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 December 31, 1998
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)
(Registrant's telephone number, including area code) (503) 639-7221
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 December 31, 1998 there were 28,920,886 outstanding shares of common stock of
the registrant.
<PAGE>
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 Its blood glucose monitoring system operations
are conducted by Marathon Medical Technologies Inc.("MMT"), formerly 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 third quarter of the year ending March
31, 1999. 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
December 31, 1998 and December 31, 1997
- Consolidated Statements of Operations for the nine months ended
December 31, 1998 and December 31, 1997
- Consolidated Balance Sheets dated December 31, 1998 and March
31, 1998
- Consolidated Statements of Cash Flows for the quarters ended
December 31, 1998 and December 31, 1997
- Consolidated Statements of Cash Flows for the nine months ended
December 31, 1998 and December 31, 1997
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended
December 31,
1998 1997
---------- ----------
REVENUES:
Net sales of products $ 51,476 $ 313,153
Licensing/technology fees 887,283 125,000
----------- ---------
938,759 438,153
----------- ---------
EXPENSES:
Manufacturing 320,687 389,048
Research and development 1,006,446 205,146
Selling, general and administrative 719,067 901,270
----------- ------------
Total operating expenses 2,046,200 1,495,464
----------- ------------
Operating loss (1,107,441) (1,057,311)
Interest expense -- (225,281)
Other income 34,815 32,061
------------ ------------
Loss before taxes (1,072,626) ( 1,250,531)
Provision for income -- --
Minority interest allocation -- --
------------ ------------
Net loss (1,072,626) ( 1,250,531)
Preferred Stock dividend (361,234) --
------------ ------------
Net loss allocable to common
shareholders $ (1,433,859) $( 1,250,531)
=========== ============
Basic and diluted net loss per
common share $ (.05) $ (.05)
=========== ============
Shares used in per share calculation 28,908,264 24,903,892
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine-Months Ended
December 31,
1998 1997
------------ -----------
REVENUES:
Net sales of products $ 505,288 $ 1,300,620
Licensing/technology fees 1,912,842 375,000
----------- ----------
2,418,130 1,675,620
------------ ----------
EXPENSES:
Manufacturing 1,091,015 1,440,684
Research and development 3,086,110 677,127
Selling, general and administrative 2,399,569 2,633,934
Acquired in-process R&D -- 15,000,000
----------- ------------
Total operating expenses 6,576,694 19,751,745
----------- ------------
Operating loss (4,158,564) (18,076,125)
Interest Expense -- (225,281)
Other (income) 91,977 64,392
----------- ------------
Loss before taxes (4,066,587) (18,237,014)
Provision for income taxes -- --
Minority interest allocation -- 2,985,000
----------- ------------
Net loss $ (4,066,587) $(15,252,014)
Preferred Stock dividend (1,056,496) --
----------- ------------
Net loss allocable to
common shareholders $ (5,123,083) $(15,252,014)
Basic and diluted net loss per common share $ (.18) $ (.68)
=========== =============
Shares used in per share calculation 28,111,400 22,356,973
=========== =============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, March 31,
1998 1998
----------- ----------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 2,389,254 $ 1,900,839
Accounts receivable, net 333,260 153,721
Inventories 2,019,638 1,891,970
Other current assets 62,465 75,292
--------- ----------
Total current assets 4,804,617 4,021,822
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,542,515 2,241,904
Production molds 1,953,267 1,945,267
Furniture and fixtures 192,633 158,477
Leasehold improvements 101,615 94,115
---------- -----------
4,790,030 4,439,763
Less - Accumulated depreciation (2,483,325) (1,947,006)
---------- ------------
2,306,705 2,492,757
Other assets 512,471 463,031
----------- ------------
$ 7,623,793 $ 6,977,610
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,017,226 $ 497,180
Accrued payroll 181,354 218,424
Other accrued liabilities 415,840 277,122
Deferred revenue 124,999 10,000
----------- -----------
Total current liabilities 2,739,419 1,002,726
SHAREHOLDERS' EQUITY:
Preferred stock, no par, 10,000,000
shares authorized; no shares issued
and outstanding
Series A Convertible-692,694 shares,
$15 stated value 8,826,052 7,826,157
Series B Convertible -134,333 shares,
$15 stated value 1,547,894 1,491,289
Common stock, no par, 100,000,000 shares
authorized; issued and outstanding
28,920,886 and 25,503,038 shares
at December 31, 1998 and
March 31, 1998, respectively 50,533,370 47,557,297
Accumulated deficit (56,022,942) (50,899,859)
------------- --------------
Total shareholders' equity 4,884,374 5,974,884
------------- --------------
$7,623,793 $ 6,977,610
============= ==============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BIOJECT MEDICAL TECHNOLOGIES INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine-Months Ended
December 31,
1998 1997
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss allocable to common shareholders $(5,123,083) $ (15,252,014)
Adjustments to net loss:
Depreciation and amortization 565,542 390,252
Contributed capital for services 32,242 82,941
Acquired in process R&D 12,015,000
Preferred stock dividends 1,056,496 --
Net changes in assets and liabilities:
Accounts receivable (179,539) (201,307)
Inventories (127,668) (134,938)
Other current assets 12,827 (9,309)
Accounts payable 1,520,049 (80,834)
Accrued payroll (37,070) (13,459)
Other accrued liabilities 138,720 281,997
Deferred revenue 114,999 (250,000)
----------- -----------
Net cash used in operating activities (2,026,485) (3,171,671)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale -- (1,967,749)
Acquisition of blood glucose monitoring
technology -- (15,000,000)
Property and equipment (350,267) (99,318)
Other assets (78,664) (43,578)
----------- -----------
Net cash used in investing activities (428,931) (17,110,645)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt -- 12,015,000
Cash proceeds from common stock 2,943,831 4,167,828
Proceeds from minority interest capital
Investment in joint venture subsidiary -- 2,985,000
------------ -------------
Net cash provided by financing activities: 2,943,831 19,167,828
------------- -------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and
cash equivalents 488,415 (1,114,488)
Cash and cash equivalents at beginning
of period 1,900,839 2,116,478
------------- ----------
Cash and cash equivalents at end
of period $2,389,254 $ 1,001,990
========= =========
The accompanying notes are an integral part of these consolidated financial
Statements.
<PAGE>
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, its wholly owned subsidiary, Bioject Inc., an
Oregon Corporation ("BI"), and its 80.1% owned subsidiary, Marathon Medical
Technologies Inc. ("MMT"), formerly Bioject JV Subsidiary Inc.("JV"), an Oregon
corporation. All significant intercompany transactions have been eliminated.
Bioject Inc. commenced operations in 1985. Bioject Medical Technologies, Inc.
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 of 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 venture arrangement with Elan Corporation, plc ("Elan"). On December 7,
1998, the Board of Directors of the JV approved the name change to Marathon
Medical Technologies Inc. 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, sales and marketing activities. 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 needle-free injection system. In June 1994, the
Company received clearance from the FDA under Section 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 needle-free 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 to develop and commercialize certain blood glucose
monitoring technology, which the Company licensed from Elan. The blood glucose
monitoring technology is also subject to government regulation in the U.S. by
the FDA and abroad by various agencies. On March 23,1998 the Company entered
into a transaction with Vitajet Corporation ("Vitajet") whereby the Company
acquired, along with certain other assets, the rights to the Vitajet(R), a
spring-powered, needle-free self-injection device which currently has regulatory
clearance for administering injections of insulin.
The Company's revenues to date have been derived primarily from licensing and
technology fees for the needle-free injection technology and from sales of the
Biojector 2000 system, including Biojector syringes, vial adapters and CO2
cartridges. More recently, the Company has derived modest revenues from sales of
the Vitajet and related disposable supplies. Future revenues will depend upon
i)acceptance and use of the Company's needle-free injection technology by
healthcare providers; ii) successful realization of licensing, technology and
product revenues under existing and future strategic corporate alliances; and
iii) successful development, regulatory approval and market acceptance of its
blood glucose monitoring technology. Uncertainties created by government
regulation and competition in the healthcare industry may impact healthcare
provider expenditures and third party payer reimbursements. 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 materially 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:
December 31, March 31,
1998 1998
----------- -----------
Raw Materials $ 762,704 $ 754,715
Work in Process 10,802 9,763
Finished Goods 1,246,132 1,127,492
----------- -----------
$ 2,019,638 $ 1,891,970
=========== ===========
<PAGE>
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's expenses to conform
to the current year's presentation.
NET LOSS PER SHARE
The following common stock equivalents are excluded from earnings per share
calculations as their effect would have been antidilutive:
Nine Months Ended December 31, 1998 1997
--------- ---------
Warrants and stock options 8,535,953 14,371,101
Convertible preferred stock 8,797,722 --
--------- ----------
16,806,223 14,351,101
========== ==========
3. RELATED PARTY TRANSACTIONS
A significant portion of the research and development expenses of the blood
glucose monitoring business segment are incurred by Elan and billed to the
Company under a contractual arrangement between the two companies. Included in
accounts payable and other accrued liabilities at December 31, 1998 is
approximately $1.94 million owed to Elan under this arrangement.
4. SEGMENT INFORMATION
The Company has adopted the segment reporting requirements of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. At present,
the Company has two reportable segments which offer, or are developing different
products and are managed separately. Each business requires different technology
and marketing strategies. The following sets forth the unaudited results of
operations of the Company for its two segments of operations - needle-free
injection technology and blood glucose monitoring technology:
Needle-free Injection Needle-free Injection
Quarter Ended Nine-Months Ended
December 31, December 31,
------------------ -----------------------
1998 1997 1998 1997
------- ------- ------- -------
REVENUES:
Net sales of products $ 51,476 $ 313,153 $505,288 $1,300,620
Licensing/technology fees 887,283 125,000 1,912,842 375,000
------- ------- --------- -------
938,759 438,153 2,418,130 1,675,620
------- ------- --------- --------
EXPENSES:
Manufacturing 320,687 389,048 1,091,015 1,440,684
Research & development 239,711 205,146 720,621 677,127
Selling, general-
& administrative 560,609 862,774 1,926,303 2,595,438
--------- --------- --------- ---------
Total operating expenses 1,121,007 1,456,968 3,737,939 4,713,249
--------- --------- --------- --------
Operating loss (182,248) (1,018,815) (1,319,809) (3,037,629)
Other income/(expense) 34,816 (193,220) 91,977 (160,889)
------- ------- --------- -------
Loss before taxes (147,432) (1,212,035) (1,227,832) (3,198,518)
Provision for income taxes - - - -
------- ------- -------- ---------
Net loss $(147,432) $(1,212,035) $(1,227,832) (3,198,518)
======= ========= ========= =========
<PAGE>
<TABLE>
Blood glucose Monitoring Blood glucose Monitoring
Quarter Ended Nine-Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
REVENUES:
<S> <C> <C> <C> <C>
Net sales of products $ -- $ -- $ -- $ --
Licensing/technology fees -- -- -- --
--------- ---------- ---------- ----------
-- -- -- --
--------- ---------- ---------- ----------
EXPENSES:
Manufacturing -- -- -- --
Research & development 766,735 -- 2,365,489 --
Selling, general
& administrative 158,458 38,496 473,266 38,496
Acquired in-process R&D -- -- -- 15,000,000
-------- ---------- ---------- ----------
Total operating expenses 925,193 38,496 2,838,755 15,038,496
-------- ---------- ---------- ----------
Operating loss (925,193) (38,496) (2,838,755) (15,038,496)
Other income -- -- -- --
-------- ---------- ---------- ----------
Loss before taxes (925,193) (38,496) (2,838,755) (15,038,496)
Provision for income taxes -- -- -- --
Minority interest allocation -- -- -- 2,985,000
-------- ---------- ---------- ----------
Net loss $ (925,193) $ (38,496) $(2,838,755) (12,053,496)
=========== ============ =========== ===========
</TABLE>
At December 31, 1998, the blood glucose monitoring business segment had cash on
hand of $3,800, net property and equipment, at cost, of $252,000 and accounts
payable of $1.8 million and accrued expenses of $247,000. The blood glucose
monitoring business segment had no other significant assets or liabilities at
December 31,1998. Accordingly, after separating the blood glucose monitoring
business segment assets and liabilities, the accompanying balance sheets
effectively represent the assets and liabilities of the needle-free injection
business segment. In the future, certain proceeds from the sale of equity or
issuance of debt by MMT may be restricted to MMT operations
5. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The objective of SFAS 130
is to report a measure of all changes in the equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of fiscal 1999. Comprehensive loss did not differ from currently reported net
loss in the periods presented.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for all
derivative instruments. SFAS 133 is effective for fiscal years beginning after
June 15, 1999. The Company does not have any derivative instruments and,
accordingly, the adoption of SFAS 133 will have no impact on the Company's
financial position or results of operations.
6. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying, unaudited consolidated financial statements do not include all
information and footnote disclosures normally included in audited financial
statements. However, in the opinion of management, all adjustments (which
include only normal, recurring adjustments) 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/A for the year
ended March 31, 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is placing primary sales and marketing emphasis on business
development efforts to seek relationships with major pharmaceutical and
biotechnology companies in key niche markets to market its needle-free injection
products for specific applications and to develop other application-specific
devices and companion syringes. At the same time, with a reduced direct
salesforce, the Company continues to focus on maintaining its penetration into
the public health and flu immunization markets with its Biojector 2000
needle-free injection system. The Company is also directing its sales efforts at
creating sales of the Biojector 2000 system to the U.S. military.
In July 1998, the Company entered into a short-term agreement with Merck & Co,
Inc. ("Merck"), a worldwide leader in the development, manufacture and sale of a
broad range of human and animal health products and services. The agreement
provides Merck the rights to use the Biojector 2000 jet injection system with
selected Merck vaccines. The Company believes that this agreement is the first
step in establishing a long-term relationship between the two companies whereby
Merck will use the Company's needle-free injection technology in connection with
certain of its vaccines. See "Forward Looking Statements". In the current
quarter, the Company received a $750,000 nonrefundable payment under the current
agreement between the Company and Merck. This is the second and final payment
for a total of $1.5 million scheduled to be paid under the agreement. Also
during the current quarter, the Company and Merck continued negotiating a
long-term relationship between the two companies.
There can be no assurance that such long-term relationship will be established.
See "Forward Looking Statements." Through its joint venture with Elan, the
Company is actively engaged in developing its continuous blood glucose
monitoring technology. To date, the Company continues to develop and test a
clinical prototype. In April 1998, a human clinical study of six patients with a
prototype of the blood glucose monitoring device was conducted. The Company is
planning further preliminary clinical studies in the spring of 1999. Based on
the results of these studies, the Company intends to plan and conduct further
preliminary clinical studies leading to conducting pivotal clinical trials of
the monitoring system, the results of which are intended to support its
application to the FDA to market the product in the United States. See "Forward
Looking Statements"
The Company's revenues to date have not been sufficient to cover operating
expenses. The Company believes that increased revenues should result from i)
expanded licensing and technology revenues from both current and future
strategic corporate relationships; ii)increased sales of the Company's
needle-free injection products as the products achieve greater market acceptance
and penetration, both through continued direct sales efforts and through
corporate marketing relationships; and iii) revenues from the Company's blood
glucose monitoring technology, provided that the Company is successful in
completing development of that technology and bringing the technology to market.
See "Forward-Looking Statements." In addition to continuing to fund the
operations of its needle-free injection business, the Company is required to
fund substantial, ongoing research and development costs associated with
developing the blood glucose monitoring technology as well as future milestone
payments to Elan totaling $15.5 million. Since no revenue from blood glucose
monitoring products is expected for a number of years, the Company expects
significant losses unless licensing and technology revenues from strategic
corporate relationships and revenues from sales of the Company's needle-free
products increase substantially. See "Forward Looking Statements." The level of
revenues 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 volume
purchasing and efficiencies, the ability to develop and market products pursuant
to its relationships with companies such as Merck and Elan, 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 generate additional,
ongoing licensing and technology revenues or sell products at prices or in
volumes sufficient to achieve profitability or to offset increases in the
Company's research and development expenses or other costs.
<PAGE>
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 cost and length of time required to complete development
and commercialization of, and gain regulatory clearance for, the blood glucose
monitoring technology, (iii) length of time to close product sales, (iv)
customer budget cycles, (v) uncertainties and changes in customer purchases due
to changes in third party reimbursement policies, (iv) the timing and amount of
payments under technology development and licensing arrangements, and (vii)
variations in the amount of manufacturing overhead absorbed into inventory. The
Company anticipates drawing primarily on current product inventories to fill
most of its orders for needle-free injection products through the end of fiscal
1999 and through the first quarter of fiscal 2000. Accordingly, the Company
anticipates that production levels, and related absorption of manufacturing
overhead, for the remainder of fiscal 1999 and for the first quarter of fiscal
2000 will be substantially lower than production levels in the corresponding
periods of fiscal 1998 and 1999. See "Forward-Looking Statements."
THREE MONTHS ENDED DECEMBER 31,1998 COMPARED TO THREE MONTHS ENDED DECEMBER
31,1997 Revenues for the three months ended December 31, 1998 consist of
needle-free injection product sales of $51,000 and licensing and technology
revenues of $887,000. This compares to $313,000 in product sales and $125,000 in
licensing and technology revenues for the quarter ended December 31, 1997. The
product sales decrease was due to flu season orders at levels lower than in the
prior year and due to returns in the current quarter of unused product shipped
to a few major customers in the second quarter. The product returns resulted
from certain customers misinterpreting regulatory labeling on certain flu
vaccines. The Company believes that the label interpretation problem is resolved
and will not recur in the fiscal 2000 flu season. See "Forward Looking
Statements". The increase in licensing and technology revenues was primarily due
to receipt of $750,000 under the agreement signed with Merck in July 1998.
Manufacturing expense decreased from the third quarter of fiscal 1998 to the
third quarter of fiscal 1999 by $68,000, primarily due to lower unit sales
volumes, resulting in a lower charge to cost of goods sold. The decrease in cost
of goods sold was partially offset by lower production levels in the current
quarter resulting in a decrease of $135,000 in manufacturing overhead absorbed
into inventories.
Research and development expense increased from $205,000 in the third quarter of
fiscal 1998 to $1.0 million in the third quarter of fiscal 1999. The increase
was principally due to research and development costs of the blood glucose
monitoring technology. The Company incurred $767,000 of research and development
costs in the current quarter to develop the blood glucose monitoring technology
as compared to no spending in the same quarter a year ago.
Selling, general and administrative expense decreased from $901,000 in the third
quarter of fiscal 1998 to $719,000 in the third quarter of fiscal 1999,
primarily as a result of the reduced size of the Company's direct sales force.
Selling expense for the current quarter decreased by $180,000 when compared with
the same period a year ago.
No interest expense has been incurred in fiscal 1998. As a result, interest
expense decreased by $225,000 in fiscal 1999 due to the conversion of long-term
debt into preferred stock in the fourth quarter fiscal 1998. Other income
consists of earnings on available cash balances and fluctuates based on such
balances.
On a segment basis, the needle-free injection operations reported a net loss of
$147,000 for the quarter ended December 31,1998 as compared to a net loss of
$1.2 million for the quarter ended December 31, 1997. The improved performance
is the result of increased licensing and technology revenues, and reduced
spending on selling, general and administrative expenses. No further licensing
revenues are expected in the fourth quarter under the current agreement with
Merck. As a result, unless a new licensing agreement is concluded with Merck or
another corporate partner that results in significant licensing revenue in the
fourth quarter, the Company anticipates licensing revenues for the fourth
quarter of fiscal 1999 to be substantially lower than licensing revenues for the
quarter ended December 31, 1998.
The blood glucose monitoring business segment reported a net loss of $925,000
for the quarter ended December 31, 1998 compared to a net loss of $38,000 for
the quarter ended December 31, 1997. The increased loss is due to the fact that
pursuant to the agreement with Elan, MMT is funding, and will continue to fund
the full research and development effort of the blood glucose monitoring
technology. In the same quarter a year ago, Elan was funding the cost of that
development.
<PAGE>
NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1997 Revenues for the nine months ended December 31, 1998 consist of product
sales of $505,000 and licensing and technology revenues of $1.9 million. This
compares to $1.3 million in product sales and $375,000 in licensing and
technology revenues for the nine months ended December 31, 1997. The product
sales decrease was due to a reduction in orders in fiscal 1999 for flu season, a
significant portion of which was attributable to certain customers using
inventory acquired but not used in earlier periods to meet their current year
flu season requirements and also due to a reduced direct sales force. Also
contributing to the product sales decline in fiscal 1999 was the return of
unused product by certain customers as discussed in the comparison of operating
results for the three months ended December 31, 1998 compared to the three
months ended December 31, 1997. The increase in licensing and technology
revenues was primarily due to receipt of $1.5 million under the agreement signed
with Merck in July 1998.
Manufacturing expense decreased from $1.4 million for the first nine months of
fiscal 1998 to $1.1 million for the nine months ended December 31, 1998. The
reduction was primarily due to lower unit sales volumes, resulting in a lower
charge to cost of goods sold. The decrease in cost of goods sold was partially
offset by lower production levels in the current fiscal year, resulting in a
decrease of $199,000 in the amount of manufacturing overhead absorbed into
inventory during the nine months ended December 31, 1998. The Company
anticipates drawing primarily on current inventories to fill most of its
needle-free injection product orders through the end of fiscal 1999 and through
the first quarter of fiscal 2000. Accordingly, the Company anticipates that
production levels for the remainder of fiscal 1999 and for the first quarter of
fiscal 2000 will be substantially lower than production levels in the
corresponding periods of fiscal 1998 and 1999. See "Forward-Looking Statements."
Research and development expense increased from $677,000 in the nine months
ended December 31, 1997 to $3.1 million in the first nine months of fiscal 1999.
The increase was principally due to research and development costs relating to
the blood glucose monitoring technology. The Company incurred $2.4 million of
research and development costs in the first nine months of fiscal 1999 to
develop the blood glucose monitoring technology as compared to no spending in
the same period a year ago.
Selling, general and administrative expense decreased from $2.6 million in the
nine months ended December 31, 1997 to $2.4 million in the nine months ended
December 31, 1998. This decrease was a result of reductions in the Company's
direct sales force, resulting in selling expense for the first nine months of
fiscal 1999 decreasing by $578,000 when compared with the same period a year
ago. The savings in selling expenses were offset by a $343,000 increase in
administrative expenses, all of which is attributable to administrative costs of
the Company's blood glucose monitoring development operations. Administrative
costs associated with the blood glucose monitoring operations were $38,000 in
the period ended December 31, 1997.
No interest expense has been incurred in fiscal 1998. As a result, interest
expense decreased by $225,000 in fiscal 1999 due to the conversion of long-term
debt into preferred stock in the fourth quarter fiscal 1998. Other income
consists of earnings on available cash balances and fluctuates based on such
cash balances.
On a segment basis, the needle-free injection operations reported a net loss of
$1.2 million for the nine months ended December 31, 1998 as compared to a net
loss of $3.2 million for the nine months ended December 31, 1997. The improved
performance is the result of increased licensing and technology revenues, and
reduced spending on selling, general and administrative expenses.
The blood glucose monitoring business segment reported a net loss of $2.8
million for the nine months ended December 31, 1998 compared to a net loss of
$12.1 million for the quarter ended December 31, 1997. The decreased loss is due
to a $12.1 million write-off of acquired in-process research and development
cost in fiscal 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1985, the Company has financed its operations, working
capital needs and capital expenditures from private placements of securities,
exercises of stock options and warrants, proceeds received from its initial
public offering in 1986, proceeds received from a public offering of common
stock in November 1993, investment by Elan pursuant to the joint venture between
the Company and Elan in October 1997,licensing and technology revenues and
revenues from sales of products. Net proceeds received from issuance of
securities from inception through December 31, 1998 totaled approximately $59.8
million.
Working capital at December 31, 1998 was $2.0 million compared with $3.0 million
at March 31, 1998. Cash, cash equivalents and marketable securities totaled $2.4
million at December 31, 1998 compared to $1.9 million at March 31, 1998. The
increase resulted primarily from cash proceeds received from issuance of the
Company's common stock pursuant to warrant and stock option exercises and
licensing and technology revenues offset by operating cash requirements, capital
asset purchases and increases in product inventories.
Inventories increased from $1.9 million at March 31, 1998 to $2.0 million at
December 31,1998 due to the volume of syringe units sold being less than the
volume of syringe units produced and the build-up of raw materials for the
manufacturing of the Vitajet product line.
A significant portion of the research and development expenses of the blood
glucose monitoring business segment are incurred by Elan and billed to the
Company under a contractual arrangement between the two companies. Included in
accounts payable and other accrued liabilities at December 31, 1998 is
approximately $1.94 million owed to Elan under this arrangement.
The Company believes that its current cash position, combined with revenues,
other cash receipts, proceeds from the exercise of stock warrants and options,
proceeds from the issuance of the Company's preferred stock to Elan and proceeds
from the purchase by Elan of additional stock in MMT pursuant to agreements
entered into in connection with the joint venture, will be sufficient to fund
the Company's operations into the second quarter of fiscal 2000. See "Forward
Looking Statements." The Company is considering a number of other potential
financing alternatives. Even if the Company is successful in raising additional
financing, unforeseen costs and expenses or lower than anticipated cash receipts
from product sales or licensing and technology revenues could accelerate or
increase the financing requirements. 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 the Company's efforts will be successful, and
that such additional financing will be available on terms that are not
significantly dilutive to existing shareholders. Failure to obtain needed
additional capital on terms acceptable to the Company, or at all, would
significantly restrict the Company's operations and ability to continue product
development and would materially adversely affect the Company's business. The
Company has no banking line of credit or other established source of borrowing.
GOVERNMENTAL REGULATION
No clearances from the FDA have been obtained for marketing the blood glucose
monitoring technology presently being developed by the Company. The Company has
concluded that a premarket approval("PMA") device clearance will be required for
products developed based on this technology. A PMA must show that the device is
safe and effective and is generally a more complex submission than a 510(k)
notification, the regulatory clearance under which the Company's jet injection
products have been cleared for marketing. A PMA typically requires more
extensive testing before regulatory filing and a longer FDA review process. See
"Forward Looking Statements." There can be no assurance that the regulatory
review process will not cause significant delays in the product development
schedule or that regulatory clearance will be obtained at all.
YEAR 2000 ISSUES
The Company is in the process of assessing its Year 2000 ("Y2K") issues. The
Assessment includes steps to review and obtain vendor certification of Y2K
compliance of current systems, testing system compliance and implementing
corrective action where necessary. A Y2K team composed of manager-level members
from Manufacturing, Purchasing, Information Services and Finance is continuing
to conduct the assessment. Assessment of the compliance of all critical systems,
plans for remedial action, if any, and estimates of the cost of such remedial
action are expected to be completed by the end of February 1999. Until the Y2K
assessment is complete, the cost to address the Company's Y2K issues cannot be
estimated with certainty.
<PAGE>
Products
The Company's products do not incorporate either application or embedded
software and are therefore not subject to Y2K issues.
Information Systems
The Company utilizes or will utilize by mid 1999, packaged application
strategies for all critical information systems functions which have been
certified by the vendors as being Y2K compliant. This includes financial
software, operating and networking systems, application and data servers, PC and
communications hardware and core office automation software.
Manufacturing Systems
The Company is currently in the process of gaining manufacturer certification of
Y2K compliance for all critical automated components used in manufacturing the
Company's products.
Supplier Base
The Company is in the process of implementing a Y2K audit program of suppliers
critical to the Company's operations. Suppliers will be asked to certify Y2K
compliance of systems critical to maintaining a continuing source of supply to
the Company.
Risk
The Company will be at risk from external infrastructure failures that could
arise from Y2K failures, including failure of electrical power and
telecommunications. Investigation and assessment of the risk of failure of such
infrastructure is beyond the scope and resources of the Company. The Company
intends to rely on vendor certification of Y2K compliance and does not plan to
audit vendor systems to test their compliance. The Company will be at risk with
respect to vendors who certify their systems as being Y2K compliant but who are
unable to deliver potentially critical supplies and services to the Company on
account of Y2K noncompliance.
Business risks to the Company of not successfully identifying Y2K issues and
undertaking effective remedial action include the inability to ship product,
delay or loss of revenue and delay in manufacturing operations. The Company
believes that it will successfully identify critical Y2K issues and
substantially complete required remedial action before the end of 1999. Other
than risks created by infrastructure failures or by the Company's dealings with
third parties, where the actions of such third parties are beyond the Company's
control, the Company believes that it will have no material business risk from
Y2K issues. There can be no assurance that infrastructure failures will not
occur or that third parties, over which the Company has no control will
successfully address their own Y2K issues.
FORWARD LOOKING STATEMENTS
This report contains "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 concerning, among other things,
the Company's strategic relationships with Merck and Elan, future product
development plans and plans for clinical studies in the blood glucose monitoring
business segment, anticipated product sales revenues and licensing and
technology revenues, expected sufficiency of capital resources and future
sources of working capital, and Year 2000 issues. Forward looking statements are
identified with a cross-reference to this section. 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, without limitation
and inclusive of risks, uncertainties and other factors contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Overview," "-Liquidity and Capital Resources" "-Government
Regulations" and "Year 2000 Issues" as well as: i) the risk that current
strategic partnerships will not develop into long-term, revenue-producing
relationships; ii) the risk that research and product development efforts will
not produce the desired results; iii) uncertainties relating to the time and
cost required to complete research and development; iv) uncertainties related to
obtaining necessary clinical data and regulatory clearances; v) dependence on
the continued performance of strategic partners such as Merck and Elan; and vi)
dependence on the availability of additional financing at times and in such
amounts as are necessary to continue to fund the Company's operations. For a
more detailed description and discussion of such risks, uncertainties and other
factors, readers of this report are referred to the Company's filings with the
Securities and Exchange Commission, including the Company's Annual Report on
Form 10-K/A for the year ended March 31, 1998.
Forward-looking statements are based on the estimates and opinions of management
on the date the statements are made, and the Company assumes no obligation to
update forward-looking statements if conditions or management's estimates or
opinions should change.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None during the quarter ended December 31, 1998.
Item 2. Changes in Securities
None during the quarter ended December 31, 1998.
Item 3. Defaults Upon Senior Securities
None during the quarter ended December 31, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
None during the quarter ended December 31, 1998.
Item 5. Other Information
None during the quarter ended December 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS:
27.1 Financial Data Schedule
REPORTS ON FORM 8K:
None during the quarter ended December 31, 1998
<PAGE>
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: February 11, 1999 /S/ James O'Shea
---------------------------------
James O'Shea
Chairman, Chief Executive Officer
and President
/S/ Michael A. Temple
---------------------------------
Michael A. Temple
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 2,389,254
<SECURITIES> 0
<RECEIVABLES> 333,260
<ALLOWANCES> 0
<INVENTORY> 2,019,638
<CURRENT-ASSETS> 4,804,617
<PP&E> 4,790,030
<DEPRECIATION> (2,483,325)
<TOTAL-ASSETS> 7,623,793
<CURRENT-LIABILITIES> 2,739,419
<BONDS> 0
0
10,373,946
<COMMON> 50,533,370
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,623,793
<SALES> 505,288
<TOTAL-REVENUES> 2,418,130
<CGS> 1,091,015
<TOTAL-COSTS> 1,091,015
<OTHER-EXPENSES> 5,485,679
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,066,587)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,066,587)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,123,083)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
