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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1997 or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-19974
ICU MEDICAL, INC.

(Exact name of Registrant as specified in its charter)
DELAWARE 33-0022692

(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER

INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

951 CALLE AMANECER

SAN CLEMENTE, CALIFORNIA 92673

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (714) 366-2183
Securities registered pursuant to Section 12(b) of the Act:

None
Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $.10 par value
Indicate by check mark whether 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 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 if disclosure of delinquent filers pursuant to Item 405

of Regulation S-K is not contained herein, and will not be contained, to the

best of Registrant's knowledge, in definitive proxy or information statements

incorporated by reference in Part III of this Form 10-K or any amendment to this

Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of

Registrant as of February 28, 1998 was $95,562,306. *
The number of shares outstanding of Registrant's Common Stock, $.10 par value,

as of February 28, 1998 was 7,908,386.
Portions of the Proxy Statement for Registrant's 1998 Annual

Meeting of Stockholders, filed or to be filed pursuant to Regulation 14A within

120 days following Registrant's fiscal year ended December 31, 1997, are

incorporated by reference into Part III of this Report.
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* Without acknowledging that any persons other than Dr. George A. Lopez and

Jesus Mejia are affiliates, all directors and executive officers have been

included as affiliates solely for purposes of this computation.

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PART I

ITEM 1. BUSINESS
ICU Medical, Inc., together with its wholly-owned subsidiary Budget Medical

Products, Inc. ("BMP") (collectively, the "Company") is a leader in the

development, manufacture and sale of proprietary, disposable medical connection

systems for use in intravenous ("IV") therapy applications. The Company's IV

connectors are designed to prevent accidental disconnection's of IV lines and to

protect healthcare workers and their patients from the spread of infectious

diseases such as Hepatitis B and Human Immunodeficiency Virus ("HIV") by

significantly reducing the risk of accidental needlesticks. In 1993, the

Company launched the CLAVE(R), an innovative one-piece, needleless IV connection

device that has become the Company's largest selling product. The Company

believes that the CLAVE offers healthcare providers a combination of safety,

ease of use, reliability and cost effectiveness that is superior to any other

protective IV connection system on the market.
Heightened awareness of the risk of infection from needlesticks and the

substantial expense to healthcare providers of complying with regulatory

protocols when needlesticks occur have led to growing demand for safe medical

devices such as the Company's protective IV connectors. In addition, healthcare

regulations promulgated by OSHA mandate that "universal precautions" be observed

to minimize exposure to blood and other body fluids.
BACKGROUND
The Company's first products, the Click Lock and Piggy Lock, feature

protected needles to prevent accidental contact with needles and include locking

mechanisms to prevent accidental disconnections. These products were designed

to replace conventional products and methods, such as IV connectors with exposed

needles that are secured by tape or open luer lock connections. Such

conventional products typically do not provide the protection from needlesticks,

accidental disconnection and contamination that are provided by the Company's

products. Although protected needle products manufactured by the Company and by

others significantly reduce the risk of needlesticks, they nevertheless employ

steel needles, which require special disposal procedures.
Recognizing the inherent risks associated with needle handling and

disposal, even with protected needle systems, the Company developed the CLAVE, a

needleless IV connection system that was introduced in 1993. The CLAVE IV

connection system allows protected, secure and sterile IV connections without

needles and without failure prone mechanical valves used in the IV connection

systems of some competitors. The CLAVE was designed to eliminate needles from

certain applications by acute care hospitals, home healthcare providers,

ambulatory surgical centers, nursing homes, convalescent facilities, physicians'

offices, medical clinics, and emergency services. Reduction in the use of

needles will not only decrease needlesticks but will also reduce the number of

needles to be disposed of and certain safety risks inherent in needle handling

and disposal. While the Company continues to manufacture and sell protected

needle products, sales of those products are declining as the market penetration

of needleless systems such as the CLAVE and other competitive needleless

products increases.
IV USAGE AND INFECTION CONTROL
Primary IV therapy lines, used in hospitals, nursing homes, emergency units

and in home healthcare, consist of a tube running from a bottle or plastic bag

containing an IV solution to a catheter inserted in a patient's vein. The tube

typically has several injection ports or Y sites (conventionally, entry tubes

covered by latex caps) to which a secondary IV line can be connected to permit

constant intravenous administration of medications, fluids and nutrients, and to

allow instantaneous intravenous administration of emergency medication.
In conventional practice, primary IV system connections are made by

inserting an exposed steel needle attached to the primary IV line into an

injection port connected to the catheter. Conventional secondary IV connections,

so called piggyback connections, are made by inserting an exposed steel needle

attached to a secondary IV line into an injection port or other IV connector.

In a conventional IV connection the needle, which typically is secured only with

tape, can detach from the catheter or injection port resulting in disconnection

and a serious and sometimes fatal interruption of the flow of the IV solution to

the patient. The exposed needles can easily be contaminated by contact with

unsterile objects or through contact with fluid in the IV lines. A contaminated

needle can result in infection to healthcare workers and, less frequently,

patients, as a result of accidental needlesticks. Increasing awareness of the

risk of infection from needlesticks and the substantial and increasing expense

to healthcare providers
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of complying with regulatory protocols when needlesticks occur have led to a

growing demand for safe medical devices such as the Company's protective IV

connectors.
Hepatitis B and HIV are transmitted through blood and other body fluids,

and workers who come in contact with such infectious materials are at risk of

contracting these diseases. Transmissions may occur from needlesticks by

contaminated needles or exposure of mucous membranes to infectious body fluids

containing blood traces. Following each needlestick, the healthcare provider is

required to perform a series of tests on the healthcare worker for both

Hepatitis B and HIV, as well as track and record each needlestick incident.

Thus, needlesticks result in time lost from work and substantial expense

regardless of whether an infectious disease is transmitted. The Company's

protective IV connectors are designed to prevent accidental needlesticks from

needles originating from primary and secondary IV connections.
PRODUCTS
CLAVE Products
A conventional IV line terminates with a male luer connector to which a

needle would be attached to penetrate a latex-covered injection port to make a

primary or secondary IV connection. With the CLAVE system, instead of attaching

a needle to the male luer, a CLAVE is used in place of the injection port and

the male luer, without a needle, is simply threaded into the CLAVE with a half

turn. The CLAVE consists of a cylindrical housing, which contains a silicone

compression seal and a recessed plastic piercing element. As the luer tip enters

the CLAVE housing, it depresses the silicone seal back into the housing and

slides over the piercing element, which penetrates through the compressed

silicone. Fluid channels in the piercing element create a continuous fluid

pathway from the IV line, through the CLAVE into the primary IV line and into

the catheter. The luer tip creates a tight seal against the top of the silicone

thereby preventing contaminants from entering the fluid pathway. When the IV

line is disconnected from the CLAVE, the silicone compression seal expands to

again fill the housing and reseal the opening. When the CLAVE is not in use,

the silicone compression seal fills the opening in the housing and covers the

plastic piercing element, thus completely sealing the connector and presenting a

flush surface which can be cleansed with an alcohol swab. The CLAVE contains no

natural rubber latex.
Emergency medications can be administered through the CLAVE by using a

standard syringe without a hypodermic needle attached. The CLAVE can be used

with any conventional primary IV system, acute and chronic central venous IV

system, acute care catheter, multi-lumen catheter, peripheral catheter and a

variety of other standard devices. The resilience of the silicone compression

seal permits repeated connections and disconnections without replacing the

CLAVE.
The CLAVE Integrated Y site is designed to be integrated directly into

primary and secondary IV sets, thus eliminating the need for special adapters,

pre-slit injection ports, or metal needles when making piggyback IV connections.

Currently, virtually all popular IV connection systems that compete with the

Company's systems require either a metal needle, a pre-slit injection port or a

special adapter to make piggyback connections. The original CLAVE can be used to

make a piggyback connection, but it also requires a special adapter when used in

piggyback applications. The Company believes the CLAVE Integrated Y site offers

a lower cost alternative to existing systems by eliminating the need for

multiple parts. The healthcare professional simply inserts the male luer of any

secondary IV set, without a needle, into the CLAVE Integrated Y site and twists

to make the connection. The CLAVE Integrated Y site will not replace CLAVE

products used in non-piggyback connections. Unlike the original CLAVE site, the

CLAVE Integrated Y site is marketed exclusively to IV set manufacturers, such as

B.Braun/McGaw division of B.Braun Medical, Inc. ("B.Braun/McGaw") and Abbott

Laboratories ("Abbott") to build directly into their IV sets. Sales of the CLAVE

Integrated Y site to date have only been to Abbott and accounted for

approximately 4% of the Company's net sales in 1997.
The CLAVE is the Company's largest selling product line, and accounted for

65% of the Company's net sales in 1997.
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Click Lock and Piggy Lock Products
The Company's first products, the Click Lock and Piggy Lock, were designed

to overcome the limitations of conventional IV connections which use exposed

needles. The needles in the Click Lock and Piggy Lock systems are completely

recessed into a clear plastic cylindrical housing to reduce the risk of

needlesticks and contamination by preventing contact between the needle and

other objects. Locking devices which snap closed with an audible click are

designed to prevent accidental disconnection but permit immediate and easy

disconnection when desired. The cylindrical housing also acts as a guide to

direct the needle accurately into the matching port, thus allowing an easy,

quick connection while preventing the needle point from scratching the insides

of the injection port on insertion and scraping off particles of plastic which

could enter the patient's vascular system. The clear plastic housing and the

audible click permit visual and aural confirmation that the connection has been

made.
The Click Lock housing locks onto the Company's matching injection port

located on either piggyback IV sets or extension IV sets manufactured by the

Company. Matching injection ports are also sold separately for use on other

manufacturers' extension sets and catheters. Using the appropriate IV set or

separate matching injection port, the Click Lock can be used with any

conventional primary IV system, acute or chronic central venous IV system, acute

care catheter, multi-lumen catheter, implantable medication port, peripheral

catheter and a variety of other standard devices. The Piggy Lock was developed

as a less expensive, more convenient alternative to using a Click Lock and

related IV set combination to make a secondary or piggyback IV connection. The

Piggy Lock does not however replace Click Lock components used in non-piggyback

or conventional catheter connections.
With the availability of the CLAVE and other needleless products sold by

competitors, the market is shifting rapidly away from protected needle products

to needleless connection systems. Sales of Click Lock and Piggy Lock products

are declining both absolutely and as a percentage of net sales.
McGaw Protected Needle and SafeLine Products
The Company has a Manufacture and Supply Agreement with McGaw, Inc.,

predecessor to B.Braun/McGaw ("McGaw"), (the "McGaw MPN Agreement"), which

grants the Company exclusive rights to perform certain assembly of the McGaw
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