UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission File Number: 0-27854
BONE CARE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1527471
(State of (IRS Employer
Incorporation) Identification No.)
1600 Aspen Commons, Suite 300
Middleton, Wisconsin 53562
(Address, including zip code of
Registrant's principal executive offices)
608-662-7800
(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 [ ]
As of November 2, 2001, 14,022,722 shares of the registrant's common stock, no
par value, were outstanding.
BONE CARE INTERNATIONAL, INC.
FORM 10-Q
For the quarterly period ended September 30, 2001
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1 Financial Statements
Balance Sheets
September 30, 2001 and June 30, 2001 3
Statements of Operations
Quarter Ended September 30, 2001
and 2000 5
Statements of Cash Flows
Quarter Ended September 30, 2001
and 2000 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk 10
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 2 Changes in Securities and Use of Proceeds 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
BONE CARE INTERNATIONAL, INC.
Balance Sheets
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ASSETS
---------------------------------------------------------------------------------------------------------------------------
September 30, June 30,
2001 2001
(Unaudited) (Audited)
---------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 1,373,218 $ 1,842,838
Marketable securities 18,842,995 15,079,575
Accounts receivable, net of allowance for doubtful accounts of $125,000 and
$100,000 for September 30, 2001 and June 30, 2001,
respectively 3,711,219 3,347,300
Inventories 2,922,594 1,810,574
Other current assets 1,016,908 1,085,103
---------------------------------------------------------------------------------------------------------------------------
Total current assets 27,866,934 23,165,390
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Long-term securities 7,939,636 14,424,490
Property, plant and equipment - at cost:
Leasehold improvements 588,632 587,632
Furniture and fixtures 474,651 466,200
Machinery and other equipment 1,604,155 1,419,293
---------------------------------------------------------------------------------------------------------------------------
2,667,438 2,473,125
Less accumulated depreciation and amortization 1,106,765 970,120
---------------------------------------------------------------------------------------------------------------------------
1,560,673 1,503,005
Patent fees net of accumulated amortization
of $1,037,465 at September 30, 2001 and
$988,466 at June 30, 2001 1,014,042 1,025,320
Excess of cost over fair value of net assets acquired, net of accumulated
amortization of $1,000,752 at September 30, 2001 and
June 30, 2001 359,165 359,165
---------------------------------------------------------------------------------------------------------------------------
$38,740,450 $40,477,370
===========================================================================================================================
See the accompanying notes to financial statements.
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BONE CARE INTERNATIONAL, INC.
Balance Sheets
---------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
---------------------------------------------------------------------------------------------------------------------------
September 30, June 30,
2001 2001
(Unaudited) (Audited)
---------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,861,623 $ 1,612,543
Accrued liabilities:
Accrued clinical study and research costs 231,523 147,635
Accrued compensation 250,708 208,930
Due to customers -- 135,102
Other current liabilities -- 70,055
Allowance for sales returns 205,000 205,000
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Total current liabilities 2,548,854 2,379,265
Shareholders' equity:
Preferred stock-authorized 2,000,000 -- --
shares of $.001 par value; none issued
Common stock-authorized 28,000,000 shares of no par value; issued and
outstanding 14,022,722 shares at September 30, 2001
and 13,955,372 at June 30, 2001 11,393,883 11,393,883
Additional paid-in capital 61,437,597 61,240,197
Accumulated deficit (36,752,540) (34,616,341)
Accumulated other comprehensive income 112,656 80,366
---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 36,191,596 38,098,105
---------------------------------------------------------------------------------------------------------------------------
$38,740,450 $40,477,370
===========================================================================================================================
See the accompanying notes to financial statements.
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BONE CARE INTERNATIONAL, INC.
Statements of Operations
(Unaudited)
----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
------------------------------------------
September 30, September 30,
2001 2000
----------------------------------------------------------------------------------------------------------------------------
Revenues $ 2,652,140 $ 1,362,833
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Operating expenses
Cost of sales 592,906 341,216
Research and development 1,391,717 981,266
Sales and marketing 2,249,835 1,452,917
General and administrative 914,934 453,219
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5,149,392 3,228,618
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Loss from operations (2,497,252) (1,865,785)
Interest income 361,053 137,292
----------------------------------------------------------------------------------------------------------------------------
Net loss $(2,136,199) $(1,728,493)
============================================================================================================================
Net loss per common share - basic and diluted $ (0.15) $ (0.15)
============================================================================================================================
Weighted average number of common shares 13,987,575 11,456,668
============================================================================================================================
See the accompanying notes to financial statements.
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BONE CARE INTERNATIONAL, INC.
Statements of Cash Flows
(Unaudited)
----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
-------------------------------------
September 30, September 30,
2001 2000
----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $(2,136,199) $(1,728,493)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of fixed assets 138,278 58,665
Amortization of patents 57,000 52,500
Amortization of goodwill -- 22,363
Loss on disposal of fixed assets 1,018 --
Loss on disposal of patents 6,144 --
Changes in assets and liabilities:
Accounts receivable (363,919) (1,257,372)
Inventories (1,112,020) (183,856)
Other current assets 68,195 (105,943)
Other non-current assets -- (65,975)
Accounts payable 249,080 (112,918)
Accrued liabilities (79,491) 169,175
Deferred income -- (17,435)
----------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (3,171,914) (3,169,289)
----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Sale of marketable securities 2,753,724 990,274
Additions to property, plant and equipment (193,224) (520)
Patent fees (55,606) (59,790)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,504,894 929,964
----------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds from stock option exercises 197,400 --
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 197,400 --
----------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (469,620) (2,239,325)
Cash and cash equivalents at beginning of period 1,842,838 4,735,780
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,373,218 $ 2,496,455
============================================================================================================================
See the accompanying notes to financial statements.
-6-
BONE CARE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The financial statements in this report have been prepared by Bone Care
International, Inc. without audit, except for balance sheet information at June
30, 2001, pursuant to the rules of the Securities and Exchange Commission for
quarterly reports on Form 10-Q and do not include all of the information and
note disclosures required by generally accepted accounting principles for annual
financial statements. These financial statements should be read in conjunction
with the financial statements and notes thereto for the year ended June 30,
2001, included in the Company's Form 10-K as filed with the Securities and
Exchange Commission on September 28, 2001.
In the opinion of management, information included in this report reflects
all adjustments, consisting of normal, recurring adjustments, necessary for a
fair presentation of results for these interim periods.
The results of operations for the interim period ended September 30, 2001,
are not necessarily indicative of the results to be expected for the entire
fiscal year ending June 30, 2002.
(2) REVENUE RECOGNITION POLICY
Bone Care began selling Hectorol Capsules in October 1999. Because Hectorol
Capsules were Bone Care's first product, Bone Care did not initially have
historical data to estimate returns and exchanges in accordance with SFAS No.
48, "Revenue Recognition When Right of Return Exists." Revenues from shipments
of Hectorol Capsules and the related costs were deferred at the time of shipment
to wholesalers and included in the Statement of Operations at the time the
product was sold by these wholesalers to retail users of the product. Effective
October 1, 2000, Bone Care had sufficient experience to estimate future product
returns and began recording sales and the related costs of Hectorol Capsules and
Hectorol Injection based on shipments to its customers reduced by the estimated
future returns. Bone Care's September 30, 2001 and June 30, 2001 balance sheets
include $205,000, representing the estimated amount of future returns related to
Hectorol Capsules and Hectorol Injection.
(3) INVENTORIES
Inventories are stated at the lower of cost or market; cost is determined
principally by the first-in, first-out method. Inventories are comprised of:
------------------------
September 30, June 30,
2001 2001
(Unaudited) (Audited)
------------------------
Raw materials $ 266,348 $ 385,834
Work in process 1,031,107 955,514
Finished goods 1,625,139 469,226
------------------------
$2,922,594 $1,810,574
========================
(4) COMMON STOCK
In December 2000, Bone Care completed a public offering of 2,300,000 shares
of common stock at a price of $16.00 per share. Bone Care received proceeds of
$33,657,000 from the sale, net of offering expenses. In January 2001, the
underwriters of the Company's December 2000 common stock offering exercised
their over-allotment option to acquire 145,000 additional shares of common stock
at a price of $16.00 per share. Bone Care received proceeds of $2,115,800 from
the sale, net of offering expenses.
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(5) NET LOSS PER SHARE
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. Options to
purchase common stock have been excluded from the calculations of diluted
earnings per share as the impact of these options on diluted earnings per share
would be anti-dilutive.
(6) INTANGIBLE ASSETS
On June 30, 2001, the Financial Accounting Standards Board (FASB) finalized
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets." Under Statement No. 142, existing goodwill at June 30, 2001,
will no longer be amortized. Instead, an assessment of fair value will be used
to test for impairment of goodwill on an annual basis or when circumstances
indicate a possible impairment. On July 1, 2001, the company adopted SFAS No.
142. Application of the non-amortization provision of SFAS No 142 is expected to
result in an increase in income of approximately $89,448 in fiscal 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Total revenues for the first quarter ended September 30, 2001 increased to
$2,652,140 from $1,362,833 in the quarter ended September 30, 2000. The increase
was primarily the result of increased sales of Hectorol(R) Capsules, which
benefited from the continuing commercial shortage on Rocaltrol(R), a competitive
product from Roche Pharmaceuticals.
Gross margins for the quarter ended September 30, 2001, were $2,059,234, or
78% of revenues compared to $1,021,617, or 75% of revenues in the quarter ended
September 30, 2000. Current quarter margins improved because the cost of
inventory previously written off is being recovered since the FDA agreed to
extend the shelf life of Hectorol Capsules from three to four years.
Research and development expenses were $1,391,717 in the quarter ended
September 30, 2001, and $981,266 in the quarter ended September 30, 2000. The
increase is attributable to more work being done in preclinical studies to
evaluate compounds in the treatment of psoriasis and prostate, breast, and colon
cancers.
Sales and marketing expenses increased $796,918 to $2,249,835 in the quarter
ended September 30, 2001, from $1,452,917 in the quarter ended September 30,
2000. The increase is attributable to increasing the sales force from 30 to 39
and related marketing expenses in preparation of a national J-code that becomes
effective January 1, 2002. This code is issued by the Centers for Medicare and
Medicaid Services (CMS) for reimbursement of D-hormone therapies administered
intravenously during hemodialysis.
General and administrative expenses increased $461,715 to $914,934 in the
quarter ended September 30, 2001 from $453,219 in the quarter ended September
30, 2000. The increase was attributable to an expansion of infrastructure to
support Bone Care's increased commercial activities.
Interest income increased $223,761 to $361,053 in the quarter ended
September 30, 2001, from $137,292 in the quarter ended September 30, 2000. The
increase was due to net higher average cash and marketable securities balances
during the quarter ended September 30, 2001.
Liquidity and Capital Resources
In December 2000 and January 2001 we completed a public offering of
2,445,000 shares of common stock at a price of $16.00 per share. We received net
proceeds of approximately $35.8 million from the sale. In October 1999, we
completed a directed public offering of 1,229,058 shares of newly issued common
stock at a price of $9.02 per share. We received net proceeds of approximately
$11.0 million
-8-
from the sale. In July 1998, we completed a directed public offering of
1,326,000 shares of common stock at a price of $8.00 per share. We received net
proceeds of approximately $10.3 million from the sale.
Net cash used in operating activities was $3,171,914 for the quarter ended
September 30, 2001 and $3,169,289 for the quarter ended September 30, 2000. The
cash used by operating activities was used primarily to fund research and
development as well as marketing and commercialization efforts for Hectorol
Capsules and Hectorol Injection.
We have experienced negative cash flows from operations since our inception
and do not anticipate generating sufficient positive cash flows to fund our
operations until we achieve, if ever, significant revenues from the sale of
Hectorol Capsules and Hectorol Injection. We have expended, and expect to
continue to expend in the future, substantial funds for our:
- research and development programs;
- pre-clinical and clinical testing;
- regulatory processes, including completion of FDA post-approval Phase IV
commitments for Hectorol Capsules and Hectorol Injection;
- manufacturing expenses;
- sales and marketing programs; and
- other operating expenses.
Cash, cash equivalents and short- and long-term marketable securities were
$28,155,849 at September 30, 2001 and $31,346,903 at June 30, 2001. Cash and
cash equivalents are currently invested primarily in short-term investment grade
United States government, municipal and corporate debt securities.
Bone Care's capital requirements will depend on numerous factors, including
the progress of commercialization and marketing activities; the progress of its
research and development programs; the progress of preclinical and clinical
testing; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights; competing technological and market developments;
changes and developments in Bone Care's existing licensing relationships and the
terms of any new collaborative, licensing, co-promotion or distribution
arrangements that Bone Care may establish; the cost of manufacturing preclinical
and clinical products; and other factors not within our control.
Based upon our current plans, we believe that we will have sufficient funds
to meet our operating expenses and capital requirements for at least the next
two years. Thereafter, we may need to raise additional capital to fund our
operations; however, we do not have any specific plans to raise additional
capital. If we seek additional funds, equity offerings or other sources would be
considered. There is no assurance that such additional funds will be available
on acceptable terms, if at all. Should our plans not be consummated, we may have
to seek alternative sources of capital.
At June 30, 2001, we had state tax net operating loss carryforwards of
approximately $33,972,000 and state research and development tax credit
carryforwards of approximately $262,000 which will begin expiring in 2009. We
also had federal net operating loss carryforwards of approximately $30,922,000
and research and development tax credit carryforwards of approximately
$1,245,000, which will begin expiring in 2012.
Reimbursement Code
On November 5, 2001 Bone Care announced that the Centers for Medicare and
Medicaid Services (CMS) has issued a nationwide J-code for Hectorol Injection to
-9-
become effective January 1, 2002. The J-code serves to identify standardized
treatments within the CMS centralized billing system and will be used for
reimbursement of D-hormone therapies administered intravenously during
hemodialysis.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our sales from inception to date have been made to U.S. customers and, as a
result, we have not had any exposure to factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets. However,
in future periods, we expect to sell in foreign markets, including Europe and
Asia. Because our sales are made in U.S. dollars, a strengthening of the U.S.
dollar could make our products less competitive in foreign markets. At September
30, 2001, we did not hold any short- or long-term investments other than
high-grade investment securities planned to be held to maturity and, therefore,
we do not believe that short-term fluctuations of interest rates would
materially affect the value of our investments.
-10-
PART II - OTHER INFORMATION
BONE CARE INTERNATIONAL, INC.
Item 1. Legal Proceedings
Bone Care may be a defendant from time to time in actions arising
out of our ordinary course of business operations. In the opinion of
management, the outcome of pending claims is not likely to have a
material adverse effect on our financial position or results of
operations.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information - Recent Developments
This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. We have based these forward-looking
statements largely on our current expectations and projections about
future events and financial trends affecting the financial condition of
our business. These forward-looking statements are subject to a number
of risks, uncertainties and assumptions about us, including, among other
things:
- general economic and business conditions, both nationally and in
our markets;
- our expectations and estimates concerning future financial
performance, financing plans and the impact of competition;
- anticipated trends in our business;
- existing and future regulations affecting our business;
- our early stage of development;
- the uncertainty of our future profitability;
- our ability to satisfy the FDA's conditions for marketing
approval for Hectorol;
- other risk factors
-11-
In addition, in this Quarterly Report, the words "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "expect" and
similar expressions, as they relate to us, our business or our
management, are intended to identify forward-looking statements.
Unless otherwise required by law, we undertake no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise after the date of
this Quarterly Report. However, we acknowledge our obligation to
disclose material developments related to previously disclosed
information. In light of these risks and uncertainties, the
forward-looking events and circumstances discussed in the Quarterly
Report may not occur and actual results could differ materially from
those anticipated or implied in the forward-looking statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits furnished:
(11) Statement Regarding Computation of Loss Per Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 2001.
-12-
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.
BONE CARE INTERNATIONAL, INC.
(Registrant)
Date: November 2, 2001 /s/ Richard B. Mazess, Ph.D.
Richard B. Mazess, Ph.D.
Acting President, Chief Executive Officer,
Chairman, and Director
(Principal Executive Officer)
Date: November 2, 2001 /s/ Robert A. Beckman
Robert A. Beckman
Vice President - Finance and Director
(Principal Financial and
Accounting Officer)
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BONE CARE INTERNATIONAL, INC.
Exhibit Index
For the Quarterly Period Ended September 30, 2001
No. Description Page
11 Statement Regarding Computation of Loss Per Share...................... 15
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