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 December 31, 1997
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 registrant's common stock,
$.01 par value, as of January 23, 1998 was 17,828,327 shares.
<PAGE>
INDEX PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
1. Consolidated Balance Sheets 3
March 31, 1997 (audited) and December 31, 1997
2. Consolidated Statements of Operations 4
Three Months Ended December 31, 1996 and 1997
Nine Months Ended December 31, 1996 and 1997
3. Consolidated Statements of Cash Flows 5
Nine Months Ended December 31, 1996 and 1997
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 13
Item 2 - Changes in Securities 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Securities Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
(a) Exhibits
(b) Reports on Form 8-K
Signatures 14
<TABLE>
<CAPTION>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31,
March 31, 1997
1997 (Unaudited)
------------ --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 587 $ 811
Marketable securities, available-for-sale 40,827 24,914
Accounts and notes receivable 902 992
License rights 8,500 8,500
Inventories 342 745
Prepaid expenses and other assets 249 260
------------ ------------
Total current assets 51,407 36,222
------------ ------------
Property and equipment, at cost:
Building and improvements 14,544 14,544
Equipment, furniture and fixtures 4,567 4,541
Construction in progress 511 339
------------ ------------
19,622 19,424
Less: Accumulated depreciation and amortization 6,434 7,162
------------ ------------
Total property and equipment 13,188 12,262
------------ ------------
Other assets:
Patents and license rights, net of amortization
$1,114 and $1,214, respectively 341 255
Certificate of deposit, pledged 3,000 3,000
Other assets, net 2,223 2,199
------------ ------------
Total other assets 5,564 5,454
------------ ------------
$ 70,159 $ 53,938
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,267 $ 1,267
Accounts payable and accrued liabilities 4,684 6,694
Compensation accruals 1,613 1,064
------------ ------------
Total current liabilities 7,564 9,025
------------ ------------
Long-term debt, net of current portion 7,349 6,403
Other noncurrent liabilities 3,500 1,500
Commitments and contingencies (Note 2)
Stockholders' equity:
Common Stock, $.01 par value, 40,000,000 shares
authorized, 17,745,897 and 17,828,287 shares
issued and outstanding, respectively 177 178
Additional paid-in capital 127,483 128,031
Accumulated deficit (75,469) (90,791)
Unrealized loss on available-for-sale securities (82) (45)
Less 40,470 shares of treasury stock, at cost (363) (363)
------------ ------------
Total stockholders' equity 51,746 37,010
------------ ------------
$ 70,159 $ 53,938
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1997 1996 1997
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Revenues under collaborative agreements $ 1,091 $ 1,250 $ 3,250 $ 3,845
Product and royalty revenues 216 123 426 428
License fees 5,700 - 5,725 -
------------- ------------- -------------- -------------
7,007 1,373 9,401 4,273
------------- ------------- -------------- -------------
Operating expenses:
Research and development costs 2,354 2,939 7,318 7,804
Costs of products sold 1,078 1,468 3,707 3,949
Selling, general and administrative expenses 1,866 3,110 5,429 8,901
Other nonrecurring charges 3,000 - 3,000 -
------------- ------------- -------------- -------------
8,298 7,517 19,454 20,654
------------- ------------- -------------- -------------
Loss from operations (1,291) (6,144) (10,053) (16,381)
Interest expense (203) (176) (616) (553)
Interest income 615 417 1,713 1,611
------------- ------------- -------------- -------------
Net loss $ (879) $ (5,903) $ (8,956) $ (15,323)
============= ============= ============== =============
Net loss per common share (basic and fully diluted) (Note 3) $ (0.05) $ (0.33) $ (0.54) $ (0.86)
============= ============= ============== =============
Weighted average common shares outstanding 17,572 17,813 16,651 17,778
============= ============= ============== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; dollars in thousands)
Nine Months Ended
December 31,
1996 1997
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,956) $ (15,323)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,082 903
Write-off of former Nycomed territory license rights 3,000 -
Loss on disposals of property and equipment - 2
Changes in operating assets and liabilities:
Receivables (27) (104)
Inventories 296 (404)
Prepaid expenses and other assets (455) 3
Accounts payable and accrued liabilities 87 2,010
Compensation accruals (29) (548)
------------- --------------
Cash used in operating activities (5,002) (13,461)
------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (634) (1,215)
Proceeds from sale of property and equipment 4 4
Additions to patents and license rights (15) (15)
Purchase of license rights from Shionogi (3,000) (2,000)
Purchase of license rights from Nycomed (2,000) -
(Increase) decrease in other assets (271) 26
(Increase) decrease in marketable securities (31,071) 15,951
------------- --------------
Cash provided by (used in) investing activities (36,987) 12,751
------------- --------------
Cash flows from financing activities:
Net proceeds from sale/leaseback transaction - 1,331
Net proceeds from public offering of Common Stock 34,086 -
Net proceeds from stock options exercised 1,158 549
Principal payments on long-term debt (942) (946)
------------- --------------
Cash provided by financing activities 34,302 934
------------- --------------
Increase (decrease) in cash and cash equivalents (7,687) 224
Cash and cash equivalents, beginning of period 12,542 587
------------- --------------
Cash and cash equivalents, end of period $ 4,855 $ 811
============= ==============
Supplemental cash flow disclosures:
Interest income received $ 804 $ 1,727
============= ==============
Interest paid $ 592 $ 612
============= ==============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Basis of Presentation-
These interim Consolidated Financial Statements of Molecular
Biosystems, Inc. and Subsidiaries (the "Company") should be read in
conjunction with the Consolidated Financial Statements of the Company and
related Notes filed with the Company's Annual Report on Form 10-K for the
year ended March 31, 1997.
These interim Consolidated Financial Statements of the Company have not
been audited by independent public accountants. However, in the opinion of
management, all adjustments required for a fair presentation of the
financial position of the Company as of December 31, 1997, and the results
of its operations for the nine-months ended December 31, 1996 and 1997, and
its cash flows for the nine-months ended December 31, 1996 and 1997, have
been made. The results of operations for these interim periods are not
necessarily indicative of the operating results for the full year.
(2) Commitments and Contingencies-
On July 31, 1997, the Company and its marketing partner
Mallinckrodt Inc., ("Mallinckrodt") filed suit (the "MBI Case") in United
States District Court for the District of Columbia against four potential
competitors - Sonus Pharmaceuticals, Inc ("Sonus"), Nycomed Imaging AS
("Nycomed"), ImaRx Pharmaceutical Corp. ("ImaRx") and its marketing partner
DuPont Merck Pharmaceutical Corp. ("DuPont Merck"), and Bracco
International BV ("Bracco") - seeking declarations that certain of their
ultrasound contrast agent patents are invalid. On the same day, the Company
and Mallinckrodt filed counterclaims in cases filed against the FDA by
Bracco, Sonus, ImaRx and DuPont Merck in which the Company had intervened
as a defendant seeking the same relief as in the MBI Case. The court
subsequently dismissed these counterclaims following the FDA's
reclassification ruling (as previously reported), and resulting mootness of
the proceedings against the FDA.
The complaint filed by the Company and Mallinckrodt in the MBI
Case alleges that each of the defendants' patents is invalid on a variety
of independent grounds under U.S. patent law. In addition to requesting
that all of the patents in question be declared invalid, the complaint
requests a declaration that, contrary to defendants' contentions, the
Company and Mallinckrodt do not infringe the defendants' patents, and asks
that defendants be enjoined from proceeding against the Company and
Mallinckrodt for infringement until the status of defendants' patents has
been determined by the court or the U.S. Patent and Trademark Office
("PTO"). The complaint alleges that each defendant has claimed or is likely
to claim that its patent or patents cover OPTISON(TM), the Company's
second-generation ultrasound contrast agent, and will attempt to prevent
its commercialization.
All of the defendants except Nycomed filed motions to dismiss the
complaint on jurisdictional grounds. On January 5, 1998, the court hearing
the MBI Case dismissed each of the defendants except Nycomed, ruling that
the court lacked jurisdiction over those defendants with respect to the
Company's claims of patent invalidity and noninfringement. The court's
ruling does not purport to rule on the merits of the Company's claims; the
dismissal was based solely on jurisdictional grounds.
Following Sonus's dismissal as a defendant in the MBI Case, Sonus
activated the patent infringement lawsuit ("Sonus Case") which it had filed
in August 1997 against the Company and Mallinckrodt in the United States
District Court for the Western District of Washington. Sonus's complaint
alleges that the manufacture and sale of OPTISON(TM) by the Company and
Mallinckrodt infringe two patents owned by Sonus. These patents are the
same patents which are currently in reexamination at the PTO (as described
in the next paragraph), and are the same patents for which the Company was
seeking a declaration of invalidity in the MBI Case. Although the complaint
was filed in August 1997, Sonus had agreed not to proceed with the Sonus
Case until the jurisdictional motions were decided in the MBI Case.
Beginning in July 1997, the Company received the first of five
notices from the PTO granting the Company's petitions for reexamination
which it had filed with respect to five patents held by three potential
competitors, Sonus, Nycomed and ImaRx. Each of the five notices stated
there was a substantial new question of patentability raised by the
Company's petitions with respect to all claims of the patents. Each of the
patents currently in the reexamination process is related to the use of
perfluorocarbon gases in ultrasound contrast agents and is included among
the patents for which the Company was seeking a declaration of invalidity
in the MBI Case (and for which the Company is continuing to seek a
declaration of invalidity in the case of Nycomed's patents).
In November and December 1997, the PTO issued office actions in
connection with the Company's patent reexamination petitions filed against
Sonus and Nycomed, respectively. The PTO office actions reject all relevant
claims of the patents owned by Sonus and Nycomed involved in the MBI Case
and the Sonus Case, based on prior art not previously disclosed to the PTO
by Sonus and Nycomed during prosecution of their patent applications. If
maintained through further proceedings before the patent examiner and on
any appeal, the PTO rejections will invalidate the patents which Sonus and
Nycomed are attempting to assert against the Company and Mallinckrodt to
block the manufacture and sale of OPTISON(TM).
Litigation or administrative proceedings relating to these matters
could result in a substantial cost to the Company; and given the complexity
of the legal and factual issues, the inherent vicissitudes and uncertainty
of litigation, and other factors, there can be no assurance of a favorable
outcome. An unfavorable outcome could have a material adverse effect on the
Company's business, financial condition and results of operations.
Moreover, there can be no assurance that, in the event of an unfavorable
outcome, the Company would be able to obtain a license to any proprietary
rights that may be necessary to commercialize OPTISON(TM), either on
acceptable terms or at all. If the Company were required to obtain a
license necessary to commercialize OPTISON(TM), the Company's failure or
inability to do so would have a material adverse effect on the Company's
business, financial condition and results of operations.
(3) Earnings per Share -
In December 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). The
statement specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS). The adoption of this statement
had no material impact to the Company due to its capital structure, which
consists solely of one class of stock.
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 related Notes 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, 1997.
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, regulatory approval,
research and development activities and similar matters. A variety of factors
could cause the Company's actual results and experience to differ materially
from the Company's anticipated results or other expectations. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company's business include the expense and uncertain outcome of
the litigation described under the caption "Recent Events," including the
possibility of injunctive relief to competitors prohibiting the sale of
OPTISON(TM); a ruling by the Patent and Trademark Office ("PTO") in the pending
patent reexamination proceedings favoring competitors' patents; delays or an
inability to bring OPTISON(TM) to market in Europe as a result of regulatory
delays or patent litigation; difficulties and delays with respect to the
performance of clinical trials; delays by regulatory authorities in approving
additional indications for OPTISON(TM), including the evaluation of myocardial
perfusion; manufacturing problems; difficulties and delays with respect to
marketing and sales activities; general uncertainties accompanying the
development and introduction of new products; and other risk factors reported
from time to time in the Company's reports filed with the Securities and
Exchange Commission.
Recent Events
On December 31, 1997, the Company's new drug application for
OPTISON(TM), the Company's second-generation contrast agent for cardiac
ultrasound imaging, was approved by the United States Food and Drug
Administration (the FDA). This approval permits the marketing of OPTISON(TM) in
the United States for use in patients with suboptimal echocardiagrams to opacify
the left ventricle and to improve the delineation of the left ventricular
endocardial borders.
OPTISON(TM), the first of the perfluorocarbon containing ultrasound
agents to reach the market, enables physicians to enhance resolution of
anatomical structure where ultrasound alone is inadequate. Ultrasound cardiac
imaging has several advantages over other imaging methods. It is minimally
invasive, relatively inexpensive and can quickly provide a real-time image.
OPTISON(TM) helps increase the effectiveness of echocardiography in diagnosing
heart disease by introducing gas-filled microspheres into the blood. The
microspheres travel in the blood stream to the left ventricle of the heart where
the microspheres reflect the soundwaves generated from ultrasound equipment,
enabling the development of a clearer, more descriptive ultrasound image.
On January 27, 1998, the European Union's Committee for Proprietary
Medicinal Products ("CPMP") of the European Medicines Evaluation Agency (EMEA)
recommended the approval of OPTISON(TM). The regulatory file was submitted to
the EMEA under the centralized procedure in which a single license is granted
for the 15 member states of the European Union. The marketing authorization is
expected to be granted by the European Commission within several months. Upon
EMEA approval, OPTISON(TM) will be sold by Mallinckrodt, Inc. ("Mallinckrodt").
On July 31, 1997, the Company and its marketing partner Mallinckrodt
filed suit (the "MBI Case") in United States District Court for the District of
Columbia against four potential competitors - Sonus Pharmaceuticals, Inc
("Sonus"), Nycomed Imaging AS ("Nycomed"), ImaRx Pharmaceutical Corp. ("ImaRx")
and its marketing partner DuPont Merck Pharmaceutical Corp. ("DuPont Merck"),
and Bracco International BV ("Bracco") seeking declarations that certain of
their ultrasound contrast agent patents are invalid. On the same day, the
Company and Mallinckrodt filed counterclaims in cases filed against the FDA by
Bracco, Sonus, ImaRx and DuPont Merck in which the Company had intervened as a
defendant seeking the same relief as in the MBI Case. The court subsequently
dismissed these counterclaims following the FDA's reclassification ruling (as
previously reported), and resulting mootness of the proceedings against the FDA.
The complaint filed by the Company and Mallinckrodt in the MBI Case
alleges that each of the defendants' patents is invalid on a variety of
independent grounds under U.S. patent law. In addition to requesting that all of
the patents in question be declared invalid, the complaint requests a
declaration that, contrary to defendants' contentions, the Company and
Mallinckrodt do not infringe the defendants' patents, and asks that defendants
be enjoined from proceeding against the Company and Mallinckrodt for
infringement until the status of defendants' patents has been determined by the
court or the PTO. The complaint alleges that each defendant has claimed or is
likely to claim that its patent or patents cover OPTISON(TM), the Company's
second-generation ultrasound contrast agent, and will attempt to prevent its
commercialization.
All of the defendants except Nycomed filed motions to dismiss the
complaint on jurisdictional grounds. On January 5, 1998, the court hearing the
MBI Case dismissed each of the defendants except Nycomed, ruling that the court
lacked jurisdiction over those defendants with respect to the Company's claims
of patent invalidity and noninfringement. The court's ruling does not purport to
rule on the merits of the Company's claims; the dismissal was based solely on
jurisdictional grounds.
Following Sonus's dismissal as a defendant in the MBI Case, Sonus
activated the patent infringement lawsuit ("Sonus Case") which it had filed in
August 1997 against the Company and Mallinckrodt in the United States District
Court for the Western District of Washington. Sonus's complaint alleges that the
manufacture and sale of OPTISON(TM) by the Company and Mallinckrodt infringe two
patents owned by Sonus. These patents are the same patents which are currently
in reexamination at the PTO (as described in the next paragraph), and are the
same patents for which the Company was seeking a declaration of invalidity in
the MBI Case. Although the complaint was filed in August 1997, Sonus had agreed
not to proceed with the Sonus Case until the jurisdictional motions were decided
in the MBI Case.
Beginning in July 1997, the Company received the first of five notices
from the PTO granting the Company's petitions for reexamination which it had
filed with respect to five patents held by three potential competitors, Sonus,
Nycomed and ImaRx. Each of the five notices stated there was a substantial new
question of patentability raised by the Company's petitions with respect to all
claims of the patents. Each of the patents currently in the reexamination
process is related to the use of perfluorocarbon gases in ultrasound contrast
agents and is included among the patents for which the Company was seeking a
declaration of invalidity in the MBI Case (and for which the Company is
continuing to seek a declaration of invalidity in the case of Nycomed's
patents).
In November and December 1997, the PTO issued office actions in
connection with the Company's patent reexamination petitions filed against Sonus
and Nycomed, respectively. The PTO office actions reject all relevant claims of
the patents owned by Sonus and Nycomed involved in the MBI Case and the Sonus
Case, based on prior art not previously disclosed to the PTO by Sonus and
Nycomed during prosecution of their patent applications. If maintained through
further proceedings before the patent examiner and on any appeal, the PTO
rejections will invalidate the patents which Sonus and Nycomed are attempting to
assert against the Company and Mallinckrodt to block the manufacture and sale of
OPTISON(TM).
Litigation or administrative proceedings relating to these matters
could result in a substantial cost to the Company; and given the complexity of
the legal and factual issues, the inherent vicissitudes and uncertainty of
litigation, and other factors, there can be no assurance of a favorable outcome.
An unfavorable outcome could have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, there can be
no assurance that, in the event of an unfavorable outcome, the Company would be
able to obtain a license to any proprietary rights that may be necessary to
commercialize OPTISON(TM), either on acceptable terms or at all. If the Company
were required to obtain a license necessary to commercialize OPTISON(TM), the
Company's failure or inability to do so would have a material adverse effect on
the Company's business, financial condition and results of operations.
Liquidity and Capital Resources
At December 31, 1997, the Company had net working capital of $27.2
million compared to $43.8 million at March 31, 1997. Cash, cash equivalents,
marketable securities and certificates of deposit pledged were $28.7 million at
December 31, 1997 compared to $44.4 million at March 31, 1997. In June 1997, the
Company entered into an equipment leasing agreement with Mellon US Leasing
("Mellon") for a lease line of $1.6 million with a term of 48 months.
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 collaborative
agreement with Mallinckrodt, will enable the Company to fund its operations for
at least the next twelve 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, or at all.
Results of Operations
Revenues Under Collaborative Agreements. Revenues under collaborative
agreements were $1.3 million and $3.8 million for the three-month and nine-month
periods ended December 31, 1997 compared to $1.1 million and $3.3 million for
the same periods in the prior year. These revenues in both years consist of
quarterly payments to support clinical trials, regulatory submissions and
product development received from Mallinckrodt under the Company's amended
agreement with Mallinckrodt which the Company entered into in September 1995.
Product and Royalty Revenues. Revenues from product sales and royalties
were $123,000 and $428,000 for the three-month and nine-month periods ended
December 31, 1997, compared to $216,000 and $426,000 for the same periods in the
prior year. Product revenues result from the Company's sales of ALBUNEX(R) to
Mallinckrodt which are recognized upon shipment of the product. The transfer
price for the Company's sales is determined under the Company's agreement with
Mallinckrodt and is equal to 40% of Mallinckrodt's net sales price to its end
users of the product. Royalty revenues were received under a licensing agreement
between the Company and Abbott Laboratories for the Company's patented in vitro
diagnostic DNA probe technology.
Costs of Products Sold. Cost of products sold totaled $1.5 million and
$3.9 million for the three-month and nine-month periods ended December 31, 1997,
resulting in a negative gross profit margin. This negative gross profit margin
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
periods in the prior year, cost of products sold totaled $1.1 million and $3.7
million. The Company anticipates an increase in its gross profit margins if and
when ALBUNEX(R) sales volume increases and if and when OPTISON(TM) obtains
market acceptance. The increase in sales volume would permit the fixed costs
included in manufacturing overhead to be allocated over a larger number of vials
produced. Manufacturing fixed costs are currently running at an annual rate of
approximately $5 million. The amount of any increase in the Company's margins
and the time required by the Company to achieve higher margins are highly
dependent on market acceptance of ALBUNEX(R) and OPTISON(TM) and are therefore
uncertain.
Research and Development Costs. For the three-month and nine-month
periods ended December 31, 1997, the Company's research and development costs
totaled $2.9 million and $7.8 million, as compared to $2.4 million and $7.3
million for the same periods in 1996. This increase is due to the fact that the
Company has initiated clinical trials for additional indications for
OPTISON(TM).
Selling, General and Administrative Expenses. For the three-month and
nine-month periods ended December 31, 1997, the Company's selling, general and
administrative expenses totaled $3.1 million and $8.9 million, compared to $1.9
million and $5.4 million for the same periods in 1996. This increase in the
current year is primarily attributable to increased legal expenses. See the
discussion under "Recent Events".
Interest Expense and Interest Income. Interest expense for the
three-month and nine-month periods ended December 31, 1997 amounted to $176,000
and $553,000, and consisted of mortgage interest on the Company's manufacturing
building and interest on a note payable which is secured by the tangible assets
of the Company. The interest rate on the mortgage was 8% in December 1997. The
note payable, in the amount of $6 million, 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 9.5% in December 1997.
The decrease in interest income in the current year is due primarily to
lower average cash and marketable securities balances. 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
On December 31, 1997, the Company's new drug application for
OPTISON(TM), the Company's second-generation contrast agent for cardiac
ultrasound imaging, was approved by the United States FDA. This approval permits
the marketing of OPTISON(TM) in the United Sates for use in patients with
suboptimal echocardiagrams to opacify the left ventricle and to improve the
delineation of the left ventricular endocardial borders.
OPTISON(TM), the first of the perfluorocarbon containing ultrasound
agents to reach the market, enables physicians to enhance resolution of
anatomical structure where ultrasound alone is inadequate. Ultrasound cardiac
imaging has several advantages over other imaging methods. It is minimally
invasive, relatively inexpensive and can quickly provide a real-time image.
OPTISON(TM) helps increase the effectiveness of echocardiography in diagnosing
heart disease by introducing gas-filled microspheres into the blood. The
microspheres travel in the blood stream to the left ventricle of the heart where
the microspheres reflect the soundwaves generated from ultrasound equipment,
enabling the development of a clearer, more descriptive ultrasound image.
On January 27, 1998, the European Union's CPMP of the EMEA recommended
the approval of OPTISON(TM). The regulatory file was submitted to the EMEA under
the centralized procedure in which a single license is granted for the 15 member
states of the European Union. The marketing authorization is expected to be
granted by the European Commission within several months. Upon EMEA approval,
OPTISON(TM) will be sold by Mallinckrodt.
The Company is involved in several legal and administrative proceedings
which could result in a substantial cost to the Company. Given the complexity of
the legal and factual issues and the uncertainty of litigation, there can be no
assurance of a favorable outcome. An unfavorable outcome could have a material
adverse effect on the Company's business, financial condition and results of
operations. For a detailed discussion of these matters, see "Recent Events".
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
See "Recent Events" in Part I, Item 2, which is incorporated by
reference in this response.
Item 2-5 - The Company has nothing to report with respect to these items for the
quarter ended December 31, 1997.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) A Current Report on Form 8-K dated December 31, 1997, was filed on January
20, 1998, reporting that on December 31, 1997, the Company's second-generation
contrast agent for cardiac ultrasound imaging (OPTISONTM) was approved by the
United States Food and Drug Administration.
<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 thereunto duly authorized.
MOLECULAR BIOSYSTEMS, INC.
/s/ Gerard Wills
Gerard A. Wills
Vice President Finance and
Chief Financial Officer
2/06/98
Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated financial statements of Molecular
Biosystems, Inc. dated December 31, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 811
<SECURITIES> 24,914
<RECEIVABLES> 992
<ALLOWANCES> 0
<INVENTORY> 745
<CURRENT-ASSETS> 36,222
<PP&E> 19,424
<DEPRECIATION> 7,162
<TOTAL-ASSETS> 53,938
<CURRENT-LIABILITIES> 9,025
<BONDS> 0
0
0
<COMMON> 178
<OTHER-SE> 36,832
<TOTAL-LIABILITY-AND-EQUITY> 53,938
<SALES> 428
<TOTAL-REVENUES> 4,273
<CGS> 3,949
<TOTAL-COSTS> 20,654
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 553
<INCOME-PRETAX> (15,323)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,323)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,323)
<EPS-PRIMARY> (0.86)
<EPS-DILUTED> 0.00
</TABLE>
