<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file Number
June 30, 1996 0-26234
----------------------
METRA BIOSYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 33-0408436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
265 NORTH WHISMAN ROAD, MOUNTAIN VIEW, CA 94043-3911
(Address of Registrant's principal executive offices) (Zip code)
(415) 903-9100
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [ x ]Yes [ ] No.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ x ]
At August 30, 1996, there were 12,599,852 shares of Common Stock
outstanding. The aggregate market value of the voting stock held by
non-affiliates of the registrant was $48,040,834 based upon the closing price
of the Common Stock at August 30, 1996 on The Nasdaq National Market. Shares
of Common Stock held by each officer and director and each person who owns 5%
or more of the outstanding Common Stock have been excluded from this computation
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Registrant for the 1996 Annual Meeting of
Shareholders are incorporated in Part III of this Form 10-K.
<PAGE>
METRA BIOSYSTEMS, INC.
INDEX
PART I.
Item 1. Business 3.
Item 2. Properties 32.
Item 3. Legal Proceedings 32.
Item 4. Submission of Matters to a Vote of Security Holders 32.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 33.
Item 6. Selected Financial Data 34.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation 35.
Item 8. Financial Statements and Supplementary Data 41.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 63.
PART III.
Item 10. Directors and Executive Officers of the Registrant 63.
Item 11. Executive Compensation 63.
Item 12. Security Ownership of Certain Beneficial Owners and Management 63.
Item 13. Certain Relationships and Related Transactions 63.
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 64.
Signatures 66.
2
<PAGE>
INTRODUCTORY STATEMENT
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED IN THIS ANNUAL REPORT ON FORM
10-K, THE MATTERS DISCUSSED HEREIN ARE FORWARD-LOOKING STATEMENTS THAT ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED. THESE RISKS AND UNCERTAINTIES
INCLUDE, BUT ARE NOT LIMITED TO, THE RISK THAT THE COMPANY'S PRODUCTS WILL
NOT ACHIEVE MARKET ACCEPTANCE, THE COMPANY'S RELIANCE UPON COLLABORATIVE
RELATIONSHIPS AND THE INTENSE COMPETITION IN THE MARKET FOR BIOCHEMICAL
MARKERS, AS WELL AS THE OTHER RISKS AND UNCERTAINTIES DESCRIBED HEREIN, AS
DESCRIBED UNDER THE HEADING "RISK FACTORS" IN THE COMPANY'S PROSPECTUSES
DATED APRIL 23, 1996 AND JUNE 30, 1995, RESPECTIVELY, DELIVERED IN CONNECTION
WITH THE COMPANY'S PUBLIC OFFERINGS, AND AS DESCRIBED IN THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1995 AND OTHER RISKS INCLUDED
FROM TIME TO TIME IN THE COMPANY'S OTHER SEC REPORTS AND PRESS RELEASES,
COPIES OF WHICH ARE AVAILABLE FROM THE COMPANY UPON REQUEST. THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN.
PART I
ITEM 1. BUSINESS
Metra is a leader in developing and commercializing diagnostic products
for the detection and management of metabolic bone diseases and disorders.
The Company's strategy is to offer a portfolio of diagnostic products that
will provide physicians with comprehensive clinical information regarding the
metabolism of bone and other connective tissues. The Company has developed
and is currently marketing for either research use or clinical use two
immunodiagnostic tests to measure bone resorption (loss), two
immunodiagnostic tests to measure bone formation and one immunodiagnostic
test to measure bone growth disorders. In addition, the Company is currently
developing a portable ultrasound device designed to assess bone fragility, a
simple bone-resorption test for use in the physicians offices and biochemical
markers to detect cartilage disorders. Since August 1995, the Company has
received 510(k) clearances for commercial sale of the following
immunodiagnostic tests: Alkphase-B in August 1995, Pyrilinks in November 1995
and Pyrilinks-D in December 1995. In addition, the Company has entered into
several collaborative arrangements with major pharmaceutical and diagnostic
companies, including a worldwide marketing collaboration with Wyeth-Ayerst
Laboratories, a division of American Home Products, in November 1995 and, in
February 1996, a collaboration with Abbott Laboratories to format the
Company's products for Abbott's automated immunoassay systems.
BACKGROUND
The human body and its major organs are supported and protected by a
matrix of connective tissues. Major connective tissue systems in the body
include bone, cartilage, tendons and skin. Connective tissues primarily
consist of the extracellular matrix, which is composed of a variety of
proteins. Connective tissue diseases and disorders usually result from
excessive production or breakdown of this extracellular matrix.
The body's principal connective tissue systems are bone and cartilage.
Although the two systems are distinct, they have a similar underlying
biology. Major diseases and disorders affecting bone and cartilage include
osteoporosis, Paget's disease, cancers that metastasize to bone,
hyperthyroidism, hyperparathyroidism, growth hormone deficiency, rheumatoid
arthritis, and osteoarthritis. Many of these diseases and disorders can be
disabling, can affect the quality of life, and can eventually lead to death.
BONE BIOLOGY
Bone is a dynamic tissue that continually regenerates and remodels
itself throughout an individual's life. This remodeling process, which
consists of bone formation and resorption (loss), is ongoing and is necessary
to maintain skeletal integrity. Clinical studies suggest that
3
<PAGE>
between 10% and 20% of the adult skeleton is replaced each year by the
remodeling process. From childhood to early adulthood, bone formation exceeds
resorption, causing bone mass to increase. Typically, after reaching peak
bone mass between the ages of 30 and 40, bone resorption begins to exceed
formation, and both men and women experience a slow, age-related phase of
bone loss, lasting for the rest of their lives. In addition to age-related
bone loss, most women also experience an accelerated phase of bone loss for
several years following menopause, primarily due to the cessation of estrogen
production.
Bone remodeling is a complex process involving bone resorption, in which
cells called "osteoclasts" excavate small pits throughout the bone, followed
by bone formation, in which cells called "osteoblasts" produce and deposit
bone collagen to fill the pits excavated by the osteoclasts. The remodeling
process takes place continuously throughout the skeleton, at multiple
locations and in different phases at the same time. At the beginning of a
remodeling cycle at a particular location, osteoclast precursor cells in the
bone marrow are recruited and migrate to the targeted area of bone. These
cells fuse to form osteoclasts and, over a period of one to three weeks, the
osteoclasts erode away bone in the targeted area. The osteoclasts are
replaced by osteoblasts during the next phase of the cycle, which then fill
in the resorption cavities with mineralized collagen over a period of three
to four months to create new bone. The osteoclastic and osteoblastic
processes produce fragments of collagen and other proteins, which are
released into the bloodstream and eventually appear in other bodily fluids,
including urine.
In general, the bone resorption and formation processes are tightly
coupled and balanced. When this tightly balanced remodeling process becomes
unbalanced or exaggerated, bone disease ensues. In addition, there are a
number of drugs or medications, including those used to treat patients with
endometriosis, asthma, organ transplants, cancer, arthritis, thyroid
disorders and patients with renal failure, that can have an adverse side
effect of stimulating excessive bone loss.
OSTEOPOROSIS
The most widespread bone disease is osteoporosis, a disorder
characterized by a decrease in bone mass that leads to increased
susceptibility to fractures, particularly those of the hip, spine and wrist.
There are two major types of osteoporosis. The most common type is primary
osteoporosis, which includes post-menopausal osteoporosis, resulting from an
estrogen deficiency in women, and senile osteoporosis, an age-related
condition primarily affecting men and women over age 75. Secondary
osteoporosis occurs as a side effect of medication, or as a consequence of
another disease that causes a decrease in bone mass.
Osteoporosis is often called the "silent disease" because bone loss
itself causes no physical symptoms. In many cases, doctors and patients are
not aware of the problem until many bones in the skeletal system have become
so weak that a sudden strain, bump or fall causes a fracture. If diagnosed
early enough, the rate of bone loss can be reduced using one or a combination
of drug therapies. Consequently, diagnosis of bone loss and preventive
intervention is important for a physician to develop an effective care plan
for the patient.
According to the National Osteoporosis Foundation ("NOF"), osteoporosis
afflicts over 25 million Americans and over 200 million people worldwide. In
the United States, approximately 1.5 million osteoporosis-related fractures
occur each year, including more than 250,000 hip fractures, 500,000 vertebral
fractures and 240,000 wrist fractures. For Caucasian women, it is estimated
that the risk of hip fractures approximates the combined risks of breast,
endometrial and ovarian cancers. In addition, approximately one in three
women over age 65 will suffer vertebral fractures. By age 75, approximately
one-third of all men will also be
4
<PAGE>
affected by osteoporosis. Industry studies estimate that the lifetime risk of
hip fracture in men approximates the risk of prostate cancer.
The World Health Organization estimates that the cost of
osteoporosis-related fractures in the United States exceeds $7 billion
annually. The most severe osteoporosis-related fracture is that of the hip.
Over 95% of osteoporosis-related hip fractures require hospitalization,
between 12% and 20% result in fatality from other health complications
arising from the fractures and half of the patients who survive are unable to
walk unassisted for the rest of their lives. Another 25% are confined to
long-term care under supervised conditions.
There are several groups of women at high-risk for osteoporosis. The
largest of these groups is post-menopausal women. At menopause, the ovaries
cease producing estrogen, a hormone with anti-resorptive properties, which
results in an increase in the rate of bone loss. In addition, women have 10%
to 25% less bone mass at maturity than men, leaving them more susceptible to
osteoporosis. Another condition that increases the risk of
osteoporosis-related fractures is amenorrhea, the cessation of menstruation
not associated with the onset of menopause, which results from the
interruption of estrogen production and consequently decreases bone mass.
Amenorrhea generally affects women who participate in extremely rigorous
exercise regimens or have eating disorders.
According to the NOF, certain other risk factors increase an
individual's likelihood of developing osteoporosis. These include (i) genetic
factors, such as Caucasian or Asian descent, thin frame and/or small bones,
and a family history of fractures in elderly women, (ii) lifestyle factors,
such as cigarette smoking, excessive use of alcohol or caffeine, chronically
low calcium intake, and inactivity, and (iii) drug-induced factors resulting
from use of medications for certain conditions, such as arthritis, asthma,
endometriosis and thyroid disorders.
OTHER BONE-RELATED DISEASES
In addition to developing diagnostic tests to assess osteoporosis,
assays for a number of other diseases that can adversely affect bone
remodeling, including Paget's disease of bone, cancers that metastasize to
bone, hyperthyroidism, hyperparathyroidism, osteoarthritis and growth hormone
deficiency are also being developed. Unlike osteoporosis, these diseases have
physical symptoms that may alert a physician to the possibility of bone loss
and, accordingly, the need to monitor the bone remodeling process with
diagnostic tests.
PAGET'S DISEASE. Paget's disease is a chronic bone disease
characterized by the enlargement and softening of bones. This
condition is thought to be caused by a localized disruption of normal
bone remodeling. Paget's disease is manifested by the presence of an
increased number of abnormally enlarged osteoclasts resulting in an
increase in bone resorption. In addition, the bone formation process
is also increased, resulting in structurally inferior bone, which may
increase a patient's risk of fracture.
CANCER. Cancers that metastasize to bone adversely affect skeletal
metabolism. Approximately 25% of cancer patients will have metastases
of their primary tumor to bone. Several common malignancies, including
prostate, breast and lung cancers, spread more often to bone than to
other tissues.
DRUG-RELATED DISEASES. Skeletal degradation can also be a
drug-induced side-effect. Many drugs and medications approved to treat
other diseases and disorders, including thyroid medications, steroids
to treat asthma and arthritis,
5
<PAGE>
and drugs to treat infertility and endometriosis, are known to
cause increased bone resorption.
HYPERTHYROIDISM/HYPERPARATHYROIDISM. Hyperthyroidism is caused by
either an excessive functional activity of the thyroid gland or by
excessive doses of thyroid hormone. The resulting condition is
characterized by an increased metabolic rate. One consequence of an
increase in these hormones is an increase in bone remodeling.
Hyperparathyroidism is a condition that results from an abnormal
increase in the secretion of parathyroid hormone, which increases the
breakdown of bone.
OSTEOARTHRITIS. Osteoarthritis is characterized by degenerative
changes in the bone and cartilage of one or more joints, which can
lead to disability, pain and impairment of mobility.
GROWTH HORMONE DEFICIENCY. Growth hormone deficiency particularly
affects children and is characterized by a very low or absent
production of growth hormone which retards normal growth rates of such
children.
THERAPIES FOR OSTEOPOROSIS
During the past several decades, a number of therapies have been
developed to address bone diseases and disorders. Most of these are
prescribed therapies, including hormone replacement therapy ("HRT"),
calcitonins and bisphosphonates, and are focused on preventing further bone
loss rather than systemically forming new bone. Other products include
supplements that are available over-the-counter, such as calcium and vitamin
D.
The Company believes the market for drugs to treat osteoporosis will
grow as a result of several factors, including worldwide aging of the
population, heightened public awareness of osteoporosis, FDA approval of new
therapeutics and the development and availability of effective diagnostic
tests.
HORMONE REPLACEMENT THERAPY. Hormone replacement therapies, such as
estrogen and progestin, are the most frequently prescribed drugs given
to alleviate symptoms in post-menopausal women. HRT products act to
decrease bone loss (are anti-resorptive) and are also approved for
preventive treatment of osteoporosis. There are a number of estrogen
products currently approved by the FDA and available worldwide for use
in preventing or managing osteoporosis, including Wyeth-Ayerst
Laboratories' Premarin, Ciba-Geigy Ltd.'s Estraderm, and Bristol-Myers
Squibb Company's Estrace. In 1994, total sales of hormone replacement
therapies, including oral, transdermal and other formulations, were in
excess of $1.5 billion in the United States.
CALCITONINS. Calcitonin acts to slow bone resorption and may be a
viable substitute for estrogen as an anti-resorptive drug, especially
in male patients or in those female patients who cannot tolerate, or
choose not to use, hormone replacement therapy. Most formulations,
however, are injectible and not as easily administered as oral
medications. In the United States, Sandoz Ltd.'s Miacalcin and
Rhone-Poulenc Rorer Inc.'s Calcimar are the only FDA-approved
calcitonin products.
BISPHOSPHONATES. Bisphosphonates have been researched for use in the
prevention and treatment of osteoporosis. Fosamax, a bisphosphonate
from
6
<PAGE>
Merck & Co., Inc. was approved in late 1995 for the treatment of
patients with low bone mineral density. Additionally, Didronel, a
bisphosphonate from The Procter & Gamble Company, is currently
approved for use in treating Paget's disease. Several other
bisphosphonates are in various stages of development.
OTHERS. Other products used for the prevention of bone loss include
vitamin D and calcium supplements. In addition, injectible vitamin D
metabolites are a prescribed therapy for preventing bone loss that are
widely used in Japan but are not approved in the United States. There
are a number of other new therapies under development, including
estrogen analogs designed to minimize the side effects of HRT and slow
release sodium fluoride, which is believed to increase bone mineral
density.
OSTEOPOROSIS-RELATED DIAGNOSTICS
IMAGING METHODS
Several imaging technologies provide varying degrees of sensitivity for
the assessment of bone mass. For many years, changes in bone mass have been
roughly assessed with traditional x-ray technology, which can reveal a
decrease in bone mass only after approximately 30% of the bone has been lost.
Newer techniques for measuring bone loss with improved accuracy and precision
have been developed that can measure bone mass and bone mineral density
("BMD").
Dual energy x-ray absorptiometry ("DEXA") is the most advanced imaging
system currently used to measure BMD. DEXA offers faster image-capture time
(approximately 10 minutes) and higher resolution measurements with lower
overall radiation doses than early imaging methods. DEXA systems are
available for use in partial and whole body scans.
Recently, additional technologies, such as ultrasound, have been
developed that may be less expensive than DEXA, do not involve radiation and
may provide information concerning bone structure and quality.
DEXA and ultrasound systems are more precise and accurate than earlier
imaging methods, but changes in bone mass occur so slowly relative to the
sensitivity and precision limitations of these technologies that these
technologies have limitations in assessing the rate of bone loss on a
real-time basis. The inability of DEXA and ultrasound to measure the rate of
bone loss in real time limits its use in determining treatment efficacy or
patient compliance in adhering to treatment regimens. To be effective, these
technologies require initial and follow-up measurements which can be compared
in order to assess bone loss. Typically the period between measurements can
be up to two years to effectively diagnose a differential. This period is one
of the many reasons why biochemical markers which detect bone loss are
important for effective health care management. However, DEXA and ultrasound
measurements can provide a physician with important data regarding a
patient's bone characteristics at a given point in time. This data can be
helpful in determining which therapeutic regimes are most appropriate in
light of the patient's current bone status.
7
<PAGE>
TESTS FOR BIOCHEMICAL MARKERS
Biochemical markers are substances that are produced by the body that
correlate directly or indirectly to disease or bodily function. Biochemical
markers have been discovered that can be used to assess the dynamic rates of
bone resorption and bone formation, unlike imaging methods, which determine
bone mass at a specific point in time. The use of biochemical markers could
therefore complement imaging methods in providing a more complete picture of
bone metabolism.
Several biochemical markers of bone resorption have been discovered over
the past few decades. Two such markers are the pyridinium crosslinks,
pyridinoline ("Pyd") and deoxypyridinoline ("Dpd"). Pyd and Dpd are modified
amino acids that crosslink adjacent collagen molecules thereby providing
structural rigidity to bone. During the bone remodeling process, collagen is
degraded by osteoclasts and Pyd and Dpd fragments are released into
circulation and excreted into bodily fluids, such as blood and urine. The
utility of pyridinium crosslinks as an indicator of the rate of bone
resorption has been demonstrated with studies of bone biopsy, where the
levels of the pyridinium crosslinks in urine directly correlated with the
level of osteoclastic activity in bone biopsy samples.
In addition to biochemical markers for resorption, markers have been
discovered for bone formation. These include certain molecules that are
released into the blood as a result of osteoblastic activity, such as
alkaline phosphatase and osteocalcin.
Several methods exist to measure biochemical markers. An established
method to measure pyridinium crosslinks in urine has traditionally been high
pressure liquid chromatography ("HPLC"). HPLC is a complex procedure that
requires a trained technician and is typically performed in a research
laboratory. Although the HPLC method for measuring pyridinium crosslinks is
extremely accurate, it is primarily a research tool and is not commonly used
for routine clinical testing because it has low throughput, is expensive, and
is labor intensive.
Immunodiagnostic tests are antibody-based tests that measure biochemical
markers used to diagnose, screen or monitor disease progression, patient
compliance and drug efficacy. Immunodiagnostic tests have been developed that
measure biochemical markers of bone resorption and biochemical markers of
bone formation. Urinary Pyd and Dpd crosslinks consist of free crosslinks
(approximately 40%), crosslinks linked to one or two amino acids
(approximately 40%), crosslinks linked to smaller peptides (approximately
15%) and crosslinks linked to larger peptides (approximately 5%).
Immunodiagnostic tests can be used to measure any of these Pyd and Dpd
crosslinks. In general, free crosslinks occur in consistent proportion to
total crosslinks. This relationship suggests that an increase in the amount
of free crosslinks corresponds to an increase in total crosslinks and hence
corresponds to an increase in the rate of bone resorption. As a result,
immunodiagnostic tests that measure these free crosslinks generally provide
similar information, and have a high degree of correlation, to results of the
HPLC procedure, but in an easier, less expensive more reliable and
reproducible method suitable for routine use by clinical laboratories.
In September 1995, Dr. Pierre Delmas, of the INSERM Research Unit in
Lyon, France and a member of Metra's Scientific Advisory Board, announced
interim investigational data from an ongoing independent and blinded study
conducted at the Claude Bernard University, also in Lyon, that supports the
clinical utility of measurement of free Dpd. Data from the French "EPIDOS"
prospective study of more than 7,500 women over 75 years of age found that
the measurement of free Dpd was correlated with increased risk of hip
fracture and, therefore, may have the potential to determine individuals at
greater risk of this potentially
8
<PAGE>
fatal trauma. Women whose hips had fractured possessed elevated Dpd when
compared to women in the study of the same age who did not fracture. The
investigational study suggests that patients with higher levels of Dpd may
have a greater risk of hip fracture.
In an additional independent study conducted in Rotterdam, The
Netherlands, higher Dpd levels appeared to be associated with a higher risk
of hip fracture in independently living subjects. This epidemiological study
followed 7,900 individuals, 55 years of age and older, for nearly two and
one-half years.
CARTILAGE BIOLOGY
Cartilage is a compressable tissue which covers the ends of bones and
allows them to glide smoothly and freely within a joint. Cartilage is
composed primarily of one cell type, the chondrocyte, and an extensive
extracellular matrix. The main structural elements of this matrix are large
proteoglycan aggregates, responsible for the tissue's elastic properties, and
a collagen fiber meshwork, responsible for the tissue's resilience. Joints
are classified as either freely mobile, slightly mobile, or fixed. Freely
mobile joints, or synovial joints, are enclosed by a joint capsule which is
lined by a synovial membrane, or synovium. The synovium is lined by cells, or
synoviocytes, which produce a small amount of liquid called synovial fluid
that nourishes and lubricates the joint. Cartilage breakdown may be
attributed to an autoimmune response in the synovial fluid, and/or a
degrative enzymatic process within the cartilage itself, and when the
cartilage breaks down, a disease known as arthritis may occur.
ARTHRITIS
Arthritis is generally characterized by joint pain and swelling. There
are more than 100 types of arthritis affecting approximately 40 million
people in the United States. The two most prevalent forms of arthritis are
osteoarthritis ("OA") and rheumatoid arthritis ("RA"). Although the causes of
OA and RA are very different, both diseases result in the common problem of
joint destruction.
Osteoarthritis is the most common form of arthritis. The prevalence of
osteoarthritis among individuals aged 45 to 50 is estimated to be
approximately 30%, and approaches a 60% prevalence rate for individuals over
65 years of age. Osteo, or degenerative, arthritis is a disease that is
believed to result from the breakdown of cartilage in a specific joint or
joints and bone proximate to joints. Osteoarthritis can affect any type of
joint, but the disease most commonly occurs in weight bearing joints such as
the hips, knees and spine.
Rheumatoid arthritis is the second most common form of arthritis. In
North America, it is estimated that two million people are afflicted with
this condition and in excess of $200 million dollars is spent each year for
the care and treatment of the disease. Rheumatoid arthritis can occur at any
age, but the onset of the disease typically peaks between ages 35 and 45.
This disease is thought to be a systemic autoimmune disorder in which the
synovium becomes inflamed, causing hot, tender, and swollen joints. Only the
freely mobile joints such as hands, feet and knees are affected by this form
of arthritis. As the disease progresses, the cartilage and eventually the
bone are destroyed by various autoimmune-mediated enzymatic responses. This
process results in continuous pain, progressive deformity, and disability.
ARTHRITIS THERAPIES
No known treatments can stop or reverse osteoarthritis. Current
treatment for OA is primarily focused on reducing pain, minimizing
inflammation, and maximizing joint function. Physicians most commonly
recommend analgesics such as aspirin or acetaminophen to reduce
9
<PAGE>
pain and non-steroidal anti-inflammatory drugs ("NSAIDs") such as ibuprofen
to reduce inflammation. In advanced OA, more invasive measures such as
injection of steroids into the joint space, arthroscopic surgery, and partial
or total joint replacement can be used.
For treatment of RA, physicians commonly prescribe NSAIDs in an effort
to reduce inflammation. Additionally, doctors often prescribe other
non-specific drugs designed to reduce the body's immune response and
associated inflammation. The effectiveness of these therapies is variable
from patient to patient, and may involve various side effects and
complications.
There are numerous pharmaceutical companies working to develop more
effective therapies to treat OA and RA. During the early stages of arthritis,
the patient is not necessarily aware of the progression of the disease until
the associated pain and swelling occurs accompanied by reduced joint
mobility. In certain patients who are experiencing pain, there may be little
correlation between the severity of active disease and the amount of pain. A
biochemical marker test integrated into the overall health care of a patient
may identify the early stages of arthritis and enable more effective
treatments with emerging therapies along with subsequent therapeutic drug
monitoring.
ARTHRITIS DIAGNOSTICS
Many diagnostic tools for OA and RA exists, but none is specific to
arthritis or can confirm a diagnosis of either type of disease or accurately
assess disease progression. Current diagnosis of arthritis is based on:
- Medical history and a physical examination;
- Symptoms, i.e., swelling, red and hot joints, nodules under the skin,
and stiffness;
- X-rays, which are not designed for detection of soft tissue disorders,
and which can detect a pattern of visible damage only after multiple
exposures; and
- In the case of RA, laboratory tests for anemia, low white-blood-cell
count, rheumatoid factor ("RF") and erythrocyte sedimentation rate
("ESR"). Anemia can be an accompanying symptom of rheumatoid arthritis
but is not caused by or otherwise necessarily correlated to arthritis.
RF is present in 85% of people with rheumatoid arthritis, but also
does not necessarily indicate rheumatoid arthritis. ESR indicates a
systemic inflammatory condition but not necessarily rheumatoid
arthritis.
MARKET FOR IMMUNODIAGNOSTIC TESTS
Diagnostic tests are widely used for both research and routine clinical
use. Academic and clinical researchers in universities, teaching hospitals,
pharmaceutical companies and government research units, such as the National
Institutes of Health, use research products routinely. However, not all
research products are introduced for routine clinical use for many reasons,
including a lack of clinical utility or cost of obtaining regulatory
approval.
Immunodiagnostic tests are performed in a variety of technical formats.
A common format for research and clinical testing is the microtiter plate
system utilizing enzyme immunoassay ("EIA") detection. EIA utilizes an immune
reaction, that is, an antibody reacting with an antigen, and the detection of
the reaction using enzymes which are attached to the reactants as indicators.
EIA's are based on two phenomena: (i) the discriminatory nature of
10
<PAGE>
antibodies (proteins that bind specifically to antigens), which have an
affinity for specific compounds (i.e. antigens), and (ii) the high catalytic
power and specificity of enzymes. Although this technology is considered an
established industry standard, this manual format is relatively slow, has low
throughput, and requires skilled technicians. Instrument systems have been
developed that automate tests to increase throughput and decrease cost per
test. Most of the widely used immunodiagnostic tests have been adapted for,
and are used on, automated systems. These formats are used in hospitals and
clinical laboratories throughout the world. In general, faster and more
convenient formats are required and in development for point-of-care use in
physicians' offices or for home use.
BUSINESS STRATEGY
The Company is a leader in developing and commercializing innovative
products for the detection and management of metabolic bone diseases and
disorders. The Company's general business stategy is comprised of certain key
elements: first, the continual development of new diagnostic products to
complement the Company's existing products for the detection and management
of metabolic bone and connective tissue disorders; second, the establishment
of collaborative relationships with corporate partners for co-promotion
(medical education and awareness), and co-development of the Company's tests
with several diagnostic industry leaders to establish a dominant position in
the strategically important clinical laboratory market, where the majority of
the testing in the United States is accomplished today by providing tests in
either an automated or manual format; and third, the development of
distribution capabilities to maximize market share through partnerships with
diagnostic companies and the expansion of the Company's direct sales
capabilities. The Company's business strategy includes the following
components:
- DEVELOP PROPRIETARY DIAGNOSTICS AND DISCOVER ADDITIONAL MARKERS. The
Company's focus is on the discovery of biochemical markers and the
development of proprietary diagnostic tools for major bone, cartilage
and other connective tissue diseases. The Company is seeking to
develop products that have a high degree of specificity to the disease
being measured, and that will achieve wide research acceptance and
clinical utility.
- OFFER A PORTFOLIO OF DIAGNOSTIC PRODUCTS. The Company believes that
no single technology will give physicians a complete picture of the
metabolic bone remodeling process. The Company's product strategy is
focused on developing a portfolio of tests and complementary
diagnostic devices to provide comprehensive clinical information to
physicians for targeted diseases. The Company has developed and will
continue to develop multiple tests for bone resorption and formation,
as well as tests for other connective tissues, and is developing an
ultrasound-based diagnostic device in order to provide the physician
with information relevant to a patient's overall bone characteristics.
- EXPAND CLINICAL UTILITY FOR APPROVED PRODUCTS. The Company has
entered into a number of international academic collaborations and
pharmaceutical company collaborations, as well as Metra sponsored
clinical studies, designed to gather data to submit to the FDA for
clearance to market the Company's existing products for broader
clinical claims. This work is primarily targeted at application of the
Company's technologies in therapeutic drug monitoring, fracture risk
assessment, monitoring of metastatic cancers and periodontal disease.
11
<PAGE>
- PROVIDE MULTIPLE TEST FORMATS. In order to address the highly
fragmented market for its diagnostic tests, the Company has
established collaborations to format its products for use with
existing laboratory equipment and instrumentation. The Company will
seek to adapt its products to work with the installed base of
automated and other instrument systems supplied by a number of
companies. In the future, Metra expects to offer its products in
point-of-care or other rapid-test formats.
- INCREASE MARKET EDUCATION AND ADOPTION. The Company develops its
products initially as research products and works with the medical and
scientific communities to establish and assess initial clinical
utility and to obtain feedback prior to pursuing clinical
introduction. The Company, together with its collaborative partners,
is conducting studies to determine the clinical utility of its
research use-only biochemical marker tests. In addition, the Company
will continue to pursue collaborative arrangements with pharmaceutical
partners that have or are developing therapies for osteoporosis to
enhance market awareness of the Company's products.
- EXPAND SALES IN INTERNATIONAL MARKETS. The Company sells its products
internationally for both research and clinical use. The Company plans
to expand its international sales and marketing efforts to third-party
payors to establish reimbursement for its products. The Company
believes that the use of its products by researchers and physicians
will accelerate the determination of clinical utility and market
acceptance of its products.
The key elements of the Company's strategy are based on a belief that a
small percentage of the population at risk for certain bone and connective
tissue diseases and disorders, such as osteoporosis, RA and OA, are not
diagnosed early enough for preventative treatment to be effective. The
Company believes that the historical lack of consistent therapeutic
intervention can be traced in part to the limited availability of timely,
cost-effective and accurate methods to detect and monitor these diseases. The
Company believes that the demand for its products will be driven in part by
physicians' need to easily, inexpensively and accurately (i) identify those
persons most at risk before significant onset of these diseases, (ii)
quantify the parameters of each patient's disease progression, (iii)
determine therapeutic dosage and duration of therapy and (iv) monitor the
effectiveness of, and compliance with, prescribed therapies.
PRODUCTS
The Company has developed and is currently marketing for research and
clinical use four immunodiagnostic tests to measure bone resorption and
formation and one immunodiagnostic test to detect certain pediatric growth
disorders. In draft guidelines to pharmaceutical companies developing new
osteoporosis drugs, the FDA recommends using a combination of three
biochemical markers that together detect both resorption and bone formation
to assess efficacy as part of their pre-clinical and clinical testing. These
are (i) urinary pyridinium crosslinks, (ii) osteocalcin and (iii)
bone-specific alkaline phosphatase. The Company currently offers tests for
each of these biochemical markers.
The Company's Pyrilinks tests and Alkphase-B test are proprietary and
measure specific biochemical markers. Although the Company's other tests such
as NovoCalcin and Prolagen-C measure markers that are not proprietary and are
available from other companies, these tests allow the Company to offer a more
complete line of relevant clinical and research use tests to measure bone
metabolism. The following table identifies the Company's products,
12
<PAGE>
their application, their year of introduction outside the United States and
their current regulatory status.
<TABLE>
<CAPTION>
REGULATORY STATUS
---------------------------------------------------------------
PRODUCT NAME DATE MARKER UNITED STATES KEY INTERNATIONAL MARKETS
-------------------------- ------ ----------------- ---------------- -----------------------------------------
<S> <C> <C> <C> <C>
RESORPTION
----------
Pyrilinks 1994 Pyd & Dpd Clinical use, Germany, Italy, Spain, UK - Clinical &
510(k) cleared Research use
November 1995 France, Japan - Research use only
Pyrilinks-D 1993 Dpd Clinical use, France, Germany, Italy, Spain, UK -
510(k) cleared Clinical & Research use
December 1995 Japan - Research use only
FORMATION
---------
Alkphase-B 1995 Bone-specific Clinical use, Germany, Italy, Spain, UK -Clinical &
alkaline 510(k) cleared Research use
phosphatase August 1995 France, Japan - Research use only
NovoCalcin 1993 Intact Research use Germany, Italy, Spain, UK - Clinical &
osteocalcin only Research use
Japan - Research use only
GROWTH DISORDERS
----------------
Prolagen-C 1993 CICP Research use only Germany, Italy, Spain, UK -Clinical &
Research use
France, Japan - Research use only
</TABLE>
BONE RESORPTION TESTS
The Company's primary tests measure free pyridinium crosslinks, which
are well characterized markers of bone resorption. Metra's Pyrilinks and
Pyrilinks-D immunoassays are inexpensive, specific tests capable of directly
measuring free pyridinium crosslinks (Pyd and Dpd) through simple urine
tests. The results of Metra's bone resorption tests have a high correlation
co-efficient (greater than 90%) to those derived from HPLC, which is
generally accepted as an extremely accurate method for measuring pyridinium
crosslinks. The Company estimates that the cost to the patient of its tests
is approximately $30 to $80, depending on the mark-up charged by
distributors, clinical laboratories and physicians.
Pyrilinks Polyclonal, Metra's first immunoassay, was introduced in
Europe in 1992 for sale as a research use only product and is a polyclonal
antibody test that measures free pyridinium crosslinks. The second generation
of the test, Pyrilinks, was introduced in Europe in 1994 and uses a
monoclonal antibody to measure free pyridinium crosslinks. The modifications
in Pyrilinks reduced manufacturing costs and shortened time for results to a
few hours, as compared to overnight for Pyrilinks Polyclonal. The biochemical
markers measured by Pyrilinks and Pyrilinks Polyclonal result from the
breakdown of collagen found in both bone and cartilage. In November 1995,
Metra received 510(k) clearance to market both Pyrilinks Polyclonal and
Pyrilinks as quantitative measures of the excretion of pyridinium crosslinks
as an indicator of type I collagen resorption, especially bone collagen. Due
to the improvements of Pyrilinks over Pyrilinks Polyclonal, the Company is
not actively promoting or marketing
13
<PAGE>
Pyrilinks Polyclonal and may in the future discontinue manufacture and sale
of this product. Pyrilinks-D utilizes a more bone-specific biochemical marker
to measure bone resorption, was introduced for research use only in 1993 and
received FDA 510(k) clearance for clinical use in December 1995 as an
indicator of bone resorption.
BONE FORMATION TESTS
In addition to tests that measure bone resorption, Metra has developed
immunodiagnostic tests that measure bone formation. The Company believes that
multiple formation assays are important because increases or decreases in
bone formation provide relevant research, diagnostic and therapeutic
information.
Alkphase-B, Metra's newest bone formation immunodiagnostic test,
measures bone-specific alkaline phosphatase. Alkaline phosphatase is found
not only in bone but also in the liver, kidney and other organs. Metra
believes that Alkphase-B is a significant improvement over other widely
available alkaline phosphatase tests because it measures only the alkaline
phosphatase generated from bone formation. In August 1995, Metra received
510(k) clearance to market Alkphase-B as an aid in the management of patients
diagnosed with Paget's disease.
NovoCalcin, an immunoassay introduced in July 1993, is a test to measure
intact osteocalcin. Osteocalcin is a small peptide that is produced only by
osteoblasts during the formation phase of the bone remodeling process. Up to
20% of osteocalcin is released into circulation during bone formation, and
the rest is deposited into the bone matrix and later released by osteoclasts
during the process of bone resorption. NovoCalcin can be used to measure bone
remodeling or as a specific marker of bone formation. NovoCalcin is marketed
as a research and clinical test in certain European countries and as a
research test in Japan and the United States. In the United States, the
Company believes that PMA approval will be required for clinical use, and the
Company has not determined whether it will pursue FDA approval for this
product.
GROWTH DISORDER TEST
In response to the development of new pediatric growth therapies such as
human growth hormone, Metra has developed an immunodiagnostic test that is
used as an indicator of bone growth, called Prolagen-C, which was launched in
November 1993 for research use only. This immunodiagnostic test measures
collagen type I carboxyterminal propeptide ("CICP"), a marker for collagen
production in serum. Unlike osteocalcin, 100% of newly synthesized CICP is
released into circulation in proportion to the amount of new bone formed. The
Company believes Prolagen-C may be useful for monitoring the effectiveness of
certain pediatric growth disorder therapies. Prolagen-C is marketed as a
research and clinical test in certain European countries and as a research
test in Japan and the United States. In the United States, the Company
believes a PMA approval will be required for clinical use and the Company has
not determined whether it will pursue FDA approval for the product.
There can be no assurance that the Company will have adequate resources
or the clinical data necessary to file required state, federal and
international regulatory filings required to further develop and
commercialize these resorption, formation and growth disorder products. Even
if the Company has the necessary resources and decides to seek regulatory
approvals for research and/or clinical sale of these products, there can be
no assurance that the Company will obtain approvals in a timely manner, if at
all, that reimbursement in adequate amounts will be available, if at all, or
that the products, even if approved, will be accepted as effective diagnostic
tools by the medical community.
14
<PAGE>
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are currently focused in
four principal areas: (i) discovery and development of biochemical marker
tests focused in the area of bone and cartilage diseases, (ii) conducting
clinical studies designed to broaden the clinical claims for its existing
products; (iii) formatting of Metra's existing tests in alternative formats
to address different segments of the diagnostic market; and (iv) development
of its recently acquired ultrasound technology.
NEW BONE AND CARTILAGE TESTS
The Company has entered into a license agreement with NovaDx Inc. to
develop and manufacture a microtiter plate assay for the measurement of
YKL-40 ("Chondrex"), a novel glycoprotein which has been shown to be
significantly elevated in OA and RA patients. The Company believes that
YKL-40 may provide the basis for the development of a diagnostic test which
can be utilized in the detection and management of OA and RA. In addition,
the Company has entered into a collaborative agreement pursuant to which the
Company will fund research and development of a new protein found in serum of
patients with decreased bone density.
The Company is funding internal and third-party research and development
efforts designed to identify and develop additional markers for bone and
other connective tissue conditions and new immunoassays to measure markers
that it believes will have clinical utility. As new immunodiagnostic tests
are developed, the Company intends to offer them first to researchers, and,
to the extent research in the medical community validates the clinical
utility of measuring the relevant markers, to further develop and
commercialize products based on existing immunodiagnostic technology formats.
The Company currently sponsors research by physicians at research
institutions including The Rowett Research Institute in Scotland, the
University of Heidelberg in Germany, the University of California at San
Francisco and at Cambridge University and St. Thomas Hospital in England.
CLINICAL STUDIES
The Company is conducting clinical studies designed to gather data to
submit to the FDA for clearance to market the Company's existing products for
broader clinical claims. The Company is investigating use of its products in
applications including therapeutic drug monitoring, fracture risk assessment,
and monitoring of metastatic cancers and periodontal disease.
ALTERNATIVE TEST FORMATS
The Company is reformatting certain of its tests to be run on Abbott
Laboratories' installed base of automated diagnostic instruments. The Company
has also entered into a collaborative agreement to develop and manufacture
its Pyrilinks-D test in a radioimmunoassay format which was launched for
clinical use in France in May, 1996. The Company believes that less
complicated and capital intensive formats may be more suitable for
decentralized testing in physician office laboratories, small clinics,
satellite laboratories and for home use. Metra is also reformatting its lead
bone resorption product, Pyrilinks-D, for the Cholestech point-of-care
analyzer, named the L-D-X for use in the physicians offices.
15
<PAGE>
ULTRASOUND TECHNOLOGY
In order to offer a broader portfolio of products that will provide
physicians with more comprehensive clinical information regarding the
metabolism and clinical status of bone, Metra recently acquired Osteo
Sciences Corporation, a company developing ultrasound technology based on
proprietary algorithms and designs. The Company is developing a portable
ultrasound device designed to evaluate certain characteristics of bone that
are associated with bone weakness and bone quality. The target market for the
device will be physicians' offices or small group practices, which should
provide physicians and patients with a convenient and cost effective
alternative to the currently available techniques for assessing bone
fragility.
OTHER PROGRAMS
In light of the Company's current focus on developing its ultrasound
technology, its decision to further expand its panel of bone
immunodiagnostics, and its entry into the cartilage field, the Company has
deferred its development efforts relating to Factor BP-3, a blood test for
insulin-like growth factor binding protein-3, and osteopoeitin ("OPO"), an
osteogenic factor discovered by the Company.
As of June 30, 1996, the Company had 25 employees engaged in research
and development. Research and development expenses for the fiscal years ended
June 30, 1996, 1995, and 1994 were $4.3 million, $3.7 million, and $2.9
million, respectively.
There can be no assurance that Metra will be successful in developing
new products or that new products developed by the Company will receive
necessary government approval or, if approved, will gain market acceptance.
Any failure by the Company to successfully develop and introduce new products
could have a material adverse effect on the Company's business, financial
condition and results of operations.
SALES AND MARKETING
The Company's products are currently being marketed internationally for
both clinical and research use. In the United States, three of the Company's
tests have received 510(k) clearance from the FDA for clinical use and two of
the Company's tests are being marketed for research use only. The company is
currently marketing its products in Japan for research use only and for
clinical as well as research use in numerous other European countries,
including (but not limited to) Germany, Italy, Spain, and the United Kingdom.
The Company's approach is to initially market the tests for research
purposes by academic and clinical researchers in universities, teaching
hospitals, pharmaceutical companies and government institutions. As
regulatory clearances are obtained for clinical use, clinical reference and
hospital laboratories are then targeted as customers.
The Company's strategy is to sell and market its products through a
direct sales force and through distribution alliances with diagnostic product
companies. The Company has limited experience in sales, marketing and
distribution of its products. The Company currently sells its products
directly in the United States and the United Kingdom and through commissioned
representatives in Italy. The Company intends to expand its marketing staff
and direct sales force, and there can be no assurance that the Company will
be able to do so cost-effectively, or that the Company's direct sales and
marketing efforts will be successful. The market for the Company's products
is fragmented and consists of clinical laboratories, reference laboratories,
academic and clinical researchers in universities and physicians, among
others. The Company plans to rely on its collaborative partners to help build
market awareness and acceptance of the Company's products. There can be no
assurance that the Company will be able to enter into
16
<PAGE>
new alliances or that its distributors or collaborative partners will be
successful in marketing, selling or gaining market acceptance for the
Company's products. Outside the United States, the United Kingdom and Italy,
the Company sells its products through distributors.
The Company's distribution alliances consist of arrangements with over
30 distributors of diagnostic products that have well established
distribution channels in the Company's markets, including Hoechst Behring
(France), DPC Biermann (Germany), Dade Diagnostics (Australia) and Amersham
K.K. (Japan). Product revenues from one customer constituted 12% of total
revenues for the year ended June 30, 1996. Product revenues from two
distributors constituted 12% and 11%, respectively, of total revenues for the
year ended June 30, 1995. The loss of one or more of these distributors or
the inability to find new distributors could have a material effect on the
Company's business, financial condition and results of operations.
International product sales accounted for approximately 78%, 78% and 72%
of product revenues for the fiscal years ended June 30, 1996, 1995, and 1994,
respectively. The Company expects that such sales will continue to account
for a significant portion of the Company's revenues in the future. In order
to successfully expand international sales, the Company may need to establish
additional foreign operations, hire additional personnel and recruit
additional international distributors and commissioned representatives. This
will require significant management attention and financial resources and
could adversely affect the Company's operating margins. In addition, to the
extent that the Company is unable to effect these additions in a timely
manner, the Company's growth, if any, in international sales will be limited,
and the Company's business, financial condition and results of operations
could be materially adversely affected. In addition, there can be no
assurance that the Company will be able to maintain or increase international
sales of the Company's products. The Company's international revenues are
currently denominated in United States dollars. As a result, increases in the
value of the United States dollar relative to foreign currencies could make
the Company's products more expensive and, therefore, potentially less
competitive in those markets. Additional risks inherent in the Company's
international business activities generally include unexpected changes in
regulatory requirements, tariffs and other trade barriers, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences including restrictions on the
repatriation of earnings, and the burdens of complying with a wide variety of
foreign laws. There can be no assurance that such factors will not have a
material adverse effect on the Company's future international sales and
consequently, the Company's business, financial condition and results of
operations.
The Company is working with a number of diagnostic companies, including
Abbott Laboratories, Bayer Corporation, Ciba Corning Diagnostics, and
Diagnostics Products Corporation to format Metra's products for incorporation
into these companies' existing installed base of high-speed, automated
testing systems. The Company believes these collaborative programs will
facilitate the development of cost-effective, disease-specific testing
programs for the managed-care market. The Company intends to market directly
to third-party payors.
The Company believes that educating patients and physicians about the
long-term health benefits and cost-effectiveness of diagnosis and treatment
of bone diseases and disorders at an early stage is critical to market
acceptance for the Company's products. The Company believes that the trend
toward management of health care costs in the United States will lead to
increased awareness of and emphasis on disease prevention, and as a result,
will increase demand for cost-effective diagnostic tests.
17
<PAGE>
The Company will need to rely on current and any future collaborative
partners to help build market awareness and acceptance of the Company's
products. The Company has entered into marketing collaborations with several
pharmaceutical companies, including Wyeth-Ayerst Laboratories, to promote
patient and physician education, to help identify patients at risk and to
monitor drug compliance. The Company, together with its partners, will
continue to originate research and clinical studies to demonstrate and
explain how the Company's products relate to improvements in early detection,
disease management and drug compliance. There can be no assurance that the
Company will be able to enter into new alliances or that its distributors or
collaborative partners will be successful in marketing, selling or gaining
market acceptance for the Company's products. The Company is initiating
programs with physicians and consumer advocacy groups to provide a better
understanding of metabolic bone diseases such as osteoporosis. The commercial
success of the Company's products will depend upon their acceptance by the
medical community and third-party payors as clinically useful, cost-effective
and safe. The use of pyridinium crosslinks to measure bone loss and the use
of markers such as bone-specific alkaline phosphatase to measure bone
formation are relatively new technologies. Market acceptance will depend on
several factors, including the establishment of clinical utility of these
biochemical markers, the receipt of regulatory clearances where required, the
development of diagnostic tests that can be processed using commercially
available automated systems, the availability of third-party reimbursement,
extensive physician education and the approval and commercial acceptance of
therapies for the treatment of osteoporosis. In addition, research is in
progress to determine whether certain therapies for osteoporosis and other
bone diseases diminish the reliability of certain markers measured by the
Company's tests. An adverse outcome in this research could limit the market
acceptance of the Company's products because it could indicate that they have
reduced utility in the management of certain drug therapy regimens. Further,
clinical research is in progress to determine the clinical utility of
biochemical markers, including the Company's products. Adverse results from
such research have in the past and may in the future be made public. Such
adverse results could limit the market acceptance of the Company's products.
There can be no assurance that the Company's products will gain market
acceptance. Failure to achieve market acceptance would have a material
adverse effect on the Company's business, financial condition and results of
operations.
COLLABORATIVE RELATIONSHIPS
The Company has entered into collaborative relationships which provide
technological, clinical, marketing, financial and other key resources.
Important elements of the Company's strategy are (i) to collaborate with
corporate partners to develop additional markers and multiple formats for its
tests, including automated systems, and eventually rapid tests for
point-of-care use in physicians' offices or for home use, and (ii) to develop
additional corporate alliances with pharmaceutical partners in order to
facilitate the Company's market education and adoption strategy. The revenues
from license fees and milestone payments from certain of these relationships
have historically accounted for a significant percentage of the Company's
revenues. The Company has entered into contractual relationships with the
following entities:
DEVELOPMENT OF ADDITIONAL MARKERS
NOVADX INC. In January 1996, Metra and NovaDx Inc. entered into a
development and license agreement pursuant to which Metra received
worldwide exclusive rights to manufacture and market Chondrex in manual
formats and worldwide co-exclusive rights, with rights to sublicense, to
manufacture and market Chondrex in automated formats. Chondrex is a blood
test which the Company believes may provide the basis for the development
of a diagnostic test which can be utilized in the detection and management
of OA and RA. This technology has been licensed to NovaDx by the
18
<PAGE>
University of California Regents, is being developed by NovaDx and,
if successfully developed, Metra will manufacture, market and distribute
the test. This agreement also allows Metra to license additional
biochemical markers of joint disease developed by NovaDx.
CAMBRIDGE UNIVERSITY AND ST. THOMAS HOSPITAL. In January 1996, Metra,
Cambridge University and St. Thomas Hospital in England entered into a
development agreement pursuant to which Cambridge University and St. Thomas
Hospital agreed to develop a bone-specific biochemical marker based on
their discovery of a new protein in serum of patients with decreased bone
density. If successfully developed, Metra plans to develop and
commercialize this proprietary osteoporosis-specific test in a manual assay
format and thereafter may adapt this test for automated immunodiagnostic
instruments and physician office formats.
MULTIPLE FORMATS
CIBA CORNING DIAGNOSTICS CORPORATION ("CCD"). In November 1993, Metra and
CCD (a wholly owned subsidiary of Chicon Corporation) entered into a
license and supply agreement. Pursuant to the license agreement, CCD will
develop tests for bone resorption for its automated ACS:180 system using
Metra's pyridinium crosslinks technology. CCD plans to commercialize the
test during 1996 in this format, except in Japan. Metra has received
license fees and milestone payments and sells reagents to CCD for use in
its development program. Metra will receive royalty payments on any sales
of CCD's systems, and CCD will purchase reagents from Metra for
incorporation into CCD's systems. In June 1990, Metra and Ciba-Geigy
entered into a development and license agreement to commercialize Metra's
pyridinium crosslinks technology. In connection with entering into this
agreement, Ciba-Geigy made an equity investment in the Company and paid
Metra license fees and milestone payments. In September 1996 the Company
announced the filing of a 510(k) premarket notification with the FDA for
clearnace to market the Company's Pyrilinks-D bone resporption technology
for clinical use on CCD's ACS 180 automated immunoassay system.
DIAGNOSTIC PRODUCTS CORPORATION ("DPC"). In December 1993, Metra and DPC
entered into a development and manufacturing agreement pursuant to which
DPC will incorporate the Company's pyridinium crosslinks technology into
DPC's Immulite automated system used by hospitals and research and clinical
laboratories. Metra has rights to market any test developed and will pay
royalties on the future sales of such tests.
IMMUNODIAGNOSTIC SYSTEMS, INC. ("IDS"). In January 1995, Metra entered
into a collaborative agreement with IDS to develop and manufacture a
Pyrilinks-D assay in a radioimmunoassay ("RIA") format. IDS will
manufacture the RIA test for Metra and will also have rights to sell the
RIA test under its own name. . In May, 1996, the RIA test was made
available for commercial use. Metra will receive royalty payments on any
sales of IDS' RIA products
BIOQUANT, INC ("BIOQUANT"). In February 1995, Metra and BioQuant entered
into a license and supply agreement pursuant to which BioQuant will
evaluate the utility of Metra's pyridinium crosslinks excreted through
perspiration with the aim of developing an alternative body fluid testing
format. If successful, BioQuant will pay Metra royalties on sales of its
products and will purchase Metra's reagents for incorporation into
BioQuant's test. Metra has received license fees and sells reagents to
BioQuant for use in its development program.
19
<PAGE>
BAYER CORPORATION ("BAYER"). In July 1995, Metra and Bayer Corporation
entered into a collaborative agreement to commercialize Metra's then
available biochemical bone markers internationally, except in Japan. The
agreement allows Bayer to market automated central laboratory systems,
point-of-care assays, and over-the-counter tests based on Metra's
proprietary technologies. In return Metra will receive milestone and
royalty payments and will supply Bayer with reagents for each of the assays
to be developed by Bayer.
ABBOTT LABORATORIES ("ABBOTT"). In February 1996, Metra and Abbott entered
into a license, development and supply agreement for the commercialization
of Metra's biochemical bone markers worldwide, except in Japan. The
agreement grants Abbott the right to develop and market automated tests for
metabolic bone and joint diseases based upon Metra's proprietary
technologies. Under the agreement, Abbott will provide funding and
instruments to Metra for co-development of Metra's existing and future
technologies on Abbott's automated systems. Additionally, Metra will
receive a revenue stream from royalties and reagent sales to Abbott.
CHOLESTECH. In May 1996, the Company entered into a license, development,
supply and marketing agreement for the commercialization of Metra's
biochemical bone markers worldwide on Cholestech's proprietary point-of-
care analyzer, the L-D-X. Under the terms of the agreement, Cholestech
will be responsible for developing an immunoassay cassette incorporating
the Pyrilinks-D assay and obtaining all regulatory clearances prior to
marketing. Cholestech will market the test through its existing US
distributor network and will work together with Metra to market the system
internationally. Upon entering the agreement, Metra made a small equity
investment in Cholestech, with additional equity investments to be made by
Metra based upon the achievement of certain product development milestones.
MARKET EDUCATION AND ADOPTION
SUMITOMO PHARMACEUTICALS LTD. In March 1993, Metra and Sumitomo entered
into a co-development agreement to develop new biomedical products for the
detection and management of bone and other connective tissue diseases for
the Japanese market. In February 1995, Metra announced a research and
development collaboration with Sumitomo for the Company's bone-specific
alkaline phosphatase test. Sumitomo is responsible for all Japanese
regulatory filings for both of these agreements and Metra is responsible
for the research and development of these products. Metra receives license
fees, milestone payments and royalties and will supply products to Sumitomo
for distribution in Japan.
WYETH-AYERST LABORATORIES ("WYETH-AYERST"). In November 1995, Metra and
Wyeth-Ayerst entered into a marketing collaboration, pursuant to which
Metra and Wyeth-Ayerst will promote education of the scientific and health
aspects of bone disorders with the purpose of increasing awareness and
treatment.
AMERSHAM INTERNATIONAL PLC ("AMERSHAM"). In September 1996, the Company
and Amersham entered into a distribution agreement through which Amersham
received co-exclusive rights to market Metra's bone metabolism assays to
the research community in the United States, United Kingdom, Eire, Denmark
and Italy. Since 1993, Amersham K.K. (a subsidiary of Amersham) has
distributed the Company's assays for research use in Japan.
20
<PAGE>
The Company depends on most of these partners to develop and sell the
Company's tests in the partners' formats or based on their proprietary
systems. In particular, the Company will need to rely on collaborative
partners to adapt the Company's products to high-volume automated instruments
such as those sold by Abbott, Bayer, CCD and DPC. Substantially all of the
Company's collaborative agreements are non-exclusive, and therefore such
partners are free to enter into similar agreements with third parties,
including the Company's competitors. In addition, the Company has not
developed physician office or home-use adaptations of its products, and there
can be no assurance that the Company or its collaborative partners will
either develop such formats and sell the Company's tests on their formats, or
obtain any required regulatory approvals. In addition, the Company has
entered into a marketing collaboration with Wyeth-Ayerst Laboratories. The
amount and timing of resources that Wyeth-Ayerst Laboratories or any other
partner devotes to these activities is not within the control of the Company.
In addition, several of these agreements may be terminated by the partner
without cause. There can be no assurance that any of these partners will
perform its contractual obligations or that it will not terminate its
agreement. The failure to adapt the Company's products to different formats
and instruments or otherwise to commercialize or co-promote such products,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company expects to enter into additional collaborative agreements in
the future to develop, commercialize and sell current and future products.
There can be no assurance that the Company will be able to negotiate
acceptable agreements in the future, or that such new agreements or existing
agreements will be successful. In addition, there can be no assurance that
the Company's collaborative partners will not pursue alternative competing
technologies.
MANUFACTURING
The Company's manufacturing operations are fully integrated and consist
of antibody production, reagent purification, reagent and microtiter plate
processing, filling, labeling, packaging and distribution. The Company has
limited experience in manufacturing its products. To date, the Company's
manufacturing activities have consisted primarily of manufacturing limited
quantities of its immunoassays. If the Company experiences significant demand
for its products, the Company will have to manufacture its products in
commercial quantities in compliance with regulatory requirements at
acceptable costs, and expend significant capital resources to develop
large-scale manufacturing capabilities. If the Company is unable to develop
large-scale manufacturing capabilities, the Company's competitive position
and financial condition would be adversely affected. Failure to increase
production volumes, if required, in a cost-effective manner or lower than
anticipated yields or production constraints encountered as a result of
changes in the manufacturing process could result in shipment delays as well
as increased manufacturing costs, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
The majority of raw materials and purchased components used to
manufacture the Company's products are readily available. However, certain of
these materials are obtained from a sole supplier or a limited group of
suppliers. In particular, the anti-osteocalcin antibody used in the Company's
NovoCalcin test is currently available only from Haematologic Technologies,
Inc. and the transducers incorporated in the Company's ultrasound product
under development may only be available from a single manufacturer. In the
event that the supply of anti-osteocalcin antibodies or, if the development
of the ultrasound product is completed, the supply of the transducers, is
interrupted for any reason, products from alternative suppliers are unlikely
to be immediately available in sufficient volume to meet the Company's
production needs, if at all. The Company does not maintain long-term
agreements with any of its suppliers. The reliance on sole or limited
suppliers and the failure to maintain long-term
21
<PAGE>
agreements with suppliers involves several risks, including the inability to
obtain an adequate supply of required raw materials and components and
reduced control over pricing, quality and timely delivery. Although the
Company attempts to minimize its supply risks by maintaining an inventory of
raw materials and continuously evaluating other sources, any interruption in
supply could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's business, financial condition and results of operations
would be adversely affected by the inability to obtain working capital,
satisfactory manufacturing facilities, equipment and qualified manufacturing
personnel. In addition, the Company's manufacturing facilities and its
operations are subject to periodic inspections conducted by the FDA and
equivalent inspections conducted by State of California officials, and its
operations undergo current good manufacturing practices compliance
inspections conducted by the FDA and equivalent inspections conducted by
state officials. Because the Company has received FDA clearance to market
certain of its products for clinical use, the Company expects that its
facilities will be inspected by the FDA and by state authorities. Failure to
comply with applicable regulatory requirements can result in, among other
things, fines, suspension or withdrawal of clearances or of approvals,
seizures or recalls of products, operation restrictions and criminal
prosecutions. Furthermore, changes in existing regulations or adoption of new
regulations could prevent the Company from obtaining, or affect the timing
of, future clearances or approvals. There can be no assurance that the
Company will be able to obtain necessary regulatory clearances or approvals
on a timely basis or at all. Delays in receipt of or failure to receive such
clearances or approvals or loss of previously received clearances or
approvals could have a material adverse effect on the Company's business,
financial condition and results of operations.
In September 1996, the Company received ISO 9001 certification for its
quality management systems. The Company's certification is officially
recognized by European and North American authorities and is accepted
worldwide.
The Company faces an inherent 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. The Company maintains a general insurance
policy which includes coverage for product liability claims. The policy is
limited to a maximum of $1.0 million per product liability claim and an
annual aggregate policy limit of $1.0 million. 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
or 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 Company's business, financial condition
and results of operations.
COMPETITION
Competition in the market for products that diagnose and monitor bone
and other connective tissue diseases and disorders is intense and expected to
increase. The Company currently competes with other medical technology
companies, biotechnology companies, pharmaceutical companies and research and
academic institutions, both in the United States and abroad. Metra believes
that its most significant competitors in the area of biochemical markers
include Bio-Rad Laboratories, a life sciences company; DSL, a diagnostic
company that in 1996 received 510(k) clearance from the FDA to market
Osteometer's bone resorption product in the United States; IncStar, a
diagnostic company; Corning Nichols Institute, a research laboratory and
diagnostic company; Orion, a diagnostic and pharmaceutical company in
Finland; Osteometer, a diagnostic company in Denmark; Hybritech, a division
of Beckman
22
<PAGE>
Instruments, a diagnostic company that in 1996 received 510(k) clearance from
the FDA to market its test for bone-specific alkaline phosphatase for the
management of osteoporotic patients; and Ostex International, Inc., a
diagnostic company that in 1995 received 510(k) clearance from the FDA to
market an immunoassay for in vitro (clinical) diagnostic use. In addition,
the Company will compete with companies that measure the same biochemical
markers as Metra using different testing methods. The most established of
these are companies manufacturing HPLC assays, including Corning Nichols
Institute and Bio-Rad Laboratories. The Company believes that although the
HPLC method for measuring pyridinium crosslinks is extremely accurate, it is
primarily a research tool and is unsuitable for routine clinical use because
it has low throughput, is expensive and labor intensive, and requires skilled
technicians. There can be no assurance, however, that competitors have not
developed, or are not developing, less expensive, more clinically useful HPLC
products. In addition, as the Company licenses its technology to diagnostic
companies for use in alternative formats, tests sold by these licensees will
compete with the Company's products.
Certain diseases and disorders targeted by the Company's products can
also be diagnosed and monitored using existing imaging technologies, such as
DEXA. Although DEXA may be considered more expensive and less convenient than
tests for biochemical markers for routine diagnosis and monitoring of
connective tissue diseases and disorders, there can be no assurance that
competitors have not developed, or are not developing, less expensive, more
clinically convenient imaging devices. The Company believes that, at least in
their present forms, current imaging systems and tests for biochemical
markers should be complementary tools because Metra's tests can identify a
patient's rate of bone loss, as compared to imaging analysis, which measures
a patient's existing bone mass.
The market for the Company's ultrasound product under development is
expected to be highly competitive and subject to rapid technological change
and evolving industry requirements and standards. The Company believes that
these trends will continue into the foreseeable future. The Company's
ultrasound-based diagnostic product currently under development could
experience competition from companies with DEXA products, companies with
biochemical markers, and makers of ultrasound systems. Several companies,
including Aloka Company Ltd., Hitachi Instruments, Inc., Hologic, Inc., Lunar
Corporation, Norland Medical Systems and Osteometer MediTech AS have
developed systems to measure bone density which could compete with the
Company's ultrasound product under development. The Company believes that
competition in the field of bone densitometry is based upon price, precision,
speed of measurement, patient radiation dose, size and ease of operation,
product versatility, product reliability and quality of service. There can be
no assurance that the Company's product, if commercialized, will compete
effectively with respect to these criteria.
Several companies, including Hologic, Inc., IGEA S.r.l., McCue PLC,
Lunar Corporation, Myriad Ultrasound Systems, Ltd., and Osteometer MediTech
AS, have developed ultrasound systems to assess bone fragility. All of these
companies have had substantially more experience than the Company in
developing and marketing their systems. The Company believes that competition
in the field of ultrasound systems is based on price, precision, speed of
measurement, size and ease of operation, product reliability and quality of
service. No ultrasound bone analyzer has been approved for commercial sale in
the United States. If the Company's competitors obtain FDA clearance or
approval for ultrasound bone analyzers in the United States before the
Company, it could have a material adverse effect on the Company's ability to
introduce its ultrasound device (if developed), which in turn could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, other companies have developed ultrasound technology for
uses unrelated to measurement of bone characteristics. There can be no
assurance that such companies will
23
<PAGE>
not successfully adapt their technology to the bone field, and obtain
significant market share. The entry of such companies into the market for the
Company's ultrasound product under development could have a material adverse
effect on its business, financial condition and results of operations.
Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company. In addition, many of these
competitors have substantially greater experience than the Company in
research and development, undertaking clinical trials, obtaining regulatory
approvals and third-party reimbursement and manufacturing, marketing and
selling diagnostic products. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
larger companies. Furthermore, academic institutions, governmental agencies,
and other public and private research organizations conduct research, seek
patent protection and establish collaborative arrangements for product
development and marketing and therefore could become significant competitors.
A number of diagnostic tests and procedures for measure of bone
metabolism and other connective tissue diseases and disorders currently exist
and others are in development by other companies. These products, as well as
products that may be developed in the future, may be available for sale prior
to the Company's products, or at a lower cost, or with better technical
characteristics, rendering the Company's products less competitive or
obsolete. In addition, as the Company licenses its technology to diagnostic
companies for use in alternative formats, tests sold by these licensees will
compete with the Company's products. Any product that the Company succeeds in
developing and for which it gains regulatory approval must then compete for
market acceptance and market share. There can be no assurance that
competitors' products will not be found more competitive, either for general
use or in specific applications such as patients with particular medical
conditions, or those who are receiving certain therapies. The Company
believes that for all of its immunoassay products important competitive
factors include the relative speed with which companies can develop products,
establish clinical utility, complete the clinical testing and regulatory
approval processes, obtain reimbursement and supply commercial quantities of
the product to the market. The Company's inability to compete favorably with
respect to any of these factors could have a material adverse effect on its
business, financial condition and results of operations.
PATENTS, PROPRIETARY RIGHTS AND RELATED LITIGATION RISKS
The Company's success will depend in part on its ability to obtain
patent protection for its products and processes, to preserve its trade
secrets and to operate without infringing the proprietary rights of third
parties. The Company owns five United States patents, 15 pending United States
patent applications, and corresponding foreign patent applications, all in
the area of medical diagnostics.
The Company is the exclusive licensee from The Rowett Research Institute
in Scotland of patents and patent applications directed to certain diagnostic
methods of detecting metabolic bone disorders, including a United States
patent, six pending United States patent applications, two European Patent
Office patents, a related Australian patent, a related Canadian patent and
ten related foreign patent applications. The Company pays The Rowett Research
Institute royalties upon sales of the Company's Pyrilinks products.
The Company's ability to protect its proprietary position is in part
dependent on the issuance of patents on current and future applications. The
Company currently has applications pending in the United States, Europe,
Japan, Canada and Australia. The validity and breadth of claims covered in
medical technology patents involve complex legal and factual questions, and
24
<PAGE>
therefore, are highly uncertain. Patent applications covering the technology
underlying the Company's products that have received 510(k) clearances from
the FDA have not been issued (other than a European patent covering the
technology underlying the Company's Pyrilinks products), and no assurance can
be given that such and other pending patent 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 to the patents and other
proprietary rights held by the Company. The failure of the Company to obtain
issuances of patents that cover the technology underlying the Company's
products that have received 510(k) clearances from the FDA, or any other
outstanding patent applications, could have a material adverse effect on the
Company's business, financial condition and results of operations.
Furthermore, there can be no assurance that others have not developed or will
not develop similar products, duplicate any of the Company's products or
design around the Company's patents. In addition, others may hold or receive
patents or file patent applications that contain claims having a scope that
covers products developed by the Company. In the event that any relevant
claims of third-party patents are upheld as valid and enforceable, the
Company could be prevented from practicing the subject matter claimed in such
patents or could be required to obtain licenses from the patent owners of
each of such patents or to redesign its products or processes to avoid
infringement. There can be no assurance that such licenses would be available
or, if available, would be on terms acceptable to the Company or that the
Company would be successful in any attempt to redesign its products or
processes to avoid infringement. 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 that the Company can ultimately protect meaningful
rights to such unpatented proprietary technology.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Litigation,
which would 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, to defend the Company
against claimed infringement of the rights of others or to determine the
ownership, scope or validity of the proprietary rights of the Company and
others. An adverse determination in any such litigation could subject the
Company to significant liability to third parties, could require the Company
to seek licenses from third parties, which licenses may not be available or,
if available, may not be on terms acceptable to the Company, and ultimately
could prevent the Company from manufacturing, selling or using its products,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Metra also relies on trade secrets and proprietary know-how in its
manufacturing processes. The Company requires each of its employees,
consultants and advisors to execute a confidentiality agreement upon the
commencement of any employment, consulting or advisory relationship with the
Company. Each agreement provides that all confidential information developed
or made known to the individual during the course of the relationship will be
kept confidential and not disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all
inventions conceived of by an individual shall be the exclusive property of
the Company, other than inventions unrelated to the Company and developed
entirely on the employee's own time. There can be no assurance, however, that
these agreements will provide meaningful protection or adequate remedies for
misappropriation of the Company's trade secrets in the event of unauthorized
use or disclosure of such information.
25
<PAGE>
REIMBURSEMENT
The Company's ability to successfully commercialize its products depends
in part on the availability of, and the Company's ability to obtain, adequate
levels of third-party reimbursement for use of its diagnostic tests. Although
the Company's products are available for clinical use in certain European
countries, reimbursement is currently available in only certain of those
countries.
In the United States, the Company has received FDA clearance for
Alkphase-B, Pyrilinks and Pyrilinks-D. Reimbursement for the Company's FDA
cleared tests is determined by CPT codes and may vary by state. Reimbursement
under a specific CPT code is available for Alkphase-B, and the Company has
been informed that a specific CPT code to enable reimbursement in the United
States for its bone resorption tests, Pyrilinks and Pyrilinks-D, will be
published in January 1997. In the United States, the cost of medical care is
funded, in substantial part, by government insurance programs, such as
Medicare and Medicaid, and private and corporate health insurance plans.
Third-party payors may deny reimbursement if they determine that a prescribed
device has not received appropriate FDA or other governmental regulatory
clearances, is not used in accordance with cost-effective treatment methods
as determined by the payor, or is experimental, unnecessary or inappropriate.
The Company's ability to commercialize its products successfully will depend
in part on the extent to which appropriate reimbursement levels for the cost
of such products and related treatment are obtained from government
authorities, private health insurers and other organizations, such as health
maintenance and organizations ("HMOs"). Third-party payors are increasingly
challenging the prices charged for medical products and services. Also, the
trend towards managed health care in the United States and the concurrent
growth of organizations such as HMOs, which could control or significantly
influence the purchase of health care services and products, as well as
legislative proposals to reform health care or reduce government insurance
programs, may all result in lower prices for the Company's products. The cost
containment measures that health care providers are instituting and the
impact of any health care reform could have an adverse effect on the
Company's ability to sell its products and may have a material adverse effect
on the Company's business, financial condition and results of operations.
There can be no assurance that reimbursement in the United States or
foreign countries will be available for any of the Company's products, or if
available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the Company's products. The
unavailability of third-party reimbursement or the inadequacy of the
reimbursement for medical procedures using the Company's tests could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the Company is unable to forecast what
additional legislation or regulation, if any, relating to the health care
industry or third-party coverage and reimbursement may be enacted in the
future or what effect such legislation or regulation would have on the
Company's business.
GOVERNMENT REGULATION
The manufacturing, testing, labeling, distribution, marketing,
advertising and promotion of the Company's products are subject to extensive
and rigorous regulation by the FDA and, to varying degrees of regulation, by
state and foreign regulatory agencies. The Company's products are regulated
by the FDA under the Federal Food, Drug and Cosmetic Act (the "Act"), as
amended by the Medical Device Amendments of 1976 and the Safe Medical Devices
Act of 1990, among other laws. Under the Act, the FDA regulates the clinical
testing, manufacturing, labeling, distribution, sale, advertising and
promotion of medical devices in the United States. In addition, various
foreign countries in which the Company's products are or may be sold,
including, Germany, France, Japan and Canada, impose local regulatory
26
<PAGE>
requirements. The testing for, preparation of and subsequent FDA and foreign
regulatory review of required applications is expensive, lengthy and
uncertain. Failure to comply with FDA and similar foreign requirements could
result in civil monetary penalties or criminal sanctions, restrictions on or
injunction against marketing of the Company's products, as well as seizure or
recall of the Company's products, or other regulatory action. There can be no
assurance that the Company will be able to obtain necessary regulatory
approvals or clearances on a timely basis or at all, and delays in receipt of
or failure to receive such approvals or clearances, the loss or limitation of
previously received approvals or clearances, adoption of future regulations
which may further restrict the production or sales of the Company's products,
or failure to comply with existing or future regulatory requirements would
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Act, among other things, classifies medical devices into three
categories over which the FDA maintains increasing levels of regulation:
Class I (general controls), II (special controls) and III (premarket
approval). Although most devices new to the marketplace after May 1976 are
automatically classified as Class III, the Company believes that the majority
of Metra's products will ultimately be classified as Class I or II devices
and hence, not subject to the requirement of premarket approval by the FDA.
Prior to marketing any of these devices, the Company is required to submit a
510(k) premarket notification to the FDA and await the FDA's determination
that the product may be marketed. In any 510(k) premarket notification the
Company must, among other things, demonstrate the product to be marketed is
substantially equivalent in performance, formula, design and intended use to
a legally marketed Class I or Class II predicate device or to a Class III
device for which the FDA has not required premarket approval. Test data from
clinical trials may be required to demonstrate substantial equivalence and
that the products are safe and effective, which may delay the 510(k)
premarket notification review period.
Following submission of a 510(k) premarket notification, a company may
not market the device for clinical use until an order is issued by the FDA
finding the product to be substantially equivalent. The FDA has no specific
time limit by which it must respond to a 510(k) premarket notification. The
FDA may agree that the product is substantially equivalent to a predicate
device and allow the product to be marketed in the United States. The FDA,
however, may (i) determine that the new device is not substantially
equivalent and require a premarket approval application ("PMA"), or (ii)
require further information, such as additional test data, including data
from clinical studies, before it is able to make a determination regarding
substantial equivalence. By requesting additional information the FDA can
further delay market introduction of a Company's products.
In August 1995, Metra received FDA clearance of its 510(k) premarket
notification for Alkphase-B for use as an aid in the management of patients
diagnosed with Paget's disease. In November 1995, Metra received FDA
clearance of its 510(k) premarket notification for Pyrilinks Polyclonal and
Pyrilinks as measures of type I collagen degradation, especially bone
collagen. In December 1995, Metra received FDA clearance of its 510(k)
premarket notification for Pyrilinks-D as a measure of bone resorption.
There can be no assurance that the FDA will act favorably or quickly in
its review of the Company's future 510(k) submissions, if any, and
significant difficulties and costs may be encountered by the Company in its
efforts to obtain FDA clearance that could delay or preclude the Company from
selling its products in the United States. Furthermore, there can be no
assurance that the FDA will not request additional data, require that the
Company conduct further clinical studies or require a PMA, causing the
Company to incur further cost and delay. In addition, there can be no
assurance that the FDA will not limit the intended use of the Company's
products as a condition of 510(k) clearance or PMA approval. Further, if a
27
<PAGE>
company wishes to propose modifications to a product after FDA clearance of a
510(k) premarket notification or approval of a PMA, including changes in
indications or other significant modifications to labeling or manufacturing,
additional clearances or approvals will be required from the FDA. Failure to
receive or delays in receipt of FDA clearances or approvals, including the
need for extensive clinical trials or additional data as a prerequisite to
approval, or any FDA limitations on the intended use of the Company's
products, could have a material adverse effect on the Company's business,
financial condition and results of operations.
If the FDA indicates that a PMA is required for any of the Company's
products, the application will require the results of extensive clinical
studies, manufacturing information and likely review by a panel of experts
outside the FDA. Clinical studies would need to be conducted in accordance
with FDA requirements. Failure to comply with FDA requirements could result
in the FDA's refusal to accept the data or the imposition of regulatory
sanctions. FDA review of a PMA application can take significantly longer than
that for a 510(k) premarket notification. There can be no assurance that the
Company will be able to meet the FDA's PMA requirements or that any necessary
approvals will be received. Failure to obtain necessary regulatory approvals,
the restriction, suspension or revocation of regulatory approvals, if
obtained, or any other failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Act and California laws also require the Company to be licensed and
to manufacture its products in compliance with current good manufacturing
practices ("GMP") regulations. These regulations require that the Company
manufacture its products and maintain related documentation in a prescribed
manner with respect to manufacturing, testing and control activities. The
Company is also required to comply with various FDA requirements for labeling
and marketing, and the FDA prohibits a device, whether or not cleared under a
510(k) premarket notification or approved under a PMA, from being marketed
for unapproved clinical uses. If the FDA believes that a company is not in
compliance with the regulations, it can institute proceedings to detain or
seize a product, issue a recall, prohibit marketing and sales of the
company's products and assess civil and criminal penalties against the
company, its officers or its employees. There can be no assurance that Metra
will receive marketing clearance or approval for any of its future products
or that its manufacturing facility will satisfy GMP or California
manufacturing requirements. The Company's facilities and manufacturing
processes have been periodically inspected by the State of California and
other agencies, but remain subject to audit from time to time. The Company
believes that it is in substantial compliance with all applicable federal and
state regulations. Nevertheless, there can be no assurance that the FDA or a
state agency will agree with the Company's position, or that its GMP
compliance will not be challenged at some subsequent point in time.
Enforcement of the GMP regulations has increased significantly in the last
several years and the FDA has publicly stated that compliance will be more
strictly scrutinized. In the event that the Company is determined to be in
noncompliance with FDA regulations, to the extent that the Company is unable
to convince the FDA or state agency of the adequacy of its compliance, the
FDA or state agency has the power to assert penalties or remedies, including
injunction or temporary suspension of shipment until compliance is achieved.
Noncompliance may also lead to a recall of product. Such penalties or
remedies could have a materially adverse effect on the Company's business,
financial condition and results of operations. In addition, the manufacture,
sale or use of the Company's products are also subject to regulation by other
federal entities, such as the Occupational Safety and Health Agency and the
Environmental Protection Agency, and by various state agencies, including the
California Environmental Protection Agency. Federal and state regulations
regarding the manufacture, sale or use of the Company's products are subject
to future change, which changes could have a material adverse effect on the
Company's business, financial condition and results of operations.
28
<PAGE>
Distribution of the Company's products outside the United States is
subject to FDA export and extensive foreign government regulation. These
regulations, including the requirements for approvals or clearance to market,
the time required for regulatory review and the sanctions imposed for
violations, vary from country to country. There can be no assurance that the
Company will obtain regulatory approvals in such countries or that it will
not be required to incur significant costs in obtaining or maintaining its
foreign regulatory approvals. In addition, the export by the Company of
certain of its products which have not yet been cleared for domestic
commercial distribution may be subject to FDA export restrictions. Failure to
obtain necessary regulatory approvals, the restriction, suspension or
revocation of existing approvals or any other failure to comply with
regulatory requirements outside the United States could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Any of Metra's customers using its diagnostic devices for clinical use
in the United States may also be regulated under the Clinical Laboratory
Improvement Amendments of 1988 ("CLIA"). CLIA is intended to ensure the
quality and reliability of all medical testing in laboratories in the U.S. by
requiring that any health care facility in which testing is performed meet
specified standards in the areas of personnel qualification, administration,
participation in proficiency testing, patient test management, quality
control, quality assurance and inspections. The regulations have established
three levels of regulatory control based on test complexity _ "waived,"
"moderately complex" and "highly complex". Metra's Alkphase-B test is
categorized as a highly complex test for clinical use in the United States,
and the Company believes that its other tests will also be categorized as
highly complex. Laboratories that perform either moderately or highly complex
tests must meet certain standards with the major difference in requirements
being quality control and personnel standards. Personnel requirements for
highly complex tests are more rigorous than those for moderately complex
tests, requiring that personnel have more education and experience than
personnel conducting moderately complex tests. Under the CLIA regulations,
all laboratories performing high or moderately complex tests are required to
obtain either a registration certificate or certification of accreditation
from the Health Care Financial Administration ("HCFA"). As a result of the
CLIA requirements, physician office laboratories and small volume test sites
may be dissuaded from initiating, continuing or expanding patient testing,
particularly if the tests are classified as moderately or highly complex
tests. There can be no assurance that the CLIA regulations and future
administrative interpretations of CLIA will not have an adverse impact on the
potential market for the Company's products.
EMPLOYEES
As of June 30, 1996, the Company had 86 full-time employees, 25 of whom
were engaged in, or directly supported, the Company's research and
development activities, 23 of whom were in domestic and international sales
and marketing, 25 of whom were in manufacturing, and 13 of whom were in
administration. The Company also employs several part-time employees and uses
outside consultants. The Company considers relations with its employees to be
good. None of the Company's employees is covered by a collective bargaining
agreement.
FACILITIES
Metra currently leases approximately 31,000 square feet of laboratory
and office space at two facilities in Mountain View, California. The Company
leases these facilities under operating leases which last through May 2001,
each with a renewal option that, if exercised, would extend the term of the
lease through May 2003. In addition, the Company leases approximately 4,000
square feet of office space in Beaverton, Oregon under an
29
<PAGE>
operating lease which lasts until July 7, 1997. The Company believes that
its existing facilities will be sufficient for its operational purposes
through 1998.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers and certain other officers of the Company as of June 30,
1996:
NAME AGE POSITION
---- --- --------
George W. Dunbar, Jr. 50 President, Chief Executive Officer and
Director
Kurt E. Amundson 44 Vice President and Chief Financial
Officer
Colette Z. Andrea* 43 Vice President, Marketing & Sales
Ronald T. Steckel 43 Senior Vice President
John F. Coombes 52 Vice President International
Victor Liu, Ph.D 50 Vice President, Research and Development
Donald P. Wood 44 Sr. Director, Operations
Debby R. Dean 40 Sr. Director, Human Resources and
Administration
Robert P. Hesley 31 Director of Business Development
*Ms. Andrea resigned from her position with the Company effective
September 18, 1996.
The officers of the Company are appointed by the Board of Directors and
serve at the discretion of the Board. There are no family relationships
among the directors or officers of the Company.
MR. DUNBAR joined the Company as President, Chief Executive Officer and
Director in July 1991. Prior to joining the Company, he was the Vice
President of Licensing and Business Development of The Ares-Serono Group
("Ares-Serono"), a Swiss health care company that markets pharmaceutical,
diagnostic and veterinary products worldwide, from 1988 until 1991, where he
established a licensing and acquisition group for its health care divisions.
From 1974 until 1987, he held various senior management positions with
Amersham International ("Amersham"), a health care and life sciences company,
where he most recently served as Vice President for its Life Sciences
business in North America. Mr. Dunbar also served as Amersham's General
Manager of Pacific Rim markets and Eastern Regional operations and, prior to
that, he managed the international marketing of Amersham's medical and
industrial radioisotopes. Mr. Dunbar also serves as a director of Metra
Biosystems (U.K.) Ltd., the Company's wholly owned subsidiary, and DepoTech
Corporation, a life-sciences company. Mr. Dunbar holds a B.S. in electrical
engineering and an M.B.A. from Auburn University and sits on the Auburn
School of Business M.B.A. Advisory Committee.
MR. AMUNDSON joined the Company as Vice President and Chief Financial
Officer in January 1996. From 1994 until 1996, Mr. Amundson was Vice
President and Chief Financial Officer of Shaman Pharmaceuticals, Inc., a
biopharmaceutical company ("Shaman"). Prior to his employment with Shaman, he
was Chief Financial Officer at Abaxis, Inc., a biomedical instrumentation
company. From 1986 to 1991, Mr. Amundson was Vice President, Finance at
Proxim, Inc., a maker of wireless network products. Mr. Amundson is a
Certified Public Accountant and received a B.A. in Graphic Communication from
California Polytechnic University, San Luis Obispo.
MS. ANDREA joined the Company as Vice President, Marketing and Clinical
Affairs, in September 1994. From 1993 until 1994, Ms. Andrea was Senior Vice
President for the Deltakos Division of Thomas Ferguson Associates
("Deltakos"), an advertising firm, where she
30
<PAGE>
was involved in strategic planning and product development. Prior to her
employment with Deltakos, Ms. Andrea worked for Wyeth-Ayerst Laboratories,
from 1988 to 1993, in various positions including Product Manager, Senior
Product Manager and Group Product Director, where she repositioned and
relaunched several products and was responsible for the marketing of the
Norplant System. Ms. Andrea holds a B.S. in medical technology from Rutgers
University and an M.B.A. from Saint Joseph's University.
MR. STECKEL joined the company as Vice President, Development and
Operations, in March 1992. He was promoted to Senior Vice President in
August 1996. From 1990 until 1992, he was Vice President of Operations of
Leeco Diagnostics, a medical diagnostics company, where he was responsible
for manufacturing, quality assurance, materials management and facilities.
Prior to his employment at Leeco, Mr. Steckel worked for Ares-Serono from
1986 to 1990, in various positions including Director, Corporate Projects and
Vice President, Operations of Serono Baker Diagnostics ("Serono"). At Serono,
Mr. Steckel managed the successful launches of immunoassay analysers and
hemotology instruments to the international marketplace. Mr. Steckel holds a
B.S. in biology from Blackburn University and an M.B.A. from Lake Forest
College.
MR. COOMBES joined the Company in November 1993 as Director of European
Sales. Mr. Coombes was promoted to Vice President International in August
1996 after serving as Director - European Operations and Managing Director of
Metra Biosystems (U.K) from November 1994 to August 1996. From 1992 to 1993,
Mr. Coombes was European Sales Manager of T Cell Diagnostics, a division of T
Cell Sciences, a biotechnology company. Prior to his employment at T Cell
Diagnostics, Mr. Coombes established Digen Limited, a distributor for Gene
Trak Systems. From 1989 to 1991, Mr. Coombes was Director of European
Operations for Gene Trak Systems, a human diagnostics, food industry and
industrial biotechnology company. Mr. Coombes received an Ordinary National
Diploma in chemistry from Bromsgrove College in Worcestershire, England and
Higher National Diplomas in chemistry and analytical chemistry from
Lanchester Polytechnic in Coventry, England.
DR. LIU joined the Company as Sr. Director of Development in October
1995. He was appointed to Sr. Director of Research and Development in January
1996. He was promoted to Vice President Research & Development in August
1996. From 1992 until 1995, Dr. Liu was Vice President of Research and
Development for Chem Trak, Inc., a manufacturer of over-the-counter
diagnostic products. From 1988 to 1992, Dr. Liu worked as an independent
consultant focusing on assisting companies transition from research to
product commercialization. Dr. Liu received a Ph.D. in Biochemistry and
Immunology from Indiana University.
MR. WOOD joined the Company as Sr. Director, Materials and Manufacturing
in October 1995. From 1980 to 1995, Mr. Wood worked at Biochem ImmunoSystems
Inc., a subsidiary of BioChem Pharma Inc., a medical diagnostics company
manufacturing immunoassay and hematology instrumentation and related reagents
and kits. He received a B.S. in Business Administration from Bloomsburg
University.
MS. DEAN joined the Company as Sr. Director of Human Resources and
Administration in September 1995. From 1992 to 1995, Ms. Dean worked at DNX
Corporation, a biopharmaceutical company, in the positions of Vice President,
Corporate Administration & Communications and Director, Human Resources.
Prior to DNX, Ms. Dean worked with Baker Instruments (acquired by
Ares-Serono), from 1988 to 1992 as Director, Human Resources of their
Diagnostics Division. Ms. Dean received an M.B.A. from Lehigh University.
31
<PAGE>
MR. HESLEY joined the Company in April 1991 as Development Associate. He
was promoted to Manager of Business Development in 1994, and Director of
Business Development in 1995. Prior to joining the Company, Mr. Hesley was
employed by Monoclonal Antibodies, Inc., a manufacturer of over-the-counter
diagnostic products, where he was a Development Associate. Mr. Hesley
received a B.S. in molecular biology from San Jose State University.
ITEM 2. PROPERTIES
Metra currently leases approximately 31,000 square feet of laboratory
and office space at two facilities in Mountain View, California. The Company
leases these facilities under operating leases which last through May 2001,
each with a renewal option that, if exercised, would extend the term of the
lease through May 2003. In addition, the Company leases approximately 4,000
square feet of office space in Beaverton, Oregon under an operating lease
which lasts until July 7, 1997. The Company believes that its existing
facilities will be sufficient for its operational purposes through 1998.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
32
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Beginning July 1, 1995, the Company's Common Stock has traded on The
Nasdaq National Market under the symbol MTRA. Prior to such date, there was
no established public trading market for the Company's Common Stock. The
range of reported high and low bid quotations for the shares of the Company's
Common Stock, as reported by The Nasdaq National Market, are set forth below
for the periods indicated:
Fiscal 1996 High Low
----------- ---- ---
1st Quarter $21.75 $12.38
2nd Quarter $21.88 $16.75
3rd Quarter $18.25 $13.50
4th Quarter $14.50 $ 4.50
The above quotations represent prices quoted between dealers, do not
include retail markup, markdown or commissions and may not represent actual
transactions. On September 20, 1996 the closing stock price was $5.75.
HOLDERS
As of September 20, 1996, the Company had approximately 207 shareholders
of record, including several holders who are nominees for an undetermined
number of beneficial owners.
DIVIDENDS
The Company has never declared or paid any cash dividends or made any
other cash distribution on its Common Stock, and the Company anticipates that
in the foreseeable future it will follow a policy of retaining any earnings
for use in its business. Any future determination as to declaration and
payment of dividends will be made at the discretion of the Board of Directors.
33
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Presented below is the selected consolidated financial data for the years
ended June 30, 1996, 1995, 1994, 1993, and 1992.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Product sales $ 4,413 $ 2,552 $ 1,439 $ 617 $ -
Partner revenue 2,057 744 2,032 2,062 630
-------- -------- -------- ------- -------
Total revenues 6,470 3,296 3,471 2,679 630
-------- -------- -------- ------- -------
Operating expenses:
Cost of product sales 3,276 1,987 1,466 1,171 -
Research and development 4,308 3,717 2,899 3,213 2,665
Sales and marketing 7,725 2,881 1,366 930 359
General and administrative 3,070 1,851 1,480 1,035 1,051
Acquired in process
research and development 11,291 - - - -
-------- -------- -------- ------- -------
Total operating expenses 29,670 10,436 7,211 6,349 4,075
-------- -------- -------- ------- -------
Loss from operations (23,200) (7,140) (3,740) (3,670) (3,445)
Other income, net 1,801 337 165 87 106
-------- -------- -------- ------- -------
Net loss $(21,399) $ (6,803) $ (3,575) $(3,583) $(3,339)
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Net loss per share $ (2.04) $ (1.08) $ (0.69) $ (0.87) $ (1.09)
Weighted average shares outstanding 10,515 6,303 5,156 4,119 3,070
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital $44,231 $ 2,759 $ 9,803 $2,749 $6,491
Total assets 60,193 7,400 12,807 4,431 7,977
Long-term portion of capital
lease obligations 1,367 40 93 293 314
Redeemable preferred stock - 23,260 23,260 11,616 11,616
Accumulated deficit (39,889) (18,490) (11,687) (8,112) (4,529)
Total shareholders' equity (deficit) 54,424 (17,856) (11,650) (8,092) (4,515)
</TABLE>
34
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its commencement of operations in March 1990, Metra has been
engaged in the development and commercialization of diagnostic products for
the detection and management of metabolic bone diseases and disorders. The
Company has developed and is currently marketing for research and clinical
use four immunodiagnostic tests to measure bone resorption (loss) and
formation and one immunodiagnostic test to detect certain pediatric growth
disorders. In the United States, three of these tests have received 510(k)
clearance from the FDA for clinical use and two of these tests are being
marketed for research use only. The Company is currently marketing its
products in Japan for research use only and for research as well as clinical
use in numerous other countries, including Germany, Italy, Spain and the
United Kingdom.
The Company's principal sources of revenue are product sales and partner
revenues. Product sales are principally derived from sales of the Company's
bone resorption and formation tests for research and clinical use. Partner
revenues result from certain collaborative relationships and primarily
consist of milestone payments and licensing fees received from these partners
and revenues from sales to these partners of proprietary reagents for use
with their test formats.
The Company's revenues from product sales have historically resulted
from international sales for clinical and research use and from sales in the
United States for research use. In November and December of 1995, the Company
received 510(k) clearance from the FDA for its Pyrilinks and Pyrilinks-D
products. Revenues from clinical sales in the United States will be
dependent, in part, upon the rate at which the Company can increase awareness
and acceptance of its products among clinicians. The Company commenced its
marketing efforts in the United States upon receiving 510(k) clearance, and
does not anticipate significant revenues from clinical sales of its products
in the United States unless and until the results of its marketing efforts
are realized. As a result of the significantly increased sales and marketing
activities in the United States following receipt of the FDA clearances, the
Company expects expenses associated with such activities to increase in
future periods. There can be no assurance that the Company can successfully
increase market awareness or acceptance of the Company's products in a timely
manner or at all, and failure to do so would have a material adverse effect
on the Company's business, financial condition and results of operations.
Historically, the Company's quarterly revenues have fluctuated
significantly. Partner revenues have fluctuated primarily as a result of the
timing of milestone payments received from corporate collaborations. Product
sales have fluctuated primarily as a result of the introduction of new
products, seasonal variations in demand, the rate of acceptance of the
Company's products, and variations in the timing and volume of distributor
purchases. The Company expects that its revenues will fluctuate as a result
of these and other factors. Such fluctuations may result in the Company
failing to meet securities analysts' expectations, which could have a
material adverse effect upon the market price of the Company's Common Stock.
In June 1996 the Company announced that for the fourth quarter of 1996 and
for fiscal 1997 its product sales would not meet securities analysts'
expectations. Subsequent to this announcement, the market price of the
Company's Common Stock dropped from $11.00 to $7.00 on the first full day of
trading after the announcement. The Company expects that international sales
will continue to account for a significant portion of its revenues in the
future. Also, the Company expects to incur increased costs related to sales
and marketing, clinical studies, manufacturing, research and development,
general and administrative expenses and expansion of its facilities. As a
result, the Company expects its results from operations will vary
significantly from quarter to quarter and from year to year and will depend
on, among other things, gaining regulatory clearances in the United States,
Japan and elsewhere, the rate of acceptance of the Company's products in the
marketplace, the availability of reimbursement, the timing of fees and
milestone payments from its partners in collaborative relationships, the
execution of new collaborative relationships, costs associated with the
development of the Company's products and costs associated with and the
financial impact of acquisitions, including the Company's recent acquisition
of Osteo Sciences Corporation ("Osteo").
Effective January 31, 1996, the Company completed the acquisition of
Osteo, a company engaged in the development of a portable ultrasound product
designed to assess bone fragility. The acquisition was accounted for as a
purchase. As a result of the acquisition, the Company took a one time charge
to
35
<PAGE>
operations in the quarter ending March 31, 1996 related to acquired
in-process research and development of approximately $11,291,000. This charge
was primarily composed of the purchase price of approximately $10,017,000,
with the balance related to costs and expenses associated with the
acquisition, the fair value of liabilities assumed including reserves for
future costs related to the acquisition, less the fair value of tangible
assets acquired. Prior to the acquisition, research and development expenses
constituted a significant percentage of the operating expenses incurred by
Osteo. The Company intends to continue the research and development
activities related to ultrasound technology at levels which exceed the level
historically performed by Osteo. As a result, the Company expects that its
research and development expenses will increase from the levels experienced
prior to the acquisition.
The Company's gross margin is affected by a number of factors, including
product mix, product pricing, the extent of diagnostic test sales compared to
reagent sales and royalty revenue, the percentage of direct sales compared to
distributor sales and manufacturing costs, including overhead and material
costs. Due to seasonal factors such as customer and distributor vacations,
the Company expects reduced product sales during the summer months,
particularly in Europe. As a result of this seasonal effect, the Company's
revenues could be lower in the quarters ending June 30 and September 30 than
in the other quarters.
The manufacturing, testing, labeling, distribution, marketing,
advertising and promotion of the Company's products are subject to extensive
and rigorous government regulation in the United States and other countries.
The Company can only commence marketing its products for clinical use after
regulatory requirements are satisfied, thus, the Company's future product
sales and profitability are uncertain. There can be no assurance that
additional regulatory approvals will be obtained in a timely manner, if at
all, and significant difficulties and costs that may be encountered by the
Company in its efforts to obtain additional regulatory approvals could delay
or affect the Company's ability to sell its products for clinical use in the
United States or internationally. Inability to obtain regulatory approvals or
any other failure to comply with the regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has limited experience in manufacturing its products and
relies on key sources of supply for certain ingredients and other product
components. If the Company experiences significant demand for its products,
the Company will have to expend significant capital resources to develop
large-scale manufacturing capabilities.
Metra has established corporate partner relationships with a number of
companies, including Sumitomo Pharmaceuticals Co., Ltd., Ciba Corning
Diagnostics Corporation (a subsidiary of Chiron Corporation), Bayer
Corporation, Diagnostic Products Corporation, and Abbott Laboratories. The
Company expects to continue to rely on current and future collaborative
relationships to develop products and to provide milestone, royalty and
reagent-sales revenues. There can be no assurance that the Company will be
able to negotiate acceptable agreements in the future, that such new
agreements or existing agreements will be successful, or that the other
parties to the agreements will not terminate such agreements or pursue
alternative technologies.
Competition in the market for the Company's diagnostic products from
other medical technology companies, biotechnology companies, pharmaceutical
companies and research and academic institutions both in the United States
and abroad is intense and is expected to increase. Many of the Company's
competitors have substantially greater financial, technical and human
resources than the Company. In addition, many of these competitors have
significantly greater experience than the Company in research and
development, manufacturing, marketing and selling diagnostic products,
undertaking clinical trials and obtaining regulatory approvals and
third-party reimbursement. Developments involving competitors, including
introduction of new diagnostic products and receipt of regulatory approvals,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Litigation,
which would 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, to defend the Company
against claimed infringement of the rights of others or to determine the
ownership, scope or validity of the proprietary rights of the Company and
others. An adverse determination in any such litigation could subject the
Company to significant liability to third parties, could require the Company
to seek licenses from third parties, which licenses may not be available or,
if available,
36
<PAGE>
may not be on terms acceptable to the Company, and ultimately could prevent
the Company from manufacturing, selling or using its products, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's ability to successfully commercialize its products depends
in part on the availability of, and the Company's ability to obtain, adequate
levels of third-party reimbursement for clinical use of its diagnostic tests.
Although the Company's products are available for clinical use in certain
European countries, reimbursement is currently available in only certain of
those countries. In the United States, reimbursement is not available for
research use only products. Reimbursement for the Company's FDA cleared tests
is determined by CPT codes and may vary by state. In addition, reimbursement
under a specific CPT Code is not currently available for the Company's
Pyrilinks and Pyrilinks-D products. There can be no assurance that
reimbursement in the United States or foreign countries will be available for
any of the Company's products, or if available, will not be decreased in the
future, or that reimbursement amounts will not reduce the demand for, or the
price of, the Company's products. The unavailability of third-party
reimbursement or the inadequacy of reimbursement for medical procedures using
Metra's tests could have a material adverse effect on the Company's business,
financial condition and results of operations.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
Total revenues for the fiscal year ended June 30, 1996 increased to
$6,470,000 from $3,296,000 for the year ended June 30, 1995. The increase in
total revenues resulted from the growing market acceptance of the Company's
products coupled with increased partner revenues due to product approvals and
associated milestone payments.
Product sales for the year ended June 30, 1996 increased to $4,413,000
from $2,552,000 for the year ended June 30, 1995. The increase in product
sales was due to broader acceptance of the Company's bone resorption tests
for clinical use internationally and in the United States. The Company's
bone resorption products were cleared for marketing by the FDA in late
calendar 1995. International product sales accounted for 78% of product
revenues for both the fiscal years ended June 30, 1996 and 1995.
Partner revenues for the fiscal year ended June 30, 1996 increased to
$2,057,000 from $744,000 for the fiscal year ended June 30, 1995. This
increase resulted primarily from an increase in non-recurring milestone
payments from corporate partners, earned upon receipt of FDA clearance of
Pyrilinks (November 1995) and Pyrilinks-D (December 1995), and to a lesser
extent an increase in reagent sales to collaborative partners.
Cost of product sales for the fiscal year ended June 30, 1996 increased
to $3,276,000 from $1,987,000 for the fiscal year ended June 30, 1995,
reflecting the increased volume of products sold and associated production
costs.
Research and development expenses for the fiscal year ended June 30,
1996 increased to $4,308,000 from $3,717,000 for the fiscal year ended June
30, 1995. This increase resulted from the increased costs of the Company's
internal product development programs, external collaborative efforts and the
on-going research costs of the Ultrasound program which was acquired in
January 1996 (Osteo Sciences Corporation). The Company expects to increase
its research and development expenditures during the next several years to
continue to enhance and expand its product lines.
Sales and marketing expenses for the fiscal year ended June 30, 1996
increased to $7,725,000 from $2,881,000 for the fiscal year ended June 30,
1995. The increase is due to increased staffing in domestic and
international locations, the costs of additional marketing programs being
implemented to support the clinical launch of the Company's products in the
United States following recent clearance by the FDA, and the addition of a
direct sales force in the United States. Sales and marketing expenditures
are expected to increase significantly in the next several years as
additional marketing programs and sales and marketing staff are added to
support the expansion of the sales operations domestically and
internationally.
General and administrative expenses for the fiscal year ended June 30,
1996 increased to $3,070,000 from $1,851,000 for the fiscal year ended June
30, 1995, due to increased personnel costs and additional expenses
37
<PAGE>
associated with being a public company. The Company expects to increase its
general and administrative expenditures during the next several years to
support the Company's growth, when and if such growth occurs.
Acquired in-process research and development costs for the fiscal year ended
June 30, 1996 resulted from a one-time charge of $11,291,000. This charge was
primarily composed of the purchase price of approximately $10,017,000, with
the balance related to costs and expenses associated with the acquisition,
the fair value of liabilities assumed including reserves for future costs
related to the acquisition, less the fair value of tangible assets acquired.
Net other income for the fiscal year ended June 30, 1996 increased to
$1,801,000 from $337,000 for the fiscal year ended June 30, 1995 primarily as
a result of the investment of the proceeds from the Company's initial public
offering in July 1995 and the Company's follow-on offering in April 1996.
FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
Total revenues for the fiscal year ended June 30, 1995 decreased to $3.3
million from $3.5 million for the year ended June 30, 1994. This decrease in
total revenues reflects a decrease in partner revenues, which was offset in
part by an increase in product sales.
Product sales for the fiscal year ended June 30, 1995 increased to $2.6
million from $1.4 million for the year ended June 30, 1994. This increase in
product sales was due to broader acceptance of the Company's bone resorption
tests for research purposes and for clinical use internationally and, to a
lesser extent, the introduction in January 1995 of a new product, Alkphase-B.
International sales accounted for 78% and 72% of product revenues for the
fiscal years ended June 30, 1995 and 1994, respectively.
Partner revenues for the fiscal year ended June 30, 1995 decreased to
$744,000 from $2.0 million for the year ended June 30, 1994. This decrease
resulted from a decline of $1.4 million in non-recurring licensing fees and
milestone payments due to the timing of contracts with collaborative
partners. The decline was partially offset by an increase of $113,000 in
reagent sales to collaborative partners.
Cost of product sales for the fiscal year ended June 30, 1995 increased
to $2.0 million from $1.5 million for the year ended June 30, 1994,
reflecting primarily an increase in both the volume of products sold and, to
a lesser extent, the cost of maintaining and expanding the Company's
manufacturing operations and an increase in the reserve for inventory with a
risk of expiration.
Research and development expenses for the fiscal year ended June 30,
1995 increased to $3.7 million from $2.9 million for the year ended June 30,
1994, due primarily to costs associated with additional clinical studies and,
to a lesser extent, to additional costs associated with the Company's
research and development program.
Sales and marketing expenses for the fiscal year ended June 30, 1995
increased to $2.9 million from $1.4 million for the year ended June 30, 1994,
due to increased costs associated with providing training and support to
distributors, clinicians, physicians and other customers in international
markets and due to increased staffing.
General and administrative expenses for the fiscal year ended June 30,
1995 increased to $1.9 million from $1.5 million for the year ended June 30,
1994, due to increased facilities expenses and personnel costs. General and
administrative expenses for the year ended June 30, 1995 included $388,000 in
compensation expense associated with stock option grants.
Net other income for the fiscal year ended June 30, 1995 increased to
$337,000 from $165,000 for the year ended June 30, 1994, primarily as a
result of the timing of receipt of cash from issuances of redeemable
preferred stock by the Company and the associated interest income received on
the investment of proceeds.
FISCAL YEARS ENDED JUNE 30, 1994 AND 1993
Total revenues for fiscal 1994 increased to $3.5 million from $2.7
million for fiscal 1993. This increase in total revenues primarily reflects
increased product sales for research use.
38
<PAGE>
Product sales for fiscal 1994 increased to $1.4 million from $617,000 in
fiscal 1993. This increase in product sales was due to the introduction
during fiscal 1994 of three new products, Pyrilinks-D, Pyrilinks and
Prolagen-C, and broader acceptance of two products that were introduced in
fiscal 1993, Pyrilinks and NovoCalcin, both for research purposes and for
clinical use in certain foreign countries. International sales accounted for
72% and 68% of product revenues for the fiscal years ended June 30, 1994 and
1993, respectively.
Partner revenues for fiscal 1994 decreased to $2.0 million from $2.1
million for fiscal 1993. In fiscal 1994 these revenues included $1.8 million
of licensing fees and milestone payments as well as $215,000 in reagent
sales. In fiscal 1993, all partner revenues consisted of licensing fees and
milestone payments. Revenues from two partners, Ciba Corning Diagnostics
Corporation and Hybritech, Inc., constituted 16% and 13% of total revenues
for fiscal 1994.
Cost of product sales for fiscal 1994 increased to $1.5 million from
$1.2 million for fiscal 1993, reflecting primarily an increase in both the
volume of products sold and, to a lesser extent, the cost of maintaining and
expanding the Company's manufacturing operations.
Research and development expenses for fiscal 1994 decreased to $2.9
million from $3.2 million for fiscal 1993. This decrease was due to a
decrease in clinical studies expenses to $172,000 for fiscal 1994 from
$677,000 for fiscal 1993. The increased clinical studies expenses in fiscal
1993 were incurred in connection with the Company's initial FDA filing for
Pyrilinks. Excluding clinical studies expenses, research and development
expenses for fiscal 1994 increased to $2.7 million from $2.5 million for
fiscal 1993.
Sales and marketing expenses for fiscal 1994 increased to $1.4 million
from $930,000 for fiscal 1993, due to increased costs associated with
providing training and support to distributors, clinicians, physicians and
other customers in international markets and to increased staffing.
General and administrative expenses for fiscal 1994 increased to $1.5
million from $1.0 million for fiscal 1993 due to increased staffing expenses.
Net other income for fiscal 1994 increased to $165,000 from $87,000 for
fiscal 1993. This increase resulted primarily from the timing of receipt of
cash from issuances of Redeemable Preferred Stock by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations from inception primarily through
the sale of preferred and common stock, payments related to collaborative
research and development agreements, sales of the Company's diagnostic
products for research and clinical use and, to a lesser extent, through
equipment financing. In July 1995, the Company completed its initial public
offering of 3,450,000 shares of common stock. All preferred stock was
automatically converted into shares of common stock upon closing of the
offering. The cash proceeds from the Company's initial public offering, net
of underwriters discounts were $32,085,000. Total additional expenses
associated with the offering were $727,000, resulting in net proceeds from
the offering of $31,358,000. In April, 1996, the Company had a follow-on
offering of 2,300,000 shares of common stock. The cash proceeds from the
Company's follow-on offering dated April 22, 1996, net of underwriters'
discounts were $29,187,000. Total additional expenses associated with the
follow-on offering were $450,000, resulting in net proceeds to the Company
from the follow-on offering of $28,737,000.
As of June 30, 1996, Metra had $19,217,000 in cash and cash equivalents
and $33,030,000 in investment securities for total cash resources of
$52,247,000. During the fiscal year ended June 30, 1996 the Company's use of
cash in operating activities was $10,730,000 compared to $5,830,000 for the
fiscal year ended June 30, 1995. The increase in cash used in operating
activities was primarily due to the increased net loss, higher accounts
receivable and inventory balances and an increase in prepaid expenses. These
increases are in support of the Company's product launch of certain key
products in the United States in fiscal 1996, and to a lesser extent,
increased sales of products internationally. Net cash used in investing
activities was $35,081,000 and was primarily due to the purchase of
investment securities with a portion of the proceeds of the initial public
offering and the follow-on offering and the costs of expansion of the
Company's facilities.
39
<PAGE>
The Company has historically utilized leasing arrangements to finance
capital purchases. In December 1995, the Company entered into two new leasing
arrangements to finance $2,750,000 of equipment and building improvements. As
of June 30, 1996, $1,922,000 of the available lease lines were utilized and
outstanding in conjunction with these leases. The leases are both classified
as capital leases and expire in fiscal year 2000. Both leasing agreements
include negative covenants which require an irrevocable letter of credit in
the event of non-compliance of the covenants.
The Company's future capital requirements depend upon, among other
things, the costs of research and development programs, the funding of
clinical and regulatory related studies, the expansion of marketing and
selling activities, costs involved in filing, prosecuting and enforcing
patent claims, and the time and costs associated with obtaining regulatory
approvals for future products. Funds may also be used for investments in, or
acquisitions of, complementary businesses, products or technologies, in
expanding the Company's manufacturing capacity or in improving its existing
facilities. Although the Company believes that its current cash, cash
equivalents and investment securities will be sufficient to meet the
Company's operating expenses and capital requirements through fiscal 1998,
the Company's future liquidity and capital requirements will depend on
numerous factors, including regulatory actions by the FDA and other
international regulatory bodies, market acceptance of its products, expansion
of the Company's marketing and sales activities and the cost of intellectual
property protection. The Company may, however, seek additional equity or debt
financing to fund further expansion of its manufacturing capacity, or to fund
other projects or acquisitions. The timing and amount of such capital
requirements cannot be precisely determined at this time and will depend on a
number of factors, including demand for the Company's products, product mix
changes, industry conditions and competitive factors. There can be no
assurance that if it becomes necessary to raise additional capital, that such
capital will be available on acceptable terms, if at all.
40
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Metra Biosystems, Inc.:
We have audited the accompanying consolidated balance sheets of Metra
Biosystems, Inc. and subsidiaries (the Company) as of June 30, 1996 and 1995,
and the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the years in the three-year period
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metra
Biosystems, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for investments to adopt the provisions of
the Financial Accounting Standards Board's (FASB) Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," effective July 1, 1994.
KPMG Peat Marwick LLP
San Francisco, California
July 18, 1996
41
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and 1995
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,217 $ 2,317
Securities available-for-sale, at market 26,283 1,000
Accounts receivable, net of allowance for doubtful accounts
of $101 and $33 at June 30, 1996 and 1995, respectively 1,266 518
Interest receivable 578 42
Inventories 1,040 638
Prepaid expenses and other current assets 249 200
--------- --------
Total current assets 48,633 4,715
Property and equipment, net 4,314 1,898
Securities available-for-sale, at market 6,747 -
Other assets 499 787
--------- --------
$ 60,193 $ 7,400
--------- --------
--------- --------
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations $ 407 $ 52
Accounts payable trade 2,185 1,055
Accrued expenses 1,810 849
--------- --------
Total current liabilities 4,402 1,956
Long-term portion of capital lease obligations 1,367 40
--------- --------
Total liabilities 5,769 1,996
Mandatorily redeemable convertible preferred stock; $.001 par
value; 9,333,333 shares authorized; no shares and 5,324,685
shares issued and outstanding at June 30, 1996 and 1995,
respectively; liquidation preference of $23,797 - 23,260
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $0.001 par value, 5,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $0.001 par value, 50,000,000 shares authorized;
12,598,768 and 874,095 shares issued and outstanding at
June 30, 1996 and 1995, respectively 13 1
Additional paid-in capital 94,539 990
Notes receivable from shareholders (90) (169)
Deferred compensation (79) (187)
Unrealized loss on securities available for sale (83) (1)
Cumulative translation adjustment 13 -
Accumulated deficit (39,889) (18,490)
--------- --------
Total shareholders' equity (deficit) 54,424 (17,856)
--------- --------
$ 60,193 $ 7,400
--------- --------
--------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 1996, 1995, and 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Revenues:
Product sales $ 4,413 $ 2,552 $ 1,439
Partner revenue 2,057 744 2,032
--------- -------- --------
Total revenues 6,470 3,296 3,471
--------- -------- --------
Operating expenses:
Cost of product sales 3,276 1,987 1,466
Research and development 4,308 3,717 2,899
Sales and marketing 7,725 2,881 1,366
General and administrative 3,070 1,851 1,480
Acquired in-process research and development 11,291 - -
--------- -------- --------
Total operating expenses 29,670 10,436 7,211
Loss from operations (23,200) (7,140) (3,740)
--------- -------- --------
Interest income 1,947 367 220
Interest expense (106) (30) (55)
Other miscellaneous expense (40) - -
--------- -------- --------
Net other income 1,801 337 165
--------- -------- --------
Net loss $ (21,399) $ (6,803) $ (3,575)
--------- -------- --------
--------- -------- --------
Net loss per share $ (2.04) $ (1.08) $ (0.69)
--------- -------- --------
--------- -------- --------
Weighted average shares used to compute
net loss per share 10,515 6,303 5,156
--------- -------- --------
--------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Deficit)
Years ended June 30, 1996, 1995, and 1994
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Unrealized
Notes loss on
Common stock Additional receivable securities
----------------- paid-in from Deferred available-
Shares Amount capital shareholders compensation for-sale
------ ------ ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of June 30, 1993 519,589 $ 1 $ 42 $ (23) $ - $ -
Issuance of common stock under
stock option plan 225,199 - 57 (36) - -
Repurchase of common stock (15,278) - (4) - - -
Net loss - - - - - -
---------- ---- ------- ------ ------ ------
Balances as of June 30, 1994 729,510 1 95 (59) - -
Issuance of common stock
under stock option plan 111,253 - 120 (110) - -
Issuance of common stock under
agreement for licensed
technology 33,332 - 200 - - -
Deferred compensation related
to granting of stock options - - 575 - (575) -
Amortization of deferred
compensation - - - - 388 -
Unrealized loss on securities
available-for-sale - - - - - (1)
Net loss - - - - - -
---------- ---- ------- ------ ------ ------
Balances as of June 30, 1995 874,095 1 990 (169) (187) (1)
Issuance of common stock under
stock option plan 79,813 - 85 79 - -
Issuance of common stock
related to acquisition of
Osteo 541,072 1 10,000 - - -
Conversion of preferred stock
into common stock 5,324,685 5 23,255 - - -
Conversion of warrants into
common stock 9,989 - - - - -
Issuance of common stock
under Employee Stock
Purchase Plan 19,114 - 120 - - -
Issuance of common stock
related to public offerings 5,750,000 6 60,089 - - -
Amortization of deferred
compensation - - - - 108 -
Translation adjustment - - - - - -
Unrealized loss on securities
available-for-sale - - - - - (82)
Net loss - - - - - -
---------- ---- ------- ------ ------ ------
Balances as of June 30, 1996 12,598,768 $ 13 $94,539 $ (90) $ (79) $ (83)
---------- ---- ------- ------ ------ ------
---------- ---- ------- ------ ------ ------
<CAPTION>
Total
Cumulative shareholders'
translation Accumulated equity
adjustment deficit (deficit)
----------- ----------- -------------
<S> <C> <C> <C>
Balances as of June 30, 1993 $ - $ (8,112) $ (8,092)
Issuance of common stock under
stock option plan - - 21
Repurchase of common stock - - (4)
Net loss - (3,575) (3,575)
-------- --------- --------
Balances as of June 30, 1994 - (11,687) (11,650)
Issuance of common stock
under stock option plan - - 10
Issuance of common stock under
agreement for licensed
technology - - 200
Deferred compensation related
to granting of stock options - - -
Amortization of deferred
compensation - - 388
Unrealized loss on securities
available-for-sale - - (1)
Net loss - (6,803) (6,803)
-------- --------- --------
Balances as of June 30, 1995 - (18,490) (17,856)
Issuance of common stock under
stock option plan - - 164
Issuance of common stock
related to acquisition of
Osteo - - 10,001
Conversion of preferred stock
into common stock - - 23,260
Conversion of warrants into
common stock - - -
Issuance of common stock
under Employee Stock
Purchase Plan - - 120
Issuance of common stock
related to public offerings - - 60,095
Amortization of deferred
compensation - - 108
Translation adjustment 13 - 13
Unrealized loss on securities
available-for-sale - - (82)
Net loss - (21,399) (21,399)
-------- --------- --------
Balances as of June 30, 1996 $ 13 $(39,889) $54,424
-------- --------- --------
-------- --------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995, and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(21,399) $ (6,803) $ (3,575)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 610 543 434
Inventory reserve 66 172 13
Compensation expenses paid in stock 108 588 -
Forgiveness of notes receivable from officers 29 57 38
Loss on disposition of property and equipment 19 16 -
Write-off of in-process research and development 11,291 - -
Changes in operating assets and liabilities:
Trade accounts and interest receivable (1,284) (187) (271)
Inventories (468) (439) (305)
Other current assets and other assets (1,046) (777) (119)
Accounts payable and accrued expenses 1,344 1,000 440
--------- --------- ----------
Net cash used in operating activities (10,730) (5,830) (3,345)
Cash flows from investing activities:
Purchases of investment securities (46,837) (1,571) -
Maturities of investment securities 14,725 2,109 -
Purchases of temporary investments - - (2,428)
Maturities and sales of temporary investments - - 889
Purchases of property and equipment (3,048) (657) (1,200)
Proceeds from sale of property and equipment - 15 -
Notes receivable from officers - (170) (36)
Repayment of notes receivable from officers 79 - -
--------- --------- ----------
Net cash used in investing activities (35,081) (274) (2,775)
Cash flows from financing activities:
Proceeds from sales of mandatorily redeemable convertible
preferred stock, net of offering costs - - 11,644
Proceeds from capital lease financing 1,922 - -
Repayment of capital lease obligations (240) (201) (150)
Proceeds from sales of common stock 61,029 120 57
Repurchase of common stock - - (4)
--------- --------- ----------
Net cash provided by (used in) financing activities 62,711 (81) 11,547
Net increase (decrease) in cash and cash equivalents 16,900 (6,185) 5,427
--------- --------- ----------
Cash and cash equivalents at beginning of year $ 2,317 $ 8,502 $ 3,075
--------- --------- ----------
--------- --------- ----------
Cash and cash equivalents at end of year $ 19,217 $ 2,317 $ 8,502
--------- --------- ----------
--------- --------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 106 $ 30 $ 55
Supplemental disclosure of noncash investing and
financing activities:
Assets acquired from purchase of Osteo Sciences
Corporation $ (605) $ - $ -
Liabilities assumed from purchase of Osteo Sciences
Corporation $ 686 - -
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY
Metra Biosystems, Inc. ("Metra" or the "Company") was incorporated on
March 21, 1990. Since the commencement of operations the Company has
been engaged in the development and commercialization of diagnostic
products for the detection and management of metabolic bone diseases
and disorders.
In December 1993, the Company incorporated a wholly-owned subsidiary,
Metra Biosystems (U.K.) Ltd., that is responsible for the
commercialization of Metra's products in Europe. In October 1995, the
Company opened a branch office of Metra Biosystems (U.K.) Ltd., Metra
Biosystems (Italy) Ltd., that is responsible for the commercialization
of Metra's products in Italy.
In July 1995, the Company consummated its initial public offering of
its common stock resulting in the issuance of 3,450,000 shares of
common stock to the public at $10.00 per share. Net proceeds received
from the offering were approximately $31,358,000. In April 1996, the
Company issued another 2,300,000 shares of common stock in a follow-on
offering at $13.50 per share. Net proceeds received from this second
offering were approximately $28,737,000.
(b) DEVELOPMENTAL STAGE ENTERPRISE
For the year ended June 30, 1994, the Company was considered to be in
the development stage and was engaged principally in research and
development activities. As of June 30, 1995, the Company was no longer
considered to be a developmental stage enterprise as principal
operations had commenced.
(c) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. The
operations of Osteo Sciences Corporation are included in the Company's
results of operations beginning February 1, 1996.
(d) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity of less than 90 days to be cash equivalents.
(e) INVENTORIES
Inventories are stated at the lower of cost or market, with cost
determined on a first-in, first-out basis.
(f) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
respective assets, generally three to five years. Assets under capital
leases and leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or the estimated useful lives
of the related assets.
46
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
(g) INTANGIBLE ASSETS
Included in other assets for the year ended June 30, 1995 were
intangible assets consisting primarily of licensed technology.
Intangible assets have been amortized on a straight-line basis over the
estimated useful lives of the assets, primarily eight years.
The Company assesses the recoverability of intangible assets by
determining whether the amortization of the asset's balance over its
remaining life can be recovered through projected undiscounted future
cash flows. Intangible assets are expensed if the Company determines
that the amortization of the asset's balance will not be recovered
through projected future cash flows. Intangible assets related to
acquired in-process research and development are expensed when incurred.
(h) PARTNER REVENUE
Partner revenue consists principally of milestone payments, licensing
fees and proceeds from sales of reagents to collaborative partners for
research purposes.
(i) INCOME TAXES
The Company accounts for income taxes under the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires an
asset and liability approach for the financial reporting of income
taxes. Under SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(j) MARKETING COSTS
All costs related to marketing and advertising the Company's products
are expensed in the period incurred.
(k) FOREIGN CURRENCY
Foreign currency transactions and financial statements are translated
into U.S. dollars at current rates, except that revenue, costs and
expenses are translated at average rates during each reporting period.
Gains and losses resulting from foreign currency transactions and
intercompany balances expected to be paid in the foreseeable future are
included in results of operations. Gains and losses resulting from
translation of financial statements are excluded from results of
operations and are reflected as a cumulative translation adjustment,
which is reported as part of shareholders' equity (deficit). Translation
and transaction gains and losses for the years ended June 30, 1996, 1995
and 1994 were insignificant.
(l) STOCK SPLIT
In April 1995, the Company's Board of Directors approved a one-for-six
reverse split of the Company's common and preferred stock. All
references in the accompanying financial statements to the number of
shares of common stock and per share amounts have been retroactively
restated to reflect this stock split.
47
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
(m) REVENUE RECOGNITION
Revenue from development contracts is recognized as the relevant
technical milestones are attained. Revenue from product sales is
recognized upon product shipment when title passes to the buyer.
(n) NET LOSS PER SHARE
Except as noted below, net loss per share is computed using the
weighted average number of shares of common stock outstanding. Common
equivalent shares from stock options and warrants are excluded from the
computation as their effect is anti-dilutive, except that, pursuant to
the Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock issued for consideration below the Company's initial
public offering (IPO) price and stock options granted with exercise
prices below the IPO price during the 12-month period preceding the
date of the initial filing of the Registration Statement, even when
anti-dilutive, have been included in the calculation of common
equivalent shares for periods prior to the closing of the Company's
IPO, using the treasury stock method based on the initial public
offering price, as if they were outstanding for all periods presented.
Furthermore, pursuant to Securities and Exchange Commission staff
policy, common equivalent shares from convertible preferred stock and
warrants that were converted upon the completion of the Company's IPO
are included (using the as if-converted method) for periods prior to
the closing of the Company's IPO.
(o) MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. As of June 30, 1996, approximately 14% of recorded trade
receivables were concentrated with one customer. As of June 30, 1995,
approximately 22% of recorded trade receivables were concentrated with
two customers. To reduce credit risk, the Company performs ongoing
credit evaluations of its customers' financial condition. The Company
does not generally require collateral on credit sales to its customers.
The Company earns revenues primarily through product sales through
distributors and through collaborative agreements with partners.
Revenues from one corporate partner constituted 16%, 13% and 29% of
total revenues for the years ended June 30, 1996, 1995 and 1994,
respectively. Revenues from two corporate collaborators constituted 16%
and 13%, respectively, of total revenues for the year ended June 30,
1994. Product revenues from two distributors constituted 12% and 11%,
respectively, of total revenues for the year ended June 30, 1995.
Product revenues from one customer constituted 12% of total revenues
for the year ended June 30, 1996.
(p) USE OF ESTIMATES
The Company's management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and revenues and
expenses and the disclosure of contingent liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(q) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
48
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
(2) FINANCIAL INSTRUMENTS
(a) MARKETABLE SECURITIES
In accordance with the requirements of SFAS 115, the Company has
classified its investments in certain debt and equity securities as
"available-for-sale." Such investments are recorded at fair value, as
determined by quoted market values as of June 30, 1996 and 1995, with
unrealized gains and losses, deemed by the Company as temporary in
nature, reported as a separate component of shareholders' equity
(deficit). There were no sales of investments during 1996, 1995 or 1994.
Available-for-sale securities consisted of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------ -------------------------------------------
Adjusted Unrealized Unrealized Fair Adjusted Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------- ---------- ---------- ------- -------- ---------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securities $ 8,527 $ - $ (11) $ 8,516 $ - $ - $ - $ -
Mortgage-backed securities 12,148 1 (17) 12,132 - - - -
Corporate debt securities 12,188 - (14) 12,174 1,001 - (1) 1,000
------- ---- ----- ------- ------ ----- ------ ------
32,863 1 (42) 32,822 1,001 - (1) 1,000
Marketable equity securities 250 - (42) 208 - - - -
------- ---- ----- ------- ------ ----- ------ ------
$33,113 $ 1 $ (84) $33,030 $1,001 $ - $ (1) $1,000
------- ---- ----- ------- ------ ----- ------ ------
------- ---- ----- ------- ------ ----- ------ ------
</TABLE>
The cost and estimated fair value of securities available-for-sale as of
June 30, 1996, by contractual maturity, consisted of the following:
<TABLE>
<CAPTION>
Adjusted Fair
cost value
-------- -------
(in thousands)
<S> <C> <C>
Due in one year or less $ 14,412 $ 14,359
Due in one to three years 6,552 6,539
-------- --------
20,964 20,898
Mortgage-backed securities 12,149 12,132
-------- --------
$ 33,113 $ 33,030
-------- --------
-------- --------
</TABLE>
(b) OTHER FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial
instruments, other than those accounted for in accordance with SFAS
115, approximate their fair values for all periods presented
49
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
(3) INVENTORIES
Inventories consist of the following:
June 30,
-------------------------
1996 1995
-------- ----------
(in thousands)
Raw materials $ 216 $ 149
Finished goods 824 489
------- ------
$ 1,040 $ 638
------- ------
------- ------
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment, net follows:
June 30,
-------------------------
1996 1995
-------- ----------
(in thousands)
Machinery and equipment $ 3,014 $ 2,193
Furniture and fixtures 164 149
Leasehold improvements 2,987 436
Construction in progress - 300
------- -------
6,165 3,078
Less accumulated depreciation and
amortization (1,851) (1,180)
------- -------
$ 4,314 $ 1,898
------- -------
------- -------
Included in property and equipment is approximately $2,063,000,
$250,000 and $671,000 of equipment recorded under capital lease
agreements at June 30, 1996, 1995 and 1994, respectively. Accumulated
amortization related to this equipment was approximately $367,000,
$164,000 and $426,000 as of June 30, 1996, 1995, and 1994,
respectively. During the years ended June 30, 1996 and 1995, the
Company retired fully depreciated property and equipment having a
historical cost of $247,000 and $17,000, respectively.
(5) OTHER CURRENT AND NON-CURRENT ASSETS
(a) EMPLOYEE NOTES RECEIVABLE
Included in other current assets are $34,000 and $29,000 of employee
notes receivable at June 30, 1996, and 1995, respectively. Included in
other assets are $74,000 and $37,000 of employee notes receivable at
June 30, 1996 and 1995, respectively.
50
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
(b) INTANGIBLE ASSETS
At June 30, 1995, intangible asset balances, which consisted primarily
of licensed technology, were $103,000, with $47,000 of accumulated
amortization. Amortization expense for the years ended June 30, 1996,
1995 and 1994 was $56,000, $10,000 and $123,000, respectively. Included
in amortization expense for the year ended June 30, 1996 was the
write-off of certain intangible assets with a net value of $48,000 that
were considered to no longer have continuing value.
(6) ACCRUED EXPENSES
A summary of accrued expenses follows:
June 30,
-------------------------
1996 1995
-------- -------
(in thousands)
Promotional and educational
marketing expenses $ 422 $ -
Payroll-related 363 219
Initial public offering costs - 203
Other 1,025 427
------ ------
$1,810 $ 849
------ ------
------ ------
(7) LEASE COMMITMENTS
The Company leases certain equipment and its facilities under leases
classified as capital and operating leases, respectively. These leases
expire at various dates through 2001. Future minimum lease payments
relating to these non-cancelable leases are as follows:
Capital Operating
leases leases
--------- ----------
Year ended June 30: (in thousands)
------------------
1997 $ 577 $ 371
1998 531 317
1999 531 311
2000 533 311
2001 - 285
------- -------
Total minimum lease payments 2,172 $ 1,595
------- -------
-------
Less amount representing interest (398)
-------
Present value of minimum lease payments 1,774
-------
Less current portion of capital lease
obligations (407)
-------
Long-term portion of capital lease
obligations $ 1,367
-------
-------
51
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
In December 1995, the Company entered into two new leasing arrangements
to finance a $2,750,000 equipment lease facility of which $1,922,000
was utilized as of June 30, 1996. At June 30, 1995 the Company had
utilized $250,000 of a $750,000 equipment lease facility. In connection
with this lease facility, the Company issued a warrant to the lessor to
purchase 14,150 shares of Series C mandatorily redeemable convertible
preferred stock at $2.94 per share. The warrant was exercised in July,
1995 in connection with the Company's IPO and the preferred shares were
converted into common shares. The lease agreement requires that
security deposits of approximately $28,000 be made if cash and
short-term investment balances fall below $2,500,000 and an additional
$21,000 if cash balances fall below $1,500,000.
Interest expense related to capital leases was $106,000, $30,000 and
$55,000 for the years ended June 30, 1996, 1995 and 1994,
respectively.
Rent expense for the years ended June 30, 1996, 1995, and 1994 was
approximately $322,000, $169,000 and $377,000, respectively.
(8) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Prior to the Company's IPO, the Company was authorized to issue
9,333,333 shares of $0.001 par value preferred stock. As of June 30,
1995, 32,424 shares had not been designated. Upon the closing of the
Company's initial public offering in July 1995, 5,324,685 shares of
preferred stock were automatically converted into an equal number of
shares of common stock. A summary of preferred stock as of June 30,
1995 follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Series A; 92,592 shares designated, issued, and outstanding $ 28
Series B; 1,134,256 shares designated; 1,134,256 shares issued
and outstanding, net of offering costs of $11,000 2,438
Series C; 278,779 shares designated; 264,628 shares issued
and outstanding, net of offering cost of $9,000 771
Series D; 1,874,988 shares designated; 1,874,988 shares issued
and outstanding, net of offering costs of $34,000 8,404
Series D-1; 1,874,988 shares designated; none issued or outstanding -
Series E; 2,022,653 shares designated; 1,958,221 shares issued
and outstanding, net of offering costs of $482,000 11,619
Series E-1; 2,022,653 shares designated; none issued or outstanding -
-------
$23,260
-------
-------
</TABLE>
The rights, preferences, and privileges of holders of the mandatorily
redeemable preferred shareholders (the Preferred Shareholders) were as
follows: Preferred Shareholders were entitled to non-cumulative
dividends, if declared by the Board of Directors, payable in preference
to common stock dividends. No such dividends were declared. Preferred
Shareholders had a liquidation preference to common shareholders. Each
share of preferred stock was convertible at any time into common stock,
with automatic conversion upon an initial public offering in excess of
$7,500,000 at a minimum price of not less than $10.00 per share. Each
share of preferred stock voted equally with shares of common stock on
an "if converted" basis. The rights, preferences, and privileges of the
Preferred Shareholders were protected by certain anti-dilution
provisions.
52
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
(9) SHAREHOLDERS' EQUITY (DEFICIT)
(a) COMMON STOCK
The Company is authorized to issue 50,000,000 shares of $0.001 par
value common stock. Since inception, 289,165 shares of common stock
have been issued to certain individuals under stock purchase agreements
that permit the Company to repurchase, at the original issuance price,
a portion of such shares in the event an individual shareholder ceases
to be associated with the Company. The shares subject to repurchase
generally expire on a pro-rata basis over a four-year period. As of
June 30, 1996 and 1995, there were approximately 51,563 and 85,522
shares, respectively, subject to repurchase.
(b) PREFERRED STOCK
Effective upon the closing of the Company's IPO, which occurred in July
1995, the Board of Directors received the authority to issue up to
5,000,000 shares of $0.001 par value preferred stock, to determine the
powers, preferences and rights and the qualifications, limitations or
restrictions granted to or imposed upon any unissued series of
undesignated preferred stock and to fix the number of shares
constituting any series and the designation of such series, without any
further vote or action by the Company's shareholders. No shares were
issued or outstanding at June 30, 1996.
(10) STOCK OPTION PLANS
(a) 1990 INCENTIVE STOCK PLAN
The Company has reserved 700,000 shares for issuance under its 1990
Incentive Stock Plan (the Stock Plan) which provides for stock options
to be granted to employees (including consultants, officers, and
directors). The term of a stock option may not exceed 10 years. Options
granted to each employee under the Stock Plan generally become
exercisable at the rate of 12.5% of the total number of shares subject
to the options after the six month period from the date of grant, and
approximately 2% each month thereafter subject to continued service to
the Company. The exercise price of all incentive stock options granted
under the Stock Plan must be at least equal to the fair market value of
the common stock of the Company on the date of grant. The exercise
price of all nonstatutory stock options must equal at least 85% of the
fair market value of the common stock on the date of grant. The
exercise price of any incentive stock option granted to an optionee who
owns stock possessing more than 10% of the voting power of all classes
of stock of the Company's outstanding capital stock must equal at least
110% of the fair market value of the common stock on the date of grant.
Payment of the exercise price may be made in cash, promissory notes,
common stock of the Company owned by the optionee for more than six
months or other consideration as determined by the Board of Directors
or a committee of the Board.
The Company has recorded deferred compensation of $575,000 related to
certain of the Company's common stock options granted for the year
ended June 30, 1995 under the Stock Plan. This amount is being
amortized over the relevant period of benefit. For the years ended June
30, 1996 and 1995, $108,000 and $388,000, respectively, was amortized
53
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
The following table summarizes option activity under the 1990 Incentive
Stock Plan:
<TABLE>
<CAPTION>
Options Total Price
available options per
for grant outstanding share
--------- ----------- -------------
<S> <C> <C> <C>
Balances as of June 30, 1993 146,647 323,778 $0.03 - $0.48
Options authorized 166,667 - -
Options granted (78,318) 78,318 0.48 - 1.20
Options exercised, net of repurchases - (209,921) 0.24 - 0.48
Options canceled 27,493 (27,493) 0.24 - 0.48
-------- --------
Balances as of June 30, 1994 262,489 164,682 0.03 - 1.20
Options granted (272,707) 272,707 1.20 - 9.00
Options exercised - (111,253) 0.48 - 1.20
Options canceled 24,477 (24,477) 0.48 - 1.20
-------- --------
Balances as of June 30, 1995 14,259 301,659 0.03 - 9.00
Options exercised - (77,386) 0.03 - 9.00
Options canceled 35,516 (35,516) 0.48 - 9.00
-------- --------
Balances as of June 30, 1996 49,775 188,757 $0.03 - $9.00
-------- --------
-------- --------
</TABLE>
At June 30, 1996, 1995, and 1994, options for 103,569, 119,169, and
70,086 shares, respectively, had vested. Also, see note 18.
Upon adoption of the Company's 1995 Stock Option Plan, the Company's
Board of Directors determined to make no further grants under the 1990
Incentive Stock Plan.
(b) 1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the 1995 Option Plan) was adopted
by the Board of Directors in April 1995 and was approved by the
Company's shareholders in June 1995. An aggregate of 1,000,000 shares
of the Company's common stock are reserved for issuance under the 1995
Option Plan. The 1995 Option Plan provides for the granting to
employees (including officers and employee directors) of incentive
stock options and for the granting to employees and consultants of
nonstatutory stock options. The 1995 Option Plan may be administered by
the Board of Directors or a committee of the Board (the Administrator).
The Administrator determines the terms of options granted under the
1995 Option Plan, including the number of shares subject to the option,
exercise price, term and exercisability. The exercise price of all
incentive stock options granted under the 1995 Option Plan must be at
least equal to the fair market value of the common stock of the Company
on the date of grant. The exercise price of any incentive stock option
granted to an optionee who owns stock representing more than 10% of the
voting power of the Company's outstanding capital stock must equal at
least 110% of the fair market value of the common stock on the date of
grant. Payment of the exercise price may be made in cash, promissory
notes or other consideration as determined by the Administrator. The
Administrator determines the term of options. With respect to any
participant who owns stock possessing more than 10% of the voting power
of all classes of stock of the Company, the maximum term of the option
must not exceed five years. The term of all other options may not
exceed ten years. If not terminated earlier, the 1995 Option Plan will
terminate in 2005. The Administrator has the authority to amend or
terminate the 1995 Option Plan as long as such action does not
adversely affect any outstanding option.
54
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
The following table summarizes option activity under the 1995 Stock
Option Plan:
<TABLE>
<CAPTION>
Options Total Price
available options per
for grant outstanding share
--------- ----------- --------------
<S> <C> <C> <C>
Balances as of June 30, 1995 - - -
Options authorized 1,000,000 - -
Options granted (937,733) 937,733 $ 6.50 - $20.88
Options exercised - (2,427) 12.00 - 14.50
Options canceled 314,013 (314,013) 12.00 - 20.88
--------- --------
Balances as of June 30, 1996 376,280 621,293 $ 6.50 - $19.81
--------- --------
--------- --------
</TABLE>
At June 30, 1996, options for 35,820 shares had vested. Also, see note
18.
(c) 1995 DIRECTOR STOCK OPTION PLAN
The 1995 Director Stock Option Plan (the Directors' Plan) was adopted
by the Board of Directors in April 1995 and was approved by the
Company's shareholders in June 1995. A total of 200,000 shares of
common stock has been reserved for issuance under the Directors' Plan.
The Directors' Plan provides for the grant of nonstatutory stock
options to nonemployee directors of the Company. The Directors' Plan
provides that each person who is a nonemployee director of the Company
on the date of the Company's IPO and each person who first becomes a
nonemployee director of the Company after the date of the Company's IPO
shall be granted a nonstatutory stock option to purchase 10,000 shares
of common stock (the First Option) on the effective date of the
Company's IPO or on the date on which the optionee first becomes a
nonemployee director of the Company. Thereafter, on the date of each
annual meeting of the Company's shareholders at which such director is
elected, each such nonemployee director shall be granted an additional
option to purchase 5,000 shares of common stock (a Subsequent Option)
if, on such date, he or she shall have served on the Company's Board of
Directors for at least six months. The Directors' Plan provides that
the First Option shall become exercisable in installments as to 25% of
the total number of shares subject to the First Option on each of the
first, second, third and fourth anniversaries of the date of grant of
the First Option; each Subsequent Option shall become exercisable in
full on the first anniversary of the date of grant of that Subsequent
Option. The exercise price of all stock options granted under the
Directors' Plan shall be equal to the fair market value of a share of
the Company's common stock on the date of grant of the option. Options
granted under the Directors' Plan have a term of ten years.
In connection with the Company's IPO becoming effective on June 30,
1995, options to purchase 70,000 shares of common stock at an exercise
price of $10.00 per share were granted under the Directors' Plan.
55
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
(d) 1995 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1995 Employee Stock Purchase Plan (the Purchase Plan) was
adopted by the Board of Directors in April 1995 and was approved by the
shareholders in June 1995. A total of 200,000 shares of common stock
has been reserved for issuance under the Purchase Plan. The Purchase
Plan will be implemented by two six-month offering periods each year.
The Purchase Plan will be administered by the Board of Directors or by
a committee appointed by the Board. Employees (including officers and
employee directors) of the Company, or of any majority owned subsidiary
designated by the Board, are eligible to participate if they are
customarily employed by the Company or any such subsidiary for at least
20 hours per week and more than five months per year. The Purchase Plan
permits eligible employees to purchase common stock through payroll
deductions, which may not exceed 5% of an employee's compensation, at a
price equal to the lower of 85% of the fair market value of the
Company's common stock at the beginning or end of the offering period.
Common stock purchased under the Purchase Plan must be held for a
period of six months before it may be sold. Employees may end their
participation in the offering at any time during the offering period,
and participation ends automatically on termination of employment with
the Company.
As of June 30, 1996, 19,114 shares had been purchased under the Purchase
Plan.
(e) FUTURE ADOPTION OF NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board recently issued SFAS No. 123,
Accounting for Stock-Based Compensation. This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans, including employee stock purchase plans and stock
option plans. Adoption of SFAS No. 123 is required for fiscal years
beginning after December 15, 1995. Management plans to remain on APB
No. 25, Accounting for Stock Issued to Employees, for purposes of
measurement of compensation expense. Therefore, adoption of SFAS No.
123 will not have a material effect on the Company's consolidated
results of operations.
(f) NOTES RECEIVABLE FROM SHAREHOLDERS
At June 30, 1996, the Company had two notes receivable outstanding from
shareholders totaling $90,000 for purchases of common stock at an
interest rate of 7.60%. At June 30, 1995, the Company had five notes
receivable outstanding from shareholders totaling $169,000 for
purchases of common stock at interest rates ranging from 5.47% to
7.60%. Full payment of principal and accrued interest on the notes is
due four years from the date of purchase of the common stock.
(11) DEVELOPMENT AND LICENSE AGREEMENTS
The Company has a significant number of development and license
agreements. Revenues earned from milestone and licensing fees under
development and license agreements were $1,670,000, $414,000 and
$1,817,000 for the years ended June 30, 1996, 1995 and 1994,
respectively. No royalty payments have been received by the Company.
Other partner revenues were earned for sales of reagents to customers.
Development and license agreements which involve significant financial
commitments include the following:
56
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
SUMITOMO PHARMACEUTICALS CO., LTD.
In March 1993, the Company entered into a research and development
agreement with Sumitomo Pharmaceuticals Co., Ltd. (Sumitomo). Under the
terms of the agreement, the Company will update existing, and develop
new, diagnostic assay kits for the detection and management of bone and
other connective tissue diseases. The distribution and marketing rights
for these kits in Japan will be held by Sumitomo. Under certain
circumstances, Sumitomo will also have the right to acquire marketing
and distribution rights in certain Asian markets. Under the agreement,
the Company will also manufacture and supply the products at formula
prices which are subject to periodic renegotiation. The term of the
agreement is for an initial ten-year period with options to extend the
term upon mutual consent. Sumitomo has the right to terminate the
agreement upon six months written notice. Payments for certain ongoing
costs of research and development incurred by the Company are payable
to the Company under the agreement upon the achievement of certain
milestones and regulatory approvals.
In June 1994 and February 1995, the Company entered into two additional
agreements with Sumitomo, granting Sumitomo certain additional
marketing and distribution rights. These agreements call for Sumitomo
to pay the Company certain amounts upon the achievement of certain
milestones and regulatory approvals.
DIAGNOSTIC PRODUCTS CORPORATION
In December 1993, the Company entered into a three-year agreement with
automatic one-year renewal periods unless terminated by either party
with Diagnostic Products Corporation (DPC) under which DPC received a
license to format the Company's assays for use on DPC's Immulite
automated testing systems. The agreement calls for DPC to manufacture
the licensed products and for the Company to purchase the licensed
products from DPC and sell and distribute them to users of Immulite
systems. Provided that DPC places a specific minimum number of Immulite
units worldwide, the Company is required to purchase a specific minimum
number of product kits from DPC during the first three years following
commercialization of the product. The Company's minimum purchase
commitments could equal $2,031,000 provided DPC achieves certain
milestones. The Company is also obligated to pay DPC a royalty on
future sales of the product kits.
57
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
OTHER
In May 1990, the Company licensed certain technology from The Rowett
Research Institute (Rowett) in exchange for 25,000 shares of common
stock, an obligation to pay royalties on a percentage of net sales for
a period of 10 years and an obligation to issue additional common stock
upon attainment of certain milestones. In February 1994, the first
milestone was attained in the United Kingdom. Accordingly, in September
1994, the Company issued 16,666 shares of common stock to Rowett valued
at $3.00 per share. In May, 1995, the other milestone was attained and
the Company issued the second 16,666 shares of common stock to Rowett
valued at $9.00 per share.
(12) OWNERSHIP IN MEDICAL DEVICE COMPANY
In June 1994, the Company entered into a collaborative agreement with
Norian Corporation, creating a new company, Orquest, Inc. Orquest
intends to commercialize novel collagen matrix technology to promote
bone and cartilage regeneration to be utilized in skeletal
reconstruction and traumatic fracture repair.
In exchange for certain technology rights having no book basis, the
Company owned approximately 4.23% and 7.85% of Orquest at June 30, 1996
and 1995, respectively. The Company accounts for this investment using
the cost method.
58
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
(13) INCOME TAXES
As discussed in note 1, the Company adopted SFAS No. 109 effective as
of July 1, 1993 on a prospective basis. The cumulative effect of this
change in accounting for income taxes did not have a significant effect
on the consolidated financial statements.
Due to the operating losses incurred since inception, income tax
expense for all periods has consisted only of minimum state taxes.
Income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34% of pretax losses as a result of the
following:
June 30,
-----------------------------------
1996 1995 1994
-------- -------- --------
Computed "expected" tax benefit $ (7,276) $ (2,313) $ (1,216)
Losses and credits for which no
benefit has been recognized 3,139 1,988 1,202
Purchased research and development 3,839 - -
Change in the beginning of the
year valuation allowance,
including use of net operating
loss carryforwards and
foreign losses 280 315 7
Other 18 10 7
-------- -------- --------
$ - $ - $ -
-------- -------- --------
-------- -------- --------
59
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
The tax effect of temporary differences that give rise to significant
portions of the Company's deferred tax assets and liabilities is
presented below:
Year ended June 30,
-----------------------------------
1996 1995 1994
-------- -------- --------
(in thousands)
Deferred tax assets:
Employee benefit reserves,
including accrued vacation $ 64 $ 62 $ 39
Other operating reserves 173 119 44
Amortization of deferred
compensation 199 156 -
Inventory capitalization 162 31 91
Start-up and other capitalization 140 193 105
Patent and licensed technology
amortization 113 129 59
Charitable contribution 19 13 1
Net operating loss carryover 10,090 6,055 4,055
Research credit 631 514 403
-------- -------- --------
Total gross deferred
tax assets 11,591 7,272 4,797
-------- -------- --------
Less valuation allowance (11,569) (7,214) (4,683)
-------- -------- --------
Net deferred tax assets 22 58 114
-------- -------- --------
Deferred tax liabilities:
Federal depreciation in excess
of books 22 58 114
-------- -------- --------
Net deferred tax asset $ - $ - $ -
-------- -------- --------
-------- -------- --------
The valuation allowance for deferred tax assets as of July 1, 1994 was
$4,683,000. The net change in the valuation allowance for the years
ended June 30, 1996 and 1995 was an increase of $4,355,000 and
$2,531,000, respectively. Management believes significant uncertainty
exists regarding the ability to realize the Company's deferred tax
assets and accordingly, a valuation allowance has been established.
When realized, approximately $231,000 of deferred tax assets will be
credited to paid-in-capital.
As of June 30, 1996, 1995 and 1994, the Company had federal tax net
operating loss carryforwards of approximately $27,193,000, $17,607,000
and $11,204,000, respectively, which expire in 2004 through 2010. The
Company also had foreign loss carryforwards of $806,000 at June 30,
1996 which extend indefinitely.
The Company also has federal research credit carryforwards of
approximately $436,000, $436,000 and $314,000 at June 30, 1996, 1995
and 1994, respectively, which will expire in 2004 through 2010.
State tax net operating loss carryforwards were approximately
$13,206,000, $8,545,000 and $5,393,000 and research and development
credit carryforwards were $295,000, $250,046 and $174,000 at June 30,
1996, 1995 and 1994, respectively. The state losses expire in 1997
through 2001 and the credits expire in 2004 through 2011.
The Company's ability to utilize federal and state net operating loss
carryforwards and research credits is subject to annual limitations
under certain provisions of the Internal Revenue Code.
60
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
(14) EMPLOYEE BENEFITS
The Company has a deferred savings 401(k) plan for its employees. The
Company may make matching contributions to the plan at its discretion.
To date, no contributions have been made by the Company to the plan.
(15) INDUSTRY AND GEOGRAPHIC INFORMATION
The Company markets its products in the United States and in foreign
countries through its sales personnel, dealers, and distributors.
Export sales account for a significant portion of the Company's product
sales which are summarized by geographic area as follows:
Year ended June 30,
-----------------------------------
1996 1995 1994
-------- -------- --------
(in thousands)
United States $ 987 $ 569 $ 403
Export sales:
Europe 2,279 1,231 649
Pacific Rim 917 624 331
Other international 230 128 56
-------- -------- --------
Total export sale 3,426 1,983 1,036
-------- -------- --------
Total product sales $ 4,413 $ 2,552 $ 1,439
-------- -------- --------
-------- -------- --------
(16) ACQUISITION OF OSTEO SCIENCES CORPORATION
On January 31, 1996, the Company purchased Osteo Sciences Corporation
("Osteo") in a tax free exchange which resulted in shareholders of
Osteo exchanging all of their shares of preferred and common stock for
shares of the Company's common stock. The Company issued 541,072 shares
of common stock to Osteo shareholders valued at approximately
$9,672,000 and assumed options to purchase 19,343 shares of the
Company's common stock valued at approximately $345,000. The
transaction was recorded using the purchase method of accounting and
resulted in the Company incurring a one-time charge of $11,291,000 for
acquired in-process research and development. The operations of Osteo
were included in the Company's results of operations beginning
February 1, 1996.
61
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
June 30, 1996 and 1995
The following pro forma information does not purport to be indicative
of what would have occurred had the acquisition been made as of those
dates or of results which may occur in the future. The pro forma
information does not include the write-offs of purchased in-process
research and development of $11,291,000. The following table shows pro
forma results of operations assuming the acquisition of Osteo had been
consummated at the beginning of the period presented:
Year ended June 30,
----------------------
1996 1995
-------- --------
(in thousands, except
per share amount)
Total Revenues $ 6,470 $ 3,296
-------- --------
-------- --------
Net loss before nonrecurring charges $(10,480) $ (7,492)
-------- --------
-------- --------
Net loss per share before nonrecurring
charges $ (0.97) $ (1.09)
-------- --------
-------- --------
Shares used in calculation of
per share amounts 10,787 6,844
-------- --------
-------- --------
(17) SUBSEQUENT EVENT (UNAUDITED)
On August 21, 1996, the Company's Board of Directors approved an option
exchange, subject to election by the option holders, whereby options to
purchase 588,465 shares of the Company's common stock at prices ranging
from $6.50 to $15.50 per share were canceled and reissued at $5.00 per
share which was the fair market value of the Company's common stock on
that date. The new options will generally vest over four years
beginning August 21, 1996.
62
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Registrant's directors will be set forth under the
caption "Election of Directors - Nominees" in Registrant's proxy statement
for use in connection with the 1996 Annual Meeting of Shareholders ("1996
Proxy Statement") and is incorporated herein by reference. The 1996 Proxy
Statement will be filed with the Securities and Exchange Commission within
120 days after the end of the Registrant's fiscal year.
Information regarding Registrant's executive and other officers is set
forth in this Form 10-K in Part I, Item 1.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Compensation
of Executive Officers" in the 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The caption "Common Stock Ownership of Certain Beneficial Owners and
Management" in the information required by this item is incorporated by
reference into this Form 10-K from the information set forth under the 1996
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Certain
Relationships and Related Transactions" in the 1996 Proxy Statement.
63
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) CERTAIN DOCUMENTS FILED AS PART OF THE FORM 10-K
1. Financial Statements Page
-------------------- ----
Consolidated Balance Sheets 42
Consolidated Statements of Operations 43
Consolidated Statements of Shareholders' Equity (Deficit) 44
Consolidated Statements of Cash Flows 45
Independent Auditors Report 41
2. Financial Statement Schedules
-----------------------------
SCHEDULE II. VALUATION ACCOUNTS
Provision
Balance at charged
beginnning to Accounts Balance at
of year operations written off end of year
- - -------------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended June 30, 1994 $ 5,000 $14,400 $(1,015) $ 18,385
Year ended June 30, 1995 18,385 22,000 (7,197) 33,188
Year ended June 30, 1996 33,188 70,500 (3,000) 100,688
INVENTORY RESERVES:
Year ended June 30, 1994 $ 78,744 $ 42,951 $ (29,999) $ 91,696
Year ended June 30, 1995 91,696 236,597 (64,248) 264,045
Year ended June 30, 1996 264,045 177,979 (112,105) 329,919
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
(b) REPORTS ON FORM 8-K
During the fourth quarter of 1996, the Company reported the signing of the
Agreement and Plan of Reorganization among the Company, Osteo Acquisition
Corporation and Osteo Sciences Corporation on Form 8-K under Item 5, Other
Events. The date of the event reported was January 31, 1996.
64
<PAGE>
(c) EXHIBITS
EXHIBIT
DESCRIPTION OF DOCUMENT NUMBER
- - -----------------------------------------------------------------------------
Articles of Incorporation of Registrant. 3.1*
Form of Amended and Restated Articles of Incorporation of Registrant. 3.2*
Bylaws of Registrant. 3.3*
Rights Agreement among the Registrant and certain security holders
of the Registrant, dated as of January 11, 1994. 4.2*
Form of Indemnification Agreement. 10.1*
1990 Incentive Stock Plan. 10.2*
Forms of agreements under 1990 Incentive Stock Plan. 10.2a*
1995 Stock Option Plan. 10.3*
Form of Option Agreement under 1995 Stock Option Plan. 10.3a*
1995 Employee Stock Purchase Plan. 10.4*
Form of Subscription Agreement under 1995 Employee Stock Purchase Plan. 10.4a*
1995 Directors' Stock Option Plan. 10.5*
Form of Option Agreement under 1995 Directors' Stock Option Plan. 10.5a*
Industrial Real Estate Lease (Single-Tenant Facility) and
Lease Addendum, dated November 1, 1993, between the
Registrant and State Teachers Retirement System, and
First Amendment, dated as of July 26, 1994, thereto. 10.6+*
License Agreement between the Registrant and The Rowett Research
Institute, dated as of April 30, 1990. 10.7+*
License Agreement between the Registrant and Collagen Corporation,
dated as of June 30, 1990. 10.8+*
Distribution and License Agreement between the Registrant and
Haematologic Technologies, Inc., dated as of September 1, 1992. 10.9+*
Product Research and Development Agreement between the Registrant
and Sumitomo Pharmaceuticals Co., Ltd., dated as of March 29, 1993. 10.10+*
License Agreement between the Registrant and Celtrix
Pharmaceuticals, Inc., dated as of July 28, 1993. 10.11+*
License, Supply and Development Agreement between the Registrant
and Hybritech Incorporated, dated as of September 15, 1993. 10.12+*
Development and License Agreement between the Registrant and
Ciba-Geigy Limited, dated as of June 26, 1990, as amended
by the Agreement between Registrant and Ciba-Geigy Limited,
dated as of November 5, 1993. 10.13+*
License, Supply and Development Agreement between the Registrant
and Ciba Corning Diagnostics Corp., dated as of November 5, 1993. 10.14+*
OEM Agreement between the Registrant and Diagnostic Products
Corporation, dated December 22, 1993. 10.15+*
Product Research and Development Agreement between the Registrant
and Sumitomo Pharmaceuticals Co., Ltd., dated as of June 29, 1994. 10.16+*
IDS OEM Agreement between the Registrant and Immunodiagnostic
Systems Ltd., dated as of January 19, 1995. 10.17+*
License Agreement between the Registrant and BioQuant, Inc.,
dated as of February 15, 1995. 10.18+*
Product Research and Development Agreement between the Registrant
and Sumitomo Pharmaceuticals Co., Ltd., dated as of
February 28, 1995. 10.19+*
International Distributor Agreement between the Registrant and
Amersham K.K., dated as of April 8, 1993. 10.20+*
International Distributor Agreement between the Registrant and
DPC Biermann GmbH, dated as of January 1, 1995. 10.21+*
Series D Preferred Stock Purchase Agreement, dated as of
January 17, 1992, among the Registrant and certain Investors
listed on Exhibit A thereto. 10.22*
Series E Preferred Stock Purchase Agreement, dated as of
January 11, 1994, among the Registrant and certain Investors
listed on Exhibit A thereto. 10.23*
Letter Agreement, dated as of May 24, 1991, between the Registrant
and George W. Dunbar, Jr. 10.24*
Letter Agreement, dated as of February 1, 1992, between the
Registrant and Ronald T. Steckel. 10.25*
Promissory Note, dated as of September 11, 1991, executed by
George W. Dunbar, Jr. and Lucy H. Dunbar in favor of the Registrant. 10.26*
Promissory Note, dated as of June 24, 1992, executed by
Ronald T. Steckel and Laurie A. Steckel in favor of the Registrant. 10.27*
Promissory Note, dated as of July 16, 1992, executed by
Ronald T. Steckel in favor of the Registrant. 10.28*
Promissory Note, dated as of July 18, 1993, executed by
George W. Dunbar, Jr. in favor of the Registrant. 10.29*
Promissory Note, dated as of November 1, 1994, executed by
Colette Z. Andrea in favor of the Registrant. 10.30*
Promissory Note, dated as of December 30, 1994, executed by
George W. Dunbar, Jr. in favor of the Registrant. 10.31*
Promissory Note, dated as of December 30, 1994, executed by
Colette Z. Andrea in favor of the Registrant. 10.32*
Promissory Note, dated as of December 30, 1994, executed by
Ronald T. Steckel in favor of the Registrant. 10.33*
License and Supply Agreement between the Registrant and
Bayer Corporation dated as of July 26, 1995. 10.34+*
Computation of Earnings Per Share. 11.1
List of Subsidiaries of the Registrant. 22.1*
Consent of KPMG Peat Marwick LLP, Independent Auditors. 23.1
Financial Data Schedule. 27.1
* Incorporated by reference to identically numbered exhibits filed with the
Company's Registration Statement (No. 33-92452) filed on May 18, 1995,
or with Amendments No. 1 or Amendment No. 2 thereto, which became
effective on June 30, 1995.
+ Confidential treatment granted as to a portion of this Exhibit.
65
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
METRA BIOSYSTEMS, INC.
By: GEORGE W. DUNBAR, JR.
Date: September 27, 1996 President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints George W. Dunbar and Kurt E. Amundson
and each of them, his attorneys-in-fact and agents, each with the power of
substitution and resubstitution, for him in any and all capacities, to sign
any and all amendments to this Report on Form 10-K, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection
therewith, as fully as to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their or his substitute or substitutes, may do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
GEORGE W. DUNBAR, JR. President and Chief Executive Officer September 27, 1996
- - ---------------------------- (Principal Executive Officer)
George W. Dunbar, Jr.
KURT E. AMUNDSON Vice President and Chief Financial Officer September 27, 1996
- - ---------------------------- (Principal Financial and Accounting Officer)
Kurt E. Amundson
CLAUDE D. ARNAUD, M.D. Director September 27, 1996
- - ----------------------------
Claude D. Arnaud, M.D.
JOHN L. CASTELLO Director September 27, 1996
- - ----------------------------
John L. Castello
MARY LAKE POLAN, M.D., PH.D. Director September 27, 1996
- - ----------------------------
Mary Lake Polan, M.D., Ph.D.
LEONARD D. SCHAEFFER Director September 27, 1996
- - ----------------------------
Leonard D. Schaeffer
COSTA G. SEVASTOPOULOS, PH.D. Director September 27, 1996
- - ----------------------------
Costa G. Sevastopoulos, Ph.D.
CRAIG C. TAYLOR Director September 27, 1996
- - ----------------------------
Craig C. Taylor
SAMUEL URCIS Director September 27, 1996
- - ----------------------------
Samuel Urcis
</TABLE>
66
<PAGE>
EXHIBIT INDEX
EXHIBIT
DESCRIPTION OF DOCUMENT NUMBER
- - -----------------------------------------------------------------------------
Articles of Incorporation of Registrant. 3.1*
Form of Amended and Restated Articles of Incorporation of Registrant. 3.2*
Bylaws of Registrant. 3.3*
Rights Agreement among the Registrant and certain security holders
of the Registrant, dated as of January 11, 1994. 4.2*
Form of Indemnification Agreement. 10.1*
1990 Incentive Stock Plan. 10.2*
Forms of agreements under 1990 Incentive Stock Plan. 10.2a*
1995 Stock Option Plan. 10.3*
Form of Option Agreement under 1995 Stock Option Plan. 10.3a*
1995 Employee Stock Purchase Plan. 10.4*
Form of Subscription Agreement under 1995 Employee Stock Purchase Plan. 10.4a*
1995 Directors' Stock Option Plan. 10.5*
Form of Option Agreement under 1995 Directors' Stock Option Plan. 10.5a*
Industrial Real Estate Lease (Single-Tenant Facility) and
Lease Addendum, dated November 1, 1993, between the
Registrant and State Teachers Retirement System, and
First Amendment, dated as of July 26, 1994, thereto. 10.6+*
License Agreement between the Registrant and The Rowett Research
Institute, dated as of April 30, 1990. 10.7+*
License Agreement between the Registrant and Collagen Corporation,
dated as of June 30, 1990. 10.8+*
Distribution and License Agreement between the Registrant and
Haematologic Technologies, Inc., dated as of September 1, 1992. 10.9+*
Product Research and Development Agreement between the Registrant
and Sumitomo Pharmaceuticals Co., Ltd., dated as of March 29, 1993. 10.10+*
License Agreement between the Registrant and Celtrix
Pharmaceuticals, Inc., dated as of July 28, 1993. 10.11+*
License, Supply and Development Agreement between the Registrant
and Hybritech Incorporated, dated as of September 15, 1993. 10.12+*
Development and License Agreement between the Registrant and
Ciba-Geigy Limited, dated as of June 26, 1990, as amended
by the Agreement between Registrant and Ciba-Geigy Limited,
dated as of November 5, 1993. 10.13+*
License, Supply and Development Agreement between the Registrant
and Ciba Corning Diagnostics Corp., dated as of November 5, 1993. 10.14+*
OEM Agreement between the Registrant and Diagnostic Products
Corporation, dated December 22, 1993. 10.15+*
Product Research and Development Agreement between the Registrant
and Sumitomo Pharmaceuticals Co., Ltd., dated as of June 29, 1994. 10.16+*
IDS OEM Agreement between the Registrant and Immunodiagnostic
Systems Ltd., dated as of January 19, 1995. 10.17+*
License Agreement between the Registrant and BioQuant, Inc.,
dated as of February 15, 1995. 10.18+*
Product Research and Development Agreement between the Registrant
and Sumitomo Pharmaceuticals Co., Ltd., dated as of
February 28, 1995. 10.19+*
International Distributor Agreement between the Registrant and
Amersham K.K., dated as of April 8, 1993. 10.20+*
International Distributor Agreement between the Registrant and
DPC Biermann GmbH, dated as of January 1, 1995. 10.21+*
Series D Preferred Stock Purchase Agreement, dated as of
January 17, 1992, among the Registrant and certain Investors
listed on Exhibit A thereto. 10.22*
Series E Preferred Stock Purchase Agreement, dated as of
January 11, 1994, among the Registrant and certain Investors
listed on Exhibit A thereto. 10.23*
Letter Agreement, dated as of May 24, 1991, between the Registrant
and George W. Dunbar, Jr. 10.24*
Letter Agreement, dated as of February 1, 1992, between the
Registrant and Ronald T. Steckel. 10.25*
Promissory Note, dated as of September 11, 1991, executed by
George W. Dunbar, Jr. and Lucy H. Dunbar in favor of the Registrant. 10.26*
Promissory Note, dated as of June 24, 1992, executed by
Ronald T. Steckel and Laurie A. Steckel in favor of the Registrant. 10.27*
Promissory Note, dated as of July 16, 1992, executed by
Ronald T. Steckel in favor of the Registrant. 10.28*
Promissory Note, dated as of July 18, 1993, executed by
George W. Dunbar, Jr. in favor of the Registrant. 10.29*
Promissory Note, dated as of November 1, 1994, executed by
Colette Z. Andrea in favor of the Registrant. 10.30*
Promissory Note, dated as of December 30, 1994, executed by
George W. Dunbar, Jr. in favor of the Registrant. 10.31*
Promissory Note, dated as of December 30, 1994, executed by
Colette Z. Andrea in favor of the Registrant. 10.32*
Promissory Note, dated as of December 30, 1994, executed by
Ronald T. Steckel in favor of the Registrant. 10.33*
License and Supply Agreement between the Registrant and
Bayer Corporation dated as of July 26, 1995. 10.34+*
Computation of Earnings Per Share. 11.1
List of Subsidiaries of the Registrant. 22.1*
Consent of KPMG Peat Marwick LLP, Independent Auditors. 23.1
Financial Data Schedule. 27.1
* Incorporated by reference to identically numbered exhibits filed with the
Company's Registration Statement (No. 33-92452) filed on May 18, 1995,
or with Amendments No. 1 or Amendment No. 2 thereto, which became
effective on June 30, 1995.
+ Confidential treatment granted as to a portion of this Exhibit.
<PAGE>
Exhibit 11.1 COMPUTATION OF NET LOSS PER SHARE
YEAR ENDED JUNE 30,
----------------------------------------------
1996 1995 1994
---- ---- ----
Net Loss $(21,399,049) $(6,802,600) $(3,575,217)
Weighted average shares used
to compute net loss per share
Weighted average number of shares
outstanding:
Mandatorily redeemable
convertible preferred stock -- 5,324,685 4,200,816
Common 10,515,094 738,024 714,656
Number of common equivalents as
a result of convertible
warrants outstanding using the
treasury stock method -- 9,989 9,989
Number of common shares issued
and stock options granted in
accordance with Staff
Accounting Bulletin 83 -- 230,169 230,169
------------ ----------- ---------
Total 10,515,094 6,302,867 5,155,630
------------ ----------- ---------
------------ ----------- ---------
Net loss per share $(2.04) $(1.08) $(0.69)
------- ------ ------
------- ------ ------
The calculation includes the shares of mandatorily redeemable convertible
preferred stock (Series A, Series B, Series C, Series D and Series E) and a
convertible warrant as if they had converted to common stock on their
respective original dates of issuance, because such shares automatically
convert to common stock upon the closing of the initial public offering of
the Company's common stock.
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors and Shareholders
Metra Biosystems, Inc.:
The audits referred to in our report dated July 18, 1996, included the
related financial statement schedule as of June 30, 1996, 1995 and June 30,
1994, and for each of the years in the three-year period ended June 30, 1996
included in the registration statement. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to incorporation by reference in the registration statement on
Form S-8 of Metra Biosystems, Inc. of our report dated July 18, 1996,
relating to the consolidated balance sheets of Metra Biosystems, Inc. and
subsidiaries as of June 30, 1996 and 1995 and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for
each of the years in the three-year period ended June 30, 1996, which report
appears in the June 30, 1996 annual report on Form 10-K of Metra Biosystems,
Inc. Our report refers to a change in accounting for investments effective
July 1, 1994.
KPMG Peat Marwick LLP
San Francisco, California
September 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE METRA
BIOSYSTEMS, INC. ANNUAL REPORT ON FORM 10K FOR THE PERIOD ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 19,217
<SECURITIES> 33,030
<RECEIVABLES> 1,367
<ALLOWANCES> 101
<INVENTORY> 1,040
<CURRENT-ASSETS> 48,633
<PP&E> 6,165
<DEPRECIATION> 1,851
<TOTAL-ASSETS> 60,193
<CURRENT-LIABILITIES> 4,402
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 54,411
<TOTAL-LIABILITY-AND-EQUITY> 60,193
<SALES> 4,413
<TOTAL-REVENUES> 6,470
<CGS> 3,276
<TOTAL-COSTS> 29,670
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (21,399)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,399)
<EPS-PRIMARY> (2.04)
<EPS-DILUTED> (2.04)
</TABLE>
