<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
XXX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________TO___________ .
Commission File Number 000-30493
BIONEBRASKA, INC.
---------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 47-0727668
---------------------------- ------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
3820 N.W. 46TH STREET, LINCOLN, NEBRASKA 68524-1637
---------------------------------------- -----------
(Address of principal executive offices) Zip Code
(402) 470-2100
---------------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
--- ---
As of August 3, 2000 the Company had 7,126,640 shares of Common Stock, $.01 par
value per share, outstanding.
<PAGE>
BIONEBRASKA, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 (unaudited)...................................................3, 4
Condensed Consolidated Statement of Operations for the three and six
month periods ended June 30, 2000 and June 30, 1999 (unaudited)........................5
Condensed Consolidated Statement of Cash Flows for the six
month periods ended June 30, 2000 and June 30, 1999 (unaudited)........................6
Notes to Financial Statements......................................................7,8,9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................................9
Cautionary Statement About Forward-Looking Statements..................................9
Overview..............................................................................10
Results of Operations.................................................................10
Liquidity and Capital Resources.......................................................11
Market Risk...........................................................................12
Additional Factors That May Affect Future Performance ................................12
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT
MARKET RISK...........................................................................17
PART II. OTHER INFORMATION..........................................................................17
ITEM 1. LEGAL PROCEEDINGS.....................................................................17
ITEM 2. CHANGES IN SECURITIES.................................................................18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS......................................................................18
ITEM 5. OTHER INFORMATION.....................................................................18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................18
SIGNATURES.............................................................................................19
</TABLE>
2
<PAGE>
BIONEBRASKA, INC.
(a development stage company)
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 13,099,208 $ 18,393,567
Receivables 16,532 13,896
Inventories 39,238 35,172
----------------- -----------------
Total Current Assets 13,154,978 18,442,635
----------------- -----------------
Property and Equipment, at cost
Modular Facilities 209,410 149,810
Furniture and fixtures, computer and office
equipment 398,128 353,459
Laboratory and production equipment 4,218,897 3,951,534
Construction-in-Progress 2,561,821 1,482,220
----------------- -----------------
7,388,256 5,937,023
Less: accumulated depreciation 2,429,366 2,063,090
----------------- -----------------
Net property and equipment 4,958,890 3,873,933
Leasehold Improvements, at cost 952,522 491,225
Less: accumulated depreciation 29,896 22,349
----------------- -----------------
Net leasehold improvements 922,626 468,876
----------------- -----------------
Patents and Patents Licensed, at cost 719,747 719,747
Less: accumulated amortization 149,667 128,805
----------------- -----------------
Net patents and patents licensed 570,080 590,942
----------------- -----------------
Other Assets:
Licensing agreements 92,500 82,500
Deposits and fees 54,054 45,717
----------------- -----------------
Total Other Assets 146,554 128,217
----------------- -----------------
TOTAL ASSETS $ 19,753,128 $ 23,504,603
================= =================
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
BIONEBRASKA, INC.
(a development stage company)
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
----------------- -----------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 1,941,233 $ 1,608,335
Accrued expenses 12,126 29,269
Accrued stock appreciation rights 956,377 956,377
Equipment financing - current portion 565,335 565,335
----------------- -----------------
Total Current Liabilities 3,475,071 3,159,316
----------------- -----------------
Long-Term Liabilities
Other notes payable 0 25,000
Equipment financing - less current portion 1,335,265 1,389,369
----------------- -----------------
Total Long-Term Liabilities 1,335,265 1,414,369
----------------- -----------------
Total Liabilities 4,810,336 4,573,685
----------------- -----------------
Redeemable Non-Convertible Preferred Stock
Series A, ($0.01 par value, 11,750 shares
authorized, issued and outstanding) 1,799,219 1,755,156
----------------- -----------------
Shareholders' Equity
Common stock, ($0.01 par value, 20,000,000
shares authorized, 7,087,181 and 6,719,233
shares outstanding, respectively) 70,872 67,192
Convertible preferred stock, Series B,C,D,E,F,G
($0.01 par value; 2,988,500 shares authorized,
275,292 shares issued and outstanding) 2,752 2,752
Additional paid-in capital 63,580,540 60,255,861
Deficit accumulated during the development stage (50,510,591) (43,150,043)
----------------- -----------------
Total Shareholders' Equity 13,143,573 17,175,762
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,753,128 $ 23,504,603
================= =================
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
BIONEBRASKA, INC.
(a development stage company)
Condensed Consolidated Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Metal detection kit sales $ 7,495 $ 0 $ 7,495 $ 1,176
---------------- ---------------- --------------- ---------------
Total Revenues 7,495 0 7,495 1,176
---------------- ---------------- --------------- ---------------
Operating Costs and Expenses
General and administrative 586,700 502,696 1,195,642 987,969
Clinical trials 687,763 163,361 1,397,426 657,901
Research and development 2,658,088 2,236,378 5,039,912 4,488,729
---------------- ---------------- --------------- ---------------
Total Costs and Expenses 3,932,551 2,902,435 7,632,980 6,134,599
---------------- ---------------- --------------- ---------------
Operating Loss (3,925,056) (2,902,435) (7,625,485) (6,133,423)
---------------- ---------------- --------------- ---------------
Other Income (Expense)
Interest and other income 201,953 39,912 413,725 105,211
Interest expense (73,389) (28,345) (148,788) (117,520)
---------------- ---------------- --------------- ---------------
128,564 11,567 264,937 (12,309)
---------------- ---------------- --------------- ---------------
Net Loss (3,796,492) (2,890,868) (7,360,548) (6,145,732)
Preferred stock dividends
accreted and cumulating but
not declared (693,055) (693,055) (1,386,111) (1,386,111)
---------------- ---------------- --------------- ---------------
Net loss applicable to common
stock $(4,489,547) $(3,583,923) $(8,746,659) $(7,531,843)
================ ================ =============== ===============
Basic and diluted net loss per
common share $ (0.64) $ (0.77) $ (1.27) $ (1.63)
================ ================ =============== ===============
Average number of common shares
outstanding $ 6,973,626 $ 4,635,139 $ 6,903,207 $ 4,622,272
================ ================ =============== ===============
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
BIONEBRASKA, INC.
(a development stage company)
Condensed Consolidated Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,360,548) $ (6,145,732)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 394,685 263,691
Change in operating assets and liabilities:
Accounts receivable and other current assets (6,701) (19,371)
Accounts payable and accrued expenses 315,755 153,434
----------------- ----------------
Net cash used in operating activities (6,656,809) (5,747,978)
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,912,528) (1,864,872)
Increase in deposits and other assets (18,337) (67,500)
Acquisition of GRFCO 0 (700,000)
----------------- ----------------
Net cash used in investing activities (1,930,865) (2,632,372)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 3,372,420 4,114,995
Proceeds from equipment financing loans 274,042 584,002
Payments on equipment financing loans (328,147) (109,890)
Payments on other notes payable (25,000) 0
Payments on bridge notes payable 0 (1,123,750)
Proceeds from other notes payable 0 25,000
----------------- ----------------
Net cash provided by financing activities 3,293,315 3,490,357
----------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,294,359) (4,889,993)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,393,567 8,517,945
----------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,099,208 $ 3,627,952
================= ================
See accompanying notes to financial statements
</TABLE>
6
<PAGE>
BIONEBRASKA, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2000 and 1999
(unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The condensed consolidated balance sheets as of June 30,
2000, the condensed consolidated statement of operations for the three and six
month periods ended June 30, 2000 and 1999 and the condensed consolidated
statement of cash flows for the six month periods ended June 30, 2000 and 1999
have been prepared by the Company without audit in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (all of which are normal and recurring in nature)
considered necessary to present fairly the financial position at June 30, 2000,
and results of operations and cash flows have been included. Results of
operations for the interim period are not necessarily indicative of the results
that may be expected for the full fiscal year, or any other period. These
financial statements and notes should be read in conjunction with the audited
financial statements for the year ended December 31, 1999, included in the
Company's Form 10 Registration Statement filed with the Securities and Exchange
Commission.
PRINCIPLES OF CONSOLIDATION - The consolidated statements include the accounts
of BioNebraska, Inc. and its wholly owned subsidiary, GRFCO, Inc. There are no
material intercompany transactions.
NET LOSS PER SHARE - Net loss per share is computed by dividing the net loss
applicable to common stock by the weighted-average number of common shares
outstanding for the period. Basic and diluted earnings per share are the same
because all common equivalent shares would be antidilutive due to the losses.
SEGMENT INFORMATION - The Company is a developmental stage business with areas
of activity in the biological and medical sciences. These areas include: the
development and application of processes for the production by biological means
of middle range peptide hormones and the development of pharmaceutical programs
for therapeutic applications of middle-range peptides. Based on this the Company
operates and reports in one business segment as biotechnology developments.
7
<PAGE>
BIONEBRASKA, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2000 and 1999
(unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH EQUIVALENTS - The Company considers all highly liquid investment
instruments with a maturity of less than three months when purchased to be
"cash equivalents."
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Property, equipment and
leasehold improvements are stated at cost less accumulated depreciation.
Depreciation of furniture, fixtures and equipment is computed using the
accelerated and straight line methods over estimated useful lives of from 3 to
10 years. Modular facilities and leasehold improvements are depreciated using
the straight line method over the shorter of the lease arrangements or their
estimated useful lives (from 15 to 40 years).
SHAREHOLDERS EQUITY - During the first six months of 2000, the Company issued
203,600 shares of Common Stock at $12.50 per share in a private placement to
accredited investors in the United States. Of the total shares, 85,800 shares
were sold through a registered broker dealer who received an 8% commission on
the sales and the remaining shares were sold directly by the Company without a
commission. In addition, warrants and stock options to purchase a total of
164,348 shares were exercised during the same period for gross proceeds of
$919,000.
RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which will become effective for the Company on January 1, 2001. SFAS 133
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes un
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The Company is
currently reviewing the standard and its effect on the financial statements,
but does not expect it to have a significant effect on its financial position
or the results of its operations. The Company does not use derivatives for
speculative or trading purposes.
GOING CONCERN CONSIDERATIONS - In accordance with its plans, the Company, from
inception, has experienced losses from its activities in research and
development, without fully offsetting revenues. This and the fact that the
Company is a development stage business create a substantial doubt as to its
ability to continue as a going concern.
The Company has obtained financing through private placement offerings. As in
the past, the Company is pursuing additional equity placement offerings and
collaborations to fund several of its programs as well as its corporate
overhead.
8
<PAGE>
The Company's ability to obtain profitability on substantial portions of its
operations will also depend in large part on: obtaining regulatory approvals of
some of its products; entering into satisfactory agreements for product
commercialization; making the transition from a developmental stage business to
a manufacturing and marketing company; and obtaining additional financing
through development collaborations or equity or debt issues, as necessary.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Following is a discussion and analysis of the Company's consolidated
condensed financial condition and results of operations for the three and six
months ended June 30, 2000. The section should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1999,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Form 10 Registration Statement filed with
the Securities and Exchange Commission.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-Q contains, in addition to historical information,
forward-looking statements that are based on the Company's current
expectations, beliefs, intentions or future strategies. We use words such as
"anticipate," "believe," "plan," "expect," "intend," and similar expressions to
identify forward-looking statements. These statements are subject to risks and
uncertainties that could cause actual results to differ materially from the
statements, including the uncertainties involved in the additional development
of the Company's new pharmaceutical products, the outcomes of clinical trials,
obtaining regulatory approvals or clearances, the ability of the Company's
products to be manufactured in commercial quantities, construction of
additional facilities for commercial production, the development of internal or
contractual distribution and marketing capabilities, the extent to which
reimbursement for the costs of the products and treatments will be available
from government health administration authorities, private health insurers and
other organizations, protection of the Company's patent and proprietary rights,
potential competition and the dependence of the Company on obtaining future
financing. The Company does not undertake responsibility to update such
forward-looking statements to reflect events that arise after the date of this
report. A detailed discussion of risks and uncertainties may be found elsewhere
in this Form 10-Q under the heading, "Additional Factors That May Affect Future
Results."
9
<PAGE>
OVERVIEW
BioNebraska is a development stage therapeutics company engaged in the
recombinant production and clinical development of middle range peptide
hormones (referred to generally as "MR Peptides") for the treatment of Type II
Diabetes, impaired glucose tolerance, advanced cases of osteoporosis and other
symptoms of aging, obesity and excess appetite and various acute conditions.
The Company has developed the capability to biologically produce, purify and
amidate MR Peptides in a natural form. The Company's MR Peptide hormones serve
to naturally activate the endocrine cascades which govern bodily functions in
persons whose hormones are deficient or lacking as result of advancing age or
body malfunctions. BioNebraska is conducting clinical trials of these products
for several of these applications. No regulatory approvals have been obtained,
and consequently, the Company has derived no revenues from the sale of these
products. The Company has financed operations to date primarily through the
sale of equity securities.
Since inception in 1989, the Company has experienced operating losses
and anticipates that its operating losses will continue for the foreseeable
future until such time as one or more therapeutic products receive regulatory
approval and are successfully marketed. Expenditures will be primarily related
to research and development activities, clinical trials, and scale-up of
commercial manufacturing.
RESULTS OF OPERATIONS
General and administrative expenses increased to $586,700 and $1.2
million for the three and six month period ended June 30, 2000, as compared to
$502,696 and $987,969 for the same period in the prior fiscal year. The
increase is primarily attributable to strengthening the Company's
administrative support structure, including management recruiting fees and
consulting fees.
Clinical trials expenses include all of the direct costs incurred in
conducting the Company's clinical trials. Research and development expenses
include those costs associated with the research, development, production and
testing of the Company's pharmaceutical products and the protection of its
proprietary rights. These costs have aggregated approximately $39.6 million
since the Company's inception.
Clinical trials expenses increased to $687,763 and $1.4 million for the
three and six month period ended June 30, 2000 from $163,361 and $657,901
during the same period in the prior fiscal year. This increase is due to the
increased number of clinical trials. Research and development expenses and
clinical trials expenses are expected to increase in the remaining portion of
fiscal 2000.
Research and development costs increased to $2.6 million and $5.0
million for the three and six month period ended June 30, 2000 from $2.2
million and $4.5 million during the same
10
<PAGE>
period in the prior fiscal year. The increase was associated with increased
production scale up activities, as well as further development of the Company's
production technology.
Interest income increased to $201,953 and $413,725 for the three and
six months ended June 30, 2000, as compared to $39,912 and $105,211 for the
prior period. The increase is due primarily to higher cash and cash equivalent
balances in 2000, following the sale of equity securities in the fourth quarter
of 1999. The Company incurred $73,389 and $148,788 in interest expense for the
three and six month period ended June 30, 2000, as compared to $28,345 and
$117,520 during the same period in the prior fiscal year. The increase is due
to an increase in equipment financing charges.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily
through sales of equity securities and, to a lesser extent, collaboration
payments and sales of metal detection kits. There were no collaboration
payments or material metal detection kit sales during the three and six months
ended June 30, 2000 and June 30, 1999. From inception through June 2000, the
Company has received approximately $66 million in net proceeds from equity
financings, of which almost $25 million was raised through the sale of Common
Stock in 1999.
During the first six months of 2000, the Company issued 203,600 shares
of Common Stock at $12.50 per share in a private placement to accredited
investors in the United States. Of the total shares, 85,800 shares were sold
through a registered broker dealer who received an 8% commission on the sales
and the remaining shares were sold directly by the Company without a
commission. In addition, warrants and stock options to purchase a total of
164,348 shares were exercised during the same period for gross proceeds of
$919,000.
During the six months ended June 30, 2000, the Company used
approximately $7 million of cash for research development and administrative
activities and $1.9 million for asset acquisitions. As of June 30, 2000, the
Company had total cash, cash equivalents and available-for-sale securities of
$13.1 million, and working capital of $9.7 million.
The Company's fermentation production facility was an ongoing
construction project at June 30, 2000. Total project expenditures are expected
to be approximately $6 million. Approximately $1 million of these anticipated
expenditures have not been incurred as of June 30, 2000. The project is
expected to be completed in late 2000.
The Company currently intends to convert outstanding stock appreciation
rights to non-qualified stock options to purchase a total of 96,387 shares of
Common Stock. At the time of conversion, the Company will immediately record an
expense for the difference between the accrued liability and the intrinsic
value of the stock option, which will be fully vested when issued.
11
<PAGE>
At June 30, 2000, the Company had a shareholders' deficit accumulated
during the development stage of $50.5 million. Historically, the auditor's
reports on the Company's financial statements have contained an explanatory
paragraph concerning the Company's ability to continue as a going concern and
its status as a development stage company. The Company expects to continue to
incur additional losses, and will require additional working capital, as it
incurs substantial expenses related to additional personnel, clinical trials,
research and development activities, and scale-up of commercial manufacturing.
Although the Company believes that existing cash, cash equivalents and
available-for-sale securities will be sufficient to fund its operations for at
least the next 12 months, the Company will require additional financing in the
future. The Company's plan of operation assumes that additional funding will be
received in part from collaborations on various therapeutic applications of its
products. Any additional required financing may not be available to the Company
on satisfactory terms, if at all. The unavailability of acceptable financing
would prevent or delay the development and commercialization of the Company's
products.
MARKET RISK
BioNebraska is exposed to market risk related to changes in interest
rates. The Company does not use derivative financial instruments for
speculative or trading purposes. Due the nature of the short-term investments,
which are primarily governmental securities, the Company believes that there is
no material market risk exposure.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
BioNebraska's business is subject to various risks, including those
described below. You should carefully consider these risk factors, together
with all of the other information in this Form 10-Q. Any of these risks could
materially adversely affect the Company's business, operating results and
financial condition.
DEVELOPMENT STAGE ENTERPRISE; RISKS OF NEW PRODUCT DEVELOPMENT; MARKET
UNCERTAINTY. The Company is a development stage enterprise and its operations
to date have been funded principally by sales of equity and convertible debt
securities to investors. The Company is pursuing the development of several new
pharmaceutical products. The Company's planned pharmaceutical products will
require additional development, construction of significant plant facilities,
clinical testing and investment prior to commercialization. The pharmaceutical
products require the approval of the FDA for sale in the United States. Once
approved as products, they must be manufactured in commercial quantities and
marketed successfully. The Company currently has limited marketing
capabilities, and will need to either develop such capabilities internally or
enter into arrangements with one or more corporate partners for marketing and
distribution. Each of these steps involves significant amounts of time and
expense and could be subject to unforseen delays. There can be no assurance
that any of the Company's product development efforts will be successfully
completed, that regulatory approvals
12
<PAGE>
will be obtained where required, or that any products, if developed and
introduced, will be successfully marketed or achieve market acceptance.
HISTORICAL AND CONTINUING OPERATING LOSSES. Historically, the auditor's
reports on the Company's financial statements have contained an explanatory
paragraph concerning the Company's ability to continue as a going concern and
its status as a development stage company. Operating as a development company,
the Company has incurred significant operating losses in each year since
inception of its business in 1989 and, based on audited financial information,
had an accumulated deficit of $50.5 million as of June 30, 2000. The Company's
ability to achieve profitable operations is dependent in large part on
obtaining regulatory approvals of some of its products, entering into
agreements for product development and commercialization, and making the
transition to a manufacturing and marketing company. There can be no assurance
that the Company will ever achieve a profitable level of operations.
SUFFICIENCY OF WORKING CAPITAL; DEPENDENCE ON FUTURE FINANCING.
Depending upon the circumstances and the progress of the Company's development
efforts, the Company believes that existing funds and cash from anticipated
other funding should be adequate to finance operations for the next 12 months.
The Company could require additional funding prior to that time if operating
costs are higher than expected. The Company will require additional funding in
the future, and the Company's plan of operation assumes that additional funding
will be received in part from collaborations on various therapeutic
applications of its products or through the sale of equity and debt securities.
There can be no assurance that future funding will be available, or, if
available, that it will be on terms acceptable or favorable to the Company or
its shareholders. The Company's plan of operation also assumes that none of the
holders of Preferred Stock will exercise any put rights that become available
to require the Company to repurchase such shares. If future financing is
required for operations and is unavailable for any reason, the Company may be
forced to discontinue some or all of its operations or delay the development
and commercialization of its products.
OUTCOME OF HUMAN CLINICAL TRIALS AND DEPENDENCE UPON NEW PRODUCTION
PROCESSES. The Company's plans are based on forming collaborations to (I)
complete clinical studies of GLP-1, GRF and GRF in combination with PTH which
demonstrate that they have therapeutic applications; (ii) further develop and
scale up commercial processes for the production of human peptide hormones,
including GLP-1, GRF and PTH; and (iii) obtain approval from the FDA, European
or other regulatory authorities to market these therapies. The Company has not
yet accomplished the foregoing objectives and, as a result, its plans and
processes have not been fully developed and tested. Failure (I) to efficiently
produce peptide hormones in appropriate amounts, (ii) to successfully control
glucose levels in Type II diabetics with GLP-1 in its human studies, or (iii)
to release the natural elements of the patient's growth and maintenance cascade
with GRF, would each have a material adverse effect on the Company. There is no
assurance that any of the Company's other programs will be successfully
developed or marketed.
13
<PAGE>
LACK OF COMMERCIAL PRODUCTION EXPERIENCE. Although the Company has
successfully produced peptide hormones in limited quantities for research and
development and has completed the construction of its first small
commercial-size production plant, the Company has not produced commercial
quantities and does not yet have adequate facilities and staff to produce
peptide hormones for commercial pharmaceutical applications. There can be no
assurance that the Company will be able to efficiently produce commercial
quantities of these peptide hormones. The Company will need to obtain various
other licenses and approvals to construct and operate production facilities,
and there is no assurance that they can be obtained.
GOVERNMENT REGULATION. The Company's planned pharmaceutical products
will be subject to extensive regulation by federal, state and local government
authorities in the United States and any other countries where the Company's
products may be tested or marketed. The FDA and comparable agencies in other
countries impose substantial requirements that must be satisfied before newly
developed pharmaceutical products may be sold. Approval by the FDA in most
cases requires lengthy, detailed, and costly laboratory and clinical testing
procedures to demonstrate a product's efficacy and safety before the product
can be sold. There can be no assurance that the Company will receive FDA
approval for any of its planned pharmaceutical products or, even if it does
receive FDA approval for a particular product, that the Company will ever
recover its costs in connection with obtaining such approval. With respect to
any of the Company's planned products, the failure of the Company to receive
requisite FDA approval, or significant delays in obtaining such approval, could
prevent the commercial development of such product and could have a material
adverse effect on the Company. The Company has not applied for, and does not
have, the approval of any foreign country to sell its products. To date the
Company has not brought any product through the FDA approval process and may
encounter unforseen difficulties or delays in doing so. The Company's ability
to successfully commercialize any pharmaceutical products will depend on its
ability to meet the FDA's current Good Manufacturing Practices ("cGMP") and
other regulations relating to advertising and promoting, selling and marketing,
labeling, and continual review by regulatory authorities. No assurance can be
given that the Company's current production processes can be scaled-up to
commercial levels under cGMP standards at an acceptable cost. If commercial
scale cGMP processes and facilities cannot be attained, the Company's ability
to conduct research, clinical testing and manufacturing will be adversely
affected.
DEPENDENCE ON HEALTH CARE REIMBURSEMENT. The Company's ability to
commercialize its products successfully may depend in part on the extent to
which reimbursement for the costs of such products and related treatments
will be available from government health administration authorities, private
health insurers, and other organizations. Government and other third- party
payors are increasingly challenging the prices of medical products and
services. Uncertainty exists as to the reimbursement status of newly approved
health care products, and there can be no assurance that adequate
third-party coverage will be available to enable the Company to maintain
price levels sufficient to realize an appropriate return on its investment
in product development. If adequate coverage and reimbursement levels are
not provided by government and other third-
14
<PAGE>
party payors for use of the Company's products, the market acceptance of
these products could be adversely affected.
RAPID TECHNOLOGICAL CHANGE. All of the Company's business areas have
been characterized by rapid technological change. Changes in technology may
result in partial or total obsolescence of the Company's present and proposed
products within time frames not anticipated by the Company. The Company will be
required to respond to these changes by enhancing its existing products and
developing and/or marketing new products. There can be no assurance that the
Company will be able to respond successfully.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The success of the
Company will depend on its ability to maintain competitive technological
positions in the areas of the therapeutic applications of its products and its
production technologies. The Company has filed a significant number of patent
applications and has received several issued patents in the United States and
other jurisdictions with respect to its production processes and some
therapeutic applications. Patent protection will not be available, however,
with regard to many therapeutic uses of GLP-1, GRF, PTH and other peptide
hormones which the Company may desire to produce. There can be no assurance
that the Company's patent applications, whether domestic or foreign, will be
granted or that, if granted, will provide the Company a significant competitive
advantage.
While the Company does not believe that it will infringe the
intellectual property rights of others, there can be no assurance that such a
claim will not be asserted against the Company in the future or that the
Company will be able to successfully defend against any such claim. A United
States patent was issued on March 25, 1997 to Massachusetts General Hospital
with claims directed to the use of GLP-1 (7-36) for the treatment of Type II
diabetes and hyperglycemia and for the enhancement of beta-cell expression of
insulin. This patent has been licensed exclusively to two pharmaceutical
companies. The Company may be required to obtain a license under this patent to
carry out its planned programs in the United States. The Company can provide no
assurance that it will be able to obtain a license, on commercially reasonable
terms, under this patent. If a sublicense under this patent is necessary, and
the Company cannot obtain such a sublicense, the Company may be prohibited from
selling GLP-1 (7-36) in the United States, for treatment of the covered
conditions, and the Company may need to emphasize marketing strategies in
countries where Massachusetts General Hospital has not obtained patent
protection.
Even if the Company determines that a license or sublicense under this
patent is unnecessary, patent infringement litigation may ensue. If an
infringement claim by the Massachusetts General Hospital is without merit, and
if the Company prevailed in demonstrating that the patent is invalid and/or not
infringed, defending a lawsuit will take significant time, and might be
expensive and time consuming for management. If the Company does not prevail in
such a lawsuit and sells products that are covered by the patent, then the
Company might have to pay substantial damages for past infringement in the
United States. Further, the Company might
15
<PAGE>
be prohibited from selling its products before it obtained a license, which, if
available at all, might require the Company to pay substantial royalties.
The Company has entered into several license agreements related to the
use of technologies which can complement or form part of its business and
expects that it may need to obtain two licenses for the commercial production
and use of GRF. The Company has received assurances from one licensor that a
license may be obtained on terms currently available to other licensees, and
the Company believes that a license from the second licensor also should be
available. There can be no assurance that such license agreement will continue
indefinitely or that the Company will be successful in obtaining the required
additional license which may be needed for the operation or expansion of its
business in the future.
The commercial success of the Company also will depend upon avoiding
the infringement of patents issued to competitors and avoiding breach of the
technology licenses upon which certain of the Company's planned future products
are or will be based. There can be no assurance that patents do not exist or
that patent applications could not be filed which would have an adverse effect
on the Company's ability to produce and market its products. In the event the
Company inadvertently breaches an existing license or fails to obtain a license
for any technology that it may require to commercialize its products, a
material adverse effect on the Company could result. Litigation, which could
result in substantial cost to the Company, may be necessary to enforce the
Company's patent and license rights or to determine the scope and validity of
others' proprietary rights. If competitors of the Company prepare and file
patent applications in the United States that claim technology also claimed by
the Company, the Company may have to participate in interference proceedings
declared by the Patent and Trademark Office to determine priority of invention,
which could result in substantial cost to the Company, even if the outcome is
favorable to the Company. There can be no assurance that the Company's patents,
if issued, would be held valid by a court of competent jurisdiction. An adverse
outcome could subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from third parties or require the
Company to cease using the relevant technology.
The Company also relies on certain technologies which constitute
proprietary trade secrets and know-how that are not patentable and therefore
may be available to the Company's competitors. Although the Company has also
taken steps to protect its unpatented trade secrets and know-how through
confidentiality agreements, there can be no assurance that these agreements can
be effectively enforced. There can be no assurance that the Company will
maintain the confidentiality of its technology, dissemination of which could
have a material adverse effect on the Company, and there can be no assurance
that others will not independently develop technologies similar to those
developed by the Company or obtain access to the Company's technologies.
COMPETITION. There can be no assurance that potential competitors,
which have substantially greater financial resources, more extensive business
experience and greater
16
<PAGE>
development, marketing and support capabilities than the Company, may not
succeed in developing competitive production capabilities and therefore
competitive products.
DEPENDENCE ON KEY PERSONNEL AND AVAILABILITY OF QUALIFIED PERSONNEL.
The future success of the Company is dependent upon the abilities and continued
services of the executive officers and senior management personnel. Competition
for personnel is intense and the Company may not be able to continue to attract
and retain the necessary qualified personnel.
NO PUBLIC MARKET FOR THE SHARES; LACK OF LIQUIDITY. There is currently
no public market for the Company's Common Stock and there can be no assurance
that a public market for the Common Stock will develop in the future or that
the outstanding shares can be resold at or above the price at which they were
purchased. Further, all of the shares were issued based on exemptions from
registration under the Securities Act of 1933 and applicable state law.
Consequently, the outstanding shares cannot be sold unless they are registered
or an exemption from such registration is available. Accordingly, investors
should anticipate holding their outstanding securities for an extended period
of time.
VOTING CONTROL. The Company's current officers, directors and 5%
shareholders collectively own Common Stock and Preferred Stock which, for
practical purposes, provides voting control and enables them to direct the
affairs of the Company, including the appointment of officers and determination
of officers' compensation. The issuance of additional Common Stock or Preferred
Stock under certain circumstances could have the effect of changing control of
the Company. See "Principal Shareholders" and "Description of Securities."
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET
RISK.
See Item 2, "Managements Discussion and Analysis of Financial Condition
and Results of Operations - Interest Rate Risk".
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
17
<PAGE>
ITEM 2. CHANGES IN SECURITIES.
During the first six months of 2000, the Company issued 203,600 shares
of Common Stock at $12.50 per share in a private placement to accredited
investors in the United States. Of the total shares, 85,800 shares were sold
through a registered broker dealer who received an 8% commission on the sales
and the remaining shares were sold directly by the Company without a
commission. In addition, warrants and stock options to purchase a total of
164,348 shares were exercised during the same period for gross proceeds of
$919,000. The Company believes that these transactions were exempt under
Section 4(2) of the Securities Act of 1933 and from the registration and
prospectus delivery requirements of the Act and from applicable state
securities laws in the states where the purchasers reside.
ITEM 3. DEFAULTS UPON 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
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter for which this Quarterly Report is
filed, the Company filed no Reports on Form 8-K.
18
<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.
BIONEBRASKA, INC.
Dated: August ___, 2000 /s/ Thomas R. Coolidge
------------------------------------------------
Thomas R. Coolidge
Chief Executive Officer and Chairman
(Duly Authorized Officer)
/s/ David S. Walker
------------------------------------------------
David S. Walker
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
19
