 15, 1997, Cytyc Corporation (the "Company") commenced a lawsuit
against Neuromedical Systems, Inc. ("NSI"), The PIE Mutual Insurance Company
("PIE") and other parties in the United States District Court in Massachusetts
(Civil Action No. 97-10740). The action was dismissed without prejudice as to
certain defendants, and dismissed as to the remaining defendants following the
court's determination that personal jurisdiction was lacking.
The Company refiled against NSI and two of its officers in the United
States District Court for the Southern District of New York on June 24, 1997
(Civil Action No. CIV 4642). The lawsuit includes claims of false and misleading
advertising, unfair and deceptive trade practices, unfair competition,
misappropriation of trade secrets, tortious interference with the Company's
business relationships and defamation. In addition to seeking preliminary and
permanent injunctions to stop NSI and its officers from such conduct, the
Company seeks treble damages. On July 30, 1997, NSI moved to dismiss the
Company's complaint. NSI's motion to dismiss has not been decided.
The Company also refiled against PIE and its medical director in the
United States District Court for the Northern District of Ohio, Eastern Division
on July 3, 1997 (Civil Action No. 1:97 CV 1779). The complaint alleges false and
misleading description and representation, unfair and deceptive trade practices,
interference with advantageous relationships, defamation and commercial
disparagement. The Company is seeking injunctive relief as well as treble
damages. The defendants have not responded to the Complaint.
On May 14, 1997, Cytology West, Inc. filed Suit against the Company in
the United States District Court for the District of Nevada (Civil Action No.
CV-S-97-00594-LDG(LRL)), alleging false description, false representation and
unfair competition. On June 27, 1997, the Company filed a motion to dismiss the
complaint. The Court has not rendered a decision on the Company's motion. While
the outcome of the action cannot be determined, the Company believes the action
is without merit, and intends to defend the action vigorously. The Company
further believes that the action will not have a material effect on the
Company's financial operation or financial condition.
Item 2. Changes in Securities.
---------------------
On May 9, 1997, the Company increased the number of authorized shares of
Common Stock, $.01 par value, from 30,000,000 to 60,000,000. See Item 4 below.
Item 3. Defaults upon Senior Securities.
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
At the Company's annual meeting of stockholders held May 9, 1997 (the
"1997 Annual Meeting"), the Company's stockholders took the following actions:
1. The Company's stockholders elected Janet G. Effland, C. William
McDaniel and Patrick J. Sullivan as Class I directors, each to
serve for a three-year term expiring at the Company's annual
meeting of stockholders in 2000 or until his successor has been
duly elected and qualified or until his earlier resignation or
removal. Election of the directors was determined by a plurality
of the votes cast at the 1997 Annual Meeting. With respect to
such matter, the votes were cast as follows: 15,121,628 shares
voted for the election of Ms. Effland, 15,032,662 shares voted
for the election of Mr. McDaniel, 15,121,778 shares voted for the
election of Mr. Sullivan, 16,785 shares were withheld from the
election of Ms. Effland, 105,751 shares were withheld from the
election of Mr. McDaniel, and 16,635 shares were withheld from
the election of Mr. Sullivan. No other persons were nominated, or
received votes, for election as directors of the company at the
1997 Annual Meeting. The other directors of the Company whose
term of office continued after the annual meeting were: Frederick
C. Blume, Franklin J Iris, Edwin M. Kania, Jr., Guy de Chazal and
Monroe Trout, M.D.
Page 12
<PAGE>
2. The Company's stockholders approved and adopted an amendment to
the Company's Amended and Restated Certificate of Incorporation
to increase the number of authorized shares of the Company's
Common Stock, par value $.01 per share, from 30,000,000 to
60,000,000 shares. With respect to such matter, the votes were
cast as follows: 14,857,414 shares voted for the proposal,
164,151 shares voted against the proposal, 10,666 shares
abstained from voting on the proposal and 106,182 shares were
broker non-votes.
3. The Company's stockholders ratified the selection of Arthur
Andersen LLP, independent certified public accountants, as
auditors for the Company's fiscal year ending December 31, 1997.
With respect to such matter, the votes were cast as follows:
15,124,618 shares voted for the proposal, 7,880 shares voted
against the proposal, 5,915 shares abstained from voting on the
proposal and no shares were broker non-votes.
Item 5. Other Information.
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
--------
10* Co-Promotion Agreement dated as of May 27, 1997, by and
between Mead Johnson & Company, a Delaware corporation,
and the Company.
11.1 Statement of Computation of Weighted Average Shares
Outstanding
27 Financial Data Schedule
*Confidential treatment requested as to omitted portions
pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934,
as amended.
(b) Reports on Form 8-K.
--------------------
The Company filed a report on form 8-K on April 15, 1997
reporting the commencement of a lawsuit against Neuromedical Systems, Inc., The
PIE Mutual Insurance Company and other parties in the United States District
Court in Massachusetts (Civil Action No. 97-10740).
Page 13
<PAGE>
SIGNATURE
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.
CYTYC CORPORATION
Date: August 8, 1997 By: /s/ Joseph W. Kelly
----------------------------------------
Joseph W. Kelly
Vice President, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and Accounting Officer)
Page 14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<C> <S> <C>
10* Co-promotion Agreement dated as of May 27, 1997, by and between
Mead Johnson & Company, a Delaware corporation, and the Company
11.1 Statement of Computation of Weighted Average Shares Outstanding
27 Financial Data Schedule
</TABLE>
* Confidential Treatment requested as to omitted portions pursuant to rule
246-2 promulgated under the Securities Exchange Act of 1934, as amended.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
COPROMOTION AGREEMENT
This COPROMOTION AGREEMENT (the "Agreement") is made May 27, 1997, and is
effective April 25, 1997, by and between CYTYC CORPORATION, a Delaware
corporation maintaining its principal business offices at 85 Swanson Road,
Boxborough, Massachusetts 01719 ("Cytyc"), and MEAD JOHNSON & COMPANY, a
Delaware corporation maintaining its principal business offices at 2400 West
Lloyd Expressway, Evansville, Indiana 47721 ("MJC").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Cytyc manufactures, markets, and distributes a replacement for the
pap smear under the name "ThinPrep(R) Pap Test/TM/" which has received
premarketing approval by the United States Food and Drug Administration;
WHEREAS, MJC is engaged in the business of developing, manufacturing,
marketing, and/or distributing various nutritional and some pharmaceutical
products in the United States; and
WHEREAS, Cytyc wishes to expand the promotion of the Thin Prep Pap Test to
OBGYNs, and MJC desires to have the right to copromote the ThinPrep Pap Test to
OBGYNs, all upon the terms specified in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, Cytyc and MJC agree as follows:
1. Definitions. For purposes of this Agreement, the following terms will have
-----------
the corresponding meanings set forth below:
A. [confidential treatment requested] has the meaning specified in
--------------------------------
Section 11.
B. "Follow-Up Call" has the meaning specified in Section 4.E.
--------------
C. [confidential treatment requested] has the meaning specified in
--------------------------------
Section 11.
D. "National Phase" has the meaning specified in Section 3.A.
--------------
E. "OBGYNs" means obstetricians and gynecologists practicing patient care
------
in the Territory [confidential treatment requested].
F. "POA" means "plan of action".
---
G. "Primary Call" has the meaning specified in Section 4.C.
------------
-1-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
H. "Product" means the ThinPrep Pap Test and any new and/or improved form,
-------
formulation, or delivery system specifically related to the ThinPrep Pap Test.
I. "Product Sales" means for the applicable period the price actually
-------------
charged by Cytyc or its licensees for the Product to purchasers for their use or
use by someone else or for resale in the Territory, net of (i) actual returns
and credits for rejected Product, (ii) actual bad debt related to sales of the
Product (iii) sales of Product for research and development purposes, (iv)
sales of ThinPrep Processors, and (v) sales taxes or similar taxes, the legal
incidence of which falls on Cytyc, to the extent identified on the invoice for
the Product or otherwise documented as part of the sale. If a Product is sold
for compensation other than cash, Product Sales will be calculated based on the
fair market value of the Product in cash.
J. "Profile Form" has the meaning specified in Section 4.B.
------------
K. "Promotional Call" has the meaning specified in Section 4.F.
----------------
L. "Promotional Materials" means all written promotional material provided
---------------------
to MJC by Cytyc in connection with this Agreement, including, but not limited
to, sample Products, user manuals, logos, symbols, designs, displays,
stationery, forms, articles, sales literature, technical manuals, and business
reply cards related to the Product or Cytyc's ThinPrep System generally.
M. "Regional Phase" has the meaning specified in Section 3.A.
--------------
N. "Residual Phase" has the meaning specified in Section 3.A.
--------------
O. "Term" has the meaning specified in Section 3.A.
----
P. "Territory" means the [confidential treatment requested]
---------
Q. "Trademark" means the registered trademarks "Cytyc(R)", "ThinPrep(R)",
---------
"PreservCyt(R), and "TransCyt(R)", and the trademark "ThinPrep(R) Pap Test/TM/"
and any other trademark or trade name (whether registered or unregistered) used
on or with the Product or in any promotional material related to the Product in
the Territory.
2. Grant of Rights to MJC
----------------------
A. Cytyc engages MJC to copromote the Product on an exclusive basis to
OBGYNs upon the terms and conditions in this Agreement. During the Term, (i)
Cytyc and its affiliates retain the right, and have the obligation, to use
commercially reasonable efforts to promote the Product in the Territory, and
(ii) Cytyc retains and this Agreement in no way restricts Cytyc's right to
promote, distribute, and sell the Product in the Territory through labs, managed
care organizations, insurance companies, and any other organizations as Cytyc
deems necessary or ap-
-2-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
propriate in its sole discretion provided that Cytyc does not utilize the
services of [confidential treatment requested].
B. During the Term, Cytyc grants MJC a fully-paid up, nonexclusive right
and license to use the Trademark solely in connection with its promotion of the
Product and the other activities of MJC conducted in the Territory in accordance
with this Agreement. MJC will use the Trademarks only in furtherance of the
purposes of this Agreement and at all times will use the Trademarks in
accordance with the trademark guidelines promulgated by Cytyc and then in
effect. MJC acknowledges that the Trademarks and any Promotional Materials
provided by Cytyc under this Agreement are owned solely and exclusively by Cytyc
and that nothing contained in this Agreement will give MJC any ownership right
in the Trademarks or Promotional Materials. MJC will not reproduce, copy, or
alter the Promotional Materials in any manner. MJC will not alter, deface,
cover, or remove any copyright or trademark notice on the Promotional Materials.
MJC has no right to sub-license any such rights.
3. Term
----
A. The Term will consist of the Regional Phase, the National Phase, and
the Residual Phase.
(1) The Regional Phase will run from [confidential treatment
requested] through [confidential treatment requested]
(2) The National Phase will run from [confidential treatment
requested] through [confidential treatment requested]
(3) The Residual Phase will run from [confidential treatment
requested] through [confidential treatment requested]
B. During the Regional Phase only, the Territory will be substantially
reduced so that it will consist only of the following [confidential treatment
requested] full MJC Districts and [confidential treatment requested] partial MJC
Districts:
(1) Full MJC Districts
------------------
[confidential treatment requested]
(2) Partial MJC Districts [confidential treatment requested]
----------------------
[confidential treatment requested]
C. During the National Phase and the Residual Phase, the entire Territory
will apply.
-3-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
D. On mutual agreement of Cytyc and MJC in their respective sole
discretion, the copromotion of the Product via Primary Calls, at [confidential
treatment requested] each, Promotional Calls, at [confidential treatment
requested] each, and Follow-Up Calls may be continued beyond calendar year 1998.
The exact terms and conditions of such additional copromotion activities would
be as agreed to between Cytyc and MJC.
4. Copromotion by MJC
------------------
A. During the Regional Phase and the National Phase, MJC will use
commercially reasonable efforts to copromote the Product to OBGYNs as set out in
this Agreement. MJC will utilize its sales representatives to copromote the
Product. MJC will not make any claims, warranties, or other statements
regarding the Product other than those contained in the Promotional Materials,
the Product's current package insert, or any other statement expressly
authorized by Cytyc. MJC and its sales representatives at all times will act in
a manner consistent with fair trade, fair competition, and good business ethics
and will attempt to maintain favorable relations with the OBGYNs and any other
person in connection with performing its obligations under this Agreement.
B. Cytyc and MJC jointly will develop a Profile Form to be used to help
identify the potential for Product business with an OBGYN. Information for
inclusion in the Profile Form will include [confidential treatment requested].
Cytyc will pay for the costs to develop, print, and distribute to MJC personnel
the Profile Form as needed by them. Information on the Profile Forms will be for
the benefit of and the property of [confidential treatment requested].
C. MJC will make Primary Calls on OBGYNs as follows:
(1) A Primary Call will be made by MJC for the purpose of attempting
to identify and/or further develop the potential for Product business with the
OBGYN.
(2) A Primary Call to an OBGYN who at the time of the Primary Call is
not using the Product will consist of the following:
-4-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
[confidential treatment requested]
(3) A Primary Call to an OBGYN who at the time of the Primary Call is
using the Product will consist of the following:
[confidential treatment requested]
(4) MJC will attempt to have Primary Calls with the OBGYN and key
office staff although such is not guaranteed as such attendance depends on MJC's
accessability to and the willingness of the OBGYN and key office staff. MJC,
however, does commit to the following:
(a) During the Regional Phase, conducting a Primary Call with
not less than [confidential treatment requested] of the OBGYNs in the Territory
covered by the Regional Phase.
(b) From [confidential treatment requested], which are the
[confidential treatment requested] of the National Phase, making a total of
[confidential treatment requested] Primary Calls as follows:
(i) [confidential treatment requested] Primary Calls on OBGYNs
who have not had a prior Primary Call; and
(ii) [confidential treatment requested] additional Primary Calls
on OBGYNs who may or may not have had a prior Primary Call at any time earlier
in the Term.
(c) Notwithstanding anything to the contrary in Section 4.C.(4)(b)
above, if MJC fails to make the number of Primary Calls set out in Section
4.C.(4)(b) above by [confidential treatment requested], this will not be deemed
a breach by MJC if the shortfall is not due to bad faith by MJC, but in any
event Cytyc and MJC will meet to discuss and mutually agree in good faith on (i)
shifting the obligation to make such shortfall in Primary Calls, (ii) making a
prorata adjustment in the Call Fee provided for in Section 11.C.(1) below, or
(iii) some other mutually agreeable reasonable resolution.
-5-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
(d) During [confidential treatment requested], which comprises
[confidential treatment requested] of the [confidential treatment requested]
making a total of [confidential treatment requested] Primary Calls, with no
obligation that any such additional Primary Calls be with OBGYNs who
[confidential treatment requested].
(5) One or more additional Primary Calls may be necessary in some
situations to accomplish the objectives in Subsection (2) above. If more than
one Primary Call on such OBGYNs is necessary, the subsequent Primary Calls will
be modified by MJC from the requirements set out in Subsection (2) above as
dictated by the circumstances. In such situations, additional Primary Calls will
be made unless or until either a qualified lead is generated or the OBGYN is
judged by MJC and Cytyc to be of marginal value and/or have marginal interest in
the Product.
(6) During all Primary Calls, [confidential treatment requested].
D. Upon (i) completion of all Primary Calls necessary to enable
completion of the Profile Form on an OBGYN's office and (ii) MJC's ability to
obtain a commitment from the OBGYN to allow Cytyc's sales representative to make
a call on the OBGYN, MJC promptly, within [confidential treatment requested] MJC
business days if reasonable, will complete and send, by fax if reasonably
possible, to Cytyc a completed Profile Form.
E. Following Cytyc's receipt of a completed Profile Form from MJC, Cytyc
promptly will forward the completed Profile Form to Cytyc's local sales
representative for Follow-Up Calls on the OBGYN. The Cytyc sales
representative then will promptly, within [confidential treatment requested]
days if reasonable, will make an appointment with the OBGYN for a Follow-Up Call
which appointment will be for as soon as is mutually agreeable with the OBGYN.
The purpose of the appointment will be for the Cytyc sales representative to:
(1) Make Product detailing to the OBGYN;
(2) Attempt to obtain a commitment from the OBGYN to use the
Product; and
(3) Attempt to secure the sale and implementation of the Product
throughout the OBGYN's office.
Cytyc will use commercially reasonable efforts to notify the MJC sales
representative of the date and time for the appointment. [confidential treatment
requested]. Following the Cytyc sales representative's Follow-Up Call on the
OBGYN, the Cytyc sales representative will report the outcome to MJC's
designated coordinator and to Cytyc's designated coordinator. Depending on the
geographic market and the Profile Form data, Cytyc may elect to effect a Follow-
Up Call via either telephone or by referral of the Follow-Up Call to appropriate
processing laboratory sales personnel. A general guideline for use of such
alternative means of effecting a Follow-Up Call is set out in Exhibit 1.
F. During [confidential treatment requested] of the [confidential
treatment requested] of the [confidential treatment requested], MJC
-6-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
will make a total of [confidential treatment requested] Promotional Calls on the
offices of OBGYNs who are using the Product. Promotional Calls will consist of
the following:
(1) Attempt to reinforce and expand the OBGYN's and/or office staff's
(2) Attempt to further develop the MJC sales representative's
relationship
(3) Fulfill the OBGYN's office needs regarding the Product such as
Product
[confidential treatment requested] with OBGYNs is not guaranteed during
Promotional Calls although MJC will use commercially reasonable efforts to
attempt to make some [confidential treatment requested] with the OBGYN during
Promotional Calls.
G. In [confidential treatment requested], as mutually agreed to by MJC and
Cytyc, MJC and Cytyc will meet to discuss and evaluate their perspectives on
which [confidential treatment requested] during the balance of the National
Phase. The focus of this discussion and evaluation will be how to attempt to
maximize Product Sales during the Term. Some considerations for such discussion
will be: (i) new OBGYNs that have been or may be added during the balance of the
National Phase, (ii) OBGYNs who, based on prior Primary Calls and/or Follow-Up
Calls, seemed to have a reasonable interest in the Product but have not yet
started using the Product, (iii) particularly influential OBGYNs, and (iv)
OBGYNs who are heavy users of the Product. MJC will use this discussion and
evaluation and other relevant information available to MJC in determining where
to target its Primary Calls and Promotional Calls.
H. During the Term, designated representatives of Cytyc and MJC will
meet, either in person or via teleconference as mutually agreed to by Cytyc and
MJC, once every [confidential treatment requested], or more frequently as the
parties may agree, to monitor the progress and performance under this Agreement
and to analyze and assess procedures for marketing and promoting the Product in
an attempt to maximize Product Sales during the Term.
5. Product Responsibilities of Cytyc; Promotion by Cytyc
-----------------------------------------------------
A. Cytyc will use commercially reasonable efforts to promote, at its cost
and expense, the Product (i) via Follow-Up Calls to OBGYNs with its own sales
representatives as provided for in this Agreement, (ii) to all other relevant
doctors and other health care professionals, (iii) to hospitals, managed care
groups, pharmacy benefit manager organizations, formularies, processing labs,
health care insurance providers, and other relevant groups and personnel; and
(iv) via planning symposia, seminars, and other professional relations events
related to the Product. Since, when the Product is used, it is necessary for
the Product to be processed in order to obtain test results from the Product's
use, Cytyc's promotion obligations include promoting the sale of appropriate
processing equipment to labs and other relevant entities. Furthermore, since
insurance coverage for use of the Product can greatly enhance the use of the
Product, Cytyc's promotion obligations further include promoting the approval of
insurance coverage for the Product.
B. Cytyc has the sole authority to determine the price and other
applicable terms of sale for the Product.
-7-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
C. Cytyc has the sole responsibility, at its cost and expense, for Product
manufacture, shipping, distribution, and warehousing, for the invoicing and
billing of purchasers of the Product, and for the collection of receivables
resulting from Product Sales.
D. Cytyc will furnish MJC with copies of all promotional materials made
available to Cytyc's sales force as may be reasonably requested by MJC to
satisfy its needs in the course of detailing the Product and otherwise
fulfilling its obligations under this Agreement. Cytyc and MJC will discuss in
good faith the quantity and type of any other Promotional Materials reasonably
needed by MJC to satisfy its needs in the course of detailing the Product and
otherwise fulfilling its obligations under this Agreement. All Promotional
Materials will be provided by Cytyc to MJC at Cytyc's sole cost and expense.
E. Cytyc has the sole responsibility for ensuring the Product complies
with all federal, state, and local laws and regulations including, by way of
example only and not limitation, the federal Food, Drug, and Cosmetic Act, as
amended, and all regulations issued pursuant to such law.
F. Notwithstanding anything in this Section to the contrary, Cytyc will
have strategic responsibility and sole authority and responsibility for
obtaining all legal, regulatory, and medical approvals related to the selling
and use of Promotional Materials used by Cytyc or MJC in marketing the Product.
6. Records. Cytyc and MJC each will maintain, in accordance with its
--------
customary practices including its customary record retention practices, records
of all Primary Calls (including any Profile Forms) and Promotional Calls, in the
case of MJC, and Follow-Up Calls, in the case of Cytyc, made during the Regional
Phase and National Phase of the Term. If a disagreement between the parties
exists as to such calls in the context of a material dispute under this
Agreement, the challenging party and their independent public accountants, upon
reasonable prior notice and subject to reasonable confidentiality obligations,
will have access to the relevant available records of the other so as to conduct
a review or audit of such records. Such access will be given during normal
business hours during the Term and for a period of [confidential treatment
requested] its expiration or termination.
7. Training of MJC Sales Representatives.
-------------------------------------
A. Cytyc will provide MJC's sales representatives with appropriate
training with respect to the Product. There will be [confidential treatment
requested] program for all of MJC's sales representatives who will be part of
the [confidential treatment requested] and [confidential treatment requested]
for all of MJC's sales representatives who will be part of the [confidential
treatment requested]. Cytyc and MJC together will develop and mutually agree to
the Product related training programs and schedule for such purpose. A
preliminary draft outline of such programs and schedule is attached as Exhibit
2.
All reasonable costs and expenses related to training [confidential
treatment requested] will be paid by [confidential treatment requested]
including, by way of example only and not limitation, all training materials
including their preparation, trainers, reasonable travel and related expenses
for MJC and Cytyc personnel to attend training including airfare, car, room and
board, and food, facilities, and aids.
B. Additionally, the Product will be incorporated as part of [confidential
treatment requested]
-8-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
to the extent it is commercially reasonable. If additional training related to
the Product that is incorporated into [confidential treatment requested]
to be extended, Cytyc will be responsible only for any such [confidential
treatment requested] due to the extension.
C. After each of the [confidential treatment requested] will submit a
statement to [confidential treatment requested] identifying in reasonable detail
the actual costs and expenses incurred by [confidential treatment requested] in
connection with such Product related training programs for which [confidential
treatment requested] is responsible and will provide any supplementary
documentation as [confidential treatment requested] may reasonably request to
verify such costs and expenses. Within [confidential treatment requested] days
after its receipt of such a statement, [confidential treatment requested] will
reimburse [confidential treatment requested] for such costs and expenses.
8. Product Samples. [confidential treatment requested], will provide MJC and
---------------
its sales force, with quantities of samples of the Product as is mutually agreed
to in good faith by [confidential treatment requested] and [confidential
treatment requested] as being reasonably needed by [confidential treatment
requested] for use in its copromotion activities for the Product. [confidential
treatment requested] will use commercially reasonable efforts to ship
[confidential treatment requested] to [confidential treatment requested] on a
schedule mutually agreed to by [confidential treatment requested] in good faith
in order to meet the needs of [confidential treatment requested].
9. Certain Regulatory and Other Matters
------------------------------------
A. All regulatory matters regarding the Product will remain under the
exclusive control and responsibility of Cytyc.
B. Cytyc and MJC will collaborate in good faith in developing the
copromotion strategy and tactics for copromoting the Product under this
Agreement. Furthermore, Cytyc may attend and provide input to MJC on the
Product related portion of MJC's pre-POA and management POA process.
C. Beginning as of the date of this Agreement, each party promptly will
notify the other party of any significant event(S) that affect or may affect the
marketing of the Product, including, by way of example only and not limitation,
adverse reactions and governmental inquiries, whether within or outside the
Territory.
D. Beginning as of the date of this Agreement, each party promptly will
notify the other party in writing of any order, request, or directive of a court
or other governmental authority to recall or withdraw the Product in any
jurisdiction. Cytyc will be responsible, at its sole cost and expense, for the
costs of any recall or withdrawal of the Product.
10. Compliance with Law. Each party will maintain in full force and effect all
-------------------
necessary licenses, permits, and other authorizations required by law to carry
out its respective duties and obligations under this Agreement. Each party will
comply with all laws, ordinances, rules, and regulations applicable to its
respective activities under this Agreement, including, by way of example only
and not limitation, any requirements of any license applicable to its respective
activities in the Territory.
11. Compensation
------------
-9-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
A. As compensation for the copromotion services rendered by MJC during the
Term, Cytyc will pay to MJC [confidential treatment requested].
B. For the [confidential treatment requested], Cytyc will pay MJC a
[confidential treatment requested]of [confidential treatment requested]. Cytyc
will make this payment to MJC on [confidential treatment requested].
C. For the [confidential treatment requested], Cytyc will pay MJC:
(1) For the period from [confidential treatment requested], Cytyc will
pay MJC [confidential treatment requested] of [confidential treatment
requested]. Cytyc will pay this [confidential treatment requested] to MJC in
[confidential treatment requested] of [confidential treatment requested] on
[confidential treatment requested]. The foregoing is subject to possible
modification pursuant to Section 4.C.(4)(C) above.
(2) For [confidential treatment requested], a [confidential treatment
requested] of [confidential treatment requested] per [confidential treatment
requested] and [confidential treatment requested] per [confidential treatment
requested] made during [confidential treatment requested]. (If more than one
OBGYN is located in the same office and are called on during the same
[confidential treatment requested] visit, only one [confidential treatment
requested] will be earned by MJC for such [confidential treatment requested]).
In the event Cytyc requests MJC to [confidential treatment requested] during
[confidential treatment requested] than needed for MJC to generate [confidential
treatment requested] of at least [confidential treatment requested], then Cytyc
will pay MJC the difference between [confidential treatment requested] and the
[confidential treatment requested] earned by MJC during [confidential treatment
requested] as calculated via the [confidential treatment requested] of
[confidential treatment requested] and the [confidential treatment requested] of
[confidential treatment requested]. Cytyc will pay the [confidential treatment
requested] to MJC in payments of [confidential treatment requested] per month
[confidential treatment requested] during [confidential treatment requested]. At
the end of each [confidential treatment requested] during [confidential
treatment requested], a [confidential treatment requested] will be done by MJC
to compare the [confidential treatment requested] earned by MJC at the rate of
[confidential treatment requested] per [confidential treatment requested] and
[confidential treatment requested] per [confidential treatment requested] made
from [confidential treatment requested], through the end of the relevant
[confidential treatment requested] versus the collective [confidential treatment
requested] payments made by Cytyc towards the [confidential treatment requested]
during the applicable period. Any amount due MJC will be paid by Cytyc to MJC,
or any amount over paid by Cytyc will be paid by MJC to Cytyc, within
[confidential treatment requested] days following the end of the relevant
[confidential treatment requested]. Prior to being able to earn a [confidential
treatment requested] from [confidential treatment requested] during
[confidential treatment requested] in excess of [confidential treatment
requested] (which equates to [confidential treatment requested], MJC must obtain
Cytyc's prior written approval. Furthermore, prior to being able to earn a
[confidential treatment requested] from [confidential treatment requested]
during [confidential treatment requested] in excess of [confidential treatment
requested] (which equates to [confidential treatment requested] [confidential
treatment requested]), MJC must obtain Cytyc's prior written approval.
D. Cytyc also will pay MJC an [confidential treatment requested]. The
[confidential treatment requested] will cover the [confidential treatment
requested].
(1) For the [confidential treatment requested], Cytyc will pay an
[confidential treatment requested] to MJC equal to [confidential treatment
requested] of [confidential treatment requested] during the [confidential
treatment requested] in excess of [confidential treatment requested]. This
[confidential treatment requested] will be paid by Cytyc to MJC by [confidential
treatment requested].
-10-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
(2) For the [confidential treatment requested] Cytyc will pay an
[confidential treatment requested] to MJC based on [confidential treatment
requested] during the [confidential treatment requested] as set out in Exhibit
3. This [confidential treatment requested] will be paid by Cytyc to MJC by
[confidential treatment requested].
E. All payments by Cytyc to MJC will be made by wire transfer in
immediately available funds in legal currency of the United States and will be
delivered to the account designated by MJC in writing from time to time.
12. Reporting
---------
A. Cytyc will furnish MJC, within [confidential treatment requested] days
after each calendar month, an unaudited report setting forth the Product Sales
in the Territory during such month, categorized as mutually agreed to by Cytyc
and MJC.
B. MJC will furnish Cytyc, within [confidential treatment requested] days
after each calendar month during the Regional Phase and the National Phase, an
unaudited report setting forth the number of Primary Calls and Promotional Calls
by MJC District made by MJC during such month.
C. Cytyc will maintain complete and accurate books and records in
sufficient detail to enable verification of the compensation payable to MJC
under this Agreement. Upon reasonable prior notice to Cytyc, MJC and its
independent public accountants, subject to confidentiality obligations as set
forth in the Confidentiality Agreement as defined in and as set forth in Section
14 below, will have access to the relevant books and records of Cytyc to conduct
a review or audit. Such access will be given during normal business hours not
more than once each calendar year during the Term and for a period of
[confidential treatment requested] years after its expiration or termination.
The accountants will be entitled to report its conclusions and calculations to
MJC.
13. Indemnification and Insurance
-----------------------------
A. Cytyc will defend, indemnify, and hold MJC and its parents,
subsidiaries, affiliates, contractors, successors, and assigns, and their
respective employees, agents, officers, and directors (collectively a "MJC
Party") harmless from and against any and all losses, liabilities, obligations,
claims, fees (including, by way of example only and not limitation, reasonable
attorneys fees), expenses, and lawsuits brought against or incurred by a MJC
Party to the extent resulting from or arising in connection with (i) the breach
by Cytyc of any covenant, representation, warranty, or other obligation of Cytyc
contained in this Agreement, (ii) the manufacturing, sale, or distribution of
the Product by Cytyc or any licensee or affiliate of Cytyc, or any copromoter of
the Product, including, without limitation, any claim of patent infringement,
(iii) any product liability claim related to the Product, including, by way of
example only and not limitation, the use by any person of the Product
manufactured, sold, or distributed by Cytyc or any licensee or affiliate of
Cytyc, or any copromoter of the Product, (iv) any contamination of or defect in
the Product, (v) any Promotional Materials, or (vi) any negligent or wrongful
act or omission of any Cytyc Party (as defined in Section 13.B below).
Notwithstanding anything in this Section 13.A., Cytyc will not be obligated to
defend, indemnify, or hold harmless a MJC Party for any liability for which MJC
explicitly has assumed an indemnification obligation under Section 13.B. below.
-11-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
B. MJC will defend, indemnify, and hold Cytyc and its parents,
subsidiaries, affiliates, contractors, successors, and assigns, and their
respective employees, agents, officers, and directors (collectively a "Cytyc
Party") harmless from and against any and all losses, liabilities, obligations,
claims, fees (including, by way of example only and not limitation, attorneys
fees), expenses, and lawsuits brought against or incurred by a Cytyc Party to
the extent resulting from or arising in connection with the breach by MJC of any
covenant, representation, warranty, or other obligation of MJC contained in this
Agreement or for any negligent or wrongful act or omission of any MJC Party (as
defined in Section 13.A. above). Notwithstanding anything in this Section
13.B., MJC will not be obligated to defend, indemnify, or hold harmless a Cytyc
Party for any liability for which Cytyc explicitly has assumed an
indemnification obligation under Section 13.A. above.
C. To receive the benefits of the indemnity under Subsections A or B
above, as applicable, the indemnified party must give the indemnifying party
written notice of any claim or potential claim promptly after the indemnified
party receives notice of any such claim. The indemnifying party will have the
obligation to assume the defense of any such claim to the extent the
indemnifying party has responsibility to the indemnified party under this
Section 13. The indemnified party may participate in, but not control, the
defense of such claim at its sole cost and expense. An indemnifying party will
have no liability under this Section 13 as to any claim for which settlement or
compromise or an offer of settlement or compromise is made by the indemnified
party without the prior consent of the indemnifying party.
D. Except as to breaches of the Confidentiality Agreement or Section 14
below, neither party will be liable to the other party for any special,
consequential, or indirect damages suffered by the other party including,
without limitation, lost profits, except to the extent attributable to the
indemnifying party's grossly negligent and/or willful and wanton acts.
E. Each party will use commercially reasonable efforts to maintain
insurance against such risks (including product liability) and upon such terms
(including coverages, deductible limits, and self-insured retentions) as is
customary for the activities to be conducted by it under this Agreement and is
appropriate to cover its indemnification obligations under this Agreement. Such
insurance will be primary to any other valid or collectable insurance coverage
which the indemnified party, or any of its parents, subsidiaries, affiliates,
principals, agents, or assigns, may have or obtain ("Indemnified's Insurance")
and provide that no Indemnified's Insurance will become effective in respect to
any claim intended by this Agreement to be covered by the indemnifier's
insurance until all the indemnifier's insurance is fully exhausted. Each party
will furnish to the other party evidence of such insurance, upon request.
14. Confidentiality. Cytyc and MJC each acknowledge that they have entered
----------------
into a Confidentiality Agreement dated February, 1997 ("Confidentiality
Agreement"), a copy of which is attached as Exhibit 4, and that such
confidential information disclosed by the parties prior to or during this
Agreement will be governed by the terms and conditions in such Confidentiality
Agreement.
15. Representations and Warranties
------------------------------
-12-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
A. Cytyc represents and warrants to MJC that: (i) the execution, delivery,
and performance of this Agreement by Cytyc does not conflict with, or constitute
a breach of, any order, judgment, agreement, or instrument to which Cytyc is a
party; (ii) the execution, delivery, and performance of this Agreement by Cytyc
does not require the consent of any person or the authorization of (by notice or
otherwise) any governmental or regulatory authority; (iii) the rights granted by
Cytyc to MJC under this Agreement do not conflict with any rights granted by
Cytyc to any third party; (iv) Cytyc has not received any notice of, and is not
aware of any valid basis for, any claim that the manufacture, use, or sale of
the Product infringes any valid patent or other intellectual property right of
any third party; and (v) the Product, all Promotional Materials, and all other
marketing materials relating to the Product comply and throughout the Term will
continue to comply with all applicable federal, state, and local laws and
regulations including, by way of example only and not limitation, the federal
Food, Drug, And Cosmetic Act, as amended, and all regulations issued pursuant to
such law. The foregoing provisions of this Subsection A set forth Cytyc's sole
and exclusive representations and warranties with respect to the Product and
Cytyc makes no other warranty of any kind whatsoever with regard to the Product,
express or implied. Cytyc specifically disclaims all implied warranties of
merchantability and fitness for a particular purpose with regard to the Product,
whether arising from a statute or otherwise in law or from a course of dealing
or usage of trade.
B. MJC represents and warrants to Cytyc that (i) the execution, delivery,
and performance of this Agreement by MJC does not conflict with, or constitute a
breach of, any order, judgment, agreement, or instrument to which MJC is a
party, (ii) the execution, delivery, and performance of this Agreement by MJC
does not require the consent of any person or the authorization of (by notice or
otherwise) any governmental or regulatory authority, (iii) the rights granted by
MJC to Cytyc under this Agreement do not conflict with any rights granted by MJC
to any third party; and (iv) the number of OBGYNs as of the date of this
Agreement [confidential treatment requested] and MJC will use commercially
reasonable efforts throughout the Term to have [confidential treatment
requested] OBGYNs.
16. Notices. Any notice or other communication required or permitted in this
-------
Agreement will be in writing and sent by overnight delivery or registered or
certified mail, return receipt requested, with postage and all other charges
prepaid. All notices will be addressed to the respective party at the address
below or to such other address as the party may designate in writing. Notices
will be deemed effective upon delivery or the first good faith reasonable
attempt to deliver during regular business hours.
If to Cytyc: Cytyc Corporation
85 Swanson Road
Boxborough, Massachusetts 01719
Attention: President
If to MJC: Mead Johnson & Company
2400 West Lloyd Expressway
Evansville, Indiana 47721
Attention: Vice President Sales and Distribution
cc: Vice President and Senior Counsel
-13-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
17. Non-Solicitation and Noncompetition
-----------------------------------
A. [confidential treatment requested] neither Cytyc nor MJC, without the
written consent of the other, directly or indirectly will solicit or hire any
person who was a member of the other party's sales force or marketing group
related to the Product in the Territory at [confidential treatment requested].
B. During the term [confidential treatment requested]. For purposes of the
preceding sentence, [confidential treatment requested] will mean [confidential
treatment requested].
C. The restrictions set forth in Section 17.B. above will not restrict
either MJC or Cytyc from investing in or acquiring in any manner in whole or in
part whatsoever any business, organization, company, or any other entity (the
"Acquired Entity") which owns, manages, operates, controls, finances, or
otherwise supports any business that otherwise would be a violation of the
applicable noncompete in Section 17.B. above, so long as such otherwise
violative business of the Acquired Entity is not the primary or material part of
the business of the Acquired Entity.
18. Miscellaneous Provisions
------------------------
A. Sale, Transfer, Assignment, and Changes in Management. This Agreement
-----------------------------------------------------
will bind and inure to the benefit of the parties and their successors and
assigns except that neither party will have any right whatsoever to make any
assignment of any of its respective rights or obligations without the written
approval of the other party. No sale, assignment, transfer, conveyance, or
encumbrance, whether by law or otherwise, including an acquisition of either
party by (a) sale, issuance, exchange, or transfer, in a single transaction or a
series or related transactions, of greater than fifty percent (50%) of the
outstanding capital stock of such party to a third party, (b) sale of all or
substantially all of the assets of such party, or (c) a merger, consolidation,
or other reorganization involving such party and one or more other entities in
which the shares of such party's outstanding capital stock immediately prior to
such transaction are converted into, exchanged for, or represent less than a
majority of the voting power of the surviving or resulting entity, will be of
any force or effect unless such written approval will have been first obtained.
Any approval required under this Subsection A will not be unreasonably withheld;
provided, however, that if such consent is reasonably withheld, then the party
requesting, but having reasonably been denied, such consent may elect to
terminate this Agreement effective as of the consummation of the applicable
sale, assignment, transfer, conveyance, or encumbrance; provided further,
however, that in the event of such a termination of this Agreement by either
Cytyc at any time or by MJC on or after the later of either [confidential
treatment requested] or the completion of [confidential treatment requested]
Primary Calls as set forth in [confidential treatment reqsted] (and as may be
extended pursuant to [confidential treatment requested] in order to complete a
[confidential treatment requested] Primary Calls), MJC will be
-14-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
entitled to the [confidential treatment requested] subject to an equitable
adjustment as agreed to in good faith between MJC and Cytyc. No person, firm, or
corporation will succeed to any of the rights of a party under this Agreement by
virtue of any voluntary or involuntary proceeding in bankruptcy, receivership,
attachment, execution, or assignment for the benefit of creditors, or other
legal process.
B. Modification. The terms of this Agreement may not be altered, waived,
------------
modified, or discharged except by an express declaration in writing on behalf of
the parties by duly authorized officers and specifically stating that this
Agreement is being modified, and no separate oral or other written agreement
which may be made between any of the parties' employees will in any way modify
this Agreement. Furthermore, any waiver of the requirements of this Subsection
B likewise must be explicit and in a writing signed by a duly authorized
representative of each party.
C. Dispute Resolution
------------------
(1) Before filing a legal action with a court, each party will use its
respective reasonable efforts to resolve any disagreement arising under this
Agreement. In the event that the parties are unable to reach agreement, then
either party may send written notice to the other that a "disagreement exists"
and "reasonable efforts" are to be utilized in an effort to resolve the
disagreement. If the disagreement is not resolved within [confidential treatment
requested] days after receipt of such notice, then either party may request that
the parties try to resolve the disagreement by either mediation or non-binding
arbitration. Upon such request, the parties will proceed to mediate or
arbitrate, as elected by the requesting party, the dispute in accordance with
this Subsection C.
(2) Any mediation will be conducted in accordance with the then
current CPR Model Procedure for Mediation of Business Disputes except as
otherwise explicitly set forth in this Subsection C.(2). The neutral third
party mediator will be selected from the CPR Panels of Neutrals, with the
assistance of CPR, unless the parties agree otherwise. Any mediation will be
conducted in [confidential treatment requested] Each party will bear its own
costs and share the cost of the mediation. The mediation will take place as soon
as possible but no later than [confidential treatment requested] days after
mediation is requested under this Agreement.
(3) Any arbitration will be conducted in accordance with the then
current CPR Rules for Non-Administered Arbitration of Business Disputes except
as otherwise explicitly set forth in this Subsection C. (3). The arbitration
will be before three (3) (unless the parties agree to one (1)) independent and
impartial arbitrator(S) (e.g., no arbitrator has had any prior business dealings
with either party), chosen as follows: Cytyc, on the one hand, and MJC, on the
other hand, each will select one (1) arbitrator from a list of independent and
impartial arbitrators provided by CPR. Neither of these two (2) arbitrators will
be told which party selected the arbitrator. These two (2) arbitrators will
agree on one (1) other independent and impartial person to serve as the third
arbitrator. Any arbitration proceedings will be conducted in [confidential
treatment requested] Each party will bear its own costs and share the cost of
the arbitrator(S). The arbitration will take place as soon as possible but no
later than [confidential treatment requested] days after arbitration is
requested pursuant to this Agreement, and the arbitrator(S) will render a
written decision within [confidential treatment requested] days after the close
of the hearing record.
(4) This Subsection C does not in any way alter or diminish the
notice, cure,
-15-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
and/or termination rights otherwise set forth in this Agreement. Rather, this
provision merely provides an alternative dispute resolution option that may be
exercised before, and ultimately possibly in addition to, the rights of the
parties to this Agreement to seek remedies through the courts except as
otherwise set forth in this Agreement. In any court action between the parties
relating to this Agreement, the prevailing party in such action will recover its
attorney fees from the non-prevailing party.
D. Entirety of Agreement. This Agreement and the Confidentiality
---------------------
Agreement referenced in Section 14 contains the entire understanding of the
parties with respect to the subject matter and supersede all previous
agreements, representations, and warranties, whether written or verbal, with
respect to such subject matter.
E. Public Announcements. The form and content of any public announcement
--------------------
regarding this Agreement, or the subject matter contained in this Agreement,
will be subject to the prior mutual agreement of the parties, except as may be
required by applicable law.
F. Governing Law. This Agreement will be construed and enforced in
-------------
accordance with the laws of the State of [confidential treatment requested]
without regard to its conflict of laws principles.
G. Relationship of the Parties. In making and performing this Agreement,
---------------------------
the parties act and will act at all times as independent entities and nothing
contained in this Agreement will be construed or implied to create an agency,
partnership, franchise, or employer and employee relationship between Cytyc and
MJC. Neither party may make any representation, warranty, or commitment,
whether express or implied, on behalf of or incur any charges or expenses for or
in the name of the other party. Neither party will be liable for the act of any
other party unless such act is expressly authorized in writing by both parties
to this Agreement.
H. Counterparts This Agreement will become binding when any one or more
------------
counterparts, individually or taken together, bear the signatures of each of the
parties. This Agreement may be executed in any number of counterparts, each of
which will be deemed an original as against the party whose signature appears on
it, but all of which taken together will constitute but one and the same
instrument.
I. Non-Waiver; Non-Exclusive. No failure by any party to exercise any
-------------------------
power given in, or to insist upon strict compliance by the other party of any
obligation under, this Agreement will constitute a waiver of the party's right
to later demand exact compliance with the terms of this Agreement. No remedy
made available to any party by any of the provisions of this Agreement is
intended to be exclusive of any other remedy, and each and every remedy will be
cumulative and in addition to every other remedy available under this Agreement,
at law, in equity, or otherwise.
J. Severability. Should any provision(S) of this Agreement be declared
------------
invalid or unenforceable pursuant to a final determination of a court of
competent jurisdiction or as a result of future legislative action, such
determination or action will be construed so as not to affect the validity or
enforceability hereof or thereof and will not affect the validity or effect of
any other portion hereof or thereof. Any invalid portion will be deemed removed
from this Agreement as of the date on which the ruling becomes final and will be
deemed replaced by the closest enforceable
-16-
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
provision as determined by such court.
K. Force Majeure and Default
-------------------------
(1) Delays by either party in the performance or non-performance of
its obligations under this Agreement will be excused if due to any cause beyond
such party's reasonable control, including by way of example only and not
limitation Acts of God, governmental laws, rules, or regulations, wars, fires,
the elements, labor troubles, interruption or shortage of transport facilities,
or inability to obtain raw material or packaging supplies; provided, however,
that such party will be excused from its obligations under this Agreement only
(i) to the extent and for the period in which such cause delays or prevents
performance, (ii) if such party immediately notifies the other party of any such
actual or anticipated non-performance, and (iii) if such party, in cases where
the non-performance is curable or its adverse impacts on the other party reduced
under reasonable available means, uses reasonable efforts, including taking
economically reasonable action necessary, to rectify such barrier to such
party's performance and permit such party to fully perform as soon as possible.
(2) If either party defaults in the performance of its obligations
under this Agreement, the non-defaulting party may notify the defaulting party
of such default and the time to cure such default, which time will be
[confidential treatment requested] days in the case of a failure to pay amounts
due, and [confidential treatment requested] days for all other defaults, after
the defaulting party receives such notice of the default. If the default
continues uncorrected beyond the specified time period, the non-defaulting party
will be entitled to give written notice of its intent to terminate this
Agreement if the default is not cured within [confidential treatment requested]
days after such second notice. If the default is not cured within [confidential
treatment requested] days after such second notice, this Agreement will be
deemed terminated. The termination of this Agreement in whole or in part
pursuant to this Subsection will not relieve either party from the obligations
in this Agreement which survive termination.
L. Survival. All of a party's rights and privileges provided under this
--------
Agreement, to the extent they are fairly attributable to events or conditions
occurring or existing on or prior to the expiration or termination of this
Agreement, will survive the expiration or termination and be enforceable by the
party and its successors and assigns.
M. Descriptive Headings. The descriptive headings of the Sections in
--------------------
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
IN WITNESS WHEREOF, Cytyc and MJC have duly executed this Agreement as of
the day and year written above.
CYTYC CORPORATION MEAD JOHNSON & COMPANY
By: /s/ By: /s/
------------------------- --------------------------
Name: Name:
----------------------- ------------------------
Title: Title:
---------------------- -----------------------
-17-
<PAGE>
Cytyc Corporation
Exhibit 11.1
Statement of Computation of Weighted Average Shares Outstanding
<TABLE>
<CAPTION>
For the three months ended June 30, For the six months ended June 30,
----------------------------------- ---------------------------------
1996 1997 1996 1997
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Weighted average Common Stock outstanding
during the period (1) 13,611,639 17,255,643 12,245,763 16,486,581
-------------- ------------- -------------- -------------
13,611,639 17,255,643 12,245,763 16,486,581
============== ============= ============== =============
</TABLE>
- - --------------------
(1) On March 8, 1996 the Company sold through an underwritten initial public
offering, 3,000,000 shares of its Common Stock at a price to the public of
$16.00 per share. Upon the closing of the Company's initial public offering, all
then outstanding shares of the Convertible Preferred Stock were converted into
9,778,326 shares of Common Stock. On April 4, 1996, the underwriters of the
Company's initial public offering exercised their over-allotment option in full
to purchase an additional 450,000 shares of the Company's Common Stock at a
price to the public of $16.00 per share.
On February 6, 1997, the Company sold through an underwritten follow-on public
offering 2,650,000 shares of Common Stock at a price to the public of $23.50 per
share, and certain existing shareholders sold 1,000,000 shares of Common Stock.
On February 20, 1997, the underwriters exercised their over-allotment option in
full to purchase an additional 547,500 shares of the Company's Common Stock at a
price to the public of $23.50 per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 49,762
<SECURITIES> 49,385
<RECEIVABLES> 4,155
<ALLOWANCES> 380
<INVENTORY> 1,810
<CURRENT-ASSETS> 105,489
<PP&E> 7,410
<DEPRECIATION> 1,808
<TOTAL-ASSETS> 112,355
<CURRENT-LIABILITIES> 8,029
<BONDS> 0
0
0
<COMMON> 173
<OTHER-SE> 104,153
<TOTAL-LIABILITY-AND-EQUITY> 112,355
<SALES> 0
<TOTAL-REVENUES> 8,601
<CGS> 3,363
<TOTAL-COSTS> 3,363
<OTHER-EXPENSES> 20,957
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,261)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,719)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,261)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> 0
</TABLE>
