Filed pursuant to Rule 424(b)(1)
File No. 333-89254
1,855,604 Shares
CURATIVE HEALTH SERVICES, INC.
Common Stock
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1,855,604 shares of the common stock, $.01 par value, of Curative Health
Services, Inc. are being offered by this prospectus. The shares will be sold
from time to time by the selling shareholders named in this prospectus. We will
not receive any of the proceeds from the sales.
Our common stock is traded on the Nasdaq National Market under the symbol
"CURE". On June 3, 2002, the last sale price of our common stock as reported on
the Nasdaq National Market was $13.96 per share.
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This investment involves risk. See "Risk Factors" beginning on page 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of anyone's investment in these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
The date of this prospectus is June 4, 2002.
TABLE OF CONTENTS
Page
Summary.......................................................................1
Risk Factors..................................................................2
Selling Shareholders..........................................................12
Plan of Distribution..........................................................13
Legal Matters.................................................................13
Experts.......................................................................13
Where You Can Find More Information...........................................14
About This Prospectus.........................................................15
SUMMARY
Business of Curative Health Services, Inc.
Curative Health Services, Inc. seeks to deliver high-quality results and
exceptional patient satisfaction for patients experiencing serious or chronic
medical conditions through two unique business units. Our Specialty Pharmacy
Services business unit provides services to help patients manage the healthcare
process and offers related pharmacy products to patients for chronic and
critical disease states. Through our Specialty Pharmacy Services business unit,
we purchase various biopharmaceutical products, which include both
pharmaceuticals (i.e., drugs) as well as biological products (e.g., hemophilia
factor), from manufacturers and then contract with insurance companies,
government agencies and other payors to provide distribution, education and
other support services in connection with these biopharmaceutical products. In
addition, as part of our Specialty Pharmacy Services operations, we provide
biopharmaceutical product distribution, data and support services under contract
with retail pharmacies. The biopharmaceutical products distributed by us are
used by patients with chronic or severe conditions such as hemophilia, hepatitis
C, rheumatoid arthritis and multiple sclerosis. We have contracts with
approximately 171 payors and 14 retail pharmacies. Our Specialty Pharmacy
Services business unit provides services directly to patients and caregivers via
mail order, overnight courier, retail pharmacy and having our community-based
representatives deliver the products.
Our Specialty Healthcare Services business unit is a leading disease management
company in chronic wound care management. Currently, our Specialty Healthcare
Services business unit manages, on behalf of hospital clients, a nationwide
network of Wound Care Center(R) programs that offer a comprehensive range of
services for treatment of chronic wounds. Our Wound Management Program(R)
consists of diagnostic and therapeutic treatment procedures which are designed
to meet each patient's specific wound care needs on a cost-effective basis. Our
treatment procedures are designed to achieve positive results for wound healing
based on our significant experience in the field. We maintain a proprietary
database of patient results that we have collected since 1988 containing over
350,000 patient cases. Our treatment procedures, which are based on our
extensive patient data, have allowed us to achieve an overall rate of healing of
approximately 80% for patients completing therapy. Our Wound Care Center network
consists of approximately 100 outpatient clinics (operating or contracted to
open), located on or near campuses of acute care hospitals in more than 32
states.
General
We were incorporated in the State of Minnesota in 1984 under the name Curatech,
Inc. We changed our name to Curative Technologies, Inc. in March, 1990 and to
Curative Health Services, Inc. in June, 1996. Our principal executive offices
are located at 150 Motor Parkway, Hauppauge, New York 11788, telephone number
(631) 232-7000. Wound Care Centers(R), Wound Management Program(R) and our logo
are our trademarks. This prospectus also includes trade names and marks of other
companies.
RISK FACTORS
You should carefully consider each of the following risks and all of the other
information included or incorporated by reference in this prospectus before
deciding to invest in shares of our common stock. Additional risks not presently
known to us or that we currently believe to be immaterial may also adversely
affect our business. The trading price of our common stock could decline due to
any of these risks, and you may lose all or part of your investment.
RISK RELATED TO OUR BUSINESS
If we fail to comply with the terms of our settlement agreement with the
government, we could be subject to additional litigation or other governmental
actions which would be harmful to our business
On December 28, 2001, we entered into a settlement with the Department of
Justice, the United States Attorney for the Southern District of New York, the
United States Attorney for the Middle District of Florida and the U.S.
Department of Health and Human Services, Office of the Inspector General, in
connection with all federal investigations and legal proceedings related to the
whistleblower lawsuits previously pending against us in the United States
District Court for the Southern District of New York and the United States
District Court for the District of Columbia. The focus of the government
investigation and resolution was the allegation that we improperly caused our
hospital customers to seek reimbursement for a portion of our management fees
that included costs related to advertising and marketing activities by our
personnel. Under the terms of the settlement, we were released from claims
associated with services we provided to hospitals and we agreed to pay the
United States a $9 million initial payment, with an additional $7.5 million to
be paid over the next four years. Pursuant to the settlement, we will be
required to fulfill certain additional obligations, including abiding by a
five-year Corporate Integrity Agreement (which incorporates much of our existing
compliance program), avoiding violations of law and providing certain
information to the Department of Justice from time to time. If we fail or if we
are accused of failing to comply with the terms of the settlement we may be
subject to additional litigation or other governmental actions. In addition, as
part of the settlement, we consented to the entry of a judgment for $28 million
against us if we fail to comply with the terms of the settlement.
If the court does not approve the settlement agreement relating to our
shareholder litigation the resumption of litigation could be harmful to our
business
Subsequent to the disclosure of the Department of Justice action, we and, in
some cases, certain of our officers were named in four shareholder lawsuits. All
suits were filed in the United States District Court for the Eastern District of
New York. The four shareholder lawsuits have been consolidated into one
class-action lawsuit. On April 12, 2002, the parties executed a stipulation of
settlement which has been submitted to the court for its approval. Under the
terms of the proposed settlement, even though we maintained that there was no
basis for the imposition of liability, in order to avoid the delay and expense
of protracted litigation, we agreed to pay $10.5 million to the class, of which
$6.5 million will be paid in common stock, cash or a combination thereof, as
determined in Curative's sole discretion within three business days of final
approval of settlement by the court. The remaining $4 million will be paid from
insurance proceeds. This settlement is subject to notice to the class and court
approval.
We are involved in litigation which may harm the value of our business
In addition to the securities litigation described above, we are currently in
dispute with some of the former shareholders of eBioCare.com, Inc. over claims
by us for indemnification in connection with our acquisition of eBioCare.com,
Inc. These claims are for indemnification in an aggregate amount in excess of $3
million, which is currently held in escrow, for a breach of certain
representations and warranties made by such former shareholders. In response to
our indemnification claims, the former shareholders have filed a lawsuit in
Superior Court of California, County of Santa Clara, on or about February 1,
2002 against us seeking a declaratory judgment in their favor with respect to
certain of our claims, and other remedies including the rescission of our
acquisition of eBioCare.com, Inc. On or about May 2, 2002, the court stayed the
litigation with respect to substantially all such claims, pending arbitration of
such matters. Although we believe this lawsuit is groundless and we intend to
defend these claims vigorously, an adverse result in this dispute could harm our
business.
In addition, in the ordinary course of our business, we are the subject of or
party to various lawsuits, including those arising out of services or products
provided by or to its operations, personal injury and employment disputes, the
outcome of which, in the opinion of management, will not have a material adverse
effect on our financial position or results of operations.
If we are unable to manage our growth effectively, our business will be harmed
Our growth strategy will likely place a strain on our resources, and if we
cannot effectively manage our growth, our business will be harmed. In connection
with our growth strategy, we will likely experience a large increase in the
number of our employees, the size of our programs and the scope of our
operations. Our ability to manage this growth and be successful in the future
will depend partly on our ability to retain skilled employees, enhance our
management team and improve our management information and financial control
systems.
As part of our growth strategy, we continue to evaluate acquisition
opportunities. Acquisitions involve many risks, including:
o the specialty pharmacy industry is undergoing consolidation, therefore, we
may experience difficulty in identifying suitable candidates and
negotiating and consummating acquisitions on attractive terms;
o in the industry in which our Specialty Pharmacy Services division
operates, customers have a strong affiliation with their community-based
representatives; it is sometimes difficult to retain and assimilate the
community-based representatives of companies we acquire;
o because of the relationships between community-based representatives and
customers, the loss of a single community-based representative may entail
the loss of a significant number of customers and we are therefore subject
to a significant potential for loss of customers, especially during the
periods in which we attempt to integrate newly-acquired businesses;
o a growth strategy that involves significant acquisitions results in a
diversion of our management's attention from existing operations;
o intangible assets typically represent a significant portion of the value
of specialty pharmacy businesses, therefore any future acquisition may
involve increased amortization expense related to such assets and any such
increase would decrease our earnings.
We could also be exposed to unknown or contingent liabilities resulting from the
pre-acquisition operations of the entities we acquire, such as liability for
failure to comply with health care or reimbursement laws.
We may need additional capital to finance our growth and capital requirements,
which could prevent us from fully pursuing our growth strategy
In order to implement our present growth strategy we will need substantial
capital resources and will incur, from time to time, short- and long-term
indebtedness, the terms of which will depend on market and other conditions.
Because our growth strategy depends largely on acquisitions of other companies
and the addition of customers, the amount and timing of our future capital needs
are uncertain. In addition, due to uncertainties inherent in the capital markets
(e.g., availability of capital, fluctuation of interest rates, etc.), we cannot
be certain that existing or additional financing will be available to us on
acceptable terms, if at all. As a result, we could be unable to fully pursue our
growth strategy. Further, additional financing may involve the issuance of
equity securities that would reduce the percentage ownership of our then current
shareholders.
We could be adversely affected by an impairment of the significant amount of
goodwill on our financial statements
Our acquisitions of the specialty pharmacy companies, eBioCare.com, Inc.,
Hemophilia Access, Inc. and Apex Therapeutic Care, Inc. resulted in the
recording of a significant amount of goodwill on our financial statements. The
goodwill was recorded because the fair value of the net assets acquired was less
than the purchase price. We may not realize the full value of this goodwill: we
evaluate on at least an annual basis whether events and circumstances indicate
that all or some of the carrying value of goodwill is no longer recoverable, in
which case we would write off the unrecoverable goodwill as a charge to our
earnings.
Since our growth strategy will likely involve the acquisition of other
companies, we may record additional goodwill in the future. The possible
write-off of this goodwill could negatively impact our future earnings. We will
also be required to allocate a portion of the purchase price of any acquisition
to the value of any intangible assets that meet the criteria specified in the
Financial Accounting Standards Board Statement No. 141 such as marketing,
customer or contract-based intangibles. The amount allocated to these intangible
assets could be amortized over a fairly short period. As a result, our earnings
and the market price of our common stock could be negatively affected.
We are highly dependent on our relationships with a limited number of
biopharmaceutical and other suppliers and the loss of any of these relationships
could significantly affect our ability to sustain or grow our revenues
The biopharmaceutical industry is susceptible to product shortages. Some of the
products that we distribute, such as intra-venous immuno globulin and blood- or
blood plasma-related products, are collected and processed from human donors.
Accordingly, the supply of these products is highly dependent on human donors
and their availability has been constrained from time to time. An industry wide
recombinant factor VIII product shortage has existed for some time, for various
reasons including manufacturers being unable to increase production to meet
rising global demand. In 2001, approximately 42%, or $15 million, of our
revenues derived from our sale of factor VIII. In 2001, we purchased our
supplies of blood and blood plasma-related products from the following five
manufacturers: Baxter Healthcare Corp., Novo Nordisk Pharmaceuticals, Inc.,
Genetics Institute, Inc., Alpha Therapeutics Corp. and Aventis Behring. The
Company believes that these five manufacturers represent substantially all of
the production capacity for recombinant factor VIII. In the event that one of
these suppliers is unable to continue to supply us with product, it is uncertain
whether the remaining suppliers would be able to make up any shortfall resulting
from such inability. Our ability to take on additional customers or to acquire
other specialty pharmacy businesses with significant hemophilia customer bases
could be affected negatively in the event we are unable to secure adequate
supplies of our products from these manufacturers. Future availability of
product is unclear and we are not certain when the manufacturers will return to
normal product allocations. If these products, or any of the other drugs or
products that we distribute, are in short supply for long periods of time, our
business could be harmed.
If additional providers obtain access to favorably priced products we handle,
our business could be harmed
Because we do not receive federal grants under the Public Health Service Act, we
are not eligible to participate directly in a federal pricing program
administered by the Federal Health Resources and Services Administration's
Public Health Service, which allows certain entities with such grants, such as
certain hospitals and hemophilia treatment centers, to obtain discounts on
drugs, including certain biopharmaceutical products (e.g., hemophilia clotting
factor) which products represented 23% of our revenues in 2001. To the best of
our information, these entities benefit by being able to acquire, pursuant to
this federal program, products competitive with ours at prices lower than our
cost for the same products. Our customers, where eligible, may elect to obtain
hemophilia clotting factor, or other products, from such lower-cost entities and
this would result in a loss of revenue. The Federal Health Resources and
Services Administration issued a notice that we expect will broaden the number
of eligible Public Health Service entities purchasing Public Health
Service-priced hemophilia factor. If the number of hospitals and hemophilia
treatment centers eligible to participate in this program increases, the
increased competition, especially where such competitors are able to acquire
competing products at prices lower than our cost, may harm our business.
Recent investigations into reporting of average wholesale prices could reduce
our pricing and margins
Many government payors, including Medicare and Medicaid, as well as some private
payors, pay us directly or indirectly based upon the drug's average wholesale
price. If a drug's average wholesale price declines, and if we are unable to
recoup the full amount of such decline from our customers, we will lose
revenues. Biopharmaceutical products, including hemophilia factor, are included
as part of this drug reimbursement methodology. In 2001, 43% of our revenue
resulted from reimbursements based on the average wholesale price of our
products. Average wholesale price for most drugs is compiled and published by
private companies such as First DataBank, Inc. Various federal and state
government agencies have been investigating whether the reported average
wholesale price of many drugs, including some that we sell, is an appropriate or
accurate measure of the market price of the drugs. As reported in the Wall
Street Journal, there are also several whistleblower lawsuits pending against
various drug manufacturers in connection with the appropriateness of the
manufacturer's average wholesale price for a particular drug. These government
investigations and lawsuits involve allegations that manufacturers reported
artificially inflated average wholesale prices of various drugs to First
DataBank, which in turn reported these prices to its subscribers including many
state Medicaid agencies who then included these average wholesale prices in the
state's reimbursement policies. In 2001, Bayer Corporation, an occasional
supplier of hemophilia factor to us, agreed to pay $14 million in a settlement
with the federal government and 45 states in order to close an investigation
regarding these charges. Bayer also entered into a five-year corporate integrity
agreement with the government, in which Bayer agreed to provide information on
the average sale price of its drugs to the government. In February 2000, First
DataBank published a Market Price Survey of 437 drugs, which was significantly
lower than the historic average wholesale price for a number of the clotting
factor and intra-venous immuno globulin products that we sell. Consequently, a
number of state Medicaid agencies have revised their payment methodology as a
result of the Market Price Survey. Although the Centers for Medicare and
Medicaid Services had also announced that Medicare fiscal agents should
calculate the amount that they pay for Medicare claims for certain drugs by
using the lower prices on the First DataBank Market Price Survey, the proposal
to include clotting factor in the lower Medicare pricing was withdrawn. The
Centers for Medicare and Medicaid Services has announced that it will seek
legislation that would establish payments to cover the administrative costs of
suppliers of clotting factor as a supplement to a lower average wholesale price
pricing for hemophilia factor.
On September 21, 2001, the United States House Subcommittees on Health and
Oversight & Investigations held hearings to examine how Medicare reimburses
providers for the cost of drugs. In conjunction with that hearing, the United
States General Accounting Office issued its Draft Report recommending that
Medicare establish payment levels for part-B prescription drugs and their
delivery and administration that are more closely related to their costs, and
that payments for drugs be set at levels that reflect actual market transaction
prices and the likely acquisition costs to providers. More recently, on March
14, 2002, the Senate Finance Committee's Subcommittee on Health conducted a
hearing on Medicare drug reimbursement issues, including average wholesale
price. This hearing reflects Congress' interest in possibly changing the manner
in which the government reimburses providers for drugs.
The government investigations and the changes occurring in the reporting of
average wholesale price and its effects on Medicare and Medicaid prices could
have a negative effect on our business. For example, if the reduced average
wholesale prices published by First DataBank for the drugs that we sell are
ultimately adopted as the standard by which we are paid by government payors or
private payors, this could have an adverse effect on our business, including
reducing the pricing and margins on certain of our products.
Our business would be harmed if demand for our products and services is reduced
Reduced demand for our products and services, in either our Specialty Pharmacy
Services or Specialty Healthcare Services businesses, could be caused by a
number of circumstances, including:
o customer shifts to treatment regimens other than those we offer;
o new treatments or methods of delivery of existing drugs that do not
require our specialty products and services;
o the recall of a drug;
o adverse reactions caused by a drug;
o the expiration or challenge of a drug patent;
o competing treatment from a new drug, a new use of an existing drug or
genetic therapy;
o drug companies cease to develop, supply and generate demand for drugs that
are compatible with the services we provide;
o drug companies stop outsourcing the services we provide or fail to support
existing drugs or develop new drugs;
o governmental or private initiatives that would alter how drug
manufacturers, health care providers or pharmacies promote or sell
products and services;
o the loss of a managed care or other payor relationship covering a number
of high revenue customers;
o the cure of a disease we service; or
o the death of a high-revenue customer.
Our business involves risks of professional, product and hazardous substance
liability and any inability to obtain adequate insurance may adversely affect
our business
The provision of health services entails an inherent risk of professional
malpractice, regulatory violations and other similar claims. Claims, suits or
complaints relating to health services and products provided by physicians,
pharmacists or nurses in connection with our Specialty Healthcare Services and
Specialty Pharmacy Services programs may be asserted against us in the future.
Our operations involve the handling of bio-hazardous materials. Our employees,
like those of all companies that provide services dealing with human blood
specimens, may be exposed to risks of infection from AIDS, hepatitis and other
blood-borne diseases if appropriate laboratory practices are not followed.
Although we believe that our safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal
regulations, the risk of accidental infection 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 such liability could harm our
business.
Our operations expose us to product and professional liability risks that are
inherent in managing the delivery of wound care services, and the provision and
marketing of biopharmaceutical products. We currently maintain professional and
product liability insurance coverage of $25 million in the aggregate. Because we
cannot predict the nature of future claims that may be made, we can not assure
you that the coverage limits of our insurance would be adequate to protect us
against any potential claims, including claims based upon the transmission of
infectious disease, contaminated product or otherwise. In addition, we may not
be able to obtain or maintain professional and product liability insurance in
the future on acceptable terms or with adequate coverage against potential
liabilities.
We rely on key community-based representatives whose absence or loss could harm
our business
The success of our Special Pharmacy Services division depends upon our ability
to retain key employees known as community-based representatives, and the loss
of their services could adversely affect our business and prospects. Our
community-based representatives are our chief contact and maintain the primary
relationship with our customers and the loss of a single community-based
representative could result in the loss of a significant number of customers. As
of April 30, 2002, we had 29 community-based representatives, all of whom have
entered into one-year employment agreements with us. We do not have key man
insurance on any of our community-based representatives. In addition, our
success will depend, among other things, upon the successful recruitment and
retention of qualified personnel, and we may not be able to retain all of our
key management personnel or be successful in recruiting additional replacements
should that become necessary.
Our inability to maintain a number of important contractual relationships could
adversely affect our operations
Substantially all of the revenues of our Specialty Healthcare Services
operations are derived from management contracts with acute care hospitals. At
present, we have approximately 100 management contracts. The contracts generally
have initial terms of three to five years and many have automatic renewal terms
unless specifically terminated. During the year ending December 31, 2002, the
contract terms of 32 of our management contracts will expire, including 14
contracts which provide for automatic one-year renewals. The contracts often
provide for early termination either by the client hospital if specified
performance criteria are not satisfied, or by us under various other
circumstances. Historically, some contracts have expired without renewal and
others have been terminated by us or the client hospital for various reasons
prior to their scheduled expiration. During 2001, nine contracts expired without
renewal and an additional 31 contracts were terminated prior to their scheduled
expiration. Generally, these contracts were terminated by hospitals because of
the Specialty Healthcare Services legal action, hospital financial difficulties
and Medicare reimbursement changes which reduced hospital revenues. Our
continued success is subject to our ability to renew or extend existing
management contracts and obtain new management contracts. Any hospital may
decide not to continue to do business with us following expiration of its
management contract, or earlier if such management contract is terminable prior
to expiration. In addition, any changes in the Medicare program or third-party
reimbursement levels which generally have the effect of limiting or reducing
reimbursement levels for health services provided by programs managed by us
could result in the early termination of existing management contracts and could
adversely affect our ability to renew or extend existing management contracts
and to obtain new management contracts. The termination or non-renewal of a
material number of management contracts could harm our business.
In addition, a portion of the revenues of our Specialty Pharmacy Services
operations is derived from contractual relationships with retail pharmacies. Our
success is subject to the continuation of these relationships and termination of
one or more of these relationships could harm our business.
Our business will suffer if we lose relationships with payors
We are highly dependent on reimbursement from non-governmental payors. For the
fiscal years ended December 31, 1999, 2000 and 2001 we derived approximately
100%, 100% and 74%, respectively, of our gross patient service revenue from
non-governmental payors, none of which individually accounted for more than 10%
of our total revenues. Many payors seek to limit the number of providers that
supply drugs to their enrollees. From time to time, payors with whom we have
relationships require that we and our competitors bid to keep their business,
and therefore, due to the uncertainties involved in any bidding process, we may
either not be retained or our margins may be adversely affected. The loss of a
significant number of payor relationships, or an adverse change in the financial
condition of a significant number of payors could result in the loss of a
significant number of patients and harm our business.
Changes in reimbursement rates may cause reductions in the revenues of our
operations
As a result of the Balanced Budget Act of 1997, the Centers for Medicare and
Medicaid Services implemented the Outpatient Prospective Payment System for all
hospital outpatient department services furnished to Medicare patients beginning
August 2000. Under the system, a predetermined rate is paid to hospitals for
clinic services rendered, regardless of the hospital's cost. The new payment
system does not provide comparable reimbursement for previously reimbursed
services and the payment rates for many services are insufficient for many of
our hospital customers, resulting in revenue and income shortfalls for the wound
care center operations managed by us on behalf of the hospitals. As a result,
during 2000 and 2001, we renegotiated and modified many of our management
contracts, which has resulted in reduced revenue and income to us from the
modified contracts and in numerous cases contract termination. These
renegotiations resulted in reduced revenues of approximately $8.5 million. In
addition, we lost approximately $28 million in revenues as the result of
contract terminations. At any time during any given year, 10% to 20% of hospital
contracts are being renegotiated. We expect that contract renegotiation and
modification with many of our hospital customers will continue and this could
result in further reduced revenues and income to us from those contracts and
even contract terminations. These results could harm our business.
The Wound Care Center programs managed by Specialty Healthcare Services on
behalf of acute care hospitals are generally treated as "provider based
entities" for Medicare reimbursement purposes. This designation is required for
the hospital based program to be covered under the Medicare outpatient
reimbursement system. With the Outpatient Prospective Payment System, Medicare
published criteria for determining when programs may be designated "provider
based entities." Although the implementation date for Provider Based Designation
Regulations for our managed outpatient programs is October 2002, the regulations
continue to be subject to change and further clarification. Specialty Healthcare
Services' 11 managed "under arrangement" models, where we employ the clinical
and administrative staff that work in the center, are potentially at risk for
not meeting the criteria for a "provider based entity." Specialty Healthcare
Services has been in discussions with its "under arrangement" hospital customers
to convert the programs to a management model. The interpretation and
application of these criteria are not entirely clear and there is a risk that
some of the programs, in particular the 11 under arrangement models, managed by
Specialty Healthcare Services could be found not to be "provider based
entities." Although we believe that the programs it manages substantially meet
the current criteria to be designated "provider based entities," a widespread
denial of such designation would harm our business.
The profitability of our Specialty Pharmacy Services operations depends in large
part on the reimbursement we receive from third-party payors. In recent years,
competition for patients, efforts by traditional third-party payors to contain
or reduce healthcare costs, and the increasing influence of managed care payors,
such as health maintenance organizations, have resulted in reduced rates of
reimbursement. If these trends continue, they could harm our business. The
profitability of our specialty pharmacy operations also depends, indirectly, on
reimbursement from third-party payors because our customers seek reimbursement
from third-party payors for the cost of drugs and related medical supplies that
we distribute. Changes in reimbursement policies of private and governmental
third-party payors, including policies relating to the Medicare, Medicaid and
other federally funded programs, could reduce the amounts reimbursed to these
customers for our products and in turn, the amount these customers would be
willing to pay for our products and services. In addition, where we have direct
relationships with payors, changes in their reimbursement policies may reduce
amounts payable directly to us by such payors. Changes in those reimbursement
policies could affect our customers, which in turn could harm our business.
We are subject to pricing pressures and other risks involved with commercial
payors
Commercial payors, such as managed care organizations and traditional indemnity
insurers increasingly are requesting fee structures and other arrangements
providing for health care providers to assume all or a portion of the financial
risk of providing care. The lowering of reimbursement rates, increasing medical
review of bills for services and negotiating for reduced contract rates could
harm our business. Pricing pressures by commercial payors may continue and our
business may be adversely affected by these trends.
Also, continued growth in managed care and capitated plans have pressured health
care providers to find ways of becoming more cost competitive. Managed care
organizations have grown substantially in terms of the percentage of the
population they cover and in terms of the portion of the health care economy
they control. Managed care organizations have continued to consolidate to
enhance their ability to influence the delivery of health care services and to
exert pressure to control health care costs. A rapid increase in the percentage
of revenue derived from managed care payors or under capitated arrangements
without a corresponding decrease in our operating costs could harm our business.
There is substantial competition in our industry and we may not be able to
compete successfully
The principal competition with our Specialty Healthcare Services business
consists of specialty clinics that have been established by some hospitals or
physicians. Additionally, there are some private companies which provide wound
care services through a hyperbaric oxygen therapy program format. In addition,
recently developed technologies, or technologies that may be developed in the
future, are or may be the basis for products which compete with our chronic
wound care services. We may not be able to enter into co-marketing arrangements
with respect to these products, and we may not be able to compete effectively
against such companies in the future. Our Specialty Pharmacy Services business
faces competition from other disease management entities, general health care
facilities and service providers, pharmaceutical companies, biopharmaceutical
companies as well as other competitors. Many of these companies have
substantially greater capital resources and marketing staffs and greater
experience in commercializing products and services than we have.
If we are unable to effectively adapt to changes in the healthcare industry, our
business will be harmed
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive health care reform legislation thus far, we
anticipate that Congress and state legislatures will continue to review and
assess alternative health care delivery and payment systems and may in the
future propose and adopt legislation effecting fundamental changes in the health
care delivery system as well as changes to the Medicare Program's coverage and
payments of the drugs and services we provide. It is possible that future
legislation enacted by Congress or state legislatures will contain provisions
that may harm our business, or may change the operating environment for our
targeted customers (including hospitals and managed care organizations). Health
care industry participants may react to such legislation or the uncertainty
surrounding related proposals by curtailing or deferring expenditures and
initiatives, including those relating to our programs and services. It is also
possible that future legislation either could result in modifications to the
nation's public and private health care insurance systems, or coverage for
biopharmaceutical products, which could affect reimbursement policies in a
manner adverse to us, or could encourage integration or reorganization of the
health care delivery system in a manner that could materially and adversely
affect our ability to compete or to continue our operations without substantial
changes. Other legislation relating to our business or to the health care
industry may be enacted, including legislation relating to third-party
reimbursement, and such legislation may have a negative effect on our business.
Our industry is subject to extensive government regulation and noncompliance by
us or our suppliers, our customers or our referral sources could harm our
business
The marketing, labeling, dispensing, storage, provision and purchase of drugs,
health supplies and health services including the biopharmaceutical products we
provide, are extensively regulated by federal and state governments, and if we
fail or are accused of failing to comply with laws and regulations, our business
could be harmed. Our business could also be harmed if the suppliers, customers
or referral sources we work with are accused of violating laws or regulations.
The applicable regulatory framework is complex, and the laws are very broad in
scope. Many of these laws remain open to interpretation, and have not been
addressed by substantive court decisions. The federal government, or states in
which we operate, could, in the future, enact more restrictive legislation or
interpret existing laws and regulations in a manner that could limit the manner
in which we can operate our business and have a negative impact on our business.
There are a number of state and federal laws and regulations that apply to our
operations including, but not limited to:
o The federal "anti-kickback law" prohibits the offer or solicitation of
remuneration in return for the referral of patients covered by almost all
governmental programs, or the arrangement or recommendation of the
purchase of any item, facility or service covered by those programs. The
Health Insurance Portability and Accountability Act of 1996, or HIPAA,
created new violations for fraudulent activity applicable to both public
and private health care benefit programs and prohibits inducements to
Medicare or Medicaid eligible patients. The potential sanctions for
violations of these laws include significant fines, exclusion from
participation in the Medicare and Medicaid programs and criminal
sanctions. Although some "safe harbor" regulations attempt to clarify
when an arrangement will not violate the anti-kickback law, our business
arrangements and the services we provide may not fit within these safe
harbors. Failure to satisfy a safe harbor requires further analysis of
whether the parties violated the anti-kickback law. In addition to the
anti-kickback law, many states have adopted similar kickback and/or
fee-splitting laws, which can affect the financial relationships we may
have with physicians, vendors, other retail pharmacies and patients.
The finding of a violation of the federal or one of these state laws could
harm our business.
o In 2000, the Department of Health and Human Services issued final
regulations implementing the Administrative Simplification provision of
HIPAA concerning the maintenance, transmission and security of electronic
health information, particularly individually identifiable information.
The regulations, when effective, will require the development and
implementation of security and transaction standards for all electronic
health information and impose significant use and disclosure obligations
on entities that send or receive individually identifiable electronic
health information. As a result of these regulations, we anticipate new
expenditures in ensuring that patient data kept on our computer networks
are in compliance with these regulations. While we believe that we will be
in compliance by the current February 2003 deadline, the cost of reaching
compliance may harm our business. Also, failure to comply with these
regulations, or wrongful disclosure of confidential patient information
could result in the imposition of administrative or criminal sanctions,
including exclusion from the Medicare and state Medicaid programs. In
addition, if we choose to distribute drugs through new distribution
channels such as the Internet, we will have to comply with government
regulations that apply to those distribution channels, which could harm
our business.
o The Ethics in Patient Referrals Act of 1989, as amended, commonly referred
to as the "Stark Law," prohibits physician referrals to entities with
which the physician or their immediate family members have a "financial
relationship." A violation of the Stark Law is punishable by civil
sanctions, including significant fines and exclusion from participation in
Medicare and Medicaid.
o State laws prohibit the practice of medicine, pharmacy and nursing without
a license. To the extent that we assist patients and providers with
prescribed treatment programs, a state could consider our activities to
constitute the practice of medicine. In addition, in some states,
coordination of nursing services for patients could necessitate licensure
as a home health agency and/or could necessitate the need to use licensed
nurses to provide certain patient directed services. If we are found to
have violated those laws, we could face civil and criminal penalties and
be required to reduce, restructure or even cease our business in that
state.
o Pharmacies (retail, mail-order and wholesale) as well as pharmacists often
must obtain state licenses to operate and dispense drugs. Pharmacies must
also obtain licenses in some states in order to operate and provide goods
and services to residents of those states. If we are unable to maintain
our licenses or if states place burdensome restrictions or limitations on
non-resident pharmacies, this could limit or affect our ability to operate
in some states which could harm our business.
o Federal and state investigations and enforcement actions continue to focus
on the health care industry, scrutinizing a wide range of items such as
joint venture arrangements, referral and billing practices, product
discount arrangements, home health care services, dissemination of
confidential patient information, clinical drug research trials and gifts
for patients or referral sources.
o The federal False Claims Act encourages private individuals to file suits
on behalf of the government against health care providers such as us. Such
suits could result in significant financial sanctions or exclusion from
participation in the Medicare and Medicaid programs.
There is a delay between our performance of services and our reimbursement
The health care industry is characterized by delays that typically range from
three to nine months between when services are provided and when the
reimbursement or payment for these services is received. This makes working
capital management, including prompt and diligent billing and collection, an
important factor in our results of operations and liquidity. Trends in the
industry may further extend the collection period and impact our working
capital.
We rely heavily on a limited number of shipping providers, and our business
would be harmed if our rates are increased or our providers are unavailable
A significant portion of our revenues result from the sale of drugs we deliver
to our patients and a significant amount of our products are shipped by mail,
overnight courier or in person through our community based representatives. The
costs incurred in shipping are not passed on to our customers and, therefore,
changes in these costs directly impact our margins. We depend heavily on these
outsourced shipping services for efficient, cost effective delivery of our
product. The risks associated with this dependence include:
o any significant increase in shipping rates;
o strikes or other service interruptions by these carriers; and
o spoilage of high cost drugs during shipment, since our drugs often
require special handling, such as refrigeration.
RISK RELATED TO OUR COMMON STOCK
Possible volatility of stock price in the public market
The market price of our common stock has experienced and may continue to
experience substantial volatility. Over the past eight quarters, the market
price of our common stock has ranged from a low of $5.06 per share in second
quarter of 2000 to a high of $22.40 per share in the first quarter of 2002. Many
factors have influenced the common stock price in the past, including
fluctuations in our earnings and changes in our financial position, management
changes, low trading volume, and negative publicity and uncertainty resulting
from the legal actions brought against us. In addition, the securities markets
have from time to time experienced significant broad price and volume
fluctuations that may be unrelated to the operating performance of particular
companies. All of these factors could adversely affect the market price of our
common stock.
Provisions of our articles of incorporation and Minnesota law may make it more
difficult for you to receive a change-in-control premium
Our board's ability to designate and issue up to 10,000,000 shares of preferred
stock and issue up to 50,000,000 shares of common stock could adversely affect
the voting power of the holders of common stock, and could have the effect of
making it more difficult for a person to acquire, or could discourage a person
from seeking to acquire, control of our company. If this occurred you could lose
the opportunity to receive a premium on the sale of your shares in a change of
control transaction.
In addition, the Minnesota Business Corporation Act contains provisions that
would have the effect of restricting, delaying or preventing altogether certain
business combinations with any person who, after this offering becomes an
interested stockholder. Interested stockholders include, among others, any
person who, together with affiliates and associates, acquires 10% or more of a
corporation's voting stock in a transaction which is not approved by a duly
constituted committee of the board of the corporation. These provisions could
also limit your ability to receive a premium in a change of control transaction.
SELLING SHAREHOLDERS
We have agreed to register the resale of 1,855,604 shares of our common
stock on behalf of certain selling shareholders. All of the shares were issued
by us in connection with our acquisitions of Hemophilia Access, Inc. and Apex
Therapeutic Care, Inc. The following table lists the selling shareholders and
the number of shares each selling shareholder beneficially owns and may sell
pursuant to this prospectus from time to time. See "Plan of Distribution." None
of the selling shareholders has had a material relationship with us within the
past three years other than as a result of the ownership of our common stock or
as a result of their employment with us as of the date of the closing of the
acquisitions. Except as otherwise indicated, the number of shares owned by each
selling shareholder after the offering represents less than 1% of our
outstanding shares as of the date of this prospectus. Information about the
beneficial ownership of our shares prior to this offering is as of May 20, 2002
and has been given to us by the selling shareholders. The inclusion of any
shares in this table does not constitute an admission of beneficial ownership by
the named selling shareholder.
Number of Maximum Number
Shares Number of of
Beneficially Shares to Shares
Owned be Sold Beneficially
Prior to Pursuant Owned After
the to this the Offering
Name of Selling Shareholder Offering Prospectus (1) (2)
---------------------------------- ----------- ------------ ----------
Margie Chitwood Akers 175,824 49,633 126,191(3)
Fred and Lisa Copeland Family
Trust dated August 4, 1999 297,886 297,886 0
Jim Williams 297,886 297,886 0
Jon and Ellen Tamiyasu
Irrevocable Trust No. 1 59,577 59,577 0
Kelly and Valorie Smith Family
Trust dated December 15 1997 238,308 238,308 0
Kelly and Valorie Smith
Irrevocable Trust No. 1 59,577 59,577 0
Kerlin Capital LLC 6,219 6,219 0
Robert and Sandra Brooks Family
Trust dated April 10, 1987 297,886 297,886 0
Tamiyasu Trust dated December
16, 1997 536,194 536,194 0
Timothy J. Fahringer 8,219(4) 6,219 2,000
William K. Doyle 6,219 6,219 0
----------- ------------ ----------
----------- ------------ ----------
Total 1,983,795 1,855,604 128,191
-----------
(1) This registration statement also shall cover any additional shares of
common stock which become issuable in connection with the shares
registered for sale hereby by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration which results in an increase in the number of our
outstanding shares of common stock.
(2) Assumes the sale of all of the shares offered by this prospectus.
(3) Represents 1.1% of our outstanding common stock as of May 1, 2002.
(4) Includes 1,000 shares which Mr. Fahringer can acquire upon the exercise of
currently exercisable stock options.
PLAN OF DISTRIBUTION
We are registering these shares on behalf of the selling shareholders. As used
in this prospectus, the term "selling shareholders" includes donees and pledgees
selling shares received from a named selling shareholder after the date of this
prospectus. The selling shareholders will offer and sell the shares to which
this prospectus relates for their own account. We will not receive any proceeds
from the sale of the shares. We will bear all fees and expenses in connection
with the registration of the shares.
The selling shareholders may offer and sell the shares from time to time, at
prices relating to prevailing market prices or at negotiated prices, in one or
more of the following methods: ordinary brokers' transactions, which may include
long sales or short sales effected after the effective date of the registration
statement of which this prospectus is a part; transactions involving cross or
block trades or otherwise on The Nasdaq National Market; purchases by brokers,
dealers or underwriters as principals and resale by the purchasers for their own
accounts pursuant to this prospectus; to or through market makers or into an
existing market for the shares; in other ways not involving market makers or
established trading markets, including direct sales to purchasers or sales
effected through agents; through transactions in options, swaps or other
derivatives (whether exchange-listed or otherwise); or any combination of the
foregoing, or by any other legally available means. Sales may be made to or
through brokers or dealers who may receive compensation in the form of
discounts, concessions or commissions from the selling shareholders or the
purchasers of the shares. As of the date of this prospectus, we are not aware of
any agreement, arrangement or understanding between any broker or dealer and the
selling shareholders regarding the sale of their shares, nor are we aware of any
underwriter or coordinating broker acting in connection with the proposed sale
of shares by the selling shareholders. There is no assurance that the selling
shareholders will sell any or all of the shares that they offer.
The selling shareholders and any brokers or dealers who participate in the sale
of the shares may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
received by them and any profits realized by them on the resale of shares may be
deemed to be underwriting discounts or commissions under the Securities Act.
Because the selling shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act, the selling shareholders will be subject to the
prospectus requirements of the Securities Act. We have informed the selling
shareholders that their sales in the market must comply with the requirements of
the rules and regulations of the Exchange Act.
The selling shareholders may also resell all or a portion of these shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of that Rule.
Upon notification to us by a selling shareholder that any material arrangement
has been entered into with a broker or dealer for the sale of shares through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will be
filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing
(i) the name of the selling shareholder and of the participating brokers or
dealers, (ii) the number of shares involved, (iii) the price at which such
shares were sold, (iv) the commissions paid or discounts or concessions allowed
to such brokers or dealers, where applicable, (v) that such brokers or dealers
did not conduct any investigation to verify the information set out or
incorporated by reference in this prospectus and (vi) other facts material to
the transaction. In addition, upon notification to us by a selling shareholder
that a donee or pledgee intends to sell more than 500 shares, a supplement to
this prospectus will be filed if required.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for us by Dorsey & Whitney LLP, Minneapolis,
Minnesota.
EXPERTS
The consolidated financial statements of Curative Health Services, Inc.
appearing in Curative Health Services, Inc.'s Annual Report (Form 10-K) for the
year ended December 31, 2001, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The financial statements of eBioCare.com, Inc. for the year ended December 31,
2000, appearing in Curative Health Services, Inc.'s current report on Form 8-K,
filed on April 13, 2001, as amended by a Form 8-K/A, filed on June 12, 2001,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Apex Therapeutic Care, Inc. appearing in Curative's
current report on Form 8-K, filed on March 11, 2002, as amended by a Form 8-K/A,
filed on May 3, 2002, have been audited by Martini, Iosue & Akpovi, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not include all of the information contained in the registration
statement. For further information about us and our common stock, you should
review the registration statement and its exhibits and schedules. You may read
and copy any document we file with the Commission at its public reference room
at 450 Fifth Street NW, Washington, DC 20549. Please call the Commission at
1-800-SEC-0330 for further information about its public reference facilities and
copy charges. Our filings are also available to the public from the Commission's
web site at http://www.sec.gov.
We file periodic reports, proxy statements and other information with the
Commission. These periodic reports, proxy statements and other information are
available for inspection and copying at the Commission's public reference room
and the regional offices listed above and can be obtained over the Internet
through the Commission's web site.
The Commission allows us to incorporate by reference information into this
prospectus. This allows us to disclose important information to you by referring
you to another document filed separately with the Commission. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superceded by information contained directly in this prospectus.
The documents that we are incorporating by reference are:
o our current report on Form 8-K filed on April 13, 2001, as amended by our
Form 8-K/A filed on June 12, 2001;
o our annual report on Form 10-K for the fiscal year ended December 31, 2001
filed on April 1, 2002;
o our current report on Form 8-K, filed on May 20, 2002;
o our current report on Form 8-K, filed on March 11, 2002, as amended by our
Form 8-K/A filed on May 3, 2002;
o our quarterly report on Form 10-Q for the quarter ended March 31, 2002
filed on May 15, 2002; and
o our Registration Statement on Form 8-A filed on June 26, 1991, which
contains a description of our common stock.
We also are incorporating by reference any future filings made by us with the
SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act until
the completion of this offering. The most recent information that we file with
the SEC automatically updates and supercedes more dated information.
You can obtain a copy of any documents which are incorporated by reference in
this prospectus (other than an exhibit to a filing unless that exhibit is
specifically incorporated by reference into that filing) at no cost, by writing
or telephoning the Chief Financial Officer, at Curative Health Services, Inc.,
150 Motor Parkway, Hauppauge, New York 11788, (631) 232-7000.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission. The prospectus relates to 1,855,604 shares
of our common stock, which the selling shareholders named in this prospectus may
sell from time to time. We will not receive any of the proceeds from these
sales. We have agreed to pay the expenses incurred in registering these shares,
including legal and accounting fees.
These shares have not been registered under the securities laws of any state or
other jurisdiction as of the date of this prospectus. Brokers or dealers should
confirm the existence of any exemption from registration or effect a
registration in connection with any offer and sale of these shares.
This prospectus describes certain risk factors that you should consider before
purchasing these shares. See "Risk Factors" beginning on page 2. You should
read this prospectus together with the additional information described under
the heading "Where You Can Find More Information."
---------------
You should rely only on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document