<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period December 28, 1996
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: 0-20032
PerSeptive Biosystems, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2987616
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(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
500 Old Connecticut Path, Framingham, MA 01701
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(508) 383-7700
--------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (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___
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock 21,387,087 Shares
- ------------ -----------------
(Class) (Outstanding at February 6, 1997)
<PAGE>
PERSEPTIVE BIOSYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
DECEMBER 28, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
a) Consolidated Balance Sheets at
December 28, 1996 (unaudited) and September 30, 1996 3
b) Consolidated Statements of Operations
for the three-month periods ended
December 28, 1996 and December 31, 1995 (unaudited) 4
c) Consolidated Statements of Cash Flows
for the three-month periods ended
December 28, 1996 and December 31, 1995 (unaudited) 5
d) Notes to the Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
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PERSEPTIVE BIOSYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 28, September 30,
1996 1996
---------------- -----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 7,314 $ 5,384
Short-term investments, available-for-sale 14,220 19,273
Trade accounts receivable, net of allowance for doubtful accounts
of $2,049 at December 28, 1996 and $2,386 at September 30, 1996 14,944 16,052
Inventories, net 21,828 21,074
Other current assets 1,621 2,107
---------------- -----------------
Total current assets 59,927 63,890
Fixed assets, net 30,752 32,017
Patent and license costs, net 5,799 5,913
Goodwill, net 18,258 18,518
Other long-term assets 1,376 1,317
---------------- -----------------
Total assets $ 116,112 $ 121,655
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 8,152 $ 9,292
Accrued expenses 18,751 18,699
Current portion of deferred revenue 1,239 1,158
Short-term borrowing 5,036 5,032
Current portion of obligations and other current liabilities 2,726 3,137
---------------- -----------------
Total current liabilities 35,904 37,318
Long-term liabilities:
Convertible subordinated notes 27,230 27,230
Long-term debt 5,468 5,574
Capital lease obligations, less current portion 365 361
Deferred revenue and other liabilities 950 887
---------------- -----------------
Total long-term liabilities 34,013 34,052
Commitments & contingencies (Note 12)
Stockholders' equity:
Redeemable convertible preferred stock, $.01 par value; 4000 shares
authorized; 2,000 shares issued and outstanding at
December 28, 1996 and September 30, 1996; redemption value
$20,000 at December 28, 1996 and September 30, 1996 18,410 18,053
Common stock, $.01 par value; 100,000,000 shares authorized;
21,369,273 and 21,315,456 shares issued and outstanding
at December 28, 1996 and September 30, 1996 , respectively 215 213
Additional paid-in capital 158,864 158,556
Accumulated deficit (129,236) (125,094)
---------------- -----------------
48,253 51,728
Cumulative translation adjustment (2,008) (1,373)
Unrealized loss on investments (50) (70)
Total stockholders' equity 46,195 50,285
---------------- -----------------
Total liabilities and stockholders' equity $ 116,112 $ 121,655
================ =================
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
PerSeptive Biosystems, Inc.
Consolidated Statements of Operations
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three months ended
-------------------------------
December 28, December 31,
1996 1995
-------------------------------
Revenue:
Product revenue $ 21,101 $ 19,064
Contract revenue 5,067
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21,101 24,131
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Cost of goods sold:
Cost of product revenue 10,643 9,023
Cost of contract revenue 4,304
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10,643 13,327
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Gross Profit 10,458 10,804
Operating Expenses:
Research and development 3,569 1,569
Selling, general and administrative 9,558 9,632
Amortization 260 724
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13,387 11,925
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Loss from operations (2,929) (1,121)
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Other expense:
Interest expense, net (863) (703)
Other expense, net 8 (52)
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Loss before provision for income taxes (3,784) (1,876)
Provision for income taxes - 100
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Net loss $ (3,784) $ (1,976)
============= ===========
Net loss per common share ($0.19) ($0.18)
============= ===========
Weighted average common shares outstanding 21,332 13,971
============= ===========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PERSEPTIVE BIOSYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
December 28, December 31,
----------------------------------------
1996 1995
------------------ ---------------
<S> <C> <C>
Cash from operating activities:
Net loss $ (3,784) $ (1,976)
Adjustments to reconcile net loss to net cash
used in operating activities
Net gain on securities available for sale 20
Depreciation and amortization 2,118 2,798
Provision for inventory and accounts
receivable reserves 224
Changes in assets and liabilities
Decrease (increase) in accounts receivable 993 (1,306)
Increase in inventories (969) (258)
Decrease (increase) in other assets 397 (836)
Decrease in accounts payable (1,140) (312)
Increase (decrease) in accrued expenses 52 (589)
Increase in other liabilities 145 120
------------------ ---------------
Net cash used in operating activities $ (2,168) $ (2,135)
------------------ ---------------
Cash flows from investing activities
Purchases of fixed assets, net (731) (4,382)
Net proceeds from sales of securities available-
for-sale 5,054 22
Increases in patents and licenses (27)
Net cash provided by (used in) investing ------------------ ---------------
activities $ 4,323 $ (4,387)
------------------ ---------------
Cash flows from financing activities
Proceeds from capital lease financing 306
Principal payments under capital lease obligations (408) (692)
Net proceeds from facility financing 1,515
Net proceeds from short-term borrowing (104) 1,037
Proceeds from issuance of common stock 310 270
Net proceeds (used in) provided by ------------------ ---------------
financing activities $ (202) $ 2,436
------------------ ---------------
Effect of exchange rate changes on cash
and cash equivalents (23) (278)
------------------ ---------------
Increase in cash and cash equivalents 1,930 (4,364)
Cash and cash equivalents, beginning of period 5,384 12,215
------------------ ---------------
Cash and cash equivalents, end of period $ 7,314 $ 7,851
================== ===============
Supplemental disclosure of cash flow information:
Interest paid 360 318
Supplemental disclosure of non-cash activities:
Accretion of Series A Preferred Stock 357 515
Stock issued: purchase costs of AMI acquisition 3,471
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated balance sheet at December 28, 1996, and the
consolidated statements of operations for the three-month periods ended December
28, 1996 and December 31, 1995, and the consolidated statements of cash flows
for the three-month periods ended December 28, 1996 and December 31, 1995 have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Although certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, the Company
believes that the disclosures are adequate to make the information presented not
misleading and reflect all adjustments (consisting only of normal recurring
adjustments) which are necessary for a fair presentation of results of
operations for such periods. The results of operations for the three-month
period ended December 28, 1996 are not necessarily indicative of the results
expected for the year ended September 30, 1997. It is suggested that these
financial statements be read in conjunction with the consolidated financial
statements for the year ended September 30, 1996 and the notes thereto, included
in the Company's Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 28, 1996 September 30, 1996
----------------- ------------------
<S> <C> <C>
Raw material $ 8,813 $ 7,368
Work in process 2,419 2,751
Finished goods 10,596 10,955
--------- ---------
Total inventories $ 21,828 $ 21,074
========= =========
</TABLE>
(3) NET LOSS PER COMMON SHARE
Net loss per common share is determined by dividing net loss, including
accretion on preferred stock, by the weighted average common shares outstanding
during the period. Accretion on preferred stock was $357,000 and $515,000 for
the three months ended December 28, 1996 and December 31, 1995 respectively.
All common stock equivalents consisting of options, warrants, contingently
issuable shares and shares held in escrow have been excluded from the
calculation of weighted average common shares outstanding, as their inclusion
would be anti-dilutive.
(4) ACQUISITION OF PERSEPTIVE TECHNOLOGIES II CORPORATION
On November 1, 1995, the Company, PerSeptive Acquisition Corporation ("PAC"), a
wholly owned subsidiary of the Company, and PerSeptive Technologies II
Corporation ("PTC II") entered into a definitive agreement pursuant to which the
Company agreed to an exchange offer for all of the 2,645,000 outstanding units
of PTC II followed by a merger of PTC II with PAC. Each PTC II unit consisted
of one share of callable common stock of PTC II and one Class E Warrant of the
Company, exercisable at $33.00 until December 1998. Effective March 8, 1996,
the Company acquired 2,603,125 units of PTC II that were validly tendered and
not withdrawn in the exchange offer. The PTC II shareholders, who participated
in the exchange offer, exchanged their units for 2,603,125 shares of the
Company's common stock and 2,603,125 new Class I Warrants to purchase the
Company's common stock, exercisable until August 8, 1997 at an exercise price
per share of
6
<PAGE>
$13.50. On March 13, 1996, PTC II merged with PAC and became a wholly owned
subsidiary of the Company. Each of the remaining 41,875 shares of callable
common stock of PTC II not exchanged in the exchange offer were automatically
converted into a right to receive one share of the Company's common stock upon
the merger of PTC II with PAC. During the quarter ended June 30, 1996, 36,475
rights were exchanged for an equivalent number of shares of the Company's common
stock. The total value of the common stock issued in the exchange offer was
approximately $16 million based on the market value of the Company's common
stock on March 8, 1996. The transaction has been accounted for as a purchase and
the Company has recorded an in-process research and development charge of
approximately $6.8 million which represents the value of acquired technologies
which have not reached commercialization. During the three-month period ended
March 31, 1996, the Company recognized research and development revenue from PTC
II totaling approximately $5 million.
5) LITIGATION AND OTHER MATTERS
The Company has sued Pharmacia Biotech, Inc. and certain of its affiliates, and
their parent Pharmacia AB (collectively, "Pharmacia"), now part of Pharmacia &
Upjohn Co., Sepracor Inc. ("Sepracor") and BioSepra Inc. ("BioSepra"), a company
partially owned by Sepracor, for willful infringement of three PerSeptive
patents (collectively, the "Perfusion Patents") covering the process of
Perfusion Chromatography/(R)/ and the manufacture, sale and use of
chromatography particles and matrices that enable Perfusion Chromatography. The
Company commenced its action against Pharmacia and Sepracor on October 14, 1993,
and the consolidated action is pending in the United States District Court for
the District of Massachusetts. BioSepra was added as a party on May 19, 1994.
The lawsuit also claims that Sepracor and BioSepra made false and misleading
representations of fact with respect to the Company's products, and that
BioSepra engaged in false and misleading advertising. The lawsuit, in an amended
complaint filed by Purdue University and the Company, also claims that Sepracor
and BioSepra infringe a fourth patent (the "Coatings Patent"), licensed
exclusively by PerSeptive, covering novel coatings for chromatography media. The
lawsuit seeks to enjoin the defendants from infringing the four patents and asks
for treble damages, as well as other relief and damages. Pharmacia, Sepracor and
BioSepra each have asserted that their products do not infringe the Perfusion
Patents and that the Perfusion Patents are invalid and unenforceable, and have
asserted counterclaims against the Company alleging that the Company's
assertions that they have infringed the patents, and that statements allegedly
made by the Company to customers concerning the litigation, constitute unfair
competition, commercial disparagement, unfair trade practices, tortious
interference with customer relationships and violation of the Lanham Act, and
seeking an unspecified amount of damages, and, under certain asserted claims,
double or treble damages. The Company has denied any liability on these
counterclaims.
On January 9, 1996, the Court entered an order denying the Company's motion for
partial summary judgment relating to the inventorship of the Perfusion Patents,
and granting the Defendants' motions for partial summary judgment that
inventorship of the Perfusion Patents is improper for failure to name two or
more persons, who are unrelated to the defendants, as additional joint
inventors. The Court, however, affirmed the Company's inventorship. In May and
June, 1996, the Court conducted an evidentiary hearing on the issue of whether
inventorship of the Perfusion Patents could be corrected, and has not rendered a
decision based on that hearing. The Company has preserved its rights of appeal
on a number of issues, including the Court's January 9, 1996 order that the
Perfusion Patents failed to name additional persons as joint inventors. The
Court has not yet considered the issue of infringement of the Perfusion Patents
or the Coatings Patent. The Company intends to continue to vigorously pursue
this litigation.
7
<PAGE>
In September, 1996, a new United States patent relating to Perfusion
Chromatography systems was issued to the Company. This patent, and a related
patent for which Notice of Allowance was received in June, 1996, cover
instruments and systems that perform the high-speed, high resolution
chromatography which is the subject of the Perfusion Patents. Neither of these
patents are the subject of the current litigation.
Since November 1994, the Company has been responding to informal requests for
information from the Securities and Exchange Commission (the "Commission")
relating to certain of the Company's financial matters. In May 1995, the
Company was advised by the Commission that it had obtained a formal order of
investigation so that, among other matters, it may utilize subpoena powers to
obtain information relevant to its inquiry. The Commission has and may in the
future utilize its subpoena powers to obtain information from various officers,
directors and employees of the Company and from persons not presently associated
with the Company. If, after completion of its investigation, the Commission
finds that violations of the federal securities laws have occurred, the
Commission has the authority to order persons to cease and desist from
committing or causing such violations and any future violations. The Commission
may also seek administrative, civil and criminal fines and penalties and
injunctive relief. The Department of Justice has the authority in respect of
criminal matters. There can be no assurance as to the timeliness of the
completion of the investigation or as to the final result thereof, and no
assurance can be given that the final result of the investigation will not have
a material adverse effect on the Company. The Company is cooperating fully with
the investigation, and has responded and will continue to respond to requests
for information in connection with the investigation.
(6) TRANSACTION WITH CHEMGENICS
Effective June 28, 1996 the Company completed a transaction with ChemGenics
Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.) in
which the Company transferred certain assets and employees of the Company's drug
discovery program and entered into a non-exclusive license, licensing the
Company's technology in the field of drug discovery to ChemGenics in exchange
for shares of ChemGenics Common Stock equal to 40% of its fully diluted capital
stock, plus warrants to purchase, for a period of four years, additional shares
of Common Stock at $5.00 per share equal to 10% of such fully diluted amount.
The transaction will combine the Company's proprietary technology in the field
of drug discovery with ChemGenics' gene technologies. In December 1996, the
Company and ChemGenics executed amendments to their agreements pursuant to
which the Company exchanged a portion of its ChemGenics Common Stock for a
promissory note for $3 million payable on the earlier of the closing of
ChemGenics' initial public offering or December 31, 2002. As a result of the
above referenced modifications to the agreements, the Company held approximately
34% of the outstanding capital stock of ChemGenics as of December 28, 1996.
(7) SUBSEQUENT EVENTS - MERGER OF CHEMGENICS AND MILLENNIUM
On January 20, 1997 ChemGenics and Millennium Pharmaceuticals, Inc.
("Millennium") entered into an Agreement and Plan of Merger ("Agreement"). Under
the terms of the Agreement, the stockholders of ChemGenics received capital
stock of Millennium in exchange for their capital stock of ChemGenics.
Additional consideration in the form of cash will be received by certain
stockholders of ChemGenics, which stockholders include the Company. At the
closing on February 10, 1997, the Company received 1,612,582 shares of
Millennium Common Stock in exchange for the shares of ChemGenics Common Stock it
held. In addition, the Company received $4 million cash in exchange for warrants
it held and in satisfaction of the above referenced promissory note. The parties
to the Agreement contemplate that the transaction will qualify as a tax-free
merger. The Company's shares of Millennium Common Stock are unregistered as
issued and will be subject to restrictions on sale which expire in increments
between June and September 1977. It is expected that Millennium will file a Form
S-3 with the Securities and Exchange Commission with regard to these shares in
June 1997.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that may cause
such a difference include, but are not limited to, those discussed below under
the caption "Certain Factors That May Affect Future Results," as well as
elsewhere in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, and those discussed in the Company's other filings
with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 31, 1995
Product revenue for the three months ended December 28, 1996 was $21,101,000
compared with $19,064,000 for the comparable 1995 period. The growth in product
revenue is attributable to continued strong sales growth in the analysis product
line and further expansion of the Company's products into the international
market place. Total revenue amounted to $21,101,000 and $24,131,000 for the
three months ended December 28, 1996 and December 31, 1995, respectively. The
decrease in total revenue is attributable to the elimination of contract revenue
previously recorded in connection with the Company's development efforts on
behalf of PTC II, following the acquisition of PTC II in March 1996.
Gross profit from product and related revenue for the three months ended
December 28, 1996 and December 31, 1995 was $10,458,000 and $10,804,000,
respectively. Gross margin from product and related revenue was 50% during the
three months ended December 28, 1996 as compared to 53% during the same period
in the prior year. The decrease in gross margin is primarily attributable to
factors relating to product mix, pricing and unfavorable overhead absorption
resulting from the existence of excess manufacturing capacity established to
support future revenue growth.
Research and development expenses for the three months ended December 28, 1996
amounted to $3,569,000, or 17% of product and related revenue, as compared with
$1,569,000, or 8% of product and related revenue for the comparable period in
the prior year. On a gross basis, research and development expenses, including
such expenses as reflected in contract cost of sales, have declined to
$3,569,000, or 17% of product revenue, from $5,473,000, or 27% of product
revenue, for the three months ended December 28, 1996 and December 31, 1995,
respectively. Actions have been taken to control the level of research and
development expense actually incurred following the acquisition of PTC II in
March 1996. This has been accomplished, in part, through the restructuring
program that resulted in the elimination of a significant portion of the
Company's research and development staffing and related variable support costs.
Management intends to pursue commercialization opportunities and alliances in
order to obtain value from the technologies acquired from PTC II. Management
continues to evaluate the scope and direction of the various programs, however
there is no assurance that funding sources and/or third-party arrangements will
be obtained or established to defray the cost of research and development or
that any of these acquired technologies will ultimately be successfully
commercialized.
Selling, general and administrative expenses amounted to $9,558,000, or 45% of
product and related revenue, during the three months ended December 28, 1996, as
compared with $9,632,000, or 51% of product and related revenue during the
comparable period in the prior year. The reduction in both aggregate spending
as well as spending as a percent of sales is attributable to management's
efforts to control these costs as well as improve the productivity of the
resources utilized in these functional areas.
Net interest expense was $650,000 during the three months ended December 28,
1996, as compared with $703,000 during the comparable period in the prior year.
This decrease is primarily attributable to higher net interest income as
compared to the comparable period in the prior year.
Other expenses were $250,000 and $52,000 for the three months ended December 28,
1996 and December 31, 1995 respectively. This increase was due primarily to the
impact of unfavorable currency fluctuations as compared to the comparable period
in the prior year.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and investments at December 28, 1996 were $21,534,000 as compared to
$24,657,000 at September 30, 1996. Expenditures of cash and investments during
the three months ended December 28, 1996 primarily related to the funding of
operational requirements for $2.2 million and the funding of financing
activities for $900,000. Management anticipates additional cash usage relating
to various factors including, but not limited to a semi-annual interest payment
due on the 8-1/4% convertible subordinated notes, and cash requirements
associated with capital expenditures, patent enforcement actions, working
capital and operational needs.
The Company believes that its capital resources are sufficient to fund its
planned operations through the end of fiscal 1997. The Company believes that
additional financing will be required for the development of some of its
currently planned product introductions and to support the Company's future
operations and revenue growth. The Company's future working capital and capital
requirements will in general depend on numerous factors, including the progress
of the Company's research and development of new products, the level of
resources that the Company devotes to the development of manufacturing and
marketing capabilities, the consistency of cash collections, the success of cost
containment initiatives, the competitive environment and the growth in the
Company's business, which may cause the Company's actual future capital
resources to differ materially, notwithstanding the forward-looking statement in
the first sentence of this paragraph. The Company believes that the level of
financial resources available to it is an important competitive factor. The
Company is actively seeking to raise additional capital through equity or debt
financing in the near future or to enter into corporate partnering arrangements.
However, there can be no assurance that the Company will be able to successfully
raise additional capital at acceptable terms, and any failure to do so could
have adverse consequences on planned future product introductions and the
Company's growth and operations.
CHEMGENICS TRANSACTION
In June 1996, the Company entered into a transaction with ChemGenics
Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.), in
which the Company transferred certain assets and employees of the Company's drug
discovery program to ChemGenics and granted a non-exclusive license to
ChemGenics to use the Company's technology (including technology developed
through PTC II) in the field of drug discovery in exchange for shares of
ChemGenics common stock, $.001 par value per share ("ChemGenics Common Stock"),
and warrants to purchase additional shares of ChemGenics Common Stock
exercisable until June 28, 2000. The warrants were exercisable at $5.00 per
share ($13.25 per share after a proposed 2.65-for-1 reverse stock split). The
Company was subject to certain contractual restrictions on the sale or
distribution of its holdings of ChemGenics Common Stock. In December 1996, the
Company and ChemGenics executed amendments to their agreements pursuant to which
the Company exchanged a portion of its ChemGenics Common Stock for a promissory
note for $3 million payable on the earlier of the closing of ChemGenics' initial
public offering or December 31, 2002. the Company held approximately 34% of the
outstanding capital stock of ChemGenics as of December 28, 1996.
In January 1997, ChemGenics and Millennium Pharmaceuticals, Inc. announced that
they had entered into a definitive merger agreement for Millennium to acquire
ChemGenics in a stock for stock transaction. At the closing, which was held on
February 10, 1997, the Company received 1,612,582 shares of Millennium stock and
cash in the amount of $4 million. The Millennium shares issued in the
transaction are unregistered and subject to restrictions on sale which expire
in increments between June and September 1997. Registration of the shares is
expected to occur in June 1997.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Additional Financing Requirements. The Company believes additional long-term
financing will be required for the development of some of its currently planned
product introductions and to support its planned operations and capital
expenditures in its core business relating to the purification, analysis and
synthesis of biomolecules. The Company is actively seeking to raise additional
capital through equity or debt financing or to enter into corporate partnering
arrangements; however, there can be no assurances that this funding will be made
available or that terms acceptable to the Company will be reached.
Potential Fluctuations in Operating Results. The Company's operating results
may vary significantly from quarter to quarter or year to year, depending on
factors such as the timing of biopharmaceutical development and
commercialization programs
10
<PAGE>
of the Company's customers, the timing of increased research and development and
sales and marketing expenses, the timing and size of orders and the introduction
of new products by the Company and the capital resources of the Company's
customers. The Company's current and planned expense levels are based in part on
its expectations as to future revenue. Consequently, results may vary
significantly from quarter to quarter or year to year based on timing of
revenue, and revenue or profits in any period will not necessarily be indicative
of results in subsequent periods.
Uncertainties Associated with Future Performance. The Company expects to
continue to improve operating results in future periods; however, there can be
no assurance that the Company will achieve or maintain profitability or that its
revenue growth can be sustained in the future. The Company's success in the
market for biopharmaceutical purification, analysis and synthesis products will
depend, in part, on attracting and maintaining key employees, continued
development of foreign sales operations, successful integration of recent
acquisitions, continued support from current customers, development of new
customers and successful enforcement of the Company's patent rights. See
"Legal Proceedings."
Need to Integrate Acquisitions. In recent years, the Company has made several
acquisitions that have increased the number of the Company's employees or the
scope of its business, or both. The Company may make additional acquisitions in
the future. The success of these acquisitions will depend on a number of
factors, including the ability of the Company's management to integrate the
administrative, manufacturing and sales operations of the acquired businesses
with those of the Company, to retain key personnel of the acquired businesses,
to reduce costs and to preserve and expand sales of the products of the
acquired businesses. There can be no assurance that the Company will be able to
operate successfully the acquired businesses or that the Company will not
experience losses as a result of these acquisitions. With respect to the
acquisition of PTC II, the success of the combined business will depend, in
part, on the continued availability of funding sources for the research and
development projects. The Company has licensed the technology developed through
PTC II to ChemGenics for drug discovery purposes. If other research and
development programs formerly funded by PTC II are continued by the Company,
they will be required to be funded in total by the Company and it will be
required to rely upon its own resources or seek alternative sources of capital
and/or collaborative funding. There is no assurance that sufficient sources of
capital and other funding will be available to the Company in the near term or
long term to fund all the Company's current research and development programs
and those acquired from PTC II.
Uncertainties Associated with Expansion of Marketing and Manufacturing
Operations. The Company intends to continue expanding its sales and marketing
efforts in the United States and other countries. The Company's ability to
accomplish this objective is dependent on many factors including, among others,
attracting and retaining a significant number of additional sales and marketing
professionals, expanding foreign sales operations and developing distributor
relationships in certain markets. This continued expansion will involve
significant additional expense and the risks inherent in integrating new sales
and marketing personnel into the Company's existing organization. Increasing
sales may also require the expansion of the Company's manufacturing capabilities
for the Biospectrometry product line, which expansion would require significant
capital expenditures and management attention. There can be no assurance that
the Company will be able to accomplish its sales, marketing and manufacturing
objectives.
Potential Costs Associated with Patent Litigation. Patent litigation is
widespread in the biotechnology industry and, in general, it is not possible to
predict how any such litigation would affect the Company's business. The
Company has sued two competitors for infringement of Company patents relating to
Perfusion Chromatography. The defendants in that suit are seeking to have these
patents declared invalid and they have asserted counterclaims against the
Company. The Company may incur substantial additional expenses relating to this
and other proceedings. There can be no assurance that the outcome of the
litigation will not have a material adverse effect on the Company. See "Legal
Proceedings."
Patent and License Uncertainties. Proprietary rights relating to the Company's
products will be protected from unauthorized use by third parties only to the
extent that they are covered by valid and enforceable patents or are maintained
in confidence as trade secrets. There can be no assurance that any pending
patent applications filed by the Company will result in patents being issued or
that any patents now or hereafter owned by the Company will afford protection
against competitors. In the absence of patent protection, the Company's
business may be adversely affected by competitors that independently develop
functionally equivalent technology. The Company has established a policy of
vigorously enforcing its patent rights. See "Legal Proceedings." If the Company
participates in interference or other proceedings under the jurisdiction of the
U.S. Patent and Trademark Office, such proceedings could result in substantial
costs to the Company. Competitors, including those with substantially greater
resources than the Company, may initiate litigation to challenge the validity of
the
11
<PAGE>
Company's patents. Others may use their resources to design comparable products
that do not infringe the Company's patents. There may also be pending or issued
patents of which the Company is not aware held by parties not affiliated with
the Company that relate to the Company's products or technology. The Company may
need to acquire licenses to, or contest the validity of, any such patents. It is
likely that significant funds would be required to contest the validity of any
such patents. There can be no assurance that any license required under any such
patent would be made available on acceptable terms or that the Company would
prevail in any such contest.
Pending Governmental Investigation. Since November 1994, the Securities and
Exchange Commission (the "SEC") has been conducting an investigation into
certain financial matters of the Company. If, after completion of its
investigation, the SEC finds that violations of the federal securities laws have
occurred, the SEC has the authority to order persons to cease and desist from
committing or causing such violations and any future violations. The SEC may
also seek administrative, civil and criminal fines and penalties and injunctive
relief. The Department of Justice has the authority in respect of criminal
matters. The Company has been cooperating fully with this investigation. There
can be no assurance as to the timeliness of the completion of this investigation
or as to the final result thereof, and no assurance can be given that the final
result of the investigation will not have a material adverse effect on the
Company. See "Legal Proceedings."
Intense Competition and Risk of Technological Obsolescence. The Company
encounters, and expects to continue to encounter, intense competition in the
sale of its current and future products. There can be no assurance that
developments by others will not render the Company's products or technologies
obsolete or non-competitive. Many of the Company's competitors have
substantially greater resources, manufacturing and marketing capabilities,
research and development staff and production facilities than those of the
Company.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has sued Pharmacia Biotech, Inc. and certain of its affiliates, and
their parent Pharmacia AB (collectively, "Pharmacia"), now part of Pharmacia &
Upjohn Co., Sepracor Inc. ("Sepracor") and BioSepra Inc. ("BioSepra"), a company
partially owned by Sepracor, for willful infringement of three PerSeptive
patents (collectively, the "Perfusion Patents") covering the process of
Perfusion Chromatography /(R)/ and the manufacture, sale and use of
chromatography particles and matrices that enable Perfusion Chromatography. The
Company commenced its action against Pharmacia and Sepracor on October 14, 1993,
and the consolidated action is pending in the United States District Court for
the District of Massachusetts. BioSepra was added as a party on May 19, 1994.
The lawsuit also claims that Sepracor and BioSepra made false and misleading
representations of fact with respect to the Company's products, and that
BioSepra engaged in false and misleading advertising. The lawsuit, in an amended
complaint filed by Purdue University and the Company, also claims that Sepracor
and BioSepra infringe a fourth patent (the "Coatings Patent"), licensed
exclusively by PerSeptive, covering novel coatings for chromatography media. The
lawsuit seeks to enjoin the defendants from infringing the four Patents and asks
for treble damages, as well as other relief and damages. Pharmacia, Sepracor and
BioSepra each have asserted that their products do not infringe the Perfusion
Patents and that the Perfusion Patents are invalid and unenforceable, and have
asserted counterclaims against the Company alleging that the Company's
assertions that they have infringed the patents, and that statements allegedly
made by the Company to customers concerning the litigation, constitute unfair
competition, commercial disparagement, unfair trade practices, tortious
interference with customer relationships and violation of the Lanham Act, and
seeking an unspecified amount of damages, and, under certain asserted claims,
double or treble damages. The Company has denied any liability on these
counterclaims.
On January 9, 1996, the Court entered an order denying the Company's motion for
partial summary judgment relating to the inventorship of the Perfusion Patents,
and granting the Defendants' motions for partial summary judgment that
inventorship of the Perfusion Patents is improper for failure to name two or
more persons, who are unrelated to the defendants, as additional joint
inventors. The Court, however, affirmed the Company's inventorship. In May and
June, 1996, the Court conducted an evidentiary hearing on the issue of whether
inventorship of the Perfusion Patents could be corrected, and has not rendered a
decision based on that hearing. The Company has preserved its rights of appeal
on a number of issues, including the Court's January 9, 1996 order that the
Perfusion Patents failed to name additional persons as joint inventors. The
Court has not yet considered the issue of infringement of the Perfusion Patents
or the Coatings Patent. The Company intends to continue to vigorously pursue
this litigation.
In September, 1996, a new United States patent relating to Perfusion
Chromatography systems was issued to the Company. This patent, and a related
patent for which Notice of Allowance was received in June, 1996, cover
instruments and systems that perform the high-speed, high resolution
chromatography which is the subject of the Perfusion Patents. Neither of these
patents are the subject of the current litigation.
Since November 1994, the Company has been responding to informal requests for
information from the Securities and Exchange Commission (the "Commission")
relating to certain of the Company's financial matters. In May 1995, the
Company was advised by the Commission that it had obtained a formal order of
investigation so that, among other matters, it may utilize subpoena powers to
obtain information relevant to its inquiry. The Commission has and may in the
future utilize its subpoena powers to obtain information from various officers,
directors and employees of the Company and from persons not presently associated
with the Company. If, after completion of its investigation, the Commission
finds that violations of the federal securities laws have occurred, the
Commission has the authority to order persons to cease and desist from
committing or causing such violations and any future violations. The Commission
may also seek administrative, civil and criminal fines and penalties and
injunctive relief. The Department of Justice has the authority in respect of
criminal matters. There can be no assurance as to the timeliness of the
completion of the investigation or as to the final result thereof, and no
assurance can be given that the final result of the investigation will not have
a material adverse effect on the Company. The Company is cooperating fully with
the investigation, and has responded and will continue to respond to requests
for information in connection with the investigation.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
[The remainder of this page is intentionally left blank.]
14
<PAGE>
SIGNATURES
- ----------
Pursuant to 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.
PERSEPTIVE BIOSYSTEMS, INC.
Date: February 12, 1997 By:/s/ Noubar B. Afeyan
----------------- --------------------
Noubar B. Afeyan, Chairman
and Chief Executive Officer
(Principal Executive Officer)
By:/s/ Thomas G. Ruane
-------------------
Thomas G. Ruane, Senior Vice
President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
By:/s/ John F. Smith
-----------------
John F. Smith, President
and Director
15
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10 Q
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REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
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