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| BHRT.OB > SEC Filings for BHRT.OB > Form 10-Q on 20-May-2009 | All Recent SEC Filings |
20-May-2009
Quarterly Report
• our ability to control and reduce our expenses;
• our ability to meet our obligations on our outstanding indebtedness, certain of which indebtedness imposes restrictions on how we conduct our business and is secured by all of our assets except our intellectual property;
• our ability to timely and successfully initiate and complete our clinical trials;
• our estimates regarding future revenues and timing thereof, expenses, capital requirements and needs for additional financing;
• our ongoing and planned discovery programs, preclinical studies and additional clinical trials; and
• the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss certain of these risks in greater detail in Part II, Item 1A. "Risk Factors." Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Additional information concerning these and other risks and uncertainties is
contained in our filings with the Securities and Exchange Commission, including
the section entitled "Risk Factors" in our Annual Report on Form 10-K for the
year ended December 31, 2008, as amended by Amendment No. 1 on Form 10-K/A.
Our Ability To Continue as a Going Concern
Our independent registered public accounting firm issued its report dated
April 7, 2009 in connection with the audit of our consolidated financial
statements as of December 31, 2008 that included an explanatory paragraph
describing the existence of conditions that raise substantial doubt about our
ability to continue as a going concern. Our consolidated financial statements as
of March 31, 2009 have been prepared under the assumption that we will continue
as a going concern. If we are not able to continue as a going concern, it is
likely that holders of our common stock will lose all of their investment. Our
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Overview
We are committed to delivering intelligent devices and biologics that help
monitor, diagnose and treat heart failure and cardiovascular diseases. Our goals
are to improve a patient's quality of life and reduce health care costs and
hospitalizations.
Biotechnology Product Candidates
Specific to biotechnology, we are focused on the discovery, development and,
subject to regulatory approval, commercialization of autologous cell therapies
for the treatment of chronic and acute heart damage. Our MyoCell product
candidate is an innovative clinical muscle-derived cell therapy designed to
populate regions of scar tissue within a patient's heart with new living cells
for the purpose of improving cardiac function in chronic heart failure patients.
Our most recent clinical trials of MyoCell include the SEISMIC Trial, a
completed 40-patient, randomized, multicenter, controlled, Phase II-a study
conducted in Europe and the MYOHEART Trial, a completed 20-patient, multicenter,
Phase I dose-escalation trial conducted in the United States. We have been
cleared by the U.S. Food and Drug Administration (the "FDA") to proceed with a
330-patient, multicenter Phase II/III trial of MyoCell in North America and
Europe (the "MARVEL Trial"). We completed the MyoCell implantation procedure on
the first patient in the MARVEL Trial on October 24, 2007. If the results of the
MARVEL Trial demonstrate statistically significant evidence of the safety and
efficacy of MyoCell, we anticipate having a basis to ask the FDA to consider the
MARVEL Trial a pivotal trial. The SEISMIC, MYOHEART and MARVEL Trials have been
designed to test the safety and efficacy of MyoCell in treating patients with
severe, chronic damage to the heart. Upon regulatory approval of MyoCell, we
intend to generate revenue from the sale of MyoCell cell-culturing services for
treatment of patients by interventional cardiologists.
We are currently in the process of evaluating our development timeline for
MyoCell and the MARVEL Trial. To date, approximately 50 patients have been
enrolled in the MARVEL Trial. We currently anticipate that we will file with the
FDA an amendment to the clinical protocol for the MARVEL Trial by the end of
June 2009 to, among other things, seek to use, as part of the patient protocol,
mobile cardiac telemetry monitor recorders. Provided that the protocol amendment
is approved by the end of July 2009 and we are able to secure $5.0 million of
additional capital by the end of June 2009, we currently intend to seek to
enroll and treat approximately 150 patients in the MARVEL Trial by the end of
the fourth quarter of 2009. If we meet that timeline, we would expect interim
trial data for these 150 patients to be available in the second quarter of 2010.
If we are unable to secure additional capital by the end of June 2009, we expect
to explore our strategic options, including potentially suspending or slowing
down enrollment in the MARVEL Trial. As part of this evaluation process, we
expect that we would analyze whether to focus resources towards the development,
commercialization and/or distribution of certain of our other product
candidates, including, but not limited to MyoCell® SDF-1, a therapy utilizing
autologous cells genetically modified to express additional potentially
therapeutic growth proteins and certain intelligent devices. In the event we
make a determination to suspend or slow enrollment in the MARVEL Trial, we
anticipate that we would continue to use our resources, to the extent available,
to collect follow-up data on the patients treated to date in the MARVEL Trial.
In our pipeline, we have multiple product candidates for the treatment of
heart damage, including Bioheart Acute Cell Therapy, an autologous, adipose cell
treatment for acute heart damage designed to be used in connection with the TGI
1200™ tissue processing system, and MyoCell® SDF-1. Tissue Genesis, Inc., the
entity from whom we have obtained the worldwide right to sell or lease the TGI
1200™ announced on November 13, 2008 that the TGI 1200™ had been certified with
a CE Marking, thus making the system available throughout the European
marketplace. Additionally, Tissue Genesis has been seeking 510(k) approval of
the TGI 1200™ for laboratory use from the FDA. Tissue Genesis was recently
informed by the FDA that it does not believe the use of the TGI 1200™ as a
laboratory device is eligible for the 510(k) regulatory pathway. We understand
that Tissue Genesis is in the process of evaluating the regulatory pathway that
should be pursued for the TGI 1200™ device. We hope to demonstrate that our
various product candidates are safe and effective complements to existing
therapies for chronic and acute heart damage.
Intelligent Devices - Distribution Agreements
Effective as of October 30, 2008, we entered into a distribution agreement
with Monebo Technologies, Inc. ("Monebo") pursuant to which we were granted
non-exclusive rights to distribute Monebo's CardioBelt™ system throughout North
America and Western Europe. This system provides ECG monitoring to heart
patients from the comfort of their own home. We are required to meet certain
annual minimum purchase commitments under the distribution agreement. The
agreement has an initial term of two years and is subject to automatic renewal
for additional one-year periods unless either party indicates an intent to
terminate the agreement prior to the end of the then current term. The
distribution agreement may be terminated by either party upon 180 days notice
for any reason or by either party immediately upon the other party's uncured
default. In addition, Monebo may terminate the agreement in the event we do not
satisfy our annual minimum purchase commitment. We intend to commence
distribution of the CardioBelt™ system during 2009.
In connection with the distribution agreement, we also entered into a Master
Software License Agreement with Monebo pursuant to which Monebo granted us a
non-exclusive, non-sublicensable, non-transferable license to certain software
and algorithms to be used in connection with the CardioBelt™ system. We paid
Monebo an upfront cash fee for this license and will be required to pay certain
additional fees upon installation. We will also be required to pay to Monebo
royalty fees per patient and software maintenance fees.
Effective as of April 3, 2008, we entered into a distribution agreement with
RTX Healthcare A/S (Denmark) ("RTX") pursuant to which we secured worldwide,
non-exclusive distribution rights to the Bioheart 3370 Heart Failure Monitor, an
interactive and simple-to-use at-home intelligent device designed specifically
to improve available healthcare to patients outside hospitals who are suffering
from heart failure. The device, manufactured by RTX, has 510(k) market clearance
from the U.S. Food and Drug Administration for marketing in the United States
and CE mark approval for marketing in Europe and other countries that follow
this mark. The compact Bioheart 3370 Heart Failure Monitor engages patients
through personalized daily interactions and questions, while collecting vital
signs and transmitting the information directly into a database. The data are
regularly monitored by a remotely located medical professional, who watches for
any abnormal readings that may signal a change in the patient's health status.
These changes are reported back to the treating physician. We do not have any
minimum purchase commitment under the agreement. However, the per unit purchase
price payable by us is inversely related to the number of units we purchase per
annum. The distribution agreement has an initial term of two years and is
subject to automatic renewal for additional one-year periods unless either party
indicates an intent to terminate the agreement prior to the end of the then
current term. The distribution agreement may be terminated by either party upon
the other party's default.
We conduct operations in one business segment. We may organize our business
into more discrete business units when and if we generate significant revenue
from the sale of our product candidates. Substantially all of our revenue since
inception has been generated in the United States, and the majority of our
long-lived assets are located in the United States.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following
policies are important to understanding and evaluating our reported financial
results:
Share-Based Compensation
On January 1, 2006, we adopted the provisions of Statement of Financial
Accounting Standards No. 123R, Share-Based Payment ("SFAS No. 123R") using the
modified prospective transition method. SFAS No. 123R requires us to measure all
share-based payment awards granted after January 1, 2006, including those with
employees, at fair value. Under SFAS No. 123R, the fair value of stock options
and other share-based compensation must be recognized as expense in the
statements of operations over the requisite service period of each award.
The fair value of share-based awards granted subsequent to January 1, 2006 is
determined using the Black-Scholes valuation model and compensation expense is
recognized on a straight-line basis over the vesting period of the awards.
Beginning January 1, 2006, we also began recognizing compensation expense under
SFAS No. 123R for the unvested portions of outstanding share-based awards
previously granted under our stock option plans, over the periods these awards
continue to vest. Our future share-based compensation expense will depend on the
number of equity instruments granted and the estimated value of the underlying
common stock at the date of grant.
We account for certain share-based awards, including warrants, with
non-employees in accordance with SFAS No. 123R and related guidance, including
EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.
We estimate the fair value of such awards using the Black-Scholes valuation
model at each reporting period and expense the fair value over the vesting
period of the share-based award, which is generally the period in which services
are provided.
Revenue Recognition
Since inception, we have not generated any material revenues from our lead
product candidate. In accordance with Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin
No. 104, Revenue Recognition, our revenue policy is to recognize revenues from
product sales and service transactions generally when persuasive evidence of an
arrangement exists, the price is fixed or determined, collection is reasonably
assured and delivery of product or service has occurred.
We initially recorded payments received by us pursuant to our agreements with
Advanced Cardiovascular Systems, Inc. ("ACS"), originally a subsidiary of
Guidant Corporation and now d/b/a Abbott Vascular, a
division of Abbott Laboratories, as deferred revenue. Revenues are recognized on
a pro rata basis as the catheters are delivered pursuant to those agreements.
We initially recorded payments received by us pursuant to a clinical supply
agreement entered into in August 2007 with BHK, Inc. ("BHK") as deferred
revenue. Revenues are recognized on a pro rata basis as the cell-culturing
services are provided and are shown in development revenues. The costs
associated with earning these revenues are expensed as incurred and are included
in research and development expenses in our statements of operations. In
February 2005, we entered into a joint venture agreement with Bioheart Korea,
Inc., BHK's predecessor entity, pursuant to which we and BHK agreed to create a
joint venture company now known as Bioheart Manufacturing, Inc. As of December
31, 2008, the Company owned an 18% equity interest in Bioheart Manufacturing,
Inc. In February 2009, the Company's ownership interest in Bioheart
Manufacturing, Inc. was reduced from 18% to approximately 6% as a result of an
investment in Bioheart Manufacturing, Inc. by a third party.
Research and Development Activities
Research and development expenditures, including payments to collaborative
research partners, are charged to expense as incurred. We expense amounts paid
to obtain patents or acquire licenses as the ultimate recoverability of the
amounts paid is uncertain.
Results of Operations
We are a development stage company and our MyoCell product candidate has not
received regulatory approval or generated any material revenues and is not
expected to until 2010, if ever. We have generated substantial net losses and
negative cash flow from operations since inception and anticipate incurring
significant net losses and negative cash flows from operations for the
foreseeable future as we continue clinical trials, undertake new clinical
trials, apply for regulatory approvals, make capital expenditures, add
information systems and personnel, make payments pursuant to our license
agreements upon our achievement of certain milestones, continue development of
additional product candidates using our technology, establish sales and
marketing capabilities and incur the additional cost of operating as a public
company.
Revenues
We recognized revenues of $109,000 in the three-month period ended March 31,
2009 compared to revenues of $26,000 in the three-month period ended March 31,
2008. In both periods, all revenue was generated from the shipment of MyoCath
catheters to parties other than ACS.
Development Revenues
In the three-month period ended March 31, 2008, we recognized $61,500 in
development revenues from cell-culturing services provided pursuant to the
clinical supply agreement entered with BHK, Inc. No such revenues were
recognized in the three-month period ended March 31, 2009.
Cost of Sales
Cost of sales was $49,000 in the three-month period ended March 31, 2009
compared to $3,000 in the three months ended March 31, 2008. The cost per
catheter sold in the three-month periods ended March 31, 2009 and 2008 were
approximately the same. However, a portion of the catheters sold in 2008 had no
inventory cost as they had been written off in prior years.
Research and Development
Research and development expenses were $626,000 for the three-month period
ended March 31, 2009 compared to $1.4 million in the three-month period ended
March 31, 2008, a decrease of $732,000. The decrease was primarily attributable
to a reduction in the amount of sponsored research and a reduction in costs
related to our SEISMIC, MYOHEART and MARVEL Trials.
The timing and amount of our planned research and development expenditures is
dependent on our ability to obtain additional financing.
Marketing, General and Administrative
Marketing, general and administrative expenses were $647,000 for the
three-month period ended in March 31, 2009, compared to $1.1 million in the
three-month period ended March 31, 2008, a decrease of $425,000. The decrease in
marketing, general and administrative expenses is attributable, to a decrease in
stock-based compensation expense, salaries & wages, legal fees and accounting
fees.
Interest Income
Interest income consists of interest earned on our cash and cash equivalents.
Interest income was $10 in the three months ended March 31, 2009 compared to
interest income of $34,000 in the three-month period ended March 31, 2008. The
decrease in interest income was primarily attributable to lower cash balances in
the three-month period ended March 31, 2009, compared to the three-month period
ended March 31, 2008.
Interest Expense
Interest expense primarily consists of interest incurred on the principal
amount of the BlueCrest and the Bank of America Loans, accrued fees and interest
earned by the guarantors of the Bank of America Loan, the amortization of
related deferred loan costs and the amortization of the fair value of warrants
issued in connection with the BlueCrest and Bank of America Loans. The fair
value of the warrants originally issued in connection with the Bank of America
Loan was amortized by the end of January 2008. Our debt carries interest rates
ranging from 4.75% to 13.50% as of March 31, 2009.
Interest expense was $558,000 in the three-month period ended March 31, 2009
compared to $933,000 in the three-month period ended March 31, 2008. Interest
incurred on the principal amount of our outstanding loans and interest and fees
earned by the guarantors totaled $277,000 and $315,000 in the three-month
periods ended March 31, 2009 and 2008, respectively. Amortization of deferred
loan costs and amortization of the fair value of warrants issued in connection
with the BlueCrest and Bank of America Loans totaled $77,000 and $616,000 in the
three-month periods ended March 31, 2009 and 2008. The three-month period ended
March 31, 2009 also includes $200,000 of interest expense related to the
discount associated with the convertible debt issued and converted during the
period.
Liquidity and Capital Resources
In 2009, we continue to finance our considerable operational cash needs with
cash generated from financing activities.
Operating Activities
Net cash used in operating activities was $101,000 in the three months ended
March 31, 2009 as compared to $4.5 million of cash used in the three months
ended March 31, 2008
Our use of cash for operations in the three months ended March 31, 2009
reflected a net loss generated during the period of $1.8 million. However, our
net loss was significantly offset by a decrease in prepaid
expenses and other current assets of $441,000, an increase in accounts payable
of $494,000 and an increases in accrued expenses of $445,000. The decrease in
prepaid expenses and other current assets was due to the refund of upfront
payments under an agreement with the contract research organization that we are
utilizing for the MARVEL Trial. Accounts payable increased as we have sought to
conserve cash until significant additional financing is obtained.
Our use of cash for operations in the three months ended March 31, 2008
reflected a net loss generated during the period of $3.3 million and an increase
in prepaid expenses and other current assets of $2.5 million. The increase in
prepaid expenses and other current assets was due to upfront payments under an
agreement with the contract research organization that we are utilizing for the
MARVEL Trial. Partially offsetting these uses of cash were amortization of the
fair value of warrants granted in connection with the BlueCrest Loan and Bank of
America Loan of $457,000, an increase in accrued expenses and deferred rent of
$264,000, an increase in accounts payable of $259,000, stock-based compensation
of $212,000 and amortization of loan costs incurred in connection with the
BlueCrest Loan and Bank of America Loan of $159,000.
Investing Activities
No cash was used in investing activities in the three-month period ended
March 31, 2009. Net cash used in investing activities was $18,000 in the
three-month period ended March 31, 2008. All of the cash utilized in investing
activities in the three-month period ended March 31, 2008 related to our
acquisition of property and equipment.
Financing Activities
Net cash provided by financing activities was $222,000 in the three-month
period ended March 31, 2009 compared to $3.8 million in the three-month period
ended March 31, 2008.
In the three-month period ended March 31, 2009, we received net proceeds of
$190,000 in connection with the issuance of convertible debt and shares of
common stock. The lenders converted the convertible debt to shares of common
stock during the three-month period ended March 31, 2009. In the three-month
period ended March 31, 2009, we also received $32,000 from the exercise of stock
options.
On February 22, 2008 we completed our IPO of common stock pursuant to which
we sold 1,100,000 shares of common stock at a price per share of $5.25 for net
proceeds of $1.45 million. The Consolidated Statement of Cash Flows for the
three months period ended March 31, 2008 reflects our receipt of approximately
$4.27 million of "Proceeds from initial public offering of common stock, net."
The $4.27 million cash proceeds figure is approximately $2.82 million higher
than the $1.45 million IPO net proceeds figure identified above due to our
payment of $2.82 million of various offering expenses prior to January 1, 2008.
In the three-month period ended March 31, 2008, we repaid $398,000 of
principal on the BlueCrest Loan and paid $95,000 of costs incurred in connection
with the extension of the maturity date of the Bank of America Loan.
Existing Capital Resources and Future Capital Requirements
Our MyoCell product candidate has not received regulatory approval or
generated any material revenues. We do not expect to generate any material
revenues or cash from sales of our MyoCell product candidate until 2010, if
ever. We have generated substantial net losses and negative cash flow from
operations since inception and anticipate incurring significant net losses and
negative cash flows from operations for the foreseeable future. Historically, we
have relied on proceeds from the sale of our common stock and our incurrence of
debt to provide the funds necessary to conduct our research and development
activities and to meet our other cash needs.
At March 31, 2009, we had cash and cash equivalents totaling $171,000; . . .
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