SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the quarterly period ended September 30, 1997
Commission File No. 0-15360
BIOJECT MEDICAL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Oregon 93-1099680
(State of other jurisdiction of (I.R.S. identification no.)
employer incorporation or organization)
7620 SW Bridgeport Road
Portland, Oregon 97224
(Address of principal executive offices) (Zip code)
(503) 639-7221
(Registrant's telephone number, including areas code)
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 [ ]
At September 30, 1997 there were 22,475,688 outstanding shares of common
stock of the registrant.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited consolidated financial statements of Bioject
Medical Technologies Inc. ("BMT"), an Oregon corporation, and its subsidiaries
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. The Company's needle-free injector operations are
conducted by Bioject Inc. (BI), an Oregon corporation formed in February 1985,
which is a wholly owned subsidiary of BMT and its blood glucose monitoring
systems operations are conducted by Bioject JV Subsidiary Inc. ("JV"), an
Oregon corporation formed in October 1997, which is owned 80.1% by BMT.
The following 10-Q report reflects the consolidated results of operations,
cash flows and financial position for the second quarter of the year ending
March 31, 1998. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the year.
- Consolidated Statements of Operations for the quarters ended
September 30, 1997 and September 30, 1996
- Consolidated Statements of Operations for the six months ended
September 30, 1997 and September 30, 1996
- Consolidated Balance Sheets dated September 30, 1997 and
March 31, 1997
- Consolidated Statements of Cash Flows for the quarters ended
September 30, 1997 and September 30, 1996
- Consolidated Statements of Cash Flows for the six months ended
September 30, 1997 and September 30, 1996
BIOJECT MEDICAL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended
September 30,
1997 1996
-------------------------
REVENUES:
Net sales of products $ 644,853 $ 342,762
Licensing/technology fees 125,000 270,600
----------- ---------
769,853 613,362
----------- -----------
EXPENSES:
Manufacturing 592,643 537,390
Research and development 218,001 349,723
Selling, general and administrative 978,822 824,637
Acquired in-process R&D 15,000,000 -
Other (income) (25,704) (28,440)
----------- -----------
16,763,762 1,683,310
----------- -----------
LOSS BEFORE MINORITY INTEREST (15,993,909) (1,069,948)
MINORITY INTEREST ALLOCATION 2,985,000 -
----------- -----------
NET LOSS $(13,008,909) $(1,069,948)
=========== ===========
LOSS PER COMMON SHARE $ (.58) $ (.07)
=========== ===========
SHARES USED IN PER SHARE CALCULATION 22,349,517 15,616,712
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
BIOJECT MEDICAL TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six-Months Ended
September 30,
1997 1996
-------------------------
REVENUES:
Net sales of products $ 987,467 $ 519,631
Licensing/technology fees 250,000 585,500
----------- ---------
1,237,467 1,105,131
----------- -----------
EXPENSES:
Manufacturing 1,051,634 1,044,250
Research and development 471,983 832,773
Selling, general and administrative 1,732,664 1,572,064
Acquired in-process R&D 15,000,000 -
Other (income) (32,331) (50,112)
----------- -----------
18,223,950 3,398,975
----------- -----------
LOSS BEFORE MINORITY INTEREST (16,986,483) (2,293,844)
MINORITY INTEREST ALLOCATION 2,985,000 -
----------- -----------
NET LOSS $(14,001,483) $(2,293,844)
=========== ===========
LOSS PER COMMON SHARE $ (.66) $ (.15)
=========== ===========
SHARES USED IN PER SHARE CALCULATION 21,075,640 15,601,058
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
BIOJECT MEDICAL TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1997 1997
--------------------------
ASSETS (unaudited)
- ------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,217,686 $ 2,116,478
Securities available for sale - -
Accounts receivable 536,106 311,856
Inventories 1,359,170 1,706,456
Prepaid and other current assets 63,367 45,222
----------- -----------
Total current assets 3,176,329 4,180,012
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,134,162 1,897,174
Production molds 1,858,995 1,798,630
Furniture and fixtures 177,392 176,897
Leasehold improvements 80,447 80,447
Capitalized interest 106,228 106,228
----------- -----------
4,357,224 4,059,376
Less - Accumulated depreciation (1,709,258) (1,462,338)
----------- -----------
2,647,966 2,597,038
OTHER ASSETS 330,464 310,981
----------- -----------
$ 6,154,759 $ 7,088,031
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 653,504 $ 659,973
Accrued payroll 240,009 213,130
Other accrued liabilities 236,480 199,384
Deferred revenue - 250,000
----------- -----------
Total current liabilities 1,129,993 1,322,487
LONG-TERM DEBT 12,015,000 -
COMMITMENTS - -
SHAREHOLDERS' EQUITY:
Preferred stock, no par, 10,000,000
shares authorized; no shares issued
and outstanding - -
Common stock, no par, 100,000,000 shares
authorized; issued and outstanding
22,475,688 shares at September 30, 1997
and 19,540,413 at March 31, 1997 41,281,441 40,035,736
Accumulated deficit (48,271,675) (34,270,192)
----------- -----------
Total shareholders' equity (6,990,234) 5,765,544
----------- -----------
$ 6,154,759 $ 7,088,031
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
BIOJECT MEDICAL TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Quarter Ended
September 30,
1997 1996
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,008,909) $(1,069,948)
Adjustments to net loss:
Depreciation and amortization 154,415 132,000
Common stock issued for services 20,705 -
Net changes in assets and liabilities:
Accounts receivable (320,236) (196,876)
Inventories 279,935 (58,804)
Prepaid and other current assets 17,873 3,932
Accounts payable 131,656 136,322
Accrued payroll 88,344 48,774
Other accrued liabilities 6,090 60,462
Deferred revenue (125,000) (270,600)
----------- -----------
Net Cash Used in Operating Activities (12,755,127) (1,214,738)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Transfers to restricted cash - (622,673)
Purchase of securities available for sale - -
Sale of securities available for sale - -
Capital expenditures (287,620) (360,672)
Other assets (23,413) (4,033)
----------- -----------
Net Cash Used in Investing Activities (311,033) (987,378)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 12,015,000 950,000
Cash proceeds from common stock 475,000 -
----------- -----------
Net Cash Provided by Financing Activities 12,490,000 950,000
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and
cash equivalents (576,160) (1,252,116)
Cash and cash equivalents at beginning
of period 1,793,846 2,753,489
----------- -----------
Cash and cash equivalents at end
of period $ 1,217,686 $ 1,501,373
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
BIOJECT MEDICAL TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six-Months Ended
September 30,
1997 1996
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,001,483) $(2,293,844)
Adjustments to net loss:
Depreciation and amortization 261,920 304,200
Common stock issued for services 20,705 159,350
Net changes in assets and liabilities:
Accounts receivable (224,250) 155,273
Inventories 347,286 (320,039)
Prepaid and other current assets (18,145) 1,864
Accounts payable (6,469) (107,875)
Accrued payroll 26,879 26,707
Other accrued liabilities 37,096 69,240
Deferred revenue (250,000) (536,000)
----------- -----------
Net Cash Used in Operating Activities (13,806,461) (2,541,124)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Transfers to restricted cash - (795,836)
Purchase of securities available for sale - -
Sale of securities available for sale - 993,056
Capital expenditures (297,848) (647,152)
Other assets (34,483) (5,822)
----------- -----------
Net Cash Used in Investing Activities (332,331) (455,754)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 12,015,000 1,400,000
Cash proceeds from common stock 1,225,000 -
----------- -----------
Net Cash Provided by Financing Activities 13,240,000 1,400,000
----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and
cash equivalents (898,792) (1,596,878)
Cash and cash equivalents at beginning
of period 2,116,478 3,098,251
----------- -----------
Cash and cash equivalents at end
of period $ 1,217,686 $ 1,501,373
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
BIOJECT MEDICAL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
The consolidated financial statements of Bioject Medical Technologies
Inc. (the "Company"), include the accounts of Bioject Medical Technologies
Inc. ("BMT"), an Oregon Corporation, and its wholly owned subsidiary, Bioject
Inc., an Oregon Corporation ("BI"), and its 80.1% owned subsidiary, Bioject JV
Subsidiary Inc. ("JV"), an Oregon corporation. All significant intercompany
transactions have been eliminated. Although Bioject Inc. commenced operations
in 1985, the Company was formed in December 1992 for the purpose of acquiring
all of the capital stock of Bioject Medical Systems Ltd., a Company organized
under the laws of British Columbia, Canada, in a stock-for-stock exchange in
order to establish a U.S. domestic corporation as the publicly traded parent
company for Bioject Inc. and Bioject Medical Systems Ltd. Bioject Medical
Systems Ltd. was terminated in fiscal 1997. Bioject JV Subsidiary Inc. was
formed in October 1997 in connection with a joint venture arrangement with
Elan Corporation, plc ("Elan"). All references to the Company include
Bioject Medical Technologies Inc. and its subsidiaries, unless the context
requires otherwise.
The Company commenced operations in 1985 for the purpose of developing,
manufacturing and distributing a new drug delivery system. Since its
formation, the Company has been engaged principally in organizational,
financing, research and development, and marketing activities. In the last
quarter of fiscal 1993, the Company launched U.S. distribution of its
Biojector 2000 system primarily to the hospital and large clinic market.
The Company's products and manufacturing operations are subject to extensive
government regulation, both in the U.S. and abroad. In the U.S., the
development, manufacture, marketing and promotion of medical devices is
regulated by the Food and Drug Administration ("FDA") under the Federal Food,
Drug, and Cosmetic Act ("FFDCA"). In 1987, the Company received clearance from
the FDA under Section 510(k) of the FFDCA to market a hand-held CO2-powered
jet injection system. In June 1994, the Company received clearance from the
FDA under 510(k) to market a version of its Biojector 2000 system in a
configuration targeted at high volume injection applications. In October 1996,
the Company received 510(k) clearance for a non-needle disposable vial access
device. In March 1997, the Company received additional 510(k) clearance for
certain enhancements to its Biojector 2000 system. On September 30, 1997, the
Company entered into a joint venture agreement with Elan for the development
and commercialization of certain blood glucose monitoring technology which the
Company licensed from Elan (see note 2 regarding "Accounting Policies-Long-
term Debt and Development Agreement"). Such technology is also subject to
goverment regulation in the U.S. by the FDA and abroad by various agencies.
The Company's revenues to date have been derived primarily from licensing
and technology fees for the jet injection technology and more recently from
sales of the Biojector 2000 system and Biojector syringes to public health
clinics, flu immunization clinics and physicians offices. Future revenues will
depend upon acceptance and use by healthcare providers of the Company's jet
injection technology and successful development, regulatory approval and market
acceptance of its blood glucose monitoring technology. Uncertainties over
government regulation and competition in the healthcare industry may impact
healthcare provider expenditures and third party payer reimbursements and,
accordingly, the Company cannot predict what impact, if any, subsequent
healthcare reforms and industry trends might have on its business. In the
future the Company is likely to require substantial additional financing.
Failure to obtain such financing on favorable terms could adversely affect
the Company's business.
2. ACCOUNTING POLICIES:
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined in a
manner which approximates the first-in, first out (FIFO) method. Costs
utilized for inventory valuation purposes include labor, materials and
manufacturing overhead. Net inventories consist of the following:
September 30, March 31,
1997 1997
---------- ----------
Raw Materials $ 709,875 $ 815,868
Work in Process 9,763 9,763
Finished Goods 639,532 880,825
---------- ----------
$1,359,170 $1,706,456
========== ==========
LONG-TERM DEBT AND DEVELOPMENT AGREEMENT
On September 30, 1997, the Company signed a binding letter agreement (the
"Agreement")with Elan Corporation, plc ("Elan") the goals of which
included the development and commercialization of Elan's blood glucose
monitoring technology and a collaborative arrangement to further develop the
Company's needle-free technology. Among various terms, the Agreement provides
for:
- - Investment by Elan of $3 million in Bioject in exchange for approximately
2.7 million shares of common stock and a five year warrant to purchase 1.75
million shares of common stock at $2.50 per share.
- - Formation of JV which is owned 80.1% by Bioject and 19.9% by Elan to
further develop and commmercialize the blood glucose monitoring
technology.
- - Payment of a $15 million up front fee and substantial future milestone
payments and royalties on net sales in exchange for North American rights
to Elan's glucose monitoring technology.
- - The loan of $12.015 million to Bioject on a long-term promissory note bearing
interest at 9% per annum through December 31, 1997 and 12% thereafter for the
purpose of Bioject's investment in the new subsidiary's common stock.
- - The investment by Elan of $2.985 million in JV's common stock.
- - The commitment by Elan to further develop the blood glucose monitoring
technology until the earlier of human clinical trials, April 1, 1998 or
$2.5 million is expended by Elan.
- - The submission to Bioject's shareholders of a proposal to approve the
exchange of the long-term promissory note for $10 million plus accrued
interest of the Company's Series A Convertible Preferred Stock and $2.105
million of Series B Convertible Preferred Stock, with Series the A
Convertible Preferred Stock accruing dividends at the rate of 9% per annum
(compounded semi-annually) and the Series B Convertible Preferred Stock
accruing no mandatory dividends.
- - The submission to Bioject's shareholders of a proposal to approve the
issuance of up to $4 million of Bioject's Series C Convertible Preferred
Stock to Elan to provide Bioject with funds to contribute toward JV's
additional development funding needs.
- - The agreement by Elan to extend the license on a worldwide basis if the
shareholders approve the exchange of the $12.015 million promissory note
for convertible preferred stock.
- - The agreement by Elan to provide a grant of $500,000 toward development of
Bioject's needle-free technology in a pre-filled application.
Final closing agreements were signed among the Company, Elan and the Company's
new subsidiary on October 15, 1997. On that date the $3 million investment in
the Company was made by Elan and approximately 2.7 million shares of common
stock and a warrant to purchase 1.75 million shares at $2.50 per share were
issued. Elan loaned Bioject $12.015 million which Bioject transferred to the
new subsidiary in exchange for 801,000 shares of the subsidiary's common
stock. Elan invested $2.985 million in the new subsidiary in exchange for
199,000 shares of the subsidiary's common stock. The new subsidiary paid
$15 million to Elan as its initial payment on the licensing agreement.
The Company believes that the license is likely to run for most of the useful
life of the products that may be commercialized under it. The license itself
is contingent, on a country-by-country basis, on JV's diligently seeking and
obtaining regulatory marketing approval for licensed products and on JV's
timely commercial launch of the licensed products in countries where such
approval has been obtained. In addition, in the event that a significant
percentage of JV's equity is acquired by any one of a number of specified
companies identified by Elan as actual or potential competitors, or any other
entity to which Elan does not consent (which consent shall not be unreasonably
withheld in the case of such other, unspecified companies), the license may
be immediately terminated at the option of Elan.
As of September 30, 1997, the Company recorded an expense of $15 million
related to acquired in-process research and development expenditures. Such
expense relates to the blood glucose monitoring technology that has not
yet established technological feasibility and at present has no alternate
future uses. Accounting rules require that such costs be charged to expense
as incurred. The Company believes that these research and development efforts
will result in commercially viable products within the next three to four
years at an additional cost to the Company of at least $10 million, exclusive
of additional milestone payments due to Elan.
On a proforma basis, if the investment in Bioject had been made and the long-
term debt had been exchanged for convertible preferred stock, the consolidated
condensed financial position of the Company would have been as follows at
September 30, 1997 (in thousands of $):
Actual Adjustment Proforma
------ ---------- --------
Cash and
marketable securities $12,018 $2,800(a) $ 4,018
Other current assets 1,959 - 1,959
Property, equipment &
other assets, net 2,978 - 2,978
------- ------ -------
$6,155 $2,800 $8,955
======= ====== =======
Current liabilities $1,130 - $1,130
Due to Elan 12,015 (12,015)
Shareholders' equity, net (6,990) 14,815(a) 7,825
------ ------ ------
$6,155 $2,800 $8,955
====== ====== ======
(a) Net of issuance costs
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's expenses to
conform to the current year's presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. SEGMENT INFORMATION
The following consolidated sets forth the results of operations and
financial position of the Company for its two segments of operations - needle-
free injection technology and blood glucose monitoring technology
(in thousands of $):
Qtr. Ended Six Months Ended
September 30, September 30,
------------- ----------------
1997 1996 1997 1996
----- ----- ---- ----
NEEDLE-FREE INJECTION
RESULTS OF OPERATIONS:
REVENUES $770 $613 $1,237 $1,105
EXPENSES:
Manufacturing 593 537 1,051 1,044
R&D 218 350 472 833
Selling, general
& administrative 979 824 1,732 1,572
Acquired R&D - - - -
Other (income) (26) (28) (32) (50)
---- ----- ------ ------
(994) (1,070) (1,986) (2,294)
MINORITY
INTEREST ALLOCATION - - - -
---- ----- ------ ------
NET LOSS $(994) $(1,071) $(1,986) $(2,294)
===== ====== ======= ======
Qtr. Ended Six Months Ended
September 30, September 30,
------------- ----------------
1997 1996 1997 1996
----- ----- ---- ----
GLUCOSE MONITORING
RESULTS OF OPERATIONS:
REVENUES - - - -
EXPENSES:
Manufacturing - - - -
R&D - - - -
Selling, general
& administrative - - - -
Acquired R&D 15,000 - 15,000 -
Other (income) - - - -
----- ------ ------ ------
(15,000) - (15,000) -
MINORITY
INTEREST ALLOCATION 2,985 - 2,985 -
------ ------- -------- ------
NET LOSS $(12,015) $ - $(12,015) $ -
======== ======== ======== ======
4. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying, unaudited consolidated financial statements do not
include all information and footnote disclosures normally included in an
audited financial statement. However, in the opinion of management, all
adjustments (which include only normal, recurring adjustments except as
described below) necessary to present fairly the financial position, cash
flows, and results of operations have been made. It is suggested that these
statements be read in conjunction with the financial statements included in
the Company's Annual Report on Form 10-K for the year ended March 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company has been focused on expanding sales of its Biojector 2000
needle-free injection management system to the public health and flu
immunization markets. It has also been focusing on raising additional capital
and on expanding its business opportunities with large pharmaceutical company
strategic partners.
On September 30, 1997, the Company signed a binding letter agreement (the
"Agreement") with Elan Corporation, plc ("Elan") the goals of which
included commercialization of Elan's blood glucose monitoring technology and
a collaborative arrangement to further develop the Company's needle-free
technology and the development. Among various terms, the Agreement provides
for:
- - Investment by Elan of $3 million in Bioject in exchange for approximately
2.7 million shares of common stock and a five year warrant to purchase 1.75
million common shares at $2.50 per share.
- - Formation of JV which is owned 80.1% by Bioject and 19.9% by
Elan to further develop and commmercialize the blood glucose monitoring
technology.
- - Payment of a $15 million up front fee and substantial future milestone
payments and royalties on net sales in exchange for North American rights
to Elan's glucose monitoring technology.
- - The loan of $12.015 million to Bioject on a long-term promissory note bearing
interest at 9% per annum through December 31, 1997 and 12% thereafter for the
purpose of Bioject's investment in the new subsidiary's common stock.
- - The investment by Elan of $2.985 million in JV's common stock.
- - The commitment by Elan to further develop the blood glucose monitoring
technology until the earlier of human clinical trials, April 1, 1998 or
$2.5 million is expended by Elan.
- - The submission to Bioject's shareholders of a proposal to approve the
exchange of the long-term promissory note for $10 million plus accrued
interest of the Company's Series A Convertible Preferred Stock and $2.105
million of Series B Convertible Preferred Stock, with the Series A
Convertible Preferred Stock accruing dividends at the rate of 9% per
annum (compounded semi-annually) and the Series B Convertible Preferred
Stock accruing no mandotory dividends.
- - The submission to Bioject's shareholders of a proposal to approve the
issuance of up to $4 million of Bioject's Series C Convertible Preferred
Stock to Elan to provide Bioject with funds to contribute toward JV's
additional development funding needs.
- - The agreement by Elan to extend the license on a worldwide basis if the
shareholders approve the exchange of the $12.015 million promissory note
for convertible preferred stock.
- - The agreement by Elan to provide a grant of $500,000 toward development of
Bioject's needle-free technology in a pre-filled application.
Final closing agreements were signed among the Company, Elan and the Company's
new subsidiary on October 15, 1997. On that date the $3 million investment in
the Company was made by Elan and approximately 2.7 million shares of common
stock and a warrant to purchase 1.75 million shares at $2.50 per share were
issued. Elan loaned Bioject $12.015 million which Bioject transferred to the
new subsidiary in exchange for 801,000 shares of the subsidiary's common
stock. Elan invested $2.985 million in the new subsidiary in exchange for
199,000 shares of the subsidiary's common stock. The new subsidiary paid
$15 million to Elan as its initial payment on the licensing agreement.
The Company believes that the license is likely to run for most of the useful
life of the products that may be commercialized under it. The license itself
is contingent, on a country-by-country basis, on JV's diligently seeking and
obtaining regulatory marketing approval for licensed products and on JV's
timely commercial launch of the licensed products in countries where such
approval has been obtained. In addition, in the event that a significant
percentage of JV's equity is acquired by any one of a number of specified
companies identified by Elan as actual or potential competitors, or any other
entity to which Elan does not consent (which consent shall not be unreasonably
withheld in the case of such other, unspecified companies), the license may
be immediately terminated at the option of Elan.
As of September 30, 1997, the Company recorded an expense of $15 million
related to acquired in-process research and development expenditures. Such
expense relates to the blood glucose monitoring technology that has not yet
established technological feasibility and at present has no alternative
future uses. Accounting rules require that such costs be charged to expense
as incurred. The Company believes that these research and development efforts
will result in commercially viable products within the next three to four
years at an additional cost to the Company of at least $10 million, exclusive
of additional milestone payments due to Elan. Such technology is also
subject to government regulation in the U.S. by the FDA and abroad
by various agencies.
In connection with the Elan investment, the Company engaged the consulting
services of Raphael, LLC, to provide the initial introduction to Elan and advice
regarding the transaction. For its services, Raphael, LLC, will receive a fee
of $150,000 on January 2, 1998 and, if shareholders approve at a special
meeting, a five year warrant to purchase 100,000 shares of the Company's
common stock at $.85 per share. If shareholders do not approve the issuance
of the warrant, Raphael, LLC, will receive an additional cash payment in an
amount to be negotiated.
During the quarter ended September 30, 1997, the Company engaged the
consulting services of Mr. Robert Gonnelli for the purposes of overseeing the
Company's investor relations functions, providing input to sales and
marketing, advising Bioject's Board of Directors on various matters,
identifying new manufacturing software and providing strategic and financial
advice. For his services, Mr. Gonnelli will receive compensation as follows:
a. Five year warrants to purchase 50,000 shares of Bioject common stock at
$1.10 per share granted at the end of each of two fiscal years for his
investor relations consulting services.
b. At the end of fiscal 1998 and 1999, a five year warrant to purchase 100,000
and 50,000 shares, respectively, of common stock at $1.10 per share
prorated based on product sales achieved to the applicable fiscal year's
sales budget, for his sales and marketing advice.
c. The amount of $5,000 per month plus expenses for all other consulting
services.
In the future, the Company will incur a non-cash charge to operating results
as the result of the issuance of the warrants to Mr. Gonnelli. The fees are
charged to expense as paid. The agreement is cancellable at either party's
option upon 30 days written notice. If Bioject terminates the agreement
without cause, all accrued and unpaid fees and expenses are due and all
unearned warrants are immediately issuable.
In September 1997, the Company granted to Mr. Gonnelli a five year warrant to
purchase 200,000 shares of common stock at $1.00 per share and 150,000 shares
of common stock at $1.10 per share for his guarantee of back-up financing
should Elan not have completed its $3 million equity investment. The effect
of this guarantee will be reflected as an offset of proceeds from the Elan
investment in the Company's common stock.
During the quarter, the Company also engaged the service of Mr. Jim Weersing
for his financial and operating advice. Mr. Weersing is paid fees of $10,000
per month plus expenses. The agreement is cancellable upon 30 days notice.
The Company's revenues to date have not been sufficient to cover
operating expenses. The Company believes that as its jet injection
products achieve market acceptance and the volume of sales increases and if
its product costs are further reduced, its costs of goods with respect to the
jet injection products as a percentage of sales will decrease and the
Company will realize positive margins; however the Company
now faces substantial research and development costs of the glucose monitoring
technology. Since no revenue from glucose monitoring products is expected
for a number of years, the Company expects larger losses unless sales of the
Biojector 2000 increase substantially. (See "Forward Looking
Statements") The level of sales required to generate net income will be
affected by a number of factors including the pricing of the Company's
products, its ability to attain efficiencies that can be attained through
volume and automated manufacturing, and the impact of inflation on the
Company's manufacturing and other operating costs. There can be no assurance
that the Company will be able to successfully implement additional
manufacturing cost reductions or sell its jet injection products at prices or
in volumes sufficient to achieve profitability or offset increases in the
Company's research and development expenses or other costs should they occur.
Revenues and results of operations have fluctuated and can be expected to
continue to fluctuate significantly from quarter to quarter and from year to
year. Various factors may affect quarterly and yearly operating results
including (i) timing of new product introductions by the Company and its
competition, (ii) the costs of blood glucose monitoring development and
commercialization, (iii) length of time to close product sales, (iv) customer
budget cycles, (v) implementation of cost reduction measures,
(vi) uncertainties and changes in purchasing due to third party payor policies
and proposals relating to national healthcare reform, and (vii) the timing and
amount of payments under technology development agreements.
During fiscal 1998, the Company will continue to focus its efforts on
expanding sales, reducing the cost of its products, developing an injector
for Hoffmann-La Roche, pursuing additional alliances with
pharmaceutical companies, developing the blood glucose monitoring technology
and conserving its fiscal resources. The Company does not expect to report
net income from operations in fiscal 1998. (See Forward Looking Statements).
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996.
Product sales increased from $343,000 in the second quarter of fiscal
1997 to $645,000 in the second quarter of fiscal 1998. Sales in the second
quarter of fiscal 1997 and in the second quarter of fiscal 1998 consisted
primarily of sales for flu season immunizations. The increase in product sales
was directly attributable to new flu season customers and to expansion of
sales to existing flu season customers. License and technology fees decreased
from $271,000 in the second quarter of fiscal 1997 to $125,000 in the second
quarter of fiscal 1998 reflecting completion of a self-injector project. Fees
in the second quarter of fiscal 1998 consisted entirely of
product development fees for work under an agreement with Hoffmann-La Roche.
Manufacturing expense increased from the second quarter of fiscal 1997 to
the second quarter of fiscal 1998 by $55,000. This increase was the result
of the higher product sales and, therefore, increased cost of sales offset by
reduced syringe labor costs and decreased manufacturing overhead. Research and
development expenses declined from $350,000 in the second quarter of fiscal
1997 to $218,000 in the second quarter of fiscal 1998 due to completion of the
self-injector project. Selling, general and administrative expense increased
from $825,000 in the second quarter of fiscal 1997 compared to $979,000 in the
second quarter of fiscal 1998. The increase was due to higher flu season
sales and marketing expenses and to increased consultant fees.
In connection with the agreement entered into with Elan on September 30,
1997, the Company paid an up-front $15 million licensing fee for access to
Elan's blood glucose monitoring technology. In accordance with generally
accepted accounting principles, the Company expensed this payment as acquired
in-process research and development costs. Net of the 19.9% minority interest
allocation, this resulted in $12.015 million of increased loss in the
second quarter of fiscal 1998. There was no such corresponding charge in the
second quarter of fiscal 1997.
Other income consists of earnings on available cash balances and varies
based on available cash balances and interest rates.
On a segment basis the needle-free injection operations reported a net
loss of $994,000 for the second quarter of fiscal 1998 compared to a loss of
$1.1 million for the second quarter of fiscal 1997. The improved performance
is directly attributable to the increase in product sales and the decrease in
product costs and manufacturing overhead.
The glucose monitoring segment reported a net loss of $12 million for
the second quarter of fiscal 1998 attributable to the one-time expense of in-
process research and development costs. Due to the recent formation of this
business segment, there was no corresponding income or expense in the second
quarter of fiscal 1997.
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1996. Revenues for the six months ended September 30, 1997 consist of $987,000
in product sales and $250,000 in product development fees. This compares to
$520,000 from product sales and $586,000 in product development fees earned in
the comparable period in the prior year. The increase in product revenues was
directly attributable to increased public health and flu immunization sales.
Licensing and technology fees in the first six months of fiscal 1998 consist
entirely of product development fees recognized as revenue under the
Hoffmann-La Roche contract and decreased from the same period in the prior
year due to completion of a self injector project.
Manufacturing costs remained constant at $1.0 million for the first six
months of the prior and current fiscal years. The current year's expense
reflects increased cost of sales due to higher unit sales offset by improved
product costs and decreased manufacturing overhead. Research and product
development expenses decreased approximately $415,000 due to completion of
the self injector project. Selling, general and administrative costs increased
approximately $161,000 due primarily to increased flu season sales and
marketing expenses and increased outside consultant fees.
Acquired in-process research and development expense of $15 million in the
first six months of fiscal 1998 compared to no expense in the same period in
the prior year resulted from the recently announced transaction with Elan and
the payment of the upfront licensing fee.
Other income consists of earnings on available cash balances and fluctuates
based on available cash balances and interest rates.
On a segment basis, the needle-free injection operations increased product
sales from $520,000 in the fist six months of fiscal 1997 to $987,000 in the
first six months of fiscal 1998. Overall losses decreased from $2.3 million
in the prior year to $1.9 million in the first six months of the current year
due to improved product margins.
The glucose monitoring segment reported a net loss of $12 million due to
the start-up payment to Elan. There were no corresponding operations in the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1985, the Company has financed its operations,
working capital needs and capital expenditures primarily from private
placements of securities, exercises of stock options, proceeds received from
its initial public offering in 1986, proceeds received from a public offering
of Common Stock in November 1993, licensing and technology revenues and more
recently from sales of products and a private placements of common stock
completed in fiscal 1996, 1997 and 1998. Net proceeds received upon issuance
of securities from inception through September 30, 1997 totalled approximately
$41.3 million.
Cash, cash equivalents and marketable securities totalled, $1.2 million
at September 30, 1997 and $2.1 million at March 31, 1997. The decrease
resulted primarily from operating losses offset by $1.225 million of net
proceeds from a private placement of 2.9 million shares common stock and five
year warrants to purchase 1.45 million shares of common stock at $.71 per
share completed in June and July 1997. Subsequent to quarter end on October
15, 1997, the Company completed a private placement in which the Company
received from Elan net proceeds of $2.8 million in exchange for 2.7 million
shares of common stock and five year warrants to purchase 1.75 million shares
of common stock at $2.50 per share. If the private placement had been
completed at September 30, 1997, cash and marketable securities would have
totalled $4.0 million and the deficit in net equity would have been reduced
to $4.2 million.
Inventories decreased from $1.7 million at March 31, 1997 to $1.4 million
at September 30, 1997, due to sales of the Company's syringe products
exceeding manufacturing production.
In connection with the Elan transaction, the Company incurred long-term
debt of $12.015 million. This debt bears interest at 9% per annum until
December 31, 1997 and 12% per annum thereafter, with interest only payable
quarterly commencing April 1998 and unpaid principal and interest due October
15, 2001. The debt was incurred to permit the Company to fund its share of
the license payment to Elan. Under terms of the agreement with Elan, if the
Company's shareholders approve, the debt plus accrued interest will be
exchanged for Series A and Series B convertible preferred stock of Bioject.
Of the total outstanding principal and accrued interest on the note at the date
of exchange, $10 million plus accrued interest on the note will be exchanged
for Series A Convertible Preferred Stock at $15.00 per share. The Series A
Convertible Preferred Stock will accrue dividends at the rate of 9% per annum
(compounded semi-annually). The remaining $2.015 million outstanding under
the note will be exchanged for Series B Convertible Preferred Stock at $15.00
per share, which will not accrue dividends.
JV will incur significant expenses in connection with the research and
development of the glucose monitoring technology as well as substantial
milestone payments to Elan upon the occurrence of certain events. Elan
has committed resources of up $2.5 million of certain research and
development expenses. If the shareholders approve, the Company
will issue to Elan up to $4 million of Series C convertible preferred stock
to assist Bioject in funding a portion of the development costs of the
glucose monitoring technology. Unless further financing is provided by
Bioject or Elan, additional financing will be the responsibility of JV which
may be required to raise such financing through debt or equity issuances.
There can be no assurance that Elan or Bioject will provide such financing
to JV or that JV will be able to raise additional financing on favorable
terms or at all. A special meeting of the Company's shareholders has been
scheduled for December 1997 to approve the exchange of the long-term debt
for the Series A and Series B Convertible Preferred Stock and to approve
the issuance of the Series C Convertible Preferred Stock in connection
with these transactions.
The effect of the transactions with Elan has resulted in the Company being
in a deficit equity position at September 30, 1997. Although the Company has
sufficient cash and other resources for current operations through fiscal year
end and the second quarter of fiscal 1999, under rules of the National
Association of Security Dealers Automatic Quotation System (NASDAQ), the
Company must maintain, in addition to other requirements, a net tangible
assets position of $4.0 million or more in order to continue to be listed on
the exchange. If the Company's shareholders approve the exchange of
the $12 million debt for preferred stock, the Company will then be in
compliance with the net tangible assets requirement.
The Company believes that its current cash position and expected advances
from Elan for JV operations combined with revenues and other cash receipts
will be adequate to fund the Company's operations through fiscal 1998 and the
second quarter of fiscal 1999. (See "Forward Looking
Statements"). Thereafter, the Company will require additional financing.
However, unforeseen costs and expenses or lower than anticipated cash
receipts from product sales or research and development activities could
accelerate the financing requirement. The Company has been successful in
raising additional financing in the past and believes that sufficient funds
will be available to fund future operations. (See "Forward Looking
Statements"). However, there can be no assurance that such financing will be
available on favorable terms or at all. Failure to obtain additional financing
when required would significantly restrict the Company's operations and
ability to continue product development, and materially adversely affect the
Company's business. The Company has no banking line of credit or other
established source of borrowing.
FORWARD LOOKING STATEMENTS
Certain statements in this report constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and factors
include: the market acceptance of the Company's jet injection products,
the Company's ability to develop the glucose monitoring products presently
contemplated, the possibility of delays in development of the glucose
monitoring technology, the availability of adequate additional financing,
the ownership and protection of proprietary technology relating to the
glucose monitoring technology, the possibilities that competing monitoring
technology could be developed by others and other risks are described in
more detail in the Company's Annual Report on Form 10-K and other
S.E.C. filings.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None during the quarter ended September 30, 1997.
Item 2. Changes in Securities
In September 1997 the Company issued to Robert R. Gonnelli, for his
assistance with the equity placement, a warrant to purchase a total
of 350,000 shares of common stock of the Company, of which 200,000
may be exercised at a price of $1.00 and the remainder at a price
of $1.10. In addition, upon the achievement of certain sales
goals and other services over the next two fiscal years, the Company
will issue to Mr. Gonnelli further warrants.
In June and July 1997, the Company completed a private placement
(the "Placement") of 2,906,977 units, each unit consisting of one
share of Common Stock and one warrant (a "Warrant") to purchase
one-half share of Common Stock at an exercise price of $0.71 per
share. The Warrants, which are exercisable in whole or from time
to time in part, expire five years from the date of issuance, and
are transferable subject to compliance with all applicable federal
and state securities laws. Proceeds to the Company (excluding
estimated expenses) totaled $1,250,000.
Item 3. Defaults Upon Senior Securities
None during the quarter ended September 30, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual general meeting of the shareholders of the Company
held at 9:00 am on September 11, 1997 in Portland, Oregon, the
following matters were submitted to a vote of the shareholders:
Election of directors. The slate of directors was approved by
the Company's shareholders with no director receiving less than
16,620,814 votes in favor and no more than 191,442 withheld. David
de Weese received 16,620,814 votes in favor and 191,442 votes
withheld; Grace K. Fey received 16,643,321 votes in favor and
168,935 vote withheld; William A. Gouveia received 16,643,321 votes
in favor and 168,935 votes withheld; Eric Herfindal received
16,643,321 votes in favor and 168,935 votes withheld; James C.
O'Shea received 16,642,321 votes in favor and 169,935 votes
withheld; Richard Plestina received 16,643,321 votes in favor and
168,935 votes withheld; and John Ruedy, MD, received 16,638,821
votes in favor and 173,435 votes withheld. Shares voted totalled
16,812,256.
Option repricing proposal. The proposal to reprice certain stock
options granted to non-employee directors passed receiving
14,932,369 votes in favor, 722,979 votes against and 188,039 votes
abstaining, out of shares voted totalling 15,843,387.
There were 22,447,390 common shares outstanding as of the date of
record of July 25, 1997.
Item 5. Other Information
None during the quarter ended September 30, 1997.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS:
REPORTS ON FORM 8K:
Form 8-K filed on October 1, 1997, Elan news release.
Form 8-K filed on October 3, 1997, Elan agreement with
Bioject Medical Technologies Inc. with confidential
treatment of certain portions of Exhibit 10.39.
Form 8-K filed on October 21, 1997, Elan agreement.
Form 8-K filed on October 31, 1997, Elan agreement with
Exhibits 10.41, 10.42 and 10.43.
Form 8-K filed on November 3, 1997, Elan agreement with
Bioject Medical Technologies Inc. final agreement with
confidential treatment of certain portions - Exhibits 10.40
through 10.46.
SIGNATURE
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.
BIOJECT MEDICAL TECHNOLOGIES INC.
(Registrant)
Date: November 14, 1997 /S/ James C. O'Shea
---------------------------------
James C. O'Shea
Chairman, Chief Executive Officer
and President
/S/ Peggy J. Miller
---------------------------------
Peggy J. Miller
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS
FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
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<PERIOD-END> SEP-30-1997
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<SECURITIES> 0
<RECEIVABLES> 536,106
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<INVENTORY> 1,359,170
<CURRENT-ASSETS> 3,176,329
<PP&E> 4,357,224
<DEPRECIATION> 1,709,258
<TOTAL-ASSETS> 6,154,759
<CURRENT-LIABILITIES> 1,129,993
<BONDS> 12,015,000
0
0
<COMMON> 41,281,441
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<SALES> 987,467
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