<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark one)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission file number 0-18643
Lunar Corporation
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1200501
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
313 West Beltline Highway
Madison, Wisconsin 53713
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (608) 274-2663
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of September 27, 1995, there were issued and outstanding 5,338,460
shares of Common Stock; the aggregate market value of the shares of such stock
held by nonaffiliates of the registrant was $103,073,892 as of the same date,
assuming solely for purposes of this calculation that all directors and
executive officers of the Registrant are "affiliates." This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Lunar Corporation 1995 Annual Report to Shareholders (Parts I and
II)
Portions of Lunar Corporation Proxy Statement for its 1995 Shareholders Meeting
to be held on November 17, 1995 (Part III)
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LUNAR CORPORATION
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INDEX TO
ANNUAL REPORT ON FORM 10-K
For Year Ended June 30, 1995
Page
Part I
Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 Properties. . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .11
Item 4 Submission of Matters to a Vote of Security Holders . . . . .11
Executive Officers of the Registrant. . . . . . . . . . . . .11
Part II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . .13
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . .13
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . .13
Item 8 Financial Statements and Supplementary Data . . . . . . . . .13
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . .13
Part III
Item 10 Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . . . . . . . .13
Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . . .13
Item 12 Security Ownership of Certain
Beneficial Owners and Management. . . . . . . . . . . . . . .13
Item 13 Certain Relationships and Related Transactions. . . . . . . .13
Part IV
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . .14
Index to Consolidated Financial Statements and
Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . .15
Report of Independent Auditors on Financial
Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Schedule II - Valuation and Qualifying Accounts
for each of the years ended June 30, 1995,
1994, and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Index of Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
<PAGE>
PART I
ITEM 1. BUSINESS
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Introduction
Lunar Corporation develops products for the diagnosis, monitoring, and
treatment of osteoporosis and other metabolic bone diseases. Except as the
context otherwise requires, as used herein the terms "Lunar" and the "Company"
mean Lunar Corporation, its wholly owned subsidiaries Lunar GmbH, Lunar Europe,
N.V., Bona Fide, Ltd., Continental Assays Corporation, and Lunar FSC, Inc., and
its 86%-owned subsidiary, Bone Care International, Inc. ("Bone Care"). The
Company develops and sells bone densitometers, which are specialized scanning
systems used to aid in the diagnosis of bone disease by measuring the density
of the bone. The Company is also the exclusive distributor in the United
States of the Artoscan extremity Magnetic Resonance Imaging ("MRI") scanner.
The Artoscan is manufactured by ESAOTE Biomedica SPA, a medical device company
based in Italy. Bone Care continues its work on 1-alpha,D-2 as a treatment for
secondary hyperparathyroidism in end-stage renal disease. The Company is also
conducting early stage research on certain vitamin D analogues for the
treatment of osteoporosis and psoriasis. The Company has no vitamin D or other
drugs commercially available.
Background on Osteoporosis
Osteoporosis is a disease generally associated with ageing and
characterized by excessive loss of bone mineral, resulting in decreased bone
density over time. Demineralization weakens bone so that minor physical stress
can cause debilitating fractures, usually in the wrists, hips, and spine.
These fractures can result in disfigurement, decreased mobility, and, in some
cases, extensive hospitalization and chronic nursing home care.
Osteoporosis is a major and growing public health problem in the United
States and worldwide. In the United States, 25% of women over age 60 develop
vertebral fractures related to osteoporosis, and as many as 50% of women will
develop vertebral fractures by age 75. According to the National Institutes of
Health, there are currently more than 10 million adults affected by
osteoporosis in the United States. Factors contributing to bone loss include
age- and sex-related hormonal changes, low calcium intake, excessive alcohol
consumption, and certain drug therapies.
An estimated 1.3 million osteoporosis-related fractures occur each year in
the United States. The Scientific Advisory Board of the National Osteoporosis
Foundation ("NOF") estimated the annual direct and indirect costs of
osteoporosis-related fractures in the United States in 1984 to be over $7
billion, with the costs related to hip fractures being a major component of the
aggregate cost. Without effective diagnosis and treatment, the medical and
social consequences of such fractures will worsen as the population ages.
Osteoporosis is at least partially preventable if individuals at the greatest
risk of fracture are diagnosed and treated in the early stages.
Diagnosis and Monitoring. Relatively few people are diagnosed in time for
effective therapy since there are no obvious symptoms of osteoporosis in the
early stages. Often the first symptom is a debilitating fracture. Studies
show that bone mineral density is correlated highly with bone strength. Since
bone strength is a determinant of an individual's susceptibility to fracture
(along with the likelihood of sustaining sufficient trauma), bone mineral
density indicates fracture risk. Bone mineral density can be measured with
accuracy (referring to how well the scanners measure the actual bone density)
and precision (referring to whether the scanners yield the same result upon
multiple scans of the same bone) using dual-photon absorptiometry ("DPA") or
dual-energy x-ray absorptiometry ("DEXA") techniques.
Bone densitometer technology is based on the fact that bone absorbs x-ray
photons at a different rate than does soft tissue. Photons are directed at the
body, and their differential absorption is measured. Single-photon
absorptiometry ("SPA") scanners have been available for approximately 20 years
to measure bone density at the extremities, such as the forearm and heel bone.
More recently, DPA and DEXA scanners have been developed to measure bone
density in the spine and the hip, which are more clinically significant areas
of the skeleton. SPA and DPA scanners employ a radioactive source; DEXA
scanners generate radiation using a conventional x-ray tube. DEXA scanners are
accurate, have a low precision error, are safe because they emit low radiation,
have scanning times of approximately 5 minutes, and have a low operating cost.
In recent years, ultrasound technology has been developed to measure the
bone density of the heel bone. Ultrasound bone densitometers are less
expensive than DEXA bone densitometers, and since they use nonionizing
radiation, ultrasound bone densitometers encounter fewer regulatory and
licensing requirements as compared to DEXA bone densitometers.
Reimbursement. To achieve broad acceptance and qualify for third-party
reimbursement, diagnostic products not only must be safe and efficacious, but
also must be deemed cost-effective by public and private health care payors.
Sales of bone densitometers are also dependent upon the level of reimbursement
provided by public and private health care payors. Reimbursement for DEXA
scans has been approved in several countries. Reimbursement for ultrasound
scans is generally not provided by public health systems.
In the United States, the Health Care Finance Administration ("HCFA") has
been reviewing the status of reimbursement for DEXA scans. In December 1993,
HCFA published proposed reimbursement rates for DEXA scans. However, HCFA has
not set national policy at this time requiring the Medicare carriers to adopt
reimbursement. However, all Medicare carriers (with the exception of one
carrier in metropolitan New York) have elected to implement reimbursement for
DEXA scans.
While many private insurance carriers have elected to provide
reimbursement for DEXA scans, a significant number of private carriers,
including many of the Blue Cross/Blue Shield organizations in the most populous
states, do not currently provide reimbursement for DEXA scans. California and
Texas have passed legislation requiring that all private insurance carriers
cover DEXA scans. The Company believes that if HCFA decides to set a national
policy requiring reimbursement for DEXA scans throughout the United States,
those private carriers not covering DEXA might reconsider their policy.
Therapies. The demand for bone densitometers sold by the Company is
dependent on the availability of therapies for the treatment of postmenopausal
osteoporosis. The Company does not sell any of the therapies discussed in this
subsection.
Estrogen replacement therapies ("ERT") are approved for marketing and sale
in the United States for the treatment of postmenopausal osteoporosis. ERT is
currently believed to be an effective means to prevent bone loss and related
fractures, but does not stimulate bone formation. In the United States, ERT
most often is used to relieve symptoms related to menopause; however, usage for
osteoporosis is steadily increasing.
Calcitonins are approved for marketing and sale in the United States for
the treatment of osteoporosis. Calcitonins seem to prevent further bone loss,
but do not stimulate bone formation. Miacalcin nasal spray, by Sandoz
Pharmaceuticals, is a nasal delivery formulation which was approved for sale by
the FDA in the United States in 1995.
Bisphosphonates have not been approved for marketing and sale in the
United States for the treatment of osteoporosis. Certain bisphosphonates, such
as etidronate and alendronate, have shown promise in halting, and possibly
reversing, bone loss when administered with calcium supplements. Studies have
shown that these bisphosphonates, when administered with calcium supplements,
appear to inhibit bone resorption without interrupting normal bone formation,
thereby increasing bone mass and possibly reducing vertebral fractures. These
bisphosphonates do not, however, directly stimulate bone formation. Merck &
Co., Inc., has developed a bisphosphonate called Fosamax. The FDA is currently
considering approving this drug for treatment of osteoporosis in the United
States. An FDA advisory panel has reviewed Fosamax and recommended it for
approval.
Calcium supplements have not been approved for marketing and sale in the
United States for the treatment of osteoporosis. Calcium supplements are often
recommended for postmenopausal women, but evidence of their efficacy in
treatment and prevention of osteoporosis is controversial. Calcium supplements
are also recommended for use with bisphosphonates and ERT.
Fluoride preparations have not been approved for marketing and sale in the
United States for the treatment of osteoporosis. Fluoride preparations are
known to increase bone density in the spine (the most common site of
osteoporosis fractures), but have little effect on bone density in the hip (the
most debilitating site of osteoporosis fractures). A recent clinical trial on
time-released sodium fluoride demonstrated a positive effect on spinal bone
density in those patients studied.
In Japan and Europe, there is an active market for osteoporosis therapies.
In Japan, available therapies include vitamin D-3 compounds, calcitonin, and
ipriflavone. In Europe, available therapies include estrogens, calcitonins,
vitamin D-3 compounds, ipriflavone, and sodium fluoride. Vitamin D-3
compounds, primarily 1-alpha-D-3, which are available in Japan and Europe, are
activated by the body into hormones which help regulate blood levels of calcium
required for essential body functions, including normal bone growth. Studies
have shown that low dosages of 1-alpha-D-3 have little efficacy as an
osteoporosis therapy, but at higher dosages, bone mineral content increased and
bone fracture rates decreased.
The Company's Products
Bone Densitometer Systems
The first commercial bone densitometers utilized SPA, a method which was
developed at the University of Wisconsin - Madison, Department of Medical
Physics, by investigators including Drs. Richard B. Mazess, James Sorenson, and
John Cameron. SPA, which uses photons at a single-energy level, became
commercially available in 1972 and was widely utilized in research. During the
1970s, Dr. Richard B. Mazess, James A. Hanson, Philip Judy, Walter Peppler,
Charles Wilson, and other researchers at the University of Wisconsin - Madison,
Department of Medical Physics, developed a DPA scanner which used photons of
two energy levels. Dr. Mazess organized Lunar to focus on the diagnosis and
monitoring of osteoporosis and to market bone densitometers using DPA. Lunar
sold approximately 700 DPA scanners from 1981 to 1988, which the Company
believes constituted a majority of the worldwide sales of DPA scanners during
that period. In June 1988, Lunar introduced its DEXA system, the DPX, which
replaced the radioactive source with an x-ray source thereby allowing for
faster scan times and improved precision. In March 1990, Lunar began shipping
the DPX-L, an enhanced version of the DPX. In February 1991, Lunar began
shipping the DPX--alpha, a smaller "compact" version of the DPX-L, designed for
clinics and private hospitals. In October 1991, Lunar began international
shipment of the Achilles ultrasound device, a lower-cost bone densitometer
which uses ultrasound technology to measure the bone density of the heel bone.
In 1993, the Company commercially introduced the EXPERT, a high-end imaging
bone densitometer. The Company recently introduced the DPX-SF, the smallest
spine/femur DEXA densitometer. DPX-SF is compact and mobile, yet produces the
precise AP spine and proximal femur scans preferred by researchers and
clinicians.
The DPX product line is sold to leading medical institutions, hospitals,
and radiological and other specialty group practices. Pharmaceutical companies
and orthopedic implant manufacturers investigating bone also purchase systems
for research and clinical trials.
Historically, densitometry has used ionizing radiation, which is carefully
regulated in the United States and most nations in the world. The Company's
researchers have investigated the possibility of using ultrasound rather than
x-rays or radioisotopes for more than five years. In 1991, this research
culminated in development of the reliable and relatively low-cost Achilles
densitometer. In 1995, the Company introduced the Achilles+. This new
ultrasound densitometer has the same performance features as its predecessor
with increased ease of operation and reduced patient measurement time.
The development of an ultrasound bone densitometer enables diverse medical
specialties, such as endocrinology, gynecology, and family practice, to make
use of densitometry. The Achilles can measure bone using either speed of sound
or broadband ultrasound attenuation. It is the first densitometer to combine
both of these ultrasound measurements in one device. Although leading
researchers have recognized the safety and efficacy of our ultrasound
technique, the FDA is requiring that the Company conduct clinical trials before
allowing commercial sales in the United States. This process is scheduled to
begin during fiscal 1996. The Company is currently marketing the Achilles in
select international countries.
In 1993, the Company commercially introduced the EXPERT imaging
densitometer. The EXPERT is an improvement on previous densitometers because
of its better speed (10X faster) and spatial resolution (3X finer). The EXPERT
uses a high-capacity x-ray tube with a rotating anode and a solid-state,
high-resolution detector. The spatial resolution with the EXPERT is at least
two to three times that of existing densitometers, allowing it to provide much
better images. This enables the physician to identify artifacts that may be in
the field and to exclude them if need be. It also provides better visual
identification of the region of interest and eliminates anatomical blurring at
key areas (for example, the intervertebral spaces.)
In addition, the imaging capability of the EXPERT allows determinations of
the entire lateral spine to be achieved in less than a minute. This can be
done with the patient lying comfortably in the supine position because the
EXPERT's C-arm can be rotated under motor control for lateral imaging.
Morphometry of individual vertebra can be readily done with standardized,
semiautomated algorithms. EXPERT morphometry, compared to conventional
radiographs, provides uniformity in geometry; there is no distortion along the
axis of the spine, leading to exact values for vertebral height. The Company
has received United States patents covering morphometry on densitometers, and
has applied for similar patents in Europe and Asia.
During fiscal year 1995, the Company could not meet customer demand for
the EXPERT because its detector supplier was unable to meet the Company's
purchase requirements. Moreover, many of the Company's distributors around the
world were forced to delay promotional activities for the EXPERT because it was
not available. In recent months, the Company's engineers have worked closely
with the detector vendor toward solving several production difficulties. The
Company now believes that it has identified and resolved the major issues,
although detector production has not yet reached desired levels. The Company
expects to meet customer demand and aggressively promote the EXPERT commencing
in the second quarter of fiscal 1996.
Export clearance for the Company's products varies by country. Generally
if Food and Drug Administration (FDA) 510(k) or premarket approval is received
in the United States, there are no other export clearances required. Even in
the absence of the FDA clearances, many countries generally only require the
company to comply with safety standards. An exception to the above
requirements is Japan which requires Ministry of Health and Welfare approval.
Customers, Sales, and Marketing. Lunar's bone densitometers are sold to
leading medical institutions, hospitals, pharmaceutical companies active in the
field of bone mineral metabolism, and radiological and other specialty group
practices. Lunar densitometer sales are dependent upon competition,
reimbursement levels, and availability of therapies on a country-by-country
basis. Lunar bone densitometers carry a one-year warranty. Extended service
contracts are also available.
In the United States, Lunar markets and sells its bone densitometers
through a direct sales force and one independent sales representative. As of
June 30, 1995, Lunar had 62 employees engaged in marketing, sales support, and
service.
Outside of the United States, Lunar markets and sells its bone
densitometers primarily through independent distributors, all of whom offer
sales and technical support. Employees of these distributors have undergone
product and technical training related to the Company's systems. The Company's
wholly owned German and Belgian subsidiaries provides direct sales and service
support to German and Belgian customers. The Company also maintains offices in
Brussels, Belgium, and Sydney, Australia, to support its distributors with
marketing, sales support, and service.
Lunar markets its bone densitometers through advertising in medical
journals, direct mailings of brochures, attendance of and presentations at
medical seminars and trade shows, and personal visits by sales representatives
with customers.
No individual end user accounted for more than 2% of Lunar's sales for the
fiscal year ended June 30, 1995. For the years ended June 30, 1993, 1994, and
1995, approximately 78%, 75%, and 73% of sales, respectively, were to customers
located in foreign countries. For the fiscal year ended June 30, 1993, no one
distributor represented 10% of total sales. For the fiscal years ended June
30, 1994 and 1995, sales to the Company's distributor in Japan accounted for
17% ($5,086,848) and 21% ($9,170,611) of the Company's sales in the respective
years. Since a significant amount of the Company's sales are made to
distributors, the loss at any time of a distributor accounting for 10% or more
of the Company's sales could have a material adverse effect on the Company.
As of June 30, 1995, substantially all of the Company's backlog was
deliverable within 120 days. Orders included in backlog may generally be
canceled or rescheduled by customers, without significant penalty, and
therefore cannot be considered firm. Also, the Company's revenues tend to be
somewhat seasonal, generally being lower in the first fiscal quarter due
primarily to lower activity in Europe in the summer months.
Manufacturing. Lunar's manufacturing operations consist primarily of
assembly, testing, and quality control. Lunar purchases a majority of the
parts and peripheral components for its systems and manufactures certain
subsystems, such as the x-ray tube head, from basic components. Parts and
materials are generally readily available from several supply sources.
Vitamin D Drugs for Metabolic Bone Diseases and Other Indications
Coordinated pharmaceutical development programs are ongoing within Lunar
and its two subsidiaries, Bone Care and Continental Assays Corporation which
are focused on inventing, developing and out-licensing new vitamin D drug
products for the treatment of (1) secondary hyperparathyroidism in end-stage
renal disease, (2) osteoporosis and other metabolic bone diseases, and (3)
psoriasis.
Lunar's strategy is to conduct early stage development on promising
vitamin D compounds and to license them to larger pharmaceutical companies
which will obtain approval for and market these compounds in their geographic
areas.
Presently, Lunar is developing several new vitamin D drugs, including the
following compounds:
One-Alpha D-2
Development Status: Since 1987, Lunar, through its 86% owned subsidiary
Bone Care, has been investigating the safety and efficacy of 1 alpha
hydroxyvitamin D-2 ("1-alpha-D-2") in the treatment of osteoporosis and
secondary hyperparathyroidism in end-stage renal disease. A Phase 1 clinical
trial completed in osteoporotic women in 1992 indicated that 1-alpha-D-2
increased spinal bone density by 2.5% and femur bone density by 2.2% over 24
months as compared to patients who received placebo. However, the Company's
license partners decided to terminate their respective license agreements with
Lunar, effectively eliminating outside funding for future osteoporosis clinical
trials.
At this time, Lunar has decided not to independently fund additional
osteoporosis clinical trials. Instead, Lunar is funding Phase 2 studies on
1-alpha-D-2 to investigate its effectiveness in treating secondary
hyperparathyroidism in end-stage renal disease.
The estimated time to a New Drug Application ("NDA") filing in the United
States for this drug is three years, and the estimated total development costs
are estimated to be $2,500,000. The Company is actively seeking pharmaceutical
company license partners to fund the Phase 3 trials. There is no assurance
that the Company's 1-alpha-D-2 compound will receive the necessary regulatory
clearances, the time or expense that ultimately will be involved, or whether
this drug will become commercially successful.
Secondary Hyperparathyroidism in End-Stage Renal Disease Market: In the
United States, end-stage renal disease afflicts approximately 190,000
individuals, and the annual increase approximates 10%. Mild to moderate renal
insufficiency occurs in more than 500,000 individuals. A comparable prevalence
of renal disease is observed in Europe. Oral and intravenous 1,25-D-3 are
approved for treatment of end-stage renal disease in the United States and in
Europe. In addition, oral 1-alpha-D-3 is approved throughout Europe, but not
in the United States. The Company estimates the combined United States and
European sales of these vitamin D analogues are approximately $150,000,000.
Scientific Background: In renal disease, there is a progressive loss of
kidney cells, the primary site for the synthesis of 1,25-D-3. In addition, the
loss of kidney function leads to retention of excess phosphorus which reduces
the production of 1,25-D-3. These two effects account for the low serum levels
of 1,25-D-3 commonly found in patients with mild to end-stage renal disease.
Reduced serum levels of 1,25-D-3 cause increased, and ultimately
excessive, secretion of parathyroid hormone ("PTH"). Elevated PTH leads to
markedly increased bone turnover and renal osteodystrophy. The reduced
1,25-D-3 also can cause muscle weakness and growth retardation with skeletal
deformities (most often in pediatric patients).
The aim of 1,25-D-3 replacement therapy (either oral or intravenous) in
end-stage renal disease is to reduce elevated PTH levels. 1,25-D-3 controls
the intestinal absorption of dietary calcium, the conservation of calcium by
the kidney, and if necessary, the mobilization of calcium from the skeleton.
In addition, it appears to act directly on bone cells to stimulate skeletal
growth, and on the parathyroid glands to suppress PTH secretion. Preliminary
data from the Company's clinical trial indicate that 1-alpha-D-2 is effective
in reducing PTH levels in patients with end-stage renal disease.
LR-103 for Psoriasis
Development Status: In the course of investigating new antiosteoporosis
drugs, Lunar's scientists discovered a previously unknown natural metabolite
of vitamin D, known as LR-103. This metabolite has chemical and biological
properties which are closely similar to calcipotriol, a drug recently approved
by the FDA for treatment of psoriasis. Lunar believes this newly discovered
metabolite has potential for development as a therapy for psoriasis. Lunar has
filed for compound patent coverage in the major world markets.
Lunar has conducted preclinical research on LR-103 at major universities
and at GLP contract laboratories to evaluate its antiproliferative activity,
toxicity, metabolism and pharmacokinetics relative to calcipotriol and
1,25-D-3. Results from this research show that LR-103 is comparable to
calcipotriol in antiproliferative activity and toxicity, but superior with
regard to metabolism and pharmacokinetics. The observed differences between
the compounds, when exploited through proper formulation, could position LR-103
as an improved, second-generation competitor to calcipotriol. Currently, an
Investigative New Drug ("IND") application for LR-103 is planned for 1996.
Psoriasis Market: Psoriasis is a chronic disease which most often affects
only the skin. It is estimated to affect more than 2,500,000 individuals in
the United States. A similar prevalence rate is observed in Europe. Psoriasis
is characterized by thickened, scaly and reddened patches of skin, usually on
the scalp, arms, and legs (especially the elbows, knees, and shins). The
disease affects people of all ages, with most exhibiting mild or moderate
lesions.
Treatments for psoriasis include corticosteroids, coal tars and tar
derivatives, ultraviolet B light therapy and, in severe cases, the anticancer
drugs methotrexate and hydroxyurea. The National Psoriasis Foundation reports
that most individuals consider these treatments to be marginally inconvenient
and effective.
Because of patient dissatisfaction with approved therapies, a number of
new therapeutic approaches are being studied, including topical vitamin D-3
drugs and cyclosporine. Certain vitamin D-3 drugs, namely 1,25-D-3,
1-alpha-D-3, and calcipotriol, have been found effective in controlled clinical
studies, but only calcipotriol has been approved in the United States. The
Company estimates worldwide sales of calcipotriol were approximately
$100,000,000 in 1994.
Scientific Background: Immature skin cells (keratinocytes) possess
proteins, known as the vitamin D receptors, which selectively recognize
1,25-D-3 and related vitamin D compounds. In vitro studies have demonstrated
that the vitamin D receptors, when exposed to 1,25-D-3 or related compounds,
cause keratinocytes to produce an array of biochemical markers associated with
normal cellular differentiation. The studies also have shown that these
vitamin D compounds strongly inhibit abnormal keratinocyte proliferation.
Other New Drugs for Psoriasis and Cancers
Development Status: Lunar's scientists have designed several new vitamin
D compounds which have potential application to treating psoriasis and certain
cancers. These have been synthesized and are currently undergoing early
preclinical testing. Patent applications have been filed globally on all
compounds.
Magnetic Resonance Imaging System
On September 21, 1993, the Company signed an exclusive distributor
agreement with ESAOTE Biomedica Spa, a medical device manufacturer based in
Italy, to distrbute the Artoscan dedicated MRI system in the United States and
Canada. The Artoscan is a specialized MRI scanner suitable for imaging
extremities such as knees, wrists, and ankles. The Company sells the Artoscan
in the United States for less than $400,000, which is significantly below
competitive whole body MRI systems. The Company believes that this lower
price, and the fact that installation and siting costs associated with the
Artoscan are minimal may be attractive to radiologists, orthopedists, sports
medicine specialists, and other MRI users to buy the product. Under the
agreement with ESAOTE Biomedica, Lunar is required to meet certain minimum
annual purchase commitments.
Patents and Proprietary Rights
Lunar relies upon know-how, trade secrets, trademarks and copyrights, and
patents to protect technology which it considers important to the development
of its business.
In the pharmaceutical industry, patent protection exists for the chemical
composition of a drug, the process for making a drug, and the use of a drug. A
compound patent generally affords the broadest protection as it protects the
chemical composition of the drug itself. A compound patent gives the patent
owner the right to exclude others from making, using, or selling drugs having
or containing the patented chemical composition. A process patent only
protects a particular process employed for making a drug. Other processes may
be available which are not covered by the process patent and which could be
used by competitors to make the same drug without infringing the process
patent. A use patent only protects a particular use of the drug. The drug may
be approved for other uses which are not covered by the use patent. A
competitor may thus sell the drug for such other approved uses without
infringing the use patent.
In the United States, United Kingdom, France, Australia, and other
countries, the Company has received use patents for 1-alpha-D-2 relating to the
Company's discovery of lower toxicity of the compound in humans. Counterpart
applications are pending in most other major pharmaceutical markets. In
addition, the Company has pending applications for patents covering various
synthetic methods for manufacturing 1-alpha-D-2.
Lunar has issued patents and pending worldwide patent applications
relating to its other proprietary vitamin D compounds, methods of synthesizing
these compounds, and methods of using its compounds to treat a variety of
disease states.
Although the Company believes patents are not critical in protecting its
competitive advantage in x-ray bone densitometry, it has obtained a number of
United States patents relating to its technology. A United States patent has
issued to the Company on the Company's patient position holder which is used to
perform lateral scans of the spine with the patient in the lateral decubitus
position. A foreign counterpart application is pending in Europe. The Company
has received a United States patent relating to the measurement of bone mineral
density in bone adjacent to a prothesis. Several United States patents have
issued which are related to the Company's new EXPERT densitometer. Two of
these patents relate to the morphometric capabilities of EXPERT, and a more
recent United States patent relates to EXPERT's ability to identify
osteophytes. Foreign counterpart applications are pending for all of these
patents. The Company has received an allowance for a United States design
patent relating to the design of its EXPERT densitometer.
The Company has had issued a number of United States patents relating to
various aspects of its ultrasound bone densitometry technology. Foreign
counterparts to these United States patents are pending in Europe and Japan.
The Company has obtained United States and foreign trademark registrations
for "LUNAR," "DPX," and "Achilles." Applications for trademark registration
are being sought worldwide for "EXPERT" and "LUNAR Expert."
The Company claims international copyright in its software, user's
manuals, customer brochures, and advertising materials.
The Company requires its employees, consultants, and advisors to execute
confidentiality agreements upon the commencement of an employment or a
consulting relationship with the Company. The agreements provide that all
confidential information developed or made known to the individual during the
course of the relationship shall be kept confidential and not disclosed to
third parties except in specified circumstances. The agreements also provide
that all inventions conceived by the individual during his employment and
relating to the business of the Company shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets in the event of
unauthorized use or disclosure of such information.
For information regarding patent litigation, see Item 3 below.
Competition
Bone Densitometry
The medical instrumentation industry is highly competitive and
characterized by continual change and improvement in technology. Many of the
companies in the medical instrumentation industry have significantly greater
manufacturing, marketing, and financial resources than the Company. To date,
the market for bone densitometer systems has been characterized by companies
such as Lunar which specialize in instruments for bone density measurement.
Hologic, Inc., based in Massachusetts, and Ostech B.V., based in
Switzerland, the parent company of Stratec Medizintechnik GmbH and Norland
Corporation, based in Fort Atkinson, Wisconsin, sell bone densitometer scanners
which compete directly with the DPX. Two Japanese companies and an Italian
company are developing or have introduced x-ray bone densitometers in their
respective countries. Lunar expects additional competitors to enter the bone
densitometry market, both in the United States and foreign countries.
Competition has intensified as new models have been introduced by competitors.
DEXA scanners compete with specially equipped computer tomographic ("CT")
scanners which can make bone density measurements of the spine. Lunar believes
the use of CT scanners for measuring bone density will remain limited because
of its higher radiation exposure to patients, higher examination expense, and
lower precision and accuracy. In addition, there are other noninvasive bone
density measurement methods currently on the market and under development.
At least three companies have commercially introduced devices which
compete with the Lunar Achilles ultrasound bone densitometer. Lunar is aware
of several other companies developing ultrasound bone densitometers.
In addition to competition from other medical equipment manufacturers and
devices, biochemical markers have gained increased interest among researchers
for the detection of high bone turnover which can lead to osteoporosis. Such
markers could be used as an adjunct to bone densitometry.
Therapies
In the United States, numerous therapies are approved for indications
targeted by Lunar's research and development, and many more are under active
development. Estrogen replacement therapy (oral and transdermal) and
calcitonin (nasal and injectable) are approved for osteoporosis; anthralin,
corticosteroids, coal tars, ultraviolet B light therapy, etretinate and
calcipotriol (an analogue of vitamin D-3) are approved for psoriasis.
Bisphosphonates, ipriflavone, calcitriol, antiestrogens, and other new drugs
are under development for osteoporosis; cyclosporine, methotrexate, protein
kinase C inhibitors, various analogues of vitamin D-3, and other new drugs are
under development for psoriasis. Many of these products may receive earlier
regulatory approval or may be more effective than Lunar's products.
Large pharmaceutical companies, due to their expertise in research and
development, manufacturing, testing, obtaining regulatory approvals and
marketing, and their substantially greater financial and other resources may be
the Company's strongest competitors in the market for osteoporosis therapies.
Furthermore, colleges, universities, governmental agencies, and public and
private research organizations may conduct research and market competitive
osteoporosis therapies either alone or in conjunction with partners such as
pharmaceutical companies. Such institutions and organizations have become more
active in seeking patent protection and licensing arrangements to collect
royalties for use of technology they have developed. These organizations and
institutions also compete with the Company in attracting and retaining highly
qualified scientific and management personnel.
If the Company is successful in developing its vitamin D compounds and
gaining regulatory approval, the products will have to compete for market
acceptance and market share with other approved therapies. An important factor
in such competition may be the timing of market introduction of competitive
therapies. Accordingly, the relative speed with which the Company, or its
licensees, can develop these compounds, complete the clinical testing and
approval processes, and supply commercial quantities of finished products to
the market is expected to have an important impact on the Company's competitive
position. In addition, competition among approved therapies approved for sale
may be based, among other things, on efficacy, safety, reliability, price, and
patent protection.
Regulation
Bone Densitometry
The Company's bone densitometry devices are subject to regulation by the
FDA and by many foreign governments. Under the United States Food, Drug, and
Cosmetic Act ("FDA Act"), manufacturers of medical devices must comply with
certain regulations governing the testing, manufacturing, packaging, and
marketing of medical devices. The DPX is also subject to the Radiation Control
for Health and Safety Act, administered by the FDA, which imposes performance
standards and record keeping, reporting, product testing, and product labeling
requirements for devices using radiation, such as x-rays. Lunar believes it is
in compliance in all material respects with these various laws and regulations.
The FDA generally must register the commercial sale of new medical
devices. Commercial sales of the Company's bone densitometry devices within
the United States must be preceded by either a premarket notification filing
pursuant to Section 510(k) of the FDA Act or the granting of premarket approval
for a particular medical device. The Section 510(k) notification filing must
contain information which establishes that the device is substantially
equivalent to a legally marketed device or to a device which was marketed prior
to May 28, 1976. The FDA may either deny the Section 510(k) submission or
require further information within 90 days of submission. Commercial marketing
of the device cannot begin until the 510(k) submission is cleared by the FDA.
Because of backlog presently existing in the FDA, 510(k) clearance now takes on
the average longer than 90 days. The premarket approval procedure involves a
more complex and lengthy review process by the FDA than the Section 510(k)
premarket notification procedure. The following table summarizes FDA Section
510(k) clearance received by Lunar during the last 10 years:
DPX Bone Densitometer June 1988
DPX Total Body Software June 1989
Population Reference Data April 1990
DPX-L/DPX--alpha Bone Densitometers December 1990
Lateral Spine Software August 1991
Forearm February 1992
Orthopedics February 1992
EXPERT Bone Densitometer April 1995
Morphometry Software May 1995
Lunar believes new products being developed in the DPX and EXPERT
product line will be eligible for a Section 510(k) marketing clearance;
however, the Achilles ultrasound densitometer will require premarket approval
by the FDA in the United States. Lunar plans to begin this process during
fiscal year 1996.
Lunar is also subject to regulation by the Nuclear Regulatory Commission
("NRC") as a result of its manufacturing of medical devices which use
radioactive materials and through its storage and handling of radioactive
materials used in the testing of such medical devices. The NRC regulates the
type, amount, form, storage, use, disposal, and handling of such radioactive
materials. Licenses from the NRC must be renewed every five years. Lunar has
in place a Radiation Safety Program and believes it is in compliance in all
material respects with NRC regulations.
The Company's product line is subject to approval by certain foreign
regulatory and safety agencies. Lunar believes it is currently in compliance
with all regulations in foreign countries applicable to its business.
As a manufacturer of medical devices, Lunar is subject to certain FDA
regulations which relate to its manufacturing processes and facilities, and
these processes and facilities are subject to continuing review by the FDA.
Lunar has had several FDA on-site inspections and has complied with FDA
regulations. Most states and certain foreign countries monitor and require
licensing of x-ray devices, such as DEXA scanners. Federal, state, and foreign
regulations regarding the manufacture and sale of medical devices are subject
to future change. Lunar cannot predict what impact, if any, such changes might
have on its business.
Therapies
The research, development, production, and marketing of drugs are subject
to regulation for safety and efficacy by numerous governmental authorities in
the United States and foreign countries. In the United States, the FDA Act and
other federal and state statutes and regulations govern or influence the
testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising, and promotion of drugs. The steps required before a
drug may be marketed in the United States generally include preclinical
studies, FDA approval of an IND before clinical studies may commence, and FDA
approval of an NDA prior to marketing. Preclinical studies are conducted in
laboratory animals to evaluate the potential efficacy and safety of a drug.
The results of preclinical studies are submitted as part of the IND. Human
clinical studies typically involve a three-phase process. Phase 1 studies
include the initial introduction of the drug into humans, and are designed to
determine the metabolic and pharmacologic actions of the drug in humans,
including the side affects associated with increasing doses, and if possible,
to gain early evidence on efficacy. Phase 2 studies evaluate the efficacy of
the drug in patients with the disease and determine the side affects and risks
associated with the drug. Phase 3 studies test for efficacy and safety in an
expanded clinical population to evaluate the overall benefit-risk relationship
of the drug and to provide an adequate basis for physician labeling. In March
1988, the Company filed an IND for 1-alpha-D-2 with the FDA; FDA clearance was
received and Phase 1 clinical studies in an osteoporotic population began in
April 1988. Phase 2 clinical studies in patients with secondary
hyperparathyroidism in end-stage renal disease are near completion.
The Company is subject to various foreign regulatory requirements
governing the research, development, production, and marketing of drugs.
Approval of a drug by comparable regulatory authorities of foreign countries
must be obtained prior to marketing the drug in those countries.
The process of obtaining FDA and foreign regulatory approval is costly and
time-consuming. There can be no assurance any approval will be granted on a
timely basis, if at all.
The Company is subject to various federal, state, and local laws and
regulations relating to the protection of the environment. Lunar believes its
current operations comply with all currently applicable environmental laws and
regulations. Lunar's expenditures for environmental compliance have not had,
nor are they expected to have, a material adverse effect on the Company.
Research and Development
As of June 30, 1995, the Company had 44 employees engaged in research and
development. During fiscal 1993, 1994, and 1995, Lunar's research and
development expenses were $3.3 million, $2.7 million, and $4.3 million,
respectively.
Product Liability Insurance
The Company maintains product liability insurance and considers its
current level of product liability insurance coverage to be adequate. While
the Company has not experienced any material product liability claims to date,
if such claims arise in the future, they could have a material adverse effect
on the Company.
Employees
As of June 30, 1995, Lunar had 191 full-time employees, including 55 in
manufacturing operations; 44 in research and development; 78 in marketing,
sales support, and service; and 14 in finance and administration. None of the
Company's employees is represented by a union. The Company considers its
employee relations to be excellent.
Glossary of Defined Terms
1-alpha-D-2 - one alpha hydroxyvitamin D-2
Bone Care - Bone Care International, Inc.
CT - computer tomographic
DEXA - dual-energy x-ray absorptiometry
DPA - dual-photon absorptiometry
EPO - European patent office
ERT - estrogen replacement therapies
FDA - Food and Drug Administration
FDA Act - United States Food, Drug, and Cosmetic Act
GLP - good laboratory practices
HCFA - Health Care Finance Administration
Hologic - Hologic, Inc.
IND - investigational new drug
MRI - magnetic resonance imaging
NDA - new drug application
NOF - National Osteoporosis Foundation
NRC - Nuclear Regulatory Commission
PTH - parathyroid hormone
SPA - single-photon absorptiometry
WARF - Wisconsin Alumni Research Foundation
ITEM 2. PROPERTIES
----------
The Company occupies a building of approximately 70,000 square feet on
approximately 3 acres in Madison, Wisconsin. The Company's facilities were
acquired in 1986. During fiscal year 1994, the Company spent approximately
$1,120,000 to construct a 30,000-square-foot addition to its existing building.
The Company also leases office facilities in Germany and Belgium.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Patent Litigation: During fiscal 1995, the Company was involved in patent
litigation with Hologic, Inc., a Massachusetts-based competitor. On September
26, 1995, the Company announced that an agreement in principle was reached with
Hologic to settle several ongoing commercial and patent disputes between the
two companies. A trial of one of the patent disputes that began September 25,
1995 in Madison has been provisionally dismissed while the parties finalize
terms of the definitive settlement agreement. The preliminary agreement
provides for certain continuing payments between the companies related to
future sales, the net effect of which Lunar does not believe will be material
to its revenues or earnings.
Other Matters: The Company is a defendant from time to time in actions
arising out of its ordinary business operations. There are no legal
proceedings known to the Company at this time which it believes would likely
have a material adverse impact on the financial condition of the Company. To
the Company's knowledge, there are no material legal proceedings to which any
director, officer, affiliate, or more than 5% shareholder of the Company (or
any associate of the foregoing persons) is a party adverse to the Company or
any of its subsidiaries or has a material interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
-----------------------------------------------------
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------------------------------------
As of September 22, 1995, the executive officers of the Registrant are as
follows:
Name Age Title
- - ---- --- -----
Richard B. Mazess, Ph.D. 56 President
James A. Hanson, Ph.D. 45 Vice President - Marketing
Gregory M. Johnson 50 Vice President - Sales
Robert A. Beckman 41 Vice President - Finance
Carl E. Gulbrandsen, Ph.D., J.D. 48 Corporate General Counsel
and Secretary
Charles W. Bishop, Ph.D. 43 Vice President - Bone Care
International, Inc.
Dr. Richard B. Mazess, the founder of the Company and Bone Care, has been
President and a director of the Company since its inception, and President,
Treasurer, and a director of Bone Care since its formation in 1986. Dr. Mazess
became Professor Emeritus of Medical Physics at the University of Wisconsin -
Madison in 1985, and has been on the faculty of the Department of Medical
Physics since 1968. Dr. Mazess has authored over 100 scientific publications
on bone, bone measurement, and body composition; he also has edited several
books and has served on the editorial boards of several medical journals. Dr.
Mazess has organized various international scientific meetings on bone
measurement and osteoporosis.
Dr. James A. Hanson, Vice President of Marketing, joined the Company in
September 1984. From July 1980 to August 1984, Dr. Hanson was on the faculty
of the Department of Radiology at the University of Washington, Seattle,
Washington, and from 1979 to 1980, he was a Researcher at the University of
Wisconsin - Madison, Department of Medical Physics.
Gregory M. Johnson, Vice President of Sales, joined the Company in July
1987. Mr. Johnson has held various other sales and marketing positions with
other companies in the medical industry, including EBI Medical Systems, Inc.
(orthopedic devices), the Roerig Division of Pfizer Pharmaceuticals and Smith
Laboratories, Inc. (pharmaceutical companies), Travenol Laboratories, Inc.
(cardiopulmonary products), and Varian Associates (ultrasound and radiation
therapy devices).
Robert A. Beckman joined the Company in June 1986 as Controller, has been
Vice President of Finance since 1987, and a director of Bone Care
International, Inc., since 1989. From September 1985 to May 1986, Mr. Beckman
served as President of Medical Acquiring Corporation based in Wheeling,
Illinois, a company founded by a group of investors which acquired a Florida
company providing various services to nursing homes in that state. From June
1983 to August 1985, Mr. Beckman was Vice President and Treasurer of Viridian,
Inc., a company which developed and marketed a proprietary line of enteral
feedingproducts. Mr. Beckman is a Certified Public Accountant.
Carl E. Gulbrandsen, Ph.D., J.D., joined the Company in 1992 as Corporate
General Counsel and Secretary. From 1989 until 1992, Dr. Gulbrandsen was a
partner in the law firm of Stroud, Stroud, Willink, Thompson & Howard of
Madison, Wisconsin, where he specialized in patent law. From 1987 until 1989,
Dr. Gulbrandsen was a partner in the Madison office of Haight & Hofeldt, a
patent litigation firm based in Chicago, Illinois. Dr. Gulbrandsen received
his J.D. degree in 1981 from the University of Wisconsin School of Law and his
Ph.D. degree in physiology from the University of Wisconsin - Madison in 1978.
Dr. Charles W. Bishop joined the Company in September 1987 as Project
Director and was named Project Director of Bone Care in January 1989. Dr.
Bishop has been a director of Bone Care since 1989, and has served as a Vice
President since March 1990. Prior to joining the Company, Dr. Bishop worked as
a Group Leader in the Health Care Division of the Procter & Gamble Company.
Dr. Bishop received a Ph.D. degree in Nutritional Biochemistry from VPI and
completed a four-year NIH Postdoctoral Fellowship in Biochemistry at the
University of Wisconsin - Madison.
Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
-------------------------------------------------------------
Information required by this item is included on page 18 of the Lunar
Corporation 1995 Annual Report to Shareholders under the caption "Investor
Information: Market Prices and Dividends," which is hereby incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Information required by this item is included on pages 13 through 14 of
the Lunar Corporation 1995 Annual Report to Shareholders under the caption
"Selected Consolidated Financial Data," which is hereby incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
Information required by this item is included on pages 15 through 18 of
the Lunar Corporation 1995 Annual Report to Shareholders under the caption
"Management's Discussion and Analysis," which pages are hereby incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Information required by this item is included on pages 19 through 32 of
the Lunar Corporation 1995 Annual Report to Shareholders, which pages are
hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
---------------------------------------------------------------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The Company incorporates by reference the information included in the
Company's definitive Proxy Statement for its 1995 Shareholders Meeting to be
held on November 17, 1995 ("Proxy Statement") under the caption "Purposes of
the Meeting - Election of Directors" which will be filed with the Securities
and Exchange Commission separately pursuant to Rule 14a-6 under the Securities
Exchange Act of 1934 and in accordance with General Instruction G(3) to Form
10-K, not later than 120 days after the end of the Company's fiscal year.
Information with respect to executive officers of the Company appears at the
end of Part I, page 13 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The Company incorporates by reference the information included in the
Proxy Statement under the caption "Executive Compensation," other than the
information included in the Proxy Statement under the sub-caption "Board of
Directors Report on Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The Company incorporates by reference the information included in the
Proxy Statement under the caption "Securities Beneficially Owned by Principal
Shareholders, Directors, and Executive Officers."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
-------------------------------------------------------
(a) 1 and 2. Financial statements and financial statement schedule
Reference is made to the separate index to the Company's consolidated
financial statements and schedule contained on page 17 hereof.
3. Exhibits
Reference is made to the separate exhibit index contained on page 21
through 22 hereof.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
ended June 30, 1995.
<PAGE>
LUNAR CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
The following documents are filed Page(s) in
as part of this report: Annual Report*
(1) Financial Statements:
Independent Auditors' Report . . . . . . . . . . . . . . . . 32 (AR)
Consolidated Balance Sheets at
June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . .20-21 (AR)
Consolidated Statements of Income
for the years ended June 30, 1995,
1994, and 1993 . . . . . . . . . . . . . . . . . . . . . . . 19 (AR)
Consolidated Statements of
Shareholders' Equity for the
years ended June 30, 1995,
1994, and 1993 . . . . . . . . . . . . . . . . . . . . . . . 22 (AR)
Consolidated Statements of Cash Flows
for the years ended June 30, 1995,
1994, and 1993 . . . . . . . . . . . . . . . . . . . . . .23-24 (AR)
Notes to Consolidated Financial Statements . . . . . . . . . .25-31 (AR)
- - ---------------
*Incorporated by reference from the indicated pages of the Lunar Corporation
1995 Annual
Report to Shareholders.
Pages in
(2) Financial Statement Schedule: Form 10-K
Report of Independent Auditors on
Financial Statement Schedule . . . . . . . . . . . . . . . . . . .18
Schedule II - Valuation and Qualifying
Accounts for each of the years ended
June 30, 1995, 1994, and 1993. . . . . . . . . . . . . . . . . . .19
All other schedules are omitted because they are not applicable or the
required
information is shown in the financial statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
The Board of Directors and Shareholders
Lunar Corporation:
Under date of August 4, 1995, we reported on the consolidated balance sheets of
Lunar Corporation and subsidiaries as of June 30, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended June 30, 1995, as
contained in the 1995 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1995. In connection with our
audits of the aforementioned consolidated financial statements, we also have
audited the related financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, this financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
August 4, 1995
<PAGE>
Schedule II
LUNAR CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
- - -------------------------------------------------------------------------------
Additions
Balance Charged Other
at to Charged Charges Balance
Beginning Costs and to Other Add at End
Description of Year Expenses Account (Deduct) of Year
- - -------------------------------------------------------------------------------
For the year ended June 30, 1995:
Allowance for
doubtful accounts $900,000 $250,000 - - $1,150,000
For the year ended June 30, 1994:
Allowance for
doubtful accounts $700,000 $200,000 - - $900,000
For the year ended June 30, 1993:
Allowance for
doubtful accounts $500,000 389,134 - $(189,134)(1) $700,000
(1)Bad debts written off
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LUNAR CORPORATION
Date: September 22, 1995 By: Richard B. Mazess
------------------------------
Richard B. Mazess, Ph.D.
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name
Richard B. Mazess President and September 22, 1995
- - ------------------------------ Director (Principal
Richard B. Mazess, Ph.D. Executive Officer)
Robert A. Beckman Vice President of September 22, 1995
- - ------------------------------ Finance (Principal
Robert A. Beckman Financial and
Accounting Officer)
Samuel E. Bradt Director September 22, 1995
- - ------------------------------
Samuel E. Bradt
John W. Brown Director September 22, 1995
- - ------------------------------
John W. Brown
Reed Coleman Director September 22, 1995
- - ------------------------------
Reed Coleman
John Kapoor Director September 22, 1995
- - ------------------------------
John Kapoor, Ph.D.
Malcolm R. Powell Director September 22, 1995
- - ------------------------------
Malcolm R. Powell, M.D.
<PAGE>
LUNAR CORPORATION
INDEX TO EXHIBITS
Exhibit
Number Document Description Page
- - ------- -------------------- ----
3.1 Articles of Amendment and Restated Articles of
Incorporation of Registrant(1) (Exhibit 3.1). . . . . . . .
3.2 By-Laws of Registrant(3) (Exhibit 3.2) . . . . . . . . . .
10.1 Settlement Agreement Between Registrant, Bone
Care International, Inc., and Deprenyl Research
Limited(1) (Exhibit 10.1) . . . . . . . . . . . . . . . . .
10.2 Restated License Agreement Between Bone Care
International, Inc., and Deprenyl Research
Limited(1) (Exhibit 10.2) . . . . . . . . . . . . . . . . .
10.3* Lunar Corporation Amended and Restated Stock Option Plan
and Forms of Stock Option Agreements(2) (Exhibit 10.4). . .
10.4 Shareholder Agreement By and Between Bone
Care International, Inc., Registrant,
Dr. Donald A. Buyske, and Deprenyl Research
Limited and Amendment Thereto(1) (Exhibit 10.16). . . . . .
10.5* Incentive Stock Option Plan - Bone Care
International, Inc.(1) (Exhibit 10.17). . . . . . . . . . .
10.6* Incentive Stock Option Agreement By and
Between Bone Care International, Inc., and
Robert A. Beckman(1) (Exhibit 10.18). . . . . . . . . . . .
10.7* Incentive Stock Option Agreement By and
Between Bone Care International, Inc., and
Dr. Charles W. Bishop(1) (Exhibit 10.19). . . . . . . . . .
10.8 Cooperative Marketing Agreement Between
Bone Care International, Inc., and
Mitsubishi Corporation(1) (Exhibit 10.21) . . . . . . . . .
10.9 Agreement Between Wisconsin Alumni Research
Foundation and Registrant and Amendments
Thereto(1) (Exhibit 10.22). . . . . . . . . . . . . . . . .
11. Computation of Per Share Earnings . . . . . . . . . . . . . 21
13. Lunar Corporation Annual Report to Shareholders (except to the
extent incorporated by reference, the 1995 Annual Report to
Shareholders is not deemed to be filed with the Securities
and Exchange Commission as part of this Annual Report
on Form 10-K) . . . . . . . . . . . . . . . . . . . . . . . 22
21. List of Subsidiaries of Registrant (Contained on page 25 of the
Lunar Corporation 1995 Annual Report to Shareholders, a copy of
which is filed as an exhibit hereto). . . . . . . . . . . .
23. Consent of Independent Auditors . . . . . . . . . . . . . . 23
27. Financial Data Schedule . . . . . . . . . . . . . . . . . . 24
(1)Incorporated by reference to exhibits filed with Registrant's Form S-1
Registration Statement (Registration Number 33-35372). Parenthetical
references to exhibit numbers are to the exhibit numbers in the Form S-1.
(2)Incorporated by reference to exhibits filed with Registrant's Annual Report
on Form 10-K for the year ended June 30, 1992 (File No. 0-18643).
Parenthetical references to exhibit numbers are to the exhibit numbers on the
Form 10-K.
(3)Incorporated by reference to exhibits filed with Registrant's Annual Report
on Form 10-K for the year ended June 30, 1993 (File No. 0-18643).
Parenthetical references to exhibit numbers are to the exhibit numbers of the
Form 10-K.
*Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-K.
Exhibit 11
LUNAR CORPORATION AND SUBSIDIARIES
Computation of Per-Share Earnings
June 30, 1995 June 30, 1994 June 30, 1993
------------- ------------- -------------
Net income $6,701,262 $5,805,987 $5,182,224
========== ========== ==========
Weighted average shares outstanding 5,269,710 5,206,638 5,179,929
Effect of stock options calculated
according to the treasury stock
method 613,133 477,449 469,158
---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 5,882,843 5,684,087 5,649,087
========== ========== ==========
Net income per common and common-
equivalent share $1.14 $1.02 $0.92
===== ===== =====
EXHIBIT 13
LUNAR CORPORATION ANNUAL REPORT TO SHAREHOLDERS
(ANNUAL REPORT INCLUDED WITH DISKETTE MAILING.)
Exhibit 23
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Lunar Corporation:
We consent to incorporation by reference in the registration statement on Form
S-8 of Lunar Corporation of our reports dated August 4, 1995, relating to the
consolidated balance sheets of Lunar Corporation and subsidiaries as of June
30, 1995 and 1994, and the related consolidated statements of income,
shareholders' equity, and cash flows and the related financial statement
schedule for each of the years in the three-year period ended June 30, 1995,
which reports appear in or are incorporated by reference in the June 30, 1995
annual report on Form 10-K of Lunar Corporation.
KPMG Peat Marwick LLP
Chicago, Illinois
September 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-K FOR THE YEAR ENDED JUNE 30, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,578
<SECURITIES> 15,970
<RECEIVABLES> 25,179
<ALLOWANCES> 1,150
<INVENTORY> 6,651
<CURRENT-ASSETS> 41,744
<PP&E> 5,983
<DEPRECIATION> 2,456
<TOTAL-ASSETS> 56,700
<CURRENT-LIABILITIES> 8,604
<BONDS> 0
<COMMON> 53
0
0
<OTHER-SE> 48,043
<TOTAL-LIABILITY-AND-EQUITY> 56,700
<SALES> 44,572
<TOTAL-REVENUES> 44,572
<CGS> 18,871
<TOTAL-COSTS> 37,360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,852
<INCOME-TAX> 2,151
<INCOME-CONTINUING> 6,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,701
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
