-----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, S4z/8kPQ6inYRuBmRxGuxrnOWNlg+KR0as4tLvgAQrOmmPUS5dkHpzZA6HPq8PJk FfinYQdE1FnPLg/AXnbMLA== 0000719598-97-000015.txt : 19971117 0000719598-97-000015.hdr.sgml : 19971117 ACCESSION NUMBER: 0000719598-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOLECULAR BIOSYSTEMS INC CENTRAL INDEX KEY: 0000719598 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 363078632 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10546 FILM NUMBER: 97718943 BUSINESS ADDRESS: STREET 1: 10030 BARNES CANYON RD CITY: SAN DIEGO STATE: CA ZIP: 92121-2789 BUSINESS PHONE: 6198242200 MAIL ADDRESS: STREET 1: 10030 BARNES CANYON ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 10-Q 1 FORM 10-Q Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from............... to ............... Commission file number 1-10546 MOLECULAR BIOSYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 36-3078632 (State of Incorporation) (I.R.S. Identification No.) 10030 Barnes Canyon Road San Diego, California 92121 (619) 452-0681 (Address, including zip code, and telephone number, including area code, of principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No The number of shares outstanding of the issuer's common stock, $.01 par value, as of October 24, 1997 was 17,802,187 shares. INDEX PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements (unaudited) 1. Consolidated Balance Sheets 3 March 31, 1997 (audited) and September 30, 1997 2. Consolidated Statements of Operations 4 Three Months Ended September 30, 1996 and 1997 Six Months Ended September 30, 1996 and 1997 3. Consolidated Statements of Cash Flows 5 Six Months Ended September 30, 1996 and 1997 4. Notes to Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II -OTHER INFORMATION Item 1 - Legal Proceedings 13 Item 2 - Changes in Securities 13 Item 3 - Defaults Upon Senior Securities 13 Item 4 - Submission of Matters to a Vote of Securities Holders 13 Item 5 - Other Information 13 Item 6 - Exhibits and Reports on Form 8-K 13 (a) Exhibits (b) Reports on Form 8-K Signatures 14
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) September 30, March 31, 1997 1997 (Unaudited) ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 587 $ 103 Marketable securities, available-for-sale 40,827 29,644 Accounts and notes receivable 902 898 License rights 8,500 8,500 Inventories 342 943 Prepaid expenses and other assets 249 77 ------------- ------------- Total current assets 51,407 40,165 ------------- ------------- Property and equipment, at cost: Building and improvements 14,544 14,544 Equipment, furniture and fixtures 4,567 4,562 Construction in progress 511 1,024 ------------- ------------- 19,622 20,130 Less: Accumulated depreciation and amortization 6,434 6,926 ------------- ------------- Total property and equipment 13,188 13,204 ------------- ------------- Other assets: Patents and license rights, net of amortization $1,114 and $1,186, respectively 341 268 Certificate of deposit, pledged 3,000 3,000 Other assets, net 2,223 2,206 ------------- ------------- Total other assets 5,564 5,474 ------------- ------------- $ 70,159 $ 58,843 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 1,267 $ 1,267 Accounts payable and accrued liabilities 4,684 5,521 Compensation accruals 1,613 1,163 ------------- ------------- Total current liabilities 7,564 7,951 ------------- ------------- Long-term debt, net of current portion 7,349 6,718 Other noncurrent liabilities 3,500 1,500 Commitments and contingencies (Note 2) Stockholders' equity: Common Stock, $.01 par value, 40,000,000 shares authorized, 17,745,897 and 17,788,987 shares issued and outstanding, respectively 177 178 Additional paid-in capital 127,483 127,764 Accumulated deficit (75,469) (84,889) Unrealized loss on available-for-sale securities (82) (16) Less 40,470 shares of treasury stock, at cost (363) (363) ------------- ------------- Total stockholders' equity 51,746 42,674 ------------- ------------- $ 70,159 $ 58,843 ============= =============
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited; dollars in thousands, except per share amounts) Three Months Ended Six Months Ended September 30, September 30, 1996 1997 1996 1997 ----------- ------------- ------------ ------------- Revenues: Revenues under collaborative agreements $ 1,159 $ 1,345 $ 2,159 $ 2,595 Product and royalty revenues 32 81 210 305 License fees 25 - 25 - ----------- ------------- ------------ ------------- 1,216 1,426 2,394 2,900 ----------- ------------- ------------ ------------- Operating expenses: Research and development costs 2,328 2,680 4,964 4,865 Costs of products sold 1,339 970 2,629 2,481 Selling, general and administrative expenses 1,798 2,751 3,563 5,791 ----------- ------------- ------------ ------------- 5,465 6,401 11,156 13,137 ----------- ------------- ------------ ------------- Loss from operations (4,249) (4,975) (8,762) (10,237) Interest expense (214) (186) (413) (377) Interest income 770 540 1,098 1,194 ----------- ------------- ------------ ------------- Net loss $ (3,693) $ (4,621) $ (8,077) $ (9,420) =========== ============= ============ ============= Loss per common share $ (0.21) $ (0.26) $ (0.50) $ (0.53) =========== ============= ============ ============= Weighted average common shares outstanding 17,560 17,768 16,181 17,760 =========== ============= ============ =============
MOLECULAR BIOSYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; dollars in thousands) Six Months Ended September 30, 1996 1997 ------------ ------------- Cash flows from operating activities: Net loss $ (8,077) $ (9,420) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 729 618 Loss on disposals of property and equipment - 3 Changes in operating assets and liabilities: Receivables 93 (87) Inventories 219 (602) Prepaid expenses and other assets 26 263 Accounts payable and accrued liabilities 3,442 837 Deferred contract revenues 1,090 - Compensation accruals (61) (450) ------------ ------------- Cash used in operating activities (2,539) (8,838) ------------ ------------- Cash flows from investing activities: Purchases of property and equipment (511) (566) Proceeds from sale of property and equipment - 2 Additions to patents and license rights (15) - Purchase of license rights from Shionogi (8,500) (2,000) Decrease in other assets 14 17 (Increase) decrease in marketable securities (34,477) 11,250 ------------ ------------- Cash provided by (used in) investing activities (43,489) 8,703 ------------ ------------- Cash flows from financing activities: Net proceeds from public offering of Common Stock 34,098 - Net proceeds from sale of Common Stock - - Net proceeds from stock options exercised 996 281 Principal payments on long-term debt (627) (630) ------------ ------------- Cash provided by financing activities 34,467 (349) ------------ ------------- Increase (decrease) in cash and cash equivalents (11,561) (484) Cash and cash equivalents, beginning of period 12,542 587 ------------ ------------- Cash and cash equivalents, end of period $ 981 $ 103 ============ ============= Supplemental cash flow disclosures: Interest income received $ 874 $ 1,285 ============ ============= Interest paid $ 410 $ 374 ============ =============
NOTES TO FINANCIAL STATEMENTS (1) Basis of Presentation- These interim Consolidated Financial Statements of Molecular Biosystems, Inc. and Subsidiaries (the "Company") should be read in conjunction with the Consolidated Financial Statements of the Company and related Notes filed with the Company's Annual Report on Form 10-K for the year ended March 31, 1997. These interim Consolidated Financial Statements of the Company have not been audited by independent public accountants. However, in the opinion of the Company, all adjustments required for a fair presentation of the financial position of the Company as of September 30, 1997, and the results of its operations for the six-months ended September 30, 1996 and 1997, and its cash flows for the six-months ended September 30, 1996 and 1997, have been made. The results of operations for these interim periods are not necessarily indicative of the operating results for the full year. (2) Commitments and Contingencies- In April 1997, separate lawsuits were filed by Bracco Diagnostics, Inc. ("Bracco"), DuPont Merck Pharmaceutical Co. ("DuPont Merck"), ImaRx Pharmaceutical Corp. ("ImaRx") and Sonus Pharmaceuticals, Inc. ("Sonus") against the United States Food and Drug Administration (the "FDA") seeking a preliminary and permanent injunction to prevent the FDA from approving the Company's pre-market approval application ("PMA") for the Company's second-generation ultrasound imaging agent, OPTISON(TM), until the FDA resolved the merits of citizen petitions that the plaintiffs previously filed with the FDA. These petitions requested the FDA to regulate all ultrasound imaging contrast agents either as drugs (as the plaintiffs' contrast agents under development are currently classified) or as medical devices (as both the Company's ALBUNEXa and OPTISON(TM) were then classified.) The lawsuits (the "FDA Cases") alleged that the FDA acted in an arbitrary and capricious manner in its review of the parties' ultrasound contrast agents and requested the FDA to review all ultrasound contrast agents in a consistent manner. In response, the United States District Court entered an order enjoining the FDA from continuing any approval or review procedures relating to the Company's PMA for OPTISON(TM) until ten days after the FDA ruled on the plaintiffs' citizen petitions. In February 1997, the FDA's advisory Radiological Devices Panel had recommended approval of the Company's PMA for OPTISON(TM) as a device. On July 29, 1997, the FDA ruled that OPTISON(TM) is properly classifiable as a drug under the applicable sections of the Food and Drug Act and FDA regulations and transferred review of the Company's PMA for OPTISON(TM) from the Center for Devices and Radiological Health ("CDRH") to the Center for Drug Evaluation and Research ("CDER"). (It left the classification of ALBUNEXa unchanged.) However, the FDA further ruled that (1) the PMA for OPTISON(TM) will "immediately be deemed a submitted and filed NDA [New Drug Application]"; (2) CDER will not repeat the review of those portions of the PMA on which CDER has already completed substantial work; and (3) CDER will rely, as appropriate, on the "extensive analyses" already done by CDRH, the advisory panel's comments and recommendations, and "any conclusions already reached by CDRH officials regarding the data and information in the PMA." The ruling notes that the Company will be expected to supplement the NDA with patent information, drug labeling, and "other information needed to support the approval of an NDA," but it further notes that the FDA expects "that the redesignation of [OPTISON(TM)] can be accomplished without a significant interruption in the pre-market review process." On August 5, 1997, the United States District Court lifted its stay on the FDA approval process for OPTISON(TM). The Company does not know, however, when FDA approval will be obtained (if at all) or what additional information (if any) it will be required to provide to the FDA in connection with its review of OPTISON(TM). On July 31, 1997, the Company and its marketing partner Mallinckrodt Medical Inc., ("Mallinckrodt") filed suit (the "MBI Case") in United States District Court for the District of Columbia against four potential competitors - Sonus, Nycomed Imaging AS ("Nycomed"), ImaRx and its marketing partner DuPont Merck, and Bracco International BV - seeking declarations that certain of their ultrasound contrast agent patents are invalid. On the same day, the Company and Mallinckrodt filed counterclaims in the FDA Cases seeking the same relief as in the MBI Case. The court subsequently ruled that these counterclaims were moot in the light of the mootness of the FDA Cases following the FDA's reclassification ruling and dismissed the counterclaims. The complaint filed by the Company and Mallinckrodt in the MBI Case alleges that each of the defendants' patents is invalid on a variety of independent grounds under the U.S. patent laws. In addition to requesting that all of the patents in question be declared invalid, the complaint requests a declaration that, contrary to defendants' contentions, the Company and Mallinckrodt do not infringe the patents, and asks that defendants be enjoined from proceeding against the Company and Mallinckrodt for infringement until the status of defendants' patents has been determined by the court or the U.S. Patent and Trademark Office ("PTO"). The complaint alleges that each defendant has claimed or is likely to claim that its patent or patents cover OPTISON(TM) and will attempt to prevent its commercialization. All of the defendents except Nycomed have filed motions to dismiss the complaint on jurisdictional grounds. These motions are pending. Beginning in July 1997, the Company received the first of five notices from the PTO granting the Company's petitions for reexamination which it had filed respecting five patents held by three potential competitors, Sonus, Nycomed and Imarx. Each of the patents currently in the reexamination process is related to the use of perfluorocarbon gases in ultrasound contrast agents and is included among the patents respecting which the Company is seeking a declaration of invalidity in the MBI Case. The Company has obtained a copy of, but has not yet been served with, a complaint filed by Sonus alleging that the manufacture and sale of OPTISON(TM) by the Company and Mallinckrodt will infringe two patents owned by Sonus. These patents are the same patents for which the PTO has granted the Company's petitions for reexamination, and are among the patents respecting which the Company is seeking a declaration of invalidity in the MBI Case. The complaint by Sonus was filed in the United States District Court for the Western District of Washington State after the Company and Mallinckrodt filed the MBI Case in the United States District Court for the District of Columbia. Litigation or administrative proceedings relating to these matters could result in a substantial cost to the Company; and given the complexity of the legal and factual issues, the inherent vicissitudes and uncertainty of litigation, and other factors, there can be no assurance of a favorable outcome. An unfavorable outcome could have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, there can be no assurance that, in the event of an unfavorable outcome, the Company would be able to obtain a license to any proprietary rights that may be necessary to commercialize OPTISON(TM), either on acceptable terms or at all. If the Company were required to obtain a license necessary to commercialize OPTISON(TM), the Company's failure or inability to do so would have a material adverse effect on the Company's business, financial condition and results of operations. PART I - FINANCIAL INFORMATION Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management discussion and analysis should be read in conjunction with (1) the current Consolidated Financial Statements and (2) the Company's Consolidated Financial Statements and related Notes and Management's Discussion and Analysis of Financial Condition and Results of Operations in its Annual Report on Form 10-K for the year ended March 31, 1997. From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, regulatory approval, research and development activities and similar matters. A variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include the expense and uncertain outcome of the litigation described under the caption "Recent Events"; difficulties and delays with respect to the performance of clinical trials; delays by regulatory authorities; manufacturing problems; difficulties and delays with respect to marketing and sales activities; and general uncertainties accompanying the development and introduction of new products. Recent Events In April 1997, separate lawsuits were filed by Bracco Diagnostics, Inc. ("Bracco"), DuPont Merck Pharmaceutical Co. ("DuPont Merck"), ImaRx Pharmaceutical Corp. ("ImaRx") and Sonus Pharmaceuticals, Inc. ("Sonus") against the United States Food and Drug Administration (the "FDA") seeking a preliminary and permanent injunction to prevent the FDA from approving the Company's pre-market approval application ("PMA") for the Company's second-generation ultrasound imaging agent, OPTISON(TM), until the FDA resolved the merits of citizen petitions that the plaintiffs previously filed with the FDA. These petitions requested the FDA to regulate all ultrasound imaging contrast agents either as drugs (as the plaintiffs' contrast agents under development are currently classified) or as medical devices (as both the Company's ALBUNEX(R) and OPTISON(TM) were then classified.) The lawsuits (the "FDA Cases") alleged that the FDA acted in an arbitrary and capricious manner in its review of the parties' ultrasound contrast agents and requested the FDA to review all ultrasound contrast agents in a consistent manner. In response, the United States District Court entered an order enjoining the FDA from continuing any approval or review procedures relating to the Company's PMA for OPTISON(TM) until ten days after the FDA ruled on the plaintiffs' citizen petitions. In February 1997, the FDA's advisory Radiological Devices Panel had recommended approval of the Company's PMA for OPTISON(TM) as a device. On July 29, 1997, the FDA ruled that OPTISON(TM) is properly classifiable as a drug under the applicable sections of the Food and Drug Act and FDA regulations and transferred review of the Company's PMA for OPTISON(TM) from the Center for Devices and Radiological Health ("CDRH") to the Center for Drug Evaluation and Research ("CDER"). (It left the classification of ALBUNEX(R) unchanged.) However, the FDA further ruled that (1) the PMA for OPTISON(TM) will "immediately be deemed a submitted and filed NDA [New Drug Application]"; (2) CDER will not repeat the review of those portions of the PMA on which CDER has already completed substantial work; and (3) CDER will rely, as appropriate, on the "extensive analyses" already done by CDRH, the advisory panel's comments and recommendations, and "any conclusions already reached by CDRH officials regarding the data and information in the PMA." The ruling notes that the Company will be expected to supplement the NDA with patent information, drug labeling, and "other information needed to support the approval of an NDA," but it further notes that the FDA expects "that the redesignation of [OPTISON(TM)] can be accomplished without a significant interruption in the pre-market review process." On August 5, 1997, the United States District Court lifted its stay on the FDA approval process for OPTISON(TM). The Company does not know, however, when FDA approval will be obtained (if at all) or what additional information (if any) it will be required to provide to the FDA in connection with its review of OPTISON(TM). On July 31, 1997, the Company and its marketing partner Mallinckrodt Medical Inc., ("Mallinckrodt") filed suit (the "MBI Case") in United States District Court for the District of Columbia against four potential competitors - Sonus, Nycomed Imaging AS ("Nycomed"), ImaRx and its marketing partner DuPont Merck, and Bracco International BV - seeking declarations that certain of their ultrasound contrast agent patents are invalid. On the same day, the Company and Mallinckrodt filed counterclaims in the FDA Cases seeking the same relief as in the MBI Case. The court subsequently ruled that these counterclaims were moot in the light of the mootness of the FDA Cases following the FDA's reclassification ruling and dismissed the counterclaims. The complaint filed by the Company and Mallinckrodt in the MBI Case alleges that each of the defendants' patents is invalid on a variety of independent grounds under the U.S. patent laws. In addition to requesting that all of the patents in question be declared invalid, the complaint requests a declaration that, contrary to defendants' contentions, the Company and Mallinckrodt do not infringe the patents, and asks that defendants be enjoined from proceeding against the Company and Mallinckrodt for infringement until the status of defendants' patents has been determined by the court or the U.S. Patent and Trademark Office ("PTO"). The complaint alleges that each defendant has claimed or is likely to claim that its patent or patents cover OPTISON(TM) and will attempt to prevent its commercialization. All of the defendents except Nycomed have filed motions to dismiss the complaint on jurisdictional grounds. These motions are pending. Beginning in July 1997, the Company received the first of five notices from the PTO granting the Company's petitions for reexamination which it had filed respecting five patents held by three potential competitors, Sonus, Nycomed and Imarx. Each of the patents currently in the reexamination process is related to the use of perfluorocarbon gases in ultrasound contrast agents and is included among the patents respecting which the Company is seeking a declaration of invalidity in the MBI Case. The Company has obtained a copy of, but has not yet been served with, a complaint filed by Sonus alleging that the manufacture and sale of OPTISON(TM) by the Company and Mallinckrodt will infringe two patents owned by Sonus. These patents are the same patents for which the PTO has granted the Company's petitions for reexamination, and are among the patents respecting which the Company is seeking a declaration of invalidity in the MBI Case. The complaint by Sonus was filed in the United States District Court for the Western District of Washington State after the Company and Mallinckrodt filed the MBI Case in the United States District Court for the District of Columbia. Litigation or administrative proceedings relating to these matters could result in a substantial cost to the Company; and given the complexity of the legal and factual issues, the inherent vicissitudes and uncertainty of litigation, and other factors, there can be no assurance of a favorable outcome. An unfavorable outcome could have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, there can be no assurance that, in the event of an unfavorable outcome, the Company would be able to obtain a license to any proprietary rights that may be necessary to commercialize OPTISON(TM), either on acceptable terms or at all. If the Company were required to obtain a license necessary to commercialize OPTISON(TM), the Company's failure or inability to do so would have a material adverse effect on the Company's business, financial condition and results of operations. Liquidity and Capital Resources At September 30, 1997, the Company had net working capital of $32.2 million compared to $43.8 million at March 31, 1997. Cash, cash equivalents, marketable securities and certificates of deposit pledged were $32.7 million at September 30, 1997 compared to $44.4 million at March 31, 1997. In June 1997, the Company entered into an equipment leasing agreement with Mellon US Leasing ("Mellon") for a lease line of $1.6 million with a term of 48 months. The Company has not yet drawn down on this lease line. For the next several years, the Company expects to incur substantial additional expenditures associated with product development. The Company anticipates that its existing resources, including the proceeds of the public offering in May 1996 and interest thereon, plus payments under its collaborative agreement with Mallinckrodt, will enable the Company to fund its operations for at least the next twelve months. The Company continually reviews its product development activities in an effort to allocate its resources to those products that the Company believes have the greatest commercial potential. Factors considered by the Company in determining the products to pursue may include, but are not limited to, the projected markets, potential for regulatory approval, technical feasibility and estimated costs to bring the product to the market. Based upon these factors, the Company may from time to time reallocate its resources among its product development activities. The Company may pursue a number of options to raise additional funds, including borrowings; lease arrangements; collaborative research and development arrangements with pharmaceutical companies; the licensing of product rights to third parties; or additional public and private financing, as capital requirements change as a result of strategic, competitive, technological and regulatory factors. There can be no assurance that funds from these sources will be available on favorable terms, or at all. Results of Operations Revenues Under Collaborative Agreements. Revenues under collaborative agreements were $1.3 million for the three-month period ended September 30, 1997 compared to $1.2 million for the same period in the prior year. These revenues in both years consist of quarterly payments to support clinical trials, regulatory submissions and product development received from Mallinckrodt under the Company's amended agreement with Mallinckrodt which the Company entered into in September 1995. Product and Royalty Revenues. Revenues from product sales and royalties were $81,000 for the three-month period ended September 30, 1997, compared to $32,000 for the same period in the prior year. Product revenues come from the Company's sales of ALBUNEX(R) to Mallinckrodt which are recognized upon shipment of the product. The transfer price for the Company's sales is determined under the Company's agreement with Mallinckrodt and is equal to 40% of Mallinckrodt's net sales price to its end users of the product. Royalty revenues were received under a licensing agreement between the Company and Abbott Laboratories. Costs of Products Sold. Cost of products sold totaled $970,000 for the three-month period ended September 30, 1997, resulting in a negative gross profit margin. This negative gross profit margin was due to the fact that the current low levels of production are insufficient to cover the Company's fixed manufacturing overhead expenses. For the same period in the prior year, cost of products sold totaled $1.3 million. The Company anticipates an increase in its gross profit margins if and when ALBUNEX(R) sales volume increases and if and when OPTISON(TM) receives regulatory approval and obtains market acceptance. The increase in sales volume would permit the fixed costs included in manufacturing overhead to be allocated over a larger number of vials produced. Manufacturing fixed costs are currently running at an annual rate of approximately $5 million. The amount of any increase in the Company's margins and the time required by the Company to achieve higher margins are highly dependent on market acceptance of ALBUNEX(R) and OPTISON(TM) and are therefore uncertain. Research and Development Costs. For the three-month period ended September 30, 1997, the Company's research and development costs totaled $2.7 million, as compared to $2.3 million for the same period in 1996. This increase is due to the fact that the Company has initiated clinical trials for additional indications for OPTISON(TM). Selling, General and Administrative Expenses. For the three-month period ended September 30, 1997, the Company's selling, general and administrative expenses totaled $2.8 million, compared to $1.8 million for the same period in 1996. This increase in the current year is primarily attributable to legal expenses related to the recent FDA lawsuit and pending patent litigation. See the discussion under "Recent Events". Interest Expense and Interest Income. Interest expense for the three-month period ended September 30, 1997 amounted to $186,000, and consisted of mortgage interest on the Company's manufacturing building and interest on a note payable which is secured by the tangible assets of the Company. The interest rate on the mortgage was 8.0% in September 1997. The note payable, in the amount of $6.0 million, bears interest at prime plus 1% and is payable in monthly installments of principal plus interest over five years. The interest rate on the note was 9.5% in September 1997. The increase in interest income in the current year is due primarily to higher average cash and marketable securities balances. The Company's cash is invested primarily in short-term, fixed principal investments, such as U.S. Government agency issues, corporate bonds, certificates of deposit and commercial paper. Prospective Information The Company is involved in several legal and administrative proceedings which could result in a substantial cost to the Company. Given the complexity of the legal and factual issues and the uncertainty of litigation, there can be no assurance of a favorable outcome. An unfavorable outcome could have a material adverse effect on the Company's business, financial condition and results of operations. For a detailed discussion of these matters, see "Recent Events". PART II - OTHER INFORMATION Item 1 - LEGAL PROCEEDINGS See "Recent Events" in Part I, Item 2, which is incorporated by reference in this response. Item 2-5 - The Company has nothing to report with respect to these items for the quarter ended September 30, 1997. Item 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOLECULAR BIOSYSTEMS, INC. /s/ Gerard Wills Gerard A. Wills Vice President Finance and Chief Financial Officer 11/12/97 Date EX-27 2 FDS --
5 This schedule contains summary financial information extracted from the consolidated financial statements of Molecular Biosystems, Inc. dated September 30, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 6-mos MAR-31-1998 SEP-30-1997 103 29,644 898 0 943 40,165 20,130 6,926 58,843 7,951 0 0 0 178 42,496 58,843 305 2,900 2,481 13,137 0 0 377 (9,420) 0 (9,420) 0 0 0 (9,420) (0.53) 0
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