<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K Annual report pursuant to Section 13 of the Securities Exchange Act of
1934
For the fiscal year ended: December 31, 1998
Commission file number: 000-23266
UroMed Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-3104185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Providence Highway, Norwood, Massachusetts 02194
(Address of principal executive offices)
(781) 762-2080
(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, no par value
[including the related Preferred Stock Purchase Rights]
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No -
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-X 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. ( )
As of March 10, 1999, the aggregate market value of the registrant's common
stock, no par value ("Common Stock"), held by non-affiliates of the registrant
was $6,293,208 based on 4,195,472 shares held by such non-affiliates at the
closing price of a share of Common Stock of $1.50 as reported on the Nasdaq
SmallCap Market on such date. Affiliates of the Company, defined as officers,
directors and owners of 10 percent or more of the outstanding shares of Common
Stock, owned 988,022 shares of the 5,183,494 shares of Common Stock
outstanding on such date. On March 10,1999, the registrant had outstanding a
total of 5,183,494 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its Special Meeting
of Stockholders to be held on May 20, 1999 to be filed with the Securities and
Exchange Commission on or prior to April 30, 1999 (the "1999 Proxy Statement"),
are incorporated by reference into Part III of this Annual Report on Form 10-K.
With the exception of the portions of the 1999 Proxy Statement expressly
incorporated into this Annual Report on Form 10-K by reference, such document
shall not be deemed filed as part of this Annual Report on Form 10-K.
<PAGE>
UROMED CORPORATION
ANNUAL REPORT ON FORM 10-K
Table of Contents
<TABLE>
<CAPTION>
Item Page
<S> <C> <C>
Part I
1 Business 3
2 Properties 16
3 Legal Proceedings 16
4 Submission of Matters to a Vote of Security Holders 16
Part II
5 Market For Registrant's Common Stock
and Related Stockholder Matters 17
6 Selected Financial Data 18
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
8 Financial Statements and Supplementary Data 25
9 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 45
Part III
10 Directors and Executive Officers of the Registrant 45
11 Executive Compensation 45
12 Security Ownership of Certain
Beneficial Owners and Management 46
13 Certain Relationships and Related Transactions 46
Part IV
14 Exhibits and Financial Statement Schedules 47
</TABLE>
CaverMap(TM), Symmetra (TM) I-125 seeds, AlloSling(TM) ,BEACON Technology
System(TM), Impress(TM), INTROL(R), Reliance(R), PelvicFlex (TM),
BreastExam(TM), BreastCheck(TM) and BreastView(TM) are trademarks and registered
trademarks of UroMed Corporation. All other trademarks and trade names referred
to in this report are the property of their respective owners.
<PAGE>
PART I
Item 1. Business
General
The Company is dedicated to establishing itself as a leader in providing
interventional urological products, with primary emphasis on the treatment of
prostate cancer. The Company seeks to market a portfolio of products including
its two main proprietary products for the treatment of prostate cancer: the
CaverMap Surgical Aid, available to aid physicians in preserving vital nerves
during prostate cancer surgery, and the Symmetra Iodine-125 ("I-125")
radioactive seeds, not yet cleared by the United States Food and Drug
Administration ("FDA"), used in a brachytherpay procedure to treat localized
prostate cancer. The Company's product portfolio also includes brachytherapy
introducer needles and minimally invasive incontinence surgical products. In
addition to its current portfolio of products, the Company has also developed
incontinence products including the FDA-cleared Impress Softpatch, and certain
product technology in the market for breast cancer screening. The Company is in
the process of evaluating how best to capitalize on these potential product
opportunities via partnerships, divestments,and/or spinoffs, if possible. UroMed
also continues to dedicate resources to the development and/or acquisition of
product lines that fit into its strategic platform.
The CaverMap Surgical Aid is an innovative new product in the field of
urological surgery. The CaverMap Surgical Aid is used in radical
prostatectomies, or surgical removal of the prostate, to assist the physician in
locating and avoiding nerves. If the physician avoids cutting nerves, certain
adverse side effects such as impotence and incontinence may be avoided. The
Company believes that, because of the highly proprietary nature of CaverMap, it
is uniquely positioned to offer physicians the opportunity to optimize both
surgical and brachytherapy for prostate cancer treatment.
The Symmetra I-125 seed is a proprietary Iodine-125 permanent seed implant
designed to be similar to the market leading prostate seed implant in dosimetry,
outer dimensions and biocompatibility. UroMed's manufacturing partner in the
brachytherapy seed business is Bebig Isotopentechnik und Umweltdiagnostik GmbH
of Berlin, Germany ("Bebig"). Under UroMed's agreement with Bebig, Bebig is to
develop an effective brachytherapy implant. UroMed will have an exclusive
license to market and distribute the Bebig implant in the Western hemisphere and
non-exclusive rights elsewhere in the world.
The Company also hopes to leverage its relationship with the urologic
surgical community by offering surgical devices to correct urinary incontinence.
At the core of the Company's product line in this area is a strip of cadaveric
fascia marketed as the "AlloSling" product line. These products can be used by
the same physician and hospital groups whom UroMed will be serving with its
family of prostate cancer intervention products.
Markets
A. Prostate Cancer
UroMed is positioned to address the needs of the prostate cancer market by
reason of its two complementary product offerings: the CaverMap Surgical Aid,
used to map and monitor the cavernosal nerves during a radical prostatectomy,
and the Symmetra I-125 seeds, used in a brachytherapy procedure to treat
localized prostate cancer. UroMed has a distinctive approach in focusing its
efforts on prostate cancer with product offerings addressing the two largest
therapeutic segments of market for prostate cancer treatments.
Prostate cancer is the most frequently diagnosed cancer in American males.
The wide-spread adoption of prostate-specific antigen ("PSA") testing is largely
responsible for an increase in the age-adjusted incidence of prostate cancer
over the past decade.
Until recently, the American Cancer Society and other health organizations
predicted a continued rise in prostate cancer incidence in the U.S., with
predictions of the number of annual cases as high as 300,000 to 350,000 by the
year 2000. However, the incidence rate peaked in 1992 at 191 per 100,000 and
declined each year from 1993 through 1995. This decrease in incidence rate is
believed to be due to the "cull" effect associated with the advent of the PSA
test. A significant improvement in the sensitivity of a diagnostic test
generally leads to an increased number of detected cases of the disease that the
test is designed to detect. Once these cases clear the system, rates generally
fall back down to a level similar to that seen before the improved test. That
appears to be the case with the PSA test and the incidence rate of prostate
cancer. The American Cancer Society now estimates there will be 185,000 new
cases in the U.S. during 1998. Prostate cancer can be fatal if not treated early
and comprehensively. In 1998, an estimated 39,200 Americans died from the
disease.
Decisions about which treatment to pursue are made by the patient and the
physician, usually a urologist, based on the localization of the cancer, the age
and overall health of the patient, and risks and benefits ascribed to each
treatment protocol. When cancer has spread beyond the prostate, the patient is
usually guided toward chemotherapy and radiation therapy. For those with
localized cancer of the prostate, about 60% of those diagnosed, the treatment
options include:
o Radical Prostatectomy: the surgical removal of the prostate and some of
the surrounding tissue. Impotence and urinary incontinence are potential
complications
o External Beam Radiation Therapy: the use of high-energy x-rays to kill
cancer cells and shrink tumors. Radiation is administered from machines
outside the body. Requires daily visits for a period of 6-8 weeks.
Impotence and incontinence occur slightly less often than after Radical
Prostatectomy surgery, but damage to the rectum is a potential complication
o Brachytherapy Radiation Therapy: an alternative method of radiation
treatment, where sealed sources of various radioisotopes are implanted in
the prostate to kill the cancer cells during a one and one-half hour
outpatient procedure. This procedure is discussed in more detail below.
o Watchful Waiting: careful observation without further immediate
treatment. This is considered an appropriate option for men who have less
aggressive tumors, are older than 70, or have significant co-existing
illnesses.
o Hormone Therapy: manipulating hormone levels to inhibit cell growth. To
cause cancer cells to shrink, patients may be given LHRH-agonists, which
decrease the amount of testosterone in the body, or antiandrogens, which
block the activity of testosterone. These drugs are often used to shrink
the size of the prostate gland in preparation for additional therapies such
as brachytherapy or surgery.
o Other Treatment Options: include cryoablation, and other experimental
procedures.
Each of these options has advantages and disadvantages. In recent years,
patient demand has fueled very high growth in rates of prostate brachytherapy,
even though the total number of new prostate cancer cases has decreased. The
two treatment options that the Company is focused on are:
1. Brachytherapy
The permanent implant brachytherapy procedure involves the permanent
placement of 65 to 120 tiny pellets or "seeds" containing radioactive material
into the prostate surgically. A therapeutic dose of radiation is delivered
locally to the tumor and prostate tissue, while minimizing radiation dosage to
the surrounding tissues. Some brachytherapy treatments are complemented with
external beam radiation therapy ("EBRT"). The concept of using small radiation
sources to treat cancer was introduced about a century ago, but it beganto show
promise for treating prostate cancer only in the last decade.
The permanent brachytherapy implant procedure has been growing
significantly. The procedure provides patients with a minimally-invasive
alternative to surgical removal of the prostate or EBRT, both of which may have
higher costs and higher rates of complication, including incontinence and
impotence.
The Company expects that almost 29,000 brachytherapy procedures will be
performed in the U.S. in 1998, accounting for 26% of all therapy for localized
(treatable) prostate cancer. We believe that the number of procedures utilizing
this therapy will continue to grow.
2. Radical Prostatectomy
At present, nerve-sparing radical prostatectomies ("NSRP") comprises up
50-75% of all radical prostatectomies performed. In 100 hospitals that are
performing more than 100 prostatectomies annually, over 11,000 radical
prostatectomies were performed last year. Of those, 8,400, or approximately 75%,
were NSRP.
Radical prostatectomy is considered to be the preferred treatment for
patients with localized prostate cancer, and it offers patients the greatest
chance for long term survival. Excellent cure rates have been obtained with
radical prostatectomy in patients with localized tumors. However, many patients
refuse the radical prostatectomy surgical option because of fears of potential
complications, including erectile dysfunction and urinary incontinence.
The most common cause for erectile dysfunction after radical prostatectomy
is intra-operative injury to the neurovascular bundles and nerve branches. These
nerve structures are susceptible to injury at several points during the surgical
procedure, when they are pulled, stretched, transected or possibly excised.
Dr. Patrick C. Walsh, of Bradys Urology Institute of Johns Hopkins is
credited with developing and introducing a modified approach to the traditional
radical prostatectomy. His modified surgical approach reduced overall morbidity
associated with the operation by making it possible to spare the cavernosal
neurovascular bundles responsible for erectile function in most patients. In
patients with localized prostate cancer, NSRP has been shown to provide
effective cancer control with a minimal occurrence of associated complications.
The reported incidence rate of erectile dysfunction after NSRP ranges from
42 to 73%. This wide range is likely due to variations in the skill of the
surgeon, challenging anatomy, and the patient/physician post-surgical reporting
process. Physicians and patients consider erectile dysfunction as a significant
complication in determining the most appropriate course of treatment for their
disease.
Erectile dysfunction is no longer a "behind closed doors" discussion
subject. It has become a major discussion topic of the American public, and is
widely recognized as a problem with drastic affects on quality of life. The
introduction of Viagra has helped to bring the discussion of erectile
dysfunction into mainstream daily conversation. Hundreds of thousands of
patients, who previously did not discuss their impotence problems are now
seeking relief from erectile dysfunction with Viagra. As a result of Viagra,
physician visits are increasing and it is estimated that PSA testing could
increase as a result. The Company believes the general awareness level of Viagra
will drive patients to be more aware of erectile dysfunction and potentially
enhance nerve sparing procedure volume over time.
B. Related Markets
The first area in which the Company developed customer relationships in the
urologic community to is urinary incontinence ("UI"). The Company has elected to
enter the UI surgical market with its AlloSling cadaveric fascia oriented
product line.
Of the approximately 13 million UI sufferers in the United States, the
Company estimates that approximately 11 million are women. The Company believes,
based on its market research, that each year 3.5 to 4 million women in the
United States discuss their UI disorder with a gynecologist, urologist or
urogynecologist. Physicians currently deal with incontinence by following a
program of therapy that corresponds to the severity of the condition and the
physician's familiarity with available treatment methods.
Surgery is more appropriate for stress incontinence than for urge or mixed
incontinence. Surgeries of this nature are delicate and complicated procedures
in which the outcome depends on a number of factors, including the degree of the
pathology and the operating physician's experience.
Sling procedures, which is the market for the Company's AlloSling product
line, involve lifting and supporting the bladder neck with a sling, which
provides urethral support and compression. The sling is placed at the proximal
urethra under the urethrovesical junction, and is anchored to the retropubic or
abdominal structures by utilizing suspending sutures or by utilizing anchors in
the pelvic bone.
A significant shift to the sling procedure is rapidly occurring in the
urologic surgical marketplace. Sling procedures now represent 40% of the total
female incontinence procedure market and will continue to grow. The
justifications for the market shift to the sling procedure are as follows:
o Long term data indicates that the traditional needle suspension
procedures have less than acceptable long term success rates.
o New guidelines by the American Urological Association ("AUA")indicate
that the sling or retropubic urethropexy procedure should immediately be
adopted by the urological community.
o The sling procedure, similar to the needle suspension, is a less invasive
and a less time consuming surgical procedure than the alternative
retropubic urethropexy and therefore very attractive to the urology
community.
o Leaders in the urology field are quickly adopting, lecturing, and
publishing on the sub-urethral sling procedure.
Products
A . Symmetra I-125 Seeds
The UroMed seed entry ("Symmetra") is a proprietary I-125 permanent
radioactive seed implant. The Symmetra I-125 seed was designed to meet or exceed
established radioactive standards for sealed radioactive sources.
UroMed entered into agreements with Bebig and Isotope Products Laboratories
Inc. of Burbank, California ("IPL") in March of 1998 as a means of entering into
the brachytherapy business. Under the terms and conditions of the Company's
agreement with Bebig, Bebig will develop a brachytherapy implant to which UroMed
will have an exclusive license to market and distribute in the Western
hemisphere (and non-exclusive rights elsewhere in the world) for a period of six
and one-half years from the date Bebig is first capable of producing the
implant.
The Company is currently developing with Bebig the capability to ship
product directly from Bebig to customers in the U.S., and to warehouse and
distribute seeds from a single distribution point in the U.S.
The Company's Symmetra I-125 seed has not yet been cleared for sale by the
FDA or other appropriate authorities.
B . UroMed Prostate Seeding Needles
The Company offers introducer needles for brachytherapy use. These needles
were commercially available beginning in the fourth quarter of 1998.
C . CaverMap Surgical Aid
The CaverMap Surgical Aid was cleared by the FDA for marketing in the
United States in November 1997. The Company began commercial selling efforts for
this product during the second quarter of 1998.
The CaverMap Surgical Aid is a new product in the field of urologic
surgery. This product is the first tool of its kind, developed to address the
surgical needs of the physician during the "nerve location and sparing" segment
of the radical prostatectomy. Advances in nerve stimulation techniques coupled
with real-time feedback tumescence monitoring developed by UroMed can assist the
physician in the identification, mapping and preservation of the neurovascular
bundles during NSRP. The system consists of a control unit, reusable probe
handle, disposable probe tip, disposable tumescence sensor and related patient
and ground leads. The CaverMap Surgical Aid is used intraoperatively during the
procedure by the physician to stimulate the cavernosal nerves and measure minute
changes in tumescence of the penis. The physician uses the device to map the
course of the nerves and then uses this information to aid his dissection plan.
If the physician can perform the dissection without damage to the cavernosal
nerves, it is theorized that post-operative potency rates will improve.
Two clinical studies have been undertaken to evaluate the CaverMap device.
A single-center clinical study was undertaken by Dr. Laurence Klotz of
Sunnybrook Health Science Centre in Toronto, Canada to determine the feasibility
of using intraoperative nerve stimulation and real time penile tumescence
monitoring to guide the physician's dissection during NSRP. Erectile function
prior to surgery and during a one year period following surgery was assessed by
patient self-reporting. Nineteen patients who reported erectile function prior
to surgery had one-year follow-up data available. A response to nerve
stimulation was elicited in seventeen of these nineteen patients. Sixteen of the
17 patients (94%) who demonstrated a response to stimulation during surgery
reported recovery of partial or full erectile function during the one year
period following surgery. The two patients who showed no response to
intra-operative nerve stimulation reported no erectile function following
surgery. This experience contrasted sharply with the investigator's prior
historical experience of 30% erectile function, leading him to conclude that the
use of CaverMap could significantly improve outcomes for patients. No adverse
events were reported that related to the use of the device. Dr. Klotz and five
other Canadian centers also undertook a multi-center study involving 61 patients
undergoing radical prostatectomy for early stage prostate cancer. The CaverMap
product was used intraoperatively to help locate the cavernous nerve during
"nerve sparing" prostate surgery. Use of the CaverMap Surgical Aid in this
multi-center study led to a 30% improvement in "successful" bilateral nerve
sparing patients when compared to the control group patients. Many patients have
been able to return to a normal life, experiencing minimal complications
post-operatively. This preliminary data was presented at the 93rd annual meeting
of the American Urological Association meeting on June 2, 1998.
Competition and Market Dynamics
UroMed's primary competition comes from the major urology companies, namely
Mentor, Bard, Johnson & Johnson and Boston Scientific and, to a lesser extent,
the smaller urology-focused companies such as Imagyn and Influence. The only
non-urology company that competes directly with UroMed is Nycomed-Amersham.
Nycomed Amersham was the first company to introduce permanent seed implants for
prostate brachytherapy and continues to be the market leader in this market.
Amersham is the only supplier of implants that does not have a urology company
as a marketing partner.
Although the Company anticipates additional entries into the brachytherapy
seed market given the tremendous growth projected for this market, the number of
additional entries may perhaps be limited because the barriers to entry such as
the long lead time required for regulatory review, and experience required to
design, evaluate, and manufacture a sealed radioactive source of this size in
substantial quantities.
The Company is not aware of any products that directly compete with the
CaverMap Surgical Aid. However, competition exists in the form of other
treatments and therapies for prostate cancer, as noted in the Prostate Cancer
section of "Markets" in this document.
Marketing and Sales
A. Initial Positioning as "Prostate Cancer Leader"; Build on Prostate Cancer
Base
UroMed's near term marketing strategy is to position itself as the leader
in providing innovative treatment options for prostate cancer with urology
department heads and the prostate cancer teams located at the large academic
centers and community hospitals treating the vast majority of the prostate
cancer patients in the United States. Given the Company's offerings in the
largest therapeutic segments of the prostate cancer market, the Company believes
that it is able to take a more comprehensive approach to the treatment of
prostate cancer than any of its competitors.
In the longer term, the Company intends to leverage its customer
relationships and its core technologies to expand into other interventional
therapeutic areas outside of prostate cancer. If such expansion requires
distribution outside of the urology/radiation oncology markets, UroMed will
intends to gain such distribution through corporate partnerships and strategic
alliances.
B. Marketing Strategy
UroMed is dedicated to establishing itself as a leader in the innovative
treatment of prostate cancer with the introduction of the CaverMap device. There
are four legs to the Company's marketing strategy for CaverMap: (1) build a
strong clinical data base and gain endorsement for the product from leaders in
the field of urology as a potential standard of care; (2) establish broader
clinical education and experience in favor of the product, (3) generate patient
awareness of and demand for the product, and (4) secure favorable reimbursement
for use of the device.
Sales Strategy and Organization
The sales organization currently consists of a number of surgical account
managers ("SAM's") and one brachytherapy account manager ("BAM") reporting to
the Vice President of Sales and Marketing. The SAM's are currently responsible
for selling the CaverMap device, the UroMed Prostate Seeding Needle, and the
AlloSling product line. The SAM's are also supplemented in several areas by
independent sales agents. The efforts of the SAM's and the independent sales
agents are supported by an aggressive effort on the part of the CaverMap product
manager and members of the senior management team to call on key accounts.
Research and Development/Business Development
The Company has developed a three pronged approach to Research and
Development/Business Development. Strategically, the Company is focusing on (1)
sustaining Research and Development, which includes a focus on supporting the
CaverMap device and the Company's other existing products from a technical
perspective; (2) future projects (currently slated for the year 2000 or beyond
but which may be moved up as resources become available or market needs
dictate). (3) opportunistic product licensing opportunities which leverage our
growing customer relationships. The Company believes that this focused approach
to expanding the UroMed portfolio will position the Company as a leader in
prostate cancer therapies.
Manufacturing: Virtual Manufacturing Strategy
Currently, all of the UroMed product components are procured from outside
vendors with final testing and acceptance occurring at UroMed's facility in
Norwood, Massachusetts. All orders for UroMed's products are taken through
UroMed's customer service organization and finished products are shipped
directly to medical institutions. Two engineers are on-call 24 hours a day to
provide technical support for these products.
Bebig is currently designing and building an automated brachytherapy seed
manufacturing line, based on its proprietary technology, at its facility in
Berlin, Germany. The production line is designed to have a capacity of up to
500,000 - 1,000,000 Iodine-125 seeds per year
Medical Office-Based Products
The Company has developed and acquired office-based products and technology
in the market for continence care. The Company believes that the best vehicle in
capitalizing on these products and technologies is via partnership(s), licenses,
divestments, and/or strategic alliances with larger, more established companies.
The Company believes that the Impress Softpatch holds the most promise of all
of its incontinence products. The Impress Softpatch was cleared by the FDA for
marketing in the United States in May 1996. The Impress Softpatch is a small,
prescription, disposable adhesive patch designed to be placed externally against
the urinary opening to block the leakage of urine in mild-to-moderate urinary
incontinence patients. The Impress Softpatch technology was acquired from the
successor to Advanced Surgical Intervention, Inc. in May 1996. The
Company has since developed an initial commercial manufacturing process for the
Impress Softpatch During the second half of 1997, the Company conducted
initial consumer tests and market analysis for the Impress Softpatch. Based on
the results of these tests, the Company has decided to pursue the potential
over-the-counter ("OTC") market for Impress, in addition to the prescription
("Rx") market. UroMed's application for the OTC market for Impress was approved
by the FDA in 1998. The Company believes that the best vehicle for
capitalizing on both the OTC and Rx marketplaces is in one or more arrangements
with larger, more established companies. Therefore, UroMed is currently seeking
such arrangements, and has decided not to incur Impress launch costs until such
arrangements are in place. No assurances can be made that the Company will be
able to locate suitable partners or negotiate and enter into these arrangements.
During April 1997, the Company acquired the product line, all associated
license rights and all other rights of Johnson & Johnson Medical, Inc. and
certain of its affiliates to the INTROL Bladder Neck Support Prosthesis. The
INTROL Bladder Neck Support Prosthesis, cleared for Rx marketing in the U.S. by
the FDA in May of 1995, is a patented intravaginal device which is designed to
elevate the bladder neck to its normal anatomical position, simulating the
effect of bladder neck suspension surgery. The Company initially serviced the
small group of physicians who had been trained and were involved in limited
post-FDA clearance marketing of INTROL. The Company initiated a broader United
States launch of INTROL to healthcare practitioners in 1997.
In July 1998, the Company announced the signing of an agreement with
Johnson & Johnson Medical K.K. ("JJMKK "), a subsidiary of Johnson & Johnson,
giving JJMKK the exclusive right to distribute the Company's INTROL Bladder Neck
Support Prosthesis in Japan. The agreement has a term of three years. The
Company decided to supplement its own sales efforts with INTROL via corporate
partnerships.
Breast Cancer
In October 1997, the Company unveiled a technology designed to help women
and their doctors detect suspicious lumps - often the early sign of breast
cancer. The technology, still in its investigational stage, is the foundation of
three products the Company is creating - BreastCheck, BreastExam and BreastView
- - - which are currently undergoing clinical evaluation. The BreastCheck is a
hand-held, battery-operated diagnostic device that assists women in finding
suspicious lumps during breast self-examinations. Its sister product, the
BreastExam, addresses a similar challenge physicians face during clinical breast
examinations. BreastView, currently under development, is a personal computer
based visual system designed to enable physicians to further evaluate suspicious
breast lumps. Together, these products have the potential to increase the
sensitivity of detection at an earlier stage for both women and physicians.
Research indicates more than 180,000 women will be diagnosed with breast
cancer in 1999 and nearly 44,000 women will die from the disease. While breast
cancer is not preventable, it is treatable when discovered at an early stage of
development. In fact, the survival rate for breast cancer that is treated early
is nearly 96%, yet only 58% of all breast cancers are discovered at this stage.
The American Cancer Society recommends that 90 million American women over
the age of 20 perform monthly self-examinations. Women themselves first discover
as much as 80% of breast malignancies. However, the average lump found by women
is often large and at the point where the cancer already may have spread. The
reason for this is two-fold. First, as few as 30% of women over the age of 20
actually conduct monthly breast self-examinations. Second, many women who do
practice regular self-examinations are not adept at discovering lumps of smaller
sizes.
To address these problems, the Company developed the hand-held BreastCheck,
a device designed to provide women with a greater comfort level in regular
examinations of their breasts and to improve the user's sensitivity for
detecting suspicious lumps. While breast self-examinations are universally
recommended, many women rely on their doctors for the discovery of lumps or
abnormalities. Physicians perform more than 40 million clinical breast exams
annually. Currently, there is no method available to document these examinations
in an objective manner. The Company has developed BreastVIew Visual Mapping
System that provides a PC-based visual system for time-course managements of
suspicious breast lumps.
The BreastCheck device utilizes a sensor array comprised of miniature
pressure sensors to electronically palpate the breast. The pressure data is
analyzed by sophisticated computer algorithms for the presence of a lump. Each
sensor array is a thin, flexible device which utilizes opposing rows and columns
of conductive material. The intersection of each row and column form the sensing
location. By separating the rows and columns with a material that varies its
electrical resistance in proportion to the applied load, each intersection
becomes a pressure sensor ("sensel"). The BreastCheck device uses a sensor
containing 16 rows and 26 columns forming an array of 416 individual sensels.
Each row and column is electronically scanned, and the resistance of each sensel
is measured and converted into pressure readings. At any given time, the
collection of 416 sensel readings forms a pressure "image" of the underlying
tissue. As the BreastCheck device is being used, a computer chip inside is
continually analyzing the pressure images. Sophisticated computer algorithms
scan consecutive images to ascertain whether the head of the device is passing
over normal breast tissue or suspicious structures.
The BreastCheck devices works in much the same way as the fingertips during
manual palpation. However, the power of the technology lies in the fact that (1)
the sensors can be made to be even more sensitive than the nerves in the
fingers, (2) the sensor array covers a much larger area than the fingertips at
any given time, and (3) the computer algorithms identify lumps by quantifying
their palpable characteristics, using a potentially more predictable and
consistent method than the subjective analysis of manual palpation.
The Company does not intend to proceed with the further commercialization
of this breast cancer screening methodology by itself. Instead, the Company
intends to leverage this technology by spinning it off to a separate entity
backed by third party financing. However, no assurances can be made that the
Company will be able to spin off and obtain third party financing for this
technology, if possible.
Third-Party Reimbursement
Reimbursement for patient management products of urinary incontinence is
generally not available. The Company has been successful, however, in securing
agreements with managed care organizations representing approximately 50 million
covered lives. With respect to the Company's surgical products in the United
States, third party reimbursement is generally available for surgical procedures
for incontinence and prostate surgery.
Patents and Proprietary Rights
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its products, to preserve its trade secrets and
to operate without infringing the proprietary rights of third parties. The
Company's strategy regarding the protection of its proprietary rights and
innovations is to seek patents on those portions of its technology that it
believes are patentable and to protect as trade secrets other confidential and
proprietary information.
The Company believes that its patents, and any additional patents which may
be issued pursuant to these applications and any continuations or
continuations-in-part, may provide the Company with a substantial competitive
advantage. However, there can be no assurance as to the degree of protection
offered by any of these patents or that any patents will be issued with respect
to the Company's pending patent applications.
Some of the technology used in the Company's products is not covered by any
patent or patent application of the Company. The Company seeks to maintain the
confidentiality of its proprietary technology by requiring employees who work
with proprietary information to sign confidentiality agreements and by limiting
access by parties outside the Company to such confidential information. There
can be no assurance, however, that these measures will prevent the unauthorized
disclosure or use of this information, or that others will not be able to
independently develop such information. Moreover, as is the case with the
Company's patent rights, the enforcement by the Company of its trade secret
rights can be lengthy and costly, with no guarantee of success.
To date, no claims have been brought against the Company alleging that its
technology or products infringe intellectual property rights of others. However,
there can be no assurance that such claims will not be brought against the
Company in the future or that any such claims will not be successful.
Prostate Cancer
The Company presently holds an exclusive license for two issued United
States patents. A third United States patent has been issued for the CaverMap
Surgical Aid. The first two United States patents have been licensed from the
Brigham and Women's Hospital with exclusive rights to the Company. The third
United States patent is held jointly by the Company and Brigham and Women's
Hospital. International patent applications are pending as well. The Company
believes that the issued patents and allowed claims which cover both method and
device are a competitive advantage for the Company. The Company has filed or is
in the process of filing additional patents pertaining to the CaverMap Surgical
Aid.
Bebig has filed a patent for their Iodine-125 seed design, which UroMed
will market as the Symmetra I-125 seed. Under the terms of its agreement with
Bebig, UroMed will have exclusive license rights to market and distribute this
seed in the Western hemisphere for a period of six and one-half years from the
date Bebig is first capable of producing the seed. UroMed has filed patents
pertain to the packaging of its Symmetra seed.
Office-Based Continence Care Products
The Company holds two United States patents and has two patent application
pending with respect to the Impress Softpatch and related products. The issued
patents relating to the Impress Softpatch and related products include device
claims and expire in the year 2011. The application filed by the Company with
respect to the Impress Softpatch and related technology contain both method and
device claims.
Breast Cancer
The Company currently has one issued and seven United States patents
pending. relating to its breast cancer products. In addition, during 1997 the
Company signed a technology and supply agreement with a manufacturer and
developer of sensor arrays and the agreement includes an exclusive license to
their four U.S. and numerous foreign patents covering sensor technology and
manufacturing. The Company also has additional foreign patent filings pending.
Regulatory
Prostate Cancer
The Company received regulatory clearance by the FDA in November 1997 to
market the CaverMap Surgical Aid in the U.S. The clearance was via a 510(k)
application and the pre-clinical and clinical testing included a variety of
tests.
The Company has filed a 510K application for FDA clearance for its Symmetra
I-125 seeds. FDA review of this filing is currently in process.
Office-Based Continence Care Products
FDA clearance to market the Impress Softpatch was granted in May 1996 on
the basis of a 510(k) Notification application originally filed, based on the
clinical trial data compiled, by Advanced Surgical Intervention, Inc. in
September 1995.
The INTROL Bladder Neck Support Prosthesis was cleared for marketing in the
United States by the FDA in May 1995 via a 510(k) application filed by Johnson &
Johnson Medical, Inc. A clinical trial was conducted to support the safety and
effectiveness of the INTROL Bladder Neck Support Prosthesis for the treatment of
stress urinary incontinence.
Breast Cancer
Because there are no devices similar to the BreastCheck product, the
Company is required to obtain FDA clearance through the Pre-Market Approval
("PMA") process, which typically is longer the the 510(k) approval process. The
Company has had several meetings with representatives from the FDA, and a
clinical protocol has been designed. The Company has been granted Expedited
Review Status from the FDA for its BreastCheck product. While the Company has
completed numerous non-significant risk U.S. clinical trials involving over 800
women, certain formal clinicals are not anticipated to begin until late 1999 or
2000.
Government Regulation
The CaverMap Surgical Aid, the Symmetra I-125 seeds, the INTROL Bladder
Neck Support Prosthesis and the BreastExam, BreastCheck and BreastView devices,
as well as certain products currently under development by the Company, are
regulated as medical devices by the FDA under the Federal Food, Drug and
Cosmetic Act (the "FDC Act") and require regulatory clearance prior to
commercialization in the United States. Under the FDC Act, the FDA regulates
clinical testing, manufacturing, labeling, distribution and promotion of medical
and surgical devices in the United States. Various states and other countries in
which the Company's products may be sold in the future may impose additional
regulatory requirements.
Following the enactment of the Medical Device Amendments to the FDC Act in
May 1976, the FDA classified medical devices in commercial distribution into one
of three classes, Class I, II or III. This classification is based on the
controls necessary to reasonably ensure the safety and efficacy of medical
devices. Class I devices are those whose safety and efficacy can reasonably be
ensured through general controls, such as adequate labeling, pre-market
notification and adherence to FDA-mandated "Quality System Regulation."
Generally, Class II devices are those whose safety and efficacy can reasonably
be ensured through the use of special controls, such as performance standards,
post-market surveillance, patient registries and FDA guidelines. Class III
devices are devices which must receive pre-market approval by the FDA to ensure
their safety and efficacy, generally life-sustaining, life-supporting or
implantable devices, and also include all new or not substantially equivalent
devices introduced after May 28, 1976.
If a manufacturer or distributor of medical devices can establish that a
new device is "substantially equivalent" to a legally marketed Class I or Class
II medical device or to a Class III medical device for which the FDA has not
required pre-market approval, the manufacturer or distributor may seek FDA
marketing clearance for the device by filing a 510(k) Notification application.
The 510(k) Notification application and the claim of substantial equivalence may
have to be supported by various types of information indicating that the device
is as safe and effective for its intended use as a legally marketed predicate
device and a 510(k) Notification application may require the submission of data
including clinical data.
Following submission of the 510(k) Notification application, the
manufacturer or distributor may not place the device into commercial
distribution until an order is issued by the FDA. The FDA has no specific time
limit by which it must respond to a 510(k) Notification application. The FDA may
agree with the manufacturer or distributor that the proposed device is
"substantially equivalent" to another legally marketed device, and allow the
proposed device to be marketed in the United States. The FDA may, however,
determine that the proposed device is not substantially equivalent, or may
require further information, such as additional clinical test data, before it is
able to make a determination regarding substantial equivalence. Such
determination or request for additional information could delay the market
introduction of a product.
If a manufacturer or distributor cannot establish to the FDA's satisfaction
that a new device is substantially equivalent to a legally marketed medical
device, the manufacturer or distributor will have to seek pre-market approval or
reclassification of the device. A PMA, which must prove that a device is safe
and effective, must be supported by extensive data, including preclinical and
clinical trial data, to demonstrate the safety and efficacy of the device. Upon
receipt, the FDA will conduct a preliminary review of the PMA to determine
whether the submission is sufficiently complete to permit a substantive review.
If sufficiently complete, the submission is declared fileable by the FDA. By
regulation, the FDA has 180 days to review a PMA after it has been determined to
be fileable. While the FDA has at times responded to PMA's within the allotted
time period, PMA reviews more often occur over a longer time period and
generally take approximately two years or more from the date of filing to
complete. A number of devices for which FDA marketing clearance has been sought
have never been cleared for marketing
If a manufacturer commercializes a medical device, it is required to
register with the FDA and to list all of its devices. In addition, any such
manufacturer will be subject to inspection on a routine basis for compliance
with the FDA's Quality System Regulation. The Company's facility in Norwood,
Massachusetts, was registered with the FDA and successfully passed an
inspection. The FDA's regulations also require that such manufacturer
manufacture its products and maintain its documents in a prescribed manner with
respect to manufacturing, testing and quality control activities. Further, such
manufacturer is required to comply with various FDA requirements for labeling
and reporting of adverse reactions, and may be required to meet rules governing
product tracking and post-market surveillance.
Employees
As of December 31, 1998, the Company employed approximately 42 individuals
on a permanent basis.
None of the Company's employees are covered by collective bargaining
agreements.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Certain statements contained in this Annual Report may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding (i) the planned progression of the Company's
commercialization strategies for the CaverMap Surgical Aid, the Symmetra I-125
brachytherpy seed and introducer needle and the Allosling surgical products,
including the timing and extent of initial or other sales, (ii) the timing
related to the commencement of marketing activities for the commercial launches
of the Symmetra I-125 brachytherapy seeds, (iii) the timing related to final
regulatory clearance for the Symmetra I-125 brachytherapy seed (iv) the
Company's planned uses for its cash and other liquid resources, (viii) the
extent of future revenues, expenses and results of operations and the
sufficiency of the Company's financial resources to meet planned operational
costs and other expenditure needs, and the development of partnerships and/or
strategic alliances for all incontinence and breast care products and related
assets and technology. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
many of which are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of certain factors,
including those described below:
- - The uncertainty that the CaverMap Surgical Aid and Symmetra I-125 seeds
will gain market acceptance either among physicians in the United States.
- - The uncertainty that the Company will be able to develop an effective
sales force and implement a successful marketing campaign for the CaverMap
Surgical Aid and the Symmetra I-125 brachytherapy seed in the United
States.
- - The uncertainty that the Company will be able to develop effective
partnerships and/or strategic alliances for its assets and technology as
part of its incontinence and breast cancer effort.
- - The uncertainty of receiving regulatory clearance for the Company's
Symmetra I-125 brachytherapy seed.
- - The Company's dependence on others for raw materials and certain
components of its products, including certain materials available only from
single sources.
- - The uncertain protection afforded the Company by its patents and/or
other intellectual property rights relating to the Company's products.
- - The uncertainty as to whether the Company will be able to manufacture,
market and sell its products at prices that permit it to achieve
satisfactory margins in the production and marketing of its products.
- - Risks relating to FDA or other governmental oversight of the Company's
operations, including the possibility that the FDA could impose costly
additional labeling requirements on, or restrict the marketing of, the
Company's products, or suspend operations at one or more of the Company's
facilities.
- - The uncertainty of the size of the potential markets of the Company's
products.
RISK FACTORS
The Company's financial condition and results of operation, as well as the
market price for the Company's outstanding securities, are also likely to be
affected by the following factors:
Limited Operating History; History of Losses; Profitability Uncertain
The Company has experienced significant operating losses since inception
and, as of December 31, 1998, had an accumulated deficit of $101.6 million. The
Company has never successfully commercialized any of its products. In addition,
the development and commercialization by the Company of its products and other
new products, if any, will require substantial product development expenditures
for the foreseeable future. The Company's future profitability is dependent upon
its ability to successfully commercialize these products. There can be no
assurance that the Company will generate sufficient cash flow to pay interest
and principal on its 6% Convertible Subordinated Notes due October 15, 2003 (the
"Notes"), of which $24,756,000 aggregate principal amount was outstanding at
December 31, 1998, or to achieve continued profitability. The Company expects
its operating losses to increase over the foreseeable future and there can be no
assurance that the Company will be profitable in the future or that the
Company's existing capital resources and any funds provided by future operations
will be sufficient to fund the Company's needs, or that other sources of funding
will be available.
Uncertainty of Market Acceptance for the Company's Products
The CaverMap Surgical Aid, the Symmetra I-125 seeds and the Company's
incontinence surgery products will be competing against existing treatments and
surgical products in the prostate cancer and urinary incontinence markets,
respectively. There can be no assurance of the market acceptance of these
products.
Dependence on Few Products
The Company expects to derive a substantial part of its revenues for the
next several years from sales of the CaverMap Surgical Aid and the Symmetra
I-125 seeds. The Company's failure to commercialize successfully these products
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not expect that
commercialization of other new products will be feasible without a substantial,
continuing commitment to research and development for an extended period of time
or acquisitions of new properties, or both. Also, the development of any new
products may require that such products will be subject to clinical trials and
regulatory clearance or approval before commercialization. There can be no
assurance as to whether or when commercialization of other products might begin
or as to the likelihood that any such initiative would be successful.
Dependence on Others for Components and Raw Materials
Certain of the raw materials for the manufacture and assembly of the
Company's products are available only from single sources and are manufactured
by third parties. Interruptions in supplies of raw materials may occur as a
result of business risks particular to such suppliers or the failure of the
Company and any such supplier to agree on satisfactory terms. Such sources may
also decide for reasons beyond the control of the Company, such as concerns
about potential medical product liability risk in general, to cease supplying
such materials or components for use in medical devices generally. Significant
interruption in the supply of raw materials currently used by the Company for
its products could have a material adverse effect on the Company's
business,financial condition and results of operations.
Lack of Marketing and Sales Experience
Although the FDA has cleared the CaverMap Surgical Aid in the United
States, the Company has sold only limited amounts of this product. The Company
has developed a direct marketing and sales group in the United States for its
products. However, there can be no assurance that the Company has built an
effective sales force, will be able to continue to attract and retain a
qualified marketing and sales group in the United States, or can otherwise
design and implement an effective marketing and sales strategy for the CaverMap
Surgical Aid, the Symmetra I-125 seeds,the urinary incontinence products, or any
future product developed by the Company.
Lack of Distribution Experience
The Company has limited experience in distributing units of its products to
its ultimate consumers. In Europe, where nearly all of the sales of the
Company's products have been made to date, the Company relied on the
distribution systems of third party distributors.
Competition and Technological Advances
The markets for prostate cancer treatment and incontinence surgery products
are highly competitive. The Company's ability to compete in these areas will
depend upon the consistency of product quality and delivery, price, technical
capability and the training of health care professionals and consumers. Other
factors within and outside the Company's control will also affect its ability to
compete, including its product development and innovation capabilities, its
ability to obtain required regulatory clearances, its ability to protect the
proprietary technology included in its products, its manufacturing, marketing
and distribution capabilities and its ability to attract and retain skilled
employees. Certain of the Company's competitors have significantly greater
financial, technical, research, marketing, sales, distribution and other
resources.
Risks Relating to FDA Oversight and Other Government Regulation
The facilities at which the Company or its key suppliers manufactures its
products, are subject to regulation by the FDA and, in many instances, by
comparable agencies in the foreign countries in which these devices are
distributed and sold. The process of obtaining regulatory approvals for the
marketing and sale of any additional products, or the modification of existing
products, by the Company could be costly and time-consuming and there can be no
assurance that such approvals will be granted on a timely basis, if at all. The
regulatory process may delay the marketing of new products for lengthy periods,
impose substantial additional costs and furnish an advantage to competitors who
have greater financial resources. Moreover, regulatory approvals for new or
modified products, if granted, may include significant limitations on the
indicated uses for which a product is marketed. In addition, the extent of
potentially adverse governmental regulations that might arise from future
legislative, administrative or judicial action cannot be determined. Any
material product recall or loss of certification of the Company's manufacturing
facility, would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company is also subject to
regulation under federal, state and local regulations regarding maintenance of a
licensed pharmacy, work place safety, environmental protection and hazardous and
controlled substance controls, among others. The Company cannot predict the
extent of government regulations or impact of new government regulations which
might have an adverse effect on the production and marketing of the Company's
products.
Risk of Inadequate Funding; Future Capital Funding
The Company plans to continue to expend substantial funds on marketing,
research and product development, seeking out partnerships that fit into its
strategic platforms and pursuit of regulatory approvals.
There can be no assurance that the Company's existing capital resources and
any funds generated from future operations will be sufficient to finance any
required investment or pay interest on and principal of the notes or that other
sources of funding will be available. In addition, future sales of substantial
amounts of the Company's securities in the public market could adversely affect
prevailing market prices and could impair the Company's future ability to raise
capital through the sale of its securities.
Uncertainty Regarding Patents and Protection of Proprietary Technology
The Company's ability to compete effectively will depend, in part, on its
ability to develop and maintain proprietary aspects of its technology. There can
be no assurance as to the validity of the United States patents held by the
Company with respect to all of its products, or as to the degree of protection
offered by these patents. There can be no assurance that the Company's patents
will not be challenged, invalidated or circumvented in the future. In addition,
there can be no assurance that competitors, many of which have substantial
resources and have made substantial investments in competing technologies, will
not seek to apply for and obtain patents that will prevent, limit or interfere
with the Company's ability to make, use and sell its products either inside or
outside the United States. The defense and prosecution of patent litigation or
other legal or administrative proceedings related to patents is both costly and
time-consuming, even if the outcome is favorable to the Company. During the
pendency of any such proceedings, the Company may be restrained, enjoined or
otherwise limited in its ability to make, use or sell a product incorporating
the patents or technology that are the subject of such claim, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. An adverse outcome in any such proceeding could subject
the Company to significant liabilities to third parties, require disputed rights
to be licensed from others or require the Company to cease making, using or
selling any products. There can be no assurance that any licenses required under
any patents or proprietary rights would be made available on terms acceptable to
the Company, if at all.
The Company also relies on unpatented proprietary technology and there can
be no assurance that others may not independently develop the same or similar
technology or otherwise obtain access to the Company's unpatented proprietary
technology. In addition, the Company cannot be certain that others will not
independently develop substantially equivalent or superseding proprietary
technology, or that an equivalent product will not be marketed in competition
with the Company's products, thereby substantially reducing the value of the
Company's proprietary rights. There can be no assurance that any confidentiality
agreements between the Company and its employees or consultants will provide
meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure of
such trade secrets, know-how or other proprietary information. Finally, there
can be no assurance that the Company's trademarks chosen and registered will
provide meaningful protection.
Product Liability Risk; Limited Insurance Coverage
The manufacture and sale of medical products and the conduct of clinical
trials using new technology entail the risk of product liability claims. There
can be no assurance that the Company's existing insurance coverage limits are
adequate to protect the Company from any liabilities which it might incur in
connection with the clinical trials for any of its products or, the
commercialization of any of its products. Such insurance is expensive and in the
future may not be available on acceptable terms, if at all. A successful product
liability claim or series of product liability claims brought against the
Company in excess of its insurance coverage would have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, any claims, even if not ultimately successful, could adversely affect
the market acceptance of the Company's products.
Volatility of Market Prices
The market price of the Common Stock and Notes may be highly volatile.
Factors such as quarter-to-quarter variations in the Company's operations or
financial performance and announcements of technological innovations or new
products, results of clinical trials or other regulatory or reimbursement events
by the Company or its competitors or any of its or their regulators could cause
the market price of the Common Stock or Notes to fluctuate significantly. In
addition, in recent years the stock markets in general, and the market prices
for medical technology companies in particular, have experienced significant
volatility, which often may have been unrelated to the operating performance of
the affected companies. Such volatility may adversely affect the market price of
the Common Stock or Notes. See "Market for Registrant's Common Stock and Related
Shareholder Matters."
Certain Charter and By-Law Provisions May Affect Market Prices
The Company's Restated Articles of Organization and the Company's Amended
and Restated By-Laws contain provisions that may have the effect of making it
more difficult for a third party to acquire control of, or of discouraging
acquisition bids for, the Company. This could limit the price that certain
investors might be willing to pay in the future for shares of Common Stock.
Certain Massachusetts Laws May Affect Market Prices
Certain Massachusetts laws contain provisions that may have the effect of
making it more difficult for a third party to acquire control of, or of
discouraging acquisition bids for, the Company. These laws include Chapter 110F
of the Massachusetts General Laws, which prohibits certain "business
combinations" with "interested stockholders," and Chapter 110D, entitled
"Regulation of Control Share Acquisitions." These provisions could limit the
price that certain investors might be willing to pay in the future for shares of
Common Stock.
Effect of Issuance of Preferred Stock
Shares of preferred stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future. In addition, the issuance of preferred stock could have the effect of
making it more difficult for a third party to acquire control of, or of
discouraging acquisition bids for, the Company. This could limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock.
Concentration of Ownership
As of December 31, 1998, directors and executive officers of the Company
and their affiliates owned approximately 19% of the outstanding Common Stock
(including options to purchase Common Stock exercisable within 60 days of such
date). As a result, such persons have the ability to assert significant
influence over the Company and the direction of its affairs and business. See
"Security Ownership of Certain Beneficial Owners and Management."
Absence of Dividends
The Company has not paid cash dividends and does not anticipate doing so
for the foreseeable future.
Shares Available for Future Sale
The future sale of shares of the Company's Common Stock could have an
adverse effect on the market price of the Common Stock or the Notes. The Company
currently has two effective registration statements on file with the Securities
and Exchange Commission initially covering the resale of up to an aggregate of
1,703,508 shares of Common Stock held by certain current shareholders of the
Company. Of these 1,703,508 shares, 1,236,902 shares are covered by a
registration statement which was declared effective in October 1995 registering
shares of Common Stock held by approximately 73 holders. These shares,
representing shares of Common Stock issued upon the conversion of the Company's
previously outstanding convertible preferred stock, were registered at the
request of the holders of such shares. All of these shares may be sold currently
under Rule 144(k) under the Securities Act without regard to volume or other
limitations. The remaining 467,005 shares, which were issued to the former
shareholders of Advanced Surgical Intervention, Inc. in connection with the
acquisition of the Impress Softpatch technology in May 1996, are covered by a
registration statement which was declared effective in June 1996. These shares
are held by 273 holders, with the largest number of shares held by any single
holder thereunder being approximately 50,000 shares. The Company believes that
many of the shares covered by these registration statements have been sold in
the open market prior to the date hereof. All of the shares covered by these
registration statements are freely tradeable in the open market without volume
limitations. As of December 31, 1998 the Company also has options outstanding to
purchase an aggregate of 371,158 shares of Common Stock and has an additional
399,608 shares of Common Stock reserved for issuance of options which may be
granted and exercised under the Company's existing employee benefit plans. Any
shares of Common Stock issued upon the exercise of such outstanding options or
any options granted in the future will be, upon issuance, freely tradeable on
the open market, subject in some cases to the volume limitations imposed by Rule
144 under the Securities Act. As of December 31, 1998, the Company had reserved
372,775 shares of Common Stock for issuance upon conversion of the Notes.
<PAGE>
Item 2. Properties
The Company currently leases space in two facilities in Massachusetts, one
in Norwood and another in Hopkinton. The Norwood lease commenced in 1997 has a
five-year term and is for a 9,000 square foot area which occupies all
administrative, research and development, marketing and manufacturing staff of
the Prostate Cancer group,the Incontinence group and the Corporate
administrative staff of the Company. The Hopkinton lease is for a 13,000 square
foot area occupied by the clinical, research and development, marketing and
administrative staff of the breast cancer screening technology. This lease
commenced in 1997 and has a five-year term.
The Company terminated operating leases at two locations during 1998 as
part of its restructuring. The Company occupied a 40,000 square-foot leased
facility in Needham, Massachusetts. This lease was set to expire in 2001;
however, the Company entered into a lease termination agreement effective March
15, 1999. The Company leased a 9,200 square foot fulfillment center in Nashua,
New Hampshire, where the Company's staff pharmacist was located. This lease
expired in 1998. As part of the 1998 restructuring, the Company moved its
continence care consumer product fulfillment and distribution from Nashua to the
Norwood facility.
Item 3. Legal Proceedings
The Company is not involved in any material legal proceedings, nor is the
property of the Company the subject of any such proceedings.
Item 4. Submission of Matters to a
Vote of Security Holders.
During the fourth quarter of the Company's 1998 fiscal year, there were no
matters submitted to a vote of the security holders of the Company.
<PAGE>
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
UroMed's common stock is traded on the Nasdaq National Market under the
symbol URMD. As of December 31, 1998 there were 307 registered holders of the
Company's common stock. The Company has not paid dividends on its common stock
since inception and does not anticipate paying any cash dividends in the
foreseeable future. The following table set forth for the periods indicated are
the range of high and low sales prices of the Company's Common Stock as reported
by Nasdaq.
<TABLE>
<CAPTION>
Year Ended December 31, 1998 High Low
- - - -----------------------------------------------------------------------------
<S> <C> <C>
First Quarter $ 20 5/32 $8 1/8
Second Quarter 12 --- 4 13/16
Third Quarter 5 5/16 1 1/4
Fourth Quarter 3 5/8 1 1/8
Year Ended December 31, 1997 High Low
- - - -----------------------------------------------------------------------------
First Quarter $ 48 3/4 $ 31 7/8
Second Quarter 39 3/8 11 7/8
Third Quarter 34 3/8 14 3/8
Fourth Quarter 42 1/2 17 1/2
</TABLE>
<PAGE>
Item 6. Selected Financial Data
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
---------- ------------ ---------- ------------ ---------
(in thousands,
except per share
amounts)
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues $ 837 $ 503 $ 2,622 $ 1,052 $ --
---------- ------------- ------------ ------------ ---------
Cost and expenses:
Cost of revenues 3,413 4,722 5,110 2,564 --
Research and
development 5,367 11,692 37,597(1) 6,821 5,796
Marketing and
sales 4,098 13,233 7,276 2,169 1,417
General and
administrative 4,175 5,514 2,816 1,898 2,007
Restructuring 1,704 -- -- -- --
---------- ------------ ---------- ------------ ---------
Total costs
and expenses 18,757 35,161 52,799 13,452 9,220
---------- ------------ ---------- ------------ ---------
Loss from
operations (17,920) (34,658) (50,177) (12,400) (9,220)
Interest (expense)
income, net (1,074) 25 2,517 2,688 1,610
---------- ------------ ---------- ------------ ----------
Loss before
extraordinary
gain on early
retirement
of debt (18,994) (34,633) (47,660) (9,712) (7,610)
Extraordinary
gain on early
reirement of
debt 23,273 -- -- -- --
---------- ------------ ---------- ------------ ---------
Net income (loss) 4,279 (34,633) (47,660) (9,712) (7,610)
Excess of
redemption price
over carrying
costs of Series
A redeemable
convertible
preferred stock -- -- -- -- (383)
---------- ------------ ---------- ------------ ---------
Net loss
attributable to
common
stockholders $ 4,279 $ (34,633) $ (47,660) $ (9,712) $ (7,993)
========== ============= =========== ============= =========
Basic and
diluted net
income (loss)
per share (2) $ .81 $ (1.30) $ (1.87) $ (.46) $ (.46)
========== ============= =========== ============= =========
Basic and
diluted
weighted average
common shares
outstanding 5,290 5,316 5,109 4,252 3,504
========== ============= =========== ============= =========
As of December 31,
1998 1997 1996 1995 1994
---------- ------------ ---------- ------------ ---------
Balance Sheet
Data:
Cash, cash
equivalents
and short-term
investments $ 26,280 $ 65,025 $ 101,638 $ 60,427 $ 45,704
Working capital (466) 60,907 98,013 57,681 44,288
Total assets 33,606 76,593 110,488 64,264 47,818
Long-term debt
and capital
lease
obligations 24,756 69,000 69,000 -- 12
Accumulated
deficit (101,648) (105,927) (71,294) (23,634) (13,922)
Total
stockholders'
equity 5,574 1,785 35,952 60,092 45,660
</TABLE>
(1) Includes $30.2 million for the acquisition of the Impress Softpatch
technology and related expenses. See Note 10 to the Financial Statements.
(2) All net loss per share amounts have been restated to reflect the
provisions of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." See Note 2 to the Financial Statements.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Management's Discussion and Analysis should be read incorporating
"Forward-Looking Statements and Associated Risks" and "Risk Factors" as
displayed in Item 1 of this document
Overview
The Company is dedicated to establishing itself as a leader in providing
interventional urological products, with primary emphasis on the treatment of
prostate cancer. The Company seeks to market a portfolio of products including
its two main proprietary products for the treatment of prostate cancer: the
CaverMap Surgical Aid, available to aid physicians in preserving vital nerves
during prostate cancer surgery, and the Symmetra I-125 radioactive seeds, not
yet FDA-cleared, used in a brachytherpay procedure to treat localized prostate
cancer. The Company's product portfolio also includes brachytherapy introducer
needles and minimally invasive incontinence surgical products. In addition to
its current portfolio of products, the Company has also developed incontinence
products including the FDA-cleared Impress Softpatch, and certain product
technology in the market for breast cancer screening. The Company is in the
process of evaluating how best to capitalize on these potential product
opportunities via partnerships, divestments,and/or spinoffs, if possible. UroMed
also continues to dedicate resources to the development and/or acquisition of
product lines that fit into its strategic platform.
Results of Operations
Years Ended December 31, 1998 and 1997
The Company's revenues increased by 66% to $0.8 million from $0.5 million
for 1998 compared to 1997. The increase is primarily the result of the first two
full quarters of sales of the CaverMap Surgical Aid in 1998 and revenue from
INTROL Bladder Neck Support Prosthesis via the distribution agreement with
Johnson & Johnson Medical K.K. entered into in 1998. 1997 revenues consisted of
the recognition of deferred revenue from a portion of the advance payments
received upon the signing of certain foreign distribution agreements, which are
no longer in place, and small amounts of U.S. sales of the Reliance Insert, the
INTROL Bladder Neck Support Prosthesis and the Impress Softpatch. The Company is
not actively marketing the Reliance Insert and Impress Softpatch and expects
minimal or no sales from these products in 1999.
Cost of Revenues
Cost of revenues decreased by 28% to $3.4 million from $4.7 million for
1998 as compared to 1997 primarily due to the decreased level of headcount and
related expenses as a result of the 1998 restructuring, and a higher level of
inventory obsolescence charges in 1997 as compared to 1998. Cost of revenues
significantly exceeds product revenue in 1998 and in 1997 due to the current
level of variable product costs as well as the Company's related overhead costs
relative to the low start-up volume of production in these periods. The Company
expects negative or low gross margins for the near term and, accordingly, has
considered this in its valuation of inventory.
Research and Development
Research and development expenses decreased by 54% to $5.4 million from
$11.7 million for 1998 as compared to 1997. The decrease is the result of
decreased headcount in 1998 as a result of the restructuring, significant 1997
expenses incurred in connection with Impress Softpatch scale-up activities and
impairment charges in connection with Reliance Insert manufacturing equipment,
and reduced consulting and prototype spending in relation to the breast cancer
screeing technology.
Marketing and Sales
Marketing and sales expenses decreased 69% to $4.1 million from $13.2
million for 1998 as compared to 1997. This decrease was the result of
significant 1997 expenditures incurred in connection with the U.S.launch of the
Reliance Insert and market analysis for the Impress Softpatch, and the reduced
headcount in 1998 as the result of the restructuring.
General and Administrative
General and administrative expenses decreased by 24% to $4.2 million from
$5.5 million for1998 as compared to 1997. The decrease is primarily the result
of the decreased headcount and less system and consulting expenditures in 1998.
Restructuring
During the year ended December 31, 1998, the Company recorded a total
charge of $1,704,000 representing the cost of restructuring its operations to
shift its strategic emphasis to the hospital-based business and away from the
consumer- oriented continence care business, which the Company has concluded
will be best approached by entering into a partnership or other arrangement with
a larger company. During the first quarter of 1998, a plan to effect this
restructuring was adopted by the Board of Directors and, at that time, the
Company recorded a restructuring charge of $1,024,000. This charge consisted of
approximately $579,000 of employee termination benefits and approximately
$445,000 of costs to exit two of the Company's leased facilities. The employee
termination benefits related to the termination of approximately 40 employees,
all of which have been terminated as of December 31, 1998, across all functional
areas of the Company. The facility exit costs include the write-off of
approximately $138,000 of leasehold improvements, with the remainder
representing certain contractual lease payments related to the leased
facilities.
During the fourth quarter of 1998, the Company made certain changes to its
restructuring plan and, as a result, an additional charge of $680,000 was
recorded at that time, representing additional facility exit costs.
Specifically, the Company decided not to abandon one of the aforementioned
facilities slated for closure and, at that same time, committed to abandoning
one of the facilities that it had previously expected to keep open. The facility
exit costs include the write-off of approximately $500,000 of leasehold
improvements, with the remainder representing certain contractual lease payments
related to the abandonment of the leased facility.
During the year ended December 31, 1998, the activity in the restructuring
liability was as follows (in thousands):
Total 1998 Balance at
Restructuring Cash Non-Cash December 31,
Charge Payments Items 1998
-------------- ---------- ---------- ------------
Employee termination
Benefits $ 579 $ 524 $ -- $ 55
Asset write-downs 638 -- 638 --
Other facility exit costs 487 183 -- 304
------------- ---------- ---------- ------------
$ 1,704 $ 707 $ 638 $ 359
============= ========== ========== ============
The remaining balance of $359,000 at December 31, 1998 is expected to be
paid out during the year ended December 31, 1999.
The annual cost savings resulting from the restructuring actions was
approximately $11,000,000.
Interest Income and Interest Expense
Interest income decreased by 38% to $2.8 million from $4.6 million for 1998
as compared to 1997. The decrease was attributable to the reduced size of the
Company's investment portfolio, caused by the need to fund the Company's
operations and to repurchase the Notes (see Note 9 to the Financial Statements).
Interest expense decreased 14% to $3.9 million from $4.5 million for 1998
as compared to 1997 as a result of the reduction in outstanding convertible
Notes due to the repurchases during 1998.
Extraordinary Gain on Early Retirement of Debt
During 1998, the Company repurchased approximately $44,244,000 in aggregate
principal amount of its Notes. Of the total repurchases, $34,924,000 represents
Notes repurchased as part of the Company's announced tender offer which was
completed on October 22, 1998. The remaining $9,320,000 of Notes repurchased
occurred in unsolicited open market transactions with persons who were not
affiliates of the Company. The total cost of the Note repurchases was
$19,321,000, including accrued and unpaid interest and transaction fees related
to the tender offer. These repurchases resulted in an extraordinary gain of
$23,273,000 for the year ended December 31, 1998.
Results of Operations
Years Ended December 31, 1997 and 1996
The Company's revenues decreased by 81% to $0.5 million from $2.6 million
for 1997 compared to 1996. The decrease is primarily due to the fact that there
were no stocking shipments of the Reliance Insert product to the Company's
European distributors during 1997 and that there were decreases in recognition
of deferred revenue from a portion of the advance payments received upon signing
of the European distribution agreements, partially offset by small amounts of
U.S. sales of the Reliance Insert, the INTROL Bladder Neck Support Prosthesis
and the Impress Softpatch
Cost of Revenues
Cost of revenues decreased by 8% to $4.7 million from $5.1 million for 1997
as compared to 1996. The decrease is due to significantly lower variable product
cost due to lower product sales in 1997 as compared to 1996, partially offset by
the same level of manufacturing-related overhead costs in 1997 as in 1996 and
charges in 1997 for the impairment of certain Reliance manufacturing equipment.
Cost of revenues significantly exceeds product revenue in 1997 and in 1996 due
to the current level of variable product costs as well as the Company's
manufacturing-related overhead costs relative to the low start-up volume of
production in these periods.
Research and Development
Research and development expenses decreased by 69% to $11.7 million from
$37.6 million for 1997 as compared to 1996. The decrease is primarily due to the
1996 acquisition of technology for the Impress Softpatch (see Note 3 of Notes to
the Financial Statements). This was accounted for as purchased in-process
research and development and, as a result, the purchase price of $30.0 million
and related expenses of $0.2 million were charged to operations in 1996. Without
the Impress Softpatch acquisition charge, research and development expenses
increased by 58% to $11.7 million for 1997 as compared to $7.4 million for 1996.
The increase in research and development costs for 1997 compared to 1996,
without this Impress Softpatch acquisition charge, was primarily due to
increased expenditures on the Impress Softpatch scale-up activities, specific
charges in relation to product-line acquisition activity, charges for the
impairment of certain Reliance manufacturing equipment and the additional
efforts and resources on internal development activities and in-licensing
activities, including the BreastCheck breast self-examination device, the
physician-use BreastExam, and BreastView devices, and the CaverMap Surgical Aid.
Marketing and Sales
Marketing and sales expenses increased by 82% to $13.2 million from $7.3
million for 1997 as compared to 1996. This increase was the result of
expenditures incurred in connection with the U.S. launch of the Reliance Insert,
which began in November 1996 and continued throughout most of 1997. Increases
were also a result of the commencement of test marketing activities and market
analysis for the Impress Softpatch. Increases relate specifically to costs for
marketing and sales personnel, costs to design and conduct advertising and
public relations campaigns, sales training and costs in conjunction with
marketing activities in the prostate cancer and breast cancer detection areas.
General and Administrative
General and administrative expenses increased by 96% to $5.5 million from
$2.8 million for 1997 as compared to 1996. These increases are primarily due to
costs to support the U.S. launch of the Reliance Insert, costs in connection
with supporting the internal development activities in the prostate cancer and
breast cancer detection areas and increased consulting expenses.
Interest Income and Interest Expense
Interest income increased by 32% to $4.6 million from $3.5 million for 1997
as compared to 1996. The increase was attributable to the significant increase
in the Company's interest-bearing cash and cash equivalents and short-term
investments as a result of the issuance of the Company's Notes in October 1996
and higher realized interest rates on invested cash balances in 1997.
Interest expense increased significantly to $4.5 million from $0.9 million
for 1997 as compared to 1996 as a result of the full year of interest in 1997
for the Convertible Notes issued in October 1996.
Liquidity and Capital Resources
At December 31, 1998, the Company had cash, cash equivalents and short-term
investments totaling $26.3 million, a decrease of $38.7 million, or 147%, from
$65.0 million at December 31, 1997. At December 31, 1998, the Company's funds
were invested in U.S. government obligations, corporate debt obligations and
money market funds.
Net cash used in operating activities of $18.0 million for the year ended
December 31, 1998 was primarily a result of the $18.9 million loss before the
extraordinary gain on the early retirement of debt and decreases of $2.5 million
in accounts payable and accrued expenses, partially offset by depreciation and
amortization of $2.1 million, the $1.0 million write-off of the Medworks
investment, and non-cash restructuring charges of $0.6 million.
Net cash provided by investing activities was $37.8 million for the year
ended December 31, 1998, primarily as a result of the maturity of short-term
investments.
Net cash used in financing activities was $20.2 million for the year ended
December 31, 1998, primarily as a result of the $19.7 million used to repurchase
$44.2 million in aggregate principal amount of Notes.
In October 1996, the Company completed the sale of $69,000,000 of its 6%
Convertible Subordinated Notes.due October 15, 2003 (the "Notes"). During 1998,
the Company repurchased approximately $44,244,000 in aggregate principal amount
of its Notes. The outstanding principal balance of the Notes at December 31,
1998 is $24,756,000. In March 1999, the Company repurchased approximately
$1,400,000 of Notes for approximately $600,000. The Company is considering from
time to time additional repurchases of its Notes. Any repurchases of Notes may
be made on the open market or in privately negotiated transactions. The Company
plans to fund such purchases from its working capital
The Board of Directors of the Company authorized a Common Stock repurchase
program in 1998 (the "Repurchase program"). The Company is authorized to
repurchase up to one million shares of the outstanding Common Stock, from time
to time, subject to prevailing market conditions. As of December 31, 1998, the
Company has repurchased approximately 187,000 shares of its Common Stock for
approximately $500,000 as part of the Repurchase program. Purchases pursuant to
the Repurchase program may be made on the open market or in privately negotiated
transactions. The Company plans to fund such purchases from its working capital.
The Company believes that available cash, cash equivalents and short-term
investments will be sufficient to meet the Company's operating expenses and
capital requirements for at least the next twelve months. The Company's future
long-term liquidity and capital requirements depend on numerous factors,
including, but not limited to: development of the Company's marketing
capability, market acceptance of the the CaverMap Surgical Aid and the I-125
seed, development of partnerships and alliances for its assets and technology in
incontinence and breast cancer. There can be no assurance that the Company will
not require additional financing or that, if required, such financing will be
available on terms acceptable to the Company.
Year 2000
The Company has identified its Year 2000 risk in three categories: internal
business software; imbedded chip technology; and external non-compliance by
significant suppliers and service providers.
INTERNAL BUSINESS SOFTWARE. During 1996, the Company purchased an
Enterprise Resource Planning Sytem ("ERP System") which was Year 2000 compliant.
The ERP System provides for significantly all of the Company's internal
accounting, business management and planning needs. The total hardware,
software, installation and testing cost of the ERP System was approximately $1.2
million which has been spent to date. The Company does not anticipate incurring
significant additional costs for further testing and compliance activities.
Given that its internal business software is Year 2000 compliant, the Company
does not have a contingency plan in place.
IMBEDDED CHIP TECHNOLOGY. At this time, most of the Company's products are
manufactured by outside suppliers and, as such, the Company has limited
manufacturing activities. The Compnay does not rely materially on imbedded chip
technology in its manufacturing processes and therefore does not anticipate that
Year 2000 issues will significantly affect its ability to manufacture finished
goods.
At this time, the Company believes that it will not encounter significant
operational difficulties from the effect of a Year 2000 issue arising from its
imbedded chip technology. Accordingly, based on these expectations, the Company
does not have a contingency plan to address material Year 2000 issues. If
significant Year 2000 issues arise, there can be no assurance that the Company
will be able to develop and implement a contingency plan in a timely manner and,
if not, the Company's operations could be adversely effected.
EXTERNAL NON-COMPLIANCE BY SIGNIFICANT SUPPLIERS AND SERVICE PROVIDERS. The
Company has identified all of its significant suppliers and service providers to
determine the extent to which the Company's business is vulnerable to those
third parties' failure to remedy their own Year 2000 issues. The Company's
significant suppliers include those that supply the products sold, or proposed
to be sold, by the Company including the CaverMap Surgical Aid, the Symmetra
I-125 seeds, the AlloSling incontinence surgical products, and the INTROL
Bladder Neck Support Prosthesis. At this time, the Company has begun the process
of contacting its significant suppliers (including those that supply its
products) and service providers concerning their successful completion of a Year
2000 compliance testing or indication that they were working toward achieving
Year 2000 compliance. At this time, the Company has received notification from
some significant suppliers and service providers of their Year 2000 compliance.
Based upon the results of the remaining inquiries to significant suppliers and
service providers, and to the extent that responses to Year 2000 readiness
responses are unsatisfactory, the Company intends to develop a contingency plan.
There can be no assurance that all significant suppliers and service providers
will successfully complete their Year 2000 compliance, that the Company's
contingency plans could replace those noncompliant suppliers or service
providers (including those that supply its products) with suppliers or service
providers that are Year 2000 compliant, or that these Year 2000 issues would not
have a material adverse effect on the Company. The main risks associated with
the Year 2000 issue are the uncertainties as to whether the Company's suppliers
or service providers can continue to perform to perform their services for the
Company uninterrupted by the Year 2000 event. The Company's suppliers and
service providers, if they are unable to remediate their Year 2000 issues, may
be unable to produce or deliver goods ordered by the Company. The Company
depends significantly upon telephone orders; should the Company's telephone
service be adversely affected, the Company will be unable to receive a high
percentage of its retail orders. The Company also depends in large measure on
delivery services such as Federal Express and UPS to deliver goods to customers;
accordingly should one or more of these delivery services prove unable to make
deliveries as a result of Year 2000 issues, the Company's cash flow and business
would be severely affected. Although the state of readiness of the Company's
suppliers and service providers will be monitored and evaluated, and contingency
plans will be developed, no assurances can be given as to the eventual state of
readiness of the Company's suppliers and/or service providers. Nor can any
assurance be given as to the eventual effectiveness of the Company's contingency
plans.
The preceding discussion contains forward-looking statements information
within the meaning of Section 21E of the Exchange Act. This disclosure is also
subject to protection under the Year 2000 Information and Readiness Disclosure
Act of 1998, Public Law 105-271, as a "Year 2000 Statement" and "Year 200
Readiness Disclosure" as defined therein. Actual results may differ materially
from such projected information due to changes in underlying assumptions.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to the Financial Statements:
<TABLE>
Page
------
<S> <C>
Report of Independent Accountants................................26
Balance Sheet at December 31, 1998 and 1997..................... 27
Statement of Operations for each of the three years
in the period ended December 31, 1998..........................28
Statement of Stockholders' Equity for each of the
three years in the period ended December 31, 1998 .............29-30
Statement of Cash Flows for each of the three years
in the period ended December 31, 1998 .........................31
Notes to the Financial Statements................................33-43
Financial Statement Schedule:
II - Valuation and Qualifying Accounts and Reserves............44
</TABLE>
All other financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
footnotes thereto.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of UroMed Corporation
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of UroMed
Corporation at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 1999
<PAGE>
Balance Sheet
<TABLE>
<CAPTION>
December 31, 1998 1997
- - - ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 11,576 $ 12,007
Short-term investments 14,704 53,018
Inventories 422 287
Prepaid expenses and other current assets 864 1,403
----------------------
Total current assets 27,566 66,715
Fixed assets, net 4,414 6,357
Other assets 1,626 3,521
----------------------
$ 33,606 $ 76,593
======================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 250 $ 1,197
Accrued expenses 3,026 4,611
----------------------
Total current liabilities 3,276 5,808
----------------------
Convertible subordinated notes 24,756 69,000
---------------------
Commitments (Note 15)
Stockholders' equity:
Preferred stock, $.01 par value; 500 shares
authorized; none issued -- --
Common stock, no par value; 10,000 shares
authorized; 5,367 and 5,341 shares issued,
5,180 and 5,341 shares outstanding at
December 31, 1998 and 1997, respectively 107,733 107,646
Accumulated other comprehensive income -- 66
Accumulated deficit (101,648) (105,927)
----------------------
6,085 1,785
Common stock held in treasury, 187 shares,
at cost (511) --
----------------------
Total stockholders' equity 5,574 1,785
-----------------------
$ 33,606 $ 76,593
========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Year Ended December 31, 1998 1997 1996
- - - -----------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues $ 837 $ 503 $ 2,622
--------------------------------
Costs and expenses:
Cost of revenues 3,413 4,722 5,110
Research and development 5,367 11,692 37,597
Marketing and sales 4,098 13,233 7,276
General and administrative 4,175 5,514 2,816
Restructuring 1,704 --- ---
--------------------------------
Total costs and expenses 18,757 35,161 52,799
--------------------------------
Loss from operations (17,920) (34,658) (50,177)
Interest income 2,837 4,558 3,462
Interest expense (3,911) (4,533) (945)
--------------------------------
Loss before extraordinary gain on early
retirement of debt $(18,994) $(34,633) $(47,660)
Extraordinary gain on early retirement
of debt 23,273 --- ---
--------------------------------
Net income (loss) $ 4,279 $(34,633) $(47,660)
--------------------------------
Other comprehensive income (loss):
Unrealized gain (loss) on investments
available-for-sale (66) 97 (191)
---------------------------------
Total comprehensive income (loss) $ 4,213 $(34,536) $(47,851)
=================================
Basic and diluted net income (loss)
per share amounts:
Loss before extraordinary gain on
early retirement of debt $ (3.59) $ (6.51) $ (9.35)
Extraordinary gain on early retirement
of debt 4.40 --- ---
---------------------------------
Net income (loss) $ 0.81 $ (6.51) $ (9.35)
==================================
Basic and diluted weighted average common
shares outstanding 5,290 5,316 5,109
=================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
For the Three
Years in the
Period Ended
December 31, 1998
(in thousands)
Common
Other Stock
Common Stock Accumulated Held
Number Comprehensive Deferred Accum- In
of Carrying Income Compen- ulated Treas-
Shares Value (Loss) sation Deficit ury Total
<S> <C> <C> <C> <C> <C>
<C>
Balance, December 31,
1995 4,795 $83,839 $160 $(273) $(23,634) -- $ 60,092
Issuance of common
stock in conn-
ection with
acquisition of
technology 467 23,000 -- -- -- -- 23,000
Issuance of common
stock options
for services -- 451 -- -- -- -- 451
Issuance of common
stock upon
exercise of stock
options 25 89 -- -- -- -- 89
Issuance of common
stock under
employee stock
purchase plan 2 113 -- -- -- -- 113
Net unrealized
loss on
investments
available-for-
sale -- -- (191) -- -- -- (191)
Amortization of
deferred
compensation -- -- -- 58 -- -- 58
Net loss -- -- -- -- (47,660) -- (47,660)
- - -----------------------------------------------------------------------------------------
Balance, December 31,
1996 5,289 107,492 (31) (215) (71,294) -- 35,952
Issuance of
common stock
options for
services -- 65 -- -- -- -- 65
Issuance of
common stock
upon exercise
of stock
options 41 103 -- -- -- -- 103
Issuance of
common stock
under employee
stock purchase
plan, net of
cancellations 11 151 -- -- -- -- 151
Net unrealized
gain on
investments
available-for-
sale -- -- 97 -- -- -- 97
Amortization of
deferred
compensation -- -- -- 50 -- -- 50
Reversal of
deferred compen-
sation related
to employee
termination -- (165) -- 165 -- -- --
Net loss -- -- -- -- (34,633) -- (34,633)
- - --------------------------------------------------------------------------------
Balance, December
31, 1997 5,341 107,646 66 -- (105,927) -- 1,785
Repurchase of
common stock -- -- -- -- -- (511) (511)
Issuance of
common stock
options for
services -- 48 -- -- -- -- 48
Issuance of
common stock
upon exercise
of stock
options 25 46 -- -- -- -- 46
Issuance of
common stock
under employee
stock purchase
plan, net of
cancellations 1 (7) -- -- -- -- (7)
Net unrealized
loss on
investments
available-for-
sale -- -- (66) -- -- -- (66)
Net income -- -- -- -- 4,279 -- 4,279
- - --------------------------------------------------------------------------------
Balance, December
31, 1998 5,367 $ 107,733 $ -- $ -- $(101,648) $(511) $5,574
================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- - - ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents
Cash flows from operating activities:
Net income (loss) $4,279 $(34,633) $ (47,660)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 2,151 3,575 867
Issuance of common stock in connection
with acquisition of technology -- -- 23,000
Issuance of common stock and stock
options for services 48 65 451
Extraordinary gain on early retirement
of debt (23,273) -- --
Write-off of investment in Medworks
Corporation 1,000 -- --
Non-cash portion of restructuring charges 638 -- --
Increases (decreases) resulting from
changes in assets and liabilities:
Inventories (135) 300 (357)
Prepaid expenses and other assets (211) (79) (128)
Accounts payable and accrued expenses (2,532) 272 1,376
----------------------------------
Net cash used in operating
activities (18,035) (30,500) (22,451)
----------------------------------
Cash flows from investing activities:
Sales (purchases) of short-term
investments, net 38,248 3,161 (14,011)
Purchases of fixed assets (554) (5,525) (2,647)
Proceeds from sales of fixed assets 82 -- --
Investment in Medworks Corporation -- (1,000) --
Decrease in other assets 37 61 75
----------------------------------
Net cash provided by (used in)
investing activities 37,813 (3,303) (16,583)
----------------------------------
Cash flows from financing activities:
Proceeds from issuance of convertible
subordinated notes, net of issuance costs -- -- 66,235
Repurchase of convertible subordinated
notes (19,737) -- --
Repurchase of common stock (511) -- --
Principal payments on capital lease
obligations -- -- (12)
Proceeds from issuance of common stock,
net of issuance costs 39 254 202
-----------------------------------
Net cash provided by (used in)
financing activities (20,209) 254 66,425
-----------------------------------
Net (decrease) increase in cash and cash
equivalents (431) (33,549) 27,391
Cash and cash equivalents, beginning of year 12,007 45,556 18,165
-----------------------------------
Cash and cash equivalents, end of year $ 11,576 $ 12,007 $ 45,556
==================================
Supplemental disclosure of cash flow
information:
Interest paid $ 4,114 $ 4,140 $ 1
</TABLE> ==================================
The accompanying notes are an integral part of the financial statements.
<PAGE>
Notes to Financial Statements
1: Nature of Business
UroMed Corporation (the "Company"), a Massachusetts corporation, was
incorporated in October 1990 and is dedicated to establishing itself as a leader
in providing interventional urological products, with a primary emphasis on the
treatment of prostate cancer. The Company has also developed and acquired
technology in urinary incontinence products and in breast cancer detection.
2: Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Operations of the Company are subject to certain risks and uncertainties
including, but not limited to, uncertainties related to clinical trials,
regulatory approvals, technological uncertainty, uncertainty of future
profitability and access to capital, dependence on collaborative relationships
and key personnel.
Cash Equivalents and Short-Term Investments
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). At December 31, 1998 and 1997, all of
the Company's investments are classified as available-for-sale and are reported
in the balance sheet at fair value. Any unrealized gains and losses on
available-for-sale securities are reported as accumulated other comprehensive
income in stockholders' equity. Upon the sale of securities, realized gains and
losses are reported in the statement of operations.
The Company invests its excess cash primarily in securities of U.S.
government agencies, high grade corporate debt obligations and money market
funds that are subject to minimal credit and market risks. The Company considers
investments with original maturities of three months or less to be cash
equivalents. All other investments are classified as short-term investments
because they are highly liquid and are available to meet working capital needs.
Revenue Recognition
Revenue from product sales is recorded upon shipment of product to the
customer. The Company accrues anticipated product warranty costs at that time.
Major Customers
During each of the three years ended December 31, 1998, a substantial
portion of the Company's revenue has been derived from its distributors. Revenue
from the Company's distributor for Japan amounted to 29% of total revenue for
the year ended December 31, 1998. Revenue from the Company's distributor for
Scandinavia, the United Kingdom and The Netherlands amounted to 75% and 63% for
the years ended December 31, 1997 and 1996, respectivley. Revenue from the
Company's distributor for Germany amounted to 34% of total revenue for the year
ended December 31, 1996.
Of total revenue reported, 0%, 75% and 43% for the years ended December 31,
1998, 1997 and 1996, respectively, resulted from the recognition of revenue
(initially deferred) related to payments received by the Company upon the
signing of distribution agreements.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method. Cost includes material, labor
and manufacturing overhead.
Fixed Assets
Fixed assets are recorded at cost and depreciated over the estimated useful
lives of the assets using the straight-line method. Leasehold improvements are
depreciated using the straight-line method, over their estimated useful lives or
the term of the lease, if shorter. Additions, renewals and betterments are
capitalized. Repair and maintenance costs are expensed as incurred.
Financing Costs
Deferred financing costs, which are included in other assets, are being
amortized over the seven-year life of the Company's 6% Convertible Subordinated
Notes due October 15, 2003 ("Notes") using the straight-line method, which
approximates the interest method. Unamortized costs at December 31, 1998 and
1997 are $680,000 and $2,288,000, respectively. During the year ended December
31, 1998, approximately $1,234,000 of deferred financing costs were written-off
in connection with the the early retirement of debt (see Note 9).
Accounting for the Impairment of Long-Lived Assets
The Company periodically evaluates its long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. At the occurrence of such an event or change in circumstances,
the Company evaluates a potential impairment of an asset based on estimated
future undiscounted cash flows. In the event that future undiscounted cash flows
are less than the carrying amount of such asset, an impairment loss is
recognized for the difference between estimated fair value and the carrying
amount of the asset. During the year ended December 31, 1997, the Company
recorded an impairment as described in Note 5.
Net Income (Loss) Per Share
Net income (loss) per share has been calculated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"("SFAS
128"), which requires the presentation of "basic" earnings per share and
"diluted" earnings per share. Basic earnings per share is computed by dividing
net income (loss) by the weighted average shares of outstanding common stock.
For purposes of computing diluted earnings per share, the denominator includes
both the weighted average shares of outstanding common stock and dilutive
potential common stock shares.
For each of the periods presented, basic and diluted net income (loss) per
share are the same due to the antidilutive effect of potential common stock
shares. Antidilutive potential common stock excluded from the 1998, 1997 and
1996 computation included 371,438, 344,508 and 309,372 common shares,
respectively, issuable upon the exercise of outstanding common stock options,
and 372,775, 1,039,078 and 1,039,078 common shares ,respectively, issuable upon
the conversion of the Company's Notes.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to its employees using the
intrinsic value based method as prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations ("APB 25") and follows the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") for disclosure purposes (see Note 13).
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year financial statement presentation. The reclassifications had no impact on
net loss for those years.
3 : Investments
Following is a summary of available-for-sale investments, by balance sheet
classification:
<TABLE>
<CAPTION>
Amortized Unrealized
cost Gains (Losses) Fair value
- - - -----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
December 31, 1998:
Cash equivalents:
U.S. Government obligations $ 2,571 $ -- $ 2,571
Corporate debt obligations 1.004 -- 1,004
Money market funds 7,719 -- 7,719
-------------------------------------------
$ 11,294 $ -- $ 11,294
===========================================
Short-term investments:
U.S. Government obligations $ 751 $ -- $ 751
Corporate debt obligations 13,953 -- 13,953
-------------------------------------------
$ 14,704 $ -- $ 14,704
============== ============================
December 31, 1997:
Cash equivalents:
U.S. Government obligations $ 1,495 $ -- $ 1,495
Corporate debt Obligations 4,961 -- 4,961
Money market funds 4,004 -- 4,004
-------------------------------------------
$ 10,460 $ -- $ 10,460
===========================================
Short-term investments:
U.S. Government obligations $ 3,991 $ 6 $ 3,997
Corporate debt obligations 48,961 60 49,021
-------------------------------------------
$ 52,952 $ 66 $ 53,018
===========================================
</TABLE>
At December 31, 1998, the fair value of short-term investments having
contractual maturities of one year or less totaled $13,617,000 and the fair
value of short-term investments with contractual maturities greater than one
year but less than four years totaled $1,087,000. The proceeds from sales of
securities amounted to approximately $16,255,000, $21,098,000, and $15,853,000
for the years ended December 31, 1998, 1997 and 1996, respectively. Gross
realized gains and losses on these sales were not significant.
4: Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
- - - ----------------------------------------------
(in thousands)
<S> <C> <C>
Raw materials $ 85 $ 23
Work in process 22 9
Finished goods 315 255
- - - ----------------------------------------------
$422 $287
==============================================
</TABLE>
5 : Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Useful Life December 31,
in Years 1998 1997
- - - ---------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Machinery and equipment 3-4 $1,430 $1,617
Computer and office equipment 3-4 1,360 3,105
Leasehold improvements 7 -- 924
Machinery and equipment not
yet placed in service -- 3,852 3,789
------------------
6,642 9,435
Less - Accumulated depreciation
and amortization 2,228 3,078
------------------
$4,414 $6,357
==================
</TABLE>
During 1997, the Company recorded an impairment loss of $1,455,000 related
to automated manufacturing equipment that was used or was intended to be used in
production of the Reliance Insert. The loss of $1,455,000 represented the
carrying value of the equipment at the time the loss was recorded. The loss has
been included in depreciation and amortization expense within the research and
development ($900,000) and cost of sales ($555,000) components of the Statement
of Operations.
Depreciation expense for the year ended December 1998, 1997 and 1996 was
$1,746,000, $3,129,000 and $727,000,respectively.
6 : Investment in Medworks Corporation
In August 1997, the Company invested $1,000,000 in the preferred stock of
Medworks Corporation of Louisville, KY as part of a license and supply agreement
between the Company and Medworks Corporation, enabling the Company to market,
sell and distribute Medworks' surgical technology to correct female urinary
stress incontinence. This investment was accounted for under the cost method and
was included in other assets in the balance sheet at December 31, 1997.
In December 1998, the license and supply agreement between the Company and
Medworks was terminated. In connection with the termination, the Company
evaluated the $1,000,000 carrying value of its Medworks investment and concluded
that an "other than temporary" decrease in the value of its investment had
occurred. Accordingly, the Company wrote-off the carrying value of the
investment during the fourth quarter of the year ended December 31, 1998
(included in general and administrative expenses).
During 1998 and 1997, as part of the license and supply agreement, the
Company purchased $155,000 and $311,000 of inventory, respectively, from
Medworks Corporation.
7 . Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
- - - -----------------------------------------------------
(in thousands)
<S> <C> <C>
Clinical trials $ 308 $ 565
Professional fees 414 944
Interest 309 863
Employee-related 665 1,088
Restructuring 359 --
Other 971 1,151
---------------------
$3,026 $4,611
=====================
</TABLE>
8 : Restructuring
During the year ended December 31, 1998, the Company recorded a total
charge of $1,704,000 representing the cost of restructuring its operations to
shift its strategic emphasis to the hospital-based business and away from the
consumer- oriented continence care business, which the Company has concluded
will be best approached by entering into a partnership or other arrangement with
a larger company. During the first quarter of 1998, a plan to effect this
restructuring was adopted by the Board of Directors and, at that time, the
Company recorded a restructuring charge of $1,024,000. This charge consisted of
approximately $579,000 of employee termination benefits and approximately
$445,000 of costs to exit two of the Company's leased facilities. The employee
termination benefits related to the termination of approximately 40 employees,
all of which have been terminated as of December 31, 1998, across all functional
areas of the Company. The facility exit costs include the write-off of
approximately $138,000 of leasehold improvements, with the remainder
representing certain contractual lease payments related to the leased
facilities.
During the fourth quarter of 1998, the Company made certain changes to its
restructuring plan and, as a result, an additional charge of $680,000 was
recorded at that time, representing additional facility exit costs.
Specifically, the Company decided not to abandon one of the aforementioned
facilities slated for closure and, at that same time, committed to abandoning
one of the facilities that it had previously expected to keep open. The facility
exit costs include the write-off of approximately $500,000 of leasehold
improvements, with the remainder representing certain contractual lease payments
related to the abandonment of the leased facility.
During the year ended December 31, 1998, the activity in the restructuring
liability was as follows (in thousands):
Total 1998 Balance at
Restructuring Cash Non-Cash December 31,
Charge Payments Items 1998
-------------- ---------- ---------- ------------
Employee termination
Benefits $ 579 $ 524 $ -- $ 55
Asset write-downs 638 -- 638 --
Other facility exit costs 487 183 -- 304
------------- ---------- ---------- ------------
$ 1,704 $ 707 $ 638 $ 359
============= ========== ========== ============
The remaining balance of $359,000 at December 31, 1998 is expected to be
paid out during the year ended December 31, 1999.
9 : Convertible Subordinated Notes
In October 1996, the Company completed the sale of $69,000,000 of its
Notes. The Notes are convertible at any time into shares of common stock of the
Company at a conversion price of $66.41 per share, subject to adjustment under
certain circumstances. Interest on the Notes is payable each April 15 and
October 15 unless previously converted or repurchased. The Notes are redeemable
at the option of the Company on or after October 15, 1999, at specified
redemption prices, ranging from 100.857% to 103.429% of the face amount per Note
plus accrued and unpaid interest to the date of redemption. The Notes are
unsecured obligations of the Company and are subordinated to all other Senior
Debt (as defined) of the Company.
During 1998, the Company repurchased approximately $44,244,000 in aggregate
principal amount of its Notes. Of the total repurchases, $34,924,000 represents
Notes repurchased as part of the Company's announced tender offer which was
completed on October 22, 1998. The remaining $9,320,000 of Notes repurchased
occurred in unsolicited open market transactions with persons who were not
affiliates of the Company. The total cost of the Note repurchases was
$19,321,000, including accrued and unpaid interest and transaction fees related
to the tender offer. As a result of these repurchases, an extraordinary gain of
$23,273,000 was recorded in the Statement of Operations for the year ended
December 31, 1998. During March 1999, the Company repurchased approximately
$1,400,000 in aggregate principal amount of its Notes for approximately
$600,000.
10 : Acquisition of Technology
In May 1996, the Company acquired all of the incontinence technology of the
ASI Liquidating Trust, the successor to Advanced Surgical Intervention, Inc.,
including the Miniguard(TM) Patch, an FDA-cleared prescription adhesive patch
placed externally against the urethral opening to help block leakage in women
with mild-to-moderate stress urinary incontinence. The Company purchased the
Miniguard Patch technology for $30,000,000, consisting of $7,000,000 in cash and
common stock valued at $23,000,000. The acquisition of this incontinence
technology was accounted for as purchased in-process research and development
and, as a result, the purchase price and related expenses of $2,000,000 were
charged to operations in 1996. In 1997, the name Miniguard Patch was changed to
Impress Softpatch.(TM)
As discussed in Note 8, during 1998 the Company restructured its operations
and in connection therewith concluded that the best vehicle for capitalizing on
the Impress Softpatch product opportunity was a partnership with, and/or sale of
the technology to, a large company that has an extensive distribution channel.
The Company is currently in pursuit of such arrangement and does not intend to
incur product launch costs until such time that an arrangement is in place. At
December 31, 1998 there is appoximately $3,900,000 of manufacturing equipment
included within fixed assets (see Note 5) that is specific to the Impress
Softpatch manufacturing process. At this time, the Company expects to enter into
an arrangement during 1999 that would allow it to fully recover its carrying
value of the Impress manufacturing equipment.
11: Stockholders' Equity
Preferred Stock
The Company has authorized 500,000 shares of $.01 par value preferred
stock, none of which have been issued at December 31, 1998. Preferred stock may
be issued at the discretion of the Board of Directors of the Company with such
designations, rights and preferences as the Board of Directors may determine.
Upon issuance, the preferred stock may include, among other things,
extraordinary dividend, redemption, conversion, voting or other rights which may
adversely affect the holders of the common stock.
Common Stock
At December 31, 1998, the Company has reserved 399,608 shares of common
stock for issuance pursuant to exercise of common stock options granted under
the Stock Option Plan, 45,417 shares of common stock for issuance under the
Employee Stock Purchase Plan, and 372,775 shares for issuance upon conversion of
the Notes.
Common Stock Split
On May 18, 1998 the Company effected a one-for-five reverse stock split
(the "Reverse Stock Split"). All common stock, stock options and per share
amounts included in these financial statements have been adjusted to give
retroactive effect to the Reverse Stock Split for all years presented.
Treasury Stock
The Board of Directors of the Company authorized a Common Stock repurchase
program on June 17, 1998 (the "Repurchase Program") whereby the Company is
authorized to repurchase up to one million common shares, which represents
approximately 19% of the total shares outstanding, from time to time, subject to
prevailing market conditions. As of December 31, 1998 the Company has
repurchased 187,000 shares of its common stock for $511,000 as part of the
Repurchase Program.
Shareholder Rights Plan
In June 1997, the Company's Board of Directors adopted a Shareholder Rights
Plan. This Plan provides shareholders with special purchase rights under certain
circumstances, including if any new person or group acquires 15 percent or more
of the Company's outstanding common stock.
12 : Employee Benefit Plans
Stock Option Plan
On June 7, 1991, the Company adopted the 1991 Stock Option Plan (the
"Plan") which provides for the granting of either incentive stock options or
non-statutory stock options to employees, officers, directors and consultants of
the Company. The Plan, as amended, allows for a maximum of 640,000 shares of
common stock to be issued.
The exercise price of any incentive stock option shall not be less than the
fair value of the stock on the date of grant or less than 110% of the fair value
in the case of optionees holding more than 10% of the total combined voting
power of all classes of stock of the Company. Options under the plan are
exercisable over periods determined by the Board of Directors, not to exceed ten
years from the date of grant, except for incentive stock options granted to
optionees holding more than 10% of the total combined voting power of all
classes of stock, which must be within five years.
Under the Plan, non-employee directors of the Company will receive options
to purchase 4,000 shares of common stock upon their election to the Board of
Directors and, after having served on the Board of Directors for one year,
options to purchase 150 shares of common stock on a quarterly basis, up to a
maximum of 24 grants. All of these option grants are exercisable over a ten-year
period and must have an exercise price equal to the fair market value of the
shares on the grant date.
Option activity for the years ended December 31, 1998, 1997 and 1996 is
summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
- - -------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
period 344,507 $ 21.65 309,371 $ 26.55 253,705 $15.55
Granted 491,900 $ 6.16 184,302 $ 20.70 92,395 $51.25
Cancelled (439,499) $ 19.94 (108,401) $ 41.10 (12,091) $32.55
Exercised (25,750) $ 1.82 ( 40,765) $ 2.55 ( 24,637) $ 3.60
--------- --------- ---------
Outstanding at
end of period 371,158 $ 5.31 344,507 $ 21.65 309,372 $26.55
========= ========= ==========
Options
exercisable
at end of
period 103,593 $ 9.82 125,174 $ 14.05 119,686 $ 6.95
========= ========= ==========
Weighted average
fair value of
options granted
during the period $ 2.97 $10.05 $33.65
========= ========= =========
</TABLE>
At December 31, 1998, options to purchase 28,450 shares of common stock
were available for future grants under the Plan.
In September 1997, March 30, 1998 and December 15, 1998, the Company
repriced 31,860, 167,000 and 106,300 , respectively, outstanding common stock
options to reflect the current market value per share of common stock. The
cancellation and issuance of replacement options is recorded in the option
activity above.
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding
- - - ------------------------------------------------------------------------------
Weighted
average Weighted
Number remaining average
Range of exercise prices outstanding contractual life exercise price
- - - ------------------------------------------------------------------------------
<S> <C> <C> <C>
$ .01 to $1.06 24,020 4.3 $ 0.44
$1.37 to $1.51 225,567 9.1 $ 1.42
$1.94 to $11.00 97,771 7.7 $ 9.74
$13.44 to $66.88 23,800 6.9 $29.12
---------
Total 371,158
=========
</TABLE>
<TABLE>
<CAPTION>
Options exercisable
- - - ------------------------------------------------------------------------------
Weighted
Number average
Range of exercise prices exercisable exercise price
- - - ------------------------------------------------------------------------------
<S> <C> <C>
$ .01 to $ 1.06 24,020 $ 0.44
$1.37 to $ 1.51 18,444 $ 1.42
$1.94 to $11.00 42,529 $ 9.10
$13.44 to $66.88 18,600 $31.90
-------
Total 103,593
=======
</TABLE>
Fair Value Disclosures
As discussed in Note 2, the Company follows APB 25 in accounting for awards
under its stock option plans. Had compensation cost for the Company's option
plans been determined based on the fair value at the grant dates, as prescribed
by SFAS 123, the Company's net loss and net loss per share would have been as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- - - ------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss):
As reported $4,279 $(34,633) $(47,660)
Pro forma $3,554 $(35,477) $(48,620)
Basic and diluted net income
(loss) per share:
As reported $ 0.81 $ (6.51) $ (9.35)
Pro forma $ 0.67 $ (6.65) $ (9.50)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes model with the following assumptions used for grants for all
periods: dividend yield of 0.0%; risk-free interest rates ranging from 5.5% to
6.8%; expected option terms of 0.3 years to 5.8 years in 1996 and 1997, and 2
years to 6 years in 1998; and a volatility of .60 for options granted in 1996
and 1997 and .66 for options granted in 1998.
<PAGE>
Employee Stock Purchase Plan
On May 19, 1995, the Company approved the 1995 Employee Stock Purchase
Plan. This plan provides for the purchase by employees of up to 60,000 shares of
common stock at 85% of the fair market value on the first or last day of the
offering period (as defined in the plan), whichever is lower. During the year
ended December 31, 1998, 10,491 shares were issued under the plan at a range of
$1.22 to $4.73 per share. During the year ended December 31, 1997, 10,776 shares
were issued under the plan at a range of $14.90 to $15.00 per share. During the
year ended December 31, 1996, 2,548 shares were issued under the plan at a range
of $41.45 to $59.25 per share.
13 : Income taxes
The components of deferred income tax (expense) benefit are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- - - ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Income tax (expense) benefit:
Federal $ (980) $ 11,315 $ 15,497
State (137) 3,678 4,796
---------------------------------------
(1,117) 14,993 20,293
Change in deferred tax
asset valuation allowance 1,117 (14,993) (20,293)
---------------------------------------
$ -- $ -- $ --
=======================================
</TABLE>
No federal or state taxes were payable in any year through December 31,
1998 as a result of losses incurred and the utilization of net operating loss
carryforwards.
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997
- - - ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Purchased research and development $ 10,432 $ 11,277
Deferred research and development
expenses 3,401 3,921
Accrued expenses 943 674
Depreciation 1,316 1,149
Operating reserves 540 476
Deferred revenue 96 --
Tax credit carryforwards 2,683 2,262
Net operating loss carryforwards 24,998 25,863
Other 440 344
-------------------------
Gross deferred tax assets 44,849 45,966
Deferred tax asset
valuation allowance (44,849) (45,966)
-------------------------
$ -- $ --
=========================
</TABLE>
A reconciliation between the amounts of reported income tax (expense)
benefit and the amount determined by applying the U.S. federal statutory rate of
35% to net (income) loss follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- - - ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net (income) loss at statutory rate $ (1,498) $ 11,892 $ 16,681
State tax (expense) benefit, net of
federal tax effect (264) 2,098 2,988
Federal and state research
and development credits 314 710 292
Non-qualified stock
options and warrants -- 183 82
Other 331 110 250
---------------------------------------
(1,117) 14,993 20,293
Benefit of loss not
recognized, decrease (increase) in
valuation allowance 1,117 (14,993) (20,293)
---------------------------------------
$ -- $ -- $ --
=======================================
</TABLE>
<PAGE>
The Company has provided a valuation allowance for the full amount of the
deferred tax assets since there is no assurance that future tax benefits will be
realized. As the Company achieves profitability, these deferred tax assets would
be available to offset future income tax liabilities and expense. Of the
$44,849,000 valuation allowance at December 31, 1998, $1,000,000 relating to
deductions for non-qualified stock options will be credited to additional
paid-in capital upon realization.
At December 31, 1998, the Company had net operating loss carryforwards for
federal and state income tax reporting purposes of approximately $61,000,000. At
December 31, 1998, the Company had research and development tax credit
carryforwards for federal and state income tax reporting purposes of $1,626,000
and $1,057,000, respectively. The federal carryforwards expire between the years
2006 and 2018 and the state carryforwards expire between the years 1999 and
2003.
Ownership changes, as defined in the Internal Revenue Code (the "Code"),
have limited the amount of net operating loss and tax credit carryforwards that
can be used annually to offset future taxable income or tax liabilities. The
annual limitation amount as defined in the Code is approximately $8,600,000 and
the net operating loss and tax credit carryforwards subject to this limitation
are approximately $20,900,000 and $802,000, respectively. Future changes in
ownership could further affect the limitation in future years.
14. Segment Reporting
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which changes the way the Company
reports information about its operating segments. The Company has determined its
reportable segments based on its method of internal reporting, which
disaggregates its business by product category. The Company's reportable
segments are (i) its prostate cancer and incontinence business, which includes
the Cavermap surgical aid, the I-125 brachytherapy seeds and needles, all
consumer and surgical incontinence products, and (ii) its breast cancer
business, which includes all development efforts for its proposed BreastExam,
BreastView and BreastCheck products.
The accounting policies of the segments are the same as those described in
Note 2, "Summary of Significant Accounting Policies." The Company evaluates the
performance of its operating segments based on operating loss which represents
income before interest income and expense and extraordinary gain on early
retirement of debt. There are no intersegment revenues.
The table below presents information about the Company's segments for the
three years ended December 31, 1998. Asset information reportable by segment is
not reported, since the Company does not produce such information internally:
Prostate cancer
and Breast
Incontinence Cancer Totals
---------------- -------- --------
Year ended December 31, 1998
Revenues $ 837 $ - $ 837
Restructuring (1,704) - (1,704)
Depreciation (1,692) (54) (1,746)
Operating Loss (11,156) (2,725) (13,881)
Year ended December 31, 1997
Revenues 503 - 503
Depreciation (3,102) (27) (3,129)
Operating Loss (26,723) (3,405) (30,128)
Year ended December 31, 1996
Revenues 2,622 - 2,622
Depreciation (715) (12) (727)
Operating Loss (46,005) (932) (46,937)
The following are reconciliations of the operating loss amounts presented
above to corresponding totals in the accompanying financial statements:
Years ended December 31, 1998 1997 1996
- - -------------------------------------------------------------------------------
Total for reportable segments $( 13,881) $(30,128) $(46,937)
Corporate (4,039) (4,530) (3,240)
Interest income 2,837 4,558 3,462
Interest Expense (3,911) (4,533) ( 945)
---------- -------- --------
Loss before extraordinary
gain on the early retirement
of debt $(18,994) $(34,633) $(47,660)
========= ========== ==========
15 Commitments
Leases
The Company leases space under operating leases which expire on various
dates through 2003. Total rent expense under operating leases was $645,000,
$532,000 and $390,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. Future minimum payments for the operating leases as of December
31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating
Leases
- - -------------------------------------------
(in thousands)
<S> <C>
1999 $ 623
2000 626
2001 632
2002 212
2003 59
------
Total future minimum lease
payments $2,152
======
</TABLE>
<PAGE>
UroMed Corporation
SCHEDULE II Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and end of
Description of period expenses Write-offs period
<S> <C> <C> <C> <C>
Allowance for
uncollectible
accounts
Year ended
December 31,
1998 $ -- $ 3,000 -- $ 3,000
Year ended
December 31,
1997 $ 36,000 $ -- ($ 36,000) $ --
Year ended
December 31,
1996 $ 21,000 $15,000 -- $ 36,000 -
Reserve for
inventory
valuation
Year ended
December 31,
1998 $1,564,000 $329,000 ($1,580,000) $ 313,000
Year ended
December 31,
1997 $919,000 $740,000 ($95,000) $1,564,000
Year ended
December 31,
1996 $530,000 $466,000 ($77,000) $919,000
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive
Officers of the Registrant
Executive Officers of the Registrant
The names of the Company's executive officers as of December 31, 1998 and
certain information about them are set forth below:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Richard M. Epstein 42 Managing Director of New Product Research,
Development and Acquisitions
John G. Simon 36 Chairman of the Board of Directors,
President, and Chief Executive Officer
Alan I. West 51 Managing Director, Assurance Medical Division
Domenic C. Micale 34 Director of Finance
</TABLE>
RICHARD M. EPSTEIN joined the Company as Managing Director of Male Healthcare
Programs in October 1996. In February, 1998 he became the Managing Director of
New Product Research, Development and Acquisition. Prior to joining the Company,
he served as Vice President Sales, Marketing and Business Development for
Nextran, an affiliate of Baxter Healthcare. Mr. Epstein helped create Nextran
during his ten years with Baxter Healthcare where he also held positions as
Director of the Transplant Business and Director of Advanced Product and New
Business Development. Mr. Epstein holds a B.S. from the University of Illinois,
an M.S. from Stanford University and an M.B.A. from the University of Chicago.
JOHN G. SIMON is the founder of UroMed and has served as President, Chief
Executive Officer and Chairman of the Board of Directors of the Company since
inception in 1990. Prior to founding the Company, Mr. Simon served as an
associate at Highland Capital Partners, L.P., a venture capital firm, from 1988
to 1990, and as a research associate at Charles River Ventures, a venture
capital firm, from 1985 to 1987. He was also the Vice President of Marketing and
Sales for Adaptive Networks Inc. from 1987 to 1988. Mr. Simon holds a B.A. from
Harvard University and received a second B.A. from Oxford University while on a
Rhodes Scholarship.
ALAN I. WEST joined the Company in February 1996 as Managing Director of Female
Healthcare Programs, bringing with him twenty years of medical product
development experience. In February, 1998 he became Managing Director, Assurance
Medical Division. Most recently, he was Business Manager of Vision Sciences, an
endoscopy company. Previously, he joined Boston Scientific Corporation's
Microvasive division, and he left there in 1990 as Vice President of Research
and Development. From 1976 to 1981, he worked in research and development at the
Codman division of Johnson & Johnson and as Marketing Manager of a small company
involved in biomechanics, sports medicine and sensors. Mr. West holds a B.S.
from Brown University and an M.S. from Tufts University.
DOMENIC C. MICALE joined the Company in September 1996 as Corporate Accounting
Manager. In July 1998, he became Director of Finance. Prior to joining the
Company, he served in Assistant Corporate Controller positions at both
Sequoia Systems, Inc. and TransNational Group Services from 1992 to 1996.
Prior to then from 1987 to 1991, he served as, most recently, audit supervisor
at Coopers & Lybrand in Boston. Mr. Micale holds a B.S.B.A. from Northeastern
University and an M.B.A. with a finance concentration from Boston University.
Information relating to the Directors of the Company will be set forth in
the sections entitled "Election of Directors", "Background of Directors" and
"Director Compensation" on pages 5 and 6 of the 1999 Proxy Statement, which
sections are incorporated herein by reference. Information relating to
compliance with Section 16(a) of the Securities Exchange Act of 1934 will be set
forth in the section entitled "Reports of Beneficial Ownership" in the 1999
Proxy Statement, which section is incorporated herein by reference.
Item 11. Executive Compensation
Information relating to executive compensation will be set forth in the
section entitled "Executive Compensation" in the 1999 Proxy Statement, which
section is incorporated herein by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management
Information relating to ownership of securities of the Company by certain
beneficial owners and management will be set forth in the section entitled
"Stock Ownership of Principal Stockholders and Management" on page 4 of the 1999
Proxy Statement, which section is incorporated herein by reference.
Item 13. Certain Relationships and
Related Transactions
None.
<PAGE>
PART IV
Item 14. Exhibits and Financial
Statement Schedules
(a)(1) Index to Financial Statments
The financial statements filed as part of this Annual Report on Form 10-K
are listed above under Part II, Item 8.
(a)(2) Index to Financial Statement Schedules
The financial statement schedule filed as part of this Annual Report on
Form 10-K is listed above under Part II, Item 8.
(a)(3) Index to exhibits. The following documents are filed as exhibits to this
Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <C>
3.2 Amended and Restated By-Laws of the Registrant
*(a) (filed as Exhibit No. 3.2)
3.3 Restated Articles of Organization of the Registrant
*(b) (filed as Exhibit No. 3.3)
10.1 Amended and Restated Registration Rights Agreement dated as of
September 15, 1993 among the Registrant and certain of its
security holders
*(a) (filed as Exhibit No. 10.1)
10.2 Consulting Agreement dated as of November 3, 1993
between the Registrant and Kenneth Thurston
*(a) (filed as Exhibit No. 10.5)
10.3 Amended and Restated 1991 Stock Option Plan of the
Registrant
*(c) (filed as Exhibit No. 4.3)
10.4 UroMed Corporation 1995 Employee Stock Purchase Plan
*(d) (filed as Exhibit No. 4.3)
10.5 Forms of Nonstatutory Common Stock Option Agreements
between the Registrant and its Directors
*(a) (filed as Exhibit No. 10.7)
10.6 Forms of Nonstatutory Common Stock Option Agreements
between the Registrant and members of its Medical
Advisory Board and its Scientific Advisory Board
*(a) (filed as Exhibit No. 10.8)
10.7 Forms of Incentive Stock Option Agreements between the
Registrant and its Employees
*(a) (filed as Exhibit No. 10.9)
</TABLE>
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <C>
10.8 Form of Consulting, Confidentiality and Non-Competition Agreement
between the Registrant and members of its Medical Advisory Board
and its Scientific Advisory Board
*(a) (filed as Exhibit No. 10.10)
10.9 Lease between the Company and Trustees of New England
Industrial Center *(f) (filed as Exhibit No. 10.1)
10.10 Employment Agreement between the Company and John G. Simon
*(g) (filed as Exhibit No. 10.2)
10.11 Asset Purchase Agreement, dated as of May 9, 1996, among the
Registrant, Robert F. Rosenbluth and Donald B. Milder as Trustees,
the ASI Liquidating Trust and the Indemnifying Beneficiaries named
on Schedule A thereto.
*(k) (filed as Exhibit 2.1)
10.12 Registration Rights Agreement, dated as of May 9, 1996, among the
Registrant and certain of its Securityholders.
*(l) (filed as Exhibit 4.4)
10.13 Indenture, dated as of October 15, 1996, by and between the
Registrant, as issuer, and State Street Bank and Trust Company, as
Trustee
*(m) (filed as Exhibit 10.1)
10.14 Purchase Agreement, dated as of October 8, 1996, by and between
the Registrant and the Purchasers (as defined therein)
*(m) (filed as Exhibit 10.2)
10.15 Employment Agreement between the Registrant and Richard
Epstein.
*(n) (filed as Exhibit 10.24)
</TABLE>
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <C>
10.16 Employment Agreement between the Registrant and Alan
West.
*(n) (filed as Exhibit 10.25)
10.17 Employment Agreement between the Registrant and Robert
Lorette.
*(n) (filed as Exhibit 10.26)
10.18 Employment Agreement, dated as of March 17, 1997,
between the Company and John G. Simon
*(n) (filed as Exhibit 10.28)
10.19 Rights Agreement, dated as of July 2, 1997.
*(o) (filed as Exhibit 10.29)
21 Subsidiaries of Registrant
*(a) (filed as Exhibit No. 21)
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
</TABLE>
All exhibit descriptions followed by an asterisk (*) were previously filed with
the Securities and Exchange Commission (the "SEC") as Exhibits to, and are
hereby incorporated by reference from, the document to which the letter in
parentheses following the asterisk corresponds, as set forth below. The Exhibit
number of the document in that previous filing is indicated in parentheses after
the incorporation by reference code:
(a) Registrant's Registration Statement on Form S-1, as amended, (Registration
No. 33-74282).
(b) Registrant's Annual Report on Form 10-K for its fiscal year ended December
31, 1994.
(c) Registrant's Registration Statement on Form S-8 filed with the Securities
and Exchange Commission on October 18, 1995 (Registration No. 33-98262).
(d) Registrant's Registration Statement on Form S-8 filed with the Securities
and Exchange Commission on October 18, 1995 (Registration No. 33-98264).
(e) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
September 30, 1994.
(f) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
March 31, 1994.
(g) Registrant's Registration Statement on Form S-3 (File No. 333-03843) filed
May 16, 1996.
(h) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
September 30, 1996.
(i) Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 1996.
(j) Registrant's Current Report on Form 8-K filed July 2, 1997.
<PAGE>
+ An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.15 was issued on July 19, 1994.
++ An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.16 was issued on December 13, 1994.
+++ An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.17 was issued on June 6, 1995.
++++ An unexpired order granting confidential treatment to deleted portions of
Exhibits 10.18 and 10.19 was issued on January 26, 1996.
SIGNATURES
Pursuant to the requirements to Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
UroMed Corporation
Date: March 31, 1999
By: s/ Domenic C. Micale
Director of Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below as of March 30, 1998 by the following
persons on behalf of the Registrant and in the capacities indicated.
/s/ John G. Simon Chairman of the Board, Chief Executive
- - - ----------------- Officer and President (principal
executive officer)
/s/ Elizabeth B. Connell, MD Director
- - - ----------------------------
/s/ David P. Fialkow Director
- - - --------------------
/s/ Steven J. Gilbert Director
- - - ---------------------
/s/ Richard A. Sandberg Director
- - - -----------------------
/s/ Thomas F. Tierney Director
- - - ---------------------
<PAGE>
Exhibit 23
Consent of Independent Accountants
To the Board of Directors of
UroMed Corporation
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 33-95828,
No. 333-03843 and No. 333-19581) and the incorporation by reference in the
Registration Statements on Form S-8 (No. 33-98262 and No. 33-98264) of UroMed
Corporation of our report dated February 9, 1999 appearing on page 35 of this
Annual Report on Form 10-K.
/s/ PriceWaterhouseCoopers LLP
PriceWaterhouseCoopers LLP
Boston, Massachusetts
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
STATEMENT OF OPERATIONS FILED AS PART OF THE ANNUAL REPORT IN FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1998
<CASH> 11,576
<SECURITIES> 14,704
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 422
<CURRENT-ASSETS> 27,566
<PP&E> 6,642
<DEPRECIATION> 2,228
<TOTAL-ASSETS> 33,606
<CURRENT-LIABILITIES> 3,276
<BONDS> 24,756
0
0
<COMMON> 107,932
<OTHER-SE> (102,358)
<TOTAL-LIABILITY-AND-EQUITY> 5,574
<SALES> 837
<TOTAL-REVENUES> 837
<CGS> 3,413
<TOTAL-COSTS> 18,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,911)
<INCOME-PRETAX> (18,994)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,994)
<DISCONTINUED> 0
<EXTRAORDINARY> 23,273
<CHANGES> 0
<NET-INCOME> 4,279
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
