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 March 31, 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
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(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 April 28, 2000 there were 15,862,515 shares of the Registrant's Common
Stock outstanding.
Exhibit Index on page: 27
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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 March 31, 2000
(unaudited) and December 31, 1999 3
Consolidated Statements of Operations (unaudited) for
the three months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) for
the three months ended March 31, 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 8-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 24
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
EXHIBIT INDEX 27
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NOVOSTE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 68,979,963 $ 7,091,025
Short-term investments 13,174,192 34,332,667
Accounts receivable 1,047,137 968,804
Inventory 2,671,284 2,513,981
Prepaid expenses 290,990 216,742
------------- -------------
Total current assets 86,163,566 45,123,219
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Property and equipment, net 3,779,679 3,509,203
Other assets 564,573 734,980
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$ 90,507,818 $ 49,367,402
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,174,661 $ 1,112,678
Accrued expenses and taxes withheld 3,812,803 5,189,880
------------- -------------
Total current liabilities 4,987,464 6,302,558
------------- -------------
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.01 par value, 25,000,000 shares authorized;
15,706,033 and 14,201,632 shares issued, respectively 157,060 142,016
Additional paid-in capital 177,721,275 128,182,542
Accumulated other comprehensive income (31,441) 57,722
Accumulated deficit (90,400,156) (83,201,214)
------------- -------------
87,446,738 45,181,066
Less treasury stock, 5,780 shares of common stock at cost (23,840) (23,840)
Unearned compensation (1,902,544) (2,092,382)
------------- -------------
Total shareholders' equity 85,520,354 43,064,844
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$ 90,507,818 $ 49,367,402
============= =============
</TABLE>
See accompanying notes.
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NOVOSTE CORPORATION
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Three months ended
March 31,
2000 1999
--------------------------------
Net revenue $ 846,046 $ 80,913
Cost of sales 753,380 175,148
------------ ------------
Gross margin 92,666 (94,235)
------------ ------------
Operating Expenses:
Research and development 4,475,540 6,162,769
Sales and marketing 2,369,504 1,374,006
General and administrative 1,047,501 743,532
------------ ------------
Total operating expenses 7,892,545 8,280,307
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Loss from operations (7,799,879) (8,374,542)
------------ ------------
Interest income 600,937 312,597
------------ ------------
Net loss $ (7,198,942) $ (8,061,945)
============ ============
Net loss per share $ (0.50) $ (0.72)
============ ============
Weighted average shares outstanding 14,268,589 11,250,436
============ ============
See accompanying notes.
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NOVOSTE CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months
ended March 31,
2000 1999
------------ ------------
Cash flows from operating activities
Net loss $ (7,198,942) $ (8,061,945)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 309,540 196,625
Issuance of stock for services or compensation 130,004 102,455
Amortization of deferred compensation 218,945 32,350
Changes in assets and liabilities:
Accounts receivable (78,333) (75,135)
Inventory (157,303) (1,281,733)
Prepaid expenses (74,248) (77,460)
Accounts payable 61,983 1,156,373
Accrued expenses and taxes withheld (1,377,077) 26,294
Other 77,835 (34,520)
------------ ------------
Net cash used by operations (8,087,596) (8,016,696)
------------ ------------
Cash flows from investing activities
Maturity (purchase) of short-term investments 21,158,475 1,439,237
Purchase of property and equipment, net (576,608) (681,624)
------------ ------------
Net cash (used) provided by investing activities 20,581,867 757,613
------------ ------------
Cash flows from financing activities
Net Proceeds from issuance of common stock 49,394,666 48,241,664
------------ ------------
Net cash provided by financing activities 49,394,666 48,241,664
------------ ------------
Net increase in cash and cash equivalents 61,888,938 40,982,581
Cash and cash equivalents at beginning of period 7,091,025 2,352,517
------------ ------------
Cash and cash equivalents at end of period $ 68,979,963 $ 43,335,098
============ ============
See accompanying notes.
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NOVOSTE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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:
March 31, 2000 December 31, 1999
-------------- -----------------
Finished Goods $1,872,408 $ 380,589
Work in Process 382,890 21,518
Raw Materials 415,986 2,111,874
---------- ----------
Total $2,671,284 $2,513,981
========== ==========
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
from the date of acquisition). 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
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premiums or discounts without recognition of gains or losses that are deemed to
be temporary. Premiums and discounts are amortized or accreted over the life of
the related instrument as an adjustment to yield using the straight-line method,
which approximates the effective interest method. Interest income is recognized
when earned.
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 March 31, 2000 fair
value approximated net book value for all short-term investments.
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 issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements." The adoption of the SAB in the first
quarter did not have a significant impact on our revenue recognition. We are
currently evaluating the effect, if any, the SAB will have on our revenue
recognition policies in the future.
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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 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.
For the period since our capitalization through March 31, 2000 we earned minimal
non-recurring revenues and experienced significant losses in each period. The
Company commenced the active marketing of the Beta-Cath System in Europe in
January 1999. At March 31, 2000 we had an accumulated deficit of approximately
$90.4 million. We expect to continue to incur significant operating losses
through at least 2001 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 U.S. 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.
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 System for treating "in-stent" restenosis. The
primary endpoint of the trial was the incidence of an additional
revascularization procedure in the previously treated artery or "target vessel
revascularization" within eight months. In addition, a follow-up angiogram eight
months after the initial treatment was performed to observe the treated artery
to determine whether restenosis has recurred. We enrolled 476 patients at 50
clinical sites in North America and Europe.
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The START Trial results showed the following statistically significant results
for patients with "in-stent" restenosis treated with the Beta-Cath System when
compared to patients treated with placebo:
o a 34% reduction in the rate of target vessel revascularization or
TVR;
o the rate of restenosis decreased by 66% at the stented portion of
the treated artery;
o the rate of restenosis decreased by 36% at a longer section of the
artery, beyond that treated with radiation or revascularization
methods, and
o the rate of major adverse cardiac events decreased by 31%.
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 believe
this longer source train may be helpful in addressing clinical concerns over the
possibility of "geographic miss" during a vascular brachytherapy procedure.
Geographic miss is the failure to deliver the intended radiation dose to the
entire length of the balloon-injury area either due to (1) poor alignment of the
radiation source train or (2) using a radiation source train shorter than the
injury. We completed enrollment into the START 40 Trial in October 1999 and
expect to release the results from this Trial no later than the fourth quarter
of 2000.
In our third pivotal trial, the Beta-Cath System Trial, we are seeking to
determine the safety and effectiveness of the Beta-Cath System in conjunction
with either stand-alone balloon angioplasty or first-time stent placement
performed during the radiation procedure. The primary endpoint of this trial is
TVR within eight months. This trial also provides for a follow-up angiogram
eight months after treatment with the Beta-Cath System to determine whether
restenosis has occurred. 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 no later than the
fourth quarter of 2000.
We submitted an application to the FDA on April 14, 2000 to obtain approval to
market the Beta-Cath System, with a 30-millimeter radiation source train, for
treating "in-stent" restenosis in coronary arteries. Assuming positive results
in the START 40 Trial, we intend to make an additional submission to the FDA to
obtain approval to market the Beta-Cath System using a 40-millimeter radiation
source train. Assuming positive results in the Beta-Cath System Trial, we intend
to make an additional submission to the FDA to obtain approval to market the
Beta-Cath System with the objective of reducing the likelihood of restenosis
following stand-alone balloon angioplasty or first-time stent placement.
Various factors, including difficulties in performing follow-up examinations on
patients, could delay completion of our ongoing trials for an indeterminate
amount of time. The data from these trials may not demonstrate safety and
effectiveness and may not be adequate to support our application to the FDA for
pre-market approval of the Beta-Cath System. 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 and it
could result in cessation of our business. In addition, the clinical trials may
identify significant technical or other obstacles to obtaining necessary
regulatory approvals.
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Results of Operations
Net loss for the three months ended March 31, 2000 was $7,198,942, or ($.50) per
share, as compared to $8,061,945 or ($.72) per share, for the three months ended
March 31, 1999. The decrease in net loss for the three months ended March 31,
2000 compared to the year earlier period was primarily due to decreased research
and development spending related to the completion of patient enrollment in the
START, START 40 and Beta-Cath System Trials in 1999. This was partially offset
by increased sales and marketing spending related to our European operations.
Net Sales. Net sales of $846,046 were recognized in the three months ended March
31, 2000 as compared to net revenues of $80,913 for the three months ended March
31, 1999. The Company expects net sales to 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.
Cost of Sales. Cost of sales of $753,380 were incurred in the three months ended
March 31, 2000 as compared to cost of sales of $175,148 for the three months
ended March 31, 1999. The Company expects cost of sales to closely approximate
sales for the year ended 2000 as the Company ramps up both its European
production and sales activities.
Research and Development Expenses. Research and development expenses decreased
27% to $4,475,540 for the three months ended March 31, 2000 from $6,162,769 for
the three months ended March 31, 1999. These decreases were primarily 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 such as the costs of supplying product to clinical sites. However,
the Company expects research and development expenses to increase throughout the
year in anticipation of new clinical trial activity.
Sales and Marketing Expenses. Sales and marketing expenses increased 72% to
$2,369,504 for the three months ended March 31, 2000 from $1,374,006 for the
three months ended March 31, 1999. 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. The
Company expects sales and marketing expenses to increase significantly in the
future as direct distribution is expanded in Europe, and, if and when the
Beta-Cath System is approved by the FDA, launched commercially in the U.S. The
Company anticipates that it will incur significant expenses in recruiting and
retaining a U.S. sales force commencing in the third quarter in advance of FDA
approval, if any.
General and Administrative Expenses. General and administrative expenses
increased 41% to $1,047,501 for the three months ended March 31, 2000 from
$743,532 for the three months March 31, 1999. This increase for the three 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 92% to $600,937 for the three
months ended March 31, 2000 from $312,597 for the three months ended March 31,
1999. 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-on public offering completed in March 1999.
Liquidity and Capital Resources
During the three months ended March 31, 2000 and 1999 the Company used cash to
fund operations of $8.1 million and $8.0 million, respectively. The increase in
cash used in operations was due primarily to the expansion of sales and
marketing activities in Europe. At March 31, 2000 the Company had
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commitments to purchase $4.6 million in inventory components of the Beta-Cath
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. Because of the development, manufacturing scale-up and
commercialization of the Beta-Cath 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
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 $3 million
from the exercise of stock options in the quarter.
The Company's principal source of liquidity at March 31, 2000 consisted of cash,
cash equivalents and short-term investments of $82.2 million. The Company did
not have any credit lines available or outstanding borrowings at March 31, 2000.
The Company anticipates that its operating losses will continue through at least
2001 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 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. There can be no assurance that additional financing, if required, will
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
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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.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999 the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements." The adoption of the SAB in the first
quarter did not have a significant impact on our revenue recognition. We are
currently evaluating the effect, if any, the SAB will have on our revenue
recognition policies in the future.
CERTAIN FACTORS THAT MAY IMPACT FUTURE OPERATIONS
We depend on the successful development and commercialization of the Beta-Cath
System.
We have not yet successfully commercialized any product in the United States and
have only started to actively sell the Beta-Cath System in Europe, the Middle
East and certain Asian 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 System. Our 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 regulatory approval, and may require further
development and clinical testing before we can market it in the United States.
Our development efforts and clinical testing may not be successful. In addition,
we may be unable to:
o show the safety and effectiveness of the Beta-Cath System in
appropriate human clinical trials;
o obtain U. S. regulatory approval of the Beta-Cath System;
o manufacture the Beta-Cath System in commercial quantities at
acceptable costs;
o gain any significant degree of market acceptance of the Beta-Cath
System among physicians, patients and/or health care payors; or
o demonstrate that the Beta-Cath 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 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 payors. 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 $846,000 in the first quarter 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
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.
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At March 31, 2000 we had accumulated a deficit of approximately $90.4 million
since we commenced operations 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 2001
as we continue to expand our product development, clinical trials and marketing
efforts. We may never:
o commercialize the Beta-Cath System or any other product in the U.S.;
o achieve commercial success in the sale of the Beta-Cath 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.
Clinical testing of the Beta-Cath System has not been completed, and there can
be no assurance of its safety and effectiveness.
The safety and effectiveness of the Beta-Cath System has not yet been determined
by the FDA. We have reached the primary endpoint, eight month patient follow-up,
in one trial, and are currently conducting two additional multi-center human
clinical trials of the Beta-Cath System to further evaluate its safety and
effectiveness. We completed enrollment in the START Trial in April 1999, having
enrolled 476 patients at 50 sites, principally located in the United States. In
March 2000, we announced statistically significant results from the START Trial.
In June 1999, we initiated the START 40 Trial and enrollment was completed in
October 1999 with a total of 206 patients enrolled. At September 30, 1999 we
completed enrollment in both the stand-alone balloon angioplasty and stent
placement subgroups of the Beta-Cath System Trial and enrolled a total of 1,456
patients at 59 clinical sites.
We recently announced results from the START Trial, which demonstrated that beta
radiation had a significant treatment effect on all clinical and angiographic
endpoints evaluated in the Trial. The START Trial results formed the basis for
the application that we submitted to the FDA on April 14, 2000 to request
approval to market the Beta-Cath System for treating "in-stent" restenosis.
Although the application has been submitted, the FDA may reject, or delay
acceptance of, our submission for "filing," may determine that the data from the
START Trial does not demonstrate the safety and effectiveness of the Beta-Cath
System or is not adequate to support our application to the FDA for pre-market
approval. The FDA could delay approval pending results from the START 40 Trial
in order to assess the impact on geographic miss and pending results from the
Beta-Cath System Trial in order to assess whether the incidence of late
thrombosis has been satisfactorily resolved by extended anti-platelet therapy.
The START 40 Trial and the Beta-Cath System Trial require follow-up examinations
with patients after eight months. Various factors, including performing
follow-up examinations on patients, could delay completion of the START 40 Trial
or the Beta-Cath System Trial for an indeterminate amount of time. The data from
the START 40 Trial or the Beta-Cath System Trial, if completed, may not
demonstrate the safety and effectiveness of the Beta-Cath System, which could
delay FDA pre-market approval of the Beta-Cath System. In particular, we cannot
be sure that (1) the incidence of late thrombosis seen in the Beta-Cath System
Trial will be adequately addressed by the antiplatelet therapy protocol
modification, (2) the incidence of geographic miss, seen in our BRIE registry
trial conducted in Europe and other trials by our competitors, will be addressed
by more focused physician training and technique and the use of longer radiation
sources or (3) the doses used will provide optimal results.
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If the Beta-Cath System does not prove to be safe and effective in our 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.
There can be no assurance that we will receive the required 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.
Our application seeking approval to market the Beta-Cath System in the United
States to treat "in-stent" restenosis was submitted to the FDA on April 14, 2000
and is based upon the patient data generated in the START Trial. We do not
anticipate FDA approval to market the Beta-Cath System in the United States for
any indication any earlier than one year after the FDA accepts our application
for filing. The FDA could require that we submit results from our START 40 Trial
or 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 with the 40-millimeter radiation source train based upon the results of the
START 40 Trial or for use following stand-alone balloon angioplasty, and stent
placement based upon the results of the Beta-Cath System Trial. If we file this
type of amendment, the FDA would restart the statutory 180-day review period for
our initial application as of the date of the filing of the amendment. Most
likely, this would cause a delay in obtaining FDA approval. Moreover, if
information from the clinical trials or from commercial use of the device 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 marketing approval from the FDA
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 with a 30-millimeter radiation source
train. In order to market the Beth-Cath 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 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 stand-alone balloon angioplasty or
first-time 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 stand-alone balloon angioplasty or stent placement. In
order to market the Beta-Cath 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 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
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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 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.
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.
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
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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 75% of all PTCA procedures
performed worldwide in 1999. 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.
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 or coated balloon.
The radiation sources being developed by our competitors vary among gamma, beta
and x-ray. The most advanced competitive approach may be represented by the
radioactive guidewire, as we are aware that:
o Johnson & Johnson submitted a pre-market approval application to the
FDA in June 1999 for its gamma guidewire system and recently
received CE Mark approval.
o Guidant is investigating its beta guidewire system in the pivotal
clinical trial stage in the United States; and
o Boston Scientific announced results in August 1999 from a
160-patient dose-finding study conducted in Europe with its beta
guidewire system.
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, ease of use, reliability,
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.
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Limitations on third-party reimbursement for the Beta-Cath System currently
exist and may continue.
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
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 System is
uncertain.
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 effectiveness 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 the radiation therapy.
We depend on the protection provided by our issued patent and pending patent
applications, which may be challenged.
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With respect to the Beta-Cath 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 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 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. We also understand that Guidant and Johnson & Johnson have entered into
a cross-licensing arrangement which 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 System and both of those companies have
significantly greater capital resources than we. 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 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
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 "distal monorail" 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
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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 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 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 System utilizes radioactive materials, our activities are
subject to various safety regulations.
Because our business involves the import, manufacture, distribution, use and
disposal 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 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 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.
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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
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 substantially all of the components of
our Beta-Cath 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 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 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 System.
We have limited sales, marketing and distribution experience which may affect
our ability to successfully commercialize the Beta-Cath System.
At present we have limited sales and marketing capability. 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. We intend to sell our products directly in the
United States. We may not be able to recruit and train adequate sales and
marketing personnel to successfully commercialize the Beta-Cath System in the
United States and internationally. 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
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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 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 and
several other foreign countries. 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, 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 System and commercialize our
product in Europe and several other foreign countries and then, subject to FDA
approval, 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 System;
o the resources required to hire and develop a direct sales force in
the United States and the key markets in Europe and develop
distributors in other markets;
o the resources needed to expand manufacturing capacity and facilities
requirements; and
o market acceptance and demand for the Beta-Cath 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.
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The use of the Beta-Cath 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.
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. We are currently seeking to hire a
Vice President of Regulatory Affairs and a Vice President of Sales. Our business
and future operating results also depend in significant part upon our ability to
attract and retain a Vice President of Regulatory Affairs, a Vice President of
Sales and other qualified regulatory, clinical, management, 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.
The market price of our common stock could decline below the price paid to the
selling shareholder. 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 April 28, 2000, the closing
price of our common stock ranged from a high of $48.75 per share to a low of
$11.00 per share and ended that period at $41.00 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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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.
<TABLE>
<CAPTION>
Fair Value
(in thousands) 2000 2001 2002 2003 2004 Total 3/31/00
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash equivalents
Fixed rate $66,022 $ -- $ -- $ -- $ -- $66,022 $66,022
Average interest rate 5.63%
Held to Maturity investments
Fixed rate 10,581 2,593 -- -- -- 13,174 13,174
Average interest rate 6.05% 6.07%
Total investments
Securities 76,603 2,593 -- -- -- 79,196 79,196
Average interest rate 5.82% 6.07%
</TABLE>
Foreign Currency Risk
International revenues from the Company's foreign direct sales and distributor
sales comprised 100% of total revenues for the three month period ended March
31, 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 three month period ending March 31,
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 March 31, 2000
was not material.
23
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) Novoste issued an aggregate of 1,463,500 shares of its common stock in a
private placement offering to institutional investors (the "Investors"),
of which 1,313,500 shares were issued on March 31, 2000 and 150,000 shares
were issued on April 6, 2000. U.S. Bancorp Piper Jaffray served as the
placement agent to the company. Net offering proceeds to the company were
$48,773,000 after deducting expenses and placement agent fees of
$2,449,000. Neither Novoste nor the placement agent engaged in any general
solicitation in the private placement. Each Investor represented to the
Company in writing it was an accredited investor under Rule 501(a) of
Regulation D and that it purchased the shares for investment. The sale of
the shares was exempt from the registration requirements under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to
Section 4(2) of the Securities Act and Rule 506 of Regulation D.
The following table sets forth the name of each Investor and the number of
shares of common stock purchased by such Investor from the company:
- -------------------------------------------------------------
- ------------------------------------------------------------- Shares Issued by
Name the Company (1)
- ------------------------------------------------------------- ----------------
Fidelity Contrafund ......................................... 665,945
IDS Life Series Fund, Inc. - Equity Portfolio................ 218,917
Variable Insurance Products Fund II:
Contrafund Portfolio......................................... 146,235
President and Fellows of Harvard College .................... 150,000
Fidelity Advisor Series VII:
Fidelity Adviser Health Care Fund............................ 10,946
Essex Global High Technology Fund II (USA),
a series of Essex Qualified Purchase Funds, LLC(2)..... 3,054
Essex Global Life Sciences Fund
A series of Essex Specialty Pooled Funds, LP(2) ....... 8,409
New Discovery Fund Limited(2)................................ 21,758
Essex High Technology Fund, LP(2)............................ 39,698
Essex High Technology (Bermuda) Fund, LP(2).................. 28,047
Essex Performance Fund, LP(2)................................ 51,884
Essex High Technology Offshore II Fund, LP(2)................ 22,875
Permal Media and Communications Fund, LTD(2)................. 95,732
- ----------
(1) Does not include an additional 186,500 shares purchased by the Investors
(other than President and Fellows of Harvard College) from selling
shareholders at $35.00 per share on March 31, 2000 such purchases being
made by those Investors in the same relative proportion as the shares
purchased by them from the Company. The Company did not receive any
proceeds from the shares sold by the selling shareholders.
24
<PAGE>
Item 5. Other Information
Effective March 10, 2000, David N. Gill resigned as Chief Financial Officer and
Chief Operating Officer.
Effective May 1, 2000, Joan Macdonald resigned as Vice President-Regulatory
Affairs and became a part-time employee of the company reporting directly to
Novoste's Chief Executive Officer on regulatory matters.
Effective May 1, 2000, Edwin B. Cordell, Jr. joined the company as Chief
Financial Officer.
Item 6. Exhibits and Reports on Form 8-K
#10.27 Amendment to the Framework Agreement and Security Agreement
(NOV 34) between Registrant and Bebig Isotopentechnik und
Umweltdiagnostik GmbH
27 Financial data schedule
#Portions have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
(b) The company filed a Form 8-K on March 14, 2000, stating that it issued two
press releases. The first release announced that David N. Gill had
resigned from the company as Chief Operating Officer and Chief Financial
Officer. The second press release announced the results of the START Trial
which showed that beta radiation reduces the risk of repeat blockage and
additional treatment for patients suffering from clogged stents, when
compared to patients treated with placebo.
25
<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
May 1, 2000 /s/ William A. Hawkins
- ----------- ------------------------------------------
Date William A. Hawkins
President & Chief Executive Officer
May 1, 2000 /s/ Edwin B. Cordell, Jr.
- ----------- ------------------------------------------
Date Edwin B. Cordell, Jr.
Vice President - Finance,
Chief Financial Officer
(Principal Financial & Accounting Officer)
26
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------ -------------------
#10.27 Amendment to the Framework Agreement and Security Agreement (NOV 34)
between Registrant and Bebig Isotopentechnik und Umweltdiagnostik
GmbH
27 Financial data schedule
#Portions have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
27
EXHIBIT 10.27
2. AMENDMENT TO THE
FRAMEWORK AGREEMENT AND SECURITY AGREEMENT (NOV 34)
between
Novoste Corporation, Norcross GA
and
BEBIG Isotopentechnik und Umweltdiagnostik GmbH, Berlin
BACKGROUND
In a previous Amendment to the Framework Agreement and Security Agreement dated
23 July 1998 Novoste and BEBIG agreed to a number of procedures relating to the
return of source trains and the changing of the price formula. The provisions
have in part turned out to be unworkable. Both parties therefore agree to the
following modifications:
1. Novoste may request from BEBIG, and BEBIG will accept, a final disposal of
source trains for a flat disposal rate of XXXXX (XXXXX) per seed. BEBIG
will send them to the "Zentralstelle fur Sammlung radioaktiver Abfalle
(ZRA)", unless they were manufactured less than 12 months ago. In this
case, BEBIG may recycle suitable seeds for further use.
2. If trains for final disposal are received by BEBIG within 18 months from
their date of manufacturing, as evidenced by the manufacturers
certificate, then the charges for a second year use of the train (ss. 2,
Amendment to the Framework Agreement and Security Agreement dated 23 July
1998) will not apply.
3. Novoste understands that BEBIG's ability to dispose off old source trains
is contingent on various regulatory permissions. It explicitly grants
BEBIG the right to cancel the disposal right or to increase the disposal
charge if her disposal conditions change.
4. In order to handle incoming trains and prepare them for disposal, BEBIG
will need to develop a waste box, a number of tools, and the adequate
handling processes. Since Novoste does not contribute to the investment,
it will guarantee to BEBIG a disposal revenue per calendar year of at
least XXXXX (XXXXX). In cases where the disposal volume is less then XXXXX
per calendar year, Novoste will pay a the difference.
Norcross, 2/11/00 Berlin, 2/10/00
------------------------ ------------------------
Date/ Place Date/ Place
/s/ Novoste Corporation /s/ BEBIG GmbH
------------------------ ------------------------
- --------------------------------------------------------------------------------
Confidential treatment has been requested for portions of this page of this
exhibit. The copy filed herewith omits the information subject to the
confidentiality request. Omissions are designated as "XXXXX". The portions
omitted have been filed separately with the Securities and Exchange Commission
pursuant to such request for confidential treatment.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 68,979,963
<SECURITIES> 13,174,192
<RECEIVABLES> 1,047,137
<ALLOWANCES> 0
<INVENTORY> 2,671,284
<CURRENT-ASSETS> 86,163,566
<PP&E> 6,471,046
<DEPRECIATION> 2,691,367
<TOTAL-ASSETS> 90,507,818
<CURRENT-LIABILITIES> 4,987,464
<BONDS> 0
0
0
<COMMON> 157,060
<OTHER-SE> 85,363,294
<TOTAL-LIABILITY-AND-EQUITY> 90,507,818
<SALES> 846,046
<TOTAL-REVENUES> 846,046
<CGS> 753,380
<TOTAL-COSTS> 7,892,545
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (600,937)
<INCOME-PRETAX> (7,198,942)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,198,942)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,198,942)
<EPS-BASIC> (.50)
<EPS-DILUTED> (.50)
</TABLE>
