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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28194
DIGENE CORPORATION
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1536128
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9000 VIRGINIA MANOR ROAD
BELTSVILLE, MARYLAND 20705
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (301) 470-6500
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NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Shares outstanding as of
Class October 28, 1997
- -------------------------------------- ------------------------
<S> <C>
Common Stock, par value $.01 per share 13,878,205
</TABLE>
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DIGENE CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. CONSOLIDATED FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements -
Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997 1
Consolidated Statements of Operations -
Three months ended September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows -
Three months ended September 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 5
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds 8
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
</TABLE>
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PART I. CONSOLIDATED FINANCIAL INFORMATION
DIGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
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(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,119,672 $ 8,452,864
Short-term investments 9,182,078 11,061,283
Accounts receivable, less allowance of approximately $61,000 at
September 30, 1997 and June 30, 1997 1,984,018 1,767,682
Due from related party 2,037,541 2,395,792
Inventories 3,267,772 2,425,167
Prepaid expenses and other current assets 360,865 446,368
------------- -------------
Total current assets 23,951,946 26,549,156
Property and equipment, net 1,319,246 1,214,548
Intangible assets, net 2,177,661 2,308,641
Deposits 256,252 134,564
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Total assets $ 27,705,105 $ 30,206,909
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,834,985 $ 2,093,893
Accrued expenses 615,457 772,037
Accrued payroll 699,518 602,555
Due to related party 529,067 443,332
Current maturities of long-term debt 1,300,207 1,338,220
------------- -------------
Total current liabilities 4,979,234 5,250,037
Long-term debt, less current maturities 270,081 552,733
Accrued rent 89,474 100,618
Deferred rent 30,984 37,318
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
11,590,361 and 11,579,530 shares issued and outstanding at
September 30, 1997 and June 30, 1997, respectively 115,904 115,795
Additional paid-in capital 49,506,880 49,477,621
Accumulated deficit (27,287,452) (25,327,213)
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Total stockholders' equity 22,335,332 24,266,203
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Total liabilities and stockholders' equity $ 27,705,105 $ 30,206,909
============= =============
</TABLE>
Note: The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for audited financial statements.
1
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DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
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<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1997 1996
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(UNAUDITED)
<S> <C> <C>
Revenues:
Product sales $ 2,512,010 $ 1,856,496
Research and development contracts 13,900 147,026
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Total revenues 2,525,910 2,003,522
Costs and expenses:
Cost of product sales 714,411 776,877
Research and development 991,139 750,233
Selling and marketing 1,710,916 796,297
General and administrative 1,031,061 822,235
Amortization of intangible assets 130,980 8,201
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Loss from operations (2,052,597) (1,150,321)
Other income (expense):
Other income (expense) (51,267) 25,114
Interest income 189,074 394,494
Interest expense (45,449) (2,028)
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Net loss $ (1,960,239) $ (732,741)
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Net loss per share $ (0.17) $ (0.06)
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Weighted average shares outstanding 11,585,271 11,308,900
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</TABLE>
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DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
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1997 1996
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(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,960,239) $ (732,741)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment 153,436 99,621
Amortization of intangible assets 130,980 8,201
Changes in operating assets and liabilities:
Accounts receivable (216,336) (145,416)
Due from related party 358,251 (149,948)
Inventories (842,605) (193,472)
Prepaid expenses and other current assets 85,503 80,870
Deposits (121,688) (27,958)
Accounts payable (258,908) (419,793)
Accrued expenses (156,580) 66,896
Accrued payroll 96,963 87,073
Due to related party 85,735 -
Accrued rent (11,144) (16,135)
Deferred rent (6,334) (5,692)
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Net cash used in operating activities (2,662,966) (1,348,494)
INVESTING ACTIVITIES
Purchases of short-term investments (2,481,183) (7,525,636)
Maturities of short-term investments 4,360,388 -
Capital expenditures (258,134) (283,228)
Additions to intangible assets - 5,100
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Net cash provided by (used in) investing activities 1,621,071 (7,803,764)
FINANCING ACTIVITIES
Exercise of Common Stock options 29,368 2,761
Principal repayments on long-term debt (320,665) (111,299)
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Net cash used in financing activities (291,297) (108,538)
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Net decrease in cash and cash equivalents (1,333,192) (9,260,796)
Cash and cash equivalents at beginning of period 8,452,864 24,107,325
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Cash and cash equivalents at end of period $ 7,119,672 $ 14,846,529
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</TABLE>
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DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements for the three month periods ended September 30, 1997
and 1996 are unaudited and include all adjustments which, in the opinion of
management, are necessary to present fairly the results of operations for the
periods then ended. All such adjustments are of a normal recurring nature.
These financial statements should be read in conjunction with Digene
Corporation's (the "Company") Annual Report on Form 10-K for the year ended
June 30, 1997, which includes financial statements and notes thereto for the
years ended June 30, 1997, 1996 and 1995.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any other
interim period or for a full fiscal year.
2. NET LOSS PER SHARE
The Company's net loss per share calculations are based on the weighted average
number of shares of Common Stock outstanding. The Company is required to
calculate the weighted average shares outstanding pursuant to APB 15. APB 15
requires that shares of Common Stock issuable upon the exercise of stock
options and warrants or conversion of convertible Preferred Stock are included
in the weighted average shares outstanding only if the effect of their
inclusion is dilutive. The Company has not included such shares of Common
Stock in its weighted average shares outstanding since the effect is
anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share,"
which is required to be adopted for the Company's consolidated financial
statements for the fiscal year ending June 30, 1998. At that time, the
Company will be required to change the method currently used to compute net
loss per share and to restate all prior periods. Under the new requirements for
calculating primary net loss per share, the dilutive effect of stock options
will be excluded. The impact of SFAS No. 128 on the calculation of primary and
fully diluted net loss per share in the consolidated financial statements is
not expected to be material.
3. PUBLIC OFFERING
On October 20, 1997, the Company completed a public offering of 2,250,000
shares of its common stock, the net proceeds of which, after underwriters'
commissions, were $21,150,000.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS.
Statements regarding Digene Corporation's (the "Company") expectations as to
financial results and other aspects of its business set forth below or
otherwise made in writing or orally by the Company may constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results will not
differ materially from its expectations. Factors which could cause actual
results to differ from expectations include, but are not limited to,
uncertainty of future profitability, uncertainty of market acceptance, risks
inherent in international transactions, dependence on third party
reimbursement, competition, dependence on European distributor, extent of
government regulations, and the uncertainty regarding patents and proprietary
rights.
RESULTS OF OPERATIONS
Product sales increased to $2,512,000 for the three months ended September 30,
1997 from $1,856,000 for the same period in 1996. The increase was due,
primarily, to increased sales of the Company's HPV tests.
Research and development contract revenues decreased to $14,000 for the three
months ended September 30, 1997 from $147,000 for the same period in 1996. The
decrease was due, primarily, to the completion of funding under certain
contracts.
Cost of product sales decreased to $714,000 for the three months ended
September 30, 1997 from $777,000 for the same period in 1996. Gross margin on
product sales increased to 72% for the three months ended September 30, 1997
from 58% for the same period in 1996. This increase was due, primarily, to
increased overhead absorption, increased sales of higher-margin Hybrid Capture
products and increased pricing.
Research and development expenses increased to $991,000 for the three months
ended September 30, 1997 from $750,000 for the same period in 1996. The
increase was due, primarily, to the hiring of additional personnel and the
related incidental expenses to develop additional tests using the Hybrid
Capture technology and to improve the sensitivity and ease of use of that
technology.
5
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Selling and marketing expenses increased to $1,711,000 for the three months
ended September 30, 1997 from $796,000 for the same period in 1996. The
increase was due, primarily, to substantial increases in sales and marketing
programs and to the hiring of additional selling and marketing personnel.
General and administrative expenses increased to $1,031,000 for the three
months ended September 30, 1997 from $822,000 for the same period in 1996. The
increase was due, primarily, to the hiring of additional administrative
personnel to support the Company's growth objectives.
Amortization of intangible assets increased to $131,000 for the three months
ended September 30, 1997 from $8,000 for the same period in 1996. The increase
was due to amortization of intangibles acquired in February 1997.
Interest income decreased to $189,000 for the three months ended September 30,
1997 from $394,000 for the same period in 1996. The decrease was due to a
decline in investments resulting from the Company's use of invested funds for
working capital purposes.
Interest expense increased to $45,000 for the three months ended September 30,
1997 from $2,000 for the same period in 1996. The increase was due to an
increase in indebtedness in February 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in accumulated deficit of approximately $27,287,000 at
September 30, 1997. The Company has funded its operations primarily through
the sale of equity securities. The Company has experienced negative cash flows
from operations of $2,663,000 and $1,348,000 for the three months ended
September 30, 1997, and 1996, respectively.
Capital expenditures decreased to $258,000 in the first quarter of fiscal 1998
from $283,000 in the first quarter of fiscal 1997, due, primarily, to a
reduction in the acquisition of laboratory and computer equipment in the fiscal
1998 period.
The Company does not have any bank financing arrangements. The Company's
indebtedness consists, primarily, of notes payable related to its expansion
into the European market.
On October 20, 1997, the Company completed a public offering of 2,250,000
shares of its common stock, the net proceeds of which, after underwriters'
commissions, were $21,150,000.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, expand
its sales and marketing activities and expand its manufacturing capabilities.
The Company expects that its existing capital resources, together with the net
proceeds of the Company's recent public offering and the interest thereon,
will be adequate to
6
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fund the Company's operations through 1999. No assurances can be given that
there will be no changes in the Company that would consume a significant amount
of its available resources before that time. The Company's future capital
requirements and the adequacy of available funds will depend on numerous
factors, including the successful commercialization of its products, progress
in its product development efforts, the magnitude and scope of such efforts,
progress with preclinical studies and clinical trials, progress in its
regulatory affairs activities, the cost and timing of expansion of
manufacturing capabilities, the expansion of the Company's direct European
sales operations, the development and maintenance of effective sales and
marketing activities, the cost of filing, prosecuting, defending and enforcing
patent claims and other intellectual property rights, competing technological
and market developments, and the development of strategic alliances for the
marketing of its products. To the extent that the Company's existing capital
resources and funds generated from the Company's operations, together with its
existing capital resources and the proceeds of the Company's recent public
offering and the interest earned thereon, are insufficient to meet current or
planned operating requirements, the Company will be required to obtain
additional funds through equity or debt financing, strategic alliances with
corporate partners and others, or through other sources. The terms and prices
of any equity or debt financings may be significantly more favorable to
investors than those of the Common Stock sold in the Company's recent public
offering. The Company does not have any committed sources of additional
financing, and there can be no assurance that additional funding, if necessary,
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate
certain aspects of its operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not available, the
Company's business, financial condition and results of operations will be
materially and adversely effected.
7
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
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Effective date of the registration for which the
use of proceeds information is being disclosed: May 21, 1996
SEC file number assigned to the registration statement: 0-28194
Offering commencement date: May 22, 1996
(Offering was not terminated before the sale of
all securities registered)
Names of managing underwriters: UBS Securities LLC
Montgomery Securities
Title of security: Common Stock, par value $.01 per share
FOR THE ACCOUNT OF THE ISSUER
- -----------------------------
Amount registered 3,000,000 shares
Aggregate price of offering amount registered $ 34,500,000
Amount sold 3,000,000 shares
Aggregate offering price of amount sold $ 34,500,000
DIRECT OR INDIRECT PAYMENTS TO OTHERS FOR:
- ------------------------------------------
Underwriting discounts and commissions $ 2,415,000
Other expenses $ 1,180,000
--------------
TOTAL EXPENSES $ 3,595,000
NET OFFERING PROCEEDS TO THE ISSUER $ 30,905,000
DIRECT OR INDIRECT PAYMENTS TO OTHERS FOR:
- ------------------------------------------
Construction of plant, building and facilities $ 162,000
Purchases and installations of machinery and equipment $ 1,081,000
Repayment of indebtedness $ 2,909,000
Working capital $ 11,085,000
Temporary investments
- ---------------------
Option Market Preferred Stock $ 500,000
Corporate Bonds $ 7,126,000
Commercial Paper $ 6,145,000
Other purposes
- --------------
Payments re: Murex Agency Agreement $ 1,897,000
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TOTAL $ 30,905,000
</TABLE>
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Registrant held on October 28,
1997, the holders of Common Stock elected the following uncontested nominees as
directors of the Company to hold office until the year 2000 annual meeting of
stockholders or until their successors are duly elected and qualified:
<TABLE>
<CAPTION>
Votes Votes
Nominee For Withheld
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<S> <C> <C>
John H. Landon 7,046,207 3,600
John J. Whitehead 7,046,207 3,600
</TABLE>
There were no broker non-votes in the election of directors.
9
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
S-1 (File No. 333-2968))
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1 (File No. 333-2968))
4.1 Form of Common Stock Certificate (Incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-1 (File No.
333-2968))
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGENE CORPORATION
Date: October 31, 1997 By: /s/ Charles M. Fleischman
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Charles M. Fleischman
Executive Vice President,
Chief Operating Officer,
Chief Financial Officer
(Principal Financial Officer)
Date: October 31, 1997 By: /s/ Joseph P. Slattery
-------------------------- -------------------------------------
Joseph P. Slattery
Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
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<S> <C>
3.1 Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File No. 333-2968))
3.2 Amended and Restated Bylaws (Incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on
Form S-1 (File No. 333-2968))
4.1 Form of Common Stock Certificate (Incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (File No. 333-2968))
27 Financial Data Schedule
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,119,672
<SECURITIES> 9,182,078
<RECEIVABLES> 4,082,559
<ALLOWANCES> 61,000
<INVENTORY> 3,267,772
<CURRENT-ASSETS> 23,951,946
<PP&E> 3,943,660
<DEPRECIATION> 2,624,414
<TOTAL-ASSETS> 27,705,105
<CURRENT-LIABILITIES> 4,979,234
<BONDS> 0
0
0
<COMMON> 115,904
<OTHER-SE> 22,219,428
<TOTAL-LIABILITY-AND-EQUITY> 27,705,105
<SALES> 2,512,010
<TOTAL-REVENUES> 2,525,910
<CGS> 714,411
<TOTAL-COSTS> 714,411
<OTHER-EXPENSES> 51,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,449
<INCOME-PRETAX> (1,960,239)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,960,239)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,960,239)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
