<PAGE>
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 MARCH 31, 2000
-- or --
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ______
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0-25250
COMMISSION FILE NUMBER
OSTEX INTERNATIONAL, INC.
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
STATE OF WASHINGTON 91-1450247
STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER
2203 AIRPORT WAY SOUTH, SUITE 400, SEATTLE, WASHINGTON 98134
206-292-8082
ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
[N/A]
FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT
----------------
Indicate by checkmark 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 [ ]
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF MAY 8,
2000 WAS 12,472,139.
----------------
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OSTEX INTERNATIONAL, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
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Page
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ITEM 1 - FINANCIAL STATEMENTS
Condensed Balance Sheets F-1
Condensed Statements of Operations F-2
Condensed Statements of Cash Flows F-3
Notes to Condensed Financial Statements F-4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 4
PART II -- OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 4
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 4
</TABLE>
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OSTEX INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,609,000 $ 1,562,000
Short-term investments 6,221,000 6,838,000
Trade receivables and other current assets, net 793,000 1,142,000
Inventory, at cost 684,000 251,000
------------ ------------
Total current assets 9,307,000 9,793,000
------------ ------------
Property, Plant and Equipment, net 1,792,000 1,905,000
Other Assets 599,000 599,000
------------ ------------
Total assets $ 11,698,000 $ 12,297,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 247,000 $ 278,000
Accrued expenses 256,000 195,000
Current portion of note payable 58,000 115,000
------------ ------------
Total current liabilities 561,000 588,000
------------ ------------
Shareholders' Equity:
Common stock, $.01 par value, 50,000,000 authorized;
12,479,139 and 12,469,050 issued and outstanding at
March 31, 2000 and December 31, 1999 respectively 125,000 125,000
Additional paid-in capital 45,542,000 45,494,000
Accumulated items of comprehensive loss (125,000) (117,000)
Accumulated deficit (34,405,000) (33,793,000)
------------ ------------
Total shareholders' equity 11,137,000 11,709,000
------------ ------------
Total liabilities and shareholders' equity $ 11,698,000 $ 12,297,000
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-1
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OSTEX INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
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March 31, March 31,
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Product sales and research testing services $ 887,000 $ 901,0000
Cost of products sold 78,000 246,000
------------ ------------
Gross Profit 809,000 655,000
Operating Expenses:
Research and development 374,000 471,000
Selling, general and administrative 1,137,000 944,000
------------ ------------
Total operating expenses 1,511,000 1,415,000
------------ ------------
Loss from operations (702,000) (760,000)
Other Income, net 90,000 126,000
------------ ------------
Net loss $ (612,000) $ (634,000)
============ ============
Basic and diluted net loss per common share $ (0.05) $ (0.05)
Weighted average shares used in calculation 12,472,000 12,585,000
of net loss per share
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-2
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OSTEX INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------
March 31, March 31,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ (491,000) $(1,048,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (2,057,000) (4,091,000)
Proceeds from sales and maturities of short-term investments 2,666,000 3,956,000
Proceeds from sale of property, plant and equipment -- 15,000
Purchases of property, plant and equipment (40,000) --
----------- -----------
Net cash provided by (used in) investing activities 569,000 (120,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the exercise of stock options 26,000 1,000
Repurchase of common stock -- (211,000)
Payments on note payable (57,000) (50,000)
----------- -----------
Net cash used in financing activities (31,000) (260,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 47,000 (1,428,000)
CASH AND CASH EQUIVALENTS, beginning of period 1,562,000 2,744,000
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CASH AND CASH EQUIVALENTS, end of period $ 1,609,000 $ 1,316,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-3
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OSTEX INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed financial statements include the accounts of Ostex
International, Inc., a Washington corporation (the "Company"). These financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and pursuant to the rules and
regulations of the Securities and Exchange Commission. While these statements
reflect all normal recurring adjustments which are, in the opinion of
management, necessary for fair presentation of the results of the interim
periods, they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report filed on Form 10-K for the year ended
December 31, 1999.
2. COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income", which was effective for the
Company beginning January 1, 1998, establishes standards for reporting and
disclosure of comprehensive income. The components of comprehensive income for
the three months ended March 31, 2000 and March 31, 1999, are as follows:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
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<S> <C> <C>
Net Loss $(612,000) $ (634,000)
Unrealized (loss) on short-term investments (8,000) (1,000)
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Total comprehensive loss $(620,000) $ (635,000)
============= ==============
</TABLE>
F-4
<PAGE>
PART I -- FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
which reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to certain
risks and uncertainties, including those discussed below, that could cause
actual results or the timing of certain events to differ materially from
historical results or those anticipated. Words used herein such as "believes,"
"anticipates," "expects," "intends," and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements. In addition, the disclosures in this Item 2 under
the caption "Other Factors that May Affect Operating Results" consist
principally of a brief discussion of risks which may affect future results and
are thus, in their entirety, forward-looking in nature. Readers are urged to
carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports previously filed with the
Securities and Exchange Commission (the "Commission"), including the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999, that
attempt to advise interested parties of the risks and factors that may affect
the Company's business.
OVERVIEW
Ostex was incorporated in the State of Washington in 1989. The Company is
engaged in the discovery and commercialization of products associated with
osteoporosis and other collagen-related diseases. The Company believes that its
lead product, the OSTEOMARK(R) test, now available in multiple test formats,
incorporates breakthrough and patented technology in the area of bone resorption
measurement. As of March 31, 2000, the Company had 35 employees.
Osteoporosis is a significant health problem. One hundred million people
worldwide are currently at risk of osteoporotic fracture. Twenty-five percent of
all postmenopausal women are affected by osteoporosis. Thirty-five million
people suffer from bone loss from other diseases. According to the National
Osteoporosis Foundation (the "NOF"), annual osteoporosis-related costs in the
U.S. exceed $14 billion. In spite of the serious human and economic consequences
of these diseases (according to the NOF, the direct healthcare and indirect lost
productivity costs of osteoporosis exceed $10 billion annually in the U.S.
alone), medical intervention usually commences only after pain, immobility,
fractures, or other symptoms have appeared. The Company expects the osteoporosis
therapeutic market will continue to increase as the elderly population grows.
The Company also believes new therapeutic products are under development for
osteoporosis, some of which are in late-stage clinical trials, and that the
Osteomark test can be used to effectively predict a patient's response to
osteoporosis therapy and monitor existing therapies and other therapies which
may be developed.
The Company is the exclusive licensee of the Osteomark technology, known
clinically as the NTx test, which is available in urine and serum formats that
can aid in healthcare decision-making at early menopause and beyond. The
Osteomark test is a non-invasive diagnostic test which quantitatively indicates
the level of bone resorption. Individuals who are losing bone collagen at
accelerated rates may progress to low bone mass, a major cause of osteoporosis.
The Company believes that early identification of high levels of bone resorption
provides the opportunity to predict skeletal response (bone mineral density) to
hormonal antiresorptive therapy in postmenopausal women which are intended to
prevent the onset of osteoporosis. The Company also believes that the Osteomark
test aids clinicians in monitoring the effects of antiresorptive therapies in
postmenopausal women, as well as in older patients who have already lost
significant bone mass.
In May 1995, the Company's Osteomark test became commercially available
in the United States as a urinary test that provides a quantitative measure of
the excretion of cross-linked N-telopeptides of Type I collagen (NTx) as an
indicator of human bone resorption. In July 1996, the Company received expanded
claims for the urine test. The 1996 claims allow that an Osteomark test
measurement, if taken prior to the initiation of hormonal
1
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antiresorptive therapy, can be utilized to predict a patient's response to
that therapy, in terms of its effect on bone mineral density. Additionally,
the claims allow that the test can be used to measure the effect of
antiresorptive therapies in postmenopausal women, as well as individuals
diagnosed with osteoporosis and Paget's disease, and for the effect of
estrogen-suppressing therapies. In March 1998 the claims were further
expanded by allowing that, in addition to the 1996 claims, an Osteomark test
measurement can identify the probability of a decrease in bone mineral
density in postmenopausal women taking calcium supplements relative to those
treated with hormonal antiresorptive therapy.
In February 1999, Osteomark NTx Serum became the first and only
commercially available test in the United States that measures specific bone
breakdown by osteoclasts using a blood sample. The Company believes that the
use of a serum NTx test provides a number of advantages to testing
laboratories, including the elimination of the requirement to normalize NTx
values to creatinine concentration. The Company is manufacturing and
marketing the Osteomark test in an Enzyme-linked Immunosorbent Assay
("ELISA") format for testing urine or serum samples.
Worldwide promotion of the Osteomark urine test kits is also supported
by Johnson & Johnson Clinical Diagnostics, Inc. ("Johnson & Johnson"). In
1995 the Company entered into research, development, license and supply
agreements with Johnson & Johnson. These agreements grant Johnson & Johnson a
license to manufacture, sell and distribute certain products using Ostex's
bone resorption technology. Currently, Johnson & Johnson distributes in the
United States and certain foreign countries the Osteomark test in the
existing microtiter plate format. Ortho-Clinical Diagnostics, a Johnson &
Johnson company, announced in March 1999 the commercial availability of the
NTx test on its Vitros(R) automated analyzer. Ostex receives material
transfer payments and royalties on Johnson & Johnson's sales of products
incorporating the Ostex technology. Under the Johnson & Johnson license
agreement, the Company has the right to license its technology for use on
automated instruments to one other company in addition to Johnson & Johnson.
In 1992, Ostex entered into a research and development agreement and a
license agreement with Mochida Pharmaceutical Co., Ltd. ("Mochida"), a
Japanese pharmaceutical company, for the commercialization of the Osteomark
test in Japan. Under the research and development agreement, Mochida has an
option to license the NTx serum test and has paid Ostex $3,350,000 in
development fees to date. Future payments of $750,000 under the agreement are
contingent upon Mochida's decision to exercise its option. Under the license
agreement, Ostex granted Mochida exclusive marketing and distribution rights
to certain Ostex products in Japan. Since 1992, Mochida has paid Ostex
$2,500,000 in licensing fees for the Osteomark test. In January 1998, Mochida
launched the Osteomark test in Japan for the management of patients with
hyperparathyroidism and for patients with metastatic bone tumors. In December
1999, Mochida received an additional regulatory indication from the Japanese
Ministry of Health and Welfare for the Osteomark test for selecting suitable
drugs for the treatment of osteoporosis and monitoring efficacy of drug
therapy for osteoporosis. During 1999, Ostex sold Mochida the critical
reagents to be assembled into finished products in Japan by Mochida. In first
quarter 2000, Ostex began selling the finished product to Mochida.
The Company has, through an agreement with Metrika, Inc. ("Metrika") a
diagnostic device company, developed a physician's office "point-of-care"
Osteomark test device. The Company and Metrika developed the fully disposable
point-of-care NTx test as an indicator of bone resorption that computes a NTx
value and displays it digitally. In October 1999, the Osteomark NTx
Point-of-Care device became commercially available. At the same time, the
Company signed an agreement with PSS World Medical, Inc. as its exclusive
U.S. distribution partner of the NTx Point-of-Care device.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31,
1999
Total revenues were $887,000 for the quarter ended March 31, 2000,
compared to $901,000 for the quarter ended March 31, 1999. The decrease in
product sales was due primarily to the timing of orders and a delay in the
shipment of NTx urine kits in late March.
2
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The gross profit as a percentage of sales increased to 91% for the
quarter ended March 31, 2000 compared to 73% for the quarter ended March 31,
1999. The increase was due to a ramp up in production, improved manufacturing
processes, and certain inventory adjustments. The gross profit percentage can
also fluctuate depending on the average sales price per kit and sales mix for
both urine and serum. Management does not expect future quarterly results to
generate a gross profit percentage as favorable as that generated in the
quarter ended March 31, 2000.
The Company's research and development expenditures totaled $374,000
for the quarter ended March 31, 2000, compared to $471,000 for the quarter
ended March 31, 1999. The $97,000 decrease was attributable primarily to a
reduction in outside services and lower labor and labor related expenses
resulting from fewer personnel in first quarter 2000 versus the same period
in 1999.
Selling, general and administrative expenses totaled $1,137,000 for
the quarter ended March 31, 2000, compared to $944,000 for the quarter ended
March 31, 1999. The $193,000 increase was due primarily to higher
professional service fees and increased legal expenses related to the
Company's 1996 patent infringement lawsuit against a European competitor and
its U.S. distributor.
Net other income consists primarily of interest income and totaled
$90,000 for the quarter ended March 31, 2000, compared to $126,000 for the
quarter ended March 31, 1999. The decrease is due to a lower investment base
which resulted from using cash to fund the Company's operating losses.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash and cash equivalents and
short-term investments of $7,830,000, working capital of $ 8,746,000 and
total shareholders' equity of $11,137,000. As a result of funding operating
losses during the three months ended March 31, 2000, cash, cash equivalents
and short-term investments decreased by $570,000, working capital decreased
by $459,000 and shareholders' equity decreased by $572,000. During the
three-month period ended March 31, 2000, the Company purchased $40,000 in
property, plant and equipment and reduced notes payable by $57,000.
The Company's future capital requirements depend upon many factors,
including the effectiveness of Osteomark NTx Serum and Urine tests and the
new point-of-care device's commercialization activities and arrangements;
continued scientific progress in its research and development programs; the
costs involved in filing, prosecuting and enforcing patent claims; and the
time and costs involved in obtaining regulatory approvals. Depending on the
expenses associated with these activities and their effectiveness on sales
growth realization, additional funds from equity or debt financing may be
required in the future. There can be no assurance that such additional funds
will be available on favorable terms, if at all. If additional funds become
necessary, the Company may seek to raise additional capital if conditions in
the public equity markets are favorable or through private placements, even
if the Company does not have an immediate need for additional cash at that
time. If additional financing is not available, the Company believes that its
existing available cash, its future license and research revenues from
existing collaboration agreements, its current level of product sales and
interest income from short-term investments, and the impact of current cost
reduction activities, will be adequate to fund operations into the
foreseeable future.
OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS
The Company's operating results may fluctuate due to a number of
factors including, but not limited to: volume and timing of product sales,
pricing, market acceptance of the Company's products, changing economic
conditions in the healthcare industry, activities of competitors, delays and
increased costs of product and technology development, increased production
costs of the new point-of-care device, the Company's ability to develop and
maintain collaborative arrangements, the outcome of litigation, and the
effect of the Company's accounting policies and other risk factors detailed
in the Company's 1999 Form 10-K and other SEC filings. All of the foregoing
3
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factors are difficult for the Company to predict and can materially adversely
affect the Company's business and operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the board for approval this quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed herewith:
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
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.
OSTEX INTERNATIONAL, INC.
DATED: May 15, 2000 By /s/ Thomas A. Bologna
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Thomas A. Bologna
Chairman, President and Chief Executive Officer
(Principal financial and principal accounting officer)
4
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,609,000
<SECURITIES> 6,221,000
<RECEIVABLES> 570,000
<ALLOWANCES> 34,000
<INVENTORY> 684,000
<CURRENT-ASSETS> 9,307,000
<PP&E> 4,780,000
<DEPRECIATION> 2,988,000
<TOTAL-ASSETS> 11,698,000
<CURRENT-LIABILITIES> 561,000
<BONDS> 0
0
0
<COMMON> 125,000
<OTHER-SE> 11,012,000
<TOTAL-LIABILITY-AND-EQUITY> 11,698,000
<SALES> 887,000
<TOTAL-REVENUES> 887,000
<CGS> 78,000
<TOTAL-COSTS> 78,000
<OTHER-EXPENSES> 1,511,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> (612,000)
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<INCOME-CONTINUING> (612,000)
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<EXTRAORDINARY> 0
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<NET-INCOME> (612,000)
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