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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
-- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
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Commission File Number 000-30493
BIONEBRASKA, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 47-0727668
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3820 N.W. 46TH STREET, LINCOLN, NEBRASKA 68524-1637
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(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 November 7, 2000 the Company had 7,297,220 shares of Common Stock, $.01
par value per share, outstanding.
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<TABLE>
<CAPTION>
BIONEBRASKA, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 (unaudited)....................................3
Condensed Consolidated Statements of Operations for the
three and nine month periods ended September 30, 2000
and September 30, 1999 (unaudited)......................................................4
Condensed Consolidated Statements of Cash Flows for the
nine month periods ended September 30, 2000 and September 30,
1999 (unaudited)......... .............................................................5
Notes to Financial Statements.........................................................6,7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................................................7
Cautionary Statement About Forward-Looking Statements...................................7
Overview................................................................................8
Results of Operations...................................................................8
Liquidity and Capital Resources.........................................................9
Inflation..............................................................................10
Market Risk............................................................................10
Additional Factors That May Affect Future Performance .................................10
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT
MARKET RISK............................................................................15
PART II. OTHER INFORMATION....................................................................................... 15
ITEM 1. LEGAL PROCEEDINGS......................................................................15
ITEM 2. CHANGES IN SECURITIES..................................................................15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.......................................................................16
ITEM 5. OTHER INFORMATION......................................................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................17
SIGNATURES .......................................................................................................18
</TABLE>
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<TABLE>
<CAPTION>
BioNebraska, Inc.
(a development stage company)
Condensed Consolidated Balance Sheets
(unaudited)
September 30, December 31,
2000 1999
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 12,099,834 $ 18,393,567
Receivables 10,002 13,896
Inventories 39,265 35,172
----------------- -----------------
Total Current Assets 12,149,101 18,442,635
----------------- -----------------
Property and Equipment, at cost 8,658,299 6,428,248
Less: accumulated depreciation 2,723,645 2,085,439
----------------- -----------------
Net property and equipment 5,934,654 4,342,809
----------------- -----------------
Patents and Patents Licensed, at cost 719,747 719,747
Less: accumulated amoritization 160,098 128,805
----------------- -----------------
Net patents and patents licensed 559,649 590,942
----------------- -----------------
Other Assets:
Licensing agreements, net of amortization 92,500 82,500
Deposits and fees 45,874 45,717
Deferred Financing costs, net of amortization 448,603 -
----------------- -----------------
Total Other Assets 586,977 128,217
----------------- -----------------
TOTAL ASSETS $ 19,230,381 $ 23,504,603
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 1,009,458 1,637,604
Accrued stock appreciation rights 956,377 956,377
Long-Term obligations - current portion 898,757 565,335
----------------- -----------------
Total Current Liabilities 2,864,592 3,159,316
----------------- -----------------
Long-Term Liabilities:
Long-Term obligations, less current maturities $ 1,923,727 $ 1,414,369
----------------- -----------------
Total Liabilities 4,788,319 4,573,685
----------------- -----------------
Redeemable Non-Convertible Preferred Stock
Series A, ($0.01 par value, 11,750 shares
authorized, issued and outstanding) 1,821,250 1,755,156
----------------- -----------------
Shareholders' Equity
Common stock, ($0.01 par value, 20,000,000
shares authorized, 7,297,220 and 6,719,233
shares issued and outstanding) 72,972 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 67,267,407 61,065,861
Retained (deficit) accumulated during the
development stage (54,722,319) (43,960,043)
----------------- -----------------
Total Shareholders' Equity 12,620,812 17,175,762
----------------- -----------------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $ 19,230,381 $ 23,504,603
================= =================
See accompanying notes
</TABLE>
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<TABLE>
<CAPTION>
BIONEBRASKA, INC.
(a development stage company)
Condensed Consolidated Statement of Operations
(unaudited)
Cumulative period
Three Months Ended Nine Months Ended From April 15, 1988
September 30, September 30, (date of incorporation)
2000 1999 2000 1999 to September 30, 2000
--------- ------------- --------------- --------------- ----------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,545 $ 960 $ 10,040 $ 2,136 $ 3,660,377
------------ ------------- ------------- --------------- ---------------
Operating Costs and Expenses
General and administrative 653,167 528,867 1,848,809 1,516,836 15,546,296
Clinical trials 483,174 78,844 2,319,330 736,745 4,009,079
Research and development 2,281,458 1,718,954 6,882,640 6,207,683 38,978,142
------------ ------------- ------------- --------------- ---------------
Total Operating Costs
and Expenses 3,417,799 2,326,665 11,050,779 8,461,264 58,533,517
------------ ------------- ------------- --------------- ---------------
Net Operating Loss (3,415,254) (2,325,705) (11,040,739) (8,459,128) (54,873,140)
------------ ------------- ------------- --------------- ---------------
Other Income (Expense)
Interest income 164,140 30,774 577,865 135,985 1,434,592
Interest expense (150,612) (32,511) (299,401) (150,031) (1,283,771)
------------ ------------- ------------- --------------- ---------------
13,528 (1,737) 278,464 (14,046) 150,821
------------ ------------- ------------- --------------- ---------------
NET LOSS $ (3,401,726) $ (2,327,442) $ (10,762,275) $ (8,473,174) $ (54,722,319)
============ ============= ============= =============== ===============
Preferred stock dividends
accreted and cumulating but
not declared $ (693,055) $ (693,055) $ (2,079,166) $ (2,079,166) $ (9,181,150)
------------ ------------- ------------- --------------- ---------------
Net loss applicable to common
stock $ (4,094,781) $ (3,020,497) $ (12,841,441) $ (10,552,340) $ (63,903,469)
============ ============= ============= =============== ===============
Basic and diluted net loss per
common share $ (0.57) $ (0.61) $ (1.82) $ (2.24) $ (1.30)
============ ============= ============= =============== ===============
Average number of common shares
outstanding 7,184,721 4,933,582 7,042,125 4,701,264 3,924,440
============ ============= ============= =============== ===============
</TABLE>
See accompanying notes
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<TABLE>
<CAPTION>
BIONEBRASKA, INC.
(a development stage company)
Condensed Consolidated Statement of Cash Flows
(unaudited)
Cumulative period
Nine Months Ended From April 15, 1988
September 30, (date of incorporation)
2000 1999 to September 30, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,762,275) $ (8,473,174) $ (54,722,318)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 669,499 310,858 3,122,717
Deferred financing costs 64,086 - 64,086
Expensing acquisition of in process research & development - 700,000 1,200,000
Modification of stock options 810,000
Change in operating assets and liabilities:
Accounts receivable and other current assets (199) (30,348) (49,267)
Accounts payable and accrued expenses (628,146) 212,914 1,965,835
--------------- -------------- ---------------------------
Net cash flows from operating activities (10,657,035) (7,279,750) (47,608,947)
--------------- -------------- ---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,230,050) (2,629,327) (8,889,978)
Increase in deposits and other assets (10,157) (41,765) (138,374)
Increase in patents - - (727,041)
Acquisition of GRFCo - (700,000) (1,200,000)
--------------- -------------- ---------------------------
Net cash flows from investing activities (2,240,207) (3,371,092) (10,955,393)
--------------- -------------- ---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 5,760,730 3,286,202 39,209,320
Net proceeds from issuance of preferred stock - - 27,231,371
Proceeds from long-term obligations 1,429,797 1,441,334 4,103,727
Payments on long-term obligations (587,018) (260,958) (1,281,244)
Proceeds from bridge notes payable - - 3,765,500
Payments on bridge notes payable - (1,123,750) (2,364,500)
Restricted cash - 3,114,774 -
--------------- -------------- ---------------------------
Net cash flows from financing activities 6,603,509 6,457,602 70,664,174
--------------- -------------- ---------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,293,733) (4,193,240) 12,099,834
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,393,567 5,403,171 0
--------------- -------------- ---------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,099,834 $ 1,209,931 $ 12,099,834
=============== ============== ===========================
Supplemental Disclosures of Non-Cash Financing Activities
Stock option extension in exchange for extension of
redeemable preferred stock $ 512,689 $ - $ 512,689
=============== ============== ===========================
Interest paid $ 235,315 $ 150,031 $ 1,219,684
=============== ============== ===========================
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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BIONEBRASKA, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2000 and 1999
(unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The condensed consolidated balance sheets as of
September 30, 2000, the condensed consolidated statements of operations for the
three and nine month periods ended September 30, 2000 and 1999 and the condensed
consolidated statements of cash flows for the nine month periods ended September
30, 2000 and 1999 have been prepared by the Company without audit in accordance
with accounting principles generally accepted in the United States of America
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 accounting principles generally accepted
in the United States of America 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
September 30, 2000 and 1999, 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 and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations for the year ended December 31, 1999, included in the Company's Form
10 Registration Statement filed with the Securities and Exchange Commission.
SHAREHOLDERS EQUITY - During the first nine months of 2000, the Company sold
370,516 shares of Common Stock at $12.50 per share. Of the total shares, 85,800
shares were sold to accredited investors through a registered broker dealer who
received an 8% commission on the sales and 117,800 shares were sold directly by
the Company to accredited investors without a commission. In addition, on
September 12, 2000, Medtronic, Inc. exercised purchase rights established in the
1998 Investment Agreement with the Company and purchased 166,916 shares of
Common Stock at $12.50 per share. In addition, warrants and stock options to
purchase a total of 207,471 shares were exercised during the same period for
gross proceeds of $1.2 million.
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 in
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.
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BIONEBRASKA, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2000 and 1999
(unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
GOING CONCERN CONSIDERATIONS - In accordance with its plans, the Company, from
inception, has experienced losses from its activities in research and
development. 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.
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 condensed
consolidated financial condition and results of operations for the three and
nine months ended September 30, 2000 and 1999. 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
7
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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 Performance."
OVERVIEW
BioNebraska is a development stage therapeutics company engaged in
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
certain endocrine cascades governing bodily functions in persons whose hormones
are deficient or lacking as a 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 $0.7 and $1.8 million for
the three and nine month periods ended September 30, 2000, as compared to $0.5
and $1.5 million 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. The costs for both clinical trials and research and
development have aggregated approximately $43.0 million since the Company's
inception.
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Clinical trials expenses increased to $0.5 and $2.3 million for the three
and nine month periods ended September 30, 2000 from $0.1 and $0.7 million
during the same periods in the prior fiscal year. This increase is due to the
increased number of clinical trials. Clinical trials expenses are expected to
increase in the remaining portion of fiscal 2000.
Research and development costs increased to $2.3 million and $6.9 million
for the three and nine month periods ended September 30, 2000 from $1.7 million
and $6.2 million during the same periods in the prior fiscal year. The increase
is associated with increased production scale up activities, as well as further
development of the Company's production technology.
Interest income increased to $164,140 and $577,865 for the three and nine
months ended September 30, 2000, as compared to $30,774 and $135,985 for the
same periods in the prior fiscal year. 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 $150,612 and
$299,401 in interest expense for the three and nine month periods ended
September 30, 2000, as compared to $32,511 and $150,031 during the same period
in the prior fiscal year. The increase reflects interest charges associated with
the extension of certain preferred stock terms and an increase in equipment
financing.
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 nine months ended
September 30, 2000 and September 30, 1999. From inception through September
2000, the Company has received approximately $68 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 nine months of 2000, the Company sold 370,516 shares of
common stock at $12.50 per share. Of the total shares, 85,800 shares were sold
to accredited investors through a registered broker dealer who received an 8%
commission on the sales and 117,800 shares were sold directly by the Company to
accredited investors without a commission. In addition, on September 12, 2000,
Medtronic, Inc. exercised purchase rights established in the 1998 Investment
Agreement with the Company and purchased 166,916 shares of Common Stock at
$12.50 per share. In addition, warrants and stock options to purchase a total of
207,471 shares were exercised during the same period for gross proceeds of $1.2
million.
During the nine months ended September 30, 2000, the Company used
approximately $10.7 million of cash for operating activities and $2.2 million
for asset acquisitions. As of September 30, 2000, the Company had total cash and
cash equivalents and of $12.1 million, and working capital of $9.3 million.
The Company has successfully produced material for clinical trials
conducted to date. Completion of the fermentation and purification facilities to
allow production of Clinical Phase
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III materials is expected in early 2001. Total costs for this project will be
approximately $7 million. Of these anticipated expenditures, $0.3 million has
not been incurred as of September 30, 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.
At September 30, 2000, the Company had a shareholders' deficit accumulated
during the development stage of $54.7 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 and cash equivalents will be
sufficient to fund its operations for the next nine 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.
INFLATION
The Company does not believe that inflation has had a material effect on
its results of operations. However, there can be no assurance that the
Company's business will not be affected by inflation in the future.
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 cash equivalents, 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
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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 and of the relevant regulatory
authorities for sale in Europe. 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 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, had an accumulated deficit of $54.7
million as of September 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 nine 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
11
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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.
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.
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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-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
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<PAGE>
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 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
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<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.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK.
See Item 2, "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Market Risk".
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
During the first nine months of 2000, the Company sold 370,516 shares of
Common Stock at $12.50 per share. Of the total shares, 85,800 shares were sold
to accredited investors through a registered broker dealer who received an 8%
commission on the sales and 117,800
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<PAGE>
shares were sold directly by the Company to accredited investors without a
commission. In addition, on September 12, 2000, Medtronic, Inc. exercised
purchase rights established in the 1998 Investment Agreement with the Company
and purchased 166,916 shares of Common Stock at $12.50 per share. In addition,
warrants and stock options to purchase a total of 207,471 shares were exercised
during the same period for gross proceeds of $1.2 million. 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.
The Company's Annual Meeting of Shareholders was held on July 27, 2000. The
shareholders took the following actions:
(1) The shareholders elected seven directors to hold office until the
annual meeting of shareholders. The shareholders present in person or
by proxy cast the following numbers of votes in connection with the
election of directors, resulting in the election of all of the
nominees:
<TABLE>
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
<S> <C> <C>
Walter R. Barry, III 7,324,278 5,087
Thomas R. Coolidge 7,324,278 5,087
Grant W. Denison, Jr. 7,239,728 89,637
Richard A. De Souza 7,324,278 5,087
Stephen W. Jenks 5,063,028 2,266,337
Erich Sager 7,324,278 5,087
Fred W. Wagner 7,324,278 5,087
</TABLE>
(2) The stockholders authorized an amendment to the Company's 1993 Stock
Option Plan to increase the number of shares authorized under the Plan
by 600,000 shares. The amendment was passed by the following vote:
<TABLE>
<S> <C>
For 6,892,634
Against 436,731
Abstain 0
</TABLE>
ITEM 5. OTHER INFORMATION.
None
16
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 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.
BIONEBRASKA, INC.
Dated: November 7, 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)
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