<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 SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
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 1-9898
------
ORGANOGENESIS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2871690
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
150 DAN ROAD, CANTON, MA 02021
------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 575-0775
______________________
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 registrant's Common Stock, par value $.01
per share, at August 3, 1998 was 29,519,044 shares.
<PAGE>
ORGANOGENESIS INC.
INDEX
-----
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION NUMBER
- ------------------------------ ------
ITEM 1 - FINANCIAL STATEMENTS
<S> <C>
CONSOLIDATED BALANCE SHEETS
at June 30, 1998 and December 31, 1997............................ 3
Consolidated Statements of Operations and of Comprehensive Operations
for the three and six months ended June 30, 1998 and 1997......... 4
Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and 1997................... 5
Notes to Consolidated Financial Statements............................. 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................... 10
<CAPTION>
PART II - OTHER INFORMATION
- ----------------------------
<S> <C>
Item 1 - Legal Proceedings.................................................. *
Item 2 - Changes in Securities.............................................. 14
Item 3 - Defaults upon Senior Securities.................................... *
Item 4 - Submission of Matters to a Vote of Security Holders................ 14
Item 5 - Other Information.................................................. *
Item 6 - Exhibits and Reports on Form 8-K................................... 14
Signatures.................................................................. 16
</TABLE>
* No information provided due to inapplicability of item
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ORGANOGENESIS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, 1998 December 31,
(unaudited) 1997
----------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,186 $ 333
Investments 13,442 5,812
Inventory 757 488
Other current assets 879 439
-------- --------
31,264 7,072
Property and equipment -
Less accumulated depreciation of $8,565 and $7,865 6,371 6,615
Other assets 93 93
-------- --------
$ 37,728 $ 13,780
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 931 $ 643
Accrued expenses 1,787 1,586
-------- --------
2,718 2,229
Deferred rent payable 7 28
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00; authorized 1,000,000
shares:
Series C Convertible Preferred; designated 200 shares;
150 shares issued and outstanding as of June 30, 1998 - -
Common stock, par value $.01; authorized 40,000,000 shares:
issued and outstanding 29,514,276 and 28,950,400
shares as of June 30, 1998 and
December 31, 1997, respectively 295 290
Additional paid-in capital 124,246 98,219
Accumulated deficit (89,538) (86,986)
-------- --------
Total stockholders' equity 35,003 11,523
-------- --------
$ 37,728 $ 13,780
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ORGANOGENESIS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
OF COMPREHENSIVE OPERATIONS
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
For the For the
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- --------------------------
1998 1997 1998 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Research and development support
from related party $ 4,750 $ 2,500 $ 6,750 $ 2,500
Product sales to related party, royalties
and other income 308 206 502 300
Interest income 321 102 393 269
----------- ----------- ----------- -----------
Total revenues 5,379 2,808 7,645 3,069
----------- ----------- ----------- -----------
Costs and expenses:
Research and development 3,873 3,279 7,786 6,269
General and administrative 1,191 942 2,411 1,905
Non-cash charge for stock option extension - 5,555 - 5,555
----------- ----------- ----------- -----------
Total costs and expenses 5,064 9,776 10,197 13,729
----------- ----------- ----------- -----------
Net income (loss) $ 315 $ (6,968) $ (2,552) $ (10,660)
=========== =========== =========== ===========
Net income (loss) per common share
-basic and diluted $ .01 $ (.25) $ (.09) $ (.38)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 29,281,065 28,129,948 29,120,006 28,051,320
=========== =========== =========== ===========
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE OPERATIONS
Net income (loss) $ 315 $ (6,968) $ (2,552) $ (10,660)
Other comprehensive income (loss) - - - -
----------- ----------- ----------- -----------
Comprehensive net income (loss) $ 315 $ (6,968) $ (2,552) $ (10,660)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
ORGANOGENESIS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
For the
Six Months
Ended June 30,
---------------------
1998 1997
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,552) $(10,660)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 700 682
Issuance of stock options - 50
Non-cash charge for stock option extension - 5,555
Changes in assets and liabilities:
Other current assets (709) (167)
Other assets - (2)
Accounts payable 288 (380)
Accrued expenses 201 (1,046)
Deferred rent payable (21) (21)
-------- --------
Cash used in operating activities (2,093) (5,989)
-------- --------
Cash flows from investing activities:
Capital expenditures (456) (591)
Purchases of investments (14,166) (2,000)
Sales/maturities of investments 6,536 7,857
-------- --------
Cash provided by (used in) investing activities (8,086) 5,266
-------- --------
Cash flows from financing activities:
Proceeds from sale of preferred stock, net 19,117 -
Proceeds from sale of common stock 6,000 -
Proceeds from exercise of warrants - 139
Proceeds from exercise of stock options 915 1,306
-------- --------
Cash provided by financing activities 26,032 1,445
-------- --------
Increase in cash and cash equivalents 15,853 722
Cash and cash equivalents, beginning of period 333 399
-------- --------
Cash and cash equivalents, end of period $ 16,186 $ 1,121
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
ORGANOGENESIS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
This Form 10-Q and other public filings or statements made by the Company from
time to time which concern the Company's business outlook; future financial
performance; anticipated profitability, revenues, expenses or capital
expenditures; future funding under collaborative agreements; future clinical or
regulatory events; and statements concerning expectations as to any future
events, as well as other statements which are not historical fact, are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 and involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in these forward-
looking statements. Factors that might cause such a difference include, but are
not limited to, those discussed under the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Additional Cautionary
Considerations" sections in this report and included in publicly available
filings with the Securities and Exchange Commission, such as the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
1. Basis of Presentation:
----------------------
The accompanying unaudited consolidated financial statements of Organogenesis
Inc. (the "Company"), have been prepared in accordance with generally accepted
accounting principles for interim financial information and 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, the accompanying consolidated financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial position, results of operations and
changes in cash flows for the periods presented. The results of operations for
the six months ended June 30, 1998 are not necessarily indicative of the results
to be expected for the year ending December 31, 1998.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 as filed with
the Securities and Exchange Commission.
Certain reclassifications have been made to the prior period financial
statements to conform to the current presentation.
6
<PAGE>
2. New Accounting Pronouncement:
-----------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 requires that changes in comprehensive income be shown
in a financial statement that is displayed with the same prominence as other
financial statements. This Statement also requires that an entity classify items
of other comprehensive income by their nature. For example, other comprehensive
income may include, but are not limited to, foreign currency translation
adjustments, minimum pension liability adjustments, and unrealized gains and
losses on marketable securities classified as available-for-sale. SFAS 130 is
effective for fiscal years beginning after December 15, 1997 and, accordingly,
was adopted during the first quarter of 1998. The disclosure provisions of SFAS
130 are not material to the Company's current consolidated financial
presentation; however, SFAS 130 may materially affect future financial statement
presentations.
3. Revenue Recognition:
--------------------
Research and development support revenue under the collaborative agreement with
Novartis is recognized as related expenses are incurred or contractual
obligations are met. Revenue from Apligraf sales is recognized upon shipment
or, in certain cases, after fulfillment of firm purchase orders in accordance
with the Manufacturing and Supply Agreement between the Company and Novartis.
Any related royalty revenue is recognized when net sales are reported to the
Company by Novartis. Other product revenues are recognized upon shipment.
Other royalty revenue is recorded as earned. Deferred revenue arises from the
difference between cash received and revenue recognized in accordance with these
policies.
4. Inventory:
----------
Inventory is stated at the lower of cost or market, cost being determined using
the first-in, first-out method of accounting. Inventory consisted of the
following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31,
(unaudited) 1997
------------------- ------------------
<S> <C> <C>
Raw Materials $462 $ 286
Work in Process 271 197
Finished Goods 24 5
---- -----
$757 $ 488
==== =====
</TABLE>
5. Other Current Assets:
---------------------
Included in other current assets at June 30, 1998 and December 31, 1997 is a
receivable due from Novartis of approximately $496,000 and $190,000,
respectively.
7
<PAGE>
6. Collaborative Agreements:
-------------------------
In January 1996, the Company and Novartis Pharma AG ("Novartis" or "related
party") entered into an agreement granting Novartis exclusive global marketing
rights to Apligraf. Under the agreement, Novartis is responsible for Apligraf
sales and marketing costs worldwide, as well as all clinical trials,
registrations and patent costs outside the U.S. The Company supplies Novartis'
global requirements for Apligraf and receives both a per unit manufacturing
payment and royalty revenues on product sales. Novartis has agreed to provide
the Company up to $40,000,000 in equity investments, research support and
milestone payments, an increase of $2,500,000 from prior year due to the
addition of a research and development support milestone. The Company received
$12,750,000 from Novartis during the first six months of 1998. Of this amount,
$6,750,000 represents research and development milestone payments and $6,000,000
represents milestone equity investments. To date, Novartis has funded
$26,750,000 of the $40,000,000 under the agreement. The remaining payments will
be received based upon achievement of specified events.
7. Preferred Stock:
----------------
In March 1998, the Company completed a placement of 200 shares of Series C
Convertible Preferred Stock ("Series C Preferred Stock") and warrant financing
with two institutional investors at a price of $100,000 per share. Proceeds
from the offering, net of placement agent fees and expenses, were approximately
$19,117,000. The Series C Preferred Stock pay no dividends, have no voting
rights and are convertible into Common Stock on a scheduled basis over the next
two years based on market price at time of conversion (up to $28.80 per share).
The Company may call for conversion all or part of the shares of Series C
Preferred Stock under certain conditions based on continued improvement in the
price of the Company's Common Stock. Conversions by the investors are subject to
certain limits; no limits exist for conversions on redemption or upon a major
transaction. Mandatory conversion is March 26, 2000, at which time the Company
has the option to redeem any outstanding Series C Preferred Stock in cash or by
issuing Common Stock. In addition, the investors received three-year warrants
to purchase an aggregate of 200,000 shares of Common Stock at $31.20 per share.
The warrants may be exercised at any time prior to April 2001. Related to this
placement, the Company issued a warrant to purchase an aggregate of 40,000
shares of Common Stock at $28.80 per share to the placement agent, which expires
March 25, 2001. The total fair value of all warrants was estimated to be
approximately $2,509,000 and is included in additional paid-in capital.
In April 1998, the Company filed a registration statement for 1,800,000 shares
of Common Stock, which is the maximum number of shares that may be acquired
relating to this transaction. All shares have been reserved for issuance. The
Securities and Exchange Commission declared this registration statement
effective on May 5, 1998.
During the second quarter of 1998, an aggregate of $5,000,000 face amount of the
Series C Preferred Stock issued in March 1998 was converted into Common Stock
resulting in the issuance of approximately 186,000 shares of Common Stock. This
conversion was a non-cash transaction.
In July 1998, the investors exercised their right to receive additional warrants
to purchase 150,000 shares of Common Stock at $17.45 per share with an
expiration date of March 26, 2001. No further warrants may be issued under the
Series C Preferred Stock placement.
8
<PAGE>
8. Common Stock:
-------------
The Company received $6,000,000 from Novartis during the six months ended June
30, 1998, which represents milestone equity investments for approximately
240,000 shares of Common Stock. As a result of these equity investments and a
prior equity investment made in January 1996, Novartis holds 2.2% of the
outstanding shares of the Company as of June 1998.
On April 15, 1998, the Board of Directors declared a one for four stock split in
the form of a stock dividend for stockholders of record on April 22, 1998. The
stock dividend was payable on April 29, 1998 and resulted in the issuance of
approximately 5,826,000 additional shares of Common Stock. All related data in
the consolidated financial statements and notes herein are restated to reflect
the stock dividend for all periods presented.
9. Earnings per Share:
-------------------
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") in December of 1997. The adoption of SFAS 128
had no effect on the earnings per share disclosures for the three months ended
June 30, 1997 and the six months ended June 30, 1998 and 1997 due to the
antidilutive effect of the Company's then outstanding stock options, warrants
and convertible securities.
For the three months ended June 30, 1998, the numerator used to calculate basic
and diluted earnings per share was $315,000. The denominators used to calculate
basic and diluted earnings per share were 29,281,065 and 34,175,020,
respectively. The difference between denominators is due to the dilutive effect
of the following securities: 3,989,490 shares associated with stock option
plans; 850,231 shares associated with preferred stock; and 54,234 shares
associated with contingent warrants. Net income per share, basic and diluted
was $.01
During the three months ended June 30, 1998, securities not included in the
computation of diluted earnings per share, because their exercise price exceeded
the average market price during the period were as follows: (i) warrants to
purchase 200,000 shares of Common Stock with an exercise price of $31.20 and
with an expiration date of March 26, 2001; (ii) warrants to purchase 40,000
shares of Common Stock with an exercise price of $28.80 and with an expiration
date of March 25, 2001.
9
<PAGE>
ORGANOGENESIS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview:
- ---------
Organogenesis Inc. (the "Company) designs, develops and manufactures medical
therapeutics containing living cells and/or natural connective tissue. The
Company was formed to advance and apply tissue engineering to major medical
needs. The Company's product development focus includes living tissue
replacements, cell-based organ assist devices and other tissue-engineered
products.
On May 22, 1998, the Company's lead product, Apligraf/(TM)/, was approved for
the treatment of venous leg ulcers by the U.S. Food and Drug Administration
("FDA"). The Apligraf living skin construct is the only manufactured product
containing living human cells to be approved for marketing in the United States.
Novartis Pharmaceuticals Corporation launched Apligraf in the United
States in June 1998. Novartis Pharma AG has global Apligraf/(TM)/ marketing
rights, markets Apligraf/(TM)/ in Canada and is pursuing other international
registrations for the product.
Novartis' marketing strategy for Apligraf/(TM)/ is to build awareness and
experience with the product among leading clinicians as first steps in
establishing a long-term business base. The Company expects a gradual ramp-up in
sales during the second half of 1998, increasing in 1999. The Company expects
production costs to exceed product sales for the near term due to start-up
expenses and the high costs associated with low volume production. There can be
no assurance that the Company will realize sufficient production volume or
otherwise reduce its production costs to significantly improve gross margins.
The Company is dependent on Novartis for the successful marketing of
Apligraf/(TM)/. There can be no assurance that Novartis will succeed with
registrations and marketing of Apligraf/(TM)/ or that the Company will be able
to meet the production demand of global commercialization.
An Apligraf/(TM)/ study has been completed in burns and a supplement to the
Premarket Approval Application is anticipated to be submitted in second half
1998. A dermatological surgery study in donor site wounds has also been
completed with data being prepared for regulatory submission. An Apligraf/(TM)/
pivotal trial is underway in diabetic ulcers, with completion of enrollment
expected by year-end. In June 1998, the Company announced its initiation of a
large, controlled pivotal trial in skin cancer removal to assess the cosmetic
outcome of wounds treated with Apligraf/(TM)/. Initiation of a trial in pressure
sores is planned for the second half of 1998. There can be no assurance that
Apligraf/(TM)/ will be approved for use in these indications in a timely manner,
if at all.
Another of the Company's products, Graftpatch/(TM)/, has also been cleared for
marketing in the United States under the FDA's Section 510(k) notification
process. Marketing clearance has been granted for its use in general surgical
procedures for reinforcement of soft tissue (e.g. hernia repair). The Company's
plan is to market Graftpatch/(TM)/ through a partner and is currently meeting
with appropriate companies. No assurance can be given that the Company will be
able to identify and/or reach agreement with an appropriate partner in a timely
manner.
Results of Operations may vary significantly from quarter to quarter depending
on, among other factors, the progress of the Company's research and development
efforts, the receipt of milestone and research and development support payments,
if any, from Novartis, product revenues, manufacturing costs, the timing of
certain expenses and the establishment of additional collaborative agreements,
if any.
10
<PAGE>
Results of Operations:
- ----------------------
Revenues
Total revenues were $5,379,000 and $7,645,000 for the three and six months ended
June 30, 1998, compared to $2,808,000 and $3,069,000, for the same periods in
1997. Revenues for the second quarter of 1998 include recognition of $4,750,000
for research and development milestones received under the collaborative
agreement with Novartis (See "Notes to Consolidated Financial Statements")
versus $2,500,000 in support for the same period in 1997. Product sales to
related party, royalties and other income increased to $308,000 and $502,000 for
the three and six months ended June 30, 1998, compared to $206,000 and $300,000,
for the same periods in 1997 due to increased supply of product to Novartis.
Interest income increased to $321,000 and $393,000 for the three and six months
ended June 30, 1998, compared to $102,000 and $269,000 for the same periods in
1997, primarily due to the increase in funds available for investment.
Costs and Expenses
Research and development expenses increased to $3,873,000 and $7,786,000 for the
three and six months ended June 30, 1998, compared to $3,279,000 and $6,269,000,
for the same periods in 1997. The increase was primarily due to our clinical
trials activity, including the Apligraf/(TM)/ diabetic ulcer pivotal trial,
progressing our preclinical programs, including Vitrix/(TM)/ for sub-dermal soft
tissue repair, and investing in our manufacturing operations, including
personnel additions. The Company expects to continue to expand Apligraf/(TM)/
manufacturing operations and to advance the Company's product pipeline during
the next 12 months.
General and administrative expenses increased to $1,191,000 and $2,411,000 for
the three and six months ended June 30, 1998, compared to $942,000 and
$1,905,000, for the same periods in 1997. The increase was primarily due to
higher outside professional services and adding to our support staff.
As a result of the net effect described, the Company had net income of $315,000,
or $.01 per share, basic and diluted, and a net loss of $2,552,000, or $.09 per
share, basic and diluted, for the three and six months ended June 30, 1998,
respectively, compared to a net loss of $6,968,000, or $.25 per share, basic and
diluted, and $10,660,000, or $.38 per share, basic and diluted, for the
comparable 1997 periods. The comparable 1997 periods included a $5,555,000 non-
cash charge. The Company expects to incur additional losses in 1998 as its
expenditures increase due to continued expansion of its operations and research
programs.
Liquidity and Capital Resources:
- --------------------------------
From inception, the Company has financed its operations substantially through
private and public placements of equity securities, as well as receipt of
research support and contract revenues, interest income from investments and, to
a lesser extent, sale of products and receipt of royalties. During the six
months ended June 30, 1998, financing activities provided additional cash and
working capital to the Company from: the sale of 200 shares of Series C
convertible preferred stock that generated net proceeds of approximately
$19,117,000; equity investments totaling $6,000,000 from Novartis; and the
exercise of stock options of $915,000. Financing activities provided cash of
approximately $1,445,000 during the six months ended June 30, 1997, from the
exercise of stock options and warrants.
11
<PAGE>
At June 30, 1998, the Company had cash, cash equivalents and investments in the
aggregate amount of $29,628,000 and working capital of $28,546,000, compared to
$6,145,000 and $4,843,000, respectively, at December 31, 1997. Cash used in
operating activities during the six months ended June 30, 1998 was $2,093,000,
compared to $5,989,000 for the six months ended June 30, 1997, primarily due to
financing the Company's research, development and manufacturing operations. The
Company expects operating expenditures to increase for the remaining six months
of 1998 and into 1999 due to the expansion of Apligraf/(TM)/ operations and
for the advancement of the Company's product pipeline.
Capital expenditures were $456,000 and $591,000 during the six months ended June
30, 1998 and 1997, respectively, primarily related to further build-out of the
current facilities to support Apligraf/(TM)/ manufacturing and the acquisition
of laboratory equipment for expanded research and development programs. The
Company plans to spend an estimated $6,000,000 over the next twelve months to
modify its current facility in the areas of Apligraf/(TM)/ manufacturing and
packaging. In addition, the Company announced plans to construct a second
manufacturing facility to further expand Apligraf/(TM)/ manufacturing capacity
and to support the production of the Company's current and future products.
Novartis has agreed to provide the Company up to $40,000,000 in equity
investments, research support and milestone payments (See "Collaborative
Agreement" under the Notes to Consolidated Financial Statements), of which
$12,750,000 was received during 1998, $2,500,000 in 1997 and $11,500,000 in
1996. The remaining payments will be received based upon achievement of
specified events. Under the agreement, the Company supplies Novartis' global
requirements for Apligraf/(TM)/ and receives revenue based on a per unit
Based upon its current plans, the Company believes that existing working capital
together with future funds from Novartis, including product revenue, will be
sufficient to finance its operations into 1999. However, the Company's
manufacturing operations and research, clinical and capital expansion programs
will require additional financial resources. Management believes that
additional funds may be available through equity or debt financing, strategic
alliances with corporate partners, capital lease arrangements, or other sources
of financing in the future. There can be no assurances that these funds will be
available when required on terms acceptable to the Company, if at all. Factors
that may change the Company's cash requirements include: time required to obtain
regulatory approvals of the Company's products in different countries, if
needed, and subsequent timing of product launches; commercial acceptance when
product launches occur; progress of the Company's research and development
programs; resources the Company devotes to self-funded projects, proprietary
manufacturing methods and advanced technologies; and resources the Company
devotes to outside research collaborations or projects.
12
<PAGE>
Additional Cautionary Considerations:
- -------------------------------------
The foregoing discussions that are not statements of current or historical fact
are forward looking statements within the meaning of the Private Securities
Litigation Reform act of 1995 and involve risks and uncertainties. In addition
to the risks discussed above, the Company is subject to risks common to entities
in the biotechnology industry, including, but not limited to, the following
uncertainties: the Company's lead product, Apligraf/(TM)/, which was approved by
the FDA on May 22, 1998 for the treatment of venous leg ulcers, will gain market
acceptance in the United States; the Company's collaborative partner, Novartis,
will be successful in marketing Apligraf/(TM)/ for the treatment of venous leg
ulcers in the United States and will be successful in additional registrations
outside the United States; the Company will be able to manufacture in sufficient
volume and sell its products to realize a satisfactory margin; continued
availability of raw material for the Company's products; availability of
sufficient product liability insurance; ability to recover the investment in
property and equipment; risk of failure of clinical trials for future
indications of Apligraf/(TM)/ and other Company products; compliance with FDA
regulations and similar foreign regulatory bodies; demand for the Company's
products, if and when approved; protection of proprietary technology through
patents; development by the Company's competitors of new technologies or
products that are more effective than the Company's; dependence on and retention
of key personnel; and availability of additional capital on acceptable terms, if
at all.
13
<PAGE>
ORGANOGENESIS INC.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Refer to the captions "Preferred Stock" and "Common Stock" under the Notes to
Consolidated Financial Statements, included in Part I, Item 1.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting for Stockholders on May 15, 1998. At the
meeting, Messrs. Richard S. Cresse, Kenneth J. Novack, Bjorn R. Olsen, Ms.
Marguerite A. Piret, David T. Rovee, Anton E. Schrafl and Herbert M. Stein, were
re-elected as Directors. The vote with respect to each nominee is set forth
below:
Vote For Vote Withheld
-------- -------------
Mr. Cresse 25,279,014 246,163
Mr. Novack 25,497,110 28,066
Dr. Olsen 25,279,595 245,581
Ms. Piret 25,282,739 242,148
Dr. Rovee 25,283,164 242,013
Dr. Schrafl 25,283,029 242,148
Mr. Stein 25,263,289 261,888
The stockholders also ratified the selection of PricewaterhouseCoopers LLP as
the Company's independent public accountants for the 1998 fiscal year by a vote
of 25,474,916 shares for, 33,005 shares against, 17,255 shares abstaining.
ITEM 5. OTHER INFORMATION
Stockholders who wish to have their proposals presented at the 1999 Annual
Meeting of Stockholders must deliver such proposals in writing to the Secretary
of the Company at the principal executive office of Organogenesis in
Canton, Massachusetts no later than December 4, 1998 for inclusion in the
Company's proxy statement and form of proxy relating to that meeting.
Stockholders who do not wish to include their proposals in such proxy statement
and form of proxy but who wish to present proposals at the Company's 1999 Annual
Meeting of Stockholders must notify the Secretary of the Company in writing at
the Company's principal executive offices no later than February 19, 1999 in
order for their proposals to be considered timely for purposes of Rule 14a-4
under the Securities Exchange Act of 1934, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (filed with electronic submission only)
14
<PAGE>
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated April 21, 1998 disclosing
that the Board of Directors of the Company declared a 25% Common Stock dividend
whereby one share of Common Stock shall be distributed on or about April 29,
1998 for each four shares of Common Stock held of record on April 22, 1998.
The Company filed a current report on Form 8-K dated May 29, 1998 disclosing a
press release dated May 26, 1998 regarding the announcement that the U.S. Food
and Drug Administration granted U.S. marketing approval for Apligraf for the
treatment of venous leg ulcers.
15
<PAGE>
ORGANOGENESIS INC.
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.
ORGANOGENESIS INC.
(Registrant)
Date: August 13, 1998 /s/ HERBERT M. STEIN
--------------- --------------------
Herbert M. Stein,
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1998 /s/ DONNA L. ABELLI
--------------- -------------------
Donna L. Abelli,
Vice President
Finance and Administration, Chief
Financial Officer, Treasurer and
Secretary
(Principal Financial and Accounting
Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,186
<SECURITIES> 13,442
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 757
<CURRENT-ASSETS> 31,264
<PP&E> 14,936
<DEPRECIATION> 8,565
<TOTAL-ASSETS> 37,728
<CURRENT-LIABILITIES> 2,718
<BONDS> 0
0
0
<COMMON> 295
<OTHER-SE> 34,708
<TOTAL-LIABILITY-AND-EQUITY> 37,728
<SALES> 0
<TOTAL-REVENUES> 7,645
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,552)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2552)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
