<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2000
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to _________
Commission File Number 0-24424
CIMA LABS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1569769
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10000 VALLEY VIEW ROAD, EDEN PRAIRIE,
MN 55344-9361 (952) 947-8700
(Address of principal executive offices (Registrant's telephone number,
and zip code) including area 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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 par value 10,855,289
---------------------------- ----------
(Class) (Outstanding at May 4, 2000)
<PAGE> 2
INDEX
CIMA LABS INC.
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - March 31, 2000 and December 31, 1999. 3
Statements of Operations - Three months ended March 31, 2000 and March 31, 1999. 4
Statements of Cash Flows - Three months ended March 31, 2000 and March 31, 1999. 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risks 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Items 1, 3, 4 and 5 have been omitted since all items are inapplicable or answers negative.
Item 6. Exhibits and Reports on Form 8-K 13
Signature 13
</TABLE>
We have registered "CIMA(R)," "CIMA LABS INC.(R)," "OraSolv(R)," and
"OraSolv(R)SR" as trademarks with the U.S. Patent and Trademark Office. These
registered trademarks are used in this Form 10-Q. We also use the trademarks
"DuraSolv(TM)," "PakSolv(TM)," "OraVescent(TM)SL/BL" and "OraVescent(TM)SS" in
this Form 10-Q.
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
CIMA LABS INC.
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited) (See note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,137,617 $ 2,480,698
Available-for-sale securities 1,956,924 -
Accounts receivable, less allowance for doubtful
accounts and returns of $298,585 and $36,000 3,864,602 3,058,258
Inventories 2,685,826 2,772,429
Prepaid expenses 129,502 73,042
------------- --------------
Total current assets 25,774,471 8,384,427
Other assets, net 521,484 525,942
Property and equipment:
Property, plant and equipment 19,765,566 16,355,463
Accumulated depreciation (7,698,005) (5,996,024)
------------- --------------
12,067,561 10,359,439
============= ==============
Total assets $ 38,363,516 $ 19,269,808
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,865,915 $ 2,402,726
Accrued expenses 1,228,575 1,229,179
Other current liabilities 218,334 554,317
------------- --------------
Total current liabilities 3,312,824 4,186,222
Long term debt 3,547,575 3,509,660
------------- --------------
Total liabilities 6,860,399 7,695,882
Stockholders' equity:
Convertible preferred stock, $.01 par value; 50,000 shares
authorized; -0- shares issued and outstanding - -
Common Stock, $.01 par value; 20,000,000 shares authorized;
10,851,569 and 9,646,241 shares issued and outstanding 108,553 96,462
Additional paid-in capital 77,363,824 57,454,661
Retained earnings (deficit) (45,969,260) (45,977,197)
------------- --------------
31,503,117 11,573,926
Unrealized gain (loss) on available-for-sale securities - -
------------- --------------
Total stockholders' equity 31,503,117 11,573,926
------------- --------------
Total liabilities and stockholders' equity $ 38,363,516 $ 19,269,808
============= ==============
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE> 4
STATEMENTS OF OPERATIONS
CIMA LABS INC.
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-----------------------------
2000 1999
------------ -----------
<S> <C> <C>
Revenues:
Net sales $ 2,777,578 $ 35,000
Product development fees and licensing 1,645,833 1,644,452
Royalties 737,500 103,336
------------ -----------
5,160,911 1,782,788
Operating expenses:
Cost of sales 3,156,639 931,941
Research and product development 1,026,545 1,018,698
Selling, general and administrative 948,488 668,510
------------ -----------
5,131,672 2,619,149
Other income:
Interest income, net (10,769) 21,231
Other income (expense) (10,533) (272)
------------ -----------
(21,302) 20,959
------------ -----------
Net income (loss) $ 7,937 $ (815,402)
============ ===========
Net income (loss) per share:
Basic $ .00 $ (0.08)
Diluted $ .00 $ (0.08)
Weighted average number of common shares:
Basic 9,898,551 9,609,216
Diluted 11,046,086 9,609,216
</TABLE>
See accompanying notes.
4
<PAGE> 5
STATEMENTS OF CASH FLOWS
CIMA LABS INC.
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------------------------
2000 1999
----------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 7,937 $ (815,402)
Adjustments to reconcile net income or loss to net
cash used in operating activities:
Depreciation and amortization 515,029 417,920
Loss on impairment of assets 400,000 -
Changes in operating assets and liabilities:
Accounts receivable and current assets (866,697) (196,304)
Inventories 86,603 (827,863)
Accounts payable (536,811) 742,234
Accrued expenses and other (281,432) (134,621)
--------------- ---------------
Net cash used in operating activities (675,371) (814,036)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,597,422) (274,936)
Patents and trademarks (17,378) 941
Purchases of available-for-sale securities (1,956,924) -
--------------- ---------------
Net cash provided by (used in) investing activities (4,571,724) (273,995)
FINANCING ACTIVITIES:
Stock option exercise proceeds 521,254 -
Net proceeds from stock offerings 19,400,000 -
Payments on capital lease obligations (17,239) (15,674)
--------------- ---------------
Net cash provided by financing activities 19,904,014 (15,674)
--------------- ---------------
Increase (decrease) in cash and cash equivalents 14,656,919 (1,103,705)
Cash and cash equivalents at beginning of period 2,480,698 2,722,590
=============== ===============
Cash and cash equivalents at end of period $ 17,137,617 $ 1,618,885
=============== ===============
</TABLE>
See accompanying notes
5
<PAGE> 6
CIMA LABS INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
CIMA LABS INC. is a Delaware corporation that develops and manufactures
fast-dissolve and enhanced-absorption oral drug delivery systems. OraSolv and
DuraSolv, our leading proprietary fast-dissolve technologies, are oral dosage
forms incorporating taste-masked active drug ingredients into tablets, which
dissolve quickly in the mouth without chewing or water. We develop applications
for our technologies that are licensed to pharmaceutical company partners. We
currently manufacture and package five commercial products incorporating our
proprietary fast-dissolve technologies. Revenues are generated from the sale of
products we manufacture, license agreements, product development fees and
royalties.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting of normal
recurring accruals, which are considered necessary for fair presentation have
been included. Operating results for the three months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, you should refer to the
audited financial statements and accompanying notes contained in our Annual
Report on Form 10-K for the year ended December 31, 1999.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that may
affect the amounts we report in our financial statements and accompanying notes.
Actual results could differ from those estimates.
3. CASH EQUIVALENTS AND INVESTMENTS
We consider all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. We invest our cash and cash
equivalents in money market funds, investment grade commercial paper and United
States government agency securities, including discount notes and U.S Treasury
obligations. Our short-term investments consist of investment grade commercial
paper and United States government agency securities, including discount notes
and U.S Treasury obligations, with maturities ranging from three to six months.
We classify our short-term investments as available-for-sale. Available-for-sale
investments are recorded at fair value with unrealized gains and losses reported
in the shareholders' equity. Fair values of investments are based on quoted
market prices,
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where available, and accrued interest, if applicable. No realized gains and
losses have been recorded to date. Dividend and interest income is recognized
when earned.
4. INCOME (LOSS) PER SHARE
Income (loss) per share for the three months ended March 31, 2000 and 1999 are
summarized in the following table:
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------------------------------------------
2000 1999
------------------------------------------- ---------------------------------------------
Net Income Per Share Net Income Per Share
(Loss) Shares Amount (Loss) Shares Amount
------------ ------------ ----------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic $ 7,937 9,898,551 $.00 $ (815,402) 9,610,394 $ (.08)
Effect of
dilutive stock
options - 1,147,935 - - - -
------------ ----------- ---------- ------------- ------------ -----------
Diluted $ 7,937 11,046,486 $.00 $ (815,402) 9,610,394 $ (.08)
------------ ----------- ---------- ------------- ------------ -----------
</TABLE>
5. INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or fair market
value, whichever is lower.
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
--------------- ---------------
<S> <C> <C>
Raw materials $ 1,966,463 $ 1,153,275
Work in process - 3,236
Finished products 719,363 150,398
----------- -----------
$ 2,685,826 $ 1,306,909
----------- -----------
</TABLE>
6. PRIVATE PLACEMENT OF COMMON STOCK
On March 17, 2000, we issued 1.1 million shares of Common Stock through a
private placement. We received approximately $19.4 million in net cash proceeds
and expect to use the funds for capital additions to our manufacturing facility
and for working capital. We have invested the net proceeds in interest-bearing
money market accounts, pending such uses.
7. ACCOUNTING PRONOUNCEMENTS
In December 1999, the staff of the Securities and Exchange Commission (the
"SEC") issued Staff Accounting Bulletin No. 101, or SAB 101, "Revenue
Recognition in Financial Statements." SAB 101 requires that license and other
up-front fees received from research collaborators be recognized over the term
of the agreement unless the fee is in exchange for products delivered or
services performed that represent the culmination of a separate earnings
process. We currently expect to implement SAB 101 in the second quarter of 2000
and, if material to the first quarter, restate the first quarter at that time.
We estimate that the cumulative effect of the accounting change will be in the
range of $1.0 to $2.0 million. Had we implemented this accounting change in our
first quarter of 2000, we would have reported a net loss in the range of $(1.0)
to $(2.0) million. In addition, we estimate that most of the cumulative effect
of the accounting change, which relates primarily to transactions occurring
prior to 2000, will be amortized into revenue during 2000. However, the impact
of this change in revenue recognition policy is
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complex and will depend on, among other things, the economic terms of existing
and future license agreements, the length of time over which the development
activities occur, and the technical requirements the SEC may make public in any
future accounting bulletins or implementation guides.
8. RECLASSIFICATIONS
Certain prior period balances have been reclassified in order to conform with
the presentation for the three months ended March 31, 2000. These
reclassifications have no impact on the net loss or shareholders' equity as
previously reported.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q contains statements that are not descriptions
of historical facts and contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All forward-looking statements are inherently uncertain as they
are based on current expectations and assumptions concerning future events or
our future performance. We caution readers not to place undue reliance on these
forward-looking statements, which are only predictions and speak only as of the
date this report was filed. Forward-looking statements are not descriptions of
historical facts. The words or phrases "will likely result," "look for," "may
result," "will continue," "is anticipated," "expect," "project," or similar
expressions are intended to identify forward-looking statements, and are subject
to numerous known and unknown risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors,
including those identified in the "Risk Factors" filed as Exhibit 99 to this
Form 10-Q, and in our other filings with the SEC. We undertake no obligation to
update or publicly announce revisions to any forward-looking statements to
reflect future events or developments.
GENERAL
We develop and manufacture pharmaceutical products based on our proprietary
OraSolv and DuraSolv technologies. We have agreements with several
pharmaceutical companies regarding a variety of potential products, with an
emphasis on prescription products. We currently manufacture five commercial
products using our fast-dissolve technologies. These products include Triaminic
for Novartis, Tempra for Bristol- Meyers Squibb and Zomig for AstraZeneca. We
operate within a single segment: pharmaceutical product development. Our
revenues are comprised of three components: net sales of products utilizing our
proprietary fast-dissolve technologies; product development fees and licensing
revenues for development activities we conduct through collaborative agreements
with pharmaceutical companies; and royalties on the sales of products we
manufacture, which are sold by pharmaceutical companies under licenses from us.
In
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<PAGE> 9
addition, we are currently developing other drug delivery technologies.
Revenues from product sales and from royalties will fluctuate from quarter to
quarter and from year to year depending on, among other factors, demand for our
products by patients, new product introductions, the seasonal nature of some of
our products and pharmaceutical company ordering patterns. Our ability to
generate product sales and royalty revenues in excess of our current forecast
for 2000 and 2001 may be constrained by our manufacturing capacity. We expect
our second production line, now being developed, to be operational in the second
half of 2001. Revenues from product development fees and licensing revenue will
fluctuate from quarter to quarter and from year to year depending on, among
other factors, the number of new collaborative agreements that we enter into;
the number of product development milestones we achieve under collaborative
agreements, including making submissions to, and obtaining approvals from, the
FDA for products in development; and the level of our development activity
conducted for pharmaceutical companies under collaborative agreements.
RESULTS OF OPERATIONS
REVENUES.
Our total revenues were $5.2 million in the quarter ended March 31, 2000
compared to $1.8 million in the quarter ended March 31, 1999. The increase of
$3.4 million in revenues was primarily due to higher sales volume of commercial
products. All three components of revenues increased for the quarter in
comparison to the same period in 1999.
Revenues from net sales of products using our drug delivery technologies totaled
$2.8 million in the first quarter of 2000 compared to less than $0.1 million in
the first quarter of 1999. The increase of over $2.7 million was primarily due
to increased shipments of Triaminic to Novartis. We expect product sales for all
of 2000 to be higher than full year 1999 because we have firm purchase order
commitments for unit volume in excess of full year 1999 quantities. Although we
expect additional growth in product sales in the last half of 2000, this growth
will depend on pending FDA regulatory approvals for two new prescription
products, FDA approval of our manufacturing compliance for prescription
pharmaceuticals and the receipt of firm purchase order commitments for these new
products.
Revenues from product development fees and licensing were $1.6 million for the
quarter ended March 31, 2000 compared to $1.6 million for the comparable period
in 1999. Licensing revenues for the quarter included payments attributable to a
January 2000 agreement with American Home Products. Although we expect product
development activities for the year 2000 to be comparable to 1999, a significant
portion of the product development fees and licensing revenues associated with
these activities will be subject to deferral due to SAB 101, the SEC accounting
bulletin discussed earlier, which we expect to adopt in the second quarter. In
addition, product development fees and licensing revenues in subsequent quarters
will depend on our success in signing new license and
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development agreements with pharmaceutical companies and on expected FDA
regulatory approvals for two new pharmaceutical products late in 2000.
Revenues from royalties totaled $0.7 million in the quarter ended March 31, 2000
compared to $0.1 million in the corresponding period of 1999. The increase of
$0.6 million resulted primarily from increased sales of Triaminic by Novartis in
the U.S., which was introduced in the second quarter of 1999, and sales of Zomig
by AstraZeneca, which was introduced in several countries in Europe during the
third quarter of 1999. We expect royalties for the year 2000 to be higher than
1999 due to expected increases in product shipments of Triaminic, which will be
sold primarily to patients in the U.S., and Zomig, which will be sold primarily
to patients in Europe.
OPERATING EXPENSES AND GROSS MARGIN.
Cost of sales totaled $3.2 million in the first quarter of 2000 compared to $0.9
million in the corresponding period of 1999. The increase of $2.3 million was
primarily due to higher Triaminic unit volumes being manufactured and shipped to
Novartis and due to costs incurred to gear up for multi-shift production
capabilities. In subsequent quarters, we expect cost of sales to increase as a
result of expected unit volume increases.
Gross margins on product sales were negative in the quarter ended March 31, 2000
and in the comparable period of 1999. To date, cost of sales have resulted in
negative gross profit margins because we are operating at below manufacturing
capacity, we have incurred additional costs to gear up for multi-shift
production capabilities, and a product mix that has been weighted towards lower
margin products. In subsequent quarters, we expect improved gross margins
because manufacturing efficiencies should improve at higher unit volumes and
with a more favorable mix of higher margin products. However, future gross
margins will depend primarily, among other things, on the pricing of our
products, our ability to effectively use our manufacturing and plant capacity,
and changes in our product lines and mix of products.
Research and product development expenses were $1.0 million in the quarter ended
March 31, 2000 compared to $1.0 million in the quarter ended March 31, 1999.
These expenses were consistent, as the level of product development activities
between the periods was comparable. In subsequent quarters, we expect these
expenses to increase.
Selling, general and administrative expenses were $0.9 million in the quarter
ended March 31, 2000 compared to $0.7 million in the quarter ended March 31,
1999. The increase of $0.2 million from 1999 was primarily due to marketing and
related consulting costs associated with our business development efforts. We
expect these expenses to increase in 2000.
OTHER INCOME.
Other income was not significant for the quarter ended March 31, 2000 nor was it
significant for the comparable period in 1999. Other income consists primarily
of interest income on invested funds, net of interest expense on bank lines,
loan agreements and
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capitalized leases. In subsequent quarters, we expect interest income to
increase from the investment of the proceeds of our March 2000 private
placement.
NET INCOME (LOSS).
Net income of $8,000 in the quarter ended March 31, 2000 compares to a net loss
of $(0.8) million for the corresponding period in 1999. The net income for the
quarter ended March 31, 2000 was due to an increase in total revenues of 189%,
associated with an increase of total operating expenses of only 96% in 2000
compared to 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations to date primarily through private and public
sales of equity securities and revenues from product sales, product development
fees and licensing revenue and royalties.
Net working capital increased from $4.2 million at March 31, 1999 to $22.5
million at March 31, 2000. The increase of $18.3 million is primarily due to the
positive effect of a $3.5 million loan we received from a pharmaceutical company
partner and from $19.4 million we received from the private placement sale of
1.1 million shares of common stock, which were partially offset by approximately
$5.1 million in expenditures for capital improvements to our manufacturing
facility. We invest excess cash in interest-bearing money market accounts and
investment grade securities.
In December 1999, we received a $3.5 million unsecured loan from one of our
pharmaceutical company partners. We may repay this loan at any time, but if the
loan is not repaid by the time we are due royalties under a license agreement
with an affiliate of the lender, the affiliate may offset up to half of the
royalties otherwise due to us and the lender will treat the amount offset by its
affiliate as a payment by us on this loan. Interest is payable on the
outstanding balance of the loan at LIBOR plus one half of one percent. Interest
accrues quarterly and is added to the then outstanding principal balance of the
loan.
In March 2000, we issued 1.1 million shares of common stock through a private
placement. We received approximately $19.4 million in net cash proceeds and
expect to use the funds for capital additions to our manufacturing facility and
for working capital.
We currently expect to spend approximately $10.0 to $12.0 million during 2000
and 2001 to complete various manufacturing facility improvements, including
construction of a coating unit and a second production line. We believe our cash
and cash equivalents, together with expected revenues from operations, will be
sufficient to meet our anticipated capital requirements for the foreseeable
future. However, we may elect to pursue additional financing at any time to more
aggressively pursue development of new drug delivery technologies and expand
manufacturing capacity beyond that currently planned. In addition, other factors
that will affect future capital requirements and may
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require us to seek additional financing, include the level of expenditures
necessary to develop new products or technologies, the progress of our research
and product development programs, the need to construct a larger than currently
anticipated manufacturing facility or to construct a new manufacturing facility
at an alternative site to meet demand for our products, results of our
collaborative efforts with current and potential pharmaceutical company
partners, and the timing of and amounts received from future product sales,
product development fees and licensing revenue and royalties. We cannot be sure
that additional financing will be available to us or, if available, will be on
acceptable terms.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not Applicable
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Pursuant to a Stock Purchase Agreement between CIMA and certain institutional
investors, or the "Purchasers," dated March 13, 2000, we issued 1,100,000 shares
of Common Stock, or "Private Placement Shares," in exchange for an aggregate
cash purchase price of $20,900,000. The Private Placement Shares were issued in
reliance on Rule 506 of Regulation D of the Securities Act of 1933, as amended.
We are obligated to the Purchasers of the Private Placement Shares to register
these shares on a Registration Statement on Form S-3, which we filed on April
14, 2000. This Registration Statement has not yet become effective.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT INDEX
Exhibit
Number Description Method of Filing
27.1 Financial Data Schedule - For SEC EDGAR filing Filed herewith
99.1 Cautionary Statements Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended March 31, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CIMA LABS INC.
Registrant
Date May 12, 2000 By /s/ David A. Feste
------------ ------------------
David A. Feste
Chief Financial Officer
(principal financial and accounting
officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying balance sheets of CIMA LABS, INC. as of March 31, 2000, and the
related statements of operations for the year ended March 31, 2000 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,137,617
<SECURITIES> 1,956,924
<RECEIVABLES> 3,864,602
<ALLOWANCES> 298,585
<INVENTORY> 2,685,826
<CURRENT-ASSETS> 25,774,471
<PP&E> 19,765,566
<DEPRECIATION> 7,698,005
<TOTAL-ASSETS> 38,363,516
<CURRENT-LIABILITIES> 3,312,824
<BONDS> 0
0
0
<COMMON> 108,553
<OTHER-SE> 77,363,824
<TOTAL-LIABILITY-AND-EQUITY> 31,503,117
<SALES> 2,777,578
<TOTAL-REVENUES> 5,160,911
<CGS> 3,156,639
<TOTAL-COSTS> 1,975,033
<OTHER-EXPENSES> 21,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,568
<INCOME-PRETAX> 7,937
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,937
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
<PAGE> 1
EXHIBIT 99.1
RISK FACTORS
Certain statements made in this Quarterly Report on Form 10-Q are
forward-looking statements based on our current expectations, assumptions,
estimates and projections about our business and our industry. These
forward-looking statements involve risks and uncertainties. Our business,
financial condition and results of operations could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
as more fully described below and elsewhere in this Form 10-Q. You should
consider carefully the risks and uncertainties described below, which are not
the only ones facing our company. Additional risks and uncertainties also may
impair our business operations. We undertake no obligation to update publicly
any forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
RISK RELATED TO OUR COMPANY
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR PROSPECTS.
We recorded the first commercial sales of products using our
fast-dissolve technologies in early 1997. Since 1997, we have generated revenues
from product development fees, licensing arrangements, sales of products using
our fast-dissolve technologies and from royalties. We are currently making the
transition from research and product development operations with limited
production to commercializing our technologies and expanding our production
capabilities, in addition to research and product development activities.
Accordingly, we have only a limited operating history and our business and
prospects must be evaluated in light of the risks and uncertainties of a company
with a limited operating history and, in particular, one in the pharmaceutical
industry. Many of these risks are discussed in the subheadings below.
WE MAY NOT BE PROFITABLE IN THE FUTURE.
We have accumulated aggregate net losses from inception through March
31, 2000 of approximately $46 million. Our losses have resulted principally from
the research and product development costs for our drug delivery technologies
and from general and administrative costs. If we are not profitable, the market
price of our stock may fall. Profitable operations depend on a number of
factors, many of which are beyond our direct control. These factors include:
- - the demand for our products;
- - our ability to manufacture our products efficiently and with the required
quality;
- - our ability to increase our manufacturing capacity;
- - the level of product and price competition;
- - our ability to develop additional commercial applications for our products;
- - our ability to control our costs; and
- - general economic conditions.
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EXHIBIT 99.1
THE LOSS OF ONE OF OUR MAJOR CUSTOMERS COULD HARM OUR BUSINESS.
Revenues from our three largest customers represented nearly 84% of our
total revenues for the quarter ended March 31, 2000. The loss of any one of
those customers could have a material adverse effect on our business and results
of operations. If we cannot broaden our customer base, we will continue to
depend on a few customers for the majority of our revenues. We may be unable to
negotiate favorable business terms with customers that represent a significant
portion of our revenues and our business and results of operations may be
adversely affected.
IF WE DO NOT ENTER INTO ADDITIONAL COLLABORATIVE AGREEMENTS WITH PHARMACEUTICAL
COMPANIES, WE MAY NOT BE ABLE TO BECOME PROFITABLE.
Our revenues depend on entering into collaborative agreements with
pharmaceutical companies to develop, test, obtain governmental approval for, and
commercialize oral dosage forms of active pharmaceutical ingredients using our
drug delivery technologies. We currently have collaborative agreements with six
pharmaceutical companies. If we do not enter into additional agreements in the
future, or if our current or future agreements do not result in successful
marketing of our products, our financial condition and results of operations
could be materially adversely affected.
In addition, we cannot be sure that:
- - we will be able to enter into collaborative agreements to develop
additional products using our drug delivery technologies;
- - any existing or future collaborative agreements will result in additional
commercial products, or that any of these products will be successful;
- - we will meet the milestones established in our current or future
collaborative agreements; or
- - we will successfully develop new drug delivery technologies that will be
attractive to potential pharmaceutical company partners.
WE RELY ON THIRD PARTIES TO MARKET, DISTRIBUTE AND SELL THE PRODUCTS
INCORPORATING OUR DRUG DELIVERY TECHNOLOGIES AND THOSE THIRD PARTIES MAY NOT
PERFORM.
We develop, manufacture and sell our products through relationships
with our pharmaceutical company partners. The timing and other aspects of the
development of products are sometimes out of our control, as the other party to
the relationship may have priorities that differ from ours. Therefore, the
timing of the commercialization of our products under development may be subject
to unanticipated delays. Further, our drug delivery technologies are
incorporated into the oral dosage forms of products marketed and sold by our
pharmaceutical company partner and we do not have a direct marketing channel to
consumers for our drug delivery technologies. Therefore, the success of the
products incorporating our technologies will depend on the success of the
marketing organizations of our pharmaceutical company partners, as well as the
level of priority assigned to the marketing of our products by these entities,
which may differ from our priorities. If one or more of our pharmaceutical
company partners fail to pursue the development of, or the marketing of, our
products as planned, our business may be adversely affected.
IF WE CANNOT INCREASE OUR PRODUCTION CAPACITY, OUR BUSINESS WILL SUFFER.
We must increase our production capacity to meet expected demand for
our products. We currently have one production line and a second line is being
developed. We expect our second production line to be operational in the second
half of 2001, although we may experience difficulties, which could delay our
ability to increase manufacturing capability. Production lines in the
pharmaceutical industry generally take 16 to 24 months to complete because of
the long lead times required for precision production equipment and the lengthy
testing and approval process. We cannot be sure that our production capacity can
be increased quickly enough to meet the requirements of our pharmaceutical
company partners with whom we are developing our drug
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EXHIBIT 99.1
delivery technologies. If we are unable to increase our production capacity as
scheduled, our revenues may be reduced and our relationship with our
pharmaceutical company partners may be harmed.
WE HAVE A SINGLE MANUFACTURING FACILITY AND OUR BUSINESS WOULD SUFFER IF WE WERE
TO LOSE ITS PRODUCTION CAPACITY.
All of the products that we produce are manufactured on our existing
production line in our Eden Prairie facility. If our existing production line or
facility becomes incapable of manufacturing products for any reason, we would
have no other means of producing products incorporating our drug delivery
technologies until we are able to restore the manufacturing capability at our
facility or develop an alternative manufacturing facility. Although we carry
business interruption insurance to cover lost revenues and profits in an amount
we consider adequate, this insurance does not cover all possible situations. In
addition, our business interruption insurance would not compensate us for the
loss of opportunity and potential adverse impact on relations with our existing
pharmaceutical company partners resulting from our inability to produce products
for them.
WE RELY ON A SINGLE SOURCE FOR SOME OF OUR RAW MATERIALS AND OUR BUSINESS COULD
SUFFER IF THE MATERIALS WERE NOT AVAILABLE FROM THEIR CURRENT SOURCE.
We rely on a single supplier for some of our raw materials and
packaging supplies. If these raw materials or packaging supplies were no longer
available, our manufacturing operations may be interrupted until another
supplier could be identified, its products validated and trading terms with it
negotiated. We cannot be sure that an alternative supplier could be identified
in a timely manner, or at all, or that favorable terms could be negotiated with
an alternative supplier. Any disruptions in our manufacturing operations from
the loss of a supplier could have a material adverse effect on our results of
operations, and potentially damage our relations with our pharmaceutical company
partners.
OUR ABILITY TO DEVELOP ADDITIONAL PRODUCTS IS UNCERTAIN.
We intend to continue to enhance our current technologies and pursue
additional proprietary drug delivery technologies. Even if these technologies
appear promising during various stages of development, we may not be able to
develop commercial applications for them because:
- the potential technologies may fail clinical studies;
- we may not find a pharmaceutical company to adopt the technologies;
- it may be difficult to apply the technologies on a commercial scale;
or
- the technologies may be uneconomical to market.
IF PATIENTS AND PHYSICIANS DO NOT ACCEPT OUR DRUG DELIVERY TECHNOLOGIES, WE MAY
BE UNABLE TO GENERATE SIGNIFICANT REVENUES, IF ANY.
Our revenues depend on ultimate patient and physician acceptance of our
drug delivery technologies as an alternative to conventional drug delivery
systems. If our drug delivery technologies are not accepted in the marketplace,
our pharmaceutical company partners may be unable to successfully market and
sell our products, which would limit our ability to generate revenues and harm
our results of operations. The degree of acceptance of any drug delivery system
depends on a number of factors. These factors include, but are not limited to:
- - demonstrated bioequivalency and safety;
- - cost-effectiveness;
- - convenience and ease of administration;
- - advantages over alternative drug delivery systems; and
- - marketing and distribution support.
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EXHIBIT 99.1
Because only a limited number of products incorporating our drug
delivery technologies are commercially available, we cannot be sure of the level
of market acceptance of our drug delivery technologies. We expect that products
incorporating our drug delivery technologies will be priced slightly higher than
conventional swallowable or chewable tablets.
DEMAND FOR SOME OF OUR PRODUCTS IS SEASONAL, AND OUR OPERATING RESULTS MAY
SUFFER DURING PERIODS WHEN DEMAND IS LIGHT.
Certain non-prescription products we manufacture are used to treat
seasonal ailments such as colds and the flu. In 1999, revenue from Novartis,
which included sales of our Triaminic products, royalties on sales of Triaminic
by Novartis and product development fees, represented 42% of our total revenues.
Our partners may not market our products in off-seasons and our operating
results consequently may suffer. We are focused on developing a mix of
non-prescription and prescription products to reduce these seasonal variations
but we may not be successful.
IF WE CANNOT ADEQUATELY PROTECT OUR PATENT AND PROPRIETARY RIGHTS, OUR BUSINESS
WILL SUFFER.
Our success depends, in part, on our ability to obtain and enforce
patents for our products, processes and technologies and to preserve our trade
secrets and other proprietary information. We have been granted seven patents on
our drug delivery systems in the U.S., which will expire beginning in 2010.
We cannot be sure that any patent applications relating to our
potential products or processes will result in patents being issued. Our current
patents may not be valid or enforceable, or protect us against competitors who
challenge our patents, or obtain patents that may have an adverse effect on our
ability to conduct business, or who are able to circumvent our patents. Further,
we cannot be sure that we will have the necessary financial resources to enforce
our patents.
To protect our trade secrets and proprietary technologies and
processes, we rely, in part, on confidentiality agreements with our employees,
consultants and advisors. We cannot be sure that these agreements will prove
adequate protection for our trade secrets and other proprietary information in
the event of any unauthorized use or disclosure, or if others lawfully develop
the information.
WE MAY BE SUBJECT TO CLAIMS THAT OUR TECHNOLOGIES, OR THE PRODUCTS IN WHICH THEY
ARE USED, INFRINGE ON THE PROPRIETARY RIGHTS OF OTHERS.
The manufacture, use or sale of our drug delivery technologies may
infringe the patent rights of others. We may be unable to avoid infringement of
those patents and we may have to seek licenses, defend infringement actions or
challenge the validity of those patents in court. We cannot be sure that, if
required, licenses from third parties will be available to us on terms and
conditions acceptable to us, if at all, or that we would prevail in any patent
litigation. If we could not obtain required licenses, are found liable for
infringement, or are not able to have these patents declared invalid, we may be
liable for significant monetary damages, encounter significant delays in
bringing products to market, or be precluded from participating in the
manufacture, use or sale of products or methods of drug delivery covered by the
patents of others. We cannot be sure that we have identified, or will identify
in the future, U.S. and foreign patents that pose a risk of potential
infringement claims.
We enter into collaborative agreements with pharmaceutical companies to
apply our drug delivery technologies to drugs developed by others and,
ultimately, receive license revenues and product development fees, as well as
revenues from the sale of products incorporating our technology and royalties.
The drugs are generally the property of the pharmaceutical companies and may be
the subject of patents or patent applications and other forms of protection
owned by the pharmaceutical companies. To the extent those patents or other
forms of protection expire, become invalid or otherwise ineffective, or to the
extent the drugs are covered by patents or other forms of protection owned by
third parties, sales of the drugs by the collaborating pharmaceutical company
may be restricted, limited or may cease. Our revenues, in that event, may be
adversely affected.
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EXHIBIT 99.1
WE MAY NOT BE ABLE TO OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS ON A TIMELY
BASIS, OR AT ALL.
All new pharmaceutical products, including our products and those under
development, are subject to extensive and rigorous regulation by the federal
government, principally the U.S. Food and Drug Administration, or FDA, and by
state and local government agencies. These regulations govern the research,
development, testing, manufacture, safety, storage, record keeping, labeling,
advertising and promotion and marketing and distribution of pharmaceutical
products. If marketed abroad, these products also are subject to regulation by
foreign governments.
The process for obtaining FDA approvals for drug products is generally
lengthy, expensive and uncertain. Securing FDA approvals often requires
applicants to submit extensive clinical data and supporting information to the
FDA. We depend on external laboratories and medical institutions to conduct
pre-clinical and clinical testing of our products in compliance with clinical
and laboratory practices established by the FDA. The data obtained from
pre-clinical and clinical testing is subject to varying interpretations that
could delay, limit or prevent regulatory approval. Delays or rejection also may
occur due to changes in FDA approval policy during the development period, or
changes in regulatory review for each submitted New Drug Application. Even if
the FDA approves a product, the approval may limit the uses or "indications" for
which a product may be marketed, or may require further studies. The FDA also
can withdraw product clearances and approvals for failure to comply with
regulatory requirements or if unforeseen problems follow initial marketing.
Once a drug product is approved, the Division of Drug Marketing,
Advertising and Communication, or DDMAC, the FDA's marketing surveillance
department within the Center for Drugs, must approve marketing claims asserted
by our pharmaceutical company partners, which are the basis for a product's
labeling, advertising and promotion. We cannot be sure that the claims our
pharmaceutical company partners are asserting about our drug delivery
technology, or the drug product itself, will be approved by DDMAC. If our
pharmaceutical company partners fail to obtain from DDMAC acceptable marketing
claims for a product, our business and results of operations could be materially
adversely effected.
If we, or pharmaceutical companies with whom we are developing our
technologies, fail to comply with applicable FDA and other regulatory
requirements, we, and they, are subject to sanctions, including:
- - warning letters;
- - fines;
- - product seizures or recalls;
- - injunctions;
- - refusals to permit products to be imported into or exported out of the
U.S.;
- - total or partial suspension of production;
- - withdrawals of previously approved marketing applications; and
- - criminal prosecutions.
Manufacturers of drugs also must comply with applicable Good
Manufacturing Practices, or GMP, requirements, which relate to product testing,
quality assurance and maintaining records and documentation. We cannot be sure
that we will be able to comply with the applicable GMP and other FDA regulatory
requirements for manufacturing as we expand our manufacturing operations, which
would impair our business.
If our products are marketed in foreign jurisdictions, we, and the
pharmaceutical companies with whom we are developing our technologies, must
obtain required regulatory approvals from foreign regulatory agencies and comply
with extensive regulations regarding safety and quality. We cannot be sure that
we will obtain all necessary regulatory approvals or that we will not be
required to incur significant costs in obtaining or maintaining any foreign
regulatory approvals. If approvals to market our products are
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EXHIBIT 99.1
delayed, if we fail to receive these approvals, or if we lose previously
received approvals, our business would be impaired.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
Any failure to properly manage our growth may have a material adverse
effect on our business, operating results and financial condition. The rapid
growth that we have experienced places significant challenges on our management,
administrative and operational resources. To properly manage this growth, we
must, among other things, implement additional and improve existing
administrative, financial and operational systems, procedures and controls on a
timely basis. We will also need to expand our finance, administrative and
operations staff as part of our increased need for infrastructure. We may not be
able to complete the improvements to our systems, procedures and controls
necessary to support our future operations in a timely manner. Management may
not be able to hire, train, integrate, retain, motivate and manage required
personnel and may not be able to successfully identify, manage and exploit
existing and potential market opportunities. Improving our systems and
increasing our staff will increase our operating expenses. Our failure to
generate additional revenue in excess of increased operating expenses in any
fiscal period could have a material adverse effect on our financial results for
that period.
WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN KEY
PERSONNEL.
Our success depends upon the continued contributions of our executive
officers and scientific and technical personnel. During our operating history,
many key responsibilities within our company have been assigned to a relatively
small number of individuals. The competition for qualified personnel is intense,
and the loss of services of key personnel could adversely affect our business.
In particular, the loss of the services of John Siebert, our Chief Executive
Officer, and/or John Hontz, our Chief Operating Officer, could have a material
adverse effect on our operations. We have an employment agreement through
December 31, 2000 with Dr. Siebert.
We rely on our key personnel and our consultants to assist us in
formulating our research and development and medical/clinical strategy. All of
our consultants are otherwise employed and each of these consultants may have
commitments to other entities that may limit their availability to us or other
interests that may conflict with our interests.
WE MAY FACE PRODUCT LIABILITY CLAIMS RELATED TO PARTICIPATION IN CLINICAL TRIALS
OR THE USE OR MISUSE OF OUR PRODUCTS.
The testing, manufacturing and marketing of products utilizing our drug
delivery technologies may expose us to potential product liability and other
claims resulting from their use. We cannot be sure that any indemnification we
have obtained, or may obtain, from contract research organizations or
pharmaceutical companies conducting human clinical trials on our behalf protect
us from product liability claims or from the costs of related litigation.
Similarly, we cannot be sure that any indemnification we have obtained, or may
obtain, from pharmaceutical companies with whom we are developing our drug
delivery technologies will protect us from product liability claims from the
consumers of those products or from the costs of related litigation. If we are
subject to a product liability claim, we cannot be sure that our product
liability insurance, which has an aggregate policy limit of $5 million, will
reimburse us, or will be sufficient to reimburse us, for any expenses or losses
we may suffer. A successful product liability claim against us, if not covered
by, or if in excess of, our product liability insurance, may have a material
adverse effect on our business and results of operations.
RISKS RELATED TO OUR INDUSTRY
WE FACE RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION.
Our success depends, in part, upon maintaining a competitive position
in the development of products and technologies in a rapidly evolving field. We
compete with other drug delivery, biotechnology
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and pharmaceutical companies, engaged in the development of alternative drug
delivery technologies or new drug research and testing, as well as with entities
developing new drugs that may be taken orally. Many of these competitors have
substantially greater financial, technological, manufacturing, marketing,
managerial and research and development resources and experience than we do,
and, therefore, represent significant competition for us.
Our competitors may succeed in developing competing technologies,
obtain patents or obtain governmental approval for products before we do. The
products of our competitors may gain market acceptance more rapidly than our
products. Developments by competitors may render our products, or potential
products, noncompetitive or obsolete.
THE CONTINUING EFFORTS OF GOVERNMENT AND THIRD-PARTY PAYERS TO CONTAIN OR REDUCE
THE COSTS OF HEALTHCARE COULD ADVERSELY AFFECT OUR REVENUE AND PROFITABILITY.
Our revenue, particularly revenue from royalties on sales of our product by our
pharmaceutical company partners, may be affected by the continuing efforts of
government and third-party payers to contain or reduce the costs of healthcare.
We cannot predict the effect that these healthcare reforms may have on our
business. In addition, in the United States and elsewhere, sales of prescription
pharmaceuticals are dependent in part on the availability of reimbursement to
the consumer by third-party payers, like government and private insurance plans.
Third party payers are increasingly challenging the prices charged for medical
products and services. If our current and proposed products are not considered
cost-effective, reimbursement to the consumer may not be available or be
sufficient to allow us or our pharmaceutical company partners to sell products
on a competitive basis.
OUR COMMERCIAL PRODUCTS ARE SUBJECT TO CONTINUING REGULATION.
Even if our products receive regulatory approval, either in the U.S. or
internationally, we will continue to be subject to extensive regulatory
requirements. These regulations are wide-ranging and govern, among other things:
- adverse drug experience reporting regulations;
- product promotion;
- product manufacturing, including good manufacturing practice, or
GMP, requirements; and
- product changes or modifications
- process changes or modifications
If we fail to comply or maintain compliance with these laws and
regulations, we may be fined or barred from selling our products. If the FDA
believes that we are not complying with the law, it can:
- seize our products;
- mandate a recall;
- stop future sales through injunctive procedures; and/or
- assess civil and criminal penalties against us.
RISKS RELATED TO OUR COMMON STOCK
ANTI-TAKEOVER PROVISIONS OF OUR CORPORATE CHARTER DOCUMENTS, DELAWARE LAW AND
OUR STOCKHOLDERS' RIGHTS PLAN MAY AFFECT THE PRICE OF OUR COMMON STOCK.
Our board of directors has the authority to issue up to 5,000,000
shares of preferred stock and to determine the rights, preferences and
privileges of those shares without any further vote or action by our
stockholders. The rights of holders of our common stock may be adversely
affected by the rights of the holders of any preferred stock that may be issued
in the future. Additional provisions of our certificate of incorporation and
bylaws could have the effect of making it more difficult for a third party to
acquire a
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EXHIBIT 99.1
majority of our outstanding voting common stock. These include provisions that
limit the ability of stockholders to take action by written consent, call
special meetings or remove a director for cause.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law which prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, either alone or together with affiliates and associates, owns (or
within the past three years, did own) 15% or more of the corporation's voting
stock.
We also have a stockholders' rights plan, commonly referred to as a
poison pill, that makes it difficult, if not impossible, for a person to acquire
control of us without the consent of our board of directors. The anti-takeover
provisions of our corporate charter documents, Delaware law and our
stockholders' rights plan may have the effect of depriving our stockholders of
the opportunity to sell their stock at a price in excess of prevailing market
prices in an acquisition of us by another company.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
The trading price of our common stock has been, and is likely to
continue to be highly volatile. The market prices for securities of drug
delivery, biotechnology and pharmaceutical companies historically have been
highly volatile. Factors that could adversely affect our stock price include:
- - fluctuations in our operating results;
- - announcements of technological collaborations, innovations or new products
by us or our competitors;
- - governmental regulations;
- - developments in patent or other proprietary rights;
- - public concern as to the safety of drugs developed by us or others;
- - the results of preclinical testing and clinical studies or trials by us or
our competitors;
- - litigation; and
- - general market conditions.
OUR OPERATING RESULTS MAY FLUCTUATE, CAUSING OUR STOCK PRICE TO FALL.
Our operating results may fluctuate from quarter to quarter and from
year to year depending on:
- - demand by patients for the products we produce;
- - new product introductions;
- - the seasonal nature of the products produced to treat seasonal ailments;
- - pharmaceutical company ordering patterns;
- - the number of new collaborative agreements that we enter into;
- - our achievement of product development milestones under collaborative
agreements; and
- - our level of activity conducted on behalf and at the direction of
pharmaceutical companies.
Fluctuations in our operating results may lead to fluctuations,
including declines, in our stock price.
FUTURE SALES OF COMMON STOCK, OR THE PROSPECT OF FUTURE SALES, MAY DEPRESS OUR
STOCK PRICE.
Sales of a substantial number of shares of common stock, or the
perception that sales could occur, could adversely affect the market price of
our common stock. On March 17, 2000, we issued and sold 1,100,000 shares of our
common stock to a limited number of investors in a private placement, exempt
from registration under the Securities Act of 1933. Under the stock purchase
agreement with the investors, we
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EXHIBIT 99.1
were required to file a registration statement with the Securities and Exchange
Commission within thirty days after March 17, 2000 for the resale by the
investors of the shares of common stock issued in the private placement. This
registration statement was filed on April 14, 2000. We also are required to use
our reasonable efforts to have the registration statement declared effective by
the Securities and Exchange Commission and maintain its effectiveness until the
earlier of March 17, 2002, the time at which all shares acquired in the private
placement have been sold under the registration statement, or the date on which
each investor may sell all of the shares of common stock acquired by the
investor in the private placement without registration or without regard to any
volume limitations. Significant resales of the common stock issued in the
private placement could adversely affect the market price of our common stock.
WE MAY REQUIRE ADDITIONAL FINANCING.
We expect operating expenses and capital expenditures to increase as we
commercialize additional applications of our drug delivery technologies and
increase our production capacity. We believe our cash and cash equivalents,
together with the net proceeds from the private placement of common stock and
expected revenues from operations, will be sufficient to meet our anticipated
capital requirements for the foreseeable future. However, we may elect to pursue
additional financing at any time to more aggressively pursue development of new
drug delivery technologies and expand manufacturing capacity beyond that
currently planned. In addition, other factors that will affect future capital
requirements and may require us to seek additional financing, include the level
of expenditures necessary to develop new products or technologies, the progress
of our research and product development programs, the need to construct a larger
than currently anticipated manufacturing facility or to construct a new
manufacturing facility at an alternative site to meet demand for our products,
results of our collaborative efforts with current and potential pharmaceutical
company partners, and the timing of and amounts received from future product
sales, product development fees and licensing revenue and royalties. We cannot
be sure that additional financing will be available to us or, if available, on
acceptable terms. Further, if we issue equity securities, our stockholders may
experience dilution.
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