<PAGE>
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
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File No. 0-24241
V.I. TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-3238476
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
134 Coolidge Avenue, Watertown, Massachusetts 02472
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(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (617) 926-1551
Former address for fiscal year 1999: 155 Duryea Road, Melville, NY 11747
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of each of the Registrant's classes of common
stock as of November 1, 2000
Title of Class Shares Outstanding
Common Stock, $.01 par value 19,932,930
<PAGE>
V. I. TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C> <C>
Item 1. Financial Statements:
Condensed balance sheets at September 30, 2000
and January 1, 2000 3
Condensed statements of operations for
the thirteen and thirty-nine weeks ended September
30, 2000 and October 2, 1999 4
Condensed statement of stockholders' equity for the
thirty-nine weeks ended September 30, 2000 5
Condensed statements of cash flows for the
thirty-nine weeks ended September 30, 2000 and
October 2, 1999 6
Notes to condensed financial statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3 Quantitative and Qualitative disclosures about
market risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
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PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
V. I. TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
2000 2000
(UNAUDITED) (AUDITED)
----------- ---------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 11,539 $ 26,886
Trade receivables 4,493 4,596
Other receivables, net 1,087 536
Inventory 2,970 2,744
Prepaid expenses and other current assets 896 924
----------- -----------
Total current assets 20,985 35,686
Property, plant and equipment, net 39,650 37,520
Intangible assets, net 3,984 4,251
Other assets, net 516 641
----------- -----------
Total assets $ 65,135 $ 78,098
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,687 $ 2,687
Current portion of capital lease obligations 1,677 1,488
Accounts payable and accrued expenses 8,861 10,351
Deferred revenue 649 -
Due to related parties 170 486
----------- -----------
Total current liabilities 14,044 15,012
Deferred revenue 651 -
Long-term debt, less current portion 672 2,688
Capital lease obligations, less current portion 1,020 2,448
Advances from customer 2,904 2,565
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Total liabilities 19,291 22,713
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Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 1,000,000 at September 30, 2000
and January 1, 2000; no shares issued and
outstanding - -
Common stock, par value $.01 per share; authorized
35,000,000 shares; issued and outstanding
19,931,016 at September 30, 2000 and
19,536,263 at January 1, 2000 199 195
Additional paid-in-capital 126,205 125,583
Accumulated deficit (80,560) (70,393)
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Total stockholders' equity 45,844 55,385
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Total liabilities and stockholders' equity $ 65,135 $ 78,098
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
3
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V. I. TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPT. 30, OCT. 2, SEPT. 30, OCT. 2,
2000 1999 2000 1999
------------------------------------ -------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 8,543 $ 10,502 $ 27,218 $ 30,996
ANRC Incentive Program - (4,500) 1,231 (4,500)
--------------- --------------- --------------- ----------------
Net revenue 8,543 6,002 28,449 $ 26,496
Costs and expenses:
Cost of sales 7,044 6,296 21,384 17,683
Research and development, net 3,523 913 9,367 5,024
Selling, general and administrative expenses 2,800 2,330 8,214 7,322
Charge related to R&D restructuring - 2,338 - 2,338
Charge related to product recall - - - 2,645
--------------- --------------- --------------- ----------------
Total operating costs and expenses 13,367 11,877 38,965 35,012
--------------- --------------- --------------- ----------------
Loss from operations (4,824) (5,875) (10,516) (8,516)
Interest (expense) income, net (59) 49 (53) 137
Discount on advances from customer - - 402 -
--------------- --------------- --------------- ----------------
Total other income (59) 49 349 137
--------------- --------------- --------------- ----------------
Net loss ($4,883) ($5,826) ($10,167) ($8,379)
=============== =============== =============== ================
Basic and diluted net loss per share ($0.25) ($0.47) ($0.51) ($0.67)
=============== =============== =============== ================
Weighted average shares used in
calculation of basic and diluted
net loss per share 19,900 12,476 19,824 12,439
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
4
<PAGE>
V. I. TECHNOLOGIES, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
(SHARES) (AMOUNT) CAPITAL DEFICIT EQUITY
-------------- -------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 19,536,263 $195 $125,583 ($70,393) $ 55,385
Issuance of shares of common stock
upon exercise of stock options 394,753 4 622 - 626
Net loss - - - (10,167) (10,167)
-------------- -------------- --------------- ----------------- -----------------
Balance at September 30, 2000 19,931,016 $199 $126,205 ($80,560) $ 45,844
============== ============== =============== ================= =================
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
5
<PAGE>
V. I. TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
SEPT, 30, OCT. 2,
2000 1999
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<S> <C> <C>
Cash flows used in operating activities:
Net loss $(10,167) $(8,379)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,225 2,356
Discount on advances from customer (402) -
Compensation expense in connection with acceleration of
option vesting - 4
Accretion of interest on customer advance 199 139
Changes in operating accounts:
Trade receivables 103 (5,014)
Other receivables, net (551) (121)
Due to/from related parties (316) 264
Inventory (226) (57)
Prepaid expenses and other current assets 153 (655)
Deferred revenue 1,300 -
Accounts payable and accrued expenses (948) 7,481
--------------------------------
Net cash used in operating activities (7,630) (3,982)
--------------------------------
Cash flows used in investing activities:
Additions to property, plant and equipment (5,088) (6,524)
--------------------------------
Net cash used in investing activities (5,088) (6,524)
--------------------------------
Cash flows used in financing activities:
Proceeds from issuance of common stock upon exercise
of options 626 362
Principal repayment of long-term debt (2,016) (2,015)
Principal repayment of capital lease obligations (1,239) (934)
--------------------------------
Net cash used in financing activities (2,629) (2,587)
--------------------------------
Net decrease in cash and cash equivalents (15,347) (13,093)
Cash and cash equivalents at beginning of year 26,886 35,265
--------------------------------
Cash and cash equivalents at end of period $ 11,539 $ 22,172
================================
Supplemental disclosure of cash flow information:
Deferral of incentive program cost $ 542 $ -
================================
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
6
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V. I. TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements of V.I.
Technologies, Inc. (the Company or VITEX) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-
X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all material adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included. Operating results for the thirteen and thirty-nine weeks ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 30, 2000. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended January 1, 2000.
Presentation of Fiscal Years
For presentation purposes, the years ended December 30, 2000 and January 1,
2000 are referred to as fiscal years 2000 and 1999, respectively.
Revenue Recognition
Revenue from plasma fractionation processing and the production of PLAS+SD
is recognized in the period in which the related services have been rendered and
upon satisfaction of certain quality control requirements. Revenue recognized
in the accompanying statements of operations is not subject to repayment or
future performance obligations.
Non-refundable, up-front payments received under the Company's
collaboration agreements are deferred and recognized in income over the period
in which the Company provides the related services.
The Company's plasma fractionation processing revenues are principally
derived from Bayer, while PLAS+SD is sold to the Red Cross for subsequent
distribution to hospitals and other medical facilities. For the thirteen weeks
ended September 30, 2000, revenue derived from the sale of products to Bayer and
the Red Cross amounted to 74% and 25%, respectively, of net revenues, compared
to 36% and 61%, respectively, for the same period of 1999. For the thirty-nine
weeks ended September 30, 2000, revenue derived from sale of products to Bayer
and the Red Cross amounted to 66% and 33%, respectively, compared to 43% and
55%, respectively, for the same period of 1999. At September 30, 2000, amounts
owed from Bayer and the Red Cross amounted to 32% and 68%, respectively, of net
trade receivables.
Research and Development
All research and development costs are charged to operations as incurred.
Reimbursement for research and development costs incurred in accordance with
collaboration agreements, is recognized as an offset to research and development
costs in the period in which the eligible costs are incurred. Such
reimbursement totaled $1.0 million and $0.2 million for the thirteen weeks ended
September 30, 2000 and October 2, 1999, respectively, and $2.3 million and $1.5
million for both the thirty-nine weeks ended September 30, 2000 and October 2,
1999, respectively.
2. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed on the basis of the weighted
average number of common shares outstanding. Diluted earnings (loss) per share
is computed on the basis of the weighted average number of common shares
outstanding plus the effect of outstanding stock options and warrants calculated
using the "treasury stock" method. Loss per share for the thirteen and thirty-
nine weeks ended September 30, 2000 and October 2, 1999 do not include the
assumed exercise of stock options and warrants because the effect of such
inclusion would be antidilutive. As of September 30, 2000, the Company had
2,365,210 options and warrants outstanding.
7
<PAGE>
3. INVENTORY
Inventory consists of the following components:
<TABLE>
<CAPTION>
September 30, 2000 January 1, 2000
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<S> <C> <C>
Work-in-process $ 286,000 $ 799,000
Resin 1,583,000 891,000
Supplies 1,100,000 1,054,000
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$2,969,000 $2,744,000
========== ==========
</TABLE>
4. AMERICAN NATIONAL RED CROSS AGREEMENT
Effective April 3, 2000, the Company and the Red Cross amended the terms of
their supply agreement. The revised Agreement has a six-year term and new
minimum volumes and pricing. These are reflected in the results for the thirty-
nine weeks ended September 30, 2000. In addition, the Agreement specified that
the previously announced sales incentive program would terminate as of July 1,
2000 and that 50% of the incentives earned by the Red Cross in that quarter,
estimated at $.5 million, would be added to the outstanding Red Cross customer
advance of $3.0 million. The revised balance would be scheduled for a single
payment one year after FDA licensure of Universal PLAS+SD. To reflect the
revised payment schedule, the new balance of the customer advance of $3.5
million, which is non-interest bearing, was discounted to net present value at
8% resulting in a gain of $.4 million in the second quarter. The new agreement
also covers the processing of Universal PLAS+SD if and when the FDA approves
such product. The revised agreement includes market performance criteria that,
if not met, allow either party to exit the agreement no earlier than July 1,
2001. Such market performance criteria include minimum sales levels of PLAS+SD;
minimal amounts of plasma to be provided by the Red Cross to the Company for
processing; and target dates for Universal PLAS+SD related to the filing of a
BLA and approval by the FDA for marketing. For the thirty-nine weeks ended
September 30, 2000, the Company recognized credits of $1.2 million related to
the sales incentive program, which consisted of $.7 million recognized in the
second quarter of 2000, upon termination of the program, and $.5 million in the
first quarter of 2000 upon revised program cost estimates.
In July 2000, the Company took steps to reduce its workforce by 41
employees to better align its production capability to the expected production
requirements under the Red Cross Agreement. Severance costs of the workforce
reduction amounting to $0.7 million were recognized during the thirteen weeks
ended September 30, 2000 of which $.6 million is included in cost of sales and
$.1 million is included in selling, general and administrative expenses. As of
September 30, 2000 the remaining accrual balance was $.3 million.
5. NEW YORK BLOOD CENTER AGREEMENT
In February 2000, the Company and New York Blood Center (NYBC) entered into
an agreement to increase the market share of PLAS+SD in the New York area. The
agreement provides for marketing support payments to the NYBC through February
2001 based on market penetration and the success of other marketing initiatives
by the NYBC. Through September 30, 2000 the Company had made payments to NYBC
totaling $.15 million and accrued $0.3 million as of that date for this
incentive program. Costs of the program are included in selling, general and
administrative expenses in the accompanying condensed statement of operations.
6. PENTOSE MERGER
On November 12, 1999, the Company completed the merger with Pentose
Pharmaceuticals, Inc., a Delaware corporation ("Pentose"), pursuant to an
Agreement and Plan of Merger and Reorganization dated as of July 28, 1999.
Under the terms of the merger, 6,443,731 shares of common stock of the Company
were issued in exchange for all of the outstanding shares of Pentose common and
preferred stock.
In July 1999, in anticipation of the merger with Pentose, the Company
recorded a research and development charge of $2.3 million for severance and
other integration related expenses, including the elimination of duplicate
facilities and excess capacity, operational realignment and related workforce
reductions of the Company's employees and facilities. As of September 30, 2000,
the remaining accrual was $.15 million, representing benefit costs.
8
<PAGE>
7. AMERSHAM PHARMACIA BIOTECH PATENT AND KNOW-HOW LICENSE AGREEMENT
On April 6, 2000, the Company entered into a worldwide license and
distribution agreement with Amersham Pharmacia Biotech, the life science
business of Nycomed Amersham plc. Under the agreement, Amersham Pharmacia
Biotech will exclusively market and distribute the Company's INACTINETM pathogen
inactivation technology to manufacturers of biopharmaceuticals and transgenic
products and to plasma fractionators. VITEX retains all rights for the
marketing and distribution of the INACTINETM technology with regard to blood
components such as red cells, platelets and plasma.
Under terms of the agreement, the Company received a non-refundable $1.0
million up-front payment in May 2000; a second, non-refundable milestone payment
of $0.5 million was received in September 2000. The Company could also receive
further payments of $1.0 million subject to certain product testing and FDA
approval milestones. In addition, the Company will receive a percentage royalty
based on net sales made by Amersham which incorporate the INACTINE technology.
The Company will provide Amersham with technical support, training and conduct
research and development projects as directed by Amersham during the ten-year
term of the agreement. The Company is amortizing the up-front payment and
milestone payment, over the estimated period from receipt of the payments to the
expected date of FDA approval, which is approximately 30 months from the date
the agreement was signed, during which period the Company will expend the
majority of its research and development efforts. For the thirteen and thirty-
nine weeks ended September 30, 2000, the Company recognized revenue of $0.1
million and $0.2 million, respectively, from these payments and the balance of
$1.3 million is reflected as deferred revenue in the accompanying balance sheet
as of September 30, 2000.
8. NEW ACCOUNTING PRONOUNCEMENTS
On December 3, 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 -"Revenue Recognition in Financial Statements"
(SAB No. 101). SAB No. 101 provides the SEC staff's views on the recognition of
revenue including non-refundable technology access fees received by
biotechnology companies in connection with research collaboration with third
parties. SAB No. 101 states that in certain circumstances the SEC staff
believes that up-front fees, even if non-refundable, should be deferred and
recognized systematically over the term of the research arrangement. SAB No.
101 B, which amends the implementation date for SAB No. 101, requires
registrants to adopt the accounting guidance contained therein by no later than
the fourth fiscal quarter of the fiscal year beginning after December 15, 1999.
The Company believes it is in compliance with the provisions of SAB No. 101;
however, a final determination will be made prior to the effective date of the
pronouncement.
9. ETHANOL USAGE TAX CONTINGENCY
The Company uses ethanol as a concentration agent in its plasma
fractionation process and in column regeneration for PLAS+SD process. Ethanol
has been purchased by the Company on the assumption that it is entitled to tax-
exempt status based on operations and usage in manufacturing. An application to
formalize tax-exempt status has been pending before the U.S. Bureau of Alcohol,
Tobacco and Firearms since 1998. While the Bureau has not yet acted upon this
application, it recently initiated its review and requested the Company to pay
ethanol excise tax until a determination is made. On advice of counsel, the
Company commenced paying the excise tax on October 2, 2000 while the review is
proceeding.
It is the intention of the Company to work with the Bureau to resolve this
matter in the near future. In the event of a determination that the Company is
not eligible for tax exemption, management believes, upon consultation with
counsel, that it would be entitled to a drawback arrangement that is available
to certain industrial users of ethanol. The effect of this would be recovery of
the majority of excise taxes paid and a minor effect on manufacturing costs.
Further, management believes that, in the event it is not granted tax exempt
status, retrospective costs, if any, would not be material to the Company's
financial condition or results of operation.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
OVERVIEW
V.I. Technologies, Inc. ("the Company" or "VITEX"TM, a trademark and trade
name of V.I. Technologies, Inc.) is a leading developer of a broad portfolio of
blood products and systems which use its proprietary pathogen inactivation
technologies. The Company's technologies are intended to address the risks of
viral, bacterial and other pathogen contamination in blood products, including
plasma, plasma derivatives, red blood cells and platelets. Viral inactivation
processes have the potential to eliminate viruses that are enveloped by lipid
membranes, such as hepatitis B virus ("HBV"), hepatitis C virus ("HCV") and HIV,
the virus that causes AIDS, and non-enveloped viruses, such as hepatitis A virus
("HAV") and parvovirus, and other known and unknown pathogens.
The Company's mission is to achieve the global availability of the safest
blood products using its proprietary pathogen viral inactivation systems. To
achieve this objective, VITEX intends to:
. exploit its leading portfolio of pathogen inactivation technologies; and
. develop, through strategic collaborations, the worldwide infrastructure to
manufacture and distribute the safest blood products.
The Company has several important pathogen inactivated blood product
candidates under development. These include:
. Red Blood Cell Concentrate (RBCC) Systems. The Company's INACTINE technology
is in the midst of FDA approved clinical trial program, as a viral
inactivation system for RBCC's, the most frequently transfused blood product.
Phase I clinical trials are completed and are expected to be reported
publicly in Q4. The Company recently received FDA approval to move into Phase
II clinical trials. These trials will commence in November 2000.
In pre-clinical studies, INACTINE has demonstrated a broad spectrum of
viral inactivation, including both enveloped and non-enveloped viruses and
bacterial kill, while having no effect on the therapeutic properties of the
RBCC. The Company has entered into two strategic collaborations to accelerate
the development and commercialization of INACTINE treated-RBCC: a marketing
and distribution agreement with Pall, and a contract development and
manufacturing agreement with Haemonetics Corporation.
. Universal PLAS+SD - Universal PLAS+SD is the next generation of PLAS+SD, the
Company's virally inactivated transfusion plasma. Universal PLAS+SD is the
first application of the Company's second major product platform, affinity
purification. The Company is actively working to extend this technology for
the removal of other targeted pathogens in blood products. Universal PLAS+SD
provides the advantages of PLAS+SD; the first pharmaceutical-grade virally
inactivated blood product approved by the FDA, with an additional safety
enhancement. Universal PLAS+SD, as its name implies, is expected to be safely
transfused to any patient without the need to match donor and recipient blood
type. Phase III pivotal clinical trials are underway and enrollment is
targeted to be complete before year-end. The results of this trial will serve
as a basis for a BLA application in the first quarter of 2001. VITEX has a
distribution agreement for PLAS+SD and Universal PLAS+SD with the American
National Red Cross (Red Cross), an organization responsible for distributing
45% of the U.S. blood supply.
. Platelet Concentrates - The Company has a development program in the pre-
clinical stage to commercialize INACTINE-treated platelet concentrates. This
product would deliver the broad spectrum of viral inactivation while
preserving the critical therapeutic function of platelets. The Company hopes
to start in 2001 pre-clinical testing of a spectrum compound from the
INACTINE family for platelet pathogen inactivation.
The Company currently manufactures two human therapeutic products:
. VITEX Plasma Fractions. The Company supplies Plasma Fractions primarily to
Bayer Corporation ("Bayer") under a collaboration arrangement. The Company
utilizes a combination of fractionation procedures to separate and purify the
protein components of plasma. The plasma fractions are further processed by
its customers into virally inactivated plasma derivatives for use in FDA-
approved therapeutic applications.
10
<PAGE>
. PLAS+SD - The Company has a collaboration agreement with the Red Cross
granting the Red Cross exclusive distribution rights of VITEX's PLAS+SD in
North America. PLAS+SD, the first of VITEX's FDA approved virally inactivated
products, received marketing clearance from the FDA on May 6, 1998.
RESULTS OF OPERATIONS
Net Revenue
Net revenue was $8.5 million for the third quarter of 2000, compared to
$6.0 million for the third quarter of fiscal 1999. For the thirty-nine weeks
ended September 30, 2000, net revenue was $28.4 million versus $26.5 million in
the 1999 period. Revenue from the plasma fractionation business grew as a
result of an expansion of the Company's fractionation facilities in 1999.
PLAS+SD volumes and revenues declined during the quarter and year to date period
due to a reduction in plasma supply from the Red Cross under the terms of the
Red Cross Distribution Agreement, which was amended as of the second quarter of
fiscal year 2000. During the third quarter, the Red Cross supplied less plasma
than specified in the revised agreement. The revised Agreement runs for six
years, covers Universal PLAS+SD, new pricing and lower minimum volumes, and
market performance criteria which, if not met, allow either party to exit the
agreement. Such market performance criteria include minimum sales levels of
PLAS+SD; minimal amounts of plasma to be provided by the Red Cross to VITEX for
processing; and target dates for Universal PLAS+SD related to filing of a BLA
and approval by the FDA for marketing. Net revenue also included credits of $1.2
million for the thirty-nine weeks ended September 30, 2000 as the Company
revised its cost estimates under the previously announced Red Cross Sales
Incentive Program which ended as of July 1, 2000. In the thirty-nine weeks ended
October 2, 1999, the Company recorded a charge of $4.5 million for the
anticipated cost of the program.
Cost of Sales
Cost of sales was $7.0 million for the third quarter of 2000, compared to
$6.3 million for the third quarter of fiscal 1999. For the thirty-nine week
periods, cost of sales was $21.4 million in 2000 and $17.7 million in 1999. Cost
of sales in the quarter and year to date period for the plasma fractionation
business grew as a result of the 1999 capacity expansion. PLAS+SD cost of sales
as a percentage of net revenue increased reflecting lower volumes and lower
absorption of fixed costs. In conjunction with the amended Red Cross Agreement
on July 1, 2000, the Company reduced its plasma operations workforce by 41
employees to lower manufacturing costs and to better match its production
capacity to the expected Red Cross processing volumes. Severance and other costs
related to the workforce reduction amounted to $0.6 million and are included in
the third quarter cost of sales. As of September 30, 2000, the remaining accrual
balance was $.3 million.
Research and Development
Research and development costs increased to $3.5 million for the third
quarter of 2000 in comparison with $0.9 million in the comparable 1999 quarter.
For the thirty-nine weeks ended September 30, 2000, research and development
costs increased to $9.4 million from $5.0 million in 1999. This reflects the
overall acceleration of the Company's research efforts and specifically the
increased spending on the INACTINE red cell viral inactivation program now
entering Phase II clinical trials as well as the cost of Universal PLAS+SD Phase
III clinical trials. Research and development expenses of $0.9 million in the
third quarter of 1999 were at an abnormally low level as the Company initiated a
restructuring of its research program in anticipation of its merger with
Pentose. The Company expects that research and development spending will
continue to increase in future periods.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $0.5 million in the
third quarter of 2000 to $2.8 million versus the third quarter of 1999. The
increase in costs encompasses the July 2000 workforce reduction in selling and
administrative areas as well as NYBC marketing support costs. The comparable
year to date periods showed an increase of $0.9 million in 2000 over 1999
reflecting the costs of staff reductions and increased PLAS+SD product marketing
costs.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through sales of
common stock, issuance of long-term debt and capital lease financing
arrangements. In addition, the Company generates cash from the sale of VITEX
Plasma Fractions, which are sold primarily to Bayer, and PLAS+SD, which is sold
to the Red Cross. The Company receives research and development funding under a
collaboration agreement with Pall Corporation. At September 30, 2000, the
Company had working capital of $6.9 million, including cash and cash equivalents
of $11.5 million, compared to working capital of $20.7 million, including cash
and cash equivalents of $26.9 million at January 1, 2000.
During the thirty-nine weeks ended September 30, 2000, the Company's cash
position was reduced by $15.3 million due to: capital expenditures of $5.1
million, primarily for the Company's new R&D facility in Watertown, MA and its
PCR testing laboratory in Melville; $3.2 million for scheduled debt repayments;
and the year to date operating loss combined with changes in working capital of
$7.6 million. Lower PLAS+SD revenue under the revised Red Cross Agreement and
increased research and development spending were the principal causes of the
operating loss. The Company received payments totaling $1.5 million from
Amersham Pharmacia Biotech in fiscal 2000 in connection with a worldwide license
and distribution agreement.
The Company is evaluating several alternative funding strategies to increase
the resources available to its research and development efforts. These
strategies, if executed, could have an effect on the Company's available cash
resources, future operating results, financial condition and per share results.
A combination of the Company's cash position, new funding, projected cash flows
from operations, research and development funding by Pall Corporation and
expected equity milestones from Pall Corporation totaling $8.0 million are
expected to be sufficient to meet the Company's cash requirements over the next
year.
As discussed in note 9 to the condensed financial statements, the Company
began to pay federal excise taxes as a result of its use of ethanol for plasma
processing in October 2000. The Company has applied to the U.S. Bureau of
Alcohol, Tobacco and Firearms for an exemption to pay excise tax. In the event
the Company is not granted tax exempt status, the Company believes it would be
entitled to a duty drawback arrangement that is available to certain industrial
users of ethanol. Until the Company is granted either a tax exemption or allowed
to file drawback claims, the imposition of the excise tax will result in cash
outflows of approximately $.5 million per month.
NEW ACCOUNTING PRONOUNCEMENTS
On December 3, 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 -"Revenue Recognition in Financial Statements"
(SAB No. 101). SAB No. 101 provides the SEC staff's views on the recognition of
revenue including non-refundable technology access fees received by
biotechnology companies in connection with research collaboration with third
parties. SAB No. 101 states that in certain circumstances the SEC staff
believes that up-front fees, even if non-refundable, should be deferred and
recognized systematically over the term of the research arrangement. SAB No.
101 B, which amends the implementation date for SAB No. 101, requires
registrants to adopt the accounting guidance contained therein by no later than
the fourth fiscal quarter of the fiscal year beginning after December 15, 1999.
The Company believes it is in compliance with the provisions of SAB No. 101;
however, a final determination will be made prior to the effective date of the
pronouncement.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q include "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 (the "Exchange Act"). All statements, other than statements of historical
information, provided herein are forward-looking statements and may contain
information about financial results, economic conditions, trends and known
uncertainties. These forward-looking statements involve risks and uncertainties,
such as quarterly fluctuations in operating results, the timely availability and
FDA approval of new products, market acceptance of the Company's products, and
the impacts of competitive products and pricing. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. In addition to the disclosure contained herein,
readers should carefully review any disclosure of risks and
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uncertainties contained in other documents the Company has filed with the
Securities and Exchange Commission pursuant to the Exchange Act, including its
annual report on Form 10-K for the year ended January 1, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings and cash flows are subject to fluctuations due to
changes in interest rates primarily from its investment of available cash
balances in money market funds with portfolios of investment grade corporate and
U.S. government securities and, secondarily, its long-term debt arrangements.
Under its current policies, the Company does not use interest rate derivative
instruments to manage exposure to interest rate changes.
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PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4.1 Restated Certificate of Incorporation of the Registrant. Incorporated by
reference to Exhibit 3.8 to the Registrant's Registration Statement on
Form S-1, filed with the Commission on February 26, 1998 (File No. 333-
46933).
4.2 Amended and Restated By-Laws of the Registrant. Incorporated by reference
to Exhibit 3.10 to the Registrant's Registration Statement on Form S-1,
filed with the Commission on February 26, 1998 (File No. 333-46933).
4.3 Form of Certificate for Common Stock. Incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on Form S-1, filed with the
Commission on February 26, 1998 (File No. 333-46933).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended September
30, 2000.
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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 thereunto duly authorized.
V.I. TECHNOLOGIES, INC.
-----------------------
(Registrant)
Date: November 14, 2000 /s/ John R. Barr
------------------------ ----------------
John R. Barr
President, Chief Executive Officer
Date: November 14, 2000 /s/ Thomas T. Higgins
------------------------ ---------------------
Thomas T. Higgins
Executive Vice President, Operations
and Chief Financial Officer
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