| BIO IMAGING TECHNOLOGIES INC Item 1A Risk Factors The more prominent risks and uncertainties inherent in our business are described below |
| However, additional risks and uncertainties may also impair our business operations |
| If any of the following risks actually occur, our business, financial condition or results of operations may suffer |
| Investing in our common stock involves a high degree of risk |
| Any of the following factors could harm our business and future results of operations and you could lose all or part of your investment |
| Risks Related to Our Company and Business We may incur financial losses because contracts may be delayed or terminated or reduced in scope for reasons beyond our control |
| Our clients may terminate or delay their contracts for a variety of reasons, including, but not limited to: • unexpected or undesired clinical results; 7 ______________________________________________________________________ [31]Table of Contents • the client’s decision to terminate the development of a particular product or to end a particular study; • insufficient patient enrollment in a study; • insufficient investigator recruitment; • failure to perform our obligations under the contract; or • the failure of products to satisfy safety requirements |
| In addition, we believe that FDA-regulated companies may proceed with fewer clinical trials or conduct them without assistance of contract service organizations if they are trying to reduce costs as a result of cost containment pressures associated with healthcare reform, budgetary limits or changing priorities |
| These factors may cause such companies to cancel contracts with contract service organizations |
| We cannot assure you that our clients will continue to use our services or that we will be able to replace, in a timely or effective manner, departing clients with new clients that generate comparable revenues |
| Further, we cannot assure you that our clients will continue to generate consistent amounts of revenues over time |
| The loss, reduction in scope or delay of a large contract or the loss or delay of multiple contracts could materially adversely affect our business, although our contracts entitle us to receive all fees earned up to the time of termination |
| The loss of business from our client Novartis would have a material adverse effect on our financial condition |
| We depend on a small number of industries and clients for all of our business, and the loss of one such significant client could cause revenues to drop quickly and unexpectedly |
| We depend on research and development expenditures by pharmaceutical, biotechnology and medical device companies to sustain our business |
| Our operations could be materially and adversely affected if: • clients’ businesses experience financial problems or are affected by a general economic downturn; • consolidation in the pharmaceutical, biotechnology or medical device industries leads to a smaller client base for us; or • clients reduce their research and development expenditures |
| No one client accounted for 10prca or more of our service revenues for fiscal 2005, while for the comparable period last year, one client, Novartis Pharmaceuticals Corp, encompassing 18 distinct projects, amounted to 10prca of service revenues for the year ended December 31, 2004 |
| The loss of business from a significant client or our failure to continue to obtain new business to replace completed or canceled projects would have a material adverse effect on our business and revenues |
| Our contracted/committed backlog may not be indicative of future results |
| Our reported contracted/committed backlog of dlra58dtta4 million at December 31, 2005 is based on anticipated service revenue from uncompleted projects with clients |
| Backlog is the amount of revenue that remains to be earned and recognized on signed and verbally agreed to contracts |
| Contracts included in backlog are subject to termination by our clients at any time |
| In the event that the client cancels a contract, we would be entitled to receive payment for all services performed up to the cancellation date and subsequent client authorized services related to the cancellation of the project |
| The duration of the projects included in our backlog range from less than three months to seven years |
| We cannot assure that this backlog will be indicative of future results |
| A number of factors may affect backlog, including: • the variable size and duration of the projects (some are performed over several years); • the loss or delay of projects; 8 ______________________________________________________________________ [32]Table of Contents • the change in the scope of work during the course of a project; and • the cancellation of such contracts by our clients |
| Also, if clients delay projects, the projects will remain in backlog, but will not generate revenue at the rate originally expected |
| Accordingly, historical indications of the relationship of backlog to revenues are not indicative of future results |
| We have experienced substantial expansion in the past, and if we fail to properly manage that expansion, our business may suffer |
| Our business has expanded substantially in the past |
| Our continuing sales and marketing efforts have increased the number of projects under management from 224 in fiscal 2004 to 270 in fiscal 2005 |
| We acquired one company in November 2003 and another company in December 2004 |
| Rapid expansion could strain our operational, human and financial resources |
| If we fail to properly manage this expansion, our results of operations and financial condition might be adversely affected |
| In order to manage our expansion, we must: • effectively market our services to pharmaceutical, biotechnology and medical device companies; • continue to improve operating, administrative and information systems; • accurately predict future personnel and resource needs to meet client contract commitments; • successfully integrate our acquired companies and businesses; • track the progress of on-going client projects; and • attract and retain qualified management, sales, professional and technical operating personnel |
| We will face additional risks in expanding foreign operations |
| Specifically, we might find it difficult to: • assimilate differences in foreign business practices and regulations; • hire and retain qualified personnel; and • overcome language and cultural barriers |
| We may engage in future acquisitions, which may be expensive and time consuming and from which we may not realize anticipated benefits |
| We may acquire additional businesses, technologies and products if we determine that these additional businesses, technologies and products complement our existing business or otherwise serve our strategic goals |
| If we do undertake transactions of this sort, the process of integrating an acquired business, technology or product may result in operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of our business |
| Moreover, we may never realize the anticipated benefits of any acquisition |
| Future acquisitions could result in potentially dilutive issuances of our securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets, which could adversely affect our results of operations and financial condition |
| Loss of key personnel, or failure to attract and retain additional personnel, may cause the success and growth of our business to suffer |
| Future success depends on the personal efforts and abilities of the principal members of our senior management to provide strategic direction, develop business, manage operations and maintain a cohesive and stable environment |
| Specifically, we are dependent upon Mark L Weinstein, President and Chief Executive Officer, David A Pitler, Senior Vice President Operations, Colin G Miller, Ph |
| Although we have 9 ______________________________________________________________________ [33]Table of Contents employment agreements with Mr |
| Weinstein and Mr |
| Kaminer, this does not necessarily mean that they will remain with us |
| Although we have executive retention agreements with our officers, we do not have employment agreements with any other key personnel |
| Furthermore, our performance also depends on our ability to attract and retain management and qualified professional and technical operating staff |
| Competition for these skilled personnel is intense |
| The loss of services of any key executive, or inability to continue to attract and retain qualified staff, could have a material adverse effect on our business, results of operations and financial condition |
| We do not maintain any key employee insurance on any of our executives |
| Our revenues, earnings and operating costs are exposed to exchange rate fluctuations |
| In fiscal 2005, a small portion of our service revenues were denominated in foreign currency |
| Our financial statements are denominated in United States dollars |
| In the event a greater portion of our service revenues are denominated in a foreign currency changes in foreign currency exchange rates could affect our results of operations and financial condition |
| Fluctuations in foreign currency exchange rates could materially impact the operating costs of our European facility in Leiden, the Netherlands which are primarily EURO denominated |
| Risks Related to Our Industry Our failure to compete effectively in the competitive industry could cause our revenues to decline |
| Significant factors in determining whether we will be able to compete successfully include: • consultative and clinical trials design capabilities; • reputation for on-time quality performance; • expertise and experience in specific therapeutic areas; • the scope of service offerings; • strength in various geographic markets; • the price of services; • ability to acquire, process, analyze and report data in a time-saving and accurate manner; • ability to manage large-scale clinical trials both domestically and internationally; • our size; and • the service and product offerings of our competitors |
| If our services are not competitive based on these or other factors, our business, financial condition and results of operations will be materially harmed |
| The biopharmaceutical services industry is highly competitive, and we face numerous competitors in our business, including hundreds of contract research organizations |
| If we fail to compete effectively, we will lose clients, which would cause our business to suffer |
| We primarily compete against in-house departments of pharmaceutical companies, full service contract research organizations, or CROs, small specialty CROs, and to a lesser extent, universities and teaching hospitals |
| Some of these competitors have substantially greater capital, technical and other resources than we do |
| In addition, certain of our competitors that are smaller specialized companies may compete effectively against us because of their concentrated size and focus |
| Changes in outsourcing trends in the pharmaceutical and biotechnology industries could adversely affect our operating results and growth rate |
| Service revenues depend greatly on the expenditures made by the pharmaceutical and biotechnology industries in research and development |
| Accordingly, economic factors and industry trends that affect our clients 10 ______________________________________________________________________ [34]Table of Contents in these industries also affect our business |
| For example, the practice of many companies in these industries has been to hire outside organizations like us to conduct clinical research projects |
| This practice has grown significantly in the last decade, and we have benefited from this trend |
| However, if this trend were to change and companies in these industries were to reduce the number of research and development projects they outsource, our business could be materially adversely affected |
| Additionally, numerous governments have undertaken efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and pharmaceutical companies |
| If future regulatory cost containment efforts limit the profits that can be derived on new drugs, our clients might reduce their research and development spending, which could reduce our business |
| Failure to comply with existing regulations could result in increased costs to complete clinical trials |
| Our business is subject to numerous governmental regulations, primarily relating to pharmaceutical product development and the conduct of clinical trials |
| In particular, we are subject to 21 CFR Part 11 of the Code of Federal Regulations that provides the criteria for acceptance by the FDA of electronic records |
| If we fail to comply with these governmental regulations, it could result in the termination of ongoing clinical research or the disqualification of data for submission to regulatory authorities |
| We also could be barred from providing clinical trial services in the future or be subjected to fines |
| Any of these consequences would harm our reputation, our prospects for future work and our operating results |
| Our CapMed division may not reach profitability |
| Our CapMed division had a loss from operations of dlra1cmam107cmam850 in fiscal 2005 |
| If our CapMed division continues to incur such losses, our businesses, results of operations and financial condition could be materially adversely affected |
| Changes in governmental regulation could decrease the need for the services we provide, which would negatively affect our future business opportunities |
| In recent years, the United States Congress and state legislatures have considered various types of healthcare reform in order to control growing healthcare costs |
| The United States Congress and state legislatures may again address healthcare reform in the future |
| We are unable to predict what legislative proposals will be adopted in the future, if any |
| Similar reform movements have occurred in Europe and Asia |
| Implementation of healthcare reform legislation that results in additional costs could limit the profits that can be made by clients from the development of new products |
| This could adversely affect our clients’ research and development expenditures, which could, in turn, decrease the business opportunities available to us both in the United States and abroad |
| In addition, new laws or regulations may create a risk of liability, increase costs or limit service offerings |
| We cannot predict the likelihood of any of these events |
| In addition to healthcare reform proposals, the expansion of managed care organizations in the healthcare market may result in reduced spending on research and development |
| Managed care organizations’ efforts to cut costs by limiting expenditures on pharmaceuticals and medical devices could result in pharmaceutical, biotechnology and medical device companies spending less on research and development |
| If this were to occur, we would have fewer business opportunities and our revenues could decrease, possibly materially |
| Governmental agencies throughout the world, but particularly in the United States, strictly regulate the drug development/approval process |
| Our business involves helping pharmaceutical and biotechnology companies navigate the regulatory drug approval process |
| Changes in regulation, such as relaxation in regulatory requirements or the introduction of simplified drug approval procedures or an increase in regulatory requirements that we may have difficulty satisfying could eliminate or substantially reduce the need for our services |
| If these 11 ______________________________________________________________________ [35]Table of Contents changes in regulations were to occur, our business, results of operations and financial condition could be materially adversely affected |
| These and other changes in regulation could have a material adverse impact on our available business opportunities |
| If governmental agencies do not accept the data and analyses generated by our services, the need for our services would be eliminated or substantially reduced |
| The success of our business is dependent upon continued acceptance by the FDA and other regulatory authorities of the data and analyses generated by our services in connection with the evaluation of the safety and efficacy of new drugs and devices |
| The FDA has formal guidelines that encourage the use of “surrogate measures,” through submission of digital image data, for evaluation of drugs to treat life-threatening or debilitating conditions |
| We cannot assure you that the FDA or other regulatory authorities will accept the data or analyses generated by us in the future and, even assuming acceptance, the FDA or other regulatory authorities may not require the application of imaging techniques to numbers of patients and over time periods substantially similar to those required of traditional safety and efficacy techniques |
| If the governmental agencies do not accept data and analyses generated by our services in connection with the evaluation of new drugs and devices, the need for our services would be eliminated or substantially reduced, and, as a result, our business, results of operations and financial condition could be materially adversely affected |
| We may be exposed to liability claims as a result of our involvement in clinical trials |
| We may be exposed to liability claims as a result of our involvement in clinical trials |
| We cannot assure you that liability claims will not be asserted against us as a result of work performed for our clients |
| We maintain liability insurance coverage in amounts that we believe are sufficient for the pharmaceutical services industry |
| Furthermore, we cannot assure you that our clients will agree to indemnify us, or that we will have sufficient insurance to satisfy any such liability claims |
| If a claim is brought against us and the outcome is unfavorable to us, such outcome could have a material adverse impact on us |
| Risks related to our common stock Your percentage ownership and voting power and the price of our common stock may decrease as a result of events that increase the number of our outstanding shares |
| As of December 31, 2005, we had the following capital structure: Common stock outstanding 11cmam167cmam737 Common stock issuable upon: Exercise of options which are outstanding 1cmam831cmam308 Exercise of options which have not been granted 895cmam383 Total common stock outstanding assuming exercise or conversion of all of the above 13cmam894cmam428 As of December 31, 2005, we had outstanding options to purchase 1cmam831cmam308 shares of common stock at exercise prices ranging from dlra0dtta63 to dlra7dtta03 per share (exercisable at a weighted average of dlra2dtta30 per share), of which 1cmam753cmam558 options were then exercisable |
| Exercise of our outstanding options into our common stock may significantly and negatively affect the market price for our common stock as well as decrease your percentage ownership and voting power |
| In addition, we may conduct future offerings of our common stock or other securities with rights to convert the securities into shares of our common stock |
| As a result of these and other events that increase the number of our outstanding shares, your percentage ownership and voting power and the price of our common stock may decrease |
| Future sales of shares of our common stock by existing holders of our common stock or by holders of outstanding options, upon the exercise thereof, could have a negative impact on the market price of our common stock |
| As of December 31, 2005, we had 11cmam167cmam737 shares of our common stock issued and outstanding, all of which are currently freely tradable |
| Pursuant to his employment agreement, on January 31, 2005, we issued 30cmam000 restricted shares of our common stock to an executive officer |
| We are unable to estimate the number of shares that may be sold since this will depend on the market price for our common stock, the personal circumstances of the sellers and other factors |
| Any sale of substantial amounts of our common stock or other securities in the open market may adversely affect the market price of the securities offered hereby and may adversely affect our ability to obtain future financing in the capital markets as well as create a potential market overhang |
| Our affiliates have significant control over our common stock, allowing them to have significant influence over the outcome of all matters submitted to our stockholders for approval, which influence may conflict with our interests and the interests of our other stockholders |
| Our directors, officers and principal stockholders (stockholders owning 10prca or more of our common stock), including Covance Inc, beneficially owned 47prca of the outstanding shares of common stock on a fully diluted as-converted to common stock basis at December 31, 2005, and such stockholders will have significant influence over the outcome of all matters submitted to our stockholders for approval, including the election of our directors and other corporate actions |
| In addition, such influence by these affiliates could have the effect of discouraging others from attempting to take us over, thereby increasing the likelihood that the market price of the common stock will not reflect a premium for control |
| Because we do not intend to pay dividends, stockholders will benefit from an investment in our common stock only if it appreciates in value |
| We have never declared or paid any cash dividends on our common stock |
| We currently intend to retain our future earnings, if any, to finance further research and development and do not expect to pay any cash dividends in the foreseeable future |
| As a result, the success of an investment in our common stock will depend upon any future appreciation in its value |
| There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares |
| The market price of our common stock has experienced historical volatility and might continue to experience volatility in the future in response to quarter-to-quarter variations in: • operating results; • analysts’ reports; • market conditions in the industry; • changes in governmental regulations; and • changes in general conditions in the economy or the financial markets |
| The market has also experienced significant decreases in value |
| This volatility and the recent market decline has affected the market prices of securities issued by many companies, often for reasons unrelated to their operating performance, and may adversely affect the price of our common stock |
| Between January 1, 2005 and December 31, 2005, our common stock has traded at a low of dlra2dtta10 per share and a high of dlra5dtta51 per share |
| Between January 1, 2006 and February 28, 2006, our common stock has traded at a low of dlra3dtta11 per share and a high of dlra4dtta73 per share |
| 13 ______________________________________________________________________ [37]Table of Contents Our common stock began trading on the NASDAQ National Market on December 18, 2003 and has a limited trading market |
| Prior to that time, our common stock was trading on the American Stock Exchange since February 2003 |
| We cannot assure that an active trading market will develop or, if developed, will be maintained |
| As a result, our stockholders may find it difficult to dispose of shares of our common stock and, as a result, may suffer a loss of all or a substantial portion of their investment |
| Certain provisions of our charter and Delaware law could make a takeover difficult and may prevent or frustrate attempts by our stockholders to replace or remove our management team |
| We have an authorized class of 1cmam750cmam000 shares of undesignated preferred stock that may be issued by our board of directors, on such terms and with such rights, preferences and designation as the Board may determine |
| Issuance of such preferred stock, depending upon the rights, preferences and designations thereof, may have the effect of delaying, deterring or preventing a change in control of our company |
| In addition, we are subject to provisions of Delaware corporate law which, subject to certain exceptions, will prohibit us from engaging in any “business combination” with a person who, together with affiliates and associates, owns 15prca or more of our common stock for a period of three years following the date that the person came to own 15prca or more of our common stock unless the business combination is approved in a prescribed manner |
| These provisions of our certificate of incorporation, and of Delaware law may have the effect of delaying, deterring or preventing a change in control of our company, may discourage bids for our common stock at a premium over market price and may adversely affect the market price, and the voting and other rights of the holders, of our common stock |
| In addition, these provisions make it more difficult to replace or remove our current management team in the event our stockholders believe this would be in the best interest of our company and our stockholders |