10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Since its
incorporation in 1985, Northfield Laboratories Inc. ("Northfield" or the "Company") has devoted substantially all of its efforts and
resources to the research, development and clinical testing of its potential product, PolyHeme. Northfield has incurred operating losses
during each year of its operations since inception and expects to incur substantial additional operating losses for the next several years.
From its inception through November 30, 1997, Northfield incurred operating losses totaling $57,580,000. The Company's success will
depend on several factors including its ability to obtain Food & Drug Administration regulatory approval of PolyHeme and the
Company's manufacturing facilities, its ability to obtain sufficient quantities of blood to commercially manufacture PolyHeme, its ability
to manufacture and distribute PolyHeme in a cost-effective manner, and enforce its patent positions. The Company has experienced
significant delays in the development and clinical testing of PolyHeme. There can be no assurance that the Company will be able to
achieve these goals or that it will be able to realize product revenues or profitability on a sustained basis or at all. The Company
anticipates that research and development expenses will increase during the foreseeable future. These expected increases are attributable
to conducting future clinical trials, monitoring and reporting the results of such trials and continuing process development associated with
increases in the Company's manufacturing capacity to permit commercial scale production of PolyHeme. The Company expects that
general and administrative expenses will increase over the foreseeable future due to increased expenses relating to the expansion of the
Company's organization in support of commercial operations. RESULTS OF OPERATIONS For the Second Quarter Ended November
30, 1997 and 1996. The Company reported no revenues for either of the three-month periods ended November 30, 1997 or 1996. From
its inception through November 30, 1997, the Company has reported total revenues of $3,000,000, all of which were derived from
licensing fees. OPERATING EXPENSES Operating expenses for the Company's second fiscal quarter ended November 30, 1997
totaled $2,187,000, an increase of $227,000 from the $1,960,000 reported in the second quarter of fiscal 1997. Measured on a
percentage basis, total expenses in the second quarter of fiscal 1998 increased by 11.6%. Research and development expenses for the
second quarter of fiscal 1998 totaled $1,565,000, an increase of $146,000, or 10.3%, from the $1,419,000 reported in the second
quarter of fiscal 1997. The quarter over quarter increase in research and development expenses resulted from expanded efforts in clinical
trials and preparatory efforts for commercial manufacturing. For the six-month period ended November 30, 1997, research and
development expenses totaled $3,151,000, representing an increase of $472,000, or 17.6%, from the six-month period ended November
30, 1996. Substantially all of the fiscal year to date increase over the comparable prior year period comes from increased expenses
related to the Phase III clinical trials. Increased spending was also recorded for preparatory and analysis work for the commercial
manufacturing facility. The Company anticipates that research and development expenses will increase over the next several quarters.
Additional costs are being planned for expanded multi-center clinical trials, third-party clinical monitoring and third-party product testing.
General and administrative expenses in the second quarter of fiscal 1998 totaled $622,000 compared to expenses of $541,000 in the
second quarter of 1997, representing an increase of $81,000, or 15.0%. During the quarter increased expenses were incurred for
professional services related to legal counsel on multiple contract and patent issues and public relations for enhanced shareholder
information. Travel expenditures have also increased due to business development efforts. The Company anticipates that general and
administrative expenses will continue to increase over the remainder of the fiscal year. General and administrative expenses for the
six-month period ended November 30, 1997 totaled $1,205,000 which is a $125,000 increase, or 11.6%, from the $1,080,000 in the
comparable prior year period. The increases are principally reported in travel and professional services. Travel has increased due to
business development efforts and professional services have increased in the areas of legal and public relations. INTEREST INCOME
Interest income in the second quarter of fiscal 1998 equaled $794,000, or a $27,000 decrease from the $821,000 in interest income
reported in the second quarter of fiscal 1997. Higher interest rates in fiscal 1998 somewhat offset lower available investment balances
and caused a quarter over quarter decrease in interest income. Interest income for the six-month period ended November 30, 1997
totaled $1,632,000 or a $18,000 decrease from the comparable prior year period. Slightly higher interest rates offset declining available
investment balances combined for the slight year over year decline in interest income. Interest income is forecast to decline over the
remainder of the fiscal year as the cost of expanded clinical trials and investments in a commercial facility will significantly lower
available investment balances. NET LOSS The net loss for the second quarter ended November 30, 1997 was $1,393,000, or $.10 per
share, compared to a net loss of $1,139,000, or $.08 per share, for the second quarter ended November 30, 1996. The increase in the
net loss per share is the result of the increase in the dollar net loss mitigated by an increase in shares outstanding. For the six-month
period ended November 30, 1997, Northfield reported a net loss of $2,723,000, or $.19 per share, compared to the comparable prior
year period results of a net loss of $2,109,000, or $.15 per share. Higher research and administrative expenses, partially offset by a
greater number of shares outstanding in fiscal 1998, caused the reported net loss and per share net loss to increase. LIQUIDITY AND
CAPITAL RESOURCES From its inception through November 30, 1997, the Company has expended cash in operating activities and
for the purchase of property, plant, equipment and engineering services in the amount of $56,947,000. For the three-month and
six-month periods ended November 30, 1997, these cash expenditures totaled $2,762,000 and $4,462,000, respectively. The second
quarter fiscal 1998 net cash outlay was high, compared to the first quarter expenditure of $1,700,000, due primarily to land acquisition
costs related to the Company's planned commercial-scale manufacturing facility. The Company has financed its research and
development and other activities to date through the sale of public and private securities and, to a more limited extent, through the license
of product rights. As of November 30, 1997, the Company had cash and marketable securities totaling $55,832,000. The Company
believes existing capital resources will be adequate to satisfy its operating capital requirements for approximately the next 18-24 months.
Thereafter, the Company may require substantial additional funds to test and seek regulatory approval for PolyHeme and to build a
commercial capability. The capital required to construct a commercial scale manufacturing facility is estimated to be $40-$45 million.
The Company may use existing resources to finance a commercial manufacturing facility or it may enter into collaborative arrangements
with strategic partners which could provide the Company with additional funding or absorb expenses otherwise payable by the Company.
The Company has engaged in discussions with a number of potential strategic partners, though these discussions are at preliminary stages
and there can be no assurance that any such arrangement will be consummated. The Company's capital requirements may vary
materially from those now anticipated because of the results of the clinical testing of PolyHeme, the establishment of relationships with
strategic partners, changes in the scale, timing or cost of the Company's commercial manufacturing facility, competitive and technological
advances, the FDA regulatory process, changes in the Company's marketing and distribution strategy, and other factors. |
