Published:
MINRAD Reports Results for Second Quarter 2008
ORCHARD PARK, N.Y., Aug. 14 /PRNewswire-FirstCall/ --
Summary:
-- Revenue of $ 4.2 million compared to $4.3 million for the second
quarter of 2007.
-- Operating loss of $6.3 million compared with $ 3.4 million in prior
year quarter
-- Net loss of $ 11.7 million compared with $ 3.4 million in prior year
quarter
-- Loss on early extinguishment of debt of $ 4.6 million included in net
loss for second quarter of 2008
MINRAD International, Inc. (Amex: BUF), an interventional pain management
company, today reported revenue of $4.2 million for the second quarter of
2008, down 4 % compared to $4.3 million of revenue in the second quarter of
2007. Year to date revenue increased by 121 %.
Net loss for the second quarter 2008 was $ 11.7 million, or a $0.24 loss
per basic and diluted share for the quarter of 2008 compared to a net loss of
$3.4 million, or $0.07 loss per basic and diluted share in the second quarter
of 2007. The Company had a net loss through June 30, 2008 of $ 14.9 million,
or $0.30 per basic and diluted share, compared to a net loss of $ 6.8 million
or $0.14 per basic and dilutes share for the prior year.
"Our second quarter performance was disappointing as we generated less
than planned revenue and more than planned operating losses. Several factors
contributed to our second quarter operating performance. Revenue growth was
constrained due to limitations in production resulting from the following
factors: the temporary shutdown of our new sevoflurane line for scheduled
cleaning and maintenance, delays in receipts of raw materials prior to our May
closing of the $40 million in new financing and the disc rupture of one of our
production reactors. Our operating margins were negatively impacted by the
lack of revenue and production growth as well the impact of certain charges to
establish operating reserves for potentially uncollectible receivables and to
set up an obsolescence reserve for our device inventory," said Bill Burns,
Chairman and Chief Executive Officer.
Dave DiGiacinto, President and Chief Operating Officer said, "Our second
quarter performance was below management expectations based on factors
discussed above, but we clearly understand what happened and what must be done
to significantly improve our performance going forward. Our senior management
team had several priorities for the second quarter which were accomplished but
are not yet reflected in our operating performance. We successfully
refinanced the business in April in a very difficult credit market and
reestablished sound relationships with our vendors. The latter consumed
significant senior management time and attention. In May and June, we focused
on improving output and efficiencies in ourBethlehem plant, continued to
secure growth in International sales and registrations, initiated a continuing
rationalization of our business and implemented sound cash management
practices. All of the latter actions are continuing and will deliver
improvements in our revenue growth and profitability in the near term."
Revenue
Revenue for the second quarter, 2008 declined by $0.1 million, a 4%
decline versus second quarter, 2007. Revenue for the six months ended June
30, 2008 grew $8.7 million or 121% over revenue for the comparable period in
2007.
The following table contains geographic revenue for the second quarter and
the six months ended 2008 and 2007:
(Millions) Three months ended
Region June 30, 2008 June 30, 2007 % Change
United States $1.4 $1.0 37%
Europe $0.5 $0.4 47%
Western Hemisphere $1.1 $2.6 -59%
Pacific Rim $1.2 $0.3 260%
Total $4.2 $4.3 -4%
(Millions) Six months ended
Region June 30, 2008 June 30, 2007 % Change
United States $8.4 $1.6 420%
Europe $2.0 $0.5 290%
Western Hemisphere $2.4 $4.3 -44%
Pacific Rim $3.1 $0.8 295%
Total $15.9 $7.2 121%
Revenue increased in the second quarter, 2008 versus the same period in
2007 in all geographies except Western Hemisphere, where strong Western
Hemisphere revenue second quarter, 2007 created a challenging year-on-year
comparison for the region. For the six-month period ended June 30, 2008,
growth was strong in all regions except Western Hemisphere, driven by very
significant growth that occurred during the first quarter, 2008. In
particular, U.S. revenue grew significantly versus 2007, where approval to
sell sevoflurane did not occur until May, 2007. U.S. revenue accounted for
53% of total six-month revenue in 2008, versus 22% of total revenue in the
comparable period last year.
The following table summarizes the Company's revenue by product line for
the second quarter and the first six months of 2008 versus 2007:
(Millions) Three months ended,
Product Line June 30, 2008 June 30, 2007 % Change
Sevoflurane $2.7 $3.2 -13%
Other Inhalants 1.4 1.0 29%
Total Anesthesia and Analgesia 4.1 4.2 -3%
Image Guidance 0.1 0.1 -28%
Total $4.2 $4.3 -4%
(Millions) Six months ended,
Product Line June 30, 2008 June 30, 2007 % Change
Sevoflurane $11.7 $4.8 145%
Other Inhalants 3.9 2.3 68%
Total Anesthesia and Analgesia 15.6 7.1 120%
Image Guidance 0.3 0.1 165%
Total $15.9 $7.2 121%
The 4% decline in second quarter, 2008 revenue versus the same period in
2007 was driven by the shortfall in the sevoflurane product line, due to
product availability in the second quarter, 2008 (as discussed in the gross
profit section of this MD&A). The decline in sevoflurane was partially offset
by growth in other inhalants during the second quarter. The 121% increase in
revenue for the six months ended June 30 was driven by growth across all
product lines. Sevoflurane growth for the six-month period ended June 30, 2008
was a result of strong performance of this product line in the first quarter.
The $6.9 million sevoflurane increase accounted for 79% of the revenue growth
for the first six months, 2008.
Gross Profit
Gross profit grew 104% for the six months ended June 30, 2008. A strong
first quarter performance, made possible by the start-up of the new
independent sevoflurane production line in December, 2007 was the primary
growth driver for gross profit in the six-month period ended June 30, 2008.
However, in the second quarter, sevoflurane production, and therefore revenue,
was significantly constrained by several factors. Early in the second quarter,
2008, there was a planned shutdown for cleanout of process equipment at our
Bethlehem, PA facility. Also early in the quarter, due to the inability to
obtain raw materials because of funding constraints, production was limited.
In early June, when raw materials became available, an equipment breakdown in
a sevoflurane reactor caused equipment damage and loss of production capacity,
primarily in the sevoflurane production area. The low production capacity
utilization drove unfavorable manufacturing variances in the second quarter
and was a contributing factor in the gross profit decline of 148% and decline
in the gross profit rate of 3600 basis points versus the prior year. By the
end of second quarter, the facility returned to normal operations.
Gross profit for the second quarter was also unfavorably impacted by
inventory write downs at theOrchard Park, New York facility, primarily for
consumable inventory nearing its expiration date and write downs for Image
Guidance devices that now are considered obsolete.
Operating Expense
Operating expenses for the quarter ended June 30, 2008 increased by $1.4
million, or 32%, versus second quarter, 2007. $1.0 million of the increase is
due to establishing a non-cash reserve for the accounts receivable due from
the Company's U.S. distributor, as discussed in Note 2 to the financial
statements. Finance and administration costs increased $1.0 million, while
sales and marketing costs and research and development costs decreased by $0.1
million and $0.5 million respectively. Finance and administration cost growth
of $1.0 million, which was a 92% increase, was driven by higher stock option
expense, bad debt expense on international receivables and increased salary
expense and severance costs versus the prior year. The sales and marketing
decrease represented a 7% decline versus the prior year, primarily due to
lower sales commission expenses. The research and development cost decline of
$0.5 million, or 34%, was made possible by several actions. The completion of
several projects, reductions in spending in non-core areas and transfer of
resources to address other priorities within the company drove decreased
spending. Partially offsetting the research and development cost reductions
was $0.1 million increased investment in the conscious sedation project.
For the first six months of 2008, operating expenses increased $3.8
million, or 44%, versus the comparable period of 2007. The $3.8 million
increase was comprised of the $1.0 million increase due to establishing a
non-cash reserve for potentially uncollectible receivable due from the
Company's U.S. distributor as previously discussed, $1.7 million sales and
marketing and $1.5 million finance and administration increases, less a $0.4
million decrease in research and development spending. The sales and marketing
expense growth of $1.7 million or 42% was driven by a $1.5 million expenditure
for the World Congress of Anesthesia meeting, a once every four year event,
and additional $0.2 million freight expense due to increased volume and air
shipment of product. The $1.5 million finance and administration expense
growth, which was an increase of 67%, was driven by higher incentive
compensation versus the same period last year, as well as the other factors
previously disclosed in the quarter discussion. Research and development cost
reductions of 17% versus the prior year, or $0.4 million all occurred in the
second quarter as discussed above, with the first quarter, 2008 costs being
roughly comparable to the same period, 2007.
Operating Loss
Loss from operations was $6.3 million for the second quarter, 2008 versus
$3.4 million in 2007 for the same period, driven largely by the gross profit
shortfall and the non-cash U.S. distributor receivable provision. The loss
from operations for the six-month period ended June 30, 2008 was $8.9 million
versus $6.9 million loss in the comparable period last year.
Non-operating income/expense
Non-operating expense was $5.4 million for the second quarter, 2008 as
compared to minimal non-operating income or expense in the same period prior
year. The non-operating expense includes $1.1 million interest expense, $4.6
million loss on early extinguishment of debt, less interest income and other
income of $0.3 million. Interest expense of $1.1 million consists primarily of
interest on two long term debt arrangements in place for portions of the
period. The Laminar Direct Capital L.P. term loan was put in place in February
and was extinguished on May 9, 2008. Senior secured convertible notes were
issued on May 5, 2008. Interest expense during the second quarter from these
two arrangements totaled $1.0 million. The remaining interest related to two
development loans with the Commonwealth ofPennsylvania. The loss on early
extinguishment of debt was due to the retirement of the Laminar term loan
prior to maturity. Included in this charge are a 5% redemption fee of $0.8
million, the write-off of the unamortized balance of warrant expense of $3.2
million and unamortized loan fees of $0.6 million. Remaining other income of
$0.3 million includes primarily $0.4 million income on the receipt of shares
of common stock of RxElite in consideration for extended payment terms.
Non-operating expense for the six-month period ending June 30, 2008 was
$6.0 million as compared to net non-operating income of $0.1 million in the
comparable 2007 period. Of the increase in expense of $6.1 million, $5.3
million related to the second quarter, which was discussed in the previous
paragraph. The balance of the increase, which is $0.8 million increase in the
first quarter, 2008 was driven by $0.6 million of additional interest due to
the Laminar debt, the Commonwealth ofPennsylvania development loans and a
demand facility with First Niagara Bank extinguished early in 2008.
Second Quarter Conference Call
The Company will host a conference call at 4:30 PM Eastern Time today to
provide additional detail related to second quarter performance. The call can
be accessed by dialing toll free inthe United States (866) 866-1333. The
International access is (404) 260-1421.
About the Company
The Company is an interventional pain management company with three focus
areas: (1) anesthesia and analgesia, (2) real-time image guidance, and (3)
conscious sedation. The Company's products are sold throughout the world. The
anesthesia and analgesia business currently manufactures and sells generic
inhalation anesthetics that are used for human and veterinary surgical
procedures. The Company manufactures patented real-time image guidance
technologies that facilitate minimally invasive surgery. The SabreSourcetm
system and the accompanying Light Sabretm disposable products have broad
applications in orthopedics, neurosurgery, interventional radiology and
anesthesia. They enable improved accuracy and reduced radiation in
interventional procedures and support the transfer of these procedures to the
outpatient setting. The Company is in the process of developing a drug /drug
delivery system for the use of halogenated ethers as inhalation analgesics for
conscious sedation.
Forward-Looking Statements
The information contained in this news release, other than historical
information, consists of forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements may involve
risks and uncertainties that could cause actual results to differ materially
from those described in such statements. Factors that may cause actual results
to differ materially from those expressed or implied by its forward-looking
statements include, but are not limited to, MINRAD International's limited
operating history and business development associated with being a growth
stage company; its dependence on key personnel; its need to attract and retain
technical and managerial personnel; its ability to execute its business
strategy; the intense competition it faces; its ability to protect its
intellectual property and proprietary technologies; its exposure to product
liability claims resulting from the use of its products; general economic and
capital market conditions; financial conditions of its customers and their
perception of its financial condition relative to that of its competitors; as
well as those risks described under the heading "Risk Factors" of MINRAD
International's Form 10-KSB/A, filed with the Securities and Exchange
Commission on April 21, 2008. Although MINRAD International, Inc. believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct.
Contact:
Charles R. Trego, Jr.
Executive Vice President and CFO
(716) 855-1068
MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Item 1. Financial Statements
June 30, 2008 December 31, 2007
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $7,604 $238
Investments 540 -
Accounts receivable, net 10,334 3,310
Inventories, net 8,877 12,402
Prepaid expenses and other 1,275 2,121
Total current assets 28,630 18,071
Property and equipment:
Machinery and equipment 15,542 15,169
Computers 1,482 1,471
Furniture and fixtures 919 815
Leasehold improvements 385 385
Construction in progress 8,373 7,692
26,701 25,532
Less accumulated depreciation 4,276 2,247
Net property and equipment 22,425 23,285
Other assets, net 3,938 639
Total assets $54,993 $41,995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand notes payable $- $6,000
Accounts payable 2,221 12,983
Accrued expenses 841 1,004
Current portion of long-term debt 210 206
Current portion of deferred revenue 391 103
Total current liabilities 3,663 20,296
Long-term liabilities:
Long-term debt 41,619 1,725
Long-term deferred revenue 845 897
Total long-term liabilities 42,464 2,622
Commitments and Contingencies(Note 12) - -
Stockholders' equity:
Common stock 490 487
Additional paid-in-capital 85,656 80,869
Accumulated other comprehensive loss (150) -
Accumulated deficit (77,130) (62,279)
Total stockholders' equity 8,866 19,077
Total liabilities and stockholders' equity $54,993 $41,995
MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Three month periods Six month periods
ended ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Revenue $4,152 $4,304 $15,947 $7,230
Cost of goods sold 4,637 3,287 12,471 5,523
Gross profit (loss) (485) 1,017 3,476 1,707
Operating expenses:
Sales and marketing 1,818 1,962 5,512 3,872
Research and development 917 1,386 2,026 2,447
Finance and administrative 2,102 1,097 3,824 2,293
Reserve for potential
uncollectible receivable -
Note 2 1,023 - 1,023 -
Total operating expenses 5,860 4,445 12,385 8,612
Operating loss (6,345) (3,428) (8,909) (6,905)
Interest expense (1,052) (17) (1,681) (20)
Interest income 40 57 45 151
Loss on early extinguishment
of debt (4,587) - (4,587) -
Other income and expense 260 - 281 -
Total non-operating
income (expense) (5,339) 40 (5,942) 131
Net loss (11,684) (3,388) (14,851) (6,774)
Net Loss per share
basic and diluted $(0.24) $(0.07) $(0.30) $(0.14)
Weighted average common
shares outstanding basic
and diluted 48,869,217 47,213,653 48,802,367 47,142,763
MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX-MONTH PERIOD ENDED JUNE 30, 2008 (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Accumulated
Other
Additional Compre- Accum-
Common Stock Paid-In hensive ulated
Shares Amount Capital Loss Deficit Total
Balance at
December 31, 2007 48,688,802 $487 $80,869 $- $(62,279) $19,077
Stock options
exercised 20,000 - 36 - - 36
Warrants exercised 59,464 1 53 - - 54
Discount on long-term
debt, net of tax
effect - - 3,056 - - 3,056
Stock based
compensation - - 502 - - 502
Net loss - - - - (3,167) (3,167)
Other comprehensive
loss:
Unrealized loss on
investments - - - (195) - (195)
Total comprehensive
loss - - - - - (3,362)
Balance at
March 31, 2008 48,768,266 $488 $84,516 $(195) $(65,446) $19,363
Stock options
exercised 71,500 1 100 - - 101
Warrants exercised 87,026 1 99 - - 100
Stock based
compensation - - 524 - - 524
Tax effect on early
extinguishment of
debt - - 417 - - 417
Net loss - - - - (11,684) (11,684)
Other comprehensive
gain:
Unrealized gain on
investments - - - 45 - 45
Total comprehensive
loss - - - - - (11,639)
Balance at
June 30, 2008 48,926,792 $490 $85,656 $(150) $(77,130) $8,866
MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX-MONTH PERIOD ENDED JUNE 30, 2008 (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
Balance at
December 31, 2006 47,048,240 $470 $76,513 $(43,481) $33,502
Conversion of
preferred stock and
accrued dividends
to common stock
Stock options
exercised 45,291 1 116 - 117
Stock based
compensation - - 122 - 122
Stock warrants
exercised - - - - -
Net loss - - - (3,386) (3,386)
Balance at
March 31, 2007 47,093,531 $471 $76,751 $(46,867) $30,355
Stock options
exercised 241,331 2 407 - 409
Stock based
compensation - - 275 - 275
Stock warrants
exercised 389,400 3 553 - 556
Net loss - - - (3,388) (3,388)
Balance at
June 30, 2007 47,724,262 $476 $77,986 $(50,255) $28,207
MINRAD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Six-month period ended
June 30, 2008 June 30, 2007
Cash flows from operating activities:
Net loss $(14,851) $(6,774)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 2,041 478
Stock based compensation 1,026 397
Loss on debt extinguishment 4,058 -
Amortization of capitalized fees
associated with long-term debt 240 -
Provision for potentially uncollectible
receivable 1,243 -
Provision for inventory reserves 853 -
Change in operating assets and liabilities:
Accounts receivable (8,266) 1,302
Inventories 2,672 (5,932)
Other assets 744 (1,502)
Accounts payable (4,893) 1,789
Accrued and other liabilities (617) (548)
Net cash used by operating activities (15,750) (10,790)
Cash flows from investing activities:
Purchases of property and equipment (7,037) (6,838)
Proceeds from sale of investments - 7,249
Acquisition of other assets, net (136) 7
Net cash (used) provided by investing
activities (7,173) 418
Cash flows from financing activities:
Proceeds under long-term debt
borrowings, net of costs 51,100 2,063
Borrowings under demand notes payable - 3,800
Repayments under demand notes payable (6,000) -
Principal payments on long-term debt (15,102) (33)
Proceeds from options exercised 137 525
Proceeds from warrants exercised 154 555
Net cash provided by financing activities 30,289 6,910
Net increase (decrease) in cash and
cash equivalents 7,366 (3,462)
Cash and cash equivalents -
Beginning of period 238 4,664
Cash and cash equivalents -
End of period $7,604 $1,202
SOURCE MINRAD International, Inc.
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