<PAGE> 1
- --------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
<TABLE>
<CAPTION>
(MARK ONE)
<S> <C>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
</TABLE>
COMMISSION FILE NUMBER: 0-28194
---------------------------
DIGENE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1536128
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
9000 VIRGINIA MANOR ROAD
BELTSVILLE, MARYLAND 20705
(Address of principal executive offices)
(301) 470-6500
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 JANUARY 22, 1997
- --------------------------------------- -------------------------
<S> <C>
Common Stock, par value $.01 per share 11,342,886
</TABLE>
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DIGENE CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements --
Balance Sheets -- December 31, 1996 and June 30, 1996....................... 2
Statements of Operations -- Three months ended December 31, 1996 and 1995;
Six months ended December 31, 1996 and 1995............................... 3
Statements of Cash Flows -- Six months ended December 31, 1996 and 1995..... 4
Notes to Financial Statements............................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 8
SIGNATURES............................................................................. 9
EXHIBIT INDEX.......................................................................... 10
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
DIGENE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ ------------
<S> <C> <C>
(NOTE)
<CAPTION>
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 15,944,446 $ 24,107,325
Short-term investments......................................... 9,033,958 4,467,978
Accounts receivable, less allowance of approximately $61,000 at
December 31, 1996 and June 30, 1996......................... 2,222,913 1,626,046
Inventories.................................................... 1,841,639 1,806,333
Prepaid expenses and other current assets...................... 231,230 299,435
------------ ------------
Total current assets................................... 29,274,186 32,307,117
Property and equipment, net...................................... 979,134 705,040
Intangible assets, net........................................... 27,506 49,008
Deposits......................................................... 151,137 112,462
------------ ------------
Total assets........................................... $ 30,431,963 $ 33,173,627
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 1,022,182 $ 2,124,682
Accrued expenses............................................... 810,799 456,354
Current maturities of long-term debt........................... 112,585 109,857
------------ ------------
Total current liabilities.............................. 1,945,566 2,690,893
Long-term debt, less current maturities.......................... 29,915 151,532
Accrued rent..................................................... 123,452 149,907
Deferred rent.................................................... 49,988 62,014
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
11,341,744 and 11,303,705 shares issued and outstanding at
December 31, 1996 and June 30, 1996, respectively........... 113,417 113,037
Additional paid-in capital..................................... 49,406,794 49,339,001
Accumulated deficit............................................ (21,237,169) (19,332,757)
------------ ------------
Total stockholders' equity............................. 28,283,042 30,119,281
------------ ------------
Total liabilities and stockholders' equity............. $ 30,431,963 $ 33,173,627
=========== ===========
</TABLE>
Note: The balance sheet at June 30, 1996 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.
2
<PAGE> 4
DIGENE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- --------------------------
1996 1995 1996 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales............................ $ 1,962,194 $1,387,383 $ 3,818,690 $ 2,868,666
Research and development contracts....... 247,132 117,301 394,158 203,789
----------- ---------- ----------- -----------
Total revenues................... 2,209,326 1,504,684 4,212,848 3,072,455
Costs and expenses:
Cost of product sales.................... 771,909 635,355 1,548,786 1,432,922
Research and development................. 984,684 593,975 1,734,917 1,109,415
Selling and marketing.................... 1,059,837 443,497 1,856,134 823,479
General and administrative............... 937,481 332,969 1,759,716 614,772
Amortization of intangible assets........ 8,201 111,476 16,402 177,741
----------- ---------- ----------- -----------
Loss from operations....................... (1,552,786) (612,588) (2,703,107) (1,085,874)
Other income (expense):
Other income (expense)................... (55,143) 96,865 (30,029) 78,391
Interest income.......................... 438,105 7,047 832,599 16,969
Interest expense......................... (1,847) (54,496) (3,875) (109,155)
----------- ---------- ----------- -----------
Net loss................................... $(1,171,671) $ (563,172) $(1,904,412) $(1,099,669)
=========== ========== =========== ===========
Net loss per share......................... $ (0.10) $ (0.66) $ (0.17) $ (1.29)
=========== ========== =========== ===========
Weighted average shares outstanding........ 11,312,446 854,250 11,310,665 850,995
=========== ========== =========== ===========
</TABLE>
3
<PAGE> 5
DIGENE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss......................................................... $(1,904,412) $(1,099,669)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization of property and equipment............ 205,814 183,875
Amortization of intangible assets.................................. 16,402 177,741
Changes in operating assets and liabilities:
Accounts receivable................................................ (596,867) 80,953
Inventories........................................................ (35,306) (219,297)
Prepaid expenses and other current assets.......................... 68,205 (3,324)
Deposits........................................................... (38,675) 1,658
Accounts payable................................................... (1,102,500) 210,587
Accrued expenses................................................... 354,445 (89,241)
Accrued rent....................................................... (26,455) (19,043)
Deferred rent...................................................... (12,026) (7,984)
----------- -----------
Net cash used in operating activities.............................. (3,071,375) (783,744)
INVESTING ACTIVITIES
Purchases of short-term investments.............................. (7,525,636) --
Maturities of short-term investments............................. 2,959,656 --
Capital expenditures............................................. (479,908) (177,776)
Additions to intangible assets................................... 5,100 (48,732)
----------- -----------
Net cash used in investing activities.............................. (5,040,788) (226,508)
FINANCING ACTIVITIES
Net proceeds from issuance of redeemable convertible Preferred
Stock......................................................... -- 861,000
Exercise of Common Stock options................................. 68,173 13,500
Principal repayments on long-term debt........................... (118,889) (173,858)
----------- -----------
Net cash (used in) provided by financing activities................ (50,716) 700,642
----------- -----------
Net decrease in cash and cash equivalents.......................... (8,162,879) (309,610)
Cash and cash equivalents at beginning of period................... 24,107,325 1,142,266
----------- -----------
Cash and cash equivalents at end of period......................... $15,944,446 $ 832,656
=========== ===========
</TABLE>
4
<PAGE> 6
DIGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements for the three month and six month periods ended
December 31, 1996 and 1995 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, 1996, which includes financial statements and notes thereto for
the years ended June 30, 1996, 1995, and 1994.
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. Pursuant to the
requirements of the Securities and Exchange Commission staff accounting bulletin
No. 83, the Company included the effect of the convertible Preferred Stock,
Common Stock, and warrants and options to purchase Common Stock in the weighted
average shares outstanding for the three and six month periods ended December
31, 1995. However, for the three and six month periods ended December 31, 1996,
the Company is required to calculate the weighted average shares outstanding
pursuant to APB 15 and thus the net loss per share for the periods is not
comparable. 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. If the Company had calculated the weighted average shares
outstanding for the three months and six months ended December 31, 1995 in
accordance with APB 15, the net loss per share would have been $1.51 and $2.98
per share, respectively, and the weighted average shares outstanding would have
been 372,682 and 369,427, respectively.
5
<PAGE> 7
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, dependence on a
single product (its Hybrid Capture(TM) human papillomavirus ("HPV") test),
limited sales and marketing experience, adequacy of third party reimbursement,
competition, extent of government regulations, and the uncertainty regarding
patents and proprietary rights and technological obsolescence.
RESULTS OF OPERATIONS
Product sales increased to $1,962,000 and $3,819,000 for the three and six
month periods ending December 31, 1996, respectively, from $1,387,000 and
$2,869,000 for the corresponding periods of the prior year. The increase was
due, primarily, to increased sales of the Company's Hybrid Capture(TM) products,
partially offset by declines in revenues related to the discontinuance of the
Company's radioactive DNA test in December 1995. Declines in equipment sales
further contributed to the decline in the product sales for the six month
period.
Research and development contract revenues increased to $247,000 and
$394,000 for the three and six month periods ending December 31, 1996,
respectively, from $117,000 and $204,000 for the corresponding periods of the
prior year. The increase was due primarily to new contracts.
Cost of product sales increased to $772,000 and $1,549,000 for the three
and six month periods ending December 31, 1996, respectively, from $635,000 and
$1,433,000 for the corresponding periods of the prior year. Gross margin on
product sales increased to 61% and 59% for the three and six month periods ended
December 31, 1996, respectively, from 54% and 50% for the corresponding periods
of the prior year. This increase was due primarily to increased overhead
absorption, increased sales of higher-margin Hybrid Capture(TM) HPV DNA
products, and decreased sales of lower-margin products, such as equipment.
Research and development expenses increased to $985,000 and $1,735,000 for
the three and six month periods ending December 31, 1996, respectively, from
$594,000 and $1,109,000 for the corresponding periods of the prior year. The
increase was due to increases in clinical trials activity, and to the hiring of
additional research and development personnel and the related incidental
expenses to support the Company's research and development plans to develop
additional tests using the Hybrid Capture(TM) technology, and to improve the
sensitivity and ease of use of that technology.
Selling and marketing expenses increased to $1,060,000 and $1,856,000 for
the three and six month periods ending December 31, 1996, respectively, from
$443,000 and $823,000 for the corresponding periods of the prior year. The
increase was due to substantial increases in sales and marketing programs, and
to the hiring of additional selling and marketing personnel and related expenses
to support the Company's revenue growth plans, as well as increased commissions
and other selling costs directly related to the growth in product sales.
General and administrative expenses increased to $937,000 and $1,760,000
for the three and six month periods ending December 31, 1996, respectively, from
$333,000 and $615,000 for the corresponding periods of the prior year. The
increase was due primarily to the hiring of additional administrative personnel
and the related expenses to support the Company's requirements as a publicly
traded company and to meet the revenue growth objectives of the Company. In
addition, general and administrative expenses increased during the six month
period as a result of the formation of Digene do Brasil, a majority-owned
subsidiary.
Amortization of intangible assets decreased to $8,000 and $16,000 for the
three and six month periods ending December 31, 1996, respectively, from
$111,000 and $178,000 for the corresponding periods of the
6
<PAGE> 8
prior year. The decrease was due primarily to certain intangible assets becoming
fully amortized during the year.
Interest income increased to $438,000 and $833,000 for the three and six
month periods ending December 31, 1996, respectively, from $7,000 and $17,000
for the corresponding periods of the prior year. This increase was due primarily
to the investment of substantially all of the net proceeds from the Company's
initial public offering which was completed in May 1996.
Interest expense decreased to $2,000 and $4,000 for the three and six month
periods ended December 31, 1996, respectively, from $54,000 and $109,000 for the
corresponding periods of the prior year. The decrease was due to the repayment
of the notes payable.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in accumulated deficit of approximately $21,237,000 at
December 31, 1996. The Company has funded its operations primarily through the
sale of equity securities. The Company has experienced negative cash flows from
operations of $3,071,000 and $784,000 for the six months ended December 31,
1996, and 1995, respectively.
Capital expenditures increased to $480,000 for the six months ended
December 31, 1996 from $178,000 for the same period in 1995, due primarily to
the acquisition of additional laboratory and computer equipment.
The Company does not have any bank financing arrangements. The Company's
indebtedness consists of notes payable to former stockholders of the Company of
$84,000 and notes related to leasehold improvements of $58,000.
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 scale up its manufacturing. The Company
expects that its existing capital resources will be adequate to fund the
Company's operations through fiscal 1998. 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 Hybrid Capture(TM) HPV test, progress in
its product development efforts, the magnitude and scope of such efforts,
progress with preclinical studies and clinical trials, the cost and timing of
manufacturing scale-up, the development 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 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 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
<PAGE> 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<S> <C>
11 Statement Re: Computation of Per Share Loss
27 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1996.
8
<PAGE> 10
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
--------------------------------------
<TABLE>
<S> <C>
Date: January 27, 1997 By: /s/ CHARLES M. FLEISCHMAN
-----------------------------------------------
CHARLES M. FLEISCHMAN
EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING OFFICER,
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
Date: January 27, 1997 By: /s/ JOSEPH P. SLATTERY
-----------------------------------------------
JOSEPH P. SLATTERY
CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
9
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------- ----
<C> <S> <C>
11 Statement Re: Computation of Per Share Loss...............................
27 Financial Data Schedule....................................................
</TABLE>
10
<PAGE> 1
EXHIBIT 11
DIGENE CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE LOSS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ --------------------------
1996 1995 1996 1995
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings per share:
Weighted average shares of Common Stock
outstanding............................... 11,312,446 372,682 11,310,665 369,427
Shares of 1994 Series Preferred Stock issued
during the twelve month period prior to
March 29, 1996, the date of the filing of
the Company's Registration Statement on
Form S-1 (using the treasury stock
method)................................... -- 192,607 -- 192,607
Shares of Common Stock issued during the
twelve month period prior to March 29,
1996, the date of the filing of the
Company's Registration Statement on Form
S-1 (using the treasury stock method)..... -- 5,295 -- 5,295
Common equivalent shares from options and
warrants issued during the twelve month
period prior to March 29, 1996, the date
of the filing of the Company's
Registration Statement on Form S-1 (using
the treasury stock method)................ -- 283,666 -- 283,666
----------- --------- ----------- -----------
Total....................................... 11,312,446 854,250 11,310,665 850,995
========== ========= ========== ==========
Loss for the period......................... $(1,171,671) $(563,172) $(1,904,412) $(1,099,669)
========== ========= ========== ==========
Net loss per share.......................... $ (0.10) $ (0.66) $ (0.17) $ (1.29)
========== ========= ========== ==========
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,944,446
<SECURITIES> 9,033,958
<RECEIVABLES> 2,283,913
<ALLOWANCES> 61,000
<INVENTORY> 1,841,639
<CURRENT-ASSETS> 29,274,186
<PP&E> 3,195,597
<DEPRECIATION> 2,216,463
<TOTAL-ASSETS> 30,431,963
<CURRENT-LIABILITIES> 1,945,566
<BONDS> 0
0
0
<COMMON> 113,417
<OTHER-SE> 28,169,625
<TOTAL-LIABILITY-AND-EQUITY> 30,431,963
<SALES> 3,818,690
<TOTAL-REVENUES> 4,212,848
<CGS> 1,548,786
<TOTAL-COSTS> 3,283,703
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,875
<INCOME-PRETAX> (1,904,412)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,904,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,904,412)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
