SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File No. 0-15360
BIOJECT MEDICAL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1099680
- -------------------------------------- -----------------------------
(Jurisdiction of incorporation) (I.R.S. identification no.)
7620 SW Bridgeport Road
Portland, Oregon 97224
- -------------------------------------- -----------------------------
(Address of principal executive offices) (Zip code)
(503) 639-7221
-------------------------------------------------------
(Registrant's telephone number, including areas 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 [ ]
At October 31, 1999 there were 5,802,248 outstanding shares of common stock
of the registrant.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited consolidated financial statements of Bioject Medical
Technologies Inc. ("BMTI"), an Oregon corporation, and its subsidiaries have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. The Company's needle-free injector operations are conducted
by Bioject Inc. ("Bioject"), an Oregon corporation formed in February 1985,
which is a wholly owned subsidiary of BMTI and its blood glucose monitoring
system operations are conducted by Marathon Medical Technologies Inc.
("Marathon"), an Oregon corporation formed in October 1997, which is wholly
owned by BMTI.
The following 10-Q report reflects the consolidated results of operations, cash
flows and financial position for the second quarter of the year ending March 31,
2000. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the year.
- Consolidated Statements of Operations for the quarters ended September
30, 1999 and September 30, 1998
- Consolidated Statements of Operations for the six months ended
September 30, 1999 and September 30, 1998
- Consolidated Balance Sheets dated September 30, 1999 and March 31,
1999
- Consolidated Statements of Cash Flows for the six months ended
September 30, 1999 and September 30, 1998
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended
September 30,
1999 1998
----------- ---------
REVENUES:
Net sales of products $ 330,702 $ 311,401
Licensing/technology fees 250,000 887,558
----------- ---------
580,702 1,198,959
----------- ---------
EXPENSES:
Manufacturing 548,355 499,314
Research and development 314,457 236,324
Selling, general and administrative 689,257 757,074
------------ ------------
Total operating expenses 1,552,069 1,492,712
----------- ------------
Operating loss (971,367) (293,753)
Other income 50,850 34,449
------------ ------------
Loss from continuing operations
before taxes (920,517) (259,304)
Provision for income -- --
------------ -----------
Loss from continuing operations
before preferred stock dividend (920,517) (259,304)
Preferred Stock dividend (264,505) (348,912)
------------ ------------
Loss from continuing operations
allocable to common shareholders (1,185,022) (608,216)
Loss from discontinued operations
allocable to common shareholders -- (927,913)
----------- ------------
Net loss allocable to
Common shareholders $(1,185,022) $(1,536,129)
=========== ============
Basic and diluted net loss per
common share $ (.20) $ (.27)
=========== ============
Shares used in per share calculation
post one-for-five reverse stock split
effective October 13, 1999) 5,802,248 5,700,134
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six-Months Ended
September 30,
1999 1998
------------ -----------
REVENUES:
Net sales of products $ 443,384 $ 453,812
Licensing/technology fees 350,000 1,025,559
----------- ----------
793,384 1,479,371
------------ ----------
EXPENSES:
Manufacturing 909,800 770,328
Research and development 568,241 480,910
Selling, general and administrative 1,290,857 1,365,694
----------- ------------
Total operating expenses 2,768,898 2,616,932
----------- ------------
Operating loss (1,975,514) (1,137,561)
Other income 67,817 57,161
----------- ------------
Loss from continuing operations
before taxes (1,907,697) (1,080,400)
Provision for income taxes -- --
----------- ------------
Loss from continuing operations
before preferred stock dividend $ (1,907,697) $(1,080,400)
Preferred Stock dividend (639,341) (695,262)
----------- ------------
Loss from continuing operations
allocable to common shareholders $ (2,547,038) $( 1,775,662)
Loss from discontinued operations
allocable to common shareholders (449,786) (1,913,562)
Gain on sale of discontinued operations 2,852,666 --
----------- ------------
Net loss allocable to
common shareholders $ (144,158) $ (3,689,224)
Basic and diluted net loss per common share $ (.02) $ (.67)
=========== ============
Shares used in per share calculation
(post one-for-five reverse stock split
effective October 13, 1999) 5,802,248 5,542,158
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, March 31,
1999 1999
------------ ------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 3,815,778 $ 1,274,311
Accounts receivable, net 216,702 305,064
Stock subscription receivable -- 2,400,000
Inventories 988,289 1,251,186
Other current assets 55,589 53,599
Current assets of discontinued operations -- 597,000
------------ ------------
Total current assets 5,076,358 5,881,160
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,293,239 2,235,733
Production molds 2,055,322 2,051,697
Furniture and fixtures 179,376 170,436
Leasehold improvements 94,115 94,115
------------ ------------
4,622,052 4,551,981
Less - Accumulated depreciation (2,962,479) (2,615,536)
------------ ------------
1,659,573 1,936,445
OTHER ASSETS 544,398 535,092
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS -- 238,583
------------ ------------
$ 7,280,329 $ 8,591,280
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 245,937 $ 190,676
Accrued payroll 101,990 135,445
Other accrued liabilities 57,446 54,388
Deferred revenue 150,000 --
Current liabilities of
discontinued operations 481,906 2,462,906
------------ ------------
Total current liabilities 1,037,279 2,843,415
SHAREHOLDERS' EQUITY:
Preferred stock, no par, 10,000,000
shares authorized; no shares issued
and outstanding
Series A Convertible- 692,694 shares,
$15 stated value 11,780,357 9,163,025
Series B Convertible - 134,333 shares,
$15 stated value -- 1,566,762
Series C Convertible - 391,830 2,400,000 2,400,000
Common stock, no par, 100,000,000 shares
authorized; issued and outstanding
5,802,248 and 5,802,248 shares
at September 30, 1999 and
March 31, 1999, respectively 50,182,884 50,594,111
Accumulated deficit (58,120,191) (57,976,033)
------------ ------------
Total shareholders' equity 6,243,050 5,747,865
------------ ------------
$ 7,280,329 $ 8,591,280
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six-Months Ended
September 30,
1999 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss allocable to common shareholders $ (144,158) $ (3,689,224)
Adjustments to reconcile net loss
to net cash used in operating activities
from continuing operations:
Net loss from discontinued operations 449,786 1,913,562
Gain on sale of discontinued operations (2,852,666) --
Depreciation and amortization 366,425 365,474
Contributed capital for services -- 27,636
Preferred stock dividends 639,341 695,262
Net changes in assets and liabilities:
Accounts receivable 88,362 (339,209)
Inventories 262,897 (28,598)
Other current assets (1,990) (14,605)
Accounts payable 55,264 (186,081)
Accrued payroll (33,455) (2,361)
Other accrued liabilities 3,058 (72,871)
Deferred revenue 150,000 240,000
----------- ------------
Net cash used in operating activities
of continuing operations (1,017,136) (1,091,015)
Net cash provided by operating activities
of discontinued operations 1,588,918 (479,066)
----------- ------------
Net cash provided by operating activities 571,782 (1,570,081)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Marathon Stock (331,456) --
Capital expenditures of
continuing operations (70,071) (50,767)
Capital expenditures of
discontinued operations -- (200,297)
Other assets (28,788) (41,030)
----------- ------------
Net cash used in investing activities (430,315) (292,094)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from the sale of Series C
Preferred stock 2,400,000 --
Cash proceeds from common stock -- 2,934,049
----------- ------------
Net cash provided by financing activities 2,400,000 2,934,049
----------- ------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and
cash equivalents 2,541,467 1,071,874
Cash and cash equivalents at beginning
of period 1,274,311 1,900,839
----------- ------------
Cash and cash equivalents at end
of period $3,815,778 $ 2,972,713
=========== ============
The accompanying notes are an integral part of these consolidated financial
Statements.
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
The consolidated financial statements of Bioject Medical Technologies Inc. (the
"Company"), include the accounts of Bioject Medical Technologies Inc. ("BMTI"),
an Oregon Corporation, and its wholly owned subsidiary, Bioject Inc., an Oregon
Corporation ("Bioject"), and its wholly owned subsidiary, Marathon Medical
Technologies, ("Marathon") (formerly Bioject JV Subsidiary Inc.), an Oregon
corporation. All significant intercompany transactions have been eliminated.
Although Bioject Inc. commenced operations in 1985, BMTI was formed in December
1992 for the purpose of acquiring all of the capital stock of Bioject Medical
Systems Ltd., a Company organized under the laws of British Columbia, Canada, in
a stock-for-stock exchange in order to establish a U.S. domestic corporation as
the publicly traded parent company for Bioject Inc. and Bioject Medical Systems
Ltd. Bioject Medical Systems Ltd. was terminated in fiscal 1997. Marathon
Medical Technologies Inc. was formed in October 1997. At that time, Marathon
acquired the license to certain continuous blood glucose monitoring technology
from Elan Corporation, plc. ("Elan") and entered into a joint venture
arrangement with Elan to develop and commercialize the blood glucose monitoring
technology. On June 30, 1999, Marathon completed the sale of its license to the
blood glucose monitoring technology. In connection with the sale of the license,
BMTI acquired Elan's 19.9% ownership of the stock of Marathon. BMTI now owns
100% of Marathon's stock. Marathon's operations are reported as "Discontinued
Operations" in the financial statements and other financial information included
as a part of this report. All references to the Company include Bioject Medical
Technologies Inc. and its subsidiaries, unless the context requires otherwise.
The Company commenced operations in 1985 for the purpose of developing,
manufacturing and distributing a new drug delivery system. Since its formation,
the Company has been engaged principally in organizational, financing, research
and development, and marketing activities. In the last quarter of fiscal 1993,
the Company launched U.S. distribution of its Biojector 2000 system primarily to
the hospital and large clinic market. The Company's products and manufacturing
operations are subject to extensive government regulation, both in the U.S. and
abroad. In the U.S., the development, manufacture, marketing and promotion of
medical devices is regulated by the Food and Drug Administration ("FDA") under
the Federal Food, Drug, and Cosmetic Act ("FFDCA"). In 1987, the Company
received clearance from the FDA under Section 510(k) of the FFDCA to market a
hand-held CO2-powered needle-free injection system. In June 1994, the Company
received clearance from the FDA under Section 510(k) to market a version of its
Biojector 2000 system in a configuration targeted at high volume injection
applications. In October 1996, the Company received 510(k) clearance for a
needle-free disposable vial access device. In March 1997, the Company received
additional 510(k) clearance for certain enhancements to its Biojector 2000
system. In January 1999, the Company received ISO9001 and EN46001 certification
and in November 1999, the Company received CE Mark certification for the
Company's jet injection systems which allows the products to be sold in the
European Union. On March 23,1998, the Company entered into a transaction with
Vitajet Corporation ("Vitajet") whereby the Company acquired, along with certain
other assets, the rights to the Vitajet(R), a spring-powered, needle-free
self-injection device which currently has regulatory clearance for administering
injections of insulin. On September 30, 1997, the Company entered into a joint
venture agreement with Elan for the development and commercialization of certain
blood glucose monitoring technology which the Company licensed from Elan. On
June 30, 1999, Marathon completed a sale of the license to the blood glucose
monitoring technology, along with certain fixed assets related to the
development of that technology.
Since its inception the Company has incurred operating losses and at September
30, 1999, has an accumulated deficit of approximately $58.1 million. The
Company's revenues to date have been derived primarily from licensing and
technology fees for the jet injection technology and from limited product sales
of the Biojector 2000 system and Biojector syringes. The product sales were
principally sales to dealers to stock their inventories. More recently, the
Company has sold its products to end-users, primarily public health clinics for
vaccinations and to nursing organizations for flu immunization. Future revenues
will depend upon acceptance and use by healthcare providers and on the Company
successfully entering into license and supply agreements with major
pharmaceutical and biotechnology companies. Uncertainties over government
regulation and competition in the healthcare industry may impact healthcare
provider expenditures and third party payer reimbursements and, accordingly, the
Company cannot predict what impact, if any, subsequent healthcare reforms and
industry trends might have on its business. In the future the Company is likely
to require substantial additional financing. Failure to obtain such financing on
favorable terms could adversely affect the Company's business.
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES:
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined in a
manner which approximates the first-in, first out (FIFO) method. Costs utilized
for inventory valuation purposes include labor, materials and manufacturing
overhead. Net inventories consist of the following:
September 30, March 31,
1999 1999
----------- ----------
Raw Materials $ 289,191 $ 289,214
Work in Process 4,647 --
Finished Goods 694,451 961,972
----------- ----------
$ 988,289 $1,251,186
=========== ==========
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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's expenses to conform
to the current year's presentation.
NET LOSS PER SHARE
The following post one-for-five reverse split common stock equivalents are
excluded from earnings per share calculations as their effect would have been
antidilutive:
Six Months Ended September 30, 1999 1998
--------- ---------
Warrants and stock options 2,562,912 1,709,489
Convertible preferred stock 2,377,040 1,654,054
-------------- --------------
4,939,952 3,363,543
========== ==========
3. SUBSEQUENT EVENTS
On October 19, 1999, Bioject announced a strategic alliance with AngioSense,
Inc. to jointly develop innovative delivery systems to treat cardiovascular
disease. Bioject's needle-free drug delivery systems will be modified for
delivering bio-therapeutic solutions as a surgical instrument for minimally
invasive surgical procedures with several proprietary catheters being developed
by AngioSense for catheter-based cardiology interventions.
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUBSEQUENT EVENTS (Continued)
The alliance grants AngioSense an exclusive license to Bioject's Biojector
2000(R) and Vitajet 3(R) jet injectors, as well as a customized version of
Bioject's Iject(TM), a single-use disposable jet injector with a self-contained,
pre-filled medication cartridge to treat or diagnose cardiac or cardiovascular
diseases. According to the terms of the agreement, Bioject will receive an
equity position of approximately 10 percent in AngioSense upon completion of
certain product development milestones. Bioject has already accomplished
milestones representing 50 percent of the scheduled equity and anticipates
completing the remaining milestones early next year. In addition to a long-term
manufacturing and supply agreement with AngioSense, Bioject will receive
royalties on future product sales, and will receive significant funding to
support the development of the disposable injector portion of the AngioSense
delivery system. See "Forward Looking Statements."
AngioSense, Inc., a private company founded in March 1999, is focused on
developing innovative and cost effective surgical and cardiology based devices
for gene therapy application. The company is currently developing catheter-based
and minimally invasive surgical devices for precision- targeted delivery of gene
therapy solutions. The company's unique system design platform reaches sites
that are inaccessible to conventional syringe-based injection methods currently
employed. The company's products can be used in any procedural setting and in
conjunction with other technologies.
4. CHANGES IN SHAREHOLDERS' EQUITY
In connection with the Company's purchase of Elan's interest in Marathon at June
30, 1999, the Company and Elan agreed to certain changes in the terms of Elan's
Series A Convertible Preferred Stock ("Series A Stock"). The modified terms
fixed the conversion price of the Series A Stock at $1.50, eliminating a prior
provision that, in certain circumstances, allowed the Series A Stock to be
converted at 80% of the then current fair market value of the Company's stock,
if such value was less than $1.50. The terms were also modified to give the
Company the right to redeem the Series A Stock for cash within ninety days of
receiving notice of the intent to redeem all or part of the Series A Stock into
common stock of the Company. The redemption price is the original issuance price
of the Series A Stock being converted plus accumulated preferred stock dividends
thereon from the date of issuance of the Series A Stock. Modifying the terms of
the Series A Stock required shareholder approval of an amendment to the
Company's Articles of Incorporation. Amended Articles of Incorporation,
reflecting the modified terms, was referred to the Company's shareholders at the
Company's annual meeting in September, 1999, and shareholders approved the
amendment to the Company's Articles of Incorporation to modify the terms to fix
the conversion price to $1.50. The one-for-five reverse stock split of the
Company's common stock, which was effected on October 13, 1999, adjusted the
fixed conversion price to $7.50.
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. CHANGES IN SHAREHOLDERS' EQUITY (Continued)
On July 9, 1999, the last sale price of the Company's common stock as reported
on the NASDAQ National Market System was ($0.50) per share. The Board of
Directors believed that the recent per share price of the Common Stock affected
the marketability of the existing shares, increased the amount and percentage of
transaction costs paid by individual stockholders, and affected the potential
ability of the Company to raise capital by issuing additional shares. As a means
of improving marketability of the Common Stock, reducing stockholders'
transaction costs, increasing the number of shares available for future
issuances, and other considerations, on July 15, 1999, the Board of Directors
approved, subject to the shareholder approval, a proposal to amend the Articles
of Incorporation to effect a reverse stock split by exchanging five outstanding
shares of the Company's common stock for one new share of the Company's common
stock. At the Company's annual meeting in September, 1999, the shareholders
approved the amendment to the Company's Articles of Incorporation to effect a
one-for-five reverse stock split. The effective date of the reverse was October
13, 1999. At July 15,1999, 29,011,236 shares of Common Stock were outstanding,
as well as options, warrants and convertible preferred stock to acquire an
additional 24,378,928 shares of Common Stock. The Reverse Stock Split, decreased
the number of outstanding shares of Common Stock to approximately 5.8 million
shares and approximately 4.8 million shares are reserved for issuance upon
exercise of outstanding options, warrants and the conversion of convertible
preferred stock, Approximately 89.3 million shares are available for future
issuances. Earnings per share reflect post split shares of common stock
outstanding.
On the effective date, the total number of shares of Common Stock held by each
stockholder converted automatically into a right to receive a number of shares
and fractions thereof of New Common Stock equal to the number of shares of
Common Stock owned immediately prior to the Reverse Stock Split divided by five.
No fractional shares or scrip were issued and, in lieu thereof, each stockholder
who would otherwise have been entitled to a fraction of a share of New Common
Stock would received a whole share of New Common Stock.
Approval of the Reverse Stock Split did not affect any stockholder's percentage
ownership interest in the Company or proportional voting power except for minor
differences resulting from fractional shares. The Reverse Stock Split did not
reduce the number of shareholders of the Company. The shares of New Common Stock
issued upon approval of the Reverse Stock Split were fully paid and
nonassessable. The voting rights and other privileges of the holders of Common
Stock was not affected substantially by adoption of the Reverse Stock Split or
the subsequent implementation thereof.
5. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying, unaudited consolidated financial statements do not include all
information and footnote disclosures normally included in audited financial
statements. However, in the opinion of management, all adjustments (which
include only normal, recurring adjustments) necessary to present fairly the
financial position, cash flows, and results of operations have been made. It is
suggested that these statements be read in conjunction with the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended March 31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company continues to target its direct sales efforts toward: i) sales to
existing markets, specifically flu immunization providers, public health
agencies and public school systems; ii) sales in states such as California,
where the Company believes that needle-syringe safety legislation makes the
Company's products more price competitive; and iii) sales to the U.S. military.
Sales through distributors will target the home self-injection market. The
Company is also focusing its sales and marketing efforts on entering into
licensing and supply arrangements with leading pharmaceutical and biotechnology
companies for whose products the Biojector technology provides either increased
medical effectiveness or a higher degree of market acceptance. See
"Forward-Looking Statements."
The Company's revenues to date have not been sufficient to cover manufacturing
and operating expenses. However, the Company believes that if its products
attain significantly greater general market acceptance and if the Company is
able to enter into large volume supply agreements with major pharmaceutical and
biotechnology companies, the Company's product sales volume would increase.
Significantly higher product sales volume should allow the Company to realize
volume-related manufacturing cost efficiencies. This, in turn, should result in
reduced costs of goods as a percentage of sales, which could eventually allow
the Company to achieve positive gross profit. The Company believes that positive
gross profit from product sales, together with licensing and technology revenues
from agreements entered into with large pharmaceutical and biotechnology
companies would eventually allow the Company to operate profitably. The level of
revenues required to generate net income will be affected by a number of factors
including the mix of revenues between product sales and licensing and technology
fees, pricing of the Company's products, its ability to attain volume-related
and automation-related manufacturing efficiencies, and the impact of inflation
on the Company's manufacturing and other operating costs. There can be no
assurance that the Company will achieve sufficient cost reductions or sell its
products at prices or in volumes sufficient to achieve profitability or offset
increases in its costs should they occur. Further, there can be no assurance
that, in the future, the Company will be able to interest major pharmaceutical
or biotechnology companies in entering licensing or supply agreements. See
"Forward-Looking Statements."
On June 30, 1999 the Company entered into a binding letter agreement with a
major biotechnology company that provided for an evaluation of Bioject's jet
injection technology for use with certain biopharmaceutical products. Terms of
the agreement provided for up to $500,000 in licensing and technology fees based
upon meeting certain milestones. To date the Company has received $500,000 with
revenue of $100,000 recognized in the first quarter of fiscal 2000 and $250,000
in the current fiscal quarter. The balance to be recognized upon completion of
the final milestone on or before December 31, 1999. Concurrent with meeting the
final milestone, the Company is in negotiation for a long-term licensing and
supply agreement. There can be no assurance that the Company will be successful
in its negotiations for a long-term licensing and supply agreement. See "Forward
Looking Statements."
On October 19, 1999, Bioject announced a strategic alliance with AngioSense,
Inc. to jointly develop innovative delivery systems to treat cardiovascular
disease. Bioject's needle-free drug delivery systems will be modified for
delivering bio-therapeutic solutions as a surgical instrument for minimally
invasive surgical procedures with several proprietary catheters being developed
by AngioSense for catheter-based cardiology interventions.
The alliance grants AngioSense an exclusive license to Bioject's Biojector
2000(R) and Vitajet 3(R) jet injectors, as well as a customized version of
Bioject's Iject(TM), a single-use disposable jet injector with a self-contained,
pre-filled medication cartridge to treat or diagnose cardiac or cardiovascular
diseases. According to the terms of the agreement, Bioject will receive an
equity position of approximately 10 percent in AngioSense upon completion of
certain product development milestones. Bioject has already accomplished
milestones representing 50 percent of the scheduled equity and anticipates
completing the remaining milestones early next year. In addition to a long-term
manufacturing and supply agreement with AngioSense, Bioject will receive
royalties on future product sales, and will receive significant funding to
support the development of the disposable injector portion of the AngioSense
delivery system. There can be no assurance that any developed product will
receive regulatory approval or market acceptance such that Bioject can expect to
receive royalties from future product sales. See "Forward Looking Statements."
AngioSense, Inc., a private company founded in March 1999, is focused on
developing innovative and cost effective surgical and cardiology-based devices
for gene therapy application. The company is currently developing catheter-based
and minimally invasive surgical devices for precision-targeted delivery of gene
therapy solutions. The company's unique system design platform reaches sites
that are inaccessible to conventional syringe-based injection methods currently
employed. The company's products can be used in any procedural setting and in
conjunction with other technologies.
The Iject(TM) will require FDA approval and clinical trials. The Company will
assist AngioSense to obtain such approval, although there can be no assurance
that such approval process can be completed on a timely basis or at all.
The Company's clinical research efforts are aimed primarily at clinical research
collaborations in the area of DNA-based vaccines and medications. Currently, the
B-2000 is being used in over 25 studies. Product development efforts are focused
primarily in three areas: i) developing low cost disposable "Iject(TM)"
jet-injector targeted for both clinical and home use markets; ii) developing
pre-filled syringes for use with the B-2000 and with other needle-free injectors
presently being developed; and iii) further developing the intradermal adapter
for the B-2000.
Revenues and results of operations have fluctuated and can be expected to
continue to fluctuate significantly from quarter to quarter and from year to
year. Various factors may affect quarterly and yearly operating results
including: i) length of time to close product sales; ii) customer budget cycles;
iii) implementing cost reduction measures; iv) uncertainties and changes in
product sales due to third party payer policies and proposals relating to
healthcare cost containment; v) timing and amount of payments under licensing
and technology development agreements; and vii) timing of new product
introductions by the Company and its competition. The Company does not expect to
report net income from operations in fiscal 2000. See "Forward-Looking
Statements."
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998.
Product sales increased from $311,000 in the second quarter of fiscal 1999 to
$331,000 in the second quarter of fiscal 2000, a result of increased sales of
the vial adapter to a major pharmaceutical company. License and technology fees
decreased from $888,000 in the second quarter of fiscal 1999 to $250,000 in the
second quarter of fiscal 2000. Fiscal 1999 license and technology fees were
primarily a result of $750,000 received from Merck. Fiscal 2000 fees are the
result of fees from a major biotechnology company in connection with meeting
certain milestones.
Manufacturing expense increased from the second quarter of fiscal 1999 to the
second quarter of fiscal 2000 by $49,000. As a result of adequacy of existing
supply inventories of B-2000 devices and Biojector syringes the Company did not
manufacture material quantities to absorb current manufacturing overhead.
Research and development expenses increased from $236,000 in the second quarter
of fiscal 1999 to $314,000 in the second quarter of fiscal 2000 primarily due to
increased activity in the development of the disposable injector, pre-filled
syringes, and the intradermal spacer. Selling, general and administrative
expense decreased from $757,000 in the second quarter of fiscal 1999 compared to
$689,000 in the second quarter of fiscal 2000 in part due to decreased reliance
on outside consultants.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1998. Revenues for the six months ended September 30, 1999 consist of product
sales of $443,000 and licensing and technology revenues of $350,000. This
compares to $454,000 in product sales and $1.03 million in licensing and
technology revenues for the six months ended September 30, 1998. Product sales
remained relatively constant. The $1.03 million in licensing and technology
revenues in fiscal 1999 was primarily due to receipt of a $750,000 payment under
the agreement signed with Merck in July 1998. Licensing fees for fiscal 2000 are
from fees received from a major biotechnology company.
Manufacturing expense increased from $770,000 for the first six months of fiscal
1999 to $910,000 for the six months ended September 30, 1999. The increase was
primarily due to lower production levels in the current fiscal year, resulting
in a decrease of manufacturing overhead absorbed into inventory during the six
months ended September 30, 1999. The Company anticipates drawing primarily on
current inventories to fill most of its product orders through the end of fiscal
2000. Accordingly, the Company anticipates that production levels, and related
absorption of manufacturing overhead, for the remainder of fiscal 2000 will
remain relatively constant when compared to production levels in the
corresponding period of fiscal 1999. See "Forward-Looking Statements."
Research and development expense increased from $481,000 in the six months ended
September 30, 1998 to $568,000 in the first six months of fiscal 1999. The
increase was principally due to research and development cost relating to the
development of the disposable injector, pre-filled syringes and the intradermal
spacer. Selling, general and administrative expense decreased from $1.37 million
in the six months ended September 30, 1998 to $1.29 million in the six months
ended September 30, 1999. Selling expense for the first six months of fiscal
2000 decreased by $20,000 when compared with the same period a year ago. Savings
of $54,000 in administrative expense was a result of decreased consulting fees.
Other income consists of earnings on available cash balances and fluctuates
based on available cash balances.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1985, the Company has financed its operations, working
capital needs and capital expenditures primarily from private placements of
securities, exercises of stock options and warrants, proceeds received from its
initial public offering in 1986, proceeds received from a public offering of
common stock in November 1993, licensing and technology revenues, revenues from
sales of products and proceeds from the sale of the blood glucose monitoring
technology. Net proceeds received from issuance of securities from inception
through September 30, 1999 totaled approximately $50.2 million.
Cash, cash equivalents and marketable securities totaled $3.8 million at
September 30, 1999 compared to $1.3 million at March 31, 1999. The increase
resulted primarily from cash proceeds received from issuance of the Company's
Series C Preferred Stock of $2.4 million and a minority interest capital
contribution to Marathon Medical of $597,000 and the sale of Marathon Medical
with net proceeds of approximately $2.9 million, offset by operating cash
requirements and capital asset purchases.
The Company believes that its current cash position, combined with revenues,
other cash receipts, and net proceeds from the sale of the glucose monitoring
technology will be sufficient to fund the Company's operations through the
second quarter of fiscal 2001. In addition, the Company is considering other
potential financing alternatives. Even if the Company is successful in obtaining
additional financing, unforeseen costs and expenses or lower than anticipated
cash receipts from product sales or research and development activities could
accelerate or increase the financing requirements. The Company has been
successful in raising required financing in the past and believes that
sufficient funds will be available to fund future operations. However, there can
be no assurance that the Company's efforts will be successful and there can be
no assurance that such financing will be available on terms which are not
significantly dilutive to existing shareholders. Failure to obtain needed
additional capital on terms acceptable to the Company, or at all, would
significantly restrict the Company's operations and ability to continue product
development and growth and materially adversely affect the Company's business.
The Company has no banking line of credit or other established source of
borrowing. See "Forward Looking Statements."
YEAR 2000 ISSUES. The Company has completed the assessment of and has taken
remedial action to correct any deficiency of internal systems with regard to
potential Year 2000 ("Y2K") issues. The assessment included steps to review and
obtain vendor certification of Y2K compliance for current systems, testing
system compliance and implementing corrective action where necessary. A Y2K team
composed of manager-level members from Manufacturing, Purchasing, Information
Services and Finance continues to conduct the assessment. Assessment of the
compliance of all critical systems, plans for remedial action, if any, and
estimates of the cost of such remedial action have been completed. The cost to
address the Company's Y2K issues have been estimated to be immaterial and funds
expended are expected to be derived from normal maintenance and upgrade
operating budgets. See "Forward-Looking Statements."
PRODUCTS. The Company's products do not incorporate either application or
embedded software and are therefore not subject to Y2K issues.
INFORMATION SYSTEMS. The Company utilizes packaged application software for all
critical information systems functions, which have been certified by the vendors
as being Y2K compliant. This includes financial software, operating and
networking systems, application and data servers, PC and communications hardware
and core office automation software. The company has tested the reliability of
the application software and replaced systems where necessary and reasonably
believes it to be Y2K compliant. See "Forward-Looking Statements."
MANUFACTURING SYSTEMS. The Company has received manufacturer certification of
Y2K compliance for all critical automated components used in manufacturing the
Company's products.
SUPPLIER BASE. The Company implemented a Y2K audit program of suppliers critical
to the Company's operations. These suppliers have certified Y2K compliance of
systems critical to maintaining a continuing source of supply to the Company.
RISK. The Company will be at risk from external infrastructure failures that
could arise from Y2K failures, including failure of electrical power and
telecommunications. Investigation and assessment of the risk of failure of such
infrastructure is beyond the scope and resources of the Company. The Company
intends to rely on vendor certification of Y2K compliance and does not plan to
audit vendor systems to test their compliance. The Company will be at risk with
respect to vendors who certify their systems as being Y2K compliant but who are
unable to deliver potentially critical supplies and services to the Company on
account of Y2K noncompliance.
Business risks to the Company of not successfully identifying Y2K issues and
undertaking effective remedial action include the inability to ship product,
delay or loss of revenue and delay in manufacturing operations. The Company
believes that it has successfully identified critical Y2K issues and has
substantially completed required remedial action. Other than risks created by
infrastructure failures or by the Company's dealings with third parties, where
the actions of such third parties are beyond the Company's control, the Company
believes that it will have no material business risk from Y2K issues. There can
be no assurance that infrastructure failures will not occur or that third
parties, over which the Company has no control will successfully address their
own Y2K issues. See "Forward-Looking Statements."
FORWARD LOOKING STATEMENTS This report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements concern, among other things, anticipated
revenues from product sales and licensing and technology fees, anticipated
funding from third parties for development projects, the Company's ability to
enter into long-term licensing and supply agreements, expected sufficiency of
capital resources to meet the Company's future requirements, future sources of
working capital, and Year 2000 issues. Paragraphs of this Report that include
forward-looking statements are often identified with a cross-reference to this
section. Forward-looking statements are based on expectations, assumptions,
estimates and projections about the Company and the industry in which the
Company operates that involve risks and uncertainties. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the Company's actual results or industry results to be materially
different from the results, performance, or achievements discussed or implied in
the forward-looking statements. These risks and uncertainties include the
uncertainty of market acceptance of the Company's jet injection products,
uncertain successful completion of research and development projects, the
Company's need to enter into additional strategic corporate licensing
arrangements, the Company's history of losses and its accumulated deficit and
need for additional financing, the Company's limited manufacturing experience,
the Company's dependence on the performance of existing and future corporate
partners and other third parties, uncertainties related to regulation by the FDA
and the need to obtain approval of new products and their application to
additional drugs, the possibility of product liability claims, dependence on key
employees and the risks related to competition.
Forward-looking statements are based on the estimates and opinions of management
on the date the statements are made. The Company assumes no obligation to update
forward-looking statements if conditions or management's estimates or opinions
should change, even if new information becomes available or other events occur
in the future. For a more detailed description and discussion of such risks,
uncertainties and other factors, readers of this report are referred to the
Company's filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K for the year ended March 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None during the quarter ended September 30, 1999.
Item 2. Changes in Securities
In connection with the Company's purchase of Elan's interest in Marathon at June
30, 1999, the Company and Elan agreed to certain changes in the terms of Elan's
Series A Convertible Preferred Stock ("Series A Stock"). The modified terms
fixed the conversion price of the Series A Stock at $1.50, eliminating a prior
provision that, in certain circumstances, allowed the Series A Stock to be
converted at 80% of the then current fair market value of the Company's stock,
if such value was less than $1.50. The terms were also modified to give the
Company the right to redeem the Series A Stock for cash within ninety days of
receiving notice of the intent to redeem all or part of the Series A Stock into
common stock of the Company. The redemption price is the original issuance price
of the Series A Stock being converted plus accumulated preferred stock dividends
thereon from the date of issuance of the Series A Stock. Modifying the terms of
the Series A Stock required shareholder approval of an amendment to the
Company's Articles of Incorporation. Amended Articles of Incorporation,
reflecting the modified terms, was referred to the Company's shareholders at the
Company's annual meeting in September, 1999. The shareholders approved the
amendment to the Company's Articles of Incorporation to modify the terms to fix
the conversion price to $1.50. As a result of the Reverse Stock Split, the
conversion rate was adjusted to $7.50 per share.
On July 9, 1999, the last sale price of the Company's common stock as reported
on the NASDAQ National Market System was ($0.50) per share. The Board of
Directors believed that the recent per share price of the Common Stock affected
the marketability of the existing shares, increased the amount and percentage of
transaction costs paid by individual stockholders, and affected the potential
ability of the Company to raise capital by issuing additional shares. As a means
of improving marketability of the Common Stock, reducing stockholders'
transaction costs, increasing the number of shares available for future
issuances, and other considerations, on July 15, 1999, the Board of Directors
approved, subject to the shareholder approval, a proposal to amend the Articles
of Incorporation to effect a reverse stock split by exchanging five outstanding
shares of the Company's common stock for one new share of the Company's common
stock. At the Company's annual meeting in September, 1999, the shareholders
approved the amendment to the Company's Articles of Incorporation to effect a
one-for-five reverse stock split. The effective date of the reverse was October
13, 1999. At July 15,1999, 29,011,236 shares of Common Stock were outstanding,
as well as options, warrants and convertible preferred stock to acquire an
additional 24,378,928 shares of Common Stock. The Reverse Stock Split, decreased
the number of outstanding shares of Common Stock to approximately 5.8 million
shares and approximately 4.8 million shares are reserved for issuance upon
exercise of outstanding options, warrants and the conversion of convertible
preferred stock, Approximately 89.3 million shares are available for future
issuances. Earnings per share reflect post split shares of common stock
outstanding
On the effective date, the total number of shares of Common Stock held by each
stockholder converted automatically into a right to receive a number of shares
and fractions thereof of New Common Stock equal to the number of shares of
Common Stock owned immediately prior to the Reverse Stock Split divided by five.
No fractional shares or scrip were issued and, in lieu thereof, each stockholder
who would otherwise have been entitled to a fraction of a share of New Common
Stock would received a whole share of New Common Stock.
Approval of the Reverse Stock Split did not affect any stockholder's percentage
ownership interest in the Company or proportional voting power except for minor
differences resulting from fractional shares. The Reverse Stock Split did not
reduce the number of shareholders of the Company. The shares of New Common Stock
issued upon approval of the Reverse Stock Split were fully paid and
nonassessable. The voting rights and other privileges of the holders of Common
Stock was not affected substantially by adoption of the Reverse Stock Split or
the subsequent implementation thereof.
Item 3. Defaults Upon Senior Securities
None during the quarter ended September 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual general meeting of the shareholders of the Company held at 9:00 am
on September 16, 1999 in Portland, Oregon, the following matters were submitted
to a vote of the shareholders:
Election of directors. The slate of directors was approved by the Company's
shareholders with no director receiving less than 22,754,544 votes in favor and
no more than 299,578 withheld. David de Weese received 22,755,544 votes in favor
and 298,578 votes withheld; William A. Gouveia received 22,755,544 votes in
favor and 298,578 votes withheld; Edward Flynn received 22,755,544 votes in
favor and 298,578 votes withheld. Shares voted totaled 23,054,122.
Amend Articles to amend the terms of the Series A Preferred Stock. The proposal
passed receiving 11,859,655 votes in favor, 1,338,834 votes against and 333,225
votes abstaining, out of shares voted totaling 13,531,714.
Amend Articles of Incorporation and grant the Board of Directors the authority
to effect a reverse split. The proposal passed receiving 20,520,691 votes in
favor, 1,936,771 votes against and 2,877,085 votes abstaining, out of shares
voted totaling 25,334.547.
There were 29,011,236 common shares outstanding as of the date of record of July
24, 1999.
Item 5. Other Information
None during the quarter ended September 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS
Exhibit
Number Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company
10.67* Agreement I between Bioject, Inc. and AngioSense, Inc. dated
September 21, 1999
10.68* Agreement II between Bioject, Inc. and AngioSense, Inc. dated
September 21, 1999
10.69+ Letter Agreement dated June 29, 1999
27.1 Financial Data Schedule
- -----------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit pursuant to an application for Confidential Treatment filed
with the Commission under Rule 24b-2(b) under the Securities Exchange Act
of 1934, as amended.
REPORTS ON FORM 8K:
On July 13, 1999, the Company filed a report on Form 8-K regarding the
sale of Marathon's technology license.
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.
BIOJECT MEDICAL TECHNOLOGIES INC.
(Registrant)
Date: November 12, 1999 /s/ James O'Shea
---------------------------------
James O'Shea
Chairman, Chief Executive Officer
and President
/s/ Christine M. Farrell
---------------------------------
Christine M. Farrell
Controller and Secretary
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company
10.67* Agreement I between Bioject, Inc. and AngioSense, Inc. dated
September 21, 1999
10.68* Agreement II between Bioject, Inc. and AngioSense, Inc. dated
September 21, 1999
10.69+ Letter Agreement dated June 29, 1999
27.1 Financial Data Schedule
- -----------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit pursuant to an application for Confidential Treatment filed
with the Commission under Rule 24b-2(b) under the Securities Exchange Act
of 1934, as amended.