SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
|X| Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required)
For the fiscal year ended: December 31, 1996 Commission file number: 0-26520
NEOPROBE CORPORATION
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(Name of Small Business Issuer in Its Charter)
DELAWARE 31-1080091
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
425 Metro Place North, Suite 400, Dublin, Ohio 43017-1367
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (614) 793-7500
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
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(Title of Class)
Rights to Purchase Series A Junior Participating Preferred Stock
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(Title of Class)
Check whether the issuer (1) 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 |_|
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. |X|
The issuer's revenue for its most recent fiscal year was $1,171,186.
The aggregate market value of shares of Common Stock held by non-affiliates
of the Registrant on February 28, 1997 was $359,925,242.
The number of shares of Common Stock outstanding on February 28, 1997 was
22,706,220.
The following documents have been incorporated by reference into this Form
10-KSB:
Document Part of Form 10-KSB
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Registrant's Proxy Statement for its 1997 Part III
Annual Meeting of Stockholders
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Neoprobe Corporation, a Delaware corporation ("Neoprobe" or the "Company"),
was incorporated in the State of Ohio in 1983 and reincorporated in the State of
Delaware in 1988. The Company's executive offices are located at 425 Metro Place
North, Dublin, Ohio 43017-1367. Its telephone number at that address is (614)
793-7500.
Neoprobe has developed the first patented, intraoperative diagnostic tool
that enables real-time cancer detection for most solid-tumor cancers. The
Company believes that its proprietary technology, Radioimmunoguided Surgery(TM)
(RIGS(R)), enhances the surgeon's ability to locate more precisely and excise
more completely occult (hidden) tumors. The RIGS system utilizes a patented
hand-held gamma-ray detection probe to locate tumors which have been identified
by the Company's proprietary radiolabeled cancer targeting agents.
In 1992, the Company began a Phase II clinical trial for patients with
primary or metastatic colorectal cancer using the Company's lead product
RIGScan(R) CR49. In 1993, the Company opened pivotal Phase III clinical trials
for patients with primary colorectal cancer and for metastatic colorectal
cancer. During 1995, the Company completed the pivotal Phase III clinical trial
for patients with metastatic colorectal cancer with RIGScan CR49. During 1996,
the Company submitted applications to the European and U.S. regulatory agencies
to request permits to begin marketing the Company's RIGS products for the
detection of metastatic colorectal cancer. In addition, the Company has
completed a pivotal Phase III clinical trial for the detection of primary
colorectal cancer with RIGScan CR49 and anticipates filing similar applications
with the European and U.S. regulatory authorities in 1997. Neoprobe is also in
various stages of clinical development with the Company's RIGS technology for
the intraoperative detection of other solid tumor cancers, and is conducting
clinical studies to evaluate the technology for possible therapeutic
applications in patients with advanced stages of colorectal and breast cancers
(RIGS/ACT) and in patients with HIV/AIDS.
Current cancer detection techniques do not always identify all tumors
present. Existing presurgical imaging techniques often do not allow the surgeon
to clearly distinguish between cancerous and other abnormal tissue. For most
solid-tumor cancers, current intraoperative detection is limited to what the
surgeon can see and feel. The limitations of these techniques can result in
small or occult tumors being left undetected. The Company believes that the RIGS
system, by providing precise tumor detection information to the surgeon during
the course of surgery, can lead to improved cancer diagnosis and staging of
cancer patients and, as a result, improved surgical outcomes.
Neoprobe's RIGS system consists of the Neoprobe(R) 1000, a patented
hand-held radiation (gamma ray) detection probe, RIGScan radiolabeled cancer
targeting agents and a patented surgical method for identifying and locating
cancerous tissue. The Company's proprietary targeting agents are monoclonal
antibodies or peptides, labeled with a radioactive isotope that emits low energy
gamma rays. Before surgery, a cancer patient is injected with one of the RIGScan
targeting agents which circulates throughout the patient's body and binds
specifically to cancer cell antigens or receptors. The targeting agent is then
located during surgery by the Neoprobe 1000 instrument, which emits an audible
alarm when a concentration of gamma rays is detected in tissue.
The RIGS technology has been used in over 1,500 operations during clinical
research in 59 medical institutions worldwide. During 1995, the Company
completed testing in a 151-patient, 24-site pivotal Phase III clinical trial for
the detection and staging of metastatic colorectal cancer. In addition, the
Company has completed testing in a separate Phase III clinical trial for primary
colorectal cancer. The Company's analysis of the metastatic clinical trial data
indicates that the RIGS system detected hidden tumor in patients with metastatic
colorectal cancer which were undetected by traditional treatment methods. The
Company has submitted a request for a marketing permit to the European
regulatory agencies and a Biologics License Application ("BLA") to the United
States Food and Drug Administration ("FDA") for its RIGS product for the
detection of metastatic colorectal cancer and intends to file similar
applications for the detection of primary colorectal cancer in 1997.
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CANCER OVERVIEW
The American Cancer Society ("ACS") estimates that approximately 1.3
million new cases of cancer were diagnosed and approximately 550,000 deaths were
attributable to cancer in the United States in 1996. In addition, the ACS
estimates that the direct costs of cancer diagnosis and treatment in the United
States are more than $35 billion annually. Despite the significant resources
expended on diagnosing and treating this disease each year, cancer remains the
second leading cause of death in the United States, following heart disease.
The primary methods of treating cancer are surgery, radiation therapy and
chemotherapy. Surgery is the primary therapy for most solid-tumor cancers,
including colorectal, breast, prostate, ovarian and endocrine cancers. The
Company estimates that over 1.0 million cancer surgeries were performed in the
United States and Europe in 1996. Surgical oncologists generally believe that
substantial reduction of tumor burden can improve a patient's near-term
prognosis, that total tumor removal can lead to a major improvement in a
patient's long-term prognosis, and that tumors left behind after the surgery are
the primary sources of recurrent disease. Thus, in treating cancer patients with
solid tumors, the surgeon's goal is, wherever possible, to completely remove
tumors. Current postoperative tumor recurrence and survival rates indicate that
existing solid-tumor detection methods may be inadequate. The Company believes
that there is a need for a more accurate intraoperative tumor detection
technique to augment the surgeon's hands and eyes.
The principal diagnostic methods available today to locate solid-tumor
cancers are preoperative imaging and surgical exploration. The primary
preoperative imaging techniques currently available today include computed
tomography ("CT"), magnetic resonance imaging ("MRI") and, more recently,
immunoscintigraphy. Although immunoscintigraphy, like the RIGS system, uses
radiolabeled monoclonal antibodies to detect tumors, the technique is used
preoperatively and has not consistently demonstrated the ability to identify
tumors smaller than one centimeter. The results of preoperative imaging scans
can help give the surgeon a map of the possible location of abnormal tissue.
However, these scans often cannot pinpoint abnormalities precisely, and often do
not reveal tumors that may become obvious to the surgeon once the operation has
begun. Also, CT and MRI scans do not distinguish tumors from other
abnormalities, such as scar tissue.
Once the operation begins, the surgeon's principal diagnostic tools are his
or her hands and eyes. Even with the best available imaging tools, a highly
skilled surgeon will often find it difficult or impossible to identify all
tumors or to accurately determine "surgical margins"--the boundaries of a tumor.
The effectiveness of surgery is also dependent upon the surgeon's ability to
determine the extent to which the disease has spread, or metastasized. This
"staging" of a patient's disease state is critical to determine whether a
patient is a good candidate for surgery and to determine appropriate
postoperative care.
While Neoprobe is closest to commercialization of its colorectal cancer
products for intraoperative tumor detection, it has determined that breast,
ovarian, prostate, neuroendocrine/endocrine and gastrointestinal cancers may
provide appropriate subsequent RIGS product opportunities. For these cancer
types, surgery is the first line of treatment, and Neoprobe believes that the
RIGS system can provide surgeons with additional information to help achieve
better surgical outcomes. The following table represents the number of new
solid-tumor cancer cases for these cancer types in the United States in 1996 as
estimated by the ACS:
Breast 185,700
Ovarian/Endometrial 76,400
Prostate 317,100
Neuroendocrine and Endocrine 17,000
Gastrointestinal 39,700
Colorectal/Liver 153,400
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TOTAL 789,300
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RIGS SYSTEM PRODUCTS
Neoprobe has developed the first patented, intraoperative diagnostic tool
that enables real-time cancer detection during surgery for most solid-tumor
cancers. Neoprobe's RIGS system consists of the Neoprobe 1000, a patented
hand-held radiation (gamma ray) detection probe, and radiolabeled targeting
agents, RIGScan products, and a method for their use. The Company's proprietary
targeting agents are monoclonal antibodies or peptides, labeled with a
radioactive isotope that emits low energy gamma rays. Prior to surgery, a cancer
patient is injected with one of the Company's targeting agents which circulates
throughout the body and binds specifically to cancer cell antigens or receptors.
The targeting agent is then located during surgery by the Neoprobe 1000
instrument, which emits an audible alarm when a concentration of gamma rays is
detected. The Company's proprietary technology also includes a U.S. patent on a
method for identifying and differentiating cancerous tissue during surgery.
The Neoprobe 1000 Instrument. The Neoprobe 1000 is a patented instrument
consisting of a hand-held gamma-ray-detection probe and a software-driven
control unit. The probe is a stainless steel tube with an angled tip for ease of
maneuverability. The detection device in the tip of the probe is a highly
radiosensitive crystal that relays a signal through a preamplifier to the
control unit to produce both a digital readout and an audible signal. The
detector element fits in a housing approximately the size of a pocket
flashlight. At the outset, the audible signal threshold level is adjusted to
eliminate the sound when the probe is over normal tissue. During surgery, the
surgeon uses the probe as a diagnostic tool to evaluate tissue for presence of
cancer. The audible signal indicates the presence of radiolabeled targeting
agents concentrated in tissue. Neoprobe's first-generation instrument received
FDA 510(k) clearance for marketing as a gamma-radiation detector in December
1986. A modified Neoprobe 1000 also received FDA 510(k) clearance for marketing
in June 1992. A second modification to the Neoprobe 1000 received FDA 510(k)
clearance in February 1995.
Targeting Agents. Each RIGS surgical product uses cancer-specific
monoclonal antibodies, antibody fragments, or peptides as targeting agents,
called RIGScan products. Antibodies and antibody fragments are proteins that can
recognize and selectively attach to specific substances in the body, called
antigens. Each type of antibody recognizes and binds specifically to a single
type of antigen. The role of natural antibodies in the body's immune system is
to detect and defend the body from foreign substances. Monoclonal antibodies
("Mabs") are antibodies produced in the laboratory by cells that are genetically
identical and, therefore, yield the same product. Mabs have identical
specificity for a single portion of the targeted antigen molecule, such as one
associated with cancer cells. Peptides, which are much smaller molecules than
monoclonal antibodies, may also be used as targeting agents. A peptide is a
compound which is derived from a protein molecule which recognizes and binds
specifically to certain sites, called receptors, on the surface of certain
cells. The targeting agents used by Neoprobe are the proprietary products of
others and have been exclusively licensed by Neoprobe for use with RIGS
technology. See "Risk Factors -- No Assurance of Continued Rights to Targeting
Agents; Royalty Payments."
Neoprobe has identified and obtained exclusive global rights, for use with
the RIGS technology, to various antibodies and peptides that target cancer.
These targeting agents include the tumor-associated glycoprotein ("TAG")
monoclonal antibodies that were developed by the National Cancer Institute of
the National Institutes of Health ("NCI/NIH"). The TAG antibodies target a broad
range of cancer types, including colorectal, ovarian, prostate, lung, breast and
pancreatic cancers. From that class of antibodies, Neoprobe has chosen the whole
murine antibody CC49, a second-generation TAG antibody, for its RIGScan CR49
products for colorectal cancer.
Monoclonal antibody and peptide technologies are rapidly evolving. Neoprobe
follows the field closely in order to take advantage of the latest developments
in these technologies for use in the RIGS surgical products. An integral part of
Neoprobe's strategy is to enter into agreements to acquire exclusive rights to
targeting agents for potential RIGS products. There can be no assurance that any
such rights will be available to Neoprobe on acceptable terms or at all.
Attaching a radioisotope to a targeting agent produces a radiolabeled
targeting agent which is potentially useful for cancer detection. The gamma
radiation emanating from the radioisotope is detected by the Neoprobe 1000
instrument. Based on laboratory and clinical studies, Neoprobe has determined
that the preferred radiolabel for RIGS
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targeting agents is the radioactive isotope iodine-125 (125I). This isotope
emits low-energy radiation that the Company believes is most effective for
intraoperative tumor detection with a hand-held probe. The low-energy radiation
of 125I permits the surgeon to identify the cancerous tissue with a level of
precision not possible with higher energy isotopes. In order to effectively use
125I, oral doses of sodium iodide are administered to block absorption of the
radioactive iodine by the patient's thyroid gland.
CLINICAL RESEARCH
The RIGS technology has been used in over 1,500 operations during clinical
research in 59 medical institutions worldwide. Neoprobe-sponsored clinical
research has been conducted at some of the world's leading cancer research and
treatment institutions, including Memorial Sloan-Kettering Cancer Center, The
University of Pennsylvania Medical Center, the University of Vienna, the
Netherlands Cancer Institute, The Cleveland Clinic Foundation, and The Ohio
State University ("OSU").
Colorectal Cancer. Neoprobe's first products are applications of the RIGS
technology for the detection and treatment of primary and recurrent/metastatic
colorectal cancers, using the Neoprobe 1000 and injectable doses of radiolabeled
CC49 antibodies, RIGScan CR49. Since 1992, over 600 colorectal cancer patients
have participated in several phases of clinical trials with RIGScan CR49. In
1995, the Company completed testing in a 151-patient, 24-site pivotal Phase III
clinical trial for the detection and staging of metastatic colorectal cancer. In
May 1996, the Company submitted a dossier (i.e. an application requesting a
permit to begin marketing and selling) to the European regulatory authorities
(i.e. European Agency for the Evaluation of Medicinal Products or "EMEA")
requesting permission to begin marketing the RIGScan CR49 product for the
detection of metastatic colorectal cancer. In July 1996, the European
authorities formally accepted the Company's application after a preliminary
review of the application. Under EMEA statutory guidelines the authorities are
to complete their review of the application within 210 days of this formal
acceptance. However, the guidelines also provide additional time to allow the
EMEA to ask questions related to the dossier and time for the applicant to
respond to such questions. In November 1996, the Company received from the EMEA
a list of questions related to the clinical data submitted in the application.
The Company is currently reviewing these questions and preparing to respond to
the questions during the second quarter of 1997. In December 1996, the Company
submitted its first BLA to the FDA for the detection of metastatic colorectal
cancer and received notification from the FDA in February 1997 that the
application had been accepted for formal review.
In addition, the Company has completed testing in a separate 287-patient,
multi-center pivotal Phase III clinical trial for the detection of primary
colorectal cancer. Based upon the Company's experience with RIGScan CR49 for the
detection of primary colorectal cancer, the Company anticipates filing a dossier
to the EMEA and an amendment to the BLA with the FDA for this indication during
1997. There can be no assurance that the Company's RIGS products will be
approved for marketing by the FDA or the EMEA, or that any such products will be
successfully introduced or achieve market acceptance. See "Risk Factors --
Government Regulation."
Breast Cancer. Neoprobe believes that it will be able to apply its RIGS
technology to breast cancer. Specifically, benefits may be seen in women who
choose lumpectomy as their surgical treatment. Use of the RIGS system to help
establish cancer free margins during surgery may result in reduced cancer
positive margins identified by pathology after the operation is completed. The
incidence of cancer positive or indeterminate margins in lumpectomy procedures
has been reported to be 30 percent to 70 percent. Neoprobe has completed three
early Phase I/II trials involving 54 breast cancer patients to assess the
utility of RIGS technology in breast cancer. Three targeting agents were used in
these studies: two TAG antibodies B72.3 and CC49, and the peptide "lanreotide"
licensed from Biomeasure Incorporated ("Biomeasure"). The Company believes the
results of these trials showed that RIGS could assist the surgeon in finding
occult tumor, determining if margins of resection were clear and identifying
spread of disease within the breast. The Company believes that the waiting time
before surgery required for the two TAG antibodies would limit the application
and use of these products in a commercial setting. The clinical trial with the
peptide lanreotide showed that the targeting agent, when injected less than
three hours prior to surgery, could be used to identify cancer positive margins
during surgery. Neoprobe has also acquired global rights to use NeoRx's
targeting agent, a fragmented antibody called, NR-LU-10. See "-- License and
Technology Agreements." The Company believes that this targeting agent may have
applications to breast cancer since among other reasons, the
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optimal waiting period (i.e. the time between injection of the agent and
surgery) may be between 7 to 10 days. During 1996, the Company began a
20-patient Phase I clinical trial to study the safety and appropriate dosage
levels of NR-LU-10. After concluding this study, the Company will identify the
most appropriate targeting agent for breast cancer and focus its product
development efforts for this application.
Ovarian Cancer Neoprobe has concluded an ovarian cancer clinical trial
using RIGScan CR49 as the targeting agent. The results of the trial show promise
for finding additional occult tumors and better assessment of the extent of
disease. However, it was concluded that a targeting agent with a shorter
clearing time will be required to be fully accepted in the marketplace. The
Company believes that NR-LU-10 has the best chance of meeting the Company's
criteria for an ovarian cancer targeting agent. The Company has completed
preclinical studies for a NR-LU-10 based product and a Phase I/II trial protocol
has been written for a clinical trial. Neoprobe intends to initiate a Phase II
clinical trial with this targeting agent.
Neuroendocrine/Neuroblastoma Cancers. A pilot trial involving six children
with neuroblastoma cancer and seven adults with neuroendocrine cancer has been
completed using lanreotide as the targeting agent. The studies showed that
binding of the peptide to receptors on tumors occurred within 15 to 30 minutes
after injection. Surgeons could differentiate normal and tumor tissue using the
Neoprobe 1000 instrument. The seven adult neuroendocrine patients did not
benefit from the use of RIGS because the lanreotide did not consistently target
the tumor. Of the six children with neuroblastoma, the RIGS system found hidden,
or occult, tumor in three (50 percent) of the patients.
DEVELOPMENT PROGRAM
Neoprobe's product development activities fall into three categories:
development and testing of RIGScan targeting agents to expand RIGS use to
additional cancer types, development and testing of new gamma detecting
instruments to expand the use of the RIGS system, and use of the RIGS system for
activated cell therapy. There can be no assurance that any of the Company's
products in development will be successfully developed, tested or licensed or
that any such products will gain market acceptance. See "-- Clinical Research."
Targeting Agent Development Program
Gastrointestinal Cancers. Neoprobe believes that it may be able to extend
the use of RIGScan CR49 to the surgical treatment of stomach cancer. Laboratory
studies indicate RIGScan CR49 should target stomach cancer with the same
specificity as found in colorectal cancer. Damon Pharm Ltd. ("Damon"),
Neoprobe's marketing partner in Korea, plans to commence clinical evaluation of
RIGScan CR49 in patients with stomach cancer.
Prostate Cancer. Neoprobe believes the RIGS technology can assist in
determining lymph node disease status and cancer free margins of resection in
prostate surgery. Neoprobe is planning to enter into a Phase I/II evaluation of
NR-LU-10 as the targeting agent for prostate cancer to evaluate the ability of
the RIGS system to more accurately define margins of primary tumor and identify
lymph nodes that contain cancer.
Instrument Development Program
New Instrument Products. Neoprobe's engineers have completed engineering
design and prototype development of an improved Neoprobe instrument. The
improved Neoprobe instrument is designed to improve functionality during the
surgical procedure. In addition, the Company's engineers have developed
prototypes for the next generation Neoprobe instrument.
Laparoscopic Probe. Rapid developments in laparoscopic applications are
occurring in the medical community because of a growing emphasis on minimally
invasive surgery. In keeping with its plan to develop a family of probes that
will meet a wide array of cancer diagnostic and treatment needs, Neoprobe has
developed a prototype laparoscopic gamma-ray detection probe and intends to
request clearance from the FDA for clinical evaluation of the laparoscopic
probe. Preclinical testing of the laparoscopic probe is ongoing to determine the
optimal design and configuration of this device. In February 1995, Neoprobe
received a methodology patent in the United States for use
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of the laparoscopic probe and in July 1995, the U.S. Patent Office issued a
patent for the instrument itself. Foreign patent applications for the
laparoscopic probe system are pending.
During laparoscopy, a surgeon introduces optical and other instruments into
the abdominal cavity through small surgical incisions (six to 20 millimeters).
Neoprobe believes the RIGS cancer-detection technology may add an important
second source of information because the surgeon loses the ability to examine
tissue by touch during laparoscopy and can only see what the camera sees. The
Company believes the RIGS laparoscopic system may be beneficial for minimally
invasive evaluation of colorectal, prostate, and ovarian cancers.
New Instrument Uses. An emerging technique, called intraoperative lymphatic
mapping ("ILM"), is creating a new use of the Company's Neoprobe 1000
instrument. Historically, all lymph nodes associated with a melanoma of the skin
lesion must be removed in order to assess whether the cancer has spread. With
this new technique, physicians use the Neoprobe 1000 gamma detector to precisely
locate a single lymph node which, provides information to the surgeon about the
extent of the spread of the disease in patients with melanoma. The procedure
requires far less surgery than the current approach preventing needless wide
removal of lymph nodes and associated side effects for those patients whose
disease has not spread. Physicians are evaluating the procedure for melanoma and
breast cancer patients, many of whom also currently undergo wide removal of
lymph nodes for evaluation of tumor spread. Neoprobe has developed a smaller
detector probe with an 11 millimeter detection surface that may be optimal for
ILM.
Therapeutic Development Program
Cancer Therapy (RIGS/ACT) Products. Neoprobe's method for treating
colorectal cancer with RIGS/ACT was discovered in the course of clinical trials
for its RIGScan CR49 products for colorectal cancer. RIGS/ACT is an experimental
form of cellular therapy that uses the patient's immune system to fight cancer.
While conducting RIGS clinical trials, Neoprobe's researchers found that lymph
nodes identified as positive by the RIGS system contained an unusual abundance
of cancer-fighting helper cells (CD4+ lymphocytes). These helper cells secrete
chemical messages that are important in directing the body's immune response to
disease. Neoprobe's researchers found they could locate, remove, and proliferate
the lymph node lymphocytes in the laboratory very quickly and in large numbers.
Within 10 to 14 days, 10 billion to 100 billion lymphocytes can be infused into
the patient as a cancer treatment, with apparently limited side-effects. These
activated cells secrete chemical messages that have the potential to stimulate
the body's immune system to attack the cancer. The helper-cell-enriched lymph
nodes look no different from those with fewer or no helper cells. The Company
believes that except for detection by the RIGS system, there is currently no way
available to find these special lymph nodes. Random lymph nodes that were
RIGS-negative were also removed during laboratory studies and were subjected to
the same process, but they did not show the same ability to stimulate an immune
response to cancer.
Neoprobe funded a RIGS/ACT pilot study with 10 metastatic colorectal cancer
patients at OSU's Arthur G. James Cancer Hospital and Research Institute to test
safety and feasibility. All 10 patients were in late stages of the disease and
had failed to respond to conventional treatments. The RIGS/ACT was safely
administered to all patients, with only a few, manageable side effects such as
mild chills and fever. The FDA subsequently authorized expansion of the pilot
study to Phase I/II, to include up to 40 patients. Patient enrollment in the
expanded study has been completed. The Company believes the preliminary results
of this trial suggest that the therapy has the potential to extend the survival
of late-stage colorectal cancer patients. Based on these results, Neoprobe is
preparing to begin a Phase II clinical trial for RIGS/ACT. In addition, the
Company is funding a clinical study which will include patients with late stage
breast cancer using RIGS/ACT. There can be no assurance that any RIGS/ACT
products will be successfully developed, licensed or marketed.
HIV/AIDS Therapy Product. During 1996, the Company funded a 10-patient
Phase I clinical study to determine the safety and feasibility of using
activated cellular therapy to help boost the immune system of patients with
HIV/AIDS. This therapy is similar in some respects to the Company's RIGS/ACT
technology, but does not include the use of a RIGS targeting agent. Researchers
determined that the same immune mechanism used in cancer ACT may be exploited to
potentially treat viral diseases such as AIDS. The Company acquired rights to
the HIV/AIDS cellular therapy technology from Cira Technologies, Inc. in 1996.
See "--License and Technology Agreements".
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MARKETING AND DISTRIBUTION
In September 1996, the Company executed an exclusive worldwide License and
Distributorship Agreement ("Marketing Agreement") with United States Surgical
Corporation ("USSC"). The Marketing Agreement gives USSC exclusive worldwide
sales and marketing rights (excluding Korea, Thailand, Taiwan, Malaysia, and
Singapore) for Neoprobe's RIGS surgical cancer detection products. USSC will
provide training to surgeons and professional education worldwide for these RIGS
products. USSC paid $2 million to the Company upon execution of the marketing
agreement and will pay an additional $3.5 million upon receiving notification of
marketing approvals in Europe and the U.S. The Company will pay USSC a
commission on all RIGS surgical cancer detection products and USSC will make
payments to the Company based on commissions collected to fund research and
development on future RIGS surgical cancer detection products. USSC will also
pay the Company a royalty for all sales of RIGS disposable cancer detection
products sold by USSC. The Marketing Agreement has an initial term of five years
after receipt of marketing approvals from the FDA and the EMEA and USSC has a
renewal option for successive five year terms and the right to terminate the
agreement without cause on one year notice. USSC may also terminate the
Marketing Agreement, if Neoprobe does not receive marketing approvals from the
FDA and the EMEA and if such termination is during the first two years of the
agreement, Neoprobe will be required to refund the initial $2 million payment.
Initial marketing efforts in the United States will be directed to the
approximately 500 teaching hospitals and cancer institutions, whose adoption of
the RIGS system may promote its general use by surgeons. These institutions
perform a large number of cancer surgeries and have historically been willing to
purchase and use new technologies. In addition, these institutions employ a
large number of influential individuals in the cancer field, whose support could
favorably influence RIGS product sales. Twenty-eight of these institutions are
or have been involved in Neoprobe's clinical studies. Neoprobe expects that its
marketing efforts will ultimately be directed to the approximately 1,600 largest
institutions in the United States (those with 200 or more beds per institution).
Neoprobe also plans to develop markets for RIGS products in Europe, focusing on
similar categories of physician specialists and institutions.
Neoprobe's success will depend upon wide acceptance of the RIGS technology
as a cancer diagnostic and treatment technology. Neoprobe and USSC, must educate
the medical community on the utility and proper use of the RIGS technology.
Neoprobe's medical and scientific researchers have been educating the medical
community about the RIGS system through trade shows, symposia, articles and
scientific abstracts published in select medical journals, and other activities.
Neoprobe intends to continue these activities prior to commercialization of the
first RIGS product, with the goal of becoming the leader in the development and
commercialization of intraoperative diagnostic products to assist surgeons in
the treatment of solid-tumor cancers. Although Neoprobe will seek to establish
the RIGS method as standard surgical procedure for treatment of solid-tumor
cancers, there can be no assurance that Neoprobe's proposed products will
achieve market acceptance. See "Risk Factors -- Dependence upon Principal
Product Line; Uncertainty of Market Acceptance."
In August 1995, the Company signed a Strategic Marketing Agreement with
Damon granting exclusive marketing and distribution rights in Korea for RIGScan
products. Under the agreement, Damon will conduct clinical trials using RIGScan
products, and will submit regulatory applications for marketing the products in
Korea. The Company, in turn, will provide RIGS products at agreed upon transfer
prices, and will receive a royalty on all sales of these products. Damon
purchased 154,575 shares of Common Stock from the Company at market-related
prices. Damon also paid an option fee to the Company in October 1995 for an
option to market RIGScan products in certain southeast Asian countries. During
1996, Damon exercised the option and paid the additional license fee for
marketing rights in the countries of Taiwan, Thailand and Singapore. The
agreement may not be terminated except for a material breach by either party. In
February 1997, Damon obtained regulatory approval in Korea and commercial
distribution of RIGScan CR49 began in that country.
In 1995, Neoprobe entered into distribution service agreements with Syncor
Corporation ("Syncor") and MDS Nordion S.A. ("Nordion-Europe"). Syncor will
provide distribution services for RIGScan products in North America and certain
Asian markets. The distribution services include order entry and delivery of
RIGScan
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products to nuclear pharmacies in the aforementioned territories. In addition,
Syncor has agreed to assist in the marketing of RIGScan products to nuclear
medicine departments and in the training of nuclear medicine physicians in the
use of RIGScan products. The agreement with Nordion-Europe covers similar
distribution services for RIGScan products in Europe, Africa, and the Middle
East. In addition, Nordion-Europe has agreed to handle final release testing of
RIGScan products in accordance with European regulatory guidelines and to
provide customer billing services for RIGScan products at Neoprobe's request.
Both Syncor and Nordion-Europe will be paid fees based upon the number of doses
of RIGScan which are delivered to hospitals in their respective distribution
territories. The Company believes that the service agreements with Syncor and
Nordion-Europe position Neoprobe to deliver RIGScan products to hospitals
through established radiopharmaceutical channels.
MANUFACTURING
Manufacture of Targeting Agents. In March 1995, Neoprobe entered into a
manufacturing and supply agreement with Gist-brocades Bio-Intermediair B.V., a
Dutch corporation ("Bio-Intermediair"), for the production of monoclonal
antibodies to use in conjunction with Neoprobe's RIGS technology, pending
expansion of the facility of Neoprobe's wholly-owned subsidiary, MonoCarb. Under
this contract, Bio-Intermediair manufactures CC49 Mab for the Company in
compliance with Good Manufacturing Practices ("GMP"). The term of the agreement
is three years after regulatory approval to market a CC49 based product in the
United States or Europe and may be automatically extended for one year on each
anniversary of the agreement. The agreement may be terminated by Neoprobe or by
Bio-Intermediair upon specified notice or on a material default.
Bio-Intermediair is a provider of GMP manufacturing services, specializing
in pilot to large scale cell culture and production of biopharmaceuticals.
Bio-Intermediair has recently been reinspected by the Dutch regulatory agency
and found to be in full compliance with European GMP, satisfying member
requirements of the Pharmaceutical Inspection Convention. This same agency
certified Bio-Intermediair and its facility to produce monoclonal antibodies,
and other biological products for human clinical applications. This
certification is accepted by the member countries of the Pharmaceutical
Inspection Convention, including most of the European countries and Australia.
The FDA will make a similar inspection before it approves Neoprobe's BLA for its
first RIGScan CR49 product.
MonoCarb is located in Lund, Sweden, and leases a facility there for the
production and purification of monoclonal antibodies used as blood grouping
reagents. MonoCarb currently holds an ELA from the FDA to produce commercial
biologics for its blood grouping reagents. Neoprobe intends to use this
production facility and related equipment to produce future products for use in
connection with Neoprobe's RIGS technology. A small state-of-the-art filling
facility has been installed at MonoCarb to fill vials for subsequent
radiolabeling.. See "Risk Factors -- Limited Manufacturing Capacity and
Experience."
Radiolabeling. In April 1993, Neoprobe entered into a clinical and
commercial supply agreement with MDS Nordion ("Nordion"), one of the largest
suppliers in the world, of radioisotopes to nuclear medicine departments for the
radiolabeling of Neoprobe's monoclonal antibodies with 125I for clinical trials
and commercial sale after regulatory approval to market such products has been
granted. Pursuant to this agreement, Neoprobe paid Nordion an initial cash
payment, and an additional sum was paid upon completion of process validation of
the manufacture of the radiolabeled antibody in July 1994. Neoprobe has made
additional cash payments to Nordion to increase the production capacity in this
facility. Nordion began shipping radiolabeled CC49 for Neoprobe's Phase III
studies in August 1994. The term of the agreement is for a minimum of three
years after Neoprobe is granted approval to market in the United States or
Europe, subject to renewal and early termination in certain events.
Additionally, Neoprobe has agreed to purchase certain quantities of the
radiolabeled antibody throughout the term of the agreement at prices already set
or to be determined based on current information at the time of commercial
approval.
In 1994, Neoprobe (Israel) was organized under the laws of the State of
Israel as a subsidiary of the Company to construct and operate a radiolabeling
facility for the Company's targeting agents. A Facility Agreement has been
entered into among the Company, Neoprobe (Israel) and Rotem, under which Rotem
will manage the facility and has a minority equity interest in Neoprobe
(Israel), which it can increase under certain circumstances. The design and
engineering work has been completed on the facility and construction began in
February 1996. The parties currently intend to have the facility completed and
operational in the third quarter of 1997.
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Neoprobe 1000. In August 1996, the Company entered into a Manufacturing and
Supply Agreement with RELA, Inc. of Boulder Colorado ("RELA"), a developer and
manufacturer of medical devices. Under the agreement RELA will manufacture
Neoprobe 1000 instruments for the Company based on forecasts provided to RELA.
The Company may decide to use a separate third party manufacturer for the next
generation Neoprobe system.
LICENSE AND TECHNOLOGY AGREEMENTS
The Dow Chemical Company. In 1991 and 1992, Neoprobe entered into
agreements with The Dow Chemical Company ("Dow"), which at that time was a
principal stockholder of the Company, pursuant to which Dow and Neoprobe agreed
to coordinate their research and development activities relative to the
commercialization of RIGS products and Neoprobe was granted certain rights.
Under the agreements, Dow (i) granted to Neoprobe an exclusive global,
commercial sublicense to use CC49 as a RIGS technology product, (ii) agreed to
grant to Neoprobe, upon its request and after approval by NCI/NIH, a sublicense
to any other antibody under Dow's commercial license agreement with NCI/NIH,
(iii) granted to Neoprobe an exclusive global license to Dow's proprietary
iodination technology which may be used by Neoprobe to radiolabel antibodies for
RIGS system products and (iv) licensed or sublicensed certain other targeting
agents for use as RIGS technology products. The agreements provide that Neoprobe
is obligated to pay Dow royalties on certain RIGS system antibody product
revenues, part of which compensates Dow for royalties payable under Dow's
license agreement with NCI/NIH. Additional royalties may be payable if Dow's
technology is used in the commercial production of RIGS system products. If
Neoprobe fails to comply with certain financial and timing requirements of the
sublicense, the rights under such sublicense may revert back to Dow.
Neoprobe's sublicense of CC49 from Dow is subject to a commercial license
agreement between Dow and NCI/NIH under which NCI/NIH reserved the right to use
CC49 for government purposes. If the Dow-NCI/NIH commercial license agreement is
terminated for any reason, including a default by Dow, the Dow-NCI/NIH
commercial license agreement allows Neoprobe to apply for a license for
antibodies previously granted by Dow to Neoprobe (subject to approval and
acceptance by NCI/NIH). If the Dow-NCI/NIH commercial license agreement is
terminated, the Dow-Neoprobe agreement allows Neoprobe to either obtain a
license directly from NCI/NIH (subject to approval and acceptance by NCI/NIH) or
to terminate provisions of the Dow-Neoprobe agreement that relate to the
Dow-NCI/NIH commercial license agreement.
In May 1996, Neoprobe and Dow executed an agreement under which Dow granted
Neoprobe global rights to certain technology related to targeting agents,
radiolabeling and radioimmunotherapy products developed by Dow researchers. Upon
completion, the global licenses will provide Neoprobe with global access to
technology covered by issued patents for use in the development of RIGS and
radioimmunotherapy products. Dow received 124,805 shares of Common Stock in
exchange for the technology rights. Dow currently holds 847,920 shares of Common
Stock.
The Ohio State University Research Foundation ("OSURF"). Neoprobe has had a
long term relationship with OSU and OSURF involving the cooperation of OSU
personnel at OSU's medical and veterinary facilities for clinical research on
potential products. OSURF and Neoprobe have a clinical research agreement (the
"OSURF Agreement") that grants Neoprobe, among other things, exclusive global
rights through March 1997 to any concepts and/or products that develop as the
result of Neoprobe's sponsored clinical research at OSU or its affiliated
research facilities. Pursuant to the OSURF Agreement, rights to inventions or
discoveries that are developed with inventive contribution by an OSURF employee
or agent belong to OSURF and OSURF has the exclusive right to inventions or
discoveries, including patent claims with respect thereto. Neoprobe has an
exclusive global license with respect to OSURF's interest under all such
technology. In the event OSURF does not elect to file or maintain an application
or patent, Neoprobe has the right to patent such inventions or discoveries.
Neoprobe will pay OSURF a royalty on the revenues of products developed through
such Company-sponsored research. Minimum and maximum royalty rate ranges have
been established for products with the particular royalty rates to be
negotiated. Individual protocols under the contracts with OSURF define, with the
agreement of both parties, the scope of each project undertaken and the
financial support to be provided by Neoprobe. The Company and OSURF have agreed
in principal to continue their relationship under the terms and conditions
similar to the expiring agreement. A new agreement is expected to be negotiated
in the second quarter. As of February 28, 1997, 22 OSU personnel, nine of whom
have M.D. or Ph.D. degrees, were involved in Neoprobe's RIGS system research.
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NeoRx Corporation. In May 1993, Neoprobe entered into a sublicense option
agreement with NeoRx Corporation ("NeoRx") to acquire the exclusive worldwide
right to make, use and sell any product that incorporates the murine monoclonal
IgG2b antibody and any version thereof designated NR-LU-10 as a RIGScan product.
As consideration for the option, Neoprobe paid a fee to NeoRx. Under the terms
of the option agreement and a subsequent amendment, Neoprobe was to enter into a
supply agreement with a supplier satisfactory to both Neoprobe and NeoRx. In
March 1995, Neoprobe exercised its option under the sublicense agreement and
made an additional payment to NeoRx. Neoprobe must also pay royalties on sales
of any product incorporating the antibody as well as an annual fee to maintain
exclusivity of the agreement. The sublicense will have the same perpetual term
as NeoRx's license with its licensor, and if such license is terminated, NeoRx
is obligated to assist Neoprobe in obtaining a license from such licensor. The
sublicense is conditioned on Neoprobe carrying out, at its own expense, the
development and marketing of one or more products that incorporate the antibody
to the point of filing a PLA with the FDA within four years; this deadline may
be extended by mutual agreement of NeoRx and Neoprobe if Neoprobe demonstrates
reasonable due diligence with respect to this research program. Neoprobe
currently intends to research the use of the NR-LU-10 antibody in connection
with the diagnosis and treatment of ovarian, prostate and lung cancers.
Biomeasure, Incorporated and Kinerton Limited. In August 1994, Neoprobe
entered into a license agreement with Biomeasure which grants Neoprobe the
exclusive worldwide right to make, use and sell surgical cancer detection and
treatment products that incorporate lanreotide, a peptide targeting agent.
Concurrently, Biomeasure also granted Neoprobe a license to make, use and sell a
diagnostic product using the compound. The license agreements have minimum terms
of 10 years and require Neoprobe to file regulatory applications for products
using lanreotide within certain time frames. Neoprobe entered into a supply
agreement with Kinerton Limited of Ireland ("Kinerton"), at the same time, under
which Kinerton will supply Neoprobe with its requirements of lanreotide at the
lowest price charged to Kinerton's commercial customers. The supply agreement
has the same term as the license agreements with Biomeasure. Neoprobe currently
intends to research the use of lanreotide in connection with the diagnosis and
treatment of breast and neuroendocrine/endocrine cancers.
XTL Biopharmaceuticals, Ltd. In February 1996, Neoprobe and XTL
Biopharmaceuticals Ltd. ("XTL") completed agreements including investment and
research agreements whereby XTL granted Neoprobe the exclusive worldwide option
to license XTL developed products in certain disease fields. XTL has developed
technology to produce mice that contain human immune systems. Fully human
antibodies can be developed from these mice. The mice also can be used to model
human diseases such as cancer and HIV. Neoprobe's first use of this technology
will be to produce a cancer model that can be used to test RIGS/ACT optimization
schemes. Neoprobe acquired $1.5 million in convertible debentures of XTL (the
"XTL Debentures") convertible into approximately 15 percent equity interest in
XTL and a warrant affording Neoprobe the option to acquire an additional 10
percent equity interest in XTL. To accomplish the purchase of the XTL Debentures
and to fund the product development activities contemplated under the research
agreement, Neoprobe issued to XTL 125,000 shares of Neoprobe's Common Stock.
Peptor, Ltd. In February 1996, Neoprobe and Peptor Corp., a wholly owned
subsidiary of Peptor, Ltd. ("Peptor"), formed a joint venture limited liability
company ("JV"), which is intended to commercialize radiolabeled targeting agents
developed by Peptor and supplied by Peptor to the JV. Neoprobe (Israel) will
radiolabel the targeting agents for the JV. The JV is to seek funding from a
foundation to support a portion of the JV's research activities and to the
extent that these funds are inadequate to meet the mutually agreed to research
program, the parties will equally contribute to the JV.
Cira Technologies, Inc. Dr. Richard Olsen, an emeritus professor of
veterinary pathobiology at OSU, and Dr. John Ridihalgh, Chairman of the Company,
invented a process for treating chronic infectious and/or autoimmune diseases
using activated cellular therapy, conducted tests of their invention on animals
and filed an application for a United States patent thereon. In March 1996, Dr.
Ridihalgh and the Company, represented by a committee of independent directors,
agreed that a newly organized corporation, Cira Technologies, Inc.("Cira"),
would exploit the process. The Company received 10 percent of the originally
issued shares in Cira and the remainder was divided among Drs. Ridihalgh and
Olsen and their colleagues, including a director of the Company who acted as
their patent counsel. The Company and Cira also executed a Technology Option
Agreement, under which Cira granted the Company an option to acquire exclusive
world-wide licenses to Cira's activated cellular therapy for the treatment of
human immunodeficiency virus infected patients and chronic infectious and/or
autoimmune disease in humans and
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the Company agreed to support a Phase I clinical trial of this process on up to
40 patients at a cost not to exceed $500,000. The Company and Cira also cross
licensed improvements in activated cellular therapy. In addition to technology
rights, the Company obtained an option to increase its interest in Cira by 15%.
The exercise price of this option is 15% of the fair market value of Cira's
outstanding securities on the earlier of the third anniversary of a license
agreement under the Technology Option Agreement, or the commencement of a
pivotal clinical trial study, subject to a minimum of $1.95 million and a
maximum of $4.5 million.
PATENTS AND PROPRIETARY RIGHTS
Proprietary protection for Neoprobe's products is important to Neoprobe's
business. Neoprobe's policy is to seek to protect its technology by, among other
things, filing patent applications for technology that is considered important
to the development of its business. Certain aspects of Neoprobe's RIGS
technology are claimed in the United States in U.S. Patent No. 4,782,840, which,
provided that required maintenance fees are paid, expires in 2005. Under the
Patent Restoration Act, Neoprobe is eligible to apply for a three to five-year
patent extension. The Company plans to apply for an extension within 60 days of
FDA marketing approvals of its first RIGS system product. The earliest of those
patents expires in 2006, provided that the required maintenance fees are paid.
The detection instrument patents concern the manner in which the RIGS system
communicates with surgeons and the unique manner in which background radiation
is distinguished from radiation being emitted from tumors.
Neoprobe holds 10 patents issued by the United States Patent Office
covering RIGS technology, holds one additional patent jointly with OSURF and
numerous foreign patents. Neoprobe has additional patent filings pending in the
United States, Canada, Mexico, Argentina, Brazil, South Korea, China, Russia,
India, Taiwan, Europe, Australia, Israel and Japan. The patents Neoprobe is
seeking with these applications would provide Neoprobe with certain rights with
respect to (i) the Neoprobe 1000 detection instrument and other detection
instruments; (ii) certain processes to evaluate neoplastic tissue; and (iii) a
technique relating to activated cellular therapy. The timing of issuance of
these patents cannot be predicted; it has been Neoprobe's experience that the
period between filing and issuance of a patent can be two years or longer.
Neoprobe estimates that the costs to prosecute these patent applications to
their ultimate resolutions (i.e., issuance or abandonment) will not be material.
The patent position of biotechnology firms, including Neoprobe, generally
is highly uncertain and involves complex legal and factual questions. To date, a
consistent and predictable application of United States patent laws regarding
the grant and interpretation of patent claims in the area of biotechnology has
not evolved. Moreover, the technology applicable to Neoprobe's monoclonal
antibody products is developing rapidly. Patents have been issued to other
pharmaceutical, biotechnology, and biopharmaceutical companies in the same area
of technology as that used by Neoprobe. In addition, potential competitors may
have filed applications for, or may have been issued patents or may obtain
additional patents and proprietary rights relating to, products or processes in
the same area of technology as that used by Neoprobe. The scope and validity of
these patents and applications, the extent to which Neoprobe may be required to
obtain licenses thereunder or under other proprietary rights, and the cost and
availability of licenses are uncertain. There can be no assurance that
Neoprobe's patent applications will result in additional patents being issued or
that any of Neoprobe's patents will afford protection against competitors with
similar technology; nor can there be any assurance that any of Neoprobe's
patents will not be designed around by others or that others will not obtain
patents that Neoprobe would need to license or design around. See "Risk Factors
- -- Patents, Proprietary Technology and Trade Secrets."
Neoprobe also relies upon unpatented trade secrets. No assurance can be
given that others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to Neoprobe's
trade secrets, or disclose such technology, or that Neoprobe can meaningfully
protect its rights to its unpatented trade secrets. Neoprobe requires its
employees, consultants and advisers to execute a confidentiality agreement upon
the commencement of an employment or consulting relationship with Neoprobe. The
agreement provides that all confidential information developed or made known to
the individual during the course of the relationship will be kept confidential
and not disclosed to third parties except in specified circumstances. In the
case of employees, the agreements provide that all inventions conceived by the
individual will be the exclusive property of Neoprobe. There can be no
assurance, however, that these agreements will provide meaningful protection for
Neoprobe's trade secrets in the event of an unauthorized use or disclosure of
such information.
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GOVERNMENT REGULATION
The production and marketing of Neoprobe's products and its research and
development activities are subject to detailed and substantive regulation by
governmental authorities in the United States and other countries. In the United
States, drugs, biologic products, and medical devices are regulated by the FDA.
The Federal Food, Drug, and Cosmetic Act (the "FDC Act"), the Public Health
Services Act (the "PHS Act"), the respective regulations promulgated thereunder,
and other federal and state statutes and regulations, govern, among other
things, clinical testing, manufacture, labeling, packaging, marketing,
distribution and record keeping in order to ensure that the Company's products
are safe and effective for their intended use. Noncompliance with applicable
requirements can result in fines, civil penalties, injunctions, suspensions or
loss of regulatory approvals, recall or seizure of the Company's products,
operating restrictions, import detentions, government refusal to approve product
export applications, 510(k)s, PMAs, BLAs, PLAs or ELAs, or to allow the Company
to enter into supply contracts, and criminal prosecution. The FDA also has the
authority to revoke previously granted licenses. See "Risk Factors -- Government
Regulation."
The Company's biologic products will require a regulatory license to market
by the FDA and by comparable agencies in foreign countries. The process of
obtaining regulatory licenses and approvals is costly and time consuming, and
the Company has encountered and may continue to encounter delays in the
completion of testing for certain proposed products. Future delays could result
from, among other things, slower than expected patient enrollment rates,
difficulties in analyzing data from clinical trials or in validating
manufacturing processes, changes in regulatory requirements, a longer than
expected FDA review process and possible additional analysis and reconciliation
of any perceived differences between data generated in Phase I/II and Phase II
clinical trials and data generated in Phase III clinical trials. In addition,
although certain members of management and significant employees and consultants
have had substantial experience in conducting and supervising clinical trials
for pharmaceutical and biomedical products, the Company has not previously
submitted a BLA to the FDA or a dossier to European regulatory agencies for
approval of a license to market its products. Even after FDA approval of
applicable licenses, use of the Company's products could reveal side effects
that, if serious, could result in suspension of existing licenses and delays in
obtaining licenses in other jurisdictions. See "Risk Factors -- Government
Regulation."
The steps required before a biologic agent may be marketed in the United
States include (i) preclinical laboratory and animal testing; (ii) submission to
the FDA of an Investigational New Drug ("IND") application, which must become
effective before human clinical trials may commence; (iii) adequate and well
controlled human clinical trials to establish the safety and efficacy of the
biologic for its intended use; (iv) submission of a BLA to the FDA; and (v) FDA
approval of these applications and each production lot before any sale or
shipment of the biologic.
Until 1996, the manufacturer of a biologic product, whether or not the
manufacturer is the developer of the product, had to be licensed by the FDA
through submission and approval of an Establishment License Application ("ELA")
that related to the specific biologic for which a Product License Application
("PLA") was sought. A PLA and ELA were submitted, reviewed and approved in
tandem and were issued by the FDA only to the same party (a "holder").
Consequently, the holder of the PLA had to be both the manufacturer of the
product and the holder of the ELA applicable to the manufacture of that product.
In May 1996, the FDA promulgated the elimination of the requirement for an ELA
for "well characterized" biotechnology products subject to licensure under the
PHS Act. This new ruling has eliminated the requirement for each manufacturer to
hold both the PLA and ELA and has combined these licenses into a BLA. Under the
new rules, some information previously required as part of the ELA will be
required as part of the BLA as well. However, for a well characterized
biotechnology product, much of the information previously required as part of
the ELA will not be required in the BLA. In addition, under these rules, each
manufacturing facility must undergo a pre-approval inspection by the FDA to
assess its suitability and compliance with GMP and periodic inspections
thereafter. Once approved, any changes in the manufacturing process, equipment,
facilities or product specifications must be pre-approved by the FDA and may
require additional clinical data to validate the changes prior to allowing their
implementation. Under this final rule, the Company, as the developer of the
product, will hold the BLA.
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Pre-clinical tests include laboratory and animal studies to assess product
characteristics and the potential safety and utility of each product. The
results of the preclinical tests are submitted to the FDA as part of an IND
application and are reviewed by the FDA prior to the commencement of human
clinical trials. Unless the FDA objects to an IND application, the application
will become effective 30 days following its receipt by the FDA. There can be no
assurance that submission of an IND application will result in FDA allowing the
commencement of Neoprobe's clinical trials.
Clinical trials involve the administration of the investigational
radiolabeled targeting agent to volunteer cancer patients under the supervision
of a qualified principal investigator. Clinical trials are conducted in
accordance with protocols that detail the objectives of the study, the
parameters to be used to monitor safety, and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND
application. Further, each clinical study must be conducted under the auspices
of an independent institutional review board ("IRB") at the institution at which
the study will be conducted. The IRB will consider, among other things, ethical
factors, the safety of human subjects, and the possible liability of the
institution.
Clinical trials are typically conducted in three sequential phases but the
phases may overlap. In Phase I, the targeting agent is initially introduced into
human subjects (15-50) and is tested for safety (adverse effects), dosage,
distribution, and metabolism. Phase II involves studies in a limited population
of patients (50-200) affiliated with a specific disease (i) to determine the
preliminary efficacy of the drug for specific, targeted indications; (ii) to
determine optimal dosage; and (iii) to identify possible adverse effects and
safety risks. When a product is found to be effective and has an acceptable
safety profile in Phase II studies, Phase III trials are undertaken to evaluate
further clinical efficacy and to test further for safety within an expanded
patient population (200-2,000 or more) at geographically dispersed clinical
study sites. Before conducting Phase III trials, the FDA must approve Neoprobe's
methodology and research goals, which are summarized in a protocol submitted by
Neoprobe for FDA consideration. There can be no assurance that the FDA will
approve any protocol submitted by Neoprobe in the future or that a Phase III
trial will meet FDA data integrity, Good Clinical Practice ("GCP"), or protocol
compliance requirements. A Phase III trial must be conducted in compliance with
the protocol and GCP regulations to have the requisite data integrity to be
accepted by FDA as evidence of safety and effectiveness. Neoprobe or the FDA may
suspend clinical trials at any time if it is concluded that the patients are
being exposed to an unacceptable health risk, or because of a study design or
implementation error. Such suspension may have a material adverse effect on the
Company's business, financial condition and results of operations.
The pivotal Phase III clinical studies, on which the FDA bases its
evaluation of the safety, efficacy and potency of a biologic product, must be
performed using products produced at the manufacturing facilities which are
seeking the BLAs. Any significant changes in the conduct of the clinical study,
in the manufacturing process or in the facilities during the Phase III clinical
trials or after FDA approval likely will require additional clinical studies
before they are approved.
The results of the preclinical studies, clinical studies, and other
required information are submitted to the FDA in the form of a BLA for approval
of the marketing and commercial shipment of the biologic. Neoprobe must pay a
$200,000 or more user fee to file the BLA and the FDA may refuse to file the BLA
and require additional testing before filing the BLA. This and other user fees,
though not insubstantial sums, are an insignificant fraction of the cost of
developing, testing, seeking and, if successful, obtaining FDA approval of a
BLA. The testing and approval process is likely to require substantial time and
effort, and there can be no assurance that any approval will be granted on a
timely basis, if at all. The FDA may deny a BLA if applicable regulatory
criteria are not satisfied, require additional testing or information, or
require post-marking testing and surveillance to monitor the safety or efficacy
of Neoprobe's products. Notwithstanding the submission of such data, the FDA may
ultimately decide that the application does not satisfy its regulatory criteria
for approval. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if a problem occurs following initial
marketing.
The process of completing clinical testing usually takes a number of years
and requires the expenditure of substantial resources. Additionally, the length
of time it takes for the FDA to evaluate an application for marketing approval
varies considerably, as does the amount of preclinical and clinical data
required to demonstrate the safety and efficacy of a specific product. The FDA
may require additional clinical studies which will take the Company several
-14-
years to perform. The FDA now takes a minimum of one year to review biologic
applications after filing under the user fee policy. Twelve months after
acceptance for filing, Neoprobe should receive a letter either approving the
PLA, or not approving it and citing deficiencies that must be addressed. No
further action will be taken by the FDA until Neoprobe fully responds to the
issues in the letter. The length of the review period may vary widely depending
upon the nature and indications of the proposed product and whether the FDA has
any further questions or requests any additional data. Also, the FDA will
require post-marking reporting and surveillance programs to monitor the side
effects of the products. Some of Neoprobe's products may be eligible for
accelerated BLA consideration. The FDA may expedite an approval for treatment of
a serious and life-threatening disease, if the drug or biologic provides a
benefit over existing treatment and meets certain testing objectives.
Post-marking studies would be required and the FDA could restrict distribution
of a product receiving accelerated approval to market. There can be no assurance
that any of Neoprobe's potential products will be approved by the FDA or
approved on a timely or accelerated basis or that any approvals received will
not subsequently be revoked or modified. In addition, future regulations and
changes in FDA policies could affect Neoprobe's operations or impose additional
requirements before products are approved.
Neoprobe submitted a dossier to the European regulatory agencies in May
1996, and a BLA to the FDA in December 1996, for its RIGS product for the
detection of metastatic colorectal cancer. There can be no assurance that the
FDA will review the BLA in a timely manner, that the clinical data collected in
the Company's Phase III pivotal clinical trials will be sufficient to support
FDA approval of a license for the CR49 product, or that the FDA will not require
additional information and data, including additional clinical studies. Failure
to obtain a BLA and to commence marketing the RIGScan CR49 product on a timely
basis would have an adverse effect on the Company's business, financial
condition and results of operations, including but not limited to, jeopardizing
the Company's rights under certain of its current or contemplated contractual
arrangements for the supply of necessary components of its RIGS system products.
The FDA strictly controls the marketing of any approved biologic product in
terms of approving the lot release of each production batch of product and
pre-approval of all labeling, promotional materials and press releases. Among
conditions for BLA approval is the requirement that the prospective
manufacturer's quality control and manufacturing procedures conform to GMP,
which must be followed at all times. In complying with standards set forth in
these regulations, Neoprobe must continue to expend time, funds, and effort to
ensure full compliance. If Neoprobe wishes to modify or change its manufacturing
process or facility it must seek approval to do so through an amendment to its
BLA which may require additional clinical testing.
Even after initial FDA approval has been obtained, further studies may be
required to provide additional data on safety and further studies will be
required to gain approval for the use of a product as a treatment for a clinical
indication other than that for which the product was initially tested. Also, the
FDA may require post-marketing testing and surveillance programs to monitor the
product's effects. Undesirable side effects resulting from the use of
pharmaceutical products may prevent or limit the further marketing of the
products.
Neoprobe applied to the FDA to clarify regulatory jurisdiction over the
Company's combination RIGS instrument/targeting agent products. The FDA's
response was to appoint jurisdiction over the Company's marketing submissions to
the center which evaluates the targeting agent. The Company may now submit a BLA
(in the case of a biologic such as CC49) or New Drug Application ("NDA") (in the
case of a peptide such as lanreotide which is considered a drug), obviating the
need for a second separate submission for the instrument. This decision
streamlines the review process for the Company's RIGS products by requiring
marketing submission to a single FDA evaluation center, the Center for Biologics
Evaluation and Research ("CBER") and Center for Drug Evaluation and Research
("CDER").
In addition to regulations enforced by the FDA, the manufacture,
distribution and use of Neoprobe's products are also subject to regulation by
the Nuclear Regulatory Commission, the Department of Transportation and other
federal and state, and local government authorities. Neoprobe and/or its
manufacturer of the radiolabeled antibodies must obtain a specific license from
the Nuclear Regulatory Commission to manufacture and distribute radiolabeled
antibodies as well as comply with all applicable regulations. Neoprobe must also
comply with Department of Transportation regulations on the labeling and
packaging requirements for shipment of radiolabeled antibodies to licensed
-15-
clinics, and must comply with federal, state and local governmental laws
regarding the disposal of radioactive waste. There can be no assurances that the
Company will obtain all necessary licenses and permits and be able to comply
with all applicable laws, the failure of which would have a materially adverse
effect on the Company's business, financial condition and results of operations.
Before marketing its products in Western Europe, Neoprobe will be required
to receive the approval of the European Council or European Commission and the
appropriate governmental agencies in each of the respective countries. For
marketing outside the United States, Neoprobe is also subject to foreign
regulatory requirements governing human clinical trials, pharmaceutical sales
and marketing approval of its products. Whether or not FDA approval has been
obtained, approval of a product by comparable regulatory authorities of foreign
countries must be obtained prior to commencement of manufacturing or marketing
of the product in those countries. The requirements governing the conduct of
clinical trials, product licensing, pricing, and reimbursement vary widely from
country to country; however, foreign procedures are similar to those required by
the FDA. Neoprobe intends, to the extent possible, to rely on foreign
distributors of its products to manage and obtain regulatory approval for those
products.
Instrument Products. The nonclinical laboratory and clinical testing
required by the FDA of medical devices is generally less extensive than that
typically required for a biologic or drug. Nevertheless, these testing protocols
may take up to several years to complete. There can be no assurance that the FDA
will accept, act favorably or quickly in its review of the test data, once
submitted, and significant difficulties or costs may be encountered by Neoprobe
in its efforts to obtain FDA approvals that could delay or preclude Neoprobe
from marketing its products for clinical purposes. Furthermore, there can be no
assurance that the FDA will not request the development of additional data
following the original submission, including clinical data. Based upon the
information submitted to it, the FDA may also limit the scope of the product
labeling, or the indications for which the product may be offered, or deny the
marketing application altogether. Even after marketing approval is received, it
may be revoked or modified for a variety of reasons.
The FDA classifies medical devices into one of three classes -- class I,
II, or III. This classification is based on the controls necessary to reasonably
ensure the safety and effectiveness of the device. Class I devices are those
whose safety and effectiveness can reasonably be ensured through general
controls, such as labeling, premarket notification (the "510(k)" process), and
adherence to FDA-mandated GMP requirements. Class II devices are those whose
safety and effectiveness can reasonably be ensured through general and special
controls, such as performance standards, postmarket surveillance, patient
registries, and FDA guidelines. Class III devices are devices that must receive
pre-market approval by the FDA to ensure their safety and effectiveness. They
are generally life-sustaining, life-supporting, or implantable devices, and also
include devices that are not substantially equivalent to a legally marketed
class I or II product or to a class III device for which PMAs have not been
called.
If a manufacturer or distributor of medical devices can establish to the
FDA's satisfaction that a new device is "substantially equivalent" to a legally
marketed class I or class II medical device or to a class III device for which
the FDA has not required pre-market approval, the manufacturer or distributor
may market the device after clearance of a 510(k) notice. In the 510(k)
submission, a manufacturer or distributor makes a claim of substantial
equivalence, which the FDA may require to be supported by various types of
information, including clinical data showing that the device is as safe and
effective for its intended use as the legally marketed predicate device.
Following submission of the 510(k), the manufacturer or distributor may not
place the new device into commercial distribution until an order is issued by
the FDA finding the new device to be substantially equivalent to a legally
marketed predicate device. The FDA has no specific time limit by which it must
approve a 510(k). The 510(k) process typically can take from six months up to 18
months or more. The FDA may agree with the manufacturer or distributor that the
new device is substantially equivalent to another legally marketed device, and
allow the new device to be marketed in the United States. The FDA may, however,
determine that the new device is not substantially equivalent and require the
Company to submit further information, such as additional clinical test data,
before it is able to make a determination regarding substantial equivalence,
which can substantially delay the market introduction of the product. For a
device that is cleared through the 510(k) process, modifications or enhancements
that could significantly affect the safety or effectiveness of the device or
that constitute a major change to the intended use of the device will require a
new 510(k) submission.
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A pre-market approval application ("PMA") must be filed if a proposed
device is not substantially equivalent to a legally marketed class I or class II
device, or if it is a class III device for which the FDA has called for PMAs.
The PMA process is much more expensive, uncertain and lengthy than the 510(k)
process. A number of devices for which PMA approval has been sought by other
companies has never been approved for marketing. A PMA application must be
supported by valid scientific evidence which typically includes extensive
testing and manufacturing information, including preclinical and clinical trial
data, to demonstrate the safety and effectiveness of the device.
FDA review and approval of a PMA usually takes at least 18 to 24 months and
can take significantly longer, and typically includes review by an outside
advisory panel of experts. Further, if a company wishes to propose modifications
to the product subsequent to FDA clearance, including changes in indications or
other significant modifications to labeling, or modifications to the
manufacturing process, or if a company wishes to change its manufacturing
facility, a new PMA application or supplement must be submitted to the FDA for
review and approval.
The Neoprobe 1000 instrument received 510(k) clearance in December 1986,
and modified versions received 510(k) clearance in June 1992 and February 1995.
The FDA has indicated that the Company must obtain PMA approval to market its
laparoscopic probe, which currently is undergoing preclinical animal testing.
The Company intends to seek permission from the FDA for a clinical trial to
evaluate a laparoscopic version of the RIGS system. There can be no assurance
that the FDA would grant permission for such a trial, or that the trial would
proceed in a timely fashion, if at all. It is uncertain whether the FDA would
require PMA approval or 510(k) clearance for the Company's other proposed RIGS
instrument products. In addition, any PMA or 510(k) submission for a proposed
instrument for use with a RIGS targeting agent may be required to be submitted
to CBER or CDER as a combination product, as described above.
The FDA also requires that Neoprobe's instrument products be manufactured
in compliance with GMP regulations which govern the procedures, processes,
controls, and documentation used in manufacturing Neoprobe's products. The FDA
ensures GMP compliance through periodic facility inspections. Accordingly,
manufacturers must commit ongoing substantial resources to maintaining a high
level of compliance with GMP requirements. In addition, Neoprobe's promotional
and educational activities regarding its diagnostic instrument products must
comply with evolving FDA policies and regulations regarding acceptable device
product promotion practices.
There can be no assurance that Neoprobe will receive marketing clearance
for any of its future products or that its clinical data or its manufacturing
facilities will continue to satisfy FDA regulatory requirements. In addition,
the manufacture, sale and use of Neoprobe's products are also subject to
regulation by other federal entities, such as the Occupational Safety and Health
Agency, the Nuclear Regulatory Commission and the Environmental Protection
Agency, and by various state agencies. Federal and state regulations regarding
the manufacture, sale, and use of Neoprobe's products are subject to future
change, which changes could have a material adverse effect on Neoprobe's
business, financial condition, and results of operations.
RIGS/ACT. RIGS/ACT will be regulated by a new FDA division specifically
established to review and approve cellular and gene therapies. This newly
created division within the Center for Biologics Evaluation and Research will
require IND, PLA, and ELA applications similar to biologics. However, since
these are new therapies, the FDA has had limited experience and continues to
develop guidance in this therapy product area. To date, all cellular and gene
therapies are in the investigational stage. None of the therapies has yet
reached the commercial clearance phase of FDA review. Accordingly, no precedents
have been established. There can be no assurance that the FDA's lack of
experience in this area will not cause additional delays or that Neoprobe will
be successful in meeting all evolving regulatory requirements. The Company has
completed Phase I/II feasibility studies of RIGS/ACT. Although the Company
intends, based upon the results, to seek to begin a pivotal clinical trial of
RIGS/ACT for a colorectal cancer indication, there can be no assurance that the
FDA will grant permission for such a trial, that the trial will proceed in a
timely fashion, if at all, or that the outcome will support the submission of a
PLA.
Manufacturing. In addition to obtaining FDA approval for each product, each
manufacturing establishment for biological products must be inspected and
approved by the FDA prior to approval of the PLA to market the product.
Additionally, biologic product regulations currently require that the
manufacturing facility file an ELA, demonstrat
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ing GMP compliance prior to approval of the PLA for the product. Among the
conditions for such approval is the requirement that the prospective
manufacturer's quality control and manufacturing procedures conform to the FDA's
GMP regulations, which must be followed at all times. In complying with
standards set forth in these regulations, manufacturers must continue to expend
time, money, and effort in the area of production and quality control to ensure
full compliance.
COMPETITION
Neoprobe faces competition from biotechnology, pharmaceutical and chemical
companies as well as from universities and other non-profit research
organizations in the field of cancer diagnostics and treatment. Many emerging
biotechnology companies have corporate partnership arrangements with large,
established companies to support the research, development and commercialization
of products that may be competitive with those of Neoprobe. In addition, a
number of large established companies are developing proprietary technologies or
have enhanced their capabilities by entering into arrangements with or acquiring
companies with proprietary antibody technology or other technologies applicable
to the detection or treatment of cancer. Many of Neoprobe's existing or
potential competitors have substantially greater financial, research and
development, regulatory, marketing and production resources than those of
Neoprobe. In addition, certain of these companies have extensive experience in
preclinical testing and human clinical trials. Other companies may develop and
introduce products and processes competitive with or superior to those of
Neoprobe. Further, the development by others of new cancer diagnostic or
treatment methods not based on monoclonal antibodies, improvements in monoclonal
antibody technology, or the development of a cure or vaccine for cancer could
render Neoprobe's technology and products under development noncompetitive or
obsolete. See "Risk Factors -- Competition" and "-- Risk of Technological
Obsolescence."
For Neoprobe's products, an important factor in competition may be the
timing of market introduction of its products or those of its competitors
products. Accordingly, the relative speed with which Neoprobe can develop
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market will be an important
competitive factor. Neoprobe believes that the RIGS system will offer a cancer
diagnostic and treatment alternative or complementary method to currently
available and reasonably foreseeable developing technologies in many cases.
Neoprobe expects that competition among products approved for sale will be
based, among other things, on product efficacy, safety, reliability,
availability, price and patent position.
Neoprobe believes that, given currently available technologies, the
principal sources of competition likely to be faced by its proposed products
will be preoperative diagnostic techniques such as CT, MRI and
immunoscintigraphy. Both CT and MRI are widely available and used by a large
number of physicians. However, neither of those technologies can distinguish
malignant from non-malignant tissue. Several of Neoprobe's principal competitors
are biotechnology-based companies that are developing products for
immunoscintigraphy. The antibody products developed by these companies use
high-energy gamma-emitting isotopes, as compared to the much lower energy
gamma-emitting isotope used by Neoprobe. These companies have received approval
or filed marketing applications for colorectal, ovarian, small cell lung,
melanoma and breast cancer external imaging products. Although
immunoscintigraphy can distinguish malignant from non-malignant tissue, none of
the external imaging technologies is effective in consistently identifying
tumors smaller than one centimeter or in precisely locating the site of a tumor.
Such technologies only indicate that cancer may be present within a general
area. Radiolabeled antibody products for use with immunoscintigraphy for
recurrent colorectal cancer patients have already been approved by regulatory
authorities in Europe and the United States. While Neoprobe views
immunoscintigraphy to be complementary to the RIGS technology because
immunoscintigraphy involves a preoperative diagnostic procedure, some physicians
may choose to use the preoperative information provided by immunoscintigraphy in
lieu of obtaining the information provided by the intraoperative RIGS
technology. If a significant number of physicians choose to use
immunoscintigraphy or another diagnostic procedure in lieu of the RIGS
technology, Neoprobe's ability to generate commercial revenues, if any, could be
adversely affected.
The Company is aware of companies that have initiated development of
photodynamic diagnostic products. This technology uses agents that target cancer
and also carry fluorescing molecules that can be activated by laser or other
light sources. Light from the fluorescing molecules can then be detected with
the proper instrumentation.
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Neoprobe believes these products are at a very early stage of development and
that they are applicable primarily to detecting tumor which resides on the
surface of tissue.
The Company believes that ultrasound imaging technology is the only other
intraoperative technology, which may be capable of detecting tumors during
surgery The ultrasound imaging technology is currently approved for use in the
United States and is used by surgeons for the detection of tumors, but is
limited to almost exclusively detecting tumors in the liver.
EMPLOYEES
As of March 18, 1997, Neoprobe, including MonoCarb and Neoprobe
(Israel), had 92 full-time and nine part-time employees. Fifteen employees hold
Ph.D. degrees and five hold M.D. degrees. Neoprobe considers its relations with
its employees to be satisfactory.
RISK FACTORS
The discussion in this Report contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
significantly from the prospects discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Early Stage of Development; No Commercialized Products
The Company is still in the development stage and has not received approval
to market any of its products for the detection of cancer, except in the
Republic of Korea,. However, the Company has received clearance to market the
Neoprobe 1000 instrument for use as a radioisotope detector only for use with
approved radiopharmaceuticals, none of which currently are Neoprobe's products.
To date, the Company has completed a Phase III clinical trial with the Company's
lead product, RIGScan CR49, for the surgical detection of metastatic and
recurrent colorectal cancer in both the United States and Europe. The Company
filed marketing applications for this product with regulatory agencies in Europe
in May 1996 and with the FDA in December 1996. Enrollment of patients in a
separate Phase III clinical study for primary colorectal cancer has been
completed in the United States and in Europe. Substantial clinical and
statistical analysis of the data collected from the clinical trials of this
product and substantial clinical trials of the Company's other products must be
completed before submissions can be made to appropriate regulatory authorities.
Such analysis and trials require substantial financial and management resources
and could require more time than is currently estimated. There can be no
assurance that the Company will be able to conclude successfully the clinical
tests or development of any of its proposed products within the Company's
expected time frame and budget, if at all, or that the Company's products will
prove to be safe and effective in clinical trials. There also can be no
assurance that the Company will be able to obtain governmental approval for the
commercial marketing and sale of any of its proposed products. If the Company is
unable to conclude successfully the clinical tests or if the RIGS system does
not prove to be safe and effective, or if the Company does not obtain
governmental approval or is otherwise unable to commercialize the RIGS system
successfully, the Company's business, financial condition and results of
operations will be materially adversely affected and could result in the
cessation of the Company's business. See"--Clinical Research."
Limited Revenues; Continuing Net Losses; Accumulated Deficit
The Company's limited history of operations, the nature of its business,
and the governmental approval process make the prediction of future operating
results difficult and highly unreliable. The Company's business, therefore, must
be evaluated in light of the risks, expenses, delays and complications normally
encountered by development-stage companies in the highly competitive, highly
regulated biomedical industry, which is characterized by a high rate of failure.
Since its inception in 1983, the Company has been primarily engaged in research
and development of the RIGS technology. The Company has experienced significant
operating losses in each year since inception, and had an accumulated deficit of
approximately $64.1 million as of December 31, 1996. For the years ended
December 31, 1994, 1995 and 1996, the Company's net losses were $10.6 million,
$10.8 million, and $21 million, respec-
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tively. The Company expects operating losses to continue as research and
development and clinical trial efforts continue, and as the Company awaits for
the regulatory authorities to complete their review of the Company's first
marketing license application. The Company's ability to achieve profitable
operations is dependent upon obtaining regulatory approval of its products and
making the transition to a revenue generating company. There can be no assurance
that the Company will ever achieve a profitable level of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence upon Principal Product Line; Uncertainty of Market Acceptance
The Company's future success is dependent upon obtaining regulatory
approvals to market, and achieving market acceptance of, the Company's proposed
RIGS products, which represent the Company's principal proposed product line.
There can be no assurance that the Company will receive approval to market any
of its RIGS products from the appropriate regulatory authorities. Moreover,
achieving market acceptance for the RIGS products, if approved, will require
significant efforts and expenditures to create awareness and demand for the RIGS
products by surgeons, nuclear medicine departments of hospitals, oncologists
and, possibly, cancer patients. Widespread use of the Company's RIGS products
would require the training of numerous physicians, and the time required to
complete such training could result in a delay or dampening of market
acceptance. There can be no assurance that the Company's initial proposed
commercial products, RIGS products for colorectal cancer, or any other proposed
products will become standard surgical procedure or even generally accepted
medical practice, or that the Company will achieve any market penetration. In
addition, purchase decisions are greatly influenced by health care
administrators who are subject to increasing pressures to reduce costs.
Healthcare administrators must determine that the Company's products are
cost-effective alternatives to current means of tumor detection. The failure to
obtain governmental approvals or achieve significant market acceptance for such
products would have a materially adverse effect on the Company's business,
financial condition and results of operations. See "-- Marketing and
Distribution ."
Government Regulation
The Company's biologic products will require a regulatory license to market
by the FDA and by comparable agencies in foreign countries. In addition, various
federal, state and foreign statutes also govern or influence the manufacture,
safety, labeling, storage, record keeping and marketing of such products. The
process of obtaining regulatory licenses and approvals is costly, time
consuming, and prone to unexpected delay. The Company has encountered and may
continue to encounter delays in the completion of testing for certain proposed
products. Future delays could result from, among other things, a longer than
expected review process and possible additional analysis and reconciliation of
any perceived differences between data generated in Phase I/II and Phase II
clinical trials and data generated in Phase III clinical trials, slower than
expected patient enrollment rates, difficulties in analyzing data from clinical
trials or in validating manufacturing processes and changes in regulatory
requirements. In addition, although certain members of management and
significant employees and consultants have had substantial experience in
conducting and supervising clinical trials for pharmaceutical and biomedical
products, the Company has not previously submitted a BLA to the FDA or a dossier
to European regulatory agencies for approval of a license to market its
products. There can be no assurance that clinical data collected in the
Company's pivotal Phase III trials will be sufficient to support approval of
licenses for the Company's products or that the FDA or European regulatory
agencies will not require additional information and data, including additional
clinical studies, or refuse to file the application for substantive review.
Failure to obtain these licenses and to commence commercial marketing on a
timely basis could jeopardize the Company's rights under certain of its current
or contemplated contractual arrangements for the supply of necessary components
of its RIGS system products and would have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
foreign and domestic approvals, if granted, may include significant limitations
on uses of the products. Further, even if such regulatory approval is obtained,
use of the Company's products could reveal side effects that, if serious, could
result in suspension of existing licenses and delays in obtaining licenses in
other jurisdictions. A marketed product, manufacturer and manufacturing
facilities are subject to continual review and periodic inspections, and later
discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the prod-
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uct from the market. Noncompliance with applicable governmental requirements can
result in import detentions, fines, civil penalties, injunctions, suspensions or
loss of regulatory approvals, recall or seizure of the Company's products,
operating restrictions, government refusal to approve product export
applications or to allow the Company to enter into supply contracts, and
criminal prosecution. Additional governmental regulation may be established
which could prevent or delay regulatory approval of the Company's products. Any
delays or failure to receive required approvals or limiting conditions on
approvals could materially adversely affect the Company's business, operating
results and financial condition. See "-- Government Regulation."
In addition to regulations enforced by the FDA, the manufacture,
distribution and use of Neoprobe's products are also subject to regulation by
the Nuclear Regulatory Commission, the Department of Transportation and other
federal, state and local government authorities. Neoprobe and/or its
manufacturer of the radiolabeled antibodies must obtain a specific license from
the Nuclear Regulatory Commission to manufacture and distribute radiolabeled
antibodies as well as comply with all applicable regulations. Neoprobe must also
comply with Department of Transportation regulations on the labeling and
packaging requirements for shipment of radiolabeled antibodies to licensed
clinics, and must comply with federal, state and local governmental laws
regarding the disposal of radioactive waste. There can be no assurance that the
Company will be able to obtain all necessary licenses and permits and be able to
comply with all applicable laws. The failure to obtain such licenses and permits
or to comply with applicable laws would have a materially adverse effect on the
Company's business, financial condition and results of operations.
No Assurance of Continued Rights to Targeting Agents; Royalty Payments
Targeting agents, such as monoclonal antibodies or peptides which are able
to bind specifically to tumor antigens or receptors, are essential to the
Company's technology and the Company's ultimate success. The targeting agents
used by the Company in its research and clinical studies and as components of
its proposed RIGS products are the patented or proprietary technology of others.
The Company must purchase the rights to those targeting agents or must obtain
rights to use them through license agreements with their owners. There can be no
assurance that such arrangements will continue or that they will continue on
terms acceptable to the Company. Furthermore, license agreements typically
impose obligations to diligently develop commercial products and to pay
royalties on those products. Failure to perform such obligations may lead to the
termination of such license agreements. Loss of the Company's rights to
targeting agents for any reason (including, in the case where the Company is a
sublicensee of the targeting agents, a breach by a sublicensor under its
agreement with the owner of a targeting agent) or the inability to obtain
necessary rights on acceptable terms could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
there can be no assurance that improved targeting agents will not be developed
by other entities for which the Company will be required to seek satisfactory
additional license arrangements. If such licenses cannot be readily obtained,
the Company could encounter delays in product market introductions or could find
that the development, manufacture or sale of products requiring such licenses
could be foreclosed, which could have a material adverse impact on the Company's
business, operating results and financial condition. Upon commercialization of
the Company's products, the Company will be required to make royalty payments
pursuant to its existing and contemplated license agreements which could
adversely impact the Company's operating results. See "-- License and Technology
Agreements."
Patents, Proprietary Technology and Trade Secrets
The Company's success depends, in part, on its ability to secure patent
protection and maintain trade secret protection, and on its ability to operate
without infringing on the patents of third parties. The Company has received 10
United States patents, including U.S. Patent No. 4,782,840, which relates to the
RIGS system surgical method and holds one additional patent jointly with OSURF.
The Company has filed applications for certain additional United States and
foreign patents. There can be no assurance, however, that the patents for which
the Company has applied will be issued to the Company. Moreover, the Company
believes that some of the technology it develops will not be patentable in
certain foreign markets. There can be no assurance that any of the Company's
patents or patent applications will not be challenged, invalidated, or
circumvented in the future. In addition, there can be no assurance that
competitors, many of which have substantially more resources than the Company
and have made substantial investments in competing technologies, will not seek
to apply for and obtain patents that will prevent, limit, or interfere with the
Company's ability to make, use, or sell its products either in the United States
or internationally. Furthermore, the patent positions of biotechnology firms,
including the Company, are highly uncertain and
-21-
involve complex legal and factual questions. To date, a consistent and
predictable application of United States patent laws regarding the grant and
interpretation of patent claims in the area of biotechnology has not evolved.
Due to these uncertainties, the probability of challenges, invalidations, and
circumventions is higher than in technologically and legally stable fields.
Patent applications in the United States are maintained in secrecy until
patents issue, and patent applications in foreign countries are maintained in
secrecy for a period after filing. Publications of discoveries in the scientific
or patent literature tend to lag behind actual discoveries and the filing of
related patent applications. Patents issued and patent applications filed
relating to medical devices are numerous and there can be no assurance that
current and potential competitors and other third parties have not filed or will
not file in the future applications for, or have not received or in the future
will not receive, patents or obtain additional proprietary rights relating to
products or processes used or proposed to be used by the Company.
The Company's U.S. Patent No. 4,782,840 includes claims to surgical
procedures having a number of steps, including, for example, the step of
administering an effective amount of an antibody specific for cancer tissue,
labeled with a radioactive isotope. The claims also include the step of delaying
surgery for a time interval following the administration step to permit the
radiolabeled antibody to concentrate preferentially in any cancer tissue that is
present and for the unbound radiolabeled antibody in the blood pool to be
cleared to a blood pool background level, so as to increase the ratio of
radiation from cancer tissue to background radiation. There can be no assurance
that potential competitors will not promote surgical procedures that do not
include one or more of the steps recited in the claims of U.S. Patent No.
4,782,840, including the aforementioned steps.
The Company also relies upon trade secrets, technical know-how, and
continuing technological innovation to develop and maintain its competitive
position. The Company typically requires its employees, consultants, and
advisors to execute confidentiality and assignment of inventions agreements in
connection with their employment, consulting, or advisory relationships with the
Company. There can be no assurance, however, that these agreements will not be
breached or that the Company will have adequate remedies for any breach.
Further, there also can be no assurance that others will not gain access to the
Company's trade secret information or independently develop or acquire the same
or equivalent trade secret information. Certain of the research activities
relating to the development of antibody technology that may be components of the
Company's proposed RIGS system technology products were conducted by agencies of
the United States government. When the United States government participates in
research activities, it retains certain rights that include the right to use the
technologies for governmental purposes under a royalty-free license, as well as
rights to use and disclose technical data and computer software that could
preclude the Company from asserting trade secret rights in that data and
software.
The Company has not been notified by any third party that the Company's
products and procedures infringe any valid, enforceable claim of any patent
owned by others. Any such claim, however, whether with or without merit, could
be time-consuming and expensive to respond to and could divert the Company's
technical and management personnel. The Company may become involved in
litigation to defend against claims of infringement made by others, to enforce
patents issued to the Company, or to protect trade secrets of the Company. If
any relevant claims of third-party patents are upheld as valid and enforceable
in any litigation or administrative proceeding against the Company, it could be
prevented from practicing the subject matter claimed in such patents, or would
be required to obtain licenses from such patent owners, or to redesign its
products and processes to avoid infringement. There can be no assurance that the
Company will be able to obtain acceptable licenses or rights, if at all, to
other patents which the Company deems necessary for its operations. Accordingly,
an adverse determination in a judicial or administrative proceeding or failure
to obtain necessary licenses could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition, and results of operations. The Company
intends to vigorously protect and defend its intellectual property. Costly and
time-consuming litigation brought by the Company may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company, or to determine the enforceability, scope, and validity of the
proprietary rights of others. See "-- Patents and Proprietary Rights" and "--
Competition."
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Limited Third Party Reimbursement
The Company's products will be marketed to hospitals and other users that
bill various third party payers, including government programs, such as federal
Medicare and state Medicaid, and private insurance plans, for the health care
services provided to their patients. Third party payers carefully review and are
increasingly challenging the prices charged for medical products and services.
Although the Company intends to establish the prices for its products according
to criteria believed to be acceptable to third party payers, there can be no
assurance that such payers will not deny reimbursement on the basis that the
Company's products are not in accordance with established payer policies
regarding cost effective treatment methods, or on some other basis. There can be
no assurance that the Company would be able to provide economic and medical data
to overcome any third party payer objections.
In foreign markets, reimbursement is obtained from a variety of sources,
including governmental authorities, private health insurance plans, and labor
unions. In most foreign countries, there are also private insurance systems that
may offer payments for alternative therapies. Although not as prevalent as in
the United States, health maintenance organizations are emerging in certain
European countries. The Company may need to seek international reimbursement
approvals, although there can be no assurance that any such approvals will be
obtained in a timely manner or at all. Failure to receive international
reimbursement approvals could have an adverse effect on market acceptance of the
Company's products in the international markets in which such approvals are
sought.
There can be no assurance, as to either United States or foreign markets,
that third party reimbursement and coverage or newly approved products will be
available or adequate, that current reimbursement policies of third party payers
will not be decreased in the future or that future legislation, regulation, or
reimbursement policies of third party payers will not otherwise adversely affect
the demand for the Company's products or its ability to sell its products on a
profitable basis. If third party payer coverage or reimbursement is unavailable
or inadequate, the Company's business, financial condition, and results of
operations could be materially adversely affected. See "-- Marketing and
Distribution."
Competition
The biotechnology industry is characterized by intense competition. Many
companies, research institutes and universities are working in a number of
pharmaceutical or biotechnology disciplines similar to the Company's field of
interest. In addition, many companies are engaged in the development of or
currently offer products which may be or are competitive with the Company's
proposed products. Most of these entities have substantially greater financial,
technical, manufacturing, marketing, distribution or other resources than the
Company. Competing tumor detection technologies include CT, MRI and, more
recently, immunoscintigraphy. The Company may compete against a number of these
companies including: Cytogen Corp., Immunomedics Inc. and NeoRx Corp. One or
more of these or other companies could also design and develop products that
compete directly with the Company's products, in which case the Company would
face intense competition. Such competition could have a material, adverse effect
on the Company's business, financial condition and results of operations. The
Company is aware that other research and testing is being conducted in Western
Europe in connection with the use of radiolabeled targeting agents and
radiation-detection probes. There can be no assurance that one or more of these
or other companies will not develop technologies that are more effective or less
costly than the Company's products, or that would otherwise render the Company's
products and technology non-competitive or obsolete. Such technologies would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Any product developed by the Company that gains regulatory approval will
have to compete for market acceptance and market share. An important factor in
such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which the Company can develop
products, complete clinical testing and regulatory approval processes, gain
reimbursement acceptance and supply commercial quantities of the product to the
market is expected to be an important competitive factor. In addition, the
Company believes that the primary competitive factors in the market for tumor
detection products are safety, efficacy, ease of delivery, reliability,
innovation and price. The Company also believes that physician relationships and
customer support are important competitive factors. There can be no assurance
that the Company can achieve or maintain a competitive position or that the
Company's intraoperative detection products for the treatment of cancer will be
introduced or marketed in a timely
-23-
fashion or that any such products will achieve significant market acceptance. In
such event, the Company's business, operating results and financial condition
could be materially adversely affected. See "-- Competition."
Risk of Technological Obsolescence
The medical device industry is characterized by rapid and significant
technological change. There can be no assurance that third parties will not
succeed in developing or marketing technologies and products that are more
effective than those developed or marketed by the Company or that would render
the Company's technology and products obsolete or noncompetitive. Additionally,
new surgical procedures and medications could be developed that replace or
reduce the importance of current procedures that use the Company's products.
Accordingly, the Company's success will depend in part on its ability to respond
quickly to medical and technological changes through the development and
introduction of new products. Product development involves a high degree of risk
and there can be no assurance that the Company's new product development efforts
will result in any commercially successful products. In such event, the
Company's business, operating results and financial condition could be
materially adversely affected. See "-- Competition."
Limited Manufacturing Capacity and Experience
To date, the Company's manufacturing activities have consisted primarily of
manufacturing limited quantities of products for use in clinical trials. In
order to achieve financially self sustaining operations, the Company must
manufacture its RIGS products, including targeting agents, in commercial
quantities at an acceptable cost. If the Company scales up manufacturing its
products, there can be no assurance that the Company will not encounter
difficulties such as problems involving product yields, quality control and
assurance, supplies of components, and shortages of qualified personnel.
Moreover, in order to assemble, complete, package and distribute its RIGS
products in commercial quantities, the Company will have to maintain a current
GMP facility to manufacture its products or engage independent contractors to
manufacture such products. The GMP facility will have to adhere to GMP
regulations and to guidelines enforced by the FDA and other regulatory agencies
through their facilities inspection programs. If such an inspection by the FDA
or another regulatory agency results in a requirement for additional
modifications to the facility, the Company's ability to manufacture its products
could be adversely affected. There can be no assurance that the Company will be
able to engage independent contractors or develop and maintain a GMP facility at
a cost acceptable to the Company. See "-- Manufacturing."
The Company uses or relies on certain components and services used in its
devices that are provided by sole source suppliers. Although the Company has
identified primary and alternative vendors, the qualification of additional or
replacement vendors for certain components or services is a lengthy process. Any
significant supply interruption would have a material adverse effect on the
Company's ability to manufacture its products and, therefore, a material adverse
effect on its business, financial condition, and results of operations.
The Company expects to manufacture its products based on forecasted product
orders. Lead times for materials and components ordered by the Company vary
significantly, and depend on factors such as the business practices of the
specific supplier, contract terms, and general demand for a component at a given
time. Certain components used in the Company's products have long lead times. As
a result, there is a risk of excess or inadequate inventory if orders do not
match forecasts.
Possible Volatility of Stock Price
The market price of the shares of Common Stock of the Company, like that of
the securities of many other biotechnology companies, has been and is likely to
continue to be highly volatile. For example, the closing price for shares of the
Company's Common Stock for the last two years has been as high as $22 and as low
as $1.50. Factors such as the results of preclinical and clinical trials by the
Company or its competitors, other evidence of the safety and efficacy of the
Company's or competitors' products, announcements of technological innovations
or new commercial products by the Company or its competitors, changes in
securities analysts' estimates or recommendations, governmental regulation,
developments in patent or other proprietary rights of the Company or its
competitors, and fluctuations in the Company's operating results may have a
significant effect on the market price of the Common
-24-
Stock. In addition, the stock market has experienced and continues to experience
extreme price and volume fluctuations which have affected the market price of
many biotechnology companies and which have often been unrelated to the
operating performance of these companies. These broad market fluctuations, as
well as general economic and political conditions, may adversely affect the
market price of the Common Stock. The Company has more than 22.5 million shares
of Common Stock outstanding, almost all of which are freely tradable. See "Item
5. Market for Common Equity and Related Stockholders Matters."
Future Capital Needs; Uncertainty of Capital Funding
To date, the Company's capital requirements have been significant. The
Company has depended on the proceeds of sales of its securities and other
financing vehicles to continue clinical testing of its proposed products and to
fund its working capital requirements. The Company believes that the funds it
has on hand will satisfy its cash needs through the end of 1998. Obtaining
approvals to market is costly and time consuming and the Company may require
significant funds in addition to its current cash resources to sustain its
operations and to obtain regulatory approval to commercialize any of its
proposed products. No assurance can be given that the necessary additional
financing will be available to the Company on acceptable terms, if at all, or
that would not result in further dilution to the holders of the Company's equity
securities. The Company's ability to raise additional financing may be dependent
on many factors beyond the Company's control, including the state of capital
markets, the development or prospects for development of competitive technology
by others, and the rate of progress of the Company's clinical trials. If
additional funding is unavailable to the Company when needed, the Company will
be required to curtail significantly one or more of its research and development
programs and the Company's business and financial condition will be materially
adversely affected. See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Product Liability
The testing, marketing and sale of the Company's proposed products could
expose the Company to liability claims. The Company currently has $10 million of
liability insurance, which the Company believes is adequate for its current
activities There can be no assurance, however, that the Company will be able to
continue to obtain such additional insurance at a reasonable cost, if at all, or
that such insurance would be sufficient to cover any liabilities resulting from
any product liability claims or that the Company will have funds available to
pay any claims over the limits of its insurance. Either an underinsured or an
uninsured claim could have a material adverse effect on the Company's business,
operating results and financial condition.
Dependence on Key Personnel; Ability to Attract New Personnel; Possible
Conflicts of Interest
John L. Ridihalgh and David C. Bupp are key employees of the Company and
the loss of the services of either one of them could substantially delay the
achievement of the Company's goals. The Company carries "key man" life insurance
with a death benefit of $1.0 million on each of them. The Company has entered
into employment agreements with each of these individuals pursuant to which,
among other things, these individuals have agreed not to compete with the
Company for specified periods. The Company's success is dependent on its ability
to attract and retain additional technical and management personnel with
expertise in several technical and scientific disciplines and experience in the
regulatory approval process. The competition for qualified personnel in the
biomedical industry is intense and, accordingly, there can be no assurance that
the Company will be successful in hiring or retaining the requisite personnel.
In addition, the Company will rely on certain of its non-employee directors and
members of its Scientific Advisory Board to assist the Company in formulating
and pursuing its research and commercialization strategy. These directors and
members of the Scientific Advisory Board are and will be employed by entities
other than the Company and may serve as directors of or have a commitment to or
consulting or advisory contracts with other entities, including potential
competitors of the Company. Although the Company has confidentiality agreements
with these directors and with each member of its Scientific Advisory Board,
conflicts of interest may arise between those persons and the Company, which
conflicts may not necessarily be resolved in favor of the Company. See "Item 9.
Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act."
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Need to Manage a Changing Business
In order to compete effectively against current and future competitors,
complete clinical trials in progress, prepare additional products for clinical
trials, and develop future products, the Company believes that it must continue
to expand its operations, particularly in the areas of research and development,
manufacturing and marketing. If the Company were to experience significant
growth in the future, such growth would likely result in new and increased
responsibilities for management personnel and place significant strain upon the
Company's management, operating and financial systems and resources. To
accommodate such growth and compete effectively, the Company must continue to
implement and improve information systems, procedures and controls, and to
expand, train, motivate, and manage its work force. The Company's future success
will depend to a significant extent on the ability of its current and future
management personnel to operate effectively. There can be no assurance that the
Company's personnel, systems, procedures and controls will be adequate to
support the Company's future operations. Any failure to implement and improve
the Company's operational, financial, and management systems or to expand,
train, motivate or manage employees could have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Dependence on Key Personnel; Ability to Attract New Personnel; Possible
Conflicts of Interest" and "Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the Exchange Act."
No Dividends
The Company has never paid dividends on its Common Stock. The Company
intends to retain any future earnings to finance its growth. Accordingly, any
potential investor who anticipates the need for current dividends from its
investment should not purchase any of the Common Stock offered hereby. See
"Item 5. Market for Common Equity and Related Stockholders Matters."
Anti-Takeover Provisions; Blank Check Preferred Stock
The Company has adopted a stockholder rights plan. Certain provisions of
the stockholder rights plan and certain of the Company's charter provisions and
applicable corporate laws could be used to hinder or delay a takeover bid for
the Company. Such provisions may inhibit takeover bids and decrease the chance
of stockholders realizing a premium over market price for their Common Stock as
a result of a takeover. The Company's Certificate of Incorporation authorizes
the issuance of "blank check" preferred stock with such designations, rights,
preferences and restrictions as may be determined from time to time by the Board
of Directors, 500,000 shares of which have been designated as Series A Junior
Participating Preferred Stock and reserved for issuance pursuant to the
Company's stockholder rights plan. If the Company issues Preferred Stock, the
issuance could be used to thwart a takeover bid and may have a dilutive effect
upon the Company's common stockholders, including the purchasers of the
securities offered hereby.
ITEM 2. DESCRIPTION OF PROPERTY.
In February 1994, Neoprobe moved to its current office at 425 Metro Place
North, 4th Floor, in Dublin, Ohio. In November 1996, the Company executed a
lease agreement with the landlord of these facilities for approximately 31,400
square feet. The lease agreement begins on January 1, 1997 and ends in May 2003.
The lease provides for a base rent of approximately $20,750 in the first year of
the lease and increases to $26,350 in the last year of the lease. The Company
must also pay a portion of the building operating and real estate taxes of the
building. Neoprobe believes these facilities are in good condition and will be
adequate for its needs for the foreseeable future.
Neoprobe's wholly-owned subsidiary, MonoCarb, currently leases office and
production facilities in Lund, Sweden, which occupy approximately 16,500 square
feet. The lease is for a term of approximately five years commencing July 1,
1996 and provides for a base rent of approximately $32,000 per month (subject to
annual increases based on the Swedish consumer price index). The lease is
automatically extended for an additional period of five years each unless notice
of termination is given 18 months before the end of the lease. Neoprobe believes
these facilities are in good condition and will be adequate for its needs for
the foreseeable future.
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ITEM 3. LEGAL PROCEEDINGS.
In June 1996 a lawsuit against the Registrant was terminated by dismissal.
The Registrant was named as an additional party defendant in the In Re Blech
Securities litigation pending in the United States District Court for the
Southern District of New York before Judge Robert Sweet in March 1995. The
plaintiffs were eight named individuals who were alleged to be representatives
of a class of securities purchasers. The defendants included David Blech, who
was a principal stockholder of the Registrant until September 1994, Mark
Germain, who was a director of the Registrant until September 1994, D. Blech &
Co., a registered broker-dealer owned by Mr. Blech, trustees of certain trusts
established by Mr. Blech, Bear Stearns & Co., Baird Patrick & Co., Parag Saxena
and Chancellor Capital Corp., as well as the Registrant and 10 other
corporations of which Mr. Blech was a principal stockholder (the "Corporate
Defendants"). The complaint alleged that David Blech and D. Blech & Co.
conducted a scheme intended to artificially inflate the prices of securities
issued by corporations Mr. Blech controlled; that Mr. Blech, D. Blech & Co. and
corporations controlled by Mr. Blech gave or sold cheap stock to fund managers
in order to induce them to participate in this scheme; and that David Blech, his
trusts, D. Blech & Co., Baird Patrick, Bear Stearns, the Corporate Defendants
and unnamed other persons engaged in sham transactions, including "round trip"
sales, for the purpose of artificially inflating trading volumes and securities
of corporations controlled by Mr. Blech and maintaining their trading prices.
The complaint alleged that David Blech was the controlling person and Mark
Germain was a director of the Corporate Defendants and that the knowledge and
participation of Messrs. Blech and Germain in the alleged scheme were the
responsibility of the Corporate Defendants. The complaint also alleged that the
Corporate Defendants actively engaged in the alleged scheme and benefited from
it. The complaint further alleged that all of the defendants engaged in a
conspiracy to manipulate the market and failed to disclose truthful information
about the true value of securities issued by corporations controlled by Mr.
Blech. The complaint alleged violations of Securities and Exchange Commission
Rule 10b-5 and common law fraud by all defendants, violations of the Racketeer
Influenced Corrupt Organizations Act (RICO) by defendants other than the
Corporate Defendants and liability under Securities Exchange Act 20(a), as the
liability of controlling persons, by Messrs. Blech and Germain and D. Blech &
Co., Baird Patrick and Bear Stearns. The amount of damages requested was not
specified in the complaint. In June 1996, Judge Sweet dismissed the allegations
against the Registrant and the other Corporate Defendants because the plaintiffs
had failed to identify the alleged fraudulent acts of the Registrant and the
other Corporate Defendants with the specificity required by federal law. The
dismissal terminated the action against the Registrant without any findings of
liability against Registrant in July 1996. The Judge's order can still be
appealed, and the time for appeal will not begin to run until a final judgment
has been entered in the entire multi-party proceeding .
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock, of the Company trades on The Nasdaq National Market under
the trading symbol "NEOP". The prices set forth below reflect the high and low
sale prices for shares of Common Stock during the last two fiscal years as
reported by The Nasdaq National Market.
HIGH LOW
---- ---
Fiscal Year 1995
First Quarter $ 4.81 $ 1.50
Second Quarter 6.94 4.38
Third Quarter 14.13 5.25
Fourth Quarter 19.13 11.00
Fiscal Year 1996
First Quarter $23.25 $13.38
Second Quarter 19.88 14.00
Third Quarter 19.25 8.88
Fourth Quarter 18.13 11.38
As of March 18, 1997, the Registrant had approximately 598 holders of
Common Stock of record.
The Company has not paid any dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company intends
to retain any earnings to finance the growth of its business. There can be no
assurance that the Company will ever pay cash dividends.
Recent Sales of Unregistered Securities.
The following sets forth certain information regarding the sale of equity
securities of the Company during the period covered by this Report that were not
registered under the Securities Act of 1933 other than unregistered sales made
in reliance on Regulation S.
In March 1996 the Company issued 5,426 shares of Common Stock to the
trustees of its 401(k) employee benefit plan without registration. Such issuance
is exempt from registration under the Act under Section 3(a)(2). The Plan is a
pension, profit sharing or stock bonus plan that is qualified under Section 401
of the Internal Revenue Code. The assets of the Plan are held in a single trust
fund for the benefit of the employees of the Company which does not hold assets
for the benefit of the employees of any other employer. All of the contributions
to the plan from employees of Neoprobe have been invested in assets other than
Common Stock. All of the Common Stock held by the plan has been contributed to
the plan by the Company as a matching contribution and has been less in value at
the time it was contributed to the plan than the employee contributions which it
matches.
In May, 1996, the Company issued 124,805 shares of common stock to Dow as
consideration for licenses to technology owned by Dow, See "Item 1.
Business--Licenses and Technology Agreements," in a transaction not involving
any public offering under Section 4(2) of the Securities Act of 1933.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Management Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Report contain forward-looking
statements that involve risks and uncertainties. The Company's actual results in
1997 and future periods may differ significantly from the prospects discussed in
the forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private and public offerings of its equity securities, from which it has raised
gross proceeds of approximately $120 million. The Company has devoted
substantially all of its efforts and resources to research and clinical
development of innovative systems for the intraoperative diagnosis and
treatment of cancers. The RIGS system integrates radiolabeled targeting agents
and a radiation detection instrument. The Company is developing both the
radiolabeled targeting agents and radiation-detection instrument components of
the RIGS technology. The Company has completed testing in a pivotal Phase III
clinical trial for the detection of metastatic colorectal cancer. In addition,
the Company has completed testing in a separate pivotal Phase III clinical trial
for the detection of primary colorectal cancer. The Company must obtain
regulatory approval to market its products before commercial revenue can be
generated. During 1996, the Company submitted to the European regulatory
agencies and to the FDA applications to request permits to begin marketing and
selling the Company's RIGS products for the detection of metastatic colorectal
cancer. In 1997, the Company anticipates filing similar applications with the
European and U.S. regulatory agencies for the detection of primary colorectal
cancer. During the fourth quarter of 1996, the Company received notification
from its Korean marketing partner that it had received an approved license to
distribute RIGScan CR49 in South Korea. The Company anticipates distributing
commercial product in Korea during 1997.
The Company is studying the safety and efficacy of RIGS products for the
detection of other solid tumor cancer types, and the safety and efficacy of
certain cancer therapy products (RIGS/ACT) based on activated cellular therapy.
In addition, the Company is funding the initial Phase I study to determine the
safety and feasibility of using activated cellular therapy to help boost the
immune system of patients with HIV/AIDS and patient enrollment has been
completed during the first quarter of 1997. There can be no assurance that the
Company's products will be approved for marketing by the FDA or any foreign
government agency, or that any such products will be successfully introduced or
achieve market acceptance.
For the period from inception to December 31, 1996, the Company has
incurred cumulative net losses of approximately $64.1 million. Although the
Company currently has filed its request for a marketing permit in the U.S. and
Europe, the Company does not currently have a RIGS product approved for
commercial sale and does not anticipate commercial sales of sufficient volume to
generate positive cash flow until 1998, at the earliest. The Company has
incurred, and will continue to incur, substantial expenditures for research and
development activities related to bringing its products to the commercial
market. The Company intends to devote significant additional funds to clinical
testing, manufacturing validation, and other activities required for regulatory
review and commercialization of RIGS products. The amount of funds and length of
time required to complete such testing will depend upon the outcome of
regulatory reviews. The regulatory bodies may require more testing than is
anticipated by the Company. There can be no assurance that the Company's RIGS
products will be approved for marketing by the FDA or any foreign government
agency, or that any such products will be successfully introduced or achieve
market acceptance.
As of December 31, 1996, the Company has cash, cash equivalents, and
available-for-sale securities of $49.9 million. In April 1996, the Company sold
1,750,000 shares of common stock at a price of $18.50 per share in a secondary
offering, and received proceeds net of underwriting discounts of $30.5 million.
In November 1992 and December 1993, the Company issued a total of 2,330,000
Class E Redeemable Common Stock Purchase Warrants ("Class E Warrants") which
expired on November 12, 1996. During 1996, the Company received proceeds from
the exercise of Class E Warrants of approximately $15.0 million. In September
1996, the Company received a $2 million license payment from USSC. If the
Company does not receive FDA and European regulatory approvals for the
-29-
RIGS system within 24 months from the execution date, and if USSC terminates the
Agreement pursuant to certain provisions in the Agreement during this period,
the Company must refund the license payment to USSC.
In 1996, regulatory activities related to RIGScan CR49, the Company's first
product to detect primary and metastatic colorectal cancer, continued to
increase as the Company submitted an application to begin marketing in Europe
and the United States. Consolidated research and development expenses during
1996 were approximately $16.1 million, or 68% of total operating expenses for
the period. Consolidated general and administrative expenses were approximately
$7.8 million, or 32% of total operating expenses for the period.
The Company anticipates that 1997 research and development expenses will
continue to increase over 1996 levels and selling, general and administrative
expenses will increase significantly over 1996 expenditures. A significant
portion of the increased general and administrative expenses will be associated
with marketing activities in preparation for the commercial launch of the first
RIGS product. In addition, the Company anticipates expenses directly associated
with selling RIGScan CR49 and the Neoprobe 1000 system will increase
particularly in the second half of 1997. The Company cannot predict when
marketing approvals will be received. However, when the Company receives
permission from the regulatory authorities to begin marketing its products and
begins generating revenue from the sale of its products, additional costs for
marketing and distribution will be incurred. During 1997, in addition to product
launch activities, the Company will continue to focus on improving manufacturing
processes for the production of RIGS products and developing other RIGScan
products. The Company also anticipates opening clinical trials for additional
applications of RIGScan CR49. The Company currently anticipates that
approximately $21.0 million in cash will be used to finance operating activities
during 1997. The Company has executed various agreements with third parties that
supplement the technical and business capabilities of the Company. The Company
is generally obligated to such parties to pay royalties or commissions upon
commercial sale of the related product. The Company's estimate of its allocation
of cash resources is based on the current state of its business operations and
current business plan and current industry and economic conditions, and is
subject to revisions due to a variety of factors including without limitation,
additional expenses related to marketing and distribution, regulatory licensing
and research and development, and to reallocation among categories and to new
categories. The Company may need to supplement its funding sources from time to
time.
(New) MonoCarb AB ("MonoCarb") is a wholly-owned subsidiary of the Company,
located in Lund, Sweden, where it operates a manufacturing and purification
facility. The Company intends to use the production capability of MonoCarb to
produce future RIGScan products and to prepare the CC49 monoclonal antibody
produced by Bio-Intermediair BV for final radiolabeling. The Company advanced
MonoCarb funds during 1996 to cover capital expenditures of approximately
$570,000 and operating expenses of approximately $1.3 million. The Company
anticipates advancing $2.4 million during 1997 to cover operating and capital
expenditures.
In 1994, the Company formed Neoprobe (Israel) to construct and operate a
radiolabeling facility for the Company's targeting agents. The Company owns 95
percent of Neoprobe (Israel), with Rotem Industries Ltd., the private arm of the
Israeli atomic energy authority ("Rotem") owning the balance and managing the
facility. In 1994, Neoprobe (Israel) received notification from the state of
Israel's Finance Committee that its requested financial program had been
approved for the construction and operation of a radiolabeling facility near
Dimona, Israel. On August 10, 1995, the Company and Neoprobe (Israel) raised
$1.1 million for Neoprobe (Israel) through the issuance of convertible
debentures. During 1996, all of these convertible debentures were converted into
200,000 shares of Common Stock of Neoprobe Corporation. Costs associated with
construction of the facility and operations at Neoprobe (Israel) during 1996
were financed primarily with government grants and loans guaranteed by the
Israeli government. The Company advanced Neoprobe (Israel) funds during 1996 to
cover capital expenditures of approximately $900,000 and operating expenses of
approximately $1.0 million. The Company anticipates advancing $2.5 million
during 1997 to cover operating and capital expenditures.
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $55.6 million to offset future taxable income through 2011.
Additionally, the Company has tax credit carryforwards of approximately $1.9
million available to reduce future income tax liability through 2011. Under
Section 382 of the Internal Revenue Code of 1986, as amended, use of prior net
operating loss carryforwards is limited after an ownership
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change. As a result of ownership changes which occurred in March 1989 and in
September 1994, the Company's net operating tax loss carryforwards and tax
credit carryforwards are subject to the limitations described by Section 382.
RESULTS OF OPERATIONS
Since inception, the Company has dedicated substantially all of its
resources to research and development of its RIGS system for the intraoperative
diagnosis and treatment of cancer. Until the appropriate regulatory approvals
are received, the Company is limited in its ability to generate revenue.
Although the Company's Neoprobe 1000 system has received regulatory clearance,
the Company does not anticipate generating positive cash flow from sales of the
Neoprobe 1000 system alone. During 1996, the Company generated sales of Neoprobe
1000 systems of $780,000.
Since acquiring MonoCarb in December 1993 for the purpose of manufacturing
RIGScan products, MonoCarb has continued to generate revenue from the sale of
serology products. MonoCarb generated sales of serology products of
approximately $391,000, $803,000 and $850,000 during the years ended December
31, 1996, 1995 and 1994, respectively. All remaining sales reported in the
Company's Consolidated Statements of Operations during these periods were from
the sale of instruments. The Company currently plans to develop the long-term
production capability of MonoCarb for future RIGScan products. As a result, the
Company anticipates that revenue generated from the sale of serology products
will continue to decrease in 1997 and in subsequent periods.
Years ended 1996, 1995 and 1994.
Revenue and Other Income:
During the fiscal year ended December 31, 1996, the Company had net sales
of approximately $1.2 million consisting of sales of Neoprobe 1000 systems of
approximately $780,000 and blood serology products of approximately $391,000.
Other income for the period was $2.4 million and consisted primarily of interest
income of $2.2 million and miscellaneous income of $320,000, primarily
consisting of payments received from the Company's Korean marketing partner for
marketing rights in additional Asian territories. During the period ended
December 31, 1995, the Company had net sales of $960,000 consisting of sales of
Neoprobe 1000 systems of approximately $157,000 and blood serology products of
$803,000. Other income for 1995 was approximately $764,000 and consisted
primarily of interest income of approximately $603,000. Sales of the Neoprobe
1000 system increased significantly over 1995 primarily as a result of sales to
customers using the system in an emerging technique called intraoperative
lymphatic mapping ("ILM"). The Company anticipates that sales will continue to
increase in 1997 due to this growing use of ILM and the potential commercial
approval of the Company's RIGS products.
Sales in 1995 compared to 1994 did not fluctuate. MonoCarb, continued to
sell blood serology products in 1995, and was the principal source of revenue in
both periods. During the period ended December 31, 1994, the Company had net
sales of $933,000 consisting of sales of Neoprobe 1000 systems of $85,000 and
blood serology products of $847,000. Other income and expenses for 1994 were
$175,000 and consisted primarily of interest income of $181,000 and interest
expense of $73,000.
Research and Development Expenses:
Research and development expenses increased substantially during 1996 to
$16.1 million from $7.8 million in 1995. During 1996 the Company filed marketing
applications for regulatory approvals in Europe and in the U.S. The 1996
expenses reflect the costs associated with a multitude of activities required by
regulatory authorities for product approval. The activities included validating
the Company's manufacturing processes and conducting audits of clinical trial
data. In addition, during the period the Company continued its product
development activities for the detection of other cancers and its activated
cellular therapy program. The increase in research and development expenses was
the result of increases in wages and benefits from $3.2 million in 1995 to $5.7
million in 1996 and contracted services which increased from $1.6 million in
1995 to $4.7 million in 1996. Clinical trials also increased from $2.4 million
in 1995 to $4.7 million in 1996. Wages and benefits increased primarily from an
increase in research and development staff and $781,000 for non-cash
compensation expense related to stock options which
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vested after the execution of a marketing agreement. Additional staff was added
during the year to support development of future RIGS diagnostic products and
RIGS/ACT products. Contracted services increased primarily due to costs related
to manufacturing validation and testing and to a non-cash expense of $500,000
from technology licenses acquired for internal development. Clinical trial costs
increased over the previous period primarily from clinical studies associated
with RIGS/ACT products and costs associated with the development of the Biologic
License Application and the European marketing application.
Research and development expenses increased in 1995 to $7.8 million from
$6.8 million in 1994. The increase in 1995 was a result of an increase in wages
and benefits and contracted services during the year. These increases were
partially offset by a decrease in clinical trial costs in 1995. During 1995, the
Company continued to add personnel to assist in the preparation of the
anticipated regulatory filings and increased the incentive pay for the period.
Contracted services increased as a result of the Company's efforts to establish
and validate its commercial scale manufacturing process for the production of
its RIGS products. Clinical trial expenses during the year decreased since the
Company completed testing in its Phase III clinical trial for metastatic
colorectal cancer in the United States and Europe. The Company also completed
enrollment in its Phase III clinical trial for primary colorectal cancer in the
United States.
General and Administrative Expenses:
General and administrative expenses increased substantially during 1996 to
$7.8 million from $4.1 million in 1995. The 1996 increase was primarily a result
of increased wages and benefits and other expenses. Wages and benefits increased
as a result of sales and marketing personnel added during the period in addition
to a $781,000 non-cash compensation expense recorded for stock options which
vested after the execution of a marketing agreement. Other expenses increased
primarily as a result of increases in commissions on net sales, travel expenses,
insurance, recruiting, taxes and other miscellaneous expenses.
General and administrative expenses decreased during 1995 to $4.1 million
from $4.3 million in 1994. During 1995, professional services decreased and
wages and benefits increased from the previous year. Professional services
decreased primarily as a result of an unusually high amount of professional
services recorded in 1994. The Company had several unsuccessful equity offerings
during 1994 and therefore legal and accounting expenses were extraordinarily
high. The costs for successful offerings in 1995, were recorded directly as a
charge to stockholders' equity. Wages and benefits increased during 1995
primarily from a change in expense classification of certain individuals' salary
from research and development in 1994 to general and administrative in 1995,
because of differing job responsibilities.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements of the Company, and the related notes, together
with the report of Coopers & Lybrand L.L.P. dated February 12, 1997, are set
forth at pages F-1 through F-18 attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information regarding the Registrant's directors will be set forth at
"ELECTION OF DIRECTORS; Nominees for Election as Directors," in the Registrant's
Proxy Statement for its 1997 Annual Meeting of Shareholders (the "1997 Proxy
Statement") which information is incorporated herein by reference. Information
required by this Item concerning compliance with Section 16(a) of the Exchange
Act will be set forth at "FORMS 3 and 4" in the 1997 Proxy Statement which
information is incorporated herein by reference.
The executive officers of the Company and their ages and positions are as
follows:
Name Age Position
- --------------------------------------- ----------- -------------------------------------------------------
John L. Ridihalgh, Ph.D. 55 Chairman of the Board, Chief Executive Officer and
Director
David C. Bupp 47 President, Chief Operating Officer and Director
Larry E. Anderson 59 Vice President, Managing Director, Europe
Louis Cosentino 42 Vice President, Marketing and Corporate Development
Joseph R. Bianchine, Ph.D., 67 Vice President, Clinical Research, and Medical
M.D. Director
Matthew F. Bowman 45 Vice President, Therapeutics
William A. Eisenhardt, Ph.D. 54 Vice President, Research and Development
David P. Houchens, Ph.D. 60 Vice President, Pre-Clinical Studies
J. Kenneth Poggenburg, Ph.D. 62 Vice President, Operations
John Schroepfer 36 Vice President, Finance and Administration
Trudie L. Seeger, Ph.D. 41 Vice President, Regulatory Affairs
John L. Ridihalgh, Ph.D., has served as a director and Chairman of the
Board since 1988. He was President of the Company from 1984 to November 1991.
Dr. Ridihalgh served as Chief Executive Officer from 1984 to November 1991 and
resumed the position in June 1992. From November 1991 to June 1992, Dr.
Ridihalgh served as a consultant to the Company. From 1968 to 1974, Dr.
Ridihalgh was a research scientist at Battelle Memorial Institute in Columbus,
Ohio. He founded a consulting firm to the nuclear industry in 1974 and a
manufacturer of long-distance telephone network access devices in 1981. He is
also the founder of a medical instrument development company and an animal
vaccine company which has licensed a number of vaccines for veterinary use. Dr.
Ridihalgh has a B.S. degree in Mathematics and a Ph.D. degree in Nuclear
Engineering, both from Iowa State University.
David C. Bupp has served as President, Chief Operating Officer and a
director of the Company since August 1992. From August 1992 to May 1993, Mr.
Bupp served as Treasurer of the Company. In addition to the foregoing positions,
from December 1991 to August 1992, he was Acting President, Executive Vice
President, Chief Operating Officer and Treasurer, and from December 1989 to
December 1991, he was Vice President, Finance and Chief Financial Officer. From
1982 to December 1989, Mr. Bupp was Senior Vice President, Regional Manager for
AmeriTrust Company National Association, a nationally chartered bank holding
company, where he was in charge of commercial banking operations throughout
Central Ohio. Mr. Bupp has a B.A. degree in Economics from Ohio Wesleyan
University. Mr. Bupp completed a course of study at Stonier Graduate School of
Banking.
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Larry E. Anderson has served as Vice President, Managing Director - Europe
since January 1997. From May 1993 to April 1996, he served as first
partner-in-charge of audit in the Moscow office of Coopers & Lybrand L.L.P. Mr.
Anderson was a partner in the Columbus, Ohio office of Coopers & Lybrand prior
to that time. Mr. Anderson has a B.A. in Accounting from Miami University in
Oxford, Ohio and is a Certified Public Accountant.
Joseph R Bianchine, Ph.D., M.D. has served as Vice President, Clinical
Research and Medical Director of Neoprobe since September 1996. Prior to joining
the Company, Dr. Bianchine was Senior Vice President and Director, Medical
Research Center at Pharmacia, Inc. from 1988 to 1996. Dr. Bianchine is a
director of Technilogix, Inc. Dr. Bianchine has an M.D. degree from the State
University of New York at Syracuse and a Ph.D. from Albany Medical College in
Albany, New York.
Matthew F. Bowman has served as Vice President, Therapeutics since June of
1996. Prior to his current position, Mr. Bowman was employed by Pharmacia, Inc.,
where he served as Vice President of the Therapeutic Products Division from 1995
to 1996 and as Senior Director, Therapeutics, from 1993 to 1995. From 1988 to
1993, Mr. Bowman was employed by Adria Laboratories where, in 1993, he served as
Senior Director, New Business Development and Licensing, from 1990 to 1992, he
served as Director, New Business Development and Licensing, and, from 1988 to
1990, he served as Associate Director, New Business Development. Mr. Bowman has
a B.A. degree in Political Science from The Citadel.
Louis Cosentino has served as Vice President, Marketing and Corporate
Development of the Company since January 1996. From 1976 through 1995, Mr.
Cosentino was employed by Johnson & Johnson, Inc. From 1992 through 1995, he
served as Vice President, Advanced Concepts and Technology of Ethicon
Endo-Surgery, Inc., an affiliate of Johnson & Johnson, and from 1991 through
1993 he served as Director of New Business at Ethicon Endo-Surgery.
Mr. Cosentino has B.A. and M.B.A. degrees from Farleigh Dickinson University .
William A. Eisenhardt, Ph.D., has served as Vice President, Research and
Development of the Company since April 1994. From 1985 to 1992, Dr. Eisenhardt
served as Vice President, Research and Development and from 1992 until April
1994 was Director of Technology Assessment for the Ross Laboratories Division of
Abbott Laboratories. Dr. Eisenhardt has an A.B. degree in Chemistry from Case
Western Reserve University, a Ph.D. degree in Organic Chemistry from the State
University of New York at Buffalo, and was a Postdoctoral Researcher in
Chemistry at the University of Chicago.
David P. Houchens, Ph.D., has served as Vice President, Pre-Clinical since
January 1996, and served as Vice President, Corporate Development of the Company
from May 1993 to January 1996. From May 1993 to May 1994, Dr. Houchens was Vice
President, Clinical Development and from March 1990 to May 1993, Dr. Houchens
served as the Director of Laboratory and Clinical Sciences for the Company. From
1976 to March 1990, Dr. Houchens was Projects Manager at Battelle Memorial
Institute, and for five years prior thereto he was a Senior Staff Fellow at the
National Cancer Institute. Dr. Houchens has a B.S. degree in Biology from
Stetson University, and an M.S. degree in Biology and a Ph.D. degree in
Microbiology/Immunology from George Washington University.
J. Kenneth Poggenburg, Ph.D., was named Vice President, Operations of the
Company in March 1994. From January 1984 to February 1994, Dr. Poggenburg served
as Director of Research and Development for Hybritech Incorporated. From 1981 to
1984, Dr. Poggenburg was Director of Research and Development at American Home
Products, Analytic Products Division. Dr. Poggenburg has a B.S. degree in
Chemistry from the College of the Holy Cross and a Ph.D. degree in Nuclear
Chemistry from the University of California, Berkeley.
John Schroepfer has served as Vice President, Finance and Administration of
the Company since May 1993. From November 1991 to May 1993, Mr. Schroepfer
served as Controller of the Company, and was Chief Accounting Officer of the
Company from August 1992 to May 1993. From March 1989 to November 1991, he was
the Senior Accountant for the Company. From May 1986 to March 1989, Mr.
Schroepfer was employed by Coopers & Lybrand. Mr. Schroepfer has a B.S./B.A.
degree in Accounting from The Ohio State University and is a Certified Public
Accountant.
-34-
Trudie L. Seeger, Ph.D., has served as Vice President, Regulatory Affairs
of the Company since May 1993. From May 1991 to May 1993, Dr. Seeger was
Director of Regulatory Affairs and Clinical Research for the Company, and from
February 1990 to March 1991, she was the Associate Director of Regulatory
Affairs for the Company. From June 1988 to September 1989, Dr. Seeger was Senior
Clinical Research Associate at Bristol Myers, and from January 1984 to June
1988, she was a clinical research associate at Bristol Myers. From September
1989 to January 1990, Dr. Seeger was Associate Director, Clinical Research, at
Schering-Plough. Dr. Seeger has a B.S. degree in Biology from D'Youville College
(magna cum laude) and an M.S. degree in Physical Science and a Ph.D. degree in
Experimental Pathology (with a research emphasis in Immunology) from the State
University of New York at Buffalo.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item will be set forth at "COMPENSATION OF
MANAGEMENT" in the 1997 Proxy Statement which information is incorporated herein
by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be set forth at "SECURITY
OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS"
in the 1997 Proxy Statement which information is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be set forth at "CERTAIN
TRANSACTIONS" in the 1997 Proxy Statement which information is incorporated
herein by reference.
-35-
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(A) LIST OF EXHIBITS AND FINANCIAL STATEMENTS INCORPORATED BY REFERENCE
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1. Complete Restated Certificate of Incorporation of Neoprobe
Corporation, as corrected February 18, 1994 and as amended
June 27, 1994, July 25, 1995 and June 3, 1996
(incorporated by reference to Exhibit 99.2 to the
Registrant's Current Report on Form 8-K dated June 20,
1996 (the "June 1996 Form 8-K"); Commission File No.
0-26520).
3.2. Amended and Restated By-Laws, dated July 21, 1993, as
amended July 18, 1995 and May 30, 1996 (incorporated by
reference to Exhibit 99.4 to the June 1996 Form 8-K).
(4) INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS, INCLUDING
INDENTURES
4.1. See Articles FOUR, FIVE, SIX and SEVEN of the Restated
Certificate of Incorporation of the Registrant (see
Exhibit 3.1).
4.2. See Articles II and VI and Section 2 of Article III and
Section 4 of Article VII of the Amended and Restated
By-Laws of the Registrant (see Exhibit 3.2).
4.3. Rights Agreement dated as of July 18, 1995 between the
Registrant and Continental Stock Transfer & Trust Company
(incorporated by reference to Exhibit 1 to the
registration statement on Form 8-A, Commission File No.
0-26520).
(10) MATERIAL CONTRACTS (*indicates management contract or
compensatory plan or arrangement).
10.1. 1.--10.1.18. Reserved
10.1.19. Form of Brokers' Warrants for the purchase of shares of
Common Stock dated February 17, 1995 issued to officers of
Sunrise Financial Corporation (incorporated by reference
to Exhibit 10.1.19 to the Registrant's Annual Report on
Form 10-KSB for the year ending December 31, 1994;
Commission File No. 0-26520 (the "1994 Form 10-KSB")).
This exhibit is one of six substantially identical
instruments and is accompanied by a schedule identifying
the other documents omitted and setting forth the material
details in which such documents differ from the one that
is filed therewith.
10.1.20. Reserved.
10.1.21. Participating Broker Agreement dated February 17, 1995
between Sunrise Securities Corp. and Registrant
(incorporated by reference to Exhibit 10.1.21 to the 1994
Form 10-KSB).
10.1.22. Reserved.
10.1.23. Brokers' Warrants for the purchase of shares of Common
Stock dated June 30, 1995 issued to officers of Sunrise
Financial Corporation (incorporated by reference to
Exhibit 10.1.23 to Registrant's Quarterly Report on Form
10-QSB for the quarter ending June 30, 1995; Commission
No. 0-26520 (the "2nd Quarter 1995 Form 10-QSB")). This
exhibit is one of six substantially identical instruments
and is accompanied by a schedule identifying the other
documents omitted and setting forth the material details
in which such documents differ from the one that is filed
therewith.
-36-
10.1.24. Participating Broker Agreement dated June 23, 1995 between
Sunrise Securities Corp. and Registrant (incorporated by
reference to Exhibit 10.1.24 to the 2nd Quarter 1995 Form
10-QSB).
10.1.25. Rights Agreement between the Registrant and Continental
Stock Transfer & Trust Company dated as of July 18, 1995
(see Exhibit 4.3).
10.1.26. Participating Broker Agreement dated September 8, 1995
between Registrant and Sunrise Securities Corp.
(incorporated by reference to Exhibit No. 1.3 to Amendment
No. 1 to registration statement on Form S-3; No.
33-96440).
10.1.27. Convertible Debenture issued by Neoprobe (Israel) Ltd. on
August 10, 1995 (incorporated by reference to Exhibit
10.1.27 to Registrant's Quarterly Report on Form 10-QSB
for the quarter ending September 30, 1995; Commission File
No. 0-26520 (the "3rd Quarter 1995 Form 10-QSB")). This
exhibit is one of three substantially identical
instruments and is accompanied by a schedule identifying
the other documents omitted and setting forth the material
details in which such documents differ from the one that
is filed therewith.
10.1.28. Letter agreement dated May 31, 1995 among Registrant, GKN
Securities Corp., David Nussbaum, Roger Gladstone, Robert
Gladstone and Ira Scott Greenspan (incorporated by
reference to Exhibit 99.1 to Registrant's Current Report
on Form 8-K dated May 31, 1995; Commission File No.
0-26520 (the "May 1995 Form 8-K")).
10.1.29. Form of Limited Recourse Promissory Note dated May 31,
1995 issued to Registrant (incorporated by reference to
Exhibit 99.2 to the May 1995 Form 8-K). This exhibit is
one of five substantially identical instruments and is
accompanied by a schedule identifying the other documents
omitted and setting forth the material details in which
such documents differ from the one that is filed
therewith.
10.1.30. Letter agreements dated March 13, 1995 and May 25, 1995
between Registrant and David Blech and D. Blech & Company
Incorporated (incorporated by reference to Exhibit 99.3 to
the May 1995 Form 8-K).
10.2.1.-- 10.2.14. Reserved.
10.2.15. Option Agreements between the Registrant and David C. Bupp
(incorporated by reference to Exhibit 10.7 to the
Registrant's registration statement on Form S-1; No.
33-51446 (the "Form S-1")).*
10.2.16.-- 10.2.17. Reserved.
10.2.18. Non-Qualified Stock Option Agreement dated May 3, 1993
between the Registrant and David C. Bupp (incorporated by
reference to Exhibit 10.50 to the Registrant's Quarterly
Report on Form 10--QSB for the quarterly period ended June
30, 1993; Commission File No. 0-26520 (the "2nd Quarter
1993 Form 10-QSB")).*
10.2.19.-- 10.20. Reserved.
10.2.21. Non-Qualified Stock Option Agreement dated May 3, 1993
between the Registrant and John L. Ridihalgh (incorporated
by reference to Exhibit 10.53 to the 2nd Quarter 1993 Form
10-QSB).*
10.2.22. Reserved.
-37-
10.2.23. Non-Qualified Stock Option Agreement dated February 28,
1992 and amended and restated June 3, 1993 between the
Registrant and David C. Bupp (incorporated by reference to
Exhibit 99.5 to Registrant's report on Form 8-K dated
January 21, 1994; Commission File No. 0-26520 (the
"January 1994 Form 8-K")).*
10.2.24. Non-Qualified Stock Option Agreement dated July 1, 1990
and amended and restated June 3, 1993 between the
Registrant and David C. Bupp (incorporated by reference to
Exhibit 99.6 to the January 1994 Form 8-K).*
10.2.25. Non-Qualified Stock Option Agreement dated June 1, 1992
and amended and restated June 3, 1993 between the
Registrant and John L. Ridihalgh (incorporated by
reference to Exhibit 99.7 to the January 1994 Form 8-K).*
10.2.26. Amended and Restated Stock Option and Restricted Stock
Purchase Plan dated March 3, 1994 (incorporated by
reference to Exhibit 10.2.26 to Registrant's annual report
on Form 10-KSB for the year ending December 31, 1993;
Commission File No. 0-26520 (the "1993 Form 10-KSB")).*
10.2.27. Letter agreement dated February 16, 1995 from the
Registrant to John L. Ridihalgh amending Employment
Agreement between them dated July 1, 1993 (incorporated by
reference to Exhibit 10.2.27 to the 1994 Form 10-KSB).*
10.2.28. Letter agreement dated February 16, 1995 from the
Registrant to David C. Bupp amending Employment Agreement
between them dated July 1, 1993 (incorporated by reference
to Exhibit 10.2.28 to the 1994 Form 10-KSB).*
10.2.29. Non-Qualified Stock Option Agreement dated February 16,
1995 between the Registrant and John L. Ridihalgh
(incorporated by reference to Exhibit 10.2.29 to the 1994
Form 10-KSB).*
10.2.30. Non-Qualified Stock Option Agreement dated February 16,
1995 between the Registrant and David C. Bupp
(incorporated by reference to Exhibit 10.2.30 to the 1994
Form 10-KSB).*
10.2.31. Employment Agreement dated as of January 1, 1996 between
the Registrant and John L. Ridihalgh (incorporated by
reference to Exhibit 10.2.31 to the Registrant's Quarterly
Report on Form 10-QSB for the quarterly period ended June
30, 1996; Commission File No. 0-26520 (the "2nd Quarter
1996 Form 10-QSB")).*
10.2.32. Employment Agreement dated as of January 1, 1996 between
the Registrant and David C. Bupp (incorporated by
reference to Exhibit 10.2.32 to the 2nd Quarter 1996 Form
10-QSB).*
10.2.33 1996 Stock Incentive Plan (incorporated by reference to
Exhibit 10.2.33 to the 2nd Quarter 1996 Form 10-QSB).*
10.2.34. Restricted Stock Purchase Agreement dated June 5, 1996
between the Registrant and John L. Ridihalgh.*
10.2.35. Restricted Stock Purchase Agreement dated June 5, 1996
between the Registrant and David C. Bupp.*
10.2.36. Restricted Stock Purchase Agreement dated November 25,
1996 between the Registrant and Joseph R. Bianchine, as
amended January 2, 1997.*
10.3.1. Technology Transfer Agreement dated July 29, 1992 between
the Registrant and The Dow Chemical Corporation
(incorporated by reference to Exhibit 10.10 to the Form
S-1, confidential
-38-
portions of which were omitted and filed separately with
the Commission subject to an order granting confidential
treatment).
10.3.2.--10.3.3. Reserved.
10.3.4. License Agreement dated August 15, 1992 between the
Registrant and Enzon, Inc. and Amendment thereto dated
August 19, 1992 (incorporated by reference to Exhibit
10.13 to the Form S--1).
10.3.5.--10.3.6. Reserved.
10.3.7. Research and Development Agreement dated July 23, 1985,
among the Registrant, the Ohio State University and the
Director of Development of the State of Ohio, acting on
behalf of the State of Ohio (incorporated by reference to
Exhibit 10.16 to the Form S-1, confidential portions of
which were omitted and filed separately with the
Commission subject to an order granting confidential
treatment).
10.3.8. Supplemental Agreement dated July 19, 1985 between the
Registrant and The Ohio State University, acting on behalf
of the State of Ohio (incorporated by reference to Exhibit
10.17 to the Form S-1, confidential portions of which were
omitted and filed separately with the Commission subject
to an order granting confidential treatment).
10.3.9. Task Order Agreement for Sponsored Clinical Research dated
May 15, 1992, between the Registrant and The Ohio State
University Research Foundation (incorporated by reference
to Exhibit 10.18 to the Form S-1, confidential portions of
which were omitted and filed separately with the
Commission subject to an order granting confidential
treatment).
10.3.10. License Agreement dated July 23, 1992 between the
Registrant and The Ohio State University Research
Foundation (incorporated by reference to Exhibit 10.19 to
the Form S-1, confidential portions of which were omitted
and filed separately with the Commission subject to an
order granting confidential treatment).
10.3.11. License Agreement dated July 23, 1992 between the
Registrant and The Ohio State University Research
Foundation (incorporated by reference to Exhibit 10.20 to
the Form S-1, confidential portions of which were omitted
and filed separately with the Commission subject to an
order granting confidential treatment).
10.3.12.--10.3.14. Reserved.
10.3.15. Option to License dated June 23, 1993 between the
Registrant, Biomeasure, Incorporated and Kinerton Limited
(incorporated by reference to Exhibit 10.54 to the 2nd
Quarter 1993 Form 10-QSB).
10.3.16. Drug Manufacture Agreement dated April 6, 1993 between the
Registrant and Nordion International Inc. (incorporated by
reference to Exhibit 10.55 to the 2nd Quarter 1993 Form
10-QSB, confidential portions of which were omitted and
filed separately with the Commission subject to an order
granting confidential treatment).
10.3.17. Sublicense Option Agreement dated May 15, 1993 between the
Registrant and NeoRx Corporation (incorporated by
reference to Exhibit 10.56 to the 2nd Quarter 1993 Form
10-QSB, confidential portions of which were omitted and
filed separately with the Commission subject to an order
granting confidential treatment).
-39-
10.3.18. Amendment I to License Agreement dated October 18, 1993
between the Registrant and Enzon, Inc. (incorporated by
reference to Exhibit 10.3.18 to Post-Effective Amendment
No. 2 to the Form S-1).
10.3.19.--10.3.23. Reserved.
10.3.24. Amendment II to License Agreement dated March 11, 1994
between the Registrant and Enzon, Inc. (incorporated by
reference to Exhibit 10.3.24 to Registrant's Quarterly
Report on Form 10-QSB for the quarter ending March 31,
1994; Commission File No. 0-26520 (the "1st Quarter 1994
Form 10-QSB")).
10.3.25. License Agreement (Imaging Products License) dated August
1, 1994 between the Registrant and Biomeasure,
Incorporated (incorporated by reference to Exhibit 10.3.25
to registration statement on Form SB-2, No. 33-82278 (the
"Form SB-2"), confidential portions of which were omitted
and filed separately with the Commission subject to an
order granting confidential treatment).
10.3.26. License Agreement (Surgery Products License) dated August
1, 1994 between the Registrant and Biomeasure,
Incorporated (incorporated by reference to Exhibit 10.3.26
to the Form SB-2, confidential portions of which were
omitted and filed separately with the Commission subject
to an order granting confidential treatment).
10.3.27. Supply Agreement dated August 1, 1994 between Registrant
and Kinerton Limited (incorporated by reference to Exhibit
10.3.27 to the Form SB-2, confidential portions of which
were omitted and filed separately with the Commission
subject to an order granting confidential treatment).
10.3.28. Reserved.
10.3.29. Manufacturing and Supply Agreement dated February 20, 1995
between the Registrant and Bio-Intermediair, B.V.
(incorporated by reference to Exhibit 10.3.29 to the 1994
Form 10-KSB).
10.3.30. Facility Agreement dated July 17, 1995 among Registrant,
Neoprobe (Israel) Ltd., and Rotem Industries, Ltd.
(incorporated by reference to Exhibit 10.3.30 to the 3rd
Quarter 1995 Form 10-QSB, confidential portions of which
were omitted and filed separately with the Commission
subject to an order granting confidential treatment).
10.3.31. Cooperative Research and Development Agreement between
Registrant and National Cancer Institute (incorporated by
reference to Exhibit 10.3.31 to the 3rd Quarter 1995 Form
10-QSB).
10.3.32. First Amendment to Facility Agreement dated July 17, 1995
among Registrant, Neoprobe (Israel), Ltd. and Rotem
Industries, Ltd (incorporated by reference to Exhibit
10.3.32 to the Registrant's Annual Report on Form 10-KSB
for the year ending December 31, 1995; Commission File No.
0-26520 (the "1995 Form 10-KSB")).
10.3.33. Investment Agreement dated January 31, 1996 between the
Registrant and XTL Biopharmaceuticals, Ltd. (incorporated
by reference to Exhibit 10.3.33 to the Registrant's
Quarterly Report on Form 10-QSB for the quarterly period
ended March 31, 1996; Commission File No. 0-26520 (the
"1st Quarter 1996 Form 10-QSB")).
10.3.34 $1,500,000 5% Convertible Subordinated Debenture Due
February 13, 1998 of XTL Biopharmaceuticals, Ltd. issued
to Registrant on February 13, 1996 (incorporated by
reference to Exhibit 10.3.34 to the 1st Quarter 1996 Form
10-QSB).
-40-
10.3.35 Investors' Rights Agreement dated February 5, 1996 between
Registrant and XTL Biopharmaceuticals, Ltd. (incorporated
by reference to Exhibit 10.3.35 to the 1st Quarter 1996
Form 10-QSB).
10.3.36 Warrant to purchase Class A Common Shares of XTL
Biopharmaceuticals, Ltd. issued to Registrant on February
13, 1996 (incorporated by reference to Exhibit 10.3.36 to
the 1st Quarter 1996 Form 10-QSB).
10.3.37 Research and Development Agreement dated February 13, 1996
between Registrant and XTL Biopharmaceuticals, Ltd.
(incorporated by reference to Exhibit 10.3.37 to the 1st
Quarter 1996 Form 10-QSB, confidential portions of which
were omitted and filed separately with the Commission
subject to an order granting confidential treatment).
10.3.38 Sublicense Agreement dated February 13, 1996 between
Registrant and XTL Biopharmaceuticals, Ltd. (incorporated
by reference to Exhibit 10.3.38 to the 1st Quarter 1996
Form 10-QSB, confidential portions of which were omitted
and filed separately with the Commission subject to an
order granting confidential treatment).
10.3.39 Limited Liability Company Agreement dated February 22,
1996 between Registrant and Peptor Corp. (incorporated by
reference to Exhibit 10.3.39 to the 1st Quarter 1996 Form
10-QSB).
10.3.40 Subscription and Option Agreement dated March 14, 1996
between Registrant and Cira Technologies Inc.
(incorporated by reference to Exhibit 10.3.40 to the 1st
Quarter 1996 Form 10-QSB)
10.3.41. Reserved.
10.3.42 Supply Agreement dated April 1, 1996 between
Neoprobe-Peptor JV L.L.C. and Peptor Ltd. (incorporated by
reference to Exhibit 10.3.42 to the 2nd Quarter 1996 Form
10-QSB, confidential portions of which were omitted and
filed separately with the Commission subject to an order
granting confidential treatment).
10.3.43 Supply Agreement dated April 1, 1996 between
Neoprobe-Peptor JV L.L.C. and Neoprobe (Israel) Ltd.
(incorporated by reference to Exhibit 10.3.43 to the 2nd
Quarter 1996 Form 10-QSB, confidential portions of which
were omitted and filed separately with the Commission
subject to an order granting confidential treatment).
10.3.44 Technology Option Agreement dated as of March 14, 1996
between Cira Technologies, Inc. and Registrant
(incorporated by reference to Exhibit 10.3.44 to the 2nd
Quarter 1996 Form 10-QSB, confidential portions of which
were omitted and filed separately with the Commission
subject to an order granting confidential treatment).
10.3.45 License dated May 1, 1996 between Registrant and The Dow
Chemical Company (incorporated by reference to Exhibit
10.3.45 to the 2nd Quarter 1996 Form 10-QSB).
10.3.46 License Agreement dated May 1, 1996 between Registrant and
The Dow Chemical Company (incorporated by reference to
Exhibit 10.3.46 to the 2nd Quarter 1996 Form 10-QSB,
confidential portions of which were omitted and filed
separately with the Commission subject to an order
granting confidential treatment).
10.4.1.--10.4.15. Reserved.
-41-
10.4.16. Project Management Agreement dated May 17, 1995 between
Neoprobe (Israel) Ltd. and BARAN Project Construction Ltd.
(incorporated by reference to Exhibit 10.4.16 to the 2nd
Quarter 1995 Form 10-QSB).
10.4.17. Strategic Marketing Agreement dated August 30, 1995
between Registrant and Damon Pharm Ltd. (incorporated by
reference to Exhibit 10.4.17 to the 3rd Quarter 1995 Form
10-QSB, confidential portions of which were omitted and
filed separately with the Commission subject to an order
granting confidential treatment).
10.4.18. Exclusive Distribution Agreement dated September 25, 1995
between Registrant and Syncor International Corporation
(incorporated by reference to Exhibit 10.4.18 to the 3rd
Quarter 1995 Form 10-QSB, confidential portions of which
were omitted and filed separately with the Commission
subject to an order granting confidential treatment).
10.4.19. Exclusive Distribution Service Agreement dated November
30, 1995 between Registrant and Nordion Europe S.A.
(incorporated by reference to Exhibit 10.4.19 to the 1995
Form 10-KSB, confidential portions of which were omitted
and filed separately with the Commission subject to an
order granting confidential treatment).
10.4.20. License and Distribution Agreement dated September 18,
1996 between Registrant and United States Surgical
Corporation (incorporated by reference to Exhibit 10.4.20
to the Registrant's Quarterly Report on Form 10-QSB, as
amended by amendment no. 1 on Form 10-QSB/A, for the
quarter ended September 30, 1996; Commission File No.
0-26520, which was filed pursuant to Rule 24b-2 under
which the Registrant has requested confidential treatment
of certain portions of this Exhibit).
(11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS.
11.1. Computation of Net Loss Per Share.
(21) SUBSIDIARIES OF THE REGISTRANT.
21.1. Subsidiaries of the Registrant.
(23) CONSENT OF EXPERTS AND COUNSEL.
23.1 Consent of Coopers & Lybrand L.L.P.
(24) POWERS OF ATTORNEY.
24.1. Powers of Attorney.
24.2. Certified resolution of the Registrant's Board of
Directors authorizing officers and directors signing on
behalf of the Company to sign pursuant to a power of
attorney.
(B) REPORTS ON FORM 8-K.
No current report on Form 8-K was filed by the Registrant during the
fourth quarter of fiscal 1995.
-42-
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: March 28, 1997
NEOPROBE CORPORATION
(the "Registrant")
By: David C. Bupp
---------------------------
David C. Bupp, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
John L. Ridihalgh* Director, Chairman of the Board, March 28, 1997
- ------------------------------------- Chief Executive Officer
John L. Ridihalgh (principal executive officer)
David C. Bupp Director, President, Chief March 28, 1997
- ------------------------------------- Operating Officer and Treasurer
David C. Bupp (principal financial officer)
John Schroepfer* Vice President, Finance and March 28, 1997
- -------------------------------------
John Schroepfer Administration
Jerry K. Mueller, Jr.* Director March 28, 1997
- -------------------------------------
Jerry K. Mueller, Jr.
James F. Zid* Director March 28, 1997
- -------------------------------------
James F. Zid
Zwi Vromen* Director March 28, 1997
- -------------------------------------
Zwi Vromen
Julius R. Krevans* Director March 28, 1997
- -------------------------------------
Julius R. Krevans
Michael P. Moore* Director March 28, 1997
- -------------------------------------
Michael P. Moore
J. Frank Whitley, Jr.* Director March 28, 1997
- -------------------------------------
J. Frank Whitley, Jr.
C. Michael Hazard* Director March 28, 1997
- -------------------------------------
C. Michael Hazard
*By: David C. Bupp
-------------------------------------------
David C. Bupp, Attorney-in-fact
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
NEOPROBE CORPORATION
-----------------------
FORM 10-KSB ANNUAL REPORT
FOR THE FISCAL YEAR ENDED:
DECEMBER 31, 1996
-----------------------
FINANCIAL STATEMENTS
-----------------------
===============================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders of
Neoprobe Corporation
We have audited the accompanying consolidated balance sheets of Neoprobe
Corporation and Subsidiaries (A Development Stage Company) as of December 31,
1995 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1994,
1995, and 1996, and for the period from November 16, 1983 (date of inception)
to December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Neoprobe
Corporation and Subsidiaries (A Development Stage Company) as of December 31,
1995 and 1996, and the consolidated results of their operations and their cash
flows for the years ended December 31, 1994, 1995, and 1996, and for the period
from November 16, 1983 (date of inception) to December 31, 1996, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
February 12, 1997
F-1
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1996
ASSETS 1995 1996
---- ----
Current assets:
Cash and cash equivalents $10,032,973 $30,168,412
Available-for-sale securities 7,279,659 19,748,819
Stock subscriptions receivable 1,262,513
Accounts receivable 184,330 1,240,474
Inventory 473,004 216,272
Prepaid expenses 442,429 1,605,897
Other current assets 341,587 683,649
------------ -----------
Total current assets 20,016,495 53,663,523
------------ -----------
Note receivable 1,500,000
Property and equipment at cost:
Equipment 4,570,185 7,053,392
Construction in progress 262,026 1,226,966
------------ -----------
4,832,211 8,280,358
Less accumulated depreciation and amortization (1,266,939) (1,831,997)
------------ -----------
3,565,272 6,448,361
------------ -----------
Intangible assets, net of accumulated amortization of $65,626 and
$84,750, respectively 523,249 2,130,335
Other assets 40,314 130,949
------------ -----------
Total assets $ 24,145,330 $63,873,168
============ ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-2
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
---- ----
Current liabilities:
Accounts payable:
Trade $ 1,558,916 $ 2,368,357
Related parties 25,838 36,298
Accrued expenses 957,049 2,951,430
Deferred revenue 2,000,000
Notes payable to finance company 128,487 155,091
Capital lease obligation, current 244,348 76,161
----------- ------------
Total current liabilities 2,914,638 7,587,337
----------- ------------
Long-term debt 1,100,000 1,000,687
Capital lease obligation 82,043 8,096
----------- ------------
Total liabilities 4,096,681 8,596,120
----------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares authorized at December
31, 1995 and 1996; none outstanding (500,000 shares designated as
Series A, $.001 par value, at December 31, 1996; none outstanding)
Common stock; $.001 par value; 50,000,000 shares authorized; 17,534,800
shares issued and 17,334,800 shares outstanding at December 31, 1995;
22,586,527 shares issued and outstanding at December 31, 1996 17,335 22,587
Additional paid-in capital 62,964,787 119,293,862
Deficit accumulated during development stage (43,146,860) (64,116,003)
Unrealized gain on available-for-sale securities 46,480 (29,859)
Cumulative foreign currency translation adjustment 166,907 106,461
----------- ------------
Total stockholders' equity 20,048,649 55,277,048
----------- ------------
Total liabilities and stockholders' equity $24,145,330 $ 63,873,168
=========== ============
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
November 16,
1983 (Date of
Years Ended December 31, Inception) to
----------------------------------------------------------- December 31,
1994 1995 1996 1996
------------------ ----------------- --------------- -------------------
Net sales $ 933,056 $ 959,984 $ 1,171,186 $ 4,058,997
Cost of goods sold 587,972 505,998 676,773 2,128,297
----------- ----------- ------------ ------------
Gross profit 345,084 453,986 494,413 1,930,700
----------- ----------- ------------ ------------
Operating expenses:
Research and development expenses:
Wages and benefits 2,444,922 3,152,741 5,694,484 14,865,442
Contracted services 348,544 1,646,309 4,709,492 9,246,939
Clinical trials 3,448,335 2,350,814 4,747,008 17,580,200
Other 519,627 679,612 931,777 3,206,753
----------- ----------- ------------ ------------
Total research and development 6,761,428 7,829,476 16,082,761 44,899,334
----------- ----------- ------------ ------------
General and administrative expenses:
Wages and benefits 778,138 1,086,622 2,990,665 8,229,860
Contracted services 544,296 431,220 639,183 2,791,170
Professional services 896,961 455,234 616,441 3,329,532
Depreciation and amortization 488,959 545,337 649,381 2,189,983
Other 1,605,008 1,629,428 2,857,900 9,217,376
----------- ----------- ------------ ------------
Total general and administrative 4,313,362 4,147,841 7,753,570 25,757,921
----------- ----------- ------------ ------------
Loss from operations (10,729,706) (11,523,331) (23,341,918) (68,726,555)
----------- ----------- ------------ ------------
Other income (expense):
Interest income 180,771 603,275 2,179,345 3,765,385
Interest expense (73,003) (121,463) (83,436) (506,040)
Gain (loss) on foreign currency
transactions 15,910 18,195 (43,459) (44,663)
Other (15,318) 263,949 320,325 1,316,517
Minority interest 66,600 79,353
----------- ----------- ------------ ------------
Total other income 174,960 763,956 2,372,775 4,610,552
----------- ----------- ------------ ------------
Net loss $(10,554,746) $(10,759,375) $(20,969,143) $(64,116,003)
============ ============ ============ ============
Loss per share data:
Net loss per share of common stock $ (1.18) (.73) (1.06)
============ =========== ============
Weighted-average number of shares
outstanding during the year 8,926,196 14,725,687 19,743,649
============ =========== ============
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
November 16,
1983 (Date of
Years Ended December 31, Inception) to
---------------------------------------------------- December 31,
1994 1995 1996 1996
--------------- --------------- -------------- ---------------
Cash flows from operating activities:
Net loss $(10,554,746) $(10,759,375) $(20,969,143) $(64,116,003)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 495,838 551,992 652,623 2,208,318
Loss on disposal of assets 15,536 9,099 10,199 59,058
Reissuance of treasury stock to 401(k) plan 2,034 20,450
Amortization of bond premium 18,021 18,021
Minority interest (66,600) (79,353)
Non-cash expenditures for research and
development 500,000 500,000
Compensation expense under restricted
stock and stock option plans 1,683,750 1,683,750
Change in operating assets and liabilities:
Accounts receivable (554,935) 396,725 (1,002,799) (1,163,216)
Inventory 202,578 64,757 248,734 211,705
Prepaid expenses and other 21,955 (252,076) (566,291) (1,235,679)
Accounts payable 175,335 19,981 905,883 2,309,625
Accrued expenses 81,825 740,579 1,996,641 2,922,209
Deferred revenue 2,000,000 2,000,000
--------------- --------------- -------------- ---------------
Net cash used in operating activities (10,163,159) (9,228,318) (14,540,403) (54,661,115)
--------------- --------------- -------------- ---------------
Cash flows from investing activities:
Purchases of available-for-sale securities (4,030,743) (16,564,908) (50,061,144) (94,673,416)
Proceeds from sales of
available-for-sale securities 2,605,405 1,243,431 27,607,495 45,989,652
Maturities of available-for-sale securities 2,965,000 10,763,965 9,982,000 28,964,742
Purchases of property and equipment (525,519) (1,434,524) (3,616,297) (6,518,917)
Patents and organization costs (217,993) (132,416) (126,209) (790,179)
Other (78) (48,980)
--------------- --------------- -------------- ---------------
Net cash provided by (used in)
investing activities 796,150 (6,124,452) (16,214,233) (27,077,098)
--------------- --------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable 169,761 1,243,696 180,242 3,271,822
Proceeds from issuance of common stock, net 8,379,147 23,995,737 50,117,201 101,818,921
Payment of notes payable (161,132) (137,109) (153,638) (2,829,128)
Proceeds under capital leases 392,138 481,545
Payments under capital leases (171,721) (212,199) (241,390) (646,149)
Proceeds from issuance of preferred stock 8,845,879
Treasury stock purchases (25,000)
Proceeds from bank loan 1,000,687 1,000,687
--------------- --------------- -------------- ---------------
Net cash provided by financing 8,608,193 24,890,125 50,903,102 111,918,577
activities --------------- --------------- -------------- ---------------
Effect of exchange rate changes on cash 6,219 (5,157) (13,027) (11,952)
--------------- --------------- -------------- ---------------
Net (decrease) increase in cash and
cash equivalents (752,597) 9,532,198 20,135,439 30,168,412
Cash and cash equivalents, beginning of
period 1,253,372 500,775 10,032,973
--------------- --------------- -------------- ---------------
Cash and cash equivalents, end of period $ 500,775 $ 10,032,973 $ 30,168,412 $ 30,168,412
=============== =============== ============== ===============
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Common Stock Preferred Stock Additional During the
-------------------------- --------------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
----------- ----------- ----------- ------------ ------------ ------------
Balance, November 16, 1983
(inception):
Sale of common stock
($.002-$7.84 per share),
net of cost 3,647,174 $ 3,647 $ 8,658,415
Payment for stock purchase
option 65,000
Issued at $6 per share for
converting debt to equity 76,817 77 460,913
Conversion of common stock
to preferred stock (270,896) (271) 541,792 $ 2,123,824 (2,123,553)
Sale of preferred stock at
$4.12 per share 484,849 2,000,002
Repurchased shares at
$6 per share (4,166)
Reissued to 401(k) plan at
$6 per share 3,830 (4,550)
Conversion of preferred
stock to common stock 1,715,205 1,715 (1,026,641) (4,123,826) 10,967,988
Issued to an employee for
services 1,750 2 6,998
Sale of common stock and
warrants in connection
with IPO (1,725,000
units at $6 per unit),
net of costs 1,725,000 1,725 8,177,959
Issued to employees at par
value 80,000 80
Exercise of employee stock
options at $2 per share 9,200 9 18,391
Sale of common stock and
warrants (550,000 units
at $12 per unit), net of
costs 1,100,000 1,100 5,828,636
Issued in connection with
acquisition 128,096 128 688,389
Foreign currency
translation adjustment
Net loss since inception
to December 31, 1993 $(21,832,739)
----------- ----------- ----------- ------------ ------------ ------------
Unrealized
Cumulative Gain (Loss)
Foreign on
Currency Available-
Translation Treasury for-Sale
Adjustment Stock Securities Total
------------ ----------- ----------- -------------
Balance, November 16, 1983
(inception):
Sale of common stock
($.002-$7.84 per share),
net of cost $ 8,662,062
Payment for stock purchase
option 65,000
Issued at $6 per share for
converting debt to equity 460,990
Conversion of common stock
to preferred stock
Sale of preferred stock at 2,000,002
$4.12 per share
Repurchased shares at
$6 per share $ (25,000) (25,000)
Reissued to 401(k) plan at
$6 per share 22,966 18,416
Conversion of preferred
stock to common stock 6,845,877
Issued to an employee for
services 7,000
Sale of common stock and
warrants in connection
with IPO (1,725,000
units at $6 per unit),
net of costs 8,179,684
Issued to employees at par
value 80
Exercise of employee stock
options at $2 per share 18,400
Sale of common stock and
warrants (550,000 units
at $12 per unit), net of
costs 5,829,736
Issued in connection with
acquisition 688,517
Foreign currency
translation adjustment $ 5,790 5,790
Net loss since inception
to December 31, 1993 (21,832,739)
------------ ----------- ---------- -----------
CONTINUED
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Common Stock Preferred Stock Additional During the
-------------------------- --------------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
----------- ----------- ----------- ------------ ------------ ------------
Balance, December 31, 1993 8,212,010 $ 8,212 0 $ 0 $ 32,744,586 $(21,832,739)
Exercise of employee
stock options at $2 per
share 2,000 2 3,998
Exercise of stock
warrants ($3.75 to
$4.50 per share) 12,140 12 50,065
Issued in connection with
acquisition 76,967 77 480,967
Reissued to 401(k) plan
at $6 per share 1,398 1 6,575
Sale of common stock at
$2.27 per share, net of
costs 2,000,000 2,000 4,426,825
Exercise of warrants for
common stock at $.001
per share in exchange
for $550 (par value)
and cancellation of
other warrants of
offsetting value 550,000 550
Foreign currency
translation adjustment
Net loss (10,554,746)
----------- ----------- ----------- ------------ ------------ ------------
Balance, December 31, 1994 10,854,515 10,854 0 0 37,713,016 (32,387,485)
Issued to 401(k) plan 3,253 3 13,065
Exercise of stock
warrants ($3.75 to
$6.00 per share) 549,712 550 2,492,750
Exercise of employee
stock options ($2 to
$6 per share) 97,745 98 328,486
Sale of common stock at
$2.27 per share, net of
costs 3,000,000 3,000 5,914,171
Exercise of unit purchase
option by underwriter
at $2.22 per share, net
of costs 450,000 450 994,073
Sale of common stock at
$5.50 per share, net of
costs 1,650,000 1,650 8,287,902
Sale of common stock at
$10.50 per share, net
of costs 575,000 575 5,696,782
Issued in connection with
investments by
marketing partner
($9.03 to $15.97 per
share), net of costs 154,575 155 1,524,542
Foreign currency
translation adjustment
Unrealized gain on
available-for-sale
securities
Net loss (10,759,375)
----------- ----------- ----------- ------------ ------------ ------------
Unrealized
Cumulative Gain (Loss)
Foreign on
Currency Available-
Translation Treasury for-Sale
Adjustment Stock Securities Total
------------ ----------- ----------- -------------
Balance, December 31, 1993 $ 5,790 $ (2,034) $ 10,923,815
Exercise of employee
stock options at $2 per
share 4,000
Exercise of stock
warrants ($3.75 to
$4.50 per share) 50,077
Issued in connection with
acquisition 481,044
Reissued to 401(k) plan
at $6 per share 2,034 8,610
Sale of common stock at
$2.27 per share, net of
costs 4,428,825
Exercise of warrants for
common stock at $.001
per share in exchange
for $550 (par value)
and cancellation of
other warrants of
offsetting value 550
Foreign currency
translation adjustment 88,222 88,222
Net loss (10,554,746)
------------ ----------- ----------- -------------
Balance, December 31, 1994 94,012 0 5,430,397
Issued to 401(k) plan 13,068
Exercise of stock
warrants ($3.75 to
$6.00 per share) 2,493,300
Exercise of employee
stock options ($2 to
$6 per share) 328,584
Sale of common stock at
$2.27 per share, net of
costs 5,917,171
Exercise of unit purchase
option by underwriter
at $2.22 per share, net
of costs 994,523
Sale of common stock at
$5.50 per share, net of
costs 8,289,552
Sale of common stock at
$10.50 per share, net
of costs 5,697,357
Issued in connection with
investments by
marketing partner
($9.03 to $15.97 per
share), net of costs 1,524,697
Foreign currency
translation adjustment 72,895 72,895
Unrealized gain on
available-for-sale
securities $ 46,480 46,480
Net loss (10,759,375)
------------ ----------- ----------- -------------
CONTINUED
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
NEOPROBE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Common Stock Preferred Stock Additional During the
-------------------------- --------------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
----------- ----------- ----------- ------------ ------------ ------------
Balance, December 31, 1995 17,334,800 $17,335 0 $ 0 $ 62,964,787 $(43,146,860)
Exercise of employee
stock options at $2 to
$6 per share 132,075 132 553,139
Exercise of stock
warrants ($3.32 to
$12.60 per share) 2,904,421 2,905 18,165,986
Issued to 401(k) plan
at $3.46 5,426 5 18,792
Issued to employee in
exchange for services 10,000 10 121,240
Sale of common stock at
$18.50 per share, net
of costs 1,750,000 1,750 30,190,777
Issued in exchange for
technology licenses at
$16.03 per share 124,805 125 1,999,875
Issued in exchange for
note receivable and
development activities
at $20.25 per share 125,000 125 2,531,125
Issued in conversion of
debentures at $5.93
per share 200,000 200 1,185,641
Vesting of compensatory
employee options 1,562,500
Foreign currency
translation adjustment
Unrealized loss on
available-for-sale
securities
Net loss (20,969,143)
----------- ----------- ----------- ------------ ------------ ------------
Balance, December 31, 1996 22,586,527 $22,587 0 $ 0 $119,293,862 $(64,116,003)
=========== =========== =========== ============ ============ ============
Unrealized
Cumulative Gain (Loss)
Foreign on
Currency Available-
Translation Treasury for-Sale
Adjustment Stock Securities Total
------------ ----------- ----------- ------------
Balance, December 31, 1995 $ 166,907 $ 0 $ 46,480 $ 20,048,649
Exercise of employee
stock options at $2 to
$6 per share 553,271
Exercise of stock
warrants ($3.32 to
$12.60 per share) 18,168,891
Issued to 401(k) plan
at $3.46 18,797
Issued to employee in
exchange for services 121,250
Sale of common stock at
$18.50 per share, net
of costs 30,192,527
Issued in exchange for
technology licenses at
$16.03 per share 2,000,000
Issued in exchange for
note receivable and
development activities
at $20.25 per share 2,531,250
Issued in conversion of
debentures at $5.93
per share 1,185,841
Vesting of compensatory
employee options 1,562,500
Foreign currency
translation adjustment (60,446) (60,446)
Unrealized loss on
available-for-sale
securities (76,339) (76,339)
Net loss (20,969,143)
------------ ----------- ----------- ------------
Balance, December 31, 1996 $ 106,461 $ 0 $ (29,859) $ 55,277,048
============ =========== =========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. ORGANIZATION AND NATURE OF OPERATIONS: Neoprobe Corporation ("the
Company"), a Delaware corporation, is a development stage enterprise
engaged in the development and commercialization of technologies for the
diagnosis and treatment of cancers. There can be no assurance that the
Company will be able to commercialize its proposed products. No
significant revenues will be derived from the commercial marketing of the
Company's RIGS(R) products until after the necessary government approvals
are obtained, the first of which is not expected until 1997 at the
earliest. Expenses incurred have been primarily for research and
development activities and administration, resulting in an accumulated
deficit of approximately $64,000,000. The Company is dependent on the
proceeds of its securities and other financing vehicles to continue the
commercial development of its proposed products.
b. BASIS OF PRESENTATION: The consolidated financial statements of the
Company include the accounts of the Company and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
c. FOREIGN CURRENCY TRANSLATION: In accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, Foreign Currency Translation, assets
and liabilities denominated in foreign currencies are translated at
current exchange rates in effect at the balance sheet dates, and revenues
and expenses are translated at the average monthly exchange rate. The
differences resulting from such translations, as compared to the equity
of subsidiaries which is translated at historical rates, are included in
cumulative foreign currency translation adjustments, a separate component
of stockholders' equity.
d. CASH AND CASH EQUIVALENTS: For purposes of the statements of cash flows,
cash and cash equivalents consist of demand deposits, money market funds,
highly liquid debt instruments and certificates of deposit with original
maturities of three months or less.
e. AVAILABLE-FOR-SALE SECURITIES: Information related to amortized cost and
fair value of available-for-sale securities at December 31, 1995 and 1996
is provided below:
GROSS
AMORTIZED UNREALIZED
1995 COST GAINS FAIR VALUE
---- --------- ---------- -----------
U.S. Treasury and U.S. Government $1,958,822 $40,501 $1,999,323
Corporate debt securities 5,274,357 5,979 5,280,336
---------- ------- ----------
$7,233,179 $46,480 $7,279,659
========== ======= ==========
GROSS
AMORTIZED UNREALIZED
1996 COST LOSSES FAIR VALUE
---- ---- ------ ----------
U.S. Treasury and U.S. Government $ 891,851 $(16,026) $ 875,825
Corporate debt securities 18,886,827 (13,833) 18,872,994
----------- -------- -----------
$19,778,678 $(29,859) $19,748,819
=========== ======== ===========
F-9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - [CONTINUED]
The fair value of debt securities at December 31, 1996, by contractual
maturity, are shown below. Expected maturities may differ from
contractual maturities as, under an existing investment agreement, the
Company has the ability and intent to hold all securities for short-term
working capital purposes.
AMORTIZED
1995 COST FAIR VALUE
---- ---- ----------
Due one year or less $4,928,134 $ 4,967,125
Due after one year through five years 2,016,948 2,023,117
Due after five years through ten years 288,097 289,417
---------- -----------
$7,233,179 $ 7,279,659
========== ===========
AMORTIZED
1996 COST FAIR VALUE
---- ---- ----------
Due one year or less $15,483,515 $15,498,661
Due after one year through five years 4,295,163 4,250,158
----------- -----------
$19,778,678 $19,748,819
=========== ===========
f. INVENTORY: The components of inventory at December 31, 1995 and 1996, are
as follows:
1995 1996
---- ----
Materials and component parts $101,886 $ 51,264
Work in process 107,786 94,389
Finished goods 263,332 70,619
-------- --------
$473,004 $216,272
======== ========
Materials and component parts are valued at the lower of moving average
cost or market. Work in process and finished goods are valued at the
lower of cost (first-in, first-out) or market.
g. PROPERTY AND EQUIPMENT: Depreciation is computed using the straight-line
method over the estimated useful lives of the depreciable assets.
Maintenance and repairs are charged to expense as incurred, while
renewals and improvements are capitalized. Equipment includes $770,545
and $571,563 of equipment under capital leases and accumulated
amortization of $423,958 and $393,384 at December 31, 1995 and 1996,
respectively.
h. INTANGIBLE ASSETS: Intangible assets consist primarily of the cost of
patents and acquired technology licenses. Patent costs are amortized on a
straight-line basis over the remaining lives of the patents. Patent
application costs are deferred pending the outcome of patent
applications. Costs associated with unsuccessful patent applications and
abandoned intellectual property are expensed when determined to be
worthless. The Company evaluates the potential alternative uses of
intangible assets, as well as the recoverability of the carrying values
of intangible assets on a recurring basis.
i. SALES REVENUE: The Company has derived revenues from the sale of blood
group serology products and from sales of its radiation detection
instruments. These sale transactions are independent of the clinical
testing agreements and are not contingent upon the completion or results
of clinical testing. The Company recognizes sales revenue when the
product is shipped.
j. RESEARCH AND DEVELOPMENT COSTS: All costs related to research and
development are expensed as incurred.
F-10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - [CONTINUED]
k. INCOME TAXES: The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred
tax assets and liabilities are recognized based on temporary differences
between the financial statement and tax basis of assets and liabilities
using current statutory tax rates. SFAS No. 109 also requires a valuation
allowance against net deferred tax assets if, based on the available
evidence, it is more likely than not that some or all of the deferred tax
assets will not be realized.
l. USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
m. NET LOSS PER COMMON SHARE: Net loss per common share is based on the
weighted average number of common shares outstanding during the year. The
loss per share for all periods presented excludes the number of common
shares issuable upon the conversion of convertible debentures, and the
number of shares issuable upon exercise of outstanding stock options and
warrants into the Company's common stock since such inclusion would be
antidilutive.
n. RECLASSIFICATIONS: Certain amounts have been reclassified to conform
with the 1996 presentation.
2. ACCOUNTS RECEIVABLE:
Accounts receivable at December 31, 1995 and 1996 consist of the following:
1995 1996
---- ----
Trade $176,434 $ 856,682
Related Parties 7,896 28,771
Other 355,021
-------- ----------
$184,330 $1,240,474
======== ==========
3. NOTE RECEIVABLE:
At December 31, 1996, note receivable represents a convertible debenture
from XTL Biopharmaceuticals Ltd. held by the Company related to an
Investment and Research & Development Agreement (Note 11). The debenture is
due on February 13, 1998, bears interest at 5%, and is payable annually.
4. ACCRUED EXPENSES:
Accrued expenses at December 31, 1995 and 1996 consist of the following:
1995 1996
---- ----
Royalties $ 27,524 $ 46,628
Compensation 440,417 1,223,160
Taxes 64,470 36,712
Contracted Services &
Other 424,638 1,644,930
--------- ----------
$ 957,049 $2,951,430
========= ==========
5. LONG-TERM DEBT:
In 1995, Neoprobe (Israel) Ltd. ("Neoprobe (Israel)"), a subsidiary of the
Company, and the Company issued convertible debentures in the amount of
$1,100,000 due February 10, 1997. During 1996, all of the debentures were
converted into 200,000 shares of the Company's common stock.
F-11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - [CONTINUED]
In 1994, Neoprobe (Israel) received notification from the state of Israel's
Finance Committee that a financial program had been approved for the
construction and operation of a radiolabeling facility by Neoprobe (Israel)
near Dimona, Israel. The amount of the approved investment is currently
approximately $4.8 million. Neoprobe (Israel) has submitted a request to
increase the approved investment by approximately $3.5 million. Under the
approved program, Neoprobe (Israel) is entitled to government grants and
government loan guarantees equal to a percentage of the total loan taken for
the construction and operation of the facility. Amounts received under the
agreement are collateralized by certain property obtained through the use of
proceeds received. As of December 31, 1996, Neoprobe (Israel) has received
approximately $1 million and $173,000 in the form of loans and grants,
respectively. Amounts received as loans bear interest at the LIBOR rate plus
a specified percentage based on the exchange rate differential between the
Israeli shekel and the U.S. dollar, or approximately 7% at December 31, 1996.
Principal payments are due at various dates based on the date of each
respective loan draw. Based on loan draws received to date, principal
amounts of approximately $13,770, $202,460, $439,636, $236,342 and $108,479
become due in 1998 through 2002.
6. INCOME TAXES:
As of December 31, 1996, net deferred tax assets approximated $24.1 million
related principally to net operating loss carryforwards of approximately
$55.6 million available to offset future taxable income, if any, through
2011 and tax credit carryforwards of approximately $1.9 million (principally
research and development) available to reduce future income tax liability
after utilization of tax loss carryforwards, if any, through 2011. Due to
the uncertainty surrounding the realization of these favorable tax
attributes in future tax returns, all of the net deferred tax assets have
been fully offset by a valuation allowance.
Under Section 382 of the Internal Revenue Code of 1986, as amended, the
utilization of net operating loss carryforwards may be limited under the
change in stock ownership rules of the Internal Revenue Code. As a result of
ownership changes which occurred in September 1994 and March 1989, the
Company's operating tax loss carryforwards and tax credit carryforwards are
subject to these limitations.
7. EQUITY:
a. COMMON STOCK:
In April 1996, the Company completed the sale of 1,750,000 shares of
common stock at a price of $18.50 per share in a secondary offering.
Gross proceeds from this offering were $32.4 million, and proceeds net of
underwriting discounts were $30.5 million.
In November 1992 and December 1993, the Company issued a total of
2,330,000 Class E Redeemable Common Stock Purchase Warrants ("Class E
Warrants"). The Class E Warrants were exercisable over a three-year
period beginning November 10, 1993 and expiring on November 12, 1996.
During 1996, the Company received proceeds from the exercise of Class E
Warrants of approximately $15.0 million.
b. STOCK OPTIONS:
At December 31, 1996, the Company has two stock-based compensation plans
which are described below. The Company applies APB Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized related to fixed options granted
under the plans. The compensation cost that has been charged against
income related to performance-based plans was $1.7 million for 1996. Had
compensation cost for the Company's two stock-based compensation plans
been determined based on the fair value at the grant dates for awards
under those plans, consistent with FASB Statement No. 123, the Company's
net loss per share would have been increased to the pro forma amounts
indicated below:
F-12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - [CONTINUED]
1995 1996
---- ----
Net Loss As reported $(10,759,375) $(20,969,143)
Pro forma $(11,319,278) $(22,017,227)
Loss per Share As reported $ (0.73) $ (1.06)
Pro Forma $ (0.77) $ (1.12)
Under the Amended and Restated Stock Option and Restricted Stock Purchase
Plan (the "Amended Plan"), and under the 1996 Stock Incentive Plan (the
"1996 Plan"), which was adopted by the Board of Directors on January 18,
1996, the Company may grant incentive stock options, nonqualified stock
options, and restricted stock awards to full-time employees, and
nonqualified stock options and restricted awards may be granted to
consultants and agents of the Company. Total shares authorized under each
plan are 2 million shares and 1.5 million shares, respectively. Under
both plans, the exercise price of each option equals the market price of
the Company's stock on the date of the grant.
Options granted under the Amended Plan generally vest on a monthly basis
over two to four years. Options granted under the 1996 Plan generally
vest on an annual basis over three years. However, approximately 400,000
options and 50,000 options have been granted under the Amended Plan and
the 1996 Plan, respectively, which vest based on the achievement of
various Company goals such as execution of a strategic worldwide
marketing agreement and obtaining regulatory approvals related to the
Company's products. During 1996, the Company recorded approximately $1.6
million in compensation expenses related to the achievement of these
goals.
Outstanding options under the plans, if not exercised, will generally
expire ten years from their date of grant or on the date of an optionee's
separation from employment with the Company, except for those options
granted in conjunction with employment agreements, which will expire ten
years from their date of grant or two years after cessation of the
optionee's employment, whichever occurs first.
The fair value of each option grant was estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
assumptions for 1995 and 1996, respectively: average risk-free interest
rates of 7.4% and 5.7%; expected average lives of three and four years;
no dividend rate for either year; and volatility of 181% for both years.
A summary of the status of the Company's stock option plans as of
December 31, 1994, 1995, and 1996, and changes during the years ended on
those dates is presented below:
1994 1995 1996
-------------------------- ------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ----------- ---------- ----------- ----------- ----------
Outstanding at
beginning of year 1,094,560 $2.95 1,211,300 $3.29 1,723,543 $ 2.93
Granted 142,500 $6.32 680,780 $2.64 457,700 $15.38
Forfeited (23,760) $6.00 (70,792) $5.68 (47,030) $ 6.92
Exercised (2,000) $2.00 (97,745) $3.36 (132,075) $ 4.19
--------- --------- ---------
Outstanding at
end of year 1,211,300 $3.29 1,723,543 $2.93 2,002,138 $ 5.60
========= ========= =========
Options exercisable
at end of year 655,292 931,762 1,265,893
Included in outstanding options as of December 31, 1996 are 351,333
options exercisable at a weighted-average price of $4.53 per share which
vest on the meeting of certain Company achievements.
F-13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - [CONTINUED]
The following table summarizes information about the Company's stock
options outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- --------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1996 LIFE PRICE 1996 PRICE
------------------ ---------------- ------------ ------------ ---------------- ------------
$2.00 to $3.88 772,959 7 Years $ 2.60 439,081 $ 2.68
$5.75 to $6.50 785,479 6 Years $ 6.03 745,479 $ 6.03
$12.25 to $17.75 443,700 9 Years $15.47 81,333 $15.47
--------- ---------
2,002,138 1,265,893
========= =========
c. STOCK WARRANTS:
At December 31, 1996, there are approximately 160,000 warrants
outstanding to purchase common stock of the Company. The warrants are
exercisable at prices ranging from $3.00 to $17.92 per share with a
weighted average exercise price per share of $4.96. The warrants expire
on various dates from 1997 through 2000.
During 1995, the Company issued 450,000 shares of common stock related to
the conversion of a unit purchase option issued during 1992. In exchange,
the Company received cash and promissory notes totaling $999,500. The
promissory notes were collected during 1995.
During 1996, the Company issued warrants to purchase 150,000 shares of
common stock (which were exercised) related to a 1992 license agreement.
d. COMMON STOCK RESERVED: Shares of authorized common stock have been
reserved for the exercise of all options and warrants outstanding.
e. STOCK SUBSCRIPTIONS RECEIVABLE: During 1996, the Company collected $1.3
million related to subscriptions for common stock outstanding at December
31, 1995.
8. SHAREHOLDER RIGHTS PLAN:
During July 1995, the Company's Board of Directors adopted a Shareholder
Rights Plan. Under the plan, one "Right" is to be distributed for each share
of common stock held by shareholders on the close of business on August 28,
1995. The Rights are exercisable only if a person and its affiliate
commences a tender offer or exchange offer for 15% or more of the common
stock, or if there is a public announcement that a person and its affiliate
has acquired beneficial ownership of 15% or more of the common stock, and if
the Company does not redeem the Rights during the specified redemption
period. Initially, each Right, upon becoming exercisable, would entitle the
holder to purchase from the Company one unit consisting of 1/100th of a
share of Series A Junior Participating Preferred Stock at an exercise price
of $35 (which is subject to adjustment). Once the Rights become exercisable,
if any person, including its affiliate, acquires 15% or more of the common
stock of the Company, each Right other than the Rights held by the acquiring
person and its affiliate becomes a right to acquire common stock having a
value equal to two times the exercise price of the Right. The Company is
entitled to redeem the Rights for $0.01 per Right at any time prior to the
expiration of the redemption period. The Shareholder Rights Plan and the
Rights will expire on August 28, 2005.
F-14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - [CONTINUED]
9. INTERNATIONAL OPERATIONS:
The following information relates to (New)MonoCarb AB (Sweden) and Neoprobe
(Israel), the Company's international subsidiaries:
1994 1995 1996
---- ---- ----
Net sales $ 850,000 $ 803,000 $ 391,000
Loss from operations 1,060,000 1,680,000 3,558,000
Identifiable assets 1,230,000 3,290,000 5,500,000
For the year ended December 31, 1996, approximately $328,000 of net sales
were concentrated among two customers. For the year ended December 31, 1995,
approximately $696,000 of net sales were concentrated among two customers.
For the year ended December 31, 1994, approximately $750,000 of net sales
were concentrated with a single customer.
10. RELATED-PARTY TRANSACTIONS:
A partner of a law firm which provides various legal services to the
Company, including patent and trademark filings and prosecuting patent and
trademark applications, is a director and officer of the Company. Fees
related to services performed by this firm approximated $346,000, $201,000
and $201,000 for the years ended December 31, 1994, 1995, and 1996,
respectively, and $1,513,000 for the period November 16, 1983 (inception)
through December 31, 1996. The Company owed this law firm approximately
$13,000 and $12,500 at December 31, 1995 and 1996, respectively. Also see
Note 11.
11. AGREEMENTS:
a. RESEARCH AND DEVELOPMENT:
Under a research and development agreement between the Company, The Ohio
State University, and the Department of Development of the State of Ohio,
the Company must pay the State of Ohio periodic royalties calculated as a
percentage of net sales of products utilizing the results of the
sponsored research, a sharing of proceeds received from the sale of
technology, and a portion of the royalties collected from any license the
Company may grant. The Company has an option to terminate its royalty
obligation following completion of the research period by making a
termination payment to the State of Ohio.
b. LICENSE AND TECHNOLOGY AGREEMENTS:
In July 1992, the Company entered into a revised agreement with The Dow
Chemical Company (Dow) for an exclusive global commercial sublicense to a
specific antibody for use in RIGS system products subject to the approval
of the National Cancer Institute of the National Institutes of Health
(NCI/NIH). The NCI/NIH approved the sublicense arrangement in 1993. The
agreement provides that the Company will pay Dow royalties on RIGS
surgical system antibody product revenues. In October 1995, the Company
entered an exclusive worldwide license agreement with Dow for use of its
iodination technology. Under this agreement, the Company must pay
royalties to Dow on net sales of radiolabeled targeting agents produced
with Dow's iodination technology. The license lasts through the life of
any patent covering this process. An officer of Dow is a director of the
Company.
In April 1993, the Company entered into a long-term clinical and
commercial supply agreement with Nordion International Inc. (Nordion) for
the radiolabeling of the Company's monoclonal antibody for clinical
trials and commercial sale after regulatory approval to market has been
granted. The agreement will remain in force for a minimum of three years
after the Company is granted approval to market in the U.S. or Europe.
The Company agreed to purchase certain quantities of the radiolabeled
antibody throughout the term of the agreement at prices already set or to
be determined based on current information at the time of commercial
approval. The Company incurred costs of approximately $560,000, $350,000,
and $1.3 million for the years ended December 31, 1994, 1995, and 1996,
respectively, and $2.5 million since execution of the agreement
through December 31, 1996.
F-15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - [CONTINUED]
In February 1995, the Company signed a manufacturing and supply agreement
with Bio-Intermediair B.V. (Bio-Intermediair) for the manufacture of the
CC49 monoclonal antibody. The agreement is for a minimum of three years
after the Company is granted regulatory approval to market with automatic
one-year extensions thereafter. The Company has incurred costs of
approximately $510,000 and $700,000 for the years ended December 31, 1995
and 1996, respectively, under this agreement.
In July 1995, the Company entered into an agreement with Neoprobe
(Israel) and Rotem Industries Ltd. (Rotem) which amended and superseded a
similar agreement dated April 1994 for Rotem's assistance in the
construction and operation of a radiolabeling facility for the Company's
targeting agents. In consideration for their assistance, Rotem received
a 5% equity interest in Neoprobe (Israel) and a monthly retainer until
the facility is complete. Once the radiolabeling facility is complete,
Rotem will be paid a management fee based on the volume of production.
Rotem has the option to acquire an additional 5% equity interest in
Neoprobe (Israel) during the period from July 1, 1996 to June 30, 1998 at
a purchase price to be determined later. If certain sales levels have not
been met by the end of 1999, Rotem has the right to receive an additional
4% equity interest. Rotem is guaranteed a 5% equity interest in Neoprobe
(Israel) until such time as the contributed equity investment by the
Company exceeds $2 million and the expenditures on the facility exceed
$8,000,000 or the annual units shipped exceed 50,000.
In August 1995, the Company signed a Cooperative Research and Development
Agreement (CRADA) with the National Cancer Institute to develop and use
specific monoclonal antibodies in RIGS surgeries. The agreement calls for
the Company to contribute $750,000 for expenditures over the five-year
term of the CRADA. The Company incurred costs of $31,000 and $85,000 for
the years ended December 31, 1995 and 1996, respectively, under this
program.
In February 1996, the Company and XTL Biopharmaceuticals Ltd. ("XTL")
executed a series of agreements, including an Investment Agreement and a
Research and Development Agreement whereby XTL will perform specific
research activities using XTL's proprietary technology for the
development of future products for the Company. The Company purchased
$1.5 million of convertible debentures of XTL, convertible into
approximately a 15% equity interest in XTL as of the date of purchase.
The Company also acquired a warrant affording Neoprobe the option to
purchase an additional 10% equity interest in XTL. Neoprobe issued
125,000 shares of common stock to XTL in exchange for the convertible
debentures, a three year warrant, and future (approximately $1 million)
product development activities.
In March 1996, the Company executed a Subscription and Option Agreement
with Cira Technologies, Inc.("Cira"), under which the Company received a
10% equity interest in Cira and an option to increase its interest in
Cira by 15%. The exercise price for the option shall be 15% of the fair
market value of Cira's outstanding securities on the earlier of (a) the
third anniversary date of the license agreement, or (b) the commencement
of a pivotal clinical trial study. The option price is subject to a
minimum of $1.95 million and a maximum of $4.5 million. The Company's
Chairman is a director and shareholder of Cira. Additionally, a partner
of a law firm, who is a director of the Company which provides various
legal services to the Company, is a principal shareholder of Cira. The
Company and Cira also entered into an agreement under which it will
provide financial, clinical, and technical support to Cira for Cira to
conduct a clinical study using Cira's technology, and the Company will
have an option to acquire an exclusive global license for Cira's
technology. The Company's financial commitment for this clinical study
will not exceed $500,000, and the Company has the right to terminate the
agreement upon review of interim results of the clinical study. The
Company has incurred expenses of approximately $125,000 for the year
ended December 31, 1996 under this agreement.
In May 1996, the Company executed two license agreements with Dow,
whereby the Company was granted an exclusive license to technology
covered by patents held by Dow. In exchange, the Company issued Dow
124,805 shares of common stock valued at $2 million. Dow would also
receive a specified percentage of any sublicense revenue received related
to licensed technology. In addition, the Company agreed to make lump sum
payments to Dow following marketing approval of certain initial products
and on the achievement of certain sales milestones by the Company. Dow
would also be paid royalties based on future net sales by the Company.
Approximately $1.5 million of the cost of the license agreements was
recorded as an intangible asset representing assets with alternative
future uses. Management believes that no significant impairment of the
intangible assets associated with the license agreement has occurred.
F-16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - [CONTINUED]
In September 1996, the Company executed a marketing license agreement
(the "Agreement") with United States Surgical Corporation ("USSC") giving
USSC exclusive sales and marketing rights (excluding Korea, Thailand,
Taiwan, Malaysia, and Singapore) for the Company's RIGS surgical cancer
detection products. USSC will also provide surgeon training and
professional education worldwide for RIGS products. The initial term of
the Agreement is for five years from the later date on which the Company
receives U.S. or European regulatory approval, and is renewable for
successive five-year periods. Upon execution of the Agreement, the
Company received a $2 million payment which has been recorded as deferred
revenue. In addition, USSC agreed to pay the Company an additional $3.5
million upon receiving notification of marketing approval in the U.S. and
Europe. Payments received under the Agreement are nonrefundable,
providing the Agreement is not terminated subject to certain conditions
as defined in the Agreement. Under the Agreement, the Company will pay
USSC a commission on all RIGS-related product sales. USSC will make
payments to the Company based on commissions collected from RIGS product
sales to fund research and development on future RIGS products. In
addition, USSC will pay royalties to the Company for all sales of RIGS
disposable cancer detection products.
c. EMPLOYMENT:
The Company has employment agreements through December 31, 1998 with two
of its executive officers which provide for restricted stock purchase
agreements. The agreements provide that the officers can purchase up to
an aggregate of 80,000 shares of the Company's common stock at par value
subject to vesting provisions. Vesting of the shares does not commence
unless there is a change in control of the Company. The unvested portion
of the restricted shares will be forfeited no later than June 4, 2006.
The Company has not recognized any expense under the agreement due to the
contingent nature of the vesting provision and the risk of forfeiture.
12. LEASES:
The Company leases certain office and manufacturing equipment under capital
leases which expire on various dates through 2000. In December 1996, the
Company entered into a seventy-seven month lease agreement for office space,
commencing January 1, 1997. In June 1996, the Company entered into a lease
agreement for MonoCarb's manufacturing facility, which will terminate in
May, 2004.
The future minimum lease payments for the years ending December 31 are as
follows:
CAPITAL OPERATING
LEASES LEASES
------ ------
1997 $86,183 $689,138
1998 6,336 663,712
1999 676,206
2000 679,257
2001 681,108
------- ----------
$92,519 $3,389,421
Less amount representing interest 8,262
-------
Present value of net minimum
lease payments $84,257
=======
F-17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - [CONTINUED]
Total rental expense under operating leases was approximately $529,000,
$492,000, and $621,000 for the years ended December 31, 1994, 1995, and
1996, respectively, and $2,188,000 for the period November 16, 1983
(inception) to December 31, 1996.
13. EMPLOYEE BENEFIT PLAN:
The Company maintains an employee benefit plan under Section 401(k) of the
Internal Revenue Code. The plan allows employees to make contributions and
the Company may, but is not obligated to, match a portion of the employee's
contribution with the Company's common stock, up to a defined maximum. The
Company recorded expenses of $13,000, $18,700, and $19,500 related to common
stock to be contributed to the plan in 1994, 1995, and 1996, respectively,
and $71,400 for the period November 16, 1983 (inception) through December
31, 1996.
14. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS:
The Company paid interest, net of amounts capitalized, aggregating $70,972,
$37,182, and $35,917 for the years ended December 31, 1994, 1995, and 1996,
respectively, and $367,403 for the period November 16, 1983 (inception)
through December 31, 1996.
During 1995, the Company completed a strategic marketing agreement related
to certain Asian markets for an additional investment of $700,000, of which
$200,013 was included in subscriptions receivable as of December 31, 1995.
The Company also received subscription agreements with other parties for the
exercise of 200,000 warrants for which $1,062,500 is recorded as
subscriptions receivable at December 31, 1995.
During 1996, the Company issued common stock valued at a total of $5.7
million in exchange for license rights, convertible debentures, warrants,
and product development activities. The Company also incurred capital lease
obligations of approximately $146,000, and $29,000 in 1994 and 1995,
respectively, to finance equipment.
15. CONTINGENCIES:
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect
the financial position of the Company.
F-18
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
NEOPROBE CORPORATION
-----------------------
FORM 10-KSB ANNUAL REPORT
FOR THE FISCAL YEAR ENDED:
DECEMBER 31, 1996
-----------------------
EXHIBITS
-----------------------
===============================================================================
EXHIBIT INDEX
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EXHIBIT NUMBER OF PAGES PAGE IN MANUALLY
NUMBER DESCRIPTION IN ORIGINAL DOCUMENT+ SIGNED ORIGINAL
3.1. Complete Restated Certificate of Incorporation of
Neoprobe Corporation, as corrected and as amended 9 *
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3.2. Amended and Restated By-Laws, as amended 15 *
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4.1. See Articles FOUR, FIVE, SIX and SEVEN of the
Restated Certificate of Incorporation of Registrant 3 *
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4.2. See Articles II and VI and Section 2 of Article III
and Section 4 of Article VII of the Amended and
Restated By-Laws of the Registrant 13 *
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4.3. Rights Agreement dated as of July 18, 1995 between
the Registrant and Continental Stock Transfer and
Trust Company. 47 *
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10.1.1.-10.1.18. Reserved
10.1.19. Form of Brokers' Warrants for the purchase of shares of
Common Stock dated February 17, 1995 issued to officers of
Sunrise Financial Corporation. This exhibit is one of six
substantially identical instruments and is accompanied by a
schedule identifying the other documents omitted and setting
forth the material details in which such documents *
differ from the one that is filed therewith 10
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10.1.20. Reserved
9 *
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10.1.21. Participating Broker Agreement dated February 17,
1995 between Sunrise Securities Corp. and Registrant
22 *
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10.1.22. Reserved
10.1.23. Brokers' Warrants for the purchase of shares of Common Stock
dated June 30, 1995 issued to officers of Sunrise Financial
Corporation. This exhibit is one of six substantially
identical instruments and is accompanied by a schedule
identifying the other documents omitted and setting forth
the material details in which such documents differ from the
one that is filed therewith. 10 *
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10.1.24. Participating Broker Agreement dated June 23, 1995
between Sunrise Securities Corp. and Registrant 24 *
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+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
EXHIBIT NUMBER OF PAGES PAGE IN MANUALLY
NUMBER DESCRIPTION IN ORIGINAL DOCUMENT+ SIGNED ORIGINAL
10.1.25. Rights Agreement between the Registrant and
Continental Stock Transfer & Trust Company dated as
of July 18, 1995. 47 *
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10.1.26. Participating Broker Agreement dated September 8,
1995 between Registrant and Sunrise Securities Corp.
18 *
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10.1.27. Convertible Debenture issued by Neoprobe (Israel)
Ltd. on August 10, 1995. This exhibit is one of 19 *
three substantially identical instruments and is -----
accompanied by a schedule identifying the other documents
omitted and setting forth the material details in which such
documents differ from the one that is filed therewith.
10.1.28. Letter agreement dated May 31, 1995 among
Registrant, GKN Securities Corp., David Nussbaum,
Roger Gladstone, Robert Gladstone and Ira Scott
Greenspan 3 *
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10.1.29. Form of Limited Recourse Promissory Note dated May 31, 1995
issued to Registrant. This exhibit is one of five
substantially identical instruments and is accompanied by a
schedule identifying the other documents omitted and setting
forth the material details in which such documents differ
from the one that is filed herewith. 4 *
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10.1.30. Letter agreements dated March 13, 1995 and May 25,
1995 between Registrant and David Blech and
D. Blech & Company Incorporated 4 *
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10.2.1.-10.2.14. Reserved
10.2.15.
Option Agreements between the Registrant and David
C. Bupp 17 *
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10.2.16.-10.2.17. Reserved
10.2.18.
Non-Qualified Stock Option Agreement dated May 3,
1993 between the Registrant and David C. Bupp 4 *
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10.2.19.-10.2.20. Reserved
10.2.21.
Non-Qualified Stock Option Agreement dated May 3,
1993 between the Registrant and John L. Ridihalgh 4 *
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+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
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EXHIBIT NUMBER OF PAGES PAGE IN MANUALLY
NUMBER DESCRIPTION IN ORIGINAL DOCUMENT+ SIGNED ORIGINAL
10.2.22. Reserved
10.2.23. Non-Qualified Stock Option Agreement dated February
28, 1992 and amended and restated June 3, 1993
between the Registrant and David C. Bupp 4 *
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10.2.24. Non-Qualified Stock Option Agreement dated July 1,
1990 and amended and restated June 3, 1993 between
the Registrant and David C. Bupp 4 *
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10.2.25. Non-Qualified Stock Option Agreement dated June 1,
1992 and amended and restated June 3, 1993 between
the Registrant and John L. Ridihalgh 4 *
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10.2.26. Amended and Restated Stock Option and Restricted
Stock Purchase Plan dated March 3, 1994 11 *
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10.2.27 Letter agreement dated February 16, 1995 from the
Registrant to John L. Ridihalgh amending Employment
Agreement between them dated July 1, 1993 2 *
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10.2.28 Letter agreement dated February 16, 1995 from the
Registrant to David C. Bupp amending Employment
Agreement between them dated July 1, 1993 2 *
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10.2.29 Non-Qualified Stock Option Agreement dated February
16, 1995 between the Registrant and John L. Ridihalgh 3 *
-----
10.2.30 Non-Qualified Stock Option Agreement dated February
16, 1995 between the Registrant and David C. Bupp 3 *
-----
10.2.31 Employment Agreement dated as of January 1, 1996
between the Registrant and John L. Ridihalgh 7 *
-----
10.2.32 Employment Agreement dated as of January 1, 1996
between the Registrant and David C. Bupp *
10.2.33 1996 Stock Incentive Plan 21 *
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10.2.34 Restricted Stock Purchase Agreement dated June 5,
1996 between the Registrant and John L. Ridihalgh 4 73
-----
10.2.35 Restricted Stock Purchase Agreement dated June 5,
1996 between the Registrant and David C. Bupp 4 76
-----
10.2.36 Restricted Stock Purchase Agreement dated as of
November 25, 1996 between the Registrant and Joseph
R. Bianchine, as amended January 2, 1997 4 80
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+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
EXHIBIT NUMBER OF PAGES PAGE IN MANUALLY
NUMBER DESCRIPTION IN ORIGINAL DOCUMENT+ SIGNED ORIGINAL
10.3.1. Technology Transfer Agreement dated July 29, 1992
between the Registrant and The Dow Chemical
Corporation (subject to an order granting portions
thereof confidential treatment) 15 *
----
10.3.2.-10.3.3 Reserved
10.3.4. License Agreement dated August 15, 1992 between the
Registrant and Enzon, Inc. and Amendment thereto
dated August 19, 1992 27 *
----
10.3.5.-10.3.6. Reserved
10.3.7. Research and Development Agreement dated July 23, 1985,
among the Registrant, the Ohio State University and the
Director of Development of the State of Ohio, acting on
behalf of the State of Ohio (subject to an order granting
portions thereof
confidential treatment) 29 *
----
10.3.8. Supplemental Agreement dated July 19, 1985 between
the Registrant and The Ohio State University, acting
on behalf of the State of Ohio (subject to an order
granting portions thereof confidential treatment)
10 *
----
10.3.9. Task Order Agreement for Sponsored Clinical Research dated
May 15, 1992, between the Registrant and The Ohio State
University Research Foundation (subject to an order granting
portions thereof confidential
treatment) 7 *
----
10.3.10. License Agreement dated July 23, 1992 between the
Registrant and The Ohio State University Research
Foundation (subject to an order granting portions
thereof confidential treatment) 8 *
----
10.3.11. License Agreement dated July 23, 1992 between the
Registrant and The Ohio State University Research
Foundation (subject to an order granting portions
thereof confidential treatment) 8 *
----
10.3.12.-10.3.14. Reserved
10.3.15. Option to License dated June 23, 1993 between the
Registrant, Biomeasure, Incorporated and Kinerton
Limited 11 *
----
10.3.16. Drug Manufacture Agreement dated April 6, 1993
between the Registrant and Nordion International 14 *
Inc. (subject to an order granting portions thereof ----
confidential treatment)
+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
EXHIBIT NUMBER OF PAGES PAGE IN MANUALLY
NUMBER DESCRIPTION IN ORIGINAL DOCUMENT+ SIGNED ORIGINAL
10.3.17. Sublicense Option Agreement dated May 15, 1993
between the Registrant and NeoRx Corporation
(subject to an order granting portions thereof
confidential treatment) 10 *
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10.3.18. Amendment I to License Agreement dated October 18,
1993 between the Registrant and Enzon, Inc. 1 *
-----
10.3.19-10.3.23. Reserved
10.3.24. Amendment II to License Agreement dated March 11,
1994 between Registrant and Enzon, Inc. 1 *
-----
10.3.25. License Agreement (Imaging Products License) dated
August 1, 1994 between Registrant and Biomeasure,
Incorporated (subject to an order granting portions
thereof confidential treatment) 26 *
-----
10.3.26. License Agreement (Surgery Products License) dated
August 1, 1994 between Registrant and Biomeasure,
Incorporated (subject to an order granting portions
thereof confidential treatment) 25 *
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10.3.27. Supply Agreement dated August 1, 1994 between
Registrant and Kinerton Limited (subject to an order
granting portions thereof confidential treatment) 19 *
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10.3.28. Reserved
10.3.29 Manufacturing and Supply Agreement dated
February 20, 1995 between the Registrant and
Bio-Intermediair, B.V. 10 *
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10.3.30. Facility Agreement dated July 17, 1995 among
Registrant, Neoprobe (Israel) Ltd., and Rotem
Industries, Ltd. (subject to an order granting 12 *
portions thereof confidential treatment) -----
10.3.31. Cooperative Research and Development Agreement
between Registrant and National Cancer Institute 67 *
-----
10.3.32. First Amendment to Facility Agreement dated July 17,
1995 among Registrant, Neoprobe (Israel), Ltd. and
Rotem Industries, Ltd. 1 *
-----
10.3.33 Investment Agreement dated January 31, 1996 between
the Registrant and XTL Biopharmaceuticals, Ltd 88 *
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10.3.34 $1,500,000 5% Convertible Subordinated Debenture Due
February 13, 1998 of XTL Biopharmaceuticals, Ltd.
issued to Registrant on February 13, 1996. 13 *
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+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
EXHIBIT NUMBER OF PAGES PAGE IN MANUALLY
NUMBER DESCRIPTION IN ORIGINAL DOCUMENT+ SIGNED ORIGINAL
10.3.35 Investors' Rights Agreement dated February 5, 1996
between Registrant and XTL Biopharmaceuticals, Ltd 19 *
-----
10.3.36 Warrant to purchase Class A Common Shares of XTL
Biopharmaceuticals, Ltd. issued to Registrant on
February 13, 1996 11 *
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10.3.37 Research and Development Agreement dated
February 13, 1996 between Registrant and XTL
Biopharmaceuticals, Ltd. (subject to an order
granting portions thereof confidential treatment) 14 *
-----
10.3.38 Sublicense Agreement dated February 13, 1996
between Registrant and XTL Biopharmaceuticals, Ltd.
(subject to an order granting portions thereof
confidential treatment) 8 *
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10.3.39 Limited Liability Company Agreement dated
February 22, 1996 between Registrant and Peptor Corp. 19 *
-----
10.3.40 Subscription and Option Agreement dated March 14,
1996 between Registrant and Cira Technologies Inc. 19 *
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10.3.41 Reserved.
10.3.42 Supply Agreement dated April 1, 1996 between
NEOPROBE-Peptor JV L.L.C. and Peptor Ltd. (subject
to an order granting portions thereof confidential
treatment) 11 *
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10.3.43 Supply Agreement dated April 1, 1996 between
NEOPROBE-Peptor JV L.L.C. and Neoprobe (Israel) Ltd.
(subject to an order granting portions thereof
confidential treatment) 11 *
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10.3.44 Technology Option Agreement dated as of March 14,
1996 between Cira Technologies, Inc. and
Registrant(subject to an order granting portions 12 *
thereof confidential treatment)
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10.3.45 License dated May 1, 1996 between Registrant and The
Dow Chemical Company 9 *
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10.3.46 License Agreement dated May 1, 1996 between
Registrant and The Dow Chemical Company (subject to
an order granting portions thereof confidential
treatment) 27 *
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10.4.1.-10.4.15. Reserved
+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.
EXHIBIT NUMBER OF PAGES PAGE IN MANUALLY
NUMBER DESCRIPTION IN ORIGINAL DOCUMENT+ SIGNED ORIGINAL
10.4.16. Project Management Agreement dated May 17, 1995
between Neoprobe (Israel) Ltd. and BARAN Project
Construction Ltd. 6 *
10.4.17. Strategic Marketing Agreement dated August 30, 1995
between Registrant and Damon Pharm Ltd. (subject to
an order granting portions thereof confidential
treatment) 31 *
10.4.18. Exclusive Distribution Agreement dated September 25,
1995 between Registrant and Syncor International
Corporation (subject to an order granting portions 8 *
thereof confidential treatment)
10.4.19. Exclusive Distribution Services Agreement dated
November 30, 1995 between Registrant and Nordion
Europe S.A. (subject to an order granting portions 20 *
thereof confidential treatment)
10.4.20 License and Distribution Agreement dated September 18, 1996
between Registrant and United States Surgical Corporation
(filed pursuant to Rule 24b-2
under which the Registrant has requested 67 *
confidential treatment of certain portions of this
Exhibit).
11.1. Computation of Net Loss Per Share 1 81
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21.1. Subsidiaries of Registrant 1 82
----
23.1 Consent of Coopers & Lybrand L.L.P. 1 83
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24.1. Powers of Attorney 9 84
----
24.2. Certified resolution of the Registrant's Board of
Directors authorizing officers and directors signing
on behalf of the Company to sign pursuant to a power
of attorney 1 93
----
+ The Registrant will furnish a copy of any exhibit to a beneficial owner of its
securities or to any person from whom a proxy was solicited in connection with
the Registrant's most recent Annual Meeting of Stockholders upon the payment of
a fee of fifty cents ($.50) a page.
* Incorporated by reference.