UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-22890
-------------
SANGSTAT MEDICAL CORPORATION
---------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3076-069
- ------------------------ -----------------------------
(State of incorporation) (IRS Employer Identification No.)
6300 Dumbarton Circle
Fremont, CA 94555
------------------------------------------------------------------
(Address of principal executive office, Zip Code)
Registrant's telephone number, including area code: 510-789-4300
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
- ------------------------------------------------------------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of September 30, 1999.
CLASS NUMBER OF SHARES
----- ----------------
Common Stock 17,325,049
<PAGE>
SANGSTAT MEDICAL CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998......................
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 1999 and 1998.......
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three and Nine Months Ended September 30, 1999 and 1998.......
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three and Nine Months Ended September 30, 1999 and 1998.......
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...........
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..............................................
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............
ITEM 5. OTHER INFORMATION..............................................
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................
SIGNATURES................................................................
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30,December 31,
1999 1998
----------- -----------
(unaudited) (1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $29,914 $16,286
Short-term investments.............................. 4,437 13,375
Accounts receivable (net of allowance for doubtful
accounts of $1,499 in 1999 and $929 in 1998)...... 13,316 10,963
Other receivables................................... 2,205 2,441
Inventories (net of reserves of $2,278 in 1999
and $773 in 1998 45,670 33,375
Prepaid expenses.................................... 1,272 1,727
----------- -----------
Total current assets......................... 96,814 78,167
PROPERTY AND EQUIPMENT -- net......................... 4,649 3,134
INTANGIBLE ASSETS (net of accumulated amortization
of $1,391 in 1999 and $351 in 1998)................. 12,720 14,151
OTHER ASSETS.......................................... 10,489 11,875
----------- -----------
TOTAL........................................ $124,672 $107,327
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $14,029 $25,824
Accrued liabilities................................. 5,127 3,197
Capital lease obligations -- current portion........ 530 493
Deferred revenue -- current portion.................. 3,356 --
Notes payable -- current portion.................... 4,082 1,825
----------- -----------
Total current liabilities.................... 27,124 31,339
CAPITAL LEASE OBLIGATIONS.............................. 377 765
DEFERRED REVENUE...................................... 10,085 --
NOTES PAYABLE......................................... 39,662 15,636
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000
shares authorized; none outstanding............... -- --
Common stock, $.001 par value, 25,000 shares
authorized; outstanding: 1999, 17,325 shares;
1998, 16,215 shares............................... 174,543 160,251
Accumulated deficit................................. (126,329) (100,270)
Accumulated other comprehensive loss................ (790) (394)
----------- -----------
Total stockholders' equity................... 47,424 59,587
----------- -----------
TOTAL........................................ $124,672 $107,327
=========== ===========
</TABLE>
(1) Derived from the Company's audited consolidated financial statements.
See Notes to Condensed Consolidated Financial Statements
<PAGE>
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Net product sales................... $14,801 $3,028 $39,164 $7,097
Revenue from collaborative
agreements........................ -- -- 550 364
--------- --------- ---------- ----------
Total revenues...................... 14,801 3,028 39,714 7,461
--------- --------- ---------- ----------
COSTS AND OPERATING EXPENSES:
Cost of sales and manufacturing..... 7,944 2,927 21,287 6,863
Research and development............ 3,129 4,801 10,919 12,110
Selling, general and administrative. 10,444 6,478 31,564 17,273
Acquired in-process
research and development........... -- 3,219 -- 3,219
Amortization of intangible assets... 347 -- 1,040 --
--------- --------- ---------- ----------
Total costs and operating expenses.. 21,864 17,425 64,810 39,465
--------- --------- ---------- ----------
Loss from operations............... (7,063) (14,397) (25,096) (32,004)
OTHER INCOME (EXPENSE) -- NET........ (576) 804 (943) 2,787
--------- --------- ---------- ----------
LOSS BEFORE INCOME TAXES............. (7,639) (13,593) (26,039) (29,217)
--------- --------- ---------- ----------
INCOME TAX (PROVISION) BENEFIT....... (114) -- (20) --
--------- --------- ---------- ----------
NET LOSS............................. ($7,753) ($13,593) ($26,059) ($29,217)
========= ========= ========== ==========
NET LOSS PER SHARE (Basic and diluted) ($0.45) ($0.84) ($1.56) ($1.82)
========= ========= ========== ==========
Shares Used in Per Share Computations
(Basic and diluted)................ 17,171 16,092 16,753 16,054
========= ========= ========== ==========
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss............................. ($7,753) ($13,593) ($26,059) ($29,217)
Unrealized gains and losses on
marketable securities classified
as available for sale.............. (617) 97 322 (671)
Foreign currency translation
adjustments........................ 543 89 74 102
--------- --------- ---------- ----------
($7,827) ($13,407) ($25,663) ($29,786)
========= ========= ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. ($26,059) ($29,217)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization....................... 2,993 798
Acquired in-process research and development......... -- 3,219
Loss on disposal of property and equipment........... 174 --
Deferred revenue..................................... 13,441 --
Stock compensation expense.......................... 85 87
Changes in assets and liabilities:
Accounts receivable............................... (2,353) (875)
Other receivables................................. 236 (126)
Inventories....................................... (12,295) (9,338)
Prepaid expenses.................................. 454 918
Accounts payable.................................. (11,794) 7,186
Accrued liabilities............................... 1,931 (613)
---------- ----------
Net cash used in operating activities.......... (33,187) (27,961)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................... (2,546) (1,071)
Maturities of short-term investments.................. 9,991 23,253
Purchase of short-term investments.................... (1,375) (6,643)
Business acquired in purchase transaction,............
net of cash acquired................................ -- (10,737)
Other assets.......................................... 1,387 (723)
---------- ----------
Net cash provided by investing activities............ 7,457 4,079
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock.................................. 14,207 355
Notes payable borrowings.............................. 28,874 --
Notes payable repayments.............................. (3,270) (245)
Repayment of capital lease obligations................ (379) (284)
---------- ----------
Net cash provided by (used in) financing activities.. 39,432 (174)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................. (74) 102
---------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS.......... 13,628 (23,954)
CASH AND EQUIVALENTS, Beginning of period................ 16,286 50,631
---------- ----------
CASH AND EQUIVALENTS, End of period...................... $29,914 $26,677
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.............. $168 $188
========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Property acquired under capital leases................ $27 $159
========== ==========
Unrealized gain (loss) on investments................. ($322) ($671)
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
SANGSTAT MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
SangStat Medical Corporation and its wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated.
The condensed consolidated financial statements presented are unaudited and in
the opinion of management reflect all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation of the financial condition and results of operations as of and for
the interim periods presented. The results for interim periods are not
necessarily indicative of the results to be expected for the full year. These
condensed consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto
included in the Company's 1998 Annual Report on Form 10-K.
2. Acquisition
On September 30, 1998, the Company completed the acquisition of Pasteur
Merieux Connaught's (PMC) organ transplant business known as IMTIX. The result-
ing wholly owned subsidiary of the Company, named IMTIX-SangStat, is dedicated
to the research, development, manufacture and marketing of pharmaceuticals for
transplantation. The transaction valued at $31 million was accounted for as a
purchase and consisted of $10 million paid upon closing and a non-interest
bearing note of $21 million payable over five years as follows: $3 million in
1999, $3 million in 2000, $6 million in 2001, $5 million in 2002 and $4 million
in 2003. The note payable is discounted at a rate of 9.25%. In addition, the
Company will pay PMC certain royalties on IMTIX-SangStat product sales.
Approximately $3.2 million of the total purchase price represented purchased in-
process technology that had not yet reached technological feasibility, had no
alternative future use and was charged to the Company's operations in the third
quarter of 1998. Approximately $14.2 million of the purchase price was
allocated to various specified intangible assets and is being amortized over
their estimated useful lives ranging from five to fourteen years. Additionally,
as part of the acquisition, the Company has approximately $6.0 million of
restricted cash that serves as collateral for the standby letter of credit in
favor of PMC. This is included in Other Assets on the accompanying balance
sheet.
3. Loss Per Share
Basic EPS is computed by dividing net loss by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that would occur if securities or other contracts to issue common
stock were exercised or converted into common stock. Common share equivalents
including stock options, warrants and convertible notes have been excluded as
their effect would be antidilutive.
The following is a reconciliation of the numerators and denominators of the
basic and diluted net loss per share computations (amounts in thousands, except
per share figures):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss (Numerator):
Net loss - Basic and Diluted........ ($7,753) ($13,593) ($26,059) ($29,217)
========= ========= ========== ==========
Shares (Denominator):
Weighted average common shares
outstanding -- basic and diluted... 17,171 16,092 16,753 16,054
========= ========= ========== ==========
Net Loss Per Share -- Basic
and Diluted......................... ($0.45) ($0.84) ($1.56) ($1.82)
========= ========= ========== ==========
</TABLE>
4. Comprehensive Earnings (Loss)
The following are the components of accumulated other comprehensive loss
(in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Unrealized gain (loss) on
investments........................ ($791) ($469)
Accumulated translation adjustments.. 1 75
------------ ------------
Total ............................. ($790) ($394)
============ ============
</TABLE>
5. Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market
consist of (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Raw materials....................... $24,671 $18,104
Work-in-progress.................... 11,395 8,945
Finished goods...................... 9,604 6,326
------------ ------------
Total............................. $45,670 $33,375
============ ============
</TABLE>
6. Co-promotion, Distribution and Research Agreement
In May 1999, the Company and Abbott Laboratories ("Abbott") signed a multi-year
co-promotion, distribution and research agreement for SangCya and cyclosporine
capsules in the United States. Pursuant to this agreement, Abbott made an
equity investment of $14 million in exchange for approximately 894,000 shares
of common stock. In addition, Abbott made a series of up-front and milestone
payments totalling $13 million and a long-term loan of $16 million (See Note 7)
to the Company. In November 1999, Abbott made a further milestone payment of
$0.9 million. All up-front and milestone payments received and the premium
received on the sale of common stock to Abbott are recorded as deferred revenue
and recognized ratably over the term of the agreement.
7. Notes Payable
In March 1999, the Company issued a $10 million convertible note due March 30,
2004. This note bears interest at the rate of 6.5% through March 30, 2004 and
thereafter at the rate of 8.5% on any overdue amount. The interest is payable
semi-annually in September and March. The note, or any portion thereof, is
convertible at the option of the holder at any time on or after March 31, 2000
and before March 30, 2004 into shares of common stock of the Company at the
rate of 50.0773 shares of common stock for each $1,000 principal amount. The
net proceeds received by the Company were $9,550,000. The note will be
accreted to its face amount over the five year term.
In May 1999, the Company received a loan of $16 million from Abbott
Laboratories. The loan bears interest at 8.75%, payable annually, and is
secured by a security interest in the United States marketing rights for
SangCya. The loan matures on December 31, 2004, and can be pre-paid by the
Company without penalty at any time prior to maturity.
8. Business Segment Data
The Company is a specialty pharmaceutical company engaged in the discovery,
development, manufacturing and marketing of transplantation products worldwide
as well as applying a disease management approach to improve the outcome of
organ transplantation. The Company is organized and operates in two business
segments: transplantation products and transplantation services.
Transplantation products consist primarily of products for patient monitoring
and therapeutic products for preventing and treating organ rejection.
Transplantation services consist principally of mail order pharmaceutical and
patient management services. The following information is presented in
accordance with the requirements of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (in thousands).
<TABLE>
<CAPTION>
Three
Months
ended TransplantationTransplantation
September 30, Products Services Total
--------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Net revenues...... 1999 $11,116 $3,685 $14,801
1998 587 2,441 3,028
Interest income... 1999 603 603
1998 913 913
Interest expense.. 1999 1,405 1,405
1998 109 109
Depreciation and
amortization..... 1999 662 34 696
1998 283 12 295
Segment loss...... 1999 (7,252) (501) (7,753)
1998 (12,758) (835) (13,593)
Segment assets.... 1999 119,926 4,746 124,672
1998 104,057 2,934 106,991
</TABLE>
<TABLE>
<CAPTION>
Nine
Months Transplantation
ended ---------------------
September 30, Products Services Total
--------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Net revenues...... 1999 $29,699 $10,015 $39,714
1998 1,987 5,474 7,461
Interest income... 1999 1,477 1,477
1998 2,992 2,992
Interest expense.. 1999 2,420 2,420
1998 205 205
Depreciation and
amortization..... 1999 2,898 95 2,993
1998 752 46 798
Segment loss...... 1999 (24,662) (1,397) (26,059)
1998 (27,454) (1,763) (29,217)
</TABLE>
9. Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to
recordderivatives 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. SFAS No. 133 will be effective for
the Company's fiscal year 2000.
10. Litigation
On February 11, 1999, Novartis Pharmaceuticals Corporation ("Novartis US")
filed a lawsuit (case number 99-065) in Federal District Court for the District
of Delaware against the Company alleging infringement of United States patent
#5,389,382, a cyclosporine technology patented by Novartis A.G. (the "US
Patent"). The Novartis A.G. patent does not cover Neoral but rather a separate
delivery system not used in the Neoral formulation. Novartis US seeks the
following relief: (i) a finding that SangStat willfully infringed the patent;
(ii) to permanently enjoin SangStat from infringing the US Patent; (iii) treble
damages; and (iv) reasonable attorneys' fees, costs and expenses. On April 15,
1999, SangStat filed its answer in this case and also filed a counterclaim
against Novartis alleging that Novartis violated the anti-trust laws by
engaging in a series of anti-competitive acts designed and intended to exclude
SangStat from the market. Novartis has filed a motion to bifurcate the
anti-trust counterclaim; the Court has not yet ruled on this motion. The trial
date has been set for October 23, 2000 and discovery has commenced.
On July 9, 1999, Novartis AG and Novartis Pharmaceuticals UK Limited
("Novartis UK") filed an action against Imtix-SangStat (UK) Limited; SangStat
UK, Limited, and SangStat Medical Corporation (collectively, the "UK
Defendants") in the High Court of Justice, Chancery Division, Patents Court,
London (HC-1999-02988) alleging infringement of United Kingdom Patent No 2 200
048 (the "UK Patent"), the counterpart to the US Patent. The lawsuit mirrors
the US patent infringement lawsuit. Novartis AG and Novartis UK seek the
following relief: (i) an injunction to restrain the UK Defendants from
infringing the UK Patent; (ii) the delivery up or destruction of all material
that would infringe such injunction; (iii) damages; (iv) a declaration that the
UK Patent is valid and has been infringed by the UK Defendants; and (v) costs.
No trial date has been set at this time and the Company anticipates that the
earliest trial date will be in the first half of 2001.
Although the Company is optimistic that these patent disputes will ultimately
be resolved favorably to the Company, the course of litigation is inherently
uncertain and there can be no assurance of a favorable outcome. As a result of
the Novartis suits, SangStat could be enjoined from selling SangCya oral
solution for a significant period of time or ultimately be prevented from
selling SangCya oral solution in both the US and the UK. Should this happen,
the Company does not believe it would be able to obtain a license from Novartis
on acceptable terms for either jurisdiction because the Company believes
cyclosporine is an important product for Novartis and that Novartis would not
want to diminish its profits from this product by licensing it on acceptable
terms to the Company. Failure to obtain any such required license could prevent
the Company from selling SangCya oral solution entirely in the US and the UK,
which would have a material adverse effect on the Company's future results of
operations. The litigation, whether or not resolved favorably to the Company,
is likely to be expensive, lengthy and time consuming, will divert management's
attention and could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations. SangCya capsules are
not covered by these lawsuits and the Company does not believe that these
lawsuits will have an impact on the regulatory approval of SangCya capsules in
the US or the UK.
Novartis US also sued the FDA on February 11, 1999 in the United States
District Court for the District of Columbia (case number 1:99CV-00323) alleging
that the FDA did not follow its own regulations in approving SangCya oral
solution in October 1998. The lawsuit alleges that because Neoral oral
solution and SangCya oral solution are based on different formulation
technologies, they should be classified as different dosage forms. Novartis
asks that the court rescind the AB rating that was given to SangCya oral
solution. Loss of the "AB" rating would prevent SangCya oral solution from
being automatically substitutable for Neoral oral solution, which would impede
the markteting of SangCya oral solution. The Company believes that the lawsuit
is without merit and that the FDA will prevail in this matter. Although the
Company is optimistic that this dispute will ultimately be resolved favorably
to the Company, the course of litigation is inherently uncertain and there can
be no assurance of a favorable outcome. Novartis' requested relief, if
granted, could have a significant negative economic impact on SangStat.
SangStat has intervened in this lawsuit in order to protect its interests.
The Company does not believe that these lawsuits will have an impact on the
regulatory approval of SangCya capsules in the US.
On October 18, 1999, Novartis UK was granted leave to seek judicial review of
the decision by the Medicines Control Agency (the UK counterpart to the FDA) to
approve SangCya oral solution (Case No. HC-1969/99). Novartis UK claims that
the marketing authorization for SangCya oral solution should be invalidated
because MCA either relied upon Neoral data or waived in whole or in part the
requirements for data which must be submitted under Article 4.8 of Directive
65/65/EEC (as amended). The MCA has not stated whether or not it relied upon
the Neoral data in approving the SangCya oral solution marketing authorization
or whether it waived any data requirements for SangCya, nor has the MCA stated
whether or not it believes it was entitled to rely upon the Neoral data based
on the recent European Court of Justice decision (C-368/96). The Company
believes that its data was sufficient for approval without reliance upon the
Neoral data but does not know if or to what extent the MCA relied upon the
Neoral data. Should this case proceed, it is likely to end up before the
European Court of Justice and a final resolution would not occur for several
years. Novartis has indicated that they will not seek to have SangCya oral
solution removed from the market pending resolution of this matter. Although
the Company is optimistic that this dispute will ultimately be resolved
favorably to the Company, the course of litigation is inherently uncertain
and there can be no assurance of a favorable outcome. Novartis' requested
relief, if granted, could have a significant negative economic impact
on the Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - Three and Nine Months Ended September 30, 1999 and 1998
SangStat is a specialty pharmaceutical company, applying a disease management
approach to improve the outcome of organ transplantation. The Company has a
total of 12 monitoring and therapeutic product and product candidates to
address the pre-transplant, acute care and chronic phases of transplantation.
During the first nine months of the year, the Company continued the launch of
its two lead products, filed for approval of SangCya capsules in Europe,
conducted clinical studies on these and other products, supported the sales
and marketing teams and continued the expansion of THE TRANSPLANT
PHARMACY (TM).
Total revenues. Net product sales in the third quarter of 1999 grew to
$14,801,000 from $3,028,000 in the same quarter of 1998 and were $39,714,000
for the nine months ended September 30, 1999 as compared to $7,461,000 for the
same period in 1998. Net sales in both the third quarter of 1999 and the first
nine months of 1999 include a reserve for returns of SangCya oral solution of
$959,000, representing negotiated actual and expected returns of short-dated
product from U.S. wholesalers. The increase in revenues for the third quarter
and the nine months ended September 30, 1999 reflect the consolidation of
revenues from IMTIX-SangStat, the sales of SangCya oral solution and
Thymoglobulin in the U.S. and growth of THE TRANSPLANT PHARMACY. Revenue from
collaborative agreements was $550,000 and $364,000 for the nine months ended
September 30, 1999 and 1998.
Cost of sales and manufacturing. Cost of sales and manufacturing expenses were
$7,944,000 in the third quarter of 1999 compared to $2,927,000 in the same
period in 1998 and were $21,287,000 for the first nine months of 1999 compared
to $6,863,000 in the same period in 1998. The increases of $5,017,000 and
$14,424,000 for the three and nine months ended September 30, 1999,
respectively, were substantially due to additional costs associated with
increased sales of therapeutic products, including sales by IMTIX-SangStat, and
THE TRANSPLANT PHARMACY.
Gross margin. Gross margin for the third quarter of 1999 was $6,857,000, or
46.3% of revenues, compared to $101,000, or 3.3% of revenues, for the same
period in 1998. For the nine months ended September 30, 1999, gross margin was
$18,427,000, or 46.4% of revenues, compared to $598,000, or 8.0% of revenues,
for the nine months ended September 30, 1998. The improvement in gross margin
in both dollars and as a percentage of revenues is due to higher product sales
revenues in the United States and the inclusion of sales by IMTIX-SangStat.
The Company has several lots of SangCya oral solution vials with expiration
dates in the second and third quarters of 2000. In addition to ongoing sales to
existing customers, management is actively pursuing several opportunities to
sell this inventory before it reaches expiration and believes that it will be
successful in its endeavors. However, in the event that all of the inventory
can not be sold prior to expiration, future write-offs may be required which
could have an adverse effect on the gross margin reported for that future
period. Management estimates the amount of inventory at risk to be up to
$2,500,000.
Research and development. Research and development expenses in the third
quarter of 1999 were $3,129,000 compared to $4,801,000 in the third quarter of
1998. For the first nine months of 1999, Research and Development expenses
were $10,919,000 compared to $12,110,000 for the corresponding period in 1998.
For both the quarter and year-to-date, the decrease in expenses reflects a
temporary decline in research and clinical development expenses following the
approvals of SangCya and Thymoglobulin in the United States.
Selling, general and administrative. Selling, general and administrative
expenses were $10,444,000 in the third quarter of 1999 compared to $6,478,000
in the same period of 1998. For the first nine months of 1999, expenses were
$31,564,000 compared to $17,273,000 for the first nine months of 1998.For both
periods,the increase in selling, general and administrative expenses primarily
reflects the consolidation of IMTIX-SangStat expenses, the Company's build-up
of its commercial infrastructure, continued launch activities in the U.S. for
SangCya oral solution and Thymoglobulin, pre-launch activities for SangCya oral
solution in Europe, and support for the growing number of patients in THE
TRANSPLANT PHARMACY.
Other income (expense) - net. Other income (expense) - net was an expense of
$576,000 in the third quarter of 1999 compared to income of $804,000 for the
corresponding period in 1998. For the first nine months of 1999, other income
(expense) - net was an expense of $943,000 compared to income of $2,787,000 in
the first nine months of 1998. For both the third quarter and year-to-date,
the decrease reflects a decrease in interest income due to the reduction in the
average cash balance available for investment as a result of the Company's use
of cash for operating activities and the increase in interest expense due to
the notes payable obtained by the Company.
Income taxes. For the nine months ended September 30, 1999, the Company
recorded a tax provision of $20,000 based upon the financial results of
its overseas operations. A tax provision was not required for the
comparable period in 1998.
Net loss. The Company's net loss decreased to $7,753,000 or $0.45 per share in
the third quarter of 1999, compared with a net loss of $13,593,000 or $0.84 per
share in the same period in 1998. For the nine months ended September 30, 1999,
the loss was $26,059,000 or $1.56 per share compared with a loss of $29,217,000
or $1.82 per share for the same period in 1998. The decrease in the loss per
share for both the third quarter of 1999 and the year-to-date is primarily the
result of higher therapeutic product revenues in the U.S.
Liquidity and Capital Resources
During the first nine months of 1999 and 1998, the net cash used in operating
activities was approximately $33,187,000 and $27,961,000, respectively. The
increase in net cash used in operating activities in the first nine months of
1999 is due substantially to the increased purchase of inventory and
reduction of accounts payable, partially offset by an increase in
deferred revenue. As of September 30, 1999, the Company had cash, cash
equivalents and short-term investments of $34,351,000 and total
assets of $124,672,000.
Net cash provided by investing activities for the nine months ended September
30, 1999 was $7,457,000 as compared to $4,079,000 for the comparable period in
1998. The amount in 1999 is primarily the result of the maturity of short-term
investments, partially offset by purchases of property and equipment. In 1998,
cash provided by maturing short-term investments was partially used in the
acquisition of Imtix-SangStat.
Net cash provided by financing activities for the nine months ended September
30, 1999 was $39,432,000 as compared to net cash used of $174,000 for the same
period in 1998. The increase is due to an increase in notes payable and the
issuance of common stock. In March 1999, the Company issued a $10 million
convertible note due March 30, 2004. This note bears interest at the rate of
6.5% through March 30, 2004 and thereafter at the rate of 8.5% on any overdue
amount. The interest is payable semi-annually in September and March. The
note, or any portion thereof, is convertible at the option of the holder at
any time on or after March 31, 2000 and before March 30, 2004 into shares of
common stock of the Company at the rate of 50.0773 shares of common stock for
each $1,000 principal amount. The net proceeds received by the Company were
$9,550,000. The note will be accreted to its face amount over the
five-year term.
In May 1999, the Company and Abbott Laboratories ("Abbott") signed a
multi-year co-promotion, distribution and research agreement for SangCya and
cyclosporine capsules in the United States. Pursuant to this agreement, Abbott
made an equity investment of $14 million in exchange for approximately 894,000
shares of common stock. In addition, Abbott made a series of up-front and
milestone payments totalling $13 million and a long-term loan of $16 million
to the Company. In November 1999, Abbott made a further milestone
payment of $0.9 million. All up-front and milestone payments received and the
premium received on the sale of common stock to Abbott are recorded as deferred
revenue and recognized ratably over the term of the agreement.
The loan bears interest at 8.75%, payable annually, and is secured by
a security interest in the United States marketing rights for SangCya.
The loan matures on December 31, 2004, and can be prepaid by the
Company without penalty at any time prior to maturity.
In the opinion of management, the Company has sufficient funds to continue
operations for at least the next twelve months.
Year 2000 Issue
The ability of the Company's computer systems and equipment to address the Year
2000 issue, as well as those of its key suppliers and customers, represents a
potential risk for the Company. The Company has completed a risk assessment
covering three major areas: information technology systems, hardware, equipment
and instrumentation, and third party relationships. A special task force was
established by the Company to develop an action plan to address Year 2000
compliance. The current status of our Year 2000 compliance efforts in these
three areas is set forth below:
Information technology systems. All of the Company's key business
information systems have now been made Year 2000 compliant. Since the Company
utilizes purchased software packages for all critical business systems, the
major task was to obtain, install and test the Year 2000 compliant versions of
the various software packages. The Company has now completed this process for
all of its key business systems, and believes that it is fully Year 2000
compliant in this area.
Hardware, equipment and instrumentation. The Company has identified all
items of hardware, equipment and instrumentation that might be affected by
the Year 2000 issue and has developed a comprehensive program to ensure
compliance. As part of this program, the Company retained a consultant to
assist in the upgrade of its hardware and equipment. The Company has completed
and tested Year 2000 compliance on 100% of the hardware and equipment that was
was identified and believes that it is compliant in this area.
Third Party Relationships. This program focuses on minimizing the risks
associated with Year 2000 compliance in the following areas: (i) the ability of
our key suppliers to continue providing products and services on a timely basis
in the year 2000, (ii) the year 2000 compliance of products supplied to us and
(iii) the ability of our key customers to order, receive and pay for products
that we sell to them. We have sent out requests for information and
certification of Year 2000 compliance and have received responses from our key
suppliers and customers and do not anticipate any significant issues with them.
The total out-of-pocket costs of our Year 2000 compliance program have been
less than $100,000 as of September 30, 1999 and the Company currently estimates
that total costs will not exceed that amount. Most of the costs incurred
have been on hardware upgrades and outside consultants.
Although the Company does not presently anticipate any significant issues with
regards to Year 2000 compliance, there is a risk that Year 2000 errors or
defects will not be discovered in the Company's internal information technology
systems. The Company may also be at risk if its suppliers and customers fail to
adequately address their exposures to the year 2000 issues. Such failure could
limit the ability of the Company to manufacture and sell products or otherwise
conduct its business. Where practicable, the Company will attempt to minimize
the risks associated with such third parties being non-compliant. Plans to do
this include, among other things, stocking additional finished goods inventory
and monitoring our distribution channel inventories. With regard to the
Company's Year 2000 compliance plan, there can be no assurance that (i) the
Company will be able to identify all Year 2000 compliance issues affecting its
internal systems and equipment, and its key suppliers and customers, (ii) the
Company's key vendors and customers will be correct in their assertions
that they are Year 2000 compliant, (iii) the Company's estimate of the cost to
achieve Year 2000 compliance will ultimately prove to be accurate or (iv) the
Company will be able to remedy such errors or defects in a timely manner.
Should any of these situations occur, there would be a material adverse
effect on the Company's business, results of operations and financial condition.
Euro-Currency
The Single European Currency (Euro) was introduced on January 1, 1999
with complete transition to this new currency required by January 2002.
The Company is currently assessing the issues raised by the introduction
of the Euro. The Company has made and expects to continue to make changes to
its internal systems in preparation for the transition to the Euro.
The Company further expects that use of the Euro may affect the Company's
foreign exchange activities and may result in increased fluctuations in
foreign currency results. Any delays in the Company's ability to be
Euro-compliant could have an adverse impact on the Company's results
of operations or financial position.
RISK FACTORS
History of Operating Losses; Future Profitability Uncertain. SangStat was
incorporated in 1988 and has experienced significant operating losses since
that date. As of September 30, 1999, the Company's accumulated deficit was
$126,329,000. The Company's operating expenses have increased from
approximately $17.3 million to $31.0 million to $60.9 million over the last
three fiscal years, and were $64.8 million in the first nine months of 1999.
Total revenues increased from approximately $2.4 million to $4.5 million to
$19.7 million while losses from operations increased from approximately $14.9
million to $26.5 million to $41.3 million over the last three fiscal years.
For the first nine months of 1999, total revenues were $39,714,000 and the
loss from operations was $25,096,000. There can be no assurance that the
Company will ever achieve significant revenues from product sales or profitable
operations. To date, the Company's product revenues have been substantially
dependent on sales of certain organ transplantation products, including a
limited number of monitoring products, international sales of Thymoglobulin
and Lymphoglobuline, and limited initial sales in North America of
Thymoglobulin and SangCya Oral Solution.
Future Growth Dependent on Sales of Key Products. The Company expects to
derive a majority of its future revenues from sales of SangCya oral solution,
cyclosporine capsules (to be co-promoted with Abbott Laboratories in the United
States under a trademark to be determined, and sold as SangCya capsules outside
the United States), and Thymoglobulin. SangCya oral solution and Thymoglobulin
were launched in the United States in November 1998 and February 1999,
respectively. SangCya oral solution was launched in the United Kingdom in April
1999. On March 31, 1999, the Company filed in the United Kingdom (UK) for
marketing authorization for SangStat's SangCya capsules for prevention of
rejection in solid organ transplant recipients. The Company will be
marketing cyclosporine capsules in the United States under its co-promotion
agreement with Abbott Laboratories. There can be no assurance that Abbott will
perform satisfactorily and any such failure may delay regulatory approval,
product launch, impair the Company's ability to deliver products on a timely
basis, or otherwise impair the Company's competitive position, which would have
a material adverse effect on the Company's business, financial condition, cash
flows and results of operations. Accordingly, any factor adversely affecting
the regulatory approval or sale of these key products, individually or
collectively, would have a material adverse effect on the Company's business,
financial condition and results of operations. Sales of these key products
could be adversely affected by competitive changes, regulatory matters,
manufacturing or supply interruptions, number of contracts with managed care
providers and group purchasing organization, factors affecting production,
marketing or pricing actions, changes in the prescribing practices of transplant
physicians, reimbursement practices of third party payors, product liability
claims or other factors. In particular, with respect to SangCya oral solution
and cyclosporine capsules, sales may be affected by perceptions of both patients
and physicians regarding use of a generic version of a critical, life-saving
therapeutic, the availability and acceptance of the CycloTech device to be used
in connection with SangCya oral solution, other generic competitors, and intense
competitive pressure from Novartis as well as the Novartis litigation. Failure
of sales to meet forecasts may also cause excessive inventory build-up, which,
if not sold prior to lot expiration, may be required to be taken as a charge
against earnings. See "-Litigation with Novartis," "-Uncertainty of Market
Acceptance;" '"-Inventory", "-Substantial Competition," and "-Dependence on
Collaborative Relationships."
Litigation with Novartis. On February 11, 1999, Novartis Pharmaceuticals
Corporation ("Novartis US") filed a lawsuit (case number 99-065) in Federal
District Court for the District of Delaware against the Company alleging
infringement of United States patent #5,389,382, a cyclosporine technology
patented by Novartis A.G. (the "US Patent"). The Novartis A.G. patent does not
cover Neoral but rather a separate delivery system not used in the Neoral
formulation. Novartis US seeks the following relief: (i) a finding that
SangStat willfully infringed the patent; (ii) to permanently enjoin SangStat
from infringing the US Patent; (iii) treble damages; and (iv) reasonable
attorneys' fees, costs and expenses. On April 15, 1999, SangStat filed its
answer in this case and also filed a counterclaim against Novartis alleging
that Novartis violated the anti-trust laws by engaging in a series of anti-
competitive acts designed and intended to exclude SangStat from the market.
Novartis has filed a motion to bifurcate the anti-trust counterclaim; the Court
has not yet ruled on this motion. The trial date has been set for October 23,
2000 and discovery has commenced.
On July 9, 1999, Novartis AG and Novartis Pharmaceuticals UK Limited
("Novartis UK") filed an action against Imtix-SangStat (UK) Limited; SangStat
UK, Limited, and SangStat Medical Corporation (collectively, the "UK
Defendants") in the High Court of Justice, Chancery Division, Patents Court,
London (HC-1999-02988) alleging infringement of United Kingdom Patent No 2 200
048 (the "UK Patent"), the counterpart to the US Patent. The lawsuit mirrors
the US patent infringement lawsuit. Novartis AG and Novartis UK seek the
following relief: (i) an injunction to restrain the UK Defendants from
infringing the UK Patent; (ii) the delivery up or destruction of all material
that would infringe such injunction; (iii) damages; (iv) a declaration that the
UK Patent is valid and has been infringed by the UK Defendants; and (v) costs.
No trial date has been set at this time and the Company anticipates that the
earliest trial date will be in the first half of 2001.
Although the Company is optimistic that these patent disputes will ultimately
be resolved favorably to the Company, the course of litigation is inherently
uncertain and there can be no assurance of a favorable outcome. As a result of
the Novartis suits, SangStat could be enjoined from selling SangCya oral
solution for a significant period of time or ultimately be prevented from
selling SangCya oral solution in both the US and the UK. Should this happen,
the Company does not believe it would be able to obtain a license from Novartis
on acceptable terms for either jurisdiction because the Company believes
cyclosporine is an important product for Novartis and that Novartis would not
want to diminish its profits from this product by licensing it on acceptable
terms to the Company. Failure to obtain any such required license could prevent
the Company from selling SangCya oral solution entirely in the US and the UK,
which would have a material adverse effect on the Company's future results of
operations. The litigation, whether or not resolved favorably to the Company,
is likely to be expensive, lengthy and time consuming, will divert management's
attention and could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations. SangCya capsules are
not covered by these lawsuits and the Company does not believe that these
lawsuits will have an impact on the regulatory approval of SangCya capsules in
the US or the UK.
Novartis US also sued the FDA on February 11, 1999 in the United States
District Court for the District of Columbia (case number 1:99CV-00323) alleging
that the FDA did not follow its own regulations in approving SangCya oral
solution in October 1998. The lawsuit alleges that because Neoral oral
solution and SangCya oral solution are based on different formulation
technologies, they should be classified as different dosage forms. Novartis
asks that the court rescind the AB rating that was given to SangCya oral
solution. Loss of the "AB" rating would prevent SangCya oral solution from
being automatically substitutable for Neoral oral solution, which would impede
the marketing of SangCya oral solution. The Company believes that the lawsuit
is without merit and that the FDA will prevail in this matter. Although the
Company is optimistic that this dispute will ultimately be resolved favorably
to the Company, the course of litigation is inherently uncertain and there can
be no assurance of a favorable outcome. Novartis' requested relief, if granted,
could have a significant negative economic impact on SangStat. SangStat has
intervened in this lawsuit in order to protect its interests. The Company does
not believe that these lawsuits will have an impact on the regulatory approval
of SangCya capsules in the US.
On October 18, 1999, Novartis UK was granted leave to seek judicial review of
the decision by the Medicines Control Agency (the UK counterpart to the FDA) to
approve SangCya oral solution (Case No. HC-1969/99). Novartis UK claims that
the marketing authorization for SangCya oral solution should be invalidated
because MCA either relied upon Neoral data or waived in whole or in part the
requirements for data which must be submitted under Article 4.8 of Directive
65/65/EEC (as amended). The MCA has not stated whether or not it relied upon
the Neoral data in approving the SangCya oral solution marketing authorization
or whether it waived any data requirements for SangCya, nor has the MCA stated
whether or not it believes it was entitled to rely upon the Neoral data based
on the recent European Court of Justice decision (C-368/96). The Company
believes that its data was sufficient for approval without reliance upon the
Neoral data but does not know if or to what extent the MCA relied upon the
Neoral data. Should this case proceed, it is likely to end up before the
European Court of Justice and a final resolution would not occur for several
years. Novartis has indicated that they will not seek to have SangCya oral
solution removed from the market pending resolution of this matter. Although
the Company is optimistic that this dispute will ultimately be resolved
favorably to the Company, the course of litigation is inherently uncertain
and there can be no assurance of a favorable outcome. Novartis' requested
relief, if granted, could have a significant negative impact on the
Company.
Fluctuations in Operating Results. The Company's operating losses have
increased each year since inception and losses may be expected to continue in
the near future as a result of a number of factors including the uncertainty in
the timing and the amount of revenue earned upon product sales and achievement
of research and development milestones, funding under collaborative research
agreements and expenses required for product development, clinical trials and
marketing and sales activities. The Company's operating results may fluctuate
significantly depending on other factors, including the introduction of new
products by the Company's competition, regulatory actions, market acceptance of
the Company's products, adoption of new technologies, manufacturing
capabilities, cost of litigation and third-party reimbursement policies.
Inventory. Due to the inherent uncertainty of the timing of the SangCya oral
solution approval and the concern over having insufficient inventory for the
launch of SangCya oral solution, the Company manufactured launch quantities of
SangCya oral solution well in advance of the approval date. As a result, the
Company has several lots of SangCya oral solution inventory that will be
expiring during the second and third quarters of 2000. While demand for SangCya
oral solution is growing and the Company believes it will be able to sell this
inventory to new and existing customers, it is possible that all of this
inventory will not be sold prior to lot expiration. In this event, future
write-offs may be required which could have an adverse effect on the gross
margin reported for that future period.
No Assurance of Successful Product Development. To achieve profitable
operations, the Company, alone or with others, must successfully develop,
obtain regulatory approval for, manufacture, introduce and market its products
and product candidates. There can be no assurance that the Company's product
development efforts will be successfully completed, that required regulatory
approvals will be obtained, or that any products if developed and introduced
will be successfully marketed. The Company's product candidates will require
extensive development, testing and investment, as well as regulatory approval
prior to commercialization. Cost overruns due to unanticipated regulatory
delays or demands, unexpected adverse side effects or insufficient therapeutic
efficacy would prevent or substantially slow down the development effort and
ultimately would have a material adverse effect on the Company. Furthermore,
there can be no assurance that the Company's research and development efforts
will be successful and that any given product will be approved by appropriate
regulatory authorities or that any product candidate under development will be
safe, effective or capable of being manufactured in commercial quantities at an
economical cost, will not infringe the proprietary rights of others or will
achieve market acceptance.
Risks Associated With the Manufacture of SangCya oral solution and capsules,
and Thymoglobulin. Cyclosporine is particularly difficult to manufacture and
there can be no assurance that SangCya oral solution or capsules can be
manufactured in commercial quantities at an economical cost. The Company has
contracted for commercial scale production of cyclosporine bulk material (i.e.
the active ingredient of cyclosporine) for SangCya oral solution and capsules
from Gensia Sicor and Abbott Laboratories. Gensia has been qualified as a
supplier of cyclosporine bulk material in the SangCya oral solution ANDA.
SangStat has filed a supplemental application to its SangCya oral solution ANDA
to qualify Abbott as an alternative cyclosporine raw material supplier. This
supplemental application has not yet been approved. The Company has also
separately subcontracted the manufacture of SangCya oral solution and capsules
with Eli Lilly. There can be no assurance that such third parties will perform
satisfactorily and any such failure may delay regulatory approval, product
launch, impair the Company's ability to deliver products on a timely basis, or
otherwise impair the Company's competitive position, which would have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations.
Thymoglobulin is also difficult to manufacture and there can be no assurance
that SangStat will be able to manufacture commercial quantities at an
economical cost. The Company acquired the IMTIX division of PMC in 1998,
including certain manufacturing capabilities with respect to Thymoglobulin.
From time to time, prior to the acquisition, certain batches of Thymoglobulin
did not meet manufacturing specifications, resulting in a shortage of
Thymoglobulin product for commercial sale. Since the acquisition, all batches
of Thymoglobulin have met manufacturing specifications. Even after the
acquisiton, the Company relies on PMC for certain important manufacturing
services, including, but not limited to, quality assurance and quality control,
as well as lyophilization. There can be no assurance that PMC will continue
to provide these critical manufacturing services to the Company in an effective
manner or without interruption. There can be no assurance that the Company
will not experience manufacturing difficulties with respect to Thymoglobulin
in the future which may impair the Company's ability to deliver products on
a timely basis, or otherwise impair the Company's competitive position, which
would have a material adverse effect on the Company's business, financial
condition, cash flows, and results of operations.
Uncertainty of Market Acceptance. Whether or not regulatory approvals are
obtained, uncertainty exists as to whether the Company's products will be
accepted by the market. In particular, there can be no assurance that the
Company's products and product candidates would obtain significant market
share. Factors that may affect the willingness of patients, physicians,
pharmacists and third-party payors to convert to SangStat products, if approved,
include price, perception of bioequivalence, perceived clinical benefits and
risks, ease of use, other product features and brand loyalty. In addition, other
factors may limit the market acceptance of products developed by the Company,
including the timing of regulatory approval and market entry relative to
competitive products, the availability of alternative therapies, the price of
the Company's products relative to alternative therapies, the availability of
third-party reimbursement and the extent of marketing efforts by the Company or
third-party distributors or agents retained by the Company. There can be no
assurance that patients, physicians, pharmacists, or third-party payors will
accept the Company's products. In particular, with respect to SangCya oral
solutions and capsules (if product approval is obtained), there can be no
assurance that the Company will be successful in taking significant market
share away from Novartis.
Volatility of Common Stock Price. The market prices for securities of
pharmaceutical and biotechnology companies, including the Company, are highly
volatile. The market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. Factors such as fluctuations in the Company's operating
results, announcements of new therapeutic products by the Company or its
competitors, announcements regarding collaborative agreements, governmental
regulation, clinical trial results, developments in patent or other proprietary
rights, litigation, public concern as to the safety of drugs developed by the
Company or others, comments made by securities analysts and general market
conditions may have a significant effect on the market price of the Company's
Common Stock. In particular, the realization of any of the risks described on
this 10-Q could have a significant and adverse impact on the market price.
Ability to Manage Growth. The Company continues to experience a period of
expansion of its operations that places a strain upon its management system
and resources. The Company's ability to compete effectively and to manage
future growth, if any, will require the Company to continue to improve its
financial and management controls, reporting systems and procedures on a
timely basis and expand, train and manage an increasing number of employees.
The Company's failure to do so would have a material adverse effect on the
Company's business, financial condition and results of operations.
Uncertainty Regarding Patents and Proprietary Rights. The Company's success
depends in part on its ability to obtain and enforce patent protection for its
products and to preserve its trade secrets. The Company holds patents and
pending patent applications in the United States and abroad. Some of the
Company's patents involve specific claims and thus do not provide broad
coverage. There can be no assurance that the Company's patent applications
or any claims of these patent applications will be allowed, or found to be
valid or enforceable, that any patents or any claims of these patents will
provide the Company with competitive advantages for its products or that such
issued patents and any patents issued under pending patent applications will
not be successfully challenged or circumvented by the Company's competitors.
The Company has not conducted extensive patent and prior art searches with
respect to many of its product candidates and technologies, and there can be no
assurance that third-party patents or patent applications do not exist or could
not be filed in the United States, Europe or other countries which would have
an adverse effect on the Company's ability to market its products. There can be
no assurance that any claims in the Company's patent applications would be
allowed or found to be valid or enforceable, or that any of the Company's
products would not infringe on others' patents or proprietary rights in the
United States or abroad. The Company also has patent licenses from third
parties for which there can also be no assurance that, other than the patent
applications that have issued, any of the claims of such patent applications
will be allowed, or found to be valid or enforceable and as to any of the
issued patents, that the claims will be found to be valid or enforceable.
There can be no assurance that SangStat can manufacture, or have
manufactured, formulate or commercialize SangCya oral solution and capsules
without infringing patent or other proprietary rights of Novartis or other
third parties. The Company has been sued by Novartis for patent infringement.
See "--Litigation with Novartis."
Patent applications in the United States are maintained in secrecy until
patents issue. Since publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries by several months, SangStat
cannot be certain that it was the first to discover compositions covered by its
pending patent applications or the first to file patent applications on such
compositions. There can be no assurance that the Company's pending patent
applications will result in issued patents or that any of its issued patents
will afford protection against a competitor.
The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its employees and
consultants. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or independently
developed by competitors. The Company has registered or applied for
registration of the names of most of its products under development or
commercialized for research and development use. However, there can be no
assurance that any trademark registration will be granted or not challenged
by competitors.
Substantial Competition. The drugs being developed by the Company compete with
existing and new drugs being created by pharmaceutical, biopharmaceutical,
biotechnology and diagnostics companies and universities. Many of these
entities have significantly greater research and development capabilities, as
well as substantial marketing, manufacturing, financial and managerial resources
and represent significant competition for the Company. The principal factors
upon which the Company's products compete are product utility, therapeutic
benefits, ease of use, effectiveness marketing, distribution and price. With
respect to Thymoglobulin, SangCya oral solution, cyclosporine capsules, the
Company will be competing against large companies that have significantly
greater financial resources and established marketing and distribution channels
for competing products. For example, Novartis currently controls virtually 100%
of the worldwide cyclosporine markets and has significantly greater resources
than the Company. There can be no assurance that the Company will be able to
compete successfully against Novartis. To date, the Company has a limited
number of contracts with managed care providers and group purchasing
organizations. The Company's future sales will be dependent on the Company's
ability to enter into contracts with these entities. The drug industry is
characterized by intense price competition and the Company anticipates that it
will face this and other forms of competition. There can be no assurance that
developments by others will not render the Company's products or technologies
obsolete or noncompetitive or that the Company will be able to keep pace with
technological developments. Many of the competitors have developed or are in
the process of developing technologies that are, or in the future may be, the
basis for competitive products. Some of these products may have an entirely
different approach or means of accomplishing the desired therapeutic effect than
products being developed by the Company and may be more effective and less
costly. In addition, many of these competitors have significantly greater
experience than the Company in undertaking preclinical testing and human
clinical trials of pharmaceutical products and obtaining regulatory approvals
of such products. Accordingly, the Company's competitors may succeed in
commercializing products more rapidly than the Company. For example, the
Company believes that the degree of market penetration of a cyclosporine
capsule is dependent in part on whether the Company is the first company to
market a bioequivalent formulation of cyclosporine. The Company believes that
other companies may be developing cyclosporine formulations that may be
marketed as generic equivalents. Were these competitors to develop their
products more rapidly and complete the regulatory process sooner, it could
have a material adverse effect on the Company's business, financial condition,
cash flows and results of operations.
Treatments for the problems associated with transplantation that the
Company's products seek to address are currently available. For example,
Sandimmune and Neoral, marketed by Novartis, Prograf marketed by Fujisawa
Pharmaceutical Co. Ltd, CellCept, marketed by Roche Ltd., Rapamune marketed by
American Home Products, and Imuran, marketed by Glaxo Wellcome Ltd. compete
with SangCya oral solution and capsules. Orthoclone OKT3, marketed by Johnson
& Johnson and ATGAM, marketed by Pharmacia & Upjohn Inc., Simulect, marketed by
Novartis, and Zenapax, marketed by Roche Ltd., compete with Thymoglobulin. All
of such products are commercially available for use as immunosuppressive drugs
and are widely prescribed. In addition, One Lambda Inc., Pel Freez, Biotest
Diagnostics Corp., and Genetic Therapy, Inc. market products for pre-transplant
HLA monitoring and Abbott Laboratories markets a cyclosporine level post-
transplant monitoring device, all of which are widely used. Additional
therapeutics and monitoring products are available or are under development by
these and other parties including, but not limited to: Bristol Myers Squibb
(CTLA4), and DuPont Merck (ViaSpan), and other companies including, but not
limited to MedImmune Inc., Eon, BioTransplant, Inc., and Ivax Corp. All of the
aforementioned competitive and other drugs are commercially available for use
as immunosuppressive drugs and are widely prescribed. To the extent these
therapeutics or monitoring products address the problems associated with
transplantation on which the Company has focused, they may represent
signficant competition.
Limited Manufacturing Capability. In 1998, the Company leased a
manufacturing facility in Lyon, France as part of the IMTIX transaction for the
manufacture of Thymoglobulin. The Company's wholly-owned subsidiary, IMTIX-
SangStat, manufactures Thymoglobulin. There can be no assurance that IMTIX-
SangStat will continue to meet FDA standards governing Good Manufacturing
Practices ("GMP"). The Company currently relies on PMC to perform certain
services for the Company in the manufacturing process. See "--Risks Related to
the Manufacture of SangCya oral solution and capsules, and Thymoglobulin."
The Company lacks facilities to manufacture any of its other drugs or drug
candidates in accordance with current GMP prescribed by the FDA. The Company
generally relies on third parties to manufacture compounds other than
Thymoglobulin and devices for commercial sales and clinical trials. There can
be no assurance that manufacturers will meet FDA standards governing GMP or
other regulatory guidelines, that any Biologics License Applications ("BLA")
required for manufacturing will be filed, reviewed and approved, or that any
third-party manufacturer will pass a pre-approval inspection. The Company has
contracted for commercial scale production of cyclosporine bulk material for
SangCya oral solution and capsules with Gensia Sicor and Abbott Laboratories.
In addition, the Company has contracted for the production of its finished
formulated SangCya oral solution and capsules with Eli Lilly and Company.
There can be no assurance that the Company will be able to enter into secondary
commercial scale manufacturing contracts or that any other third-party
arrangements can be established on a timely or commercially reasonable basis,
or at all. The Company will depend on all such third parties to perform their
olbigations effectively and on a timely basis. There can be no assurance that
such parties will perform and any failures by third parties may delay clinical
development or submission of products for regulatory approval, or otherwise
impair the Company's competitive position which could have a material adverse
efffect on the Company's business, financial condition, cash flows and results
of operations. In addition, the manufacturing of drug candidates involves a
number of technical steps and requires meeting stringent quality control
specifications imposed by government regulatory bodies and by the Company
itself. Additionally, such products can only be manufactured in facilities
approved by the applicable regulatory authorities. Because of these and other
factors, the Company may not be able to replace its manufacturing capacity
quickly or efficiently in the event that its manufacturers are unable to
manufacture thier products at one or more of their facilities. For certain of
its potential products, the Company will need to develop its production
technologies further for use on a larger scale in order to conduct human
clinical trials and produce such products for commercial scale at an
acceptable cost.
The Transplant Pharmacy. Establishing THE TRANSPLANT PHARMACY as a viable
distribution system entails a number of risks including the Company's ability
to enter into agreements with transplant centers to utilize THE TRANSPLANT
PHARMACY's services, compliance with state regulations regarding pharmacy
licensing and compliance with federal and state laws regulating payments for
referrals for health care services. On November 11, 1998, the Office of the
Inspector General ("OIG") of the Department of Health & Human Services issued
an Advisory Opinion which stated that the placement by a pharmacy of a licensed
pharmacist at a hospital transplant center might constitute prohibited
remuneration under the anti-kickback statute section 1128B9B) of the Social
Security Act. The Company did not request the Advisory Opinion and the
Advisory Opinion only applies to the requesting party. The Company believes
that the operation of The Transplant Pharmacy differs from the fact pattern set
out in the Advisory Opinion and does not constitute prohibited remuneration.
There can be no assurance that the OIG will agree with this analysis, in which
case the Transplant Pharmacy's program may be modified so that it would no
longer include an on-site pharmacist at transplant centers. There can be no
assurance that the Company will be successful in establishing THE TRANSPLANT
PHARMACY as a viable distribution method for the Company's products
and services.
No Assurance of Regulatory Approvals; Government Regulation. The Company's
research, preclinical development, clinical trials, manufacturing, marketing
and distribution of its products in the United States and other countries are
subject to extensive regulation by numerous governmental authorities including,
but not limited to, the FDA. In order to obtain regulatory approval of a drug
product, the Company must demonstrate to the satisfaction of the applicable
regulatory agency, among other things, that such product is safe and effective
for its intended uses and that the manufacturing facilities are in compliance
with GMP requirements. The Company must also demonstrate the approvability of a
BLA for its biological products. The approval of the Company's generic product
candidates is dependent on demonstrating bioequivalence with reference products
in addition to assurance of compliance with GMP regulations. In order to
market its monitoring products, which are considered to be medical devices, the
Company or its licensees will be required either to receive 510(k) marketing
clearance or Premarket Approval Application ("PMA") approvals from the FDA for
such products among other regulatory requirements. To obtain a 510(k) marketing
clearance, the Company must show that a monitoring product is "substantially
equivalent" to a legally marketed product not requiring FDA approval. In
addition, the Company must demonstrate that it is capable of manufacturing the
product to the relevant standards. To obtain PMA approval, the Company must
submit extensive data, including pre-clinical and clinical trial data to prove
the safety and efficacy of the device. Additionally, the Company is currently
distributing several monitoring products for research or investigational use.
Although the Company believes it is complying with FDA regulations regarding
such distribution, there can be no assurance that the FDA will not determine
that the Company is violating FDA regulations with respect to the distribution
of these products. The process of obtaining FDA and other required regulatory
approvals is lengthy and will require the expenditure of substantial resources,
and there can be no assurance that the Company will be able to obtain the
necessary approvals. Moreover, if and when such approval is obtained, the
marketing, distribution and manufacture of the Company's products would remain
subject to extensive regulatory requirements administered by the FDA and
other regulatory bodies. Failure to comply with applicable regulatory
requirements can result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, refusal of the government to grant pre-market
clearance or pre-market approval, withdrawal of approvals and criminal
prosecution of the Company and employees. Additionally, the Company intends to
pursue commercialzation of its products in European countries. Both the
Company's pre-transplant and post-transplant monitoring products should be
subject to regulation as in vitro medical devices for which regulations are
being presently formulated under harmonized European Directives. This new
Directive is likely to impose additional requirements on the pre-transplant
donor/recipient matching products and the post-transplant monitoring products.
This legislation may include, among other things, requirements with respect
to the design, safety and performance of the products as well as impose
premarket approval procedures such as product type certification and
quality systems certification of manufacturing. The Company's therpeutic
products are subject to foreign regulatory requirements governing
the conduct of clinical trials, product licensing, pricing and
reimbursement, which vary from country to country. The process of obtaining
foreign regulatory approvals can be lengthy and require the expenditure of
substantial resources, and there can be no assurance that the Company will be
able to obtain the necessary approvals or the approvals for the proposed
indications.
Dependence on Collaborative Relationships. The Company has entered into a
multi-year co-promotion, distribution and research agreement for SangCya oral
solution and cyclosporine capsules in the United States with Abbott
Laboratories. The Company is dependent upon Abbott Laboratories for certain
regulatory, manufacturing, marketing, development and sales activities under
the agreement. There can be no assurance that Abbott will perform
satisfactorily and any such failure may delay regulatory approval, product
launch, impair the Company's ability to deliver products on a timely basis,
or otherwise impair the Company's competitive position, which would have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations. In addition, the Company may enter into
collaborative relationships with corporate and other partners to develop and
commercialize certain of its potential products. There can be no assurance that
the Company will be able to negotiate acceptable collaborative arrangements in
the future, that such collaborations will be available to the Company on
acceptable terms or that any such relationships, if established, will be
scientifically or commercially successful.
Dependence upon Key Personnel. The Company's ability to develop its business
depends in part upon its attracting and retaining qualified management and
scientific personnel. As the number of qualified personnel is limited,
competition for such personnel is intense. There can be no assurance that the
Company will be able to continue to attract or retain such people. The loss of
key personnel or the failure to recruit additional key personnel could
significantly impede attainment of the Company's objectives and have a material
adverse effect on the Company's financial condition and results of operations.
The Company's planned activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel, in areas such as research, product development,
preclinical testing, clinical trial management, regulatory affairs, finance,
manufacturing, pharmacy affairs and marketing and sales. The inability to
acquire such services or to develop such expertise could have a material
adverse effect on the Company's business, financial condition and results
of operations.
Uncertainty of Pharmaceutical Pricing and Reimbursement. The Company's
ability to commercialize its products may depend in part on the extent to which
reimbursement for the cost of such products and related treatment will be
available from government health administration authorities, private health
coverage insurers and other organizations. Significant uncertainty exists as to
the pricing, availability of distribution channels and reimbursement status of
newly approved healthcare products and there can be no assurance that adequate
third party coverage will be available for the Company to maintain price
levels sufficient for realization of an appropriate return on its investment in
product development. In certain foreign markets, pricing or profitability of
healthcare products is subject to government control. In the United States,
there have been, and the Company expects that there will continue to be, a
number of federal and state proposals to implement similar governmental
control. In addition, an increasing emphasis on managed care in the United
States has and will continue to increase the pressure on pharmaceutical pricing.
While the Company cannot predict whether any such legislative or regulatory
proposals will be adopted or the effect such proposals or managed care efforts
may have on its business, the announcement of such proposals or efforts could
have a material adverse effect on the Company's ability to raise capital, and
the adoption of such proposals or efforts could have a material adverse effect
on the Company's business, financial condition and results of operations.
Further, to the extent that such proposals or efforts have a material adverse
effect on other pharmaceutical companies that are prospective corporate
partners for the Company, the Company's ability to establish corporate
collaborations may be adversely affected. In addition, third-party payors are
increasingly challenging the prices charged for medical products and services.
If the Company succeeds in bringing one or more products to the market, there
can be no assurance that these products will be considered cost effective or
that reimbursement to the consumer will be available or will be sufficient to
allow the Company to sell its products on a competitive basis.
Product Liability Exposure; Limited Insurance Coverage. The Company faces an
inherent business risk of exposure to product liability claims in the event
that the use of products manufactured by the Company results in adverse effects
during research, clinical development or commercial use and there can be no
assurance that the Company will avoid significant product liability exposure.
The Company's product liability insurance coverage is currently limited to
$10,000,000 which may not be adequate insurance coverage to cover potential
liability exposures. Moreover, there can be no assurance adequate insurance
coverage will be available at acceptable cost, if at all, or that a product
liability claim would not materially adversely affect the business, financial
condition, cash flows and results of operations of the Company.
Hazardous Materials. In connection with its research and development
activities and operations, the Company is subject to federal, state and local
laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal
of certain materials, biological specimens and wastes. There can be no
assurance that the Company will not incur significant costs to comply with
environmental and health and safety regulations. The Company's research and
development involves the controlled use of hazardous materials, including but
not limited to certain hazardous chemicals and infectious biological specimens.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
exceed the resources of the Company.
Effect of Certain Provisions: Anti-takeover Effects of Certificate of
Incorporation, Bylaws, Stockholder Rights Plan and Delaware Law. Certain
provisions of the Company's Certificate of Incorporation and Bylaws could delay
or make more difficult a merger, tender offer or proxy contest involving the
Company, which could adversely affect the market price of the Company's Common
Stock. The Company's Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Further, the Company has adopted a stockholder rights
plan. The plan allows for the issuance of a dividend to stockholders of rights
to acquire shares of the Company or, under certain circumstances, an acquiring
corporation, at less than half their fair market value. The plan could have the
effect of delaying, deferring or preventing a change in control of the Company.
In addition, the Company is subject to the antitakeover provisions of Section
203 of the Delaware General Corporation Law, which will prohibit the Company
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. The application of Section 203 also could have the .
efffect of delaying or preventing a change of control of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 11, 1999, Novartis Pharmaceuticals Corporation ("Novartis US")
filed a lawsuit (case number 99-065) in Federal District Court for the District
of Delaware against the Company alleging infringement of United States patent
#5,389,382, a cyclosporine technology patented by Novartis A.G. (the "US
Patent"). The Novartis A.G. patent does not cover Neoral but rather a separate
delivery system not used in the Neoral formulation. Novartis US seeks the
following relief: (i) a finding that SangStat willfully infringed the patent;
(ii) to permanently enjoin SangStat from infringing the US Patent; (iii) treble
damages; and (iv) reasonable attorneys' fees, costs and expenses. On April 15,
1999, SangStat filed its answer in this case and also filed a counterclaim
against Novartis alleging that Novartis violated the anti-trust laws by
engaging in a series of anti-competitive acts designed and intended to exclude
SangStat from the market. Novartis has filed a motion to bifurcate the
anti-trust counterclaim; the Court has not yet ruled on this motion. The trial
date has been set for October 23, 2000 and discovery has commenced.
On July 9, 1999, Novartis AG and Novartis Pharmaceuticals UK Limited
("Novartis UK") filed an action against Imtix-SangStat (UK) Limited; SangStat
UK, Limited, and SangStat Medical Corporation (collectively, the "UK
Defendants") in the High Court of Justice, Chancery Division, Patents Court,
London (HC-1999-02988) alleging infringement of United Kingdom Patent No 2 200
048 (the "UK Patent"), the counterpart to the US Patent. The lawsuit mirrors
the US patent infringement lawsuit. Novartis AG and Novartis UK seek the
following relief: (i) an injunction to restrain the UK Defendants from
infringing the UK Patent; (ii) the delivery up or destruction of all material
that would infringe such injunction; (iii) damages; (iv) a declaration that the
UK Patent is valid and has been infringed by the UK Defendants; and (v) costs.
No trial date has been set at this time and the Company anticipates that the
earliest trial date will be in the first half of 2001.
Although the Company is optimistic that these patent disputes will ultimately
be resolved favorably to the Company, the course of litigation is inherently
uncertain and there can be no assurance of a favorable outcome. As a result of
the Novartis suits, SangStat could be enjoined from selling SangCya oral
solution for a significant period of time or ultimately be prevented from
selling SangCya oral solution in both the US and the UK. Should this happen,
the Company does not believe it would be able to obtain a license from Novartis
on acceptable terms for either jurisdiction because the Company believes
cyclosporine is an important product for Novartis and that Novartis would not
want to diminish its profits from this product by licensing it on acceptable
terms to the Company. Failure to obtain any such required license could prevent
the Company from selling SangCya oral solution entirely in the US and the UK,
which would have a material adverse effect on the Company's future results of
operations. The litigation, whether or not resolved favorably to the Company,
is likely to be expensive, lengthy and time consuming, will divert management's
attention and could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations. SangCya capsules are
not covered by these lawsuits and the Company does not believe that these
lawsuits will have an impact on the regulatory approval of SangCya capsules in
the US or the UK.
Novartis US also sued the FDA on February 11, 1999 in the United States
District Court for the District of Columbia (case number 1:99CV-00323) alleging
that the FDA did not follow its own regulations in approving SangCya oral
solution in October 1998. The lawsuit alleges that because Neoral oral
solution and SangCya oral solution are based on different formulation
technologies, they should be classified as different dosage forms. Novartis
asks that the court rescind the AB rating that was given to SangCya oral
solution. Loss of the "AB" rating would prevent SangCya oral solution from
being automatically substitutable for Neoral oral solution, which would impede
the marketing of SangCya oral solution. The Company believes that the lawsuit
is without merit and that the FDA will prevail in this matter. Although the
Company is optimistic that this dispute will ultimately be resolved favorably
to the Company, the course of litigation is inherently uncertain and there can
be no assurance of a favorable outcome. Novartis' requested relief, if
granted, could have a significant negative economic impact on SangStat.
SangStat has intervened in this lawsuit in order to protect its interests.
The Company does not believe that these lawsuits will have an impact on the
regulatory approval of SangCya capsules in the US.
On October 18, 1999, Novartis UK was granted leave to seek judicial review of
the decision by the Medicines Control Agency (the UK counterpart to the FDA) to
approve SangCya oral solution (Case No. HC-1969/99). Novartis UK claims that
the marketing authorization for SangCya oral solution should be invalidated
because MCA either relied upon Neoral data or waived in whole or in part the
requirements for data which must be submitted under Article 4.8 of Directive
65/65/EEC (as amended). The MCA has not stated whether or not it relied upon
the Neoral data in approving the SangCya oral solution marketing authorization
or whether it waived any data requirements for SangCya, nor has the MCA stated
whether or not it believes it was entitled to rely upon the Neoral data based
on the recent European Court of Justice decision (C-368/96). The Company
believes that its data was sufficient for approval without reliance upon the
Neoral data but does not know if or to what extent the MCA relied upon the
Neoral data. Should this case proceed, it is likely to end up before the
European Court of Justice and a final resolution would not occur for several
several years. Novartis has indicated that they will not seek to have SangCya
oral solution removed from the market pending resolution of this matter.
Although the Company is optimistic that this dispute will ultimately be
resolved favorably to the Company, the course of litigation is inherently
uncertain and there can be no assurance of a favorable outcome. Novartis'
requested relief, if granted, could have a significant negative economic
impact on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
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) EDGAR Financial Data Schedule 27.1
(b) There were no reports on Form 8-K filed during the period
covered by this report.
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.
SANGSTAT MEDICAL CORPORATION
----------------------------
(REGISTRANT)
DATE: November 15, 1999 BY: /S/ STEPHEN G. DANCE
------------------------------------
STEPHEN G. DANCE
SENIOR VICE PRESIDENT, FINANCE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CONDENSED CONSOLIDATED BALANCE SHEET OF SEPTEMBER 30, 1999
AND DECEMBER 31, 1998 AND THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS, SEPTEMBER 30, 1999/1998.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 29,914
<SECURITIES> 4,437
<RECEIVABLES> 14,815
<ALLOWANCES> 1,499
<INVENTORY> 45,670
<CURRENT-ASSETS> 96,814
<PP&E> 4,649
<DEPRECIATION> 0
<TOTAL-ASSETS> 124,672
<CURRENT-LIABILITIES> 27,124
<BONDS> 0
0
0
<COMMON> 174,543
<OTHER-SE> (127,119)
<TOTAL-LIABILITY-AND-EQUITY> 124,672
<SALES> 39,164
<TOTAL-REVENUES> 39,714
<CGS> 21,287
<TOTAL-COSTS> 21,287
<OTHER-EXPENSES> 43,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 943
<INCOME-PRETAX> (26,039)
<INCOME-TAX> (114)
<INCOME-CONTINUING> (7,753)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,753)
<EPS-BASIC> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
