<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 MARCH 31, 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 1-9898
------
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 May 3, 2000 was 34,032,864 shares (excluding treasury shares).
<PAGE>
ORGANOGENESIS INC.
INDEX
-----
PAGE
PART I - FINANCIAL INFORMATION NUMBER
- ------------------------------ ------
Item 1 - Financial Statements
Consolidated Balance Sheets
at December 31, 1999 and March 31, 2000............. 3
Consolidated Statements of Operations
for the three months ended March 31, 1999 and 2000.. 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 2000.. 5
Notes to Consolidated Financial Statements............... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 10
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings.................................... *
Item 2 - Changes in Securities................................ 15
Item 3 - Defaults upon Senior Securities...................... *
Item 4 - Submission of Matters to a Vote of Security Holders.. *
Item 5 - Other Information.................................... *
Item 6 - Exhibits and Reports on Form 8-K..................... 15
Signatures.................................................... 16
In this report, "Organogenesis" "we" "us" and "our" refer to Organogenesis Inc.
* 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>
December 31, March 31,
1999 2000
--------- ---------
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 5,727 $ 27,678
Investments 6,712 4,645
Inventory 906 972
Receivable from related party 985 977
Other current assets 643 844
--------- ---------
Total current assets 14,973 35,116
Property and equipment -
Less accumulated depreciation of $11,080 and $11,517 11,731 12,614
Other assets 601 572
--------- ---------
Total Assets $ 27,305 $ 48,302
========= =========
Liabilities
Current liabilities:
Accounts payable $ 1,378 $ 534
Accrued expenses 3,438 7,600
Advance from related party - 5,000
Other current liabilities 996 788
Series C redeemable convertible preferred stock 6,180 -
--------- ---------
Total current liabilities 11,992 13,922
Long-term convertible debt 17,953 18,043
Term loan 4,334 3,940
Commitments (see notes)
Stockholders' Equity (Deficit)
Common stock, par value $.01; authorized 80,000,000 shares:
issued 30,689,019 and 34,073,829 shares as of
December 31, 1999 and March 31, 2000, respectively 307 341
Additional paid-in capital 122,890 148,913
Accumulated deficit (129,367) (136,053)
Treasury stock at cost, 85,000 shares at December 31, 1999
and March 31, 2000 (804) (804)
--------- ---------
Total stockholders' equity (deficit) (6,974) 12,397
--------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 27,305 $ 48,302
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ORGANOGENESIS INC.
Consolidated Statements of Operations
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
For the
Three Months
Ended March 31,
-------------------------------
1999 2000
------------- -------------
<S> <C> <C>
Revenues:
Product sales to related party and others $ 318 $ 646
Other income 168 251
Interest income 193 187
----------- -----------
Total Revenues 679 1,084
----------- -----------
Costs and Expenses:
Cost of product sales to related party and others 603 1,191
Research and development 4,488 4,318
General and administrative 1,514 1,782
Interest expense-net - 479
----------- -----------
Total Costs and Expenses 6,605 7,770
----------- -----------
Net loss $ (5,926) $ (6,686)
=========== ===========
Net loss per common share - basic and diluted $(.19) $(.21)
=========== ===========
Weighted average number of common shares
outstanding - basic and diluted 30,451,477 31,258,452
=========== ===========
</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
Three Months
Ended March 31,
---------------
1999 2000
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,926) $(6,686)
Adjustments to reconcile net loss to cash flows used in operating activities:
Depreciation 410 437
Amortization of warrants and deferred debt issuance costs relating to
long-term convertible debt - 119
Changes in assets and liabilities:
Inventory (3) (66)
Other current assets and receivable from related party (349) (193)
Other assets (501) -
Accounts payable 19 (844)
Accrued expenses and other current liabilities 315 3,954
Advance from related party - 5,000
-------- -------
Cash provided by (used in) operating activities (6,035) 1,721
-------- -------
Cash flows from investing activities:
Capital expenditures (1,493) (1,320)
Sales and maturities of investments 3,313 2,067
-------- -------
Cash provided by investing activities 1,820 747
-------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term convertible debt 20,000 -
Receivable from debt financing (17,500) -
Term loan - (394)
Preferred stock redeemed in cash - (6,180)
Proceeds from sale of common stock - net - 15,930
Proceeds from exercise of stock options 130 10,127
-------- -------
Cash provided by financing activities 2,630 19,483
-------- -------
Increase (decrease) in cash and cash equivalents (1,585) 21,951
Cash and cash equivalents, beginning of period 5,052 5,727
-------- -------
Cash and cash equivalents, end of period $ 3,467 $27,678
======== =======
Supplemental Disclosure of Cash Flow Information:
Interest paid in cash during the period $ - $ 65
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
ORGANOGENESIS INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of
Organogenesis Inc. 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 three months ended March 31, 2000 are not necessarily indicative of the
results to be expected for the year ending December 31, 2000.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in our Form 10-K
for the year ended December 31, 1999 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.
2. Revenue Recognition
-------------------
Research and development support revenue under a collaborative agreement
with Novartis Pharma AG ("Novartis") is recognized as related expenses are
incurred or contractual obligations are met and is not refundable. 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 with Novartis and when risk of ownership passes to the buyer
and we have no performance obligations. Other product revenues are recognized
upon shipment. Royalty revenue is recorded as earned. Grant revenue is
recognized to the extent of allowable costs incurred. Deferred revenue arises
from the difference between cash received and revenue recognized in accordance
with these policies.
SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101), was issued in December 1999 and summarizes certain of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The application of the guidance in SAB 101
will be required by the second quarter of 2000. The effects of applying this
guidance, if any, will be reported as a cumulative effect adjustment resulting
from a change in accounting principle. Our evaluation of SAB 101 is not yet
complete.
3. Net Loss Per Common Share
-------------------------
Net loss per common share (basic and diluted) is based on the weighted
average number of common shares outstanding during each period. Potentially
dilutive securities at March 31, 2000 include: stock options outstanding to
purchase 5,222,810 common shares; warrants to purchase 900,000 common shares;
and debt convertible into 1,957,384 common shares; however, such securities have
not been included in the net loss per common share calculation because their
effect would be antidilutive.
6
<PAGE>
4. Inventory
---------
Inventory is stated at the lower of cost or market, cost being standard
cost, which approximates the first-in, first-out method of accounting.
Inventory, at net realizable value, consisted of the following (in thousands):
December 31, March 31,
1999 2000
------------ -------------
(unaudited)
Raw Materials $ 348 $ 355
Work in Process 558 617
----- -----
$ 906 $ 972
===== =====
5. Receivable and Advance from Related Party
-----------------------------------------
Receivable from related party consisted of amounts due on product sales to
Novartis and funding of certain programs by Novartis. Advance from Novartis
of $5,000,000 was received in advance of achievement of a milestone related to
the diabetic foot ulcer indication. If achievement of the milestone is not met,
some or all of this payment may be refundable to Novartis.
6. Accrued Expenses
----------------
Accrued expenses consisted of the following (in thousands):
December 31, March 31,
1999 2000
----------- -----------
(unaudited)
Compensation and employee benefits $1,402 $1,416
Accrued taxes on stock option exercises - 3,941
Professional services 825 268
Accrued interest 361 750
Other 850 1,225
------ ------
$3,438 $7,600
====== ======
7
<PAGE>
7. Term Loan Agreement
-------------------
In November of 1999, we entered into a $5,000,000 term loan agreement with
a commercial bank to finance the purchase of certain equipment, leasehold
improvements and other items. Borrowings under the term loan are collateralized
by a security interest in the items financed. The agreement provides repayment
of the principal amount of the loan in 12 equal quarterly installments
commencing December 29, 2000, with final payment due on September 30, 2003. The
loan bears interest at a fluctuating rate per annum that is equal to the prime
rate in effect from time to time, or we may elect that all or any portion of any
term loan be made as a LIBOR loan with an interest period of one month, two
months, three months or six months with the interest rate being equal to LIBOR
plus an applicable margin (175 to 225 basis points). We are required to comply
with certain covenants relating to our outstanding term loans, involving
limitations on future indebtedness, dividends and investments, and to maintain
certain financial covenants pertaining to liquidity, capital base, and debt
service coverage (or, alternatively, maintaining a minimum unencumbered cash
balance). We are in compliance with these covenants at March 31, 2000. At
March 31, 2000, we had borrowed $4,728,000 against this term loan to finance
certain research, manufacturing and office equipment and leasehold improvements.
The weighted average interest rate paid during this period was 8.43%. The
current portion of this term loan is $788,000 at March 31, 2000 and is included
in other current liabilities.
8. Series C Redeemable Convertible Preferred Stock
------------------------------------------------
At December 31, 1999, we had 62 shares of Series C redeemable convertible
preferred stock outstanding. In March 2000, we redeemed for cash all
outstanding shares of Series C redeemable convertible preferred stock for
$6,180,000.
9. Commitments
-----------
Construction-in-Progress
At March 31, 2000, we had approximately $5,047,000 in construction in
progress relating to expansion of our main facility. Additionally, we have
committed approximately $700,000 for further build-out.
Grants
In November 1999, we received notice of grants to support two research
projects: (1) $2,000,000 grant under the Advanced Technology Program of the
National Institute for Standards and Technology ("NIST") to help support
development of an effective liver assist device prototype, which we have
received $51,000 and expect to receive the remaining amount over the period
through December 2001; and (2) $100,000 grant under the Small Business
Innovation Research Program of the National Institutes of Health to support
development of a vascular graft, which was fully received as of March 31, 2000.
Both of these grants require that the United States federal government can
access for its own purposes technology developed using the funding. A product
developed based on the funding from the NIST grant must be manufactured
substantially in the United States. In addition, we are subject to regular
audit and reporting requirements. We have recorded revenue of $184,000 for the
three months ended March 31, 2000 relating to these research grants.
8
<PAGE>
10. Common Stock Issuance
---------------------
On February 14, 2000, the Securities and Exchange Commission declared
effective a shelf registration for the placement of up to 3,000,000 shares of
common stock with an aggregate offering price not to exceed $50,000,000. In
February 2000, we completed a private placement of 788,925 shares of common
stock at $14.00 per share under this shelf registration yielding net proceeds of
approximately $10,755,000. In March 2000, we completed a private placement of
300,000 shares of common stock at $17.25 per share under this shelf registration
yielding proceeds of approximately $5,175,000.
During the three months ended March 31, 2000, we issued 2,295,885 shares of
common stock for the exercise of employee stock options, yielding proceeds of
approximately $10,127,000.
11. Accounting Pronouncements
-------------------------
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
9
<PAGE>
ORGANOGENESIS INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-Q contains forward-looking statements that involve risks and
uncertainties. Forward-looking statements include information on:
. Our business outlook and future financial performance;
. Anticipated profitability, revenues, expenses and capital expenditures;
. Future funding and expectations as to any future events; and
. Other statements that are not historical fact and are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 that involve risks and uncertainties.
Although we believe that our plans, intentions and expectations reflected
in or suggested by such forward-looking statements are reasonable, we can give
no assurance that such plans, intentions or expectations will be achieved. When
considering such forward-looking statements, you should keep in mind the risk
factors and other cautionary statements in this Form 10-Q and in other publicly
available filings with the SEC, such as our Annual Report on Form 10-K for the
year ended December 31, 1999. The risk and other factors noted throughout this
Form 10-Q could cause our actual results to differ materially from the results
contained in any forward-looking statements.
In Management's Discussion and Analysis ("MD&A"), we explain the general
financial condition and results of operations for Organogenesis Inc. As you
read this MD&A, referring to our consolidated financial statements contained in
Item 1 of this Form 10-Q may be helpful. Results of operations may vary
significantly from quarter to quarter depending on, among other factors, the
progress of our 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.
Overview of Organogenesis Inc.
- ------------------------------
Organogenesis Inc. - a tissue engineering firm - designs, develops and
manufactures medical products containing living cells and/or natural connective
tissue. We are the developer and manufacturer of the only mass-manufactured
medical product containing living human cells marketed in the United States. Our
product development program includes living tissue replacements, cell-based
organ assist devices and other tissue-engineered products. Our lead product,
Apligraf(R) skin construct, was launched in the United States in June 1998 by
Novartis Pharma AG ("Novartis"). Our strategy is to commercialize products
either by ourselves or through partners with an established marketing presence.
Our Lead Product, Apligraf(r)
- --------------------------
Apligraf is approved and marketed in the United States for the treatment of
venous leg ulcers. In December 1999, Organogenesis applied to the FDA for
marketing approval for a second indication - diabetic foot ulcers. On May 8,
2000, the General and Plastic Surgery Devices Advisory Panel to the FDA
recommended approval of Apligraf for diabetic foot ulcers. The FDA takes this
recommendation into consideration when developing its final decision. Novartis
has global Apligraf marketing rights. In the fourth quarter of 1999, Novartis
began initial product introduction in Switzerland, the first of several planned
in Europe. Novartis also markets Apligraf in Canada.
Apligraf(R) is a registered trademark of Novartis.
10
<PAGE>
A pivotal trial is underway designed to assess whether use of Apligraf to
treat wounds due to skin cancer surgery leads to a better cosmetic outcome.
Data from smaller Apligraf studies, including in donor site wounds, burns and
epidermolysis bullosa (a genetic skin disorder), have been published or
presented.
Our Pipeline
- ------------
Our pipeline includes Vitrix soft tissue replacement product, now in pilot
human clinical trials; our vascular graft program, currently in animal studies;
and our liver assist device program, currently in research. Our portfolio also
includes potential licensing opportunities. These opportunities include:
GraftPatch(TM) soft tissue reinforcement product, which has been cleared for
marketing through the FDA 510k process; TestSkin(TM) II, an in vitro testing
product; our conditioned medium, a cell culture product found to stimulate the
generation of certain skin cell types.
Results of Operations
- ---------------------
With the approval and launch of Apligraf, we began a new era of operations.
We are seeing, as expected, a gradual ramp-up in sales. We expect production
costs to exceed product sales for the near term due to start-up expenses and the
high costs associated with low volume production. However, we expect production
volume to increase.
Revenues
Total revenues were $1,084,000 for the three months ended March 31, 2000,
compared to $679,000 for the same period in 1999. Product sales to related
party and others increased to $646,000 for the three months ended March 31,
2000, compared to $318,000 for the same period in 1999, due to increased unit
sales of Apligraf to Novartis. We expect Apligraf commercial sales to continue
to increase. Other income increased to $251,000 for the three months ended
March 31, 2000, compared to $168,000 for the same period in 1999, mainly due to
funding received under research grants, offset by a decrease in Novartis funding
of certain programs.
Costs and Expenses
Cost of product sales: Cost of product sales was $1,191,000 for the three
months ended March 31, 2000, compared to $603,000 for the same period in 1999,
due to increased unit sales of Apligraf to Novartis. Cost of product sales
includes the direct costs to manufacture and package Apligraf and an allocation
of our production related indirect costs. Cost of product sales exceeded
product sales due to the start-up costs of new product introduction and the high
costs associated with low volume production. We expect production volume to
increase and our margins to improve. We expect to continue to expand production
operations during 2000.
Research and development: Research and development expenses ("R&D")
consist of costs associated with research, development, clinical and operations
support. These expenses decreased to $4,318,000 for the three months ended
March 31, 2000, compared to $4,488,000 for the same period in 1999. The
decrease was due to: approximately $172,000 net decrease in R&D related expenses
primarily due to decreased costs to support sponsored research programs and
publications studies; approximately $238,000 net decrease in clinical related
costs due to higher expenses in 1999 relating to the Apligraf diabetic ulcer
pivotal trial; offset by an approximate $240,000 net increase in quality systems
and operations support related to increased unit sales of Apligraf. Quality
systems and operations support was $2,028,000 for the three months ended March
31, 2000, compared to $1,788,000 for the same period in 1999. We expect to
continue to advance the product pipeline during 2000.
11
<PAGE>
General and administrative expenses: General and administrative expenses
("G&A") include the costs of our corporate, finance, information technology and
human resource functions. G&A expenses increased to $1,782,000 for the three
months ended March 31, 2000, compared to $1,514,000 for the same period in 1999.
The increase is primarily due to higher occupancy costs, outside services and
consulting fees. We expect the growth in G&A expenses to increase at a slower
rate during 2000 than in 1999.
Interest expense-net: Interest expense net of $96,000 capitalized
interest, was $479,000 for the three months ended March 31, 2000 due to the
issuance of convertible debentures in March 1999 and entering into a term loan
in November 1999.
Net Loss
As a result of the net effect described above, we incurred a net loss of
$6,686,000 or $.21 per share (basic and diluted), for the three months ended
March 31, 2000, an increase from the net loss of $5,926,000, or $.19 per share
(basic and diluted), for the comparable 1999 period.
Capital Resources and Liquidity
- -------------------------------
Funds Used in Operations
At March 31, 2000, we had cash, cash equivalents and investments in the
aggregate amount of $32,323,000 and working capital of $21,194,000, compared to
$12,439,000 and $2,981,000, respectively, at December 31, 1999. Cash
equivalents consist of money market funds, which are highly liquid and have
original maturities of less than three months. Investments consist of
securities that have an A or A1 rating or better with a maximum maturity of two
years. Net cash provided by operating activities was $1,721,000 for the three
months ended March 31, 2000, primarily due to cash received from Novartis in
advance of achievement of a milestone related to the diabetic foot ulcer
indication and cash received for taxes on stock option exercises, offset by
financing of our ongoing research, development and manufacturing. Cash used in
operating activities was $6,035,000 for the three months ended March 31, 1999,
primarily due to the net loss from financing of ongoing research, development
and manufacturing operations.
Capital Spending
Capital expenditures were $1,320,000 and $1,493,000 during the three months
ended March 31, 2000 and 1999, respectively, primarily related to the further
build-out of existing facilities to support Apligraf manufacturing, as well as
the acquisition of equipment for research and development programs and
manufacturing. We will continue to utilize funds during 2000 to expand our
existing facility in the areas of Apligraf manufacturing, quality systems labs,
and packaging.
Novartis Support
The collaborative agreement with Novartis provides us with up to
$40,000,000 in equity investments and nonrefundable research, development and
milestone support payments, of which $26,750,000 was received prior to 1999, all
of which are non refundable. The remaining payments are based upon achievement
of specified events. In March 2000, we received $5,000,000 from Novartis, which
represents a support payment received in advance of achievement of a milestone
related to the diabetic foot ulcer indication. If achievement of the milestone
is not met, some or all of this payment may be refundable to Novartis. Under
the agreement, we supply Novartis' global requirements for Apligraf and receive
revenue consisting of a per unit manufacturing payment and royalties on product
sales.
12
<PAGE>
Financing
From inception, we have financed our operations substantially through
private and public placements of equity securities, as well as receipt of
research support and contract revenues, interest income from investments, sale
of products and receipt of royalties. During the first quarter of 2000,
financing activities provided additional cash and working capital of
approximately $19,483,000 from the sale of common stock that generated net
proceeds of $15,930,000 and the exercise of stock options of $10,127,000,
partially offset by the redemption of Series C redeemable convertible preferred
stock in cash for $6,180,000 and term loan for 394,000. Financing activities
provided cash for the first quarter of 1999 from the sale of five-year
convertible debentures and warrants to purchase common stock that generated
gross proceeds of $20,000,000 and the exercise of stock options of $130,000.
In November 1999, we received notice of grants to support two research
projects: (1) $2,000,000 grant under the Advanced Technology Program of the
National Institute for Standards and Technology ("NIST") to help support
development of an effective liver assist device prototype, which we have
received $51,000 and expect to receive the remaining amount over the period
through December 2001; and (2) $100,000 grant under the Small Business
Innovation Research Program of the National Institutes of Health to support
development of a vascular graft, which was fully received as of March 31, 2000.
Both of these grants require that the United States federal government can
access for its own purposes technology developed using the funding. A product
developed based on the funding from the NIST grant must be manufactured
substantially in the United States. In addition, we are subject to regular
audit and reporting requirements. We have recorded revenue of $184,000 for the
three months ended March 31, 2000 relating to these research grants.
Liquidity
Based upon current plans, we believe that proceeds received from common
stock issued in the first quarter, together with existing working capital and
future funds from Novartis, including product and royalty revenue, will be
sufficient to finance operations into 2001. However, this statement is forward-
looking and changes may occur that would significantly decrease available cash
before such time. Factors that may change our cash requirements include:
. Delays in obtaining regulatory approvals of products in different countries,
if needed, and subsequent timing of product launches;
. Delays in commercial acceptance and reimbursement when product launches
occur;
. Changes in the progress of research and development programs; and
. Changes in the resources devoted to outside research collaborations or
projects, self-funded projects, proprietary manufacturing methods and
advanced technologies.
Any of these events could adversely impact our capital resources, requiring
us to raise additional funds. 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 us, if at all. If adequate funds are not
available when needed, we would need to delay, scale back or eliminate certain
research and development programs or license to third parties certain products
or technologies that we would otherwise undertake ourselves, resulting in a
potential material adverse effect on our financial condition and results of
operations.
13
<PAGE>
Additional Cautionary Considerations
- ------------------------------------
We are subject to risks common to entities in the biotechnology industry,
including, but not limited to, the following uncertainties:
. Market acceptance of our products, if and when approved, and successful
marketing and selling of Apligraf by Novartis;
. FDA approval of Apligraf for other indications and successful registrations
of Apligraf outside the United States;
. Risk of failure of clinical trials for future indications of Apligraf and
other products;
. Compliance with FDA regulations and similar foreign regulatory bodies;
. Manufacture and sale of products in sufficient volume to realize a
satisfactory margin;
. Continued availability of raw material for products;
. Availability of sufficient product liability insurance;
. Ability to recover the investment in property and equipment;
. Protection of proprietary technology through patents;
. Development by competitors of new technologies or products that are more
effective than ours;
. Adequate third-party reimbursement for products;
. Dependence on and retention of key personnel; and
. Availability of additional capital on acceptable terms, if at all.
14
<PAGE>
ORGANOGENESIS INC.
Part II - Other Information
Item 2. Changes in Securities
In March 2000, a former officer of the company exercised an option granted
in 1987 to purchase 732,423 shares of common stock at an aggregate purchase
price of $2,250,000. This option was issued under an exemption in section 4(2)
of the Securities Act of 1933 as amended. A registration statement covering
these shares was declared effective by the SEC on May 8, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(dd) Addendum to The License and Supply Agreement between the Company
and Novartis Pharma AG, dated March 15, 2000.
27 Financial Data Schedule (filed with electronic submission only)
(b) No current reports on Form 8-K were filed during the quarter ended March 31,
2000.
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: May 15, 2000 /S/ Philip M. Laughlin
- -------------------- ------------------------------------
Philip M. Laughlin, President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 /S/ John J. Arcari
- -------------------- ------------------------------------
John J. Arcari, Vice President Finance, and
Administration, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and Accounting Officer)
16
<PAGE>
ORGANOGENESIS INC.
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ------------- ----------------------
10(dd) Addendum to The License and Supply Agreement between the Company
and Novartis Pharma AG, dated March 15, 2000.
27 Financial Data Schedule (filed with electronic submission only)
<PAGE>
Exhibit 10(dd)
ADDENDUM DATED MARCH 15, 2000
TO THE LICENSE AND SUPPLY AGREEMENT DATED JANUARY 17, 1996
Between
Organogenesis, Inc., a company organized under the laws of the State of
Delaware, of 150 Dan Road, Canton, MA 02021, USA (hereinafter "Organogenesis")
and
Novartis Pharma AG, a corporation organized under the laws of Switzerland, of
Lichstrasse 35, 4056 Basel Switzerland (hereinafter "Novartis")
I
WHEREAS, Organogenesis and Novartis entered into a License and Supply Agreement
as of January 17, 1996, (the "Agreement")
WHEREAS, The milestones related to subsequent FDA approvals for the Product were
modified in an amendment signed January 22/February 4, 1998 between the two
companies and the milestone payment for the diabetic ulcer indication was set at
$5 million; and
WHEREAS, Organogenesis has delivered to Novartis a complete set of the locked
and validated clinical data concerning the use of Apligraf (Graftskin) on
diabetic foot ulcers and;
NOW, THEREFORE, in consideration of the mutual promises and agreements contained
herein and for other good and valuable consideration, the sufficiency and
receipt of which are hereto hereby agree as follows:
1. Novartis agrees to pay Organogenesis on or before March 31, 2000 the $5
million payment related to the diabetic foot ulcer indication set fourth in
the Agreement as amended, subject to receipt of an invoice.
2. Organogenesis agrees that the $5 million payment fulfills Novartis'
obligation for the DFU milestone payment set forth in the Agreement, as
amended.
3. If the DFU PMA supplement filed December 23, l999 (the "Supplement") is not
approved by March 31, 2001, Novartis may withhold all sums due to
Organogenesis under either the Agreement, as amended or under the Global
Manufacturing and Supply Agreement dated as of August 11, 1997 by and between
Organogenesis and Novartis Pharma AG (the "Supply Agreement") up to five
hundred thousand ($500,000) per month until a total of five million dollars
($5,000,000) is reached. When the supplement is approved, any money withheld
will be paid to Organogenesis.
Furthermore, Novartis shall also be entitled not to take any stock purchases
that it may be otherwise obligated to make under the Stock Purchase Agreement
dated January 17, 1996, as it may be amended, between Organogenesis and
Novartis until a total of 5 million US$ is recovered by Novartis as described
above.
4. Organogenesis, except as required by law, will not disclose any terms of the
Addendum without prior written approval of Novartis.
5. Capitalized terms used herein that are not defined herein, shall have the
meaning ascribed to them in the Agreement, as amended.
All of the other terms and condition of the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have executed this addendum Agreement as
of the date first hereunder,
NOVARTIS PHARMA AG ORGANOGENESIS INC.
- ----------------------------
Dr. J. Reinhardt
Head Clinical Development
and Project Management
- ---------------------------- ---------------------------
James S. New Philip Laughlin
Head of Global Business President, CEO
Development & Licensing
Date: March 15, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 27,678
<SECURITIES> 4,645
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 972
<CURRENT-ASSETS> 35,116
<PP&E> 24,131
<DEPRECIATION> 11,517
<TOTAL-ASSETS> 48,302
<CURRENT-LIABILITIES> 13,922
<BONDS> 0
0
0
<COMMON> 341
<OTHER-SE> 12,056
<TOTAL-LIABILITY-AND-EQUITY> 48,302
<SALES> 646
<TOTAL-REVENUES> 1,084
<CGS> 1,191
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,770
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,686)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,686)
<EPS-BASIC> (.21)
<EPS-DILUTED> (.21)
</TABLE>
