UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended December 31,
2009
or
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For the
transition period from to ________________ to ________________
Commission
file number 0-26520
NEOPROBE
CORPORATION
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
|
31-1080091
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
425
Metro Place North, Suite 300, Dublin, Ohio
|
|
43017-1367
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant's
telephone number, including area code (614)
793-7500
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $.001 per share
|
(Title
of Class)
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90
days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 if this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).
Yes
¨ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) 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.
Yes o
No x
Indicate
by check mark whether the registrant is a large accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12-b-2 of the Act.)
Yes ¨ No
x
The
aggregate market value of shares of common stock held by non-affiliates of the
registrant on June 30, 2009 was $66,881,198.
The
number of shares of common stock outstanding on March 26, 2010 was
81,890,508.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. We have based
these forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting the financial
condition of our business. These forward-looking statements are
subject to a number of risks, uncertainties and assumptions, including, among
other things:
|
·
|
general
economic and business conditions, both nationally and in our
markets,
|
|
·
|
our
history of losses, negative net worth and uncertainty of future
profitability;
|
|
·
|
our
expectations and estimates concerning future financial performance,
financing plans and the impact of
competition;
|
|
·
|
our
ability to implement our growth
strategy;
|
|
·
|
anticipated
trends in our business;
|
|
·
|
advances
in technologies; and
|
|
·
|
other
risk factors set forth under “Risk Factors” in this
report.
|
In
addition, in this report, we use words such as “anticipate,” “believe,” “plan,”
“expect,” “future,” “intend,” and similar expressions to identify
forward-looking statements.
We
undertake no obligation to update publicly or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this report. In light of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
report may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.
PART
I
Item
1. Business
Development
of the Business
Neoprobe
Corporation (Neoprobe, the company or we) is a biomedical company that develops
and commercializes innovative oncology products that enhance patient care and
improve patient outcome. We were originally incorporated in Ohio in
1983 and reincorporated in Delaware in 1988. Our executive offices
are located at 425 Metro Place North, Suite 300, Dublin, Ohio
43017. Our telephone number is (614) 793-7500.
From our
inception through 1998, we devoted substantially all of our efforts and
resources to the research and clinical development of radiopharmaceutical and
medical device technologies related to the intraoperative diagnosis and
treatment of cancers, including our proprietary radioimmunoguided surgery
(RIGS®)
technology. In 1998, U.S. and European regulatory agencies completed
evaluations and discussions of the status of the regulatory pathway for our RIGS
products, which coupled with our limited financial resources at the time, caused
us to suspend our radiopharmaceutical development activities and refocus our
operating strategy on our medical device business. After achieving
profitability in the fourth quarter of 1999 following this retrenchment, we
expanded our medical device offerings at the beginning of 2002 through the
acquisition of an Israeli company that was developing a line of blood flow
measurement devices.
Although
we had expanded our strategic focus with the addition of medical devices outside
the oncology field, we continued to look for other avenues to reinvigorate our
radiopharmaceutical development portfolio. In 2004, our efforts resulted in a
number of positive events that caused us to take steps to re-activate our
radiopharmaceutical and therapeutic initiatives. As a result of our efforts
since 2004, we now have submitted data from a Phase 3 clinical trial of one of
our radiopharmaceutical products, Lymphoseek®, to the
U.S. Food and Drug Administration (FDA) for review and have held a successful
meeting with FDA that has clarified the process for the near-term filing of a
new drug application (NDA) to FDA. In addition, we are enrolling patients in a
second Phase 3 clinical trial intended to further support and expand our
proposed product labeling for Lymphoseek and to support European filing for the
product. Interest in, and activity related to, our original radiopharmaceutical
product, RIGScanTM CR, has
also increased significantly in recent years as we received formal scientific
advice in late 2008 from the European Medicinal Evaluation Agency (EMEA)
regarding our regulatory and clinical development plans for RIGScan CR. We took
steps during the fourth quarter of 2009 to obtain similar feedback from FDA
through the submission of a pre-Phase 3 meeting request and Special Protocol
Assessment (SPA) request for which we are currently waiting on a response. Our
subsidiary, Cira Biosciences, Inc. (Cira Bio), is also evaluating the market
opportunities for yet another technology platform, activated cellular therapy
(ACT). The success we have been experiencing in recent years related to our drug
development activities caused us, during 2009, to re-evaluate our product
initiatives and strategies. As a result of this evaluation, we made the decision
during the third quarter of 2009 to discontinue the operations of our blood flow
measurement device product line and to look for opportunities to divest our
Cardiosonix Ltd. subsidiary. We believe this decision will allow us to better
focus on our oncology-related development platforms as we approach several key
milestones in the coming twelve to eighteen months.
We
believe that our virtual business model is unique within our industry as we
combine revenue generation from medical devices to cover our public company
overhead while we devote capital raised through financing efforts to the
development of products such as Lymphoseek which possess even greater potential
for shareholder return. In addition, we have sought to maintain a development
pipeline with additional longer-term return potential such as RIGScan CR and ACT
that provide the opportunity for incremental return on the achievement of key
development and funding milestones.
Our
Technology
Gamma
Detection Devices
Through
2009, our line of gamma radiation detection devices has generated substantially
all of our revenue. Our gamma detection systems are used by surgeons in the
diagnosis and treatment of cancer and related diseases. Our currently-marketed
line of gamma detection devices has been cleared by FDA and other international
regulatory agencies for marketing and commercial distribution throughout most
major global markets.
Our
patented gamma detection device systems consist of hand-held detector probes and
a control unit. The critical detection component is a highly radiosensitive
crystal mounted in the tip of the probe that relays a signal through a
preamplifier to the control unit to produce both a digital readout and an
audible signal. The detector element fits into a housing approximately the size
of a pen flashlight. The neoprobe® GDS
gamma detection system, originally released in 1998 under the name neo2000®, is the
fourth generation of our gamma detection products. The neoprobe GDS is designed
as a platform for future growth of our instrument business. The neoprobe GDS is
software upgradeable and is designed to support future surgical targeting probes
without the necessity of costly factory remanufacture. Our most recent software
release enables our entire installed base of neoprobe GDS and neo2000 users to
use our wireless gamma detection probes, based on Bluetooth® wireless
technology, that have been commercially launched over the last few years. During
2009, we also introduced a new gamma detection probe capable of detecting higher
energy isotopes such as Fludeoxyglucose 18F (FDG
or F18) that are frequently used in connection with Positron Emission Tomography
(PET) scans.
Surgeons
are using our gamma detection devices in a surgical application referred to as
intraoperative lymphatic mapping (ILM or lymphatic mapping) or sentinel lymph
node biopsy (SLNB). ILM helps trace the lymphatic drainage patterns in a cancer
patient to evaluate potential tumor drainage and cancer spread in lymphatic
tissue. The technique does not detect cancer; rather it helps surgeons identify
the lymph node(s) to which a tumor is likely to drain and spread. The lymph
node(s), sometimes referred to as the "sentinel" node(s), may provide critical
information about the stage of a patient’s disease. ILM begins when a patient is
injected at the site of the main tumor with a commercially available radioactive
tracing agent. The agent is intended to follow the same lymphatic flow as the
cancer would have if it had metastasized. The surgeon may then track the agent's
path with a hand-held gamma radiation detection probe, thus following the
potential avenues of metastases and identifying lymph nodes to be biopsied for
evaluation and determination of cancer spread.
The
application of ILM to solid tumor cancer treatment has been most widely
developed in the breast cancer and melanoma indications. Numerous clinical
studies, involving thousands of patients and published in peer-reviewed medical
journals as far back as Oncology (January 1999) and The Journal of The American
College of Surgeons (December 2000), have indicated SLNB is approximately 97%
accurate in predicting the presence or absence of disease spread in melanoma and
breast cancers. Consequently, it is estimated that more than 80% of
breast cancer patients who would otherwise have undergone full axillary lymph
node dissections (ALND), involving the removal of as many as 20 - 30 lymph
nodes, might be spared this radical surgical procedure if the sentinel node was
found to be free of cancer. Surgeons practicing SLNB have found that
our gamma detection probes are well-suited to the procedure.
Hundreds
of articles have been published in recent years in peer-reviewed journals on the
topic of ILM or SLNB. Furthermore, a number of thought leaders and cancer
treatment institutions have recognized and embraced the technology as standard
of care for melanoma and for breast cancer. Our marketing partner continues to
see strong sales, especially for use in breast cancer treatment. SLNB in breast
cancer has been the subject of national and international clinical trials,
including one major study sponsored by the U.S. Department of Defense and the
National Cancer Institute (NCI) and one sponsored by the American College of
Surgeons. The first of these trials completed accrual approximately four years
ago. While we are not aware of the exact timing of publication or presentation
of results from these trials, it is possible that such data may be available
sometime later in 2010. Accrual on the second trial was halted early (in 2007),
due, we believe, to the overwhelming desire of patients to be treated with SLNB
rather than be randomized in a trial whereby they might receive a full axillary
dissection. We believe that once data from these trials are widely published,
there may be an additional demand for our devices from those surgeons who have
not yet adopted the SLNB procedure. We also believe, based on an estimate of the
total number of operating rooms in medical centers that are capable of
performing the types of procedures in which our gamma detection devices are
used, that while we continue to approach saturation at the major cancer centers
and teaching institutions, a significant portion of the global market for gamma
detection devices such as ours remains untapped. In addition, we believe we are
beginning to see the development of a replacement device market in the gamma
detection device sector, aided in part by new offerings such as our wireless
probes, as devices purchased over ten years ago during the early years of
lymphatic mapping begin to be retired.
Although
lymphatic mapping has found its greatest acceptance thus far in breast cancer
and melanoma, we believe that Lymphoseek may be instrumental in extending ILM
into other solid tumor cancers in which surgeons are currently investigating
such as prostate, gastric, colon, head and neck, and non-small cell lung
cancers. Investigations in these other cancer types have thus far met with mixed
levels of success due, we believe, to limitations associated with currently
available radioactive tracing agents; however, we believe our development of
Lymphoseek may positively impact the effectiveness of ILM in such indications.
Surgeons have also been using our devices for other gamma-guided surgery
applications, such as evaluating the thyroid function and conducting parathyroid
surgery, and in determining the state of disease in patients with vulvar and
penile cancers. Expanding the application of ILM beyond the current primary uses
in the treatment of breast cancer and melanoma is a primary focus of our
strategy regarding our gamma-guided surgery products and is consistent with our
Phase 3 Lymphoseek clinical trial strategy. To support that expansion, we
continue to work with our marketing and distribution partners to develop
additional enhancements to the neoprobe GDS platform such as the wireless probes
that were introduced over the last few years and the new F18 probe we launched
at the Society of Surgical Oncology (SSO) 62nd Annual Cancer Symposium held in
March of 2009. We believe the market for the intraoperative detection of higher
energy isotope detection is just beginning to develop and may not significantly
impact our sales for some time.
Lymphoseek
Our gamma
detection devices are primarily capital in nature; as such, they generate
revenue only on the initial sale. To complement the one-time revenue stream
related to capital products, we are working on developing recurring revenue or
"procedural" products that would generate revenue based on each procedure in
which they are used. The product we are developing with the greatest near-term
potential in this area is Lymphoseek, a proprietary drug compound under
exclusive worldwide license from the Regents of the University of California
through their UC, San Diego affiliate (UCSD). The UCSD license grants Neoprobe
the commercialization rights to Lymphoseek for diagnostic imaging and
intraoperative detection applications. If proven effective and cleared for
commercial sale, Lymphoseek would be the first radiopharmaceutical product
specifically designed and labeled for the targeting of sentinel lymph
nodes.
The
initial pre-clinical evaluations of Lymphoseek were completed in 2001. Since
that time, Neoprobe, in cooperation with UCSD, has completed or initiated five
Phase 1 clinical trials, a multi-center Phase 2 trial and multi-center Phase 3
trials involving Lymphoseek. The status of these trials is listed
below:
Indication
|
|
Phase
|
|
Number of
Patients
|
|
Status
|
Breast
(peritumoral injection)
|
|
1
|
|
24
|
|
Completed
|
Melanoma
|
|
1
|
|
24
|
|
Completed
|
Breast
(intradermal injection, next day surgery)
|
|
1
|
|
31
|
|
Ongoing
|
Prostate
|
|
1
|
|
20
|
|
Ongoing
|
Colon
|
|
1
|
|
20
|
|
Ongoing
|
Breast
or Melanoma
|
|
2
|
|
80
|
|
Completed
|
Breast
or Melanoma
|
|
3
|
|
179
|
|
Completed
|
Head
and Neck Squamous Cell Carcinoma (“Sentinel”)
|
|
3
|
|
196*
|
|
Ongoing
|
*estimated number based upon
interim analysis; actual number is dependent on statistical analysis at
potential stoppage points
The Phase
1 studies to date have been substantially supported through research grants from
a number of organizations such as the Susan G. Komen Breast Cancer Research
Foundation, the American Cancer Society (ACS) and the NCI. Research data from
some of these clinical evaluations of Lymphoseek have been presented at meetings
of the Society of Nuclear Medicine, the Society of Surgical Oncology and the
World Sentinel Node Congress. The ongoing breast, prostate and colon studies are
being conducted under Neoprobe’s investigational new drug (IND) application that
has been cleared with FDA using drug product supplied by Neoprobe.
In
November 2003, we met with the Interagency Council on Biomedical Imaging in
Oncology, an organization representing FDA, the NCI and the Centers for Medicare
and Medicaid Services, to discuss the regulatory approval process and to
determine the objectives for the next clinical trial involving Lymphoseek.
During 2004, we prepared and submitted an IND application to FDA to support the
marketing clearance of Lymphoseek.
In early
2005, we announced that FDA had accepted our application to establish a
corporate IND for Lymphoseek. With the transfer of the UCSD physician IND to
Neoprobe, we assumed full clinical and commercial responsibility for the
development of Lymphoseek. Following the establishment of the corporate IND,
Neoprobe’s clinical and regulatory personnel began discussions with FDA
regarding the clinical development program for Lymphoseek.
As a
“first in class” drug, Neoprobe was advised that additional non-clinical studies
needed to be completed before additional clinical testing of the drug could
occur in humans. The additional non-clinical testing was successfully completed
in late 2005 and the reports were filed with FDA in December 2005. The seven
studies included repeat administrations of Lymphoseek at dosages significantly
in excess of the anticipated clinical dosage. None of the non-clinical studies
revealed any toxicity issues associated with the drug.
Upon the
submission of the IND and draft Phase 2 protocol, FDA advised Neoprobe that
commercially produced Lymphoseek would need to be used in the Phase 2 clinical
study, as opposed to using drug previously manufactured in laboratories at UCSD.
Also, the regulatory agencies raised a number of Chemistry, Manufacturing and
Control (CMC) questions regarding the drug compound and characterization.
Neoprobe began the transfer of bulk drug manufacturing to Reliable
Biopharmaceutical Corporation (Reliable) early in 2005 and engaged OSO
BioPharmaceuticals Manufacturing LLC (OSO Bio, formerly Cardinal Health PTS) to
develop and validate procedures and assays to establish commercial standards for
the formulation, filling and lyophilization of the drug compound. We submitted
an initial CMC response to FDA in 2006.
We
received clearance from FDA in May 2006 to move forward with patient enrollment
for a multi-center Phase 2 clinical study of Lymphoseek. The first of our Phase
2 clinical sites received clearance from its internal clinical review committee,
or Institutional Review Board (IRB), in July 2006. The IRB clearance permitted
us to finalize arrangements to begin patient screening and enrollment activities
for the Phase 2 trial, and we began patient enrollment in September 2006 and
completed enrollment of the 80 patients in June 2007. We announced positive
preliminary efficacy results from our Phase 2 Lymphoseek trial in June 2007 and
final results in December 2007. Localization of Lymphoseek to lymphoid tissue
was confirmed by pathology in over 99% of the lymph node tissue samples removed
during the Phase 2 trial. We held an end of Phase 2 meeting with FDA during late
October 2007 during which the final results were reviewed. The Phase 2 study was
conducted at five of the leading cancer centers in the U.S.: John Wayne Cancer
Center; University of California, San Francisco; MD Anderson Cancer Center;
University Hospital Cleveland (Case Western Reserve); and the University of
Louisville.
Based on
dialogue with FDA through 2007, we proposed to FDA a plan for conducting Phase 3
studies to support an NDA for marketing clearance of Lymphoseek. During 2008, we
initiated patient enrollment in the first Phase 3 clinical study in patients
with either breast cancer or melanoma (NEO3-05). In March 2009, we announced
that this study had reached the accrual of 203 lymph nodes, the study’s primary
accrual objective. The NEO3-05 Phase 3 clinical trial was designed to provide,
and achieved its primary endpoint of, the evaluation of the efficacy of
Lymphoseek in anatomically delineating lymph nodes in both breast cancer and
melanoma patients that may be predictive of determining whether cancer has
spread into the lymphatic system. Final data from the trial in patients with
breast cancer and melanoma has now been reviewed and audited. The NEO3-05 study
has also been closed on the national clinical trials website,
www.clinicaltrials.gov. In December 2009, Neoprobe submitted an end-of-Phase 3
meeting request to FDA to discuss the results of the clinical trial as part of
our continuing preparation of a NDA In March 2010, Neoprobe met with FDA
regarding NEO3-05. The FDA review included the efficacy and safety results of
the NEO3-05 study and Neoprobe’s plans for the submission of a NDA for
Lymphoseek. The NDA submission will be based on the clinical results of NEO3-05
and other already completed clinical evaluations of Lymphoseek. FDA encouraged
Neoprobe to request a series of pre-NDA meetings in the coming months to review
the components of the NDA prior to its formal submission. Neoprobe indicated to
FDA that the Company plans to submit the NDA following satisfactory completion
of these meetings.
The
NEO3-05 Phase 3 study was an open label trial of node-negative subjects with
either breast cancer or melanoma. It was designed to evaluate the safety and the
accuracy of Lymphoseek while identifying the lymph nodes draining from the
subject’s tumor site. To demonstrate the accuracy of Lymphoseek, each subject
consenting to participate in the study was injected in proximity to the tumor
with Lymphoseek and one of the vital blue dyes that are commonly used in
lymphatic mapping procedures. The primary efficacy objective of the study was to
identify lymph nodes that contained the vital blue dye and to demonstrate a
statistically acceptable concordance rate between the identification of lymph
nodes with the vital blue dye and Lymphoseek. To be successful, the study needed
to achieve a statistical p-value of at least 0.05.
In this
review meeting with FDA, the full analysis of the NEO3-5 clinical data was
discussed. The protocol compliant clinical sites that participated in the
NEO3-05 study contributed 136 Intent-To-Treat (ITT) subjects who provided 215
lymph nodes that contained the vital blue dye. 210 of the vital blue dye
positive lymph nodes contained Lymphoseek for an overall concordance rate of 98%
achieving a statistical p-value of 0.0001. In addition to the nodes identified
by vital blue dye and Lymphoseek, Lymphoseek was able to identify 85 additional
lymph nodes that did not contain the vital blue dye, and 18% of these nodes were
found by pathology to contain cancer. There were no significant safety events
related to Lymphoseek. The FDA indicated that the clinical data would be
supportive of a NDA submission for Lymphoseek.
In future
pre-NDA meetings, Neoprobe will continue discussions with the FDA reviewers
regarding the pre-clinical and chemistry, manufacturing and control quality data
modules that will be part of the NDA submission. Neoprobe will be discussing
elements of the statistical analysis plan that would support the NDA, including
the design of any prospective clinical evaluations to support the primary
indication, and to potentially expand the future indications for
Lymphoseek.
A second
Phase 3 study is also underway to further validate Lymphoseek as a sentinel
lymph node targeting agent. This second trial, NEO3-06 or the “Sentinel” trial,
is being conducted in patients with head and neck squamous cell carcinoma. The
Sentinel study is designed to validate Lymphoseek as a sentinel lymph node
targeting agent. Our discussions with FDA and EMEA have also suggested that the
Sentinel trial will further support the use of Lymphoseek in sentinel lymph node
biopsy procedures. We believe the outcome of the trial will be beneficial to the
marketing and commercial adoption of Lymphoseek in the U.S. and European Union
(EU). We plan to have approximately 20 participating institutions in the
Sentinel trial. Patient recruitment and enrollment is actively underway at a
number of institutions and the trial protocol is currently under review at
several other institutions. The accrual rate for trials of this nature is highly
dependent on the timing of IRB approvals of the NEO3-06 protocol. Our experience
in the NEO3-05 trial has shown that this process may be lengthening due to risk
management concerns on the part of hospitals participating in clinical trials
and other factors.
We plan
to use the safety and efficacy results from the Phase 3 clinical evaluations of
Lymphoseek, which will include sites in the EU, to support the drug registration
application process in the EU as well as to amend the filing in the U.S. for
expanded product labeling. Based on the positive outcome of the recent meeting
regarding NEO3-05, Neoprobe expects to submit the NDA for Lymphoseek later in
the summer of 2010. Depending on the timing of the planned pre-NDA meetings with
FDA and the outcome of the FDA regulatory review cycle, we believe that
Lymphoseek could be commercialized in mid-2011. We cannot assure you, however,
that this product will achieve regulatory approval, or if approved, that it will
achieve market acceptance. See Risk Factors.
RIGS
From
inception until 1998, Neoprobe devoted significant efforts and resources to the
development of its proprietary RIGS®
technology. The RIGS system combines a patented hand-held gamma radiation
detection probe with proprietary radiolabeled cancer-specific targeting agents
to provide surgeons with real-time information to locate tumor deposits
generally not detectable by conventional methods. The RIGS system is designed to
assist the surgeon in the more thorough removal of the cancer, thereby leading
to improved surgical treatment of the patient. The targeting agents used in the
RIGS process are monoclonal antibodies, labeled with a radioactive isotope that
emits low energy gamma rays. The device used is a very sensitive radiation
detection instrument that is capable of detecting small amounts of radiation
bound to the targeting agent. Before surgery, a cancer patient is injected with
one of the targeting agents which circulates throughout the patient’s body and
binds specifically to cancer cell antigens or receptors. Concentrations of the
targeting agent are then located during surgery by Neoprobe's gamma detection
device, which emits an audible tone to direct the surgeon to targeted
tissue.
RIGScanTM CR is
an intraoperative targeting agent consisting of a radiolabeled murine monoclonal
antibody (CC49 MAb). The radiolabel used is 125I, a 27 - 35 KeV emitting
isotope. The CC49 MAb was developed by the NCI and is licensed to Neoprobe by
the National Institutes of Health (NIH). The CC49 MAb is produced from a murine
cell line generated by the fusion of splenic lymphocytes from mice immunized
with tumor-associated glycoprotein-72 (TAG-72) with non-immunoglobulin secreting
P3-NS-1-Ag4 myeloma cells. The CC49 MAb localizes or binds to TAG-72 antigen and
shows a strong reactivity with both LS-174T colon cancer extract and to a breast
cancer extract.
RIGScan
CR is the biologic component for the RIGS system to be used in patients with
colon or rectal cancer. The RIGS system was conceived to be a diagnostic aid in
the intraoperative detection of clinically occult disease. RIGScan CR is
intended to be used in conjunction with other diagnostic methods, for the
detection of the extent and location of tumor in patients with colorectal
cancer. The detection of clinically occult tumor provides the surgeon with a
more accurate assessment of the extent of disease, and therefore may impact the
surgical and therapeutic management of the patient. Clinical trials suggest that
RIGScan CR provides additional information outside that provided by standard
diagnostic modalities (including surgical exploration) that may aid in patient
management. Specifically, RIGScan CR, used as a component of the RIGS system,
confirms the location of surgically suspicious metastases, evaluates the margins
of surgical resection, and detects occult tumor in perihepatic (portal and
celiac axis) lymph nodes.
Neoprobe
conducted two Phase 3 studies, NEO2-13 and NEO2-14, of RIGScan CR in the
mid-1990s in patients with primary and metastatic colorectal cancer,
respectively. Both studies were multi-institutional involving cancer treatment
institutions in the U.S., Israel, and the EU. The primary endpoint of both
studies was to demonstrate that RIGScan CR detected pathology-confirmed disease
that had not been detected by traditional preoperative (i.e., CT Scans) or
intraoperative (i.e., surgeon’s visual observations and palpation) means.
That is, the trials were intended to show that the use of RIGScan CR assisted
the surgeon in the detection of occult tumor. In 1996, Neoprobe submitted
applications to EMEA and FDA for marketing approval of RIGScan CR for the
detection of metastatic colorectal cancer.
Clinical
study NEO2-14, which was submitted to FDA in the RIGScan CR Biologic License
Application (BLA), enrolled 151 colorectal cancer patients with either suspected
metastatic primary colorectal disease or recurrent colorectal disease. During
FDA’s review of the BLA, 109 of the enrolled patients were determined to be
evaluable patients. Clinical study NEO2-13 was conducted in 287 enrolled
patients with primary colorectal disease. The primary end-point for clinical
study NEO2-13 was the identification of occult tumor.
NEO2-14
was the pivotal study submitted with Neoprobe’s referenced BLA. Two additional
studies evaluating patients with either primary or metastatic colorectal
disease, NEO2-11 (a multi-center study) and NEO2-18 (a single institution
study), were included in the BLA and provided supportive proof of concept (i.e.,
localization and occult tumor detection) and safety data. A study summary report
for NEO2-13 was submitted under the BLA; however, FDA undertook no formal review
of the study.
Following
review of our applications, we received requests for further information from
FDA and from the European Committee for Proprietary Medicinal Products on behalf
of EMEA. Both FDA and EMEA acknowledged that our studies met the diagnostic
endpoint of the Phase 3 clinical study, which was to provide incremental
information to the surgeon regarding the location of hidden tumor. However, both
agencies wanted to know how the finding of additional tumor provided clinical
benefit that altered patient management or outcome for patients with metastatic
colorectal cancer. In a series of conversations with FDA, the product claims
were narrowed to the intraoperative detection of hepatic and perihepatic disease
in patients with advanced colorectal cancer and patients with recurrent
colorectal cancer.
FDA
determined during its review of the BLA that the clinical studies of RIGScan CR
needed to demonstrate clinical utility in addition to identifying additional
pathology-confirmed disease. In discussions between Neoprobe and the agency, an
FDA-driven post hoc analysis plan was developed to limit the evaluation of
RIGScan CR to patients with hepatic and perihepatic disease with known
metastasis to the liver. Findings of occult disease and subsequent changes in
patient management (i.e., abandoning otherwise risky hepatic resections) in this
limited population would serve as a measure of patient benefit. FDA's analysis
of the patients enrolled in NEO2-14 matching the limited criteria was evaluated
with a determination to confirm the surgical resection abandonment outcome. The
number of evaluable patients in this redefined patient population was deemed too
small by the agency and the lack of pre-stated protocol guidance precluded
consistent sets of management changes given similar occult findings. The number
of evaluable patients for any measure of clinical utility, therefore, was too
small to meet relevant licensing requirements and FDA ultimately issued a not
approvable letter for the BLA on December 22, 1997, describing certain clinical
and manufacturing deficiencies. Neoprobe withdrew its application to EMEA in
November 1997.
We
developed a clinical response plan for both agencies during the first half of
1998. However, following our analysis of the regulatory pathways for approval
that existed at that time, we determined that we did not have sufficient
financial resources to conduct the additional studies requested and sought to
identify others with an interest in continuing the development
process.
In 2004,
we obtained access to survival analyses of patients treated with RIGScan CR
which have been prepared by third parties, indicating that RIGScan CR may be
predictive of, or actually contribute to, a positive outcome when measuring
survival of the patients that participated in our original BLA studies. The data
or its possible significance was unknown at the time of the BLA review given the
limited maturity of the follow-up experience. The data includes publication by
some of the primary investigators involved in the Phase 3 RIGS trials who have
independently conducted survival follow-up analyses to their own institution’s
RIGS trial patients with apparently favorable results relating to the long-term
survival prognosis of patients who were treated with RIGS. Based primarily on
this survival-related information, we requested a meeting with FDA in 2004 to
discuss the possible next steps for evaluating the survival related to our
previous Phase 3 clinical trials as well as the possible submission of this
data, if acceptable, as a prospective analysis in response to questions
originally asked by FDA in response to our original BLA.
The April
2004 meeting with FDA was an important event in the re-activation of the RIGS
program. The meeting was very helpful from a number of aspects: we confirmed
that the RIGS BLA remains active and open. We believe this will improve both the
cost effectiveness and timeliness of future regulatory submissions for RIGScan
CR. Additionally, FDA preliminarily confirmed that the BLA may be applicable to
the general colorectal population; and not just the recurrent colorectal market
as applied for in 1996. Applicability to a general colorectal population could
result in a greater market potential for the product than if applicable to just
the recurrent population. During the meeting, FDA also indicated that it would
consider possible prognostic indications for RIGScan CR and that survival data
from one of our earlier Phase 3 studies could be supportive of a prognostic
indication.
Our
statistical analyses following the 2004 meeting with FDA indicated a potential
trial size of 2,400 to 2,800 patients, which proved cost prohibitive to us and
our potential development partners in evaluating continued development for
RIGScan CR. However, during 2008 we developed a protocol design which we believe
could support our desired clinical endpoints but in a much smaller patient
population. We made the decision to initially approach the EMEA with this trial
design under their formal process for seeking scientific advice. After holding a
successful pre-submission meeting with EMEA in July 2008, we received positive
feedback in October 1998 to the clinical trial design which involved
approximately 400 patients in a randomized trial of patients with colorectal
cancer. The participants in the trial would be randomized to either a control or
RIGS treatment arm. Patients randomized to the RIGS arm would have their disease
status evaluated at the end of their cancer surgery to determine the presence or
absence of RIGS-positive tissue. Patients in both randomized arms would be
followed to determine if patients with RIGS-positive status have a lower overall
survival rate and/or a higher occurrence of disease recurrence. The hypothesis
for the trial is based upon the data from the earlier NEO2-13 and NEO2-14 trial
results.
Our
desire has been, and continues to be, to develop a clinical development plan
which is harmonized between the U.S. and the EU. To that end, during December
2009 we submitted an investigational new drug (IND) amendment to the United
States FDA which includes the design of a proposed Phase 3 clinical trial of
RIGScan CR. The IND amendment includes a Special Protocol Assessment (SPA) in
accordance with the Prescription Drug User Fee Act of 1992 (PDUFA) and current
regulatory guidelines, and will be registered on the clinicaltrials.gov website
following discussions with FDA regarding the SPA, which we expect will take
place sometime in the second quarter of 2010.
The Phase
3 clinical study as currently designed would be a randomized clinical study that
would evaluate the ability of RIGScan CR to identify tumor-associated tissue in
a group of patients as compared to a group of patients provided with traditional
surgical care. Based on our current statistical analysis, we now believe the
sample size for the proposed Phase 3 clinical study may be as few as 300
patients including both the RIGScan CR and traditional treatment groups. In
addition to assessing the ability of RIGScan CR to identify tumor-associated
tissue, the survival rate of the RIGScan CR treated patients will be compared to
the patients treated with conventional treatment modalities.
It should
also be noted that the RIGScan CR biologic drug has not been produced for
several years. We would have to perform some additional work related to ensuring
the drug cell line is still viable and submit this data to EMEA and possibly FDA
for their evaluation in connection with preparations to restart pivotal clinical
trials. During the third quarter of 2009, we announced that we had executed a
Biopharmaceutical Development and Supply Agreement with Laureate Pharma, Inc.
This agreement will support the initial evaluation of the viability of the CC49
master working cell bank as well as the initial steps in re-validating the
commercial production process for the biologic agent used in RIGScan CR. In
addition, we will need to re-establish radiolabeling capabilities for the CC49
antibody in order to meet the regulatory needs for the RIGScan CR product. We
have also begun discussions with parties capable of supporting such
activities.
We
continue to believe it will be necessary for us to identify a development
partner or an alternative funding source in order to prepare for and fund the
pivotal clinical testing that will be necessary to gain marketing clearance for
RIGScan CR. In the past, we have engaged in discussions with various parties
regarding such a partnership. We believe the recently clarified regulatory
pathway approved by EMEA is very valuable, but we believe clarifying the
regulatory pathway in the U.S. is important for us and our potential partners in
assessing the full potential for RIGScan CR. However, even if we are able to
make such arrangements on satisfactory terms, we believe that the time required
for continued development, regulatory approval and commercialization of a RIGS
product would likely be a minimum of five years before we receive any
significant product-related royalties or revenues. We cannot assure you that we
will be able to complete definitive agreements with a development partner or
obtain financing to fund development of the RIGS technology and do not know if
such arrangements could be obtained on a timely basis on terms acceptable to us,
or at all. We also cannot assure you that FDA or EMEA will clear our RIGS
products for marketing or that any such products will be successfully introduced
or achieve market acceptance. See Risk Factors.
Activated
Cellular Therapy
Through
various research collaborations, we performed early-stage research during the
late 1990’s on another technology platform, ACT, based on work originally done
in conjunction with the RIGS technology. ACT is intended to boost the patient’s
own immune system by removing lymph nodes identified during surgery and then, in
a cell processing technique, activating and expanding “helper” T-cells found in
the nodes. Within 10 to 14 days, the patient’s own immune cells, activated and
numbering more than 20 billion, are infused into the patient in an attempt to
trigger a more effective immune response to the cancer.
In the
course of our research into ACT performed with RIGS, we learned that these lymph
node lymphocytes containing helper T-cells could be activated and expanded to
treat patients afflicted with viral and autoimmune disease as well as oncology
patients. We have seen promising efficacy of this technology demonstrated from
six Phase 1 clinical trials covering the oncology, viral and autoimmune
applications.
In 2005,
we formed a new subsidiary, Cira Bio, to explore the development of ACT.
Neoprobe owns approximately 90% of the outstanding shares of Cira Bio with the
remaining shares being held by the principals of a private holding company, Cira
LLC. In conjunction with the formation of Cira Bio, an amended technology
license agreement also was executed with The Ohio State University, from whom
both Neoprobe and Cira LLC had originally licensed or optioned the various
cellular therapy technologies. As a result of the cross-license agreements, Cira
Bio has the exclusive development and commercialization rights to three issued
U.S. patents that cover the oncology and autoimmune applications of its
technology. In addition, Cira Bio has exclusive licenses to several pending
patent applications.
In 2006,
Cira Bio engaged the Battelle Memorial Institute to complete a technology and
manufacturing process assessment of the cellular therapy approach. Cira Bio has
attempted over the past few years to raise the necessary capital to move this
technology platform forward. In August 2007 we entered into a Stock and
Technology Option Agreement whereby Neoprobe gained the option to purchase the
remaining 10% of Cira Bio from Cira LLC for $250,000; however, this option
expired in 2008. The prospects for the ACT technology were buoyed during the
fourth quarter of 2009 as a result of the publication of the discovery of a
retrovirus linked to chronic fatigue syndrome, an autoimmune dysfunction the
treatment of which showed promise the early clinical trials for ACT. Scientists
are continuing to evaluate the data regarding the linkage. Should the link to
the retrovirus be further substantiated, the development prospects for ACT will
likely improve. We do not know if our assessment of the technology’s prospects
will ultimately yield positive results or if we will be successful in obtaining
funding on terms acceptable to us, or at all. In the event we fail to obtain
financing for Cira Bio, the technology rights for the oncology applications of
ACT may revert back to Neoprobe and the technology rights for the viral and
autoimmune applications may revert back to Cira LLC upon notice by either party.
See Risk Factors.
Market
Overviews
The
medical device marketplace is a fast growing market. Epsicom Business
Intelligence estimated in 2009 an annual medical device market of $91 billion in
the U.S. and $131 billion internationally.
Cancer
Market Overview
Cancer is
the second leading cause of death in the U.S. and Western Europe and has been
estimated to be responsible for over 562,000 deaths annually in 2009 in the U.S.
alone. The NIH has estimated the overall annual costs for cancer (the primary
focus of our gamma detection and pharmaceutical products) for the U.S. for 2008
at $228.1 billion: $93.2 billion for direct medical costs, $18.8 billion for
indirect morbidity, and $116.1 billion for indirect mortality. Our line of gamma
detection systems is currently used primarily in the application of ILM in
breast cancer and melanoma which, according to the ACS, have been estimated to
account for 13% and 5%, respectively, of new cancer cases which occurred in the
U.S. in 2009.
The NIH
has estimated that 1.3 million new cases of invasive breast cancer are expected
to occur annually among women worldwide. Breast cancer is the second leading
cause of death from cancer among all women in the U.S. The incidence of breast
cancer, while starting to show minor declines in the past few years, generally
increases with age, rising from about 120 cases per 100,000 women at age 40 to
about 400 cases per 100,000 women at age 65. While the incidence rate for breast
cancer appears to be decreasing, the overall number of new cases of breast
cancer is still increasing. According to the ACS, over 192,000 new cases of
invasive breast cancer are expected to be diagnosed and approximately 40,000
women are estimated to have died from the disease during 2009 in the U.S. alone.
Thus, we believe that the significant aging of the population, combined with
improved education and awareness of breast cancer and diagnostic methods, will
continue to lead to an increased number of breast cancer surgical diagnostic
procedures.
Approximately
80% of the patients diagnosed with breast cancer undergo a lymph node dissection
(either ALND or SLNB) to determine if the disease has spread. While many breast
cancer patients are treated in large cancer centers or university hospitals,
regional and/or community hospitals continue to treat the majority of breast
cancer patients. Over 10,000 hospitals are located in the markets targeted for
our gamma detection SLNB products. We believe a significant portion of the
potential market for gamma detection devices remains unpenetrated and that a
replacement market is beginning to develop as units placed in the early years of
SLNB begin to exceed over ten years of use. In addition, if the potential of
Lymphoseek as a radioactive tracing agent is ultimately realized, it has the
potential to address not only the current breast and melanoma markets on a
procedural basis, but also to assist in the clinical evaluation and staging of
solid tumor cancers and expanding SLNB to additional indications, such as
gastric, non-small cell lung and other solid tumor cancers.
We
estimate the total market potential for Lymphoseek, if ultimately approved for
all of these indications, could exceed $250 million. However, we cannot assure
you that Lymphoseek will be cleared to market, or if cleared to market, that it
will achieve the prices or sales we have estimated.
The ACS
has also estimated that nearly 147,000 new incidences of colon and rectal
cancers were expected to occur in the U.S. in 2009. Based on an assumed
recurrence rate of 40%, this would translate into total potential surgical
procedures of over 200,000 annually in the U.S. alone. We believe the number of
procedures in other markets of the world to be approximately two times the
estimated U.S. market. As a result, we believe the total potential global market
for RIGScan CR could be in excess of $3 billion annually, depending on the level
of reimbursement allowed. However, we cannot assure you that RIGScan CR will be
cleared to market, or if cleared to market, that it will receive the
reimbursement or achieve the level of sales we have currently
estimated.
Marketing
and Distribution
Gamma
Detection Devices
We began
marketing the neo2000 gamma detection system in October 1998. Since October of
1999, our gamma detection systems have been marketed and distributed throughout
most of the world through Ethicon Endo-Surgery, Inc. (EES), a Johnson &
Johnson company. In Japan, however, we market our products through a
pre-existing relationship with Century Medical, Inc.
The heart
of our gamma detection product line, the neoprobe GDS, is a control unit that is
software-upgradeable, permitting product enhancements without costly
remanufacturing. Since the original launch of the GDS’ predecessor platform, the
neo2000 (in 1998), we have also introduced a number of enhanced radiation
detection probes optimized for lymphatic mapping procedures, including three
wireless probes, as well as a new probe optimized for the detection of high
energy radioisotopes. We have also developed four major software upgrades for
the system that have been made available for sale to customers. We intend to
continue developing additional SLNB-related probes and instrument products in
cooperation with EES to maintain our leadership position in the gamma detection
field.
Physician
training is critical to the use and adoption of SLNB products by surgeons and
other medical professionals. Our company and our marketing partners
have established relationships with leaders in the SLNB surgical community and
have established and supported training courses internationally for lymphatic
mapping. We intend to continue to work with our partners to expand
the number of SLNB training courses available to surgeons.
We
entered into a distribution agreement with EES effective October 1, 1999 for an
initial five-year term with options to extend for two successive two-year terms.
In March 2004, EES exercised its first two-year extension option, and in March
2006 EES exercised its option for the second and final two-year term extension,
thus extending the term of our the agreement through the end of 2008. In
December 2007, Neoprobe and EES executed an amendment to the distribution
agreement which extended the agreement through the end of 2013. Under this
agreement, we manufacture and sell our SLNB products almost exclusively to EES,
who distributes the products globally (except for Japan). EES has no ongoing
purchase or reimbursement commitments to us other than the rolling four-month
binding purchase commitment for gamma detection devices and certain annual
minimum sales levels in order to maintain their exclusivity in distribution in
most global markets. In addition, the economic terms of the revenue sharing from
the end customer sale of our gamma detection devices increased commencing in
January 2009. Our agreement with EES also contains certain termination
provisions and licenses to our intellectual property that take effect only in
the event we fail to supply product, or for other reasons such as a change of
control. See Risk Factors.
Gamma
Detection Radiopharmaceuticals
During
the fourth quarter of 2007, we executed an agreement with Cardinal Health,
Inc.’s radiopharmaceutical distribution division (Cardinal Health) for the
exclusive distribution of Lymphoseek in the United States. The
agreement is for a term of five years from the date of marketing clearance of a
NDA from FDA. Under the terms of our agreement with Cardinal Health,
Neoprobe will receive a share of each patient dose sold. In addition,
Neoprobe will receive up to $3 million in payments upon the achievement of
certain sales milestones by Cardinal Health. We do not currently have
collaborative agreements covering Lymphoseek in other areas of the world or for
RIGScan CR or ACT. We cannot assure you that we will be successful in
securing collaborative partners for other global markets or radiopharmaceutical
products, or that we will be able to negotiate acceptable terms for such
arrangements. We believe the most preferable and likely distribution
partners for Lymphoseek would be entities with established radiopharmaceutical
distribution channels, although it is possible that other entities with more
traditional oncology pharmaceutical portfolios may also have
interest.
With
respect to RIGScan CR, we believe there are development milestones that can be
achieved prior to the need for significant capital investment in RIGScan CR,
such as harmonizing the regulatory requirements in the US and EU for the planned
Phase 3 trial. We continue to believe it will be necessary for us to
identify a development partner or an alternative funding source in order to
prepare for and to fund the pivotal clinical testing that will be necessary to
gain marketing clearance for RIGScan CR. At the present time, while
we have parties who have indicated an interest in entering into a development
relationship, we do not believe these efforts will result in a definitive
partnership at least until a regulatory and development pathway is
obtained. We anticipate continuing discussions for RIGScan CR as we
move forward with the clinical development of the product; however, we cannot
assure you that we will be able to secure marketing and distribution partners
for the product, or if secured, that such arrangements will result in
significant sales of RIGScan CR.
Manufacturing
Gamma
Detection Devices
We rely
on independent contract manufacturers, some of which are single-source
suppliers, for the manufacture of the principal components of our current line
of gamma detection system products. See Risk Factors. We have devoted
significant resources to develop production capability of our gamma detection
systems at qualified contract manufacturers. Production of the neoprobe GDS
control unit, the 14mm probe, the 11mm laparoscopic probe, and the wireless
probes involve the manufacture of components by a combination of subcontractors,
including but not limited to, eV Microelectronics, a division of Endicott
Interconnect Technologies, Inc. (eV), and TriVirix International, Inc.
(TriVirix). We also purchase certain accessories for our line of gamma detection
systems from other qualified manufacturers.
We have
purchased certain solid-state crystals and associated electronics used in the
manufacture of our proprietary line of hand-held gamma detection probes from
eV. We do not currently have a supply agreement with eV, however we
currently purchase from them under extended blanket purchase
orders. The number of potential suppliers of such solid-state
crystals is limited. In the event we are unable to secure a viable
alternative source of supply should we become unable to obtain crystals from eV,
any prolonged interruption of this source could restrict the availability of our
probe products, which would adversely affect our operating results.
In
February 2004, we executed a Product Supply Agreement with TriVirix for the
manufacture and/or final assembly of our gamma detection products, including
probes and control units. The original term of this agreement expired
in February 2007 but has been extended under the automatic renewal terms of the
agreement through February 2011. The Agreement will continue to be
automatically extended for successive one-year periods unless six months notice
is provided by either party.
We cannot
assure you that we will be able to maintain agreements or other purchasing
arrangements with our subcontractors on terms acceptable to us, or that our
subcontractors will be able to meet our production requirements on a timely
basis, at the required levels of performance and quality. In the
event that any of our subcontractors is unable or unwilling to meet our
production requirements, we cannot assure you that an alternate source of supply
could be established without significant interruption in product supply or
without significant adverse impact to product availability or
cost. Any significant supply interruption or yield problems that we
or our subcontractors experience would have a material adverse effect on our
ability to manufacture our products and, therefore, a material adverse effect on
our business, financial condition, and results of operations until a new source
of supply is qualified. See Risk Factors.
Gamma
Detection Radiopharmaceuticals
In
preparation for the commencement of a multi-center clinical evaluation of
Lymphoseek, Neoprobe engaged drug manufacturing organizations to produce the
drug that was used in the Phase 2 trial and is expected to be used in the
pivotal (i.e., Phase 3) clinical trials. Reliable has produced the active
pharmaceutical ingredient (API) and OSO Bio has performed final product
manufacturing including final drug formulation, lyophilization (i.e.,
freeze-drying) and packaging processes. Once packaged, the vialed drug can then
be shipped to a hospital or regional commercial radiopharmacy where it can be
made radioactive (i.e., radiolabeled) with Tc99m to become Lymphoseek. The
commercial manufacturing processes at Reliable and OSO Bio are being validated
and both organizations have assisted Neoprobe in the preparation of the
chemistry, manufacturing and control sections of our submissions to FDA and
EMEA. Both Reliable and OSO Bio are registered manufacturers with FDA and/or
EMEA. In November 2009, we completed a Manufacture and Supply Agreement with
Reliable for the manufacture of the bulk API material with an initial term of 10
years. At this point, drug product produced by OSO Bio has been manufactured
under clinical development agreements. A commercial supply agreement is being
negotiated with OSO Bio. We cannot assure you that we will be successful in
reaching an agreement with OSO Bio on terms satisfactory to us, or at all. We
also cannot assure you that we will be able to maintain agreements or other
purchasing arrangements with our subcontractors on terms acceptable to us, or
that our subcontractors will be able to meet our production requirements on a
timely basis, at the required levels of performance and quality. In the event
that any of our subcontractors are unable or unwilling to meet our production
requirements, we cannot assure you that an alternate source of supply could be
established without significant interruption in product supply or without
significant adverse impact to product availability or cost. Any significant
supply interruption or yield problems that we or our subcontractors experience
would have a material adverse effect on our ability to manufacture our products
and, therefore, a material adverse effect on our business, financial condition,
and results of operations until a new source of supply is qualified. See Risk
Factors.
During
the third quarter of 2009, we announced that we had executed a Biopharmaceutical
Development and Supply Agreement with Laureate Pharma, Inc. This
agreement will support the initial evaluation of the viability of the CC49
master working cell bank as well as the initial steps in re-validating the
commercial production process for the biologic agent used in RIGScan
CR. In addition, we will need to re-establish radiolabeling
capabilities for the CC49 antibody in order to meet the regulatory needs for the
RIGScan CR product. We have also begun discussions with parties
capable of supporting such activities.
We cannot
assure you that we will be successful in securing and/or maintaining the
necessary biologic, product and/or radiolabeling capabilities. See
Risk Factors.
Competition
We face
competition from medical product and biotechnology companies, as well as from
universities and other non-profit research organizations in the field of cancer
diagnostics and treatment. Many emerging medical product companies have
corporate partnership arrangements with large, established companies to support
the research, development, and commercialization of products that may be
competitive with our products. In addition, a number of large established
companies are developing proprietary technologies or have enhanced their
capabilities by entering into arrangements with or acquiring companies with
technologies applicable to the detection or treatment of cancer. Many of our
existing or potential competitors have substantially greater financial, research
and development, regulatory, marketing, and production resources than we have.
Other companies may develop and introduce products and processes competitive
with or superior to those of ours. See Risk Factors.
For our
products, an important factor in competition is the timing of market
introduction of our products or those of our competitors’
products. Accordingly, the relative speed with which we can develop
products, complete the regulatory clearance processes and supply commercial
quantities of the products to the market is an important competitive
factor. We expect that competition among products cleared for
marketing will be based on, among other things, product efficacy, safety,
reliability, availability, price, and patent position.
Gamma
Detection Devices
With the
continued emergence of SLNB, a number of companies have begun to market gamma
radiation detection instruments. Most of the competitive products
have been designed from an industrial or nuclear medicine perspective rather
than being developed initially for surgical use. We compete with
products produced and/or marketed by Care Wise Medical Products Corporation,
Intra-Medical Imaging LLC, RMD Instruments LLC (a subsidiary of Dynasil
Corporation), SenoRx, Eurorad S.A and other companies.
It is
often difficult to glean accurate competitive information within the lymphatic
mapping field, primarily because most of our competitors are either subsidiaries
or divisions of larger corporations or privately held corporations, whose sales
revenue or volume data is not readily available or determinable. In addition,
lymphatic mapping does not currently have a separate reimbursement code in most
healthcare systems. As such, determining trends in the actual number of
procedures being performed using lymphatic mapping is difficult. We believe,
based on our understanding of EES’ success rate in competitive bid situations,
that our market share has remained relatively constant or increased slightly in
light of changes in the competitive landscape over the past few years. As we
have discussed, we believe that current sales levels indicate that some
prospective customers may be waiting on the results of important international
clinical trials prior to adoption of the SLNB procedure and purchasing a gamma
detection device. We expect the results from these trials, when announced, will
likely have a positive impact on sales volumes. We believe our intellectual
property portfolio will be a barrier to competitive products; however, we cannot
assure you that competitive products will not be developed, be successful in
eroding our market share or affect the prices we receive for our gamma detection
devices. See Risk Factors.
Gamma
Detection Radiopharmaceuticals
We do not
believe there are any directly competitive intraoperative diagnostic
radiopharmaceuticals with RIGScan CR that would be used intraoperatively in the
colorectal cancer application that RIGScan CR is initially targeted for. There
are other radiopharmaceuticals that are used as preoperative imaging agents;
however, we are unaware of any that could be used as a real-time diagnostic aid
during surgery such as RIGScan CR.
Surgeons
who practice the lymphatic mapping procedure for which Lymphoseek is intended
currently use other radiopharmaceuticals such as a sulphur-colloid compound in
the U.S. and other colloidal compounds in other markets. However, these drugs
are being used “off-label” in most major global markets (i.e., they are not
specifically indicated for use as a sentinel node targeting agent). As such, we
believe that Lymphoseek, if ultimately approved, would be the first drug
specifically labeled for use as a sentinel lymph node targeting
agent.
Patents
and Proprietary Rights
We regard
the establishment of a strong intellectual property position in our technology
as an integral part of the development process. We attempt to protect
our proprietary technologies through patents and intellectual property positions
in the United States as well as major foreign markets. Approximately
30 instrument patents issued in the United States as well as major foreign
markets protect our gamma detection technology.
Lymphoseek
is also the subject of patents and patent applications in the United States and
certain major foreign markets. The patents and patent applications
are held by The Regents of the University of California and have been licensed
exclusively to Neoprobe for lymphatic tissue imaging and intraoperative
detection worldwide. The first composition of matter patent covering
Lymphoseek was issued in the United States in June 2002. The claims
of the composition of matter patent covering Lymphoseek have been allowed in the
EU and issued in the majority of EU countries in 2005. The
composition of matter patent is being prosecuted in Japan and we have received
notice of the allowance of the underlying claims included in the patent
application. We have filed additional patent applications in the
United States related to the manufacturing processes for
Lymphoseek.
We
continue to support proprietary protection for the products related to RIGS and
ACT in major global markets such as the U.S. and the EU, which although not
currently integral to our near-term business plans, may be important to a
potential RIGS or ACT development partner. Composition of matter patents have
been issued in the U.S. and EU that cover the antibodies used in clinical
studies. The most recent of these patents was issued in 2004 and additional
patent applications are pending. We have a license to these patents through the
NIH; however, our license is subject to ongoing diligence
requirements.
The
activated cellular therapy technology of Cira Bio is the subject of issued
patents in the United States to which Neoprobe has exclusive license rights.
European patent statutes do not permit patent coverage for treatment
technologies such as Cira Bio’s. The oncology applications of Cira Bio’s
treatment approach are covered by issued patents with expiration dates of 2018
and 2020, unless extended. The autoimmune applications are covered by an issued
patent with an expiration date of 2018, unless extended. The viral applications
are the subject of patent applications and other aspects of the Cira Bio
technology that are in the process of being reviewed by the United States Patent
and Trademark Office. Cira Bio has received favorable office action
correspondence on both applications.
The
patent position of biotechnology and medical device firms, including our
company, generally is highly uncertain and may involve complex legal and factual
questions. Potential competitors may have filed applications, or may
have been issued patents, or may obtain additional patents and proprietary
rights relating to products or processes in the same area of technology as that
used by our company. The scope and validity of these patents and
applications, the extent to which we may be required to obtain licenses
thereunder or under other proprietary rights, and the cost and availability of
licenses are uncertain. We cannot assure you that our patent
applications will result in additional patents being issued or that any of our
patents will afford protection against competitors with similar technology; nor
can we assure you that any of our patents will not be designed around by others
or that others will not obtain patents that we would need to license or design
around.
We also
rely upon unpatented trade secrets. We cannot assure you that others
will not independently develop substantially equivalent proprietary information
and techniques, or otherwise gain access to our trade secrets, or disclose such
technology, or that we can meaningfully protect our rights to our unpatented
trade secrets.
We
require our employees, consultants, advisers, and suppliers to execute a
confidentiality agreement upon the commencement of an employment, consulting or
manufacturing relationship with us. The agreement provides that all confidential
information developed by or made known to the individual during the course of
the relationship will be kept confidential and not disclosed to third parties
except in specified circumstances. In the case of employees, the agreements
provide that all inventions conceived by the individual will be the exclusive
property of our company. We cannot assure you, however, that these agreements
will provide meaningful protection for our trade secrets in the event of an
unauthorized use or disclosure of such information. See Risk
Factors.
Government
Regulation
Most
aspects of our business are subject to some degree of government regulation in
the countries in which we conduct our operations. As a developer, manufacturer
and marketer of medical products, we are subject to extensive regulation by,
among other governmental entities, FDA and the corresponding state, local and
foreign regulatory bodies in jurisdictions in which our products are sold. These
regulations govern the introduction of new products, the observance of certain
standards with respect to the manufacture, safety, efficacy and labeling of such
products, the maintenance of certain records, the tracking of such products and
other matters.
Failure
to comply with applicable federal, state, local or foreign laws or regulations
could subject us to enforcement action, including product seizures, recalls,
withdrawal of marketing clearances, and civil and criminal penalties, any one or
more of which could have a material adverse effect on our
business. We believe that we are in substantial compliance with such
governmental regulations. However, federal, state, local and foreign
laws and regulations regarding the manufacture and sale of medical devices are
subject to future changes. We cannot assure you that such changes
will not have a material adverse effect on our company.
For some
products, and in some countries, government regulation is significant and, in
general, there is a trend toward more stringent regulation. In recent
years, FDA and certain foreign regulatory bodies have pursued a more rigorous
enforcement program to ensure that regulated businesses like ours comply with
applicable laws and regulations. We devote significant time, effort
and expense addressing the extensive governmental regulatory requirements
applicable to our business. To date, we have not received any
notifications or warning letters from FDA or any other regulatory bodies of
alleged deficiencies in our compliance with the relevant requirements, nor have
we recalled or issued safety alerts on any of our products. However,
we cannot assure you that a warning letter, recall or safety alert, if it
occurred, would not have a material adverse effect on our company.
In the
early- to mid-1990s, the review time by FDA to clear medical products for
commercial release lengthened and the number of marketing clearances
decreased. In response to public and congressional concern, FDA
Modernization Act of 1997 (the 1997 Act) was adopted with the intent of bringing
better definition to the clearance process for new medical
products. While FDA review times have improved since passage of the
1997 Act, we cannot assure you that FDA review process will not continue to
delay our company's introduction of new products in the U.S. in the
future. In addition, many foreign countries have adopted more
stringent regulatory requirements that also have added to the delays and
uncertainties associated with the release of new products, as well as the
clinical and regulatory costs of supporting such releases. It is
possible that delays in receipt of, or failure to receive, any necessary
clearance for our new product offerings could have a material adverse effect on
our business, financial condition or results of operations.
While we
are unable to predict the extent to which our business may be affected by future
regulatory developments, we believe that our substantial experience dealing with
governmental regulatory requirements and restrictions on our operations
throughout the world, and our development of new and improved products, should
enable us to compete effectively within this environment.
Gamma
Detection Devices
As a
manufacturer of medical devices sold in various global markets, we are required
by regulatory agency regulations to manufacture the devices under recognized
quality standards and controls. Our medical devices are regulated in
the United States by FDA in accordance with 21CFR requirements, in the EU
according to the Medical Device Directive (93/42/EEC), and in Canada and Japan
according to the Medical Devices Regulation. These regulatory
requirements for quality systems are prescribed in the international standard
ISO 13485 Medical devices – Quality management systems – Requirements for
regulatory purposes. To ensure continued compliance in our daily
processes, we have established and maintain the Neoprobe Corporate Quality
Management System, which is based on the ISO 13485 standard. These
requirements can also be extended to drug and biologic products regarding our
future product portfolio.
Our first
generation gamma detection instrument received 510(k) marketing clearance from
FDA in December 1986 with modified versions receiving similar clearances in 1992
through 1997. In March 1998, FDA reclassified "nuclear uptake
detectors" as Class 1 and conditionally exempt from 510(k) with full quality
controls. We obtained the European CE mark, by “self-declaration,”
for the neo2000 device in January 1999, with full quality
controls. The gamma detection products are Class IIa in the
EU. We maintain a “manufacturer’s license” in order to import our
gamma detection products into Canada, with full quality controls. The
gamma detection products are Class II in Canada.
Gamma
Detection Radiopharmaceuticals
Our
radiolabeled targeting agents and biologic products, if developed, would require
a regulatory license to market by FDA and by comparable agencies in foreign
countries. The process of obtaining regulatory licenses and approvals
is costly and time consuming, and we have encountered significant impediments
and delays related to our previously proposed biologic products.
The
process of completing pre-clinical and clinical testing, manufacturing
validation and submission of a marketing application to the appropriate
regulatory bodies usually takes a number of years and requires the expenditure
of substantial resources, and we cannot assure you that any approval will be
granted on a timely basis, if at all. Additionally, the length of
time it takes for the various regulatory bodies to evaluate an application for
marketing approval varies considerably, as does the amount of preclinical and
clinical data required to demonstrate the safety and efficacy of a specific
product. The regulatory bodies may require additional clinical
studies that may take several years to perform. The length of the
review period may vary widely depending upon the nature and indications of the
proposed product and whether the regulatory body has any further questions or
requests any additional data. Also, the regulatory bodies will likely
require post-marketing reporting and surveillance programs to monitor the side
effects of the products. We cannot assure you that any of our
potential drug or biologic products will be approved by the regulatory bodies or
approved on a timely or accelerated basis, or that any approvals received will
not subsequently be revoked or modified.
In
addition to regulations enforced by FDA, the manufacture, distribution, and use
of radioactive targeting agents, if developed, are also subject to regulation by
the Nuclear Regulatory Commission (NRC), the Department of Transportation and
other federal, state, and local government authorities. We, or our
manufacturer of the radiolabeled antibodies, must obtain a specific license from
the NRC to manufacture and distribute radiolabeled antibodies, as well as comply
with all applicable regulations. We must also comply with Department
of Transportation regulations on the labeling and packaging requirements for
shipment of radiolabeled antibodies to licensed clinics, and must comply with
federal, state, and local governmental laws regarding the disposal of
radioactive waste. We cannot assure you that we will be able to
obtain all necessary licenses and permits and be able to comply with all
applicable laws. The failure to obtain such licenses and permits or
to comply with applicable laws would have a materially adverse effect on our
business, financial condition, and results of operations.
Research
and Development
We spent
approximately $5.0 million and $4.3 million on research and development
activities in the fiscal years ended December 31, 2009 and 2008,
respectively.
As of
March 26, 2010, we had 28 full-time and 6 part-time employees. We
consider our relations with our employees to generally be good.
Item
1A. Risk Factors
An
investment in our common stock is highly speculative, involves a high degree of
risk, and should be made only by investors who can afford a complete
loss. You should carefully consider the following risk factors,
together with the other information in this prospectus, including our financial
statements and the related notes, before you decide to buy our common
stock. Our most significant risks and uncertainties are described
below; however, they are not the only risks we face. If any of the
following risks actually occur, our business, financial condition, or results of
operations could be materially adversely affected, the trading of our common
stock could decline, and you may lose all or part of your investment
therein.
We
have suffered significant operating losses for several years in our history and
we may not be able to again achieve profitability.
We had an
accumulated deficit of approximately $193 million and had an overall deficit in
stockholders’ equity as of December 31, 2009. Although we were
profitable in 2000 and 2001, we incurred substantial losses in the years prior
to that, and again in subsequent years. The deficit resulted because
we expended more money in the course of researching, developing and enhancing
our technology and products and establishing our marketing and administrative
organizations than we generated in revenues. We expect to continue to
incur significant expenses in the foreseeable future, primarily related to the
completion of development and commercialization of Lymphoseek, but also
potentially related to RIGS and our device product lines. As a
result, we are sustaining substantial operating and net losses, and it is
possible that we will never be able to sustain or develop the revenue levels
necessary to again attain profitability.
Our
products and product candidates may not achieve the broad market acceptance they
need in order to be a commercial success.
Widespread
use of our handheld gamma detection devices is currently limited to one surgical
procedure, sentinel lymph node biopsy (SLNB), used in the diagnosis and
treatment of two primary types of cancer: melanoma and breast
cancer. While the adoption of SLNB within the breast and melanoma
indications appears to be widespread, we believe expansion of SLNB to other
indications such as head and neck, colorectal and prostate cancers is likely
dependent on a better lymphatic tissue targeting agent than is currently
available. Without expanded indications in which to apply SLNB, it is
likely that gamma detection devices will eventually reach market
saturation. Our efforts and those of our marketing and distribution
partners may not result in significant demand for our products, and the current
demand for our products may decline.
Our
radiopharmaceutical product candidates, Lymphoseek and RIGScan CR, are still in
the process of development, and even if we are successful in commercializing
them, we cannot assure you that they will obtain significant market
acceptance.
We
may have difficulty raising additional capital, which could deprive us of
necessary resources.
We expect
to continue to devote significant capital resources to fund research and
development and to maintain existing and secure new manufacturing
capacity. In order to support the initiatives envisioned in our
business plan, we may need to raise additional funds through the sale of assets,
public or private debt or equity financing, collaborative relationships or other
arrangements. Our ability to raise additional financing depends on
many factors beyond our control, including the state of capital markets, the
market price of our common stock and the development or prospects for
development of competitive technology by others. Because our common
stock is not listed on a major stock market, many investors may not be willing
or allowed to purchase it or may demand steep discounts. Sufficient
additional financing may not be available to us or may be available only on
terms that would result in further dilution to the current owners of our common
stock.
We
believe that we have access to sufficient financial resources with which to fund
our operations or those of our subsidiaries for the foreseeable
future. Depending on market conditions and/or changes in our business
plans, we may raise additional capital during 2010. The continuation
of the current worldwide financial crisis and depressed stock market valuations
may adversely affect our ability to raise additional capital, either under
facilities in place or from new sources of capital. If we are
unsuccessful in raising additional capital, closing on financing under already
agreed to terms, or the terms of raising such capital are unacceptable, we may
have to modify our business plan and/or significantly curtail our planned
development activities and other operations.
In
December 2006, we entered into a common stock purchase agreement with Fusion
Capital, an Illinois limited liability company, to sell $6.0 million of our
common stock over a 24-month period which ended on November 21,
2008. Through November 21, 2008, we sold to Fusion Capital under the
agreement 7,568,671 shares for proceeds of $1.9 million. In December
2008, we entered into an amendment to the agreement which gave us a right to
sell an additional $6.0 million of our common stock to Fusion Capital before
March 1, 2011, along with the $4.1 million of the unsold balance of the $6.0
million we originally had the right to sell to Fusion Capital under the original
agreement. In March 2010, we sold to Fusion Capital under the amended
agreement 540,541 shares for proceeds of $1.0 million. Subsequent to
this sale, the remaining aggregate amount of our common stock we can sell to
Fusion Capital is $9.1 million, and we have reserved a total of 10,113,459
shares of our common stock for sale under the amended agreement. Our
right to make sales under the amended agreement is limited to $50,000 every two
business days, unless our stock price equals or exceeds $0.30 per share, in
which case we can sell greater amounts to Fusion Capital as the price of our
common stock increases. Fusion Capital does not have the right or any
obligation to purchase any shares on any business day that the market price of
our common stock is less than $0.20 per share. Assuming all
10,113,459 shares are sold, the selling price per share would have to average
approximately $0.90 for us to receive the full $9.1 million remaining proceeds
under the agreement as amended. Assuming we sell to Fusion Capital
all 10,113,459 shares at a sale price of $1.50 per share (the closing sale price
of the common stock on March 26, 2010), we would receive the full remaining $9.1
million under the agreement. Under the agreement, we have the right
but not the obligation to sell more than the 10,113,459 shares to Fusion
Capital. As of the date hereof, we do not currently have any plans or
intent to sell to Fusion Capital any shares beyond the 10,113,459
shares. However, if we elect to sell more than the 10,113,459 shares,
we must first register any additional shares we may elect to sell to Fusion
Capital under the Securities Act before we can sell such additional
shares.
The
extent to which we rely on Fusion Capital as a source of funding will depend on
a number of factors, including the prevailing market price of our common stock
and the extent to which we are able to secure working capital from other
sources, such as through the sale of our products. To the extent that we are
unable to make sales to Fusion Capital to meet our capital needs, or to the
extent that we decide not to make such sales because of excessive dilution or
other reasons, and if we are unable to generate sufficient revenues from sales
of our products, we will need to secure another source of funding in order to
satisfy our working capital needs. Even if we are able to access the full $9.1
million potentially remaining under the agreement with Fusion Capital, we may
still need additional capital to fully implement our business, operating and
development plans. Should the financing we require to sustain our working
capital needs be unavailable or prohibitively expensive when we require it, the
consequences could be a material adverse effect on our business, operating
results, financial condition and prospects.
Clinical
trials for our radiopharmaceutical product candidates will be lengthy and
expensive and their outcome is uncertain.
Before
obtaining regulatory approval for the commercial sale of any product candidates,
we must demonstrate through preclinical testing and clinical trials that our
product candidates are safe and effective for use in humans. Conducting clinical
trials is a time consuming, expensive and uncertain process and may take years
to complete. During 2009, we successfully completed a Phase 3 clinical trial in
patients with breast cancer or melanoma for our most advanced
radiopharmaceutical product candidate, Lymphoseek. We are in the process of
completing a second Phase 3 trial for this product in patients with head and
neck squamous cell carcinoma. In late 2008, we obtained approval from EMEA for a
Phase 3 clinical protocol for our next radiopharmaceutical candidate, RIGScan
CR, and are preparing to approach FDA to obtain similar clearance. Historically,
the results from preclinical testing and early clinical trials have often not
been predictive of results obtained in later clinical trials. Frequently, drugs
that have shown promising results in preclinical or early clinical trials
subsequently fail to establish sufficient safety and efficacy data necessary to
obtain regulatory approval. At any time during the clinical trials, we, the
participating institutions, FDA or EMEA might delay or halt any clinical trials
for our product candidates for various reasons, including:
|
·
|
ineffectiveness
of the product candidate;
|
|
·
|
discovery
of unacceptable toxicities or side
effects;
|
|
·
|
development
of disease resistance or other physiological
factors;
|
|
·
|
delays
in patient enrollment; or
|
|
·
|
other
reasons that are internal to the businesses of our potential collaborative
partners, which reasons they may not share with
us.
|
While we
have achieved some level of success in our recent Phase 2 and Phase 3 clinical
trials for Lymphoseek, the results of these clinical trials, as well as pending
and future trials, are subject to review and interpretation by various
regulatory bodies during the regulatory review process and may ultimately fail
to demonstrate the safety or effectiveness of our product candidates to the
extent necessary to obtain regulatory approval or such that commercialization of
our product candidates is worthwhile. Any failure or substantial
delay in successfully completing clinical trials and obtaining regulatory
approval for our product candidates could severely harm our
business.
If
we fail to obtain collaborative partners, or those we obtain fail to perform
their obligations or discontinue clinical trials for particular product
candidates, our ability to develop and market potential products could be
severely limited.
Our
strategy for the development and commercialization of our product candidates
depends, in large part, upon the formation of collaborative
arrangements. Collaborations may allow us to:
|
·
|
generate
cash flow and revenue;
|
|
·
|
offset
some of the costs associated with our internal research and development,
preclinical testing, clinical trials and
manufacturing;
|
|
·
|
seek
and obtain regulatory approvals faster than we could on our own;
and,
|
|
·
|
successfully
commercialize existing and future product
candidates.
|
We have
an agreement in place with Cardinal Health for the distribution of Lymphoseek in
the United States. We do not currently have collaborative agreements
covering Lymphoseek in other areas of the world or for RIGScan CR or
ACT. We cannot assure you that we will be successful in securing
collaborative partners for other markets or radiopharmaceutical products, or
that we will be able to negotiate acceptable terms for such
arrangements. The development, regulatory approval and
commercialization of our product candidates will depend substantially on the
efforts of collaborative partners, and if we fail to secure or maintain
successful collaborative arrangements, or if our partners fail to perform their
obligations, our development, regulatory, manufacturing and marketing activities
may be delayed, scaled back or suspended.
We
rely on third parties for the worldwide marketing and distribution of our gamma
detection devices, who may not be successful in selling our
products.
We
currently distribute our gamma detection devices in most global markets through
two partners who are solely responsible for marketing and distributing these
products. The partners assume direct responsibility for business risks related
to credit, currency exchange, foreign tax laws or tariff and trade regulation.
While we believe that our distribution partners intend to continue to
aggressively market our products, we cannot assure you that the distribution
partners will succeed in marketing our products on a global basis. We may not be
able to maintain satisfactory arrangements with our marketing and distribution
partners, who may not devote adequate resources to selling our products. If this
happens, we may not be able to successfully market our products, which would
decrease our revenues.
Our
radiopharmaceutical product candidates are subject to extensive government
regulations and we may not be able to obtain necessary regulatory
approvals.
We may
not receive the regulatory approvals necessary to commercialize our Lymphoseek
and RIGScan product candidates, which could cause our business to be severely
harmed. Our product candidates are subject to extensive and rigorous government
regulation. FDA regulates, among other things, the development, testing,
manufacture, safety, record-keeping, labeling, storage, approval, advertising,
promotion, sale and distribution of pharmaceutical products. If our potential
products are marketed abroad, they will also be subject to extensive regulation
by foreign governments. None of our radiopharmaceutical product candidates have
been approved for sale in the United States or in any foreign market. The
regulatory review and approval process, which includes preclinical studies and
clinical trials of each product candidate, is lengthy, complex, expensive and
uncertain. Securing FDA clearance to market requires the submission of extensive
preclinical and clinical data and supporting information to FDA for each
indication to establish the product candidate's safety and efficacy. Data
obtained from preclinical and clinical trials are susceptible to varying
interpretation, which may delay, limit or prevent regulatory approval. The
approval process may take many years to complete and may involve ongoing
requirements for post-marketing studies. In light of the limited regulatory
history of monoclonal antibody-based therapeutics, regulatory approvals for our
products may not be obtained without lengthy delays, if at all. Any FDA or other
regulatory approvals of our product candidates, once obtained, may be withdrawn.
The effect of government regulation may be to:
|
·
|
delay
marketing of potential products for a considerable period of
time;
|
|
·
|
limit
the indicated uses for which potential products may be
marketed;
|
|
·
|
impose
costly requirements on our activities;
and
|
|
·
|
provide
competitive advantage to other pharmaceutical and biotechnology
companies.
|
We may
encounter delays or rejections in the regulatory approval process because of
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Failure to comply with
applicable FDA or other regulatory requirements may result in criminal
prosecution, civil penalties, recall or seizure of products, total or partial
suspension of production or injunction, as well as other regulatory action
against our product candidates or us. Outside the United States, our
ability to market a product is contingent upon receiving clearances from the
appropriate regulatory authorities. This foreign regulatory approval
process includes risks similar to those associated with FDA approval
process.
Our
radiopharmaceutical product candidates will remain subject to ongoing regulatory
review even if they receive marketing approval. If we fail to comply
with continuing regulations, we could lose these approvals and the sale of our
products could be suspended.
Even if
we receive regulatory clearance to market a particular product candidate, the
approval could be conditioned on us conducting additional costly post-approval
studies or could limit the indicated uses included in our labeling. Moreover,
the product may later cause adverse effects that limit or prevent its widespread
use, force us to withdraw it from the market or impede or delay our ability to
obtain regulatory approvals in additional countries. In addition, the
manufacturer of the product and its facilities will continue to be subject to
FDA review and periodic inspections to ensure adherence to applicable
regulations. After receiving marketing clearance, the manufacturing, labeling,
packaging, adverse event reporting, storage, advertising, promotion and
record-keeping related to the product will remain subject to extensive
regulatory requirements. We may be slow to adapt, or we may never adapt, to
changes in existing regulatory requirements or adoption of new regulatory
requirements.
If we
fail to comply with the regulatory requirements of FDA and other applicable U.S.
and foreign regulatory authorities or previously unknown problems with our
products, manufacturers or manufacturing processes are discovered, we could be
subject to administrative or judicially imposed sanctions,
including:
|
·
|
restrictions
on the products, manufacturers or manufacturing
processes;
|
|
·
|
civil
or criminal penalties;
|
|
·
|
product
seizures or detentions;
|
|
·
|
voluntary
or mandatory product recalls and publicity
requirements;
|
|
·
|
suspension
or withdrawal of regulatory
approvals;
|
|
·
|
total
or partial suspension of production;
and
|
|
·
|
refusal
to approve pending applications for marketing approval of new drugs or
supplements to approved
applications.
|
Our
existing products are highly regulated and we could face severe problems if we
do not comply with all regulatory requirements in the global markets in which
these products are sold.
FDA
regulates our gamma detection products in the United States. Foreign
countries also subject these products to varying government
regulations. In addition, these regulatory authorities may impose
limitations on the use of our products. FDA enforcement policy
strictly prohibits the marketing of FDA cleared medical devices for unapproved
uses. Within the European Union, our products are required to display
the CE Mark in order to be sold. We have obtained FDA clearance to
market and European certification to display the CE Mark on our current line of
gamma detection systems. We may not be able to obtain clearance to
market any new products in a timely manner, or at all. Failure to
comply with these and other current and emerging regulatory requirements in the
global markets in which our products are sold could result in, among other
things, warning letters, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, refusal of the
government to grant pre-market clearance for devices, withdrawal of clearances,
and criminal prosecution.
We
rely on third parties to manufacture our medical device products and our
business will suffer if they do not perform.
We rely
on independent contract manufacturers for the manufacture of our current
neoprobe GDS line of gamma detection systems. Our business will
suffer if our contract manufacturers have production delays or quality
problems. Furthermore, medical device manufacturers are subject to
the quality system regulations of FDA, international quality standards, and
other regulatory requirements. If our contractors do not operate in
accordance with regulatory requirements and quality standards, our business will
suffer. We use or rely on components and services used in our devices
that are provided by sole source suppliers. The qualification of
additional or replacement vendors is time consuming and costly. If a
sole source supplier has significant problems supplying our products, our sales
and revenues will be hurt until we find a new source of supply. In
addition, our distribution agreement with Ethicon Endo-Surgery, Inc., a Johnson
& Johnson company, (EES) for gamma detection devices contains failure to
supply provisions, which, if triggered, could have a significant negative impact
on our business.
We
may be unable to establish the pharmaceutical manufacturing capabilities
necessary to develop and commercialize our potential products.
We do not
have our own manufacturing facility for the manufacture of the
radiopharmaceutical compounds necessary for clinical testing or commercial sale.
We intend to rely on third-party contract manufacturers to produce sufficiently
large quantities of drug materials that are and will be needed for clinical
trials and commercialization of our potential products. Third-party
manufacturers may not be able to meet our needs with respect to timing, quantity
or quality of materials. We are in the process of finalizing supply contracts
with third-party manufacturers for our Lymphoseek product. However, if we are
unable to contract for a sufficient supply of needed materials on acceptable
terms, or if we should encounter delays or difficulties in our relationships
with manufacturers, our clinical trials may be delayed, thereby delaying the
submission of product candidates for regulatory approval and the market
introduction and subsequent commercialization of our potential products. Any
such delays may lower our revenues and potential profitability.
We and
any third-party manufacturers that we may use must continually adhere to current
Good Manufacturing Practices regulations enforced by FDA through its facilities
inspection program. If our facilities or the facilities of third-party
manufacturers cannot pass a pre-approval plant inspection, FDA will not grant
approval to our product candidates. In complying with these regulations and
foreign regulatory requirements, we and any of our third-party manufacturers
will be obligated to expend time, money and effort on production, record-keeping
and quality control to assure that our potential products meet applicable
specifications and other requirements. If we or any third-party manufacturer
with whom we may contract fail to maintain regulatory compliance, we or the
third party may be subject to fines and/or manufacturing operations may be
suspended.
Unfavorable
pricing regulations, third-party reimbursement practices or healthcare reform
initiatives applicable to our radiopharmaceutical products and product
candidates could limit our potential product revenue and adversely affect our
business.
The
regulations governing drug pricing and reimbursement vary widely from country to
country. Some countries require approval of the sale price of a drug
before it can be marketed and, in many of these countries, the pricing review
period begins only after approval is granted. In some countries,
prescription pharmaceutical pricing remains subject to continuing governmental
control even after initial approval is granted. Although we monitor
these regulations, our product candidates are currently in the development stage
and we will not be able to assess the impact of price regulations for at least
several years. As a result, we may obtain regulatory approval for a
product in a particular country, but then be subject to price regulations that
may delay the commercial launch of the product and may negatively impact the
revenues we are able to derive from sales in that country.
The
healthcare industry is undergoing fundamental changes resulting from political,
economic and regulatory influences. In the United States,
comprehensive programs have been proposed that seek to increase access to
healthcare for the uninsured, to control the escalation of healthcare
expenditures within the economy and to use healthcare reimbursement policies to
balance the federal budget. On March 23, 2010, health reform
legislation was approved by Congress and has been signed into
law. The reform legislation provides that most individuals must have
health insurance, will establish new regulations on health plans, create
insurance pooling mechanisms and other expanded public health care measures, and
impose new taxes on sales of medical devices and
pharmaceuticals. Since this legislation is recently enacted and will
require the adoption of implementing regulations, we cannot predict the effect,
if any, that it will have on our business, but this legislation and similar
federal and state initiatives may have the effect of lowering reimbursements for
our products, reducing medical procedure volumes, increasing our taxes and
otherwise adversely affect our business, possibly materially.
We expect
that Congress and state legislatures will continue to review and assess
healthcare proposals, and public debate of these issues will likely
continue. We cannot predict which, if any, of such reform proposals
will be adopted and when they might be adopted. Other countries also
are considering healthcare reform. Significant changes in healthcare
systems could have a substantial impact on the manner in which we conduct our
business and could require us to revise our strategies.
The
sale of our common stock to Fusion may cause dilution and the sale of common
stock acquired by Fusion could cause the price of our common stock to
decline.
In
connection with our agreement with Fusion Capital, we have authorized the sale
of up to 18,222,671 shares of our common stock and the issuance of 1,800,000
shares in commitment fees, and we have filed a registration statement with the
SEC for the sale to the public of 11,500,000 shares issuable to Fusion Capital
pursuant to the agreement. Through March 26, 2010, we have sold
Fusion Capital 8,109,212 shares of common stock and issued 1,434,000 shares of
stock as commitment fees to Fusion Capital. The number of shares
ultimately offered for sale to the public will be dependent upon the number of
shares purchased by Fusion Capital under the agreement. It is
anticipated that these shares will be sold over a period of up to 26 months from
the date of the December 24, 2008 amendment to the agreement, at prices that
will fluctuate based on changes in the market price of our common stock over
that period. Depending upon market liquidity at the times sales are
made, these sales could cause the market price of our common stock to
decline. Consequently, sales to Fusion Capital may result in
substantial dilution to the interests of other holders of our common
stock. The sale of a substantial number of shares of our common stock
by Fusion Capital, or anticipation of such sales, could make it more difficult
for us to sell equity or equity-related securities in the future at a time and
at a price that we might otherwise wish to effect sales. However, we
have the right to control the timing and amount of any sales of our shares to
Fusion Capital and the agreement may be terminated by us at any time at our
discretion without any cost to us.
The
sale of the shares of common stock acquired in private placements could cause
the price of our common stock to decline.
Over the
past few years, we completed various financings in which we issued common stock,
convertible notes, warrants and other securities convertible into common stock
to certain private investors. The terms of these transactions require
that we file registration statements with the Securities and Exchange Commission
under which the investors may resell to the public common stock acquired in
these transactions, as well as common stock acquired on the exercise of the
warrants and convertible securities held by them. Further, some or
all of the common stock sold in these transactions may become eligible for
resale without registration under the provisions of Rule 144, upon satisfaction
of the holding period and other requirements of the Rule.
As
required by our financing arrangements with Fusion Capital, we have filed a
registration statement registering for resale a total of 11,500,000 common
shares, consisting of (i) 10,654,000 shares which we may sell to Fusion Capital
pursuant to the amended common stock purchase agreement, (ii) 360,000 shares
issued to Fusion Capital in consideration for its agreement to the amendment;
and (iii) 486,000 commitment fee shares to be issued pro rata as we sell the
first $4.1 million of common stock under the amended agreement. The
number of shares ultimately sold under the registration statement will be
dependent upon the number of shares purchased by Fusion Capital under the
amended agreement. It is anticipated that these shares will be sold
from time to time over a period ending on March 1, 2011, at prices that will
fluctuate based on changes in the market price of our common stock over that
period. We have the right to control the timing and amount of any
sales of our shares to Fusion Capital and the agreement may be terminated by us
at any time at our discretion without any cost to us.
On
December 26, 2007, we entered into a Securities Purchase Agreement (SPA) with
Platinum-Montaur Life Sciences, LLC (Montaur), pursuant to which we issued
Montaur a 10% Series A Convertible Senior Secured Promissory Note in the
principal amount of $7,000,000, due December 26, 2011 (the Series A Note) and a
five-year Series W Warrant to purchase 6,000,000 shares of our common stock at
an exercise price of $0.32 per share. On April 16, 2008, following receipt by
the Company of clearance by the FDA to commence a Phase 3 clinical trial for
Lymphoseek in patients with breast cancer or melanoma, we amended the SPA and
issued Montaur a 10% Series B Convertible Senior Secured Promissory Note in the
principal amount of $3,000,000, also due December 26, 2011 (the Series B Note,
and hereinafter referred to collectively with the Series A Note as the Montaur
Notes), and a five-year Series X Warrant to purchase 8,333,333 shares of our
common stock at an exercise price of $0.46 per share. On December 5, 2008, after
the Company had obtained 135 vital blue dye lymph nodes from patients who had
completed surgery and the injection of the drug in the Phase 3 clinical trial of
Lymphoseek in patients with breast cancer or melanoma, we issued Montaur 3,000
shares of our 8% Series A Cumulative Convertible Preferred Stock (the Preferred
Stock) and a five-year Series Y Warrant (hereinafter referred to collectively
with the Series W Warrant and Series X Warrant as the Montaur Warrants) to
purchase 6,000,000 shares of our common stock, at an exercise price of $0.575
per share, also for an aggregate purchase price of $3,000,000. On July 24, 2009,
we entered into a Securities Amendment and Exchange Agreement (Amendment
Agreement) with Montaur, pursuant to which Montaur agreed to the amendment and
restatement of the terms of the Montaur Notes, the Montaur Warrants and the
Preferred Stock, to remove price-based anti-dilution adjustment provisions that
had created a significant non-cash derivative liability on the Company’s balance
sheet, and upon the surrender of the Montaur Notes and the Montaur warrants we
issued Montaur an Amended and Restated 10% Series A Convertible Senior Secured
Promissory Note in the principal amount of $7,000,000, due December 26, 2011
(the Amended Series A Note), an Amended and Restated 10% Series B Convertible
Senior Secured Promissory Note in the principal amount of $3,000,000, due
December 26, 2011 (the Amended Series B Note, and together with the Amended
Series A Note the Amended Montaur Notes), an Amended and Restated Series W
Warrant (the Amended Series W Warrant), an Amended and Restated Series X Warrant
(the Amended Series X Warrant), an Amended and Restated Series Y Warrant (the
Amended Series Y Warrant), and in consideration for the agreement of Montaur to
enter into the Amendment Agreement, a Series AA Warrant to purchase 2,400,000
shares of our common stock at an exercise price of $0.97 per share (the Series
AA Warrant, and together with the Amended Series W Warrant, Amended Series X
Warrant and Amended Series Y Warrant, the Amended Montaur
Warrants).
The
Amended Series A Note bears interest at a rate per annum equal to 10%, and
Montaur may convert the full $7,000,000 principal amount of the Amended Series A
Note into shares of Common Stock in two tranches. Montaur may convert the first
tranche of up to $3,500,000 of the outstanding principal balance of the Amended
Series A Note at the conversion price of $0.26 per share, and a second tranche
of the remaining $3,500,000 of the outstanding principal balance of the Amended
Series A Note at the conversion price of $0.9722 per share. The
Amended Series B Note also bears interest at a rate per annum equal to 10%, and
is convertible into shares of common stock at the conversion price of $0.36 per
share. Pursuant to the provisions of the Certificate of Designations,
Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of
Series A 8% Cumulative Convertible Preferred Stock, Montaur may convert all or
any portion of the shares of the Preferred Stock into an aggregate 6,000,000
shares of our common stock, subject to adjustment as described in the
Certificate of Designations.
Pursuant
to a Registration Rights Agreement we entered into with Montaur in connection
with the SPA, we have filed a registration statement covering the sale by
Montaur of up to: (i) 3,600,000 shares issuable upon the conversion of the
Amended Series A Note; (ii) 6,000,000 shares of Common Stock issued upon
exercise of the Amended Series Y Warrant; (iii) 3,500,000 shares of Common Stock
issued or issuable as interest or dividends on the Amended Montaur Notes and the
Preferred Stock; and (iv) 2,400,000 shares issuable upon exercise of the Series
AA Warrant, for a total of 15,500,000 shares. Additionally, we agreed
that within thirty-five days of receipt from Montaur of written request
therefor, we would prepare and file an additional “resale” registration
statement providing for the resale of: (i) the remaining shares of Common Stock
issuable upon the conversion of the Amended Series A Note; (ii) the shares of
Common Stock issuable upon the exercise of the Amended Series W Warrant; (iii)
the shares of Common Stock issuable upon the conversion of the Amended Series B
Note; (iv) the shares of Common Stock issuable upon the exercise of the Amended
Series X Warrant; and (v) the shares of Common Stock issuable upon conversion of
the Preferred Stock.
The
selling stockholders may sell none, some or all of the shares of common stock
acquired from us, as well as common stock acquired on the exercise of the
warrants and convertible securities held by them. We have no way of
knowing whether or when the selling stockholders will sell these
shares. Depending upon market liquidity at the time, a sale of these
shares at any given time could cause the trading price of our common stock to
decline. The sale of a substantial number of shares of our common
stock, or anticipation of such sales, could make it more difficult for us to
sell equity or equity-related securities in the future at a time and at a price
that we might otherwise wish to effect sales.
We
may lose out to larger and better-established competitors.
The
medical device and biotechnology industries are intensely
competitive. Some of our competitors have significantly greater
financial, technical, manufacturing, marketing and distribution resources as
well as greater experience in the medical device industry than we
have. The particular medical conditions our product lines address can
also be addressed by other medical devices, procedures or drugs. Many
of these alternatives are widely accepted by physicians and have a long history
of use. Physicians may use our competitors’ products and/or our
products may not be competitive with other technologies. If these
things happen, our sales and revenues will decline. In addition, our
current and potential competitors may establish cooperative relationships with
large medical equipment companies to gain access to greater research and
development or marketing resources. Competition may result in price
reductions, reduced gross margins and loss of market share.
Our
products may be displaced by newer technology.
The
medical device and biotechnology industries are undergoing rapid and significant
technological change. Third parties may succeed in developing or marketing
technologies and products that are more effective than those developed or
marketed by us, or that would make our technology and products obsolete or
non-competitive. Additionally, researchers could develop new surgical procedures
and medications that replace or reduce the importance of the procedures that use
our products. Accordingly, our success will depend, in part, on our ability to
respond quickly to medical and technological changes through the development and
introduction of new products. We may not have the resources to do this. If our
products become obsolete and our efforts to develop new products do not result
in any commercially successful products, our sales and revenues will
decline.
We
may not have sufficient legal protection against infringement or loss of our
intellectual property, and we may lose rights to our licensed intellectual
property if diligence requirements are not met.
Our
success depends, in part, on our ability to secure and maintain patent
protection, to preserve our trade secrets, and to operate without infringing on
the patents of third parties. While we seek to protect our
proprietary positions by filing United States and foreign patent applications
for our important inventions and improvements, domestic and foreign patent
offices may not issue these patents. Third parties may challenge,
invalidate, or circumvent our patents or patent applications in the
future. Competitors, many of which have significantly more resources
than we have and have made substantial investments in competing technologies,
may apply for and obtain patents that will prevent, limit, or interfere with our
ability to make, use, or sell our products either in the United States or
abroad.
In the
United States, patent applications are secret until patents are issued, and in
foreign countries, patent applications are secret for a time after
filing. Publications of discoveries tend to significantly lag the
actual discoveries and the filing of related patent
applications. Third parties may have already filed applications for
patents for products or processes that will make our products obsolete or will
limit our patents or invalidate our patent applications.
We
typically require our employees, consultants, advisers and suppliers to execute
confidentiality and assignment of invention agreements in connection with their
employment, consulting, advisory, or supply relationships with
us. They may breach these agreements and we may not obtain an
adequate remedy for breach. Further, third parties may gain access to
our trade secrets or independently develop or acquire the same or equivalent
information.
Agencies
of the United States government conducted some of the research activities that
led to the development of antibody technology that some of our proposed
antibody-based surgical cancer detection products use. When the
United States government participates in research activities, it retains rights
that include the right to use the technology for governmental purposes under a
royalty-free license, as well as rights to use and disclose technical data that
could preclude us from asserting trade secret rights in that data and
software.
We
may lose the license rights to certain in-licensed products if we do not
exercise adequate diligence.
Our
license agreements for Lymphoseek, RIGS, and ACT contain provisions that require
that we demonstrate ongoing diligence in the continuing research and development
of these potential products. Cira Bio’s rights to certain
applications of the ACT technology may be affected by its failure to achieve
certain capital raising milestones although no such notices to that effect have
been received to date. We have provided information, as required or
requested, to the licensors of our technology indicating the steps we have taken
to demonstrate our diligence and believe we are adequately doing so to meet the
terms and/or intent of our license agreements. However, it is
possible that the licensors may not consider our actions adequate in
demonstrating such diligence. Should we fail to demonstrate the
requisite diligence required by any such agreements or as interpreted by the
respective licensors, we may lose our development and commercialization rights
for the associated product.
We
could be damaged by product liability claims.
Our
products are used or intended to be used in various clinical or surgical
procedures. If one of our products malfunctions or a physician
misuses it and injury results to a patient or operator, the injured party could
assert a product liability claim against our company. We currently
have product liability insurance with a $10 million per occurrence limit, which
we believe is adequate for our current activities. However, we may
not be able to continue to obtain insurance at a reasonable
cost. Furthermore, insurance may not be sufficient to cover all of
the liabilities resulting from a product liability claim, and we might not have
sufficient funds available to pay any claims over the limits of our
insurance. Because personal injury claims based on product liability
in a medical setting may be very large, an underinsured or an uninsured claim
could financially damage our company.
We
may have difficulty attracting and retaining qualified personnel and our
business may suffer if we do not.
Our
business has experienced a number of successes and faced several challenges in
recent years that have resulted in several significant changes in our strategy
and business plan, including the shifting of resources to support our current
product initiatives. Our management will need to remain flexible to
support our business model over the next few years. However, losing
members of the Neoprobe management team could have an adverse effect on our
operations. Our success depends on our ability to attract and retain
technical and management personnel with expertise and experience in the medical
device business. The competition for qualified personnel in the
biotechnology industry is intense and we may not be successful in hiring or
retaining the requisite personnel. If we are unable to attract and
retain qualified technical and management personnel, we will suffer diminished
chances of future success.
Our
secured indebtedness imposes significant restrictions on us, and a default could
cause us to cease operations.
All of
our material assets have been pledged as collateral for the $10 million in
principal amount of our Series A and Series B Convertible Notes issued to
Montaur, and a $1 million in principal amount Series B Convertible Note issued
to our CEO and members of his family dated July 3, 2007, as amended December 26,
2007 (collectively, the Notes). In addition to the security interest in our
assets, the Notes carry substantial covenants that impose significant
requirements on us, including, among others, requirements that:
|
·
|
we
pay all principal by December 26,
2011;
|
|
·
|
we
use the proceeds from the sale of the Notes only for permitted purposes,
such as Lymphoseek development and general corporate
purposes;
|
|
·
|
we
keep reserved out of our authorized shares of common stock sufficient
shares to satisfy our obligation to issue shares on conversion of the
Notes and the exercise of the warrants issued in connection with the sale
of the Notes; and
|
|
·
|
we
indemnify the purchasers of the Notes against certain
liabilities.
|
Additionally,
with certain exceptions, the Notes prohibit us from:
|
·
|
amending
our organizational or governing agreements and documents, entering into
any merger or consolidation, dissolving the company or liquidating its
assets, or acquiring all or any substantial part of the business or assets
of any other person;
|
|
·
|
engaging
in transactions with any affiliate;
|
|
·
|
entering
into any agreement inconsistent with our obligations under the Notes and
related agreements;
|
|
·
|
incurring
any indebtedness, capital leases, or contingent obligations outside the
ordinary course of business;
|
|
·
|
granting
or permitting liens against or security interests in our
assets;
|
|
·
|
making
any material dispositions of our assets outside the ordinary course of
business;
|
|
·
|
declaring
or paying any dividends or making any other restricted payments;
or
|
|
·
|
making
any loans to or investments in other persons outside of the ordinary
course of business.
|
Our
ability to comply with these provisions may be affected by changes in our
business condition or results of our operations, or other events beyond our
control. The breach of any of these covenants would result in a default under
the Notes, permitting the holders of the Notes to accelerate their maturity and
to sell the assets securing them. Such actions by the holders of the Notes could
cause us to cease operations or seek bankruptcy protection.
Our
common stock is traded over the counter, which may deprive stockholders of the
full value of their shares.
Our
common stock is quoted via the OTC Bulletin Board (OTCBB). As such,
our common stock may have fewer market makers, lower trading volumes and larger
spreads between bid and ask prices than securities listed on an exchange such as
the New York Stock Exchange or the NASDAQ Stock Market. These factors
may result in higher price volatility and less market liquidity for the common
stock.
A
low market price may severely limit the potential market for our common
stock.
Our
common stock is currently trading at a price substantially below $5.00 per
share, subjecting trading in the stock to certain SEC rules requiring additional
disclosures by broker-dealers. These rules generally apply to any
non-NASDAQ equity security that has a market price share of less than $5.00 per
share, subject to certain exceptions (a "penny stock"). Such rules
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and institutional or wealthy
investors. For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to the sale. The
broker-dealer also must disclose the commissions payable to the broker-dealer,
current bid and offer quotations for the penny stock and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Such information
must be provided to the customer orally or in writing before or with the written
confirmation of trade sent to the customer. Monthly statements must
be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. The
additional burdens imposed upon broker-dealers by such requirements could
discourage broker-dealers from effecting transactions in our common
stock.
The
price of our common stock has been highly volatile due to several factors that
will continue to affect the price of our stock.
Our
common stock traded as low as $0.35 per share and as high as $2.30 per share
during the 12-month period ended March 26, 2010. The market price of
our common stock has been and is expected to continue to be highly
volatile. Factors, including announcements of technological
innovations by us or other companies, regulatory matters, new or existing
products or procedures, concerns about our financial position, operating
results, litigation, government regulation, developments or disputes relating to
agreements, patents or proprietary rights, may have a significant impact on the
market price of our stock. In addition, potential dilutive effects of
future sales of shares of common stock by the company and by stockholders, and
subsequent sale of common stock by the holders of warrants and options could
have an adverse effect on the market price of our shares.
Some
additional factors which could lead to the volatility of our common stock
include:
|
·
|
price
and volume fluctuations in the stock market at large which do not relate
to our operating performance;
|
|
·
|
financing
arrangements we may enter that require the issuance of a significant
number of shares in relation to the number of shares currently
outstanding;
|
|
·
|
public
concern as to the safety of products that we or others develop;
and
|
|
·
|
fluctuations
in market demand for and supply of our
products.
|
An
investor’s ability to trade our common stock may be limited by trading
volume.
Generally,
the trading volume for our common stock has been relatively
limited. A consistently active trading market for our common stock
may not occur on the OTCBB. The average daily trading volume for our
common stock on the OTCBB for the 12-month period ended March 26, 2010 was
approximately 125,000 shares.
Some
provisions of our organizational and governing documents may have the effect of
deterring third parties from making takeover bids for control of our company or
may be used to hinder or delay a takeover bid.
Our
certificate of incorporation authorizes the creation and issuance of “blank
check” preferred stock. Our Board of Directors may divide this stock into one or
more series and set their rights. The Board of Directors may, without prior
stockholder approval, issue any of the shares of “blank check” preferred stock
with dividend, liquidation, conversion, voting or other rights, which could
adversely affect the relative voting power or other rights of the common stock.
Preferred stock could be used as a method of discouraging, delaying, or
preventing a take-over of our company. If we issue “blank check” preferred
stock, it could have a dilutive effect upon our common stock. This would
decrease the chance that our stockholders would realize a premium over market
price for their shares of common stock as a result of a takeover
bid.
Because
we will not pay dividends in the foreseeable future, stockholders will only
benefit from owning common stock if it appreciates.
We have
never paid dividends on our common stock and we do not intend to do so in the
foreseeable future. We intend to retain any future earnings to
finance our growth. Accordingly, any potential investor who
anticipates the need for current dividends from his investment should not
purchase our common stock.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
We
currently lease approximately 11,300 square feet of office space at 425 Metro
Place North, Dublin, Ohio, as our principal offices. The current lease term is
from June 1, 2007 through January 31, 2013, at a monthly base rent of
approximately $8,500 during 2010. We must also pay a pro-rata portion of the
operating expenses and real estate taxes of the building. We believe these
facilities are in good condition, but that we may need to expand our leased
space related to our radiopharmaceutical activities depending on the level of
activities performed internally versus by third parties.
Item
3. Legal Proceedings
None.
Item
4. (Removed and Reserved)
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Our
common stock trades on the OTC Bulletin Board (OTCBB) under the trading symbol
NEOP. The prices set forth below reflect the quarterly high, low and
closing sales prices for shares of our common stock during the last two fiscal
years as reported by Reuters Limited. These quotations reflect
inter-dealer prices, without retail markup, markdown or commission, and may not
represent actual transactions.
|
|
High
|
|
|
Low
|
|
|
Close
|
|
Fiscal
Year 2009:
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
0.80 |
|
|
$ |
0.42 |
|
|
$ |
0.54 |
|
Second
Quarter
|
|
|
1.20 |
|
|
|
0.35 |
|
|
|
0.95 |
|
Third
Quarter
|
|
|
1.48 |
|
|
|
0.91 |
|
|
|
1.40 |
|
Fourth
Quarter
|
|
|
1.40 |
|
|
|
0.95 |
|
|
|
1.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
0.42 |
|
|
$ |
0.29 |
|
|
$ |
0.35 |
|
Second
Quarter
|
|
|
0.87 |
|
|
|
0.34 |
|
|
|
0.68 |
|
Third
Quarter
|
|
|
0.75 |
|
|
|
0.42 |
|
|
|
0.57 |
|
Fourth
Quarter
|
|
|
0.68 |
|
|
|
0.45 |
|
|
|
0.57 |
|
As of
March 26, 2010, we had approximately 767 holders of common stock of
record.
We have
not paid any dividends on our common stock and do not anticipate paying cash
dividends on our common stock in the foreseeable future. We intend to
retain any earnings to finance the growth of our business. We cannot
assure you that we will ever pay cash dividends. Whether we pay cash
dividends in the future will be at the discretion of our Board of Directors and
will depend upon our financial condition, results of operations, capital
requirements and any other factors that the Board of Directors decides are
relevant. See Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Recent
Sales of Unregistered Securities
The
following sets forth certain information regarding the sale of equity securities
of our Company during the period covered by this report that were not registered
under the Securities Act of 1933 (the Securities Act), and have not been
previously reported by us in periodic reports filed under the Securities
Exchange Act of 1934 (the Exchange Act).
During
2008, an outside investor who received warrants to purchase our common stock in
connection with a November 2003 financing exercised a total of 200,200 Series R
Warrants in exchange for issuance of 200,200 shares of our common stock,
resulting in gross proceeds of $56,056. In addition, certain outside
investors who also received warrants to purchase our common stock in connection
with the November 2003 financing exercised a total of 2,658,698 Series R
Warrants and 644,565 Series S Warrants on a cashless basis in exchange for
issuance of 1,289,990 shares of our common stock. The issuances of
the shares to the investors were exempt from registration under Sections 4(2)
and 4(6) of the Securities Act and Regulation D.
During
2008, David C. Bupp, our President and CEO, who received warrants in connection
with an April 2003 financing, exercised 375,000 Series Q Warrants in exchange
for issuance of 375,000 shares of our common stock, resulting in gross proceeds
of $48,750. In addition, an outside investor, who also received
warrants in connection with an April 2003 financing, exercised 500,000 Series Q
Warrants in exchange for issuance of 500,000 shares of our common stock,
resulting in gross proceeds of $65,000. During 2009, Mr. Bupp
exercised a portion of his outstanding Series Q Warrants in exchange for
issuance of 50,000 shares of our common stock, resulting in gross proceeds of
$25,000. The issuances of the shares to Mr. Bupp and the outside
investor were exempt from registration under Sections 4(2) and 4(6) of the
Securities Act and Regulation D.
During
2009, a Bupp Investor (as defined below) exercised 50,000 Series V Warrants in
exchange for issuance of 50,000 shares of our common stock, resulting in gross
proceeds of $16,000. The issuance of the shares to the Bupp Investor
was exempt from registration under Sections 4(2) and 4(6) of the Securities Act
and Regulation D.
During
2009, certain outside investors, who received warrants in connection with a
December 2004 financing, exercised a total of 1,480,000 Series U Warrants on a
cashless basis in exchange for issuance of 848,507 shares of our common
stock. The issuance of the shares to the outside investors was exempt
from registration under Sections 4(2) and 4(6) of the Securities Act and
Regulation D.
During
2009, we issued 1,126,767 shares of our common stock in payment of January 2009
and March-November 2009 interest of $833,333 on the 10% Series A and Series B
Convertible Senior Secured Promissory Notes held by Platinum Montaur Life
Sciences, LLC (Montaur). During the same period, we issued 266,472 shares of our
common stock in payment of December 2008 through September 2009 dividends of
$181,793 on the 8% Series A Cumulative Convertible Preferred Stock held by
Montaur. Also during 2009, Montaur exercised 6,000,000 Series Y Warrants in
exchange for issuance of 6,000,000 shares of our common stock, resulting in
gross proceeds of $3,450,000, and we issued Montaur a Series AA Warrant to
purchase 2,400,000 shares of our common stock at an exercise price of $0.97 per
share, expiring in July 2014. The issuances of the shares and warrants to
Montaur were exempt from registration under Sections 4(2) and 4(6) of the
Securities Act and Regulation D.
Item
6. Selected Financial Data
Not
applicable to smaller reporting companies.
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
following discussion should be read together with our Consolidated Financial
Statements and the Notes related to those statements, as well as the other
financial information included in this Form 10-K. Some of our
discussion is forward-looking and involves risks and uncertainties. For
information regarding risk factors that could have a material adverse effect on
our business, refer to Item 1A of this Form 10-K, Risk Factors.
The
Company
Neoprobe
Corporation is a biomedical technology company that provides innovative surgical
and diagnostic oncology products that enhance patient care and improve patient
outcome. We currently market a line of medical devices, our
neoprobe® GDS
gamma detection systems. In addition to our medical device products,
we have two radiopharmaceutical products, Lymphoseek® and
RIGScanTM CR, in
advanced phases of clinical development. We are also exploring the
development of our activated cellular therapy (ACT) technology for
patient-specific disease treatment through our majority-owned subsidiary, Cira
Biosciences, Inc. (Cira Bio).
Executive
Summary
This
Overview section contains a number of forward-looking statements, all of which
are based on current expectations. Actual results may differ
materially. Our financial performance is highly dependent on our
ability to continue to generate income and cash flow from our medical device
product lines. We cannot assure you that we will achieve the volume
of sales anticipated, or if achieved, that the margin on such sales will be
adequate to produce positive operating cash flow.
We
believe that the future prospects for Neoprobe continue to improve as we make
progress in all of our key growth areas, especially related to our Lymphoseek
initiative. Despite the current global economic conditions, our gamma
device line continues to provide a strong revenue base. Due primarily
to stocking orders related to products introduced in 2009 that we do not expect
to recur in 2010, we expect overall revenue for our gamma device line for 2010
to be lower than 2009. We expect to continue to incur modest
development expenses to support our device product lines as well as we work with
our marketing partners to expand our product offerings in the gamma device
arena. Our primary development efforts over the last few years have
been focused on our oncology drug development initiatives: Lymphoseek and
RIGScan CR. We continue to make progress with both initiatives;
however, neither Lymphoseek nor RIGScan CR is anticipated to generate any
significant revenue for us during 2010.
In August
2009, our Board of Directors decided to discontinue operations of Cardiosonix
and to attempt to divest our Cardiosonix subsidiary. This decision
was based on the determination that the blood flow measurement device segment
was no longer considered a strategic initiative to the Company, due in large
part to positive events in our other development initiatives. Until a
sale is completed, we expect to continue to generate modest revenues and incur
minimal expenses related to our blood flow measurement device
business.
Our
efforts in 2009 have resulted in the following milestone
achievements:
|
·
|
Completed
a Phase 3 clinical trial of Lymphoseek (NEO3-05) in patients with breast
cancer or melanoma and announced that the primary efficacy endpoint was
exceeded with no drug-related safety events
reported.
|
|
·
|
Initiated
patient enrollment in a second Phase 3 clinical trial of Lymphoseek
(NEO3-06 or the “Sentinel” trial) in patients with head and neck squamous
cell carcinoma.
|
|
·
|
Initiated
drug development activities for RIGScan CR to support a Phase 3
study.
|
|
·
|
Began
a new five-year term of our EES gamma detection device distribution
agreement.
|
|
·
|
Added
a high energy (F-18) probe to our gamma detection device product
portfolio.
|
|
·
|
Completed
a debt restructuring agreement allowing reclassification of a majority of
the Company’s derivative liabilities and resulting in the exercise of the
Series Y Warrants, producing $3.5 million in gross cash flow to the
Company.
|
Our
Outlook for our Drug and Therapeutic Initiatives
Our
operating expenses during 2009 were focused primarily on support of Lymphoseek
product development. We expect our drug-related development expenses
to increase significantly in 2010 as we continue the second multi-center Phase 3
clinical evaluation of Lymphoseek and support the other drug stability and
production validation activities related to supporting the potential marketing
registration of Lymphoseek.
Based on
dialogue with FDA through 2007, we proposed to FDA a plan for conducting Phase 3
studies to support an NDA for marketing clearance of
Lymphoseek. During 2008, we initiated patient enrollment in the first
Phase 3 clinical study in patients with either breast cancer or melanoma
(NEO3-05). In March 2009, we announced that this study had reached
the accrual of 203 lymph nodes, the study’s primary accrual
objective. The NEO3-05 Phase 3 clinical trial was designed to
provide, and achieved its primary endpoint of, the evaluation of the efficacy of
Lymphoseek in anatomically delineating lymph nodes in both breast cancer and
melanoma patients that may be predictive of determining whether cancer has
spread into the lymphatic system. Final data from the trial in patients with
breast cancer and melanoma has now been reviewed and audited. The
NEO3-05 study has also been closed on the national clinical trials website
www.clinicaltrials.gov. In December 2009, Neoprobe submitted an
end-of-Phase 3 meeting request to FDA to discuss the results of the clinical
trial as part of our continuing preparation of a New Drug Application
(NDA) In March 2010, Neoprobe met with FDA regarding
NEO3-05. The FDA review included the efficacy and safety results of
the NEO3-05 study and Neoprobe’s plans for the submission of a NDA for
Lymphoseek. The NDA submission will be based on the clinical results
of NEO3-05 and other already completed clinical evaluations of
Lymphoseek. FDA encouraged Neoprobe to request a series of pre-NDA
meetings in the coming months to review the components of the NDA prior to its
formal submission. Neoprobe indicated to FDA that the Company plans
to submit the NDA following satisfactory completion of these
meetings.
The
NEO3-05 Phase 3 study was an open label trial of node-negative subjects with
either breast cancer or melanoma. It was designed to evaluate the
safety and the accuracy of Lymphoseek while identifying the lymph nodes draining
from the subject’s tumor site. To demonstrate the accuracy of
Lymphoseek, each subject consenting to participate in the study was injected in
proximity to the tumor with Lymphoseek and one of the vital blue dyes that are
commonly used in lymphatic mapping procedures. The primary efficacy
objective of the study was to identify lymph nodes that contained the vital blue
dye and to demonstrate a statistically acceptable concordance rate between the
identification of lymph nodes with the vital blue dye and
Lymphoseek. To be successful, the study needed to achieve a
statistical p-value of at least 0.05.
In this
review meeting with FDA, the full analysis of the NEO3-5 clinical data was
discussed. The protocol compliant clinical sites that participated in
the NEO3-05 study contributed 136 Intent-To-Treat (ITT) subjects who provided
215 lymph nodes that contained the vital blue dye. 210 of the vital
blue dye positive lymph nodes contained Lymphoseek for an overall concordance
rate of 98% achieving a statistical p-value of 0.0001. In addition to
the nodes identified by vital blue dye and Lymphoseek, Lymphoseek was able to
identify 85 additional lymph nodes that did not contain the vital blue dye, and
18% of these nodes were found by pathology to contain cancer. There
were no significant safety events related to Lymphoseek. The FDA
indicated that the clinical data would be supportive of a NDA submission for
Lymphoseek.
In future
pre-NDA meetings, Neoprobe will continue discussions with the FDA reviewers
regarding the pre-clinical and chemistry, manufacturing and control quality data
modules that will be part of the NDA submission. Neoprobe will be
discussing elements of the statistical analysis plan that would support the NDA,
including the design of any prospective clinical evaluations to support the
primary indication, and to potentially expand the future indications for
Lymphoseek.
In June
2009, we initiated a second Phase 3 clinical trial to be conducted in patients
with head and neck squamous cell carcinoma (NEO3-06 or the “Sentinel”
trial). The Sentinel study is designed to validate Lymphoseek as a
sentinel lymph node targeting agent. Our discussions with FDA and
EMEA have also suggested that the Sentinel trial will further support the use of
Lymphoseek in sentinel lymph node biopsy procedures. We believe the
outcome of the trial will be beneficial to the marketing and commercial adoption
of Lymphoseek in the U.S. and European Union (EU). We plan to have
approximately20 participating institutions in the Sentinel
trial. Patient recruitment and enrollment is actively underway at a
number of institutions and the trial protocol is currently under review at
several other institutions. The accrual rate for trials of this
nature is highly dependent on the timing of institutional review board (IRB)
approvals of the NEO3-06 protocol. Our experience in the NEO3-05
trial has shown that this process may be lengthening due to risk management
concerns on the part of hospitals participating in clinical trials and other
factors.
We plan
to use the safety and efficacy results from the Phase 3 clinical evaluations of
Lymphoseek, which will include sites in the EU, to support the drug registration
application process in the EU as well as to amend the filing in the U.S. for
expanded product labeling. Based on the positive outcome of the
recent meeting regarding NEO3-05, Neoprobe expects to submit the NDA for
Lymphoseek later in the summer of 2010. Depending on the timing of
the planned pre-NDA meetings with FDA and the outcome of FDA regulatory review
cycle, we believe that Lymphoseek could be commercialized in
mid-2011. We cannot assure you, however, that this product will
achieve regulatory approval, or if approved, that it will achieve market
acceptance. See Risk Factors.
Over the
past few years, we have made progress in advancing our RIGScan CR development
program while incurring minimal research expenses. Our RIGS®
technology, which had been essentially inactive since failing to gain approval
following our original license application in 1997, has been the subject of
renewed interest due primarily to the analysis of survival data related to
patients who participated in the original Phase 3 clinical studies that were
completed in 1996. After a successful pre-submission meeting with
EMEA in July 2008, we submitted a plan during the third quarter of 2008 on how
we would propose to complete clinical development for RIGScan CR. The
clinical protocol we submitted to EMEA involves approximately 400 patients in a
randomized trial of patients with colorectal cancer. The participants
in the trial would be randomized to either a control or RIGS treatment
arm. Patients randomized to the RIGS arm would have their disease
status evaluated at the end of their cancer surgery to determine the presence or
absence of RIGS-positive tissue. Patients in both randomized arms
would be followed to determine if patients with RIGS-positive status have a
lower overall survival rate and/or a higher occurrence of disease
recurrence. The hypothesis for the trial is based upon the data from
the earlier NEO2-13 and NEO2-14 trial results.
Our
desire has been, and continues to be, to develop a clinical development plan
which is harmonized between the U.S. and the EU. To that end, during
December 2009 we submitted an investigational new drug (IND) amendment to the
United States FDA which includes the design of a proposed Phase 3 clinical trial
of RIGScan CR. The IND amendment includes a Special Protocol Assessment (SPA) in
accordance with the Prescription Drug User Fee Act of 1992 (PDUFA) and current
regulatory guidelines, and will be registered on the clinicaltrials.gov website
following discussions with FDA regarding the SPA.
The Phase
3 clinical study as currently designed would be a randomized clinical study that
would evaluate the ability of RIGScan CR to identify tumor-associated tissue in
a group of patients as compared to a group of patients provided with traditional
surgical care. Based on our current statistical analysis, we now believe the
sample size for the proposed Phase 3 clinical study may be as few as 250
patients including both the RIGScan CR and traditional treatment groups. In
addition to assessing the ability of RIGScan CR to identify tumor-associated
tissue, the survival rate of the RIGScan CR treated patients will be compared to
the patients treated with conventional treatment modalities.
It should
also be noted that the RIGScan CR biologic drug has not been produced for
several years. We would have to perform some additional work related
to ensuring the drug cell line is still viable and submit this data to EMEA and
possibly FDA for their evaluation in connection with preparations to restart
pivotal clinical trials. During the third quarter of 2009, we
announced that we had executed a Biopharmaceutical Development and Supply
Agreement with Laureate Pharma, Inc. This agreement will support the
initial evaluation of the viability of the CC49 master working cell bank as well
as the initial steps in re-validating the commercial production process for the
biologic agent used in RIGScan CR. In addition, we will need to
re-establish radiolabeling capabilities for the CC49 antibody in order to meet
the regulatory needs for the RIGScan CR product. We have also begun
discussions with parties capable of supporting such activities.
We
continue to believe it will be necessary for us to identify a development
partner or an alternative funding source in order to prepare for and fund the
pivotal clinical testing that will be necessary to gain marketing clearance for
RIGScan CR. In the past, we have engaged in discussions with various
parties regarding such a partnership. We believe the recently
clarified regulatory pathway approved by EMEA is very valuable, but we believe
clarifying the regulatory pathway in the U.S. is important for us and our
potential partners is assessing the full potential for RIGScan
CR. However, even if we are able to make such arrangements on
satisfactory terms, we believe that the time required for continued development,
regulatory approval and commercialization of a RIGS product would likely be a
minimum of five years before we receive any significant product-related
royalties or revenues. We cannot assure you that we will be able to
complete definitive agreements with a development partner or obtain financing to
fund development of the RIGS technology and do not know if such arrangements
could be obtained on a timely basis on terms acceptable to us, or at
all. We also cannot assure you that FDA or EMEA will clear our RIGS
products for marketing or that any such products will be successfully introduced
or achieve market acceptance.
In 2005,
we formed a new subsidiary, Cira Bio, to explore the development of
ACT. Neoprobe owns approximately 90% of the outstanding shares of
Cira Bio with the remaining shares being held by the principals of a private
holding company, Cira LLC. In conjunction with the formation of Cira
Bio, an amended technology license agreement also was executed with The Ohio
State University, from whom both Neoprobe and Cira LLC had originally licensed
or optioned the various cellular therapy technologies. As a result of
the cross-license agreements, Cira Bio has the exclusive development and
commercialization rights to three issued U.S. patents that cover the oncology
and autoimmune applications of its technology. In addition, Cira Bio
has exclusive licenses to several pending patent applications. We
hope to identify a funding source to continue Cira Bio’s development
efforts. If we are successful in identifying a funding source, we
expect that any funding would likely be accomplished by an investment directly
into Cira Bio, so that the funds raised would not dilute current Neoprobe
shareholders. Obtaining this funding would likely dilute Neoprobe’s
ownership interest in Cira Bio; however, we believe that moving forward such a
promising technology will only yield positive results for the Neoprobe
stockholders and the patients who could benefit from these
treatments. We have been encouraged by recent media speculation
regarding the potential connection of a retrovirus with chronic fatigue syndrome
and the potential use of ACT to develop a treatment, which may stimulate some
interest in our ACT platform. However, we do not know if we
will be successful in obtaining funding on terms acceptable to us, or at
all. In the event we fail to obtain financing for Cira Bio, the
technology rights for the oncology applications of ACT may revert back to
Neoprobe and the technology rights for the viral and autoimmune applications may
revert back to Cira LLC upon notice by either party.
Our
Outlook for our Gamma Detection Device Business
We
believe our core gamma detection device business line will continue to achieve
positive results in 2010. We believe that the surgical community will
continue to adopt the sentinel lymph node biopsy (SLNB) application while a
standard of care determination is still pending. We also believe that
Lymphoseek, our lymphatic targeting agent, should it become commercially
available, could significantly improve the adoption of SLNB in future years in
areas beyond melanoma and breast cancer. To that end, we are
supporting the clinical evaluation of Lymphoseek in human patients in a Phase 3
trial in head and neck squamous cell carcinoma and in Phase 1 trials in patients
with either prostate or colon cancers.
We
believe that most of the leading cancer treatment institutions in the U.S. and
other major global markets have adopted SLNB and purchased gamma detection
systems such as the neoprobe GDS. As a result, we may be reaching
saturation within this segment of the market, except for a replacement sales
market which we also believe is developing as devices introduced during the
early years of lymphatic mapping begin to age over ten years. A
decline in the adoption rate of SLNB or the development of alternative
technologies by competitors may negatively impact our sales volumes, and
therefore, revenues and net income in future years. In order to
address the issue of potential saturation as well as to continue to provide our
customers with the highest quality tools for performing SLNB, we have introduced
several enhancements to our gamma device product line over the past few years,
including a higher energy gamma detection probe which was launched in mid-
2009.
Our gamma
detection devices are distributed in most global markets by Ethicon
Endo-Surgery, Inc. (EES), a Johnson & Johnson
company. Under the terms of our distribution agreement with
EES, the transfer prices we receive on product sales to EES are based on a fixed
percentage of their end-customer average sales price (ASP), subject to a floor
transfer price. Throughout their sales history, our products have
generally commanded a price premium in most of the markets in which they are
sold, which we believe is due to their superior performance and ease of
use. The end-customer ASP received by EES for our base gamma
detection systems increased approximately 5% in 2009 as compared to 2008,
primarily due to improved pricing on our neoprobe GDS system. While
we continue to believe in the technical and user-friendly superiority of our
products, the competitive landscape continues to evolve and current economic
conditions present a number of challenges to the outlook for medical device
sales. We may lose market share or experience price erosion and/or
lower sales volumes as a result, any of which would have a direct negative
impact on net income. If price erosion occurs in 2010, or if the U.S.
Dollar gains significantly against the Euro, there is a risk associated with
future sales prices of our gamma detection devices to EES that may erode some or
all of the premium we received in prior years in excess of the floor
price. However, in December 2007, Neoprobe and EES executed an
amendment to the distribution agreement which extended the agreement through the
end of 2013. The amendment modified certain terms of the agreement
including increasing the percentage of EES’ sales which Neoprobe receives by
15-20% and setting minimum performance requirements in order to maintain
exclusivity.
We expect
that revenues from our gamma detection devices will likely decline from 2009
levels due to the previously discussed non-recurring stocking revenues, but
should still result in a net profit in 2010 for that line of business, excluding
general and administrative costs, interest and other financing-related
charges. Our overall operating results for 2010 will also be greatly
affected by the amount of development of our radiopharmaceutical
products. Primarily as a result of the significant development costs
we expect to incur related to the continued clinical development of Lymphoseek,
we do not expect to achieve overall operating profitability during
2010. We cannot assure you that our current or potential new products
will be successfully commercialized, that we will achieve significant product
revenues, or that we will achieve or be able to sustain profitability in the
future.
Results
of Operations
Revenue
for 2009 increased to $9.5 million from $7.6 million in the prior
year. The increase was primarily due to increased unit prices of our
control units and detector probes. The increase in net sales compared
to the prior year can also be partially attributed to sales of our new high
energy probes and wireless laparoscopic probes. Gross margins for
2009 increased to 67% as compared to 63% in 2008. The increase in
gross margins was primarily due to the increased percentage of ASP received by
Neoprobe from EES coupled with increased end-customer ASP for gamma detection
devices.
Results
for 2009 also reflect an increase in research and development expenditures of
$681,000 to $5.0 million from $4.3 million in 2008. The increase was
primarily due to higher Lymphoseek development expenses related to conducting
the Phase 3 clinical trials offset by decreased non-clinical testing, validation
and process development activities. Selling, general and
administrative expenses increased to $3.2 million in 2009 from $3.0 million in
2008.
Net Sales and
Margins. Net sales, comprised primarily of sales of our gamma
detection systems, increased $2.0 million, or 27%, to $9.4 million during 2009
from $7.4 million in 2008. Gross margins on net sales increased to
67% of net sales for 2009 compared to 62% of net sales for 2008.
The
increase in net sales was the result of increased gamma detection device sales
of $1.8 million, increased gamma detection device extended service contract
revenue of $92,000 and increased gamma detection device non-warranty service
revenue of $91,000. The increase in gamma detection device sales was
primarily due to increased unit prices of our control units and detector
probes. The increase in net sales compared to the prior year can also
be partially attributed to sales of our new high energy probes and wireless
laparoscopic probes. The price at which we sell our gamma detection
products to EES is based on a percentage of the global ASP received by EES on
sales of Neoprobe products to end customers, subject to a minimum floor
price. In January 2009, Neoprobe began receiving an increased
percentage of ASP for certain products under the terms of our amended
distribution agreement with EES. The increase in gross margins was
primarily due to the increased percentage of ASP received by Neoprobe from EES
coupled with increased end-customer ASP for gamma detection
devices.
Research and Development
Expenses. Research and development expenses increased
$681,000, or 16%, to $5.0 million during 2009 from $4.3 million in
2008. Research and development expenses in 2009 included
approximately $3.9 million in drug and therapy product development costs and
$1.1 million in gamma detection device development costs. This
compares to expenses of $3.3 million and $948,000 in these segment categories in
2008. The changes in each category were primarily due to (i)
increased costs related to the Phase 3 clinical trials of Lymphoseek offset by
decreased non-clinical testing, validation and process development activities
related to Lymphoseek, and (ii) decreased development costs of our neoprobe GDS
control unit and wireless laparoscopic probe, offset by increased development
costs of our new high energy detection probe and other products in 2009,
respectively.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses
increased $275,000, or 9%, to $3.2 million during 2009 from $3.0 million in
2008. The net increase was due primarily to increases in compensation
and utilities costs offset by decreases in investor relations fees.
Other Income
(Expense). Other expense, net increased $33.8 million to $35.9
million during 2009 from $2.1 million during the same period in
2008. During 2009, we recorded a $16.2 million non-cash loss on
extinguishment of debt related to changes in the terms of our convertible debt,
convertible preferred stock and the related warrants to purchase our common
stock. Also during 2009, we recorded a $18.1 million increase in
derivative liabilities resulting from the accounting treatment for the
convertible debt agreements we executed in December 2007 and April 2008, the
convertible preferred stock we issued in December 2008, and the related warrants
to purchase our common stock, which contained certain provisions that resulted
in their being treated as derivative liabilities under new accounting guidance
effective January 1, 2009. During 2008, we recorded a $451,000
increase in derivative liabilities. Interest expense, primarily
related to the convertible debt agreements we completed in December 2007 and
April 2008, decreased $212,000 to $1.5 million during 2009 from $1.7 million for
the same period in 2008. Of this interest expense, $428,000 and
$706,000 in 2009 and 2008, respectively, was non-cash in nature related to the
amortization of debt issuance costs and discounts resulting from the warrants
and conversion features of the convertible debt. An additional
$917,000 of interest expense in 2009 was non-cash in nature due to the payment
or accrued payment of interest on our convertible debt with shares of our common
stock.
Discontinued
Operations. During the third quarter of 2009, we made the
decision to discontinue operations of the blood flow measurement device segment
of our business as the segment was no longer considered a strategic initiative
to the Company. This determination was based in large part on
positive events in our other development initiatives. As a result, we
recorded an impairment loss related to discontinued operations of $1.7 million
for the year ended December 31, 2009. Total revenues from
discontinued operations were $129,000 and $297,000 in 2009 and 2008,
respectively. The net loss from discontinued operations was $176,000
and $534,000 for 2009 and 2008, respectively.
Liquidity
and Capital Resources
Cash
balances, including short term available-for-sale securities in 2008, increased
to $5.6 million at December 31, 2009 from $4.1 million at December 31,
2008. The net increase was primarily due to cash received for the
issuance of common stock related to the exercise of warrants, partially offset
by cash used to fund our operations, mainly for research and development
activities. The current ratio increased to 3.6:1 at December 31, 2009
from 3.1:1 at December 31, 2008.
Operating
Activities. Cash used in operations decreased $1.5 million to
$1.5 million during 2009 compared to $3.0 million during 2008.
Accounts
receivable decreased to $1.3 million at December 31, 2009 from $1.6 million at
December 31, 2008. The decrease was primarily a result of normal
fluctuations in timing of purchases and payments by EES. We expect
overall receivable levels will continue to fluctuate during 2010 depending on
the timing of purchases and payments by EES.
Inventory
levels increased to $1.1 million at December 31, 2009 compared to $544,000 at
December 31, 2008. The first commercial-grade lot of the active
pharmaceutical ingredient used in Lymphoseek was produced during
2009. Gamma detection device materials inventory increased in
preparation for detector probe production. Gamma detection finished
device inventory also increased due to the timing of production and sales to
EES. We expect inventory levels to increase during 2010 as our
Lymphoseek materials are converted to finished drug inventory.
Investing Activities.
Investing activities provided $327,000 during 2009 compared to $627,000
used during 2008. We purchased $690,000 of available-for-sale
securities during 2008. Available-for-sale securities of $494,000 and
$196,000 matured during 2009 and 2008, respectively. Capital
expenditures of $96,000 and $116,000 during 2009 and 2008, respectively, were
primarily for computers, production and laboratory equipment, and
software. We expect our overall capital expenditures for 2010 to
increase slightly compared to 2009 as we prepare for the commercial production
of Lymphoseek. Payments for patent and trademark costs were $71,000
and $17,000 during 2009 and 2008, respectively.
Financing
Activities. Financing activities provided $3.2 million during
2009 compared to $5.7 million provided during 2008. The $3.2 million
provided by financing activities in 2009 consisted primarily of proceeds from
the issuance of common stock of $3.6 million, offset by payments of stock
offering costs of $244,000 and payments of notes payable of
$138,000. The $5.7 million provided by financing activities in 2008
consisted primarily of proceeds from the issuance of preferred stock of $3.0
million, proceeds from the issuance of new notes payable of $3.0 million, and
proceeds from the issuance of common stock of $232,000, offset by payments of
stock offering costs of $181,000, payments of debt issuance costs of $200,000
and payments of notes payable of $158,000.
In
December 2006, we entered into a common stock purchase agreement with Fusion
Capital, an Illinois limited liability company, to sell $6.0 million of our
common stock to Fusion Capital over a 24-month period which ended on November
21, 2008. Through November 21, 2008, we sold to Fusion Capital under
the agreement 7,568,671 shares for proceeds of $1.9 million. In
December 2008, we entered into an amendment to the agreement which gave us a
right to sell an additional $6.0 million of our common stock to Fusion Capital
before March 1, 2011, along with the $4.1 million of the unsold balance of the
$6.0 million we originally had the right to sell to Fusion Capital under the
original agreement. In March 2010, we sold to Fusion Capital under
the amended agreement 540,541 shares for proceeds of $1.0
million. Subsequent to this sale, the remaining aggregate amount of
our common stock we can sell to Fusion Capital is $9.1 million, and we have
reserved a total of 10,113,459 shares of our common stock in respect to
potential sales of common stock we may make to Fusion Capital in the future
under the amended agreement.
In
December 2006, we issued to Fusion Capital 720,000 shares of our common stock as
a commitment fee upon execution of the original agreement. As sales
of our common stock were made under the original agreement, we issued an
additional 234,000 shares of our common stock to Fusion Capital as an additional
commitment fee. In connection with entering into the amendment, we
issued an additional 360,000 shares in consideration for Fusion Capital’s
entering into the amendment. Also, as an additional commitment fee,
we agreed to issue to Fusion Capital an additional 486,000 shares of our common
stock pro rata as we sell the first $4.1 million of our common stock to Fusion
Capital under the amended agreement. In March 2010, we issued an
additional 120,000 shares of our common stock to Fusion Capital as an additional
commitment fee related to the 540,541 shares of stock that we sold to Fusion
Capital for $1.0 million.
In July
2007, David C. Bupp, our President and CEO, and certain members of his family
(the Bupp Investors) purchased a $1.0 million convertible note (the Bupp Note)
and warrants. The note bears interest at 10% per annum, had an
original term of one year and is repayable in whole or in part with no
penalty. The note is convertible into shares of our common stock at a
price of $0.31 per share, a 25% premium to the average closing market price of
our common stock for the 5 days preceding the closing of the
transaction. As part of this transaction, we issued the Bupp
Investors Series V Warrants to purchase 500,000 shares of our common stock at an
exercise price of $0.31 per share, expiring in July 2012.
In
December 2007, we entered into a Securities Purchase Agreement (SPA) with
Platinum Montaur Life Sciences, LLC (Montaur), pursuant to which we issued
Montaur a 10% Series A Convertible Senior Secured Promissory Note in the
principal amount of $7,000,000, due December 26, 2011 (the Series A Note) and a
five-year Series W Warrant to purchase 6,000,000 shares of our common stock,
$.001 par value per share, at an exercise price of $0.32 per
share. Montaur may convert $3.5 million of the Series A Note into
shares of our common stock at the conversion price of $0.26 per
share. The SPA also provided for two further tranches of financing, a
second tranche of $3 million in exchange for a 10% Series B Convertible Senior
Secured Promissory Note along with a five-year Series X Warrant to purchase
shares of our common stock, and a third tranche of $3 million in exchange for
3,000 shares of our 8% Series A Cumulative Convertible Preferred Stock and a
five-year Series Y Warrant to purchase shares of our common
stock. Closings of the second and third tranches were subject to the
satisfaction by the Company of certain milestones related to the progress of the
Phase 3 clinical trials of our Lymphoseek radiopharmaceutical
product.
In April
2008, following receipt by the Company of clearance from FDA to commence a Phase
3 clinical trial for Lymphoseek in patients with breast cancer or melanoma, we
amended the SPA related to the second tranche and issued Montaur a 10% Series B
Convertible Senior Secured Promissory Note in the principal amount of
$3,000,000, also due December 26, 2011 (the Series B Note, and hereinafter
referred to collectively with the Series A Note as the Montaur Notes), and a
five-year Series X Warrant to purchase 8,333,333 shares of our common stock at
an exercise price of $0.46 per share. Montaur may convert the Series
B Note into shares of our common stock at the conversion price of $0.36 per
share. Provided we have satisfied certain conditions stated therein,
we may elect to make payments of interest due under the Montaur Notes in
registered shares of our common stock. If we choose to make interest
payments in shares of common stock, the number of shares of common stock to be
applied against any such interest payment will be determined by reference to the
quotient of (a) the applicable interest payment divided by (b) 90% of the
average daily volume weighted average price of our common stock on the OTCBB (or
national securities exchange, if applicable) as reported by Bloomberg Financial
L.P. for the five days upon which our common stock is traded on the OTCBB
immediately preceding the date of the interest payment.
In
December 2008, after we obtained 135 vital blue dye lymph nodes from patients
who had completed surgery and the injection of the drug in a Phase 3 clinical
trial of Lymphoseek in patients with breast cancer or melanoma, we issued
Montaur 3,000 shares of our 8% Series A Cumulative Convertible Preferred Stock
(the Preferred Stock) and a five-year Series Y Warrant (hereinafter referred to
collectively with the Series W Warrant and Series X Warrant as the Montaur
Warrants) to purchase 6,000,000 shares of our common stock, at an exercise price
of $0.575 per share, also for an aggregate purchase price of
$3,000,000. Montaur may convert each share of the Preferred Stock
into a number of shares of our common stock equal to the quotient of (a) the
Liquidation Preference Amount of the shares of Preferred Stock by (b) the
Conversion Price. The “Liquidation Preference Amount” for the Preferred Stock is
$1,000 and the “Conversion Price” of the Preferred Stock was set at $0.50 on the
date of issuance, thereby making the shares of Preferred Stock convertible into
an aggregate 6,000,000 shares of our common stock, subject to adjustment as
described in the Certificate of Designations, Voting Powers, Preferences,
Limitations, Restrictions, and Relative Rights of Series A 8% Cumulative
Convertible Preferred Stock. We may elect to pay dividends due
to Montaur on the shares of Preferred Stock in registered shares of our common
stock. The number of shares of common stock to be applied against any
such dividend payment will be determined by reference to the quotient of (a) the
applicable dividend payment by (b) 90% of the average daily volume weighted
average price of our common stock on the OTCBB (or national securities exchange,
if applicable) as reported by Bloomberg Financial L.P. for the five days upon
which our common stock is traded on the OTCBB immediately preceding the date of
the dividend payment.
On July
24, 2009, we entered into a Securities Amendment and Exchange Agreement with
Montaur, pursuant to which Montaur agreed to the amendment and restatement of
the terms of the Montaur Notes, the Preferred Stock, and the Montaur
Warrants. The Series A Note was amended to grant Montaur conversion
rights with respect to the $3.5 million portion of the Series A Note that was
previously not convertible. The newly convertible portion of the
Series A Note is convertible at $0.9722 per share. The amendments
also eliminated certain price reset features of the Montaur Notes, the Preferred
Stock and the Montaur Warrants that had created significant non-cash derivative
liabilities on the Company’s balance sheet. In conjunction with this
transaction, we issued Montaur a Series AA Warrant to purchase 2.4 million
shares of our common stock at an exercise price of $0.97 per share, expiring in
July 2014. The change in terms of the Montaur Notes, the Preferred
Stock and the Montaur Warrants was treated as an extinguishment of debt for
accounting purposes. The Company recorded an additional $5.6 million
in mark-to-market adjustments related to the increase in the Company’s common
stock from June 30 to July 24, 2009. As a result of the
extinguishment treatment associated with the elimination of the price reset
features, the Company also recorded $16.2 million in non-cash loss on the
extinguishment and reclassified $27.0 million in derivative liabilities to
additional paid-in capital. Following the extinguishment, the
Company’s balance sheet reflects the face value of the $10 million due to
Montaur pursuant to the Montaur Notes. In connection with this
transaction, Montaur exercised 2,844,319 Series Y Warrants in exchange for
issuance of 2,844,319 shares of our common stock, resulting in gross proceeds of
$1,635,483 received in July 2009. Montaur also exercised their
remaining 3,155,681 Series Y Warrants in exchange for issuance of 3,155,681
shares of our common stock, resulting in additional gross proceeds of $1,814,517
received in September 2009.
In
connection with the Montaur SPA, the term of the $1.0 million Bupp Note was
extended to December 27, 2011, one day following the maturity date of the
Montaur Notes. In consideration for the Bupp Investors’ agreement to
extend the term of the Bupp Note pursuant to an Amendment to the Bupp Purchase
Agreement, dated December 26, 2007, we agreed to provide security for the
obligations evidenced by the Amended 10% Convertible Note in the principal
amount of $1,000,000, due December 31, 2011, executed by Neoprobe in favor of
the Bupp Investors (the Amended Bupp Note), under the terms of a Security
Agreement, dated December 26, 2007, by and between Neoprobe and the Bupp
Investors (the Bupp Security Agreement). This security interest is
subordinate to the security interest of Montaur. As further
consideration for extending the term of the Bupp Note, we issued the Bupp
Investors Series V Warrants to purchase 500,000 shares of our common stock at an
exercise price of $0.32 per share, expiring in December 2012. The
Amended Bupp Note had an outstanding principal amount of $1.0 million on
December 31, 2009, and an outstanding principal amount of $1.0 million as of
March 26, 2010. During 2009, we paid none of the outstanding
principal and paid or accrued $100,000 in interest due under the Amended Bupp
Note.
Our
future liquidity and capital requirements will depend on a number of factors,
including our ability to expand market acceptance of our current products, our
ability to complete the commercialization of new products, our ability to
monetize our investment in non-core technologies, our ability to obtain
milestone or development funds from potential development and distribution
partners, regulatory actions by FDA and international regulatory bodies, and
intellectual property protection. Our most significant near-term
development priority is to complete the second Phase 3 clinical trial of
Lymphoseek. We believe our current funds and available capital
resources will be adequate to complete our Lymphoseek development efforts and
sustain our operations at planned levels for the foreseeable
future. We are in the process of determining the total development
cost necessary to commercialize RIGScan CR but believe that it will require
total additional commitments of between $3 million to $5 million to restart
manufacturing and other activities necessary to prepare for the Phase 3 clinical
trial contemplated in the recent EMEA scientific advice response. We
plan to use part of the proceeds from Montaur’s recent warrant exercises to
initiate the first steps of restarting manufacturing of RIGScan CR; however, we
still intend to involve a partner in the longer-term development of RIGScan
CR. We may also be able to raise additional funds through a stock
purchase agreement with Fusion Capital to supplement our capital
needs. However, the extent to which we rely on Fusion Capital as a
source of funding will depend on a number of factors, including the prevailing
market price of our common stock and the extent to which we are able to secure
working capital from other sources. Specifically, Fusion Capital does
not have the right or the obligation to purchase any shares of our common stock
on any business day that the market price of our common stock is less than $0.20
per share. We cannot assure you that we will be successful in raising
additional capital through Fusion Capital or any other sources at terms
acceptable to the Company, or at all. We also cannot assure you that
we will be able to successfully obtain regulatory approval for and commercialize
new products, that we will achieve significant product revenues from our current
or potential new products or that we will achieve or sustain profitability in
the future.
Recent
Accounting Developments
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements,
which was primarily codified in FASB Accounting Standards CodificationTM (ASC)
Topic 820, Fair Value
Measurements and Disclosures. This statement defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. This statement did not require any new fair value
measurements. This statement was initially effective for Neoprobe
beginning January 1, 2008 for nonfinancial assets and nonfinancial liabilities
recognized or disclosed at fair value on at least an annual basis. In
February 2008, the FASB decided to allow entities to electively defer the
effective date of this statement until January 1, 2009 for nonfinancial assets
and nonfinancial liabilities that are not recognized or disclosed at fair value
on at least an annual basis. We began applying the fair value
measurement and disclosure provisions of this statement to nonfinancial assets
and liabilities effective January 1, 2009. The application of such
was not material to our consolidated results of operations or financial
condition.
In
December 2007, the FASB issued SFAS No. 141(R) (revised 2007), Business Combinations, which
was primarily codified in FASB ASC Topic 805, Business
Combinations. This statement requires that the acquisition
method (formerly called the purchase method) of accounting be used for all
business combinations and for an acquirer to be identified for each business
combination. This statement defines the acquirer as the entity that
obtains control of one or more businesses in the business combination,
establishes the acquisition date as the date that the acquirer achieves control
and requires the acquirer to recognize the assets and liabilities assumed and
any noncontrolling interest at their fair values as of the acquisition
date. This statement also requires, among other things, that the
acquisition-related costs be recognized separately from the
acquisition. This statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, and was
adopted by Neoprobe beginning January 1, 2009. There have been no
acquisitions since the adoption of this statement. The effect the
adoption of this statement will have on us will depend on the nature and size of
acquisitions we complete in the future, if any.
Also in
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB No. 51, which was
primarily codified in FASB ASC Topic 810, Consolidation. This
statement establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. This statement is effective for fiscal years and interim
periods within those fiscal years beginning on or after December 15, 2008, and
was adopted by Neoprobe beginning January 1, 2009. This statement is
being applied prospectively as of the beginning of the fiscal year in which it
was adopted, except for the presentation and disclosure
requirements. The presentation and disclosure requirements are being
applied retrospectively for all periods presented. The adoption of
this statement did not have a material effect on our consolidated results of
operations or financial condition.
In
December 2007, the FASB ratified the consensus reached by the Emerging Issues
Task Force (EITF) on EITF Issue No. 07-1, Accounting for Collaborative
Arrangements, which was primarily codified in FASB ASC Topic 808, Collaborative
Arrangements. This guidance defines a collaborative
arrangement as well as the accounting for transactions between participants in a
collaborative arrangement and between the participants in the arrangement and
third parties. This guidance requires that both types of transactions
be reported in each participant’s respective income statement. We
adopted the new provisions of FASB ASC 808 beginning January 1,
2009. The adoption did not impact our consolidated results of
operations or financial condition.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an Amendment of FASB Statement No.
133, which was primarily codified in FASB ASC Topic 815, Derivatives and
Hedging. This statement provides an understanding of how and
why an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted for, and their effect on an entity’s
financial position, financial performance, and cash flows. We adopted
this statement beginning January 1, 2009. The adoption did not have a
material impact on our derivative disclosures.
In June
2008, the FASB ratified the consensus reached by the EITF on EITF Issue No.
07-5, Determining Whether an
Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock,
which was primarily codified in FASB ASC Topic 815, Derivatives and
Hedging. This guidance clarifies the determination of whether
equity-linked instruments (or embedded features), such as our convertible notes
or warrants to purchase our common stock, are considered indexed to our own
stock, which would qualify as a scope exception. We adopted the new
provisions of FASB ASC 815 beginning January 1, 2009. The adoption
had a material impact on our consolidated financial statements. See
Note 9 to the consolidated financial statements.
Also in
June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities,
which was primarily codified in FASB ASC Topic 260, Earnings Per
Share. This guidance provides that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents, whether paid or unpaid, are participating securities and are
required to be included in the computation of earnings per share pursuant to the
two-class method. The two-class method of computing earnings per
share includes an earnings allocation formula that determines earnings per share
for common stock and any participating securities according to dividends
declared, whether paid or unpaid, and participation rights in undistributed
earnings. All prior period earnings per share data presented are
required to be adjusted retrospectively to conform to this
statement. We adopted this guidance beginning January 1,
2009. The adoption did not impact our earnings (loss) per share for
the years ended December 31, 2009 and 2008.
In May
2009, the FASB issued SFAS No. 165, Subsequent Events, which was
primarily codified in FASB ASC Topic 855, Subsequent
Events. This statement establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before the financial statements are issued or are available to be
issued. We adopted this statement beginning April 1,
2009. The adoption of this statement did not impact our consolidated
results of operations or financial position since it requires additional
disclosures only. See Note 18 to the consolidated financial
statements.
In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles — a
replacement of FASB Statement No. 162, which was primarily codified in
FASB ASC Topic 105, Generally
Accepted Accounting Principles. This statement establishes the
FASB Accounting Standards Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with generally accepted
accounting principles in the United States (U.S. GAAP). All guidance
contained in the FASB ASC carries an equal level of authority. This
statement did not change current U.S. GAAP, but is intended to simplify user
access to all authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. The FASB ASC
superseded all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature
not included in the FASB ASC became non-authoritative. This statement
is effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The implementation of this statement
did not impact our consolidated financial statements.
In August
2009, the FASB issued Accounting Standards Update (ASU) 2009-5, Measuring Liabilities at Fair
Value. ASU 2009-5 amends FASB ASC Topic 820, Fair Value Measurements and
Disclosures. ASU 2009-5 provides guidance on how to measure
the fair value of liabilities when observable market information is not
available. If a quoted price in an active market for an identical
liability is available it should be used to value the liability. In
circumstances when a quoted price in an active market for an identical liability
is not available, ASU 2009-5 requires that the fair value of the liability be
measured using one or more of the following techniques: (1) a valuation
technique that uses (a) the quoted price of the identical liability when traded
as an asset, or (b) quoted prices for similar liabilities or similar liabilities
when traded as assets; or (2) another valuation technique that is consistent
with the principles of FASB ASC Topic 820, such as an income approach or a
market approach. ASU 2009-5 clarifies that when using the quoted
price of an identical liability when traded as an asset, an entity should adjust
for factors that are not applicable to the fair value of the asset price of the
liability, but should not adjust the asset price for the effect of a restriction
preventing the sale of the asset. If a quoted price for an identical
liability when traded as an asset in an active market is available, the asset
price is considered to be a Level 1 fair value measurement for the liability,
provided that not adjustments to the quoted price of the asset is
required. ASU 2009-5 is effective for the first reporting period
(including interim periods) beginning after issuance. We adopted the
provisions of ASU 2009-5 beginning October 1, 2009. The adoption did
not have a material effect on our consolidated results of operations or
financial condition.
In
January 2010, the FASB issued ASU 2010-2, Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope
Clarification. ASU 2010-2 amends FASB ASC Topic 810, Consolidation. ASU
2010-2 clarifies that the scope of the decrease in ownership provisions applies
to: (1) a subsidiary or group of assets that is a business or nonprofit
activity; (2) a subsidiary that is a business or nonprofit activity that is
transferred to an equity method investee or joint venture; and (3) an exchange
of a group of assets that constitutes a business or nonprofit activity for a
noncontrolling interest in an entity, including an equity method investee or
joint venture. If a decrease in ownership occurs in a subsidiary that
is not a business or nonprofit activity, entities first need to consider whether
the substance of the transaction is addressed in other U.S. GAAP, and apply that
guidance as applicable. If no other guidance exists, an entity should
apply FASB ASC Topic 810-10. ASU 2010-2 also expands existing
disclosure requirements for transactions within the scope of FASB ASC Topic
810-10, and adds several new ones that address fair value measurements and
related techniques, the nature of any continuing involvement after the
transaction, and whether related parties are involved. ASU 2010-2 is
effective beginning in the period that an entity adopts FASB ASC Topic
810-10. If an entity has previously adopted FASB ASC Topic 810-10,
the amendments are effective beginning in the first interim or annual reporting
period ending on or after December 15, 2009, and must be applied retrospectively
to the date FASB ASC Topic 810-10 was adopted. We adopted the
provisions of ASU 2010-2 beginning October 1, 2009. The effect the
adoption of ASU 2010-2 will have on us will depend on the nature and size of
future decreases in ownership of a subsidiary, if any.
Also in
January 2010, the FASB issued ASU 2010-6, Improving Disclosures about Fair
Value Measurements. ASU 2010-6 amends FASB ASC Topic 820,
Fair Value Measurements and
Disclosures. ASU 2010-6 requires new disclosures as follows:
(1) Transfers in and out of Levels 1 and 2 and (2) Activity in Level 3 fair
value measurements. An entity should disclose separately the amounts
of significant transfers in and out of Level 1 and Level 2 fair value
measurements and describe the reasons for the transfers. In the
reconciliation of fair value measurements using significant unobservable inputs
(Level 3), an entity should present separately information about purchases,
sales, issuances, and settlements (that is, on a gross basis rather than as one
net number). ASU 2010-6 also clarifies existing disclosures as
follows: (1) Level of disaggregation and (2) Disclosures about inputs
and valuation techniques. An entity should provide fair value
measurement disclosures for each class of assets and liabilities. A
class is often a subset of assets or liabilities within a line item in the
statement of financial position. An entity needs to use judgment in
determining the appropriate classes of assets and liabilities. An
entity should provide disclosures about the valuation techniques and inputs used
to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value
measurements that fall in either Level 2 or Level 3. ASU 2010-6 also
includes conforming amendments to the guidance on employers’ disclosures about
postretirement benefit plan assets (Subtopic 715-20) which include a change in
terminology from major
categories of assets to classes of assets and a
cross-reference to the guidance in Subtopic 820-10 on how to determine
appropriate classes to present fair value disclosures. ASU 2010-6 is
effective for interim and annual reporting periods beginning after December 15,
2009, except for the separate disclosures about purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. As the new provisions of ASU 2010-6 provide only disclosure
requirements, the adoption of this standard will not have an impact on our
consolidated financial position, results of operations or cash flows, but will
result in increased disclosures beginning in the first quarter of
2010.
Critical
Accounting Policies
We
consider the following accounting policies to be critical to our results of
operations and financial condition.
Revenue Recognition Related to Net
Sales. We currently generate revenue primarily from sales of
our gamma detection products. Our standard shipping terms are FOB
shipping point, and title and risk of loss passes to the customer upon delivery
to a common carrier. We generally recognize sales revenue related to
sales of our products when the products are shipped and the earnings process has
been completed. However, in cases where product is shipped but the
earnings process is not yet completed, revenue is deferred until it has been
determined that the earnings process has been completed. Our
customers have no right to return products purchased in the ordinary course of
business.
The
prices we charge our primary customer, EES, related to sales of products are
subject to retroactive annual adjustment based on a fixed percentage of the
actual sales prices achieved by EES on sales to end customers made during each
fiscal year. To the extent that we can reasonably estimate the
end-customer prices received by EES, we record sales to EES based upon these
estimates. If we are unable to reasonably estimate end customer sales
prices related to certain products sold to EES, we record revenue related to
these product sales at the minimum (i.e., floor) price provided for under our
distribution agreement with EES.
We also
generate revenue from the service and repair of out-of-warranty
products. Fees charged for service and repair on products not covered
by an extended service agreement are recognized on completion of the service
process when the serviced or repaired product has been returned to the
customer. Fees charged for service or repair of products covered by
an extended warranty agreement are deferred and recognized as revenue ratably
over the life of the extended service agreement.
Use of
Estimates. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. We base these
estimates and assumptions upon historical experience and existing, known
circumstances. Actual results could differ from those
estimates. Specifically, management may make significant estimates in
the following areas:
|
·
|
Stock-Based
Compensation. Stock-based payments to employees and directors,
including grants of stock options, are recognized in the statement of
operations based on their estimated fair values. The fair value of each
option award is estimated on the date of grant using the Black-Scholes
option pricing model to value share-based payments. Compensation cost
arising from stock-based awards is recognized as expense using the
straight-line method over the vesting
period.
|
|
·
|
Inventory
Valuation. We value our inventory at the lower of cost
(first-in, first-out method) or market. Our valuation reflects
our estimates of excess, slow moving and obsolete inventory as well as
inventory with a carrying value in excess of its net realizable
value. Write-offs are recorded when product is removed from
saleable inventory. We review inventory on hand at least
quarterly and record provisions for excess and obsolete inventory based on
several factors, including current assessment of future product demand,
anticipated release of new products into the market, historical experience
and product expiration. Our industry is characterized by rapid
product development and frequent new product
introductions. Uncertain timing of product approvals,
variability in product launch strategies, regulations regarding use and
shelf life, product recalls and variation in product utilization all
impact the estimates related to excess and obsolete
inventory.
|
|
·
|
Impairment or Disposal of
Long-Lived Assets. Long-lived assets and certain
identifiable intangibles are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to
sell.
|
|
·
|
Product
Warranty. We warrant our products against defects in
design, materials, and workmanship generally for a period of one year from
the date of sale to the end customer. Our accrual for warranty
expenses is adjusted periodically to reflect actual
experience. EES also reimburses us for a portion of warranty
expense incurred based on end customer sales they make during a given
fiscal year.
|
|
·
|
Fair Value of Derivative
Instruments. Derivative instruments embedded in contracts, to the
extent not already a free-standing contract, are bifurcated from the debt
instrument and accounted for separately. All derivatives are recorded on
the consolidated balance sheet at fair value in accordance with current
accounting guidelines for such complex financial instruments. Fair value
of warrant liabilities is determined based on a Black-Scholes option
pricing model calculation. Fair value of conversion and put option
liabilities is determined based on a probability-weighted Black-Scholes
option pricing model calculation. Unrealized gains and losses on the
derivatives are classified in other expenses as a change in derivative
liabilities in the statements of operations. We do not use derivative
instruments for hedging of market risks or for trading or speculative
purposes.
|
Other Items Affecting Financial
Condition
At
December 31, 2009, we had deferred tax assets in the U.S. related to net operating tax loss
carryforwards and tax credit carryforwards of approximately $29.1 million and
$5.1 million, respectively, available to offset or reduce future income tax
liabilities, if any, through 2028. However, due to the uncertainty of
realizing taxable income in the future, utilization of our tax loss and tax
credit carryforwards may be limited. In addition, we believe the
ultimate utilization of these tax loss and tax credit carryforwards may be
further limited as a result of cumulative ownership changes as defined by
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, which
have occurred at various points in our history. As a result, the
related deferred tax assets have been fully reserved in our financial
statements.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
Not
applicable to smaller reporting companies.
Item
8. Financial Statements and Supplementary Data
Our
consolidated financial statements, and the related notes, together with the
report of BDO Seidman, LLP dated March 29, 2010, are set forth at pages F-1
through F-36 attached hereto.
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item
9A(T). Controls and Procedures
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Exchange Act is recorded,
processed, summarized, and reported within the specified time
periods. As a part of these controls, our management is responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rule 13a-15(f) under the Exchange
Act.
Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles, and includes those policies and
procedures that:
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the company
are being made only in accordance with authorization of management and
directors of the company; and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial
statements.
|
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Exchange Act) as of December 31,
2009. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our principal
executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Based on our evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as of
the end of the period covered by this report, our disclosure controls and
procedures are adequately designed and are effective.
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures will prevent all
errors and all improper conduct. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute assurance that
the objectives of the control systems are met. Further, a design of a
control system must reflect the fact that there are resource constraints, and
the benefit of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of improper conduct, if any, have been detected. These
inherent limitations include the realities that judgments and decision-making
can be faulty, and that breakdowns can occur because of a simple error or
mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more persons, or by management
override of the control. Further, the design of any system of
controls is also based in part upon assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations of a cost-effective
control system, misstatements due to error or fraud may occur and may not be
detected.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system was
designed to provide reasonable assurance to management and the Board of
Directors regarding the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making this assessment, it used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control – Integrated
Framework. Based on our assessment we believe that, as of December
31, 2009, our internal control over financial reporting is effective based on
those criteria.
This
Annual Report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by
our independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit us to provide only
management’s report in this Annual Report on Form 10-K.
Changes
in Internal Control Over Financial Reporting
During
the quarter ended December 31, 2009, there were no changes in our internal
control over financial reporting that materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Item
9B. Other Information.
None.
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance
Directors
Each
listed director’s respective experience and qualifications described below led
the Compensation, Nominating and Governance (CNG) Committee or our Board of
Directors to conclude that such director is qualified to serve as a member of
our Board of Directors.
Directors
whose terms continue until the 2010 Annual Meeting:
Reuven Avital, age 58, has
served as a director of our Company since January 2002. Mr. Avital is
a partner and general manager of Ma’Aragim Enterprises Ltd., an investment
company in Israel, and he is a board member of a number of privately-held
Israeli companies, two of them in the medical device field. Mr. Avital was
a board member of Cardiosonix, Ltd. from April 2001 through December 31, 2001,
when we acquired the company. Previously, Mr. Avital served in the
Israeli government in a variety of middle and senior management positions.
He is also chairman or a board member of several not-for-profit organizations,
mainly involved in education for the under-privileged and international
peace-building. Mr. Avital has B.A. degrees in The History of the
Middle East and International Relations from the Hebrew University of Jerusalem,
and a M.P.A. from the Kennedy School of Government at Harvard
University.
David C. Bupp, age 60, has
served as President and a director of our Company since August 1992 and as Chief
Executive Officer since February 1998. From August 1992 to May 1993,
Mr. Bupp served as our Treasurer. In addition to the foregoing
positions, from December 1991 to August 1992, he was Acting President, Executive
Vice President, Chief Operating Officer and Treasurer, and from December 1989 to
December 1991, he was Vice President, Finance and Chief Financial
Officer. From 1982 to December 1989, Mr. Bupp was Senior Vice
President, Regional Manager for AmeriTrust Company National Association, a
nationally chartered bank holding company, where he was in charge of commercial
and retail banking operations throughout Central Ohio. Mr. Bupp has a B.A.
degree in Economics from Ohio Wesleyan University. Mr. Bupp also
completed a course of study at Stonier Graduate School of Banking at Rutgers
University.
Directors
whose terms continue until the 2011 Annual Meeting:
Carl J. Aschinger, Jr., age
71, has served as a director of our Company since June 2004 and as Chairman of
the Board since July 2007. Mr. Aschinger is the Chairman of CSC
Worldwide (formerly Columbus Show Case Co.), a privately-held company that
manufactures showcases for the retail industry. Mr. Aschinger also
serves on the Board of Directors and as Chairman of the Audit Committee of
Pinnacle Data Systems, a publicly-traded company that provides software and
hardware solutions to original equipment manufacturers. Mr. Aschinger
is a former director of Liqui-Box Corporation and Huntington National Bank as
well as other privately-held ventures and has served on boards or advisory
committees of several not-for-profit organizations.
Owen E. Johnson, M.D., age 69,
has served as a director of our Company since July 2007. Prior to his
retirement in December 2006, Dr. Johnson served as Vice President and Senior
Medical Director of UnitedHealthcare of Ohio, Inc. (UHC), a subsidiary of
UnitedHealth Group, where he was involved in a number of roles and activities
including new technology assessment and reimbursement
establishment. During 2007, Dr. Johnson rejoined UnitedHealth
Networks, a subsidiary of UnitedHealth Group, as Medical Director for their
cardiac line of service. Dr. Johnson has also served on the Board and
on numerous Committees of UHC as well as other related
organizations. Prior to joining UHC, Dr. Johnson held several
hospital appointments with Riverside Methodist Hospital in Columbus,
Ohio. Dr. Johnson has also been active in numerous professional,
fraternal and community organizations in the Columbus, Ohio
area.
Fred B. Miller, age 70, has
served as a director of our Company since January 2002. Mr. Miller
serves as Chairman of the Audit Committee. Mr. Miller is the
President and Chief Operating Officer of Seicon, Limited, a privately held
company that specializes in developing, applying and licensing technology to
reduce seismic and mechanically induced vibration. Mr. Miller also
serves on the board of one other privately-held company. Until his
retirement in 1995, Mr. Miller had been with Price Waterhouse LLP since
1962. Mr. Miller is a Certified Public Accountant, a member of the
American Institute of Certified Public Accountants (AICPA), a past member of the
Council of the AICPA and a member and past president of the Ohio Society of
Certified Public Accountants. He also has served on the boards or
advisory committees of several universities and not-for-profit
organizations. Mr. Miller has a B.S. degree in Accounting from The
Ohio State University.
Directors
whose terms continue until the 2012 Annual Meeting:
Kirby I. Bland, M.D., age 68,
has served as a director of our Company since May 2004. Dr. Bland
currently serves as Professor and Chairman and Fay Fletcher Kerner Professor and
Chairman, Department of Surgery of the University of Alabama at Birmingham (UAB)
School of Medicine since 1999 and 2002, respectively, Deputy Director of the UAB
Comprehensive Cancer Center since 2000 and Senior Scientist, Division of Human
Gene Therapy, UAB School of Medicine since 2001. Prior to his
appointments at UAB, Dr. Bland was J. Murry Breadsley Professor and Chairman,
Professor of Medical Science, Department of Surgery and Director, Brown
University Integrated Program in Surgery at Brown University School of Medicine
from 1993 to 1999. Prior to his appointments at Brown University, Dr.
Bland was Professor and Associate Chairman, Department of Surgery, University of
Florida College of Medicine from 1983 to 1993 and Associate Director of Clinical
Research at the University of Florida Cancer Center from 1991 to
1993. Dr. Bland held a number of medical staff positions at the
University of Louisville, School of Medicine from 1977 to 1983 and at M. D.
Anderson Hospital and Tumor Institute from 1976 to 1977. Dr. Bland is
a member of the Board of Governors of the American College of Surgeons (ACS), a
member of the ACS’ Advisory Committee, Oncology Group (ACOSOG), a member of the
ACS’ American Joint Committee on Cancer Task Force and serves as Chairman of the
ACS’ Breast Disease Site Committee, COC. Dr. Bland is a past
President of the Society of Surgical Oncology. Dr. Bland received his
B.S. in Chemistry/Biology from Auburn University and a M.D. degree from the
University of Alabama, Medical College of Alabama.
Gordon A. Troup, age 56, has
served as a director of our Company since July 2008. Mr. Troup served
as President of the Nuclear Pharmacy Services business at Cardinal Health, Inc.
(Cardinal Health), a multinational medical products and services company, from
January 2003 until his retirement in December 2007. Mr. Troup joined
Cardinal Health in 1990 and was appointed Group President of Pharmaceutical
Distribution and Specialty Distribution Services in 1999. Prior to
joining Cardinal Health, Mr. Troup was employed for 10 years by American
Hospital Supply Corporation and 3 years by Zellerbach Paper, a Mead
Company. Mr. Troup has a B.S. degree in Business Management from San
Diego State University. Mr. Troup is a member of several national
healthcare trade organizations and is active in a number of not-for-profit
organizations.
J. Frank Whitley, Jr., age 67,
has served as a director of our Company since May
1994. Mr. Whitley was Director of Mergers, Acquisitions and
Licensing at The Dow Chemical Company (Dow), a multinational chemical company,
from June 1993 until his retirement in June 1997. After joining Dow
in 1965, Mr. Whitley served in a variety of marketing, financial, and
business management functions. Mr. Whitley is also involved with
several not-for-profit health care organizations, serving as a member of their
Boards of Trustees and/or Committees of the Board. Mr. Whitley
has a B.S. degree in Mathematics from Lamar State College of
Technology.
Executive
Officers
In
addition to Mr. Bupp, the following individuals are executive officers of our
Company and serve in the position(s) indicated below:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Anthony
K. Blair
|
|
49
|
|
Vice
President, Manufacturing Operations
|
Rodger
A. Brown
|
|
59
|
|
Vice
President, Regulatory Affairs
and
Quality Assurance
|
Frederick
O. Cope, Ph.D.
|
|
63
|
|
Vice
President, Pharmaceutical Research
and
Clinical Development
|
Brent
L. Larson
|
|
46
|
|
Vice
President, Finance; Chief Financial
Officer;
Treasurer and Secretary
|
Douglas
L. Rash
|
|
66
|
|
Vice
President,
Marketing
|
Anthony K. Blair has served as
Vice President, Manufacturing Operations of our Company since July
2004. Prior to joining our Company, he served as Vice President,
Manufacturing Operations of Enpath Medical, Lead Technologies Division, formerly
known as Biomec Cardiovascular, Inc. from 2002 to June 2004. From
1998 through 2001, Mr. Blair led the manufacturing efforts at Astro
Instrumentation, a medical device contract manufacturer. From 1989 to
1998 at Ciba Corning Diagnostics (now Bayer), Mr. Blair held managerial
positions including Operations Manager, Materials Manager, Purchasing Manager
and Production Supervisor. From 1985 to 1989, Mr. Blair was employed
by Bailey Controls and held various positions in purchasing and industrial
engineering. Mr. Blair started his career at Fisher Body, a division
of General Motors, in production supervision. Mr. Blair has a B.B.A.
degree in management and labor relations from Cleveland State
University.
Rodger A. Brown has served as
Vice President, Regulatory Affairs and Quality Assurance of our Company since
November 2000. From July 1998 through November 2000, Mr. Brown served
as our Director, Regulatory Affairs and Quality Assurance. Prior to
joining our Company, Mr. Brown served as Director of Regulatory Affairs and
Quality Assurance for Biocore Medical Technologies, Inc. from April 1997 to
April 1998. From 1981 through 1996, Mr. Brown served as Director,
Regulatory Affairs/Quality Assurance for E for M Corporation, a subsidiary of
Marquette Electronics, Inc.
Frederick O. Cope, Ph.D., F.A.C.N.,
C.N.S. has served as Vice President, Pharmaceutical Research and Clinical
Development of our Company since February 2009. Prior to accepting
this position with the Company, Dr. Cope served as the Assistant Director for
Research and Head of Program Research Development for The Ohio State University
Comprehensive Cancer Center, The James Cancer Hospital and The Richard J. Solove
Research Institute, from April 2001 to February 2009. Dr. Cope is
also active in a number of professional and scientific organizations such as
serving as an Ad Hoc Member of the FDA Scientific Advisory Panel and a member of
Emory University’s Scientific Advisory Board. Dr. Cope received his
BSc from the Delaware Valley College of Science and Agriculture, his MS from
Millersville University of Pennsylvania and his Ph.D. from the University of
Connecticut.
Brent L. Larson has served as
Vice President, Finance, Chief Financial Officer and Treasurer of our Company
since February 1999 and as Secretary since 2003. Prior to that, he
served as our Vice President, Finance from July 1998 to January 1999 and as
Controller from July 1996 to June 1998. Before joining our Company,
Mr. Larson was employed by Price Waterhouse LLP. Mr. Larson has a
B.B.A. degree in accounting from Iowa State University of Science and Technology
and is a Certified Public Accountant.
Douglas L. Rash has served as
Vice President, Marketing of our Company since January 2005. Prior to
that, Mr. Rash was Neoprobe’s Director, Marketing and Product Management from
March to December 2004. Before joining our Company, Mr. Rash served
as Vice President and General Manager of MTRE North America, Inc. from 2000 to
2003. From 1994 to 2000, Mr. Rash served as Vice President and
General Manager (Medical Division) of Cincinnati Sub-Zero, Inc. From
1993 to 1994, Mr. Rash was Executive Vice President of Everest & Jennings
International, Ltd. During his nine-year career at Gaymar Industries,
Inc. from 1984 to 1993, Mr. Rash held positions as Vice President and General
Manager (Clinicare Division) and Vice President, Marketing and Sales (Acute Care
Division). From 1976 to 1984, Mr. Rash held management positions at
various divisions of British Oxygen Corp. Mr. Rash has a B.S. degree
in Business Administration with a minor in Chemistry from Wisconsin State
University.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our officers and
directors, and greater than 10% stockholders, to file reports of ownership and
changes in ownership of our securities with the Securities and Exchange
Commission. Copies of the reports are required by SEC regulation to
be furnished to us. Based on our review of these reports and written
representations from reporting persons, we believe that all reporting persons
complied with all filing requirements during the fiscal year ended December 31,
2009, except for Gordon Troup, who had one late Form 4 filing related to Company
stock that he purchased on the open market in May 2009.
Code
of Business Conduct and Ethics
We have
adopted a code of business conduct and ethics that applies to our directors,
officers and all employees. The code of business conduct and ethics
is posted on our website at www.neoprobe.com. The code of business
conduct and ethics may be also obtained free of charge by writing to Neoprobe
Corporation, Attn: Chief Financial Officer, 425 Metro Place North, Suite 300,
Dublin, Ohio 43017.
Audit
Committee
The Audit
Committee of the Board of Directors selects our independent public accountants
with whom the Audit Committee reviews the scope of audit and non-audit
assignments and related fees, the accounting principles that we use in financial
reporting, and the internal controls over financial reporting identified by the
independent accountants as a basis for designing their audit
procedures. The members of our Audit Committee are: Fred
B. Miller (Chairman), Reuven Avital, Gordon A. Troup, and J. Frank Whitley, Jr.,
each of whom is “independent” under the Nasdaq rules referenced below in Part
III, Item 13 of this Form 10-K. The Board of Directors has determined
that Fred B. Miller meets the requirements of an “audit committee financial
expert” as set forth in Section 407(d)(5) of Regulation S-K promulgated by the
SEC. The Audit Committee held five meetings in fiscal
2009.
Item
11. Executive Compensation
Summary
Compensation Table
The
following table sets forth certain information concerning the annual and
long-term compensation of our Chief Executive Officer and our other two highest
paid executive officers during the last fiscal year (the Named Executives) for
the last two fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
|
|
Restricted
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
Option
|
|
|
Stock
|
|
|
All
Other
|
|
|
Total
|
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
C. Bupp
|
|
2009
|
|
$ |
335,000 |
|
|
$ |
45,000 |
|
|
$ |
— |
|
|
$ |
565,308 |
|
|
$ |
8,621 |
|
|
$ |
953,929 |
|
President
and
|
|
2008
|
|
|
325,000 |
|
|
|
40,000 |
|
|
|
57,953 |
|
|
|
107,717 |
|
|
|
9,439 |
|
|
|
540,109 |
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick
O. Cope, Ph.D.
|
|
2009
|
|
$ |
175,000 |
|
|
$ |
25,000 |
|
|
$ |
78,520 |
|
|
$ |
147,328 |
|
|
$ |
4,360 |
|
|
$ |
430,208 |
|
Vice
President,
|
|
2008
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Pharmaceutical
Research
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Clinical Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brent
L. Larson
|
|
2009
|
|
$ |
184,000 |
|
|
$ |
15,313 |
|
|
$ |
65,247 |
|
|
$ |
82,426 |
|
|
$ |
4,934 |
|
|
$ |
351,920 |
|
Vice
President, Finance and
|
|
2008
|
|
|
177,000 |
|
|
|
15,000 |
|
|
|
14,488 |
|
|
|
17,953 |
|
|
|
5,442 |
|
|
|
229,883 |
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Bonuses,
if any, have been disclosed for the year in which they were earned (i.e.,
the year to which the service
relates).
|
(b)
|
Amount
represents the aggregate grant date fair value in accordance with FASB ASC
Topic 718. Assumptions made in the valuation of stock option
awards are disclosed in Note 1(o) of the Notes to the Consolidated
Financial Statements in this Form
10-K.
|
(c)
|
Amount
represents the aggregate grant date fair value in accordance with FASB ASC
Topic 718. Assumptions made in the valuation of restricted
stock awards are disclosed in Note 1(o) of the Notes to the Consolidated
Financial Statements in this Form
10-K.
|
(d)
|
Amount
represents life insurance premiums and club dues paid during the fiscal
year for the benefit of the Named Executives and matching contributions
under the Neoprobe Corporation 401(k) Plan (the Plan). Eligible
employees may make voluntary contributions and we may, but are not
obligated to, make matching contributions based on 40 percent of the
employee’s contribution, up to 5 percent of the employee’s
salary. Employee contributions are invested in mutual funds
administered by an independent plan administrator. Company
contributions, if any, are made in the form of shares of common
stock. The Plan qualifies under section 401 of the Internal
Revenue Code, which provides that employee and company contributions and
income earned on contributions are not taxable to the employee until
withdrawn from the Plan, and that we may deduct our contributions when
made.
|
Compensation
of Mr. Bupp
Employment
Agreement. David C. Bupp is employed under a 36-month
employment agreement effective January 1, 2010. The employment
agreement provides for an annual base salary of $355,000.
The Board
of Directors and/or the CNG Committee will, on an annual basis, review the
performance of our Company and of Mr. Bupp and may pay a bonus to Mr. Bupp as it
deems appropriate, in its discretion. Such review and bonus will be
consistent with any bonus plan adopted by the CNG Committee that covers the
executive officers of the Company generally. For the calendar year
ending December 31, 2010, the CNG Committee has determined that the maximum
bonus payment to Mr. Bupp will be $125,000. Additionally, as a result
of the positive outcome of the Company’s March 2010 meeting with FDA, the CNG
Committee has determined that Mr. Bupp will receive a cash bonus in the amount
of $45,000 subject to: (1) the Company’s receipt from FDA of the official
minutes of the March 2010 meeting at which FDA reviewed the Company’s Phase 3
clinical data from the NEO3-05 trial for Lymphoseek; and (2) the CNG Committee’s
determination that the findings of FDA contained in the official minutes of the
March 2010 meeting are consistent with the positive outcome of the meeting
reported by Mr. Bupp.
If a
change in control occurs with respect to our Company and the employment of Mr.
Bupp is concurrently or subsequently terminated:
|
·
|
by
the Company without cause (cause is defined as any willful breach of a
material duty by Mr. Bupp in the course of his employment or willful and
continued neglect of his duty as an
employee);
|
|
·
|
by
the expiration of the term of Mr. Bupp’s employment agreement;
or
|
|
·
|
by
the resignation of Mr. Bupp because his title, authority,
responsibilities, salary, bonus opportunities or benefits have materially
diminished, a material adverse change in his working conditions has
occurred, his services are no longer required in light of the Company’s
business plan, or we breach the
agreement;
|
then, Mr.
Bupp will be paid a severance payment of $887,500 (less amounts paid as Mr.
Bupp’s salary and benefits that continue for the remaining term of the agreement
if his employment is terminated without cause).
For
purposes of Mr. Bupp’s employment agreement, a change in control
includes:
|
·
|
the
acquisition, directly or indirectly, by a person (other than our Company,
an employee benefit plan established by the Board of Directors, or a
participant in a transaction approved by the Board of Directors for the
principal purpose of raising additional capital) of beneficial ownership
of 30% or more of our securities with voting power in the next meeting of
holders of voting securities to elect the
directors;
|
|
·
|
a
majority of the Directors elected at any meeting of the holders of our
voting securities are persons who were not nominated by our then current
Board of Directors or an authorized committee
thereof;
|
|
·
|
our
stockholders approve a merger or consolidation of our Company with another
person, other than a merger or consolidation in which the holders of our
voting securities outstanding immediately before such merger or
consolidation continue to hold voting securities in the surviving or
resulting corporation (in the same relative proportions to each other as
existed before such event) comprising 80% or more of the voting power for
all purposes of the surviving or resulting corporation;
or
|
|
·
|
our
stockholders approve a transfer of substantially all of our assets to
another person other than a transfer to a transferee, 80% or more of the
voting power of which is owned or controlled by us or by the holders of
our voting securities outstanding immediately before such transfer in the
same relative proportions to each other as existed before such
event.
|
Mr. Bupp
will be paid a severance amount of $532,500 if his employment is terminated at
the end of his employment agreement or without cause. If Mr. Bupp is
terminated without cause, his benefits will continue for the longer of 36 months
or the full term of the agreement.
Compensation
of Other Named Executives
Our
Executive Officers are employed under employment agreements of varying terms as
outlined below. In addition, the CNG Committee will, on an annual
basis, review the performance of our Company and may pay bonuses to our
executives as it deems appropriate, in its discretion. Such review
and bonus will be consistent with any bonus plan adopted by the CNG Committee
that covers Mr. Bupp as well as the executive officers of the Company
generally.
Frederick
O. Cope, Ph.D.
Employment
Agreement. Frederick Cope is employed under an employment
agreement effective February 15, 2010 through December 31, 2010. The
employment agreement provides for an annual base salary of
$211,000.
The CNG
Committee will, on an annual basis, review the performance of our Company and of
Dr. Cope and may pay a bonus to Dr. Cope as it deems appropriate, in its
discretion. Such review and bonus will be consistent with any bonus
plan adopted by the CNG Committee that covers the executive officers of the
Company generally. For the calendar year ending December 31, 2010,
the CNG Committee has determined that the maximum bonus payment to Dr. Cope will
be $52,750. Additionally, as a result of the positive outcome of the
Company’s March 2010 meeting with FDA, the CNG Committee has determined that Dr.
Cope will receive a cash bonus in the amount of $25,000 subject to: (1) the
Company’s receipt from FDA of the official minutes of the March 2010 meeting at
which FDA reviewed the Company’s Phase 3 clinical data from the NEO3-05 trial
for Lymphoseek; and (2) the CNG Committee’s determination that the findings of
FDA contained in the official minutes of the March 2010 meeting are consistent
with the positive outcome of the meeting reported by Mr. Bupp.
If a
change in control occurs with respect to our Company and the employment of Dr.
Cope is concurrently or subsequently terminated:
|
·
|
by
the Company without cause (cause is defined as any willful breach of a
material duty by Dr. Cope in the course of his employment or willful and
continued neglect of his duty as an
employee);
|
|
·
|
by
the expiration of the term of Dr. Cope’s employment agreement;
or
|
|
·
|
by
the resignation of Dr. Cope because his title, authority,
responsibilities, salary, bonus opportunities or benefits have materially
diminished, a material adverse change in his working conditions has
occurred, his services are no longer required in light of the Company’s
business plan, or we breach the
agreement;
|
then, Dr.
Cope will be paid a severance payment of $422,000 and will continue his benefits
for the longer of 12 months or the remaining term of his employment
agreement.
For
purposes of Dr. Cope’s employment agreement, a change in control
includes:
|
·
|
the
acquisition, directly or indirectly, by a person (other than our Company,
an employee benefit plan established by the Board of Directors, or a
participant in a transaction approved by the Board of Directors for the
principal purpose of raising additional capital) of beneficial ownership
of 30% or more of our securities with voting power in the next meeting of
holders of voting securities to elect the
directors;
|
|
·
|
a
majority of the directors elected at any meeting of the holders of our
voting securities are persons who were not nominated by our then current
Board of Directors or an authorized committee
thereof;
|
|
·
|
our
stockholders approve a merger or consolidation of our Company with another
person, other than a merger or consolidation in which the holders of our
voting securities outstanding immediately before such merger or
consolidation continue to hold voting securities in the surviving or
resulting corporation (in the same relative proportions to each other as
existed before such event) comprising 80% or more of the voting power for
all purposes of the surviving or resulting corporation;
or
|
|
·
|
our
stockholders approve a transfer of substantially all of the assets of our
Company to another person other than a transfer to a transferee, 80% or
more of the voting power of which is owned or controlled by us or by the
holders of our voting securities outstanding immediately before such
transfer in the same relative proportions to each other as existed before
such event.
|
Dr. Cope
will be paid a severance amount of $211,000 if his employment is terminated at
the end of his employment agreement or without cause. If Dr. Cope is
terminated without cause, his benefits will continue for the longer of 12 months
or the full term of the agreement.
Brent
L. Larson
Employment
Agreement. Brent Larson is employed under a 24-month
employment agreement effective January 1, 2009. The employment
agreement provides for an annual base salary of $184,000. Effective
January 1, 2010, Mr. Larson’s annual base salary was increased to
$195,000.
The CNG
Committee will, on an annual basis, review the performance of our Company and of
Mr. Larson and may pay a bonus to Mr. Larson as it deems appropriate, in its
discretion. Such review and bonus will be consistent with any bonus
plan adopted by the CNG Committee that covers the executive officers of the
Company generally. For the calendar year ending December 31, 2010,
the CNG Committee has determined that the maximum bonus payment to Mr. Larson
will be $40,000. Additionally, as a result of the positive outcome of
the Company’s March 2010 meeting with FDA, the CNG Committee has determined that
Mr. Larson will receive a cash bonus in the amount of $17,500 subject to: (1)
the Company’s receipt from FDA of the official minutes of the March 2010 meeting
at which FDA reviewed the Company’s Phase 3 clinical data from the NEO3-05 trial
for Lymphoseek; and (2) the CNG Committee’s determination that the findings of
FDA contained in the official minutes of the March 2010 meeting are consistent
with the positive outcome of the meeting reported by Mr. Bupp.
The terms
of Mr. Larson’s employment agreement are substantially identical to Dr. Cope’s
employment agreement, except that:
|
·
|
If
a change in control occurs with respect to our Company and the employment
of Mr. Larson is concurrently or subsequently terminated, then Mr. Larson
will be paid a severance payment of $360,000;
and
|
|
·
|
Mr.
Larson will be paid a severance amount of $184,000 if his employment is
terminated at the end of his employment agreement or without
cause.
|
The CNG
Committee will, on an annual basis, review the performance of our Company and of
Mr. Larson and may pay a bonus to Mr. Larson as it deems appropriate, in its
discretion. Such review and bonus will be consistent with any bonus
plan adopted by the CNG Committee that covers the executive officers of the
Company generally.
Outstanding
Equity Awards at Fiscal Year End
The
following table presents certain information concerning outstanding equity
awards held by the Named Executives as of December 31, 2009.
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Securities
Underlying Unexercised
Options (#)
|
|
|
Option
Exercise
|
|
Option
Expiration
|
|
|
|
Number of
Unearned
|
|
|
Market
Value of
Unearned
|
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price
|
|
Date
|
|
Note
|
|
Shares
|
|
|
Shares (s)
|
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
C. Bupp
|
|
|
180,000 |
|
|
|
— |
|
|
$ |
0.41 |
|
1/3/2011
|
|
(a)
|
|
|
300,000 |
|
|
$ |
366,000 |
|
(n)
|
|
|
|
180,000 |
|
|
|
— |
|
|
$ |
0.42 |
|
1/7/2012
|
|
(b)
|
|
|
400,000 |
|
|
$ |
488,000 |
|
(o)
|
|
|
|
100,000 |
|
|
|
— |
|
|
$ |
0.14 |
|
1/15/2013
|
|
(c)
|
|
|
300,000 |
|
|
$ |
366,000 |
|
(q)
|
|
|
|
70,000 |
|
|
|
— |
|
|
$ |
0.13 |
|
2/15/2013
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000 |
|
|
|
— |
|
|
$ |
0.30 |
|
1/7/2014
|
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
— |
|
|
$ |
0.49 |
|
7/28/2014
|
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
— |
|
|
$ |
0.39 |
|
12/10/2014
|
|
(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
— |
|
|
$ |
0.26 |
|
12/27/2015
|
|
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
— |
|
|
$ |
0.27 |
|
12/15/2016
|
|
(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
66,667 |
|
|
|
133,333 |
|
|
$ |
0.362 |
|
1/3/2018
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick
O. Cope, Ph.D.
|
|
|
— |
|
|
|
50,000 |
|
|
$ |
0.65 |
|
2/16/2019
|
|
(l)
|
|
|
100,000 |
|
|
$ |
122,000 |
|
(p)
|
|
|
|
— |
|
|
|
75,000 |
|
|
$ |
1.10 |
|
10/30/2019
|
|
(m)
|
|
|
75,000 |
|
|
$ |
91,500 |
|
(r)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brent
L. Larson
|
|
|
60,000 |
|
|
|
— |
|
|
$ |
0.41 |
|
1/3/2011
|
|
(a)
|
|
|
50,000 |
|
|
$ |
61,000 |
|
(n)
|
|
|
|
50,000 |
|
|
|
— |
|
|
$ |
0.42 |
|
1/7/2012
|
|
(b)
|
|
|
75,000 |
|
|
$ |
91,500 |
|
(r)
|
|
|
|
40,000 |
|
|
|
— |
|
|
$ |
0.14 |
|
1/15/2013
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
— |
|
|
$ |
0.13 |
|
2/15/2013
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
70,000 |
|
|
|
— |
|
|
$ |
0.30 |
|
1/7/2014
|
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
— |
|
|
$ |
0.49 |
|
7/28/2014
|
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
— |
|
|
$ |
0.39 |
|
12/10/2014
|
|
(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
|
|
— |
|
|
$ |
0.26 |
|
12/27/2015
|
|
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
— |
|
|
$ |
0.27 |
|
12/15/2016
|
|
(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
16,667 |
|
|
|
33,333 |
|
|
$ |
0.362 |
|
1/3/2018
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
25,000 |
|
|
$ |
0
59 |
|
1/5/2009
|
|
(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
75,000 |
|
|
$ |
1.10 |
|
10/30/2009
|
|
(m)
|
|
|
|
|
|
|
|
|
|
(a)
|
Options
were granted 1/3/2001 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
(b)
|
Options
were granted 1/7/2002 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
(c)
|
Options
were granted 1/15/2003 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
(d)
|
Options
were granted 2/15/2003 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
(e)
|
Options
were granted 1/7/2004 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
(f)
|
Options
were granted 7/28/2004 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
(g)
|
Options
were granted 12/10/2004 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
(h)
|
Options
were granted 12/27/2005 and vested as to one-third immediately and on each
of the first two anniversaries of the date of
grant.
|
(i)
|
Options
were granted 12/15/2006 and vested as to one-third on each of the first
three anniversaries of the date of
grant.
|
(j)
|
Options
were granted 1/3/2008 and vest as to one-third on each of the first three
anniversaries of the date of grant.
|
(k)
|
Options
were granted 1/5/2009 and vest as to one-third on each of the first three
anniversaries of the date of grant.
|
(l)
|
Options
were granted 2/16/2009 and vest as to one-third on each of the first three
anniversaries of the date of grant.
|
(m)
|
Options
were granted 10/30/2009 and vest as to one-third on each of the first
three anniversaries of the date of
grant.
|
(n)
|
Restricted
shares granted January 3, 2008. Pursuant to the terms of
Restricted Stock Agreements between the Company and each grantee, the
restricted shares will vest upon the approval of a New Drug Application
(NDA) for Lymphoseek by the United States Food and Drug Administration
(FDA). If the employment of a grantee with the Company is
terminated before all of the restricted shares have vested, then pursuant
to the terms of the Restricted Stock Agreements all restricted shares that
have not vested at the effective date of such grantee’s termination shall
immediately be forfeited by the grantee. Pursuant to its
authority under Section 3.2 of the Restricted Stock Agreements the
Company’s Compensation, Nominating and Governance Committee eliminated the
forfeiture provision in Section 3.2(b) of the Restricted Stock Agreements
effective January 1, 2009, which provision effected the forfeiture of the
shares if the vesting event did not occur before June 30,
2010.
|
(o)
|
Restricted
shares granted January 1, 2009. Pursuant to the terms of the
Restricted Stock Agreement between the Company and Mr. Bupp, the
restricted shares will vest upon the approval of a NDA for Lymphoseek by
the FDA or the approval of marketing authorization for Lymphoseek by the
European Medicines Agency (EMEA). All of the restricted shares
vest upon the occurrence of a Termination Without Cause or in the event of
an End of Term Termination or in the event of a Change of Control as
defined in Mr. Bupp’s employment agreement. If the employment
of Mr. Bupp with the Company is terminated for reasons other than a
Termination Without Cause, an End of Term Termination, or a Change of
Control before all of the restricted shares have vested, then pursuant to
the terms of the Restricted Stock Agreement all restricted shares that
have not vested at the effective date of Mr. Bupp’s termination shall
immediately be forfeited by Mr.
Bupp.
|
(p)
|
Restricted
shares granted February 16, 2009. Pursuant to the terms of the
Restricted Stock Agreement between the Company and Dr. Cope, 50% of the
restricted shares will vest upon the approval of a NDA for Lymphoseek by
FDA or the approval of marketing authorization for Lymphoseek by the EMEA
and 50% of the restricted shares will vest upon the commencement of
patient enrollment in a Phase 3 clinical trial in humans of RIGScan
CR. All of the restricted shares vest upon the occurrence of a
Change of Control as defined in Dr. Cope’s employment
agreement. If the employment of Dr. Cope with the Company is
terminated for reasons other than a Change of Control before all of the
restricted shares have vested, then pursuant to the terms of the
Restricted Stock Agreement all restricted shares that have not vested at
the effective date of Dr. Cope’s termination shall immediately be
forfeited by Dr. Cope.
|
(q)
|
Restricted
shares granted December 1, 2009. Pursuant to the terms of the
Restricted Stock Agreement between the Company and Mr. Bupp, the
restricted shares will vest upon the approval of a NDA for Lymphoseek by
the FDA or the approval of marketing authorization for Lymphoseek by the
EMEA. All of the restricted shares vest upon the occurrence of
a Termination Without Cause or in the event of an End of Term Termination
or in the event of a Change of Control as defined in the Restricted Stock
Agreement. If the employment of Mr. Bupp with the Company is
terminated for reasons other than a Termination Without Cause, an End of
Term Termination, or a Change of Control before all of the restricted
shares have vested, then pursuant to the terms of the Restricted Stock
Agreement all restricted shares that have not vested at the effective date
of Mr. Bupp’s termination shall immediately be forfeited by Mr.
Bupp.
|
(r)
|
Restricted
shares granted December 1, 2009. Pursuant to the terms of
Restricted Stock Agreements between the Company and each grantee, the
restricted shares will vest upon the approval of a NDA for Lymphoseek by
the FDA or the approval of marketing authorization for Lymphoseek by the
EMEA. All of the restricted shares vest upon the occurrence of
a Change of Control as defined in the Restricted Stock
Agreement. If the employment of a grantee with the Company is
terminated for reasons other than a Change of Control before all of the
restricted shares have vested, then pursuant to the terms of the
Restricted Stock Agreements all restricted shares that have not vested at
the effective date of such grantee’s termination shall immediately be
forfeited by the grantee.
|
(s)
|
Estimated
by reference to the closing market price of the Company’s common stock on
December 31, 2009, pursuant to Instruction 3 to Item 402(p)(2) of
Regulation S-K. The closing price of the Company’s common stock
on December 31, 2009, was $1.22.
|
Compensation
of Non-Employee Directors
Each
non-employee director received an annual cash retainer of $20,000 and earned an
additional $2,000 per board meeting attended in person or $500 per telephonic
board meeting during the fiscal year ended December 31, 2009. The
Chairmen of the Company’s Board of Directors and Audit Committee each received
an additional annual retainer of $10,000 for their services in those capacities
during 2009. Members of committees of the Company’s Board of
Directors earned an additional $500 to $1,000, depending on the type of meeting,
per committee meeting attended in person or telephonically. We also
reimbursed non-employee directors for travel expenses for meetings attended
during 2009.
Each
non-employee director also received 10,000 options to purchase common stock and
30,000 shares of restricted stock as a part of the Company’s annual stock
incentive grants, in accordance with the provisions of the Neoprobe Corporation
Second Amended and Restated 2002 Stock Incentive Plan. The options
granted to purchase common stock vest on the first anniversary of the date of
grant and have an exercise price of $0.59, the closing price of the Company’s
common stock as reported on the OTC Bulletin Board regulated quotation service
on January 5, 2009, the date of grant. The restricted stock granted
will vest upon the approval of a New Drug Application for Lymphoseek by the
United States Food and Drug Administration or the approval of marketing
authorization for Lymphoseek by the European Medicines Agency. The
aggregate number of equity awards outstanding at March 15, 2010 for each
Director is set forth in the footnotes to the beneficial ownership table
provided in Part III, Item 12 of this Form 10-K. Directors who are
also officers or employees of Neoprobe do not receive any compensation for their
services as directors.
The
following table sets forth certain information concerning the compensation of
non-employee Directors for the fiscal year ended December 31, 2009.
Name
|
|
(a)
Fees Earned
or Paid in
Cash
|
|
|
(b),(c)
Option
Awards
|
|
|
(d),(e)
Restricted
Stock Awards
|
|
|
Total
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl
J. Aschinger, Jr.
|
|
$ |
42,000 |
|
|
$ |
4,294 |
|
|
$ |
32,970 |
|
|
$ |
79,264 |
|
Reuven
Avital
|
|
|
28,500 |
|
|
|
4,294 |
|
|
|
32,970 |
|
|
|
65,764 |
|
Kirby
I. Bland, M.D.
|
|
|
27,500 |
|
|
|
4,294 |
|
|
|
32,970 |
|
|
|
64,764 |
|
Owen
E. Johnson, M.D.
|
|
|
28,000 |
|
|
|
4,294 |
|
|
|
32,970 |
|
|
|
65,264 |
|
Fred
B. Miller
|
|
|
43,500 |
|
|
|
4,294 |
|
|
|
32,970 |
|
|
|
80,764 |
|
Gordon
A. Troup
|
|
|
33,500 |
|
|
|
4,294 |
|
|
|
32,970 |
|
|
|
70,764 |
|
J.
Frank Whitley, Jr.
|
|
|
29,000 |
|
|
|
4,294 |
|
|
|
32,970 |
|
|
|
66,264 |
|
(a)
|
Amount
represents fees earned during the fiscal year ended December 31, 2009
(i.e., the year to which the service relates). Quarterly
retainers and meeting attendance fees are paid during the quarter
following the quarter in which they are
earned.
|
(b)
|
Amount
represents the aggregate grant date fair value in accordance with FASB ASC
Topic 718. Assumptions made in the valuation of stock option
awards are disclosed in Note 1(o) of the Notes to the Consolidated
Financial Statements in this Form
10-K.
|
(c)
|
At
December 31, 2009, the non-employee directors held an aggregate of
1,065,000 options to purchase shares of common stock of the
Company.
|
(d)
|
Amount
represents the aggregate grant date fair value in accordance with FASB ASC
Topic 718. Assumptions made in the valuation of restricted
stock awards are disclosed in Note 1(o) of the Notes to the Consolidated
Financial Statements in this Form
10-K.
|
(e)
|
At
December 31, 2009, the non-employee directors held an aggregate of 210,000
shares of unvested restricted
stock.
|
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Equity
Compensation Plan Information
The
following table sets forth additional information as of December 31, 2009,
concerning shares of our common stock that may be issued upon the exercise of
options and other rights under our existing equity compensation plans and
arrangements, divided between plans approved by our stockholders and plans or
arrangements not submitted to our stockholders for approval. The
information includes the number of shares covered by, and the weighted average
exercise price of, outstanding options and other rights and the number of shares
remaining available for future grants excluding the shares to be issued upon
exercise of outstanding options, warrants, and other rights.
|
|
(a)
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
|
|
|
(b)
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
|
|
|
(c)
Number of
Securities
Remaining Available
for Issuance Under
Equity
Compensation Plans
(Excluding
Securities Reflected
in Column (a))
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved
by security holders
|
|
|
5,689,500 |
|
|
$ |
0.44 |
|
|
|
464,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved
by security holders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,689,500 |
|
|
$ |
0.44 |
|
|
|
464,500 |
|
Security
Ownership of Principal Stockholders, Directors, Nominees and Executive Officers
and Related Stockholder Matters
The
following table sets forth, as of March 15, 2010, certain information with
respect to the beneficial ownership of shares of our common stock by:
(i) each person known to us to be the beneficial owner of more than 5% of
our outstanding shares of common stock, (ii) each director or nominee for
director of our Company, (iii) each of the Named Executives (see “Executive
Compensation – Summary Compensation Table”), and (iv) our directors and
executive officers as a group.
Beneficial Owner
|
|
Number of Shares
Beneficially Owned (*)
|
|
Percent
of Class (**)
|
|
Carl
J. Aschinger, Jr.
|
|
|
367,300 |
|
(a)
|
|
(m)
|
|
Reuven
Avital
|
|
|
455,556 |
|
(b)
|
|
(m)
|
|
Kirby
I. Bland, M.D.
|
|
|
205,000 |
|
(c)
|
|
(m)
|
|
David
C. Bupp
|
|
|
7,015,706 |
|
(d)
|
|
|
8.0 |
% |
Frederick
O. Cope, Ph.D.
|
|
|
19,173 |
|
(e)
|
|
(m)
|
|
Owen
E. Johnson, M.D.
|
|
|
75,000 |
|
(f)
|
|
(m)
|
|
Brent
L. Larson
|
|
|
697,987 |
|
(g)
|
|
(m)
|
|
Fred
B. Miller
|
|
|
386,000 |
|
(h)
|
|
(m)
|
|
Gordon
A. Troup
|
|
|
50,000 |
|
(i)
|
|
(m)
|
|
J.
Frank Whitley, Jr.
|
|
|
286,500 |
|
(j)
|
|
(m)
|
|
All directors and
officers as a group
(13
persons)
|
|
|
10,407,379 |
|
(k)(n)
|
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
Platinum
Montaur Life Sciences, LLC
|
|
|
7,563,546 |
|
(l)
|
|
|
9.2 |
% |
(*)
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission which generally attribute beneficial ownership of
securities to persons who possess sole or shared voting power and/or
investment power with respect to those securities. Unless
otherwise indicated, voting and investment power are exercised solely by
the person named above or shared with members of such person’s
household.
|
(**)
|
Percent
of class is calculated on the basis of the number of shares outstanding on
March 15, 2010, plus the number of shares the person has the right to
acquire within 60 days of March 15,
2010.
|
(a)
|
This
amount includes 150,000 shares issuable upon exercise of options which are
exercisable within 60 days and 200 shares held in a trust account for
which Mr. Aschinger is the custodian, but does not include 30,000 shares
of unvested restricted stock.
|
(b)
|
This
amount consists of 139,256 shares of our common stock owned by Mittai
Investments Ltd. (Mittai), an investment fund under the management and
control of Mr. Avital, and 195,000 shares issuable upon exercise of
options which are exercisable within 60 days but does not include 13,000
shares of unvested restricted stock. The shares held by Mittai
were obtained through a distribution of 2,785,123 shares previously held
by Ma’Aragim Enterprise Ltd. (Ma’Aragim), another investment fund under
the management and control of Mr. Avital. On February 28, 2005,
Ma’Aragim distributed its shares to the partners in the
fund. Mr. Avital is not an affiliate of the other fund to which
the remaining 2,645,867 shares were distributed. Of the
2,785,123 shares previously held by Ma’Aragim, 2,286,712 were acquired in
exchange for surrendering its shares in Cardiosonix Ltd. on December 31,
2001, in connection with our acquisition of Cardiosonix, and 498,411 were
acquired by Ma’Aragim based on the satisfaction of certain developmental
milestones on December 30, 2002, associated with our acquisition of
Cardiosonix.
|
(c)
|
This
amount includes 180,000 shares issuable upon exercise of options which are
exercisable within 60 days but does not include 30,000 shares of unvested
restricted stock.
|
(d)
|
This
amount includes 1,638,333 shares issuable upon exercise of options which
are exercisable within 60 days, 770,000 warrants which are exercisable
within 60 days, a promissory note convertible into 3,225,806 shares of our
common stock,
213,746 shares that are held by Mr. Bupp’s wife for which he disclaims
beneficial ownership and 125,792 shares in Mr. Bupp’s account in the
401(k) Plan, but it does not include 1,000,000 shares of unvested
restricted stock and 66,667 shares issuable upon exercise of options which
are not exercisable within 60 days.
|
(e)
|
This
amount includes 16,667 shares issuable upon exercise of options which are
exercisable within 60 days and 2,506 shares in Dr. Cope’s account in the
401(k) Plan, but it does not include 175,000 shares of unvested restricted
stock and 108,333 shares issuable upon exercise of options which are not
exercisable within 60 days.
|
(f)
|
This
amount includes 40,000 shares issuable upon exercise of options which are
exercisable within 60 days but does not include 30,000 shares issuable
upon exercise of options which are not exercisable within 60
days.
|
(g)
|
This
amount includes 481,667 shares issuable upon exercise of options which are
exercisable within 60 days and 92,928 shares in Mr. Larson’s account in
the 401(k) Plan, but it does not include 125,000 shares of unvested
restricted stock and 108,333 shares issuable upon exercise of options
which are not exercisable within 60
days.
|
(h)
|
This
amount includes 255,000 shares issuable upon exercise of options which are
exercisable within 60 days and 81,000 shares held by Mr. Miller’s wife for
which he disclaims beneficial ownership, but does not include 30,000
shares of unvested restricted
stock.
|
(i)
|
This
amount includes 20,000 shares issuable upon exercise of options which are
exercisable within 60 days, but does not include 30,000 shares of unvested
restricted stock.
|
(j)
|
This
amount includes 225,000 shares issuable upon exercise of options which are
exercisable within 60 days, but does not include 30,000 shares of unvested
restricted stock.
|
(k)
|
This
amount includes 3,943,334 shares issuable upon exercise of options which
are exercisable within 60 days, 770,000 warrants which are exercisable
within 60 days, a promissory note convertible into 3,225,806 shares of our
common stock,
294,946 shares that are held by spouses of our Directors and Officers or
in trusts for which they are custodian but for which they disclaim
beneficial ownership, and 273,896 shares held in the 401(k) Plan on behalf
of certain officers, but it does not include 1,680,000 shares of unvested
restricted stock and 526,666 shares issuable upon the exercise of options
which are not exercisable within 60 days. The Company itself is
the trustee of the Neoprobe 401(k) Plan and may, as such, share investment
power over common stock held in such plan. The trustee
disclaims any beneficial ownership of shares held by the 401(k)
Plan. The 401(k) Plan holds an aggregate total of 624,627
shares of common stock.
|
(l)
|
Based
on information filed on Schedule 13G with the Securities and Exchange
Commission on August 18, 2009 and information supplied subsequently by
holder. The number of shares beneficially owned by
Platinum-Montaur Life Sciences, LLC (Montaur), 152 W. 57th Street, 54th
Floor, New York, NY 10019, does not include 17,061,538 shares of common
stock issuable upon conversion of a 10% Series A Convertible Senior
Secured Promissory Note issued to Montaur on December 26, 2007, as amended
(the Series A Note), 8,333,333 shares of common stock issuable upon
conversion of a 10% Series B Convertible Senior Secured Promissory Note
issued to Montaur on April 16, 2008 (the Series B Note), 6,000,000 shares
of common stock issuable upon conversion of 3,000 shares Series A 8%
Cumulative Convertible Preferred Stock issued to Montaur on December 5,
2008 (the Preferred Stock), 6,000,000 shares of common stock issuable upon
exercise of a Series W Warrant issued to Montaur on December 26, 2007, as
amended (the Series W Warrant), 8,333,333 shares of common stock issuable
upon exercise of a Series X Warrant issued to Montaur on April 16, 2008
(the Series X Warrant), and 2,400,000 shares of common stock issuable upon
exercise of a Series AA Warrant issued to Montaur on July 24, 2009 (the
Series AA Warrant). The Certificates of Designation of the Preferred
Stock, the Series A Note, the Series B Note, the Series W Warrant, the
Series X Warrant and the Series AA Warrant each provide that the holder of
shares of the Preferred Stock, the Series A Note, the Series B Note, the
Series W Warrant, the Series X Warrant and the Series AA Warrant,
respectively, may not convert any of the preferred stock or notes or
exercise any of the warrants to the extent that such conversion or
exercise would result in the holder and its affiliates together
beneficially owning more than 4.99% or 9.99% of the outstanding shares of
Common Stock, except on 61 days’ prior written notice to Neoprobe that the
holder waives such limitation. Effective September 23, 2009,
the 4.99% limitation, however, does not apply to shares of Common Stock
issued as a dividend on the Preferred Stock or shares of Common Stock
issued as interest on the Series A Note or the Series B
Note.
|
(m)
|
Less
than one percent.
|
(n)
|
The
address of all directors and executive officers is c/o Neoprobe
Corporation, 425 Metro Place North, Suite 300, Dublin, Ohio
43017-1367.
|
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Director
Independence
Our Board
of Directors has adopted the definition of “independence” as described under the
Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) Section 301, Rule 10A-3 under the
Securities Exchange Act of 1934 (the Exchange Act) and Nasdaq Rules 4200 and
4350. Our Board of Directors has determined that Messrs. Aschinger,
Avital, Miller, Troup and Whitley, and Drs. Bland and Johnson meet the
independence requirements.
See
Liquidity and Capital Resources in Part II, Item 7 of this Form 10-K for
information about our related party transactions.
Item
14. Principal Accountant Fees and Services
Audit
Fees. The aggregate fees billed and expected to be billed for
professional services rendered by BDO Seidman, LLP for the audit of the
Company’s annual consolidated financial statements for the 2009 fiscal year, the
reviews of the financial statements included in the Company’s Quarterly Reports
on Form 10-Q for the 2009 fiscal year, consents related to the Company’s
registration statements filed during the 2009 fiscal year, and consulting
services related to the Company’s modification of certain debt and equity
instruments during the 2009 fiscal year were $183,400 (including direct
engagement expenses). The aggregate fees billed for professional
services rendered by BDO Seidman, LLP for the audit of the Company’s annual
consolidated financial statements for the 2008 fiscal year, the reviews of the
financial statements included in the Company’s Quarterly Reports on Form 10-Q
for the 2008 fiscal year, and consents related to the Company’s registration
statements filed during the 2008 fiscal year were $177,540 (including direct
engagement expenses).
Audit-Related
Fees. No fees were billed by BDO Seidman, LLP for
audit-related services for the 2009 or 2008 fiscal years.
Tax
Fees. No fees were billed by BDO Seidman, LLP for tax-related
services for the 2009 or 2008 fiscal years.
All Other
Fees. No fees were billed by BDO Seidman, LLP for services
other than the audit, audit-related and tax services for the 2009 or 2008 fiscal
years.
Pre-Approval
Policy. The Audit Committee is required to pre-approve all
auditing services and permitted non-audit services (including the fees and terms
thereof) to be performed for the Company by its independent auditor or other
registered public accounting firm, subject to the de minimis exceptions for
permitted non-audit services described in Section 10A(i)(1)(B) of the Securities
Exchange Act of 1934 that are approved by the Audit Committee prior to
completion of the audit.
PART
IV
Item
15. Exhibits, Financial Statement Schedules
Exhibit
|
|
|
Number
|
|
Exhibit
Description
|
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation of Neoprobe Corporation as
corrected February 18, 1994 and amended June 27, 1994, June 3, 1996, March
17, 1999, May 9, 2000, June 13, 2003, July 27, 2004, June 22, 2005 and
November 20, 2006 (incorporated by reference to Exhibit 3.1 to the
Company’s Registration Statement on Form SB-2 filed December 7,
2006).
|
|
|
|
3.2
|
|
Amended
and Restated By-Laws dated July 21, 1993, as amended July 18, 1995, May
30, 1996 and July 26, 2007 (filed as Exhibit 3.2 to the Company’s Current
Report on Form 8-K dated August 3, 2007, and incorporated herein by
reference).
|
|
|
|
4.1
|
|
Neoprobe
Corporation Certificate of Designations, Voting Powers, Preferences,
Limitations, Restrictions, and Relative Rights of Series A 8% Cumulative
Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to
the Company’s Current Report on Form 8-K filed January 2,
2008).
|
|
|
|
4.2
|
|
Neoprobe
Corporation First Amended and Restated Certificate of Designations, Voting
Powers, Preferences, Limitations, Restrictions, and Relative Rights of
Series A 8% Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed
May 6, 2009).
|
|
|
|
4.3
|
|
Neoprobe
Corporation Second Amended and Restated Certificate of Designations,
Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights
of Series A 8% Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed
July 29, 2009).
|
|
|
|
10.1
|
|
Amended
and Restated Stock Option and Restricted Stock Purchase Plan dated March
3, 1994 (incorporated by reference to Exhibit 10.2.26 to the Company’s
December 31, 1993 Form 10–K).
|
|
|
|
10.2
|
|
1996
Stock Incentive Plan dated January 18, 1996 as amended March 13, 1997
(incorporated by reference to Exhibit 10.2.37 to the Company’s December
31, 1997 Form 10–K).
|
|
|
|
10.3
|
|
Neoprobe
Corporation Second Amended and Restated 2002 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed June 27, 2008).
|
|
|
|
10.4
|
|
Form
of Stock Option Agreement under the Neoprobe Corporation Amended and
Restated 2002 Stock Incentive Plan (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed December 21,
2006).
|
|
|
|
10.5
|
|
Form
of Restricted Stock Award and Agreement under the Neoprobe Corporation
Amended and Restated 2002 Stock Incentive Plan (incorporated by reference
to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed January
9, 2008).
|
|
|
|
10.6
|
|
Form
of Employment Agreement between the Company and certain named executive
officers (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed December 23, 2008). This
Agreement is one of three substantially identical employment agreements
and is accompanied by a schedule which identifies material details in
which each agreement differs from the form filed
herewith.
|
10.7
|
|
Schedule
identifying material differences between the employment agreements
incorporated by reference as Exhibit 10.6 to this Registration Statement
on Form S-1 (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed December 23, 2008).
|
|
|
|
10.8
|
|
Employment
Agreement, commencing February 15, 2009, by and between the Company and
Frederick O. Cope, Ph.D. (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed February 17,
2009).
|
|
|
|
10.9
|
|
Employment
Agreement dated January 1, 2010, by and between the Company and David C.
Bupp (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed January 6, 2010).
|
|
|
|
10.10
|
|
Employment
Agreement, commencing February 15, 2010, by and between the Company and
Frederick O. Cope, Ph.D. (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed February 26,
2010).
|
|
|
|
10.11
|
|
Technology
Transfer Agreement dated July 29, 1992 between the Company and The Dow
Chemical Corporation (portions of this Exhibit have been omitted pursuant
to a request for confidential treatment and have been filed separately
with the Commission) (incorporated by reference to Exhibit 10.10 to the
Company’s Form S-1 filed October 15, 1992).
|
|
|
|
10.12
|
|
Cooperative
Research and Development Agreement between the Company and the National
Cancer Institute (incorporated by reference to Exhibit 10.3.31 to the
Company’s September 30, 1995 Form 10–QSB).
|
|
|
|
10.13
|
|
License
dated May 1, 1996 between the Company and The Dow Chemical Company
(incorporated by reference to Exhibit 10.3.45 to the Company’s June 30,
1996 Form 10–QSB).
|
|
|
|
10.14
|
|
License
Agreement dated May 1, 1996 between the Company and The Dow Chemical
Company (portions of this Exhibit have been omitted pursuant to a request
for confidential treatment and have been filed separately with the
Commission) (incorporated by reference to Exhibit 10.3.46 to the Company’s
June 30, 1996 Form 10–QSB).
|
|
|
|
10.15
|
|
License
Agreement dated January 30, 2002 between the Company and the Regents of
the University of California, San Diego, as amended on May 27, 2003 and
February 1, 2006 (portions of this Exhibit have been omitted pursuant to a
request for confidential treatment and have been filed separately with the
Commission) (incorporated by reference to Exhibit 10.11 to the Company’s
Annual Report on Form 10-KSB filed March 31, 2006).
|
|
|
|
10.16
|
|
Evaluation
License Agreement dated March 31, 2005 between the Company and the Regents
of the University of California, San Diego (portions of this Exhibit have
been omitted pursuant to a request for confidential treatment and have
been filed separately with the Commission) (incorporated by reference to
Exhibit 10.12 to the Company’s Annual Report on Form 10-KSB filed March
31, 2006).
|
|
|
|
10.17
|
|
Distribution
Agreement between the Company and Ethicon Endo-Surgery, Inc. dated October
1, 1999 (portions of this Exhibit have been omitted pursuant to a request
for confidential treatment and have been filed separately with the
Commission) (incorporated by reference to Exhibit 10.13 to the Company’s
Annual Report on Form 10-KSB filed March 16,
2007).
|
10.18
|
|
First
Amendment to Distribution Agreement, dated December 14, 2007, by and
between the Company and Ethicon Endo-Surgery, Inc. (portions of this
Exhibit have been omitted pursuant to a request for confidential treatment
and have been filed separately with the Commission) (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed December 20, 2007).
|
|
|
|
10.19
|
|
Product
Supply Agreement between the Company and TriVirix International, Inc.,
dated February 5, 2004 (portions of this Exhibit have been omitted
pursuant to a request for confidential treatment and have been filed
separately with the Commission) (incorporated by reference to Exhibit
10.17 to the Company’s December 31, 2004 Form 10-KSB).
|
|
|
|
10.20
|
|
Supply
and Distribution Agreement, dated November 15, 2007, by and between the
Company and Cardinal Health 414, LLC (portions of this Exhibit have been
omitted pursuant to a request for confidential treatment and have been
filed separately with the Commission) (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November
21, 2007).
|
|
|
|
10.21
|
|
Warrant
to Purchase Common Stock of Neoprobe Corporation dated March 8, 2004
between the Company and David C. Bupp (incorporated by reference to
Exhibit 10.28 to the Company’s December 31, 2003 Form
10-KSB).
|
|
|
|
10.22
|
|
Registration
Rights Agreement dated April 2, 2003 between the Company, David C. Bupp
and Donald E. Garlikov (incorporated by reference to Exhibit 99(i) to the
Company’s Current Report on Form 8-K filed April 2,
2003).
|
|
|
|
10.23
|
|
Common
Stock Purchase Agreement between the Company and Fusion Capital Fund II,
LLC dated December 1, 2006 (incorporated by reference to Exhibit 10.5 to
the Company’s Current Report on Form 8-K filed December 4,
2006).
|
|
|
|
10.24
|
|
First
Amendment to Common Stock Purchase Agreement between the Company and
Fusion Capital Fund II, LLC, dated December 24, 2008 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed December 31, 2008).
|
|
|
|
10.25
|
|
Registration
Rights Agreement dated December 1, 2006, between the Company and Fusion
Capital Fund II, LLC (incorporated by reference to Exhibit 10.6 to the
Company’s Current Report on Form 8-K filed December 4,
2006).
|
|
|
|
10.26
|
|
10%
Convertible Note Purchase Agreement, dated July 3, 2007, between the
Company and David C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint
tenants with right of survivorship (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed July 9,
2007).
|
|
|
|
10.27
|
|
Amendment
to Convertible Note Purchase Agreement, dated December 26, 2007, between
the Company and David C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as
joint tenants with right of survivorship (incorporated by reference to
Exhibit 10.10 to the Company’s Current Report on Form 8-K filed January 2,
2008).
|
|
|
|
10.28
|
|
Neoprobe
Corporation 10% Convertible Promissory Note Due July 8, 2007, executed in
favor of David C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint
tenants with right of survivorship (incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed July 9,
2007).
|
|
|
|
10.29
|
|
Amended
Neoprobe Corporation 10% Convertible Promissory Note Due December 31,
2011, executed in favor of David C. Bupp, Cynthia B. Gochoco and Walter H.
Bupp, as joint tenants with right of survivorship (incorporated by
reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K
filed January 2,
2008).
|
10.30
|
|
Security
Agreement, dated December 26, 2007, by and between the Company and David
C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint tenants with
right of survivorship (incorporated by reference to Exhibit 10.12 to the
Company’s Current Report on Form 8-K filed January 2,
2008).
|
|
|
|
10.31
|
|
Series
V Warrant to Purchase Common Stock of Neoprobe Corporation issued to David
C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint tenants with
right of survivorship (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed July 9,
2007).
|
|
|
|
10.32
|
|
Additional
Series V Warrant to Purchase Common Stock of Neoprobe Corporation issued
to David C. Bupp, Cynthia B. Gochoco and Walter H. Bupp, as joint tenants
with right of survivorship (incorporated by reference to Exhibit 10.13 to
the Company’s Current Report on Form 8-K filed January 2,
2008).
|
|
|
|
|