UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
Commission file number 000-23266
UroMed Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04 - 3104185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
64 A Street, Needham, Massachusetts 02194
(Address of principal executive offices)
(617) 433-0033
(Registrant's telephone number, including area code)
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.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 25,939,033 shares of Common
stock, no par value, outstanding at May 10, 1996
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UROMED CORPORATION
FORM 10-Q
For the quarterly period ended March 31, 1996
Table of contents
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Page No.
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet at March 31, 1996 and December 31, 1995 3
Statement of Operations for the three months ended March 31, 1996 and
March 31, 1995 4
Statement of Cash Flows for the three months ended March 31, 1996 and
March 31, 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7 - 9
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9 - 10
Signatures 11
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
UROMED CORPORATION
BALANCE SHEET
(unaudited)
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March 31, December 31,
1996 1995
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Assets
Current assets:
Cash and cash equivalents $ 6,323,420 $18,164,829
Short-term investments 50,342,895 42,262,477
Accounts receivable, net 330,388 275,071
Inventories 486,523 229,515
Prepaid expenses and other current assets 1,398,736 921,055
------------ -----------
Total current assets 58,881,962 61,852,947
Fixed assets, net 2,400,523 2,042,331
Other assets 369,100 369,100
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$61,651,585 $64,264,378
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 163,318 $ 355,578
Accrued expenses 3,039,757 2,054,713
Deferred revenue 1,625,000 1,750,000
Current portion of capital lease obligations 5,906 11,864
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Total current liabilities 4,833,981 4,172,155
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Stockholders' equity:
Preferred stock, $.01 par value; 500,000 shares authorized;
none issued -- --
Common stock, no par value; 50,000,000 shares authorized; 23,995,154
and 23,975,612 shares issued and outstanding at March 31, 1996
and December 31, 1995, respectively 83,565,416 83,536,698
Additional paid-in capital 302,500 302,500
Net unrealized gain (loss) on investments available-for-sale (14,717) 159,798
Deferred compensation (263,250) (273,000)
Accumulated deficit (26,772,345) (23,633,773)
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Total stockholders' equity 56,817,604 60,092,223
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$61,651,585 $64,264,378
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The accompanying notes are an integral part of the financial statements.
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Item 1. Financial Statements (continued)
UROMED CORPORATION
STATEMENT OF OPERATIONS
(unaudited)
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Three Months Ended
March 31,
----------------------------
1996 1995
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Revenues $ 657,952 $ --
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Costs and expenses:
Cost of revenues 1,330,336 --
Research and development 1,758,739 1,901,578
Marketing and sales 1,007,810 660,494
General and administrative 539,505 492,508
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Total costs and expenses 4,636,390 3,054,580
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Loss from operations (3,978,438) (3,054,580)
Interest income 840,249 655,225
Interest expense (383) (1,575)
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Net loss $(3,138,572) $(2,400,930)
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Net loss per share $ (.13) $ (.12)
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Weighted average common shares outstanding 23,981,379 20,765,519
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The accompanying notes are an integral part of the financial statements.
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Item 1. Financial Statements (continued)
UROMED CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
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Three Months Ended
March 31,
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1996 1995
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Cash flows from operating activities:
Net loss $ (3,138,572) $ (2,400,930)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 147,413 64,267
Issuance of common stock for services -- 175,203
Changes in assets and liabilities:
Increase in accounts receivable (55,317) --
Increase in inventories (257,008) --
Increase in prepaid expenses and other current assets (477,681) (237,827)
Increase in accounts payable and accrued expenses 792,784 285,833
Decrease in deferred revenue (125,000) --
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Net cash used in operating activities (3,113,381) (2,113,454)
Cash flows from investing activities:
Purchases of short-term investments, net (8,254,933) (18,703,478)
Purchases of fixed assets (495,855) (538,062)
Increase in other assets 0 (1,805)
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Net cash used in investing activities (8,750,788) (19,243,345)
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Cash flows from financing activities:
Principal payments on capital lease obligations (5,958) (10,261)
Proceeds from issuance of common stock, net of issuance costs 28,718 8,687
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Net cash provided by (used in) financing activities 22,760 (1,574)
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Net decrease in cash and cash equivalents (11,841,409) (21,358,373)
Cash and cash equivalents, beginning of period 18,164,829 42,332,175
------------ -----------
Cash and cash equivalents, end of period $6,323,420 $ 20,973,802
============ ===========
Supplemental disclosure of cash flow information:
Interest paid $ 383 $ 1,575
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The accompanying notes are an integral part of the financial statements.
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Item 1. Financial Statements (continued)
UROMED CORPORATION
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Nature of Business
UroMed Corporation (the "Company"), a Massachusetts corporation, was
incorporated in October 1990 to develop, manufacture and market products for the
management of urological and gynecological disorders.
2. Basis of Presentation
The balance sheet at March 31, 1996, the statement of operations for the three
months ended March 31, 1996 and 1995 and the statement of cash flows for the
three months ended March 31, 1996 and 1995 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of these financial
statements have been included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily indicative of results for a
full year.
Certain prior year amounts have been reclassified to conform to the current
period financial statement presentation. The reclassifications had no impact on
net loss for these periods.
The financial statements should be read in conjunction with the Company's
audited financial statements and related notes for the year ended December 31,
1995 which may be found in the Company's 1995 Annual Report to Stockholders.
3. Inventories
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out method. At March 31, 1996, inventories consist of
the following:
Raw materials $ 437,966
Work in process 48,557
----------
$ 486,523
==========
4. Net Loss Per Share
Net loss per share is determined by dividing net the weighted average
number of common shares outstanding during the period. All common stock
equivalent shares from stock options have been excluded from the calculation of
weighted average number of common shares outstanding since their inclusion would
be antidilutive.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Since its inception in October 1990, the Company has been engaged in the design,
development, manufacture and sale of products for the management of urological
and gynecological disorders. The Company's first product, the Reliance(R)
Urinary Control Insert, is a small, sterile, single-use balloon-tipped plug for
the management of certain types of female urinary incontinence ("UI"). The
Reliance Insert is currently in clinical trials in the United States and is
commercially available in some European markets. The Reliance Insert product was
launched in Germany in September 1995. In March 1996 the medical education phase
of the commercial launch was initiated in Sweden, Norway, Denmark and Finland.
Commercial launch in The Netherlands and the United Kingdom is planned for the
near future. A professional launch of the Reliance Insert is scheduled for
France by the fall of 1996.
The Company must obtain approval from the U.S. Food and Drug Administration
("FDA") for the Reliance Insert prior to commercialization of the product in the
United States. In December 1994, the Company filed a Section 510(k) Pre-Market
Notification for the Reliance Insert with the FDA. In March 1995, the Company
received a letter in response from the FDA indicating that it was unable to
determine whether the Company's Reliance Insert was substantially equivalent to
similar, previously approved technologies, and requesting additional information
from the Company in order to make this determination. In August 1995, the
Company filed an updated Section 510(k) Pre-Market Notification for the Reliance
Insert with the FDA. In November 1995 the Company received a letter from the
FDA, in response to the Company's August 1995 submission, which presented a
number of additional questions relating to the Company's 510(k) Notification.
The Company filed a further updated 510(k) Notification in response to the
November 1995 letter on December 27, 1995, and has responded to subsequent
informal inquiries from the FDA by additional filings of information which
supplement the December 27 filing. On March 26, 1996 the Company met with the
staff of the FDA as part of its ongoing dialogue in connection with its 510(k)
Notification. Based upon some of the comments made at the meeting, market
clearance for the Reliance Insert does not appear imminent due to the range of
matters being actively discussed.
There can be no assurance that the FDA will ultimately agree to accept the
Company's 510(k) Notification and it remains entirely possible that the FDA will
require the Company to submit a longer form Pre-Market Approval application
instead of a 510(k) Notification, which could substantially prolong the FDA
process. Alternatively, the Company could receive one or more additional
requests for information from the FDA relating to the Company's 510(k)
Notification, including a determination that more clinical data would be
required, which could also have the effect of greatly delaying approval of the
marketing of the Reliance Insert in the United States without offering any
assurance of the eventual approval of the Company's 510(k) Notification.
Accordingly, the Company cannot predict when, if ever, it will receive approval
from the FDA to market the Reliance Insert in the United States.
Although FDA approval for commercialization of the Reliance Insert in the United
States remains uncertain, the Company nevertheless anticipates increased
expenditures on manufacturing, sales and marketing through the first half of
1997, as it moves ahead with commercialization of the product in Europe and
prepares for the possibility of FDA approval. Of these planned expenditures,
most are currently earmarked for anticipated commercialization of the Reliance
Insert in the U.S. market.
To date, the Company has expended substantial efforts on manufacturing scale-up
activities for the volumes of devices that will be required in connection with
the sale of the Reliance Insert in international markets. In December 1994, the
Company moved to a new facility that now houses its automated assembly and
packaging equipment. Although the Company expects that this equipment will have
sufficient capacity to address initial product demand, the Company expects to
place orders for additional automated assembly and packaging equipment in 1996
in order to produce quantities of the Reliance Insert required for sale in the
European countries covered by its distribution agreements and, if and when FDA
regulatory approval is obtained, in the United States. The Company also expects
to increase facilities spending in order to accommodate changes in, as well as
increases to, its manufacturing space.
In September 1995, the Company hired a Vice President of Marketing and Sales and
began to increase its marketing and sales expenditures as it prepares for the
possibility of regulatory approval to market the Reliance Insert in the United
States. The Company currently expects this increase in marketing and sales
expenditures to continue throughout 1996 as it builds a direct sales staff, adds
marketing support staff and provides for advertising campaigns and other
marketing programs.
Preclinical trials of the Reliance Insert began in September 1991 and limited
human clinical trials began in December 1991. Currently, a multi-center clinical
study is ongoing at nine sites in the United States. The Company anticipates
that it will continue to increase spending in the research and development area
including ongoing development and clinical spending relating to the Reliance
Insert. The Company plans to increase spending for development and clinical
testing of other urological and gynecological products in 1996. The Company
hopes to advance these research and development projects and potential
in-licensing and acquisition activities. There can be no assurance, however,
that the projects in development or any
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potential in-licensing and acquisition activities will result in commercial
products that produce significant revenues and profits for the Company.
On May 9, 1996, the Company closed an acquisition of all of the incontinence
technology of the ASI Liquidating Trust, the successor to Advanced Surgical
Intervention, Inc., including all assets relating to the Miniguard(TM) Patch, an
FDA cleared prescription adhesive patch placed externally against the urethral
opening to help block leakage in women with mild to moderate stress
incontinence. The Company purchased the Miniguard Patch and its related
technology for $30 million, consisting of $7 million in cash and $23 million in
common stock. The transaction will be accounted for as a purchased research and
development charge, which the Company expects to take in the second quarter of
1996 (see Note 5 to Financial Statements). The Company believes that if it is
successful in scaling up manufacturing for commercial production of the
Miniguard Patch, and if it is successful with its market launch efforts, the
product should start to make a contribution to the Company's growth as soon as
late 1997.
Results of Operations
The Company had revenues of $0.7 million for the first quarter of 1996 compared
to no revenues in the same period of 1995. Revenue consisted primarily of
stocking shipments of the Reliance Insert which were sent to the Company's
European distributors. The Reliance Insert product was launched in Germany in
September 1995 and in the Nordic countries in March 1996.
Cost of revenues significantly exceeded product revenue during the first quarter
of 1996 due to the current level of variable product costs as well as the
Company's manufacturing-related overhead costs, relative to the low start-up
volume of production in the period. The Company expects negative or low gross
margins for the near term and, accordingly has considered this in its valuation
of inventory. There can be no assurance that the Company will ever realize
sufficient production volumes or otherwise reduce its manufacturing costs in
order to raise gross margins.
Research and development expenses decreased by 5% to $1.8 million for the first
quarter of 1996 as compared to $1.9 million for the first quarter of 1995. The
net decrease in research and development costs was the result of manufacturing
spending, starting in the third quarter of 1995, now being included in cost of
revenues due to the transition from the development stage to the commencement of
commercial product manufacturing. Mostly offsetting this decrease were increases
in engineering personnel, design services and prototype expenses incurred in the
research and development of additional products for the management of UI and
other urological and gynecological disorders.
Marketing and sales expenses increased by 43% to $1.0 million in the first
quarter of 1996 as compared to $0.7 million in the first quarter of 1995. This
increase was mainly the result of additional marketing personnel and related
recruiting costs, increased marketing consulting expenses and increased public
relations activity. These increases were partially offset by the decrease in the
investment banking service fees which were incurred in connection with the
signing of European distributorship agreements in 1995.
General and administrative expenses remained constant at $0.5 million for both
the first quarter of 1996 and the first quarter of 1995. There were no
significant fluctuations within the components of general and administrative
expenses.
Interest income increased by 14% to $0.8 million for the first quarter of 1996,
as compared to $0.7 million for the first quarter of 1995. The increase was
attributable to the significant increase in the Company's interest-bearing cash
equivalents and short-term investments as a result of the completion of a public
offering of the Company's common stock in the fourth quarter of 1995, partially
offset by a decrease in interest rates during this period.
Liquidity and Capital Resources
At March 31, 1996, the Company had cash, cash equivalents and short-term
investments totaling $56.7 million, a decrease of $3.7 million from $60.4
million at December 30, 1995. This decrease in cash, cash equivalents and
short-term investments during the three months ended March 31, 1996 was
primarily the result of operating expenses incurred and the purchase of fixed
assets, which were partially offset by interest earned on investments in
marketable securities. At March 31, 1996, the Company's funds were invested in
U.S. government obligations, corporate debt obligations and money market funds.
Net cash used in operating activities was $3.1 million during the three months
ended March 31, 1996. Accounts receivable increased by $0.1 million due to
higher sales occurring near the end of the quarter ended March 31, 1996 than the
quarter ended December 31, 1996. Inventories increased by $0.3 million primarily
due to additional European distributors requiring region-specific packaging.
Prepaid expenses and other current assets increased by $0.5 million as the
result of the prepayment of insurance and an increase in interest receivable on
cash, cash equivalents and short-term investments. Accounts payable and related
accrued expenses together increased by $.8 million primarily as a result of
expenses incurred in
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marketing, conducting clinical studies and for manufacturing scale-up
activities. Deferred revenue decreased by $.1 million due to the recognition of
revenue from a portion of the advanced payments received upon the signing of
European distributorship agreements.
Net cash used in investing activities was $8.8 million during the three months
ended March 31, 1996. Short-term investments increased by $8.3 million due to a
shift into investments with longer maturities. Fixed assets increased by $0.5
million primarily as a result of milestone payments made on additional automated
production equipment and purchases of other machinery and equipment. At March
31, 1996, the Company has outstanding commitments of $0.7 million for the
purchase of machinery and equipment, against which advance and milestone
payments of $0.6 million have already been made.
The Company believes that available cash, cash equivalents and short term
investments will be sufficient to meet the Company's operating expenses and
capital requirements at least through 1997. The Company's future liquidity and
capital requirements depend on numerous factors, including, but not limited to,
the uncertainty of FDA regulatory actions, development of the Company's
marketing capability, market acceptance of the Reliance Insert product, the
uncertainty of medical reimbursement, development of the Company's manufacturing
capability and achieving acceptable cost of production, the uncertain protection
afforded the Company by its intellectual property and patents relating to the
Reliance Insert, other potential products development status, potential
acquisitions and other potential strategic product opportunities. There can be
no assurance that the Company will not require additional financing or that, if
required, such financing will be available on terms acceptable to the Company.
Risk Factors and Cautionary Statement
From time to time, the Company issues statements in public filings or press
releases, or officers of the Company make public oral statements with respect to
the Company, that may be considered forward-looking. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Company believes that the following important factors which, among
others, could cause the Company's actual results for its 1996 fiscal year and
beyond to differ materially from those expressed in any forward-looking
statements made by, on behalf of, or with respect to, the Company, should be
considered by investors when reviewing such statements:
(bullet) The uncertainty of Federal regulatory approval for the Reliance Insert.
(bullet) The uncertainty that the Reliance Insert and the Miniguard Patch will
gain market acceptance either among physicians or UI sufferers in the
United States or in Europe.
(bullet) The dependence by the Company on the success of two products, the
Reliance Insert and the Miniguard Parch.
(bullet) The uncertainty that the Company will be able to develop the ability to
produce commercial quantities of its products and produce such
quantities at an acceptable cost.
(bullet) The uncertainty that the Company will be able to develop an effective
sales force and implement a successful marketing plan for the Reliance
Insert and the Miniguard Patch in the United States.
(bullet) The Company's dependence on others for raw materials, including certain
materials available only from single sources.
(bullet) The effect of competing products and surgical and non-surgical
alternative treatments for incontinence.
(bullet) The uncertainty that the Company will be able to develop an effective
distribution network and implement a successful distribution
strategy for the Reliance Insert and the Miniguard Patch in Europe and
elsewhere.
(bullet) The uncertain protection afforded the Company by its patents
and other intellectual property relating to the Reliance Insert and the
Miniguard Patch.
(bullet) The uncertainty whether the Company will be able to achieve medical
reimbursement for the Reliance Insert or the Miniguard Patch in the
United States or in all European markets.
(bullet) The uncertainty whether the Company will be able to manufacture,
market and sell its products at prices that permit it to achieve
satisfactory margins in the production and marketing of its products.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
Exhibit No. 11. Statement Re: Computation of Net Loss Per Share
Exhibit No. 24. Financial Data Schedule
(b)Reports on Form 8-K
On March 28, 1996, the Company filed a current report on Form 8-K
disclosing that on March 26,1996, the Company issued a press release
announcing that it had met with the Staff of the FDA as part of its
ongoing dialogue in connection with its 510(k) application for market
clearance of its Reliance Urinary Control Insert. The Company further
reported
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that based on some of the comments made by members of the Staff
of the FDA at this meeting, the Company believes that market clearance for
the Reliance Insert is not likely to be imminent because there remain a
range of matters that are being actively discussed by the Company and the
Staff of the FDA.
On May 14, 1996, the Company filed a current report on Form 8-K disclosing
that on May 9,1996, the Company closed an acquisition of all the
incontinence assets of the ASI Liquidating Trust, the successor to
Advanced Surgical Intervention, Inc. including all assets relating to the
Miniguard patch, an FDA cleared prescription adhesive patch to block
leakage of urine in women with mild to moderate stress incontinence.
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SIGNATURES
Pursuant to 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.
UroMed Corporation
Date: May 15, 1996 /s/ John G. Simon
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John G. Simon, President and
Chief Executive Officer
Date: May 15, 1996 /s/ Paul J. Murphy
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Paul J. Murphy, Treasurer and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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UROMED CORPORATION
Exhibit No. 11. Statement Re: Computation of Net Loss Per Share
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Three Months Ended
March 31,
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1996 1995
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Net loss $(3,138,572) $(2,400,930)
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Net Loss Per Share:
Weighted average shares outstanding:
Common stock 23,981,379 20,765,519
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Total weighted average shares outstanding 23,981,379 20,765,519
=========== ===========
Net loss per share $ (.13) $ (.12)
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