Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - NANOSPHERE INC | Financial_Report.xls |
EX-32.1 - EX-32.1 - NANOSPHERE INC | c18448exv32w1.htm |
EX-31.1 - EX-31.1 - NANOSPHERE INC | c18448exv31w1.htm |
EX-31.2 - EX-31.2 - NANOSPHERE INC | c18448exv31w2.htm |
EX-32.2 - EX-32.2 - NANOSPHERE INC | c18448exv32w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
o | 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 001-33775
Nanosphere, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 36-4339870 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
4088 Commercial Avenue | Northbrook, Illinois 60062 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (847) 400-9000
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
The number of outstanding shares of the registrants common stock, par value $0.01 per share,
as of August 4, 2011 was 44,123,506.
NANOSPHERE, INC.
INDEX
Table of Contents
PART I.
FINANCIAL INFORMATION
FINANCIAL INFORMATION
Item 1. | Financial Statements |
Nanosphere, Inc.
Balance Sheets
(dollars in thousands)
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 54,535 | $ | 39,628 | ||||
Accounts receivable |
322 | 198 | ||||||
Inventories |
1,737 | 2,428 | ||||||
Other current assets |
775 | 673 | ||||||
Total current assets |
57,369 | 42,927 | ||||||
PROPERTY AND EQUIPMENT Net |
5,165 | 5,142 | ||||||
INTANGIBLE ASSETS Net of accumulated amortization |
3,158 | 3,231 | ||||||
OTHER ASSETS |
75 | 75 | ||||||
TOTAL |
$ | 65,767 | $ | 51,375 | ||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 1,198 | $ | 3,352 | ||||
Accrued compensation |
582 | 794 | ||||||
Other current liabilities |
1,070 | 1,355 | ||||||
Total current liabilities |
2,850 | 5,501 | ||||||
LONG-TERM LIABILITIES: |
||||||||
Other noncurrent liabilities |
1,350 | 1,350 | ||||||
Total liabilities |
4,200 | 6,851 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
STOCKHOLDERS EQUITY: |
||||||||
Common stock, $0.01 par value; 100,000,000 shares authorized; 44,123,506 and
28,408,506 shares issued and outstanding as of June 30, 2011 and December 31,
2010, respectively |
441 | 284 | ||||||
Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued |
| | ||||||
Additional paid-in capital |
357,356 | 318,714 | ||||||
Warrants to acquire common stock |
992 | 5,424 | ||||||
Accumulated deficit |
(297,222 | ) | (279,898 | ) | ||||
Total stockholders equity |
61,567 | 44,524 | ||||||
TOTAL |
$ | 65,767 | $ | 51,375 | ||||
See notes to financial statements.
1
Table of Contents
Nanosphere, Inc.
Statements of Operations
(dollars and shares in thousands except per share data)
(Unaudited)
Three Month Periods Ended June 30, | Six Month Periods Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
REVENUE: |
||||||||||||||||
Grant and contract revenue |
$ | | $ | 198 | $ | 54 | $ | 578 | ||||||||
Product sales |
509 | 319 | 1,095 | 765 | ||||||||||||
Total revenue |
509 | 517 | 1,149 | 1,343 | ||||||||||||
COSTS AND EXPENSES: |
||||||||||||||||
Cost of sales |
374 | 439 | 865 | 1,164 | ||||||||||||
Research and development |
4,634 | 4,634 | 9,329 | 9,047 | ||||||||||||
Sales, general, and administrative |
3,940 | 9,133 | 8,290 | 13,237 | ||||||||||||
Total costs and expenses |
8,948 | 14,206 | 18,484 | 23,448 | ||||||||||||
Loss from operations |
(8,439 | ) | (13,689 | ) | (17,335 | ) | (22,105 | ) | ||||||||
OTHER INCOME (EXPENSE): |
||||||||||||||||
Foreign exchange gain (loss) |
(7 | ) | 8 | (11 | ) | 17 | ||||||||||
Interest expense |
| (98 | ) | | (261 | ) | ||||||||||
Interest income |
11 | 20 | 22 | 39 | ||||||||||||
Total other income (expense) |
4 | (70 | ) | 11 | (205 | ) | ||||||||||
NET LOSS |
$ | (8,435 | ) | $ | (13,759 | ) | $ | (17,324 | ) | $ | (22,310 | ) | ||||
Net loss per common share basic and diluted |
$ | (0.23 | ) | $ | (0.50 | ) | $ | (0.54 | ) | $ | (0.80 | ) | ||||
Weighted average number of common shares
outstanding basic and diluted |
36,205 | 27,755 | 32,005 | 27,754 |
See notes to financial statements.
2
Table of Contents
Nanosphere, Inc.
Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Six Month Periods Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (17,324 | ) | $ | (22,310 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
1,319 | 1,786 | ||||||
Amortization of financing costs and accretion of debt discount |
| 115 | ||||||
Share-based compensation |
2,189 | 2,879 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(124 | ) | 586 | |||||
Inventories |
(399 | ) | (1,544 | ) | ||||
Other current assets |
(102 | ) | (457 | ) | ||||
Accounts payable |
(2,184 | ) | (155 | ) | ||||
Accrued and other current liabilities |
(497 | ) | 3,290 | |||||
Net cash used in operating activities |
(17,122 | ) | (15,810 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Purchases of property and equipment |
(149 | ) | (352 | ) | ||||
Investments in intangible assets |
| (176 | ) | |||||
Net cash used in investing activities |
(149 | ) | (528 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Repayment of long term debt |
| (2,638 | ) | |||||
Proceeds from stock offering |
32,178 | | ||||||
Proceeds from stock option exercises |
| 26 | ||||||
Net cash provided by (used in) financing activities |
32,178 | (2,612 | ) | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
14,907 | (18,950 | ) | |||||
CASH AND CASH EQUIVALENTS Beginning of period |
39,628 | 76,689 | ||||||
CASH AND CASH EQUIVALENTS End of period |
$ | 54,535 | $ | 57,739 | ||||
NONCASH INVESTING AND FINANCING ACTIVITIES: |
||||||||
License costs capitalized and included in other current liabilities |
$ | | $ | 76 | ||||
Reclassification of inventory to property and equipment |
1,090 | 1,095 |
See notes to financial statements.
3
Table of Contents
Nanosphere, Inc.
Notes to Financial Statements
As of June 30, 2011 and
For the Three and Six Month Periods Ended June 30, 2011 and 2010
(Unaudited)
1. Description of Business
Nanosphere, Inc. (the Company) develops, manufactures and markets an advanced molecular
diagnostics platform, the Verigene System, that enables simple, low cost, and highly sensitive
genomic and protein testing on a single platform.
Basis of Presentation The accompanying unaudited condensed financial statements of the
Company have been prepared in accordance with accounting principles generally accepted in the
United States of America and in conformity with Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. However, in the opinion
of management, all adjustments, consisting only of normal recurring adjustments, unless otherwise
noted herein, necessary to present fairly the results of operations, financial position and cash
flows have been made. Therefore, these financial statements should be read in conjunction with the
Companys most recent audited financial statements for the year ended December 31, 2010 and notes
thereto included in the Companys Annual Report on Form 10-K. The results of operations for any
interim period are not necessarily indicative of the results of operations expected for the full
year.
The accompanying financial statements have been prepared on a going-concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in the normal course of
business.
Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and the notes thereto.
The Companys significant estimates included in the preparation of the financial statements are
related to inventories, property and equipment, intangible assets, service revenue and share-based
compensation. Actual results could differ from those estimates.
2. Liquidity and Capital Resources
As of June 30, 2011, the Company has incurred net losses attributable to common stock of
$297.2 million since inception, and has funded those losses primarily through the sale and issuance
of equity securities and secondarily through the issuance of debt. In May 2011, the Company
completed an underwritten public offering (the Offering) of 15,686,000 shares of its common
stock. The Company received net proceeds from the Offering of approximately $32.2 million after
deducting underwriting discounts and commissions and offering expenses.
While the Company is no longer in the development stage and the focus of the Companys
business activities has turned towards commercialization of its products, because of the numerous
risks and uncertainties associated with its product development and commercialization efforts, the
Company is unable to predict when it will become profitable, and the Company may never become
profitable. While the Company anticipates that capital resources will be sufficient to meet
estimated needs for approximately two years, the Company operates in a market that makes its
prospects difficult to evaluate, and the Company may need additional financing in less than two
years to execute on its current or future business strategies. Capital outlays and operating
expenditures may increase over the next few years as the Company expands its infrastructure,
commercialization, manufacturing, and research and development activities.
3. Net Loss Per Common Share
Basic and diluted net loss per common share have been calculated in accordance with Accounting
Standards Codification (ASC) Topic 260, Earnings Per Share, for the three and six month periods
ended June 30, 2011 and 2010. As the Company had a net loss in each of the periods presented, basic
and diluted net loss per common share are the same.
The computation of basic net loss per common share for the three and six month periods ended
June 30, 2011 and 2010 excluded 679,000 and 650,000 shares of restricted stock, respectively (see
Note 6). While these restricted shares of stock are included in outstanding shares on the balance
sheet, these restricted shares are excluded from basic net loss per common share in accordance with
ASC Topic 260 due to the forfeiture provisions associated with these shares.
4
Table of Contents
Nanosphere, Inc.
Notes to Financial Statements (Continued)
(Unaudited)
(Unaudited)
The computations of diluted net loss per common share for the three and six month periods
ended June 30, 2011 and 2010 did not include the outstanding shares of restricted stock as well as
the effects of the following options to acquire common stock and common stock warrants as the
inclusion of these securities would have been antidilutive:
Three and Six Month Periods Ended June 30, | ||||||||
2011 | 2010 | |||||||
Restricted stock |
679,000 | 650,000 | ||||||
Stock options |
4,281,685 | 4,236,272 | ||||||
Common stock warrants |
164,925 | 1,300,119 | ||||||
5,125,610 | 6,186,391 | |||||||
4. Intangible Assets
Intangible assets, consisting of purchased intellectual property, as of June 30, 2011 and
December 31, 2010 comprise the following (in thousands):
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Cost | Amortization | Net | Cost | Amortization | Net | |||||||||||||||||||
Intellectual property licenses |
$ | 4,036 | $ | (1,290 | ) | $ | 2,746 | $ | 4,036 | $ | (1,241 | ) | $ | 2,795 | ||||||||||
Patents |
455 | (43 | ) | $ | 412 | 455 | (19 | ) | $ | 436 | ||||||||||||||
$ | 4,491 | $ | (1,333 | ) | $ | 3,158 | $ | 4,491 | $ | (1,260 | ) | $ | 3,231 | |||||||||||
Amortization expense for intangible assets was less than $0.1 million for the three and six
month periods ended June 30, 2011 and was $0.2 million and $0.3 million for the three and six month
periods ended June 30, 2010, respectively. Estimated future amortization expense is as follows:
Years Ending December 31 | ||||
2011 (Period from July 1 to December 31) |
$ | 87 | ||
2012 |
176 | |||
2013 |
176 | |||
2014 |
176 | |||
2015 |
171 | |||
Thereafter |
522 |
Licenses are amortized from the date of the U.S. Food and Drug Administration (the FDA)
clearance of products associated with the licensed technology and such amortization continues over
the remaining life of the license. The future amortization expense reflected above is based on
licenses related to products cleared by the FDA as of June 30, 2011. The amortization period
related to $1.8 million of licenses is not known as the diagnostic test products associated with
the licensed technology have not been cleared by the FDA and, accordingly, amortization has not
begun and no expense associated with the licenses is included in the table above.
5. Related Party Transactions
Dr. Chad Mirkin, a co-founder of the Company, provides contracted research and development
services to the Company and is reimbursed for these services based upon negotiated contract rates.
The Company incurred expenses of less than $0.1 million for these services in each of the three and
six month periods ended June 30, 2011 and 2010.
6. Equity Incentive Plan
The Companys board of directors has adopted and the shareholders have approved the Nanosphere
2000 Equity Incentive Plan (the 2000 Plan) and the Nanosphere 2007 Long-Term Incentive Plan (the
2007 Plan). The plans authorize the compensation committee to grant stock options, share
appreciation rights, restricted shares, restricted share units, unrestricted shares, incentive
stock options, deferred share units and performance awards. Option awards are generally granted
with an exercise price equal to or above the fair
value of the Companys common stock at the date of grant with ten year contractual terms.
Some options vest ratably over four years of service, others vest ratably over three years of
service, while other options cliff vest after seven years of service but provide for accelerated
vesting contingent upon the achievement of various company-wide performance goals, such as
decreasing time to market for new products and entering into corporate collaborations (as defined
in the option grant agreements). For these accelerated vesting options, 20-25% of the granted
option shares will vest upon the achievement of each of four or five milestones as defined in the
option grant agreements, with any remaining unvested options vesting on the seven year anniversary
of the option grant dates. Approximately 44% of the options granted and outstanding contain
accelerated vesting provisions.
5
Table of Contents
Nanosphere, Inc.
Notes to Financial Statements (Continued)
(Unaudited)
(Unaudited)
The fair values of the Companys option awards granted during the six month period ended June
30, 2011 were estimated at the date of grant using the Black-Scholes option pricing model with the
following assumptions:
Expected dividend yield |
0 | % | ||
Expected volatility |
91 | % | ||
Risk free interest rate |
2.11 | % | ||
Weighted-average expected option life |
6.0 years | |||
Estimated weighted-average fair value
on the date of grant based on the above assumptions |
$ | 1.91 | ||
Estimated forfeiture rate for unvested options |
1.1 | % |
The expected volatility for option awards granted in 2011 was based on the Companys actual
historical volatility. The risk-free rate is based on the U.S. Treasury yield curve in effect at
the time of the grants for periods consistent with the expected life of the option. The expected
life of options that vest ratably over four years of service is derived from the average of the
vesting period and the term of the option as defined in the Plans, following the guidance in
Securities and Exchange Commission (SEC) Staff Accounting Bulletin Nos. 107 and 110. The Company
estimates the expected life of options with accelerated vesting terms giving consideration to the
dates that the Company expects to achieve key milestones under the option agreements and the term
of the option. Total compensation cost recognized was $0.7 million and $1.4 million in the three
and six month periods ended June 30, 2011, respectively, and $1.0 million and $2.2 million for the
three and six month periods ended June 30, 2010, respectively.
As of June 30, 2011, the total compensation cost not yet recognized related to the nonvested
awards is approximately $4.3 million, which amount is expected
to be recognized over the next two years, which is a weighted average term. Certain milestone events are deemed probable of
achievement prior to their seven year vesting term, and the acceleration of vesting resulting from
the achievement of such milestone events has been factored into the weighted average vesting term.
While the Company does not have a formally established policy, as a practice the Company has
delivered newly issued shares of its common stock upon the exercise of stock options.
A
summary of option activity under the plans as of June 30, 2011,
and for the six month period
then ended is presented below:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of | Exercise | Contractual | Intrinsic | |||||||||||||
Options | Shares | Price | Term | Value of Options | ||||||||||||
Outstanding January 1, 2011 |
4,208,830 | $ | 5.60 | |||||||||||||
Granted |
233,240 | $ | 4.50 | |||||||||||||
Expired |
(73,865 | ) | $ | 8.48 | ||||||||||||
Forfeited |
(86,520 | ) | $ | 5.10 | ||||||||||||
Outstanding June 30, 2011 |
4,281,685 | $ | 5.50 | 6.69 | $ | | ||||||||||
Exercisable June 30, 2011 |
2,292,603 | $ | 5.54 | 5.98 | $ | | ||||||||||
Vested and Expected to Vest June 30, 2011 |
4,190,187 | $ | 5.50 | 6.67 | $ | | ||||||||||
The intrinsic value of options exercised during the six month period ended June 30, 2010 was
insignificant. There were no options exercised in the six month period ended June 30, 2011.
Included in the number of options outstanding at June 30, 2011 are 1,863,136 options with a
weighted average exercise price of $5.28 per share and accelerated vesting provisions based on the
criteria mentioned above. The total fair value of shares vested during the three and six month
periods ended June 30, 2011 was $0.6 million and $2.0 million, respectively, and was $1.1 million
and $1.6 million for the three and six month periods ended June 30, 2010 respectively. During the
six month period ended June 30, 2011, the
Company achieved an accelerated vesting milestone for the FDA 510(k) clearance of the Verigene
Respiratory Virus Plus Nucleic Acid Test (RV+) on its second generation Verigene System processor
that incorporates sample preparation.
6
Table of Contents
Nanosphere, Inc.
Notes to Financial Statements (Continued)
(Unaudited)
(Unaudited)
As of January 1, 2011, there were 650,000 shares of restricted stock outstanding under the
2007 Plan, and the Company granted 29,000 shares of restricted stock during the six month period
ended June 30, 2011. The restricted shares vest 50% on the two-year anniversary of the grant date
and are subject to forfeiture until vested and vest 50% on the four-year anniversary of the grant
date and are subject to forfeiture until vested. No shares were forfeited or vested during six
month period ended June 30, 2011. The Company recognized $0.4 million and $0.8 million in
restricted stock compensation expense during the three and six month periods ended June 30, 2011,
respectively, and $0.3 million and $0.7 million during the three and six month periods ended June
30, 2010, respectively. As of June 30, 2011, the total compensation cost not yet recognized related
to the nonvested restricted stock awards was approximately $1.8 million, which amount is expected
to be recognized over the next two years, which is a weighted average term.
7. License Agreements
The Company has entered into several nonexclusive license agreements with various companies
covering certain technologies which are embedded in the Companys diagnostic instruments and
diagnostic test products. As of June 30, 2011, the Company has paid aggregate initial license fees
of $2.8 million for these licenses, and has agreed to pay a percentage of net sales as royalties,
in percentage amounts ranging from less than 1.0% to 12.0%. These initial license fees were
capitalized as intangible assets (see Note 4). Certain of the license agreements have minimum
annual royalty payments, and such minimum payments are $0.2 million in each of the fiscal years
2011, 2012, 2013, 2014 and 2015 and are approximately $0.1 million annually thereafter through the
dates the respective licenses terminate. These licenses expire at various times, corresponding to
the subject patents expirations, which currently range from 2012 to 2027.
8. Stockholders Equity
In connection with the closing of the Companys initial public offering in 2007, certain
convertible preferred stock warrants were, in accordance with their terms, converted into warrants
to acquire shares of common stock. Upon this conversion in 2007, a $5.4 million preferred stock
warrant liability was reclassified to Warrants to acquire common stock on the Balance Sheet.
As of December 31, 2010, there were outstanding warrants to acquire 1,300,119 shares of common
stock. On April 12, 2011, 1,135,194 warrants with an exercise price of $17.50 expired unexercised.
As a result of this expiration, the Company reclassified $4.4 million from Warrants to acquire
common stock to Additional paid-in capital on the Balance Sheet.
As of June 30, 2011, the outstanding warrants to acquire 164,925 shares of common stock have
an exercise price of $8.75 and an expiration date of April 2013.
9. Commitments and Contingencies
Rent and operating expenses associated with the office and laboratory space were $0.2 million
and $0.4 million for the three and six month periods ended June 30, 2011, respectively, and $0.2
million and $0.3 million for the three and six month periods ended June 30, 2010, respectively.
Annual future minimum obligations for the operating leases as of June 30, 2011, are as follows
(in thousands):
Operating | ||||
Years Ending December 31 | Lease | |||
2011 (Period from July 1 to December 31) |
$ | 216 | ||
2012 |
439 | |||
2013 |
451 | |||
2014 |
190 | |||
Total minimum lease payments |
$ | 1,296 | ||
10. Long-Term Debt
In February 2007, the Company entered into two loan and security agreements, with commitments
for debt financing with Venture Lending & Leasing IV, Inc., and Venture Lending & Leasing V, Inc.
The Company borrowed $12.5 million under these agreements in February 2007. Interest rates under
the agreements were 12.5% for the initial twelve month period and 10.0% during the following thirty
month period. This debt was satisfied at maturity in August 2010. For the three and six month
period ended June 30, 2010,
interest expense was $0.1 million and $0.2 million, respectively, and cash interest payments
were $0.1 million and $0.2 million, respectively.
7
Table of Contents
Nanosphere, Inc.
Notes to Financial Statements (Continued)
(Unaudited)
(Unaudited)
11. Supplemental Financial Information
June 30, 2011 | December 31, 2010 | |||||||
(in thousands) | ||||||||
Inventories: |
||||||||
Raw materials |
$ | 751 | $ | 760 | ||||
Work-in-process |
| 69 | ||||||
Finished goods |
986 | 1,599 | ||||||
Total |
$ | 1,737 | $ | 2,428 | ||||
June 30, 2011 | December 31, 2010 | |||||||
(in thousands) | ||||||||
Property and Equipment Net: |
||||||||
Total property and equipment at cost |
$ | 19,001 | $ | 17,759 | ||||
Less accumulated depreciation |
(13,836 | ) | (12,617 | ) | ||||
Property and equipment net |
$ | 5,165 | $ | 5,142 | ||||
June 30, 2011 | December 31, 2010 | |||||||
(in thousands) | ||||||||
Other Current Liabilities: |
||||||||
Accrued clinical trial expenses |
$ | 354 | $ | 603 | ||||
All other |
716 | 752 | ||||||
Total |
$ | 1,070 | $ | 1,355 | ||||
8
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
about us and our industry that involve substantial risks and uncertainties. We intend such
forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements, other than statements of historical facts, included in this
Quarterly Report on Form 10-Q regarding our strategy, future operations, future financial position,
future net sales, projected expenses, prospects and plans and objectives of management are
forward-looking statements. These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of activity, performance or achievement to
be materially different from those expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as anticipate,
believe, estimate, expect, intend, may, might, plan, project, will, would,
should, could, can, predict, potential, continue, objective, or the negative of these
terms, and similar expressions intended to identify forward-looking statements. However, not all
forward-looking statements contain these identifying words. These forward-looking statements
reflect our current views about future events and are based on assumptions and subject to risks and
uncertainties. Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Actual events or results could differ materially from those expressed
or implied by these forward-looking statements as a result of various factors.
These forward-looking statements represent our estimates and assumptions only as of the date
of this Quarterly Report on Form 10-Q. Unless required by U.S. federal securities laws, we do not
intend to update any of these forward-looking statements to reflect circumstances or events that
occur after any statement is made or to conform these statements to actual results. The following
discussion should be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of various
factors, including those set forth under Item 1A. Risk Factors in our Annual Report on Form
10-K for the year ended December 31, 2010 and elsewhere in this Quarterly Report on Form 10-Q.
Business Overview
We develop, manufacture and market an advanced molecular diagnostics platform, the Verigene
System, that enables simple, low cost and highly sensitive genomic and protein testing on a single
platform. Our proprietary nanoparticle technology provides the ability to run multiple tests
simultaneously on the same sample. The Verigene System includes a bench-top molecular diagnostics
workstation that is a universal platform for genomic and protein testing. While many systems
currently available on the market provide a diagnostic result for one test or a few tests within a
specific market niche, the Verigene System provides for multiple tests to be performed on a single
platform, including both genomic and protein assays, from a single sample.
The Verigene System is differentiated by its ease of use, rapid turnaround times and ability
to detect many targets on a single test, referred to as multiplexing. It provides lower cost for
laboratories already performing molecular diagnostic testing and enables smaller laboratories and
hospitals without advanced diagnostic capabilities to perform genetic testing. Our ability to
detect proteins, which can be as much as 100 times more sensitive than current technologies for
certain targets, may enable earlier detection of and intervention in diseases associated with known
biomarkers as well as the introduction of tests for new biomarkers that exist in concentrations too
low to be detected by current technologies. We are focused on the clinical diagnostics market.
Our test menu is designed to fulfill the following unmet hospital laboratory needs:
1) | the conversion of microbiology to molecular methods to more rapidly pinpoint infectious diseases; | ||
2) | point-of-care pharmacogenetics to ensure that appropriate therapies are prescribed; and | ||
3) | earlier detection of life threatening disease through ultra-sensitive protein assays. |
The Verigene System is comprised of a microfluidics processor, a touchscreen reader and
disposable test cartridges. Certain assays, such as the Warfarin metabolism and hyper-coagulation
tests, were cleared by the U.S. Food and Drug Administration (FDA) for use with the original
Verigene System processor (the Original Processor). Subsequently, we developed and launched a
second generation Verigene System processor (the Processor SP) that handles the same processing
steps as the Original Processor and incorporates sample preparation. Some of our current customers
continue to use the Original Processor for hyper-coagulation testing
and Warfarin metabolism testing. Our development plans are focused on expanding the menu of
tests that will run on the Processor SP, and all future assays are expected to be submitted to the
FDA on the Processor SP.
9
Table of Contents
Our Applications
The following table summarizes the FDA and CE In-Vitro Diagnostic Mark (CE IVD Mark)
regulatory status of our near-term genomic and protein assays on the Verigene System:
Assay | FDA Status(1) | CE IVD Mark Status(2) | ||
Infectious Disease Assays |
||||
Respiratory Virus
|
510(k) cleared | |||
Respiratory Virus with Sub-Typing
|
510(k) cleared | CE IVD Marked | ||
Blood Infection Panels
|
In development | In development | ||
C. difficile
|
In development | In development | ||
Enteric Panel
|
In development | In development | ||
Human and Pharmacogenetic Assays |
||||
Warfarin Metabolism
|
510(k) cleared(3) | CE IVD Marked | ||
Hyper-Coagulation
|
510(k) cleared(3) | Pending | ||
Plavix® Metabolism (2C19)
|
Re-submission of PMA pending | CE IVD Marked | ||
Ultra-Sensitive Protein Assays |
||||
Cardiac Troponin I
|
In development | In development | ||
Prostate-Specific Antigen (PSA)
|
Research use only |
(1) | For further description of our FDA regulatory requirements, please refer to the section Regulation by the United States Food and Drug Administrationbeginning on page 9 of our Annual Report on Form 10-K for the year ended December 31, 2010. | |
(2) | For further description of our CE IVD Mark regulatory requirements, please refer to the section Foreign Government Regulation beginning on page 12 of our Annual Report on Form 10-K for the year ended December 31, 2010. | |
(3) | Currently cleared only for use with the Original Processor. |
Infectious Disease Assays
The conversion of microbiology to molecular methods is driven by the need to identify
infectious diseases more quickly, allowing a more rapid commencement of clinical intervention.
Microbiology labs need tests that can rapidly detect a wide range of potential infectious agents in
an automated system. The Verigene System provides the multiplexing, rapid turnaround and
ease-of-use needed by these labs. Our infectious disease menu and the Processor SP provide
microbiology labs with a compelling solution for conversion to molecular testing.
We have received 510(k) clearance from the FDA for our respiratory panel that detects the
presence of influenza A and B as well as respiratory syncytial virus (RSV) A and B. Influenza is
commonly known as the seasonal flu and RSV is a respiratory virus that infects the lungs and
breathing passages. RSV is the most common cause of bronchitis and pneumonia in children under the
age of one year and has become a significant concern for older adults. Our respiratory panel
provides physicians with a highly accurate and fast determination of which virus is present. This
test result guides the most appropriate treatment therapy.
10
Table of Contents
In the fourth quarter of 2009, we received 510(k) clearance from the FDA for our respiratory
panel on the Processor SP. We believe that our respiratory assay on the Processor SP offers a
simple-to-use molecular test for diagnosing respiratory infections and the flu, while providing
improved sensitivity over currently available rapid tests. We have received clearance for a package
insert change for this assay confirming that the novel H1N1 virus is detected as a positive
Influenza A when using our respiratory assay and the Processor SP.
In the first quarter of 2011, we received 510(k) clearance from the FDA and CE IVD Mark for
our respiratory assay that includes subtyping for seasonal H1 virus, seasonal H3 virus, and the
2009 novel H1N1 virus, commonly known as swine flu, as well as the targets on our previously
cleared respiratory assay. We believe this is the first sample-to-result molecular respiratory test
to include all of these viruses, thus lowering the cost of molecular respiratory testing for
hospitals and demonstrating the multiplexing capability of the Verigene System. The demand for this
test will be highly dependent upon the seasonality and prevalence of respiratory viruses.
We are developing three blood stream infection panels for the earlier detection of specific
bacteria present within patients with blood stream infections. Currently under development are gram
positive, gram negative and fungal panels. These assays are designed to enable physicians to
pinpoint bacterial strains infecting patients and thus prescribe the most appropriate antibiotic
regimen within 24 hours rather than after several days. Treatment is sometimes begun before assays
are complete and we believe that this early detection capability will allow patients to avoid
unnecessary treatments that may expose them to serious side effects. These assays will require
regulatory submission to the FDA along with corresponding CE mark filings.
Our development efforts also include a C. difficile test and an enteric bacteria test. C.
difficile is a bacterium that can cause symptoms ranging from diarrhea to life-threatening
inflammation of the colon. Our enteric bacteria assay is being developed to detect and identify the
Enterobacteriaceae species that most often result from food poisoning. The enteric assay tests for
a wide spectrum of bacteria that are treated with various antibiotics and other anti-bacterial drug
therapies. These assays also will require regulatory submission to the FDA and corresponding
foreign regulatory bodies.
Human and Pharmacogenetic Assays
Hospitals need faster, less expensive and easier-to-use human and pharmacogenetic tests that
can be run for a single patient at the point-of-care. Our Verigene System and human and
pharmacogenetic test menu addresses these hospital needs. Pharmacogenomics is an emerging subset of
human genetic testing that correlates gene variation with a drugs efficacy or toxicity. These
tests play a key role in the advancement of personalized medicine where drug therapies and dosing
are guided by each patients genetic makeup. There is a growing demand on laboratories to implement
molecular diagnostic testing, but the cost and complexity of existing technologies and the need for
specialized personnel and facilities have limited the number of laboratories with these
capabilities. The ease-of-use and reduced complexity of the Verigene System enables any hospital to
perform these testing needs.
We have received 510(k) clearance from the FDA for a warfarin metabolism assay performed on
our Original Processor. This is a pharmacogenetic test to determine the existence of certain
genetic mutations that affect the metabolism of warfarin-based drugs, including
Coumadin®, the most-prescribed oral anticoagulant. This assay has been CE IVD
Marked during the first quarter of 2011, and we plan to submit an FDA application for this assay to
allow its use on the Processor SP.
In the third quarter of 2010, we filed a pre-market approval application (PMA) with the FDA
for our cytochrome P-450 2C19 assay that detects genetic mutations associated with deficient
metabolism of clopidogrel, more commonly known by the trade name Plavix. On June 9, 2011, we
received a not approvable letter from the FDA with respect to our PMA submission in which the FDA
stated that it will not approve the Plavix metabolism test for commercial use in the United States
until the PMA is amended. The FDA cited several deficiencies in our submission that necessitate we
perform additional analytical studies. Accordingly, we are working closely with the FDA staff to
ensure that the additional studies we intend to conduct are adequate to address the deficiencies
outlined by the FDA and we intend to submit such additional information in support of an amendment
to our PMA by the end of 2011. Clopidogrel inhibits platelet function and is a standard treatment
to reduce the risk of thrombolytic events for patients undergoing percutaneous coronary
interventions. Clopidogrel metabolism is affected by the cytochrome P-450 family of genes. Up to
50% of the population possess variations in these genes and abnormally metabolize this drug, thus
increasing the risk of adverse events. Our 2C19 assay is designed to identify patients possessing
certain of these variations so that alternative therapeutic approaches can be prescribed to reduce
clotting that can result in heart attack or stroke. This assay was CE IVD Marked during the first
quarter of 2011.
We have also received 510(k) clearance from the FDA for a hyper-coagulation assay on the
Original Processor that determines an individuals risk, based upon genetic information, for the
development of blood clots that can lead to pulmonary embolism and deep vein thrombosis. We plan to
submit an additional FDA application and file for CE IVD Mark to allow its use on the Processor SP.
11
Table of Contents
Ultra-Sensitive Protein Assays
Our ability to detect proteins at sensitivity levels that can be up to 100 times greater than
current technologies may enable earlier detection of and intervention in diseases as well as enable
the introduction of tests for new biomarkers that exist in concentrations too low to be detected by
current technologies. We have developed or are currently developing diagnostic tests for markers
that reveal the existence of a variety of medical conditions including cardiovascular, respiratory,
cancer, autoimmune, neurodegenerative and other diseases.
The first ultra-sensitive protein test we plan to commercialize is for cardiac troponin I
(cTnI), which is the gold standard biomarker for diagnosis of myocardial infarction, or heart
attack, and identification of patients with acute coronary syndromes at risk for subsequent
cardiovascular events. We previously submitted a 510(k) application to the FDA to obtain clearance
for the cardiac troponin assay on the Original Processor. We have withdrawn this application and
plan to submit a new 510(k) application to obtain clearance for this assay on the Processor SP. We
plan to use patient samples from our FAST-TRAC clinical trial to run the clinical trials in support
of our new 510(k) submission. The FAST-TRAC clinical study is designed to further demonstrate the
clinical utility of ultra-sensitive cTnI measurements as a diagnostic tool for use in the
management of both acute and chronic cardiac disease.
In addition to the cardiac troponin I assay, we are developing an ultra-sensitive
prostate-specific antigen (PSA) test for early diagnosis of recurrent prostate cancer. Early
testing data suggest this assay may serve as a more specific test for PSA screening. We are also
working on a multiplexed protein-based connective-tissue panel for the detection of rheumatoid
arthritis, lupus and other related diseases. Finally, we are investigating new biomarkers where our
ultra-sensitive protein detection technology may enable earlier detection of a broad range of
diseases, such as cancer.
Financial Operations Overview
Since inception we have incurred net losses each year, and we expect to continue to incur
losses for the foreseeable future. Our net loss was $17.3 million for the six month period ended
June 30, 2011. As of June 30, 2011, we had an accumulated deficit of approximately $297.2 million.
Our operations to date have been funded principally through capital contributions from investors in
three underwritten public offerings of common stock, and prior thereto in private placements of our
convertible preferred stock, which was converted to common stock in 2007, and our debt borrowings.
Revenue
Product sales revenue is derived from the sale or lease of the Verigene System, including
consumables and related products sold to research laboratories and hospitals. Grant and contract
revenue consists of funds received under contracts and government grants, including funds for the
reimbursement of certain research and development expenses. Our market efforts are primarily
focused on driving product sales rather than grants and contracts. However, the Company recently
completed development of certain custom pharmacogenetic assays to be used in conjunction with the
clinical trials associated with new therapeutic drugs for a major pharmaceutical company. We will
continue to be opportunistic with regard to future contract and grant opportunities.
Cost of Sales
Cost of sales represents the cost of materials, direct labor and other manufacturing overhead
costs incurred to produce Verigene cartridges and instruments, as well as royalties on product
sales, amortization of purchased intellectual property relevant to products available for sale and
depreciation of instrument leases and rentals. Labor, validation and testing associated with our
custom assay development contracts is also included in cost of sales.
Research and Development Expenses
Research and development expenses primarily include all costs incurred during the development
of the Verigene System and assays, and the expenses associated with fulfilling our development
obligations related to the United States government contracts and grants. Such expenses include
salaries and benefits for research and development personnel, consulting services, materials,
patent-related costs and other expenses. We expense all research and development costs in the
periods in which they are incurred. We expect research and development expenses to grow modestly as
we continue to develop future generations of the Verigene System, and additional genomic and
protein tests.
12
Table of Contents
Sales, General and Administrative Expenses
Sales, general and administrative expenses principally include compensation for employees in
our sales, customer service, marketing, management and administrative functions. We also include
professional services, facilities, technology, communications and administrative expenses in sales,
general and administrative. The professional services costs primarily consist of legal and
accounting costs. We expect sales and marketing expenses will increase as additional sales and
customer support are needed to drive and support customer growth.
Interest Income
Interest income principally includes interest earned on our excess cash balances. Such
balances are primarily invested in money market and bank checking accounts at major financial
institutions. We anticipate that interest income will continue to decline as capital reserves are
consumed by operating losses and working capital. Recent declines in interest rates will also
contribute to reduced interest income for the foreseeable future.
Interest Expense
Interest expense includes the interest charges related to our debt, including non-cash
interest expense relating to the amortization of debt discount and issue costs.
Three month Period Ended June 30, 2011 Compared to the Three month Period Ended June 30, 2010
Revenues
Revenues were $0.5 million for the three month periods ended June 30, 2011 and 2010. Product
sales increased from $0.3 million for the second quarter of 2010 to $0.5 million for the second
quarter of 2011 due to sales of the respiratory virus with sub-typing assay. This test received FDA
510(k) clearance during the first quarter of 2011. Grant and contract revenue decreased from $0.2
million for the second quarter of 2010 to $0 for the second quarter of 2011 due to the substantial
completion of an assay development contract with a major pharmaceutical company during 2010.
Cost of Sales
Cost of sales remained consistent at $0.4 million for the three month periods ended June 30,
2011 and 2010.
Research and Development Expenses
Research and development expenses remained consistent at $4.6 million for the three month
periods ended June 30, 2011 and 2010.
Sales, General and Administrative Expenses
Sales, general and administrative expenses decreased from $9.1 million for the second quarter
of 2010 to $3.9 million for the second quarter of 2011. The second quarter of 2010 included accrued
legal settlement expenses of $3.5 million and $1.5 million in litigation defense expenses for the
patent litigation dispute with Eppendorf AG that was settled during August 2010.
Interest Expense
Interest expense was $0 for the three month period ended June 30, 2011, as compared to $0.1
million for the three months ended June 30, 2010. The debt financing with Venture Lending &
Leasing IV, Inc., and Venture Lending & Leasing V, Inc. matured August 2010.
13
Table of Contents
Six month Period Ended June 30, 2010 Compared to the Six month Period Ended June 30, 2009
Revenues
Revenues were $1.1 million for the six month period ended June 30, 2011, as compared to $1.3
million for the six month period ended June 30, 2010. Product sales increased from $0.7 million for
the six month period ended June 30, 2010 to $1.1 million for the same period in 2011 due to sales
of the respiratory virus with sub-typing assay, as previously discussed. Service revenue decreased
from $0.6 million for the six month period ended June 30, 2010 to $0.1 million for the same period
in 2011 due to the substantial completion of an assay development contract with a major
pharmaceutical company during 2010.
Cost of Sales
Cost of sales was $0.9 million for the six month period ended June 30, 2011 and $1.2 million
for the six month period ended June 30, 2010. The $0.3 million decrease in cost of sales for the
six month period ended June 30, 2011 resulted from the costs associated with assay development
revenue from our commercial contracts and from the fixed amortization of license fees, partially
offset by the increase in product sales.
Research and Development Expenses
Research and development expenses increased slightly from $9.0 million for the six month
period ended June 30, 2010 to $9.3 million for the six month period ended June 30, 2011. The $0.3
million increase in research and development expenses for the six month period ended June 30, 2011
resulted primarily from an increase in clinical trial expenses.
Sales, General and Administrative Expenses
Sales, general and administrative expenses decreased from $13.2 million for the six month
period ended June 30, 2010 to $8.3 million for the six month period ended June 30, 2011. As
previously discussed, the six months ended June 30, 2010 included accrued legal settlement expenses
of $3.5 million and $1.5 million in litigation defense expenses for the patent litigation dispute
with Eppendorf AG that was settled during August 2010.
Interest Expense
Interest expense was $0 for the six month period ended June 30, 2011, as compared to $0.3
million for the six month period ended June 30, 2010. The debt financing with Venture Lending &
Leasing IV, Inc., and Venture Lending & Leasing V, Inc. matured August 2010.
Liquidity and Capital Resources
From our inception in December 1999 through June 30, 2011, we have received net proceeds of
$103.9 million from the sale of convertible preferred stock and issuance of notes payable that were
exchanged for convertible preferred stock, $102.2 million from our November 2007 initial public
offering, $35.4 million from our October 2009 underwritten public offering, $32.2 million from our
May 2011 underwritten public offering (the May 2011 Offering) and $10.3 million from government
grants. We have devoted substantially all of these funds to research and development and sales,
general and administrative expenses. Since our inception, we have generated minimal revenues from
the sale of the Verigene System, including consumables and related products, to our initial
clinical customers, research laboratories and government agencies. We also incurred significant
losses and, as of June 30, 2011, we had an accumulated deficit of approximately $297.2 million.
While we are currently in the commercialization stage of operations, we have not yet achieved
profitability and anticipate that we will continue to incur net losses in the foreseeable future.
Because we recently began to commercialize our products, we do not anticipate achieving
positive operating cash flow in the next three years. During this period we expect to increase
investment in additional manufacturing scale-up, research and development to expand our assay menu
and to develop a fully automated instrument with increased throughput, and in adding to sales and
marketing personnel. Achievement of positive cash flow from operations will depend upon revenue
resulting from adoption of both our current products and future products that depend upon
regulatory clearance. Demand for our respiratory products is directly proportional to the size and
duration of the annual season for influenza and other respiratory illnesses. Any unanticipated
acceleration or deceleration of customer demand for our products relative to projections will have
a material effect on our cash flows. While the Company anticipates that capital resources will be
sufficient to meet estimated needs for approximately two years, the Company operates in a
market that makes its prospects difficult to evaluate, and the Company may need additional
financing in less than two years to execute on its current or future business strategies.
14
Table of Contents
A customer may purchase the Verigene System instruments or lease them from a third party or
enter into a reagent rental agreement. Our reagent rental agreements include customer commitments
to purchase a certain minimum volume of cartridges over the term of the agreement. As part of these
agreements, a portion of the charge for each cartridge is a rental fee for use of the equipment. To
date, our aggregate investment in systems rented to customers has not been material. However, we
may need to increase our investment in such systems to support future product placements under
reagent rental agreements. We have established a relationship with a third party financing company
to provide our customers with lease financing for Verigene equipment. This arrangement may help
mitigate the demand on our capital resources as it allows us to recover the cost of such systems
immediately, instead of over three to five years.
As of June 30, 2011, we had $54.5 million in cash and cash equivalents as compared to $39.6
million at December 31, 2010. The increase in cash and cash equivalents resulted from the $32.2
million in net proceeds from the May 2011 Offering offset by $17.3 million in cash used in
operating and investing activities during the first half of 2011.
Net cash used in operating activities increased from $15.8 million for the six months ended
June 30, 2010 to $17.1 million for the six months ended June 30, 2011. Accounts payable at December
31, 2010 included approximately $2.0 million of legal expenses related to a patent dispute that was
settled during the third quarter of 2010. These legal expenses were paid during the first quarter
of 2011. The first quarter of 2011 and 2010 also included payments of $0.6 million and $0.8
million, respectively, for bonuses earned in the prior year.
Net cash used in investing activities decreased to $0.1 million for the six months ended June
30, 2011 as compared to $0.5 million for the six months ended June 30, 2010. Our capital spending
in 2010 focused on manufacturing cost reduction programs.
Net cash provided by financing activities of $32.2 million for the six months ended June 30,
2011 related to the May 2011 Offering. Our spending on financing activities in 2010 related to the
scheduled payments under two loan and security agreements that matured in the third quarter of
2010.
We may need to increase our capital outlays and operating expenditures over the next several
years as we expand our product offering, drive product adoption, further scale-up manufacturing and
implement product cost savings. The amount and the timing of the additional capital we will need to
raise depends on many factors, including:
| the level of research and development investment required to maintain and improve our technology; | ||
| the amount and growth rate of our revenues; | ||
| changes in product development plans needed to address any difficulties in manufacturing or commercializing the Verigene System and enhancements to our system; | ||
| the costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; | ||
| competing technological and market developments; | ||
| our need or decision to acquire or license complementary technologies or acquire complementary businesses; and | ||
| changes in regulatory policies or laws that affect our operations. |
We cannot be certain that additional capital will be available when and as needed or that our
actual cash requirements will not be greater than anticipated. If we require additional capital at
a time when investment in diagnostics companies or in the marketplace in general is limited due to
the then prevailing market or other conditions, we may not be able to raise such funds at the time
that we desire or any time thereafter. In addition, if we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of our stockholders
could be significantly diluted, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders. If we obtain additional debt financing, a
substantial portion of our operating cash flow may be dedicated to the payment of principal and
interest on such indebtedness, and the terms of the debt securities issued could impose significant
restrictions on our operations. If we raise additional funds through collaborations and
licensing arrangements, we might be required to relinquish significant rights to our
technologies or products, or grant licenses on terms that are not favorable to us.
15
Table of Contents
Contractual Obligations and Commitments
The Companys contractual obligations and commitments have not changed materially from the
disclosures included in the Annual Report on Form 10-K for the year ended December 31, 2010 filed
with the SEC on February 16, 2011.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing or unconsolidated special-purpose entities.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Our exposure to market risk is currently confined to our cash and cash equivalents. We have
not used derivative financial instruments for speculation or trading purposes. The primary
objective of our investment activities is to preserve our capital for the purpose of funding
operations while at the same time maximizing the income we receive from our investments without
significantly increasing risk. To achieve these objectives, our investment policy allows us to
maintain a portfolio of cash equivalents and short-term investments through a variety of
securities, including commercial paper, money market funds and corporate debt securities. Our cash
and cash equivalents through June 30, 2011 included amounts in bank checking and liquid money
market accounts. As a result, we believe we have minimal interest rate risk; however, a one
percentage point decrease in the average interest rate on our portfolio, if such a decrease were
possible, would have reduced interest income to $0 for the three month period ended June 30, 2011.
Item 4. | Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures
Management of the Company, with the participation of the Chief Executive Officer and the Chief
Financial Officer, evaluated the effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended) as of June 30, 2011. The Companys disclosure controls and
procedures are designed to ensure that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed, summarized and reported
on a timely basis and that such information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding disclosure. Based upon this evaluation, the Chief Executive Officer and the
Chief Financial Officer have concluded that the Companys disclosure controls and procedures were
effective as of June 30, 2011.
(b) Changes in Internal Control over Financial Reporting
There have been no material changes to the Companys internal control over financial reporting
during the most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
16
Table of Contents
PART II.
OTHER INFORMATION
Item 1. | Legal Proceedings |
We are from time to time subject to various claims and legal actions during the ordinary
course of our business. We believe that there are currently no claims or legal actions that would,
in managements judgment based on information currently available, have a material adverse effect
on our results of operations or financial condition.
Item 1A. | Risk Factors |
In addition to the other information set forth in this report, you should carefully
consider the factors discussed in Risk Factors in Part I, Item 1A of our Annual Report on Form
10-K for the year ended December 31, 2010, which could materially affect our business, financial
condition or future results. There have been no material changes from the risk factors previously
disclosed in our Annual Report on Form 10-K.
Item 2. | Unregistered Sales of Securities and Use of Proceeds |
During the three month period ended June 30, 2011, there were no sales of unregistered
securities.
Item 6. | Exhibits, Financial Statement Schedules |
Exhibit Number | Exhibit Description | |||
31.1 | Certification of Chief Executive Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 * |
|||
31.2 | Certification of Chief Financial Officer pursuant to
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 * |
|||
32.1 | Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 * |
|||
32.2 | Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 * |
* | Filed herewith |
17
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NANOSPHERE, INC. |
||||
By: | /s/ William P. Moffitt | |||
William P. Moffitt | ||||
President and Chief Executive Officer |
Date: August 9, 2011
By: | /s/ Roger Moody | |||
Roger Moody | ||||
Chief Financial Officer and Treasurer |
Date: August 9, 2011