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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 June 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
----- -----
As of June 30, 2000, 9,728,964 shares of the Registrant's Common Stock
were outstanding.
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<PAGE>
<TABLE>
CONCEPTUS, INC.
FORM 10-Q For the Quarter Ended June 30, 2000
INDEX
<CAPTION>
Page
<S> <C> <C>
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. a) Consolidated balance sheets at June 30, 2000 and December 31, 1999 3
b) Consolidated statements of operations for the three and six month periods ended June
30, 2000 and June 30, 1999 4
c) Consolidated statements of cash flows for the six month periods ended June 30, 2000
and June 30, 1999 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
Part II. Other Information 11
Signature 12
Index to Exhibits 13
2
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PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
Conceptus, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents 3,399 3,494
Short-term investments 3,283 7,275
Accounts receivable 18 18
Other current assets 307 94
-------- --------
Total current assets 7,007 10,881
Property and equipment, net 874 845
Other assets 54 177
-------- --------
Total assets $ 7,935 $ 11,903
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 468 $ 130
Clinical trial accruals 339 259
Accrued compensation 500 235
Other accrued liabilities 175 227
-------- --------
Total current liabilities 1,482 851
Other long-term liabilities 89 138
Commitments -- --
Stockholders' equity:
Common stock, $0.003 par value, 30,000,000 shares authorized, 63,708 63,609
9,728,964 and 9,661,731 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively
Accumulated deficit (57,344) (52,695)
-------- --------
Total stockholders' equity 6,364 10,914
-------- --------
$ 7,935 $ 11,903
======== ========
<FN>
See accompanying notes
</FN>
</TABLE>
3
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<TABLE>
Conceptus, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ -- $ 38 $ -- $ 68
Cost of Sales -- 44 -- 84
------- ------- ------- -------
Gross profit (loss) -- (6) -- (16)
Operating expenses:
Research and development 1,818 1,013 3,386 1,751
Selling, general and administrative 1,143 710 1,965 1,262
------- ------- ------- -------
Total operating expenses 2,961 1,723 5,351 3,013
------- ------- ------- -------
Operating loss (2,961) (1,729) (5,351) (3,029)
Recovery of legal defense costs 60 -- 513 --
Interest and other income, net 11 230 189 448
------- ------- ------- -------
Net loss $(2,890) $(1,499) $(4,649) $(2,581)
======= ======= ======= =======
Basic and diluted net loss per share $ (0.30) $ (0.16) $ (0.48) $ (0.27)
======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share 9,692 9,626 9,686 9,623
======= ======= ======= =======
<FN>
See accompanying notes
</FN>
</TABLE>
4
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Conceptus, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
June 30,
----------------------
2000 1999
-------- --------
Cash flows used in operating activities
Net loss $ (4,649) $ (2,581)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 249 331
Amortization of deferred compensation -- 47
Changes in operating assets and liabilities
Accounts receivable -- 118
Other current assets (213) (155)
Account payable 338 96
Clinical trial accruals 80 --
Accrued compensation 265 (230)
Other accrued liabilities (52) (25)
Other long-term liabilities (49) (56)
-------- --------
Net cash used in operating activities (4,031) (2,455)
-------- --------
Cash flows used in investing activities
Maturities of investments 3,992 1,587
Capital expenditures (278) (9)
Change in other assets 123 48
-------- --------
Net cash provided by investing activities 3,837 1,626
-------- --------
Cash flows provided by financing activities
Proceeds from issuance of common stock 99 3
-------- --------
Net cash provided by financing activities 99 3
-------- --------
Net decrease in cash and cash equivalents (95) (826)
Cash and cash equivalents at beginning of period 3,494 11,503
-------- --------
Cash and cash equivalents at end of period $ 3,399 $ 10,677
======== ========
See accompanying notes
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Method of Preparation
The accompanying consolidated balance sheet as of June 30, 2000 and the
consolidated statements of operations and cash flows for the three and six month
periods ended June 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
June 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 six months ended June 30, 2000 may
not necessarily be indicative of the operating results for the full 2000 fiscal
year.
Litigation Cost Recovery
As of June 30, 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 six months of 2000 and 1999, total comprehensive loss
approximates net loss as unrealized gains and losses were immaterial.
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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. 1994 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 in 1995, 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 92% are performed
in a hospital or surgi-center and require general anesthesia.
The Company's other products, the ERA and FUTURA Resectoscope Sleeves,
the STARRT Falloposcopy system and the TTAC products have produced limited
revenues since approval by the FDA and are not actively marketed. The Company
continues to consider various licensing and/or distribution strategies to market
these products, but does not intend to expend significant resources on further
product development or marketing activities on these products.
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 network.
Clinical Status
In April, 2000, Conceptus reported that it received approval from the
US Food & Drug Administration to commence the pivotal trial of the current
generation of the STOP device. The pivotal trial commenced in May, 2000, and
will be conducted in 10-20 clinical sites in the U.S., Australia, and Europe.
The pre-market portion of the pivotal trial will include 400 women with
bilateral placement of the STOP device through twelve months of effectiveness
testing. Conceptus believes that the pre-market portion of the trial may be
completed in 2002 and FDA approval to market the STOP device in the U.S. may be
obtained in 2003. Prior to FDA approval, however, the Company plans to market
STOP in certain international countries upon clearance from local governmental
bodies.
The STOP procedure 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 recovery time. As of February 4, 2000, 136 women
were enrolled into the Phase II trial of the STOP device. These patients have
been followed for varying lengths of time and together have accumulated over
1,000 months of device wearing. Average procedure time was 20 minutes and 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. Adverse events occurred in 6% of cases as a result of
technical failures or investigator training issues. Conceptus believes that
these types of events are typical of early stage clinical trials and may largely
be addressed through design evolution and physician training.
Since the February 4, 2000 analysis, patient enrollment into the Phase
II trial continued, and over 200 patients have been enrolled into the study to
date. Approximately 140 of these women have completed the required 3-month
alternative contraception period and are relying on the STOP devices for
contraception. This represents about 900 woman months of effectiveness testing
and no pregnancies have been reported to the Company to date. This data
currently supports a projected first year effectiveness rate of 96% and as is
true of all methods of birth control, STOP is not expected to be 100% effective.
The Company also notes that the data gathered in the pivotal trial will be
required to support a final effectiveness rate for Pre-Market Approval ("PMA")
submission.
Separate from the Phase II studies described above, 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 to date 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.
Clinical History of Discontinued Design
From July 1997 through November 1998 an earlier generation of the STOP
device was evaluated in twenty (20) women separate from the Phase II trial
discussed above. Device placement was achieved in 14 of these 20 patients but
device expulsion occurred in four of the 14 patients. This unsatisfactory device
expulsion rate led to the discontinuation of this design and no further
enrollment into the trial. In June 2000, a pregnancy was reported in one of the
remaining ten women wearing the discontinued device. This woman's device was not
placed in accordance with the clinical protocol. The FDA has not raised any
questions with respect to this pregnancy and the pregnancy
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has had no effect on the FDA approval status of the pivotal trial. Since the
pivotal trial to support the PMA of the STOP device is based on the current
generation design and does not involve the discontinued design, this pregnancy
will not be included in the calculation of the pivotal trial effectiveness rate.
As stated above, there have been no reported pregnancies to date with the
current generation design.
8
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Results of Operations - Three and Six Months Ended June 30, 2000 and 1999
Sales decreased $38,000 and $68,000 to zero for the three and six
months ended June 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 focused on the STOP product, which resulted in the
elimination of revenue for the current year. The Company expects revenues to
remain immaterial in 2000 as it continues to seek regulatory approval of the
STOP device in various countries.
Cost of sales decreased $44,000 and $84,000 to zero for the three and
six months ended June 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 and ERA and FUTURA products to focus solely on the STOP product.
Research and development ("R&D") expenses, which include clinical and
regulatory expenses, increased 79% to $1,818,000 for the three months ended June
30, 2000, from $1,013,000 for the same period in the prior year. In the six
months ended June 30, 2000 R&D expenses increased 93% to $3,386,000 from
$1,751,000 for the same period in the prior year. The increases are primarily
due to the start of the company's pivotal trial, the continuation of its Phase
II trials, ongoing pre-hysterectomy studies and scale up of the Company's pilot
manufacturing operations.
Selling, general and administrative ("SG&A") expenses increased 61% to
$1,143,000 for the three months ended June 30, 2000, from $710,000 for the same
period in the prior year. In the six months ended June 30, 2000, SG&A expenses
increased 56% to $1,965,000 from $1,262,000 for the same period in the prior
year. The increases are primarily due to increased administrative costs required
to support growth in clinical and pilot manufacturing activities. In addition,
the Company has initiated a marketing function to perform market research,
develop distribution channels, and establish reimbursement strategies in
preparation of a market introduction of STOP in certain international markets in
early 2001.
As of June 30, 2000, the Company has received an aggregate of $513,000,
primarily from its Directors' and Officers' insurance policy, for legal defense
costs reimbursement in connection with a sexual
9
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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 decreased to $11,000 and $189,000 for the
three and six months ended June 30, 2000, from $230,000 and $448,000 for the
same periods in the prior year. The decreases are primarily the result of lower
average invested cash balances due to the usage of cash for operations. Interest
expense for the six months ended June 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 June 30, 2000, had an
accumulated deficit of $57.3 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.
Liquidity and Capital Resources
At June 30, 2000, Conceptus had cash, cash equivalents and investments
of $6.7 million, compared with $10.7 million at December 31, 1999. The decrease
is due to $4 million used in operating and investing activities in support of
the STOP contraception product.
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 will 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.
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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
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
<TABLE>
The 2000 Annual Shareholders' Meeting was held on May 25, 2000 and the
following votes were obtained, approving all matters proposed to stockholders:
<CAPTION>
Proposal 1 Required Vote Votes For Nominee Votes Withheld
---------- ------------- ----------------- --------------
<S> <C> <C> <C>
Nomination of Directors Plurality of votes cast.
- Howard Palefsky 8,935,124 121,068
- Kathryn Tunstall 8,940,692 115,500
- Sanford Fitch 8,940,644 115,548
- Florence Comite 8,940,692 115,500
Directors Steve Bacich and Rick Randall continue in office until 2001.
Proposal 2 Required Vote For Against Abstain
---------- ------------- --- ------- -------
Appointment of Ernst & Young Majority of votes 9,035,573 9,109 11,510
Independent Auditors cast
Proposal 3 Required Vote For Against Abstain
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Increase in 500,000 shares Majority of votes 4,929,109 353,492 10,840
reserved for issuance under cast
the 1993 Stock Plan
</TABLE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.31 Fourth Addendum to Lease Agreement with Dani
Investments Partners.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
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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: July 18, 2000
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INDEX TO EXHIBITS
Exhibit
Number Description
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10.32 Fourth Addendum to Lease Agreement with
Dani Investment Partners
27 Financial Data Schedule
13
