-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KVSflYjPl/8Y9DnuW9CLKH587T2+yVgd19XrbSRHZWLaj5qEjuG1mg7NOSbbF7zf /0f1NAJ/mQJmJ7rTqgG9Fw== 0000927016-97-000895.txt : 19970329 0000927016-97-000895.hdr.sgml : 19970329 ACCESSION NUMBER: 0000927016-97-000895 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATRITECH INC/DE/ CENTRAL INDEX KEY: 0000884847 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 042985132 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12128 FILM NUMBER: 97566152 BUSINESS ADDRESS: STREET 1: 330 NEVADA STREET CITY: NEWTON STATE: MA ZIP: 02160 BUSINESS PHONE: 6176616660 MAIL ADDRESS: STREET 1: 763 CONCORD AVE CITY: CAMBRIDGE STATE: MA ZIP: 02138 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996. OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 1-12128 MATRITECH, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-2985132 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) 330 NEVADA STREET NEWTON, MASSACHUSETTS 02160 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 928-0820 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED The Boston Stock Exchange Common Stock, $.01 Par Value SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None (TITLE OF CLASS) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [_] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] Aggregate market value, as of March 5, 1997, of Common Stock held by non- affiliates of the registrant: $90,491,223 based on the last reported sale price on the Nasdaq Stock Market. Number of shares of Common Stock outstanding on March 5, 1997: 16,041,318. DOCUMENTS INCORPORATED BY REFERENCE The registrant intends to file a definitive Proxy Statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 1996. Portions of such Proxy Statement are incorporated by reference in Part III of this report. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. OVERVIEW Matritech develops, manufactures and markets innovative cancer diagnostic products based on its proprietary nuclear matrix protein ("NMP") technology. The nuclear matrix, a three dimensional protein framework within the nucleus of cells, plays a fundamental role in determining cell type by physically organizing the contents of the nucleus, including DNA. The Company has demonstrated that there are differences in the types and amounts of NMPs found in cancerous and normal tissue and believes the detection of such differences in NMPs provides important diagnostic information about cellular abnormalities, including cancer. Using its proprietary NMP technology and expertise, the Company is developing a series of non-invasive or minimally invasive cancer diagnostic tests for bladder, colorectal, prostate, cervical and breast cancer, among others, which the Company believes will be more accurate and allow for reduced treatment costs and a higher standard of patient care than currently available tests. NMP22 Bladder Cancer Test. The Company's first product based on its NMP technology, the Matritech NMP22/1/ Test Kit for bladder cancer, was approved for sale in the United States by the U.S. Food and Drug Administration ("FDA") in July 1996 as a prognostic indicator for the recurrence of bladder cancer. The NMP22 Test Kit has been commercially available in Europe since 1995 and is currently being marketed in Asia (excluding Japan) and in many other countries outside the United States. The Company has retained worldwide manufacturing rights for the NMP22 Test Kit as well as marketing rights in the United States. The Company has entered into exclusive distribution agreements for the NMP22 Test Kit in Japan and China and has additional distribution arrangements in selected European and other countries worldwide. Colorectal Cancer Test. The Company has also developed a blood-based test utilizing its NMP technology for the management of colorectal cancer patients. In October 1996, the Company began clinical trials of this product for the purpose of providing the FDA with data upon which to base approval for the marketing and sale of this product in the United States. In April 1996, Matritech reported at the annual meeting of the American Association for Cancer Research the results of a preliminary study involving over 150 subjects which showed the clinical sensitivity of carcinoembryonic antigen ("CEA") in identifying subjects with colon cancer was 42% compared to 67% clinical sensitivity for the Company's NMP-based test. The Company has retained worldwide manufacturing and marketing rights for its colorectal cancer assay. Cervical, Prostate and Breast Cancer Tests. The Company has also identified NMPs specific to cervical, prostate and breast cancer and is currently developing diagnostic tests based on its proprietary NMP technology for these cancers. Matritech is collaborating with Bayer Corporation ("Bayer") on the development of an automated diagnostic test for cervical cancer. The Company anticipates beginning a preliminary clinical study for its cervical cancer diagnostic test during the second half of 1997. The Company plans to develop additional assays for lung, liver, pancreatic, stomach and renal cancers. Matritech was incorporated in Delaware in October 1987. The Company's facilities are located at 330 Nevada Street, Newton, Massachusetts 02160 and its telephone number is (617) 928-0820. CANCER DIAGNOSTICS MARKET The cancer diagnostics market is comprised of several overlapping categories, each corresponding to a stage in the identification and management of the disease. The categories are screening, diagnosing, monitoring and evaluating prognosis. Screening tests and procedures, such as mammograms and Pap smears, are performed regularly on individuals who may have no evidence of ill health because the tests are effective in revealing - -------- /1NMP22(R)/is a registered trademark and NuMA(TM) and Matritech(TM) are trademarks of Matritech, Inc. All other trademarks used in this report are the property of their respective owners. 2 hidden, asymptomatic disease. Screening tests do not yield a final diagnosis. An actual diagnosis of cancer is usually made after microscopic examination of a tissue biopsy. Following diagnosis, additional tests can be used to monitor the course of the disease and the patient's response to treatment. These monitoring tests may be repeated at regular intervals, often every three months, and may be continued for the life of an individual in order to detect the recurrence of cancer. In addition, diagnostic tests are also used to evaluate a patient's prognosis and to select appropriate therapy. Patients identified as having a high risk of recurrence will be monitored more closely and may receive more aggressive treatment. Generally cancer diagnostic assays are not intended for screening or for diagnosis, but are intended to monitor patients with known disease or to make a prognosis related to the recurrence of cancer in previously treated patients. Ideally, a cancer diagnostic assay for use in a clinical laboratory should be both sensitive and specific. Clinical sensitivity refers to the percentage of cases in which the assay correctly identifies the presence of disease. Clinical specificity refers to the percentage of cases in which the assay correctly identifies the absence of disease. Clinical sensitivity and specificity percentages reported from studies and trials of cancer diagnostic products may not be directly comparable, as results may be affected by the number of subjects studied, variability in the stages of disease present in the subject population and the demographic composition of the subject population, among other factors. Effective in vitro diagnostic assays can reduce the need for more invasive or expensive procedures for diagnosing cancer, such as surgery, biopsy, bone scans and in vivo imaging. There are only a limited number of FDA-approved in vitro cancer diagnostic tests currently available and the relatively low clinical sensitivity and specificity of these tests have limited their clinical utility. The Company believes that these tests suffer from inherent inaccuracies because they detect substances that are only indirectly correlated with the underlying cancer cells. As a consequence of low clinical sensitivity, these tests yield false negatives and many patients with cancer are not diagnosed early enough to receive effective treatment, resulting in additional costs and morbidity. Conversely, low clinical specificity yields false positives resulting in unnecessary, expensive and painful treatment of patients without malignant disease. NMP TECHNOLOGY The Company believes that its NMP technology will allow it to develop cost- effective in vitro assays that are more accurate than those currently available. The nuclear matrix, a three-dimensional protein framework within the nucleus of cells, helps organize active genes ("DNA") in the nucleus. In this way, the nuclear matrix plays a fundamental role in determining cell type and cell function. Although the specific mechanisms of action are not yet fully understood, Matritech and independent scientists have demonstrated that there are differences in the types and amounts of NMPs found in cancerous and normal tissues and also among different types of normal cells. For example, during 1993 and 1994, three NMP-related scientific papers were published, two in Cancer Research and one in the Proceedings of the National Academy of Sciences, which described NMPs specific to prostate, breast and colon cancer tissues. These NMPs were shown to be present in 100% of the cancer tissue specimens examined, but were absent in all of the normal tissue specimens. Subsequent to these papers, the Company has examined numerous additional cancer tissue specimens with similar results. Matritech also has demonstrated that cell death, including cell death related to early tumor development, results in the release of NMPs into bodily fluids. As a result, elevated levels of NMPs may be found in the bodily fluids of cancer patients. The Company is not aware of any other cancer marker or class of markers which exhibit this level of clinical specificity and sensitivity. The Company uses its proprietary technology and expertise to identify, isolate and extract NMPs from cancerous and normal tissues. Following extraction, the Company's scientists characterize and sequence these cancer- specific NMPs, which generally are absent, or present at low levels, in the urine, blood and cells of healthy individuals. The Company then develops proprietary antibodies to these NMPs and incorporates the antibodies into industry-standard diagnostic formats, such as blood-based immunoassays. 3 The Company's core NMP technology is licensed from Massachusetts Institute of Technology ("MIT"). Under the current terms of the Company's license from MIT, the Company's worldwide license is exclusive until the expiration of all patent rights in 2006, and non-exclusive thereafter. The Company has made additional advances in NMP technology, has filed its own patent applications for related protection and has been notified that claims in its patent identifying colon cancer specific NMPs have been allowed. MATRITECH'S PRODUCTS AND PRODUCTS UNDER DEVELOPMENT The Matritech NMP22 Test Kit for Bladder Cancer In July 1996, Matritech's NMP22 Test Kit for bladder cancer was approved for sale in the United States by the FDA. The Company is currently marketing this product through its own sales force in the United States and through distributors in major markets worldwide, except in Japan where in December 1996 the Company's exclusive distributor submitted data from its clinical trials in order to obtain regulatory approval for the product. Sales of the NMP22 Test Kit began in certain countries in Europe in 1995. The Company conducted an extensive clinical trial of the NMP22 Test Kit involving more than 1,000 subjects at 13 sites, including bladder cancer patients, patients with other cancers, patients with non-cancerous urinary conditions (such as urinary tract infections) and healthy subjects. In this trial, the NMP22 Test Kit exhibited clinical sensitivity of 70% and clinical specificity of 79%. Statistical analysis of the data from this trial revealed that a negative NMP22 test result for urine specimens obtained from a bladder cancer patient approximately 10 days after transurethral resection of his or her tumor was over 85% predictive of the absence of bladder cancer in that patient three to six months after treatment. The Company believes that the use of the NMP22 Test Kit will enable urologists to manage bladder cancer patients with less invasive and less frequent procedures, thereby potentially reducing treatment costs while maintaining a high standard of patient care. If a bladder cancer patient's NMP22 value is low (less than or equal to 10 units per milliliter) 10 or more days after surgery, there is a high probability that the follow-up cystoscopic examination will not indicate a recurrence of disease. Using this information, the urologist may decide to postpone this exam in order to reduce the cost, anxiety and risk to the patient. Similarly, an NMP22 value greater than 10 units per milliliter indicates a higher risk that the follow-up cystoscopic examination will indicate a recurrence of disease, enabling the urologist to make more aggressive treatment decisions. The Company has retained worldwide manufacturing rights for the NMP22 Test Kit, as well as all marketing rights in the United States. In June 1996, the Company and its then exclusive distributor in Europe terminated their distribution agreement for the NMP22 Test Kit. The Company now has entered into distribution arrangements in selected European and other countries worldwide. Colorectal Cancer Product The Company has also developed and is testing a blood-based test utilizing its NMP technology for the management of colorectal cancer patients. The Company has identified certain NMPs that are elevated in blood from patients with colorectal cancer. The Company has also demonstrated that the types and amounts of certain NMPs differ between colorectal cancer and normal colorectal tissues. The Company is using proprietary antibodies to detect one of these proteins, NuMA, and has developed an assay for colorectal cancer based on these antibodies. In April 1996, Matritech reported at the annual meeting of the American Association for Cancer Research the results of a preliminary study involving over 150 subjects which showed the clinical sensitivity of CEA in identifying subjects with colon cancer was 42% compared to 67% clinical sensitivity for the Company's NMP-based test. In October 1996, the Company began clinical trials of this product for the purpose of providing the FDA with data upon which to base approval for the marketing and sale of this product in the United States. The results of this trial will be submitted to the FDA in order to seek approval to sell the product in the United States. Following manufacturing 4 scale-up and FDA approval for export, the Company intends to introduce the product into certain countries outside of the United States during the first half of 1997. The Company has worldwide manufacturing and marketing rights for its colorectal cancer assay. In May 1996, the rights of Yamanouchi Pharmaceutical Co. Ltd., ("Yamanouchi") with respect to this product were terminated. The Company is seeking distributors for its colorectal cancer test outside the United States. See "--Strategic Alliances." Cervical Cancer Product As part of the Company's collaboration with Bayer to develop a cervical cancer assay product, Matritech announced in August 1996 the discovery of three specific NMPs associated with cervical cancer. In September 1996, the Company also reported the achievement of a milestone under the agreement with Bayer and subsequently received the related milestone payment. Bayer provided funding to Matritech for the identification of cervical cancer specific NMPs and is continuing to fund development of monoclonal antibodies which recognize malignant and pre-malignant or dysplastic cervical cancer cells. These antibodies will be used in clinical laboratories, in conjunction with instruments developed by Bayer, to automate the review and evaluation of cancerous cervical cells. This system will initially be designed as a complement to the Pap smear procedure. Under the terms of the Company's agreement with Bayer, Bayer has the option, upon payment to Matritech, to acquire exclusive worldwide rights to distribute the cervical cancer assay for automated systems and non-exclusive worldwide rights for a manual assay product. Matritech has maintained its worldwide manufacturing rights to its cervical cancer product. See "--Strategic Alliances." Prostate Cancer Product In collaboration with clinicians at Johns Hopkins University Medical School, Matritech scientists have identified a nuclear matrix protein present in elevated amounts in the cells of prostate cancer patients and absent, or present in low amounts, in normal individuals and those with benign disease. The Company has developed an antibody, PRO4:216, to this protein which has been tested by the Johns Hopkins University scientists using prostate biopsies. The scientists at Johns Hopkins University have reported that the antibody is clinically useful in differentiating prostate cancer cells from their normal and benign counterparts. Matritech scientists have confirmed that this protein is released into the blood and intend to use it as a basis for a fluid based assay for use in the management of prostate cancer patients. Matritech has a research agreement with the University of Pittsburgh to identify specific nuclear matrix proteins for predicting prostate cancer metastasis. Scientists at the University of Pittsburgh have identified these types of proteins and have isolated and obtained partial peptide sequence. Matritech intends to produce specific monoclonal antibodies to these proteins and develop a blood and/or tissue based prostate cancer test. Matritech intends to conduct preliminary and clinical trials leading toward a submission for FDA approval. The Company has retained worldwide manufacturing and marketing rights for the prostate cancer test. Breast Cancer Product The Company has identified certain NMPs present in breast cancer tissue and absent in normal tissue. Matritech intends to develop antibodies reactive with these NMPs and evaluate these antibodies on patient blood samples. The Company intends to select antibodies to be used in assays and conduct clinical trials to generate data required to apply for FDA approval of such assays. Matritech believes that the distinctive NMP patterns found in breast cancer cells and the Company's ability to detect these NMPs in blood may enable it to develop a more accurate breast cancer blood assay intended to improve patient management. The development and marketing of the Company's breast cancer products are covered by agreements with AB Sangtec Medical ("Sangtec") and Yamanouchi, which give Sangtec exclusive rights to market the 5 Company's breast cancer product in Europe and Yamanouchi exclusive rights to market the Company's breast cancer product in Japan and Taiwan. The Company has retained worldwide manufacturing rights for its breast cancer assay, as well as all marketing rights in the United States. See "--Strategic Alliances." Other Cancer Diagnostics Products In addition to the Company's NMP22 Test Kit and its colorectal, prostate, cervical and breast cancer products under development, the Company also intends to develop diagnostic assays based on its proprietary NMP technology for lung, liver, pancreatic, stomach and renal cancers. STRATEGIC ALLIANCES To accelerate the early research and development of its products, the Company has pursued a strategy of entering into strategic alliances to fund research and development programs for selected cancer assays. These agreements typically involve up-front and milestone payments in exchange for the right to obtain exclusive distribution rights in selected geographical markets. In order to retain control of its core NMP technology, the Company has not licensed or sublicensed any of its technology to third-parties. The Company has retained manufacturing rights for its NMP22 Test Kit and all other products in development, except for certain rights that could be granted to certain of its corporate partners if the Company fails to deliver required quantities of product. Under the terms of these funded development arrangements and other distribution arrangements discussed below, the Company's partners purchase finished products or components from Matritech at prices based on Matritech's list price, local reimbursement rates or the partners' net selling price. Konica. In 1994, the Company entered into a distribution agreement with Konica. The Konica agreement grants exclusive distribution rights in Japan for the NMP22 Test Kit in exchange for $325,000 in licensing fees. Under the terms of its agreement with Konica, Matritech will sell NMP22 Test Kits to Konica for resale in Japan at prices based on Japanese reimbursement rates. Konica is responsible for obtaining the necessary approvals from the Japanese Ministry of Health and Welfare ("Koseisho") to import and sell the NMP22 Test Kit. Clinical trials must be conducted in Japan and the results submitted to Koseisho prior to obtaining such approvals. Konica submitted clinical trial data to Koseisho in December 1996. Konica has limited manufacturing rights if the Company fails to deliver required quantities of test kits. Bayer. In June 1995, Matritech signed a joint development and distribution agreement with Bayer and received an initial payment of $150,000. Under the terms of the agreement, Bayer provided funding to Matritech for the identification of cervical cancer-specific NMPs and is currently funding the development of monoclonal antibodies which recognize malignant and pre- malignant or dysplastic cervical cancer cells. These antibodies will be used in clinical laboratories, in conjunction with instruments developed by Bayer, to automate the review and evaluation of cells obtained from cervical smears. Under the terms of the Company's agreement with Bayer, Bayer has the option, upon payment to Matritech, to acquire exclusive worldwide rights to distribute the cervical cancer assay for automated systems and non-exclusive worldwide rights for a manual assay product. If Bayer exercises its option, it would purchase components from Matritech and would pay Matritech a percentage of Bayer's net selling price. In the year ended December 31, 1996, the Company received $120,000 in milestone payments under this agreement. Yamanouchi. In 1991, Matritech and Yamanouchi entered into a development and supply agreement for the development of seven serum assays (breast, colorectal, lung, liver, pancreatic, stomach and renal cancers) for exclusive sale by Yamanouchi in Japan and Taiwan. The agreement provides for development payments to the Company by Yamanouchi to be paid upon the accomplishment of certain milestones. Matritech has received $1 million in milestone payments to date. Yamanouchi did not make any payments to the Company in 1996. In May 1996, Yamanouchi's rights with respect to the Company's colorectal cancer test were terminated. The purchase price for any products distributed by Yamanouchi will be based on Yamanouchi's net selling price. Sangtec. In 1990, Matritech and Sangtec, a Swedish company, entered into a development and supply agreement which provides for the payment by Sangtec to Matritech of up to $700,000 for the development of 6 breast cancer products, of which $60,000 has been paid to Matritech as of December 31, 1996. The development payments are to be made over time, upon the successful achievement of certain technical milestones by Matritech and Sangtec. Sangtec has the exclusive right to market in Europe any breast cancer serum assay developed under the agreement. The purchase price to be paid to the Company for any products distributed by Sangtec will be based on Sangtec's net selling price. Sangtec has limited manufacturing rights if the Company fails to meet Sangtec's product delivery requirements. MARKETING AND SALES The Company has retained all rights to sell all of its products in the United States, except for products for the automated detection of cervical cancer, for which Bayer has an option to acquire exclusive rights. Matritech is selling its NMP22 Test Kit in the United States to clinical laboratories using its own direct sales force. The Company currently has five full-time sales representatives. The Company intends to expand this sales force as sales of the NMP22 Test Kit may warrant or if new products are added. The Company may use one or more distributors for sales to low-volume customers. In foreign markets, the Company initially plans to use distributors, but may establish its own sales offices when international sales warrant such a direct presence. Matritech currently has funded development and marketing agreements pursuant to which the Company has granted co-exclusive or exclusive rights to distribute the resulting products in exchange for product development funding. See "--Strategic Alliances." During the fiscal year ended December 31, 1996 the Company received approximately 16%, 21%, 11% and 13% of its revenue from collaborative research and development fees, license fees and product sales payments from Medical Systems, SPA, OmniPharmnet, UroCor, Inc. and Wallace ADL, respectively. During the fiscal years ended December 31, 1994, 1995 and 1996, 26%, 26.9% and 24%, respectively, of the Company's total product sales were from the United States and 74%, 73.1% and 76%, respectively, were from foreign countries. THIRD-PARTY REIMBURSEMENT The Company's ability to successfully commercialize its potential products will depend in part on the extent to which reimbursement for the cost of such products will be available from government health administration authorities, private health insurers and other third-party payors. The Company believes that FDA approval of a diagnostic product facilitates third-party reimbursement, but there can be no assurance that reimbursement will be available for such products or, if available, that it will be adequate. In the case of private insurance, the reimbursement of any medical device, whether approved, or for investigational use only or for research use, is at the sole discretion of the patient's individual carrier. The decision to reimburse can be made on a case-by-case basis (as is done for research therapies) or on a system-wide basis (such as screening mammography). Historically, the decision to reimburse for a new medical procedure is made by the carrier's medical director or review committee. This group will base their reimbursement decision on published clinical data and information by the treating physicians. Even if a procedure has been approved for reimbursement, there are no assurances that the insurance carrier will continue to reimburse the procedure. Health care reform is an area of continuing national attention and a priority of many governmental officials. Certain reform proposals, if adopted, could impose limitations on the prices the Company will be able to charge in the United States for its products or the amount of reimbursement available for the Company's products from governmental agencies or third-party payors. MANUFACTURING AND FACILITIES The Company currently assembles its test kits in its 22,500 square-foot facility in Newton, Massachusetts and relies on subcontractors for certain components and processes. The Company's lease is for a term of five years and expires on December 31, 2000. The annual base rent for each year of the term is $230,625. The 7 Company believes that its current facilities are adequate to satisfy the Company's needs as it expands its manufacturing capabilities for at least the next two years, including the initial phases of commercial production. Thereafter, the Company may be required to establish additional manufacturing facilities elsewhere. There can be no assurance that the Company will be able to extend its lease or lease other space on reasonable terms. The Company has retained all manufacturing rights, except for certain rights that could be granted to certain of its corporate partners if the Company fails to perform under its agreements with those corporate partners. See "--Strategic Alliances." The Company currently relies on sole suppliers for certain key components for its NMP22 Test Kit. In the event that the components from such suppliers should become unavailable for any reason, the Company would seek alternative sources of supply, which may entail making regulatory submissions and obtaining regulatory approvals from the FDA or such alternative suppliers. Although the Company attempts to maintain an adequate level of inventory to provide for these and other contingencies, should its manufacturing process be disrupted as a result of a shortage of key components or a revalidation of new components, there can be no assurance that the Company would be able to meet its commitments to customers. The Company is also subject to the FDA's GMP requirements. See "--Government Regulation." COMPETITION Matritech is not aware of any other company using NMP technology to develop diagnostic or therapeutic products. However, competition in the development and marketing of cancer diagnostics and therapeutics, using a variety of technologies, is intense. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of clinical cancer diagnostic products. Many of these organizations have financial, manufacturing, marketing and human resources greater than those of the Company. Matritech expects that its diagnostic products will compete largely on the basis of clinical utility, accuracy (sensitivity and specificity), ease of use and other performance characteristics, price, and patent position, as well as on the capabilities of the Company and its marketing partners. The Company expects that certain of its assays will compete with existing FDA-approved assays, including BTA, which was recently approved for monitoring bladder cancer, CEA, which is used primarily for monitoring colorectal and breast cancers, PSA, which is used primarily for monitoring and screening prostate cancer, and TRUQUANT BR RIA, which is used for monitoring breast cancer. Matritech is also aware of a number of companies exploring the application of oncogene technology to cancer diagnostics. A number of companies are attempting to develop automated instruments for Pap smear analysis that would compete with the cervical cancer product that the Company is developing with Bayer. These companies are computerizing image analysis techniques to automate much of the work currently done by cytotechnologists. To date, two of these instruments have been approved by the FDA for rescreening Pap smear slides previously identified by a cytotechnologist as normal. It is not known if or when such instruments will be approved for initial screening. The Company's diagnostic products will also compete with more invasive or expensive procedures such as surgery, bone scans, magnetic resonance imaging ("MRI") and other in vivo imaging techniques. Matritech believes that its products, if successfully commercialized, will contribute to improved patient management and lower overall costs, by providing accurate information and, in some cases, by providing an alternative to these invasive or costly procedures. Should the Company decide to develop and seek to market therapeutic products, competition will be based, among other things, on product efficacy, safety, reliability, price and patent position as well as the state of the industry and capabilities of the Company, future marketing partners and competitors. 8 In addition, there can be no assurance that competing diagnostic and therapeutic products based on other technologies will not be introduced by other companies and adversely affect the competitive position of the Company. PATENTS, LICENSES AND TRADE SECRETS Matritech's diagnostic technology is protected by three United States patents owned by MIT and expiring in 2006, with corresponding foreign patents granted and/or patent applications pending in Canada and selected countries in Europe and the Far East. The NMP technology owned by MIT is licensed to Matritech worldwide in exchange for royalties payable until the expiration of underlying patent rights. MIT has licensed its patent rights to Matritech on an exclusive basis through 2006. The protection offered by these patents extends to the detection and measurement of NMPs, or associated nucleic acids, using antibody or gene probe formats, as well as to certain assay methods exploiting NMPs. To strengthen its protection of NMP technology in the United States, MIT voluntarily applied for the reissue of one of its patents and the United States Patent and Trademark Office has agreed to grant the reissue. Matritech has filed additional United States patent applications on related NMP advances and corresponding applications under the Patent Cooperation Treaty designating Canada, Australia and selected countries in Europe and the Far East. The Company currently has one United States patent and 11 applications on file in the United States on these disclosures. The Company intends to file additional patent applications in the future. The Company believes that any patents that may issue from its applications will provide competitive protection for its products after expiration of its license from MIT. The Company also intends to rely on its unpatented proprietary information to maintain and develop its commercial position. GOVERNMENT REGULATION Diagnostic Products The medical devices to be marketed and manufactured by the Company are subject to extensive regulation by the FDA, and, in some instances, by foreign governments. Pursuant to the Federal Food, Drug and Cosmetic Act of 1976, as amended, and the regulations promulgated thereunder (the "FDC Act"), the FDA regulates the clinical testing, manufacture, labeling, distribution, and promotion of medical devices. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for devices, withdrawal of marketing approvals, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed by the Company. In the United States, medical devices and diagnostics are classified into one of three classes (class I, II, or III) on the basis of the controls deemed necessary by the FDA to reasonably assure their safety and effectiveness. Under FDA regulations, class I devices are subject to general controls (for example, labeling, premarket notification and adherence to GMPs) and class II devices are subject to general and special controls (for example, performance standards, postmarket surveillance, patient registries, and FDA guidelines). Generally, class III devices are those which must receive PMA by the FDA to ensure their safety and effectiveness (for example, life-sustaining, life- supporting and implantable devices, or new devices which have not been found substantially equivalent to legally marketed devices). Before a new device can be introduced into the market, the manufacturer must generally obtain marketing clearance through the filing of either a 510(k) notification or a PMA. A 510(k) clearance will be granted if the submitted information establishes that the proposed device is "substantially equivalent" to a legally marketed class I or II medical device, or to a class III medical device for which the FDA has not called for a PMA. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device, or that additional information or data are needed before a substantial equivalence determination can be made. A request for additional data may require that clinical studies of the safety and efficacy of the device be performed. 9 Commercial distribution of a device for which a 510(k) notification is required can begin only after the FDA issues an order finding the device to be "substantially equivalent" to a predicate device. It generally takes from four to twelve months from submission to obtain a 510(k) clearance, but may take longer. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device, or that additional information is needed before a substantial equivalence determination can be made. A PMA application 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. A PMA application must be supported by valid scientific evidence which typically includes clinical trial data to demonstrate safety and the effectiveness of the device. The PMA application must also contain the results of all relevant bench tests, laboratory and animal studies, a complete description of the device and its components, and a detailed description of the methods, facilities and controls used to manufacture the device, as well as proposed labeling. Upon receipt of a PMA application, the FDA makes a threshold determination as to whether the application is sufficiently complete to permit a substantive review. If the FDA determines that the PMA application is sufficiently complete to permit a substantive review, the FDA will accept the application for filing. Once the submission is accepted for filing, the FDA begins an in- depth review of the PMA. An FDA review of a PMA application generally takes one to two years from the date the PMA application is accepted for filing, but may take significantly longer. The review time is often significantly extended as a result of the FDA requiring more information or clarification of information already provided in the submission. During the review period, an advisory committee, typically a panel of clinicians and/or other appropriate experts in the relevant fields, will likely be convened to review and evaluate the application and provide recommendations to the FDA as to whether the device should be approved. The FDA is not bound by the recommendations of the advisory committee but generally follows them. Toward the end of the PMA review process, the FDA generally will conduct an inspection of the manufacturer's facilities to ensure that the facilities are in compliance with applicable GMP requirements. If the FDA's evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions which must be met in order to secure final approval for sale of the device. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter, authorizing commercial marketing of the device for certain indications. If the FDA's evaluations of the PMA application or manufacturing facilities are not favorable, the FDA will deny approval of the PMA application or issue a "not approvable letter." The FDA may also determine that additional clinical trials are necessary, in which case PMA approval may be substantially delayed while additional clinical trials are conducted and submitted in an amendment to the PMA. The PMA process can be expensive, uncertain and lengthy and a number of devices for which FDA approval has been sought by other companies have never been approved for marketing. Once a device has successfully completed the PMA approval process, modifications to the device, its labeling, or manufacturing process may require approval by the FDA of PMA supplements or new PMAs. Supplements to a PMA often require the submission of the same type of information required for an initial PMA, except that the supplement is generally limited to that information needed to support the proposed change from the product covered by the original PMA. Although clinical investigations of most devices are subject to the investigational device exemption ("IDE") requirements, clinical investigations of in vitro diagnostic ("IVDs") tests are exempt from the IDE requirements, including FDA approval of investigations, provided the testing is non- invasive, does not require an invasive sampling procedure that presents significant risk, does not introduce energy into a subject, and the tests are not used as a diagnostic procedure without confirmation of the diagnosis by another medically established diagnostic product or procedure. IVD manufacturers must also establish distribution controls to assure that IVDs distributed for the purposes of conducting clinical investigations are used only for that purpose. Pursuant to current FDA policy, manufacturers of IVDs labeled for investigational use only ("IUO") or research use only ("RUO") are encouraged by the FDA to establish a certification program under which investigational 10 IVDs are distributed to or utilized only by individuals, laboratories, or health care facilities that have provided the manufacturer with a written certification of compliance indicating that (1) the device will be used for investigational or research purposes only, and (2) results will not be used for diagnostic purposes without confirmation of the diagnosis under another medically established diagnostic device or procedure. In addition, the certification program requirements for IUO products should include assurances that all investigations or studies will be conducted with approval from an institutional review board ("IRB"), using an IRB-approved study protocol and patient informed consent and that the device will be labeled in accordance with the applicable labeling regulations. Sponsors of clinical trials are permitted to sell those devices distributed in the course of the study provided such compensation does not exceed recovery of the costs of manufacture, research, development and handling. In July 1996 the FDA approved Matritech's NMP22 Test Kit for sale in the United States as a prognostic indicator for bladder cancer (i.e., as a predictor of bladder cancer recurrence following therapy, such as surgical excision of cancerous tissue). Any products manufactured or distributed by the Company pursuant to FDA clearances or approvals are subject to pervasive and continuing regulation by the FDA, including recordkeeping requirements and reporting of adverse experiences with the use of the device. Device manufacturers are required to register their establishments and list their devices with the FDA, and are subject to periodic inspections by the FDA and certain state agencies. The FDC Act requires devices to be manufactured in accordance with GMP regulations which impose certain procedural and documentation requirements upon the Company with respect to manufacturing and quality assurance activities. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. The NMP22 Test Kit may only be promoted by the Company as a prognostic indicator. The FDA actively enforces regulations prohibiting the promotion of devices for unapproved uses and the promotion of devices for which premarket clearance or approval has not been obtained. Consequently, the Company cannot promote the NMP22 Test Kit for cancer screening or for any other unapproved use. Failure to comply with these requirements can result in regulatory enforcement action by the FDA that would adversely affect the Company's ability to conduct testing necessary to obtain market clearance for these products and, consequently, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company and its products are also subject to a variety of state laws and regulations in those states or localities where its products are or will be marketed. Any applicable state or local regulations may hinder the Company's ability to market its products in those states or localities. Manufacturers are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. There can be no assurance that the Company will not be required to incur significant costs to comply with such laws and regulations now or in the future or that such laws or regulations will not have a material adverse effect upon the Company's ability to do business. Foreign Sales Export of unapproved products subject to the PMA requirements must be approved in advance by the FDA for export unless they are approved for use by the regulatory authorities in any member community of the European Community, and certain other countries in which case they may be exported to any country without FDA approval. To obtain FDA export approval, when it is required, certain requirements must be met and information must be provided to the FDA, including, with some exceptions, documentation demonstrating that the product is approved for import into a country to which it is to be exported and safety data from animal or human studies. There can be no assurance that FDA will grant export approval when such approval is necessary, or that the countries to which the devices are to be exported will approve the devices for import. Failure on the part of the Company to obtain export approvals, when required, could significantly delay and impair the 11 Company's ability to continue exports of its devices and could have a material adverse effect on the Company's business, financial condition or results of operations. The introduction of the Company's developmental-stage test products in foreign markets will also subject the Company to foreign regulatory clearances which may impose additional substantial costs and burdens. International sales of medical devices are subject to the regulatory requirements of each country. The regulatory review process varies from country to country. Many countries also impose product standards, packaging requirements, labeling requirements and import restrictions on devices. In addition, each country has its own tariff regulations, duties and tax requirements. In Germany, where the Company began selling its NMP22 Test Kit for bladder cancer in 1995, no regulatory approval comparable to the United States PMA is required prior to public sale of diagnostic products. In Japan, where the Company's distributor for NMP22, Konica, is responsible for obtaining the necessary approvals from Koseisho to import and sell the NMP22 product, clinical trials have been conducted and the results submitted to Koseisho in December, 1996 in order to obtain such approval. The process of obtaining Koseisho approval in Japan may require as much time as to obtain a PMA in the U.S. The approval by the FDA and foreign government authorities is unpredictable and uncertain and no assurance can be given that the necessary approvals or clearances will be granted on a timely basis or at all. Delays in receipt of, or a failure to receive, such approvals or clearances, or the loss of any previously received approvals or clearances, could have a material adverse effect on the business, financial condition and results of operations of the Company. Changes in existing requirements or adoption of new requirements or policies could adversely affect the ability of the Company to comply with regulatory requirements. Failure to comply with regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company will not be required to incur significant costs to comply with laws and regulations in the future or that laws or regulations will not have a material adverse effect upon the Company's business, financial condition or results of operations. See "Risk Factors--Risks Associated with Extensive Government Regulation." CLIA Pursuant to the Clinical Laboratory Improvement Amendments ("CLIA"), the FDA will assign a complexity category to each new in vitro diagnostic test. This category will determine the rigor of quality control that must be followed by purchasers and users of the device and, thus, can affect purchasing decisions of laboratories and hospitals. In addition, as part of the premarket review process, manufacturers must establish that the device's quality control instructions are commensurate with CLIA quality control requirements for that device. The review period for in vitro diagnostic tests may be extended due to these new CLIA requirements. Other In order for the Company to conduct preliminary studies or clinical trials at a hospital or other health care facility, the Company's research collaborators must first obtain approval from the IRB of the hospital or health care facility. In each case, a written protocol must be submitted to the IRB describing the study or trial, which is reviewed by the IRB with a view to protecting the safety and privacy of the institution's patients. In addition to the regulatory framework for clinical trials and product approvals, the Company is subject to regulation under federal, state and local law, including requirements regarding occupational safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other present and possible future local, state, federal and foreign regulation. EMPLOYEES As of March 7, 1997, the Company had 46 full-time employees, 22 of whom were engaged in research and development. The Company's future success depends in part on its ability to recruit and retain talented and 12 trained scientific, technical, marketing and business personnel. The Company has been successful to date in hiring and retaining such personnel, but there can be no assurance that such success will continue. None of the Company's employees is represented by a labor union, and the Company considers its relations with its employees to be excellent. RESEARCH AND DEVELOPMENT Matritech's future success will depend in large part on its ability to develop and bring to market new products based on its proprietary NMP technology. Accordingly, Matritech devotes substantial resources to research and development. The Company has assembled a scientific staff with a variety of complementary skills in several advanced research disciplines, including molecular biology, immunology and protein chemistry. In addition, Matritech maintains consulting and advisory relationships with a number of prominent researchers. During 1994, 1995 and 1996 Matritech spent approximately $3.5 million, $3.0 million and $3.9 million, respectively, on research and development. Substantially all of these expenditures were related to the development of diagnostic products. ITEM 2. PROPERTIES. Beginning in October 1995, the Company relocated its facilities from Cambridge, Massachusetts to Newton, Massachusetts, where it leases corporate headquarters, research and development and manufacturing facilities which occupy approximately 22,500 square feet. The Company's lease is for a term of five (5) years and expires on or about December 31, 2000. The annual base rent for each year of the term is $230,625. The Company believes that its current facilities are adequate to satisfy the Company's needs for the foreseeable future, including the initial phases of commercial production and has not made a determination whether it will seek to extend its lease when it expires in 2000 or seek to lease space elsewhere. There can be no assurance that the Company will be able to extend its lease or lease other space on reasonable terms. ITEM 3. LEGAL PROCEEDINGS. The Company is not currently a party to any litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of 1996. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock trades on The Nasdaq Small Cap Market tier of The Nasdaq Stock Market ("Nasdaq"), under the symbol: "NMPS" and on the Boston Stock Exchange under the Symbol: "MPS." The following table sets forth the range of quarterly high and low sales price information for the Common Stock as reported by Nasdaq for the periods indicated.
HIGH LOW -------- -------- FISCAL 1995 First Quarter............................................ $ 2 3/16 $1 1/2 Second Quarter........................................... 2 3/4 1 15/16 Third Quarter............................................ 4 2 3/8 Fourth Quarter........................................... 4 1/2 2 7/8 FISCAL 1996 First Quarter............................................ 11 7/8 3 9/16 Second Quarter........................................... 18 9 1/2 Third Quarter............................................ 13 1/4 7 1/8 Fourth Quarter........................................... 13 5/8 6 7/8
As of March 20, 1997, there were approximately 271 shareholders of record. The Company believes that shares of the Company's Common Stock held in bank, money management, institution and brokerage house "nominee" names may account for at least an estimated 4,900 additional beneficial holders. The Company has never paid cash dividends on its Common Stock. The Company currently intends to retain any earnings to finance future growth and therefore does not anticipate paying any cash dividends in the foreseeable future. 14 ITEM 6. SELECTED FINANCIAL DATA. The selected financial data presented below for each year in the five-year period ended December 31, 1996 have been derived from the Company's financial statements, which have been audited by Arthur Andersen LLP, independent public accountants. This data should be read in conjunction with the financial statements, related notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included elsewhere in this report.
1992 1993 1994 1995 1996 ----------- ------------ ------------ ------------ ------------ STATEMENTS OF OPERATIONS DATA: Revenues: Collaborative research and development, license fees and product sales......... $ 91,206 $ 187,071 $ 1,314,334 $ 1,023,438 $ 1,881,833 Interest and other income................ 72,245 81,218 91,591 216,865 528,583 ----------- ------------ ------------ ------------ ------------ Total revenues.......... 163,451 268,289 1,405,925 1,240,303 2,410,416 Expenses: Research & development........... 2,176,558 2,728,224 3,470,122 3,014,125 3,909,793 Selling, general & administrative........ 1,021,370 1,820,798 1,591,525 2,308,773 3,665,298 ----------- ------------ ------------ ------------ ------------ Total expenses.......... 3,197,928 4,549,022 5,061,647 5,322,898 7,575,091 Net Loss................ $(3,034,477) $ (4,280,733) $ (3,655,722) $ (4,082,595) $ (5,164,675) =========== ============ ============ ============ ============ Net loss per common share(1)............... $ (.86) $ (.80) $ (.46) $ (.38) $ (.32) =========== ============ ============ ============ ============ Weighted average number of common shares outstanding(1)......... 3,544,524 5,319,072 7,951,721 10,733,769 15,900,467 =========== ============ ============ ============ ============ 1992 1993 1994 1995 1996 ----------- ------------ ------------ ------------ ------------ BALANCE SHEET DATA: Cash, cash equivalents, and short-term investments............ $ 3,512,298 $ 2,656,083 $ 3,974,237 $ 11,009,310 $ 6,770,336 Working capital......... 3,404,939 2,410,014 3,419,323 10,838,756 7,165,462 Total assets............ 4,076,499 3,274,708 4,582,194 11,959,203 8,669,861 Accumulated deficit..... (8,956,680) (13,237,413) (16,893,135) (20,975,730) (26,140,405) Total stockholders' equity................. $ 3,783,937 $ 2,855,971 $ 3,878,067 $ 11,351,178 $ 7,783,984
- -------- (1) See Note 1 of Notes to Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company was incorporated in 1987 to develop, manufacture and market innovative cancer diagnostic products based on its proprietary NMP technology. Matritech has been unprofitable since inception and expects to incur significant operating losses for at least the next two years. The Company was considered a development-stage company until the fourth quarter of 1995. For the period from inception to December 31, 1996, the Company incurred a cumulative net loss of approximately $26.1 million. The Company sells its NMP22 Test Kit through its own direct sales force in the United States and through distributors outside the United States. The Company entered into agreements with several new distributors in Europe and the Far East in the second half of 1996. The Company's 1996 product revenue includes initial stocking orders of the NMP22 Test Kit from such new distributors. Consequently, fourth quarter product revenue is not necessarily indicative of future quarters in 1997 since the distributors' inventory of the NMP22 Test Kit is high in anticipation of market launches around the world. See "Factors that may Affect Future Results--Fluctuating Operating Results." 15 RESULTS OF OPERATIONS Year Ended December 31, 1996 Compared with Year Ended December 31, 1995 Collaborative research and development revenue, license fees and product sales increased to $1,882,000 for the year ended December 31, 1996 from $1,023,000 for the year ended December 31, 1995. Revenue from product sales increased 389% to $1,678,000 for the year ended December 31, 1996 as compared to $343,000 in 1995. This increase was primarily due to worldwide sales of the Company's NMP22 Test Kit for bladder cancer which was approved for sale in the United States by the FDA in July 1996. Revenue generated from collaborative research and development and license fees in the year ended December 31, 1996 consisted of $120,000 in milestone payments from a funded development agreement with Bayer, and $84,000 in SBIR funding for the Company's cancer therapy development project. Collaborative research and development revenue and license fees in the year ended December 31, 1995 consisted of $280,000 in license fees from a marketing agreement, which was terminated in June 1996, with Boehringer Ingelheim International GmbH ("BII"), $210,000 from a funded development agreement with Bayer and $190,000 in SBIR funding for the Company's prostate, colon and drug screening assay projects. Interest and other income was $528,000 for the year ended December 31, 1996 and $217,000 for the year ended December 31, 1995. The increase was due to significantly higher average cash balances available for investment throughout 1996 as compared to 1995 resulting from financings during the third and fourth quarter of 1995. Research and development expenses increased 30% to $3,910,000 for the year ended December 31, 1996 from $3,014,000 for the year ended December 31, 1995. The increase is primarily due to the scale-up of product manufacturing for the Company's NMP22 Test Kit for bladder cancer, and to a lesser extent, increased personnel costs in the research department, and costs associated with the initial stages of clinical trials for the Company's colorectal cancer test which began in October 1996. Selling, general and administrative expenses increased 59% to $3,665,000 for the year ended December 31, 1996 from $2,309,000 for the year ended December 31, 1995. During the second half of 1996, the Company expensed approximately $209,000 of costs associated with a proposed public offering which the Company elected not to complete. Excluding these expenses, selling, general and administrative expenses increased 50%, primarily from increased sales and marketing personnel costs, the termination of the Company's marketing agreement with BII and the establishment of marketing programs to promote the Company's products worldwide. The balance of the increase is primarily related to increased salaries, professional fees and expenses associated with termination of the Company's former lease for its Cambridge facility. The Company incurred a net loss of $5,165,000 for the year ended December 31, 1996, as compared to a net loss of $4,083,000 for the year ended December 31, 1995. The increased loss resulted primarily from increased sales, marketing and manufacturing expenses for the NMP22 Test Kit for bladder cancer, and to a lesser extent, the expenses associated with increased research and development and new clinical trial costs, expenses related to the withdrawn public offering, increased professional fees, and termination costs of the Company's marketing agreement with BII and the lease at its former Cambridge facility. Year Ended December 31, 1995 Compared with Year Ended December 31, 1994 Collaborative research and development revenue, license fees and product sales decreased to $1,023,000 for the year ended December 31, 1995 from $1,314,000 for the year ended December 31, 1994. Revenue generated from collaborative research and development and license fees in the year ended December 31, 1995 consisted of $280,000 in license fees from a marketing agreement, which was terminated in June 1996, with BII, $210,000 from a funded development agreement with Bayer, and $190,000 in SBIR grants for the Company's prostate, colon and cancer therapy development projects. Collaborative research and development revenue and license fees in the year ended December 31, 1994 consisted of $720,000 in license fees from a marketing agreement with BII, $325,000 in license fees from a marketing agreement with Konica, $100,000 in milestone revenues from 16 Hybritech Incorporated ("Hybritech") relating to a funded development and marketing agreement, which has been terminated, and $68,000 in SBIR funding for the Company's prostate cancer research project. Revenue from product sales increased 240% to $343,000 for the year ended December 31, 1995 as compared to $101,000 in 1994. This increase was primarily due to expanded sales of the Company's NMP22 Test Kit in Europe and Japan. Product sales in Europe during 1995 were minimal due to product introduction in the second quarter and a shift in the business focus of BII, the Company's former exclusive distributor in Europe. Interest and other income was $217,000 for the year ended December 31, 1995 and $92,000 for the year ended December 31, 1994, an increase of 136% resulting from a combination of higher interest rates and significantly higher average cash balances available for investment throughout 1995 as compared to 1994 resulting from financings during 1995. Research and development expenses decreased 13% to $3,014,000 for the year ended December 31, 1995 from $3,470,000 for the year ended December 31, 1994. The decrease was due to reductions in both product development expenses and clinical trial costs associated with the Company's bladder cancer diagnostic product which was submitted to the FDA in November 1994. Selling, general and administrative expenses increased 45% to $2,309,000 for the year ended December 31, 1995 from $1,592,000 for the year ended December 31, 1994. The increase primarily relates to increased professional fees for the Company's patent protection applications and consulting fees as well as the establishment in February 1995 of an internal sales and marketing function and the expenses related to the launch of the Company's NMP22 Test Kit in certain countries in Europe in 1995 and the anticipated launch in the United States in 1996. The balance of the increase was attributable to expenses incurred for the relocation of the Company to larger facilities in Newton, Massachusetts during the latter part of 1995. The Company incurred a net loss of $4,083,000 for the year ended December 31, 1995, as compared to a net loss of $3,656,000 for the year ended December 31, 1994. The increased loss for the year ended December 31, 1995 was primarily a result of decreased revenues from license fees and increased selling, general and administrative expenses which were partially offset by a reduction in research and development expenses. Liquidity and Capital Resources Since its inception, the Company has financed its operations primarily through private and public offerings of its securities and through funded development and marketing agreements. In September 1995, the Company received net proceeds of approximately $6,658,000 from the private sale of common stock. In December 1995, the Company received net proceeds of approximately $4,656,000 from the exercise of certain common stock warrants which the Company had called for redemption. During the year ended December 31, 1996, the Company received net proceeds of approximately $1,514,000 from the exercise of common stock options and warrants. In June 1995, the Company signed a product development and marketing option agreement with Bayer and received a $150,000 initial payment. Under this agreement, Matritech is eligible to receive further milestone and option payments upon the completion of specific product development milestones. In the years ended December 31, 1995 and 1996, Matritech received $60,000 and $120,000 respectively, in milestone payments under this agreement. At December 31, 1996, the Company had cash and cash equivalents of $6,770,000 and working capital $7,165,000. The Company's operating activities used cash of approximately $5,505,000, $4,188,000 and $3,231,000 for the years ended December 31, 1996, 1995, 1994, respectively, primarily to fund the Company's operating loss. The Company's investing activities used cash of approximately $240,000, $147,000 and $99,000 in the years ended December 31, 1996, 1995, 1994, respectively, primarily for purchase of equipment, leasehold improvements and certain intangible assets. 17 Financing activities provided cash of approximately $1,506,000, $11,371,000 and $4,648,000 in the years ended December 31, 1996, 1995 and 1994, respectively, primarily from the sale of equity securities and the exercise of stock options and warrants, net of payments of capital lease obligations. Capital expenditures totaled approximately $285,000 during the year ended December 31, 1996, which consisted primarily of computer systems, laboratory equipment and leasehold improvements to the Company's facilities in Newton, Massachusetts. The Company currently estimates that it will acquire approximately $948,000 of capital equipment during the year ended December 31, 1997, consisting primarily of computer systems, laboratory equipment and office equipment. The Company expects to incur continued research and development expenses and other costs, including costs related to clinical studies to commercialize additional products based upon its NMP technology. The Company expects that such costs will increase in the fiscal year ending December 31, 1997 and will result in continued losses from operations. The Company may require substantial additional funds to complete new product development, conduct clinical trials and manufacture and market its products. The Company's future capital requirements will depend on many factors, including: continued scientific progress in its research and development programs; the magnitude of these programs; progress with clinical trials for its diagnostic products; the time involved in obtaining regulatory approvals; the costs involved in filing, prosecuting and enforcing patent claims; competing technological and market developments; the ability of the Company to establish additional development and marketing arrangements to provide funding for research and development and to conduct clinical trials, obtain regulatory approvals, and manufacture and market certain of the Company's products. The Company is currently seeking alternatives for obtaining additional long- term funding for its operations from various sources including collaborative arrangements and additional public or private financings. The Company anticipates that its existing capital resources including working capital and interest thereon will satisfy its capital needs at least through 1997. The foregoing forward-looking statement is subject to uncertainties and there can be no assurance that the Company's needs may not change. See "Factors that may Affect Future Results--Access to Capital." The survival of the Company in the long term, however, is dependent on its ability to generate revenue from sales of its products. There can be no assurance that such additional funding will be available on terms acceptable to the Company, if at all, or that, in the long term, the Company will be able to generate sufficient revenue to achieve and maintain profitability. Factors that may Affect Future Results The Company's future financial and operational results are subject to a number of material risks and uncertainties that may affect such results or conditions, including: History of Operating Losses and Anticipated Future Losses. The Company has incurred operating losses since its inception and expects to incur significant operating losses for at least the next two years. The Company expects to improve operating results in future periods, however, there can be no assurance that the Company will achieve or maintain profitability or that its revenue growth can be sustained in the future. Fluctuation in Operating Results. The Company's future operating results may vary significantly from quarter to quarter or from year to year depending on a number of factors including: the timing and size or orders from the Company's customers and distributors; the timing of payments from corporate partners and research grants; regulatory approvals and the introduction of new products by the Company; and the market acceptance of the Company's products. The Company's current planned expense levels are based in part upon expectations as to future revenue. Consequently, profits may vary significantly from quarter to quarter or year to year based on the timing of revenue. Revenue or profits in any period will not necessarily be indicative of results in subsequent periods. 18 Uncertainties Associated with Future Performance. The Company's success in the market for diagnostic products will depend, in part, on the Company's ability to: successfully develop, test, produce and market its products; obtain necessary governmental approvals in a timely manner; attract and maintain key employees; and successfully respond to technological changes in its marketplace. The Company's success in markets outside the United States is dependent on the performance of independent distributors over which the Company has limited control. Near-Term Dependence Upon NMP22. The Company anticipates that in the near- term it will be substantially dependent on the success of the NMP22 Test Kit, which was approved for sale in the U.S. by the FDA in July 1996 and expects to generate substantially all of its near-term products sales from the sale of NMP22 Test Kits. The Company would experience a material adverse effect on its business, financial condition and results of operations if the NMP22 Test Kit does not achieve wide market acceptance. The remainder of the Company's products are in clinical trials or in development and there can be no assurance that it will be successful with such clinical trials and product development. Access to Capital. The Company will consider from time to time various financing alternatives and may seek to raise additional capital through equity or debt financings or by entering into corporate partnering arrangements. There can be no assurance, however, that this funding will be available on terms acceptable to the Company, it at all. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item is contained in the financial statements set forth in Item 14(a) under the caption "Financial Statements" as a part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in or disagreements with accountants on accounting or financial disclosure matters during the Company's two most recent fiscal years. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS The information concerning directors of the Company required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of the Company's fiscal year ended December 31, 1996 under the headings "Occupations of Directors and Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance." EXECUTIVE OFFICERS The information concerning executive officers of the Company required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of the Company's fiscal year ended December 31, 1996 under the headings "Occupations of Directors and Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance." ITEM 11. EXECUTIVE COMPENSATION. The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the 19 close of the Company's fiscal year ended December 31, 1996, under the heading "Compensation and Other Information Concerning Directors and Officers." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of the Company's fiscal year ended December 31, 1996, under the heading "Securities Ownership of Management and Principal Stockholders." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information, if any, required under this item is incorporated herein by reference to the Company's definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission within 120 days after the close of the Company's fiscal year ended December 31, 1996, under the heading "Certain Relationships and Related Transactions." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Consolidated Financial Statements. Report of Independent Public Accountants. Balance Sheets as of December 31, 1995 and 1996. Statements of Operations for the Years ended December 31, 1994, 1995 and 1996. Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1994, 1995 and 1996. Statements of Cash Flows for the Years ended December 31, 1994, 1995 and 1996. Notes to Financial Statements. 2. No schedules are submitted because they are not applicable, not required or because the information is included in the Financial Statements or Notes to Financial Statements. 3. List of Exhibits.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------------- ---------------------- 3.1 Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibits 3, 4.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 3.2 Amended and Restated By-Laws of the Registrant (filed as Exhibits 3.2, 4.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 3.3 Certificate of Amendment dated June 16, 1994, of Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for thefiscal quarter ended June 30, 1995 and incorporated herein by reference). 3.4 Certificate of Amendment dated June 5, 1995, of Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.3 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995 and incorporated herein by reference).
20
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------------- ---------------------- 4.1 Description of Capital Stock contained in the Registrant's Amended and Restated Certificate of Incorporation, filed as Exhibits 3.1, 3.3 and 3.4. 10.1* License Agreement between Matritech and the Massachusetts Institute of Technology dated December 14, 1987, as amended March 15, 1988, December 20, 1989 and March 4, 1992 (filed as Exhibit 10.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.2* Development and Supply Agreement between Matritech and AB Sangtec Medical dated June 5, 1990, as amended on January 2, 1992 (filed as Exhibit 10.2 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.3* Development and Supply Agreement between Matritech and Yamanouchi Pharmaceutical Co., Ltd. dated September 27, 1991 (filed as Exhibit 10.4 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.4 1988 Stock Plan (filed as Exhibit 10.8 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.5 1992 Stock Plan as amended as of June 7, 1996 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference). 10.6 Amended and Restated 1992 Non-Employee Director Stock Plan as amended as of June 7, 1996 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference). 10.7 1992 Employee Stock Purchase Plan (filed as Exhibit 10.11 to the Company's Registration Statement No. 33- 46158 on Form S-1 and incorporated herein by reference). 10.8 Second Amended and Restated Registration Rights Agreement dated May 4, 1990, as amended February 26, 1992 (filed as Exhibit 10.13 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.9 Form of Indemnity Agreement with directors (filed as Exhibit 10.14 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.10* Amendment to Development and Supply Agreement between Matritech and AB Sangtec Medical dated March 5, 1992 (filed as Exhibit 10.15 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.11 Fourth Amendment dated March 18, 1993 to License Agreement between the Company and the Massachusetts Institute of Technology dated December 14, 1987, as amended (filed as Exhibit 10.15 to the Company's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 10.12 Amendment dated November 30, 1992 to Development and Supply Agreement between the Company and AB Sangtec Medical dated June 5, 1990, as amended (filed as Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference).
21
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------------- ---------------------- 10.13 Amendment dated November 30, 1992 to Development and Supply Agreement between the Company and Yamanouchi Pharmaceutical Co., Ltd. dated September 27, 1991, as amended (filed as Exhibit 10.17 to the Company's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 10.14* License Agreement between the Company and The Johns Hopkins University dated as of August 4, 1993 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 and incorporated herein by reference). 10.15* Amendment dated July 7, 1993 to Development and Supply Agreement between the Company and AB Sangtec Medical dated June 5, 1990, as amended (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 and incorporated herein by reference). 10.16* Amendment dated June 30, 1993 to Development and Supply Agreement between the Company and Yamanouchi Pharmaceutical Co., Ltd dated September 27, 1991, as amended (filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 and incorporated herein by reference). 10.17 Amendment dated January 25, 1994 to Development and Supply Agreement between the Company and Yamanouchi Pharmaceutical Co., Ltd dated September 27, 1991, as amended (filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference). 10.18 Amendment dated January 18, 1994 to Development and Supply Agreement between the Company and AB Sangtec Medical dated June 5, 1990, as amended (filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference). 10.19 Fifth Amendment dated April 14, 1994 to License Agreement between the Company and the Massachusetts Institute of Technology dated December 14, 1987 (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 1994 and incorporated herein by reference). 10.20* Exclusive Distribution Agreement between the Company and Boehringer Ingelheim International GmbH dated as of August 5, 1994 (filed as Exhibit 10.1 to the Company's Form 10-Q for the period ended September 30, 1994 and incorporated herein by reference). 10.21* Exclusive Distribution Agreement between the Company and Konica Corporation dated as of November 9, 1994. (Filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference). 10.22* Distribution Agreement between the Company and Toray- Fuji Bionics, Inc. dated as of April 10, 1995 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.23* License Agreement between the Company and Yale University dated as of March 21, 1995 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.24* Development Agreement between the Company and Bayer Corporation dated as of June 13, 1995 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995 and incorporated herein by reference).
22
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------------- ---------------------- 10.25 Lease Agreement between the Company and One Nevada Realty Trust dated October 6, 1995 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995 and incorporated herein by reference). 10.26 Sixth Amendment dated March 1, 1996 to License Agreement between Matritech and the Massachusetts Institute of Technology dated December 31, 1987, as amended (filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). 10.27* Matritech NMP22(R) Test Kits Term Sheet and Distribution Agreement between Matritech, Inc. and UroCor, Inc., dated as of January 25, 1996 and as amended, March 29, 1996 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996 and incorporated herein by reference) 23** Consent of Arthur Andersen LLP. 27** Financial Data Schedule -------- * Confidential Treatment Granted for portions thereof ** Filed herewith. (b) Reports on Form 8-K. Not Applicable (c) Exhibits. The Company hereby files as exhibits to this Form 10-K those exhibits listed in Item 14(a)(3), above. (d) Executive Compensation Plans and Arrangements. EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------------- ---------------------- 10.4 1988 Stock Plan (filed as Exhibit 10.8 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.5 1992 Stock Plan as amended as of June 7, 1996 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference). 10.6 Amended and Restated 1992 Non-Employee Director Stock Plan as amended as of June 7, 1996 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference). 10.7 1992 Employee Stock Purchase Plan (filed as Exhibit 10.11 to the Company's Registration Statement No. 33- 46158 on Form S-1 and incorporated herein by reference). (e) Financial Statement Schedules. The Company hereby files as financial statement schedules to this Form 10-K those financial statement schedules listed in Item 14(a)(2), above, which are attached hereto.
23 MATRITECH, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants................................. F-2 Balance Sheets as of December 31, 1995 and 1996.......................... F-3 Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996.................................................................... F-4 Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1995 and 1996........................................................... F-5 Statements of Cash Flows for the Years Ended 31, 1994, 1995 and 1996..... F-6 Notes to Financial Statements............................................ F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Matritech, Inc.: We have audited the accompanying balance sheets of Matritech, Inc. (a Delaware corporation) as of December 31, 1995 and 1996, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended 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 financial position of Matritech, Inc. as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts January 31, 1997 F-2 MATRITECH, INC. BALANCE SHEETS
DECEMBER 31, -------------------------- 1995 1996 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents........................ $ 11,009,310 $ 6,770,336 Accounts receivable.............................. 113,139 814,544 Inventories...................................... 192,385 343,058 Interest receivable and prepaid expense.......... 131,947 123,401 ------------ ------------ Total current assets........................... 11,446,781 8,051,339 ------------ ------------ PROPERTY AND EQUIPMENT, AT COST: Laboratory equipment............................. 729,935 949,508 Office equipment................................. 137,876 186,228 Laboratory furniture............................. 44,511 55,772 Leasehold improvements........................... 39,671 45,871 ------------ ------------ 951,993 1,237,379 Less--Accumulated depreciation and amortization.. 596,721 701,769 ------------ ------------ 355,272 535,610 ------------ ------------ OTHER ASSETS, NET.................................. 157,150 82,912 ------------ ------------ $ 11,959,203 $ 8,669,861 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Note payable..................................... $ 18,387 $ -- Accounts payable................................. 340,560 422,559 Accrued expenses................................. 214,178 463,318 Deferred revenue................................. 34,900 -- ------------ ------------ Total current liabilities...................... 608,025 885,877 ------------ ------------ COMMITMENTS (Note 3) STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value-- Authorized--4,000,000 shares Issued and outstanding--none.................... -- -- Common stock, $.01 par value-- Authorized--40,000,000 shares Issued and outstanding--15,194,127 shares in 1995 and 6,032,734 shares in 1996....................... 151,941 160,327 Additional paid-in capital....................... 32,174,967 33,764,062 Accumulated deficit.............................. (20,975,730) (26,140,405) ------------ ------------ Total stockholders' equity..................... 11,351,178 7,783,984 ------------ ------------ $ 11,959,203 $ 8,669,861 ============ ============
The accompanying notes are an integral part of these financial statements. F-3 MATRITECH, INC. STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- REVENUES: Collaborative research and development, license fees and product sales................................ $ 1,314,334 $ 1,023,438 $ 1,881,833 Interest and other income............. 91,591 216,865 528,583 ----------- ----------- ----------- 1,405,925 1,240,303 2,410,416 ----------- ----------- ----------- EXPENSES: Research and development.............. 3,470,122 3,014,125 3,909,793 Selling, general and administrative... 1,591,525 2,308,773 3,665,298 ----------- ----------- ----------- 5,061,647 5,322,898 7,575,091 ----------- ----------- ----------- Net loss................................ $(3,655,722) $(4,082,595) $(5,164,675) =========== =========== =========== NET LOSS PER COMMON SHARE............... $ (.46) $ (.38) $ (.32) =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............................ 7,951,721 10,733,769 15,900,467 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-4 MATRITECH, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ------------------- ADDITIONAL TOTAL NUMBER PAR PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS' OF SHARES VALUE CAPITAL COMPENSATION DEFICIT EQUITY ---------- -------- ----------- ------------ ------------ ------------- BALANCE, DECEMBER 31, 1993................... 7,014,433 $ 70,144 $16,055,266 $(32,026) $(13,237,413) $ 2,855,971 Sale of common stock, net of commissions and issuance costs of $748,797.............. 2,746,358 27,464 4,623,118 -- -- 4,650,582 Exercise of common stock options......... 4,550 46 3,685 -- -- 3,731 Issuance of common stock under employee stock purchase plan... 3,029 30 8,981 -- -- 9,011 Amortization of deferred compensation, net of option forfeitures........... -- -- (2,210) 16,704 -- 14,494 Net loss............... -- -- -- -- (3,655,722) (3,655,722) ---------- -------- ----------- -------- ------------ ----------- BALANCE, DECEMBER 31, 1994................... 9,768,370 97,684 20,688,840 (15,322) (16,893,135) 3,878,067 Sale of common stock, net of commissions and issuance costs of $241,789.............. 3,000,000 30,000 6,628,211 -- -- 6,658,211 Exercise of common stock purchase warrants, net of commissions and issuance costs of $168,884.............. 2,342,373 23,424 4,632,980 -- -- 4,656,404 Exercise of common stock options......... 72,663 726 53,674 -- -- 54,400 Issuance of common stock under employee stock purchase plan... 10,721 107 18,655 -- -- 18,762 Redemption of common stock purchase warrants.............. -- -- (400) -- -- (400) Amortization of deferred compensation, net of option forfeitures........... -- -- 153,007 15,322 -- 168,329 Net loss............... -- -- -- -- (4,082,595) (4,082,595) ---------- -------- ----------- -------- ------------ ----------- BALANCE, DECEMBER 31, 1995................... 15,194,127 151,941 32,174,967 -- (20,975,730) 11,351,178 Exercise of common stock options......... 104,294 1,043 181,359 -- -- 182,402 Exercise of common stock purchase warrants.............. 728,453 7,284 1,324,790 -- -- 1,332,074 Issuance of common stock under employee stock purchase plan... 5,860 59 10,196 -- -- 10,255 Compensation related to issuance of common stock options......... -- -- 72,750 -- -- 72,750 Net loss............... -- -- -- -- (5,164,675) (5,164,675) ---------- -------- ----------- -------- ------------ ----------- BALANCE, DECEMBER 31, 1996................... 16,032,734 $160,327 $33,764,062 $ -- $(26,140,405) $ 7,783,984 ========== ======== =========== ======== ============ ===========
The accompanying notes are an integral part of these financial statements. F-5 MATRITECH, INC. STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss............................... $(3,655,722) $(4,082,595) $(5,164,675) Adjustments to reconcile net loss to net cash used in operating activities-- Depreciation and amortization......... 103,064 112,158 133,952 Amortization of deferred compensation......................... 14,494 168,329 -- Compensation related to issuance of common stock options................. -- -- 72,750 Changes in assets and liabilities-- Accounts receivable.................. 8,098 (110,467) (701,405) Inventories.......................... (1,204) (138,552) (150,673) Interest receivable and prepaid expenses............................ 83 (57,626) 8,546 Accounts payable..................... (22,977) 142,290 81,999 Accrued expenses..................... 43,433 23,352 249,140 Deferred revenue..................... 280,000 (245,100) (34,900) ----------- ----------- ----------- Net cash used in operating activities......................... (3,230,731) (4,188,211) (5,505,266) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment..... (30,520) (91,792) (285,386) (Increase) decrease in other assets.... (68,853) (55,657) 45,334 ----------- ----------- ----------- Net cash used in investing activities......................... (99,373) (147,449) (240,052) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock and warrants.............................. 4,650,582 6,658,211 -- Proceeds from the exercise of common stock purchase warrants............... -- 4,656,404 1,332,074 Proceeds from exercise of common stock options............................... 3,731 54,400 182,402 Proceeds from issuance of common stock under employee stock purchase plan.... 9,011 18,762 10,255 Payments on redemption of warrants..... -- (400) -- Payments on note payable............... (15,066) (16,644) (18,387) ----------- ----------- ----------- Net cash provided by financing activities......................... 4,648,258 11,370,733 1,506,344 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 1,318,154 7,035,073 (4,238,974) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................................... 2,656,083 3,974,237 11,009,310 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR.. $ 3,974,237 $11,009,310 $ 6,770,336 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-6 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Matritech, Inc. (the Company) was incorporated on October 29, 1987 to develop, produce and distribute products for the diagnosis and potential treatment of cancer based on its proprietary nuclear matrix protein technology. This technology was licensed to the Company by the Massachusetts Institute of Technology (MIT). The Company was considered a development-stage company until the fourth quarter of 1995, when the Company significantly increased its product revenue. The Company is devoting substantially all of its efforts toward product research and development, raising capital and marketing products. The Company is subject to risks common to companies in similar stages of development, including dependence on key individuals, competition from substitute products and larger companies, the development of commercially usable products and the need to obtain adequate additional financing necessary to fund the development of its future products. In 1995, the Company began to sell its NMP22 Test Kits in certain countries in Europe through a distributor. In July 1996, the Company received FDA approval to begin selling the NMP22 Test Kit in the United States. The accompanying financial statements reflect the application of certain accounting policies as described in this note and elsewhere in the accompanying financial statements and notes. (a) Revenue Recognition The Company recognizes revenue from collaborative research and development arrangements as milestones are achieved; revenue from nonrefundable license agreements upon the signing of the agreement; and revenue from products sales upon shipment. (b) Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company applies Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No. 115, securities that the Company has the positive intent and ability to hold to maturity are reported at amortized cost, which approximates fair market value, and are classified as held-to-maturity. These securities include cash and cash equivalents, which consist of auction market preferred stocks at December 31, 1995 and 1996. (c) Inventories Inventories are stated at the lower of cost or market and consist of the following:
DECEMBER 31, ----------------- 1995 1996 -------- -------- Raw materials............................................ $ 80,472 $189,101 Work-in-process.......................................... 2,977 2,337 Finished goods........................................... 108,936 151,620 -------- -------- $192,385 $343,058 ======== ========
F-7 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (d) Depreciation and Amortization The Company provides for depreciation and amortization using accelerated and straight-line methods by charges to operations in amounts that allocate the cost of property and equipment over their estimated useful lives as follows:
ASSET CLASSIFICATION USEFUL LIFE -------------------- ----------- Laboratory equipment........... 10 Years Office equipment............... 5 Years Laboratory furniture........... 5 Years Leasehold improvements......... Life of lease
The Company amortizes certain intangible assets, including license fees, over their estimated useful lives of three to five years. (e) Uses of Estimates in the Preparation of Financial Statements 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. (f) Concentration of Credit Risk SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company places its investments in highly rated financial institutions and investment-grade securities. The Company has not experienced any losses on its investments to date. The Company has not experienced any material losses related to receivables from individual customers or groups of customers. (g) Disclosure of Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, accounts receivable and accounts payable. The carrying amounts of the Company's financial instruments approximate fair value. (h) Research and Development Research and development expenses in the accompanying statements of operations are expensed as incurred and include both funded and unfunded research and development expenses. (i) Net Loss per Common Share Net loss per common share was computed using the weighted average number of common shares outstanding during the period. Common stock equivalents have not been included, as the impact would be antidilutive. (j) Postretirement Benefits The Company has no obligations for postretirement benefits. F-8 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (2) INCOME TAXES The Company follows the provisions of SFAS No. 109, Accounting for Income Taxes. Under the provisions of SFAS No. 109, the Company recognizes a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting and their tax basis and carryforwards to the extent they are realizable. The Company's net deferred tax asset consists of the following:
DECEMBER 31, ------------------------- 1995 1996 ----------- ------------ Net operating loss carryforwards................ $ 8,464,000 $ 10,529,000 Tax credits..................................... 1,015,000 1,203,000 Temporary differences........................... (53,000) (59,000) ----------- ------------ Net deferred tax asset........................ 9,426,000 11,673,000 Valuation allowance............................. (9,426,000) (11,673,000) ----------- ------------ $ -- $ -- =========== ============
At December 31, 1996, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $26,323,000, which expire through 2011. The Company also has certain tax credits available to offset future federal and state income taxes, if any. Net operating loss carryforwards and credits are subject to review and possible adjustments by the Internal Revenue Service, and they may be limited in the event of certain cumulative changes in the ownership interests of significant stockholders over a three-year period in excess of 50%. Due to its history of operating losses, the Company has not recorded a deferred tax asset for the potential future benefit of its deferred tax assets, as the realization of such asset is uncertain. (3) LEASE COMMITMENTS The Company leases office and laboratory facilities and certain equipment under operating leases that expire through 2000. Annual commitments under these operating leases are as follows:
YEAR AMOUNT ---- -------- 1997............................ $262,000 1998............................ 255,000 1999............................ 239,000 2000............................ 231,000 -------- $987,000 ========
Rent expense for the years ended December 31, 1994, 1995 and 1996 was approximately $344,000, $371,000 and $333,000, respectively. (4) NOTE PAYABLE The Company had an obligation under an equipment note payable, which was paid in full at December 31, 1996. F-9 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (5) ACCRUED EXPENSES Accrued expenses consist of the following:
DECEMBER 31, ----------------- 1995 1996 -------- -------- Clinical trials costs................................... $ 60,525 $239,782 Payroll and related costs............................... 45,976 82,095 Professional fees....................................... 52,467 43,575 Printing and design costs............................... 34,973 26,301 Other................................................... 20,237 71,565 -------- -------- $214,178 $463,318 ======== ========
(6) LICENSE AGREEMENT MIT has granted the Company a worldwide exclusive license to certain technology, which was extended when the Company obtained FDA approval of its first cancer diagnostic product in 1996, until the expiration of all patent rights in 2006. Upon termination of the exclusivity provision, the Company may continue to develop and market products under nonexclusive terms. Pursuant to the license agreement, the Company pays royalties on the sales of products incorporating the licensed technology. (7) COMMON STOCK (a) Sales of Common Stock On September 2, 1994, the Company completed a private placement of 2,346,373 units (the Units) for $1.875 per Unit. Each Unit consisted of one share of the Company's common stock and one Class A redeemable common stock purchase warrant, having an exercise price equal to $2.06 per share and a term of five years. The Company received net proceeds of approximately $3.6 million after commissions and estimated expenses of the offering. During 1995, 2,342,373 of these warrants were exercised at $2.06 per share. Net proceeds from the exercise after commissions totaled $4,656,404. The Company redeemed the remaining 4,000 warrants for $.10 per warrant. In addition, the Company issued a warrant to purchase 234,637 additional Units at an exercise price equal to $2.25 per Unit to the placement agent (Placement Agent Warrants). During 1996, 214,637 of the Placement Agent Warrants and 204,637 of the underlying Class B warrants were exercised for net proceeds of $756,886, pursuant to which the Company issued 400,693 shares of common stock and warrants to purchase 30,000 shares of common stock at $2.06 per share through September 1999. In September 1995, the Company completed a private placement of 3,000,000 shares of common stock for $2.30 per share. Net proceeds from the private placement totaled $6,658,211 after commissions and offering expenses. F-10 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (b) Warrants In connection with the Company's bridge financings and public offerings, the Company issued warrants to purchase common stock. The exercise price and number of shares issuable pursuant to certain warrants are subject to further adjustment for dilutive events, as defined. The following table summarizes the outstanding warrants (exclusive of the warrants discussed in Note 7(a)) and their attributes as of December 31, 1996:
NUMBER EXERCISE GRANT DATE OF WARRANTS PRICE EXPIRATION DATE ---------- ----------- -------- -------------------- February and March 1992............ 19,026 $ 3.09 July 1998 May 1992........................... 25,071 $ 2.82 July 1998 July 1992.......................... 2,799 $ 3.09 July and August 1997 July 1993.......................... 32,664 $ 1.80 July 1998
During 1996, 419,356 warrants were exercised, pursuant to which 327,760 shares of common stock were issued for proceeds of $575,188. (c) Stock Option and Purchase Plans The Company has granted incentive and nonqualified options under its 1988 and 1992 option plans and the 1992 Directors' Plan. All option grants, prices and vesting periods are determined by the Board of Directors. Incentive stock options must be granted at a price not less than the fair market value on the date of grant, as determined by the Board of Directors. During 1996, the Company recognized a compensation charge of $72,750 related to the issuance of nonqualified stock options below fair market value on the date of grant. There are 221,234 common shares available for future grants under existing option plans at December 31, 1996. The following table summarizes stock option activity:
NUMBER OPTION PRICE OF OPTIONS PER SHARE ---------- ------------ Options outstanding, December 31, 1993............... 380,513 $ .82-$ 5.00 Granted............................................ 18,806 2.00- 3.31 Exercised.......................................... (4,550) .82 Terminated......................................... (17,655) .82- 5.00 -------- ------------ Options outstanding, December 31, 1994............... 377,114 .82- 5.00 Granted............................................ 162,762 .83- 3.63 Exercised.......................................... (91,652) .83- 2.00 Terminated......................................... (10,100) 1.76-3.38 -------- ------------ Options outstanding, December 31, 1995............... 438,124 .82- 5.00 Granted............................................ 624,649 3.63- 13.13 Exercised.......................................... (104,294) .82- 3.38 Terminated......................................... (38,701) 1.81- 13.13 -------- ------------ Options outstanding, December 31, 1996............... 919,778 $.82-$13.13 ======== ============ Options exercisable, December 31, 1996............... 264,971 $.82-$13.13 ======== ============
The Company has reserved and may issue up to an aggregate of 225,000 shares of common stock under the Employee Stock Purchase Plan. Stock is sold at 85% of fair market value, as defined. At December 31, 1995 and 1996, the Company has accumulated payroll deductions of $10,255 and $26,674, respectively, for the issuance of 5,860 shares and 7,621 shares of common stock, respectively, which are issued in the following year to employees pursuant to the plan. At December 31, 1996, 196,277 shares are available under the plan. F-11 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires the measurement of the fair value of stock options, including stock purchase plans, or warrants granted to employees to be included in the statement of operations or disclosed in the notes to financial statements. The Company has determined that it will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company has computed the pro forma disclosures required under SFAS No. 123 for options granted in 1995 and 1996 and stock issued pursuant to the stock purchase plan using the Black- Scholes option pricing model prescribed by SFAS No. 123. The weighted average assumptions used for 1995 and 1996 are as follows:
1995 1996 ---------- ---------- Risk-free interest rate......................... 5.63%-7.79% 5.54%-6.83% Expected dividend yield......................... -- -- Expected life................................... 7 Years 7 years Expected volatility............................. 70% 80%
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The total fair value of the options granted during 1995 and 1996 was computed as approximately $157,000 and $4,065,000, respectively. Of these amounts approximately $27,000 and $196,000 would be charged to operations for the years ended December 31, 1995 and 1996, respectively. The remaining amount, approximately $4,000,000, would be amortized over the remaining vesting periods. The resulting pro forma compensation expense may not be representative of the amount to be expected in future years as pro forma compensation expense may vary based upon the number of options granted. The pro forma net loss and pro forma net loss per common share presented above have been computed assuming no tax benefit. The effect of a tax benefit has not been considered since a substantial portion of the stock options granted are incentive stock options and the Company does not anticipate a future deduction associated with the exercise of these stock options. The pro forma effect of SFAS No. 123 for the years ended December 31, 1995 and 1996 is as follows:
1995 1996 ------------------------ ------------------------ AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- ----------- ----------- ----------- Pro forma net loss...... $(4,082,595) $(4,110,014) $(5,164,675) $(5,360,717) =========== =========== =========== =========== Pro forma net loss per share.................. $ (.38) $ (.38) $ (.32) $ (.34) =========== =========== =========== ===========
(d) Reserved Shares As of December 31, 1996, the following shares of common stock were reserved for future issuance: 1988 and 1992 Stock Option Plans.............................. 926,013 1992 Employees Stock Purchase Plan............................ 203,898 Exercise of Warrants Outstanding.............................. 129,560 1992 Director Stock Option Plan............................... 215,000 --------- 1,474,471 =========
F-12 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (8) DISTRIBUTION AND EQUITY PURCHASE AGREEMENTS WITH BOEHRINGER INGELHEIM INTERNATIONAL During 1994, the Company entered into a distribution and equity purchase agreement with Boehringer Ingelheim International, GmbH (BII). BII acted as the semiexclusive distributor of one of the Company's cancer diagnostic tests, as well as certain of its research diagnostic products, in Europe. In August 1994, BII purchased 400,000 shares of the Company's common stock at $2.50 per share. In addition, in September 1994, BII paid $1 million for the exclusive distribution rights described above. Under certain circumstances, BII had the right to obtain 160,000 additional shares of common stock from the Company at no additional cost. Accordingly, the Company deferred $280,000 of the $1 million license fee, which represented the fair value of the potential additional 160,000 shares. During 1995, the circumstances under which BII had the right to obtain the 160,000 additional shares expired, and the Company recognized the $280,000 deferred license fee. The Company terminated this agreement in 1996 and in connection with the termination recorded a charge of approximately $85,000 to selling, general and administrative expenses. (9) SIGNIFICANT REVENUE FROM THIRD PARTIES The Company received revenue of greater than 10% of total collaborative research and development, license fees and product sales from the following number of customers during the following periods:
PERCENTAGE OF REVENUES CUSTOMER --------------------------------------------- SIGNIFICANT CUSTOMERS A B C D E F G ----------- --- --- --- --- --- --- --- Year ended December 31, 1994..... 2 -- 55% 29% -- -- -- -- Year ended December 31, 1995..... 2 -- 27% -- 21% -- -- -- Year ended December 31, 1996..... 4 16% 21% 11% 13%
(10) GEOGRAPHIC INFORMATION Product sales by geographic destination as a percentage of total product sales are as follows:
YEARS ENDED ---------------- 1994 1995 1996 ---- ---- ---- Europe................................................... 8.2% 20.1% 41.5% Pacific Rim.............................................. 65.0 45.9 31.5 United States............................................ 26.0 26.9 24.0 All other................................................ .8 7.1 3.0
F-13 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEWTON, COMMONWEALTH OF MASSACHUSETTS, ON THE 25TH DAY OF MARCH, 1997. MATRITECH, INC. /s/ Stephen D. Chubb By: ______________________________ Stephen D. Chubb Director, Chairman and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /S/ Stephen D. Chubb Director, Chairman March 25, 1997 - ------------------------------------- and Chief Executive STEPHEN D. CHUBB Officer, (Principal Executive Officer) /s/ David L. Corbet Director, President March 25, 1997 - ------------------------------------- and Chief Operating DAVID L. CORBET Officer /s/ Leslie R. Teso Vice President, March 25, 1997 - ------------------------------------- Finance, Secretary LESLIE R. TESO and Treasurer (Principal Accounting Officer) /s/ J. Robert Buchanan Director March 21, 1997 - ------------------------------------- J. ROBERT BUCHANAN /s/ Thomas R. Morse Director March 25, 1997 - ------------------------------------- THOMAS R. MORSE Director - ------------------------------------- DAVID RUBINFIEN /s/ T. Stephen Thompson Director March 25, 1997 - ------------------------------------- T. STEPHEN THOMPSON /s/ C. William Zadel Director March 25, 1997 - ------------------------------------- C. WILLIAM ZADEL EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------------- ---------------------- 3.1 Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibits 3, 4.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 3.2 Amended and Restated By-Laws of the Registrant (filed as Exhibits 3.2, 4.1 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 3.3 Certificate of Amendment dated June 16, 1994, of Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for thefiscal quarter ended June 30, 1995 and incorporated herein by reference). 3.4 Certificate of Amendment dated June 5, 1995, of Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.3 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995 and incorporated herein by reference). 4.1 Description of Capital Stock contained in the Registrant's Amended and Restated Certificate of Incorporation, filed as Exhibits 3.1, 3.3 and 3.4. 10.1* License Agreement between Matritech and the Massachusetts Institute of Technology dated December 14, 1987, as amended March 15, 1988, December 20, 1989 and March 4, 1992 (filed as Exhibit 10.1 to the Company's Registration Statement No. 33- 46158 on Form S-1 and incorporated herein by reference). 10.2* Development and Supply Agreement between Matritech and AB Sangtec Medical dated June 5, 1990, as amended on January 2, 1992 (filed as Exhibit 10.2 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.3* Development and Supply Agreement between Matritech and Yamanouchi Pharmaceutical Co., Ltd. dated September 27, 1991 (filed as Exhibit 10.4 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.4 1988 Stock Plan (filed as Exhibit 10.8 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.5 1992 Stock Plan as amended as of June 7, 1996 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference). 10.6 Amended and Restated 1992 Non-Employee Director Stock Plan as amended as of June 7, 1996 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference). 10.7 1992 Employee Stock Purchase Plan (filed as Exhibit 10.11 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.8 Second Amended and Restated Registration Rights Agreement dated May 4, 1990, as amended February 26, 1992 (filed as Exhibit 10.13 to the Company's Registration Statement No. 33- 46158 on Form S-1 and incorporated herein by reference). 10.9 Form of Indemnity Agreement with directors (filed as Exhibit 10.14 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference).
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------------- ---------------------- 10.10* Amendment to Development and Supply Agreement between Matritech and AB Sangtec Medical dated March 5, 1992 (filed as Exhibit 10.15 to the Company's Registration Statement No. 33-46158 on Form S-1 and incorporated herein by reference). 10.11 Fourth Amendment dated March 18, 1993 to License Agreement between the Company and the Massachusetts Institute of Technology dated December 14, 1987, as amended (filed as Exhibit 10.15 to the Company's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 10.12 Amendment dated November 30, 1992 to Development and Supply Agreement between the Company and AB Sangtec Medical dated June 5, 1990, as amended (filed as Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 10.13 Amendment dated November 30, 1992 to Development and Supply Agreement between the Company and Yamanouchi Pharmaceutical Co., Ltd. dated September 27, 1991, as amended (filed as Exhibit 10.17 to the Company's Form 10-K for the year ended December 31, 1992 and incorporated herein by reference). 10.14* License Agreement between the Company and The Johns Hopkins University dated as of August 4, 1993 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 and incorporated herein by reference). 10.15* Amendment dated July 7, 1993 to Development and Supply Agreement between the Company and AB Sangtec Medical dated June 5, 1990, as amended (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 and incorporated herein by reference). 10.16* Amendment dated June 30, 1993 to Development and Supply Agreement between the Company and Yamanouchi Pharmaceutical Co., Ltd dated September 27, 1991, as amended (filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 and incorporated herein by reference). 10.17 Amendment dated January 25, 1994 to Development and Supply Agreement between the Company and Yamanouchi Pharmaceutical Co., Ltd dated September 27, 1991, as amended (filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference). 10.18 Amendment dated January 18, 1994 to Development and Supply Agreement between the Company and AB Sangtec Medical dated June 5, 1990, as amended (filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference). 10.19 Fifth Amendment dated April 14, 1994 to License Agreement between the Company and the Massachusetts Institute of Technology dated December 14, 1987 (filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended March 31, 1994 and incorporated herein by reference). 10.20* Exclusive Distribution Agreement between the Company and Boehringer Ingelheim International GmbH dated as of August 5, 1994 (filed as Exhibit 10.1 to the Company's Form 10-Q for the period ended September 30, 1994 and incorporated herein by reference). 10.21* Exclusive Distribution Agreement between the Company and Konica Corporation dated as of November 9, 1994. (Filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference).
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT -------------- ---------------------- 10.22* Distribution Agreement between the Company and Toray-Fuji Bionics, Inc. dated as of April 10, 1995 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.23* License Agreement between the Company and Yale University dated as of March 21, 1995 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference). 10.24* Development Agreement between the Company and Bayer Corporation dated as of June 13, 1995 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995 and incorporated herein by reference). 10.25 Lease Agreement between the Company and One Nevada Realty Trust dated October 6, 1995 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995 and incorporated herein by reference). 10.26 Sixth Amendment dated March 1, 1996 to License Agreement between Matritech and the Massachusetts Institute of Technology dated December 31, 1987, as amended (filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference). 10.27* Matritech NMP22(R) Test Kits Term Sheet and Distribution Agreement between Matritech, Inc. and UroCor, Inc., dated as of January 25, 1996 and as amended, March 29, 1996 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996 and incorporated herein by reference) 23** Consent of Arthur Andersen LLP. 27** Financial Data Schedule
-------- * Confidential Treatment Granted for portions thereof ** Filed herewith. EX-23 2 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-99724, 33-87432, 33-50244, 33-93198 and 333-11913. /s/ Arthur Andersen LLP Arthur Andersen LLP Boston, Massachusetts March 21, 1997 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S ANNUAL REPORT ON FORM 10-K DATED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 6,770 0 815 0 343 8,051 1,237 702 8,670 886 0 0 0 160 33,764 8,670 1,882 2,410 0 7,575 0 0 0 (5,165) 0 0 0 0 0 (5,165) (.32) 0
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