UNITED STATES
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 September 30, 1998.
|_| Transition period pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from _____________ to ______________.
0-20727
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(Commission File Number)
Novoste Corporation
-------------------
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-2787476
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4350-C International Blvd., Norcross, GA 30093
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: (770) 717-0904
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
requirements for the past 90 days.
(Item 1) Yes |X| No |_|
(Item 2) Yes |X| No |_|
As of October 23, 1998 there were 10,686,862 shares of the Registrant's Common
Stock outstanding.
Exhibit Index on page: 18
Total number of pages: 48
1
NOVOSTE CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997 3
Consolidated Statements of Operations (unaudited) for
the three and nine months ended September 30, 1998
and 1997 and the period from inception (May 22, 1992)
through September 30, 1998 4
Consolidated Statements of Cash Flows (unaudited) for
the nine months ended September 30, 1998 and 1997
and the period from inception (May 22, 1992)
through September 30, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
2
NOVOSTE CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1998 1997
------------ ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 23,467,292 $ 35,993,933
Short-term investments 10,827,081 12,408,785
Prepaid expenses 205,625 88,099
Inventory 236,430 --
------------ ------------
Total current assets 34,736,428 48,490,817
------------ ------------
Property and equipment, net 2,324,291 1,061,526
License agreements, net 129,531 139,758
Other assets 299,457 103,855
------------ ------------
$ 37,489,707 $ 49,795,956
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,204,206 $ 523,678
Accrued expenses and taxes withheld 2,669,876 1,903,276
------------ ------------
Total current liabilities 3,874,082 2,426,954
------------ ------------
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value, 25,000,000 shares
authorized; 10,692,642 and 10,332,042 shares
issued, respectively 106,926 103,320
Additional paid-in capital 76,919,202 74,908,631
Deficit accumulated during the development stage (43,048,694) (27,619,109)
------------ ------------
33,977,434 47,392,842
Less treasury stock, 5,780 shares of common
stock at cost (23,840) (23,840)
Unearned compensation (337,969) --
------------ ------------
Total shareholders' equity 33,615,625 47,369,002
------------ ------------
$ 37,489,707 $ 49,795,956
============ ============
See accompanying notes.
3
NOVOSTE CORPORATION
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
From inception
Three months ended Nine months ended (May 22, 1992)
September 30, September 30, through June 30,
1998 1997 1998 1997 1998
---------------------------- ---------------------------- --------------
Miscellaneous revenues $ -- $ -- $ -- $ 29,313 $ 320,200
Costs and expenses:
Research and development 5,685,268 3,137,301 13,597,906 8,618,578 35,357,805
General and administrative 799,805 382,484 1,852,670 1,342,605 7,676,544
Marketing 832,230 284,723 1,703,656 575,390 4,257,757
------------ ------------ ------------ ------------ ------------
7,317,303 3,804,508 17,154,232 10,536,573 47,292,106
------------ ------------ ------------ ------------ ------------
Loss from operations (7,317,303) (3,804,508) (17,154,232) (10,507,260) (46,971,906)
------------ ------------ ------------ ------------ ------------
Interest income 511,560 284,786 1,724,647 939,810 4,104,971
Interest expense -- -- -- -- (181,759)
------------ ------------ ------------ ------------ ------------
Net loss $ (6,805,743) $ (3,519,722) $(15,429,585) $ (9,567,450) $(43,048,694)
============ ============ ============ ============ ============
Net loss per share, basic and diluted $ (0.64) $ (0.41) $ (1.47) $ (1.14)
============ ============ ============ ============
Weighted average shares outstanding 10,601,916 8,489,546 10,483,965 8,375,739
============ ============ ============ ============
See accompanying notes.
4
NOVOSTE CORPORATION
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
From inception
(May 22, 1992)
For the nine months through
ended September 30, September 30,
1998 1997 1998
------------ ------------ ------------
Cash flows from operating activities
Net loss $(15,429,585) $ (9,567,450) $(43,048,694)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 392,536 310,150 1,693,274
Issuance of stock for services or compensation 741,740 202,500 1,959,058
Changes in assets and liabilities:
Inventory (236,430) -- (236,430)
Prepaid expenses (117,526) (21,865) (213,084)
Accounts payable 680,528 150,591 1,204,206
Accrued expenses and taxes withheld 766,600 809,341 3,064,383
Other (195,602) 130,719 (330,920)
------------ ------------ ------------
Net cash used by operations (13,397,739) (7,986,014) (35,908,207)
------------ ------------ ------------
Cash flows from investing activities
Maturity (purchase) of short-term investments 1,581,704 3,627,060 (10,827,081)
Purchase of property and equipment, net (1,645,075) (192,204) (3,670,528)
------------ ------------ ------------
Net cash provided (used) by investing activities (63,371) 3,434,856 (14,497,609)
------------ ------------ ------------
Cash flows from financing activities
Proceeds from issuance of notes payable -- -- 4,770,150
Repayment of notes payable -- -- (2,970,150)
Proceeds from issuance of common stock 934,469 333,805 72,073,108
------------ ------------ ------------
Net cash provided by financing activities 934,469 333,805 73,873,108
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (12,526,641) (4,217,353) 23,467,292
Cash and cash equivalents at beginning of period 35,993,933 19,954,827 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 23,467,292 $ 15,737,474 $ 23,467,292
============ ============ ============
Supplemental disclosures of cash flow information
Cash paid for interest -- -- $ 165,137
============ ============ ============
See accompanying notes.
5
NOVOSTE CORPORATION
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with instructions to Article 10 of
Regulation S-X. Accordingly, such consolidated financial statements do not
include all of the information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
The operating results of the interim periods presented are not necessarily
indicative of the results to be achieved for the year ending December 31, 1998.
The accompanying consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 1997 and for the cumulative period from May 22, 1992 (inception)
through December 31, 1997, included in the Company's 1997 Annual Report on Form
10-K filed with the Securities and Exchange Commission ("SEC").
In August 1998 the Company established a subsidiary, Novoste B.V., in Eindhoven,
The Netherlands. The consolidated financial statements include the accounts of
Novoste Corporation and the wholly-owned subsidiary. Intercompany transactions
and accounts are eliminated in consolidation.
Note 2. Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market. Inventory primarily consists of finished goods.
Note 3. Net Loss Per Share
The basic and diluted loss per share is computed based on the weighted average
number of common shares outstanding. Common equivalent shares are not included
in the per share calculations where the effect of their inclusion would be
antidilutive.
Note 4. Cash Equivalents and Investments
Cash equivalents are comprised of certain highly liquid investments with
maturities of less than three months at the time of their acquisition. In
addition to cash equivalents, the Company has investments in commercial paper
that are classified as short-term (mature in more than 90 days but less than one
year). Such investments are classified as held-to-maturity, as the Company has
the ability and intent to hold them until maturity. Investments held-to-maturity
are carried at amortized cost, adjusted for the amortization or accretion of
premiums or discounts without recognition of gains or losses that are deemed to
be temporary. Premiums and discounts are amortized or accreted over the life of
the related instrument as an adjustment to yield using the straight-line method,
which approximates the effective interest method. Interest income is recognized
when earned. Fair value approximates carrying value for all cash equivalents and
investments.
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Information
The statements contained in this Form 10-Q that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many uncertainties and risks which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Some of these risks are
discussed below in the section "Certain Factors That May Impact Future
Operations." Additional risk factors are discussed in "Item 1 - Business" of the
Company's 1997 Form 10-K and other reports filed by the Company from time to
time on Forms 10-Q and 8-K. The Company does not undertake any obligation to
update or revise any forward-looking statement, made by it or on its behalf,
whether as a result of new information, future events, or otherwise.
Overview
Novoste commenced operations as a medical device company in May 1992. Commencing
in 1994 the Company has devoted substantially all of its efforts to developing
the Beta-Cath(TM) System, an intraluminal beta radiation catheter delivery
system designed to reduce the frequency of restenosis subsequent to percutaneous
transluminal coronary angioplasty ("PTCA").
For the period since its capitalization through September 30, 1998 the Company
has earned minimal non-recurring revenues and experienced significant losses in
each period. At September 30, 1998 the Company had an accumulated deficit of
approximately $43.0 million. Novoste expects to incur significant operating
losses through at least 2000 as the Company continues research and development
projects, conducts its clinical trials in the United States, Canada and Europe,
seeks regulatory approval or clearance for its products, expands its sales and
marketing efforts in contemplation of product introduction and market
development, and increases its administrative activities to support growth of
the Company. The Company believes that current cash balances and short-term
investments, together with interest thereon, will be sufficient to meet the
Company's operating and capital requirements through the third quarter of 1999.
The Company may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. There can be
no assurance that additional financing, if required, will be available on
satisfactory terms, or at all. See Liquidity and Capital Resources.
The development, manufacture, sale and distribution of medical devices such as
the Company's Beta-Cath(TM) System are subject to numerous regulations imposed
by governmental authorities, principally the FDA and corresponding state and
foreign agencies. The regulatory process is lengthy, expensive and uncertain.
FDA approval of a Pre Market Approval ("PMA") application and approval from the
Nuclear Regulatory Commission (NRC) are required before the Beta-Cath(TM) System
can be marketed in the United States. Securing FDA approval will require
submission to the FDA of extensive clinical data and technical information. The
Company received approval of the Beta-Cath(TM) System for sale in Europe during
the third quarter of 1998. However, the Company does not expect regulatory
approval of the Beta-
7
Cath(TM) System for sale in the United States prior to 2000 and there can be no
assurance when or if such approvals will be obtained.
In 1996 and 1997 the Company conducted a feasibility clinical trial at four
hospitals under an Investigational Device Exemption ("IDE") granted by the FDA
to determine the clinical safety of the Beta-Cath(TM) System for use in coronary
arteries and a total of 85 patients were enrolled. As of September 30, 1998, 78
of the 85 patients had received angiographic follow-up analyzed in a core lab.
Of the 78 patients 17% were reported restenotic. This data suggests a greater
than 50% reduction in the rate of restenosis in patients who received treatment
with the Beta-Cath(TM) System when compared to a historical control group (from
the Lovastatin Restenosis Trial) which received PTCA only and had been selected
based upon inclusion and exclusion criteria similar to those utilized by the
Company. Arteries treated with the Beta-Cath(TM) System on average maintained
91% of the enlargement achieved with PTCA (a "late loss index" of 9%). The
following table compares the Company's data on the 78 patients to an historical
control group:
Novoste Lovastatin
Feasibility Placebo
Studies Group
------- -----
No. of Treated Patients 78 161
Restenosis Rate 17% 42%
Late Loss Index 9% 43%
No. of Patients Receiving Stents 13 0(1)
Stent Restenosis Rate 8% N/A
(1) Coronary stents were not commercially available at the time of the
Lovastatin Restenosis Trial.
On July 30, 1997 the Company initiated a randomized, triple-masked,
placebo-controlled, multicenter human clinical trial under an IDE granted by the
FDA to determine the clinical safety and efficacy of the Beta-Cath(TM) System
for use in coronary arteries. The Company expects to enroll approximately 1,100
patients in the trial at up to 45 medical sites located in the United States as
well as additional sites located in Europe and Canada. The patients are divided
into two approximately equal subgroups, one for PTCA alone and one with coronary
stenting. Each subgroup of the trial is randomized to either intracoronary
radiation therapy or a placebo control. In both subgroups patients who receive
the beta radiation will receive dosages of 14Gy for vessels ranging from at
least 2.7 to 3.35 millimeters and 18Gy for vessels ranging from 3.35 to 4.0
millimeters. A follow-up review of patients 30 days after treatment and a
follow-up angiogram eight months after the initial treatment will be performed
to observe the treated artery. The angiograms will be analyzed to determine
whether there has been an incidence of restenosis and to measure the late loss
index (the extent of the loss in the enlargement of lumen achieved with PTCA).
As of October 19, 1998 a total of 669 patients had been enrolled at 43 U.S.
clinical sites and 3 international sites.
On July 9, 1998 the Company received approval from the FDA for an
Investigational Device Exemption (IDE) supplement to begin the "STents And
Radiation Therapy" (START) Trial, designed to determine the safety and efficacy
of ICRT in treating "in-stent restenosis." In-stent restenosis occurs when
arteries with previously placed stents have re-narrowed due to excessive tissue
growth inside the stent. As of October 19, 1998 a total of 26 patients had been
enrolled at nine clinical sites.
There can be no assurance that the Company's research and development efforts
will be successfully completed. There can be no assurance that clinical trials
will be completed in a timely fashion or demonstrate the safety and efficacy of
the Beta-Cath(TM) System. Additionally, there can be no assurance that the
Beta-Cath(TM) System will be approved by the FDA, the NRC, any foreign
governmental agency, or
8
that the Beta-Cath(TM) System or any other product developed by the Company will
be successfully introduced or attain any significant level of market acceptance.
The Company has recently organized a European subsidiary, Novoste B.V., to
conduct its European operations. While the Company has obtained the CE mark
certification to commercialize the Beta-Cath(TM) System in Europe, there can be
no assurance that the Company will ever achieve either significant revenues from
sales of its Beta-Cath(TM) System or ever achieve or sustain profitability.
Results of Operations
Net loss for the three months ended September 30, 1998 was $6,806,000, or
($0.64) per share, as compared to $3,520,000, or ($0.41) per share, for the
three months ended September 30, 1997. Net loss for the nine months ended
September 30, 1998 was $15,430,000, or ($1.47) per share, as compared to
$9,567,000 or ($1.14) per share for the year earlier period. The increase in net
loss for the three and nine months ended September 30, 1998 compared to the year
earlier period is primarily due to increased spending for research and
development as well as increased marketing related to the Company's development
of its Beta-Cath(TM) System, offset by increased interest income earned from the
investment of the net proceeds from the secondary public offering in November
1997.
Revenues. No revenues were earned in the three and nine months ended September
30, 1998. Miscellaneous revenues were $29,000 for the nine months ended
September 30, 1997, due to the sale of a product line.
Research and Development Expenses. Research and development expenses increased
81% to $5,685,000 for the three months ended September 30, 1998 from $3,137,000
for the three months ended September 30, 1997. For the nine months ended
September 30, 1998, research and development expenses increased 58% to
$13,598,000 from $8,619,000 for the same period in 1997. These increases were
primarily a result of patient enrollment and patient follow-up costs in the
Company's clinical trials, and services provided by outside consultants in the
development of the Beta-Cath(TM) System and manufacture of its components. The
Company expects research and development expenses to further increase in the
immediate future as the Company continues clinical trials of its Beta-Cath(TM)
System in both the U.S. and selected foreign countries.
General and Administrative Expenses. General and administrative expenses
increased 109% to $800,000 for the three months ended September 30, 1998 from
$382,000 for the three months ended September 30, 1997. For the nine months
ended September 30, 1998 general and administrative expenses increased 38% to
$1,853,000 from $1,343,000, for the same period in 1997. This increase for the
three month period was primarily a result of additional personnel and higher
salaries. The Company expects general and administrative expenses to increase in
the future in support of a higher level of operations. The Company also expects
it will incur an additional expense in the fourth quarter of 1998 in relation to
the pending move of its facilities within the same area.
Marketing Expenses. Marketing expenses increased 192% to $832,000 for the three
months ended September 30, 1998 from $285,000 for the three months ended
September 30, 1997. For the nine months ended September 30, 1998, marketing
expenses increased 196% to $1,704,000 from $575,000 for the same period in 1997.
These increases primarily related to preparation for the European commercial
launch of the Beta-Cath(TM) System and arose from increased trade show costs,
consulting fees and increased headcount. The Company expects sales and marketing
expenses to significantly increase in the
9
future, as direct distribution is established in Europe, and if and when the
Beta-Cath(TM) System is approved in the U.S. and launched commercially.
Interest Income. Net interest income increased 80% to $512,000 for the three
months ended September 30, 1998 from $285,000 for the three months ended
September 30, 1997. For the nine months ended September 30, 1998 interest income
increased 84% to $1,725,000 from $940,000 for the same period in 1997. The
increase in interest income was primarily due to larger cash equivalents and
short-term investment balances after the Company's secondary public offering in
November 1997.
Liquidity and Capital Resources
The Company has financed its activities since inception up to May 23, 1996, the
date of the Company's initial public offering, through private placements of its
Common Stock, Class B Common Stock and promissory notes. Since inception through
September 30, 1998 the Company obtained funds aggregating approximately $72.1
million in net proceeds from the issuance of Common Stock and Class B Common
Stock (including approximately $30.6 million in net proceeds from its initial
public offering which closed in May 1996 and approximately $32.2 million in net
proceeds from its secondary public offering which closed in November 1997), and
approximately $1.8 million in net proceeds from the issuance of convertible
promissory notes.
During the nine months ended September 30, 1998 and 1997 the Company used cash
to fund operations of $13.4 million and $8.0 million, respectively. Cash used to
fund operations since inception was approximately $35.9 million. The increase in
cash used in operations was due primarily to increased research and development
activities and initiation of marketing activities related to the Beta-Cath(TM)
System. The Company's expenditures for equipment and improvements have
aggregated $3.7 million since inception. Future cash needs for operating
activities are anticipated to be higher than historical levels because of the
development, manufacturing scale-up and commercialization of the Beta-Cath(TM)
System, subject to the factors discussed below.
The Company's principal source of liquidity at September 30, 1998 consisted of
cash, cash equivalents and short-term investments of $34.3 million. The Company
did not have any credit lines available or outstanding borrowings at September
30, 1998.
The Company has obtained all of its requirements of radioactive sources to date
pursuant to an agreement with a single supplier, Bebig Isotopentechnik and
Umweltdiagnostik GmbH, (the "Supplier"), a German corporation. On July 23, 1998
the Company executed an amendment to its framework agreement with the Supplier,
whereby the Company received a lien on all tangible and intangible assets used
by the Supplier in the design and manufacture of the Strontium 90 radioactive
sources. In addition, the agreement provides for the Company's option to
purchase the tangible assets, and obtain a fully-paid license to all
intellectual property used in the manufacture of the radioactive sources, for
$4,019,400. This amount will be paid in the form of a license fee on units
delivered which payments are expected to commence in the fourth quarter of 1998.
The Company anticipates that its operating losses will continue through at least
2000 because it plans to expend substantial resources in funding clinical trials
in support of regulatory approvals, and continues to expand research and
development and marketing activities. The Company believes that current cash
balances and short-term investments, together with interest thereon, will be
sufficient to meet the Company's operating and capital requirements through the
third quarter of 1999. However, the
10
Company's future liquidity and capital requirements will depend upon numerous
factors, including the progress of the Company's clinical research and product
development programs; the receipt of and the time required to obtain regulatory
clearances and approvals; the resources required to gain approvals; the
resources the Company devotes to the development, manufacture and marketing of
its products; the resources required to hire and develop a direct sales force in
the United States and certain European countries, and to expand manufacturing
capacity; market acceptance and demand for its products; and other factors. The
Company may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. There can be
no assurance that additional financing, if required, will be available on
satisfactory terms, or at all.
Impact of Year 2000
The Company is aware of the issues that many companies will face as the year
2000 approaches. The Company relies on computers and computer software to run
its business, as do its vendors, suppliers and customers. In July 1998 the
Company installed and implemented a complete enterprise resource planning
software package that includes integrated manufacturing and financial modules
that replaced the Company's then existing financial software program. The vendor
of the new software package has warranted that it is compliant with year 2000
requirements. The Company will continue to conduct a comprehensive review of its
computer systems to identify the systems that could be affected by the Year 2000
issue and is developing an implementation plan to resolve any issues that may
arise. The Company believes that non-information technology systems and its
products are not significantly impacted. The Company believes that any year 2000
problems encountered by suppliers are not likely to have a material adverse
effect on the Company's operations. Costs associated with the year 2000
assessment and correction of problems are expensed as incurred. Based on
management's current assessment, the Company does not believe that the cost of
such actions will be material. Failure of the Company's computer systems or that
of its suppliers or service providers could have a material adverse effect on
the Company's business, financial condition and results of operations.
Certain Factors That May Impact Future Operations
Limited Operating History. The Company has a limited history of operations.
Since its inception in May 1992 the Company has been primarily engaged in
research and development of its Beta-Cath(TM) System. The Company has generated
only limited revenue and does not have experience in manufacturing, marketing or
selling its products in quantities necessary for achieving profitability. There
can be no assurance that the Company's products will be commercialized or that
the Company will achieve significant revenues from either international or
United States sales. In addition, there can be no assurance that the Company
will achieve or sustain profitability in the future.
History of Losses and Expectation of Future Losses. The Company has experienced
significant operating losses since inception and as of September 30, 1998 had an
accumulated deficit of $43.0 million. The development and further
commercialization of the Company's current products and other new products, if
any, will require substantial development, clinical, regulatory, manufacturing
and other expenditures. The Company expects its operating losses to continue
through at least the year 2000 as the Company continues to expand its product
development, clinical trials, and marketing efforts.
Risk of Inadequate Funding. The Company anticipates that its operating losses
will continue through at least 2000 because it plans to expend substantial
resources in funding clinical trials in support of
11
regulatory approvals and continues to expand research and development and
marketing activities. Novoste believes that current cash balances and short-term
investments, together with interest thereon, will be sufficient to meet the
Company's operating and capital requirements through the third quarter of 1999.
However, the Company's future liquidity and capital requirements will depend
upon numerous factors, including the progress of the Company's clinical research
and product development programs; the receipt of and the time required to obtain
regulatory clearances and approvals; the resources required to gain approvals;
the resources the Company devotes to the development, manufacture, and marketing
of its products; the resources required to hire and develop a direct sales force
in the United States and certain European countries; the rate of sales in
Europe; expansion of manufacturing capacity and other facilities requirements;
market acceptance and demand for its products; and other factors. The Company
may in the future seek to raise additional funds through bank facilities, debt
or equity offerings or other sources of capital. There can be no assurance that
additional financing, if required, will be available on satisfactory terms, or
at all.
Dependence on Beta-Cath(TM) System; Market Acceptance. The Company anticipates
that for the foreseeable future it will be solely dependent on the successful
development and commercialization of the Beta-Cath(TM) System. The Beta-Cath(TM)
System will require further development, as well as regulatory clearance or
approval, before it can be marketed in the United States or internationally.
There can be no assurance that the Company's development efforts will be
successful or that the Beta-Cath(TM) System will be shown to be safe or
effective, cleared or approved by regulatory authorities, capable of being
manufactured in commercial quantities at acceptable costs, approved by payors
for reimbursement or successfully marketed. In addition, there can be no
assurance that demand for the Beta-CathTM System will be sufficient to allow
profitable operations. Failure of the Beta-Cath(TM) System to be successfully
commercialized would have a material adverse effect on the Company's business,
financial condition and results of operations.
Early Stages of Clinical Trials; No Assurance of Safety and Efficacy. The
Beta-Cath(TM) System is in an early stage of clinical testing, and there can be
no assurance as to when, if ever, its safety and efficacy in reducing the
frequency of restenosis will be demonstrated. The Company is conducting a
randomized, triple-masked, placebo-controlled, multicenter, human clinical trial
under an Investigational Device Exemption ("IDE") granted by the U.S. Food and
Drug Administration ("FDA") to determine the clinical safety and efficacy of the
Beta-Cath(TM) System for use in coronary arteries. The Company anticipates
completing enrollment in this pivotal clinical trial by March 31, 1999. Various
factors, including difficulties in enrolling patients or scheduling physicians,
could delay completion for an indeterminate amount of time.
The multicenter trial will require the treatment of a statistically significant
number of patients, and clinical follow-ups of such patients after eight months.
It is only after completion of these trials that the Company would apply to the
FDA for the regulatory approval required to commence marketing of the
Beta-Cath(TM) System in the U.S. Subsequent experience may uncover unforeseen
problems with the therapy which could require removal of the product from the
market or additional testing. There can be no assurance that the Beta-Cath(TM)
System or any of the Company's other products will prove to be safe and
effective in clinical trials or ultimately will be approved for marketing by the
United States or foreign regulatory authorities. The Company does not expect to
submit an application for pre-market approval ("PMA") for its Beta-Cath(TM)
System until the first quarter of 2000, and there can be no assurance that the
Company will ever submit a PMA application or that, if submitted, such PMA
application will be approved by the FDA. If the Beta-Cath(TM) System does not
prove to be safe and effective in clinical trials, the Company's
12
business, financial condition and results of operations will be materially
adversely affected and could result in cessation of the Company's business. In
addition, the clinical trials may identify significant technical or other
obstacles to be overcome prior to obtaining necessary regulatory approvals. Even
if such obstacles are identified and overcome, commercialization of the
Beta-Cath(TM) System may be delayed.
Limited Sales, Marketing and Distribution Experience. At present the Company has
no sales and a limited marketing capability. The Company intends to sell its
products both inside the United States and in the key European markets directly.
There can be no assurance that the Company will be able to recruit and train
adequate sales and marketing personnel to successfully commercialize the
Beta-Cath(TM) System in the key markets of Europe and the United States. The
Company intends to select one or more established market leaders in the
radioisotope business to inventory and deliver the radiation sources and provide
related training, testing and support services to hospitals in both the United
States and international markets. The inability to recruit or retain one or more
such entities for this purpose could have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on a Key Supplier. The Company currently purchases all radiation
source materials from a single supplier. The Company believes that because of
the technical expertise and capital investment required to manufacture the
radiation source materials, it could be extremely difficult and expensive to
find an alternate source of supply. Any failure or disruption in the ability of
the supplier to provide the radiation source materials could have a material
adverse effect on the business, financial condition and results of operations of
the Company.
Fluctuations in Operating Results. The Company's results of operations may
fluctuate significantly from quarter to quarter and will depend upon numerous
factors, including product development efforts, actions relating to regulatory
and reimbursement matters, progress of clinical trials, the extent to which the
Company's products gain market acceptance, and competition.
Possible Volatility of Stock Price. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In
addition, the market price of the shares of Common Stock is likely to be highly
volatile. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations, clinical results, or new products by
the Company or its competitors, FDA and international regulatory actions,
actions with respect to reimbursement matters, developments with respect to
patents or proprietary rights, public concern as to the safety and efficacy of
products developed by the Company or others, changes in health care policy in
the United States and internationally, changes in stock market analyst
recommendations regarding the Company, other medical device companies or the
medical device industry generally, and general market conditions may have a
significant effect on the market price of the Common Stock.
Product Development. The focus of the Company's current development efforts is
to design future generation components of the Beta-Cath(TM) System. The medical
device industry is characterized by rapid and significant technological change.
Therefore, the Company's future success will depend in a large part on the
Company's ability to continue to respond to such changes, as well as expand the
applications for which its products are used, through the timely development and
successful introduction of enhanced and new versions of its Beta-Cath(TM)
System. Product research and development will require substantial
13
expenditures and will be subject to inherent risks, and there can be no
assurance that any new product introduced will receive regulatory approval or
will be commercially successful.
Highly Competitive Market; Risk of Alternative Therapies. Competition in the
medical device industry, and specifically the market for cardiovascular devices,
is intense. Many companies are developing devices and therapies to improve the
outcome of coronary revascularization procedures and to reduce the frequency of
restenosis, such as coronary stents. Other companies have various radiation
therapy products under development to reduce restenosis. In addition, drugs,
gene therapy and other minimally invasive catheter-based procedures are
currently being developed. Many of the Company's competitors and potential
competitors have substantially greater financial resources than the Company and
also have greater resources and expertise in the areas of research and
development, obtaining regulatory approvals, manufacturing and marketing. There
can be no assurance that the Company's competitors will not succeed in
developing, marketing and distributing technologies and products that are more
effective than those developed and marketed by the Company or that would render
the Company's technology and products obsolete or noncompetitive. Additionally,
there is no assurance that the Company will be able to compete effectively
against such competitors in terms of manufacturing, marketing and sales.
Patents and Proprietary Technology. The medical device industry has been
characterized by extensive litigation regarding patents and other intellectual
property rights and companies in the medical device industry have employed
intellectual property litigation to gain a competitive advantage. There can be
no assurance that the Company will not become subject to patent infringement
claims or litigation or interference proceedings declared by the USPTO to
determine the priority of inventions. The defense and prosecution of
intellectual property suits, USPTO interference proceedings and related legal
and administrative proceedings are both costly and time consuming. Litigation
may be necessary to enforce patents issued to the Company, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of others. Any litigation or
interference proceedings will result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. An adverse determination in litigation or interference proceedings to
which the Company may become a party could subject the Company to significant
liabilities to third parties or require the Company to seek licenses from third
parties or require the Company to redesign its products or processes to avoid
infringement or prevent the Company from selling its products in certain
markets, if at all. Although patent and intellectual property disputes regarding
medical devices have often been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial and
could include ongoing royalties. Furthermore, there can be no assurance that the
necessary licenses would be available to the Company on satisfactory terms, if
at all, or that the Company could redesign its products or processes to avoid
infringement. Any adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
Government Regulation. Clinical testing, manufacture, promotion and sale of the
Company's products are subject to extensive regulation by numerous governmental
authorities in the United States, principally the FDA, and corresponding foreign
regulatory agencies. The Federal Food, Drug, and Cosmetic Act ("FDC Act"), and
other federal and state statutes and regulations govern or influence the
testing, manufacture, labeling, advertising, distribution and promotion of drugs
and devices. Noncompliance with applicable requirements can result in fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure of the government to grant premarket clearance
or premarket
14
approval for devices, refusal to authorize the marketing of products or to allow
the Company to enter into government supply contracts, and criminal prosecution.
The Company's Beta-Cath(TM) System is regulated as a Class III medical device
for which FDA approval of a PMA application must be obtained prior to U.S.
commercial sales. Failure to receive or delays in receipt of FDA clearances or
approvals could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not expect to
submit an application for pre-market approval ("PMA") for its Beta-Cath(TM)
System until the first quarter of 2000, and there can be no assurance that the
Company will ever submit a PMA application or that, if submitted, such PMA
application will be approved by the FDA.
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain approval for sale internationally may be longer or
shorter than that required for FDA approval, and the requirements may differ.
The European Union ("EU") has promulgated rules which require that medical
products must first receive the CE mark, an international symbol of adherence to
quality assurance standards and compliance with applicable European medical
device directives, prior to their being available for sale within the EU. The
Company received the CE mark certification for the Beta-Cath(TM) System on
August 24, 1998.
Because the Beta-Cath(TM) System uses radiation sources, its manufacture,
distribution, transportation, import/export, use and disposal will also be
subject to federal, state and/or local laws and regulations relating to the use
and handling of radioactive materials. Specifically, even if approval of a PMA
application is obtained, approval by the U.S. Nuclear Regulatory Commission
("NRC"), or an equivalent state agency, of the company's radiation sources for
certain medical uses will be required to distribute commercially the radiation
sources to licensed recipients in the United States. In addition, the Company
and/or its supplier of radiation sources must obtain a license from the NRC to
commercially distribute such radiation sources as well as to comply with all
applicable regulations. In addition, hospitals and physicians may be required to
obtain or expand their licenses to use and handle Strontium 90 radiation prior
to receiving radiation sources for use in the Beta-Cath(TM) System. Comparable,
or perhaps more stringent, requirements and/or approvals regulating radiation
are required in markets outside the United States, including Europe. If any of
the foregoing approvals are significantly delayed or not obtained, the Company's
business, financial condition and results of operations could be materially
adversely affected.
15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
10.19 Lease Agreement dated October 23, 1998 between Registrant and Weeks
Realty, L.P., for facility located at 3890 Steve Reynolds Boulevard,
Norcross, Georgia.
27 Financial data schedule
(b) The Company filed a Form 8-K on August 17, 1998 announcing the final six
month summary results of its feasibility clinical trial, the Beta Energy
Restenosis Trial (BERT).
16
SIGNATURES
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 hereunto duly authorized.
NOVOSTE CORPORATION
November 5, 1998 /s/ Thomas D. Weldon
- -------------------- -----------------------------------------
Date Thomas D. Weldon
Chairman & Chief Executive Officer
November 5, 1998 /s/ David N. Gill
- -------------------- -----------------------------------------
Date David N. Gill
Vice President - Finance,
Chief Operating Officer
and Chief Financial Officer
(Principal Financial & Accounting Officer)
17
EXHIBIT INDEX
Exhibit Page
Number Exhibit Description Number
- ------ ------------------- ------
10.19 Lease Agreement dated October 23, 1998 between
Registrant and Weeks Realty, L.P., for facility
located at 3890 Steve Reynolds Boulevard,
Norcross, Georgia. 19-47
27 Financial data schedule 48