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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 20-F
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
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 Number 0-28564
QIAGEN N.V.
(exact name of registrant as specified in its charter)
The Netherlands
(Jurisdiction of incorporation or organization)
Spoorstraat 50
5911 KJ Venlo
The Netherlands
011-31-77-320-8400
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
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Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of class:
---------------
Common Shares, par value EUR .01 per share
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Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
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The number of outstanding shares of each of the issuer's classes of capital
or common stock as of December 31, 2001 was 143,463,800.
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.
[X] Yes [_] No
Indicate by check mark which financial statement item the registrant has elected
to follow.
[_] Item 17 [X] Item 18
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Exhibit Index located on Sequential page 97.
Unless the context otherwise requires, references herein to the "Company" or to
"QIAGEN" are to QIAGEN N.V. and its consolidated subsidiaries.
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The Company's name together with its logo is registered as a trademark in The
Netherlands, the United States and a number of other countries: QIAGEN(R). Other
trademarks registered in the United States - inter alia: QIAexpress(R),
QIAwell(R), QIAEX(R), QIAprep(R), QIAscreen(R), QIAamp(R), QIAclean(R),
QIAquick(R), Oligotex(R), RNeasy(R), BIOROBOT(R), ENDOFREE(R), R.E.A.L.(R),
PolyFect(R), SuperFect(R), DNeasy(R), EFFECTENE(R), UltraFect(R), HotStarTaq(R),
Catrimox(R), TGGE(R), TurboFilter(R), MagAttract(R), Masscode(R) and ROSYS(R).
Registered trademarks in countries outside of the United States include:
QIA(TM), DyeEx(TM), HiSpeed(TM), Omniscript(TM), Sensiscript(TM), Targetene(TM),
TransMessenger(TM), DirectPrep(TM), InhibitEX(TM), DoubleTag(TM), ImmunEasy(TM),
QIABRANE(TM), PECURA(TM), ImmunEasy(TM), QuantiScript(TM), UltraSens(TM),
pAlliance(TM), MinElute(TM), ProofTaq(TM) and VARISPAN(TM). Trademarks
registered only in Germany: ProofStart(TM) and EverGene(TM). In 2001, five
trademark applications were filed in Germany, Countries of the European
Community, Japan and the United States of America for RNAprotect(TM),
DNAprotect(TM), LiquiChip(TM), CryoCell(TM), and SensiChip(TM).
This Annual Report on Form 20-F may also contain trade names or trademarks of
companies other than QIAGEN.
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EXCHANGE RATES
QIAGEN publishes its financial statements in U.S. dollars. In this Annual Report
on Form 20-F, references to "dollars" or "$" are to U.S. dollars, and references
to the "euro" are to the European Monetary Union euro. Except as otherwise
stated herein, all monetary amounts in this Annual Report on Form 20-F have been
presented in U.S. dollars.
The exchange rate used for the euro was the noon buying rate of the euro in New
York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Board of New York. This rate at March 22, 2002,
was $0.8791 per EUR 1.
For information regarding the effects of currency fluctuations on the Company's
results, see Item 5. "Operating and Financial Review and Prospects".
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2
TABLE OF CONTENTS
PART I
Page
----
Item 1. Not applicable.............................................................. 4
Item 2. Not applicable.............................................................. 4
Item 3. Key Information............................................................. 4
Item 4. Information on the Company.................................................. 11
Item 5. Operating and Financial Review and Prospects................................ 34
Item 6. Directors, Senior Management and Employees.................................. 43
Item 7. Major Shareholders and Related Party Transactions........................... 49
Item 8. Financial Information....................................................... 50
Item 9. The Listing of the Company's Common Shares.................................. 50
Item 10. Additional Information...................................................... 52
Item 11. Quantitative and Qualitative Disclosures about Market Risk.................. 62
Item 12. Not applicable.............................................................. 63
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies............................. 64
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds............................................................. 64
PART III
Item 18. Financial Statements........................................................ 65
Item 19. Exhibits.................................................................... 65
3
PART I
Item 1. Not applicable
Item 2. Not applicable
Item 3. Key Information
The selected consolidated financial data below should be read in
conjunction with "Operating and Financial Review and Prospects" and the
Consolidated Financial Statements, Notes thereto and other financial information
included elsewhere in this Annual Report on Form 20-F. The selected consolidated
statement of income data for each of the three fiscal years in the period ended
December 31, 2001 and the consolidated balance sheet data at December 31, 2001
and 2000 are derived from the Consolidated Financial Statements of the Company
which have been audited and reported upon by Arthur Andersen LLP, independent
public accountants, and are included herein. The data presented as of and for
the fiscal years ended December 31, 1998 and 1997, and the consolidated balance
sheet data as of December 31, 1999, 1998 and 1997, is derived from audited
consolidated financial statements not included herein.
1. Selected Financial Data (amounts in thousands, except per share data)
The information below should be read in conjunction with the consolidated
financial statements (and notes thereon) and "Operating and Financial Review and
Prospects."
Consolidated Statement of Income Data: Year Ended December 31,
-----------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net sales $ 263,770 $216,802 $ 158,155 $120,804 $75,370
Cost of sales 79,673 65,436 45,836 38,141 20,421
--------- -------- --------- ------- --------
Gross profit 184,097 151,366 112,319 82,663 54,949
--------- -------- --------- ------- --------
Operating Expenses:
Research and development 26,769 23,372 17,813 13,432 8,250
Sales and marketing 64,830 54,931 39,948 32,744 23,193
General and administrative 36,022 31,177 26,110 20,569 15,277
Acquisition costs 3,000 5,353 - - -
In-process research and development - - 5,100 - -
--------- --------- --------- -------- --------
Total operating expenses 130,621 114,833 88,971 66,745 46,720
--------- --------- --------- -------- --------
Income from operations 53,476 36,533 23,348 15,918 8,229
--------- --------- --------- -------- --------
Other income, net 2,847 2,591 1,640 2,885 5,235
--------- --------- --------- -------- --------
Income before provision for income
taxes and minority interest 56,323 39,124 24,988 18,803 13,464
Provision for income taxes 21,896 18,085 10,950 5,489 4,157
Minority interest 8 36 149 148 (31)
--------- --------- --------- -------- --------
Net income $ 34,419 $ 21,003 $ 13,889 $ 13,166 $ 9,338
========= ========= ========= ======== =======
Basic net income per common share/1/ $ 0.24 $ 0.15 $ 0.10 $ 0.09 $ 0.07
========= ========= ========= ======== =======
Diluted net income per common share/1/ $ 0.24 $ 0.14 $ 0.10 $ 0.09 $ 0.07
========= ========= ========= ======== =======
Weighted average number of common
shares used to compute basic net
income per common share 142,962 142,040 140,317 139,716 137,287
Weighted average number of common
shares used to compute diluted net
income per common share 145,055 145,071 142,186 141,300 139,615
-----------------
1 Computed on the basis described for net income per common share in Note 4 of
the "Notes to Consolidated Financial Statements".
4
Consolidated Balance Sheet Data: December 31,
-----------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Cash and cash equivalents $ 56,460 $ 24,008 $ 12,393 $ 6,555 $ 4,451
Working capital $ 119,448 $ 101,527 $ 57,275 $ 46,235 $ 38,936
Total assets $ 356,968 $ 240,893 $ 154,331 $ 110,487 $ 82,025
Total long-term liabilities,
including current portion $ 88,333 $ 29,320 $ 17,930 $ 8,227 $ 7,821
Total shareholders' equity $ 212,975 $ 167,356 $ 96,872 $ 76,230 $ 56,402
Common shares $ 1,458 $ 1,450 $ 1,435 $ 2,417 $ 2,380
Shares outstanding 143,464 142,548 140,815 139,888 137,426
2. Risk Factors
This Annual Report and the documents incorporated herein by reference
contain forward-looking statements within the meaning of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. These
statements can be identified by the use of forward-looking terminology such as
"may," "will," "could," "expect," "anticipate," "estimate," "continue" or other
similar words. Reference is made in particular to the description of our plans
and objectives for future operations, assumptions underlying such plans and
objectives, and other forward-looking statements. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements. Factors which could cause such
results to differ materially from those described in the forward-looking
statements include those set forth in the risk factors below. When considering
forward-looking statements, you should keep in mind that the risk factors could
cause our actual results to differ significantly from those contained in any
forward-looking statement.
An inability to manage our growth or the expansion of our operations could
adversely affect our business
Our business has grown rapidly, with total net revenues increasing from
$75.4 million in 1997 to $263.8 million in 2001. We have recently opened our new
research and manufacturing facility in Germantown, Maryland, upgraded our
operating and financial systems and expanded the geographic area of our
operations, resulting in substantial growth in the number of our employees, as
well as increased responsibility for both existing and new management personnel.
The rapid expansion of our business and growth in personnel may place a strain
on our management and operational systems. Our future operating results will
depend on the ability of our management to continue to implement and improve our
research, product development, sales and marketing and customer support
programs, enhance our operational and financial control systems, expand, train
and manage our employee base, and effectively address new issues related to our
growth as they arise. There can be no assurance that we will be able to manage
our recent or any future expansion successfully, and any inability to do so
could have a material adverse effect on our results of operations.
We may have difficulty integrating acquisitions of technologies and businesses
During the past several years we have consummated a number of
acquisitions of companies, through which we have gained access to technologies
and products that complement our internally developed product lines. In the
future, we may acquire additional technologies, products or businesses to expand
our existing and planned business. We may not be able to achieve the benefits
expected from any potential acquisition in a reasonable time frame, or at all.
Acquisitions would expose us to the risks associated with the:
. assimilation of new technologies, operations, sites and personnel;
. diversion of resources from our existing business and technologies;
. inability to generate revenues to offset associated acquisition costs;
. inability to maintain uniform standards, controls, and procedures;
. inability to maintain relationships with employees and customers as a
result of any integration of new management personnel;
. issuance of dilutive equity securities;
5
. incurrence or assumption of debt; or
. additional expenses associated with future amortization or impairment
of acquired intangible assets or potential businesses.
Our failure to address these risks successfully could have a material adverse
effect on our business.
Our operating results may vary significantly
Our operating results may vary significantly from quarter to quarter
and from year to year, depending on factors such as the level and timing of our
customers' research and commercialization efforts, the timing of our customers'
funding, the timing of our research and development and sales and marketing
expenses, the introduction of new products by us or our competitors, competitive
conditions, exchange rate fluctuations and general economic conditions. Our
expense levels are based in part on our expectations as to future revenues.
Consequently, revenues or profits may vary significantly from quarter to quarter
or from year to year, and revenues and profits in any interim period will not
necessarily be indicative of results in subsequent periods.
Our common shares may have a volatile public trading price
The market price of the common shares since our initial public offering
in June 1996 has increased significantly and been highly volatile. In addition
to overall stock market fluctuations, factors which may have a significant
impact on the market price of the common shares include:
. announcements of technological innovations or the introduction of new
products by us or our competitors;
. developments in our relationships with collaborative partners;
. quarterly variations in our operating results;
. changes in government regulations or patent laws;
. developments in patent or other proprietary rights;
. and general market conditions relating to the pharmaceutical and
biotechnology industries.
The stock market has from time to time experienced extreme price and trading
volume fluctuations that have particularly affected the market for
technology-based companies and that have not necessarily been related to the
operating performance of such companies. These broad market fluctuations may
adversely affect the market price of our common shares.
Exchange rate fluctuations may adversely affect our business
Since we currently market our products in over 42 countries throughout
the world, a significant portion of our business is conducted in currencies
other than the U.S. dollar, our reporting currency. As a result, fluctuations in
value relative to the U.S. dollar of the currencies in which we conduct our
business have caused and will continue to cause foreign currency transaction
gains and losses. Foreign currency transaction gains and losses arising from
normal business operations are charged against earnings in the period incurred.
Due to the number of currencies involved, the variability of currency exposures
and the potential volatility of currency exchange rates, we cannot predict the
effects of exchange rate fluctuations upon future operating results. While we
engage in foreign exchange hedging transactions to manage our foreign currency
exposure, there can be no assurance that our hedging strategy will adequately
protect our operating results from the effects of future exchange rate
fluctuations.
We heavily rely on air cargo carriers and other overnight logistics services
The Company's customers within the scientific research markets
typically do not keep a significant inventory of QIAGEN products and
consequently require overnight delivery of purchases. As such, the Company
heavily relies on air cargo carriers such as FedEx and UPS. If overnight
services are suspended or delayed and other delivery carriers cannot provide
satisfactory services, customers may suspend a significant amount of work
requiring nucleic acid purification. If there are no adequate delivery
alternatives available, sales levels could be negatively affected.
6
Our continued growth is dependent on the development and success of new products
Our continued growth is dependent on new product introductions that are
well received in the market. We focus our product development efforts on
expanding our existing products and developing innovative new products in
selected areas where we have expertise and have identified substantial unmet
market needs. There can be no assurance that we will be able to introduce new
products or that new product releases will be successfully launched and received
by our customers.
Competitors may render some or all of our products or future products
noncompetitive
Our primary competition stems from traditional separation and
purification methods that utilize widely available reagents and other chemicals.
The success of our business depends in part on the continued conversion of
current users of such traditional methods to our nucleic acid-based separation
and purification technologies and products. There can be no assurance, however,
as to how quickly such conversion will occur. We also experience, and expect to
continue to experience, increasing competition in various segments of our
nucleic acid-based separation business from companies providing nucleic
acid-based separation products in kit form. Certain of such competitors have
substantially greater financial, research and development, sales and marketing
and personnel resources than we do and may have significantly more experience in
developing, manufacturing, marketing and supporting new products. There can be
no assurance that such companies will not develop products that are directly
competitive with our current or planned products or that they will not be able
to penetrate markets more rapidly than we can. To the extent that our sales
depend on future sales of diagnostic or therapeutic products by our customers,
we may also be adversely affected by the intense competition in the
pharmaceutical and biotechnology industries. If QIAGEN is not able to maintain
its technological advantage over competing products, to expand its market
presence, to preserve customer loyalty and thus to compete effectively against
its existing or future competitors, QIAGEN's financial condition and results of
operations could be materially adversely affected.
Rapid technological change may render some or all of our technologies and
products obsolete
Extensive research and technological change characterize our business
environment, and new developments are expected to continue at a rapid pace.
There can be no assurance that developments by others will not render our
technologies and products uneconomical or obsolete.
We depend on patents and proprietary rights that may fail to protect our
business
Our success will depend to a large extent on our ability to develop
proprietary products and technologies and to establish and protect our patent
and trademark rights with respect thereto. We currently own 32 issued patents in
the United States, 27 issued patents in Germany and 166 issued patents in other
major industrialized countries. In addition, we have approximately 235 pending
patent applications and we intend to file applications for additional patents as
our products and technologies are developed. However, the patent positions of
technology-based companies, including QIAGEN, involve complex legal and factual
questions and may be uncertain, and the laws governing the scope of patent
coverage and the periods of enforceability of patent protection are continuing
to evolve. In addition, patent applications in the United States are maintained
in secrecy until patents issue, and publication of discoveries in the scientific
or patent literature tend to lag behind actual discoveries by several months.
Therefore, no assurance can be given that patents will issue from any patent
applications owned by or licensed to us or, if patents do issue, that the claims
allowed will be sufficiently broad to protect our technology. In addition, no
assurance can be given that any issued patents owned by or licensed to us will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages to us.
The biotechnology industry has been characterized by extensive
litigation regarding patents and other intellectual property rights. We are
aware that patents have been applied for and/or issued to third parties claiming
technologies for the separation and purification of nucleic acids that are
closely related to those used by us. From time to time we receive inquiries
requesting confirmation that we do not infringe patents of third parties. We
endeavor to follow developments in this field, and we do not believe that our
technologies and/or products infringe any proprietary rights of third parties.
However, there can be no assurance that third parties will not challenge our
activities and, if so challenged, that we will prevail. In addition, the patent
and proprietary rights of others could require us to alter our products or
processes, pay licensing fees or cease certain activities, and there can be no
assurance that we will be able to license any technologies that we may require
on acceptable terms. In addition, litigation, including proceedings that may be
declared by the U.S. Patent and Trademark Office or the International Trade
Commission, may be necessary for us to respond to any assertions of
infringement, enforce our patent rights and/or determine the scope and validity
of our proprietary rights or those of third parties. Litigation could involve
substantial cost to us, and there can be no assurance that we would prevail in
any such proceedings.
7
Certain of our products incorporate patents and technologies that are
licensed from third parties. These licenses impose various commercialization,
sublicensing and other obligations on us. Our failure to comply with these
requirements could result in the conversion of the applicable license from being
exclusive to non-exclusive in nature or, in some cases, termination of the
license.
We also rely on trade secrets and proprietary know-how, which we seek
to protect through confidentiality agreements with our employees and
consultants. There also can be no assurance that any confidentiality agreements
between us and our employees, consultants, outside scientific collaborators and
sponsored researchers and other advisors will provide meaningful protection for
our trade secrets or adequate remedies in the event of unauthorized use or
disclosure of such information. There also can be no assurance that our trade
secrets will not otherwise become known or be independently developed by
competitors.
We currently engage in, and from time to time may engage in,
collaborations with academic researchers and institutions. There can be no
assurance that under the terms of such collaborations, third parties will not
acquire rights in certain inventions developed during the course of the
performance of such collaborations.
We rely on collaborative commercial relationships to develop some of our
products
Our long-term business strategy includes entering into strategic
alliances or marketing and distribution arrangements with corporate partners
relating to the development, commercialization, marketing and distribution of
certain of our existing and potential products. There can be no assurance that
we will be able to negotiate such collaborative arrangements on acceptable
terms, or that any such relationships will be scientifically or commercially
successful. In addition, there can be no assurance that we will be able to
maintain such relationships or that our collaborative partners will not pursue
or develop competing products or technologies, either on their own or in
collaboration with others.
We have risks relating to doing business internationally
Our business involves operations in several countries. Our current
consumable and BioRobot production and manufacturing facilities are located in
Germany, our instrumentation facility is located in Switzerland, and we have
added, through the acquisition of the Sawady group of companies in Tokyo, and
establishment of QIAGEN Operon GmbH in Cologne, our synthetic DNA production
businesses in Japan and Germany. We expect to begin production of certain of our
consumable products at our new facility in Germantown, Maryland in the second
quarter of 2002. We also operate U.S. facilities in Alameda, California
(synthetic DNA production), Valencia, California (sales and distribution), and
Bothell, Washington (single nucleotide polymorphism (SNP) analyses). We also
have established sales subsidiaries in Japan, the United Kingdom, France,
Switzerland, Australia, Canada and Italy. In addition, our products are sold
through independent distributors serving more than 42 other countries.
Conducting and launching operations on an international scale requires
close coordination of activities across multiple jurisdictions and time zones
and consumes significant management resources. We have invested heavily in
computerized information systems in order to manage more efficiently the widely
dispersed components of our operations. In the past year, we have expanded our
SAP business information system that integrates our North American and European
subsidiaries.
Our operations are also subject to other risks inherent in
international business activities, such as general economic conditions in the
countries in which we operate, overlap of different tax structures, unexpected
changes in regulatory requirements, compliance with a variety of foreign laws
and regulations, and longer accounts receivable payment cycles in certain
countries. Other risks associated with international operations include import
and export licensing requirements, trade restrictions, exchange controls and
changes in tariff and freight rates. As a result of the above conditions, an
inability to successfully manage our international operations could have a
material adverse impact on our operations.
Our success depends on the continued employment of our key personnel, any of
whom we may lose at any time
Our success depends, to a significant extent, on key members of our
management and scientific staff. The loss of such employees could have a
material adverse effect on us. Our ability to recruit and retain qualified
skilled personnel to perform future research and development work will also be
critical to our success. Due to the intense competition for experienced
scientists from numerous pharmaceutical and biotechnology companies and academic
and other research institutions, there can be no assurance that we will be able
to attract and retain such personnel on acceptable terms. Our planned activities
will also require additional personnel, including management, with expertise in
areas such as manufacturing and marketing, and the development of such expertise
by existing management
8
personnel. The inability to recruit such personnel or develop such expertise
could have a material adverse impact on our operations.
Our business may require substantial additional capital, which we may not be
able to obtain on commercially reasonable terms, if at all
Our future capital requirements and level of expenses will depend upon
numerous factors, including the costs associated with:
. our marketing, sales and customer support efforts;
. our research and development activities;
. the expansion of our facilities;
. the consummation of possible future acquisitions of technologies,
products or businesses;
. the demand for our products and services; and
. the refinancing of debt.
In addition, we have outstanding loan facilities at December 31, 2001
of approximately EUR 70.4 million, which will become due in May 2003. To the
extent that our existing resources are insufficient to fund our activities, we
may need to raise funds through public or private financings of debt or equity
securities. No assurance can be given that such additional financings will be
available or, if available, can be obtained on terms acceptable to us. If
adequate funds are not available, we may have to reduce expenditures for
research and development, production or marketing, which could have a material
adverse effect on our business. To the extent that additional capital is raised
through the sale of equity, the issuance of such securities could result in
dilution to our shareholders.
Changing government regulations may adversely impact our business
QIAGEN and our customers operate in a highly regulated environment
characterized by continuous changes in the governing regulatory framework.
Genetic research activities as well as products commonly referred to as
"genetically engineered" - such as certain food and therapeutic products - are
subject to governmental regulation in most developed countries, especially in
the major markets for pharmaceutical and diagnostic products (i.e., the European
Union, the United States, and Japan). In the recent past, several highly
publicized scientific successes (most notably in the areas of genomic research
and "cloning") have stirred a public debate in which ethical, philosophical and
religious arguments have been raised against an unlimited expansion of genetic
research and the use of products developed thereby. As a result of this debate,
some key countries might increase the existing regulatory barriers; this, in
turn, could adversely affect the demand for our products and prevent us from
fulfilling our growth expectations. Furthermore, there can be no assurance that
any future changes of applicable regulations will not require further
expenditures or an alteration, suspension or liquidation of our operations in
certain areas, or even in their entirety.
Additionally, we are subject to various laws and regulations generally
applicable to businesses in the different jurisdictions in which we operate,
including laws and regulations applicable to the handling and disposal of
hazardous substances. We do not expect compliance with such laws to have a
material effect on our capital expenditures, earnings or competitive position.
Although we believe that our procedures for handling and disposing of hazardous
materials comply with the standards prescribed by applicable regulations, the
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, we could be held liable
for any damages that result, and any such liability could have a material
adverse effect on us.
Sales volumes of certain of our products in development may be
dependent on commercial sales by our customers of diagnostic and pharmaceutical
products, which will require pre-clinical studies and clinical trials. Such
trials will be subject to extensive regulation by governmental authorities in
the United States and other countries and could impact customer demand for our
products.
Risk of price controls is a threat to our profitability
The ability of many of our customers to successfully market their
products depends in part on the extent to which reimbursement for the costs of
these products is available from governmental health administrations, private
9
health insurers and other organizations. Governmental and other third party
payers are increasingly seeking to contain health care costs and to reduce the
price of medical products and services. Therefore, the biotech industry, the
diagnostics industry and the pharmaceutical industry, as a whole, is exposed to
the potential risk of price controls by these entities. If there are not
adequate reimbursement levels, the commercial success of our customers and,
hence, of QIAGEN itself - could be adversely affected.
Our business exposes us to potential product liability
The marketing and sale of nucleic acid-based products and services for
certain applications entail a potential risk of product liability, and there can
be no assurance that product liability claims will not be brought against us. We
currently carry product liability insurance coverage, which is limited in scope
and amount, but which we believe is currently appropriate for our purposes.
There can be no assurance, however, that we will be able to maintain such
insurance at reasonable cost and on reasonable terms, or that such insurance
will in fact be adequate to protect us against any or all potential claims or
losses.
Provisions of our Articles of Association and Dutch law may inhibit a takeover,
which could limit the price investors might be willing to pay in the future for
our common shares
Our Articles of Association (the "Articles of Association") and the
applicable laws of The Netherlands contain provisions that may have
anti-takeover effects. Among other things, the Articles of Association provide
that our joint meeting of the Supervisory Board and Managing Board (the "Joint
Meeting") may make binding nominations for the election of directors, which can
only be overridden by shareholders with a two-thirds majority of the votes cast,
which majority must represent more than 50 percent of the outstanding shares;
that preference shares may in certain instances be issued to third parties
selected by us giving such parties preferred dividend rights and placing
additional votes in hands friendly to our Supervisory Board; that significant
transactions such as a merger or sale of substantially all our assets can only
be approved by specified super-majority votes unless such transactions were
proposed to the general meeting by the Supervisory Board; and that the Articles
of Association can only be amended based on a proposal of our Supervisory Board.
Such provisions may have the effect of delaying, deterring or preventing a
change in control that might otherwise be considered to be in the best interest
of shareholders.
Our holding company structure makes us dependent on the operations of our
subsidiaries
We were incorporated under Dutch law as a public limited liability
company and we are organized as a holding company. Currently, our material
assets are the outstanding shares of our subsidiaries. We, therefore, are
dependent upon payments, dividends and distributions from our subsidiaries for
funds to pay our operating and other expenses and to pay future cash dividends
or distributions, if any, to holders of the common shares. The lending
arrangement entered into by QIAGEN GmbH with Deutsche Bank in 2001, limits the
amount of distributions that can be made to QIAGEN N.V. during the period the
borrowings are outstanding. Dividends or distributions by subsidiaries to us in
a currency other than the U.S. dollar may result in a loss upon a subsequent
conversion or disposition of such foreign currency, including a subsequent
conversion into U.S. dollars.
We do not anticipate paying dividends on our common shares
We have not paid cash dividends since our inception and do not
anticipate paying any cash dividends on the common shares for the foreseeable
future. Although we do not anticipate paying any cash dividends, any cash
dividends paid in a currency other than the U.S. dollar will be subject to the
risk of foreign currency transaction losses.
Future sales of our common shares could adversely affect our stock price
Future sales of substantial amounts of our common shares in the public
market, or the perception that such sales may occur, could adversely affect the
market price of the common shares. As of December 31, 2001, we had outstanding
143,463,800 common shares plus 8,231,657 outstanding stock options, of which
3,969,284 were exercisable at December 31, 2001. A total of 18,968,000 common
shares are reserved for issuance under our stock option plan. All of our
outstanding common shares are freely saleable except 12,206,612 shares held by
our affiliates, which are subject to certain limitations on resale.
United States civil liabilities may not be enforceable against us
We are incorporated under the laws of The Netherlands and substantial
portions of our assets are located outside the United States. In addition,
certain members of our Managing and Supervisory Boards, our officers and certain
experts named herein reside outside the United States. As a result, it may be
difficult for investors to effect
10
service of process within the United States upon us or such other persons, or to
enforce outside the U.S. judgments obtained against such persons in U.S. courts,
in any action, including actions predicated upon the civil liability provisions
of U.S. securities laws. In addition, it may be difficult for investors to
enforce, in original actions brought in courts in jurisdictions located outside
the United States, rights predicated upon the U.S. securities laws. There is no
treaty between the United States and The Netherlands for the mutual recognition
and enforcement of judgments (other than arbitration awards) in civil and
commercial matters. Therefore, a final judgment for the payment of money
rendered by any federal or state court in the United States based on civil
liability, whether or not predicated solely upon the federal securities laws,
would not be directly enforceable in The Netherlands. However, if the party in
whose favor such final judgment is rendered brings a new suit in a competent
court in The Netherlands, such party may submit to the Dutch court the final
judgment which has been rendered in the United States. If the Dutch court finds
that the jurisdiction of the federal or state court in the United States has
been based on grounds which are internationally acceptable and that proper legal
procedures have been observed, the Dutch court will, in principle, give binding
effect to the final judgment which has been rendered in the United States unless
such judgment contravenes Dutch principles of public policy. Based on the
foregoing, there can be no assurance that U.S. investors will be able to enforce
against us, members of our Managing or Supervisory Boards, officers or certain
experts named herein who are residents of The Netherlands or countries other
than the United States any judgments obtained in U.S. courts in civil and
commercial matters, including judgments under the federal securities laws. In
addition, there is doubt as to whether a Dutch court would impose civil
liability on us, the members of our Managing or Supervisory Boards, our officers
or certain experts named herein in an original action predicated solely upon the
federal securities laws of the United States brought in a court of competent
jurisdiction in The Netherlands against us or such members, officers or experts,
respectively.
Item 4. Information on the Company
QIAGEN N.V. (the Company) was incorporated on April 29, 1996 as a
public limited liability company ("naamloze vennnootschap") under Dutch law as a
holding company for its wholly owned subsidiaries, and has its legal seat in
Venlo, The Netherlands. The Company's principal executive office is located at
Spoorstraat 50, 5911 KJ Venlo, The Netherlands, and its telephone number is +31
77 320 8400. Parties within the United States may also contact QIAGEN, Inc. in
Valencia, California at 800-426-8157 to obtain information.
The Company's wholly owned subsidiaries include as of
February 15, 2002:
. QIAGEN GmbH (Germany),
. QIAGEN Ltd. (England),
. QIAGEN AG (Switzerland),
. QIAGEN S.A. (France),
. QIAGEN Pty. Ltd. (Australia),
. QIAGEN Inc. (Canada),
. QIAGEN K.K. (Japan)
. QIAGEN S.p.A. (Italy),
. QIAGEN Instruments AG, formerly Rosys Instruments AG
(Switzerland),
. QIAGEN Operon GmbH (Germany),
. Sawady Technologies Co., Ltd. (Japan), and
. QIAGEN North American Holdings, Inc. (United States).
QIAGEN North American Holdings, Inc. was established on February 24, 2000, and
wholly owns the subsidiaries QIAGEN, Inc. (United States), QIAGEN Sciences, Inc.
(United States), QIAGEN Genomics, Inc. (United States), and QIAGEN Operon, Inc.
(United States).
Equity investments of the Company include as of February 15, 2002:
. PreAnalytiX GmbH (50%)
. QE Diagnostiksysteme GmbH (50%)
As of February 15, 2002, the Company had three facilities under
construction. The Company's new research and manufacturing facility, QIAGEN
Sciences, Inc., located in Germantown, Maryland, is almost complete and
manufacturing activities are anticipated to begin during the second quarter of
2002. This new facility has been primarily financed with intercompany loans and
long-term debt. Construction on two new German facilities (a production building
and an administrative building) commenced in October 2000, with estimated
completion in the third quarter of 2002. The estimated cost for these facilities
is approximately EUR 54.0 million (approximately $48.1 million) and will be
11
financed with long-term bank loans. During 2001, the Company obtained new loan
facilities allowing the Company to borrow up to a total of EUR 100.0 million
(approximately $89.0 million).
On March 31, 2001, the Company completed the acquisition of the Sawady
Group of companies located in Tokyo, Japan in a transaction accounted for as a
pooling of interests. Under the terms of the agreement QIAGEN N.V. issued
854,987 shares of its common stock, valued at the time of the closing at
approximately $18.0 million, in exchange for all of the outstanding capital
stock of Sawady Technology Co., Ltd., Omgen Co., Ltd. and a majority position of
55 percent in Accord Co., Ltd., the three companies comprising the Sawady Group
of companies. The Sawady Group of companies was managed and structured as one
organization, but was organized as three companies to meet the tax planning and
other preferences of its shareholders. In connection with this merger, the
Company recorded acquisition and related charges of approximately $3.0 million,
which include approximately $1.0 million of direct transaction costs (primarily
legal and other professional fees) and approximately $2.0 million of expenses
primarily relating to the relocation, closure and elimination of leased
facilities, such as duplicate field offices. In October 2001, Omgen Co., Ltd.
was merged into Sawady Technology Co., Ltd. The Company believes that the Sawady
Group has built a very strong reputation and position as the second largest
supplier of synthetic nucleic acids in Japan. The Company intends to leverage
QIAGEN Operon, Inc.'s technology-leading position in synthetic nucleic acids
with the strong market position that the Sawady Group has created in Japan to
address this rapidly expanding market. QIAGEN believes that the worldwide market
for synthetic nucleic acid products is growing rapidly.
In January 2001, the Company purchased the 40 percent ownership of
QIAGEN K.K. held by the minority shareholder for JPY 4,000,000 (approximately
$35,000).
On June 30, 2000, the Company sold its 50 percent equity ownership in
Rosys, Inc.
On June 29, 2000, the Company completed the acquisition of the shares
of Operon Technologies, Inc., since renamed QIAGEN Operon, Inc. (Operon), a
recognized leader in the area of high-end and added-value synthetic DNA, as well
as in the area of tools building on synthetic DNA expertise, such as synthetic
genes and DNA microarray tools. Operon is located in Alameda, California. The
transaction qualified as a tax-free reorganization and was accounted for as a
pooling of interests. Operon shareholders received 2,392,432 shares of QIAGEN
common shares (approximately $104 million at the time of acquisition) for all
outstanding shares of Operon stock. Using Operon's leading U.S. technology and
market position in high-quality, high-precision, and high-throughput synthetic
nucleic acids as well as opportunities for new and powerful joint products,
QIAGEN expects significant expansion into the dynamic areas of today's genomics
and genetic analysis markets. QIAGEN Operon GmbH in Cologne, Germany commenced
operations in 2001 to provide European customers with the same products offered
by Operon in the U.S.
On June 1, 2000, the Company established a new sales subsidiary, QIAGEN
S.p.A., located in Milan, Italy. In February, 2000, the Company established two
new U.S. subsidiaries: QIAGEN North American Holdings, Inc., a company
established as a holding company for the U.S. subsidiaries, and QIAGEN Sciences,
Inc., the Company's new North American manufacturing and research and
development headquarters located in Germantown, Maryland.
Business Overview
QIAGEN believes, based on the nature of its products and technologies
and on its United States and European market shares as supported by independent
market studies, that it is the world's leading provider of innovative enabling
technologies and products for the separation and purification of nucleic acids.
Since 1986, the Company has developed and marketed a broad range of proprietary
products for the academic and industrial research market. The increased
understanding of nucleic acid structure and function combined with the
development of technologies such as Polymerase Chain Reaction (PCR) have
resulted in a rapid expansion in the potential uses of nucleic acids beyond the
research market into developing commercial markets. These include (1) genomics,
(2) nucleic acid-based molecular diagnostics, and (3) genetic vaccination and
gene therapy. The Company believes that by targeting its enabling nucleic acid
separation and purification technologies to numerous participants in each of
these developing commercial markets, it will optimize and diversify its
opportunities for growth. QIAGEN has experienced significant growth in the past,
and since January 1, 1999, has had compounded annual growth through December 31,
2001 of approximately 30% in net sales and 38% in net income, after acquisition
charges.
QIAGEN's objective is to expand its leadership position by employing
the following strategies: (1) to expand its leadership in the research market
and to leverage such leadership to diversify its opportunities for future growth
into an array of developing commercial markets, (2) to maintain and further
expand technology leadership by investing significant resources in research and
development and through strategic acquisitions (3) to provide a comprehensive
portfolio of products for specific nucleic acid handling, separation and
purification applications, (4) to accelerate consumable sales through new
automation product lines, and (5) to emphasize customer contacts and service.
12
1. Industry Background
Nucleic acids are the fundamental regulatory molecules of life. They
take two basic forms, DNA and RNA, that contain and convey the instructions that
govern all cellular activities, including protein manufacture and cell
reproduction. DNA and RNA consist of linear strands of nucleotide bases, the
specific sequences of which constitute the genetic information in the cell. The
unique genetic blueprint for all living organisms, from bacteria to human
beings, is encoded in the DNA, which is organized into functional units called
genes. In order for a cell to read the genetic blueprint, the genetic
information encoded in the DNA must first be copied to RNA, which is then used
as the template for protein production. Proteins carry out the cellular
functions encoded in the RNA copy of the DNA. Any defect or mutation in the
sequence of nucleotide bases in the DNA or RNA can disrupt cell or protein
function and lead to disease.
Over the past 20 years, developing a better understanding of the
fundamental role of nucleic acids in regulating life at the cellular level has
been a major focus of basic molecular biology research. In the 1980's, the
biotechnology and pharmaceutical industries used the results of this research to
develop therapeutic recombinant proteins such as insulin, interferon, and human
growth hormone. Major advances continue to be made in the development of
technologies to isolate specific nucleic acids, identify their sequences and
structures, and determine their functions. Basic molecular biology research is
currently conducted in more than 40,000 academic and commercial laboratories
worldwide. An example of a major international initiative in this area is the
Human Genome Project with an estimated cost of more than $3 billion. This
project, the first phase of which was completed in 2000, involves several
hundred academic, governmental, and industrial research laboratories all working
to determine the sequence of the approximately 3 billion nucleotide bases which
comprise the human genome, in order to identify the functional genes in the
human body. Over 400 similar genome sequencing projects are currently underway
for many clinically relevant bacteria, fungi, and parasites, as well as plants
and animals, with those of the fruit fly Drosophila melanogaster and the
flowering plant Arabidopsis thaliana, both widely used as model organisms,
completed in 2000. The increased understanding of nucleic acid structure and
function, coupled with the expanding use of innovative technologies such as PCR,
has created significant potential for the use of nucleic acids in a broad array
of therapeutic and diagnostic applications.
These new potential applications have resulted in emerging commercial
markets for nucleic acid-based technologies and products, including: (1) DNA
sequencing and gene-based drug screening (genomics), (2) nucleic acid-based
molecular diagnostics, and (3) genetic vaccination and gene therapy. DNA
sequencing determines the specific order of nucleotide bases and is used to
identify and understand the regulation and function of genes and their
relationship to diseases such as obesity and type II diabetes. This
understanding facilitates gene-based drug development, a more targeted
development of drugs that may have the ability to affect the regulation and
function of the genes themselves. Nucleic acid-based molecular diagnostics
represent a new generation of technologies for applications such as genetic
"fingerprinting" and the detection of genetic or infectious diseases such as
tuberculosis and hepatitis. Targeting the unique nucleic acid sequence of
disease-causing agents offers significantly greater specificity and sensitivity
than current immunoassay approaches. Commercial development in this area has
been advanced by the availability of amplification technologies such as PCR,
which exponentially increase the quantity of the target nucleic acid sequence,
enhancing detection. Genetic vaccination and gene therapy are applications under
development which may eventually lead to the prevention and treatment of
diseases by using nucleic acids themselves as vaccines and drugs. In genetic
vaccination, diseases such as hepatitis, AIDS, and influenza may be combated
using a nucleic acid sequence as the vaccine, instead of using a recombinant
protein or an inactivated infectious agent. Medical researchers believe that
through gene therapy, diseases such as cancer, diabetes, asthma or coronary
artery disease may someday be cured by replacing disease-causing genes with
genes containing the correct DNA sequences.
Molecular biology research and its related developing commercial
markets all require highly pure nucleic acids. The availability of pure nucleic
acids is critical for the reliability and reproducibility of molecular biology
experiments in both academic and industrial research laboratories, for the
accuracy of results in nucleic acid-based molecular diagnostics, and for the
safety of nucleic acid-based vaccines and drugs for human use. Nucleic acids are
fragile molecules, which must be rapidly isolated from other cellular components
in order to maintain their structural integrity and biological activity, making
the separation and purification of nucleic acids a complex and sensitive
process. Current separation and purification methods can be divided into three
basic steps: (1) cell lysis, in which cells are broken open to release the
nucleic acids, (2) clearing of the lysate, which involves the removal of
insoluble cellular debris from the soluble nucleic acids, and (3) purification,
which involves the separation of the target nucleic acids from other soluble
contaminants.
There are several traditional methods to perform each of the three
steps required for nucleic acid separation and purification. Cell lysis can be
achieved either mechanically or with chemicals, followed by clearing of the
lysate, usually by centrifugation. Purification of the nucleic acids can be
performed through a variety of methods, which can
13
be used either alone or in combination, depending on the requirements of the
application. The traditional purification methods are phenol extraction, cesium
chloride density gradient centrifugation, and precipitation. Phenol extraction
is the most commonly used traditional method for nucleic acid purification.
Although this method uses inexpensive materials, it is time consuming and labor
intensive, requires considerable technical skill, uses hazardous reagents which
are increasingly expensive to dispose of, and produces only medium-purity
nucleic acids. Cesium chloride density gradient centrifugation is used to
prepare large amounts of highly pure DNA. However, this method requires two time
consuming rounds of separation (24-48 hours in total) in expensive
ultracentrifuge equipment, demands substantial technical skill, and involves the
use of hazardous reagents. Precipitation is often used to separate nucleic acids
from proteins and other contaminants by centrifugation, using chemicals that
render either the nucleic acids or the contaminants insoluble. This procedure is
fast, inexpensive, and suitable for high-throughput processing, but provides
very crude separation and therefore limited purity.
Each of these traditional methods, whether used alone or in
combination, has significant limitations. High purity can only be achieved by
using hazardous reagents and expensive equipment, while the more convenient and
safe methods suitable for high-throughput processing result in reduced purity.
2. Technical Overview of QIAGEN
Nucleic Acid Separation and Purification Technologies
QIAGEN has developed a core set of technologies to provide a
comprehensive approach to the nucleic acid separation and purification process.
These technologies can be used alone or in combinations to achieve the best
solution for a given application. In particular, the Company's proprietary
technologies for solid-phase anion-exchange purification and selective
adsorption to silica particles or membranes significantly enhance the
purification step, the most difficult, critical, and labor intensive step in the
nucleic acid separation and purification process. QIAGEN believes that its
technologies represent substantial advances in the speed, reliability, and ease
of use of nucleic acid separation and purification procedures and the purity and
yield of the resulting nucleic acids.
Solid-Phase Anion-Exchange Technology. QIAGEN's patented anion-exchange
technology was specifically developed for nucleic acid purification. This
technology involves selective binding of nucleic acids to a macroporous silica
particle coated with a very high density of positively charged anion-exchange
groups. Nucleic acids bind tightly to this surface, which allows contaminating
substances to be efficiently washed away. After washing, the binding is
selectively reversed to release different classes of ultrapure DNA or RNA.
QIAGEN believes that its anion-exchange technology is widely viewed as
state-of-the-art for obtaining ultrapure nucleic acids. QIAGEN's anion-exchange
technology also offers the additional benefits of convenience, speed,
reproducibility, and high yield. Techniques that require the use of ultrapure
nucleic acids include transfection, microinjection, and gene therapy research.
QIAGEN's anion-exchange technology is employed in a number of its products,
including QIAGEN(R) Plasmid Kits, QIAfilter(R) Plasmid Kits, EndoFree(R) Plasmid
Kits, and QIAwell(R) Plasmid Kits. (See "QIAGEN Products" below for specific
product discussions.)
QIAGEN has also developed a new anion-exchange resin, QIAGEN
Anion-Exchange Resin HS, with a higher binding capacity for nucleic acids. This
development in conjunction with a new tip design, the QIAprecipitator unit,
which allows recovery of DNA without centrifugation, and the QIAfilter unit (see
"Filtration" below) allows a significantly faster purification procedure. These
technologies are used in HiSpeed(TM) Plasmid Kits, the first of which was
launched in 2000. The Company believes that these kits provide the fastest
procedure currently available for isolation of large amounts of ultrapure DNA.
Selective Adsorption to Silica Particles or Membranes. QIAGEN's
proprietary silica-gel technology is based on the ability to selectively and
efficiently adsorb specific types of nucleic acids to silica-gel particles or
membranes in order to separate them from contaminating substances. This
technology is particularly suitable for use in molecular biology applications
where price, speed, and throughput are more important than ultrapurity, such as
DNA minipreparations and DNA cleanup for screening, cloning, and PCR. QIAGEN
employs this technology in a number of its products, including QIAprep(R),
QIAwell; QIAamp(R), QIAquick(R), MinElute(TM), QIAEX(R), DNeasy(R), and
RNeasy(R) Kits. QIAGEN has also developed silica-coated magnetic beads and new
cell lysis chemistries to allow streamlined automated purification of nucleic
acids using silica-based technology. This technology is employed in
MagAttract(TM) 96 Miniprep Kits, the first of which was launched in 2001, and is
particularly useful for high-throughput genomics and screening. In October of
1997, Organon Teknika, B.V. granted QIAGEN a world-wide, non-exclusive license
to develop, manufacture, and market products for nucleic acid purification under
its `Boom' patents (U.S. 5,234,809, and corresponding patents or applications).
The license allows QIAGEN to sell products including technologies under these
patents in all markets and for all applications, with no field-of-use
limitations. The Company believes that the `Boom' patent portfolio covers a
simple, rapid, and flexible nucleic acid purification technology which in
combination with silica-based and other technologies proprietary to QIAGEN can
create a highly efficient and
14
automatable package for a range of nucleic acid purification applications for
research, genomics, and molecular diagnostic purposes.
Cationic Detergent Technology. Cationic detergents stabilize samples,
increasing the reliability and potential of nucleic acid-based molecular
diagnostics, particularly assays based on RNA, which is highly unstable.
Cationic detergent technology also allows for efficient purification of nucleic
acids and is ideal for a clinical environment since it is non-hazardous. QIAGEN
has acquired issued and pending patents for a novel cationic detergent
technology which performs two important functions in DNA and RNA isolation. When
added to plasma, blood, or other clinical specimens, it causes cells, viruses,
and bacteria to break open and then forms insoluble complexes with the released
DNA and RNA. These DNA and RNA complexes are protected from degradation and can
be safely transported or stored. The DNA and RNA are easily recovered from these
complexes and immediately ready for use in diagnostic and other reactions.
Filtration. QIAGEN has introduced proprietary rapid filtration
technology for clearing of the lysate in a single step process that takes just
five minutes. The filtered cell lysate containing nucleic acids can then be
immediately purified using QIAGEN's anion-exchange or silica-gel-membrane
technologies. QIAGEN's filtration technology replaces the time-consuming
centrifugation process, which is difficult to automate and does not allow
high-throughput sample processing. QIAGEN employs filtration technology in its
QIAfilter, TurboFilter, and R.E.A.L.(TM) products, which substantially increase
productivity in DNA sequencing and nucleic acid-based molecular diagnostics
where high-throughput nucleic acid purification is required, as well as in
large-scale production of nucleic acids for genetic vaccination and gene
therapy. The R.E.A.L. product line was expanded in 2001 with the introduction of
a kit that allows semi-automated purification of plasmid DNA in a 384-well
format for very high-throughput requirements. Filtration technology is also used
in some protein purification products.
Magnetic Particle Technologies. Magnetic particle-based products
uniquely combine requirements in the rapidly growing genomics, proteomics and
cellomics markets. Certain forms of cell separation and protein separation
required in cellomics and proteomics are closely linked with nucleic acid
purification, in both research and clinical applications. Therefore, products
which link the technologies will offer significant advantages for users in these
markets, who will benefit all the more because the products will be optimized to
share the same QIAGEN BioRobot automation platforms. Magnetic particles are seen
by QIAGEN to have applicability in certain segments of nucleic acid purification
and have therefore already been one of many technologies incorporated in the
broad portfolio of QIAGEN nucleic acid purification products today.
Hybrid Capture on Polystyrene-Latex Beads. QIAGEN has obtained a
worldwide (except for Japan) exclusive license for a patented technology for
hybrid capture on polystyrene-latex beads. Hybrid capture allows isolation of
specific nucleic acid sequences directly from a crude biological sample
containing a variety of nucleic acids and other contaminants by hybridization to
a complementary sequence attached to an insoluble particle. Hybrid capture on
polystyrene-latex beads is an innovative system which, in comparison to
traditional hybrid capture on cellulose, increases both the speed and efficiency
of purification of specific nucleic acid sequences. The most typical application
for hybrid capture is the isolation of mRNA. QIAGEN applies this technology in
its Oligotex(R) Kits.
Endotoxin Removal. QIAGEN has developed a proprietary system that
incorporates effective endotoxin removal into the purification process.
Endotoxins are produced in bacteria and often appear in trace amounts in
purified nucleic acids, since they cannot be effectively removed by most nucleic
acid purification systems. Although low-level endotoxin contamination has little
or no effect on most molecular biology procedures, even trace amounts can induce
toxic reactions in humans. Therefore, nucleic acids for human use must be
endotoxin-free. QIAGEN's selective endotoxin removal technology uses a special
reagent system in conjunction with the Company's anion-exchange resin and
reduces endotoxin contamination of nucleic acids to a level well below the
maximum level allowed by the FDA for use in genetic vaccination and gene
therapy. QIAGEN employs this technology in its line of EndoFree Plasmid Kits and
its contract non-cGMP and cGMP DNA production services.
RNA Stabilization. QIAGEN has acquired and developed a technology
portfolio covering the use of certain cationic detergents for the stabilization
and purification of nucleic acids from certain samples. QIAGEN also acquired a
non-exclusive license from AMBION, Inc. for RNAlater technology, which allows
stabilization of RNA in animal cells and tissues for reliable gene-expression
and gene-profiling analysis. These technologies are used in a new product range
-- RNeasy Protect Kits -- that was launched in 2000. A new product line, RNeasy
Protect Bacteria Kits, was released in 2001. RNA stabilization technology is
also used in the PAXgene(TM) Blood RNA System from PreAnalytiX, a joint venture
between BD and QIAGEN that provides integrated and standardized systems for the
collection and stabilization of clinical samples together with efficient methods
for nucleic acid isolation. The PAXgene Blood RNA System, which is the first
PreAnalytiX(TM) product line, was launched in 2001. Stabilization of RNA within
biological samples is especially important for the molecular diagnostics market.
These products are also used in the molecular biology research market.
15
Other Technologies
PCR Amplification and Reverse Transcription. QIAGEN has obtained an
exclusive license for the use of a novel reagent for the optimization of PCR
amplification, and has developed a proprietary PCR buffer that increases the
robustness of the amplification process and makes it less sensitive to variable
factors and contaminants. The Company acquired a non-exclusive license to sell
reagents for PCR to the research market in November 1995. PCR amplification is
one of the most widely used techniques in molecular biology research, and is an
important technology for the development of the nucleic acid-based molecular
diagnostics market. QIAGEN employs its PCR enhancement technologies in its Taq
DNA Polymerase, HotStarTaq(TM) DNA Polymerase, and Q-solution products. In 2001,
QIAGEN launched ProofStart(TM) DNA Polymerase for high-fidelity PCR, an
application in which highly accurate DNA amplification is required. To address
the needs of researchers transcribing RNA into DNA for PCR analysis, QIAGEN has
developed two recombinant reverse transcriptase enzymes, Omniscript(TM) and
Sensiscript(TM), from a new source. The Company also introduced the QIAGEN
OneStep RT-PCR Kit which combines its reverse transcriptase and HotStarTaq DNA
Polymerase enzymes with a novel patent-pending buffer system to provide a
complete RT-PCR assay system. Real-time PCR, a relatively new PCR-based
technique that allows quantification of target DNA or RNA species, is becoming
more and more widely used in both molecular biology research and clinical
diagnostics. To address this field, in 2001 QIAGEN launched the QuantiTect(TM)
SYBR(R) Green PCR and RT-PCR System, which incorporates HotStarTaq DNA
Polymerase, an optimized blend of Omniscript and Sensiscript RT, and a
specifically designed buffer. The QuantiTect SYBR Green PCR and RT-PCR System
can be used with any real-time PCR cycler for accurate quantification of DNA,
cDNA, and RNA targets, and is an important new line that addresses a rapidly
expanding market.
Transfection. The Company has obtained exclusive licenses for several
patented technologies for high-efficiency transfection of DNA and RNA into
cultured eukaryotic cells. Transfection is the process by which foreign nucleic
acids are transferred into living cells. The efficiency of the transfection
process is heavily dependent upon the purity of the nucleic acid, the nature of
the cells, and the type of transfection reagent used, and poor transfection
efficiencies can result in weeks of wasted time. The novel activated dendrimer
technology licensed to QIAGEN is employed in the Company's PolyFect(R) and
SuperFect(R) Transfection Reagents. The Company's other two transfection
reagents, Effectene(R) and TransMessenger(TM) Transfection Reagents, are based
on a novel lipid formulation technology licensed exclusively to QIAGEN.
PolyFect, SuperFect, and Effectene Reagents are designed for transfection of
different types of cells with DNA, while TransMessenger Reagent, launched in
2001, is the first reagent specifically developed for transfection of cells with
RNA. All reagents provide increased transfection efficiency in many cell types
compared to traditional transfection methods and decrease the amount of cell
death during the transfection process. With these two transfection technologies,
QIAGEN believes it addresses the needs of researchers transfecting a wide range
of cell types with either DNA or RNA.
Metal Chelate Affinity Chromatography. QIAGEN has obtained an exclusive
license for a patented affinity purification system for recombinant proteins,
which allows rapid one-step purification of proteins labeled with a specific
affinity "tag." QIAGEN's proprietary metal chelate affinity chromatography
system uses a patented high affinity chelating ligand (the NTA ligand), which
provides highly efficient detection and purification of specific recombinant
proteins carrying an affinity tag. These tagged recombinant proteins can be
produced with the Company's proprietary bacterial expression system or any other
expression system. QIAGEN believes that the high affinity of its NTA ligand
provides significant advantages over other metal chelate systems in terms of
purity, speed and convenience. QIAGEN has developed additional NTA metal chelate
affinity systems for color-based detection of specific recombinant proteins, and
for directional immobilization of antigens onto solid surfaces for screening
purposes. QIAGEN employs this technology in its line of QIAexpress products. In
2001, the Company expanded its expression (see "DNA Cloning", below) and
detection systems for tagged recombinant proteins, and introduced a new system
for efficient removal of the tag for certain applications. This new system, the
TAGzyme(TM) System, employs technology obtained from an exclusive license.
DNA cloning. QIAGEN has obtained a license for UA cloning technology,
which allows insertion of a PCR product into a plasmid DNA vector for subsequent
experiments. DNA cloning is a widely used, routine technique in molecular
biology. UA cloning technology offers advantages over other DNA cloning
technologies, such as a faster procedure, and is used in the plasmid DNA vectors
supplied in the QIAexpress UA Cloning Kit and QIAGEN PCR Cloning Kits. The
Company has also obtained a license for highly competent bacterial cells, which
are used as part of the cloning procedure. These cells are provided with QIAGEN
PCR Cloningplus Kits to further address the needs of researchers performing such
experiments. QIAGEN has additionally obtained a license for, and further
developed, a DNA vector that allows expression of proteins in E. coli, insect,
and mammalian cells, the three most popular systems for protein expression.
16
Masscode(TM) System. Through the acquisition of Rapigene, Inc. (now
QIAGEN Genomics, Inc.), QIAGEN has acquired the patents to Masscode Cleavable
Mass Spectrometry Tag technology. This is the first new DNA tagging technology
since the discovery of four-color fluorescence. Unlike fluorescence, which is
limited to 4-8 analyses at a time, Masscode tags are capable of providing
hundreds of simultaneous measurements. In the field of genomic analysis, use of
Masscode technology coupled with a standard single-quadrupole mass spectrometer
allows over 40,000 measurements to be made per day per instrument. This
technology provides highly reliable, reproducible, and cost-efficient SNP
genotyping, at what QIAGEN believes to be an unmatched speed and quality. The
technology is validated and offered world-wide as a service by QIAGEN Genomics,
Inc. to leading pharmaceutical, agricultural, and genomics companies, as well as
academic centers. In addition, QIAGEN Genomics, Inc. has built a range of
enabling technologies that can create further powerful packages in combination
with certain of QIAGEN's products. These include innovative, enabling
technologies that increase the efficiency of handling of nucleic acid
microarrays, also known as biochips, and technologies that dramatically improve
and control the hybridization reactions incorporated in many types of DNA assays
including biochips.
Synthetic DNA. Through the acquisition of California-based Operon
Technologies, Inc. in June, 2000, QIAGEN has acquired a technology platform for
massive parallel, high-throughput DNA synthesis which offers significant
advantages for primer and probe synthesis as well as "longmer" synthetic nucleic
acids of up to 100 bases that can be used for construction of synthetic DNA
genes, full-length genes, or enhanced DNA microarray tools. Based on a better
binding affinity, QIAGEN Operon's high-throughput synthesis technology platform
allows the manufacture of synthetic nucleic acids at unparalleled speed, cost,
and quality. A second production site in Germany commenced operations in 2001.
Resonance Light Scattering. Licensed by QIAGEN from Genicon Sciences
Inc. RLS Technology is an ultra-sensitive signal generation, multi-application
platform and detection technology for the simple and efficient detection,
measurement and analysis of biological interactions. By using these proprietary
"nano-sized" particle labels that specifically bind to targeted molecules,
minimal sample amounts of targeted nucleic acids and proteins can be measured by
simple, low cost white light source-based instrumentation. The ultra-high
sensitivity of RLS Technology allows researchers to access novel biological
information and avoid time-consuming, expensive and information-distorting
amplification procedures such as PCR.
Planar Waveguide (PWG) Technology. Licensed by QIAGEN from Zeptosens
AG, this technology allows the use of minimal sample amounts for analysis of the
differential expression pattern of genes that are expressed at very low levels.
Its extremely high sensitivity allows users to avoid cumbersome, expensive, and
information-distorting amplification procedures such as PCR. The PWG Chip and
the reader systems are combined with certain of QIAGEN's leading nucleic acid
separation, purification, and handling technologies to form a complete,
integrated analysis line for microarray experiments.
3. QIAGEN's Products
QIAGEN offers over 300 products, which include a broad range of
consumables as well as instruments and services, for a variety of applications
in the separation, purification, and subsequent use of nucleic acids. These
products enable QIAGEN's customers to efficiently pursue their research and
commercial goals that require the use of nucleic acids. Major applications for
the Company's consumable products are plasmid DNA purification; nucleic acid
transfection; RNA stabilization and purification; genomic and viral nucleic acid
purification (principally for PCR); PCR amplification; reverse transcription;
DNA cleanup after PCR and sequencing; and DNA cloning. QIAGEN offers most of
these products in kit form to maximize customer convenience and reduce user
error. These kits contain QIAGEN's proprietary disposable separation and
purification devices and/or other proprietary technologies, all necessary
reagents and buffers, and a technical handbook that includes a detailed protocol
and background information. Each kit includes devices and reagents for a number
of preparations ranging from one to one thousand. Each kit is covered by the
Company's quality guarantee. QIAGEN's BioRobot(R) Systems perform automated
nucleic acid preparation and reaction set-up, providing customers with the
ability to perform high-throughput and reliable DNA sample preparation and other
laboratory tasks. QIAGEN also offers custom services, including SNP genotyping
and analysis, DNA sequencing, and non-cGMP and cGMP DNA production on a contract
basis. In addition, the Company offers specialized products for protein
expression, purification, detection, and analysis, as well as for immunization
for production of antibodies. These products complement the Company's nucleic
acid separation and purification technologies and products.
Consumable Nucleic Acid Separation and Purification Products
QIAGEN offers a wide range of consumable nucleic acid separation and
purification products based on its platform of proprietary technologies. These
are targeted to a number of nucleic acid purification applications and markets
as set forth below.
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Plasmid DNA Purification. Plasmid DNA purification is the most common
and basic technique in molecular biology, encompassing a wide range of quality,
throughput, and pricing needs. Plasmid DNA is a small circular piece of
bacterial DNA capable of moving from one cell to another. This property, in
conjunction with an ability to acquire new pieces of genetic information
(recombination), makes plasmid DNA a basic prerequisite for cloning, sequencing,
transfection, and many other molecular biology applications.
QIAGEN offers a wide range of products for plasmid DNA purification,
each tailored to the needs of a specific application. For convenient,
large-scale preparation of ultrapure plasmid DNA, the Company offers QIAGEN,
QIAfilter, and EndoFree Plasmid Kits, which are based on the Company's
proprietary anion-exchange, filtration, and endotoxin removal technologies. In
2000, QIAGEN introduced the first HiSpeed Plasmid Kit, which has a newly
developed anion-exchange resin and tip design as well as QIAfilter technology
for clearing cell lysates and new QIAprecipitator(TM) technology for recovering
DNA without the need for centrifugation, making the purification procedure
significantly faster. Kits for purification of ultrapure plasmid DNA are used in
the molecular biology research, DNA sequencing, and genetic vaccination and gene
therapy research markets, and range in price from $155 to $1,362 per kit. QIAGEN
believes that future applications for these products will be large-scale plasmid
purification for the commercial genetic vaccination research and gene therapy
research markets.
QIAGEN offers a comprehensive range of products for plasmid DNA
minipreparations (purification of small amounts of DNA). QIAwell Plasmid Kits,
based on the Company's anion-exchange and filtration technologies, are available
in 8-well and 96-well formats for high-throughput minipreparations of ultrapure
plasmid DNA for transfection, sequencing, and other sensitive molecular biology
applications. QIAprep Miniprep Kits, based on the Company's proprietary
silica-gel-membrane and filtration technologies, are available in single column,
8-well, and 96-well formats for low- to high-throughput minipreparations of
high-purity plasmid DNA for standard molecular biology applications such as
sequencing, cloning, and PCR. R.E.A.L. Prep 96 and microR.E.A.L. Prep 384
Plasmid Kits use the Company's filtration technology to provide fast and
economical minipreparations for very high-throughput screening and DNA
sequencing projects. The MagAttract 96 Miniprep System, released in 2001 and
based on the Company's proprietary silica, cell lysis, and magnetic bead
technologies, allows fully automated, high-throughput plasmid DNA purification
for high-throughput genomics and screening applications. QIAGEN minipreparation
products range in price from $60 to $3,400 per kit. QIAGEN believes that
applications for these products will expand with the development of molecular
biology research, DNA sequencing, and genomics markets.
Genomic and Viral Nucleic Acid Purification. Reliable clinical
diagnostics and genetic analysis require reproducible preparation of genomic and
viral nucleic acids as the templates for the PCR amplification process that
frequently precedes a diagnostic procedure. For purification of these nucleic
acids from starting materials such as blood, tissue, mucus, or stool, QIAGEN
offers a comprehensive range of QIAamp Kits, which use its silica-gel-membrane
technology and proprietary cell lysis procedures. These products are available
in both single column and 96-well formats and are used in the molecular biology
and molecular diagnostic research markets. They range in price from $94 to
$2,075 per kit. QIAGEN believes that future applications of these products for
PCR template purification will expand significantly with the commercialization
of the nucleic acid-based molecular diagnostics market and will include
gene-based drug screening.
RNA Stabilization and Purification. RNA purification requires rapid and
efficient removal of contaminants that can destroy fragile RNA molecules. For
rapid RNA purification, QIAGEN offers the RNeasy(R) product line, which uses its
silica-gel-membrane technology in both single column and 96-well formats. For
specific purification of mRNA, QIAGEN offers Oligotex Kits based on its
proprietary technology for hybrid capture on polystyrene-latex beads. These
products are used in the molecular biology and molecular diagnostic research
markets and range in price from $90 to $957 per kit.
In 2000 QIAGEN introduced the first in a series of planned products
that allow stabilization of RNA within biological samples, which is especially
important for the molecular diagnostics market. RNA becomes extremely unstable
once a biological sample is harvested, as expression of some genes is induced by
the collection (leading to more RNA for those genes) and other RNA species
become degraded after collection. Immediate stabilization of the RNA and
preservation of the RNA expression pattern is therefore a prerequisite for
accurate gene-expression analysis. RNeasy Protect Kits, launched in 2000,
combine RNeasy and RNAlater(TM) technologies. The latter technology, for which
the Company acquired a non-exclusive license from AMBION, Inc., allows
stabilization of RNA in animal tissues for reliable gene-expression and
gene-profiling analysis. RNAlater RNA Stabilization Reagent is also available as
a separate product for sample stabilization, and can be used in conjunction with
all RNA purification kits available from QIAGEN. In 2001, QIAGEN introduced a
new product line that allows stabilization of RNA in bacterial cells -- RNeasy
Protect Bacteria Kits. These products are used in the molecular biology and
molecular diagnostic research markets and range in price from $47 to $951 per
kit. PreAnalytiX, a joint venture between BD and QIAGEN that provides integrated
and standardized systems for the collection and stabilization of clinical
samples
18
together with efficient methods for nucleic acid isolation, released its first
product line in 2001 -- the PAXgene Blood RNA System. Blood samples are
collected in PAXgene Blood RNA Tubes, in which they can be stored or transported
at room temperature without RNA degradation or gene induction, and RNA is
isolated from the sample using a standardized procedure. This new system is
particularly relevant to the pharmaceutical industry and the clinical research
market, and kits are priced between $160 and $600. QIAGEN believes that
applications for its RNA stabilization and purification products will expand
significantly as the molecular diagnostics market adopts nucleic acid-based
testing.
DNA Cleanup. DNA cleanup products are used to remove reagents and
contaminants, such as primers, nucleotides, and enzymes, from DNA fragments
amplified by PCR or modified by other enzymatic reactions before they are used
in cloning, sequencing, microarray analysis, or other downstream applications.
QIAGEN offers a range of QIAquick and QIAEX Kits in single column, 8-well, and
96-well formats for specific cleanup applications. In 2000, QIAGEN launched a
new range of cleanup kits, MinElute Kits, which use a new spin-column design
developed at QIAGEN to allow elution of DNA fragments in a much lower volume
than previously possible. MinElute, QIAquick, and QIAEX Kits are based on
QIAGEN's silica-gel technology and are used in the molecular biology research,
DNA sequencing, and molecular diagnostic research markets. These kits range in
price from $78 to $600 per kit. QIAGEN also offers DyeEx(TM) Kits -- available
in single column and 96-well formats -- for cleanup of sequencing samples prior
to analysis. These kits are used in the molecular biology research and DNA
sequencing markets, and range in price from $110 to $1,450 per kit. QIAGEN
believes that applications for its DNA cleanup products will expand as the
microarray, DNA sequencing and molecular diagnostics markets continue to
develop.
Consumable Enzymes and Reagents
PCR and RT Enzymes and Reagents. PCR and reverse transcription (RT),
and RT-PCR have become a widely used tool for amplification of nucleic acids in
molecular biology, making them easier to detect. As a result, a profitable
market segment has developed for companies licensed to sell products covered by
PCR-related patents. In November 1995, the Company acquired a non-exclusive
license from Hoffmann-La Roche for the use, production, and sale of enzymes and
reagents required for PCR in the research market. This license allows QIAGEN to
market kits that include its existing products for pre-PCR sample preparation
and post-PCR DNA cleanup bundled with PCR enzymes and reagents. The Company
believes it is well situated to penetrate the rapidly growing PCR research
market by capitalizing on its leadership position in sample preparation and its
reputation for innovative and high quality products. The PCR license therefore
allows the Company to offer customers in the research market a fully integrated
solution to their nucleic acid purification and amplification needs. QIAGEN
launched its first two PCR products in November 1996 and has followed this with
a range of additional kits for standard and specialized PCR applications,
including the launch in 2001 of a new high-fidelity DNA polymerase that allows
highly accurate DNA amplification. The Company's PCR products range in price
from $88 to $1,664 per kit. QIAGEN has also entered the reverse transcription
(RT) market. RT is the process by which RNA is transcribed into DNA for
subsequent analysis, most frequently PCR analysis. QIAGEN offers a line of
enzymes and kits for RT and RT-PCR, including a new one-step RT-PCR kit launched
in 2000, which range in price from $42 to $623 per kit. Real-time PCR, a new
PCR-based technique that allows quantification of target DNA or RNA species, is
becoming more and more widely used in both molecular biology research and
clinical diagnostics. To address this field, in 2001 QIAGEN launched the
QuantiTect SYBR Green System, which incorporates the Company's PCR and RT
enzymes and reagents. This system can be used with any real-time PCR cycler for
accurate quantification of DNA, cDNA, and RNA targets, and is an important new
line that addresses a rapidly expanding market. Kits range in price from $330 to
$655. The Company believes there is significant potential for these products in
molecular biology research and molecular diagnostics markets.
DNA Cloning. Cloning of DNA into plasmids is a routine and basic
molecular biology method. As described above, plasmids are small circular pieces
of bacterial DNA into which new pieces of DNA can be introduced, a technique
called cloning. In 2001, QIAGEN introduced new products that use UA-cloning
technology for fast and easy insertion of a PCR product into a plasmid DNA.
These new products extend the range of products that QIAGEN offers to
researchers performing PCR, and are priced between $62 and $572.
DNA Transfection Reagents. QIAGEN identified a new product opportunity
in the transfection of plasmid DNA into mammalian cells, which is currently the
major application for ultrapure plasmid DNA purified with QIAGEN products. The
Company has obtained exclusive licenses for several innovative reagents for
efficient transfection, and offers a range of reagents that address specific
market needs. QIAGEN currently offers three reagents for transfection of DNA,
priced in the range of $103 to $720 per kit, with bulk quantities of each
reagent also available for high-throughput applications. In 2001, QIAGEN
launched the first transfection reagent specifically designed for transfection
of cells with RNA. This reagent provides researchers with new possibilities for
transfection experiments, and is priced at $140. QIAGEN Transfection Reagents
can be bundled with its existing plasmid and RNA purification products for
molecular biology and gene therapy research markets.
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Instrumentation
Both academic and industrial research laboratories are actively seeking
automation of routine procedures to free scientists and technicians for more
sophisticated tasks, eliminate human error, and increase throughput. This demand
for automation is being fueled by the DNA sequencing market, the Human Genome
Project and other genome projects, gene-based drug screening, and nucleic
acid-based molecular diagnostics, all of which require tremendous numbers of
routine nucleic acid sample preparations and enzymatic reactions. In response to
this market demand, QIAGEN offers the BioRobot(R) product line. The QIAGEN
BioRobot 9600 is a benchtop workstation specifically designed to automate
routine liquid-handling tasks as well as nucleic acid and protein purification,
complete with pre-programmed software for automation of many QIAGEN purification
procedures, such as QIAwell, QIAprep, R.E.A.L., and QIAquick. The current list
price of a BioRobot 9600 is $54,100. The BioRobot 9600 is used in the molecular
biology research, molecular diagnostic research, and DNA sequencing markets. The
second instrument introduced, the BioRobot 9604, targets nucleic acid sample
preparation and handling tasks in molecular diagnostics laboratories, blood
banks, and forensic projects. Nucleic acid samples purified on the BioRobot 9604
are ready for use in the demanding and sensitive downstream assays performed in
molecular diagnostic, pharmaceutical, and research applications. The current
list price of the BioRobot 9604 is $92,900. In August 1999, the Company
introduced the QIAGEN BioRobot 3000. The BioRobot 3000 offers a completely
flexible approach to automation, with each instrument being tailor-made to the
individual laboratory's application needs. The BioRobot 3000 is used in
molecular biology research, molecular diagnostic research, DNA sequencing, and
genomics markets. Since the BioRobot 3000 is a custom instrument, the price
depends on what components are installed and what base model is selected. The
base prices, without any added components, are $42,200 for a 4-probe 90 cm
system, $47,500 for the 4-probe 120 cm system and $58,300 for the 4-probe 200 cm
system. The BioRobot RapidPlate(TM), which can be fully integrated with BioRobot
3000 extended arm systems, was introduced in 2001 for fast liquid handling in
96- and 384-well formats. The BioRobot RapidPlate is priced at $43,000.
In 2000, QIAGEN introduced the BioRobot 8000. The BioRobot 8000 allows
high-throughput, walk-away purification of nucleic acids. The fully automated
capability is provided by new technologies, such as an automated vacuum system,
automated identification and tracking of buffer bottles, and a fast and accurate
liquid and robotic handling system. The BioRobot 8000 is designed for routine
handling of 384-well formats, and is used by laboratories at the leading edge of
genomics and other molecular biology fields. The list price for a BioRobot 8000
is $99,000.
All BioRobots use QIAsoft(TM) software, which provides user-friendly
point-and-click control. New software and hardware upgrades are continuously
being developed to improve the speed and performance of the BioRobot series and
to expand the range of potential applications.
The BioRobot product line gives QIAGEN a strategic opportunity to
establish a large installed instrumentation base, thereby promoting recurring
sales of QIAGEN's consumable products. Each installed instrument generates
additional annual consumable sales of approximately $22,800 to $64,800. QIAGEN
provides several consumable products for use with BioRobots based on existing
QIAamp, RNeasy, and protein purification kits. Two new kits were introduced in
2001, based on filtration technology and silica-coated magnetic bead technology.
The Company believes future markets for these instruments will include the
molecular diagnostic and genomics markets.
In addition to the BioRobot Product line, QIAGEN also offers liquid
handling instrumentation products that are not coupled with nucleic acid
purification uses to OEM customers. This allows QIAGEN to spread the cost of
designing and manufacturing the instrumentation products over a larger unit
volume.
Instrumentation products account for less than 15 percent of QIAGEN's
total consolidated net sales.
Contract Services
QIAGEN offers contract services for non-cGMP DNA production, SNP
analysis services, and DNA sequencing as an additional way to market its
products, and to expand and promote its technologies. All services are provided
with full project consultation and support from experienced technical staff.
Plasmid DNA Contract Manufacturing Service. Most customers who require
the ultrapure DNA provided by QIAGEN products are usually not equipped to
produce it in the large amounts necessary for their pre-clinical and clinical
studies. QIAGEN offers these customers contract DNA production under non-cGMP
conditions and using its proprietary technology for ultrapure DNA purification
and endotoxin removal, suitable for all preclinical research as well as for
preclinical studies in gene therapy and genetic vaccination.
20
cGMP-grade plasmid DNA is required by the FDA and other regulatory
agencies for any application involving use in humans. QIAGEN joined an alliance
with Valentis Inc. and DSM Biologics in 1999 to further strengthen what is
considered the world's leading consortium for manufacturing and supplying
customers with contract manufacturing of ultrapure, stable DNA plasmids and
formulated cGMP-grade DNA at any scale, from preclinical toxicology studies to
commercial products. This alliance provides a quality and scale of cGMP-grade
plasmid DNA production that the Company believes is unsurpassed by any other
supplier. Customers may include pharmaceutical or biotech companies or academic
institutions working in the gene therapy and genetic vaccination fields. QIAGEN
shares in revenues and profits from this alliance. Valentis Inc. (resulting from
the merger of Megabios Corp. and GeneMedicine, Inc.) is a leader in the field of
gene medicines. The Company develops proprietary gene delivery systems and
applies its preclinical and early clinical development expertise to create
gene-based products. DSM Biologics, a unit of DSM Fine Chemicals, is a leading
development and manufacturing company of intermediates and active pharmaceutical
ingredients for the pharmaceutical industry.
SNP analysis and DNA sequencing services. QIAGEN Genomics, Inc.
(formerly Rapigene, Inc.) offers high-throughput single nucleotide polymorphism
(SNP) genotyping, SNP validation services, and products based on its
Masscode(TM) technology. This proprietary technology represents a new dimension
in screening of genetic variations (SNPs) between individuals. Masscode
technology is the first new DNA tagging technology since the discovery of
four-color fluorescence. Unlike fluorescence, which is limited to 4-8 analyses
at a time, Masscode tags are capable of providing hundreds of simultaneous
measurements. In the field of genomic analysis, use of Masscode technology
coupled with a standard single-quadrupole mass spectrometer allows over 40,000
measurements to be made per day per instrument. This technology provides highly
reliable, reproducible, and cost-efficient SNP genotyping, at what QIAGEN
believes to be an unmatched speed and quality. Furthermore, this technology
platform has tremendous headroom for next generation developments. The
technology is validated and currently offered world-wide as a service by QIAGEN
Genomics, Inc. to leading pharmaceutical, agricultural, and genomics companies,
as well as academic centers. QIAGEN Genomics, Inc. also offers SNP discovery,
DNA isolation, and DNA quantification services.
In 2000, QIAGEN Genomics, Inc. formed an alliance with Genomics
Collaborative, Inc., a company that has built a state-of-the-art repository of
human DNA, tissue, and serum samples linked to detailed medical and demographic
data from selected populations. This alliance offers an integrated solution
combining Genomics Collaborative, Inc.'s sample repository and database services
with QIAGEN Genomics' SNP genotyping services. In January, 2001 QIAGEN Genomics,
Inc. extended its collaboration with Genomics Collaborative, Inc. and in
addition formed two further agreements with Agilent Technologies, Inc. and
Daiichi Pure Chemicals, Co. Ltd., as well as a research agreement with the
University of Washington to develop further high-throughput genomic analysis for
applications in areas including services and drug discovery.
QIAGEN Genomics offers a Genomic DNA Isolation Service for purification
of high-quality DNA that is suitable for all genomics and molecular biology
applications as well as for archiving. Versatile QIAamp(R) and DNeasy(R) Systems
allow isolation of genomic DNA from a variety of sources (e.g., blood, mouth
washes, and animal and plant tissue) at all scales, from just a few micrograms
to several milligrams of genomic DNA.
QIAGEN Genomics also offers medium to high-throughput DNA sequencing
services, which use QIAGEN's proprietary DNA purification and automation
technologies as well as state-of-the-art, high-throughput, automated sequencing
technologies. The current capacity is >700 Mb of raw data per year, and further
expansion is planned for 2002. QIAGEN has already contributed to several
commercial and public large-scale DNA sequencing projects, including several
eukaryotic, viral, and bacterial genome projects, as well as the full-length
human cDNA project. QIAGEN also provides a bioinformatics system,
ConSequence(TM), for analysis of DNA sequences.
QIAGEN's contract services, which account for less than ten percent of
total consolidated net sales, are currently provided to the molecular biology
and genomics research market for genetic vaccination, gene therapy, pre-clinical
trials, SNP genotyping, and DNA sequencing. The Company expects future markets
for these services to be expanded to include molecular diagnostics and genomics.
Oligonucleotide Synthesis, Microarray Products, and Custom Gene Synthesis
QIAGEN Operon (QIAGEN Operon, Inc. and QIAGEN Operon GmbH) is a
recognized leader in the area of high-end and added-value synthetic DNA. Operon
provides custom DNA synthesis of oligonucleotides using a revolutionary
high-throughput synthesis platform. A large number of oligonucleotide-
modification options are available. QIAGEN Operon also provides a range of
arrayable oligonucleotide sets (Array-Ready Oligo Sets(TM)) for the genome of
several species, including human, yeast (Saccharomyces cerevisiae), tuberculosis
(Mycobacterium tuberculosis), malaria (Plasmodium falciparum), mouse, rat,
arabidopsis (Arabidopsis thaliana), Caenorhabditis elegans, and Candida
albicans, with more sets planned for release. These sets represent the genomes
of either
21
clinically relevant or widely used model organisms. QIAGEN Operon can also
provide custom arrays of oligonucleotides or other DNA fragments. QIAGEN Operon
additionally provides a custom gene synthesis service for the manufacturing of
genes for pharmaceutical and biotechnology applications as well as a range of
stock oligonucleotide products.
QIAGEN Operon's leading US technology and market position in
high-quality, high-precision, and high-throughput synthetic nucleic acids, as
well as opportunities for new and powerful joint products, is expected to allow
significant expansion into the dynamic areas of today's genomics and genetic
analysis markets.
Recombinant Protein Purification Products
Purification of recombinant proteins is a necessary step in most
molecular biology research projects, and is therefore performed by most of
QIAGEN's customer base. QIAGEN offers its customers the QIAexpress(R) products,
which use a unique purification technology based on metal chelate affinity
chromatography on Ni-NTA resin for one-step purification of recombinant
proteins. The QIAexpress line also includes products for protein expression and
a proprietary protein detection system based on metal chelate affinity
technology. Several new products were introduced in 2001, including new vectors
for expression of recombinant proteins as well as new antibodies for their
detection, and a new system for cleaving the tag (used in the purification
technology) from recombinant proteins for specialized applications. QIAexpress
products are used in the molecular biology and molecular diagnostic research
markets, and cost between $73 and $3,224. QIAGEN believes that applications for
these products will expand with growth in the genomics and proteomics markets.
4. Product Development
QIAGEN's product development efforts are focused on expanding its
existing products and developing innovative new products in selected areas where
it has expertise and has identified substantial unmet market needs. In order to
increase the efficiency of product development a matrix structure was
implemented into the research and development organization during 2001.
The global research and development activities in Germany, Switzerland
and USA are overseen by a Vice President of Research & Development, and consist
of six Directors and fifteen Associate Directors. The total number of research
and development employees is 328. Research and product development activities
related to synthetic DNA and SNP analyses are conducted primarily in the U.S. at
the Company's Alameda, California and Bothell, Washington facilities,
respectively. Twenty research staff members conduct research and product
development activities related to synthetic DNA, five of whom have PhD's, and
whom three product managers oversee. The team that oversees the research and
development activities related to technologies and services for SNP analyses and
other genomic applications includes two business development directors (PhD's),
nine managers (two PhD's and one MD), and nineteen research and development
staff members.
The Company's total research and development expense 2001 was
approximately $26.8 million. QIAGEN has focused its product development efforts
in the following key areas:
Consumables
QIAGEN intends to maintain its technology leadership position through
investments in product improvements, product extensions, and innovative new
approaches. Recent examples of its efforts include the introduction of a new
range of products for reverse transcription (RT)-PCR, amplification of RNA,
stabilization of RNA in biological samples, and high-speed isolation of plasmid
DNA, as well as new automated protocols for DNA and RNA isolation from clinical
samples using the Company's QIAamp and RNeasy technologies.
Instrumentation
In 2001, QIAGEN launched new applications for its BioRobot 8000 as a
technology platform for automation of nucleic acid separation and purification
consumable products. The range of applications that can be performed on the
BioRobot 8000 now included HT purification of DNA and RNA using magnetic bead
technology. The fully automated capability is provided by new technologies, such
as an automated vacuum system, automated identification and tracking of buffer
bottles, and a fast and accurate liquid and robotic handling system. The
BioRobot 8000 is designed for routine handling of 384-well formats, and is used
by laboratories at the leading edge of genomics and other molecular biology
fields. QIAGEN believes that improvements in its instrumentation will strengthen
its leadership position in the automation of nucleic acid-based applications and
generate an increased demand for its consumable products.
22
In April 2001, QIAGEN and Zymark Corporation announced a strategic
alliance addressing the use of ultra high-throughput sample and liquid handling
automation. The alliance will focus on uses of such instrumentation for nucleic
acid handling and purification as well as for QIAGEN's proprietary protein
expression and purification technology.
Genomics
As the genomics and drug discovery market expands, there is an
increased need for efficient methods to prepare and analyze samples. As this
market is often defined by the request for integrated solutions, QIAGEN has
leveraged its nucleic acid handling, extraction and purification expertise by
entering into a number of transactions and agreements.
Since the acquisition of Operon Technologies, Inc. a technology leader
in the area of massive parallel high-throughput synthesis of nucleic acids, as
well as in the area of tools building on synthetic DNA expertise, such as
synthetic genes and microarrays tools, Operon Technologies, Inc (since renamed
QIAGEN Operon, Inc.), has increased it's high volume synthesis capabilities by
new process development steps within the synthesis process. The European
operation of QIAGEN Operon GmbH has been established in Cologne, to serve
directly the European customers and commenced operations during 2001.
QIAGEN Genomics, Inc. also entered into a research and license
agreement in May 2001 with The Institute for Genomic Research (TIGR) and the
Montefiore Medical Center (MMC) regarding an association study of single
nucleotide polymorphisms (SNPs) in Mycobaterium tuberculosis (M. tuberculosis).
In 2001, QIAGEN announced collaborations with Genicon Inc. QIAGEN
received exclusive distribution rights for self-spotted microarray toolkit
products incorporating Genicon's RLS (Resonance Light Scattering) Technology, an
ultra-sensitive signal generation, multi-application platform and detection
technology. RLS Technology can be combined with QIAGEN's leading nucleic acid
sample handling separation and purification products to create an integrated
solution for applications including the labeling and analysis of self-spotted
nucleic acid microarrays.
In an agreement with Kreatech Biotechnology B.V., QIAGEN was granted an
exclusive license to KREATECH<180>s ULS(R) labeling technologies and products in
combination with QIAGEN<180>s resonance light scattering ("RLS") products
licensed from Genicon Sciences. In addition, QIAGEN acquired non-exclusive
rights to develop and sell ULS(R) products for labeling and detecting nucleic
acids as well as proteins in microarray applications for the life science
research markets.
A collaboration between QIAGEN and Polysciences, Inc. regarding
development, marketing and sales of cell separation technology using
Polysciences' MagBead technology was formed in 2001. Under the terms of the
agreement, QIAGEN has received exclusive rights to develop and market certain of
Polysciences' existing and future magnetic polymer technologies. QIAGEN believes
that Polysciences' broad technology portfolio will lead to a range of products
for manual and automated separation and purification of cells and proteins and
that it will significantly expand QIAGEN's current magnetic particle technology
range addressing certain applications in nucleic acid purification.
Pall Corporation and QIAGEN have entered into an agreement in 2001 to
jointly develop next generation nucleic acid separation and purification
products for certain applications in the life science market. The jointly
developed products will exclusively be marketed by QIAGEN. The first suite of
products intended for near-term launch will focus on products combining certain
of Pall's filtration technologies with certain of QIAGEN's technologies for
applications in medium-, high-, and ultra-high throughput separation and
purification of certain types of nucleic acids widely analyzed in genomics
applications. The parties believe that these intended products, which will also
be optimized for use on QIAGEN's leading automation solutions, will allow QIAGEN
to further increase its expanding leadership in these market segments.
In April 2001, QIAGEN announced the acquisition of the Sawady Group of
companies ("Sawady Group") located in Tokyo, Japan. QIAGEN believes that the
Sawady Group has built a very strong reputation and position as the second
largest suppliers of synthetic nucleic acids in Japan and will accelerate
QIAGEN's penetration of the Japanese market. QIAGEN intends to leverage Operon's
technology-leading position in synthetic nucleic acids with the strong market
position that the Sawady Group has created in Japan to address this rapidly
expanding market. QIAGEN believes that the worldwide market for synthetic
nucleic acid products in 2000 was approximately $200 million and is growing
rapidly.
23
In January 2001, QIAGEN Genomics, Inc. announced that it entered into a
technology access and purchase agreement for its Masscode single SNP genotyping
systems with Daiichi Pure Chemicals, Co. Ltd. (DPC), a wholly-owned subsidiary
of Daiichi Pharmaceutical Co. Ltd., Japan. The agreement provides DPC with a
non-exclusive license to use related QIAGEN Genomics' technology to enable DPC
to provide SNP genotyping services to clients in Japan. Later in 2001, QIAGEN
Genomics, Inc. entered into a similar arrangement with the Life Sciences Group
of Shimadzu Corporation in Japan.
In November 2000, QIAGEN entered into a strategic alliance with Luminex
LabMAPTM Detection Technology to develop a broad range of consumable kits and
assays for basic research and drug discovery applications based on Luminex's
proprietary LabMAPTM technology. QIAGEN will distribute these new assay
detection products as a complementation of its nucleic acid consumable kits and
assays for the research and biopharmaceutical community, especially in the field
of genomics-driven assay development and drug discovery. The Company expects to
launch its first line of reagents and assay kits based on the Luminex technology
in the second half of 2002.
In January 2000, QIAGEN announced that it had entered into a worldwide,
multi-year collaborative agreement with Zeptosens AG to develop integrated,
multi-analyte detection systems for applications in areas including functional
genomics, toxicology, and pharmacogenomics. The alliance intends to build on the
powerful combination of Zeptosens' proprietary and innovative planar waveguide
(PWG) platform detection technology, Zeptosens' surface chemistry and assay
architecture know-how, and QIAGEN's proprietary instrumentation and consumable
technologies for nucleic acid handling, purification, and preparation. The
Company expects to launch its first product in the first half of 2002.
In 1999, QIAGEN acquired Rapigene, Inc. (now QIAGEN Genomics, Inc.), a
technology leader in high-throughput genomic analysis. Proprietary Masscode
technology represents a new dimension in the screening of single nucleotide
polymorphisms (SNPs) -- the genetic variations between individuals. In 2000,
QIAGEN Genomics, Inc. formed an alliance with Genomics Collaborative, Inc., a
company that has built a state-of-the-art repository of human DNA, tissue, and
serum samples linked to detailed medical and demographic data from selected
populations. This alliance offers an integrated solution combining Genomics
Collaborative, Inc.'s sample repository and database services with QIAGEN
Genomics' SNP genotyping services. In January 2001, QIAGEN Genomics, Inc.
extended its collaboration with Genomics Collaborative, Inc. and in addition
formed two further agreements with Agilent Technologies, Inc. and Daiichi Pure
Chemicals, Co. Ltd., as well as a research agreement with the University of
Washington to develop further high-throughput genomic analysis for applications
in areas including services and drug discovery.
In 1999, QIAGEN also formed several strategic alliances with key
genomics companies to develop and commercialize new technologies for
high-throughput nucleic acid analysis. A joint venture with EVOTEC aims to
develop high-throughput nucleic acid purification and detection systems by
combining QIAGEN's expertise and proprietary technologies in nucleic acid sample
handling with EVOTEC's proprietary technologies for ultra high-throughput
screening and single molecule interaction detection.
QIAGEN has also entered into an agreement with Affymetrix to develop
and commercialize products for sample handling and nucleic acid preparation for
RNA based expression profiling experiments performed on Affymetrix' GeneChip(R)
arrays. The agreement expands on the general recommendation that Affymetrix has
been making for the use of certain QIAGEN products in expression monitoring
protocols provided to Affymetrix GeneChip array customers. Affymetrix' GeneChip
technology is currently used by researchers to acquire, interpret, and manage
complex genetic information from applications including sequence analysis,
genotyping, and gene expression monitoring.
Through these collaborations, QIAGEN is aiming to develop seamlessly
integrated, broad-end technology platforms, which will provide complete nucleic
acid analysis solutions to customers in high-throughput genomics markets.
Genetic Vaccination and Gene Therapy
The commercialization of gene therapy and genetic vaccination for human
use will require significant quantities of ultrapure DNA, which must be
endotoxin-free in order to comply with FDA and other regulatory requirements. In
response to this need, QIAGEN is developing new resins and modifying its
existing purification technology to allow for a significant improvement in the
efficiency of production of very large amounts of ultrapure cGMP-grade DNA.
24
In 2001 the pAllliance, a strategic alliance between QIAGEN N.V., DSM
Biologics, Valentis Inc. and the Wyeth-Lederle Vaccines ("WLV") business unit of
the American Home Products Corporation (recently renamed Wyeth Corp), announced
an agreement pursuant to which the pAlliance will manufacture plasmid DNA-based
vaccine materials for WLV's clinical trials. The pAlliance members believe that
this agreement represents one of the largest agreements for pAlliance since the
alliance was initiated in early 1999 and started supplying
contract-manufacturing services for DNA-based therapeutics and vaccines to what
is a significant group of customers in the pharmaceutical and biotech
industries.
QIAGEN believes that genetic vaccination will be a commercial market
before gene therapy. The Company is working with leading researchers using
QIAGEN-purified DNA to test the feasibility of genetic vaccination in veterinary
applications.
Nucleic Acid-Based Molecular Diagnostics
The development of nucleic acid-based molecular diagnostics depends on
the availability of nucleic acid purification technologies that can provide
high-throughput sample processing without cross-contamination or carryover
between samples. QIAGEN is developing modifications to its existing QIAamp
product line to increase throughput further, to reduce cross-contamination and
carryover, and to expand automation possibilities for genomic and viral nucleic
acid purification. The Company also has dedicated research capacities applying
technologies including cationic detergents in the field of stabilization and
purification of nucleic acids.
In 1999 QIAGEN formed PreAnalytiX, a joint venture with Becton,
Dickinson and Company (BD) to develop, manufacture, and market integrated
systems for collecting, stabilizing, and purifying nucleic acids for molecular
diagnostic testing. The venture combines BD's leadership in sample collection
and QIAGEN's leadership in nucleic acid stabilization and purification. QIAGEN
believes that the synergy between BD and QIAGEN will enable PreAnalytiX to
develop unique preanalytical solutions that will benefit the entire molecular
diagnostics industry. PreAnalytiX has launched its first product (RNA
stabilization in blood samples) in April 2001.
5. Principal Markets
From its inception, QIAGEN has believed that nucleic acids would play
an increasingly important role in molecular biology and that major new
commercial uses of nucleic acids would be developed. QIAGEN has been supplying
researchers with proprietary products for the separation and purification of
nucleic acids since 1986. Customers include major academic institutions and
governmental laboratories such as the United States National Institutes of
Health (NIH), as well as leading pharmaceutical and biotechnology companies. In
addition, fundamental developments in recent years have created significant new
opportunities for QIAGEN in the emerging markets of genomics, nucleic acid-based
molecular diagnostics, and genetic vaccination and gene therapy. In response to
these opportunities, the Company is currently targeting its products and
marketing activities to each of these markets.
Research Market
The worldwide research market for nucleic acid separation and
purification products is comprised of an estimated 40,000 academic and
industrial research laboratories with more than 150,000 researchers from leading
academic institutes, biotechnology companies and pharmaceutical companies.
Subsegments of this market include the research markets for DNA sequencing,
nucleic acid-based molecular diagnostics, and genetic vaccination and gene
therapy. A substantial portion of this market continues to utilize traditional,
labor intensive methods for nucleic acid separation and purification, and QIAGEN
estimates that 30% of all molecular biology research time is spent on such
processes. QIAGEN recognized early on the opportunity to replace the traditional
methods with reliable, fast, and high-quality nucleic acid separation and
purification technologies and products. The Company concentrated its product
development and marketing efforts on this market and now offers in excess of 300
nucleic acid separation and purification products to customers. The Company also
offers innovative protein expression and purification products to these
customers. The Company believes that it is the technology leader in this growing
research market and that it is well positioned to increase sales and expand its
share of the research market as laboratories continue to convert from
traditional methods to QIAGEN products. Based on estimates of the number of
sample preparations being performed each year, QIAGEN believes that the current
worldwide research market for its nucleic acid purification products exceeds
$750 million. In addition, QIAGEN believes that an additional $270 million is
spent annually in this market on PCR enzymes and reagents. The Company has
expanded its product base for PCR amplification, reverse transcription and
continues to develop products for the PCR-related market segment.
25
Genomics Market
QIAGEN believes the genomics market offers a significant growth
opportunity for the Company's consumable and instrumentation products. This
developing market is characterized by its need for large numbers of ultrapure
nucleic acid samples as well as for efficient protein expression and
purification for functional analysis. QIAGEN believes that the combination of
QIAGEN's DNA sample preparation products with BioRobot automation systems gives
the Company a strong competitive position in this market.
In June 2000, the Company acquired Operon Technologies Inc. (now QIAGEN
Operon, Inc.), a technical leader in the area of high-end and added-value
synthetic DNA, as well as in the area of tools building on synthetic DNA
expertise, such as synthetic genes and DNA microarray tools. Synthetic nucleic
acids have become one of the fastest growing areas of nucleic acid research,
with applications in genomics and molecular diagnostics. These market segments
use enabling technologies and methods, such as DNA sequencing, gene chips and
DNA microarrays, SNP analysis, synthetic genes, and labeled probes for
detection, all of which rely on availability of synthetic nucleic acids.
Synthetic nucleic acids are used in the analysis of nucleic acids purified from
natural sources, and therefore are highly synergistic with QIAGEN's products and
technologies for nucleic acid separation, purification, and handling as both
product offerings address to a very significant extent the same customers.
In 1999, the Company acquired Rapigene (now QIAGEN Genomics, Inc.), a
technology leader in innovative enabling technologies for commercial
high-throughput single nucleotide polymorphism (SNP) analysis and other genomic
applications. In 2000, QIAGEN Genomics, Inc. formed an alliance with Genomics
Collaborative, Inc., a company that has built a state-of-the-art repository of
human DNA, tissue and serum samples linked to detailed medical and demographic
data from selected populations. This alliance offers an integrated solution
combining Genomics Collaborative, Inc.'s sample repository and database services
with QIAGEN Genomics' SNP genotyping services. For QIAGEN this cooperation is a
significant step in the rapidly growing field of gene-based drug discovery and
diagnostic development. In January 2001, QIAGEN Genomics, Inc. extended its
collaboration with Genomics Collaborative, Inc., and in addition formed a
technology access and purchase agreement with Daiichi Pure Chemicals, Co. Ltd.
and an exclusive value-added reseller agreement with Agilent Technologies, Inc.
The Company believes that this gives QIAGEN Genomics, Inc. a strong competitive
position in the market of high-throughput SNP genotyping.
Participants in the genomics market include academic research
laboratories, numerous major biotechnology and pharmaceutical companies, which
have research, and/or drug development programs gene-based drug development, as
well as smaller companies with genomics and other DNA sequencing-related
businesses. QIAGEN believes that the functional analysis, which is performed
subsequently to the discovery of the functional genes, adds a significant, high
value market opportunity that is larger than the market for QIAGEN's products in
the gene discovery phase.
Nucleic Acid-Based Molecular Diagnostics Market
QIAGEN believes that the molecular diagnostics market represents a
significant but largely untapped market for nucleic acid separation and
purification products. The Company believes that the advent of PCR and other
amplification technologies has made the prospect of nucleic acid-based molecular
diagnostics feasible. Nucleic acid-based molecular diagnostics have fundamental
advantages over traditional immunoassay diagnostics in both specificity and
sensitivity. This new generation of molecular diagnostics can be used, for
example, to detect or identify micro-organisms, cancer cells, bacteria and
viruses (including the HIV virus) by searching for their nucleic acid sequences.
In order to prove that a disease is present in a patient, the unique sequence of
the target nucleic acid causing the disease must be known, and the sequence must
be amplified to facilitate detection. Potential commercial applications for
nucleic acid-based molecular diagnostics include infectious disease diagnostics
in blood banks, HLA typing for bone marrow and organ transplantation, genetic
testing for predisposition to cancers and other common diseases, and genetic
"fingerprinting" of humans, animals and plants.
The success of nucleic acid-based molecular diagnostics will depend on
its ability to be performed using purified nucleic acid samples drawn from a
variety of specimens, including blood, tissue, mucus and stool, and to be
automated so that hundreds of samples can be handled concurrently. Other key
factors will be the convenience, versatility, and reliability of the nucleic
acid separation and purification procedures. The QIAGEN BioRobot series has been
developed to handle high-throughput nucleic acid sample preparation and handling
tasks in molecular biology laboratories, clinical laboratories, blood banks,
forensic projects, and genomics projects. Nucleic acid samples purified on the
BioRobot 9604 are ready for use in the demanding and sensitive downstream assays
performed in molecular diagnostic applications. In order to broadly address the
market for nucleic acid preparation in molecular diagnostics, the Company
anticipates entering into partnerships or other agreements with established
companies in
26
the molecular diagnostics market. Possible arrangements could include the supply
by QIAGEN of its nucleic acid sample preparation products for inclusion in the
diagnostic kits sold by diagnostic companies in their markets.
In November 1996, the Company acquired a technology platform for DNA
and RNA purification and stabilization of samples such as clinical specimens
using cationic detergents from the Iowa Biotechnology Corporation and the
University of Iowa. In the transaction, QIAGEN received an assignment of rights
to issued patents and pending patent applications covering the technology. DNA
and RNA purification is a key procedure in molecular biology research and
nucleic acid-based molecular diagnostics. RNA-based diagnostics require the
availability of intact RNA, which rapidly degrades in the absence of a
protective agent. Cationic detergents stabilize samples, thus increasing the
reliability and potential of nucleic acid-based molecular diagnostics, in
particular assays based on RNA. Cationic detergent technology also allows for
efficient purification of nucleic acids and is nonhazardous. The Company
believes that this acquired technology portfolio will enhance QIAGEN's
technology base for some of its sample preparation applications and will provide
a method for the stabilization of clinical samples. QIAGEN believes that it will
be able to market this purification and stabilization technology in the blood
banking and infectious disease diagnostic markets.
In 2000, QIAGEN acquired a non-exclusive license from AMBION, Inc. for
RNAlater technology, which allows stabilization of RNA in animal cells and
tissues for reliable gene-expression and gene-profiling analysis. This
technology is used in a new product range, the first products of which were
launched in 2000. Stabilization of RNA within biological samples is especially
important for the molecular diagnostics research market.
In August 1999, QIAGEN formed PreAnalytiX, a joint venture with Becton,
Dickinson and Company to develop, manufacture, and market integrated systems for
collecting, stabilizing, and purifying nucleic acids for molecular diagnostic
testing. Through this venture, QIAGEN will be working toward providing clinical
laboratories with the standardized, reliable procedures they need for sample
collection, stabilization and preparation.
In August 1999, QIAGEN's QIAamp Viral RNA purification technology
received approval from the German regulatory authority Paul Ehrlich Institute
for sample preparation in hepatitis C virus (HCV) RNA screening of donated
blood. This validation is an important breakthrough for QIAGEN in routine
molecular diagnostic screening.
In June 1999, QIAGEN announced its intent to enter into a three-year
supply agreement with Visible Genetics Inc. (VGI). Under the terms of the
agreement, QIAGEN will supply VGI with certain proprietary nucleic acid sample
preparation products from QIAGEN's QIAamp product line. VGI intends to market
such QIAamp products, in combination with a QIAGEN-developed extension for
ultra-low level HIV genotyping, under the name TruPrepTM for use with VGI's HIV
TruGeneTM HIV genotyping product.
In October 1998, QIAGEN announced that it had entered into a five-year
supply agreement with Abbott Laboratories, Inc. According to the agreement,
QIAGEN will supply Abbott with various proprietary nucleic acid sample
purification and preparation products, to be marketed by Abbott--after
successful adaptation and validation of the combined solution--for use with
Abbott's LCx probe-based diagnostic system. QIAGEN will retain the rights to
market these technologies in all other formats.
Genetic Vaccination and Gene Therapy Market
QIAGEN believes that the potential use of nucleic acids as vaccines or
drugs represents the largest untapped market for nucleic acid separation and
purification products. The worldwide effort underway to discover all the genes
within the human genome may result in the identification of genes and gene
mutations that are responsible for many common diseases and conditions, such as
cancer, coronary artery disease, asthma, and obesity. Scientists believe that
these discoveries may lead to the development of a new generation of drugs,
based either on the delivery of non-mutated genes to prevent or cure disease, or
on the development of therapeutics which can mimic the biological functions of
genes. A further application, which may emerge from ongoing gene research, is
the development of genetic vaccination. Studies suggest that vaccination against
diseases may be more effective using nucleic acid fragments from the
disease-causing organisms rather than conventional vaccination approaches using
recombinant proteins or the inactivated infectious agent. The commercialization
of these drugs and vaccines will depend on the availability of large-scale
production of ultrapure nucleic acids. Through its alliance with DSM Biologics
and Valentis, QIAGEN provides contract manufacture of bulk quantity plasmid DNA
under full cGMP conditions for use in clinical studies and for commercial
production. The Company believes that the use in clinical testing of nucleic
acids purified using its technologies and products will give it a strong
position in this market once genetic vaccination and gene therapy products
become commercially available.
27
6. Revenue Breakdown by Geographical Market
Sales in the Company's various markets are subject to risks inherent in
international business activities, including, in particular, general economic
conditions in each such country, overlapping of differing tax structures,
managing an organization spread over various jurisdictions, unexpected changes
in regulatory requirements, complying with a variety of foreign laws and
regulations, and longer accounts receivables payment cycles in certain
countries. Other risks associated with international operations in general
include import and export licensing requirements, trade restrictions and changes
in tariff and freight rates. The table below sets forth total revenue during the
past three fiscal years by geographical market. Net sales are attributed to
countries based on the location of the Company's subsidiary as certain
subsidiaries have international distribution.
Net Sales 2001 2000 1999
--------- --------------- ------------- -------------
Germany* $ 121,744,000 $ 99,408,000 $ 79,603,000
United States* 147,609,000 119,925,000 90,018,000
Switzerland* 27,898,000 23,490,000 15,243,000
Japan* 34,417,000 35,038,000 14,609,000
United Kingdom 16,282,000 12,004,000 10,051,000
Other Countries*+ 17,844,000 15,484,000 10,297,000
--------------- ------------- -------------
Subtotal 365,794,000 305,349,000 219,821,000
Intersegment Elimination (102,024,000) (88,547,000) (61,666,000)
--------------- ------------- -------------
Total $ 263,770,000 $ 216,802,000 $ 158,155,000
=============== ============= =============
* Includes Net Sales to affiliates
+Other Countries include Canada, France, Australia, and Italy.
7. Seasonality
The Company's business does not experience specific seasonality. To the
extent our academic customers experience increases or decreases in funding
arrangements, or to the extent that our customers activities are slowed, such as
during vacation periods, we may experience fluctuations in sales volumes during
the year.
8. Raw Materials
The Company buys materials for its products from many suppliers, and is
not dependent on any one supplier or group of suppliers. Raw materials generally
include chemicals, raw separation media, biologics, plastics and packaging. No
one supplier accounts for a significant total of purchases. Raw materials are
generally readily available at competitive, stable prices from a number of
suppliers. Certain raw materials are produced under specifications by the
Company, so the Company closely monitors stock levels to maintain adequate
supplies. The Company believes it maintains raw materials at a level to ensure
reasonable customer service levels, and to guard against normal volatility in
the availability.
9. Marketing Channels
QIAGEN markets its products in more than 40 countries throughout the
world. The Company has established subsidiaries in the markets that it believes
have the greatest sales potential -- the United States, Germany, the United
Kingdom, Switzerland, France, Japan, Australia, Canada, and Italy.
QIAGEN has established a network of highly experienced marketing staff
and employs a dedicated field sales force of over 400 people, who sell its
products and provide direct support to customers. A significant number of
QIAGEN's marketing and sales staff are experienced scientists with academic
degrees in molecular biology or related areas. QIAGEN also has specialized
independent distributors and importers serving more than 30 countries.
QIAGEN's marketing strategy is focused on maintaining its reputation as
a provider of innovative, high quality products that offer customers unique
advantages. QIAGEN has developed a range of marketing tools designed to provide
customers with direct access to technical support on a frequent basis, as well
as to enhance the Company's reputation for technical excellence, high-quality
products, and commitment to customer service. Frequent communication with
customers enables the Company to identify market needs, to gain early insight
into new developments and business opportunities, and to respond with new
products. QIAGEN's marketing tools include:
Customer Hotlines. All of the Company's product literature prominently
displays a technical service hotline number, offering customers the opportunity
to discuss a wide range of technical questions regarding the Company's products
and related molecular biology procedures. Ph.D. and M.Sc. scientists, who
provide this advice and training
28
without charge to either existing or potential customers, man these telephone
lines. While primarily a customer service and marketing tool, the hotline
provides QIAGEN with important customer and market feedback. Worldwide, QIAGEN's
technical hotline personnel answer, on average, over 480 customer calls per day,
principally calls that are consultative in nature.
QIAcabinet. The QIAcabinet is a storage cabinet owned by QIAGEN and
placed in customer laboratories at their request. The QIAcabinet is stocked with
QIAGEN products, offering customers the convenience of immediate access, thereby
reducing product reorder procedures and shipping costs. QIAGEN monitors cabinet
inventory and bills the customers at regular intervals. The Company believes
that its QIAcabinet can be an effective barrier to competitor entry, while also
reducing distribution costs and increasing QIAGEN's visibility in the
laboratory.
QIAGEN Catalog. QIAGEN distributes over 180,000 copies of its annual
catalog containing detailed information about its products and services.
QIAGEN News. This quarterly international publication is distributed to
over 120,000 existing and potential customers worldwide and includes new product
information, product updates, and articles contributed by customers and by
QIAGEN scientists about new applications.
Brochures, Application Guides, Product Profiles, Product Flyers. QIAGEN
publishes a variety of literature, including brochures, application guides,
product profiles, and product flyers, containing information on products and
services, and applications for which QIAGEN products have been used.
QIAGEN Mailings. Direct mailings, which announce new products or offer
special sales promotions, are sent out approximately every four weeks to over
120,000 existing and potential customers, providing an efficient vehicle for
disseminating information.
QIAGEN Lab Bulletin. This personalized monthly electronic newsletter
was launched in 2001 for customers in North America, and provides helpful hints
and information for molecular biology applications. Six different editions are
available for different applications -- Cell Biology, Gene Expression Analysis,
General Molecular Biology, Genotyping, Molecular Diagnostics, and Protein
Analysis. Customers choose the editions that interest them, which are then
further personalized based on information provided by the customer as to which
features within each edition they would like to receive.
World Wide Web Site. The QIAGEN web site (www.qiagen.com) contains a
full on-line catalog and information about new products, services, and special
promotions. In addition, customers can contact QIAGEN by e-mail and request
technical information and product literature, download handbooks and other
literature directly, and participate in user forums. In the first half of 2000,
QIAGEN introduced on-line ordering from its web site for U.S. and Canadian
customers, and in 2001 this was expanded to include the UK and Switzerland.
On-line ordering for customers in other countries is expected to commence in
2002. A Japanese language site (www.qiagen.co.jp) was also launched in 2001. In
addition, QIAGEN expects to continue to offer its products through the
SciQuest.com web site.
The QIAGEN Genomics (www.qiagengenomics.com), QIAGEN Operon
(www.operon.com), and QIAGEN Instruments (www.qiageninstruments.com) web sites
also provide product and service information, as well as contact information. An
on-line catalog and on-line ordering is already available at the QIAGEN Operon
web site, and is planned for the QIAGEN Genomics web site in 2002.
Other Marketing Tools. QIAGEN places over 450 full-page advertisements
per year in leading scientific journals such as Nature, Science, and Cell. In
addition, the Company also holds numerous scientific seminars, in which its
scientists present technical information at leading academic and industrial
research institutes worldwide.
10. Patents, Licenses and Proprietary Technologies
QIAGEN considers the protection of its proprietary technologies and
products for the separation and purification of nucleic acids as the key to the
success of its business. The Company relies on a combination of patents,
licenses and trademarks to establish and protect its proprietary rights in its
technologies and products. The Company currently owns 32 issued patents in the
United States, 27 issued patents in Germany and 166 issued patents in other
major industrialized countries, and has approximately 235 pending patent
applications. Worldwide, QIAGEN owns 238 granted patents - including U.S.
QIAGEN's policy is to file all patents in Western Europe, the United States and
Japan. U.S. patents have a term of 17 years from the date of issue for patents
issued from applications submitted prior to June 8, 1995, and 20 years from the
date of filing of the application in the case of
29
patents issued from applications submitted on or after June 8, 1995. Patents in
most other countries have a term of 20 years from the date of filing of the
patent application. The Company intends to aggressively prosecute and enforce
its patents and otherwise protect its proprietary technologies. QIAGEN also
relies on trade secrets, know-how, continuing technological innovation and
licensing opportunities to develop and maintain its competitive position.
An essential component of today's genetic business is the availability
of synthetic nucleic acids. Technologies, like PCR, DNA sequencing, SNP
genotyping, biochips or synthetic genes represent only a portion of the current
market potential for oligonucleotides. In order to accomplish our strategic step
into this important segment of the market, the Company acquired Operon
Technologies Inc. (renamed QIAGEN Operon, Inc.) QIAGEN Operon, Inc. has built a
leading position in the manufacture and marketing of synthetic nucleic acids,
DNA microarrays and synthetic genes.
In 1999, QIAGEN acquired Rapigene, Inc. (now QIAGEN Genomics, Inc.), an
indirect wholly owned subsidiary of Celltech Group plc. QIAGEN Genomics, Inc. is
a leader in the area of innovative, enabling technologies and services for
single nucleotide polymorphism (SNP) analyses as well as other genomic
applications. QIAGEN Genomics, Inc. has built proprietary technology positions
in rapidly growing, core areas of genomics including SNP analysis. As sequencing
of the human genome advances, genomics activities are increasingly focusing on
exploring how DNA, the genetic blueprint of life, varies from individual to
individual. These inherited variations, of which SNPs are the most common and
potentially useful, provide significant information for use in drug development.
In addition, SNPs are considered to be useful in predicting an individual's
genetic susceptibility to disease and in understanding a patient's reaction to
therapies. As a result, genomics-based drug development depends on the
availability of efficient tools for the nucleic acid sample preparation and the
discovery, validation and detection of SNPs in nucleic acid samples. QIAGEN
Genomics' core competencies include its Masscode(TM) Cleavable Mass Spectrometry
Tag technology. This is the first new DNA tagging technology since the discovery
of four-color fluorescence. Unlike fluorescence, which is limited to 4-8
analyses at a time, Masscode tags are capable of providing hundreds of
simultaneous measurements. A broad patent portfolio that includes issued U.S.
and European Patents covers these technologies.
In 1981, prior to the formation of QIAGEN, Dr. Metin Colpan and Dr.
Detlev Riesner granted limited non-transferable access to an early patent for an
anion-exchange resin, which is now owned by QIAGEN, to the owner of
Macherey-Nagel GmbH & Co. Macherey-Nagel was an investor in QIAGEN from 1985 to
1988. Macherey-Nagel's right to use this anion-exchange resin is limited in both
sales volume and format of the product. QIAGEN also has independent proprietary
patent positions on a range of substantial improvements to this early
technology.
In 1990, Hoffmann-La Roche granted QIAGEN a worldwide exclusive license
for the research and industrial market for a novel protein expression and
purification technology based on a Histidine affinity tag and Ni-metal chelate
affinity chromatography. This technology was combined with QIAGEN technology and
incorporated in QIAGEN's QIAexpress protein expression and purification product
line.
In 1991, QIAGEN obtained a worldwide (with the exception of Japan)
exclusive license for Hoffmann-La Roche's Oligotex dT30 technology for hybrid
capture on polystyrene-latex beads, which has been further developed and
incorporated in QIAGEN's Oligotex product line.
In 1995, the Company acquired a license from Hoffmann-La Roche for the
use, production and sale of reagents required for PCR in the research market.
This license allows QIAGEN to bundle its sample preparation and DNA clean-up
products with PCR reagents and enzymes into complete PCR kits and other
innovative PCR systems.
In November 1996, the Company acquired a technology platform for DNA
and RNA purification and stabilization of samples such as clinical specimens
using cationic detergents, from the Iowa Biotechnology Corporation and the
University of Iowa. In the transaction, QIAGEN received an assignment of rights
to issued patents and pending patent applications covering the technology.
In connection with entering a worldwide, multi-year collaborative
agreement with Zeptosens AG in January 2000, the Company received an exclusive
license from Zeptosens AG for the application of planar waveguide (PWG)
technology with regard to nucleic acids in the research field.
In 2000, QIAGEN acquired a non-exclusive license from AMBION, Inc. for
RNAlater technology, which allows stabilization of RNA in animal cells and
tissues for reliable gene-expression and gene-profiling analysis. This
technology is used in a new product range, the first products of which were
launched in 2000. Stabilization of RNA within biological samples is especially
important for the molecular diagnostics research market.
30
In 1998, QIAGEN acquired a worldwide exclusive sub-license and certain
options from Coley Pharmaceutical Group, Inc. (formerly CpG
ImmunoPharmaceuticals, Inc.), concerning the use of immunomodulatory
oligonucleotides in the field of veterinary applications.
In addition to the above licenses, the Company acquired further
licenses and/or options to licenses, pertaining to the Company's core
technologies and related fields.
In 2001, QIAGEN entered into DNA microarray technology agreements with
Aventis and Bayer covering the SensiChip Workstation, the first product
developed through an alliance with Zeptosens AG, and commenced a strategic
alliance on ultra-sensitive microarray labeling and detection technology with
Genicon Sciences. Moreover QIAGEN signed an agreement for multi-application
labeling technology with Kreatech Biotechnology B.V. and formed a strategic
alliance in connection with magnetic polymer bead technologies with
Polysciences, Inc.
QIAGEN's strategy includes the use of strategic alliances to augment
its product development efforts with complementary technologies and to leverage
its marketing and distribution capabilities with respect to select market
opportunities. In 1990, 3M granted QIAGEN exclusive and world-wide rights for
nucleic acid separation and purification applications using 3M's Empore(TM)
membrane technology (originally developed for medical applications). QIAwell, a
key product targeting the DNA sequencing market, combines Empore technology with
QIAGEN's anion-exchange technology. In addition, 3M has made substantial
investments in production facilities which now produce 8-well and 96-well
consumable components for QIAGEN.
QIAGEN's practice is to require its employees, consultants, outside
scientific collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with the Company. These agreements provide that all confidential
information developed by or made known to the individual during the course of
the individual's relationship with QIAGEN is to be kept confidential and not
disclosed to third parties, subject to a right to publish certain information in
scientific literature in certain circumstances and subject to other specific
exceptions. In the case of employees, the agreements provide that all inventions
conceived by the individual while employed by QIAGEN will be the exclusive
property of the Company.
The patent positions of QIAGEN, like similar technology based
companies, involve complex legal and factual questions and may be uncertain. In
addition, patent applications in the United States are maintained in secrecy
until patents are issued. Publications of discoveries in the scientific or
patent literature tend to lag behind actual discoveries by several months.
Consequently, no assurance can be given that patents will issue from any of the
Company's applications or, if patents do issue, that the claims allowed will be
sufficiently broad to protect the Company's technology. Further, no assurance
can be given that any issued patents owned by or licensed to the Company will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages to the Company. In addition,
there can be no assurance that any confidentiality agreements between QIAGEN and
its employees, consultants, outside scientific collaborators and sponsored
researchers and other advisors will provide meaningful protection for the
Company's trade secrets or adequate remedies in the event of unauthorized use or
disclosure of such information.
11. Competition
QIAGEN believes that its primary competition stems from traditional
separation and purification methods, such as phenol extraction, cesium chloride
density gradient centrifugation, and precipitation. These methods utilize widely
available reagents and other chemicals supplied by companies such as Sigma
Chemical Company and Roche Diagnostics GmbH (Applied Sciences Division). QIAGEN
competes with such methods through its innovative technologies and products,
which offer a comprehensive solution for nucleic acid separation and
purification needs and provide significant advantages over traditional methods
with respect to speed, reliability, convenience, and ease of use. See "Technical
Overview of QIAGEN."
QIAGEN also experiences, and expects to continue to experience,
competition in different segments of its business from other companies providing
nucleic acid separation and purification products in kit form and reagents for
PCR and transfection. Competitors include: Promega Corp., Millipore Corp. and
Macherey-Nagel GmbH for nucleic acid separation and purification; Applied
Biosystems, Invitrogen Corp. and Promega Corp. for PCR reagents; Invitrogen
Corp. and Promega Corp. for transfection reagents. The Company believes that its
competitors do not have the same comprehensive approach to nucleic acid
separation and purification and therefore cannot provide the broad range and
depth of products and services offered by QIAGEN in that area. QIAGEN believes
that its proprietary technologies and products offer significant advantages over
competitors' products, with regard to purity, speed, reliability, and
throughput.
31
QIAGEN also experiences, and expects to continue to experience,
competition from other companies providing synthetic DNA and SNP genotyping and
sequencing services. International competitors for Operon include: Invitrogen
Corp, Sigma Genosys, Amersham Pharmacia Biotech, MWG-Biotech AG, and
PerkinElmer. International competitors for QIAGEN Genomics include: MWG-Biotech
AG, Sequenom, Inc., Orchid Biosciences, Inc., and Third Wave Technologies, Inc.
The Company believes that its competitors do not have the same comprehensive
approach to nucleic acid separation and purification, or the same technology for
production of synthetic DNA or for SNP genotyping and therefore cannot provide
the broad range and depth of products and services offered by QIAGEN. QIAGEN
believes that its proprietary technologies and products offer significant
advantages over competitors' products and services, with regard to purity,
speed, reliability, and throughput.
The Company's continued future success will rely in large part on its
ability to maintain its technological advantage over competing products, expand
its market presence and preserve customer loyalty. There can be no assurance
that QIAGEN will be able to compete effectively against its existing or future
competitors or that developments by others will not render its technologies or
products non-competitive.
12. International Operations
The Company's business involves operations in several countries. Its
principal production and manufacturing facilities for consumable and BioRobot
products are located in Germany, with an additional instrumentation production
site in Switzerland. The Company operates several facilities in the U.S. and
also has established sales subsidiaries in Japan, the United Kingdom, France,
Switzerland, Australia, Canada and, since June 2000, in Italy. In addition, the
Company's products are sold through independent distributors serving more than
32 other countries.
Conducting operations on an international scale requires close
coordination of activities across multiple jurisdictions and time zones and
consumes significant management resources. The Company has invested heavily in
computerized information systems in order to manage more efficiently the widely
dispersed components of its operations. In the past year, the Company has
expanded its SAP business information system that integrates its North American
and European subsidiaries.
As a result of its international operations, a significant portion of
the Company's business is conducted in currencies other than the U.S. dollar. In
2001, approximately 46% of the Company's net sales were denominated in
currencies other than the U.S. dollar. In addition, certain expenses associated
with the Company's production and manufacturing facilities in Germany, including
capital lease obligations, are denominated in euros. Consequently, the Company's
operations are subject to fluctuations in the value of the euro, as well as the
other currencies in which the Company's business is conducted, relative to the
U.S. dollar. See "Quantitative and Qualitative Disclosure About Market
Risk--Currency Fluctuations".
International business is subject to various risks, including general
economic conditions in the countries in which the Company operates, overlap of
various tax structures, unexpected changes in regulatory requirements,
compliance with a variety of foreign laws and regulations, and longer accounts
receivable payment cycles in certain countries. Other risks that may be
associated with the Company's international operations include import and export
licensing requirements, trade restrictions, exchange controls and changes in
tariff and freight rates.
13. Government Regulation
The Company is not subject to direct regulation other than regulation
generally applicable to businesses pursuant to various laws and regulations as
in effect in the different jurisdictions in which the Company operates,
including laws and regulations applicable to environmental matters such as the
handling and disposal of hazardous wastes. QIAGEN's research and development
activities involve the controlled use of small amounts of hazardous materials,
chemicals and radioactive compounds. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by applicable regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could have a material adverse effect on the
Company. However, the Company does not expect that compliance with the
governmental regulations to which it is subject will have a material effect on
its capital expenditures, earnings or competitive positions.
32
Sales volumes of certain of the Company's products in development may
be dependent on commercial sales by its customers of diagnostic and
pharmaceutical products, which will require preclinical studies and clinical
trials. Such trials will be subject to extensive regulation by governmental
authorities in the United States, including the FDA and equivalent agencies in
other countries, and involve substantial uncertainties.
Property, Plant and Equipment
The Company's corporate headquarters are located in leased office space
in Venlo, The Netherlands. The Company's facilities in Hilden, Germany currently
occupy approximately 245,000 square feet and are leased pursuant to separate
contracts expiring between the years 2002 and 2018, including the lease related
to the Company's research and development facility which was completed in the
first quarter of 1999. In two separate transactions between July 1997 and
February 1998, QIAGEN purchased a parcel of land measuring approximately 549,000
square feet, which is directly adjacent to the Company's German facilities. The
Company is constructing a 126,000 square foot production facility and a 126,000
square foot administrative building on this land. Construction on these
facilities commenced in October 2000, with estimated completion in the third
quarter of 2002. The estimated cost for these facilities is approximately EUR
54.0 million (approximately $48.1 million), of which approximately $38.8 million
had been incurred at December 31, 2001, and is being financed primarily with
bank loans. QIAGEN also leases cGMP production facilities in Germany.
QIAGEN's production and manufacturing facilities for consumables and
BioRobot(R) products are located in Hilden and Erkrath, Germany. The instrument
production facility is located at the QIAGEN Instruments AG (formerly Rosys AG)
facility in Hombrechtikon, Switzerland. Over the last several years, the Company
has made substantial investments in automated and interchangeable production
equipment to increase its production capacity and improve efficiency. For GMP
production, special GMP areas were built in the Company's facilities at Hilden
and Erkrath. QIAGEN's production and manufacturing operations are highly
integrated and benefit from sophisticated inventory control. The Company has
also installed and continues to expand production-planning systems that are
included in its integrated information and control system based on the business
software package SAP R/3 from SAP AG. In the past year, the Company continued
the expansion of its SAP business information system that integrates its North
American and European subsidiaries. The Company's production management
personnel are highly qualified and many have engineering degrees.
The Company's U.S. distribution facility located in Valencia,
California occupies approximately 80,000 square feet. The lease has been
extended through August 31, 2004. QIAGEN Operon, located in Alameda, California,
leases approximately 39,000 square feet of office, production and warehouse
space. This lease expires in November 2005, with options to extend until
November 2010. A further production site in Germany, QIAGEN Operon GmbH with an
anticipated capacity of 10,000 synthetic nucleic acids per day, commenced
operations in 2001. Other subsidiaries in the U.S. and other countries lease
small amounts of office and warehouse space.
The Company is increasing its production capacity with the
establishment of a manufacturing and research facility in the United States. In
1999, the new North American manufacturing and research and development
headquarters, QIAGEN Sciences, Inc. closed the purchase of an 18-acre site for
approximately $3.2 million in Germantown, Maryland. Construction began in March
2000, and in November 2000 QIAGEN Sciences exercised the option to purchase an
additional adjacent lot of approximately 6 acres for $1.2 million. The purchase
of this additional lot allows for future expansion of up to 400,000 square feet
of facility space. Construction is being financed primarily by intercompany
loans and long-term bank debt. At December 31, 2001, construction and overhead
costs of approximately $52.8 million had been incurred, with estimated costs to
complete of $2.5 million. The planned 200,000 square foot Maryland facility will
consist of several buildings in a campus-like arrangement and is intended to
accommodate over 200 employees in manufacturing as well as 100 employees in
research and development. The new facility construction is substantially
complete, with manufacturing activities anticipated to start in the second
quarter of 2002.
In January 1999 QIAGEN received ISO 9001 and EN 46001 certification,
furthering the Company's commitment to providing its customers high quality,
state-of-the-art products and technologies for the handling, separation and
purification of nucleic acids.
The majority of the Company's consumable and BioRobot(R) products are
manufactured at QIAGEN GmbH and will now be produced under ISO 9001:1994/EN
46001:1996 certification standards. QIAGEN Instruments AG, formerly Rosys
Instruments AG, which produces the majority of QIAGEN's instrumentation product
line, received ISO 9001 certification in May 1997. The ISO 9001 and EN 46001
certification of QIAGEN forms part of the Company's ongoing commitment to the
development of its Total Quality Management system.
33
The Company believes that its existing production and distribution
facilities can support its planned production needs for the next 18 months,
during which time additional capacities will be added as discussed above. The
additional production capacities added by the new facilities are anticipated to
support production needs through at least 2006. The Company's production and
manufacturing operations are subject to various federal, state, and local laws
and regulations including environmental regulations. The Company believes it
does not have any material issues relating to these laws and regulations.
Item 5. Operating and Financial Review and Prospects
This section contains a number of forward-looking statements. These statements
are based on current management expectations, and actual results may differ
materially. Among the factors that could cause actual results to differ from
management's expectations are those described in "Risk Factors" above, and
"Business Factors" below.
Overview
QIAGEN N.V. (the Company) believes that it is the world's leading
provider of innovative enabling technologies and products for the separation and
purification of nucleic acids based on the nature of its products and
technologies and as supported by independent market studies. The Company was
established to develop, manufacture and market a broad portfolio of proprietary
technologies and products, which meet the needs of the academic and industrial
research markets. QIAGEN's products enable customers to reliably and rapidly
produce high purity nucleic acids without using hazardous reagents or expensive
equipment.
On March 31, 2001, the Company completed the acquisition of the Sawady
Group of companies located in Tokyo, Japan in a pooling of interests
transaction. The Company believes that the Sawady Group has built a very strong
reputation and position as the second largest suppliers of synthetic nucleic
acids in Japan. The Company intends to leverage QIAGEN Operon's technology-
leading position in synthetic nucleic acids with the strong market position that
the Sawady Group has created in Japan to address this rapidly expanding market.
QIAGEN believes that the worldwide market for synthetic nucleic acid products is
growing rapidly.
On June 28, 2000, the Company acquired Operon Technologies, Inc., since
renamed QIAGEN Operon, Inc. (Operon) of Alameda, California in a transaction
that was accounted for as a pooling of interests. Operon manufactures and
markets synthetic nucleic acids, DNA microarrays and synthetic genes. The
synthetic nucleic acids are used in the analysis of nucleic acids purified from
natural sources and have been integrated into the Company's current genomics and
genetic analysis business. QIAGEN Operon GmbH in Cologne, Germany commenced
operations in 2001 to provide European customers with the same products offered
by Operon in the U.S.
In December 1999, the Company completed the purchase of Rapigene, Inc.
(renamed QIAGEN Genomics, Inc.), a leader in the area of innovative, enabling
technologies and services for single nucleotide polymorphism (SNP) analysis. In
1999, the Company also made several strategic equity investments in and
alliances with businesses whose technologies are complementary to the Company's
business.
Since 1997, the Company has had compound annual growth of approximately
37% in net sales and 45% in net income, after acquisition charges. To date, the
Company has funded its growth through internally generated funds, debt, the
private sale of equity, and through proceeds from the sale of securities to the
public.
Critical Accounting Policies
The preparation of our financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make assumptions that affect the reported amounts of assets,
liabilities and disclosure of contingencies as of the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Critical accounting policies are those that require the most
complex or subjective judgments often as a result of the need to make estimates
about the effects of matters that are inherently uncertain. Thus, to the extent
that actual events differ from management's estimates and assumptions, there
could be a material impact to the financial statements. The Company's critical
accounting policies are those related to revenue recognition, accounts
receivable, investments, goodwill and other intangibles, and income taxes.
The below listing is not intended to be a comprehensive list of all our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting principles
in the United States, with limited or no need for management's judgment. There
are also areas in which managements' judgment in selecting available
alternatives may or may not produce a materially different result. See our
audited consolidated financial statements and notes thereto which begin on page
F-1 of this Annual Report on
34
Form 20-F which contain a description of accounting policies and other
disclosures required by generally accepted accounting principles in the United
States.
Revenue Recognition. The Company recognizes revenue in accordance with SEC
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101), as amended by SAB 101A and 101B. SAB 101 requires that four basic
criteria must be met before revenue can be recognized: (1) persuasive evidence
of an arrangement exists; (2) delivery has occurred or services have been
rendered; (3) the fee is fixed and determinable; and (4) collectibility is
reasonably assured. Determination of criteria (3) and (4) could
require management's judgments regarding the fixed nature of the fee charged for
services rendered and products delivered and the collectibility of those fees.
Should changes in conditions cause management to determine that these criteria
are not met for certain future transactions, revenue recognized for any
reporting period could be adversely affected.
Accounts Receivable. The Company's accounts receivable are unsecured, and
the Company is at risk to the extent such amounts become uncollectible. The
Company continually monitors accounts receivable balances, and provides for an
allowance for doubtful accounts at the time collection may become questionable
based on payment history or age of the receivable. Since a significant portion
of our customers are funded through academic or government funding arrangements,
past history may not be representative of the future. As a result, we may have
write-offs of accounts receivable in excess of previously estimated amounts or
may in certain periods increase or decrease the allowance based on management's
current estimates.
Investments. The Company has equity investments accounted for under the
cost method. The Company periodically reviews the carrying value of these
investments for permanent impairment, considering factors such as the most
recent stock transactions, book values from the most recent financial
statements, and forecasts and expectations of the investee. Estimating the fair
value of these non-marketable equity investments in life science companies is
inherently subjective, and if actual events differ from management's
assumptions, it could require a write-down of the investment which could
materially impact our financial position and results of operations. In addition,
generally accepted accounting principles require different methods of accounting
for an investment depending on the level of control that is exerted by the
Company. Assessing the level of control involves subjective judgments. If
management's assumptions with respect to control differ in future periods and
thus require the Company to account for these investments under a method other
than the cost method, it could have a material impact to the financial
statements.
Goodwill and Other Intangible Assets. Through December 31, 2001, goodwill
and other intangible assets were amortized over their estimated useful lives.
Until the end of 2001, the Company periodically assessed the recoverability of
goodwill based on projections of the undiscounted future cash flows of the
acquired assets. Based on these assessments there had been no impairment of
these assets. In connection with the adoption of SFAS No. 142, "Goodwill and
Other Intangible Assets", amortization over the previously identified lives of
intangible assets ceased as of December 31, 2001, and indefinite life
intangibles will henceforth be assessed for impairment each year using a
fair-value-based test. Both the previously applied test based on future cash
flows and the newly required fair-value-based tests require that management make
assumptions and estimates. Although the Company believes its assumptions and
estimates are reasonable, they involve inherently subjective judgments. If
actual events differ from management's assumptions and estimates it could
produce a materially different result.
Income Taxes. The calculation of the Company's tax provision is complex due
to the international operations and multiple taxing jurisdictions in which the
Company operates. The Company has significant deferred tax assets due to net
operating losses (NOL) in the United States and other countries, realization of
which is not assured and is dependent on generating sufficient taxable income in
the future. Management believes it is more likely than not that the Company will
generate sufficient taxable income to utilize all NOL carryforwards. To the
extent that the Company's estimates of future taxable income are insufficient to
utilize all available NOL's, a valuation allowance will be recorded in the
provision for income taxes in the period the determination is made, and the
deferred tax assets will be reduced by this amount, which could be material.
Further, the Company's holding company, located in The Netherlands, has had a
history of losses and thus also has a sizeable NOL. Due to the history of losses
of the holding company, the Company has recorded a full valuation allowance
against this deferred tax asset. Should the holding company be profitable in the
future and lead management to believe that it is more likely than not that we
will realize all or a portion of the NOL, then the estimated realizable value of
the deferred tax asset would be recorded and we would provide for taxes at the
current tax rate. In the event that actual events differ from management's
estimates, or to the extent that these estimates are adjusted in the future, any
changes to the valuation allowance could materially impact our financial
position and results of operations.
35
Authoritative Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations" effective June 30, 2001 for business
combinations that are consummated after July 1, 2001, and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 eliminates the
pooling-of-interests method of accounting for business combinations and requires
use of the purchase method. SFAS No. 142 addresses how intangible assets should
be accounted for upon their acquisition as well as how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. With the adoption of this statement,
goodwill is no longer subject to amortization over its estimated useful life.
Goodwill will be assessed for impairment each year using a fair-value-based
test. The Company adopted this standard on January 1, 2002, and based on the
analysis performed to date, adoption of this standard will not result in a
material impairment of the carrying value of the goodwill or other intangible
assets with indefinite lives. The adoption is expected to result in an
approximately $1.0 million decrease in the annual amortization of goodwill and
other intangible assets.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which the
obligation is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. This statement is effective on January 1, 2003 with earlier application
encouraged. The Company is currently reviewing this statement and has not yet
determined its impact, if any, on the Company's financial position, results of
operations or cash flows.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires that
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. The statement is effective January 1, 2002 and is not anticipated to
have any impact on the Company's financial position, results of operations or
cash flows.
Results of Operations
The following table sets forth certain income and expense items as a
percentage of net sales for the periods indicated:
2001 2000 1999
----- ------ -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 30.2 30.2 29.0
----- ------ -----
Gross profit 69.8 69.8 71.0
----- ------ -----
Operating expenses:
Research and development 10.1 10.8 11.3
Sales and marketing 24.6 25.3 25.3
General and administrative 13.7 14.4 16.5
Acquisition costs 1.1 2.5 -
In-process research and development - - 3.1
----- ------ -----
Income from operations 20.3 16.8 14.8
----- ------ -----
Other income 1.1 1.2 1.0
----- ------ -----
Income before provision for income
taxes and minority interest 21.4 18.0 15.8
Provision for income taxes 8.3 8.3 6.9
Minority interest - - 0.1
----- ------ -----
Net income 13.1% 9.7% 8.8%
===== ====== =====
In 2001, without the $3.0 million acquisition charge related to the Sawady Group
of companies, income from operations for that year would have been 21.4% and net
income would have been 13.7%, as a percentage of net sales. Excluding the
acquisition costs of $5.4 million in 2000 related to Operon Technologies, the
percentage for income from operations would have been 19.3% and net income would
have been 12.2%, as a percentage of net sales. In 1999, without the $5.1 million
charge for purchased in-process research and development, income from operations
for that year would have been 17.9% and net income would have been 11.9%, as a
percentage of net sales.
36
Fiscal Year Ended December 31, 2001 compared to 2000
Net Sales
Net sales in 2001 increased 22% to $263.8 million from $216.8 million
in the same period of 2000. Net sales in the United States increased 22% (or
$25.2 million) to $142.4 million in 2001 from $117.2 million in 2000, and net
sales outside the United States increased 22% (or $21.8 million) to $121.4
million in 2001 from $99.6 million in 2000. Net sales within and outside of the
United States increased principally due to increased unit sales of consumable
and instrumentation products to existing and new customers. Unit sales increases
were attributable to focused marketing efforts and a sales force that continues
to actively identify and service customer needs.
The increase within the United States was primarily attributable to net
sales at QIAGEN, Inc., located in Valencia, California and QIAGEN Operon, Inc.
(Operon) located in Alameda, California. QIAGEN, Inc. reported an increase of
18% (or $16.9 million) in 2001 over 2000 and Operon reported an increase of 31%
(or $6.3 million). Outside of the United States, the increase in net sales was
primarily due to growth at QIAGEN GmbH, located in Germany, which reported an
increase in net sales of 42% (or $12.2 million), QIAGEN Ltd, located in England,
which reported an increase of 36% (or $4.3 million) and QIAGEN K.K., located in
Japan, which reported and increase of 26% (or $4.9 million) for 2001 compared to
2000, offset by a decrease of 12% (or $1.1 million) which was recorded by QIAGEN
Instruments AG, located in Switzerland. The decrease of sales at QIAGEN
Instruments reflected a shift in sales strategy, which resulted in a reduction
of net sales by QIAGEN Instruments to OEM clients. This reduction was more than
offset by increased intercompany sales to other QIAGEN companies for further
resale of the instruments as QIAGEN-branded products.
While subsidiaries continue to report increased sales of consumable and
instrumentation products, the Company continues to expect, as disclosed in
previous filings, a slower rate of sales growth for the range of products
designed for large-scale plasmid DNA applications as their market matures. The
Company continually introduces new products in order to extend the life of its
existing product lines as well as to address new market opportunities. During
2001, the Company released over 25 new products including ProofStartTM DNA
Polymerase -- a high-fidelity proofreading enzyme, the QIAexpress(R) UA Cloning
Kit -- for direct cloning of PCR products into an expression vector for the
production of 6xHis-tagged proteins and the QuantiTect(TM) SYBR(R) Green PCR and
RT-PCR Kits, for highly specific and sensitive quantitative PCR and RT-PCR.
During 2000, the Company released over 20 new products.
Changes in exchange rates continued to affect the growth rate of net
sales. A significant portion of the Company's revenues is denominated in
European Union euros. Using identical foreign exchange rates for both periods,
net sales in 2001 would have increased approximately 25% (or $54.5 million), as
compared to the reported increase of 22% (or $47.0 million). See "Currency
Fluctuations."
Gross Profit
Gross profit was $184.1 million or 70% of net sales in 2001 as compared
to $151.4 million or 70% of net sales in 2000. The absolute dollar increase is
attributable to the increase in net sales. The Company's separation and
purification consumable products carry a higher gross profit than many of the
Company's other products, such as instrumentation and synthetic nucleic acid
products. Fluctuations in the product mix can lead to fluctuations in gross
profit. The Company continues to develop additional instrumentation products
that meet the needs of the molecular diagnostic and genomics markets and
anticipates future increases in sales of instrumentation products. Additionally,
with the establishment of QIAGEN Operon GmbH, located in Germany, and the March
31, 2001 acquisition of the Sawady Group of companies, located in Japan, the
Company expects growth in the European and Japanese markets of its synthetic
nucleic acid products through these subsidiaries.
Research and Development
Research and development expenses increased 15% to $26.8 million (10%
of net sales) in 2001 compared with $23.4 million (11% of net sales) in 2000. As
the Company continues expansion of its research and development facilities and
new product development capabilities, additional research and development
expense will be incurred related to facility costs and obtaining and retaining
employees for the research and development efforts. The Company's U.S. research
and development facility located in Germantown, Maryland, on which construction
is substantially complete, is anticipated to include research and development
activities. As of December 31, 2001, the Company employed 328 research and
development personnel. The Company has a strong commitment to research and
development, as demonstrated by the recent expansion of the German research
facility along with the new U.S. facility, and anticipates that absolute
research and development expenses will continue to increase significantly.
37
Sales and Marketing
Sales and marketing expenses increased 18% to $64.8 million (25% of net
sales) in 2001 from $54.9 million (25% of net sales) in 2000. The increase in
sales and marketing expenses reflects the Company's continued expansion of its
sales force and advertising efforts in connection with the sale of its existing
products and the introduction of new products. Such efforts contributed to the
growth in net sales in 2001. Increased sales and marketing costs are primarily
associated with personnel, commissions, advertising, publications, freight and
logistics expenses and other promotional items. The Company has recently
completed the pilot phase of a Customer Relationship Management system (CRM).
While this project has required investment, the Company believes that the
developed and implemented systems will allow significant increases of
productivity in areas including sales and marketing. During 2001, the Company
increased its sales force by approximately 30%. Sales and marketing expenses
attributed to the Company's newest subsidiaries, QIAGEN Operon GmbH and QIAGEN
S.p.A. and QIAGEN Genomics, Inc. totaled $3.5 million in 2001 compared to $1.1
million in 2000. The Company anticipates that selling and marketing costs will
continue to increase along with new product introductions and continued growth
in sales of the Company's products.
General and Administrative
General and administrative expenses increased 16% to $36.0 million (14% of
net sales) in 2001 from $31.2 million (14% of net sales) in 2000. General and
administrative expenses attributed to the Company's principal production and
manufacturing operations at QIAGEN GmbH, QIAGEN Instruments AG, Operon, and
QIAGEN Sciences, Inc. (the Company's newest U.S. facility), totaled $20.3
million in 2001 compared to $13.9 million in 2000. This absolute dollar increase
primarily represents the increased costs related to the support of the Company's
growing administrative infrastructure that is expanding to accommodate the
Company's continued growth. Additionally, during the year, the allowance for
doubtful accounts was increased in line with the increases in sales and accounts
receivable. Further, during 2001, QIAGEN Instruments (acquired in 1998) and
Operon (acquired in 2000) began to apply policies in evaluating the adequacy of
their allowance for doubtful accounts that are more consistent with the
Company's overall historic valuation policies, and their allowances for
doubtful accounts were increased accordingly. In 2001, the allowance for
doubtful accounts was increased by approximately $1.4 million. The increase in
general and administrative expenses was partially offset by the reversal of a
retirement allowance at Sawady of approximately $2.0 million that is no longer a
liability of the subsidiary.
Acquisition Costs
On March 31, 2001, the Company acquired the Sawady Group of companies
located in Tokyo, Japan. Acquisition and related charges were approximately $3.0
million, which include approximately $1.0 million of direct transaction costs,
(primarily legal and other professional fees) and approximately $2.0 million
primarily relating to the relocation, closure and elimination of leased
facilities, such as duplicate field offices.
Other Income (Expense)
Other income was $2.8 million in 2001 compared to $2.6 million in 2000.
This increase was mainly due to decreased interest expense, increased income
from research and development grants, and a gain on foreign currency
transactions, partially offset by decreased interest income and a higher loss on
equity method investee.
Interest expense decreased to $991,000 in 2001 compared to $1.6 million
in 2000. This decrease is due to the capitalization of interest related to the
new German and U.S. facility construction in accordance with Financial
Accounting Standard No. 34. For the year ended December 31, 2001, approximately
$2.2 million of interest cost was capitalized. There was no capitalized interest
in 2000. Actual interest costs increased primarily as a result of the Company's
additional long-term borrowings related to the new facility construction.
In the 2001, research and development grant income from European as
well as German state and federal government grants increased to $1.5 million
from $1.2 million in 2000. The Company conducts significant research and
development activities in Germany, and expects to continue to apply for such
research and development grants in the future.
Gain/loss on foreign currency transactions was a gain of $31,000 in
2001 and a loss of $231,000 in 2000. Income from foreign currency transactions
reflects net effects from conducting business in currencies other than the U.S.
dollar. QIAGEN N.V.'s functional currency is the U.S. dollar and its
subsidiaries' functional currencies are the European Union euro, the British
pound, the Swiss franc, the U.S. dollar, the Australian dollar, the Canadian
dollar, and the Japanese yen. See "Currency Fluctuations."
38
In 2001, interest income decreased to $1.8 million from $3.0 million in
2000. Interest income is derived mainly from the Company's investment of funds
in investment grade, interest-bearing marketable securities. As of December 31,
2001, the Company had approximately $22.5 million invested in such securities
compared to $37.3 million at December 31, 2000. The weighted average interest
rates on the Company's marketable securities portfolio ranged from 4.48% to
5.75% in 2001, compared to 5.75% to 6.78% in 2000.
In 2001, the Company recorded net losses from equity method investees
of $1.4 million compared to $870,000 in 2000. The Company had two equity
investments at December 31, 2001 and anticipates that these investments will
continue to generate losses at least through 2002. One of these investments,
PreAnalytiX, launched its first product, the PAXgene Blood RNA System, in April
2001. The PAXgene Blood RNA System is intended to minimize the chronic problems
associated with preanalytical process variability and to eliminate much of the
unpredictability that has been a critical limitation in RNA analysis. As
previously disclosed, the Company intends to continue to make strategic
investments in complementary businesses as the opportunities arise. Accordingly,
the Company may continue to record losses on equity investments in start-up
companies based on the Company's ownership interest in such companies.
Other miscellaneous income increased to income of $1.9 million in 2001
from $1.1 million in 2000, primarily due to the approximate $1.3 million net
gain on the sales of marketable securities 2001.
Provision for Income Taxes
The Company's effective tax rate decreased to 39% in 2001 from 46% in
2000. The Company's operating subsidiaries are exposed to effective tax rates
ranging from approximately 8% to approximately 50%. The decrease is due to the
lack of a tax benefit associated with the acquisition costs in 2000. Without the
acquisition costs in 2000, the Company's effective tax rate would have been 41%.
Further, fluctuation in the distribution of pre-tax income among the
subsidiaries can lead to fluctuations of the effective tax rate in the Company's
consolidated financial statements.
Minority Interest
Previously, the Company had a 60% interest in its Japanese subsidiary,
QIAGEN K.K., and a 50% interest in Rosys Instruments, Inc. (Rosys Inc.), a
subsidiary of the Company's wholly owned subsidiary QIAGEN Instruments AG.
QIAGEN Instruments AG sold its interest in Rosys Inc. in June 2000, and the
Company acquired the minority shareholders' interest in QIAGEN K.K. during the
first quarter of 2001. The financial position and results of operations of these
subsidiaries are included in the Company's consolidated financial statements for
the applicable periods.
Fiscal Year Ended December 31, 2000 compared to 1999
Net Sales
In 2000, net sales increased 37% (or $58.6 million) to $216.8 million
compared to $158.2 million in 1999. All subsidiaries reported increased sales
over the prior period. The majority of the Company's sales continue to be
attributable to the Company's consumable products, which experienced strong
growth worldwide during the year. Net sales in the United States increased 34%
(or $29.6 million) to $117.2 million in 2000 from $87.6 million in 1999. Outside
the United States, net sales increased 41% (or $29.0 million) to $99.6 million
in 2000 from $70.6 million in 1999. Net sales within and outside of the United
States increased principally due to increased unit sales of consumable and
instrumentation products.
The increase in sales within the U.S. was primarily due to increased
sales at QIAGEN, Inc. of approximately $22.6 million (31%) over the prior year.
The increase in sales outside of the U.S. was led by increases at QIAGEN GmbH
and QIAGEN K.K. of approximately $4.4 million (18%) and approximately 3.4
million (26%), respectively. In addition to obtaining new customer accounts,
increases in consumable sales were also attributable to further leverage of the
Company's sales force which, based on its size and focused presence, is
increasingly able to identify and service customer needs. Additionally, the
Company experienced very strong BioRobot(R) sales and sales from the Operon
products.
39
While sales of consumable products continue to increase, the Company
continues to expect, as disclosed in previous filings, a slower rate of sales
growth for the range of products designed for large-scale plasmid DNA
applications as their market matures. The Company continually introduces new
products in order to extend the life of its existing product lines as well as to
address new market opportunities. During 2000, the Company released over 20 new
products including the BioRobot(R) 8000, for fully automated nucleic acid
purification and liquid handling, a system for purification of DNA in low
elution volumes, a complete RNA protection and isolation system and a kit for
ultrafast purification of ultrapure plasmid DNA.
A significant portion of the Company's revenues during 2000 was
denominated in German marks. Compared to 1999, in 2000 the German mark, as
measured by the average exchange rate for the period, depreciated against the
U.S. dollar by 13.4%. If the same rates used for 1999 were applied to 2000, net
sales in 2000 would have been higher and the related percentage growth would
have been higher than the percentage calculated in reported net sales. See
"Currency Fluctuations."
Gross Profit
Gross profit increased 35% in 2000 to $151.4 million or 70% of net
sales for the year ended 2000 compared to $112.3 million or 71.0% of net sales
in 1999. The absolute dollar increase is attributable to the increase in net
sales. Gross profit is reduced by increased sales of instrumentation products,
such as the QIAGEN BioRobot(R), as they carry a lower gross margin than the
Company's consumable products.
Research and Development
During 2000, research and development expense increased 31% to $23.4
million (11% of net sales), up from $17.8 million (11% of net sales) in 1999.
During the first quarter of 1999, construction was completed on a new research
and development facility, which was further expanded as of January 2000 and, as
a result, operating costs related to the facility were higher in 2000.
Additionally, QIAGEN Genomics, Inc., which was purchased on December 31, 1999,
incurred $2.6 million in research and development costs in fiscal 2000. The
increase in research and development expenses over the prior year was also due
to the increased personnel costs related to hiring of new research and
development personnel. At December 31, 2000, the Company employed 230 research
and development personnel.
Sales and Marketing
Sales and marketing expenses increased 38% in 2000 to $54.9 million
(25% of net sales) from $39.9 million (25% of net sales) in 1999. The increase
in sales and marketing expenses is primarily attributable to increases in costs
associated with marketing materials, such as publications and promotional items,
and personnel. During 2000, the Company increased its sales force by
approximately 30%. Sales and marketing expenses attributed to the Company's new
subsidiaries QIAGEN Genomics, Inc. and QIAGEN S.p.A. totaled $1.1 million for
the year ended December 31, 2000. The Company anticipates that selling and
marketing costs will continue to increase along with continued growth in sales
of the Company's products.
General and Administrative
General and Administrative costs increased 19% in 2000 to $31.2 million
(14% of net sales) from $26.1 million (17% of net sales) in 1999. The absolute
dollar increase is primarily attributable to the general and administrative
costs at the Company's five new subsidiaries. Further, this increase represents
increased costs required to support the Company's administrative infrastructure
that is growing to accommodate the Company's continued growth. The decrease in
General and Administrative costs as a percent of sales was primarily due to
economies of scale.
Acquisition Costs
On June 28, 2000, the Company acquired Operon Technologies, Inc. in
Alameda, California. In connection with the acquisition, which was accounted for
as a pooling of interests, the Company incurred costs of $5.4 million. These
costs include approximately $3.9 million of finder fees for the investment
banker chosen by the shareholders of Operon. This fee was not paid for by the
Company, but by the Operon shareholders. However, in accordance with the
accounting rules for a pooling of interests transaction, this expense is
reflected in the 2000 financial statements. The acquisition costs also include
approximately $1.0 million in Netherlands capital tax, which is based on the
amount of capital raised in share issuances.
40
In-Process Research and Development
On December 31, 1999, the Company acquired Rapigene, Inc., subsequently
renamed QIAGEN Genomics, Inc., in a transaction accounted for as a purchase.
Independent appraisers utilizing proven valuation procedures and techniques
allocated a portion of the purchase price as in-process research and
development. The Company recorded a charge of $5.1 million for purchased
in-process research and development in the fourth quarter of 1999. This charge
represents the estimated fair value of the purchased in-process research and
development based on risk-adjusted cash flows related to the in-process research
and development projects. At the date of acquisition, the development of these
projects had not yet reached technological feasibility and the research and
development in progress had no alternative future use. Accordingly, the Company
expensed these costs.
Other Income (Expense)
Other income increased to $2.6 million in 2000 from $1.6 million in
1999. This increase was mainly due to increased interest income on marketable
securities, partially offset by an increase in foreign currency transaction
losses.
During 1999, the Company entered into three equity investments in new
start-up companies. In that year, a total of $637,000 was recorded as the equity
loss from these investments. In 2000 these losses totaled $870,000. Given the
newness of the ventures, the Company anticipates that these investments will
continue to generate losses at least during the next several years.
The Company received a total of $1.2 million in 2000 for research and
development grants from European and German state and federal government
institutions compared to $1.1 million in 1999.
Interest expense increased to $1.6 million in 2000 compared to $1.3
million in 1999. This increase is primarily due to interest expense on the
Company's new research and development facility, which carries higher principal
and interest costs than the former facility alone. In January 2000, the Company
began recording lease payments on the expansion of the research and development
facility, thus lease related interest expense in 2000 exceeded 1999 amounts.
Interest income increased to $3.0 million in 2000 from $1.6 million in
1999. Interest income is derived mainly from the Company's investment of funds
in investment grade, interest-bearing marketable securities. As of December 31,
2000, the Company had approximately $37.3 million invested in such securities.
In 2000, the Company incurred losses on foreign currency transactions
of $231,000 compared with a gain of $420,000 in 1999. Income from foreign
currency transactions reflects net effects from conducting business in
currencies other than the U.S. dollar. QIAGEN N.V.'s functional currency is the
U.S. dollar and its subsidiaries' functional currencies are the German mark,
the British pound, the Swiss franc, the French franc, the U.S. dollar, the
Australian dollar, the Canadian dollar, the Japanese yen and the euro. See
"Currency Fluctuations."
Other miscellaneous income increased to $1.1 million in 2000 from
$471,000 in 1999 primarily due to increased handling fees paid to QIAGEN N.V.
for stock options exercises.
Provision for Income Taxes
The Company's effective tax rate increased to 46% in 2000 from 44% in
1999. The increase is due to the lack of a tax benefit associated with the
acquisition costs in 2000 along with increased taxable income at foreign
subsidiaries in 2000 compared to 1999. Without the acquisition costs in 2000,
the Company's effective tax rate would have been 41%. The tax rate in 1999 was
high due to the lack of a tax benefit for the in-process research and
development charge. The effective tax rate excluding the in-process research and
development charge would have been 36% in 1999.
Minority Interest
The Company has a 60 percent interest in its Japanese subsidiary,
QIAGEN K.K and until June 30, 2000 the Company also had an interest in Rosys
Instruments, Inc. (Rosys, Inc.) which was 50 percent owned by QIAGEN Instruments
AG. The financial position and results of operations of these subsidiaries are
included in the Company's consolidated financial statements. The minority
interest in income of QIAGEN K.K. and Rosys, Inc. decreased to $36,000 in 2000
from $149,000 in 1999, as shown in the consolidated statements of income. This
decrease is primarily due to the sale of Rosys, Inc.
41
Liquidity and Capital Resources
To date, the Company has funded its business primarily through
internally generated funds, debt and the private and public sales of equity. For
the years ended December 31, 2001 and 2000, the Company generated net cash from
operating activities of approximately $58.1 million and $40.7 million,
respectively. Cash provided by operating activities increased in 2001 over 2000
primarily due to increases in net income, depreciation and amortization, and
smaller increases in accounts receivable, accounts payable and inventories than
in 2000, partially offset by increases in prepaid expenses, the realized gain on
sales of marketable securities, and the reduction in tax benefits associated
with non-qualified stock options. Since the Company relies heavily on cash
generated from operating activities to fund its business, a decrease in demand
for the Company's product or significant technological advances of competitors
would have a negative impact on the Company's liquidity.
Approximately $90.8 million of cash was used in investing activities
during 2001, compared to $46.3 million in 2000. Investing activities during 2001
consisted principally of the purchases of property and equipment in connection
with the expansion of the Company's operations in Germany and the U.S. and the
sale of marketable securities.
Financing activities provided $66.2 million in cash during 2001
compared to $14.3 million provided in 2000. The financing activities in 2001
consisted primarily of proceeds on long-term borrowings and lines of credit,
proceeds from the issuance of common shares due to stock option exercises, as
well as proceeds received from State and County grants related to the
construction of the U.S. facility in Maryland, partially offset by short-term
and long-term debt repayments. Financing activities during 2000 consisted
primarily of proceeds from the issuance of common shares, including a private
sale of 616,000 shares, offset by the repayment of the acquisition note payable
related to the purchase of Rapigene, Inc. (renamed QIAGEN Genomics, Inc.).
As of December 31, 2001 and 2000, the Company had cash and cash
equivalents along with investments in current marketable securities of $80.0
million and $61.3 million, respectively, and working capital of $119.4 million
and $101.5 million, respectively. Cash and cash equivalents are primarily held
in U.S. dollars, other than those cash balances maintained in the local currency
of the subsidiary to meet local working capital needs. The Company has credit
lines totaling $9.6 million at variable interest rates of which approximately
$6.0 million was utilized as of December 31, 2001. In addition, as of December
31, 2001 the Company had short-term loans outstanding totaling $281,000 and
capital lease obligations in the amount of $11.5 million. The Company also
carries $71.9 million of long-term debt that consists mainly of three notes
payable, two which are due in one payment in May 2003 totaling approximately EUR
70.4 million, at a variable rate of EURIBOR plus 1.2%, and one note due in
semi-annual payments through March 2009 of EUR 252,000, at a fixed rate of
3.75%.
At December 31, 2001, the Company continued the construction of three
new facilities. The Company's new U.S. research and manufacturing facility is
substantially completed at a total estimated project cost of $55.3 million.
Construction on two new German facilities commenced in October 2000, with
estimated completion in the third quarter of 2002. The total estimated cost for
these facilities is approximately EUR 54.0 million (approximately $48.1 million
at December 31, 2001). Cash flows from operations and bank loans will continue
to fund the estimated costs to complete these projects.
In May 2001, the Company obtained two new loan facilities totaling EUR
100.0 million (approximately $89.0 million at December 31, 2001) each with an
initial term of two years. The primary intended use of the proceeds from these
facilities is the refinancing of previously made acquisitions of land and the
construction of manufacturing, research and administrative facilities at these
sites. At December 31, 2001, approximately $62.6 million had been drawn against
these facilities, and is included in long-term debt.
Future contractual cash obligations resulting from long-term debt,
capital leases and operating leases are as follows:
Contractual obligations
(in thousands) Total 2002 2003 2004 2005 2006 Thereafter
-------------- ----- ---- ---- ---- ---- ---- ----------
Long-term debt $ 71,858 $1,138 $64,001 $1,557 $1,172 $1,146 $ 2,844
Capital lease obligations 17,365 1,789 1,554 1,274 1,140 930 10,678
Operating leases 14,331 4,521 4,616 3,092 1,187 121 794
-------- ------ ------- ------ ------ ------ -------
Total contractual cash obligations $103,554 $7,448 $70,171 $5,923 $3,499 $2,197 $14,316
======== ====== ======= ====== ====== ====== =======
42
Additional commercial commitments including lines of credit and
purchase commitments are as follows:
Total
Other commercial commitments Amounts
(in thousands) Committed 2002 2003 2004 2005 2006 Thereafter
-------------- --------- ---- ---- ---- ---- ---- ----------
Lines of credit $6,038 $6,038 - - - - -
Other commercial commitments $36,700 $24,400 $4,800 $7,500 - - -
------- ------- ------ ------
Total commercial commitments $42,738 $30,438 $4,800 $7,500 - - -
======= ======= ====== ======
The Company believes that funds from operations, together with the
proceeds from its public and private sales of equity, and the use of debt
financing as needed, will be sufficient to fund the Company's planned operations
during the coming year.
The functional currencies of the Company and its subsidiaries generally
are their respective local currencies in accordance with Statement of Financial
Accounting Standard No. 52 "Foreign Currency Translation". All amounts in the
financial statements of entities whose functional currency is not the dollar are
translated into dollar equivalents at exchange rates as follows: (1) assets and
liabilities at period-end rates, (2) income statement accounts at average
exchange rates for the period, and (3) components of shareholders' equity at
historical rates. Translation gains or losses are recorded in shareholders'
equity and transaction gains and losses are reflected in net income. The net
gain (loss) on foreign currency transactions for 2001, 2000 and 1999, was
$31,000, ($231,000) and $420,000, respectively, and is included in other income.
Business Factors
This report contains forward-looking statements that are subject to
certain risks and uncertainties. These statements include statements regarding
(i) the Company's ability to maintain its relationships with its customers and
its broad range of products, (ii) the Company's ability to stay abreast of
technological developments and to develop and introduce new products, (iii) the
size, nature and development of the Company's markets and potential markets,
(iv) the Company's ability to penetrate and expand these markets and trends in
the demand for the Company's existing and new products, (v) the Company's
ability to increase its production efficiency as a result of expansion in its
production capacity and to manage growth and its international operations, (vi)
the integration of strategic acquisitions and complementary business
investments, (vii) variability of operating results and (viii) the Company's
liquidity (including the effects of currency fluctuations). Such statements are
based on management's current expectations and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. The Company cautions
investors that there can be no assurance that actual results or business
conditions will not differ materially from those projected or suggested in such
forward-looking statements as a result of various factors, including, but not
limited to, the following: risks associated with the Company's expansion of
operations, including the acquisition of new companies; variability in the
Company's operating results from quarter to quarter; management of growth,
international operations, and dependence on key personnel; intense competition;
technological change; the Company's ability to develop and protect proprietary
products and technologies and to enter into collaborative commercial
relationships; the Company's future capital requirements; general economic
conditions and capital market fluctuations; and uncertainties as to the extent
of future government regulation of the Company's business. As a result, the
Company's future development efforts involve a high degree of risk. For further
information, refer to the more specific risks and uncertainties discussed
throughout this Annual Report.
Item 6. Directors, Senior Management and Employees
Supervisory Directors and Managing Directors are appointed annually for
the period beginning on the date following the Annual General Meeting up to and
including the date of the Annual General Meeting held in the following fiscal
year. The Supervisory Directors, Managing Directors and executive officers of
the Company, and their ages as of February 15, 2002, are as follows:
Name Age Position
Dr. Metin Colpan.................. 47 Managing Director, Chief Executive Officer
Peer M. Schatz.................... 36 Managing Director, Chief Financial Officer
Prof. Dr. Detlev H. Riesner(1).... 60 Chairman of the Supervisory Board, Supervisory Director
Jochen Walter(2).................. 54 Supervisory Director
Dr. Franz A. Wirtz(1)............. 69 Supervisory Director
Erik Hornnaess.................... 64 Supervisory Director
Dr. Heinrich Hornef (2)........... 70 Deputy Chairman of the Supervisory Board, Supervisory Director
Prof. Dr. Manfred Karobath........ 61 Supervisory Director
Prof. Dr. jur Carsten P. Claussen was appointed as non-voting Special Advisor and Honorary Chairman in 1999.
-----------------------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
43
The Company has not entered into contracts with any member of the
Supervisory Board that provide for benefits upon a termination of the employment
of service of the member.
The following is a brief summary of the background of each of the
Supervisory Directors, the Managing Directors and the Honorary Chairman.
Supervisory Directors and Managing Directors are appointed annually for the
period beginning on the day following the Annual General Meeting up to and
including the date of the Annual General Meeting held in the following fiscal
year. References to "QIAGEN" and the "Company" in relation to periods prior to
April 29, 1996 mean QIAGEN GmbH and its consolidated subsidiaries:
Dr. Metin Colpan is a co-founder of the Company and has been Chief
Executive Officer and a Managing Director since 1985. Dr. Colpan obtained his
Ph.D. and M.Sc. in Organic Chemistry and Chemical Engineering from the Darmstadt
Institute of Technology in 1983. Prior to founding QIAGEN, Dr. Colpan was an
Assistant Investigator at the Institute for Biophysics at the University of
Dusseldorf. Dr. Colpan has had wide experience in separation techniques and in
the separation and purification of nucleic acids in particular, and has filed
many patents in the field. Dr. Colpan currently serves as a supervisory board
member of GPC Biotech AG and Ingenium Pharmaceuticals AG, each in Munich,
Germany, and Omnitron in Dusseldorf, Germany. The Company has obtained a key man
life insurance policy on the life of Dr. Colpan in the amount of EUR 767,000.
Peer M. Schatz joined the Company as Chief Financial Officer in 1993
and became a Managing Director in 1998. Mr. Schatz was previously a partner in a
private management buyout group in Switzerland and worked in finance and systems
positions in Sandoz, Ltd. and Computerland AG as well as in finance, operations,
management and sales positions in various start-up companies in the computer and
software trading industry in Europe and the United States. Mr. Schatz graduated
from the University of St. Gall, Switzerland, with a Master's degree in Finance
in 1989 and obtained an M.B.A. in Finance from the University of Chicago
Graduate School of Business in 1991. Mr. Schatz also serves in the capacities of
director and vice chairman to Evotec OAI AG and Mulligan BioCapital AG and is a
member of the Advisory Board (Borsenrat) of the Frankfurt Stock Exchange.
Professor Dr. Detlev H. Riesner is a co-founder of QIAGEN. He has been
on the Company's Supervisory Board since 1984 and was appointed Chairman of the
Supervisory Board in 1999. Professor Riesner has held the Chair of Biophysics at
the Heinrich-Heine-University in Dusseldorf since 1980. In 1996, he was also
appointed to the position of Vice President of Research, and in 1999, he was
nominated Director of Technology at the University of Dusseldorf. Prior to that
he was Professor of Biophysical Chemistry at the Darmstadt Institute of
Technology and from 1975 to 1977, Lecturer of Biophysical Chemistry at Hannover
Medical School. He has held guest professorships at the Institute of
Microbiology, Academia Sinica, Beijing, and the Department of Neurology at the
University of California, San Francisco. He received his M.S. in Physics from
Hannover Institute of Technology and his Ph.D. from the University of
Braunschweig, with post-graduate work at Princeton University. Professor Riesner
is also a member of the supervisory board or a director of New Lab Bioquality
AG, Erkrath; Therascope AG, Heidelberg; Kourion AG, Dusseldorf; Neuraxo GmbH,
Dusseldorf; and Solutas GmbH Hurth.
Jochen Walter joined the Supervisory Board of QIAGEN in 1988. Since
1985, Mr. Walter has been the Managing Director of RBS GmbH (previously called
Innovatives Dusseldorf), a venture capital company, which was the management
company for S-Kapitalbeteiligungsgesellschaft Dusseldorf, mbH. Since 1968, he
has been involved in a wide range of management positions in commercial banking.
Mr. Walter holds a diploma in banking management from the Banking Institute in
Bonn. Mr. Walter currently serves in the capacities of supervisory board member
of Rhein Biotech N.V., NETEC AG and RBB Management AG. He has also served in
the capacities of supervisory board member of TRAPO AG, Martel GmbH,
Isotopen-Technik Dr. Sauerwein GmbH, and Sauerweinsystem-Technik GmbH; advisory
board member of RBB Regionale Beteiligungs-u. Beratungsgesellschaft der
Sparkassen, der Oberlausitz/Niederschlesien u. der Saechsischen Schweiz mbH;
management board member of BVK Bundesverband Deutscher
Kapitalbeiligungsgesellschaften-German Venture Capital Association e.V.; and
management director and general manager of S-Kapitalbeteiligungsgesellschaft
Dusseldorf, mbH.
44
Dr. Franz A. Wirtz has been a member of QIAGEN's Supervisory Board
since 1989. Dr. Wirtz was Managing Director of Grunenthal GmbH, Aachen/Germany,
a large, private pharmaceutical company from 1962-1997 and a member of its
Advisory Board from 1998-2001. He is chairman of the Supervisory Board of Paion
GmbH, Stolberg and Vice Chairman of Dasgip AG, Julich, two young German biotech
companies. For 10 years Dr. Wirtz was treasurer of the German pharmaceutical
industry association. Dr. Wirtz holds the doctorate degree in chemistry from the
Rheinisch-Westfalische Technische Hochschule in Aachen whose honorary citizen he
became in 2001.
Erik Hornnaess has been a member of the Supervisory Board since 1998.
Mr. Hornnaess worked for Astra Pharmaceuticals, Sweden from 1965 until 1979 in
various management positions in Sweden, Australia, and Canada and, for the last
three years of this period, as the General Manager for the Benelux region
(Belgium, The Netherlands and Luxembourg). In 1979, he joined Abbott
Laboratories European Headquarters in Paris, France and from 1982 he was the
Area Vice-President of Abbott Diagnostic Division in Europe, Middle-East and
Africa, with headquarters in Wiesbaden, Germany. Mr. Hornnaess retired from
Abbott Laboratories on March 1, 1997 and currently serves as non-executive
Director of Alpharma (ALO), New Jersey, AXIS-SHIELDS Group, Scotland, CARDION
GmbH, Germany, RADIOMETER A/S, Denmark, EPICEPT INC., New Jersey, and MEDITRON
A/S, Norway. He also serves on the advisory board of TVM (Techno Venture
Management), Munich. Additionally, Mr. Hornnaess served as the Vice-President of
European Diagnostic Manufacturers Association (EDMA), Brussels in the period
1995 through 1997. Mr. Hornnaess graduated from Aarhus Handelshojskole, Denmark
with an M.B.A. and obtained a PMD from the Harvard Business School.
Dr. Heinrich Hornef has been on the Company's Supervisory Board since
2000 and was appointed Deputy Chairman of the Supervisory Board and Audit
Committee Chairman in 2001. He is chairman of the supervisory board of the
pharmaceutical company Merck KGaA as well as a member of the partners' counsel
of E. Merck, both in Darmstadt, Germany. He also serves as chairman on the board
of Heidelberg Innovation GmbH, a biotechnology and life-science venture capital
company in Heidelberg, Germany as chairman of the advisory board of mphasys
GmbH, Tuebingen, and as a member of the Beirat of Deutsche Bank AG. Prior to his
retirement in December 1996, Dr. Hornef served as CFO of Boehringer Mannheim
GmbH (1973-1991), as CFO of the Berlin-based Treuhandanstalt, the privatization
agency in East-Germany (1992-1994), and as president of its successor-
organisation BvS (1995-1996).
Professor Dr. Manfred Karobath studied medicine and worked from 1967 to
1980, first, in the Dept. of Biochemistry of the University of Vienna and, after
a stage as postdoctoral fellow, he joined the Dept. of Psychiatry where he
became professor of biological Psychiatry. In 1980, he joined Sandoz Pharma in
Basel, first, in drug discovery, and later, he became Senior Vice President and
head of R&D, Switzerland. In 1992, Prof. Dr. Karobath joined Rhone Poulenc Rorer
("RPR") as President of R&D and Executive Vice President and later he became a
member of the Boards of Directors of RPR, Pasteur Merieux Connought, Centeon and
Rhone Poulenc Pharma. He has received several scientific awards and has
published 92 scientific papers. Dr. Karobath also serves as an executive board
member of Coley Pharmaceutical Group, as chairman and executive board member of
IDEA AG and as deputy chairman and executive board member of CARDION AG.
Professor Dr. jur. Carsten P. Claussen was Chairman of the Supervisory
Board of the Company from 1988 to June 1999 and was appointed as a Special
Advisor and Honorary Chairman in 1999. Professor Claussen is no longer a voting
member of the Supervisory Board. For many years he has pursued a career in
private banking. Between 1976 and 1987, Professor Claussen was a member of the
Executive Board of Norddeutsche Landsbank, Hannover, and Chairman of the
Hannover Stock Exchange. Since 1987, he has been a lawyer in Duesseldorf and
senior advisor to IKB Deutsche Industriekreditbank, Dusseldorf. At present, he
is a partner in the law firm of Hoffmann Liebs and Partner and specializes in
corporate law and capital market transactions. He is Chairman of the Board of
TON ART AG, Duesseldorf; Flossbach & v. Storch Vermogensmangagement AG, Cologne;
Co.don AG, Teltow and WAS Worldwide Analytical Systems AG, Cleve and is a member
of other boards. Professor Claussen received his Ph.D. in law from the
University of Cologne.
Audit and Compensation Committees
The Audit Committee consists of two members, Dr. Hornef (Chairman) and
Mr. Walter, and meets at least quarterly. The Audit Committee members are
appointed by the Supervisory Board and serve for a term of one year. The Audit
Committee recommends the selection of independent public accountants to audit
the consolidated financial statements and local books and records of the Company
and its subsidiaries, along with approving the fees for such services; reviews
the performance of the independent public accountants with management, discusses
on a quarterly basis the scope and results of the reviews and audits with the
independent public accountants; discusses the Company's financial accounting and
reporting principles and policies and the adequacy of the Company's internal
accounting, financial and operating controls with the independent public
accountants and management; considers and approves any recommendations regarding
changes to the Company's accounting policies and processes;
45
reviews with management and the independent public accountants the Company's
quarterly earnings reports prior to its release to the press; and reviews the
quarterly and annual reports (reported on Forms 6-K and 20-F) to be filed with
the Securities Exchange Commission and the Deutsche Borse.
The Compensation Committee consists of two members: Professor Riesner
(Chairman) and Dr. Wirtz. Members are appointed by the Supervisory Board and
serve for a term of one year. The Compensation Committee reviews and approves
all stock option grants, reviews and approves the annual salaries, bonuses and
other benefits of executive officers, and reviews general policies relating to
employee compensation and benefits.
Compensation of Directors and Officers
The aggregate amount paid by the Company in fiscal 2001 to the Supervisory
Directors, Managing Directors and executive officers of the Company, as a group
(8 persons) was approximately $631,000. The total cash remuneration of the
Managing Directors was approximately $589,000. There was no significant
difference between the cash remuneration for each of the two Managing Directors.
Other non-cash remuneration for both managing directors was approximately
$16,000. See Note 16 to the Consolidated Financial Statements for information
relating to retirement benefits.
In April 1996, the Supervisory Board adopted the QIAGEN N.V. 1996
Employee, Director and Consultant Stock Option Plan (the Option Plan), which was
approved by the Company's shareholders on June 3, 1996. The following tables
sets forth the total amount of vested and unvested options held by the officers
and directors of the Company, to purchase Common Shares outstanding under the
Option Plan, the expiration dates of such options, and the average prices (in
U.S. dollars) at which such options may be exercised, as of February 15, 2002.
The exercise price of each of these options is the fair market value of the
Common Shares as of the date of grant. Each of the options has a term of ten
years, subject to earlier termination in the event of death, disability or other
termination of employment. The outstanding options become exercisable in
cumulative annual installments of 33 1/3 percent each, beginning on the first
anniversary date of the grant.
Total Vested
Name Options Expiration Dates Exercise Prices
---- ------- ---------------- ---------------
Dr. Metin Colpan.................. 530,000 5/2006 to 1/2010 $1.188 to $20.500
Peer M. Schatz.................... 196,666 5/2006 to 1/2010 $1.188 to $20.500
Prof. Dr. Detlev H. Riesner....... 58,000 5/2006 to 1/2010 $1.188 to $20.500
Jochen Walter..................... 10,667 1/2009 to 1/2010 $8.609 to $20.500
Dr. Franz A. Wirtz................ 61,333 5/2006 to 1/2010 $1.188 to $20.500
Erik Hornnaess.................... 37,333 1/2008 to 1/2010 $5.625 to $20.500
Dr. Heinrich Hornef............... 5,333 1/2010 $20.500
Prof. Dr. Manfred Karobath........ 5,333 1/2010 $20.500
Total Unvested
Name Options Expiration Dates Exercise Prices
---- ------- ---------------- ---------------
Dr. Metin Colpan................ 148,000 (1) 5/2009 to 3/2011 $8.765 to $20.563
Peer M. Schatz.................. 133,334 (2) 5/2009 to 3/2011 $8.765 to $20.563
Prof. Dr. Detlev H. Riesner..... 16,000 (3) 1/2010 to 3/2011 $20.500 to $20.563
Jochen Walter................... 10,667 (4) 1/2010 to 3/2011 $20.500 to $20.563
Dr. Franz A. Wirtz.............. 10,667 (5) 1/2010 to 3/2011 $20.500 to $20.563
Erik Hornnaess.................. 10,667 (6) 1/2010 to 3/2011 $20.500 to $20.563
Dr. Heinrich Hornef............. 10,667 (7) 1/2010 to 3/2011 $20.500 to $20.563
Prof. Dr. Manfred Karobath...... 10,667 (8) 1/2010 to 3/2011 $20.500 to $20.563
(1) Includes 80,000 options granted in 2001 at an exercise price of $20.563
(2) Includes 80,000 options granted in 2001 at an exercise price of $20.563
(3) Includes 12,000 options granted in 2001 at an exercise price of $20.563
(4) Includes 8,000 options granted in 2001 at an exercise price of $20.563
(5) Includes 8,000 options granted in 2001 at an exercise price of $20.563
(6) Includes 8,000 options granted in 2001 at an exercise price of $20.563
(7) Includes 8,000 options granted in 2001 at an exercise price of $20.563
(8) Includes 8,000 options granted in 2001 at an exercise price of $20.563
46
Employees
As of December 31, 2001, the Company employed 1,557 individuals, 21% of
whom worked in research and development, 29% in sales, 26% in
production/logistics, 9% in marketing and 15% in administration.
-------------------------------------------------------------------------------------------------------
Country Research and Sales Production/Log Marketing Administration TOTAL
Development
-------------------------------------------------------------------------------------------------------
United States 32 188 106 77 95 498
-------------------------------------------------------------------------------------------------------
Germany 270 120 238 49 99 776
-------------------------------------------------------------------------------------------------------
Switzerland 26 18 42 2 14 102
-------------------------------------------------------------------------------------------------------
Canada 0 14 0 0 0 14
-------------------------------------------------------------------------------------------------------
United Kingdom 0 32 0 3 5 40
-------------------------------------------------------------------------------------------------------
France 0 21 0 1 6 28
-------------------------------------------------------------------------------------------------------
Australia 0 15 0 0 1 16
-------------------------------------------------------------------------------------------------------
Italy 0 5 0 1 1 7
-------------------------------------------------------------------------------------------------------
Japan 0 31 24 5 12 72
-------------------------------------------------------------------------------------------------------
The Netherlands 0 0 0 0 4 4
-------------------------------------------------------------------------------------------------------
12/31/2001 328 444 410 138 237 1,557
-------------------------------------------------------------------------------------------------------
None of the Company's employees is represented by a labor union or is
subject to a collective bargaining agreement. Management believes that its
relations with its employees are good.
The Company's success depends, to a significant extent, on key members
of its management and scientific staff. The loss of such employees could have a
material adverse effect on the Company. The Company's ability to recruit and
retain qualified skilled personnel to perform future research and development
work will also be critical to the Company's success. Due to the intense
competition for experienced scientists from numerous pharmaceutical and
biotechnology companies and academic and other research institutions, there can
be no assurance that the Company will be able to attract and retain such
personnel on acceptable terms. The Company's planned activities will also
require additional personnel, including management, with expertise in areas such
as manufacturing and marketing, and the development of such expertise by
existing management personnel. The inability to acquire such personnel or
develop such expertise could have a material adverse impact on the Company's
operations.
Share Ownership
The following table sets forth certain information as of February 15,
2002 concerning the ownership of Common Shares by each current member of the
managing board and supervisory board. In preparing the following table, the
Company has relied on information furnished by such persons.
Shares Beneficially Owned (1) Percent Ownership (2)
Name and Country of Residence Number
----------------------------- ----------------------------- ---------------------
Prof. Dr. Detlev H. Riesner, Germany................ 2,950,736(3) 2.06
Dr. Franz A. Wirtz, Germany......................... 1,216,700(4) *
Jochen Walter, Germany.............................. 100,000(5) *
Erik Hornnaess, Spain............................... 10,000(6) *
Professor Dr. Manfred Karobath, France.............. 0(7) *
Dr. Heinrich Hornef, Germany........................ 1,600(8) *
Dr. Metin Colpan, Germany........................... 6,000,000(9) 4.18
Peer M. Schatz, Germany............................. 1,927,576(10) 1.34
*Indicates that the person beneficially owns less than 1% of the Common Shares
issued and outstanding on February 15, 2002.
47
------------------
(1) The number of Common Shares issued and outstanding on February 15, 2002
was 143,514,593. The persons and entities named in the table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them and have the same voting rights with respect
to Common Shares.
(2) Does not include shares of Common Stock subject to options held by such
persons at February 15, 2002 and exercisable within 60-days thereafter.
See footnotes below for such information on options exercisable at
February 15, 2002 and within 60-days thereafter.
(3) Does not include 62,000 shares issuable upon the exercise of options to
purchase Common Shares at an exercise price ranging from $1.188 to
$20.500 per share. Options expire in increments during the period
between May 2006 and January 2010. Prof. Riesner also has the option to
purchase 377,302 common shares through Credit Suisse First Boston. The
2,950,736 shares are held by Riesner Verwaltungs GmbH, of which
Professor Riesner is the sole stockholder.
(4) Does not include 64,000 shares issuable upon the exercise of options to
purchase Common Shares at an exercise price ranging from $1.188 to
$20.500 per share. Options expire in increments during the period
between May 2006 and January 2010.
(5) Does not include 13,334 shares issuable upon the exercise of options to
purchase Common Shares at an exercise price ranging from $8.609 to
$20.500 per share. Options expire in increments during the period
between January 2009 and January 2010.
(6) Does not include 40,000 shares issuable upon the exercise of options to
purchase Common Shares at an exercise price ranging from $5.625 to
$20.500 per share. Options expire in increments during the period
between January 2008 and January 2010.
(7) Does not include 8,000 shares issuable upon the exercise of options to
purchase Common Shares at an exercise price of $20.500 per share. The
options expire in January 2010.
(8) Does not include 8,000 shares issuable upon the exercise of options to
purchase Common Shares at an exercise price of $20.500 per share. The
options expire in January 2010.
(9) Does not include 556,666 shares issuable upon the exercise of options
to purchase Common Shares at an exercise price ranging from $1.188 to
$20.500 per share. Options expire in increments during the period
between May 2006 and January 2010. Includes 5,200,000 shares held by CC
Verwaltungs GmbH, of which Dr. Colpan is the sole stockholder.
(10) Does not include 223,333 shares issuable upon the exercise of options
to purchase Common Shares at an exercise price ranging from $1.188 to
$20.500 per share. Options expire in increments during the period
between May 2006 and January 2010.
Stock Option Plan
In April 1996, the Supervisory Board adopted the QIAGEN N.V. 1996
Employee, Director and Consultant Stock Option Plan (the Option Plan), which was
approved by the Company's shareholders on June 3, 1996. Pursuant to the Option
Plan, options to purchase the Company's Common Shares may be granted to
employees and consultants of the Company and its subsidiaries and to supervisory
directors. An aggregate of 18,968,000 Common Shares have been reserved for
issuance pursuant to the Option Plan, subject to certain antidilution
adjustments. Options granted pursuant to the Option Plan may either be incentive
stock options within the meaning of Section 422 of the United States Internal
Revenue Code of 1986, as amended (the Code), or non-qualified stock options. The
Option Plan is administered by the Compensation Committee of the Supervisory
Board (the Compensation Committee), which selects participants from among
eligible employees, consultants and directors and determines the number of
shares subject to the option, the length of time the option will remain
outstanding, the manner and time of the option's exercise, the exercise price
per share subject to the option and other terms and conditions of the option
consistent with the Option Plan. The Compensation Committee's decisions are
subject to the approval of the Supervisory Board.
48
The Compensation Committee has the power, subject to Supervisory Board
approval, to interpret the Option Plan and to adopt such rules and regulations
(including the adoption of "sub plans" applicable to participants in specified
jurisdictions) as it may deem necessary or appropriate. The Compensation
Committee or the Supervisory Board may at any time amend the Option Plan in any
respect, subject to Supervisory Board approval, except that (i) no amendment
that would adversely affect the rights of any participant under any option
previously granted may be made without such participant's consent and (ii) no
amendment shall be effective prior to approval by the shareholders of the
Company to the extent such approval is required to ensure favorable tax
treatment for incentive stock options or to ensure compliance with Rule 16b-3
under the United States Securities Exchange Act of 1934, as amended (the
Exchange Act) at such times as any participants are subject to Section 16 of the
Exchange Act.
The following table sets forth the estimated total amount of options to purchase
Common Shares outstanding under the Option Plan, the expiration dates of such
options, and the prices (in U.S. dollars) at which such options may be
exercised, as of February 15, 2002. The exercise price of each of these options
is the fair market value of the Common Shares as of the date of grant. Each of
the options has a term of ten years, subject to earlier termination in the event
of death, disability or other termination of employment. The outstanding options
become exercisable in cumulative annual installments of 33 1/3 percent each,
beginning on the first anniversary date of the grant. In connection with the
acquisition of Operon Technologies, Inc., the Company exchanged 273,134 QIAGEN
options for all of the outstanding options of Operon. These exchanged options
vest over 4 years. As of February 15, 2002, options to purchase 1,255,334 Common
Shares were held by the officers and directors of the Company, as a group.
Outstanding Expiration Exercise Price
Options Dates of Shares
----------- ---------- --------------
1996 Option Plan 8,342,085 9/2003 to 1/2012 $0.97 to $49.75
Item 7. Major Shareholders and Related Party Transactions
The following table sets forth certain information as of February 15,
2002, concerning the ownership of Common Shares of each holder of greater than
five percent ownership.
Shares Beneficially Owned (1)
Name and Country of Residence Number Percent Ownership
----------------------------- ----------------------------- -----------------
Alafi Capital Company, United States............................ 7,505,491(2) 5.23%
-----------------
(1) The number of Common Shares issued and outstanding on February 15, 2002
was 143,514,593. The persons and entities named in the table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them and have the same voting rights with respect
to Common Shares.
(2) In reporting the beneficial ownership of shares by Alafi Capital
Company, the Company has relied on information furnished by Alafi
Capital Company.
Control of Registrant
To the Company's knowledge, it is not owned or controlled by another
corporation or by any foreign government. There are no persons known to the
Company to be the beneficial owners of more than ten percent of the Common
Shares as of February 15, 2002. As of February 15, 2002, the officers and
directors of the Company as a group beneficially owned approximately 12,207,000
Common Shares or 9% of the then outstanding Common Shares.
Related Party Transactions
From time to time the Company may have transactions with companies in
which the Company also holds an interest.
During 2001, the Company entered into a securities lending arrangement
with Deutsche Bank and transferred 20,000 Genome Pharmaceuticals Corporation
(GPC) shares held by the Company to Deutsche Bank in January 2002. The Company
is restricted from selling the 20,000 shares during the one-year lending period.
The Company retains all other rights to the shares and Deutsche Bank guarantees
the return of the shares after the lending period. In 2001, the Company held
one of Genome Pharmaceuticals Corporation AG (GPC) seats on GPC's Board of
Directors.
49
During the year ended December 31, 2001, QIAGEN GmbH had sales to
PreAnalytiX GmbH of $1.5 million. At December 31, 2001, QIAGEN GmbH had accounts
receivables from PreAnalytiX totaling $440,000. During 2001, both joint venture
partners loaned CHF 3.0 million (approximately $1.8 million at December 31,
2001) to the venture at a 4.0% interest rate. It is anticipated that both joint
venture partners will convert the loan balances to additional capital at some
future date. There was no amount receivable at December 31, 2000. In 2001, the
Company held three of six seats on PreAnalytix's Management Committee, for which
there is also one independent director.
At December 31, 2001, QIAGEN GmbH had receivables from Zeptosens AG in
the amount of $136,000. At December 31, 2000, QIAGEN N.V. had a note receivable
from Zeptosens in the amount of $617,000, which was collected in January 2001.
In 2001, the Company held one of six seats on Zeptosens' Board of Directors, and
members of the Company's management and Board had interests in Zeptosens
totaling 1.3 percent.
In 2001, the Company held one of three seats on the Board of Directors
for Ingenium Pharmaceuticals AG, and members of the Company's management and
Board had interests in Ingenium totaling 2.0 percent.
At December 31, 2001 and 2000, QIAGEN GmbH had receivables from
QE-Diagnostiksysteme GmbH in the amount of $242,000 and $86,000, respectively.
In 2001, the Company held one of four seats on QE-Diagnostiksysteme's Board of
Directors.
At December 31, 2001 and 2000, the Company had receivables from Coley
Pharmaceutical Group, Inc. (Coley) in the amount of $19,000 and $65,000,
respectively. In 2001, the Company held one of nine seats on Coley's Board of
Directors, and members of the Company's management and Board had interests in
Coley totaling 9.9 percent.
In connection with its formation, QIAGEN K.K. entered into a service
agreement with its minority shareholder. Pursuant to the agreement, the minority
shareholder provided services such as stock keeping, order processing, and
packing and shipping. As compensation for services provided, QIAGEN K.K. paid
the minority shareholder a service fee equal to seven percent of the net
revenues of QIAGEN K.K. For the years ended December 31, 2000 and 1999, QIAGEN
K.K. expensed to sales and marketing expense approximately $1.1 million and
$857,000, respectively, in service fees, of which $96,000 and $85,000 is
included in accrued liabilities at the end of the respective year. The service
agreement was terminated upon the Company's acquisition of the minority
shareholder's interest in January 2001.
Item 8. Financial Information
See Item 18.
Legal Proceedings
The Company is not a party to any material litigation in any court, and
management is not aware of any contemplated proceeding by any individual,
company or government authority against the Company.
Statement of Dividend Policy
The Company has not paid any dividends on its Common Shares since its
inception and does not intend to pay any dividends on its Common Shares in the
foreseeable future. The Company intends to retain its earnings, if any, for the
development of its business.
Item 9. The Listing of the Company's Common Shares
The Company approved a four-for-one stock split during fiscal 2000 and
a two-for-one stock split and par value currency conversion in fiscal 1999.
To effect the four-for-one stock split, on June 16, 2000, the
shareholders of the Company approved the amendment of the Company's Articles of
Association to increase the number of authorized shares of common stock from 65
million to 260 million. The Company's Board of Supervisory Directors and
Managing Board approved the split in May 2000. Common shareholders of record on
July 3, 2000 received three additional shares for each share held on that date.
The additional shares were distributed and the stock split was effective on July
13, 2000.
On June 18, 1999, the shareholders of the Company approved the
amendment of the Company's Articles of Association to increase the number of
authorized shares of common stock from 32.5 million to 65 million, which was
required to effect the two-for-one stock split that the Company's Board of
Supervisory Directors and Managing Board
50
approved in May 1999. Common shareholders of record on July 2, 1999 received one
additional share for each share held on that date. The additional shares were
distributed and the stock split was effective on July 16, 1999.
Since June 27, 1996, the Common Shares have been quoted on the NASDAQ
National Market under the symbol QGENF. The following table sets forth the
annual high and low closing sale prices for the last five years, the quarterly
high and low closing sale prices for the last two fiscal years, and the monthly
high and low closing sale prices for the last six months of the Common Shares on
the NASDAQ National Market. All share prices prior to July 13, 2000 have been
restated to reflect the stock splits.
Annual High ($) Low ($)
-------- -------
1997......................................... 7.375 3.031
1998......................................... 9.500 5.234
1999......................................... 20.875 8.188
2000......................................... 57.375 18.813
2001......................................... 35.375 12.380
Quarterly 2000: High ($) Low ($)
-------- -------
First Quarter................................ 55.500 18.813
Second Quarter 48.938 29.250
Third Quarter................................ 57.375 44.000
Fourth Quarter 45.938 29.500
Quarterly 2001: High ($) Low ($)
-------- -------
First Quarter................................ 35.375 18.375
Second Quarter............................... 28.000 18.480
Third Quarter................................ 23.330 12.380
Fourth Quarter............................... 20.690 14.900
2002:
First Quarter (through March 15, 2002) 20.81 14.000
Monthly: High ($) Low ($)
-------- -------
September 2001............................... 20.530 12.380
October 2001................................. 18.500 14.900
November 2001................................ 20.690 17.150
December 2001................................ 20.140 18.330
January 2002................................. 20.810 18.700
February 2002................................ 19.780 15.300
Since September 25, 1997, the Common Shares have been traded officially
on the Frankfurt Stock Exchange, Neuer Markt under the symbol QIA. The following
table sets forth the annual high and low closing sale prices since September 25,
1997, the quarterly high and low closing sale prices for the last two fiscal
years, and the monthly high and low closing sale prices for the last six months
of the Common Shares on the Neuer Markt. Prior to January 1, 1999 trades on the
Neuer Markt were denominated in German marks. In connection with the adoption of
the euro by Germany on January 1, 1999, trades on the Neuer Markt, as of January
1, 1999, are denominated in euros. The conversion rate between the German mark
and the euro was fixed on January 1, 1999 at 1.95583 German marks per euro.
Share prices prior to July 13, 2000 have been restated to reflect the stock
splits.
Annual High (DM) Low (DM)
---------- ---------
1997 (since September 25, 1997).............. 10.813 8.813
1998......................................... 17.200 9.138
Annual....................................... High (EUR) Low (EUR)
---------- ---------
1999......................................... 20.750 7.125
2000......................................... 60.400 17.650
2001......................................... 38.250 13.600
Quarterly 2000: High (EUR) Low (EUR)
---------- ---------
First Quarter................................ 57.500 17.650
Second Quarter............................... 61.250 33.750
Third Quarter................................ 60.400 48.125
Fourth Quarter............................... 53.800 33.950
51
Quarterly 2001: High (EUR) Low (EUR)
---------- ---------
First Quarter................................ 38.250 19.250
Second Quarter............................... 31.200 21.050
Third Quarter................................ 27.900 13.600
Fourth Quarter............................... 23.800 16.200
2002:
First Quarter (through March 15, 2002) ...... 23.450 16.700
Monthly: High (EUR) Low (EUR)
---------- ---------
September 2001............................... 22.900 13.600
October 2001................................. 20.500 16.200
November 2001................................ 23.800 19.350
December 2001................................ 22.700 20.200
January 2002................................. 23.450 21.000
February 2002................................ 22.550 17.950
Item 10. Additional Information
Memorandum and Articles of Association
The Company is registered in the commercial register of the Chamber of
Commerce and Industries ("Kamer Van Koophandel"), Limburg-Noord, under the entry
number "12036979". Set forth is a summary of certain provisions of the Company's
Articles of Association, as amended on July 3, 2000 (the "Articles") and Dutch
law, where applicable. Such summary does not purport to be complete and is
qualified in its entirety by reference to the Articles and such law.
Objects of the Company
The objects of the Company are found in Article 2 of the Articles. The
objects of the Company include, without limitation, the performance of
activities in the biotechnology industry, as well as incorporating, acquiring,
participating in, financing, managing and having any other interest in companies
or enterprises of any nature, raising and lending funds and such other acts as
may be conducive to the Company's business.
Managing Directors
The Company shall be managed by a Managing Board consisting of one or
more Managing Directors under the supervision of the Supervisory Board. Managing
Directors shall be appointed by the general meeting upon the joint meeting of
the Supervisory board and the Managing Board (the "Joint Meeting") having made a
binding nomination for each vacancy. However the general meeting may at all
times overrule the binding nature of such a nomination by a resolution adopted
by at least a two-thirds majority of the votes cast, if such majority represents
more than half the issued share capital. This is different from the provisions
of many American corporate statutes, including the Delaware General Corporation
Law, which give the directors of a corporation greater authority in choosing the
executive officers of a corporation. Under the Company's Articles, the general
meeting may suspend or dismiss a managing director at any time. The Supervisory
Board shall also at all times be entitled to suspend (but not to dismiss) a
Managing Director. The Articles provide that the Supervisory Board may adopt the
management rules governing the internal organization of the Managing Board.
Furthermore, the Supervisory Board shall determine the salary, the bonus, if
any, and the other terms and conditions of employment of the Managing Directors.
Under Dutch law, in the event that there is a conflict of interest between the
Company and a Managing Director, the Company is represented by the Supervisory
Board.
Supervisory Directors
Under the Company's Articles, the supervisory directors are required to
serve the interests of the Company and its business in fulfilling their duties.
Under Dutch law, a Supervisory Director must excuse him or herself in the case
of any conflict of interest. The Supervisory Board determines the compensation
of the members of the Supervisory Board upon the recommendation of the
compensation committee. Under the Company's Articles, the General Meeting may
suspend or dismiss a supervisory director at any time. This is different from
the provisions of many American corporate statutes, including the Delaware
General Corporation Law, which provides that directors may vote to fill
vacancies in the board of directors of a corporation.
52
Classes of Shares
The authorized classes of shares of the Company consist of Common
Shares, Financing Preference Shares and Preference Shares. No Financing
Preference Shares or Preference Shares have been issued.
Common Shares
Common Shares are issued in registered form only. Common Shares are
available either without issue of a share certificate ("Type I shares") or with
issue of a share certificate ("Type II shares"), in either case in the form of
an entry in the share register. The Type II shares are registered with American
Stock Transfer & Trust Company, the Company's transfer agent and registrar in
New York (the "New York Transfer Agent"). At the discretion of the Supervisory
Board, Type I shares may be issued and will be registered with TMF Management
B.V. in Amsterdam, The Netherlands.
The transfer of registered shares requires a written instrument of
transfer and the written acknowledgment of such transfer by the Company (or, in
the case of Type II shares, the New York Transfer Agent (in the name of the
Company)), and surrender of the share certificates, if any, to the Company or
(in the name of the Company) to the New York Transfer Agent. Upon surrender of a
share certificate for the purpose of transfer of the relevant shares, the
Company (or the New York Transfer Agent in the name of the Company) acknowledges
the transfer by endorsement on the share certificate or by issuance of a new
share certificate to the transferee, at the discretion of the Managing Board.
Financing Preference Shares
No Financing Preference Shares are outstanding. If issued, Financing
Preference Shares will be issued in registered form only. No share certificates
are issued for Financing Preference Shares. Financing Preference Shares must be
fully paid up upon issue. The preferred dividend rights attached to Financing
Preference Shares are described under "--Dividends" below. The Company has no
present plans to issue any such Financing Preference Shares.
Preference Shares
No Preference Shares are outstanding. If issued, Preference Shares will
be issued in registered form only. No share certificates are issued for
Preference Shares. Only 25% of the par value thereof is required to be paid upon
subscription for Preference Shares. The obligatory payable part of the nominal
amount (call) must be equal for each Preference Share. The Managing Board may,
subject to the approval of the Supervisory Board, resolve on which day and up to
which amount a further call must be paid on Preference Shares which have not yet
been paid up in full. The preferred dividend rights attached to Preference
Shares are described under "--Dividends" below.
Preference Shares may only be issued in the event that (i) in the
opinion of the Supervisory Board, any person who did not acquire shares at
incorporation of the Company, shall, alone or pursuant to a mutual arrangement
for co-operation jointly with one or more other persons, directly or indirectly,
have acquired or given notice of an intent to acquire (beneficial) ownership of
an amount of Common Shares or Financing Preference Shares, which in aggregate
equals 20% or more of the share capital of the Company then outstanding in the
form of Common Shares and Financing Preference Shares; (ii) the Supervisory
Board shall declare any person to be an "adverse person" upon a determination
that such person, alone or together with its affiliates or associates, has
become the (beneficial) owner of an amount of Common Shares or Financing
Preference Shares which the Supervisory Board determines to be substantial
(which amount shall in no event be less than 10% of the shares then
outstanding), and a determination that (a) such ownership is intended to cause
or pressure the Company to enter into transactions intended to provide such
person with short-term financial gain under circumstances that would not be in
the interest of the Company and its shareholders or (b) such ownership is
reasonably likely to cause a material adverse impact on the business prospects
of the Company.
Pre-emptive Rights
Under the Articles, existing holders of Common Shares will have
pre-emptive rights in respect of future issuances of Common Shares, in
proportion to the number of Common Shares held by them, unless limited or
excluded as described below. Holders of Common Shares shall not have pre-emptive
rights in respect of future issuances of Financing Preference Shares or
Preference Shares. Holders of Financing Preference Shares and Preference Shares
shall not have pre-emptive rights in respect of any future issuances of share
capital. Pre-emptive rights do not apply with respect to shares issued against
contributions other than in cash or shares issued to employees of the Company or
a group company of the Company. Under the Articles, the Supervisory Board has
the
53
power to limit or exclude any pre-emptive rights to which shareholders may be
entitled provided that it has been authorized by the General Meeting to do so.
The Supervisory Board has been granted such authority through June 16, 2005. The
authority of the Supervisory Board to limit or exclude pre-emptive rights can
only be exercised if at that time the authority to issue shares is in full force
and effect. The authority to limit or exclude pre-emptive rights may be extended
in the same manner as the authority to issue shares. If there is no designation
of the Supervisory Board to limit or exclude pre-emptive rights in force, the
general meeting of shareholders shall have authority to limit or exclude such
pre-emptive rights, but only upon the proposal of the Supervisory Board.
Resolutions of the General Meeting (i) to limit or exclude pre-emptive
rights or (ii) to designate the Supervisory Board as the corporate body that has
authority to limit or exclude pre-emptive rights, require a majority of at least
two-thirds of the votes cast in a meeting of shareholders if less than 50% of
the issued share capital is present or represented. For these purposes,
issuances of shares include the granting of rights to subscribe for shares, such
as options and warrants, but not the issue of shares upon exercise of such
rights.
Acquisition by the Company of its Own Shares
The Company may acquire its own shares, subject to certain provisions
of Dutch law and the Articles, if (i) shareholders' equity less the payment
required to make the acquisition does not fall below the sum of paid-up and
called up capital and any reserves required by Dutch law or the Articles and
(ii) the Company and its subsidiaries would not thereafter hold shares with an
aggregate par value exceeding one-tenth of the Company's issued share capital.
Shares held by the Company in its own capital or shares held by a subsidiary of
the Company may not be voted. The Managing Board, subject to the approval of the
Supervisory Board, may effect an acquisition by the Company of shares in its own
capital. Acquisitions by the Company of shares in its own capital may only take
place if the General Meeting has granted to the Managing Board the authority to
effect such acquisitions. Such authority may apply for a maximum period of 18
months and must specify the number of shares that may be acquired, the manner in
which shares may be acquired and the price limits within which shares may be
acquired.
Capital Reduction
Subject to the provisions of Dutch law and the Articles, the General
Meeting may, upon the proposal of the Supervisory Board, resolve to reduce the
issued share capital by (i) canceling shares or (ii) reducing the par value of
shares through an amendment of the Articles. Cancellation with repayment of
shares or partial repayment on shares or release from the obligation to pay up
may also be made or given exclusively with respect to Common Shares, Financing
Preference Shares or Preference Shares.
Annual Accounts
The Company has a calendar fiscal year. Dutch law requires that within
five months after the end of the Company's fiscal year, unless the General
Meeting has extended this period by a maximum period of six months on account of
special circumstances, the Managing Board must submit to the shareholders a
report with respect to such fiscal year, including the Company's financial
statements for such year accompanied by a report of an independent accountant.
The annual report is submitted to the annual General Meeting for adoption.
Dividends
Subject to certain exceptions, dividends may only be paid out of
profits as shown in the annual financial statements of the Company as adopted by
the General Meeting. Distributions may not be made if the distribution would
reduce shareholders' equity below the sum of the paid-up capital and any
reserves required by Dutch law or the Articles.
Out of profits, dividends must first be paid on any outstanding
Preference Shares (the "Preference Share Dividend") in a percentage (the
"Preference Share Dividend Percentage") of the obligatory amount (call) paid up
on such shares as at the beginning of the fiscal year in respect of which the
distribution is made. The Preference Share Dividend Percentage is equal to the
Average Main Refinancing Rates during the financial year for which the
distribution is made. Average Main Refinancing Rate shall be understood to mean
the average value on each individual day during the financial year for which the
distribution is made of the Main refinancing Rates prevailing on such day. Main
refinancing Rate shall be understood to mean the rate of the Main Refinancing
Operation as determined and published from time to time by the European Central
Bank. If and to the extent that profits are not sufficient to pay the Preference
Share Dividend in full, the deficit shall be paid out of the reserves, with the
exception of any reserve, which was formed as share premium reserve upon the
issue of Financing Preference Shares. If in any fiscal year the profit is not
sufficient to make the distributions referred to above and if no distribution or
only a
54
partial distribution is made from the reserves referred to above, such that the
deficit is not fully made good, no further distributions will be made as
described below until the deficit has been made good.
Out of profits remaining after payment of any dividends on Preference
Shares, such amounts shall be kept in reserve as determined by the Supervisory
Board. Out of any remaining profits not allocated to reserve, a dividend (the
"Financing Preference Share Dividend") shall be paid on the Financing Preference
Shares in a percentage (the "Financing Preference Share Dividend Percentage")
over the par value, increased by the amount of share premium that was paid upon
the first issue of Financing Preference Shares, which percentage is related to
the average effective yield on the prime interest rate on corporate loans in the
United States as quoted in the Wall Street Journal. If and to the extent that
the profits are not sufficient to pay the Financing Preference Share Dividend in
full, the deficit may be paid out of the reserves if the Managing Board so
decides with the approval of the Supervisory Board, with the exception of the
reserve which was formed as share premium upon the issue of Financing Preference
Shares.
Insofar as the profits have not been distributed or allocated to
reserves as specified above, they are at the free disposal of the General
Meeting provided that no further dividends will be distributed on the Preference
Shares or the Financing Preference Shares.
The General Meeting may resolve, on the proposal of the Supervisory
Board, to distribute dividends or reserves, wholly or partially, in the form of
shares in the capital of the Company.
Distributions as described above are payable as from a date to be
determined by the Supervisory Board. The date of payment on Type I shares may
differ from the date of payment on Type II shares. Distributions will be made
payable at an address or addresses in The Netherlands to be determined by the
Supervisory Board, as well as at least one address in each country where the
shares are listed or quoted for trading. The Supervisory Board may determine the
method of payment of cash distributions, provided that cash distributions in
respect of Type II shares will, subject to certain exceptions, be paid in the
currency of a country where the shares of the Company are listed or quoted for
trading, converted at the close of business on a day to be determined for that
purpose by the Supervisory Board.
The Dutch law making the declaration of dividends is the exclusive
right of the General Meeting is different from the corporate law of most
jurisdictions in the United States, which permit a corporation's board of
directors to declare dividends.
Shareholder Meetings and Voting Rights
The annual General Meeting is held within six months after the end of
each fiscal year for the purpose of, among other things, adopting the annual
accounts and the filling of any vacancies on the Managing and Supervisory
Boards.
Extraordinary General Meetings are held as often as deemed necessary by
the Managing Board or Supervisory Board, or upon the request of one or more
shareholders and other persons entitled to attend meetings jointly representing
at least 40% of the issued share capital of the Company or by one or more
shareholders jointly representing at least 10% of the issued share capital as
provided for under the laws of The Netherlands.
General Meetings are held in Amsterdam, Haarlemmermeer (Schiphol
Airport), Arnhem, Maastricht, Rotterdam or The Hague. The notice convening a
General Meeting must be given to the shareholders by mail and by advertisement
in at least one national daily newspaper published in The Netherlands no later
than the fifteenth day prior to the meeting. The notice will contain or be
accompanied by the agenda for the meeting.
The agenda shall contain such subjects to be considered at the General
Meeting as the persons convening or requesting the meeting shall decide. One or
more shareholders representing at least 10% of the issued share capital may
request the Managing Board or Supervisory Board in writing, at least sixty days
but not more than ninety days before the anniversary of the date on which the
prior year's meeting was convened, to include certain subjects in the agenda. No
valid resolutions can be adopted at a General Meeting in respect of subjects
which are not mentioned in the agenda.
General Meetings are presided over by the chairman of the Supervisory
Board or, in his absence, by any person nominated by the Supervisory Board.
At the General Meeting, each share shall confer the right to cast one
vote, unless otherwise provided by law or the Articles. No votes may be cast in
respect of shares held by the Company or its subsidiary, or by usufructuaries
and pledges of shares. All shareholders and other persons entitled to vote at
General Meetings are entitled to attend
55
General Meetings, to address the meeting and to vote. They must notify the
Managing Board in writing of their intention to be present or represented not
later than on the third day prior to the day of the meeting, unless the Managing
Board permits notification within a shorter period of time prior to any such
meeting. Subject to certain exceptions, resolutions may be passed by a simple
majority of the votes cast.
A resolution of the General Meeting to amend the Articles, dissolve the
Company, issue shares or grant rights to subscribe for shares or limit or
exclude any pre-emptive rights to which shareholders shall be entitled is valid
only if proposed to the General Meeting by the Supervisory Board.
A resolution of the General Meeting to amend the Articles is further
only valid if the complete proposal has been made available for inspection by
the shareholders and the other persons entitled to attend General Meetings at
the offices of the Company as from the day of notice convening such meeting
until the end of the meeting. A resolution to amend the Articles to change the
rights attached to the shares of a specific class requires the approval of the
relevant class meeting.
Resolutions of the General Meeting in a meeting that has not been
convened by the Managing Board and/or the Supervisory Board, or resolutions
included on the agenda for the meeting at the request of shareholders, will be
valid only if adopted with a majority of two-thirds of votes cast representing
more than half the issued share capital, unless the Articles require a greater
majority or quorum. The Company's Articles do not provide for shareholders to
act by written consent outside of a General Meeting.
A resolution of the General Meeting to approve a legal merger or the
sale of all or substantially all of the assets of the Company is valid only if
adopted by a vote of at least two-thirds of the issued share capital, unless
proposed by the Supervisory Board, in which case a simple majority of the votes
cast shall be sufficient.
Liquidation Rights
In the event of the dissolution and liquidation of the Company, the
assets remaining after payment of all debts and liquidation expenses will be
distributed among registered holders of the Common Shares in proportion to the
par value of their Common Shares, subject to liquidation preference rights of
holders of Preference Shares and Financing Preference Shares, if any.
Restrictions on Transfer of Preference Shares
The Supervisory board upon application in writing must approve each
transfer of Preference Shares. If approval is refused, the supervisory board
will designate prospective purchasers willing to purchase the shares, otherwise
the transfer will be deemed approved.
Limitations on Rights to Own Securities
Other than with respect to usufructuaries and pledges who have no
voting rights, the Company's Articles do not impose limitations on rights to own
securities.
Provisions which may Defer or Prevent a Change in Control
The Articles provide that our joint meeting of the Supervisory Board
and Managing Board (the "Joint Meeting") may make binding nominations for the
election of directors, which can only be overridden by shareholders with a
two-thirds majority of the votes cast, which majority must represent more than
50 percent of the outstanding shares. The Articles provide that preference
shares may in certain instances be issued to third parties selected by the
Company giving such parties preferred dividend rights and placing additional
votes in hands friendly to the Supervisory Board. The Articles further provide
that significant transactions such as a merger or sale of substantially all the
assets of the Company can only be approved by specified super-majority votes
unless the Supervisory Board proposed such transactions to the general meeting.
The Articles can only be amended based on a proposal of the Supervisory Board.
Such provisions may have the effect of delaying, deterring or preventing a
change in control that might otherwise be considered to be in the best interest
of shareholders.
Ownership Threshold Requiring Disclosure
The Company's Articles do not provide an ownership threshold above
which ownership must be disclosed.
56
Exchange Controls
There are currently no limitations either under the laws of The
Netherlands or in the Company's Articles of Association, to the rights of
shareholders from outside The Netherlands to hold or vote Common Shares. Under
current foreign exchange regulations in The Netherlands, there are no material
limitations on the amount of cash payments that may be remitted by the Company
to residents of foreign countries.
Obligation of Shareholders to Disclose Major Holdings
As of June 1, 1997, the Dutch Act on Disclosure of Holdings in Listed
Companies 1996 (the "Disclosure of Holdings Act 1996") came into force. By
provision of the Disclosure of Holdings Act 1996, any person who, directly or
indirectly, acquires or disposes of an interest in the capital or the voting
rights of a public limited liability company incorporated under Dutch law with
an official listing of a stock exchange within the European Economic Area must
give a written notice of such acquisition or disposal, if as a result of such
acquisition or disposal the percentage of capital interest or voting rights held
by such person falls within another percentage range as compared to the
percentage range held by such person prior to such acquisition or disposal. The
percentage ranges referred to in the Disclosure of Holdings Act 1996 are 0-5,
5-10, 10-25, 25-50, 50-66 2/3 and over 66 2/3.
Notification must be given to the Company and the Securities Board of
The Netherlands (Stichting Toezicht Effectenverkeer) which will disclose the
information as notified to the public. Non-compliance with the obligations of
the Disclosure of Holdings Act 1996 constitutes an economic offense, punishable
by a penalty fee of up to the equivalent in euro of NLG 25,000 (or the
equivalent in euro of NLG 100,000 for legal entities) or imprisonment for up to
six months (or two years for deliberate infractions). In addition, civil actions
may be instituted against a person failing to comply with the Disclosure of
Holdings Act 1996. A court may impose certain measures on such a person,
including the suspension of voting rights with respect to Common Shares owned by
such person.
The Common Shares are currently listed on the Neuer Markt trading
segment of the Frankfurt Stock Exchange. The Company has been informed, however,
by the Securities Board of the Netherlands, that its listing on the Neuer Markt
is not an official listing of a stock exchange within the European Economic Area
and, therefore, no notification filings are currently required by the Company's
stockholders in connection with the Disclosure of Holdings Act of 1996.
Taxation
The following is a general summary of certain material United States
federal income and The Netherlands tax consequences to holders of Common Shares
(collectively, "U.S. Holders") who are (i) citizens or residents of the United
States, (ii) entities subject to U.S. corporate tax, (iii) certain pension
trusts and other retirement or employee benefits organizations established in
the United States but generally exempt from U.S. tax, (iv) certain
not-for-profit organizations established in the United States but generally
exempt from U.S. tax, (v) United States regulated investment companies, United
States real estate investment trusts, and United States real estate mortgage
conduits, and (vi) partnerships or similar pass-through entities, estates, and
trusts to the extent the income of such partnerships, similar entities, estates,
or trusts is subject to tax in the United States as income of a resident in its
hands or the hands of its partners, beneficiaries, or grantors. This summary
does not purport to address all of the material consequences to such holders.
Therefore, all prospective purchasers of Common Shares who would be U.S. Holders
are advised to consult their own tax advisor with respect to the United States
federal, state and local tax consequences, as well as the Netherlands tax
consequences, of the ownership of the Common Shares.
The statements of The Netherlands and United States tax laws set out
below are based on the laws in force as of the date of this Annual Report on
Form 20-F, and as a consequence are subject to any changes in United States or
The Netherlands law, or in the double taxation conventions between the United
States and The Netherlands, occurring after such date.
Netherlands Tax Considerations
The following summarizes the material tax consequences under
Netherlands law of an investment in the Common Shares. Such summary is based on
current Netherlands law as interpreted under officially published case law, and
is limited to the tax implications for an owner of Common Shares who is not, or
is not deemed to be, a resident of The Netherlands for purposes of the relevant
tax codes (a "non-resident Shareholder" or "Shareholder").
57
Dividend Withholding Tax
General. Dividends distributed by the Company are subject to a
withholding tax imposed by The Netherlands at a rate of generally 25%. Dividends
include dividends in cash or in kind, constructive dividends and liquidation
proceeds in excess of, for Netherlands tax purposes, recognized paid-in capital.
Stock dividends are also subject to withholding tax over the nominal value
unless sourced out of the Company's paid-in share premium which is recognized
for Netherlands tax purposes.
No withholding tax applies on the sale or disposition of Common Shares
to persons other than the Company and affiliates of the Company.
A Shareholder can be eligible for a reduction or a refund of
Netherlands dividend withholding tax under a tax convention which is in effect
between the country of residence of the Shareholder and The Netherlands. The
Netherlands has concluded such conventions with, among others, the United
States, Canada, Switzerland, Japan and all EU Member States except Portugal.
Under most of those conventions, Netherlands dividend withholding tax is reduced
to 15% or a lower rate.
U.S. Shareholders. Under the Tax Convention between The Netherlands and
the United States (the "Convention"), the withholding tax on dividends paid by
the Company to a resident of the United States (as defined in the Convention)
who is entitled to the benefits of the Convention, may be reduced to 5% (in the
case of a corporate U.S. Shareholder that holds 10% or more of the voting power
of a Netherlands company) or 15% (in the case of other U.S. Shareholders),
unless such U.S. shareholders have a permanent establishment in The Netherlands
with which the shares are effectively connected. Dividends paid by the Company
to U.S. pension funds and U.S. tax-exempt organizations may be eligible for an
exemption from dividend withholding tax.
Dividend Stripping. On August 30, 2001, a bill was submitted to the
Netherlands Parliament containing measures against what are known as "dividend
stripping" transactions. According to this bill, as of April 27, 2001, a refund,
reduction, exemption, or credit of Dutch dividend withholding tax on the basis
of Dutch tax law or on the basis of a tax treaty between the Netherlands and
another state, will only be granted if the dividends are paid to the beneficial
owner of the dividends. The term "beneficial owner" has not been defined.
However, the bill does include a non-exhaustive description of various
situations in which the recipient of the dividend distribution is not deemed to
be the beneficial owner. In general terms, "dividend stripping" can be described
as the situation in which a foreign or domestic person (usually, but not
necessarily, the original shareholder) has transferred his Shares or his
entitlement to the dividend distributions to a party that has a more favorable
right to a refund or reduction of Dutch dividend withholding tax than the
foreign or domestic person. In these situations, the foreign or domestic person
(usually the original shareholder), by transferring his Shares or his
entitlement to the dividend distributions, avoids Dutch dividend withholding tax
while retaining his "beneficial" interest in the Shares and the dividend
distributions.
Income Tax and Corporate Income Tax
General. A non-resident Shareholder will not be subject to Netherlands
income tax with respect to dividends distributed by the Company on the Common
Shares or with respect to capital gains derived from the sale or disposition of
Common Shares in the Company, provided that:
(a) the non-resident Shareholder does not carry on or have an
interest in a business in The Netherlands through a permanent
establishment or a permanent representative to which or to whom the
Common Shares are attributable or deemed to be attributable;
(b) the non-resident Shareholder does not have a direct or
indirect substantial or deemed substantial interest (as defined in The
Netherlands tax code) in the share capital of the Company or, in the
event the Shareholder does have such a substantial interest, such
interest is a business asset; and
(c) the non-resident Shareholder is not entitled to a share in
the profits of an enterprise, to which the Common Shares are
attributable and that is effectively managed in The Netherlands, other
than by way of securities or through an employment contract.
In general terms, a substantial interest in the share capital of the
Company does not exist if the Shareholder (individuals as well as corporations),
alone or together with his partner, does not own, directly or indirectly, 5% or
more of the nominal paid-in capital of the Company, does not have the right to
acquire 5% or more of the nominal paid-in capital of the Company (call option)
and does not have the right to share in the Company's profit or liquidation
revenue amounting 5% or more of the annual profits or liquidation revenue.
58
U.S. Shareholders. Pursuant to the Convention, the gain derived by a
U.S. Shareholder from an alienation of the Common Shares constituting a
substantial interest of the Shareholder in the Company, not effectively
connected or deemed connected with a permanent establishment or permanent
representative of the Shareholder in The Netherlands, is not subject to
Netherlands income tax or corporate income tax, provided that the gain from the
alienation of the Common Shares is not derived by an individual Shareholder who
has, at any time during the five-year period preceding such alienation, been a
resident of The Netherlands according to Netherlands tax law and who owns,
either alone or together with close relatives, at least 25% of any class of
shares of the Company.
Gift and Inheritance Tax
A gift or inheritance of Common Shares from a non-resident Shareholder
will not be subject to a Netherlands gift and inheritance tax, provided that the
Shareholder does not own a business which is, in whole or in part, carried on
through a permanent establishment or a permanent representative in The
Netherlands to which or to whom the Common Shares are attributable.
United States Federal Income Tax Considerations
The following summarizes the material U.S. federal income tax
consequences of the ownership of Common Shares by an investor that purchases
such Common Shares and that will hold the Common Shares as capital assets. This
summary does not purport to be a complete analysis or listing of all potential
tax considerations and does not address holders subject to special treatment
under U.S. federal income tax laws (including insurance companies, tax-exempt
organizations, regulated investment companies, financial institutions, broker
dealers or holders that own, actually or constructively, 10% or more of the
voting shares of the Company).
As used herein, references to a "U.S. Holder" are to a holder of Common
Shares that is (i) a citizen or resident of the United States, (ii) a
corporation organized under the laws of the United States or any political
subdivision thereof, or (iii) a person or entity otherwise subject to United
States federal income taxation on a net income basis with respect to Common
Shares (including a non-resident alien or foreign corporation that holds, or is
deemed to hold, Common Shares in connection with the conduct of a U.S. trade or
business); and references to a "non-U.S. Holder" are to a holder that is not a
U.S. person for U.S. federal income tax purposes.
Taxation of Dividends
To the extent paid out of current or accumulated earnings and profits
of the Company, as determined under U.S. federal income tax principles,
distributions, if any, made with respect to Common Shares will be includable for
U.S. federal income tax purposes in the income of a U.S. Holder as ordinary
dividend income in an amount equal to the sum of any cash and the fair market
value of any property distributed by the Company, before reduction for
Netherlands withholding tax. To the extent that such distribution exceeds the
current or accumulated earnings and profits of the Company, it will be treated
as a non-taxable return of capital to the extent of the U.S. Holder's adjusted
tax basis in Common Shares and thereafter as taxable capital gain. Dividends
generally will be treated as income from sources outside the United States and
generally will be passive income (or, in the case of certain holders, "financial
services income") for purposes of the foreign tax credit limitation. Dividends
paid by the Company will not be eligible for the dividends received deduction
allowed to corporations in certain circumstances under the United States
Internal Revenue Code of 1986, as amended (the Code). A U.S. Holder may elect
annually to either deduct The Netherlands withholding tax (see "Taxation --
Netherlands Tax Considerations -- Dividend Withholding Tax") against their
income or take the withholding taxes as a credit against their U.S. tax
liability, subject to U.S. foreign tax credit limitation rules.
Dividends paid by the Company in a currency other than the U.S. dollar
will be included in the income of a U.S. Holder in a U.S. dollar amount based
upon the exchange rate in effect on the date of receipt. A U.S. Holder will have
a tax basis in such foreign currency for U.S. federal income tax purposes equal
to its U.S. dollar value on the date of receipt. Any gain or loss on a
subsequent disposition of such foreign currency (including a subsequent
conversion into U.S. dollars) will be ordinary income or loss. Such gain or loss
will generally be income from sources within the U.S. for foreign tax credit
limitation purposes.
A non-U.S. Holder generally will not be subject to U.S. federal income
tax or withholding tax on distributions with respect to Common Shares that are
treated as dividend income for U.S. federal income tax purposes unless such
dividends are effectively connected with the conduct of a trade or business
within the United States by such non-U.S. Holder, (and are attributable to a
permanent establishment maintained in the United States by such non-U.S. Holder,
if an applicable income tax treaty so requires as a condition for such non-U.S.
Holder to be subject to U.S. taxation on a net income basis in respect of income
from Common Shares), in which case the non-U.S. Holder generally will be subject
to tax in respect of such dividends in the same manner as a U.S. Holder. Any
such
59
effectively connected dividends received by a non-United States corporation may
also, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty. A non-U.S. Holder generally will not be subject to U.S.
federal income tax or withholding tax on distributions with respect to Common
Shares that are treated as capital gain for U.S. federal income tax purposes
unless such holder would be subject to U.S. federal income tax on gain realized
on the sale or other disposition of Common Shares, as discussed below.
Taxation of Capital Gains
Subject to the PFIC rules discussed below, upon the sale or other
disposition of Common Shares, a U.S. Holder will recognize gain or loss for U.S.
federal income tax purposes in an amount equal to the difference between the
amount realized on the disposition of Common Shares and the U.S. Holder's
adjusted tax basis in Common Shares. Such gain or loss generally will be subject
to U.S. federal income tax. An individual U.S. Holder is generally subject to a
maximum capital gains rate of 20% for Common Shares held for more than year. For
U.S. federal income tax purposes, capital losses are subject to limitations on
deductibility. Gain realized by a U.S. Holder on the sale or other disposition
of Common Shares generally will be treated as income from sources within the
United States for purposes of the foreign tax credit limitation.
A non-U.S. Holder will not be subject to U.S. federal income tax or
withholding tax on gain realized on the sale or other disposition of Common
Shares unless (i) the gain is effectively connected with a trade or business of
the non-U.S. Holder in the United States (and is attributable to a permanent
establishment maintained in the United States by such non-U.S. Holder, if an
applicable income tax treaty so requires as a condition for such non-U.S. Holder
to be subject to U.S. taxation on a net income basis in respect of gain from the
sale or other disposition of the Common Shares) or (ii) such holder is an
individual who is present in the United States for 183 days or more in the
taxable year of the sale, and certain other conditions are met. Effectively
connected gains realized by a corporate Non-U.S. Holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
Passive Foreign Investment Company Status
The Company may be classified as a "passive foreign investment company"
("PFIC") for U.S. federal income tax purposes if certain tests are met. The
Company will be a PFIC with respect to a U.S. Holder if for any taxable year in
which the U.S. Holder held the Common Shares, either (i) 75% or more of its
gross income for the taxable year is passive income; or (ii) the average value
of its assets (during the taxable year) which produce or are held for the
production of passive income is at least 50% of the average value of all assets
for such year. Passive income means, in general, dividends, interest, royalties,
rents (other than rents and royalties derived in the active conduct of a trade
or business and not derived from a related person), annuities, and gains from
assets which would produce such income other than sales of inventory. For the
purpose of the PFIC tests, if a foreign corporation owns at least 25% by value
of the stock of another corporation, the foreign corporation is treated as
owning its proportionate share of the assets of the other corporation, and as if
it had received directly its proportionate share of the income of such other
corporation. The effect of this special provision with respect to the Company
and its ownership of its subsidiaries is that the Company, for purposes of the
income and assets tests described above, will be treated as owning directly its
proportionate share of the assets of the subsidiaries and of receiving directly
its proportionate share of each of those companies' income, if any, so long as
the Company owns, directly or indirectly, at least 25% by value of the
particular company's stock. Active business income of the Company's subsidiaries
will be treated as active business income of the Company, rather than as passive
income. Based on its current income, assets and activities, the Company does not
believe that it is currently a PFIC. No assurances can be made, however, that
the IRS will not challenge this position or that the Company will not
subsequently become a PFIC.
A determination as to PFIC status is made annually (although an initial
determination that the Company is a PFIC will generally be binding on a
shareholder who does not make the qualified election discussed below with
respect to the first year such shareholder holds or is deemed to hold Common
Shares). Whether the Company is a PFIC in any year and the tax consequences
relating to PFIC status will depend on the composition of the income and assets
of the Company. For example, the Company retains in its business a substantial
amount of cash and cash equivalents, and such cash balances are considered by
the IRS to be passive assets, even if held as working capital for an active
business. Accurate predictions of the composition of the Company's income are
particularly difficult in light of the volatile nature of earnings patterns in
technological industries. In addition, U.S. tax law is not entirely clear as to
the proper classification of all types of income that the Company may realize or
all types of assets that it may hold. The Company will, however, monitor its
income and assets closely in order to make an annual determination as to whether
it is a PFIC. Following the close of any tax year, the Company intends to
promptly send a notice to all shareholders of record at any time during such
year, if the Company determines that it is a PFIC.
60
If the Company is a PFIC, each of the direct and certain indirect
shareholders of the Company that is a U.S. person ("U.S. Shareholders") either
(i) may make an election to report currently its pro rata share of the Company's
ordinary earnings and net capital gain even if no distributions are actually
received from the Company (the "qualified election"), or (ii) upon a disposition
of Common Shares, including a disposition pursuant to an otherwise tax-free
reorganization, or receipt of an "excess distribution" (as defined in the Code),
will be subject to tax (including an interest charge) generally as if the gain
or distribution were earned ratably over the period in which the Common Shares
were held and face other adverse tax consequences. Alternatively, under the
"Taxpayer Relief Act of 1997", effective for taxable years of U.S. persons
beginning after December 31, 1997, U.S. Shareholders may make a mark-to-market
election with respect to the Common Shares under which the U.S. Shareholder
would include in income each year an amount equal to the excess, if any, of the
market value of the Common Shares as of the close of the taxable year over the
U.S. Shareholder's adjusted basis in such stock. Under this election, the U.S.
Shareholder would be allowed a deduction for the excess, if any, of the adjusted
basis of the Common Shares over the market value of the shares as of the close
of the taxable year but only to the extent of any net mark-to-market gains with
respect to the Common Shares included by the shareholder for prior taxable
years. The U.S. Shareholder's adjusted basis in the Common Shares would be
adjusted to reflect the amounts included or deducted under this election.
Amounts included in income pursuant to a mark-to-market election, as well as
gain on the actual sale or other disposition of the Common Shares would be
treated as ordinary income. Ordinary loss treatment would also apply to the
deductible portion of any mark-to-market loss on the Common Shares, as well as
to any loss realized on the actual sale or other disposition of the Common
Shares to the extent that the amount of such loss did not exceed the net
mark-to-market gains previously included with respect to such stock. An election
to mark to market will apply to the taxable year for which made and all
subsequent taxable years, unless the Common Shares cease to be treated as
marketable stock or the Secretary of the Treasury consents to the revocation of
such election.
A shareholder who makes a qualified election may recognize ordinary
income or loss as a result of currency fluctuations between the dates of deemed
and actual distributions from the Company.
If the Company becomes a PFIC, each U.S. Shareholder would be required
annually to file IRS Form 8621 (Return by a Shareholder of a Passive Foreign
Investment Company or Qualified Electing Fund) with such shareholder's timely
filed income tax return and with the Internal Revenue Service, whether or not
the qualified election (or, for tax years after 1997, the mark-to-market
election) is made. A U.S. Shareholder choosing to make a qualified election must
also include a shareholder election statement and the PFIC annual information
statement provided by the Company (as described below) when filing IRS Form 8621
and its income tax return, and should send a copy of the shareholder election
statement to the Internal Revenue Service. If the Company determines that it has
become a PFIC, within two months after the end of each year it intends to supply
the PFIC annual information statement necessary to make the qualified election
for such year to each U.S. Shareholder of record at the end of such year. In
such case, the Company also intends to supply the PFIC annual information
statement to any shareholder or former shareholder who requests it.
Prospective purchasers of Common Shares are urged to consult their tax
advisors regarding the PFIC rules and their effect on an investment in Common
Shares, with particular regard to (i) the advisability of making the qualified
election in the event that the Company notifies the shareholders that it has
become a PFIC in any taxable year, or (ii) the advisability of making the
mark-to-market election provided in the tax law.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, paid
within the United States or through certain U.S.-related financial
intermediaries on Common Shares will be subject to information reporting
requirements and backup withholding tax at the rate of 30% for a non-corporate
United States person and, who also:
. fails to provide an accurate taxpayer identification number;
. is notified by the Internal Revenue Service that the individual has
failed to report all interest or dividends required to be shown on the
Federal income tax returns; or
. in certain circumstances, fails to comply with applicable
certification requirements.
Certain corporations and persons that are not United States persons may
be required to establish their exemption from information reporting and backup
withholding by certifying their status on Internal Revenue Service Form W-8 or
W-9.
If a United States person sells Common Shares to or through a United
States office of a broker, the payment of the proceeds is subject to both United
States backup withholding and information reporting unless the individual
61
can certify that they are a non-U.S. person, under penalties of perjury, or they
otherwise establish an exemption. If a United States person sells Common Shares
through a non-U.S. office of a non-U.S. broker and the sale proceeds are paid to
the person outside the United States then information reporting and backup
withholding generally will not apply to that payment. However, United States
information reporting requirements, but not backup withholding, will apply to a
payment of sales proceeds, even if that payment is made to the United States
person outside the United States, if the person sells Common Shares through a
non-U.S. office of a broker that is a U.S. person or has certain other contacts
with the United States.
An individual generally may obtain a refund of any amounts withheld
under the backup withholding rules that exceed the individual's income tax
liability by filing a refund claim with the United States Internal Revenue
Service.
Foreign Currency Issues
If dividends are paid in Dutch guilders, the amount of the dividend
distribution included in the income of a U.S. Holder will be the U.S. dollar
value of the payments made in Dutch guilders, determined at a spot, Dutch
guilder/U.S. dollar rate applicable to the date such dividend is includible in
the income of the U.S. Holder, regardless of whether the payment is in fact
converted into U.S. dollars. Generally, gain or loss (if any) resulting from
currency exchange fluctuations during the period from the date the dividend is
paid to the date such payment is converted into U.S. dollars will be treated as
ordinary income or loss. The Company has never paid cash dividends on its share
capital and does not intend to do so for the foreseeable future.
Documents on Display
Documents referred to in this Annual Report may be inspected at the
Company's principal executive office located at Spoorstraat 50, 5911 KJ Venlo,
The Netherlands.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk relates primarily to interest rate exposures
on cash, marketable securities and borrowings and foreign currency exposures on
intercompany transactions. The overall objective of the Company's risk
management is to reduce the potential negative earnings effects from changes in
interest and foreign exchange rates. Exposures are managed through operational
methods and financial instruments. The Company does not use financial
instruments for trading or other speculative purposes.
Interest Rate Risk
Interest income earned on the Company's investment portfolio is
affected by changes in the relative levels of market interest rates. The Company
only invests in high-grade investment securities. For the year ended December
31, 2001, the weighted average interest rate on the Company's marketable
securities portfolio was 4.48% to 5.75%.
Borrowings against lines of credit are at variable interest rates. At
December 31, 2001, and 2000, the Company had $6.0 million and $855,000,
respectively, of outstanding lines of credit with an average interest rate of
5.92% at December 31, 2001. A hypothetical adverse 10 percent movement in market
interest rates would not have materially impacted the Company's financial
statements.
In May 2001, the Company obtained two new loan facilities totaling EUR
100.0 million (approximately $89.0 million at December 31, 2001) with an initial
term of two years and a variable interest rate based on EURIBOR plus 1.2% (4.54%
at December 31, 2001.) At December 31, 2001, $62.6 million had been drawn
against these facilities. A hypothetical adverse 10 percent movement in market
interest rates would decrease 2002 earnings by approximately $360,000, based on
the year-end interest rate, a loan balance consistent with that at year-end and
a constant foreign exchange rate. In February 2002, loan agreements related to
EUR 50.0 million of the facilities was amended to be U.S. dollar denominated and
the amount was fixed at $43.5 million at an interest rate of LIBOR plus 1.28%.
Currency Fluctuations
The Company operates on an international basis. A significant portion
of its revenues and expenses are earned and incurred in currencies other than
the U.S. dollar. The euro is the most significant such currency, with others
including the British pound, Japanese yen, Swiss franc, and Canadian and
Australian dollars. Fluctuations in the value of the currencies in which the
Company conducts its business relative to the U.S. dollar have caused and will
continue to cause U.S. dollar translations of such currencies to vary from one
period to another. Due to the number of currencies involved, the constantly
changing currency exposures, and the potential substantial volatility of
62
currency exchange rates, the Company cannot predict the effect of exchange rate
fluctuations upon future operating results. However, because the Company has
substantial expenses as well as revenues in each of its principal functional
currencies, the exposure of its financial results to currency fluctuations is
reduced. The Company seeks to mitigate what it believes to be a significant
portion of the remaining risk through hedging transactions. In general terms,
appreciation of the U.S. dollar against the Company's other foreign currencies,
such as occurred in 2000 and 2001 with respect to the euro, will decrease
reported net sales. However, this impact normally will be at least partially
offset in the results of operations by gains or losses from foreign currency
transactions.
Currency Hedging
In the ordinary course of business, the Company purchases foreign
currency exchange options to manage potential losses from foreign currency
exposures. These options give the Company the right, but not the obligation, to
sell foreign currencies in exchange for U.S. dollars at predetermined exchange
rates. The principle objective of such options is to minimize the risks and/or
costs associated with global financial and operating activities. The Company
does not utilize financial instruments for trading or other speculative
purposes. At December 31, 2001, the notional amount of foreign currency exchange
options was $6.8 million. The functional currency of $5.6 million of the foreign
currency exchange options was the euro, with a notional weighted average
exchange rate of 1.0000. The functional currency of the remaining $1.2 million
foreign currency exchange options was the Swiss franc, with a notional weighted
average exchange rate of 1.5500.
Foreign Currency Exchange Rate Risk
The Company's principal production and manufacturing facility is
located in Germany and intercompany sales of inventory expose the Company to
foreign currency exchange rate risk. Intercompany sales of inventory are
generally denominated in the local currency of the subsidiary purchasing the
inventory in order to centralize foreign currency risk with the Company's German
subsidiary. Payment for intercompany purchases of inventory is required within
30 days from invoice date. The delay between the date the German subsidiary
records revenue and the date when the payment is received from the purchasing
subsidiaries exposes the Company to foreign exchange risk. The exposure results
primarily from those transactions between Germany and the U.S.
At year-end, the Company's long-term debt with Deutsche Bank was
denominated in euros. Approximately $44.5 million was loaned to QIAGEN Sciences,
Inc., therefore, the Company internally bears currency exchange rate risk and
changes in the foreign exchange rate will affect earnings. In February 2002, the
terms of the loan agreements were amended so that the portion of the loan
payable from U.S. subsidiaries is denominated in U.S. dollars.
The foreign currency exchange rate risk is partially offset by
transactions of the German subsidiary denominated in U.S. dollars. Hedging
instruments include foreign currency put options that are purchased to protect
the existing and/or anticipated receivables resulting from intercompany sales
from Germany to the U.S. These options give the Company the right, but not the
obligation, to sell foreign currencies in exchange for U.S. dollars at
predetermined exchange rates. Management does not believe that the Company's
exposure to foreign currency exchange rate risk is material.
Item 12. Not Applicable
63
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
Not applicable.
64
PART III
Item 17. Financial Statements
See Item 18.
Item 18. Financial Statements.
See pages F-1 through F-27 and S-1 through S-2 included herein.
Item 19. Exhibits
(A) The following financial statements and schedules, together
with the reports of Arthur Andersen LLP thereon, are filed
as part of this annual report:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity and Comprehensive
Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Public Accountants on Supplemental Schedule
Schedule II - Valuation and Qualifying Accounts
(B) Exhibits:
1.1 Articles of Association as confirmed by notorial deed as of
July 6, 2000 (English translation)
2.1 Credit Contract for a Club Deal between QIAGEN GmbH,
Deutsche Bank AG, Stadtsparkasse Dusseldorf, and IKB
Deutsche Industriebank AG, dated May 28, 2001
2.2 Amended and Restated Guaranty Agreement between QIAGEN
Sciences, Inc. and QIAGEN GmbH, dated February 28, 2002
2.3 Amended and Restated Promissory Note between QIAGEN
Sciences, Inc. and QIAGEN North American Holdings, Inc.,
dated February 28, 2002
2.4 Amended and Restated Promissory Note between QIAGEN North
American Holdings, Inc., and QIAGEN GmbH, dated February 28,
2002
2.5 Amended and Restated Indemnity Deed of Trust, between QIAGEN
Sciences, Inc. and Richard Sugarman, dated February 28, 2002
*4.1 Lease between QIAGEN, Inc. and Haserjian Bros. Realty Co., a
California General Partnership, dated May 16, 1996 (Filed as
Exhibit 10.1)
**4.2 Lease between QIAGEN GmbH and Brixton Estate Deutschland
GmbH dated March 14, 1997 (the "Albert-Einstein-Str. Lease"
(Filed as Exhibit 10.1(a))
**4.3 The "Albert-Einstein-Str. Lease" Contract Summary (Filed as
Exhibit 10.1(b))
***4.4 Exercised Option to Extend Lease Between QIAGEN Inc. and
Haserjian Bros. Realty Co., a California General
Partnership, dated February 10,1999. (Filed as Exhibit 10.1)
****4.5 Master Agreement among Becton, Dickinson and Company, Becton
Dickinson Sample Collection GmbH, QIAGEN AG, and QIAGEN
N.V., dated August 5, 1999 (Filed as Exhibit 10.1)
****4.6 Lease Between QIAGEN GmbH and Gisantus
Grundstucksverwaltungsgesellscharft mnH, dated January 13,
1997 (the "Max-Volmer-Strasse 4 Lease") (Filed as Exhibit
10.3)
****4.7 The "Max-Volmer-Strasse 4 Lease" Summary (Filed as Exhibit
10.3(a))
4.8 Second Amendment to the Standard Industrial/Commercial
Single-Tenant Lease - Net Dated May 15, 1996, and the First
Amendment Date for Reference Purposes as February 10, 1999,
between QIAGEN, Inc. and Haserjian Bros. Realty Co., a
California General Partnership
65
4.9 Third Amendment to the Standard Industrial/Commercial
Single-Tenant Lease-Net, dated October 4, 2001, between
QIAGEN, Inc. and Haserjian Bros. Realty Co., a California
General Partnership
6.1 EPS Calculation Explanation
8.1 List of Significant Subsidiaries
10.1 Consent of Arthur Andersen LLP
10.2.1 Letter regarding Arthur Andersen LLP representations
*Incorporated by reference to Form 20-F Annual Report of QIAGEN N.V.
filed with the Securities and Exchange Commission on May 27, 1997.
**Incorporated by reference to Form 20-F Annual Report of QIAGEN N.V.
filed with the Securities and Exchange Commission on May 21, 1998.
***Incorporated by reference to Form 20-F Annual Report of QIAGEN N.V.
filed with the Securities and Exchange Commission on March 31, 1999.
****Incorporated by reference to Form 20-F Annual Report of QIAGEN
N.V. filed with the Securities and Exchange Commission on March 31,
2000.
66
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
QIAGEN N.V.
By: /s/ Peer M. Schatz
--------------------------------------
Dated: March 29, 2002 Peer M. Schatz, Chief Financial Officer
67
QIAGEN N.V. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants.......................................................... F-2
Consolidated Balance Sheets....................................................................... F-3
Consolidated Statements of Income................................................................. F-5
Consolidated Statements of Shareholders' Equity and Comprehensive Income.......................... F-6
Consolidated Statements of Cash Flows............................................................. F-7
Notes to Consolidated Financial Statements........................................................ F-9
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of QIAGEN N.V. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of QIAGEN N.V. (a
Netherlands company) and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, shareholders' equity and
comprehensive income and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of QIAGEN N.V. and Subsidiaries as
of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 6, 2002
F-2
QIAGEN N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
As of December 31,
----------------------------------
2001 2000
------------ --------------
Current Assets:
Cash and cash equivalents $ 56,460,000 $ 24,008,000
Marketable securities 22,512,000 37,307,000
Notes receivable 3,844,000 3,383,000
Note receivable from related party - 617,000
Accounts receivable, net of allowance for doubtful accounts of
$2,048,000 and $991,000 in 2001 and 2000, respectively 39,955,000 34,738,000
Income taxes receivable 2,439,000 1,779,000
Inventories 31,883,000 29,231,000
Deferred income taxes 11,123,000 11,866,000
Prepaid expenses and other 9,115,000 4,736,000
------------ ------------
Total current assets 177,331,000 147,665,000
Long-Term Assets:
Property, plant and equipment, net 160,365,000 73,156,000
Long-term marketable securities,
approximately $213,000 restricted in 2001 2,759,000 6,316,000
Intangible assets, net of accumulated amortization of
$4,060,000 and $2,734,000 in 2001 and 2000, respectively 7,140,000 7,136,000
Deferred income taxes 1,804,000 -
Other assets 7,569,000 6,620,000
------------ ------------
Total long-term assets 179,637,000 93,228,000
------------ ------------
$356,968,000 $240,893,000
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
QIAGEN N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
As of December 31,
---------------------------------
2001 2000
------------ -------------
Current Liabilities:
Lines of credit $ 6,038,000 $ 885,000
Short-term debt 281,000 6,382,000
Current portion of long-term debt 1,138,000 1,071,000
Current portion of capital lease obligations 1,085,000 1,043,000
Accounts payable 20,262,000 18,668,000
Accrued liabilities 20,235,000 15,878,000
Income taxes payable 8,434,000 1,712,000
Deferred income taxes 410,000 499,000
------------ -------------
Total current liabilities 57,883,000 46,138,000
------------ -------------
Long-Term Liabilities:
Long-term debt, net of current portion 70,720,000 11,552,000
Capital lease obligations, net of current portion 10,463,000 11,744,000
Deferred income taxes - 549,000
Other 4,927,000 3,361,000
------------ -------------
Total long-term liabilities 86,110,000 27,206,000
------------ -------------
Minority Interest in Consolidated Subsidiaries - 193,000
------------ -------------
Commitments and Contingencies (Note 15)
Shareholders' Equity:
Common shares, EUR 0.01 par value
Authorized--260,000,000 shares
Issued and outstanding--143,463,800 shares in
2001 and 142,548,487 shares in 2000 1,458,000 1,450,000
Additional paid-in capital 123,117,000 103,448,000
Retained earnings 97,278,000 62,859,000
Accumulated other comprehensive loss (8,878,000) (401,000)
------------ -------------
Total shareholders' equity 212,975,000 167,356,000
------------ -------------
$356,968,000 $ 240,893,000
============ =============
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
QIAGEN N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
-------------------------------------------------------------
2001 2000 1999
------------- ------------- -------------
Net sales $263,770,000 $ 216,802,000 $ 158,155,000
Cost of sales 79,673,000 65,436,000 45,836,000
------------- ------------- -------------
Gross profit 184,097,000 151,366,000 112,319,000
------------- ------------- -------------
Operating Expenses:
Research and development 26,769,000 23,372,000 17,813,000
Sales and marketing 64,830,000 54,931,000 39,948,000
General and administrative 36,022,000 31,177,000 26,110,000
Acquisition costs 3,000,000 5,353,000 -
In-process research and development - - 5,100,000
------------- ------------- ------------
Total operating expenses 130,621,000 114,833,000 88,971,000
------------- ------------- ------------
Income from operations 53,476,000 36,533,000 23,348,000
------------- ------------- ------------
Other Income (Expense):
Interest income 1,795,000 3,032,000 1,576,000
Interest expense (991,000) (1,622,000) (1,306,000)
Research and development grants 1,526,000 1,212,000 1,116,000
Gain (loss) on foreign currency transactions, net 31,000 (231,000) 420,000
Loss from equity method investees (1,373,000) (870,000) (637,000)
Other miscellaneous income, net 1,859,000 1,070,000 471,000
------------- ------------- ------------
Total other income 2,847,000 2,591,000 1,640,000
------------- ------------- ------------
Income before provision for income
taxes and minority interest 56,323,000 39,124,000 24,988,000
Provision for income taxes 21,896,000 18,085,000 10,950,000
Minority interest 8,000 36,000 149,000
------------- ------------- ------------
Net income $ 34,419,000 $ 21,003,000 $ 13,889,000
============= ============= ============
Basic net income per common share $ 0.24 $ 0.15 $ 0.10
============= ============= ============
Diluted net income per common share $ 0.24 $ 0.14 $ 0.10
============= ============= ============
Shares used in computing basic net income
per common share 142,962,000 142,040,000 140,317,000
============= ============= ============
Shares used in computing diluted net income
per common share 145,055,000 145,071,000 142,186,000
============= ============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
QIAGEN N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Accumulated
Common Shares Additional Other Total
BALANCE AT ------------------------- Paid-In Retained Comprehensive Shareholders'
DECEMBER 31, Shares Amount Capital Earnings Loss Equity
-----------------------------------------------------------------------------------------------------------------------------
1998 139,888,291 $2,417,000 $48,218,000 $ 27,967,000 $ (2,372,000) $76,230,000
-----------------------------------------------------------------------------------------------------------------------------
Net income - - - 13,889,000 - 13,889,000
Unrealized loss, net
on marketable securities - - - - (7,000) (7,000)
Translation
adjustment - - - - (2,160,000) (2,160,000)
-----------
Comprehensive income - - - - - 11,722,000
Conversion of par value
to EUR 0.01 - (993,000) 993,000 - - -
Exercise of
stock options 926,772 11,000 2,672,000 - - 2,683,000
Tax benefit in connection
with nonqualified
stock options - - 6,237,000 - - 6,237,000
BALANCE AT
DECEMBER 31,
-----------------------------------------------------------------------------------------------------------------------------
1999 140,815,063 1,435,000 58,120,000 41,856,000 (4,539,000) 96,872,000
-----------------------------------------------------------------------------------------------------------------------------
Net income - - - 21,003,000 - 21,003,000
Unrealized gain, net
on marketable securities - - - - 6,133,000 6,133,000
Translation
adjustment - - - - (1,995,000) (1,995,000)
-----------
Comprehensive income - - - - - 25,141,000
Exercise of
stock options 1,117,424 10,000 4,458,000 - - 4,468,000
Private placement
of common stock 616,000 5,000 16,284,000 - - 16,289,000
Finders' fees paid by
Operon shareholders - - 3,850,000 - - 3,850,000
Tax benefit in connection
with nonqualified
stock options - - 20,736,000 - - 20,736,000
BALANCE AT
DECEMBER 31,
-----------------------------------------------------------------------------------------------------------------------------
2000 142,548,487 1,450,000 103,448,000 62,859,000 (401,000) 167,356,000
-----------------------------------------------------------------------------------------------------------------------------
Net income - - - 34,419,000 - 34,419,000
Unrealized loss, net
on marketable securities - - - - (3,606,000) (3,606,000)
Realized gain, net
on marketable securities - - - - (1,296,000) (1,296,000)
Translation
adjustment - - - - (3,575,000) (3,575,000)
-----------
Comprehensive income - - - - - 25,942,000
Exercise of
stock options 862,914 8,000 4,081,000 - - 4,089,000
Common stock issued for
intangible asset 52,399 - 746,000 - - 746,000
Tax benefit in connection
with nonqualified
stock options - - 14,842,000 - - 14,842,000
BALANCE AT
DECEMBER 31,
-----------------------------------------------------------------------------------------------------------------------------
2001 143,463,800 $1,458,000 $123,117,000 $97,278,000 $(8,878,000) $212,975,000
=============================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
QIAGEN N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
---------------------------------------------------------
2001 2000 1999
------------- ------------- -------------
Cash Flows From Operating Activities:
Net income $34,419,000 $21,003,000 $13,889,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 15,059,000 11,066,000 8,561,000
Finders fees paid by Operon shareholders - 3,850,000 -
In-process research and development - - 5,100,000
Tax benefit on non-qualified stock options 14,842,000 20,736,000 6,237,000
Provision for losses on accounts receivable 1,363,000 189,000 381,000
Deferred income taxes (1,789,000) (5,642,000) (1,297,000)
(Gain) loss on disposition of property and equipment (39,000) (55,000) (29,000)
(Gain) loss on sale of marketable securities (1,296,000) - 11,000
Loss on sale of investment - 30,000 -
Loss on equity method investee 1,373,000 870,000 637,000
Minority interest 8,000 36,000 149,000
Net changes in operating assets and liabilities:
(Increase) decrease in:
Notes receivable (959,000) (1,685,000) (909,000)
Accounts receivable (7,888,000) (10,950,000) (5,394,000)
Income taxes receivable (674,000) (1,682,000) (100,000)
Inventories (3,926,000) (6,882,000) (3,885,000)
Prepaid expenses and other (4,660,000) (750,000) (354,000)
Other assets (228,000) (1,750,000) (72,000)
Increase (decrease) in:
Accounts payable 2,349,000 4,992,000 2,147,000
Accrued liabilities 4,913,000 5,645,000 3,398,000
Income taxes payable 6,995,000 1,565,000 (1,007,000)
Other (1,775,000) 81,000 (151,000)
------------- ------------- -------------
Net cash provided by operating activities 58,087,000 40,667,000 27,312,000
------------- ------------- -------------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment (102,067,000) (40,651,000) (13,746,000)
Proceeds from sale of equipment 274,000 372,000 98,000
Purchases of intangible assets (1,159,000) (440,000) (32,000)
Purchases of investments (1,515,000) (568,000) (3,618,000)
Sales of investments 85,000 184,000 -
Purchases of marketable securities (1,565,000) (28,861,000) (37,173,000)
Sales of marketable securities 16,310,000 23,647,000 28,808,000
Loan to related party (1,778,000) - -
Collection of related party note receivable 617,000 - -
Other - - 37,000
------------- ------------- -------------
Net cash used in investing activities (90,798,000) (46,317,000) (25,626,000)
------------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
QIAGEN N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Years ended December 31,
----------------------------------------------------------
2001 2000 1999
------------- ------------ ------------
Cash Flows From Financing Activities:
Proceeds from lines of credit 23,543,000 14,092,000 675,000
Repayment of lines of credit (18,375,000) (14,182,000) (655,000)
Proceeds from short-term debt - 935,000 475,000
Repayment of short-term debt (5,763,000) (1,924,000) (1,250,000)
Principal payments on capital leases (1,085,000) (1,144,000) (1,430,000)
Proceeds from long-term debt 63,885,000 9,224,000 4,363,000
Repayment of long-term debt (3,649,000) (1,474,000) (463,000)
Repayment of acquisition note payable - (12,000,000) -
Proceeds from loan convertible to grant 3,600,000 - -
Issuance of common shares 4,089,000 20,757,000 2,683,000
------------- ------------ ------------
Net cash provided by financing activities 66,245,000 14,284,000 4,398,000
------------- ------------ ------------
Effect of exchange rate changes on
cash and cash equivalents (1,082,000) 139,000 (246,000)
Net increase in cash and
cash equivalents 32,452,000 8,773,000 5,838,000
Cash and cash equivalents, beginning of year 24,008,000 15,235,000 9,397,000
------------- ------------ ------------
Cash and cash equivalents, end of year $56,460,000 $ 24,008,000 $ 15,235,000
=========== ============ ============
Supplemental Cash Flow Disclosures:
Cash paid for interest $ 1,113,000 $ 1,489,000 $ 1,971,000
============= ============= =============
Cash paid for taxes $ 2,086,000 $ 2,558,000 $ 6,400,000
============= ============= =============
Noncash Investing and Financing Activities:
Common stock issued for intangible asset $ 746,000 $ - $ -
============= ============= =============
Equipment purchased through capital leases $ 502,000 $ 2,525,000 $ 8,525,000
============= ============= =============
Acquisition of Rapigene, Inc.:
Net assets and liabilities assumed $ - $ - $ 2,200,000
============= ============= =============
Developed technology and know-how $ - $ - $ 3,200,000
============= ============= =============
Goodwill $ - $ - $ 1,500,000
============= ============= =============
In-process research and development $ - $ - $ 5,100,000
============= ============= =============
Issuance of note receivable $ - $ - $ 12,000,000
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
QIAGEN N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. Description of Business
QIAGEN N.V. and Subsidiaries (the Company) operates exclusively in the life
sciences industry developing, producing and distributing biotechnology products,
primarily for the separation and purification of nucleic acids (DNA/RNA) as well
as manufacturing and marketing synthetic nucleic acids, DNA microarrays and
synthetic genes and services for single nucleotide polymorphism (SNP) analyses
and other genomic applications. The Company's products are used in biological
research by universities and research institutions as well as in genome
sequencing, diagnostic and therapeutic industries.
At December 31, 2001, the Company consisted of the Netherlands parent company
(QIAGEN N.V.) and its wholly owned subsidiaries as listed in the following
table:
Subsidiary Location
---------- --------
QIAGEN GmbH Hilden, Germany
QIAGEN Ltd. Crawley, England
QIAGEN AG Basel, Switzerland
QIAGEN S.A. Courtaboeuf Cedex, France
QIAGEN Pty. Ltd. Clifton Hill, Australia
QIAGEN Inc. Mississauga, Canada
QIAGEN Instruments AG Hombrechtikon, Switzerland
QIAGEN S.p.A. Milan, Italy
QIAGEN Operon GmbH Cologne, Germany
QIAGEN K.K. Tokyo, Japan
Sawady Technologies Co., Ltd. Tokyo, Japan
QIAGEN North American Holdings, Inc. Valencia, California, United States
QIAGEN Inc. Valencia, California, United States
QIAGEN Genomics, Inc. Bothell, Washington, United States
QIAGEN Sciences, Inc. Germantown, Maryland, United States
QIAGEN Operon, Inc. Alameda, California, United States
QIAGEN North American Holdings, Inc. (QNAH) was established on February 24,
2000, and during fiscal 2000 ownership of QIAGEN Inc. (Valencia), QIAGEN
Genomics, Inc., QIAGEN Sciences, Inc., and QIAGEN Operon, Inc. (formerly Operon
Technologies, Inc.) was transferred from QIAGEN N.V. to QNAH.
The Company also had a 55 percent interest in Accord Co., Ltd. in Tokyo, Japan.
The Company's products are sold throughout the world, primarily in the United
States and in Europe. Similar to most companies in this line of business, the
Company's products are subject to rapid technological change. Because of these
technological changes, the Company needs to continuously expend resources toward
research and development.
2. Summary of Significant Accounting Policies
a. Basis of Presentation
The accompanying consolidated financial statements were prepared in
conformity with accounting principles generally accepted in the United
States (GAAP) and include the accounts of the Company and its wholly
and majority owned subsidiaries, after elimination of all significant
intercompany accounts and transactions. Investments in affiliated
companies that are 50 percent or less owned and where the Company
exercises significant influence over the operations are accounted for
using the equity method. All other investments are accounted for under
the cost method.
F-9
b. Risks and Uncertainties
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets, liabilities and disclosure of contingencies at the date of the
financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
The Company's accounts receivable are unsecured and the Company is at
risk to the extent such amounts become uncollectible. The Company
continually monitors account receivable balances, and provides for an
allowance of doubtful accounts at the time collection may become
questionable based on payment history or age of the receivable. As of
December 31, 2001 and 2000, no single customer represented more than
ten percent of accounts receivable or consolidated net sales.
c. Reclassification
Certain prior year balances have been reclassified to conform to the
current year presentation.
d. Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit in banks and other
cash invested temporarily in various instruments that are short-term
and highly liquid. The Company maintains its cash accounts in highly
qualified institutions.
e. Marketable Securities
The Company accounts for marketable securities in accordance with
Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." All investments
are stated at fair value, interest income is accrued when earned, and
changes in market values are reflected as unrealized gains and losses,
calculated on the specific identification method, as a component of
accumulated other comprehensive income.
f. Inventories
Inventories are stated at the lower of cost or market (first-in,
first-out) and consist of materials, labor and overhead.
The components of inventories consist of the following as of December 31, 2001 and 2000:
2001 2000
------------- ------------
Raw materials $ 8,786,000 $10,381,000
Work in process 8,352,000 5,652,000
Finished goods 14,745,000 13,198,000
----------- -----------
Total inventories $31,883,000 $29,231,000
=========== ===========
g. Property, Plant and Equipment
Property, plant and equipment, including equipment under capital lease,
are stated at cost. Depreciation is computed using the straight-line
and declining balance methods over the following estimated useful
lives: buildings for ten to twenty-five years; machinery and equipment
for two to six years; computer software for one to five years;
furniture and office equipment for two and one-half to ten years; and
leasehold improvements are computed on a straight-line basis over the
lesser of the remaining life of the lease or the estimated useful life.
The Company has a policy of capitalizing expenditures that materially
increase assets' useful lives and charging ordinary maintenance and
repairs to operations as incurred. When property or equipment is
disposed of, the cost and related accumulated depreciation and
amortization are removed from the accounts and any gain or loss is
included in other miscellaneous income.
F-10
h. Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset or a group of assets may not be recoverable. The Company
considers a history of operating losses or a change in expected sales
levels to be indicators of potential impairment. Assets are grouped and
evaluated for impairment at the lowest level for which there are
identified cash flows that are largely independent of the cash flows of
other groups of assets. The Company deems an asset to be impaired if a
forecast of undiscounted projected future operating cash flows directly
related to the asset, including disposal value, if any, is less than
its carrying amount. If an asset is determined to be impaired, the loss
is measured as the amount by which the carrying amount of the asset
exceeds fair value. The Company generally measures fair value by
discounting projected future cash flows. Considerable management
judgment is necessary to estimate discounted future cash flows.
Accordingly, actual results could differ from such estimates.
i. Revenue Recognition
Revenue from consumable product sales is recognized when title passes,
generally upon shipment (FOB shipping point). Revenue from
instrumentation equipment is not recognized until title passes to the
customer, either upon shipment in the case of sales to distributors
(FOB shipping point), or written customer acceptance in the case of
sales to end users after satisfying any installation and training
requirements. For instrumentation equipment sales that contain other
obligations, such as providing service or supplies, revenue is
allocated based on the relative fair values of the individual
components as determined by list prices. If cash sales prices are not
available for individual components, then the sales value is deferred
until all individual components are delivered or performed. Revenue
from instrumentation service contracts, which account for less than 10
percent of total consolidated net sales, is deferred and recognized
over the term of the contract.
j. Shipping and Handling Income and Costs
The Company accounts for income and costs related to shipping and
handling activities in accordance with the Emerging Issues Task Force
Issue No. 00-10 "Accounting for Shipping and Handling Revenues and
Costs." Income from shipping and handling is included with revenue from
product sales. Associated costs of shipping and handling are included
in sales and marketing expenses. For the years ended December 31, 2001,
2000 and 1999, shipping and handling costs totaled $9.3 million, $7.1
million and $5.2 million, respectively.
k. Warranty
The Company warrants its products against defects in materials and
workmanship for a period of one year. A provision for estimated future
warranty is recorded when consumables are shipped and when title on
instrumentation equipment passes to the customer.
l. Foreign Currency Translation
The Company's reporting currency is the United States dollar. The
subsidiaries' functional currencies are primarily the local currency of
the respective country. Balance sheets prepared in their functional
currencies are translated to the reporting currency at exchange rates
in effect at the end of the accounting period except for shareholders'
equity accounts, which are translated at rates in effect when these
balances were originally recorded. Revenue and expense accounts are
translated at a weighted average of exchange rates during the period.
The cumulative effect of translation is included in accumulated other
comprehensive loss in the accompanying consolidated balance sheets.
m. Fair Value of Financial Instruments
The carrying value of the Company's cash and cash equivalents, notes
receivable, accounts receivable, accounts payable and accrued
liabilities approximate their fair values because of the short
maturities of those instruments. The carrying value of the Company's
debt and capital leases approximate their fair values because of the
short maturities and/or interest rates which are comparable to those
available to the Company on similar terms.
F-11
n. Financial Instruments
In the ordinary course of business, the Company purchases foreign
currency exchange options to manage potential losses from foreign
currency exposures. These options give the Company the right, but not
the requirement, to sell foreign currencies in exchange for U.S.
dollars at predetermined exchange rates. The principal objective of
such options is to minimize the risks and/or costs associated with
global financial and operating activities. The Company does not utilize
financial instruments for trading or other speculative purposes. The
Company accounts for these transactions in accordance with SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities."
Premiums to purchase foreign exchange options are recorded as prepaid
assets and amortized over the life of the option or immediately if the
option is exercised. Amortization is included in other expense.
The table below presents the notional amounts and the weighted average
exchange rates for foreign currency exchange options as of December 31,
2001 and 2000. The options outstanding at December 31, 2001 expire at
various dates through February 2002 and have a fair market value of
approximately $6,000. The options outstanding at December 31, 2000
expired at various dates through February 2001 and had a fair market
value of approximately $6,000. Gains or losses from changes in the fair
market values are included in other miscellaneous income, net.
2001 2000
-------------------------------------- ------------------------------------
Notional Weighted Notional Weighted
Notional Average Exchange Notional Average Exchange
Functional Currency: Amount Rate Amount Rate
-------------------- ------------ -------------------- ------------ -------------------
German mark $ - - $ 4,600,000 1.9000
European Union euro 5,600,000 1.0000 - -
Swiss franc 1,200,000 1.5500 - -
------------ ------------
$ 6,800,000 $ 4,600,000
============ ============
o. Authoritative Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, "Business Combinations" effective June 30, 2001 for
business combinations that are consummated after July 1, 2001, and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
eliminates the pooling-of-interests method for business combinations
and requires use of the purchase method. SFAS No. 142 addresses how
intangible assets should be accounted for upon their acquisition as
well as how goodwill and other intangible assets should be accounted
for after they have been initially recognized in the financial
statements. With the adoption of this statement, goodwill is no longer
subject to amortization over its estimated useful life. Goodwill will
be assessed for impairment each year using the fair-value-based test.
The Company will adopt this standard on January 1, 2002 and based on
the analysis performed to date, adoption of this standard will not
result in a material impairment of the carrying value of the goodwill
or other intangible assets with indefinite lives. The adoption is
expected to result in an approximately $1.0 million decrease in the
annual amortization of goodwill and other intangible assets.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires entities to record the
fair value of a liability for an asset retirement obligation in the
period in which the obligation is incurred. When the liability is
initially recorded, the entity capitalizes the cost by increasing the
carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related
asset. This statement is effective on January 1, 2003 with earlier
application encouraged. The Company is currently reviewing this
statement and has not yet determined its impact, if any, on the
Company's financial position, results of operations or cash flows.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 requires
that long-lived assets be measured at the lower of carrying amount or
fair value less cost to sell, whether reported in continuing operations
or in discontinued operations. The statement is effective January 1,
2002 and is not anticipated to have any impact on the Company's
financial position, results of operations or cash flows.
F-12
3. Stock Split and Par Value Currency Conversion
The Company effected a four-for-one stock split during 2000, and a two-for-one
stock split and par value currency conversion in 1999.
To effect the four-for-one stock split, on June 16, 2000 the shareholders of the
Company approved the amendment of the Company's Articles of Association to
increase the number of authorized shares of common stock from 65 million to 260
million. The Company's Board of Supervisory Directors and Managing Board
approved the split in May 2000. Common shareholders of record on July 3, 2000
received three additional shares for each share held on that date. The
additional shares were distributed and the stock split was effective on July 13,
2000.
On June 18, 1999, the shareholders of the Company approved the amendment of the
Company's Articles of Association to increase the number of authorized shares of
common stock from 32.5 million to 65 million, which was required to effect the
two-for-one stock split that the Company's Board of Supervisory Directors and
Managing Board approved in May 1999. Common shareholders of record on July 2,
1999 received one additional share for each share held on that date. The
additional shares were distributed and the stock split was effective on July 16,
1999. Additionally, the Articles of Association were amended to convert the par
value of the common shares from 0.03 NLG to 0.01 EUR.
To reflect the conversion of the par value from 0.03 NLG to 0.01 EUR during
1999, common stock was decreased and additional paid-in capital was increased by
$993,000.
All share data and per share amounts presented have been restated to reflect the
two-for-one and four-for-one stock splits.
4. Net Income per Common Share
The following schedule summarizes the information used to compute earnings per
common share:
Years ended December 31,
-----------------------------------------------------
2001 2000 1999
------------ ----------- -----------
Weighted average number of common
shares used to compute basic net
income per common share 142,962,000 142,040,000 140,317,000
Dilutive effect of stock options 2,093,000 3,031,000 1,869,000
------------ ----------- -----------
Weighted average number of common
shares used to compute diluted net
income per common share 145,055,000 145,071,000 142,186,000
=========== =========== ===========
For the years ended December 31, 2001, 2000 and 1999, stock options to purchase
1,845,000, 864,000 and 591,000 shares, respectively, were excluded from the
dilutive effect of stock options as such options were antidilutive.
5. Acquisitions
On March 31, 2001, the Company completed the acquisition of the Sawady Group of
companies (Sawady) located in Tokyo, Japan. Under the terms of the agreement
QIAGEN N.V. issued 854,987 shares of its common stock, valued at the time of the
closing at approximately $18.0 million, in exchange for all of the outstanding
capital stock of Sawady Technology Co., Ltd., Omgen Co., Ltd. and a majority
position in Accord Co., Ltd., the three companies comprising the Sawady Group of
companies. To date, the minority interest position in Accord Co., Ltd. has not
been significant. The Sawady Group of companies was managed and structured as
one organization, but was organized as three companies to meet the tax planning
and other preferences of its shareholders. In connection with this merger, the
Company recorded acquisition and related charges of approximately $3.0 million,
which include approximately $1.0 million of direct transaction costs, (primarily
legal and other professional fees) and approximately $2.0 million of expenses
primarily relating to the relocation, closure and elimination of leased
facilities, such as duplicate field offices.
F-13
The merger was accounted for as a pooling of interests and accordingly, the
accompanying financial statements and footnotes have been restated to include
the operations of Sawady for 2001 and 2000. For the years ended December 31,
2001 (January 1, 2001 through March 31, 2001, the date of the merger) and 2000,
the Sawady revenues were approximately $2.8 million and $12.8 million,
respectively. For the years ended December 31, 2001 (January 1, 2001 through
March 31, 2001, the date of the merger) and 2000, the Sawady net income was
approximately $144,000 and $897,000, respectively. The 1999 results of
operations of Sawady were not significant and therefore not included in the
accompanying 1999 results of operations or cash flows.
On June 28, 2000, the Company completed the acquisition of Operon Technologies,
Inc. (Operon) of Alameda, California, pursuant to an agreement and plan of
merger with Operon Technologies dated as of June 9, 2000. Under the agreement,
Operon shareholders received 2,392,432 shares of QIAGEN common stock for all
outstanding shares of Operon stock. The Company also assumed outstanding Operon
options, which were exercisable for an additional 422,024 Company shares. Operon
Technologies manufactures and markets synthetic nucleic acids, DNA microarrays
and synthetic genes. The synthetic nucleic acids are used in the analysis of
nucleic acids purified from natural sources and have been integrated into the
Company's product line for its genomics and genetic analysis business.
Subsequent to the acquisition, the Company transferred ownership of Operon,
renamed QIAGEN Operon, Inc., to the Company's United States holding company,
QNAH.
The acquisition of Operon was accounted for as a pooling of interests in
accordance with Accounting Principles Board (APB) Opinion No. 16 and related
Securities and Exchange Commission pronouncements. In connection with the
acquisition, the Company incurred costs of $5.4 million. These costs include
approximately $3.9 million of finder fees for the investment banker chosen by
the shareholders of Operon. This fee was not paid for by the Company, but by the
Operon shareholders. However, in accordance with the accounting rules for a
pooling of interests transaction, this expense is reflected in the financial
statements. The acquisition costs also include approximately $1.0 million in
Netherlands capital tax, which is based on the amount of capital raised in share
issuances. The prior periods financial data of the Company have been restated to
include the results of operations, financial position and cash flows of Operon,
as though it had always been consolidated. For the years ended December 31, 2000
(January 1, 2000 through June 28, 2000, the date of the merger) and 1999, the
Operon revenues were approximately $9.8 million and $13.3 million, respectively.
For the years ended December 31, 2000 (January 1, 2000 through June 28, 2000,
the date of the merger) and 1999, the Operon net income was approximately
$767,000 and $1.3 million, respectively.
On December 31, 1999, QIAGEN N.V. completed the acquisition of the shares of
Rapigene, Inc., an indirect wholly- owned subsidiary of Celltech Group plc. This
acquisition was made by issuing a $12.0 million note payable, which was
subsequently paid in January 2000. The acquired company, renamed QIAGEN
Genomics, Inc., is a leader in the area of innovative, enabling technologies and
services for single nucleotide polymorphism (SNP) analyses as well as other
genomic applications. The acquisition, accounted for as a purchase under APB
Opinion No. 16, included the purchase of all of the stock of Rapigene, Inc.
which, including acquisition costs, resulted in a total purchase price of $12.1
million. A portion of the purchase price has been allocated to the assets
acquired and liabilities assumed based on the estimated fair market value at
December 31, 1999. Independent appraisers utilizing proven valuation procedures
and techniques identified portions of the purchase price, including intangible
assets. These intangible assets include acquired in-process research and
development, developed technology and know-how, and goodwill. As a result of the
appraisal, $3.2 million was allocated to developed technology and know how and
approximately $1.5 million was allocated to goodwill, after purchase accounting
adjustments, to be amortized, using the straight-line method, over seven and ten
years, respectively. A charge of $5.1 million for purchased in-process research
and development was included in the Company's fourth quarter 1999 results. This
charge represents the estimated fair value based on risk-adjusted cash flows
related to the in-process research and development projects. At the date of
acquisition, the development of these projects had not yet reached technological
feasibility and the research and development in progress had no alternative
future uses. The results of operations of the acquired company are included in
the consolidated results for the Company from the date of acquisition.
Subsequent to the acquisition, the Company transferred ownership of QIAGEN
Genomics, Inc., to the Company's United States holding company, QNAH.
The following unaudited pro forma consolidated data summarize the operations for
the periods indicated as if the acquisition had been completed on January 1,
1998. The pro forma data excludes the $5.1 million for purchased in-process
research and development. These pro forma amounts are intended for informational
purposes only and are not necessarily indicative of the results of operations
that would have occurred had the purchase been made at the beginning of the
periods presented or of the future results of the combined operations.
F-14
Years ended December 31,
---------------------------------
1999 1998
-------------- --------------
Net Sales $ 158,612,000 $ 121,103,000
Net Income $ 15,422,000 $ 10,399,000
Basic Earnings per Share $ 0.11 $ 0.07
Diluted Earnings per Share $ 0.11 $ 0.07
6. Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires that comprehensive income, which is the total of
net income and all other non-owner changes in equity, be displayed in the
financial statements. The adoption of SFAS No. 130 had no impact on total
shareholders' equity. The components of the Company's comprehensive income or
loss as presented in the Consolidated Statements of Shareholders' Equity include
net income, unrealized gains and losses from foreign currency translation, and
unrealized gains and losses from available-for-sale marketable securities. The
Company does not expect any tax impacts from realized gains or losses on
marketable securities. The following table is a summary of the components of
accumulated other comprehensive loss:
2001 2000
-------------- ------------
Net unrealized gain on marketable securities $ 1,064,000 $ 5,966,000
Foreign currency translation adjustments (9,942,000) (6,367,000)
-------------- ------------
Accumulated other comprehensive loss $ (8,878,000) $ (401,000)
=============== ============
7. Marketable Securities
At December 31, 2001 and 2000 the investments in the following table are
classified as current, as the Company's plan is generally not to hold its
investments until maturity to take advantage of market conditions.
The contractual maturities of corporate debt securities at December 31, 2001 and
2000 are as follows:
2001 2000
-------------------------------- -----------------------------
Maturities due: Cost Fair Value Cost Fair Value
--------------- ------------ -------------- ------------ ------------
Within one year $ - $ - $ 3,564,000 $ 3,526,000
One to five years 6,007,000 5,995,000 15,768,000 15,762,000
Five to ten years 15,040,000 15,028,000 16,536,000 16,532,000
Over ten years 1,500,000 1,489,000 1,500,000 1,487,000
------------ ------------- ------------ ------------
$ 22,547,000 $ 22,512,000 $ 37,368,000 $ 37,307,000
============ ============= ============ ============
Marketable securities maturing within one year consist of commercial paper and
corporate securities. Marketable securities maturing after one year consist of
corporate securities. At December 31, 2001, the Company recognized unrealized
gains of $46,000 and unrealized losses of $77,000, and realized previously
unrealized losses of $60,000. At December 31, 2000, the Company recognized
unrealized gains of $146,000 and unrealized losses of $40,000. Unrealized gains
and losses, net of any realized amounts are included in other comprehensive
income or loss.
During 1997, the Company purchased a four-percent investment in a start-up
company, Genome Pharmaceuticals Corporation AG (GPC), for $289,000. In November
2000, GPC completed an IPO and the Company's investment was converted to 224,000
shares of GPC common stock and reclassified as a long-term marketable security.
At December 31, 2001, the Company recognized net unrealized losses of $3.9
million, and during the year recognized previously unrealized gains of $1.4
million, included in other miscellaneous income, and at December 31, 2000, the
Company recognized an unrealized gain of approximately $6.0 million on these
shares. The Company intends to hold these shares for more than one year.
During 2001, the Company entered into a securities lending arrangement with
Deutsche Bank and transferred 20,000 shares to Deutsche Bank in January 2002.
The Company is restricted from selling the 20,000 shares during the one-year
lending period. The Company retains all other rights to the shares and Deutsche
Bank guarantees the return of the shares after the lending period. In 2001, the
Company held one of six seats on GPC's Board of Directors.
F-15
For the years ended December 31, 2001, 2000 and 1999, proceeds from sales of
available-for-sale securities totaled $16.3 million, $23.6 million and $28.8
million, respectively, and calculated on the specific identification method,
realized gains during 2001 totaled $1.3 million and realized losses during 1999
totaled $11,000. There were no realized gains or losses during 2000.
8. Property, Plant and Equipment
Property, plant and equipment are summarized as follows as of December 31, 2001
and 2000:
2001 2000
------------ -----------
Land and buildings $ 28,317,000 $25,673,000
Machinery and equipment 37,144,000 28,049,000
Computer software 7,893,000 5,324,000
Furniture and office equipment 21,110,000 18,531,000
Leasehold improvements 5,015,000 3,746,000
Construction in progress 103,612,000 24,776,000
------------ -----------
203,091,000 106,099,000
Less: Accumulated depreciation
and amortization (42,726,000) (32,943,000)
------------ -----------
Property, plant and equipment, net $160,365,000 $73,156,000
============ ===========
For the years ended December 31, 2001, 2000 and 1999 depreciation expense
totaled $12.9 million, $9.6 million and $7.8 million, respectively. Repairs and
maintenance expense was $2.8 million, $1.8 million and $1.4 million in fiscal
years 2001, 2000 and 1999, respectively.
At December 31, 2001 and 2000, construction in progress includes construction
and overhead costs of $89.5 million and $13.2 million, respectively, directly
related to the construction of the Company's new research and manufacturing
facility, QIAGEN Sciences, Inc. located in Germantown, Maryland and the new
production and administration buildings at QIAGEN GmbH in Hilden, Germany. Of
these amounts, $2.2 million represents interest capitalized in accordance with
SFAS No. 34 at December 31, 2001. There was no capitalized interest at December
31, 2000. Additionally, during 2001, QIAGEN Sciences, Inc. received State and
County loans totaling $3.6 million to be used for the land purchase and facility
construction costs. Upon QIAGEN Sciences, Inc. achieving certain employment
levels, these loans are permanently forgiven. Upon conversion, the grant will be
recorded as a reduction to the cost of the assets. Should the criteria not be
met, the loan becomes payable. At December 31, 2001, no amounts of the loan had
been earned. The $3.6 million was included in other long-term liabilities in the
accompanying balance sheet.
9. Investments
During 2001, the Company made investments totaling $613,000 for a 15.55 percent
interest in QBM Cell Science, a company formed for the purpose of owning,
developing and commercializing a technology relating to the use of cryopreserved
neuronal and non-neuronal cells in cell culture products. The investment is
accounted for under the cost method.
In November 1999, QIAGEN AG entered a joint venture agreement for the formation
of PreAnalytiX to develop, manufacture and market integrated systems for the
collection, stabilization and purification of nucleic acids for molecular
diagnostic testing. QIAGEN AG has a 50 percent interest (initially purchased for
CHF 1,504,800, approximately $906,000 at December 31, 2001), which is accounted
for under the equity method. For the years ended December 31, 2001, 2000 and
1999, QIAGEN AG recorded losses from this equity investment of CHF 2.3 million
(approximately $1.4 million), CHF 1.4 million (approximately $835,000) and CHF
496,000 (approximately $330,000), respectively. During the year ended December
31, 2001, QIAGEN GmbH had sales to PreAnalytiX of $1.5 million. At December 31,
2001, QIAGEN GmbH had accounts receivables from PreAnalytiX totaling $440,000.
During 2001, both joint venture partners each loaned CHF 3.0 million
(approximately $1.8 million at December 31, 2001) to the venture at a 4.0%
interest rate. It is anticipated that both joint venture partners will convert
the loan balances to additional capital at some future date. There was no amount
receivable at December 31, 2000. In 2001, the Company held three of six seats on
PreAnalytix's Management Committee, for which there is also one independent
director.
In November 1999, the Company had purchased an investment in ENPharma L.P., a
limited partnership established to license, market and develop certain
intellectual property, for CAD 250,000, (approximately $171,000 at December 31,
F-16
1999). During 2000, the Company sold its 12.3 percent interest in ENPharma L.P.
to an employee for book value, approximately $100,000. As the investment in the
limited partnership exceeded 3 percent, it had been accounted for under the
equity method up to the date of the sale and the Company had recorded losses
from this equity investment of $35,000 and $34,000 for the years ended December
31, 2000 and 1999, respectively.
In June of 1999, the Company acquired 15.6 (15.4 percent of the common stock )
percent of the voting rights of Zeptosens AG for $1.7 million. During 2001, the
Company made an additional investment of $903,000 and now holds 18.6 percent of
the voting rights (24.6 percent of the common stock). Zeptosens is focused on
developing and commercializing bioanalytical technologies for use in life
sciences as well as in food and environmental analysis. The investment is
accounted for under the cost method. At December 31, 2001, QIAGEN GmbH had
receivables from Zeptosens in the amount of $136,000. At December 31, 2000,
QIAGEN N.V. had a note receivable from Zeptosens in the amount of $617,000,
which was collected in January 2001. In 2001, the Company held one of six seats
on Zeptosens' Board of Directors, and members of the Company's management and
Board had interests in Zeptosens totaling 1.3 percent.
On September 23, 1998, the Company acquired an investment in Ingenium
Pharmaceuticals AG. At December 31, 2001, the Company's investment totaled
$511,000, representing a 0.9 percent interest. The investment is accounted for
under the cost method. In 2001, the Company held one of three seats on
Ingenium's Board of Directors, and members of the Company's management and Board
had interests in Ingenium totaling 2.0 percent.
In 1998, QIAGEN GmbH entered a joint venture agreement for the formation of
QE-Diagnostiksysteme GmbH, a company focusing on developing and providing
enabling technologies for the molecular diagnostic industry. At December 31,
2001, QIAGEN GmbH had a 50 percent interest (EUR 256,000, approximately
$228,000), which is accounted for under the equity method. QE-Diagnostiksysteme
began operations during 1999 and the Company recorded a loss from the equity
investment of EUR 256,000. The Company does not anticipate recording any equity
pick-up until such time as the net income of QE-Diagnostiksysteme exceeds
previous losses. At December 31, 2001 and 2000, QIAGEN GmbH had receivables from
QE-Diagnostiksysteme GmbH in the amount of $242,000 and $86,000, respectively.
In 2001, the Company held one of four seats on QE-Diagnostiksysteme's Board of
Directors.
On March 20, 1997, the Company sold certain research and licensing agreements
valued at $500,000 to a newly founded company, Coley Pharmaceutical Group, Inc.
(Coley) (formerly CpG ImmunoPharmaceuticals, Inc.), for 2,040 shares of its
preferred stock. In May 2000 and in June 1999, the Company invested an
additional $500,000 and $499,000, respectively, bringing the Company's total
interest to 7.97 percent. At December 31, 2001 and 2000, the Company had
receivables from Coley in the amount of $19,000 and $65,000, respectively. The
investment is accounted for under the cost method. In 2001, the Company held one
of nine seats on Coley's Board of Directors, and members of the Company's
management and Board had interests in Coley totaling 9.9 percent.
The Company periodically reviews the carrying value of these investments for
impairment, considering factors such as the most recent stock transactions and
book value from the most recent financial statements. These investments are
included in other assets in the accompanying consolidated balance sheets.
10. Intangible Assets
In September 2001, the Company entered a development, supply and marketing
agreement with Polysciences, Inc. for the development and marketing of certain
of Polysciences' existing and future magnetic polymer technologies. In exchange
for exclusive rights to the technology, the Company gave Polysciences $829,000
and 52,399 common shares (valued at approximately $746,000 at the time of the
exchange). This license is being amortized over the seven-year contract life.
In January 2000, the Company entered a collaboration agreement with Zeptosens AG
for the manufacture and marketing of products. The Company has purchased
licensing rights for approximately $397,000.
Through December 31, 2001, for intangibles acquired before June 30, 2001, all
patents and licensing rights were amortized straight line over periods of three
to seven years. The Company recognized amortization expense relating to patents
and licensing rights of $509,000, $450,000 and $384,000 for the years ended
December 31, 2001, 2000 and 1999, respectively. The cost of intangible assets is
evaluated periodically and adjusted, if necessary, if later events and
circumstances indicate that a permanent decline in value below the current
unamortized historical cost has occurred.
The Company recorded identified intangible assets in connection with the
purchase of QIAGEN Genomics, Inc. on December 31, 1999. These intangible assets
were capitalized and consist of developed technology and know-how, and
F-17
goodwill. Based on the appraisal, $3.2 million was allocated to developed
technology and know how and approximately $1.5 million was allocated to
goodwill, after purchase accounting adjustments, to be amortized straight line
over seven and ten years, respectively. In each of the years ended December 31,
2001 and 2000, the Company recorded amortization expense of $607,000 on these
intangibles. In connection with the adoption of SFAS No. 142, amortization over
the previously identified lives will cease, and the intangibles will be assessed
for impairment each year using a fair-value-based test.
In connection with its formation, QIAGEN K.K., entered into a business transfer
agreement with its minority shareholder. Pursuant to the agreement, the minority
shareholder agreed to transfer to QIAGEN K.K. certain intangible assets, such as
certain "know-how" and marketing information relating to the sale of the
Company's products, in exchange for 330 million Japanese Yen (approximately $2.9
million at December 31, 1999). The Company made the payment of 330 million
Japanese Yen on August 31, 1998, and capitalized the intangible assets, which
are being amortized straight-line over seven years. During 2001, 2000 and 1999,
the Company recorded amortization expense relating to these intangible assets of
approximately $361,000, $373,000 and $415,000, respectively. In connection with
the adoption of SFAS No. 142, amortization over the previously identified life
will cease, and the intangibles will be assessed for impairment each year using
a fair-value-based test.
11. Income Taxes
Under SFAS No. 109, deferred income tax assets or liabilities are computed based
on the temporary difference between the financial statement and income tax bases
of assets and liabilities using the enacted marginal income tax rate in effect
for the year in which the differences are expected to reverse. Deferred income
tax expenses or credits are based on the changes in the deferred income tax
assets or liabilities from period to period.
The Company has recorded a net deferred tax asset of $12.5 million at December
31, 2001. Realization is dependent on generating sufficient taxable income in
the future. Although realization is not assured, management believes it is more
likely than not that all of the net deferred tax asset will be realized. To the
extent that future valuation allowances are required, the effect of the
allowance will be recorded in the provision for income taxes in the period the
determination is made.
The components of the net deferred tax asset at December 31, 2001 and 2000 are
as follows:
2001 2000
----------- -----------
Deferred tax asset:
Allowance for bad debts $ 541,000 $ 205,000
Bonus/commission accrual 155,000 102,000
Vacation accrual 368,000 315,000
Warranty accrual 103,000 128,000
Accrued liabilities 1,506,000 1,210,000
Depreciation and amortization 346,000 534,000
Tax credits 460,000 -
Net operating loss carryforward 4,864,000 5,775,000
Inventories 3,940,000 3,616,000
Deferred revenues 521,000 213,000
Capitalized start-up costs 1,660,000 546,000
United States state income taxes - 90,000
Capital leases 327,000 374,000
Other 149,000 170,000
----------- -----------
14,940,000 13,278,000
----------- -----------
Deferred tax liability:
Depreciation and amortization (146,000) (142,000)
Inventory (346,000) (262,000)
Accrued liabilities (313,000) (367,000)
Intangibles (990,000) (1,175,000)
United States state income taxes (247,000) -
Other (381,000) (514,000)
----------- -----------
(2,423,000) (2,460,000)
----------- -----------
Net deferred tax assets $12,517,000 $10,818,000
=========== ===========
F-18
Deferred tax assets and liabilities are reflected on the Company's consolidated
balance sheets at December 31, 2001 and 2000 as follows:
2001 2000
------------ -----------
Current deferred tax asset $ 11,123,000 $11,866,000
Current deferred tax liabilities (410,000) (499,000)
Non-current deferred tax asset 1,804,000 -
Non-current deferred tax liabilities - (549,000)
------------ -----------
Net deferred tax assets $ 12,517,000 $10,818,000
============ ===========
As of December 31, 2001 and 2000, the Company had a net operating loss (NOL)
carryforward of approximately $8.6 million and $11.8 million, respectively.
These NOLs were generated primarily from the exercise of employee stock options
and operating losses that were acquired with the purchase of Rapigene, Inc. (now
QIAGEN Genomics, Inc.). These NOLs will expire in various years through 2020.
Federal tax law limits the use of NOLs from QIAGEN Genomics, Inc., which amount
to $2.2 million at December 31, 2001. In addition, the Company had state NOLs
equal to approximately $1.4 million and $5.0 million at December 31, 2001 and
2000, respectively. These NOLs expire at various times through 2005.
As of December 31, 2001 and 2000, the Company had NOL carryforwards totaling
approximately $6.9 million and $2.7 million, respectively. These NOLs were
primarily generated from operating losses from the Company's newer subsidiaries,
QIAGEN Operon GmbH and QIAGEN S.p.A., and include the NOL acquired with the
acquisition of Rosys (now QIAGEN Instruments, AG). At December 31, 2001, a
portion of these NOLs, approximately $4.0 million, expires in various years
through 2007. The balance does not expire. At December 31, 2001, the Company's
foreign holding company also has an NOL of $2.3 million with a full valuation
allowance. This NOL does not expire.
Income before income taxes for the years ended December 31, 2001, 2000 and 1999
consisted of:
Years Ended December 31,
-----------------------------------------------------
2001 2000 1999
------------ ------------- --------------
United States pretax income $ 6,611,000 $ 4,191,000 $ 8,913,000
Non-United States pretax income 49,712,000 34,933,000 16,075,000
------------ ------------ --------------
$ 56,323,000 $ 39,124,000 $ 24,988,000
============ ============= ==============
The provisions for income taxes for the years ended December 31, 2001, 2000 and
1999 are as follows:
Years Ended December 31,
-----------------------------------------------------
2001 2000 1999
------------ ------------ -------------
Current - United States federal taxes $ 1,602,000 $ 4,165,000 $ 4,675,000
- United States state taxes 1,005,000 1,184,000 1,086,000
- Non-United States taxes 21,078,000 14,182,000 6,558,000
------------ ------------ -------------
23,685,000 19,531,000 12,319,000
------------ ------------ -------------
Deferred - United States federal taxes 391,000 (987,000) (207,000)
- United States state taxes (190,000) (210,000) (52,000)
- Non-United States taxes (1,990,000) (249,000) (1,110,000)
------------ ------------ -------------
(1,789,000) (1,446,000) (1,369,000)
------------ ------------ -------------
Total provision for income taxes $ 21,896,000 $ 18,085,000 $ 10,950,000
============ ============ =============
F-19
Differences between the provision for income taxes and income taxes at the
United States statutory federal income tax rate for the years ended December 31,
2001, 2000 and 1999 are as follows:
Years Ended December 31,
---------------------------------------------------------------------------
2001 2000 1999
----------------------- ---------------------- --------------------
Amount Percent Amount Percent Amount Percent
------------ ------- ----------- ------- ------ -------
Income taxes at United States
statutory federal rate $19,150,000 34.0% $13,302,000 34.0% $ 8,496,000 34.0%
United States state income taxes,
net of federal income tax effect 509,000 0.9% 320,000 0.8% 499,000 2.0%
Non-United States taxes at rates
greater than United States
statutory federal rate 2,186,000 3.9% 2,103,000 5.4% 111,000 0.4%
Nondeductible acquisition costs - - 2,142,000 5.5% - -
Nondeductible goodwill amortization 56,000 0.1% 60,000 0.1% - -
Nondeductible purchased in-
process research & development - - - - 2,008,000 8.0%
Other items, net (5,000) 0.0% 158,000 0.4% (164,000) (0.6%)
----------- ----- ----------- ----- ----------- -----
Total provision for income taxes $21,896,000 38.9% $18,085,000 46.2% $10,950,000 43.8%
=========== ===== =========== ===== =========== =====
12. Accrued Liabilities
Accrued liabilities at December 31, 2001 and 2000 consist of the following:
2001 2000
----------- -----------
Payroll and related accruals $3,899,000 $ 4,114,000
Management bonuses 539,000 482,000
Warranty 887,000 605,000
Professional and other fees 3,277,000 2,433,000
Sales and other taxes 1,716,000 1,855,000
Deferred revenue 1,286,000 904,000
Royalties 5,487,000 3,949,000
Checks in excess of cash balance 308,000 665,000
Prepaid VAR discount 1,550,000 -
Other 1,286,000 871,000
----------- -----------
Total accrued liabilities $20,235,000 $15,878,000
=========== ===========
13. Lines of Credit and Debt
The Company has eight separate lines of credit amounting to $9.6 million of
which approximately $6.0 million was utilized at December 31, 2001. Interest
rates on amounts drawn against these lines of credit outstanding as of December
31, 2001 ranged from 3.88 percent to 7.25 percent, with an effective weighted
average rate of 5.92 percent. Some of the lines of credit, $1.5 million, may be
called without notice, and are collateralized by accounts receivable and
equipment. The availability of total credit is reduced by approximately $602,000
due to guarantees made by a bank against one of the credit facilities. At
December 31, 2001 and 2000, the Company had $281,000 and $6.4 million,
respectively, of short-term borrowings outstanding. The weighted average
interest rates on these borrowings were 1.88 percent and 5.28 percent,
respectively. Interest expense on line of credit and short-term borrowings was
$302,000, $170,000 and $324,000 for the years ended December 31, 2001, 2000 and
1999, respectively.
F-20
Long-term debt consists of the following:
2001 2000
----------- -----------
Note payable bearing interest at Prime Rate
(9.5% at December 31, 2000), due in 2004
Note was repaid in June 2001 $ - $ 625,000
Note payable bearing interest at Prime Rate
(9.5% at December 31, 2000), due in 2005
Note was repaid in June 2001 - 1,119,000
3.75% note due in semi-annual payments of EUR 252,000
(approximately $224,000 at December 31, 2001) beginning
in September 2001 with a final payment due in March 2009 8,533,000 9,600,000
Note payable bearing interest at EURIBOR (3.34% at
December 28, 2001) plus 1.2%, due in one final
payment of EUR 20,374,000 in May 2003 18,135,000 -
Note payable bearing interest at EURIBOR (3.34%
at December 28, 2001) plus 1.2%, due in one final
payment of EUR 50,000,000 May 2003 44,505,000 -
Four notes payable totaling JPY 90,102,000 at
December 31, 2001, bearing interest at various rates
ranging from 0.49% to 2.33% with various due dates
through March 2006 685,000 1,279,000
----------- -----------
Total long-term debt 71,858,000 12,623,000
Less current portion of long-term debt 1,138,000 1,071,000
----------- -----------
Long-term portion of long-term debt $70,720,000 $11,552,000
=========== ===========
Future principal maturities of long-term debt as of December 31, 2001 are as
follows:
Year ending December 31,
------------------------
2002 $ 1,138,000
2003 64,001,000
2004 1,557,000
2005 1,172,000
2006 1,146,000
Thereafter 2,844,000
------------
$ 71,858,000
============
Interest expense, net of capitalized interest of approximately $2.2 million, on
long-term debt was $321,000, $604,000 and $127,000 for the years ended December
31, 2001, 2000 and 1999, respectively.
The two euro denominated notes totaling EUR 70.4 million are part of new loan
facilities obtained in 2001 that allow the Company to borrow up to a total of
EUR 100.0 million (approximately $89.0 million at December 31, 2001). These new
loan facilities have an initial term of two years. The loan agreements contain
certain financial and non-financial covenants, including but not limited to the
encumbrance of land and accounts receivable, restriction on the transfer of any
patents to third parties and the maintenance of certain financial ratios. The
Company was in compliance with these covenants at December 31, 2001. The
proceeds of these facilities are primarily dedicated to the refinancing of
previously made acquisitions of land and the construction of manufacturing,
research and administrative facilities thereon. In February 2002, the EUR 50.0
million note was amended to be U.S. dollar denominated and the amount was fixed
at $43.5 million at an interest rate of LIBOR plus 1.28 percent.
F-21
14. Stock Options
On April 30, 1996, the Company adopted the QIAGEN N.V. 1996 Employee, Director
and Consultant Stock Option Plan (the Option Plan). The Option Plan allows for
incentive stock options, as well as for non-qualified options, generally with
terms of 10 years, subject to earlier termination in certain situations. The
options vest over a three-year period. The exercise price of the options is
determined by the Board or by the Compensation Committee, and to date all grants
have been at the market value on the date of the grant. The Company has reserved
18,968,000 shares of common stock for issuance under this plan.
In connection with the acquisition of Operon (see Note 5), the Company exchanged
422,024 QIAGEN options for all of the outstanding options of Operon. These
exchanged options vest over 4 years.
Information regarding the Option Plan as of December 31, 1999, 2000 and 2001,
and changes during the years then ended is summarized as follows:
Option Weighted Average
Shares Exercise Price
-------------------------------------------------------------------------
December 31, 1998 5,011,094 $ 3.67
-------------------------------------------------------------------------
Granted 2,761,289 9.66
Exercised (926,772) 3.01
Forfeited (340,319) 6.37
-------------------------------------------------------------------------
December 31, 1999 6,505,292 $ 6.17
-------------------------------------------------------------------------
Granted 1,898,562 37.22
Exercised (1,117,424) 4.23
Forfeited (285,413) 16.59
-------------------------------------------------------------------------
December 31, 2000 7,001,017 $ 14.47
-------------------------------------------------------------------------
Granted 2,713,415 21.11
Exercised (862,914) 4.82
Forfeited (619,861) 33.97
-------------------------------------------------------------------------
December 31, 2001 8,231,657 $ 16.28
=========================================================================
At December 31, 2001, 2000 and 1999, 3,969,284, 3,269,928 and 2,540,667 options
were exercisable at a weighted average price of $9.64, $4.63 and $2.70 per
share, respectively. The weighted average fair value of options granted during
2001, 2000 and 1999 was $14.38, $28.38 and $4.46, respectively. The options
outstanding at December 31, 2001 expire in various years through 2011.
Information about stock options outstanding at December 31, 2001 is summarized
as follows:
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/01 Contract Life Price at 12/31/01 Price
-------------------------------------------------------------------------------------------------------------------
$ 0.97 - $ 5.63 1,772,461 4.93 Years $ 2.66 1,750,123 $ 2.66
$ 5.70 - $ 8.77 1,869,591 7.07 Years $ 8.30 1,373,342 $ 8.15
$ 8.77 - $ 18.56 1,491,629 9.18 Years $ 15.27 271,604 $ 11.23
$ 9.00 - $ 34.59 1,748,443 9.04 Years $ 21.89 205,281 $ 20.90
$ 34.59 - $ 49.75 1,349,533 8.66 Years $ 39.04 368,934 $ 40.84
-------------------------------------------------------------------------------------------------------------------
$ 0.97 - $ 49.75 8,231,657 7.67 Years $ 16.28 3,969,284 $ 9.64
===================================================================================================================
The Company has elected to adopt SFAS No. 123 for disclosure purposes only and
applies APB Opinion No. 25 and related interpretations in accounting for its
employee stock options. No compensation cost was recognized relating to options
for the years ended December 31, 2001, 2000 and 1999. Had compensation cost for
the stock options awarded under the Option Plan been determined based on the
fair value at the dates of grant consistent with the methodology of SFAS No.
123, the Company's net income and basic and diluted earnings per share would
have reflected the following pro forma amounts:
2001 2000 1999
-------------- ------------- ------------
Pro forma net income $ 26,571,000 $ 8,055,000 $ 10,178,000
Pro forma basic net income per share $ 0.19 $ 0.06 $ 0.07
Pro forma diluted net income per share $ 0.18 $ 0.06 $ 0.07
F-22
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for the
grants: weighted average risk-free interest rates of 4.33 percent, 6.25 percent
and 5.40 percent and a weighted average expected life of six years for the years
ended December 31, 2001, 2000 and 1999, respectively. The weighted average
expected volatility was 75 percent, 84 percent, and 45 percent for the years
ended December 31, 2001, 2000 and 1999, respectively. It is assumed that no
dividends would be issued during the option term.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. Option value models also require the input of highly subjective
assumptions such as expected option life and expected stock price volatility.
Because the Company's stock-based compensation plans have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, the
Company believes that the existing option valuation model does not necessarily
provide a reliable single measure of the fair value of awards from this plan.
15. Commitments and Contingencies
a. Lease Commitments
The Company leases facilities and equipment under operating lease
arrangements expiring in various years through 2018. Certain facility
and equipment leases constitute capital leases. The accompanying
consolidated financial statements include the assets and liabilities
arising from these capital lease obligations.
Minimum future obligations under capital and operating leases at
December 31, 2001 are as follows:
Capital Leases Operating Leases
-------------- ----------------
2002 $1,789,000 $ 4,521,000
2003 1,554,000 4,616,000
2004 1,274,000 3,092,000
2005 1,140,000 1,187,000
2006 930,000 121,000
Thereafter 10,678,000 794,000
------------ -----------
17,365,000 $14,331,000
Less: Amount representing interest (5,817,000) ===========
------------
11,548,000
Less: Current portion (1,085,000)
------------
$10,463,000
============
Rent expense under noncancelable operating lease agreements was $6.6
million, $5.8 million and $3.7 million for the years ended December 31,
2001, 2000 and 1999, respectively.
b. Purchase Commitments
At December 31, 2001, the Company had commitments with several vendors
to purchase certain products during 2002, 2003 and 2004 totaling
approximately $9.0 million, $4.8 million and $7.5 million,
respectively.
c. Commitments
QIAGEN Sciences, Inc. (Sciences) had contractually committed to
approximately $51.5 million related to the construction of an
approximately 200,000 square foot facility located in Germantown,
Maryland. During 2001, most of the costs related to this commitment
were incurred. The total project cost is estimated to cost
approximately $55.3 million. At December 31, 2001, construction and
overhead costs of approximately $52.8 million had been incurred with
estimated costs to complete of approximately $2.5 million. The new
facility construction is expected to be completed in 2002, with
manufacturing activities initiated in the second quarter of 2002.
During October 2000, the Company began construction of two new
facilities in Germany with estimated completion during the third
quarter of 2002. The estimated cost for these facilities is
approximately EUR 54.0 million (approximately $48.1 million at December
31, 2001) of which EUR 39.5 million (approximately $35.2 million) has
been incurred.
F-23
In October 1998, the Company announced that it had signed a five-year
supply agreement with Abbott Laboratories (Abbott). According to the
agreement, the Company will supply Abbott with various proprietary
nucleic acid sample purification and preparation products. Under the
terms of this agreement, Abbott has committed to certain purchases of
the Company's products over the term of the contract. The Company has
committed to certain expansions of its production capacity and product
quality and has received payments for such achievements.
d. Contingencies
The Company is a party to legal proceedings incidental to its business.
Certain claims, suits or complaints arising out of the normal course of
business have been filed or were pending against the Company. Although
it is not possible to predict the outcome of such litigation, based on
the facts known to the Company and after consultation with legal
counsel, management believes that such litigation will not have a
material effect on its financial position or results of operations.
During the normal course of business, the Company is subject to audit
by taxing authorities for varying periods in various tax jurisdictions.
Such matters may involve substantial amounts, and if these were to be
ultimately resolved unfavorably to the full amount of their maximum
potential exposure, an event not currently anticipated, it is possible
that such an event could have a material effect on the Company's cash
position and results of operations.
16. Employee Benefits
In September 1992, QIAGEN, Inc. (Valencia) adopted the QIAGEN Inc. Employees
401(k) Savings Plan (the Plan). The purpose of the Plan is to provide retirement
benefits to all eligible employees, which include employees of QIAGEN, Inc.,
QIAGEN Sciences, Inc. and QIAGEN Genomics, Inc. Matching contributions and
profit sharing contributions may be made to the Plan at the discretion of the
Board of Directors. In 2001, 2000 and 1999, total matching contributions to the
Plan were approximately $701,000, $600,000 and $226,000, respectively.
Operon adopted a defined contribution plan effective January 1, 1994, benefiting
substantially all Operon employees. Operon may make matching contributions at
the discretion of the Board of Directors. In 2001, 2000 and 1999 matching
contributions to the plan totaled approximately $144,000, $108,000 and $74,000,
respectively.
As of December 31, 2001, QIAGEN GmbH has deferred compensation plans for one
officer and one employee. The present value of the future compensation
obligation of $200,000, $171,000 and $173,000 has been accrued in the
accompanying consolidated financial statements at December 31, 2001, 2000 and
1999, respectively.
During 1999, QIAGEN KK established a retirement plan for one officer. The
employee is entitled to a lump sum distribution based on a formula tied to years
of service. As such an amount of $215,000, $187,000 and $145,000 has been
accrued in the accompanying consolidated financial statements at December 31,
2001, 2000 and 1999, respectively.
17. Licensing Agreements
The Company has licensing agreements with companies, universities and
individuals, some of which require certain up-front payments. Royalty payments
are required on net product sales ranging from one to ten percent of covered
products. Several of these agreements have minimum royalty requirements. The
accompanying consolidated financial statements include accrued royalties
relating to these agreements in the amount of $5.5 million and $3.9 million at
December 31, 2001 and 2000, respectively. Royalty expense relating to these
agreements amounted to $10.0 million, $7.8 million, and $5.7 million for the
years ended December 31, 2001, 2000 and 1999, respectively. Royalty expense is
primarily recorded in cost of sales, with a small portion recorded as research
and development expense depending on the use of the technology under license.
Some of these agreements also have minimum raw material purchase requirements
and requirements to perform specific types of research.
F-24
18. Related Party Transactions
From time to time the Company may have transactions with companies in which the
Company also holds an interest. See notes 7 and 9 for discussion of these
investments and transactions.
In connection with its formation, QIAGEN K.K. entered into a service agreement
with its minority shareholder. Pursuant to the agreement, the minority
shareholder provided services such as stock keeping, order processing, and
packing and shipping. As compensation for services provided, QIAGEN K.K. paid
the minority shareholder a service fee equal to seven percent of the net
revenues of QIAGEN K.K. For the years ended December 31, 2000 and 1999, QIAGEN
K.K. expensed to sales and marketing expense approximately $1.1 million and
$857,000, respectively, in service fees, of which $96,000 and $85,000 is
included in accrued liabilities at the end of the respective year. The service
agreement was terminated upon the Company's acquisition of the minority
shareholder's interest in January 2001.
19. Segment and Related Information
The Company operates exclusively in the life sciences industry generating
revenue from the sale of products and services for the separation and
purification of nucleic acids. Reportable segments are based on the geographic
locations of the subsidiaries.
The Company's reportable segments include the Company's production and
manufacturing facilities in Germany, United States and Switzerland, and
distribution subsidiaries in the United States, Switzerland, Japan, the United
Kingdom and Other Countries (consisting of the Company's subsidiaries in Canada,
France, Australia, and Italy). The Company's holding company is located in the
Netherlands.
The Company evaluates performance based on several factors, of which the primary
financial measure is operating income. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies in Note 2 of the Notes to Consolidated Financial Statements.
Summarized financial information concerning the Company's reportable segments is
shown in the following tables:
Net Sales 2001 2000 1999
--------- --------------- ------------- -------------
Germany $ 121,744,000 $ 99,408,000 $ 79,603,000
United States 147,609,000 119,925,000 90,018,000
Switzerland 27,898,000 23,490,000 15,243,000
Japan 34,417,000 35,038,000 14,609,000
United Kingdom 16,282,000 12,004,000 10,051,000
Other Countries 17,844,000 15,484,000 10,297,000
--------------- ------------- -------------
Subtotal 365,794,000 305,349,000 219,821,000
Intersegment Elimination (102,024,000) (88,547,000) (61,666,000)
--------------- ------------- -------------
Total $ 263,770,000 $ 216,802,000 $ 158,155,000
=============== ============= =============
Net sales are attributed to countries based on the location of the Company's
subsidiary. During 2001, 2000 and 1999, no single customer represented more than
ten percent of consolidated net sales. United States export sales did not exceed
ten percent of consolidated net sales during fiscal 2001, 2000 or 1999.
Intersegment Sales 2001 2000 1999
------------------ ------------- ------------- --------------
Germany $(80,277,000) $(70,359,000) $(54,932,000)
United States (5,198,000) (2,744,000) (2,402,000)
Switzerland (15,752,000) (11,496,000) (4,332,000)
Japan (797,000) (3,893,000) -
Other Countries - (55,000) -
------------- ------------- --------------
Total $(102,024,000) $(88,547,000) $(61,666,000)
============= ============ =============
All intersegment sales are accounted for by a formula based on local list prices
and eliminated in consolidation.
F-25
Operating Income (Loss) 2001 2000 1999
----------------------- ------------- ------------ ------------
Germany $ 30,914,000 $ 23,157,000 $ 10,524,000
United States 10,326,000 6,807,000 9,843,000
Switzerland 4,119,000 4,742,000 1,308,000
Japan 5,956,000 3,798,000 1,496,000
United Kingdom 3,566,000 2,431,000 2,102,000
Other Countries 1,174,000 1,288,000 758,000
The Netherlands (2,611,000) (482,000) (1,596,000)
------------- ------------- ------------
Subtotal 53,444,000 41,741,000 24,435,000
Intersegment elimination 32,000 (5,208,000) (1,087,000)
------------- ------------- ------------
Total $53,476,000 $ 36,533,000 $ 23,348,000
============= ============= ============
The Netherlands component of operating income (loss) is primarily general and
administrative expenses. The intersegment elimination represents the elimination
of intercompany profit.
Depreciation and Amortization 2001 2000 1999
----------------------------- ------------- ------------ ------------
Germany $ 6,926,000 $ 5,482,000 $ 4,909,000
United States 5,764,000 3,965,000 2,418,000
Switzerland 371,000 269,000 229,000
Japan 1,614,000 1,065,000 627,000
United Kingdom 107,000 103,000 146,000
Other Countries 158,000 80,000 82,000
The Netherlands 119,000 102,000 150,000
------------- ------------ ------------
Total $ 15,059,000 $ 11,066,000 $ 8,561,000
============= ============ ============
Assets 2001 2000
------ --------------- -------------
Germany $ 186,489,000 $ 82,389,000
United States 129,015,000 111,605,000
Switzerland 19,480,000 15,758,000
Japan 21,484,000 24,304,000
United Kingdom 6,475,000 4,515,000
Other Countries 9,601,000 6,628,000
The Netherlands 122,318,000 114,055,000
--------------- -------------
Subtotal 494,862,000 359,254,000
Intersegment Elimination (137,894,000) (118,361,000)
--------------- -------------
Total $ 356,968,000 $ 240,893,000
=============== =============
Assets of the Netherlands include cash and cash equivalents, investments,
prepaid assets and certain intangibles. The intersegment elimination represents
intercompany investments and advances.
At December 31, 2001 and 2000, the investment in equity method investees totaled
($1,637,000) and ($247,000) for Switzerland. These investments are included in
the asset amounts presented above.
Capital Expenditures 2001 2000 1999
-------------------- ------------- ------------- --------------
Germany $ 44,420,000 $ 14,096,000 $ 8,601,000
United States 53,477,000 24,188,000 4,247,000
Switzerland 3,401,000 552,000 640,000
Japan 305,000 1,472,000 108,000
United Kingdom 106,000 78,000 77,000
Other Countries 358,000 263,000 73,000
The Netherlands - 2,000 -
------------- ------------- --------------
Total $ 102,067,000 $ 40,651,000 $ 13,746,000
============= ============= ==============
F-26
Long-Lived Assets 2001 2000
----------------- ------------- -------------
Germany $ 76,763,000 $ 39,542,000
United States 84,275,000 35,816,000
Switzerland 4,433,000 979,000
Japan 3,358,000 5,878,000
United Kingdom 146,000 155,000
Other Countries 645,000 406,000
The Netherlands 8,213,000 10,452,000
------------- -------------
Total $ 177,833,000 $ 93,228,000
============= =============
F-27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE
To the Board of Directors and Shareholders of QIAGEN N.V. and Subsidiaries:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of QIAGEN N.V. and
Subsidiaries included in this Form 20-F, and have issued our report thereon
dated February 6, 2002. Our audit was made for the purpose of forming an opinion
on the basic financial statements taken as a whole. Schedule II - Valuation and
Qualifying Accounts is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 6, 2002
S-1
SCHEDULE II
QIAGEN N.V. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Balance at Foreign Provision Balance
Beginning Exchange Charged to at End
of Year and Other Expense Write-Offs of Year
--------- ----------- --------- ---------- -------
Year Ended December 31, 1999:
Allowance for doubtful
accounts $ 881,000 $ (20,000) $ 381,000 $(126,000) $1,116,000
Year Ended December 31, 2000:
Allowance for doubtful
accounts $1,116,000 $(194,000) $ 189,000 $(120,000) $ 991,000
Year Ended December 31, 2001:
Allowance for doubtful
accounts $ 991,000 $ (58,000) $1,363,000 $(248,000) $2,048,000
S-2
QIAGEN N.V.
EXHIBIT INDEX
1.1 Articles of Association as confirmed by notorial deed as of
July 6, 2000 (English translation)
2.1 Credit Contract for a Club Deal between QIAGEN GmbH,
Deutsche Bank AG, Stadtsparkasse Dusseldorf, and IKB
Deutsche Industriebank AG, dated May 28, 2001
2.2 Amended and Restated Guaranty Agreement between QIAGEN
Sciences, Inc. and QIAGEN GmbH, dated February 28, 2002
2.3 Amended and Restated Promissory Note between QIAGEN
Sciences, Inc. and QIAGEN North American Holdings, Inc.,
dated February 28, 2002
2.4 Amended and Restated Promissory Note between QIAGEN North
American Holdings, Inc., and QIAGEN GmbH, dated February 28,
2002
2.5 Amended and Restated Indemnity Deed of Trust, between QIAGEN
Sciences, Inc. and Richard Sugarman, dated February 28, 2002
*4.1 Lease between QIAGEN, Inc. and Haserjian Bros. Realty Co., a
California General Partnership, dated May 16, 1996 (Filed as
Exhibit 10.1)
**4.2 Lease between QIAGEN GmbH and Brixton Estate Deutschland
GmbH dated March 14, 1997 (the "Albert-Einstein-Str. Lease"
(Filed as Exhibit 10.1(a))
**4.3 The "Albert-Einstein-Str. Lease" Contract Summary (Filed as
Exhibit 10.1(b))
***4.4 Exercised Option to Extend Lease Between QIAGEN Inc. and
Haserjian Bros. Realty Co., a California General
Partnership, dated February 10,1999. (Filed as Exhibit 10.1)
****4.5 Master Agreement among Becton, Dickinson and Company, Becton
Dickinson Sample Collection GmbH, QIAGEN AG, and QIAGEN
N.V., dated August 5, 1999 (Filed as Exhibit 10.1)
****4.6 Lease Between QIAGEN GmbH and Gisantus
Grundstucksverwaltungsgesellscharft mnH, dated January 13,
1997 (the "Max-Volmer-Strasse 4 Lease") (Filed as Exhibit
10.3)
****4.7 The "Max-Volmer-Strasse 4 Lease" Summary (Filed as Exhibit
10.3(a))
4.8 Second Amendment to the Standard Industrial/Commercial
Single-Tenant Lease - Net Dated May 15, 1996, and the First
Amendment Date for Reference Purposes as February 10, 1999,
between QIAGEN, Inc. and Haserjian Bros. Realty Co., a
California General Partnership
4.9 Third Amendment to the Standard Industrial/Commercial
Single-Tenant Lease-Net, dated October 4, 2001, between
QIAGEN, Inc. and Haserjian Bros. Realty Co., a California
General Partnership
6.1 EPS Calculation Explanation
8.1 List of Significant Subsidiaries
10.1 Consent of Arthur Andersen LLP
10.2.1 Letter regarding Arthur Andersen LLP representations
*Incorporated by reference to Form 20-F Annual Report of QIAGEN N.V.
filed with the Securities and Exchange Commission on May 27, 1997.
**Incorporated by reference to Form 20-F Annual Report of QIAGEN N.V.
filed with the Securities and Exchange Commission on May 21, 1998.
***Incorporated by reference to Form 20-F Annual Report of QIAGEN N.V.
filed with the Securities and Exchange Commission on March 31, 1999.
****Incorporated by reference to Form 20-F Annual Report of QIAGEN
N.V. filed with the Securities and Exchange Commission on March 31,
2000.