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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, 2000
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
(858) 812-7001
(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
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The number of shares outstanding of the issuer's common stock, $.01 par value,
as of July 31, 2000 was 18,858,789 shares.
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INDEX PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
1. Consolidated Balance Sheets 3
March 31, 2000 and June 30, 2000
2. Consolidated Statements of Operations 4
Three Months Ended June 30, 1999 and 2000
3. Consolidated Statements of Cash Flows 5
Three Months Ended June 30, 1999 and 2000
4. Notes to Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II -OTHER INFORMATION
Item 1 - Legal Proceedings 9
Item 6 - Exhibits and Reports on Form 8-K 10
(a) Exhibits
(b) Reports on Form 8-K
Signatures 10
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PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
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<CAPTION>
MARCH 31, JUNE 30,
2000 2000
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(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents $ 1,756 $ 3,069
Marketable securities, available-for-sale (Note 3) 10,287 7,436
Accounts and notes receivable 1,820 357
Inventories 203 213
Prepaid expenses and other assets 204 82
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Total current assets 14,270 11,157
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Property and equipment, at cost: (Note 2)
Building and improvements 11,226 -
Equipment, furniture and fixtures 2,930 -
Construction in progress - -
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14,156 -
Less: Accumulated depreciation and amortization 7,572 -
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Total property and equipment 6,584 -
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Other assets, net 1,790 1,798
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$ 22,644 $ 12,955
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,285 $ 900
Accounts payable and accrued liabilities (Note 2) 7,218 2,672
Compensation accruals 1,943 718
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Total current liabilities 10,446 4,290
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Long-term debt, net of current portion 3,529 -
Commitments and contingencies (Note 2)
Stockholders' equity:
Common Stock, $.01 par value, 40,000,000 shares
authorized, 18,858,789 shares issued and
outstanding 186 186
Additional paid-in capital 134,388 134,667
Accumulated deficit (125,537) (125,820)
Unrealized gain on available-for-sale securities 11 11
Less 42,298 shares of treasury stock,
at cost (379) (379)
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Total stockholders' equity 8,669 8,665
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$ 22,644 $ 12,955
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See accompanying notes.
3
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MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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THREE MONTHS ENDED
JUNE 30,
1999 2000
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(UNAUDITED)
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Revenues:
Revenues under collaborative agreements $ 1,500 $ -
Product and royalty revenues 160 307
License Fees (Note 3) - 2,826
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1,660 3,133
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Operating expenses:
Research and development costs 1,412 368
Costs of products sold (645) -
Selling, general and administrative expenses 2,393 856
Other Nonrecurring Charges (Note 2) - 2,220
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3,160 3,444
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Income (loss) from operations (1,500) (311)
Interest expense (120) (98)
Interest income 218 127
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Net loss $ (1,402) $ (282)
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Net loss per share - basic and diluted $ (0.07) $ (0.01)
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Weighted average common shares outstanding 18,730 18,859
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</TABLE>
See accompanying notes.
4
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MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
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THREE MONTHS ENDED
JUNE 30,
1999 2000
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(UNAUDITED)
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Cash flows from operating activities:
Net loss $(1,402) $ (282)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 427 193
Loss on disposals/write-downs of tangible and intangible property 3 --
Other Nonrecurring charges -- 2,220
Changes in operating assets and liabilities:
Receivables (942) 1,463
Inventories 117 (11)
Prepaid expenses and other assets 175 123
Accounts payable and accrued liabilities 99 (844)
Compensation accruals (630) (1,225)
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Cash provided by (used in) operating activities (2,153) 1,637
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Cash flows from investing activities:
Purchases of property and equipment (20) --
Proceeds from sales of property and equipment 4 134
(Increase) decrease in other assets 2 (9)
Purchases of marketable securities (3,772) (3,110)
Maturities of marketable securities 5,945 5,961
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Cash provided by investing activities 2,159 2,976
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Cash flows from financing activities:
Principal payments on long-term debt (319) (300)
Legal settlement payment to Mallinckrodt -- (3,000)
Purchase of treasury stock (16) --
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Cash used in financing activities (335) (3,300)
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Increase (decrease) in cash and cash equivalents (329) 1,313
Cash and cash equivalents, beginning of period 1,055 1,756
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Cash and cash equivalents, end of period $ 726 $ 3,069
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Supplemental cash flow disclosures:
Interest income received $ 370 $ 138
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Interest paid $ 120 $ 98
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</TABLE>
See accompanying notes.
5
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NOTES TO CONSOLIDATED 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,
2000.
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, 2000, and the results of its operations
for the three months ended June 30, 1999 and 2000, and its cash flows for the
three months ended June 30, 1999 and 2000, have been made. The results of
operations for these interim periods are not necessarily indicative of operating
results for the full year.
(2) COMMITMENTS AND CONTINGENCIES-
The restructuring of the Company's relationship with Mallinckrodt is a
result of the settlement of patent litigation with certain competitors claiming
patent rights in various ultrasound contrast agent technologies. Under the terms
of the restructuring, the Company will pay Mallinckrodt $7,000,000 in connection
with this patent dispute settlement. The Company paid $3,000,000 in May 2000 and
will satisfy an additional $3,000,000 by the transfer of certain real and other
property to Mallinckrodt as soon as practicable. This transfer of property has
been reflected in the accompanying balance sheet as a reduction of "Property and
equipment" and as a reduction of "Long-term debt".
The Company will be required to make a final $1,000,000 payment to
Mallinckrodt upon receipt of a milestone payment from Chugai Pharmaceutical Co.,
Ltd. This payment has been accrued in the accompanying balance sheet under
"Accounts payable and accrued liabilities". The net effect of the restructuring
with Mallinckrodt has been reflected in the accompanying statement of operations
as an "Other Nonrecurring Charge" of $2.2 million.
(3) LICENSE FEES-
Revenues for the quarter ended June 30, 2000 include $2.8 million for
the licensing of a portfolio of patents and technology to Genta Incorporated
that relate to antisense for therapeutic and diagnostic applications. This
license agreement includes grants of exclusive and non-exclusive rights to Genta
on a royalty-free basis in return for $400,000 in cash and shares of Genta
common stock. The Genta common shares are reflected in marketable securities in
the accompanying balance sheet.
(4) EARNINGS PER SHARE-
The Company follows 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. SFAS 128
requires companies to compute net income (loss) per share under two different
methods, basic and diluted per share data for all periods for which an income
statement is presented. Basic earnings per share were computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the period.
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Diluted earnings per share reflects the potential dilution that could occur if
net income were divided by the weighted-average number of common shares and
potential common shares from outstanding stock options for the period. Potential
common shares were calculated using the treasury stock method and represent
incremental shares issuable upon exercise of the Company's outstanding options.
For the quarters ended June 30, 1999 and 2000, the diluted loss per share
calculation excludes effects of outstanding stock options as such inclusion
would be anti-dilutive.
(5) SUBSEQUENT EVENTS
In August 2000, the Company completed the transfer of certain real and
other property to Mallinckrodt as required by the terms of the restructuring
of its relationship with Mallinckrodt. In August 2000, the Company and
Mallinckrodt also amended their restructuring agreement to clarify that
Mallinckrodt would continue to pay a 3% royalty to the Company on sales of
OPTISON in the United States until sales reach a cumulative aggregate of
$66,667,000. The amendment also clarifies that Mallinckrodt will reimburse
the Company for $450,000 credit available to the Company if Mallinckrodt
utilized this credit in the event that it enters into a license agreement
with Schering AG.
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, 2000.
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 failure of
OPTISON-Registered Trademark- to gain wide market acceptance, the failure of
OPTISON to gain regulatory approvals for new indications, and other factors
reported from time to time in the Company's reports filed with the Securities
and Exchange Commission.
RECENT EVENTS
In May 2000, the Company reached a settlement in various ongoing
patent disputes between the Company, Nycomed, Mallinckrodt and Sonus. In
addition, Mallinckrodt assumed responsibility for any future intellectual
property disputes relating to MBI's ultrasound contrast patents.
In May 2000, the Company and Mallinckrodt also agreed to restructure
their relationship to allow Mallinckrodt to assume full control of the OPTISON
business, including responsibility for all related intellectual property
disputes, clinical development, manufacturing and real estate. The restructured
relationship is contained in an OPTISON Product Rights Agreement ("OPRA"). Under
OPRA, the Company will receive an ongoing royalty of 5% on sales of ultrasound
agents in the Mallinckrodt territory, which is worldwide, excluding Japan, South
Korea and Taiwan. In addition, the Company will pay Mallinckrodt $7,000,000 in
connection with the settlement of the various ongoing patent disputes. The
Company paid $3,000,000 in May 2000 and will satisfy an additional $3,000,000 by
the transfer of certain real and other property to Mallinckrodt as soon as
practicable. This transfer of property has been reflected in the accompanying
balance sheet as a reduction of "Property and equipment" and as a reduction of
"Long-term debt".
The Company will be required to make a final $1,000,000 payment to
Mallinckrodt upon receipt of a milestone payment from Chugai Pharmaceutical Co.,
Ltd. This payment has been accrued in the accompanying balance sheet under
"Accounts payable and accrued liabilities". The net effect of the restructuring
with Mallinckrodt has been reflected in the accompanying statement of operations
as an "Other Nonrecurring Charge" of $2.2 million.
7
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The implementation of OPRA involves the Company's transfer to
Mallinckrodt of all property, plant, equipment and inventory used in the
manufacture of OPTISON to Mallinckrodt. In May 2000, 20 twenty employees
involved in the manufacturing process were transferred to Mallinckrodt
leaving the Company with three employees. In August 2000, the Company
completed the transfer of the OPTISON property, plant, equipment and
inventory to Mallinckrodt.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had net working capital of $6.9 million
compared to $3.8 million at March 31, 2000. Cash, cash equivalents and
marketable securities were $10.5 million at June 30, 2000 compared to $12.0
million at March 31, 2000.
The Company plans to use its existing cash and future cash flows from
royalties and milestone payments to pursue alliances and business development
opportunities in the life sciences industry. The Company anticipates that its
cash and marketable securities on hand and future cash flows will enable the
Company to fund its operations and obligations, including amounts owed to
Mallinckrodt pursuant to OPRA, for well over two years. The time required by the
Company to achieve profitability is highly dependent on the market acceptance of
OPTISON and on other future alliances and investment opportunities and is
therefore uncertain.
RESULTS OF OPERATIONS
REVENUES UNDER COLLABORATIVE AGREEMENTS. There were no revenues from
collaborative agreements for the quarter ended June 20, 2000. Revenues under
collaborative agreements were $1.5 million for the quarter ended June 30, 1999.
These revenues consisted solely of quarterly payments to support clinical
trials, regulatory submissions and product development received from
Mallinckrodt under the ARDA.
PRODUCT AND ROYALTY REVENUES. Revenues from product sales and royalties
on end user sales were $307,000 for the quarter ended June 30, 2000, compared to
$160,000 for the same quarter in the prior year. For the quarter ended June 30,
2000, the end user sales by Mallinckrodt were $3.0 million, which represents a
12% increase over the quarter ending March 31, 2000 and a 35% increase over the
same period in the prior year.
LICENSE FEES. Revenues for the quarter ended June 30, 2000 include $2.8
million for the licensing of a portfolio of patents and technology to Genta
Incorporated that relate to antisense for therapeutic and diagnostic
applications. This license agreement includes grants of exclusive and
non-exclusive rights to Genta on a royalty-free basis in return for $400,000 in
cash and shares of Genta common stock. The Genta common shares are reflected in
marketable securities in the accompanying balance sheet.
COSTS OF PRODUCTS SOLD. There were no costs of product sold for the
quarter ended June 30, 2000. Cost of products sold totaled ($645,000) for the
quarter ended June 30, 1999. Under the amended terms of the Company's prior
agreement with Mallinckrodt, which were retroactive to March 1, 1999,
Mallinckrodt agreed to reimburse the Company for all fully allocated
manufacturing expenses, including incremental costs related to the technology
transfer. The Company accrued a receivable from Mallinckrodt for manufacturing
expenses incurred during the period March 1, 1999 through June 30, 1999. The
manufacturing expenses from March 1999 were included in the prior fiscal year.
As a result, the recoupment of these expenses was reflected as a negative
expense during the quarter ended June 30, 1999.
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RESEARCH AND DEVELOPMENT COSTS. For the quarter ended June 30, 2000,
the Company's research and development costs totaled $368,000, as compared to
$1.4 million for the same period in 1999. The decrease is due to the Company's
decision to discontinue further research and development activities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the quarter ended
June 30, 2000, the Company's selling, general and administrative expenses
totaled $856,000, as compared to $2.4 million for the same quarter in 1999. The
decrease in the current year is due to realization of the benefits of previously
announced cost reduction measures as well as additional expense reductions as a
result of OPRA.
OTHER NONRECURRING CHARGES. For the quarter ended June 30, 2000, other
nonrecurring charges reflect the net effect of restructuring the agreement
between the Company and Mallinckrodt. See Note 2, "Commitments and
Contingencies," above.
INTEREST EXPENSE AND INTEREST INCOME. Interest expense for the quarter
ended June 30, 2000 amounted to $98,000, compared to $120,000 for the same
period in the prior year, 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 June
2000. The note payable bears interest at the prime rate and is payable in
monthly installments of principal plus interest over five years. The decrease is
primarily due to the renegotiation of the note payable in September 1998 which
lowered the interest rate from the prime rate plus 1% to the prime rate and
released a compensating balance requirement. The interest rate on the note was
7.75% in June 1999.
Interest income for the quarter ended June 30, 2000 was $127,000
compared to $218,000 for the same quarter in the prior year. The decrease in
interest income in the current year is due 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
See Note 2 in Notes to the Financial Statements under Item 1 above.
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The information called for by this item is provided under the caption
"Interest Expense and Interest Income" under Item 2 above.
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
See Note 2 in Notes to the Financial Statements under Item 1 above.
9
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Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First amendment to OPTISON Product Rights Agreement effective
August 9, 2000.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated May 8, 2000 was filed on May 23,
2000, reporting that the Company and Mallinckrodt had restructured their
agreement concerning OPTISON. Under the terms of the restructured agreement,
Mallinckrodt will assume full control of the OPTISON business, including
responsibility for intellectual property disputes, clinical development,
manufacturing and real estate. In addition a settlement was reached in three
ongoing patent disputes in Washington, DC, Seattle, WA and Europe between the
Company, Nycomed, Mallinckrodt and SONUS Pharmaceuticals.
A Current Report on Form 8-K dated June 6, 2000 was filed on June 14,
2000, reporting that the Company and Genta Incorporated announced the licensing
of a broad portfolio of patents and technology that relate to antisense for
therapeutic and diagnostic applications. The agreement includes grants of both
exclusive and non-exclusive rights to Genta from MBI on a royalty-free basis in
return for cash and shares of Genta common stock.
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/ BOBBA VENKATADRI
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Bobba Venkatadri
President and Chief Executive Officer
(Principal Executive Officer and Principal
Financial and Accounting Officer)
8/11/00
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Date
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