SCHEDULE 14A INFORMATION
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CRYOLIFE, INC.
(Name of Registrant as Specified In Its Charter)
N/A
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April 30, 2002
Dear CryoLife Shareholder:
I am pleased to report that CryoLife, Inc. achieved record revenues and
record earnings in the first quarter of 2002.
Revenues for the three months ended March 31, 2002 were $25.5 million, a 19
percent increase over the previous record of $21.4 million set in the first
quarter of 2001 and an all time quarterly revenue record for CryoLife, Inc. Net
income for the quarter was a record of $3.1 million, compared to a net income of
$2.0 million for the first quarter ended March 31, 2001. On a fully diluted
basis, earnings per common share for the first quarter ended March 31, 2002 were
$0.16, compared to $0.10 for the same period in 2001. First quarter 2001
earnings were restated to include a $747,000 operating charge which reduced
diluted per share earnings by $0.03.
Record revenues and record earnings performance in the first quarter of
2002, as compared to first quarter 2001 results, benefited from across the board
increases in all four of the Company's major businesses. Revenues from
cardiovascular tissue processing rose 6 percent to $7.3 million, vascular tissue
processing revenues rose 9 percent to $7.0 million and orthopaedic tissue
processing revenues rose 13 percent to $5.9 million. The leading revenue
performer in the first quarter of 2002, in terms of percentage increase, was
BioGlue(R) surgical adhesive, rising 100 percent to $4.9 million, reflecting the
December 2001 approval by the Food and Drug Administration (FDA) for use of
BioGlue in certain vascular repair.
The financial highlights for the first quarter are attached for your
review.
BIOGLUE UPDATE
The increase in BioGlue revenues for the first quarter represents sales of
105,000 ml, compared to the sales of 76,000 ml recorded in the fourth quarter of
2001. According to field reports, BioGlue is being used in, among other
procedures, abdominal aortic aneurysms, endarterectomy surgeries, sealing of
suture lines, aortic dissections and aortic root replacements, repair of aortic
aneurysms, gluing/sealing of organs, sealing of Dura, sealing of A-V access
devices, femoral popliteal bypasses, sealing of LVAD cannulas, prosthetic valve
suture lines, sealing of synthetic conduit suture lines, gunshot wounds,
coronary artery anastomoses and Bentall procedures. Prior to the PMA approval by
the FDA of BioGlue in December 2001, CryoLife had approximately 600 accounts
using BioGlue in the U.S. Since then the Company has added approximately 170 new
accounts. Approximately 61% of our BioGlue accounts re-ordered during the first
quarter of this year. The Company estimates the total U.S. market that BioGlue
addresses is about $700 million annually.
Internationally, on February 12, 2002 we announced that BioGlue was awarded
a third CE (product certification) Mark allowing its use in general surgical
procedures in Europe. This latest product certification in the European Union
extends application of BioGlue to include soft tissue repair. The Company
believes that, as a result of this additional CE certification, BioGlue may now
be used in the European Union for most surgical procedures throughout the human
body. Presently, BioGlue is approved for cardiac, vascular and pulmonary repair
in 36 countries outside the U. S.
SYNERGRAFT(R) VALVES AND VASCULAR GRAFTS UPDATE
There have been a total of 37 SynerGraft porcine tissue based heart valves
implanted in the world since August 1999. Valves have been implanted on both the
right and left side of the heart. To the Company's knowledge, twenty-five of
these valves remain implanted. An analysis of the explanted valves indicated
that they were repopulated with the recipient's own cells, similar to the
results experienced with the animal implants. Implants included both infants and
adults.
There have been a total of 27 documented bovine tissue-based SynerGraft
vascular grafts implanted in Europe since November 2001. However, the Company
estimates closer to 100 of the SynerGraft vascular grafts have been implanted in
Europe since not all have been documented with implant cards. These vascular
grafts have been implanted for peripheral vascular reconstruction and A-V access
devices for dialysis patients. To the Company's knowledge, none have been
removed.
On the human tissue allograft side of the business, since February 2000,
there have been 987 SynerGraft processed allograft heart valves implanted in
people throughout North America. Of these valves, to the Company's knowledge,
982 remain implanted at this time and five have been removed. Histological
examination of some of these valves indicated that all valves examined had
repopulated with the patient's own cells in vivo.
Examinations also confirmed that the PRA (Panel Reactive Antibodies) levels
were significantly reduced in the patients that were implanted with a SynerGraft
processed allograft valve.
Since January of 2001, a total of 262 SynerGraft processed allograft
vascular grafts have been implanted in North America as A-V access devices for
dialysis patients and for peripheral vascular reconstruction purposes. We
believe that all of these grafts remain implanted at this time.
PROCUREMENT UPDATE
The allograft preservation business is dependent upon procurement. The
number of donors CryoLife processed was up 43% in the first quarter of 2002 as
compared to the first quarter of 2001. The increase is attributable to several
factors, including the Company's formation of new strategic alliances with large
tissue procurement groups and the addition of procurement liaison staff that
have had an immediate impact in increasing procurement across the board.
CryoLife anticipates that the significant procurement increases in the first
quarter will have a favorable impact on revenues in the second quarter, as it
takes 45 to 90 days to move tissue through CryoLife's processing system.
April results to date indicate that it will be another record month in
revenues. The Company estimates that April revenues will be about 25% ahead of
revenues recorded in April 2001.
FULL YEAR AND SECOND QUARTER 2002 GUIDANCE
We continue to support our previously issued earnings guidance of between
$0.74 and $0.80 per fully diluted common share for fiscal year 2002.
o BioGlue revenues are expected to be between $4.9 million and $5.3 million
for the second quarter.
o Cardiovascular tissue processing revenues for the second quarter are
expected to increase between 8% and 12% over the second quarter of 2001.
o Vascular tissue processing revenues for the second quarter are expected to
increase between 12% and 15% over the second quarter of 2001.
o Orthopaedic tissue processing revenues for the second quarter are expected
to grow between 14% and 20% over the second quarter of 2001.
o Total revenues are expected to be between $26 million and $27 million for
the second quarter.
o Gross margins are expected to be between 58.5% and 59.5% for the second
quarter.
o General, administrative and marketing expenses are anticipated to be
between 36.5 % and 37.5% of revenues for the second quarter.
o R&D expenses are expected to approximate between 4.5% and 5.5% of revenues
in the second quarter of 2002.
o Earnings per share are expected to be between $0.17 and $0.19 for the
second quarter.
REGULATORY AFFAIRS UPDATE
In response to recent publicity that may have caused concern among
shareholders, tissue donors and recipients about the safety of preserved human
tissue, CryoLife reiterates the benefits of the availability of human tissue for
transplants, and the accomplishments of the industry in providing safe and
viable solutions in the treatment of various diseases. In many cases, the only
viable, life-saving alternative is the availability of preserved human tissue.
CryoLife continues its ongoing commitment to tissue safety by expanding its
long-standing quality assurance programs, educational efforts, ongoing training
for our staff and those involved in the recovery process as well as providing
hands-on training for surgeons and others in the medical community. The
incidence of infections occurring with implants of cryopreserved human tissue is
dramatically below that experienced with other implants such as mechanical heart
valves, pacemakers or synthetic tissue substitute implants. We intend to
maintain our position as an industry leader in setting the highest standards in
tissue processing.
CryoLife continues to work closely with the CDC and the FDA in relation to
the recent reports of infected allograft tissues that were distributed by four
or five tissue banks throughout the U.S. The recent reports of allograft
infections make it appear that there has been a sudden appearance of a large
number of serious infections associated with implantable human tissues. This is
not true, as reported infections from implantable tissues have occurred at very
low rates over many years. The CDC and the FDA have been aware of these risks
and reported infection rates throughout the last decade. I believe this risk is
generally understood within the community of implanting surgeons. Regulatory
oversight or certification may not guarantee freedom from the possibility of
infection.
I would like to provide some perspective on this situation. Typical
infection rates for the implantation of mechanical orthopaedic devices are
reported as being between 0.6% and 2.2%. We have previously stated that the rate
of reported infection of CryoLife orthopaedic allografts is about 0.2%.
Infections directly associated with cardiac pacemaker implantation are said to
be as high as 20 to 25%. Our reported infection rate for allograft heart valves
is less than 0.16%. Despite this safety record, CryoLife is constantly working
to lower these reported rates.
Since the implantation of allografts is usually major surgery, there are
inherent risks associated with these operations. Patients can and do react badly
to anesthesia, there are errors that occur on the part of health care providers,
and hospitals are common environments for contracting infections. Sometimes
patients are non-compliant in taking their post-operative medications.
The CDC and the FDA have made reasonable recommendations during
investigations of CryoLife and other tissue banks regarding standards for the
testing and handling of tissues, and CryoLife is committed to implementing these
recommendations as quickly as they can be validated.
CryoLife will continue to cooperate with regulatory agencies to enhance, if
possible, procedures and testing to help assure that the tissues are as safe as
possible while ensuring a continuing supply. The Company will continue its
extensive educational programs that it sponsors for procurement agencies and
their personnel. We will continue to expand our programs for training hospital
personnel and surgeons on the risks relative to the benefits of implantable
human tissues. Finally, CryoLife has initiated a major research effort into
potential methods of sterilizing soft tissues in a manner that does not
adversely affect the clinical benefits of implanting allograft tissues.
ANNUAL MEETING OF SHAREHOLDERS
The 2001 Annual Report and Corporate Profile Booklet will be mailed to all
shareholders on April 30, 2002, along with proxy solicitation materials for the
Annual Meeting of Shareholders. The meeting is scheduled to be held at the
CryoLife headquarters facility, located at 1655 Roberts Boulevard, NW, Kennesaw,
Georgia, at 10:00 a.m., on Wednesday, May 29, 2002.
I look forward to personally greeting those shareholders who are able to
attend and participate in the Annual Meeting.
Your continued interest in CryoLife operations and progress is appreciated.
Very truly yours,
/s/ Steven G. Anderson
Steven G. Anderson,
President and Chief Executive Officer
Attachment: Financial Highlights
Forward-Looking Statements. Statements made in this letter that look forward in
time or that express management's beliefs, expectations or hopes regarding
anticipated operating performance and expenditures during the first quarter and
full year of 2002 and other matters are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These future
events may not occur when expected, if at all, and are subject to various risks
and uncertainties. Such risks and uncertainties include the Company's dependence
on cryopreservation of human tissue, the possibility that SynerGraft treated
heart valves will not have the expected long-term functionality, repopulate with
human recipient cells or reduce immune response, that orthopedic tissue revenues
could be adversely impacted due to the recent death of a knee surgery patient
and a recent CDC report, potential loss of relationships with tissue providers,
that future clinical SynerGraft or BioGlue test results will prove less
encouraging than current results, that SynerGraft, BioGlue, or other regulatory
submissions will not be ready when planned or that anticipated regulatory
approvals will not be obtained when expected, if at all, that surgeons will not
continue to accept and use BioGlue, competition from other wound closure
products, that the Company will be unable to find an investor in its proprietary
light-activated drug delivery systems or that such systems will prove
ineffective in oncology applications, that pending legal proceedings against the
Company will not be resolved in its favor, the possibility of rapid
technological change, uncertainties regarding products in development,
uncertainties related to patents and protection of proprietary technology,
changes in economic cycles, competition from other companies, changes in laws
and governmental regulations applicable to the Company and other risk factors
detailed in the Company's Securities and Exchange Commission filings, including
the Company's Form 10-K filing for the year ended December 31, 2001.
CRYOLIFE, INC.
Unaudited Financial Highlights
(In thousands, except share data)
Three Months Ended
March 31,
------------------------------
2002 2001
------------- -------------
Revenues:
Human tissue preservation services $ 20,238 $ 18,566
Products 5,065 2,641
Distribution and grant 168 225
----------- -----------
Total Revenues 25,471 21,432
Costs and Expenses:
Human tissue preservation services 8,063 7,673
Products 2,235 1,432
General, administrative and marketing 9,478 8,159
Research and development 1,153 1,086
Interest expense 192 --
Interest income (298) (562)
Other (income) expense, net (56) 747
------------ -----------
Total Costs and Expenses 20,767 18,535
Earnings before income taxes 4,704 2,897
Income tax expense 1,600 927
----------- -----------
Net Income $ 3,104 $ 1,970
=========== ===========
Earnings per share:
Basic $ 0.16 $ 0.11
=========== ===========
Diluted $ 0.16 $ 0.10
=========== ===========
Weighted average shares outstanding:
Basic 19,096 18,749
=========== ===========
Diluted 19,796 19,508
=========== ===========
Revenues from:
Cardiovascular $ 7,307 $ 6,911
Vascular 7,017 6,412
Orthopaedic 5,914 5,243
----------- -----------
Total Cryopreservation 20,238 18,566
----------- -----------
BioGlue 4,873 2,442
Bioprosthetic valves 192 199
Distribution and grant 168 225
----------- -----------
Total Revenues $ 25,471 $ 21,432
=========== ===========
[GRAPHIC OMITTED]
NEWS RELEASE
FOR IMMEDIATE RELEASE
CONTACT: D. ASHLEY LEE
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
(800) 438-8285
CRYOLIFE, INC. APPOINTS NEW ACCOUNTING FIRM
Atlanta, GA ...(May 7, 2002)...CryoLife, Inc. (NYSE: CRY), a life-science
company involved in the development and commercialization of cryopreserved and
tissue-engineered implantable heart valves, vascular and orthopaedic grafts, and
surgical adhesives, announced that its Board of Directors has appointed the
accounting firm of Deloitte & Touche, LLP as the Company's independent auditors.
Founded in 1984, CryoLife, Inc. is the leader in the development and
commercialization of implantable living human tissues for use in cardiovascular,
vascular and orthopaedic surgeries throughout the United States and Canada. The
Company's BioGlue(R) surgical adhesive is FDA approved as an adjunct to sutures
and staples for use in adult patients in open surgical repair of large vessels
and is CE marked in the European Community and approved in Canada and Australia
for use in vascular and pulmonary sealing and repair. The Company also
manufactures the SynerGraft(R) heart valve and the SynerGraft vascular graft,
the world's first tissue-engineered heart valve and vascular replacement,
respectively, and the CryoLife-O'Brien(R) and CryoLife-Ross(R) stentless porcine
heart valves, which are CE marked for distribution within the European
Community. The human heart valves and vascular grafts processed by CryoLife
using the SynerGraft technology are distributed in the U.S. under the trade
names of CryoValve(R)SG and CryoVein(R)SG, respectively.
For additional information about the company, visit CryoLife's web site:
http://www.cryolife.com.
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