UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the Quarterly Period Ended September 30, 2008
OR
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the Transition Period from
to
Commission File Number 001-33791
BIOFORM MEDICAL, INC.
(Exact name of the Registrant as specified in its charter)
|
|
|
|
|
Delaware
|
|
39-1979642
|
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
1875 South Grant Street, Suite 200
San Mateo, California 94402
(Address of principal executive office and zip
code)
(650) 286-4000
(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
þ
No
¨
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
|
|
Large accelerated filer
¨
|
|
Accelerated filer
¨
|
|
Non-accelerated filer
þ
|
|
Smaller reporting company
¨
|
|
|
|
|
|
(do not check if a smaller
reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes
¨
No
þ
As of October 31, 2008, there were 46,326,607 shares ($0.01 par value per share) of registrant’s common stock outstanding.
BIOFORM MEDICAL, INC.
FORM 10 - Q
Quarterly Period Ended
September 30, 2008
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
BIOFORM MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
June 30,
2008
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,298
|
|
|
$
|
59,204
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $987 at September 30, 2008 and $836 at June 30, 2008
|
|
|
11,242
|
|
|
|
10,989
|
|
|
Inventories
|
|
|
8,156
|
|
|
|
8,167
|
|
|
Prepaid royalties
|
|
|
1,061
|
|
|
|
929
|
|
|
Prepaid other
|
|
|
2,099
|
|
|
|
1,603
|
|
|
Other current assets
|
|
|
958
|
|
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
73,814
|
|
|
|
81,697
|
|
|
Property and equipment, net
|
|
|
8,964
|
|
|
|
9,037
|
|
|
Long-term prepaid royalties
|
|
|
2,923
|
|
|
|
3,288
|
|
|
Intangible assets, net
|
|
|
353
|
|
|
|
369
|
|
|
Other assets
|
|
|
298
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
86,352
|
|
|
$
|
94,570
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,455
|
|
|
$
|
3,533
|
|
|
Deferred revenue
|
|
|
680
|
|
|
|
454
|
|
|
Accrued royalty expense
|
|
|
543
|
|
|
|
280
|
|
|
Accrued liabilities
|
|
|
7,658
|
|
|
|
8,066
|
|
|
Capital lease obligations, current portion
|
|
|
34
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,370
|
|
|
|
12,367
|
|
|
Capital lease obligations, long-term portion
|
|
|
52
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
11,422
|
|
|
|
12,427
|
|
|
Commitment and contingencies (Note 4)
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, 10,000 shares authorized, $0.01 par value, zero outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, 100,000 shares authorized, $0.01 par value, 46,327 shares issued and outstanding at September 30, 2008, 46,300 shares
issued and outstanding at June 30, 2008
|
|
|
463
|
|
|
|
463
|
|
|
Additional paid-in capital
|
|
|
159,188
|
|
|
|
158,480
|
|
|
Accumulated other comprehensive income
|
|
|
85
|
|
|
|
212
|
|
|
Accumulated deficit
|
|
|
(84,806
|
)
|
|
|
(77,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
74,930
|
|
|
|
82,143
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
86,352
|
|
|
$
|
94,570
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial
statements.
3
BIOFORM MEDICAL, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
15,671
|
|
|
$
|
15,201
|
|
|
Cost of sales
|
|
|
2,724
|
|
|
|
2,792
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
12,947
|
|
|
|
12,409
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
15,230
|
|
|
|
11,754
|
|
|
Research and development
|
|
|
2,362
|
|
|
|
2,181
|
|
|
General and administrative
|
|
|
3,077
|
|
|
|
2,024
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
20,669
|
|
|
|
15,959
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
328
|
|
|
|
161
|
|
|
Other income (expense), net
|
|
|
(358
|
)
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(30
|
)
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(7,752
|
)
|
|
|
(3,358
|
)
|
|
Provision for income taxes
|
|
|
42
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,794
|
)
|
|
$
|
(3,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.17
|
)
|
|
$
|
(0.82
|
)
|
|
Weighted-average number of common shares used in computing loss per share, basic and diluted
|
|
|
46,322
|
|
|
|
4,166
|
|
The accompanying notes are an integral part of these condensed consolidated financial
statements.
4
BIOFORM MEDICAL, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,794
|
)
|
|
$
|
(3,416
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
510
|
|
|
|
225
|
|
|
Loss on disposal of fixed assets
|
|
|
—
|
|
|
|
10
|
|
|
Provision for doubtful accounts
|
|
|
269
|
|
|
|
188
|
|
|
Stock-based compensation expense for employees
|
|
|
668
|
|
|
|
528
|
|
|
Stock-based compensation expense for non-employees
|
|
|
—
|
|
|
|
150
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(774
|
)
|
|
|
(521
|
)
|
|
Inventories
|
|
|
(231
|
)
|
|
|
(410
|
)
|
|
Prepaid royalties
|
|
|
233
|
|
|
|
—
|
|
|
Prepaid expenses and other assets
|
|
|
(939
|
)
|
|
|
(5,787
|
)
|
|
Deferred revenue
|
|
|
220
|
|
|
|
(83
|
)
|
|
Accounts payable
|
|
|
(1,012
|
)
|
|
|
(898
|
)
|
|
Accrued liabilities
|
|
|
77
|
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(8,773
|
)
|
|
|
(6,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(470
|
)
|
|
|
(1,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(470
|
)
|
|
|
(1,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Payments on capital leases
|
|
|
(8
|
)
|
|
|
(10
|
)
|
|
Proceeds from the issuance of common stock under stock plans
|
|
|
40
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
32
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
305
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents for the period
|
|
|
(8,906
|
)
|
|
|
(7,142
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
59,204
|
|
|
|
17,610
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
50,298
|
|
|
$
|
10,468
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment under capital leases
|
|
$
|
—
|
|
|
$
|
84
|
|
|
Disposal of property and equipment through capital lease terminations
|
|
$
|
—
|
|
|
$
|
11
|
|
The accompanying notes are an integral part of these condensed consolidated financial
statements.
5
BIOFORM MEDICAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1 – The Company and Description of Business, Initial Public
Offering and Capitalization of Preferred Stock
The Company and Description of Business
BioForm Medical, Inc. (“we,” “our”, “us”) is a medical aesthetics company incorporated in Delaware on July 12, 1999.
Our corporate headquarters are located in San Mateo, California, with manufacturing and research and development sites in Franksville, Wisconsin, and European subsidiaries in the Netherlands and the United Kingdom. We are focused on developing and
commercializing products that are used by physicians to enhance their patients’ appearance and are dedicated to bringing doctors and their patients safe and effective products for use in dermatology, plastic surgery and facial plastic surgery.
We currently have two main products, RADIESSE
®
and COAPTITE
®
. RADIESSE
®
is an FDA-approved dermal filler that is marketed for a number of
applications including the correction of moderate to severe folds and wrinkles, including nasolabial folds; for the restoration or correction of the signs of facial fat loss or lipoatrophy in patients with human immunodeficiency virus; and for vocal
fold augmentation (“VFA”). COAPTITE
®
is an FDA approved tissue bulking agent used to treat female stress urinary incontinence (“SUI”).
Initial Public Offering and Conversion of Preferred Stock
In November 2007, we completed our initial public offering of common stock (“IPO”) and we sold and issued 11,500 shares of common stock at an issuance price of $8 per share. We raised a total of $92,000 in
gross proceeds from the IPO, or $83,095 in net proceeds after deducting underwriting discounts and other associated costs. Upon the closing of the IPO, all shares of convertible preferred stock then outstanding were automatically converted into
30,367 shares of common stock.
Capitalization summary upon closing of initial public offering
:
|
|
|
|
|
Common stock issued and outstanding as of September 30, 2007
|
|
4,222
|
|
Shares of common stock issued upon stock option exercises before IPO
|
|
67
|
|
Net exercise of outstanding warrant prior to IPO
|
|
44
|
|
Sale of common stock through IPO
|
|
11,500
|
|
Conversion of preferred stock into common stock upon the closing of the IPO
|
|
30,367
|
|
|
|
|
|
Common stock issued and outstanding after IPO
|
|
46,200
|
|
|
|
|
Note 2 – Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”)for complete financial statements. These statements should be
read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2008 included in our Annual Report on Form 10-K filed with the SEC on September 26, 2008.
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary, which are normal and recurring
in nature, for a fair presentation of our financial position and of our results of operations for the periods presented. These condensed consolidated financial statements are not necessarily indicative of the results to be expected for the entire
year. We derived the condensed consolidated balance sheet as of June 30, 2008 from the audited consolidated financial statements at that date.
6
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Our comprehensive loss consists of net losses and unrealized gains on foreign exchange translations. The following
table lists the components of comprehensive loss as of the end of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Net loss
|
|
$
|
(7,794
|
)
|
|
$
|
(3,416
|
)
|
|
Unrealized translation gain
|
|
|
127
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(7,667
|
)
|
|
$
|
(3,352
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Loss per Common Share
We compute basic and diluted net loss per share by dividing net loss by the weighted average number of shares of common stock outstanding during the
period. Convertible preferred stock, options to purchase common stock and warrants to purchase common or preferred stock are not included in this calculation because their inclusion would be anti-dilutive.
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,794
|
)
|
|
$
|
(3,416
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
46,322
|
|
|
|
4,166
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.17
|
)
|
|
$
|
(0.82
|
)
|
The following outstanding options, convertible preferred stock and warrants were excluded from the
computation of diluted loss per common share for the periods presented because including them would have had an anti-dilutive effect:
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
September 30,
2007
|
|
Series A convertible preferred stock (as if converted)
|
|
—
|
|
5,412
|
|
Series B convertible preferred stock (as if converted)
|
|
—
|
|
9,595
|
|
Series C convertible preferred stock (as if converted)
|
|
—
|
|
8,239
|
|
Series D convertible preferred stock (as if converted)
|
|
—
|
|
4,938
|
|
Series E convertible preferred stock (as if converted)
|
|
—
|
|
2,183
|
|
Options to purchase common stock
|
|
7,240
|
|
5,590
|
|
Warrants to purchase common stock
|
|
—
|
|
100
|
|
|
|
|
|
|
|
|
|
7,240
|
|
36,057
|
|
|
|
|
|
|
Fair Value Measurements
As of July 1, 2008, we adopted FASB Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
(“SFAS 157”).
SFAS 157 established a framework for measuring fair value and clarified the definition of fair value within that framework. SFAS 157 does not require any new fair value measurements. SFAS 157 introduced, or reiterated, a number of key concepts which
form the foundation of the fair value measurement approach to be utilized for financial reporting purposes. The fair value of our financial instruments reflect the amounts that would be received upon sale of an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date (exit price). SFAS 157 also established a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into the following three levels:
Level 1—Quoted prices in active markets for identical assets and liabilities.
Level 2—Inputs, other than quoted prices in active markets that are observable either directly or indirectly.
Level
3—Unobservable inputs, in which there is little or no market data, which require the reporting entity to develop its own assumption.
The adoption of SFAS 157 did not have a material effect on our financial condition and results of operations, as we do not have any financial instruments that are required to be measured at fair value under the framework of SFAS
157.
7
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,
The Fair
Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement of Financial Accounting Standards No. 115
(“SFAS 159”). SFAS 159 provides companies with an option to report
selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities
differently. Most of the provisions in SFAS 159 are elective; however, the amendment to FASB Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities
(“SFAS
115”), applies to all entities with available-for-sale and trading securities. SFAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Though SFAS 159 is effective for our
fiscal year 2009 beginning as of July 1, 2008, we do not have any eligible financial assets or financial liabilities that are eligible for the fair value option under SFAS 159 as of September 30, 2008. As such SFAS 159 does not have any
impact on our results of operations and financial position.
Recent Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007),
Business Combinations
, (“SFAS
141(R)”). SFAS 141(R) requires entities that acquire control of another business or businesses to measure and recognize any obligations to make payments conditioned on the outcome of future events (contingent consideration) at the fair value of
the contingent consideration at the acquisition date. SFAS 141(R) includes in the definition of contingent consideration any right held by the acquirer to the return of previously transferred consideration if specific conditions are met. SFAS 141(R)
also defines a bargain purchase and requires the acquirer to recognize the excess fair value involved in such a purchase in earnings as a gain attributable to the acquirer. SFAS 141(R) is effective for acquisitions occurring on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008. The FASB has prohibited earlier adoption of SFAS 141(R). We plan to adopt SFAS 141(R) in fiscal 2010 and are currently evaluating the effect that the
adoption of SFAS 141(R) will have on our results of operations and financial position.
Note 3 – Certain Balance Sheet Components
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
June 30,
2008
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
3,486
|
|
|
$
|
3,232
|
|
|
Work-in-process
|
|
|
3,567
|
|
|
|
3,728
|
|
|
Finished goods
|
|
|
1,488
|
|
|
|
1,566
|
|
|
Reserves for excess and obsolete inventory
|
|
|
(385
|
)
|
|
|
(359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,156
|
|
|
$
|
8,167
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
327
|
|
|
$
|
327
|
|
|
Building and leasehold improvements
|
|
|
3,336
|
|
|
|
3,331
|
|
|
Machinery and equipment
|
|
|
5,651
|
|
|
|
5,275
|
|
|
Furniture, fixtures, and office equipment
|
|
|
4,506
|
|
|
|
4,380
|
|
|
Construction-in-progress
|
|
|
65
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,885
|
|
|
|
13,501
|
|
|
Less: accumulated depreciation
|
|
|
(4,921
|
)
|
|
|
(4,464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,964
|
|
|
$
|
9,037
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
$
|
2,989
|
|
|
$
|
4,293
|
|
|
Accrued legal and patent expenses
|
|
|
281
|
|
|
|
116
|
|
|
Accrued marketing programs
|
|
|
332
|
|
|
|
101
|
|
|
Accrued taxes, permits, licenses
|
|
|
1,705
|
|
|
|
1,523
|
|
|
Other accrued liabilities
|
|
|
2,351
|
|
|
|
2,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,658
|
|
|
$
|
8,066
|
|
|
|
|
|
|
|
|
|
|
|
8
Note 4 – Commitments and Contingencies
Lease Commitments
We have entered into several capital leases for office equipment. We had
$128 in assets under capital lease obligations at September 30, 2008 and June 30, 2008. Accumulated depreciation associated with these capital leases was $33 and $27 at September 30, 2008 and June 30, 2008.
The following schedule summarizes the future minimum lease payments for all capital and operating leases as of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
Years ending June 30,
|
|
Capital
Lease
|
|
|
Operating
Lease
|
|
2009 (remaining 9 months)
|
|
$
|
30
|
|
|
$
|
533
|
|
2010
|
|
|
40
|
|
|
|
676
|
|
2011
|
|
|
17
|
|
|
|
554
|
|
2012
|
|
|
7
|
|
|
|
544
|
|
2013
|
|
|
1
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
95
|
|
|
$
|
2,386
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
86
|
|
|
|
|
|
Less current portion
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term portion of capital lease obligations
|
|
$
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License Agreements
In fiscal 2007, we entered into agreements with Chemische Fabrik KREUSSLER & Co. GmbH
(“Kreussler”) that provided us exclusive U.S. distribution rights for Polidocanol, and with CryoLife, Inc. (“CryoLife”) for exclusive U.S., Canada and European distribution rights for aesthetics applications for BIOGLUE
®
. We charged $2,200 to research and development expense in fiscal 2007 for minimum, non-cancelable payments required under these two agreements. Of this amount, we paid $500 in fiscal 2007 and
paid the remaining $1,700 in fiscal 2008. Contingent payments totaling $3,200 under the agreement with Kreussler and $500 under the agreement with CryoLife will become due upon success in reaching specified clinical and regulatory milestones. Due to
the uncertainties inherent in medical clinical trials and regulatory review by the FDA, we are unable to predict if or when the contingent payments under these two agreements will become payable, except for a $700 license payment to Kreussler that
we believe will likely become payable during fiscal 2009.
Under a license from Artes Medical related to patents held by them that apply to
implantable products containing microsphere particles, we were obligated to pay royalties based on sales of our products. On September 21, 2007, we executed an agreement with Artes Medical to pre-pay all royalty obligations payable to Artes
Medical in the future by making two payments totaling $5,500. The first payment of $2,000 was made in October 2007 and the second payment of $3,500 was made in December 2007. These payments replaced any royalty that we would have been obligated to
pay to Artes Medical in the future under the terms of the license. These payments were recorded as prepaid royalty and are expensed as a percentage of sales based on estimated future sales over the life of the related patents.
Legal Contingencies
From time to time, we may
become a party to litigation and subject to product liability claims in the ordinary course of the business. Although the results of litigation and claims cannot be predicted with certainty, we believe that the final outcome of such matters will not
have any material adverse effect on our business, results of operations or financial condition as of September 30, 2008.
In August
2007, we learned that one of our international distributors had resold some of our product in a prohibited country without the required license from the U.S. Department of Commerce (“Commerce Department”). We have self-reported this matter
to the Commerce Department and are unable at this time to predict if the Commerce Department will elect to take any action or impose any fines in relation to these sales. At this time we do not believe that the resolution of this matter will have a
material adverse impact on us.
Note 5 – Stockholders’ Equity
On November 9, 2007, we filed our amended and restated certificate of incorporation, pursuant to which all preferred stock was converted to common
stock and we increased the number of shares authorized to 100,000 shares of common stock and 10,000 shares of undesignated preferred stock.
Each share of common stock has the right to one vote. The holders of common stock are entitled to dividends when funds are legally available and when declared by the Board of Directors.
9
Note 6 – Stock Based Compensation
Stock Option Plans
We have one active stock option plan, the 2007 Equity Incentive Plan (the
“2007 Plan”), which became effective as of our IPO in November 2007. Previously we granted stock options under three other plans: the 2003 (Active) Stock Plan, the 2003 (Terminated) Stock Plan, and the 2000 Plan. All three of these earlier
plans have been terminated and we can no longer grant stock options under them. Of these earlier plans, the only plan with options previously granted that are still outstanding is the 2003 (Active) Stock Plan. The outstanding options from the 2003
(Active) Stock Plan remain in effect.
As of the effectiveness of our IPO we became authorized to issue stock options, stock appreciation
rights, restricted stock and restricted stock units or performance shares and units for 4,000 common shares under the 2007 Plan. The pool of shares available for use in the 2007 Plan increases on the first day of each fiscal year beginning with the
2008 fiscal year, in an amount equal to the lesser of (i) 4,000 shares, (ii) 4% of the outstanding shares on the last day of the immediately preceding fiscal year or (iii) such number of shares determined by the Board of Directors. On
July 1, 2008, the shares authorized for issuance under the 2007 Plan automatically increased by 1,852 shares. The 2007 Plan states that the exercise price of options and stock appreciation rights will not be less than 100% of the fair market
value of the underlying common stock on the date of the grant. The Board of Directors, or its designate, will determine the exercise price for restricted stock or restricted stock units and performance shares or units. The Board of Directors, or its
designee, has the authority to set vesting periods, conditions, performance goals and incentives for all awards. Options granted under the 2007 Plan generally have a four year vesting term, have an exercise price equal to the fair market value on
the date of grant, and have a ten year life from the date of grant. Options under the three earlier plans were generally granted on the same terms.
Stock-Based Compensation Expense
Effective July 1, 2006, we adopted the provisions of Statement of Financial
Accounting Standards No. 123R,
Share-Based Payment
(“SFAS 123R”) using the prospective method
.
SFAS 123R establishes accounting for stock-based awards made to employees and directors. Accordingly, stock-based
compensation expense is measured at grant date, based on the fair value of the award, and is recognized as expense over the remaining requisite service period.
Under SFAS 123R, stock-based awards, including stock options, are recorded at fair value as of the grant date and recognized on a straight-line basis, as expense over the employee’s requisite service period
(generally the vesting period). Because our non-cash stock compensation expense is based on awards ultimately expected to vest, it has been reduced by an estimate for future forfeitures. SFAS 123R requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The weighted-average grant date
fair value per share of employee stock options granted for the three month periods ended September 30, 2008 and 2007 was $1.61 and $3.20, respectively, calculated using the Black-Scholes option pricing model with the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Weighted-average expected volatility
|
|
46
|
%
|
|
45
|
%
|
|
Weighted-average expected term (years)
|
|
4.82
|
|
|
4.59
|
|
|
Weighted-average risk-free interest rate
|
|
3.08
|
%
|
|
4.78
|
%
|
|
Dividend yield
|
|
0.00
|
%
|
|
0.00
|
%
|
The assumptions were developed as follows:
Expected Volatility—
As we have minimal trading history for our common stock, the expected stock price volatility for our common stock was estimated by taking the median historic stock price volatility for
industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the biotech medical device industry similar in size, stage of life cycle
and financial leverage.
Expected Term —
The expected term were developed by analyzing BioForm’s historical option exercise patterns.
Risk-Free Rate —
The risk-free interest rate assumption was based on zero coupon U.S. Treasury instruments whose term was consistent with the
expected term of our stock option grants.
Expected Dividend Yield —
We have never declared or paid any cash dividends and do not presently plan
to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.
10
Common Stock Fair Value
— The fair value of our common stock is equal to the price at which
our stock trades in the open stock market. Prior to our public offering in November 2007 the fair value of our common stock was determined by independent contemporaneous valuations prepared by an independent third party valuation firm. In conducting
these valuations, we used a two-step methodology that first estimated our fair value as a whole, and then allocated a portion of the enterprise value to our common stock. This approach is consistent with the methods outlined in the AICPA Practice
Aid
Valuation of Privately-Held-Company Equity Securities Issued as Compensation
. The valuation methodology utilized the “income approach” to estimate enterprise value. This enterprise value was then tested for reasonableness
utilizing the “market approach.” The income approach involved projecting future cash flows, discounting them to present value using discount rates ranging from 24% to 30% based upon a risk adjusted weighted average cost of capital of
comparable companies, and applying probabilities for success of our product candidates to the resulting discounted cash flows. The projection of future cash flows, the determination of an appropriate discount rate and the estimates of probability
for success of our product candidates each involved a significant degree of judgment.
Forfeitures
—SFAS 123R requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeiture rates refer to the likelihood that unvested options will be cancelled or forfeited due to
termination of employment. In developing the expected future forfeiture rates, we analyzed unvested cancellations experience since September 2000.
Stock Options Granted to Employees
We recognized $668 of employee stock-based compensation expense during the three
months ended September 30, 2008, and charged $46, $263, $50 and $309 to cost of sales, sales and marketing, research and development, and general and administrative expense, respectively. We recognized $528 of employee stock-based compensation
expense during the three months ended September 30, 2007, and charged $37, $165, $94 and $232 to cost of sales, sales and marketing, research and development, and general and administrative expense, respectively. We did not recognize any income
tax benefit in the condensed consolidated statement of operations for the three month period ended September 30, 2008 or 2007.
The
total compensation cost related to unvested stock option grants not yet recognized as of September 30, 2008 was $7,809 and the weighted-average period over which these grants are expected to vest is 2.9 years.
The following table summarizes activity under our stock option plans from July 1, 2008 through September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Shares
Subject to
Outstanding
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted-
average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at June 30, 2008
|
|
5,493
|
|
|
$
|
4.07
|
|
|
|
|
|
|
Granted
|
|
1,861
|
|
|
$
|
3.74
|
|
|
|
|
|
|
Exercised
|
|
(27
|
)
|
|
$
|
1.48
|
|
|
|
|
|
|
Forfeited or expired
|
|
(87
|
)
|
|
$
|
6.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September 30, 2008
|
|
7,240
|
|
|
$
|
3.97
|
|
8.35
|
|
$
|
6,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
6,647
|
|
|
$
|
3.92
|
|
8.31
|
|
$
|
5,842
|
|
Exercisable at September 30, 2008
|
|
2,513
|
|
|
$
|
2.94
|
|
7.28
|
|
$
|
4,189
|
Stock Options Granted to Non-employees
There was no expense recognized related to stock options granted to non-employees for the three month period ended September 30, 2008. Stock based
compensation due to stock options granted to non-employees in the three month period ended September 30, 2007 was $150, of which $40 and $110 were charged to sales and marketing expense and general and administrative expense, respectively.
Stock options granted to non-employees were valued using the Black-Scholes option pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Weighted-average expected volatility
|
|
46
|
%
|
|
45
|
%
|
|
Weighted-average expected term (years)
|
|
5
|
|
|
5
|
|
|
Weighted-average risk-free interest rate
|
|
2.98
|
%
|
|
4.24
|
%
|
|
Dividend yield
|
|
0.00
|
%
|
|
0.00
|
%
|
11
We estimated the expected stock price volatility for our common stock by taking the median historic stock
price volatility for industry peers based on daily price observation over a period equivalent to the expected term of the non-employee stock option grants. Industry peers consist of several public companies in the life science industry similar in
size, stage of life cycle and financial leverage.
Note 7 – Income Taxes
Our provision for income taxes was $42 and $58 for the three month periods ended September 30, 2008 and September 30, 2007, respectively. Our
provision for income taxes relates to income taxes in our foreign subsidiaries.
Realization of deferred tax assets is dependent upon
future earnings, the timing and amount of which are uncertain. Accordingly, our net deferred tax assets at September 30, 2008 and June 30, 2008 have been fully offset by a valuation allowance.
The total amount of our unrecognized tax benefits was $169 as of September 30, 2008 and June 30, 2008. None of our unrecognized tax benefits,
if recognized, would affect our effective tax rate at present because they would only result in an adjustment of our valuation allowance.
We have no accrued interest or penalties related to tax contingencies. Any tax-related interest and penalties would be included in income tax expense in the consolidated statements of operations.
Our federal net operating loss carry forwards expire between 2014 and 2029 if not utilized. Our federal and state research and development tax credit
carry forwards expire between 2019 and 2029 if not utilized. Due to our cumulative net operating loss position, all U.S. federal and state income tax returns since inception in 1999 are subject to tax authority examination.
Note 8 – Segment Reporting
We operate in one
business segment, which encompasses the developing, manufacturing and marketing of medical aesthetic products. We use one measurement of profitability and do not segregate our business for internal reporting.
The following is a summary of net revenue by geographic area (based on location of customer):
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
|
|
2008
|
|
2007
|
|
Domestic
|
|
$
|
12,740
|
|
$
|
12,612
|
|
International
|
|
|
2,931
|
|
|
2,589
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,671
|
|
$
|
15,201
|
|
|
|
|
|
|
|
|
We operate from facilities in the United States and the Netherlands. Net long-lived assets were as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
June 30,
2008
|
|
Domestic
|
|
$
|
8,457
|
|
$
|
8,447
|
|
International
|
|
|
507
|
|
|
590
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,964
|
|
$
|
9,037
|
|
|
|
|
|
|
|
|
No customer accounted for 10% or more of sales in the three months ended September 30, 2008
or 2007. No one customer’s receivable balance is greater than 10% of the total account receivable balance at September 30, 2008 or June 30, 2008.
Note 9 – Subsequent Event
On November 6, 2008, we announced a cost reduction plan designed to reduce annual
operating expenses up to $20,000 once all steps are fully implemented. As part of this plan we expect to reduce our workforce by 35 employees plus reduce operating expenses through suspending or deferring various programs throughout all functions of
the organization. We expect to incur approximately $500 of expense in the second quarter of fiscal 2009 for severance, medical coverage, and outplacement services for severed employees. There were no costs accrued at September 30, 2008 related
to this plan.
12
|
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 within the meaning of the federal securities laws. These statements are subject
to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see the “Risk
Factors” section in Item 1A of Part II of this Form 10-Q. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Form 10-Q. We undertake
no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.
Overview
We are a medical aesthetics company focused on developing and marketing products
that are used by physicians to enhance the appearance of their patients. We were incorporated in Delaware in 1999 and commenced operations in 2000. From 2001 to 2003 we received certain U.S. and international regulatory clearances and approvals for,
and engaged in commercial sales of, RADIESSE
®
and COAPTITE
®
. We obtained FDA pre-market approval, or PMA, for our key commercial
application of RADIESSE
®
in December 2006. Our core product is RADIESSE
®
injectable dermal filler which is designed to provide
long-lasting, cost-effective and safe aesthetic benefits for patients. We have also developed and commercialized COAPTITE
®
tissue-bulking agent which is FDA approved and marketed through
our distribution agreement with Boston Scientific for use in the treatment of stress urinary incontinence in adult females. We manufacture RADIESSE
®
and COAPTITE
®
at our facilities in Wisconsin, though we depend upon suppliers to manufacture components used in our products.
We currently market our products through over 100 direct sales and clinical training
representatives in the United States and Europe and a complementary network of third party distributors in more than 30 countries. Our primary customers are dermatologists, plastic surgeons and facial plastic surgeons. RADIESSE
®
is generally used for the treatment of facial wrinkles and folds. Medical aesthetics procedures such as these are generally not covered by health insurance; instead, consumers pay for these
treatments with personal funds. COAPTITE
®
is used to treat stress urinary incontinence in adult females, which is generally covered by health plans in the United States. Reimbursement
coverage of COAPTITE
®
procedures is generally not provided internationally, which we believe has been primarily responsible for limiting sales of COAPTITE
®
outside the United States.
In addition to our
existing RADIESSE
®
and COAPTITE
®
products on the market, we have development programs and distribution rights to additional
products and their applications that are in various stages of development.
|
|
•
|
|
RADIESSE
®
—We have a number of ongoing
programs evaluating new forms, applications and indications of our patent protected RADIESSE
®
technology. The first new commercial product derived from these efforts is expected to be a
form of RADIESSE
®
with Lidocaine which may improve comfort for patients and flow characteristics for physicians, and is expected to be launched in the United States and Europe in calendar
year 2009.
|
|
|
•
|
|
Polidocanol
—In May 2007, we entered into an exclusive licensing and distribution agreement in the
United States for Polidocanol, a leading sclerotherapy treatment in Europe for varicose veins (sold in Europe under the trade name Aethoxysklerol
®
). According to the terms of this
agreement, the manufacturer of Polidocanol, Chemische Fabrik KREUSSLER & Co. GmbH (“Kreussler”), is responsible for conducting the clinical trial and submitting regulatory filings for approval of Polidocanol to the FDA, and,
assuming approval is received, will exclusively manufacture the product for us. We will be the exclusive distributor of the product in the United States and be responsible for all sales, marketing, and clinical training. In July 2008 Kreussler
submitted data to the FDA demonstrating that Polidocanol met the primary endpoint of its Phase III clinical trial. Kreussler plans to submit the manufacturing documentation related to the New Drug Application (“NDA”) for Polidocanol by the
end of calendar year 2008.
|
|
|
•
|
|
RELAXED EXPRESSIONS™
—In April 2008, we acquired substantially all of the assets of Advanced Cosmetic Intervention (“ACI”), and its
licensor, related to a device that is currently cleared via a 510(k) by FDA to create radiofrequency (“RF”) heat lesions in nerve tissue. We expect to conduct clinical studies specifically intended to support an FDA application and other
foreign applications seeking clearance to market this product (tradename RELAXED EXPRESSIONS™) for the treatment of frown lines.
|
|
|
•
|
|
BIOGLUE AESTHETIC™
—In October 2006, we licensed the exclusive United States, Canadian and
European distribution rights for medical aesthetic applications of BIOGLUE
®
, a Class III medical device manufactured by CryoLife. Under the terms of our development, distribution and
supply agreement, we are responsible for all clinical trials and regulatory filings for cosmetic and plastic surgery applications and will be responsible for sales and marketing of BIOGLUE AESTHETIC™ in these applications. BIOGLUE
AESTHETIC™ is currently in early feasibility stage human trials for use as a less invasive alternative for tissue fixation in browplasty, or forehead lift procedures, and recently received a CE Mark for browplasty procedures in Europe. CryoLife
will remain the exclusive manufacturer of BIOGLUE AESTHETIC™.
|
13
Contingent payments totaling $3.2 million under the agreement with Kreussler and $0.5 million under the
agreement with CryoLife will become due upon success in reaching specified clinical and regulatory milestones. Under the agreement with ACI for the purchase of the RELAXED EXPRESSIONS™ product and technology we are required to pay contingent
consideration based on a percentage of future sales plus a one-time payment of $7.5 million in the event sales exceed $60 million in any calendar year from 2011 to 2014. Due to the uncertainties inherent in medical clinical trials and regulatory
review by the FDA, as well as future sales, we are unable to predict if or when the contingent payments under these agreements will become payable except for a $0.7 million payment to Kreussler that we believe will likely become payable during
fiscal 2009. We expect that our future revenue may grow materially as a result of these product candidates and any other future products or indications, if and when we introduce them.
As is common with many companies in the aesthetics sector, we experience the effects of seasonality on our revenues. The first quarter of our fiscal
year, which runs from July through September, is typically the slowest quarter of the year due, we believe, to summer vacations by doctors and patients. We also generally observe a modest slowness in our third quarter, which runs from January
through March. Our second and fourth quarters, which run from October to December and April to June, respectively, are typically the stronger quarters of our fiscal year. The effects of this seasonal pattern were adversely impacted during fiscal
2008 and may be similarly affected in future quarters by macroeconomic factors.
Sales of RADIESSE
®
generated more than 90% of our revenue in the first quarter of both fiscal 2009 and fiscal 2008. Other revenue consists primarily of the sale of COAPTITE
®
. Sales increased modestly in the first quarter of fiscal 2009 over fiscal 2008 due to growth in sales in both the United States and international markets.
We expect that the key factors influencing our revenue in the future will include:
|
|
•
|
|
patient satisfaction with our products, particularly RADIESSE
®
;
|
|
|
•
|
|
the strength of our direct sales and clinical training teams in the United States and Europe and our international distribution arrangements;
|
|
|
•
|
|
timing and scope of regulatory approvals that we have and may receive in the future;
|
|
|
•
|
|
The strength or weakness of consumers’ confidence and economic activity in the countries in which we sell our products; and
|
|
|
•
|
|
competitive dynamics in the marketplace.
|
We believe that tight credit markets, weak economies, and low consumer confidence in the US and
our major international markets will impact spending on certain cosmetic procedures, including treatment with RADIESSE
®
, in fiscal 2009. We anticipate that adverse conditions in our markets
will continue through at least the end of fiscal 2009 and that recovery thereafter by consumers and the economy will be slow. Our expectations regarding the nature or timing of any macroeconomic recovery are highly uncertain and extended
macroeconomic weakness and low consumer discretionary spending may impact our future sales and alter seasonal patterns in our revenue.
To reach our goal of sustained profitability we will need to increase revenues while carefully
managing our operating expenses. We have recently begun implementing actions designed to reduce our annual rate of operating expenses by up to $20 million per year by the fourth quarter of fiscal 2009 through savings in program activity and
personnel reductions in all functions. To increase revenues we will depend on growth in sales of RADIESSE
®
in the United States and international markets as well as success in gaining
approval from the FDA and regulatory bodies in other countries to market the other products that we have in various stages of development and clinical trials. Competition in the markets for aesthetic medical products is very active. Many dermal
filler products are already approved and sold throughout the world and we anticipate that other new fillers will be brought to market in future years. Some competing products are marketed by companies that are considerably larger and have greater
resources than we do. Our industry is also characterized by pricing pressure in the form of volume discounting and, in some cases, price reductions and bundling discounts. In addition, we offer customers the opportunity to purchase product at lower
unit prices if they purchase more units of RADIESSE
®
. These factors have contributed to a decline in the average selling price for RADIESSE
®
and may continue to do so in the future.
14
Results of Operations
Comparison of the three months ended September 30, 2008 and 2007
The following table sets forth certain data as a
percentage of net sales for the periods indicated. Dollars are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
|
|
2008
|
|
|
% (a)
|
|
|
2007
|
|
|
% (a)
|
|
% Change
|
|
|
Net sales
|
|
$
|
15,671
|
|
|
100.0
|
|
|
$
|
15,201
|
|
|
100.0
|
|
3.1
|
|
|
Cost of sales
|
|
|
2,724
|
|
|
17.4
|
|
|
|
2,792
|
|
|
18.4
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
12,947
|
|
|
82.6
|
|
|
|
12,409
|
|
|
81.6
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
15,230
|
|
|
97.2
|
|
|
|
11,754
|
|
|
77.3
|
|
29.6
|
|
|
Research and development
|
|
|
2,362
|
|
|
15.1
|
|
|
|
2,181
|
|
|
14.3
|
|
8.3
|
|
|
General and administrative
|
|
|
3,077
|
|
|
19.6
|
|
|
|
2,024
|
|
|
13.3
|
|
52.0
|
|
|
Other income (expense), net
|
|
|
(30
|
)
|
|
(0.2
|
)
|
|
|
192
|
|
|
1.3
|
|
(115.6
|
)
|
|
Provision for income taxes
|
|
|
42
|
|
|
0.3
|
|
|
|
58
|
|
|
0.4
|
|
(27.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,794
|
)
|
|
|
|
|
$
|
(3,416
|
)
|
|
|
|
128.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Expressed as a percentage of net sales
Net Sales
|
Net sales were $15.7 million for the first three months of fiscal 2009 as compared to $15.2
million for the first three months of fiscal 2008, an increase of $0.5 million or 3%. Domestic sales were $12.8 million for the first three months of fiscal 2009 compared to $12.6 million for the first three months of fiscal 2008, an increase of
$0.2 million or 2%. International sales were $2.9 million for the first three months of fiscal 2009 compared to $2.6 million for the first three months of fiscal 2008, an increase of $0.3 million or 12%. The increase in net sales was due primarily
to an increase in the volume of units sold. Our average selling price was modestly lower due primarily to customers achieving pricing discounts through higher purchase volumes. We believe sales in the United States benefited from growing
appreciation by doctors of the benefits provided by RADIESSE
®
, and the hiring of additional direct sales and clinical training personnel in fiscal 2008, partially offset by significant
weakness in consumer confidence and the economy. Sales in international markets increased mainly due to improvements in our network of international distributors.
Cost of Sales
Cost of sales was $2.7 million for the first three months of fiscal 2009 and $2.8 million for the first three
months of fiscal 2008.
Gross Profit
Our gross margin increased from 81.6% to 82.6% due principally to sales promotion costs incurred in the first quarter of fiscal 2008 that we did not incur in the first quarter of fiscal 2009, which was partially offset by lower average
selling prices. We anticipate that our gross margin will be approximately 80% to 83% for the balance of fiscal 2009.
Sales and Marketing Expenses
Our sales and marketing expenses were $15.2 million for the first three months of fiscal 2009 as compared to $11.8 million for the first
three months of fiscal 2008, an increase of $3.4 million or 29%. As a percentage of sales, sales and marketing expenses were 97% of sales for the first three months of fiscal 2009 compared to 77% for the same period in fiscal 2008. The dollar
increase was primarily due to increases in employee related expenses ($2.0 million) and marketing and promotional activities ($1.4 million). In the United States during fiscal 2008 we expanded the number of our direct sales staff (first quarter of
fiscal 2008) and our field clinical training staff (throughout fiscal 2008). In Europe, we increased the number of our direct sales staff (first half of fiscal 2008).
Research and Development Expenses
Our research and development expenses were $2.4 million for the
first three months of fiscal 2009 as compared to $2.2 million for the first three months of fiscal 2008, an increase of $0.2 million or 9%. As a percentage of sales, research and development expenses were 15% for the first three months of fiscal
2009 compared to 14% for the first three months of fiscal 2008. The dollar increase in research and development was due primarily to higher employee related expenses.
General and Administrative Expenses
Our general and administrative expenses were $3.1 million for
the first three months of fiscal 2009 as compared to $2.0 million for the first three months of fiscal 2008, an increase of $1.1 million, or 55%. As a percentage of sales, general and administrative expenses were 20% in the first three months of
fiscal 2009 compared to 13% in the first three months of fiscal 2008. The dollar increase was primarily due to higher employee related expenses ($0.6 million) and additional legal, insurance, and other costs ($0.5 million) related to being a
publicly traded company.
15
Other Income/(Expense), Net
Other income/(expense), net for the first three months of fiscal 2009 decreased from the first three months of fiscal 2008. Interest income increased due to the funds raised in our IPO in November 2007, but this was
offset by a foreign exchange loss due to the decline in the value of the Euro in the first quarter of fiscal 2009.
Provision for income taxes
Our provision for income taxes for the first three months of fiscal 2009 decreased slightly when compared to the first three months of
fiscal 2008 due to a reduction in income tax expense in our foreign subsidiary.
Net Loss
Our net loss increased during the first three months of fiscal 2009 when compared to the first three months of fiscal 2008 due to the factors discussed
above.
Liquidity and Capital Resources
The following table highlights selected cash flow components for the first three months of fiscal 2009 and 2008 (amounts are in thousands).
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
Fiscal 2009
(first three months)
|
|
|
Fiscal 2008
(first three months)
|
|
|
Operating activities
|
|
$
|
(8,773
|
)
|
|
$
|
(6,264
|
)
|
|
Investing activities
|
|
|
(470
|
)
|
|
|
(1,046
|
)
|
|
Financing activities
|
|
|
32
|
|
|
|
104
|
|
We have incurred losses and generated negative annual cash flows from operating activities in all
but one year since inception and had an accumulated deficit of $84.8 million as of September 30, 2008. Our primary source of liquidity has been through private placements of shares of our preferred stock and the sale of common stock in
association with our initial public offering in November 2007. Cumulative net proceeds from the issuance of preferred and common stock totals $159.7 million. We anticipate that our primary source of liquidity through approximately the end of fiscal
2010 will be our cash and cash equivalents and thereafter, it will be cash provided by operations assuming we reach our goal of sustained profitable operations.
Operating Activities
In the first three months of fiscal 2009, we used $8.8 million in cash in operating activities as
compared to $6.3 million in the comparable period of fiscal 2008. Losses from operations were primarily responsible for the cash used in fiscal 2009. In fiscal 2008 cash was used primarily to fund losses from operations and to reduce accrued
liabilities.
Investing Activities
Net
cash used in investing activity was $0.5 million in the first three months of fiscal 2009 as compared to $1.0 million in the comparable period of fiscal 2008. Our primary investing activities related to purchases of equipment, computers, furniture
and installed leasehold improvements for use in production, research, selling and general and administrative activities.
Financing Activities
In the first three months of fiscal 2009 net cash provided from financing activities was less than $0.1 million compared to net cash
provided from financing activities of approximately $0.1 million during the first three months of fiscal 2008. Our primary financing activity in the first three months of both fiscal years related to cash received from exercises of stock options.
Sufficiency of Current Cash and Cash Equivalents
Our cash and cash equivalents (“cash”) were $50.3 million as of September 30, 2008. We believe that our current cash balance will be sufficient to meet our anticipated cash needs, including for working
capital purposes, capital expenditures, and contractual obligations for at least the next 12 months. In addition we may require additional cash resources due to changes in business conditions or other future developments, including any investments
or acquisitions we may decide to pursue. In any of these cases, we may seek to sell equity or debt securities or to obtain a credit facility. It is uncertain whether equity or debt financing may be available to us when needed on terms that are
acceptable to us or at all. The sale of convertible debt securities or additional equity securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in debt service obligations and could result in
operating and financial covenants that would restrict our operations. In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all. We anticipate that, from time to time, we may evaluate
acquisitions of complementary businesses, technologies or assets. However, there are no current understandings, commitments or agreements with respect to any acquisitions.
16
Contractual Obligations
The following table summarizes our significant contractual obligations as of September 30, 2008 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Periods
|
|
|
|
Total
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More Than
5 Years
|
|
Capital lease obligations
|
|
$
|
95
|
|
$
|
40
|
|
$
|
49
|
|
$
|
6
|
|
$
|
—
|
|
Operating lease obligations
|
|
|
2,386
|
|
|
721
|
|
|
1,182
|
|
|
483
|
|
|
—
|
|
Purchase obligations
|
|
|
1,998
|
|
|
1,998
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Royalty obligations
|
|
|
543
|
|
|
543
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,022
|
|
$
|
3,302
|
|
$
|
1,231
|
|
$
|
489
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special
purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not
entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Recent Accounting Pronouncements
Information with respect to Recent Accounting Pronouncements may be
found in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements in this quarterly report, which information is incorporate herein by reference.
Critical Accounting Policies
We have made no material changes to the disclosures regarding critical accounting policies
made in our Annual Report on Form 10-K for the year ended June 30, 2008, which was filed with the Securities and Exchange Commission on September 26, 2008.
17
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
Interest Rate and Credit Risk
We have exposure to interest rate risk that relates primarily to our investment
portfolio. All of our current investments are classified as cash or cash equivalents and carried at cost, which approximates market value. We do not currently use or plan to use derivative financial instruments in our investment portfolio. The risk
associated with fluctuating interest rates is limited to our cash equivalents, and we do not believe that a 10% change in interest rates would have a significant impact on our interest income, operating results or liquidity.
As of September 30, 2008, our cash and cash equivalents were maintained by financial institutions in the United States, the United Kingdom and the
Netherlands, and our current deposits are in excess of insured limits. We believe that the financial institutions that hold our investments are financially sound and, accordingly, that minimal credit risk exists with respect to these investments. At
this point in time, our liquidity has not been materially impacted by the current credit environment and we do not expect that it will be materially impacted in the near future.
Our accounts receivable primarily relate to revenues from the sale of RADIESSE
®
directly to individual physicians and medical clinics in the United States and select countries in Europe. Outside the United States and select countries in Europe, we sell RADIESSE
®
to distributors. We sell COAPTITE
®
only through distributors, and most sales are in the United States. No single customer represented
more than 10% of our receivables as of September 30, 2008.
Foreign Currency Risk
The functional currencies of our operations in the United States, the Netherlands, and the United Kingdom are the U.S. Dollar, or USD, the Euro, and
the Pound Sterling, respectively. Revenue is normally generated in an operating unit’s functional currency. Operating expenses are usually in the local currency of the operating unit, which mitigates a portion of the exposure related to
currency fluctuations. Intercompany transactions between our domestic and foreign operations are generally denominated in USD. At month-end, foreign currency-denominated accounts receivable and intercompany balances are marked to market and
unrealized gains and losses are included in other income (expense), net.
Our foreign currency exchange gains and losses have been
generated primarily from fluctuations in the Euro versus the USD and in the Euro versus the Pound Sterling. It is uncertain whether these currency trends will continue. In the future, we may experience foreign currency exchange losses on our
accounts receivable and intercompany receivables and payables. Foreign currency exchange losses could have a material adverse effect on our business, operating results and financial condition.
|
ITEM 4T.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls
and Procedures
Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive
Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management as appropriate to allow for timely
decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period
covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
18
PART II. OTHER INFORMATION
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
We are not a party to any
material pending or threatened litigation.
Risks Related to Our Business
We have a history of net losses, and we may not be able to achieve profitability even if we are able to generate significant revenues.
We have incurred net losses of $29.5 million, $13.6 million and $11.4 million for the fiscal years
ended June 30, 2008, 2007 and 2006, respectively, and, as of September 30, 2008, we had an accumulated deficit of approximately $84.8 million. We have financed our operations primarily through private placements of equity securities and
our IPO in November 2007. We have devoted substantially all of our resources to research and development of our products and the commercialization of RADIESSE
®
and our other products. We
expect to continue operating at a net loss at least during fiscal year 2009 and may continue do so in the future.
If we are unable to
maintain or grow revenue from existing products and launch new products while incurring operating expenses at our planned lower levels in response to general economic conditions, the timing of, or our ability to achieve, profitability would be
adversely affected. We cannot assure you that we will be able to achieve or sustain profitability even if we are able to generate significant revenues. Our failure to maintain or grow revenue or to achieve and sustain profitability would negatively
impact the market price of our common stock and require us to seek additional funding, if such funding is then available to us on terms acceptable to us or at all, and the potential difficulty in raising additional funding has increased due to
recent adverse conditions in the equity and credit markets.
We have a limited operating history, and we expect our financial condition and operating
results to fluctuate on a quarterly and annual basis in potentially unpredictable ways.
We were incorporated in 1999 and commenced operations in 2000. From 2001 to 2003, we received certain U.S. and international regulatory approvals for, and engaged in commercial sales of, RADIESSE
®
and COAPTITE
®
. We obtained FDA pre-market approval, or PMA, for our key commercial application of RADIESSE
®
, the correction of moderate to severe facial wrinkles and folds, in December 2006. Accordingly, we have a limited history of operations upon which you can evaluate our business. Our operating results may fluctuate
significantly in the future as a result of a variety of factors, many of which are outside of our control. Factors relating to our business that may contribute to quarterly and annual fluctuations include the following factors:
|
|
•
|
|
the rate of market adoption of RADIESSE
®
and other future
products that we may offer;
|
|
|
•
|
|
the success of products competitive with RADIESSE
®
that are
now available or that may become commercially available in the future;
|
|
|
•
|
|
the timing of regulatory clearances or approvals and success of the introduction of new products;
|
|
|
•
|
|
the effectiveness of promotional and marketing campaigns by us or our competitors;
|
|
|
•
|
|
seasonal variations in demand;
|
|
|
•
|
|
the overall strength of the minimally-invasive aesthetics market, generally, and the strength of the dermal filler market, specifically;
|
|
|
•
|
|
changes in general economic conditions and the related impact on discretionary spending on elective procedures; and
|
|
|
•
|
|
the performance of our independent distributors, partners and suppliers.
|
The recent economic slowdown in the United States and our major international markets has led to lower consumer spending that may be responsible for a decline in demand for certain cosmetic procedures and,
consequently, the decline in some aesthetic product makers’ results of operations, including our own. A significant shortfall in demand for our products could have an immediate and material adverse effect on our business, results of operations
and financial condition. We plan to reduce our operating expenses significantly but we may not be able to compensate adequately for any unexpected shortfall in revenue or to maintain and grow revenues while implementing our planned cost saving
measures. Accordingly, a significant shortfall in demand for our products, as well as the implementation of operating expense reductions, could have an immediate and material adverse effect on our business, results of operations and financial
condition. Due to the various factors mentioned above, and others, the results of any prior quarterly or annual periods, or guidance regarding expectations of future results, should not be relied upon as an indication of our future operating
performance.
19
If the recent slowdown in demand for medical aesthetic
procedures in general, or
RADIESSE
®
procedures in particular, lasts longer than anticipated, our future operating performance will be adversely impacted.
The success of our business depends on consumer demand for medical aesthetic procedures, which is highly sensitive to macroeconomic conditions. The recent
economic slowdown, particularly in the U.S. market which represents more than 80% of our revenue, has led to lower consumer discretionary spending and a decline in dermal filler procedures in recent quarters. The turmoil in financial markets,
declining consumer confidence, negative wealth effects of declines in housing values and the stock market, and other factors could further weaken medical aesthetics procedure demand. The macroeconomic weakness and current financial market
uncertainty may last longer than we anticipate, or have a greater adverse effect on our revenues and operating results than we anticipate.
While we believe that the recent slowdown in demand for RADIESSE
®
is the result of lower consumer demand for cosmetic procedures generally, the decline could also reflect a weakening of our competitive position or physician or patient preference for other products. If the declining
revenue growth is due to competitive factors rather than overall demand for cosmetic procedures, then we may not see the increase in revenue that we would otherwise expect with a recovery in the U.S. economy and consumer demand for aesthetic
procedures.
If RADIESSE
®
and our
other products fail to compete effectively and gain greater market adoption, our business will suffer.
RADIESSE
®
currently is our primary product, and we expect it to remain so for the next several years. RADIESSE
®
competes against products that are more established and accepted within our target markets.
Our largest direct competitors in the key U.S. market include Allergan and Medicis, and there are
many other companies that compete directly or indirectly with us or that are likely to compete with us in the near future, both in the United States and internationally. Many of these competitors have significantly greater financial resources,
reputation and experience in the aesthetics market than we do, as well as broader aesthetic product offerings. Competing effectively will require us to distinguish our company and RADIESSE
®
from our competitors and their products, which will be dependent on factors such as:
|
|
•
|
|
the safety, effectiveness and ease of use of RADIESSE
®
and
duration of cosmetic benefit;
|
|
|
•
|
|
patient and physician satisfaction with RADIESSE
®
compared
to other injectable aesthetic products and alternative treatments;
|
|
|
•
|
|
the cost of RADIESSE
®
to our physician customers relative to
alternative products and the price that those physicians, in turn, charge for the corresponding procedure;
|
|
|
•
|
|
the effectiveness of our sales and marketing efforts;
|
|
|
•
|
|
our ability to obtain additional regulatory approvals and promote RADIESSE
®
;
|
|
|
•
|
|
our ability to co-promote our filler along with complementary products that we may seek to introduce;
|
|
|
•
|
|
our ability to establish a strong and widely-recognized reputation for RADIESSE
®
and our company as a whole;
|
|
|
•
|
|
our ability to offer a broader portfolio of aesthetic products;
|
|
|
•
|
|
the results and publication in prominent journals of clinical studies that may be conducted by us or our competitors
comparing RADIESSE
®
with competing products;
|
|
|
•
|
|
intellectual property protection; and
|
|
|
•
|
|
the overall size and rate of growth of the dermal filler market.
|
Our other current products are, and contemplated future products, including RADIESSE
®
with Lidocaine, Polidocanol, RELAXED EXPRESSIONS™ and BIOGLUE AESTHETIC™, will be, subject to similar competitive risks as RADIESSE
®
. If we are unable to effectively distinguish RADIESSE
®
, or any of our other current or future products, from those of our competitors, we are unlikely to
gain significant market share and our prospects for growth would be harmed. Moreover, if we are unable to offer a broader set of aesthetic products, we will likely be unable to gain significant additional share of the aesthetics market.
Our largest competitors enjoy sales and marketing advantages that could make it difficult for us to compete effectively and which could result in our future
performance not meeting our expectations.
Even if we are able to demonstrate to a potential user that our product is superior to
alternatives offered by competitors, we may not be able to convert the potential user to our product. Our largest competitors enjoy sales and marketing advantages that could influence patients and physicians to choose their products over ours,
regardless of relative safety and effectiveness of the products. For example, our largest competitors have implemented expensive national direct-to-consumer marketing campaigns to promote their dermal filler products. These campaigns may lead
consumers to develop a strong brand preference for an alternate product even before their initial visit with a physician.
20
Competitors have also influenced physician practice through aggressive promotional campaigns that offer
significant discounts to physicians who choose their products over competing products. Some competitors also have the ability to influence a physician’s practice by co-promoting, or bundling, the sale of two different but related products, such
as a dermal filler and a botulinum toxin. Bundling of complementary products may permit these companies to enjoy efficiencies with respect to their marketing efforts, may permit unique discounting and cross-selling opportunities, and reinforce
company and brand loyalty. We believe that the products we have under development, including Polidocanol, RELAXED EXPRESSIONS™ and BIOGLUE AESTHETIC™ will significantly enhance our competitive position. However, even if we are able to
commercialize and co-promote new products, we may be unable to generate expected sales and our financial performance may suffer due to various other competitive factors, including pricing, patient satisfaction and customer loyalty to the products of
our competitors.
List price reductions, volume discounting and bundling discounts,
along with our own volume discount promotions, have in the past contributed to, and may in the future contribute to, a decline in RADIESSE
®
selling prices.
Competition in the aesthetics market is characterized by frequent product introductions, and products not yet available could result in significant additional
competition.
Our current and future competitors will introduce new products or
new formulations of existing products that will result in near-term and long-term increased competition. While there are a number of competing dermal fillers in the United States, there are many others available internationally. Some of the dermal
fillers available domestically and internationally claim to have benefits that may be perceived as equivalent to or better than other leading dermal fillers, including RADIESSE
®
, based upon
such factors as durability, cost, comfort, scope of approved marketing claims or ease of treatment. If dermal fillers are perceived to offer benefits that are equivalent to or better than RADIESSE
®
, demand for, and revenue derived from, RADIESSE
®
could be harmed. The frequent introduction of dermal fillers may create market confusion that may make it
more difficult to differentiate the benefits of RADIESSE
®
over competing products. In addition, the entry of multiple products and new competitors may lead some of our competitors to adopt
pricing strategies that could adversely impact pricing in the filler marketplace generally.
The
failure of RADIESSE
®
to meet physicians’ or patients’ expectations could reduce demand for RADIESSE
®
and negatively
impact our financial performance.
Most procedures performed using RADIESSE
®
are elective procedures, the cost of which must be borne by the patient and are not reimbursable through government or private health insurance. The decision to undergo a RADIESSE
®
procedure is thus driven by patient demand for an aesthetics procedure, and patients often play a central role in the selection of the dermal filler to be used.
Our future success depends upon patients having a positive experience with RADIESSE
®
. We believe that patients who have a positive experience with RADIESSE
®
may be more likely to return for additional treatments and
refer new patients, which we believe would increase physician demand for RADIESSE
®
. However, results obtained from a RADIESSE
®
procedure will vary depending on the experience and technique of the treating physician, the volume of dermal filler injected, the patient’s expectations of the results that will be achieved, and the duration of the results. Patients may be
dissatisfied with their RADIESSE
®
treatment experience if immediate or long-term results do not match their expectations, if they find the procedure too painful, or if they find that the
temporary side-effects of treatment such as swelling and bruising outweigh the benefit received. Additionally, we believe that patient demand for RADIESSE
®
is, in many cases, influenced by
price. Treatment with a single syringe of RADIESSE
®
may cost a patient more than treatment with a single syringe of many other dermal fillers. If a RADIESSE
®
treatment produces results that do not meet physicians’ and patients’ expectations, or if physicians and patients generally believe it is too expensive for the results obtained, our reputation, repeat
sales, word of mouth referral opportunities and future sales could suffer.
Negative perception
regarding RADIESSE
®
, even if unfounded, may inhibit adoption.
Gaining physician confidence and converting new accounts is important to our ability to
significantly enhance our competitive position and our opportunity for significant growth in our business. There are many dermal filler products and alternate treatments from which to choose for facial aesthetic applications. Practitioners must
believe that RADIESSE
®
presents an attractive alternative before they will recommend it to their patients. The rate of physician adoption of RADIESSE
®
may be adversely affected by negative perception of the product, even if such perception is unfounded. Practitioners may be influenced by the negative comments of another practitioner, which may lead them to not
adopt the product.
Moreover, because we cannot control how practitioners use
RADIESSE
®
, there is a risk that practitioners or patients could develop negative perceptions regarding RADIESSE
®
on the basis of
treatments for which RADIESSE
®
is not suitable and has not received regulatory approval. For instance, there have been published reports of lumpiness associated with the use of
RADIESSE
®
injected into the lips, a type of treatment for which RADIESSE
®
has not been approved. Competitors have in the past
promoted their dermal filler products by criticizing RADIESSE
®
, and we expect that means of competition to continue into the future. If practitioners believe that RADIESSE
®
is unsafe, ineffective, unsatisfactory, too expensive, difficult to use or inappropriate for certain applications, they may not adopt it, which could result in our future sales not meeting our
expectations.
21
Study results finding RADIESSE
®
preferable to competing products may not lead to an increase in market share.
While we have recently conducted and published clinical studies that we believe demonstrate the advantages of RADIESSE
®
over other leading dermal fillers,
the publication and promotion of these study results may not lead to increased market share. Physicians and patients may not be persuaded by our clinical study data to demand RADIESSE
®
over
our competitors’ products. A number of factors, including price, marketing practices and name recognition, past experience, perception and other factors may lead potential customers to choose our competitors’ products, instead.
Additionally, a competitor may perform its own study that contradicts the results of our previously published studies.
A substantial part of our
operating expenses are related to sales, marketing and clinical education. If we are not as successful or effective as our competitors in these activities, our revenue may be lower than expected.
Our ability to achieve significant growth in revenues depends, in large part, on our success in recruiting, training and retaining experienced and
productive direct sales personnel. Our marketing organizations in the United States and Europe compete with much larger, more established and better funded marketing activities by larger competitors. If our sales representatives take longer than
expected to reach anticipated productivity, if they fail to compete effectively for the time and attention of physicians and office representatives, or if they fail to meet expectations, we may not achieve our revenue goals.
We believe that clinical confidence in the use of RADIESSE
®
is important in physician adoption of RADIESSE
®
, and we invest substantial resources in clinical education activities. Our efforts to train physicians may
not be adequate or successful in increasing physician confidence and comfort in using RADIESSE
®
frequently in their practice. Even if physician confidence in RADIESSE
®
increases, that may not result in more orders since the decision to choose a product is dependent upon many factors beyond just clinical comfort and confidence.
Our failure to retain or effectively utilize our sales representatives, marketing and clinical
education personnel, or our failure to compete effectively in physician, patient and office staff awareness of RADIESSE
®
could have a material adverse effect on our sales and results of
operations.
We may incur significant additional sales and marketing expenses if and when we launch new products.
We believe that our ability to increase revenue on current products and successfully launch new
products without incurring significant additional sales and marketing expenses is a key to our transition to profitability. While we believe that our existing sales and marketing infrastructure under healthy macroeconomic structure will allow us to
increase revenue on current products and successfully launch new products, we may need to incur significant additional costs for sales and marketing to accomplish these goals. We base our belief regarding the adequacy of our existing sales and
marketing organization on a number of assumptions, which may or may not prove to be correct. For example, we believe that, if and when approved, our Polidocanol product will be widely adopted because awareness of Polidocanol is already high in vein
centers and dermatologists are performing a significant number of sclerotherapy procedures. We believe that our existing sales and marketing organization, which is accustomed to selling relatively inexpensive disposable products like RADIESSE
®
, will be able to effectively market and sell RELAXED EXPRESSIONS™, a more expensive capital equipment product, if and when it is approved. However, we may be incorrect about these and
other assumptions we have made about the market for our new product candidates. If our assumptions are incorrect, then we may decide that our existing sales and marketing infrastructure is inadequate and incur significant additional sales and
marketing expenses that would adversely affect our results of operations, and the timing of, or our ability to achieve, profitability.
To successfully market and sell RADIESSE
®
internationally, we must address additional risks associated with operations in foreign countries.
International sales accounted for 17%, 19%, and 19% of our total revenue for fiscal 2007, fiscal 2008 and the first quarter of fiscal 2009, respectively. We believe that a significant portion of our business will
continue to come from international sales through increased penetration in countries where we currently sell RADIESSE
®
, combined with expansion into new international markets. In several
countries in Europe, we have a direct sales organization. We principally rely on third party distributors to sell our products outside of Europe. Our success internationally is subject to a number of risks, including:
|
|
•
|
|
difficulties in penetrating markets in which our competitors’ products are more established;
|
|
|
•
|
|
intense competition, including with products that are not available in the United States that may claim to offer
benefits similar to or better than RADIESSE
®
, and with products that may be sold at substantially lower prices than RADIESSE
®
;
|
|
|
•
|
|
maintaining existing and obtaining new foreign certification and regulatory clearances and approvals;
|
|
|
•
|
|
difficulties in managing international operations;
|
|
|
•
|
|
difficulties identifying effective distributors and managing distributor relationships;
|
|
|
•
|
|
Export restrictions, trade regulations and foreign tax laws;
|
22
|
|
•
|
|
reduced or no protection for intellectual property rights in some countries;
|
|
|
•
|
|
fluctuating foreign currency exchange rates; and
|
|
|
•
|
|
political and economic instability.
|
Our other current products are, and contemplated future products will be, subject to similar
international risks as RADIESSE
®
. If we are unable to effectively manage the risks associated with international operations, we may be unable to effectively sell RADIESSE
®
outside of the United States, causing our revenue to be lower than expected and harming our results of operations.
We depend on single manufacturer relationships for supply of our CaHA particles. Any disruption of these relationships could affect our ability to supply product and could harm our business.
We currently depend on a single contract manufacturer, Tulsa Dental Specialties, for the small CaHA
particles used in RADIESSE
®
and a single contract manufacturer, CAM Implants, for the larger CaHA particles used in COAPTITE
®
,
our CaHA bulking agent for the treatment of female stress urinary incontinence. Our agreement with Tulsa Dental Specialties runs through May 2010 and then renews for an additional two-year term, unless terminated pursuant to its terms. Our agreement
with CAM Implants runs through November 2009 and renews each year for a further year unless terminated pursuant to its terms. Neither agreement is terminable at will by either party. Our reliance on these manufacturers subjects us to several
unpredictable risks, the occurrence of any of which could lead to a disruption of our operations, including:
|
|
•
|
|
delays in production of CaHA particles that meet our specifications or failure to meet rigorous regulatory requirements;
|
|
|
•
|
|
fluctuation in production quantity or quality due to changes in demand from us or their other customers;
|
|
|
•
|
|
the inability to meet our production needs, if demand for RADIESSE
®
or COAPTITE
®
increases significantly;
|
|
|
•
|
|
our CaHA manufacturers’ failure to comply with the terms of the contracts, or the termination thereof pursuant to the terms of the contracts;
|
|
|
•
|
|
damage to, or other interruption of, operations at a particular facility; and
|
|
|
•
|
|
increases to the price that we pay for the production of CaHA.
|
Efforts that we may undertake to negotiate terms of supply in the future or to reduce our reliance on these manufacturers could harm our relationships with them. Obtaining alternate manufacturers would be an expensive
and lengthy process and would require additional regulatory approvals, which may not be obtained. We could experience production delays related to the evaluation and testing of CaHA particles from alternate manufacturers and obtaining corresponding
regulatory qualifications. Any interruption in the supply of CaHA or our inability to obtain CaHA from alternate sources at acceptable prices, in a timely manner, could impair our ability to meet the demand of our customers, which would have an
adverse effect on our business.
We depend on Boston Scientific to market and sell COAPTITE
®
, and if Boston Scientific is not successful or reduces its efforts to sell COAPTITE
®
, our revenues will be harmed.
We currently depend on Boston Scientific to sell COAPTITE
®
, the sales of which constituted less than 10% of our revenues for fiscal 2007, fiscal 2008, and the first quarter of fiscal 2009. Boston Scientific is a very large corporation. While we believe our relationship
with Boston Scientific is in good standing, COAPTITE
®
represents an immaterial amount of Boston Scientific’s overall revenue and Boston Scientific may in the future determine that
resources currently directed to selling COAPTITE
®
should be redirected to higher priority projects or they may lack motivation to grow or maintain sales of COAPTITE
®
. If this were to occur, our expectations of future COAPTITE
®
revenues would be harmed.
We do not expect our recent acquisition of an RF-nerve lesion product to result in significant revenue unless we obtain an additional FDA clearance and are able to
demonstrate to physicians and patients that the product is an attractive alternative to existing treatments.
In April 2008, we acquired
substantially all of the assets of Advanced Cosmetic Intervention, or ACI and its licensor JNJ Technologies. The RELAXED EXPRESSIONS™ device is currently cleared via a 510(k) by FDA to create RF heat lesions in nerve tissue. While we believe
this technology will ultimately offer patients an attractive alternative therapy to Botox for the treatment of frown lines, the product cannot be marketed for uses beyond its current 510(k) indication without specific additional 510(k) clearance. We
expect to conduct clinical studies to support a FDA application and other foreign applications for clearance to begin marketing this product for the treatment of frown lines in 2009 or 2010. However, these clinical studies will be expensive and time
consuming and may not yield results that would lead the FDA to approve a 510(k) application for the treatment of frown lines. We also expect to engage in clinical evaluation of the device to ensure that it has consistent, predictable and compelling
treatment outcomes prior to full commercial launch. If we do not receive this additional FDA clearance, or if the clearance is delayed or limited in scope, or our clinical evaluation is not favorable, our marketing efforts will be significantly
limited, and expectation of future revenue from this product will be harmed.
23
Additionally, while we believe that there are
compelling synergies between this product and our RADIESSE
®
dermal filler, we cannot predict how successful we will be in marketing this new product to our target customer base.
Historically, we have sold RADIESSE
®
, a relatively inexpensive disposable device, and therefore cannot judge how successful we will be in selling the RELAXED EXPRESSIONS™ device, a
relatively expensive capital equipment product. Factors such as price of the product and of the treatment, clinical trial results and journal publications, regulatory clearances, early adopter experience, the effectiveness of our sales force and our
marketing efforts, physician and patient loyalty to alternative products, and competitive response will all impact our ability to successfully commercialize this product. While we anticipate that this product could have a significant revenue impact
on our business once an FDA clearance for the treatment of frown lines is obtained, we may never achieve a significant positive revenue impact from this product.
If we are unable to commercialize Polidocanol, which is an investigational sclerotherapy drug that has recently completed its Phase III clinical trial, our expectation of future growth would be harmed.
An important part of our strategy includes the successful introduction to the U.S. market of Polidocanol, an injectable sclerosing drug for the treatment
of varicose veins. We have acquired the exclusive U.S. distribution rights to Polidocanol from its German manufacturer, Kreussler. Although Polidocanol has been used internationally for decades, it is not currently approved for sale in the United
States. We cannot sell Polidocanol in the United States before a new drug application, or NDA, is approved by the FDA. The development and regulatory approval of a new drug is subject to a number of risks and is never certain.
In order to support the NDA submission, the manufacturer of Polidocanol conducted a Phase III clinical trial for the use of Polidocanol in treating
spider and reticular veins. The trial was conducted based on a design resulting from Kreussler’s communication with the FDA regarding a special protocol assessment, or SPA. Several risks still remain regarding FDA’s review of the clinical
study including:
|
|
•
|
|
Kreussler has limited experience conducting clinical trials pursuant to FDA requirements and obtaining FDA approvals;
|
|
|
•
|
|
Kreussler, or the contract clinical research organization managing the study, may have failed to follow proper protocols or may have failed to fully and properly
execute the clinical study;
|
|
|
•
|
|
the FDA may determine in its clinical trial inspections that the trial was not adequately performed or may raise other questions from its clinical review of the
trial data; and
|
|
|
•
|
|
the FDA may find that the clinical data does not demonstrate to its satisfaction the safety and efficacy of the product.
|
If the FDA requires further clinical trials prior to approval, we may be subject to a number of risks, including:
|
|
•
|
|
any future trial would be designed and conducted by Kreussler, so decisions that could affect the success of the trial would be outside of our control;
|
|
|
•
|
|
any future trial may fail to meet its primary or secondary endpoints for effectiveness or may otherwise not meet the rigorous statistical criteria established with
the FDA; or
|
|
|
•
|
|
undesirable side effects or safety issues might arise that might delay or adversely effect future approval.
|
In addition to the clinical data review, Kruessler must submit the required manufacturing documentation to complete the NDA filing. While we expect
Kruessler’s manufacturing documentation submission to be complete by December 2008, activities that could affect its timing and success are outside of our control. We are anticipating FDA approval in calendar year 2009. Several risks still
remain related to the submission, review and approval by the FDA of the manufacturing of Polidocanol including:
|
|
•
|
|
Delays may occur in completing validations and submitting manufacturing documentation; or
|
|
|
•
|
|
The FDA may require further tests or validation of the manufacturing facilities or processes; or
|
|
|
•
|
|
The manufacturing equipment, facilities or processes may need to be modified or revalidated and documentation resubmitted to gain approval by the FDA.
|
A delay in FDA approval would delay the U.S. introduction of the product and could harm our expected future operations.
FDA may require as a condition of approval further post market clinical studies, patient registries or other safety and efficacy
monitoring. Such requirements may impose significant financial and resource requirements, may adversely impact the sales of Polidocanol, or may result in safety or efficacy data which create further FDA review and uncertainty.
Sales of Polidocanol, if approved by FDA, may be adversely impacted by multiple competitive products including pharmacy compounded materials available at low cost to
physicians.
Even if Polidocanol receives FDA approval, our success in marketing and selling the product will be subject to a number of
further risks. Despite the success of Polidocanol internationally, and its safety and efficacy profile, physicians in the United States may not choose Polidocanol over other sclerotherapy products currently available in the United States, or over
the use of generic compounded Polidocanol, for a number of reasons, including price sensitivity or satisfaction with the existing products. If we are not able to achieve significant sales of Polidocanol, our expected future operating performance
would be adversely affected.
24
We are developing BIOGLUE AESTHETIC™ for aesthetics applications, and we cannot provide assurance that we will be
successful in our goal of commercializing the product candidate.
We have
acquired exclusive U.S., Canadian and European distribution rights for aesthetics applications of BIOGLUE AESTHETIC™, a Class III medical device, from CryoLife. Although the FDA cleared BIOGLUE
®
in 2001 as an adjunct to sutures and staples for use in open surgical repair of large vessels, these clearances may not be used to promote aesthetic applications. We intend to seek FDA clearance for the use of
BIOGLUE AESTHETIC™ for aesthetic applications, and hope to obtain such clearance by approximately 2012 or 2013, but we are at an early stage in our development efforts. Our timing for clearance has been delayed from an anticipated 2011 date by
our implementation of cost-saving measures. We have completed a 30-patient feasibility study to evaluate the safety and effectiveness of BIOGLUE AESTHETIC™ as a method for tissue fixation in patients undergoing browplasty. We are in the process
of designing a pivotal clinical study to support FDA approval. Even though we believe the results of our feasibility study generated encouraging data, a positive pivotal study may not produce safety or effectiveness data that would be adequate to
support FDA approval.
Even if we are able to obtain FDA clearance for tissue fixation in browplasty or any other application for which we
might seek approval, the commercialization effort may be difficult. The use of a surgical adhesive in aesthetics applications will be novel, and would require physicians to migrate from existing and well-accepted surgical methods. If we are not
successful at any stage of our efforts, clinical, regulatory or commercial, BIOGLUE AESTHETIC™ will not develop into a meaningful component of our business.
We are developing RADIESSE
®
with Lidocaine and
other future forms of RADIESSE
®
products, and we cannot provide assurance that we will be successful in our goal of commercializing the product candidate or candidates.
We are currently designing clinical trials for our RADIESSE
®
with Lidocaine product to support its FDA approval. We believe we may be able to begin selling this product in 2009, but the timing and receipt of FDA approval for RADIESSE
®
with Lidocaine is subject to risks associated with any medical device new product development initiative. Uncertainties in product development may include manufacturing, regulatory, or clinical trial risks, including
the potential for adverse safety events or negative or ambiguous results. Furthermore, even if we receive FDA approval of a form of RADIESSE
®
with Lidocaine, there is no assurance that this
product will prove commercially successful. Our other future forms of RADIESSE
®
or derivative products also involve significant product development risks and uncertainties and may not be
successfully developed or commercially successful.
We have increased the size of our company significantly, and difficulties managing future growth
could adversely affect our business, operating results and financial condition.
We have experienced rapid growth in a relatively short period of time and may experience additional growth in the future, as we continue to support RADIESSE
®
and bring other
products to market. Our growth has placed, and will continue to place, a strain on our management team, finance department, information systems and other resources. To manage growth effectively, we must:
|
|
•
|
|
continue to enhance our operational, financial and other systems and resources;
|
|
|
•
|
|
maintain and improve our internal controls and procedures; and
|
|
|
•
|
|
expand, train and manage our employee base.
|
We may not be able to effectively manage this expansion in any one or more of these areas, and any failure to do so could significantly harm our business. In addition, our management, personnel and facilities currently in place may not be
adequate to support our growth. It may be difficult for us to adequately predict the expenditures we will need to make in the future. If we do not make the necessary expenditures to accommodate our future growth, we may not be successful in
executing our growth strategy, and our results of operations would suffer. Alternatively, expenditures need to support growth could exceed our current expectations, which would affect our ability to achieve and sustain profitability.
If we are unable to hire and retain key employees, our ability to manage and expand our business will be harmed.
Our success largely depends on the skills, experience and efforts of our officers and other key employees, including Steve Basta, our Chief Executive
Officer, Derek Bertocci, our Chief Financial Officer, Dennis Condon, our President and Chief Business Officer, and Adam Gridley, Senior Vice President, Corporate Development, along with our ability to retain these employees and to hire new employees
to fill significant needs as we grow our business. We may not be able to attract or retain qualified management, sales, finance and technology personnel in the future due to intense competition for hiring experienced personnel. Additionally, any of
our officers and other employees may terminate their employment at any time. The loss of any of our senior management team members could weaken our management expertise and harm our business.
25
Government regulations restricting the export of goods expose us to potential sanctions and penalties.
United States laws prohibit United States companies and foreign companies that sell U.S. origin
items from engaging in commercial transactions with specified countries, individuals and organizations. We have learned that a distributor of RADIESSE
®
in the United Arab Emirates shipped
our product to physicians in Syria, a prohibited country. We have also learned that our European subsidiary, which manages this distributor, was aware that some shipments might go to Syria, but was not aware that shipments to Syria without a
specific export license violated U.S. law. Upon learning of this situation, we informed the distributor to cease all shipments to Syria and filed a voluntary self disclosure of this situation with the U.S. Department of Commerce. Persons who violate
U.S. export control laws can be subject to monetary fines and other sanctions, including possible criminal penalties. We do not expect the fines or penalties imposed on us, if any, to be material, but we cannot assure you that the actual amount of
the fines or penalties, if any, will not have an adverse effect on our financial condition or reputation.
We may acquire additional products or product
candidates in the future, and any costs associated with the acquisition or any difficulty integrating operations could reduce our revenues, increase our costs and harm our operating results.
We have acquired or in-licensed several of our current products and product candidates. In order to grow our business, we intend to acquire or in-license
additional products and product candidates that we believe have significant commercial potential and that complement our existing products and products under development. Any growth through acquisitions or in-licensing will be dependent upon the
continued availability of suitable acquisition or in-license product candidates at favorable prices and upon advantageous terms and conditions. Integrating any newly-acquired product or product candidate could be expensive and time-consuming. Other
companies, many of which may have substantially greater resources and reputation, compete with us for the right to acquire and in-license products or product candidates. Any cash acquisition we pursue would diminish the resources available to us for
other uses, and any stock acquisition would dilute our stockholders’ ownership. Our future product development efforts also could result in large and immediate write-offs, incurrence of debt and contingent liabilities or amortization of
expenses related to intangible assets, any of which could increase our expenses and adversely affect our results of operations and financial condition.
We could become involved in product liability suits, which could result in expensive and time consuming litigation, payment of substantial damages and an increase in our insurance rates.
Product liability litigation in the medical device industry is common, and from time to time, we may receive complaints or be named in lawsuits claiming
that our products failed to provide the desired outcome or were in some manner associated with an adverse outcome for the patient. These claims could divert management’s attention from our core business, be expensive to defend and result in
sizable damage awards against us. We maintain product liability insurance with liability coverage limits that we believe are adequate and customary for the nature of our business, and we submit these claims to our insurance carrier. However, we may
not have sufficient insurance coverage for all future claims, and we may not be able to obtain additional or expanded insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Any product
liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and reduce product sales. Product liability
claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial condition and reducing our operating results.
Risks Related to Regulatory Matters
If we fail to maintain necessary FDA approvals or if we fail to comply with applicable federal and
state regulations, we could be subject to enforcement action and our commercial operations would be harmed.
We have obtained FDA PMA
approvals and 510(k) clearances for our products for several indications. However, our approvals and clearances could be revoked if safety concerns arise. The FDA and state authorities have broad enforcement powers. Our failure to comply with
applicable regulatory requirements could result in enforcement action by the FDA or state agencies, which may include any of the following actions:
|
|
•
|
|
warning letters, adverse publicity, fines, injunctions, consent decrees and civil penalties;
|
|
|
•
|
|
repair, replacement, refunds, recall or seizure of our product;
|
|
|
•
|
|
operating restrictions or partial suspension or total shutdown of production;
|
|
|
•
|
|
refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses or modifications to our existing product;
|
|
|
•
|
|
withdrawing 510(k) clearance or premarket approvals that have already been granted; and
|
Our FDA approvals for RADIESSE
®
and
COAPTITE
®
contain certain requirements for post-approval studies of the long-term safety and/or efficacy of those products. Clinical studies conducted after approval are subject to the same
risks as clinical studies conducted prior to approval; for example, such studies may be delayed or halted if the product is shown not to be effective, if patients experience unacceptable side affects or if patients do not enroll in the studies at
the rate we expect. In addition, the FDA may alter the parameters of the post-approval studies, including by requiring different endpoints, inclusion criteria, or study sizes, all of which may affect the cost of conducting such trials. These
post-approval studies thus have the potential to reduce our revenues, increase our expenses, and render our approved products not commercially viable.
26
Additionally, administration of our products by
healthcare professionals is subject to regulations that vary by state. For example, federal regulations allow our products to be sold to, or on the order of, “licensed practitioners,” as determined on a state-by-state basis. As a result,
in some states, non-physicians may legally administer RADIESSE
®
. However, a state could change its regulations at any time, disallowing sales to particular types of healthcare
professionals. If we sell our products to practitioners who are not permitted by state regulation to perform the treatment, we could be subject to enforcement action.
If we want to expand our marketing claims, we will need to obtain additional FDA clearances or approvals, which may not be granted.
We are developing additional formulations of our CaHA technology. Before a new use of or claim for
a product can be marketed in the United States, it must first receive FDA approval. The marketing of a product for an indication or application that has not received approval will be viewed as “off-label promotion” and could subject us to
an FDA enforcement action, including the issuance of a warning letter and adverse publicity. In addition, any modifications that we may make to the formulation of RADIESSE
®
or its
manufacturing that would significantly affect its safety or effectiveness or that would constitute a major change in its intended use will require a new FDA approval. The FDA may require us to conduct clinical trials to support new indications or
formulations, such trials may be time-consuming and expensive, and may produce results that do not result in approval of our FDA application. Delays in obtaining future approvals would adversely affect our ability to introduce new or enhanced
products in a timely manner, which in turn would harm our revenue and potential future profitability. In the event that we do not obtain additional FDA approvals for future indications or uses, our ability to promote our products in the United
States and to grow our revenue could be limited.
If we or our third-party manufacturers fail to comply with the FDA’s Quality System Regulation,
our business would suffer.
We and our third-party manufacturers are required to demonstrate and maintain compliance with the FDA’s
Quality System Regulation, or QSR. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our product. The FDA
enforces the QSR through periodic unannounced inspections. We and our third-party manufacturers have been, and in the future will be, subject to such inspections. Our failure, or the failure of our third-party manufacturers, to take prompt and
satisfactory corrective action in response to an adverse QSR inspection could result in enforcement actions, including a public warning letter, a shutdown of our manufacturing operations, a recall of our product, civil or criminal penalties or other
sanctions, which would cause our sales and business to suffer.
We may not be able to obtain or maintain international regulatory qualifications or
approvals for our products, which could harm our business.
Sales of our products
outside the United States are subject to foreign regulatory requirements that vary widely from country to country. The foreign regulatory approval process may include all of the risks associated with obtaining FDA clearance or approval, in addition
to other risks. Complying with international regulatory requirements can be an expensive and time consuming process, and approval is not certain. The time required to obtain foreign clearances or approvals may exceed the time required for FDA
clearance or approval, and requirements for such clearances or approvals may differ significantly from FDA requirements. Foreign regulatory authorities may not clear or approve our product for the same uses cleared or approved by the FDA. Although
we have obtained approval to affix the CE Mark to RADIESSE
®
for use in the European Union, we may not be able to maintain such approval.
We may not be able to obtain permission to affix the CE Mark to new products or to modifications
of RADIESSE
®
. In addition, we may fail to obtain any additional regulatory qualifications, clearances or approvals or to comply with additional legal obligations required by the individual
member countries of the European Union or other countries in which we seek to market our products. The FDA also regulates the export of drugs and medical devices from the United States. If we are not successful in obtaining and maintaining foreign
regulatory approvals or complying with United States export regulations, our business will be harmed.
Foreign regulatory agencies
periodically inspect manufacturing facilities both in the United States and abroad. We may fail to pass inspections of our facilities by applicable regulatory authorities or entities both in the United States and in other countries. Delays in
receiving necessary qualifications, clearances or approvals to market our products outside the United States, or the failure to receive those qualifications, approvals, or to comply with other foreign regulatory requirements, could limit or prevent
us from marketing our products or enhancements in international markets. Additionally, the imposition of new requirements could significantly affect our business and our product, and we might not be able to adjust to such new requirements. If we
fail to comply with applicable foreign regulations, we could face substantial penalties, and our business, operations and financial condition could be adversely affected.
27
Risks Related to Our Intellectual Property
Intellectual property rights provide us with only limited protection against competition.
While we attempt to protect our products through patents and other intellectual property rights, there are few barriers to entry that would prevent new entrants or existing competitors from developing products that
compete directly with ours. For example, while we believe our CaHA-based dermal filler technology maintains a strong intellectual property position, there are companies employing competing technologies that claim to have a similar clinical effect to
ours which are not CaHA-based. There are also potential future competitive products in development incorporating calcium based materials such as CaHA in formulations that may be designed to circumvent our patents. In addition, our patents covering
the core technologies used in RADIESSE
®
and COAPTITE
®
expire in the United States beginning in 2012, and internationally
beginning in 2013, with the last to expire U.S. patent expiring in 2020. Expired patents will not prevent competitors from legally introducing products based on this technology. As a result, we believe that we will have to continually innovate and
improve our products and technologies and file new patent applications and obtain new patents relating to such innovations and technologies to maintain intellectual property protection and to compete successfully.
Patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to us. Any patents we obtain may be
challenged, invalidated or legally circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors, former employees or current employees,
despite the existence generally of confidentiality agreements, security measures and other contractual restrictions, and any litigation that we initiate to protect our intellectual property may be costly, time consuming for management and may not be
successful.
Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not know whether the steps
we have taken to protect our intellectual property will be effective. In addition, third parties may independently develop similar technologies. Moreover, we do not have patent rights in all foreign countries in which a market may exist, and where
we have applied for foreign patent rights, the laws of many foreign countries will not protect our intellectual property rights to the same extent as the laws of the United States.
We may be involved in future costly intellectual property litigation, which could impact our future business and financial performance.
Our industry has been characterized by frequent intellectual property litigation. For example, we
were involved in litigation with one of our competitors, Artes Medical, over rights to intellectual property underlying both of our companies’ lead products, which resulted in the execution of a settlement and license agreement with Artes
Medical in 2005. Our competitors or other patent holders may in the future assert that RADIESSE
®
and the methods we employ are covered by their patents. If our products are found to
infringe, we could be prevented from marketing them or have to pay substantial license fees or royalties to a third party. We may also initiate litigation against third parties to protect our own intellectual property. Companies may market products
for competing purposes in a direct challenge to our intellectual property position, and we may be required to initiate litigation in order to stop them. The unauthorized use of our intellectual property could reduce or eliminate any competitive
advantage we have, cause us to lose sales, or otherwise harm our business. Our intellectual property has not been fully tested in court. If we initiate litigation to protect our rights, we run the risk of having our patents invalidated, which would
undermine our competitive position.
Litigation related to infringement and other
intellectual property claims, with or without merit, is unpredictable, can be expensive and time-consuming and could divert management’s attention from our core business. If we lose this kind of litigation, a court could require us to pay
substantial damages and prohibit us from using technologies essential to RADIESSE
®
, any of which would have a material adverse effect on our business, results of operations and financial
condition. We do not know whether necessary licenses would be available to us at all or on satisfactory terms, or whether we could redesign RADIESSE
®
or processes to avoid infringement.
Risks Related to Our Common Stock and Being a Public Company
We expect that the price of our common stock will fluctuate substantially.
The market price of our common stock is likely
to be highly volatile and may fluctuate substantially due to many factors, including:
|
|
•
|
|
volume and timing of RADIESSE
®
sales;
|
|
|
•
|
|
the introduction of new products or product enhancements by us or our competitors;
|
|
|
•
|
|
disputes or other developments with respect to our intellectual property rights or the intellectual property rights of others;
|
|
|
•
|
|
product liability claims or other litigation;
|
|
|
•
|
|
quarterly variations in our or our competitors’ results of operations;
|
|
|
•
|
|
sales of large blocks of our common stock, including sales by our executive officers and directors;
|
|
|
•
|
|
developments in our industry;
|
|
|
•
|
|
changes in governmental regulations or in the status of our regulatory approvals or applications;
|
|
|
•
|
|
changes in earnings estimates or recommendations by securities analysts; and
|
28
|
|
•
|
|
changes in the economy, credit availability, and consumer sentiment and purchasing patterns; and
|
|
|
•
|
|
significant fluctuations in the overall stock markets that may lead investors to buy or sell our stock even in the absence of any changes in our results or outlook;
and
|
|
|
•
|
|
general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
|
These and other factors may make the price of our stock volatile and subject to unexpected fluctuation.
If our public guidance or our future operating performance does not meet investor expectations, our stock price could decline.
If our actual results do not meet our public guidance, or our guidance or actual results do not
meet the expectations of third-party financial analysts, our stock price could decline significantly. Our business typically has a short sales cycle, so that we do not have significant backlog of orders at the start of a quarter, and our ability to
sell RADIESSE
®
successfully is subject to many uncertainties, as discussed in these risk factors. Additionally, our public guidance is based, in part, on assumptions regarding matters
outside our control, like macroeconomic conditions. If our assumptions are incorrect (as, for example, would be the case if the current economic slowdown persists longer than we anticipate), our guidance could be significantly and adversely
affected. In light of these factors, it is difficult for us to estimate with accuracy our future results. Our expectations regarding these results will be subject to numerous risks and uncertainties that could make actual results differ materially
from those anticipated.
Our financial and disclosure controls and procedures are expensive to implement and may not be sufficient to ensure timely and
reliable reporting of financial information, which could materially harm our stock price and NASDAQ listing.
We are required to comply
with the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, and the related rules and regulations of the SEC, including the requirements that we maintain disclosure controls and procedures and adequate internal control over financial reporting. We
are also required to comply with marketplace rules and corporate governance standards of NASDAQ. Compliance with the Sarbanes-Oxley Act and other SEC and NASDAQ requirements is expensive and requires significant management resources. We recently
have begun upgrading our procedures and controls and will need to continue to implement additional procedures and controls as we grow our business and organization and to satisfy these reporting requirements. The effectiveness of our controls and
procedures implemented to comply with these requirements may in the future be limited by a variety of factors, including:
|
|
•
|
|
faulty human judgment and simple errors, omissions or mistakes;
|
|
|
•
|
|
fraudulent action of an individual or collusion of two or more people;
|
|
|
•
|
|
inappropriate management override of procedures; and
|
|
|
•
|
|
the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information.
|
If we are unable to complete the required assessment as to the adequacy of our internal control over financial
reporting, as required by Section 404 of the Sarbanes-Oxley Act, or if we fail to maintain internal control over financial reporting, our ability to produce timely, accurate and reliable periodic financial statements could be impaired, and we
could be subject to NASDAQ delisting, SEC investigation and civil or criminal sanctions. Additionally, our ability to obtain additional financing could be impaired. A lack of investor confidence in the reliability and accuracy of our public
reporting could cause our stock price to decline.
Our directors, officers and principal stockholders have significant voting power and may take actions
that may not be in the best interests of our other stockholders.
Our officers, directors and principal stockholders each holding more
than 5% of our common stock collectively control more than a majority of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control the management and affairs of our company and most matters
requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the
market price of our common stock. This concentration of ownership may not be in the best interests of our other stockholders.
Anti-takeover provisions
in our Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law, contain provisions that could discourage a takeover or frustrate any attempt by stockholders to change the directors or management of our company.
Our amended and restated certificate of incorporation and bylaws, and Delaware law, contain provisions that might enable our management to resist a
takeover and might make it more difficult for an investor to acquire a substantial block of our common stock to cause changes in our management team or corporate strategy. These provisions include:
|
|
•
|
|
a classified board of directors;
|
29
|
|
•
|
|
advance notice requirements to stockholders for matters to be brought at stockholder meetings;
|
|
|
•
|
|
a supermajority stockholder vote requirement for amending certain provisions of our amended and restated certificate of incorporation and bylaws;
|
|
|
•
|
|
limitations on stockholder actions by written consent;
|
|
|
•
|
|
provisions permitting the issuance of blank check preferred shares without stockholder consent; and;
|
|
|
•
|
|
the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer.
|
We are also subject to the provisions of Section 203 of the Delaware General Corporation Law that, in general,
prohibit any business combination or merger with a beneficial owner of 15% or more of our common stock unless the holder’s acquisition of our stock was approved in advance by our board of directors. These provisions might discourage, delay or
prevent a change in control of our company or a change in our management. The applicability of these provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the
future for shares of our common stock.
We have a large number of authorized but unissued shares of stock.
Our certificate of incorporation provides for 100,000,000 shares of authorized common stock. The issuance of additional shares of common stock may have a
dilutive effect on earnings per share and relative voting power. There are no current plans to issue any additional shares of common stock, other than increases from time to time in the number of shares that are reserved for issuance under our
equity incentive plans. However, we could use the shares of common stock that are available for future issuance in dilutive equity financing transactions, or to oppose a hostile takeover attempt or delay or prevent changes in control or changes in
or removal of management, including transactions that are favored by a majority of the stockholders or in which the stockholders might otherwise receive a premium for their shares over then-current market prices or benefit in some other manner.
In addition, our certificate of incorporation provides for 10,000,000 shares of preferred stock, all of which are available for future
issuance. Although there are currently no plans to do so, our board of directors may, without further stockholder approval, issue up to 10,000,000 shares of preferred stock with such rights, preferences and privileges as our board may determine.
These rights, preferences and privileges may include dividend rights, conversion rights, voting rights and liquidation rights that may be greater than the rights of our common stock. As a result, the rights of holders of our common stock are subject
to, and could be adversely affected by, the rights of holders of any preferred stock that may be issued in the future.
We have not paid dividends in
the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.
We
have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other
business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
We registered our common stock, par value $0.01 per share, on a Registration Statement on Form S-1 (Registration No. 333-145584), for an IPO that was declared effective on November 6, 2007. The net offering proceeds to us, after
deducting total expenses were approximately $83.1 million. As of September 30, 2008, we have utilized all of the proceeds of the offering.
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
None applicable.
|
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None applicable.
|
ITEM 5.
|
OTHER INFORMATION
|
None applicable.
30
BIOFORM MEDICAL, INC.
|
|
|
|
|
Exhibit
No.
|
|
Description
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer under Securities Exchange Act Rule 13a-14(a).
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer under Securities Exchange Act Rule 13a-14(a).
|
|
|
|
|
32.1
|
|
Certifications of Chief Executive Officer pursuant to 18 U.S. C. 1350 and Securities Exchange Act Rule 13a-14(b).
|
|
|
|
|
32.2
|
|
Certifications of Chief Financial Officer pursuant to 18 U.S. C. 1350 and Securities Exchange Act Rule 13a-14(b).
|
31
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.
BioForm Medical, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: N
OVEMBER
7, 2008
|
|
|
|
By:
|
|
/
S
/ S
TEVEN
L. B
ASTA
|
|
|
|
|
|
|
|
|
|
S
TEVEN
L. B
ASTA
|
|
|
|
|
|
|
|
|
|
C
HIEF
E
XECUTIVE
O
FFICER
|
|
|
|
|
|
|
|
|
|
(P
RINCIPAL
E
XECUTIVE
O
FFICER
)
|
|
|
|
|
|
|
Date: N
OVEMBER
7, 2008
|
|
|
|
By:
|
|
/
S
/ D
EREK
B
ERTOCCI
|
|
|
|
|
|
|
|
|
|
D
EREK
B
ERTOCCI
|
|
|
|
|
|
|
|
|
|
C
HIEF
F
INANCIAL
O
FFICER
|
|
|
|
|
|
|
|
|
|
(P
RINCIPAL
F
INANCIAL
AND
A
CCOUNTING
O
FFICER
)
|
32
Bioform Medical (MM) (NASDAQ:BFRM)
Historical Stock Chart
From Jun 2024 to Jul 2024
Bioform Medical (MM) (NASDAQ:BFRM)
Historical Stock Chart
From Jul 2023 to Jul 2024
