In early February, Organogenesis (Amex: ORG - news) received the backing of the FDA advisory panel for its skin replacement product ApliGraf.
Organogenesis' stock rose by $2.63 on the day of the news.
From 10Q:
The first commercial sales of Apligraf/TM/ began during the middle of the third quarter and are included in the third quarter results. Commercial revenue from
Apligraf/TM/ is currently limited to sales in Canada. In the Canadian launch, Novartis has implemented an education and training program building physician
awareness and experience as the first steps in creating a long term business base. We expect that this same educational marketing approach will be employed
in other territories. The Company expects production costs to exceed product sales for the near term due to the start-up expense and high costs associated
with low volume production.
The Company is dependent on its collaborative partner, Novartis, for the successful sale and marketing of Apligraf/TM/ worldwide. There can be no
assurance that Novartis will succeed with registrations and marketing of Apligraf/TM/ worldwide or that the Company will be able to meet the production
demand of worldwide product commercialization after marketing clearance has been received.
In August, 1997, the Company's surgical repair product, GRAFTPATCH/TM/ was cleared for marketing in the U.S. under the FDA's Section 510(k)
notification process. Marketing clearance has been granted for use in general surgical procedures for reinforcement of soft tissue, such as hernia repair. The
Company is currently researching the potential for this product in various indications; it is also evaluating alternative commercialization options, including
marketing the product on its own and/or seeking a collaboration with a third-party. In the event the Company markets GRAFTPATCH/TM/ directly,
additional funds would be required for manufacturing, distribution and selling efforts.
Results of Operations:
Revenues
Total revenues were $269,000 and $3,338,000 for the three and nine months ended September 30, 1997, compared to $2,784,000 and $7,296,000, for
the same periods in 1996. Research and development support revenues from Novartis was $2,500,000 for the nine months ended September 30, 1997,
compared to $2,500,000 and $6,500,000, for the three and nine months ended September 30, 1996. Other revenues increased to $144,000 and $444,000
for the three and nine months ended September 30, 1997, compared to $20,000 and $42,000, for the same periods in 1996, primarily due to Apligraf/TM/
sales to Novartis under the Collaborative Agreement, as well as other product sales. (See "Notes to Consolidated Financial Statements").
Interest income decreased to $125,000 and $394,000 for the three and nine months ended September 30, 1997, compared to $264,000 and $754,000, for
the same periods in 1996, primarily due to less cash being available for investment.
Costs and Expenses
Research and development expenses increased to $3,856,000 and $10,189,000 for the three and nine months ended September 30, 1997, compared to
$2,639,000 and $7,976,000, for the same periods in 1996, primarily due to personnel additions, expansion of facilities, and other activities supporting
Apligraf/TM/, the Company's lead product, and other research and development programs, including the Apligraf/TM/ diabetic ulcer pivotal trial and the
tissue filler and liver assist device research programs. These increased costs in 1997 include higher noncash depreciation charges related to new leasehold
improvements and equipment put into service during the second quarter of 1997.
General and administrative expenses decreased to $866,000 and $2,707,000 for the three and nine months ended September 30, 1997, compared to
$1,002,000 and $3,028,000, for the same periods in 1996. The decrease was primarily due to a reduction in the use of outside services and cost
containment, including legal, corporate insurance and other corporate costs. This decrease was partially offset by an increase in personnel costs, mostly due
to new employees to support the Company's programs.
Additionally, in May 1997, the Company incurred a one time, non-cash compensation charge of $5,555,000 relating to the extension of the term of a stock
option held by an officer of the Company.
As a result of the net effect described above, the Company incurred a net loss of $4,453,000, or $.24 per share, and $15,113,000, or $.84 per share, for
the three and nine months ended September 30, 1997, respectively, compared to a net loss of $857,000, or $.05 per share, and $3,708,000, or $.21 per
share, for the comparable 1996 periods. The Company expects to incur additional losses as its costs continue to increase due to factors described above.
Liquidity and Capital Resources:
At September 30, 1997, the Company had cash, cash equivalents and investments in the aggregate amount of $8,983,000 and working capital of
$8,580,000, compared to $14,440,000 and $11,256,000, respectively, at December 31, 1996. The primary use of cash during the nine months ended
September 30, 1997 related to financing the Company's operating activities of $11,109,000 and investing in plant expansion. Capital expenditures increased
to $826,000 for the nine months ended September 30, 1997, from $695,000 for the same period in 1996, primarily due to the build-out of the current
facilities to support Apligraf/TM/ manufacturing and the acquisition of laboratory equipment for expanded research and development programs. The
Company expects to continue to utilize funds at an increasing rate during 1997 related to the continued expansion of Apligraf/TM/ operations and to the
advancement of the Company's product pipeline. The Company is also exploring adding manufacturing capacity in the United States and Europe to support
the production of the Company's current and future products.
From inception, the Company has financed its operations substantially through private and public placements of equity securities, as well as receipt of
research support and contract revenues, interest income from investments and, to a lesser extent, sale of products and receipt of royalties. For the nine
months ended September 30, 1997, financing activities provided cash of approximately $6,478,000, primarily from the exercise of all outstanding Common
Stock Purchase Warrants issued during the July 1995 public offering and the exercise of stock options. Financing activities provided cash of $7,757,000 for
the nine months ended September 30, 1996, primarily from a $5,000,000 equity investment received under the collaborative agreement with Novartis (See
"Collaborative Agreement" under the Notes to Consolidated Financial Statements) and the exercise of warrants and stock options.
Novartis has agreed to provide the Company up to $37,500,000 in equity investments, research support and milestone payments (See "Collaborative
Agreement" under the Notes to Consolidated Financial Statements), of which $2,500,000 has been received in 1997 and $11,500,000 was received in
1996. The remaining payments will be received based upon achievement of specified events. |
