As filed with the Securities and Exchange Commission on July 17, 1996
Registration No. 333-7165
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ROCHESTER MEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1613227
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION)
1500 SECOND AVENUE N.W.
STEWARTVILLE, MINNESOTA 55976
(507) 533-4203
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRIAN J. WIERZBINSKI,
CHIEF FINANCIAL OFFICER
ROCHESTER MEDICAL CORPORATION
1500 SECOND AVENUE N.W.
STEWARTVILLE, MINNESOTA 55976
TELEPHONE: (507) 533-4203 TELECOPY: (507) 533-4232
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
GEORGE H. FRISCH, ESQ.
5030 WOODLAWN BOULEVARD
MINNEAPOLIS, MINNESOTA 55417
TELEPHONE: (612) 724-2929 TELECOPY: (612) 724-8387
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement as determined by
market conditions and other factors.
If the only securities being offered on this Form are to be offered pursuant to
dividend or reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TITLE OF SECURITIES REGISTERED PER SHARE(1) PRICE(2) FEE
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Common Stock, no par value 140,000 shares $17.75 $2,485,000 $857
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(1) Calculated pursuant to Rule 457(c) based upon the last sale reported on the
Nasdaq National Market for June 26, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
ROCHESTER MEDICAL CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF PART I ITEMS OF FORM S-3
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ITEM NUMBER AND TITLE IN
FORM S-3 REGISTRATION STATEMENT CAPTION OR LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus Front of Registration Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Front Cover Page; Outside Back Cover Page of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Risk Factors; Plan of
Distribution
6. Dilution Not Applicable
7. Selling Security Holders Selling Shareholders; Plan of Distribution
8. Plan of Distribution Outside Front Cover Page; Plan of Distribution
9. Description of Securities to be Registered Description of Capital Stock
10. Interests of Named Experts and Counsel Legal Matters
11. Material Changes Prospectus Summary; The Company; Risk Factors;
Capitalization; Price Range of Common Stock; Selected
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Management; Financial Statements
12. Incorporation of Certain Information by Reference Incorporation by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Description of Capital Stock
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, JULY 17, 1996
PROSPECTUS
140,000 SHARES
[LOGO]
COMMON STOCK
This Prospectus relates to the sale of up to 140,000 Shares of Common Stock, no
par value (the "Shares") of Rochester Medical Corporation, a Minnesota
corporation (the "Company"), that have been or may be purchased by certain
investors (the "Selling Shareholders") upon the exercise of Common Stock
purchase warrants. All of the Shares offered hereby will be sold by the Selling
Shareholders. See "Selling Shareholders." The Company will not receive any of
the proceeds from the sale of the Shares, however the Company will receive
proceeds from the Selling Shareholders upon their exercise of 80,000 Common
Stock purchase warrants not heretofore exercised. See "Use of Proceeds."
The Company's Common Stock is currently listed on the Nasdaq National Market
under the symbol "ROCM." On July 16, 1996, the closing price for the Company's
Common Stock reported thereon was $16.00 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO PROCEEDS TO PROCEEDS TO
PUBLIC (1) SELLING SHAREHOLDERS COMPANY (2)
---------- -------------------- -----------
Per Share $16.00 $16.00 $0
Total $2,240,000 $2,240,000 $0
(1) Based on the last reported sales price for the Common Stock as reported on
the Nasdaq National Market on July 16, 1996. The actual Price to Public will
be based on market prices on the respective dates of sale, which may be more
or less than the Price to Public set forth above.
(2) The Shares are being offered for the accounts of the Selling Shareholders.
Pursuant to the terms of the warrants and certain related agreements, the
Company will pay the expenses of this offering including the filing fees for
the registration of the Shares, but excluding the fees of any counsel to the
Selling Shareholders. The aggregate Proceeds to Selling Shareholders will be
the total Price to Public, less aggregate agent's commissions and
underwriter's discounts, if any.
The Selling Shareholders may sell the Shares from time to time directly, through
agents designated from time to time, or through dealers or underwriters also to
be designated, on terms to be determined at the time of sale. To the extent
required, the specific Shares to be sold, the names of the Selling Shareholders,
the purchase price, the public offering price, the names of any such agents,
dealers or underwriters, and the amount of any applicable commissions or
discount with respect to a particular offer will be set forth in an accompanying
Prospectus supplement. Such Prospectus supplement will also set forth
information regarding indemnification by the Company of the Selling Shareholders
and any underwriter, dealer or agent against certain liabilities, including
liabilities under the Securities Act of 1933 ("Securities Act"). See "Plan of
Distribution."
The Selling Shareholders and any broker-dealers, agents or underwriters that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
THE DATE OF THIS PROSPECTUS IS , 1996
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
THE COMPANY
Rochester Medical Corporation (the "Company") designs, develops, manufactures
and markets disposable latex-free incontinence and urological catheters and
other urological devices.
The Company currently manufactures and markets its leading edge ULTRAFLEX,
NATURAL and POP-ON male external catheters for the management of male urinary
incontinence and its leading edge silicone Foley catheters for urinary
catheterization to manage elimination of urinary waste. The Company has also
developed several advanced feature catheters which the Company believes will
provide improved medical outcomes and which are in various stages of
commercialization. These include its FEMSOFT continuous drain and FEMSOFT valved
catheters for management of certain female incontinence conditions; its COMFORT
SLEEVE Foley Catheter, a proprietary improvement to standard Foley catheters;
its intermittent PERSONAL CATHETER for periodic urinary self-catheterization;
and its Medicated Foley catheter, which is intended to reduce the incidence of
catheter induced urinary tract infection. The Company has obtained marketing
clearance from the Federal Food and Drug Administration ("FDA") to market the
FEMSOFT continuous drain catheter, the COMFORT SLEEVE Foley catheter, and the
PERSONAL CATHETER. The Company plans to participate with ConvaTec, a
Bristol-Myers Squibb Company ("ConvaTec") in joint clinical preference testing
of these products during the coming months before these products may be
introduced to the market. The Company's Medicated Foley catheter is presently
undergoing clinical trials to establish safety and efficacy in anticipation of
filing for marketing approval from the FDA. The Company intends to conduct
clinical trials of its FEMSOFT valved catheter for similar purposes. The Company
also continues research and development activities for other products and
product enhancements.
The Company recently developed its FEMSOFT urethral assist insert for managing
stress incontinence in active women. This new device, which builds on the
Company's proprietary liquid encapsulation technology, is designed to support,
rather than obstruct normal urethral functions and is intended to provide a new
treatment modality for stress incontinence. The new FEMSOFT urethral assist
insert is a soft and conformable insert having a reciprocal fluid transfer
design which permits it to be simply inserted, worn, and removed for voiding;
all without inflation, deflation, syringes, or valving mechanisms. The FEMSOFT
urethral assist insert may also be expelled by voluntary voiding. The Company
plans to begin clinical testing of this new device in the coming months to
establish its safety and efficacy in anticipation of filing for FDA marketing
approval.
The Company was incorporated in Minnesota in April, 1988. Through fiscal 1992,
the Company was a development stage company, engaged primarily in the
development of its products and manufacturing processes and systems. In fiscal
1992, the Company began commercial sales of silicone male external catheters
under a private label arrangement with Mentor Corporation ("Mentor"). In fiscal
1993, the Company introduced its ULTRAFLEX male external catheter as well as its
Foley catheter, and began marketing its products under the Rochester Medical
brand. During fiscal 1993, the Company began private label sales of its
ULTRAFLEX male external catheter to Hollister Corporation ("Hollister") and
expanded private label sales to Mentor. In fiscal 1994, the Company began
expanding its sales and marketing organization and continued expanding private
label sales by commencing sales to Euromedical Industries Sdn Bhd, a subsidiary
of Baxter Health Care Corporation ("Baxter Euromedical") and by increasing sales
to Hollister. The Company introduced its POP-ON male external catheter in May
1995 and its NATURAL catheter in September 1995. In August 1995, the Company
entered into a development and marketing agreement with ConvaTec, under which
ConvaTec has worldwide rights, subject to the Company's existing agreements, to
market the Company's existing and future products under the ConvaTec brand. At
the same time, the Company retains worldwide rights to market its products under
the Rochester Medical brand. The Company and ConvaTec also may agree to work
cooperatively to develop additional incontinence and urological products. As
part of this relationship, ConvaTec invested $3 million in the Company in the
form of a convertible loan. ConvaTec has an extensive sales organization in the
United States and approximately 70 other countries. In December 1995, the
Company completed a public offering of 1,322,500 of its common shares resulting
in the receipt of approximately $16,200,000 of net proceeds.
COMFORT SLEEVE(tm), FEMSOFT(tm), NATURAL CATHETER(tm), PERSONAL CATHETER(tm),
"POP-ON"(tm) and ULTRAFLEX(r) are trademarks of the Company.
The Company's principal executive offices are located at 1500 Second Avenue
N.W., Stewartville, Minnesota 55976, and its telephone number is (507) 533-4203.
THE OFFERING
Common Stock offered by the Company None
Common Stock offered by the Selling
Shareholders 140,000 shares
NasdaqNM symbol Common Stock ROCM
Use of Proceeds General Corporate Purposes
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. See "Risk Factors."
SUMMARY FINANCIAL DATA(1)
The summary financial data presented below for each of the years ended September
30, 1994 and 1995, have been derived from the financial statements of the
Company, which financial statements have been audited by independent certified
public accountants. The financial statements as of September 30, 1995, and for
each of the years in the two-year period ended September 30, 1995, and the
reports thereon, are incorporated by reference in this Prospectus. The summary
financial data presented below for the six months ended March 31, 1996 and 1995,
are from the unaudited financial statements of the Company which are
incorporated by reference in this Prospectus. In the opinion of the Company's
management, such unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations for the periods
presented. The results of operations for the six months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the year ending
September 30, 1996. The summary financial data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and with the financial statements and notes thereto. See
"Incorporation of Certain Documents by Reference."
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
----------------- ----------------
1994 1995 1995 1996
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STATEMENTS OF OPERATIONS DATA:
Net sales $ 2,189 $ 3,131 $1,382 $2,042
Cost of sales 1,716 2,448 1,044 1,480
Gross profit 473 683 338 562
Total operating expenses 1,476 1,982 802 1,350
Loss from operations (1,003) (1,299) (464) (788)
Interest income (expense), net 39 (12) 7 217
Net loss $ (964) $(1,311) $ (456) $ (571)
Net loss per common share $ (.36) $ (.49) $(0.17) $(0.16)
Weighted average number of common shares outstanding 2,660 2,682 2,664 3,656
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MARCH 31, 1996
--------------
BALANCE SHEET DATA:
Working capital $20,033
Total assets 22,941
Long-term debt, net of current maturities 3,178
Total shareholders' equity 19,318
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN EVALUATING
THE COMPANY AND ITS BUSINESS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION PRESENTED IN
THIS PROSPECTUS.
HIGHLY COMPETITIVE MARKETS AND PRODUCT OBSOLESCENCE
The incontinence and urological device industry is highly competitive. In order
to compete successfully against other urological products, the Company must
maintain competitive pricing and effectively demonstrate the beneficial effect
of its products on medical outcomes over the course of treatment. Competition in
the Company's markets may result in pricing pressures that may adversely affect
unit prices and sales levels. Many of the Company's competitors have
substantially greater capital resources and name recognition than the Company.
These competitors may also have greater expertise than the Company in research
and development, manufacturing, marketing and sales and regulatory matters and
may have broader product lines that are a competitive advantage in obtaining
contracts with purchasing groups. There is no assurance that the Company will be
able to compete against such competitors and potential competitors in terms of
research and development, manufacturing, marketing and sales capabilities. In
addition, the Company competes in mature markets in which many of the Company's
competitors have well known and established products. Although the Company
believes that its products offer certain medical and technological advantages
over its competitors' currently marketed products, earlier entrants in the
market often obtain and maintain significant market share relative to later
entrants such as the Company. Additionally, the medical conditions that can be
managed using the Company's products also may be managed using a variety of
alternative products or techniques, including adult diapers and absorbent pads,
surgery, behavior therapy and pelvic muscle exercise, implantable devices and
injectable materials, and other medical devices. There is no assurance that the
Company's products will be able to replace such alternative products or
techniques or that advancements in these alternative products or techniques will
not make the Company's products obsolete. See "Business -- Competition."
LIMITED REVENUES; HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES;
FLUCTUATIONS IN QUARTERLY FINANCIAL PERFORMANCE
The Company has generated only limited revenues to date and has experienced net
losses since its inception. Net losses for the fiscal years ended September 30,
1994 and 1995, and for the six months ended March 31, 1996, were $964,000,
$1,311,000, and $571,000, respectively. The Company had an accumulated deficit
of approximately $4.6 million at March 31, 1996. The Company expects to incur
substantial product development, clinical research and other expenses in
connection with the clinical testing, development and commercialization of its
FEMSOFT urethral assist female continence insert, as well as for its other
products in development and for other new products and product enhancements. In
addition, the Company expects increasing operating expenses as it develops
administrative infrastructure to anticipated future growth, and progressively
expands its sales and marketing organization as it introduces its new products.
As a result, the Company expects to incur substantial operating losses for the
foreseeable future, and there is no assurance that the Company will ever
generate substantial revenues or achieve profitability. The Company has also
experienced and may continue to experience variations in quarterly financial
performance. The timing of future purchases by ConvaTec, Mentor and other
private label customers and distributors may significantly affect quarterly
financial performance. Quarterly variations may also result from the timing of
the commercial release of products and the start of clinical preference testing
for products. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
MANUFACTURING PRODUCTS FOR CLINICAL TESTING PURPOSES
The Company has installed a small, computer controlled, semi-automatic
manufacturing line (the "Pilot-line") that it uses in conjunction with its
automated Foley catheter manufacturing line for development and testing of the
manufacturing processes and techniques applicable to the manufacture of its new
products. The Company also uses the Pilot-line to produce limited quantities of
its products in development for clinical and preference testing purposes. To the
extent that volume and production limits of Pilot-line may prevent the Company
from timely producing sufficient quantities of its products in development for
clinical trial and clinical preference testing purposes, such trials and tests
may be delayed, with consequent delays in market introduction or regulatory
approvals for such products. See "Business -- Manufacturing" and "Business --
Research and Development."
NEED FOR ADDITIONAL CAPITAL
The Company will require substantial additional capital to finance the marketing
of its new FEMSOFT urethral assist female continence insert if and as that
device is brought to market. Unlike its other products which are marketed
directly and through private label arrangements to physicians, nurses, home care
operators, hospitals and purchasing groups, the FEMSOFT urethral assist device
will be marketed through extensive educational efforts directed at clinicians
and through extensive media advertising directed to consumers. In the absence of
additional financing, it is likely that the Company's planned marketing and
distribution efforts for the FEMSOFT urethral assist device will be
significantly reduced and/or delayed. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Marketing and
Sales."
DEPENDENCE ON PRIVATE LABEL ARRANGEMENTS
The Company's success depends to a significant extent on third party private
label arrangements. Private label arrangements with medical products companies
accounted for approximately 81% and 79% of the Company's net sales for fiscal
1994 and fiscal 1995, respectively, and for approximately 77% of the Company's
net sales for the six months ended March 31, 1996. Private label sales to
Hollister, Baxter Euromedical and Mentor accounted for approximately 25%, 20%
and 14%, respectively, of the Company's net sales for fiscal 1995; while such
sales to Hollister, Baxter Euromedical, Mentor and ConvaTec accounted for
approximately 18% of net sales, 21% of net sales, 15% of net sales and 12% of
net sales, respectively, for the six months ended March 31, 1996. The Company's
agreement with Mentor grants Mentor a patent license to manufacture the silicone
external catheter which Mentor now purchases from the Company, and Mentor could
manufacturer that product itself. The Company's strategic relationship with
ConvaTec grants ConvaTec, subject to obligations and limitations imposed by the
Company's other distribution agreements, worldwide rights to market the
Company's current products, products in development and certain future products
under the ConvaTec brand. Under this agreement, the Company retains worldwide
rights to market its products under the Rochester Medical brand, but limits its
ability to distribute its products through third parties other than under the
Rochester Medical brand. ConvaTec is not subject to any minimum purchase
requirements. With regard to certain of the Company's products in development
and future products, moreover, the Company and ConvaTec must agree on certain
terms before commencement of sales of those products in development and future
products. There can be no assurance that ConvaTec will continue to place orders
for products with the Company, or that it will successfully market the Company's
products. As a result, a significant portion of the Company's net sales depends
on the Company's ability to provide products that meet the requirements of
ConvaTec, Mentor and the Company's other medical products distributors and on
the sales and marketing efforts of such distributors. In addition, there can be
no assurance that the Company will be able to operate profitably with respect to
products delivered under these agreements. See "Business -- Marketing and Sales"
and "-- Private Label Distribution Agreements."
LIMITED EXPERIENCE WITH ROCHESTER MEDICAL BRAND PRODUCTS
A key element of the Company's business strategy is to develop broad market
recognition for the Rochester Medical brand to support the future market
introduction of its FEMSOFT urethral assist device and other products in
development. To date, the Company has primarily marketed its incontinence and
urological devices under private label arrangements and has conducted only
limited selling and marketing activities for its Rochester Medical brand
directly to physicians, nurses, home care operators, hospitals, distributors and
purchasing groups. Although the Company intends to progressively increase its
Rochester Medical brand marketing and sales efforts as certain of its newer
products are brought to market, and to substantially expand those efforts for
its FEMSOFT urethral assist device and for other of its products in development
as and if those products become commercially introduced into the market, there
can be no assurance that the Company will be able to successfully market its
products under the Rochester Medical brand or that the Company will be able to
develop an effective sales force. In addition, some segments of the health care
market are experiencing consolidation and restructuring which are affecting
traditional purchasing patterns and practices for disposable medical products,
and there is no assurance that the Company will be able to successfully adapt
its marketing of Rochester Medical brand products to such changes. The FEMSOFT
urethral assist device, moreover, will require the Company to undertake
extensive educational efforts directed to clinicians and to conduct significant
media advertising directed to consumers. The Company has no previous experience
with such educational efforts or consumer oriented media advertising, and there
can be no assurance that the Company will be successful in such activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Marketing and Sales."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon Anthony J. Conway, the Company's Chief Executive
Officer and President and Philip J. Conway and Richard D. Fryar, Vice Presidents
of the Company, who conduct substantially all of the Company's research and
development efforts as well as perform various management functions. In
addition, the Company is also dependent on other of its financial and marketing
officers. The loss of services of any of these individuals could impair the
Company's ability to commercialize its products or to develop new products and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS
Many of the Company's products, including the FEMSOFT urethral assist female
continence insert and other of its products, have not yet been commercially
introduced into the incontinence and urological markets. There can be no
assurance that these products will gain any significant degree of market
acceptance or that users will accept these products as preferable to alternative
products or methods of treatment. The Company believes that recommendations by
physicians will be essential for the development and successful marketing of
these products and there can be no assurance that any such recommendations will
be obtained. In addition, the Company has not yet determined pricing for these
products and the Company's pricing policies could adversely impact market
acceptance of these products as compared to competing products and treatments.
Any of the foregoing factors, or other factors, could limit or detract from
market acceptance of these products. Insufficient market acceptance of these
products could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Products."
GOVERNMENT REGULATION
The Company's products, product development activities and manufacturing
processes are subject to extensive and rigorous regulation by the FDA and by
comparable agencies in foreign countries. In the United States, the FDA
regulates the introduction of medical devices as well as manufacturing, labeling
and record keeping procedures for such products. The process of obtaining
marketing clearance for new medical products from the FDA can be costly and time
consuming, and there can be no assurance that such clearance will be granted for
the Company's future products on a timely basis, if at all, or that FDA review
will not involve delays that would adversely affect the Company's ability to
commercialize additional products or to expand permitted uses of existing
products. Even if regulatory clearance to market a product is obtained from the
FDA, this clearance may entail limitations on the indicated uses of the product.
Marketing clearance can also be withdrawn by the FDA due to failure to comply
with regulatory standards or the occurrence of unforeseen problems following
initial clearance. The Company may be required to make further filings with the
FDA under certain circumstances, such as the addition of product claims or
product reformulation. The FDA could also limit or prevent the manufacture or
distribution of the Company's products and has the power to require the recall
of such products. FDA regulations depend heavily on administrative
interpretation, and there can be no assurance that future interpretation made by
the FDA or other regulatory bodies, with possible retroactive effect, will not
adversely affect the Company. The FDA and various state agencies inspect the
Company and its facilities from time to time to determine whether the Company is
in compliance with regulations relating to medical device manufacturing
companies, including regulations concerning manufacturing, testing, quality
control and product labeling practices. A determination that the Company is in
material violation of such regulations could lead to the imposition of civil
penalties, including fines, product recalls, product seizures, or, in extreme
cases, criminal sanctions.
All of the products currently marketed by the Company have received marketing
clearance from the FDA pursuant to 510(k) pre-market notifications filed by the
Company. A 510(k) pre-market notification requires the manufacturer of a medical
device to establish that the device is "substantially equivalent" to medical
devices legally marketed in the United States prior to the Medical Device
Amendments of 1976. With regard to the FEMSOFT urethral assist female continence
insert, the Company intends to file for an Investigational Device Exemption
(IDE) with the FDA in order to establish the proper clinical testing protocol
for that device, and to conduct clinical testing in accordance with the IDE
approved protocol. The Company intends, thereafter, to submit the clinical data
to the FDA in a Pre-Market Approval ("PMA") application for that device. With
regard to its Medicated Foley catheter, the Company is presently conducting
clinical tests of that device, and intends to resubmit a 510(k) pre-market
notification with additional information previously requested by the FDA upon
completion of the current clinical tests. There can be no assurance that the FDA
will grant the IDE application or subsequent PMA application for the FEMSOFT
urethral assist female continence insert, or that the FDA will grant 510(k)
marketing clearance for the Medicated Foley, or that the FDA will not require
the Company to file a PMA with regard to the Medicated Foley, or that the
clinical testing now being performed will generate appropriate data supporting
resubmission to the FDA, any of which could involve further delay and expense.
The process of obtaining a PMA can be expensive, uncertain and lengthy.
Significant delay or cost in obtaining, or failure to obtain FDA clearance to
market these products could have a material adverse effect on the business,
financial condition and results of operations of the Company.
A portion of the Company's revenues are dependent upon sales of its products
outside the United States. Foreign regulatory bodies have established varying
regulations governing product standards, packaging requirements, labeling
requirements, import restrictions, tariff regulations, duties and tax
requirements. The Company relies upon independent foreign distributors to comply
with such foreign regulatory requirements. The inability or failure of the
Company or such foreign distributors to comply with varying foreign regulations
or the imposition of new regulations could restrict the sale of the Company's
products internationally and thereby adversely affect the Company's business,
financial condition and results of operations. See "Business -- Government
Regulation."
LIMITATIONS ON THIRD PARTY REIMBURSEMENT
The Company's products are purchased by hospitals and other users, which bill
various third party payors, such as government health programs, private health
insurance plans, managed care organizations and other similar programs, for the
health care products and services provided to their patients. Payors may deny
reimbursement if they determine that a product used in a procedure was not used
in accordance with established payor protocols regarding cost-efficient
treatment methods, was used for an unapproved indication or was not otherwise
covered. Third party payors are increasingly challenging the prices charged for
medical products and services and, in some instances, have pressured medical
suppliers to lower their prices. The Company is unable to predict what changes
will be made in the reimbursement methods used by third party health care
payors. There can be no assurances that treatments utilizing the Company's
products will be considered cost effective by third party payors, that
reimbursement for such treatments will be available or, if available, that payor
reimbursement levels will not adversely affect the Company's ability to sell its
products on a profitable basis. Moreover, Medicare, Medicaid and private third
party payors may limit reimbursement for disposable devices such as those
manufactured by the Company by implementing fee schedules or by allowing
reimbursement for only a set number of devices per month. In addition,
healthcare costs have risen significantly over the past decade, and there have
been and may continue to be proposals by legislators, regulators and third party
payors to curb these costs. Failure by users of the Company's products to obtain
reimbursement from third party payors, changes in third party payors' policies
towards reimbursement for the Company's products or legislative action limiting
reimbursement for certain procedures or products could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Third Party Reimbursement."
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
The Company's success may depend in part on its ability to obtain patent
protection for its products and manufacturing processes, to preserve its trade
secrets and to operate without infringing the proprietary rights of third
parties. The validity and breadth of claims covered in medical technology
patents involve complex legal and factual questions and, therefore, may be
highly uncertain. No assurances can be given that any patents under pending
applications or any future patent applications will be issued, that the scope of
any patent protection will exclude competitors or provide competitive advantages
to the Company, that any of the Company's patents will be held valid if
subsequently challenged or that others will not claim rights in or ownership of
the patents and other proprietary rights held by the Company. Litigation, which
could result in substantial cost to and diversion of effort by the Company, may
be necessary to enforce patents issued to the Company, to protect trade secrets
or know-how owned by the Company, or to determine the ownership, scope or
validity of the proprietary rights of the Company and others. Furthermore, there
can be no assurance that others have not developed or will not develop similar
products or manufacturing processes, duplicate any of the Company's products or
manufacturing processes, or design around the Company's patents. The Company
also relies upon unpatented trade secrets to protect its proprietary technology,
and no assurance can be given that others will not independently develop or
otherwise acquire substantially equivalent techniques or otherwise gain access
to the Company's proprietary technology or disclose such technology or that the
Company can ultimately protect meaningful rights to such unpatented proprietary
technology.
The Company is aware that UroMed Corporation ("UroMed") possesses a United
States patent that relates to a device for the management of female
incontinence. Prior to the Company's development of its FEMSOFT urethral assist
female continence insert, the Company received an opinion from its patent
counsel, Merchant, Gould, Smith, Edell, Welter & Schmidt, P.A., to the effect
that, at the time the opinion was given, the FEMSOFT continuous drain catheter,
valved catheter, and occlusive plug did not infringe the UroMed patent. The
Company has not sought a further opinion from its patent counsel regarding the
FEMSOFT urethral assist female continence insert. The Company has not received
any notice of a claim of patent infringement from UroMed, although it is
possible that UroMed could choose to bring an action against the Company
alleging infringement of the UroMed patent at any time in the future. Because
the opinion of counsel that the Company has received with respect to the UroMed
patent is not binding on a court and because of the complex legal and factual
questions involved in patent litigation, there can be no assurance that if
UroMed brought an infringement action against the Company a court would find the
UroMed patent to be either invalid or not infringed. There can be no assurance
that any redesign of any of the FEMSOFT devices to circumvent a claim of
infringement would be commercially acceptable or would necessarily circumvent
such a claim.
A claim by UroMed or by other third parties that the Company's current products
or products under development allegedly infringe their patent rights could have
a material adverse effect on the Company. The medical device industry is
characterized by frequent and substantial intellectual property litigation,
particularly with respect to newly developed technology. Intellectual property
litigation is complex and expensive, and the outcome of such litigation is
difficult to predict. Any future litigation, regardless of outcome, could result
in substantial expense to the Company and significant diversion of the efforts
of the Company's technical and management personnel. An adverse determination in
any such proceeding could subject the Company to significant liabilities to
third parties, require disputed rights to be licensed from such parties, if
licenses to such rights could be obtained, and/or require the Company to cease
using such technology. There can be no assurance that if such licenses were
obtainable, they would be obtainable at costs reasonable to the Company. If
forced to cease using such technology, there can be no assurance that the
Company would be able to develop or obtain alternate technology. Additionally,
if third party patents containing claims affecting the Company's technology are
issued and such claims are determined to be valid, there can be no assurance
that the Company would be able to obtain licenses to such patents at costs
reasonable to the Company, if at all, or be able to develop or obtain alternate
technology. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
the Company from manufacturing, using or selling certain of its products, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
There also can be no assurance that UroMed or any other party does not presently
have, has not applied for, or might not in the future apply for, additional
patents in the United States which, if ultimately granted, might be infringed by
any of the FEMSOFT devices or urethral assist female continence insert as
currently configured or any other product of the Company and provide the basis
for an infringement action against the Company. See "Business -- Patents and
Proprietary Rights."
DEPENDENCE ON SINGLE SOURCES OF SUPPLY
The Company is dependent upon Dow Corning Corporation ("Dow Corning") for raw
materials used in the manufacture of certain of its silicone products. Dow
Corning is currently in bankruptcy proceedings and there can be no assurance
that Dow Corning will continue to manufacture silicone or to supply silicone to
medical device manufacturers, such as the Company. The Company is also dependent
on Shell Chemical Company for the primary raw materials for the ULTRAFLEX
polymer used in manufacturing certain of the Company's male external catheters.
If the Company were to lose either supplier, it would be required to identify a
new supplier, repeat biocompatibility testing of its products using the raw
materials from the new supplier and may be required to seek additional
regulatory clearance. While the Company routinely seeks to identify and evaluate
alternate sources of supply, the loss of either such supplier could interrupt
the manufacture of the Company's products and have a material adverse effect on
the Company's business, financial conditions and results of operations.
Moreover, the significance of product liability litigation to suppliers of raw
materials used in the manufacture of medical devices has caused such suppliers
to carefully evaluate the use of those raw materials in certain medical devices.
While the Company's current use of such raw materials is acceptable to its
suppliers, there is no assurance that Company's suppliers might not in the
future change their policies regarding raw materials usage, or that such a
change, if it occured, might not adversely affect production of the Company's
current products or its product development activities. See "Business -- Sources
of Supply."
CONSTRUCTION OF ADDITIONAL MANUFACTURING FACILITY
The Company has recently begun to let contracts to construct and equip an
additional manufacturing facility near the site of the Company's current
facility, primarily for the manufacture of the FEMSOFT urethral assist female
continence insert and other FEMSOFT devices. The new facility will consist of
approximately 56,000 square feet of office, storage, manufacturing, chemical
handling and clean room manufacturing space containing, among other things, an
automated production line for the FEMSOFT urethral assist female continence
insert and other FEMSOFT devices, a liquid injection molding machine, packaging
equipment and miscellaneous support equipment. The Company may encounter delays
in the construction of the new facility and technical difficulties in the
development of a new production line and the establishment of commercial
production of these new products. No assurance can be given that there will not
be delays relating to the new facility that could have a material adverse effect
on the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Facilities."
PRODUCT LIABILITY; ADEQUACY OF INSURANCE
The medical products industry is subject to substantial litigation, and the
Company faces an inherent business risk of exposure to product liability claims
in the event that the use of its products is alleged to have resulted in adverse
effects to a patient. Although the Company has not experienced any product
liability claims to date, any such claims could have an adverse effect on the
Company. The Company maintains general insurance policies which include coverage
for product liability claims. The policies are limited to an aggregate maximum
of $6 million per product liability claim, with an annual aggregate limit of $6
million under the policies. There can be no assurance that liability claims will
not exceed the coverage limits of such policy or that such insurance will
continue to be available on commercially reasonable terms, if at all.
Consequently, a product liability claim or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the business, financial condition and results of operations of the
Company.
PROCEEDS FROM SALE OF SHARES; POTENTIAL VOLATILITY OF STOCK PRICE
The Company will receive none of the proceeds from the sale of the shares of
Common Stock by the Selling Shareholders. The shares of Common Stock may be
offered and sold by the Selling Shareholders from time to time at market prices
or in negotiated transactions. Factors such as variations in the Company's
financial performance and announcements of technological innovations by the
Company, its competitors or providers of alternative products, or the periodic
sales of the shares of Common by the Selling Shareholders, could cause the
market price of the Common Stock to fluctuate substantially. Moreover, stock
markets have experienced price and volume fluctuations that have particularly
affected medical technology companies, resulting in changes in the market prices
of the stocks of many companies which may not have been directly related to the
operating performance of those companies. Such broad market fluctuations may
adversely affect the market price of the Common Stock.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
Directors and executive officers of the Company own beneficially approximately
25% of the Company's outstanding Common Stock. Accordingly, these shareholders,
individually and as a group, may be able to influence the outcome of shareholder
votes, including votes concerning the election of directors, the adoption or
amendment of provisions in the Company's Articles of Incorporation and Bylaws
and the approval of certain mergers or other similar transactions, such as sales
of substantially all of the Company's assets. Such control by existing
shareholders could have the effect of delaying, deferring or preventing a change
in control of the Company. See "Principal Shareholders."
POSSIBLE ISSUANCES OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF MINNESOTA LAW
Pursuant to the Company's Articles of Incorporation, the Board of Directors has
authority to fix the rights, preferences, privileges and restrictions, including
voting rights, of unissued shares of the Company's capital stock and to issue
such stock without any further vote or action by the shareholders. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be created and
issued in the future. The issuance of preferred stock could have the effect of
delaying, deferring or preventing a change in control of the Company. In
addition, certain provisions of Minnesota law applicable to the Company could
have the effect of discouraging certain attempts to acquire the Company, which
could deprive the Company's shareholders of opportunities to sell their shares
of Common Stock at prices higher than prevailing market prices and may also have
a depressive effect on the market price of the Company's Common Stock. See
"Description of Capital Stock."
ABSENCE OF DIVIDENDS
The Company has never paid any cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. In addition, the
terms of the convertible loan the Company received from ConvaTec restrict the
circumstances under which the Company can pay cash dividends and the aggregate
amounts of such cash dividends.
USE OF PROCEEDS
The Company will receive none of the proceeds from the sale of the Shares
offered hereby.
The Company will receive approximately $650,000 of proceeds, net of expenses of
this offering estimated at $70,000, from the Selling Shareholders upon their
exercise of 80,000 common stock purchase warrants at the price of $9.00 per
share. Certain of the Selling Shareholders previously acquired a total of 60,000
Shares upon the exercise of common stock purchase warrants, and the Company will
receive no further proceeds in connection with the sale of such Shares. All
proceeds received by the Company will be used for general corporate purposes.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is currently quoted on the NASDAQ National Market
under the symbol ROCM. Prior to November 15, 1995, the Company's Common Stock
was quoted on the NASDAQ Small Cap Market. The following table sets forth, for
the periods indicated, the range of high and low bid quotations for the Common
Stock as reported by the NASDAQ National Market since November 15, 1995, and by
the Nasdaq SmallCap Market prior to that date. Such information prior to
November 15, 1995, represents prices between dealers, without mark-up, mark-down
or commission, and does not necessarily represent actual transactions.
HIGH LOW
---- ---
FISCAL 1994:
First Quarter $ 8.25 $ 7.50
Second Quarter 8.25 6.25
Third Quarter 7.25 6.25
Fourth quarter 8.50 6.25
FISCAL 1995:
First Quarter $13.75 $ 8.50
Second Quarter 19.25 13.25
Third Quarter 19.25 18.75
Fourth Quarter 21.00 14.25
FISCAL 1996:
First Quarter $18.00 $12.50
Second Quarter 15.25 13.75
Third Quarter 22.50 14.75
Fourth Quarter (through July 16, 1996) 18.50 16.00
HOLDERS
As of July 16, 1996, there were 4,047,500 shares of Common Stock outstanding,
held of record by 120 shareholders. Such record holders do not reflect
shareholders who beneficially own Common Stock in nominee or street name.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March 31,
1996, and as adjusted to reflect the receipt of $650,000 of proceeds, net of
estimated expenses of this registration, from the exercise of warrants to
purchase 80,000 shares of Common Stock subsequent to March 31, 1996.
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(1)
----------- -----------
(UNAUDITED)
Long-term debt, net of current maturities $ 3,178,125 $ 3,178,125
Shareholders' equity:
Common stock, no par value:
20,000,000 shares authorized; 4,047,500
shares issued and outstanding actual;
4,127,500 issued and outstanding as
adjusted (1) 23,946,911 24,596,911
Accumulated deficit (4,628,911) (4,628,911)
----------- -----------
Total shareholders' equity 19,318,000 19,968,000
----------- -----------
Total capitalization $22,496,125 $23,146,125
=========== ===========
(1) Does not include (i) an aggregate of 434,500 shares issuable upon
exercise of outstanding stock options at a weighted average exercise price
of $11.24 per share, (ii) 75,000 shares of Common Stock issuable
upon exercise of outstanding warrants at an exercise price of $14.85 per
share, or (iii) 157,895 shares issuable upon conversion of an outstanding $3
million convertible loan from ConvaTec, exclusive of shares issuable for
accrued interest, at a conversion price of $19.00 per share. See
"Description of Capital Stock" and Notes to Financial Statements
incorporated by reference.
SELECTED FINANCIAL DATA
The following selected financial data of the Company as of September 30, 1994
and 1995 and for each of the years ended September 30, 1994 and 1995 are derived
from, and are qualified by reference to, the financial statements of the Company
audited by Ernst & Young LLP, independent auditors, that are incorporated by
reference in this Prospectus. The following selected financial data as of and
for the year ended September 30, 1993, are derived from audited financial
statements not incorporated by reference herein. The selected financial data
presented below for the six months ended March 31, 1996 and 1995, are derived
from the unaudited financial statements of the Company that are incorporated by
reference in this Prospectus. In the opinion of the Company's management, such
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation of the financial
position and results of operations for the periods represented. The results of
operations for the six months ended March 31, 1996, are not necessarily
indicative of the results to be expected for the year ending September 30, 1996.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's Financial Statements and related Notes and other financial information
included elsewhere or incorporated by reference in this Prospectus. See
"Incorporation of Certain Information by Reference."
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales $ 1,393 $ 2,189 $ 3,131 $ 1,382 $ 2,042
Cost of sales 1,254 1,716 2,448 1,044 1,480
------- ------- ------- ------- -------
Gross profit (loss) 139 473 683 338 562
Operating expenses:
Marketing and selling 259 574 858 421 552
Research and development 268 210 358 230 396
General and administrative 338 692 766 151 402
------- ------- ------- ------- -------
Total operating expenses 865 1,476 1,982 802 1,350
------- ------- ------- ------- -------
Loss from operations (726) (1,003) (1,299) (464) (788)
Interest income 126 78 56 28 360
Interest Expense (35) (39) (68) (20) (143)
------- ------- ------- ------- -------
Net loss $ (635) $ (964) $(1,311) $ (456) $ (571)
======= ======= ======= ======= =======
Net loss per common share $ (.24) $ (.36) $ (.49) $ (0.17) $ (0.16)
======= ======= ======= ======= =======
Weighted average number of
common shares outstanding 2,660 2,660 2,682 2,664 3,656
BALANCE SHEET DATA:
Working capital $ 3,669 $ 2,822 $ 4,348 $ 2,434 $20,033
Total assets 6,428 5,631 7,163 5,139 22,941
Long-term debt, net of current
maturities 411 395 3,036 393 3,178
Accumulated deficit (1,783) (2,747) (4,058) (3,185) (4,629)
Total shareholders' equity 5,744 4,815 3,672 4,377 19,318
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company designs, develops, manufactures and markets disposable latex-free
incontinence and urological catheters and other urological devices. Through
fiscal 1992, the Company was a development stage company, engaged primarily in
the development of its products and manufacturing processes and systems. In
fiscal 1992, the Company began commercial sales of silicone male external
catheters under a private label arrangement with Mentor. In fiscal 1993, the
Company introduced its ULTRAFLEX male external catheter as well as its Foley
catheter, and began marketing its products under the Rochester Medical brand.
During fiscal 1993, the Company began private label sales of its ULTRAFLEX male
external catheter to Hollister and expanded its private label sales to Mentor.
In fiscal 1994, the Company expanded its sales and marketing organization and
continued expanding private label sales by commencing sales to Baxter
Euromedical and increasing sales to Hollister. The Company introduced its POP-ON
male external catheter in May 1995 and its NATURAL CATHETER in September 1995.
In August 1995, the Company entered into a development and marketing agreement
with ConvaTec, under which ConvaTec has worldwide rights, subject to the
Company's existing agreements, to market the Company's existing and future
products under the ConvaTec brand. At the same time, the Company retains
worldwide rights to market its products under the Rochester Medical brand. The
Company and ConvaTec also may agree to work cooperatively to develop additional
incontinence and urological products. As part of this relationship, ConvaTec
invested $3 million in the Company in the form of a convertible loan. ConvaTec
has an extensive sales organization in the United States and approximately 70
other countries. Throughout these periods, the Company depended primarily on
private label sales which represented approximately 89% of the Company's net
sales in fiscal 1993, 81% of such sales in fiscal 1994, 79% of such sales in
fiscal 1995, and 77% of such sales for the six months ended March 31, 1996.
In December 1995, the Company completed a public offering of 1,322,500 of its
common shares resulting in its receipt of approximately $16,200,000 of net
proceeds. In May 1996, the Company began construction of a new 56,000 square
foot office and manufacturing facility principally for the manufacture of its
FEMSOFT devices.
Since its inception, the Company has been unprofitable and expects to continue
to incur substantial operating losses for the foreseeable future. The Company
has incurred an accumulated deficit of approximately $4.6 million through March
31, 1996. The Company anticipates increasing expenditures for research and
development activities (including product and process development, clinical
preference testing, and regulatory activities), sales and marketing activities
and manufacturing start-up costs associated with the Company's additional
manufacturing facility will contribute to future net losses.
The Company has experienced and expects to continue to experience fluctuations
in quarterly results due to the timing of purchases by private label customers,
the commercial release of products, and the start of clinical testing of
products. In addition, variations in the Company's production levels and
variations in sales mix between Rochester Medical brand sales and private label
sales have caused, and may in the future cause, fluctuations in gross margins.
Variations in the mix of sales among Foley catheters, male external catheters
and other products to be commercially introduced by the Company have caused, and
may in the future cause, fluctuations in gross margins.
The Company's current production levels have absorbed much of the Company's
excess manufacturing capacity for its currently marketed products. If production
levels continue to increase, it may be necessary for the Company to expand
production capacity for such products.
Pursuant to a settlement agreement in September 1995 between the Company and
Mentor, Mentor retains exclusive rights to distribute and sell silicone male
external catheters in the United States and the United Kingdom until September
8, 1996.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, certain items
from the statements of operations of the Company expressed as a percentage of
net sales:
FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
------------- ---------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Net Sales:
Private label 89% 81% 79% 75% 77%
Rochester Medical brand 11 19 21 25 23
---- ---- ---- ---- ----
Total net sales 100 100 100 100 100
Cost of sales 90 78 78 76 72
---- ---- ---- ---- ----
Gross margin 10 22 22 24 28
Operating Expenses:
Marketing and selling 19 26 27 30 27
Research and development 19 10 11 17 19
General and administrative 24 32 24 11 21
---- ---- ---- ---- ----
Total operating expenses 62 67 63 58 67
---- ---- ---- ---- ----
Loss from operations (52) (46) (41) (34) (39)
Interest income (expense), net 7 2 (1) 1 11
---- ---- ---- ---- ----
Net loss (46)% (44)% (42)% (33)% (28)%
SIX MONTHS ENDED MARCH 31, 1996, COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
NET SALES. Net Sales increased 48% to $2,042,651 for the six months ended
March 31, 1996, from $1,382,733 for the comparable six months of the prior year
reflecting growth in both private label and Company branded sales. The increase
in private label sales as a percentage of total sales is due to the resumption
of sales to Mentor and sales to ConvaTec under the strategic marketing alliance
signed in August 1995. Sales to Mentor and to ConvaTec represented,
respectively, 15% and 12% of net sales for the six months ended March 31, 1996,
compared, respectively, to 0% and 8% of net sales for the comparable period of
1995. Mentor holds a patent license from the Company that would permit Mentor to
commence manufacturing the silicone male external catheter which it presently
purchases from the Company. However, the Company has not been advised by Mentor
that it intends to establish a facility to manufacture such product itself.
Sales of ROCHESTER MEDICAL(R) brand products grew at a rate of 36% during the
current six month period, but represented a relatively modest proportion of
product mix due to the significance of private label sales.
GROSS MARGIN. The Company's gross margin as a percentage of net sales was 27.5%
for the six months ended March 31, 1996 compared to 24.5% for the six months
ended March 31, 1995, due to increased manufacturing efficiencies from higher
production volumes offset by the impact of increases in lower margin private
label sales. Gross margin during the six months ended March 31, 1995 also
reflects a first quarter margin rate of 19.7% related to raw material costs.
MARKETING AND SELLING. Marketing and selling expense increased 31% to $552,263
for the six months ended March 31, 1996 from $420,941 for the six months ended
March 31, 1995. The increased expense is due to increased promotional expense
for Company branded products, and also reflects spending levels below normal
trends during the first quarter of fiscal 1995. Marketing and selling expense
rate decreased to 27% of net sales in the current six month period from 30% of
net sales for the comparable prior six month period.
RESEARCH AND DEVELOPMENT. Research and development expense increased 73% to
$396,573 for the six months ended March 31, 1996 from $230,271 for the six
months ended March 31, 1995. The increase is due to the addition of a new
Director of Clinical and Regulatory Affairs and expenditures related to clinical
testing of the Company's products in development. Research and development
expense increased to 19% of net sales in the current six month period from 17%
of net sales for the comparable prior six month period.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased 166% to
$401,973 for the six months ended March 31, 1996 from $157,1221 for the six
months ended March 31, 1995. The expense increase reflects expenditures for
recruitment and relocation of the Company's new Chief Financial Officer, foreign
trademark registration costs, and development of administrative support
structures. General and administrative expense increased to 20% of net sales in
the current six month period from 11% of net sales for the comparable six month
period of the prior year.
INTEREST INCOME (EXPENSE). Interest income increased to $359,641 for the six
months ended March 31, 1996, from $27,816 for the six months ended March 31,
1995, as a result of earnings on cash invested in December 1995 from the
proceeds of the Company's public offering. Interest expense increased to
$142,666 for the six months ended March 31, 1996, from $20,270 for the six
months ended March 31, 1995. The increase in expense is a result of interest due
on the $3 million convertible subordinated loan from ConvaTec made in August
1995, and the elimination of interest payments on a mortgage loan that was
repaid from the proceeds of the ConvaTec loan.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1994
NET SALES. Net sales increased 43% to $3.1 million in fiscal 1995 from $2.2
million in fiscal 1994, primarily due to increased private label sales of Foley
catheters and from higher sales of Rochester Medical brand products. Private
label sales increased 39% in fiscal 1995, primarily as a result of increased
sales of Foley catheters to Baxter Euromedical, partially offset by decreased
sales of silicone male external catheters to Mentor. Sales of Rochester Medical
brand products increased 60% in fiscal 1995 due to higher sales of ULTRAFLEX
male external catheters and Foley catheters.
GROSS MARGIN. The Company's gross margin as a percentage of net sales was 21.8%
in fiscal 1995 compared with 21.6% in fiscal 1994. The Company's gross margin in
1995 benefited from manufacturing efficiencies resulting from higher production
volumes, which were offset by the effect of the sale of silicone male external
catheters to Mentor in the litigation settlement, by a write off of $100,000 for
potential inventory obsolescence related to silicone male external catheters and
by increased raw material costs and overhead expenses. The Company also incurred
development and increased production expenses during fiscal 1995 related to a
reformulation of its ULTRAFLEX polymer necessitated by raw material shortages
due to a fire last year at a supplier's manufacturing facility. The Company has
completed this reformulation and has returned to normal production of ULTRAFLEX
male external catheters.
MARKETING AND SELLING. Marketing and selling expenses increased 49% to $858,000
in fiscal 1995 from $574,000 in fiscal 1994. These increased expenses primarily
reflect the addition of an Executive Vice President, who has primary
responsibility for managing the Company's marketing and selling activities, and
two additional sales representatives, engaging independent manufacturer's
representatives and increasing marketing and sales efforts to establish and
expand the Rochester Medical brand, including direct marketing and customer
service, attendance at trade shows and product sample programs. Marketing and
selling expenses increased to 27.4% of net sales in fiscal 1995, from 26.2% of
net sales in fiscal 1994.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 70% to
$358,000 in fiscal 1995 from $210,000 in fiscal 1994, due primarily to increased
clinical testing expenses for the Medicated Foley catheter and continuing
development of the FEMSOFT devices. Research and development expenses increased
to 11.4% of net sales in fiscal 1995 from 9.6% of net sales in fiscal 1994.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 11% to
$766,000 in fiscal 1995 from $692,000 in fiscal 1994, primarily due to
write-offs in fiscal 1995 of $215,000 of accounts receivable from Mentor
pursuant to the litigation settlement, offset in part, by a decrease in legal
expenses. General and administrative expenses decreased to 24.4% of net sales in
fiscal 1995 from 31.6% of net sales in fiscal 1994.
INTEREST INCOME (EXPENSE), NET. Interest income decreased 28% to $56,000 in
fiscal 1995 from $78,000 in fiscal 1994, due to a reduction in average
marketable securities held by the Company. Interest expense increased 75% to
$68,000 in fiscal 1995 from $39,000 in fiscal 1994, due to higher interest rates
on the Company's outstanding mortgage loan and the accrual of interest on the
convertible loan from ConvaTec.
FISCAL YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1993
NET SALES. Net sales increased 57% to $2.2 million in fiscal 1994, from $1.4
million in fiscal 1993, primarily due to increased private label sales and, to a
lesser extent, sales of Rochester Medical brand products. Private label sales
increased 51% in fiscal 1994, due primarily to an increase in sales of ULTRAFLEX
male external catheters to Hollister. Sales of Rochester Medical brand products
increased 89% in fiscal 1994.
GROSS MARGIN. The Company's gross margin as a percentage of net sales increased
to 21.6% in fiscal 1994 from 10.0% of net sales in fiscal 1993. This increase
was primarily due to higher utilization of the Company's manufacturing capacity
and increased sales of Rochester Medical brand products which had higher margins
during 1994.
MARKETING AND SELLING. Marketing and selling expenses increased 122% to $574,000
in fiscal 1994 from $259,000 in fiscal 1993, primarily as a result of certain
expenses relating to hiring an Executive Vice President, hiring additional sales
representatives and increasing efforts to establish and strengthen the Rochester
Medical brand, including direct marketing and customer service, attendance at
trade shows and product sample programs. Marketing and selling expenses
increased to 26.2% of net sales, in fiscal 1994 from 18.6% of net sales in
fiscal 1993.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 22% to
$210,000 in fiscal 1994 from $268,000 in fiscal 1993, primarily as a result of
completion of research and development activities related to the Company's
ULTRAFLEX male external catheter, offset, in part, by increased expenses related
to clinical studies of the Medicated Foley catheter and increased expenses for
development of the Company's FEMSOFT devices. Research and development expenses
decreased to 9.6% of net sales in fiscal 1994 from 19.3% of net sales in fiscal
1993.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 105%
to $692,000 in fiscal 1994 from $338,000 in fiscal 1993, primarily as a result
of increased legal fees related to the Mentor litigation. General and
administrative expenses increased to 31.6% of net sales in fiscal 1994 from
24.2% of net sales for fiscal 1993.
INTEREST INCOME (EXPENSE), NET. Interest income decreased 38% to $78,000 in
fiscal 1994 from $126,000 in fiscal 1993, due to a reduction of marketable
securities held by the Company. Interest expense increased slightly during
fiscal 1994 compared to fiscal 1993 due to additional short term borrowing and
increases in variable interest rates on the Company's long term financing.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through public offerings and
private placements of its equity securities and has raised approximately $23.9
million in net proceeds from inception through March 31, 1996.
In August 1995, the Company's cash and marketable securities increased as a
result of the receipt of a $3.0 million convertible senior secured loan from
ConvaTec pursuant to a Convertible Loan Agreement (the "Loan Agreement") entered
into simultaneously with the distribution agreement. The loan is unsubordinated,
bears interest at 9.5% and has a five year term. Interest on the loan compounds
annually and is payable at maturity together with the aggregate principle
amount. Subject to ConvaTec's right to convert the loan, the loan may be repaid
at any time without penalty upon 60 days prior notice. At maturity, the Company
has the option of repaying a portion of the loan through credits against
ConvaTec's future purchases as long as ConvaTec's distribution agreement with
the Company remains in place. As a result of the Company's recent public
offering and the satisfaction of certain net worth requirements, the security
interest in substantially all of the Company's assets that had been granted to
ConvaTec in connection with the loan was terminated and released by ConvaTec.
ConvaTec may convert the outstanding balance of the loan, together with any
accrued interest, into shares of Common Stock of the Company at a conversion
price of $19.00 per share. The Loan Agreement includes certain antidilution
provisions for ConvaTec's conversion rights and provides certain registration
rights with respect to the shares of Common Stock issued upon conversion of the
loan. In connection with this loan, the Company was required to pay off an
existing bank mortgage of approximately $393,000. The Loan Agreement provides
that any material default under the distribution agreement between ConvaTec and
the Company will also act as a default under the Loan Agreement. See
"Business -- Marketing and Sales -- ConvaTec."
The Company's cash and marketable securities at March 31, 1996 were $18,612,438
compared to $2,905,341 at September 30, 1995, a net increase of $15,707,097. Net
proceeds of $16,217,393 from a public stock offering in the first quarter of the
current fiscal year represent the primary source of the additional liquidity.
Cash of $349,468 was used to fund operating activities during the six month
period ended Marsh 31, 1996. Essentially all of this amount relates to the net
operating loss for the six month period, exclusive of non-cash depreciation and
amortization expenses.
Accounts receivable and inventory balances at March 31, 1996, increased $99,694
(13%) and $114,102 (15%) respectively, from September 30, 1995. Receivable
balances reflect the increase in sales levels, and the inventory build is in
preparation for anticipated future sales.
Collection of $200,801 was made on the officer note receivable, leaving a
balance of $25,199 which the Company has arranged to collect prior to the fiscal
year end. Changes in other current asset and liability balances are
insignificant and relate primarily to timing of expense recognition.
Capital expenditures of $247,462 were made during the current six month period,
primarily related to expansion of the existing production facility and initial
expenditures on the new production facility. Patent expenditures of $55,866
relate to filings on the Company's new FEMSOFT products.
The Company anticipates significant capital requirements of approximately $6
million in the near future in order to finance expanded manufacturing facilities
and equipment for its FEMSOFT product line. The Company also anticipates
additional expenditures to continue its marketing efforts, to conduct clinical
testing for products in development, and generally to bring such products to
market.
The Company's capital resources on hand at March 31, 1996, together with
expected revenue from product sales, will be sufficient to finance its working
capital requirements for the foreseeable future. The Company also anticipates
that ConvaTec will make substantial monetary, technical and management
expenditures for the conduct of the clinical preference testing of the Company's
COMFORT SLEEVE Foley catheter, PERSONAL CATHETER and FEMSOFT continuous drain
catheter, and will make similar expenditures for overseas clinical tests of the
FEMSOFT urethral assist device. In addition, if the Company continues to
increase the rate of production of some of its current products, the Company
will also be required to make additional capital expenditures to increase the
production capacity for those products.
Management intends to pursue appropriate debt financing alternatives for the new
production facility and equipment. Management is also presently evaluating the
additional capital requirements that will be necessary to market the FEMSOFT
urethral assist device. Unlike its other products which are marketed directly
and through private label arrangements to physicians, nurses, home care
operators, hospitals and purchasing groups, the FEMSOFT urethral assist device
will be marketed through extensive educational efforts directed at clinicians
and through extensive media advertising directed to consumers. The Company will
require substantial additional capital to finance these anticipated marketing
activities if and as the FEMSOFT urethral assist device is brought to market.
BUSINESS
Rochester Medical Corporation (the "Company") designs, develops, manufactures
and markets disposable latex-free incontinence and urological catheters and
other urological devices.
The Company currently manufactures and markets its leading edge ULTRAFLEX,
NATURAL and POP-ON male external catheters for the management of male urinary
incontinence and its leading edge silicone Foley catheters for urinary
catheterization to eliminate urinary waste. The Company has also developed
several advanced feature catheters which the Company believes will provide
improved medical outcomes and which are in various stages of commercialization.
These include its FEMSOFT continuous drain and valved catheters for management
of certain female incontinence conditions; its COMFORT SLEEVE Foley catheter, a
proprietary improvement to standard Foley catheters; its intermittent PERSONAL
CATHETER for periodic urinary self-catheterization; and its Medicated Foley
catheter, which is intended to reduce the incidence of catheter induced urinary
tract infection. The Company has obtained marketing clearance from the Federal
Food and Drug Administration ("FDA") to market the FEMSOFT continuous drain
catheter, the COMFORT SLEEVE Foley catheter, and the PERSONAL CATHETER, and
plans to participate jointly with ConvaTec in clinical preference testing of
these products during the coming months before these products may be introduced
to the domestic and overseas markets. The Company's Medicated Foley catheter is
presently undergoing clinical trials to establish safety and efficacy in
anticipation of filing for marketing approval from the FDA.
The Company's recently developed FEMSOFT urethral assist female continence
insert is intended for the management of stress incontinence in active women.
This new device builds upon the Company's patented liquid encapsulation
technology to provide a new modality for treatment of stress incontinence that
supports, rather than obstructs, normal urethral functions. The Company intends
in the coming months to conduct clinical trials of its FEMSOFT urethral assist
device in the United States, and to participate with ConvaTec in overseas
clinical trials, in order to establish safety and effectiveness of the device in
anticipation of filing for marketing approvals from the FDA and foreign
regulators.
The management of urinary incontinence and other urological conditions as well
as the management of urinary functions in connection with surgery,
post-operative recovery and certain other medical procedures results in
significant healthcare costs. The United States Department of Health and Human
Services ("HHS") estimates that approximately 10 million people in the United
States suffer from urinary incontinence, a malfunction of the urinary system
involving the involuntary loss of urine. According to reported estimates, direct
costs of caring for persons with urinary incontinence in the United States
exceed $10 billion annually. In many instances, surgery, post-operative recovery
and other medical procedures require medical intervention to manage urinary
functions, and HHS has reported estimates that as many as one out of four
hospital patients in acute care settings undergoes short-term urinary
catheterization.
The Company focuses on manufacturing catheters and other urological devices from
silicone and other synthetic polymers which offer medical advantages compared
with latex-based products. Recent medical studies have indicated that latex
products may irritate and damage urinary tissues and may cause allergic
reactions. The Company has developed proprietary manufacturing technologies and
processes that simplify and further automate traditional catheter manufacturing
techniques to reduce the Company's manufacturing costs. These manufacturing
technologies and processes, together with the Company's materials expertise,
also enable it to manufacture innovatively designed catheters and to produce
seamless, soft, pliable catheters, providing improved comfort of use and
enhanced product performance. The Company prices its currently marketed
catheters and devices to be competitive with a substantial majority of latex
products in United States markets. The Company owns 11 issued United States
patents, and several corresponding foreign patents, covering certain of its
products and manufacturing technologies and processes.
The Company's marketing strategy is to develop broad market recognition and
increasing sales of Rochester Medical brand products, while also selling its
devices under private label arrangements with medical products companies. The
Company currently markets its external and Foley catheter lines under the
ROCHESTER MEDICAL brand through sales representatives employed by the Company
and through international distributors. The Company markets these same products
under private label arrangements with established medical products companies,
including ConvaTec, Hollister, Baxter Euromedical and Mentor. In August 1995,
the Company entered into a development and marketing agreement with ConvaTec,
under which ConvaTec has worldwide rights, subject to the Company's existing
agreements, to market the Company's existing and future products under the
ConvaTec brand. At the same time, the Company retains worldwide rights to market
its products under the ROCHESTER MEDICAL brand. The Company and ConvaTec also
may agree to work cooperatively to develop additional incontinence and
urological products. As part of this relationship, ConvaTec invested $3 million
in the Company in the form of a convertible loan. ConvaTec has an extensive
sales organization in the United States and approximately 70 other countries.
The Company intends to progressively increase marketing activities for its
current lines of Rochester Medical external and Foley catheters, and to
substantially expand marketing efforts for its newer, more advanced products in
development as they are introduced into the market. These newer products in
development will be marketed only by the Company and by ConvaTec.
Key elements of the Company's business strategy include: (i) focusing on
bringing its FEMSOFT urethral assist female continence insert to market through
regulatory approval processes, while continuing ongoing processes to
commercialize other of its products in development, including joint clinical
activities with ConvaTec, (ii) developing increased market recognition and sales
of a broad range of Rochester Medical brand products by progressively increasing
sales and marketing activities for its current products and by significantly
increasing those activities for the commercial introduction of its FEMSOFT
urethral assist female continence insert and other of its products in
development, (iii) seeking rapid commercial introduction of its products into
United States and international markets by focusing on its strategic marketing
alliance with ConvaTec and by continuing to distribute its products through its
current arrangements with other medical products companies, and (iv) emphasizing
proprietary manufacturing technologies and processes to produce competitively
priced products,
BACKGROUND
In the urinary system, the kidneys filter waste products from the circulatory
system, creating urine to remove the waste. Urine drains from the kidneys into
the bladder, which serves as a reservoir until emptied through urination.
Continence, or the appropriate storage and release of urine, is controlled by
the bladder neck and the urinary sphincter, which surrounds the bladder neck and
urethra, acting together as a valve. As the bladder fills, the bladder is
relaxed while the urinary sphincter contracts to prevent urination. During
urination, the urinary sphincter relaxes as the bladder contracts to evacuate
urine through the bladder neck and urethra.
Under various circumstances, such as a malfunction in the urinary system,
individuals may become unable to properly manage the release of their urine. In
addition, under other circumstances, such as during or following surgery, it may
be desirable for medical professionals to manage the functioning of an
individual's urinary system. The occurrence of these situations has led to the
introduction of products and treatments designed to capture or control the
release of urine. These products include incontinence and urological devices,
which generally have application in three major categories: incontinence,
surgery and other medical procedures, and other urological conditions.
URINARY INCONTINENCE
A malfunction of any part of the urinary system can cause urinary incontinence,
a condition involving the involuntary loss of urine. HHS estimates that
approximately 10 million people in the United States suffer from urinary
incontinence, of which the Company estimates that more than 80% are women. The
Company believes that urinary incontinence is more prevalent among women as
compared to men primarily because women suffer significant pelvic trauma during
pregnancy and childbirth, women do not have a prostate to aid in closing the
urethra, and women have far shorter urethras (and hence less muscular pressure
to close the urethra). There are three primary forms of urinary incontinence:
* STRESS INCONTINENCE is the involuntary loss of urine caused by an increase in
abdominal pressure during common activities, such as laughing, sneezing,
coughing, lifting or even standing up. The most common cause of stress
incontinence is a significant displacement of the urethra and bladder neck
during exertion. In women, stress incontinence is primarily caused by
pregnancy and childbirth. Stress incontinence represents approximately 50% of
all cases of incontinence.
* URGE INCONTINENCE is the involuntary loss of urine due to an unwanted bladder
contraction which is associated with a strong, uncontrollable desire to
urinate. Urge incontinence is often associated with neurological damage from
strokes, Alzheimer's Disease, multiple sclerosis and other conditions.
* OVERFLOW INCONTINENCE is the involuntary loss of urine when the amount of
urine produced exceeds the bladder's capacity. Overflow incontinence is
caused by a loss of bladder muscle tone due to disease or trauma, including
diabetes, spinal cord injury, prostate cancer or pelvic surgery.
The consequences of urinary incontinence, including depression, discomfort and
embarrassment about appearance and odor, are significant and often result in a
dramatic change in the quality of life. Urinary incontinence sufferers may have
symptoms of more than one form of urinary incontinence and often may use a
variety of treatments to manage their condition. Men are able to manage urinary
incontinence using male external catheters, which are disposable,
self-administered devices that collect and drain urine. The Company is not aware
of any comparable disposable, self-administered device for daily personal
management of female incontinence that is currently marketed in the United
States. In certain cases, urinary incontinence may be managed by healthcare
professionals using long-term Foley catheters to empty the bladder. HHS has
reported that more than 100,000 patients in American nursing homes have
long-term catheters in place. Other treatment options for incontinence include
adult diapers and other absorbent products, pharmaceuticals, surgery,
implantable devices, injectable materials and electrical stimulation and
biofeedback. The treatment of and care for urinary incontinence results in
significant costs to the healthcare system. According to estimates reported by
HHS, direct costs of caring for men and women with urinary incontinence in the
United States exceed $10 billion annually.
SURGERY AND OTHER MEDICAL PROCEDURES. During surgery, post-operative recovery
and certain other medical procedures, it is often necessary for medical
professionals to monitor the flow of urine and manage urinary functions.
Typically, Foley catheters that continuously drain the bladder are placed in
these patients for limited time periods. HHS has reported estimates that as many
as one out of four hospital patients in acute care settings undergoes this type
of short-term urinary catheterization.
OTHER UROLOGICAL CONDITIONS. A number of other urological conditions may require
the management of the elimination of urine from the body. Individuals suffering
from urinary retention are unable to empty their bladders and require an
alternative method of completely excreting urine. Other urological procedures,
such as resection of the prostate, require the irrigation of the bladder
post-operatively. Additionally, urine specimens may need to be obtained in
circumstances where normally voided specimens are not obtainable or desirable.
These urological conditions may be treated using Foley catheters or intermittent
catheters that are periodically inserted to drain the bladder and then removed.
MARKET TRENDS. An aging United States population is resulting in an increase in
urinary incontinence, surgeries and other urological conditions. According to
U.S. Census estimates, the segment of the U.S. population 50 years of age and
older is projected to grow 26% between 1990 and 2000 from approximately 65
million to 80 million individuals. Although aging does not cause urinary
incontinence, the condition is more prevalent among the elderly because they
have a greater incidence of disorders that cause urinary incontinence. Medical
researchers have estimated that 15% to 30% of persons over age 60, and
approximately 50% of nursing home residents require treatment for urinary
incontinence. Similarly, aging is associated with an increased incidence of
conditions requiring surgery and causing other urological conditions that are
managed with urinary catheterizations.
As in other healthcare markets, the market for incontinence and urological
products has been affected by significant pressure to control healthcare costs
and by the growing influence of managed care organizations. In a managed care
environment, manufacturers must establish that their medical devices provide
improved medical outcomes and patient satisfaction in a cost efficient manner
over the course of treatment of a condition. In an effort to provide improved
patient outcomes, medical device manufacturers are focusing on improving product
materials and features. These manufacturers are attempting to control production
costs by developing cost effective production techniques. In addition, efforts
by third party payors to control healthcare costs are increasing the use of home
healthcare which requires devices that may be more easily used by patients. In
response to this trend, medical device manufacturers are focusing on devices
that may be self-administered by the patient. To control administrative costs
associated with the management of purchases and inventories, institutional
purchasers, such as hospitals, are also consolidating and restructuring their
purchasing patterns. In response to this trend, manufacturers and distributors
of disposable medical products are seeking to furnish suitable products through
arrangements that include a broad range of related products.
Concerns about patient outcomes have caused hospitals and other healthcare
providers to investigate cost-competitive alternatives to latex-based
incontinence and urological devices. Historically, latex has been the most
commonly used material for incontinence and urological devices. Latex, however,
contains natural proteins and allergens that may often irritate and damage the
surrounding tissue and can cause allergic reactions. Latex allergies are now
recognized by healthcare providers as a significant, life-threatening problem
for some patients, and the furnishing and use of latex products has become the
subject of recent litigation against hospitals and manufacturers. Moreover,
latex catheters can be less comfortable to use than products made from synthetic
materials because crystals of urine salt form more easily on the surface of
latex catheters, which can make withdrawal of latex catheters more painful.
Other concerns regarding patient outcomes, including catheter induced urinary
tract infection ("CUTI") and tissue trauma caused by catheterizations, have led
to a growing demand for innovative incontinence and urological devices that
address these concerns.
BUSINESS STRATEGY
The Company's objective is to become a leading developer, manufacturer and
marketer of advanced, innovative medical devices for incontinence and urological
applications in global markets. The Company intends to achieve this objective by
developing and manufacturing a broad range of disposable latex-free incontinence
and urological catheters and other urological devices that provide improved
medical outcomes and enhanced treatment of urological conditions. The elements
of this strategy include:
* FOCUS ON COMMERCIALIZING PRODUCTS IN DEVELOPMENT. In order to add to
its portfolio of currently marketed products, the Company intends to
focus its product development efforts on rapidly bringing its products
in development to market. The Company intends to conduct clinical
testing of its FEMSOFT urethral assist female continence insert and to
complete clinical testing of its Medicated Foley catheter, and to
submit appropriate applications to the FDA for marketing clearance for
these products. In addition, the Company intends to participate with
ConvaTec in clinical preference testing of its FEMSOFT continuous
drain catheter, COMFORT SLEEVE Foley catheter and PERSONAL CATHETER,
each of which has received FDA marketing clearance, and to participate
with ConvaTec in overseas clinical testing of the FEMSOFT urethral
assist device, in order to rapidly commercialize these products. The
Company is also designing and specifying the manufacturing equipment
and processes that will be installed in the Company's new
manufacturing facilitates for commercial production of the FEMSOFT
products. The Company is presently refining the design of its valved
FEMSOFT catheter, and intends to conduct clinical testing, and to
participate with ConvaTec in overseas clinical testing, of the valved
FEMSOFT catheter upon completion of that process. Although the
substantial majority of the Company's product development efforts will
be devoted for the foreseeable future to the development activities
described above, the Company also intends to continue development
activities for other urological products which build on the Company's
current technology base.
* DEVELOP INCREASED MARKET RECOGNITION AND SALES OF ROCHESTER MEDICAL
BRAND PRODUCTS. The Company's marketing strategy is to gain increased
market recognition and sales of a broad range of Rochester Medical
brand products. As part of this strategy, the Company intends to focus
its marketing efforts for its products on institutions and physicians
that are receptive to innovations in medical devices and patient care,
to support and engage additional distributors of Rochester Medical
brand products for sale to institutional purchasers and to engage in
extensive educational efforts and consumer media advertising for its
FEMSOFT urethral assist device as and if that product enters the
market. To support brand development activities and sales of Rochester
Medical brand products, the Company intends to progressively increase
the number of sales representatives employed by the Company as it
introduces its newer products and to progressively expand its domestic
distribution network in order to provide a base for substantial
expansion of its domestic sales organization and distribution network
as its products in development, including its FEMSOFT urethral assist
device, are brought to market. The Company is also placing additional
emphasis on the establishment of an international distribution network
to support the Rochester Medical brand for current products and to
provide a base for similar expansion.
* FOCUS ON STRATEGIC MARKETING ALLIANCE WITH CONVATEC. In tandem with
its efforts to build brand recognition and expand sales of Rochester
Medical brand products, the Company seeks rapid commercial
introduction of its products into United States and international
markets by focusing on its strategic marketing alliance with ConvaTec.
This marketing alliance provides a substantially larger sales force
than the Company's sales force, increases market awareness of the
benefits of the Company's products and provides access to multi-unit
purchasing groups and other substantial purchasers that may prefer to
purchase the Company's products as part of a broader product line. In
addition, the Company will continue to distribute its currently
marketed products under its current private label arrangements with
other established medical products companies.
* EMPHASIZE PROPRIETARY MANUFACTURING TECHNOLOGIES. The Company focuses
on using proprietary, automated manufacturing technologies and
processes that simplify and further automate catheter manufacturing
techniques to reduce the Company's manufacturing costs. These
proprietary manufacturing technologies and processes also enable the
Company to manufacture innovatively designed devices, such as its
FEMSOFT urethral assist female continence insert and FEMSOFT
continuous drain catheter, that cannot be manufactured using
conventional technologies. Many of these proprietary manufacturing
technologies and processes are patented, and the Company's practice is
to seek patent protection for its technologies and processes as
appropriate.
PRODUCTS
The Company produces and is developing a broad range of disposable latex-free
incontinence and other urological devices. The Company's current products and
products in development are listed in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
PRODUCT APPLICATIONS STATUS
- -------------------------------- ------------------------------------------- ------------------
CURRENT PRODUCTS
Male External Catheters: * Management of male incontinence Marketed product
ULTRAFLEX
NATURAL
POP-ON
Foley Catheter * Surgery and post-operative recovery Marketed product
STANDARD * Incontinence management
3-WAY * Management of other urological conditions
PEDIATRIC
COMFORT SLEEVE Foley Catheter * Surgery and post-operative recovery 510(k) clearance
* Incontinence management received/preference
* Management of other urological conditions testing pending
PERSONAL CATHETER * Periodic self-catheterization for 510(k) clearance
retention management received/conducting
preference testing
FEMSOFT Continuous Drain Catheter * Management of female incontinence 510(k) clearance
* Replacement for standard Foley catheter received/preference
testing pending
PRODUCTS IN DEVELOPMENT
Medicated Foley Catheter * Surgery and post-operative recovery Conducting clinical
* Incontinence management trials
* Management of other urological conditions
* Reduce the incidence of CUTI
FEMSOFT Urethral Assist Female * Management of female incontinence Pending IDE for
Continence Insert clinical trials
FEMSOFT Valved Catheter * Management of female incontinence In development
* Alternative to intermittent catherization
</TABLE>
CURRENT PRODUCTS
MALE EXTERNAL CATHETERS. Male external catheters are disposable devices for the
daily management of male incontinence. The male external catheter consists of a
condom-like sheath that tapers into a cone and funnel. The sheath is unrolled
upon the male member and adheres by means of an adhesive, either contained as a
part of the wall of the sheath ("self-adhering") or provided by a separate strip
of adhesive tape ("tape-on"). The male external catheter drains through an
attached tube into a leg bag which is periodically emptied. Typically, the male
external catheter is removed and discarded daily. Though the devices may be
applied by healthcare professionals, male external catheters are designed for
self-administration. These catheters are used primarily in home care settings
and long-term care facilities.
The Company manufactures and markets several types of latex-free male external
catheters, including the NATURAL, ULTRAFLEX, AND "POP-ON" male external
catheters. The NATURAL line of male external catheters are made of silicone, a
non-toxic and biocompatible material that eliminates the risk of latex-related
skin irritation, is odor free, and breathable (permeable to water vapor) thereby
benefiting the skin and providing greater patient comfort. The ULTRAFLEX line of
male external catheters are made from the Company's proprietary ULTRAFLEX
elastomeric material, that is also a non-toxic and biocompatible material that
eliminates the risk of latex-related skin irritation and is odor free. The
NATURAL and ULTRAFLEX lines of catheters are each self-adhering to allow ease of
application and to provides a strong bond to the skin for greater patient
confidence and increased duration of wear. Unlike latex male external catheters,
the NATURAL and ULTRAFLEX male external catheters are transparent, permitting
visual skin inspection without removal of the catheter and aiding proper
placement of the catheter. The Company's kink-proof funnel design ensures
uninterrupted urine flow. The NATURAL and ULTRAFLEX male external catheters are
offered in a variety of sizes for patient comfort and fit.
The POP-ON self-adhering male external catheter has a sheath that is shorter
than that of a standard male external catheter and has adhesive applied to the
full length of the sheath. Typically, self-adhering male external catheters
position the adhesive midway down the catheter sheath. The Company's proprietary
manufacturing technology does not constrain the location of the adhesive on the
sheath, enabling the manufacture of a catheter with sufficient adhesive strength
in a shorter sheath. The POP-ON male external catheter is designed to
accommodate patients who have retracted male members or other physical
impediments to using standard length male external catheters. In addition, the
Company believes the POP-ON catheter may be used by patients as a way to vary
the position of the catheter's adhesive on the user, thereby reducing adhesive
induced irritation. The Company manufactures a version of the POP-ON catheter
from the Company's ULTRAFLEX elastomer and a version from silicone. The POP-ON
catheter is also available in a variety of sizes for patient comfort and fit.
The Company markets its NATURAL, ULTRAFLEX, and POP-ON male external
catheters under various private label agreements and, consistent with those
agreements, under its own Rochester Medical brand. See "Business -- Private
Label Distribution Agreements."
The Company manufacturers a tape on version of its ULTRAFLEX male external
catheter which the Company distributes under private label arrangements, and
which the Company may distribute in the future under its Rochester Medical
brand. The Company also continues to engage in research and development of male
external catheters having additional enhanced features, and of other devices for
the management of male incontinence.
FOLEY CATHETER. The Foley catheter is an in-dwelling catheter that provides
continuous drainage of the bladder and is primarily used in connection with
surgery and other medical procedures and for incontinence and retention
management. A Foley catheter consists of a tube (the "catheter tube") with
interior conduits ("lumens") and an inflatable balloon portion near one end. The
balloon end of the Foley catheter is inserted through the urethra into the
bladder. A sterile saline solution is injected into the balloon lumen to inflate
the balloon inside the bladder and prevent the catheter from being withdrawn.
Urine drains through eyelets in the tip of the catheter into the drain lumen,
which is connected by tubing to an external collection device, such as a leg
bag. The Foley catheter is removed from the body by opening the valve on the
balloon lumen and aspirating the saline with a syringe, which deflates the
balloon and allows the catheter to be withdrawn through the urethra. A Foley
catheter is inserted primarily by healthcare professionals and is not designed
for self-use. 3-Way Foley catheters contain an additional lumen for irrigation
procedures.
The Company's silicone Foley catheter avoids the irritation and discomfort which
can result from the cytotoxic effects (tissue damage) caused by latex-based
Foley catheters. This catheter also avoids allergic reactions in latex sensitive
patients. In addition, the Company's silicone Foley catheter can reduce
irritation to urinary tissue because silicone minimizes encrustation of urine
salt crystals and bacterial secretions on the catheter and does not absorb body
fluids or swell as may be the case with latex catheters. The Company's automated
manufacturing process integrates the balloon into the structure of the Foley
catheter, resulting in a smoother, more uniform exterior that may help reduce
irritation to urinary tissue. The balloon portion of competing silicone Foley
catheters is formed by hand in a separate procedure involving gluing and
burnishing. The Company's Foley catheter features solid, rounded tips for ease
of insertion and smooth, proportional eyes for ease of insertion and maximum
drainage. The Company's Foley catheter is made of transparent silicone which
permits observation of urine flow by healthcare professionals. The Company's
Foley catheter is packaged in single catheter strips and sold under the
Rochester Medical brand name and under private label arrangements. In addition,
the Company sells its Foley catheter in bulk under private label arrangements
for packaging in kits with tubing, collection bags and other materials used with
the Foley catheter. The Company's Foley catheter is offered in a standard two
lumen version and in a three lumen version for irrigation of the urinary tract.
The Company manufactures silicone Foley catheters in all standard adult and
pediatric sizes as well as a specialized pediatric size. The Company's silicone
Foley catheter is priced competitively to a substantial majority of latex
catheters sold in the United States.
COMFORT SLEEVE FOLEY CATHETER. The Company has developed and patented its
COMFORT SLEEVE Foley catheter, a Foley catheter with a flexible, gel-filled
sheath encasing the urethral section of the catheter tube. The COMFORT SLEEVE
Foley catheter is designed to provide improved comfort compared with standard
Foley catheters because its gel-filled urethral section is softer and more
pliable than ordinary Foley catheters. The design of the COMFORT SLEEVE Foley
catheter also permits the catheter tube to move and rotate independently of the
flexible encasing sheath, lessening abrasion and irritation to the urethra
during use. In addition, since neither the urethra nor its openings are round,
but are rather flat or ribbon shaped, leakage often occurs from the bladder
along the exterior of the catheter tube in a standard Foley catheter. The
COMFORT SLEEVE Foley catheter is designed to reduce leakage because the flexible
sheath will conform to the shape of the urethra. The Company manufactures the
COMFORT SLEEVE Foley catheter from silicone, which provides the same medical
advantages as the Company's standard silicone Foley catheters.
The Company has not commenced marketing its COMFORT SLEEVE Foley catheter,
although the Company has received marketing clearance from the FDA. Before
commercial introduction of this catheter, the Company intends to participate
with ConvaTec in clinical preference tests with several leading physicians and
medical institutions to determine appropriate usage protocols and patient
preferences. The clinical preference testing for the COMFORT SLEEVE Foley
catheter is expected to be conducted jointly with ConvaTec during calendar 1996.
There can be no assurance, however, that these tests will be completed by the
end of calendar 1996 or that the results of these tests will not require
modification to the design or manufacture of the COMFORT SLEEVE Foley catheter
and delay the introduction of the product into the market.
PERSONAL CATHETER. Intermittent catheters are disposable catheters that have a
single lumen to drain the bladder and are used primarily in periodic
self-catheterization for retention management. The Company has developed its
PERSONAL intermittent catheter that is constructed from two different silicones,
with a stiff core catheter tube and a softer outer cover. The Company believes
this construction will provide sufficient stiffness for ease of insertion, while
the softer cover will reduce tissue irritation during insertion. Most
competitive intermittent catheters are made from thermoplastics, which become
stiffer when cool and more flexible when warm and which also tend to deform if
bent for any length of time, as when carried in a purse or pocket. The PERSONAL
CATHETER is not sensitive to normal temperature variations and does not deform
if bent for storage. Although the PERSONAL CATHETER is intended to be sold for a
single use, the Company believes it is easier to clean and better able than
comparable thermoplastic catheters to withstand a common cleaning technique,
clean intermittent catheterization, that enables the re-use of intermittent
catheters. The Company intends to produce the PERSONAL CATHETER in five lengths
and multiple diameters.
Although the Company has received marketing clearance from the FDA, the Company
has not commenced marketing its PERSONAL CATHETER. Before commercial
introduction of this catheter, the Company intends to participate with ConvaTec
in clinical preference tests with several leading physicians and medical
institutions to determine appropriate usage protocols and patient preferences.
The clinical preference testing for the PERSONAL CATHETER is expected to be
conducted jointly with ConvaTec during calendar 1996. There can be no assurance,
however, that these tests will be completed by the end of calendar 1996 or that
the results of these tests will not require modification to the design or
manufacture of the PERSONAL CATHETER and delay the introduction of the product
into the market.
FEMSOFT Continuous Drain Catheter. The FEMSOFT continuous drain catheter is a
disposable self-administered catheter designed for the daily management of
female incontinence. The FEMSOFT catheter is a self-retaining catheter that
consists of a silicone lumen of variable length surrounded by a soft,
liquid-filled silicone sleeve. To position the FEMSOFT catheter, the user
inserts a catheter of prescribed length through the urethra into the bladder,
using a removable plastic stylet. The user compresses a self-contained
liquid-filled reservoir at the exterior end of the catheter to move the liquid
through the catheter sleeve to inflate an expandable portion of the catheter
positioned inside the bladder. A soft shroud covers the reservoir to prevent the
liquid from flowing back to the reservoir and to maintain inflation of the
catheter. The FEMSOFT catheter is then attached to any standard collection
device. To deflate and remove the FEMSOFT catheter, the shroud is easily pulled
off the sleeve to allow the liquid to flow back into the reservoir.
The FEMSOFT catheter has been designed to be easy to use and convenient for the
patient. The FEMSOFT catheter may be inserted once daily and the Company
believes a majority of urinary incontinence sufferers can safely position the
catheter and inflate it using the liquid-filled reservoir. The soft and
conformable, liquid-filled silicone sleeve of the FEMSOFT catheter is designed
to reduce tissue irritation and minimize by-pass leakage. The FEMSOFT catheter
is designed to manage all forms of urinary incontinence by continuously emptying
the bladder. Beyond its applications for urinary incontinence, the FEMSOFT
catheter may function as a more comfortable, less expensive replacement for some
uses of standard Foley catheters by women.
Although the Company has received marketing clearance from the FDA, the Company
has not commenced marketing its FEMSOFT continuous drain catheter. Before
commercial introduction of this catheter, the Company intends to participate
with ConvaTec in clinical preference tests with several leading physicians and
medical institutions to determine appropriate usage protocols and patient
preferences. The clinical preference testing for the FEMSOFT continuous drain
catheter is expected to be conducted jointly with ConvaTec during calendar 1996.
There can be no assurance, however, that these tests will be completed by the
end of calendar 1996 or that the results of these tests will not require
modification to the design or manufacture of the FEMSOFT continuous drain
catheter and delay the introduction of the product into the market. While the
Company currently can produce limited quantities of the FEMSOFT catheter for
testing and other purposes, the Company must complete the construction of its
new manufacturing facility before beginning production of commercial quantities
of the FEMSOFT continuous drain catheter.
See "Facilities."
PRODUCTS IN DEVELOPMENT
FEMSOFT Urethral Assist Female Continence Insert. The Company is developing the
FEMSOFT urethral assist female continence insert as a new treatment modality for
the daily management of female stress incontinence in active women. The FEMSOFT
urethral assist device is a soft, conformable insert that is designed to assist
the weakened muscles of the urethra and bladder neck to maintain urethral
closure. It is simply inserted, worn and removed for voiding. It requires no
inflation, deflation, syringes, or valving mechanisms. Although intended
principally for the management of female stress incontinence, the FEMSOFT
urethral assist device may also be suitable for the management of some
conditions of urge incontinence.
The female urethra is a narrow, ribbon shaped, gradually twisting and slightly
curved membranous canal, about an inch and a half in length and quarter of an
inch in diameter (undilated) extending from the neck of the bladder to the
exterior opening (meatus urinarius). The urethra consists of a lining of mucous
membrane, a layer of spongy tissue and blood vessels, and a surrounding circular
stratum of muscle fibers. The bladder neck is a bundle of muscles surrounding
the juncture of the urethra and the bladder. The bladder is a muscular sac. The
relaxed bladder serves as a reservoir, while the muscles of the bladder neck and
urethra remain slightly contracted to retain the urethra in a closed state.
During voiding, the bladder contracts to exert pressure on the contained fluid,
while at the same time the muscles of the bladder neck and urethra relax to
permit the hydraulic pressure exerted by the contracting bladder to expel the
fluid. The embarrassing leakage referred to as "stress incontinence" occurs when
incidental pressures exerted by the bladder during such acts as coughing,
sneezing, standing up, etc., overcome the muscular pressures exerted by the
weakened bladder neck and urethra, thereby permitting urine to be involuntarily
expelled.
Recognizing the natural fluid management purposes of the urinary system, the
FEMSOFT urethral assist device uses fluid to assist the urinary system to
function properly by providing a fluid filled membrane to complement the natural
muscular actions of the bladder neck and urethra. The FEMSOFT urethral assist
device consists of a fluid filled silicone membrane, approximately two inches in
length and of generally cylinderical shape. The fluid filled membrane has a bulb
shaped portion near the insertion end, and an oval shaped flange at the end
remaining outside the body. The device has a tiny central tube extending from
the flange end to the insertion tip to house a removable plastic stylet used
during insertion. During insertion, the tip of the FEMSOFT urethral assist
device is inserted into the external aperture of the urethra (meatus urinarius)
and is gently inserted through the urethra. The coordinate pressures from the
urethra and from the movement of the stylet elongate the silicone membrane and
slightly compress the bulb causing the fluid to expand the membrane toward the
flange end. When the partially compressed bulb portion emerges through the
bladder neck, the pressures exerted by the urethra and by movement of the stylet
cause the fluid to flow back into the bulb portion to seat the device in the
bladder neck and urethra, while the soft, oval shaped flange is enclosed by the
outer tissues (labium minus). The user then simply removes and discards the
insertion stylet, allowing the urethra to resume its natural curve and shape.
When seated, the soft, fluid filled membrane conforms to the natural contours of
the urethra and bladder neck, while gently reciprocating the tiny movements of
the urethra caused by normal physical activities. The fluid filled membrane
provides a responsive structure against which the urethra and bladder neck may
contract to the extent of their contractile capacity in order to maintain
closure against the force of incidental hydraulic pressures exerted by the
bladder during such acts as coughing, sneezing, standing up, etc. In addition,
such incidental hydraulic pressures also tend to slightly compress the bulb,
causing the remainder of the device to press back against the bladder neck and
urethra, further assisting them to maintain closure. At the cessation of the
incidental pressures, the normal pressure of the urethra and bladder neck cause
the device to return to its at-rest position. Steady pressure from the
contracting bladder, as during voluntary voiding, will compress the bulb, move
the fluid toward the flange end, and expel the device. The device may also be
removed by grasping the flange and slowly withdrawing the device in a manner
reciprocal to its insertion.
The Company believes the FEMSOFT urethral assist female continence insert
provides significant advantages over occlusive and catheter devices that the
Company is aware of, including ease of use, comfort, and conformance to the
body's natural functions. The FEMSOFT urethral assist device may be simply
inserted and removed without inflation, deflation, syringes or valving
mechanisms associated with other devices. The FEMSOFT urethral assist device is
composed of a soft, fluid filled silicone membrane that conforms to the
irregular shape of the urethra and that reciprocates the movements of the
urethra during normal activities; while, the Company believes, rigid, plastic
devices such as beads or inflatable inserts tend to distort the natural shape of
the urethra and to chafe and abrade the delicate mucousal and vesicular tissues
of the urethra during periods of exercise such as walking, running, rising,
sitting, etc. The FEMSOFT urethral assist device is also designed to provide a
variable, supportive pressure to the muscles of the urethra and bladder neck.
The Company believes such devices as catheters, beads or inflatable plastic
inserts which inflate within the urethra and bladder neck tend to stretch those
muscles resulting in the eventual loss of natural muscle tone. The FEMSOFT
urethral assist device is also designed to be expelled naturally under steady
pressure from the bladder, thereby providing a further ease of use and
minimizing the possibility of acute retention and urine reflux into the kidneys
in persons who may be unable to otherwise remove the device due to injury or
loss of consciousness.
The FEMSOFT urethral assist female continence insert will require FDA marketing
clearance before it may be marketed commercially. The Company is presently
developing the clinical protocol for testing the device and arranging for
clinical investigators to conduct those tests. Following the development of the
protocol, the Company intends to submit the proposed protocol as part of an
Investigational Device Exemption ("IDE") application to the FDA for its
comments, review and approval. Assuming the FDA approves the IDE application,
the Company will then submit the FEMSOFT urethral assist device to clinical
tests with appropriate clinical investigators in accordance with the approved
IDE protocol. The Company intends to submit the data to be derived from the
clinical tests for the FDA's consideration in the form of a Premarket Approval
Application ("PMA") for the FEMSOFT urethral assist device. Although a PMA
submission is generally more extensive than an 510-k submission, the Company
believes that the PMA submission is appropriate for the FEMSOFT urethral assist
device in order to avoid legal and regulatory concerns relating to an
appropriate predicate device. The Company believes a PMA is also appropriate for
other reasons, including confidentiality and procedures. Concurrently with
clinical testing in the United States, the Company intends to participate with
ConvaTec in joint clinical tests of the FEMSOFT urethral assist device in
certain foreign countries. See "Research and Development" and "Government
Regulation."
MEDICATED FOLEY CATHETER. Catheter induced urinary tract infection is a common
problem among patients receiving Foley catheterization in both hospital and
chronic care settings. Hospital related CUTI prolongs hospital stays by an
estimated 2.4 to 4.5 days and results in significantly increased costs and risks
of mortality. CUTI is thought to be primarily caused by bacteria that migrate
through the urethra into the bladder along the outside of a catheter. The
catheter-urethral interface provides a favorable environment for bacterial
growth because the bacteria are insulated by the catheter wall from the normal
flushing effect of urination. Antibiotics that are administered to prevent or
control CUTI may control the bacterial infection in the bladder, but are
generally unable to affect bacterial colonies in the urethra since these are
insulated by the catheter wall from the antibiotics contained in the evacuating
urine.
The Medicated Foley catheter is designed to reduce the incidence or severity of
CUTI and to lessen the need for antibiotics routinely administered to
catheterized patients to treat CUTI. The Medicated Foley catheter incorporates
nitrofurazone, an antibacterial agent, into the silicone matrix which forms the
body of the catheter. Nitrofurazone is a synthetic antibacterial nitrofuran
derivative, which is most commonly used topically as an adjunctive therapy to
control infection in severe burn cases, and also for prevention of infection of
skin graft and donor sites. A related nitrofuran compound is a commonly
prescribed oral medicine for CUTI. Published results from laboratory tests
conducted by the University of Minnesota have shown the Medicated Foley to be
effective in inhibiting the growth in vitro of most bacteria known to cause
CUTI, including some common antibiotic resistant bacterial strains. The
Medicated Foley catheter provides continuous release of the antibacterial agent,
which is intended to provide more effective protection against CUTI than other
treated Foley catheters that have antibacterial agents topically applied to the
catheter's surface. Results from other independent laboratory tests show that
the Medicated Foley releases the antibacterial agent on a sustained basis for as
long as 30 days. In reply to the Company's initial 510(k) notification the FDA
requested additional information. In response to this request, the Medicated
Foley is presently undergoing clinical trials with surgery patients using Foley
catheters at the University of Wisconsin, Madison. These clinical trials are
intended to be completed by the end of calendar year 1996. If these trials are
successful, the Company expects to resubmit its 510(k) notification and include
the results of the clinical trials. Clinical tests of the Medicated Foley in
chronic care patients were conducted at the University of Minnesota. The
unofficial test results received by the Company indicate that the Medicated
Foley is safe for use; however, the efficacy of the device could not be
determined from tests measuring the levels of bacteria in the urine of chronic
care patients who are continually catheterized due to the presence of
pre-existing infections causing elevated bacteria counts in all of the chronic
care patients who participated in the tests. None of the antibiotic regimens
administered to these chronic care patients were able to eliminate the
pre-existing infections prior to commencing the tests, and the continuation of
such regimens during the tests would have invalidated them.
See "Government Regulation."
FEMSOFT Valved Catheter. The Company is also developing a valved device based on
the FEMSOFT continuous drain catheter. This device has the same soft,
liquid-filled sleeve and self-contained fluid reservoir technology as the
FEMSOFT continuous drain catheter and is administered in the same manner. As a
result, the FEMSOFT valved catheter is designed to provide the same ease of use
and reduction in tissue irritation as the FEMSOFT continuous drain catheter. The
valved version is intended for use as a daily disposable device for controlled
periodic drainage throughout the day without removal, and to provide users with
increased convenience because the device does not require exterior collection
bags, allowing a more natural lifestyle. The valved version may also be used
throughout the day as an alternative in some circumstances to intermittent
catheterization that is performed several times a day, with consequent
reductions in the number of devices necessary to perform such daily functions
and in the risks of infection resulting from the repeated introduction of a
foreign body into the urethra and bladder. As the result of concerns regarding
acute retention and urine reflux into the kidneys in persons who may be unable
to remove or operate a valved device due to injury or loss of consciousness, the
device will require further research and development and will likely require
significant clinical testing before marketing clearance may be received from the
FDA. The Company believes the device may be fashioned to address such concerns
by, for example, utilizing a valve or other mechanism that releases
automatically under sufficient pressure or by constructing the device to
otherwise permit urine to be released under sufficient pressure, as is the case
with the FEMSOFT urethral assist device. Upon the completion of further product
development and testing, the Company intends to make an appropriate filing(s)
with the FDA related to the FEMSOFT valved catheter. See "Government
Regulation."
OTHER PRODUCTS. The Company has ongoing research and development activities
oriented to the enhancement of its current products and to additional
applications for its proprietary liquid encapsulation and fluid transfer
technologies. The Company has discontinued current development efforts on its
FEMSOFT occlusive plug due to the superior technology and advanced features
of the FEMSOFT urethral assist device. See "Research & Development."
MARKETING AND SALES. The Company's marketing strategy is to gain increased
market recognition and sales of a broad range of Rochester Medical brand
products while also selling its incontinence and urological devices under
private label arrangements to medical products companies, primarily through the
Company's strategic relationship with ConvaTec.
Another key element of the Company's marketing strategy is to increase physician
awareness of the Company's products and establish the Company as a leading
provider of incontinence and urological products. The Company has established a
medical advisory board presently consisting of a leading physician and a leading
nurse in urology and incontinence to assist in the design of, and selection of
sites for, clinical testing, to identify leading healthcare professionals to
conduct these trials, and to assist the Company in conducting clinical testing.
The Company intends to sponsor clinical trials conducted by such leading
healthcare professionals, and to encourage their presentation of the clinical
data at medical symposia and publication of clinical articles in medical
journals. The Company also attends leading national trade shows to increase
product awareness and establish a professional referral base. The Company
advertises in selected medical and trade journals. In support of these efforts,
the Company intends to develop educational materials regarding urological
conditions and the Company's products.
The Company anticipates that marketing the FEMSOFT urethral assist device will
require the Company to conduct substantial additional efforts directed to
clinicians and substantial media advertising directed to the consumer. The
Company anticipates conducting substantial educational efforts directed to
clinicians. These efforts will include personal visits and demonstrations by
Company representatives at the clinicians' own facilities, as well as the
preparation and presentation of instructions for the prescription, sizing, and
use of the FEMSOFT urethral assist device, and for follow-on procedures for
patient care and monitoring. These efforts will also require the preparation of
written, audio and video materials for the clinicians to use for patient
education purposes. The Company will also seek to enroll these clinicians as
local care facilities to whom the Company may refer prospective patients in the
clinicians' own localities. The Company anticipates conducting media advertising
oriented to, and designed to inform, prospective consumers about the
availability of the FEMSOFT urethral assist device and its appropriateness to an
active life style. These advertising efforts will be conducted in conjunction
with a program for referrals to an appropriate clinician in the consumer's own
locality.
ROCHESTER MEDICAL BRAND PRODUCTS. The Company began in 1994 to develop a
domestic sales organization to market Rochester Medical brand products directly
to urologists and incontinence specialists, as well as to rehabilitation
specialists in institutional and home care settings. This sales organization
currently employs a vice president of sales and five sales representatives
located in Atlanta, Boston, Los Angeles, San Francisco and St. Louis for
domestic sales. The Company also employs a vice president of international
sales, who formerly served as the Company's commissioned agent for international
sales, for overseas distribution of Rochester Medical brand products.
The Company intends to progressively increase the number of sales
representatives employed by the Company as it introduces additional products, to
develop a supporting marketing staff, and to progressively expand its domestic
distribution network responsively to changes in purchasing patterns by
institutional purchasers in order to provide a base for substantial expansion of
its domestic sales organization and distribution network as its more advanced
products in development, including its FEMSOFT urethral assist device, are
brought to market. The FEMSOFT urethral assist device will require substantial
consumer oriented media advertising and significant clinician education efforts.
The Company intends to consider these additional factors applicable to the
prospective sale and distribution of the FEMSOFT urethral assist device, as well
as the margin opportunities for its current products and other products in
development, as the Company undertakes to expand its domestic sales
organization. While the Company believes the expansion of its sales and
marketing efforts are critical to increasing sales of Rochester Medical brand
products, the Company plans to undertake such expansion in a manner the Company
believes will best accommodate the Company's overall strategy for sales of
current products as well as for sales of its products in development, including
the FEMSOFT urethral assist device.
The Company also supplements its direct selling efforts in the United States
though arrangements with independent sales organizations located throughout the
United States. The Company continues to utilize the services of 4 such
organizations for limited sales activities.
CONVATEC RELATIONSHIP. In August 1995, the Company entered into a distribution
and co-development agreement with ConvaTec (the "Distribution Agreement").
ConvaTec, a division of a subsidiary of Bristol-Myers Squibb Company, is a
leading global manufacturer and marketer of ostomy and modern wound care
products and a comprehensive provider of skin care, infection control,
contamination control and incontinence care products. Under the Distribution
Agreement, ConvaTec has worldwide rights, subject to the Company's existing
agreements, to market the Company's current products, products in development
and certain future products under the ConvaTec brand. The Company retains
worldwide rights to market its products under the Rochester Medical brand, but
its ability to distribute its products through third parties other than under
the Rochester Medical brand is significantly limited by the Distribution
Agreement. The Company and ConvaTec also may agree to work cooperatively to
develop additional urology and incontinence products. As part of this
relationship, ConvaTec invested $3 million in the Company in the form of a
convertible senior secured loan, and later released its security when the
Company satisfied certain net worth requirements. ConvaTec and the Company have
also agreed on the parameters of joint clinical testing of certain of the
Company's products in development, with ConvaTec bearing the majority of the
financial, administrative and technical costs associated with the clinical
preference testing in the United States of the COMFORT SLEEVE Foley, the
PERSONAL CATHETER and the FEMSOFT continuous drain catheter, and also bearing
mosts costs for overseas clinical trials of the FEMSOFT urethral assist device.
ConvaTec has an extensive sales organization in the United States and
approximately 70 other countries. Sales to ConvaTec accounted for 12% of the
Company's net sales for the six months ended March 31, 1996. See "Business --
Private Label Distribution Agreements" and "Business -- Research and
Development."
PRIVATE LABEL ARRANGEMENTS. Historically, the Company has primarily marketed its
products under private label arrangements to established medical products
companies that could provide the Company with commercial introduction of its
products, a large sales force and broad access to the hospital, long-term care,
home care and physician markets. The Company is the exclusive supplier of
Hollister's requirements of self-adhering non-latex male external catheters
which Hollister resells under its PolyTech(tm) brand. Sales to Hollister
accounted for 29% of the Company's net sales in fiscal 1994 and 25% of net sales
in fiscal 1995. The Company has an exclusive agreement to supply Baxter
Euromedical (but not any other subsidiary or affiliate of Baxter Healthcare
Corporation) with Baxter Euromedical's requirements of silicone Foley catheters.
Sales to Baxter Euromedical accounted for 20% of the Company's net sales in
fiscal 1995. Under an arrangement that existed prior to the Distribution
Agreement, the Company supplies ConvaTec with tape-on ULTRAFLEX male external
catheters which the Company packages with ConvaTec's proprietary adhesive tape.
ConvaTec markets the packaged external catheter and adhesive tape under its
ProSys(tm) brand. In addition, the Company supplies Mentor with silicone male
external catheters. Sales to Mentor accounted for 39% of the Company's net sales
in fiscal 1994, 14% of net sales in fiscal 1995, and 15% of net sales for the
six months ended March 31, 1996. See "Business -- Private Label Distribution
Agreements."
MANUFACTURING.
The Company uses proprietary, automated manufacturing technologies and processes
to manufacture incontinence and urological devices cost effectively. The Company
designs and builds custom equipment to implement its manufacturing technologies
and processes. The Company believes that its proprietary manufacturing
processes, materials expertise, custom designed equipment and technical know-how
allow it to simplify and further automate traditional catheter manufacturing
techniques to reduce the Company's manufacturing costs. In addition, the Company
has developed proprietary liquid encapsulation and fluid transfer technologies
that enables it to manufacture innovatively designed devices, such as,
respectively, the FEMSOFT continuous drain catheter with its self-contained
liquid-filled reservoir, and the FEMSOFT urethral assist device with its
self-contained reciprocal fluid transfer mechanism, which the Company believes
cannot be manufactured using conventional technologies. In an effort to
manufacture high quality products at competitive costs, the Company concurrently
designs and develops new products and the processes to manufacture them. To
accomplish this, the Company has installed a small, manually controlled
manufacturing line (the "Pilot-line") that it uses in conjunction with its
automated Foley catheter manufacturing line for development and testing of the
manufacturing processes and techniques applicable to the manufacture of its new
products. The Company also uses the Pilot-line to manufacture limited quantities
of its products in development and future products for clinical testing
purposes. The Company's manufacturing facility is located in Stewartville,
Minnesota. The Company produces its Foley and intermittent catheters on one
production line and its male external catheters on a second line. For the
production of self-adhering male external catheters, the Company uses a
computer-controlled process of dipping forms in synthetic polymer solutions, and
then drying and curing the catheters. Foley and intermittent catheters are
produced through a similar process in which a silicone lumen is dipped in
materials and cured to form an integral balloon or silicone sleeve, as
appropriate for the product. The Company is currently constructing an additional
facility for production of the FEMSOFT devices.
The Company maintains a comprehensive quality assurance and quality control
program, which includes documentation of all material specifications, operating
procedures, equipment maintenance and quality control test methods. To control
the quality of its finished product, the Company uses ongoing statistical
process control systems during the manufacturing process and comprehensive
performance testing of finished goods. Each Foley catheter's balloon function is
tested and each male external catheter is visually inspected. The Company has
implemented a program to achieve ISO 9001 certification and quality system
certification for the CE mark. The Company's manufacturing facility has been
designed to accommodate the specialized requirements for the manufacture of
medical devices, including the FDA's regulations concerning good manufacturing
practices ("GMP"). In July 1995, the FDA conducted a routine inspection of the
Company's manufacturing facility, in which the Company's facility, documentation
and quality control systems were determined to be satisfactory and no violations
of GMP were raised with the Company.
SOURCES OF SUPPLY.
The Company obtains certain raw materials and components for a number of its
products from single suppliers. The Company is presently dependent upon Dow
Corning for raw materials used in the manufacture of its silicone male external
Foley and intermittent catheters. The loss of this supplier could have a
material adverse effect upon the Company's sales of those products. Although the
Company considers its relationship with Dow Corning to be satisfactory, Dow
Corning is currently in bankruptcy proceedings and there can be no assurance
that Dow Corning will continue to manufacture silicone or to supply silicone to
medical device manufacturers, such as the Company. The Company believes that
most, if not all, of the silicone it currently purchases from Dow Corning could
be replaced by silicone from other suppliers, and the Company has located and
evaluated other potential suppliers. In the event that the Company had to
replace Dow Corning, however, the Company would be required to repeat
biocompatibility testing of its products using the silicone from the new
supplier, which may result in disruption of the Company's production of
catheters, and might be required to obtain additional regulatory clearances.
The Company is dependent on Shell Chemical Company ("Shell") for raw materials
for the ULTRAFLEX polymer used in manufacturing certain of the Company's male
external catheters. During 1994, a disruption in Shell's production of these
materials caused the Company to curtail production of ULTRAFLEX catheters during
the fourth quarter of fiscal 1994. Although the Company adjusted to the
disruption by reformulating this product, the future loss of raw materials from
this supplier could have a material adverse effect on the Company. In the event
that the Company had to replace Shell, however, the Company would be required to
repeat biocompatibility testing of its products using the materials from the new
supplier, which may result in disruption of the Company's production of
ULTRAFLEX male external catheters, and might be required to obtain additional
regulatory clearances. The Company believes there are adequate alternative
sources of supply available for the Company's other raw material requirements.
In light of product liability concerns, Dow Corning and Shell have each adopted
poliicies governing their sales of raw materials used in medical devices. Dow
Corning and Shell have restricted the use of silicone and kraton, respectively,
based upon the intended use of the devices manuafctured from these materials.
Among other limitations, Dow Corning will permit use of only its medical grade
silicone in any device which comes in contact with any internal bodily tissue.
Among other limitations, Shell restricts the use of kraton for devices intended
to be inserted into the body. None of the Company's products conflict with these
policies. There is no assurance, however, that Dow Corning or Shell might not
change their respective policies in the future, and the Company is unable to
predict what, if any, effect such changes would have on the Company's business.
RESEARCH AND DEVELOPMENT
The Company believes that its ability to add new products to its array of
incontinence and urological devices is important to the Company's future
success. Accordingly, the Company is engaged in ongoing research and development
to introduce new products which provide additional features and functionality,
including research and development for the Medicated Foley catheter, for the
FEMSOFT line of devices, and for enhancements to male external catheters as well
as for other male incontinence management devices. The Company also believes
that its manufacturing and materials expertise, particularly its proprietary
liquid encapsulation technology and reciprocal fluid transfer mechanism used to
produce the various FEMSOFT devices, are applicable to a variety of medical
applications. The Company plans, as appropriate, to conduct research and
development activities to investigate these additional opportunities in urologic
and incontinence related areas. In addition, the Company and ConvaTec have
agreed they may cooperate to develop new products. See "Private Label
Distribution Agreements."
The Company is also focused on completing clinical preference studies for its
products that have obtained FDA clearance and for its products in development.
The Company is presently developing the clinical protocol for testing the
FEMSOFT urethral assist device and is arranging for clinical investigators to
conduct those tests. Following the development of the protocol, the Company
intends to submit the proposed protocol as part of an Investigational Device
Exemption ("IDE") application to the FDA for its comments, review and approval.
Assuming the FDA approves the IDE application, the Company will then submit the
FEMSOFT urethral assist device to clinical tests with appropriate clinical
investigators in accordance with the approved IDE protocol. The Company intends
to submit the data to be derived from the clinical tests for the FDA's
consideration in the form of a Premarket Approval Application ("PMA") for the
FEMSOFT urethral assist device. Although a PMA submission is generally more
extensive than an 510-k submission, the Company believes that the PMA submission
is appropriate for the FEMSOFT urethral assist device in order to avoid legal
and regulatory concerns relating to an appropriate predicate device and for
other reasons, including confidentiality and procedures. The Company and
ConvaTec have also agreed that ConvaTec may conduct overseas clinical trials of
the FEMSOFT urethral assist device and of the FEMSOFT valved catheter
concurrently with the Company's United States clinical trials of those devices
with ConvaTec bearing most of the expenses for such overseas clinical trials,
but the Company and ConvaTec have yet to agree upon the specific expenses to be
borne by each for such overseas clinical trials.
The Company is presently adapting and expanding its Pilot-line to enable the
production of sufficient quantities of FEMSOFT urethral assist devices, FEMSOFT
continuous drain catheters, COMFORT SLEEVE Foley catheters, and PERSONAL
CATHETERS that will be necessary for clinical trials and clinical preference
tests. The Company's ability to conduct, or participate with ConvaTec in, these
clinical trials and preference tests will depend on the Company's ability to
produce sufficient quantities of these various products on the Pilot-line in a
timely manner. To the extent that production on the Pilot-line may be delayed
due to the manual or other features of the Pilot-line or due to production
requirements for Foley catheters, or to the extent that additional quantities of
any product being tested may be required to be produced on the Pilot-line from
time to time, the clinical trials or preference testing of these various
products may be delayed, with a consequent delay in market introduction or FDA
filings.
The Company intends to establish arrangements with leading medical
practitioners, medical institutions and its Medical Advisory Board in order to
(i) conduct the further laboratory and clinical tests necessary to demonstrate
the efficacy of the Company's products, (ii) collect data for applicable
regulatory submissions and (iii) accumulate scientific data regarding products
already being marketed. The Company has established such an arrangement with a
leading practitioner and institution for the current clinical trials of the
Medicated Foley catheter. The Company is presently arranging with other leading
practitioners and institutions to conduct clinical trails of the FEMSOFT
urethral assist device.
The Company's founders and executive officers have substantial experience in
developing new urology products. The Company was founded to perform research and
development regarding incontinence and urological devices by Anthony J. Conway,
the Company's Chief Executive Officer and President, Richard D. Fryar, the
Company's Vice President of Research and Development, and Philip J. Conway, the
Company's Vice President of Operations. The founders have together developed a
series of innovative urological products and manufacturing processes. In 1979,
the founders organized a prior business that developed and patented the first
self-adhesive latex male external catheter, a business the founders sold in 1985
to Mentor. The founders subsequently founded the Company to develop silicone
products, including the first self-adhering silicone male external catheter and
the FEMSOFT catheter. The Company's founders each spend a substantial portion of
their time in research and development activities.
The Company's Director of Clinical and Regulatory Affairs has principal
responsibility for the design, implementation, and monitoring of the Company's
clinical trials and preference testing of its products in development. She is a
nurse by training with over twenty years of clinical research management,
academic and nursing experience.
COMPETITION
The incontinence and urological product markets are highly competitive. The
Company believes that the primary competitive factors include price, product
quality and features (including the beneficial effects of the product on medical
outcomes over the course of treatment), technical capability, breadth of product
line and distribution capabilities. The Company's ability to compete in these
markets will also be affected by its product development and innovation
capabilities, its ability to obtain regulatory clearances, its ability to
protect the proprietary technology of its products and manufacturing processes,
its marketing capabilities and its ability to attract and retain skilled
employees. The Company believes that its principal competitive advantages are
its innovative products, the effectiveness of its products in improving patient
outcomes, its proprietary manufacturing technologies, its cost effective
manufacturing processes, and its product development personnel.
In the incontinence market, the Company's products compete with a number of
alternative products and treatments for the management of urinary incontinence.
Adult diapers and other forms of absorbent pads that capture urine upon leakage
are the primary products used to control mild forms of urinary incontinence.
Non-invasive treatments for incontinence include bladder and habit training,
pelvic muscle exercises, biofeedback and electrical stimulation to strengthen
pelvic muscles. Surgery may also be performed to repair damaged muscles or to
implant an artificial urinary sphincter. In a recently introduced technique,
implants, primarily collagen, are injected into the tissue surrounding the
urethra to add bulk to the tissue and improve bladder functioning by increasing
urethral resistance and strengthening the urinary sphincter. Pessaries, or
vaginal inserts, are devices for treating stress incontinence that are used to
obstruct the bladder neck and urethra by applying pressure through the
neighboring vaginal cavity. Drug therapies are also used to treat incontinence
by acting on the nerve receptors associated with the bladder neurotransmitter
system. Drug treatment is appropriate for treating urge incontinence (which is
related to the functioning of the nervous system) but is not appropriate for
managing stress incontinence (which is not related to the functioning of the
nervous system). The Company's ability to compete with these alternative methods
for treating urinary incontinence depends on the relative market acceptance of
alternative therapies for incontinence management and the technological advances
in these alternative treatments. Any development of a broad-based and effective
cure for a significant form of incontinence could have a material adverse effect
on sales of incontinence management devices such as the Company's products.
The Company competes directly for sales of incontinence and urological devices
with larger, multi-product medical device manufacturers and distributors such as
C.R. Bard, Inc., Baxter Healthcare Corporation, Kendall Healthcare Products
Company, Sherwood Medical Company, Hollister, Mentor and ConvaTec, some of whom
distribute the Company's own products under their own labels. The Company is
aware that UroMed has developed a female incontinence device for the daily
management of female incontinence, which may compete with the FEMSOFT urethral
assist insert and other FEMSOFT devices. Many of the competitive alternative
products to the Company's catheters are distributed by larger competitors
including Johnson & Johnson Personal Products Company, Kimberley-Clark
Corporation and Proctor & Gamble Company (for adult diapers and absorbent pads),
and C. R. Bard, Inc. (for injectable materials). Many of the Company's
competitors, potential competitors and providers of alternative therapies have
significantly greater financial, manufacturing, marketing, distribution and
technical resources and experience than the Company. It is possible that other
large healthcare and consumer products companies may enter this market in the
future. Furthermore, academic institutions, governmental agencies and other
public and private research organizations will continue to conduct research,
seek patent protection and establish arrangements for commercializing products
in this market. Such products may compete directly with any products which may
be offered by the Company. Finally, competitors in the medical device industry
have in the past and may in the future employ litigation to gain a competitive
advantage.
PATENTS AND PROPRIETARY RIGHTS
The Company's success may depend in part on its ability to obtain patent
protection for its products and manufacturing processes, to preserve its trade
secrets and to operate without infringing the proprietary rights of third
parties. The Company may seek patents on certain features of its products and
technology based on the Company's analysis of various business considerations,
such as the cost of obtaining a patent, the likely scope of patent protection
and the benefits of patent protection relative to relying on trade secret
protection. The Company also relies upon trade secrets, know-how and continuing
technological innovations to develop and maintain its competitive position.
As of June 12, 1996, the Company owned 11 issued United States patents and five
foreign patents. These patents protect certain of the Company's catheters and
devices and certain of the Company's production processes. Some of the Company's
products and production processes may be covered by claims in more than one of
these patents. In addition, as of such date, the Company owned eight pending
United States patent applications and a number of additional pending foreign
patent applications. The Company may file additional patent applications for
certain of the Company's current and proposed products and processes in the
future.
There can be no assurance that the Company's patents will be of sufficient scope
or strength to provide meaningful protection of the Company's products and
technologies. The coverage sought in a patent application can be denied or
significantly reduced before the patent is issued. In addition, there can be no
assurance that the Company's patents will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide proprietary
protection or commercial advantage to the Company. Should attempts be made to
challenge, invalidate or circumvent the Company's patents in the United States
Patent and Trademark Office and/or courts of competent jurisdiction, including
administrative boards or tribunals, the Company may have to participate in legal
or quasi-legal proceedings therein, to maintain, defend or enforce its rights in
these patents. Any legal proceedings to maintain, defend or enforce the
Company's patent rights can be lengthy and costly, with no guarantee of success.
There also can be no assurance that the Company will file additional patent
applications or that patents will issue from the Company's pending patent
applications.
The Company is aware that UroMed possesses a United States patent that relates
to a device for the management of female incontinence. The Company has
previously received an opinion from its patent counsel, Merchant, Gould, Smith,
Edell, Welter & Schmidt, P.A., to the effect that certain of its FEMSOFT
devices, specifically the FEMSOFT continuous drain and valved catheters, and
occlusive plug devices, as configured at the time the opinion was given, did not
infringe the UroMed patent. At this time, the Company has not sought an opinion
from its patent counsel concerning the FEMSOFT urethral assist female continence
insert. The Company has not received any notice of a claim of patent
infringement from UroMed, although it is possible that UroMed could choose to
bring an action against the Company alleging infringement of the UroMed patent
at any time in the future. Because the opinion of counsel that the Company has
received with respect to the UroMed patent is not binding on a court and because
of the complex legal and factual questions involved in patent litigation, there
can be no assurance that if UroMed brought an infringement action against the
Company a court would find the UroMed patent to be either invalid or not
infringed. There can be no assurance that any redesign of the FEMSOFT devices to
circumvent a claim of infringement would be commercially acceptable or would
necessarily circumvent such a claim.
A claim by UroMed or by other third parties that the Company's current products
or products under development allegedly infringe their patent rights could have
a material adverse effect on the Company. The medical device industry is
characterized by frequent and substantial intellectual property litigation,
particularly with respect to newly developed technology. Intellectual property
litigation is complex and expensive, and the outcome of such litigation is
difficult to predict. Any future litigation, regardless of outcome, could result
in substantial expense to the Company and significant diversion of the efforts
of the Company's technical and management personnel. An adverse determination in
any such proceeding could subject the Company to significant liabilities to
third parties, require disputed rights to be licensed from such parties, if
licenses to such rights could be obtained, and/or require the Company to cease
using such technology. There can be no assurance that if such licenses were
obtainable, they would be obtainable at costs reasonable to the Company. If
forced to cease using such technology, there can be no assurance that the
Company would be able to develop or obtain alternate technology. Additionally,
if third party patents containing claims affecting the Company's technology are
issued and such claims are determined to be valid, there can be no assurance
that the Company would be able to obtain licenses to such patents at costs
reasonable to the Company, if at all, or be able to develop or obtain alternate
technology. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
the Company from manufacturing, using or selling certain of its products, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
There also can be no assurance that UroMed or any other party does not presently
have, has not applied for, or might not in the future apply for, additional
patents in the United States which, if ultimately granted, might be infringed by
any of the FEMSOFT devices as currently configured or any other product of the
Company and provide the basis for an infringement action against the Company.
The Company also relies on proprietary manufacturing processes and techniques,
materials expertise and trade secrets applicable to the manufacture of its
products. The Company believes that these proprietary rights may provide it with
a competitive advantage as important, if not more important, to the Company as
patent protection. The Company seeks to maintain the confidentiality of this
proprietary information by requiring employees who work with proprietary
information to sign confidentiality agreements and by limiting the access of
outside parties to such proprietary information. There can be no assurance,
however, that these measures will provide the Company with adequate protection
of its proprietary information or with adequate remedies in the event of
unauthorized use or disclosure. In addition, there can be no assurance that the
Company's competitors will not independently develop or otherwise gain access to
processes, techniques or trade secrets that are similar or superior to the
Company's. Finally, as with patent rights, legal action to enforce trade secret
rights can be lengthy and costly, with no guarantee of success. See "Risk
Factors -- Dependence on Patents and Proprietary Technology," "Private Label
Distribution Agreements" and Notes to Financial Statements incorporated by
reference.
GOVERNMENT REGULATION
The manufacture and sale of the Company's products are subject to regulation by
numerous governmental authorities, principally the FDA and corresponding foreign
agencies. In the United States, the medical devices manufactured and sold by the
Company are subject to laws and regulations administered by the FDA, including
regulations concerning the prerequisites to commercial marketing, the conduct of
clinical investigations, compliance with GMP and labeling.
A manufacturer may seek FDA clearance to distribute a new medical device by
filing a 510(k) pre-market notification. A 510(k) pre-market notification
requires the manufacturer of a medical device to establish that the device is
"substantially equivalent" to medical devices legally marketed in the United
States prior to the Medical Device Amendments of 1976 (commonly referred to as
"predicate devices"). The 510(k) pre-market notification must be accompanied by
appropriate data establishing the claim of substantial equivalence to a
predicate device. If this substantial equivalence to a predicate device is
established to the satisfaction of the FDA, the manufacturer will receive FDA
clearance for marketing of the medical device.
If the manufacturer cannot establish substantial equivalence with a predicate
device or if the FDA requires a more rigorous review, the FDA will require that
the manufacturer submit a Pre-Market Approval ("PMA") application prior to
obtaining approval to market the device in the United States.
In general, the PMA process generally requires an initial submission of a
request for permission to clinically evaluate the medical device in humans under
an Investigational Device Exemption ("IDE") that meets the requirements of the
FDA and of the institutional review board(s) of the study institution and that
provides for the written informed consent of all participating patients. As a
condition of approving an IDE submission, the FDA ordinarily requires the
submission of laboratory test results, and may also require animal studies,
confirming that the device is not likely to be harmful or injurious to humans.
The subsequent PMA submission is initially reviewed by an FDA-selected
scientific advisory panel for review of human studies, with a final review
(including manufacturing facilities review) and approval process by the FDA This
process is expensive and time-consuming, generally taking more than a year and
often substantially longer.
The Company's products, except for the Medicated Foley catheter and the FEMSOFT
devices in development, have received FDA marketing clearance pursuant to 510(k)
pre-market notifications filed by the Company. The Company filed a 510(k)
pre-market notification relating to the Company's Medicated Foley catheter. The
FDA requested additional clinical data to support the Company's 510(k)
pre-market notification regarding the Medicated Foley catheter, and the Company
will need to refile this application with the additional information. The
Company has arranged for clinical trials the University of Wisconsin, Madison,
which are intended to generate information that is responsive to the FDA
comments. Following receipt of results of the clinical trials, the Company
intends to resubmit its 510(k) pre-market notification regarding the Medicated
Foley catheter. The FDA may, however, require further information, such as
additional test data, before making a determination regarding substantial
equivalence. The FDA may also determine that the proposed device is not
substantially equivalent and require the Company to file a PMA application for
this device. There can be no assurance that the Medicated Foley catheter will
prove efficacious or that the Company will receive FDA clearance to market the
Medicated Foley catheter or that market introduction of the Medicated Foley
catheter will not be delayed.
The Company has yet to apply for and receive FDA marketing clearance for its
certain of its FEMSOFT devices. The Company presently plans to submit the
FEMSOFT urethral assist device for FDA marketing approval through the PMA
application process due to the Company's belief that no predicate device would
support a 510-K submission for a device intended for the management of stress
incontinence in active women. The Company also recognizes that the PMA
application process, although generally more rigorous that a 510-K submission,
will provide certain advantages not available in the 510-K process, including
confidentiality and some procedural benefits. The Company will likely pursue a
510-K submission for its FEMSOFT valved catheter due to the Company's belief
that various drainage catheters, including drainage catheters that may be
intermittently sealed off by clips or other means to interrupt urine flow, have
been commercially marketed since before 1976, and may therefore properly serve
as predicate devices for the FEMSOFT valved catheter. There can be no assurance,
however, that the Company's current or future products in development, including
the FEMSOFT valved catheter, may not be subjected to the PMA process, or that
the Company's current or future products in development will receive FDA
marketing clearance.
The Company is also required to register with the FDA as a medical device
manufacturer. As such, the Company's manufacturing facilities are inspected on a
routine basis for compliance with GMP. These regulations require that the
Company manufacture its products and maintain its documents in a prescribed
manner with respect to manufacturing, testing and quality control activities.
The Company underwent its latest GMP inspection by the FDA in July 1995, and no
violations were reported to the Company. As a medical device manufacturer, the
Company is further required to comply with FDA requirements regarding the
reporting of allegations of death or serious injury associated with the use of
its medical devices, as well as product malfunctions that would likely cause or
contribute to death or serious injury if the malfunction were to recur. Other
FDA requirements govern product labeling and prohibit a manufacturer from
marketing an approved device for unapproved applications. If the FDA believes
that a manufacturer is not in compliance with the law, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against the manufacturer, its
officers and employees.
The Company may become subject to future legislation and regulations concerning
the manufacture and marketing of medical devices. This could increase the cost
and time necessary to begin marketing new products and could affect the Company
in other respects not presently foreseeable. The Company cannot predict the
effect of possible future legislation and regulations.
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. These laws and
regulations range from simple product registration requirements in some
countries to complex clearance and production controls in others. As a result,
the processes and time periods required to obtain foreign marketing approval may
be longer or shorter than those necessary to obtain FDA approval. These
differences may affect the efficiency and timeliness of international market
introduction of the Company's products. For countries in the European Union
("EU"), in January 1995, CE Mark certification procedures became available for
medical devices, the successful completion of which would allow certified
devices to be placed on the market in all EU countries. After June 1998, medical
devices may not be sold in EU countries unless they display the CE Mark. The
Company or its distributors will seek CE Mark certification. There can be no
assurance, however, that the Company will be able to obtain regulatory approvals
or clearances for its products in foreign countries.
In addition, international sales of medical devices manufactured in the United
States that have not been approved by the FDA for marketing in the United States
are subject to FDA export requirements. These require that the Company obtain
documentation from the medical device regulatory authority of the destination
country stating that sale of the medical device is not in violation of that
country's medical device laws, and, under some circumstances, may require the
Company to apply to the FDA for permission to export a device to that country.
Under certain of the Company's international distribution agreements, the other
parties have agreed to bear the burdens and costs of obtaining applicable export
and international regulatory approvals. The Company has agreed to cooperate
where necessary in obtaining such approval.
THIRD PARTY REIMBURSEMENT
In the United States, healthcare providers that purchase medical devices
generally rely on third party payors, such as Medicare, Medicaid, private health
insurance plans and managed care organizations, to reimburse all or a portion of
the cost of the devices. The Medicare program is funded and administered by the
federal government, while the Medicaid program is jointly funded by the federal
government and the states, which administer the program under general federal
oversight. The Company believes its currently marketed products are generally
eligible for coverage under these third party reimbursement programs, and that
its COMFORT SLEEVE Foley catheter, PERSONAL CATHETER and Medicated Foley
catheter, will also be eligible for third party reimbursement. The Company is
currently unable to assess the eligibility of the FEMSOFT devices, including the
FEMSOFT continuous drain catheter or the FEMSOFT urethral assist device, for
reimbursement. As a result, the competitive position of certain of the Company's
products may be partially dependent upon the extent of reimbursement for its
products.
During the past several years, the major third party payors have substantially
revised their reimbursement methodologies in an attempt to contain their
healthcare reimbursement costs. Medicare and Medicaid reimbursement for
inpatient hospital services is based on a fixed amount per admission based on
the patient's specific diagnosis. As a result, any illness to be treated or
procedure to be performed will be reimbursed only at a prescribed rate set by
the government that is known in advance to the healthcare provider. If the
treatment costs less, the provider keeps the difference; if it costs more, the
provider cannot bill the patient for the rest. No separate payment is made in
most cases for products such as the Company's when they are furnished or used in
connection with inpatient care. Many private third party payors have also
adopted a similar prospective payment system.
Payment limitations have also been adopted for services furnished in hospital
outpatient departments and physician clinics. In particular, third party payors
have adopted fee schedules for physicians' services, such as the Medicare fee
schedule known as the resource-based relative value scale. These fee schedules
generally reimburse physicians less for their services than their usual and
customary charges. Because future changes in these fee schedules may result in
further limitations in the rate of reimbursement for certain physician services
and procedures, physicians may seek greater cost efficiency in treatment to
minimize any negative impact of reduced reimbursement. In certain cases, third
party payors may also cover the Company's products separately, with payment made
directly to distributors of the products. Medicare formerly paid for such
products on the basis of reasonable charges, but beginning in 1989 the Medicare
program implemented a fee schedule based on allowable payments in 1987 with
annual adjustments for inflation. However, under the 1993 budget legislation,
Congress froze reimbursement for 1994 and 1995 at 1993 levels. Future
limitations on increases (or actual reductions) in the Medicare fee schedule
applicable to the Company's products could have a material adverse effect on the
Company. Other third party payors (including insurance companies) have begun to
set limits on the number of medical devices, such as disposable catheters, that
the payor will reimburse per month and to set fixed reimbursement amounts per
device.
The recent growth of managed care organizations, such as health maintenance
organizations, has led to an increased emphasis on medical devices that prove to
be both effective and cost-efficient in the long-term. Through their purchasing
power, managed care organizations often seek discounts, price reductions, or
other incentives from medical products suppliers, and, in certain segments of
the health care market, increasingly concentrate their dealings to a few larger
distributors from whom they make volume purchases of a large variety of products
at volume discounts spread across such purchases.
The introduction of cost containment incentives such as these, combined with a
general trend toward closer scrutiny of healthcare expenditures by the various
third-party payors, have placed increasing pressures on healthcare providers to
reduce the cost of the services and products they provide to patients. If
healthcare providers respond to these pressures by substituting lower cost
products or therapies for the Company's products or by purchasing products only
from large distributors who provide broad, multi-product lines, the Company
could be adversely affected.
The federal government and certain state governments are currently considering a
number of proposals to reform the Medicare and Medicaid health care
reimbursement system. The Company is unable to evaluate what legislation may be
drafted and whether or when any such legislation will be enacted and
implemented. Certain of the proposals, if adopted, could have an adverse effect
on the Company's business, financial condition and results of operations.
PRIVATE LABEL DISTRIBUTION AGREEMENTS
CONVATEC. On August 11, 1995, the Company entered into the Distribution
Agreement, which grants ConvaTec, subject to obligations and limitations imposed
by the Company's other distribution agreements, worldwide rights to market the
Company's current products, products in development and certain future products
under ConvaTec's brand. At the same time, the Company retains worldwide rights
to market its products under the Rochester Medical brand. As part of this
relationship, ConvaTec invested $3 million in the Company in the form of a
convertible senior secured loan to the Company, and later released its security
upon the Company's satisfaction of certain net worth requirements.
The Distribution Agreement provides that ConvaTec will purchase all of its
requirements of certain of the Company's products from the Company, although the
Distribution Agreement does not include any minimum purchase requirements or
require that ConvaTec market any or all of the Company's products. The Company
will provide all manufacturing and packaging of the Company's products for
ConvaTec. The Distribution Agreement provides, however, in the event that the
Company is unable to supply ConvaTec's requirements for products for any reason
other than a shortage of raw material and the Company is unable to find a
suitable replacement in a commercially reasonable time, ConvaTec will be deemed
to have a license to the Company's technologies for purposes of manufacturing
products for ConvaTec. Before the commencement of product sales by ConvaTec for
certain of the Company products in development and future products, the Company
and ConvaTec must agree on packaging and quality control specifications and
pricing to ConvaTec. In addition, the Company and ConvaTec may agree to work
cooperatively to develop additional incontinence and urology products.
To maintain its marketing rights to a product, ConvaTec is obligated to make a
good faith effort to market the Company's current products within 12 months of
the date of the Distribution Agreement and to make good faith efforts to market
future products within 18 months following the Company's first commercial sale
of any such product. The Company is obligated to offer ConvaTec a right of first
refusal to market all future products, and prior to entering into a distribution
agreement for any such product with a third party, the Company must offer
ConvaTec a final opportunity to market such product on terms no less favorable
to ConvaTec than those offered to the third party.
The Distribution Agreement has an initial term expiring August 31, 2000.
ConvaTec may, at its option, renew the Distribution Agreement for an additional
five-year term, and may thereafter renew the Distribution Agreement for up to
five additional one-year renewal periods. Either party may terminate the
Distribution Agreement only upon the other party's material breach of the
Distribution Agreement, bankruptcy or insolvency, or inability to perform under
the Distribution Agreement for a period of more than six months. The
Distribution Agreement may not be terminated in the event that a third party
acquires the Company. The Company has agreed to indemnify ConvaTec against
certain liabilities, including any patent infringement claims by third parties.
Under a separate agreement, the Company supplies ConvaTec with tape-on ULTRAFLEX
male external catheters. This agreement has an initial term expiring September
1999 and is subject to automatic annual renewals cancelable on six months notice
by either party. The agreement is terminable for a material breach. It may also
be terminated any time after September 1996, upon six months written notice
given by ConvaTec without cause, or given by the Company if ConvaTec fails to
make certain agreed minimum purchases.
Subsequent to entering the Distribution Agreement, the Company and ConvaTec have
also agreed upon the parameters of certain joint clinical preference testing and
clinical trials of certain of the Company's devices which will be marketed by
ConvaTec under the Distribution Agreement.
HOLLISTER. The Company is the exclusive supplier of Hollister's requirements of
self-adhering non-latex male external catheters which Hollister resells as its
own PolyTech(tm) brand. The Company's agreement with Hollister provides that
Hollister will purchase at least $2,800,000 ($700,000 annually) of self-adhering
ULTRAFLEX male external catheters during the four year period ending April 30,
1998, subject to extension through good faith negotiations. As a part of its
agreement with Hollister, the Company has agreed to restrict its ability to sell
self-adhering ULTRAFLEX male external catheters on a private label basis to
other manufacturers and distributors for distribution outside of the United
States and Canada.
BAXTER EUROMEDICAL. For the two years ending November 30, 1996, the Company has
an exclusive agreement to supply Baxter Euromedical (but not any other
subsidiary or affiliate of Baxter Healthcare Corporation) with Baxter
Euromedical's requirements of silicone Foley catheters. Under the agreement,
Baxter Euromedical is the exclusive distributor of the Company's standard
silicone Foley catheters in Japan, Canada, Western Europe and the Balkans
(subject to grandfather rights for the Company's pre-existing foreign
distributors), and Baxter Euromedical is also a non-exclusive distributor of
silicone Foley catheters for all other territories.
MENTOR. Pursuant to a Male External Catheter License, Sales and Distribution
Agreement, as modified in September 1995 as part of a settlement of litigation
between Mentor and the Company (the "MEC Agreement"), Mentor has the exclusive
right to distribute and sell the Company's silicone male external catheters in
the United States and the United Kingdom, and the non-exclusive right to sell
the Company's silicone male external catheters outside those sales territories.
Mentor is under no obligation to make minimum purchases or to sell the silicone
male external catheters at all. Under the MEC Agreement, Mentor's exclusive
distribution rights in those territories expire September 8, 1996, unless
earlier terminated. The MEC Agreement also grants Mentor a paid-up, royalty free
license under any patent that may issue in relation to the Company's silicone
male external catheters which allows Mentor to manufacture silicone male
external catheters or to use the technology for any other purpose. This license
will become effective September 8, 1996, unless Mentor exercises its right to
accelerate the effectiveness of this license. At the time Mentor's license
becomes effective, Mentor will lose its exclusive distribution rights, and the
Company will become free to sell silicone catheters under the Company's own
brand in the United States and the United Kingdom, in addition to its current
right to market the silicone male external catheter in other worldwide markets.
EMPLOYEES
As of June 6, 1996, the Company employed 96 full-time employees, of whom 76 were
in manufacturing, and the remainder in administration, sales and research and
development. The Company is not a party to any collective bargaining agreement
and believes its employee relations are good.
FACILITIES
The Company's existing facility consists of a 20,000 square foot manufacturing
and office building located on a 3.5 acre site owned by the Company in the
Stewartville Industrial Park, Stewartville, Minnesota. The facility presently
provides approximately 18,000 square feet of manufacturing and research and
laboratory space and 2,000 square feet of office space.
The Company is presently constructing an additional facility primarily for the
manufacture of the FEMSOFT devices. This new facility is located near the site
of the Company's current facility and will contain approximately 56,000 square
feet of office, storage, manufacturing, chemical handling and clean room
manufacturing space. Upon completion of construction, the Company plans to equip
this new facility with an automated production line for the FEMSOFT products, a
liquid injection molding machine, packaging equipment and miscellaneous support
equipment.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Anthony J. Conway 51 Chairman of the Board, Chief Executive Officer and
President
Alfred T. Mannino 47 Executive Vice President
Philip J. Conway 40 Director and Vice President of Operations
Richard D. Fryar 49 Director and Vice President of Research and
Development
Martyn R. Sholtis 37 Vice President of Sales and Marketing
Horst Oeckinghaus 67 Vice President of International Sales
Brian J. Wierzbinski 37 Chief Financial Officer
Darnell L. Boehm 47 Director
Peter R. Conway 41 Director
Roger W. Schnobrich 66 Director
ANTHONY J. CONWAY, a founder of the Company, has served as Chairman of the
Board, Chief Executive Officer and President of the Company since May 1988. In
addition to his duties as Chief Executive Officer, Mr. Anthony Conway actively
contributes to the Company's research and development and design activities.
From 1979 to March 1988, he was President, Secretary and Treasurer of Arcon
Corporation ("Arcon"), a company that he co-founded in 1979 to develop,
manufacture and sell latex-based male external catheters and related medical
devices. Prior to founding Arcon, Mr. Anthony Conway worked for twelve years for
International Business Machines Corporation ("IBM") in various research and
development capacities. Mr. Anthony Conway is one of the named inventors on
numerous patent applications that have been assigned to the Company, eleven of
which have resulted in issued patents.
ALFRED T. MANNINO has served as Executive Vice President of the Company since
November 1994. Mr. Mannino is generally responsible for strategic planning for
the Company's growth, the supervision of the Company's sales and marketing
activities, the development of the Company's sales organization and the
coordination of and arrangements for the Company's clinical studies. From 1991
to 1994 he served as Vice President of Sales and Marketing of Dacomed
Corporation, a company that produces and sells incontinence and impotence
devices and diagnostic equipment. From 1982 to 1991 he served as Vice President
of Sales and Marketing of Mentor.
PHILIP J. CONWAY, a founder of the Company, has served as a Director and as Vice
President of Operations of the Company since May 1988. Mr. Philip Conway is
responsible for overseeing plant design and operation, and is also active in the
Company's research and development and design activities. From 1979 to March
1988, Mr. Philip Conway served as Plant and Production Manager of Arcon, a
company that he co-founded. Prior to joining Arcon, Mr. Philip Conway was
employed in a production supervisory capacity by AFC Corp., a manufacturer and
fabricator of fiberglass, plastics and other composite materials. He is one of
the named inventors on numerous patent applications that have been assigned to
the Company, eleven of which have resulted in issued patents.
RICHARD D. FRYAR, a founder of the Company, has served as a Director and as Vice
President of Research and Development of the Company since May 1988. Mr. Fryar
is responsible for overseeing the Company's research and development and
regulatory affairs activities. From 1984 to March 1988, Mr. Fryar was employed
by Arcon, a company that he co-founded, in research and development capacities.
From 1969 to 1984, he was employed by IBM in various research and development
capacities. He is one of the named inventors on numerous patent applications
that have been assigned to the Company, eleven of which have resulted in issued
patents.
MARTYN R. SHOLTIS has served as Vice President of Sales and Marketing of the
Company since April 1992. Mr. Sholtis' responsibilities include implementation
of the Company's sales and marketing strategy and the maintenance of the
Company's relationships with certain of the Company's private label customers.
From 1985 to April 1992 Mr. Sholtis was employed by Sherwood Medical, a company
that manufactures and sells Foley catheters and a variety of other urologic and
hospital-based medical products, most recently as Regional Sales Manager for the
Nursing Care Division, with responsibility for twelve states in the midwest
region.
HORST OECKINGHAUS has served a the Company's Vice President of International
Sales since March 1996. Mr. Oeckinghaus's is responsible for establishing and
overseeing the Company's foreign distributor's of Rochester Medical branded
products. From October 1994 through March 1996, Mr. Oeckinghaus was the owner
and principal officer of International Marketing Company which served as an
independent marketing a sales consultant for overseas sales of technical
products, including service to the Company. From 1989 through October 1994, Mr.
Oeckinghaus was employed as Vice President International by Osborn Medical
Systems. Mr. Oeckinghaus has over 35 years experience in international sales. He
is a member of the Society of Plastic Engineers and of the American Society of
Tool and Manufacturing Engineers, and he holds a masters of business
administration equivalent degree from the Universities of Bonn and Hamburg.
BRIAN J. WIERZBINSKI has served as the Company's Chief Financial Officer since
February 1996, with principal responsibility for management of the Company's
financial and administrative affairs. From 1986 until joining the Company in
1996, Mr. Wierzbinski was employed in various financial and financial management
capacities by Ecolab, Inc., most recently as Asia Pacific Vice President,
planning and control. Prior to joining Ecolab, Mr. Wierzbinski was employed for
six years in various audit and audit management capacities by KPMG Peat Marwick.
Mr. Wierzbinski is a certified public accountant and holds a BA degree in
accounting and business administration from St. Johns University, Collegeville,
Minnesota.
DARNELL L. BOEHM has served as a Director of the Company since October 1995.
Since 1986, Mr. Boehm has served as a Director and the Chief Financial Officer
and Secretary of Aetrium, Inc., a manufacturer of electromechanical equipment
for handling and testing semiconductor devices. From October 1988 to March 1993,
Mr. Boehm served as the Acting President of Genesis Labs, Inc., a manufacturer
of medical diagnostic products. He is also the principal of Darnell L. Boehm &
Associates, a management consulting firm.
PETER R. CONWAY has served as a Director of the Company since May 1988. He is a
Director and the Chairman and Chief Executive Officer of Halcon Corporation, a
manufacturer of quality custom office furniture of which he was a co-founder in
1978. From 1979 to 1985 Mr. Peter Conway served as a director of Arcon.
ROGER W. SCHNOBRICH has served as a Director of the Company since October
1995. Mr. Schnobrich is a senior attorney with the Minneapolis, Minnesota,
law firm of Popham, Haik, Schnobrich & Kaufman, Ltd. Mr. Schnobrich serves as
a director of Developed Technology Resource Inc., a company that invests in
business, technology and infrastructure in the former Soviet Union.
Messrs. Anthony Conway, Philip Conway and Peter Conway are brothers.
The Company's Bylaws provide that the shareholders or the Board of Directors of
the Company may set the number of directors that constitute the Company's Board
of Directors. The number of directors is currently set at six. Each director is
elected at the annual meeting of shareholders to hold office until the annual
meeting of shareholders next held after his or her election. The Board of
Directors has recently established an Audit Committee consisting of Messrs.
Boehm and Schnobrich, which reviews the results and scope of the audit and other
services provided by the Company's independent auditors.
The Company's Executive Officers are elected by, and serve at the pleasure of,
the Company's Board of Directors for an annual term coinciding with the
Company's annual meeting of shareholders.
EXECUTIVE COMPENSATION
The Board of Directors determines the level of compensation paid to the
Company's executive officers. All compensation paid by the Company for services
rendered during the fiscal years ended September 30, 1993, 1994 and 1995 for
each executive officer is set forth in the following table:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION COMPENSATION
- --------------------------- ---- ------ ------------ ------------
<S> <C> <C> <C> <C>
Anthony J. Conway(1) 1995 $ 53,000 -- --
Chief Executive Officer 1994 55,000 -- --
and President 1993 53,000 -- --
Alfred T. Mannino 1995 105,000 -- --
Executive Vice President 1994 -- -- $86,500(2)
1993 -- -- --
Philip J. Conway(3) 1995 67,500 -- --
Vice President of 1994 64,200 -- --
Operations 1993 53,000 -- --
Richard D. Fryar(4) 1995 67,500 -- --
Vice President of Research 1994 64,200 -- --
and Development 1993 53,000 -- --
Martyn R. Sholtis 1995 126,500 $ 7,602(5) --
Vice President of Sales 1994 106,964 7,642(5) --
and Marketing 1993 108,000 12,000(5) --
Horst Oeckinghaus(6) 1995 --(3) -- --
Vice President of 1994 --(3) -- --
International Sales 1993 --(3) -- --
Brian J. Wierzbinski(7) 1995 --(4) -- --
Chief Financial Officer 1994 --(4) -- --
1993 --(4) -- --
</TABLE>
(1) Mr. Anthony J. Conway's salary for fiscal 1996 has been established by
the Board of Directors at $100,000.
(2) In connection with Mr. Mannino's acceptance of employment with the Company,
he received a bonus consisting of 4,000 shares of Common Stock valued at
$35,000 and relocation benefits of $51,500.
(3) Mr. Philip J. Conway's salary for fiscal 1996 has been established by the
Board of Directors at $85,000.
(4) Mr. Fryar's salary for fiscal 1996 has been established by the Board of
Directors at $85,000.
(5) Includes automobile and insurance benefits.
(6) Mr. Oeckinghaus joined the Company as Vice President of International Sales
in March 1996 at an annual salary of $70,000. In connection with his
employment, Mr. Oeckinghaus was granted stock options to purchase 15,000
shares of the Company's Common Stock at an exercise price of $14.50 per
share.
(7) Mr. Wierzbinski joined the Company as Chief Financial Officer in February
1996 at an annual salary of $100,000. In connection with his employment, Mr.
Wierzbinski was granted stock options to purchase 80,000 shares of the
Company's Common Stock at an exercise price of $14.38 per share. Mr.
Wierzbinski also received certain relocation benefits in the approximate
amount of $55,000.
MEDICAL ADVISORY BOARD
The Company has established a Medical Advisory Board comprised of individuals
with expertise in fields relevant to the Company. Members of the Company's
management and scientific and technical staff will consult with members of the
Medical Advisory Board from time to time. The current members of the Medical
Advisory Board are:
TAMARA G. BAVENDAM, M.D., is an Associate Professor of Urology and Director
of the Female Urology Clinic at the University of Washington in Seattle,
Washington. Dr. Bavendam is also a member of the Board of Directors of Help
for Incontinent People, Inc., and the President and a member of the Board of
Directors of Women in Urology.
DIANE KASCHAK NEWMAN, R.N.C., M.S.N., is an adult nurse practitioner who has
nine years of experience with the assessment and management of urinary
incontinence. Ms. Newman is the founder and President of DKN & Associates, Inc.,
Chief Executive Officer and President of Access to Continence Care & Treatment,
Inc., and founder and owner of Golden Horizons, Inc., all three of which are
companies devoted to various aspects of the assessment and management of urinary
incontinence. Ms. Newman is Co-chairperson of the Clinical Practice Guideline on
"Urinary Incontinence in the Adult" of the Agency for Health Care Policy and
Research at HHS. Ms. Newman is also the Executive Director of the Institute for
Health Promotion and Research.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized stock consists of 20,000,000 shares of capital stock
without par value. As of May 31, 1996, there were 4,047,500 shares of Common
Stock outstanding, held of record by 120 shareholders.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each share
held of record on all matters on which shareholders are entitled or permitted to
vote. There is no cumulative voting for the election of directors. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of Common Stock are entitled to receive ratably such dividends as may lawfully
be declared by the Board of Directors out of funds legally available therefor
and in liquidation and to share pro rata in any other distribution to the
holders of Common Stock. See "Dividend Policy." Holders of Common Stock have no
preemptive or subscription rights. There are no conversion rights, redemption
rights, sinking fund provisions or fixed dividend rights with respect to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued upon completion of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors is authorized to establish by resolution
different classes or series of stock and to fix the rights, preferences and
privileges, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any class or series or the designation of such
class or series without any further vote or action by the shareholders. Although
there is no current intention to do so, the issuance of a class or series of
preferred stock with certain special rights or privileges could have the effect
of delaying, deferring or preventing a change in control of the Company which
may adversely affect the voting and other rights of the holders of Common Stock.
See "Risk Factors -- Possible Issuances of Preferred Stock; Anti-Takeover Effect
of Minnesota Law."
REGISTRATION RIGHTS
COMMON STOCK. Holders of 240,000 outstanding shares of Common Stock (the
"Registrable Common Stock") have registration rights pursuant to an agreement
with the Company. Under this agreement, if the Company proposes to register any
of its securities under the Securities Act, holders of the Registrable Common
Stock are entitled, subject to certain restrictions and exceptions, to include
their Registrable Common Stock in such registration. The underwriters of any
such offering have the right, in certain circumstances and subject to certain
conditions, to reduce the number of shares of Registrable Common Stock included
in the offering. The Company is required to bear all registration and selling
expenses (other than underwriters' discounts and commissions and fees and
expenses of counsel or accountants for holders of Registrable Common Stock) in
such offering. One of the exceptions to the obligation to include shares of
Registrable Common Stock in a registration applies to registrations that occur
at such time as the shares of Registrable Common Stock are eligible for resale
pursuant to Rule 144(k) under the Securities Act. This exception generally
applies to the Registration Statement filed in connection with this offering.
WARRANTS. The holders of warrants to purchase an aggregate of 80,000 shares of
Common Stock and the holders of 60,000 shares of Common Stock issued upon the
exercise of certain warrants (collectively, the "Warrantholders") have certain
registration rights pursuant to various agreements with the Company. The
Registration Statement, of which this Prospectus is a part, has been filed in
order to permit the Warrantholders to resell the shares issued upon exercise of
such warrants.
REGISTRATION RIGHTS OF CONVATEC. Under the terms of a loan from ConvaTec to the
Company, ConvaTec has the right at any time to convert all amounts (including
accrued interest) then outstanding under the loan into Common Stock (the
"Conversion Stock") at a conversion price of $19.00 per share. For three years
from the date of any such conversion, ConvaTec will have the right (subject to
certain limitations) to include shares of Conversion Stock then owned by
ConvaTec in any registration statement that the Company proposes to file or is
required to file. The Company is required to bear all expenses of the
registration except for underwriting commissions, discounts and transfer taxes,
if any, relating to shares of Conversion Stock sold by ConvaTec pursuant to the
registration. If ConvaTec had converted all amounts outstanding under the loan
as of March 31, 1996, ConvaTec would have received 167,269 shares of Common
Stock, inclusive of shares issuable for interest accrued through that date.
STATE LAW PROVISIONS WITH POTENTIAL ANTI-TAKEOVER EFFECT. Certain provisions of
Minnesota law described below could have an anti-takeover effect. These
provisions are intended to provide management flexibility, to enhance the
likelihood of continuity and stability in the composition of the Company's Board
of Directors and in the policies formulated by the Board and to discourage an
unsolicited takeover of the Company, if the Board determines that such a
takeover is not in the best interests of the Company and its shareholders.
However, these provisions could have the effect of discouraging certain attempts
to acquire the Company which could deprive the Company's shareholders of
opportunities to sell their shares of Common Stock at prices higher than
prevailing market prices.
Section 302A.671 of the Minnesota Statutes applies, with certain exceptions, to
any acquisition of voting stock of the Company (from a person other than the
Company, and other than in connection with certain mergers and exchanges to
which the Company is a party) resulting in the beneficial ownership of 20% or
more of the voting stock then outstanding. Section 302A.671 requires approval of
any such acquisition by a majority vote of the shareholders of the Company prior
to its consummation. In general, shares acquired in the absence of such approval
are denied voting rights and are redeemable at their then-fair market value by
the Company within 30 days after the acquiring person has failed to give a
timely information statement to the Company or the date the shareholders voted
not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Statutes generally prohibits any business
combination by the Company, or any subsidiary of the Company, with any
shareholder that purchases 10% or more of the Company's voting shares (an
"interested shareholder") within four years following such interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested shareholder's share acquisition
date.
INDEMNIFICATION OF CERTAIN PERSONS
Minnesota law and the Company's Bylaws provide that the Company shall, under
certain circumstances and subject to certain limitations, indemnify any person
made or threatened to be made a party to a proceeding by reason of that person's
former or present official capacity with the Company against judgments,
penalties, fines, settlements and reasonable expenses. Any such person is also
entitled, subject to certain limitations, to payment or reimbursement of
reasonable expenses in advance of the final disposition of the proceeding.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Bank,
Minnesota, N.A.
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to each Selling
Shareholder for whom the Company is registering Shares of Common Stock that have
been, or will be, issued to the Selling Shareholders pursuant to their exercise,
respectively, of warrants, previously issued in connection with previous
financings of the Company, for resale to the public. Except as indicated, no
material relationships exist between any of the Selling Shareholders and the
Company nor have any such material relationships existed within the past three
years, except as set forth below.
The sale of the Selling Shareholders' Common Stock may be effected from time to
time in transactions (which may include block transactions by or for the account
of the Selling Shareholders) in the over-the-counter market or in negotiated
transactions, a combination of such methods of sale or otherwise. Sales may be
made at fixed prices which may be changed, at market prices prevailing at the
time of sale, or at negotiated prices.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE AMOUNT PERCENTAGE
NAMES OF SECURITY HOLDERS SHARES OFFERED(1) BEFORE OFFERING AFTER OFFERING AFTER OFFERING
- ------------------------- ----------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Equity IRA Company(2) 42,000 1.01% 7,500 *
Peter L. Hauser(2) 16,800 3.02% 66,014 1.60%
David B. Johnson 28,000 * * *
Paul R. Kuehn 28,000 * * *
Man & Co. 25,200 * * *
-------
Total 140,000
=======
</TABLE>
* Less than one percent.
(1) For purposes hereof, unless otherwise noted, it is assumed that the Selling
Shareholders will sell all the stock described in this table.
(2) These shares held by Equity IRA Company are held beneficially for the
account of Peter L. Hauser.
Selling Shareholders may effect such transactions by selling their Common Stock
directly to purchasers, through broker-dealers acting as agents for the Selling
Shareholders or to brokerdealers who may purchase Common Stock as principals and
thereafter sell the Common Stock from time to time in the over-the-counter
market in negotiated transactions or otherwise. Such broker-dealers, if any, may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers for whom such broker-dealers may
act as agents or to whom they may sell as principals or otherwise (which
compensation as to a particular broker-dealer may exceed customary commissions).
The Selling Shareholders and broker-dealers, if any, acting in connection with
such sales might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them any profit on
the resale of the Common Stock might be deemed to be underwriting discounts and
commissions under the Securities Act.
PLAN OF DISTRIBUTION
The shares offered by the Selling Shareholders may be sold from time to time by
the Selling Shareholders, or by pledgees, donees, transferees or other
successors in interest of the Selling Shareholders, at their sole discretion.
Such sales may be made in the over-the-counter market or otherwise at prices and
at terms then prevailing or at prices related to the then current market price,
or in negotiated transactions. The shares of Common Stock offered by the Selling
Shareholders are not being underwritten. The Company will not receive any
proceeds from the sale of any Common Stock by the Selling Shareholders.
In general, the shares may be sold by one or more of the following means: (a) a
block trade in which the broker or dealer so engaged will attempt to sell the
securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) an exchange distribution in accordance with the rules of such
exchange (if the securities are then listed on an exchange); and (d) ordinary
brokerage transactions and transaction in which the broker solicits purchasers.
In effecting sales, broker or dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the Selling Shareholder in amounts to be
negotiated immediately prior to the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed "underwriters" within the meaning
of the Securities Act of 1933, as amended in connection with such sales.
To the extent required, the specific Shares to be sold, the names of the Selling
Stockholders, the purchase price, the public offering price, the names of any
such agents, dealers or underwriters, and the amount of any applicable
commissions or discount with respect to a particular offer will be set forth in
an accompanying Prospectus supplement. Such Prospectus supplement will also set
forth information regarding indemnification by the Company of the Selling
Stockholders and any underwriter, dealer or agent against certain liabilities,
including liabilities under the Securities Act of 1933.
In addition, any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
Prospectus.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the Company
by George H. Frisch, Minneapolis, Minnesota. Mr. Frisch may be deemed to own
beneficially 146,800 shares of the Company's Common Stock, including shares
owned by his wife. Mr. Frisch is related by marriage to Anthony J. Conway,
Philip J. Conway and Peter R. Conway, two of whom are officers, and all of
whom are directors, of the Company.
EXPERTS
The financial statements of the Company as of September 30 1994 and 1995,
and for the fiscal years then ended appearing in Rochester Medical Corporation's
Annual Report (Form 10-KSB) for the year ended September 30, 1995, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference and in the
Registration Statement. Such financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors -Dependence
on Patents and Proprietary Rights" and "Business -- Patents and Proprietary
Rights" have been reviewed and approved by Merchant, Gould, Smith, Edell, Welter
& Schmidt, P.A., patent counsel for the Company, as experts on such matters, and
are included herein in reliance upon that review and approval.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
reports, proxy statements and other information can also be inspected at the
offices of the National Association of Securities Dealers, Inc., 9513 Key West
Avenue, Rockville, MD 20850, which supervises the Nasdaq Market on which the
Common Stock is traded.
The Company has filed a Registration Statement on Form S-3, under the Securities
Act, including amendments thereto, relating to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, as permitted by
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and in each instance, reference is made to the
copy of such contract or document (if any) filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules thereto. A copy of the Registration Statement,
including exhibits and schedules thereto, may be inspected by anyone without
charge at the Commission's principal office in Washington, D.C. and copies of
all or any part thereof may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
certain fees prescribed by the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by the Company are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-KSB for the fiscal years ended
September 30, 1995.
(b) The Company's proxy statement dated January 2, 1996 for its Annual Meeting
of Stockholders held on February 8, 1996.
(c) The Company's Quarterly Reports on Form 10-QSB for the fiscal quarters ended
December 31, 1995 and March 31, 1996.
(d) The description of the Company's Common Stock contained in the Company's
Registration Statement on Form S-2 (Registration No. 33-97788), and
incorporated by reference into the Company's Registration Statement on
Form 8-A (File No. 0-18933) relating to its Common Stock, filed by the
Company with the Commission on December 11, 1990.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14, and 15(d) of the Exchange Act, subsequent to the date of this
Prospectus and prior to the termination of the offering of the Shares hereby
offered shall be deemed to be incorporated by reference into this Prospectus and
to be a part of this Prospectus from the date of filing such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide, without charge to each person, including any
beneficial owner, to whom a prospectus is delivered, upon written or oral
request of such person, a copy of any and all information that has been
incorporated by reference (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Requests for such
documents should be addressed to Brian J. Wierzbinski, Chief Financial Officer,
Rochester Medical Corporation, 1500 Second Avenue NW Stewartville, MN 55976;
telephone number (507) 533-4203.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OF
SOLICITATION.
TABLE OF CONTENTS
Page
----
Prospectus Summary 3
Risk Factors 5
Use of Proceeds 12
Price Range of Common Stock 12
Capitalization 13
Selected Financial Data 14
Management's Discussion and
Analysis of Financial Condition
and Results of Operations 15
Business 20
Management 42
Description of Capital Stock 45
Selling Shareholders 47
Plan of Distribution 48
Legal Matters 48
Experts 48
Available Information 48
Incorporation of Certain
Information by Reference 49
140,000 SHARES
[LOGO]
COMMON STOCK
PROSPECTUS
June , 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by the Company
in connection with the issuance and distribution of the Shares of Common Stock
offered hereby:
SEC registration fee $ 857
NASD filing fee 749
Printing expenses 25,000
Accounting fees and expenses 3,500
Fees and expenses of Issuer's Counsel 25,000
Transfer agent and registrar fees 1,500
Miscellaneous 13,394
-------
TOTAL $70,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 302A.521 of the Minnesota Business Act, as now enacted, provides that a
corporation shall indemnify any person made or threatened to be made a party to
a proceeding by reason of the former or present capacity of the person against
judgments, penalties, fines (including without limitations, excise taxes
assessed against such perosn with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys fees and disbursements
incurred by such person in connection with the proceeding if, with respect to
the acts or ommissions of such person complained of in the proceeding, such
person (i) has not been indemnified therefor by another organization, (ii) acted
in good faith; (iii) received no improper personal benefit and Section 302A.255
(with respect to director conflict of interest), if applicable, has been
satisfied; (iv) in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and (v) reasonably believed the conduct was in
the best interests of the corporation or, in certain circumstances, reasonably
believed that the conduct was not opposed to the best interests of the
corporation.
The Restated Bylaws of the Registrant provide that the Registrant shall
indemnify its officers and directors for such expenses and liabilities, in such
manner, under such circumstances and to such extend as permitted by Section
302A.521 of the Minnesota Business Corporation Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a ) Exhibits
4.1 Articles of Incorporation of the Company as amended. (Incorporated by
reference to Exhibit 4.1 of Registrant's Registration Statement on
Form S-2, Registration Number 33-97788).
4.2 Restated Bylaws of the Company (Incorporated by reference to Exhibit
3.2 of Registrant's Registration Statement on Form S-18, Registration
Number 33-36362-C).
4.3 Amendment to Restated Bylaws of the Company (Incorporated by
reference to Exhibit 4.3 of Registrant's Registration Statement on
Form S-2, Registration Number 33-97788).
4.4 Agreement dated September 29, 1995, among the Company, Miller,
Johnson & Kuehn Incorporated and Equity Securities Trading Co., Inc.
4.5 Common Stock Purchase Warrant issued to Paul R. Kuehn (Incorporated
by reference to Exhibit 4.1 of the Company's Current Report on Form
8-K dated July 25, 1991, filed with the Commission on July 26, 1991).
4.6 Common Stock Purchase Warrant issued to David B. Johnson
(Incorporated by reference to Exhibit 4.2 of the Company's Current
Report on Form 8-K dated July 25, 1991, filed with the Commission on
July 26, 1991).
4.7 Common Stock Purchase Warrant issued to Man & Co. (Incorporated by
reference to Exhibit 4.3 of the Company's Current Report on Form 8-K
dated July 25, 1991, filed with the Commission on July 26, 1991).
4.8 Common Stock Purchase Warrant issued to Peter L. Hauser (Incorporated
by reference to Exhibit 4.4 of the Company's Current Report on Form
8-K dated July 25, 1991, and filed with the Commission on July 26,
1991).
5.1 Opinion of George H. Frisch as to the legality of the issuance of
Common Stock (including consent).
11.1 Computation of Per Share Loss (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1995).
23.1 Consent of George H. Frisch
23.2 Consent of Ernst & Young LLP
23.3 Consent of Merchant, Gould, Smith, Edell, Welter & Schmidt P.A.
24.1 Powers of Attorney
ITEM 17. UNDERTAKINGS.
(a) RULE 415 OFFERING.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
posteffective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent posteffective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration or
any material change to such information in the Registration
Statement;
PROVIDED, HOWEVER, that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply
if the information required to be included in the post-effective amendment
by those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section l5(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(h) REQUEST FOR ACCELERATION OF EFFECTIVE DATE OR FILING OF REGISTRATION
STATEMENT ON FORM S-8.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing Form S-3 and has duly caused this Pre-Effective
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Stewartville, State of
Minnesota, on July 17, 1996.
ROCHESTER MEDICAL CORPORATION
By: /S/ ANTHONY J. CONWAY
Anthony J. Conway
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on July 17, 1996.
SIGNATURE TITLE
--------- -----
/S/ ANTHONY J. CONWAY Chairman of the Board, President and Director
Anthony J. Conway (Principal Executive Officer)
/S/ BRIAN J. WIERZBINSKI Chief Financial Officer (Principal Financial
Brian J. Wierzbinski Officer)
* Director
Darnell Boehm
* Director
Peter R. Conway
* Director
Philip J. Conway
* Director
Richard Fryar
* Director
Roger Schnobrich
* By: /S/ BRIAN J. WIERZBINSKI
Brian J. Wierzbinski
Attorney-in-Fact
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<S> <C> <C>
4.1 Articles of Incorporation of the Company, as amended *
4.2 Restated Bylaws of the Company *
4.3 Amendment to Restated Bylaws of the Company *
4.4 Agreement dated September 29, 1995, among the Company, Miller, Johnson
& Kuehn Incorporated and Equity Securities Trading Co., Inc. *
4.5 Common Stock Purchase Warrant issued to Paul R. Kuehn *
4.6 Common Stock Purchase Warrant issued to David B. Johnson *
4.7 Common Stock Purchase Warrant issued to Man & Co. *
4.8 Common Stock Purchase Warrant issued to Peter L. Hauser *
5.1 Opinion of George H. Frisch as to the legality of issuance of the
Common Stock (including consent) *
11.1 Computation of Per Share Loss *
23.1 Consent of George H. Frisch (included in Exhibit 5.1) *
23.2 Consent of Ernst & Young LLP *
23.3 Consent of Merchant, Gould, Smith, Edell, Welter & Schmidt P.A. *
24.1 Powers of Attorney *
</TABLE>
* Previously filed or incorporated by reference on page II-2 to a previously
filed exhibit or report.
