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 March 31, 1999
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
incorporation or organization) Identification Number)
265 North Whisman Road, Mountain View, CA 94043-3911
-------------------------------------------------------------
(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
April 30, 1999 was 12,696,935.
<PAGE>
METRA BIOSYSTEMS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets At
March 31, 1999 and June 30, 1998 3
Condensed Consolidated Statements of Operations For
The Three and Nine Months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows For
The Nine Months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 - 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
METRA BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
March 31, June 30,
1999 1998
------------- --------------
(unaudited) (1)
Current assets:
Cash and cash equivalents $ 3,725 $ 6,976
Short-term investments 10,929 12,831
Accounts receivable, net 1,500 1,831
Interest receivable 237 275
Inventories 1,300 869
Prepaid expenses and other current assets 597 615
------------- --------------
Total current assets 18,288 23,397
Property and equipment, net 2,408 3,302
Long-term investments 6,263 7,410
Other assets 696 454
------------- --------------
$ 27,655 $ 34,563
============= ==============
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $ 912 $ 1,058
Accrued expenses 1,918 1,834
Current portion of capital lease
obligations 822 630
------------- --------------
Total current liabilities 3,652 3,522
Long-term portion of capital lease obligations 286 944
Shareholders equity:
Preferred stock -- --
Common stock and additional paid-in
capital 95,342 95,342
Accumulated other comprehensive income
(loss) (536) (245)
Accumulated deficit and other equity (71,089) (65,000)
------------- --------------
Total shareholders equity 23,717 30,097
------------- --------------
$ 27,655 $ 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)
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
Revenues
Product sales $ 1,537 $ 1,722 $ 4,171 $ 4,920
Partner revenues 132 826 364 1,030
-------- -------- -------- --------
Total revenues 1,669 2,548 4,535 5,950
Operating expenses:
Cost of product sales 622 1,191 1,926 2,652
Research and development 1,260 1,560 3,698 4,409
Sales and marketing 876 2,235 3,661 7,250
General and administrative 716 598 2,241 1,900
-------- -------- -------- --------
Total operating expenses 3,474 5,584 11,526 16,211
-------- -------- -------- --------
Loss from operations (1,805) (3,036) (6,991) (10,261)
Interest and other income, net 260 698 879 1,624
-------- -------- -------- --------
Net loss $ (1,545) $ (2,338) $ (6,112) $ (8,637)
======== ======== ======== ========
Basic and diluted net loss
per share $ (0.12) $ (0.18) $ (0.48) $ (0.68)
======== ======== ======== ========
Shares used to compute basic
and diluted net loss per share 12,706 12,655 12,697 12,635
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
METRA BIOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine months ended
March 31,
---------------------
1999 1998
---- ----
Net cash used in operating activities $ (5,475) $ (9,091)
Cash flows from investing activities:
Purchases of investment securities (17,701) (16,951)
Maturities and sales of investment securities 20,486 22,580
Purchases of property and equipment, net (96) (316)
-------- --------
Net cash provided by investing activities 2,689 5,313
Cash flows from financing activities:
Repayments of capital leases (465) (420)
Proceeds from issuance of common stock -- 69
Net cash used in financing activities (465) (351)
-------- --------
Net decrease in cash and cash equivalents (3,251) (4,129)
Cash and cash equivalents at beginning of
period 6,976 11,709
-------- --------
Cash and cash equivalents at end of period $ 3,725 $ 7,580
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 109 $ 156
-------- --------
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
METRA BIOSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(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:
March 31, June 30,
1999 1998
---- ----
(in thousands)
Raw materials $ 312 $ 298
Work in process 62 275
Finished goods 926 296
------------ ------------
$ 1,300 $ 869
============ ============
3. NET LOSS PER SHARE
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 Nine months ended
March 31, March 31,
--------- ---------
(in thousands, except per share amounts)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted net loss per share:
Net loss $ (1,545) $ (2,338) $ (6,112) $ (8,637)
======== ======== ======== ========
Denominator:
Weighted average shares 12,706 12,662 12,697 12,646
Weighted average non-vested shares
subject to repurchase -- (7) -- (11)
-------- -------- -------- --------
Denominator for basic and diluted
net loss per Share 12,706 12,655 12,697 12,635
Basic and diluted net loss per share $ (0.12) $ (0.18) $ (0.48) $ (0.68)
======== ======== ======== ========
</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):
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(1,545) $(2,338) $(6,112) $(8,637)
Change in unrealized gain (loss) on
available-for-sale investments (103) (304) (264) (30)
Change in accumulated foreign
currency translation (64) (8) (27) (29)
------- ------- ------- -------
Comprehensive Income (loss) $(1,712) $(2,650) $(6,403) $(8,696)
======= ======= ======= =======
</TABLE>
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.
7
<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 and, to a lesser extent, sales
of its portable ultrasound device. 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, 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, 1999 and 1998
Revenues
Product sales for the three months and nine months ended March 31, 1999 were
$1,537,000 and $4,171,000, respectively, as compared to product sales of
$1,722,000 and $4,920,000 in the comparable periods of the prior fiscal year.
The third quarter product sales decrease resulted primarily from lower sales in
Europe as the Company completed the transition in Germany from third party
distribution to direct marketing offset partially by sales of the QUS-2(TM)
ultrasonometer which was launched in the second quarter of fiscal year 99. The
distributor has consumed all of its inventory and direct operations will
commence in the fourth quarter. For the nine month period, the product sales
decrease is primarily due to the clinical market transitions from manual to
automated testing, weakened sales in the Asian markets due to economic
conditions and currency devaluations, and the conversion to direct operations in
Germany. The Company has achieved product sales increases for three consecutive
quarters and expects this trend to continue in the fourth quarter.
Partner revenues for the three months and nine months ended March 31, 1999 were
$132,000 and $364,000 as compared to $826,000 and $1,030,000 in the
corresponding periods of the prior fiscal year. The decreases for fiscal 1999
can be attributed to one-time non-recurring milestone payments totaling $750,000
and $815,00 that were recorded in the three and nine month periods of fiscal
1998. Excluding the one-time payments, partner revenues have increased 69% for
the nine month period when compared to the prior year. This increase is
primarily from increased royalty payments from our corporate partners.
8
<PAGE>
Operating Expenses
Product costs were $622,000 for the third quarter and $1,926,000 for the first
nine months of fiscal 1999, as compared to $1,191,000 and $2,652,000 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 nine months of fiscal 1999 was 54% as compared to
46% in the prior year. The Company's improvement in product margin is primarily
attributed to increased sales in regions and products which yield more favorable
product margins offset partially by 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, regional mix of sales, 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 nine months ended
March 31, 1999 were $1,260,000 and $3,698,000 as compared to $1,560,000 and
$4,409,000 in the corresponding periods of the prior fiscal year representing a
19% and 16% decrease in research and development expenditures, respectively.
These decreases are primarily due to reduced development costs for the QUS-2(TM)
which was launched in the second quarter, and lower personnel and consulting
costs offset partially by increased expenditures for clinical trials for the
QUS-2(TM) and licensed technology purchased for the development of new assays
for bone and joint markers. The Company has incurred the majority of its FDA
related clinical trial expenses, and expects Research and Development
expenditures to decrease in subsequent periods.
Sales and marketing expenses were $876,00 in the third quarter and $3,661,00 for
the first nine months of fiscal 1999, as compared to $2,235,000 and $7,250,000
in the corresponding periods of fiscal 1998, a decrease of 61% and 50%
respectively. These decreases are primarily related to reduced expenditures
associated with the Company's Co-Promotion Agreement with Berlex Laboratories,
Inc. (Berlex) and, to a lesser extent, the decrease in market education
expenditures with physicians. In December 1998, the Company and Berlex reached a
negotiated settlement which 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 increased costs associated with direct selling efforts.
General and administrative expenses were $716,000 and $2,241,000 for the three
and nine months ended March 31, 1999, as compared to $598,000 and $1,900,000 for
the corresponding periods in the prior fiscal year. The increases in
administrative expenses are primarily related to outside fees associated with
strategic opportunities that the Company is pursuing as well as higher personnel
costs. 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.
9
<PAGE>
Net Interest and Other Income
Net interest and other income for the third quarter and first nine months of
fiscal 1999 was $260,000 and $879,000 as compared to $698,000 and $1,624,000 in
the corresponding periods of fiscal 1998. The reduction in net interest income
and other income is primarily the result of reduced cash resources available for
investment throughout the fiscal period and a $334,000 realized gain on the sale
of an equity investment in the third quarter of fiscal 1998.
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company had cash and investments of $20.9 million at March 31, 1999. The
Company's use of cash in operating activities was $5.5 million in the first nine
months of fiscal 1999 compared to cash usage of $9.1 million in the first nine
months of fiscal 1998, a reduction of approximately 40%. This reduction in cash
usage is primarily related to reduced operating expenses and the corresponding
$2.5 million decrease in net loss in the first three 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 $2.7 million for the nine months ended March 31, 1999 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
three quarters of fiscal 1999 was $465,000 which was related to the repayment of
the Company's capital leases.
Net capital expenditures for the first nine months of fiscal 1999 were $96,000,
compared to $316,000 for the corresponding periods of fiscal 1998. The Company
has made a concerted effort to reduce capital expenditures and 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 future 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 at least 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.
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.
Year 2000 Compliance
The Company has upgraded its financial and manufacturing information system
software to a Year 2000 compliant version. The Company has completed the testing
of this system upgrade and has deemed the system to be working properly. The
Company has also 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 regarding Year 2000 compliance
and has received no responses indicating that any vendor or supplier will not be
10
<PAGE>
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 March 31, 1999 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk inherent in the underlying financial instruments has remained
consistent with that at June 30, 1998. Reference is made to part II, item 7
Quantitative and Qualitative Disclosure About Market Risk in the Registrants
Annual Report on Form 10-K for the year ended June 30, 1998.
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 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.
11
<PAGE>
PART II. - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits Description
-------- -----------
a. 27 Financial Data Schedule
b. Forms 8-K - None
12
<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 May 12, 1999
- ------------------------------ ------------
George W. Dunbar
Chief Executive and Chief Financial Officer
(duly authorized principal financial and accounting officer)
13
<TABLE> <S> <C>
<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,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 3,725
<SECURITIES> 17,192
<RECEIVABLES> 1,500
<ALLOWANCES> 0
<INVENTORY> 1,300
<CURRENT-ASSETS> 18,288
<PP&E> 2,408
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,655
<CURRENT-LIABILITIES> 3,652
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 23,704
<TOTAL-LIABILITY-AND-EQUITY> 27,655
<SALES> 1,537
<TOTAL-REVENUES> 1,669
<CGS> 622
<TOTAL-COSTS> 3,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,545)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,545)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,545)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
