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FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ___________
Commission file number 0-21104
CRYOLIFE, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2417093
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2211 New Market Parkway, Suite 142, Marietta, GA 30067
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (770) 952-1660
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates
of the registrant was approximately $71,093,213 at March 15, 1996
(3,791,638 shares). The number of common shares outstanding at
March 15, 1996 was 4,716,166 (exclusive of treasury shares).
Item 1. of this Report is hereby amended to correct certain
information contained therein.
PART I
ITEM 1. BUSINESS.
OVERVIEW
CryoLife, Inc. (the "Company") is a leader in the
development and commercialization of technology for
cryopreservation of viable human cardiovascular and orthopaedic
tissues for transplant. The Company was organized in 1984 to
address market opportunities in the area of biological
implantable devices and materials, and it is today the dominant
provider of cryopreservation services for viable human heart
valves. Based on clinical studies, management believes
transplanted human tissues may offer, depending on the particular
tissue and application, certain advantages over mechanical,
synthetic, or animal-derived alternatives, including more natural
functionality, elimination of the need for anticoagulant therapy,
reduced incidence of reoperation, and reduced risk of
catastrophic failure, thromboembolism (stroke), or calcification.
The Company uses proprietary or patented processes to
disinfect, preserve, store, and transport human heart valves,
veins, and connective tissues for use in cardiac, vascular, and
orthopaedic surgeries. Tissue preserved using the Company's
proprietary cryogenic processes can be stored for extended
periods of time and retains cell viability when properly thawed
for implantation into human recipients. Tissue is procured from
deceased human donors by organ procurement agencies and tissue
banks (most of which are not-for-profit), which consign the
tissue to the Company for processing and preservation. After
preservation, tissue is stored by the Company or delivered
directly to hospitals at the implanting physician's request. The
Company charges a fee for performing its services but does not
buy or sell human tissue.
STRATEGY
The Company is becoming active in the development and
acquisition of new technologies that do not require donated human
tissue and are therefore not dependent upon the availability of
human tissue. The Company's acquisition in 1992 of distribution
rights for certain porcine heart valves was the first addition of
a product that did not require donated human tissue. Products
and applications currently under development, some of which are
based on acquired or licensed technologies, are a surgical bio-
adhesive based on a derivative of the human blood factor
fibrinogen, a surgical bio-adhesive based on blood protein and a
cross linking agent, and a process for transplanting human cells
onto the structure of non-viable animal tissue.
MARKETS
Cardiac Surgery. Based on clinical studies, management
believes cryopreserved human heart valves have characteristics
that make them one of the preferred replacement alternatives for
children. They are also indicated for patients with bacterial
endocarditis and women in their child-bearing years.
Cryopreserved human heart valves do not require postoperative
anticoagulant therapy, which could interfere with a normal
pregnancy, or have a catastrophic failure, as do some mechanical
valves. In addition, based on clinical studies, management
believes human heart valves are more durable than porcine valves.
Cryopreserved human heart valves also have good flow
characteristics, which provide an advantage when treating
children.
Vascular Surgery. The vascular surgery market addressed by
the Company involves coronary bypass and peripheral
revascularization surgeries, both of which require small diameter
(4 to 6 mm) conduits. Failure to bypass or revascularize an
obstruction in such cases may result in death or the loss of a
limb.
The Company cryopreserves saphenous veins for use in
coronary bypass and revascularization surgeries. In such
surgeries, physicians prefer to use the patient's own vein tissue
and consider using cryopreserved veins or synthetic veins only
when the patient does not have suitable vein tissue available.
Synthetic veins in such small diameters are currently not a
suitable alternative. The patient may not have suitable vein
tissue available because of a previous coronary bypass or other
vascular surgery, or such tissue may be unsuitable due to injury
or disease. Based on a market report commissioned by the
Company, management believes that the patient's own vein tissue
is available in all but a very small percentage of these
surgeries and that cryopreserved veins may provide an alternative
treatment when the patient's own veins are not available.
In analyzing alternative treatments, physicians generally
focus on the patency (openness to the flow of blood) of available
vein tissue, given the position of implantation, flow
characteristics, and other factors. If a physician believes that
a vein graft will retain patency for a relatively short period,
the physician may conclude that the risks of surgery outweigh any
potential benefits. Thus, physicians may recommend amputation
over revascularization using cryopreserved veins. At this time,
there are no long-term clinical data that establish a reliable
minimum patency rate for cryopreserved veins, and patency is not
easily measured in asymptomatic patients. In order to achieve
wider acceptance of its cryopreserved veins, the Company believes
that clinical data establishing the efficacy and patency of
cryopreserved veins must be generated and that physicians must be
educated to consider the use of cryopreserved veins to save limbs
even in the absence of definitive patency data. There can be no
assurance that clinical data will establish acceptable patency
rates for cryopreserved veins sufficient to make the use of such
vein tissue an accepted alternative to amputation. In addition,
Medicare patients account for most below-the-knee vascular
procedures, and fixed fee payments for these patients do not
specifically incorporate cryopreserved veins.
Orthopaedic Surgery (Sports Medicine). The orthopaedic
surgery market addressed by the Company involves surgical
replacements of the meniscus, the anterior and posterior cruciate
ligaments, and the patellar tendon. The Company is currently
focusing its cryopreservation efforts in this area to menisci,
anterior cruciate ligaments, and patellar tendons, which are
available for use as replacement tissue in surgeries involving
the knee.
Meniscal insufficiency increases the risk of premature knee
degeneration and arthritis. Management believes the Company is
the only provider of cryopreserved menisci tissue and that there
are no synthetic menisci on the market. When a patient has a
damaged meniscus, the present surgical alternatives are to
repair, partially remove, or completely remove the patient's
meniscus, with partial removal being the most common procedure.
Management believes its cryopreserved menisci offer physicians an
alternative treatment option in such surgeries.
SERVICES AND PRODUCTS
Preservation Services. The transplant of human tissue that
has not been preserved must be accomplished in extremely short
time frames (not to exceed eight hours for transplants of the
human heart). The application by the Company of its preservation
and other processes to donated tissue expands the amount of human
tissue available to physicians for transplantation. It also
expands the treatment options available to physicians and their
patients by offering alternatives to implantable mechanical
devices and animal tissues. The tissues presently cryopreserved
by the Company include human heart valves, veins, and connective
tissues of the knee, and, outside the United States, processed
porcine heart valves.
Human Heart Valves. The Company's primary business is the
cryopreservation of human heart valves for use in cardiac
reconstructive surgery and heart valve replacement. Based on its
discussions with physicians and data contained in published
reports of clinical studies, management believes that the
Company's success in the allograft heart valve market is due in
part to physicians' recognition of the durability and good blood
flow characteristics of the Company's cryopreserved tissues. The
Company first made its cryogenically preserved human heart valves
available to physicians in 1984. Company revenues attributable
to human heart valve preservation in 1993, 1994, and 1995 were
$13.7 million, $16.7 million, and $19.7 million, respectively,
accounting for 64%, 71%, and 67% respectively, of the Company's
total revenues during those years.
Veins. The Company cryopreserves human saphenous veins for
use in vascular surgeries that require small diameter conduits,
such as coronary bypass surgery and below-the-knee vascular
reconstructions. The Company first made its cryogenically
preserved saphenous veins available to physicians in 1986,
utilizing technology licensed from a third party. Company
revenues attributable to vein preservation in 1993, 1994, and
1995 were $4.7 million, $5.5 million, and $6.8 million,
respectively, accounting for 22%, 23%, and 23% respectively, of
the Company's total revenues during those years.
Connective Tissue. The Company entered the growing field of
sports medicine in 1990 with the introduction of cryopreserved
orthopaedic tissues, including the meniscus, anterior and
posterior cruciate ligaments, and patellar tendon, which are
connective tissues critical to the proper operation of the human
knee. Human menisci cryopreserved by the Company provide
orthopaedic surgeons with a new alternative treatment in cases
where a patient's meniscus must be completely removed. Ligaments
and tendons cryopreserved by the Company are used for the
reconstruction of the ligaments and tendons within and about the
knee in cases where such ligaments and tendons must be completely
removed.
Company revenues attributable to connective tissue
preservation in 1993, 1994, and 1995 were $604,000, $593,000, and
$1,456,000, respectively, accounting for 3%, 2%, and 5%,
respectively, of the Company's total revenues during each of
those years. Based on its experience with human heart valves,
management believes that, as the body of clinical data builds
regarding the efficacy of using cryopreserved orthopaedic
tissues, the use of such tissues will increase, although there
can be no assurance that this will be the case.
Porcine Heart Valves. In July, 1992, in order to improve its
competitive position in the cardiac reconstructive surgery
market, the Company acquired exclusive, worldwide distributor
rights to certain low pressure, gluteraldehyde fixed porcine
aortic and mitral heart valves processed by Bravo Cardiovascular,
Inc. ("Bravo"). Marketing efforts for the porcine heart valves
were hindered during 1994 and 1995 by legal actions between the
Company and Bravo. The Company and Bravo reached an agreement to
settle their differences whereby the Company obtained ownership
of the trademarks, trade secrets, and technology of the stentless
porcine heart valves and Bravo retained the same for the stented
porcine heart valves. Sales of the stentless porcine valves in
1993, 1994, and 1995 were $497,000 $268,000, and $263,000,
respectively. Stented porcine valve sales totaled $423,000 in
1993 and $146,000 in 1994. Accordingly, total Company revenues
attributable to porcine heart valve sales in 1993, 1994, and 1995
were $920,000, $414,000, and $263,000 respectively, accounting
for 4%, 2%, and 1%, respectively of the Company's total revenues
during those years.
The Company will concentrate marketing efforts for the
stentless porcine heart valve in Europe where it has been
approved for sale in certain countries. During December 1995,
the Company obtained CE Mark Certification for the stentless
porcine heart valves and ISO 9001 Certification, a European
quality standards system, for its tissue processing laboratory.
Management believes that CE Mark Certification and ISO 9001
Certification will help the Company gain entry and approval for
its porcine heart valves in the European community. Currently,
porcine valve sales represent significantly all of the Company's
export sales. The Company will also investigate the process for
IDE and PMA approval of stentless porcine heart valves in the
United States.
Inventories of porcine heart valves were $424,200 at
December 31, 1995, a decrease of $432,000 from the previous year.
This decrease represents both sales of porcine valves and
reductions of the carrying value of stented valves.
OPERATIONS
The Company's cryopreservation process involves the
procurement of tissue from deceased human donors, the timely and
controlled delivery of such tissue to the Company, the screening,
disinfection, dissection, and cryopreservation of the tissue by
the Company, the storage and shipment of the cryopreserved
tissue, and the controlled thawing of the tissue. Thereafter,
the tissue is surgically implanted into a human recipient.
Procurement of Tissue. Tissue is procured from deceased
human donors by organ procurement agencies. After procurement,
the tissue is packed and shipped, together with certain
information about the tissue and its donor, to the Company in
accordance with the Company's protocols. The procurement agency
receives a fee for its services, which is paid by the Company.
The procurement fee and related shipping costs are ultimately
reimbursed to the Company by the hospital with which the
implanting physician is associated.
Each procurement agency procuring tissue for the Company is
given a protocol that describes the techniques required by the
Company for dissection and packaging of the tissue. The tissue
is transported to the Company's laboratory in Marietta, Georgia,
in containers provided by the Company via commercial airlines
pursuant to arrangements with qualified courier services. Timely
receipt of procured tissue is important, as tissue that is not
received promptly cannot be cryopreserved successfully.
Although the Company is developing or has acquired rights to
some products that are not supply constrained, such as the
stentless Bravo porcine valves and the SynerGraft, the Company's
business currently depends on the availability of sufficient
quantities of tissue from human donors. Over the past several
years, the overall number of human donors has been relatively
constant. The Company must rely primarily on the efforts of
third party procurement agencies (most of which are not-for-
profit) and others to educate the public and foster an increased
willingness to donate tissue. The inability to obtain sufficient
supplies of human tissue could have a material adverse effect on
the Company's business.
Preservation of Tissue. Upon receiving the tissue, a
Company technician completes the documentation control for the
tissue prepared by the procurement agency and gives it a
control/inventory number. The documentation identifies, among
other things, donor age, blood type, and cause of death. A
trained technician then removes from the delivered tissue the
portion or portions of the tissue that will be cryopreserved.
These procedures are conducted under aseptic conditions in clean
rooms. At the same time, additional samples are taken from the
donated tissue and subjected to the Company's comprehensive
quality assurance program. This program may identify
characteristics which would disqualify the tissue for
cryopreservation.
Preserved human heart valves, veins, and connective tissues
are then frozen in a controlled freezing process conducted
according to strict Company protocols. After the freezing
process, the specimens are transferred to liquid nitrogen
freezers for long-term storage at temperatures below -190 C. The
entire cryopreservation process is rigidly controlled by
guidelines established by the Company.
Shipment of Tissue to Implanting Physicians. After
preservation, tissue is stored by the Company or is delivered
directly to hospitals at the implanting physician's request.
Cryopreserved tissue is packaged for shipping using the Company's
proprietary processes. At the hospital, the tissue is held in a
liquid nitrogen freezer according to Company protocols pending
implantation. The Company provides a detailed protocol for
thawing the cryopreserved tissue. The Company also makes its
technical personnel available by phone or in person to answer
questions. The Company will store tissue for up to 90 days at no
charge. Thereafter, there is a nominal monthly charge. After
the Company ships the tissue to the hospital, the Company
invoices the institution for its services, the procurement fee,
and shipping costs.
The Company encourages hospitals to accept the cryopreserved
tissue back quickly by providing Company-owned liquid nitrogen
freezers to client hospitals without charge. Participating
hospitals pay the cost of liquid nitrogen and regular
maintenance. The availability of on-site freezers makes it
easier for a hospital's physicians to utilize the Company's
cryopreservation services by making the cryopreserved tissue more
readily available. Because fees for the Company's
cryopreservation services become due upon the delivery of tissue
to the hospital, the use of such on-site freezers also improves
the Company's cash flow.
QUALITY ASSURANCE
The Company employs a comprehensive quality assurance
program in all of its tissue processing activities. The Company
endeavors to follow good manufacturing processes ("GMPs"), based
on FDA standards, to assure the consistency of the Company's
processing and cryopreservation operations. The Company's
quality assurance program begins with the development and
implementation of training courses for the employees of
procurement agencies. To assure uniformity of procurement
practices among the tissue recovery teams, the Company provides
procurement protocols, transport packages, and tissue transport
liquids to the donor sites.
Upon receipt by the Company, each tissue is assigned a
unique control number that provides traceability of tissue from
procurement, through the processing and preservation processes,
and ultimately to the tissue recipient. A trained technician
then removes samples from the delivered tissue upon which serial
cultures are performed to identify any disease or fungal growth
that may disqualify the tissue for preservation. Blood samples
from each tissue donor are subjected to a variety of tests to
screen for infectious diseases. Samples of the tissue are also
sent to independent laboratories for pathology testing.
Following removal of the tissue to be preserved, a separate
sterilization procedure is begun during which the removed tissue
is treated with proprietary antibiotic solutions.
The materials and solutions used by the Company in
processing tissue are pre-screened to determine if they are of
desired quality as defined by Company protocols. Only materials
and solutions that meet the Company's requirements are approved
by quality assurance personnel for use in processing. Throughout
tissue processing, detailed records are maintained and reviewed
by quality assurance personnel.
The Company's quality assurance staff is comprised primarily
of experienced professionals from the medical device and
pharmaceutical manufacturing industries. The quality assurance
department, in conjunction with the Company's research and
development and select university research staffs, routinely
evaluates the Company's processes and procedures.
RESEARCH AND DEVELOPMENT
The Company s preservation service efforts have been
directed toward tissue transplant opportunities in the medical
specialties of cardiac, vascular and orthopaedic surgery. The
company seeks to identify medical market areas that can benefit
from its expertise in biochemistry and cell biology in order to
develop innovative techniques and biological products for the
cardiac, vascular and orthopaedic reconstructive surgery fields.
It is management s intention to introduce two new preserved human
tissues during 1996. One is the development of preservation
techniques for human pericardial tissue that will be used by
thoracic surgeons during lung reduction surgery for emphysema
patients. Also, the Company is developing the techniques for the
recovery, preservation and transplantation of human mitral heart
valves.
Additionally, the Company seeks to expand the Company s
implantable product lines and laboratory service business to
include biological products that are not dependent upon the
availability of human tissue. The Company is currently in the
process of developing or investigating the development of several
technologies and products, several of which are licensed by the
Company pursuant to exclusive license agreements from third
parties, to expand the Company's service and product offerings,
including the following:
FibRx (registered) - The Company is developing a surgical bio-
adhesive based on a derivative of the human blood factor
fibrinogen. This technology creates a stable and unique delivery
method for fibrin adhesive to be used in a variety of surgical
applications, which, if successful, may control bleeding and
assist in positioning tissue at wound sites during and after
surgery. FibRx has progressed through animal trials and is
presently undergoing virology validation procedures mandated by
the FDA prior to the approval for human clinical trials. It is
anticipated that the applications to begin human clinical trials
for FibRx will be submitted to the FDA in the fourth quarter of
1996.
On March 18, 1996 the Company signed an agreement with Bayer
Corporation Pharmaceutical Division to negotiate the terms and
conditions of a worldwide license for FibRx. Management believes
that the successful conclusion of a license with Bayer to
accelerate introduction of FibRx in both the U.S. and world
markets.
BioGlue (trademark) - Surgical bio-adhesive. This technology
creates a surgical bio-adhesive based on a derivative of blood
protein and a cross linking agent. Management believes that this
adhesive may be stronger than FibRx. During March 1996, the
Company acquired the technology underlying the BioGlue.
Management believes that BioGlue has the potential to replace
sutures and surgical staples in many standard surgical
procedures. BioGlue is progressing through animal and toxicity
evaluations. It is anticipated that applications to begin
clinical trials for BioGlue will be submitted to the FDA during
the fourth quarter of 1996.
SynerGraft (registered) - The Company is developing a process for
transplanting human cells onto the structure of a non-viable
animal tissue. This technology, which has demonstrated
feasibility in animal trials, may avoid donor supply constraints
associated with human tissue. The technology underlying the
SynerGraft project was licensed by the Company pursuant to an
exclusive, worldwide license agreement. Under the agreement, the
licensor retains title to such technology and any patents and
patent applications relating thereto.
Research on these and other projects is conducted in the
Company's research and development laboratory or at universities
or clinics where the Company sponsors research projects.
Historically, the Company has allocated a significant portion of
its revenues to research and development. In 1993, 1994, and
1995, the Company expended approximately $1.4 million, $2.0
million, and $2.6 million, respectively, on research and
development activities on new and existing products. These
amounts represented approximately 6%, 8%, and 9%, respectively,
of the Company's revenues for those years. The Company's
research and development program is overseen by its medical and
scientific advisory boards. The Company's animal studies are
conducted at universities and other locations outside the
Company's facilities by third parties under contract with the
Company. In addition to these efforts, the Company may, as
situations develop, pursue other research and development
activities.
GOVERNMENT REGULATION
FDA Regulation--General. Because human heart valves are,
and other Company products may be, medical devices, the Company
and these products are subject to the provisions of the Federal
Food, Drug and Cosmetic Act "FDCA" and implementing regulations.
Pursuant to the FDCA, the United States Food and Drug
Administration ("FDA") regulates the distribution, manufacture,
labeling, and promotion of medical devices in the United States.
In addition, various foreign countries in which the Company's
products are or may be distributed impose additional regulatory
requirements.
The FDCA provides that, unless exempted by regulation,
medical devices may not be commercially distributed in the United
States unless they have been approved or cleared for marketing by
the FDA. There are two review procedures by which medical
devices can receive such approval or clearance. Some products
may qualify for clearance to be marketed under a Section 510(k)
("510(k)") procedure, in which the manufacturer provides a
premarket notification that it intends to begin marketing the
product, and shows that the product is substantially equivalent
to another legally marketed product (i.e., that it has the same
intended use and that it is as safe and effective as a legally
marketed device and does not raise different questions of safety
and effectiveness than does a legally marketed device). In some
cases, the submission must include data from clinical studies.
Marketing may commence when the FDA issues a clearance letter
finding such substantial equivalence.
If the product does not qualify for the 510(k) procedure
(either because it is not substantially equivalent to a legally
marketed device or because it is a Class III device required by
the FDCA and implementing regulations to have an approved
application for premarket approval ("PMA")), the FDA must approve
a PMA application before marketing can begin. PMA applications
must demonstrate, among other matters, that the medical device is
safe and effective. A PMA application is typically a complex
submission, usually including the results of human clinical
studies, and preparing an application is a detailed and time-
consuming process. Once a PMA application has been submitted,
the FDA's review may be lengthy and may include requests for
additional data. By statute and regulation, the FDA may take 180
days to review a PMA application although such time may be
extended. Furthermore, there can be no assurance that a PMA
application will be reviewed within 180 days or that a PMA
application will be approved by the FDA.
The FDCA also provides for exemptions from the premarket
approval process for investigational devices ("IDEs"), which
authorize distribution for clinical evaluation of devices that
lack a PMA or 510(k). Devices subject to an IDE are subject to
various restrictions imposed by the FDA. The number of patients
that may be treated with the device is limited, as are the number
of institutions at which the device may be used. Patients must
give informed consent to be treated with an investigational
device. The device may not be advertised, or otherwise promoted,
and the charges that may be made for the device may be limited.
Unexpected adverse experiences must be reported to the FDA.
The FDCA requires all medical device manufacturers and
distributors to register with the FDA annually and to provide the
FDA with a list of those medical devices which they distribute
commercially. The FDCA also requires manufacturers of medical
devices to comply with labeling requirements and to manufacture
devices in accordance with GMPs, which require that companies
manufacture their products and maintain their documents in a
prescribed manner with respect to manufacturing, testing, and
quality control activities. The FDA's medical device reporting
regulation requires that a device manufacturer provide
information to the FDA on death or serious injuries alleged to
have been associated with the use of its products, as well as
product malfunctions that would likely cause or contribute to
death or serious injury if the malfunction were to recur. The
FDA's medical device tracking regulation requires the adoption of
a method of device tracking by manufacturers of life-sustaining
or implantable devices, the failure of which would be reasonably
likely to have serious adverse health consequences. The
manufacturer must adopt methods to ensure that such devices can
be traced from the manufacturing facility to the ultimate user,
the patient. The FDA further requires that certain medical
devices not cleared for marketing in the United States have FDA
approval before they are exported.
The FDA inspects medical device manufacturers and
distributors, and has broad authority to order recalls of medical
devices, to seize noncomplying medical devices, to enjoin and/or
to impose civil penalties on manufacturers and distributors
marketing non-complying medical devices, and to criminally
prosecute violators.
FDA Regulation--Human Heart Valves. The Company's human
heart valves became subject to regulation by the FDA in June,
1991, when the FDA published a notice stating that human heart
valves are "medical devices" under the FDCA. The June, 1991
notice provided that distribution of human heart valves for
transplantation would violate the FDCA unless they were the
subject of an approved PMA or IDE on or before August 26, 1991.
On October 14, 1994, the FDA announced in the Federal
Register that neither an approved application for PMA nor an IDE
is required for processors and distributors who had marketed
heart valve allografts before June 26, 1991. This action by the
FDA has resulted in the allograft heart valves being classified
as a Class II Medical Device and has removed them from clinical
trial status. It also allows the Company to distribute such
valves to cardiovascular surgeons throughout the United States.
FDA Regulation--Other Tissue. Other than human and porcine
heart valves, none of the Company's other products or services is
currently subject to regulation as a medical device under the
FDCA or FDA regulation. Heart valves are one of a small number
of processed human tissues over which the FDA has asserted
medical device jurisdiction. On December 14, 1993 the FDA
promulgated an interim rule to require certain infectious disease
testing, donor screening, and record keeping with respect to
human tissue held by tissue banks and establishments engaged in
the recovery, processing, storage or distribution of banked human
tissue. There are certain exemptions to this interim rule,
including an exemption for human tissue that is regulated as a
human drug, biological product or medical device. This rule
applies to the veins and connective tissue that are currently
processed by the Company. It is likely, moreover, that the FDA
will expand its regulation of processed human tissue in the
future. For example, the FDA may determine that the veins and
connective tissue that are currently processed by the Company are
medical devices, but the FDA has not done so at this time.
Complying with FDA regulatory requirements or obtaining required
FDA approvals or clearances may entail significant time delays
and expenses or may not be possible, any of which may have a
material adverse effect on the Company. In addition, Congress is
expected to consider legislation that would regulate human tissue
for transplant. Such legislation could have a material adverse
effect on the Company.
FDA Regulation--Porcine Valves. Porcine heart valves are
Class III medical devices, and FDA approval is required prior to
commercial distribution of such valves in the United States. The
porcine heart valves currently held by the Company have not been
approved by the FDA for commercial distribution in the United
States and may be distributed from the United States to foreign
countries only if FDA export approval is obtained.
Possible Other FDA Regulation. Other products and processes
under development by the Company are likely to be subject to
regulation by the FDA (e.g., SynerGraft, FibRx, BioGlue). Some
may be medical devices; others may be drugs or biological
products. Regulation of drugs and biological products is
substantially similar to medical device regulation as described
above. Obtaining FDA approval or clearance to market these
products is likely to be a time consuming and expensive process,
and there can be no assurance that any of these products will
ever receive FDA approval, if required, to be marketed.
NOTA Regulation. The Company's activities in processing and
transporting human hearts and certain other organs are also
subject to federal regulation under the National Organ Transplant
Act ("NOTA"), which makes it unlawful for any person to
knowingly acquire, receive, or otherwise transfer any human organ
for valuable consideration for use in human transplantation if
the transfer affects interstate commerce. NOTA excludes from the
definition of "valuable consideration" reasonable payments
associated with the removal, transportation, implantation,
processing, preservation, quality control, and storage of a human
organ. The purpose of this statutory provision is to allow for
compensation for legitimate services. The Company believes that
to the extent its activities are subject to NOTA, it meets this
statutory provision relating to the reasonableness of its
charges. There can be no assurances, however, that restrictive
interpretations of NOTA will not be adopted in the future that
would call into question one or more aspects of the Company's
methods of charging for its preservation services.
State Licensing Requirements. Some states have enacted
statutes and regulations governing the processing,
transportation, and storage of human organs and tissue. The
activities engaged in by the Company require it to be licensed as
a clinical laboratory under Georgia law. The Company has such a
license, and the Company believes it is in compliance with
applicable Georgia regulations relating to clinical laboratories
which procure, store, or process human tissue designed to be used
for medical purposes in human beings. There can be no
assurances, however, that more restrictive state laws or
regulations will not be adopted in the future that could
adversely affect the Company's operations. Certain employees of
the Company have obtained certain licenses as required.
DISTRIBUTION
Cryopreserved tissues do not lend themselves to the
traditional medical products distribution systems and are subject
to governmental regulations that forbid the purchase or sale of
human organs. Also, cryopreserved tissue must be transported
under stringent handling conditions and maintained within
specific temperature tolerances at all times. The Company
utilizes proprietary shipping containers for transporting tissue
to implanting surgeons.
Trained field support personnel provide back-up and support
to implanting institutions and surgeons. The Company currently
has approximately 81 independent technical service
representatives and sub-representatives, as well as 23 technical
service representatives who are Company employees, who provide
field support. Some of these representatives are independent
contractors who visit physicians to explain the use of the
Company's cryopreserved tissues and to answer questions that
doctors may have regarding the Company's products and services.
These representatives receive fees based on cryopreservation
service fees received by the Company that are attributable to
physicians in their territory.
EDUCATION AND TECHNICAL SUPPORT
An important aspect of increasing the distribution of the
Company's cryopreservation services is educating physicians on
the use of cryopreserved tissue and on proper implantation
techniques. The Company sponsors physician training seminars
where physicians teach other physicians the proper technique for
handling and implanting cryopreserved tissue. The Company also
produces educational videotapes for use by the physicians. The
Company coordinates live surgery demonstrations at various
medical schools with patients selected by the medical school.
The medical facilities chosen for live surgery demonstrations are
selected in part based on their ability to broadcast the surgery
to an amphitheater of medical personnel by closed circuit
television. The Company also coordinates laboratory sessions
that utilize animal tissue to duplicate the respective surgical
techniques. Members of the Company's Medical Advisory Board
often lead the surgery demonstrations and laboratory sessions.
Management believes that these activities improve the medical
community's acceptance of the cryopreserved tissue processed by
the Company.
In order to increase the Company's supply of human tissue
for cryopreservation, the Company educates and trains procurement
agency personnel in procurement, dissection, packaging, and
shipping techniques. As with the education of physicians, the
Company produces educational videotapes and coordinates
laboratory sessions on procurement techniques for procurement
agency personnel. To supplement its educational activities, the
Company employs in-house technical specialists that provide
technical information and assistance and maintains a 24-hour
telephone support service.
COMPETITION
The Company faces competition from non-profit tissue banks
that cryopreserve human tissue, as well as companies that market
mechanical valves and synthetic and animal tissue for
implantation. Many established companies, some with resources
greater than those of the Company, are engaged in manufacturing
alternatives to preserved human tissue. Based on its interviews
with physicians and its experience to date, management believes
that, as compared to other entities that cryopreserve human
tissue, the Company competes on the basis of technology, customer
service and quality assurance. As compared to mechanical valves
or synthetic or animal tissue, management believes that the
Company's cryopreserved human heart valves compete on the factors
set forth above, as well as by providing a tissue that is one of
the preferred replacement alternatives with respect to certain
medical conditions, such as pediatric cardiac reconstruction,
valve replacements for women in their child-bearing years, and
valve replacements for patients with bacterial endocarditis.
Although tissue cryopreserved by the Company is initially higher
priced than are porcine and mechanical alternatives, the
mechanical alternatives typically require that the patient take
daily doses of anticoagulants for the lifetime of the implant.
As a result of the costs associated with anticoagulants,
mechanical valves are generally, over the life of the implant,
more expensive than the Company's cryopreserved tissue.
Notwithstanding the foregoing, management believes that, to date,
price has not been a significant competitive factor.
For each procedure that may utilize other human tissue the
Company preserves, there generally are alternative treatments.
Often, as in the case of veins and ligaments, these alternatives
include the repair, partial removal, or complete removal of the
damaged tissue and may utilize other tissues from the patients
themselves for reimplantation. The selection of treatment
choices is made by the attending physician in consultation with
the patient. Any newly developed treatments will also compete
with the use of tissue preserved by the Company.
Heart Valves. Alternatives to the Company's cryopreserved
human heart valves include mechanical valves and processed
porcine and bovine (cow) valves. St. Jude Medical, Inc. is
dominant in the mechanical heart valve market, and a division of
Baxter International Inc. is dominant in the porcine heart valve
market. In addition, management believes that at least four
tissue banks offer cryopreservation services for human heart
valves in competition with the Company.
Veins. Synthetic alternatives to the Company's
cryopreserved veins are available primarily in medium and large
diameters. Synthetic conduits in small diameters are not a
suitable alternative because they tend to occlude when implanted.
At present, management believes that no tissue banks process
human veins in competition with the Company. Other companies may
enter this market and compete with the Company in the future.
Connective Tissue. The Company's competition in the area of
connective tissue varies according to the tissue involved.
Freeze dried and fresh frozen human connective tissues and the
Company's preserved ligaments and tendons constitute the
principal treatment alternatives to complete removal when the
repair or partial removal of damaged tissue is not possible.
These alternative allografts are distributed by distributors of
Osteotech, Inc. and various tissue banks, among others.
Synthetic alternatives also exist for anterior cruciate ligaments
and patellar tendons. There are presently no processed or
synthetic alternatives to the Company's preserved menisci.
Porcine Heart Valves. The Company presently distributes its
stentless porcine heart valves only outside the United States.
These porcine heart valves compete with mechanical valves, human
heart valves, and processed bovine valves. The Company is aware
of at least three other companies that offer stentless porcine
heart valves.
ENVIRONMENTAL MATTERS
The Company's tissue processing activities generate some
biomedical wastes consisting primarily of human pathological and
biological wastes, including human tissue and body fluids removed
during laboratory procedures. The biomedical wastes generated by
the Company are placed in appropriately constructed and labeled
containers and are segregated from other wastes generated by the
Company. The Company contracts with third parties for transport,
treatment, and disposal of biomedical waste. Although the
Company believes it is in compliance with applicable laws and
regulations promulgated by the United States Environmental
Protection Agency and the Georgia Department of Natural
Resources, Environmental Protection Division, the failure by the
Company to comply fully with any such regulations could result in
an imposition of penalties, fines, or sanctions which could have
a material adverse effect on the Company's business.
PATENTS AND OTHER PROPRIETARY RIGHTS
The Company believes that its patents, trade secrets, and
technology licensing rights provide it with important competitive
advantages. The Company owns 17 United States patents relating
to its technology for human heart valve, vein, and connective
tissue preservation; tissue revitalization prior to freezing;
tissue transport; fibrin adhesive; organ storage solution; and
packaging. The Company has 8 United States patents pending that
relate to alternative human heart valve processing methods,
fibrin adhesive preparation, stabilization of proteins for freeze
drying, and vein and connective tissue preservation. The Company
also has exclusive licensing rights for technology relating to
(i) light-sensitive enzyme inhibitors and (ii) a protein-based
bio-adhesive. The remaining duration of the Company's patents
ranges from 7 to 16 years, exclusive of any renewals thereof.
In 1985, the Company entered into an agreement with Medical
University of South Carolina and one of its employees, pursuant
to which it agreed to co-sponsor research regarding certain
technologies relating to the cryopreservation of vein tissue and
acquired an option to license such technologies. The University
subsequently waived any rights it may have had in respect of such
technologies, and the Company and such employee (who subsequently
left the employ of the university) are now co-owners of certain
patents relating to such technologies. The Company pays such co-
owner royalties on "net revenues" derived from the
cryopreservation of vein tissue.
ALT, the Company s logo, CryoGraft, CryoKids, CryoLife,
CryoLife International, CryoPak, CryoSafe, CryoValve, CryoValve-
ALT, CryoVein, FibRx and SynerGraft are registered trademarks of
the Company, and BioGlue and CryoLife-O'Brien are trademarks of
the Company.
EMPLOYEES
The Company presently has approximately 160 employees.
These employees include 10 persons with Ph.D. degrees or higher.
None of the Company's employees is represented by a labor
organization or covered by a collective bargaining agreement, and
the Company has never experienced a work stoppage or interruption
due to labor disputes. Management believes its relations with
its employees are good.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The following exhibits are filed herewith or incorporated by reference:
Exhibit
Number Description
3.1* Restated Certificate of Incorporation of the
Company, as amended. (Incorporated by
reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1 (No. 33-
56388).)
3.2* Amendment to Articles of Incorporation of
the Company dated November 29, 1975
3.3* ByLaws of the Company, as amended.
(Incorporated by reference to Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,1993.)
4.1* Form of Certificate for the Company's Common
Stock. (Incorporated by reference to Exhibit
4.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-56388).)
10.1* Lease, by and between Newmarket Partners
III, Laing Properties, Inc., General
Partner, as Landlord, and the Company, as
Tenant, dated February 13, 1986, as amended
by that Amendment to Lease, by and between
the parties, dated April 7, 1986, as amended
by that Amendment to Lease, by and between
the parties, dated May 15, 1987, as amended
by that Second Amendment to Lease, by and
between the parties, dated June 22, 1988, as
amended by that Third Amendment to Lease, by
and between the parties, dated April 4,
1989, as amended by that Fourth Amendment to
Lease, by and between the parties, dated
April 4, 1989 as amended by that Fifth
Amendment to Lease, by and between the
parties, dated October 15, 1990.
(Incorporated by reference to Exhibit 10.1
to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.2* Lease by and between Newmarket Partners I,
Laing Properties, Inc. and Laing Management
Company, General Partner, as Landlord, and
the Company as Tenant, dated July 23, 1993.
(Incorporated by reference to Exhibit 10.2
to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31,
1993.)
10.3* 1993 Employee Stock Incentive Plan adopted
on July 6, 1993. (Incorporated by reference
to Exhibit 10.3 to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1993.)
10.4* 1989 Incentive Stock Option Plan for the
Company, adopted March 23, 1989
(Incorporated by reference to Exhibit 10.2
to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.5* Incentive Stock Option Plan, dated as of
April 5, 1984. (Incorporated by reference to
Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1 (No. 33-
56388).)
10.6* Form of Stock Option Agreement and Grant
under the Incentive Stock Option and
Employee Stock Incentive Plans.
(Incorporated by reference to Exhibit 10.4
to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.7* CryoLife, Inc. Profit Sharing 401(k) Plan,
as adopted on December 17, 1991.
(Incorporated by reference to Exhibit 10.5
to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.8* Form of Supplemental Retirement Plan, by and
between the Company and its Officers --
Parties to Supplemental Retirement Plans:
Steven G. Anderson, Robert T. McNally,
Gerald B. Seery, James C. Vander Wyk, Albert
E. Heacox, and Edwin B. Cordell, Jr.
(Incorporated by reference to Exhibit 10.6
to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.9(a)* Employment Agreement, by and between the
Company and Steven G.Anderson
10.9(b)* Employment Agreement, by and between the
Company and Robert T. McNally. (Incorporated
by reference to Exhibit 10.7(b) to the
Registrant's Registration Statement on Form
S-1 (No. 33-56388).)
10.9(c)* Employment Agreement, by and between the
Company and Albert E. Heacox. (Incorporated
by reference to Exhibit 10.7(c) to the
Registrant's Registration Statement on Form
S-1 (No. 33-56388).)
10.9(d)* Employment Agreement, by and between the
Company and Edwin B. Cordell, Jr.
(Incorporated by reference to Exhibit
10.9(f) to the Registrant s Annual Report on
Form 10-K for the fiscal year ended December
31, 1994.)
10.9(e)* Employment Agreement, by and between the
Company and Gerald B. Seery.
10.9(f)* Employment Agreement, by and between the
Company and James C. Vander Wyk, Ph.D.
10.10* Amended and Restated Loan Agreement, by and
between Bank South, N.A., and the Company,
dated February 20, 1992, as modified by that
First Modification of Amended and Restated
Loan Agreement, by and between the parties,
dated May 12, 1992, as modified by that
Second Modification of Amended and Restated
Loan Agreement, by and between the parties,
dated November 12, 1992, and related
Revolving Line Note dated February 20, 1992
and Consolidated Term Note dated February
20, 1992. (Incorporated by reference to
Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1 (No. 33-
56388).)
10.11* Third Modification of Amended and Restated
Loan Agreement, dated as of May 31, 1993.
(Incorporated by reference to Exhibit 10.11
to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31,
1993.)
10.12* Form of Secrecy and Noncompete Agreement, by
and between the Company and its Officers.
(Incorporated by reference to Exhibit 10.9
to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.13* Registration Rights Agreement, by and among
the Company, Galen Partners, L.P., and Galen
Partners International, L.P., both Delaware
limited partnerships, dated August 22, 1991.
(Incorporated by reference to Exhibit 10.13
to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.14* Technology Acquisition Agreement between the
Company and Nicholas Kowanko, Ph.D., dated
March 14, 1996.
10.15* Technology Option Agreement, by and between
the Company and Colorado State University
Research Foundation, dated March 1, 1991.
(Incorporated by reference to Exhibit 10.19
to the Registrant's Registration Statement
on Form S-1 (No. 33-
56388).)
10.16* Option Agreement, by and between the Company
and Duke University, dated July 9, 1990, as
amended by that Option Agreement Extension,
by and between the parties, dated July 9,
1991. (Incorporated by reference to Exhibit
10.20 to the Registrant's Registration
Statement on Form S-1 (No. 33-56388).)
10.17* Research and License Agreement by and
between Medical University of South Carolina
and CryoLife dated November 15, 1985, as
amended by Amendment to the Research and
License Agreement dated February 25, 1986 by
and between the parties and an Addendum to
Research and License Agreement by and
between the parties, dated March 4, 1986.
(Incorporated by reference to Exhibit 10.23
to the Registrant's Registration Statement
on Form S-1 (No. 33-56388).)
10.18* Technical Services Agreement by and between
the Company and Validation Systems, Inc.,
dated as of January 1, 1994. (Incorporated
by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.)
10.19* CryoLife, Inc. Non-Employee Directors Stock
Option Plan adopted on March 27, 1995.
(Incorporated by reference to Exhibit 10.26
to the Registrant s Annual Report on Form
10-K for the fiscal year ended December 31,
1994.)
10.20* Settlement Agreement between the Company and
Bravo Cardiovascular, Inc., dated February
14, 1995. (Incorporated by reference to
Exhibit 10.27 to the Registrant s Annual
Report on Form 10-K for the fiscal year
ended December 31, 1994.)
10.21* Sale Agreement between the Company and Bravo
Cardiovascular, Inc. dated February 14,
1995. (Incorporated by reference to Exhibit
10.28 to the Registrant s Annual Report on
Form 10-K for the fiscal year ended December
31, 1994.)
10.22* Private Label Agreement between the Company
and Bravo Cardiovascular, Inc. dated
February 14, 1995. (Incorporated by
reference to Exhibit 10.29 to the
Registrant s Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.)
10.23* Consignment Agreement between the Company
and Bravo Cardiovascular, Inc. dated
February 14, 1995. (Incorporated by
reference to Exhibit 10.30 to the
Registrant s Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.)
10.24* Sale and Assignment Agreement between the
Company and Osteotech, Inc.
10.25* Option Letter between the Company and Bayer
Corporation Pharmaceutical Division, dated
March 18, 1996.
10.26* Lease Agreement between the Company and Amli
Land Development - I Limited Partnership,
dated April 18, 1995.
10.27* Preoccupancy and Construction Agreement
between the Company and Amli Land
Development - I Limited Partnership dated
April 18, 1995.
10.28* Funding Agreement between the Company and
Amli Land Development - I Limited
Partnership dated April 18, 1995.
10.29* Employee Stock Purchase Plan dated May 22,
1995.
11.1* Statement re: Computation of Per Share
Earnings.
13.1* 1995 Annual Report to Stockholders. The
portions of the Annual Report which are not
specifically incorporated herein by
reference are provided for informational
purposes only.
21.1* Subsidiaries of CryoLife, Inc.
23.1 Accountants' Consent.
* previously filed
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CRYOLIFE, INC.
May 9, 1996 By: STEVEN G. ANDERSON
_________________________________
Steven G. Anderson,
President, Chief Executive
Officer and Chairman of
the Board of Directors
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
CryoLife, Inc.
We consent to incorporation by reference in the registration
statements (Nos. 33-83996 and 33-84048) on Form S-8 of CryoLife,
Inc. of our reports dated February 14, 1996, except as to Note
13, which is as of March 18, 1996, relating to the consolidated
balance sheets of CryoLife, Inc. and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of
income, shareholders' equity, and cash flows and related schedule
for each of the years in the three-year period December 31, 1995,
which reports appear in the December 31, 1995 annual report on
Form 10-K of CryoLife, Inc.
KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Atlanta, Georgia
May 9, 1996