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 June 30, 1999.
|_| 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
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3890 Steve Reynolds 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 July 30, 1999 there were 14,152,612 shares of the Registrant's Common
Stock outstanding.
Exhibit Index on page: 24
Total number of pages: 28
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NOVOSTE CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Operations (unaudited) for
the three and six months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited) for
the six months ended June 30, 1999 and 1998 5
Notes to Unaudited Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-20
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
EXHIBIT INDEX 24
2
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NOVOSTE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 11,461,321 $ 2,352,517
Short-term investments 46,294,389 23,695,451
Accounts receivable 490,684 8,775
Inventory 1,842,953 537,351
Prepaid expenses 233,274 168,142
------------- -------------
Total current assets 60,322,621 26,762,236
------------- -------------
Property and equipment, net 2,974,976 2,327,467
License agreements, net 119,303 126,121
Other assets 291,265 266,408
------------- -------------
$ 63,708,165 $ 29,482,232
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,513,497 $ 1,059,591
Accrued expenses and taxes withheld 4,651,560 3,905,548
------------- -------------
Total current liabilities 6,165,057 4,965,139
------------- -------------
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;
14,132,392 and 10,704,817 shares issued, respectively 141,324 107,048
Additional paid-in capital 127,174,068 77,022,814
Accumulated deficit (67,781,284) (52,281,002)
------------- -------------
59,534,108 24,848,860
Less treasury stock, 5,780 shares of common stock at cost (23,840) (23,840)
Unearned compensation (1,967,160) (307,927)
------------- -------------
Total shareholders' equity 57,543,108 24,517,093
------------- -------------
$ 63,708,165 $ 29,482,232
============= =============
</TABLE>
See accompanying notes.
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NOVOSTE CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net sales $ 553,914 $ -- $ 637,826 $ --
Cost of sales 499,012 -- 676,908 --
------------ ------------ ------------ ------------
Gross margin 54,902 -- (39,082) --
------------ ------------ ------------ ------------
Operating expenses
Research and development 5,672,618 3,984,103 11,835,387 7,912,637
General and administrative 1,070,393 541,548 1,814,171 1,052,866
Sales and marketing 1,467,260 505,468 2,841,266 871,426
------------ ------------ ------------ ------------
Total operating expenses 8,210,271 5,031,119 16,490,824 9,836,929
------------ ------------ ------------ ------------
Loss from operations (8,155,369) (5,031,119) (16,529,906) (9,836,929)
------------ ------------ ------------ ------------
Interest income 717,027 585,209 1,029,624 1,213,088
------------ ------------ ------------ ------------
Net loss $ (7,438,342) $ (4,445,910) $(15,500,282) $ (8,623,841)
============ ============ ============ ============
Net loss per share $ (0.53) $ (0.43) $ (1.22) $ (0.83)
============ ============ ============ ============
Weighted average shares outstanding 14,095,791 10,464,573 12,680,973 10,424,013
============ ============ ============ ============
</TABLE>
See accompanying notes.
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NOVOSTE CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months
ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(15,500,282) $ (8,623,841)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 419,434 219,343
Issuance of stock for services or compensation 230,259 593,060
Amortization of deferred compensation 368,892
Changes in assets and liabilities:
Accounts receivable (481,909) --
Inventory (1,305,602) --
Prepaid expenses (65,132) (158,310)
Accounts payable 453,906 (501,992)
Accrued expenses and taxes withheld 746,012 517,669
Other (94,766) (188,515)
------------ ------------
Net cash used by operations (15,229,188) (8,142,586)
------------ ------------
Cash flows from investing activities
Maturity (purchase) of short-term investments (22,598,938) 5,161,239
Purchase of property and equipment (1,060,125) (962,624)
------------ ------------
Net cash (used) provided by investing activities (23,659,063) 4,198,615
------------ ------------
Cash flows from financing activities
Proceeds from issuance of common stock 47,997,055 792,244
------------ ------------
Net cash provided by financing activities 47,997,055 792,244
------------ ------------
Net increase in cash and cash equivalents 9,108,804 (3,151,727)
Cash and cash equivalents at beginning of period 2,352,517 35,993,933
------------ ------------
Cash and cash equivalents at end of period $ 11,461,321 $ 32,842,206
============ ============
</TABLE>
See accompanying notes.
5
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NOVOSTE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
Note 1. Basis of Presentation
The accompanying unaudited consolidated 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 consolidated 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, 1999.
The accompanying consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 1998 included in the Company's 1998 Annual Report on Form 10-K
filed with the Securities and Exchange Commission ("SEC").
The consolidated financial statements include the accounts of Novoste
Corporation and its wholly-owned subsidiaries incorporated in August 1998 in The
Netherlands, in December 1998 in Belgium and February 1999 in Germany.
Significant intercompany transactions and accounts have been eliminated.
Note 2. Inventories
Inventories are stated at the lower of cost or market. Inventories are comprised
of the following at June 30, 1999:
June 30, 1999 December 31, 1998
------------- -----------------
Finished Goods $1,246,908 $ 382,424
Work in Process 235,153 --
Raw Materials 360,892 154,927
---------- ----------
Total $1,842,953 $ 537,351
========== ==========
Note 3. Net Loss Per Share
The basic and diluted loss per share is computed based on the weighted average
number of common shares outstanding. Common equivalent shares are not included
in the per share calculations where the effect of their inclusion would be
antidilutive.
Note 4. Cash Equivalents and Investments
Cash equivalents are comprised of certain highly liquid investments with
maturities of less than three months at the time of their acquisition. In
addition to cash equivalents, we have investments in commercial paper that are
classified as short-term (mature in more than 90 days but less than one year).
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to 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
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using the straight-line method, which approximates the effective interest
method. Interest income is recognized when earned.
Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses
reported in a separate component of shareholders' equity, if significant. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in investment income. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in investment income. At June 30, 1999 fair
value approximated net book value for all short term investments.
Note 5. Revenue Recognition
Revenues from sales of products are recognized at the time of shipment with
allowances provided for estimated returns, warranty costs and doubtful accounts.
Note 6. Consulting Agreements
On May 13, 1999 the Company granted stock options to the members of its Clinical
Advisory Board. These grants were valued at the fair market value on the date of
grant and the related consulting expense will be recognized over the one-year
vesting period.
Note 7. Follow-on Equity Offering
On March 19, 1999 the Company completed a follow-on equity offering (the
"Offering") of 2,400,000 newly issued shares of its common stock at a public
offering price of $20 per share. On March 24, 1999 the Company issued an
additional 160,000 shares of common stock pursuant to the exercise of the
underwriters' over-allotment option. Net proceeds to the Company after the
exercise of the underwriters' over-allotment option and all related expenses
approximated $47.5 million.
7
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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 our prospectus dated March
15, 1999 under the caption "Risk Factors" beginning on page 9 and other reports
filed by the Company from time to time on Forms 10-K, 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 commenced operations as a medical device company in May 1992. Beginning
in 1994, we devoted substantially all of our efforts to developing the
Beta-CathTM System, an intraluminal beta radiation catheter delivery system
designed to reduce the frequency of restenosis subsequent to percutaneous
transluminal coronary angioplasty ("PTCA") as well as other interventional
procedures.
For the period since our capitalization through December 31, 1998 we earned
minimal non-recurring revenues and experienced significant losses in each
period. The Company commenced the active marketing of the Beta-CathTM System in
Europe in January 1999. At June 30, 1999 we had an accumulated deficit of
approximately $67.8 million. We expect to continue to incur significant
operating losses through at least 2000 as we conduct clinical trials, seek
regulatory approval or clearance for our products, continue research and
development projects, expand our sales and marketing efforts in contemplation of
product introduction and market development, and increase our administrative
activities to support our growth.
The clinical trials may not demonstrate the safety and efficacy of the Beta-Cath
System. Additionally, we may not obtain necessary approvals for the Beta-Cath
System from the FDA, the State of Georgia Department of Natural Resources or
other state or foreign governmental agencies. Our research and development
efforts may not be successfully completed. We may not successfully introduce the
Beta-Cath System or attract any significant level of market acceptance for the
Beta-Cath System or any other product we develop. We may never achieve
significant revenues from sales of our Beta-Cath System and we may never achieve
or sustain profitability.
Clinical Trials
We are currently conducting two pivotal clinical trials, the Beta-Cath System
Trial and the START Trial and three other trials of the Beta-Cath System. The
pivotal trials are intended to support a pre-market approval application to the
FDA to market our device in the United States to reduce the incidence of
coronary restenosis following PTCA, stent placement and the treatment of
"in-stent" restenosis.
The Beta-Cath System Trial. On July 30, 1997 we initiated our Beta-Cath System
Trial, a randomized, triple-masked, placebo-controlled, multicenter human
clinical trial under an investigational device
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exemption granted by the FDA. The Beta-Cath System Trial seeks to determine the
clinical safety and effectiveness of the Beta-Cath System in reducing coronary
restenosis following PTCA or stent placement. We initially targeted enrollment
for approximately 1,100 patients in the trial at up to 55 clinical sites located
in the United States. The protocol contemplates that patients will be divided
into two approximately equal subgroups, one receiving PTCA alone and one
receiving coronary stents in addition to PTCA.
Patients in each subgroup of the trial receive, determined on a random basis,
either vascular brachytherapy through the Beta-Cath System using a 30mm
radiation source train or no vascular brachytherapy through a placebo version of
the Beta-Cath System. In both subgroups, patients who receive the beta radiation
receive dosages of 14 gray for vessels ranging from 2.70 to 3.35mm and 18 gray
for vessels ranging from 3.36 to 4.00mm. The protocol provides for telephone
follow-up with patients 30 days after treatment for PTCA patients and monthly
for newly stented patients up to the eighth month, and a follow-up angiogram
eight months after the initial treatment regardless of the treatment. The
primary endpoint of the trial is the incidence of additional revascularization
procedures in the vessel originally treated within eight months. Other endpoints
of the trial include a determination of the incidence of restenosis, a
measurement of the late loss index and the frequency of major adverse cardiac
events.
As is typical for patients receiving stent placement, the patients in the stent
placement subgroup of the Beta-Cath System Trial receive anti-platelet therapy
to prevent stent thrombosis, a condition which can lead to acute closure of the
treated artery. Stent thrombosis typically occurs within 30 days of treatment in
a small percentage of patients receiving stent placement. There have been
reported incidences of stent thrombosis in the Beta-Cath System Trial. These
patients developed the condition later following their treatment than is
normally observed. As a result, in November 1998, we modified the Trial protocol
for the stent placement subgroup to extend the anti-platelet therapy from two
weeks to 60 days following stent placement and to provide for additional
follow-up contact with these patients in the second, third and fourth months
after treatment. On April 27, 1999 we announced approval of our intention to
increase patient enrollment in the stent placement subgroup of the Trial and to
extend the anti-platelet therapy to a minimum of 90 days following stent
placement. These changes were made based upon a recommendation made by the Data
Safety and Monitoring Board (DSMB) at its March 1999 meeting. The DSMB is an
independent committee of clinicians and statisticians that has responsibility
for review of the study protocol and clinical events at regular intervals during
patient enrollment into the Trial. Based on its review of the available data
set, including the incidence of major adverse cardiac events, the DSMB proposed
these changes to ensure sufficient data to evaluate the safety and effectiveness
of the Beta-Cath System with the revised anti-platelet therapy protocol. At July
27, 1999 we had enrolled 1,338 patients in the Beta-Cath System Trial at 58
clinical sites, principally located in the United States. The PTCA subgroup is
complete and we are focusing on completing the stent placement subgroup. At July
27, 1999 we planned to enroll approximately 100 more patients in that subgroup
with a goal of having approximately 480 patients in the stent placement subgroup
with the extended anti-platelet therapy.
The START Trial. On September 21, 1998 we initiated the "STents And Radiation
Therapy Trial" or START Trial, a randomized, triple-masked, placebo-controlled,
multicenter human clinical trial, under an investigational device exemption
granted by the FDA. The primary endpoint of this trial is the incidence of
additional revascularization procedures in the previously treated artery within
eight months of treatment. The START Trial seeks to determine the safety and
effectiveness of the Beta-Cath System in treating "in-stent" restenosis. We
divided patients into two approximately equal subgroups, one receiving vascular
brachytherapy through the Beta-Cath System using a 30mm radiation source train
and the other receiving no vascular brachytherapy through a placebo version of
the Beta-Cath System. Patients who received the beta radiation received dosages
of 16 gray for vessels ranging from 2.70 to 3.35mm and 20 gray for vessels
ranging from 3.36 to 4.00mm, slightly higher doses than those used in our
Beta-Cath System Trial because of radiation shielding from stents previously
implanted in a procedure unrelated to
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this trial. Although the START Trial protocol does not contemplate the placement
of new stents, we believe that approximately 20% of the enrolled patients
received new stents. We surpassed our targeted enrollment of 386 patients, and
enrollment in this trial was stopped effective April 30, 1999. A total of 476
patients were enrolled at 51 sites, located principally in the United States. A
follow-up angiogram eight months after the initial treatment will be performed
to observe the treated artery. The angiogram will be analyzed to determine if
there has been an incidence of restenosis and to measure late loss index.
Other Trials. We are currently conducting a 200 patient multicenter,
non-randomized registry trial in Europe, known as the BRIE trial. This registry
started in July 1998 and is intended to enhance market acceptance of the
Beta-Cath System among physicians and to collect additional clinical data to
support reimbursement approvals. As of July 27, 1999, 153 patients had been
enrolled at nine sites. We expect to report interim clinical results on the
first approximately 100 patients in September 1999 after receipt of the
angiographic core lab report. We estimate that approximately 60% of the BRIE
patients have received new stents. The majority of these patients were enrolled
prior to the aforementioned extension of anti-platelet therapy to a minimum of
90 days.
In addition, on June 22, 1999 we initiated the START 40 Trial. This multicenter
clinical trial has a targeted enrollment of 200 patients who will receive
vascular brachytherapy using a 40 mm active radiation source train. The START 40
Trial has an identical clinical design to the START trial and, therefore, we
will use the START Trial's control group. The purpose of this trial is to gain
regulatory approval for the longer, 40mm radiation source train.
On July 16, 1999 we treated the first patient under a Compassionate Use
protocol. This protocol allows our clinical sites to treat up to 300 patients
with the Beta-Cath System, who have had two previous failed interventions.
Results of Operations
Net loss for the three months ended June 30, 1999 was $7,438,342, or ($.53) per
share, as compared to $4,445,910 or ($.43) per share, for the three months ended
June 30, 1998. Net loss for the six months ended June 30, 1999 was $15,500,282
or ($1.22) per share as compared to $8,623,841 or ($0.83) per share for the year
earlier period. The increase in net loss for the three and six months ended June
30, 1999 compared to the year earlier period was primarily due to increased
research and development spending related to the company's clinical trials and
product development activities and increased sales and marketing spending
related to the commercial launch of the Beta-Cath System in Europe.
Net Sales. Net sales of $553,914 were recognized in the three months ended June
30, 1999 from sales of the Beta-Cath System outside the U.S. Net sales of
$637,826 were recognized for the six months ended June 30, 1999 from sales of
the Beta-Cath System outside the U.S. No revenues were earned for the three and
six months ended June 30, 1998.
Cost of Sales. Cost of sales of $499,012 were incurred in the three months ended
June 30, 1999 and $676,908 for the six months ended June 30, 1999. No cost of
sales were incurred for the three and six months ended June 30, 1998. The
Company expects cost of sales to exceed sales for the year ended 1999 as the
Company ramps up both its European production and sales activities.
Research and Development Expenses. Research and development expenses increased
42% to $5,672,618 for the three months ended June 30, 1999 from $3,984,103 for
the three months ended June 30, 1998. For the six months ended June 30, 1999
research and development expenses increased 50% to $11,835,387 from $7,912,637
for the same period in 1998. These increases were primarily the result of
patient
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enrollment and follow-up costs in the Company's clinical trials, the cost of
supplying the Beta-Cath System to all the clinical sites, and costs related to
the ongoing development of the Beta-Cath System.
Sales and Marketing Expenses. Sales and marketing expenses increased 190% to
$1,467,260 for the three months ended June 30, 1999 from $505,468 for the three
months ended June 30, 1998. For the six months ended June 30, 1999 sales and
marketing expenses increased 226% to $2,841,266 form $871,426 for the same
period in 1998. These increases were primarily the result of higher personnel,
trade show, consulting and promotional literature costs associated with
marketing the Company's product and building a direct sales operation in Europe.
The Company expects sales and marketing expenses to significantly increase in
the future, as direct distribution is expanded in Europe, and if and when the
Beta-Cath System is approved by the FDA and launched commercially in the U.S.
General and Administrative Expenses. General and administrative expenses
increased 98% to $1,070,393 for the three months ended June 30, 1999 from
$541,548 for the three months ended June 30, 1998. For the six months ended June
30, 1999 general and administrative expenses increased 72% to $1,814,171 from
$1,052,866 for the same period in 1998. This increase for the three and six
month period was primarily the result of additional management personnel and
higher salaries. The Company expects general and administrative expenses to
increase in the future in support of a higher level of operations.
Interest Income. Net interest income increased 23% to $717,027 for the three
months ended June 30, 1999 from $585,209 for the three months ended June 30,
1998. For the six months ended June 30, 1999 interest income decreased 15% to
$1,029,624 from 1,213,088. The increase in interest income for the quarter was
primarily due to the increase in average cash equivalent and short-term
investment balances arising from the follow-up public offering completed in
March 1999.
Liquidity and Capital Resources
During the six months ended June 30, 1999 and 1998 the Company used cash to fund
operations of $15.2 million and $8.1 million, respectively. The increase in cash
used in operations was due primarily to increased research and development
activities and the expansion of marketing activities in Europe. At June 30, 1999
the Company had commitments to purchase $3.6 million in inventory components of
the Beta-Cath System over the next year. 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
System, subject to the factors discussed below.
On March 19, 1999 the Company completed a follow-on public offering (the
"Offering") of 2,400,000 newly issued shares of its common stock at a public
offering price of $20 per share. On March 24, 1999 the Company issued an
additional 160,000 shares of common stock pursuant to the exercise of the
underwriters' over-allotment option. Net proceeds to the Company after the
exercise of the underwriters' over-allotment option and all related expenses
totaled $47.5 million.
The Company's principal source of liquidity at June 30, 1999 consisted of cash,
cash equivalents and short-term investments of $57.8 million. The Company did
not have any credit lines available or outstanding borrowings at June 30, 1999.
The Company anticipates that its operating losses will continue through at least
2000 as it expends substantial resources in funding clinical trials in support
of regulatory approvals, and continues to expand research and development and
sales and marketing activities. We believe that our existing capital resources
will be sufficient to fund the company through the end of 2000, but those
resources may prove insufficient. We cannot assure that additional financing, if
required, will be available on satisfactory terms, or at all. However, the
Company's future liquidity and capital requirements will depend upon
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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 and in the larger markets of Europe, develop distributors
internationally, and to expand manufacturing capacity; market acceptance and
demand for its products; and other factors. Additional capital may be required
to launch the Beta-Cath System in the United States. 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.
Impact of Year 2000
We are in the process of evaluating the potential impact of what is commonly
referred to as the year 2000 issue, concerning the inability of certain computer
systems to properly recognize and process dates starting with the year 2000 and
beyond. We are taking steps to ensure that our business systems software and
equipment will continue to function properly after December 31, 1999. In doing
so, we have established a team, which is working directly with management to (1)
assess and test all internal information systems and other systems that may be
affected by the year 2000 date change; (2) assess and test our products that may
be affected by the year 2000 date change; (3) communicate with third parties
that supply our products to ensure they are addressing the year 2000 issue; and
(4) compose a contingency and disaster recovery plan to ensure resolution of
problems that may arise as a result of the year 2000 date change. Until we
complete this assessment, we will not be able to determine the risks of
non-compliance and our ability to conduct our business under a contingency plan.
As of June 30, 1999 items (1) and (2) above are complete. The Company is
assessing the year 2000 compliance status of its critical component and service
providers and has contacted each such vendor to assess that vendor's Year 2000
readiness. The Company is assigning each such vendor a priority rating based on
the criticality of the function it provides to the Company. As of June 30, 1999,
the Company had received responses from approximately 75% of its critical
vendors, and expects to complete a review of all of its critical vendors by no
later than August 31, 1999. Because the Company is relying on information
provided to it by third parties to assess the Year 2000 readiness of such
vendors, the Company cannot provide assurances that all of its critical vendors
are or will be Year 2000 ready. As such, we have not yet developed a complete
contingency plan. The results of internal testing and the responses received
from third-party vendors and service providers will be taken into account in
determining the nature and extent of our contingency plans, if any.
The Beta-Cath System does not contain any real time clocks and therefore the
device itself does not present any year 2000 issues.
With respect to our internal business systems, an assessment of equipment and
software was started in September 1998. In addition, in anticipation of in-house
manufacturing, we purchased a complete manufacturing software package in January
1998 that includes integrated financial modules that replace our previous
financial software program. The contract for the purchase of the new software
package requires year 2000 compliance. We have completed testing to determine
that our internal systems are year 2000 compliant. All internal systems critical
to the Company's overall business have been inventoried and evaluated. Certain
of the Company's internal systems will be upgraded during the third quarter of
1999 to ensure compliance. We believe that this time frame will allow internal
auditing and testing of our systems, as well as further remediation, if
necessary.
We plan to devote the necessary resources to resolve all significant year 2000
issues in a timely manner. Based upon current estimates, we expect capital
expenditures of approximately $100,000 will be necessary to achieve year 2000
compliance. As of June 30, 1999 the Company has expended approximately $40,000
for year 2000 compliance.
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Regardless of the year 2000 compliance of our systems and products, we may be
adversely affected by disruptions in the operations of the enterprises with
which we interact. These business enterprises include suppliers, clinical
research organizations, corporate partners, both domestic and international,
government agencies, hospitals, physicians and other third parties. We cannot
reasonably predict the impact on our operations and financial condition if any
such businesses are adversely affected by the year 2000 issue.
Statements made herein about the implementation of various phases of our year
2000 program, the costs expected to be associated with that program and the
results we expect to achieve constitute forward-looking information. There are
many uncertainties involved in the year 2000 issue and the following important
factors, among others, could affect the impact of the year 2000 issue: (1) the
inherent uncertainty of the costs and timing of achieving compliance on the wide
variety of systems used by us, (2) the reliance on the efforts of vendors,
customers, government agencies and other third parties beyond our control to
achieve adequate compliance and avoid disruption of our business in early 2000
and (3) the uncertainty of the ultimate costs and consequences of any
unanticipated disruption of our business resulting from the failure of one of
our applications or of a third party's systems.
CERTAIN FACTORS THAT MAY IMPACT FUTURE OPERATIONS
Dependence On The Successful Development And Commercialization Of The Beta-Cath
System
We have not yet successfully commercialized any product in the United States and
only started to sell the Beta-Cath System in Europe in December 1998. We
anticipate that for the foreseeable future we will be solely dependent on the
successful development and commercialization of the Beta-Cath System. Failure to
commercialize the Beta-Cath System would have a material adverse effect on our
business, financial condition and results of operations.
The Beta-Cath System will require further development and clinical testing, as
well as regulatory approval, before we can market it in the United States. Our
development efforts and clinical testing may not be successful.
Commercialization of the Beta-Cath System in Europe is subject to certain
additional risks. Physicians in Europe are generally less receptive to and
slower to adopt new medical devices and technologies than physicians in the
United States due to various factors. These factors include the influence of
national health care policies and reimbursement strategies of health care payors
and the frequent absence of pivotal human clinical trial results at the time a
manufacturer qualifies to apply the CE marking to a new medical device and
commences sale of the device. We may never achieve significant revenue from
sales in Europe or ever achieve or sustain profitability in our European
operations.
Limited Operating History; History Of Losses And Expectation Of Future Losses
Through At Least The Year 2000
We have a limited history of operations. Since our inception in May 1992, we
have been primarily engaged in developing and testing our Beta-Cath System. We
have generated only limited revenue and do not have experience in manufacturing,
marketing or selling our products in quantities necessary for achieving
profitability.
At June 30, 1999 we had accumulated a deficit of approximately $67.8 million
since our inception in 1992. The commercialization of the Beta-Cath System and
other new products, if any, will require substantial additional development,
clinical, regulatory, manufacturing, sales and marketing and other expenditures.
We expect our operating losses to continue through at least 2000 as we continue
to expand
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our product development, clinical trials and marketing efforts. We may never
commercialize the Beta-Cath System, or any other product, or achieve or sustain
profitability.
Clinical Testing Of Beta-Cath System; No Assurance Of Its Safety And
Effectiveness
The safety and effectiveness of the Beta-Cath System has not been determined in
a placebo-controlled, pivotal trial. We are currently conducting two
multi-center human clinical trials of the Beta-Cath System to determine its
safety and effectiveness. At July 27, 1999 we had enrolled 1,338 patients in the
Beta-Cath System Trial at 58 clinical sites. The PTCA subgroup is complete and
we plan to enroll approximately 100 more patients in the stent placement
subgroup. We completed enrollment in the START Trial in April 1999 by having
enrolled 476 patients at 51 sites, principally located in the United States.
As is typical for patients receiving stent placement, the patients in the stent
placement subgroup of the Beta-Cath System Trial receive anti-platelet therapy
to prevent stent thrombosis, a condition which can lead to acute closure of the
treated artery. Stent thrombosis typically occurs within 30 days of treatment in
a small percentage of patients receiving stent placement. There have been
reported incidences of stent thrombosis in the Beta-Cath System Trial. These
patients developed the condition later following their treatment than is
normally observed. As a result, in November 1998, we modified the Trial protocol
for the stent placement subgroup to extend the anti-platelet therapy from two
weeks to 60 days following stent placement and to provide for additional
follow-up contact with these patients in the second, third and fourth months
after treatment. On April 27, 1999 we announced approval of our intention to
increase patient enrollment in the stent placement subgroup of the Trial by up
to 300 more patients and to extend the anti-platelet therapy to a minimum of 90
days following stent placement. These changes were made based upon a
recommendation made by the Data Safety and Monitoring Board (DSMB) at its March
1999 meeting. Based on its review of the available data set, including the
incidence of major adverse cardiac events, the DSMB proposed these changes to
ensure sufficient data to evaluate the safety and effectiveness of the Beta-Cath
System with the revised anti-platelet therapy protocol.
Both of our current pivotal trials require follow-up examinations with patients
after eight months. It is only after analysis of a statistically significant
number of patients in one of these trials that we would apply for the regulatory
approvals required to commence marketing the Beta-Cath System in the United
States. Various factors, including difficulties in enrolling patients and
performing follow-up examinations on patients, could delay completion of either
trial for an indeterminate amount of time. The data from these trials, if
completed, may not demonstrate the safety and effectiveness of the Beta-Cath
System and may not be adequate to support our application to the FDA for
pre-market approval. In particular, we cannot be sure that the incidence of
stent thrombosis seen in the Beta-Cath System Trial will be resolved by the
protocol modification. If the Beta-Cath System does not prove to be safe and
effective in clinical trials, our business, financial condition and results of
operations will be materially adversely affected. In addition, the clinical
trials may identify significant technical or other obstacles to obtaining
necessary regulatory approvals. Because vascular brachytherapy in human coronary
arteries is a relatively new treatment, the long-term effects on patients are
not known and likely will not be known for several years. As a result, even if
our current clinical trials indicate the Beta-Cath System is safe and effective
over an eight-month period, we cannot be sure that the Beta-Cath System will be
safe and effective over the long term.
No Assurance of Regulatory Approvals
United States Pre-Market Approvals
We will not be able to commence marketing or commercial sales of the Beta-Cath
System in the United States unless we receive pre-market approval from the FDA.
We do not expect to submit a pre-market approval application until the second
quarter of 2000 at the earliest, following analysis of a statistically
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significant number of patients in the START Trial. We do not anticipate making
an additional submission to the FDA seeking approval to market the Beta-Cath
System for reducing the incidence of restenosis following PTCA or stent
placement prior to the second half of 2000, after analysis of a statistically
significant number of patients in the Beta-Cath System Trial.
We do not anticipate FDA approval of any application to market the Beta-Cath
System in the United States for any indication any earlier than one year after
the FDA accepts the application for filing. Assuming the START Trial yields
positive results, we expect that our application submitted to the FDA seeking
approval to market the Beta-Cath System in the United States to treat "in-stent"
restenosis will be submitted first and will be based upon the enrollment of 476
patients in that Trial. The FDA could require that we submit results from our
Beta-Cath System Trial prior to considering our initial application for approval
of our device in treating "in-stent" restenosis. Instead of filing an
additional, separate application, we may amend our initial application relating
to "in-stent" restenosis to seek pre-market approval of the Beta-Cath System for
use following PTCA and stent placement based upon the results of the Beta-Cath
System Trial. If we file such an amendment, the FDA would restart the statutory
review period for our initial application as of the date of the filing of the
amendment. This would cause a delay in obtaining FDA approval. Moreover, if
either Trial does not yield positive results, the FDA's consideration of any
application we have submitted could be adversely affected; any such application
could be refused filing for substantive review, or if filed, could be subject to
requests for substantial amounts of additional information, or ultimately could
be denied approval.
The FDA may request additional data or require that we conduct further clinical
trials, either of which could delay or preclude our receipt of pre-market
approval as well as require significant additional expenditures. Such a delay or
failure to receive pre-market approval would have a material adverse effect on
our business, financial condition and results of operations and could result in
cessation of our operations. Even if we receive approval based on the results of
the START Trial, we will be limited to marketing the Beta-Cath System for use
with patients who are being treated for "in-stent" restenosis in a single
coronary artery. In order to market the Beta-Cath System for a broader range of
patients, we will seek to expand the indications for which the Beta-Cath System
can be marketed to include patients receiving PTCA or stent placement. Even if
we receive approval based on the results of the Beta-Cath System Trial, we would
be limited to marketing the Beta-Cath System for use with patients who are being
treated for one lesion in a single coronary artery following PTCA or stent
placement. In order to market the Beta-Cath System for use with a broader range
of patients, we will likely be required to demonstrate to the FDA through
additional clinical trials that the Beta-Cath System is safe and effective in
treating a broader range of indications and the FDA must approve a pre-market
approval application, application amendment or application supplement covering
the broader range of indications for the device.
Foreign Pre-Market Approvals.
Sales of the Beta-Cath System outside the United States are subject to
regulatory requirements that vary widely from country to country but generally
include pre-marketing governmental approval. The time required to obtain
approval for sale in foreign countries may be longer or shorter than required
for FDA approval, and the requirements for the conduct of clinical trials,
marketing authorization, pricing and reimbursement differ from those in the
United States. Moreover, the export of medical devices from the United States
must be in compliance with FDA regulations. In August 1998 we qualified to apply
CE marking to the Beta-Cath System, a requirement necessary to sell our device
in most of Western Europe. We are subject to continuing audit and reporting
requirements related to this marking. We may be delayed or precluded from
marketing the Beta-Cath System in other foreign countries. Foreign pre-market
and other regulatory approvals of the Beta-Cath System, if granted, may include
significant limitations on the indicated uses for which the device may be
marketed.
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Approvals to Use, Handle and Transfer Radioactive Materials.
Our business involves the import, manufacture, transfer, use and disposal of
Strontium 90 (Strontium/Yttrium), the beta-emitting radioisotope utilized in the
Beta-Cath System's radiation source train. Accordingly, manufacture,
distribution, use and disposal of the radioactive material used in the Beta-Cath
System in the United States will be subject to federal, state and/or local laws
and regulations relating to the use and handling of radioactive materials.
Specifically, we must obtain approval from the State of Georgia Department of
Natural Resources to commercially distribute our radiation sources to licensed
recipients in the United States. In addition, we must also comply with NRC,
Georgia and United States Department of Transportation regulations on the
labeling and packaging requirements for shipment of radiation sources to
hospitals or other users of the Beta-Cath System. Further, hospitals and/or
physicians in the United States may be required to amend their radiation
licenses to hold, handle and use Strontium 90 prior to receiving and using our
Beta-Cath System.
The distribution and use of the Beta-Cath System outside the United States is
subject to radiation regulatory requirements that vary from country to country
and sometimes vary within a given country. Generally, each country has a
national regulatory agency responsible for regulating the safe practice and use
of radiation in its jurisdiction. In addition, each hospital desiring to use the
Beta-Cath System is generally required to amend its license to store, handle and
receive the Strontium 90 sources in our device. Generally, these licenses are
specific to the amount and type of radioactivity utilized. In addition,
generally the use of a radiation source by a physician, either for a diagnostic
or therapeutic application, also requires a license, which again is specific to
the isotope and the clinical application.
Obtaining any of the foregoing radiation-related approvals and licenses can be
complicated and time consuming. If we or any hospital or physician is
significantly delayed in obtaining any of the foregoing approvals or any of
those approvals are not obtained, our business, financial condition and results
of operations could be materially adversely affected.
Rapid Technological Change And Intense Competition
Competition in the medical device industry, and specifically the markets for
cardiovascular devices, is intense and characterized by extensive research and
development efforts and rapidly advancing technology. New developments in
technology could render vascular brachytherapy generally or the Beta-Cath System
in particular noncompetitive or obsolete.
Vascular brachytherapy may compete with other treatment methods designed to
improve outcomes from coronary artery procedures that are well established in
the medical community, such as coronary stents. Stents are the predominant
treatment currently utilized to reduce the incidence of coronary restenosis
following PTCA and were used in approximately 60% of all PTCA procedures
performed worldwide in 1998. Manufacturers of stents include Johnson &
Johnson/Cordis, Medtronic, Inc., Guidant Corporation and Boston Scientific
Corporation. Stent manufacturers often sell many products used in the cardiac
catheterization labs, commonly referred to as cath labs, and as discussed below
certain of these companies are developing vascular brachytherapy devices.
Other devices under development that use vascular brachytherapy include:
o a radioactive-tipped guidewire;
o a radioactive stent; and
o a radioactive fluid-filled balloon.
The most advanced competitive approach may be represented by the radioactive
guidewire, as we are aware that Johnson & Johnson/Cordis and Guidant are
investigating this general type of device in the
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pivotal clinical trial stage in the United States. Many of our competitors and
potential competitors have substantially greater capital resources than we do
and also have greater resources and expertise in the areas of research and
development, obtaining regulatory approvals, manufacturing and marketing. We
cannot assure you that competitors and potential competitors will not succeed in
developing, marketing and distributing technologies and products that are more
effective than those we will develop and market or that would render our
Beta-Cath System obsolete or noncompetitive. Additionally, many of the
competitors have the capability to bundle a wide variety of products in sales to
cath labs. We may be unable to compete effectively against such competitors and
other potential competitors in terms of manufacturing, marketing and sales.
Any product we develop that gains regulatory clearance or approval will have to
compete for market acceptance and market share. An important factor in such
competition may be the timing of market introduction of competitive products.
Accordingly, we expect the relative speed with which we can develop products,
gain regulatory approval and reimbursement acceptance and supply commercial
quantities of the product to the market to be an important competitive factor.
One of our competitors, Johnson & Johnson/Cordis, has recently submitted a
pre-market approval application to the FDA for its gamma-emitting vascular
brachytherapy device. Other manufacturers may be the first to market a vascular
brachytherapy system to reduce the incidence of restenosis in the United States.
We may also not be the first to market a beta-emitting vascular brachytherapy
system in the United States or be able to market such a system effectively.
Limitations On Third-Party Reimbursement For The Beta-Cath System
The Beta-Cath System, where approved for commercial sale, will be sold primarily
to hospitals. Hospitals and physicians bill various third-party payors, such as
government health programs, private health insurance plans, managed care
organizations and other similar programs, for the health care services provided
to their patients.
If and when we receive FDA approval to market the Beta-Cath System in the United
States, third-party payors may not cover procedures using the Beta-Cath System
or, if covered, third-party payors may place certain restrictions on the
circumstances in which coverage will be available. In addition, payors may deny
reimbursement if they determine a product was not used in accordance with
established payor protocol regarding cost-effective treatment methods or was
used for an unapproved indication. Third-party payors are increasingly
challenging the prices charged for medical products and services and, in some
instances, have put pressure on medical device suppliers and health care
providers to lower their prices. We are unable to predict what changes
third-party health care payors will make in their reimbursement methodologies.
Third-party payors or health care providers may not consider the Beta-Cath
System cost-effective and may not reimburse for its usage or, if they do, may
reimburse at levels that adversely affect its market acceptance and our ability
to sell the Beta-Cath System on a profitable basis.
The cost of health care has risen significantly over the past decade, and
legislators, regulators, third-party payors and health care providers have made
and may continue to make proposals to curb these costs. Failure by hospitals and
physicians to obtain reimbursement from third-party payors, changes in
third-party payors' policies toward reimbursement for the Beta-Cath System or
legislative action could have a material adverse effect on our business,
financial condition and results of operations.
Reimbursement systems in international markets vary significantly by country and
by region within some countries, and reimbursement approvals must be obtained on
a country-by-country basis. Many international markets have government managed
health care systems that control reimbursement for new devices and procedures.
In most markets there are private insurance systems as well as government
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managed systems. Reimbursement for our products may not be available in
international markets under either government or private reimbursement systems.
Uncertainty Of Market Acceptance Of Vascular Brachytherapy And The Beta-Cath
System
Even if we obtain regulatory approvals and reimbursement from third party payors
for the use of the Beta-Cath System, our device may not gain any significant
degree of market acceptance among physicians and patients. Vascular
brachytherapy is a new treatment method and has not been used to any significant
extent by physicians outside the context of clinical trials. We believe that
physicians' acceptance of vascular brachytherapy generally and the Beta-Cath
System in particular will be essential for our operations and we may not obtain
this acceptance. Even if we establish clinical efficacy of the Beta-Cath System,
cardiologists, radiation oncologists and other physicians may elect not to
recommend vascular brachytherapy generally or the Beta-Cath System in
particular. Even if recommended, physicians may not utilize the Beta-Cath System
in a sufficient number of procedures to generate significant revenues or to
enable us to operate profitably. In addition, market acceptance of our device
could be hindered because using the Beta-Cath System currently requires the
participation not only of an interventional cardiologist, but also a radiation
oncologist appropriately credentialed to administer our beta radiation source
train.
Uncertainty Regarding Our Issued Patent, Pending Patent Applications And Other
Matters
On November 4, 1997 we received United States Patent No. 5,683,345 on the
Beta-Cath System and on May 4, 1999 we received United States Patent No.
5,899,882. United States Patent Nos. 5,683,345 and 5,899,882 may not offer any
protection to us. It may also be reexamined, invalidated or circumvented. In
addition, claims under our other pending applications may not be allowed, or if
allowed, may not offer any protection or may be reexamined, invalidated or
circumvented. Competitors may have or obtain patents that will prevent, limit or
interfere with our ability to make, use or sell our products in either the
United States or international markets.
We received a letter from NeoCardia, L.L.C., dated July 7, 1995, in which
NeoCardia notified us that it is the exclusive licensee of United States Patent
No. 5,199,939, or the Dake patent, and requested that we confirm that our
products did not infringe the claims of the Dake patent. On August 22, 1995 our
patent counsel responded on our behalf that we did not infringe the Dake patent.
The United States Patent and Trademark Office later reexamined the Dake patent.
In the reexamination proceeding some of the patent claims were amended and new
claims were added. We have concluded, based upon advice of patent counsel, that
our Beta-Cath System would not infringe any claim of the Dake patent as
reexamined.
In May 1997 Guidant acquired NeoCardia together with the rights under the Dake
patent. Guidant is attempting to develop and commercialize products that may
compete with the Beta-Cath System and has significantly greater capital
resources than the company. Guidant may sue for patent infringement in an
attempt to obtain damages from us and/or injunctive relief restraining us from
commercializing the Beta-Cath System in the United States. If Guidant were
successful in any such litigation, we might be required to obtain a license from
Guidant under the Dake patent to market the Beta-Cath System in the United
States, if such license were available, or be prohibited from selling the
Beta-Cath System in the United States. Any of these actions could have a
material adverse effect on our business, financial condition and results of
operations, or could result in cessation of our business.
We have two versions of our delivery catheter: a "rapid exchange" catheter and
an "over the wire" catheter. As a result of certain United States patents held
by other medical device manufacturers covering "rapid exchange" catheters, we
currently intend to sell the "over the wire" version of our delivery catheter
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in the United States. If further investigation reveals that we may sell a "rapid
exchange" version in the United States without infringing the valid patent
rights of others, we might decide to do so in the future. However, we cannot
assure that we will be able to sell a "rapid exchange" version in the United
States without a license of third party patent rights or that such a license
would be available to us on favorable terms or at all.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that we will not become subject
to patent-infringement claims or litigation or interference proceedings declared
by the United States Patent and Trademark Office to determine the priority of
inventions. The defense and prosecution of intellectual property suits, or
interference proceedings and related legal and administrative proceedings are
both costly and time-consuming. Litigation may be necessary to enforce our
patents, to protect our trade secrets or know-how or to determine the
enforceability, scope and validity of the proprietary rights of others. Any
litigation or interference proceedings will result in substantial expense to us
and significant diversion of effort by our technical and management personnel.
An adverse determination in litigation or interference proceedings to which we
may become a party could subject us to significant liabilities to third parties,
require us to seek licenses from third parties, require us to redesign our
products or processes to avoid infringement or prevent us from selling our
products in certain markets, if at all. Although patent and intellectual
property disputes regarding medical devices have often been settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include significant ongoing royalties. Furthermore,
there can be no assurance that the necessary licenses would be available to us
on satisfactory terms, if at all, or that we could redesign our products or
processes to avoid infringement. Any adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling our products, which would have a material
adverse effect on our business, financial condition and results of operations.
Dependence On Single Vendor To Supply Radioisotopes
To date, we have obtained all our beta radiation isotope requirements from a
single supplier, Bebig Isotopentechnik und Umweltdiagnostik GmbH, a German
corporation. Our supply agreement with Bebig has an initial term ending in
November 2000. During the term, we have agreed not to purchase more than 30% of
our annual radioisotope requirements from any supplier other than Bebig. In view
of the technical expertise and capital investment required to manufacture the
radioactive sources and the limited number of manufacturers of Strontium 90, it
would be difficult to find an alternate source of supply. Our business, results
of operations and financial condition could be materially adversely affected by
Bebig's failure to provide us with beta isotopes on a timely basis during the
term of the agreement or by our inability to obtain an alternative source of
supply on a timely basis and on terms satisfactory to us following any
termination of the agreement. In addition, portions of the process used to
manufacture the materials may be proprietary to Bebig. Bebig has no obligation
to make any of its know-how or technology available to us or to any alternate
source of supply, except in limited circumstances.
Limited Manufacturing Experience; Scale-Up Risk
To date, we have not yet successfully commercialized the Beta-Cath System, and
our manufacturing activities have consisted of producing small quantities of our
products for use in clinical trials and our initial product launch in Europe. To
achieve profitability, the Beta-Cath System must be manufactured in commercial
quantities in compliance with regulatory requirements and at acceptable costs.
Production in commercial quantities will require us to expand our manufacturing
capabilities and to hire and train additional personnel. We have no experience
in manufacturing our products in commercial quantities. We may encounter
difficulties in scaling up production, including problems involving production
yields,
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quality control and assurance, component supply and shortages of qualified
personnel. Difficulties encountered in manufacturing scale up could have a
material adverse effect on our business, financial condition and results of
operations. We cannot assure that future manufacturing difficulties, which could
have a material adverse effect on our business, financial condition and results
of operations, will not occur.
Risk Of Inadequate Funding
We anticipate that our losses will continue through at least the year 2000 as we
expend substantial resources to fund clinical trials in support of regulatory
approvals, continue development of the Beta-Cath System and launch our product
first in Europe and then in the United States. Our future liquidity and capital
requirements will depend upon numerous factors.
We believe that our existing capital resources will be sufficient to fund the
company through the end of 2000, but those resources may prove insufficient.
Additional capital may be required to launch the Beta-Cath System in the United
States. We may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. We cannot
assure that additional financing, if required, will be available on satisfactory
terms, or at all.
Price Volatility And Fluctuations In Operating Results
The market price of our common stock could decline below the public offering
price. Specific factors relating to our business or broad market fluctuations
may materially adversely affect the market price of our common stock. The
trading price of our common stock could be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results, announcements of
technological innovations, new products or clinical data announced by us or our
competitors, governmental regulatory action, developments with respect to
patents or proprietary rights, general conditions in the medical device or
cardiovascular device industries, changes in earnings estimates by securities
analysts, or other events or factors, many of which are beyond our control. In
addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many medical
device companies and which have often been unrelated to the operating
performance of such companies. Our revenue or operating results in future
quarters may be below the expectations of securities analysts and investors. In
such an event, the price of our common stock would likely decline, perhaps
substantially. During the twelve month period ended July 30, 1999, the closing
price of our common stock ranged from a high of $30.25 per share to a low of
$11.00 per share and ended that period at $23.0625 per share.
In addition, our results of operations may fluctuate significantly from quarter
to quarter and will depend upon numerous factors, including product development
efforts, actions relating to regulatory and reimbursement matters, progress and
costs related to clinical trials, the extent to which our products gain market
acceptance, and competition. These factors may cause the price of our stock to
fluctuate, perhaps substantially.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) On July 29, 1999 the Board of Directors of the Company approved certain
amendments to the Rights Agreement, dated as of October 25, 1996 (the
"Rights Agreement"), between the Registrant and American Stock Transfer &
Trust Company, as Rights Agent. The amendments deleted certain provisions
of the Rights Agreement set forth in Sections 23 and 27 thereof. Such
deleted provisions prevented the Board of Directors from redeeming the
rights issued thereunder or amending the Rights Agreement for a 365-day
period in the event that a majority of such Board was comprised of
individuals not nominated by the then current directors following (i) a
meeting of shareholders or (ii) shareholder action by written consent. The
form of Amended and Restated Rights Agreement, dated as of July 29, 1999,
between the Registrant and the Rights Agent, which specifies the terms of
the Rights, is filed herewith as Exhibit 3.2(a) and incorporated herein by
reference. Except as set forth in the Amended and Restated Rights Plan,
each right issued thereunder, when it becomes exercisable, entitles the
registered holder to purchase from the Company one one-hundredth of a
share of Series A Participating Preferred Stock, par value $.01 per share
(the "Preferred Shares"), at a price of $85.00 per one one-hundredth of a
Preferred Share (the "Purchase Price"), subject to adjustment.
(c) On July 1, 1999, the Company issued Mr. William Hawkins, its President and
Chief Executive Officer, 25,000 restricted shares. The shares contain
restrictions on transfer which lapse over time, upon a Change of Control
(as that term is defined in the Stock Option Plan covering employees) or
upon the occurrence of certain events of termination of employment. The
restrictions lapse at the annual rate of 8,333 shares, commencing July 1,
2000. In the event of a termination of Mr. Hawkins' employment by us for
Unsatisfactory Performance, in addition to those shares that are then no
longer subject to the foregoing transfer restrictions, an additional 8,333
shares will no longer be subject to such restrictions unless all such
restrictions shall have previously lapsed. In the event of a Change of
Control or termination of Mr. Hawkins' employment by him for Good Reason
or termination of his employment by us without Cause, all restrictions on
transfer will lapse. The shares were issued pursuant to an exemption from
registration under the Securities Act of 1933 under Section 4(2) thereof.
The shares were purchased for investment and the shares have been duly
legended to reflect that they have not been registered under the
Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders on May 13, 1999 and
solicited votes by proxy in connection with such meeting.
(c) The following matters were approved by the shareholders:
(i) The approval of management's nominees to the Board of
Directors received 10,108,062 votes in favor, 0 against and
6,015 abstained.
(ii) The ratification of amendments to the Company's Amended and
Restated Stock Option Plan (the "Plan Amendments"), which Plan
Amendments (a) increase the number of shares of Common Stock
reserved for issuance thereunder by 700,000 shares to
4,100,000 shares, (b) increase the maximum number of shares
from 350,000 to 500,000 with respect to options that may be
granted to any person or entity eligible within one calendar
year, (c) to provide that the term of all options under the
Plan survive termination of employment by or association with
Novoste for a limited period of time, up to a maximum of one
year.
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Shareholders approved the Plan Amendments by votes as follows:
5,010,319 in favor, 2,658,865 against and 26,242 abstained.
(iii) The ratification of amendments to the Company's non-employee
Director Stock Option Plan (the "Plan Amendments"), which Plan
Amendments (a) increase the number of shares of Common Stock
reserved for issuance thereunder by 100,000 shares to 200,000
shares, (b) to eliminate the maximum number of shares with
respect to options that may be granted to any option holder
within any one calendar year. Shareholders approved the Plan
Amendments by votes as follows: 5,091,185 in favor, 2,573,896
against and 30,345 abstained.
(iv) The ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the year ending
December 31, 1999. The proposal received 10,107,082 votes in
favor, 1,100 against and 5,895 abstained.
Item 5. Other Information
Effective June 1, 1999 Adam G. Lowe joined the Company as Vice President,
Quality Assurance and effective July 16, 1999 Thomas K. Brooks resigned as Vice
President, Distributor Sales-Rest Of World.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
4.17(a) Form of Amended and restated Rights Agreement, dated as of July
29, 1999, between Novoste Corporation and American Stock Transfer
& Trust Company, which includes as Exhibit B thereto the Form of
Right Certificate.(1)
4.17(b) Summary of Rights to Purchase Preferred Shares of Novoste
Corporation.(1)
10.22 Restricted Stock Award dated July 1, 1999 between Novoste
Corporation and William A. Hawkins.
27 Financial data schedule
(1) Filed as same numbered Exhibit to the Registrant's Registration
Statement on Form 8-A/A filed on August 3, 1999.
(b) The Company did not file any reports on Form 8-K during the three months
ended June 30, 1999.
22
<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
August 10, 1999 /s/ William A. Hawkins
- ---------------------- ------------------------------------------
Date William A. Hawkins
President & Chief Executive Officer
August 10, 1999 /s/ David N. Gill
- ---------------------- ------------------------------------------
Date David N. Gill
Vice President - Finance,
Chief Operating Officer
and Chief Financial Officer
(Principal Financial & Accounting Officer)
23
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------ -------------------
4.17(a) Form of Amended and restated Rights Agreement, dated as of
July 29, 1999, between Novoste Corporation and American Stock
Transfer & Trust Company, which includes as Exhibit B thereto
the Form of Right Certificate.(1)
4.17(b) Summary of Rights to Purchase Preferred Shares of Novoste
Corporation.(1)
10.22 Restricted Stock Award dated July 1, 1999 between Novoste
Corporation and William A. Hawkins.
27 Financial data schedule
(1) Filed as same numbered Exhibit to the Registrant's
Registration Statement on Form 8-A/A filed on August 3, 1999.
24
NOVOSTE CORPORATION
RESTRICTED STOCK AWARD AGREEMENT
To: William A. Hawkins III
We are pleased to notify you that, by the determination of the Stock
Option and Compensation Committee of Novoste Corporation (the "Company"), 25,000
shares of common stock, $.01 par value per share (the "Restricted Stock"), of
the Company have this 1st day of July, 1999 been awarded to you, subject to the
terms and conditions set forth below. Capitalized terms not defined herein shall
have the meanings ascribed to such terms in the Employment Agreement, dated
April 23, 1998, between the Company and you (the "Employment Agreement").
In consideration of the Company's accepting this Restricted Stock
Award Agreement (this "Agreement") and awarding to you the shares of Restricted
Stock provided for herein, you hereby agrees with the Company as follows:
1. Restricted Stock.
During the period of time that any of the shares of Restricted Stock
are unvested as set forth below, the shares of Restricted Stock awarded to you
pursuant to this Agreement that shall not have vested shall not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, except by
will or the laws of descent and distribution, or as provided in this Agreement.
Shares of Restricted Stock shall vest as follows: 1.
(i) 33% of the total number of shares of Restricted Stock subject
to this Agreement on July 1, 2000;
(ii) 33% of the total number of shares of Restricted Stock subject
to this Agreement on July 1, 2001; and
(iii) 33% of the total number of shares of Restricted Stock subject
to this Agreement on July 1, 2002;
provided, however, that on any such date, you are then employed by the Company
under the Employment Agreement.
Notwithstanding the foregoing, upon the occurrence of (i) a Change
in Control (as such term is defined in the Company's Amended and Restated Stock
Option Plan) of the Company so long as you are then employed by the Company
under the Employment Agreement or (ii) the termination of your employment with
the Company (x) by the Company without Cause or without Unsatisfactory
Performance or
<PAGE>
(y) by you for Good Reason, all restrictions on shares of Restricted Stock set
forth in this Section shall immediately lapse.
2. Death, Disability and Certain Types of Termination of Employment.
If you cease to be an employee of the Company due to (i) your death,
(ii) your disability (as such term is defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"), (iii) the termination of
your employment by the Company for Cause or (iv) the termination of your
employment by you without Good Reason, you (or in the event of your death, your
legatee or legatees under your Last Will, or your personal representatives or
distributees) shall only retain ownership of those shares of Restricted Stock
that are vested and unrestricted in accordance with Section 1 hereof; all
remaining unvested and restricted shares of Restricted Stock shall be forfeited.
3. Stock Certificates.
You hereby acknowledge that any certificates evidencing shares of
Restricted Stock of the Company issued pursuant to this Agreement shall bear the
following restrictive legends:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT FOR THESE SHARES OR AN OPINION OF THE
CORPORATION'S COUNSEL THAT REGISTRATION IS NOT REQUIRED.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
RESTRICTIONS ON TRANSFER AND POTENTIAL FORFEITURE PURSUANT TO THE
PROVISIONS OF THE RESTRICTED STOCK AWARD AGREEMENT, DATED JULY 1,
1999, BETWEEN THE COMPANY AND WILLIAM A. HAWKINS III, WHICH IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICES OF NOVOSTE
CORPORATION.
4. Rights with Respect to Shares.
The undersigned shall have, after issuance of certificates for the
number of shares of Restricted Stock awarded, ownership of all such shares,
including the right to vote the same and to receive dividends or other
distributions made or paid with respect to such Restricted Stock, subject,
however, to the restrictions imposed thereon pursuant to this Agreement.
2
<PAGE>
5. Governing Law.
This Agreement shall be construed in accordance with, and any
dispute arising in connection herewith shall be governed by, the internal laws
of the State of Florida.
6. Amendments.
This Agreement may not be amended, modified or terminated except by
a writing signed by the Company and you.
Sincerely yours,
NOVOSTE CORPORATION
By: /s/ Thomas D. Weldon
----------------------------
Thomas D. Weldon
Chairman of the Board
Agreed to, acknowledged and accepted this
1st day of July, 1999.
/s/ William A. Hawkins III
- ---------------------------
William A. Hawkins III
3
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