-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LvMiKlPiE7rHE6X4dCOsflsezKcXJI6sCZxnYawFjTZm4ehUqKQUccO1LQNTig4x ax2QQ2mVHQLGppHAOo9rwA== 0001005477-98-001305.txt : 19980427 0001005477-98-001305.hdr.sgml : 19980427 ACCESSION NUMBER: 0001005477-98-001305 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980424 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVOSTE CORP /FL/ CENTRAL INDEX KEY: 0001012131 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 592787476 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20727 FILM NUMBER: 98601022 BUSINESS ADDRESS: STREET 1: 4350-C INTERNATIONAL BLVD CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 7707170904 MAIL ADDRESS: STREET 1: 4350 C INTERNATIONAL BLVD CITY: NORCROSS STATE: GA ZIP: 30093 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q |X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 1998. |_| Transition period pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _____________ to ______________. 0-20727 ------- (Commission File Number) Novoste Corporation ------------------- (Exact Name of Registrant as Specified in Its Charter) Florida 59-2787476 ------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 4350-C International Blvd., Norcross, GA 30093 - ---------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone, including area code: (770) 717-0904 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. (Item 1) Yes |X| No |_| (Item 2) Yes |X| No |_| As of March 31, 1998, there were 10,420,837 shares of the Registrant's Common Stock outstanding. Exhibit Index on page: 16 Total number of pages: 17 1 NOVOSTE CORPORATION FORM 10-Q INDEX PART I. FINANCIAL INFORMATION PAGE NO. -------- Item 1. Condensed Financial Statements Condensed Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997 3 Condensed Statements of Operations (unaudited) for the three months ended March 31, 1998 and 1997 and the period from inception (May 22, 1992) through March 31, 1998 4 Condensed Statements of Cash Flows (unaudited) for the three months ended March 31, 1998 and 1997 and the period from inception (May 22, 1992) through March 31, 1998 5 Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-13 PART II. OTHER INFORMATION Item 2. Changes in Securities 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 EXHIBIT INDEX 16 EXHIBIT 27 - FINANCIAL DATA SCHEDULE 17 2 NOVOSTE CORPORATION (A Development Stage Company) CONDENSED BALANCE SHEETS
March 31, December 31, 1998 1997 --------------- ---------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 39,958,080 $ 35,993,933 Short-term investments 4,549,096 12,408,785 Prepaid expenses 162,724 88,099 --------------- ---------------- Total current assets 44,669,900 48,490,817 Property and equipment, net 1,376,704 1,061,526 License agreements, net 136,350 139,758 Other assets 260,946 103,855 --------------- ---------------- $ 46,443,900 $ 49,795,956 =============== ================ Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 291,407 $ 523,678 Accrued expenses and taxes withheld 2,277,715 1,903,276 --------------- ---------------- Total current liabilities 2,569,122 2,426,954 --------------- ---------------- Shareholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, $.01 par value, 25,000,000 shares authorized; 10,426,617 and 10,332,042 shares issued, respectively 104,266 103,320 Additional paid-in capital 75,591,391 74,908,631 Deficit accumulated during the development stage (31,797,039) (27,619,109) --------------- ---------------- 43,898,618 47,392,842 Less treasury stock, 5,780 shares of common stock at cost (23,840) (23,840) --------------- ---------------- Total shareholders' equity 43,874,778 47,369,002 --------------- ---------------- $ 46,443,900 $ 49,795,956 =============== ================
See accompanying notes. 3 NOVOSTE CORPORATION (A Development Stage Company) UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
From inception Three months ended (May 22, 1992) March 31, through March 31, 1998 1997 1998 ---------------------------- ----------------- Revenues: Miscellaneous sales $ -- $ -- $ 320,200 Costs and expenses: Research and development 3,928,534 2,323,838 25,688,433 General and administrative 511,319 517,098 6,335,193 Marketing 365,958 138,530 2,920,059 ------------ ------------ ------------ 4,805,811 2,979,466 34,943,685 ------------ ------------ ------------ Loss from operations (4,805,811) (2,979,466) (34,623,485) ------------ ------------ ------------ Interest income 627,880 337,060 3,008,204 Interest expense (181,759) ------------ ------------ ------------ Net loss $ (4,177,931) $ (2,642,406) $(31,797,040) ============ ============ ============ Net loss per share, basic and diluted $ (0.40) $ (0.32) ============ ============ Weighted average shares outstanding 10,383,001 8,330,281 ============ ============
See accompanying notes. 4 NOVOSTE CORPORATION (A Development Stage Company) UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
From inception For the three months (May 22, 1992) ended March 31, through March 31, 1998 1997 1998 -------------- --------------- ------------------- Cash flows from operating activities Net loss $ (4,177,931) $ (2,642,406) $ (31,797,040) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 98,537 99,060 1,399,275 Issuance of stock for services or compensation 67,500 67,500 1,284,818 Changes in assets and liabilities: Prepaid expenses (74,625) 42,541 (170,183) Accounts payable (232,271) 165,160 291,407 Accrued expenses and taxes withheld 374,439 (162,624) 2,672,222 Other 138,709 130,719 3,391 -------------- --------------- ------------------- Net cash used by operations (3,805,642) (2,300,050) (26,316,110) -------------- --------------- ------------------- Cash flows from investing activities Maturity (purchase) of short-term investments 7,859,689 (164,400) (4,549,096) Purchase of property and equipment, net (409,856) (62,910) (2,435,309) -------------- --------------- ------------------- Net cash provided (used) by investing activities 7,449,833 (227,310) (6,984,405) -------------- --------------- ------------------- Cash flows from financing activities Proceeds from issuance of notes payable -- -- 4,770,150 Repayment of notes payable -- -- (2,970,150) Proceeds from issuance of common stock 319,956 144,928 71,458,595 -------------- --------------- ------------------- Net cash provided by financing activities 319,956 144,928 73,258,595 -------------- --------------- ------------------- Net increase (decrease) in cash and cash equivalents 3,964,147 (2,382,432) 39,958,080 Cash and cash equivalents at beginning of period 35,993,933 19,954,827 -- ============== =============== =================== Cash and cash equivalents at end of period $39,958,080 $17,572,395 $ 39,958,080 ============== =============== =================== Supplemental disclosures of cash flow information Cash paid for interest -- -- $165,137 ============== =============== ===================
See accompanying notes. 5 NOVOSTE CORPORATION (A Development Stage Company) NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS March 31, 1998 Note 1. Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with instructions to Article 10 of Regulation S-X. Accordingly, such financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results of the interim periods presented are not necessarily indicative of the results to be achieved for the year ending December 31, 1998. The accompanying financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997 and for the cumulative period from May 22, 1992 (inception) through December 31, 1997, included in the Company's 1997 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC"). Note 2. Net Loss Per Share The basic and diluted loss per share is computed based on the weighted average number of common shares outstanding. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be antidilutive. Note 3. Cash Equivalents and Investments Cash equivalents are comprised of certain highly liquid investments with maturities of less than three months at the time of their acquisition. In addition to cash equivalents, the Company has investments in commercial paper that are classified as short-term (mature in more than 90 days but less than one year). Such investments are classified as held-to-maturity, as the Company has the ability and intent to hold them until maturity. Investments held-to-maturity are carried at amortized cost, adjusted for the amortization or accretion of premiums or discounts without recognition of gains or losses that are deemed to be temporary. Premiums and discounts are amortized or accreted over the life of the related instrument as an adjustment to yield using the straight-line method, which approximates the effective interest method. Interest income is recognized when earned. Fair value approximates carrying value for all cash equivalents and investments. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Information The statements contained in this Form 10-Q that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the expectations, beliefs, intentions or strategies regarding the future. The Company intends that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company's views as of the date they are made with respect to future events and financial performance, but are subject to many uncertainties and risks which could cause the actual results of the Company to differ materially from any future results expressed or implied by such forward-looking statements. Some of these risks are discussed below in the section "Certain Factors That May Impact Future Operations." Additional risk factors are discussed in "Item 1 - Business" of the Company's Form 10-K and other reports filed by the Company from time to time on Forms 10-Q and 8-K. The Company does not undertake any obligation to update or revise any forward-looking statement, made by it or on its behalf, whether as a result of new information, future events, or otherwise. Overview Novoste commenced operations as a medical device company in May 1992. Commencing in 1994 the Company has devoted substantially all of its efforts to developing the Beta-Cath System, an intraluminal beta radiation catheter delivery system designed to reduce the frequency of restenosis subsequent to percutaneous transluminal coronary angioplasty ("PTCA"). For the period since its capitalization through March 31, 1998 the Company has earned minimal non-recurring revenues and experienced significant losses in each period. At March 31, 1998 the Company had an accumulated deficit of approximately $31.8 million. Novoste expects to incur significant operating losses through at least 1999 as the Company continues research and development projects, conducts its clinical trials in the United States, Canada and Europe, seeks regulatory approval or clearance for its products, expands its sales and marketing efforts in contemplation of product introduction and market development, and increases its administrative activities to support growth of the Company. The development, manufacture, sale and distribution of medical devices such as the Company's Beta-Cath(TM) System are subject to numerous regulations imposed by governmental authorities, principally the FDA and corresponding state and foreign agencies. The regulatory process is lengthy, expensive and uncertain. FDA approval of a Pre Market Approval ("PMA") application and approval from the Nuclear Regulatory Commission (NRC) are required before any Beta-Cath(TM) System can be marketed in the United States. Securing FDA approval will require submission to the FDA of extensive clinical data and technical information. The Company does not expect regulatory approval of the Beta-Cath(TM) System for sale in the United States prior to 2000 or for sale outside the United States prior to the latter half of 1998, and there can be no assurance when or if such approvals will be obtained. In 1996 and 1997 the Company conducted a feasibility clinical trial at four hospitals under an Investigational Device Exemption ("IDE") granted by the FDA to determine the clinical safety of the Beta-Cath(TM) System for use in coronary arteries and a total of 85 patients were enrolled. As of March 31, 1998, 64 of the 85 patients had received angiographic follow-up analyzed in a core lab. Of the 64 patients 14% were reported restenotic. This data suggests a 67% reduction in the rate of 7 restenosis in patients who received treatment with the Beta-Cath System when compared to a historical control group (from the Lovastatin Restenosis Trial) which received PTCA only and had been selected based upon inclusion and exclusion criteria similar to those utilized by the Company. Arteries treated with the Beta-Cath System on average maintained 100% of the enlargement achieved with PTCA (a "late loss index" of 0%). The following table compares the Company's data on the 64 patients to the historical control group: Novoste Lovastatin Feasibility Placebo Studies Group ------- ----- No. of Treated Patients...... 64 161 Restenosis Rate.............. 14% 42% Late Loss Index.............. 0% 43% On July 30, 1997 the Company initiated a randomized, triple-masked, placebo-controlled, multicenter human clinical trial under an IDE granted by the FDA to determine the clinical safety and efficacy of the Beta-Cath System for use in coronary arteries. The Company expects to enroll approximately 1,100 patients in the trial at up to 35 medical sites principally located in the United States. The patients will be divided into two approximately equal subgroups, one for PTCA alone and one with coronary stenting. Each subgroup of the trial will be randomized to either intracoronary radiation therapy or a placebo control. In both subgroups patients who receive the beta radiation will receive dosages of 14Gy for vessels ranging from at least 2.7 to 3.35 millimeters and 18Gy for vessels ranging from 3.35 to 4.0 millimeters. A follow-up review of patients 30 days after treatment and a follow-up angiogram eight months after the initial treatment will be performed to observe the treated artery. The angiograms will be analyzed to determine whether there has been an incidence of restenosis and to measure the late loss index (the extent of the loss in the enlargement of lumen achieved with PTCA). As of March 31, 1998 a total of 245 patients had been enrolled at 23 medical centers. There can be no assurance that the Company's research and development efforts will be successfully completed. There can be no assurance that clinical trials will be completed in a timely fashion or demonstrate the safety and efficacy of the Beta-Cath System. Additionally, there can be no assurance that the Beta-Cath System will be approved by the FDA, the NRC, any foreign governmental agency, or that the Beta-Cath System or any other product developed by Novoste will be successfully introduced or attain any significant level of market acceptance. There can be no assurance that the Company will ever achieve either significant revenues from sales of its Beta-Cath System or ever achieve or sustain profitability. Results of Operations Net loss for the three months ended March 31, 1998 was $4,178,000, or ($0.40) per share, as compared to $2,642,000, or ($0.32) per share, for the three months ended March 31, 1997. The increase in net loss for the three months ended March 31, 1998 compared to the year earlier period is primarily due to increased spending for research and development as well as increased marketing related to the Company's development of its Beta-Cath(TM) System, offset by increased interest income earned from the investment of the net proceeds from the secondary public offering in November 1997. Revenues. No revenues were earned in the three months ended March 31, 1998 and 1997. Research and Development Expenses. Research and development expenses increased 69% to $3,929,000 for the three months ended March 31, 1998 from $2,324,000 for the three months ended March 31, 1997. These increases were primarily a result of (a) the increased size of the Company's research and development staff, and (b) services provided by outside consultants in the development of the Beta- 8 Cath(TM) System. The Company expects research and development expenses to continue to increase in the immediate future as the Company continues clinical trials of its Beta-Cath(TM) System in both the U.S. and selected foreign countries, and as it continues the development and design of the Beta-Cath(TM) System and component parts. General and Administrative Expenses. General and administrative expenses decreased 1% to $511,000 for the three months ended March 31, 1998 from $517,000 for the three months ended March 31, 1997. The Company expects general and administrative expenses to increase in the future in support of a higher level of operations. Marketing Expenses. Marketing expenses increased 164% to $366,000 for the three months ended March 31, 1998 from $139,000 for the three months ended March 31, 1997. These increases were primarily the result of increased trade show costs, consulting fees and higher staff and salaries. The Company expects sales and marketing expenses to significantly increase in the future, if and when the Beta-Cath(TM) System is approved in the U.S. and other countries. Interest Income. Net interest income increased 86% to $628,000 for the three months ended March 31, 1998 from $337,000 for the three months ended March 31, 1997. The increase in interest income was primarily due to larger cash equivalents and short-term investment balances after the Company's secondary public offering in November 1997. Liquidity and Capital Resources The Company has financed its activities since inception up to May 23, 1996, the date of the Company's initial public offering, through private placements of its Common Stock, Class B Common Stock and promissory notes. Since inception through March 31, 1998, the Company obtained funds aggregating approximately $71.1 million in net proceeds from the issuance of Common Stock and Class B Common Stock (including approximately $30.6 million in net proceeds from its initial public offering which closed in May 1996 and approximately $32.2 million in net proceeds from its secondary public offering which closed in November 1997), and approximately $1.8 million in net proceeds from the issuance of convertible promissory notes. During the three months ended March 31, 1998 and 1997 the Company used cash to fund operations of $3.8 million and $2.3 million, respectively. Cash used to fund operations since inception was approximately $26.3 million. The increase in cash used in operations was due primarily to increased research and development activities and initiation of marketing activities to support increased operations. The Company's expenditures for equipment and improvements have aggregated $2.4 million since inception. Future cash needs for operating activities are anticipated to be higher than historical levels because of the development, manufacturing scale-up and commercialization of the Beta-Cath(TM) System, subject to the factors discussed below. The Company's principal source of liquidity at March 31, 1998 consisted of cash, cash equivalents and short-term investments of $44.5 million. The Company did not have any credit lines available or outstanding borrowings at March 31, 1998. The Company anticipates that its operating losses will continue through at least 1999 because it plans to expend substantial resources in funding clinical trials in support of regulatory approvals, and continues to expand research and development and marketing activities. Novoste believes that current cash balances and short-term investments, together with interest thereon, will be sufficient to meet the Company's operating and capital requirements through 1999. However, the Company's future liquidity and capital 9 requirements will depend upon numerous factors, including the progress of the Company's clinical research and product development programs; the receipt of and the time required to obtain regulatory clearances and approvals; the resources required to gain approvals; the resources the Company devotes to the development, manufacture and marketing of its products; the resources required to hire and develop a direct sales force in the United States, develop distributors internationally, and to expand manufacturing capacity; market acceptance and demand for its products; and other factors. Novoste may in the future seek to raise additional funds through bank facilities, debt or equity offerings or other sources of capital. There can be no assurance that additional financing, if required, will be available on satisfactory terms, or at all. Additional Risk Factors Limited Operating History. The Company has a limited history of operations. Since its inception in May 1992 the Company has been primarily engaged in research and development of its Beta-Cath System. The Company has generated only limited revenue and does not have experience in manufacturing, marketing or selling its products in quantities necessary for achieving profitability. There can be no assurance that the Company's product systems will be commercialized or that the Company will achieve significant revenues from either international or United States sales. In addition, there can be no assurance that the Company will achieve or sustain profitability in the future. History of Losses and Expectation of Future Losses. The Company has experienced significant operating losses since inception and as of March 31, 1998 had an accumulated deficit of $31.8 million. The development and further commercialization of the Company's current products and other new products, if any, will require substantial development, clinical, regulatory, manufacturing and other expenditures. The Company expects its operating losses to continue for at least the next two years as the Company continues to expand its product development, clinical trials, and marketing efforts. Fluctuations in Operating Results. The Company's results of operations may fluctuate significantly from quarter to quarter and will depend upon numerous factors, including product development efforts, actions relating to regulatory and reimbursement matters, progress of clinical trials, the extent to which the Company's products gain market acceptance, and competition. Dependence on Beta-Cath System. The Company anticipates that for the foreseeable future it will be solely dependent on the successful development and commercialization of the Beta-Cath System. The Beta-Cath System will require further development, as well as regulatory clearance or approval, before it can be marketed in the United States or internationally. There can be no assurance that the Company's development efforts will be successful or that the Beta-Cath System will be shown to be safe or effective, cleared or approved by regulatory authorities, capable of being manufactured in commercial quantities at acceptable costs, approved by payors for reimbursement or successfully marketed. In addition, there can be no assurance that demand for the Beta-Cath System will be sufficient to allow profitable operations. Failure of the Beta-Cath System to be successfully commercialized would have a material adverse effect on the Company's business, financial condition and results of operations. Early Stages of Clinical Trials; No Assurance of Safety and Efficacy. The Beta-Cath System is in an early stage of clinical testing, and there can be no assurance as to when, if ever, its safety and efficacy in reducing the frequency of restenosis will be demonstrated. The Company has commenced a randomized, triple-masked, placebo-controlled, multicenter, human clinical trial under an Investigational Device 10 Exemption ("IDE") granted by the U.S. Food and Drug Administration ("FDA") to determine the clinical safety and efficacy of the Beta-Cath System for use in coronary arteries. The Company anticipates completing enrollment in the clinical trial by December 31, 1998. Various factors, including difficulties in enrolling patients or physicians, could delay completion for an indeterminate amount of time. The multicenter trial will require the treatment of a statistically significant number of patients, and clinical follow-ups with such patients after eight months. It is only after completion of these trials that the Company would apply for the regulatory approvals required to commence marketing of the Beta-Cath System, subsequent experience may uncover unforeseen problems with the therapy which could require removal of the product from the market or additional testing. There can be no assurance that the Beta-Cath System or any of the Company's other products will prove to be safe and effective in clinical trials or ultimately will be approved for marketing by the United States or foreign regulatory authorities. The Company does not expect to submit an application for pre-market approval ("PMA") for its Beta-Cath System until the second half of 1999, and there can be no assurance that the Company will ever submit a PMA or that, if submitted, such PMA will be approved by the FDA. If the Beta-Cath System does not prove to be safe and effective in clinical trials, the Company's business, financial condition and results of operations will be materially adversely affected and could result in cessation of the Company's business. In addition, the clinical trials may identify significant technical or other obstacles to be overcome prior to obtaining necessary regulatory approvals. Even if such obstacles are identified and overcome, commercialization of the Beta-Cath System may be delayed. Limited Sales, Marketing and Distribution Experience. At present the Company has no sales and a limited marketing capability. The Company intends to sell its products in the United States directly and outside the United States through international distributors and/or corporate partners. There can be no assurance that the Company will be able to recruit and train adequate sales and marketing personnel to successfully commercialize the Beta-Cath System in the United States. The inability to recruit or retain suitable international distributors or corporate partners could also have a material adverse effect on the Company's business, financial condition and results of operations. The Company intends to select one or more established market leaders in the radioisotope business to inventory and deliver the radiation sources and provide related training, testing and support services to hospitals in both the United States and international markets. The inability to recruit or retain one or more such entities for this purpose could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on a Key Supplier. The Company currently purchases all radiation source materials from a single supplier. The Company believes that because of the technical expertise and capital investment required to manufacture the radiation source materials, it could be extremely difficult and expensive to find an alternate source of supply. Any failure or disruption in the ability of the supplier to provide the radiation source materials could have a material adverse effect on the business, financial condition and results of operations of the Company. Risk of Inadequate Funding. The Company anticipates that its operating losses will continue through at least 1999 because it plans to expend substantial resources in funding clinical trials in support of regulatory approvals and continues to expand research and development and marketing activities. Novoste believes that current cash balances and short-term investments, together with interest thereon, will be sufficient to meet the Company's operating and capital requirements through 1999. However, the Company's future liquidity and capital requirements will depend upon numerous factors, including the progress of the Company's clinical research and product development programs; the receipt of and the 11 time required to obtain regulatory clearances and approvals; the resources required to gain approvals; the resources the Company devotes to the development, manufacture, and marketing of its products; the resources required to hire and develop a direct sales force in the United States, develop distributors internationally, and to expand manufacturing capacity; facilities requirements; market acceptance and demand for its products; and other factors. Novoste may in the future seek to raise additional funds through bank facilities, debt or equity offerings or other sources of capital. There can be no assurance that additional financing, if required, will be available on satisfactory terms, or at all. Possible Volatility of Stock Price. The stock market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock. In addition, the market price of the shares of Common Stock is likely to be highly volatile. Factors such as fluctuations in the Company's operating results, announcements of technological innovations or new products by the Company or its competitors, FDA and international regulatory actions, actions with respect to reimbursement matters, developments with respect to patents or proprietary rights, public concern as to the safety of products developed by the Company or others, changes in health care policy in the United States and internationally, changes in stock market analyst recommendations regarding the Company, other medical device companies or the medical device industry generally and general market conditions may have a significant effect on the market price of the Common Stock. Product Development. The focus of the Company's current development efforts is to design future generation components of the Beta-Cath(TM) System. The medical device industry is characterized by rapid and significant technological change. Therefore, the Company's future success will depend in a large part on the Company's ability to continue to respond to such changes, as well as expand the applications for which its products are used, through the timely development and successful introduction of enhanced and new versions of its Beta-Cath(TM) System. Product research and development will require substantial expenditures and will be subject to inherent risks, and there can be no assurance that any new product introduced will receive regulatory approval or will be commercially successful. Highly Competitive Market; Risk of Alternative Therapies. Competition in the medical device industry, and specifically the market for cardiovascular devices, is intense. Many companies are developing devices and therapies to improve the outcome of coronary revascularization procedures and to reduce the frequency of restenosis, such as coronary stents. Other companies have various radiation therapy products under development to reduce restenosis. In addition, drugs, gene therapy and other minimally invasive catheter-based procedures are currently being developed. Many of the Company's competitors and potential competitors have substantially greater financial resources than the Company and also have greater resources and expertise in the areas of research and development, obtaining regulatory approvals, manufacturing and marketing. There can be no assurance that the Company's competitors will not succeed in developing, marketing and distributing technologies and products that are more effective than those developed and marketed by the Company or that would render the Company's technology and products obsolete or noncompetitive. Additionally, there is no assurance that the Company will be able to compete effectively against such competitors in terms of manufacturing, marketing and sales. Patents and Proprietary Technology. The medical device industry has been characterized by extensive litigation regarding patents and other intellectual property rights and companies in the medical device industry have employed intellectual property litigation to gain a competitive advantage. There can be no assurance that the Company will not become subject to patent infringement claims or litigation or interference proceedings declared by the USPTO to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings and related legal and 12 administrative proceedings are both costly and time consuming. Litigation may be necessary to enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceedings will result in substantial expense to the Company and significant diversion of effort by the Company's technical and management personnel. An adverse determination in litigation or interference proceedings to which the Company may become a party could subject the Company to significant liabilities to third parties or require the Company to seek licenses from third parties or require the Company to redesign its products or processes to avoid infringement or prevent the Company from selling its products in certain markets, if at all. Although patent and intellectual property disputes regarding medical devices have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. Furthermore, there can be no assurance that the necessary licenses would be available to the Company on satisfactory terms, if at all, or that the Company could redesign its products or processes to avoid infringement. Any adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent the Company from manufacturing and selling its products, which would have a material adverse effect on the Company's business, financial condition and results of operations. Government Regulation. Clinical testing, manufacture, promotion and sale of the Company's products are subject to extensive regulation by numerous governmental authorities in the United States, principally the FDA, and corresponding foreign regulatory agencies. The Federal Food, Drug, and Cosmetic Act ("FDC Act"), and other federal and state statutes and regulations govern or influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and devices. Noncompliance with applicable requirements can result in fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for devices, refusal to authorize the marketing of products or to allow the company to enter into government supply contracts, and criminal prosecution. The company's Beta-Cath(TM) System is regulated as a Class III medical device for which FDA approval of a PMA application must be obtained prior to U.S. commercial sales. Failure to receive or delays in receipt of FDA clearances or approvals could have a material adverse effect on the Company's business, financial condition and results of operations. Sales of medical devices outside of the United States are subject to international regulatory requirements that vary from country to country. The time required to obtain approval for sale internationally may be longer or shorter than that required for FDA approval, and the requirements may differ. The European Union ("EU") has promulgated rules which require that medical products receive by June 12, 1998 the right to affix the CE mark, an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives. While the Company intends to satisfy the requisite policies and procedures that will permit it to receive the CE mark certification for the Beta-Cath(TM) System, there can be no assurance that the Company will be successful in meeting the European certification requirements and failure to receive the right to affix the CE mark will prohibit the company from selling the product in member countries of the European Union. 13 PART II. OTHER INFORMATION Item 2. Changes in Securities (c) Sale of Unregistered Securities On February 27, 1998 the Company granted Spencer B. King III, M.D., 10,000 shares of restricted common stock valued at $296,250 (or $29.625 per share) as payment for consulting services to be rendered from July 1997 through February 2001. The foregoing transaction of the Registrant was exempt from registration under the Securities Act of 1933, as amended, under Section 4(2) thereunder, and all stock certificates issued in connection therewith were legended to reflect their restricted status. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are included herein: (27) Financial data schedule (b) The Company did not file any reports on Form 8-K during the three months ended March 31, 1998. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NOVOSTE CORPORATION April 24, 1998 s/Thomas D. Weldon - ----------------------- ---------------------------------------- Date Thomas D. Weldon President & Chief Executive Officer April 24, 1998 s/David N. Gill - ----------------------- ---------------------------------------- Date David N. Gill Vice President - Finance, Chief Operating Officer and Chief Financial Officer (Principal Financial & Accounting Officer) 15 EXHIBIT INDEX Exhibit Page Number Exhibit Description Number - ------ --------------------------- ------ 27 Financial data schedule 17 16 EX-27 2 FDS
5 3-MOS Dec-31-1998 Jan-01-1998 Mar-31-1998 39,958,080 4,549,096 0 0 0 44,669,900 2,357,264 980,560 46,443,900 2,569,122 0 0 0 104,266 43,794,352 46,443,900 0 0 0 4,805,811 0 0 627,880 (4,177,931) 0 (4,177,931) 0 0 0 (4,177,931) (.40) (.40)
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