Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from............... to ...............
Commission file number 1-10546
MOLECULAR BIOSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3078632
(State of Incorporation) (I.R.S. Identification No.)
10030 Barnes Canyon Road
San Diego, California 92121
(619) 452-0681
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
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.
X Yes No
The number of shares outstanding of the issuer's common stock,
$.01 par value, as of July 31, 1996 was 17,569,115 shares.
<PAGE>
INDEX PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
1. Consolidated Balance Sheets 3
March 31, 1996 and June 30, 1996
2. Consolidated Statements of Operations 4
Three Months Ended June 30, 1995 and 1996
3. Consolidated Statements of Cash Flows 5
Three Months Ended June 30, 1995 and 1996
4. Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II -OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 3 - Defaults Upon Senior Securities 11
Item 4 - Submission of Matters to a Vote of Securities Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
(a) Exhibits
(b) Reports on Form 8-K
Signatures 11
<PAGE>
<TABLE>
<CAPTION>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30,
March 31, 1996
1996 (Unaudited)
----------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,542 $ 49,027
Marketable securities, available-for-sale 8,028 273
Accounts and notes receivable 260 313
License rights 3,000 3,000
Inventories 622 479
Prepaid expenses and other assets 406 267
----------- ------------
Total current assets 24,858 53,359
----------- ------------
Property and equipment, at cost:
Building and improvements 14,158 14,169
Equipment, furniture and fixtures 3,943 4,255
Construction in progress 941 791
----------- ------------
19,042 19,215
Less: Accumulated depreciation and amortization 5,322 5,624
----------- ------------
Total property and equipment 13,720 13,591
----------- ------------
Other assets:
Patents and license rights, net of amortization
$917 and $977, respectively 297 267
Certificate of deposit, pledged 3,000 3,000
Other assets, net 1,954 1,943
----------- ------------
Total other assets 5,251 5,210
----------- ------------
$ 43,829 $ 72,160
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,262 $ 1,262
Accounts payable and accrued liabilities 3,964 2,482
Compensation accruals 1,031 524
----------- ------------
Total current liabilities 6,257 4,268
----------- ------------
Long-term debt, net of current portion 8,610 8,296
----------- ------------
Commitments and contingencies (Note 2)
Stockholders' equity:
Common Stock, $.01 par value, 20,000,000 shares
authorized, 13,296,186 and 17,555,751 shares
issued and outstanding, respectively 133 176
Additional paid-in capital 91,468 126,441
Accumulated deficit (62,185) (66,569)
Unrealized loss on available-for-sale securities (6) (4)
Less notes receivable from sale of Common Stock (281) (281)
Less 18,970 shares of treasury stock, at cost (167) (167)
----------- ------------
Total stockholders' equity 28,962 59,596
----------- ------------
$ 43,829 $ 72,160
=========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Three Months Ended
June 30,
1995 1996
------------ -------------
(Unaudited)
<S> <C> <C>
Revenues:
Revenues under collaborative agreements $ 312 $ 1,000
Product revenues 28 178
License fees 10 0
------------ -------------
350 1,178
------------ -------------
Operating expenses:
Research and development costs 3,196 2,636
Costs of products sold 106 1,290
Selling, general and administrative expenses 1,588 1,765
------------ -------------
4,890 5,691
<CAPTION>
------------ -------------
Loss from operations (4,540) (4,513)
Interest expense (203) (199)
Interest income 225 328
------------ -------------
Net loss $ (4,518) $ (4,384)
============ =============
Loss per common share $ (0.37) $ (0.30)
============ =============
Weighted average common shares outstanding 12,113 14,787
============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
June 30,
1995 1996
------------ -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,518) $ (4,384)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 649 346
Loss on disposals of property and equipment 11 -
Changes in operating assets and liabilities:
Receivables 2,653 (53)
Inventories (157) 143
Prepaid expenses and other assets 169 139
Accounts payable and accrued liabilities 541 (1,481)
Compensation accruals (129) (507)
------------ -------------
Cash used in operating activities (781) (5,797)
------------ -------------
Cash flows from investing activities:
Purchases of property and equipment (1,561) (173)
Proceeds from sale of property and equipment 7 0
Additions to patents and license rights (45) (15)
(Increase) decrease in other assets (3) 11
(Increase) decrease in marketable securities (215) 7,757
------------ -------------
Cash provided by (used in) investing activities (1,817) 7,580
------------ -------------
Cash flows from financing activities:
Net proceeds from public offering of Common Stock - 34,124
Net proceeds from stock options exercised - 892
Principal payments on long-term debt (75) (314)
------------ -------------
Cash provided by financing activities (75) 34,702
------------ -------------
Increase (decrease) in cash and cash equivalents (2,673) 36,485
Cash and cash equivalents, beginning of period 3,882 12,542
------------ -------------
Cash and cash equivalents, end of period $ 1,209 $ 49,027
============ =============
Supplemental cash flow disclosures:
Interest income received $ 232 $ 328
============ =============
Interest paid $ 202 $ 198
============ =============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Basis of Presentation-
The Notes to the Consolidated Financial Statements of Molecular
Biosystems, Inc. (the "Company") were submitted with the Company's Form
10-K for the year ended March 31, 1996 and should be read in
conjunction with this Form 10-Q.
These interim Consolidated Financial Statements of the Company have
not been audited by independent public accountants. However, in the
opinion of the Company, all adjustments required for a fair
presentation of the financial position of the Company as of June 30,
1996, and the results of its operations and its cash flows for the
three-months ended June 30, 1996 and 1995, have been made. The results
of operations for these interim periods are not necessarily indicative
of the operating results for the full year.
Effective April 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 ("SFAS"), Accounting for Stock-Based
Compensation, which provides companies the option to account for equity
instrument awards based on their estimated fair value at the date of
grant resulting in a charge to income in the periods the awards are
expected to vest. However, companies are permitted to continue to apply
APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity award. The Company will continue to apply
APB Opinion No. 25 and will present pro forma footnote disclosure
describing the effect to the Company's net income and net income per
share data as permitted by SFAS 123.
(2) Contingencies-
The Company is currently engaged in a dispute with its marketing
partner in Japan, Shionogi & Co., Ltd. ("Shionogi"). Shionogi claims
that the Company failed to supply Shionogi with ALBUNEX(R) meeting the
required quality and performance standards. The Company believes
Shionogi's claims are without merit and claims that Shionogi failed to
diligently develop the market for ALBUNEX(R) throughout the territory
and failed to develop FS069.
In April 1996, the Company and Shionogi filed cross-demands for
arbitration of their respective claims against each other. The Company
is seeking in excess of $45 million in compensatory and consequential
damages plus punitive damages for Shionogi's breach of the MBI-Shionogi
license and cooperative development agreement. Shionogi is seeking in
excess of $37 million plus punitive damages on its claim that MBI has
breached the agreement. The Company's dispute with Shionogi may have
the effect of interrupting or suspending sales of ALBUNEX(R) in Japan
(approximately $264,000 in revenue to the Company for fiscal year
1996), of further delaying the marketing of ALBUNEX(R) in South Korea
and Taiwan, and of further delaying the development of FS069 throughout
Shionogi's territory, and carries with it the risk of monetary damages
being awarded against the Company.
While the Company believes its positions are proper and Shionogi's
claims are without merit, the ultimate resolution of this matter is
uncertain at this time. Management does not believe the resolution of
this matter will have a material adverse impact on the Company's
financial position or results of operations. Accordingly, no liability
for potential loss, if any, has been provided for in the accompanying
Consolidated Financial Statements.
(3) Stockholders' Equity-
On May 30, 1996, the Company completed a public offering of 4.1 million
shares of Common Stock at $9.00 per share. Net proceeds from this
offering (after deducting underwriting discounts and commissions, and
offering expenses) amounted to approximately $34.1 million.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management discussion and analysis should be read in
conjunction with (1) the current consolidated financial statements and (2) the
Company's consolidated financial statements and management's discussion and
analysis of financial condition and results of operations in its Annual Report
on Form 10-K for the year ended March 31, 1996.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here.
Liquidity and Capital Resources
On May 30, 1996, the Company completed a public offering of 4.1 million
shares of Common Stock at $9.00 per share. Net proceeds from this offering
(after deducting underwriting discounts and commissions, and offering expenses)
amounted to approximately $34.1 million.
At June 30, 1996, the Company had net working capital of $49.1 million
compared to $18.6 million at March 31, 1996. Cash, cash equivalents, marketable
securities and certificates of deposit pledged were $52.3 million at June 30,
1996 compared to $20.6 million at March 31, 1996. For the next several years,
the Company expects to incur substantial additional expenditures associated with
product development. The Company anticipates that its existing resources,
including the proceeds of the public offering in May 1996 and interest thereon,
plus payments under its existing collaborative agreements, will enable the
Company to fund its operations for at least the next 36 months. The Company
continually reviews its product development activities in an effort to allocate
its resources to those products that the Company believes have the greatest
commercial potential. Factors considered by the Company in determining the
products to pursue may include but are not limited to the projected markets,
potential for regulatory approval, technical feasibility and estimated costs to
bring the product to the market. Based upon these factors, the Company may from
time to time reallocate its resources among its product development activities.
The Company may pursue a number of options to raise additional funds, including
borrowings; lease arrangements; collaborative research and development
arrangements with pharmaceutical companies; the licensing of product rights to
third parties; or additional public and private financing, as capital
requirements change as a result of strategic, competitive, technological and
regulatory factors. There can be no assurance that funds from these sources will
be available on favorable terms, if at all.
Results of Operations
Revenues Under Collaborative Agreements. Revenues under collaborative
agreements were $1 million and $312,000 for the three months ended June 30, 1996
and 1995, respectively. These revenues in the current year consist solely of a
quarterly payment to support clinical trials, regulatory submissions and product
development received from Mallinckrodt Medical Inc. ("Mallinckrodt") under the
Company's amended agreement with Mallinckrodt entered into in September 1995.
The prior year revenue is attributable to a bonus paid by Mallinckrodt under the
original license agreement equivalent to Mallinckrodt's first year product sales
of ALBUNEX at its sales price to end users of the product.
Product Revenues. Product revenues are based upon MBI's sales to
Mallinckrodt and Shionogi and are recognized upon shipment of the product. The
transfer prices for MBI's sales of ALBUNEX(R) to Mallinckrodt and Shionogi are
determined under the respective agreements and are equal to 40% of
Mallinckrodt's net sales price to its end users of the product and 30% of
Shionogi's net sales price to its end users. Product revenues were $178,000 for
the three months ended June 30, 1996 and $28,000 for the three months ended June
30, 1995.
Cost of Products Sold. Cost of products sold totaled $1.3 million for
the three month period ended June 30, 1996, resulting in a negative gross profit
margin. This was due to the fact that the current low levels of production are
insufficient to cover the Company's fixed manufacturing overhead expenses. For
the same period in the prior year, cost of products sold totaled $106,000. In
the prior year, certain expenses associated with the manufacturing of the
product had been recorded as research and development costs as they represented
the cost of developing the Company's manufacturing process. As the Company has
left the pilot manufacturing phase these costs are now classified as cost of
goods sold. The Company anticipates an increase in its gross profit margins at
such time as ALBUNEX(R) sales volume increases and at such time that FS069
receives regulatory approval and receives market acceptance, and thus the fixed
costs included in manufacturing overhead will be allocated over a larger number
of vials produced. The amount of any increase and the time required by the
Company to achieve higher margins are highly dependent on the market acceptance
of ALBUNEX(R) and FS069 and are therefore uncertain.
Research and Development Costs. For the three-month period ended June
30, 1996, the Company's research and development costs totaled $2.6 million, as
compared to $3.2 million for the same period in 1995. This current decrease of
18% is due to the Company no longer incurring significant costs related to the
development of its manufacturing process as in prior years.
Selling, General and Administrative Expenses. For the three-month
period ended June 30, 1996, the Company's selling, general and administrative
expenses totaled $1.8 million, as compared to $1.6 million for the same period
in 1995. This increase in the current year is attributable to legal expenses
related to the ongoing arbitration with Shionogi.
Interest Expense and Interest Income. Interest expense for the
three-month periods ended June 30, 1996 and 1995 amounted to $199,000 and
$203,000, respectively, and consisted primarily of mortgage interest on the
Company's manufacturing building. The interest rate on this mortgage was 8% in
June 1996. Interest expense in the prior year included interest on a loan that
the Company obtained in May 1994 to finance the purchase of two unimproved
buildings and underlying land in December 1993. In March 1996, after the
buildings were sold, the loan was restructured into a new note payable in the
amount of $6.0 million which bears interest at prime plus 1% and is payable in
monthly installments of principal plus interest over five years. The interest
rate on the note was 9.25% in June 1996.
The increase in interest income in the current year is due to higher
average cash and marketable securities balances as a result of the public
offering in May 1996 as discussed above.
The Company's cash is invested primarily in short-term, fixed principal
investments, such as U.S. Government agency issues, corporate bonds,
certificates of deposit and commercial paper.
Prospective Information
In September 1995, the Company entered into an amended and restated
distribution agreement with Mallinckrodt which will provide the company with
between $33 million and $47.5 million. This amended distribution agreement
modifies the original December 1988 distribution agreement between the Company
and Mallinckrodt in a number of respects. Under the amended distribution
agreement, the geographical scope of Mallinckrodt's exclusive right to market
the Company's proprietary contrast agent for transpulmonary cardiac ultrasound
imaging, ALBUNEX(R), the Company's second generation ultrasound contrast agent,
FS069 (currently under development), and related products was expanded to
include all of the countries of the world other than those covered by the
Company's license agreements with Shionogi & Co., Ltd. and Nycomed Imaging AS.
The duration of Mallinckrodt's exclusive right was also extended from October
1999 until the later of July 1, 2003 or three years after the date that Company
obtains approval from the U.S. Food and Drug Administration ("FDA") to market
FS069 for an intravenous myocardial perfusion indication (use).
Under the terms of the agreement, Mallinckrodt will pay the Company $20
million over four years to support clinical trials of FS069 (the Company's
second-generation cardiac perfusion product), related regulatory submissions and
associated product development. These payments will be made in 16 quarterly
installments starting at $1 million for the first four quarters, $1.25 million
for the following eight quarters and $1.5 million for the final four quarters.
The first four quarterly payments have been received by the Company.
The amended distribution agreement requires the Company to spend at
least $10 million of this $20 million on clinical trials to support regulatory
filings with the FDA for cardiac indications of FS069. After the Company has
spent this $10 million, the amended distribution agreement requires the Company
and Mallinckrodt to share equally in the cost of any additional clinical trials
of FS069 in the United States, up to a maximum total of $5 million ($2.5 million
each).
The Company's expenditure of this $10 million will be made in
accordance with the directions of a joint steering committee which the Company
and Mallinckrodt will establish in order to expedite the development and
regulatory approval of FS069 by enabling the parties to share their expertise
relating to clinical trials and the regulatory approval process. The Company and
Mallinckrodt will each appoint two of the four members of the joint steering
committee.
The amended distribution agreement also provides for potential payments
to the Company of up to $12 million upon the satisfaction of certain milestones.
There can be no assurance, however, that all or any of these milestones will be
satisfied.
In addition, the amended distribution agreement grants the Company the
option (at its own discretion) to repurchase all of the shares of the Company's
common stock that Mallinckrodt purchased under the investment agreement for $45
million, subject to various price adjustments. This option is exercisable
beginning the later of July 1, 2000 or the date that the Company obtains
approval from the FDA to market FS069 for an intravenous myocardial perfusion
indication and ending on the later of June 30, 2003 or three years after the
date that the Company obtains approval from the FDA to market FS069 for an
intravenous myocardial perfusion. If the Company exercises this option, the
Company may co-market ALBUNEX(R), FS069 and related products in all of the
countries covered by the amended distribution agreement.
In connection with the amended distribution agreement, the Company also
entered into an investment agreement whereby the Company sold 1,118,761
unregistered shares of its common stock to Mallinckrodt for $13 million, or a
price of $11.62 per share before related costs.
In October 1995, the Company entered into an agreement whereby it
reacquired all rights to INFOSON(R) (the European designation for ALBUNEX(R)),
FS069 and related products from Nycomed, the Company's European licensee.
Nycomed has received approval to market INFOSON(R) in Sweden, Finland and the
United Kingdom and has filed applications in several other European countries,
but has not yet begun to market the product. The Company is currently in
discussions with another potential licensee for Nycomed's territory, which
includes Europe, Africa, parts of Asia and India.
PART II - OTHER INFORMATION
Item 1-5 - The Company has nothing to report with respect to these items during
the quarter ended June 30, 1996.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1996.
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.
MOLECULAR BIOSYSTEMS, INC.
/s/ Gerard A. Wills
Gerard A. Wills
Vice President Finance and
Chief Financial Officer
August 13, 1996
Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from the consolidated financial statements of Molecular Biosystems,
Inc. dated June 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 49,027
<SECURITIES> 273
<RECEIVABLES> 313
<ALLOWANCES> 0
<INVENTORY> 479
<CURRENT-ASSETS> 53,359
<PP&E> 19,215
<DEPRECIATION> 5,624
<TOTAL-ASSETS> 72,160
<CURRENT-LIABILITIES> 4,268
<BONDS> 0
0
0
<COMMON> 176
<OTHER-SE> 59,420
<TOTAL-LIABILITY-AND-EQUITY> 72,160
<SALES> 178
<TOTAL-REVENUES> 1,178
<CGS> 1,290
<TOTAL-COSTS> 5,691
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199
<INCOME-PRETAX> (4,384)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,384)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,384)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> 0
</TABLE>
