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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2002
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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Commission File Number 0-23678
BIOSPHERE MEDICAL, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 04-3216867
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Organization or Incorporation)
1050 Hingham St., Rockland, Massachusetts 02370
(Address of Principal Executive Offices) (Zip Code)
(781) 681-7900
(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
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The number of shares outstanding of the Registrant's Common Stock as of
August 2, 2002: 13,037,997 shares.
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BIOSPHERE MEDICAL, INC.
INDEX
Page
Part I - Financial Information ----
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 2002 and December 31, 2001 (unaudited).................3
Consolidated Condensed Statements of Operations for the
Three and Six Months Ended June 30, 2002 and 2001 (unaudited)...4
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 2002 and 2001 (unaudited).............5
Notes to Consolidated Condensed Financial Statements............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.....................................................22
Part II - Other Information
Item 1. Legal Proceedings................................................23
Item 4. Submission of Matters to a Vote of Security Holders..............23
Item 6. Exhibits and Reports on Form 8-K.................................23
Signatures.......................................................24
- 2 -
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
BIOSPHERE MEDICAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share data / unaudited)
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents....................... $ 9,469 $ 10,569
Marketable securities........................... 8,040 12,550
Accounts receivable, net of allowance
for doubtful accounts of $105 as of
June 30, 2002 and December 31, 2001............ 2,398 1,809
Inventories, net................................ 2,167 1,111
Receivable from related party................... -- 276
Prepaid and other current assets................ 353 282
------------ ------------
Total current assets........................ 22,427 26,597
Property and equipment, net..................... 1,716 1,570
Goodwill, net................................... 1,443 1,443
Other assets.................................... 381 374
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TOTAL ASSETS..................................... $ 25,967 $ 29,984
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 822 $ 771
Accrued compensation............................ 1,627 1,383
Other accrued expenses.......................... 1,233 1,569
Current portion of long-term debt
and capital lease obligations.................. 104 85
------------ ------------
Total current liabilities................... 3,786 3,808
Long-term debt and capital lease
obligations.................................... 299 303
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TOTAL LIABILITIES................................ $ 4,085 $ 4,111
============ ============
Stockholders' equity:
Common stock, $0.01 par value, 25,000,000
shares authorized; shares issued and
outstanding: 13,038,000 as of June 30, 2002
and 10,595,000 as of December 31, 2001......... 130 127
Additional paid-in capital...................... 80,951 80,583
Accumulated deficit............................. (59,320) (54,860)
Cumulative other comprehensive income........... 121 23
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TOTAL STOCKHOLDERS' EQUITY....................... 21,882 25,873
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ 25,967 $ 29,984
============ ============
The accompanying notes are an integral part of these
consolidated condensed financial statements.
- 3 -
BIOSPHERE MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data / unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
REVENUE:
Product revenues........................... $ 3,379 $ 2,163 $ 5,982 $ 4,010
Collaboration revenues..................... -- 250 -- 250
--------- --------- --------- ---------
TOTAL REVENUES.......................... 3,379 2,413 5,982 4,260
COSTS AND EXPENSES:
Cost of product revenues................... 879 589 1,592 1,108
Research and development................... 1,066 1,249 2,113 2,198
Selling and marketing...................... 1,973 2,286 4,428 4,346
General and administrative................. 1,695 673 2,531 1,729
--------- --------- --------- ---------
TOTAL COSTS AND EXPENSES................ 5,613 4,797 10,664 9,381
--------- --------- --------- ---------
LOSS FROM OPERATIONS.................... (2,234) (2,384) (4,682) (5,121)
Interest and other income, net............. 93 102 222 339
--------- --------- --------- ---------
NET LOSS................................ $ (2,141) $ (2,282) $ (4,460) $ (4,782)
========= ========= ========= =========
BASIC AND DILUTED NET LOSS PER SHARE......... $ (0.16) $ (0.22) $ (0.35) $ 0.45)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and diluted....................... 12,997 10,597 12,897 10,597
========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated condensed financial statements.
- 4 -
BIOSPHERE MEDICAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands / unaudited)
SIX MONTHS ENDED
JUNE 30,
---------------------
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $ (4,460) $ (4,782)
Adjustments to reconcile net loss to net cash used
in operating activities:
Provision for doubtful accounts...................... -- 80
Depreciation and amortization........................ 289 216
Non-cash stock-based compensation
to non-employees.................................... 38 --
Changes in operating assets and liabilities:
Accounts receivable................................ (517) (606)
Inventories........................................ (958) (168)
Prepaid and other assets........................... (72) (210)
Accounts payable................................... (6) 159
Accrued compensation............................... 199 (4)
Other accrued expenses............................. (394) 91
Payments from related party........................ 260 24
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Net cash used in operating activities.................. (5,621) (5,200)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..................... (333) (623)
Purchase of available for sale marketable
securities............................................ (8,040) --
Proceeds from the maturity of held to maturity
marketable securities................................. 12,550 --
--------- ---------
Net cash provided by (used in) investing activities.... 4,177 (623)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options
and warrants.......................................... 349 9
Proceeds from issuance of long-term debt
and capital leases.................................... 32 --
Principle payments under long-term debt
and capital lease obligations......................... (28) --
--------- ---------
Net cash provided by financing activities.............. 353 9
--------- ---------
Effect of exchange rate changes on cash and
cash equivalents....................................... (9) (57)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................ (1,100) (5,871)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......... 10,569 15,276
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 9,469 $ 9,405
========= =========
The accompanying notes are an integral part of these
consolidated condensed financial statements.
- 5 -
BIOSPHERE MEDICAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) NATURE OF BUSINESS
BioSphere Medical, Inc. (the "Company") was incorporated in Delaware in
December 1993. During 1999, the Company strategically refocused its business on
the development and commercialization of its proprietary Embosphere(R)
Microspheres for use in treating hypervascularized tumors and arteriovenous
malformations. Between February 1999 and October 2001, the Company acquired all
ownership interests in Biosphere Medical S.A. ("BMSA"), a French societe
anonyme. BMSA holds the license to the embolotherapy device that is the main
focus of the Company's business. In May 1999, the Company sold substantially all
of the assets relating to its former core business, chromatography, and changed
its name from BioSepra, Inc. to BioSphere Medical, Inc.
During 2000, the Company established two wholly owned subsidiaries to
pursue the development of other microsphere applications and technologies. In
April 2000, BioSphere Medical Japan, Inc., a Delaware corporation, was
established to develop and commercialize Embosphere Microspheres, EmboGold(TM)
Microspheres ("Microspheres") as well as HepaSphere SAP(TM) Microspheres in
Asia. In December 2000, BSMD Ventures, Inc., also a Delaware corporation, was
established to explore and develop alternative applications for the Company's
Microsphere platform technology.
The Company believes that existing working capital, together with
anticipated sales proceeds from its Microspheres and other medical device
products, will provide liquidity sufficient to allow the Company to meet its
expected spending obligations for at least the next twelve-month period, while
also allowing the further development and testing of other product candidates
and technologies. However, no assurances can be given that such revenues will,
in fact, be realized, or that the Company will have sufficient capital to meet
its obligations beyond the next twelve-month period. Should the Company not
realize some or all of its revenue projections, or otherwise fail to have
sufficient capital for its planned operations, it may be required to secure
alternative financing arrangements, pursue additional strategic partners and/or
defer or limit some or all of its sales, marketing, research, development and/or
clinical projects.
B) BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited
and have been prepared on a basis substantially consistent with the Company's
annual audited financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001. The consolidated
condensed financial statements include the accounts of the Company, and its
three wholly owned subsidiaries, BMSA, Biosphere Medical Japan, Inc. and BSMD
Ventures, Inc. All material inter-company balances and transactions have been
eliminated in consolidation. Certain information and footnote disclosures
normally included in the Company's annual audited financial statements have been
condensed or omitted. The consolidated condensed financial statements, in the
opinion of management, reflect all adjustments (including normal recurring
accruals) necessary for a fair statement of the results for the three and six
months ended June 30, 2002 and 2001. The results of operations for the presented
periods are not necessarily indicative of the results of operations to be
expected for the entire fiscal year. These consolidated condensed 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, 2001.
C) COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and other comprehensive income.
Other comprehensive income includes certain changes in equity that are excluded
from net loss. Specifically, the effects of foreign currency translation
adjustments and any unrealized gains or losses on available-for-sale marketable
securities are separately included in accumulated other comprehensive income
within stockholder's equity. For the six months ended June 30, 2002 and 2001,
the Company's comprehensive loss was $4,362,000 and $4,839,000, respectively.
- 6 -
BIOSPHERE MEDICAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
D) NET LOSS PER SHARE
Basic net loss per share is calculated based on the weighted average number
of common shares outstanding during the period. Diluted net loss per share
incorporates the dilutive effect of common stock equivalent options, warrants
and other convertible securities. Common stock equivalents, as calculated in
accordance with the treasury-stock accounting method equaled 2,311,132 and
3,246,673 as of June 30, 2002 and 2001, respectively. Common stock equivalents
have been excluded from the calculation of weighted average number of diluted
common shares, as their effect would be antidilutive for all periods presented.
E) IMPAIRMENT OF LONG-LIVED ASSETS
As of June 30, 2002, the Company has evaluated the potential impairment of
its long-lived assets with respect to events or changes in circumstances that
may indicate that the carrying amount of a recorded asset may not be
recoverable. Based on management's assessment as of June 30, 2002, the Company
has determined that no impairment of long-lived assets exists.
2. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with an original
maturity of ninety days or less to be cash equivalents. In accordance with the
Company's investment policies, surplus cash is invested in investment grade
corporate and government debt and asset backed securities. The Company
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such designation as of each balance sheet date. As of
December 31, 2001, all marketable securities were classified as held to maturity
as the Company had both the intent and ability to hold all such assets to
maturity. As of June 30, 2002, all marketable securities are classified as
current and available-for-sale since the Company has the ability to use such
securities to satisfy current liabilities. Marketable securities are carried at
their fair value with unrealized gains and losses included in accumulated other
comprehensive income in the accompanying balance sheet. The amortized cost of
debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, along with realized gains and losses
on available-for-sale securities, are included in other income and expense. As
of June 30, 2002, the Company's cash, cash equivalents and marketable securities
amortized cost approximates fair value and are as follows (in thousands):
JUNE 30,
2002
-----------
Cash and money market funds....... $ 9,469
Corporate debt and asset
backed securities................ 1,698
Government securities............. 6,342
-----------
Total.......................... 17,509
Less amounts classified as
cash and cash equivalents........ (9,469)
-----------
Total marketable securities.... $ 8,040
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3. INVENTORIES
Inventories are stated at the lower of cost or market and consist of the
following (in thousands) :
JUNE 30, DECEMBER 31,
2002 2001
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Raw material ..................... $ 220 $ 185
Work in progress ................. 705 269
Finished goods ................... 1,242 657
----------- -----------
$ 2,167 $ 1,111
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BIOSPHERE MEDICAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
4. SEGMENT AND GEOGRAPHIC DATA
The Company develops Microspheres for use in the treatment of
hypervascularized tumors and arteriovenous malformations. The Company operates
exclusively in the medical device business, which the Company considers as one
business segment. Operations are primarily conducted in two geographic regions:
North America and Europe. Operations by geographic region for the three and six
months ended June 30, 2002 and 2001 are as follows (in thousands:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2002 2001 2002 2001
--------- --------- --------- ---------
REVENUES
NORTH AMERICA
Unaffiliated customers................. $ 2,462 $ 1,449 $ 4,196 $ 2,515
Related parties........................ 84 -- 92 --
Collaboration revenues................. -- 250 -- 250
--------- --------- --------- ---------
TOTAL REVENUES - NORTH AMERICA....... $ 2,546 $ 1,699 $ 4,288 $ 2,765
--------- --------- --------- ---------
EUROPE
Unaffiliated customers -
(primarily French).................. 780 607 1,518 1,271
Related parties....................... 977 801 1,898 1,777
Transfer to other geographic areas.... 137 107 268 224
--------- --------- --------- ---------
TOTAL REVENUES - EUROPE.............. 1,894 1,515 3,684 3,272
--------- --------- --------- ---------
ELIMINATION AND ADJUSTMENTS.............. (1,061) (801) (1,990) (1,777)
--------- --------- --------- ---------
TOTAL REVENUES....................... $ 3,379 $ 2,413 $ 5,982 $ 4,260
========= ========= ========= =========
OPERATING INCOME (LOSS)
UNITED STATES............................ $ (1,879) $ (2,780) $ (4,166) $ (5,677)
EUROPE................................... (262) 498 (294) 895
--------- --------- --------- ---------
NET LOSS............................. $ (2,141) $ (2,282) $ (4,460) $ (4,782)
========= ========= ========= =========
5. RELATED PARTY TRANSACTIONS
As of December 31, 2001, receivable from related party represented $343,000
in offering expenses that Sepracor, Inc., had agreed to pay as a result of
Sepracor's 2.0 million share participation in the July 2001 secondary offering
of a total of 4.0 million shares of the Company's common stock. Partially
offsetting the total receivable from related party were amounts due to Sepracor
for certain health benefits paid by Sepracor on the Company's behalf, along with
related health benefit administrative services provided on an arms-length basis
through October 2001. As of June 30, 2002, all related party commitments have
been settled in full.
6. STOCK-BASED COMPENSATION TO NON-EMPLOYEES
In connection with stock options previously issued to non-employee medical
board advisors, the Company, in accordance with Emerging Issues Task Force
Abstract 96-18 "Accounting for equity instruments that are issued to other than
employees for acquiring, or in conjunction with selling, goods or services"
("EITF 96-18"), recognized $38,000 in non-employee compensation expense during
the three-month period ended June 30, 2002. The fair value of the non-employee
stock options was derived from the Black-Scholes option-pricing model.
- 8 -
BIOSPHERE MEDICAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
7. CREDIT FACILITY
In May 2002, the Company entered into a two-year credit facility with a
bank under which we may borrow, subject to limitations defined in the agreement,
up to $5.0 million for general working capital and corporate purposes. There
were no borrowings outstanding under this agreement as of June 30, 2002.
Interest on each advance shall bear interest at a per annum rate that the
Company may select equal to either (i) a variable rate as determined by the bank
or (ii) a rate equal to the LIBOR rate (2.25 % as of June 30, 2002) plus a LIBOR
rate spread as determined by certain Company financial conditions in effect at
the time of the advance. Our ability to borrow under this credit line is
dependent upon maintenance of certain financial ratios and levels of cash and
cash equivalents and tangible capital bases. In connection with the credit
facility, we have entered into a security agreement pursuant to which we have
pledged to the bank all of our U.S. assets, excluding our equity ownership of
BMSA, as collateral.
8. RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company prospectively adopted Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets" and as a result, the Company will cease to amortize the $1.44 million in
goodwill recorded as of December 31, 2001. During the quarter ended June 30,
2001, the Company recorded approximately $43,000 of amortization expense within
our general and administrative expense category and would have recorded an
estimated $50,000 of amortization expense during the three month period ended
June 30, 2002. In lieu of periodic amortization, the Company was required to
perform an initial impairment review of its goodwill in 2002 and an annual
impairment review thereafter. Based upon the initial review performed, the
Company did not record any impairment charges.
On October 20, 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS
No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and For Long-Lived Assets to be Disposed of," however it retains the
fundamental provision of that statement related to the recognition and
measurement of the impairment of long-lived assets to be held and used. In
addition, SFAS No. 144 provides additional guidance on estimating cash flows
when performing a recoverability test, requiring that a long-lived asset to be
disposed of other than by sale be classified as an asset held for sale until it
is disposed of, and establishes more restrictive criteria to classify an asset
as held for sale. SFAS No. 144 became effective in the first quarter of 2002.
Application of SFAS No. 144 did not have any effect on our consolidated
financial position or consolidated results of operations as the Company believes
no impairment exists at this time.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of our financial condition and results of operations
should be read in conjunction with the Condensed Consolidated Financial
Statements and the related Notes contained elsewhere in this report.
OVERVIEW
BioSphere Medical, Inc., ("we," or the "Company") is pioneering the use of
our proprietary bio-engineered acrylic beads, known as microspheres, for medical
applications using embolotherapy techniques and also to develop potential
applications in several non-embolotherapy applications. Embolotherapy is a
minimally invasive procedure in which embolic materials, such as our
Embosphere(R) Microspheres and EmboGold(TM) Microspheres (our "Microspheres"),
are delivered through a catheter into the blood vessels to inhibit blood flow to
tumors or vascular defects or to control blood loss presurgically. Our
Microsphere embolotherapy products, are targeted for the treatment of
hypervascularized tumors and arteriovenous malformations. Hypervascularized
tumors are tumors that have a large number of blood vessels feeding them and
include certain tumors affecting the brain and spinal cord, tumors in the
uterus, known as uterine fibroids, and tumors associated with primary liver
cancer. By selectively blocking the tumor's blood supply, embolotherapy is
designed to cause the tumor to shrink and necrose. Based on preliminary
research, we believe that our Microsphere technology platform can also be
adapted to deliver drugs, living tissue or genetic material to targeted sites.
The Company was originally incorporated in 1993. During 1999, we
strategically refocused our business on the development and commercialization of
our proprietary Microspheres for medical applications. In February 1999, we
acquired a 51% ownership interest in Biosphere Medical S.A., a French societe
anonyme, which we refer to as BMSA. Between April 2000 and October 2001, we
acquired the remaining ownership interest in BMSA. BMSA retains the license to
the embolotherapy device that is the main focus of our business. In May 1999, we
sold substantially all of our assets relating to our former core business,
chromatography, and changed our name from BioSepra, Inc. to BioSphere Medical,
Inc. Sepracor Inc., a specialty pharmaceutical company, beneficially owned
approximately 25% of our outstanding capital stock as of June 30, 2002.
- 9 -
In April 2000, we received clearance from the United States Food and Drug
Administration (the "FDA") for embolization of hypervascularized tumors and
arteriovenous malformations, excluding specific marketing approval for uterine
fibroids. We intend, subject to FDA clearance or approval of our pending
specific marketing 510(k) application for UFE, to aggressively promote our
Microspheres for the treatment of uterine fibroids. We do not anticipate
receiving this clearance or approval before the last fiscal quarter of 2002, if
at all.
We received CE mark approval of our Microspheres product in the European
Union in 1997. CE mark approval is a certification granted by European
regulatory bodies, or by some manufacturers with satisfactory quality systems,
that substantiates the compliance of products with specific standards of quality
and/or safety. This approval is generally required prior to the
commercialization of a medical device in the European Union. In January 2000, we
received marketing approval of our Microspheres product in Australia and Canada.
Our revenues are primarily generated from product sales of our Microspheres
in the United States, European Union, Australia and Canada. Product revenues
also include the sale of barium and other ancillary device products manufactured
by us or by third parties. Although we have not received FDA clearance or
approval to specifically market our Microspheres for use in the treatment of
uterine fibroids, we believe that a majority of our revenues in the United
States for the three and six month periods ended June 30, 2002 and 2001 were
derived from the sale of our Microspheres for use in off-label uterine fibroid
embolization.
We have experienced operating losses in each fiscal period since our
inception. As of June 30, 2002, we had approximately $17.51 million in cash,
cash equivalents and marketable securities and an accumulated deficit of
approximately $59.32 million. In connection with our business plan to pursue
those critical programs designed to assist us in developing, expanding and
capturing a significant portion of the embolotherapy market, we expect to
experience continued quarterly losses through at least the next six-month
period.
We believe that existing working capital, together with anticipated sales
proceeds from our Embosphere Microspheres, EmboGold Microspheres and other
medical device product lines, will provide liquidity sufficient to allow us to
meet our expected spending obligations for at least the next twelve-month
period, while also allowing the further development and testing of other product
candidates and technologies. However, no assurances can be given that such
revenues will, in fact, be realized, or that we will have sufficient capital to
meet our obligations beyond the next twelve-month period. Should we not realize
some or all of our revenue projections, or otherwise fail to have sufficient
capital for our operations, we may be required to secure alternative financing
arrangements, pursue additional strategic partners, and/or defer or limit some
or all of our sales, marketing, research, development and/or clinical projects.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets and
liabilities, revenues and expenses, and related disclosure at the date of our
financial statements. Areas where judgments are made include revenue
recognition, accounts receivable, inventories and deferred taxes. Actual results
could differ materially from these estimates. There were no material changes in
our judgments or estimates during the first six months of 2002. For a more
detailed explanation of the judgments made in these areas, refer to our Annual
Report on Form 10-K for the year ended December 31, 2001.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 AND 2001
Total revenues increased to $3.38 million for the three-month period ended
June 30, 2002 from $2.41 million for the same period in 2001. The $970,000, or
40%, increase in total revenues in the year-to-year quarters was due primarily
to an increase in the sales volume of our Microspheres in the United States.
Also contributing to the revenue growth was an increase in the average per unit
selling price driven by the September 2001 introduction of the EmboGold
Microspheres pre-filled syringe package as well as the May 2002 introduction of
the new EmboSphere pre-filled syringe package. Total North American product
revenue increased $1.01 million, or 70%, from $1.45 million in the three-month
period ended June 30, 2001 to $2.46 million in same period ended June 30, 2002.
Included in total revenues in the three-month period ended June 30, 2001 was
$250,000 in collaboration revenues earned in connection with a supply agreement
that has been terminated.
- 10 -
Cost of product revenues for the three-month period ended June 30, 2002 was
$879,000, compared with $589,000 for the same period in 2001. The $290,000, or
49%, increase in the cost of product revenues was due to a 56% increase in
product revenues partially offset by a shift in the product sales mix from the
European device products to the higher margin EmboSphere Microspheres and
EmboGold Microspheres products, predominantly in North America. Gross margin
from our Embosphere Microspheres, EmboGold Microspheres and all other
European-distributed device product sales for the three-month period ended June
30, 2002 was $2.50 million, or approximately 74% of product revenues, compared
with $1.57 million, or 73% of product revenues, for the same period in 2001.
Research and development expenses consist of (i) research to identify and
evaluate new and innovative embolotherapy products based on our platform
Microsphere technology, (ii) pre-clinical testing and clinical trials of product
candidates, and (iii) development related to improving clinical and commercial
manufacturing processes. Our research efforts are primarily focused in the
following areas:
- Continuing to advance our Microsphere technology for use in
embolotherapy applications;
- Developing next generation embolotherapy technologies, including
active Microsphere platforms that advance the scope of embolotherapy
into new therapeutic applications; and
- Building a broad, ancillary product portfolio to compliment
embolotherapy procedures.
Our research and development functions typically work on a number of
projects concurrently. In addition, except for clinical expenses, a substantial
amount of fixed research and development costs such as salary and salary related
benefits, facility depreciation, utilities and maintenance are shared among
various programs. Accordingly, we have not and do not plan to separately track
all specific costs for each of our research and development projects. We
estimate that during the three and six months ended June 30, 2002 and 2001, the
majority of our research and development expenses were related to clinical trial
costs, development and validation of our new EmboSphere products and packaging
formats, development and validation of our Embo-Cath catheter and Segway
Guidewire, as well as salaries and lab supplies related to our TempRx (TM) and
Hepasphere SAP(TM) programs.
In the three months ended June 30, 2002, total research and development
expenses decreased to $1.07 million, from $1.25 million in the same period in
2001. The $180,000, or 15%, decrease in the three months ended June 30, 2002 was
primarily due to the completion of our pivotal Phase II clinical trials aimed at
establishing clinical data to support FDA specific labeling clearance or
approval to use our Microsphere products in the treatment of uterine fibroids.
Total clinical costs were $283,000 and $532,000 for the three-month period ended
June 30, 2002 and 2001, respectively. Offsetting the decrease, to a limited
extent, was a slight increase in salary and related benefit expenses associated
with increased research and development functions in the United States. We
anticipate future research and development expenses should remain consistent
with current expense levels as other pipeline products progress through their
respective development and approval processes.
Selling and marketing expenses decreased to $1.97 million for the three
months ended June 30, 2002 from $2.29 million for the comparable period in 2001.
The $320,000, or 14%, decrease was primarily due to decreased contracted
clinician and physician training expenses incurred in conjunction with our
initial EmboSphere MicroSphere product launch and physician awareness campaign.
Also contributing to the decrease in the year-to-year periods was reductions in
salary and related benefit expenses associated with fewer territory managers in
our US sales force. Future selling and marketing expenses are expected to
increase consistent with the growth in our revenues and the embolization
industry in general.
General and administrative expenses increased to $1.70 million for the
three months ended June 30, 2002 from $673,000 for the comparable period in
2001. The $1.02 million, or 152%, increase was primarily due to executive
transition and severance expenses recorded in relation to the resignations of
the CEO as well as the European president during the three-month period ended
June 30, 2002. Also contributing to the increase was incremental salary and
benefit expenses associated with added administrative personnel needed to
accommodate growth within our business.
Interest and other income, net, in the three-month period ended June 30,
2002 was $93,000, compared to $102,000 in the comparable period in 2001. The
$9,000, or 9%, decrease in interest and other income, net, was primarily due to
differences in realized investment yields brought about by the significant
reductions in interest rates in the fourth quarter of 2001. To date, the Company
has not recorded a benefit for income taxes, as we believe the ability to
realize such tax benefits remains uncertain.
- 11 -
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
Total revenues increased to $5.98 million for the six-month period ended
June 30, 2002 from $4.26 million for the same period in 2001. The $1.72 million,
or 40%, increase in total revenues was primarily due to the 43% increase in
product revenues resulting from increases in both sales volume and average
selling price of our Microspheres, principally in the United States. Offsetting
the total revenue increase was the absence, in 2002, of $250,000 in
collaboration revenue recorded in connection with a supply agreement that has
been terminated.
Cost of product revenues for the six-month period ended June 30, 2002 was
$1.59 million, compared with $1.11 million for the same period in 2001. The
$480,000, or 43%, increase in the cost of product revenues was due largely to
the 49% increase in product revenues, partially offset by a continued shift in
the product sales mix to the Embosphere Microspheres and EmboGold Microspheres
products, predominantly in North America. Gross margin from our Embosphere
Microspheres, EmboGold Microspheres and all other ancillary product sales for
the six-month period ended June 30, 2002 was $4.39 million, or approximately 73%
of product revenues, compared with $2.90 million, or 72% of product revenues,
for the same period in 2001.
Research and development expenses decreased to $2.11 million in the six
months ended June 30, 2002, from $2.20 million in the same period in 2001. The
$90,000, or 4%, decrease in the year-to-year periods was primarily due to
reduced costs related to the recent completion of our pivotal Phase II clinical
trials to support our FDA specific labeling clearance or approval to use our
Microsphere products in the treatment of uterine fibroids. Selling and marketing
expenses increased to $4.43 million for the six months ended June 30, 2002 from
$4.35 million for the comparable period in 2001. The $80,000, or 2%, increase
was primarily due to product launch expenses incurred in connection with our
EmboGold, EmboSphere pre-filled syringe and new EmboSphere Vial products as well
as increased interventional radiologist marketing and trade show spending in the
first quarter of 2002. Offsetting the total increase was a decrease in
contracted clinician and physician training expenses.
General and administrative expenses increased to $2.53 million for the six
months ended June 30, 2002 from $1.73 million for the comparable period in 2001.
The $800,000 or 46%, increase was primarily due to executive transition and
severance expenses recorded with the resignations of the CEO as well as the
European president in the three-month period ended June 30, 2002. Also
contributing to the increase was incremental salary and benefit expenses
resulting from additional administrative personnel needed to accommodate growth
within our business. Offsetting the total general and administrative expense
increase was the absence of litigation defense expenses in the six months ended
June 30, 2002. Specifically, during the three-month period ended March 31, 2001,
we incurred additional legal costs in defense of a legal proceeding, which was
settled in May 2001. Additional offsets to the total increase in general and
administrative expenses resulted from the elimination of goodwill amortization
expenses as required under Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets."
Interest and other income, net, in the six-month period ended June 30, 2002
was $220,000, compared to $340,000 in the comparable period in 2001. The
$120,000, or 35%, decrease in interest and other income, net, was primarily due
to differences in realized investment yields resulting from reductions in both
invested principal balances and interest rates since the fourth quarter of 2001.
Also contributing to the decrease in interest and other income was the effect of
foreign currency fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
We have historically funded our operations from product sales, net proceeds
provided from public and private equity offerings, funds provided by the sale of
our former chromatography business, funds provided by Sepracor, bank financing,
equipment financing leases and, to a lesser extent, exercises of stock options.
As of June 30, 2002, we had $17.51 million in cash, cash equivalents and
marketable securities as well as $18.64 million in net working capital. In July
2001, we issued 2.0 million shares of common stock in a follow-on public
offering resulting in net proceeds to us of approximately $20.35 million.
- 12 -
For the six months ended June 30, 2002, we used $5.62 million in operating
activities primarily to fund our sales, marketing and product research and
development activities, as well as to finance working capital requirements
particularly in the United States. Notable working capital cash uses included
accounts receivable which grew by $517,000, primarily as a result our 30%
increase in revenues from the quarter ended March 31, 2002 to the quarter ended
June 30, 2002 and inventory which increased $958,000 in response to anticipated
revenue growth and new product introductions. Also contributing to our cash use
in the six-month period was a $394,000 reduction in accrued expenses primarily
related to the cash settlement of clinical trial expenses. Offsetting the total
cash used in operations was $260,000 in receipts from Sepracor, Inc. and
$199,000 in accrued compensation growth related to expensed but not paid
severance charges. Cash used in operations is expected to decrease, as product
revenue growth is expected to begin offsetting our working capital needs,
product development efforts and operational expenses.
Net cash provided by investing activities was $4.18 million for the six
months ended June 30, 2002, primarily all of which resulted from the maturity of
our held-to-maturity marketable securities. Offsetting the total increase was
$8.04 million in new available-for-sale marketable security purchases and
$333,000 in property and equipment purchases. Property and equipment purchases
during the six-month period ended June 30, 2002, included the acquisition and
partial implementation of a new management information system as well as
additional scientific, manufacturing and computer equipment needed for our
expansion in both the United States and France facilities. Future capital
expenditures are anticipated to remain at current levels over the next twelve to
eighteen month period consistent with our plan to expand our infrastructure
capabilities. If available on favorable terms, we expect to finance certain
future fixed asset acquisitions through leasing arrangements.
Net cash provided by financing activities was $353,000 for the six months
ended June 30, 2002, primarily all of which resulted from the exercise of common
stock options and warrants. Additionally, $32,000 was received in relation to
the leasing of new research and development equipment.
In May 2002, we entered into a two-year credit facility with a bank under
which we may borrow, subject to limitations defined in the agreement, up to $5.0
million for general working capital and corporate purposes. There were no
borrowings outstanding under this agreement as of June 30, 2002. Interest on
each advance shall bear interest at a per annum rate that we may select equal to
either (i) a variable rate as determined by the bank or (ii) a rate equal to the
LIBOR rate (2.25 % as of June 30, 2002) plus a LIBOR rate spread as determined
by certain Company financial conditions in effect at the time of the advance.
Our ability to borrow under this credit line is dependent upon maintenance of
certain financial ratios and levels of cash and cash equivalents and tangible
capital bases. In connection with the credit facility, we have entered into a
security agreement pursuant to which we have pledged to the bank all of our U.S.
assets, excluding our equity ownership of BMSA as collateral.
We believe that our existing cash and other working capital, including the
approximate $17.51 million in cash and cash equivalents that we have as of June
30, 2002, will be sufficient to fund our operating and capital requirements, as
currently planned, at least through the next twelve-month period. However, our
cash requirements may vary materially from those now planned due to changes in
anticipated research and development efforts, the scope and results of
pre-clinical and clinical testing, changes in the focus and direction of our
research and development programs, competitive and technological advances, the
timing and results of FDA regulatory review, the market's acceptance of any
approved products, and other factors.
We expect to incur substantial additional costs, including costs related to
ongoing research and development activities, pre-clinical studies, clinical
trials, the expansion of our manufacturing, laboratory and administrative
functions as well as costs relating to further market development and
commercialization efforts. We may also need additional funds for possible
strategic acquisitions of synergistic businesses, products and/or technologies.
These additional funds may be raised from time to time through additional public
or private sales of equity, through borrowings, or through other financings.
There are no assurances that we will be able to obtain any additional funding
that may be required on acceptable terms.
Except as referred to above, we have not had any material changes in our
borrowings, our borrowing arrangements, contractual cash commitments and related
party transactions since December 31, 2001. For a discussion of our contractual
cash commitments and related party transactions, refer to our Annual Report on
Form 10-K for the year ended December 31, 2001.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, we prospectively adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets"
and as a result, we will cease to amortize the $1.44 million in goodwill
recorded as of December 31, 2001. During the quarter ended June 30, 2001, we
recorded approximately $43,000 of amortization expense within our general and
administrative expense category and would have recorded an estimated $50,000 of
amortization expense during the three month period ended June 30, 2002. In lieu
of periodic amortization, we were required to perform an initial impairment
review of our goodwill in 2002 and an annual impairment review thereafter. Based
upon the review performed, we did not record any impairment charges.
- 13 -
On October 20, 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and For Long-Lived Assets to be Disposed of," however it retains the
fundamental provision of that statement related to the recognition and
measurement of the impairment of long-lived assets to be held and used. In
addition, SFAS No. 144 provides additional guidance on estimating cash flows
when performing a recoverability test, requiring that a long-lived asset to be
disposed of other than by sale be classified as an asset held for sale until it
is disposed of, and establishes more restrictive criteria to classify an asset
as held for sale. SFAS No. 144 became effective in the first quarter of 2002.
Application of SFAS No. 144 did not have any effect on our consolidated
financial position or consolidated results of operations as we believe no
impairment exists at this time.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains, in addition to historical
information, forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, including information with respect
to timing and likelihood or regulatory approval of products under development,
market acceptance of our products and expected results of operations. These
forward-looking statements involve risks and uncertainties and are not
guarantees of future performance. The Company's actual results could differ
significantly from the results discussed in such forward-looking statements due
to a number of important factors, including those set forth below. You should
carefully consider each of these risks and uncertainties in evaluating our
business, financial condition and results of operations. The forward-looking
information provided herein represents the Company's estimates as of the date of
this report. Subsequent events and developments may cause these estimates to
change. The Company cautions you that while it may elect to update this
forward-looking information at some point in the future, it specifically
disclaims any obligation to do so.
RISK RELATING TO OUR FUTURE PROFITABILITY
- -----------------------------------------
BECAUSE WE HAVE A HISTORY OF LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN,
OUR COMMON STOCK IS A SPECULATIVE INVESTMENT
We have incurred operating losses since our inception and, as of June 30, 2002,
had an accumulated deficit of approximately $59.32 million. We expect to spend
substantial funds to continue research and product testing, to establish sales,
marketing, quality control, regulatory, manufacturing and administrative
capabilities and for other general corporate purposes. We expect to continue to
incur operating losses for at least the next several fiscal quarters as we
expand our commercialization efforts.
We may never become profitable. If we do become profitable, we may not remain
profitable on a continuing basis. Our failure to become and remain profitable
would depress the market price of our common stock and impair our ability to
raise capital and expand, diversify or continue our operations.
RISKS RELATING TO OUR INDUSTRY, BUSINESS AND STRATEGY
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IF WE DO NOT ACHIEVE WIDESPREAD MARKET ACCEPTANCE OF OUR MICROSPHERES PRODUCTS,
OUR BUSINESS PROSPECTS WILL BE SERIOUSLY HARMED
Our Microspheres are based on new technologies and therapeutic approaches. In
the United States, we have been selling our Microspheres product for the
embolization of hypervascularized tumors and arteriovenous malformations since
the first half of 2000. We are required to obtain additional FDA approval before
we can market our Microspheres in the United States for specific use in the
embolization of uterine fibroids. We do not expect FDA approval for this
indication until the last fiscal quarter of 2002, if at all. Our success will
depend upon the medical community, patients and third party payors accepting our
Microspheres product as medically therapeutic, cost-effective and safe. In
particular, our success will depend upon obstetrics and gynecology physicians
referring patients to interventional radiologists to receive treatment using our
products in lieu of, or in addition to, receiving other forms of treatment that
the obstetrics and gynecology physicians can otherwise provide directly.
- 14 -
Negative publicity associated with any adverse medical effects attributed to
embolization treatments generally or our product specifically, may create the
market perception that our products are unsafe. For example, patients commonly
experience a day or two of post-procedure abdominal pain or cramping. Other
infrequently occurring complications may include allergic reactions, rashes,
early onset of menopause, infertility and infection that may, in some cases,
require a hysterectomy. In addition, our Microspheres are designed to remain in
the body permanently. As a result, there is some risk that some or all of the
Microspheres used in a medical procedure may travel in the blood system beyond
the intended surgical site and occlude, or block, other blood vessels, resulting
in the potential for significant adverse health effects on the patient or, in a
worst case, even death. Moreover, to use our Microspheres correctly for a
particular medical procedure, physicians must select and use the proper size and
quantity of Embosphere Microspheres. A physician's selection and use of the
wrong size or quantity of our Microspheres could potentially have significant
adverse health effects on the patient, including death. It will be necessary for
us to spend significant amounts of money and allocate management resources to
educate physicians about the selection and use of the proper size and quantity
of Microspheres in patient therapy. In addition, there is only limited data
concerning the long-term health effects on persons receiving embolotherapy using
our Embosphere Microspheres.
If we are not able to successfully educate physicians to properly use our
product, or if the market determines or concludes that our product is not safe
or effective for any reason, we may be exposed to product liability claims,
product recalls, fines or other penalties or enforcement actions by regulatory
agencies and associated adverse publicity. In addition, we have provided to our
customers a satisfaction guarantee that requires us to accept the return of any
inventory and credit the entire amount of the original order if a properly
trained customer is not satisfied with the performance of our Microspheres. If
we experience adverse publicity or are subject to product liability claims,
excessive guarantee claims, recalls, fines and the like, we will be unable to
achieve widespread market acceptance of our Embosphere Microsphere products and
achieve profitability.
WE WILL BE REQUIRED TO EXPEND SIGNIFICANT RESOURCES FOR RESEARCH, DEVELOPMENT,
TESTING AND REGULATORY APPROVAL OF OUR PRODUCTS UNDER DEVELOPMENT AND THESE
PRODUCTS MAY NOT BE DEVELOPED SUCCESSFULLY
We are developing and commercializing products for medical applications using
embolotherapy techniques and also seeking to develop potential applications in
several non-embolotherapy applications. Except for our Embosphere Microspheres,
Embo-Cath catheter and Segway guidewire products, most of our product candidates
are still in the early stages of research and development. Our products may not
provide greater benefits than current treatments or products, or alternative
treatments or products under development. All of our products under development
will require significant additional research, development, pre-clinical and/or
clinical testing, regulatory approval and a commitment of significant additional
resources prior to their commercialization. Our potential products may not:
- be developed successfully;
- be proven safe and effective in clinical trials;
- offer therapeutic or other improvements over current treatments and
products;
- meet applicable regulatory standards or receive regulatory approvals;
- be capable of production in commercial quantities at acceptable costs;
or
- be successfully marketed.
IF WE DO NOT DEVELOP AND INTRODUCE NEW PRODUCTS WE MAY NOT ACHIEVE REVENUE
OPPORTUNITIES
We derived more than a majority of our revenues for the six-month periods ended
June 30, 2002 and 2001 from the sale of Embosphere Microspheres. In addition,
although we have not received FDA clearance or approval to market of our
Microspheres for the specific use in the treatment of uterine fibroids, we
believe that a majority of our revenues in the United States for the six-month
periods ended June 30, 2002 and 2001 was derived from the sale of our
Microspheres for use in uterine fibroid embolization. We derived approximately
14% of our revenues for the six-month period ended June 30, 2002, and 22% of our
revenues for six-month periods ended June 30, 2001 from the sale of
non-strategic products that we do not expect to constitute a significant portion
of our revenues on an ongoing basis. Accordingly, we need to develop and
introduce new applications for our embolotherapy technology and pursue
opportunities for Microsphere technology in other medical applications. If we
are not successful in developing new applications and products, we may not
achieve revenue opportunities.
- 15 -
IF WE EXPERIENCE DELAYS, DIFFICULTIES OR UNANTICIPATED COSTS IN ESTABLISHING THE
SALES, DISTRIBUTION AND MARKETING CAPABILITIES NECESSARY TO SUCCESSFULLY
COMMERCIALIZE OUR PRODUCTS, WE WILL HAVE DIFFICULTY MAINTAINING AND INCREASING
OUR SALES
We are currently developing sales, distribution and marketing capabilities in
the United States and have only limited sales, distribution and marketing
capabilities in the European Union. It is expensive and time-consuming for us to
develop a global marketing and sales force. Moreover, we may choose, or find it
necessary, to enter into strategic collaborations to sell, market and distribute
our products. For example, BMSA has entered into an exclusive, multi-year
distribution agreement with Terumo Europe N.V. ('Terumo") pursuant to which
Terumo has become the exclusive distributor and marketing partner for our
Microspheres products in certain countries of the European Union. We may not be
able to provide adequate incentive to our sales force or to establish and
maintain favorable distribution and marketing collaborations with other
companies to promote our products. In addition, any third party with whom we
have established a marketing and distribution relationship may not devote
sufficient time to the marketing and sale of our product. Any third-party
collaborators and we must also market our products in compliance with federal,
state and local laws relating to the providing of incentives and inducements.
Violation of these laws can result in substantial penalties. If we are unable to
successfully motivate and expand our marketing and sales force and further
develop our sales and marketing capabilities, or if our distributors fail to
promote our products, we will have difficulty maintaining and increasing our
sales.
IF WE ARE UNABLE TO OBTAIN ADEQUATE PRODUCT LIABILITY INSURANCE, THEN WE MAY
HAVE TO PAY SIGNIFICANT MONETARY DAMAGES IN A SUCCESSFUL PRODUCT LIABILITY CLAIM
AGAINST US
The development and sale of medical devices entails an inherent risk of product
liability. Product liability insurance is generally expensive for medical device
companies such as ours. Although we maintain limited product liability insurance
coverage for our products, it is possible that we will not be able to obtain
further product liability insurance on acceptable terms, if at all. Insurance we
subsequently obtain may not provide us with adequate coverage against all
potential claims. If we are exposed to product liability claims for which we
have insufficient insurance, we may be required to pay significant damages which
would prevent or delay our ability to commercialize our products.
IF WE ARE NOT ABLE TO COMPETE EFFECTIVELY, WE MAY EXPERIENCE DECREASED DEMAND
FOR OUR PRODUCTS, WHICH MAY RESULT IN PRICE REDUCTIONS
We have many competitors in the United States and abroad, including medical
device, biotechnology and other alternative therapeutic companies, universities
and other private and public research institutions. Our success depends upon our
ability to develop and maintain a competitive position in the embolotherapy
market. Our key medical device competitors are Cordis Corporation, a Johnson &
Johnson company, Boston Scientific Corporation and Cook Incorporated. These and
many of our other competitors have greater capabilities, experience and
financial resources than we do. As a result, they may develop products that
compete with our Microspheres product more rapidly or at less cost than we can.
Currently, the primary products with which our Microspheres compete for some of
our applications are polyvinyl alcohol, polymerizing gels and coils. In
addition, our competitors may develop technologies that render our products
obsolete or otherwise noncompetitive.
We may not be able to improve our products or develop new products or
technologies quickly enough to maintain a competitive position in our market and
continue to commercially develop our business. Moreover, we may not be able to
compete effectively, and competitive pressures may result in less demand for our
products and impair our ability to become profitable.
- 16 -
IF WE FAIL TO MAINTAIN, OR IN SOME INSTANCES OBTAIN, AN ADEQUATE LEVEL OF
REIMBURSEMENT FOR OUR PRODUCTS BY THIRD-PARTY PAYORS, THERE MAY BE NO
COMMERCIALLY VIABLE MARKETS FOR OUR PRODUCTS
The availability and levels of reimbursement by governmental and other third
party payors affects the market for any medical device. We may not be able to
sell our products profitably if reimbursement is unavailable or limited in scope
or amount. Some insurance companies do not fully reimburse for embolization
procedures. These third-party payors continually attempt to contain or reduce
the costs of healthcare by challenging the prices that companies such as ours
charge for medical products. In some foreign countries, particularly the
countries of the European Union where our Microspheres product is currently
marketed and sold, the pricing of medical devices is subject to governmental
control and the prices charged for our products have in some instances been
reduced as a result of these controls. Additionally, in both the United States
and some foreign jurisdictions, there have been a number of legislative and
regulatory proposals to change the healthcare system. Further proposals are
likely. These proposals, if adopted, could result in less revenues per procedure
for us, and could affect our ability to market our products profitably.
IF WE DO NOT RETAIN OUR SENIOR MANAGEMENT, OTHER KEY EMPLOYEES, SCIENTIFIC
COLLABORATORS AND ADVISORS, WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR
BUSINESS STRATEGY
The loss of key members of our management team could harm us. We also depend on
our scientific collaborators and advisors, all of who have other commitments
that may limit their availability to us. Our success is substantially dependent
on the ability, experience and performance of these members of our senior
management and other key employees, scientific collaborators and advisors.
Because of their ability and experience, if we lose one or more of these
individuals, we may not be able to successfully implement our business strategy.
IF WE DO NOT ATTRACT AND RETAIN SKILLED PERSONNEL, WE WILL NOT BE ABLE TO EXPAND
OUR BUSINESS
Our future success will depend in large part upon our ability to attract and
retain highly skilled scientific, operational, managerial and marketing
personnel, particularly as we expand our activities in product development, the
regulatory approval process and sales and manufacturing. We face significant
competition for these types of persons from other companies, research and
academic institutions, government entities and other organizations.
Consequently, if we are unable to attract and retain skilled personnel, we will
not be able to expand our business.
IF WE MAKE ANY ACQUISITIONS, WE WILL INCUR A VARIETY OF COSTS AND MAY NEVER
SUCCESSFULLY INTEGRATE THE ACQUIRED BUSINESS INTO OURS
We may attempt to acquire businesses, technologies, services or products that we
believe are a strategic complement to our business model. We may encounter
operating difficulties and expenditures relating to integrating an acquired
business, technology, service or product. These acquisitions may also absorb
significant management attention that would otherwise be available for ongoing
development of our business. Moreover, we may never realize the anticipated
benefits of any acquisition. We may also make dilutive issuances of equity
securities, incur debt or experience a decrease in the cash available for our
operations, or incur contingent liabilities in connection with any future
acquisitions.
BECAUSE SEPRACOR INC. AND OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A SIGNIFICANT
AMOUNT OF OUR COMMON STOCK, THEY MAY BE ABLE TO EXERT CONTROL OVER US
As of June 30, 2002, Sepracor Inc. owned approximately 25% of our outstanding
common stock. Moreover, two of our directors are executive officers of Sepracor.
Sepracor and our executive officers and directors will have significant control
over all corporate actions requiring stockholder approval irrespective of how
our other stockholders may vote, including:
- the election of directors;
- the amendment of charter documents;
- the approval of mergers and other significant corporate transactions,
including a sale of substantially all of our assets; and
- the defeat of any non-negotiated takeover attempt that might otherwise
benefit the public stockholders.
This ownership concentration could cause the market price of our common stock to
decline. In addition, conflicts of interest between Sepracor and us may arise,
including with respect to competitive business activities and control of our
management and our affairs.
- 17 -
RISKS RELATING TO REGULATORY MATTERS
- ------------------------------------
IF WE DO NOT OBTAIN THE REGULATORY APPROVALS REQUIRED TO MARKET AND SELL OUR
PRODUCTS, THEN OUR BUSINESS WILL BE UNSUCCESSFUL AND THE MARKET PRICE OF OUR
STOCK WILL SUBSTANTIALLY DECLINE
We are subject to regulation by government agencies in the United States and
abroad with respect to the manufacture, packaging, labeling, advertising,
promotion, distribution and sale of our products. For example, our products are
subject to approval or clearance by the FDA prior to marketing in the United
States for commercial use. Similar regulations exist in most major foreign
markets, including the European Union and Asia. The process of obtaining
necessary regulatory approvals and clearances will be time-consuming and
expensive for us. If we do not receive required regulatory approval or clearance
to market our products, we will not be able to develop and commercialize our
products and become profitable, and the value of our common stock will
substantially decline.
We are focusing our immediate product commercialization efforts on our
Embosphere Microspheres. In April 2000, we obtained clearance from the FDA to
market our Microspheres in the United States for the embolization of
hypervascularized tumors and arteriovenous malformations. However, before we can
specifically market Microspheres in the United States for use in the
embolization of uterine fibroids, we will require either FDA clearance of a
premarket notification under Section 510(k) of the Federal Food, Drug, and
Cosmetic Act, which we refer to as a 510(k) notification, or the more time
consuming and expensive approval of a premarket approval application. Although
we have submitted a 510(k) application for the specific labeling for the
treatment of uterine fibroids, we do not expect to receive the required
clearance or approval until at least the last quarter of 2002, if at all. We
cannot assure you that the data resulting from our recently completed clinical
study which was used as the basis of our 510(k) application will be considered
by the FDA to be sufficient to permit clearance or approval.
IF THE FDA OR OTHER REGULATORY AGENCIES PLACE RESTRICTIONS ON, OR IMPOSE
ADDITIONAL APPROVAL REQUIREMENTS WITH RESPECT TO, PRODUCTS WE ARE THEN
MARKETING, WE MAY INCUR SUBSTANTIAL ADDITIONAL COSTS AND EXPERIENCE DELAYS OR
DIFFICULTIES IN CONTINUING TO MARKET AND SELL THESE PRODUCTS
Even if the FDA grants us approval or clearance with respect to any of our
products, it may place substantial restrictions on the indications for which we
may market the product, which could result in lower revenues. The marketing
claims we are permitted to make in labeling or advertising regarding our
Microspheres are limited to those specified in any FDA clearance or approval.
For example, because our products are not currently specifically approved for
labeling for use for uterine fibroids, we may not promote them for this use.
However, we believe that a majority of our revenues in the United States for the
six months ended June 30, 2002 and 2001 was derived from the sale of our
Microspheres for use in uterine fibroid embolization.
We may in the future make modifications to our Microspheres or their labeling
which we determine do not necessitate the filing of a new 510(k) notification.
However, if the FDA does not agree with our determination, it will require us to
make additional 510(k) filings for the modification, and we may be prohibited
from marketing the modified product until we obtain FDA clearance. Similarly, if
we obtain premarket approval, we may not be able to make product or labeling
changes until we get FDA approval.
Further, the FDA has classified our embolotherapy device into Class III, which
means that even though we have obtained clearance under Section 510(k) to market
the device for certain indications, the FDA could in the future promulgate a
regulation requiring premarket approval of the device under Section 515 of the
Federal Food, Drug, and Cosmetic Act to allow it to remain on the market. We may
experience difficulty in providing the FDA with sufficient data for premarket
approval in a timely fashion, if at all. In addition, the FDA may require us to
conduct a postmarket surveillance study that would require us to track specific
elements of patient experience with our Microspheres product after we have begun
marketing it. If such a study revealed previously unknown adverse events or an
unexpectedly high rate of adverse events, the FDA could place further
restrictions on our marketing of the device, or rescind our clearance or
approval.
Our products will be subject to continuing FDA requirements relating to quality
control, quality assurance, maintenance of records, documentation,
manufacturing, labeling and promotion of medical devices. We are also required
to submit medical device reports to the FDA to report device-related deaths or
serious injuries, as well as malfunctions, the recurrence of which would be
likely to cause or contribute to a death or serious injury. These reports are
publicly available.
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IF WE FAIL TO COMPLY WITH REGULATORY LAWS AND REGULATIONS, WE WILL BE SUBJECT TO
ENFORCEMENT ACTIONS, WHICH WILL AFFECT OUR ABILITY TO MARKET AND SELL OUR
PRODUCTS AND MAY HARM OUR REPUTATION
If we fail to comply with applicable federal, state or foreign laws or
regulations, we could be subject to enforcement actions, which could affect our
ability to develop, market and sell our products successfully and could harm our
reputation and lead to less acceptance of our products by the market. These
enforcement actions include:
- product seizures;
- voluntary or mandatory recalls;
- voluntary or mandatory patient or physician notification;
- withdrawal of product clearances or approvals;
- withdrawal of investigational device exemption approval;
- restrictions on, or prohibitions against, marketing our products;
- fines;
- restrictions on importation of our products;
- injunctions;
- civil and criminal penalties; and
- withdrawal of premarket approval or rescission of premarket
notification clearance.
RISKS RELATING TO INTELLECTUAL PROPERTY
- ---------------------------------------
IF WE ARE UNABLE TO OBTAIN PATENT PROTECTION FOR OUR PRODUCTS, THEIR COMPETITIVE
VALUE COULD DECLINE
We may not obtain meaningful protection for our technology and products with the
patents and patent applications that we own or license relating to our
Microsphere technology or other ancillary products. In particular, the patent
rights we possess or are pursuing generally cover our technologies to varying
degrees, and these rights may not prevent others from designing products similar
to or otherwise competitive with our Microspheres and other products
commercialized by us. For example, our U.S. patent directed to copolymers used
to make our present Microspheres expired in June 2001. Two other U.S. patents
and their foreign equivalents are also directed to materials and methods for
performing embolization. To the extent that our competitors are able to design
products competitive with ours without infringing our intellectual property
rights, we may experience less market penetration with our products and,
consequently, we may have decreased revenues.
We do not know whether competitors have similar United States patent
applications on file, since United States patent applications filed before
November 28, 2000 or for which no foreign patents will be sought are secret
until issued, and applications filed after November 28, 2000 are published
approximately 18 months after their earliest priority date. Consequently, the
United States Patent and Trademark Office could initiate interference
proceedings involving our owned or licensed United States patent applications or
issued patents. Further, there is a substantial backlog of patent applications
at the United States Patent and Trademark Office, and the approval or rejection
of patent applications may take several years.
We require our employees, consultants and advisors to execute confidentiality
agreements. However, we cannot guarantee that these agreements will provide us
with adequate protection against improper use or disclosure of confidential
information. In addition, in some situations, these agreements may conflict
with, or be subject to, the rights of third parties with whom our employees,
consultants or advisors have prior employment or consulting relationships.
Further, others may independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our trade secrets. Our
failure to protect our proprietary information and techniques may inhibit or
limit our ability to exclude certain competitors from the market.
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IF WE BECOME INVOLVED IN EXPENSIVE PATENT LITIGATION OR OTHER PROCEEDINGS TO
ENFORCE OUR PATENT RIGHTS, WE COULD INCUR SUBSTANTIAL COSTS AND EXPENSES OR
SUBSTANTIAL LIABILITY FOR DAMAGES OR BE REQUIRED TO STOP OUR PRODUCT DEVELOPMENT
AND COMMERCIALIZATION EFFORTS
In order to protect or enforce our patent rights, we may have to initiate legal
proceedings against third parties, such as infringement suits or interference
proceedings. By initiating legal proceedings to enforce our intellectual
property rights, we may also provoke these third parties to assert claims
against us and, as a result, our patents could be narrowed, invalidated or
rendered unenforceable by a court. Furthermore, we may be sued for infringing on
the intellectual property rights of others. We may find it necessary, if
threatened, to initiate a lawsuit seeking a declaration from a court regarding
the proprietary rights of others. Intellectual property litigation is costly,
and, even if we prevail, could divert management attention and resources away
from our business.
The patent position of companies like ours generally is highly uncertain,
involves complex legal and factual questions, and has recently been the subject
of much litigation. We may not prevail in any patent-related proceeding. If we
do not prevail in any litigation, we could be required to pay damages, stop the
infringing activity, or obtain a license. Any required license might not be
available to us on acceptable terms, or at all. In addition, some licenses may
be nonexclusive, and therefore, our competitors may have access to the same
technology licensed to us. If we fail to obtain a required license or are unable
to design around a patent, we may be prevented from selling some of our
products, which could decrease our revenues.
IF ANY OF OUR LICENSES TO USE THIRD-PARTY TECHNOLOGIES IN OUR PRODUCTS ARE
TERMINATED, WE MAY BE UNABLE TO DEVELOP, MARKET OR SELL OUR PRODUCTS
We are dependent on various license agreements relating to each of our current
and proposed products that give us rights under intellectual property rights of
third parties. These licenses impose commercialization, sublicensing, royalty,
insurance and other obligations on us. Our failure, or any third party's
failure, to comply with the terms of any of these licenses could result in us
losing our rights to the license, which could result in us being unable to
develop, manufacture or sell products which contain the licensed technology.
RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING
- --------------------------------------------------------------
WE WILL CONTINUE TO NEED ADDITIONAL FUNDS, AND IF ADDITIONAL CAPITAL IS NOT
AVAILABLE, WE MAY HAVE TO LIMIT, SCALE BACK OR CEASE OUR OPERATIONS
We may need to raise additional funds to develop and commercialize our products
successfully. If we cannot raise more funds, we could be required to reduce our
capital expenditures, scale back our product development, reduce our workforce
and license to others products or technologies that we otherwise would seek to
commercialize ourselves. In May 2002, we entered into a two-year, $5.0 million
secured credit facility (see Note 7 to the Consolidated Condensed Financial
Statements). We may seek additional funding through collaborative arrangements,
borrowing money or the sale of additional equity securities. We may not receive
additional funding on reasonable terms or at all. Any sales of additional shares
of our capital stock are likely to dilute our existing stockholders.
Further, if we issue additional equity securities, the new equity securities may
have rights, preferences or privileges senior to those of existing holders of
our common stock. Alternatively, we may borrow money from commercial lenders,
possibly at high interest rates, which will increase the risk of your investment
in us.
IF OPERATING RESULTS FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER, THEN OUR
STOCK PRICE MAY DECLINE
Our operating results could fluctuate significantly from quarter to quarter.
These fluctuations may be due to several factors including the timing and volume
of customer orders for our commercial products, customer cancellations and
general economic conditions. We also expect that our operating results will be
affected by seasonality, since we expect our revenue growth to subside in the
third quarter of each year from the first two quarters of each year because we
do a significant percentage of our business in the European Union, which
typically experiences a slowdown of business during the summer months. Due to
these fluctuations, our operating results in some quarters may not meet the
expectations of our investors. In that case, our stock price may decline.
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In addition, a large portion of our expenses, including expenses for facilities,
equipment and personnel, are relatively fixed. Accordingly, if our revenues
declines or does not grow as much as we anticipate, we might not be able to
improve our operating margins. Failure to achieve anticipated levels of revenues
could therefore significantly harm our operating results for a particular fiscal
period.
RISKS RELATING TO THE PRODUCTION AND SUPPLY OF OUR PRODUCTS
- -----------------------------------------------------------
IF WE EXPERIENCE MANUFACTURING DELAYS OR INTERRUPTIONS IN PRODUCTION, THEN WE
MAY EXPERIENCE CUSTOMER DISSATISFACTION AND OUR REPUTATION COULD SUFFER
If we fail to produce enough products at our own manufacturing facility or at a
third-party manufacturing facility, we may be unable to deliver products to our
customers on a timely basis, which could lead to customer dissatisfaction and
could harm our reputation and ability to compete. We currently produce all of
our Microspheres products in one manufacturing facility in France and
sub-contract a majority of the final packaging process to an independent
contract manufacturer. We would likely experience significant delays or
cessation in producing our products at either of these facilities if a labor
strike, natural disaster, local or regional conflict or other supply disruption
were to occur. If we are unable to manufacture our products at our facility in
France, or package certain of our products with our contract manufacturer, we
may be required to enter into arrangements with one or more alternative contract
manufacturing companies. In addition, if we are required to depend on
third-party manufacturers, our profit margins may be lower, which will make it
more difficult for us to achieve profitability.
Also, medical device manufacturers, including us, must adhere to the FDA's
current Good Manufacturing Practices regulations, which are enforced by the FDA
through its facilities inspection program. The manufacturers may not be able to
comply or maintain compliance with Good Manufacturing Practices regulations. If
our manufacturers fail to comply, their non-compliance could significantly delay
our receipt of new product premarket approvals or result in FDA enforcement
action, including an embargo on imported devices. For a premarket approval
device, if we change our manufacturing facility or switch to a third-party
manufacturer we will be required to submit a premarket approval application
supplement before the change is implemented.
BECAUSE WE RELY ON A LIMITED NUMBER OF SUPPLIERS, WE MAY EXPERIENCE DIFFICULTY
IN MEETING OUR CUSTOMERS' DEMANDS FOR OUR PRODUCTS IN A TIMELY MANNER OR WITHIN
BUDGET
We currently purchase key components of our Microspheres from a variety of
outside sources. Some of these components may only be available to us through a
few sources. We generally do not have long-term agreements with any of our
suppliers.
Our reliance on our suppliers exposes us to risks, including:
- the possibility that one or more of our suppliers could terminate
their services at any time without penalty;
- the potential inability of our suppliers to obtain required
components;
- the potential delays and expenses of seeking alternative sources of
supply;
- reduced control over pricing, quality and timely delivery due to the
difficulties in switching to alternative suppliers; and
- the possibility that one or more of our suppliers could fail to
satisfy any of the FDA's required current Good Manufacturing Practices
regulations.
Consequently, in the event that our suppliers delay or interrupt the supply of
components for any reason, our ability to produce and supply our products could
be impaired, which could lead to customer dissatisfaction.
RISKS RELATING TO OUR FOREIGN OPERATIONS
- ----------------------------------------
IF WE ARE UNABLE TO MEET THE OPERATIONAL, LEGAL AND FINANCIAL CHALLENGES THAT WE
WILL ENCOUNTER IN OUR INTERNATIONAL OPERATIONS, WE MAY NOT BE ABLE TO GROW OUR
BUSINESS
Our worldwide manufacturing and European sales operations are currently
conducted primarily through our French subsidiary. Furthermore, we currently
derive a portion of our revenues from the sale of our Microspheres and other
products in the European Union. We are increasingly subject to a number of
- 21 -
challenges, which specifically relate to our international business activities.
Our international operations may not be successful if we are unable to meet and
overcome these challenges, which would limit the growth of our business. These
challenges include:
- failure of local laws to provide the same degree of protection against
infringement of our intellectual property;
- protectionist laws and business practices that favor local
competitors, which could slow our growth in international markets;
- potentially longer sales cycles to sell products, which could slow our
revenue growth from international sales; and
- potentially longer accounts receivable payment cycles and difficulties
in collecting accounts receivable.
BECAUSE WE EXCHANGE FOREIGN CURRENCY RECEIVED FROM INTERNATIONAL SALES INTO U.S.
DOLLARS AND ARE REQUIRED TO MAKE FOREIGN CURRENCY PAYMENTS, WE MAY INCUR LOSSES
DUE TO FLUCTUATIONS IN FOREIGN CURRENCY TRANSLATIONS
A significant portion of our business is conducted in the European Union Euro.
We recognize foreign currency gains or losses arising from our operations in the
period incurred. As a result, currency fluctuations between the U.S. dollar and
the currencies in which we do business will cause foreign currency translation
gains and losses, which may cause fluctuations in our future operating results.
We do not currently engage in foreign exchange hedging transactions to manage
our foreign currency exposure.
RISK RELATING TO OUR STOCK PRICE
- --------------------------------
BECAUSE THE MARKET PRICE OF OUR STOCK IS HIGHLY VOLATILE, INVESTMENTS IN OUR
STOCK COULD RAPIDLY LOSE THEIR VALUE AND WE MAY INCUR SIGNIFICANT COSTS FROM
CLASS-ACTION LITIGATION
The market price of our stock is highly volatile. As a result, investments in
our stock could rapidly lose their value. In addition, the stock market often
experiences extreme price and volume fluctuations, which affect the market price
of many medical device companies and which are often unrelated to the operating
performance of these companies.
Recently, when the market price of a stock has been as volatile as our stock
price has been, holders of that stock have occasionally instituted securities
class action litigation against the company that issued the stock. If any of our
stockholders were to bring a lawsuit of this type against us, even if the
lawsuit is without merit, we could incur substantial costs in defending the
lawsuit. The lawsuit could also divert the time and attention of our management.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS, AND DERIVATIVE
COMMODITY INSTRUMENTS
As of June 30, 2002, we did not participate in any derivative financial
instruments or other financial and commodity instruments for which fair value
disclosure would be required.
PRIMARY MARKET RISK EXPOSURES
Our primary market risk exposures are in the area of foreign currency
exchange rate risk. We are exposed to currency exchange rate fluctuations
related to our operations in France. Operations in France are denominated in the
Euro. We have not engaged in formal currency hedging activities to date, but do
have a limited natural hedge in that our revenues and expenses in France are
primarily denominated in the European community currency (the Euro). We also
attempt to minimize exchange rate risk by converting non-U.S. currency to U.S.
dollars as often as practicable. We generally view our investment in foreign
subsidiaries operating under a functional currency (the Euro) other than our
reporting currency (the US Dollar) as long-term. Our investment in foreign
subsidiaries is sensitive to fluctuations in foreign currency exchange rates.
The effect of a change in foreign exchange rates on our net investment in
foreign subsidiaries is reflected in the "Other accumulated comprehensive loss"
component of stockholders' equity. Because our foreign currency exchange rate
risk is not material, no quantitative tabular disclosure has been provided.
- 22 -
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that an increase in prevailing interest rates
may cause the principal amount of the investment to decrease. To minimize this
risk in the future, we maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, investment
grade asset-backed corporate securities, money market funds and government and
non-government debt securities. A hypothetical 100 basis point increase in
interest rates would result in an approximate $40,000 decrease in the fair value
of our investments as of June 30, 2002. However, due to the conservative nature
of our investments, the relatively short duration of their maturities and our
ability to convert some or all of our long-term investments to less interest
rate sensitive holdings, we believe interest rate risk is mitigated. As of June
30, 2002, approximately 69% of our available-for-sale marketable securities will
mature in one year or less.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal
proceedings
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders was held on May 22,
2002. At the Meeting, the following matter was voted upon:
To elect the following seven Directors:
VOTES VOTES VOTES
FOR AGAINST WITHELD
---------- --------- ---------
John M. Carnuccio........... 10,176,896 1,688,720 1,044,879
Timothy J. Barberich........ 11,662,985 202,631 1,044,879
William M. Cousins, Jr...... 11,662,985 202,631 1,044,879
Alexander M Klibanov, Ph.D.. 11,662,985 202,631 1,044,879
Paul A. Looney.............. 11,662,985 202,631 1,044,879
Riccardo Pigliucci.......... 11,662,985 202,631 1,044,879
David P. Southwell.......... 11,662,985 202,631 1,044,879
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS
The exhibits filed as part of the Form 10-Q are listed on
the Exhibit Index immediately preceding such exhibits, which
Exhibit Index is incorporated herein by reference.
b) REPORTS ON FORM 8-K
ITEM 5. Other Events.
On June 3, 2002, the Company filed a current report on Form
8-K to report that John M. Carnuccio, President and Chief
Executive Officer, will resign effective September 1, 2002,
to pursue other opportunities. Paul A. Looney, who has
served as a director since 1994, has been appointed Chairman
of the Board. Robert M. Palladino, Vice President and Chief
Financial Officer, was promoted to Executive Vice President.
The Form 8-K reported that the Board of Directors had
initiated a search for a new Chief Executive Officer.
- 23 -
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 authorize
BIOSPHERE MEDICAL, INC.
Date: August 14, 2002 /s/ Robert M. Palladino
------------------------
Robert M. Palladino
Chief Financial Officer and
Executive Vice President (DULY
AUTHORIZED OFFICER AND PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER)
- 24 -
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------
10.1 Credit Agreement between the Registrant and Brown Brothers Harriman
& Co.dated May 17, 2002
10.2 Security Agreement between the Registrant and Brown Brothers
Harriman & Co. dated May 17, 2002
10.3 Letter Agreement between the Registrant and John M. Carnuccio
dated May 31, 2002
10.4 Amendment No. 1 to Letter Agreement between the Registrant and John
M. Carnuccio dated August 9, 2002
99.1 Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant
to Section 906 of the Sarbanes - Oxley Act of 2002.
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