<PAGE> 1
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 MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-19910
CREATIVE BIOMOLECULES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2786743
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
45 SOUTH STREET, HOPKINTON, MA 01748
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 435-9001
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.
[ X ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 2, 1995, the registrant had 29,071,505 shares of common stock
outstanding.
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the three months ended
March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES
</TABLE>
2
<PAGE> 3
CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
(unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 14,322,409 $ 11,917,779
Marketable securities 3,193,792 8,084,269
Accounts receivable 2,896,172 2,818,618
Inventory 580,968 562,290
Prepaid expenses and other 327,868 149,105
------------ ------------
Total current assets 21,321,209 23,532,061
------------ ------------
PROPERTY, PLANT AND EQUIPMENT - net 14,594,490 14,736,306
------------ ------------
OTHER ASSETS:
Patents and licensed technology - net 376,137 382,703
Deferred patent application costs - net 2,620,015 2,431,298
Deposits and other 458,473 258,473
------------ ------------
Total other assets 3,454,625 3,072,474
------------ ------------
TOTAL $ 39,370,324 $ 41,340,841
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Lease obligations - current portion $ 47,149 $ 42,567
Accounts payable 1,787,686 738,100
Accrued liabilities 483,733 512,446
Accrued compensation 560,358 495,633
------------ ------------
Total current liabilities 2,878,926 1,788,746
------------ ------------
LEASE OBLIGATIONS 1,694,436 1,710,910
------------ ------------
DEFERRED COMPENSATION - Officers 12,500
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued
Common stock, $.01 par value, 50,000,000 shares authorized,
29,069,505 shares and 28,894,996 shares issued and outstanding
at March 31, 1996 and December 31, 1995, respectively 290,695 288,950
Common stock payable 1,736,586
Additional paid-in capital 107,145,599 105,001,625
Accumulated deficit (72,639,332) (69,198,476)
------------ ------------
Total stockholders' equity 34,796,962 37,828,685
------------ ------------
TOTAL $ 39,370,324 $ 41,340,841
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1996 1995
---- ----
(unaudited)
<S> <S> <C>
REVENUE:
Research and development contracts $ 1,055,704 $ 1,489,475
Manufacturing contracts 612,065 2,121,256
License fees and royalties 101,584
Interest and other 270,441 216,394
----------- -----------
Total revenues 2,039,794 3,827,125
----------- -----------
COSTS AND EXPENSES:
Research and development 3,832,752 2,777,558
Manufacturing contracts 477,533 1,708,105
Marketing, general and administrative 1,115,563 921,035
Interest 54,802 50,589
----------- -----------
Total costs and expenses $ 5,480,650 $ 5,457,287
=========== ===========
NET LOSS $(3,440,856) $(1,630,162)
=========== ===========
NET LOSS PER COMMON SHARE ($ .12) ($ .08)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 29,027,234 19,777,519
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
March 31,
---------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,440,856) $(1,630,162)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 607,405 615,216
Compensation expense 29,750 46,378
Increase (decrease) in cash from:
Accounts receivable (77,554) (2,406,188)
Inventory and prepaid expenses (197,441) (282,224)
Accounts payable and accrued liabilities 1,043,348 (270,497)
Deferred contract revenue 1,920
------------ -----------
Total adjustments 1,405,508 (2,295,395)
------------ -----------
Net cash used for operating activities (2,035,348) (3,925,557)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (540,313) (6,059,238)
Sales of marketable securities 5,430,790
Expenditures for property, plant and equipment (435,190) (239,283)
Expenditures for patents (212,550) (257,370)
Increase in deposits and other (200,000) (35,620)
------------ -----------
Net cash provided by (used for) investing activities 4,042,737 (6,591,511)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of equity:
Series Preferred Stock 4,351,689
Common stock - other 409,133 1,400
Decrease in stockholders' notes receivable 1,833,306
Repayments of obligations under capital leases (11,892) (38,465)
------------ -----------
Net cash provided by financing activities 397,241 6,147,930
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,404,630 (4,369,138)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,917,779 10,515,954
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,322,409 $ 6,146,816
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 54,802 $ 50,589
============ ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
CREATIVE BIOMOLECULES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. OPINION OF MANAGEMENT - The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
applicable to interim periods. These statements are condensed and do not include
all disclosures as required by generally accepted accounting principles. In the
opinion of management, the unaudited financial statements contain all
adjustments (all of which were considered normal and recurring) necessary to
present fairly the Company's financial position at March 31, 1996 and the
results of operations and cash flows for the three month periods ended March 31,
1996 and 1995. The financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto for the
transition period ended December 31, 1995.
Interim results are not necessarily indicative of results for a full year and
such results are subject to year-end adjustments and independent audit.
2. STOCK-BASED COMPENSATION - In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," which is effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply Accounting Principles Board ("APB") Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB No. 25 to its stock-based compensation
awards to employees and will disclose the required pro forma effect on net
income and earnings per share in the Company's audited consolidated financial
statements for the year ended December 31, 1996.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
To date, most of the Company's revenues have been derived from research and
development payments and license fees under agreements with collaborative
partners and from contract manufacturing. The Company anticipates that over the
next several years its revenues will continue to be derived primarily from such
collaborative agreements and from contract manufacturing. The Company has been
unprofitable since its inception and expects to incur additional operating
losses over the next several years.
The Company's research agreements with collaborative partners have
typically provided for the partial or complete funding of research and
development for specified projects and royalties payable to the Company in
exchange for licenses to market the resulting products. The Company is presently
a party to one major research collaboration with Stryker Corporation
("Stryker") to develop products for orthopedic reconstruction. Under the
research portion of the collaboration with Stryker, the Company supplies an OP-1
product to Stryker for clinical trials and other uses and provides clinical
support and performs research work pursuant to work plans established
periodically by the two companies. The current work plan establishes research
objectives and funding through April 1998. Although the Company is seeking and
in the future may seek to enter into collaborative arrangements with respect to
certain other projects, there can be no assurance that the Company will be able
to obtain such agreements on acceptable terms or that the costs required to
complete the projects will not exceed the funding available for such projects
from the collaborative partners.
The Company's manufacturing contracts provide for technical collaboration
and manufacturing for third parties at the Company's manufacturing facility in
Lebanon, New Hampshire. The Company is presently a party to a manufacturing
contract with Biogen, Inc. ("Biogen") to produce several of Biogen's
protein-based therapeutic candidates through December 1997 for use in Biogen's
clinical trials. The Company agreed to provide Biogen with all available cell
culture and bacterial fermentation capacity within the manufacturing facility,
and Biogen agreed to pay the Company's costs associated with such capacity, for
approximately six months in each of the three years beginning in January 1995.
Although the Company is seeking additional manufacturing contracts for available
cell culture and bacterial fermentation capacity, there can be no assurance that
the Company will be able to obtain such contracts on acceptable terms.
Revenue is earned and recognized based upon work performed, upon the sale
or licensing of product rights, upon shipment of product for use in preclinical
and clinical testing or upon attainment of benchmarks specified in collaborative
agreements. The Company's results of operations vary significantly from year to
year and quarter to quarter and depend on, among other factors, the timing of
contract manufacturing activities and the timing of payments made by
collaborative partners. The timing of the Company's contract revenues may not
match the timing of the Company's associated product development expenses. As a
result, research and development expenses may exceed contract revenues in any
particular period. Furthermore, aggregate research and development contract
revenues for any product may not offset all of the Company's development
expenses for such product.
7
<PAGE> 8
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995. The Company's total revenues
for the three month periods ended March 31, 1996 and 1995 were $2,040,000 and
$3,827,000, respectively. Research and development contract revenues decreased
29% to $1,056,000 for the three month period ended March 31, 1996 from
$1,489,000 for the three month period ended March 31, 1995. This decrease is
primarily due to fluctuations in research activities for Stryker. The Company
anticipates that research and development contract revenues for each of the
remaining quarters of 1996 will be higher than the three months ended March 31,
1996 due to greater revenues from Stryker beginning in May 1996, as discussed
further below. Manufacturing contract revenues decreased 246% to $612,000 for
the three month period ended March 31, 1996 from $2,121,000 for the three month
period ended March 31, 1995. Manufacturing contract revenues reflect
manufacturing principally for Biogen conducted at the Company's manufacturing
facility in Lebanon, New Hampshire. The Company anticipates that manufacturing
contract revenues for each of the remaining quarters of 1996 will be
significantly higher than the three months ended March 31, 1996 due to the
planned resumption of production for Biogen in May 1996. License fees and
royalties include revenue from licensing patent rights and know-how associated
with certain protein technology which is not central to the Company's business.
Interest and other revenue increased 25% to $270,000 for the three month period
ended March 31, 1996 from $216,000 for the three month period ended March 31,
1995. The increase is due to an increase in average funds available for
investment resulting from a self-managed public offering in October 1995 of
3,000,000 shares of common stock at a price of $4.25 per share.
The Company's total costs and expenses for the three month periods ended
March 31, 1996 and 1995 were $5,481,000 and $5,457,000, respectively. Research
and development expenses increased 38% to $3,833,000 for the three month period
ended March 31, 1996 from $2,778,000 for the three month period ended March 31,
1995. In September 1995, the Company commenced a second pilot clinical trial to
further evaluate an OP-1 product for dentin regeneration. The costs of such
trial began to be incurred in September 1995 and are expected to continue
through the nine months ending September 30, 1996. Also contributing to the
increase in costs is an increase in research and development expenses at the
Company's manufacturing facility in Lebanon, New Hampshire. For the three month
period ended March 31, 1996 the facility was primarily used for development
activities of the Company; therefore, facility operating costs related to
development activities were reported as research and development expenses. For
the three month period ended March 31, 1995, the facility was primarily used for
contract manufacturing for Biogen; therefore, facility operating costs were
reported as manufacturing contract expenses. The Company anticipates that
research and development expenses at the Company's manufacturing facility in
Lebanon, New Hampshire will decrease for each of the remaining quarters in 1996
and manufacturing contract expenses will increase. The Company expects the
decrease in research and development expenses at the Company's manufacturing
facility will be more than offset by an increase in research and development
expenses at the Company's research facility. The Company plans to expand its
research and development staff. Labor and laboratory supply and service costs
will increase as additional personnel are hired. Furthermore, the Company plans
to increase expenditures on academic collaborations and subcontracted research
related to technology and product development.
Manufacturing contract expenses includes the costs associated with
third-party manufacturing conducted at the manufacturing facility in Lebanon,
New Hampshire. Manufacturing contract expenses decreased 72% to $478,000 for the
three month period ended March 31, 1996 from $1,708,000 for the three month
period ended March 31, 1995. The decrease is primarily due to the reduction in
contract manufacturing for Biogen. The Company manufactured for Biogen from
January 1995 through December 1995 and plans to resume production for Biogen in
May 1996.
Marketing, general and administrative expenses increased 21% to $1,116,000
for the three month period ended March 31, 1996 from $921,000 for the three
month period ended March 31, 1995. The increase is primarily due to increases in
staffing and recruiting costs. The Company anticipates that marketing, general
and administrative expenses will continue at amounts higher than the prior year.
8
<PAGE> 9
As a result of the foregoing, the Company's net loss increased 111% to
$3,440,000 for the three months ended March 31, 1996 compared to $1,630,000 for
the three months ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company's principal sources of liquidity consisted
of cash and cash equivalents of $14,322,000 and marketable securities of
$3,194,000.
The Company increased its investment in property, plant and equipment to
$25,115,000 at March 31, 1996 from $24,680,000 at December 31, 1995. The Company
plans to spend approximately $3.2 million in the year ended December 31, 1996 in
leasehold improvements and equipment purchases to increase the capacity and
flexibility in operating the manufacturing facility and approximately $1 million
in equipment purchases and leasehold improvements to expand the Company's
research, development and manufacturing capabilities. In addition, as part of a
manufacturing contract with Biogen, Biogen is financing the construction of
leasehold improvements to the Company's manufacturing facility at an estimated
total cost of $2.5 million and is installing and financing for the Company
certain equipment with an estimated total cost of $1.5 million, as discussed
further below.
The Company's collaborative agreements with Stryker provide for research
payments to the Company and royalty payments to the nonseller from sales of any
OP-1 products. The Company also has the exclusive right to supply Stryker's
worldwide commercial requirements for OP-1 products for use in orthopedic
reconstruction. Under the research portion of the collaboration, the Company
supplies OP-1 products to Stryker for clinical trials and other uses and
provides clinical support and performs research work pursuant to work plans
established periodically by the two companies. In May 1996, the Company and
Stryker agreed to extend the research portion of the collaboration for two years
through April 1998. The Company estimates that the contract extension will
provide approximately $12 million of revenue to the Company over the two year
period. In January 1996, Stryker completed target patient accrual in its pivotal
clinical trial to evaluate the use of an OP-1 bone regeneration product
candidate as a bone graft substitute. This pivotal clinical trial focused on
regeneration of bone tissue in non-union fractures of the tibia. In October
1995, the FDA approved a supplemental treatment arm of the pivotal trial,
allowing Stryker to expand the study to test the Company's OP-1 bone
regeneration product candidate for the treatment of all long bone non-union
fractures. In addition to the U.S. pivotal trial, Stryker initiated European
clinical studies in several countries under physician sponsorship in acute
fractures, talocalcaneal fractures, fibula defects and spinal fusions. Treatment
in these European studies is expected to be completed in 1996. Stryker is
expected to initiate further clinical testing of OP-1 bone regeneration products
in a number of countries for an increasing array of orthopedic reconstruction
indications.
In September 1994, the Company signed a three-year manufacturing contract
with Biogen to produce in the Company's manufacturing facility in Lebanon, New
Hampshire several of Biogen's protein-based therapeutic candidates for use in
Biogen's clinical trials. The contract covers the period from January 1995
through December 1997. The Company expects to realize up to $18 million in
contract manufacturing revenue from Biogen during the three-year period, of
which approximately $7.4 million had been recognized through March 1996. To
enable the Company to meet its obligations under the manufacturing contract,
Biogen is financing and constructing a 7,000 square foot addition to the present
facility for cGMP production using bacterial fermentation at an estimated total
cost of $2.5 million. The Company agreed to reimburse Biogen for the
construction costs and leasehold improvements at the end of the lease term at an
amount equal to Biogen's construction costs less $300,000 and less all
accumulated depreciation. Biogen also agreed to lease equipment to the Company
for the operation of such portion of the facility and for cGMP production using
bacterial fermentation by the Company at an estimated total cost of $1.5
million, as provided in an equipment lease agreement. The Company has the option
to purchase the equipment at the end of the lease term for an amount equal to
its then fair market value. The Company anticipates that construction of the
building addition and leasehold improvements will be completed by mid-1996.
9
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The Company anticipates that its existing capital resources should enable
it to maintain its current and planned operations through late 1997. The Company
expects to incur substantial additional research and development and other
costs, including costs related to preclinical studies and clinical trials. The
Company's ability to continue funding its planned operations beyond late 1997 is
dependent upon its ability to generate sufficient cash flow from collaborative
arrangements and manufacturing contracts, and to obtain additional funds through
equity or debt financings, or from other sources of financing, as may be
required. The Company also is seeking additional collaborative arrangements. It
also expects to raise funds through one or more financing transactions, as
conditions permit, and is investigating the feasibility of raising capital
through the sale/leaseback or debt financing of some of its capital assets. Over
the longer term, because of the Company's significant long-term capital
requirements, the Company intends to raise funds when conditions are favorable,
even if it does not have an immediate need for additional capital at such time.
If substantial additional funding is not available, the Company's business will
be materially and adversely affected.
CAUTIONARY FACTORS WITH RESPECT TO FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements which are based on
management's current expectations and which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. The Company cautions investors that there can be
no assurance that the actual results or business conditions will not differ
materially from those projected or suggested in such forward-looking statements
as a result of various factors, including, but not limited to the following:
uncertainty as to timing of and the Company's ability to commercialize its
products; the Company's reliance on its lead product candidate and the Company's
lack of control over the clinical progress of one of its primary applications
for such products, which is controlled by one of the Company's collaborative
partners; the Company's reliance on current and prospective collaborative
partners to supply funds for research and development and to commercialize its
products; intense competition related to the research and development of
morphogenic and other proteins for various applications and therapies and the
possibility that others may discover or develop, and the Company may not be able
to gain rights with respect to, the technology necessary to commercialize its
products; the Company's lack of experience in commercial manufacturing and
unproven ability to manufacture products on a large scale; the Company's lack of
marketing and sales experience and the risk that any products that the Company
develops may not be able to be marketed at acceptable prices or receive
commercial acceptance in the markets that the Company expects to target;
uncertainty as to whether there will exist adequate reimbursement for the
Company's products from government, private health insurers and other
organizations; and uncertainties as to the extent of future government
regulation of the Company's business. As a result, the Company's future
development efforts involve a high degree of risk.
10
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on March 20, 1996.
The following actions were voted upon by the stockholders at the Annual Meeting:
<TABLE>
1. The following persons were elected as Directors of the Company and the record
votes cast by the holders of shares of capital stock of the Company entitled to
vote for, against or withheld, as well as the number of absentions and broker
non-votes for each nominee for Director is set forth below:
<CAPTION>
Votes Votes Broker
Name Votes For Against Withheld Abstentions Non-Votes
- ---- --------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Martyn D. Greenacre (term expiring in 1999) 19,399,089 132,778 0 0 0
Michael Rosenblatt, M.D. (term expiring in 1999) 19,400,089 131,778 0 0 0
James R. Tobin (term expiring in 1999) 19,400,089 131,778 0 0 0
</TABLE>
The terms of office of the following persons as Directors of the Company
continued after the meeting:
Name
- ----
Patrick Owen Burns (term expiring in 1997)
Charles Cohen, Ph.D. (term expiring in 1997)
Jeremy L. Curnock Cook (term expiring in 1997)
Brian H. Dovey (term expiring in 1998)
Arthur J. Hale, M.D. (term expiring in 1998)
Michael M. Tarnow (term expiring in 1998)
2. The stockholders of the Company voted to amend the Company's 1992
Non-Employee Director Non-Qualified Stock Option Plan (the "Director Plan") (i)
to increase the number of shares authorized for issuance under the Director Plan
from 100,000 shares to 300,000 shares, (ii) to provide for the grant of an
additional option (the "Additional Option") to purchase 10,000 shares of Common
Stock to each Eligible Director, (iii) to increase the Initial Option from
10,000 shares of Common Stock to 20,000 shares of Common Stock, and (iv)
following each annual meeting of stockholders (the "Annual Meeting"), to provide
for the grant of an additional option (the "Annual Option") to purchase 5,000
shares of Common Stock to each Eligible Director (together the "Director Plan
Amendments"). An Additional Option was granted, subject to stockholder approval,
to each Eligible Director on January 24, 1996. Following the 1997 annual meeting
of stockholders
11
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and following each Annual Meeting thereafter, each Eligible Director who served
as a director immediately prior to and continues to serve as a director
following the Annual Meeting shall be granted, as of the date of such Annual
Meeting, an option to purchase 5,000 shares of Common Stock. The record votes
cast by the holders of shares of capital stock of the Company entitled to vote
for, against or withheld, as well as the number of abstentions and broker
non-votes for the amendments to the Company's Director Plan were as follows:
14,497,571 shares FOR, 2,981,034 shares AGAINST, 143,931 shares ABSTAINED and
1,909,331 representing BROKER NON-VOTES.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
(a) Exhibits
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
*10.25 1992 Non-Employee Director Non-Qualified Stock Option Plan,
as amended on March 20, 1996
<FN>
* Management contract or compensation plan or arrangement required to be filed
as an exhibit to this Form 10-Q.
</TABLE>
(b) Reports on Form 8-K.
Current Report on Form 8-K dated January 8, 1996, for the January 8, 1996
Event, relating to Registrant's Press Release announcing that its partner,
Stryker Corporation, has completed target patient accrual in its pivotal
trial for the treatment of non-union fractures using OP-1, a morphogenic
protein discovered and developed by the Registrant.
Current Report on Form 8-K, dated January 24, 1996, for the January 24,
1996 Event, relating to Registrant's change in its fiscal year end. The
date of the new year end will be December 31.
12
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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, in Hopkinton, Massachusetts, on May 14,
1996.
CREATIVE BIOMOLECULES, INC.
By: /s/Wayne E. Mayhew III
------------------------------------------
Wayne E. Mayhew III
Vice President and Chief Financial Officer
By: /s/Susan B. Blanton
------------------------------------------
Susan B. Blanton
Controller
13
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EXHIBIT 10.25
<PAGE> 2
CREATIVE BIOMOLECULES, INC.
1992 NON-EMPLOYEE DIRECTOR NON-QUALIFIED STOCK OPTION PLAN
(Amended as of March 20, 1996)
1. PURPOSE. The 1992 Non-Employee Director Non-Qualified Stock Option
plan (the "Plan") is intended to promote the interests of Creative BioMolecules,
Inc. (the "Corporation") by providing an inducement to obtain and retain the
services of qualified persons who are not employees of the Corporation as
members of the Board of Directors of the Corporation and to demonstrate the
Corporation's appreciation for their service on the Board of Directors.
2. RIGHTS TO BE GRANTED. Under the Plan, options shall be granted that
give an optionee the right for a specified time period to purchase a specified
number of shares of Common Stock, par value $.01 per share, of the Corporation
(the "Common Stock"). The option price shall be determined in each instance in
accordance with the terms of this Plan.
3. AVAILABLE SHARES. The maximum aggregate number of shares of Common
Stock reserved and available for distribution under the plan shall be three
hundred thousand (300,000) shares, subject to adjustment in accordance with
Section 13 hereof. Such shares may consist, in whole or in part, of authorized
and unissued shares or treasury shares. If any options granted under this Plan
are surrendered before exercise or lapse without exercise, in whole or in part,
the shares reserved therefor shall revert to the option pool and continue to be
available for grant under the Plan.
4. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Corporation. The Board of Directors shall, subject to the
provisions of the Plan and Section 17 hereof in particular, have the power to
construe the Plan, to determine all questions thereunder, and to adopt and amend
such rules and regulations for the administration of the Plan as it may deem
desirable. All decisions made by the Board of Directors pursuant to the
provisions of the Plan shall be made in the Board of Directors' sole discretion
and shall be binding on all persons, including the Corporation and Plan
participants. The Plan is intended to comply with Rule 16b-3 and its successors
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") and
as a "formula award" plan described in Rule 16b-3(c)(2)(ii) with respect to
participants who are subject to Section 16 of the Exchange Act, and any
provision in this Plan to the contrary shall be deemed null and void to the
extent permissible by law and deemed appropriate by the Board of Directors.
5. OPTION AGREEMENT. Each option granted under the provisions of this
Plan shall be evidenced by an Option Agreement, in such form as may be approved
by the Board of Directors, which Option Agreement shall be duly executed and
delivered on behalf of
<PAGE> 3
the Corporation and by the optionee to whom such option is granted. The Option
Agreement shall contain such terms, provisions, and conditions not inconsistent
with the Plan as may be determined by the Board of Directors; provided, however,
if and in any event the Corporation registers any class of any equity pursuant
to Section 12 of the Exchange Act, from the effective date of such registration
(the "Effective Date") until six months after the termination of such
registration (the "Termination Date"), the shares of Common Stock issued
pursuant to an exercise of an option granted between the Effective Date and the
Termination Date, inclusive, shall not be sold, pledged, assigned, hypothecated,
transferred or disposed of for six (6) months after the date of grant of the
option. No option agreement may provide for restrictions which would cause the
Plan to not qualify as a "formula plan" meeting the requirements of Rule
16b-3(c)(2)(ii).
6. ELIGIBILITY AND LIMITATIONS. Options may be granted pursuant to the
Plan only to non-employee members of the Board of Directors of the Corporation
who are directors on the Commencement Date or are elected as directors, by the
stockholders of the Corporation or the Board of Directors, at any date after the
Commencement Date. As used herein "Commencement Date: shall mean the date which
is seven (7) days after the date on which the Corporation issues and sells
shares of Common Stock pursuant to a firmly underwritten public offering.
7. OPTION PRICE. The purchase price of the Common Stock covered by an
option granted pursuant to the Plan shall be 100% of the fair market value of
such Common Stock on the day the option is granted. The option price will be
subject to adjustment in accordance with the provisions of Section 13 hereof.
For purposes of the plan, if at any time an option is granted under the plan,
the Corporation's Common Stock is publicly traded, "fair market value" shall be
determined on the date such option is granted (or, if prices or quotes discussed
in this sentence are unavailable on the date of grant, on the last business day
for which such prices or quotes are available prior to the date such option is
granted) and shall mean (i) the average (on that date) of the high and low
prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange, or on the Nasdaq National Market System, if the
Common Stock is not then traded on a national securities exchange; or (ii) the
closing bid price (or average of bid prices) last quoted (on that day) by an
established quotation service for over-the-counter securities, if the Common
stock is not reported on the Nasdaq National Market System. If the Common Stock
is neither listed on a national securities exchange nor reported on the Nasdaq
National Market System nor traded on the over-the-counter market, "fair market
value" shall mean such value as the Board, in good faith, shall determine.
- 2 -
<PAGE> 4
8. AUTOMATIC GRANT OF OPTIONS. Each person who is a director eligible to
participate in the Plan on the Commencement Date, shall be granted as of such
date, an option to purchase ten thousand (10,000) shares of Common Stock at the
exercise price referenced in Section 7, which number of shares shall be subject
to adjustment in accordance with Section 13 hereof. Each person who is elected
as a director of the Corporation by the stockholders or the Board of Directors
after the Commencement Date through and including the 1996 annual meeting of
stockholders of the Corporation and who has not previously been a director of
the Corporation and is not an employee of the Corporation shall be granted, as
of the date such person shall become a director, an option to purchase ten
thousand (10,000) shares of Common Stock at the exercise price referenced in
Section 7, which number of shares shall be subject to adjustment in accordance
with Section 13 hereof. Each person who served as a director immediately prior
to and continues to serve as a director following the 1996 annual meeting of
stockholders and is not an employee of the Corporation shall be granted, as of
the date of the 1996 annual meeting of stockholders of the Corporation, an
option to purchase ten thousand (10,000) shares of Common Stock at the exercise
price referenced in Section 7, which number of shares shall be subject to
adjustment in accordance with Section 13 hereof. Each person who is elected as a
director of the Corporation by the stockholders or the Board of Directors after
the 1996 annual meeting of stockholders of the Corporation and who has not
previously been a director of the Corporation and is not an employee of the
Corporation shall be granted, as of the date such person shall become a
director, an option to purchase twenty thousand (20,000) shares of Common Stock
at the exercise price referenced in Section 7, which number of shares shall be
subject to adjustment in accordance with Section 13 hereof. Following the 1997
annual meeting of stockholders of the Corporation and following each annual
meeting of the stockholders of the Corporation thereafter, each person who
served as a director immediately prior to and continues to serve as a director
following the annual meeting of stockholders and is not an employee of the
Corporation shall be granted, as of the date such annual meeting of
stockholders, an option to purchase five thousand (5,000) shares of Common Stock
at the exercise price referenced in Section 7, which number of shares shall be
subject to adjustment in accordance with Section 13 hereof. Options acquired
through any grant shall become exercisable as to twenty-five percent (25%) of
the shares subject thereto upon completion of a full twelve (12) months of
service as a member of the Board of Directors after the grant and thereafter
shall become exercisable, as to an additional twenty-five percent (25%) of the
shares subject thereto, upon completion of each additional full twelve (12)
months of service as a member of the Board of Directors, which rights shall be
cumulative, but in no event shall an option be exercisable for more than the
number of shares for which the option was granted, subject to adjustment in
accordance with Section 13 hereof.
- 3 -
<PAGE> 5
In the event of a "Change of Control" of the Corporation (as defined
below), the holder of the option shall be entitled to exercise the option, as
the instant prior to the consummation of such Change of Control, for all of the
then outstanding but unvested options, and such shares shall be in addition to
previously vested options which such holder is entitled to exercise. A "Change
of Control" shall be deemed to have occurred if there is a consummation of any
of the following:
(i) the sale of all or substantially all of the Corporation's assets;
(ii) the sale to a third party (which shall include any affiliates of
a person acting in concert with such third party) of beneficial
ownership of more than fifty percent (50%) of all of the
outstanding capital stock of the Corporation in a single or
integrated transaction (treating all securities, which at such
time are exercisable, convertible or exchangeable for Common
Stock of the Corporation, as so exercised, converted or
exchanged); or
(iii) the sale of the Corporation through a consolidation or merger
(other than a merger the Corporation with one or more of its
wholly-owned subsidiaries) in which consolidation or merger of
the Corporation is not the surviving corporation or the
acquisition is as a result of a reverse triangular merger,
provided in either case the stockholders of the Corporation
immediately before such consolidation or merger own less than
fifty percent (50%) of the outstanding capital stock of the
surviving corporation immediately after such consolidation or
merger; or
(iv) the majority of the Board of Directors is changed as a result of
a proxy contest.
9. PERIOD OF OPTION. The options granted hereunder shall expire on a date
which is ten (10) years after the date of grant, and the plan shall terminate
when all options granted hereunder have terminated and no more options may be
granted hereunder.
10. EXERCISE OF OPTION. Subject to the terms and conditions of the Plan
and the Option Agreement relating thereto, an option granted hereunder shall be
exercisable in whole or in part by giving written notice to the Corporation by
mail or in person addressed to the Secretary of the Corporation stating the
number of shares with respect to which the option is being exercised,
accompanied by payment in full for such shares in cash or by check. Upon
notification from the Corporation, the Transfer Agent shall, on behalf of the
Corporation, prepare a certificate or certificates representing such shares
acquired pursuant to exercise of the
- 4 -
<PAGE> 6
option, shall register the optionee as the owner of such shares on the books of
the Corporation and shall cause the fully executed certificate(s) representing
such shares to be delivered to the optionee as soon as practicable after payment
of the option price in full for the shares being purchased. The holder of an
option shall not have any rights of a shareholder with respect to the shares
covered by the option, except to the extent that one or more certificates for
such shares shall be delivered to him or his agent upon the due exercise of the
option.
11. NON-TRANSFERABILITY OF OPTIONS. (a) The certificates representing the
shares of Common Stock issuable upon exercise of the options shall carry such
appropriate legend, and such written instructions shall be given to the
Corporation's Transfer Agent, as may be deemed necessary or advisable by counsel
to the Corporation in order to comply with the requirements of the Securities
Act of 1933, as amended, or any state securities laws.
(b) Any option granted pursuant to the Plan shall not be assignable or
transferable other than by will or the laws of descent and distribution, and
shall be exercisable during the optionee's lifetime only by him.
12. TERMINATION OF OPTION RIGHTS. (a) In the event an optionee ceases to
be a member of the Board of Directors of the Corporation for any reason other
than death or disability, any then unexercised options granted to such optionee
may be exercised by the optionee within a period of ninety (90) days after the
date the optionee so ceases to be a member of the Board of Directors, but in
no event later than the expiration date of the option.
(b) In the event that an optionee ceases to be a member of the Board of
Directors of the Corporation by reason of his disability or death, any option
granted hereunder to such optionee may be exercised by the optionee (or by the
optionee's personal representative, heir or legatee, in the event of death) to
the extent of the number of shares with respect to which it was exercisable on
the date of death or termination by reason of disability, within a period of one
hundred eighty (180) days after the date the optionee so ceases to be a member
of the Board of Directors, but in no event later than the expiration date of the
option. For purposes of this Plan, the term "disability" shall mean "permanent
and total disability" as defined in Section 22(e)(3) of the Internal Revenue
Code of 1986 or successor statute.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER MATTERS. In the
event that the outstanding shares of the Common Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
corporation or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization or reclassification, or in the event of a stock
split, combination of shares or dividends payable in capital stock,
- 5 -
<PAGE> 7
automatic adjustment shall be made in the number and kind of shares as to which
outstanding options or portions thereof then unexercised shall be exercisable
and in the available shares set forth in Section 3 hereof, to the end that the
proportionate interest of the option holder shall be maintained as before the
occurrence of such event. Such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of such
options and with a corresponding adjustment in the option price per share.
If an option hereunder shall be assumed, or a new option substituted
therefor, as a result of sale of the Corporation, whether by a corporate merger,
consolidation or sale of property or stock, then membership on the Board of
Directors of such assuming or substituting corporation or by a parent
corporation or a subsidiary thereof shall be considered for purposes of an
option to be membership on the Board of Directors of the Corporation.
14. RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding the provisions of
Sections 8 and 10 hereof, the Corporation shall have no obligation to deliver
any certificate or certificates upon exercise of an option until one of the
following conditions shall be satisfied:
(i) The shares with respect to which the option has been exercised
are at the time of the issue of such shares effectively
registered under applicable Federal and State securities laws as
now in effect or hereafter amended; or
(ii) Counsel for the Corporation shall have given an opinion that such
shares are exempt from registration under Federal and State
securities laws as now in effect or hereafter amended;
and until the Corporation has complied with all applicable laws and regulations,
including, without limitation, all regulations required by any stock exchange
upon which the outstanding Common Stock is then listed.
The Corporation shall use its best efforts to bring about compliance with
the above conditions within a reasonable time, except that the Corporation shall
be under no obligation to cause a registration statement or a post-effective
amendment to any registration statement to be prepared at its expense solely for
the purpose of covering the issue of shares with respect to which any option may
be exercised.
15. REPRESENTATIONS AND WARRANTIES OF OPTIONEE. The Corporation shall
require the optionee to deliver written warranties and representations upon
exercise of the option that are necessary to comply with Federal and State
securities laws, including, if necessary, those to the effect that a purchase of
- 6 -
<PAGE> 8
shares under the option is made for investment and not with a view to their
distribution (as such term is used in the Securities Act of 1933, as amended).
16. APPROVAL OF STOCKHOLDERS. The effectiveness of this Plan and of the
grant of all options hereunder is in all respects subject to approval of the
Plan by the Corporation's stockholders.
17. TERMINATION AND AMENDMENT OF PLAN. The Board of Directors of the
Corporation may at any time terminate the Plan or make such modifications or
amendments thereto as it deem advisable; provided, however, that termination or
any modification or amendment of the Plan shall not, without consent of a
participant, affect his rights under an option previously granted to him. In no
event may any provision of the Plan with respect to the timing, price, or amount
of awards be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code or the rules thereunder. In no event will
any amendment be permitted if it causes the Plan to cease to be a "formula
award" plan, as described in Rule 16b-3(c)(2)(ii). If the scope of any amendment
is such as to require shareholder approval in order to comply with Rule 16b-3,
then such amendment shall not be effective unless and until such shareholder
approval is obtained.
18. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan
and the instruments evidencing the options shall be governed by the laws of the
State of Delaware. In construing this Plan, the singular shall include the
plural and the masculine gender shall include the feminine and neuter, unless
the context otherwise requires.
- 7 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1996 AND FOR THE THREE MONTH
PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 14,322,409
<SECURITIES> 3,193,792
<RECEIVABLES> 2,896,172
<ALLOWANCES> 0
<INVENTORY> 580,968
<CURRENT-ASSETS> 21,321,209
<PP&E> 14,594,490
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,370,324
<CURRENT-LIABILITIES> 2,878,926
<BONDS> 1,694,436
<COMMON> 290,695
0
0
<OTHER-SE> 34,506,267
<TOTAL-LIABILITY-AND-EQUITY> 39,370,324
<SALES> 0
<TOTAL-REVENUES> 2,039,794
<CGS> 0
<TOTAL-COSTS> 477,533
<OTHER-EXPENSES> 3,832,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,802
<INCOME-PRETAX> (3,440,856)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,440,856)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,440,856)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
