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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, 2000
[ ] 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
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As of September 30, 2000, 11,668,964 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, 2000
<TABLE>
INDEX
<CAPTION>
Page
<S> <C> <C>
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. a) Consolidated balance sheets at September 30, 2000
and December 31, 1999 3
b) Consolidated statements of operations for the three- and nine-month
periods ended September 30, 2000 and September 30, 1999 4
c) Consolidated statements of cash flows for the nine-month periods
ended September 30, 2000 and September 30, 1999 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II. Other Information 12
Signature 13
Index to Exhibits 14
</TABLE>
<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, December 31,
2000 1999
-------- --------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents 8,139 3,494
Short-term investments 7,958 7,275
Accounts receivable 18 18
Other current assets 248 94
-------- --------
Total current assets 16,363 10,881
Property and equipment, net 960 845
Other assets 54 177
-------- --------
Total assets $ 17,377 $ 11,903
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 364 $ 130
Clinical trial accruals 492 259
Accrued compensation 514 235
Other accrued liabilities 226 227
-------- --------
Total current liabilities 1,596 851
Other long-term liabilities 65 138
Commitments
Stockholders' equity:
Common stock, $0.003 par value, 30,000,000 shares authorized, 76,715 63,609
11,668,964 and 9,661,731 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively
Accumulated deficit (60,999) (52,695)
-------- --------
Total stockholders' equity 15,716 10,914
-------- --------
$ 17,377 $ 11,903
======== ========
<FN>
See accompanying notes
</FN>
</TABLE>
3
<PAGE>
<TABLE>
Conceptus, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Sales $ -- $ 14 $ -- $ 82
Cost of Sales -- 28 -- 111
-------- -------- -------- --------
Gross profit (loss) -- (14) -- (29)
Operating expenses:
Research and development 2,644 1,204 6,030 2,955
Selling, general and administrative 1,274 1,135 3,239 2,399
-------- -------- -------- --------
Total operating expenses 3,918 2,339 9,269 5,354
-------- -------- -------- --------
Operating loss (3,918) (2,353) (9,269) (5,383)
Recovery of legal defense costs -- -- 513 --
Interest and other income, net 263 197 452 646
-------- -------- -------- --------
Net loss $ (3,655) $ (2,156) $ (8,304) $ (4,737)
======== ======== ======== ========
Basic and diluted net loss per share $ (0.33) $ (0.22) $ (0.82) $ (0.49)
======== ======== ======== ========
Shares used in computing basic and diluted
net loss per share 11,163 9,629 10,182 9,625
======== ======== ======== ========
<FN>
See accompanying notes
</FN>
</TABLE>
4
<PAGE>
Conceptus, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
--------------------
2000 1999
Cash flows from operating activities
Net loss $ (8,304) $ (4,737)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 392 471
Amortization of deferred compensation -- 67
Changes in operating assets and liabilities
Accounts receivable -- 120
Notes receivable -- (195)
Other current assets (154) (107)
Accounts payable 234 69
Clinical trial accruals 233 148
Accrued compensation 279 (210)
Other accrued liabilities (1) 21
Other long-term liabilities (73) (80)
-------- --------
Net cash used in operating activities (7,394) (4,433)
-------- --------
Cash flows from investing activities
Purchases of investments (6,834) --
Maturities of investments 6,151 2,801
Capital expenditures (507) (15)
Change in other assets 123 60
-------- --------
Net cash (used in) provided by investing activities (1,067) 2,846
-------- --------
Cash flows from financing activities
Proceeds from issuance of common stock 13,106 3
-------- --------
Net cash provided by financing activities 13,106 3
-------- --------
Net increase (decrease) in cash and cash equivalents 4,645 (1,584)
Cash and cash equivalents at beginning of period 3,494 11,503
-------- --------
Cash and cash equivalents at end of period $ 8,139 $ 9,919
======== ========
See accompanying notes
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, 2000
and the consolidated statements of operations and cash flows for the three- and
nine-month periods ended September 30, 2000 and 1999 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, 2000, and for all periods presented, have been made.
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"). The balance sheet at December 31, 1999 has been
derived from the audited financial statements at that date. 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, 1999. The results of operations for the nine months ended September 30, 2000
may not necessarily be indicative of the operating results for the full 2000
fiscal year.
Stockholders' Equity
In July 2000, the Company completed a private placement of 1.94 million
shares of newly issued common stock at $7.2531 per share, pursuant to Stock
Purchase Agreements dated July 20, 2000. The net proceeds to the Company, after
fees and expenses, were approximately $13.1 million.
Litigation Cost Recovery
During the first half of 2000, the Company received an aggregate of
$513,000 for recovery of legal defense costs in connection with a sexual
harassment lawsuit filed against the Company in December 1997. The receipts were
primarily from its Directors' and Officers' liability insurance policy and were
recorded as other income.
Computation of Net Loss Per Share
Basic net loss per share is computed using the weighted average number
of common shares outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during each period. Under the requirements for
calculating basic net loss per share, the effect of potentially dilutive
securities such as stock options is excluded. Basic and diluted net loss per
share are equivalent for all periods presented due to the Company's net loss
position.
Comprehensive Income
During the first nine months of 2000 and 1999, total comprehensive loss
approximates net loss as unrealized gains and losses were immaterial.
6
<PAGE>
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and Hedging Activities" ("SFAS 133") which provides a comprehensive
and consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133, as amended, is required to be adopted by the
Company effective January 1, 2001 and is not anticipated to have an impact on
the Company's results of operations or financial position when adopted as the
Company holds no derivative financial instruments and does not currently engage
in hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition. SAB 101 is required to be adopted
by the Company in the fourth quarter of 2000 and is not anticipated to have a
material impact on the Company's results of operations or financial position
when adopted.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation - an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB Opinion No. 25 and, among other issues, clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of the previously fixed stock options or awards; accounting for an
exchange of stock compensation awards in a business combination; and the
accounting and separate-entity reporting of awards granted between companies in
a consolidated group. The adoption of this interpretation had no impact on the
company's results of operations or financial condition.
7
<PAGE>
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 risk factors set forth in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999,
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.
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 focus is to
develop the STOPTM non-surgical permanent contraception device for women. STOP
is designed to be a less-invasive, safer and less costly alternative to surgical
sterilization, more commonly known as tubal ligation. A STOP procedure can be
performed in an office setting with local anesthesia, does not require cutting
of the abdominal cavity, and is typically completed in less than 20 minutes.
Based on available data as of 1998, the United Nations estimate that
33% of worldwide reproductive couples using contraception rely on surgical tubal
ligation. 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. An estimated 800,000 surgical tubal ligations are performed
annually in the U.S., of which 93% are performed in a hospital or surgi-center
under general anesthesia. Based on the high prevalence of surgical tubal
ligation and the technological advantages of the STOP device, the Company
believes that there is a large market opportunity for the STOP device.
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. Future
revenues and results of operations may fluctuate significantly from quarter to
quarter and will depend upon, among other factors, the extent to which the
Company's products gain market acceptance, the progress of clinical trials,
actions relating to regulatory and reimbursement matters, the introduction of
competitive contraception products, the ability to attract marketing partners
and out-source manufacturing, and the rate at which the Company establishes its
domestic and international distribution capabilities.
Commercialization Timeline
In May 2000, Conceptus commenced a pivotal trial on its STOP device to
support pre-market approval application with the FDA. The trial is being
conducted in clinical sites in the U.S., Australia, and Europe, and to date,
there are 14 approved sites. The pivotal trial will include 400 women with
bilateral placement of the STOP device through one year of effectiveness
testing. The pre-market portion
8
<PAGE>
of the trial is planned to be completed in 2002, and FDA approval to market the
STOP device in the U.S. is planned in 2003.
Prior to FDA approval, however, the Company intends to market STOP in
certain international countries upon clearance from local governmental bodies.
In Australia, the Company has begun the process of establishing distribution
capabilities and plans to begin commercial sales in the first quarter 2001.
Additionally, the Company plans to commercially introduce the STOP device in
certain Asian markets in the second half of 2001. The strategy for Europe will
vary, given different governmental processes in each country. Accordingly, the
Company plans to obtain the CE Mark for STOP during the fourth quarter of 2000,
which is necessary to begin clinical trials on a country-by-country basis in
Europe in pursuit of reimbursement and widespread commercialization in 2002. The
Company recognizes the large volume of sterilization procedures currently
performed in China and India and other developing countries, and plans are being
developed to explore those markets. However, the Company will focus its initial
commercialization efforts in developed countries where the health care delivery
infrastructure is well established and the potential for profitability in the
country is reasonable.
Clinical Status
As of October 19, 2000, STOP devices have been placed in 137 women in
the pivotal trial. The Company expects enrollment to accelerate over the next
few months and believes it will complete enrollment in the second quarter of
2001, particularly after receiving a dramatic response from over 3,000 women
interested in entering the study after recent recruiting efforts.
Based on audited Phase II clinical data as of July 27, 2000, 187 women
evaluated in the Phase II study have accumulated 1,520 woman-months of patient
satisfaction and safety data with a low rate of adverse events. These patients
have been followed for varying lengths of time. Device placement was achieved in
90% of patients. In 93% of the cases, device placement was performed without the
use of general anesthesia, and 91% of patients reported their tolerance to the
device placement procedure as "good" to "excellent". Patient tolerance to device
wearing after the placement has been rated as "good" to "excellent" in over 99%
of patients in the follow-up visits completed thus far.
Over 200 patients have been enrolled into the Phase II study as of
October 19, 2000, and data currently supports a projected first year minimum
effectiveness rate of 97% using the industry standard confidence level. The
Company notes that no method of contraception is and can be expected to be 100%
effective and in fact, surgical tubal ligation has a first-year failure rate of
.5% - 2.4%, depending on the specific sterilization technique. Accordingly, the
Company expects pregnancies to occur in the clinical trial and has obtained an
Investigational Device Exemption from the FDA that specifies the maximum number
of pregnancies that can be tolerated in the pivotal study to meet study
objectives.
In addition to the Phase II study, the STOP device's theorized
mechanism of action was evaluated in hysterectomy patients who wore the devices
for varying lengths of time prior to their hysterectomy. Data obtained from the
histological analysis of the fallopian tubes in these patients supports the
theorized mechanism of action of the STOP device. Specifically, the polyester
fibers in the device elicit a local, benign tissue reaction which alters the
function and architecture of the fallopian tube and is occlusive in nature. This
tissue reaction is expected to result in both long-term device retention and
pregnancy prevention.
9
<PAGE>
Results of Operations - Three and Nine Months Ended September 30, 2000 and 1999
Sales decreased $14,000 and $82,000 to zero for the three and nine
months ended September 30, 2000 from the same periods in the prior year. In
1998, Conceptus ceased active marketing and distribution of the TTAC, STARRT and
ERA and FUTURA products and is focused on the STOP product, which resulted in
the elimination of revenue for the current year. The Company expects revenues to
remain zero in 2000 as it continues to seek regulatory approval of the STOP
device in the U.S. and various other countries.
Cost of sales decreased $28,000 and $111,000 to zero for the three and
nine months ended September 30, 2000 from the same periods in the prior year.
The decrease is due to the Company ceasing active marketing and distribution of
the TTAC, STARRT, ERA and FUTURA products to focus solely on the STOP product.
Research and development ("R&D") expenses, which include clinical and
regulatory expenses, increased 120% to $2,644,000 for the three months ended
September 30, 2000, from $1,204,000 for the same period in the prior year. In
the nine months ended September 30, 2000, R&D expenses increased 104% to
$6,030,000 from $2,955,000 for the same period in the prior year. The increases
are primarily due to patient recruitment and enrollment costs related to the
Company's pivotal trial and scale up of the Company's pilot manufacturing
operations.
Selling, general and administrative ("SG&A") expenses increased 12% to
$1,274,000 for the three months ended September 30, 2000, from $1,135,000 for
the same period in the prior year. In the nine months ended September 30, 2000,
SG&A expenses increased 35% to $3,239,000 from $2,399,000 for the same period in
the prior year. The increases are due largely to marketing expenditures in
support of the planned commercial introduction of the STOP product in Australia
in first quarter 2001.
During the first half of 2000, the Company received an aggregate of
$513,000, primarily from its Directors' and Officers' insurance policy, for
legal defense costs reimbursement in connection with a sexual harassment lawsuit
filed against the Company in December 1997. The receipt was recorded as other
income and the Company does not expect additional recovery.
Net interest and other income increased to $263,000 for the three
months ended September 30, 2000 from $197,000 for the same period in the prior
year due to investment income on proceeds received from the July 2000 private
placement. Net interest and other income decreased to $452,000 for the nine
months ended September 30, 2000 from $646,000 for the same period in the prior
year primarily as a result of lower average invested cash balances due to the
usage of cash for operations. Interest expense for the nine months ended
September 30, 2000 and 1999 were immaterial.
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 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, 2000, had
an accumulated deficit of $61.0 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 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.
10
<PAGE>
Liquidity and Capital Resources
At September 30, 2000, Conceptus had cash, cash equivalents and
investments of $16.1 million, compared with $10.8 million at December 31, 1999.
The net increase of $5.3 million during the nine months ended September 30, 2000
was due primarily to net proceeds of $13.1 million received from the July 2000
private placement, partly offset by cash outlays consisting of $7.4 million used
in operating activities and $384,000 used for investing activities. The Company
believes that the annual cash expended in calendar year 2001 could increase to
$15 million - $20 million as the Company scales up its manufacturing and quality
assurance operations and increases marketing, sales, and administrative
personnel and expenditures to commercially launch the STOP device in various
markets.
Conceptus believes that its existing capital resources will be
sufficient to complete enrollment in the STOP pivotal trial but does not
currently have sufficient capital resources to fund completion of the pivotal
trial nor the funds to successfully commercialize the STOP product. Accordingly,
the Company may require additional financing 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's business, financial condition and results of operations. 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, execution and implementation of partnering arrangements,
the receipt of and the time required to obtain regulatory clearances and
approvals, and the resources devoted to developing, manufacturing and marketing
the Company's products.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's cash balances in excess of short-term operating needs are invested
in highly liquid short-term government securities and high quality commercial
paper. Due to the short-term and high quality nature of these instruments, the
Company believes these financial instruments are exposed to a low level of
interest rate risk.
11
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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 and Use of Proceeds
On July 21, 2000, the Company sold and issued 1.94 million shares of
its common stock (the "Shares") for $7.2531 per share to certain institutional
and other accredited investors (the "Purchasers") in a private placement
transaction (the "Private Placement") exempt from registration under Regulation
D promulgated under the Securities Act of 1933, as amended (the "Securities
Act"). Pursuant to the terms of certain Stock Purchase Agreements, dated as of
July 20, 2000, by and among the Company and the Purchasers, on August 1, 2000,
the Company filed a Registration Statement on Form S-3, SEC file no. 333-45798,
with respect to certain resales of the Shares by the Purchasers on a delayed or
continuous basis under Rule 415 of the Securities Act. The net proceeds to the
Company from the sale of the Shares, after fees and expenses, were approximately
$13.1 million. These funds will be used for working capital and are currently
invested in investment-grade instruments.
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) Exhibits:
10 Form of Stock Purchase Agreement, dated as of July 20, 2000,
by and among the Company and the Purchasers (incorporated by
reference to the Company's Registration Statement on Form S-3,
file no. 333-42798, filed with the SEC on August 1, 2000).
27 Financial Data Schedule
(b) Reports on Form 8-K.
On July 28, 2000, the Company filed a current report on Form 8-K
under Item 5 ("Other Events") reporting the completion of the
Private Placement and the issuance of a press release related
thereto.
12
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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
Principal Accounting Officer
Date: November 9, 2000
13
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
10 Form of Stock Purchase Agreement, dated as of July
20, 2000, by and among the Company and the
Purchasers (incorporated by reference to the
Company's Registration Statement on Form S-3, file
no. 333-42798, filed with the SEC on August 1,
2000).
27 Financial Data Schedule
14
