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, 2000.
|_| 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.)
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 October 25, 2000 there were 16,069,264 shares of the Registrant's Common
Stock outstanding.
Exhibit Index on page: 27
1
<PAGE>
NOVOSTE CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999 3
Consolidated Statements of Operations (unaudited) for
the three and nine months ended September 30, 2000
and 1999 4
Consolidated Statements of Cash Flows (unaudited) for
the nine months ended September 30, 2000 and 1999 5
Notes to Unaudited Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-23
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 24
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 25
Item 4. Submission of Matters to a Vote of Security Holders 25-26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26-27
SIGNATURES 28
EXHIBIT INDEX 29
2
<PAGE>
NOVOSTE CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 49,196,757 $ 7,091,025
Short-term investments 21,730,604 34,332,667
Accounts receivable, net 2,206,105 968,804
Inventory 1,159,356 1,783,327
Prepaid expenses 595,223 216,742
------------- -------------
Total current assets 74,888,045 44,392,565
------------- -------------
Property and equipment, net 5,350,770 3,509,203
Radiation and transfer devices 3,487,086 730,654
Other assets 651,965 734,980
------------- -------------
Total assets $ 84,377,866 $ 49,367,402
============= =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 2,842,416 $ 1,112,678
Accrued expenses and taxes withheld 4,751,312 5,189,880
Unearned revenue 300,482 --
------------- -------------
Total current liabilities 7,894,210 6,302,558
------------- -------------
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;
16,068,014 and 14,201,632 shares issued, respectively 160,680 142,016
Additional paid-in-capital 184,491,929 128,182,542
Accumulated other comprehensive (loss) income (289,525) 57,722
Accumulated deficit (106,234,071) (83,201,214)
------------- -------------
78,129,013 45,181,066
Less treasury stock, 5,780 shares of common stock at cost (23,840) (23,840)
Unearned compensation (1,621,517) (2,092,382)
------------- -------------
Total shareholders' equity 76,483,656 43,064,844
------------- -------------
Total liabilities and shareholders' equity $ 84,377,866 $ 49,367,402
============= =============
</TABLE>
3
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NOVOSTE CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,445,527 $ 566,872 $ 3,583,575 $ 1,204,699
Cost of sales 977,146 539,777 2,594,894 1,216,943
------------ ------------ ------------ ------------
Gross margin 468,381 27,095 988,681 (12,244)
------------ ------------ ------------ ------------
Operating Expenses:
Research and development 5,248,267 6,115,556 13,974,188 17,950,943
Sales and marketing 3,171,584 1,678,437 8,528,790 4,519,703
General and administrative 1,855,862 917,379 4,271,017 2,731,284
------------ ------------ ------------ ------------
Total operating expenses 10,275,713 8,711,372 26,773,995 25,201,930
------------ ------------ ------------ ------------
Loss from operations (9,807,332) (8,684,277) (25,785,314) (25,214,174)
------------ ------------ ------------ ------------
Interest income 1,102,550 618,007 2,752,457 1,647,630
------------ ------------ ------------ ------------
Net loss $ (8,704,782) $ (8,066,270) $(23,032,857) $(23,566,544)
============ ============ ============ ============
Net loss per share - basic and diluted $ (.54) $ (.57) $ (1.50) $ (1.79)
============ ============ ============ ============
Weighted average shares outstanding -
basic and diluted 16,005,921 14,134,862 15,382,341 13,170,928
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
NOVOSTE CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months
ended September 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(23,032,857) $(23,566,544)
Adjustments to reconcile net loss to net cash used by
operating activities
Depreciation and amortization 961,686 691,546
Issuance of stock for services or compensation 379,661 348,723
Amortization of deferred compensation 470,866 566,177
Unearned revenue 300,482 --
Allowance for doubtful accounts 150,000 --
Changes in assets and liabilities:
Accounts receivable (1,387,301) (1,030,448)
Inventory 1,918,758 (1,812,163)
Prepaid expenses (942,613) (242,555)
Accounts payable 1,729,740 747,118
Accrued expenses and taxes withheld (438,568) 378,902
Other (274,462) 12,215
------------ ------------
Net cash used by operations (20,164,608) (23,907,029)
------------ ------------
Cash flow from investing activities
Maturity (purchase) of short-term investments 12,602,063 (16,733,724)
Purchase of property and equipment, net (2,793,026) (1,551,206)
Radiation and transfer devices (3,487,086) --
------------ ------------
Net cash (used) provided by investing activities 6,321,951 (18,284,930)
------------ ------------
Cash flows from financing activities
Proceeds from issuance of common stock 55,948,389 48,019,016
------------ ------------
Net cash provided by financing activities 55,948,389 48,019,016
------------ ------------
Net increase in cash and cash equivalents 42,105,732 5,827,057
Cash and equivalents at beginning of period 7,091,025 2,352,517
------------ ------------
Cash and cash equivalents at end of period $ 49,196,757 $ 8,179,574
============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
NOVOSTE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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, 2000.
The accompanying consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto for the year ended
December 31, 1999 included in the Company's 1999 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, in February 1999 in Germany, and in
January 2000 in France. 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:
September 30, 2000 December 31, 1999
------------------ -----------------
Finished Goods $ 120,221 $ 1,381,221
Work in Process 480,933 21,518
Raw Materials 558,202 380,589
----------- -----------
Total $ 1,159,356 $ 1,783,327
=========== ===========
Note 3. Radiation and transfer devices
When the Company installs the Beta-Cath(TM) System it retains ownership of the
radiation source trains (RSTs) and transfer devices (TDs). During the second
quarter of 2000 the Company determined that based upon experience and testing of
the RSTs and TDs the estimated useful life of these assets had exceeded one
year. Accordingly, the Company has reclassified these assets from inventory to a
long-term asset named, radiation and transfer devices. Amortization of the costs
of these assets will be over their estimated useful lives (currently estimated
at 18 months) and will begin once the Beta-Cath(TM) System is placed into
service.
Note 4. Net Loss Per Share
6
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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. Options to purchase shares of common stock are not included in the
computation of diluted loss per share since the effect would be antidilutive.
Note 5. Private Placement Equity Offering
On March 31, 2000 and April 7, 2000 the Company issued a total of 1,463,500
shares of its common stock at a private placement offering price of $35 per
share. Net proceeds to the Company after all related expenses approximated $49
million. A Registration Statement on Form S-3 registering these shares for
resale was declared effective by the Securities and Exchange Commission on May
4, 2000.
Note 6. New Accounting Pronouncements
In December 1999, the SEC isued Staff Accounting Bulletin (SAB) 101, "Revenue
Recognition in Financial Statements." In the quarter ended September 30, 2000,
the Company adopted SAB 101, with an effective date of January 1, 2000 and
accordingly changed its method of accounting for radiation revenue and the
up-front installation fees. Prior to the adoption of SAB 101, the Company
recognized all revenue related to the sale of radiation and installation of the
Beta-CathTM System upon delivery to the customer. Under SAB 101, the Company
recognizes such revenue over the initial twelve-month contract period.
The cumulative effect of the adoption of SAB 101 as of January 1, 2000 was
insignificant to the Company's previously reported net loss. However, as a
result of the adoption of SAB 101, the Company will recognize revenues and costs
of approximately $415,000 in 2000 which were previously recognized in 1999.
Revenue which was deferred in the cumulative effect adjustment upon the adoption
of SAB 101 and which will be recognized again in 2000 was insignificant in the
three months ended September 30, 2000 and approximately $144,000 in the nine
months ended September 30, 2000.
7
<PAGE>
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 recent S-3
registration statement and in 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. Since
1994, we have devoted substantially all of our 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") as well as other interventional
procedures. On November 3, 2000, Novoste received marketing approval for the
Beta-Cath(TM) System from the U.S. Food and Drug Administration (FDA) for use in
patients suffering from "in-stent restenosis", a condition in which coronary
stents become clogged with new tissue growth.
For the period since our capitalization through September 30, 2000 we earned
minimal revenues and experienced significant losses in each period. The Company
commenced the active marketing of the Beta-Cath(TM) System in Europe in January
1999. 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 September 30, 2000 we had an accumulated deficit of
approximately $106.2 million. We expect to continue to incur significant
operating losses through at least 2001 as we allocate significant resources to
increasing our manufacturing operations, both internally and with outside
vendors, invest significantly in expanding our sales and marketing efforts in
contemplation of U.S. product introduction and market development and increase
our administrative activities to support our growth. At the same time we will
continue to conduct clinical trials and research and development projects in
order to expand the opportunities for our technology.
While the Beta-Cath(TM) System has been approved by the FDA for use in patients
suffering from in-stent restenosis, future clinical trials may not demonstrate
the safety and effectiveness of other or different applications or utilizations
of the product. Additionally, the hospitals and cath labs that will be our
customers may not obtain necessary approvals for the Beta-Cath(TM) System from
the state or foreign governmental agencies that regulate the medical use of
radiation. Our research and development efforts may not be successfully
completed. Manufacturing of our products may be delayed by production problems
or our vendors may be unable to produce sufficient quantities to meet our needs.
We may not successfully introduce the Beta-Cath(TM) System or attract any
significant level of market acceptance for the Beta-Cath(TM) System or any other
product we develop. We may never achieve significant revenues from sales of our
Beta-Cath(TM) System and we may never achieve or sustain profitability.
8
<PAGE>
Our Clinical Trials
In March 2000, we announced results from our STents And Radiation Therapy or
START trial, our pivotal clinical trial designed to study the safety and
effectiveness of the Beta-Cath(TM) System for treating "in-stent" restenosis.
The START trial results showed the following statistically significant results
for patients with "in-stent" restenosis treated with the Beta-Cath(TM) System
when compared to patients treated with placebo. In those patients treated with
the Beta-Cath(TM) System, the rate of restenosis decreased by 66% at the stented
portion of the treated artery and by 36% at a longer section of the artery,
beyond that treated with radiation or revascularization methods.
Our second pivotal trial, the START 40 Trial, was designed to seek approval for
a longer radiation source train, a 40-millimeter source train, compared to the
30-millimeter source train predominantly used in the START Trial. We completed
enrollment into the START 40 Trial in October 1999 and released the results of
the trial in November, 2000. The data, as also seen in START 30, demonstrated
significant reduction in restenosis in patients treated with beta radiation. In
those patients treated with the 40-millimeter source train with the
Beta-Cath(TM) System, compared to those treated with a placebo, a 63% decrease
in the rate of restenosis was observed in the stented portion of the treated
artery and a 44% decrease was observed in the longer section of the artery,
beyond the area treated with radiation or revascularization methods.
In our third pivotal trial, the Beta-Cath(TM) System Trial, we are seeking to
determine the safety and effectiveness of the Beta-Cath(TM) System in
conjunction with either stand-alone balloon angioplasty or first-time stent
placement performed during the radiation procedure. We completed enrollment in
this trial in September 1999, having enrolled 1,456 patients at 59 clinical
sites, principally in the United States. We expect to announce the results of
this trial in the first quarter of 2001.
On November 3, 2000 the FDA approved the Beta-Cath(TM) System for
commercialization in the United States. The Company expects to complete its
final preparations and officially launch the 30-millimeter system during the
fourth quarter of 2000.
We intend to make an additional submission to the FDA to obtain approval to
market the Beta-Cath(TM) System using a 40-millimeter radiation source train.
Assuming positive results in the Beta-Cath(TM) System Trial, we intend to make
an additional submission to the FDA to obtain approval to market the
Beta-Cath(TM) System with the objective of reducing the likelihood of restenosis
following stand-alone balloon angioplasty or first-time stent placement.
The Company is dependent upon a successful launch of the Beta-Cath(TM) System in
the U.S. A succesful launch may require the FDA to approve additional
enhancements and product line extensions and it is uncertain if they would do
so. If the Beta-Cath(TM) System is not successfully launched in the U.S., our
business, financial condition and results of operations will be materially
adversely affected and it could result in cessation of our business.
9
<PAGE>
Results of Operations
Net loss for the three months ended September 30, 2000 was $8,704,782, or
$(0.54) per share, as compared to $8,066,270 or $(0.57) per share, for the three
months ended September 30, 1999. Net loss for the nine months ended September
30, 2000 was $23,032,857, or $(1.50) per share, as compared to $23,566,544 or
$(1.79) per share, for the year earlier period. The increase in net loss for the
three months ended September 30, 2000 compared to the year earlier period was
primarily due to higher operating expenses associated with preparation for U.S.
market launch of the Beta-Cath(TM) System, in anticipation of FDA approval, and
with expanding international sales coverage. The slight decrease in net loss for
the nine months ended September 30, 2000 was due to lower clinical trial
expenses compared to the year earlier period. This was partially offset by
increased sales and marketing expenses related to our U.S. and European
Operations during the three and nine month periods ended September 30, 2000.
Net Sales. Net sales of $1,445,527 and $3,583,575 were recognized in the three
and nine months ended September 30, 2000 as compared to net revenues of $566,872
and $1,204,699 for the three and nine months ended September 30, 1999,
respectively. The increase in net sales is primarily due to the increase in
number of active sites and the increase in utilization rates within these sites
as compared to the year earlier period. Within Europe, Germany represented 63%
of total company revenues in the nine months ended September 30, 2000. Also
affecting net sales for the three months ended September 30, 2000 was the
current declining position of the Euro as compared to the U.S. dollar. With the
exception of the Australian and New Zealand distributors, sales are denominated
in Euros. The Euro declined 14% as compared to the year earlier period.
The cumulative effect of the adoption of SAB 101 as of January 1, 2000 was
insignificant to the Company's previously reported net loss. However, as a
result of the adoption of SAB 101, the Company will recognize revenues and costs
of approximately $415,000 in 2000 which were previously recognized in 1999.
Revenue which was deferred in the cumulative effect adjustment upon the adoption
of SAB 101 and which will be recognized again in 2000 was insignificant in the
three months ended September 30, 2000 and approximately $144,000 in the nine
months ended September 30, 2000.
On November 3, 2000, the FDA granted marketing approval for the Company's
Beta-Cath(TM) System. Novoste will begin marketing the product through its
direct sales force immediately. Sales will occur and revenue will be recorded as
hospitals and their staffs are licensed and trained and the Beta-Cath System is
delivered. The targeted list price for the Beta-Cath(TM) System will be $36,000
for the installation of the system and $2,750 for the catheter. Revenue
generated by the installation fees will be amortized in accordance with SAB101
over 12 months. Revenues for catheters will be recognized as shipped. The
Company is dependent upon the successful launch of the product to the United
States market but there can be no assurance of its acceptance.
Cost of Sales. Cost of sales for the three months ended September 30, 2000 was
$977,146 resulting in a gross margin of 32.4%, compared to cost of sales of
$539,777 and gross margin of 4.8% for the same period of 1999. Cost of sales was
$2,594,894 for the nine months ended September 30, 2000 resulting in a gross
margin of 27.6%, compared to cost of sales of $1,216,943 and a negative gross
margin of 1.0% for the nine months ended September 30, 1999. The Company's gross
margins improved due to increased sales volume and greater productivity in
manufacturing operations. Gross margins could remain volatile for the remainder
of the year as the Company continues its ramp-up of European production and
selling activities and prepares inventory for the U.S. product launch.
Research and Development Expenses. Research and development expenses decreased
14% to $5,248,267 for the three months ended September 30, 2000 from $6,115,556
for the three months ended September 30, 1999. For the nine months ended
September 30, 2000, research and development expenses decreased 22% to
$13,974,188 from $17,950,943 for the same period a year earlier. These decreases
were primarily
10
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the result of decreased clinical trial activity related to the completion of
patient enrollment in the pivotal trials and the elimination of costs associated
with enrollment, the largest of which is the costs of supplying product to
clinical sites. Research and development expenses will be favorably impacted by
the recent approval of the Beta-Cath(TM) System.
Sales and Marketing Expenses. Sales and marketing expenses increased 89% to
$3,171,584 for the three months ended September 30, 2000 from $1,678,437 for the
three months ended September 30, 1999. For the nine months ended September 30,
2000, sales and marketing expenses were $8,528,790 as compared to $4,519,703 for
the nine months ended September 30, 1999, an increase of 89%. These increases
were primarily the result of higher personnel, trade show, consulting and
promotional literature costs associated with marketing the Company's product on
a direct basis in Europe and the ramp-up of activities in anticipation of a U.S.
market launch. The Company expects sales and marketing expenses to increase
significantly in the future as direct distribution is expanded in Europe. The
Company also anticipates that it will continue to incur significant expenses in
recruiting, training and retaining a U.S. sales force in the fourth quarter of
2000.
General and Administrative Expenses. General and administrative expenses for the
three and nine months ended September 30, 2000 were $1,855,862 and $4,271,017 as
compared to the three and nine months ended September 30, 1999 of $917,379 and
$2,731,284, an increase of 102% and 56%, respectively. This increase for the
three and nine month periods was primarily the result of additional management
personnel, higher salaries and the increase in infrastructure (accounting,
information systems, human resources and benefits) to support a commercial
company. The Company expects general and administrative expenses to continue to
increase in the future in support of a higher level of operations.
Interest Income. Net interest income increased 78% to $1,102,550 for the three
months ended September 30, 2000 from $618,007 for the three months ended
September 30, 1999. The nine months ended September 30, 2000 recognized net
interest income of $2,752,457 as compared to $1,647,630 for the same period in
1999, an increase of 67%. The increase in interest income for the quarter and
the year-to-date was primarily due to the increase in average cash equivalent
and short-term investment balances arising from the private placement equity
offering in March and April 2000, as well as an increase in cash on hand due to
a large number of stock option exercises at the end of June, 2000.
Liquidity and Capital Resources
During the nine months ended September 30, 2000 and 1999 the Company used cash
to fund operations of $20.2 million and $23.9 million, respectively. At
September 30, 2000 the Company had commitments to purchase $7.5 million in
inventory components of the Beta-Cath(TM) System over the next year. In
addition, on October 14, 1999 the Company signed a development and manufacturing
supply agreement with AEA Technologies QSA GmbH for a second source of
radioisotope supply and for the development of a smaller diameter source. This
agreement provides for the construction of a production line over the period
October 1, 1999 to February 2001. The cost of this production line is estimated
at $4.0 million and is being paid by the Company as construction progresses.
Through September 30, 2000, the Company has paid $1,412,000 towards this
commitment. Because of the development, manufacturing scale-up and
commercialization of the Beta-Cath(TM) System, Novoste's future cash needs for
operating and investing activities are anticipated to be higher than historical
levels subject to the factors discussed below.
On March 19, 1999 the Company completed a follow-on public 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
11
<PAGE>
option. Net proceeds to the Company after the exercise of the underwriters'
over-allotment option and all related expenses totaled $47.5 million.
On April 7, 2000 we completed a private placement offering, in which we sold
1,463,500 shares of our common stock at $35.00 per share. The placement raised
net proceeds of approximately $49 million, of which $5 million was received
during the second quarter. After the offering, we had 15.85 million shares of
common stock outstanding. The Company also received approximately $2 million for
the quarter and $7 million for the nine month period ending September 30, 2000
from the exercise of stock options.
The Company's principal source of liquidity at September 30, 2000 consisted of
cash, cash equivalents and short-term investments of $70.9 million. The Company
did not have any credit lines available or outstanding borrowings at September
30, 2000.
The Company anticipates that its operating losses will continue through at least
2001 as it expends substantial resources as it continues to expand sales and
marketing activities. We believe that our existing capital resources will be
sufficient to fund the company through the second quarter of 2002, but those
resources may prove insufficient. The Company's future liquidity and capital
requirements will depend upon numerous factors, including, among others: 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; and market acceptance and demand for its
products. Novoste may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. Additional
financing, if required, may not be available on satisfactory terms, or at all.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. Expenses in
connection with remediating its systems were not significant. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
12
<PAGE>
CERTAIN FACTORS THAT MAY IMPACT FUTURE OPERATIONS
We depend on the successful development and commercialization of the
Beta-Cath(TM) System.
We have not yet successfully commercialized any product in the United States and
have only started to actively sell the Beta-Cath(TM) System in Europe, the
Middle East and certain Asian and Pacific Rim countries in 1999. We anticipate
that for the foreseeable future we will be solely dependent on the successful
development and commercialization of the Beta-Cath(TM) System. Our failure to
commercialize the Beta-Cath(TM) System would have a material adverse effect on
our business, financial condition and results of operations.
The Beta-Cath(TM) System received FDA approval for the 30 millimeter system on
November 3, 2000, however, we may be unable to:
o manufacture the Beta-Cath(TM) System in commercial quantities at
acceptable costs;
o gain any significant degree of market acceptance of the
Beta-Cath(TM) System among physicians, patients and/or health care
payors; or
o broaden the Beta-Cath(TM) System marketability by obtaining approval
for additional applications of our product
o demonstrate that the Beta-Cath(TM) System is an attractive and
cost-effective alternative or complement to other procedures,
including coronary stents, competing vascular brachytherapy devices,
or other competitive technologies.
Commercialization of the Beta-Cath(TM) 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, including the influence of national health
care policies and reimbursement strategies of health care payers. We may never
achieve significant revenue from sales in Europe or ever achieve or sustain
profitability in our European operations. Our sales in selected European
countries and several other countries aggregated approximately $1.8 million in
1999 and approximately $3.2 million in the first nine months of 2000.
We have a limited operating history; we have a history of losses and expect
future losses through at least the year 2001.
We have a limited history of operations. Since we commenced operations in May
1992, we have been primarily engaged in developing and testing our Beta-Cath(TM)
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 September 30, 2000 we had accumulated a deficit of approximately $106.2
million since commencing operations in 1992. The commercialization of the
Beta-Cath(TM) 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 2001 as we continue to expand our product development, clinical trials and
marketing efforts. We may never:
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o achieve commercial success in the sale of the Beta-Cath(TM) System
or any other product in any countries in which we have received the
necessary governmental approvals to market these products; or
o achieve or sustain profitability.
United States Pre-Market Approvals
On November 3, 2000, we received marketing approval from the FDA for the
Beta-Cath(TM) System. This approval limits our ability to promote the
Beta-Cath(TM) System for use with patients who are being treated for "in-stent"
restenosis in a single coronary artery with a 30-millimeter radiation source
train. In order to market the Beth-Cath(TM) System with a 40-millimeter
radiation source train, we will likely be required to demonstrate to the FDA
through the START 40 Trial that the Beth-Cath System with the longer source
train is safe and effective. In order to market the Beta-Cath(TM) System for a
broader range of patients, we will seek to expand the indications for which the
Beta-Cath(TM) System can be marketed to include patients receiving stand-alone
balloon angioplasty or first-time stent placement. Even if we receive approval
based on the results of the Beta-Cath(TM) System Trial, we would be limited to
promoting the Beta-Cath(TM) System for use with patients who are being treated
for one lesion in a single coronary artery following stand-alone balloon
angioplasty or stent placement. In order to market the Beta-Cath(TM) System for
use with (1) further product design enhancements, such as varying lengths of the
radiation source train or modifications to the catheter or (2) with a broader
range of indications, we will likely be required to demonstrate to the FDA
through additional clinical trials that the Beta-Cath(TM) System is safe and
effective with such product design enhancement(s) or in treating a broader range
of indications and the FDA must approve a pre-market approval application,
application amendment or application supplement covering the product design
enhancement(s) or the broader range of indications for the device.
Foreign Pre-Market Approvals
Sales of the Beta-Cath(TM) 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
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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(TM) 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(TM) System in other foreign countries. Foreign pre-market and other
regulatory approvals of the Beta-Cath(TM) System, if granted, may include
significant limitations on the indicated uses for which the device may be
marketed.
Approvals to Use, Handle and Transfer Radioactive Materials
Our business involves the import, export, manufacture, distribution, use and
storage of Strontium-90 (Strontium/Yttrium), the beta-emitting radioisotope
utilized in the Beta-Cath(TM) System 's radiation source train. Accordingly,
manufacture, distribution, use and disposal of the radioactive material used in
the Beta-Cath(TM) System in the United States will be subject to federal, state
and/or local rules relating to radioactive material. Recently, the State of
Georgia Department of Natural Resources (DNR) issued a sealed source and device
registration certificate for the Company's Beta-Cath(TM) System, allowing it to
be listed on the Nuclear Regulatory Commission's Sealed Source and Device
Registry. The Company anticipates that the DNR will authorize Novoste to
commercially distribute our radiation sources to licensed recipients in the
United States. In addition, we must 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(TM) 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(TM) System.
The distribution and use of the Beta-Cath(TM) 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(TM) 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.
The industry in which we participate is subject to 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(TM)
System in particular noncompetitive or obsolete.
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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 75% of all PTCA procedures
performed worldwide in 1999.
Also on November 3, 2000, the FDA approved Johnson & Johnson CHECKMATE(TM)
System, a gamma radiation vascular brachytherapy device. Johnson & Johnson will
compete directly with Novoste for market accetance of vascular brachytherapy and
has substantially greater capital resources and greater resources and experience
at introducing new products than does Novoste. We may not be able to compete
effectively against Johnson & Johnson.
Manufacturers of stents include Johnson & Johnson, 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. Many of these same companies and others are
researching coatings and treatments to coronary stents that could reduce
restenosis and would possibly be more acceptable to a medical community already
experienced at using stents. Recently, results from early non-randomized trials
were reported as eliminating restenosis. Extensive clinical trials will need to
be completed in order to confirm these early results, however positive
information from these trials could have a negative impact on the Company's
stock price and the ultimate acceptability of vascular brachytherapy.
Many of our competitors and potential competitors have substantially greater
capital resources than we do and also have greater resources and expertise in
the area of research and development, obtaining regulatory approvals,
manufacturing and marketing. Our competitors and potential competitors may
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 technology and products 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, distribution, sales and servicing.
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.
In addition, we believe that the primary competitive factors for products
addressing restenosis include safety, efficacy, and ease of use, reliability,
and suitability for use in cath labs, service and price. We also believe that
physician relationships, especially relationships with leaders in the
interventional cardiology and radiation oncology communities, are important
competitive factors. We may not be the first to market in the U.S. a radiation
system to reduce the incidence of restenosis in the coronary arteries or be able
to market such a system effectively.
Limitations on third-party reimbursement for the Beta-Cath(TM) System currently
exist and may continue.
The Beta-Cath(TM) 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.
When we begin marketing the Beta-Cath(TM) System in the United States,
third-party payors may not cover procedures using the Beta-Cath(TM) 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(TM)
System cost-
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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(TM) 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(TM) 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-managed systems. Reimbursement for our products may not be available
in international markets under either government or private reimbursement
systems.
The market acceptance of vascular brachytherapy and the Beta-Cath(TM) System is
uncertain.
Even if we obtain additional regulatory approvals and reimbursement from third
party payors for the use of the Beta-Cath(TM) 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(TM) System in particular will be essential for our operations and we
may not obtain this acceptance. Even if we establish clinical effectiveness of
the Beta-Cath(TM) System, cardiologists, radiation oncologists and other
physicians may elect not to recommend vascular brachytherapy generally or the
Beta-Cath(TM) System in particular. Even if recommended, physicians may not
utilize the Beta-Cath(TM) 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(TM) System currently requires the participation not only of an
interventional cardiologist, but also a radiation oncologist appropriately
credentialed to administer the radiation therapy.
We depend on the protection provided by our issued patent and pending patent
applications, which may be challenged.
With respect to the Beta-Cath(TM) System and components thereof, we received
United States Patent No. 5,683,345 on November 4, 1999, United States Patent No.
5,899,882 (which is jointly owned by us and Emory University) on May 4, 1999,
and United States Patent No. 6,013,020 on January 11, 2000. We also have filed a
related United States continuation application, and have several additional
United States applications pending covering aspects of our Beta-Cath(TM) System.
With respect to United States Patent Nos. 5,683,345; 5,899,882; and 6,013,020
and our other pending United States patent applications, we have filed, or will
file in due course, counterpart applications in the European Patent Office and
certain other countries.
Like other firms that engage in the development of medical devices, we must
address issues and risks relating to patents and trade secrets. United States
Patent Nos. 5,683,345; 5,899,882; and 6,013,020 may not offer any protection to
us because competitors may be able to design functionally equivalent devices
that do not infringe these patents. They 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
17
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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(TM) System does not infringe any claim of the Dake patent as
reexamined.
In May 1997 Guidant acquired NeoCardia together with the rights under the Dake
patent. We believe that Guidant and Johnson & Johnson have entered into a
cross-licensing arrangement that includes the use of the Dake patent. Guidant
and Johnson & Johnson are attempting to develop and commercialize products that
may compete with the Beta-Cath(TM) System and both of those companies have
significantly greater capital resources than we do. Guidant or, if permitted by
the cross-licensing arrangement with Guidant, Johnson & Johnson may sue for
patent infringement in an attempt to obtain damages from us and/or injunctive
relief restraining us from commercializing the Beta-Cath(TM) System in the
United States. If Guidant or Johnson & Johnson were successful in any such
litigation, we might be required to obtain a license under the Dake patent to
market the Beta-Cath(TM) System in the United States, if such license were
available, or be prohibited from selling the Beta-Cath(TM) 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 "monorail" or "rapid exchange"
catheter and an "over the wire" catheter. Certain United States patents held by
Guidant and Boston Scientific Corporation cover "rapid exchange" catheters.
Guidant has recently cross-licensed its patents to Johnson & Johnson. We are
currently investigating the feasibility of using the "distal monorail" version
of our delivery catheter in the United States without infringing the valid
patent rights of others. We may not be able to sell the "distal monorail"
version in the United States without a license of third party patent rights and
such a license may not be available to us on favorable terms, or at all. If we
decide to proceed with the "distal monorail" version of our catheter in the
United States, we may be sued for patent infringement in an attempt to obtain
damages from us and/or injunctive relief restraining us from commercializing the
"distal monorail" version in the United States. If we were unsuccessful in any
such litigation, we might be required to obtain a license, if such license were
available, or be prohibited from selling the "distal monorail" version of our
catheter in the United States. Any of these events could have a material adverse
effect on our business, financial condition and results of operations, or could
result in cessation of our business.
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
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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.
We also have uncertainties with respect to the secrecy of pending patent
applications filed by others, potential loss of some of our patent and
proprietary rights relating to the Beta-Cath(TM) System in the event of our
failure to pay royalties to Emory University, and potential damages that we
could suffer through the unauthorized disclosure of information that is
proprietary or confidential to us.
Since the Beta-Cath(TM) System utilizes radioactive materials, our activities
are subject to various safety regulations.
Because our business involves the import, export, manufacture, distribution, use
and storage of Strontium-90, our activities and those of our suppliers and
distributors, as well as those of the hospitals and physicians that utilize the
Beta-Cath(TM) System, must comply with extensive state and federal radiation
safety regulations in the United States and similar laws in other countries.
Violations of these regulations and laws by us or our suppliers or distributors,
or any malfunctions of our device or errors by hospitals and physicians in
administering treatment, could result in accidental contamination or injury, as
well as unexpected remedial costs and penalties. Any such violation or incident
could adversely impact the market for our device or lead to suspension of our
trials or cessation of sales of the Beta-Cath(TM) System. Regulatory enforcement
action such as civil penalties or license suspension or revocation could
likewise lead to suspension of our trials or cessation of sales. In addition,
because vascular brachytherapy in coronary arteries is a new treatment, any
similar regulatory violations or incidents involving our competitors could delay
or erode acceptance of the therapy among physicians and patients and could
reduce the likelihood of regulatory approval of vascular brachytherapy devices
generally.
We currently depend on a single vendor to supply radioisotopes and we could be
negatively affected by the failure or delay of this vendor.
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
may 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
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termination of the Bebig 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.
In October 1999, we signed a development and manufacturing supply agreement with
AEA Technologies QSA GmbH for a second source of radioactive supply and for the
development of a smaller diameter radiation source. The agreement provides for
the construction of a production line which is expected to be finished in
February 2001. The cost of the production line is estimated at $4 million and we
have agreed to pay such costs as construction progresses. The development of the
smaller diameter source may not be successfully completed, the new production
line may not be completed on time and on budget, and the smaller diameter source
may not be manufacturable in commercial quantities.
We depend on third party suppliers for a substantial part of the components of
our Beta-Cath(TM) System and the failure of these suppliers to deliver
acceptable quality components in a timely manner could affect our ability to
manufacture our Beta-Cath(TM) System.
We currently rely on third party manufacturers for the supply of the hand-held
transfer device, one version of the catheter and other components of our
Beta-Cath(TM) System. The supply of these components requires a long lead time.
In addition, we could not quickly establish additional or replacement suppliers
or internal manufacturing capabilities for these components. An existing
vendor's failure to supply components of acceptable quality in a timely manner
or our inability to obtain these components on a timely basis from another
supplier could have a material adverse effect on our ability to manufacture and
therefore market the Beta-Cath(TM) System.
We have limited sales, marketing and distribution experience which may affect
our ability to successfully commercialize the Beta-Cath(TM) System.
At the present we have limited sales and marketing experience in the United
States. We have recruited a qualified and experienced field sales and sales
management organization and intend to sell our products directly in the United
States through that organization. However, we may be unable to successfully
commercialize the Beta-Cath(TM) System in the United States with that sales
organization. We have staffed an organization in Europe, generally using a
direct sales force for the larger European markets and independent distributors
in other European markets. We also utilize independent distributors in several
countries in the Far East and the Middle East as well as in India. The inability
to recruit or retain suitable international distributors could also have a
material adverse effect on our business, financial condition and results of
operations.
We have contracted with CIS bio International to inventory, calibrate, test and
deliver the radiation sources and to provide related licensing assistance,
customer support and recovery services to hospitals in Europe and the Middle
East and intend to contract with one or more additional market leaders on the
radioisotope business to provide similar services in other international
markets. If we are unable to enter into and maintain such distribution
agreements with suitable international distributors on acceptable terms, our
business, financial condition and results of operations could be materially
adversely affected.
We have limited manufacturing experience and may encounter difficulties in
scaling-up production.
To date, we have not yet successfully commercialized the Beta-Cath(TM) System,
and our manufacturing activities have consisted of producing small quantities of
our products for use in clinical trials and our
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initial product launch in Europe and several other foreign countries. To achieve
profitability, the Beta-Cath(TM) 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, 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. Future manufacturing difficulties, which could have a material
adverse effect on our business, financial condition and results of operations,
may occur.
We may not be able to obtain adequate funding for the development of our
business in the future.
We anticipate that our losses will continue through at least the year 2001 as we
expend substantial resources to fund clinical trials in support of regulatory
approvals, continue development of the Beta-Cath(TM) System and commercialize
our product in Europe, several other foreign countries and in the United States.
Our future liquidity and capital requirements will depend upon numerous factors,
including:
o the progress of our clinical research and product development
programs;
o the receipt of and the time required to obtain regulatory approvals
and clearances;
o the resources required to gain approvals;
o the resources we devote to the development, manufacture and
marketing of the Beta-Cath(TM) System;
o the resources needed to expand manufacturing capacity and facilities
requirements; and
o market acceptance and demand for the Beta-Cath(TM) System.
We may in the future seek to raise additional funds through bank facilities,
debt or equity offerings or other sources of capital. We believe that our
existing capital resources will be sufficient to fund us through the second
quarter of 2002, but that may prove insufficient. We cannot assure that
additional financing, if required, will be available on satisfactory terms, or
at all.
The use of our product exposes us to product liability claims; insurance
coverage may not be sufficient to cover such liability.
The use of the Beta-Cath(TM) System entails an inherent risk of adverse effects
which could result in product liability claims against us. We may not have
sufficient resources to satisfy any liability resulting from any such claims. We
maintain product liability insurance with coverage of an annual aggregate
maximum of $8 million. There can be no assurance that product liability claims
will not exceed the insurance coverage limits, that the insurance will continue
to be available on commercially reasonable terms or at all, or that a product
liability claim would not materially adversely affect our business, financial
condition or results of operations.
The loss of senior management or other key personnel could materially adversely
affect our business, financial condition and results of operation.
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Our business and future operating results depend in significant part upon the
continued contributions of our key technical personnel and senior management,
many of whom would be difficult to replace. Our business and future operating
results depend, in part, upon our ability to attract and retain qualified
management regulatory, clinical, manufacturing, technical, marketing, sales and
support personnel for our operations. Competition for such personnel is intense,
and we may not succeed in attracting or retaining such personnel. The loss of
key employees, the failure of any key employee to perform adequately or our
inability to attract and retain skilled employees, as needed, could materially
adversely affect our business, financial condition and results of operations.
The price of our stock is subject to volatility and fluctuations and will depend
on operating results.
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 October 23, 2000, the
closing price of our common stock ranged from a high of $61.00 per share to a
low of $11.00 per share and ended that period at $24.94per 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.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company's cash equivalents and short-term investments are subject to market
risk, primarily interest-rate and credit risk. The Company's investments are
managed by outside professional managers within investment guidelines set by the
Company. Such guidelines include security type, credit quality and maturity and
are intended to limit market risk by restricting the Company's investments to
high credit quality securities with relatively short-term maturities.
The table below presents principal amounts and related weighted average interest
rates by year of maturity for the Company's investment portfolio. All
investments mature, by policy, in one year or less.
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<TABLE>
<CAPTION>
Fair Value
(in thousands) 2000 2001 2002 2003 2004 Total 9/30/00
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash equivalents
Fixed rate $ 43,963 $ -- $ -- $ -- $ -- $ 43,963 $ 43,963
Average interest rate 6.47%
Held to Maturity investments
Fixed rate 3,590 18,141 -- -- -- 21,731 21,731
Average interest rate 6.49% 6.76%
Total cash equivalents
and investments
Securities 47,553 18,141 -- -- -- 65,694 65,694
Average interest rate 6.47% 6.76%
</TABLE>
Foreign Currency Risk
International revenues from the Company's foreign direct sales and distributor
sales comprised 88% of total revenues for the three month period ended September
30, 2000. With the exception of the Australian and New Zealand distributors,
sales are denominated in Euros. The Company experienced an immaterial amount of
transaction gains and losses through the nine month period ending September 30,
2000. The Company is also exposed to foreign exchange rate fluctuations as the
financial results of its Belgian, German, Dutch, and French subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, these
results, when translated, may vary from expectations and adversely impact
overall expected profitability. The net effect of foreign exchange rate
fluctuations on the Company during the three month period ending September 30,
2000 was not material.
23
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
27 Financial data schedule
The Company filed a Form 8-K on September 12, 2000 stating that it issued a
press release announcing that its Beta-Cath(TM) System had been unanimously
recommended for approval by the Circulatory System Devices Panel of the Food and
Drug Administration Medical Devices Advisory Committee.
The Company filed a Form 8-K on October 17, 2000 stating that it issued a press
release announcing that it had received a letter from the U.S. Food and Drug
Administration stating that its Beta-Cath System is approvable. The Company also
announced the dates when results of various clinical trials would be announced
at scientific meetings. In the same Form 8-K, the Company stated that on October
17, 2000 it had issued a press release announcing the third quarter 2000
financial results.
The Company filed a Form 8-K on October 19, 2000 stating that it had issued a
press release announcing that interim results of the Registrant's START 40 Trial
were presented at the Transcatheter Cardiovascular Therapeutics (TCT) conference
in Washington, D.C.
24
<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
November 14, 2000 /s/ Edwin B. Cordell, Jr.
----------------- ------------------------------------------
Date Edwin B. Cordell, Jr.
Vice President - Finance,
Chief Financial Officer
(Principal Financial & Accounting Officer)
25
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EXHIBIT INDEX
Exhibit
Number Exhibit Description
------- -----------------------
27 Financial data schedule
26
