OxyFile #401
Corporate Objective LifeTECH is a Canadian company committed to a safe global blood supply. We will develop efficient and cost effective methods of blood sterilization in collaboration with the scientific and medical communities. Our strengths are excellence, innovation and continuous improvement of our technology. Our goal is to enhance the quality of life by eliminating the risk of transmission of disease through transfusions of blood and blood products. President's Letter to Shareholders Dear Shareholders, Welcome to this first Annual Report of LifeTECH Corporation as a public company. The completion of the Corporation's Initial Public Offering has launched a new and dynamic phase of growth and development. This past year, the Corporation has taken great strides towards its goal of creating the first commercially viable technology to effectively and safely sterilize blood, serum and other biological fluids. During fiscal 1995, our Research & Development efforts advanced our Sterizone(TM) System from the prototype stage to the "Alpha" (pre-production) unit in preparation for Pre-Clinical Trials. The development of a key component, a specialized ozone sensor, will significantly reduce manufacturing costs. The main focus of our Research & Development efforts is the optimization of the Cellular Infusion Device (CID), the consumable component that combines ozone with the biological fluid. Four new patent submissions for CID, along with patent submissions for the ozone sensor and specialized electronic systems, have continued our aggressive patent protection program. Building on our strong Research & Development program and significant technological progress, we have initiated talks with potential strategic partners. Although these talks are in the early stages, strategic alliances with multinational corporations could augment future applications of our blood and biological fluid sterilization technology. The Corporation raised $6.9 million through its Initial Public Offering. These funds supported the acceleration of Research & Development activities and the expansion of our facilities by 7,500 square feet. Level 2 and Level 3 laboratories (a requirement for working with certain microorganisms) were constructed, creating a state-of-the-art facility for our expanded research staff. In parallel with our primary focus on human blood sterilization, we are evaluating the sterile bovine serum marketplace as a potential source of revenues in the near future. It will take approximately three years to obtain approvals from the regulatory agencies for human applications of the Sterizone System (Canadian Health Protection Branch (HPB) and United States Food & Drug Administration (USFDA)). On the other hand, the minimal regulatory requirements for the sterilization of bovine serum for medical research and vaccine production means these products could be commercialized in approximately twelve months. The (U.S.) $600 million bovine serum market represents substantial revenue steam possibilities for LifeTECH. We anticipate that revenues generated by bovine serum sterilization will support our USFDA Pre-Clinical and Clinical Trials for the sterilization of human blood. These Pre-Clinical Trials are planned for two sites in the United States and one site in Canada. Our goal is to accelerate the worldwide commercialization of the Sterizone System through a strategic partnership with a multinational biotechnology company. The primary mission of LifeTECH is the commercialization of our technology for a safe global blood supply. The Krever Commission (Commission of Inquiry on the Blood System in Canada) has revealed a significant incidence of patients who have contracted disease through blood transfusions, clearly demonstrating the limitations of current screening technologies and the need for blood sterilization. The Corporation's goal is to provide a safe and cost effective process for sterilizing blood and blood products, thus reducing the risk of transfusion-related diseases. The ultimate marketplace for our sterilization technology is the 120 million units of human blood collected annually around the world. Current testing methodologies in Canada screen only for eight different infectious agents. We believe that global blood collection agencies will aggressively pursue the opportunity to sterilize their blood and blood products, rather than rely on imperfect and costly tests. Our marketing efforts will be aimed at sterilizing every unit of blood and blood products that are processed worldwide. To all shareholders, I express the Corporation's thanks for your support and look forward to sharing the excitement of meeting the challenges ahead. I would like to personally thank our Board of Directors, our Scientific Advisory Board and our dedicated employees who have made the Corporation what it is today. I look forward to sharing an exciting future with every member of the LifeTECH team. Walter J. Dermott President & Chief Executive Officer The serious crisis facing the global blood supply is expected to escalate in the future as new viruses and bacteria infect the human blood supply: HOW DOES THE STERIZONE SYSTEM WORK? The Sterizone System uses our patented, disposable Cellular Infusion Device (CID) to precisely combine gaseous ozone with blood or blood products. Since red blood cells are extremely fragile, this process must be very gentle to prevent physical damage to the blood. Under properly controlled conditions, the ozone mixes with the red blood cells without affecting healthy red blood cells, but destroying virally infected cells. In one study, a 10 ml quantity of blood was contaminated with enough HIV to infect the entire world population 10 times, then ozonated. All of the HIV was destroyed by the ozone. The Surgeon General of Canada has been a leader in this research, and is presently using the Sterizone System in its continuing research at Cornell University in New York State. WHY HAVE YOU SELECTED OZONE AS THE KEY COMPONENT IN YOUR TECHNOLOGY? Scientific studies have confirmed that ozonation is an effective method of killing viruses and bacteria in blood products. Ozone chemically interacts with blood, forming compounds which are identical to those produced by our own immune system to destroy viruses and bacteria. Some of these compounds include singlet oxygen, hydrogen peroxide and lipid peroxide. Until LifeTECH's Sterizone System was developed, all attempts to use ozone for blood sterilization had failed. Other technologies could not accurately and reproducibly control the amount of ozone delivered to ensure viral and bacterial kill with minimal red blood cell damage. Too much ozone will cause red blood cell damage, and too little will be ineffective for viral kill. The ability of our Sterizone System to accurately control ozone delivery is a key element in our patented process. WHY HASN'T SOMEONE COME UP WITH A WAY TO STERILIZE BLOOD BEFORE NOW? The components of blood are very fragile, especially the red blood cells. If the red blood cells are damaged in any significant way, the blood is unsuitable for transfusion purposes. Many companies have tried different sterilization techniques - heating, microwaving, centrifuging, chemicals, filters and radiation - designed to reduce or remove contaminants from the blood. To date, sterilization technologies developed by others appear to result in either a significant amount of cellular damage or a limited viral or bacterial deactivation. Our Sterizone System is designed to achieve both goals - sterilization and minimal damage to the red blood and proteins. WHAT TYPE OF R&D ARE YOU DOING? Our scientists are currently testing various configurations of the Sterizone System and the Cellular Infusion Device to sterilize whole blood and biological fluids (human and bovine serum, plasma, packed red blood cells and MEM, a growth media for tissue cultures). Our experiments will identify the optimum process for each biological fluid, then confirm our viral/bacterial kill and minimal toxic effects on the red blood cells and proteins. DO CURRENT TESTS USED BY GLOBAL BLOOD COLLECTION AGENCIES IDENTIFY ALL KNOWN INFECTIOUS AGENTS? Blood and blood products are known to transmit a number of infectious viral, bacterial and parasitic diseases. In Canada, blood is usually screened for eight viral contaminants. Current testing is neither comprehensive nor completely reliable, as the testing reagents do not react to viruses but to the antibody produced by the immune system in response to viral infection. Since antibodies are not produced immediately upon infection, even the most thorough and sensitive screening tests will not detect very early stage infection. HIV, for instance, may not be detectable using current testing for the first three weeks that the virus is present. This "incubation period" means that some viruses will inevitably remain undetected and enter the global blood supply. In addition, many known infectious agents remain undetected in the blood supply due to a lack of testing or the unavailability of commercially available screening tests. HOW ARE YOU GOING TO ADDRESS THE ISSUE OF OTHER KNOWN OR UNKNOWN INFECTIOUS AGENTS? The Canadian Red Cross tests for HIV-1 and HIV-2, Human T-Cell Lymphatropic Virus (HTLV-1 and 2), Hepatitis B and C, Syphilis and Cytomegalovirus. These pathogens have historically been the most dangerous viruses and bacteria in our blood supply. Unfortunately there are many other viruses and bacteria that are not screened for, such as Parvovirus, Epstein-Barr Virus, Chagas Disease, Creutzfeldt-Jakob Disease, and new mutated variations of Hepatitis and other diseases. All of these pathogens can produce serious illness or death in humans. Our goal is to show that the Sterizone System will effectively kill these newer strains as well as the existing infectious agents. HOW WILL THE STERIZONE SYSTEM IMPACT HEALTH CARE COSTS? The cost of testing a unit of blood in Canada is approximately $100.00 for the existing group of tests. LifeTECH anticipates that the Sterizone System will be used initially in conjunction with screening tests, until effective sterilization can be proven. This will have the effect of marginally increasing the total cost of processing blood. Once sterilization has been proven, the Sterizone System has the potential to generate substantial cost savings for blood collection and processing agencies over the long term. When the Sterizone System becomes accepted as an effective method of sterilizing blood and blood products, the Corporation expects that screening will be used on a less extensive basis. The greatest financial impact of the Sterizone System will be the dramatic reduction in the long term costs of treating serious diseases like AIDS. By preventing the transmission of serious diseases, the Sterizone System will eliminated the escalating costs of expensive medical treatments that can extend for years. Equally important is the avoidance of the incalculable human pain and suffering caused by serious and widespread diseases like AIDS. Human Blood and Blood Products The most significant market for the Sterizone System is the 120 million units of whole blood that are collected and processed annually throughout the world. The North American portion of this market is approximately 16 million units (a unit is approximately 500 ml). The last decade has seen increasing public pressure put on the blood supply industry to make the blood supply safe. Driven by the worldwide fear of contracting HIV through contaminated blood and blood products, collection agencies have been pressured to increase testing for dangerous viruses and bacteria, while facing expensive legal settlements, criminal charges against blood industry executives, and escalating insurance premiums. In spite of all these issues, blood testing is still not universally practiced. In many developing countries, testing in minimal or non-existent due to the high costs and the need for trained technicians. The risk of blood-borne infectious agents is increasing, according to the World Health Organization (WHO): * over 200 million people worldwide are long term carriers of Hepatitis B; Hepatitis G, a rare form of the disease, has just been isolated in China * over 17 million people worldwide are infected with known HIV strains, with 30-40 million projected by the year 2000 * more than 11 million people worldwide have Tuberculosis * Dengue Fever, Malaria and Cholera are spreading quickly in Latin America and the Caribbean, two popular tourist areas that received two million visitors during 1994 * Malaria is one of the world's oldest plagues. This second highest killer of mankind has developed a variety of new antibiotic resistant strains * Cholera has infected more than one million people in Latin America since 1991, killing more than 9,000 The need to test blood for multiple contaminants creates unaffordably high costs for blood collection agencies. Testing costs can only escalate as more stringent testing is demanded. This situation is further aggravated by the fact that some blood products are routinely fractionated into as many as eight different components. If the original unit of whole blood is contaminated with a virus, this virus will be present in all of the fractionated products, multiplying the risk to the users of the blood supply. In 1995, blood from on Canadian donor was found to be contaminated with Creutzfeld-Jakob Disease, resulting in the recall by the Canadian Red Cross Society of 3,865,780 units of Factor VIII, 5,496 vials of IVIgG, 8,352 vials of Albumin 5% and 10,557 vials of Albumin 25%. The cost of this nationwide recall exceeded $10 million. The key to the marketing of the Sterizone System is its ability to sterilize blood of all viruses and bacteria in one step, without the need for highly skilled laboratory staff. Once the Sterizone System has been validated, the need for testing is expected to be greatly reduced. Eventually, only statistical sampling would be required to ensure the reproducibility of the system. As this early stage in our development, final pricing has not been established. Our goal is to dramatically reduce the overall costs associated with blood testing and post-transfusions illness caused by contaminated blood. LifeTECH's expectation is that our technology will sterilize a unit of blood for less than is now spent on current testing programs. Blood collection agencies will welcome an efficient, cost effective method of sterilization. There is another crucial benefit of sterilization over testing. The global medical community fully expects new viruses to emerge in the human population. Whether these new viruses are variants of old viruses - like Hepatitis G - or entirely new pathogens, the fear is that they will enter the human blood supply undetected and be transmitted to unknowing transfusion recipients. A replay of the HIV scenario - a period of years to initially detect the disease, then relate it to a blood borne virus, then more years to develop a reliable test - is unacceptable. The promise of sterilization is that all new viruses and bacteria will be killed along with the known viruses and bacteria. This would happen without anyone being aware that the new virus or bacteria is even present in the blood supply. LifeTECH expects the Sterizone System to be the long term answer to a safe global blood supply. Bovine Sera Markets The sterilization of bovine serum represents an important opportunity for LifeTECH to generate significant revenues in the short term. The Sterizone System technology will sterilize bovine serum just as effectively as it sterilizes human serum. Serum is the colorless liquid component of the blood which contains proteins and nutrients. Bovine serum is extensively used in the manufacture of human and veterinary vaccines, and for cell culture growth for medical/veterinary research. A significant portion of the bovine serum that is commercially available today is contaminated with viruses and bacteria. The impact of infected serum is extremely costly - contaminated vaccines and wasted medical research. LifeTECH has identified bovine serum as a short-term, high-growth market for the Sterizone System. The bovine serum marketplace is dominated by Fetal Bovine Serum (FBS) from unborn calves. FBS that is said to be "sterilized" sells for over U.S. $500 per litre, but the techniques currently being used have not proven to be effective. The market advantage of the Sterizone System will be reliable, cost effective sterilization of bovine serum. The bovine serum marketplace currently relies on Certificates of Analysis which as issued by the serum manufacturer to indicate the purity and chemical analysis of each lot of serum. However, the accuracy of these Certificates of Analysis can vary greatly, as can the quality of the serum, with no reliable way to detect contamination. Reliable sterilization will eliminate these concerns, yielding a high quality product with substantial added value. The worldwide market for bovine sera is estimated to be U.S. $600 million. These estimates are based on global demands exceeding 1,500,000 litres per year, and growing. LifeTECH's marketing strategy is to revolutionize the bovine serum marketplace by offering a technology that will sterilize bovine serum of viruses and other contaminants. Sterilized sera will be highly regarded by the marketplace, and will command both a premium price and a significant market share. More information can be obtained from LifeTECH: LifeTECH Corporation 133-6 The West Mall Toronto, Ontario M9C 1C2 416-621-8883 416-620-6927 Fax