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 December 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
January 29, 1999 was 12,721,401.
<PAGE>
METRA BIOSYSTEMS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets At
December 31, 1998 and June 30, 1998 3
Condensed Consolidated Statements of Operations For The
Three and Six Months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows For The
Six Months ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-12
PART II. OTHER INFORMATION 13
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS 13
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURE 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
METRA BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
December 31, June 30,
1998 1998
---- ----
(unaudited) (1)
Current assets:
Cash and cash equivalents $ 4,496 $ 6,976
Short-term investments 12,627 12,831
Accounts receivable, net 1,612 1,831
Interest receivable 172 275
Inventories 1,073 869
Prepaid expenses and other current assets 656 615
------------ ------------
Total current assets 20,636 23,397
Property and equipment, net 2,712 3,302
Long-term investments 5,312 7,410
Other assets 543 454
------------ ------------
$ 29,203 $ 34,563
============ ============
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $ 751 $ 1,058
Accrued expenses 1,751 1,834
Current portion of capital lease obligations 782 630
------------ ------------
Total current liabilities 3,284 3,522
Long-term portion of capital lease obligations 485 944
Shareholders equity:
Preferred stock -- --
Common stock and additional
paid-in capital 95,367 95,342
Accumulated other comprehensive income (loss) (369) (245)
Accumulated deficit and other equity (69,564) (65,000)
------------ ------------
Total shareholders equity 25,434 30,097
------------ ------------
$ 29,203 $ 34,563
============ ============
(1) Derived from audited consolidated financial statements at June 30, 1998
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
METRA BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Product sales $ 1,527 $ 1,676 $ 2,634 $ 3,198
Partner revenues 116 158 232 203
-------- -------- -------- --------
Total revenues 1,643 1,834 2,866 3,401
Operating expenses:
Cost of product sales 779 903 1,304 1,461
Research and development 1,222 1,595 2,439 2,849
Sales and marketing 1,050 2,420 2,785 5,015
General and administrative 832 677 1,524 1,301
-------- -------- -------- --------
Total operating expenses 3 ,883 5,595 8,052 10,626
-------- -------- -------- --------
Loss from operations (2,240) (3,761) (5,186) (7,225)
Interest income, net 289 450 619 927
-------- -------- -------- --------
Net loss $ (1,951) $ (3,311) $ (4,567) $ (6,298)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.15) $ (0.26) $ (0.36) $ (0.50)
======== ======== ======== ========
Shares used to compute basic and
diluted net loss per share 12,699 12,642 12,694 12,638
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
METRA BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six months ended
December 31,
--------------------
1998 1997
---- ----
Net cash used in operating activities $ (4,261) $ (7,697)
Cash flows from investing activities:
Purchases of investment securities (11,849) (7,294)
Maturities and sales of investment securities 13,990 17,772
Purchases of property and equipment, net (80) (158)
-------- --------
Net cash provided by investing activities 2,061 10,320
Cash flows from financing activities:
Repayments of capital leases (305) (277)
Proceeds from issuance of common stock 25 66
-------- --------
Net cash used in financing activities (280) (211)
-------- --------
Net increase (decrease) in cash and cash
equivalents (2,480) 2,412
Cash and cash equivalents at beginning of
period 6,976 1,709
-------- --------
Cash and cash equivalents at end of period $ 4,496 $ 14,121
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 77 $ 124
-------- --------
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
METRA BIOSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 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 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 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, 1998. 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 Companys' Annual Report on Form
10-K for the year ended June 30, 1998.
2. INVENTORIES
Inventories consist of the following (net of reserves):
December 31, June 30,
1998 1998
---- ----
(in thousands)
Raw materials $ 331 $ 298
Work in process 25 275
Finished goods 717 296
----------- ------------
$ 1,073 $ 869
=========== ============
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 six month periods ended
December 31, 1998. Earnings per share for the three and six month periods ended
December 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 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.
6
<PAGE>
The following table sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------- -------------
(in thousands, except per share amounts)
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted net loss per share:
Net loss $ (1,951) $ (3,311) $ (4,567) $ (6,298)
======== ======== ======== ========
Denominator:
Weighted average shares 12,699 12,642 12,694 12,638
Weighted average non-vested shares subject
to repurchase -- (12) -- (10)
-------- -------- -------- --------
Denominator for basic and diluted net loss per
share 12,699 12,630 12,694 12,627
======== ======== ======== ========
Basic and diluted net loss per share $ (0.15) $ (0.26) $ (0.36) $ (0.50)
======== ======== ======== ========
</TABLE>
4. COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income (Statement 130) which the Company adopted as required in the first
quarter of fiscal 1999. Statement 130 establishes standards for reporting and
display of comprehensive income and its components. Components of comprehensive
income for the Company include items such as net income, changes in the value of
available-for-sale securities, and translation gains and losses.
The components of comprehensive income are as follows (in thousands):
Three months ended Six months ended
September 30, September 30,
1998 1997 1998 1997
------- ------- ------- -------
Net loss $(1,951) $(3,311) $(4,567) $(6,298)
Change in unrealized gain (loss) on
available-for-sale investments (242) 70 (161) 274
Change in accumulated foreign
currency translation (4) (16) 37 (21)
------- ------- ------- -------
Comprehensive Income (loss) $(2,197) $(3,257) $(4,765) $(6,045)
======= ======= ======= =======
Accumulated other comprehensive income presented on the accompanying condensed
consolidated balance sheets consists of the accumulated net unrealized gain
(loss) on available-for-sale investments and the cumulative foreign currency
translation adjustment.
5. YEAR 2000
The Company is currently upgrading its financial and manufacturing information
system software to a Year 2000 compliant version. The Company has completed the
testing of this system upgrade and expects to fully implement by June 30, 1999.
The Company has assessed the Year 2000 compliance of its other computer system
software and manufacturing equipment and expects to complete all necessary
upgrades to be Year 2000 compliant no later than June 30, 1999. In addition, the
Company has contacted all vendors and suppliers
7
<PAGE>
regarding Year 2000 compliance and has received no responses indicating that any
vendor or supplier will not be Year 2000 compliant. The Company has also created
a Year 2000 project team that periodically reviews relevant issues regarding
compliance. The costs of Year 2000 initiatives have primarily been incurred and
are not expected to be material to the Company's results of operations or
financial position in future periods. The Company has incurred approximately
$75,000 in Year 2000 compliance costs as of December 31, 1998 and has
identified, to date, future expenditures approximating $5,000 in order to be
fully Year 2000 compliant. Failure to timely complete the Company's Year 2000
initiatives could result in the Company's software being rendered inoperative.
Although the Company has no formal contingency plans in place, in such event,
the Company would attempt to perform its MIS functions, and other functions
currently implemented by software, manually through the dedication of additional
personnel to performing such functions. While the Company believes its planning
efforts are adequate to address its Year 2000 concerns, there can be no
assurance that the systems and products of other companies on which the
Company's operations rely will be converted on a timely basis and will not have
a material adverse effect on the Company's results of operations.
8
<PAGE>
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 automated 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 market 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 including the
QUS-2(TM) ultrasonometer, 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 Six Months Ended December 31, 1998 and 1997
Revenues
Product sales for the three months and six months ended December 31, 1998 were
$1,527,000 and $2,634,000, respectively, as compared to product sales of
$1,676,000 and $3,198,000 in the comparable periods of the prior fiscal year.
The product sales decreases resulted primarily from clinical market transitions
from manual to automated testing, weakened sales in the Asian markets due to
economic conditions and currency devaluations, and a reduction in distributor
inventory levels in the German marketplace as the Company transitions the sales
from distribution to a direct market.
Partner revenues for the three months and six months ended December 31, 1998
were $116,000 and $232,000 as compared to $158,000 and $203,000 in the
corresponding periods of the prior fiscal year. The decrease for the second
quarter of fiscal 1999 can be attributed to an $82,000 one-time milestone
payment recorded in the comparable period of the prior year. Royalty revenues
from automated test sales increased 71% and 273%, respectively, as compared to
the prior fiscal year.
9
<PAGE>
Operating Expenses
Product costs were $779,000 for the second quarter and $1,304,000 for the first
six months of fiscal 1998, as compared to $903,000 and $1,461,000 in the
corresponding periods of fiscal 1998. These decreases in product costs are
primarily related to lower product sales and the associated kit volume. The
product margin for the first six months of fiscal 1999 was 50% as compared to
54% in the prior year primarily due to slightly lower production volumes. The
Company expects 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 the
manufacturing process.
Research and development expenses for the three months and six months ended
December 31, 1998 were $1,222,000 and $2,439,000 as compared to $1,595,000 and
$2,849,000 in the corresponding periods of the prior fiscal year representing a
23% and 14% decrease in research and development expenditures, respectively.
These decreases are primarily due to reduced personnel and consulting costs
offset partially by increased expenditures for clinical trials. The Company
believes that research and development expenses will decrease in subsequent
periods as clinical trials are completed and product development costs for the
QUS-2(TM) are phased out of ongoing development expenditures.
Sales and marketing expenses were $1,050,000 in the second quarter and
$2,785,000 for the first six months of fiscal 1999, as compared to $2,420,000
and $5,015,000 in the corresponding periods of fiscal 1998, a decrease of 57%
and 44% respectively. These decreases are primarily related to reduced
expenditures associated with the Company's Co-Promotion Agreement with Berlex
Laboratories, Inc. (Berlex). In December 1998, the Company and Berlex reached a
negotiated settlement which temporarily placed on hold all direct selling
activities by Berlex representatives until the Company receives QUS-2(TM) FDA
approval in the United States and launches a point-of-care instrument. At that
time, the Company and Berlex will resume negotiations to develop a new
promotional agreement. As a result of the negotiated settlement, the Company
paid Berlex $445,000 in the second quarter which was accrued at September 30,
1998 and expects no further cash outlays for the remainder of the fiscal year.
The Company believes that sales and marketing expenses will slightly increase
for the remainder of the fiscal year due to start-up costs for direct operations
and promotional expenses associated with the product launch of the QUS-2(TM) in
Europe.
General and administrative expenses were $832,000 and $1,524,000 for the three
and six months ended December 31, 1998, as compared to $677,000 and $1,301,000
for the corresponding periods in the prior fiscal year. The increases in
administrative expenses are primarily related to increased consulting and legal
fees associated with strategic opportunities that the Company is pursuing. The
Company expects that general and administrative costs will remain relatively
flat for the remainder of the fiscal year as strategic opportunities continue
to be evaluated.
Net Interest Income
Net interest income for the second quarter and first six months of fiscal 1999
was $289,000 and $619,000 as compared to $450,000 and $927,000 in the
corresponding periods of fiscal 1998. The reduction in net interest income is
primarily the result of reduced cash resources available for investment.
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company had cash and investments of $22.4 million at December 31, 1998. The
Company's use of cash in operating activities was $4.3 million in the first six
months of fiscal 1999 compared to cash usage of $7.7 million
10
<PAGE>
in the first six months of fiscal 1998, a reduction of approximately 45%. This
reduction in cash usage is primarily related to reduced operating expenses and
the corresponding $1.7 million decrease in net loss in the first two quarters of
fiscal 1999 as compared to the corresponding periods of fiscal 1998 and a $1.5
million prepayment made to Berlex in the first half of 1998 to cover marketing
activities in the second half of fiscal 1998. Net cash proceeds from investing
activities were $2.1 million for the six months ended December 31, 1998 which
included the maturity of longer term investment securities which were reinvested
as cash and cash equivalents. Net cash used in financing activities in the first
two quarters of fiscal 1999 was $280,000 which was related to the repayment of
the Company's capital leases offset partially by purchases of stock through the
Company's Employee Stock Purchase Program.
Net capital expenditures for the first six months of fiscal 1998 were $80,000,
compared to $158,000 for the corresponding periods of fiscal 1998. The Company
has made a concerted effort to reduce capital expenditures. The Company expects
that future capital expenditures will remain flat or decrease in subsequent
periods.
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 2000, 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.
11
<PAGE>
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, 1998.
12
<PAGE>
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
At the Company's Annual Shareholders Meeting, which was held on December
14, 1998, the shareholders adopted the following management proposals:
1. The election of the following individuals as directors of the
Company:
Claude D. Arnaud, M.D.
For 11,573,462 Against 58,519 Abstain 0
---------- ------ ---------
Mariann Byerwalter
For 11,573,462 Against 58,519 Abstain 0
---------- ------ ---------
John L. Castello
For 11,573,462 Against 58,519 Abstain 0
---------- ------ ---------
George W. Dunbar, Jr.
For 11,571,782 Against 60,199 Abstain 0
---------- ------ ---------
Gregory B. Lawless, Ph.D.
For 11,573,462 Against 58,519 Abstain 0
---------- ------ ---------
Mary Lake Polan, M.D., Ph.D.
For 11,573,462 Against 58,519 Abstain 0
---------- ------ ---------
Craig C. Taylor
For 11,573,462 Against 58,519 Abstain 0
---------- ------ ---------
2. The ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending June 30,
1998
For 11,538,798 Against 60,633 Abstain 32,550
---------- ------ ------
13
<PAGE>
ITEM 5. - OTHER INFORMATION
None
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits Description
-------- -----------
27 Financial Data Schedule
b. Forms 8-K
The company filed a report on Form 8-K, dated November 10, 1998, reporting
the approval of an amendment to the Rights Agreement to institute a
mechanism to exempt a transaction from trigerring the Rights Plan, and to
increase the ownership threshold required to trigger the Rights Plan to
28%.
14
<PAGE>
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/ George W. Dunbar February 12, 1999
- ------------------------------
George W. Dunbar
Chief Executive and Chief Financial Officer
(duly authorized principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE METRA BIOSYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
DECEMBER 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,496
<SECURITIES> 17,939
<RECEIVABLES> 1,612
<ALLOWANCES> 0
<INVENTORY> 1,073
<CURRENT-ASSETS> 20,636
<PP&E> 2,712
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,203
<CURRENT-LIABILITIES> 3,284
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 25,421
<TOTAL-LIABILITY-AND-EQUITY> 29,203
<SALES> 1,527
<TOTAL-REVENUES> 116
<CGS> 779
<TOTAL-COSTS> 3,883
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,951)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,951)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,951)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
