Item 1. FINANCIAL STATEMENTS
BG Medicine, Inc. and Subsidiary
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
(in thousands, except share and per share data)
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,538
|
|
|
$
|
7,751
|
|
Accounts receivable
|
|
|
353
|
|
|
|
319
|
|
Inventory
|
|
|
554
|
|
|
|
459
|
|
Prepaid expenses and other current assets
|
|
|
352
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
10,797
|
|
|
|
8,835
|
|
|
|
|
Property and equipment, net
|
|
|
154
|
|
|
|
192
|
|
Intangible assets, net
|
|
|
163
|
|
|
|
192
|
|
Deposits and other assets
|
|
|
126
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,240
|
|
|
$
|
9,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Term loan, current portion
|
|
|
4,406
|
|
|
|
4,353
|
|
Accounts payable
|
|
|
1,012
|
|
|
|
965
|
|
Accrued expenses
|
|
|
924
|
|
|
|
1,993
|
|
Other current liabilities
|
|
|
69
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,411
|
|
|
|
7,350
|
|
|
|
|
Term loan, net of current portion
|
|
|
745
|
|
|
|
2,961
|
|
Other liabilities
|
|
|
102
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,258
|
|
|
|
10,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
Common stock; $.001 par value; 100,000,000 shares authorized at June 30, 2014 and December 31, 2013; 34,417,249 and
27,936,222 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
|
|
|
34
|
|
|
|
28
|
|
Additional paid-in capital
|
|
|
161,234
|
|
|
|
151,841
|
|
Accumulated deficit
|
|
|
(157,286
|
)
|
|
|
(152,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
3,982
|
|
|
|
(1,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
11,240
|
|
|
$
|
9,353
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
BG Medicine, Inc. and Subsidiary
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands, except share and per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
|
|
$
|
799
|
|
|
$
|
972
|
|
|
$
|
1,538
|
|
|
$
|
1,792
|
|
Service revenues
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
799
|
|
|
|
1,006
|
|
|
|
1,538
|
|
|
|
1,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs
|
|
|
281
|
|
|
|
353
|
|
|
|
529
|
|
|
|
633
|
|
Service costs
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
102
|
|
Research and development
|
|
|
573
|
|
|
|
1,117
|
|
|
|
1,133
|
|
|
|
2,493
|
|
Selling and marketing
|
|
|
733
|
|
|
|
1,782
|
|
|
|
1,421
|
|
|
|
3,926
|
|
General and administrative
|
|
|
1,183
|
|
|
|
2,269
|
|
|
|
2,373
|
|
|
|
4,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and operating expenses
|
|
|
2,770
|
|
|
|
5,555
|
|
|
|
5,456
|
|
|
|
11,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,971
|
)
|
|
|
(4,549
|
)
|
|
|
(3,918
|
)
|
|
|
(9,350
|
)
|
Non-cash consideration associated with stock purchase agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329
|
)
|
Interest income
|
|
|
|
|
|
|
6
|
|
|
|
2
|
|
|
|
10
|
|
Interest expense
|
|
|
(199
|
)
|
|
|
(295
|
)
|
|
|
(432
|
)
|
|
|
(584
|
)
|
Other income
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,169
|
)
|
|
$
|
(4,837
|
)
|
|
$
|
(4,348
|
)
|
|
$
|
(10,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding used in computing per share amounts - basic and diluted
|
|
|
33,915,465
|
|
|
|
27,649,879
|
|
|
|
30,942,514
|
|
|
|
26,490,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
BG Medicine, Inc. and Subsidiary
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,348
|
)
|
|
$
|
(10,249
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
67
|
|
|
|
100
|
|
Stock-based compensation
|
|
|
380
|
|
|
|
633
|
|
Non-cash interest expense
|
|
|
116
|
|
|
|
99
|
|
Non-cash consideration associated with stock purchase agreement
|
|
|
|
|
|
|
329
|
|
Gain on sale of property and equipment
|
|
|
|
|
|
|
(53
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
102
|
|
Accounts receivable
|
|
|
(34
|
)
|
|
|
(7
|
)
|
Inventory
|
|
|
(95
|
)
|
|
|
178
|
|
Prepaid expenses and other assets
|
|
|
(38
|
)
|
|
|
(115
|
)
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(1,067
|
)
|
|
|
275
|
|
Deferred revenue and customer deposits
|
|
|
27
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in operating activities
|
|
|
(4,992
|
)
|
|
|
(8,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds from the sale of property and equipment
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by investing activities
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from public offering
|
|
|
9,238
|
|
|
|
13,058
|
|
Costs related to public offering
|
|
|
(243
|
)
|
|
|
(287
|
)
|
Payments on term loan
|
|
|
(2,240
|
)
|
|
|
(666
|
)
|
Proceeds from ESPP purchases
|
|
|
2
|
|
|
|
13
|
|
Proceeds from the exercise of stock options
|
|
|
22
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by financing activities
|
|
|
6,779
|
|
|
|
12,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
1,787
|
|
|
|
3,417
|
|
|
|
|
Cash, beginning of period
|
|
|
7,751
|
|
|
|
12,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
9,538
|
|
|
$
|
16,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
319
|
|
|
$
|
455
|
|
|
|
|
Supplemental disclosure of non-cash activities
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock warrants accounted for as debt discount
|
|
$
|
|
|
|
$
|
163
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
BG Medicine, Inc. and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Description of Business and Basis of Presentation
|
Description of Business
BG Medicine, Inc. (BG Medicine or the Company) is a commercial stage company that is focused on the development and
delivery of diagnostic solutions to aid in the clinical management of heart failure and related disorders. The Company has one diagnostic test that is U.S. Food and Drug Administration, or FDA, cleared and CE marked, the BGM Galectin-3
®
Test, an
in vitro
diagnostic device that quantitatively measures galectin-3 levels in blood plasma or serum for use as an aid in assessing the prognosis of chronic heart failure. It is
currently available as a blood test in the United States and the European Union, or EU. The Company is also developing a pipeline of diagnostic products including the CardioSCORE Test, a biomarker-based blood test designed as an aid in the
assessment of near-term risk for significant cardiovascular events, such as heart attack and stroke.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States and in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete financial statements. The interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to present fairly the Companys financial position at June 30, 2014 and results of operations and cash flows for the interim periods ended June 30, 2014 and 2013.
The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to
provide additional evidence relative to certain estimates and to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. The results for the six months
ended June 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or for any other interim period or for any other future year. These interim condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and notes thereto contained in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2013.
At June 30, 2014, the Company had cash totaling $9.5 million, an outstanding balance of $5.2 million under a secured term loan facility,
and stockholders equity of $4.0 million. During the six months ended June 30, 2014, the Company incurred a net loss of $4.3 million and used cash in operating activities totaling $5.0 million. The Company expects to continue to incur
losses and use cash in operating activities during the remainder of 2014 and beyond.
On April 8, 2014, the Company closed a follow-on
underwritten public offering of 6,452,000 shares of its common stock, at an offering price of $1.55 per share, for gross proceeds of $10.0 million. The net offering proceeds received by the Company, after deducting underwriting discounts and
commissions and expenses incurred in connection with the offering, were approximately $9.0 million.
Effective January 1, 2014, the
payment rate at which the Companys BGM Galectin-3 Test is reimbursed by the Centers for Medicare and Medicaid Services (CMS), was increased to $30.01 from $17.80 per test. The Company expects to increase its revenues through higher
reimbursement levels and by engaging additional laboratory providers and expects to decrease its operating expenses. However, the Company is in the early stages of commercializing its BGM Galectin-3 Test. Interest in the BGM Galectin-3 Test is
increasing as a result of the Companys market development activities, although it has not yet translated into significant revenue. In order to achieve profitability, the Company will need to generate significant product revenues.
As further described in Note 4, the Companys term loan is secured by substantially all of the Companys assets. The loan and
security agreement contains customary events of default that entitle the lenders to cause any or all of the Companys indebtedness under the loan and security agreement to become immediately due and payable and could cause the lenders to
foreclose on the collateral securing the indebtedness, including the Companys cash. The events of default include, among others, the occurrence of a material adverse effect which could cause the lender to accelerate the payments by the Company
under the term loan. The Company has determined that the risk of a subjective acceleration under the material adverse effect clause, absent acceleration under other enumerated events of default, is remote.
The Company believes that its existing cash and availability of up to $12.0 million under its common stock purchase agreement with Aspire
Capital Fund, LLC (Aspire), (Note 6) pursuant to which approximately $4.1 million would have been available to the Company through the sale of available shares over the purchase period ending June 30, 2014, will be sufficient to
fund its
6
BG Medicine, Inc. and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
operations and service its debt into the second quarter of 2015. The Company has not yet sold any shares under its common stock purchase agreement with Aspire, which expires in May 2015. In order
for the Company to sell shares to Aspire under the Purchase Agreement, the Companys common stock must trade above the $1.00 minimum floor price set forth in the Purchase Agreement. Until the Company generates significant product revenues to
reach cash breakeven, the Company will need to raise additional funds to finance its operations and service its existing debt beyond the second quarter of 2015. The Company may not be able to obtain adequate financing to do so when necessary, and
the terms of any financings may not be advantageous to it.
The above circumstances along with the Companys history and near term
forecast of incurring net losses and negative operating cash flows raise substantial doubt regarding its ability to continue as a going concern beyond the second quarter of 2015. The accompanying unaudited condensed consolidated financial statements
have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
2.
|
Significant Accounting Policies
|
Product Revenues
Product revenues are recognized when the following criteria have been met: (i) persuasive evidence of an arrangement exists;
(ii) delivery has occurred and risk of loss has passed; (iii) the sellers price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.
The Company sells its products through supply agreements with laboratory testing services and diagnostic testing distributors and directly to
hospitals and clinics. The Company recognizes revenue when products are received by customers, at which time both title and risk of loss have passed to the customers. The Company negotiates credit terms on a customer-by-customer basis and products
are shipped at an agreed-upon price.
Revenue is recorded net of taxes collected from customers that are remitted to governmental
authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority. Freight costs billed to customers are recorded as revenue.
The Company does not currently provide an allowance for doubtful accounts or a reserve for sales returns as the Company has not experienced any
credit losses, and returns are only allowed for defects in workmanship.
Service Revenues
Service revenues are primarily attributable to the activities from the High Risk Plaque initiative, for which all revenue has been recorded as
of December 31, 2013. The Company does not expect to record service revenues in 2014 or beyond.
Inventory
Inventory is stated at the lower of cost or market. Costs are determined under the first-in, first-out (FIFO) method. Inventories
consisted of the following:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
|
Raw materials
|
|
$
|
86
|
|
|
$
|
107
|
|
Finished goods
|
|
|
468
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
554
|
|
|
$
|
459
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share
Basic and diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the
period. Because the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for all periods presented.
7
BG Medicine, Inc. and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the computation of basic and diluted net loss per share for
the three and six months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands, except share and per share data)
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,169
|
)
|
|
$
|
(4,837
|
)
|
|
$
|
(4,348
|
)
|
|
$
|
(10,249
|
)
|
Weighted average number of shares - basic and diluted
|
|
|
33,915,465
|
|
|
|
27,649,879
|
|
|
|
30,942,514
|
|
|
|
26,490,682
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.39
|
)
|
For the three and six months ended June 30, 2014 and 2013, the following potential common shares were
excluded from the computation of diluted net loss per share because they had an antidilutive impact due to the losses reported:
|
|
|
|
|
|
|
|
|
|
|
Three and Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Options to purchase common stock
|
|
|
3,042,661
|
|
|
|
2,913,192
|
|
Warrants to purchase common stock
|
|
|
864,555
|
|
|
|
864,555
|
|
3.
|
Fair Value of Financial Instruments
|
At June 30, 2014, the Companys financial instruments consist of cash, accounts receivable, accounts payable and
debt. The carrying amounts of accounts receivable, accounts payable and short-term debt are considered reasonable estimates of their fair value, due to the short maturity of these instruments. The carrying amount of the long term debt was considered
a reasonable estimate of fair value because the Companys effective interest rate is near current market rates for instruments with similar characteristics.
On February 10, 2012, the Company entered into a secured term loan facility, and a term loan in the aggregate principal
amount of $10.0 million was funded upon the closing of the transaction.
The term loan accrues interest at a rate of 8% per annum plus
the higher of (a) the 3-month LIBOR rate or (b) 1.25%. The interest rate in effect at June 30, 2014 was 9.25%. Interest only payments were made for the first twelve months of the loan term. Following that initial twelve month period,
principal and interest payments are required to be paid on a monthly basis through maturity at September 2015. The term loan is secured by substantially all of the Companys assets, other than its intellectual property, for which the Company
has provided a negative pledge. The loan and security agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, covenants that limit or restrict the Companys ability
to incur indebtedness, merge or consolidate, dispose of assets, make acquisitions, pay dividends or make distributions, or repurchase stock. In addition, the loan and security agreement contains customary events of default that entitle the lenders
to cause any or all of the Companys indebtedness under the loan and security agreement to become immediately due and payable and could cause the lenders to foreclose on the collateral securing the indebtedness, including the Companys
cash. The events of default include, among others, non-payment of principal and interest when due, inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency and the occurrence of a material adverse effect (as defined
in the loan and security agreement).
May 2013 Loan Amendment
In May 2013, the Company amended its loan and security agreement to allow for a three month deferral of principal payments beginning
May 1, 2013 and to allow for up to an additional three months of deferral based on the Company meeting certain minimum liquidity requirements, as defined in the amendment. The Company made principal payments in March and April 2013 prior to the
signing of the amendment. The Company did not meet the additional liquidity requirements, as defined in the amendment, and, accordingly, principal payments resumed on August 1, 2013. The amendment also increased certain loan fees by $50,000,
and amended the terms of the warrants, as discussed below.
8
BG Medicine, Inc. and Subsidiary
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Warrants
In connection with the loan facility, the Company initially issued to the lenders warrants to purchase 36,657 shares of its common stock with
an exercise price of $6.82 per share. The warrants expire ten years from the date of issuance. The warrants were valued using the Black-Scholes option pricing model using the following assumptions: fair value of the underlying common stock of $8.51
per share; volatility of 70%; no dividend yield; risk free interest rate of 1.96%; and an expected life of ten years. The relative fair value of the warrants, aggregating $240,000, has been accounted for as a debt discount and is being recognized as
interest expense over the term of the loan using the effective interest method. These warrants have been classified as equity instruments and are included within additional paid-in capital. As part of the May 2013 amendment to the loan and
security agreement, the number of shares for which the warrants were exercisable increased by 110,401 shares and the exercise price of the warrants was adjusted to $1.70 per share. At the loan modification date, the Company valued the warrants using
the Black-Scholes option pricing model and recorded the incremental value of the increased number of shares for which the warrants are exercisable as additional debt discount in the amount of $163,000, which is being recognized as additional
interest expense over the remaining term of the loan using the effective interest method.
At June 30, 2014, the Company had $5.2
million outstanding under the term loan.
5.
|
Commitments and Contingencies
|
From time to time, the Company may be subject to various legal proceedings and claims arising in the ordinary course of
business. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. An estimated loss contingency is accrued in the financial statements if it is
probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
The Company was involved in litigation
with a former research collaborator resulting from the Companys termination of its participation in the collaboration. In April 2014, the Company settled this matter for an amount that had been accrued at December 31, 2013. No further
losses are expected related to this matter. No other amounts related to contingencies are accrued at June 30, 2014.
6.
|
Common Stock Purchase Agreement
|
On January 24, 2013, the Company entered into a Common Stock Purchase Agreement (Purchase Agreement), with
Aspire Capital Fund, LLC to purchase, at the Companys option, up to an aggregate of $12.0 million of shares of its common stock over a two-year term, which expires in May 2015. Under the Purchase Agreement, the Company initially issued 132,743
shares of its common stock as a commitment fee. The Companys sales to Aspire will be made subject to market conditions, in light of its capital needs and under various limitations contained in the Purchase Agreement, including a floor price of
$1.00 per share required by the Purchase Agreement. The Company has not yet sold any shares under the Purchase Agreement, which expires in May 2015.
Over the term of the Purchase Agreement, assuming the Companys common stock is trading above the $1.00 floor price that is required to
use the facility, the Company has two ways to elect to sell common stock to Aspire on any business day the Company selects: (1) through a regular purchase of up to 100,000 shares at prices based on the market price of the Companys common
stock prior to the time of each sale, and (2) through a volume weighted average price (VWAP), purchase of a number of shares up to 30% of the volume traded on the purchase date at a price equal to the lesser of the closing sale
price or 95% of the VWAP for such purchase date.
The Company also entered into a Registration Rights Agreement with Aspire, which
requires, among other things, that the Company maintain the effectiveness of the Companys registration statement that registered the shares issued and issuable to Aspire under the Purchase Agreement.
7.
|
Follow-on Public Offerings
|
On January 30, 2013, the Company closed a follow-on underwritten public offering of 6,900,000 shares of its common
stock, at an offering price of $2.00 per share, for gross proceeds of $13.8 million. The net offering proceeds received by the Company, after deducting underwriting discounts and commissions and expenses incurred in connection with the offering,
were approximately $12.8 million.
On April 8, 2014, the Company closed a follow-on underwritten public offering of 6,452,000 shares
of its common stock, at an offering price of $1.55 per share, for gross proceeds of $10.0 million. The net offering proceeds received by the Company, after deducting underwriting discounts and commissions and expenses incurred in connection with the
offering, were approximately $9.0 million.
9
Item 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
You
should read the following in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto that appear elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and
notes thereto and under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2013. In addition to historical
information, the following discussion and analysis includes forward-looking information that involves risks, uncertainties and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these
forward-looking statements as a result of many factors, including those discussed under Risk Factors in Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2013.
Overview
We are developing and commercializing
diagnostic products that may be used to help guide the care and management of patients who suffer from heart failure and related disorders.
Our BGM
Galectin-3 Test is our first U.S. Food and Drug Administration, or FDA, cleared and CE Marked diagnostic product. It is currently available as a blood test in the United States and the European Union, or EU. Our BGM Galectin-3 Test was included in
the 2013 American College of Cardiology Foundation and the American Heart Association Guideline for the Management of Heart Failure.
We market and sell
our BGM Galectin-3 Test kits to health care clinical laboratories, hospitals, and health care providers. We hope to accelerate the clinical and commercial adoption of galectin-3 testing by generating, publishing and publicizing data derived from
clinical research studies that have incorporated our BGM Galectin-3 Test and by expanding our BGM Galectin-3 Tests indications for use. We have entered into licensing agreements with leading diagnostic instrument manufacturers to develop and
commercialize galectin-3 assays that will be performed on automated platforms that have been incorporated into routine practice in laboratories throughout the world.
We are developing a pipeline of diagnostic products by leveraging our intellectual property and the mining of data generated from the BioImage Study, a
patient cohort and specimen repository to which we have exclusive access for the development of diagnostic products. Among the products in development is our CardioSCORE Test, a biomarker-based blood test designed as an aid in the assessment
of near-term risk for significant cardiovascular events, such as heart attack and stroke.
Our BGM Galectin-3 Test
Our BGM Galectin-3 Test is our first FDA cleared and CE Marked diagnostic product. It is an
in vitro
diagnostic device that quantitatively measures
galectin-3 in serum or plasma by enzyme linked immunosorbent assay, or ELISA, on a microtiter plate platform. Heart failure patients with elevated galectin-3 levels as measured using our BGM Galectin-3 Test have been found to be at significantly
greater risk of adverse outcomes, including death or hospitalization. Measurement of this protein biomarker is intended to be used in conjunction with clinical evaluation.
Galectins are a family of proteins that play many important roles in inflammation, immunity and cancer. Galectin-3, a member of this family of proteins, is a
protein biomarker that has been shown to play an important role in heart failure in both animal and human studies. In animal experiments, administration of galectin-3 to the heart led to the development of cardiac fibrosis, or stiffening, in the
heart muscle, a process that is often referred to as cardiac remodeling. In these animal studies, adverse remodeling reduced the hearts ability to pump normally, causing the animals to develop heart failure. This link between galectin-3 and
cardiac remodeling is significant and suggests that galectin-3 may be a useful biomarker for adverse cardiac remodeling, an important determinant of the clinical outcome of patients suffering from heart failure. We have obtained an exclusive
worldwide license to certain galectin-3 rights that relate to the association of this protein biomarker with heart failure. We have also filed several of our own patent applications related to galectin-3. Our BGM Galectin-3 Test is currently
available as a blood test in the United States and the EU.
Automated Testing For Galectin-3
Overview
We believe that automation of our
galectin-3 test will broaden its acceptance by laboratory customers and, as a result, accelerate its clinical adoption. To that end, we have entered into licensing and commercialization agreements with four leading diagnostic instrument
manufacturers to develop and commercialize automated instrument versions of our galectin-3 test. We have entered into
10
worldwide license, development and commercialization agreements with Abbott Laboratories, or Abbott, bioMérieux SA, or bioMérieux, Siemens Healthcare Diagnostics Inc., or Siemens,
and Alere Inc., or Alere. These diagnostic instrument manufacturers account for a significant percentage of the automated laboratory testing instruments that are used throughout the world. The installed customer base of these automated partners
reflects all major segments of the diagnostics market, including hospital laboratories, national reference laboratories, regional laboratories and others.
Progress to Date
In January 2013,
bioMérieux obtained a CE Mark for its VIDAS
®
Galectin-3 assay and initiated its commercial launch in the EU. The VIDAS
®
Galectin-3 assay was developed by bioMérieux for the quantitative measurement of galectin-3 levels in blood using the bioMérieux VIDAS
®
automated and multiparametric immunoassay
testing system.
In April 2013, Abbott obtained a CE mark for its ARCHITECT
®
Galectin-3 assay and
initiated its commercial launch in the EU. Abbott is offering the ARCHITECT
®
Galectin-3 assay on its ARCHITECT
®
immunoassay platform.
In the United States, Fujirebio Diagnostics, Incorporated, or Fujirebio, on behalf of Abbott, is the first of our automated partners to have filed for 510(k) regulatory clearance of an automated version of the galectin-3 test. Fujirebio is
developing the test for use on Abbotts ARCHITECT
®
immunochemistry instrument platform. Fujirebio initially submitted its 510(k) to the FDA in July 2012. Subsequently, Fujirebio received
a letter from the FDA requesting additional information on various matters, including the geographic composition of the patient cohort that provided the blood samples used to support the 510(k) submission. Due to the nature of the additional
information requested and the time required to address the FDAs questions, Fujirebio was unable to submit a complete response to the FDA by the FDA-designated deadline on February 25, 2013 and withdrew the submission. Fujirebio submitted
its new 510(k) to the FDA in February 2014.
Reimbursement for Galectin-3 Testing
Approximately 70% of heart failure patients in the United States are of Medicare age. Therefore, reimbursement by Medicare is of considerable interest to our
laboratory customers. In the United States, for the 2014 calendar year, the Centers for Medicare and Medicaid Services, or CMS, published a 2014 Medicare national limitation amount for the galectin-3 blood test (analyte-specific CPT
®
Code 82777) at the amount of a crosswalked test (analyte-specific CPT
®
Code 84244) whose 2014 national limitation amount is $30.01. This
national limitation replaces the galectin-3 blood tests national limitation amount of $17.80 that was effective in 2013. The 2014 national limitation amount applies across the U.S. except in Ohio and West Virginia where rates of $23.99 and
$26.40, respectively, will apply. In Europe, the Companys sales efforts are currently directed to hospital situated emergency departments whose reimbursement is covered under the hospital budgeting process.
Our Product Pipeline
New Clinical Claims and
Indications for the BGM Galectin-3 Test
We believe that the clinical and commercial value of our BGM Galectin-3 Test may extend beyond its current
indications for use. We expect to pursue new clinical claims and indications for its use in assessing heart failure, as well as in related disorders. Expansion of the product label to include new clinical claims and indications for use will require
additional clinical studies and clearance, or approval, by regulatory bodies, such as the FDA, and inclusion in our CE Mark for use in the EU.
CardioSCORE Test
Our CardioSCORE test is a
multi-analyte biomarker-based blood test that is designed as an aid in the assessment of near-term risk for significant atherothrombotic cardiovascular events, such as heart attack and ischemic stroke. The CardioSCORE test is a proprietary
in
vitro
diagnostic multi-analyte assay in which the levels of multiple biomarkers are measured in blood and the results are mathematically integrated to yield a single numerical score that is predictive of an individuals near-term
atherothrombotic cardiovascular risk. Our development work indicates that the CardioSCORE test has the potential to offer significant improvement over conventional risk factor-based diagnostics, such as the Framingham Risk Score, to identify
near-term cardiovascular risk.
In December 2012, we obtained a CE Mark for the CardioSCORE test, which will enable us to market the test in Europe and
other countries that recognize CE Mark. However, as a result of our decision to focus our efforts on increasing the adoption and sales of our galectin-3 test, we have decided to redirect investments from a launch of the CardioSCORE test in Europe to
support our galectin-3 efforts. We may move forward with a European launch in test markets, when and if appropriate partnership opportunities arise.
In
December 2011, we submitted a 510(k) to the FDA in order to obtain regulatory clearance to market the CardioSCORE test in the United States as an aid in the assessment of near-term risk for significant cardiovascular events, such as heart attack and
stroke. In
11
response to this submission, the FDA requested that we engage an independent committee of physicians to conduct a medical review and adjudication of clinical endpoints reported in the submission.
Due to the time involved in responding to this request, we withdrew the 510(k) on August 8, 2012. Our review also included the assessment of sample stability and the evaluation of other technical issues raised by the FDA. We continue to analyze
the results of the medical review. When completed, the results obtained from our analysis of data collected from the review will guide our go-forward regulatory, commercial and investment strategy for the CardioSCORE test in the United States.
BioImage Study Patient Cohort and Banked Specimens
We have exclusive rights to diagnostic inventions arising from our analysis of data generated from the BioImage Study, a proprietary observational and
community-based cohort of over 6,800 individuals who have been followed since 2009. Baseline blood serum, plasma, and DNA and RNA samples collected from all participants have been stored and are available for our analysis. In addition, insurance
claims data, including information regarding diagnoses, procedures, and therapies related to over 1,200 non-fatal cardiovascular events that were experienced by participants in the cohort over the more than four years since follow-up was initiated
is available to us for data mining. We believe that this asset provides us with a unique and proprietary platform from which we may develop new diagnostic products.
Results of Operations
Comparison of the Three
Months ended June 30, 2014 and 2013
Revenues
Our product revenues are primarily derived from sales of the BGM Galectin-3 Test. Our product revenues have tended to be concentrated with a small number of
laboratory providers generating a significant percentage of our revenues in any given reporting period. As a result, the timing of orders from these customers may fluctuate significantly from month to month and quarter to quarter.
The following table summarizes our total revenues for the three months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
%
Decrease
|
|
|
|
(in thousands)
|
|
|
|
|
Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
799
|
|
|
$
|
972
|
|
|
|
(18
|
%)
|
Service
|
|
|
|
|
|
|
34
|
|
|
|
(100
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
799
|
|
|
$
|
1,006
|
|
|
|
(21
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues decreased by 21%, or $207,000, to $799,000 in the three months ended June 30, 2014 from $1.0 million in
the three months ended June 30, 2013.
Product revenues are comprised primarily of sales of our BGM Galectin-3 Test and decreased in the three months
ended June 30, 2014 by $173,000, to $799,000, from $972,000 in the three months ended June 30, 2013. The decrease in product revenues resulted primarily from a $141,000 decline in orders from our largest customer and a $90,000 decline in
purchases relating to independent research studies which, typically, vary from quarter to quarter. This decrease was offset by increased revenues of $58,000 from product sales to other clinical laboratory customers. We have not yet recorded
significant royalties from Abbott or bioMerieuxs automated versions of their galectin-3 assays.
Service revenues decreased by 100%, or $34,000, to
$0 in the three months ended June 30, 2014 from $34,000 in the three months ended June 30, 2013. Service revenues in 2013 related to the High Risk Plaque initiative program and there is no further revenue to recognize under the project.
Accordingly, we do not expect to record service revenues for the remainder of 2014 and beyond.
Product Costs
Our product costs consist of expenses related to our BGM Galectin-3 Test. These expenses include the contract-manufacturing of the tests, the medical device
excise tax, freight and royalty expenses payable to the licensor of certain intellectual property relating to galectin-3 based on revenues generated from the sales of the test. Product costs exclude depreciation and amortization included in
operating expenses.
12
The following table provides information with respect to our product costs and product margins for the three
months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
%
Increase
(Decrease)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Product costs
|
|
$
|
281
|
|
|
$
|
353
|
|
|
|
(20
|
%)
|
Product gross margin
|
|
|
65
|
%
|
|
|
64
|
%
|
|
|
1
|
%
|
Product costs decreased by 20%, or $72,000, to $281,000 in the three months ended June 30, 2014 as compared to $353,000
in the three months ended June 30, 2013. The decrease in product costs was commensurate with the decrease in product revenue.
Service Costs
Our service costs consist primarily of expenses incurred to support our initiatives, collaborative research and development agreements and biomarker
discovery and analysis services agreements. These expenses include outside services and internal personnel costs, laboratory consumables, license fees and overhead expenses.
The following table provides information with respect to our service costs for the three months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
%
Decrease
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Service costs
|
|
$
|
|
|
|
$
|
34
|
|
|
|
(100
|
%)
|
Service costs decreased by 100%, or $34,000, to $0 in the three months ended June 30, 2014 as compared to $34,000 in the
three months ended June 30, 2013. Service costs in the three months ended June 30, 2013 consisted of costs related to the High Risk Plaque initiative program. There are no further costs to incur under this project. Accordingly, we do not
expect to record service costs for the remainder of 2014 and beyond.
Operating Expenses
The following table summarizes our operating expenses for the three months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
%
Decrease
|
|
|
|
(in thousands)
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
573
|
|
|
$
|
1,117
|
|
|
|
(49
|
%)
|
Selling and marketing
|
|
|
733
|
|
|
|
1,782
|
|
|
|
(59
|
%)
|
General and administrative
|
|
|
1,183
|
|
|
|
2,269
|
|
|
|
(48
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
2,489
|
|
|
$
|
5,168
|
|
|
|
(52
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
Historically, we have incurred research and development expenses in connection with our internal biomarker discovery and development efforts. Our research and
development expenses consist primarily of direct personnel costs, fees for consultants and outside services, laboratory consumables and overhead expenses. We use consultants and outside services to provide expertise or services that we do not have.
Research and development expenses decreased by 49%, or $544,000, to $573,000 in the three months ended June 30, 2014 as compared to $1.1 million in
the three months ended June 30, 2013. The decrease in research and development expenses for the current
13
period over the prior period was primarily attributable to a decrease in professional service costs by $241,000, a decrease in costs related to the CardioSCORE medical review and adjudication
process by $127,000, a decrease in biomarker discovery research costs by $125,000, and a decrease in product development costs associated with CardioSCORE and the automated platform by $51,000.
Selling and marketing
Selling and marketing expenses
consist primarily of costs related to supporting commercialization activities associated with our BGM Galectin-3 Test.
Selling and marketing expenses
decreased by 59%, or $1.0 million, to $733,000 in the three months ended June 30, 2014 as compared to $1.8 million in the three months ended June 30, 2013. The decreased expenditures were primarily due to costs related to refocusing our
marketing activities from market education to commercialization of $476,000 and a decrease in compensation related costs and travel of $465,000.
General and administrative
General and administrative
expenses consist primarily of personnel-related expenses, allocated occupancy costs, and expenses related to operating as a public company. These expenses include legal and regulatory costs, directors and officers insurance premiums,
investor relation services, and accounting and financial reporting expenses.
General and administrative expenses decreased by 48%, or $1.1 million, to
$1.2 million in the three months ended June 30, 2014 as compared to $2.3 million in the three months ended June 30, 2013. This decrease is due primarily to a decrease in compensation related charges and travel of $774,000 and decreased
legal and audit related fees of $186,000.
Other income and expense
The following table summarizes other (expense) income for the three months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
%
Decrease
|
|
|
|
(in thousands)
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income/other (expense) income
|
|
$
|
1
|
|
|
$
|
7
|
|
|
|
(86
|
%)
|
Interest expense
|
|
|
(199
|
)
|
|
|
(295
|
)
|
|
|
(33
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
$
|
(198
|
)
|
|
$
|
(288
|
)
|
|
|
(31
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income decreased by $90,000 primarily resulting from less interest expense during the three months ended
June 30, 2014 due to lower loan balances on our term loan because of our principal payments.
Results of Operations
Comparison of the Six Months ended June 30, 2014 and 2013
Revenues
The following table summarizes our total
revenues for the six months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
%
Decrease
|
|
|
|
(in thousands)
|
|
|
|
|
Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
1,538
|
|
|
$
|
1,792
|
|
|
|
(14
|
%)
|
Service
|
|
|
|
|
|
|
102
|
|
|
|
(100
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
1,538
|
|
|
$
|
1,894
|
|
|
|
(19
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Total revenues decreased by 19%, or $356,000, to $1.5 million in the six months ended June 30, 2014 from
$1.9 million in the six months ended June 30, 2013.
Product revenues are comprised primarily of sales of our BGM Galectin-3 Test and decreased in
the six months ended June 30, 2014 by $254,000, to $1.5 million, from $1.8 million in the six months ended June 30, 2013. The decrease in product revenues resulted primarily from a decline in orders due to inclement weather in the Eastern
half of the United States during the first quarter of 2014, sales to our largest customer and purchases relating to independent research studies which, typically, vary from quarter to quarter. We have not yet recorded significant royalties from
Abbott or bioMerieuxs automated versions of their galectin-3 assays.
Service revenues decreased by 100%, or $102,000, to $0 in the six months ended
June 30, 2014 from $102,000 in the six months ended June 30, 2013. Service revenues in 2013 related to the High Risk Plaque initiative program and there is no further revenue to recognize under the project. Accordingly, we do not expect to
record service revenues for the remainder of 2014 and beyond.
Product Costs
The following table provides information with respect to our product costs and product margins for the six months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
%
Increase
(Decrease)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Product costs
|
|
$
|
529
|
|
|
$
|
633
|
|
|
|
(16
|
%)
|
Product gross margin
|
|
|
66
|
%
|
|
|
65
|
%
|
|
|
1
|
%
|
Product costs decreased by 16%, or $104,000, to $529,000 in the six months ended June 30, 2014 as compared to $633,000 in
the six months ended June 30, 2013. The decrease in product costs was commensurate with the decrease in product revenue.
Service Costs
The following table provides information with respect to our service costs for the six months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
%
Decrease
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Service costs
|
|
$
|
|
|
|
$
|
102
|
|
|
|
(100
|
%)
|
Service costs decreased by 100%, or $102,000, to $0 in the six months ended June 30, 2014 as compared to $102,000 in the
six months ended June 30, 2013. Service costs in the six months ended June 30, 2013 consisted of costs related to the High Risk Plaque initiative program. There are no further costs to incur under this project. Accordingly, we do not
expect to record service costs for the remainder of 2014 and beyond.
Operating Expenses
The following table summarizes our operating expenses for the six months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
%
Decrease
|
|
|
|
(in thousands)
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,133
|
|
|
$
|
2,493
|
|
|
|
(55
|
%)
|
Selling and marketing
|
|
|
1,421
|
|
|
|
3,926
|
|
|
|
(64
|
%)
|
General and administrative
|
|
|
2,373
|
|
|
|
4,090
|
|
|
|
(42
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
4,927
|
|
|
$
|
10,509
|
|
|
|
(53
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Research and development
Research and development expenses decreased by 55%, or $1.4 million, to $1.1 million in the six months ended June 30, 2014 as compared to $2.5 million in
the six months ended June 30, 2013. The decrease in research and development expenses for the current period over the prior period was primarily attributable to a decrease in professional service costs by $504,000, a decrease in biomarker
discovery research costs by $489,000, a decrease in costs related to the CardioSCORE medical review and adjudication process by $446,000, and a decrease in product development costs associated with CardioSCORE and the automated platform of $71,000.
These decreases were offset by a cost sharing arrangement with one of our automated partners in the amount of $150,000 in 2013.
Selling and marketing
Selling and marketing expenses decreased by 64%, or $2.5 million, to $1.4 million in the six months ended June 30, 2014 as compared to $3.9
million in the six months ended June 30, 2013. The decreased expenditures were primarily due to costs related to refocusing our marketing activities from market education to commercialization of $1.4 million and a decrease in compensation
related costs and travel of $916,000.
General and administrative
General and administrative expenses decreased by 42%, or $1.7 million, to $2.4 million in the six months ended June 30, 2014 as compared to $4.1 million
in the six months ended June 30, 2013. This decrease is due primarily to a decrease in compensation related charges and travel of $1.2 million and decreased legal and audit related fees of $418,000.
Other income and expense
The following table summarizes
other (expense) income for the six months ended June 30, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
%
Decrease
|
|
|
|
(in thousands)
|
|
|
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash consideration associated with stock purchase agreement
|
|
$
|
|
|
|
$
|
(329
|
)
|
|
|
(100
|
%)
|
Interest income/other (expense) income
|
|
|
2
|
|
|
|
14
|
|
|
|
(86
|
%)
|
Interest expense
|
|
|
(432
|
)
|
|
|
(584
|
)
|
|
|
(26
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
$
|
(430
|
)
|
|
$
|
(899
|
)
|
|
|
(52
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income decreased by $469,000 resulting primarily from the non-cash commitment fee required by our common stock
purchase agreement with Aspire Capital Fund, LLC that we paid during the six months ended June 30, 2013 for which we had no corresponding expense during the six months ended June 30, 2014, and less interest expense due to lower loan
balances on our term loan because of our principal payments.
Liquidity and Capital Resources
Sources of Liquidity
Our primary sources of
liquidity have included our cash balances, sales of our equity securities, term loan, product revenue from sales of the BGM Galectin-3 Test, and service revenue from the HRP initiative. As of June 30, 2014, we had $9.5 million of cash.
16
Follow-on Underwritten Public Offerings
On January 30, 2013, we closed a follow-on underwritten public offering of 6,900,000 shares of our common stock, which included the sale of 900,000 shares
pursuant to the underwriters over-allotment option. The net offering proceeds that we received, after deducting underwriting discounts and commissions and expenses incurred in connection with the offering, were approximately $12.8 million.
On April 8, 2014, we closed a follow-on underwritten public offering of 6,452,000 shares of our common stock, at an offering price of $1.55 per
share, for gross proceeds of $10.0 million. The net offering proceeds that we received, after deducting underwriting discounts and commissions and expenses incurred in connection with the offering, were approximately $9.0 million.
Common Stock Purchase Agreement with Aspire
On
January 24, 2013, we entered into a Common Stock Purchase Agreement, or the Purchase Agreement, with Aspire Capital Fund, LLC, or Aspire, to purchase, at our option, up to an aggregate of $12.0 million of shares of our common stock over a
two-year term, which expires in May 2015. Under the Purchase Agreement, we initially issued 132,743 shares of our common stock as a commitment fee. Our sales to Aspire will be made subject to market conditions, in light of our capital needs and
under various limitations contained in the Purchase Agreement. We have not yet sold any shares under the Purchase Agreement.
Over the term of the
Purchase Agreement, assuming the Companys common stock is trading above the $1.00 minimum floor price that is required to use the facility, we have two ways to elect to sell common stock to Aspire on any business day we select:
(1) through a regular purchase of up to 100,000 shares at prices based on the market price of our common stock prior to the time of each sale, and (2) through a volume weighted average price, or VWAP, purchase of a number of shares up to
30% of the volume traded on the purchase date at a price equal to the lesser of the closing sale price or 95% of the VWAP for such purchase date.
We also
entered into a Registration Rights Agreement with Aspire, which requires, among other things, that we maintain the effectiveness of our registration statement that registered the shares issued and issuable to Aspire under the Purchase Agreement.
Secured Term Loan Facility
In February 2012,
we entered into a secured term loan facility with General Electric Capital Corporation and Comerica Bank, and a term loan in the aggregate principal amount of $10.0 million was funded to us upon the closing of the transaction. The term loan accrues
interest at a rate of 8% per annum plus the higher of (a) the 3-month LIBOR rate or (b) 1.25%. The interest rate in effect at June 30, 2014 was 9.25%. Interest only payments were made for the first twelve months of the loan term.
Following that initial twelve month period, principal and interest payments are required to be paid on a monthly basis through maturity at September 2015.
May 2013 Loan Amendment
In May 2013, the loan and
security agreement was amended to allow for a three month deferral of principal payments beginning May 1, 2013 and to allow for up to an additional three months of deferral based on us meeting certain minimum liquidity requirements, as defined
in the amendment. We made principal payments in March and April 2013 prior to the signing of the amendment. We did not meet the additional liquidity requirements, as defined in the amendment, and, accordingly, principal payments resumed on
August 1, 2013. The amendment also increased certain loan fees by $50,000, and amended the terms of the warrants, as discussed below.
Warrants
In connection with the loan facility, we initially issued warrants to purchase 36,657 shares of our common stock with an exercise price of $6.82 per
share. The warrants expire ten years from the date of issuance. The warrants were valued using the Black-Scholes option pricing model using the following assumptions: fair value of the underlying common stock of $8.51 per share; volatility of 70%;
no dividend yield; risk free interest rate of 1.96%; and an expected life of ten years. The relative fair value of the warrants, aggregating $240,000, has been accounted for as a debt discount and is being recognized as interest expense over the
term of the loan using the effective interest method. As part of the May 2013 amendment to the loan and security agreement, the number of shares for which the warrants were exercisable increased by 110,401 shares and the warrant price of the
warrants was adjusted to $1.70 per share. At the loan modification date, we valued the warrants using the Black-Scholes option pricing model and recorded the incremental value of the increased number of shares for which the warrants are exercisable
as additional debt discount in the amount of $163,000, which is being recognized as additional interest expense over the remaining term of the loan using the effective interest method. The warrants under the term loan have been classified as equity
instruments and are included within additional paid-in capital.
17
At June 30, 2014, we had $5.2 million outstanding under the term loan.
Net Cash Flows
Cash (used in) provided by
operating, investing and financing activities for the six months ended June 30, 2014 and 2013 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Summary Cash Flow Information
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(4,992
|
)
|
|
$
|
(8,808
|
)
|
|
$
|
3,816
|
|
Investing activities
|
|
|
|
|
|
|
80
|
|
|
|
(80
|
)
|
Financing activities
|
|
|
6,779
|
|
|
|
12,145
|
|
|
|
(5,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
1,787
|
|
|
|
3,417
|
|
|
|
(1,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
9,538
|
|
|
$
|
16,203
|
|
|
$
|
(6,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014 and 2013
Net cash used in operating activities decreased primarily due to a decrease in our net loss and non-cash charges for the six month period ended June 30,
2014 compared to the same period in 2013, partially offset by an increase in changes in working capital related primarily to a large decrease in accounts payable, accrued expenses and other current liabilities in the six month period ended
June 30, 2013.
Net cash provided by investing activities decreased due to the proceeds received from the sale of laboratory equipment in the six
month period ended June 30, 2013 for which we received no similar proceeds in the six month period ended June 30, 2014.
Net cash provided by
financing activities decreased due to principal payments under our term loan of $2.2 million in the six month period ended June 30, 2014 and net proceeds of $9.0 million and $12.8 million received from our follow-on public offerings in April
2014 and January 2013, respectively.
Funding Requirements
During the six months ended June 30, 2014, we incurred a net loss of $4.3 million and used $5.0 million of cash in operations, and expect to continue to
incur losses and use cash during 2014 and beyond. At June 30, 2014, we had cash totaling $9.5 million, and an outstanding balance of $5.2 million under our secured term loan facility.
Effective January 1, 2014, the payment rate at which our BGM Galectin-3 Test is reimbursed by the Centers for Medicare and Medicaid Services, or CMS, was
increased to $30.01 from $17.80 per test. We expect to increase our revenues through higher reimbursement levels and by engaging additional laboratory providers, and expect to decrease our operating expenses. However, we are in the early stages of
commercializing our BGM Galectin-3 Test. Interest in the BGM Galectin-3 Test is increasing as a result of our market development activities, although it has not yet translated into significant revenue. In order to achieve profitability, we will need
to generate significant product revenues.
Under our arrangement with Aspire, we may require Aspire to purchase up to $12 million of our common stock
under the Purchase Agreement, subject to the conditions and limitations contained therein, including a floor price of $1.00 per share. Through July 31, 2014, our closing stock price has ranged from a high of $2.08 to a low of $0.89. If in the
future, the closing price of our common stock falls below the $1.00 floor price, we would not have access to this facility. We have not yet sold any shares under the Purchase Agreement, which expires in May 2015.
At June 30, 2014, we have an outstanding balance of $5.2 million under the term loan facility and we are required to repay the principal monthly through
maturity in September 2015. Our term loan is secured by substantially all of our assets. Our loan and security agreement contains customary events of default that entitle the lenders to cause any or all of our indebtedness under the loan and
security agreement to become immediately due and payable and could cause the lenders to foreclose on the collateral securing the indebtedness, including our cash. The events of default include, among others, the occurrence of a material adverse
effect, which could cause the lender to accelerate the payments by us under the term loan. We have determined that the risk of a subjective acceleration under the material adverse effect clause, absent acceleration under other enumerated events of
default, is remote.
18
Until we have repaid all amounts due to the lenders under this term loan facility, our ability to raise
additional funds through other debt financings is limited.
We believe that our existing cash and availability of up to $12.0 million under our Purchase
Agreement with Aspire, pursuant to which approximately $4.1 million would have been available to the Company through the sale of available shares over the purchase period ending June 30, 2014, will be sufficient to fund our operations and
service our debt into the second quarter of 2015. We have not yet sold any shares under our Purchase Agreement with Aspire, which expires in May 2015. Until we generate significant product revenues to reach cash breakeven, we will need to raise
additional funds to finance our operations and service our existing debt beyond the second quarter of 2015. We may not be able to obtain adequate financing to do so when necessary, and the terms of any financings may not be advantageous to us and
any financings may result in dilution to our stockholders.
The above circumstances along with our history and near term forecast of incurring net losses
and negative operating cash flows raise substantial doubt regarding our ability to continue as a going concern beyond the second quarter of 2015. The accompanying condensed consolidated financial statements have been prepared assuming we will
continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern.
Our forecast of the period of time through which our financial resources will be adequate to support our operations and; the cost to develop and commercialize
our products are forward-looking statements and involve risks and uncertainties, and actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in the Risk Factors section of
this report and in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2013. We have based these estimates on assumptions that may prove to be incorrect, and we could utilize our available
capital resources sooner than we currently expect.
Our future liquidity and capital funding requirements will depend on numerous factors, including:
|
|
|
the revenue generated by sales of our cardiovascular diagnostic tests;
|
|
|
|
the rate of progress and cost of our commercialization activities;
|
|
|
|
the outcome, costs and timing of seeking regulatory clearance for our product candidates and for additional indications for existing products;
|
|
|
|
the success of our development efforts;
|
|
|
|
the expenses we incur in marketing and selling our products;
|
|
|
|
the emergence and effect of competing or complementary products;
|
|
|
|
our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the
licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
|
|
|
|
our need and ability to hire additional management and scientific and medical personnel;
|
|
|
|
our need to implement additional internal systems and infrastructure, including financial and reporting systems;
|
|
|
|
the terms and timing of any collaborative, licensing or other arrangements that we have or may establish;
|
|
|
|
our ability to raise additional funds to finance our operations and service our debt;
|
|
|
|
the trading price of our common stock being above the $1.00 minimum floor price that is required for us to use the Purchase Agreement with Aspire;
|
|
|
|
the trading price of our common stock; and
|
|
|
|
our ability to maintain compliance with the continued listing requirements of The NASDAQ Capital Market.
|
Contractual Obligations and Commitments
There have been
no material changes to our contractual obligations and commitments set forth under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations Contractual Obligations and Commitments in
our Annual Report on Form 10-K for the year ended December 31, 2013.
19
Critical Accounting Policies and Significant Judgments and Estimates
A summary of our significant accounting policies is contained in the notes to our consolidated financial statements in our Annual Report on Form 10-K for the
year ended December 31, 2013. There have been no material changes to those policies during the six months ended June 30, 2014.
Certain
Factors That May Affect Future Results of Operations
The Securities and Exchange Commission encourages companies to disclose forward-looking
information so that investors can better understand a companys future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains such forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other important factors which may cause our actual results, performance or achievements to be materially different from any future results,
performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
|
|
|
our estimates of future performance, including the commercialization and sales of our galectin-3 test;
|
|
|
|
our ability to provide sufficient evidence of clinical utility for our galectin-3 test and to differentiate it from competing cardiovascular diagnostics tests;
|
|
|
|
our ability to obtain regulatory clearance from the FDA for our CardioSCORE test and certain additional indications for our galectin-3 test;
|
|
|
|
our ability to successfully market, commercialize and achieve widespread market penetration for our cardiovascular diagnostic tests;
|
|
|
|
our ability to diversify our customer base due to our current dependence upon a certain few, and one primary, laboratory provider customer;
|
|
|
|
our ability to conduct the clinical studies required for regulatory clearance or approval and to demonstrate the clinical benefits and cost-effectiveness to support commercial acceptance of our products;
|
|
|
|
the timing, costs and other limitations involved in obtaining regulatory clearance or approval for any of our products;
|
|
|
|
the potential benefits of our cardiovascular diagnostic tests over current medical practices or other diagnostics;
|
|
|
|
willingness of third-party payers to reimburse for the cost of our tests;
|
|
|
|
the ability of our automated partners to develop and obtain regulatory clearance of galectin-3 tests that can be performed on their automated platforms and to commercialize any such tests;
|
|
|
|
the ability of the automation of the galectin-3 test to broaden its acceptance by laboratory customers and accelerate its clinical adoption;
|
|
|
|
our beliefs about the potential clinical and commercial value of the galectin-3 test beyond its current indications for use;
|
|
|
|
the potential to move forward with a European launch of CardioSCORE in test markets;
|
|
|
|
our beliefs about the value of data generated from the BioImage Study;
|
|
|
|
estimates of market sizes and anticipated uses of our cardiovascular diagnostic tests;
|
|
|
|
our ability to enter into collaboration and distribution agreements with respect to our cardiovascular diagnostic tests, the performance of our partners under such agreements and the potential benefits of these
arrangements;
|
|
|
|
our ability to obtain and maintain intellectual property protections for our products and operate our business without infringing upon the intellectual property rights of others;
|
|
|
|
the expected timing, progress or success of our development and commercialization efforts;
|
|
|
|
our ability to successfully obtain sufficient and appropriate blood samples for our validation tests in support of our regulatory filings for our cardiovascular tests;
|
|
|
|
our ability to continue as a going concern;
|
|
|
|
our ability to obtain additional financing on terms acceptable to us;
|
|
|
|
our expectations regarding the use of our Purchase Agreement with Aspire to obtain additional capital through sales of our common stock to Aspire;
|
20
|
|
|
our ability to maintain compliance with the continued listing requirements of The NASDAQ Capital Market;
|
|
|
|
the success of competing cardiovascular diagnostic tests that are or become available;
|
|
|
|
regulatory developments in the United States and other countries in which we sell or plan to sell our tests;
|
|
|
|
the performance of our third-party suppliers and the manufacturer of our galectin-3 tests, due to our reliance upon a single third party to manufacture and supply our products;
|
|
|
|
our ability to service the principal and interest amounts payable under our secured term loan facility; and
|
|
|
|
our estimates regarding anticipated operating losses, future revenue, expenses, capital requirements and our needs for additional financing.
|
Words such as may, anticipate, estimate, expect, project, intend, plan,
believe and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. All forward-looking statements are managements present
expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited
to those set forth under the heading Risk Factors contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013 as supplemented by the risk factors discussed under Risk Factors in
Part II, Item 1A. of this Quarterly Report on Form 10-Q.
In light of these assumptions, risks and uncertainties, the results and events discussed in
the forward-looking statements contained in this Quarterly Report on Form 10-Q or in any document incorporated herein by reference might not occur. Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak
only as of the date of this Quarterly Report on Form 10-Q. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or
otherwise. All subsequent forward-looking statements attributable to BG Medicine, Inc. or to any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.