<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997
METRA BIOSYSTEMS, INC.
----------------------
(Exact Name of Registrant as specified in its charter)
0-26234
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Commission File Number
CALIFORNIA 33-0408436
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
265 NORTH WHISMAN ROAD, MOUNTAIN VIEW, CA 94043-3911
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(Address of Registrant's principal executive offices)
(650) 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, 1997 was 12,634,145.
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METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND JUNE 30, 1997 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 5
NOTES TO CONDENSED CONSOLIDATED 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
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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
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(Unaudited) (1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $16,253 $11,709
Short-term investments 12,136 18,876
Accounts receivable, net 1,383 1,576
Interest receivable 436 503
Inventories 1,665 1,446
Prepaid expenses and other current assets 621 736
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Total current assets 32,494 34,846
Property and equipment, net 3,873 4,182
Long-term investments 7,759 8,555
Other assets 395 185
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$44,521 $47,768
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------- -------
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 595 $ 1,068
Accrued expenses 2,616 2,483
Current portion of capital lease obligations 582 566
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Total current liabilities 3,793 4,117
Long-term portion of capital lease obligations 1,422 1,574
Shareholders Equity:
Preferred stock - -
Common stock 13 13
Additional paid-in capital 95,221 95,219
Notes receivable from shareholders (40) (40)
Deferred compensation (55) (70)
Unrealized gain (loss) on investments 191 (13)
Cumulative translation adjustment (21) (16)
Accumulated deficit (56,003) (53,016)
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Total shareholders' equity 39,306 42,077
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$44,521 $47,768
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</TABLE>
(1) Derived from audited consolidated financial statements at June 30, 1997
See accompanying notes to condensed consolidated financial statements.
3
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METRA BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1996
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<S> <C> <C>
Revenues:
Product sales $ 1,521 $ 1,167
Partner revenues 46 76
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Total revenues 1,567 1,243
Operating expenses:
Cost of product sales 557 972
Research and development 1,253 1,677
Sales and marketing 2,596 2,842
General and administrative 625 1,166
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Total operating expenses 5,031 6,657
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Loss from operations (3,464) (5,414)
Interest income, net 477 625
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Net loss $(2,987) $(4,789)
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---------- ----------
Net loss per share $ (0.24) $ (0.38)
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---------- ----------
Weighted average shares used to compute
net loss per share 12,633,059 12,599,700
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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METRA BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities $ (3,009) $(4,478)
Cash flows from investing activities:
Purchases of investment securities (3,189) (2,021)
Maturities and sales of investment securities 10,929 6,485
Purchases of property and equipment (57) (627)
Proceeds from sale of property and equipment 5 -
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Net cash provided by investing activities 7,688 3,837
Cash flows from financing activities:
Repayment of capital lease obligations (137) (97)
Proceeds from sales of common stock 2 1
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Net cash used in financing activities (135) (96)
Net increase (decrease) in cash and cash equivalents 4,544 (737)
Cash and cash equivalents at beginning of period 11,709 19,217
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Cash and cash equivalents at end of period $16,253 $18,480
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 137 $ 76
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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METRA BIOSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1. INTERIM FINANCIAL INFORMATION
(a) THE COMPANY
Metra Biosystems, Inc. ("Metra" or the "Company"), a California
corporation, is engaged in the development and commercialization of diagnostic
products for the detection and management of metabolic bone and joint diseases
and disorders. The Company primarily markets its products for clinical and
research use in the United States, Europe and Pacific Rim countries.
(b) BASIS OF PRESENTATION
The accompanying interim consolidated condensed financial statements of the
Company have been prepared in conformity with generally accepted accounting
principles, consistent in all material respects with those applied in the Annual
Report on Form 10-K for the year ended June 30, 1997. The interim financial
information is unaudited, but reflects all normal adjustments which are, in the
opinion of management, necessary to provide a fair statement of results for the
interim periods presented. The interim financial statements should be read in
connection with the financial statements in the Company's Annual Report on Form
10-K for the year ended June 30, 1997.
2. INVENTORIES
Inventories consist of the following (net of reserves):
September 30, June 30,
1997 1997
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(in thousands)
Raw materials $ 285 $ 224
Work in process 143 95
Finished goods 1,237 1,127
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$1,665 $1,446
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3. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation as their effect is anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Number 128 ("SFAS 128"), Earnings Per Share,
which the Company is required to adopt in the second quarter of fiscal 1998. At
that time, the Company will be required to change the method currently used to
compute earnings per share. Since the Company has reported losses since
inception, SFAS 128 will not result in a change in the reported earnings per
share.
6
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4. OTHER AGREEMENTS
In April 1997, the Company entered into a Co-Promotion Agreement with
Berlex Laboratories, Inc. ("Berlex"). The Company will pay Berlex
approximately $3 million in December 1997 for promotional activities
performed by Berlex over the first year of the promotional agreement,
starting on July 1, 1997. The $3 million will be recognized as an expense
ratably over the initial one year term. During the quarter ended September
30, 1997, $750,000 was accrued and recognized as expense. In connection with
this agreement, the Company issued Berlex warrants to acquire 413,233 shares
of common stock at an exercise price of $4.84 per share. The warrant has a
four year term. The fair value of the warrants issued to Berlex of $506,000
will also be amortized over the initial one year service period. During the
quarter ended September 30, 1997, $127,000 was amortized in conjunction with
the warrants. In addition, the Company will pay Berlex additional
commissions based upon increased sales of the Company's products to the
extent such sales are above previously established levels. After the first
promotional year, the future continuance of the promotional agreement is, in
part, dependent upon the achievement of certain milestones and the mutual
consent of both parties.
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, 1997 AND 1996
REVENUES
Product sales for the three months ended September 30, 1997 increased 30% to
$1,521,000 as compared to product sales of $1,167,000 in the comparable period
of the prior fiscal year. The growth in product sales can be attributed to
increased domestic and European product sales which grew by 55% and 51%,
respectively, over the prior fiscal year. The product sales increase was
primarily related to increased market awareness and acceptance of the Company's
products in the US, in part resulting from marketing efforts aimed at educating
physicians regarding the clinical utility of bone resorption tests.
Partner revenues for the three months ended September 30, 1997 were $46,000 as
compared to $76,000 in the corresponding period of the prior fiscal year, a
decrease of 40%. This decrease is primarily related to reduced reagent sales to
a corporate partner who completed research and development work on its automated
Pyrilinks-D immunoassay in the second quarter of calendar year 1997, and, to a
lesser extent, the timing of reagent sales to other corporate partners, offset
by the collection of royalties from partners.
PRODUCT COSTS AND EXPENSES
Product costs were $557,000 for the first quarter of fiscal 1998, as compared to
$972,000 in the corresponding period of fiscal 1997. The product margin for the
first quarter of fiscal 1998 was 63% compared to 17% in the first quarter of
fiscal 1997. This decrease in product costs and increase in product margins is
related to higher average selling prices from the direct sales operations in
Italy and the United Kingdom, process improvements in the manufacturing process,
economies of scale associated with the increase in sales volume, as well as cost
reduction programs implemented in the second quarter of fiscal 1997. The
Company believes that the product margin will fluctuate from quarter to quarter
and will be dependant upon future sales volume and product mix as well as the
Company's ability to continue to achieve efficiencies and improvements in the
manufacturing process.
Research and development expenses for the three months ended September 30, 1997
were $1,253,000, as compared to $1,677,000 in the corresponding period of the
prior fiscal year, representing a 25% decrease in research and development
expenditures. This decrease is due in part to reduced personnel costs, and
costs associated with the acquisition of technology which were incurred in the
first quarter of the last fiscal year but not in the current quarter. The
Company believes that research and development expenses will increase through at
least the second quarter of fiscal 1998 in order to support ongoing clinical
trials and product development of the Company's portable ultrasound product.
Sales and marketing expenses were $2,595,000 in the first quarter of fiscal
1998, as compared to $2,842,000 in the first quarter of fiscal 1997, a decrease
of 9%. This decrease is primarily related to reduced spending in the
promotional, advertising and public relations areas which was partially offset
by increased expenses related to the Co-Promotion Agreement entered into between
the
8
<PAGE>
Company and Berlex Laboratories, Inc. ("Berlex") and other specific
marketing programs aimed at increasing physician awareness of the Company's
products. The Company believes that sales and marketing expenses will increase
in subsequent periods primarily due to increased costs relating to sales efforts
in domestic and international markets. In addition, there may be potential
commissions payable to Berlex that are contingent upon increased sales of the
Company's products to the extent that such sales are above previously
established levels.
General and administrative expenses were $625,000 for the three months ended
September 30, 1997, as compared to $1,166,000 for the corresponding period in
the prior fiscal year. This represents a 46% decrease in general and
administrative costs on a year-to-year basis. The Company has undertaken
efforts to implement cost reductions in all general and administrative areas and
these reductions on a comparative basis were primarily related to reduced
personnel costs, legal and consulting fees, and insurance costs. The Company
believes that general and administrative expenses should remain relatively
stable in subsequent periods.
NET INTEREST INCOME
Net interest income for the first quarter of fiscal 1998 was $477,000, as
compared to $625,000 in the first quarter of fiscal 1997. The reduction in net
interest income is primarily the result of reduced cash resources available for
investment as well as increased interest expenditures related to additional
capital financing incurred at the end of the second quarter in fiscal 1997.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents, and investment securities of $36.1
million at September 30, 1997. The Company's use of cash in operating
activities was $3.0 million in the first quarter of fiscal 1998 compared to cash
usage of $4.5 million in the first quarter of fiscal 1997. This reduction in
cash usage is primarily related to reduced operating expenses and the
corresponding $1.8 million decrease in net loss in fiscal 1998 as compared to
fiscal 1997. Net cash proceeds from investing activities was $7.7 million for
the quarter ended September 30, 1997 which was primarily related to the maturity
of longer term investment securities which were reinvested as cash and cash
equivalents. Net cash used in financing activities in the first quarter of
fiscal 1998 was $135,000 which is substantially related to the interest costs of
the Company's capital leases.
Net capital expenditures for the first three months of fiscal 1998 were $52,000,
compared to $627,000 for the corresponding period of fiscal 1997. This decrease
is related to equipment purchases made in fiscal 1997 in support of the scale-up
of the manufacturing plant in Mountain View, CA. The majority of these
expenditures have now been incurred. The Company believes that there is
sufficient capacity for at least the remainder of the fiscal year.
In April 1997 the Company entered into a Co-Promotion Agreement with Berlex
under which the Company is obligated to pay Berlex a fee of $3,000,000 on
December 31, 1997 in consideration of promotional services rendered by Berlex
with respect to the Company's Pyrilinks-D product. In addition, commitment fees
in fiscal year 1999 and fiscal year 2000 will be paid if specified minimum sales
targets are achieved. The Company will use a portion of its existing cash
resources to make such fee payments when and if they come due.
9
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The Company's future capital requirements depend upon, among other things, the
pace of market acceptance of the Company's products, 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, enforcing, and defending 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 its current
cash, cash equivalents and investment securities will be sufficient to meet the
Company's operating expenses and capital requirements into fiscal 1999, the
Company's future liquidity and capital requirements will depend on the factors
noted above, among others. 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. 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 for its key products in late 1995, and does not anticipate
significant revenues from clinical sales of its products in the United States
unless and until the results of its medical education efforts are realized.
Achieving increased sales growth and improved product margins depends upon
increased awareness and acceptance of the Company's products among clinicians,
the success of the Company's Co-Promotion Agreement with Berlex, adequate levels
of third-party reimbursement for clinical use of its diagnostic tests, the
Company's ability to successfully launch new products, continued sales growth of
the Company's manual test formats and successful market penetration of automated
test formats by the Company's corporate partners to the extent that this
substantially increases market demand versus conversion of existing manual kit
business. There can be no assurance 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
THE STATEMENTS CONTAINED IN THE REPORT ON FORM 10-Q THAT ARE NOT PURELY
HISTORICAL ARE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED INCLUDING, WITHOUT LIMITATION, STATEMENTS
REGARDING THE COMPANY'S FUTURE PRODUCT DEVELOPMENT AND COMMERCIALIZATION,
PRODUCT SALES AND OTHER REVENUES, MARKET OPPORTUNITIES AND ACCEPTANCE, BELIEFS,
EXPECTATIONS, GOALS, FINANCIAL PERFORMANCE, AND FUTURE STRATEGIES, ALL OF WHICH
ARE DEPENDENT ON CERTAIN RISKS AND UNCERTAINTIES THAT MAY CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THESE OR ANY OTHER FORWARD LOOKING
STATEMENTS MADE BY OR ON BEHALF OF THE COMPANY. THESE RISKS AND UNCERTAINTIES
INCLUDE THE UNCERTAINTY OF REALIZING INCREASED MARKET AWARENESS AND ACCEPTANCE
FOR THE COMPANY'S PRODUCTS, THE SUCCESS OF THE COMPANY'S COLLABORATIVE
RELATIONSHIPS, THE UNCERTAINTY OF OBTAINING ADEQUATE LEVELS OF THIRD-PARTY
REIMBURSEMENT FOR CLINICAL USE OF THE COMPANY'S PRODUCTS, AND THE UNCERTAINTY
AND VARIABILITY OF CONTINUING SALES GROWTH OF THE COMPANY'S PRODUCTS. FOR A
MORE DETAILED DISCUSSION OF THESE RISKS, SEE THE RISK FACTORS DISCUSSED IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997.
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
None.
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 12, 1997
- ------------------------------------------- ---------------------
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, 1997 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-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,253
<SECURITIES> 12,136
<RECEIVABLES> 1,383
<ALLOWANCES> 0
<INVENTORY> 1,665
<CURRENT-ASSETS> 621
<PP&E> 3,873
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,521
<CURRENT-LIABILITIES> 3,793
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 39,293
<TOTAL-LIABILITY-AND-EQUITY> 44,521
<SALES> 1,521
<TOTAL-REVENUES> 1,567
<CGS> 557
<TOTAL-COSTS> 5,031
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,987)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,987)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,987)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
