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
OR
For the quarterly period ended September 30, 1998
Commission File No. 0-15360
BIOJECT MEDICAL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1099680
(State of other jurisdiction of (I.R.S. identification no.)
employer incorporation or organization)
7620 SW Bridgeport Road
Portland, Oregon 97224
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including areas code) (503) 639-7221
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 September 30, 1998 there were 28,907,395 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. ("BMT"), 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. (BI), an Oregon corporation formed in February 1985, which is a
wholly owned subsidiary of BMT and its blood glucose monitoring system
operations are conducted by Bioject JV Subsidiary Inc.
("JV"), an Oregon corporation formed in October 1997, which is owned 80.1% by
BMT.
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, 1999. 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, 1998 and September 30, 1997
- Consolidated Statements of Operations for the six months ended
September 30, 1998 and September 30, 1997
- Consolidated Balance Sheets dated September 30, 1998 and March
31, 1998
- Consolidated Statements of Cash Flows for the quarters ended
September 30, 1998 and September 30, 1997
- Consolidated Statements of Cash Flows for the six months ended
September 30, 1998 and September 30, 1997
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended
September 30,
1998 1997
---------- ----------
REVENUES:
Net sales of products $ 311,401 $ 644,853
Licensing/technology fees 887,558 125,000
----------- ---------
1,198,959 769,853
----------- ---------
EXPENSES:
Manufacturing 499,314 592,643
Research and development 1,021,947 218,001
Selling, general and administrative 899,364 978,822
Acquired in-process R&D -- 15,000,000
------------ ------------
Total operating expenses 2,420,625 16,789,466
----------- ------------
Operating loss (1,221,666) (16,019,613)
Other income 34,449 25,704
------------ ------------
Loss before taxes (1,187,217) (15,993,909)
Provision for income -- --
Minority interest allocation -- 2,985,000
------------ -----------
Net loss (1,187,217) (13,008,909)
Preferred Stock dividend 348,912 --
------------ ------------
Net loss allocable to common
shareholders $ (1,536,129) $(13,008,909)
=========== ============
Basic and diluted net loss per
common share $ (.05) $ (.58)
=========== ============
Shares used in per share calculation 28,500,670 22,349,517
=========== ============
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,
1998 1997
------------ -----------
REVENUES:
Net sales of products $ 453,812 $ 987,467
Licensing/technology fees 1,025,559 250,000
----------- ----------
1,479,371 1,237,467
------------ ----------
EXPENSES:
Manufacturing 770,328 1,051,634
Research and development 2,079,664 471,983
Selling, general and administrative 1,680,512 1,732,664
Acquired in-process R&D 15,000,000
----------- ------------
Total operating expenses 4,530,504 18,256,281
----------- ------------
Operating loss (3,051,133) (17,018,814)
Other (income) 57,161 32,331
----------- ------------
Loss before taxes (2,993,972) (16,986,483)
Provision for income taxes - -
Minority interest allocation 2,985,000
----------- ------------
Net loss $ (2,993,972) $(14,001,483)
Preferred Stock dividend 695,262 -
----------- ------------
Net loss allocable to
common shareholders $ (3,689,234) $(14,001,483)
Basic and diluted net loss per common share $ (.13) $ (.66)
=========== =============
Shares used in per share calculation 27,710,790 21,075,640
=========== =============
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,
1998 1998
----------- ----------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 2,972,713 $ 1,900,839
Accounts receivable, net 492,930 153,721
Inventories 1,971,044 1,891,970
Other current assets 89,897 75,292
--------- ----------
Total current assets 5,526,584 4,021,822
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,454,963 2,241,904
Production molds 1,949,267 1,945,267
Furniture and fixtures 184,982 158,477
Leasehold improvements 101,615 94,115
---------- -----------
4,690,827 4,439,763
Less - Accumulated depreciation (2,306,151) (1,947,006)
---------- ------------
2,384,676 2,492,757
Other assets 484,579 463,031
----------- ------------
$ 8,395,839 $ 6,977,610
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,501,605 $ 497,180
Accrued payroll 229,531 218,424
Other accrued liabilities 472,104 277,122
Deferred revenue 250,000 10,000
----------- -----------
Total current liabilities 2,453,240 1, 002,726
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 8,483,685 7,826,157
Series B Convertible -134,333 shares,
$15 stated value 1,529,025 1,491,289
Common stock, no par, 100,000,000 shares
authorized; issued and outstanding
28,907,395 and 25,503,038 shares
at September 30, 1998 and
March 31, 1998, respectively 50,518,982 47,557,297
Accumulated deficit (54,589,093) (50,899,859)
------------- --------------
Total shareholders' equity 5,942,599 5,974,884
-------------- --------------
$ 8,395,839 $ 6,977,610
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Quarter Ended
September 30,
1998 1997
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss allocable to common shareholders $(1,536,129) $(13,008,909)
Adjustments to net loss:
Depreciation and amortization 207,380 154,415
Contributed capital for services 13,818 20,705
Acquired in-process R&D 15,000,000
Preferred stock dividends 348,912
Net changes in assets and liabilities:
Accounts receivable (399,024) (320,236)
Inventories 98,790 9,935
Other current assets (6,858) 17,873
Accounts payable 1,077,609 131,656
Accrued payroll 27,768 88,344
Other accrued liabilities (524,553) 6,090
Deferred revenue 125,001 (125,000)
----------- -----------
Net cash used in operating activities (567,286) 1,974,873
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of blood glucose monitoring technology (15,000,000)
Property and equipment (104,120) (17,620)
Other assets (18,854) (23,413)
----------- -----------
Net Cash Used in Investing Activities (122,974) (15,041,033)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 12,015,000
Cash proceeds from common stock 1,084,184 475,000
-------------- -----------
Net cash provided by financing activities 1,084,184 12,490,000
------------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and
cash equivalents 393,924 (576,160)
Cash and cash equivalents at beginning
of period 2,578,789 1,793,846
----------- -----------
Cash and cash equivalents at end
of period $ 2,972,713 $ 1,217,686
========== ===========
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,
1998 1997
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss allocable to common shareholders $(3,689,234) $ (14,001,483)
Adjustments to net loss:
Depreciation and amortization 378,627 261,920
Contributed capital for services 27,636 20,705
Acquired in process R&D 15,000,000
Preferred stock dividends 695,262
Net changes in assets and liabilities:
Accounts receivable (339,209) (224,250)
Inventories (79,074) 77,286
Other current assets (14,605) (18,145)
Accounts payable 1,004,427 (6,469)
Accrued payroll 11,107 26,879
Other accrued liabilities 194,982 37,096
Deferred revenue 240,000 (250,000)
----------- -----------
Net cash used in operating activities (1,570,081) 923,539
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of blood glucose monitoring
technology (15,000,000)
Property and equipment (251,064) (27,848)
Other assets (41,030) (34,483)
----------- -----------
Net cash used in investing activities (292,094) (15,062,331)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 12,015,000
Cash proceeds from common stock 2,934,049 1,225,000
------------ -------------
Net cash provided by financing activities: 2,934,049 13,240,000
------------- -------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and
cash equivalents 1,071,874 (898,792)
Cash and cash equivalents at beginning
of period 1,900,839 2,116,478
------------- ----------
Cash and cash equivalents at end
of period $2,972,713 $ 1,217,686
========= ==========
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.
("BMT"),an Oregon Corporation, its wholly owned subsidiary, Bioject Inc., an
Oregon Corporation ("BI"), and its 80.1% owned subsidiary, Bioject JV Subsidiary
Inc.("JV"), an Oregon corporation. All significant intercompany transactions
have been eliminated. Bioject Inc. commenced operations in 1985. Bioject Medical
Technologies, Inc. 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 of
Bioject Inc. and Bioject Medical Systems Ltd. Bioject Medical Systems Ltd. was
terminated in fiscal 1997. Bioject JV Subsidiary Inc. was formed in October 1997
in connection with a joint venture arrangement with Elan Corporation, plc
("Elan"). 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, sales 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. 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. The
blood glucose monitoring technology is also subject to government regulation in
the U.S. by the FDA and abroad by various agencies.
The Company's revenues to date have been derived primarily from licensing and
technology fees for the needle-free injection technology and from sales of the
Biojector 2000 system, including Biojector syringes, vial adapters and CO2
cartridges. More recently, the Company has derived modest revenues from sales of
the Vitajet and related disposable supplies. Future revenues will depend upon
i)acceptance and use of the Company's needle-free injection technology by
healthcare providers; ii) successful realization of licensing, technology and
product revenues under existing and future strategic corporate alliances; and
iii) successful development, regulatory approval and market acceptance of its
blood glucose monitoring technology. Uncertainties created by government
regulation and competition in the healthcare industry may impact healthcare
provider expenditures and third party payer reimbursements. 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 materially adversely affect the Company's business.
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,
1998 1998
----------- ----------
Raw Materials $ 699,654 $ 754,715
Work in Process 9,763 9,763
Finished Goods 1,261,627 1,127,492
----------- ----------
$ 1,971,044 $1,891,970
=========== ==========
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 common stock equivalents are excluded from earnings per share
calculations as their effect would have been antidilutive:
Six Months Ended September 30, 1998 1997
--------- ---------
Warrants and stock options 8,547,444 10,293,499
Convertible preferred stock 8,270,270 -
-------------- --------------
16,817,714 10,293,499
========== ==========
3. RELATED PARTY TRANSACTION
A significant portion of the research and development expenses of the blood
glucose monitoring business segment are incurred by Elan and billed to the
Company under a contractual arrangement between the two companies. Included in
accounts payable and other accrued liabilities at September 30, 1998 is
approximately $1.3 million owed to Elan under this arrangement.
4. SEGMENT INFORMATION
The Company has adopted the segment reporting requirements of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. At present,
the Company has two reportable segments which offer different products and are
managed separately. Each business requires different technology and marketing
strategies. The following sets forth the unaudited results of operations of the
Company for its two segments of operations - needle-free injection technology
and blood glucose monitoring technology:
Needle-free Injection Needle-free Injection
Quarter Ended Six-Months Ended
September 30, September 30,
------------------ -----------------------
1998 1997 1998 1997
------- ------- ------- -------
REVENUES:
Net sales of products $ 311,401 $ 644,853 $453,812 $987,467
Licensing/technology fees 887,558 125,000 1,025,559 250,000
------- ------- --------- -------
1,198,959 769,853 1,479,371 1,237,467
------- ------- --------- --------
EXPENSES:
Manufacturing 499,314 592,643 770,328 1,051,634
Research & development 236,324 218,001 480,910 471,983
Selling, general
& administrative 757,074 978,822 1,365,704 1,732,664
--------- --------- --------- ---------
Total operating expenses 1,492,712 1,789,466 2,616,942 3,256,281
--------- --------- --------- --------
Operating loss (293,753) (1,019,613) (1,137,571) (2,018,814)
Other income 34,449 25,704 57,161 32,331
------- ------- --------- -------
Loss before taxes (259,304) (993,909) (1,080,410) (1,986,483)
Provision for income taxes 0 0 0 0
------- ------- -------- ---------
Net loss $(259,304) $(993,909) $(1,080,410) (1,986,483)
========= ======== ========= =========
Blood glucose Monitoring Blood glucose Monitoring
Quarter Ended Six-Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
REVENUES:
Net sales of products $ 0 $ 0 $ 0 $ 0
Licensing/technology fees 0 0 0 0
- - - -
0 0 0 0
- - - -
EXPENSES:
Manufacturing 0 0 0 0
Research & development 785,623 1,598,754
Selling, general
& administrative 142,290 0 314,808
Acquired in-process R&D 15,000,000 15,000,000
-------- ---------- ---------- ----------
Total operating expenses 927,913 15,000,000 1,913,562 15,000,000
-------- ---------- ---------- ----------
Operating loss (927,913) (15,000,000) (1,913,562) (15,000,000)
Other income 0 0 0 0
-------- ---------- ---------- ----------
Loss before taxes (927,913) (15,000,000) (1,913,562) (15,000,000)
Provision for income taxes 0 0 0 0
Minority interest allocation 2,985,000 0 2,985,000
-------- ---------- ---------- ----------
Net loss $ (927,913) $ (12,015,000) $(1,913,562) (12,015,000)
============ ============= =========== ===========
At September 30, 1998, the blood glucose monitoring business segment had net
property and equipment, at cost, of $187,154 and accounts payable and accrued
expenses of approximately $2.2 million. The blood glucose monitoring business
segment had no other significant assets or liabilities at September 30,1998.
Accordingly, after separating the blood glucose monitoring business segment
assets and liabilities, the accompanying balance sheets effectively represent
the assets and liabilities of the needle-free injection business segment. In the
future, certain proceeds from the sale of equity or issuance of debt by JV may
be restricted to JV operations. To the extent that they meet certain reporting
requirements, the separate assets, liabilities and equity of the parent and its
subsidiary will be appropriately disclosed.
5. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The objective of SFAS 130
is to report a measure of all changes in the equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of fiscal 1999. Comprehensive loss did not differ from currently reported net
loss in the periods presented.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for all
derivative instruments. SFAS 133 is effective for fiscal years beginning after
June 15, 1999. The Company does not have any derivative instruments and,
accordingly, the adoption of SFAS 133 will have no impact on the Company's
financial position or results of operations.
6. 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/A for the year
ended March 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is placing primary sales and marketing emphasis on business
development efforts to seek relationships with major pharmaceutical and
biotechnology companies in key niche markets to market its needle-free injection
products for specific applications and to develop other application-specific
devices and companion syringes. At the same time, with a reduced direct
salesforce, the Company continues to focus on maintaining its penetration into
the public health and flu immunization markets with its Biojector 2000
needle-free injection system. The Company is also directing its sales efforts at
creating sales of the Biojector 2000 system to the U.S. military.
In July 1998, the Company entered into a short-term agreement with Merck & Co,
Inc. ("Merck"), a worldwide leader in the development, manufacture and sale of a
broad range of human and animal health products and services. The agreement
provides Merck the rights to use the Biojector 2000 jet injection system with
selected Merck vaccines. The Company believes that this agreement is the first
step in establishing a long-term relationship between the two companies whereby
Merck will use the Company's needle-free injection technology in connection with
certain of its vaccines. In the current quarter, the Company received a $750,000
nonrefundable payment under the current agreement between the Company and Merck.
This is the first payment of a total of $1.5 million scheduled to be paid under
the agreement. Also during the current quarter, the Company and Merck commenced
negotiating a long-term relationship between the two companies. There can be no
assurance that such long-term relationship will be established and there are
certain conditions under which Merck will not be obligated to make further
payments under the current agreement. See "Forward Looking Statements."
Through its joint venture with Elan, the Company is actively engaged in the
development of its continuous blood glucose monitoring technology. To date, the
Company continues to develop and test a clinical prototype. During the current
quarter, the Company hired Mr. Brad Enegren to serve as full-time president and
chief executive officer of the joint venture. Mr. Enegren replaces Mr. Robert
Gonnelli who has served as interim president of the joint venture while the
search for a full-time president was taking place. In April 1998, a human
clinical study of six patients with a prototype of the blood glucose monitoring
device was conducted. The Company is planning further preliminary clinical
studies in the spring of 1999. Based on the results of these studies, the
Company intends to plan and conduct comprehensive clinical trials of the
monitoring system, the results of which are intended to support its application
to the FDA to market the product in the United States. (See "Forward Looking
Statements")
The Company's revenues to date have not been sufficient to cover operating
expenses. The Company believes that increased revenues will result from i)
expanded licensing and technology revenues from both current and future
strategic corporate relationships; ii)increased sales of the Company's
needle-free injection products as the products achieve greater market acceptance
and penetration, both through continued direct sales efforts and through
corporate marketing relationships; and iii) revenues from the Company's blood
glucose monitoring technology, provided that the Company is successful in
completing development of that technology and bringing the technology to market.
See "Forward-Looking Statements." In addition to continuing to fund the
operations of its needle-free injection business, the Company is required to
fund substantial, ongoing research and development costs associated with
developing the blood glucose monitoring technology as well as future milestone
payments to Elan totaling $15.5 million. Since no revenue from blood glucose
monitoring products is expected for a number of years, the Company expects
significant losses unless licensing and technology revenues from strategic
corporate relationships and revenues from sales of the Company's needle-free
products increase substantially. See "Forward Looking Statements." The level of
revenues required to generate net income will be affected by a number of factors
including the pricing of the Company's products, its ability to attain volume
purchasing and manufacturing efficiencies, the ability to develop and market
products pursuant to its relationships with companies such as Merck and Elan,
and the impact of inflation on the Company's manufacturing and other operating
costs. There can be no assurance that the Company will be able to successfully
generate additional, ongoing licensing and technology revenues or sell products
at prices or in volumes sufficient to achieve profitability or to offset
increases in the Company's research and development expenses or other costs.
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)timing of new product introductions by the Company and its
competition, (ii) the cost and length of time required to complete development
and commercialization of, and gain regulatory clearance for the blood glucose
monitoring technology, (iii) length of time to close product sales, (iv)
customer budget cycles, (v) uncertainties and changes in customer purchases due
to changes in third party reimbursement policies, (iv) the timing and amount of
payments under technology development and licensing arrangements, and (vii)
variations in the amount of manufacturing overhead absorbed into inventory. The
Company anticipates drawing primarily on current inventories to fill most of its
product orders through the end of fiscal 1999. Accordingly, the Company
anticipates that production levels, and related absorption of manufacturing
overhead, for the remainder of fiscal 1999 will be substantially lower than
production levels in the corresponding period of fiscal 1998. See
"Forward-Looking Statements."
Research and development expense increased from $218,000 in the second quarter
of fiscal 1998 to $1.02 million in the second quarter of fiscal 1999. The
increase was principally due to research and development cost of the blood
glucose monitoring technology. The Company incurred $786,000 of research and
development costs in the current quarter to develop the blood glucose monitoring
technology as compared to no spending in the same quarter a year ago. In the
quarter ended September 30, 1997, the Company recorded an expense of $15 million
related to acquired in-process research and development relating to the blood
glucose monitoring technology acquired from Elan. The acquired technology had
not yet established technological feasibility and had no alternate future uses.
Accordingly, accounting rules required that the acquisition cost of the
technology be charged to expense. No such charge was incurred in the quarter
ended September 30, 1998.
Selling, general and administrative expense decreased from $979,000 in the
second quarter of fiscal 1998 to $899,000 in the second quarter of fiscal 1999.
Selling expense for the current quarter decreased by $231,000 when compared with
the same period a year ago, a result of reductions in the Company's direct sales
force. The savings in selling expenses were partially offset by a $151,000
increase in administrative expenses, primarily relating to administrative costs
of the Company's blood glucose monitoring development operations. There were no
administrative costs associated with the blood glucose monitoring operations in
second quarter of fiscal 1998.
Other income consists of earnings on available cash balances and fluctuates
based on available cash balances.
On a segment basis, the needle-free injection operations reported a net loss of
$259,000 for the quarter ended September 30,1998 as compared to a net loss of
$994,000 for the quarter ended September 30, 1997. The improved performance is
the result of increased licensing and technology revenues, reduced spending on
sales and marketing and increased interest earned on comparatively higher cash
balances.
The blood glucose monitoring business segment reported a net loss of $928,000
for the quarter ended September 30, 1998 compared to a net loss of $12 million
for the quarter ended September 30, 1997. The decreased loss is due to the
write-off of acquired in-process research and development cost in the second
quarter of fiscal 1998.
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1997 Revenues for the six months ended September 30, 1998 consist of product
sales of $454,000 and licensing and technology revenues of $1.03 million. This
compares to $987,000 in product sales and $250,000 in licensing and technology
revenues for the six months ended September 30, 1997. The product sales decrease
was due to a reduction in early orders in fiscal 1999 for flu season, a
significant portion of which was attributable to certain customers using
inventory acquired but not used in earlier periods to meet their current year
flu season requirements. The increase in licensing and technology revenues was
primarily due to receipt of a $750,000 payment under the agreement signed with
Merck in July 1998.
Manufacturing expense decreased from $1.05 million for the first six months of
fiscal 1998 to $770,000 for the six months ended September 30, 1998. The
reduction was primarily due to lower unit sales volumes, resulting in a lower
charge to cost of goods sold. The decrease in cost of goods sold was partially
offset by lower production levels in the current fiscal year, resulting in a
decrease of $63,000 in the amount of manufacturing overhead absorbed into
inventory during the six months ended September 30, 1998. The Company
anticipates drawing primarily on current inventories to fill most of its product
orders through the end of fiscal 1999. Accordingly, the Company anticipates that
production levels, and related absorption of manufacturing overhead, for the
remainder of fiscal 1999 will be substantially lower than production levels in
the corresponding period of fiscal 1998. See "Forward-Looking Statements."
Research and development expense increased from $472,000 in the six months ended
September 30, 1997 to $2.1 million in the first six months of fiscal 1999. The
increase was principally due to research and development cost relating to the
blood glucose monitoring technology. The Company incurred $1.6 million of
research and development costs in the first six months of fiscal 1999 to develop
the blood glucose monitoring technology as compared to no spending in the same
period a year ago. In the period ended September 30, 1997, the Company recorded
an expense of $15 million related to acquired in-process research and
development relating to the blood glucose monitoring technology acquired from
Elan. The acquired technology had not yet established technological feasibility
and had no alternate future uses. Accordingly, accounting rules required that
the acquisition cost of the technology be charged to expense. No such charge was
incurred in the six months ended September 30, 1998.
Selling, general and administrative expense decreased from $1.73 million in the
six months ended September 30, 1997 to $1.68 million is the six months ended
September 30, 1998. As a result of reductions in the Company's direct sales
force, selling expense for the first six months of fiscal 1999 decreased by
$398,000 when compared with the same period a year ago. The savings in selling
expenses were mostly offset by a $345,000 increase in administrative expenses,
primarily relating to administrative costs of the Company's blood glucose
monitoring development operations. There were no administrative costs associated
with the blood glucose monitoring operations in period ended September 30, 1997.
Other income consists of earnings on available cash balances and fluctuates
based on available cash balances.
On a segment basis, the needle-free injection operations reported a net loss of
$1.08 million for the six months ended September 30, 1998 as compared to a net
loss of $1.98 million for the six months ended September 30, 1997. The improved
performance is the result of increased licensing and technology revenues,
reduced spending on sales and marketing and increased interest earned on
comparatively higher cash balances.
The blood glucose monitoring business segment reported a net loss of $1.9
million for the six months ended September 30, 1998 compared to a net loss of
$12 million for the quarter ended September 30, 1997. The decreased loss is due
to the write-off of acquired in-process research and development cost in the
fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1985, the Company has financed its operations, working
capital needs and capital expenditures 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, investment by Elan pursuant to the joint venture between
the Company and Elan in October 1997,licensing and technology revenues and
revenues from sales of products. Net proceeds received from issuance of
securities from inception through September 30, 1998 totaled approximately $60.5
million.
During the second quarter of fiscal 1999 the Company raised approximately $1.08
million from issuance of capital stock. $1.06 million of that amount was
proceeds from the exercise of warrants issued in connection with previous
private placements of the Company's common stock and $28,000 was proceeds from
the exercise of stock options.
Working capital at September 30, 1998 was $2.0 million compared with $3.0
million at March 31, 1998. Cash, cash equivalents and marketable securities
totaled $3.0 million at September 30, 1998 compared to $1.9 million at March 31,
1998. The increase resulted primarily from cash proceeds received from issuance
of the Company's common stock pursuant to warrant and stock option exercises and
licensing and technology revenues offset by operating cash requirements, capital
asset purchases and increases in product inventories.
Inventories increased from $1.9 million at March 31, 1998 to $2.0 million at
September 30, 1998 due to the volume of syringe units sold being less than the
volume of syringe units produced.
The Company believes that its current cash position, combined with revenues,
other cash receipts, proceeds from the exercise of stock warrants and options,
proceeds from the issuance of the Company's preferred stock to Elan and proceeds
from the purchase by Elan of additional stock in JV pursuant to agreements
entered into in connection with the joint venture, will be sufficient to fund
the Company's operations through the end of fiscal 1999. See "Forward Looking
Statements." In addition, the Company is considering a number of other potential
financing alternatives. Even if the Company is successful in raising additional
financing, unforeseen costs and expenses or lower than anticipated cash receipts
from product sales or licensing and technology revenues could accelerate or
increase the financing requirements. The Company has been successful in raising
additional financing in the past and believes that sufficient funds will be
available to fund future operations. See "Forward Looking Statements." However,
there can be no assurance that the Company's efforts will be successful, and
that such additional financing will be available on terms that 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 would materially adversely affect the Company's business. The
Company has no banking line of credit or other established source of borrowing.
GOVERNMENTAL REGULATION
No clearances from the FDA have been obtained for marketing the blood glucose
monitoring technology presently being developed by the Company. The Company
continues to research whether the FDA will require a 510(k) premarket approval
("510(k)") or a premarket notification ("PMA") device clearance with respect to
any products developed based on this technology. If a medical device does not
qualify for the 510(k) procedure, the manufacturer must file a PMA application.
A PMA must show that the device is safe and effective and is generally a more
complex submission than a 510(k)notification. A PMA typically requires more
extensive testing before regulatory filing and a longer FDA review process.
Another developer of a continuous glucose sensor system which was submitted to
the FDA for clearance under a 510(k) notification was advised in July 1998 that
the FDA would require regulatory submission under the PMA regulatory pathway.
Based on this advisory and discussions with the FDA, the Company anticipates
that the FDA will require a PMA application with respect to products developed
under the Company's blood glucose monitoring technology. Whatever level of
regulatory submission is required, the Company anticipates that extensive
testing and regulatory review will be required of the Company's blood glucose
monitoring product See "Forward Looking Statements." There can be no assurance
that the regulatory review process will not cause significant delays in the
product development schedule or that regulatory clearance will be obtained at
all.
YEAR 2000 ISSUES
The Company is in the process of assessing its Year 2000 ("Y2K") issues. The
assessment includes steps to review and obtain vendor certification of Y2K
compliance of 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 is conducting
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 are
expected to be completed by the end of January 1999. Until the Y2K assessment is
complete, the cost to address the Company's Y2K issues cannot be estimated with
certainty.
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 or will utilize by mid 1999, packaged application
strategies 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.
Manufacturing Systems The Company is currently in the process of gaining
manufacturer certification of Y2K compliance for all critical automated
components used in manufacturing the Company's products.
Supplier Base
The Company is in the process of implementing a Y2K audit program of suppliers
critical to the Company's operations. Suppliers will be asked to certify 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.
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 will successfully identify critical Y2K issues and
substantially complete required remedial action before the end of 1999. 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.
FORWARD LOOKING STATEMENTS
This report contains "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 concerning, among other things,
the Company's strategic relationship with Merck and Elan, future product
development plans and plans for clinical studies in the blood glucose monitoring
business segment, anticipated product sales revenues and licensing and
technology revenues, expected sufficiency of capital resources and future
sources of working capital, and Year 2000 issues. Certain forward looking
statements are identified with a cross-reference to this section. Such forward
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such forward
looking statements. Such risks, uncertainties and factors include, without
limitation and inclusive of risks, uncertainties and other factors contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview," "-Liquidity and Capital Resources" "-Government
Regulations" and "Year 2000 Issues" as well as: i) the risk that current
strategic partnerships will not develop into long-term, revenue-producing
relationships; ii) the risk that research and product development efforts will
not produce the desired results; iii) uncertainties relating to the time and
cost required to complete research and development; iv) uncertainties related to
obtaining necessary clinical data and regulatory clearances; v) dependence on
the continued performance of strategic partners such as Merck and Elan; and vi)
dependence on the availability of additional financing at times and in such
amounts as are necessary to continue to fund the Company's operations. 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/A for the year ended March 31, 1998.
Forward-looking statements are based on the estimates and opinions of management
on the date the statements are made, and the Company assumes no obligation to
update forward-looking statements if conditions or management's estimates or
opinions should change.
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, 1998.
Item 2. Changes in Securities
In December 1996, the Company completed two private placements of
units, each unit consisting of one share of Common Stock and one warrant to
purchase one share of Common Stock at an exercise price of $1.00. Preferred
Technology, Inc. acted as agent in connection with the first placement and in
connection therewith, received a placement fee and a warrant to acquire shares
of Common Stock at an exercise price per share of $0.828125. In July and August
1998, warrants to purchase 1,028,571 shares of Common Stock were exercised at
$1.00 per share and warrants to purchase 33,000 shares of Common Stock were
exercised at $0.828125 per share.
The warrants and the shares issued upon exercise of the warrants have
been issued pursuant to an exemption from registration under Rule 506 of
Regulation D and Section 4(2) of the Securities Act. In relying upon such
exemption (1) the Company did not engage in any "general solicitation," (ii) the
purchaser represented and the Company reasonably believed that the purchaser was
an accredited investor and had such knowledge and experience in financial and
business matters such that it was capable of evaluating the merits and risks of
the prospective investment and was able to bear the economic risk of such
investment, (iii) the purchaser was provided access to all necessary and
adequate information to enable the purchaser to evaluate the financial risk
inherent in making an investment, and (iv) the purchaser represented that it was
acquiring the shares for itself and not for distribution.
Aggregate proceeds to the Company from the warrant exercises totaled
approximately $1.056 million.
Item 3. Defaults Upon Senior Securities
None during the quarter ended September 30, 1998.
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 10, 1998 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; Grace K. Fey 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; Eric Herfindal received
22,755,544 votes in favor and 298,578 votes withheld; James C. O'Shea received
22,818,742 votes in favor and 235,380 votes withheld; Richard Plestina received
22,755,544 votes in favor and 298,578 votes withheld; John Ruedy, MD, received
22,755,444 votes in favor and 298,678 votes withheld; and Mike Sember received
22,754,544 in favor and 299,578 votes withheld. Shares voted totaled 23,054,122.
Amend Articles of Incorporation to provide for a classified Board of
Directors proposal. The proposal passed receiving 11,482,799 votes in favor,
984,275 votes against and 224,766 votes abstaining, out of shares voted totaling
12,691,840.
Amend Articles of Incorporation to require a super-majority vote to
later amend certain provisions of the Articles of Incorporation proposal. The
proposal passed receiving 10,804,277 votes in favor,1,667,206 votes against and
220,357 votes abstaining, out of shares voted totaling 12,691,840.
Amend the 1992 Stock Option Plan to increase the number of shares
available for issuance under the plan proposal. The proposal passed receiving
10,615,225 votes in favor,1,208,791 votes against and 144,947 votes abstaining,
out of shares voted totaling 11,968,963.
There were 28,449,558 common shares outstanding as of the date of record
of July 24, 1998.
Item 5. Other Information
None during the quarter ended September 30, 1998.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS:
10.61 Employment Contract between Bioject JV Subsidiary Inc. and
Bradley J. Enegren.
10.62 Confidentiality/Inventions/Noncompetition Agreement between
Bioject JV Subsidiary Inc. and Bradley J. Enegren
27.1 Financial Data Schedule
REPORTS ON FORM 8K:
None during the quarter ended September 30, 1998
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 13, 1998 /S/ James O'Shea
---------------------------------
James O'Shea
Chairman, Chief Executive Officer
and President
/S/ Michael A. Temple
---------------------------------
Michael A. Temple
Vice President and Chief Financial Officer
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.61 Employment Contract between Bioject JV Subsidiary Inc. and
Bradley J. Enegren.
10.62 Confidentiality/Inventions/Noncompetition Agreement between
Bioject JV Subsidiary Inc. and Bradley J. Enegren
27.1 Financial Data Schedule