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UNITED STATES 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 June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 000-21873
BIOSITE DIAGNOSTICS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 33-0288606
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
11030 Roselle Street San Diego, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 455-4808
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
The number of shares of the Registrant's Common Stock, $0.01 par value,
outstanding at
July 31, 1997 was 12,795,788
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BIOSITE DIAGNOSTICS INCORPORATED
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets as of June 30, 1997 (Unaudited)
and December 31, 1996..................................................................... 1
Condensed Statements of Income (Unaudited) for the three months and six months
ended June 30, 1997 and 1996................................................................ 2
Condensed Statements of Cash Flows (Unaudited) for the six
months ended June 30, 1997 and 1996......................................................... 3
Notes to Condensed Financial Statements (Unaudited)........................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 6
Item 3. Quantitative and Qualitative Disclosure about Market Risk..................................... Not Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. Not Applicable
Item 2. Changes in Securities......................................................................... 14
Item 3. Defaults Upon Senior Securities............................................................... Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders........................................... Not Applicable
Item 5. Other Information............................................................................. Not Applicable
Item 6. Exhibits and Reports on Form 8-K.............................................................. 14
Signatures .............................................................................................. 15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOSITE DIAGNOSTICS INCORPORATED
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,605,888 $ 1,609,861
Marketable securities, available-for-sale 33,809,653 8,305,663
Accounts receivable 5,599,326 4,608,072
Receivable from stockholder 1,077,404 869,535
Inventories 1,954,772 1,732,180
Other current assets 2,298,769 1,864,298
------------ ------------
Total current assets 51,345,812 18,989,609
Property, equipment and leasehold improvements, net 6,363,750 4,140,163
Patents and license rights, net 4,031,417 4,292,277
Other assets 1,110,277 2,666,569
------------ ------------
$ 62,851,256 $ 30,088,618
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,123,203 $ 967,974
Accrued salaries and other 1,051,797 1,950,800
Accrued contract payable 630,283 751,544
Current portion of long-term obligations 1,366,155 1,012,073
------------ ------------
Total current liabilities 4,171,438 4,682,391
Long-term obligations 3,233,590 3,252,944
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares and 8,328,847 shares
authorized at June 30, 1997 and December 31, 1996, respectively; 8,328,847
shares issued and outstanding at December 31, 1996
-- 83,288
Common stock, $.01 par value, 25,000,000 shares and 12,000,000 shares
authorized at June 30, 1997 and December 31, 1996, respectively; 12,793,277
and 1,473,573 shares issued and outstanding at June 30, 1997 and December
31, 1996, respectively
127,933 14,736
Additional paid-in capital 53,339,879 22,094,711
Unrealized net loss on marketable securities, net of related tax effect (17,248) (2,754)
Deferred compensation (372,921) (427,345)
Retained earnings 2,368,585 390,647
------------ ------------
Total stockholders' equity 55,446,228 22,153,283
------------ ------------
$ 62,851,256 $ 30,088,618
============ ============
</TABLE>
Note: The balance sheet at December 31, 1996 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.
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BIOSITE DIAGNOSTICS INCORPORATED
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 7,796,869 $ 6,770,933 $ 15,329,937 $ 12,977,597
Cost of sales 1,613,005 1,397,796 3,237,251 2,768,495
------------ ------------ ------------ ------------
Gross profit 6,183,864 5,373,137 12,092,686 10,209,102
Operating Expenses:
Research and development 2,681,485 1,904,353 5,419,431 3,970,739
Selling, general and administrative 2,768,275 2,016,312 5,071,494 3,929,676
Settlement of patent matters -- -- -- 2,368,282
------------ ------------ ------------ ------------
5,449,760 3,920,665 10,490,925 10,268,697
------------ ------------ ------------ ------------
Operating income (loss) 734,104 1,452,472 1,601,761 (59,595)
Other income:
Interest and other income 554,335 199,648 878,150 387,009
Contract revenue-related party 244,020 242,301 580,027 554,530
------------ ------------ ------------ ------------
Income before provision for income taxes 1,532,459 1,894,421 3,059,938 881,944
Provision for income taxes 547,000 697,553 1,082,000 324,744
------------ ------------ ------------ ------------
Net income $ 985,459 $ 1,196,868 $ 1,977,938 $ 557,200
============ ============ ============ ============
Net income per share $ 0.07 $ 0.11 $ 0.16 $ 0.05
============ ============ ============ ============
Shares used in calculating per share amounts 13,439,000 10,974,000 12,633,000 10,699,000
============ ============ ============ ============
</TABLE>
See accompanying notes.
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BIOSITE DIAGNOSTICS INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities $ 1,131,505 $ 535,542
INVESTING ACTIVITIES
Proceeds from sales and maturities of marketable securities
15,944,012 7,128,514
Purchase of marketable securities (41,472,157) (5,221,882)
Purchase of property, equipment and leasehold improvements
(3,215,591) (965,445)
Patents, license rights, deposits and other assets 998,453 309,607
------------ ------------
Net cash provided by (used in) investing activities (27,745,283) 1,250,794
FINANCING ACTIVITIES
Proceeds from issuance of financing obligations 2,098,435 965,776
Principal payments under financing obligations (763,707) (645,820)
Proceeds from issuance of stock, net 30,275,077 58,061
------------ ------------
Net cash provided by financing activities 31,609,805 378,017
------------ ------------
Increase in cash and cash equivalents 4,996,027 2,164,353
Cash and cash equivalents at beginning of period 1,609,861 2,276,403
------------ ------------
Cash and cash equivalents at end of period $ 6,605,888 $ 4,440,756
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 114,636 $ 139,560
============ ============
Income taxes paid $ 496,850 $ 77,600
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued liability for license rights acquired $ -- $ 3,500,000
============ ============
</TABLE>
See accompanying notes.
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BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed 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. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, considered necessary for a fair presentation of the results for
the interim periods presented. Interim results are not necessarily indicative of
results for a full year. The Company has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
sales, expenses and net income or losses will continue.
The financial statements and related disclosures have been prepared with
the presumption that users of the interim financial information have read or
have access to the audited financial statements for the preceding fiscal year.
Accordingly, these financial statements should be read in conjunction with the
audited financial statements and the related notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common shares and common equivalent shares outstanding during each period.
Common equivalent shares are computed using the treasury stock method and
consist of common stock which may be issuable upon exercise of outstanding
common stock options, when dilutive. Pursuant to the requirements of the
Securities and Exchange Commission, common stock issued by the Company during
the twelve months immediately preceding the Company's initial public offering,
plus the number of common equivalent shares which became issuable during the
same period pursuant to the grant of stock options, have been included in the
calculation of the shares used in computing net income per share as if these
shares were outstanding for all periods presented using the treasury stock
method. In addition, the calculation of the shares used in computing net income
per share also includes convertible preferred stock which converted into
8,328,847 shares of common stock and an outstanding $1.0 million convertible
debenture and related accrued interest which converted into 92,575 common shares
(based on the initial public offering price of $12.00 per share) upon the
completion of the initial public offering, as if they were converted into common
stock as of the original dates of issuance.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share ("Statement No.
128"). Statement No. 128 applies to entities with publicly held common stock or
potential common stock and is effective for financial statements issued for
periods ending after December 15, 1997. Statement No. 128 replaces APB Opinion
15, Earnings per Share ("EPS"). Statement No. 128 requires dual presentation of
basic and diluted earnings per share by entities with complex capital
structures. Basic EPS includes no dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution of securities that could
share in the earnings of the entity. The Company plans to adopt Statement No.
128 beginning with its financial statements for the quarter and year ended
December 31, 1997. The impact of Statement No. 128 is expected to result in the
calculation of basic net income per share of $0.08 and $0.84 for the quarters
ended June 30, 1997 and 1996, respectively, and a calculation of basic net
income per share of $0.20 and $0.40 for the six months ended June 30, 1997 and
1996, respectively. The Company has not yet determined what the impact of
Statement No. 128 will be on the calculation of diluted net income per share.
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BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. BALANCE SHEET INFORMATION
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw materials $ 532,909 $ 441,719
Work in process 1,161,463 1,125,608
Finished goods 260,400 164,853
------------ ------------
$ 1,954,772 $ 1,732,180
============ ============
</TABLE>
4. INITIAL PUBLIC OFFERING
In February 1997, the Company completed its initial public offering of
2,760,000 shares of common stock (including an exercised underwriters'
over-allotment option for 360,000 shares) at a price of $12.00 per share,
providing the Company with net proceeds of approximately $29.8 million, after
deducting underwriting discounts and commissions of approximately $2.3 million
and offering costs of approximately $973,000. Additionally, all outstanding
shares of preferred stock were converted into 8,328,847 shares of common stock
and an outstanding $1.0 million convertible debenture and related accrued
interest was converted into 92,575 common shares (based on the initial public
offering price of $12.00 per share) upon the completion of the initial public
offering. Upon completion of the initial public offering, the certificate of
incorporation of the Company was amended to provide that the authorized number
of shares of common and preferred stock issuable by the Company was 25,000,000
shares of common stock and 5,000,000 shares of preferred stock.
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<PAGE> 8
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking statements
that involve risks and uncertainties, including the timely development,
introduction and acceptance of new products, dependence on others, the impact of
competitive products, patent issues, changing market conditions and the other
risks detailed under "Factors that May Affect Results," and throughout the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Actual results may differ materially from those projected. These forward-looking
statements represent the Company's judgment as of the date of the filing of this
Form 10-Q and Form 10-K, respectively. The Company disclaims any intent or
obligation to update these forward-looking statements.
OVERVIEW
Since the Company's inception in 1988, the Company has been primarily
involved in the research, development, manufacturing and marketing of
point-of-care diagnostic tests. The Company began commercial sales of Triage
Panel for Drugs of Abuse ("Triage DOA") in February 1992 and currently markets
the product worldwide primarily through distributors supported by a small direct
sales force. The Company is engaged in research and development of additional
point-of-care diagnostic products in the microbiology, cardiology and
therapeutic drug monitoring fields.
In February 1997, the Company completed its initial public offering of
2,760,000 shares of Common Stock (including an exercised underwriters'
over-allotment option for 360,000 shares of Common Stock) at a price to the
public of $12.00 per share, providing the Company with net proceeds of
approximately $29.8 million, after deducting underwriting discounts and
commissions of approximately $2.3 million and offering expenses of approximately
$973,000. Additionally, all outstanding shares of Preferred Stock were converted
into 8,328,847 shares of Common Stock and an outstanding $1.0 million
convertible debenture and related accrued interest was converted into 92,575
shares of Common Stock upon the completion of the initial public offering.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of net
sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales ..................................... 100% 100% 100% 100%
Cost of sales ................................. 21% 21% 21% 21%
------- ------- ------- -------
Gross profit .................................. 79% 79% 79% 79%
Operating Expenses:
Research and development ................... 34% 28% 35% 31%
Selling, general and administrative ........ 36% 30% 33% 30%
Settlement of patent matters ............... 0% 0% 0% 18%
------- ------- ------- -------
Total operating expenses ...................... 70% 58% 68% 79%
------- ------- ------- -------
Income from operations ........................ 9% 21% 11% 0%
Interest and other income, net ................ 11% 7% 9% 7%
------- ------- ------- -------
Income before benefit for income taxes ........ 20% 28% 20% 7%
------- ------- ------- -------
Provision for income taxes .................... 7% 10% 7% 3%
------- ------- ------- -------
Net income .................................... 13% 18% 13% 4%
======= ======= ======= =======
</TABLE>
Net Sales. Net Sales for the three and six months ended June 30, 1997
increased to $7.8 million and $15.3 million, respectively, up 15% and 18%,
respectively, compared to the same periods of 1996. The increase is primarily
attributable to the continued market acceptance of the Company's Triage DOA
products and a shift in
6
<PAGE> 9
sales from other Triage DOA products to the higher-priced Triage DOA Plus TCA
product. Sales of Triage DOA Plus TCA increased 24% to $4.1 million for the
second quarter of 1997 from $3.3 million for the second quarter of 1996. On a
year-to-date basis, sales of Triage DOA Plus TCA were $7.7 million, 27% higher
than the comparable period of 1996. The Company believes that the growth in
sales of Triage DOA will slow as the available U.S. market becomes saturated and
competitive pressures become more prominent in a maturing market.
Gross profit. Gross profit for the three months and six months ended June
30, 1997 was $6.2 million and $12.1 million, respectively, representing
increases of 15% and 18%, respectively, over the comparable periods of 1996. The
increased gross profit resulted primarily from increased sales of the Triage DOA
product line. Gross margins remained at 79% for both the second quarter and
first six months of 1997, consistent with the gross margins for the same periods
of 1996.
Research and Development Expenses. Research and development expenses for
the three months and six months ended June 30, 1997 were $2.7 million and $5.4
million, respectively, representing increases of 41% and 36%, respectively, from
the comparable periods of 1996. These increases resulted from the expansion of
the Company's research and development and manufacturing scale-up efforts
associated with its cardiac, microbiology, and therapeutic drug monitoring
assays under development. During the first half of 1997, the Company expended
significant efforts on activities related to Triage Cardiac and Triage C. diff,
two products under development which the Company believes are closest to
commercialization, while continuing other research and development activities.
Clinical investigations of Triage Cardiac and Triage C. diff were initiated in
the first half of 1997. The Company expects that its research and development
expenses will continue to increase in 1997, as compared to 1996 levels, and may
continue to increase in 1998. The increased expenditures are expected to
primarily relate to hiring additional personnel, preclinical and clinical
studies, product development efforts and manufacturing scale-up activities. The
timing of such increased expenditures and their magnitude are primarily
dependent on the success of the research and development and the timing of
potential product launches.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months and six months ended June 30, 1997
were $2.8 million and $5.1 million, respectively, representing increases of 37%
and 29%, respectively, from the comparable periods of 1996. The 1997 increases
were primarily a result of the cost of expanding the Company's in-house
marketing and administrative functions to support the Company's expanded
operations. During the second quarter of 1997, the Company initiated certain
marketing programs designed to spur greater sales in the clinical and workplace
testing markets. The Company expects selling, general and administrative costs
to increase significantly as the Company continues to expand its level of
operations and in anticipation of potential changes in its operations resulting
from, among other things, the potential introduction of new products and the
Company's obligations as a public reporting entity. In particular, the Company
expects activities related to the potential launches of Triage C. diff and
Triage Cardiac to result in increases in selling, general and administrative
expenses in 1997 as compared to 1996 levels. Such increases in selling, general
and administrative expenses may continue in 1998. The increased expenditures are
expected to principally relate to the expansion of the Company's sales force and
marketing activities, as well as additional administrative personnel to support
expanded manufacturing and sales activities. The timing of such increased
expenditures and their magnitude are primarily dependent on the success of the
development of new products and the timing of their commercialization,
distribution strategies and sales growth.
Settlement of Patent Matters. In September 1996, the Company reached a
settlement with Abbott Laboratories, with respect to all claims set forth in a
lawsuit filed by Abbott Laboratories in May 1994. The lawsuit alleged that
Triage DOA infringed a patent licensed to Abbott Laboratories. The Company
vigorously defended the lawsuit. However, to avoid protracted litigation, the
Company settled the patent matter in September 1996, paid $2.0 million as a
settlement of the litigation and, for an additional $3.5 million and the
agreement to pay certain royalties, obtained a license to certain technology.
Future amortization of the license fee will be charged to cost of sales over the
life of the license. The $2.0 million litigation settlement payment, as well as
the amortization related to prior fiscal years and related legal defense costs
were charged to settlement of patent matters in the first quarter of 1996.
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Interest and Other Income. Interest income increased $355,000 and $491,000
for the three and six months ended June 30, 1997, respectively, from the
comparable periods in 1996. The increases resulted primarily from the higher
average balance of cash, cash equivalents and marketable securities during the
first half of 1997 as compared to the same period in 1996. In February 1997, the
Company received net proceeds from its initial public offering of approximately
$29.8 million.
Provision for Income Taxes. The Company's provisions for income taxes for
the three months and six months ended June 30, 1997 was $547,000 and $1.1
million, respectively. The Company's effective tax rates were 36% and 35% for
the three and six month periods ended June 30, 1997, respectively, compared to
37% for the same periods in 1996. The decrease in the Company's effective tax
rate resulted primarily from increases in the estimated research and development
credits and a state tax benefit attributable to credits for certain capital
expenditures.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through private
placements of equity securities, revenues from operations, debt and capital
lease financing and interest income earned on the net proceeds from the private
placements. Since its inception, the Company has raised over $21.7 million in
net cash proceeds from the private placement of equity securities and $1.0
million from the issuance of convertible debentures. In February 1997, the
Company raised approximately $29.8 million in net cash proceeds from its initial
public offering of 2,760,000 shares of Common Stock. At June 30, 1997, the
Company had cash, cash equivalents, and marketable securities of approximately
$40.4 million compared to $9.9 million at December 31, 1996.
The increase in cash, cash equivalents, and marketable securities during
the six months ended June 30, 1997 is largely attributable to the net proceeds
of approximately $29.8 million raised in the Company's initial public offering
in February 1997. Additionally, the Company generated cash from operating
activities of $1.1 million for the six months ended June 30, 1997 as compared to
net cash generated from operating activities of $536,000 for the six months
ended June 30, 1996. Net cash provided by operating activities for the six
months ended June 30, 1996 included the payment of $2.2 million for a license
right accrued as of December 31, 1995. Significant sources and uses of cash for
the six months ended June 30, 1997 included the expenditure of $700,000 to
acquire licenses to certain in-process technologies, $3.2 million for capital
equipment and leasehold improvements and the receipt of $1.7 million in proceeds
from equipment financing.
The Company's primary short-term needs for capital, which are subject to
change, are for expansion of its manufacturing capacity for potential new
products, expansion of its direct sales force and marketing programs related to
potential new products, potential procurement and enforcement of patents and the
continued advancement of research and development efforts. The Company utilizes
credit arrangements with financing companies and leasing companies to finance
the purchase of capital equipment. As of June 30, 1997, the Company had
equipment financing lines of credit with a financial institution totaling $5.0
million, of which approximately $3.0 million was available for future borrowing.
The lines of credit expire on June 30, 1998. Additionally, the Company utilizes
cash generated from operating activities to meet its capital requirements.
The Company believes that its available cash, cash from operations and
funds from existing credit arrangements will be sufficient to satisfy its
funding needs at least through 1998. Thereafter, if cash generated from
operations is insufficient to satisfy the Company's working capital and capital
expenditure requirements, the Company may be required to sell additional equity
or debt securities or obtain additional credit facilities. There can be no
assurance that such additional capital, if needed, will be available on
satisfactory terms, if at all. Certain funding arrangements may require the
Company to relinquish its rights to certain of its technologies, products or
marketing territories. Furthermore, any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may include
restrictive covenants. The Company's future liquidity and capital funding
requirements will depend on numerous factors, including the extent to which the
Company's products under development are successfully developed and gain market
acceptance, the timing of regulatory actions regarding the Company's potential
products, the costs and timing of expansion of sales, marketing and
manufacturing activities, facilities expansion needs, procurement and
enforcement of patents important to the Company's business, results of clinical
investigations and
8
<PAGE> 11
competition. The failure by the Company to raise capital on acceptable terms
when needed could have a material adverse effect on the Company's business,
financial condition and results of operations.
FACTORS THAT MAY AFFECT RESULTS
This report includes certain forward-looking statements about the Company's
business and results of operations which are subject to risks and uncertainties
that could cause the Company's actual results to vary materially from that
indicated from such forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere herein and in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996. The factors discussed below should be read in
conjunction with the risk factors discussed in the Company's Annual Report on
Form 10-K, which are incorporated by reference.
- - Limited History of Profitability, Potential Quarterly Fluctuations in
Future Operating Result
The Company first achieved profitability in fiscal 1994 and prior to that
time incurred significant operating losses. The Company experienced operating
profits on a quarterly basis in 1995. However, the Company incurred an operating
loss for the first quarter of 1996 and then returned to operating profitability
for the remaining quarters of 1996. There can be no assurance that the Company
will remain profitable on a quarterly or annual basis in the future. The Company
believes that future operating results will be subject to quarterly fluctuations
due to a variety of factors, including whether and when new products are
successfully developed and introduced by the Company, market acceptance of
current or new products, regulatory delays, product recalls, manufacturing
delays, shipment problems, seasonal customer demand, the timing of significant
orders, changes in reimbursement policies, competitive pressures on average
selling prices, changes in the mix of products sold and patent conflicts.
Operating results would also be adversely affected by a downturn in the market
for the Company's current and future products, if any, order cancellations or
order rescheduling. Because the Company is continuing to increase its operating
expenses for personnel and new product development, the Company's operating
results would be adversely affected if its sales did not correspondingly
increase or if its product development efforts are unsuccessful or subject to
delays. The Company's limited operating history makes accurate prediction of
future operating results difficult or impossible. Although the Company has
experienced growth in recent years, there can be no assurance that, in the
future, the Company will sustain revenue growth or remain profitable on a
quarterly or annual basis or that its growth will be consistent with predictions
made by securities analysts.
- - Near-term Dependence of the Company on Triage DOA
To date, sales of Triage DOA have accounted for all of the Company's sales.
The Company expects its revenue and profitability will substantially depend on
the sale of Triage DOA for the foreseeable future. A reduction in demand for
Triage DOA would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company believes that growth
in sales of Triage DOA will slow as the available U.S. market becomes saturated.
Competitive pressures could also erode the Company's profit margins for Triage
DOA. Additionally, most of the Company's customers are healthcare providers
under continuous cost containment pressure, which could also erode the Company's
profit margin for Triage DOA. The Company's continued growth will depend on its
ability to successfully develop and commercialize other products, gain
additional acceptance of Triage DOA in new market segments or transition
customers to higher-margin products of the Triage DOA product line, such as
Triage DOA Plus TCA. There can be no assurance that the Company will be able to
successfully develop and commercialize new products or that the Company will be
able to maintain or expand its share of the drug testing market. Technological
change or the development of new or improved diagnostic technologies could
result in the Company's products becoming obsolete or noncompetitive.
- - Dependence on Development and Introduction of New Products for Revenue
Growth and Profitability
Except for Triage DOA, all of the Company's products are still under
development, and there can be no assurance that such products will be
successfully developed or commercialized on a timely basis, if at all. The
9
<PAGE> 12
Company believes that its revenue growth and profitability will substantially
depend upon its ability to complete development of and successfully introduce
these new products. In addition, the successful development of some of these new
products will depend on the development of new technologies, including the
Triage CareLink System's fluorescent meter and assay devices. The Company will
be required to undertake time-consuming and costly development activities and
seek regulatory approval for these new products. There can be no assurance that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these new products, that
regulatory clearance or approval of any new products will be granted by the U.S.
Food and Drug Administration or foreign regulatory authorities on a timely
basis, if at all, or that the new products will be successfully commercialized.
The Company has limited resources to devote to the development of all its
products and consequently a delay in the development of one product may delay
the development of other products. In order to successfully commercialize any
new products, the Company will be required to establish and maintain reliable,
cost-efficient, high-volume manufacturing capacity and a cost effective sales
force and product distribution system for such products. If the Company is
unable, for technological or other reasons, to complete the development,
introduction or scale-up of manufacturing of any new product or if any new
product is not approved for marketing or does not achieve a significant level of
market acceptance, the Company's business, financial condition and results of
operations would be materially and adversely affected.
- - Dependence on Key Distributors; Limited Direct Sales Experience
The Company relies upon distributors and its own sales force to distribute
Triage DOA and may rely upon distributors to distribute products under
development. Triage DOA is currently marketed pursuant to exclusive distribution
agreements in the U.S. medical market by the Fisher Healthcare Division
("Fisher") of the Fisher Scientific Company and in certain countries in Europe,
Latin America, the Middle East, Asia and Africa by Merck KGaA. The loss or
termination of either of these distributors could have a material adverse effect
on the Company's sales and operating income unless suitable alternatives can be
arranged.
The Fisher distribution agreement has minimum quarterly sales milestones
which have not been met and gives the Company the option to terminate the
agreement without payment of a termination fee, obligates Fisher to pay to
Biosite a portion of the penalty Fisher incurred in 1996, and allows the Company
to appoint a new distributor or to sell Triage DOA directly in the U.S. medical
market. The Company has not exercised its right to terminate the agreement and
is currently negotiating a new distribution agreement which, if executed, would
maintain Fisher as the Company's U.S. distributor. There can be no assurance
that a new distribution agreement will be executed. The current Fisher
distribution agreement provides for a six-month transition period in the event
of termination.
If any of the Company's distribution or marketing agreements are terminated
and the Company is unable to enter into replacement agreements or if the Company
elects to distribute new products directly, the Company would have to invest in
additional selling, general and administrative resources, including additional
field sales personnel, which would significantly increase future sales and
marketing expenses. The Company currently has limited experience in direct
sales, marketing and distribution of its products. There can be no assurance
that the Company's direct sales, marketing and distribution efforts would be
successful or that revenue from such efforts would exceed expenses. Further,
there can be no assurance that Biosite would be able to enter into new
distribution or marketing agreements on satisfactory terms, if at all.
- - Uncertainty of Patent and Proprietary Technology Protection; Potential
Inability to License Technology from Third Parties
The Company's ability to compete effectively will depend in part on its
ability to develop and maintain proprietary aspects of its technology, and to
operate without infringing the proprietary rights of others or to obtain rights
to such proprietary rights. Biosite has U.S. and foreign issued patents and is
currently prosecuting patent applications in the United States and with certain
foreign patent offices. There can be no assurance that any of the Company's
pending patent applications will result in the issuance of any patents, that the
Company's patent applications will have priority over others' applications, or
that, if issued, any of the Company's patents will offer protection against
competitors with similar technologies. There can be no assurance that any
patents issued to the
10
<PAGE> 13
Company will not be challenged, invalidated or circumvented in the future or
that the rights created thereunder will provide a competitive advantage.
Litigation may be necessary to enforce any patents issued to the Company,
to protect trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. In March
1996, the Company settled a potential patent infringement claim by obtaining a
license to the contested patent in return for a one-time payment of $2.2
million. In September 1996, the Company settled a patent infringement lawsuit
filed by Abbott Laboratories and obtained a license to the contested patent in
return for the payment of $5.5 million and the agreement to pay certain
royalties. There can be no assurance that the Company will not in the future
become subject to patent infringement claims and litigation or interference
proceedings conducted in the USPTO to determine the priority of inventions.
The Company has received correspondence from Becton Dickinson and Company
("B-D"), a major manufacturer of medical supplies, devices and diagnostic
systems, offering to license a U.S. patent held by B-D to the Company. B-D did
not propose any license terms in its correspondence. The Company has reviewed
such patent and believes that it has defenses to any infringement claim under
such patent. In addition, Biosite has received a letter from Spectral
Diagnostics, Inc. ("Spectral"), a manufacturer of rapid-format
cardiac-diagnostic panels, informing the Company that Spectral holds a U.S.
patent covering a kit for diagnosing and distinguishing chest pain and that it
received a notice of allowance from the U.S. Patent and Trademark Office
("USPTO") with respect to a second patent application. This letter states that
Spectral has not yet determined its position with respect to the licensing of
its technology. The Company has asked Spectral for a clarification of its
position. The Company is continuing its review of the issued patent cited in
this letter and the materials provided by Spectral with respect to the allowed
patent application and is evaluating their potential impact on Triage Cardiac.
There can be no assurance that B-D or Spectral will not initiate litigation
alleging that Triage DOA or Triage Cardiac, respectively, infringe claims under
such manufacturer's patents. Such litigation, if initiated, could seek to
recover damages as a result of any sales of such products and to enjoin further
such sales. The outcome of litigation is inherently uncertain and there can be
no assurance that a court would not find such claims valid and that the Company
had no successful defense to such claims. An adverse outcome in litigation or
the failure to obtain a necessary license could subject the Company to
significant liability and could prevent Biosite from selling Triage DOA or
Triage Cardiac which could have a material adverse effect on the Company's
business, financial condition and results of operations.
The defense and prosecution of intellectual property suits, USPTO
interference proceedings, and related legal and administrative proceedings will
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties. Further,
either as the result of such litigation or proceedings or otherwise, the Company
may be required to seek licenses from third parties which may not be available
on commercially reasonable terms, if at all.
Triage DOA and products under development may incorporate technologies that
are the subject of patents issued to, and patent applications filed by, others.
The Company has obtained licenses for certain technologies. However, there can
be no assurance that the Company will be able to obtain licenses for technology
patented by others on commercially reasonable terms, if at all, that it will be
able to develop alternative approaches if unable to obtain licenses or that the
Company's current and future licenses will be adequate for the operation of
Biosite's business. The failure to obtain necessary licenses or to identify and
implement alternative approaches would prevent the Company from commercializing
certain of its products under development and would have a material adverse
effect on the Company's business, financial condition and results of operations.
Biosite is aware of a U.S. patent owned by Celltech Limited ("Celltech")
relating to the manufacture of antibodies, such as those developed or being
developed by Biosite for several products, including Triage Cardiac. Biosite is
also aware that this patent is the subject of an interference proceeding in the
USPTO which was initiated in February 1991 with a patent application filed by
Genentech, Inc. ("Genentech"). In June 1996, the European Patent Office ("EPO")
invalidated, following an opposition, certain claims under Celltech's
corresponding EPO-granted patent which may be relevant to Biosite's products and
products under development. Celltech has indicated that it will appeal such
decision. If Celltech does appeal, such claims can be reinstated, at least until
a final decision
11
<PAGE> 14
is rendered. If it is determined that aspects of the manufacturing of Biosite's
antibodies are covered by patent claims stemming from the interference or if
Celltech were to have such claims upheld on appeal, or if patent infringement
litigation is brought against the Company by either Celltech or Genentech,
Biosite may be required to obtain a license under such patents and corresponding
patents in other countries. There can be no assurance that a license would be
made available to Biosite on commercially reasonable terms, if at all. If such
license is required and not obtained the Company might be prevented from using
certain of its manufacturing technologies. The Company's failure to obtain any
required licenses could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies upon trade secrets, technical know-how and
continuing invention to develop and maintain its competitive position. There can
be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology, that the Company can
meaningfully protect its trade secrets, or that the Company will be capable of
protecting its rights to its trade secrets.
Others may have filed and in the future are likely to file patent
applications that are similar or identical to those of the Company. To determine
the priority of inventions, the Company may have to participate in interference
proceedings declared by the USPTO that could result in substantial cost to the
Company. No assurance can be given that any patent application of another will
not have priority over patent applications filed by the Company.
The commercial success of the Company also depends in part on the Company
neither infringing patents or proprietary rights of third parties nor breaching
any licenses that may relate to the Company's technologies and products. The
Company is aware of several third-party patents that may relate to the Company's
technology. There can be no assurance that the Company does not or will not
infringe these patents, or other patents or proprietary rights of third parties.
In addition, the Company has received and may in the future receive notices
claiming infringement from third parties as well as invitations to take licenses
under third party patents. Any legal action against the Company or its
collaborative partners claiming damages and seeking to enjoin commercial
activities relating to the Company's products and processes affected by third
party rights, in addition to subjecting the Company to potential liability for
damages may require the Company or its collaborative partner to obtain a license
in order to continue to manufacture or market the affected products and
processes. There can be no assurance that the Company or its collaborative
partners would prevail in any such action or that any license (including
licenses proposed by third parties) required under any such patent would be made
available on commercially acceptable terms, if at all. There are a significant
number of U.S. and foreign patents and patent applications in the Company's
areas of interest, and the Company believes that there may be significant
litigation in the industry regarding patent and other intellectual property
rights. If the Company becomes involved in such litigation, it could consume a
substantial portion of the Company's managerial and financial resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
- - Intensely Competitive Industry; Rapid Technological Change
The market in which the Company competes is intensely competitive.
Biosite's competitors include health care companies that manufacture
laboratory-based tests and analyzers, as well as clinical reference laboratories
and hospital-based laboratories. Currently, the majority of diagnostic tests
used by physicians and other health care providers are performed by independent
clinical reference laboratories and hospital-based laboratories. The Company
expects that these laboratories will compete vigorously to maintain their
dominance of the testing market. In order to achieve market acceptance for its
products, the Company will be required to demonstrate that its products are an
attractive alternative to testing performed by clinical reference laboratories
and hospital-based laboratories. This will require physicians to change their
established means of having such tests performed. There can be no assurance that
the Company's products will be able to compete with the testing services
provided by these laboratories. In addition, companies with a significant
presence in the diagnostic market, such as Abbott Laboratories, Boehringer
Mannheim GmbH, Chiron Diagnostics, Clinical Diagnostic Systems, a division of
Johnson & Johnson, DADE International, and Roche Biosciences, Inc., have
developed or are developing diagnostic products that do or will compete with the
Company's products. These competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and
12
<PAGE> 15
service organizations than the Company. Moreover, such competitors offer broader
product lines and have greater name recognition than the Company, and offer
discounts as a competitive tactic. In addition, several smaller companies are
currently making or developing products that compete with or will compete with
those of the Company. There can be no assurance that the Company's competitors
will not succeed in developing or marketing technologies or products that are
more effective or commercially attractive than the Company's current or future
products, or that would render the Company's technologies and products obsolete.
Moreover, there can be no assurance that the Company will have the financial
resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. In addition, there can be no
assurance that competitors, many of which have made substantial investments in
competing technologies that may be more effective than the Company's
technologies, will not prevent, limit or interfere with the Company's ability to
make, use or sell its products either in the United States or in international
markets.
13
<PAGE> 16
PART II. OTHER INFORMATION.
ITEM 2. CHANGES IN SECURITIES.
On May 5, 1997, the Company issued 8,000 shares of its Common Stock to an
officer of the Company pursuant to the exercise of options granted under its
1989 Stock Plan on August 6, 1990. The exercise price per share was $0.24 for an
aggregate consideration of $1,920.00. The Company relied on the exemption
provided by Rule 701 under the Securities Act of 1933, as amended (the
"Securities Act").
On various dates from April 1, 1997 through June 30, 1997, the Company
issued 27,983 shares of its Common Stock to 12 non-officer employees pursuant to
the exercise of options granted under its 1989 Stock Plan between December 2,
1991 and September 30, 1996. The exercise prices per share ranged from $0.24 to
$5.50, for an aggregate consideration of $47,569.57. The Company relied on the
exemption provided by Rule 701 under the Securities Act.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.23 Amendment dated April 1, 1997 to Distribution Agreement between
Biosite Diagnostics Incorporated and Curtin Matheson Scientific,
Inc. (currently known as the Fisher Healthcare division of the
Fisher Scientific Company), dated November 11, 1991, as amended.
(Exhibit 10.10 to the Company's Registration Statement on Form
S-1, No. 333-17657).(1)
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None
- -----------------
1 Confidential treatment requested for certain portions of this exhibit.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1997 BIOSITE DIAGNOSTICS INCORPORATED
By: /s/ CHRISTOPHER J. TWOMEY
--------------------------------
Christopher J. Twomey
Vice President, Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
15
<PAGE> 18
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.23 Amendment dated April 1, 1997 to Distribution Agreement between
Biosite Diagnostics Incorporated and Curtin Matheson Scientific,
Inc. (currently known as the Fisher Healthcare division of the
Fisher Scientific Company), dated November 11, 1991, as amended.
(Exhibit 10.10 to the Company's Registration Statement on Form
S-1, No. 333-17657).(1)
27.1 Financial Data Schedule
</TABLE>
- ----------------
1 Confidential treatment requested for certain portions of this exhibit.
16
<PAGE> 1
EXHIBIT 10.23
[FISHER SCIENTIFIC LETTERHEAD]
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF
THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION]
VIA OVERNIGHT DELIVERY
April 1, 1997
Mr. Tom Watlington
Senior Vice President
Biosite Diagnostics
11030 Roselle Street
San Diego, CA 92121
Dear Tom:
This letter is intended to serve as our most recent amendment of the
Distribution Agreement dated November 11, 1991 (the "Agreement").
1. Biosite agrees that Fisher shall be permitted to apply its overachievement
of kit sales for the 4th quarter of 1996 (i.e. [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION]), which sales are
described in the Amendment dated August 9, 1996, towards achievement of its
sales target for the first quarter of 1997. Biosite further agrees that in
any future period in which Fisher overachieves the applicable sales target,
the number of kits by which the target is exceeded may be applied to the
applicable target for the next succeeding calendar quarter.
2. The Triage(R) Intervention Panel ("Triage(R) Intervention Panel") shall
hereby be added to the Agreement as a Product, as contemplated by paragraph
1.b. of the Agreement; provided, however that such addition shall be on a
trial basis for a period of six (6) months (calculated from the date of
first sale (i.e. invoice date) to Fisher), or such longer period as the
parties may mutually agree, in writing, and shall be subject to the further
terms and conditions contained herein:
a. Sales of the Triage(R) Intervention Panel product shall be applied
towards achievement of the existing sales targets described in the
Amendment dated August 9, 1996.
b. Paragraph 2 of the Amendment to the Distribution Agreement dated March
12, 1996 is hereby deleted; and the definition of Medical Segment set
forth in paragraph 2(b) of the Agreement is hereby modified to include
the following: hospital based occupational health clinics.
Notwithstanding any provision set
<PAGE> 2
Mr. Tom Watlington
April 1, 1997
Page 2
forth in this amendment or the Agreement (as heretofore amended) to
the contrary, Biosite may continue the direct sale of the Triage(R)
Intervention Panel to [CONFIDENTIAL MATERIAL REDACTED AND FILED
SEPARATELY WITH THE COMMISSION].
c. Upon execution hereof, Biosite shall provide Fisher with a list of all
of its current Triage(R) Intervention Panel customer accounts, and
shall cooperate with Fisher in encouraging such customer accounts to
make any and all future purchases of the affected products from
Fisher. Biosite will not sell Triage(R) Intervention Panel into the
Medical Segment following thirty (30) days after the execution of this
letter agreement.
d. Paragraph 10(d) of the Amendment dated March 12, 1996 shall be amended
to read as follows: "Products" shall mean such products as were
available for purchase by CMS from Biosite as of December 26, 1995 as
well as the Triage(R)Intervention Panel.
e. Biosite shall sell the Triage(R) Intervention Panel to Fisher at a
transfer price of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION], and Fisher may resell such Product in the
Territory on such terms as it may, in its sole discretion, determine,
including, without limitation, price, returns, credit and discounts.
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION] (attached as Exhibit A hereto) [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION].
f. In order for Biosite to validate the suitability of the Triage(R)
Intervention Panel for customers' anticipated use, Fisher sales
representatives or managers shall confer in advance of sale with
designated Biosite management (the "qualification process"). Should
Biosite management not agree that any such contemplated sale is
appropriate, Fisher may, nonetheless, conclude the sale. However, in
such instance, Fisher shall not be eligible to receive the
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION] described in paragraph 2.e. hereof. Notwithstanding the
foregoing, any unsolicited sales by Fisher of Triage(R) Intervention
Panel which are not reviewed by the parties under the qualification
process shall be detailed and summarized by Fisher, and presented to
Biosite for review on a quarterly basis. The parties shall promptly
thereafter negotiate, in good faith, with respect to Fisher's
entitlement to the applicable [CONFIDENTIAL MATERIAL REDACTED AND
FILED SEPARATELY WITH THE COMMISSION] (or to such other [CONFIDENTIAL
MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] as the
parties may mutually agree) with respect thereto, and Fisher shall
adjust financial accounts between the parties (by taking appropriate
deductions from payments otherwise due Biosite in a succeeding payment
cycle), in order to reflect the outcomes of such negotiations.
<PAGE> 3
Mr. Tom Watlington
April 1, 1997
Page 3
g. For purposes of paragraph 5(d) of the Agreement only, the term
"Products" shall not include the Triage(R) Intervention Panel.
Except as modified in this letter agreement and the various proceeding
amendments to the Agreement, the Agreement shall remain in full force and
effect. In the event of a conflict among the terms and provisions of the various
agreements referred to herein, the applicable term or provision of the document
later in time shall control.
3. This letter will also confirm that the total penalty amount (which was
estimated at [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION] in the second paragraph of the Amendment dated August 9, 1996)
is actually the sum of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION]. Biosite acknowledges that Fisher has provided it with
supporting documentation in such regard.
If the foregoing is acceptable, please so indicate by signing below and
returning a copy of this communication to me.
Sincerely,
/S/ MARK MYSLINSKI
Mark Myslinski
Senior Vice President, Marketing
MM:lrh:rmf
Acknowledged and agreed by:
BIOSITE DIAGNOSTICS INCORPORATED
By: /S/ TOM WATLINGTON
Title: Sr. Vice President
Date: 4/3/97
<PAGE> 4
EXHIBIT A
[11 PAGES OF EXHIBIT A CONTAINING CONFIDENTIAL MATERIAL
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE
COMMISSION].
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONDENSED FINANCIAL STATEMENTS (UNAUDITED) AS OF AND FOR THE
QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONDENSED FINANCIAL STATEMENT (UNAUDITED) INCLUDED IN THE COMPANY'S REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,606
<SECURITIES> 33,810
<RECEIVABLES> 5,599
<ALLOWANCES> 0
<INVENTORY> 1,955
<CURRENT-ASSETS> 51,346
<PP&E> 12,051
<DEPRECIATION> 5,687
<TOTAL-ASSETS> 62,851
<CURRENT-LIABILITIES> 4,171
<BONDS> 3,234
<COMMON> 128
0
0
<OTHER-SE> 55,318
<TOTAL-LIABILITY-AND-EQUITY> 62,851
<SALES> 7,797
<TOTAL-REVENUES> 8,595
<CGS> 1,613
<TOTAL-COSTS> 5,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,532
<INCOME-TAX> 547
<INCOME-CONTINUING> 985
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 985
<EPS-PRIMARY> 0.07<F1>
<EPS-DILUTED> 0.07<F1>
<FN>
<F1>EARNINGS PER SHARE IS CALCULATED USING THE WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON EQUIVALENT SHARES OUTSTANDING DURING THE PERIODS. SEE
NOTE 2 OF NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED).
</FN>
</TABLE>
