-----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, B4XmcxyKmfzLM8JUOnzgFQXvDx7R57J6F5HLSHT/uks8zWUkIi0mUjc4/Y9hj20S 7awD4fcF/VlliqP+xhnSog== 0000927016-97-000327.txt : 19970222 0000927016-97-000327.hdr.sgml : 19970222 ACCESSION NUMBER: 0000927016-97-000327 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERSEPTIVE BIOSYSTEMS INC CENTRAL INDEX KEY: 0000859640 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 042987616 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20032 FILM NUMBER: 97528025 BUSINESS ADDRESS: STREET 1: 500 OLD CONNECTICUT PATH CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5083837700 MAIL ADDRESS: STREET 1: 500 OLD CONNECTICUT PATH CITY: FRAMINGHAM STATE: MA ZIP: 01701 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period December 28, 1996 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: 0-20032 PerSeptive Biosystems, Inc. --------------------------- (Exact name of registrant as specified in its charter) Delaware 04-2987616 -------- ---------- (State or other jurisdiction of (IRS Employer ID No.) incorporation or organization) 500 Old Connecticut Path, Framingham, MA 01701 - ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) (508) 383-7700 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock 21,387,087 Shares - ------------ ----------------- (Class) (Outstanding at February 6, 1997) PERSEPTIVE BIOSYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q DECEMBER 28, 1996 TABLE OF CONTENTS
Page No. -------- Part I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: a) Consolidated Balance Sheets at December 28, 1996 (unaudited) and September 30, 1996 3 b) Consolidated Statements of Operations for the three-month periods ended December 28, 1996 and December 31, 1995 (unaudited) 4 c) Consolidated Statements of Cash Flows for the three-month periods ended December 28, 1996 and December 31, 1995 (unaudited) 5 d) Notes to the Consolidated Financial Statements (unaudited) 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 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15
2 PERSEPTIVE BIOSYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 28, September 30, 1996 1996 ---------------- ----------------- ASSETS: Current assets: Cash and cash equivalents $ 7,314 $ 5,384 Short-term investments, available-for-sale 14,220 19,273 Trade accounts receivable, net of allowance for doubtful accounts of $2,049 at December 28, 1996 and $2,386 at September 30, 1996 14,944 16,052 Inventories, net 21,828 21,074 Other current assets 1,621 2,107 ---------------- ----------------- Total current assets 59,927 63,890 Fixed assets, net 30,752 32,017 Patent and license costs, net 5,799 5,913 Goodwill, net 18,258 18,518 Other long-term assets 1,376 1,317 ---------------- ----------------- Total assets $ 116,112 $ 121,655 ================ ================= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 8,152 $ 9,292 Accrued expenses 18,751 18,699 Current portion of deferred revenue 1,239 1,158 Short-term borrowing 5,036 5,032 Current portion of obligations and other current liabilities 2,726 3,137 ---------------- ----------------- Total current liabilities 35,904 37,318 Long-term liabilities: Convertible subordinated notes 27,230 27,230 Long-term debt 5,468 5,574 Capital lease obligations, less current portion 365 361 Deferred revenue and other liabilities 950 887 ---------------- ----------------- Total long-term liabilities 34,013 34,052 Commitments & contingencies (Note 12) Stockholders' equity: Redeemable convertible preferred stock, $.01 par value; 4000 shares authorized; 2,000 shares issued and outstanding at December 28, 1996 and September 30, 1996; redemption value $20,000 at December 28, 1996 and September 30, 1996 18,410 18,053 Common stock, $.01 par value; 100,000,000 shares authorized; 21,369,273 and 21,315,456 shares issued and outstanding at December 28, 1996 and September 30, 1996 , respectively 215 213 Additional paid-in capital 158,864 158,556 Accumulated deficit (129,236) (125,094) ---------------- ----------------- 48,253 51,728 Cumulative translation adjustment (2,008) (1,373) Unrealized loss on investments (50) (70) Total stockholders' equity 46,195 50,285 ---------------- ----------------- Total liabilities and stockholders' equity $ 116,112 $ 121,655 ================ =================
The accompanying notes are an integral part of these financial statements 3 PerSeptive Biosystems, Inc. Consolidated Statements of Operations (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Three months ended ------------------------------- December 28, December 31, 1996 1995 ------------------------------- Revenue: Product revenue $ 21,101 $ 19,064 Contract revenue 5,067 ------------- ----------- 21,101 24,131 ------------- ----------- Cost of goods sold: Cost of product revenue 10,643 9,023 Cost of contract revenue 4,304 ------------- ----------- 10,643 13,327 ------------- ----------- Gross Profit 10,458 10,804 Operating Expenses: Research and development 3,569 1,569 Selling, general and administrative 9,558 9,632 Amortization 260 724 ------------- ----------- 13,387 11,925 ------------- ----------- Loss from operations (2,929) (1,121) ------------- ----------- Other expense: Interest expense, net (863) (703) Other expense, net 8 (52) ------------- ----------- Loss before provision for income taxes (3,784) (1,876) Provision for income taxes - 100 ------------- ----------- Net loss $ (3,784) $ (1,976) ============= =========== Net loss per common share ($0.19) ($0.18) ============= =========== Weighted average common shares outstanding 21,332 13,971 ============= =========== The accompanying notes are an integral part of these financial statements. 4 PERSEPTIVE BIOSYSTEMS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited)
Three months ended December 28, December 31, ---------------------------------------- 1996 1995 ------------------ --------------- Cash from operating activities: Net loss $ (3,784) $ (1,976) Adjustments to reconcile net loss to net cash used in operating activities Net gain on securities available for sale 20 Depreciation and amortization 2,118 2,798 Provision for inventory and accounts receivable reserves 224 Changes in assets and liabilities Decrease (increase) in accounts receivable 993 (1,306) Increase in inventories (969) (258) Decrease (increase) in other assets 397 (836) Decrease in accounts payable (1,140) (312) Increase (decrease) in accrued expenses 52 (589) Increase in other liabilities 145 120 ------------------ --------------- Net cash used in operating activities $ (2,168) $ (2,135) ------------------ --------------- Cash flows from investing activities Purchases of fixed assets, net (731) (4,382) Net proceeds from sales of securities available- for-sale 5,054 22 Increases in patents and licenses (27) Net cash provided by (used in) investing ------------------ --------------- activities $ 4,323 $ (4,387) ------------------ --------------- Cash flows from financing activities Proceeds from capital lease financing 306 Principal payments under capital lease obligations (408) (692) Net proceeds from facility financing 1,515 Net proceeds from short-term borrowing (104) 1,037 Proceeds from issuance of common stock 310 270 Net proceeds (used in) provided by ------------------ --------------- financing activities $ (202) $ 2,436 ------------------ --------------- Effect of exchange rate changes on cash and cash equivalents (23) (278) ------------------ --------------- Increase in cash and cash equivalents 1,930 (4,364) Cash and cash equivalents, beginning of period 5,384 12,215 ------------------ --------------- Cash and cash equivalents, end of period $ 7,314 $ 7,851 ================== =============== Supplemental disclosure of cash flow information: Interest paid 360 318 Supplemental disclosure of non-cash activities: Accretion of Series A Preferred Stock 357 515 Stock issued: purchase costs of AMI acquisition 3,471
The accompanying notes are an integral part of these financial statements 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION The accompanying consolidated balance sheet at December 28, 1996, and the consolidated statements of operations for the three-month periods ended December 28, 1996 and December 31, 1995, and the consolidated statements of cash flows for the three-month periods ended December 28, 1996 and December 31, 1995 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of results of operations for such periods. The results of operations for the three-month period ended December 28, 1996 are not necessarily indicative of the results expected for the year ended September 30, 1997. It is suggested that these financial statements be read in conjunction with the consolidated financial statements for the year ended September 30, 1996 and the notes thereto, included in the Company's Annual Report on Form 10-K. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) INVENTORIES Inventories consist of the following (in thousands):
December 28, 1996 September 30, 1996 ----------------- ------------------ Raw material $ 8,813 $ 7,368 Work in process 2,419 2,751 Finished goods 10,596 10,955 --------- --------- Total inventories $ 21,828 $ 21,074 ========= =========
(3) NET LOSS PER COMMON SHARE Net loss per common share is determined by dividing net loss, including accretion on preferred stock, by the weighted average common shares outstanding during the period. Accretion on preferred stock was $357,000 and $515,000 for the three months ended December 28, 1996 and December 31, 1995 respectively. All common stock equivalents consisting of options, warrants, contingently issuable shares and shares held in escrow have been excluded from the calculation of weighted average common shares outstanding, as their inclusion would be anti-dilutive. (4) ACQUISITION OF PERSEPTIVE TECHNOLOGIES II CORPORATION On November 1, 1995, the Company, PerSeptive Acquisition Corporation ("PAC"), a wholly owned subsidiary of the Company, and PerSeptive Technologies II Corporation ("PTC II") entered into a definitive agreement pursuant to which the Company agreed to an exchange offer for all of the 2,645,000 outstanding units of PTC II followed by a merger of PTC II with PAC. Each PTC II unit consisted of one share of callable common stock of PTC II and one Class E Warrant of the Company, exercisable at $33.00 until December 1998. Effective March 8, 1996, the Company acquired 2,603,125 units of PTC II that were validly tendered and not withdrawn in the exchange offer. The PTC II shareholders, who participated in the exchange offer, exchanged their units for 2,603,125 shares of the Company's common stock and 2,603,125 new Class I Warrants to purchase the Company's common stock, exercisable until August 8, 1997 at an exercise price per share of 6 $13.50. On March 13, 1996, PTC II merged with PAC and became a wholly owned subsidiary of the Company. Each of the remaining 41,875 shares of callable common stock of PTC II not exchanged in the exchange offer were automatically converted into a right to receive one share of the Company's common stock upon the merger of PTC II with PAC. During the quarter ended June 30, 1996, 36,475 rights were exchanged for an equivalent number of shares of the Company's common stock. The total value of the common stock issued in the exchange offer was approximately $16 million based on the market value of the Company's common stock on March 8, 1996. The transaction has been accounted for as a purchase and the Company has recorded an in-process research and development charge of approximately $6.8 million which represents the value of acquired technologies which have not reached commercialization. During the three-month period ended March 31, 1996, the Company recognized research and development revenue from PTC II totaling approximately $5 million. 5) LITIGATION AND OTHER MATTERS The Company has sued Pharmacia Biotech, Inc. and certain of its affiliates, and their parent Pharmacia AB (collectively, "Pharmacia"), now part of Pharmacia & Upjohn Co., Sepracor Inc. ("Sepracor") and BioSepra Inc. ("BioSepra"), a company partially owned by Sepracor, for willful infringement of three PerSeptive patents (collectively, the "Perfusion Patents") covering the process of Perfusion Chromatography/(R)/ and the manufacture, sale and use of chromatography particles and matrices that enable Perfusion Chromatography. The Company commenced its action against Pharmacia and Sepracor on October 14, 1993, and the consolidated action is pending in the United States District Court for the District of Massachusetts. BioSepra was added as a party on May 19, 1994. The lawsuit also claims that Sepracor and BioSepra made false and misleading representations of fact with respect to the Company's products, and that BioSepra engaged in false and misleading advertising. The lawsuit, in an amended complaint filed by Purdue University and the Company, also claims that Sepracor and BioSepra infringe a fourth patent (the "Coatings Patent"), licensed exclusively by PerSeptive, covering novel coatings for chromatography media. The lawsuit seeks to enjoin the defendants from infringing the four patents and asks for treble damages, as well as other relief and damages. Pharmacia, Sepracor and BioSepra each have asserted that their products do not infringe the Perfusion Patents and that the Perfusion Patents are invalid and unenforceable, and have asserted counterclaims against the Company alleging that the Company's assertions that they have infringed the patents, and that statements allegedly made by the Company to customers concerning the litigation, constitute unfair competition, commercial disparagement, unfair trade practices, tortious interference with customer relationships and violation of the Lanham Act, and seeking an unspecified amount of damages, and, under certain asserted claims, double or treble damages. The Company has denied any liability on these counterclaims. On January 9, 1996, the Court entered an order denying the Company's motion for partial summary judgment relating to the inventorship of the Perfusion Patents, and granting the Defendants' motions for partial summary judgment that inventorship of the Perfusion Patents is improper for failure to name two or more persons, who are unrelated to the defendants, as additional joint inventors. The Court, however, affirmed the Company's inventorship. In May and June, 1996, the Court conducted an evidentiary hearing on the issue of whether inventorship of the Perfusion Patents could be corrected, and has not rendered a decision based on that hearing. The Company has preserved its rights of appeal on a number of issues, including the Court's January 9, 1996 order that the Perfusion Patents failed to name additional persons as joint inventors. The Court has not yet considered the issue of infringement of the Perfusion Patents or the Coatings Patent. The Company intends to continue to vigorously pursue this litigation. 7 In September, 1996, a new United States patent relating to Perfusion Chromatography systems was issued to the Company. This patent, and a related patent for which Notice of Allowance was received in June, 1996, cover instruments and systems that perform the high-speed, high resolution chromatography which is the subject of the Perfusion Patents. Neither of these patents are the subject of the current litigation. Since November 1994, the Company has been responding to informal requests for information from the Securities and Exchange Commission (the "Commission") relating to certain of the Company's financial matters. In May 1995, the Company was advised by the Commission that it had obtained a formal order of investigation so that, among other matters, it may utilize subpoena powers to obtain information relevant to its inquiry. The Commission has and may in the future utilize its subpoena powers to obtain information from various officers, directors and employees of the Company and from persons not presently associated with the Company. If, after completion of its investigation, the Commission finds that violations of the federal securities laws have occurred, the Commission has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The Commission may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. There can be no assurance as to the timeliness of the completion of the investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. The Company is cooperating fully with the investigation, and has responded and will continue to respond to requests for information in connection with the investigation. (6) TRANSACTION WITH CHEMGENICS Effective June 28, 1996 the Company completed a transaction with ChemGenics Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.) in which the Company transferred certain assets and employees of the Company's drug discovery program and entered into a non-exclusive license, licensing the Company's technology in the field of drug discovery to ChemGenics in exchange for shares of ChemGenics Common Stock equal to 40% of its fully diluted capital stock, plus warrants to purchase, for a period of four years, additional shares of Common Stock at $5.00 per share equal to 10% of such fully diluted amount. The transaction will combine the Company's proprietary technology in the field of drug discovery with ChemGenics' gene technologies. In December 1996, the Company and ChemGenics executed amendments to their agreements pursuant to which the Company exchanged a portion of its ChemGenics Common Stock for a promissory note for $3 million payable on the earlier of the closing of ChemGenics' initial public offering or December 31, 2002. As a result of the above referenced modifications to the agreements, the Company held approximately 34% of the outstanding capital stock of ChemGenics as of December 28, 1996. (7) SUBSEQUENT EVENTS - MERGER OF CHEMGENICS AND MILLENNIUM On January 20, 1997 ChemGenics and Millennium Pharmaceuticals, Inc. ("Millennium") entered into an Agreement and Plan of Merger ("Agreement"). Under the terms of the Agreement, the stockholders of ChemGenics received capital stock of Millennium in exchange for their capital stock of ChemGenics. Additional consideration in the form of cash will be received by certain stockholders of ChemGenics, which stockholders include the Company. At the closing on February 10, 1997, the Company received 1,612,582 shares of Millennium Common Stock in exchange for the shares of ChemGenics Common Stock it held. In addition, the Company received $4 million cash in exchange for warrants it held and in satisfaction of the above referenced promissory note. The parties to the Agreement contemplate that the transaction will qualify as a tax-free merger. The Company's shares of Millennium Common Stock are unregistered as issued and will be subject to restrictions on sale which expire in increments between June and September 1977. It is expected that Millennium will file a Form S-3 with the Securities and Exchange Commission with regard to these shares in June 1997. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed below under the caption "Certain Factors That May Affect Future Results," as well as elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and those discussed in the Company's other filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 31, 1995 Product revenue for the three months ended December 28, 1996 was $21,101,000 compared with $19,064,000 for the comparable 1995 period. The growth in product revenue is attributable to continued strong sales growth in the analysis product line and further expansion of the Company's products into the international market place. Total revenue amounted to $21,101,000 and $24,131,000 for the three months ended December 28, 1996 and December 31, 1995, respectively. The decrease in total revenue is attributable to the elimination of contract revenue previously recorded in connection with the Company's development efforts on behalf of PTC II, following the acquisition of PTC II in March 1996. Gross profit from product and related revenue for the three months ended December 28, 1996 and December 31, 1995 was $10,458,000 and $10,804,000, respectively. Gross margin from product and related revenue was 50% during the three months ended December 28, 1996 as compared to 53% during the same period in the prior year. The decrease in gross margin is primarily attributable to factors relating to product mix, pricing and unfavorable overhead absorption resulting from the existence of excess manufacturing capacity established to support future revenue growth. Research and development expenses for the three months ended December 28, 1996 amounted to $3,569,000, or 17% of product and related revenue, as compared with $1,569,000, or 8% of product and related revenue for the comparable period in the prior year. On a gross basis, research and development expenses, including such expenses as reflected in contract cost of sales, have declined to $3,569,000, or 17% of product revenue, from $5,473,000, or 27% of product revenue, for the three months ended December 28, 1996 and December 31, 1995, respectively. Actions have been taken to control the level of research and development expense actually incurred following the acquisition of PTC II in March 1996. This has been accomplished, in part, through the restructuring program that resulted in the elimination of a significant portion of the Company's research and development staffing and related variable support costs. Management intends to pursue commercialization opportunities and alliances in order to obtain value from the technologies acquired from PTC II. Management continues to evaluate the scope and direction of the various programs, however there is no assurance that funding sources and/or third-party arrangements will be obtained or established to defray the cost of research and development or that any of these acquired technologies will ultimately be successfully commercialized. Selling, general and administrative expenses amounted to $9,558,000, or 45% of product and related revenue, during the three months ended December 28, 1996, as compared with $9,632,000, or 51% of product and related revenue during the comparable period in the prior year. The reduction in both aggregate spending as well as spending as a percent of sales is attributable to management's efforts to control these costs as well as improve the productivity of the resources utilized in these functional areas. Net interest expense was $650,000 during the three months ended December 28, 1996, as compared with $703,000 during the comparable period in the prior year. This decrease is primarily attributable to higher net interest income as compared to the comparable period in the prior year. Other expenses were $250,000 and $52,000 for the three months ended December 28, 1996 and December 31, 1995 respectively. This increase was due primarily to the impact of unfavorable currency fluctuations as compared to the comparable period in the prior year. 9 LIQUIDITY AND CAPITAL RESOURCES Cash and investments at December 28, 1996 were $21,534,000 as compared to $24,657,000 at September 30, 1996. Expenditures of cash and investments during the three months ended December 28, 1996 primarily related to the funding of operational requirements for $2.2 million and the funding of financing activities for $900,000. Management anticipates additional cash usage relating to various factors including, but not limited to a semi-annual interest payment due on the 8-1/4% convertible subordinated notes, and cash requirements associated with capital expenditures, patent enforcement actions, working capital and operational needs. The Company believes that its capital resources are sufficient to fund its planned operations through the end of fiscal 1997. The Company believes that additional financing will be required for the development of some of its currently planned product introductions and to support the Company's future operations and revenue growth. The Company's future working capital and capital requirements will in general depend on numerous factors, including the progress of the Company's research and development of new products, the level of resources that the Company devotes to the development of manufacturing and marketing capabilities, the consistency of cash collections, the success of cost containment initiatives, the competitive environment and the growth in the Company's business, which may cause the Company's actual future capital resources to differ materially, notwithstanding the forward-looking statement in the first sentence of this paragraph. The Company believes that the level of financial resources available to it is an important competitive factor. The Company is actively seeking to raise additional capital through equity or debt financing in the near future or to enter into corporate partnering arrangements. However, there can be no assurance that the Company will be able to successfully raise additional capital at acceptable terms, and any failure to do so could have adverse consequences on planned future product introductions and the Company's growth and operations. CHEMGENICS TRANSACTION In June 1996, the Company entered into a transaction with ChemGenics Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.), in which the Company transferred certain assets and employees of the Company's drug discovery program to ChemGenics and granted a non-exclusive license to ChemGenics to use the Company's technology (including technology developed through PTC II) in the field of drug discovery in exchange for shares of ChemGenics common stock, $.001 par value per share ("ChemGenics Common Stock"), and warrants to purchase additional shares of ChemGenics Common Stock exercisable until June 28, 2000. The warrants were exercisable at $5.00 per share ($13.25 per share after a proposed 2.65-for-1 reverse stock split). The Company was subject to certain contractual restrictions on the sale or distribution of its holdings of ChemGenics Common Stock. In December 1996, the Company and ChemGenics executed amendments to their agreements pursuant to which the Company exchanged a portion of its ChemGenics Common Stock for a promissory note for $3 million payable on the earlier of the closing of ChemGenics' initial public offering or December 31, 2002. the Company held approximately 34% of the outstanding capital stock of ChemGenics as of December 28, 1996. In January 1997, ChemGenics and Millennium Pharmaceuticals, Inc. announced that they had entered into a definitive merger agreement for Millennium to acquire ChemGenics in a stock for stock transaction. At the closing, which was held on February 10, 1997, the Company received 1,612,582 shares of Millennium stock and cash in the amount of $4 million. The Millennium shares issued in the transaction are unregistered and subject to restrictions on sale which expire in increments between June and September 1997. Registration of the shares is expected to occur in June 1997. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS Additional Financing Requirements. The Company believes additional long-term financing will be required for the development of some of its currently planned product introductions and to support its planned operations and capital expenditures in its core business relating to the purification, analysis and synthesis of biomolecules. The Company is actively seeking to raise additional capital through equity or debt financing or to enter into corporate partnering arrangements; however, there can be no assurances that this funding will be made available or that terms acceptable to the Company will be reached. Potential Fluctuations in Operating Results. The Company's operating results may vary significantly from quarter to quarter or year to year, depending on factors such as the timing of biopharmaceutical development and commercialization programs 10 of the Company's customers, the timing of increased research and development and sales and marketing expenses, the timing and size of orders and the introduction of new products by the Company and the capital resources of the Company's customers. The Company's current and planned expense levels are based in part on its expectations as to future revenue. Consequently, results may vary significantly from quarter to quarter or year to year based on timing of revenue, and revenue or profits in any period will not necessarily be indicative of results in subsequent periods. Uncertainties Associated with Future Performance. The Company expects to continue to improve operating results in future periods; however, there can be no assurance that the Company will achieve or maintain profitability or that its revenue growth can be sustained in the future. The Company's success in the market for biopharmaceutical purification, analysis and synthesis products will depend, in part, on attracting and maintaining key employees, continued development of foreign sales operations, successful integration of recent acquisitions, continued support from current customers, development of new customers and successful enforcement of the Company's patent rights. See "Legal Proceedings." Need to Integrate Acquisitions. In recent years, the Company has made several acquisitions that have increased the number of the Company's employees or the scope of its business, or both. The Company may make additional acquisitions in the future. The success of these acquisitions will depend on a number of factors, including the ability of the Company's management to integrate the administrative, manufacturing and sales operations of the acquired businesses with those of the Company, to retain key personnel of the acquired businesses, to reduce costs and to preserve and expand sales of the products of the acquired businesses. There can be no assurance that the Company will be able to operate successfully the acquired businesses or that the Company will not experience losses as a result of these acquisitions. With respect to the acquisition of PTC II, the success of the combined business will depend, in part, on the continued availability of funding sources for the research and development projects. The Company has licensed the technology developed through PTC II to ChemGenics for drug discovery purposes. If other research and development programs formerly funded by PTC II are continued by the Company, they will be required to be funded in total by the Company and it will be required to rely upon its own resources or seek alternative sources of capital and/or collaborative funding. There is no assurance that sufficient sources of capital and other funding will be available to the Company in the near term or long term to fund all the Company's current research and development programs and those acquired from PTC II. Uncertainties Associated with Expansion of Marketing and Manufacturing Operations. The Company intends to continue expanding its sales and marketing efforts in the United States and other countries. The Company's ability to accomplish this objective is dependent on many factors including, among others, attracting and retaining a significant number of additional sales and marketing professionals, expanding foreign sales operations and developing distributor relationships in certain markets. This continued expansion will involve significant additional expense and the risks inherent in integrating new sales and marketing personnel into the Company's existing organization. Increasing sales may also require the expansion of the Company's manufacturing capabilities for the Biospectrometry product line, which expansion would require significant capital expenditures and management attention. There can be no assurance that the Company will be able to accomplish its sales, marketing and manufacturing objectives. Potential Costs Associated with Patent Litigation. Patent litigation is widespread in the biotechnology industry and, in general, it is not possible to predict how any such litigation would affect the Company's business. The Company has sued two competitors for infringement of Company patents relating to Perfusion Chromatography. The defendants in that suit are seeking to have these patents declared invalid and they have asserted counterclaims against the Company. The Company may incur substantial additional expenses relating to this and other proceedings. There can be no assurance that the outcome of the litigation will not have a material adverse effect on the Company. See "Legal Proceedings." Patent and License Uncertainties. Proprietary rights relating to the Company's products will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. There can be no assurance that any pending patent applications filed by the Company will result in patents being issued or that any patents now or hereafter owned by the Company will afford protection against competitors. In the absence of patent protection, the Company's business may be adversely affected by competitors that independently develop functionally equivalent technology. The Company has established a policy of vigorously enforcing its patent rights. See "Legal Proceedings." If the Company participates in interference or other proceedings under the jurisdiction of the U.S. Patent and Trademark Office, such proceedings could result in substantial costs to the Company. Competitors, including those with substantially greater resources than the Company, may initiate litigation to challenge the validity of the 11 Company's patents. Others may use their resources to design comparable products that do not infringe the Company's patents. There may also be pending or issued patents of which the Company is not aware held by parties not affiliated with the Company that relate to the Company's products or technology. The Company may need to acquire licenses to, or contest the validity of, any such patents. It is likely that significant funds would be required to contest the validity of any such patents. There can be no assurance that any license required under any such patent would be made available on acceptable terms or that the Company would prevail in any such contest. Pending Governmental Investigation. Since November 1994, the Securities and Exchange Commission (the "SEC") has been conducting an investigation into certain financial matters of the Company. If, after completion of its investigation, the SEC finds that violations of the federal securities laws have occurred, the SEC has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The SEC may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. The Company has been cooperating fully with this investigation. There can be no assurance as to the timeliness of the completion of this investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. See "Legal Proceedings." Intense Competition and Risk of Technological Obsolescence. The Company encounters, and expects to continue to encounter, intense competition in the sale of its current and future products. There can be no assurance that developments by others will not render the Company's products or technologies obsolete or non-competitive. Many of the Company's competitors have substantially greater resources, manufacturing and marketing capabilities, research and development staff and production facilities than those of the Company. 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company has sued Pharmacia Biotech, Inc. and certain of its affiliates, and their parent Pharmacia AB (collectively, "Pharmacia"), now part of Pharmacia & Upjohn Co., Sepracor Inc. ("Sepracor") and BioSepra Inc. ("BioSepra"), a company partially owned by Sepracor, for willful infringement of three PerSeptive patents (collectively, the "Perfusion Patents") covering the process of Perfusion Chromatography /(R)/ and the manufacture, sale and use of chromatography particles and matrices that enable Perfusion Chromatography. The Company commenced its action against Pharmacia and Sepracor on October 14, 1993, and the consolidated action is pending in the United States District Court for the District of Massachusetts. BioSepra was added as a party on May 19, 1994. The lawsuit also claims that Sepracor and BioSepra made false and misleading representations of fact with respect to the Company's products, and that BioSepra engaged in false and misleading advertising. The lawsuit, in an amended complaint filed by Purdue University and the Company, also claims that Sepracor and BioSepra infringe a fourth patent (the "Coatings Patent"), licensed exclusively by PerSeptive, covering novel coatings for chromatography media. The lawsuit seeks to enjoin the defendants from infringing the four Patents and asks for treble damages, as well as other relief and damages. Pharmacia, Sepracor and BioSepra each have asserted that their products do not infringe the Perfusion Patents and that the Perfusion Patents are invalid and unenforceable, and have asserted counterclaims against the Company alleging that the Company's assertions that they have infringed the patents, and that statements allegedly made by the Company to customers concerning the litigation, constitute unfair competition, commercial disparagement, unfair trade practices, tortious interference with customer relationships and violation of the Lanham Act, and seeking an unspecified amount of damages, and, under certain asserted claims, double or treble damages. The Company has denied any liability on these counterclaims. On January 9, 1996, the Court entered an order denying the Company's motion for partial summary judgment relating to the inventorship of the Perfusion Patents, and granting the Defendants' motions for partial summary judgment that inventorship of the Perfusion Patents is improper for failure to name two or more persons, who are unrelated to the defendants, as additional joint inventors. The Court, however, affirmed the Company's inventorship. In May and June, 1996, the Court conducted an evidentiary hearing on the issue of whether inventorship of the Perfusion Patents could be corrected, and has not rendered a decision based on that hearing. The Company has preserved its rights of appeal on a number of issues, including the Court's January 9, 1996 order that the Perfusion Patents failed to name additional persons as joint inventors. The Court has not yet considered the issue of infringement of the Perfusion Patents or the Coatings Patent. The Company intends to continue to vigorously pursue this litigation. In September, 1996, a new United States patent relating to Perfusion Chromatography systems was issued to the Company. This patent, and a related patent for which Notice of Allowance was received in June, 1996, cover instruments and systems that perform the high-speed, high resolution chromatography which is the subject of the Perfusion Patents. Neither of these patents are the subject of the current litigation. Since November 1994, the Company has been responding to informal requests for information from the Securities and Exchange Commission (the "Commission") relating to certain of the Company's financial matters. In May 1995, the Company was advised by the Commission that it had obtained a formal order of investigation so that, among other matters, it may utilize subpoena powers to obtain information relevant to its inquiry. The Commission has and may in the future utilize its subpoena powers to obtain information from various officers, directors and employees of the Company and from persons not presently associated with the Company. If, after completion of its investigation, the Commission finds that violations of the federal securities laws have occurred, the Commission has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The Commission may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. There can be no assurance as to the timeliness of the completion of the investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. The Company is cooperating fully with the investigation, and has responded and will continue to respond to requests for information in connection with the investigation. 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) Reports on Form 8-K - None [The remainder of this page is intentionally left blank.] 14 SIGNATURES - ---------- Pursuant to 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. PERSEPTIVE BIOSYSTEMS, INC. Date: February 12, 1997 By:/s/ Noubar B. Afeyan ----------------- -------------------- Noubar B. Afeyan, Chairman and Chief Executive Officer (Principal Executive Officer) By:/s/ Thomas G. Ruane ------------------- Thomas G. Ruane, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) By:/s/ John F. Smith ----------------- John F. Smith, President and Director 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10 Q FOR THE THREE-MONTH PERIOD ENDED DEC.28,1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 1,000 3-MOS 3-MOS SEP-30-1997 SEP-30-1996 OCT-01-1996 OCT-01-1995 DEC-28-1996 DEC-31-1995 7,314 7,851 14,220 11,562 16,993 20,750 (2,049) (2,265) 21,828 22,849 59,927 63,234 44,743 52,544 (13,991) (14,636) 116,112 136,564 35,904 35,303 0 0 0 0 18,410 26,507 215 144 27,570 39,849 116,112 136,564 21,101 19,064 21,101 24,131 10,643 9,023 10,643 13,327 13,395 11,873 0 0 863 703 (3,784) (1,876) 0 100 (3,784) (1,976) 0 0 0 0 0 0 (3,784) (1,976) (0.19) (0.18) (0.19) (0.18)
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