<PAGE>
SECURITIES AND EXCHANGE COMMISION
Washington, DC 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934
For Fiscal Year Ended March 31, 1996
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Commission File Number 0-23252
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IGEN, Inc.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2852543
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16020 INDUSTRIAL DRIVE, GAITHERSBURG, MD 20877
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(Address of principal executive offices) (Zip Code)
301-984-8000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.001 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No _______
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 17, 1996, computed by reference to the closing sale price
of such stock quoted on the Nasdaq National Market, was approximately
$56,580,500. For the purposes of this calculation, shares owned by officers,
directors and 5% shareholders known to the Registrant have been deemed to be
owned by affiliates.
The number of shares outstanding of the Registrant's Common Stock as of
June 17, 1996 was 14,938,689.
This is page 1 of 40 pages.
The exhibit index appears on page 40.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into
the following parts of this Form 10-K. Certain information required in Part III
of this Annual Report on Form 10-K is incorporated from the Company's definitive
Proxy Statement relating to its Annual Meeting of Shareholders to be held on
September 10, 1996.
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PART I
Item 1. Business
Introduction
IGEN develops, manufactures and markets diagnostic systems utilizing its
patented ORIGEN technology, which is based on electrochemiluminescence. This
proprietary technology utilizes labels that, when attached to a biological
substance and electrochemically stimulated, emit light at a particular
wavelength to signal the presence of an analyte. The light emission then can be
measured with a high degree of accuracy to detect and quantify the analyte. The
ORIGEN technology thus provides a proprietary uniform assay format for
conducting a multitude of diagnostic tests, including immunoassays, nucleic acid
probe and clinical chemistry tests. The Company believes that its ORIGEN
diagnostic systems will offer significant advantages over existing systems in
terms of speed, sensitivity, flexibility, throughput and cost effectiveness. The
Company is designing its diagnostic systems to become the industry standard for
all segments of the diagnostic market, from large central laboratories to
patient point-of-care and in-home testing.
IGEN's business strategy is to develop certain products in collaboration with
established healthcare and information technology companies and to develop and
market products either independently or with corporate partners in the patient
point-of-care, life science research and industrial markets.
IGEN's collaborations with established diagnostic and pharmaceutical companies
have provided the Company with revenues from licensing agreements, as well as
access to large marketing organizations that it believes are well positioned to
maximize market penetration of the ORIGEN technology. The Company has entered
into several strategic alliances, including:
. Boehringer Mannheim GmbH ("Boehringer Mannheim") -- the second largest
worldwide manufacturer of diagnostic equipment and supplies that is part of
Corange Limited, a multinational corporation with annual revenues exceeding $3
billion -- to develop ORIGEN-based clinical immunodiagnostic and nucleic acid
probe systems that will be marketed worldwide to clinical reference
laboratories. IGEN received $50 million in license fees from Boehringer
Mannheim and will receive royalties on all product sales. In 1996, Boehringer
Mannheim introduced its first ORIGEN-based system.
. Organon Teknika B.V. ("Organon Teknika") -- a company specializing in hospital
and blood bank products, which is a business unit of Akzo Nobel N.V., a
multinational corporation with annual revenues of approximately $10 billion --
to develop and commercialize ORIGEN-based nucleic acid probe systems that will
be marketed worldwide to clinical diagnostic and life science research
markets. IGEN received $20 million under its agreements with Organon Teknika.
Organon Teknika introduced its first ORIGEN-based product, the NASBA QR System
together with test kits for the detection of HIV-1 RNA in 1994.
. Eisai Co., Ltd. ("Eisai") -- the ninth largest Japanese pharmaceutical
company--to market in Japan an ORIGEN-based diagnostic system for agreed-upon
diagnostic tests. Eisai has entered into an $8 million agreement with IGEN, of
which $6 million has been received to date.
IGEN currently sells the ORIGEN Detection System and related reagents for life
science research applications. The Company believes that its ORIGEN Detection
System can replace many of the complex and less sensitive immunoassays methods
presently in use, including radioimmunoassays. The Company is also developing a
point-of-care diagnostic system for use outside the central laboratory by an
operator with no special skill or training. The Company believes that its
ORIGEN-based system will be particularly suited for the point-of-care market
because of its speed, simplicity and cost effectiveness.
IGEN anticipates that application of the ORIGEN technology will exist in the
field of in-home testing (patient self-testing), in which IGEN's technology may
enable the creation of compact, inexpensive diagnostic products. The Company is
currently monitoring the development of healthcare communication networks and
intends to design its point-of-care and in-home testing systems for integration
into such networks.
IGEN, Inc. was incorporated in California in 1982. During 1995, IGEN relocated
its executive offices, laboratory and manufacturing operations to 16020
Industrial Drive, Gaithersburg, Maryland 20877. Unless the context otherwise
requires, the "Company" and "IGEN" refer to IGEN, Inc.
Industry Background
In vitro diagnostic testing is the process of analyzing blood, urine and other
specimens to screen for, monitor and diagnose diseases and other medical
conditions or to determine the chemical and microbiological constituents of the
specimens. The major procedures currently used are chemistry, immunodiagnostic,
nucleic acid probe, hematological and microbiological tests.
Chemistry tests utilize established analytical methods for measuring simple
compounds such as glucose and cholesterol, elements such as sodium and
potassium, gases and enzymes. The types of samples that can be analyzed include
biological specimens such as blood and urine as well as environmental materials,
foods and beverages. The results of the analysis can be qualitative, identifying
only the presence or absence of an analyte, or quantitative, identifying also
the precise level of the analyte in the specimen.
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Immunodiagnostic tests utilize antibodies to detect specific analytes such as
viruses, hormones, therapeutic drugs and other substances present in the blood
or other specimens in extremely low concentrations. To develop an
immunodiagnostic test, an antibody is created that binds specifically to the
analyte to be detected. The antibody is then coupled to a label that signals to
an instrument the presence of the analyte in a way that can be measured.
Immunodiagnostic tests are characterized by a relatively high rate of
technological change and the frequent introduction of new clinical tests.
Currently, most immunodiagnostic tests are performed in clinical laboratories by
skilled technicians who must process the specimen, measure its volume, add
reagents and use sophisticated machines to read and calculate the results.
Nucleic acid probe tests allow the detection of disease at the fundamental
genetic level. The absence or presence of certain genes or gene mutations have
been found to be reliable indicators of specific cancers, genetic disorders and
infectious diseases. Nucleic acid probes provide a direct means of detecting
nucleic acid sequences associated with either infectious agents or certain genes
in a biological sample. One difficulty in the development of nucleic acid-based
diagnostic technology is the low concentration of nucleic acid in the sample,
which generally renders direct detection impractical. Recent solutions to this
problem, including the DNA Polymerase Chain Reaction ("PCR") or Nucleic Acid
Sequence-Based Amplification ("NASBA"), are capable of amplifying trace amounts
of target nucleic acid hundreds of millions of times and allow for the detection
of disease-causing genes before symptoms appear.
Diagnostic procedures are performed primarily in three different markets: the
clinical diagnostic market, including hospitals, reference laboratories, blood
banks, patient point-of-care testing and home testing; the life science market,
including laboratories in pharmaceutical and biotechnology companies,
universities, private institutes and the government; and the industrial market,
which consists of food and water quality assurance programs, agricultural
diagnostics and animal health testing.
ORIGEN Technology
The ORIGEN technology is a proprietary technology based on
electrochemiluminescence which utilizes labels that, when attached to a
biological substance and electrochemically stimulated, emit light at a
particular wavelength to signal the presence of an analyte. The light emission
can then be measured with a high degree of accuracy to detect and quantify the
analyte. The Company's ORIGEN technology thus provides a uniform assay format to
conduct a multitude of diagnostic tests including immunoassay, nucleic acid
probe and clinical chemistry tests. The ORIGEN technology is protected by
numerous patents in the United States and internationally.
Using the ORIGEN technology as a platform, IGEN and its collaborators are
developing diagnostic systems that offer many advantages over current
technologies. The Company believes that its ORIGEN technology offers improved
speed, sensitivity, flexibility and throughput relative to existing diagnostic
technologies and lowers the cost of diagnostic procedures. The ORIGEN system
directly measures electrochemiluminescence, and does not involve the use of
enzymes common in competing systems, thus permitting a simplified assay format.
The ORIGEN diagnostic systems can be automated to provide in a uniform format a
large number of immunoassay, nucleic acid probe and clinical chemistry tests.
The major features and benefits of proprietary ORIGEN-based diagnostic systems
are:
<TABLE>
<CAPTION>
Feature Benefit
<S> <C>
Simple Assay Format Reduces time and labor in performing an
assay.
Flexibility Enables a single instrument to perform
immunoassays on large and small
molecules and to perform DNA and
RNA probe assays. Permits immunoassays to
be integrated with clinical chemistry
systems.
Cost Reduces assay cost per test.
Speed Produces quick results. Enables high
throughput (random access).
Sensitivity Allows detection of analytes at
very low concentrations.
Precision Provides highly-reproducible
measurements.
Label Stability Extends reagent shelf life.
Improves measurement accuracy.
</TABLE>
The essential component of the ORIGEN system is the measurement module, which
consists of a flow cell containing an electrode and a light detection means such
as a photomultiplier tube. The ORIGEN measurement module has been designed so
that it can be easily incorporated into a variety of instruments from large
central laboratory random-access systems to small batch point-of-care ORIGEN.
The current design of the ORIGEN measurement module includes a reusable platinum
or gold electrode to generate electrochemiluminescence. IGEN is also developing
disposable electrodes to be used in hand-held and portable instruments.
Product Development Strategy
The Company is designing its diagnostic systems to become the industry standard
for all segments of the diagnostic market, from large central laboratories to
patient point-of-care and in-home testing. IGEN has selectively established
corporate alliances with companies that it believes are well positioned to
maximize market penetration in the central laboratory market. In particular, the
Company has established relationships with Boehringer Mannheim for the
development and marketing of clinical reference laboratory systems worldwide;
with Organon Teknika for the development and marketing of nucleic acid probe
systems for worldwide use in clinical diagnostic and life science research
markets; and with Eisai for the marketing in Japan of a specified diagnostic
system for certain diagnostic tests.
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The Company will exploit either independently or with corporate partners, the
opportunities presented by the expansion of diagnostic testing into patient
point-of-care sites as well as opportunities available in the life science
research and industrial markets. The Company will apply its ORIGEN technology to
the development of a line of quantitative diagnostic products to address the
needs of these markets. IGEN is currently marketing the ORIGEN Detection System
and related reagents for life science research applications. The Company is also
independently developing a point-of-care immunoassay system that can be used
outside the central laboratory.
The Company believes that as the use of patient point-of-care and in-home
testing systems expands, it will become necessary to integrate the information
that is being generated by these systems into the data and communication
networks that are rapidly expanding as a result of the tremendous improvements
in information handling. The Company is monitoring the development of healthcare
communication networks and intends to design its point-of-care and in-home
testing systems for integration into such networks.
ORIGEN Products
IGEN and its strategic collaborators are developing a broad range of products
based on its proprietary ORIGEN technology, which are applicable to the clinical
diagnostics, industrial and life science research markets. The Company believes
that its ORIGEN technology is well suited for the development of a family of
instruments to be used in hospital and reference laboratories and at the patient
point-of-care. The technology permits virtually all clinical chemistry,
immunodiagnostic, DNA probe and RNA probe tests to be performed on the same
instrument using the same detection method. The ORIGEN technology also could
serve as the basis for portable hand-held devices that perform with the
efficiency and reliability of larger systems.
The table on page 4 summarizes the Company's product and development programs.
Clinical Diagnostic Products
Hospital/Reference Laboratory Systems. One of the most important applications of
the Company's ORIGEN technology is in large, highly-automated clinical
immunoassay systems of the type used in hospitals, reference laboratories and
blood banks. Reference laboratories constitute the vast majority of the clinical
diagnostic market today. Reference laboratory systems must be able to perform a
wide variety of immunoassay tests on a large number of samples both reliably and
cost-effectively. The Company and its corporate collaborators believe that
systems based on the ORIGEN technology will be well suited to serve this market,
and will surpass those immunoassay and nucleic acid probe systems currently
available in terms of speed, cost effectiveness and simplicity.
The Company's strategic partner, Boehringer Mannheim, introduced its first
ORIGEN-based random-access immunoassay system, the Elecsys 2010, for the
reference laboratory market in 1996. The Elecsys 2010 is designed to perform
multiple assays in a random-access mode while handling stat tests, i.e., tests
performed on clinical samples where the results are needed immediately, without
interfering with the system workflow. Boehringer Mannheim will offer a
competitive panel of assays with the Elecsys 2010 and plans to develop
additional assays for market introduction in the subsequent months and years.
IGEN is collaborating with Boehringer Mannheim to develop at least 10 assays,
each of which should have applicability to the point-of-care market pursued by
IGEN. IGEN is reimbursed by Boehringer Mannheim for certain of the assay
development costs. Boehringer Mannheim and Hitachi have cooperated in the
development of the Elecsys 2010, building on their successful cooperation in
clinical chemistry instrumentation. The Elecsys 2010 is modular so that it can
be integrated eventually with Boehringer Mannheim's clinical chemistry systems.
Boehringer Mannheim is also expected to introduce the Elecsys 1010 system in
1996, which is a random access system designed for customers who have a lower
throughput requirement.
Organon Teknika is developing nucleic acid probe diagnostic tests that are used
to analyze human gene sequences or to detect the presence of gene sequences of
infectious organisms. IGEN and its corporate collaborators believe that the
ORIGEN technology applied to nucleic acid probe assays will offer the advantages
of greater accuracy and efficiency demanded by the market. Organon Teknika
introduced in 1994, the first nucleic acid probe system based on the ORIGEN
technology and Nucleic Acid Sequence-Based Amplification ("NASBA"), a
proprietary nucleic acid amplification technique.
The NASBA System has four stages which are sample preparation and nucleic acid
isolation, amplification and detection. The NASBA QR System utilizes ORIGEN
technology which provides automated, rapid, specific, sensitive and homogenous
detection. The first NASBA test kit introduced in 1994 was a product for the
direct detection of HIV-1 RNA, both quantitatively and qualitatively. Products
under development by Organon Teknika include tests for hepatitis,
cytomeglovirus, chlamydia and mycobacteria. In addition to the diagnosis of
infectious disease, the NASBA System has potential applications in the fields of
genetic diseases, oncologic diseases and HLA typing for organ transplants.
Patient Point-of-Care Systems. IGEN is independently developing applications of
its ORIGEN technology that can be used to perform immunoassays outside the
central laboratory by an operator with no special skill or training. This market
includes patient point-of-care settings such as the physician's office,
ambulatory clinics, hospital emergency rooms, surgical and intensive care units,
nurse's stations or the hospital patient's bedside. Physicians, patients and
third-party payors have created a demand for bringing laboratory testing to the
point of care, closer to the patient so as to allow the medical practitioner to
provide immediate feed-back to the patient. Immunodiagnostic systems for
individual physicians have had limited market penetration because of the lengthy
turnaround time for test results (1-2 days), the need for skilled labor in
performing tests and high cost. The Company believes that the emergence of
simple, accurate and cost effective diagnostic products is shifting the site of
in vitro diagnostic testing from the clinical laboratory to alternate sites.
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IGEN believes that significant demand exists for immunodiagnostic products that
reduce turnaround time and cost. IGEN's point-of-care system is being designed
to conduct immunodiagnostic tests that will provide accurate results to the
physician within 15 minutes, thereby permitting the physician to make an
immediate decision regarding the patient's course of treatment. The ORIGEN
technology permits development of a system that is simple to operate at a very
low cost per test. The Company is designing its point-of-care system, to be
marketed under the TriCorder(TM) name, to consist of a simple, low cost
instrument and a line of reagents packaged in a disposable single test format.
The Company is also developing the system to include information processing and
transfer capabilities to update the patient's medical history and provide the
physician with current patient information. As most immunodiagnostic assays can
be conducted on the ORIGEN system in a uniform format, the Company believes that
a broad menu of tests could be marketed on its point-of-care system.
In-Home Testing. Longer term applications of the ORIGEN technology also exist in
the field of in-home testing (patient self-testing), in which IGEN's technology
may enable the creation of compact, inexpensive diagnostic products. The Company
is exploring the feasibility of using its ORIGEN technology for such products.
Life Science Research Products
Immunoassay Systems. IGEN currently sells the ORIGEN Detection System and a line
of reagents. Product shipments began in 1994. The ORIGEN Detection System is
used by researchers who wish to perform immunoassays for life science
applications. The ORIGEN Detection System is an open architecture assay platform
that quantitates the binding of any two molecules that come together with
specificity. The "open architecture" component of ORIGEN refers to the
researcher's ability to customize their assays for their particular performance
parameters. The System is optimized for immunoassays, but offers researchers the
flexibility to build other assays for direct detection of nucleic acids, and
receptor ligand studies. Whether the need is for greater sensitivity, faster
turnaround time, expanded linear range, or other key features, a researcher has
the flexibility to design an assay to meet these goals.
<TABLE>
<CAPTION>
PRODUCT AND DEVELOPMENT PROGRAMS
MARKET PRODUCT APPLICATION COMMERCIAL RIGHTS STATUS(1)
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<S> <C> <C> <C> <C>
Clinical Diagnostic Market
Hospital/Reference Laboratory
Systems Elecsys 2010 System Immunoassays Boehringer Mannheim Product
Launch-1996
Elecsys 1010 System Immunoassays Boehringer Mannheim Product
Launch-1996
NASBA QR System Nucleic Acid Organon Teknika Product Sales
Probe Detection
Batch Process System Immunoassays Eisai Development
Random Access Nucleic Acid Organon Teknika; Development
Systems Probe Detection Boehringer Mannheim
Blood Bank System Immunoassays Boehringer Mannheim Research
Patient Point-of-Care Systems Physician's Office/ Immunoassays IGEN Development
Hospital Analyzer
Home Self Testing Health Screening IGEN Research
and Monitoring
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Life Science Research Market
ORIGEN Detection Immunoassays/ IGEN Product Sales
System and Reagents Nucleic Acid
Probe Detection
Cell Culture Reagents Research Biologicals IGEN Product Sales
QPCR System 5000 Nucleic Acid Probe Perkin-Elmer Product Sales
Detection
NASBA QR System Nucleic Acid Probe Organon Teknika Product Sales
Detection
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Industrial Markets
Environmental/Water Immunoassays and IGEN; Development
Testing/Food Nucleic Acid Probe Organon Teknika;
Processing System Detection Perkin-Elmer
Animal Health Systems Immunoassays and IGEN Development
Nucleic Acid Probe
Detection
</TABLE>
(1) Product launch dates are based on estimates provided by the Company's
collaborators.
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ORIGEN is being implemented throughout the life science market as a replacement
technology for Radioimmunoassays (RIA) and Enzyme Linked Immunosorbent Assays
(ELISA), the most commonly used systems, as well as a replacement for newer
chemiluminescent and fluorescent procedures. The change is occurring as
scientists see the enhancements to sensitivity (10-100 fold improvements),
dynamic range of up to 5 logs, and the elimination of time consuming technical
steps, such as assay washes.
Nucleic Acid Probe Systems. The QPCR System 5000, utilizing the Company's ORIGEN
technology, was introduced by Perkin-Elmer with shipments commencing in 1994.
PCR, or DNA Polymerase Chain Reaction, is a technique that makes it possible to
amplify genetic material of various origin, thus enabling it to be detected and
identified at extremely low concentrations. The QPCR System 5000 is the first
fully integrated system designed and optimized for the quantitation of PCR
products.
Other ORIGEN Research Products. The Company will seek to develop with corporate
collaborators other research products based on its ORIGEN technology, including
detectors for column chromatography and capillary zone electrophoresis,
electrochemiluminescence-based gel readers for DNA sequencers and a high-
throughput reader for hybridoma screening and antibody production.
Research Biologicals. The Company produces and sells a line of research reagents
under its ORIGEN brand name. The products are purified biological extracts that
promote the growth of certain types of cells used in laboratory investigations.
The Company markets the products directly as well as through distributors.
Industrial Products
The Company is seeking to develop further, either independently or with joint
venture partners, ORIGEN-based products for use in food and water quality
assurance programs and animal health testing. The emergence of simple, accurate
and cost effective products is shifting testing from traditional labor intensive
methods such as gas chromatography, to immunodiagnostics. The Company believes
that its ORIGEN Detection System and reagents together with simpler, low-cost
instruments under development will be particularly suited for these market
applications.
Collaboration and License Agreements
IGEN's business strategy is to develop and market products both independently
and in collaboration with established healthcare and information technology
companies. The Company's ORIGEN technology has already provided near-term
revenues which have enabled the Company to pursue its strategic objectives in
the diagnostic business. IGEN may seek additional corporate collaborators to
provide financial resources, research and manufacturing capabilities and
marketing infrastructure.
Boehringer Mannheim GmbH. Boehringer Mannheim is a business unit of Corange
Limited, a multinational corporation with annual revenues exceeding $3 billion
and the second largest worldwide manufacturer of diagnostic equipment and
supplies. Boehringer Mannheim's principal strength is in the area of clinical
chemistry systems, in which it is the market leader. In 1991, the Company
entered into an agreement under which Boehringer Mannheim was granted rights to
develop and market clinical diagnostic systems worldwide based on the Company's
technology. Under the agreement, IGEN received $50 million in license fees.
Boehringer Mannheim will pay additional amounts for certain assay product
development to be performed by IGEN, and is obligated to pay the Company a
royalty on all product sales.
The ORIGEN products to be marketed by Boehringer Mannheim under the name
Elecsys, are a series of highly-automated diagnostic systems designed for
centralized markets, such as hospitals, clinical reference laboratories and
blood banks. IGEN believes that Elecsys systems will enable Boehringer Mannheim
to increase its market presence in immunodiagnostics and to market systems
capable of performing both clinical chemistry and immunodiagnostic tests. The
Company has granted Boehringer Mannheim an exclusive right to market these
products worldwide, except for rights previously licensed to Eisai to market in
Japan an ORIGEN-based system performing certain specific tests. The Company has
also granted Boehringer Mannheim a co-exclusive license to use the ORIGEN
technology for nucleic acid probe tests in the centralized laboratory market.
Hubert Rehkaemper, a director of the Company since 1995, is President and Chief
Executive Officer of Boehringer Mannheim Corporation (U.S.).
Organon Teknika B.V. Organon Teknika, a company specializing in hospital and
blood bank products, is a business unit of Akzo Nobel N.V., a multinational
corporation with annual revenues of approximately $10 billion. In 1993, the
Company entered into a $20 million license agreement and a stock purchase
agreement with Organon Teknika. The license agreement provides Organon Teknika
with co-exclusive rights to commercialize certain products utilizing the
Company's ORIGEN technology for detecting nucleic acids in centralized clinical
markets, research markets and for certain pathogens for food testing. Organon
Teknika has combined the Company's ORIGEN technology with NASBA, a proprietary
nucleic acid amplification technique. The agreement provides for royalty
payments to IGEN and for product supply arrangements. The Company also issued
shares of Common Stock to Organon Teknika and agreed to devote specified
resources to research and development activities in the field of clinical
diagnostics.
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Robert Salsmans, a director of the Company, is President and Chief Executive
Officer of the Organon Teknika group of companies.
Eisai Co., Ltd. Eisai is the ninth largest Japanese pharmaceutical company. In
1990, the Company granted a license to Eisai to market in Japan a clinical
diagnostic system based on the Company's ORIGEN technology. Under this
agreement, Eisai has paid $6 million to IGEN and is obligated to pay IGEN an
additional $2 million in license fees tied to the achievement of product
development milestones. The ORIGEN-based products to be marketed by Eisai are an
immunodiagnostic instrument and agreed-upon reagents for use in Japan in the
market regulated by the Japanese Ministry of Health and Welfare for use in
diagnosing or advising a patient's clinical condition, health or general make-
up. Upon completion of the development program, the Company has the option to be
Eisai's exclusive supplier of ORIGEN-based clinical diagnostic products and
expects to receive royalties from Eisai's sales.
Research Agreements
In 1993, the Company established HyperGen, a joint venture partnership, with
Hyperion Catalysis International ("Hyperion") to develop and commercialize
biomedical products utilizing advanced materials such as Hyperion's proprietary
Graphite Fibrils(TM). Hyperion, a privately-held company based in Cambridge,
Massachusetts, is engaged in the development and manufacture of Graphite
Fibrils(TM), an innovative carbon-based nanofiber. IGEN has licensed the
exclusive right to use products developed by HyperGen for diagnostic
applications, for which it paid $750,000. The Company contributed cash of $3
million for its initial 50% interest in HyperGen and made additional cumulative
payments of $2 million based on the attainment of certain research milestones.
During 1995, the Company acquired the remaining 50% interest in HyperGen for $3
million. IGEN assumed operating control of HyperGen and consolidated HyperGen's
research and development programs into the Company's internal programs.
Acquisition of the HyperGen rights to Graphite Fibrils(TM) will enable IGEN to
commence the development of proprietary products to complement its business in
the medical and life science marketplace. One product under investigation by
HyperGen is a filter comprised of Graphite Fibrils(TM) that could be used as a
disposable electrode for electrochemiluminescent measurements for point-of-care
ORIGEN applications. Other products under investigation include: separation
media for the purification and analysis of biomolecules which would reduce the
time and cost required for discovery, development and manufacture of
biopharmaceuticals; and biocatalyst support materials for chiral drug
intermediates.
During November, 1995 the Company formed a Joint Venture for the development and
commercialization of advanced diagnostics products utilizing a proprietary
combination of multi-array technology together with the Company's ORIGEN(R)
technology. Products based on these technologies would be used for high
throughput, multiparameter analysis for DNA sequencing, clinical chemistry and
immunodiagnostics. The joint venture is named Meso Scale Diagnostics, LLC
("MSD"), and was formed together with Meso Scale Technologies, LLC ("MST"), a
company based in Maryland. MST is a technology-based company established and
operated by Jacob Wohlstadter, the son of Samuel J. Wohlstadter, the Chief
Executive Officer of the Company. Nadine Wohlstadter, a member of MST, is the
spouse of Samuel J. Wohlstadter. The Company has agreed to provide initial
capital contributions to MSD of $5 million over time, in exchange for its
ownership interest and to fund the organizational and certain ongoing (non-
research) expenses of MSD. The Company will also participate in a collaborative
research program.
MSD's research programs to develop products will be based on multi-array
diagnostic techniques and the ability to control and adapt surface chemistry
reactions on a microscopic level. The process may generate thousands of
reactions on a single chip with diagnostic results presented on an array and
read using electrochemiluminescence. The multiple results would represent an
advance in diagnostic testing enabling researchers and clinicians to explore
complex information rapidly and cost-effectively.
Patents and Proprietary Rights
IGEN pursues a policy of seeking patent protection to preserve its proprietary
technology and its right to capitalize on the results of its research and
development activities and, to the extent it may be necessary or advisable, to
exclude others from appropriating its proprietary technology. IGEN also relies
upon trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. The Company
plans to prosecute and defend its intellectual property, including any patents
that may issue, and proprietary technology. The Company regularly searches for
third-party patents in its fields of endeavor, both to shape its own patent
strategy as effectively as possible and to identify licensing opportunities.
IGEN owns or co-owns and has exclusive rights to 13 issued U.S. patents, 5
allowed U.S. patent applications and 58 pending U.S. applications in the
diagnostics field. Worldwide, the Company owns or co-owns and has exclusive
rights to an additional 40 issued patents, 3 allowed patent applications and 113
pending patent applications covering the same technology. These patents and
patent applications cover various aspects of IGEN's ORIGEN technology and
products, and the methods for their production and use.
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The patent positions of diagnostic firms, including the Company, are highly
uncertain and involve complex legal and factual questions. Patent applications
in the United States are maintained in secrecy until patents issue and therefore
the Company cannot be certain that it or any party from whom it obtained
licenses was the first creator of inventions covered by issued patents or
pending patent applications or that it or such licensor was the first to file
patent applications for such inventions. The Company may have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to the
Company even if the eventual outcome is favorable to the Company. Consequently,
the Company does not know whether its applications will result in issued patents
or whether its patents will provide significant proprietary protection or will
be circumvented or invalidated.
A number of healthcare and information technology companies and research and
academic institutions have filed patent applications or received patents in the
diagnostic field. Some of these applications or patents may be competitive with
the Company's issued patents or pending patent applications or conflict in
certain respects with claims made in the Company's patents or patent
applications or the Company's ability to practice the technology covered
thereby. Such conflicts could result in a significant reduction of the Company's
ability to practice the inventions covered by its patents and pending patent
applications. In addition, if patents containing competitive or conflicting
claims are issued to others and such claims are ultimately determined to be
valid, there can be no assurance that the Company will be able to obtain
licenses to these patents at a reasonable cost or be able to develop or obtain
alternative technology.
The Company filed an opposition in Europe to a patent (EP 0 285 05781) owned by
Enzo Biochem, Inc. This patent covers labeled oligonucleotides useful in DNA
probe assays. Separate oppositions have been lodged by Boehringer Mannheim and
Organon Teknika. The Company is vigorously opposing this patent. Since the
opposition is in a very early stage, it is not possible to predict the outcome
or the effect, if any, on the Company's intellectual property or products.
Government Regulation
The Company's research and development activities and the future manufacturing
and marketing of products by the Company are subject to regulation by numerous
governmental authorities in the United States and other countries. In the United
States, clinical diagnostic devices are subject to rigorous U.S. Food and Drug
Administration ("FDA") regulation. The Federal Food, Drug and Cosmetic Act and
the Public Health Service Act govern the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising and promotion of the
clinical Company's products. In addition to FDA regulations, the Company is
subject to other federal and state regulations such as the Occupational Safety
and Health Act and the Environmental Protection Act. Product development and
approval within this regulatory framework may take a number of years and
involves the expenditure of substantial resources. In addition, there can be no
assurance that this regulatory framework will not change or that additional
regulation will not arise at any stage of the Company's product development,
which may affect approval or delay an application or require additional
expenditures by the Company.
The Company's regulatory strategy is to pursue development and marketing
approval of its products worldwide, either independently or through corporate
collaborators. The Company intends to seek input from the regulatory authorities
at each stage of the clinical process to facilitate appropriate and timely
clinical development. The clinical development of certain products may be the
responsibility of the Company's collaborators.
Clinical Diagnostic Systems. The manufacture, distribution and sale in the
United States of the Company's products for clinical diagnostic purposes will
require prior authorization by the FDA. The FDA and similar agencies in foreign
countries have promulgated substantial regulations that apply to the testing,
marketing, export and manufacturing of diagnostic products. To obtain FDA
approval of a new product for diagnostic purposes, the Company or its
collaborators will in most cases be required to submit proof of the safety and
efficacy of the product. Such proof typically entails clinical and laboratory
tests. The testing, preparation of necessary applications and processing of
those applications by the FDA is expensive and time consuming. Significant
difficulties or costs may be encountered by the Company in its efforts to obtain
FDA approvals that could delay or preclude the Company from marketing its
products for diagnostic purposes. Furthermore, there can be no assurance that
the FDA will not request the development of additional data following the
original submission. With respect to patented products or technologies, delays
imposed by the governmental approval process may materially reduce the period
during which the Company or its collaborators will have the exclusive right to
exploit those products or technologies.
7
<PAGE>
The Company's and its collaborative partners' diagnostic products, as presently
contemplated, will be regulated as medical devices. Prior to entering commercial
distribution, all medical devices must undergo FDA review under one of two basic
review procedures depending on the type of assay: a Section 510(k) premarket
notification ("510(k)") or a premarket approval application ("PMA"). 510(k)
notification is generally a relatively simple filing submitted to demonstrate
that the device in question is "substantially equivalent" to another legally
marketed device and includes tests for therapeutic drugs and hormones. Approval
under this procedure may be granted within 90 days if the product qualifies, but
generally takes longer. When the product does not qualify for approval under the
510(k) procedure, the manufacturer must file a PMA to show that the product is
safe and efficacious, based on extensive clinical testing among several diverse
testing sites and population groups, and shows acceptable sensitivity and
specificity. This procedure requires much more extensive prefiling testing than
does the 510(k) procedure and involves a significantly longer FDA review after
the date of filing. In responding to a PMA, the FDA may grant marketing
approval, may request additional information, may set restrictive limits on
claims for use or may deny the application altogether.
After product approvals have been received, they may still be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
after the product reaches the market. The FDA may require surveillance programs
to monitor the effect of products which have been commercialized, and has the
power to prevent or limit further marketing of the products based on the results
of these post-marketing programs. In addition to obtaining FDA approval for each
product, under the PMA guidelines, the Company must seek FDA approval of the
manufacturing facilities and procedures. The FDA will also inspect diagnostic
companies on a routine basis for regulatory compliance with its Good
Manufacturing Practices ("GMP").
The Company's products for the physician's office market will be affected by the
Clinical Laboratory Improvement Amendments of 1988 ("CLIA"), which is intended
to insure the quality and reliability of medical testing and may have the effect
of discouraging, or increasing the cost of, testing in physicians' offices. The
regulations establish requirements for laboratories in the area of
administration, participation in proficiency testing, patient test management,
quality control, personnel, quality assurance and inspection. Under these
regulations, the specific requirements that a laboratory must meet depend upon
the complexity of the tests performed by the laboratory. Laboratory tests are
categorized as either waived tests, tests of moderate complexity or tests of
high complexity. Laboratories that perform either moderate or high complexity
tests must meet standards in all areas, with the major difference in
requirements between moderate and high complexity testing concerning quality
control and personnel standards. Quality control standards for moderate
complexity testing are being implemented in stages. Personnel standards for high
complexity testing are more rigorous then those for moderate complexity testing.
In general, personnel conducting high complexity testing will need more
education and experience than those doing moderate complexity testing. Under the
CLIA regulations, all laboratories performing moderately complex or highly
complex tests will be required to obtain either a registration certificate,
certificate, or certificate of accreditation from the Healthcare Financing
Administration ("HCFA").
Because the regulations are new and their interpretation is uncertain, it is
possible that certain of the Company's products may be categorized as tests of
high complexity, in which case the Company's penetration of the point-of-care
market would be reduced since not all laboratories would meet the standards
required to conduct such tests. The Company understands that laboratories,
including physician office laboratories, will be evaluating the requirements of
CLIA in determining whether to perform certain types of moderate and high
complexity diagnostic tests. The Company believes that the sale of its products
will not be adversely affect by CLIA. However, no assurances can be given that
the statute and its implementing regulations will not have a material adverse
impact on the Company and its ability to market and sell any products that the
Company develops.
Although the Company believes that it will be able to comply with all applicable
regulations regarding the manufacture and sale of diagnostic devices, such
regulations are always subject to change and depend heavily on administrative
interpretations. There can be no assurance that future changes in regulations or
interpretations made by the HHS, FDA, HCFA or other regulatory bodies, with
possible retroactive effect, will not adversely affect the Company. In addition
to the foregoing, the Company is subject to numerous federal, state and local
laws and regulations relating to such matters as safe working conditions,
laboratory and manufacturing practices, environmental, fire hazard control, and
disposal of hazardous or potentially hazardous substances. To date, compliance
with these laws and regulations has not had a material effect on the Company's
financial results, capital requirements or competitive position, and the Company
has no plans for material capital expenditures relating to such matters.
However, there can be no assurance that it will not be required to incur
significant costs to comply with such laws and regulations in the future, or
that such laws or regulations will not have a materially adverse effect upon the
Company's ability to do business.
Sales of the Company's products outside the United States are also subject to
extensive regulatory requirements, which vary widely from country to country.
The time required to obtain such approval may be longer or shorter than that
required for FDA approval.
Research Products. The Company's products that are being sold for research use
only must be properly labeled as such, as required by the FDA, but do not
generally require FDA approval prior to marketing. The FDA has recently begun to
impose new distribution requirements and procedures on companies selling
research-only products, such as the requirement that the seller receive
specified certifications from its customers as to the customers' intended use of
the product. The Company expects that the FDA will in the near future develop
additional restrictions of this nature. The Company is unable at this time to
predict the form these restrictions may take, their likely magnitude or their
ultimate impact on the Company or its sales.
8
<PAGE>
Environmental Regulation. Due to the nature of its current and proposed
research, development and manufacturing processes, the Company is subject to
stringent federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes. Although the
Company believes that it has complied with these laws and regulations in all
material respects and has not been required to take any action to correct any
noncompliance, there can be no assurance that the Company will not be required
to incur significant costs to comply with environmental and health and safety
regulations as it expands its production operations.
Reimbursement. Third party payors, such as governmental programs and private
insurance plans, can indirectly affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement they will provide for diagnostic testing services. In recent
years, healthcare costs have risen substantially, and third-party payors have
come under increasing pressure to reduce such costs. In this regard, the Federal
government, in an effort to reduce healthcare costs, may take actions which may
involve reductions in reimbursement rates. If the reimbursement amounts for
diagnostic testing services are decreased in the future, it may decrease the
amount which physicians, clinical laboratories and hospitals are able to charge
patients for such services and consequently the price the Company can charge for
its products.
Competition
Competition in the diagnostic industry is intense, and a small number of large
and well established companies are major participants. In view of the nature of
the industry, the Company has elected to rely on alliances with established
companies to exploit fully the advantages of its diagnostic systems. There can
be no assurance, however, that IGEN's corporate collaborators will be successful
in commercializing the ORIGEN technology. Furthermore, academic institutions,
government agencies and other public and private organizations conducting
research may develop potentially competing products or technologies and may
establish collaborative arrangements with competitors of the Company.
The Company's competition will be determined in part by the potential
applications for which the Company's products are developed and ultimately
approved by regulatory authorities. For certain of the Company's future
products, an important factor in competition may be the timing of market
introduction of its own or competing products. Accordingly, the relative speed
with which IGEN or its corporate collaborators can develop products, complete
the clinical trials and approval processes and supply commercial quantities of
the products to the market are expected to be important competitive factors. The
Company expects that competition with products approved for sale will be based,
among other things, on product efficacy, safety, reliability, availability,
price and patent position.
Many of the Company's existing or potential competitors have substantially
greater financial, technical and human resources than the Company and may be
better equipped to develop, manufacture and market products. These companies may
develop and introduce products and processes competitive with or superior to
those of the Company.
The Company's competitive position also depends upon its ability to attract and
retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient capital resources for
the often substantial period between technological conception and commercial
sales.
Manufacturing
The Company's current commercial manufacturing operations consist of the
manufacture of the ORIGEN Detection System and related reagents and cell culture
research biologicals as well as quality assurance processes. The Company uses a
variety of subcontractors and believes that it does not depend on any single-
source supplier that it cannot replace in the ordinary course of business. The
Company has not yet introduced any clinical diagnostic products. Initial
clinical diagnostics products based on the Company's ORIGEN technology will be
manufactured by the Company's corporate collaborators. Although certain future
products may be manufactured by the Company, it has not yet developed plans for
establishing manufacturing operations for these products.
Sales and Marketing
IGEN markets and sells the ORIGEN Detection System and reagents directly to the
life science research market. In conjunction with its national launch of this
System during 1994, the Company expanded its direct sales force, including the
addition of application specialists and in-house technical services personnel.
The Company continues to develop marketing plans for Europe and Japan, while
currently utilizing a small direct sales force. The ORIGEN cell culture products
are sold directly and through distributors.
9
<PAGE>
Human Resources
As of June 14, 1996, IGEN employed 125 individuals full-time, of which 83 were
engaged in research, products development, manufacturing and operations support,
20 in marketing, sales and applications support and 22 in general
administration. Of the Company's employees, 27 have Ph.D. degrees. A significant
number of the Company's management and professional employees have had prior
experience with pharmaceutical, biotechnology, diagnostic or medical products,
computer software or electronics companies. None of the Company's employees is
covered by collective bargaining agreements, and management considers relations
with its employees to be good.
The Company's ability to maintain its competitive position will depend, in part,
upon its continued ability to attract and retain qualified scientific and
managerial personnel. Competition for such personnel is intense.
Risk Factors
Early Stage of Development; Accumulated Losses. The Company is at an early stage
of development and is subject to all of the risks inherent in the establishment
of a new business enterprise, including the need for substantial capital to
support the expenses of developing new technologies, the need to attract and
retain qualified management and scientific staff and other risks as outlined in
the following risk factors. Since inception, the Company has been engaged in the
research and development of products based on new technologies, and at March 31,
1996, the Company had an accumulated deficit of approximately $46.8 million. The
Company's operations may be affected by problems frequently encountered in
connection with the development and utilization of new and unproven technologies
and by the competitive environment in which the Company operates. Although a
limited number of ORIGEN-based products has been developed and introduced to the
life science research market, there can be no assurance that the ORIGEN
technology will be successfully applied to the development of additional
commercial products for the clinical diagnostic or other markets. Diagnostic
products resulting from the development of the Company's technology will require
significant additional development and investment prior to their
commercialization. There can be no assurance that products will be successfully
developed by the Company or its licensees, meet applicable regulatory standards,
be capable of being manufactured in commercial quantities at reasonable costs or
be marketed successfully.
Reliance on Collaborations and License Agreements. The Company has entered into
collaborative research or licensing agreements with Boehringer Mannheim, Organon
Teknika, Eisai and Perkin-Elmer pursuant to which these companies are entitled
to certain product manufacturing and marketing rights. Some of these companies
have the responsibility for additional development and, where required, the
submission of applications for the regulatory approval of any products to the
U.S. Food and Drug Administration ("FDA") and corresponding regulatory agencies
in other countries. Although the Company believes that its partners in these
collaborations have an economic motivation to succeed in performing their
contractual responsibilities, the amount and timing of resources to be devoted
to these activities are not within the control of the Company. There can be no
assurance that such collaborators will perform their obligations as expected or
that the company will derive any additional revenue from such arrangements.
Moreover, the collaboration agreements may be terminated under certain
circumstances.
The Company also expects to rely on additional collaboration or license
agreements to develop and commercialize certain future products. There can be no
assurance that the Company will be able to negotiate acceptable collaboration or
license agreements in the future, or that such new agreements or existing
agreements will be successful. In addition, there can be no assurance that the
parties to collaboration or license agreements will not pursue alternative
technologies as a means for developing diagnostic products targeted by the
collaborations or licenses.
Technological Change and Competition. The diagnostic industry is subject to
technological change. Competition from diagnostic and pharmaceutical companies
and research and academic institutions is intense and expected to increase.
There can be no assurance that the Company's competitors will not succeed in
developing products that are more effective than any which are being developed
by the Company and its collaborators or which would render the ORIGEN technology
and products obsolete and non-competitive.
Many of the Company's competitors in the diagnostic field have substantially
greater financial, technical and human resources than the Company. In addition,
many of these competitors have significantly greater experience than the Company
in obtaining regulatory approvals of new diagnostic products. Accordingly, the
Company's competitors may succeed in obtaining FDA approval for products more
rapidly than the Company. Furthermore, as the Company expands commercial sales
of products, it will have to become competitive with respect to manufacturing
efficiency and marketing capabilities, areas in which it has limited experience.
Uncertainty of Healthcare Reform Measures and Third-Party Reimbursement.
Legislative and regulatory proposals aimed at changing the healthcare system in
the United States continue to be discussed by various bodies of Federal and
State Governments. While the Company cannot predict whether any such legislative
or regulatory proposals will be adopted or the effect such proposals may have on
its business, the pendency or adoption of such proposals could have a material
adverse effect on the Company and its ability to raise capital. Furthermore, the
Company's ability to commercialize its products may be adversely affected to the
extent that such proposals have a material adverse effect on the business,
financial condition and profitability of other companies that are prospective
collaborators for certain of the Company's products.
In both domestic and foreign markets, sales of the Company's or its
collaborators' products will depend in part on the availability of reimbursement
from third-party payors such as government health administration authorities,
private health insurers and other organizations. Third-party payors are
increasingly challenging the price and cost effectiveness of medical products
and services. Significant uncertainty exists as to the reimbursement status of
newly approved healthcare products. There can be no assurance that the Company's
or its collaborators' products will be considered cost effective or that
adequate third-party reimbursement will be available to enable the Company or
its collaborators to maintain price levels sufficient to realize an appropriate
return on their investment in product development. Legislation and regulations
affecting the pricing of medical products and services may change before any of
the Company's or its collaborators' products are approved for marketing.
Adoption of such legislation could further limit reimbursement for medical
products and services.
10
<PAGE>
Compliance with Government Regulations. The production and marketing of the
Company's products and its ongoing research and development activities are
subject to regulation by governmental authorities in the United States and other
countries. Diagnostic systems utilizing the Company's ORIGEN technology will
require government clearance before being marketed in the United States and in
certain foreign countries. In the United States, the Company or its marketing
collaborators may be required to submit test data from clinical trials to
establish "substantial equivalence" of the ORIGEN diagnostic system with
previously approved systems. In such case, the Company or its collaborators may
commence sales only after the FDA has issued a written order finding such
substantial equivalence, which may take longer than the 90-day period generally
provided for FDA review. There can be no assurance that the Company or its
collaborators will be able to establish substantial equivalence for the ORIGEN
diagnostic systems, or that the FDA or certain corresponding government agencies
will permit marketing of such systems in their respective jurisdictions. Should
the Company fail to demonstrate substantial equivalence, the Company would need
to perform extensive clinical testing to demonstrate safety and efficacy,
incurring substantial costs and delays.
Even if regulatory approval is obtained, a marketed product, its manufacturer
and its manufacturing facilities are subject to continual review and periodic
inspections. The regulatory standards for manufacturing are currently being
applied stringently by the FDA. Discovery of previously unknown problems with a
product, manufacturer or facility may result in restrictions on such product or
manufacturer, including costly recalls or even withdrawal of the product from
the market. The Company is also subject to numerous environmental and safety
laws and regulations, including those governing use of hazardous materials. Any
violation of, and the cost of compliance with, these regulations could adversely
impact the Company's operations.
Reliance on Patents and Proprietary Rights. The Company's success will depend in
part on its ability to obtain and maintain patent protection for its products,
both in the United States and other countries. The patent position of diagnostic
companies is highly uncertain and involves complex legal and factual questions.
There is no consistent policy regarding the breadth of claims allowed in medical
patents. The Company owns or co-owns and has been granted exclusive rights to
13 issued U.S. patents, 5 allowed U.S. patent applications and 58 pending U.S.
applications in the diagnostics field. Worldwide, the Company owns or co-owns
and has been granted exclusive rights to an additional 40 issued patents, 3
allowed patent application and 113 pending patent applications covering the same
technology. There can be no assurance that patents will issue from any present
or future applications or that, as to existing patents or patents which may
issue, that claims are or will be sufficiently broad to protect the Company's
technology. In addition, there can be no assurance that the patents issued to
the Company will not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide proprietary protection to the Company.
The commercial success of the Company will also depend in part on its neither
infringing patents issued to competitors nor breaching the technology licenses
upon which the Company's products might be based. The Company is a licensee
under certain patents and patent applications that it considers necessary for
its business. While the Company is aware of additional third-party patents and
patent applications relating to specific reagents, it is uncertain whether any
of these will require the Company to alter any products or processes, obtain
licenses or cease certain development activities with respect to these reagents.
There can be no assurance that the Company will be able to obtain necessary
licenses at reasonable cost. Failure by the Company to obtain a license to any
technology that it requires to commercialize its products may have a material
adverse impact on the Company. Litigation, which could result in substantial
costs to the Company, may also be necessary to enforce any of its patent rights
or to determine the scope and validity of others' proprietary rights. In
addition, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office, which could result in
substantial costs to the Company to determine the priority of inventions.
IGEN also protects its proprietary technology and processes in part by
confidentiality agreements with its collaborative partners, employees,
consultants and other advisors. There can be no assurance that these agreements
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 or be
independently discovered by competitors.
Limited Manufacturing, Sales, Marketing and Distribution Experience. The
Company's clinical diagnostic products must be manufactured in commercial
quantities in compliance with regulatory requirements and at acceptable costs.
The Company has no experience in large scale manufacturing and currently lacks
the capability to manufacture its diagnostic products in accordance with
regulatory requirements. If the Company is unable to develop or contract for
manufacturing capabilities on acceptable terms, the Company's ability to
manufacture products will be adversely affected, resulting in the delay of
submission of products for regulatory approval, which in turn could adversely
affect the Company's competitive position and financial condition. The Company
also has limited experience in sales, marketing and distribution. To market any
of its clinical diagnostic products directly, the Company must develop a
substantial marketing and sales force with technical expertise and supporting
distribution capability. Alternatively, the Company may obtain the assistance of
established companies, as it has done with certain of its diagnostic products.
There can be no assurance that the Company will be able to establish sales and
distribution capabilities or that it or its collaborators will be successful in
gaining market acceptance for its clinical diagnostics products.
11
<PAGE>
Future Capital Needs; Uncertainty of Additional Funding. The Company may require
substantial additional funds to conduct the research and development and
regulatory testing of its products, to establish commercial scale manufacturing
facilities and to market its products. The Company's future capital requirements
will depend on many factors, including, but not limited to: continued progress
in the development of diagnostic products; the time and costs involved in
obtaining regulatory approvals; the costs involved in filing, prosecuting and
enforcing patent claims; competing technological and market developments; the
ability of the Company to maintain its existing, and to establish new,
collaborative and licensing arrangements; the cost of manufacturing scale-up;
and effective commercialization activities and arrangements. The Company may be
required to seek additional funding either through collaborative and licensing
arrangements or through public or private debt or equity financings. There can
be no assurance that additional financing will be available in a timely manner
or on acceptable terms. If additional funds are raised by issuing equity
securities, further dilution to existing shareholders may result. If adequate
funds are not available, the Company may be required to delay, scale back or
eliminate one or more of its programs or obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would not otherwise relinquish.
Need to Attract and Retain Key Employees and Consultants. The Company is highly
dependent on the principal members of its scientific and management staff, the
loss of whose services might impede the achievement of its research and
development or strategic objectives. Recruiting and retaining qualified
scientific personnel to perform research and development work in the future will
also be critical to the Company's success. There can be no assurance that the
Company will be able to attract and retain such personnel given the competition
between numerous diagnostic and biotechnology companies and research and
academic institutions for experienced scientists.
The Company's anticipated growth and expansion into areas and activities
requiring additional expertise, such as clinical trials, government approvals,
manufacturing and marketing, are expected to place increased demands on the
Company's resources. These demands are expected to require the addition of new
management personnel and the development of additional expertise by existing
management personnel. The failure to acquire needed personnel or to develop
needed expertise could have a material adverse effect on the Company's prospects
for success. In addition, the Company relies on consultants and advisors to
assist in formulating its research and development strategy. All of the
Company's consultants and advisors are employed by entities other than the
Company and may have commitments to or consulting or advisory contracts with
other entities that may affect their ability to contribute to the Company.
Risk of Product Liability; Availability of Insurance. The Company's business
will in the future expose it to potential liability risks that are inherent in
the testing, manufacturing and marketing of diagnostic products. The Company
presently has only limited product liability insurance, and there can be no
assurance that it will be able to maintain such insurance or obtain additional
insurance on acceptable terms or that insurance will provide adequate coverage
against potential liabilities.
Control by Existing Shareholders. The Company's directors, officers and their
affiliates own beneficially approximately 40% of the outstanding shares of
Common Stock, of which approximately 25% is held by the Company's Chief
Executive Officer. Accordingly, the Company's officers and directors, if they
act in concert, will have the ability to influence significantly the election of
the Company's directors and most other shareholder actions. In addition, the
Board of Directors has the authority to fix the rights and preferences of and
issue shares of Preferred Stock without further action by the shareholders,
which may have the effect of delaying, deferring or preventing a change in
control of the Company.
ITEM 2. PROPERTIES
The Company's principal administrative, marketing, manufacturing and research
and development facility consists of an 84,000 square foot building located in
Gaithersburg, Maryland. The Company took occupancy of this newly leased facility
during 1995. The lease expires in 2005 but provides the Company an option to
terminate in 2000. The Company believes that its current facility will be
adequate for anticipated expansion needs.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company during the
fourth quarter of the fiscal year covered by this report.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is quoted on the NASDAQ National Market System under
the symbol IGEN. As of May 31, 1996, there were approximately 1,500 holders of
record of the Company's Common Stock. No cash dividends have been paid on the
Common Stock to date, and the Company currently intends to retain any earnings
for development of the Company's business.
The following table sets forth, for periods indicated, the range of high and low
closing sales prices of the Common Stock as quoted on the NASDAQ National Market
System.
<TABLE>
<CAPTION>
High Low
- ---------------------------------
<S> <C> <C>
Fiscal 1995 --
First Quarter $10 $ 5 1/4
Second Quarter $ 7 3/8 $ 5 1/8
Third Quarter $ 7 $ 5 1/8
Fourth Quarter $ 6 3/8 $ 4 5/8
Fiscal 1996 --
First Quarter $ 6 5/8 $ 4 7/8
Second Quarter $ 7 7/8 $ 5 3/8
Third Quarter $ 6 5/8 $ 4 3/4
Fourth Quarter $ 6 7/16 $ 4 7/8
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below with respect to the Company's
statements of operations for each of the years in the three year period ended
March 31, 1996 and with respect to the balance sheets at March 31, 1996 and 1995
are derived from, and are qualified by reference to, the financial statements
that have been audited by Deloitte & Touche LLP, independent auditors, and are
included elsewhere in this Form 10-K. The statement of operations data for each
of the years in the two year period ended March 31, 1993, and the balance sheet
data at March 31, 1994, 1993 and 1992 are derived from audited financial
statements not included in this Form 10-K. The following selected financial data
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License/option fees and contract revenue $ 11,266 $ 12,259 $ 22,021 $ 10,708 $ 5,000
Product sales and royalty revenue 4,658 2,575 1,356 1,074 433
-------- -------- -------- -------- --------
Total revenues 15,924 14,834 23,377 11,782 5,433
-------- -------- -------- -------- --------
Operating Costs and Expenses:
Products Costs 1,848 1,278 658 654 117
Research and development 14,078 12,267 10,911 3,872 3,460
Marketing, general and administrative 8,725 8,707 4,608 2,615 2,577
-------- -------- -------- -------- --------
Total operating expenses 24,651 22,252 16,177 7,141 6,154
-------- -------- -------- -------- --------
Income (loss) from continuing operations (8,727) (7,418) 7,200 4,641 (721)
Interest income -- net 1,079 1,489 559 57 21
-------- -------- -------- -------- --------
Income (loss) from continuing operations before income taxes (7,648) (5,929) 7,759 4,698 (700)
Income taxes -- -- 163 108 --
-------- -------- -------- -------- --------
Income (loss) from continuing operations (7,648) (5,929) 7,596 4,590 (700)
Loss from discontinued operations -- -- (10,573) (3,064) (2,219)
-------- -------- -------- -------- --------
Net income (loss) $ (7,648) $ (5,929) $ (2,977) $ 1,526 $ (2,919)
======== ======== ======== ======== ========
Income (loss) per share:
Continuing operations $ (.52) $ (.40) $ .57 $ .37 $ (.07)
Discontinued operations -- -- (.79) (.25) (.22)
-------- -------- -------- -------- --------
Net income (loss) $ (.52) $ (.40) $ (.22) $ .12 $ (.29)
======== ======== ======== ======== ========
Shares used in computing net income (loss) per share 14,779 14,769 13,413 12,436 10,192
<CAPTION>
March 31,
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments $ 20,217 $ 30,226 $ 41,746 $ 2,965 $ 4,593
Working capital (deficit) 13,700 21,484 31,437 (1,590) (2,381)
Total assets 29,276 37,806 45,364 7,501 6,270
Accumulated deficit (46,819) (39,171) (33,242) (29,173) (29,395)
Shareholders' equity (deficit) 17,435 24,998 31,467 413 (1,426)
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
The Company has devoted substantially all of its resources to the research and
development of its proprietary technologies, primarily the ORIGEN technology for
clinical diagnostic and life science research products. In February 1994, the
Company completed an initial public offering of 2,990,000 shares of common stock
from which it received net proceeds of approximately $32 million. In addition to
product sales, the Company's sources of revenue have consisted primarily of
license or research payments pursuant to licensing or collaborative research
agreements. The Company has entered into collaborative arrangements with
corporate collaborators that provide for the development and marketing of
certain ORIGEN systems. These agreements provide fees and royalties payable
to the Company in exchange for licenses to produce and sell the resulting
products. In the near term, the Company may selectively pursue additional
strategic alliances although, over time, it expects an increasing amount of its
revenues to be derived from sales of its products and royalties from corporate
collaborations.
Results of Operations
Years Ended March 31, 1996 and 1995
The Company had revenues of $15.9 million for the year ended March 31, 1996,
compared to revenues of $14.8 million for the corresponding period in 1995. The
increase in revenue is attributable to higher product sales which offset a
decrease in revenue from contract research. Product sales from the Company's
ORIGEN Detection System and related reagents and cell culture products increased
to $4.6 million in 1996 from $2.6 million in 1995, reflecting higher direct
sales of the ORIGEN systems. Revenue from contract research decreased to $1.9
million in 1996 from $2.8 million in 1995 due to the level of research performed
under a joint development contract with Organon Teknika.
Product costs were $1.8 million in the year ended March 31, 1996 (40% of product
sales) and $1.3 million in the corresponding period in 1995 (50% of product
sales). The decreased percentage of product costs in 1996 reflects a change in
the product sales mix between instruments and reagents. Research and development
expenses increased to $14.1 million in 1996 from $12.3 million in 1995. This
increase is a result of higher staffing levels; facilities costs associated with
the Company's relocation to a new building; and expanded external technical
collaborations.
Interest income decreased to $1.1 million in the year ended March 31, 1996, from
$1.5 million for the corresponding period in 1995. The decrease reflects a lower
amount of interest income derived from lower cash balances during the 1996
period.
Income (loss) from continuing operations over the next several years is likely
to fluctuate substantially from quarter to quarter as a result of differences in
the timing of revenues earned under license and product development agreements,
and associated product development expenses.
As of March 31, 1996, the Company had net operating loss and general business
credit tax carryforwards of approximately $31.0 million and $2.1 million,
respectively. The Company's ability to utilize its net operating loss and
general business credit tax carryforwards may be subject to an annual limitation
in future periods pursuant to the "change in ownership rules" under Section 382
of the Internal Revenue Service Code of 1986, as amended.
Years Ended March 31, 1995 and 1994
The Company had revenues of $14.8 million for the year ended March 31, 1995,
compared to revenues of $23.4 million for the corresponding period in 1994. The
decrease in revenue is attributable to a one-time license fee of $11.4 million
received during fiscal 1994 associated with the Company's agreement with Organon
Teknika which was entered into during May 1993. Revenue from contract research
increased to $2.8 million in 1995 from $1.3 million in 1994 due to research
performed under IGEN's supplemental Assay Development contract with Boehringer
Mannheim and under a joint development contract with Organon Teknika.
Product sales from the Company's ORIGEN Detection System and related reagents
and cell culture products were $2.6 million and $1.4 million in the years ended
March 31, 1995 and 1994, respectively, reflecting higher direct sales of the
ORIGEN systems.
14
<PAGE>
Research and development expenses increased to $12.3 million in the year ended
March 31, 1995, from $10.9 million in the corresponding period in 1994. During
1995, the Company acquired all the technology and product rights of the HyperGen
Joint Venture partnership. The Company, which previously held a 50% interest in
these rights, acquired the remaining 50% share for $3 million. During 1994, the
Company incurred $5.7 million in costs for this joint venture. Excluding these
Joint Venture related costs, research and development expenses increased from
$5.2 million in 1994 to $9.3 million in 1995. This increase is a result of
higher staffing levels and higher facility costs. General, administrative and
marketing expenses were $8.7 million and $4.6 million in fiscal 1995 and 1994,
respectively. The higher level of costs resulted from increases in staffing
levels, principally in the area of marketing and sales. Additions to personnel
for IGEN's sales, marketing, applications and customer support operations began
during the first quarter of fiscal 1995 in conjunction with the national launch
of the Company's ORIGEN Detection System for the life science research market.
Interest income increased to $1.5 million in the year ended March 31, 1995, from
$559,000 for the corresponding period in 1994. The increase reflects the higher
level of interest income derived from higher cash balances during the 1995
period.
All losses associated with the Company's discontinued pharmaceutical development
operations were recorded during the fiscal year ended March 31, 1994.
Liquidity and Capital Resources
The Company has financed its operations through placements of Preferred and
Common Stock, aggregating approximately $60 million through March 31, 1996,
including $32 million in net proceeds received from the Company's Initial Public
Offering which was completed during February 1994. In addition, the Company has
received funds from collaborative research and licensing agreements, and sales
of its ORIGEN line of products. As of March 31, 1996, the Company had $20.2
million in cash and cash equivalents. Working capital, excluding current
deferred revenue which is classified as a current liability, was $21.2 million
at March 31, 1996. Including current deferred revenue, working capital was $13.7
million.
Net cash used for operating activities was $8.4 and $7.0 million during the
years ended March 31, 1996 and 1995, respectively. Net cash provided by
operating activities, excluding discontinued operations, was $12.9 million for
the year ended March 31, 1994. The change in cash provided by operations results
primarily from net losses incurred during the years ended March 31, 1996, and
1995, and from the timing of payments received by the Company from its corporate
collaborators for the year ended March 31, 1994. License and collaboration
agreements between the Company and its present strategic corporate collaborators
(Boehringer Mannheim, Organon Teknika, Eisai and Perkin-Elmer) provide for
payments to the Company of $80 million. The Company has received $78 million
under these agreements through March 31, 1996.
The Company used approximately $1.4 million, $2.0 million, and $1.0 million of
net cash for investing activities substantially related to the acquisition of
laboratory equipment, furniture and leasehold improvements during the years
ended March 31, 1996, 1995, and 1994, respectively. Additionally, during fiscal
years 1996 and 1995, the Company incurred capital lease obligations of
approximately $150,000 and $750,000, respectively, related to acquisition of
laboratory equipment, furniture and leasehold improvements. Through March 31
1996, the Company used approximately $1.2 million to repurchase shares of its
stock under a Stock Repurchase Plan which was established in fiscal 1995.
The Company expects to incur substantial additional research and development
expenses, manufacturing costs and marketing and distribution expenses in the
future. It is the Company's intention to selectively seek additional
collaborative or license agreements with suitable corporate collaborators,
although there can be no assurance the Company will be able to enter into such
agreements or that amounts received under such agreements will reduce
substantially the Company's funding requirements. Additional equity or debt
financing may be required, and there can be no assurance that these funds may be
available on favorable terms, if at all.
The Company's future capital requirements depend on many factors, including
continued scientific progress in its diagnostics programs, the magnitude of
these programs, the time and costs involved in obtaining regulatory approvals,
the costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, changes in its existing license and other
agreements, the ability of the Company to establish development arrangements,
the cost of manufacturing scale-up and effective commercialization activities
and arrangements.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements Page
Independent Auditors' Report 17
Statements of Operations for Each of the Three
Years in the Period Ended March 31, 1996 18
Balance Sheets at March 31, 1996 and 1995 19
Statements of Cash Flows for Each of the Three
Years in the Period Ended March 31, 1996 20
Statements of Cash Flows for Each of the Three
Years in the Period Ended March 31, 1996 21
Statements of Shareholders' Equity for Each of
the Three Years in the Period Ended
March 31, 1996 22
Notes to Financial Statements 24
16
<PAGE>
To the Stockholders and Board of Directors of IGEN, Inc.:
We have audited the accompanying balance sheets of IGEN, Inc. (the Company) as
of March 31, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended March 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all materials respects, the financial position of the Company as of March 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
- ----------------------------------
Washington, D.C.
May 3, 1996
17
<PAGE>
IGEN, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31,
- --------------------------------------------------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
REVENUES (Notes 1 and 3):
License/option fees $ 9,412,000 $ 9,412,000 $ 20,770,990
Contract revenue 1,854,462 2,846,864 1,250,100
Product sales and royalties 4,658,010 2,575,067 1,356,067
----------- ----------- ------------
Total 15,924,472 14,833,931 23,377,157
----------- ----------- ------------
OPERATING COSTS AND EXPENSES:
Product costs 1,848,363 1,277,854 658,254
Research and development
(Note 3) 14,077,514 12,266,992 10,910,728
Marketing, general, and
administrative 8,725,146 8,707,293 4,608,145
----------- ----------- ------------
Total 24,651,023 22,252,139 16,177,127
----------- ----------- ------------
INCOME (LOSS) FROM
OPERATIONS (8,726,551) (7,418,208) 7,200,030
INTEREST INCOME -- NET 1,078,777 1,489,694 558,873
----------- ----------- ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (7,647,774) (5,928,514) 7,758,903
INCOME TAXES (Notes 1 and 5) -- -- (163,000)
----------- ----------- ------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS (7,647,774) (5,928,514) 7,595,903
----------- ----------- ------------
DISCONTINUED OPERATIONS
(Note 2):
Loss from operations of
discontinued operation -- -- (1,010,353)
Loss on disposal of a
discontinued operation -- -- (9,562,716)
----------- ----------- ------------
Total -- -- (10,573,069)
----------- ----------- ------------
NET (LOSS) $(7,647,774) $(5,928,514) $ (2,977,166)
=========== =========== ============
INCOME (LOSS) PER SHARE
(Note 1):
Continuing operations $ (.52) $ (.40) $ .57
Discontinued operations -- -- (.79)
----------- ----------- ------------
Net income (loss) per
common share $ (.52) $ (.40) $ (.22)
=========== =========== ============
SHARES USED IN COMPUTING
NET INCOME (LOSS) PER SHARE
(Note 1) 14,778,848 14,768,598 13,413,343
=========== =========== ============
</TABLE>
See notes to financial statements.
18
<PAGE>
IGEN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
- --------------------------------------------------------------------------------
1996 1995
------ ------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 4,001,147 $ 30,226,249
Short-term investments (Note 1) 16,215,889 --
Accounts receivable 1,891,693 1,289,129
Inventory (Note 1) 1,648,418 1,064,246
Prepaid expenses (Note 1) 1,035,303 --
Other current assets (Notes 1, 5 and 7) 420,384 1,294,595
------------ ------------
Total current assets 25,212,834 33,874,219
------------ ------------
EQUIPMENT, FURNITURE, AND IMPROVEMENTS (Notes 1
and 8) 6,172,014 4,753,695
Accumulated depreciation and amortization (2,590,281) (1,594,792)
------------ ------------
Equipment, furniture, and improvements, net 3,581,733 3,158,903
------------ ------------
PURCHASED PRODUCT TECHNOLOGY -- NET (Note 1) 213,657 243,921
------------ ------------
OTHER ASSETS (Note 1) 268,273 529,384
------------ ------------
TOTAL $ 29,276,497 $ 37,806,427
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,792,935 $ 4,017,759
Deferred revenue (Notes 1 and 3) 7,532,181 8,037,396
Obligations under Capital leases (Note 8) 187,263 335,146
------------ ------------
Total current liabilities 11,512,379 12,390,301
------------ ------------
OBLIGATIONS UNDER CAPITAL LEASES -- NONCURRENT
(Note 8) 329,062 418,496
------------ ------------
STOCKHOLDERS' EQUITY (Notes 1 and 4):
Common stock; $.001 par value; 50,000,000
shares authorized; shares issued
and outstanding: March 31, 1996 --
14,908,530; March 31, 1995 -- 14,781,690 14,909 14,782
Additional paid-in capital 64,675,784 64,776,867
Accumulated deficit (46,818,494) (39,170,720)
Deferred compensation (90,715) (199,555)
Notes receivable from sale of common stock (346,428) (423,744)
------------ ------------
Total stockholders' equity 17,435,056 24,997,630
------------ ------------
TOTAL $ 29,276,497 $ 37,806,427
============ ============
</TABLE>
See notes to financial statements.
19
<PAGE>
IGEN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
- --------------------------------------------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
CONTINUING OPERATING ACTIVITIES:
Net (loss) income from
continuing operations $ (7,647,774) $(5,928,514) $ 7,595,903
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Interest on note receivable
from sale of common stock (28,700) (29,900) (33,630)
Amortization of deferred
compensation 108,840 108,840 108,840
Depreciation and amortization 1,025,753 535,265 390,682
Loss on disposal of equipment,
furniture, and improvements -- 240,071 --
Deferred revenue (505,215) (1,664,272) 4,296,740
Add (deduct) items not affecting
cash:
Accounts receivable (602,564) (861,635) (296,236)
Inventory (584,172) (759,087) 236,045
Prepaid expenses and other (161,092) (521,282) (339,290)
Other assets 261,111 105,092 349,900
Accounts payable and accrued
expenses (224,824) 1,789,616 544,894
------------ ------------ ------------
Net cash (used in) provided
by continuing operating
activities (8,358,637) (6,985,806) 12,853,848
------------ ------------ ------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations -- -- (10,573,069)
Items not requiring cash:
Depreciation and amortization -- -- 35,704
Write-off of discontinued
assets -- -- 132,582
Provision for loss on disposal
of discontinued operations -- -- 3,394,927
Net liabilities of
discontinued operations -- (1,967,977) --
Purchase of product technology -- -- (10,000)
------------ ------------ ------------
Total funds used in
discontinued operations -- (1,967,977) (7,019,856)
------------ ------------ ------------
Net cash (used in) provided
by operating activities (8,358,637) (8,953,783) 5,833,992
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for equipment,
furniture, and improvements (1,418,319) (1,946,214) (988,238)
Purchase of product technology -- -- (20,609)
Sale of short-term investments 8,496,327 5,952,628 --
Purchases of short-term
investments (24,712,216) -- (4,069,738)
------------ ------------ ------------
Net cash (used in) provided
by investing activities (17,634,208) 4,006,414 (5,078,585)
------------ ------------ ------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31,
- --------------------------------------------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from initial public
offering, net -- -- 31,105,972
Repayment of notes receivable
from sale of common stock, net 106,016 8,047 129,296
Issuances of common stock 309,594 152,392 2,720,170
Repurchases of common stock (410,550) (779,938) --
Principal payments under capital
lease obligations (237,317) -- --
------------ ------------ ------------
Net cash (used in) provided
by financing activities (232,257) (619,499) 33,955,438
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (26,225,102) (5,566,868) 34,710,845
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 30,226,249 35,793,117 1,082,272
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
YEAR $ 4,001,147 $ 30,226,249 $ 35,793,117
============ ============ ============
Supplemental Disclosures of Cash
Flow Information:
Interest paid $ 64,368 $ 1,358 $ 2,368
Taxes paid $ -- $ -- $ 45,000
</TABLE>
Supplemental Disclosures of Noncash Investing and Financing Activities:
During the years ended March 31, 1996 and 1995, the Company incurred capital
lease obligations of approximately $150,000 and $750,000 for equipment,
furniture and improvements.
During the years ended March 31, 1996, 1995 and 1994, the Company received notes
totaling $1,845, $912 and $24,358, respectively, from the exercise of stock
options.
The Company converted existing notes receivable from two noncontrolled
affiliates of approximately $2.8 million during the year ended March 31, 1994,
as partial consideration for its commitment under the discontinued operations
(see Note 2).
During the year ended March 31, 1994, the Company's preferred stock was
converted into common stock (see Note 4).
See notes to financial statements.
21
<PAGE>
IGEN, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, APRIL 1, 1993 1,595,680 $ 27,250,645 5,575,795 $ 5,576
Issuance of 507,168 shares of common stock -- -- 507,168 507
Issuance of 2,990,000 shares of common stock
in an initial public offering -- -- 2,990,000 2,990
Redemption value of Series D and E redeemable
convertible preferred stock in excess
of carrying value -- 1,092,362 -- --
Issuance of 5,585,757 shares of common stock for
conversion of preferred stock (1,595,680) (28,343,007) 5,585,757 5,586
Changes in notes receivable -- -- -- --
Amortization of deferred compensation -- -- -- --
Net loss for the year ended March 31, 1994 -- -- -- --
------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1994 -- -- 14,658,720 14,659
Issuance of 271,070 shares of common stock -- -- 271,070 271
Repurchase of 148,100 shares of common stock -- -- (148,100) (148)
Amortization of deferred compensation -- -- -- --
Changes in notes receivable -- -- -- --
Net loss for the year ended March 31, 1995 -- -- -- --
------------ ------------ ------------ ------------
BALANCE MARCH 31, 1995 -- -- 14,781,690 14,782
Issuance of 207,349 shares of common stock -- -- 207,349 207
Repurchase of 80,509 shares of common stock -- -- (80,509) (80)
Amortization of deferred compensation -- -- -- --
Changes in notes receivable -- -- -- --
Net loss for the year ended March 31, 1996 -- -- -- --
------------ ------------ ------------ ------------
BALANCE MARCH 31, 1996 -- -- 14,908,530 $ 14,909
============ ============ ============ ============
</TABLE>
See notes to financial statements.
22
<PAGE>
PAGE>
<TABLE>
<CAPTION>
Notes
Receivable
Additional from sale
Paid-In Accumulated Deferred of Common
Capital Deficit Compensation Stock Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, APRIL 1, 1993 $ 3,220,112 $(29,172,678) $ (417,235) $ (473,199) $ 413,221
Issuance of 507,168 shares of common stock 2,744,021 -- -- (24,358) 2,720,170
Issuance of 2,990,000 shares of common stock
in an initial public offering 31,102,982 -- -- -- 31,105,972
Redemption value of Series D and E redeemable
convertible preferred stock in excess
of carrying value -- (1,092,362) -- -- --
Issuance of 5,585,757 shares of common stock for
conversion of preferred stock 28,337,421 -- -- -- --
Changes in notes receivable -- -- -- 95,666 95,666
Amortization of deferred compensation -- -- 108,840 -- 108,840
Net loss for the year ended March 31, 1994 -- (2,977,166) -- -- (2,977,166)
------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1994 65,404,536 (33,242,206) (308,395) (401,891) 31,466,703
Issuance of 271,070 shares of common stock 152,121 -- -- -- 152,392
Repurchase of 148,100 shares of common stock (779,790) -- -- -- (779,938)
Amortization of deferred compensation -- -- 108,840 -- 108,840
Changes in notes receivable -- -- -- (21,853) (21,853)
Net loss for the year ended March 31, 1995 -- (5,928,514) -- -- (5,928,514)
------------ ------------ ------------ ------------ ------------
BALANCE MARCH 31, 1995 64,776,867 (39,170,720) (199,555) (423,744) 24,997,630
Issuance of 207,349 shares of common stock 309,387 -- -- -- 309,594
Repurchase of 80,509 shares of common stock (410,470) -- -- -- (410,550)
Amortization of deferred compensation -- -- 108,840 -- 108,840
Changes in notes receivable -- -- -- 77,316 77,316
Net loss for the year ended March 31, 1996 -- (7,647,774) -- -- (7,647,774)
------------ ------------ ------------ ------------ ------------
BALANCE MARCH 31, 1996 $ 64,675,784 $(46,818,494) $ (90,715) $ (346,428) $ 17,435,056
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
23
<PAGE>
IGEN, Inc.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. Certain amounts from the prior
years have been reclassified to conform to the current presentation.
Organization and Business Activity -- IGEN, Inc. (the Company) develops,
manufactures, and markets diagnostic systems utilizing its patented ORIGEN
technology, which is based on electrochemiluminescence. During the fiscal year
ended March 31, 1994, the Company reorganized its operations to focus on the
worldwide commercialization of clinical diagnostic and life science research
products and discontinued its pharmaceutical development operations (see Note
2).
Cash Equivalents and Short-Term Investments -- Cash equivalents include cash in
banks, money market funds, securities of the U.S. Treasury, and certificates of
deposit with original maturities of three months or less.
The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," in 1996. In accordance with this statement, the company
has classified its short term investments which consist of U.S. Government
Obligations and Corporate Debt Securities as "available for sale" which are
recorded at fair value, based on quoted market prices, which approximates cost.
Concentration of Credit Risk -- The Company has invested its excess cash
generally in securities of the U.S. Treasury, money market funds, certificates
of deposit and corporate bonds. The Company invests its excess cash in
accordance with a policy objective that seeks to ensure both liquidity and
safety of principal. The policy limits investments to certain types of
instruments issued by institutions with strong investment grade credit ratings
and places restrictions on their terms and concentrations by type and issuer.
The Company has not experienced any losses on its investments, due to credit
risk.
Inventory is recorded at the lower of cost or market using the first-in, first-
out method and consists of the following:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------
<S> <C> <C>
Finished Goods $1,270,410 $ 762,573
Work in process 243,888 64,276
Raw materials 134,120 237,397
---------- ----------
Total $1,648,418 $1,064,246
========== ==========
</TABLE>
Equipment, Furniture, and Improvements are carried at cost. Depreciation is
computed over the estimated useful lives of the assets, generally five years,
using accelerated methods. Such property consists of the following:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------
<S> <C> <C>
Laboratory equipment $2,974,624 $2,323,409
Furniture and office
equipment 1,798,280 1,298,702
Leasehold improvements 1,399,110 1,131,584
---------- ----------
Total $6,172,014 $4,753,695
========== ==========
</TABLE>
Prepaid Expenses -- Prepaid expenses consist primarily of fees incurred in
connection with the Company entering into certain license agreements (see Note
3). Amounts are deferred and recognized over the term of such agreements as the
Company records related revenue. At March 31, 1996 and 1995, the Company had
recorded current and noncurrent "prepaid fees" of approximately $300,000 and
$600,000, respectively.
Purchased Product Technology -- The Company amortizes the cost of purchased
patent rights on a straight-line basis over the estimated economic lives of such
assets, ranging from five to twenty-one years. The Company has acquired certain
product and patent rights from a noncontrolled affiliated company that are being
amortized over the remaining lives of the underlying patents.
Accumulated amortization on purchased product technology rights was $157,051,
$126,787 and $95,923 at March 31, 1996, 1995 and 1994, respectively.
Revenue Recognition -- Nonrefundable license fees, option fees, and milestone
payments in connection with research and development contracts or
commercialization agreements with corporate partners are recognized when they
are earned in accordance with the applicable performance requirements and
contractual terms. Amounts received in advance of performance under contracts or
commercialization agreements are recorded as deferred revenue until earned.
Product sales revenue is recorded as products are shipped.
The Company derives a significant portion of its revenue from product
development and license agreements with certain companies (see Note 3).
Deferred Income Taxes -- Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
Income (Loss) Per Share has been computed based on the weighted average number
of common shares and common equivalent shares outstanding during each period
including common equivalent shares calculated for the stock options and warrants
under the treasury stock method for all periods presented, except for periods
which have losses from both continuing operations and a net loss.
24
<PAGE>
Pursuant to accounting practices prescribed by the Securities and Exchange
Commission, common stock and common stock options issued within the twelve-month
period prior to the Company's initial public offering at a price below the
public offering price have been included in the calculation of earnings per
share as if they were outstanding for all periods presented. Furthermore, common
equivalent shares from convertible preferred stock that converted into common
shares upon the closing of the Company's initial public offering in February
1994 are included in the calculation as if they were converted to common shares
as of the original dates of issuance.
NEW ACCOUNTING STANDARDS
Accounting for Long-Lived Assets -- In 1995, the Financial Accounting Standards
Board (FASB) issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which will be effective for
the Company's 1997 fiscal year. The Company does not believe the new standard
will have a material impact on its financial position, results of operations,
and cash flows.
Accounting for Stock Compensation -- In 1995, the FASB issued SFAS 123
"Accounting for Stock-Based Compensation" which also will be effective for the
Company's 1997 fiscal year. SFAS 123 allows for companies to adopt a new fair-
value basis of accounting for stock options and other equity instruments, or the
disclosure -- only alternative for stock based compensation. The Company has not
yet determined whether it will elect the expense recognition or disclosure-only
alternative permitted under SFAS 123 and therefore has not yet determined the
impact of such adoption on its financial position, results of operations, and
cash flows.
2. DISCONTINUED OPERATIONS
Through March 31, 1993, the Company was developing products using its patented
technologies, primarily the ORIGEN technology, for diagnostic testing and
proprietary compounds for pharmaceuticals. Products under development addressed
two distinct market operations: in vitro clinical diagnostic and life science
research products and pharmaceutical products. During the fiscal year ended
March 31, 1994, the Company enacted a reorganization to focus exclusively on
opportunities with in vitro clinical diagnostic and life science research
products. The plan included the disposition of the Company's pharmaceutical
development operations. Provision for losses on the disposal of the discontinued
pharmaceutical operations were recorded during fiscal year 1994.
In December 1993, the Company entered into agreements with two noncontrolled
affiliated companies (Proteinix Corporation and Pro-Neuron, Inc.) whereby
Proteinix and Pro-Neuron would assume contractual and financial responsibility
for commitments, agreements, and contract research programs of the
pharmaceutical business. In conjunction with these agreements, IGEN agreed to
pay Proteinix $3,200,000 and Pro-Neuron $5,000,000 for their assumption of
IGEN's existing contracts and commitments. As partial consideration, the company
converted existing notes receivable from Proteinix and Pro-Neuron of
approximately $2.8 million. The consideration paid to dispose of the
pharmaceutical development operations has been recorded as costs related to the
discontinued operation. IGEN has no further commitment to fund the
pharmaceutical development operations assumed by Proteinix or Pro-Neuron.
As part of the disposition, the Company transferred all of its pharmaceutical
technologies and development programs to Proteinix and Pro-Neuron. The Company
is entitled to receive a royalty based on future product sales. The Company also
licensed certain technologies from Proteinix and Pro-Neuron for use in its
diagnostic business, and will pay a royalty based on future product sales.
The Company was also provided the right to receive stock of Proteinix and Pro-
Neuron under certain circumstances. If the Company were to receive stock in
Proteinix or Pro-Neuron, its ownership interest in either company would not
exceed 9%.
Loss from discontinued operations, net of income tax effects, for the year end
March 31, 1994, is as follows:
<TABLE>
<S> <C>
Loss from operations $ (1,029,153)
Income tax benefit 18,800
------------
Net loss from operations (1,010,353)
------------
Loss on disposal (9,706,916)
Income tax benefit 144,200
------------
Net loss on disposal (9,562,716)
------------
Loss from discontinued operations $(10,573,069)
============
</TABLE>
25
<PAGE>
3. LICENSE AND RESEARCH AGREEMENTS
In 1991, the Company entered into an agreement with Boehringer Mannheim GmbH, a
European company, under which that company was granted rights to develop and
market certain clinical diagnostic systems worldwide based on the Company's
ORIGEN technology. Under the terms of the agreement, the Company received five
$10 million license payments annually through January 1996, additional payments
for certain product development work, and is entitled to receive royalties on
product sales. The annual license payments are being recognized as revenue on a
ratable basis through 1996.
During 1993 the Company entered into a $20 million license and stock purchase
agreement with Organon Teknika, B.V., a European company. Under this agreement,
the Company sold 346,135 shares of common stock, granted a license to develop
and market certain diagnostic systems worldwide utilizing the Company's ORIGEN
technology and agreed to invest $5 million in research and development under a
joint development program. The Company has recorded $11,358,990 as license
revenue and recorded proceeds of $2,641,010 relating to the sale of the common
stock for the year ended March 31, 1994. During the years ended March 31, 1996,
1995 and 1994, contract revenue of $1,111,200, $2,224,663 and $1,250,100 has
been recognized. Deferred revenue at March 31, 1996 and 1995, is $413,737 and
$1,524,937, respectively. Among other things, the agreement provides for royalty
payments to the Company on product sales and for product supply arrangements
between the parties. Sales to Organon Teknika under this agreement amounted to
approximately $1.1 million, $780,000 and $347,000 during the years ended March
31, 1996, 1995 and 1994.
During 1990, the Company granted a license to Eisai Co., Ltd., a Japanese
company, to market in Japan a certain clinical diagnostic system based on the
Company's ORIGEN technology. The agreement provides for additional future
license fees tied to the achievement of product development milestones. This
agreement also provides for royalty payments to the Company on product sales,
and product supply arrangements between the parties.
During 1993, the Company established HyperGen, a Joint Venture partnership, with
a noncontrolled affiliated company to develop and commercialize biomedical
products utilizing advanced materials. Concurrent with the joint venture
formation, the Company also entered into a Product Development and Marketing
Agreement with HyperGen and the affiliated company. The Company contributed cash
of $3 million for its 50% interest in HyperGen and made an additional payment of
$2 million based on the attainment of certain milestones. In connection with
this arrangement, the Company also paid $750,000 to acquire a fully paid,
exclusive license to use these advanced materials in its diagnostic business.
During 1995, the Company acquired the remaining 50% interest of HyperGen for $3
million. IGEN assumed operating control of HyperGen and consolidated HyperGen's
research and development programs into the Company's internal programs.
During November, 1995 the Company formed a Joint Venture for the development and
commercialization of advanced diagnostic products utilizing a proprietary
combination of multi-array technology together with the Company's ORIGEN(R)
technology. Products based on these technologies would be used for high
throughput, multiparameter analysis for DNA sequencing, clinical chemistry and
immunodiagnostics. The joint venture is named Meso Scale Diagnostics, LLC
("MSD"), and was formed together with Meso Scale Technologies, LLC ("MST"),
which is a noncontrolled affiliated Company. The Company has agreed to provide
initial capital contributions to MSD of $5 million over time, plus certain start
up costs, in exchange for a 50% interest and to fund the organizational and
certain ongoing (non-research) operating expenses of MSD. The Company will also
participate in a collaborative research program. During the year ended March 31,
1996 the Company made contributions of approximately $400,000.
IGEN has accounted for its investments in HyperGen and MSD as research and
development funding arrangements and, accordingly, has recorded its payments as
research and development expense.
4. STOCKHOLDERS' EQUITY
Common Stock -- In February 1994, the Company completed an initial public
offering of 2,990,000 shares of common stock (including 390,000 shares from
exercise of the underwriters over-allotment option) at $11.50 per share. The
Company received net proceeds of approximately $32 million before payment of
offering expenses.
Shareholder Rights Plan -- In December 1995, the Board of Directors adopted a
shareholder rights plan and declared a dividend of one preferred share purchase
right for each outstanding share of common stock par value $.001 per share, of
the Company. The dividend was paid on January 19, 1996 to the shareholders of
record on that date. Each Right entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $.001 per share, of the Company at a price of $65.00
per one one-hundredth of a Preferred Share, subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement, between
the Company and The First National Bank of Boston.
Convertible Preferred Stock -- Upon the closing of the Company's initial public
offering of its common stock, each share of Series A, Series B and Series C
convertible preferred stock and Series D redeemable convertible preferred stock
mandatorily converted into 3.5 shares of common stock. Each share of Series E
redeemable convertible preferred stock mandatorily converted into 3.5091 shares
of common stock. Accordingly, the Series D and E redeemable convertible
preferred stock has been retroactively reflected as equity in the accompanying
financial statements from the date of issuance. Prior to its conversion into
common stock, the net carrying value of the Company's redeemable preferred stock
(Series D and E) was adjusted to the redemption value by charging "accumulated
deficit".
Stock Option Plan -- During fiscal 1995, the Company adopted the 1994 Stock
Option Plan under which 1,000,000 shares of Common Stock have been reserved for
issuance upon exercise of options granted to employees or consultants and the
1994 Non-Employee Directors Stock Option Plan under which 150,000 shares of
Common Stock have been reserved for issuance upon exercise of options granted to
Non-Employee Directors. The 1994 Stock Option Plan replaced the 1985 Stock
Option Plan which expired in February 1995.
The Option Plans provide for the granting of both incentive stock options
intended to qualify as such under Section 422 of the Internal Revenue Code of
1986, as amended, and supplemental stock options that do not so qualify.
A summary of the option activity is as follows:
<TABLE>
<CAPTION>
Exercise Price
Number of Range
Shares ($/share)
- --------------------------------------------------------------------
<S> <C> <C>
Outstanding on April 1, 1993 1,909,904 $0.29 - $4.57
Exercised (161,047) $0.29 - $4.57
Forfeited (68,268) $0.29 - $4.57
---------
Outstanding on March 31, 1994 1,680,589 $0.29 - $4.57
Granted 356,500 $5.50 - $9.63
Exercised (271,070) $0.29 - $4.57
Forfeited (11,845) $0.29 - $4.57
---------
Outstanding on March 31, 1995 1,754,174 $0.29 - $9.63
Granted 67,800 $4.87 - $6.25
Exercised (207,349) $0.29 - $5.50
Forfeited (122,279) $0.57 - $5.50
---------
Outstanding on March 31, 1996 1,492,346 $0.29 - $9.63
=========
</TABLE>
26
<PAGE>
For financial statement presentation purposes, the Company recorded deferred
compensation expense for the difference between the grant price and the deemed
fair value of the Company's common shares for options granted in February 1992.
The deferred compensation is amortized ratably over the vesting period of the
options, which is five years. Amortization for each of the three years ended
March 31, 1996, 1995, and 1994, totaled $108,840, respectively.
Notes Receivable From Stockholders -- Notes receivable arising from the sale of
common stock (net of subsequent repayments) are presented in the accompanying
financial statements as a reduction of stockholders' equity. The notes have
terms of four years and bear interest with a range of 6-8%.
Stock Split -- The Company's Board of Directors authorized a 3.5-to-one stock
split on common shares that became effective April 2, 1993, upon shareholders'
approval. All references to the number of common shares and per share data, as
well as stock option data, have been adjusted to reflect the stock split
retroactively. Simultaneous with the stock split, the conversion ratio of
convertible preferred stock to common stock was increased to three and one half
shares to one (from one to one).
Additionally, effective April 2, 1993, the number of authorized shares of common
and preferred stock increased to 50,000,000 and 10,000,000 shares, respectively,
and a par value was established at $.001 for both common and preferred stock.
The carrying value of common stock and additional paid-in capital has been
reclassified to reflect the establishment of a par value.
Stock Repurchase Plan -- The Company's Board of Directors has authorized the
repurchase of up to $2,000,000 of its common stock. Through March 31, 1996, the
Company had repurchased 228,609 shares at a cost of approximately $1.2 million.
All shares repurchased under this Plan have been retired.
5. INCOME TAXES
For the years ended March 31, 1996 and 1995, the Company recorded no income tax
expense. For the year ended March 31, 1994, the Company recorded income tax
expense of $163,000 for continuing operations, and an income tax benefit of
$163,000 from discontinued operations.
For the years ended March 31, 1996 and 1995, the Company did not pay federal
tax, as calculated by applying statutory rates to pretax income. For the year
ended March 31, 1994, the Companys federal tax of $2,638,000 was offset by the
utilization of net operating loss carry forwards and discontinued operations.
As of March 31, 1996, the Company has available for income tax reporting
purposes net operating loss and general business credit carryforwards
approximating $31,000,000 and $2,100,000, respectively. These carryforwards
expire in varying amounts through March 31, 2011. Under the provisions of the
Tax Reform Act of 1986, the use of the Company's net operating loss carryforward
may be significantly reduced, if substantial changes in stock ownership take
place. The potential tax benefits of the unused carryforwards have not been
recorded for financial statement purposes because of the uncertainty of
realizing those benefits in the future.
The approximate tax effects of temporary differences that gave rise to the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
- -------------------------------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Deferred revenue $ 2,836,000 $ 2,700,000
Net operating loss and tax
credit carryforwards 12,427,000 9,773,000
Less valuation allowance (15,218,000) (12,428,000)
------------ ------------
Net deferred tax assets $ 45,000 $ 45,000
============ ============
</TABLE>
6. EMPLOYEE SAVINGS PLAN
The Company has an Employee Savings Plan (the Plan) qualifying under Section
401(k) of the Internal Revenue Code and subject to the Employee Retirement
Income Security Act of 1974, as amended. Qualified individuals are eligible to
participate in the Plan, and the Company may, but is not required to, make
matching contributions. Through March 31, 1996 the Company has not made a
contribution to this Plan.
The Company is not obligated under any other postretirement benefit plan.
27
<PAGE>
7. RELATED PARTIES
Certain shareholders of the Company are also shareholders of several other
companies. These companies are considered affiliates of IGEN for the purpose of
this disclosure. As discussed in Notes 2 and 3, the Company has entered into
transactions with companies that were affiliated through common shareholders. At
March 31, 1996 and 1995, $281,860 and $375,708 were due from affiliated
companies for services rendered and certain shared costs. Also during 1996 the
Company incurred $487,494 in expenses under a research contract with an
affiliate and prepaid $500,000 for a research and supply agreement with another
affiliate.
The Company has licensed certain diagnostic technologies from affiliated
companies and has licensed certain pharmaceutical technologies to affiliated
companies. No royalties have ever been earned or accrued under these license
agreements.
8. COMMITMENTS
Capital Leases -- The Company is obligated under capital lease agreements, for
certain equipment, furniture and building improvements. The aggregate discounted
lease payments are recorded as a liability, and the fair market value of the
related leased assets are capitalized and amortized over the assets estimated
useful lives. Total assets capitalized pursuant to such agreements were
approximately $900,000 at March 31, 1996.
The future minimum payments under these lease agreements at March 31, 1996 are
as follows:
<TABLE>
<S> <C>
1997 $ 213,625
1998 165,650
1999 115,720
2000 120,045
---------
Total minimum payments 615,040
Amount representing interest (98,715)
---------
Obligations under capital leases 516,325
Current portion (187,263)
---------
Obligations under capital leases-noncurrent $ 329,062
=========
</TABLE>
Operating Leases -- During 1995, the Company entered into a lease for an office,
laboratory and manufacturing facility with a term of ten years, and an option to
terminate the lease after five years. The Company has certain other building and
equipment operating leases, which have terms expiring through 1997. Rent expense
for facility and equipment operating leases totaled $1,556,329, $1,318,407, and
$534,747, for the years ended March 31, 1996, 1995, and 1994, respectively.
Research Agreements -- The Company has entered into agreements with entities to
fund research and development programs.
At March 31, 1996, the future minimum lease and research payments under these
agreements are as follows:
<TABLE>
<CAPTION>
Operating Leases Research Agreements
- --------------------------------------------------------
<S> <C> <C>
1997 $ 1,371,029 $1,700,000
1998 1,413,778 1,200 000
1999 1,455,591 1,150,000
2000 1,478,659 1,000,000
2001 1,523,019 600,000
Thereafter 6,272,858 --
----------- ----------
Total $13,514,934 $5,650,000
=========== ==========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is information regarding directors, executive officers and key
employees of the Company as of June 30, 1996:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Samuel J. Wohlstadter 54 Chairman, Chief Executive Officer and Director
Richard J. Massey, Ph.D. 49 President, Chief Operating Officer and
Director
Robert Connelly 36 Vice President, Marketing and Sales
Gary Henricksen 45 Vice President, Separations Business Unit
George V. Migausky 41 Vice President, Chief Financial Officer
Richard Pytelewski 46 Vice President, Operations
Herman H. Spolders, Ph.D. 50 Vice President, Business Development and
Planning
Richard O. Williams, Ph.D. 51 Vice President, Scientific Affairs
Edward B. Lurier(1)(2) 65 Director
William J. O'Neill(1)(2) 54 Director
Hubert Rehkaemper(2) 58 Director
Robert R. Salsmans 51 Director
</TABLE>
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Samuel J. Wohlstadter is a founder of the Company and has been Chairman of the
Board and Chief Executive Officer since its formation in 1982. Mr. Wohlstadter
has been a venture capitalist for more than 20 years and has experience in
founding, supporting and managing high technology companies, including Amgen
Inc., a biopharmaceutical company, and Applied Biosystems, Inc., a medical and
biological research products company. Mr. Wohlstadter is also Chief Executive
Officer of Hyperion Catalysis International, an advanced materials company,
which he founded in 1981, of Pro-Neuron, Inc., a drug discovery company, which
he founded in 1985, of Proteinix Corporation, a development stage company
organized to conduct research in intracellular metabolic processes, which he
founded in 1988 and of Pro-Virus, Inc., a drug discovery company, which
commenced operations in 1994.
Richard J. Massey, Ph.D. is a founder of the Company, has been President and
Chief Operating Officer of the Company since February 1992, a Director of the
Company since 1990 and served as Senior Vice President since 1985. From 1981
until he joined IGEN in 1983, Dr. Massey was a faculty member in the
Microbiology and Immunology Department at Rush Medical Center in Chicago. Prior
to that, he was Senior Research Scientist at the National Cancer Institute,
Frederick Cancer Research Center.
Robert Connelly has been Vice President of Marketing and Sales since February
1994, when he joined the Company. Previously, Mr. Connelly was the U.S.
Marketing Manager for the Instrument Group at Abbott Laboratories where he was
responsible for the marketing of chemistry and hematology systems and point-of-
care and near-patient testing instruments.
Gary Henricksen joined the Company in January 1996 as Vice President of the
Separations Business Unit. From 1994 until he joined the Company, Mr. Henricksen
was Director of the Laboratory Product Business Unit in the Separations Division
of Sartorius Corporation where he was responsible for North American sales and
marketing of laboratory separations products and commercialization of membrane
absorbers in bioprocessing. Prior to 1994, he was the Director of Marketing and
Technical Service for the same company.
George V. Migausky has been associated with IGEN as Chief Financial Officer
since 1985, assuming that position on a full-time basis in 1992. Between 1985
and 1992, in addition to serving as Chief Financial Officer of IGEN on a part-
time basis, Mr. Migausky also served as financial advisor to several other
privately held companies. Prior to joining IGEN in 1985, he spent nine years in
financial management and public accounting positions, most recently as a Manager
with the High Technology Group of Deloitte Haskins & Sells.
29
<PAGE>
Richard Pytelewski has been Vice President of Operations since he joined the
Company in December 1994. Previously, Mr. Pytelewski provided operations
consulting support to biotechnology, pharmaceutical and diagnostic ventures and
he was also previously Vice President of Operations at Biomira, Inc. in
Edmonton, Canada, supporting the worldwide distribution of in-vitro and in-vivo
diagnostic and therapeutic products.
Herman H. Spolders, Ph.D. has been Vice President of Business Development and
Planning since 1995 and served previously as Vice President of International
Operations since he joined the Company in March 1993. From 1991 to 1993, he was
a member of the Organon Teknika executive board and from 1989 to 1993, he was
the Vice President of the worldwide research and development organization at
Organon Teknika.
Richard O. Williams, Ph.D. has been Vice President of Scientific Affairs since
December 1995 and served previously as Vice President of Research Products since
August 1993 and Vice President of Therapeutic Research since he joined IGEN in
September 1990. Between 1984 and September 1990, he was a professor at the
University of Karlsruhe and was affiliated with the German Nuclear Research
Center in Karlsruhe, Germany. He also served on the Scientific Advisory Board of
Amgen Inc. from its inception in 1980 through 1987.
Edward B. Lurier is a General Partner of Gryphon Ventures, a venture capital
fund, and Chairman of Gryphon Management Co., Inc., a venture capital firm,
positions he has held since January 1986. Mr. Lurier has been a Director of the
Company since 1987. Mr. Lurier is also a Director of Energy Biosystems Corp., a
fossil fuel, biotechnology research and development company, and several
privately held companies.
William J. O'Neill has been a Director of the Company since 1984. He serves as
Executive Vice President and Chief Financial Officer of Polaroid Corporation, a
photographic equipment company, where he has been employed for more than 25
years.
Hubert Rehkaemper serves as President and Chief Executive Officer of Boehringer
Mannheim Corporation, a diagnostics company, affiliated with Corange Ltd., a
holding company with high technology operating units in the medical industry,
where he has been employed for more than 27 years.
Robert R. Salsmans has served as President and Chief Executive Officer of
Organon Teknika, a business unit that is part of the Pharma group of Akzo Nobel
N.V., a holding company with high technology operating units in the
biotechnology, medical, and pharmaceutical industries, in the Netherlands, since
September 1994. From October 1993 through August 1994, Mr. Salsmans served as
Managing Director of Organon Teknika and from 1990 through September 1993 he
served as Managing Director of Organon International B.V.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
In accordance with Company policy, all members of the Board of Directors are
eligible for reimbursement for their expenses incurred in connection with
attendance at Board meetings.
Effective April 25, 1994, each non-employee director of the Company receives a
per meeting attendance fee of $1,000. In the fiscal year ended March 31, 1996,
the total compensation paid to non-employee directors (all directors except Mr.
Wohlstadter and Dr. Massey) was $5,000.
On April 25, 1994, each non-employee director of the Company was granted an
option to purchase 10,000 shares of the Company's Common Stock under the 1994
Non-Employee Directors' Stock Option Plan at a purchase price of $8.75 per
share, except for Mssrs. Salsmans and Rehkaemper, who were each granted an
option to purchase 10,000 shares of the Company's Common Stock on August 24,
1996 at a purchase price of $6.25 per share (in each instance, the closing sales
price reported on the Nasdaq National Market System on the day prior to the date
of grant). The options vest over a period of five years with one-fifth of the
option becoming exercisable one year from the date of grant and an additional
one-twentieth becoming exercisable every three months thereafter. Such vesting
is conditioned upon continued service as a director of the Company.
30
<PAGE>
Compensation of Executive Officers
The following table shows for the fiscal years ending March 31, 1996, 1995 and
1994, compensation awarded or paid to, or earned by the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at March 31, 1996 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation
Compensation Awards
------------------------ ----------------
Other Annual
Name and Principal Salary Bonus Options Compensation
Position Year ($) ($) (# shares) ($)
- -------------------------------------- ---- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Samuel J. Wohlstadter 1996 $237,000 $50,000 -- --
Chairman and Chief Executive Officer 1995 $227,000 $40,000 62,500 $5,400(1)
1994 $216,000 $32,000 -- $6,938(1)
Richard J. Massey, Ph.D 1996 $200,000 $40,000 -- $8,750(1)
President and Chief Operating Officer 1995 $191,000 $35,000 50,000 $8,750(1)
1994 $182,000 $27,000 -- $8,750(1)
George V. Migausky 1996 $150,000 $30,000 -- --
Vice President and Chief Financial 1995 $142,000 $25,000 27,500 --
Officer 1994 $135,000 $20,000 -- --
Herman H. Spolders, Ph.D. 1996 $172,250 25,000 -- --
Vice President, Business Development 1995 $150,000 -- -- --
and Planning 1994 $150,000 -- -- --
Robert Connelly 1996 $127,000 $20,000 -- --
Vice President, Marketing and Sales 1995 $120,000 $12,000 30,000 --
1994 $ 10,000(2) $ 5,000(2) -- --
</TABLE>
(1) Consists of annual lease value of Company-provided automobile.
(2) Mr. Connelly joined the Company in February 1994.
31
<PAGE>
Stock Option Grants And Exercises
The Company has granted options to its executive officers under its 1985 Stock
Option Plan (the "1985 Plan") and its 1994 Stock Option Plan (the "1994
Plan")(collectively, the "Plans"). The 1994 Plan was adopted by the Board of
Directors in July 1994 to replace the 1985 Plan and was approved by the
shareholders in September 1994. However, no options were granted under the
Plans to any of the Named Executive Oficers during the fiscal year ended March
31, 1996. As of March 31, 1996, options to purchase a total of 1,492,436 shares
were issued and outstanding under the Plans and options to purchase 867,479
shares remained available for grant under the 1994 Plan. The Company is
empowered to and from time to time does repurchase shares of Common Stock in the
open market for the purpose of making shares available for issuance upon the
exercise of options.
The following tables show for the fiscal year ended March 31, 1996, certain
information regarding options granted to, exercised by and held at year end by
the Named Executive Officers:
Aggregated Option Exercises in Last Fiscal Year, and
March 31, 1996 Option Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
March 31, 1996 (#) March 31, 1996 ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($)(1) Unexercisable(2) Unexercisable(3)
- ---- ---------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Samuel J. Wohlstadter -- -- 357,875/124,625 $228,144/$57,036
Richard J. Massey, Ph.D -- -- 214,200/80,800 $147,560/$32,796
George V. Migausky 4,035 $18,880 66,700/31,000 $ 76,655/$13,182
Herman H. Spolders, Ph.D. -- -- 31,500/21,000 $ 21,420/$14,280
Robert Connelly -- -- 12,000/18,000 $ 0/$ 0
</TABLE>
- ------------------------------------
(1) Based on the fair market value of the Company's Common Stock on the dates
of exercise minus the exercise price.
(2) Includes both "in-the-money" and "out-of-the-money" options. "In-the-
money" options are options with exercise prices below the closing price of
the Company's Common Stock (as reported on the Nasdaq National Market
System) at March 31, 1996 ($5.25).
(3) Based on the closing price of the Company's Common Stock (as reported on
the Nasdaq National Market System) at March 31, 1996 ($5.25) minus the
exercise price.
32
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
the Company's Common Stock as of June 30, 1996 by: (i) each current director;
(ii) each nominee for director; (iii) each of the executive officers named in
the Summary Compensation Table; (iv) all executive officers and directors of the
Company as a group; and (v) all those known by the Company to be beneficial
owners of more than five percent (5%) of its Common Stock.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
------------------------
Name Number of Shares Percent of Total
---- ---------------- ----------------
<S> <C> <C>
Samuel J. and Nadine Wohlstadter (2)...... 4,311,437 27.77%
c/o IGEN, Inc.
16020 Industrial Drive
Gaithersburg, MD 20877
Richard J. Massey, Ph.D. (3).............. 1,252,000 8.17%
c/o IGEN, Inc.
16020 Industrial Drive
Gaithersburg, MD 20877
Putnam Investment Management, Inc. (4).... 1,081,050 7.23%
One Post Office Square
Boston, MA 02109
Four Partners (5)......................... 755,500 5.05%
c/o Thomas J. Tisch
667 Madison Ave.
New York, NY 10021
Edward B. Lurier (6)...................... 440,291 2.94%
George V. Migausky (7).................... 200,000 1.33%
Herman H. Spolders, Ph.D. (8)............. 72,500 *
William J. O'Neill (9).................... 41,500 *
Robert Connelly (10)...................... 62,400 *
Robert R. Salsmans (11)................... 10,000 *
Hubert Rehkaemper (12).................... 10,000 *
All directors and executive officers as
a group (12 persons) (13)................. 6,535,130 40.04%
</TABLE>
________________
* Less than 1%
(1) This table is based upon information supplied by officers, directors and
principal shareholders. Unless otherwise indicated in the footnotes to this
table and subject to the community property laws where applicable, each of
the shareholders named in this table has sole voting and investment power
with respect to the shares shown as beneficially owned by him. Percentage
of beneficial ownership is based on 14,945,689 shares of Common Stock
outstanding as of June 30, 1996, adjusted as required by rules promulgated
by the SEC.
(2) Includes 3,728,937 shares held by Mr. Wohlstadter and his wife and does not
include 128,100 shares held by Mr. Wohlstadter's adult children. Also
includes 582,500 shares issuable upon exercise of options held by Mr.
Wohlstadter, which are subject to certain vesting conditions expiring
ratably through April 1999. Mr. Wohlstadter's percentage ownership,
counting only those shares issuable upon exercise of options held by him
which vest as of August 29, 1996, would be 26.94%.
33
<PAGE>
(3) Includes 375,000 shares issuable upon exercise of options held by Dr.
Massey, which are subject to certain vesting conditions expiring ratably
through April 1999. Dr. Massey's percentage ownership, counting only those
shares issuable upon exercise of options held by him which vest as of
August 29, 1996, would be 7.38%.
(4) Based on information contained in the quarterly report provided by NASDAQ
for the quarter ended June 30, 1996.
(5) Based on information contained in the Schedule 13D filed with the
Securities and Exchange Commission on December 13, 1995.
(6) Includes 10,000 shares issuable upon exercise of options held by Mr.
Lurier, which are subject to certain vesting conditions expiring ratably
through April 1999. Also includes 418,091 shares held by Gryphon Ventures
I, L.P. I ("Gryphon Ventures"). Mr. Lurier is a general partner of Gryphon
Ventures and may be deemed to own beneficially all of its shares. Mr.
Lurier's percentage ownership, counting only those shares issuable upon
exercise of options held by him which vest as of August 29, 1996, would be
2.9%.
(7) Includes 16,800 shares held by Mr. Migausky's minor children and 147,700
shares issuable upon exercise of options held by Mr. Migausky, which are
subject to certain vesting conditions expiring ratably through April 1999.
Mr. Migausky's percentage ownership, counting only those shares issuable
upon exercise of options held by him which vest as of August 29, 1996,
would be 0.86%.
(8) Includes 72,500 shares issuable upon exercise of options held by Dr.
Spolders, which are subject to certain vesting conditions expiring ratably
through February 1998.
(9) Includes 10,000 shares issuable upon exercise of options held by Mr.
O'Neill, which are subject to certain vesting conditions expiring ratably
through April 1999.
(10) Includes 60,000 shares issuable upon exercise of options held by Mr.
Connelly, which are subject to certain vesting conditions expiring ratably
through February 1999.
(11) Includes 10,000 shares issuable upon exercise of options held by Mr.
Salsmans, which are subject to certain vesting conditions expiring ratably
through August 2000. Excludes 346,135 shares held of record by Organon
Teknika B.V. to which Mr. Salsmans disclaims beneficial ownership.
(12) Includes 10,000 shares issuable upon exercise of options held by Mr.
Rehkaemper, which are subject to certain vesting conditions expiring
ratably through August 2000.
(13) Includes 1,377,500 shares issuable upon exercise of options, some of which
are subject to certain vesting restrictions. See also Notes (2), (3) and
(6) through (14).
34
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Offices, directors and greater than
ten percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended March 31, 1996, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
35
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Bylaws provide that the Company will indemnify its directors and
may indemnify its officers, employees and other agents to the fullest extent
permitted by California law. The Company is also empowered under its Bylaws to
enter into indemnification contracts with its directors and officers and to
purchase insurance on behalf of any person whom it is required or permitted to
indemnify. Pursuant to these provisions, the Company has entered into indemnity
agreements with each of its directors and executive officers and has obtained
director and officer liability insurance in the amount of $4,000,000.
In addition, the Company's Amended and Restated Articles of Incorporation
provide that the liability of the directors for monetary damages shall be
eliminated to the fullest extent permissible under California law. Pursuant to
California law, the Company's directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to the Company and its
shareholders. However, this provision does not eliminate the duty of care, and
in appropriate circumstances, equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under California law. In
addition, each director will continue to be subject to liability for (i) acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) acts or omissions that a director believes to be contrary
to the best interests of the Company or its shareholders or that involve the
absence of good faith on the part of the director, (iii) any transaction from
which a director derived an improper personal benefit, (iv) acts or omissions
that show a reckless disregard for the director's duty to the Company or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the Company or its shareholders, (v) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the Company or its shareholders, (vi) any transaction
that constitutes an illegal distribution or dividend under California law, and
(vii) any transaction involving an unlawful conflict of interest between the
director and the Company under California law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
In May 1993, the Company entered into a $20 million license agreement and a
stock purchase agreement with Organon Teknika. Following this transaction, Mr.
Joop Sistermans, then President and Chief Executive Officer of the Organon
Teknika group of companies, joined the Company's Board of Directors in November
1993 and resigned from the Board of Directors effective September 30, 1995.
Robert Salsmans, the current President and Chief Executive Officer of Organon
Teknika, replaced Mr. Sistermans on the Company's Board of Directors at the
August 1995 Board Meeting. During fiscal 1996, the Company recognized revenue
of approximately $1.1 million and recorded sales of approximately $1.1 million.
In May 1993, the Company established HyperGen, a joint venture partnership
with Hyperion Catalysis International ("Hyperion"). Messrs. Lurier, Massey and
Wohlstadter are affiliated with Hyperion. During fiscal 1994, pursuant to a
Product Development and Marketing Agreement between the Company, Hyperion and
HyperGen (the "Agreement"), the Company paid Hyperion a $5,000,000 license fee,
$3,000,000 of which was paid upon execution of the Agreement and $2,000,000 of
which was paid for research and development upon the achievement of certain
milestones. The Company also paid HyperGen a $750,000 license fee pursuant to
the Agreement. In addition, from time to time prior to 1993, the Company has
borrowed money from and loaned money to Hyperion pursuant to various promissory
notes in favor of the Company or Hyperion. The maximum amount due either
company at any one time was $767,000 owed by Hyperion in May 1993. All loans
between the Company and Hyperion were repaid in May 1993. During fiscal 1995,
the Company acquired Hyperion's remaining 50% interest in HyperGen for
$3,000,000 and entered into a long term supply agreement with Hyperion to ensure
itself of sufficient supplies of graphite fibrils. Also during fiscal 1996, the
Company entered into a research and supply agreement under which the Company
prepaid $500,000.
36
<PAGE>
Proteinix Corporation ("Proteinix") and Pro-Neuron, Inc. ("Pro-Neuron") have a
facilities agreement and have shared certain equipment and administrative
services with the Company since 1992 and 1986, respectively. Proteinix and Pro-
Neuron reimburse the Company for their relative share of the services
received. In June 1995, the Company entered into a research and development
agreement with Proteinix pursuant to which the Company has paid $650,000 of the
$950,000 committed by the Company to be paid under the agreement. In addition,
from time to time prior to 1993, the Company has advanced operating funds to
Proteinix and Pro-Neuron evidenced by interest bearing promissory notes. No
intercompany loans or advances currently exist. Mr. Wohlstadter is the principal
shareholder and Chief Executive Officer of both Proteinix and Pro-Neuron.
During November, 1995 the Company formed a Joint Venture for the development
and commercialization of advanced disgnostic products utilizing a proprietary
combination of multi-array technology together with the Company's ORIGEN
technology. Products based on these technologies would be used for high
throuhput, multiparameter analysis for DNA sequencing, clinical chemistry and
immunodiagnostics. The joint venture is named Meso Scale Diagnostics, LLC
("MSD"), and was formed together with Meso Scale Technologies, LLC ("MST"), a
company based in Maryland. The Company has agreed to provide initial capital
contributions to MSD of $5 million over time, in exchange for its ownership
interest and to fund the organizational and certain ongoing (non-research)
operating expenses of MSD. The Company will also participate in a collaborative
research program. MST is a technology-based company established and operated by
Jacob Wohlstadter, the son of Samuel J. Wohlstadter, the Chief Executive Officer
of the Company. Nadine Wohlstadter, a member of MST, is the spouse of Samuel J.
Wohlstadter. Over the next three years, Jacob Wohlstadter will receive an
aggregate of approximately $420,000 from his employment at MSD and will receive
$115,000 for each year he is employed at MSD thereafter. The Company has agreed
to indemnify Jacob Wohlstadter against liability from the joint venture.
The Company believes that all of the transactions set forth above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors and principal shareholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors on the Board of
Directors, and have been and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
Furthermore, the Company adopted in April 1988 a policy on conflicts of
interest requiring the Company's directors, officers and Scientific Advisory
Board members to provide detailed disclosure of any outside activities or
interest that might potentially conflict or appear to conflict with the
Company's best interests. The Company also adopted a policy on related party
transactions in January 1990 requiring review and approval by the Board of
Directors of transactions involving, among others, the Company's management,
principal shareholders or parties controlled by them when the value of the
transaction equals or exceeds $50,000 or its duration exceeds three months.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Index to Financial Statements.
The financial statements listed in the Index to Financial Statements are filed
as part of this Annual Report on Form 10-K.
(a) (2) Index to Financial Statement Schedules.
All schedules are omitted because they are not applicable, or not required, or
because the required information is included in the financial statements or
notes thereto.
(a) (3) Index to Exhibits.
The Exhibits filed as part of this Form 10-K are listed on the Exhibit Index
immediately preceding such Exhibits.
(b) Reports on Form 8-K. None.
(c) (1) Exhibits The response to this portion of Item 14 is submitted as a
separate section of this Form 10-K.
(c) (2) Management Contracts and Other Compensatory Arrangements. None
(d) Financial Statement Schedules. All schedules are omitted because they are
not applicable, or not required, or because the required information is included
in the financial statements or notes thereto.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
IGEN, Inc.
July 26, 1996 By: /s/ Richard J. Massey
----------------------------------
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Samuel J. Wohlstadter* Chief Executive Officer July 26, 1996
- --------------------------- (Principal Executive Officer);
Samuel J. Wohlstadter Director
/s/ George V. Migausky* Vice President July 26, 1996
- --------------------------- and Chief Financial Officer
George V. Migausky (Principal Financial and
Accounting Officer)
/s/ Edward Lurier* Director July 26, 1996
- ---------------------------
Edward Lurier
/s/ Richard J. Massey President, Chief Operating July 26, 1996
- --------------------------- Officer; Director
Richard J. Massey
/s/ William O'Neill* Director July 26, 1996
- ---------------------------
William O'Neill
/s/ Hubert Rehkaemper* Director July 26, 1996
- ---------------------------
Hubert Rehkaemper
/s/ Robert Salsmans* Director July 26, 1996
- ---------------------------
Robert Salsmans
*By: /s/ Richard J. Massey
-----------------------
Attorney-in-Fact
</TABLE>
39
<PAGE>
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Document Page No. Page No.
<C> <S> <C> <C>
3.1/3/ Third Amended and Restated
Articles of Incorporation of the
Registrant.
3.2/2/ Bylaws of the Registrant.
4.1/5/ Rights Agreement, dated as of
December 21, 1995, between the
Company and the First National
Bank of Boston.
4.2/5/ Form 8-A, filed December 29, 1995,
registering the Preferred Share Purchase Rights.
4.3 Reference is made to Exhibits 3.1 and 3.2.
10.1/2/ Registration Agreement between the
Registrant and the parties names therein
dated as of March 17, 1988, as amended
through March 30, 1993.
10.2/2/ Form of Waiver and Amendment of Registration
Agreement executed in December 1993,
amending in certain respects the Registration
Agreement dated as of March 17, 1988.
10.3/2/ Lease Agreement between the Registrant
and F&H Investments Limited Partnerships
dated as of February 1 1989, as amended to date.
10.4/2/ Office lease between the Registrant and
Jefferson Street Joint Venture dated as of
March 5, 1986, as amended to date.
10.5/2/6/ Agreement between the Registrant and
The Perkin-Elmer Corporation dated
March 30, 1990, with Addendum to Agreement
dated February 21, 1991.
10.6/2/ Agreement between the Registrant and
Eisai Co., Ltd. dated May 25, 1990 (with
certain confidential information deleted).
10.7/2/6/ License and Development Technology
Agreement between the Registrant and
Boehringer Mannheim GmbH dated
September 23, 1992.
10.8/2/ License Agreement between the Registrant
and Hyperion Catalysis International
("Hyperion") dated October 10, 1993 as
amended March 15, 1990.
10.9/2/ Common Stock Purchase Agreement between
the Registrant and Organon Teknika B.V.
("Organon") dated May 19, 1993.
10.10/2/6/ License and Technology Development agreement
between the Registrant and Organon dated
May 19, 1993.
10.11/2/ Agreement and Plan of Reorganization and Agreement
and Plan of Merger between the Registrant and
Molecular Displays, Inc. dated March 9, 1993.
10.12/2/6/ Term Sheet for Consolidation of Research Projects
between the Registrant and Proteinix Corporation
dated December 14, 1993.
10.13/2/6/ Term Sheet for consolidation of Cancer Research
Projects between the Registrant and Pro-Neuron, Inc.
dated December 14, 1993.
10.14/2/ Join Venture Agreement between the Registrant and
Hyperion dated May 28, 1993.
10.15/2/ Product Development and Marketing Agreement
between the Registrant, Hyperion and HyperGen
dated may 29, 1993.
10.16/2/ Form of Indemnity Agreement entered into between the
Registrant and its directors and officers.
10.17/2/ Registrant's 1985 Stock Option Plan, as amended, and
related Form of Incentive Stock Option Grant and Form
of Nonqualified Stock Option Grant.
10.18/4/ Registrant's 1994 Stock Option Plan, and related
Form of Incentive Stock Option Grant.
10.19/4/ Registrant's 1994 Non-Employee Directors Stock
Option Plan, and related Form of Incentive Stock
Option Grant.
10.20/4/ Lease Agreement between the Registrant and
W-M 16020 Limited Partnership dated
October 5, 1994.
10.21/4/ Agreement for Purchase and Sale of Joint Venture
Interest between Registrant and Hyperion Catalysis
International, dated December 28, 1994
10.22/5/6/ Joint Venture Agreement, dated as of November 30, 1995,
between MSD, MST and the Company.
10.23/5/ Limited Liability Company Agreement, dated as
of November 30, 1995, between MSD, MST and
the Company.
10.24/5/6/ IGEN/MSD License Agreement, dated as of
November 30, 1995, between MSD and the Company.
10.25/5 Indemnification Agreement, dated as of November 30,
1995, between the Company and Jacob Wohlstadter.
11.1/1/ Calculation of net loss per share.
23.1/1/ Consent of Deloitte & Touche LLP
24.1/1/ Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- -------------------------------------------------------------
(1) Previously filed.
(2) Previously filed as an exhibit to the Registration Statement on Form S-1, as
amended (Registration No. 33-72992) and incorporated by reference herein.
(3) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1994.
(4) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995.
(5) Previously filed as an exhibit to the Registrant's Form 10-Q for the
quarter ended December 31, 1995.
(6) Certain portions of this document have been granted confidential treatment.
40
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 4,001,147
<SECURITIES> 16,215,889
<RECEIVABLES> 1,891,693
<ALLOWANCES> 25,131
<INVENTORY> 1,648,418
<CURRENT-ASSETS> 25,212,834
<PP&E> 6,172,014
<DEPRECIATION> (2,590,281)
<TOTAL-ASSETS> 29,276,497
<CURRENT-LIABILITIES> 11,512,379
<BONDS> 0
0
0
<COMMON> 14,909
<OTHER-SE> 17,420,147
<TOTAL-LIABILITY-AND-EQUITY> 29,276,497
<SALES> 4,658,010
<TOTAL-REVENUES> 15,924,472
<CGS> 1,848,363
<TOTAL-COSTS> 24,651,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,078,777
<INCOME-PRETAX> (7,647,774)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,647,774)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,647,774)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
