<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 1998
REGISTRATION NO. 333-48045
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
BIEX, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3829 84-1183276
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
6693 SIERRA LANE, SUITE F
DUBLIN, CALIFORNIA 94568
(925) 556-0300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JAMES A. EDLUND
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BIEX, INC.
6693 SIERRA LANE, SUITE F
DUBLIN, CALIFORNIA 94568
(925) 556-0300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
HOWARD G. ERVIN, ESQ. J. CASEY MCGLYNN, ESQ.
MICHAEL J. SULLIVAN, ESQ. CHRISTOPHER D. MITCHELL, ESQ.
ISOBEL A. JONES, ESQ. ISSAC J. VAUGHN, ESQ.
TROY F. CHRISTMAS, ESQ. HAROLD R. DEGRAFF, ESQ.
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI P.C.
ONE MARITIME PLAZA, 20TH FLOOR 650 PAGE MILL ROAD
SAN FRANCISCO, CALIFORNIA 94111-3580 PALO ALTO, CA 94304-1050
(415) 693-2000 (650) 493-9300
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF SECURITIES TO BE REGISTERED PROPOSED MAXIMUM AGGREGATE OFFERING PRICE (1) AMOUNT OF REGISTRATION FEE (2)
<S> <C> <C>
Common Stock ($0.001) par value........... $42,500,000 $12,538
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933. Such amount includes $6,375,000 of Common Stock which the
Underwriters have the option to purchase solely to cover over-allotments,
if any. In accordance with Rule 457(o) under the Securities Act of 1933,
the number of shares being registered and the proposed maximum offering
price per share have not been included in this table.
(2) Paid previously.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 4, 1998
SHARES
[LOGO]
COMMON STOCK
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY
BIEX, INC. ("BIEX" OR THE "COMPANY"). PRIOR TO THIS OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED
THAT THE INITIAL PUBLIC OFFERING PRICE FOR THE COMMON STOCK WILL BE BETWEEN
$ AND $ PER SHARE. SEE "UNDERWRITING" FOR A DISCUSSION OF THE
FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
APPLICATION HAS BEEN MADE TO HAVE THE COMMON STOCK APPROVED FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "BIEX."
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN PURCHASING THE SHARES OF COMMON
STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PER SHARE................................ $ $ $
- --------------------------------------------------------------------------------------------
TOTAL(3)................................. $ $ $
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</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $575,000.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP
TO AN ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER
OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL,
THE PRICE TO PUBLIC WILL TOTAL $ , THE UNDERWRITING DISCOUNT WILL TOTAL
$ AND THE PROCEEDS TO COMPANY WILL TOTAL $ . SEE "UNDERWRITING."
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN, SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICE OF NATIONSBANC MONTGOMERY SECURITIES LLC ON OR ABOUT ,
1998.
------------------------
NationsBanc Montgomery Securities LLC
Salomon Smith Barney
<PAGE>
Wessels, Arnold & Henderson
, 1998
<PAGE>
[Artwork]
[Caption -- The Problem of Preterm Labor and Delivery]
[Actual size photograph of footprint of newborn baby born at 24 weeks
gestational age, with the following text:
<TABLE>
<CAPTION>
<S> <C>
- Weight 1.25 - 1.5 lbs
- Survival 10%
- Chances of normal development 40% of those that survive
- Typical NICU length-of-stay 90-120 days
- Clinical consequences Immature lungs
Neurological problems
Susceptibility to infection
Intraventricular hemorrhaging
Vision disorders--blindness
Cerebral Palsy
NEWBORN COSTS $155,700 NEWBORN COST/TERM 42.1 TIMES]
</TABLE>
[Actual size photograph of footprint of newborn baby born at 32 weeks
gestational age, with the following text:
<TABLE>
<CAPTION>
<S> <C>
- Weight 3.5 - 4 lbs
- Survival 85%
- Chances of normal development 90% of those that survive
- Typical NICU length-of-stay 15-30 days
- Clinical consequences Mild Respiratory Distress Syndrome
Neurological problems
Some apnea and bradycardia
Cerebral Palsy
NEWBORN COSTS $46,400 NEWBORN COST/TERM 12.5 TIMES]
</TABLE>
[Actual size photograph of footprint of newborn baby born at 40 weeks
gestational age, with the following text:
<TABLE>
<CAPTION>
<S> <C>
- Weight 7 - 8.5 lbs
- Survival 99%
- Chances of normal development 99%
- Typical NICU length-of-stay 0 days
- Clinical consequences Healthy baby
Discharge with mother
NEWBORN COSTS $3,700 NEWBORN COST/TERM 1.0 TIMES]
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN ACTIVITIES THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER- ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. THESE TRANSACTIONS MAY BE EFFECTED ON
NASDAQ OR OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Biex-TM- and SalEst-TM- are trademarks of the Company. Certain trademarks of
other companies are used in this Prospectus.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN
THIS PROSPECTUS ASSUMES: (I) THE CONVERSION OF ALL THE OUTSTANDING SHARES OF
PREFERRED STOCK INTO 12,541,824 SHARES OF COMMON STOCK IMMEDIATELY PRIOR TO THE
EFFECTIVENESS OF THE REGISTRATION STATEMENT FOR THIS OFFERING; (II) THE ISSUANCE
OF SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING IN PAYMENT
OF CERTAIN ACCRUED DIVIDENDS ON THE PREFERRED STOCK (THE "DIVIDEND SHARES");
(III) THE ISSUANCE OF 465,584 SHARES OF COMMON STOCK UPON THE CLOSING OF THIS
OFFERING PURSUANT TO THE EXERCISE OF OUTSTANDING WARRANTS ISSUED IN CONNECTION
WITH THE COMPANY'S SERIES B PREFERRED STOCK FINANCING (THE "WARRANT SHARES");
(IV) THE FILING OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION; AND (V) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
THE COMPANY
Biex, Inc. ("Biex" or the "Company") is a women's health care company
focused on developing and marketing innovative solutions for maternity
management. The Company's proprietary SalEst system, which measures the level of
the hormone estriol in a pregnant woman's saliva, received United States Food
and Drug Administration ("FDA") approval in April 1998 after expedited review as
an aid in identifying women at risk of spontaneous preterm labor and delivery in
singleton pregnancies. The Company believes the SalEst system's ability to aid
in the accurate identification of those women most likely to deliver at term is
a powerful tool in the clinical management of pregnancies inaccurately
categorized as high risk by traditional screening methods. These inaccuracies
often result in unnecessary and costly interventions and treatments. In
addition, clinical results demonstrate that the SalEst system is an improved
method of identifying high risk women inaccurately categorized as low risk by
traditional screening methods. These women account for the majority of preterm
deliveries. Early and accurate identification of risk will allow physicians to
provide appropriate levels of clinical management and intervention, providing
opportunity to prolong pregnancies and decrease the morbidity, mortality and
associated costs for mothers and babies.
Preterm labor and delivery is a major health care problem worldwide.
According to the National Center for Health Statistics, of the estimated four
million births in the United States each year, approximately 11% or more than
400,000 occur preterm. Despite significant improvements in prenatal care, over
40,000 of these babies die each year. Preterm delivery causes 75% of newborn
morbidity and mortality in the United States and is the leading cause of
neonatal intensive care unit admissions. Industry data indicates that costs
associated with the care of preterm infants add over $10 billion annually to
pre-discharge infant health care costs in the United States. Those preterm
babies that survive are often subject to one of many serious diseases that are
more common in preterm babies, such as respiratory distress syndrome, cerebral
palsy, epilepsy, blindness and learning disabilities. Further, maternal care
costs for women inaccurately classified as high risk by traditional screening
methods exceed one billion dollars annually.
Preterm delivery is defined as delivery after 22 weeks but before 37 weeks
of gestation and is caused by many factors, including the spontaneous
commencement of uterine contractions ("spontaneous preterm labor"), infection of
the membranes surrounding the fetus, premature rupture of these membranes and
physician induction of labor. The Company believes the primary cause of
spontaneous preterm labor is a surge of the hormone estriol. Estriol is an
estrogen hormone considered to be critical in the normal biological events
leading to labor and delivery and is easily measured in maternal saliva. This
surge of estriol, which in normal term pregnancies occurs later than 36 weeks,
is a normal physiological event that prepares the uterine muscle for the
organized contractions required in spontaneous labor and is believed to be a
fetal signal for delivery. The Company believes that detection of this estriol
surge is an accurate predictor of labor and delivery.
3
<PAGE>
Traditionally, the only clinical tools available to assess a woman's risk of
spontaneous preterm labor and delivery have been the Creasy method and its
modifications. The Creasy method is a subjective assessment of a woman's risk
profile utilizing a variety of socioeconomic, medical, lifestyle, behavioral and
current pregnancy risk factors that is scored according to a defined protocol.
The most important and predictive of the Creasy risk factors is a prior preterm
delivery. Given that 40% of all deliveries in the United States are from a first
pregnancy, the Creasy method has inherent limitations in identifying many women
at risk. Studies of the Creasy method demonstrate that approximately 80% of the
women identified as high risk, or 480,000 women each year, deliver at term.
Studies also demonstrate that up to 80% of the women who actually experience
preterm delivery, or 320,000 women each year, are not identified as high risk by
the traditional method. The Creasy method is of limited value in directing
intervention once it has categorized a woman as high risk because it does not
identify the maternal or fetal biological causes of preterm labor and delivery
or the time-frame in which these premature deliveries may be expected to occur.
The Company's SalEst system, utilizing a patented marker, provides objective
identification of women at risk of spontaneous preterm labor and delivery by
measuring salivary estriol, a hormone critical in the biological events
preceding labor and delivery. The Company believes the key advantages of the
SalEst system include:
- REDUCTION OF INACCURATE HIGH RISK ASSESSMENTS. Clinical testing of the
SalEst system indicated that patients with persistent low estriol levels
prior to 36 weeks had a 98% chance of not experiencing spontaneous preterm
labor and delivery. It is anticipated that this high negative predictive
value will be used initially as an aid to rule out preterm labor and
delivery in patients who are currently inaccurately classified as high
risk, reducing unnecessary interventions and the cost of maternal
management.
- IMPROVED IDENTIFICATION OF WOMEN AT RISK OF PRETERM LABOR AND
DELIVERY. Clinical results indicated that women who had two consecutive
elevated estriol levels were almost eight times more likely to experience
preterm labor and delivery than those women with low estriol levels,
allowing for more timely and effective interventions to improve maternal
care and newborn outcomes.
- COST EFFECTIVE METHOD OF RISK ASSESSMENT. The Company believes that by
reducing unnecessary interventions and providing opportunities to improve
maternal and neonatal outcomes, the SalEst system will provide significant
cost savings to payors. It is anticipated that these cost savings will
support reimbursement for the SalEst system.
- IDENTIFICATION OF BIOLOGICAL CAUSES. The traditional method is based on
subjective non-cause specific risk factors. By contrast, the SalEst system
identifies a hormonal cause of preterm labor two to three weeks prior to
delivery, creating opportunities for timely cause-specific therapeutic
intervention.
- EASE OF USE. The SalEst system, a saliva-based test, is convenient and
noninvasive. The convenience of the SalEst system enables sample
collection in the physician's office, patient's home or workplace.
The Company is preparing to commercially launch the SalEst system in the
United States. Key elements of the SalEst system sales and marketing strategy
are to: (1) develop a direct sales force to target those obstetricians who
manage a large number of patients, (2) establish third-party reimbursement, (3)
utilize a detailed cost/benefit model for use of the SalEst system incorporating
industry-accepted actuarial databases and the Company's FDA clinical trial
results, (4) create physician and payor demand through a comprehensive sales and
marketing program that will include educational programs, publication of
peer-reviewed scientific articles and symposia, (5) form strategic alliances
with major pharmaceutical, medical device, consumer product and disease
management companies to gain additional market exposure and access to
established distribution channels, and (6) raise patient awareness by working
with major patient support groups and consumer publications.
The Company's executive offices are located at 6693 Sierra Lane, Suite F,
Dublin, California 94568, and its telephone number is (925) 556-0300.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..................... shares
Common Stock to be outstanding after the offering....... shares(1)
Use of proceeds......................................... Develop sales, marketing and
distribution capabilities, expand
research and development, expand
clinical trials and provide
working capital for general
corporate purposes.
Proposed Nasdaq National Market symbol.................. BIEX
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Expenses:
Research and development................................................ $ 1,059 $ 2,156 $ 1,989
General and administrative.............................................. 676 1,465 1,964
---------- ---------- ------------
Operating loss........................................................ 1,735 3,621 3,953
Interest income........................................................... 28 58 110
---------- ---------- ------------
Net loss.................................................................. (1,707) (3,563) (3,843)
---------- ---------- ------------
---------- ---------- ------------
Basic net loss per share (2).............................................. $ (.37) $ (.48) $ (.35)
---------- ---------- ------------
---------- ---------- ------------
Shares used in computing basic net loss per share......................... 4,593 7,365 10,857
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
AS ADJUSTED
HISTORICAL (3)
---------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................................... $ 8,268
Working capital...................................................................... 6,905
Total assets......................................................................... 8,497
Stockholders' equity................................................................. 7,028
</TABLE>
- ------------------------------
(1) Based on 13,826,312 shares outstanding as of December 31, 1997,
Dividend Shares and 465,584 Warrant Shares. Excludes as of December 31, 1997
1,719,588 shares of Common Stock issuable upon exercise of outstanding
options under the Company's stock option plans. See "Management--Employee
Benefit Plans," "Description of Capital Stock" and Notes 3 and 4 of Notes to
Financial Statements.
(2) See Note 2 of Notes to Financial Statements for an explanation of the shares
used in computing per share amounts.
(3) Adjusted to reflect (i) the sale by the Company of shares of Common
Stock offered hereby at an assumed initial public offering price of $
per share after deducting estimated underwriting discounts and offering
expenses and the application of the estimated net proceeds therefrom, (ii)
the issuance of the Warrant Shares and (iii) the issuance of the Dividend
Shares. See "Use of Proceeds," "Certain Transactions" and "Description of
Capital Stock--Warrants."
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING FACTORS, TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTY. ACTUAL RESULTS AND THE TIMING OF
CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND
OTHER FACTORS DISCUSSED ELSEWHERE IN THIS PROSPECTUS. SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS."
DEPENDENCE ON SINGLE PRODUCT; ABSENCE OF REVENUE TO DATE
The Company has only one product, the SalEst system, which was approved by
the FDA in April 1998 for a single indication: as an aid in identifying the risk
of spontaneous preterm labor and delivery in singleton pregnancies (i.e.,
pregnancies in which there is only a single fetus). The Company does not expect
to have any other approved indication for the SalEst system or any other product
for the foreseeable future, if at all. The successful commercialization of the
SalEst system is critical to the future success of the Company. To date, the
Company has not generated any revenues from sales of the SalEst system. Sales of
the SalEst system, if any, will account for substantially all of the Company's
revenues, if any, for the foreseeable future. The ability of the Company to
successfully manufacture, market and sell the SalEst system is subject to a
number of risks, many of which are outside the Company's control. There can be
no assurance that the Company will be able to successfully manufacture the
SalEst system in commercial quantities at acceptable costs, market the SalEst
system, obtain adequate third-party reimbursement for the SalEst system or
generate sales of the SalEst system. Failure to achieve any of the foregoing
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company intends to investigate the use of its estriol-based diagnostic
technology to include testing for the likelihood of successful induction of
birth at term, identification of patients most likely to benefit from
interventional drug therapies, monitoring of tocolytic therapy, prediction of
labor onset for term delivery and identification of pregnant women at high risk
of post-term delivery. To date, the Company has expended little or no resources
to develop such potential applications which are, in general, at the conceptual
stage. Efforts to develop such potential applications into marketable products
will require significant expenditures, including devoting significant resources
to additional research, clinical trials and FDA approval processes. There can be
no assurance that any of these potential products will be found to be safe and
effective, will achieve the necessary regulatory approvals or can be developed
into commercially viable products, if at all. There is, therefore, substantial
risk that the Company's additional product development efforts will not be
successful and that the Company will remain dependent on sales, if any, of the
SalEst system. See "Business--Research and Development."
UNCERTAINTY OF MARKET ACCEPTANCE
The success and growth of the Company will depend on the level of market
acceptance of the SalEst system by physicians, third-party payors and patients.
The SalEst system is a new method of aiding in the identification of risk of
spontaneous preterm labor and delivery and is the first saliva-based test used
in the area of obstetrics. Most physicians are unfamiliar with the SalEst system
and saliva-based tests in general. Physicians will not use, and payors will not
reimburse for the use of, the SalEst system unless they determine, based on
clinical data and other factors, that the SalEst system is an effective means of
identifying risk of spontaneous preterm labor and delivery and that the cost
savings achieved through use of the SalEst system exceed its cost. These
determinations will depend in part on the effectiveness of current interventions
and the development of improved interventions for women at high risk of
spontaneous preterm labor and delivery. In addition, market acceptance of the
SalEst system may be affected if physicians view the test as of limited utility
in identifying women believed to be at low risk of spontaneous preterm labor and
delivery who actually are at high risk. The Company believes that
recommendations and
6
<PAGE>
endorsements by prominent physicians and medical groups, as well as the
publication of favorable peer reviewed medical journal articles, are significant
factors in gaining physician and payor acceptance of any new medical procedure.
There can be no assurance that any such recommendations or endorsements will be
obtained or that any such articles will be published. Other non-traditional
techniques for screening for the risk of spontaneous preterm labor and delivery,
including fetal fibronectin diagnostic tests, ultrasound and other biological
markers, are in various stages of development, and such techniques may be more
attractive to physicians, payors or patients than the SalEst system. There can
be no assurance that the SalEst system will achieve market acceptance as an aid
in identifying the risk of spontaneous preterm labor and delivery in singleton
pregnancies or for any other indications or that adequate levels of
reimbursement from third-party payors will be available, if at all. Failure of
the SalEst system to gain market acceptance would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Sales and Marketing" and "--Third-Party Reimbursement."
UNCERTAINTY OF REIMBURSEMENT
In the United States, physicians, hospitals and other health care providers
that perform medical services generally rely on third-party payors, such as
private health insurance plans, to reimburse all or part of the costs associated
with the treatment of patients. Although reimbursement for other methods of
screening for the risk of preterm labor and delivery has generally been
available in the United States, there can be no assurance that this will
continue to be the case or that adequate reimbursement will be available for the
SalEst system or any future products developed by the Company. Factors that
payors consider important in making reimbursement decisions for new products
include (i) the cost effectiveness of the product, (ii) the results of clinical
trials evidencing the product's safety and efficacy, (iii) the publication of
favorable studies and peer-reviewed medical journal articles, (iv) technical
reviews and assessments performed by a payor's internal technical review
committees or panels and (v) how the product compares to other competing
products. Failure to obtain sufficient reimbursement from third-party payors for
the SalEst system would have a material adverse effect on the Company's
business, financial condition and results of operations.
A component in the reimbursement decision by most private insurers and the
United States Health Care Financing Administration ("HCFA"), which administers
Medicare and Medicaid, is the assignment of a Current Procedural Terminology
("CPT") code, which is used in the submission of claims to insurers for
reimbursement for medical services. CPT codes are generally required for
Medicare and Medicaid reimbursement and can be important in facilitating
reimbursement by other third-party payors. CPT codes allow for more efficient
claims processing by establishing standard billing codes. A single CPT Code
generally corresponds to a unique test or procedure. CPT codes are assigned,
maintained and revised by the CPT Editorial Board which is administered by the
American Medical Association. The Company intends to petition the CPT Editorial
Board to establish a separate CPT code for the SalEst system. CPT codes
generally become effective on January 1 in each year. The Company does not
expect that it will have a CPT code for the SalEst system prior to January 1,
2000. Until a CPT code is provided for the SalEst system, reimbursement may be
delayed as the third party payor may be required to create its own billing code
or establish another mechanism for reimbursement, if any, for the SalEst system.
Additionally, until a CPT code is established, reimbursement of the SalEst
system may be subjected more frequently to medical review, possibly resulting in
additional delay or denial of reimbursement. There can be no assurance that the
Company will be successful in obtaining a CPT code for the SalEst system.
Failure to obtain a CPT code could have a material adverse effect on the
Company's business, financial condition and results of operations.
International market acceptance of the SalEst system may be dependent on,
among other factors, the availability of reimbursement within prevailing health
care payment systems. Reimbursement and health care payment systems in
international markets vary significantly by country, and can include both
government sponsored and private health care insurance. Obtaining such approvals
can take 12 to 18
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months or longer. Because the Company only recently obtained FDA approval with
respect to the SalEst system, the Company is in the early stages of seeking
reimbursement approvals for the SalEst system from third-party payors. There can
be no assurance that the SalEst system will obtain any such approvals in a
timely manner, if at all. Failure to receive international reimbursement
approvals could have a material adverse effect on market acceptance of the
SalEst system in the international markets in which the Company is seeking
approvals and could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Third-Party
Reimbursement."
LOSS HISTORY; EXPECTATION OF FUTURE LOSSES
The Company is a developmental stage company and has not generated any
revenues from product sales. Since inception, the Company has been dependent
upon external financing to pursue its intended business activities. The Company
has incurred losses of approximately $11.0 million since inception and has an
accumulated deficit of approximately $11.8 million through December 31, 1997.
Losses have resulted principally from costs incurred in research and development
activities and clinical trials and from general and administrative costs. In
April 1998, the Company received FDA marketing approval to sell the SalEst
system in the United States as an aid in identifying the risk of spontaneous
preterm labor and delivery in singleton pregnancies. Even though the SalEst
system has received FDA approval, there can be no assurance that the Company
will be able to generate adequate sales to achieve profitability in the future.
The Company expects that its expenses will increase substantially as the Company
seeks to commercialize the SalEst system and expand indications for the SalEst
system. The amount and timing of expenditures will depend on numerous factors
that include, but are not limited to, the nature and timing of sales and
marketing activities, the expansion of the Company's manufacturing capabilities,
if any, and the Company's development efforts. The Company expects to incur
additional operating losses at least through 1999. The Company's ability to
achieve profitability may also be dependent on its ability to successfully
obtain patent protection and regulatory approval for, and commercialize,
additional indications for the SalEst system. There can be no assurance that the
Company will ever achieve profitability or that profitability, if achieved, will
be sustained. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
FLUCTUATIONS IN FUTURE FINANCIAL RESULTS
The Company's future operating results are likely to fluctuate substantially
from period to period and will depend upon numerous factors, many of which are
outside the Company's control. Such factors include, but are not limited to, the
extent to which the SalEst system gains market acceptance as a maternity
management tool, the timing and level of sales through direct sales channels and
strategic partners, increased research and development costs, the introduction
of new products and technologies by the Company or its competitors, the rate and
size of expenditures associated with the implementation of the Company's direct
marketing strategy for the SalEst system in the United States, availability and
cost of component parts from the Company's suppliers and developments with
respect to regulatory matters.
The Company's expenditures for research and development, sales and marketing
and general and administrative functions are based in part on future revenue
projections. The Company may be unable to adjust spending in a timely manner in
response to any unanticipated declines in revenues, which may have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company may be required to reduce prices in response to
competitive pressures or other factors or increase spending to pursue new market
opportunities. Any decline in average selling prices that is not offset by a
reduction in product costs or by sales of other potential products with higher
gross margins would decrease the Company's overall gross profit and adversely
affect the Company's business, financial condition and results of operations. In
the future, it is likely that the Company's operating results will vary from the
expectations of securities analysts and investors in any given quarter and, as a
result, the market
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price of the Common Stock would be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LACK OF SALES AND MARKETING EXPERIENCE
The Company received FDA approval to market the SalEst system in April 1998
and consequently has limited experience in marketing, sales and distribution.
The Company is in the process of establishing marketing, direct sales and
distribution capabilities in order to support its SalEst system
commercialization efforts. The Company will be required to continue to recruit
and retain highly trained salespersons, and no assurance can be given that such
personnel will be available on terms acceptable to the Company. There can also
be no assurance that the Company's direct sales force, if established, will be
successful in marketing the SalEst system to physicians and third-party payors.
In addition, due to the limited market awareness of the SalEst system, the
Company believes that the sales process could be lengthy, requiring the Company
to educate patients, physicians and third-party payors regarding the benefits of
the SalEst system. Failure to establish an effective sales and marketing
organization would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company expects
to utilize strategic partners for future sales and marketing efforts. There can
be no assurance that the Company will be able to identify and engage qualified
strategic partners on a timely basis or on acceptable terms, if at all. In
addition, in the event that the Company does enter into strategic marketing
relationships, the Company will be dependent on the efforts of its strategic
partners for marketing and sales in geographic territories or product or
customer markets that are the responsibility of the strategic partners.
Furthermore, in the event the Company licenses any of its proprietary technology
to a strategic partner, the Company may be at increased risk of misappropriation
of its technology by, and competition from, such strategic partner. See
"--Competition; Rapid Technological Change" and "--Dependence on Patents and
Proprietary Rights."
The Company expects to rely on strategic partners for substantially all
sales, marketing, regulatory and reimbursement approvals, if any, for the SalEst
system outside of the United States. The Company will need to establish these
strategic partnerships prior to introducing the SalEst system internationally,
and there can be no assurance that it will be able to identify and engage
qualified strategic partners on a timely basis or on acceptable terms, if at
all. The Company may also rely on certain of these strategic partners to assist
it in obtaining product registration and reimbursement approvals in certain
international markets. There can be no assurance that any potential strategic
partners will perform their obligations as expected or that any revenues will be
derived from such arrangements. The failure to engage such strategic partners or
the failure of the strategic partners to perform their obligations as expected
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Sales and Marketing."
LIMITED MANUFACTURING EXPERIENCE
The Company has limited manufacturing experience and is dependent on third
parties for the manufacturing of clinical and commercial scale quantities of its
proprietary saliva collection kits (the "Collection Kits") and its immuno assay
kits. The Collection Kits are used to collect a pregnant woman's saliva for
testing while the immuno assay kits are used to test the level of estriol in the
collected saliva. The Company's failure to maintain existing agreements for
manufacturing of clinical or commercial quantities of these components of the
SalEst system or to enter into additional agreements with these or other third
parties to expand commercial scale manufacturing capabilities as needed would
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company's current
or future contract manufacturers will meet the Company's requirements for
quality, quantity or timeliness. If the supply of any of the Company's
Collection Kits or immuno assay kits is interrupted, alternative contract
manufacturers will require prior FDA approval and Collection Kits and immuno
assay kits may not be available in sufficient volumes within required
timeframes, if at all, to meet
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the Company's production needs, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition, the Company's manufacturing operations and those of its third
party manufacturers are required to comply with applicable Quality System
Regulations ("QSR") of the FDA, which incorporates the FDA's former current Good
Manufacturing Practices ("cGMP") regulations. QSR addresses the design,
controls, methods, facilities and quality assurance controls used in
manufacturing, packing, storing and installing medical devices. In addition,
certain international markets have quality assurance and manufacturing
requirements that may be more or less rigorous than those in the United States.
As part of the approval process, the Company and its contract manufacturers were
inspected by the FDA for compliance with QSR requirements. The Company is also
required to register as a medical device manufacturer with the FDA and the
California Department of Health Services, Food and Drug Branch ("CDHS") and to
list its products with the FDA. Therefore, the Company is subject to biannual
inspections by the FDA and CDHS for compliance with QSR requirements. There can
be no assurance that the Company or its contract manufacturers will continue to
be in compliance with QSR requirements. Failure to comply with applicable QSR or
any applicable international requirements could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Manufacturing" and "--Government Regulation."
LIMITED LABORATORY OPERATING EXPERIENCE
The Company has limited experience in operating a clinical laboratory and
providing laboratory results to physicians and other users of the SalEst system.
Prior to April 1998, the laboratory did not have a license to perform analyses
of patient samples for patient management. Consequently, to date, the laboratory
has only analyzed over 13,000 clinical trial samples in connection with the
Company's PMA application. Following the launch of the SalEst system, the
laboratory may be required to process and analyze samples in greater quantities
and shorter time-frames than it has processed to date. Failure to make this
transition successfully would have a material adverse effect on the Company's
business, financial condition and results of operations. In the future, the
Company may evaluate the possibility of contracting with commercial laboratories
to analyze the Company's tests. However, the Company currently has no plans to
do so and there can be no assurance that any laboratory will be qualified or
willing to perform such tests on commercially reasonable terms, if at all.
Failure by the Company to provide accurate and cost-efficient laboratory
services would have a material adverse effect on the Company's business,
financial condition and results of operations and could expose the Company to
significant liability in the event of errors in determining or reporting test
results.
The Company's proposed laboratory operations will be regulated by HCFA,
under the Clinical Laboratory Improvement Amendments of 1988 ("CLIA"), and
comparable state agencies. CLIA is intended to ensure the quality and
reliability of all medical testing in laboratories in the United States by
requiring such facilities to obtain certification and to demonstrate such
testing meets specified standards in areas such as personnel qualification,
administration, participation in proficiency testing, patient test management,
quality control, quality assurances and inspections. The regulations promulgated
under CLIA have established three levels of regulatory control based on test
complexity, defined as "waived," "moderately" and "highly" complex. The SalEst
system has been categorized as a highly complex test. In April 1998, the Company
was notified by HCFA that the laboratory had obtained CLIA certification.
Failure to meet CLIA requirements can result in a wide variety of sanctions,
including suspension, limitation or revocation of the CLIA certificate and civil
and criminal penalties. Additionally, failure to maintain the CLIA certification
will prevent the Company from receiving third-party payments for laboratory
services performed. Failure to maintain CLIA certification, would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition to the requirements under CLIA, the Company will need to
register with and be certified by CDHS as a clinical laboratory. In April 1998,
the laboratory was inspected by the State of California and
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received no deficiencies notices. The Company has been notified that its
laboratory operations are licensed by the State of California. The Company must
also register with five additional states that require specific registration
prior to allowing the Company to analyze and report results from samples
obtained from the citizens of those states. These states are New York, Florida,
Maryland, Rhode Island and Nevada. The Company has applied for the appropriate
license in each of these states and anticipates receiving such license prior to
the currently planned launch date of the SalEst system in Florida, Maryland,
Rhode Island and Nevada, although there can be no assurance that this will be
the case. It is anticipated that the Company may receive the appropriate license
from New York up to 30 days after the currently planned launch date of the
SalEst system in New York, although there can be no assurances that this will be
the case. Failure to obtain and maintain these certificates, particularly the
State of California certificate, or similar certificates which may be required
by other states in the future could have a material adverse effect on the
Company's business, financial condition and results of operations.
MANAGEMENT OF GROWTH
In connection with the commercialization of the SalEst system, the Company
has begun and intends to continue to significantly expand the scope of its
operations, particularly in sales and marketing. Such activities have placed,
and may continue to place, a significant strain on the Company's resources and
operations. The Company's ability to effectively manage such growth will depend
upon its ability to attract, hire and retain highly qualified employees and
management personnel. The Company competes for such personnel with other
companies, academic institutions, government entities and other organizations.
There can be no assurance that the Company will be successful in hiring or
retaining qualified personnel. The Company's success will also depend on the
ability of its officers and key employees to continue to implement and improve
the Company's operational, management information and financial control systems,
of which there can be no assurance. The Company's inability to manage growth
effectively would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Sales and
Marketing" and "--Employees" and "Management."
FUTURE CAPITAL REQUIREMENTS
The Company's future capital requirements will depend upon numerous factors
that include, but are not limited to, the extent and timing of future SalEst
system sales, if any, the nature, timing and success of the Company's clinical
research and product development programs, the receipt of and time required to
obtain regulatory authorizations and the level of resources the Company devotes
to developing its sales, marketing and manufacturing capabilities. The timing
and amount of such capital requirements cannot be predicted accurately. There
can be no assurance that the Company will not require additional financing
through bank facilities, debt or equity offerings or other sources of capital
and that additional funding will be available on terms acceptable to the
Company, if at all. Insufficient capital or a lack of access to additional
capital would impair the Company's ability to pursue its business objectives,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
COMPETITION; RAPID TECHNOLOGICAL CHANGE
The Company competes with providers of traditional and other methods for
screening for the risk of spontaneous preterm labor and delivery. Several health
care organizations have developed commercially available risk screening and
management programs for preterm labor and delivery, most of which use the
traditional method of risk identification. Other approaches for screening for
the risk of spontaneous preterm labor and delivery are in various stages of
development and market acceptance. Currently, Adeza Biomedical Corporation
("Adeza") markets the only FDA-approved immunodiagnostic test for the assessment
of likelihood of preterm delivery. Adeza's fetal fibronectin immuno assay was
approved for
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marketing as a diagnostic aid for symptomatic patients in 1995 and in January
1997, it was approved for the screening of asymptomatic patients to detect the
risk of preterm delivery at less than 34 completed weeks of gestation. Recently,
vaginally inserted ultrasound probes have been used to assess cervical length
and dilation and as a tool for determining the risk of spontaneous preterm labor
and delivery. Additionally, various biological markers are being studied as
early markers of spontaneous preterm labor and delivery.
The health care industry is characterized by extensive research efforts and
rapid technological progress. Other companies and institutions, including many
major medical device and pharmaceutical companies, are engaged in the research
and development of products that may compete directly with the SalEst system or
the Company's other potential products. The Company believes that important
competitive factors include the relative speed with which companies can develop
products, establish clinical utility, complete clinical testing, obtain
regulatory approval, obtain third-party reimbursement and supply commercial
quantities of the product to the market. Many of the Company's current and
potential competitors have substantially greater financial, technological,
research and development, regulatory and clinical, marketing and sales, and
personnel resources than the Company. These competitors may also have greater
experience in developing products, conducting clinical trials, obtaining
regulatory approvals, and manufacturing and marketing such products. Certain of
these competitors may obtain patent protection, approval or clearance by the FDA
or foreign countries or product commercialization earlier than the Company, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, to the extent that
the Company commences significant commercial sales of the SalEst system or any
future products, it will be competing with respect to manufacturing efficiency
and marketing capabilities, areas in which it currently has limited experience.
See "Business--Competition."
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
The Company holds two United States patents relating to the SalEst system.
One of the issued patents covers the use of estriol measurement to screen for
the potential onset of preterm labor, and the other covers the use of estriol
measurement to monitor tocolytic therapy. The Company has recently received
Notice of Allowance from the United States Patent and Trademark Office (the
"USPTO") on the claims on two patent applications that cover the design and use
of the Collection Kit. A Notice of Allowance is issued by the USPTO when it has
determined that claimed patents are allowable. If, following receipt of a Notice
of Allowance a company pays the requested fees within the designated time frame,
the USPTO will typically issue a patent with respect to such allowed claims. The
Company paid the requested fees in May 1998 and is awaiting issuance of the
patents. The Company has patent applications pending in the United States,
Canada, Japan and certain European countries. The Company's ability to compete
effectively will depend substantially on its ability to develop and maintain
proprietary aspects of its technology. In particular, the Company's success will
depend in large part on its ability to obtain United States and foreign patent
protection for its products, preserve its trade secrets and operate without
infringing on the proprietary rights of third parties. There can be no assurance
that the Company's issued patents or any future patents that may be issued will
offer any degree of protection to the Company's products against competitive
products. There can also be no assurance that any additional patents will be
issued from any of the patent applications owned by or licensed to the Company,
or that any patents that currently are or may be issued or licensed to the
Company or any of the Company's patent applications will not be challenged,
invalidated or circumvented in the future, or that any patents issued to or
licensed by the Company will not be infringed upon or circumvented by others. In
addition, there can be no assurance that competitors, many of whom have
substantial resources and have made substantial investments in competing
technologies, will not seek to apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make, use or sell its products
either in the United States or in international markets. Patent law relating to
certain of the Company's fields of interest, particularly as to the scope of
claims in issued patents, is still developing and it is unclear how this
uncertainty will affect the Company's patent rights.
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The medical device and diagnostic industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in these industries have employed intellectual property litigation
as a strategy to gain a competitive advantage. There can be no assurance that
the Company will not in the future become subject to patent infringement claims
and litigation or interference proceedings declared by the USPTO to determine
the priority of inventions. The defense and prosecution of intellectual property
suits, USPTO interference proceedings and related legal and administrative
proceedings are both costly and time consuming. Litigation may be necessary to
enforce patents issued to or licensed to the Company, to protect the Company's
trade secrets or know-how or to determine the enforceability, scope and validity
of the proprietary rights of others.
Although there are currently no pending claims or lawsuits against the
Company regarding any possible infringement claims, there can be no assurance
that infringement claims by third parties or claims for indemnification
resulting from infringement claims will not be asserted in the future or that
such assertions, if proven to be true, will not have a material adverse effect
on the Company's business, financial condition and results of operations. Any
litigation or interference proceedings involving the Company will result in
substantial expenses to the Company and significant diversion of resources by
the Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the Company to seek licenses from third parties, which could involve substantial
costs and could include ongoing royalties. Adverse determinations in a judicial
or administrative proceeding or failure to obtain necessary licenses could
prevent the Company from manufacturing and selling the SalEst system, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. These agreements
generally provide that all confidential information developed or made known to
the individual by the Company during the course of the individual's relationship
with the Company is to be kept confidential and not disclosed to third parties,
except in specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering services to
the Company shall be the exclusive property of the Company. The Company requires
its employees to enter into a confidentiality and proprietary information
agreement. There can be no assurance that proprietary information or
confidentiality agreements with employees, consultants and others will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known to or independently
developed by competitors. See "Business--Patents and Proprietary Rights."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the members of its management and
scientific teams. The loss of the services of one or more of these individuals
could impede the achievement of its research and development or strategic
objectives. Because of the specialized scientific nature of the Company's
business, the Company is also highly dependent upon its ability to continue to
attract and retain qualified scientific and technical personnel. The Company
intends to hire a significant number of employees, particularly in sales and
marketing, in 1998. There is intense competition for qualified personnel in the
areas of medical devices and diagnostics, and there can be no assurance that the
Company will be able to continue to recruit and retain the qualified personnel
necessary for the development of its business. Failure to recruit and retain key
personnel would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management--Executive
Officers and Directors."
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PRODUCT LIABILITY AND LIMITED INSURANCE COVERAGE
The medical device and diagnostic industries have historically been
litigious, and the Company faces an inherent business risk of financial exposure
to product liability claims. Such claims could potentially relate to inaccurate
test results from the SalEst system, misdiagnosis by a physician utilizing the
SalEst system or errors by the Company's laboratory personnel, among other
potential sources of product liability claims. Although the Company has not
experienced any claims to date, there can be no assurance that the Company will
not experience losses due to product liability claims in the future. The Company
currently carries product liability insurance that, in general, covers product
liability claims of the type described up to the policy's coverage limits.
Product liability insurance is expensive, difficult to obtain and may not be
available in the future on acceptable terms, if at all. There can be no
assurance that product liability insurance will continue to be available to the
Company at a reasonable cost, if at all, or that such product liability
insurance will be adequate. The Company may require increased product liability
coverage to the extent its products are commercialized and as it provides
increased laboratory services. Furthermore, there can be no assurance that the
Company will have sufficient resources to satisfy any liability or litigation
expenses that may result from any uninsured or underinsured claims. Any claims
or series of claims against the Company, regardless of their merit or eventual
outcome, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Manufacturing" and
"--Product Liability Insurance."
UNCERTAINTY RELATED TO GOVERNMENT REGULATION
The manufacture and sale of diagnostic products, including the SalEst
system, are subject to extensive regulation by numerous governmental
authorities, principally the FDA and corresponding state and foreign regulatory
agencies. The process of obtaining and maintaining required regulatory clearance
and approvals is lengthy, expensive and uncertain. Failure to comply with FDA
and other applicable regulatory requirements can result in, among other things,
Warning Letters, fines, injunctions, civil penalties, recall or seizure of
product, total or partial suspensions of production, withdrawal of previously
granted clearances or approvals and criminal prosecution. There are two
principal FDA regulatory review paths for medical devices: the 510(k) premarket
notification ("510(k)") process and the premarket approval ("PMA") process. The
PMA process typically requires the submission of more extensive clinical data
and is generally more costly and time consuming to complete than the 510(k)
process. In addition, certain material changes to medical devices already
cleared or approved by the FDA are also subject to FDA review and clearance or
approval prior to marketing and sale in the United States. Moreover, regulatory
clearances and approvals, if granted, may include significant limitations on the
intended uses for which a product may be marketed. Delays in receipt of or
failure to receive such clearances and approvals, the loss of previously
obtained clearances or approvals, 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. In addition, no
assurance can be given that any new products or applications developed by the
Company will not require approval under the lengthy and expensive PMA process or
that such approval will be received on a timely basis, if at all.
In April 1998 the Company received PMA approval by the FDA to market the
SalEst system in the United States as an aid in identification of risk of
spontaneous preterm labor and delivery in singleton pregnancies. Nonetheless, in
the future, it will be necessary for the Company to file PMA supplements and
receive additional regulatory approvals for other applications or indications of
the SalEst system or for new or modified products.
The FDA and regulatory authorities in other countries impose numerous
additional requirements with which medical device manufacturers must comply. FDA
enforcement policy, subject to only minor exceptions, strictly prohibits the
promotion of approved medical devices for uses other than those specifically
cleared or approved for marketing by the FDA. There can be no assurance that the
Company
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will not incur significant costs in complying with applicable laws and
regulations or changes in laws or regulations, or that laws and regulations will
not have a material adverse effect on the Company's products.
The Company's manufacturing operations and those of its contract
manufacturers are required to comply with applicable QSR requirements, which
incorporates the FDA's former cGMP regulations. QSR addresses the design,
controls, methods, facilities and quality assurance controls used in
manufacturing, packing, storing and installing medical devices. In addition,
certain international markets have quality assurance and manufacturing
requirements that may be more or less rigorous than those in the United States.
Failure to comply with QSR or any applicable international requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. Ongoing compliance with QSR and other applicable
regulatory requirements will be monitored through periodic inspections by
federal and state agencies, including the FDA and the CDHS, and by comparable
agencies in other countries.
Sales of medical devices outside of the United States are subject to
regulatory requirements that vary from country to country. The time required to
obtain clearance or approval for sale internationally may be longer or shorter
than that required for FDA clearance or approval, and the requirements may
differ. The Company has not yet obtained any international regulatory approvals
for the SalEst system. There can be no assurance that the Company will be able
to obtain the required marketing clearance or approval for the SalEst system or
any future products in a timely manner, if at all. In addition, significant
costs and requests by regulators for additional information may be encountered
by the Company in its efforts to obtain regulatory approvals. Any such events
could substantially delay or preclude the Company from marketing its products in
the United States or other countries. See "Business--Government Regulation."
DEPENDENCE ON KEY SUPPLIERS
The Company relies upon sole source suppliers for certain of the key
components of its Collection Kit and immuno assay kit. Horizon Medical, Inc.
("Horizon") has contracted with the Company to supply the Collection Kit to the
Company based upon a rolling twelve month forecast. The forecast is considered a
firm commitment on the part of the Company with respect to its forecasted orders
for the next immediate quarter. Although changes from the forecast may be made,
subject to certain limitations, for subsequent quarters, there is a risk of
excess or inadequate inventory if orders do not match forecasts. Additionally,
Bioserv, Inc. has contracted with the Company to supply an enzyme utilized in
the immono assay kit pursuant to an agreement similar to that between the
Company and Horizon. The Company currently secures its entire supply for such
products under these arrangements, but is not obligated to do so. The Company
obtains other components of the immuno assay kit from two other suppliers, one
of which supplies an enzyme and the other of which supplies a certain plastic
component. Such components are purchased pursuant to invoices or orders
communicated by telephone. If the Company were to experience discontinuation or
unavailability of such components, the qualification, including regulatory
certification, of additional sources would be required or, if no alternative
sources were identified, product design changes may be necessary. Furthermore,
any required design changes could require regulatory submissions and approvals.
Any extended delays in product deliveries resulting from pursuing and qualifying
additional sources of supply or obtaining necessary regulatory approvals would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Manufacturing."
RISK OF INTERNATIONAL SALES AND OPERATIONS
The Company expects that international sales may in the future account for a
portion of the Company's total revenues. International sales and operations are
subject to a number of risks, including the imposition of government controls,
export license requirements, restrictions on the export of critical technology,
political and economic instability or conflicts, trade restrictions, changes in
tariffs and taxes, difficulties in staffing and managing international
operations, problems in establishing or managing distributor relationships and
general economic conditions. In addition, as the Company expands its
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international operations, it may be required to invoice its sales in local
currencies. Consequently, fluctuations in the value of foreign currencies
relative to the United States dollar may adversely affect the Company's
business, financial condition and results of operations.
Although the Company has applied for patents in Canada, Japan and certain
European countries, the Company has not applied for testing, manufacturing or
marketing clearance or other regulatory approvals in any country outside the
United States to date and does not currently intend to apply directly for such
clearances or approvals in the future. The Company expects that such clearances
or approvals, if any, will be applied for by the Company's strategic partners,
if any, in the applicable international territory. Consequently, the Company's
international sales and operations will be highly dependent upon the Company's
ability to identify and engage qualified international strategic partners and to
do so on a timely basis and on acceptable terms. There can be no assurance that
the Company will be successful in so identifying and engaging strategic
partners, and failure to identify and engage qualified international strategic
partners could have a material adverse effect on the Company's business,
financial condition and results of operations. Additionally, there can be no
assurance that the Company will be successful in obtaining foreign regulatory
clearances, approvals or certifications through any such strategic partner or
otherwise. Failure to receive such clearances, approvals or certifications on a
timely basis could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Sales and
Marketing" and "--Government Regulation."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company intends to use the net proceeds from this offering for the
following purposes: (i) to develop sales, marketing and distribution
capabilities for the SalEst system; (ii) to expand research and development
activities, including the development of new chemical assays; (iii) to expand
clinical trials to support product development and marketing activities; and
(iv) to provide working capital for general corporate purposes. The Company's
management and Board of Directors will have broad discretion with respect to the
application of such proceeds, and the amounts actually expended by the Company
for working capital purposes may vary significantly depending on a number of
factors, including future revenue growth, if any, and the amount of cash, if
any, generated by the Company's operations. See "Use of Proceeds."
ADVERSE EFFECT OF CONCENTRATION OF OWNERSHIP
Following the completion of this offering, officers and directors of the
Company, together with entities affiliated with them, will beneficially own
approximately % of the Common Stock of the Company ( % if the
over-allotment option is exercised in full). These stockholders, acting as a
group, will continue to be able to control the election of all members of the
Company's Board of Directors and to determine all corporate actions after the
sale of the Shares offered hereby. The voting power of these stockholders could
also have the effect of delaying or preventing a change in control of the
Company. See "Principal Stockholders" and "Description of Capital Stock."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS AND DELAWARE LAW
The Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") authorizes the Board of Directors, without stockholder
approval, to issue additional shares of Common Stock and to fix the rights,
preferences and privileges of and issue up to 5,000,000 shares of Preferred
Stock with voting, conversion, dividends and other rights and preferences that
could adversely affect the voting power or other rights of the holders of the
Common Stock. The issuance of preferred stock, rights to purchase preferred
stock or additional shares of Common Stock could discourage a proxy contest,
make more difficult the acquisition of a substantial block of the Company's
Common Stock or otherwise discourage or prevent certain transactions involving
an actual or potential change in control of the Company. Further, the Restated
Certificate provides that any action required or permitted to be taken by
stockholders of the Company after this offering must be effected at a duly
called annual or special meeting
16
<PAGE>
of stockholders and may not be effected by any consent in writing. Special
meetings of stockholders of the Company may be called only by the Board of
Directors, the Chairman of the Board or the Chief Executive Officer of this
company. The Restated Certificate provides for a classified board of directors
and specifies that the authorized number of directors may be changed only by
resolution of the Board of Directors. Amendment of these provisions requires the
vote of stockholders holding at least two-thirds of the Company's outstanding
shares. In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which prohibits the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. These provisions could discourage or prevent certain
transactions involving an actual or potential change in control of the Company.
In addition, the Company's Board of Directors has approved a Stockholder
Rights Plan under which a dividend of one right (a "Right") to purchase one
one-hundredth of a share of the Company's Series F Junior Participating
Preferred Stock for each outstanding share of Common Stock of the Company has
been declared and will be distributed to stockholders of record as of the
effective date of this offering. The Rights may have the effect of rendering it
more difficult or discouraging an acquisition of the Company deemed undesirable
by the Company's Board of Directors. The Rights may cause substantial dilution
to a person or group that attempts to acquire the Company on terms or in a
manner not approved by the Board of Directors, except pursuant to an offer
conditioned upon the cancellation, purchase or redemption of the Rights, and may
therefore discourage or prevent certain transactions involving an actual or
potential change in control of the Company. See "Description of Capital Stock."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after this offering. The initial public offering
price, which will be determined by negotiations between the Company and the
Underwriters, will not necessarily be indicative of the market price at which
the Common Stock of the Company will trade after this offering. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. In addition, in recent years the stock market in
general, and the shares of medical device companies in particular, have
experienced extreme market price fluctuations. These broad market and industry
fluctuations may have a material adverse effect on the market price of the
Common Stock of the Company. In the future, it is likely that the Company's
operating results will vary from the expectations of securities analysts and
investors in any given quarter and, as a result, the market price of the Common
Stock would be materially and adversely affected. Announcements of technological
innovations or new commercial products by the Company or its competitors,
disputes or other developments concerning proprietary rights, including patents
and litigation matters, publicity regarding new products or technologies under
development by the Company, its licensors or its competitors, general market
conditions, quarterly fluctuations in the Company's revenues and financial
results, as well as the other factors described in these "Risk Factors" and
elsewhere in this Prospectus could have a material adverse effect on the market
price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the Common
Stock. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), and lockup agreements pursuant to which all directors
and officers and certain stockholders of the Company have agreed not to sell or
otherwise dispose of any of their shares without the prior written consent of
NationsBanc Montgomery Securities LLC. However, NationsBanc Montgomery
Securities LLC may at any time without notice release all or any portion of the
securities subject to lockup agreements. The Company has agreed with NationsBanc
Montgomery Securities LLC
17
<PAGE>
not to release any stockholder from any such lockup agreement between the
Company and such stockholder without the consent of NationsBanc Montgomery
Securities LLC. As a result of such restrictions and based upon the number of
shares outstanding as of January 31, 1998, on the date of this Prospectus,
265,061 shares, other than the shares offered hereby, will be eligible
for sale in the public market. An additional 14,291,896 shares and 919,073
shares issuable upon exercise of outstanding vested options will be eligible for
sale 180 days after the date of this Prospectus upon expiration of such lockup
agreements and subject to compliance with certain restrictions set forth in the
rules promulgated under the Securities Act. After this offering, the holders of
approximately 13,007,408 shares of Common Stock will be entitled to certain
demand and piggyback registration rights with respect to registration of such
shares under the Securities Act. If such holders, by exercising their demand or
piggyback registration rights, cause a large number of securities to be
registered and sold in the public market, such sales could have an adverse
effect on the market price of the Common Stock. If the Company were to include
in a Company-initiated registration shares held by such holders pursuant to the
exercise of their piggyback registration rights, such sales may have an adverse
effect on the Company's ability to raise needed capital. See "Description of
Capital Stock--Registration Rights" and "Shares Eligible For Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution of $ in the net tangible book value per
share of their investment from the initial public offering price. Additional
dilution will occur upon exercise of outstanding options, including upon
exercise of outstanding vested options with respect to 919,073 shares of Common
Stock which will be eligible for sale 180 days after the date of this Prospectus
upon expiration of lockup agreements. See "Dilution" and "Shares Eligible For
Future Sale; Registration Rights."
ABSENCE OF DIVIDENDS
The Company has not paid any cash dividends and does not presently intend to
pay cash dividends. The Company currently intends to retain all available funds
and any future earnings for use in the operations of its business. It is not
likely that any cash dividends will be paid in the foreseeable future. See
"Dividend Policy."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus including, without
limitation, statements containing the words "believes," "anticipates," "expects"
and words of similar import, constitute "forward-looking statements." Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others: the ability of
the Company to successfully commercialize the SalEst system and any future
products, the ability of the Company to develop additional products, the ability
of the Company to obtain third-party reimbursement for the SalEst system and any
future products and the Company's ability to manage future growth, if any.
Certain of these factors are discussed in more detail elsewhere in this
Prospectus including, without limitation, under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby at an assumed public offering price of $ per share are
estimated to be $ ($ if the Underwriters' over-allotment option is
exercised in full). The Company intends to use the net proceeds from this
offering for the following purposes: (i) approximately $12.0 million to develop
sales, marketing and distribution capabilities including hiring a direct sales
force, developing appropriate product promotional materials and covering the
initial launch of the SalEst system; (ii) approximately $7.0 million to expand
research and development activities, including the development of new chemical
assays for SalEst system enhancements or new products; (iii) approximately $1.0
million to expand clinical trials to include cost/benefit studies for marketing
activities and to support product development; and (iv) approximately $12.0
million to provide working capital for general corporate purposes. The amounts
and timing of the Company's expenditures may vary significantly from those
described above depending upon numerous factors, including market acceptance of
the SalEst system, expenditures required for the Company's research and
development programs, the results of clinical trials, the timing of regulatory
actions, the availability of reimbursement by third-party payors and the timing
of the transition to commercial-scale manufacturing of the SalEst system.
Pending use of the net proceeds for the above purposes, the Company plans to
invest the net proceeds of this offering in short-term, investment grade,
interest-bearing securities.
DIVIDEND POLICY
The Company has paid no cash dividends on its capital stock and does not
anticipate that it will pay cash dividends on its capital stock in the
foreseeable future. The Company currently intends to retain all available funds
and any future earnings for use in the operations of its business. Any payment
of future dividends and the amounts thereof will be dependent upon the Company's
earnings, financial requirements, and other factors deemed relevant by the
Company's Board of Directors.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on a historical basis which reflects the conversion of all
outstanding shares of Preferred Stock into Common Stock immediately prior to the
effectiveness of the registration statement for this offering and (ii) as
adjusted to give effect to the sale of shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $ per share
and application of the net proceeds therefrom, the issuance of the Dividend
Shares and the issuance of the Warrant Shares. See "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Preferred Stock, par value $.001 per share, 14,004,513 shares authorized, no shares
issued and outstanding historical; 5,000,000 shares authorized, no shares issued and
outstanding as adjusted................................................................ $ -- $
Common Stock, par value $0.001 per share; 23,246,164 shares authorized and 13,826,312
shares issued and outstanding, historical (1); 30,000,000 shares authorized and
shares issued and outstanding as adjusted (2).......................................... 14
Additional paid-in capital............................................................... 19,425
Deferred compensation.................................................................... (729) (729)
Unrealized gain on investments........................................................... 73 73
Deficit accumulated during the development stage......................................... (11,755) (11,755)
---------- -----------
Total capitalization................................................................. $ 7,028 $
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Excludes as of December 31, 1997 (i) 1,719,588 shares of Common Stock
issuable upon exercise of outstanding options under the Company's option
plans, (ii) the Warrant Shares and (iii) the Dividend Shares. See
"Management--Employee Benefit Plans" and Note 4 to Financial Statements.
(2) Excludes 1,719,588 shares of Common Stock issuable upon exercise of
outstanding options under the Company's option plans as of December 31,
1997.
20
<PAGE>
DILUTION
The historical net tangible book value of the Company as of December 31,
1997 (assuming the conversion of all outstanding shares of Preferred Stock into
Common Stock ) was approximately $7.0 million, or $0.51 per share of Common
Stock. The historical net tangible book value per share is determined by
dividing the historical net tangible book value (tangible assets, less total
liabilities, including cumulative dividends to be settled by the Dividend
Shares) of the Company by the number of shares of Common Stock outstanding,
including shares of Common Stock to be issued from the conversion of the
Preferred Stock immediately prior to the effectiveness of the registration
statement for this offering. Without taking into account any other changes in
the net tangible book value after December 31, 1997, other than to give effect
to (i) the receipt by the Company of the estimated net proceeds from the sale of
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $ per share and (ii) the effect of the issuance of
the Warrant Shares and the Dividend Shares, the pro forma net tangible book
value of the Company as of December 31, 1997 would have been $ or $ per
share. This represents an immediate increase in the net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $
Historical net tangible book value per share before the offering
(1)........................................................... $ 0.51
Increase per share attributable to new investors (2)............
---------
Pro forma net tangible book value after offering....................
---------
Dilution to new investors...........................................
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1997, the difference between the existing stockholders and purchasers of new
shares in the offering (at an assumed initial public offering price of $ per
share and before deducting underwriting discounts and estimated offering
expenses payable by the Company) with respect to the number of Shares purchased
from the Company, the total consideration paid and the average price per share
paid:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders (3)....................................
New investors................................................
Total.................................................... 100.0% 100.0%
</TABLE>
- ------------------------
(1) Excludes the effect of the issuance of the Warrant Shares. If the issuance
of the Warrant Shares is included, then historical net tangible book value
per share before the offering would amount to $0.52.
(2) The foregoing tables assume no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options under the Company's option
plans. As of December 31, 1997, options to purchase 1,719,588 shares of
Common Stock were outstanding under the Company's option plans with a
weighted average exercise price of $0.33 per share. The foregoing tables
also exclude 1,000,000 shares reserved for issuance under the 1998 Stock
Option Plan, 500,000 shares reserved for issuance under the 1998 Employee
Stock Purchase Plan and 300,000 shares reserved for issuance under the 1998
Directors Stock Option Plan. To the extent that options are exercised and
shares of Common Stock are issued, there will be further dilution to new
investors. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources,"
"Management--Employee Benefit Plans" and "Description of Capital Stock."
(3) Includes the effect of the issuance of the Warrant Shares and the Dividend
Shares.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected balance sheet data as of December 31, 1996 and 1997 and the
selected statement of operations data for the years ended December 31, 1995,
1996 and 1997 have been derived from the audited financial statements of the
Company that are included elsewhere in this Prospectus. The statement of
operations data for the years ended December 31, 1993 and 1994 and the balance
sheet data as of December 31, 1993, 1994 and 1995 have been derived from audited
financial statements of the Company not included in this Prospectus. The data
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Expenses:
Research and development......................................... $ 360 $ 767 $ 1,059 $ 2,156 $ 1,989
General and administrative....................................... 225 330 676 1,465 1,964
--------- --------- --------- --------- ---------
Operating loss............................................... (585) (1,097) (1,735) (3,621) (3,953)
Interest income.................................................... 6 11 28 58 110
--------- --------- --------- --------- ---------
Net loss........................................................... (579) (1,086) (1,707) (3,563) (3,843)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic net loss per share (1)....................................... $ (.34) $ (.38) $ (.37) $ (.48) $ (.35)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing basic net loss per share.................. 1,703 2,842 4,593 7,365 10,857
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.............. $ 502 $ 853 $ 1,106 $ 1,440 $ 8,268
Working capital................................................ 432 715 837 489 6,905
Total assets................................................... 508 857 1,174 1,533 8,497
Stockholders' equity........................................... 438 718 900 523 7,028
</TABLE>
- ------------------------
(1) See Note 2 of Notes to Financial Statements for an explanation of the shares
used in computing per share amounts.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE DISCUSSION BELOW CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT ARE
BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT, AS WELL AS ASSUMPTIONS MADE
BY, AND INFORMATION CURRENTLY AVAILABLE TO, THE COMPANY'S MANAGEMENT. THE
COMPANY'S FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY
FROM THOSE EXPRESSED IN, OR IMPLIED BY, ANY SUCH FORWARD-LOOKING STATEMENTS. SEE
"RISK FACTORS" FOR A DISCUSSION OF FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH MATERIAL DIFFERENCES. THE FOLLOWING DISCUSSION SHOULD BE READ IN
CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE
IN THIS PROSPECTUS.
OVERVIEW
Biex is a women's health care company focused on developing and marketing
innovative solutions for maternity management. The Company's SalEst system is a
screening system that aids in the identification of women at risk of spontaneous
preterm labor and delivery in singleton pregnancies (i.e., pregnancies in which
there is only a single fetus). The SalEst system measures the level of estriol,
an estrogen hormone considered critical in preparing the uterus for labor and
delivery, in a pregnant woman's saliva. From its inception in 1991 until the end
of 1997, the Company's primary focus has been on obtaining FDA approval for the
SalEst system. The Company filed a PMA application with the FDA during the
summer of 1997 to obtain marketing approval of the SalEst system to be used as
an aid in screening for the risk of spontaneous preterm labor and delivery and
received approval from the FDA in April 1998. The Company is preparing to
commercially launch the SalEst system in the United States.
Since its inception, the Company's primary operating activities have
consisted of research and development, patent related activities, clinical
trials, personnel recruitment and raising capital. From inception through
December 31, 1997, the Company had an accumulated deficit of approximately $11.8
million. The Company anticipates that operating losses will continue and will
increase until the Company's SalEst system generates adequate sales to enable
the Company to achieve profitability. The Company is working to structure
reimbursement rates for the SalEst system with major third-party payors in the
United States. The Company does not expect to achieve significant sales unless
and until such reimbursement approvals are obtained for the SalEst system. To
date, the Company's operations have been funded primarily by equity financing.
The Company intends to sell the SalEst system through a direct sales force
that will target physicians and payors. The Company is also seeking strategic
partners in the United States to access these customers. Additionally, the
Company intends to pursue commercial introduction of the SalEst system
internationally through strategic partners which have significant market
presence and experience in the international women's health care market. It is
expected that these international partners would be responsible for all sales,
marketing, regulatory and reimbursement approvals for the SalEst system in their
respective territories.
The Company expects to incur substantial costs related to sales and
marketing activities associated with the United States launch of the SalEst
system, expansion of laboratory capabilities, clinical trials, regulatory
activities and product and process development. It is expected that there will
be a significant delay between the increased levels of spending and any
resulting increase in revenues. Accordingly, the Company expects to remain
unprofitable through at least 1999. There can be no assurance that the Company
will become profitable after that time or, that if it becomes profitable, it
will remain so in future periods. The Company's future operating results are
likely to fluctuate substantially from period to period and will depend upon
numerous factors, many of which are outside the Company's control. Such factors
include, but are not limited to, the extent to which the SalEst system gains
market acceptance as a maternity management tool, the timing and level of sales
through direct sales channels and strategic partners, increased research and
development costs, the introduction of new products and technologies by the
Company or its competitors, the rate and size of expenditures associated with
the implementation of
23
<PAGE>
the Company's direct marketing strategy of the SalEst system in the United
States, availability and cost of component parts from the Company's suppliers
and developments with respect to regulatory matters.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
RESEARCH AND DEVELOPMENT COSTS. Research and development costs generally
comprise salaries paid to employees engaged in research and development
activities, clinical trials, new marker evaluation, travel and laboratory
supplies. Research and development costs decreased approximately 10% to $2.0
million in 1997 from $2.2 million in 1996. This decrease was primarily
attributable to the completion of the Company's pivotal clinical trial for the
SalEst system in December 1996, partially offset by increases due to new
employee hiring and chemical assay development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
generally comprise salaries paid to all employees other than those engaged in
research and development activities and aggregate fees paid to outside
professionals, including legal and accounting fees and fees for consulting
services paid to information specialists, as well as travel and facilities.
General and administrative expenses increased approximately 33% to $2.0 million
in 1997 from $1.5 million in 1996. This increase was primarily due to the hiring
of additional marketing and administrative staff.
DEFERRED COMPENSATION. Deferred compensation of $747,000 was recorded in
1997, representing the difference between the exercise prices of certain options
granted and the deemed fair value of the Company's Common Stock on the grant
dates. Deferred compensation expense of $18,000 attributed to such options was
amortized during the year ended December 31, 1997. The remaining deferred
compensation will be amortized over the vesting period of the options (generally
four years).
INTEREST INCOME. Interest income increased approximately 90% to $110,000 in
1997 from $58,000 in 1996 due to higher average cash balances in 1997 resulting
from the Company's sale of equity securities.
NET LOSS. As a result of the factors described above, net loss increased
approximately 6% to $3.8 million in 1997 as compared to $3.6 million in 1996.
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
RESEARCH AND DEVELOPMENT COSTS. Research and development costs increased
approximately 100% to $2.2 million in 1996 from $1.1 million in 1995. This
increase was primarily due to clinical trial costs related to the Company's
pivotal clinical trial for the SalEst system.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately 122% to $1.5 million in 1996 from $676,000 in 1995. This
increase was primarily due to the hiring of marketing and administrative staff,
market research expenses and moving expenses and operating costs associated with
the Company's relocation to California from Colorado.
INTEREST INCOME. Interest income increased approximately 107% to $58,000 in
1996 from $28,000 in 1995 due to higher average cash balances in 1996 resulting
from the Company's sale of equity securities.
NET LOSS. As a result of the factors described above, net loss increased
approximately 112% to $3.6 million in 1996 as compared to $1.7 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since its inception through private
placements of its equity securities, supplemented by interest income earned on
investments of cash. Since inception, the Company has raised aggregate gross
proceeds of $18.9 million from the sale of equity securities through private
24
<PAGE>
placements. At December 31, 1997, the Company had cash, cash equivalents and
short-term investments totaling $8.3 million and working capital of $6.9
million.
The Company has a lease line of credit under which it may enter into
operating leases for up to $700,000 of furniture, fixtures and equipment. The
line of credit expires in September 1998. The Company has no indebtedness.
Although the Company has no commitments to purchase capital equipment, it
expects that it will make such purchases in the future and anticipates that the
credit line, together with existing working capital resources, will be
sufficient to cover such anticipated purchases over the next twelve months.
From inception through December 31, 1997, the Company's cash used for
operating activities and capital expenditures was $10.3 million and $159,000,
respectively. The operating expenditures were used primarily to finance research
and development and clinical trials, marketing research and general
administration. The Company expects that amounts expended historically are not
indicative of future expenditures, which the Company believes will increase
significantly. The Company expects to continue to incur substantial expenses
related to the further development of its products and technologies, acquisition
of rights to additional clinical markers, and sales and marketing. These
expenses will include, but are not limited to, increases in personnel and
personnel related costs, inventory and capital expenditures, and may also
include costs of facilities expansion.
The Company believes that existing capital resources, together with the net
proceeds of this offering and the interest income earned thereon, will satisfy
the Company's working capital requirements and expected capital expenditures for
at least the next 12 months. However, the Company's capital requirements depend
upon numerous factors, including the commercialization of the SalEst system,
progress of the Company's clinical research and product development programs,
the receipt of and time required to obtain regulatory authorizations and the
resources the Company devotes to developing, manufacturing and marketing its
products, as well as other factors. The timing and amount of such capital
requirements cannot accurately be predicted. It is possible that the Company
will require additional funding. There can be no assurance that additional
funding will be available on terms acceptable to the Company, or at all.
Insufficient capital may require the Company to delay, scale back or eliminate
certain of its research and development programs or to attempt to license to
third parties the rights to commercialize products or technologies that the
Company itself would otherwise undertake.
The Company does not anticipate any significant costs, problems or
uncertainties associated with the "Year 2000" issue with regard to the Company's
financial reporting and other data processing systems. The Company uses an
outside provider to process its payroll and the provider has informed the
Company that the provider's systems are Year 2000 compliant.
As a result of the net losses incurred from inception, the Company has not
incurred any income tax obligations. As of December 31, 1997, the Company has
$5.6 million of net operating loss carryforwards for income tax purposes, $4.8
million of capitalized start-up costs, and $101,000 of research and development
tax credits available to offset future federal income tax, subject to
limitations for alternative minimum tax. The net operating loss and credit
carryforwards are subject to examination by the tax authorities and expire in
various years from 2006 through 2012. The Internal Revenue Code contains
provisions that may limit the net operating loss and credit carryforwards
available to be used in any given year upon the occurrence of certain events,
including significant changes in ownership interest. The principal differences
between losses for financial and tax reporting purposes are the result of the
capitalization of start-up costs for tax purposes.
25
<PAGE>
BUSINESS
THE COMPANY
Biex is a women's health care company focused on developing and marketing
innovative solutions for maternity management. The Company's proprietary SalEst
system, which measures the level of the hormone estriol in a pregnant woman's
saliva, received FDA approval in April 1998 after expedited review as an aid in
identifying women at risk of spontaneous preterm labor and delivery in singleton
pregnancies. The Company believes the SalEst system's ability to aid in the
accurate identification of those women most likely to deliver at term is a
powerful tool in the clinical management of pregnancies inaccurately categorized
as high risk by traditional screening methods. These inaccuracies often result
in unnecessary and costly interventions and treatments. In addition, clinical
results demonstrate that the SalEst system is an improved method of identifying
high risk women inaccurately categorized as low risk by traditional screening
methods. These women account for the majority of preterm deliveries. Early and
accurate identification of risk will allow physicians to provide appropriate
levels of clinical management and intervention, providing opportunity to prolong
pregnancies and decrease the morbidity, mortality and associated costs for
mothers and babies.
PRETERM LABOR AND DELIVERY OVERVIEW
Preterm labor and delivery is a major health care problem worldwide.
According to the National Center for Health Statistics, of the estimated four
million births in the United States each year, approximately 11% or more than
400,000 occur preterm. Despite significant clinical intervention, over 40,000 of
these babies die each year. The prevalence of preterm births increased from 9.4%
of all births in 1984 to 11.0% of all births in 1994.
Widespread efforts to increase prenatal care in the United States began in
the early 1960's. As a result of these efforts, the percentage of women
receiving prenatal care during the first trimester of pregnancy reached 80% in
1994. However, despite improvements in the level of prenatal care, preterm
delivery causes 75% of newborn morbidity and mortality in the United States and
is the leading cause of neonatal intensive care unit admissions. Industry data
indicates that costs associated with the care of preterm infants, including
neonatal intensive care, add over $10 billion annually to pre-discharge infant
health care costs in the United States. Those preterm babies that survive are
often subject to one of many serious diseases that are more common in preterm
babies, such as respiratory distress syndrome ("RDS"), cerebral palsy, epilepsy,
blindness, and learning disabilities. Nearly one-half of neurological
impairments in children, including 40% of cerebral palsy cases, have been
attributed to preterm delivery.
There is a direct correlation between the degree of prematurity of the baby
and the morbidity, mortality and associated costs for mothers and babies. In
order to enable the physician to manage high risk pregnancies aggressively,
providing opportunity to prolong these pregnancies and improve birth outcomes,
it is imperative that women at risk be accurately identified. Additionally,
because the interventions associated with the management of high-risk
pregnancies are costly and may expose the mother to unnecessary treatments, it
is equally important that women at low risk be accurately identified.
CAUSES OF PRETERM LABOR AND DELIVERY
Full-term delivery occurs between 37 and 42 weeks of gestation. Preterm
delivery is defined as delivery after 22 weeks but before 37 weeks of gestation,
with a majority occurring between 30 and 37 weeks. Preterm delivery is caused by
many factors, including the spontaneous commencement of uterine contractions
("spontaneous preterm labor"), infection of the membranes surrounding the fetus,
premature rupture of these membranes, and physician induction of labor.
Approximately 60% or 240,000 of all preterm deliveries in the United States each
year result from spontaneous preterm labor. The Company believes the primary
cause of spontaneous preterm labor is a surge of the hormone estriol.
26
<PAGE>
Estriol is an estrogen hormone considered to be critical in the normal
biological events preceding labor and delivery. The substrate for estriol, the
hormone dehydroepiandrosterone ("DHEA"), is produced by the fetal adrenal
glands. In a normal pregnancy a surge in DHEA occurs in the four weeks prior to
delivery. This hormone is metabolized by both the fetal liver and the placenta
into estriol which is then released into the maternal circulation as
unconjugated, unbound biologically active estriol. The surge of estriol, which
typically occurs in a term pregnancy after 36 weeks of gestation, is a normal
physiological event that prepares the uterine muscle for the organized
contractions required in spontaneous labor and is believed to be a fetal signal
for delivery. The Company believes that detection of this estriol surge is an
accurate predictor of labor and delivery. The estriol surge occurs prior to 36
weeks in preterm labor caused by the hormonal etiology. The following graph
illustrates the estriol surge in a normal full-term delivery with the surge
occurring in the example at 37 weeks and a spontaneous preterm labor and
delivery with the surge occurring in the example at 34 weeks.
THE ESTRIOL SURGE IN A TERM AND PRETERM DELIVERY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ESTRIOL CONCENTRATION
(NG/ML)
<S> <C> <C>
Preterm Delivery Term Delivery
35.3 weeks 39.6 weeks
24 0.9 0.5
26 0.9 0.5
28 0.9 0.7
30 0.9 0.7
32 1.2 0.7
34 2.4 0.8
36 3.7 1.5
38 3.6
40 4.8
42
Preterm Delivery
Gestational Age (weeks)
</TABLE>
SCREENING FOR RISK OF SPONTANEOUS PRETERM LABOR AND DELIVERY
THE TRADITIONAL METHOD. Traditionally, the only clinical tool available to
assess a woman's risk of spontaneous preterm labor and delivery has been the
Creasy method and its modifications. The Creasy method is a subjective
assessment of a woman's risk profile utilizing a variety of socioeconomic,
medical, lifestyle, behavioral and current pregnancy risk factors that is scored
according to a defined protocol. This initial risk assessment is usually made at
the patient's first prenatal visit and is reviewed periodically throughout the
pregnancy. The most important and predictive of the Creasy risk factors is
considered to be a prior preterm delivery. A woman is considered high risk if
her cumulative score is ten or more. A prior preterm delivery is assigned a
score of ten and automatically places the woman in the high risk category. Once
a woman is identified as high risk, she is more likely to receive intervention,
including increased physician office visits, hospital admissions,
pharmacological treatments, additional specialized home care support and medical
leave from work. If a pregnancy is identified as low risk (cumulative score less
than ten), the mother will only receive clinical interventions in the event of
advanced symptoms of preterm
27
<PAGE>
labor, at which point medical interventions are generally less effective. The
table below describes a version of the Creasy method listing several selected
risk factors and their assigned scores.
SELECTED TRADITIONAL (CREASY) RISK FACTORS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
SCORE
RISK FACTOR (POINTS)
<S> <C>
- ------------------------------------------------------------------
SOCIOECONOMIC
Low socioeconomic status 1
Younger than 20 years or older than 40 years 2
- ------------------------------------------------------------------
MEDICAL AND PREGNANCY HISTORY
Two prior abortions 2
Urinary tract infections 4
Prior preterm delivery 10
- ------------------------------------------------------------------
DAILY HABITS AND LIFESTYLE
Smoking more than 10 cigarettes per day 3
Heavy work or prolonged standing 3
- ------------------------------------------------------------------
CURRENT PREGNANCY
Vaginal bleeding after 12 weeks of pregnancy 4
Uterine irritability 5
Abdominal surgery 10
- ------------------------------------------------------------------
</TABLE>
Given that 40% of all deliveries in the United States are from a first
pregnancy and that the most significant Creasy risk factor is a prior preterm
delivery, the Creasy method has inherent limitations in identifying many women
at risk. Additionally, the Creasy method is of limited value in directing
intervention once it has categorized a woman as high risk because it does not
identify the maternal or fetal biological causes of preterm labor and delivery
or the time-frame in which these potential premature deliveries may be expected
to occur. In addition, backaches and mild cramping, which are among the Creasy
risk factors, are often normal discomforts of pregnancy and are consequently
subject to misinterpretation by the physician or the mother, resulting in
possible over or under treatment.
The traditional method identifies approximately 15% of pregnant women, or
600,000 women each year, as high risk. However, this method has not proved to be
highly accurate in practice. Studies of the traditional method demonstrate that
approximately 80% of the women identified as high risk, or 480,000 women each
year, actually deliver at term. The Company believes that a significant
proportion of these women were inaccurately identified as high risk. Studies
also demonstrate that up to 80% of the women who actually experience preterm
delivery, or 320,000 women each year, are not identified as high risk by the
traditional method. Approximately 192,000 of these preterm deliveries result
from spontaneous preterm labor.
OTHER SCREENING APPROACHES. Other techniques for identifying the risk of
spontaneous preterm labor and delivery are in various stages of development and
market acceptance. The FDA has approved for marketing a diagnostic test to
measure a protein, fetal fibronectin, which is a component of the amniotic fluid
and fetal membranes which surround the fetus. It is believed that when these
membranes are compromised by inflammation, infection or mechanical disruption,
fetal fibronectin is released into the vaginal secretions. The secretions can be
gathered by a physician and the level of fetal fibronectin determined using an
immuno assay. A study by the National Institutes of Health has shown that the
fetal fibronectin test identifies approximately 24% of preterm deliveries.
Recently, vaginally inserted ultrasound probes have been used to assess
cervical length and dilation and as a tool for determining the risk of
spontaneous preterm labor and delivery. Use of these probes is currently limited
to specially trained physicians and their accuracy is dependent on specific user
technique.
28
<PAGE>
The Company believes this method is of limited utility after 32 weeks of
gestation because cervical dilation may occur in a normal pregnancy after that
time, particularly in women who have had prior pregnancies.
INTERVENTIONS FOR WOMEN AT HIGH RISK OF SPONTANEOUS PRETERM LABOR AND DELIVERY
When a woman is identified as high risk for spontaneous preterm labor and
delivery, a number of steps are taken beginning at 22 weeks of gestation to
reduce the likelihood that she delivers preterm. While clinical practice varies
significantly among physicians, the most common first step is to increase the
frequency of physician office visits from monthly to bi-weekly. During the
typical office visit for a high risk pregnancy, the physician will perform a
physical exam and discuss with the mother the signs and symptoms of preterm
pregnancy. This increased surveillance and the related education process has
been shown to be effective in facilitating early detection of the signs or
symptoms of preterm labor.
If a woman exhibits symptoms of preterm labor, she is immediately assessed
regarding the status of the pregnancy and is often referred to the labor and
delivery ward for observation and diagnostic assessment, which may include fetal
heart rate monitoring, ultrasound and amniocentesis for fetal lung maturity. The
woman may then be admitted to the hospital for additional observation and
assessment. If delivery is not imminent, a physician will typically recommend
bed rest, hydration, work leave or specialized home care support. Some
physicians may also choose to prescribe tocolytics, which are drugs that have
been shown to prolong pregnancy by several days to weeks by suppressing uterine
contractions. If the delivery seems imminent, tocolytics are given immediately
to prolong the pregnancy. In addition, corticosteroid therapy, principally in
the form of betamethasone, may be administered to the mother to accelerate fetal
lung development in utero and thereby reduce the chances of RDS, and to reduce
the incidence of cerebral hemorrhage. Preterm infants diagnosed with RDS often
require ventilation in a neonatal intensive care unit and are associated with
increased short and long-term morbidity and mortality. Studies have demonstrated
that corticosteriod therapy can reduce neonatal health care costs by an average
of $3,000 per preterm delivery. However, in order to be most effective,
corticosteroid therapy must be administered 24 to 48 hours prior to delivery,
making early diagnosis of the preterm delivery critical.
The Company believes that certain pharmaceutical companies are developing
drugs that are designed to suppress uterine contractions more effectively than
currently available tocolytics by acting on the biological events specifically
caused by the estriol surge.
The success of clinical intervention relies heavily on the physician's
ability to make early identification of the risk of spontaneous preterm labor
and delivery. Administration of currently available tocolytics and bed rest as a
means of prolonging pregnancy are often successful only when labor is diagnosed
before advanced dilation of the cervix has occurred. The Company believes that
the efficacy of new tocolytics being developed also will be dependent on the
early identification of risk. In addition, the early identification of women at
increased risk will allow the patient and physician to make arrangements to
transfer the mother if necessary to a hospital with a neonatal intensive care
facility which can improve clinical outcomes and reduce costs.
THE ECONOMICS OF PRETERM LABOR AND DELIVERY
As a result of the predictive limitations of existing screening and
diagnostic tools, the assessment of many women's risk profiles for preterm labor
and delivery is inaccurate. Women who are inaccurately identified as high risk
undergo unnecessary treatments and interventions for spontaneous preterm labor
and delivery. According to industry sources, if a woman is identified as high
risk by the traditional method but delivers at term, the average medical costs
for the mother are approximately $9,600. If that woman were accurately
identified as low risk, the average cost would be $7,500, saving approximately
$2,100 per mother. Maternal care costs for women inaccurately classified as high
risk by traditional screening methods exceed one billion dollars annually.
Conversely, many other mothers are inaccurately identified as low risk and
are excluded from the potential benefits of existing interventions. This
ultimately leads to emergency medical care at the
29
<PAGE>
unexpected onset of preterm labor, resulting in significant costs due to
maternal and newborn hospitalization, and often leads to major acute and chronic
neonatal disorders. If these women could be identified accurately as high risk,
their pregnancies may be prolonged with appropriate medical treatment, and
pregnancy outcomes may be improved by timely treatment with corticosteroids.
These treatments would not only result in substantial medical benefit to the
mother and baby, but also would result in substantial cost savings. Average
neonatal care costs through initial hospital discharge increase significantly as
gestational age decreases.
COSTS OF NEONATAL CARE
<TABLE>
<CAPTION>
- ----------------------------------------------------------
GESTATIONAL AGE NEWBORN COST VERSUS
(WEEKS) COST TERM DELIVERY
<S> <C> <C>
- ----------------------------------------------------------
Term delivery $ 3,700 1.0x
35.5 - 37.0 $ 7,900 2.1x
33.5 - 35.5 $ 13,300 3.6x
30.0 - 33.5 $ 46,400 12.5x
Less than 30.0 $ 155,700 42.1x
- ----------------------------------------------------------
</TABLE>
In addition to the improved medical management of the preterm pregnancy and
the associated cost savings, significant economic benefit can be gained by
managed care and other third-party payors not only through appropriate
identification of those women at risk but also through the referral of those
patients to appropriate provider networks and contract hospital facilities.
Large urban communities typically have several facilities that offer high risk
maternal and neonatal care. However, managed care contracts will generally have
preferred provider arrangements with a limited number of these facilities and
providers. The prospective identification of high risk women allows for referral
of these women to those preferred provider organizations with contracted
reimbursement rates. In addition, improved identification of risk can enable the
transfer of high risk women from a rural community to an urban medical facility
with a sophisticated neonatal intensive care unit, thus improving clinical
outcomes.
THE SALEST SOLUTION
The Company's proprietary SalEst system, which was internally discovered and
developed, provides objective identification of women at risk of spontaneous
preterm labor and delivery by measuring salivary estriol. The Company believes
the key advantages of the SalEst system include:
REDUCTION OF INACCURATE HIGH RISK ASSESSMENTS
It is anticipated that the SalEst system will be used initially as an aid to
rule out preterm labor and delivery in patients who are considered high risk by
traditional screening methods. Clinical testing of the SalEst system indicated
that patients with persistent low estriol levels prior to 36 weeks had a 98%
chance of not experiencing spontaneous preterm labor and delivery. This high
negative predictive value provides an increased level of assurance that the
woman is at reduced risk of preterm labor and delivery, providing opportunities
to reduce the maternal costs associated with high risk care which include
unnecessary physician office visits, specialized home care support costs,
hospital and drug treatment costs, as well as avoiding unnecessary exposure of
low risk women inaccurately classified as high risk to invasive and other
interventions.
30
<PAGE>
IMPROVED IDENTIFICATION OF WOMEN AT RISK OF PRETERM LABOR AND DELIVERY
Results from the Company's clinical trials indicated that women who had
consecutive elevated estriol levels were almost eight times more likely to
experience preterm labor and delivery than those women with low estriol levels.
These results indicated that the SalEst system identified 50% of the women
missed by traditional risk screening methods. The Company believes that use of
the SalEst system in the general population has the potential to reduce the
number of pregnancies managed as high risk each year from 600,000 to less than
400,000. Improved identification of these pregnancies inaccurately classified as
low risk will create opportunities for risk-specific intervention to prolong
pregnancies, improve birth outcomes and enable referrals of the mothers to
appropriate provider networks.
COST EFFECTIVE METHOD OF RISK ASSESSMENT
The Company believes that by reducing unnecessary interventions and
providing opportunity to improve maternal and neonatal outcomes, the SalEst
system will provide significant cost savings to payors. It is anticipated that
these cost savings will support reimbursement for the SalEst system. The Company
has developed a proprietary comprehensive cost-benefit model. Based on
industry-accepted actuarial data from 10,000 singleton pregnancies and the
Company's pivotal clinical trial, the model demonstrates the cost-effectiveness
of the SalEst system and will enable individual payors to perform customized
cost/ benefit analyses based on their actual enrollment and historical cost
experiences.
IDENTIFICATION OF BIOLOGICAL CAUSES
The traditional method of risk assessment is based on subjective
non-cause-specific risk factors. Subjective risk factors have the disadvantage
of requiring treatment of the entire pregnancy as high risk, without first
identifying a cause upon which to base therapy. By contrast, the SalEst system
identifies a hormonal cause of preterm labor two to three weeks prior to
delivery, creating opportunities for timely cause-specific therapeutic
interventions.
EASE OF USE
The SalEst system, a saliva-based test, is convenient and noninvasive. The
convenience of the SalEst system enables sample collection in the physician's
office, patient's home or workplace. Unlike blood, urine or cervical vaginal
secretions, saliva samples do not require special handling. The Company believes
that the convenient collection format will enhance patient compliance and lower
the cost of sample collection.
BUSINESS STRATEGY
Biex is a women's health care company focused on developing and marketing
innovative solutions for maternity management. The Company is focused on
establishing the SalEst system as a routine method of aiding in the
identification of women who are at risk of spontaneous preterm labor and
delivery. Key elements of the Company's strategy are:
LAUNCH THE SALEST SYSTEM
The SalEst system received FDA approval in April 1998 after expedited review
for use as an aid in identifying women at risk of spontaneous preterm labor and
delivery in singleton pregnancies. The Company intends to commercially launch
the SalEst system in the United States through a direct sales force that will
target physicians and payors. In order to create physician and payor demand, the
Company is developing a comprehensive sales and marketing program that includes
medical and payor professional education programs, broad-based marketing
communications, direct sales contact with physicians and payors and symposia.
The Company also is seeking the publication of peer-reviewed medical journal
articles relating to the SalEst system. In addition, the Company plans to form
strategic alliances with major
31
<PAGE>
pharmaceutical, medical device, consumer product and disease management
companies to gain additional market exposure and access to established
distribution channels.
ESTABLISH REIMBURSEMENT
The Company is working to structure reimbursement rates for the SalEst
system with major third-party payors in the United States. The Company is
positioning the SalEst system's clinical results and potential to impact the
high cost of maternal and newborn care, a major cost target for managed care
organizations, as the foundation for obtaining reimbursement for the SalEst
system. In order to demonstrate the cost-effectiveness of the SalEst system, the
Company has developed a comprehensive cost/ benefit model using actuarial data
from 10,000 singleton pregnancies. When combined with data from the Company's
pivotal clinical trial, this model will enable health care payors to assess the
potential financial benefits of improving risk assessment and delivering an
appropriate level of prenatal care. The model is designed to enable individual
payors to perform a customized cost/benefit analysis based on their actual
enrollment and historical cost experiences.
BUILD PROPRIETARY CLINICAL DATABASE
The Company is developing a proprietary data collection, management and
reporting system to support the SalEst system. Biex will collect a database of
outcome data including information such as traditional risk identification,
SalEst system results, care paths, interventions initiated and maternal and
newborn outcomes. The Company believes that this outcome and care path database
may increase the predictive value of the SalEst system and will provide proof to
third-party payors of the effectiveness of the SalEst system in improving
outcomes and thereby reducing costs associated with maternal and newborn care.
The Company's database is expected to provide the framework that will allow
payors and physicians to more accurately apply appropriate care paths to their
patients and apply disease management models to maternal and newborn care.
LEVERAGE CORE TECHNOLOGY
The Company plans to expand applications of its estriol-based technology by
testing for other indications such as the likelihood of successful labor
induction, identification of patients most likely to benefit from interventional
drug therapies, monitoring of tocolytic therapy, prediction of labor onset in
term deliveries and identification of women at risk of post-term delivery. The
Company is also beginning to investigate additional markers to complement the
SalEst system by exploring tests for other causes of spontaneous preterm labor
and delivery, such as infection.
ESTABLISH INTERNATIONAL PRESENCE THROUGH STRATEGIC PARTNERS
The Company intends to pursue commercial introduction of the SalEst system
internationally through the use of strategic partners. The Company expects that
these strategic partners would be responsible for all sales, marketing,
regulatory and reimbursement approvals in exchange for a percentage of the
revenues from SalEst system sales.
THE SALEST SYSTEM
THE SALEST TESTING PROCESS
The SalEst system is an aid in identifying women at risk of spontaneous
preterm labor and delivery by measuring the level of salivary estriol. The
Company's clinical research has shown that if an estriol surge occurs prior to
36 weeks of gestation, the woman is at increased risk of spontaneous preterm
labor and delivery.
The patient's saliva is collected using the Company's proprietary Collection
Kit. The Collection Kit contains a collection tube and plunger with an
anti-microbial filter that allows for the filtration and
32
<PAGE>
stabilization of the saliva sample. The sample, which can be collected in the
physician's office, patient's home or workplace, is then sent to the Company's
laboratory for testing via a preaddressed overnight shipping envelope that is
contained in the Collection Kit. Saliva samples are stable for long periods of
time and, unlike blood, urine or cervical vaginal secretions, do not require
temperature-controlled or other specialized handling during shipment. The
Company's laboratory processes saliva samples in batches which take
approximately 90 minutes to analyze. The results are distributed to the
physician through a variety of methods depending on the urgency of the results,
and may include facsimile, telephone, Internet or regular or overnight mail
notification.
The Company recommends the use of the SalEst system starting as early as 22
weeks of gestation. After an initial test, the SalEst system can be used every
one to two weeks until the woman has reached 36 weeks of gestation. If the
woman's SalEst system results indicate that a significant estriol surge has
occurred, a follow-up test would be recommended for the following week. Based on
the Company's clinical trials, an elevated salivary estriol level indicates that
a woman is at increased risk of preterm labor and delivery, and when confirmed
by a follow-up test, the patient is at significantly greater risk of preterm
labor and delivery. A non-elevated salivary estriol level indicates a very high
probability that the patient will not experience spontaneous preterm labor and
delivery during the ensuing two to three weeks.
THE SALEST SERVICE
The Company is implementing a comprehensive service program for the SalEst
system. The service program will consist of several elements designed to assist
the physician, patient and payor to obtain maximum benefit from the SalEst
system. After a physician has been enrolled in the program, they will have
access to the results of individual tests and the cumulative serial results for
each patient's testing sequence. In addition, physicians and payors will receive
regular reports on the results and outcomes for their patients.
A patient will receive her initial Collection Kit directly from her
physician. The Collection Kits required for further sequential testing will be
shipped directly to the patient's home from the Company's laboratory. Each
Collection Kit will have a unique identification number that will enable the
laboratory to track and identify each individual collection tube from the
shipping warehouse to the patient's home and back to the laboratory for
analysis. The Company will track and manage each patient's compliance in order
to determine when her sample should arrive in the laboratory. If a sample does
not arrive as expected, the Company will alert the patient or her physician to
assist with her compliance. Appropriate compliance will ensure that the
physician, patient and payor receive the maximum benefit afforded by the SalEst
system.
The Company believes that physicians and payors will also benefit from the
Company's proprietary outcome database. The Company intends to follow each
enrolled patient through her delivery to obtain primary outcome statistics for
the database. The Company believes that this outcome and care path database may
increase the predictive value of the SalEst system and will provide proof to
third-party payors of the SalEst system's effectiveness in improving outcomes
and thereby reducing costs.
CLINICAL TRIALS
The Company commenced clinical trials of the SalEst system in 1992. In three
clinical studies, over 1,000 patients and 15,000 samples underwent SalEst
testing. Initial feasibility studies, which were conducted from July 1993 until
April 1994, focused primarily on establishing efficacy of the SalEst system as
well as establishing clinically significant salivary estriol levels for use in
the SalEst system. In May 1995, the Company commenced its pivotal United States
clinical trial of the SalEst system, the results of which were submitted to the
FDA in the Company's PMA application. The objective of the PMA study was to
establish whether the presence of salivary estriol at concentrations equal to or
greater than 2.1 nanograms per milliliter (2.1 ng/ml) could be used
prospectively as a risk assessment marker for spontaneous preterm labor and
delivery.
33
<PAGE>
In the PMA study, participants were enrolled between 21 and 25 weeks of
gestation and were studied until delivery. Weekly saliva samples were collected,
alternating between clinic and home collection. A total of 956 patients were
enrolled at eight clinical sites in the United States. A total of 302 of these
patients were categorized as high risk, and 654 were categorized as low risk,
under traditional screening methods. Of the 956 patients, 714 were eligible for
inclusion in the study and the remaining patients were excluded due to the
development of one or more of the exclusion criteria, non-compliance or failure
to complete follow-up. Of the 714 patients included in the study, the primary
endpoint was performed on a total of 601 patients, comparing the incidence of
spontaneous preterm labor and delivery in women with high estriol levels to
women with low estriol levels. The 601 patients consisted of patients with
spontaneous preterm labor and delivery and patients with no preterm labor and
term delivery. This comparison excluded patients who experienced spontaneous
rupture of membranes, patients with medically indicated preterm deliveries and
patients treated with tocolytics or corticosteriods, which may affect levels of
estriol.
The principal findings and implications of the pivotal PMA study are as
follows:
- Patients with persistent low estriol levels (I.E., below 2.1 ng/ml) prior
to 36 weeks of gestation had a 98% (negative predictive value) chance of
not experiencing spontaneous preterm labor and delivery.
- The incidence of preterm labor and delivery was significantly higher in
patients with a high estriol level as compared to patients with a low
estriol level. Patients with a high estriol level that was confirmed by a
consecutive test prior to 36 weeks of gestation had a 1 in 5 chance
(positive predictive value) of experiencing spontaneous preterm labor and
delivery, as compared to 1 in 50 for patients with low estriol levels.
- Among all patients, the mean time to delivery after an initial high
estriol test was 2.3 weeks. A single positive SalEst test, confirmed by a
consecutive positive test, indicated a 71% likelihood of delivery within
three weeks. Among the eight women who delivered preterm and experienced a
single positive SalEst test, confirmed by a consecutive positive test,
100% delivered within three weeks. This supports the Company's belief that
an estriol surge occurs before the major symptoms of preterm labor
commence, providing physicians with a window of opportunity for
appropriate intervention.
- An initial SalEst test identified 57% (sensitivity) of the women
experiencing spontaneous preterm labor and delivery, including 50% of the
cases in the population identified as low risk by the traditional method.
These traditional low risk patients would otherwise have been unidentified
until being diagnosed as undergoing preterm labor, potentially too late
for successful intervention.
- Among patients identified as high risk under the traditional method, the
SalEst system accurately predicted outcomes (I.E., preterm labor and
delivery or its absence) 87.0% of the time whereas the traditional method
accurately predicted outcomes 7.2% of the time.
The SalEst system demonstrated a high negative predictive value with respect
to spontaneous preterm labor and delivery and specificity for term delivery.
Therefore, use of the SalEst system can be used by physicians as an aid to rule
out preterm labor and delivery in patients who are inaccurately classified as
high risk, reducing unnecessary intervention and the cost of maternal
management. The positive predictive value and sensitivity of the SalEst system
may assist physicians in identifying patients inaccurately classified as low
risk by the traditional method who may actually be at increased risk for preterm
labor and delivery.
34
<PAGE>
Relative risk is defined as the ratio of positive predictive value to one
minus the negative predictive value and is used in the assessment of risk in a
low incidence disease such as preterm delivery. The following table illustrates
the relative risk of spontaneous preterm labor and delivery as identified by the
SalEst system, contrasted with certain traditional risk factors measured in a
2,929 patient study conducted by the maternal-fetal unit of the National
Institutes of Health. The SalEst system had a relative risk of 7.9x compared to
the most predictive of the traditional risk factors, prior preterm delivery,
which has a relative risk of 2.6x.
RELATIVE RISK OF THE SALEST SYSTEM COMPARED TO TRADITIONAL RISK FACTORS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SALEST SYSTEM PRIOR PRETERM CERVICAL UTERINE SYMPTOMS
PIVOTAL TRIAL DELIVERY CHANGE CONTRACTIONS OF PTL
<S> <C> <C> <C> <C> <C>
7.9x 2.6x 1.8x 1.6x 1.3x
Traditional Risk Factors - NIH Trial
Relative Rist of Spontaneous Preterm
Delivery
</TABLE>
The FDA-approved labeling for the SalEst system states that the device is
indicated for use as an aid in identifying risk of spontaneous preterm labor and
delivery in singleton pregnancies. The test can be used every one to two weeks
from gestational age 22 weeks until 36 weeks. The SalEst system is labeled for
use as a component of the clinician's assessment of risk for preterm labor and
delivery. The SalEst system is not indicated for use in pregnant women with
suspected ruptured membranes, vaginal infections, uterine abnormalities or those
who are already diagnosed with preterm labor or when treatment with tocolytics
or corticosteroids have been administered. Tocolytics and corticosteroids may
affect the levels of estriol and will lead to potentially inaccurate SalEst test
results. The physician must then rely on physical examinations, ultrasound or
other diagnostic methods to determine whether preterm labor is occurring.
Additionally, the SalEst system is not indicated for use in conjunction with
bleeding gums, intrauterine growth retardation or the presence of fetal demise.
The data collected in the Company's studies may also contain information
regarding potential additional indications for the SalEst system, including
testing for the likelihood of successful induction of birth at term,
identification of patients most likely to benefit from interventional drug
therapy, monitoring of tocolytic therapy, prediction of labor onset for term
delivery and identification of women at risk of post-term delivery. Use of the
SalEst system for these indications, each of which would require FDA approval of
either a PMA supplement or a new PMA application, may be supported by data from
existing clinical trials or may be investigated in future clinical trials.
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FUTURE CLINICAL TRIALS
In February 1998, the Company commenced new clinical trials with the
National Institutes of Health to explore the efficacy of a potential tocolytic
for treating pregnant women with elevated estriol levels. These new clinical
trials are unrelated to the Company's PMA application and consequently are not
being conducted under any FDA-reviewed protocol. Additionally, the Company is
planning clinical trials with major managed care organizations to prospectively
demonstrate the costs and benefits associated with the SalEst system. Finally,
the Company is investigating the use of the SalEst system in possible pilot
intervention studies which would be designed to measure the efficacy of various
interventions on women with elevated estriol levels. Other possible clinical
trials relating to the Company's estriol-based diagnostic technology may include
testing for other indications such as the likelihood of successful labor
induction, prediction of labor onset in term deliveries and identification of
women at risk of post-term delivery.
SALES AND MARKETING
UNITED STATES
The SalEst system was approved by the FDA for sale in the United States in
April 1998 for use as an aid in identifying women at risk of spontaneous preterm
labor and delivery in singleton pregnancies. The Company intends to sell the
SalEst system through a direct sales force that will target physicians and
payors. The field sales team will be headed by regional area directors supported
by obstetrician sales specialists and managed care specialists. As of March 4,
1998, the Company's sales and marketing team consisted of an executive vice
president of sales, marketing and strategic development, a director of
marketing, three regional area directors and six obstetrician sales specialists,
all of whom have significant medical device sales experience, three managed care
specialists and one clinical support specialist. In addition, the Company plans
to form strategic alliances with major pharmaceutical, medical device, consumer
product and disease management companies to gain additional market exposure and
access to established distribution channels.
The Company's sales and marketing plan focuses on reaching those
obstetricians who treat a large number of women. In the United States, there are
approximately 33,000 obstetricians and gynecologists. According to a recent
survey conducted by the American College of Obstetricians and Gynecologists
("ACOG"), approximately 24,000 of these physicians deliver at least one baby per
month, of which approximately 21,000 treat patients identified as high risk
using traditional screening methods. The average practice group of obstetricians
consists of between four and five physicians. Therefore, the Company expects to
target between 4,000 and 5,000 obstetrics practice groups as potential customers
for the SalEst system. The Company estimates that there are approximately 500 to
1,000 physicians specializing in the care of high risk pregnancies
(perinatologists). The Company believes that physicians in this group are likely
to be early adopters of the SalEst system and plans to focus its initial
marketing efforts on this group.
The Company believes that recommendations and endorsements by prominent
physicians and medical groups, as well as the publication of favorable peer
reviewed medical journal articles, are significant factors in gaining physician
and payor acceptance of any new medical procedure. The Company is developing a
comprehensive sales and marketing program to launch the SalEst system that
includes medical and payor professional education programs, broad-based
marketing communications, direct sales contact with physicians and payors and
symposia. In the summer of 1997, the Company was invited to present at an ACOG
symposia on the hormonal pathway to delivery. The Company expects proceedings
from this symposia to be published in a peer-review supplement to THE AMERICAN
JOURNAL OF OBSTETRICS AND GYNECOLOGY. In February 1998, a paper containing the
Company's pivotal clinical trial data was presented to the Society of Perinatal
Obstetricians ("SPO"). The paper was awarded "Best Paper" of the Prematurity
Session and resulted in an invitation by the Society of Gynecological
Investigation to present as part of "The Best of SPO." The Company is also
planning a continuing medical education program in connection with ACOG in May
1998.
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The Company has developed a detailed cost/benefit model for use of the
SalEst system which incorporates industry-accepted actuarial databases and the
Company's pivotal clinical trial results. The model is designed to enable
individual payors to perform a customized cost/benefit analyses based on their
actual enrollment and historical cost experiences. The Company believes that
this cost/benefit model will accelerate third-party reimbursement and market
adoption of the SalEst system.
The Company intends to increase patient awareness by working with major
patient support groups, including Sidelines, whose 5,000 volunteers provide
patient support and advocacy to women with high risk pregnancies. In addition,
the Company will work with major consumer publications in public relations
efforts to improve public awareness of the benefits of the SalEst system. The
Company believes that, as awareness of the SalEst system develops, patient
demand will help drive third-party reimbursement and market adoption of the
SalEst system.
INTERNATIONAL
The Company intends to pursue commercial introduction of the SalEst system
internationally through the use of strategic partners. The Company expects that
these strategic partners would be responsible for all sales, marketing,
regulatory and reimbursement approvals in exchange for a percentage of the
revenues from SalEst system sales. The Company is in the process of identifying
suitable marketing partners for the Japanese and European markets. Under the
Company's current international marketing plan, each of its international
strategic partners, if any, will apply for the necessary testing, manufacturing
or marketing clearance or other regulatory approvals required in such partner's
applicable territory. Consequently, the Company expects that a suitable
international strategic partner would have the resources and expertise necessary
to undertake such activities. Additionally, a suitable partner would be capable
of deploying sufficient sales and marketing personnel in the territory when such
clearances and approvals are achieved, if at all. To date, the Company has not
entered into any agreements with international strategic partners.
THIRD-PARTY REIMBURSEMENT
In the United States, physicians, hospitals and other health care providers
generally rely on third-party payors, such as private health insurance plans, to
reimburse all or a portion of the costs of medical treatment. The Company is
working to structure reimbursement rates with major third-party payors in
anticipation of the full-scale commercial launch of the SalEst system in the
United States. The Company is planning clinical trials with major managed care
organizations to prospectively demonstrate the costs and benefits associated
with the SalEst system. The data from these trials will be used in the Company's
cost/ benefit model. To support the cost-effectiveness of the SalEst system, the
Company has developed a comprehensive cost/benefit model based on
industry-accepted actuarial data from 10,000 singleton pregnancies and the
Company's pivotal clinical trial, which it anticipates using in connection with
these efforts. See "--Sales and Marketing."
A component in the reimbursement decision by most private insurers and the
United States Health Care Financing Administration, which administers Medicare
and Medicaid, is the assignment of a CPT code, which is used in the submission
of claims to insurers for reimbursement for medical services. CPT codes
generally are required for Medicare and Medicaid reimbursement and can be
important in facilitating reimbursement by other third-party payors. CPT codes
allow for more efficient claims processing by establishing standard billing
codes. A single CPT code generally corresponds to a unique test or procedure.
CPT codes are assigned, maintained and revised by the CPT Editorial Board which
is administered by the American Medical Association. The Company intends to
petition the CPT Editorial Board to establish a separate CPT code for the SalEst
system. CPT codes generally become effective on January 1 of each year. The
Company does not expect that it will have a CPT code for the SalEst system prior
to January 1, 2000. Although the Company believes a CPT code will ultimately be
issued (and that a specific CPT code may not be necessary to obtain third-party
reimbursement from many private payors), there can be no assurance that this
will be the case.
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The Company believes that adoption of and reimbursement for the SalEst
system will provide opportunities for managed care organizations to improve
their scores on the Health Plan Employer Data and Information Set ("HEDIS") and
the National Committee for Quality Assurance ("NCQA"), which are quality
standards used by employers and others to measure performance of managed care
organizations. Maternal and newborn programs and birth outcomes are part of
these scores.
The Company believes that the SalEst system will have significant patient
appeal. In particular, the Company believes that the SalEst system will appeal
to women, who often have significant influence on their families' selection of a
managed care plan. The Company believes that, as awareness of the SalEst system
develops, patient demand will help drive third-party reimbursement of the SalEst
system.
Reimbursement for screening for risk of spontaneous preterm labor and
delivery has generally been available in the United States, typically through
reimbursement for traditional screening methods and ultrasound. However, there
can be no assurance that this will continue to be the case or that reimbursement
will be available for the SalEst system at acceptable levels, if at all. Factors
that third-party payors consider important in making reimbursement decisions for
new products include (i) the cost effectiveness of the product, (ii) the results
of clinical trials demonstrating the product's safety and efficacy, (iii)
favorable studies and peer-reviewed medical journal articles and (iv) how the
product compares to other competing products. Failure by the Company,
physicians, hospitals and other health care providers to obtain sufficient
reimbursement from third-party payors for tests in which the SalEst system is
used would have a material adverse effect on the Company's business, financial
condition and results of operations. Market acceptance of the Company's products
in international markets may be dependent in part upon the availability of
reimbursement within prevailing health care payment systems. Reimbursement and
health care payment systems in international markets vary significantly by
country, and can include both government sponsored and private health care
insurance. Obtaining such approvals can take 12 to 18 months or longer. Because
the Company only recently obtained FDA approval with respect to the SalEst
system, the Company is in the early stages of seeking reimbursement approvals
for the SalEst system from third-party payors. There can be no assurance that
any such approvals will be obtained in a timely manner, if at all. Failure to
receive international reimbursement approvals could have a material adverse
effect on market acceptance of the Company's products in the international
markets in which the Company is seeking approvals and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RESEARCH AND DEVELOPMENT
The Company's research strategy emphasizes its patented position covering
the use of estriol as a marker for spontaneous preterm labor and therapeutic
drug monitoring and its proprietary saliva Collection Kit which has received a
Notice of Allowance from the USPTO. The Company's research and development
efforts are currently primarily focused on the development of the SalEst system,
including the development of alternative delivery systems that will enable the
Company's tests to be performed at the point of care and in the home as well as
the expansion of the Company's product portfolio through the development of
additional markers in the area of maternity management. The Company has entered
into an agreement with a diagnostic company to carry out feasibility studies to
determine the applicability of developing a point-of-care delivery system for
the SalEst system. The Company's current activities with respect to the SalEst
system include continuing manufacturing support, process optimization and
qualification of alternative reagents and vendors. The Company spent a total of
$2.0 million, $2.2 million and $1.1 million on research and development in 1997,
1996 and 1995, respectively.
The Company intends to investigate the use of its estriol-based diagnostic
technology to include testing for the likelihood of successful induction of
birth at term, identification of patients most likely to benefit from
interventional drug therapies, monitoring of tocolytic therapy, prediction of
labor onset for term delivery and identification of pregnant women at high risk
of post-term delivery. There can be no assurance that the Company will be able
to expand the use of its technology to cover these possible
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indications. Moreover, marketing of a test for any of these indications will
require FDA approval, and there can be no assurance that the Company will be
successful in obtaining FDA approval for such indications.
The Company is also beginning to investigate additional markers to
complement the SalEst system by identifying other precursors of preterm labor
and delivery, such as infection or compromise of the amniotic membranes. The
Company expects that such markers will typically be licensed from third parties
and, to date, has obtained one such license. Notwithstanding such license, the
Company's development efforts with respect to such marker are at a very early
stage and there can be no assurance that the Company will be successful in
developing such marker. Additionally, there can be no assurance that the Company
will be successful in licensing or developing additional markers. See "Risk
Factors--Dependence on Single Product; Absence of Revenue to Date."
COMPETITION
The Company competes with providers of traditional and other methods for
screening for the risk of spontaneous preterm labor and delivery. Several health
care organizations have developed commercially available risk screening and
management programs for preterm labor and delivery, most of which use the
traditional method of risk identification.
Other techniques for identifying the risk of spontaneous preterm labor and
delivery are in various stages of development and market acceptance. The FDA has
approved for marketing a diagnostic test to measure a protein, fetal
fibronectin, which is a component of the amniotic fluid and fetal membranes
which surround the fetus. It is believed that when these membranes are
compromised by inflammation, infection or mechanical disruption, fetal
fibronectin is released into the vaginal secretions. The secretions can be
gathered by a physician and the level of fetal fibronectin determined using an
immuno assay. Studies have shown that the fetal fibronectin test identifies
approximately 24% of preterm deliveries.
Recently, vaginally inserted ultrasound probes have been used to assess
cervical length and dilation and as a tool for determining the risk of
spontaneous preterm labor and delivery. Use of these probes is currently limited
to specially trained physicians and their accuracy is dependent on specific user
technique. The Company believes this method is of limited utility after 32 weeks
of gestation because cervical dilation may occur in a normal pregnancy after
that time, particularly in women who have had prior pregnancies.
The health care industry is characterized by extensive research and
development efforts and rapid technological progress. Other companies and
institutions, including many major medical device and pharmaceutical companies,
are engaged in the research and development of products that may compete
directly with the Company's SalEst system. The Company believes that important
competitive factors include the relative speed with which companies can develop
products, establish clinical utility, complete clinical testing, obtain
regulatory approval, obtain third-party reimbursement and supply commercial
quantities of the product to the market. Many of the Company's current and
potential competitors have substantially greater financial, technological,
research and development, regulatory and clinical, marketing and sales, and
personnel resources than the Company. These competitors may also have greater
experience in developing products, conducting clinical trials, obtaining
regulatory approvals, and manufacturing and marketing such products. Certain of
these competitors may obtain patent protection, approval or clearance by the FDA
or foreign countries or product commercialization earlier than the Company, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, to the extent that
the Company commences significant commercial sales of the SalEst system or any
future products, it will be competing with respect to manufacturing efficiency
and marketing capabilities, areas in which it currently has limited experience.
See "Risk Factors-- Competition."
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MANUFACTURING
The Company relies on third parties to manufacture the immuno assay kit and
the Collection Kit. In particular, in November 1997, the Company entered into a
three-year manufacturing agreement with Horizon Medical, Inc. ("Horizon")
pursuant to which Horizon produces Collection Kits for the Company. During the
term of the agreement, the Company is required to supply Horizon with certain
components of the Collection Kits and a rolling twelve month forecast. The
forecast is considered a firm commitment on the part of the Company with respect
to its forecasted orders for the next immediate quarter. Although changes from
the forecast may be made, subject to certain limitations, for subsequent
quarters, there is a risk of excess or inadequate inventory if orders do not
match forecasts. Additionally, Bioserv, Inc. has contracted with the Company to
supply an enzyme utilized in the immuno assay kit pursuant to an agreement
similar to that between the Company and Horizon. The Company had not provided
such forecasts to either contracting supplier as of December 31, 1997;
therefore, no amounts were due under these agreements as of such date. The
Company obtains other components of the immuno assay kit from two other
suppliers, one of which supplies an enzyme and the other of which supplies a
certain plastic component pursuant to invoices or orders communicated by
telephone. The Company believes that its contract vendors have sufficient
capacity to meet projected forecasts for both the Collection Kit and the immuno
assay kit for the first 18 to 24 months of domestic sales. The Company leases
manufacturing equipment that has been placed into the facility of the contract
vendor responsible for immuno assay kit production for the exclusive production
of the Company's test kit components. The Company is working with its vendors to
expand manufacturing capacity to meet sales forecasts beyond 24 months from
commencement of domestic sales. There can be no assurance that the Company will
be able to maintain existing agreements for manufacturing of commercial
quantities of the immuno assay kit and the Collection Kit, that it will be able
to enter into additional agreements for commercial scale manufacturing or that
these parties will be able to develop additional manufacturing capabilities.
These third parties have manufacturing facilities with current licenses from
CDHS, and are registered with the FDA as device manufacturers.
The Company's in-house operations currently are limited to quality assurance
of raw materials, final product release testing and the manufacture of several
intermediate bulk materials that are transferred to its contract manufacturers
for final kit manufacturing. The Company believes its current facility will be
adequate for its activities through the end of 1999. The Company is required to
register with the FDA and CDHS as a California manufacturing facility. As such,
the Company is subject to biannual inspections by the FDA and CDHS for
compliance with the FDA's QSR requirements. There can be no assurance that the
Company will be successful in obtaining or maintaining these licenses. QSR
addresses the design, controls, methods, facilities and quality assurance
controls used in manufacturing, packing, storing and installing medical devices.
In addition, certain international markets have quality assurance and
manufacturing requirements that may be more or less rigorous than those in the
United States. Failure to comply with QSR or any applicable international
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 and is dependent on
third parties for the manufacturing of clinical and commercial scale quantities
of its immuno assay test and its Collection Kit. The Company's failure to
maintain existing agreements for manufacturing of clinical or commercial
quantities of Collection Kits or immuno assay kits or to enter into additional
agreements with these or other third parties to expand commercial scale
manufacturing capabilities as needed would have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the Company's current or future contract manufacturers will
meet the Company's requirements for quality, quantity or timeliness. If the
supply of any of the Collection Kits or immuno assay kits is interrupted,
Collection Kits and immuno assay kits from alternative contract manufacturers
will require prior FDA approval and may not be available in sufficient volumes
within required timeframes, if at all, to
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meet the Company's production needs, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
PATENTS AND PROPRIETARY RIGHTS
The Company holds two United States patents relating to the SalEst system.
One of the issued patents covers the use of estriol measurement to screen for
the potential onset of preterm labor, and the other covers the use of estriol
measurement to monitor tocolytic therapy. The Company has recently received
Notice of Allowance from the United States Patent and Trademark Office on the
claims on two patent applications that cover the design and use of the
Collection Kit. The Company has patent applications pending in the United
States, Japan, Canada and certain European countries. The Company's ability to
compete effectively will depend substantially on its ability to develop and
maintain proprietary aspects of its technology. In particular, the Company's
success will depend in large part on its ability to obtain United States and
foreign patent protection for its products, preserve its trade secrets and
operate without infringing on the proprietary rights of third parties. There can
be no assurance that the Company's issued patents, any future patents that may
be issued as a result of the Company's United States or international patent
applications, or the patents that the Company has licensed, will offer any
degree of protection for the Company's products against competitive products.
There can also be no assurance that any additional patents will be issued from
any of the patent applications owned by or licensed to the Company, or that any
patents that currently are or may be issued or licensed to the Company or any of
the Company's patent applications will not be challenged, invalidated or
circumvented in the future, or that any patents issued to or licensed by the
Company will not be infringed upon or circumvented by others. In addition, there
can be no assurance that competitors, many of whom have substantial resources
and have made substantial investments in competing technologies, will not seek
to apply for and obtain patents that will prevent, limit or interfere with the
Company's ability to make, use or sell its products either in the United States
or in international markets. Patent law relating to certain of the Company's
fields of interest, particularly as to the scope of claims in issued patents, is
still developing, and it is unclear how this uncertainty will affect the
Company's patent rights.
The medical device and diagnostic industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in these industries have employed intellectual property litigation
as a strategy to gain a competitive advantage. There can be no assurance that
the Company will not in the future become subject to patent infringement claims
and litigation or interference proceedings declared by the USPTO to determine
the priority of inventions. The defense and prosecution of intellectual property
suits, USPTO interference proceedings and related legal and administrative
proceedings are both costly and time consuming. Litigation may be necessary to
enforce patents issued to or licensed to the Company, to protect the Company's
trade secrets or know-how or to determine the enforceability, scope and validity
of the proprietary rights of others.
Although there are currently no pending claims or lawsuits against the
Company regarding any possible infringement claims, there can be no assurance
that infringement claims by third parties or claims for indemnification
resulting from infringement claims will not be asserted in the future or that
such assertions, if proven to be true, will not have a material adverse effect
on the Company's business, financial condition and results of operations. Any
litigation or interference proceedings involving the Company will result in
substantial expense to the Company and significant diversion of effort by the
Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the Company to seek licenses from third parties, which could involve substantial
costs and could include ongoing royalties. Adverse determinations in a judicial
or administrative proceeding or failure to obtain necessary licenses could
prevent the Company from manufacturing and selling its products, which would
have a material adverse effect on the Company's business, financial condition
and results of operations.
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In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. These agreements
generally provide that all confidential information developed or made known to
the individual by the Company during the course of the individual's relationship
with the Company is to be kept confidential and not disclosed to third parties,
except in specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering services to
the Company shall be the exclusive property of the Company. There can be no
assurance that proprietary information or confidentiality agreements with
employees, consultants and others will not be breached, that the Company will
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known to or independently developed by competitors.
GOVERNMENT REGULATION
REGULATION OF MEDICAL DEVICES
The Company's products and its research and development activities are
subject to extensive and rigorous regulation by the FDA and, to varying degrees,
by other Federal, state and foreign regulatory agencies. The Company's
diagnostic products are regulated as medical devices by the FDA under the
Federal Food, Drug and Cosmetic Act (the "FDC Act"), and implementing
regulations. Under the FDC Act and the regulations promulgated thereunder, the
FDA regulates, among other things, the preclinical and clinical testing,
manufacturing, safety and efficacy, labeling, distribution, promotion, sale and
use of medical devices in the United States. In addition, various other
countries in which the Company's products may be sold impose local regulatory
requirements. The testing for, preparation of and subsequent FDA and foreign
regulatory review and approval of required applications is expensive, lengthy
and uncertain. Failure to comply with FDA and other applicable regulatory
requirements can result in, among other things, Warning Letters, fines,
injunctions, civil penalties, recall or seizure of product, total or partial
suspension of production, refusal of the government to grant clearances or
approvals, withdrawal of previously granted clearances or approvals and criminal
prosecution.
In the United States, medical devices are classified into three different
categories over which the FDA maintains increasing levels of regulation: Class I
(general controls, e.g., labeling, premarket notification and QSRs), Class II
(general and special controls, e.g., performance standards and postmarket
surveillance) and Class III (premarket approval). The SalEst system has been
classified and approved as a Class III device. Before a new device can be
introduced into the United States market, the manufacturer typically must obtain
FDA clearance or approval through either a 510(k) premarket notification or a
PMA.
A 510(k) premarket notification clearance will typically be granted for a
device that is "substantially equivalent" to a legally marketed Class I or Class
II medical device called a "predicate device" or a Class III medical device for
which the FDA has not yet required submission of PMAs. A 510(k) premarket
notification must contain information supporting the claim of substantial
equivalence, which may include laboratory test results or the results of
clinical studies. Following submission of a 510(k) premarket notification, a
company may not market the device for clinical use until the FDA finds that
product is substantially equivalent. It generally takes four to 12 months from
the date of submission of a 510(k) to obtain the FDA's determination, but it may
take longer. The FDA may determine that the device is not substantially
equivalent and require submission and approval of a PMA or require further
information before it is able to make a determination regarding substantial
equivalence. For any devices cleared through the 510(k) process, modifications
or enhancements that could significantly affect safety or effectiveness, or
constitute a major change in intended use, requires a new 510(k) submission and
a separate FDA determination of substantial equivalence.
If a device does not qualify for the premarket notification procedure, a
company must file a PMA application. A PMA application must be supported by
extensive data, including laboratory and clinical trial data establishing the
safety and effectiveness of the device, as well as extensive manufacturing
information.
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After a preliminary review, the FDA makes an initial determination regarding
whether a PMA application is sufficiently complete to permit a substantive
review. If the FDA finds the PMA application sufficiently complete, the FDA
accepts the application for filing. Once the PMA application is accepted for
filing, the FDA begins a more in-depth review process, which likely will include
review by a scientific advisory panel. During the PMA review process, the FDA
will conduct an inspection of the manufacturer's facilities to ensure compliance
with the applicable QSR requirements. During the review process, the FDA may
determine that additional clinical data is necessary or request other
information, which may delay the regulatory review process.
The PMA review and approval process can be expensive, uncertain and lengthy,
and there can be no assurance that any approval will be granted on a timely
basis, if at all. A PMA application may be denied if applicable regulatory
criteria are not satisfied, and the FDA may impose certain conditions upon the
applicant, such as postmarket testing and surveillance. Modifications to a
device that is the subject of an approved PMA, its labeling, manufacturing or
clinical use may require approval of the FDA of PMA supplements or new PMAs. PMA
supplements often require submission of the same type of information required
for the initial PMA except that the supplement generally is limited to that data
needed to support the proposed changes. Regulatory approval, if granted, may
entail limitations on the indicated uses for which the product may be marketed,
and product approvals, once granted, may be withdrawn if problems occur after
initial marketing. The Company will be subject to pervasive and continuing
government regulations, including record keeping requirements and reporting of
adverse events associated with product uses.
The President recently signed into law the Food and Drug Administration
Modernization Act of 1997 (the "Modernization Act of 1997"). This legislation
makes changes to the device provisions of the FDC Act and other provisions in
the Act affecting the regulation of devices. Among other things, the changes
will affect the 510(k) and PMA processes, and also will affect device standards
and data requirements, procedures relating to humanitarian and breakthrough
devices, tracking and postmarket surveillance, accredited third party review,
and the dissemination of off label information. The Company has anticipated many
of the changes instituted by the Modernization Act of 1997 and believes that it
has structured its QSR systems to be in compliance with the new regulations. The
Company cannot predict how or when the changes instituted by the Modernization
Act of 1997 will be implemented or what effect the Modernization Act of 1997
will have on the regulation of the Company's products in the future.
Sales of medical devices outside of the United States are subject to
regulatory requirements that vary from country to country. The time required to
obtain approval for sale internationally may be longer or shorter than that
required for FDA approval, and the requirements may differ. There can be no
assurance that the Company will be able to obtain the required marketing
authorizations in a timely manner, if at all. In addition, significant costs and
requests by regulators for additional information may be encountered by the
Company in its efforts to obtain regulatory approvals. Any such events could
substantially delay or preclude the Company from marketing its products in the
United States or other countries.
REGULATION OF MANUFACTURING PRACTICES
The Company's manufacturing operations are required to comply with the FDA's
QSR, which incorporates the agency's former cGMP regulations. QSR addresses the
design, controls, methods, facilities and quality assurance controls used in
manufacturing, packing, storing and installing medical devices. There can be no
assurance that the Company will not incur significant costs to comply with laws
and regulations in the future or that laws and regulations will not have a
material adverse effect upon the Company's business, financial condition and
results of operations. In addition, certain international markets have quality
assurance and manufacturing requirements that may be more or less rigorous than
those in the United States. Failure to comply with QSR or any applicable
international requirements could have a material adverse effect on the Company's
business, financial condition and results of operations.
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REGULATION OF CLINICAL LABORATORIES
The Company's proposed laboratory operations will be regulated by HCFA,
under CLIA, and by comparable state agencies. The Company will need to receive
CLIA certification through HCFA prior to the use of its laboratories and
facilities for test analysis on a commercial basis. CLIA is intended to ensure
the quality and reliability of all medical testing in laboratories in the United
States by requiring such facilities to obtain certification and to demonstrate
such testing meets specified standards in areas such as personnel qualification,
administration, participation in proficiency testing, patient test management,
quality control, quality assurances and inspections. The regulations promulgated
under CLIA have established three levels of regulatory control based on test
complexity, defined as "waived," "moderately" and "highly" complex. The SalEst
system will be categorized as highly complex. Failure to meet CLIA requirements
can result in a wide variety of sanctions, including suspension, limitation or
revocation of the CLIA certificate and civil and criminal penalties.
Additionally, failure to maintain the CLIA certification will prevent the
Company from receiving Medicare and Medicaid and private payments for laboratory
services performed. Failure to obtain CLIA certification on a timely basis, and
thereafter maintain such certification, would have a material adverse effect on
the Company's business, financial condition and results of operations.
In addition to the requirements under CLIA, the Company will need to
register and be certified by the CDHS as a clinical laboratory. The Company must
also register with five additional states that require specific registration
prior to allowing the Company to analyze and report results from samples
obtained from the citizens of those states. These states are New York, Florida,
Maryland, Rhode Island and Nevada (effective in late 1998). Other states and
territories generally accept the State of California, State of New York or CLIA
certification. These certifications are currently in process. Any failure to
obtain these certificates, particularly the State of California certificate, or
similar certificates which may be required by other states in the future could
have a material adverse effect on the Company's business, financial condition
and results of operations.
OTHER REGULATIONS
The manufacture, sale or use of the Company's products are also subject to
regulation by other federal entities, such as the OSHA 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 could have a material adverse effect on the Company's business, financial
condition and results of operations.
PRODUCT LIABILITY INSURANCE
The Company faces an inherent business risk of financial exposure to product
liability claims. Although the Company has not experienced any claims to date,
there can be no assurance that the Company will not experience losses due to
product liability claims in the future. The Company currently carries product
liability insurance. There can be no assurance that product liability insurance
will continue to be available to the Company at a reasonable cost, if at all, or
that such product liability insurance will be adequate. The Company may require
increased product liability coverage to the extent its products are
commercialized and as it provides increased diagnostic services. The medical
device industry has experienced increasing costs in obtaining and maintaining
reasonable product liability coverage, and substantial increases in insurance
premium costs in many cases have rendered coverage economically impractical.
Furthermore, there can be no assurance that the Company will have sufficient
resources to satisfy any liability or litigation expenses that may result from
any uninsured or underinsured claims. Any claims or series of claims against the
Company, regardless of their merit or eventual outcome, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
44
<PAGE>
EMPLOYEES
As of March 4, 1998, the Company had 28 employees, including seven in
research and development, three in clinical and regulatory affairs, fourteen in
sales and marketing and four in administration. The Company has not experienced
any work stoppage and considers its employee relations to be good.
FACILITIES
The Company maintains its headquarters in Dublin, California in a 11,000
square foot facility that contains a laboratory and houses the Company's
research and development, sales and marketing and administrative personnel. The
lease for this facility expires in April 2003. The Company also maintains a
small office in Boulder, Colorado to support its clinical testing efforts. The
Company believes that its existing facilities are adequate to meet its immediate
needs and that suitable additional space will be available in the future on
commercially reasonable terms as needed.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
45
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
January 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------ -- ---------------------------------------------------------------
<S> <C>
James A. Edlund(1)........................ 50 President, Chief Executive Officer and Director
Vivian K. Dullien, Ph.D................... 44 Founder, Executive Vice President and Director
Edgar A. Luce............................. 46 Chief Financial Officer and Secretary
Dale D. Tyerman........................... 47 Executive Vice President of Sales, Marketing and Strategic
Development
H. Fred Voss, Ph.D........................ 50 Executive Vice President of Technology
Janet G. Effland(1)....................... 49 Director
Fredric J. Feldman, Ph.D.(2).............. 57 Director
Robert M. Friedland, M.D.................. 42 Director
Sherman J. Muller(l)...................... 44 Director
Barbara L. Santry(2)...................... 50 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
JAMES A. EDLUND has been Chief Executive Officer, President and a director
of the Company since June 1996. From June 1993 to January 1995, Mr. Edlund
served as Chief Executive Officer of Inhalon Pharmaceuticals, Inc., a
pharmaceutical company. From 1989 to June 1993, Mr. Edlund was a private
investor. From 1986 to 1989, Mr. Edlund served as President and Chief Operating
Officer for Cooper Technicon Instruments, a diagnostics company. Mr. Edlund
holds a B.S. in marketing and business administration from Bradley University.
Prior to 1986, Mr. Edlund spent seven years with the diagnostics division of
Abbott Laboratories in various management positions.
VIVIAN K. DULLIEN, PH.D., the inventor of the SalEst system and the founder
and a director of the Company, has been Executive Vice President of the Company
since October 1995. From 1991 to October 1995, Dr. Dullien was the Chief
Executive Officer of the Company. From 1985 to 1991, Dr. Dullien was a founder,
director and manager of Dullien Associates, a contract research organization,
and prior to that was a manager of regulatory affairs with Abbott Laboratories,
a pharmaceutical company. Dr. Dullien holds a B.S. from the University of New
Hampshire and a Ph.D. in physiology from Tufts University School of Medicine.
EDGAR A. LUCE has been Chief Financial Officer of the Company since May 1997
and Secretary of the Company since March 1998. From 1991 to December 1996, he
was Vice President, Finance and Administration, for Penederm Incorporated, a
dermatology pharmaceutical company. From 1987 to 1991, Mr. Luce served as
Corporate Controller for Applied Immune Sciences, Inc., a medical device
company. Mr. Luce holds a B.A. from Stanford University and an M.B.A. from the
University of California at Los Angeles.
DALE D. TYERMAN has been Executive Vice President of Sales, Marketing and
Strategic Development of the Company since April 1996. From 1985 to April 1996,
Mr. Tyerman served as Vice President of Sales and Marketing and Corporate Vice
President for Tokos Medical Corporation (now Matria Health Care), a women's
health care company. From 1972 to 1984, Mr. Tyerman held various management
positions with American Hospital Supply Corporation. Mr. Tyerman holds a B.A.
and an M.B.A. from the University of California at Los Angeles.
H. FRED VOSS, PH.D., has served as Executive Vice President of Technology of
the Company since July 1997. From October 1995 to July 1997, Dr. Voss was Vice
President of Research & Development of
46
<PAGE>
the Company. From 1990 to February 1994, Dr. Voss served as Director of Research
and Development of Biotrack, Inc., a subsidiary of Ciba Corning Diagnostics, a
diagnostics company. From 1983 to 1990, Dr. Voss served as Vice President,
Research and Development, at Hana Biologics, a cell biology company. Dr. Voss
holds a B.S. from the University of California at Santa Barbara and a Ph.D. in
chemistry from the University of Colorado at Boulder.
JANET G. EFFLAND has been a director of the Company since August 1993. Since
1988, Ms. Effland has been a general partner and vice president of Patricof &
Co. Ventures, Inc., a venture capital firm. Ms. Effland holds B.A. and J.D.
degrees from Arizona State University and completed the program for management
development at Harvard Business School. Ms. Effland serves on the boards of
directors of Focal, Inc. and Urologix, Inc.
FREDRIC J. FELDMAN, PH.D., has been a director of the Company since April
1992. From September 1995 to June 1996, Dr. Feldman acted as interim Chief
Executive Officer of the Company while the Company conducted its search for a
President and Chief Executive Officer. From March 1992 to January 1995, Dr.
Feldman served as Chairman and Chief Executive Officer of Oncogenetics, a
genetic cancer diagnostics company. From March 1988 to January 1992, he served
as President and Chief Executive Officer of Microgenics, a diagnostics company.
Dr. Feldman holds a B.S. from Brooklyn College of City University of New York
and an M.S. and a Ph.D. in chemistry from the University of Maryland. Dr.
Feldman serves on the boards of directors of OrthoLogic Corp., Ostex
International, Inc. and SangStat Medical Corp.
ROBERT M. FRIEDLAND, M.D., has been a director of the Company since October
1997. Since 1981, Dr. Friedland has practiced medicine in the areas of high-risk
obstetrics, gynecology and infertility. In addition, since 1995, Dr. Friedland
has been a principal of Kline Hawkes, a private equity investment firm, based in
Los Angeles, CA. Over the last 6 years, Dr. Friedland has been a consultant to
several venture capital firms including Brentwood Associates, Crosspoint Venture
Partners and United States Venture Partners. Dr. Friedland has expertise in the
areas of medical devices, diagnostics, instruments and medical services. Dr.
Friedland holds a combined M.D. and M.B.A. degree in health care economics from
the University of Pennsylvania School of Medicine and the Wharton Graduate
School of Business and a J.D. degree from the University of California at Los
Angeles.
SHERMAN J. MULLER has been a director of the Company since its inception in
1991. Since 1983, Mr. Muller has been a general partner of The Columbine Venture
Funds, a venture capital firm. Mr. Muller holds a B.A. from Oral Roberts
University and an M.B.A. from Tulane University.
BARBARA L. SANTRY has been a director of the Company since October 1994.
Since 1992, Ms. Santry has been a general partner of Pathfinder Venture Capital
Funds, a venture capital firm. Since 1996, Ms. Santry has been a managing member
of Capstone Ventures, a venture capital firm and a spin-off of Pathfinder
Venture Capital Funds. Ms. Santry holds a B.S.N. from Georgetown University and
an M.B.A. from Stanford University. Ms. Santry also serves on the board of
directors of Welch Allyn, Inc.
BOARD COMPOSITION
The Company currently has authorized seven directors. In accordance with the
terms of the Company's Restated Certificate of Incorporation, which will become
effective upon the closing of this offering (the "Restated Certificate"), the
terms of office of the directors will be divided into three classes: Class I,
whose term will expire at the annual meeting of stockholders to be held in 1999
or special meeting held in lieu thereof; Class II, whose term will expire at the
annual meeting of stockholders to be held in 2000 or special meeting held in
lieu thereof; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2001 or special meeting held in lieu thereof. The
Class I directors are Janet G. Effland and Robert M. Friedland, the Class II
directors are Fredric J. Feldman and Barbara L. Santry, and the Class III
directors are James A. Edlund, Vivian K. Dullien and Sherman J. Muller. At each
annual meeting of stockholders after the initial classification or special
meeting in lieu thereof, the successors to directors whose terms will then
expire will be elected to serve from the time of election and qualification
47
<PAGE>
until the third annual meeting following election or special meeting held in
lieu thereof. In addition, the Restated Certificate provides that the authorized
number of directors may be changed only by resolution of the Board of Directors.
Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one third of the directors. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the Company. Notwithstanding the
foregoing, when the Company is subject to Section 2115 of the California General
Corporation Law, all directors shall be designated of the same class, and such
directors shall be elected by cumulative voting if any shareholder requests
cumulative voting. Although directors of the Company may be removed for cause by
the affirmative vote of the holders of a majority of the Common Stock, the
Restated Certificate provides that directors may not be removed without cause.
However, when the Company is subject to Section 2115 of the California General
Corporation Law, unless the entire Board is removed, no single director may be
removed without cause when the votes cast against such director's removal would
be sufficient to elect that director if voted cumulatively. See "Description of
Capital Stock--Section 2115."
BOARD COMMITTEES
The Board of Directors has an Audit Committee, which currently consists of
Fredric J. Feldman and Barbara L. Santry. The Audit Committee makes
recommendations to the Board regarding the selection of independent accountants,
reviews the results and scope of the audit and other services provided by the
Company's independent accountants, and reviews and evaluates the Company's
control functions. The Board of Directors has a Compensation Committee, which
currently consists of James A. Edlund, Janet G. Effland and Sherman J. Muller.
The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for employees of the Company. The Company
has created a subcommittee of the Compensation Committee, consisting of Janet G.
Effland and Sherman J. Muller, which will have the authority to issue options to
Executive Officers and Directors of the Company. The Company also has a
Nominating Committee, which currently consists of James A. Edlund and Fredric J.
Feldman. The Nominating Committee interviews, evaluates and recommends
individuals for membership on the Board of Directors and election as officers of
the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Other than Mr. Edlund, none of the members of the Compensation Committee of
the Board of Directors was, at any time since the formation of the Company, an
officer or employee of the Company. No executive officer of the Company serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving on the Company's Board of
Directors or Compensation Committee.
DIRECTOR COMPENSATION
Other than Dr. Feldman, who receives cash compensation of $12,000 per annum,
directors currently receive no cash compensation from the Company for their
services as members of the Board of Directors. They are reimbursed for certain
expenses in connection with attendance at Board and Committee meetings. From
time to time, certain directors who are not employees of the Company have
received grants of options to purchase shares of the Company's Common Stock.
Directors are eligible to participate in the Company's 1998 Equity Incentive
Plan and, beginning in 1998, employee directors will also be eligible to
participate in the 1998 Employee Stock Purchase Plan and non-employee directors
will also be eligible to participate in the 1998 Non-Employee Directors' Stock
Option Plan. See "--Employee Benefit Plans," "Principal Stockholders" and
"Certain Transactions."
48
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded by the Company
during the fiscal year ended December 31, 1997 to its Chief Executive Officer
and the Company's other four most highly compensated executive officers (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION(1) SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- ---------------------------------------------------- ---------- --------- ------------- ----------------
<S> <C> <C> <C> <C>
James A. Edlund .................................... $ 205,000 $ 58,932 40,505 $ 158(2)
President and Chief Executive Officer
Vivian K. Dullien, Ph.D. ........................... $ 143,333 $ 35,833 40,379 $ 19,937(3)
Executive Vice President
Edgar A. Luce(4) ................................... $ 91,269 $ 18,083 165,522 $ 59(2)
Chief Financial Officer
Dale D. Tyerman .................................... $ 147,500 $ 33,125 31,455 $ 130(2)
Executive Vice President of Sales, Marketing and
Strategic Development
H. Fred Voss, Ph.D. ................................ $ 132,417 $ 26,483 50,455 $ 130(2)
Executive Vice President of Technology
</TABLE>
- ------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other annual compensation in the form of perquisites and other personal
benefits has been omitted where the aggregate amount of such perquisites and
other personal benefits constitutes less than the lesser of $50,000 or 10%
of the total annual salary and bonus for the Named Executive Officer for the
fiscal year.
(2) Represents premiums paid by the Company for term-life insurance.
(3) Represents relocation expenses of $19,485 and term-life insurance premiums
of $452 paid by the Company.
(4) Mr. Luce joined the Company in May 1997.
49
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information regarding stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 1997:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
INDIVIDUAL GRANTS OF STOCK
--------------------------------------------------------- PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(3)
OPTIONS EMPLOYEES IN BASE PRICE PER EXPIRATION -------------
NAME GRANTED(#)(1) FISCAL YEAR(2) SHARE DATE 5%($) 10%($)
- ------------------ ------------- -------------- -------------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
James A. Edlund... 33,839 11.2 % $ 0.30 03/09/07
40,000 $ 1.00 12/11/07
Vivian K. Dullien, 25,379 10.0 % $ 0.30 03/09/07
Ph.D............ 40,000 $ 1.00 12/11/07
Edgar A. Luce..... 115,827 25.2 % $ 0.30 05/20/07
41,695 $ 0.30 08/28/07
8,000 $ 1.00 12/11/07
Dale D. Tyerman... 30,455 9.4 % $ 0.30 03/09/07
31,000 $ 1.00 12/11/07
H. Fred Voss, 30,455 12.2 % $ 0.30 03/09/07
Ph.D............ 50,000 $ 1.00 12/11/07
</TABLE>
- ------------------------
(1) Generally, initial option grants vest as to 25% of the total shares one year
from the date of hire, and one forty-eighth of the total shares vest on each
monthly anniversary thereafter. Additional option grants generally vest
monthly over a four year period from the date of grant. Such options expire
10 years from the date of grant or earlier upon termination of employment.
See "Management-- Employment Agreements" and "--Employee Benefit Plans."
(2) Based on an aggregate of 656,971 options granted to employees during the
fiscal year ended December 31, 1997.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission. There
can be no assurance that the actual stock price appreciation over the
ten-year option term will be at the assumed 5% or 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the Named Executive Officers. The potential realizable value is calculated
by assuming that the initial public offering price of $ per share
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and the stock issued upon
exercise thereof is sold on the last day at the appreciated price.
50
<PAGE>
AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND YEAR-END OPTION HOLDINGS AND
VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on exercise of stock options during the
fiscal year ended December 31, 1997 and the number and value of securities
underlying unexercised options held by each of the Named Executive Officers as
of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
SHARES 1997(#) DECEMBER 31, 1997($)
ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE(2) EXERCISABLE/UNEXERCISABLE(1)(2)
- ------------------------------ ----------- ----------------- -------------------------- ----------------------------
<S> <C> <C> <C> <C>
James A. Edlund............... -- -- 619,849/0
Vivian K. Dullien, Ph.D....... -- -- 317,190/0
Edgar A. Luce................. -- -- 165,522/0
Dale D. Tyerman............... 90,000 -- 206,455/0
H. Fred Voss, Ph.D............ -- -- 168,890/0
</TABLE>
- ------------------------
(1) Value realized and value of unexercised in-the-money options are based on a
value of $ per share of the Company's Common Stock, the assumed offering
price. Amounts reflected are based on the assumed value minus the exercise
price multiplied by the number of shares acquired on exercise and do not
indicate that the optionee sold such stock.
(2) Options may be exercised immediately pursuant to early exercise provisions
contained in option agreements. Any unvested shares issued pursuant to such
early exercise provisions are subject to repurchase upon termination of
employment. Such repurchase option terminates at a rate reflecting the
vesting schedule of the underlying option. Accordingly, such repurchase
option generally terminates at a rate of 1/48th per month. However, in
certain circumstances, such repurchase option may terminate earlier. See
"--Employment Agreements" and "Principal Stockholders."
EMPLOYMENT AGREEMENTS
In June 1996, the Company entered into a letter agreement with James A.
Edlund, the Company's president and Chief Executive Officer (the "Edlund
Agreement"). Pursuant to the Edlund Agreement, Mr. Edlund was to receive a base
salary of $205,000 for the 1996 calendar year. In addition, the Edlund Agreement
entitled Mr. Edlund to receive (i) stock options to purchase 442,177 shares of
the Company's Common Stock at a per share price of $0.20, (ii) stock options to
purchase that number of shares of Common Stock equal to 5% of the number of
shares purchased with the first $3,500,000 of investment in the equity of the
Company subsequent to Mr. Edlund's employment (the "Equity Investment"), and
(iii) stock options to purchase that number of shares of Common Stock equal to
5% of the increase in the number of shares in the Company's stock option pool
from the date of Mr. Edlund's employment until the earlier of the Equity
Investment or the Company's initial public offering. In August 1996, Mr. Edlund
was granted an option to purchase 103,833 shares of the Company's Common Stock
at a per share price of $0.20. In March 1997, Mr. Edlund was granted an option
to purchase 33,334 shares of the Company's Common Stock at a per share price of
$0.30. Both grants were made in connection with the sale of the Company's Series
D Preferred Stock and, together, represented satisfaction in full of all
additional options to be granted to Mr. Edlund pursuant to the Edlund Agreement.
The stock options granted to Mr. Edlund pursuant to the Edlund Agreement
were granted at the fair market value of the Company's Common Stock at the date
of grant and vest 1/4 upon the first anniversary of Mr. Edlund's employment with
the Company and 1/48th monthly thereafter. The Edlund Agreement also provides
that upon a change of control of the Company due to merger or consolidation in
which the
51
<PAGE>
Company is not the surviving entity, all stock options granted to Mr. Edlund
pursuant to the Edlund Agreement would become immediately vested.
In July 1993, the Company entered into a Covenant Not To Compete with Vivian
K. Dullien, Ph.D., the Company's founder and Executive Vice President (the
"Dullien Agreement"). Pursuant to the Dullien Agreement, in the event Dr.
Dullien's employment with the Company is terminated without cause, Dr. Dullien
would be entitled to receive severance pay in an amount equal to six months of
her then-current salary. In addition, pursuant to the terms of the applicable
stock option grants, options to purchase up to an aggregate of 58,955 shares
would become immediately vested in the event Dr. Dullien's employment is
terminated without cause within six months after a "change of control
transaction," as defined therein. Furthermore, 43,113 of such shares of Common
Stock will become immediately vested upon the initiation of sales of the
Company's first product approved by the FDA.
EMPLOYEE BENEFIT PLANS
1998 EQUITY INCENTIVE PLAN
The Company's 1998 Equity Incentive Plan (the "Incentive Plans") was adopted
by the Company's Board of Directors in March 1998 as a successor equity plan to
the Company's existing 1996 Stock Option Plan and 1993 Stock Option Plan
(collectively, the "Prior Plans"). The Incentive Plan will become effective upon
the completion of this offering. The Company has outstanding options under the
Prior Plans, which are substantially similar to options which will be granted
under the Incentive Plan. To date, the Company has granted options to purchase
an aggregate of 10,000 shares to consultants to the Company under the Prior
Plans.
The Incentive Plan provides for the grant of incentive stock options (as
defined in the Internal Revenue Code of 1986, as amended (the "Code")) to
employees (including officers) and nonstatutory stock options, restricted stock
purchase awards and stock bonuses to employees (including officers), directors
and consultants of the Company. The Incentive Plan is administered by the Board
of Directors (or a committee thereof), and the Board of Directors (or committee)
determines recipients and types of awards to be granted, including the exercise
price, number of shares subject to the award and the exercisability thereof.
The terms of stock options granted under the Incentive Plan may not exceed
10 years. The exercise price of options granted under the Incentive Plan is
determined by the Board (or committee), provided that the exercise price for a
nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of grant, and the exercise price of an incentive
stock option cannot be less than 100% of the fair market value of the Common
Stock on the date of grant. Options granted under the Incentive Plan vest at the
rate specified in the option agreement, which generally is over four (4) years.
No stock option may be transferred by the optionee other than by will or the
laws of descent or distribution or, in certain limited instances, pursuant to a
domestic relations order or for limited estate planning purposes, provided that
an optionee may designate a beneficiary who may exercise the option following
the optionee's death. An optionee whose service relationship with the Company or
any affiliate ceases for any reason (other than by death or disability, but
including termination for cause) may generally exercise his or her options
during the three-month period following such cessation, unless such options
expire sooner by their terms or the Board provided otherwise in the optionee's
option agreement. Options generally may be exercised for up to twelve (12)
months after an optionee's relationship with the Company and any affiliate
ceases due to optionee's disability, and eighteen (18) months if such
termination is due to optionee's death.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant and the term of the option
does not exceed five years from the date of grant. In addition, the aggregate
fair market value, determined at the time of grant, of the
52
<PAGE>
shares of Common Stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year (under
all such plans of the Company and its affiliates) may not exceed $100,000.
There are currently 1,000,000 shares of Common Stock authorized for issuance
under the Incentive Plan. Additionally, an amount equal to the difference (if
any) between five percent (5%) of the Company's total outstanding shares as of
each December 31 during the term of the Incentive Plan and the number of shares
then reserved under the Incentive Plan will be added to the share reserve each
such December 31. Shares subject to stock awards that have expired or otherwise
terminated without having been exercised in full again become available for the
grant of awards under the Incentive Plan.
The Board (or committee) has the authority to reprice outstanding options
and to offer optionees the opportunity to replace outstanding options with new
options for the same or a different number of shares.
Restricted stock purchase awards and restricted stock bonuses granted under
the Incentive Plan may be granted pursuant to a repurchase option in favor of
the Company in accordance with a vesting schedule. Such repurchase option in
favor of the Company typically provides that the Company may repurchase such
stock from the recipient in the event, and to the extent, vesting of such stock
is not completed. Typically, such repurchase would be at the original purchase
price at which the stock was issued to the recipient. Restricted stock purchase
awards and stock bonuses, restricted or otherwise, may be granted at a price,
and upon such other terms, determined by the Board (or committee). However,
restricted stock purchases, which provide the recipient with a right to purchase
stock within an immediate and limited time-frame, must be at a price equal to at
least 85% of the stock's fair market value on the award date. Stock bonuses,
restricted or otherwise, may be awarded in consideration of past services
without a purchase payment from the recipient. Rights under a stock bonus or
restricted stock bonus agreement may not be transferred other than by will, the
laws of descent and distribution or a domestic relations order during the time
the stock awarded pursuant to such an agreement remains subject to the
agreement.
Upon certain changes in control of the Company, all outstanding awards under
the Incentive Plan shall either be assumed or substituted by the surviving
entity. If the surviving entity determines not to assume or substitute such
awards, and with respect to persons then performing services as employees,
directors or consultants, the time during which such awards may be exercised
shall be accelerated and the awards terminated if not exercised prior to such
change in control.
The Incentive Plan will terminate in March 2008 unless sooner terminated by
the Board (or committee).
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In March 1998, the Board adopted the 1998 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of Common Stock to non-employee directors of the
Company. The Directors' Plan will become effective upon the completion of this
offering. The Directors' Plan is administered by the Board, unless the Board
delegates administration to a committee.
The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Directors' Plan is 300,000. Pursuant to the terms of
the Directors' Plan, each person serving as a director of the Company upon the
completion of this offering who is not an employee of the Company (a
"Non-Employee Director") shall automatically be granted an option to purchase
7,500 shares of Common Stock. Any person who first becomes a Non-Employee
Director after the effectiveness of the initial public offering of the Company's
Common Stock shall automatically be granted an option to purchase that number of
shares of Common Stock equal to 7,500 multiplied by the fraction, the numerator
equalling the number of whole months remaining in the calendar year in which the
person first joined the Board and the denominator equalling 12. In addition, on
January 1 of each calendar year, commencing in 1999, each
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Non-Employee Director will automatically be granted an option to purchase 7,500
shares of Common Stock.
Options under the Directors' Plan will vest in twelve (12) equal, monthly
installments commencing on the date of the grant of the option. The exercise
price of the options granted under the Directors' Plan equals the fair market
value of the Common Stock granted on the date of grant. No option granted under
the Directors' Plan may be exercised after the expiration of ten years from the
date it was granted. Options granted under the Directors' Plan are generally
nontransferable except pursuant to a domestic relations order or a beneficiary
designation. The Directors' Plan will terminate at the direction of the Board.
In the event of certain changes of control, options outstanding under the
Directors' Plan will automatically become fully vested and exercisable, and will
terminate if not exercised prior to such change of control.
1998 EMPLOYEE STOCK PURCHASE PLAN
In March, 1998, the Company's Board of Directors approved the 1998 Employee
Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 500,000
shares of Common Stock. The Purchase Plan will become effective upon the
completion of this offering. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Code.
Under the Purchase Plan, the Board may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the Purchase Plan. The offering period for any offering will be no more than 27
months.
In order to participate in the Purchase Plan, employees must be employed for
at least 20 hours per week and for more than five months per year by the Company
or an affiliate of the Company designated by the Board. Employees who
participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan and applied, on specified dates determined by the
Board, to the purchase of shares of Common Stock. The price of Common Stock
purchased under the Purchase Plan will be equal to 85% of the lower of the fair
market value of the Common Stock on the commencement date of each offering
period or the relevant purchase date. 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.
In the event of certain changes of control, the Company and the Board has
discretion to provide that each right to purchase Common Stock will be assumed
or an equivalent right substituted by the successor corporation, or the Board
may shorten the offering period and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to the change in
control. The Purchase Plan will terminate at the Board's direction.
401(k) PLAN
Effective January 1998, the Company adopted a tax deferred savings plan
entitled the Biex, Inc. 401(k) Retirement Plan (the "401(k) Plan"), which covers
all employees of the Company beginning on the first day of the calendar quarter
beginning after the date of hire. An employee may contribute up to 15% of his or
her compensation to the 401(k) Plan on a pre-tax basis, not to exceed in any
given year the maximum amount allowable under the Code regulations. The Company
will contribute the total amount of salary elected to be deferred by each
employee and may contribute a discretionary matching contribution equal to a
specified percentage of the participant's obligation. The Company has not made
matching contributions to date. The rates of pre-tax contributions may be
reduced with respect to highly compensated employees, as defined in the Code, so
that the 401(k) Plan will comply with Section 401(k) of the Code. Pre-tax
contributions are allocated to each employee's individual account, which is
invested in selected investment alternatives according to the directions of the
employee. An employee's pre-tax contributions are nonforfeitable at all times.
Withdrawals are permitted from an employee's account while
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the employee is still employed by the Company in the event of a financial
hardship or when the employee reaches age 59 1/2. Employees may also borrow from
their accounts. All benefits are generally distributed to employees upon
termination of employment.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Restated Certificate contains certain provisions permitted under
Delaware Law relating to the liability of directors. These provisions eliminate
a director's personal liability for monetary damages resulting from a breach of
fiduciary duty, except in certain circumstances involving certain wrongful acts,
such as (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derives an improper personal benefit. These provisions do not limit or
eliminate the rights of the Company or any stockholder to seek non-monetary
relief, such as an injunction or rescission, in the event of a breach of
director's fiduciary duty. These provisions will not alter a director's
liability under federal securities laws. The Restated Certificate also contains
provisions indemnifying the directors and officers of the Company to the fullest
extent permitted by the Delaware General Corporation Law. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
At present, the Company is not aware of any pending or threatened litigation
or proceeding involving a director, officer, employee or agent of the Company in
which indemnification would be required or permitted. The Company is not aware
of any threatened litigation or proceeding that might result in a claim for such
indemnification. The Company believes that its charter provisions are necessary
to attract and retain qualified persons as directors and officers.
CERTAIN TRANSACTIONS
In August 1997, shares of the Company's Series E Preferred Stock,
convertible into an aggregate of 4,169,567 shares of Common Stock, were sold at
an as-converted price of $2.50 per share, 279,680 shares of which were sold to
Columbine Venture Fund II, L.P., 1,200,000 shares of which were sold to Kline
Hawkes California SBIC, L.P., 160,000 shares of which were sold to entities
affiliated with Patricof & Co. Ventures, Inc., 131,760 shares of which were sold
to Pathfinder Venture Capital Fund III, and 160,000 shares of which were sold to
entities affiliated with Technology Funding Inc.
Between October 1994 and March 1997, the Company issued and sold shares of
its Series B, C and D Preferred Stock to certain investors. The terms of the
Series B, C and D Preferred Stock provide for cumulative dividends. These terms
were negotiated between the Company and preferred stockholders at the time of
the Series B, C and D Preferred Stock offerings. In August 1997, upon the
closing of the Company's Series E Preferred Stock offering, the cumulative
dividends ceased to accrue. The total accumulated dividends are $735,356. The
terms of the Preferred Stock state that the cumulative dividends will be paid at
the time of the Company's initial public offering in cash, Common Stock or
Preferred Stock of the pertinent series. If paid in stock, the shares are to be
as valued by the Company's Board of Directors on the date of payment. At the
March 9, 1998 meeting, the Board of Directors determined that upon the closing
of the initial public offering, all cumulative dividends would be paid in Common
Stock valued at the price of the shares sold in the offering (the "Dividend
Shares"). The Dividend Shares will be issued to the following affiliates of the
Company: Patricof & Co. Ventures, Inc., Columbine Venture Fund II, L.P.,
Pathfinder Venture Capital Fund III, and entities affiliated with Technology
Funding, Inc.
In August 1996 and March 1997, shares of the Company's Series D Preferred
Stock, convertible into an aggregate of 2,333,333 shares of Common Stock, were
sold at an as-converted price of $1.50 per share, 466,686 shares of which were
sold to entities affiliated with Patricof & Co. Ventures, Inc., 815,809 shares
of which were sold to Columbine Venture Fund II, L.P., 384,184 shares of which
were sold to Pathfinder
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Venture Capital Fund III, and 466,683 shares of which were sold to entities
affiliated with Technology Funding Inc.
In June 1995 through April 1996, shares of the Company's Series C Preferred
Stock, convertible into an aggregate of 3,030,000 shares of Common Stock, were
sold at an as-converted price of $1.00 per share, 750,000 shares of which were
sold to entities affiliated with Patricof & Co. Ventures, Inc., 650,000 shares
of which were sold to Columbine Venture Fund II, L.P., 650,000 shares of which
were sold to Pathfinder Venture Capital Fund III and 750,000 shares of which
were sold to entities affiliated with Technology Funding Inc.
The nature of the affiliation of each of the purchasers described above with
the Company is as follows: (i) Sherman J. Muller, a director of the Company, is
a general partner of The Columbine Fund, which is the general partner of
Columbine Venture Fund II, L.P.; (ii) Janet G. Effland, a director of the
Company, is a general partner of APA Excelsior III Partners, the general partner
of APA and Coutts, which are funds managed by Patricof & Co. Ventures, Inc.;
(iii) Barbara L. Santry, a director of the Company, is a general partner of
Pathfinder Partners III, the general partner of Pathfinder Venture Capital Fund
III; (iv) Robert M. Friedland, a director of the Company, is a principal of
Kline Hawkes California SBIC, L.P.; and (v) entities affiliated with Technology
Funding Inc. hold more than 10% of the Company's outstanding capital stock.
The Company has entered into an employment agreement with Mr. Edlund.
Additionally, the Company has entered into an agreement with Dr. Dullien which,
among other things, provides for certain severance payments in the event Dr.
Dullien's employment with the Company is terminated without cause. See
"Management--Employment Agreements."
The Company believes that all of the transactions set forth above were in
its best interests. As a matter of policy, the transactions were, and all future
transactions between the Company and its officers, directors, principal
stockholders and affiliates will be, approved by a majority of the Board of
Directors, including a majority of the independent and disinterested directors
on the Board of Directors, and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of January 31, 1998 and as adjusted
as of such date to reflect the sale of the Common Stock offered by the Company
pursuant to this Prospectus, conversion of all outstanding shares of Preferred
Stock into Common Stock, issuance of the Dividend Shares and issuance of the
Warrant Shares by (i) each person (or group of affiliated persons) known by the
Company to beneficially own more than five percent of the outstanding shares of
Common Stock on an as-converted basis, (ii) each of the Company's directors and
Named Executive Officers, and (iii) all directors and executive officers as a
group. Except as otherwise set forth below, the address of each person listed
below is c/o Biex, Inc., 6693 Sierra Lane, Suite F, Dublin, California.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
SHARES --------------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Columbine Venture Fund II, L.P.(2)...................................... 3,537,501
5460 S. Quebec St.
Suite 270
Englewood, Colorado 80111
Entities affiliated with Patricof & Co. Ventures, Inc.(3)............... 2,023,644
c/o Alan Patricof Associates, Inc.
2100 Geng Road
Palo Alto, California 94303
Entities affiliated with Technology Funding Inc.(4)..................... 2,023,639
2000 Alameda de las Pulgas
San Mateo, California 94403
Pathfinder Venture Capital Fund III(5).................................. 1,665,944
3000 Sand Hill Road, Building Three, Suite 255
Menlo Park, California 94025
Kline Hawkes California SBIC, L.P.(6)................................... 1,200,000
11726 San Vicente Blvd., Suite 300
Los Angeles, California 90049
Hasso Plattner.......................................................... 800,000
c/o Lowenthal Capital
110 Solano Street
Tiburon, California 94920
James A. Edlund(7)...................................................... 619,849
Vivian K. Dullien, Ph.D.(8)............................................. 767,190
Edgar A. Luce(9)........................................................ 165,522
Dale D. Tyerman(10)..................................................... 296,455
H. Fred Voss, Ph.D.(11)................................................. 168,890
Janet G. Effland(12).................................................... 2,031,144
Fredric J. Feldman, Ph.D.(13)........................................... 205,935
Robert M. Friedland(14)................................................. 1,207,500
Sherman J. Muller(15)................................................... 3,545,001
Barbara L. Santry(16)................................................... 2,032,706
All directors and executive officers as a group (10 persons)(17)........ 11,040,192
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as
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indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them. Percentage of beneficial ownership is based on
14,291,896 shares of Common Stock outstanding as of January 31, 1998 (after
giving effect to the conversion of the Preferred Stock and the issuance of
the Warrant Shares and Dividend Shares) and shares of Common Stock
outstanding after completion of this offering.
(2) Sherman J. Muller, a director of the Company, is a general partner of The
Columbine Fund, which is the general partner of Columbine Venture Fund II,
L.P. ("Columbine"). Includes beneficial ownership of 195,622 shares of
Common Stock assumed issued pursuant to the exercise upon the closing of
this offering of an outstanding warrant held by Columbine.
(3) Includes 1,457,023 shares held by APA Excelsior III, L.P. ("APA") and
566,621 shares held by Coutts & Co. (Jersey) Ltd., Custodian for APA
Excelsior III/Offshore, L.P. ("Coutts"). Janet G. Effland, a director of
the Company, is a general partner of APA Excelsior III Partners, the
general partner of APA and Coutts, which are funds managed by Patricof &
Co. Ventures, Inc. Includes beneficial ownership of 50,847 and 19,774
shares of Common Stock assumed issued pursuant to the exercise upon the
closing of this offering of outstanding warrants held by APA and Coutts,
respectively.
(4) Includes 634,546 shares held by Technology Funding Partners III L.P.
("TFPIII"), 634,546 shares held by Technology Funding Venture Partners IV,
an Aggressive Growth Fund, L.P. ("TFPIV"), 634,547 shares held by
Technology Funding Partners V, an Aggressive Growth Fund, L.P. ("TFPV") and
120,000 shares held by Technology Funding Medical Partners I L.P. Includes
beneficial ownership of an aggregate of 70,620 shares of Common Stock
assumed issued pursuant to the exercise upon the closing of this offering
of outstanding warrants to purchase 23,540 shares of Common Stock held by
each of TFPIII, TFPIV and TFPV.
(5) Barbara L. Santry, a director of the Company, is a general partner of
Pathfinder Partners III, the general partner of Pathfinder Venture Capital
Fund III ("PVCF"). Includes beneficial ownership of 100,000 shares of
Common Stock assumed issued pursuant to the exercise upon the closing of
this offering of an outstanding warrant held by PVCF.
(6) Robert M. Friedland, a director of the Company, is a principal of Kline
Hawkes California SBIC, L.P. ("Kline Hawkes").
(7) Includes 619,849 shares of Common Stock subject to immediately exercisable
stock options, 256,184 of which will be vested as of April 1, 1998 and the
remaining 363,665 shares of which would be subject to repurchase if
purchased prior to vesting. Vesting of such unvested shares immediately
accelerates upon a change of control of the Company. See
"Management--Employment Agreements."
(8) Includes 317,190 shares of Common Stock subject to immediately exercisable
stock options, 194,663 of which will be vested as of April 1, 1998 and the
remaining 122,527 shares of which would be subject to repurchase if
purchased prior to vesting. Vesting of 58,955 shares subject to such stock
options accelerates upon a termination of employment within six months
following a change of control transaction or the initiation of sales of the
Company's first FDA-approved product. See "Management--Employment
Agreements."
(9) Includes 165,522 shares of Common Stock subject to immediately exercisable
stock options, 500 of which will be vested as of April 1, 1998 and the
remaining 165,022 shares of which would be subject to repurchase if
purchased prior to vesting.
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(10) Includes 206,455 shares of Common Stock subject to immediately exercisable
stock options, 32,155 of which will be vested as of April 1, 1998 and the
remaining 174,300 shares of which would be subject to repurchase if
purchased prior to vesting.
(11) Includes 168,890 shares of Common Stock subject to immediately exercisable
stock options, 62,188 of which will be vested as of April 1, 1998 and the
remaining 106,702 shares of which would be subject to repurchase if
purchased prior to vesting.
(12) Includes 1,457,023 shares held by APA and 566,621 shares held by Coutts.
Ms. Effland, a director of the Company, is a general partner of APA III
Partners, the general partner of APA and Coutts. Ms. Effland disclaims
beneficial ownership in the shares held by APA and Coutts except to the
extent of her pecuniary interest arising from her general partnership
interest in APA III partners. Also, includes 7,500 shares of Common Stock
subject to immediately exercisable stock options, 1,875 of which will be
vested as of April 1, 1998 and the remaining 5,625 shares of which would
be subject to repurchase if purchased prior to vesting.
(13) Includes 24,167 shares of Common Stock subject to immediately exercisable
stock options, 7,709 of which will be vested as of April 1, 1998 and the
remaining 16,458 shares of which would be subject to repurchase if
purchased prior to vesting.
(14) Includes 1,200,000 shares held by Kline Hawkes. Dr. Friedland, a director
of the Company, is a principal of Kline Hawkes. Also, includes 7,500
shares of Common Stock subject to immediately exercisable stock options,
1,875 of which will be vested as of April 1, 1998 and the remaining 5,625
shares of which would be subject to repurchase if purchased prior to
vesting.
(15) Includes 3,537,501 shares held by Columbine. Mr. Muller, a director of the
Company, is a general partner of the Columbine Fund, which is the general
partner of Columbine. Also, includes 7,500 shares of Common Stock subject
to immediately exercisable stock options, 1,875 of which will be vested as
of April 1, 1998 and the remaining 5,625 shares of which would be subject
to repurchase if purchased prior to vesting.
(16) Includes 1,665,944 shares held by Pathfinder Venture Capital Fund III and
359,262 shares held by Capstone Ventures. Ms. Santry, a director of the
Company, is a general partner of Pathfinder Partners III, the general
partner of PVCF, and is a managing member of Capstone Management, L.L.C.,
the general partner of Capstone Ventures. Also, includes 7,500 shares of
Common Stock subject to immediately exercisable stock options, 1,875 of
which will be vested as of April 1, 1998 and the remaining 5,625 shares
would be subject to repurchase if purchased prior to vesting.
(17) Includes 1,532,073 shares of Common Stock subject to immediately
exercisable stock options, of which 501,942 shares will be vested as of
April 1, 1998 and the remaining 1,030,131 shares of which would be subject
to repurchase if purchased prior to vesting. See Notes 7 through 16.
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DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock will consist
of 30,000,000 shares of Common Stock, par value $0.001 per share, and 5,000,000
shares of Preferred Stock, par value $0.001 per share.
COMMON STOCK
As of January 31, 1998, assuming the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock, and issuance of the Warrant Shares,
there were 14,291,896 shares of Common Stock outstanding held by 33
stockholders, options to purchase 1,809,588 shares of Common Stock and 799,731
shares reserved for future issuance under the Company's 1996 Stock Option Plan.
In addition, 10,224 shares are authorized for future issuance under the
Company's 1993 Stock Option Plan, but the Company does not intend to grant
additional options under such plan. Effective upon the completion of this
offering, the 1993 Stock Option Plan and the 1996 Stock Option Plan will be
terminated and replaced by the 1998 Equity Incentive Plan, under which 1,000,000
shares will be reserved for issuance. Also effective upon the completion of this
offering, the Board of Directors has reserved 500,000 and 300,000 shares for
issuance under the Purchase Plan and the Director's Plan, respectively.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Unless Section
2115 of the California General Corporation Law is applicable to the Company,
holders of Common Stock are not entitled to cumulative voting rights with
respect to the election of directors and, as a consequence, minority
stockholders will not be able to elect directors on the basis of their votes
alone. The holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, the Board of Directors will be authorized
to issue up to 5,000,000 shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
stockholders. The issuance of Preferred Stock with voting and conversion rights
may adversely affect the voting power of the holders of Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. As of the closing of the offering, no shares of
Preferred Stock will be outstanding and the Company currently has no plans to
issue any shares of Preferred Stock.
WARRANTS
In October 1994, pursuant to the Series B Preferred Stock and Warrant
Purchase Agreement, the Company issued warrants to purchase an aggregate of
465,584 shares of Series B Preferred Stock at an exercise price of $1.00 per
share, 195,622 of which were issued to Columbine Venture Fund II, L.P., 70,621
of which were issued to entities affiliated with Patricof & Co. Ventures, Inc.,
70,620 of which were issued to entities affiliated with Technology Funding Inc.,
and 100,000 of which were issued to Pathfinder Venture
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Capital Fund III. The warrants include a net exercise provision and expire upon
the earlier to occur of the closing of this offering or October 31, 1999.
REGISTRATION RIGHTS
After this offering and the issuance of the Dividend Shares and the Warrant
Shares, the holders of approximately 13,007,408 shares of Common Stock, or their
transferees, will be entitled to certain rights with respect to the registration
of such shares under the Securities Act. Under the terms of an agreement between
the Company and such holders, if the Company proposes to register any of its
securities under the Securities Act, either for its own account or the account
of other security holders exercising registration rights, the holders are
entitled to notice of such registration and are entitled to include shares of
such Common Stock therein; provided, among other conditions, that the
underwriters of any offering have the right to limit the number of such shares
included in such registration. In addition, the security holders benefiting from
these rights may require the Company, beginning six months after the date of
this Prospectus, on not more than two occasions to file a registration statement
under the Securities Act with respect to such shares, and the Company is
required to use its best efforts to effect such registration, subject to certain
conditions and limitations. Further, certain holders may require the Company to
file a registration statement on Form S-3 when such form becomes available to
the Company, subject to certain conditions and limitations. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable and could have an adverse effect on the market price for the Company's
Common Stock.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Amended and Restated Certificate (the "Restated Certificate") and
Amended and Restated Bylaws (the "Bylaws") of the Company provide, among other
things, that after the closing of this offering, any action required or
permitted to be taken by the stockholders of the Company after this offering may
be taken only at a duly called annual or special meeting of the stockholders and
may not be effected by a consent in writing. In addition, special meetings of
the stockholders of the Company may be called only by the Board of Directors,
the Chairman of the Board, or the Chief Executive Officer of the Company. The
Restated Certificate also provides for a classified board of directors and
specifies that the authorized number of directors may be changed only by
resolution of the Board of Directors. See "Management-- Board Composition."
These provisions, which require the vote of stockholders holding at least
two-thirds of the outstanding shares to amend, may have the effect of deterring
hostile takeovers or delaying changes in control or management of the Company.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For the purposes of
Section 203, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior did own) 15% or more of the
corporation's voting stock.
SECTION 2115
The Company may be subject to Section 2115 of the California Corporations
Codes ("Section 2115"). Section 2115 provides that, regardless of a company's
legal domicile, certain provisions of California corporate law will apply to
that company if the Company meets certain requirements relating to its property,
payroll and sales in California and if more than one-half of its outstanding
voting securities are held of record by persons having addresses in California.
Section 2115 limits the ability of the Company to, among other things, elect a
classified board of directors. The Company will not be subject to Section 2115
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at such time as an outstanding security of the Company is qualified for trading
as a national market security on the Nasdaq system and has 800 stockholders as
of the record date of its most recent annual meeting. The Company expects that
it will no longer be subject to Section 2115 by the record date of its 1999
annual meeting of stockholders. See "--Common Stock" and "Management--Board
Composition."
STOCKHOLDER RIGHTS PLAN
Pursuant to a Rights Agreement (the "Rights Agreement") between the Company
and Boston Equiserve, L.P. as Rights Agent (the "Rights Agent"), the Company's
Board of Directors declared a dividend of one right (a "Right") to purchase one
one-hundredth of a share of the Company's Series F Junior Participating
Preferred Stock ("Series F Preferred") for each outstanding share of Common
Stock of the Company. The dividend is payable on the effective date of this
offering (the "Record Date") to stockholders of record as of the close of
business on that date. Each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share of Series F Preferred at an
exercise price of $ (the "Purchase Price"), subject to adjustment. The
following summary of the principal terms of the Rights Agreement is a general
description only and is subject to the detailed terms and conditions of the
Rights Agreement.
Initially, the Rights will be evidenced by the stock certificates
representing Common Shares then outstanding, and no separate Right Certificates
will be distributed. Until the earlier to occur of (i) a public announcement
that a person or group of affiliated or associated persons, has become an
"Acquiring Person" (as such term is defined in the Rights Agreement) or (ii) 10
business days (or such later date as the Board may determine) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer which would result in the beneficial ownership by an Acquiring
Person of 20% or more of the outstanding Common Shares (the earlier of such
dates being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate. In general, an "Acquiring Person" is a
person, the affiliates or associates of such person, or a group, which has
acquired beneficial ownership of 20% or more of the outstanding Common Shares.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferable with
and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights) the
surrender or transfer of any certificates for Common Shares outstanding as of
the Record Date, even without such notation or a copy of this Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on , 2008 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below. Until a Right is
exercised, the holder thereof, as such, will have no rights as a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends.
The Purchase Price payable, and the number of shares of Series F Preferred
("Preferred Shares") or other securities or property issuable or payable, upon
exercise of the Rights are subject to adjustment from time to time to prevent
dilution. The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in
62
<PAGE>
Common Shares, or subdivisions, consolidations or combinations of the Common
Shares occurring, in any such case, prior to the Distribution Date. With certain
exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in such Purchase
Price. No fractional Preferred Shares will be issued (other than fractions which
are integral multiples of one one-hundredth of a Preferred Share, which may, at
the election of the Company, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $l per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. These rights are protected by customary
anti-dilution provisions. Because of the nature of the Preferred Shares'
dividend, liquidation and voting rights, the value of the one one-hundredth
interest in a Preferred Share purchasable upon exercise of each Right should
approximate the value of one Common Share. The Preferred Shares would rank
junior to any other series of the Company's preferred stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person or any
affiliate or associate thereof (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of Common Shares having a
market value of two times the exercise price of the Right. This right will
commence on the date of public announcement that a person has become an
Acquiring Person (or the effective date of a registration statement relating to
distribution of the rights, if later) and terminate 60 days later (subject to
adjustment in the event exercise of the rights is enjoined).
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold to an Acquiring Person, its affiliates or associates or certain
other persons in which such persons have an interest, proper provision will be
made so that each such holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Right.
At any time prior to the earliest of (i) the close of business on the day of
the first public announcement that a person has become an Acquiring Person, or
(ii) the Final Expiration Date, the Board of Directors of the Company may redeem
the Rights in whole, but not in part, at a price of $.001 per Right (the
"Redemption Price"). In general, the redemption of the Rights may be made
effective at such time on such basis with such conditions as the Board of
Directors in its sole discretion may determine. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
At any time after any Person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding Common
Shares, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by such person or group which will have become void), in whole
or in part, at an exchange ratio of one Common Share, or, under circumstances
set forth in the Rights Agreement, cash, property or other securities of the
Company, including fractions of a Preferred Share (or of a share of a class or
series of the Company's preferred stock having equivalent designations and the
powers, preferences and rights, and the qualifications, limitations and
restrictions), per Right (with value equal to such Common Shares).
63
<PAGE>
The terms of the Rights generally may be amended by the Board of Directors
of the Company without the consent of the holders of the Rights, except that
from and after such time as the Rights are distributed no such amendment may
adversely affect the interests of the holders of the Rights (excluding the
interest of any Acquiring Person).
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is BankBoston, N.A.,
289 South San Antonio Road, Suite 100, Los Altos, California, (650) 947-3225.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding
shares of Common Stock, based on the number of shares of Preferred Stock and
Common Stock outstanding as of January 31, 1998 and assuming issuance of the
Dividend Shares and the Warrant Shares and no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all the shares sold in this offering will be freely tradeable without
restrictions or further registration under the Securities Act of 1933, as
amended (the "Securities Act") unless purchased by an "affiliate" of the
Company, as that term is defined in Rule 144 promulgated under the Securities
Act. The remaining 14,291,896 shares of Common Stock held by existing
stockholders are "restricted securities" as the term is defined in Rule 144
under the Securities Act (the "Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act. As a result of contractual restrictions and the provisions of
Rule 144 and 701, additional shares will be available for sale in the public
market as follows: (i) 706,901 Restricted Shares will be eligible for immediate
sale on the date of this Prospectus or within 180 days after the Date of this
Prospectus; and (ii) 13,584,995 of the Restricted Shares, and 919,073 shares
subject to existing options will be eligible for sale 180 days after the date of
this Prospectus upon expiration of lock-up agreements.
Each officer and director of the Company, holders of 12,974,995 of the
outstanding shares of Common Stock and all holders of options to acquire Common
Stock have agreed with the Representatives for a period of 180 days after the
effective date of this Prospectus (the "Lock-Up Period"), subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of Common Stock,
any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock owned as
of the date of this Prospectus or thereafter acquired directly by such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of NationsBanc Montgomery
Securities LLC. However, NationsBanc Montgomery Securities LLC may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. In addition, the Company has agreed
that during the Lock-Up Period, the Company will not, without the prior written
consent of NationsBanc Montgomery Securities LLC, subject to certain exceptions,
issue, sell, contract to sell, or otherwise dispose of, any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock or any
securities convertible into, exercisable for or exchangeable for shares of
Common Stock other than the Company's sale of shares in this offering, the
issuance of Common Stock upon the exercise of outstanding options and the
Company's issuance of options and shares under existing employee stock option
and stock purchase plans.
As of January 31, 1998, there were 1,809,588 shares of Common Stock issuable
upon exercise of outstanding options. The Company intends to file registration
statements under the Securities Act to register shares of Common Stock reserved
for issuance under its employee stock option plans, the Purchase Plan and the
Directors' Plan, thus permitting the sale of such shares by non-affiliates in
the public market without restriction under the Securities Act. Such
registration statements will become effective immediately upon filing. Upon
effectiveness of such registration statements and expiration of the lockup
agreements described above, holders of vested options to purchase approximately
919,073 shares will be entitled to exercise such options and immediately sell
such shares.
In general, under Rule 144 as currently in effect, and beginning after
expiration of the lockup agreements described above (180 days after the date of
this Prospectus), a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of: (i) 1% of the number of shares of Common Stock then outstanding
(which will equal approximately shares immediately after the offering);
and (ii) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the date of sale. Sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements and to the
availability or current public information about the
65
<PAGE>
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation and notice provisions of Rule 144.
Pursuant to the lockup agreements described above, all Company employees and
consultants holding Common Stock or stock options may not sell shares acquired
upon exercise until 180 days after the date of this Prospectus. Beginning 180
days after the date of this Prospectus, any employee, officer or director of or
consultant to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that nonaffiliates may sell such shares in reliance on
Rule 144 without having to comply with the holding period, public information,
volume limitation or notice provisions of Rule 144.
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or will continue after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to time.
As described herein, only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale. Sales of substantial amounts of Common Stock of the
Company in the public market after the restrictions lapse could adversely affect
the prevailing market price and the ability of the Company to raise equity
capital in the future.
66
<PAGE>
UNDERWRITING
The Underwriters named below, represented by NationsBanc Montgomery
Securities LLC, Smith Barney Inc. and Wessels, Arnold & Henderson, L.L.C. (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement (the "Underwriting Agreement") by and between the
Company and the Underwriters, to purchase from the Company the aggregate number
of shares of Common Stock indicated below opposite their respective names at the
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent, and that the Underwriters are committed
to purchase all of such shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
NationsBanc Montgomery Securities LLC......................................................
Smith Barney Inc...........................................................................
Wessels, Arnold & Henderson, L.L.C.........................................................
----------
Total..................................................................................
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share, and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the offering, the price and other selling terms may
be changed by the Representatives. The Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above. The Underwriters may purchase such shares only to cover
over-allotments made in connection with the offering.
The Representatives have advised the Company that the Underwriters do not
expect to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
For a period of 180 days after the date of this Prospectus, without the
prior written consent of NationsBanc Montgomery Securities LLC, the Company and
holders of 13,584,995 shares of Common
67
<PAGE>
Stock, including the Company's directors and executive officers, have agreed not
to offer, sell or contract to sell, sell or grant any option to purchase, make
any short sale, pledge or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or securities exchangeable or exercisable
for or convertible into shares of, or any other rights to purchase or acquire
Common Stock of the Company other than transfers to the holders' immediate
family or into trusts for the benefit of the holder or members of the holders'
immediate family.
Prior to the offering, there has been no public market for the Common Stock
of the Company. Consequently, the offering price for the Common Stock will be
negotiated between the Company and the Representatives. Among the factors to be
considered in determining the offering price of the Common Stock will be
prevailing market and economic conditions, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, the Company's management and other factors deemed relevant.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Over-allotment involves syndicate
sales in excess of the offering price, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the Common Stock originally sold by such syndicate member
is purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward LLP, San Francisco and Palo Alto, California. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
Entities affiliated with Cooley Godward LLP beneficially own an aggregate of
120,573 shares of the Company's Common Stock. Howard G. Ervin, a partner in
Cooley Godward LLP, serves as Assistant Secretary of the Company.
EXPERTS
Certain legal matters with respect to information contained in this
Prospectus under the captions "Risk Factors--Dependence on Patents and
Proprietary Rights" and "Business--Patents and Proprietary Rights" will be
passed upon by McDonnell Boehmen Hulbert & Berghoff, patent counsel to the
Company.
The financial statements as of December 31, 1996 and 1997 and for each of
the three years in the period ended December 31, 1997 have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
68
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement (which term includes any amendments thereto) on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the Securities and Exchange
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits thereto, and the financial statements and notes filed as a part
thereof. Statements made in this Prospectus concerning the contents of any
document referred to herein are not necessarily complete. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement, including exhibits thereto and
the financial statements and notes filed as a part thereof, as well as such
reports and other information filed with the Securities and Exchange Commission,
may be inspected without charge at the public reference facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, DC
20549, and at the regional offices of the Securities and Exchange Commission
located at Seven World Trade Center, 13th Floor, New York, NY 10048, and the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661. Copies of all or any part thereof may be obtained from the Securities and
Exchange Commission upon payment of certain fees prescribed by the Commission.
Such reports and other information may also be inspected without charge at a
World Wide Web site on the Internet maintained by the Securities and Exchange
Commission (www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Securities and Exchange Commission through the Electronic Data Gathering,
Analysis and Retrieval System.
69
<PAGE>
BIEX, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Stockholders' Equity (Deficit)............................................................... F-5
Statements of Cash Flows................................................................................... F-7
Notes to Financial Statements.............................................................................. F-8
</TABLE>
F-1
<PAGE>
Upon the effective date of Biex, Inc.'s proposed initial public offering, we
expect to be in a position to render the following audit report:
ARTHUR ANDERSEN LLP
San Jose, California
March 13, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Biex, Inc.:
We have audited the accompanying balance sheets of Biex, Inc. (a Delaware
corporation in the development stage) as of December 31, 1997 and 1996, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1997, and for the
period from inception (November 1, 1991) to December 31, 1997. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Biex, Inc. as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, and for the period
from inception (November 1, 1991) to December 31, 1997, in conformity with
generally accepted accounting principles.
San Jose, California
___________, 1998
F-2
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................................ $ 446,285 $ 194,282
Short-term investments........................................................................... 993,769 8,073,513
Interest receivable.............................................................................. 12,337 48,589
Prepaids and other current assets................................................................ 45,885 57,000
----------- ------------
Total current assets......................................................................... 1,498,276 8,373,384
Property and Equipment, net of accumulated depreciation of $12,298 in 1996 and $20,588 in 1997..... 26,151 114,852
Deposits........................................................................................... 8,269 8,269
----------- ------------
Total assets................................................................................. $ 1,532,696 $ 8,496,505
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities......................................................... $ 573,557 $ 733,088
Cumulative dividends payable..................................................................... 436,147 735,356
----------- ------------
Total current liabilities.................................................................... 1,009,704 1,468,444
----------- ------------
Commitments (Note 6)
Stockholders' Equity:
Preferred stock, $.001 par value; 14,004,513 shares authorized, none outstanding................. -- --
Common stock, $.001 par value; 23,246,164 shares authorized; 8,738,311 and 13,826,312 shares
issued and outstanding at December 31, 1996 and 1997; respectively............................. 8,738 13,827
Additional paid-in capital....................................................................... 8,127,542 19,425,008
Deferred compensation............................................................................ -- (729,000)
Unrealized gain on investments................................................................... -- 73,513
Deficit accumulated during the development stage................................................. (7,613,288) (11,755,287)
----------- ------------
Total stockholders' equity................................................................... 522,992 7,028,061
----------- ------------
Total liabilities and stockholders' equity................................................... $ 1,532,696 $ 8,496,505
----------- ------------
----------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
FOR THE YEARS ENDED DECEMBER 31, (NOVEMBER 1, 1991)
------------------------------------------- TO DECEMBER 31,
1995 1996 1997 1997
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Expenses:
Research and development....................... $ 1,058,898 $ 2,155,935 $ 1,988,848 $ 6,433,521
General and administrative..................... 676,119 1,465,047 1,963,770 4,801,554
------------- ------------- ------------- ------------------
Operating loss............................... (1,735,017) (3,620,982) (3,952,618) (11,235,075)
------------- ------------- ------------- ------------------
Interest Income.................................. 27,987 57,717 109,828 215,144
------------- ------------- ------------- ------------------
Net Loss......................................... $ (1,707,030) $ (3,563,265) $ (3,842,790) $ (11,019,931)
------------- ------------- ------------- ------------------
------------- ------------- ------------- ------------------
Basic Net Loss Per Share......................... $ (0.37) $ (0.48) $ (0.35) $ (2.38)
------------- ------------- ------------- ------------------
------------- ------------- ------------- ------------------
Shares Used in Computing Basic Net Loss Per
Share.......................................... 4,592,638 7,365,161 10,856,936 4,621,978
------------- ------------- ------------- ------------------
------------- ------------- ------------- ------------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL UNREALIZED DURING THE
---------------------- PAID-IN DEFERRED GAIN ON DEVELOPMENT
SHARES AMOUNT CAPITAL COMPENSATION INVESTMENTS STAGE
--------- ----------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, inception (November 1,
1991)............................. -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock for cash
at $.001 per share in November
1991............................ 900,000 900 -- -- -- --
Issuance of common stock for cash
at $.00125 per share in December
1991............................ 30,000 30 8 -- -- --
Net loss.......................... -- -- -- -- -- (16,401)
--------- ----------- ---------- ------------- ----------- ------------
Balances, December 31, 1991......... 930,000 930 8 -- -- (16,401)
Issuance of common stock for cash
at $.001 per share in March
1992............................ 70,000 70 -- -- -- --
Net loss.......................... -- -- -- -- -- (226,116)
--------- ----------- ---------- ------------- ----------- ------------
Balances, December 31, 1992......... 1,000,000 1000 8 -- -- (242,517)
Issuance of common stock for cash
and conversion of notes due to a
stockholder in the amount of
$249,963 in July 1993........... 1,592,307 1,592 1,283,370 -- -- --
Stock offering costs.............. -- -- (27,853) -- -- --
Issuance of common stock for
services valued at $.065 per
share in December 1993.......... 12,500 12 801 -- -- --
Net loss.......................... -- -- -- -- -- (578,557)
--------- ----------- ---------- ------------- ----------- ------------
Balances, December 31, 1993......... 2,604,807 2,604 1,256,326 -- -- (821,074)
Issuance of common stock for cash
and conversion of notes due to a
stockholder in the amount of
$462,335 in October 1994........ 1,416,617 1,417 1,415,200 -- -- --
Stock offering costs.............. -- -- (36,705) -- -- --
Dividends......................... -- -- -- -- -- (14,166)
Net loss.......................... -- -- -- -- -- (1,085,772)
--------- ----------- ---------- ------------- ----------- ------------
Balances, December 31, 1994......... 4,021,424 4,021 2,634,821 -- -- (1,921,012)
Issuance of common stock for cash
at $1.00 per share in June
1995............................ 1,010,004 1,010 1,008,994 -- -- --
Issuance of common stock for cash
at $1.00 per share at December
1995............................ 1,010,000 1,010 1,008,990 -- -- --
Stock offering costs.............. -- -- (12,678) -- -- --
Issuance of common stock for cash
from stock option exercises..... 20,220 20 1,294 -- -- --
Dividends......................... -- -- -- -- -- (119,337)
Net loss.......................... -- -- -- -- -- (1,707,030)
--------- ----------- ---------- ------------- ----------- ------------
Balances, December 31, 1995......... 6,061,648 $ 6,061 $4,641,421 $ -- $ -- $(3,747,379)
</TABLE>
F-5
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL UNREALIZED DURING THE
---------------------- PAID-IN DEFERRED GAIN ON DEVELOPMENT
SHARES AMOUNT CAPITAL COMPENSATION INVESTMENTS STAGE
--------- ----------- ---------- ------------- ----------- ------------
Balances, December 31, 1995......... 6,061,648 $ 6,061 $4,641,421 $ -- $ -- $(3,747,379)
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash
at $1.00 per share in April
1996............................ 1,009,996 1,010 1,008,986 -- -- --
Issuance of common stock for cash
at $1.50 per share in August
1996............................ 1,666,667 1,667 2,498,333 -- -- --
Stock offering costs.............. -- -- (21,198) -- -- --
Dividends......................... -- -- -- -- -- (302,644)
Net loss.......................... -- -- -- -- -- (3,563,265)
--------- ----------- ---------- ------------- ----------- ------------
Balances, December 31, 1996......... 8,738,311 8,738 8,127,542 -- -- (7,613,288)
Issuance of common stock for
services valued at $.20 per
share in January 1997........... 5,000 5 995 -- -- --
Issuance of common stock for cash
at $1.50 per share in March
1997............................ 666,666 667 999,333 -- -- --
Issuance of common stock for cash
at $2.50 per share in August
1997............................ 4,169,567 4,170 10,337,648 -- -- --
Stock offering costs.............. -- -- (832,789) -- -- --
Issuance of common stock for cash
from stock option exercises..... 246,768 247 45,279 -- -- --
Deferred compensation............. -- -- 747,000 (747,000) -- --
Amortization of deferred
compensation.................... -- -- -- 18,000 -- --
Unrealized gain on investments.... -- -- -- -- 73,513 --
Dividends......................... -- -- -- -- -- (299,209)
Net loss.......................... -- -- -- -- -- (3,842,790)
--------- ----------- ---------- ------------- ----------- ------------
Balances, December 31, 1997......... 13,826,312 $ 13,827 $19,425,008 $(729,000) $ 73,513 ($11,755,287)
--------- ----------- ---------- ------------- ----------- ------------
--------- ----------- ---------- ------------- ----------- ------------
</TABLE>
The accompanying notes to financial statement are an integral part of these
statements.
F-6
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
FOR THE YEARS ENDED DECEMBER 31, (NOVEMBER 1, 1991)
-------------------------------------- TO DECEMBER 31,
1995 1996 1997 1997
----------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss...................................................... $(1,707,030) $(3,563,265) $ (3,842,790) $ (11,019,931)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 2,713 7,772 8,290 24,836
Common stock issued for services............................ -- -- 1,000 1,813
Amortization of deferred compensation....................... -- -- 18,000 18,000
Accrued interest on promissory notes converted into Series B
preferred stock........................................... -- -- -- 16,620
Changes in operating assets and liabilities:
Interest receivable....................................... -- -- (36,252) (36,252)
Prepaids and other current assets......................... (5,000) (52,772) (11,115) (69,337)
Deposits.................................................. (5,318) (2,951) -- (8,269)
Accounts payable and accrued liabilities.................. 15,520 433,281 159,531 733,088
----------- ----------- ------------ ------------------
Net cash used in operating activities................... (1,699,115) (3,177,935) (3,703,336) (10,339,432)
----------- ----------- ------------ ------------------
Cash Flows From Investing Activities:
Purchases of property and equipment........................... (57,441) -- (96,991) (159,055)
Proceeds from sale of property and equipment.................. -- 23,615 -- 23,615
Purchases of short-term investments........................... (1,403,466) (1,493,769) (8,000,000) (12,906,240)
Proceeds from sale of short-term investments.................. 1,592,617 1,090,117 993,769 4,906,240
Cash paid for organization costs.............................. -- -- -- (4,248)
----------- ----------- ------------ ------------------
Net cash provided by (used in) investing activities....... 131,710 (380,037) (7,103,222) (8,139,688)
----------- ----------- ------------ ------------------
Cash Flows From Financing Activities:
Proceeds from issuance of equity securities................... 2,021,318 3,509,996 11,387,344 18,892,593
Equity securities offering costs.............................. (12,678) (21,198) (832,789) (931,489)
Proceeds from issuance of notes payable to a related party and
others, canceled on July 23, 1993........................... -- -- -- 399,963
Repayment of note payable to a related party.................. -- -- -- (150,000)
Proceeds from issuance of notes payable to a related party and
others...................................................... -- -- -- 462,335
----------- ----------- ------------ ------------------
Net cash flows provided by financing activities........... 2,008,640 3,488,798 10,554,555 18,673,402
----------- ----------- ------------ ------------------
Net Increase (Decrease) in Cash and Cash Equivalents............ 441,235 (69,174) (252,003) 194,282
Cash and Cash Equivalents, beginning of period.................. 74,224 515,459 446,285 --
----------- ----------- ------------ ------------------
Cash and Cash Equivalents, end of period........................ $ 515,459 $ 446,285 $ 194,282 $ 194,282
----------- ----------- ------------ ------------------
----------- ----------- ------------ ------------------
Supplemental Cash Flow Information:
Cash paid for interest........................................ $ -- $ -- $ -- $ 26,500
----------- ----------- ------------ ------------------
----------- ----------- ------------ ------------------
Cancellation of convertible promissory notes due to related
party....................................................... $ -- $ -- $ -- $ 712,298
----------- ----------- ------------ ------------------
----------- ----------- ------------ ------------------
Issuance of common stock for services......................... $ -- $ -- $ 1,000 $ 1,813
----------- ----------- ------------ ------------------
----------- ----------- ------------ ------------------
Accrued non-cash dividends.................................... $ 119,337 $ 302,644 $ 299,209 $ 735,356
----------- ----------- ------------ ------------------
----------- ----------- ------------ ------------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-7
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION:
Biex, Inc. (a Delaware corporation in the development stage, the "Company")
is a women's health care company focused on developing and marketing solutions
for maternity management, including the development of a proprietary
saliva-based screening system for the women's prenatal healthcare market. The
Company's product is in the early stages of development; no product revenues
have been generated thus far. Prior to selling this product and generating
product revenues, the Company must complete the development of its product and
receive regulatory approvals. No assurance can be given that the Company's
product will be successfully developed, regulatory approvals will be granted, or
patient and physician acceptance of this product will be achieved.
Since inception, the Company has incurred substantial losses, principally
from expenses associated with seeking regulatory approval of its product,
development efforts related to its product and the establishment of its sales
and administrative organization. The Company has funded its operations primarily
through the private placement of equity securities aggregating approximately
$18.9 million as of December 31, 1997. The Company continues to be subject to
certain risks common to companies in similar stages of development, including
the need for additional financing, dependence on a single product, uncertainty
of regulatory approval, uncertainty of market acceptance, limited manufacturing,
marketing and sales experience and uncertainty of successful future operations.
There can be no assurance that additional financing will be available to the
Company. If other financing is not available, management believes the Company
could continue its operations at least through December 31, 1998 by delaying,
scaling back or eliminating certain of its planned expenditures, including, but
not limited to, research and development, clinical, marketing and manufacturing
programs.
2. SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or less
to be cash equivalents. Cash equivalents consist of government obligations or
investments collateralized by government obligations.
SHORT-TERM INVESTMENTS
Short-term investments consist of commercial paper and are classified as
available-for-sale and carried at fair market value. Unrealized gains and losses
on such securities, when material, are reported as a separate component of
stockholders' equity. Realized gains and losses on sales of all such securities
are reported in earnings and computed using the specific identification cost
method. At December 31, 1997, the cost basis of the short-term investments was
$8,000,000 with a fair market value of $8,073,513.
F-8
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment consists of equipment and leasehold improvements and
are stated at cost. Depreciation of equipment and leasehold improvements is
provided on the straight-line method over approximately five years.
RESEARCH AND DEVELOPMENT
Costs incurred in connection with research and development activities are
expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects as well as fees paid to various entities that
perform research for the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 is effective
for financial statements for fiscal years beginning after December 15, 1997.
This standard defines comprehensive income as the changes in equity of an
enterprise except those resulting from stockholder transactions. All components
of comprehensive income will be required to be reported in financial statements
issued for periods beginning after the effective date of SFAS No. 130.
Management believes the adoption of SFAS No. 130 will not have a material effect
on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board also issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131). SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. SFAS No. 131 establishes standards for
disclosures about operating segments, products and services geographic areas and
major customers. Management believes the adoption of SFAS No. 131 will not have
a material effect on the Company's financial statements.
BASIC NET LOSS PER COMMON SHARE
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. No diluted loss per share information has
been presented in the accompanying statements of operations since potential
common shares from conversion of stock options and warrants are antidilutive.
3. REDEEMABLE PREFERRED STOCK:
Prior to the effectiveness of the registration statement for the Company's
initial public offering, the Company was authorized to issue 14,004,513 shares
of preferred stock, of which 12,541,824 shares were issued and were carried at
their aggregate redemption value of $19,377,530, which was equal to their
aggregate liquidation preference. The shares of preferred stock had various
rights and privileges including redemption rights and rights to cumulative
dividends. Such dividends amounted to $735,356 at December 31, 1997, and are
payable in either stock or cash at the option of the Company. All shares of
preferred stock outstanding were converted to shares of common stock immediately
prior to the effectiveness of the registration statement filed with respect to
the Company's initial public offering (see Note 7). Accordingly, all share and
per share amounts in the accompanying financial statements have been
retroactively restated
F-9
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
3. REDEEMABLE PREFERRED STOCK: (CONTINUED)
to reflect this conversion. Additionally, the board of directors authorized the
payment of the accrued dividend payable simultaneous with the closing of the
initial public offering by the issuance of shares of common stock.
In connection with the issuance of certain of the previously outstanding
series of preferred stock, warrants to purchase 465,584 shares of Series B
Preferred Stock at $1.00 per share were issued to the purchasers. These warrants
originally expired on the earlier of the Company's initial public offering or
October 1997; the expiration date was extended during 1997 to October 31, 1999.
The warrants were held only by existing owners of the Company's Series B
Preferred Stock; accordingly, no compensation expense was recorded at the date
the warrants' expiration date was extended.
4. STOCK COMPENSATION PLANS:
1993 STOCK OPTION PLAN AND 1996 STOCK OPTION PLAN
As of December 31, 1997, the Company had two stock option plans, the 1993
Stock Option Plan (the "1993 Plan") and the 1996 Stock Option Plan (the "1996
Plan") (collectively, the "Plans"). The stock options granted under the Plans
may be either incentive stock options ("ISO's") or nonstatutory stock options.
The Board of Directors sets the rate at which the options become exercisable and
determines when the options expire. No options shall be exercisable after the
tenth anniversary of the date of grant.
ISO's may not be granted at an exercise price of less than the fair market
value of the common stock at the date of grant. If an ISO is granted to an
employee who owns more than 10% of the Company's total voting stock, such
exercise price shall be at least 110% of the fair market value of the common
stock, and the ISO shall not be exercisable after five years from the date of
grant.
F-10
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. STOCK COMPENSATION PLANS: (CONTINUED)
Activity under the Plans is as follows:
<TABLE>
<CAPTION>
EXERCISE
OPTIONS PRICE PER WEIGHTED AVERAGE
OUTSTANDING SHARE EXERCISE PRICE
----------- ------------- -----------------
<S> <C> <C> <C>
Outstanding at December 31, 1993............................ 58,432 $.065 $ .065
Granted................................................... 132,474 .065 - .15 .12
-----------
Outstanding at December 31, 1994............................ 190,906 .065 - .15 .08
Granted................................................... 341,212 .15 .15
Exercised................................................. (20,220) .065 .065
Canceled.................................................. (85,745) .065 - .15 .07
-----------
Outstanding at December 31, 1995............................ 426,153 .065 - .15 .14
Granted................................................... 967,312 .20 .20
-----------
Outstanding at December 31, 1996............................ 1,393,465 .065 - .20 .18
Granted................................................... 656,971 .30 - 1.00 .59
Exercised................................................. (246,768) .15 - .20 .18
Canceled.................................................. (84,080) .20 - .30 .26
-----------
Outstanding at December 31, 1997............................ 1,719,588 .065 - 1.00 .33
-----------
-----------
Exercisable at December 31, 1997............................ 538,655 .18
-----------
-----------
Weighted Average Fair Value of Options...................... $ .10
-----------
-----------
</TABLE>
There are 249,955 and 322,846 options available for grant at December 31,
1997 and 1996, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1997 LIFE PRICE 1997 PRICE
- --------- -------------- --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$.065 46,716 6 years $ .065 46,716 $ .065
.15 - .20 1,063,207 8 years .19 479,441 .18
.30 314,165 9 years .30 12,498 .30
.60 48,000 10 years .60 -- --
1.00 247,500 10 years 1.00 -- --
-------------- ------------
1,719,588 538,655
-------------- ------------
-------------- ------------
</TABLE>
Of the 1,719,588 options outstanding at December 31, 1997, 117,913 are
subject to accelerated vesting based on certain milestones set by the Board of
Directors. In addition, 663,923 options will become vested in the event the
Company is sold or has certain other significant changes in its ownership. In
March 1997, the Company amended the terms of outstanding options to provide the
option holders the right to early
F-11
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. STOCK COMPENSATION PLANS: (CONTINUED)
exercise their options, subject to the right of the Company to repurchase
unvested shares at the original purchase price.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plans. Had compensation cost for the Plans been determined
based on the fair value of the stock options on the date of grant, consistent
with the method specified in SFAS No. 123, the Company's net loss and basic net
loss per share would have increased to the following pro forma amounts for
fiscal 1995, 1996 and 1997, as follows:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------- -------------
<S> <C> <C>
1995
Net loss...................................................... $ (1,707,030) $ (1,715,704)
Basic net loss per share...................................... (0.37) (0.37)
1996
Net loss...................................................... (3,563,265) (3,596,052)
Basic net loss per share...................................... (0.48) (0.49)
1997
Net loss...................................................... (3,842,790) (3,901,126)
Basic net loss per share...................................... (0.35) (0.36)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997, respectively: risk-free interest
rate of 6.2 percent and 5.7 percent, respectively, expected dividend yields of
zero percent; expected lives of 3 years; expected volatility of 0.01 percent.
DEFERRED COMPENSATION
In connection with the issuance of stock options to employees, the Company
has recorded deferred compensation in the aggregate amount of $747,000
representing the difference between the fair market value of the Company's
common stock and the exercise price of the stock options at the date of grant.
The Company is amortizing the deferred compensation expense over the shorter of
the period in which the employee provides services or the applicable vesting
period, which is typically over 48 months. For the period ended December 31,
1997, amortization expense was $18,000.
1998 EQUITY INCENTIVE PLAN
The Company's 1998 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Company's board of directors in March 1998, as a successor plan to the
Plans. The Incentive Plan will become effective upon completion of the Company's
initial public offering. In addition to the shares to be initially reserved for
the Incentive Plan, an amount equal to the difference, if any, between five
percent of the Company's total outstanding shares as of each December 31 during
the term of the Incentive Plan and the number of shares then reserved under the
Incentive Plan will be added to the share reserve each such December 31. Under
the Incentive Plan, the Board of Directors may grant options to purchase the
Company's common
F-12
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. STOCK COMPENSATION PLANS: (CONTINUED)
stock to employees, directors or consultants at an exercise price of not less
than 100% of the fair value of the Company's common stock on the date of grant,
in the case of incentive stock options, and not less than 85% of the fair value
of the Company's common stock on the date of grant, in the case of nonqualified
stock options. The term of the stock options issued under the Incentive Plan may
not exceed 10 years from the date of grant and such options shall generally vest
over four years. Shares subject to stock awards that have expired or otherwise
terminated without having been exercised in full again become available for the
grant of awards under the Incentive Plan. The board of directors has the
authority to reprice outstanding options and to offer optionees the opportunity
to replace outstanding options with new options.
Under the Incentive Plan, restricted stock purchase awards may be granted
pursuant to a repurchase option in favor of the Company in accordance with a
vesting schedule and at a price determined by the board of directors. Restricted
stock purchases must be at a price equal to at least 85% of the stock's fair
market value on the award date, but stock bonuses may be awarded in
consideration of past services without a purchase payment.
Upon certain changes in control of the Company, all outstanding awards under
the Incentive Plan shall either be assumed or substituted by the surviving
entity. If the surviving entity determines not to assume or substitute such
awards, and with respect to persons then performing services as employees,
directors or consultants, the time during which such awards may vest shall be
accelerated and the awards terminated if not exercised prior to such change in
control.
The Incentive Plan will terminate in March 2008 unless sooner terminated by
the board of directors.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's board of directors in March 1998. The Purchase Plan
permits eligible employees to purchase common stock at 85% of the lower of the
fair market value of the Company's common stock on the commencement date of each
offering period or the relevant purchase date.
In the event of certain changes of control, the Company and the board of
directors has discretion to provide that each right to purchase common stock
will be assumed or an equivalent right substituted by the successor corporation,
or the board of directors may shorten the offering period and provide for all
sums collected by payroll deductions to be applied to purchase stock immediately
prior to the change in control. The Purchase Plan will terminate at the board of
directors' direction.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Company's 1998 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Company's board of directors in March 1998. Pursuant to the terms
of the Directors' Plan, each person serving as a director of the Company who is
not an employee of the Company (a "Non-Employee Director") shall upon the date
such person first becomes a Non-Employee Director after the effectiveness of the
initial public offering of the Company's common stock automatically be granted
an option to purchase that number of shares of common stock equal to 7,500
divided by the whole number of months remaining in the calendar year in which
the person first joined the board of directors. In addition, on
F-13
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. STOCK COMPENSATION PLANS: (CONTINUED)
January 1 of each calendar year, commencing in 1999, each Non-Employee Director
will automatically be granted an option to purchase 7,500 shares of common
stock.
Options under the Directors' Plan will vest in twelve monthly installments
commencing on the date of the grant of the option. The exercise price of the
options granted under the Directors' Plan equals the fair market value of the
Common Stock granted on the date of grant. No option granted under the
Directors' Plan may be exercised after the expiration of ten years from the date
it was granted.
In the event of certain changes of control, options outstanding under the
Directors' Plan will automatically become fully vested and exercisable, and will
terminate if not exercised prior to such change of control.
5. INCOME TAXES:
As of December 31, 1997, the Company has approximately $5,576,000 of net
operating loss carryforwards for income tax purposes, approximately $4,809,000
of capitalized start-up costs, and approximately $101,000 of research and
development tax credits available to offset future federal income tax, subject
to limitations for alternative minimum tax. The net operating loss and credit
carryforwards are subject to examination by the tax authorities and expire in
various years from 2006 through 2012.
The Internal Revenue Code contains provisions that may limit the net
operating loss and credit carryforwards available to be used in any given year
upon the occurrence of certain events, including significant changes in
ownership interest.
The components of the net deferred income tax asset were as follows as of
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Cumulative net operating loss carryforwards..................... $ 1,545,000 $ 2,174,000
Capitalized start-up costs...................................... 1,101,000 1,875,000
Research and development tax credits............................ 79,000 101,000
Less: Valuation allowance....................................... (2,725,000) (4,150,000)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>
The Company has not achieved profitable operations. Accordingly, the Company
has recorded a valuation allowance for the entire net deferred tax asset.
F-14
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
6. COMMITMENTS:
The Company leases its facilities and certain equipment under noncancelable
operating lease agreements. As of December 31, 1997, the minimum future lease
payments under these leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 156,077
1999.............................................................................. 145,731
2000.............................................................................. 84,754
2001.............................................................................. 72,818
</TABLE>
Total rent expense was approximately $157,326 for 1997, $67,211 for 1996,
$35,120 for 1995, $16,310 for 1994, and $286,292 for the period from inception
to December 31, 1997.
The Company has entered into employment agreements with certain of its
executive officers; such agreements generally provide for compensation, stock
option arrangements, and severance provisions, including provisions in the event
of change in control of the Company.
In November 1997, the Company entered into a three-year manufacturing
agreement with a third party manufacturer, under which certain portions of the
Company's product will be produced by the manufacturer. During the term of the
agreement, the Company will supply the manufacturer with a rolling 12 month
forecast of product requirements. The forecast for each period will be
considered a firm commitment for the next immediate quarter. Changes from
forecast for subsequent quarters may be made, subject to certain limitations, as
set forth in the agreement. In February 1998, the Company entered into a similar
agreement for another component with another supplier. The Company had not
provided forecasts to such contracting suppliers as of December 31, 1997;
therefore, no amounts were due under these agreements as of such date.
The Company has a lease line of credit under which it may enter into
operating leases for up to $700,000 of furniture, fixtures and equipment. The
line of credit expires in September 1998. The Company has no indebtedness and no
obligations for capital expenditures.
7. SUBSEQUENT EVENTS:
In March 1998, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock in connection with the proposed
initial public offering.
Effective January 1998, the Company adopted a tax deferred savings plan
entitled the Biex, Inc. 401(k) Retirement Plan (the "401(k) Plan"), which covers
all employees of the Company beginning on the first day of the calendar quarter
beginning after the date of hire. An employee may contribute up to 15% of his or
her compensation to the 401(k) Plan on a pre-tax basis, not to exceed in any
given year the maximum amount allowable under the Internal Revenue Code
regulations. The Company will contribute the total amount of salary elected to
be deferred by each employee and may contribute a discretionary matching
contribution equal to a specified percentage of the participant's obligation.
In 1998, the Company's Board of Directors declared a dividend of one
Series F Preferred Purchase Right (a "Right") for each outstanding share of
common stock. The dividend is payable on the
F-15
<PAGE>
BIEX, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
7. SUBSEQUENT EVENTS: (CONTINUED)
effective date of the Company's initial public offering. Each Right entitles the
holder to purchase one one-hundredth of a share of the Company's Series F Junior
Participating Preferred Stock ("Series F Preferred") at an exercise price of
$ , subject to certain adjustments.
Series F Preferred Shares will not be redeemable and will be entitled to a
minimum preferential quarterly dividend payment of $1.00 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per common
share. In the event of liquidation, the holders of the Series F Preferred will
be entitled to an aggregate payment of 100 times the payment made per common
share. Each share of Series F Preferred will have 100 votes, and, in the event
of any merger, consolidation, or other transaction in which common shares are
exchanged, each share of Series F Preferred will be entitled to receive 100
times the amount received per common share. Rights are protected by
anti-dilution provisions, and the shares of Series F Preferred would rank junior
to any other outstanding series of the Company's preferred stock.
If a person or group acquires 20% or more of the outstanding common stock of
the Company, each Right will entitle the holder (other than such person or any
member of such group) to purchase, at the Right's then current exercise price,
the number of shares common stock having a market value of twice the exercise
price of the Right. If exercisable, the Rights contain provisions relating to
mergers or other business combination. In certain circumstances the Board of
Directors may, at its option, exchange part or all of the Rights (other than
Rights held by the acquiring person or group) for shares of common stock at an
exchange rate of one share of common stock for each Right. The Company will be
entitled to redeem all of the Rights at a price of $0.001 per Right.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES, OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 6
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS................................... 18
USE OF PROCEEDS................................ 19
DIVIDEND POLICY................................ 19
CAPITALIZATION................................. 20
DILUTION....................................... 21
SELECTED FINANCIAL DATA........................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 23
BUSINESS....................................... 26
MANAGEMENT..................................... 46
CERTAIN TRANSACTIONS........................... 55
PRINCIPAL STOCKHOLDERS......................... 57
DESCRIPTION OF CAPITAL STOCK................... 60
SHARES ELIGIBLE FOR FUTURE SALE................ 65
UNDERWRITING................................... 67
LEGAL MATTERS.................................. 68
EXPERTS........................................ 68
ADDITIONAL INFORMATION......................... 69
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
[LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
NationsBanc Montgomery
Securities LLC
Salomon Smith Barney
Wessels, Arnold & Henderson
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration fee..................................................... $ 12,538
NASD filing fee.......................................................... 4,750
Nasdaq application fee................................................... 5,000
Blue sky qualification fee and expenses.................................. 5,000
Printing and engraving expenses.......................................... 100,000
Legal fees and expenses.................................................. 325,000
Accounting fees and expenses............................................. 100,000
Transfer agent and registrar fees........................................ 5,000
Miscellaneous............................................................ 17,712
---------
Total................................................................ $ 575,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Amended and
Restated Bylaws also provide that the Registrant will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent not prohibited by Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation provides
for the elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to the Registrant and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such an injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1995, the Registrant has sold and issued the following
unregistered securities:
(a) Since January 1, 1995, the Registrant has granted stock options under
its stock option plans covering an aggregate of 2,045,495 shares of the
Registrant Common Stock, at exercise prices ranging from $0.15 to $2.00
per share.
(b) Since January 1, 1995, options to purchase an aggregate of 246,988
shares of Common Stock of the Company were exercised for an aggregate
purchase price of $45,540.25 at exercise prices ranging from $.065 to
$.20.
II-1
<PAGE>
(c) From June 1995 through April 1996, the Registrant issued and sold an
aggregate of 3,030,000 shares of Series C Preferred Stock (convertible
into 3,030,000 shares of Common Stock) at $1.00 per share to nine
investors, 2,050,000 shares of which were sold to affiliates of the
Registrant.
(d) In August 1996 and March 1997, the Registrant issued and sold an
aggregate of 2,333,333 shares of Series D Preferred Stock (convertible
into 2,333,333 shares of Common Stock) at $1.50 per share to nine
investors, 1,749,532 of which were sold to affiliates of the Registrant.
(e) In January 1997, the Company issued 5,000 shares of Common Stock to a
consultant of the Company, in consideration of services rendered.
(f) In August 1997, the Registrant issued and sold an aggregate of 4,169,567
shares of Series E Preferred Stock (convertible into 4,169,567 shares of
Common Stock) at $2.50 per share to 20 investors, 599,840 of which were
sold to affiliates of the Registrant and 1,200,000 shares of which were
sold to an entity that became an affiliate of the Registrant in
connection with such sale.
The sales and issuances of securities in the transactions described in
paragraph (a) and (b) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
The sales and issuances of securities in the transactions described in
paragraphs (c), (d), (e) and (f) above were deemed to be exempt from
registration under the Securities Act by virtue of Section 4(2) and/or
Regulation D promulgated under the Securities Act. The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends are affixed to
the stock certificates issued in such transactions. Similar legends were imposed
in connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Bylaws.
3.2* Bylaws, to be effective upon closing of this offering.
3.3** Amended and Restated Certificate of Incorporation.
3.4* Amended and Restated Certificate of Incorporation to be filed upon the closing of this offering.
4.1** Reference is made to Exhibits 3.2 and 3.4.
4.2** Amended Investors' Rights Agreement among the Registrant and certain other persons named therein, dated
as of August 28, 1997.
4.3* Rights Agreement, dated as of 1998, between the Company and Boston Equiserve, L.P., as rights
agent.
4.4* Specimen stock certificate.
5.1* Opinion of Cooley Godward LLP.
10.1** 1998 Equity Incentive Plan, together with form of stock option agreement thereunder to be effective
upon the closing of this offering.
10.2** 1998 Non-Employee Directors' Stock Option Plan, together with form of stock option agreement
thereunder, to be effective upon the closing of this offering.
10.3** 1998 Employee Stock Purchase Plan to be effective upon the closing of this offering.
10.4** Letter agreement, dated as of June 4, 1996, between the Registrant and James A. Edlund.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.5** Covenant Not To Compete, dated as of July 23, 1993, between the Registrant and Vivian K. Dullien, Ph.D.
10.6** Lease Agreement dated January 30, 1995 for facilities located at 885 Arapahoe Ave., Boulder, Colorado,
as extended by letter agreement dated March 26, 1997.
10.7** Lease Agreement dated November 13, 1995 for facilities located at 6693 Sierra Lane, Suite F, Dublin,
California amended as of November 28, 1995 and March 6, 1998.
10.8** Master Equipment Lease dated December 31, 1995 between the Registrant and Phoenix Leasing Incorporated
amended as of September 25, 1997.
10.9+** Product Purchase Agreement between the Registrant and Horizon Medical, Inc. dated as of November 17,
1997.
10.10** 401(k) Retirement Plan.
10.11+ Product Manufacture and Supply Agreement between the Registrant and BioServ Corporation dated as of
February 28, 1998.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3** Consent of McDonnell Boehmen Hulbert & Berghoff.
24.1** Power of Attorney. Reference is made to page II-4.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Registrant has sought confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with
the Commission.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefor, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus as filed as part of the registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Amendment No. 1 to Registration Statement No. 333-48045 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Dublin, County of Alameda, State of California, on the 1st day of May, 1998.
BIEX, INC.
By /s/ JAMES A. EDLUND
------------------------------------------
James A. Edlund
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ JAMES A. EDLUND Officer and Director
- ------------------------------ (PRINCIPAL EXECUTIVE May 1, 1998
James A. Edlund OFFICER)
/s/ EDGAR A. LUCE* Chief Financial Officer
- ------------------------------ (PRINCIPAL FINANCIAL AND May 1, 1998
Edgar A. Luce ACCOUNTING OFFICER)
/s/ VIVIAN K. DULLIEN*
- ------------------------------ Executive Vice President May 1, 1998
Vivian K. Dullien, Ph.D. and Director
/s/ FREDRIC J. FELDMAN*
- ------------------------------ Director May 1, 1998
Fredric J. Feldman, Ph.D.
/s/ JANET EFFLAND*
- ------------------------------ Director May 1, 1998
Janet Effland
/s/ SHERMAN MULLER*
- ------------------------------ Director May 1, 1998
Sherman Muller
/s/ BARBARA SANTRY*
- ------------------------------ Director May 1, 1998
Barbara Santry
/s/ ROBERT M. FRIEDLAND*
- ------------------------------ Director May 1, 1998
Robert M. Friedland, M.D.
*By: /s/ JAMES A. EDLUND
-------------------------
James A. Edlund
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Bylaws.
3.2* Bylaws, to be effective upon closing of this offering.
3.3** Amended and Restated Certificate of Incorporation.
3.4* Amended and Restated Certificate of Incorporation to be filed upon the closing of this offering.
4.1** Reference is made to Exhibits 3.2 and 3.4.
4.2** Amended Investors' Rights Agreement among the Registrant and certain other persons named therein, dated
as of August 28, 1997.
4.3* Rights Agreement, dated as of 1998, between the Company and Boston Equiserve, L.P., as rights
agent.
4.4* Specimen stock certificate.
5.1* Opinion of Cooley Godward LLP.
10.1** 1998 Equity Incentive Plan, together with form of stock option agreement thereunder to be effective
upon the closing of this offering.
10.2** 1998 Non-Employee Directors' Stock Option Plan, together with form of stock option agreement
thereunder, to be effective upon the closing of this offering.
10.3** 1998 Employee Stock Purchase Plan to be effective upon the closing of this offering.
10.4** Letter agreement, dated as of June 4, 1996, between the Registrant and James A. Edlund.
10.5** Covenant Not To Compete, dated as of July 23, 1993, between the Registrant and Vivian K. Dullien, Ph.D.
10.6** Lease Agreement dated January 30, 1995 for facilities located at 885 Arapahoe Ave., Boulder, Colorado,
as extended by letter agreement dated March 26, 1997.
10.7** Lease Agreement dated November 13, 1995 for facilities located at 6693 Sierra Lane, Suite F, Dublin,
California amended as of November 28, 1995 and March 6, 1998.
10.8** Master Equipment Lease dated December 31, 1995 between the Registrant and Phoenix Leasing Incorporated
amended as of September 25, 1997.
10.9+** Product Purchase Agreement between the Registrant and Horizon Medical, Inc. dated as of November 17,
1997.
10.10** 401(k) Retirement Plan.
10.11+ Product Manufacture and Supply Agreement between the Registrant and BioServ Corporation dated as of
February 28, 1998.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3** Consent of McDonnell Boehmen Hulbert & Berghoff.
24.1** Power of Attorney. Reference is made to page II-4.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Registrant has sought confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and has separately filed such exhibit with
the Commission.
<PAGE>
PRODUCT MANUFACTURE AND SUPPLY AGREEMENT
THIS AGREEMENT, effective as of this 28th day of February, 1998 ("Effective
Date"), by and between BIOSERV CORPORATION, having a principal place of business
at 5340 Eastgate Mall, San Diego, CA 92121-2804 ("Supplier"), and BIEX, INC.,
having its principal place of business at 6693 Sierra Lane, Suite F, Dublin, CA
94568 ("Biex").
WHEREAS, Biex has developed a proprietary test for screening for risk of
preterm labor and delivery;
WHEREAS, such test is performed with a kit consisting of plates with wells
filled with certain reagents;
WHEREAS, Supplier has the capability of producing test kits which can be
used for Biex's proprietary test;
NOW, THEREFORE, the parties hereto agree as follows:
1. MANUFACTURE AND SUPPLY OBLIGATIONS.
(a) During the term of this Agreement, Supplier agrees to manufacture and
supply the estriol test kit (the "Product") which conforms to the descriptions
and specifications in Appendix A ("Product Specifications") according to the
terms and conditions set forth in this Agreement. Supplier agrees to meet
Biex's requirements for the Product.
(b) Biex will supply to Supplier the components of the Product listed on
Appendix B ("Biex-Supplied Components"). Supplier will incorporate the
Biex-Supplied Components into the Product. Supplier will use the Biex-Supplied
Components solely for production of the Products under this Agreement.
(c) Supplier will manufacture, perform quality control and deliver the
Product in accordance with Biex's manufacturing processes and standard operating
procedures listed on Appendix C, and Supplier's standard operating procedures
that have been submitted to Biex prior to the Effective Date, as such processes
and procedures may be amended from time to time by mutual written agreement
(collectively "Production Procedures").
2. REQUISITIONS.
(a) Biex will order Product under this Agreement by submitting written
requisitions to Supplier any time from the Effective Date until thirty (30) days
before the termination date of the Agreement. All requisitions submitted by
Biex will state the delivery dates, which will be at least thirty (30) days
after submission of the requisition, and must be submitted within the term of
this Agreement. Supplier shall acknowledge promptly each requisition in writing
and confirm delivery dates.
(b) Commencing with the quarter preceding anticipated commercial launch of
Biex's SalEst-TM- product, Biex will supply Supplier with a rolling 12 month
forecast of Product
[****]Confidential Treatment Request.
1.
<PAGE>
requirements on or about the first working day of each quarter. Forecast for
each period will be considered a firm commitment for the immediate quarter.
Changes from forecast for subsequent quarters may be made subject to certain
limitations as set forth in the following table:
<TABLE>
<CAPTION>
QUARTER FORECAST STATUS
Immediate Firm Supply
<S> <C>
[*************] [*************]
[*************] [*************]
[*************] [*************]
</TABLE>
(c) The requisition shall contain the following information: reference to
the Product Specifications, quantity to be supplied, routing instructions,
delivery schedule, destination of shipment and confirmation of price. Each
requisition will make specific reference to this Agreement.
3. BIEX-SUPPLIED COMPONENTS.
(a) Supplier shall inform Biex at least once every month on the status of
its inventory of Biex-Supplied Components. Supplier shall order further
supplies of Biex-Supplied Components if the Biex-Supplied Components stored at
Supplier's facilities are insufficient to meet a [*******] supply at the maximum
output requirement of Product as set forth in the rolling forecast (including
amounts for waste materials and rejects as reasonably assumed based on past
experience).
(b) Supplier shall store the Biex-Supplied Components at no cost to Biex.
If Biex doesn't order in any quarter, there will be a storage charge of
[************] per month in such quarter. The Biex-Supplied Components will
remain the property of Biex, will be set aside in a distinct and separate area
of the Supplier's storage facility, and will be marked with a sticker reading:
"Property of Biex, Inc." Supplier will execute the appropriate public filings
to reflect such ownership of Biex.
(c) Upon receipt of Biex-Supplied Components, Supplier will perform such
tests as the parties mutually agree from time to time in the course of this
Agreement in order to confirm the consistency of the Biex-Supplied Components
with the Product Specifications. Biex-Supplied Components which do not meet
such specifications in the tests performed by Supplier will be replaced by Biex
at no cost to Supplier and open orders will be reviewed for revised delivery
dates.
(d) Supplier will protect and preserve the Biex-Supplied Components and
indemnify Biex against any loss of or damage to any Biex-Supplied Components
while in the possession of Supplier.
(e) If the manufacturing process results in waste of more than [*****] of
the amount of Biex-Supplied Components used for a particular lot, Supplier will
reimburse Biex for the costs of procuring Biex-Supplied Components so wasted.
For the purposes of this Agreement, "waste" means excess consumption of
Biex-Supplied Components.
[****]Confidential Treatment Request.
2.
<PAGE>
4. PACKING, SHIPPING AND TITLE.
(a) The method of packaging will be in accordance with Biex's
instructions. Product will be shipped in accordance with Supplier's standard
procedures. Biex will be responsible for all shipping expenses, insurance, and
similar charges which, if paid by Supplier, will appear as additional items on
Supplier's invoice to Biex. Delivery time is of the essence. Products are to
be delivered on the dates set forth in requisitions or within five days thereof.
(b) Biex is the owner of Product at all stages of the manufacturing
process. Supplier will store the Product prior to shipment in a distinct and
separate area of its storage facility and will mark the Product with a sticker
reading: "Property of Biex, Inc." Supplier will execute the appropriate public
filings to reflect such ownership of Biex.
5. ACCEPTANCE AND REJECTIONS.
(a) If Biex discovers a Product defect, Biex may reject the defective
Product, or lot that contains the defective Product, and will promptly notify
Supplier of the rejection and the reason therefor. With regard to latent defects
which are not reasonably detectable at the time of acceptance, Biex may reject a
Product, or lot containing the Product, with latent defects within 30 days from
discovery of such defect. Supplier shall replace the rejected Products at no
cost to Biex, or at Biex's option, provide Biex with a refund or credit of the
purchase price. The parties acknowledge that reasons for rejection include the
failure, error or negligence on the part of Supplier. Examples include, but are
not limited to incorrect chemical used, improper pH adjustment, incorrect
incubation, mixing or other timing step, failure to maintain environment,
failure to maintain cGMP resulting in FDA action, and mislabeling, especially
lot number and expiration date. Both parties recognize that some failures have
no definable causes; in the absence of a definable cause, the failure will be at
Biex's expense.
(b) Per Section 5a, only for Supplier responsible failures, will the cost
of Biex-Supplied Components for replacement deliveries be charged to Supplier,
including reasonable transport and insurance charges paid by Biex for the
delivery of Biex-Supplied Components to Supplier.
6. PRICES, DISCOUNTS AND TAXES.
(a) The price for each item of Product will be as set forth in Appendix D
or as mutually agreed to by both parties in writing during the term of this
Agreement.
(b) Such price includes packaging and packing and all taxes, duties and
services, except sales tax, which shall be the responsibility of Biex.
(c) If Supplier fails to timely deliver the Product, the price of the
delayed shipment will be discounted by [***********] of delay, excluding failure
of Biex-Supplied Components to meet specifications. Bioserv is entitled to a
5-day grace period under this clause.
[****]Confidential Treatment Request.
3.
<PAGE>
7. PAYMENT.
Payment for Products will be made within 30 days from receipt of Products
that conform to Product Specifications and a corresponding invoice. Past due
accounts will be charged a 1% per month late fee. All payments will be in U.S.
dollars.
8. INDEMNITY.
(a) Each party agrees to indemnify, defend and hold harmless the other
party and its officers, directors, employees and agents ("Indemnitees") from and
against all losses and liability (including reasonable attorney fees) on account
of third party claims for personal injury, death, or property damage resulting
from any negligent act, omission or willful misconduct by such party, including
that party's agents, employees or subcontractors, or defective Product supplied
by such party to the other party, in the course of performing its obligations
under this Agreement. An Indemnitee will notify the indemnifying party of any
such claim. The Indemnitee will have the right to participate at its own
expense in defense of such claim. No settlement of a claim against the
Indemnitee may be made without its consent, which will not be unreasonably
withheld.
(b) Supplier will obtain and maintain in force from and after the date of
the first shipment of Product comprehensive general liability insurance in
amounts not less than [*********] per incident and [*********] annual aggregate
and naming the Biex Indemnitees as additional insureds. Such comprehensive
general liability insurance shall provide product liability coverage and broad
form contractual liability coverage for Supplier's indemnification obligation
under this Section. The amounts of insurance coverage required hereunder shall
not be construed to create a limit on Supplier's liability with respect to its
indemnification under this Section. Supplier agrees to provide written evidence
of such insurance upon request and shall provide Biex with written notice at
least fifteen (15) days prior to the cancellation, non-renewal or material
change in such insurance. Supplier's obligation to maintain such insurance
shall continue until 2 years after termination or expiration of this Agreement.
9. WARRANTIES.
The Supplier warrants that the Product will conform to Product
Specifications, will be manufactured using Good Manufacturing Practices current
at the time of manufacture (cGMP).
10. REGULATORY RESPONSIBILITIES.
(a) RESPONSIBILITIES OF BIEX.
(1) Biex will be responsible for all FDA regulatory submissions for
Product.
(2) Biex will maintain FDA listing for Product.
(3) Biex is responsible for maintaining complaint handling procedures
for Product.
[****]Confidential Treatment Request.
4.
<PAGE>
(4) Biex will notify Supplier of any planned inspections by either
FDA or other auditing agencies.
(5) Biex will maintain the Product Device Master Record.
(6) Biex will not label its Products with Supplier's name.
(7) Biex will be responsible for the following functions:
Raw Material Release
Final Product Release
Maintenance of Process Validation
Performance of Raw Material Vendor Audits
Performance of Stability Studies
Maintenance of Labeling Copy
Maintenance of Retains
Calibration traceability on Biex equipment
(b) RESPONSIBILITIES OF THE SUPPLIER.
(1) Supplier will notify Biex of any site inspections that involve
Product or other products manufactured by Supplier. Supplier will make
available inspection reports as requested by Biex.
(2) Supplier will not rework any Product or change any raw materials
or method of producing, processing or testing any Product, or change any
subcontractor for, or site of manufacture of any Product, or any component
thereof, without written authorization from Biex.
(3) Supplier agrees to cooperate with any FDA or other agency
inspections involving Product. An inspection that requires in excess of 20
hours will be invoiced to Buyer at [*******] per hour for each hour over 20
hours, except to the extent the time incurred is attributable to Seller
deficiencies.
(4) Supplier will maintain and document environmental controls as
required in Biex's and Supplier's documentation.
(5) Supplier will maintain records of cGMP and other quality
assurance records for at least three years, or such longer period as is required
by law, following termination of this Agreement.
(6) Supplier will be responsible for calibration traceability on
Supplier equipment.
11. REPRESENTATIONS AND WARRANTIES.
(a) SUPPLIER'S REPRESENTATIONS AND WARRANTIES. Supplier hereby represents
and warrants to Biex that:
[****]Confidential Treatment Request.
5.
<PAGE>
(1) Supplier is duly incorporated and in good standing under the laws
of California;
(2) Supplier is duly authorized to enter into this Agreement; and
(3) this Agreement is binding and enforceable against Supplier.
(b) BIEX'S REPRESENTATIONS AND WARRANTIES. Biex hereby represents and
warrants to Supplier that:
(1) Biex is duly incorporated and in good standing under the laws of
Delaware;
(2) Biex is duly authorized to enter into this Agreement; and
(3) this Agreement is binding and enforceable against Biex.
12. TERM AND TERMINATION.
(a) This Agreement will be effective on the Effective Date and will
terminate three (3) years after the Effective Date.
(b) Either party may terminate this Agreement upon the insolvency,
bankruptcy or voluntary dissolution or assignment for the benefit of creditors
of or by the other party.
(c) A non-defaulting party may terminate this Agreement upon the failure
of a defaulting party to cure a material default in the performance of any
provision hereof within thirty (30) days after written notice thereof is given
by the non-defaulting party. Failure to make a payment shall not be considered
a default if such payment is being contested in good faith.
(d) The provisions of Sections 8, 9, 10, 13, 14, 16 and 17 hereof shall
survive the termination of this Agreement for any reason.
(e) Upon termination of this Agreement, Supplier shall, upon Biex's
request and at Biex's expense, provide to Biex any documentation and know-how
that Biex may require to manufacture or otherwise obtain a continuing source of
Products. Upon Supplier's breach or termination of this Agreement, Biex shall
have the right to purchase components, or machinery or other capital investments
purchased or developed specifically for the Products or their manufacture, at a
price to be agreed upon by the parties, but in no event to exceed the reasonable
value of the component, machinery or other capital investment, prorated for any
applicable depreciation.
13. CONFIDENTIAL INFORMATION.
(a) All proprietary information which is specifically designated as such,
which is disclosed by either party to the other, in any form in connection with
this Agreement, shall be kept confidential by the recipient.
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(b) Any such proprietary information shall be used solely for the purposes
of this Agreement, or by Biex solely in connection with regulatory approval and
sale of its products, and shall be protected by the recipient from disclosure to
others with at least the same degree of care as that which is accorded to its
own proprietary information, but in no event with less than reasonable care.
(c) Without limiting the foregoing, Supplier expressly agrees that any
know-how, designs, engineering details, Production Procedures of Biex,
formulations, information concerning conjugates or antiserum, and other data
pertaining to Biex's products and processes, shall, without further need for
designation, be deemed proprietary and confidential information of Biex under
this Section 8. Notwithstanding the foregoing, Biex shall not be considered to
have received any proprietary information of Supplier unless Biex expressly
agrees in advance in writing to accept such specific information in confidence.
(d) As used herein, "proprietary information" shall not include
information which is generally known and available in the public domain through
no fault of the recipient.
(e) Any information of a confidential nature learned by Biex employees
while in the Bioserv facility regarding other Bioserv clients shall be held in
confidence.
14. INTELLECTUAL PROPERTY.
(a) Biex shall own all Intellectual Property invented, made or developed
by Supplier or any of its subcontractors during the performance of this
Agreement. Supplier shall promptly report to Biex any inventions that are
potentially patentable, but will not be responsible for carrying out any
prosecution efforts with respect to such inventions, PROVIDED, HOWEVER, that
Supplier will, at Biex's expense, provide all reasonable assistance to Biex in
the prosecution of any patents covering any such inventions.
(b) With regard to any intellectual property of Supplier relating to the
Products, Supplier hereby grants to Biex a non-exclusive, royalty-free,
irrevocable, worldwide right and license, with the right to sublicense, to make,
have made, use and sell Product.
15. TRADEMARKS AND TRADE NAMES.
During the term of this Agreement, Biex shall have the right to indicate to
the public that its systems utilize Supplier's Product.
16. COMPLIANCE WITH LAW.
Supplier represents that it is and agrees that it will remain in compliance
with all applicable federal, state and local laws, regulations and orders and in
possession of all permits necessary for the conduct of its activities under this
Agreement. Supplier agrees to execute on request by Biex and to remain in
compliance with the terms of standard state and federal contractor certification
forms which certify compliance with certain laws, regulations and executive
orders.
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17. MISCELLANEOUS PROVISIONS.
(a) This Agreement shall be governed by and interpreted under the laws of
the State of California without reference to conflict of laws principles, and
excluding the United Nations Convention on the International Sale of Goods.
(b) All disputes arising out of this Agreement shall be subject to the
exclusive jurisdiction of the federal and state courts within California and the
parties agree and submit to the personal and exclusive jurisdiction and venue of
those courts.
(c) Neither party shall be liable for any loss, damage or penalty
resulting from delays or failures in performance resulting from acts of God,
war, strike, or other causes beyond such party's reasonable control; PROVIDED
THAT Supplier shall notify Biex promptly of anticipated delays and use best
efforts to fill any orders as soon as possible. Biex may, in any event, without
limiting any rights or remedies, cancel any requisition, in whole or in part,
that is delayed more than thirty (30) days.
(d) Neither party shall assign this Agreement nor any right or license
hereunder without the prior written consent of the other party, except in
connection with a sale of substantially all of a party's business, or a merger
of acquisition of a party. Any assignment permitted hereunder shall be subject
to the written consent of the assignee to all the terms and provisions of this
Agreement.
(e) All sales of Products shall be subject to this Agreement and, to the
extent they specify quantities, destinations and delivery dates or other
specifics, to Biex requisitions. This Agreement shall not be subject to the
terms, conditions or provisions of any confirmation or business form of
Supplier.
(f) Neither party shall make any public announcement of, or otherwise
disclose to a third party, the terms and conditions set forth in this Agreement,
except as necessary to provide such information to a potential corporate
partner, or as mutually agreed in writing, or as required by disclosure
obligations arising under law.
(g) No modification to this Agreement, nor any waiver of any rights, shall
be effective unless assented to in writing by the party to be charged. The
waiver of any breach or default shall not constitute a waiver of any other right
hereunder or any subsequent breach or default.
(h) The prevailing party in any legal action hereunder shall be entitled
to reimbursement of its expenses including, without limitation, reasonable
attorney's fees.
(i) All notices and other communications hereunder will be made in writing
and shall be delivered by personal delivery or certified or registered mail,
return receipt requested, or by fax, and shall be deemed given upon personal
delivery, on the date of receipt of a document sent by mail, or upon actual
receipt of a fax. Addresses used shall be the ones set forth at the beginning
of this Agreement or any other address notified to the other party in writing.
Notices shall be addressed to the signatories of this Agreement. Notices shall
be effective upon receipt unless otherwise specified in the notice or in this
Agreement.
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(j) This Agreement constitutes the entire and exclusive agreement between
the parties hereto with respect to the subject matter hereof, and supersedes any
and all prior negotiations, correspondence, understandings and agreements,
whether oral or written, between the parties with respect to the subject matter
thereof.
By signing below, Biex and Supplier each acknowledges that it has read,
understands and agrees to be bound by the terms and conditions of this
Agreement, and that the person signing is duly authorized to do so.
BIEX, INC. BIOSERV CORPORATION
By: /s/ H. Fred Voss By: /s/ Jeanne Dunham
---------------------------- ----------------------------
Signature Signature
H. Fred Voss Jeanne Dunham
Title: Executive Vice President, Title: President
Technology
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APPENDIX A
PRODUCT SPECIFICATIONS
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APPENDIX A -
LIST OF DESCRIPTIONS (MFP's) AND SPECIFICATIONS (QCS's) FOR FINISHED COMPONENTS
PRODUCED BY BIOSERV FOR BIEX KITS:
9001 SALEST 480 TEST KIT
9005 SALEST 96 TEST KIT
<TABLE>
<CAPTION>
COMPONENT P/N MFP QCS
<S> <C> <C> <C>
Anti-Estriol Microtiter Strips, labeled 8001 019 019
HRP-Estriol conjugate bulk, B&L 8010 028 028
HRP substrate bulk, B&L 8011 029 029
Stop solution. B&L. 55 ml 8012 030 030
Standard A Bulk, B&L 8013 031 031
Standard B Bulk. B&L 8014 032 032
Standard C Bulk. B&L 8015 033 033
Standard D Bulk, B&L 8016 034 034
Standard E Bulk, B&L 8017 041 041
Wash Buffer Conc. Bulk Pack. B&L 8018 039 039
Pretreatment Buffer, B&L 8019 043 043
Enzyme conjugate, B&L 8002 020 020
Enzyme substrate. B&L 8003 021 021
Stop solution. B&L 8004 022 022
Standard A, B&L, 1 ml Fill 8005 023 023
Standard B, B&L, 1 ml fill 8006 024 024
Standard C, B&L, 1 ml fill 8007 025 025
Standard D, B&L, 1 ml fill 8008 026 026
Standard E, B&L, 1 ml fill 8009 027 027
Wash Buffer Conc., B&L, 20 ml 8020 045 047
Pretreatment Buffer, B&L, 4 ml 8021 046 046
</TABLE>
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APPENDIX B
BIEX-SUPPLIED COMPONENTS
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APPENDIX B -
LIST OF MATERIALS SUPPLIED TO BIOSERV FOR PRODUCTION OF BIEX KITS:
9001 SALEST 480 TEST KIT
9005 SALEST 96 TEST KIT
QCS (QUALITY CONTROL SPECIFICATIONS)
<TABLE>
<CAPTION>
MATERIAL PIN QCS
<S> <C> <C>
Sodium Chloride 1001 500
Sodium Phosphate (dibasic) 1002 501
Sodium Phosphate (monobasic) 1003 502
Hydrochloric Acid 1006 505
Tween 20 1007 506
Thimerosal 1009 508
TMBlue 1010 509
Sucrose 1011 510
Polyethylene Glycol (PEG 8000) 1014 513
Hydrochloric Acid solution, 5N 1019 518
Sodium Hydroxide solution, 1N 1020 519
BIS-TRIS 1021 520
Sodium Carbonate (monohydrate) 1022 521
Sodium Bicarbonate 1023 522
Proclin 300 1024 523
Mannitol 1025 565
Water, High Purity 1026 571
Primary Estriol Reference Solution 7016 015
Rabbit Anti-Estriol (Purified) 2002 525
HRP-Estriol conjugate 2003 526
Albumin, Bovine 2004 527
Gelati, Bovine skin, 75 Bloom 2005 528
Conjugate Diluent 2006 566
Microwell Strips 3001 529
15ml HDPE bottles w/ cap (Natural) 4001 530
4ml HDPE bottles w/ cap (Natural) 4002 531
15ml bottle - white 4003 532
Zip-lock foil pouch 4006 535
8ml HDPE bottles w/ cap (Natural) 4012 541
60ml HDPE bottles w/cap (Natural) 4013 542
125ml HDPE bottles w/cap (Natural) 4014 543
60ml HDPE bottles w/ cap (Amber) 4015 544
1gm Desiccant 4016 545
30ml HDPE bottle w/cap30ml 4017 585
Label, Anti-Estriol 5001 546
Label, Conjugate, 50ml 5016 568
Label, Substrate, 50ml 5017 569
Label, Stop, 50ml 5018 570
Label, Wash Buffer concentrate, 100ml 5025 572
</TABLE>
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APPENDIX B -
LIST OF MATERIALS SUPPLIED TO BIOSERV FOR PRODUCTION OF BIEX KITS:
9001 SALEST 480 TEST KIT
9005 SALEST 96 TEST KIT
QCS (QUALITY CONTROL SPECIFICATIONS)
<TABLE>
<CAPTION>
MATERIAL P/N QCS
<S> <C> <C>
Label, SalEst-TM- 5 Kit Bulk Pack 5027 573
Label, Pretreatment Buffer, 14ml 5026 574
Label, Standard A, 4ml 5019 575
Label, Standard B, 4ml 5020 576
Label, Standard C. 4ml 5021 577
Label, Standard D, 4ml 5022 578
Label, Standard E, 4ml 5023 579
Label, Conjugate, 10ml 5002 547
Label, Substrate, 10ml 5003 548
Label, Stop, 10ml 5004 549
Label, Wash Buffer concentrate, 20ml 5029 583
Label, SalEst-TM- 1 Kit Pack 5011 556
Label, Pretreatment Buffer, 4ml 5030 582
Label, Standard A, 1ml 5005 550
Label, Standard B, 1ml 5006 551
Label, Standard C. 1ml 5007 552
Label, Standard D, 1ml 5008 553
Label, Standard E, 1ml 5009 554
</TABLE>
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APPENDIX C
LIST OF MANUFACTURING PROCESSES
AND STANDARD OPERATING PROCEDURES
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APPENDIX C -
LIST OF PRODUCTION PROCEDURES REFERENCED IN PRODUCTION OF MATERIALS BY
BIOSERV FOR PRODUCTION OF BIEX KITS:
MFP (BATCH RECORDS) DOCUMENTS
<TABLE>
<CAPTION>
DOC. # PN TITLE DATE
EFFECTIVE
<S> <C> <C> <C>
002 7002 Phosphate Buffered Saline (PBS) 5-7-97
004 7004 Bulk HRP-Estriol Conjugate 4-16-97
005 7005 Bulk Stop Solution 10-9-97
007 7007 Bulk Plate Blocking Solution 8-12-97
009 7009 Bulk Calibrator Diluent 6-3-96
010 7011 Bulk Calibrator B 8-12-97
011 7012 Bulk Calibrator C 8-12-97
012 7013 Bulk Calibrator D 8-12-97
013 7014 Bulk Calibrator E 8-12-97
015 7016 Estriol Primary Reference Solution 5-7-97
017 7018 2.5% Blue Dye 5-7-97
019 8001 Anti-Estriol Microtiter Strips 10-30-97
020 8002 Enzyme Conjugate (B&L) 10-9-97
021 8003 Enzyme Substrate (B&L) 10-9-97
022 8003 Stop Solution (B&L) 10-9-97
023 8005 Standard A (B&L) 10-9-97
024 8006 Standard B (B&L) 10-9-97
025 8007 Standard C (B&L) 10-9-97
026 8008 Standard D (B&L) 10-9-97
027 8009 Standard E (B&L) 10-9-97
028 8010 Enzyme Conjugate (B&L) 10-9-97
029 8011 Enzyme Substrate (B&L) 10-9-97
030 8012 Stop Solution ,(B&L) 10-9-97
031 8013 Standard A (B&L) 10-9-97
032 8014 Standard B (B&L) 10-9-97
033 8015 Standard C (B&L,), 10-9-97
034 8016 Standard D (B&L) 10-9-97
036 7020 Bulk Carbonate Antibody Coating- Solution 1-15-97
037 7021 Wash 10-9-97
038 7022 Bulk Stabilizing Solution 5-30-97
039 8018 Wash Buffer Conc. Bulk Pack (B&L) 10-9-97
041 8017 Standard E (B&L) 10-9-97
042 7023 Bulk Pretreatment Buffer 7-31-97
</TABLE>
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APPENDIX C -
LIST OF PRODUCTION PROCEDURES REFERENCED IN PRODUCTION OF MATERIALS BY
BIOSERV FOR PRODUCTION OF BIEX KITS:
<TABLE>
<CAPTION>
DOC. # PN TITLE DATE
EFFECTIVE
<S> <C> <C> <C>
043 8019 Pretreatment Buffer (B&L) 10-9-97
044 7024 Bulk Carbonate Buffer 5-7-97
046 8021 Production Record, Pretreatment Buffer (B&L), 10-9-97
4ml
047 8020 Wash Buffer Concentrate (B&L), 20ml 10-9-97
</TABLE>
MFG (MANUFACTURING SOP'S)
<TABLE>
<CAPTION>
DOC. # TITLE DATE
EFFECTIVE
<S> <C> <C>
001 SMP-1000 Operation 2-28-97
004 Anthos HT II Operation 1-8-97
005 Inventory Traceability 12-8-97
006 Label Production Using MS Word and Precut labels 2-10-97
007 Dri-rite Desiccant Regeneration 6-24-97
008 Use of Device History Records 10-3-97
010 Estriol Component Shipment 1-15-98
</TABLE>
QAP (QUALITY ASSURANCE SOP'S)
<TABLE>
<CAPTION>
DOC. # TITLE DATE
EFFECTIVE
<S> <C> <C>
001 Inspection, sampling, and testing of components, 11-20-97
containers, and closures
009 Quality Control Sample Retains 5-10-96
010 Approval B Issuance of Controlled Documents 1-8-97
011 Table of Contents 1-16-98
017 Equipment Cleaning, maintenance and calibration 6-6-97
019 Master Validation Plan 9-2-97
020 Process Validation of bulk stop solution mixing times 6-25-98
021 Performance Qualification of the Carl Creative 5-23-96
Systems plate filler Model SMP-1000
022 Validation Plan: Installation and Operation 5-21-96
Qualification of Carl Creative Systems Plate Filler,
Model SMP-100
023 Installation and operational qualification of the SLT 6-21-96
plate Reader, Model EAR 340 AT
024 Installation and operation qualification of Flexion 6-21-96
Filler, Model CCAD-80-1
025 Process Validation of Bottle Cap Torquing 6-25-96
026 Process Validation of Wash Buffer Concentrate Mixing 8-19-97
Time
</TABLE>
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APPENDIX C -
LIST OF PRODUCTION PROCEDURES REFERENCED IN PRODUCTION OF MATERIALS BY
BIOSERV FOR PRODUCTION OF BIEX KITS:
<TABLE>
<CAPTION>
DOC. # TITLE DATE
EFFECTIVE
<S> <C> <C>
027 Process Validation of Pouch Sealing Aluminum Foil. 6-28-96
029 Issuance of Batch Production Records 5-10-96
030 Validation Plan: Installation and Operation of Anthos 8-19-96
Plate Reader Model HT II
031 Performance Qualification of SLT Plate Reader, Model 6-21-96
EAR 340 AT
032 Process Validation of the SalEst Salivary Estriol 6-18-96
Immunoassay Kit
033 Performance Qualification of Flexion Filler, Model 6-21-96
CCAD-80-1
034 Performance Qualification for Anthos Plate Reader. 7-26-96
Model HT II
040 Validation Plan: Process Validation of SMP-1000 5-16-97
reagent purging procedure
052 Process Validation of Bottle Cap Torquing - 4 ml 1-19-98
bottle
</TABLE>
QCS (QUALITY CONTROL SPECIFICATIONS)
<TABLE>
<CAPTION>
DOC.# PN TITLE DATE
EFFECTIVE
<S> <C> <C> <C>
002 7002 Phosphate Buffered Saline.(PBS) 7-31-97
004 7004 Bulk HRP-Estriol Conjugate 1-15-98
005 7005 Bulk Stop Solution 7-26-96
007 7007 Bulk Plate Blocking Solution 7-31-97
009 7009 Bulk Calibrator Diluent 7-31-97
010 7011 Bulk Calibrator B 7-26-96
011 7012 Bulk Calibrator C 7-26-96
012 7013 Bulk Calibrator D 7-26-96
013 7014 Bulk Calibrator E 7-31-97
015 7016 Estriol Primary Reference Solution 7-26-96
017 7018 2.5% Blue Dye 8-28-97
018 7019 Sample Preservative Solution 8-28-97
019 8001 Anti-Estriol Microtiter Strips 10-30-97
020 8002 Enzyme Conjugate (B&L} 2-28-97
021 8003 Enzyme Substrate (B&L) 3-14-97
022 8004 Stop Solution (B&L) 3-14-97
023 8005 Standard A (B&L) 3-14-97
024 8006 Standard B (B&L) 3-14-97
</TABLE>
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APPENDIX C -
LIST OF PRODUCTION PROCEDURES REFERENCED IN PRODUCTION OF MATERIALS BY
BIOSERV FOR PRODUCTION OF BIEX KITS:
<TABLE>
<CAPTION>
DOC.# PN TITLE DATE
EFFECTIVE
<S> <C> <C> <C>
025 8007 Standard C (B&L) 3-14-97
026 8008 Standard D (B&L) 3-14-97
027 8009 Standard E (B&L) 3-14-97
028 8010 Enzyme Conjugate (B&L) 3-14-97
029 8011 Enzyme Substrate (B&L) 4-21-97
030 8012 Stop Solution (B&L) 2-12-97
031 8013 Standard A (B&L) 8-12-97
032 8014 Standard B(B&L) 8-12-97
033 8015 Standard C (B&L) 8-12-97
034 8016 Standard D (B&L) 8-12-97
035 9001 SalEst Test Kit. Bulk Pack 1-15-98
036 7020 Bulk Carbonate Antibody Coating solution 7-10-97
037 7021 Wash Buffer Concentrate 8-19-97
038 7022 Bulk Stabilizing Solution 7-31-97
039 8018 Wash Buffer Conc. Bulk Pack (B&L) 8-19-96
041 8017 Standard E (B&L) 8-12-97
042 7023 Bulk Pretreatment Buffer 8-19-96
043 80t9 Pretreatment Buffer 8-12-97
044 7024 Carbonate Buffer 4-4-97
046 8021 Pretreatment Buffer (B&L), 4 ml 6-13-97
047 8020 Wash Buffer Concentrate (B&L), 20 ml 6-13-97
</TABLE>
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LIST OF BIOSERV SOPS USED FOR BIEX:
<TABLE>
<CAPTION>
SOP/FORM NO. REVISION NUMBER TITLE
<S> <C> <C>
SOP0011 05 Line Clearance Procedure
SOP0054 02 Operation & Maintenance of Kenmore
Dehumidifier
SOP0049 03 Heat Sealer operation
SOP0045 02 Preparation of Bulk Reagents
SOP0020 03 Inventory Traceability Procedures
SOP0029 05 Fill Procedure Using the Flexicon Filler
SOP0022 03 Monitoring of Fill Volume
SOP0018 05 Receiving Procedures
SOP0019 03 Shipping Procedures
Form 003 05/6 QA Line Clearance
Form 042 03 Autoclaving of Hoses & Other Supplies
Form 024 05 Weight Check Form
Form 017 05 Fill Verification Worksheet
Form 112 00 Partial Product Release
Form 038 05 Label Request & Utilization Form
Form 005 04 Packing List
Form 015 04 Order Receipt
Form 0037 00 Work in Progress
Form 006 02 Variance Report
Form 099 00 Non-Conforming Materials
Form 032 00 Inventory Control Card
Form 048 01 Cleaning Verification
Form 033B 05 Conjugate Stabilizer Certificate of
Conformance
Form 079 01 Review Sheet for Release of Product
</TABLE>
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APPENDIX D
PRICES
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[LETTERHEAD]
BIOSERV
June 13. 1996
Via Fax: (510} 556-0800
Fred Voss
Biex, Inc.
6693 Sierra Lane, Ste. F
Dublin. CA 9456S
Dear Fred:
I've reviewed the new kit configuration and have determined the new prices per
reagent. This will allow us to have an agreement in place if only certain
components need to be made separately in the future.
<TABLE>
<CAPTION>
Price when all Price when ordered
ACTIVITY QTY ordered together separately
& of one lot
<S> <C> <C> <C>
Formulate, Fill Label [*******] [*******] [*******]
Fill, Label [*******] [*******] [*******]
Plates [*******] [*******] [*******]
Kit [*******] [*******] N/A
</TABLE>
Obviously we want to encourage you to order its from us and when only components
are ordered, we must charge a minimum of [*****] per P.O. to cover our labor.
For all reagent orders greater than [****] each the price will be [****] for
formulation, fill and label and [****] for fill and label.
If you have any questions, please call me.
Sincerely,
Jeanne M. Dunham
President
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 13, 1998 and to all references to our Firm included in or
made part of this Registration Statement.
ARTHUR ANDERSEN LLP
San Jose, California
May 1, 1998
