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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 000-32179
EXACT SCIENCES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 02-0478229
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
63 GREAT ROAD, MAYNARD, MASSACHUSETTS 01754
(Address of principal executive (Zip Code)
offices)
(978) 897-2800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of May 10, 2001, the Registrant had 18,686,076 shares of Common Stock
outstanding.
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EXACT SCIENCES CORPORATION
INDEX
PAGE
NUMBER
--------
Part I -- Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2000 and
March 31, 2001 (Unaudited).................................. 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 2001 (Unaudited)................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 2001 (Unaudited)................... 5
Notes to Consolidated Financial Statements (Unaudited)...... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 19
Part II -- Other Information
Item 2. Changes in Securities and Use of Proceeds................... 20
Item 6. Exhibits and Reports on Form 8-K............................ 20
Signatures........................................................... 21
2
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
EXACT SCIENCES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, MARCH 31,
2000 2001
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents................................. $26,469,866 $ 71,943,581
Prepaid expenses.......................................... 738,475 509,665
------------ ------------
Total current assets.................................. 27,208,341 72,453,246
Property and Equipment, at cost:
Laboratory equipment...................................... 1,011,052 1,524,460
Office and computer equipment............................. 429,014 1,041,019
Leasehold improvements.................................... 236,437 286,269
Furniture and fixtures.................................... 175,996 190,409
------------ ------------
1,852,499 3,042,157
Less--Accumulated depreciation and amortization........... (988,967) (1,147,391)
------------ ------------
863,532 1,894,766
Patent Costs and Other Assets............................... 986,629 1,148,725
$29,058,502 $ 75,496,737
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 582,298 $ 453,132
Accrued expenses.......................................... 776,396 971,410
------------ ------------
Total current liabilities............................. 1,358,694 1,424,542
Stockholders' Equity:
Series A convertible preferred stock, $0.01 par
value--Authorized--1,000,000 shares
Issued and outstanding--902,414 shares at December 31,
2000.................................................... 9,024 --
Series B convertible preferred stock, $0.01 par
value--Authorized--1,250,000 shares
Issued and outstanding--996,196 shares at December 31,
2000.................................................... 9,962 --
Series C convertible preferred stock, $0.01 par
value--Authorized --1,015,000 shares
Issued and outstanding--1,007,186 shares at December 31,
2000.................................................... 10,072 --
Series D convertible preferred stock, $0.01 par
value--Authorized--1,435,373 shares
Issued and outstanding--1,417,534 shares at
December 31, 2000....................................... 14,175 --
Common stock, $0.01 par value--Authorized--100,000,000
shares
Issued--2,789,581 and 18,639,550 shares at December 31,
2000 and March 31, 2001, respectively................... 27,896 186,396
Treasury stock............................................ (6,760)
Subscriptions receivable.................................. (975,443) (1,019,301)
Deferred compensation..................................... (8,578,341) (7,659,580)
Additional paid-in capital................................ 60,281,143 111,070,273
Deficit accumulated during the development stage.......... (23,096,680) (28,498,833)
------------ ------------
Total stockholders' equity............................ 27,699,808 74,072,195
------------ ------------
$29,058,502 $ 75,496,737
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
EXACT SCIENCES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 2001
----------- -----------
Operating Expenses:
Research and development.................................. $ 1,154,329 $ 2,542,815
General and administrative................................ 482,754 2,583,065
Stock-based compensation (1).............................. 241,871 1,051,936
----------- -----------
Loss from operations.................................. (1,878,954) (6,177,816)
Interest Income............................................. 40,558 777,657
----------- -----------
Net loss.............................................. $(1,838,396) $(5,400,159)
=========== ===========
Net Loss Per Share:
Basic and diluted......................................... $ (1.54) $ (0.44)
=========== ===========
Pro forma basic and diluted (2) (3)....................... $ (0.17) $ (0.27)
=========== ===========
Weighted Average Common Shares Outstanding:
Basic and diluted......................................... 1,194,025 12,190,643
=========== ===========
Pro forma basic and diluted (3)........................... 9,184,964 16,285,788
=========== ===========
- ------------------------
(1) The following summarizes the departmental allocation of stock-based compensation:
Research and development.................................. $ 22,621 $ 232,198
General and administrative................................ 219,250 819,738
----------- -----------
Total................................................. $ 241,871 $ 1,051,936
=========== ===========
(2) Excludes non-cash stock-based compensation.
(3) Assumes conversion of all outstanding shares of preferred stock into common stock.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
EXACT SCIENCES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 2001
----------- -----------
Cash Flows from Operating Activities:
Net loss.................................................. $(1,838,396) $(5,400,159)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization........................... 100,673 187,674
Non-cash stock-based compensation expense............... 241,871 1,051,936
Changes in assets and liabilities--
Prepaid expenses...................................... (4,299) 228,810
Accounts payable...................................... 53,070 (129,166)
Accrued expenses...................................... (10,616) 195,015
----------- -----------
Net cash used in operating activities............... (1,457,697) (3,865,890)
Cash Flows from Investing Activities:
Purchases of property and equipment....................... (109,650) (1,189,658)
Increase in patent costs and other assets................. (59,434) (191,346)
Purchase of treasury shares............................... (2,400) (6,760)
----------- -----------
Net cash used in investing activities............... (171,486) (1,387,764)
Cash Flows from Financing Activities:
Payments on capital lease obligations..................... (358) --
Net proceeds from sale of common stock.................... -- 50,721,060
Proceeds from exercise of common stock options............ 500 235
Repayment of stock subscriptions receivable............... 1,462 6,074
----------- -----------
Net cash provided by financing activities........... 1,604 50,727,369
Net (Decrease) Increase in Cash and Cash Equivalents........ (1,627,579) 45,473,715
Cash and Cash Equivalents, beginning of period.............. 3,553,256 26,469,866
----------- -----------
Cash and Cash Equivalents, end of period.................... $ 1,925,677 $71,943,581
=========== ===========
Supplemental Disclosure of Non-cash Investing and Financing
Activities:
Sale of restricted stock through issuance of notes
receivable.............................................. $ 262,080 $ 49,931
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
EXACT SCIENCES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
(1) ORGANIZATION
EXACT Sciences Corporation (the Company) was incorporated on February 10,
1995. The Company is in the development stage and applies proprietary genomics
technologies to the early detection of several types of common cancers. The
Company has selected colorectal cancer as the first application of its
technology platform.
The Company is devoting substantially all of its efforts toward product
research and development, raising capital and marketing products under
development. The Company has not generated revenue to date and is subject to a
number of risks similar to those of other development-stage companies, including
dependence on key individuals and the need for the continued development of
commercially usable products. On February 5, 2001, the Company completed an
initial public offering (IPO) of 4,000,000 shares of its common stock at $14.00
per share. The Company received proceeds of $52,080,000 after deducting the
underwriters' commission and issuance costs. All shares of Series A, B, C and D
preferred stock outstanding automatically converted into common stock upon the
closing of the Company's IPO.
(2) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of management, the
unaudited condensed consolidated financial statements have been prepared on the
same basis as the audited consolidated financial statements and include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of interim period results. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes, however, that its
disclosures are adequate to make the information presented not misleading. The
results of operations for the three months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the full fiscal year.
The accompanying condensed consolidated financial statements should be read in
conjunction with the Company's Form 10-K, which was filed with the Securities
and Exchange Commission on March 30, 2001.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company's
wholly owned subsidiary, EXACT Sciences Securities Corporation, a Delaware
corporation that has been classified as a Massachusetts securities corporation
for Massachusetts state tax purposes. All significant intercompany transactions
and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements
6
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of 90
days or less at the time of acquisition to be cash equivalents. Cash equivalents
consist primarily of money market funds at December 31, 2000 and March 31, 2001.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed using the straight-line method
based on the estimated useful lives of the related assets, as follows:
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------- -----------
Laboratory equipment........................................ 3 years
Office and computer equipment............................... 3 years
Leasehold improvements...................................... Life of lease
Furniture and fixtures...................................... 3 years
NET LOSS PER SHARE
Basic and diluted net loss per share is presented in conformity with
Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE,
for all periods presented. In accordance with SFAS No. 128, basic and diluted
net loss per common share was determined by dividing net loss applicable to
common stockholders by the weighted average common shares outstanding during the
period, less shares subject to repurchase. Basic and diluted net loss per share
are the same because all outstanding common stock equivalents have been excluded
as they are antidilutive. All shares issuable upon conversion of outstanding
preferred stock have been excluded from the computations of diluted weighted
average shares outstanding for the three months ended March 31, 2000, and
options to purchase a total of 1,114,329 and 1,951,061 common shares and 403,200
and 968,756 unvested restricted shares have therefore been excluded from the
computations of diluted weighted average shares outstanding for the three months
ended March 31, 2000 and 2001, respectively.
In accordance with the Securities Exchange Commission (SEC) Staff Accounting
Bulletin (SAB) No. 98, EARNINGS PER SHARE IN AN INITIAL PUBLIC OFFERING, the
Company has determined that there were no nominal issuances of the Company's
common stock prior to the Company's initial public offering.
RESEARCH AND DEVELOPMENT EXPENSES
The Company charges research and development expenses to operations as
incurred.
SEGMENT INFORMATION
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which requires companies to report selected
information about operating segments, as well as enterprise-wide disclosures
about products, services, geographic areas and major customers. Operating
segments are determined based on the way management organizes its business for
making operating decisions and assessing performance. The Company's chief
decision-maker, as defined under SFAS No. 131, is a combination of the chairman,
vice president and chief financial officer and president. The Company has
determined that it conducts its operations in one business segment. The Company
conducts its business in the United States. As a result, the financial
information disclosed
7
herein represents all of the material financial information related to the
Company's principal operating segment.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. As
amended in June 1999, the statement is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued
statement No. 138, which is a significant amendment to SFAS No. 133. SFAS No.
133 and its amendments establish accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively, the derivatives) and for hedging activities. The
Emerging Issues Task Force (EITF) has also issued a number of derivative-related
tentative and final consensuses. We do not expect the adoption of theses
statements to have a material impact on our consolidated position or results of
operations.
(4) SUBSCRIPTIONS RECEIVABLE
In February 1998, the Company issued full recourse notes receivable to
several employees totaling $47,580 for the exercise of stock options. The notes
bear interest at 8.5% with principal and interest payments due monthly over a
five-year period.
In March 2000, the Company issued full recourse notes receivable to several
employees totaling $262,080 for the exercise of stock options. The notes bear
interest at 9.0% with interest payments due monthly over a five-year period and
are collateralized by the underlying stock. Notes representing an aggregate
principal amount of $69,680 are payable monthly. Notes representing an aggregate
principal amount of $192,400 are payable in March 2005.
In June 2000, the Company issued full recourse notes receivable to an
executive totaling $299,999 to purchase restricted stock. The note bears
interest at 9.5% with interest and principal due on June 23, 2010.
In November 2000, the Company issued full recourse notes receivable to
executives and employees totaling $460,589 to purchase restricted stock. The
notes bear interest at 9.5% with interest and principal due on November 27,
2010.
In January 2001, the Company issued full recourse notes receivable to an
employee totaling $49,931 to purchase restricted stock. The note bears interest
at 9.0% with interest and principal due on January 29, 2011.
(5) RELATED PARTY TRANSACTION
In December 2000, the Company issued a warrant to the same shareholder to
purchase 48,125 shares of common stock at an exercise price of $10.9091 per
share. The warrant is exercisable immediately. The Company has valued the
warrant using the Black-Scholes model in accordance with EITF 96-18 and recorded
research and development stock-based compensation of $349,478 in 2000.
(6) ROYALTY AGREEMENTS
ROCHE LICENSE
The Company licenses, on a non-exclusive basis, technology for performing a
step in its testing methods from Roche Molecular Systems, Inc. (Roche). This
license relates to a gene amplification process used in almost all genetic
testing, and the patent that the Company utilizes expires in mid-2004. In
exchange for the license, the Company agreed to pay Roche a royalty based on net
revenues received from tests using the Company's technologies. Roche may
terminate this license upon notice if
8
the Company fails to pay royalties, fails to submit reports or breaches a
material term of the license. Royalty payments will be expensed as they become
due.
GENZYME LICENSE
The Company licenses, on a non-exclusive basis, technology for performing a
step in its testing methods from Genzyme Corporation (Genzyme), the exclusive
licensee of patents owned by The Johns Hopkins University and of which Dr.
Vogelstein is an inventor. This license relates to the use of the APC and P53
genes and methodologies related thereto in connection with its products and
services and lasts for the life of the patent term of the last licensed Genzyme
patent. In exchange for the license, the Company has agreed to pay Genzyme a
royalty based on net revenues received from performing the Company's tests and
the sale of its reagents and diagnostic test kits, as well as certain milestone
payments and maintenance fees. In addition, the Company must use reasonable
efforts to make products and services based on these patents available to the
public. Genzyme may terminate this license upon notice if the Company fails to
pay milestone payments and royalties, achieve a stated level of sales and submit
reports. In addition, if the Company fails to request FDA clearance for a
diagnostic test as required by the agreement, Genzyme may terminate the license.
To date, the Company has paid an initial license fee, which was charged to
research and development expense during the year ended December 31, 1999.
Milestone payments will be expensed as milestones are achieved. Royalties will
be expensed as they become due.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the financial condition and results of
operations of EXACT Sciences Corporation should be read in conjunction with the
financial statements and the related notes thereto included elsewhere in this
Form 10-Q and the audited financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for the year ended
December 31, 2000, which has been filed with the Securities and Exchange
Commission. Except for the historical information contained herein, this
following discussion contains forward-looking statements that involve risks and
uncertainties, certain of which are beyond our control. Actual results could
differ materially from these forward-looking statements as a result of a number
of factors including, but not limited to, those factors described in "Factors
That May Affect Future Results" in this Form 10-Q and in our Annual Report on
Form 10-K for the year ended December 31, 2000.
OVERVIEW
We apply proprietary genomics technologies to the early detection of common
cancers. We have selected colorectal cancer screening as the first application
of our technology platform. Since our inception on February 10, 1995, our
principal activities have included:
- researching and developing our technologies for colorectal cancer
screening;
- conducting clinical studies to validate our colorectal cancer screening
tests;
- negotiating licenses for intellectual property of others incorporated into
our technologies;
- developing relationships with opinion leaders in the scientific and
medical communities;
- conducting market studies and analyzing potential approaches for
commercializing our technologies;
- hiring research and clinical personnel;
- hiring management and other support personnel; and
- raising capital.
Initially, we intend to offer colorectal cancer screening services ourselves
to establish the market. We then intend to license our proprietary technologies
and sell reagents to leading clinical reference laboratories to enable them to
develop tests. We may also package our technologies and seek approval for
diagnostic test kits with which any clinical laboratory could conduct our tests.
We have generated no operating revenues since our inception and do not
expect any meaningful operating revenues for the foreseeable future. As of March
31, 2001, we had an accumulated deficit of approximately $28.5 million. Our
losses have resulted principally from costs incurred in conjunction with our
research and development initiatives.
Research and development expenses include costs related to scientific and
laboratory personnel, clinical studies and reagents and supplies used in the
development of our technologies. We expect that the cost of our research and
development activities will increase substantially as we continue activities
relating to the development of our colorectal cancer screening tests and the
extension of our technologies to several other forms of common cancers and
pre-cancerous lesions. We are currently conducting a clinical study which
includes a population of both high-risk and average-risk patients and thereafter
intend to conduct a multi-center clinical study that will include an estimated
5,300 average-risk patients from at least 40 academic and community-based
practices, the costs of which will be borne by us.
10
General and administrative expenses consist primarily of non-research
personnel salaries, office expenses and professional fees. We expect general and
administrative expenses to increase significantly as we hire additional
personnel and build our infrastructure to support future growth.
Stock-based compensation expense represents the difference between the
exercise price and fair value of common stock on the date of grant. The stock
compensation is being amortized over the vesting period of the applicable
options, which is generally 60 months. As of May 10, 2001, we expect to
recognize amortization expense of deferred compensation recorded related to
employee and director options of approximately $4.0 million, $2.3 million, $1.4
million, $682,000 and $177,000 during the years ended December 31, 2001, 2002,
2003, 2004 and 2005, respectively.
RESULTS OF OPERATIONS
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses,
excluding departmental allocations of stock-based compensation, increased to
$2.5 million for the three months ended March 31, 2001 from $1.2 million for the
three months ended March 31, 2000. This increase was attributable primarily to
an increase of $141,000 in personnel-related expenses, an increase of $352,000
in professional fees and expenses, an increase of $171,000 in lab expenses, an
increase of $625,000 in clinical study expenses and an additional $33,000
related to the leasing of additional laboratory space.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses,
excluding departmental allocations of stock-based compensation, increased to
$2.6 million for the three months ended March 31, 2001 from $483,000 for the
three months ended March 31, 2001. This increase was attributable primarily to
an increase of $619,000 in personnel-related expenses, an increase of
$1.3 million in professional fees and expenses, an increase of $47,000 in
travel-related expenses and an additional $14,000 related to the leasing of
additional office space.
STOCK-BASED COMPENSATION. Stock-based compensation increased to $1.1
million for the three months ended March 31, 2001, of which $232,000 related to
research and development personnel and $820,000 related to general and
administrative personnel. Stock-based compensation was $242,000 for the three
months ended March 31, 2000, of which $23,000 related to research and
development personnel and $219,000 related to general and administrative
personnel.
INTEREST INCOME. Interest income increased to $778,000 for the three months
ended March 31, 2001 from $41,000 for the three months ended March 31, 2000.
This increase was primarily due to an increase in our cash and cash equivalents
balances resulting from our initial public offering in January 2001 and from the
issuance of preferred stock in April 2000.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through private
sales of preferred stock as well as through the initial public offering of our
common stock in January 2001. As of March 31, 2000, we had approximately $71.9
million in cash and cash equivalents.
Net cash used in operating activities was $3.9 million for the three months
ended March 31, 2001 and $1.5 million for the three months ended March 31, 2000.
This increase was primarily due to the increase in our research and development
activities and associated general and administrative expenses.
Net cash used in investing activities was $1.4 million for the three months
ended March 31, 2001 and $171,000 for the three months ended March 31, 2000. For
each of these periods, cash used in investing activities primarily reflected
increased investment in our intellectual property portfolio and the expansion of
our laboratory and office space.
11
Net cash provided by financing activities was $50.7 million for the three
months ended March 31, 2001 and $1,600 for the three months ended March 31,
2000. This increase was primarily due to the completion of our initial public
offering in February 2001.
We expect that the net proceeds of approximately $51 million from our
initial public offering in January 2001, together with our current working
capital, will fund our operations through 2003. Our future capital requirements
include, but are not limited to, continuing our research and development
programs, supporting our clinical study efforts, and launching our marketing
efforts. Our future capital requirements will depend on many factors, including
the following:
- the success of our clinical studies;
- the scope of and progress made in our research and development activities;
and
- the successful commercialization of colorectal cancer screening tests
based on our technologies.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. As
amended in June 1999, the statement is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued
statement No. 138, which is a significant amendment to SFAS No. 133. SFAS No.
133 and its amendments establish accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively, the derivatives) and for hedging activities. The
Emerging Issues Task Force (EITF) has also issued a number of derivative-related
tentative and final consensuses. We do not expect the adoption of theses
statements to have a material impact on our consolidated position or results of
operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
We operate in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. This discussion highlights some of
the risks which may affect future operating results.
WE ARE A DEVELOPMENT STAGE COMPANY AND MAY NEVER COMMERCIALIZE ANY OF OUR
PRODUCTS OR SERVICES OR EARN A PROFIT.
We are a development stage company and have incurred losses since we were
formed. From our date of inception on February 10, 1995 through March 31, 2001,
we have accumulated a total deficit of approximately $28.5 million. Since our
colorectal cancer screening tests are still in development, we do not expect to
have any material revenue from the sale of our products and services until 2003.
Even after we begin selling our products and services, we expect that our losses
will continue and increase as a result of continuing high research and
development expenses, as well as increased sales and marketing expenses. We
cannot assure you that we will ever commercialize any of our products or
services, or that the revenue from any of our products or services will be
sufficient to make us profitable.
IF OUR CLINICAL STUDIES DO NOT PROVE THE SUPERIORITY OF OUR TECHNOLOGIES, WE MAY
NEVER SELL OUR PRODUCTS AND SERVICES.
In the fourth quarter of 2001, we intend to initiate a blinded multi-center
clinical study that will include approximately 5,300 patients with average risk
profiles. The results of this clinical study may not show that tests using our
technologies are superior to existing screening methods. In that event, we will
have to devote significant financial and other resources to further research and
development. In addition, we may experience delays in the commercialization of
tests using our technologies or
12
commercialization may never occur. Our earlier clinical studies were small and
included samples from high-risk patients. The results from these earlier studies
may not represent the results we obtain from any future studies, including our
planned clinical study, which will include substantially more samples and
average-risk patients.
WE MAY BE UNABLE TO RECRUIT A SUFFICIENT NUMBER OF PATIENTS FOR OUR PLANNED
AVERAGE-RISK CLINICAL STUDY.
We intend to conduct a blinded multi-center clinical study of approximately
5,300 average-risk patients. If we are unable to enroll the required number of
average risk patients, we will be unable to validate the superiority of our
technologies, which would make it difficult to sell our products and services.
Despite the availability of colorectal cancer screening methods today, most
Americans who are recommended for colorectal cancer screening do not get
screened. Participants in our clinical study will only have an average risk of
developing colorectal cancer, yet will have to undergo a colonoscopy. This
procedure requires sedation and causes patient discomfort. We cannot guarantee
that we will be able to recruit patients on a timely basis, if at all.
IF MEDICARE AND OTHER THIRD-PARTY PAYORS, INCLUDING MANAGED CARE ORGANIZATIONS,
DO NOT PROVIDE ADEQUATE REIMBURSEMENT FOR OUR PRODUCTS AND SERVICES, MOST
CLINICAL REFERENCE LABORATORIES WILL NOT USE OUR PRODUCTS OR LICENSE OUR
TECHNOLOGIES TO PERFORM CANCER SCREENING TESTS.
Most clinical reference laboratories will not perform colorectal cancer
screening tests using our products and licensing our technologies unless they
are adequately reimbursed by third-party payors such as Medicare and managed
care organizations. There is significant uncertainty concerning third-party
reimbursement for the use of any test incorporating new technology.
Reimbursement by a third-party payor may depend on a number of factors,
including a payor's determination that tests using our products and technologies
are sensitive for colorectal cancer, not experimental or investigational,
medically necessary, appropriate for the specific patient and cost-effective. To
date, we have not secured any reimbursement approval for tests using our
products and technologies from any third-party payor, nor do we expect any such
approvals in the near future.
Reimbursement by Medicare will require approval by the Secretary of Health
and Human Services, or HHS. The Federal Budget Act of 1997 provides for
reimbursement of new technologies such as ours, but only with action of the
Secretary of HHS. We cannot guarantee that the Secretary of HHS will act to
approve tests based on our technologies on a timely basis or at all. In
addition, the assignment of a current procedural terminology code facilitates
Medicare reimbursement. The process to obtain this code is lengthy and we cannot
guarantee that we will receive a current procedural terminology code on a timely
basis, or at all.
Since reimbursement approval is required from each payor individually,
seeking such approvals is a time-consuming and costly process. If we are unable
to obtain adequate reimbursement by Medicare and managed care organizations, our
ability to generate revenue and earnings from the sale of our products or
licenses to our technologies will be limited.
WE WILL NOT BE ABLE TO COMMERCIALIZE OUR TECHNOLOGIES IF WE ARE NOT ABLE TO
LOWER COSTS THROUGH AUTOMATING AND SIMPLIFYING KEY OPERATIONAL PROCESSES.
Currently, colorectal cancer screening tests using our technologies are very
expensive because they are labor-intensive and use highly complex and expensive
reagents. In order to price our products and services competitively, we will
need to reduce substantially the costs of tests using our technologies through
significant automation of key operational processes and other cost savings
procedures. If we fail to sufficiently reduce costs, tests using our
technologies either may not be commercially viable or may generate little, if
any, profitability.
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OUR INABILITY TO ESTABLISH STRONG BUSINESS RELATIONSHIPS WITH LEADING CLINICAL
REFERENCE LABORATORIES TO PERFORM COLORECTAL CANCER SCREENING TESTS USING OUR
TECHNOLOGIES WILL LIMIT OUR REVENUE GROWTH.
A key step in our strategy is to sell reagents and license our proprietary
technologies to leading clinical reference laboratories that will perform
colorectal cancer screening tests. We currently have no business relationships
with these laboratories and have limited experience in establishing these
business relationships. If we are unable to establish these business
relationships, we will have limited ability to obtain revenues beyond revenue we
can generate from our limited in-house capacity to process tests.
OUR FAILURE TO CONVINCE MEDICAL PRACTITIONERS TO ORDER TESTS USING OUR
TECHNOLOGIES WILL LIMIT OUR REVENUE AND PROFITABILITY.
If we fail to convince medical practitioners to order tests using our
technologies, we will not be able to sell our products or license our
technologies in sufficient volume for us to become profitable. We will need to
make leading gastroenterologists aware of the benefits of tests using our
technologies through published papers, presentations at scientific conferences
and favorable results from our clinical studies. Our failure to be successful in
these efforts would make it difficult for us to convince medical practitioners
to order colorectal cancer screening tests using our technologies for their
patients.
IF WE LOSE THE SUPPORT OF OUR KEY SCIENTIFIC COLLABORATORS, IT MAY BE DIFFICULT
TO ESTABLISH TESTS USING OUR TECHNOLOGIES AS A STANDARD OF CARE FOR COLORECTAL
CANCER SCREENING, WHICH MAY LIMIT OUR REVENUE GROWTH AND PROFITABILITY.
We have established relationships with leading scientists, including members
of our scientific advisory board, and research institutions, such as the Mayo
Clinic, that we believe are key to establishing tests using our technologies as
a standard of care for colorectal cancer screening. We have consulting
agreements with all but one member of our scientific advisory board, each of
which may be terminated by us or the scientific advisory board member with 30 or
60 days notice. Our existing collaboration agreement with the Mayo Clinic
expires on December 31, 2001. If any of our collaborators determine that
colorectal cancer screening tests using our technologies are not superior to
available colorectal cancer screening tests or that alternative technologies
would be more effective in the early detection of colorectal cancer, we would
encounter difficulty establishing tests using our technologies as a standard of
care for colorectal cancer screening, which would limit our revenue growth and
profitability.
WE MAY EXPERIENCE LIMITS ON OUR REVENUE AND PROFITABILITY IF ONLY AN
INSIGNIFICANT NUMBER OF PEOPLE DECIDE TO BE SCREENED FOR COLORECTAL CANCER.
Even if our technologies are superior to alternative colorectal cancer
screening technologies, adequate third-party reimbursement is obtained and
medical practitioners order tests using our technologies, an insignificant
number of people may decide to be screened for colorectal cancer. Despite the
availability of current colorectal cancer screening methods as well as the
recommendation of the American Cancer Society and the National Cancer Institute
that all Americans age 50 and above be screened for colorectal cancer, most of
these individuals decide not to complete a colorectal cancer screening test. If
only an insignificant portion of the population decides to complete colorectal
cancer screening tests, we may experience limits on our revenue and
profitability.
OUR INABILITY TO APPLY OUR PROPRIETARY TECHNOLOGIES SUCCESSFULLY TO DETECT OTHER
COMMON CANCERS MAY LIMIT OUR REVENUE GROWTH AND PROFITABILITY.
While to date, we have focused substantially all of our research and
development efforts on colorectal cancer, we have used our technologies to
detect cancers of the lung, pancreas, esophagus, stomach and gall bladder. As a
result, we intend to devote significant personnel and financial resources
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in the future to extending our technology platform to the development of
screening tests for these common cancers and pre-cancerous lesions. To do so, we
may need to overcome technological challenges to develop reliable screening
tests for these cancers. We may never realize any benefits from these research
and development activities. See "Business--Research and Development."
IF WE FAIL TO OBTAIN THE APPROVAL OF THE U.S. FOOD AND DRUG ADMINISTRATION, OR
FDA, OR COMPLY WITH OTHER FDA REQUIREMENTS, WE MAY NOT BE ABLE TO MARKET OUR
PRODUCTS AND SERVICES AND MAY BE SUBJECT TO STRINGENT PENALTIES.
The FDA does not actively regulate laboratory tests that have been developed
and used by the laboratory conducting the test. Although the FDA does regulate
reagents, such as ours, that react with a biological substance to identify a
specific DNA sequence or protein, its regulations provide that most such
reagents, which the FDA refers to as analyte specific reagents, are exempt from
the FDA's premarket review requirements. If the FDA were to decide to regulate
in-house developed laboratory tests, decide to require premarket approval or
clearance of our analyte specific reagents, conclude that our reagents do not
meet the requirements for analyte specific reagents, or conclude that licensing
our intellectual property constitutes non-compliant labeling, the
commercialization of our products and services could be delayed, halted or
prevented. In addition, the FDA may impose penalties on us or seek other
enforcement actions. Similarly, if the FDA were to determine that our stool
collector requires premarket approval or clearance, the sale of our products and
services could be delayed, halted or prevented and the FDA could impose
penalties on us or seek other enforcement action. Finally, our analyte specific
reagents will be subject to a number of FDA requirements, including a
requirement to comply with the FDA's quality system regulation which establishes
extensive regulations for quality control and manufacturing procedures. Failure
to comply with these regulations could subject us to enforcement action. Adverse
FDA action in any of these areas could significantly increase our expenses and
limit our revenue and profitability.
IF WE FAIL TO COMPLY WITH REGULATIONS RELATING TO CLINICAL LABORATORIES, WE MAY
BE PROHIBITED FROM PROCESSING OUR OWN TESTS IN-HOUSE, BE REQUIRED TO INCUR
SIGNIFICANT EXPENSE TO CORRECT NON-COMPLIANCE, OR BE SUBJECT TO OTHER
REQUIREMENTS OR PENALTIES.
We are subject to U.S. and state laws and regulations regarding the
operation of clinical laboratories. For example, the federal Clinical Laboratory
Improvement Amendments imposes certification requirements for clinical
laboratories, and establishes standards for quality assurance and quality
control, among other things. Clinical laboratories are subject to inspection by
regulators, and the possible sanctions for failing to comply with applicable
requirements include prohibiting a laboratory from running tests, requiring a
laboratory to implement a corrective plan, and imposing civil money or criminal
penalties. In May 2000, we received a clinical laboratory certificate of
compliance. However, if we fail to meet the requirements of the Clinical
Laboratory Improvement Amendments in the future, we could be required to halt
providing services and incur significant expense, thereby limiting our revenue
and profitability.
OTHER COMPANIES MAY DEVELOP AND MARKET METHODS FOR DETECTING COLORECTAL CANCER,
WHICH MAY MAKE OUR TECHNOLOGIES LESS COMPETITIVE, OR EVEN OBSOLETE.
The market for colorectal cancer screening is large, approximating 74
million Americans age 50 and above, and has attracted competitors, some of which
have significantly greater resources than we have.
Currently, we face competition from alternative procedures-based detection
technologies such as flexible sigmoidoscopy and colonoscopy, as well as
traditional screening tests such as the fecal occult blood test marketed by
Beckman Coulter, Inc. Other entities are developing new colorectal screening
methods such as virtual colonoscopy, an experimental procedure being developed
at research
15
institutions in which a radiologist views the inside of the colon through a
scanner. In addition, competitors, including Bayer Corporation, diaDexus, Inc.,
Matritech, Inc. and Millennium Predictive Medicine, Inc., are developing
serum-based tests, a screening test based on the detection of proteins or
nucleic acids produced by colon cancer. These and other companies may also be
working on additional methods of detecting colon cancer that have not yet been
announced. We may be unable to compete effectively against these competitors
either because their test is superior or because they may have more expertise,
experience, financial resources and business relationships.
THE LOSS OF KEY MEMBERS OF OUR SENIOR MANAGEMENT TEAM COULD ADVERSELY AFFECT OUR
BUSINESS.
Our success depends largely on the skills, experience and performance of key
members of our senior management team, including Stanley N. Lapidus, our
Chairman, Don M. Hardison, our President, John A. McCarthy, Jr., our Executive
Vice President and Chief Financial Officer, and Anthony P. Shuber, our Senior
Vice President and Chief Technology Officer. Messrs. Lapidus and Shuber have
been critical to the development of our technologies and business. Mr. Hardison,
who joined us in May 2000, and Mr. McCarthy, who joined us in October 2000, are
key additions to our management team and will be critical to directing and
managing our growth and development in the future. We have no employment
agreements with any of Messrs. Lapidus, Hardison, McCarthy or Shuber, however
each has signed a non-disclosure and assignment of intellectual property
agreement and non-compete agreement. We also have a severance agreement with
each of Messrs. Lapidus, Hardison, McCarthy and Shuber that provides for twelve
months severance under certain circumstances. The efforts of each of these
persons will be critical to us as we continue to develop our technologies and
our testing process and as we attempt to transition from a development company
to a company with commercialized products and services. If we were to lose one
or more of these key employees, we may experience difficulties in competing
effectively, developing our technologies and implementing our business
strategies.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY EFFECTIVELY, WE MAY BE
UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGIES, WHICH WOULD IMPAIR
OUR COMPETITIVE ADVANTAGE.
We rely on patent protection as well as a combination of trademark,
copyright and trade secret protection, and other contractual restrictions to
protect our proprietary technologies, all of which provide limited protection
and may not adequately protect our rights or permit us to gain or keep any
competitive advantage. If we fail to protect our intellectual property, we will
be unable to prevent third parties from using our technologies and they will be
able to compete more effectively against us.
As of May 10, 2001, we had twelve issued patents in the United States, four
issued foreign patents, twenty-two pending patent applications in the United
States, three of which have been allowed, and forty-one pending foreign
applications. We cannot assure you that any of our currently pending or future
patent applications will result in issued patents, and we cannot predict how
long it will take for such patents to be issued. Further, we cannot assure you
that other parties will not challenge any patents issued to us, or that courts
or regulatory agencies will not hold our patents to be invalid or unenforceable.
A third-party institution has asserted co-inventorship rights with respect
to one of our issued patents relating to pooling patient samples in connection
with our loss of heterozygosity detection method. We cannot guarantee you that
we will be successful in defending this or other challenges made in connection
with our patents and patent applications. Any successful third-party challenge
to our patents could result in co-ownership of such patents with a third party
or the unenforceability or invalidity of such patents. In addition, we and a
third-party institution have filed a joint patent application that will be
co-owned by us and that third-party institution relating to the use of various
DNA markers, including one of our detection methods, to detect cancers of the
lung, pancreas, esophagus, stomach, small intestine, bile duct, naso-pharyngeal,
liver and gall bladder in stool under the
16
Patent Cooperation Treaty. This patent application designates the United States,
Japan, Europe and Canada. Co-ownership of a patent allows the co-owner to
exercise all rights of ownership, including the right to use, transfer and
license the rights protected by the applicable patent.
In addition to our patents, we rely on contractual restrictions to protect
our proprietary technology. We require our employees and third parties to sign
confidentiality agreements and employees to also sign agreements assigning to us
all intellectual property arising from their work for us. Nevertheless, we
cannot guarantee that these measures will be effective in protecting our
intellectual property rights.
We cannot guarantee you that the patents issued to us will be broad enough
to provide any meaningful protection nor can we assure you that one of our
competitors may not develop more effective technologies, designs or methods to
test for colorectal cancer or any other common cancer without infringing our
intellectual property rights or that one of our competitors might not design
around our proprietary technologies.
WE MAY INCUR SUBSTANTIAL COSTS TO PROTECT AND ENFORCE OUR PATENTS.
We have pursued an aggressive patent strategy designed to maximize our
patent protection against third parties in the U.S. and in foreign countries. We
have filed patent applications that cover the methods we have designed to detect
colorectal cancer and other cancers, as well as patent applications that cover
our testing process. In order to protect or enforce our patent rights, we may
initiate actions against third parties. Any actions regarding patents could be
costly and time-consuming, and divert our management and key personnel from our
business. Additionally, such actions could result in challenges to the validity
or applicability of our patents.
WE MAY BE SUBJECT TO SUBSTANTIAL COSTS AND LIABILITY OR BE PREVENTED FROM
SELLING OUR SCREENING TESTS FOR CANCER AS A RESULT OF LITIGATION OR OTHER
PROCEEDINGS RELATING TO PATENT RIGHTS.
Third parties may assert infringement or other intellectual property claims
against our licensors or us. We pursue an aggressive patent strategy that we
believe provides us with a competitive advantage in the early detection of
colorectal cancer and other common cancers. We currently have twelve issued U.S.
patents and twenty-four pending patent applications in the United States.
Because the U.S. Patent & Trademark Office maintains patent applications in
secrecy until a patent issues, others may have filed patent applications for
technology covered by our pending applications. There may be third-party
patents, patent applications and other intellectual property relevant to our
potential products that may block or compete with our products or processes.
Even if third-party claims are without merit, defending a lawsuit may result in
substantial expense to us and may divert the attention of management and key
personnel. In addition, we cannot assure you that we would prevail in any of
these suits or that the damages or other remedies if any, awarded against us
would not be substantial. Claims of intellectual property infringement may
require us to enter into royalty or license agreements with third parties that
may not be available on acceptable terms, if at all. These claims may also
result in injunctions against the further development and use of our technology,
which would have a material adverse effect on our business, financial condition
and results of operations.
Also, patents and applications owned by us may become the subject of
interference proceedings in the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to us,
as well as a possible adverse decision as to the priority of invention of the
patent or patent application involved. An adverse decision in an interference
proceeding may result in the loss or rights under a patent or patent application
subject to such a proceeding.
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OUR BUSINESS WOULD SUFFER IF CERTAIN LICENSES WERE TERMINATED.
We license certain technologies from Roche Molecular Systems, Inc. and
Genzyme Corporation that are key to our technologies. The Roche license, which
relates to a gene amplification process used in almost all genetic testing, is a
non-exclusive license through 2004, the date on which the patent that we utilize
expires. Roche may terminate the license upon notice if we fail to pay
royalties, submit certain reports or breach any other material term of the
license agreement. The Genzyme license is a non-exclusive license to use the APC
and P53 genes and methodologies relating to the genes in connection with our
products and services through 2013, the date on which the term of the patent
that we utilize expires. Genzyme may terminate the license upon notice if we
fail to pay milestone payments and royalties, achieve a certain level of sales,
submit certain reports. In addition, if we fail to use reasonable efforts to
make products and services based on these patents available to the public or
fail to request FDA clearance for a diagnostic test kit as required by the
agreement, Genzyme may terminate the license. If either Roche or Genzyme were to
terminate the licenses, we would incur significant delays and expense to change
a portion of our testing methods and we cannot guarantee that we would be able
to change our testing methods without affecting the sensitivity of our tests.
CHANGES IN HEALTHCARE POLICY COULD SUBJECT US TO ADDITIONAL REGULATORY
REQUIREMENTS THAT MAY DELAY THE COMMERCIALIZATION OF OUR TESTS AND INCREASE OUR
COSTS.
Healthcare policy has been a subject of discussion in the executive and
legislative branches of the federal and many state governments. We developed a
staged commercialization strategy for our colorectal cancer screening tests
based on existing healthcare policies. Changes in healthcare policy, if
implemented, could substantially delay the use of our tests, increase costs, and
divert management's attention. We cannot predict what changes, if any, will be
proposed or adopted or the effect that such proposals or adoption may have on
our business, financial condition and results of operations.
OUR INABILITY TO RAISE ADDITIONAL CAPITAL ON ACCEPTABLE TERMS IN THE FUTURE MAY
LIMIT OUR GROWTH.
We may need to raise additional funds to execute our business strategy. Our
inability to raise capital would seriously harm our business and development
efforts. In addition, we may choose to raise additional capital due to market
conditions or strategic considerations even if we believe we have sufficient
funds for our current or future operations. To the extent that additional
capital is raised through the sale of equity or convertible debt securities, the
issuance of these securities could result in dilution to our stockholders.
We currently have no credit facility or committed sources of capital. If our
capital resources are insufficient to meet future requirements, we will have to
raise additional funds to continue the development and commercialization of our
technologies. These funds may not be available on favorable terms, or at all. If
adequate funds are not available on attractive terms, we may have to restrict
our operations significantly or obtain funds by entering into agreements on
unattractive terms.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS OWN A SIGNIFICANT
PERCENTAGE OF OUR COMPANY AND COULD EXERT SIGNIFICANT INFLUENCE OVER MATTERS
REQUIRING STOCKHOLDER APPROVAL.
As of May 10, 2001, our executive officers, directors and principal
stockholders and their affiliates together control approximately 49.4% of our
outstanding common stock, without giving effect to the exercise of outstanding
options under our stock plans. As a result these stockholders, if they act
together, will have significant influence over matters requiring stockholder
approval, such as the election of directors and approval of significant
corporate transactions. This concentration of ownership may have the effect of
delaying, preventing or deterring a change in control, could deprive you of the
opportunity to receive a premium for your common stock as part of a sale and
could adversely affect the market price of our common stock.
18
CERTAIN PROVISIONS OF OUR CHARTER, BY-LAWS AND DELAWARE LAW MAY MAKE IT
DIFFICULT FOR YOU TO CHANGE OUR MANAGEMENT AND MAY ALSO MAKE A TAKEOVER
DIFFICULT.
Our corporate documents and Delaware law contain provisions that limit the
ability of stockholders to change our management and may also enable our
management to resist a takeover. These provisions include a staggered board of
directors, limitations on persons authorized to call a special meeting of
stockholders and advance notice procedures required for stockholders to make
nominations of candidates for election as directors or to bring matters before
an annual meeting of stockholders. These provisions might discourage, delay or
prevent a change of control or in our management. These provisions could also
discourage proxy contests and make it more difficult for you and other
stockholders to elect directors and cause us to take other corporate actions. In
addition, the existence of these provisions, together with Delaware law, might
hinder or delay an attempted takeover other than through negotiations with our
board of directors.
OUR STOCK PRICE MAY BE VOLATILE.
The market price of our stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:
- technological innovations or new products and services by us or our
competitors;
- clinical trial results relating to our tests or those of our competitors;
- reimbursement decisions by Medicare and other managed care organizations;
- FDA regulation of our products and services;
- the establishment of partnerships with clinical reference laboratories;
- health care legislation;
- intellectual property disputes;
- additions or departures of key personnel; and
- sales of our common stock.
Because we are a development stage company with no material revenue expected
until 2003, you may consider one of these factors to be material. Our stock
price may fluctuate widely as a result of any of the above.
In addition, the Nasdaq National Market and the market for applied genomics
companies in particular, has experienced significant price and volume
fluctuations that have often been unrelated or disproportionate to the
performance of those companies.
FUTURE SALES BY OUR EXISTING STOCKHOLDERS COULD DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK.
If our existing stockholders sell a large number of shares of our common
stock, the market price of our common stock could decline significantly.
Moreover, the perception in the public market that our existing stockholders
might sell shares of common stock could adversely affect the market price of our
common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have no derivative financial instruments in our cash and cash
equivalents. We invest our cash and cash equivalents in securities of the U.S.
governments and its agencies and in investment-grade, highly liquid investments
consisting of commercial paper, bank certificates of deposit and corporate
bonds.
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PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 5, 2001, we consummated an initial public offering of 4,000,000
shares of our common stock pursuant to a Registration Statement on Form S-1,
which was declared effective by the Securities and Exchange Commission (SEC File
No. 333-48812) on January 30, 2001. The estimated net proceeds to us from the
initial public offering, after deducting underwriting discounts and commissions
and other expenses, were approximately $51 million. We currently expect to use
the net proceeds of the offering to fund clinical studies and trials, to fund
other research and development and for working capital and other general
corporate purposes. To date, none of the net proceeds from the initial public
offering has been applied. As of May 10, 2001, we have invested all of the net
proceeds of the offering in money-market mutual funds and direct and guaranteed
obligations of the United States.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K.
During the quarter ended March 31, 2001, we filed one report on Form 8-K,
dated March 6, 2001, which announced a conference call to discuss our year-end
financial results. No other reports on Form 8-K were filed by us during the
quarter ended March 31, 2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXACT SCIENCES CORPORATION
By: /s/ JOHN A. MCCARTHY, JR.
Date: May 14, 2001 -----------------------------------------
John A. McCarthy, Jr.
Executive Vice-President and Chief
Financial Officer (Duly Authorized Officer
and Principal Financial Officer)
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