<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
METRA BIOSYSTEMS, INC.
-----------------------------------------------------
(Exact Name of Registrant as specified in its charter)
0-26234
----------------------
Commission File Number
CALIFORNIA 33-0408436
- --------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
265 NORTH WHISMAN ROAD, MOUNTAIN VIEW, CA 94043-3911
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(Address of Registrant's principal executive offices)
(415) 903-9100
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(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.
[ X ]Yes [ ] No.
The number of shares of the Registrant's common stock outstanding as of
October 31, 1996 was 12,600,171.
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METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
Consolidated Condensed Balance Sheets
September 30, 1996 and June 30, 1996 3
Consolidated Condensed Statements of Operations
Three Months ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows
Three Months ended September 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION, RESULTS OF OPERATIONS
AND FACTORS THAT MAY AFFECT FUTURE RESULTS 8-10
PART II. OTHER INFORMATION 11
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 SECURITIES
HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE 11
2
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PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
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(Unaudited)
<S> <C> <C>
Current assets:
Cash, cash equivalents $18,480 $19,217
Securities available-for-sale, at market 23,561 26,283
Accounts receivable, net 1,179 1,266
Interest receivable 453 578
Inventories 926 1,040
Prepaid expenses and other current assets 399 249
------------- ---------
Total current assets 44,998 48,633
Property and equipment, net 4,647 4,314
Securities available-for-sale, at market 5,061 6,747
Other assets, net 77 499
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$54,783 $60,193
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LIABILITIES, AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 408 $ 407
Accounts payable 1,547 2,185
Accrued expenses 1,855 1,810
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Total current liabilities 3,810 4,402
Capital lease obligations 1,269 1,367
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Total liabilities 5,079 5,769
Preferred stock - -
Common stock 13 13
Capital in excess of par value of common stock 94,540 94,539
Notes receivable from shareholders (90) (90)
Deferred compensation (69) (79)
Foreign currency translation adjustment 15 13
Unrealized loss on securities available-for-sale (27) (83)
Accumulated deficit (44,678) (39,889)
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Total shareholders' equity 49,704 54,424
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$54,783 $60,193
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
QUARTER ENDED SEPTEMBER 30,
-----------------------------
1996 1995
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Revenues:
Product sales $ 1,167 $ 715
Partner revenues 76 375
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Total revenues 1,243 1,090
Operating expenses:
Cost of product sales 972 869
Research and development 1,677 878
Sales and marketing 2,842 942
General and administrative 1,166 537
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Total operating expenses 6,657 3,226
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Loss from operations (5,414) (2,136)
Interest income, net 625 441
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Net loss $ (4,789) $(1,695)
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Net loss per share $ (0.38) $ (0.18)
--------- --------
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Weighted average shares used to compute
net loss per share 12,599,700 9,659,436
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------------ -----------
See accompanying notes to consolidated condensed financial statements.
4
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METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
---------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities (4,478) (1,967)
Cash flows from investing activities:
Purchases of investment securities (2,021) (11,798)
Maturities and sales of investment securities 6,485 1,000
Purchases of property and equipment (627) (1,952)
Proceeds from sale of property and equipment - -
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Net cash (used in) provided by investing activities 3,837 (12,750)
Cash flows from financing activities:
Repayment of capital lease obligations (97) (26)
Proceeds from sales of common stock 1 32,027
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Net cash provided by (used in) financing activities (96) 32,001
Net increase (decrease) in cash and cash equivalents (737) 17,279
Cash and cash equivalents at beginning of year 19,217 2,317
--------- ----------
Cash and cash equivalents at end of year $18,480 $19,596
--------- ----------
--------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 76 $ 3
Supplemental disclosure of noncash investing and financing
activities - conversion of mandatorily redeemable preferred
stock and common stock warrant to common stock $ - $23,260
Upon completion of the Initial Public Offering, $727 of prepaid
IPO costs were debited to additional paid in capital $ - $ 727
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
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METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Metra Biosystems, Inc. ("Metra" or the "Company") was incorporated on March
21, 1990. Since the commencement of operations the Company has been engaged in
the development and commercialization of diagnostic products for the detection
and management of metabolic bone diseases and disorders.
In December 1993, the Company incorporated a wholly-owned subsidiary, Metra
Biosystems (U.K.) Ltd., that is responsible for the commercialization of Metra's
products in Europe. In October, 1995, a branch office of Metra Biosystems
(U.K.) Ltd. was opened in Milan, Italy.
In January 1996, the Company acquired Osteo Sciences Corporation, a wholly-
owned subsidiary, responsible for research and development of the Company's
ultrasound technology.
2. INVESTMENT SECURITIES
Investment securities which are classified as available-for-sale at
September 30, 1996 and June 30, 1996 include the following:
- ---------------------------------------------------------------------
September 30, June 30,
1996 1996
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Fair Value (in thousands)
U.S. Government securities $ 8,518 $ 8,516
Mortgage-backed securities 9,195 12,132
Corporate bonds 10,672 12,174
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28,385 32,822
Marketable equity securities 237 208
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$28,622 $33,030
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Cost
U.S. Government securities $ 8,516 $ 8,527
Mortgage-backed securities 9,209 12,148
Corporate bonds 10,674 12,188
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28,399 32,863
Marketable equity securities 250 250
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$28,649 $33,113
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6
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The cost and estimated fair value of securities available-for-sale as of
September 30, 1996, by contractual maturity, consisted of the following:
Adjusted Fair
Cost Value
------------ -----------
Due in one year or less $12,898 $12,885
Due in one to four years 6,542 6,542
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19,440 19,427
Mortgage-backed securities 9,209 9,195
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$28,649 $28,622
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3. INVENTORIES
Inventories consist of the following:
- -----------------------------------------------------------------------
September 30, June 30,
1996 1996
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(in thousands)
Raw materials $ 263 $ 216
Finished goods 663 824
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$ 926 $1,040
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4. STOCK OPTION REPRICING
In August 1996, the Board of Directors authorized the repricing of options
to purchase 550,485 shares of common stock as of the close of business on August
21, 1996 at fair market value, which was $5.00 per share. The repriced options
begin to vest on August 21, 1996 and may not be exercised for a period of six
months.
5. MANAGEMENT REPRESENTATION
The accompanying unaudited consolidated condensed financial statements
have been prepared by the Company, pursuant to the rules and regulations of
the Securities and Exchange Commission, and reflect all adjustments,
consisting only of normal recurring adjustments, which, in the opinion of
management, are necessary for a fair statement of the results for the interim
periods presented. Operating results for the three months ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the year.
Certain information in footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted pursuant to such rules and regulations. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes thereto contained in
the Company's Annual Report on Form 10-K, as amended on Form 10 K/A, for the
year ended June 30, 1996, previously filed with the Securities and Exchange
Commission.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
REVENUES - Total revenue for the first quarter ended September 30, 1996
was $1,243,000, an increase of 14 percent from the same period in the prior
fiscal year. Product sales increased 63 percent to $1,167,00 over the
corresponding period of fiscal 1996. Partner revenues decreased to $76,000
from $375,000 in the first quarter of fiscal 1996.
The growth in product sales for the first quarter of fiscal 1997 was
principally due to an increased awareness and market acceptance of the
Company's products in international markets and due to the introduction in
the United States in January 1996 of the Company's bone resorption products
for clinical use. Partner revenues decreased in fiscal 1997 due to
non-recurring licensing fees and milestone payments which were earned in the
first quarter of fiscal 1996.
PRODUCT COSTS AND EXPENSES - Cost of product sales were $972,000 for the
quarter ended September 30, 1996, an increase of 12 percent from the same
period in the prior fiscal year. This increase was primarily related to
product sales growth and, to a lesser extent, the expensing of production
costs incurred in anticipation of sales growth including investments in
scale-up capabilities.
Research and development expenses for the quarter ended September 30,
1996 increased to $1,677,000. This represents a 91 percent increase over the
same period in the prior fiscal year. This increase was related to the
on-going research costs of the Company's Ultrasound program which was
acquired in January 1996 (Osteo Sciences Corporation) as well as increased
internal product development programs and external collaborative efforts.
The Company expects research and development expenditures to increase during
the next several years, as the Company continues to pursue a strong
scientific foundation for its products and programs.
Sales and marketing expenses for the quarter ended September 30, 1996
were $2,842,000, an increase of 202 percent from the first quarter of fiscal
1996. The Company has launched specific programs aimed at increasing
physician awareness and market acceptance of its products in the United
States in fiscal 1997 that were not present in the same period in the prior
fiscal year. Additional increases can be attributed to the presence of a US
sales force and a sales office in Milan, Italy in fiscal 1997, both of which
were not in place in the first quarter of fiscal 1996. Sales and marketing
expenditures are expected to increase in the next several years as additional
marketing programs and sales and marketing staff are added to support the
expansion of the sales operations domestically and internationally.
General and administrative expenses for the quarter ended September 30,
1996 were $1,166,000, an increase of 117 percent over the same period in the
prior fiscal year. This increase is due to increased personnel costs as well
as additional legal and consulting expenses necessary to support the
Company's expanded operations over the same period in the prior fiscal year.
8
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NET INTEREST INCOME - Net interest income for the quarter ended September
30, 1996 was $625,000, a 42 percent increase over the same period in the prior
fiscal year. This incrase was due to increased cash resources resulting from
the Company's follow-on offering in April 1996.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES - The Company had cash and cash
equivalents and investments of $47.1 million at September 30, 1996. The
Company's use of cash in operating activities was $4.5 million for the
quarter ended September 30, 1996 compared to $2.0 million for the period
ending September 30, 1995. The increase in cash usage was primarily due to
the increased net loss for the corresponding periods and, to a lesser extent,
fluctuations in working capital. Net cash used in financing activities for
the quarter ended September 30, 1996 was $96,000. This cash usage was
related to the payment of the Company's capital leases.
Capital expenditures for the first three months of fiscal 1997 were
$627,000, compared to $1,952,000 for the corresponding period in fiscal 1996.
This decrease is primarily due to leasehold improvements to a new facility
incurred in the first quarter of fiscal 1996 in support of the Company's
expanding operations in Mountain View, California.
The Company's future capital requirements depend upon, among other things,
the costs of research and development programs, the funding of clinical and
regulatory related studies, the expansion of marketing and selling activities,
costs involved in filing, prosecuting and enforcing patent claims, and the time
and costs associated with obtaining regulatory approvals for future products.
Funds may also be used for investments in, or acquisitions of, complementary
businesses, products or technologies, in expanding the Company's manufacturing
capacity or in improving its existing facilities. Although the Company believes
that its current cash, cash equivalents and investment securities will be
sufficient to meet the Company's operating expenses and capital requirements
through fiscal 1998, the Company's future liquidity and capital requirements
will depend on numerous factors, including regulatory actions by the FDA and
other international regulatory bodies, market acceptance of its products,
expansion of the Company's marketing and sales activities and the cost of
intellectual property protection. The Company may, however, seek additional
equity or debt financing to fund further expansion of its manufacturing
capacity, or to fund other projects or acquisitions. The timing and amount of
such capital requirements cannot be precisely determined at this time and will
depend on a number of factors, including demand for the Company's products,
product mix changes, industry conditions and competitive factors. There can be
no assurance that if it becomes necessary to raise additional capital, that such
capital will be available on acceptable terms, if at all.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company commenced its marketing efforts in the United States upon receiving
510(k) clearance in December 1995, and does not anticipate significant revenues
from clinical sales of its products in the United States unless and until the
results of its marketing efforts are realized. The Company may continue to
experience increased product sales over the prior fiscal year. However, the
success of achieving increased sales growth depends upon increased awareness and
acceptance of its products among clinicians, adequate levels of third-party
reimbursement for clinical use of its diagnostic tests, ability to successfully
launch new
9
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products, and continued sales growth of the Company's manual test formats.
There can be no assurance that the Company can successfully achieve any of
the above items in a timely manner or at all, and failure to do so could have
a material adverse effect on the Company's business, financial condition and
results of operations.
DISCLOSURE PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MANAGEMENT'S
DISCUSSION AND ANALYSIS SET FORTH ABOVE ARE FORWARD-LOOKING STATEMENTS THAT
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES. THESE RISKS AND
UNCERTAINTIES INCLUDE SUCH FACTORS, AMONG OTHERS, AS THE UNCERTAINTY OF
MARKET ACCEPTANCE FOR BIOCHEMICAL MARKERS, METRA'S DEPENDENCE UPON
INTERNATIONAL SALES, THE UNCERTAINTY OF INTERNATIONAL REGULATIONS, METRA'S
RELIANCE UPON COLLABORATIVE RELATIONSHIPS, THE UNCERTAINTY OF ULTRASOUND
TECHNOLOGY DEVELOPMENT, COMPETITION AND REGULATION AND THE OTHER RISK FACTORS
LISTED IN THE COMPANY'S PROSPECTUS DATED APRIL 23, 1996 AND ANNUAL REPORT ON
FORM 10-K AND FORM 10-K/A FOR THE YEAR ENDED JUNE 30, 1996. THE COMPANY
UNDERTAKES NO OBLIGATION TO UPDATE THE INFORMATION, INCLUDING THE
FORWARD-LOOKING STATEMENTS, IN THIS FORM 10-Q.
10
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PART II. - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
None.
ITEM 2. - CHANGES IN SECURITIES
None.
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. - OTHER INFORMATION
None.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
10.43* Separation Agreement and Mutual Release, dated September 18, 1996,
between the Company and Colette Z. Andrea.
------------
* To be filed by amendment. Confidential treatment to be requested.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/S/ Kurt E. Amundson November 14, 1996
- -------------------- ---------------------
Kurt E. Amundson.
Vice President and Chief Financial Officer
(duly authorized and principal financial and
principal accounting officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE METRA
BIOSYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,480
<SECURITIES> 28,622
<RECEIVABLES> 1,296
<ALLOWANCES> 116
<INVENTORY> 926
<CURRENT-ASSETS> 44,998
<PP&E> 6,793
<DEPRECIATION> 2,147
<TOTAL-ASSETS> 54,783
<CURRENT-LIABILITIES> 3,810
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 49,691
<TOTAL-LIABILITY-AND-EQUITY> 54,783
<SALES> 1,167
<TOTAL-REVENUES> 1,243
<CGS> 972
<TOTAL-COSTS> 6,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,789)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
