Table of Contents
Research and
Development
Research
and development expense was
$4.9 million for the three months ended March 31, 2012, compared to $4.2 million for the three
months ended March 31, 2011. The
increase of $660,000, or 16%, was primarily due to an increase in research and
development activities associated with on-going development of our RIO system
and applications, our RESTORIS family of implant systems, and potential future
products. We expect our research and development expense to increase as we
continue to expand our research and development activities, including the
support of existing products and the research and development of potential
future products.
Depreciation and
Amortization
Depreciation
and amortization expense was $1.3 million for the three months ended March 31,
2012, compared to $975,000 for the three months ended March 31, 2011. The
increase of $299,000, or 31%, was
primarily due to an increase in depreciation of property and equipment as a
result of purchases made during 2011 and 2012 due to the growth in our business
and operational activities necessary to support such growth.
Other Income, net
Other
income, net was $58,000 for the three months ended March 31, 2012, compared to
other income of $92,000 for the three months ended March 31, 2011. The decrease
of $34,000 was primarily due to
a lower average cash, cash equivalents and investments balance for the three
months ended March 31, 2012 compared to the same period of 2011.
Income Taxes
No
federal income taxes were recognized
for the three months ended March 31, 2012 and 2011, due to net operating losses in each period. State and local
income taxes for the three months ended March 31, 2012 and 2011 were $25,000 and $40,000,
respectively. Income taxes recognized to date have not been significant due to
net operating losses we have incurred in each period since our inception. In
addition, no deferred income taxes were recorded for the three months
ended March 31, 2012 and 2011, as all
income tax benefits were fully offset by a valuation allowance against our net
deferred income tax assets.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
Three
Months Ended March 31,
|
|
|
|
2012
|
|
2011
|
|
Change
|
|
% of
Change
|
|
Net cash used in operating
activities
|
|
$
|
(11,893
|
)
|
$
|
(9,662
|
)
|
$
|
(2,231
|
)
|
|
23
|
%
|
Net cash provided by (used
in) investing activities
|
|
|
4,843
|
|
|
(713
|
)
|
|
5,556
|
|
|
(779
|
%)
|
Net cash provided by
financing activities
|
|
|
2,305
|
|
|
400
|
|
|
1,905
|
|
|
476
|
%
|
Net decrease in cash and
cash equivalents
|
|
$
|
(4,745
|
)
|
$
|
(9,975
|
)
|
$
|
5,230
|
|
|
(52
|
%)
|
We
have incurred net losses and negative cash flow from operating activities for
each period since our inception in November 2004. As of March 31, 2012, we had
an accumulated deficit of $200.8 million and have financed our operations
principally through the sale of our equity securities.
As
of March 31, 2012, we had $46.8 million in cash, cash equivalents and
investments. Our cash and investment balances are held in a variety of interest
bearing instruments, including notes and bonds from U.S. government agencies
and certificates of deposit.
On
May 7, 2012, we entered into a Facility Agreement with affiliates of Deerfield
Management Company, L.P., or Deerfield, pursuant to which Deerfield agreed to loan us
up to $50 million, subject to the terms and conditions set forth in the
Facility Agreement. Under the terms of the agreement, we have the flexibility,
but are not required, to draw down on the Facility Agreement in
$10 million increments at any time until May 15, 2013. We were not required
to pay an upfront transaction fee to Deerfield under the Facility Agreement.
20
Table of Contents
Any
amounts drawn under the Facility Agreement accrue interest at a rate of 6.75%
per annum and will be secured by all of our assets excepting only our
intellectual property assets. Accrued interest is payable quarterly in cash. We
have the right to prepay any amounts owed without penalty. All principal
amounts outstanding under the Facility Agreement are payable on the third
anniversary of each draw. If no funds have been drawn under the Facility
Agreement by May 15, 2013, we are required to pay Deerfield a fee of
$1.0 million. As of May 7, 2012, we have not drawn any amounts under the Facility
Agreement.
In
connection with the execution of the Facility Agreement, on May 7, 2012, we
issued to Deerfield warrants to purchase 275,000 shares of our common stock at
an exercise price equal to a 20% premium to the mean closing price of our
common stock over the 20 trading days beginning on May 8, 2012. As noted above,
we have the right to draw down on the Facility Agreement one or more cash
disbursements in the minimum amount of $10 million per disbursement. Each
$10 million disbursement shall be accompanied by the issuance to Deerfield
of warrants to purchase 140,000 shares of common stock, at an exercise price
equal to a 20% premium to the mean closing price of our common stock over the 5
trading days following receipt by Deerfield of the draw notice. If we, in our
discretion, elect to draw down the entire $50 million available under the
Facility Agreement, we will have issued warrants to purchase a total of 975,000
shares of our common stock. The warrants expire seven years from their issuance.
Net Cash Used in Operating Activities
Net
cash used in operating activities primarily reflects the net loss for those periods,
which was reduced in part by depreciation and amortization and stock-based
compensation. Net cash used in operating activities was also reduced by the
recognition of research and development expense associated with stock issued
under the Strategic Alliance Agreement with Pipeline Biomedical Holding, LLC.
Net cash used in operating activities was also affected by changes in operating
assets and liabilities. Included in changes in operating assets and liabilities
for the three months ended March 31, 2012 are $5.0 million of increases to
inventory necessitated by the anticipated increased sales of implants and
disposable products and the commercial launch of our MAKOplasty THA
application, $2.3 million of increases to prepaid and other current assets, $4.7
million of decreases to accrued compensation and employee benefits due
primarily to the payment of 2011 bonuses and 2011 commissions and $3.1 million
of decreases to other accrued liabilities. This was partially offset by $8.2
million of decreases to accounts receivable due primarily to collections of
sales recognized in the prior year. Included in changes in operating assets and
liabilities for the three months ended March 31, 2011 are $2.3 million of
increases to inventory necessitated by the anticipated increased sales of
implants and disposable products and preparation for the launch of our
MAKOplasty THA application in September 2011, and $3.4 million of decreases to
accrued compensation and employee benefits due primarily to the payment of
year-end bonuses and commissions, which was partially offset by $3.4 million of
decreases to accounts receivable.
Net Cash Provided by (Used in) Investing
Activities
Net
cash provided by investing activities for the three months ended March 31, 2012
was primarily attributable to proceeds of $10.2 million from sales and
maturities of investments, which was partially offset by the purchase of
investments of $3.2 million and purchases of property and equipment of $2.2
million due to the growth in our
business. Net cash used in investing activities for the three months
ended March 31, 2011 was primarily attributable to the purchase of investments
of $15.1 million and purchases of property and equipment of $1.3 million, which
was partially offset by proceeds of $15.6 million from sales and maturities of
investments.
Net Cash Provided by Financing Activities
Net
cash provided by our financing activities for the three months ended March 31,
2012 and 2011 was primarily attributable to proceeds received under our
employee stock purchase plan of $360,000 and $241,000, respectively, and to
proceeds received on the exercise of stock options and warrants of $2.0 million
and $516,000, respectively.
21
Table of Contents
Operating Capital and Capital Expenditure
Requirements
To
date, we have not achieved profitability. We anticipate that we will continue
to incur substantial net losses for at least the next two years as we expand
our sales and marketing capabilities in the orthopedic products market,
continue to commercialize our RIO system and MAKOplasty applications, including
our MAKOplasty THA application that we commercially launched in September 2011,
and our implant systems, continue research and development of existing and
future products, and continue development of the corporate infrastructure
required to sell and market our products and support operations. We also expect
to experience increased cash requirements for inventory and property and
equipment in conjunction with the continued commercialization of our RIO system
and implant systems, and introducing other potential future applications.
In
executing our current business plan, we believe our cash, cash equivalents and
investment balances as of March 31, 2012, and interest income we earn on these
balances will be sufficient to meet our anticipated cash requirements for at
least the next twelve months. To the extent our available cash, cash
equivalents and investment balances are insufficient to satisfy our operating
requirements, we will need to seek additional sources of funds, including
selling additional equity, debt or other securities or drawing on our available
credit facility, or modify our current business plan. The sale of additional
equity or convertible debt securities may result in dilution to our current
stockholders. If we raise additional funds through the issuance of debt
securities, these securities may have rights senior to those of our common
stock and could contain covenants that could restrict our operations and
ability to issue dividends. We may also require additional capital beyond our
currently forecasted amounts. Any required additional capital, whether
forecasted or not, may not be available on reasonable terms, or at all. If we
are unable to obtain additional financing, we may be required to reduce the
scope of, delay or eliminate some or all of our planned research, development
and commercialization activities, which could materially harm our business and
results of operations.
Because
of the numerous risks and uncertainties associated with the development of
medical devices and the current economic situation, we are unable to estimate
the exact amounts of capital outlays and operating expenditures necessary to
complete the development of our products and successfully deliver commercial
products to the market. Our future capital requirements will depend on many
factors, including but not limited to the following:
|
|
|
|
|
the revenue generated by
sales of our current and future products;
|
|
|
|
|
|
the expenses we incur in
selling and marketing our products and supporting our growth;
|
|
|
|
|
|
the costs and timing of
domestic and foreign regulatory clearance or approvals for new products or
upgrades or changes to our products;
|
|
|
|
|
|
the expenses we incur in
complying with domestic or foreign regulatory requirements imposed on medical
device companies;
|
|
|
|
|
|
the rate of progress, cost
and success or failure of on-going development activities;
|
|
|
|
|
|
the emergence of competing
or complementary technological developments;
|
|
|
|
|
|
the costs of filing,
prosecuting, defending and enforcing any patent or license claims and other
intellectual property rights, or participating in litigation related
activities;
|
|
|
|
|
|
the terms and timing of
any collaborative, licensing, or other arrangements that we may
establish;
|
|
|
|
|
|
the impact of the United
States healthcare reform legislation enacted in March 2010 on hospital
spending, reimbursement, and the taxing of medical device companies;
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22
Table of Contents
|
|
|
|
|
the acquisition of
businesses, products and technologies; and
|
|
|
|
|
|
general economic
conditions and interest rates.
|
Contractual Obligations
At
March 31, 2012, we were committed to make future purchases for inventory and
other items that occur in the ordinary course of business under various
purchase arrangements with fixed purchase provisions aggregating $16.5 million.
Other
than as described above and scheduled payments through March 31, 2012, there
have been no significant changes in our contractual obligations during the
three months ended March 31, 2012 as compared to the contractual obligations
described in our Form 10-K for the year ended December 31, 2011.
Off-Balance Sheet Arrangements
We
do not have any off-balance sheet arrangements.
I
TEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our
exposure to market risk is confined to our cash, cash equivalents, investments
and exchange rate risk on international sales. The goals of our cash investment
policy are the security of the principal invested and fulfillment of liquidity
needs, with the need to maximize value being an important consideration. To
achieve our goals, we maintain a portfolio of cash equivalents and investments
in a variety of securities including notes and bonds from U.S. government
agencies and certificates of deposit. The securities in our investment
portfolio are not leveraged and are classified as available-for-sale. We
currently do not hedge interest rate exposure or exchange rate risk. We do not
believe that a variation in market rates of interest would significantly impact
the value of our investment portfolio. We do not believe that a variation in
the value of the U.S. dollar relative to foreign currencies would significantly
impact our results of operations.
I
TEM
4. CONTROLS AND PROCEDURES.
Disclosure
Controls and Procedures.
In
accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, or the
Exchange Act, our management evaluated, with the participation of our chief executive
officer and chief financial officer, or the Certifying Officers, the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March
31, 2012. Based upon their evaluation of these disclosure controls and
procedures, our Certifying Officers concluded that the disclosure controls and
procedures were effective as of March 31, 2012 to provide reasonable assurance
that information required to be disclosed by us in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time period specified in the rules and forms of the Securities and
Exchange Commission, and to provide reasonable assurance that information required
to be disclosed by us in the reports we file or submit under the Exchange Act
is accumulated and communicated to our management, including our principal
executive and principal financial officers, as appropriate, to allow timely
decisions regarding required disclosure.
We
believe that a controls system, no matter how well designed and operated, is
based in part upon certain assumptions about the likelihood of future events,
and therefore can only provide reasonable, not absolute, assurance that the
objectives of the controls system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
Changes in Internal Control over Financial Reporting.
There
have been no changes in our internal control over financial reporting during
the quarter ended March 31, 2012 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
23
Table of Contents
P
ART II
OTHER INFORMATION
I
TEM 1. LEGAL PROCEEDINGS
None
I
TEM 1A. RISK FACTORS.
There
have been no material changes in our risk factors from those disclosed in our
Form 10-K for the year ended December 31, 2011.
I
TEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS.
|
|
(c)
|
Issuer Purchases of Equity Securities
|
The
following table summarizes the surrenders of the Companys common stock during
the three month period ended March 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
Purchased(1)
|
|
Average
Price Paid per
Share(1)
|
|
Total
Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
|
|
Maximum
Dollar
Value of Shares that
May Yet be Purchased
Under the Plans or
Programs
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1 to 31, 2012
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
February 1 to 29, 2012
|
|
|
2,278
|
|
|
35.62
|
|
|
|
|
|
|
|
March 1 to 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,278
|
|
$
|
35.62
|
|
|
|
|
$
|
|
|
|
|
(1)
|
Represents the surrender of
shares of common stock of the Company to satisfy the tax withholding
obligations associated with the vesting of restricted stock under the
Companys equity incentive plans.
|
I
TEM 3. DEFAULTS UPON SENIOR SECURITIES
None
I
TEM 4. MINE SAFETY DISCLOSURES
Not
applicable
I
TEM 5. OTHER INFORMATION.
We
take matters relating to regulatory compliance very seriously. In 2012, as part
of our ongoing internal quality management initiatives and systems
enhancements, we undertook a retrospective review of all product complaints to
determine if we may have inadvertently failed to file certain Medical Device
Reporting (MDR) reports with the U.S. Food and Drug Administration (the
FDA) during the period 2010 to present. Based upon criteria set by the FDA as
well as our own internal MDR reporting criteria, our internal review
preliminarily identified potential MDR reportability for 105 of such
complaints. Significantly, no new or unknown product safety issues were
discovered in this retrospective review.
24
Table of Contents
On
May 4, 2012, we met with and solicited the advice of the FDA as to the
reasonableness of our enhanced MDR reporting systems and retrospective review,
which resulted in the submission of 120 MDR filings on May 7, 2012. The
filing of these MDR reports could result in scrutiny of the MDR reports, or an
inspection of our records and reporting procedures, by the FDA, which could
result in issuance of a warning letter with respect to such procedures. We do
not believe, however, based upon the nature of the MDR reports, our
interactions with the FDA and all other information currently available to us,
that the filing of these MDR reports and the potential regulatory and other
consequences related to such filing, if any, will have a material adverse
impact on our results of operations.
We
have implemented corrective and preventive actions, including revised internal
reporting procedures, revised standard operating procedures and additional
employee training, to address and prevent regulatory issues from occurring in
the future. We believe that we have made significant progress in transitioning
our organization to increase focus on regulatory compliance and in implementing
solutions to enhance our quality systems. Notwithstanding our continuing
efforts in these areas, scrutiny or inspection by the FDA could result in
regulatory consequences to us as described in greater detail under Item 1A,
Risk Factors, in our periodic filings with the Securities and exchange
Commission, including our annual report on Form 10-K for the year ended
December 31, 2011.
I
TEM 6. EXHIBITS.
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
4.1
|
|
Form of
Warrant to purchase shares of common stock of MAKO Surgical Corp.
(incorporated by reference to the Companys Form 8-K as filed on May 7, 2012)
|
|
|
|
10.1
|
|
Facility
Agerement dated May7, 2012 by and among MAKO Surgical Corp., Deerfield Private Design
Fund II, L.P. and Deerfield Private Design International II, L.P.
(incorporated by reference to the Companys Form 8-K as filed on May 7, 2012)
|
|
|
|
10.2
|
|
Registration
Rights Agreement dated May7, 2012 by and among MAKO Surgical Corp., Deerfield Private
Design Fund II, L.P. and Deerfield Private Design International II, L.P.
(incorporated by reference to the Companys Form 8-K as filed on May 7, 2012)
|
|
|
|
10.3
|
|
Form of Security
Agreement (incorporated by reference to the Companys Form 8-K as filed on May 7, 2012)
|
|
|
|
10.4
|
|
Employment
Agreement between Registrant and Lawrence T. Gibbons, effective as of
February 3, 2012 (incorporated by reference to the Companys Form 8-K as
filed on January 31, 2012)
|
|
|
|
10.5
|
|
2012
Leadership Cash Bonus Plan (incorporated by reference to the Companys Form
8-K as filed on February 27, 2012)
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. §1350
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. §1350
|
|
|
|
101
|
|
The
following materials from MAKO Surgical Corp.s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2012, formatted in XBRL (Extensible Business
Reporting Language): (i) Condensed Balance Sheets, (ii) Condensed Statements
of Operations, (iii) Condensed Statements of Cash Flows, and (iv) Notes to
Condensed Financial Statements, tagged as blocks of text.
|
25
Table of Contents
S
IGNATURES
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.
|
|
|
|
MAKO
Surgical Corp.
|
|
|
Date: May 7,
2012
|
By:
|
/s/ Fritz L.
LaPorte
|
|
|
Fritz L.
LaPorte
|
|
|
Senior Vice
President of Finance and
|
|
|
Administration,
Chief Financial Officer and Treasurer
|
|
|
(Principal
Financial Officer and Authorized Signatory)
|
26
Table of Contents
E
XHIBIT INDEX
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
4.1
|
|
Form of Warrant
to purchase shares of common stock of MAKO Surgical Corp. (incorporated by
reference to the Companys Form 8-K as filed on May 7, 2012)
|
|
|
|
10.1
|
|
Facility
Agerement dated May7, 2012 by and among MAKO Surgical Corp., Deerfield Private Design
Fund II, L.P. and Deerfield Private Design International II, L.P.
(incorporated by reference to the Companys Form 8-K as filed on May 7, 2012)
|
|
|
|
10.2
|
|
Registration
Rights Agreement dated May 7, 2012 by and among MAKO Surgical Corp., Deerfield Private
Design Fund II, L.P. and Deerfield Private Design International II, L.P.
(incorporated by reference to the Companys Form 8-K as filed on May 7, 2012)
|
|
|
|
10.3
|
|
Form of Security
Agreement (incorporated by reference to the Companys Form 8-K as filed on May 7, 2012)
|
|
|
|
10.4
|
|
Employment
Agreement between Registrant and Lawrence T. Gibbons, effective as of
February 3, 2012 (incorporated by reference to the Companys Form 8-K as
filed on January 31, 2012)
|
|
|
|
10.5
|
|
2012
Leadership Cash Bonus Plan (incorporated by reference to the Companys Form
8-K as filed on February 27, 2012)
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. §1350
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. §1350
|
|
|
|
101
|
|
The following
materials from MAKO Surgical Corp.s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2012, formatted in XBRL (Extensible Business
Reporting Language): (i) Condensed Balance Sheets, (ii) Condensed Statements
of Operations, (iii) Condensed Statements of Cash Flows, and (iv) Notes to
Condensed Financial Statements, tagged as blocks of text.
|
27
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