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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 Fiscal Quarter Ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _________.
Commission file number: 0-27596
CONCEPTUS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3170244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1021 Howard Avenue
San Carlos, CA 94070
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 802-7240
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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 at least the past 90 days.
Yes X No
--- ---
As of September 30, 1999, 9,629,150 shares of the Registrant's Common
Stock were outstanding.
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<PAGE>
CONCEPTUS, INC.
FORM 10-Q For the Quarter Ended September 30, 1999
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
a) Consolidated balance sheets at September 30, 1999
and December 31, 1998 3
c) Consolidated statements of operations for the
three and nine month periods ended September 30,
1999 and September 30, 1998 4
c) Consolidated statements of cash flows for the nine
month periods ended September 30, 1999 and
September 30, 1998 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 11
Part II. Other Information 12
Signature 13
Index to Exhibits 14
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
Conceptus, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
<CAPTION>
September 30, 1999 December 31, 1998
-------- --------
Assets (Unaudited) (Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,919 $ 11,503
Short-term investments 2,767 5,568
Accounts receivable, net 19 139
Notes receivable 195 --
Other current assets 172 65
-------- --------
Total current assets 13,072 17,275
Property and equipment, net 935 1,391
Other assets 305 365
-------- --------
$ 14,312 $ 19,031
======== ========
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 234 $ 165
Accrued compensation 211 421
Accrued clinical costs 148 --
Other accrued liabilities 113 92
Current portion of deferred revenue 97 97
-------- --------
Total current liabilities 803 775
Long-term portion of deferred revenue 162 242
Stockholders' equity:
Common stock, $0.003 par value, 30,000,000 shares authorized, 63,573 63,570
9,629,150 and 9,620,205 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively
Stockholder notes receivable (54) (54)
Deferred compensation (39) (106)
Accumulated deficit (50,133) (45,396)
-------- --------
Total stockholders' equity 13,347 18,014
-------- --------
$ 14,312 $ 19,031
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
Conceptus, Inc.
Consolidated Statements of Operations
(unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
Net sales $ 14 $ 86 $ 82 $ 338
Cost of sales 28 75 111 1,587
------- ------- ------- -------
Gross profit (loss) (14) 11 (29) (1,249)
Operating expenses:
Research and development 1,204 898 2,955 3,847
Selling, general and administrative 1,135 731 2,399 4,550
------- ------- ------- -------
Total operating expenses 2,339 1,629 5,354 8,397
------- ------- ------- -------
Operating loss (2,353) (1,618) (5,383) (9,646)
Interest and investment income, net 197 287 646 997
------- ------- ------- -------
Net loss $(2,156) $(1,331) $(4,737) $(8,649)
======= ======= ======= =======
Basic and diluted net loss per share $ (0.22) $ (0.14) $ (0.49) $ (0.91)
======= ======= ======= =======
Shares used in computing basic
and diluted net loss per share 9,629 9,611 9,625 9,543
======= ======= ======= =======
See notes to consolidated financial statements.
4
<PAGE>
Consolidated Statements of Cash Flows
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
Nine Months Ended
September 30,
--------------------
1999 1998
-------- --------
Cash flows used in operating activities
Net loss $ (4,737) $ (8,649)
Adjustments to reconcile net loss to net
cash from (used in) operating activities:
Depreciation and amortization 471 430
Amortization of deferred compensation 67 72
Recognition of deferred revenue (80) (73)
Changes in operating assets and liabilities:
Accounts receivable 120 450
Note receivable (195) (256)
Inventory -- 355
Other current assets (107) 89
Accounts payable 69 (486)
Accrued compensation (210) 139
Accrued clinical costs 148 --
Other accrued liabilities 21 (52)
-------- --------
Net cash used in operating activities (4,433) (7,981)
-------- --------
Cash flows provided by investing activities
Purchase of investments -- (19,034)
Maturities of investments 2,801 32,339
Capital expenditures (15) (826)
Change in other assets 60 13
-------- --------
Net cash provided by investing activities 2,846 12,492
-------- --------
Cash flows provided by financing activities
Proceeds from issuance of common stock 3 71
Principal payments on debt and capital obligations -- (31)
-------- --------
Net cash provided by financing activities 3 40
-------- --------
Net change in cash and cash equivalents (1,584) 4,551
Cash and cash equivalents at beginning of period 11,503 9,250
-------- --------
Cash and cash equivalents at end of period $ 9,919 $ 13,801
======== ========
See notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1. Summary of Significant Accounting Policies
Method of Preparation
The accompanying consolidated balance sheet as of September 30, 1999
and the consolidated statements of operations and cash flows for the three and
nine month periods ended September 30, 1999 and 1998 have been prepared by
Conceptus, Inc. ("Conceptus" or the "Company"), without audit. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position, results of operations, and
cash flows at September 30, 1999, and for all periods presented, have been made.
The balance sheet as of December 31, 1998 has been derived from audited
financial statements as of that date.
Although the Company believes that the disclosures in these
consolidated financial statements are adequate to make the information presented
not misleading, certain information and footnote disclosures required by
Generally Accepted Accounting Principles for complete financial statements have
been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). This financial data should be reviewed in
conjunction with the audited financial statements and notes thereto included in
the Company's Form 10-K for the year ended December 31, 1998. The results of
operations for the three and nine months ended September 30, 1999 may not
necessarily be indicative of the operating results for the full 1999 fiscal
year.
Computation of Net Loss Per Share
Basic earnings per share is computed using net income and the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed using net income and the weighted average number of common
and dilutive common equivalent shares outstanding during each period. Under the
requirements for calculating basic earnings per share, the effect of potentially
dilutive securities such as stock options is excluded. Basic and diluted net
loss is computed using the weighted average number of shares of common stock
outstanding.
Comprehensive Income
During the first three quarters of 1999 and 1998, total comprehensive
income (loss) was the same as net income (loss) as unrealized gains and losses
were immaterial.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
unaudited financial statements and notes thereto included in Part I-Item 1 of
this Quarterly Report. In addition, except for the historical statements
contained therein, the following discussion contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. The Company wishes to alert readers that the factors set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, as
well as other factors, including those set forth in the following discussion
could in the future affect, and in the past have affected, the Company's actual
results and could cause the Company's results for future periods to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company.
6
<PAGE>
Overview
Since inception on September 18, 1992, Conceptus has been primarily
engaged in the design, development and marketing of innovative interventional
medical devices for use in reproductive medicine. The Company's current focus is
to develop the STOP(TM) non-surgical permanent contraception device. STOP(TM) is
designed to provide a less invasive alternative to the most common form of
contraception worldwide, surgical tubal sterilization. Data from the United
Nations estimate that 30% of worldwide reproductive couples using contraception
rely on surgical tubal sterilization. A survey performed by the Centers for
Disease Control, indicates that surgical tubal sterilization is the number one
form of contraception in the United States, and 35% of women aged 35 - 44 have
had a surgical tubal sterilization.
The Company has a limited history of operations and has experienced
significant operating losses since inception. Operating losses are expected to
continue for at least the next several years as the Company continues to expend
substantial resources to fund clinical trials in support of regulatory and
reimbursement approvals and to conduct research and product development.
The Company continues to progress in its development and clinical
efforts of the STOP(TM) non-surgical permanent contraceptive device. As of
October 31, 1999, there were 113 women with a history of fertility who had
undergone the STOP device placement procedure. The protocol requires that
patients remain on alternative contraception for three months after device
placement. Fifty-six of these women have completed the three-month waiting
period and are currently relying on STOP(TM) for contraception. This represents
an accumulation of 226 woman-months of reliance on STOP(TM) and there have been
no reported pregnancies. Conceptus's bio-statisticians report that if STOP(TM)
had no contraceptive effect, the expected number of pregnancies among these 56
women relying on STOP(TM) is 12, and that it is extremely unlikely to have
observed zero pregnancies among these women. A large pivotal trial, however,
will be required to support a claim of permanent contraception.
Device related adverse events have been reported in five women in the
Phase II study. All events involved improper device placement and the resulting
inability to rely on the STOP(TM) devices for contraception. Two of these women
elected to have a laparoscopic sterilization and STOP(TM) devices were retrieved
from the peritoneal cavity in these women without incident. Conceptus believes
these types of adverse events can be reduced to an insignificant level through
physician training, revision of the clinical protocol, and design evolution.
STOP(TM) is designed to be a non-surgical alternative to tubal
sterilization that can be performed in an office setting without general
anesthesia and with minimal patient discomfort. To support the feasibility of an
office based placement, Conceptus is collecting data in its Phase II trial
regarding the time required to complete the procedure, the use of analgesia
and/or anesthesia, patient tolerance of the procedure, and patient tolerance to
wearing the devices. In the Phase II study, 94% of procedures have been
performed without general anesthesia and patient tolerance of the procedure has
been rated "good to excellent" in 91% of the cases. The average procedure time
has been 22 minutes. Patient tolerance to wearing the device has been rated very
good to excellent in 100% of patients at the scheduled follow-up visits.
7
<PAGE>
In summary, data from the Phase II study suggest that STOP(TM) may
provide a unique value proposition to the patient, physician, and payor. The
popularity of surgical tubal sterilization underscores the importance that women
ascribe to taking control of their reproductive capability. STOP(TM) is designed
to provide that same control while eliminating the most significant risks
associated with surgical tubal sterilization, which include the inherent risks
of incisional surgery, and the side-effects and lengthy recovery required by
general anesthesia. Because tubal sterilization is an invasive surgical
procedure, at least 90% of these procedures are performed in a hospital or
surgi-center under general anesthesia. Typical procedure time is about 30 - 45
minutes and is followed by 3 - 4 hours of hospital or surgi-center recovery
time. Additionally, women typically take 2 - 3 days off from work after this
invasive procedure. Data from the Phase II study suggests that STOP(TM) may cut
procedure time by about half, eliminate a recovery-room stay associated with
general anesthesia, and speed the patient's return to work and family
responsibilities.
In addition to the Company's on-going Phase II study, the Company
continues to perform pre-hysterectomy studies to support the Company's theorized
mechanism of contraception of the STOP(TM) device. The Company believes the
contraceptive effect of the STOP(TM) device is a result of a local benign tissue
response to the device which mechanically alters the tubal architecture and
interferes with the function of the normal fallopian tube. Histological analysis
has been performed on fallopian tubes in which the STOP(TM) device was placed
for an average of nine weeks prior to removal of the uterus. This analysis
demonstrated that the STOP(TM) device had become completely incorporated into
the fallopian tube tissue with a proliferation of fibrotic tissue and smooth
muscle cells within the device. Additionally, the response was noted to be
localized to the device with no reaction beyond the STOP(TM) device.
Based on the Phase II clinical data the Company plans to actively seek
approval from the Food & Drug Administration and other regulatory bodies to
commence an international Phase III clinical trial in the first half of 2000.
The Company plans to have trial sites in the U.S., Australia, and Europe. In
pursuit of completion of Phase II and Phase III clinical trials, the Company
plans to increase the level of expenditures on regulatory and clinical
activities, manufaturing and quality assurance of clinical trial product, and
administrative support. The Company believes it has sufficient capital resources
to complete enrollment in the pivotal trial, but will need to raise additional
funding to prepare and execute a market release of the STOP(TM) device. The
failure to secure necessary regulatory approvals, the failure to secure
appropriate distribution, or the failure to secure additional funding will
materially and adversely affect the Company. There can be no assurance that the
Company will be successful in these efforts.
In July 1998, the Company effected a major restructuring which
eliminated all sales and marketing personnel, the manufacturing function, and
significantly reduced administrative overhead. As a result of this
restructuring, the Company continues to seek sales and marketing partners to
distribute its current products, the ERA and FUTURA Resectoscope Sleeves, the
STARRT Falloposcopy system, and T-TAC products. While the Company is committed
to establishing an effective distribution channel for its existing products,
there can be no assurance that the Company will be successful in doing so as
there is no proven distribution channel for marketing the Company's products in
the United States or internationally.
8
<PAGE>
Future revenues and results of operations may fluctuate significantly
from quarter to quarter and will depend upon, among other factors, the ability
to attract marketing partners and out-source manufacturing, the rate at which
the Company establishes its domestic and international distribution network, the
timing and size of distributor purchases, actions relating to regulatory and
reimbursement matters, the extent to which the Company's products gain market
acceptance, the progress of clinical trials, and the introduction of competitive
products for diagnosis and treatment of the female reproductive system.
Results of Operations - Three and Nine Months Ended September 30, 1999 and 1998
Sales decreased to $14,000 and $82,000 for the three and nine months
ended September 30, 1999, respectively, from $86,000 and $338,000 for the same
periods in the prior year. The 84% and 76% decreases, respectively, are
primarily due to lower unit shipments of the Company's T-TAC and ERA products.
The Company expects to continue its focus on the research and development phase
and therefore expects that revenues will continue to decrease for the fourth
quarter of 1999. Domestic sales comprised 100% of sales for the three and nine
month periods ended September 30, 1999, respectively, compared with 96% and 77%
in the prior year periods.
Cost of sales decreased to $28,000 and $111,000 for the three and nine
months ended September 30, 1999, respectively, from $75,000 and $1,587,000 for
the same periods in the prior year. The 63% and 93% decreases in cost of sales
for the three and nine months ended September 30, 1999, respectively are due to
the elimination of manufacturing operations combined with lower unit shipments
of the Company's T-TAC and ERA products.
Research and development ("R&D") expenses, which include clinical and
regulatory expenses for the three months ended September 30, 1999, increased to
$1,204,000 from $898,000 for the same period in the prior year. The expenses for
the nine months ended September 30, 1999 decreased to $2,955,000 from $3,847,000
for the same period in the prior year. The 34% increase for the three months
ended September 30, 1999 is attributable to the increased Phase II clinical
trials, on-going pre-hysterectomy studies, and development of an ergonomic
delivery system. The 23% decrease for the nine months ended September 30, 1999
is primarily due to a reduced level of research and development activities on
the Company's STARRT and ERA product lines.
Selling, general and administrative ("SG&A") expenses increased to
$1,135,000 from $731,000 for the three months ended September 30, 1999. The 55%
increase in SG&A expenses in the third quarter is attributable primarily to
$53,000 in legal defense costs related to a sexual harrassment lawsuit and
$655,000 of consulting expenses to evaluate strategic options. Excluding these
nonrecurring expenses, the SG&A expenses were $427,000 for the quarter. The SG&A
expenses for the nine months ended September 30, 1999 decreased to $2,399,000
from $4,550,000 for the same period in the prior year. The 47% decrease in
expenses for the nine months ended September 30, 1999 is due to the elimination
of the sales and marketing force to focus on the STOP(TM) device.
Net interest and investment income decreased to $197,000 and $646,00
for the three and nine months ended September 30, 1999, respectively, from
$287,000 and $997,000 for the same periods in the prior year. The decreases for
the three and nine months ended September 30, 1999 are a result of lower average
cash balances due to the utilization of cash for operations. Interest expense
for the three and
9
<PAGE>
nine months ended September 30, 1999 and the amount for the same respective
periods in the prior year are immaterial.
As a result of the items discussed above, net loss increased to
$2,156,000 from $1,331,000 for the three months ended September 30, 1999 and
decreased to $4,737,000 from $8,649,000 for the nine months ended September 30,
1999.
The Company has a limited history of operations. Since its inception in
September 1992, the Company has been engaged primarily in research and
development of its T-TAC and STARRT Falloposcopy systems and its STOP(TM)
device, and since 1996, the ERA and FUTURA product lines. The Company has
generated only limited revenues and has only limited experience in
manufacturing, marketing or selling its products in commercial quantities. The
Company has experienced significant operating losses since inception and, as of
September 30, 1999, had an accumulated deficit of $50 million. The Company
expects its operating losses to continue for at least the next several years as
it continues to expend substantial resources in research and product development
and funding clinical trials in support of its STOP(TM) device. Due to the
expense and unpredictable nature of these activities, there can be no assurance
that the Company will achieve or sustain profitability in the future.
Liquidity and Capital Resources
At September 30, 1999, Conceptus had cash, cash equivalents and
investments of $12.7 million, compared with $17.1 million at December 31, 1998.
The decrease is primarily due to $4.4 million used in operating activities.
Capital expenditures for the first nine months of 1999 decreased to $15,000
compared with capital expenditures of $826,000 in the prior year period. Capital
expenditures in the first nine months of 1999 represent the purchase of
additional computer equipment required for research and development, whereas
capital expenditures in the first half of 1998 represent leasehold improvements,
furniture and equipment for a new facility which has been leased to a third
party through 2003.
Conceptus believes that its existing capital resources will be
sufficient to fund its operations through 2000. However, the Company's future
liquidity and capital requirements will depend upon numerous factors, including
the progress of the Company's clinical research and product development
programs, the receipt of and the time required to obtain regulatory clearances
and approvals, and the resources devoted to developing the Company's STOP(TM)
product. Accordingly, there can be no assurance that the Company will not
require additional financing within this time frame and, therefore, may in the
future seek to raise additional funds through bank facilities, debt or equity
offerings or other sources of capital. Furthermore, any additional equity
financing may be dilutive to stockholders, and debt financing, if available, may
involve restrictive convenants. Additional funding may not be available when
needed or on terms acceptable to the Company, which would have a material
adverse effect on the Company.
The "Year 2000 issue" arises because most computer systems and programs
were designed to handle only a two-digit year, not a four-digit year. These
computer systems and programs may interpret "00" as the year 1900 and could
either stop processing date-related computations or could process them
incorrectly in the year 2000. The Company has been informed by its information
system vendors that such systems are able to process the year 2000 accurately
and accordingly does not anticipate any Year 2000 issues from its own
information systems, databases or programs. However, the Company could be
adversely impacted by Year 2000 issues faced by major distributors, suppliers,
customers, vendors and financial service organizations with which the Company
10
<PAGE>
interacts. The Company is in the process of developing a plan to determine the
impact that third parties which are not Year 2000 compliant may have on the
operations of the Company. There can be no assurance that such plan will be able
to address fully, or at all, the impact of the Year 2000 issue on the Company,
which could have a material adverse effect upon the Company's business,
financial condition and results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
11
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
There are no material pending or threatened legal proceedings against
the Company. The Company from time to time is involved in routine legal matters
incident to its business. While management currently believes the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations, or liquidity of the
Company, the ultimate outcome of any litigation is uncertain.
Item 2. Changes in Securities
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27
Exhibit 27 Financial Data Schedule
(a) Reports on Form 8-K.
None.
12
<PAGE>
SIGNATURES
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.
CONCEPTUS, INC.
By: /s/ OLIVER BROUSE
--------------------------------------------
Oliver Brouse
Director of Finance
(Duly Authorized and Principal Financial and
Accounting Director)
Date: November 15, 1999
13
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 9,919
<SECURITIES> 2,767
<RECEIVABLES> 19
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,072
<PP&E> 2,950
<DEPRECIATION> 2,015
<TOTAL-ASSETS> 14,312
<CURRENT-LIABILITIES> 803
<BONDS> 0
0
0
<COMMON> 63,573
<OTHER-SE> (50,172)
<TOTAL-LIABILITY-AND-EQUITY> 14,312
<SALES> 14
<TOTAL-REVENUES> 14
<CGS> 28
<TOTAL-COSTS> 2,339
<OTHER-EXPENSES> (197)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,156)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,156)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
