<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the quarterly period ended: MARCH 31, 1997
___ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________ to __________
Commission File Number 0-23678
BIOSEPRA INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3216867
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Organization or Incorporation)
111 LOCKE DRIVE, MARLBOROUGH, MASSACHUSETTS 01752
-------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(508) 481-6802
--------------
(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.
Common Stock, par value $.01 per share 8,415,936
- -------------------------------------- ---------------------------
Class Outstanding at May 13, 1997
<PAGE> 2
BioSepra Inc.
INDEX
-----
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 1997 and December 31, 1996 3
Consolidated Condensed Statements of Operations
for the Three Month Periods Ended March 31, 1997
and 1996 4
Consolidated Condensed Statements of Cash Flows
for the Three Month Periods Ended March 31, 1997
and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION 13
SIGNATURES 15
2
<PAGE> 3
BioSepra Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
(In thousands)
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,238 $ 4,142
Marketable securities -- 360
Restricted cash 154 167
Accounts receivable 3,212 3,030
Inventories (Note 2) 3,084 3,481
Prepaid and other current assets 146 54
------- -------
Total current assets 10,834 11,234
Property and equipment, net (Note 3) 2,174 2,168
Goodwill, net 9,094 9,254
Other assets 524 513
------- -------
Total assets $22,626 $23,169
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion of long-term debt
and capital lease obligations $ 774 $ 497
Accounts payable 1,168 1,365
Related parties payable (Note 4) 240 157
Accrued expenses 1,969 1,921
Deferred contract revenue (Note 8) 3,600 3,646
------- -------
Total current liabilities 7,751 7,586
Long-term debt and capital lease obligations,
net of current portion 1,100 1,141
------- -------
Total liabilities 8,851 8,727
Stockholders' equity:
Common stock 84 84
Additional paid-in capital 40,485 40,485
Unearned compensation (282) (322)
Accumulated deficit (26,387) (25,918)
Cumulative translation adjustment (125) 113
------- -------
Total stockholders' equity 13,775 14,442
------- -------
Total liabilities and stockholders' equity $22,626 $23,169
======= =======
</TABLE>
The accompanying notes are an integral part
of the financial statements.
3
<PAGE> 4
BioSepra Inc.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
(In thousands, except per share data)
<CAPTION>
Three - month periods
ended March 31,
1997 1996
---- ----
<S> <C> <C>
Revenue from product sales $ 3,388 $ 2,806
Costs and expenses:
Cost of products sold 1,932 1,183
Selling, general and administrative 1,256 1,843
Research and development 558 596
Amortization expense 232 319
------- -------
Total costs and expenses 3,978 3,941
------- -------
Loss from operations (590) (1,135)
Other income (expense), net 121 (58)
------- -------
Net loss $ (469) $(1,193)
======= =======
Net loss per share $ (0.06) $ (0.17)
Weighted average number of common and
common equivalent shares outstanding 8,416 7,022
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE> 5
BioSepra Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
(In thousands)
<CAPTION>
Three - month periods
ended March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (469) $(1,193)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 408 517
Provision for doubtful accounts (98) 107
Loss on disposition of long-term assets 5 10
Changes in operating assets and liabilities:
Accounts receivable (191) (514)
Inventories 207 (18)
Prepaid and other current assets (92) (289)
Accounts payable (110) 139
Related parties payable 83 82
Accrued expenses 104 100
Accrued expenses relating to acquisition -- (3)
Accrued restructuring -- (126)
Deferred revenue (43) 1,034
------- -------
Net cash used in operating activities (196) (154)
Cash flows from investing activities:
Additions to property and equipment (137) (331)
Proceeds from sales of equipment -- 69
Decrease in marketable securities 360 --
Increase in other assets (43) (18)
------- -------
Net cash provided by (used in) investing
activities 180 (280)
Cash flows from financing activities:
Proceeds from loans by parent company -- 3,810
Proceeds from issuance of common stock -- 5
Net borrowings under line of credit agreements 264 199
Long-term borrowings 47 --
Repayment of long-term borrowings (114) (104)
------- -------
Net cash provided by financing activities 197 3,910
Effect of exchange rate changes on cash
and cash equivalents (85) 21
------- -------
Net increase in cash and cash equivalents 96 3,497
Cash and cash equivalents at beginning of period 4,142 2,079
------- -------
Cash and cash equivalents at end of period $ 4,238 $ 5,576
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE> 6
BioSepra Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements are unaudited and
have been prepared on a basis substantially consistent with BioSepra
Inc.'s (the "Company") annual audited financial statements. The
consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All material intercompany balances and
transactions have been eliminated in consolidation.
Certain information and footnote disclosures normally included in the
Company's annual statements have been condensed or omitted. The
consolidated financial statements, in the opinion of management,
reflect all adjustments (including normal recurring accruals) necessary
for a fair statement of the results for the periods ended March 31,
1997 and 1996.
The results of operations for the periods are not necessarily
indicative of the results of operations to be expected for the fiscal
year. These consolidated financial statements should be read in
conjunction with the audited financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -----------
<S> <C> <C>
Raw materials $1,001 $1,155
Work in progress 183 310
Finished goods 1,900 2,016
------ ------
$3,084 $3,481
====== ======
</TABLE>
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -----------
<S> <C> <C>
Property and equipment $4,760 $4,874
Less accumulated depreciation
and amortization (2,672) (2,752)
------ ------
2,088 2,122
Construction in progress 86 46
------ ------
$2,174 $2,168
====== ======
</TABLE>
6
<PAGE> 7
4. Related party transactions
The payable to related party represents amounts due for certain
services and facilities provided by Sepracor Inc. ("Sepracor"), the
Company's majority stockholder.
In March 1996, the Company entered into a $5,500,000 Convertible
Subordinated Note (the Note) with Sepracor. Principal and interest were
due and payable on March 29, 2000. The Note bore interest per annum at
Sepracor's borrowing rate less 1/2%. On June 10, 1996, Sepracor
exercised its option to convert the outstanding principal and interest
on the Note into shares of common stock. The Note was converted into
one share of common stock for every $4.05 of principal and interest
outstanding resulting in 1,369,788 shares of common stock issued to
Sepracor. Sepracor currently owns approximately 64% of the outstanding
common stock of the Company, including the effects of this transaction.
In January 1996, the Company entered into a promissory note for
$350,000 with Sepracor. This amount is payable to Sepracor over sixty
monthly installments and does not bear interest. The Company utilized
the funds for leasehold improvements to the Company's facilities. As of
March 31, 1997, $307,000 was outstanding under the promissory note.
5. Net Loss Per Share
The net loss per common share is computed based upon the weighted
average number of common shares outstanding. Common equivalent shares
are not included in the per share calculations where the effect of
their inclusion would be antidilutive.
6. Statements of Cash Flows
Cash payments for interest for the three months ended March 31,1997
and 1996 were $12,000 and $80,000, respectively.
7. Litigation
The Company and Sepracor are defendants in three lawsuits brought by
PerSeptive Biosystems, Inc., a competitor of the Company, in the United
States District Court for the District of Massachusetts. In actions
commenced in October 1993 and January 1995, PerSeptive alleged that the
Company's and Sepracor's manufacture and sale of HyperD(R)
chromatography media infringe four of PerSeptive's United States
patents. PerSeptive sought unspecified monetary damages as well as
injunctive relief. In a separate action, PerSeptive alleged that
certain statements made by the Company and Sepracor with respect to the
performance of HyperD media, performance of PerSeptive's POROS(R)
media, and the internal structures of POROS and HyperD media, including
statements made in the Company's Prospectus dated March 24, 1994,
constitute false advertising. PerSeptive also asserts that two
additional perfusion chromatography patents have been issued. The new
perfusion chromatography patents contains claims similar to the other
patents the Company and Sepracor are alleged to have infringed.
The Company has received an opinion of its patent counsel, Pennie &
Edmonds, to the effect that a properly informed court should conclude
the manufacture, use and/or sale by the Company or its customers of the
present HyperD products do not infringe any valid claims of the three
United States patents relating to "perfusion chromatography" which
PerSeptive has asserted against the Company and Sepracor. PerSeptive
also alleges that another United States patent which relates to the
chemistry of certain coatings applied during the manufacture of HyperD
(the "coatings patent"), is infringed by the manufacture, sale or use
of HyperD. The Company and Sepracor have asserted a counterclaim
charging PerSeptive with unfair competition.
7
<PAGE> 8
On January 9, 1996, the United States District Court for the District
of Massachusetts in part granted Sepracor and the Company's request of
summary judgment with respect to three of PerSeptive's patents
concerning "Perfusion Chromatography" (the "January 9 Order"). The
Court ruled that persons in addition to those named in the three
"perfusion" patents were inventors of the alleged inventions claimed in
those patents. In the January 9 Order, the Court ruled that
PerSeptive's claims related to the three "perfusion" patents would be
dismissed on January 19, 1996, if PerSeptive had not requested
correction of inventorship by that date. On March 12, 1996, the Court
scheduled a hearing on deceptive intent on the part of PerSeptive, if
PerSeptive moves to correct inventorship, for April 29, 1996 (the
"March 12 Order"). The Court required PerSeptive to make any motion to
correct by March 31, 1996. In response, PerSeptive requested that the
Court vacate its January 9 and March 12 Orders, or in the alternative,
correct the patents in such a way that the presently unnamed inventors
obtained no rights to license the patents. The Court denied
PerSeptive's motion to vacate and scheduled a hearing on PerSeptive's
motion to correct the patents which was completed in August 1996.
On April 3, 1997, the Court ruled that PerSeptive's patents could not
be corrected, and ordered entry of judgment in favor of the defendants.
As a result, PerSeptive's claims that the Company and Sepracor have
infringed the three perfusion patents which are the subject of the
litigation will be dismissed. PerSeptive has stated that it will appeal
this decision to the United States Court of Appeals for the Federal
Circuit. The remaining claims have not been decided.
Sepracor and the Company requested that the Court decide certain issues
related to its April 3, 1997 decision. If the Court were to decide
those questions in the Company's favor, the decision would provide a
separate reason for dismissing PerSeptive's pending claims. If the
Court were to refuse to decide the related questions, or decide them
against the Company, the dismissal of the claims brought by PerSeptive
against the Company and mandated by the Court's April 3, 1997 decision
would not be affected. The Company believes these related issues should
be evaluated by the Court of Appeals simultaneously.
There can be no assurance that the Company and Sepracor will prevail in
the pending litigation, and an adverse outcome in any of the patent
infringement actions on any of the chromatography patents would have a
materially adverse effect on the Company's future business and
operations. The Company would be required to repay to Beckman part of
certain payments if the Company terminates Beckman's right to use and
sell HyperD media because a court finds HyperD media infringes any
third party patents.
Substantial funds have been and continue to be expended in connection
with the defense of the litigation. Sepracor has agreed to control the
defense of the litigation, and Sepracor and the Company share equally
in expenses, net of insurance payments. In addition, in the event of
any settlement or judgment adverse to the Company, Sepracor has agreed
to indemnify the Company from and against any damages that the Company
is required to pay with respect to its manufacture, use or sale of
HyperD media products occurring prior to March 24, 1994.
8. Distribution Agreement
On March 14, 1995, the Company and Beckman Instruments, Inc.
("Beckman") entered into a joint distribution and development
agreement. The agreement was extended in July 1996, allowing Beckman to
market on a worldwide exclusive basis certain HyperD chromatographic
columns, the ProSys workstation for 18 months and provides for the
development (in accordance with certain milestones) and manufacture by
the Company of chromatographic systems for Beckman.
Under the agreement, Beckman has made payments totaling $4,900,000. The
Company may be required to return to Beckman part of such payments made
by Beckman under the agreement if the Company fails to meet such
milestones or if the Company terminates Beckman's right to use and sell
licensed products, including HyperD media, if a court finds that any
such licensed products infringe any third party patents.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
BioSepra Inc. and subsidiaries ( the "Company") develops, manufactures and
sells chromatographic media and systems for use by biopharmaceutical companies
in the purification and production of biopharmaceuticals. The Company's
products enable pharmaceutical companies to reduce the time and cost required
to develop and manufacture biopharmaceuticals. The Company's media products are
currently used by pharmaceutical companies in the production of several
commercial biopharmaceuticals, including interferons, human growth hormone,
special enzymes and vaccines.
Three months ended March 31, 1997 and 1996
Revenue increased to $3,388,000 for the three months ended March 31, 1997 from
$2,806,000 for the same period in 1996. The increase in revenue is attributed
to increased sales of the Company's HyperD(R) chromatography media and
workstation product lines.
Cost of products sold as a percentage of product sales increased to 57% for the
three months ended March 31, 1997 compared to 42% for the same period in 1996.
The increase in cost of products sold as a percentage of product sales is
primarily due to the transition of resources from product development phase to
production support associated with the commercialization of new media and
instrument products. Management expects fluctuations in costs as a percentage of
product sales due to product mix changes and fluctuations in production-scale
customer order patterns from period to period.
Selling, general and administrative expenses decreased to $1,256,000 for the
three months ended March 31, 1997 from $1,843,000 for the three months ended
March 31, 1996. The decrease in expenditures is related to the reduction in bad
debt expense due to collection of past due receivables, the reduction in overall
personnel costs and the transition of resources to direct product support of new
media and instrument products.
Research and development expenses decreased to $558,000 for the first quarter of
1997 from $596,000 in the first quarter of 1996. This decrease is attributed to
the transition of resources from development to production and commercialization
support of new media and instrument products. The decrease is offset by new
product development expenses incurred.
Amortization expenses decreased to $232,000 for the first quarter of 1997 from
$319,000 in the first quarter of 1996. The decrease in amortization expense is
primarily attributed to the write-off , in the fourth quarter of 1996, of the
remaining unamortized portion of certain technology retained from the sale of
Biopass S.A. The decrease in amortization expense is also attributed to a
reduction, due to employee termination, in the amount of amortization associated
with deferred compensation.
Other income, net, increased to $121,000 for the three months ended March 31,
1997 as compared to other expense, net of $58,000 for the comparable period in
1996. This increase is attributed to the net effect of foreign currency gains
and losses due to changes in the value of the U.S. dollar and, to a lesser
extent, decreased levels of borrowings and changes in the interest rates charged
on such borrowings.
The Company's net loss decreased to $469,000 for the three months ended March
31, 1997 compared to $1,193,000 for the three months ended March 31, 1996. The
decrease is attributed to increased product sales and reduced operating expenses
as described above.
9
<PAGE> 10
Litigation
The Company and Sepracor are defendants in three lawsuits brought by PerSeptive
Biosystems, Inc., a competitor of the Company, in the United States District
Court for the District of Massachusetts. In actions commenced in October 1993
and January 1995, PerSeptive alleged that the Company's and Sepracor's
manufacture and sale of HyperD chromatography media infringe four of
PerSeptive's United States patents. PerSeptive sought unspecified monetary
damages as well as injunctive relief. In a separate action, PerSeptive alleged
that certain statements made by the Company and Sepracor with respect to the
performance of HyperD media, performance of PerSeptive's POROS(R) media, and the
internal structures of POROS and HyperD media, including statements made in the
Company's Prospectus dated March 24, 1994, constitute false advertising.
PerSeptive also asserts that two additional perfusion chromatography patents
have been issued. The new perfusion chromatography patents contains claims
similar to the other patents the Company and Sepracor are alleged to have
infringed.
The Company has received an opinion of its patent counsel, Pennie & Edmonds, to
the effect that a properly informed court should conclude the manufacture, use
and/or sale by the Company or its customers of the present HyperD products do
not infringe any valid claims of the three United States patents relating to
"perfusion chromatography" which PerSeptive has asserted against the Company and
Sepracor. PerSeptive also alleges that another United States patent which
relates to the chemistry of certain coatings applied during the manufacture of
HyperD (the "coatings patent"), is infringed by the manufacture, sale or use of
HyperD. The Company and Sepracor have asserted a counterclaim charging
PerSeptive with unfair competition.
On January 9, 1996, the United States District Court for the District of
Massachusetts in part granted Sepracor and the Company's request of summary
judgment with respect to three of PerSeptive's patents concerning "Perfusion
Chromatography" (the "January 9 Order"). The Court ruled that persons in
addition to those named in the three "perfusion" patents were inventors of the
alleged inventions claimed in those patents. In the January 9 Order, the Court
ruled that PerSeptive's claims related to the three "perfusion" patents would be
dismissed on January 19, 1996, if PerSeptive had not requested correction of
inventorship by that date. On March 12, 1996, the Court scheduled a hearing on
deceptive intent on the part of PerSeptive, if PerSeptive moves to correct
inventorship, for April 29, 1996 (the "March 12 Order"). The Court required
PerSeptive to make any motion to correct by March 31, 1996. In response,
PerSeptive requested that the Court vacate its January 9 and March 12 Orders, or
in the alternative, correct the patents in such a way that the presently unnamed
inventors obtained no rights to license the patents. The Court denied
PerSeptive's motion to vacate and scheduled a hearing on PerSeptive's motion to
correct the patents which was completed in August 1996.
On April 3, 1997, the Court ruled that PerSeptive's patents could not be
corrected, and ordered entry of judgment in favor of the defendants. As a
result, PerSeptive's claims that the Company and Sepracor have infringed the
three perfusion patents which are the subject of the litigation will be
dismissed. PerSeptive has stated that it will appeal this decision to the United
States Court of Appeals for the Federal Circuit. The remaining claims have not
been decided.
Sepracor and the Company requested that the Court decide certain issues related
to its April 3, 1997 decision. If the Court were to decide those questions in
the Company's favor, the decision would provide a separate reason for dismissing
PerSeptive's pending claims. If the Court were to refuse to decide the related
questions, or decide them against the Company, the dismissal of the claims
brought by PerSeptive against the Company and mandated by the Court's April 3,
1997 decision would not be affected. The Company believes these related issues
should be evaluated by the Court of Appeals simultaneously.
There can be no assurance that the Company and Sepracor will prevail in the
pending litigation, and an adverse outcome in any of the patent infringement
actions on any of the chromatography patents would have a materially adverse
effect on the Company's future business and operations. The Company would be
required to repay to Beckman part of certain payments if the Company terminates
Beckman's right to use and sell HyperD media because a court finds HyperD media
infringes any third party patents.
10
<PAGE> 11
Substantial funds have been and continue to be expended in connection with the
defense of the litigation. Sepracor has agreed to control the defense of the
litigation, and Sepracor and the Company share equally in expenses, net of
insurance payments. In addition, in the event of any settlement or judgment
adverse to the Company, Sepracor has agreed to indemnify the Company from and
against any damages that the Company is required to pay with respect to its
manufacture, use or sale of HyperD media products occurring prior to March 24,
1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily from net proceeds
provided from the Company's initial public offering, funds provided by Sepracor
and equipment financing leases. As of March 31, 1997, the Company had $4,238,000
of cash and cash equivalents and $3,083,000 of working capital. Cash and cash
equivalents for the quarter ended March 31, 1997 increased by $96,000. The
Company utilized cash for operations of $196,000 primarily to fund its operating
loss. The Company generated cash from investing activities of $180,000 primarily
due to the maturity of a bond, partially offset by the purchase of property and
equipment of $137,000. The Company generated cash from financing activities of
$197,000 primarily due to additional borrowings under one of the Company's line
of credit agreements.
In March 1996, the Company entered into a $5,500,000 Convertible Subordinated
Note (the Note) with Sepracor. Principal and interest were due and payable on
March 29, 2000. The Note bore interest per annum at Sepracor's borrowing rate
less 1/2%. On June 10, 1996, Sepracor exercised its option to convert the
outstanding principal and interest on the Note into shares of common stock. The
Note was converted into one share of common stock for every $4.05 of principal
and interest outstanding resulting in 1,369,788 shares of common stock issued to
Sepracor. Sepracor currently owns approximately 64% of the outstanding common
stock of the Company, including the effects of this transaction.
As of March 31, 1997, there was $1,134,000 outstanding under two available
credit facilities with a French commercial bank which are currently guaranteed
by Sepracor. In addition, Sepracor guarantees certain capital lease obligations
of the Company. The outstanding balance of the capital lease obligation
guaranteed by Sepracor was $215,000 as of March 31, 1997.
Based upon the Company's current operating plan, the Company believes that its
current cash balance is sufficient to fund the Company's operations into early
1998. The Company's cash requirements may vary materially from those now planned
because of factors such as the timing of significant product orders, commercial
acceptance of new products, patent developments, the introduction of competitive
products and acquisitions.
FUTURE OPERATING RESULTS
Certain of the information contained in this Quarterly Report on Form 10-Q,
including information with respect to the ability of the Company to obtain
additional financing within the next twelve months, the success of the Company's
HyperD media and the ProSys workstation, and information with respect to the
Company's other plans and strategy for its business, including its plans to
introduce products for use in producing monoclonal antibody-based drugs, consist
of forward-looking statements. Important factors that could cause actual results
to differ materially from the forward-looking statements are described in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
11
<PAGE> 12
In addition, based upon the Company's current operating plan, the Company
believes that its current cash balance is sufficient to fund the Company's
operations into early 1998. The Company's cash requirements may vary materially
from those now planned because of factors such as the timing of significant
product orders, commercial acceptance of new products, patent developments, the
introduction of competitive products and acquisitions. Accordingly, the Company
may be required to raise additional financing within the next twelve months, and
there can be no assurance that such financing will be available on favorable
terms, if at all.
Because of the foregoing factors, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and it
expects that its results of operations may continue to fluctuate from period to
period in the future.
12
<PAGE> 13
PART II.
OTHER INFORMATION
Item 1. Legal proceedings
The Company and Sepracor are defendants in three lawsuits brought by
PerSeptive Biosystems, Inc., a competitor of the Company, in the
United States District Court for the District of Massachusetts. In
actions commenced in October 1993 and January 1995, PerSeptive alleged
that the Company's and Sepracor's manufacture and sale of HyperD(R)
chromatography media infringe four of PerSeptive's United States
patents. PerSeptive sought unspecified monetary damages as well as
injunctive relief. In a separate action, PerSeptive alleged that
certain statements made by the Company and Sepracor with respect to
the performance of HyperD media, performance of PerSeptive's POROS(R)
media, and the internal structures of POROS and HyperD media,
including statements made in the Company's Prospectus dated March 24,
1994, constitute false advertising. PerSeptive also asserts that two
additional perfusion chromatography patents have been issued. The new
perfusion chromatography patents contains claims similar to the other
patents the Company and Sepracor are alleged to have infringed.
The Company has received an opinion of its patent counsel, Pennie &
Edmonds, to the effect that a properly informed court should conclude
the manufacture, use and/or sale by the Company or its customers of
the present HyperD products do not infringe any valid claims of the
three United States patents relating to "perfusion chromatography"
which PerSeptive has asserted against the Company and Sepracor.
PerSeptive also alleges that another United States patent which
relates to the chemistry of certain coatings applied during the
manufacture of HyperD (the "coatings patent"), is infringed by the
manufacture, sale or use of HyperD. The Company and Sepracor have
asserted a counterclaim charging PerSeptive with unfair competition.
On January 9, 1996, the United States District Court for the District
of Massachusetts in part granted Sepracor and the Company's request of
summary judgment with respect to three of PerSeptive's patents
concerning "Perfusion Chromatography" (the "January 9 Order"). The
Court ruled that persons in addition to those named in the three
"perfusion" patents were inventors of the alleged inventions claimed
in those patents. In the January 9 Order, the Court ruled that
PerSeptive's claims related to the three "perfusion" patents would be
dismissed on January 19, 1996, if PerSeptive had not requested
correction of inventorship by that date. On March 12, 1996, the Court
scheduled a hearing on deceptive intent on the part of PerSeptive, if
PerSeptive moves to correct inventorship, for April 29, 1996 (the
"March 12 Order"). The Court required PerSeptive to make any motion to
correct by March 31, 1996. In response, PerSeptive requested that the
Court vacate its January 9 and March 12 Orders, or in the alternative,
correct the patents in such a way that the presently unnamed inventors
obtained no rights to license the patents. The Court denied
PerSeptive's motion to vacate and scheduled a hearing on PerSeptive's
motion to correct the patents which was completed in August 1996.
On April 3, 1997, the Court ruled that PerSeptive's patents could not
be corrected, and ordered entry of judgment in favor of the
defendants. As a result, PerSeptive's claims that the Company and
Sepracor have infringed the three perfusion patents which are the
subject of the litigation will be dismissed. PerSeptive has stated
that it will appeal this decision to the United States Court of
Appeals for the Federal Circuit. The remaining claims have not been
decided.
Sepracor and the Company requested that the Court decide certain
issues related to its April 3, 1997 decision. If the Court were to
decide those questions in the Company's favor, the decision would
provide a separate reason for dismissing PerSeptive's pending claims.
If the Court were to refuse to decide the related questions, or decide
them against the Company, the dismissal of the claims brought by
PerSeptive against the Company and mandated by the Court's April 3,
1997 decision would not be affected. The Company believes these
related issues should be evaluated by the Court of Appeals
simultaneously.
13
<PAGE> 14
There can be no assurance that the Company and Sepracor will prevail
in the pending litigation, and an adverse outcome in any of the patent
infringement actions on any of the chromatography patents would have a
materially adverse effect on the Company's future business and
operations. The Company would be required to repay to Beckman part of
certain payments if the Company terminates Beckman's right to use and
sell HyperD media because a court finds HyperD media infringes any
third party patents.
Substantial funds have been and continue to be expended in connection
with the defense of the litigation. Sepracor has agreed to control the
defense of the litigation, and Sepracor and the Company share equally
in expenses, net of insurance payments. In addition, in the event of
any settlement or judgment adverse to the Company, Sepracor has agreed
to indemnify the Company from and against any damages that the Company
is required to pay with respect to its manufacture, use or sale of
HyperD media products occurring prior to March 24, 1994.
Items 2 - 5. None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
<PAGE> 15
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.
BIOSEPRA INC.
Date: May 13, 1997
/s/ Jean-Marie Vogel
------------------------------------
Jean-Marie Vogel
President, Chief Executive
Officer and Director
(Principal Executive and Financial Officer)
Date: May 13, 1997
/s/ Peter M. Castellanos
-----------------------------------
Peter M. Castellanos
Director, Finance and Administration
(Chief Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,238,000
<SECURITIES> 0
<RECEIVABLES> 3,342,000
<ALLOWANCES> (130,000)
<INVENTORY> 3,084,000
<CURRENT-ASSETS> 10,834,000
<PP&E> 4,846,000
<DEPRECIATION> (2,672,000)
<TOTAL-ASSETS> 22,626,000
<CURRENT-LIABILITIES> 7,751,000
<BONDS> 1,100,000
<COMMON> 84,000
0
0
<OTHER-SE> 13,691,000
<TOTAL-LIABILITY-AND-EQUITY> 22,626,000
<SALES> 3,388,000
<TOTAL-REVENUES> 3,388,000
<CGS> 1,932,000
<TOTAL-COSTS> 1,932,000
<OTHER-EXPENSES> 2,046,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,000
<INCOME-PRETAX> (469,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (469,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (469,000)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
