-----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, U3t5IETXHPAA9JrWINr29mufMq4lHEv/v6H9QZAb0X7RpG4CqUDimuYyEjOKMJgO QUI8jF2hpBHa2+88kfetOQ== 0000932631-98-000004.txt : 19980402 0000932631-98-000004.hdr.sgml : 19980402 ACCESSION NUMBER: 0000932631-98-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSTEX INTERNATIONAL INC /WA/ CENTRAL INDEX KEY: 0000932631 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 911450247 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-25250 FILM NUMBER: 98584595 BUSINESS ADDRESS: STREET 1: 2203 AIRPORT WY S STREET 2: STE 400 CITY: SEATTLE STATE: WA ZIP: 98134 BUSINESS PHONE: 2062928082 MAIL ADDRESS: STREET 1: 2203 AIRPORT WAY STREET 2: SUITE 400 CITY: SEATLE STATE: WA ZIP: 98134 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ----- X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) ----- OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 -- or -- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) ----- OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ---- ---- --------------- 0-25250 COMMISSION FILE NUMBER OSTEX INTERNATIONAL, INC. EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER STATE OF WASHINGTON STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION 91-1450247 I.R.S. EMPLOYER IDENTIFICATION NUMBER 2203 AIRPORT WAY SOUTH, SUITE 400, SEATTLE, WASHINGTON 98134 206-292-8082 ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES --------------- Securities registered pursuant to Section 12(b) of the Act: (none) (none) TITLE OF CLASS EACH EXCHANGE ON WHICH REGISTERED Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE TITLE OF CLASS --------------- Indicate by checkmark 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), Yes [ X ] and (2) has been subject to such filing requirements for the past 90 days. 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. [ ] --------------- The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $23,308,000 on March 17, 1998, based on the per-share closing price of $2.28 on the Nasdaq Stock Market. The number of shares of Common Stock outstanding as of March 27, 1998 was 12,696,250. --------------- DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1997 is incorporated by reference into Part I, Part II and Part III of this Form 10-K. (2) Portions of the Registrant's Proxy Statement for the Registrant's Annual Shareholders Meeting to be held Monday, May 18, 1998, to be filed pursuant to Regulation 14A is incorporated by reference into Part III of this Form 10-K. OSTEX INTERNATIONAL, INC. INDEX TO FORM 10-K PART I PAGE ---- ITEM 1 - BUSINESS 2 ITEM 1A - RISK FACTORS 4 ITEM 1B - EXECUTIVE OFFICERS OF THE REGISTRANT 8 ITEM 2 - PROPERTIES 9 ITEM 3 - LEGAL PROCEEDINGS 9 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS 10 ITEM 6 - SELECTED FINANCIAL DATA 10 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 10 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 10 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 11 ITEM 11 - EXECUTIVE COMPENSATION 11 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 11 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 11 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 12 SIGNATURES 16 For the purpose of this Form 10-K, the following capitalized terms shall have the following meanings: "Company" or "Ostex" shall mean Ostex International, Inc., a Washington corporation; "Annual Report to Shareholders" shall mean the annual report to shareholders of Ostex International, Inc. for the year ended December 31, 1997; and "Proxy Statement" shall mean the proxy statement for the 1998 shareholders meeting of Ostex International, Inc. to be held Monday, May 18, 1998, to be filed with the Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A. PART I ITEM 1. BUSINESS Ostex was incorporated in the State of Washington in 1989. The Company is engaged in the discovery and commercialization of products associated with osteoporosis and other collagen-related diseases. The Company believes that its lead product, the OSTEOMARK -registered trademark- test, incorporates breakthrough technology in the area of bone resorption measurement. Ostex has formed collaborative relationships with leading diagnostic and pharmaceutical companies to aid in the commercialization of Osteomark. As of December 31, 1997, the Company had 56 employees. Osteoporosis is a significant health problem. According to the National Osteoporosis Foundation (the "NOF"), osteoporosis afflicts approximately 28 million people in the U.S. alone. Additionally millions of people are at risk of skeletal degradation associated with Paget's disease of bone, cancer that metastasizes to bone, hyperparathyroidism (overactivity of the parathyroid gland, characterized by a reduction of bone mass) and renal osteodystrophy. In spite of the serious human and economic consequences of these diseases (according to the NOF, the direct healthcare and indirect lost productivity costs of osteoporosis exceed $10 billion annually in the U.S. alone), medical intervention usually commences only after pain, immobility, fractures, or other symptoms have appeared. The Company expects the osteoporosis therapeutic market will increase significantly. The Company also believes new therapeutic products are under development for osteoporosis, some of which are in late-stage clinical trials, and that the Osteomark test can be used to effectively predict a patient's response to osteoporosis therapy and monitor existing therapies and other therapies which may be developed. The Company is the exclusive licensee of the Osteomark technology, known clinically as the NTx assay, which is a urine test that can aid in healthcare decision-making at early menopause and beyond. The Osteomark assay is a non-invasive diagnostic test which quantitatively indicates the level of bone resorption. Individuals who are losing bone collagen at accelerated rates may indicate a condition which typically results in osteoporosis. The Company believes that early identification of high levels of bone resorption provides the opportunity to predict skeletal response (bone mineral density) to hormonal resorptive therapy in postmenopausal women and helps prevent the onset of osteoporosis. The Company also believes that the Osteomark assay aids clinicians in monitoring the effects of antiresorptive therapies in postmenopausal women, as well as in older patients who have already lost significant bone mass. On May 8, 1995, the Company's Osteomark assay became commercially available in the United States as a urinary assay that provides a quantitative measure of the excretion of cross-linked N-telopeptides of Type I collagen (NTx) as an indicator of human bone resorption, and in July 1996 the Company received expanded claims from the Food and Drug Administration (the "FDA") for the assay. The 1996 claims allow that an Osteomark test measurement, if taken prior to the initiation of hormonal antiresorptive therapy, can be utilized to predict a patient's response to that therapy, in terms of its effect on bone mineral density. Additionally, the claims allow that the test can be used for therapeutic monitoring of antiresorptive therapies in postmenopausal women, as well as individuals diagnosed with osteoporosis and Paget's disease, and for therapeutic monitoring of estrogen-suppressing therapies. In March 1998 the claims were further expanded by allowing that, in addition to the 1996 claims, an Osteomark test measurement can identify the probability for a decrease in bone mineral density in postmenopausal women taking calcium supplements relative to those treated with antiresorptive therapy. The Company is manufacturing and marketing the Osteomark assay initially in an Enzyme-linked Immunosorbent Assay ("ELISA") format for testing urine samples. Worldwide promotion of the Osteomark test kits is also supported by Johnson & Johnson Clinical Diagnostics, Inc. ("Johnson & Johnson"). In 1995 the Company entered into research, development, license and supply agreements with Johnson & Johnson. These agreements grant Johnson & Johnson a license to manufacture, sell and distribute certain products using Ostex's bone resorption technology. Currently, Johnson & Johnson distributes in the United States and certain foreign countries the Osteomark assay in the existing microtiter plate format and is adapting the urine assay for use with its automated analyzer. The companies intend to adapt the serum assay for use on high-speed, high volume, automated instruments typically used in large clinical laboratories. Ostex will receive royalties on Johnson & Johnson's sales of products incorporating the Ostex technology. Under the Johnson & Johnson license agreement, the Company has the right to license its technology for use on automated instruments to one other company in addition to Johnson & Johnson. The Company is currently evaluating other potential collaborators to adapt the Osteomark assay to other high-speed automated instruments. In the year ended December 31, 1997, the Company's largest customer, Johnson & Johnson, accounted for approximately 24% of the Company's product sales and research testing services. The termination of the Company's relationship with Johnson & Johnson could have a material adverse effect on the Company's results of operations. Ostex has also entered into a research and development agreement and a license agreement with Mochida Pharmaceutical Co., Ltd. ("Mochida"), a Japanese pharmaceutical company, for the commercialization of the Osteomark assay in Japan. Under the research and development agreement, Mochida has an option to license the NTx serum assay and has paid Ostex $3,350,000 in development fees to date. Future payments of $750,000 under the agreement are contingent upon Mochida's decision to exercise its option. Under the license agreement, Ostex granted Mochida exclusive marketing and distribution rights to certain Ostex products in Japan. Since 1992, Mochida has paid Ostex $2,500,000 in licensing fees for the Osteomark assay. In January 1998 Mochida launched the Osteomark assay in Japan for the management of patients with hyperparathyroidism and for patients with metastatic bone tumors. Ostex will to sell Mochida the critical reagents to be assembled into finished products in Japan by Mochida. The Company also plans to develop the Osteomark assay in other formats, including formats suitable for use in the physician's office. The Company has entered into agreements with Hologic, Inc. ("Hologic"), a worldwide leader in X-ray and ultrasound bone densitometers used to measure bone density to assist in the diagnosis and monitoring of osteoporosis and other bone diseases, and Metrika, Inc. ("Metrika"), a diagnostic device company, to develop physician office "point-of-care" Osteomark assay devices. The Company and Metrika are developing a point-of-care NTx test as an indicator of bone resorption which uses a hand-held, fully disposable device that computes NTx values and displays them digitally. Additionally, Ostex and Hologic are developing a low-cost point-of-care NTx test for bone resorption based on the Osteomark assay pursuant to a joint development agreement. Under this agreement, the companies, working with Serex, Inc. ("Serex"), will develop and market a point-of-care Osteomark test, utilizing Serex's strip-test technology and a hand-held, battery-operated meter that computes NTx values upon insertion of the strip. Ostex believes that the joint product will reduce the cost and simplify the process of obtaining patient results. OSTEOMARK and OSTEX are registered United States trademarks of Ostex International, Inc. The Company has also registered its OSTEOMARK trademark in 42 other countries. Additional trademark applications are pending. The Company's collagen resorption assay technology is covered by 17 U. S. patents, 2 European patents, 2 Australian patents, and patents in Canada, Ireland, Spain, Hong Kong, and Singapore. The European patents are in opposition proceedings before the European Patent Office. Additional patent applications are pending in Japan and elsewhere. The Company's research and development expenditures, all of which were funded by the Company, totaled $4,470,000, $3,163,000, and $3,200,000, in 1997, 1996, and 1995, respectively. The Company's foreign product sales, all to non-affiliates, totaled $652,000, $370,000, $528,000, in 1997, 1996 and 1995, respectively. Foreign sales were primarily to Europe and Japan. The Company is in the latter stages of adapting the Osteomark assay to a serum format. The Company believes that the use of a serum NTx test provides a number of advantages to testing laboratories, including the elimination of the requirement to normalize NTx values to creatinine concentration and to ultimately perform NTx testing on random access, automated analyzers. Ostex plans to initiate clinical studies of its serum NTx test in an ELISA format during the second quarter of 1998. The Company is developing an assay for Type II collagen degradation. This type of collagen is a primary constituent of joint cartilage. Osteoarthritis, a degenerative disease of joint cartilage, affects over 15 million people in the United states alone. The disease first appears in a limited number of joints. The first symptom, joint pain, occurs after substantial cartilage damage has taken place. Eventually, pain and tenderness increase and the joint motion becomes diminished. The Ostex Type II collagen assay under development has been designed to allow reliable monitoring of joint cartilage changes for validating the effectiveness of drugs under development and for identifying patients with early-stage disease. In addition, similar to the Osteomark assay used in connection with osteoporosis, the Company believes that the Type II assay will aid in the clinical management of osteoarthritis patients by monitoring the effectiveness of therapy. Ostex is investigating the use of its NTx test in cancer patient management. Independent researchers have shown that the level of bone resorption increases significantly when cancer metastasizes to bone. A patient's NTx level may be useful to identify cancer patients with high bone turnover who might warrant a bone scan to confirm the stage (degree of spread) of the disease. The American Cancer Society estimated that over 200,000 new cases of prostate cancer would be diagnosed in 1997, with 60%-80% progressing to bone metastases. Ostex is also in the early stages of developing an assay for measuring Type III collagen degradation. Type III collagen is a significant constituent of blood vessels such as coronary arteries. Measuring degradation of this type of collagen may be useful in identifying cardiovascular disease. ITEM 1A. RISK FACTORS When used in this discussion, the words "believes," "intends," anticipates," "plans to" and "expects" and similar expressions are intended to qualify as forward-looking statements. Such statements are subject to certain risks and uncertainties and there are a number of important factors that could cause actual results to differ materially from those projected. These factors include, among others, the factors described under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Other Factors that May Affect Operating Results" in the Company's Annual Report to Shareholders (which discussion has been incorporated herein by reference) and the risk factors set forth below. Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to release publicly the results of any revisions to such forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. UNCERTAINTY OF MARKET ACCEPTANCE The Company's lead product, the Osteomark assay, became commercially available in May 1995 in the United States and sales of this product have increased over time. However, there can be no assurance that the Company's Osteomark assay or any of its other products will gain acceptance from the medical community, clinical or hospital laboratories, physicians or patients as readily as other forms of diagnosis or any newly developed diagnostic. There can be no assurance that the Company will be able to develop significant market share for its products, or any market share at all. Inability of the Company to achieve market acceptance for its products would have a material adverse effect on the Company's business, financial condition and results of operation. DEPENDENCE ON CORE TECHNOLOGY; UNCERTAINTY OF ADAPTATION TO DIFFERENT FORMATS The Company currently relies exclusively upon its core technology for the development of diagnostic products associated with osteoporosis and other collagen-related diseases. There can be no assurance that competitors of the Company will not be successful in developing new or more efficient or cost-effective diagnostics that are more readily accepted than the Company's products. The Company is in the process of undertaking ongoing and significant additional research and development to adapt its core technology to serum testing and to different formats, instruments and other delivery platforms that currently exist or may be developed. In particular, additional research and development will be required to adapt its core technology to high-speed, high-volume automated instruments typically used in large clinical laboratories or companies through which the Company may seek to expand the market for its products. There can be no assurance that the Company will be successful in adapting and further developing its core technology to meet such needs. The Company is developing physician office adaptations of its core technology. There can be no assurance that the Company or its development partners will either successfully develop or obtain required regulatory approval for a cost-effective instrument for physician office use. In addition, technological changes or medical advancements could diminish or eliminate the commercial viability of the Osteomark assay or future products based upon the Company's core technology. The failure to adapt the Company's core technology to different formats, instruments and other delivery platforms, or otherwise to commercialize such core technology, would have a material adverse effect on the Company's business, financial condition and results of operation. RELIANCE ON COLLABORATIVE AGREEMENTS AND CERTAIN RELATIONSHIPS The Company has entered into collaborative or co-promotional agreements with several partners, including, among others, Johnson & Johnson, Mochida, Hologic, Wyeth-Ayerst Laboratories,and Metrika and intends to appoint a second international distributor for its NTx test on automated instruments. The level of each partner's involvement and support and the amount and timing of resources that these collaborators devote to these activities are not within the control of the Company and can significantly impact the Company's ability to achieve its objectives. There can be no assurance that these collaborators will perform their contractual obligations as expected or that the Company will derive any additional revenue from such arrangements. Moreover, the agreements may be terminated under certain circumstances. The Company expects to rely on these and additional agreements to develop and commercialize its future products. There can be no assurance that the Company will be able to negotiate acceptable collaborative agreements in the future or that such new agreements or existing agreements will be successful. In addition, there can be no assurance that the parties to the agreements will not pursue alternative technologies. In the year ended December 31, 1997, the Company's largest customer, Johnson & Johnson, accounted for approximately 24% of the Company's product sales and research testing services. The termination of the Company's relationship with Johnson & Johnson could have a material adverse effect on the Company's results of operations. LIMITED SALES AND MARKETING EXPERIENCE The Company has limited experience in sales, marketing and distribution. To market any of its products directly, the Company must develop and implement a substantial marketing and sales effort with technical expertise and supporting distribution capability. The Company intends to continue to market and sell its products in the U.S. through national distributors and its own limited sales force and to market and sell its products in other markets through distributors or collaborative arrangements. There can be no assurance that the Company will be able to establish effective sales and distribution capabilities or that it or its collaborators will be successful in gaining market acceptance for the Company's products or that the Company will achieve or maintain significant market share for its products. DEPENDENCE ON LICENSED PATENTS AND PROPRIETARY RIGHTS The Company's success depends, in large part, on its current and future patent position relating to its core technology. The Company's patent position involves complex legal and factual questions. The Company is the exclusive licensee of certain patents within and outside of the U.S. relating to the Company's core technology. The Company is dependent upon the Washington Research Foundation (the "WRF") for the filing and prosecution of patents and patent applications licensed to the Company. Claims made under patent applications may be denied or significantly narrowed, and issued patents may not provide significant commercial protection to the Company. There is no assurance that the Company's patents will not be successfully challenged or circumvented by others. The Company could incur substantial costs in proceedings before the U.S. Patent Office, including interference proceedings. These proceedings could also result in adverse decisions as to the patentability of the Company's licensed or assigned inventions. There can be no assurance that the Company's products do not or will not infringe on the patent or proprietary rights of others. The Company may be required to obtain additional licenses to the patents or other proprietary rights of others. The Company may also require licenses from the inventors of certain processes, technologies and delivery formats in order to successfully market certain products. There can be no assurance that any such licenses would be made available on terms acceptable to the Company, if at all. If the Company needs and cannot or does not obtain such licenses, it could encounter delays in product introductions while it attempts to circumvent such patents or the development, manufacture, or sale of products requiring such licenses could be precluded. The Company believes there will continue to be significant litigation in the industry regarding patent and other intellectual property rights. The Company is aware of competitors that are developing products that may be covered by claims made in patents or patent applications of the Company. Because certain foreign patents are subject to third-party opposition following the date of grant of such patents, there can be no assurance that claims of the Company's foreign patents, once granted, will survive such opposition without cancellation or significant modification. Because U.S. applications are confidential until a patent issues, the Company cannot be assured that its patent claims have priority in the U.S. or will be entitled to patent protection. The Company also relies on trade secrets and other unpatented proprietary technology. No assurance can be given that the Company can meaningfully protect its rights in such unpatented technology or that others will not independently develop substantially equivalent products and processes or otherwise gain access to the Company's technology. The Company seeks to protect its trade secrets and proprietary know-how, in part, with confidentiality agreements with its employees and consultants. There can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. In addition, protracted and costly litigation may be necessary to enforce and determine the scope and validity of the Company's proprietary rights. LENGTHY REGULATORY PROCESSES AND UNCERTAINTY OF REGULATORY APPROVALS The process of obtaining FDA and other required regulatory clearance can be lengthy and expensive. The time required for FDA approvals is uncertain, and often depends on the type, complexity and novelty of the product. There can be no assurance that the FDA will act favorably or quickly in its review of any submission by the Company, and significant difficulties or costs may be encountered by the Company in its efforts to obtain FDA clearance that could delay or preclude the Company from marketing its products. Furthermore, there can be no assurance that the FDA will not request the development of additional data following original submissions, causing the Company to incur further cost and delay. Nor can there be any assurance that the FDA will not restrict the intended use of a submitted product as a condition for clearance. If the FDA concludes that a device is not substantially equivalent to another legally marketed device, submission of a pre-market approval application ("PMA") will be required. If the FDA indicates that a PMA is required for any product of the Company, the application will require submission of results of clinical studies and manufacturing information, and likely a review by a panel of experts outside of the FDA. Clinical studies would need to be conducted in accordance with FDA requirements. The failure to comply would result in the FDA's refusal to accept the data or the imposition of regulatory sanctions. FDA review of a PMA application can take significantly longer than that for a 510(k) "device" premarket notification procedure to demonstrate "substantial equivalence" to a legally marketed product. Further, if a company wishes to propose modifications to a product subsequent to FDA approval of a PMA application, including changes in indications or other significant modifications to labeling, or modifications to the manufacturing process, or if a company wishes to change its manufacturing facility, a PMA supplement must first be submitted to the FDA for its review and approval. EXTENSIVE CONTINUING GOVERNMENT REGULATION The research, development, manufacturing and marketing of the Company's products are subject to extensive continuing regulation by numerous governmental authorities in the U.S. and certain other countries, and the Company, its products, and its manufacturing facilities are subject to continual review and periodic inspection. The regulatory standards for manufacturing are applied stringently by the FDA. Discovery of previously unknown problems with a product, manufacturer, or facility may result in restrictions on such product or manufacturer or facility, including warning letters, fines, suspensions of regulatory approvals, product recalls, operating restrictions, delays in obtaining new product approvals, withdrawal of the product from the market, and criminal prosecution. Other violations of FDA requirements can result in similar penalties. The Company is also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens, and the handling of biohazardous materials. Any violation of, and the cost of compliance with, these laws and regulations could adversely impact the Company's operations. The Company is unable to predict the extent or likelihood of adverse government regulation that might arise from future U.S. or foreign government action. LIMITED MANUFACTURING EXPERIENCE The Company is developing adaptations of its core technology for use in physicians' offices and depends upon the efforts of collaborators for this development. Such adaptations have not been completed and there can be no assurance that, if developed, such adaptations could be manufactured in a commercially viable manner. Unless the Company develops additional in-house manufacturing capability for such products, it will be dependent upon outside sources for the manufacture of such products. There can be no assurance that the Company's reliance on others for the manufacture of its products will not result in problems with product supply. Interruptions in the availability of products could delay or prevent the development and commercial marketing of the Company's products. HISTORY OF LOSSES AND LIMITED OPERATING HISTORY The Company has a limited operating history and had a retained deficit through December 31, 1997 of $24,128,000. For the year-end December 31, 1997, the Company had a net loss of $2,264,000 ($8,464,000, excluding a non-recurring receipt of $6,200,000 from the settlement of a dispute with Boehringer Mannheim GmbH. The Company expects to incur additional substantial costs as it continues with its operations, marketing efforts, research and development activities, and clinical trials. The Company expects to continue to incur losses in future periods and the Company is unable to predict when, if at all, it will achieve profitability. FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING The Company will continue to require substantial funds for research and development, general and administration, and the marketing of its products. The amount of the Company's future capital requirements will depend on many factors, including the status of the development of its products, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing technological and market developments, the ability of the Company to maintain existing collaborative and licensing arrangements, and the ability of the Company to establish new collaborative and licensing arrangements. The Company expects that its existing capital resources will be sufficient to fund the Company's activities through 1999. However, the Company may be required to seek additional financing before the end of 1999. There can be no assurance that additional funds, whether through additional financings, collaborative arrangements with corporate sponsors or other sources, will be available, if at all, in a timely manner or on terms acceptable to the Company. If adequate funds are not available, the Company may be required to delay, scale back or eliminate one or more of its programs or obtain funds through arrangements that are unfavorable to the Company. INTENSE COMPETITIVE ENVIRONMENT Competition from biotechnology companies, diagnostic companies, pharmaceutical companies and research and academic institutions is intense. A number of diagnostic tests and procedures, and other non-invasive tests for osteoporosis and other bone disorders currently exist and others are in development, and the manufacturers of these tests will continue to improve them. In addition, the diagnostic industry is subject to rapid technological change. There can be no assurance that the Company's competitors will not succeed in developing products that are more effective than those which have been or are being developed by the Company or which would render the Company's core technology obsolete or non-competitive. Many of the Company's competitors have substantially greater financial, technical and human resources than the Company. In addition, many of these competitors have significantly greater experience and resources than the Company in undertaking clinical trials and other regulatory approval procedures as well as in marketing and achieving manufacturing efficiencies. There are also small companies, academic institutions, governmental agencies and other research organizations that are conducting research in the area of osteoporosis and other collagen-related diseases. These entities may also market commercial products either on their own or through collaborative efforts. The Company's competitors may develop technologies and products that are available for sale prior to the Company's products or at a lower cost or with better technical characteristics rendering the Company's products less competitive. DEPENDENCE ON THERAPEUTICS DEVELOPED BY OTHERS Acceptance of and demand for the diagnostic products that the Company is developing will be affected by the need perceived by physicians to diagnose bone, cartilage and connective tissue disorders for the purposes of treatment. There are currently a limited number of therapies that are effective in preventing osteoporosis or other bone, cartilage or connective tissue disorders, or in treating these disorders once diagnosed. In the event new therapies do not receive regulatory approval or experience delayed market acceptance, the Company could be adversely affected. Unfavorable publicity concerning a product of the Company or therapeutic products for osteoporosis could also have an adverse effect on the Company's ability to obtain regulatory approvals or to achieve market acceptance. UNCERTAINTY OF HEALTHCARE REIMBURSEMENT The Company's ability to commercialize its products will depend in part on the extent to which reimbursement for the cost of such products and related treatment will be available from third-party payors, such as government health administration authorities, private health coverage insurers and other organizations. The status of the scope of healthcare programs worldwide is uncertain and there can be no assurance that adequate third-party coverage will be available for the Company to maintain price levels sufficient for realization of an appropriate return on its investment in product development. Third-party payors are increasingly challenging the price and cost effectiveness of medical products and services. If the Company succeeds in bringing one or more products to the market, there can be no assurance that these products will be considered cost effective and that reimbursement to the consumer will be available or sufficient to allow the Company to sell its products on a competitive basis. VOLATILITY OF STOCK PRICE The volatility of the Company's stock price has been significant since it first became publicly traded in January 1995. The stock market may experience significant price and volume fluctuations unrelated to the operating performance of particular companies. Factors such as any loss of key management, the results of the Company's clinical trials or those of its competitors, adverse regulatory actions or decisions, evidence regarding the safety or efficacy of the Company's products or those of its competitors, announcements of technological innovations or new products by the Company or its competitors, governmental regulation, developments with respect to patents or other proprietary rights, product or patent litigation or public concern as to the safety of products developed by the Company may have a volatile effect on the market price of the Company's Common Stock. ITEM 1B. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company and their ages are as follows: NAME AGE POSITION - ----- --- -------- Thomas A. Bologna 49 President and Chief Executive Officer Thomas F. Broderick 49 Vice President, Patent and General Counsel Donna J. DeLong 49 Vice President, Marketing Robert M. Littauer 49 Senior Vice President, Finance and Administration and Secretary Nancy J.S. Mallinak 36 Vice President, Regulatory and Clinical Affairs William K. Strelke 44 Vice President, Sales There were no family relationships between any executive officers of the Company. THOMAS A. BOLOGNA joined the Company in July 1997 as the President and Chief Executive Officer and as a member of the Board of Directors. From January 1996 until July 1997 Mr. Bologna was a principal in Healthcare Venture Associates, a consulting firm. From January 1994 to January 1996 Mr. Bologna was President and Chief Executive Officer for Scriptgen Pharmaceuticals, Inc., a biotechnology company with proprietary drug screening technology that is developing orally active drugs to regulate gene expression, and from July 1987 to January 1994 Mr. Bologna was the Chairman of the Board of Directors and President and Chief Executive Officer of Gen-Probe Incorporated, a biotechnology company commercializing genetic-probe-based technology for diagnostic and therapeutic applications. THOMAS F. BRODERICK was named the Vice President, Patent and General Counsel in November 1997. Mr. Broderick was Vice President, Intellectual Property from March 1997 to November 1997 and was Patent Counsel for the Company from April 1996 to March 1997. From 1989 to March 1996, Mr. Broderick was a partner at the patent law firm of Christensen, O'Connor, Johnson & Kindness in Seattle, Washington. DONNA DELONG joined the Company in February 1998 as Vice President, Marketing. From May 1996 to February 1998, Ms. DeLong was Senior Director of Marketing at Chiron Diagnostics, a division of Chiron Corporation, a healthcare company; from October 1993 to April of 1996, Ms. DeLong was the Director of Marketing at Neopath Inc., a medical diagnostics company; and from May 1990 to October 1993 Ms. DeLong was the Director of Marketing at Sanofi Diagnostics Pasteur, a medical diagnostics company. ROBERT M. LITTAUER joined the Company in September 1996 as Senior Vice President, Finance and Administration, and was appointed the Corporate Secretary in November 1997. From 1987 to September 1996, Mr. Littauer was Senior Vice President, Chief Financial Officer and Treasurer of NeoRx Corporation, a biotechnology company developing therapeutic products for cancer and cardiovascular diseases. NANCY J.S. MALLINAK was named Vice President, Regulatory and Clinical Affairs of the Company in February 1997. Ms. Mallinak was Director, Regulatory and Clinical Affairs for the Company from June 1995 to February 1997 and was Manager, Regulatory and Clinical Affairs for the Company from December 1992 to June 1995. From June 1989 to December 1992, Ms. Mallinak was Manager, Clinical Product Development in the Diagnostics Group of Baxter International, Inc., a general healthcare company. WILLIAM K. STRELKE was named Vice President, Sales in November 1997. Mr Strelke was Vice President, Sales and Marketing for the Company from October 1994 to November 1997, and was the Director of Sales and Marketing for the Company from January 1994 to October 1994. Prior to joining Ostex, Mr. Strelke served from March 1993 to January 1994 at Mitchell International, Inc., a healthcare facility design and construction consulting company, where he was Vice President and Regional Director. From January 1983 to March 1993, Mr. Strelke held various positions with responsibility for sales and distribution management with the Scientific Products Division of Baxter International (previously American Hospital Supply Corporation), a general healthcare company. ITEM 2. PROPERTIES The Company's research laboratories, manufacturing operations, and administrative offices are located in Seattle, Washington. The Company leases approximately 32,000 square feet of space in Seattle under a lease that will expire in 2005. The Seattle facility has adequate capacity for the Company's present needs. ITEM 3. LEGAL PROCEEDINGS Information regarding Legal Proceedings is incorporated herein by reference to note 11 in the "Notes to Financial Statements" on pages 32 and 33 of the Annual Report to Shareholders. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of shareholders during the fourth quarter ended December 31, 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Information regarding the Common Stock trading activity for 1997 and 1996 is incorporated herein by reference to the "Shareholder Information - Price Range of Common Stock" on page 36 of the Annual Report to Shareholders, which is included as Exhibit 13.0 to this Annual Report on Form 10-K. As of March 17, 1998, there were 12,696,250 shares of Common Stock outstanding held of record by approximately 154 shareholders. The Company believes there are approximately 3,600 additional owners of Common Stock who own shares held in street name. The Company has never paid cash dividends and has no present intention of paying dividends in the foreseeable future. TRANSFER AGENT AND REGISTRAR - The transfer agent and registrar for the Common Stock is ChaseMellon Shareholder Services, L.L.C., Seattle, Washington. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated herein by reference to "Selected Financial Data" on page 20 of the Annual Report to Shareholders, which is included as Exhibit 13.0 to this Annual Report on Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated herein by reference to pages 21-23 of the Annual Report to Shareholders, which is included as Exhibit 13.0 to this Annual Report on Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated herein by reference to the Financial Statements and "Notes to Financial Statements" on pages 24-33, and "Report of Independent Public Accountants" on page 34, of the Annual Report to Shareholders, which is included as Exhibit 13.0 to this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT a. Directors The information contained in the section entitled "Election of Directors and Director Information" of the Proxy Statement is incorporated herein by reference in response to this item. b. Executive Officers of the Registrant Information required by this item is contained in Part I of this Annual Report on Form 10-K in the section entitled "Executive Officers of the Registrant." c. Compliance With Section 16(a) Information contained in the section entitled "Compliance with Section 16(a) of the Exchange Act" of the Proxy Statement is incorporated herein by reference in response to this item. ITEM 11. EXECUTIVE COMPENSATION The information contained in the section entitled "Executive Compensation" of the Proxy Statement is incorporated herein by reference in response to this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the section entitled "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement is incorporated herein by reference in response to this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the section entitled "Compensation Committee Interlocks and Insider Participation" of the Proxy Statement is incorporated herein by reference in response to this item. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS The information contained in the Financial Statements and "Notes to Financial Statements" are located on pages 24-33 of the Annual Report to Shareholders and are listed below. This information is included as Exhibit 13.0 to this Annual Report on Form 10-K. Page within FINANCIAL STATEMENTS ANNUAL REPORT -------------------- ------------- Balance Sheets 24 Statements of Operations 25 Statements of Cash Flows 26 Statements of Shareholders' Equity 27 Notes to Financial Statements 28 Report of Independent Public Accountants 34 (B) REPORTS ON FORM 8-K None (C) EXHIBIT INDEX (13) EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION -------------- ----------- (8) 3.1 Articles of Incorporation, as amended, dated January 1997 (1) 3.2 Bylaws, as amended (1) 4.1 Specimen Common Stock Certificate (1) 10.1A Amended and Restated Stock Option Plan (1) 10.1B Form of Employee Stock Option Agreement (1) 10.1C Form of Director's Stock Option Agreement (9) 10.2 Amended and Restated Directors' Nonqualified Stock Option Plan dated July 16, 1997 (9) 10.3 Amended and Restated 1994 Stock Option Plan Agreements with Hologic, Inc. (3)(12)10.4A Co-Promotion and Sales Representation Agreement dated January 14, 1997 (3)(12)10.4B Joint Development, License and Supply Agreement dated January 14, 1997 (1) 10.5 Form of Indemnification Agreement with officers and directors Agreement with Thomas A. Bologna 10.7 Executive Employment Agreement dated July 16, 1997 Agreements with Mochida Pharmaceutical Co., Ltd. (1)10.12A Research and Development Agreement dated August 1992 (1)10.12B Osteomark License Agreement Dated August 1992 (3)10.12D Second Amendment to Osteomark License Agreement dated December 24, 1997 Agreements with the Washington Research Foundation (1)10.13A Restated Exclusive License Agreement effective June 19, 1992 (Urinary Assay for Measuring Bone Resorption) (1)10.13B Amendment to Restated Exclusive License Agreement effective January 1, 1993 (1)10.13C Second Amendment effective June 2, 1994 (1) 10.14 Exclusive License Agreement dated February 10, 1994 (O-CSF) Agreements with the University of Washington (3)(12)10.15A Research Agreement dated July 1, 1996 (Molecular Markers of Connective Tissue Degradation) (3)(12)10.15B Research Agreement dated October 1, 1996 (Role of O-CSF in Osteoclast Regulation) (1)10.16A Know-How Transfer and Consulting Agreement dated September 18, 1989 with David R. Eyre, Ph.D. (1)10.16B Extension and Amendment dated May 1, 1992 (1) 10.19 Osteomark EIA Exclusive Distribution License Agreement dated March 28, 1994 with Technogenetics S.R.L. (division of Recordati Pharmaceutical) (1) 10.20 Osteomark EIA Distribution License Agreement dated July 12, 1994 with BRAHMS Diagnostic (formerly Henning Berlin GmbH) EXHIBIT NUMBER DESCRIPTION -------------- ----------- (1)10.23 Osteomark Agreement dated February 12, 1993, as amended May 10, 1994, with Nichols Institute Reference Laboratory (1)10.25 License Agreement dated July 8, 1994 with Endrocrine Sciences (1)10.26 License Agreement dated August 1994 with Pacific Biometrics, Inc. Lease Agreements (4)10.27A Lease Agreement dated October 2, 1995, with David A. Sabey and Sandra L. Sabey (8)10.27B First Amendment of Lease dated October 15, 1996, with the City of Seattle, successor-in-interest to David A. Sabey and Sandra L. Sabey Agreements with Johnson & Johnson Clinical Diagnostics, Inc. (5)10.28A Distribution Agreement dated June 7, 1995 (5)10.28B Research, Development, License and Supply Agreement dated June 7, 1995 (4)10.29 Clinical Laboratory Services License and Supply Agreement dated October 25, 1995, with SmithKline Beecham Clinical Laboratories, Inc. 10.30 Promotion Agreement dated September 30, 1997 with Wyeth-Ayerst Laboratories (6)10.31 Agreement with Laboratory Corporation of Americao Holdings (LabCorp), dated January 11, 1996 (7)10.32 Joint Development, License and Co-Marketing Agreement dated April 10, 1997 with Metrika, Inc. (10)10.33 Form of CS First Boston Corporation Warrant (11)10.34 Form of Invemed Associates, Inc. Warrant (2)10.35 Shareholder Rights Agreement dated January 21, 1997 13.0 Selected Financial Data, Management's Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and Notes to the Financial Statements from the Company's Annual Report to Shareholders for the year ended December 31, 1997 23.1 Consent of Arthur Andersen LLP 27.1 Financial Data Schedule - ----------------------------- (1) Incorporated herein by reference from Item 16(a) of Registrant's Form S-1 Registration Statement as declared effective January 24, 1995 (No. 33-86118). (2) Incorporated herein by reference to exhibit number 4.5 filed with Form 8-A with the Commission in January 1997. (3) Confidential treatment requested. Exhibit omits information that has been filed separately with the Commission. (4) Incorporated herein by reference to exhibit of the same number filed with Form 10-K with the Commission for the year ended December 31, 1995. (5) Incorporated herein by reference to exhibit of the same number filed with Form 10-Q with the Commission for the quarter ended June 30, 1995. (6) Incorporated herein by reference to exhibit of the same number filed with Form 10-Q with the Commission for the quarter ended March 31, 1996. (7) Incorporated herein by reference to exhibit of the same number filed with Form 10-Q with the Commission for the quarter ended September 30, 1997. (8) Incorporated herein by reference to exhibit of the same number filed with Form 10-K with the Commission for the year ended December 31, 1996. (9) Incorporated herein by reference to exhibit of the same number filed with Form S-8 with the Commission on January 13, 1998. (10) Incorporated herein by reference to exhibit number 1.1A filed with the Registrant's Form S-1 Registration Statement as declared effective January 24, 1995 (No. 33-86118). (11) Incorporated herein by reference to exhibit number 1.1B filed with the Registrant's Form S-1 Registration Statement as declared effective January 24, 1995 (No. 33-86118). (12) Incorporated herein by reference to exhibits of the same number filed with Form 10-K with the Commission for the year ended December 31, 1996, and as amended with Form 10-K/A on October 17, 1997. (13) Copies of exhibits may be obtained at prescribed rates from the Public Reference Section of the Commission at 450 5th Street NW, Room 1024, Washington, D.C. 20549, or through the Commission's Edgar system located on the internet at www.sec.gov. 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 on March 27, 1998. OSTEX INTERNATIONAL, INC. By /S/ THOMAS A BOLOGNA ------------------------ Thomas A. Bologna President and Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE CAPACITIES DATE --------- ---------- ---- /S/THOMAS A. BOLOGNA President and - ------------------------ Chief Executive Officer March 27, 1998 Thomas A. Bologna (principal executive officer) /S/ ROBERT M. LITTAUER Senior Vice President, Finance - ------------------------ and Administration and Secretary March 27, 1998 Robert M. Littauer (principal financial and principal accounting officer) /S/ THOMAS J. CABLE Chairman of the Board - ------------------------ of Directors March 27, 1998 Thomas J. Cable /S/ ELISABETH L. EVANS - ------------------------ March 27, 1998 Elisabeth L. Evans Director /S/ DAVID R. EYRE Director March 27, 1998 - ------------------------ David R. Eyre /S/ FREDRIC J. FELDMAN - ------------------------ Director March 27, 1998 Fredric J. Feldman /S/ GREGORY D. PHELPS - ------------------------ Director March 27, 1998 Gregory D. Phelps - ------------------------ Director March 27, 1998 Gilbert S. Omenn /S/ JOHN H. TRIMMER Director March 27, 1998 - ------------------------ John H. Trimmer EX-10.7 2 Exhibit 10.7 EXECUTIVE EMPLOYMENT AGREEMENT OSTEX INTERNATIONAL, INC. THOMAS A. BOLOGNA Dated as of July 16, 1997 EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (this "Agreement") between Ostex International, Inc. (the "Company"), a Washington corporation and Thomas A. Bologna ("Executive") is dated and entered into as of July 16, 1997. In consideration of the mutual covenants and promises contained herein, the Company and the Executive agree as follows: 1. Employment The Company will employ the Executive and the Executive will accept employment by the Company as its President and Chief Executive Officer, with duties and responsibilities customarily associated with such position. The Executive will perform such duties as may be assigned from time to time by the Board of Directors of the Company which relate to the business of the Company, its subsidiaries or any business ventures in which the Company or its subsidiaries may participate. 2. Attention and Effort The Executive will devote his full business time, attention and effort to the Company's business and will use his skills and render services to the best of his ability to serve the interests of the Company. Notwithstanding anything herein to the contrary, the parties agree that Executive may serve as a member of the board of Directors of other corporations or entities (provided that such corporations or entities do not compete with the Company) and engage in consulting and other activities related to such directorships and that such service shall not constitute a violation of Executive's duties and obligations to the Company; provided, however, that such directorships and related consulting and other activities (i) shall be limited to those which the Executive currently performs pursuant to existing agreements that have been disclosed to the Company and (ii) shall not materially detract from or interfere with the Executive's obligations under this Section 2. 3. Term Unless otherwise terminated as provided in paragraphs 6 and 7 of this Agreement, the Executive's term of employment under this Agreement shall commence on the date hereof and shall expire on July 15, 2001; provided, however, that this Agreement shall be automatically renewed thereafter for additional terms of one year each unless either the Company or the Executive gives the other written notice of termination at least 30 days prior to the end of the then current term. 4. Compensation 4.1 Base Salary The Executive's compensation shall consist, in part, of an annual base salary of $275,000 before all customary payroll deductions (the "Base Salary"). The Base Salary shall be paid in substantially equal installments at the same intervals as other officers of the Company are paid. The Base Salary shall be increased effective on the first anniversary of this Agreement by not less than 10% of the Base Salary. Thereafter, further increases to the Base Salary will be reviewed annually by the Board of Directors and any adjustments shall be made at the sole discretion of the Board of Directors. The Base Salary shall not be reduced without Executive's express consent. 4.2 Bonus For services rendered for the period through December 31, 1997, the Executive shall be paid a bonus of $50,000, of which $25,000 shall be paid on the date of this Agreement and $25,000 shall be paid on January 10, 1998. 5. Benefits and Expenses 5.1 Expenses The Company shall promptly reimburse the Executive for all reasonable and necessary business expenses incurred and advanced by him in carrying out his duties under this Agreement. The Executive shall present to the Company from time to time an itemized account of such expenses in such form as may be required by the Company. 5.2 Benefits During the term of employment hereunder, the Executive shall be entitled to participate fully in any and all benefit plans, programs, policies and any and all fringe benefits which may be made available to the senior executives of the Company generally, including but not limited to medical, dental, disability, pension and retirement benefits, life insurance and other death benefits. 5.3 Travel and Relocation Expenses During the term of Executive's employment, the Company shall reimburse the Executive for or pay directly the reasonable expense of (i) round trip air travel from San Diego to Seattle once per week, (ii) leasing a furnished apartment in Seattle (including utilities, telephone and similar expenses), such leases to be subject to the Company's approval (iii) limited moving expenses, and (iv) temporary living accommodations in Seattle until an apartment is rented. The Company and the Executive shall agree on a budget for such expenses as soon as practicable after the date of this Agreement and shall initial such final budget to acknowledge the agreed levels of expenses. To the extent that such reimbursement or direct payment shall be treated as taxable income, the Executive shall receive a "gross up" bonus to compensate the Executive for any and all income taxes that the Executive may be required to pay with respect to such reimbursement and gross up bonus (whenever such taxes may be assessed or paid). The Executive shall report all such reimbursement and "gross up" bonuses as ordinary income for income tax purposes. Upon termination of Executive's employment, if Executive so requests, the Company shall reimburse the Executive for the reasonable expense of relocating to San Diego (or another location designated by Executive within the United States) and shall assume any lease which Executive may have entered into in Seattle. 5.4 Stock Options Simultaneously herewith, the Company has granted options to purchase 700,000 shares of Common Stock to the Executive under the authority of its Amended and Restated 1994 Stock Option Plan and pursuant to the terms and conditions of the Stock Option Agreement dated July 16, 1997 between the parties (the "Stock Option Agreement"). Annually, the Board of Directors shall consider, at its sole discretion, granting additional stock options to the Executive. The Company represents and warrants to the Executive that all stock options (both incentive stock options and nonqualified stock options) it has granted under the 1994 Stock Option Plan have contained a provision that vested options will terminate upon the expiration of 90 days from the date of an optionee's termination of employment or contractual relationship with the Company for any reason other than death or disability. 5.5 Insurance During the term of the Executive's employment, the Company will obtain term life insurance on the life of the Executive, which insurance will provide for the payment of an amount equal to the Base Salary for one year (or an amount equal to two times the Base Salary following a Change in Control) to the Executive's spouse in the event of the Executive's death; provided that the Company may obtain such insurance for a larger amount, with the balance payable to the Company in the event of the Executive's death. 6. Termination Employment of the Executive pursuant to this Agreement may be terminated as follows, but in any case, the provisions of Sections 8 and 9 shall survive the termination of the Executive's employment: 6.1 By the Company With or without Cause (as defined below), the Board of Directors may terminate the employment of the Executive at any time during the Term upon giving Notice of Termination (as defined below). 6.2 By the Executive The Executive may terminate his employment at any time for any reason upon giving Notice of Termination. 6.3 Automatic Termination Employment shall terminate automatically upon death or total disability of the Executive. The term "total disability" as used herein, shall mean an inability to perform the duties set forth in paragraph 1 of this Agreement because of illness or physical or mental disability for a period or periods aggregating 120 calendar days in any 12-month period, unless the Executive is granted a leave of absence by the Board of Directors of the Company. Executive and the Company hereby acknowledge that the Executive's ability to perform the duties specified in paragraph 1 of this Agreement is of the essence of this Agreement. Termination hereunder shall be deemed to be effective immediately upon the Executive's death or 30 days following a Notice of Termination based upon a determination by the Board of Directors of the Company of the Executive's total disability, as defined herein. 6.4 Notice The term "Notice of Termination" shall mean written notice of termination of the Executive's employment. The Executive's employment shall terminate effective upon receipt of the Notice of Termination or the date specified in the Notice of Termination, whichever is later, provided that the Executive shall be entitled to termination payments in accordance with paragraph 7 of this Agreement. 6.5 Cause Wherever reference is made in this Agreement to termination being with or without Cause, "Cause" means cause given by the Executive to the Company and is limited to the following: (i) The willful and material breach of any provision of Sections 1 or 2 (including but not limited to the refusal to follow reasonable and lawful directives of the Board of Directors) or Sections 8 or 9; (ii) Conviction of a felony or of a crime involving moral turpitude; (iii) Continuing misuse of alcohol or controlled substances; or (iv) The willful misconduct or gross negligence of the Executive that results in a material adverse effect on the Company: provided, however, that to the extent that a breach of Sections 6.5(i), (iii) or (iv) is curable, the Board of Directors will give the Executive written notice of such breach and the Executive will have 30 days from the receipt of such notice to cure such breach. 7. Termination Payments In the event of termination of the employment of the Executive, all compensation and benefits set forth in this Agreement shall terminate except as specifically provided in this paragraph 7: 7.1 Termination by the Company If the Board of Directors terminates the Executive's employment without Cause, the Executive shall be entitled to receive (i) any unpaid Base Salary which has accrued for services already performed as of the date termination of the Executive's employment becomes effective, (ii) the then existing Base Salary the Executive would have received if his employment had continued for 12 months, payable as provided in subparagraph 4.1 of this Agreement, (iii) any bonus that has been earned but not paid, and (iv) continuation of benefits for himself, his spouse and his dependents (paid for by the Company) set forth in Section 5.2 for a period of 12 months following such termination. If the Executive is terminated by the Board of Directors for Cause, the Executive shall not be entitled to receive the benefits set forth in clauses (ii) and (iv). If such termination occurs without Cause in connection with or at any time following a Change in Control (as defined in the Company's Amended and Restated 1994 Stock Option Plan), the Executive shall be entitled to a lump sum payment equal to two years' Base Salary, plus a bonus of 30% of such amount, and continuation of benefits (paid for by the Company) set forth in Section 5.2 for a period of 24 months following such termination. 7.2 Termination by the Executive If the Executive voluntarily terminates his employment, the Executive shall not be entitled to receive any payments hereunder other than (i) any unpaid Base Salary which has accrued for services already performed as of the date termination of the Executive's employment becomes effective and (ii) any unpaid bonus which has been earned but not yet paid. 7.3 Termination Because of Death or Total Disability In the event of a termination of the Executive's employment because of his death or total disability, the Executive or his personal representative shall not be entitled to receive any payments hereunder other than (i) any unpaid Base Salary which has accrued for services already performed as of the date termination of the Executive's employment becomes effective, (ii) any bonus which has been earned but not paid and (iii) a continuation of medical and dental benefits for himself, his spouse and his dependents (paid for by the Company) for a period of eighteen months following such termination. 8. Nondisclosure As a condition of his employment hereunder, the Executive has executed and delivered to the Company Employee Confidentiality and Invention Agreement (the "Nondisclosure Agreement") in the form attached hereto as Exhibit A and incorporated herein by reference as if set forth in full herein, which Nondisclosure Agreement shall survive the termination of the Executive's employment. 9. Noncompetition and Nonsolicitation 9.1 Applicability This Section 9 shall survive the termination of the Executive's employment with the Company or the expiration of the term of this Agreement. 9.2 Scope of Competition The Executive agrees that he will not, directly or indirectly, during his employment and for a period of two years after the date on which his employment with the Company terminates, be employed by, own, manage, operate, join, control or participate in the ownership, management, operation or control of or be connected with, in any manner, any person or entity engaged in any business activity anywhere in the world (including without limitation research, development, manufacturing, selling, leasing, licensing or providing services) which is competitive with any products or services that the Company is developing or exploiting during the Executive's employment with the Company, unless released from such obligation in writing by the Company's Board of Directors. The Executive shall be deemed to be connected with such business if such business is carried on by a partnership, corporation or association of which he is an employee, member, consultant or agent; provided, however, that nothing herein shall prevent the purchase or ownership by the Executive of shares which constitute less than 2% of the outstanding equity securities of a publicly or privately held corporation. 9.3 Scope of Nonsolicitation The Executive shall not, in addition, directly or indirectly (i) solicit, or entice any employee or consultant of the Company to cease his relationship with the Company or (ii) solicit, entice or in any way divert any customer or supplier of the Company from doing business with the Company. This Section 9.3 shall apply during the time period and geographical area described in Section 9.2 hereof. 9.4 Equitable Relief The Executive acknowledges that the provisions of this Section 9 are essential to the Company, that the Company would not enter into this Agreement if it did not include covenants not to compete or solicit and that damages sustained by the Company as a result of a breach of such covenants cannot be adequately remedied by damages, and the Executive agrees that the Company, notwithstanding any other provision of this Agreement, in addition to any other remedy it may have under this Agreement or at law, shall be entitled to injunctive and other equitable relief to prevent or curtail any breach of any provision of this Agreement, including without limitation this Section 9. The Executive acknowledges that the covenants in this Agreement are reasonable and that compliance with such covenants will not prevent him from pursuing his livelihood. 9.5 Effect of Violation The Executive and the Company agree that additional consideration has been given for the Executive entering into the noncompetition and nonsolicitation provisions of this Agreement and the Nondisclosure Agreement described in Section 10, such additional consideration including, without limitation certain provisions for termination payments pursuant to Section 7 and other payments pursuant to Section 8 of this Agreement. Material violation by the Executive of such noncompetition and nonsolicitation provisions or the Nondisclosure Agreement shall relieve the Company of any obligation it may have to make such termination payments under Section 7, but shall not relieve the Executive of his obligation hereunder not to compete or solicit. 9.6 Definition of the Company For purposes of Sections 9.2 and 9.3 hereof, "the Company" shall include all subsidiaries of the Company, the Company's parent corporation and any business ventures in which the Company, its subsidiaries or its parent corporation may participate. 10. Form of Notice Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally, by courier, by facsimile transmission (with hard copy delivered by overnight courier) or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof: If to the Executive: Thomas A. Bologna c/o Ostex International, Inc. 2203 Airport Way South, Suite 400 Seattle, Washington 98134 If to the Company: Ostex International, Inc. 2203 Airport Way South, Suite 400 Seattle, Washington 98134 Attention: Chief Financial Officer Copy to: James R. Lisbakken Perkins Coie 1201 Third Avenue, 40th Floor Seattle, Washington 98101 or such other address as shall be provided in accordance with the terms hereof. Notice shall be effective upon personal delivery, delivery by courier, receipt of facsimile transmission or three days after mailing. 11. Successors and Assigns For purposes of this Agreement, "Company Successor" means (a) any corporation resulting from any merger, consolidation or other reorganization to which the Company is a party or (b) any corporation, partnership, association or other person or entity to which the Company may transfer all or substantially all of the assets and business. The Executive agrees that this Agreement may be transferred or assigned by the Company to the Company Successor. Any Company Successor shall succeed to the rights and obligations of the Company hereunder and shall be bound by the terms of this Agreement. If all or substantially all of the outstanding voting stock of the Company is transferred to another corporation, partnership, association or other person or entity, the Company, at the request of the Executive, will reaffirm in writing it's obligations under this Agreement. This Agreement is not assignable by the Executive. The Company agrees that it will require any Company Successor (as a condition to any transaction described in this Section) to expressly assume and agree to perform this Agreement, including (without limitation) payment of the amounts set forth in Section 7 above. 12. Waiver No waiver of any of the provisions hereof shall be valid unless in writing, signed by the party against whom such claim or waiver is sought to be enforced, nor shall failure to enforce any right hereunder constitute a continuing waiver of the same or a waiver of any other right hereunder. 13. Amendments in Writing No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive. 14. Applicable Law This Agreement shall be governed by the substantive laws of the state of Washington, without regard to its conflicts of laws provisions. 15. Severability All provisions of this Agreement are severable, and the unenforceability or invalidity of any single provision hereof shall not affect the remaining provisions. 16. Headings All headings or titles in this Agreement are for the purpose of reference only and shall not in any way affect the interpretation or construction of this Agreement. 17. Attorneys' Fees The Company will reimburse the Executive for reasonable attorneys fees in connection with the preparation and review of this Agreement, up to a maximum or $3,000. 18. Entire Agreement This Agreement, the Stock Option Agreement and the Nondisclosure Agreement constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof and supersede all prior agreements with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the date set forth above. EXECUTIVE: /S/ THOMAS A. BOLOGNA ----------------------- Thomas A. Bologna COMPANY: OSTEX INTERNATIONAL, INC. By: /S/ THOMAS J. CABLE ---------------------- Its Chairman of the Board of Directors EX-10.12D 3 Exhibit 10.12D NOTE: CONFIDENTIAL TREATMENT REQUESTED. EXHIBIT OMITS INFORMATION THAT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. SECOND AMENDMENT TO OSTEOMARK-registered trademark- LICENSE AGREEMENT This Second Amendment to Osteomark-registered trademark- License Agreement (this "Second Amendment") is effective as of December 24, 1997, by and between Ostex International, Inc. ("Ostex") and Mochida Pharmaceutical Co., Ltd. ("Mochida"). RECITALS A. WHEREAS, Ostex and Mochida are parties to that certain Osteomark-TM- License Agreement, as amended, dated as of August 21, 1992 (the "License Agreement"), pursuant to which Ostex granted a license to Mochida to commercialize the urine-based assay to measure bone resorption in Japan. B. WHEREAS, Section 5.2 of the License Agreement established "a flexible pricing formula to enable both Ostex and Mochida to remain profitable while selling Finished Product in the Territory." C. WHEREAS, circumstances have changed since the License Agreement was entered into in 1992, to such extent that: first, Mochida's cost of manufacturing Osteomark microtiter kits is now established, and such cost is significantly higher than was anticipated in 1992; second, the Japanese government control of the national health care system has shifted toward deregulation, thereby disrupting the reimbursement pricing system upon which the original pricing formula was based; and third, Mochida requires stable circumstances during the initial stage of the Osteomark product launch to avoid cost, supply, packaging and quality control problems. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree that the License Agreement is amended as follows: AGREEMENT 1. Exchange Rate. Section 4.8 of the License Agreement is hereby amended to read in its entirety as follows: 4.8 Exchange Rate. All monies due Ostex under this Agreement shall be paid in United States Dollars. The parties agree that the prices stated in Yen in this Agreement are based on an exchange rate of (Y)115:$1. The parties agree that they will share equally the risk of fluctuations in the exchange rate. To this end, the prices stated in this Agreement will be paid in United States Dollars at the exchange rate determined in accordance with the following formula: AER = 115 + (ER - 115) -------- 2 where: AER = the Agreed Exchange Rate for converting the stated prices to United States Dollars; and ER = the Exchange Rate quoted by the Wall Street Journal on the date on which Ostex prepares the first draft of the relevant invoice for each shipment (a copy of the relevant page of the Wall Street Journal shall be sent to Mochida with the invoice). Notwithstanding the foregoing, the transfer price for the shipment of Critical Reagents to Mochida under Mochida Order No. MS-970027 shall be converted and paid at the spot exchange rate quoted by the Wall Street Journal on December 3, 1997. 2. Manufacture and Pricing of Kit Components. Section 5 of the License Agreement is hereby replaced in its entirety by the following new Section 5: 5. Supply of Critical Reagents and Kit Components. 5.1 Supply of Critical Reagents. Ostex shall provide to Mochida a supply of the Critical Reagents to be assembled into Finished Products and to be marketed, promoted, sold and distributed by Mochida in accordance with the terms of this Agreement and the relevant quality criteria jointly established by Ostex and Mochida (the "Quality Criteria"). Such Critical Reagents shall be manufactured by Ostex, or by one or more third-party licensees of Ostex at Ostex's responsibility, and shall meet the Quality Criteria. 5.2 Manufacture and Supply of Kit Components. Mochida shall transfer the right and responsibility for the manufacture of all components of Finished Products, other than Finished Product labeling and packaging materials, (the "Kit Components") to Ostex by the time to be agreed upon between the parties but no later than December 31, 2000, on the terms and conditions set forth below. Mochida will file applications with and pursue the approval of the applicable Japanese governmental authorities to obtain registrations to import all Kit Components by such date. Such Kit Components shall be manufactured by Ostex, or by one or more third-party licensees of Ostex, and shall meet the Quality Criteria to be agreed between the parties covering Kit Components. If or when Mochida requests Ostex to label the Kit Components, Ostex shall accept such request by Mochida at no additional cost, fee or expense in the following way: Ostex shall supply Mochida with specifications for the preparation of labels which can be applied using Ostex machinery, and Mochida shall supply Ostex with labels in Japanese to be applied to such Kit Components. In the event that Mochida finds it difficult to obtain blank label stock meeting Ostex's specifications, then at Mochida's option, Ostex through its vendor, will supply such stock to Mochida, or will print such labels using Mochida's artwork, at Mochida's cost. 5.3 Quantity of Critical Reagents and Kit Components. (a) Mochida shall provide to Ostex at least sixty (60) days prior to the commencement of each calendar quarter, a quarterly forecast of commercial demand for Critical Reagents (or, if applicable, Kit Components) to be imported by Mochida into the Territory during such quarter. Mochida shall deliver to Ostex at least sixty (60) days prior to the expected shipment date a purchase order for a specified quantity of Critical Reagents (or, if applicable, Kit Components). (b) Ostex shall deliver to Mochida shipments of Critical Reagents or Kit Components (once responsibility for manufacturing such Kit Components has been transferred to Ostex) in quantities reasonably necessary to satisfy the commercial demand for Finished Products within the Territory. Ostex and Mochida shall, from time to time as necessary following the commencement of commercial sales, adjust the terms of quantity and delivery to correspond to such commercial demand, in accordance with the quarterly forecasts provided by Mochida pursuant to Section 5.3(a) above. NOTE: CONFIDENTIAL TREATMENT REQUESTED (c) Notwithstanding the foregoing or any other provision of this Agreement, it is understood between Ostex and Mochida that, in the event formats other than the current microtiter format for the technology are developed or utilized by the parties, and the delivery of Critical Reagents or Kit Components for such format pursuant to the transfer prices set forth in this Agreement would be less profitable to Ostex, the parties agree that they will renegotiate such transfer prices in good faith. In any event, Ostex shall be under no obligation to supply Critical Reagents or Kit Components to Mochida for a format other than the current microtiter format at a price which is less profitable than the current pricing for the microtiter format. 5.4 Price for Critical Reagents and Kit Components. Mochida shall pay for each shipment of Critical Reagents or Kit Components, within sixty (60) days of the date of invoice for such shipment, the amounts set forth below: (a) For all Critical Reagents ordered by Mochida prior to July 6, 1999 (including Mochida's Order No. MS-970027), Mochida shall purchase Critical Reagents at a price of (Y)XXXXXXXX per kit, payable in United States Dollars at the exchange rate set forth in Section 4.8. For orders received by Ostex on or after July 6, 1999, Mochida will purchase quantities of Critical Reagents at a price of (Y)XXXXXXX per kit, payable in United States Dollars at the exchange rate set forth in Section 4.8. In the event that Kit Component manufacturing rights have not been transferred to Ostex by December 31, 2000 the parties shall renegotiate the price for Critical Reagents at that time, provided that nothing in this section shall limit Ostex's ability to enforce the provisions of this Agreement regarding such transfer of manufacturing rights. (b) On or after the transfer to Ostex of responsibility for the manufacture of Kit Components, as an alternative to the pricing of Critical Reagents set forth in Section 5.4(a) above, Mochida shall pay to Ostex, for all Kit Components required for each Finished Product, the price set forth in this Section 5.4(b). Such price shall equal (Y)XXXXXXX per kit, payable in United States Dollars at the exchange rate set forth in Section 4.8, subject, in addition to any other adjustments provided for herein, to annual adjustments from January 1998 proportionate to one-half of the increase in the U.S. Consumer Price Index (All Urban Consumers) ("CPI"), which adjustment shall occur upon publication of such index on the publication date most closely following each anniversary after January 1998. Ostex shall send Mochida a copy of the publication of such index annually from January, 1998. (c) In the event that the average price at which Mochida sells Finished Product in any calendar year increases more than XX% over the average price at which Mochida sold Finished Product during the preceding year, Mochida shall so notify Ostex, and the parties shall renegotiate in good faith the prices set forth in Section 5.4 (a) and (b) above to allow for an equitable sharing of such increase. 5.5 Delivery. Ostex shall deliver each shipment of Critical Reagents and Kit Components F.A.S. carrier (as defined in, or otherwise in accordance with INCOTERMS, in effect at the time of each shipment), in accordance with instructions issued in writing by Mochida with respect to each shipment. 5.6 Risk of Loss. The risk of loss with regard to each shipment of Critical Reagents and Kit Components shall pass to Mochida upon delivery thereof to the carrier in accordance with Section 5.5 above. 5.7 Acceptance. Ostex warrants that Critical Reagents and Kit Components supplied by Ostex shall meet the Quality Criteria. Mochida shall inspect shipments of Critical Reagents within sixty (60) days after receipt of Critical Reagents and Kit Components within thirty (30) days after receipt of Kit Components, by Mochida at its factory in Japan, and shall notify Ostex of the results of such inspection within such periods. If Mochida notifies Ostex of any defects in quality within such periods, Ostex shall promptly supply Mochida, free of charge, with Critical Reagents or Kit Components in such amount as to replenish or make good such defects in quality. In the event that there is a shortage in quantity, Ostex will, at its own expense, correct such shortage as soon as possible. In no event shall this Section 5.7 affect the risk of loss specified in Section 5.6 above. For example, without limiting the generality of the foregoing, in the event that a shipment of Critical Reagents or Kit Components is damaged in shipment, Mochida shall bear the loss and damage, and at its discretion shall obtain insurance money covering such loss and damages for its own sake. In this case, if Mochida places with Ostex an additional order to fill the insufficiency of Critical Reagents or Kit Components lost or damaged, Ostex shall be responsible for supplying Mochida with such Critical Reagents or Kit Components as promptly as possible. Pricing for such an additional order for Critical Reagents or Kit Components shall be governed by Schedule 5.7 attached hereto, subject to adjustment from time to time by reasonable agreement of the parties. Both parties shall review this Section 5.7 to determine the practical conditions for the inspection period and acceptance period regarding the shipment of Critical Reagents and Kit Components before first shipment of such materials. Notwithstanding the foregoing, if, after Critical Reagents or Kit Components have been accepted by Mochida, a defect is discovered in the Critical Reagents or the Kit Components which was not reasonably capable of discovery by Mochida during the inspection period, Ostex agrees it will work with Mochida in good faith to resolve such defects in an equitable manner. Further, the parties specifically agree that if or when such defects were caused in the process of the manufacture by Ostex, Ostex shall replenish or make good such defects in the quality at its cost and responsibility. 5.8 [This Section Intentionally Deleted] 3. Indemnification. Section 15 of the License Agreement is hereby amended to read in its entirety as follows: Mochida shall defend, indemnify, save and hold harmless Ostex and its directors, officers, employees, and agents from all losses, claims, suits, damages, costs, fees and expenses, including without limitation attorneys' fees (hereinafter collectively referred to as the "Loss"), resulting from or arising out of the importation of Critical Reagents or the manufacturing, marketing, sale, or distribution of Finished Product by Mochida, including without limitation any damages, losses or liabilities whatsoever with respect to death or injury to any person or damage to any property. Ostex shall promptly notify Mochida of any Loss for which indemnification is sought hereunder. Further, in the event that the manufacture of Kit Components is transferred to Ostex pursuant to Section 5.2, Ostex shall defend, indemnify, save and hold harmless Mochida and its directors, officers, employees, and agents from any and all Loss resulting from or arising solely out of the manufacturing process of Kit Components by Ostex or its licensees, including without limitation any damages, losses, or liabilities whatsoever with respect to death or injury to any person or damage to any property. Mochida shall promptly notify Ostex of any Loss for which indemnification is sought hereunder. The foregoing indemnification by Ostex shall apply mutatis mutandis as to any and all Loss incurred to Mochida resulting from or arising from the manufacturing process of Critical Reagents by Ostex or its licensees. The indemnification by Mochida provided herein shall not apply if or when such Loss is based on, or caused by, willful misconduct or negligence of Ostex, its licensees or vendors (including their directors, officers or employees). Further, the indemnification by Ostex provided herein shall not apply if or when such Loss is based on willful misconduct or negligence of Mochida, its directors, officer or employees. 4. Full Force and Effect. This Second Amendment is made pursuant to the License Agreement and shall constitute an integral part thereof. All capitalized terms that are used in this Second Amendment and are not otherwise defined herein are intended to have the meanings assigned to such terms in the License Agreement. Except as specifically amended in this Second Amendment, the License Agreement shall remain in full force and effect in accordance with its terms. DATED as of the date first written above. OSTEX INTERNATIONAL, INC. MOCHIDA PHARMACEUTICAL CO., LTD. By: /S/ THOMAS A. BOLOGNA By: EI MOCHIDA -------------------------------- ------------------------- Name: Thomas A. Bologna Name: Ei Mochida Ph.D. Its: President & C.E.O. Its: Chairman NOTE: CONFIDENTIAL TREATMENT REQUESTED OSTEX INTERNATIONAL, INC. SECOND AMENDMENT TO OSTEOMARK LICENSE AGREEMENT SCHEDULE 5.7 KIT COMPONENT PRICE LIST OSTEOMARK, COMPONENT SET, UNLABELED
PRICE ITEM DESCRIPTION QTY UM in YEN - ------------------------------------------------------------------------------------------------- 1028 PLATE SEALERS 1 PD XXXXXXX 6036 ANTI. COATED MICROTITER PL., 1PK 1 EA XXXXXXX 6037 1 NM BCE CALIBRATOR,0.5ML FILLED 1 EA XXXXXXX 6038 30 NM BCE CALIBR., 0.5ML FILLED 1 EA XXXXXXX 6039 100NM BCE CALIBRATOR,0.5ML FILL 1 EA XXXXXXX 6040 300 NM BCE CALIBRATOR,0.5ML FILL 1 EA XXXXXXX 6041 1000NM BCE CALIBRATOR,0.5 ML FILL 1 EA XXXXXXX 6042 3000NM BCE CALIBRATOR,0.5ML FILL 1 EA XXXXXXX 6043 ANTIBODY-CONJUGTE,0.5ML, FILLED 1 EA XXXXXXX 6044 CONJUGATE DILUENT, 30ML, FILLED 1 EA XXXXXXX 6045 BUFFERED SUBSTRATE, 30ML, FILLED 1 EA XXXXXXX 6026 CHROMOGEN REAGENT, 0.9ML FILLED 1 EA XXXXXXX 6046 30X WASH CONCENTRATE,125ML, FILLED 1 EA XXXXXXX 6028 STOPPING REAGENT, 25ML FILLED 1 EA XXXXXXX 6047 LEVEL 1 URINE CONTROL,0.5ML,FILLED 1 EA XXXXXXX 6048 LEVEL 2 URINE CONTROL,0.5ML,FILLED 1 EA XXXXXXX Total XXXXXXX
CRITICAL REAGENT COMPONENT PRICE LIST OSTEOMARK, CRITICAL REAGENT COMPONENT SET PRICE2 PRICE3 ITEM DESCRIPTION QTY1 UM in Yen in Yen - ------------------------------------------------------------------------------------------------------------------ 2027 300 pmol/mL NTx in PBS TBD ML XXXXXXX XXXXXXX 2007 NTx Concentrate TBD NM XXXXXXX XXXXXXX 2023 1H11 - HRP Conjugate Concentrate TBD MG XXXXXXX XXXXXXX Total XXXXXXX XXXXXXX - ---------------------------
1 Prices shown are sufficient for manufacture of 1 kit of Finished Product. Units shipped will depend on quantity of finished product ordered and the titre of NTx per lot. 2 Price for orders received by Ostex before July 6, 1999 3 Price for orders received by Ostex on or after July 6, 1999 to December 31, 2000 EX-10.30 4 Wyeth-Ayerst Laboratories September 30, 1997 Page 5 September 30, 1997 Wyeth-Ayerst Laboratories P.O. Box 8299 Philadelphia, PA 19101-1245 Dear Sirs: This letter sets forth the proposed terms and conditions for an extension of the Agreement between Ostex International, Inc. ("OSTEX") and Wyeth-Ayerst Laboratories ("W-A") dated September 20, 1995, regarding detailing of diagnostic testing, prevention and treatment of osteoporosis to health care professionals. 1. OSTEX grants W-A a world-wide, non-exclusive right to detail osteoporosis diagnostic tests developed by OSTEX together with technology, data, test results, clinical and other studies related thereto and sales materials, medical education programs, disease management programs and sample tests so as to promote the sale and utilization of OSTEX's osteoporosis tests. 2. W-A grants OSTEX the non-exclusive right to detail W-A products marketed by W-A together with promotional, educational and sales materials so as to encourage the use of W-A's Premarin(R) family of products in the prevention and treatment of osteoporosis. 3. It is understood and agreed that each party shall determine, in its sole discretion, the detailing activities it shall undertake, including frequency, detail position, physician targets, field force commitment, call plan and whether or not to detail. 4. The parties shall appoint coordinators who shall meet regularly to develop advertising, marketing and sales programs, including sales training programs, for the OSTEX and W-A products to be detailed hereunder. Such programs may include medical education for health care professionals, disease management programs for managed care audiences and convention exhibits for key target audiences. Each party shall provide appropriate training materials and trainers to educate the trainers and/or sales representatives of the other party. 5. OSTEX agrees to conduct or arrange for the conduct of assays to generate data derived from osteoporosis diagnostic tests developed by OSTEX and utilized in patients receiving W-A products. OSTEX grants W-A the non-exclusive right to utilize OSTEX test data in detailing W-A products. 6. Neither party shall be obligated to make payments to the other for any rights granted or services to be performed hereunder. Each party shall be responsible for its own expenses in connection with negotiations, documents, or transactions, services or performance contemplated hereby and additionally neither party shall have any liability whatsoever for any fees or expenses of the other party owed to third parties. 7. Neither party shall have any responsibility for the hiring, firing, compensation or employee benefits of the other party's employees. Except as specifically set forth herein, no employee or representative of a party shall have any authority to bind or obligate the other party for any sum or in any manner whatsoever, or to create or impose any contractual or other liability on the other party without such other party's written approval. OSTEX and W-A's legal relationship under this Agreement shall be that the parties are independent of each other and not that of partners or joint venturers. Neither party's representatives shall have any authority regarding sales of the other party's products or to bind or obligate the other party for any orders, prices, discounts, rebates, allowances, etc., or any other commercial terms and conditions of sale. 8. Each party hereby represents and warrants to the other that its products shall be approved by FDA for marketing; that neither the products' applications for market approval nor any other filing with FDA or other reports or records shall contain any misrepresentations of material fact. Each party further represents and warrants that in the performance of its obligations hereunder each party and its representatives shall at all times comply with all applicable laws, rules, and regulations issued or promulgated by any governmental authority having jurisdiction over the activities contemplated hereunder. 9. Each party shall give the other party notice of all complaints or adverse experiences associated with the products of the other party. If the information obtained indicates a serious or unusual experience or complaint, it shall be reported to the other party by telephone or in writing within twenty-four hours after initial receipt. Other information shall be reported within five working days. Reports shall contain the name, address and telephone number of the source, and an indication of the adverse drug experience or other complaint. 10. All advertising, marketing and sales promotion materials utilized hereunder shall be created by or on behalf of or approved by the party whose products are being described. Such materials shall be reviewed and approved by the other party prior to use by the other party which approval shall not be unreasonably withheld. All advertising, marketing and sales promotion materials, detailing and other activities by either party shall be in accordance with approved product labeling and all applicable laws and regulations. 11. No advertising, promotional, sales or publicity concerning this Agreement or the business relationship between OSTEX and W-A created hereby or wherein the name of the other party or its products are mentioned shall be released or made use of by anyone acting on behalf of a party without the prior approval of the other party. Nothing contained in this Section 11 shall be deemed to prohibit either party (a) from detailing with respect to the products of the other as provided herein or (b) from notifying appropriate governmental agencies in accordance with, or otherwise complying with the requirements of any applicable law or regulation. 12. The term of this Agreement shall be for one (1) year from the date hereof in accordance with the provisions of Section 12 of the Agreement dated September 20, 1995. This Agreement may be extended for additional terms of one (1) year each upon the mutual agreement of the parties. Either party may terminate this Agreement by thirty (30) days' notice in writing to the other. Upon the effective date of termination, the detailing activities specified herein shall cease and promotional materials utilized shall be guarantied until disposition is agreed upon by the parties. Termination of this Agreement shall not relieve the parties hereto of any liability which accrued hereunder prior to the effective date of such termination nor preclude either party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement nor prejudice either party's right to obtain performance of any obligation provided for in this Agreement which expressly survives termination. 13. Nothing contained herein shall be deemed to grant to OSTEX, either expressly or impliedly, a license or other right or interest in any patent, trademark, trade name or logo or other similar property of W-A, except as may be necessary for OSTEX to detail W-A products hereunder. Nothing contained herein shall be deemed to grant to W-A, either expressly or impliedly, a license or other right or interest in any patent, trademark, trade name or logo or other similar property of OSTEX, except as may be necessary for W-A to perform its obligations hereunder. 14. Each party shall indemnify, defend and hold harmless the other and its officers, directors, agents, servants and employees against any and all claims, losses, damages and liabilities, including reasonable attorneys' fees, but excluding loss of profits and consequential damages, to the extent that any such claim, loss, damage or liability is based on or determined by a court of competent jurisdiction to result from or arise out of utilization of such party's products. Provided, however, that a party shall have no obligation to indemnify the other party for any act or omission of the other party or any employee, representative or agent thereof or any product of the other party or unapproved advertising, marketing, promotion or selling activity or warranties or representations of the other party or any violation of any applicable statute or regulation, or breach of this Agreement by the other party. 15. Except as otherwise expressly provided under this Agreement, each party shall hold in confidence all confidential information provided by the other party in furtherance of this Agreement. The foregoing confidentiality obligations shall not apply to: a) any information which at the time of disclosure or acquisition is part of the public knowledge or literature, or thereafter becomes part of the public knowledge or literature otherwise than by unauthorized disclosure by the recipient; b) any information which at the time of disclosure or acquisition was in the recipient's possession as evidenced by its written records; or c) any information which becomes available to the recipient from any other source not bound to secrecy to the disclosing party with respect to such information. 16. If the performance by either party is prevented, restricted or interfered with by reason of any event or cause whatsoever beyond the reasonable control of the party so affected, such party shall be excused from performance to the extent of such prevention, restriction or interference; provided that such cause is not the result of a breach of this Agreement. In any such case, prompt written notice shall be given by the affected party to the other of the existence of such cause and of readiness to resume performance. Labor disputes shall be deemed to be events beyond the reasonable control of the party affected, and neither party shall be required to settle a labor dispute against its will. 17. Neither party may assign this Agreement or rights granted hereunder in whole or in part without the written consent of the other party except to their affiliates or subsidiaries or to a successor to or assignee of all or substantially all of the pharmaceutical interests, assets and good will of the assigning party; provided, however, that W-A shall have the right to terminate this Agreement at any time on not less than fifteen (15) days' notice in writing to OSTEX upon the occurrence of any transaction or series of transactions which results in the transfer of ownership or control, directly or indirectly, of a majority of the capital stock, with right to vote, or of substantially all of the assets of OSTEX or of any parent company of OSTEX. 18. These terms and conditions constitute the complete and exclusive understanding of OSTEX and W-A with respect to the subject matter hereof, and no statements or agreements, oral or written, made prior to or at the signing hereof shall modify the written terms hereof. Neither party shall claim any modification or revision of any provision hereof unless such modification or revision is in writing, signed by the other party and states it is an amendment to this Agreement. 19. The failure on the part of OSTEX or W-A to exercise or enforce any rights conferred hereunder shall not be deemed to be a waiver of any such rights nor operate to bar the exercise or enforcement thereof at any time or times thereafter. 20. The construction, validity and performance of this Agreement shall be governed in all respects by the laws of Pennsylvania, excluding, however, its laws respecting choice of law. If the foregoing terms and conditions meet with your approval, please signify your acceptance by signing, dating and returning the enclosed copy of this letter. Very truly yours, OSTEX INTERNATIONAL, INC. By: /S/ Thomas A. Bologna Thomas A. Bologna President and Chief Executive Officer Accepted: WYETH-AYERST LABORATORIES By: /S/ Susan Jasper Title: Group Product Director Date: October 20, 1997 EX-13 5 OSTEX INTERNATIONAL, INC. SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------------------------------------------- Fiscal Year Ended December 31, 1997 1996 1995 1994 1993 Statement of Operations Data: Revenues: Product sales and research testing services $ 3,658 $ 2,860 $ 1,830 $ 1,152 $ 417 License and research and development fees 450 1,087 1,495 630 1,485 ------------------------------------------------------ Total revenues 4,108 3,947 3,325 1,782 1,902 ------------------------------------------------------ Operating expenses: Costs of products sold 899 926 603 517 226 Research and development 4,470 3,163 3,200 3,308 1,940 Selling, general and administrative 8,031 9,201 6,583 2,222 1,754 ------------------------------------------------------ Total operating expenses 13,400 13,290 10,386 6,047 3,920 ------------------------------------------------------ Loss from operations (9,292) (9,343) (7,061) (4,265) (2,018) Other income: Proceeds from legal settlement 6,200 - - - - Interest income, net 828 1,273 1,684 194 128 ------------------------------------------------------ ====================================================== Net loss $ (2,264) $ (8,070) $ (5,377) $ (4,071) $(1,890) - -------------------------------------------------------------====================================================== Basic and diluted net loss per common and common equivalent share $ (0.18) $ (0.65) $ (.045) $ (0.47) $ - - -------------------------------------------------------------====================================================== Shares used in calculation of net loss per share $ 12,574 $ 12,441 $ 11,929 $ 8,737 $ - - -------------------------------------------------------------====================================================== (IN THOUSANDS) - ------------------------------------------------------------------------------------------------------------------- December 31, 1997 1996 1995 1994 1993 Balance Sheet Data: Cash, cash equivalents and short-term investments $ 18,965 $ 21,229 $ 27,794 $ 3,668 $ 7,916 Working capital 18,368 20,901 28,361 3,172 7,890 Total assets 24,112 25,691 32,841 5,590 8,807 Accumulated deficit (24,128) (21,864) (13,794) (8,417) (4,346) Total shareholders equity $ 21,644 $ 23,526 $ 31,518 $ 4,698 $ 8,460 - -------------------------------------------------------------======================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Ostex International, Inc. (the "Company") is engaged in the discovery and commercialization of products associated with osteoporosis and other collagen-related diseases. The Company believes its lead product, the OSTEOMARK-registered trademark- test, incorporates breakthrough technology in the area of bone resorption measurement. Ostex has formed collaborative relationships with leading diagnostic and pharmaceutical companies to aid in the commercialization of Osteomark. This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below, that could cause actual results to differ materially from historical results or those anticipated. Words used herein such as "believes," "anticipates," "expects," "intends," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. In addition, the disclosures on page 23 under the caption "Other Factors that May Affect Operating Results," consist principally of a brief discussion of risks which may affect future results and are thus, in their entirety, forward-looking in nature. Readers are urged to carefully review and consider the various disclosures made by the Company in this report and in the Company's other reports filed with the Securities and Exchange Commission (the "SEC"), including the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1997, that attempt to advise interested parties of the risks and factors that may affect the Company's business. On May 8, 1995, the Osteomark test first became commercially available in the United States as a urinary assay that provides a quantitative measure of the excretion of cross-linked N-telopeptides of type I collagen ("NTx") as an indicator of human bone resorption. Prior to becoming commercially available, the Osteomark test was available domestically only for research purposes. To date, the Company's revenues have consisted primarily of product sales and fees for research testing services, as well as licensing, research and development fees from Mochida Pharmaceutical, Co., Ltd. ("Mochida"), and Johnson & Johnson Clinical Diagnostics, Inc. ("Johnson & Johnson"). Mochida has agreed to pay Ostex up to approximately $6,600,000 in a combination of licensing fees and research and development milestone payments, of which $5,850,000 has been received to date. Under the research and development agreement, Mochida has an option to license the NTx serum assay under development. Future payments totaling $750,000 are contingent upon Mochida's decision to exercise its option to license the NTx serum assay and achievement of certain milestones. Expenses incurred have been primarily for selling, administrative, research and development activities and have exceeded revenues in each year since the Company's inception. As of December 31, 1997, the Company had an accumulated deficit of $24,128,000. Successful future operations depend upon the Company's ability to effectively commercialize and market its products. The Company will require a substantial amount of additional funds to develop new products and to fund the level of selling, general and administrative expenses that the Company expects to incur in connection with its product commercialization efforts in the next several years. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995. The Company had revenues of $4,108,000 for the year ended December 31, 1997, compared to $3,947,000 and $3,325,000 for the years ended December 31, 1996 and 1995, respectively. Revenue from product sales and research testing services for the year ended December 31, 1997 was $3,658,000, compared to $2,860,000 and $1,830,000 in the years ended December 31, 1996 and 1995, respectively. The increase of $798,000 in 1997 and $1,030,000 in 1996 is attributable to higher volumes of Osteomark kits sold to laboratories and distributors worldwide during those years. License and research and development fees received during 1997 totaled $450,000, all from Mochida. License and research and development fees in 1996 totaled $1,087,000, primarily from Mochida. The $637,000 reduction in fees collected under license and research and development agreements with Mochida from 1996 to 1997 was expected and is due to attainment of scheduled milestones. In 1995 fees of $1,495,000 consisted of $1,000,000 from Johnson & Johnson and $495,000 from Mochida. The Company's cost of products sold totaled $899,000 for the year ended December 31, 1997, compared to $926,000 and $603,000 for the same periods in 1996 and 1995, respectively. The gross profit rate on product sales for the year ended 1997 was 75%, compared to 68% for 1996 and 67% for 1995. The change in gross profit rate from 1996 to 1997 and from 1995 to 1996 was a function of increased manufacturing volume and overall efficiency gains made in part by improvements in the production process. Increased manufacturing volume reduces unit cost by spreading certain fixed overhead expenses over a higher number of units produced. The Company's research and development expenditures totaled $4,470,000, $3,163,000, and $3,200,000, in 1997, 1996, and 1995, respectively. The $1,307,000 increase from 1996 to 1997 was primarily attributable to funding the NTx test point-of-care development programs with Hologic, Inc. ("Hologic") and Metrika, Inc. ("Metrika"). In addition, research and development expenses increased due to the cost of clinical studies commenced at the end of 1996 and during 1997. Included in 1997 was a study for the determination of the NTx reference range in males, a study to complement physician interpretation of NTx results in postmenopausal women, and preliminary studies for the use of the Osteomark test in helping to identify bone metastases. Additionally, research and development expenditures increased in 1997 due to the extension of research grants to the University of Washington ("UW"). Expenditures remained steady from 1995 to 1996 due to an increase in research and development grants and royalties paid to the Washington Research Foundation ("WRF") offset by decreased clinical trial expenditures due to the completion of a clinical trial in November 1995. Selling, general and administrative expenses totaled $8,031,000, $9,201,000, and $6,583,000, in 1997, 1996 and 1995, respectively. The 13% decrease from 1996 to 1997 was primarily due to the completion of the Company's free testing program in 1996 and the completion of a hearing before the American Arbitration Association against Boehringer Mannheim GmbH ("Boehringer Mannheim") in September 1996, partially offset by increased costs of litigation in connection with the Osteometer and C.R. Bard lawsuits (see Note number 11 on page 32 in the Notes to Financial Statements). The 40% increase in selling, general and administrative expenses from 1995 to 1996 was due primarily to the implementation of marketing programs to support the Osteomark test in the United States, the addition of sales personnel to support these efforts, increased legal costs involved with the Boehringer Mannheim arbitration and patent litigation costs. Proceeds from legal settlement resulted from the receipt of a non-recurring payment of $6,200,000 from Boehringer Mannheim in October 1997. The settlement between the two parties was the result of a ruling by the American Arbitration Association awarding damages to the Company in connection with a dispute between the Company and Boehringer Mannheim. Interest income totaled $901,000, $1,317,000, and $1,684,000 for the years ended December 31, 1997, 1996, and 1995, respectively. The decrease in 1997 and 1996 was primarily due to lower average invested balances resulting from using cash to fund the Company's operating losses. At December 31, 1996, the Company had tax net operating loss carryforwards of $29,527,000, which will begin to expire in 2004. Income taxes are provided in the Statements of Operations as required by Statement of Financial Accounting Standards No. 109, "Accounting For Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, deferred taxes are determined using an asset and liability approach. The Company has determined that the tax assets do not satisfy the recognition criteria set forth in SFAS No. 109. Accordingly, a valuation adjustment has been recorded against the applicable deferred tax assets, and therefore no tax benefit has been recorded. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations from inception primarily through three private placements of preferred stock that provided approximately $12,800,000 aggregate proceeds, and its initial public offering of 3,645,642 shares of common stock that provided net proceeds of approximately $32,000,000. Funds of approximately $16,608,000 have been generated through sales of Osteomark test kits and fees for research testing services, collaborative research and licensing agreements. The settlement of a dispute with Boehringer Mannheim provided an additional $6,200,000. As of December 31, 1997, the Company had $18,965,000 in cash and cash equivalents and short-term investments, working capital of $18,368,000 and total shareholders' equity of $21,644,000. During 1997, cash, cash equivalents and short-term investments decreased by $2,264,000, working capital decreased by $2,533,000 and shareholders' equity decreased by $1,882,000. The decreases were primarily the result of the net loss incurred during 1997. The Company used $1,181,000 of cash for operating activities in 1997 ($7,381,000 excluding the receipt of $6,200,000 from Boehringer Mannheim), and $1,105,000 for laboratory expansion and the purchase of laboratory, manufacturing and office equipment. In 1996, the Company entered into a note agreement that provides up to $1,500,000 for expansion of manufacturing and administrative facilities and has borrowed $746,000 against the note. The note is repayable in 48 equal monthly installments of principal and interest of $19,784. As of December 31, 1997, outstanding borrowings under this agreement amounted to $509,000. The Company does not anticipate additional borrowings during 1998 and has no material capital purchase commitments. The Company's future capital requirements depend upon many factors, including effectiveness of Osteomark test commercialization activities and arrangements; continued scientific progress in its research and development programs; the costs involved in filing, prosecuting and enforcing patent claims; the costs involved in legal efforts to enforce patent rights; and the time and costs involved in obtaining regulatory approvals. Additional funds from equity or debt financing will be required. There can be no assurance that such additional funds will be available on favorable terms, if at all. Because of the Company's significant long-term cash requirements, it may seek to raise additional capital if conditions in the public equity markets are favorable, even if the Company does not have an immediate need for additional cash at that time. If additional financing is not available, the Company anticipates that its existing available cash, its future license and research revenues from existing collaboration agreements, its current level of product sales and interest income from short-term investments will be adequate to fund its operations through 1999. OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS The Company's operating results may fluctuate due to a number of factors including, but not limited to, volume and timing of product sales, pricing, market acceptance of the Company's products, changing economic conditions in the healthcare industry, activities of competitors, delays and increased costs of product and technology development, the Company's ability to develop and maintain collaborative arrangements, the outcome of litigation, and the effect of the Company's accounting policies and other risk factors detailed in the Company's 1997 Form 10-K and other SEC filings. All of the foregoing factors are difficult for the Company to predict and can materially adversely affect the Company's business and operating results. The Company is currently in the process of evaluating its information technology infrastructure for the Year 2000 compliance. The Company does not expect that the cost to modify its information technology infrastructure to be Year 2000 compliant will be material to its financial condition or results of operations. The Company does not anticipate any material disruption in its operations as a result of any failure by the Company to be in compliance. The Company does not currently have any information concerning the Year 2000 compliance status of its suppliers and customers. In the event that any of the Company's significant suppliers or customers does not successfully and timely achieve Year 2000 compliance, the Company's business or operations could be adversely affected. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) December 31, 1997 1996 ASSETS Current Assets: Cash and cash equivalents $ 2,201 $ 1,289 Short-term investments 16,764 19,940 Trade receivables and other current assets, net of allowance of $25 in 1997 and 1996 1,344 1,161 Inventory, at cost 201 153 ----------------- Total current assets 20,510 22,543 ----------------- Property, Plant and Equipment, net of accumulated depreciation 2,965 2,474 Other Assets 637 674 ----------------- Total assets $24,112 $ 25,691 ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,429 $ 1,259 Accrued expenses 530 234 Current portion of note payable 183 149 ------------------ Total current liabilities 2,142 1,642 ------------------ Noncurrent Liabilities: Note payable, net of current portion 326 523 ------------------ Commitments and Contingencies Shareholders' Equity: Common stock, $.01 par value, 50,000,000 shares authorized; 12,696,250 and 12,441,617 issued and outstanding, respectively 127 125 Additional paid-in capital 45,642 45,195 Unrealized gain on short-term investments 3 70 Accumulated deficit (24,128) (21,864) ----------------- Total shareholders' equity 21,644 23,526 ----------------- Total liabilities and shareholders' equity $24,112 $25,691 ================= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31, 1997 1996 1995 Revenue: Product sales and research testing services $ 3,658 $ 2,860 $ 1,830 License and research and development fees 450 1,087 1,495 ------------------------------ Total revenues 4,108 3,947 3,325 Operating Expenses: Cost of products sold 899 926 603 Research and development 4,470 3,163 3,200 Selling, general and administrative 8,031 9,201 6,583 ------------------------------ Total operating expenses 13,400 13,290 10,386 ------------------------------ Loss from operations (9,292) (9,343) (7,061) Other Income (Expense): Proceeds from legal settlement 6,200 - - Interest income 901 1,317 1,684 Interest expense (73) (44) - ------------------------------ Net loss $(2,264) $(8,070) $(5,377) ============================== Basic and diluted net loss per common and common equivalent share $ (0.18) $ (0.65) $ (0.45) ============================== Shares used in calculation of net loss per share 12,574 12,441 11,929 ==============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Year Ended December 31, 1997 1996 1995 Cash Flows from Operating Activities: Net loss $(2,264) $(8,070) $(5,377) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 651 504 295 Expense from stock awards and grants 197 33 40 (Increase) decrease in receivables (10) 554 (1,318) (Increase) decrease in inventory (48) 83 (161) (Increase) in other current assets (173) (61) (15) Increase in accounts payable and accrued expenses 466 170 511 ----------------------------- Net cash used in operating activities (1,181) (6,787) (6,025) ----------------------------- Cash Flows from Investing Activities: Purchases of short-term investments (20,426) (22,958) (52,521) Proceeds from sales and maturities of short-term investments 23,535 24,575 32,996 Purchases of property, plant and equipment (1,105) (495) (1,746) Long-term investments - - (500) ----------------------------- Net cash provided by (used in) investing activities 2,004 1,122 (21,771) ----------------------------- Cash Flows from Financing Activities: Net proceeds from issuance of common stock and exercise of stock options 252 41 32,166 Proceeds from borrowings on note payable - 746 - Payments on note payable (163) (74) - Proceeds from stock subscription payment - - 165 ----------------------------- Net cash provided by financing activities 89 713 32,331 ----------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 912 (4,952) 4,535 Cash and Cash Equivalents, beginning of period 1,289 6,241 1,706 ----------------------------- Cash and Cash Equivalents, end of period $ 2,201 $ 1,289 $ 6,241 ============================= Supplemental Disclosure of Noncash Transactions: Stock granted for research and development services $ 191 $ - $ - =============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Unrealized Additional Gain/Loss on Stock Total Preferred Stock Common Stock Paid-In Short-term Subscriptions Accumulated Shareholders' Shares Amount Shares Amount Capital Investments Receivable Deficit Equity Balance, December 31, 1994 1,059 $10 3,011 $30 $13,240 $- $(165) $(8,417) $ 4,698 ----------------------------------------------------------------------------------------------- Sale of common stock in initial public offering and conversionof preferred stock (1,059) (10) 9,153 92 31,468 - - - 31,550 Compensation expense for stock option grants - - - - 40 - - - 40 Stock options and warrants exercised - - 269 3 373 - - - 376 Payment for subscription receivable - - - - - - 165 - 165 Unrealized gain on short-term investments - - - - - 66 - - 66 Net loss - - - - - - - (5,377) (5,377) Balance, December 31, 1995 - - 12,433 125 45,121 66 - (13,794) 31,518 Compensation expense for stock option grants - - - - 33 - - - 33 Stock options exercised - - 9 - 41 - - - 41 Unrealized gain on short-term investments - - - - - 4 - - 4 Net loss - - - - - - - (8,070) (8,070) Balance, December 31, 1996 - - 12,442 125 45,195 70 - (21,864) 23,526 Expense for stock and option grants - - 70 - 197 - - - 197 Stock options exercised - - 184 2 250 - - - 252 Unrealized loss on short-term investments - - - - - (67) - - (67) Net loss - - - - - - - (2,264) (2,264) Balance, December 31, 1997 - $- 12,696 $127 $45,642 $3 $ - $(24,128) $21,644
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Ostex International, Inc. (the "Company"), a Washington Corporation, is engaged in the discovery and commercialization of products associated with osteoporosis and other collagen-related diseases. The Company believes its lead product, the Osteomark-registered trademark- NTx test, incorporates breakthrough technology in the area of bone resorption measurement. The Company markets the Osteomark NTx test through laboratories and distributors worldwide. The Company was incorporated in the state of Washington on May 11, 1989 and completed its initial public offering of common stock in February 1995. The United States has been the Company's principal market. Foreign sales were approximately $652, $370 and $528 in 1997, 1996 and 1995, respectively. Foreign sales were primarily to Europe and Japan. ESTIMATES AND UNCERTAINTIES 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. Actual results could differ from those estimates. REVENUE RECOGNITION License and research and development fees are recognized upon attainment of the agreed-upon milestones. Research testing fees are recognized when the services are substantially complete. Product sales are recognized upon shipment. RESEARCH AND DEVELOPMENT EXPENSES Research and development costs are expensed as incurred. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated using the straight-line method over the estimated useful life of the asset. Estimated lives range from five to 10 years. Depreciation expense charged to operations during 1997, 1996 and 1995 was $614, $502 and $294, respectively. SHORT-TERM INVESTMENTS The Company considers all of its investments as "available for sale," reporting them at fair market value with unrealized gains and losses included in Shareholders' Equity. Realized gains and losses and declines in value of securities judged to be other than temporary are included in income. INVENTORY Inventory consists principally of raw materials and finished goods. Inventories are stated at the lower of cost (first-in, first-out) or market. STATEMENTS OF CASH FLOWS For the purpose of the statements of cash flows, the Company considers all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount approximates fair value due to the short maturity of these instruments. NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE The Company adopted SFAS No. 128, "Earnings per Share," effective December 15, 1997. Basic net loss per share is the net loss divided by the average number of shares outstanding during the year. Diluted net loss per share is calculated as the net loss divided by the sum of the average number of shares outstanding during the year plus the net additional shares that would have been issued had all dilutive options been exercised, less shares that would be repurchased with the proceeds from such exercise (Treasury Stock Method). During all years presented, the effect of including outstanding options is antidilutive, therefore, options have been excluded from the calculation of diluted net loss per share. There is no difference between previously reported net loss per share and the basic and diluted net loss per share. NOTE 2 OTHER ASSETS Other assets primarily include investments totaling $637 in preferred stock of Metrika, Inc., a privately held medical device company in the development stage. The investment is recorded in the accompanying financial statements at cost and represents an ownership interest of less than 10%. NOTE 3 PROPERTY, PLANT & EQUIPMENT Property, plant & equipment at December 31, 1997 and 1996 consisted of the following: 1997 1996 Leasehold improvements $ 2,426 $ 1,463 Laboratory and manufacturing equipment 1,277 1,198 Computers and office equipment 975 912 --------------- 4,678 3,573 Accumulated depreciation and amortization (1,713) (1,099) --------------- Net property, plant and equipment $ 2,965 $ 2,474 =============== NOTE 4 SHORT-TERM INVESTMENTS The Company's short-term investments at December 31, 1997 and 1996, consisted of the following: 1997 1996 United States treasury obligations $7,955 $8,807 Federal agency obligations and discount notes 2,686 7,706 Government agency obligations 3,389 - Corporate and municipal bonds 2,734 3,427 --------------- $16,764 $19,940 =============== The maturity of all classes of the Company's short-term investments was less than two years at December 31, 1997 and 1996. NOTE 5 ACCRUED EXPENSES Accrued expenses at December 31, 1997 and 1996, consisted of the following: 1997 1996 Business taxes payable $359 $127 Accrued wages, benefits and payroll taxes 171 107 ------------ $530 $234 ============ NOTE 6 NOTE PAYABLE In July 1996, the Company borrowed $746 under a secured promissory note agreement. The note is secured by real property and equipment and is payable in equal monthly installments of principal and interest of $20. The interest rate is based on the three-year U.S. Treasury Note, at the time of drawdown, plus a margin of 5.80%, (12.5% as of December 31, 1997 and 1996). The note agreement allows the Company to make additional borrowings, up to a maximum of $1,500 for future capital needs. The note contains a number of covenants that, among other things, require the Company to meet specific financial ratios, including minimum tangible net worth, maximum liabilities to total net worth and a minimum level of cash, cash equivalents and short-term investments. The Company was in compliance with these covenants at December 31, 1997 and 1996. Minimum principal payments are as follows: 1998 $183 1999 207 2000 119 ---- $509 NOTE 7 SHAREHOLDERS' EQUITY INITIAL PUBLIC OFFERING On January 25, 1995 the Company completed its initial public offering of 3,645,642 shares of common stock at $9.50 per share for proceeds of $34,634, less underwriting discounts, commissions and other offering costs approximating $3,085. Convertible preferred stock outstanding immediately prior to the closing was converted into 5,506,464 shares of common stock. STOCK OPTION PLANS The Company has three stock option plans; the Amended and Restated Stock Option Plan (the "Old Plan"), the 1994 Stock Option Plan (the "1994 Plan"), both administered by the Compensation Committee of the Board of Directors, and the Directors' Nonqualified Stock Option Plan (the "Directors' Plan"), (collectively the "Stock Option Plans"). The Old Plan no longer permits additional stock option grants. The 1994 and Directors' Plans were amended in 1997 by the shareholders to increase the number of options that could be reserved for issuance under these plans. Shares of common stock reserved for issuance to the Company's employees and directors under the Stock Option Plans are 2,107,000 and 350,000, respectively, and shares available for grant to the Company's employees and directors at December 31, 1997, under the Stock Option Plans are 259,000 and 145,000, respectively. Under all option plans, as of December 31, 1997, options for 667,000 shares have been exercised, and 1,962,000 shares are subject to outstanding options at exercise prices ranging from $.08 to $17.13 per share with a remaining weighted average contractual life of 8 years. These options vest over periods of two to four years. Total options vested as of December 31, 1997 were 481,000, with a weighted average exercise price of $3.34. All options granted under these plans expire either 90 days after termination of employment or 10 years from the date of grant, whichever occurs first. Prior to the Company's initial public offering, the Company granted nonqualified options under the Old Plan whose exercise price was below the estimated fair market value of the Company's common stock on date of grant. The difference between the grant price and the estimated fair market value on date of grant is recognized as compensation expense over the vesting period. Total compensation expense recognized was approximately $6, $33 and $40 in 1997, 1996 and 1995, respectively. Information relating to stock options outstanding and stock options exerciseable at December 31, 1997 is as follows:
Options Outstanding Options Exerciseable ------------------------------------------------- ---------------------------- Weighted Average Weighted Average Range of Exercise Number Remaining Life Exercise Price Number Weighted Average Prices of shares in Years of Shares Exercise Price $ .08 - $ .80 78,750 3 $.42 78,750 $ .42 $2.10 - $5.00 1,825,001 9 $3.27 378,367 $ 3.45 $5.75 - $17.13 58,550 8 $9.33 24,334 $11.04 ----------------------------------------------------------------------------------- 1,962,301 8 $3.34 481,451 $ 3.34 ===================================================================================
Information relating to activity under the Company's stock option plans is as follows: Weighted Shares Average Subject to Exercise Option Price Balance, December 31, 1994 1,545,190 $ 3.19 Granted 245,500 9.09 Exercised (268,786) 1.38 Canceled (90,625) 3.56 ----------------------- Balance, December 31, 1995 1,431,279 4.51 Granted 446,000 12.30 Exercised (8,950) 4.56 Canceled (40,703) 9.64 ----------------------- Balance, December 31, 1996 1,827,626 6.61 Granted 2,227,925 3.76 Exercised (184,000) 1.37 Canceled (1,909,250) 7.14 ----------------------- Balance, December 31, 1997 1,962,301 $ 3.34 ======================= The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for stock options issued at market value on the date of grant. Had compensation cost for the Company's two stock option plans been determined based on the fair value of the options at the grant date for awards in 1997, 1996 and 1995 consistent with the provisions of SFAS 123, the Company's net loss and net loss per common equivalent share would have changed to the pro forma amounts indicated below: 1997 1996 1995 Net loss - as reported $(2,264) $(8,070) $(5,377) Net loss - pro forma $(2,222) $(8,729) $(5,528) Basic and diluted net loss per common and common equivalent share - as reported $(.18) $(.65) $(.45) Basic and diluted net loss per common and common equivalent share - pro forma $(.18) $(.70) $(.46) The fair value of each option grant is established on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for new grants in 1997: zero dividend yield; expected volatility of 85.3%; risk-free interest rates varying by grant date between 6.4% and 7.1%; and expected lives of five years. Assumptions for options granted in 1996 were: zero dividend yield; expected volatility of 59%; risk-free interest rates between 5.8% and 6.5%; and expected lives of five years. The difference between reported and pro forma net loss in 1997 is a $42 credit to income as the model recognizes canceled options in the period they occur. The SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, therefore the resulting pro forma compensation cost may not be representative of that to be expected in future years. NOTE 8 LICENSING AGREEMENTS Under the Company's worldwide exclusive license agreements with the Washington Research Foundation ("WRF"), the Company has the right to manufacture and market technology developed from certain research by the University of Washington ("UW"). As consideration for the licenses acquired and for the attainment of certain milestones, the Company paid WRF certain nonrefundable fees and issued common stock to the WRF and UW. In addition, future cash payments up to $500 and common stock grants of up to 5,000 shares may be due upon attainment of certain other milestones. All legal costs incurred by WRF in connection with the filing, prosecution, and maintenance of certain defined patent rights, are paid by the Company. During 1997, 1996 and 1995, the Company incurred approximately $123, $154 and $379 of license fees, including the value of stock grants, and patent legal expenses. All license and legal fees and stock grants have been expensed as research and development costs. The Company is obligated to pay WRF royalties on net sales of any licensed products. NOTE 9 REVENUES The Company has a sublicense agreement and a research and development agreement with Mochida Pharmaceutical Co., Ltd. ("Mochida"). Under the sublicense agreement, the Company granted exclusive manufacturing, marketing and distribution rights to certain of the Company's products in Japan. Through December 31, 1997, the Company had earned fees and milestone payments of $2,000, including $450 during 1997, in connection with this agreement. Under the research and development agreement, the Company earned no fees during 1997 and $1,080 and $550 during 1996 and 1995, respectively. As of December 31, 1997, the Company had received all milestone payments to be earned in connection with the license agreement for the urine assay. Mochida has an option to license the Company's serum assay under development. During 1995, the Company entered into research, development, license and supply agreements with Johnson & Johnson Clinical Diagnostics, Inc. ("JJCD") under which Ostex earned $1,000 during 1995. These agreements grant JJCD a license to manufacture, sell and distribute certain products utilizing Ostex' bone resorption technology. Ostex will also receive royalties on JJCD sales of products incorporating the Ostex technology. NOTE 10 RELATED PARTY TRANSACTIONS Research Agreements The Company has entered into two research agreements with the University of Washington which extend through December 31, 1999. Total expense was $499, $304 and $185 during 1997, 1996 and 1995, respectively. Following is a schedule of future minimum payments under these agreements as of December 31, 1997: 1998 $428 1999 310 ----- $738 NOTE 11 COMMITMENTS AND CONTINGENCIES LEASES The Company has entered into noncancelable operating leases for office space and certain equipment. Future minimum payments under these leases are as follows: 1998 $ 514 1999 501 2000 494 2001 496 2002 527 ------ $2,532 ====== Total rent expense was approximately $584, $538 and $374 in 1997, 1996 and 1995, respectively. LITIGATION In June 1996, the Company filed an action in the United States District Court for the Western District of Washington against Osteometer Biotech A/S, a medical technology company based in Denmark ("Osteometer"), and Diagnostic Systems Laboratories Inc. for patent infringement of United States Patent No. 5,455,179. The Company believes Osteometer's bone resorption immunoassay incorporates technology which infringes patented Ostex technology. In September 1996, the defendants filed a response denying infringement and counterclaimed that Ostex' patent is invalid and unenforceable. By order dated July 7, 1997, the Court granted Ostex' motion to file a supplemental complaint, to add a second cause of action based upon United States Patent No. 5,641,837, which issued on June 24, 1997. On October 24, 1997, Ostex filed a second supplemental complaint to add third and fourth causes of action based upon U.S. Patent No. 5,652,112, which issued on July 29, 1997, and U.S. Patent No. 5,656,439, which issued on August 12, 1997. The lawsuit is currently scheduled for trial commencing October 20, 1998. At the present time management cannot predict the outcome of the lawsuit but intends to continue to vigorously assert its position. On April 9, 1997, the Company was served with a lawsuit filed in the United States District Court, Central District of California by C.R. Bard, Inc. ("Bard"). The complaint alleges that Ostex' Osteomark product infringes U.S. Patent No. 4,628,027 assigned to Bard in 1993. On June 4, 1997 the Company filed a response denying infringement and counterclaimed that Bard's patent is invalid and unenforceable. On November 7, 1997 the judge set a trial date of November 10, 1998, and on December 27, 1997, the Company filed a motion for summary judgment. Management believes that this suit is without merit and that Ostex' Osteomark product falls outside the claims of the subject patent. NOTE 12 OTHER INCOME - PROCEEDS FROM LEGAL SETTLEMENT On November 4, 1997, the Company announced settlement with Boehringer Mannheim GmbH ("Boehringer Mannheim") under which the Company received a lump sum payment of $6,200. The settlement between the two parties was the result of a ruling by the American Arbitration Association awarding damages to the Company in connection with a dispute between the Company and Boehringer Mannheim. NOTE 13 FEDERAL INCOME TAXES Deferred taxes are determined using an asset and liability approach. The Company has incurred operating losses since inception and accordingly has determined that the net deferred tax assets do not satisfy recognition criteria. Therefore, a valuation allowance has been recorded against the net deferred tax assets and no tax benefit has been recorded in the accompanying statements of operations. The change in the valuation allowance during 1997 and 1996 was $586 and $3,006, respectively. The Company's deferred tax assets (liabilities) are as follows: December 31, 1997 1996 1995 Net operating loss carryforward $10,039 $9,448 $6,576 Research and experimentation credits 363 313 135 Excess of market value over the exercise price of common stock options 77 77 65 Section 195 start-up expenses - 52 151 Amortization and depreciation (47) (44) (64) Other 68 68 45 ------------------------------- Gross deferred tax asset 10,500 9,914 6,908 Valuation allowance (10,500) (9,914) (6,908) ------------------------------- Net deferred tax asset $ - $ - $ - =============================== At December 31, 1997, the Company had tax net operating loss carryforwards of $29,527 which expire between 2004 and 2012. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Ostex International, Inc.: We have audited the accompanying balance sheets of Ostex International, Inc. (a Washington corporation) as of December 31, 1997 and 1996, and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ostex International, Inc. as of December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /S/ ARTHUR ANDERSEN LLP Seattle, Washington February 13, 1998 CORPORATE DIRECTORY BOARD OF DIRECTORS Thomas J. Cable Chairman of the Board of Directors Thomas A. Bologna President and Chief Executive Officer Elisabeth L. Evans, M.D. Physician, Obstetrics and Gynecology, Overlake Obstetricians and Gynecologists, P.C. David R. Eyre, Ph.D. Co-Founder; Burgess Chair of Orthopedic Research, University of Washington Fredric J. Feldman, Ph.D. President, FJF Associates Gilbert S. Omenn, M.D., Ph.D. Executive Vice President for Medical Affairs University of Michigan Health System Gregory D. Phelps John H. Trimmer EXECUTIVE OFFICERS AND MANAGEMENT Thomas A. Bologna President and Chief Executive Officer John M. Brenneman Director, Finance and Operations Thomas F. Broderick Vice President, Patent and General Counsel J. Daniel Clemens Director, Research and Development Donna J. DeLong Vice President, Marketing Robert M. Littauer Senior Vice President, Finance and Administration Nancy J.S. Mallinak Vice President, Regulatory and Clinical Affairs Cory J. Smith Director, Manufacturing William K. Strelke Vice President, Sales SCIENTIFIC ADVISORY BOARD Charles H. Chesnut III, M.D. Chair, Ostex Scientific Advisory Board; Professor of Medicine and Radiology, Professor of Nutritional Sciences, Adjunct Professor of Orthopedics, University of Washington Elizabeth Barrett-Connor, M.D. Professor and Chair, Family and Preventive Medicine; Director, Division of Epidemiology, University of California, San Diego Laurence M. Demers, Ph.D. Distinguished Professor, Departments of Pathology and Medicine; Director of Clinical Chemistry, Core-Endocrine Laboratory, The Pennsylvania State Geisinger Health System, The Milton S. Hershey Medical Center, The Pennsylvania State University College of Medicine David R. Eyre, Ph.D. Burgess Chair of Orthopedic Research, Adjunct Professor of Biochemistry and Oral Biology, Director, Orthopedic Research Laboratories, University of Washington C. Conrad Johnston, Jr., M.D. Professor of Medicine, Indiana School of Medicine; Director, Division of Endocrinology and Metabolism, Indiana University Medical Center Howard Judd, M.D. Chairman, Department of Obstetrics and Gynecology, Olive View/UCLA Medical Center; Professor, Department of Obstetrics and Gynecology, Chief, Division of Reproductive Endocrinology, UCLA Clinical Center for Women's Health Initiative Robert Lindsay, M.D., Ph.D. Chief of Internal Medicine, Helen Hayes Hospital New York; President, National Osteoporosis Foundation Allan Lipton, M.D. Professor, Department of Medicine; Chief, Division of Oncology, The Milton S. Hershey Medical Center, The Pennsylvania State University Veronica Ravnikar, M.D. Professor of Obstetrics and Gynecology, Director of Reproductive Endocrinology and Infertility, University of Massachusetts Medical Center Markus Seibel, M.D. Head, Endocrine and Osteodiagnostic Laboratories, Department of Medicine, Division of Endocrinology & Metabolism, University of Heidelberg, Germany Frederick R. Singer, M.D. Medical Director, Osteoporosis/Metabolic Bone Disease Program, St. Johns Hospital and Health Center; Professor of Medicine in Residence, UCLA SHAREHOLDER INFORMATION CORPORATE HEADQUARTERS Ostex International, Inc. 2203 Airport Way South, Suite 400 Seattle, WA 98134-9967 Tel: (206) 292-8082 Fax: (206) 292-8625 INDEPENDENT ACCOUNTANTS Arthur Andersen LLP 801 Second Avenue, Suite 800 Seattle, WA 98104 LEGAL COUNSEL Perkins Coie LLP 1201 Third Avenue, 40th Floor Seattle, WA 98101 TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Website: www.chasemellon.com INVESTOR RELATIONS Lippert/Heilshorn & Associates 300 Montgomery Street, Suite 1140 San Francisco, CA 94104 Sec Form 10-k A copy of the Company's annual report to the Securities and Exchange Commission on Form 10-K is available without charge upon written request to Investor Relations at the Company's headquarters. SHAREHOLDERS OF RECORD As of December 31, 1997, the Company had 160 registered shareholders of record of its common stock. SHAREHOLDER INQUIRIES Communications concerning transfer requirements, lost certificates, and changes of address should be directed to the Transfer Agent. For general information about the Company and its activities, contact Investor Relations at Company headquarters. INFORMATION SERVICE For timely information about Ostex, news releases are available via facsimile on the Company's News-on-Demand service by calling (800) 356-8061 or on the World Wide Web at http://www.hnt.com/bizwire/cnn/451.htm. PRICE RANGE OF COMMON STOCK The following table lists the high and low trading places for the Company's common stock as reported on the Nasdaq National Market System. 1997 High Low 1st quarter $ 7.88 $ 3.75 2nd quarter 4.38 1.94 3rd quarter 4.13 2.25 4th quarter $ 4.50 $ 2.13 1996 High Low 1st quarter $20.00 $12.25 2nd quarter 16.25 9.13 3rd quarter 11.50 6.63 4th quarter $ 8.75 $ 5.25 The Company's common stock is traded on the Nasdaq National Market System under the symbol OSTX. No dividends have been paid on the common stock. ANNUAL MEETING The Annual Meeting of Shareholders will be held Monday, May 18, 1998, at 9:00 am at the Museum of History & Industry, Seattle, Washington. OSTEX WEBSITE For more information about Ostex, visit us at http://www.ostex.com. Osteomark and Ostex are registered trademarks of Ostex International, Inc. Evista is a registered trademark of Eli Lilly and Company. Fosamax is a registered trademark of Merck & Co., Inc. Premarin is a registered trademark of American Home Products Corporation. Miacalcin is a registered trademark of Sandoz Pharmaceutical Corporation. EX-23.1 6 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K into the Company's previously filed Registration Statement Nos. 333-4802 and 333-44143. /S/ ARTHUR ANDERSEN LLP Seattle, Washington March 26, 1998 EX-27.1 7
5 YEAR DEC-31-1997 DEC-31-1997 2,201 16,764 755 25 201 20,510 4,678 1,713 24,112 2,142 326 0 0 127 21,517 24,112 3,658 4,108 899 899 12,501 25 828 (2,264) 0 (2,264) 0 0 0 (2,264) (.18) (.18)
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