UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 1997.
|_| Transition period pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _____________ to ______________.
0-20727
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(Commission File Number)
Novoste Corporation
-------------------
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-2787476
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4350-C International Blvd., Norcross, GA 30093
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone, including area code: (770) 717-0904
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
(Item 1) Yes |X| No |_|
(Item 2) Yes |X| No |_|
As of October 16, 1997, there were 8,524,925 shares of the Registrant's Common
Stock outstanding.
Exhibit Index on page: 16
Total number of pages: 18
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NOVOSTE CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of September 30, 1997 (unaudited)
and December 31, 1996 3
Condensed Statements of Operations (unaudited) for the three
and nine months ended September 30, 1997 and 1996 and the
period from inception (May 22, 1992) through
September 30, 1997 4
Condensed Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1997 and 1996 and the period
from inception (May 22, 1992) through September 30, 1997 5
Notes to Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
PART II. OTHER INFORMATION
Item 5. Other Matters 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
EXHIBIT 11 - COMPUTATION OF NET LOSS PER SHARE 17
EXHIBIT 27 - FINANCIAL DATA SCHEDULE 18
2
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NOVOSTE CORPORATION
(A Development Stage Company)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 15,737,474 $ 19,954,827
Short-term investments 3,961,633 7,588,693
Prepaid expenses 148,214 126,349
------------ ------------
Total current assets 19,847,321 27,669,869
Property and equipment, net 1,068,197 1,128,031
License agreements, net 143,168 153,396
Other assets 215,664 303,642
------------ ------------
$ 21,274,350 $ 29,254,938
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 306,537 $ 155,946
Accrued expenses and taxes withheld 1,474,516 665,175
------------ ------------
Total current liabilities 1,781,053 821,121
------------ ------------
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.01 par value, 25,000,000 shares authorized; 8,502,930 and
8,257,967 shares issued, respectively 85,029 82,580
Additional paid-in capital 42,405,272 41,772,791
Deficit accumulated during the development stage (22,973,164) (13,405,714)
------------ ------------
19,517,137 28,449,657
Less treasury stock, 5,780 and 5,280 shares of common stock, respectively,
at cost (23,840) (15,840)
------------ ------------
Total shareholders' equity 19,493,297 28,433,817
------------ ------------
$ 21,274,350 $ 29,254,938
============ ============
</TABLE>
See accompanying notes.
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NOVOSTE CORPORATION
(A Development Stage Company)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From inception
Three months ended Nine months ended (May 22, 1992)
September 30, September 30, through September 30,
1997 1996 1997 1996 1997
--------------------------- --------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Miscellaneous revenues $ -- $ -- $ 29,313 $ -- $ 320,200
Costs and expenses:
Research and development 3,137,301 1,153,791 8,618,578 2,799,071 17,505,610
General and administrative 382,484 396,872 1,342,605 1,091,872 5,430,146
Marketing 284,723 129,147 575,390 341,168 2,107,501
------------ ------------ ------------ ------------ ------------
3,804,508 1,679,810 10,536,573 4,232,111 25,043,257
------------ ------------ ------------ ------------ ------------
Loss from operations (3,804,508) (1,679,810) (10,507,260) (4,232,111) (24,723,057)
------------ ------------ ------------ ------------ ------------
Interest income 284,786 404,277 939,810 559,642 1,931,652
Interest expense -- (280) -- (87,331) (181,759)
------------ ------------ ------------ ------------ ------------
Net loss ($ 3,519,722) ($ 1,275,813) ($ 9,567,450) ($ 3,759,800) ($22,973,164)
============ ============ ============ ============ ============
Net loss per share ($ 0.41) ($ 0.16) ($ 1.14) ($ 0.60)
============ ============ ============ ============
Weighted average shares outstanding 8,489,546 8,086,006 8,375,739 6,275,378
============ ============ ============ ============
</TABLE>
See accompanying notes.
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NOVOSTE CORPORATION
(A Development Stage Company)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From inception
For the nine months (May 22, 1992)
ended September 30, through September 30,
1997 1996 1997
------------ ------------ ---------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ($ 9,567,450) ($ 3,759,800) ($22,973,164)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 310,150 223,647 1,188,025
Issuance of stock for services or compensation 202,500 248,076 1,149,818
Changes in assets and liabilities:
Prepaid expenses (21,865) (187,736) (155,673)
Accounts payable 150,591 59,632 306,537
Accrued expenses and taxes withheld 809,341 152,954 1,869,023
Other 130,719 -- (225,318)
------------ ------------ ------------
Net cash used by operations (7,986,014) (3,263,227) (18,840,752)
------------ ------------ ------------
Cash flows from investing activities
Maturity (purchase) of short-term investments 3,627,060 (2,977,365) (3,961,633)
Purchase of property and equipment, net (192,204) (305,234) (1,944,630)
------------ ------------ ------------
Net cash provided by (used by) investing activities 3,434,856 (3,282,599) (5,906,263)
------------ ------------ ------------
Cash flows from financing activities
Proceeds from issuance of notes payable -- 2,561,700 4,770,150
Repayment of notes payable -- (1,800,150) (2,970,150)
Proceeds from issuance of common stock 333,805 31,023,428 38,684,489
------------ ------------ ------------
Net cash provided by financing activities 333,805 31,784,978 40,484,489
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (4,217,353) 25,239,152 15,737,474
Cash and cash equivalents at beginning of period 19,954,827 817,587 --
============ ============ ============
Cash and cash equivalents at end of period $ 15,737,474 $ 26,056,739 $ 15,737,474
============ ============ ============
Supplemental disclosures of cash flow information
Cash paid for interest -- $ 101,312 $ 165,137
============ ============ ============
</TABLE>
See accompanying notes.
5
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NOVOSTE CORPORATION
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 1997
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with instructions to Article 10 of Regulation S-X.
Accordingly, such financial statements do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
The operating results of the interim periods presented are not necessarily
indicative of the results to be achieved for the year ending December 31, 1997.
The accompanying financial statements should be read in conjunction with the
audited financial statements and notes thereto for the year ended December 31,
1996 and for the cumulative period from May 22, 1992 (inception) through
December 31, 1996, included in the Company's 1996 Annual Report on Form 10-K
filed with the Securities and Exchange Commission ("SEC").
Certain prior year expense amounts have been reclassified in the Statements of
Operations for the three and nine months ended September 30, 1996 and the period
from inception through September 30, 1997 to conform with current year
classifications.
Note 2. Net Loss Per Share
The net loss per share is computed based on the weighted average number of
common shares outstanding after giving effect to certain adjustments described
below. Common equivalent shares are not included in the per share calculations
where the effect of their inclusion would be antidilutive, except that, in
accordance with SEC requirements, common and common stock equivalent shares
issued during the twelve-month period prior to the initial filing of the public
offering on April 11, 1996 have been included in the calculations as if they
were outstanding through March 31, 1996 using the treasury stock method. See
Exhibit 11.
Historical net loss per share information presented in accordance with GAAP for
the period affected by the above mentioned SEC requirement is as follows:
Nine months ended
September 30,
1996
----
Net loss per share ($0.63)
======
Shares used in computing net loss per share 6,002,227
=========
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NOVOSTE CORPORATION
(A Development Stage Company)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
September 30, 1997
In February 1997 the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
and year ending December 31, 1997, and, upon adoption, all prior-period earnings
per share data presented shall be restated to conform with the provisions of the
new pronouncement. Application earlier than the Company's quarter ending
December 31, 1997 is not permitted. The adoption of SFAS No. 128 is not
anticipated to have a material impact on operations.
Note 3. Cash Equivalents and Investments
Cash equivalents are comprised of certain highly liquid investments with
maturities of less than three months. In addition to cash equivalents, the
Company has investments in commercial paper that are classified as short-term
(mature in more than 90 days but less than one year). Such investments are
classified as held-to-maturity, as the Company has the ability and intent to
hold them until maturity. Investments held-to-maturity are carried at amortized
cost, adjusted for the amortization or accretion of premiums or discounts
without recognition of gains or losses that are deemed to be temporary. Premiums
and discounts are amortized or accreted over the life of the related instrument
as an adjustment to yield using the straight-line method, which approximates the
effective interest method. Interest income is recognized when earned.
Fair value approximates carrying value for all cash equivalents and investments.
Note 4. Shareholders' Equity
On May 20, 1996 the Company amended an option to purchase 100,000 shares of
Common Stock at $3.20 per share of which options for 75,000 shares had not yet
become exercisable. As amended, options to purchase such 75,000 shares become
exercisable at the annual rate of 25,000 shares beginning May 20, 1997, subject
to acceleration upon the achievement of three specified milestones at the rate
of 25,000 shares per milestone. The Company is recording total non-cash
compensation expense of $810,000 ratably over the three year period ending May
19, 1999, subject to acceleration if the specific milestones are met at earlier
dates. The Company expensed $67,500 and $202,500 relating to these options in
the three and nine months ended September 30, 1997, respectively, and $67,500
and $248,000 in the three and nine months ended September 30, 1996,
respectively.
Note 5. Miscellaneous Revenue
On May 15, 1997 the Company sold all of the technology, intellectual property
and equipment relating to the "Pulse Plus" blood containment device product line
for $130,000 in cash and a continuing royalty. During each 12-month period
following the date of the first sale of the device (the "Royalty Period"), the
Company shall receive a royalty equal to $.10 per unit on the initial 500,000
units sold and $.08 per unit on all units sold in excess of 500,000. The
purchaser guaranteed minimum royalty payments of $10,000 for the first Royalty
Period, $20,000 for the second Royalty Period and $30,000 in the third Royalty
Period. Royalties shall cease with the expiration of the last related patent.
The net book value of the equipment sold was $100,687 and the Company recorded a
$29,313 gain on the sale as miscellaneous revenue in the nine months ended
September 30, 1997.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Information
The statements contained in this Form 10-Q that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many uncertainties and risks which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Some of these risks are
discussed below in the section "Certain Factors That May Impact Future
Operations." Additional risk factors are discussed in "Item 1 - Business" of the
Company's Form 10-K and other reports filed by the Company from time to time on
Forms 10-Q and 8-K. The Company does not undertake any obligation to update or
revise any forward-looking statement, made by it or on its behalf, whether as a
result of new information, future events, or otherwise.
Overview
Novoste, incorporated in January 1987, was first capitalized and commenced
operations in May 1992. To date the Company has been engaged primarily in
research and development efforts and clinical trials in interventional
cardiology, electrophysiology and critical care products. Commencing in 1994,
the Company has devoted its efforts to developing the Beta-Cath(TM) System, an
intraluminal beta radiation catheter delivery system designed to reduce the
frequency of restenosis subsequent to percutaneous transluminal coronary
angioplasty ("PTCA"). The Beta-Cath(TM) System applies localized beta radiation
to the site of the vascular injury caused by a PTCA procedure and is designed to
inhibit long-term cell proliferation ("hyperplasia") and vascular remodeling,
each primary causes of restenosis.
The development, manufacture, sale and distribution of medical devices such as
the Company's Beta-Cath(TM) System are subject to numerous regulations imposed
by governmental authorities, principally the FDA and corresponding state and
foreign agencies. The regulatory process is lengthy, expensive and uncertain.
FDA approval of a Pre Market Approval ("PMA") application is required before any
Beta-Cath(TM) System can be marketed in the United States. Securing FDA approval
will require submission to the FDA of extensive clinical data and technical
information. The Company does not expect regulatory approval of the
Beta-Cath(TM) System for sale in the United States prior to 2000 or for sale
outside the United States prior to the latter half of 1998, and there can be no
assurance when or if such approvals will be obtained. The Company conducted a
feasibility clinical trial at Emory and Rhode Island Hospitals under an
Investigational Device Exemption ("IDE") granted by the FDA to determine the
clinical safety of the Beta-Cath(TM) System for use in coronary arteries.
Patient enrollment for the clinical trial at Emory was completed on July 31,
1996 and the enrollment at Rhode Island was completed on October 25, 1996.
Twenty-three patients were enrolled in the study. The Company also completed
enrollment for a 30 patient human clinical safety study at a single site in
Canada on June 10, 1997 and commenced enrollment for a human clinical safety
trial in The Netherlands on April 30, 1997. As of October 16, 1997, 23 of the
planned 30 patients at the site in The Netherlands had been enrolled. Six month
follow-up has been completed for 35 patients and summary data revealed a
restenosis rate of 11%. Three patients required target lesion revascularization
(a re-opening procedure at the original treatment site) during the six month
follow-up. The late loss index (a measure of how much of the
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angioplasty benefit is lost over six months) was 0%. In addition, no adverse
clinical events relating to the Beta-Cath(TM) System were reported.
Additionally, on July 3, 1997 the Company received an IDE from the FDA to
perform a randomized, placebo-controlled multicenter trial of the Beta-Cath(TM)
System to support a Premarket Approval application in the United States. As of
October 16, 1997, 10 of the 27 clinical sites had commenced enrollment and 34 of
the planned 1,100 patients have been enrolled.
For the period since its inception through September 30, 1997 the Company has
earned minimal non-recurring revenues and experienced significant losses in each
period. At September 30, 1997 the Company had an accumulated deficit of
approximately $23.0 million. Novoste expects to continue to incur significant
operating losses through 1999 as the Company continues to initiate new research
and development projects, conduct its clinical trials in the United States,
Canada and Europe, seek regulatory approval or clearance for its products in the
United States and abroad, expand its sales and marketing efforts in
contemplation of product introduction and market development, and increase its
administrative activities to support growth of the Company.
There can be no assurance that the Company's research and development efforts
will be successfully completed. Additionally, as clinical testing is incomplete,
there can be no assurance that the Beta-Cath(TM) System will be safe and
effective. There can be no assurance that the Beta-Cath(TM) System will be
approved by the FDA or any domestic or foreign government agency or that the
Beta-Cath(TM) System or any other product developed by Novoste will be
successfully introduced or attain any significant level of market acceptance.
There can be no assurance that the Company will ever achieve either significant
revenues from sales of its Beta-Cath(TM) System or ever achieve or sustain
profitability.
Results of Operations
Net loss for the three months ended September 30, 1997 was $3,520,000, or
($0.41) per share, as compared to $1,276,000, or ($0.16) per share, for the
three months ended September 30, 1996. Net loss for the nine months ended
September 30, 1997 was $9,567,000, or ($1.14) per share, as compared to
$3,760,000 or ($0.60) per share for the year earlier period. The increase in net
loss for the three and nine months ended September 30, 1997 compared to the year
earlier periods is primarily due to increased spending for research and
development as well as increased marketing, general and administrative expenses
related to the Company's development of its Beta-Cath(TM) System, offset by
increased interest income earned from the investment of the net proceeds from
the initial public offering in May 1996.
Revenues. Miscellaneous revenues were $0 and $29,000 for the three and nine
months ended September 30, 1997. No revenue was earned in the same periods in
1996. This increase was due to the sale of a product line (see Note 5 to the
Condensed Financial Statements).
Research and Development Expenses. Research and development expenses increased
172% to $3,137,000 for the three months ended September 30, 1997 from $1,154,000
for the three months ended September 30, 1996. For the nine months ended
September 30, 1997, research and development expenses increased 208% to
$8,619,000 from $2,799,000 for the same period in 1996. For the three months
ended September 30, 1997, these increases were primarily a result of (a) the
cost of manufacturing the Beta-Cath(TM) System for clinical trial sites, (b)
monthly reimbursement of approximately $65,000 to the Company's radioactive
isotope supplier of costs to increase production capacity, (c) the increased
size of the Company's research and development staff, and (d) services provided
by outside consultants in the development of the Beta-Cath(TM) System. These
same four factors influenced the increase for the nine month period in addition
to a milestone payment of 617,000 DM ($360,000) in June 1997 to the Company's
radioactive isotope supplier upon meeting delivery requirements. The Company
expects research and development expenses to continue to increase in the
immediate future as the Company
9
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continues clinical trials of its Beta-Cath(TM) System in both the U.S. and
selected foreign countries, and as it continues the development and design of
the Beta-Cath(TM) System and component parts.
General and Administrative Expenses. General and administrative expenses
decreased 4% to $382,000 for the three months ended September 30, 1997 from
$397,000 for the three months ended September 30, 1996. For the nine months
ended September 30, 1997 general and administrative expenses increased 23% to
$1,343,000 from $1,092,000 for the same period in 1996. This increase for the
nine month period was primarily a result of additional personnel, higher
salaries and increased costs associated with being a public company such as
directors and officers liability insurance, legal and accounting fees. The
Company expects general and administrative expenses to increase in the future in
support of a higher level of operations.
Marketing Expenses. Marketing expenses increased 120% to $285,000 for the three
months ended September 30, 1997 from $129,000 for the three months ended
September 30, 1996. For the nine months ended September 30, 1997, marketing
expenses increased 69% to $575,000 from $341,000 for the same period in 1996.
These increases were primarily the result of increased trade show costs,
consulting fees and higher salaries. The Company expects sales and marketing
expenses to significantly increase in the future, if and when the Beta-Cath(TM)
System is approved in the U.S. and other countries.
Interest Income. Net interest income decreased 29% to $285,000 for the three
months ended September 30, 1997 from $404,000 for the three months ended
September 30, 1996. The decrease is primarily due to higher average cash
balances in 1996 after the closing of the initial public offering in May 1996.
For the nine months ended September 30, 1997 interest income increased 99% to
$940,000 from $472,000 for the same period in 1996. The increase in interest
income was primarily due to larger cash equivalents and short-term investment
balances after the Company's initial public offering in May 1996.
Liquidity and Capital Resources
The Company financed its activities since inception up to May 23, 1996, the date
of the Company's initial public offering, through private placements of its
Common Stock, Class B Common Stock and promissory notes. Since inception through
September 30, 1997, the Company obtained funds aggregating approximately $38.4
million in net proceeds from the issuance of Common Stock and Class B Common
Stock (including approximately $30.6 million in net proceeds from its initial
public offering), and approximately $1.8 million in net proceeds from the
issuance of convertible promissory notes.
During the nine months ended September 30, 1997 and 1996 the Company used cash
to fund operations of $8.0 million and $3.3 million, respectively. Cash used to
fund operations since inception was approximately $18.8 million. The increase in
cash used in operations was due primarily to increased research and development
activities and increased general and administrative expenses to support
increased operations. The Company's expenditures for equipment and improvements
have aggregated $1.9 million since inception. Future cash needs for operating
activities are anticipated to be higher than historical levels because of the
development, manufacturing scale-up and commercialization of the Beta-Cath(TM)
System, subject to the factors discussed below.
The Company's principal source of liquidity at September 30, 1997 consisted of
cash, cash equivalents and short-term investments of $19.7 million. The Company
did not have any credit lines available or outstanding borrowings at September
30, 1997.
The Company anticipates that its operating losses will continue through 1999
because it plans to expend substantial resources in funding clinical trials in
support of regulatory approvals, and continues to expand
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research and development and marketing activities. Novoste believes that current
cash balances and short-term investments, together with interest thereon, will
be sufficient to meet the Company's operating and capital requirements through
1998. However, the Company's future liquidity and capital requirements will
depend upon numerous factors, including the progress of the Company's clinical
research and product development programs; the receipt of and the time required
to obtain regulatory clearances and approvals; the resources required to gain
approvals; the resources the Company devotes to the development, manufacture and
marketing of its products; the resources required to hire and develop a direct
sales force in the United States, develop distributors internationally, and to
expand manufacturing capacity; market acceptance and demand for its products;
and other factors. Novoste may in the future seek to raise additional funds
through bank facilities, debt or equity offerings or other sources of capital.
There can be no assurance that additional financing, if required, will be
available on satisfactory terms, or at all.
Certain Factors That May Impact Future Operations
Dependence on the Beta-Cath(TM) System. The Company has elected to focus its
resources on the continued development and refinement of the Beta-Cath(TM)
System. The Company expects in the future to derive substantially all of its
revenue from the Beta-Cath(TM) System. If the Company is unable to obtain
requisite regulatory approvals or to achieve commercial acceptance of the
Beta-Cath(TM) System, the Company's business, financial condition and results of
operations will be materially and adversely affected and could result in
cessation of the Company's current business.
Early Stages of Clinical Trials. The Company is currently at an early stage of
clinical testing. Clinical data obtained to date are insufficient to demonstrate
the safety and efficacy of this product under applicable FDA regulatory
guidelines. There can be no assurance that the Beta-Cath(TM) System will prove
to be safe and effective in clinical trials under applicable United States or
international regulatory guidelines or that additional modifications to the
Company's product will not be necessary. In addition, the clinical trials may
identify significant technical or other obstacles to be overcome prior to
obtaining necessary regulatory or reimbursement approvals.
Limited Sales, Marketing and Distribution Experience. At present the Company has
no sales and a limited marketing capability. The Company intends to sell its
products in the United States directly and outside the United States through
corporate partners and/or international distributors. There can be no assurance
that the Company will be able to recruit and train adequate sales and marketing
personnel to successfully commercialize the Beta-Cath(TM) System in the United
States. The inability to recruit or retain suitable international distributors
or corporate partners could also have a material adverse effect on the Company's
business, financial condition and results of operations. The Company also
intends to select one or more established market leaders in the radioisotope
business to inventory and deliver the radiation sources and provide related
training, testing and support services to hospitals in both the United States
and international markets. The inability to recruit or retain one or more such
entities for this purpose could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on a Key Supplier. The Company currently purchases all radiation
source materials from a single supplier. The Company believes that because of
the technical expertise and capital investment required to manufacture the
radiation source materials, it could be extremely difficult and expensive to
find an alternate source of supply. Any failure or disruption in the ability of
the supplier to provide the radiation source materials could have a material
adverse effect on the business, financial condition and results of operations of
the Company.
11
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Patents and Proprietary Rights. The Company's success will depend, in part, on
its ability to obtain patent protection for its products, preserve its trade
secrets through copyrights and confidentiality agreements, and operate without
infringing the proprietary rights of others. The Company's strategy is to
actively pursue patent protection in the United States and foreign jurisdictions
for technology that it believes to be proprietary and that offers a potential
competitive advantage for its products. The Company received a Notice of
Allowance from the U.S. Patent and Trademark Office ("USPTO"), indicating that
the Company's first patent application for its Beta-Cath(TM) System has been
allowed for issuance as a United States patent. The Company also holds eight
issued United States patents and two issued foreign patents, and has twelve
United States patent applications pending and has filed, or will file,
counterpart applications in several foreign countries. The Company employs a
full time manager of intellectual property to prepare invention records and to
coordinate the prosecution of new intellectual property.
The Company received a letter from NeoCardia, L.C.C. ("NeoCardia") dated July 7,
1995, in which NeoCardia notified the Company that NeoCardia is the exclusive
licensee of U.S. Patent No. 5,199,939 (the "Dake Patent") and requested that the
Company confirm that its products did not infringe the claims of the Dake
Patent. The Company has concluded based upon advice of patent counsel that the
Company's Beta-Cath(TM) System would not infringe any valid claim of the Dake
Patent. On August 22, 1995, on behalf of the Company, its patent counsel
responded that the Company did not infringe the Dake Patent.
In June 1997 the USPTO issued a final Office Action with respect to two merged
reexamination requests relating to the Dake Patent. In the final Office Action
the patent examiner upheld the patentability of some of the original claims and
certain new claims for the Dake Patent but rejected other claims. In August 1997
the holder of the Dake Patent filed an amendment in response to the final Office
Action seeking, among other things, to add certain additional new method claims
calling for the inserting of a radioactive means or element into the carrier or
device after the carrier or device is in place in the artery or lumen. In
October 1997 the examiner, however, rejected these particular additional new
claims, as indefinite and improperly attempting to broaden the scope of certain
of the original claims; the examiner concluded that those original claims set
forth inserting a device which comprises the radioactive elements or means, and
that the proposed new claims would preclude the device from including these
elements while the device is being inserted ino the artery or lumen. The
examiner also rejected for indefiniteness a pending apparatus claim that called
for radioctive means positioned in the carrier after the carrier is placed in
the artery. The examiner indicated that the remaining claims were patentable.
The holder of the Dake Patent has the right to appeal any final rejection of any
claims presented. The Company continues to believe based upon advice of counsel
and the Office Action of the USPTO in the Dake Patent reexamination that the
Beta-Cath(TM) System would not infringe any original, amended or new claims of
the Dake Patent which survive the reexamination proceeding.
In May 1997 Guidant Corporation ("Guidant") acquired NeoCardia. Guidant is a New
York Stock Exchange-listed, medical device company and is a competitor of
Novoste. Guidant has significantly greater capital resources than the Company.
There can be no assurance that Guidant will not sue the Company for patent
infringement and obtain damages from the Company and/or injunctive relief
restraining the Company from commercializing the Beta-Cath(TM) System in the
U.S., or that the Company will not be required to obtain a license from Guidant
to market the Beta-Cath(TM) System in the U.S., any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations or could result in cessation of the Company's business.
Product Development. The focus of the Company's current development efforts is
to design future generation components of the Beta-Cath(TM) System. The medical
device industry is characterized by rapid and significant technological change.
Therefore, the Company's future success will depend in a large part
on the Company's ability to continue to respond to such changes, as well as
expand the applications for which its products are used, through the timely
development and successful introduction of enhanced and new versions of its
Beta-Cath(TM) System. Product research and development will require substantial
12
<PAGE>
expenditures and will be subject to inherent risks, and there can be no
assurance that any new product introduced will receive regulatory approval or
will be commercially successful.
Highly Competitive Market; Risk of Alternative Therapies. Competition in the
medical device industry, and specifically the market for cardiovascular devices,
is intense. Many companies are developing devices and therapies to improve the
outcome of coronary revascularization procedures and to reduce the frequency of
restenosis, such as coronary stents. Other companies have various radiation
therapy products under development to reduce restenosis. In addition, drugs,
gene therapy and other minimally invasive catheter-based procedures are
currently being developed. Many of the Company's competitors and potential
competitors have substantially greater financial resources than the Company and
also have greater resources and expertise in the areas of research and
development, obtaining regulatory approvals, manufacturing and marketing. There
can be no assurance that the Company's competitors will not succeed in
developing, marketing and distributing technologies and products that are more
effective than those developed and marketed by the Company or that would render
the Company's technology and products obsolete or noncompetitive. Additionally,
there is no assurance that the Company will be able to compete effectively
against such competitors in terms of manufacturing, marketing and sales.
New Accounting Pronouncements
In February 1997 the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 128, "Earnings per Share", which will change
the current method of computing earnings per share. The new standard requires
presentation of "basic earnings per share" and "diluted earnings per share"
amounts, as defined. SFAS No. 128 will be effective for the Company's quarter
and year ending December 31, 1997, and, upon adoption, all prior-period earnings
per share data presented shall be restated to conform with the provisions of the
new pronouncement. Application earlier than the Company's quarter ending
December 31, 1997 is not permitted. The adoption of SFAS 128 is not anticipated
to have a material impact on operations.
13
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Matters
In June 1997 the U.S. Patent and Trademark Office ("USPTO") issued a final
Office Action with respect to two merged reexamination requests relating to the
Dake Patent. In the final Office Action the patent examiner upheld the
patentability of some of the original claims and certain new claims for the Dake
Patent but rejected other claims. In August 1997 the holder of the Dake Patent
filed an amendment in response to the final Office Action seeking, among other
things, to add certain additional new method claims calling for the inserting of
a radioactive means or element into the carrier or device after the carrier or
device is in place in the artery or lumen. In October 1997 the examiner,
however, rejected these particular additional new claims, as indefinite and
improperly attempting to broaden the scope of certain of the original claims;
the examiner concluded that those original claims set forth inserting a device
which comprises the radioactive elements or means, and that the proposed new
claims would preclude the device from including these elements while the device
is being inserted ino the artery or lumen. The examiner also rejected for
indefiniteness a pending apparatus claim that called for radioctive means
positioned in the carrier after the carrier is placed in the artery. The
examiner indicated that the remaining claims were patentable. The holder of the
Dake Patent has the right to appeal. See Patents and Proprietary Technology in
Certain Factors That May Impact Future Operations for further discussion.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(11) Computation of net loss per share
(27) Financial data schedule
(b) The Company did not file any reports on Form 8-K during the three months
ended September 30, 1997.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NOVOSTE CORPORATION
October 17, 1997 s/Thomas D. Weldon
- ------------------------ ------------------------------------
Date Thomas D. Weldon
President & Chief Executive Officer
October 17, 1997 s/David N. Gill
- ------------------------ ------------------------------------
Date David N. Gill
Vice President - Finance,
Chief Operating Officer
and Chief Financial Officer
(Principal Financial & Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Exhibit Description Number
- ------ ------------------- ------
11 Computation of net loss per share 17
27 Financial data schedule 18
16
Exhibit 11
Novoste Corporation
Computation of Net Loss Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average number of
shares of common stock
outstanding during the period. 8,489,546 8,086,006 8,375,739 6,002,227
Effect of common stock issued
and stock options and warrants
granted during the 12-month
period preceding April 11,
1996(1) ...................... -- -- -- 391,767
Elimination of duplicative
effect of including the same
shares in both amounts
above ........................ -- -- -- (118,616)
----------- ----------- ----------- -----------
Total common and common
equivalent shares ............ 8,489,546 8,086,006 8,375,739 6,275,378
=========== =========== =========== ===========
Net loss ..................... ($3,519,722) ($1,275,813) ($9,567,450) ($3,759,800)
=========== =========== =========== ===========
Net loss per share (2)
Primary .................. ($ 0.41) ($ 0.16) ($ 1.14) ($ 0.60)
=========== =========== =========== ===========
Fully Diluted ............ ($ 0.41) ($ 0.16) ($ 1.14) ($ 0.60)
=========== =========== =========== ===========
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, Common Stock issued and stock options and warrants granted at
prices below the initial public offering price per share during the
12-month period immediately preceding the initial filing date of the
Company's Registration Statement for its initial public offering have been
included as outstanding for all periods presented which include periods
prior to such filing date using the treasury stock method.
(2) Since the impact of including common stock equivalents is anti-dilutive for
both primary and fully diluted loss per share, the calculation of loss per
share for both purposes is identical.
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 15,737,474
<SECURITIES> 3,961,633
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,847,321
<PP&E> 1,866,684
<DEPRECIATION> 798,487
<TOTAL-ASSETS> 21,274,350
<CURRENT-LIABILITIES> 1,781,053
<BONDS> 0
0
0
<COMMON> 85,029
<OTHER-SE> 19,408,268
<TOTAL-LIABILITY-AND-EQUITY> 21,274,350
<SALES> 29,313
<TOTAL-REVENUES> 29,313
<CGS> 0
<TOTAL-COSTS> 10,536,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 939,810
<INCOME-PRETAX> (9,567,450)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,567,450)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,567,450)
<EPS-PRIMARY> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
