<PAGE> 1
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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 December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to _________
Commission file number 0-28194
DIGENE CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 52-1536128
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9000 VIRGINIA MANOR ROAD
BELTSVILLE, MARYLAND 20705
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
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.
Shares outstanding as of
Class February 11, 1998
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Common Stock, par value $.01 per share 13,892,249
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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 -
December 31, 1997 and June 30, 1997 1
Consolidated Statements of Operations -
Three months ended December 31, 1997 and 1996; 2
Six months ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows -
Six months ended December 31, 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 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
</TABLE>
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PART I. CONSOLIDATED FINANCIAL INFORMATION
DIGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
------------ ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,171,034 $ 8,452,864
Short-term investments 6,347,148 11,061,283
Accounts receivable, less allowance of approximately $76,000 at
December 31, 1997 and $61,000 at June 30, 1997 1,479,275 1,767,682
Due from related party 1,397,876 2,395,792
Inventories 3,582,554 2,425,167
Prepaid expenses and other current assets 279,846 446,368
------------ ------------
Total current assets 41,257,733 26,549,156
Property and equipment, net 2,025,681 1,214,548
Intangible assets, net 2,052,078 2,308,641
Deposits 89,887 134,564
------------ ------------
Total assets $ 45,425,379 $ 30,206,909
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,764,717 $ 2,093,893
Accrued expenses 549,354 772,037
Accrued payroll 858,647 602,555
Due to related party - 443,332
Current maturities of long-term debt 1,099,941 1,338,220
------------ ------------
Total current liabilities 4,272,659 5,250,037
Long-term debt, less current maturities - 552,733
Accrued rent 78,330 100,618
Deferred rent 24,649 37,318
Stockholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized, 13,889,893 and
11,579,530 shares issued and outstanding at December 31, 1997
and June 30, 1997, respectively 138,899 115,795
Additional paid-in capital 70,250,346 49,477,621
Accumulated deficit (29,339,504) (25,327,213)
------------ ------------
Total stockholders' equity 41,049,741 24,266,203
------------ ------------
Total liabilities and stockholders' equity $ 45,425,379 $ 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.
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DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 2,944,227 $ 1,962,194 $ 5,456,237 $ 3,818,690
Research and development contracts 12,600 247,132 26,500 394,158
------------ ------------ ------------ ------------
Total revenues 2,956,827 2,209,326 5,482,737 4,212,848
Costs and expenses:
Cost of product sales 834,838 771,909 1,549,249 1,548,786
Research and development 1,287,843 984,684 2,278,982 1,734,917
Selling and marketing 1,888,014 1,059,837 3,598,930 1,856,134
General and administrative 1,221,605 937,481 2,252,666 1,759,716
Amortization of intangible assets 126,841 8,201 257,821 16,402
------------ ------------ ------------ ------------
Loss from operations (2,402,314) (1,552,786) (4,454,911) (2,703,107)
Other income (expense):
Other income (expense) (34,073) (55,143) (85,340) (30,029)
Interest income 422,722 438,105 611,796 832,599
Interest expense (38,387) (1,847) (83,836) (3,875)
------------ ------------ ------------ ------------
Net loss $ (2,052,052) $ (1,171,671) $ (4,012,291) $ (1,904,412)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.15) $ (0.10) $ (0.32) $ (0.17)
============ ============ ============ ============
Weighted average shares outstanding 13,412,271 11,312,446 12,498,771 11,310,665
============ ============ ============ ============
</TABLE>
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DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
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1997 1996
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(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,012,291) $ (1,904,412)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and equipment 314,009 205,814
Amortization of intangible assets 257,821 16,402
Changes in operating assets and liabilities:
Accounts receivable 288,407 (313,322)
Due from related party 997,916 (283,545)
Inventories (1,157,387) (35,306)
Prepaid expenses and other current assets 166,522 68,205
Deposits 44,677 (38,675)
Accounts payable (329,176) (1,102,500)
Accrued expenses (222,683) 221,625
Accrued payroll 256,092 132,820
Due to related party (443,332) -
Accrued rent (22,288) (26,455)
Deferred rent (12,669) (12,026)
------------ ------------
Net cash used in operating activities (3,874,382) (3,071,375)
INVESTING ACTIVITIES
Purchases of short-term investments (5,479,683) (7,525,636)
Maturities of short-term investments 10,193,818 2,959,656
Capital expenditures (1,125,142) (479,908)
Additions to intangible assets (1,258) 5,100
------------ ------------
Net cash provided by (used in) investing activities 3,587,735 (5,040,788)
FINANCING ACTIVITIES
Net proceeds from issuance of Common Stock 20,654,415 -
Exercise of Common Stock options 141,414 68,173
Principal repayments on long-term debt (791,012) (118,889)
------------ ------------
Net cash provided by (used in) financing activities 20,004,817 (50,716)
------------ ------------
Net increase (decrease) in cash and cash equivalents 19,718,170 (8,162,879)
Cash and cash equivalents at beginning of period 8,452,864 24,107,325
------------ ------------
Cash and cash equivalents at end of period $ 28,171,034 $ 15,944,446
============ ============
</TABLE>
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DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements for the three month and six month periods
ended December 31, 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 consolidated 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
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements.
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
and expenses, were $20,654,000.
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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 $2,944,000 and $5,456,000 for the three and six month
periods ended December 31, 1997, respectively, from $1,962,000 and $3,819,000
for the corresponding periods in 1996. The increase was due, primarily, to
increased sales of the Company's HPV, CMV and HIV tests.
Research and development contract revenues decreased to $13,000 and $27,000 for
the three and six month periods ended December 31, 1997, respectively, from
$247,000 and $394,000 for the corresponding periods in 1996. The decrease was
due, primarily, to the completion of funding under certain contracts.
Cost of product sales increased to $835,000 for the three month period from
$772,000 and remained constant at $1,549,000 for the six month period ending
December 31, 1997, respectively, from the corresponding periods in 1996. Gross
margin on product sales increased to 72% for both the three and six month
periods ended December 31, 1997 from 61% and 59%, respectively, for the
corresponding periods in 1996. This increase was due, primarily, to increased
overhead absorption (notwithstanding increases in total overhead costs),
increased sales of higher-margin Hybrid Capture products and increased product
pricing.
Research and development expenses increased to $1,288,000 and $2,279,000 for the
three and six month periods ended December 31, 1997, respectively, from $985,000
and $1,735,000 for the corresponding periods 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
<PAGE> 8
Selling and marketing expenses increased to $1,888,000 and $3,599,000 for the
three and six month periods ended December 31, 1997, respectively, from
$1,060,000 and $1,856,000 for the corresponding periods 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 in conjunction with
the Company's efforts to increase product sales.
General and administrative expenses increased to $1,222,000 and $2,253,000 for
the three and six month periods ended December 31, 1997, respectively, from
$937,000 and $1,760,000 for the corresponding periods in 1996. The increase was
due, primarily, to the hiring of additional administrative personnel to support
the Company's growth objectives, as well as increased overhead associated with
the Company's European expansion.
Amortization of intangible assets increased to $127,000 and $258,000 for the
three and six month periods ended December 31, 1997, respectively, from $8,000
and $16,000 for the corresponding periods in 1996. The increase was due to
amortization of intangibles acquired in February 1997.
Interest income decreased to $423,000 and $612,000 for the three and six month
periods ended December 31, 1997, respectively, from $438,000 and $833,000 for
the corresponding periods in 1996. The decrease was due to a decline in the
average investment balances resulting from the Company's use of invested funds
for working capital purposes, notwithstanding the receipt of net proceeds of
$20,654,000 from the Company's public offering of 2,250,000 shares of its common
stock in October 1997.
Interest expense increased to $38,000 and $84,000 for the three and six month
periods ended December 31, 1997, respectively, from $2,000 and $4,000 for the
corresponding periods 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 $29,340,000 at
December 31, 1997. The Company has funded its operations primarily through the
sale of equity securities. The Company has experienced negative cash flows from
operations of $3,874,000 and $3,071,000 for the six months ended December 31,
1997, and 1996, respectively.
Capital expenditures increased to $1,125,000 for the six months ended December
31, 1997 from $480,000 for the corresponding period in 1996, due, primarily, to
the build-up of operations in Europe.
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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.
The Company is considering whether there are any year 2000 issues which may
affect the Company. No determination has been made whether any such issues would
have a material adverse effect on the Company's business, financial condition or
results of operations.
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
and expenses, were $20,654,000.
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 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
<TABLE>
<S> <C>
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
NET OFFERING PROCEEDS TO THE ISSUER $ 30,905,000
DIRECT OR INDIRECT PAYMENTS TO OTHERS FOR:
- ------------------------------------------
Construction of plant, building and facilities $ 326,000
Purchases and installations of machinery and equipment $ 1,785,000
Repayment of indebtedness $ 2,916,000
Working capital $ 13,330,000
Temporary investments
- ---------------------
Option Market Preferred Stock $ 500,000
Corporate Bonds $ 5,707,000
Federal Agencies $ 3,941,000
Other purposes
- --------------
Payments re: Murex Agency Agreement $ 2,400,000
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TOTAL $ 30,905,000
</TABLE>
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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
December 31, 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: January 31, 1998 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: January 31, 1998 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>
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 28,171,034
<SECURITIES> 6,347,148
<RECEIVABLES> 2,953,151
<ALLOWANCES> 76,000
<INVENTORY> 3,582,554
<CURRENT-ASSETS> 41,257,733
<PP&E> 4,817,496
<DEPRECIATION> 2,791,815
<TOTAL-ASSETS> 45,425,379
<CURRENT-LIABILITIES> 4,272,659
<BONDS> 0
0
0
<COMMON> 138,899
<OTHER-SE> 40,910,842
<TOTAL-LIABILITY-AND-EQUITY> 45,425,379
<SALES> 5,456,237
<TOTAL-REVENUES> 5,482,737
<CGS> 1,549,249
<TOTAL-COSTS> 1,549,249
<OTHER-EXPENSES> 85,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,836
<INCOME-PRETAX> (4,012,291)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,012,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,012,291)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
