<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 March 31, 1998
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
(Address of Registrant's principal executive offices)
(650) 903-9100
(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
April 30, 1998 was 12,662,797.
<PAGE>
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets At
March 31, 1998 and June 30, 1997 3
Condensed Consolidated Statements of Operations For The
Three and Nine Months ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows For The
Nine Months ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-9
PART II. OTHER INFORMATION 10
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 10
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURE 11
2
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PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, JUNE 30,
1998 1997
--------- ---------
(Unaudited) (1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,580 $ 11,709
Short-term investments 11,113 18,876
Accounts receivable, net 1,629 1,576
Interest receivable 436 503
Inventories 1,248 1,446
Prepaid expenses and other current assets 1,464 736
--------- ---------
Total current assets 23,470 34,846
Property and equipment, net 3,547 4,182
Long-term investments 10,659 8,555
Other assets 495 185
--------- ---------
$ 38,171 $ 47,768
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 862 $ 1,068
Accrued expenses 2,098 2,483
Current portion of capital lease obligations 614 566
--------- ---------
Total current liabilities 3,574 4,117
Long-term portion of capital lease obligations 1,107 1,574
Shareholders' equity:
Preferred stock -- --
Common stock and additional paid-in capital 95,261 95,192
Accumulated deficit and other equity (61,771) (53,115)
--------- ---------
Total shareholders' equity 33,490 42,077
--------- ---------
$ 38,171 $ 47,768
--------- ---------
--------- ---------
</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. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
MARCH 31, MARCH 31,
------------------ -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 1,722 $ 1,710 $ 4,920 $ 4,392
Partner revenue 826 62 1,030 274
-------- -------- -------- --------
Total revenues 2,548 1,772 5,950 4,666
Operating expenses:
Cost of product sales 1,191 741 2,652 3,023
Research and development 1,560 945 4,409 4,341
Sales and marketing 2,235 1,738 7,250 7,147
General and administrative 598 687 1,900 2,771
-------- -------- -------- --------
Total operating expenses 5,584 4,111 16,211 17,282
-------- -------- -------- --------
Loss from operations (3,036) (2,339) (10,261) (12,616)
Interest and other income, net 698 500 1,624 1,705
-------- -------- -------- --------
Net loss $ (2,338) $ (1,839) $ (8,637) $(10,911)
-------- -------- -------- --------
-------- -------- -------- --------
Basic and diluted net loss per share $ (0.18) $ (0.15) $ (0.68) $ (0.87)
-------- -------- -------- --------
-------- -------- -------- --------
Shares used to compute basic and
diluted net loss per share 12,662 12,615 12,646 12,607
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net cash used in operating activities $ (9,091) $ (10,644)
Cash flows from investing activities:
Purchases of investment securities (16,951) (18,284)
Maturities and sales of investment securities 22,580 25,891
Purchases of property and equipment (316) (883)
Repayment of notes receivable from shareholders --- 50
--------- ---------
Net cash provided by investing activities 5,313 6,774
Cash flows from financing activities:
Proceeds from capital leases --- 848
Repayments of capital leases (420) (349)
Proceeds from issuance of common stock 69 70
--------- ---------
Net cash provided by (used in) financing activities (351) 569
--------- ---------
Net increase (decrease) in cash and cash equivalents (4,129) (3,301)
Cash and cash equivalents at beginning of period 11,709 19,217
--------- ---------
Cash and cash equivalents at end of period $ 7,580 $ 15,916
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 156 $ 154
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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METRA BIOSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(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.
(b) BASIS OF PRESENTATION
The accompanying interim condensed consolidated 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):
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------ ------
(in thousands)
<S> <C> <C>
Raw materials $ 322 $ 224
Work in process 210 95
Finished goods 716 1,127
------ ------
$1,248 $1,446
------ ------
------ ------
</TABLE>
3. NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," (SFAS 128")
which was adopted by the Company for the three and nine month periods ended
March 31, 1998. Earnings per share for the three and nine month periods ended
March 31, 1997 have been restated in accordance with SFAS 128. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options and warrants is excluded.
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per common share
incorporates the incremental shares issuable upon the assumed exercise of stock
options and warrants, if dilutive. Shares from stock options and warrants have
been excluded from the computation of diluted earnings per share for all periods
presented, as their effect is anti-dilutive.
4. OTHER AGREEMENTS
In April 1997, the Company entered into a Co-Promotion Agreement with
Berlex Laboratories, Inc. ("Berlex"). The Company paid Berlex approximately $3.0
million in December 1997 for promotional activities performed by Berlex over the
first year of the promotional agreement, starting on July 1, 1997. The $3.0
million is being recognized as an expense ratably over the initial one-year
term. During the quarter ended March 31, 1998, $750,000 of this payment was
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 Company is amortizing
$506,000 over the initial one-year service period, which amount represents the
estimated value of the
6
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warrants at the time of issuance. During the quarter ended March 31, 1998,
the Company amortized $127,000 in connection with the issuance of 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.
In January 1998, the Company acquired worldwide rights to the technology
for its Chondrex immunoassay from NovaDx International Inc. ("NovaDx") including
all available sub-licensing rights. The Company also obtained rights to
diagnostic applications of NovaDx's proteomics-based technology for products in
the osteoporosis and arthritis fields of use. The Company made an equity
investment in NovaDx for these rights. NovaDx will receive milestone payments,
and in addition will receive royalties and sub-licensing fees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's principal sources of revenue are product sales and partner
revenues. Product sales are principally derived from sales of the Company's
biochemical tests for research and clinical use. Partner revenues result
from certain collaborative relationships and primarily consist of milestone
payments, licensing fees and royalties received from these partners, and
revenues from sales to these partners of proprietary reagents for use with
the test formats of these partners.
The Company commenced its clinical marketing efforts in the United
States upon receiving 510(k) clearance for several of 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
programs with pharmaceutical partners, 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 diagnostic 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.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997
REVENUES
Product sales for the three months and nine months ended March 31, 1998
increased to $1,722,000 and $4,920,000, as compared to product sales of
$1,710,000 and $4,392,000 in the comparable periods of the prior fiscal year.
While the three month period showed a slight increase, the nine month period
ending March 31, 1998 increased approximately 12% as compared to the same
period of the prior fiscal year due to increased demand for the Company's
products domestically and in Europe. International and domestic product
sales for the quarter were 80% and 20%, respectively, for both the current
and prior year.
Partner revenues for the three months and nine months ended March 31,
1998 were $826,000 and $1,030,000 as compared to $62,000 and $274,000 in the
corresponding periods of the prior fiscal year. Included in the three and
nine month periods ended March 31, 1998 were $750,000 and $815,000,
respectively, of revenue from corporate partners related to the achievement
of milestones. Royalties received from the Company's licensing and other
strategic partners for the three and nine month periods were $51,000 and
$120,000, respectively. These royalties are generated through the sales of
automated tests incorporating the Company's technology. There were no
royalties in the corresponding periods
7
<PAGE>
of the prior year. The Company believes that partner revenue will fluctuate
in the future due to the nature and timing of partner milestone and license
fees.
OPERATING EXPENSES
Product costs were $1,191,000 for the third quarter and $2,652,000 for the
first nine months of fiscal 1998, as compared to $741,000 and $3,023,000 in the
corresponding periods of fiscal 1997. The product margin for the third quarter
and first nine months of fiscal 1998 was 31% and 46%, respectively, compared to
57% and 31% in the corresponding periods of fiscal 1997. The decrease in
product margins during the current quarter was primarily due to lower production
volumes. For the nine month period, the increase in product margins are related
to increased sales by the direct sales operations (Italy, the United Kingdom,
and the U.S.), which achieve higher average selling prices than sales to
distributors, process improvements in the manufacturing process, and economies
of scale associated with the increase in sales volume. The Company believes
that the product margin will fluctuate from quarter to quarter and will be
dependent upon future sales volume and product mix as well as the Company's
ability to continue to achieve efficiencies and improvements in its
manufacturing process.
Research and development expenses for the three months and nine months
ended March 31, 1998 were $1,560,000 and $4,409,000, respectively, as compared
to $945,000 and $4,341,000 in the corresponding periods of the prior fiscal
year. These increases were primarily due to increased spending related to the
development of the Company's portable ultrasound product. The Company believes
that research and development expenses will increase through at least the end of
fiscal 1998 as the Company supports it ongoing clinical trials and the
development of its portable ultrasound product.
Sales and marketing expenses were $2,235,000 in the third quarter and
$7,250,000 for the first nine months of fiscal 1998, as compared to
$1,738,000 and $7,147,000 in the corresponding periods of fiscal 1997. The
increase was primarily related to increased expenses related to the
Co-Promotion Agreement entered into between the Company and Berlex in April
1997. The costs associated with the Berlex agreement were $877,000 and
$2,630,000 for the third quarter and for the first nine months of fiscal
1998, respectively. The Company believes that sales and marketing expenses
will remain relatively flat through the remainder of 1998. In addition,
commissions are payable to Berlex under the agreement to the extent that
sales of the Company's products and royalties received from corporate
partners are above previously established levels.
General and administrative expenses were $598,000 and $1,900,000 for the
three and nine months ended March 31, 1998, as compared to $687,000 and
$2,771,000 for the corresponding periods in the prior fiscal year. This
represents decreases of 13% and 31% in general and administrative costs,
respectively. 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 flat in subsequent
periods.
NET INTEREST AND OTHER INCOME
Net interest and other income for the third quarter and first nine months
of fiscal 1998 was $698,000 and $1,624,000 as compared to $500,000 and
$1,705,000 in the corresponding periods of fiscal 1997. The increase for the
current quarter as compared to the same quarter the prior year is primarily due
to a realized gain on the sale of an equity investment. The reduction in net
interest and other income for the nine month period is primarily the result of
reduced cash resources available for investment.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents, and investment securities of $29.4
million at March 31, 1998. The Company's use of cash in operating activities
was $9.1 million in the first nine months of fiscal 1998 compared to cash usage
of $10.6 million in the first three quarters of fiscal 1997. This reduction in
cash usage is primarily related to
8
<PAGE>
reduced operating expenses and the corresponding $2.3 million decrease in net
loss in the first nine months of fiscal 1998 as compared to the corresponding
periods of fiscal 1997. This was partially offset by a $3,000,000 payment
made in the second quarter to fulfill the Company's obligation to Berlex
which resulted in a prepaid expense of $750,000 as of March 31, 1998. Net
cash proceeds from investing activities was $5.3 million for the nine months
ended March 31, 1998 which included the maturity of longer term investment
securities which were reinvested as cash and cash equivalents and used to
finance operating activities. Net cash used in financing activities in the
first three quarters of fiscal 1998 was $351,000 which is related to the
payments of the Company's capital leases offset partially by purchases of
stock through option exercises and the Company's Employee Stock Purchase
Program.
Net capital expenditures for the first nine months of fiscal 1998 were
$316,000, compared to $883,000 for the corresponding periods of fiscal 1997.
This decrease is related to equipment purchases made in fiscal 1997 in support
of the scale-up of the Company's manufacturing plant in Mountain View, CA. The
Company believes that there is sufficient capacity to meet product demands for
the foreseeable future.
In April 1997 the Company entered into a Co-Promotion Agreement with Berlex
under which the Company paid Berlex a fee of $3,000,000 on December 31, 1997 in
consideration of promotional services rendered by Berlex. Future continuance of
this promotional agreement into the 1999 fiscal year is dependent upon the
mutual consent of both parties and will result in additional fees. The Company
will use a portion of its existing cash resources to make such fee payments when
and if they come due.
The Company's current financial information system is not Year 2000
compliant. The Company plans to upgrade the current system to Year 2000
compliance within the next year. The Company does not expect the expenses
related to the system upgrade to have a material effect on its financial
position and results of operation.
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, such capital will be available on
acceptable terms, if at all.
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.
9
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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
Not Applicable
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits Description
- -------- -----------
27 Financial Data Schedule
10
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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 May 14, 1998
- --------------------------------------
Kurt E. Amundson
Vice President and Chief Financial Officer
(duly authorized principal financial and
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
MARCH 31, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 7,580
<SECURITIES> 11,113
<RECEIVABLES> 1,629
<ALLOWANCES> 0
<INVENTORY> 1,248
<CURRENT-ASSETS> 23,470
<PP&E> 3,547
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,171
<CURRENT-LIABILITIES> 3,574
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 33,477
<TOTAL-LIABILITY-AND-EQUITY> 38,171
<SALES> 4,920
<TOTAL-REVENUES> 5,950
<CGS> 2,652
<TOTAL-COSTS> 13,559
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,637)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,637)
<EPS-PRIMARY> (0.68)
<EPS-DILUTED> (0.68)
</TABLE>
