FORM
10-Q
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
(Mark
One)
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended March 31, 2008
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: 01-19890
LifeCell
Corporation
(Exact
name of registrant as specified in its charter)
Delaware
|
76-0172936
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
No.)
|
One
Millennium Way, Branchburg, New Jersey 08876
(Address
of principal executive
office) (Zip
code)
(908)
947-1100
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report.)
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.
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
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
þ
|
Accelerated
filer
o
|
Non-accelerated
filer
o
(Do
not check if a smaller reporting company)
|
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).
o
Yes
þ
No
As of
April 21, 2008, there were outstanding 34,227,000 shares of common stock, par
value $.001, of the registrant.
Part
I. FINANCIAL INFORMATION
Item
1.
Financial
Statements
LIFECELL
CORPORATION
BALANCE
SHEETS
(
dollars in
thousands
)
(unaudited)
|
|
March
31
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
37,845
|
|
|
$
|
26,819
|
|
Short-term
investments
|
|
|
48,964
|
|
|
|
64,217
|
|
Receivables,
less allowance of $280 in 2008 and $278 in 2007
|
|
|
28,076
|
|
|
|
25,734
|
|
Inventories,
net
|
|
|
50,542
|
|
|
|
44,267
|
|
Prepayments
and other
|
|
|
5,214
|
|
|
|
10,706
|
|
Deferred
tax assets
|
|
|
2,307
|
|
|
|
2,384
|
|
Total
current assets
|
|
|
172,948
|
|
|
|
174,127
|
|
|
|
|
|
|
|
|
|
|
Investments
in marketable securities
|
|
|
6,548
|
|
|
|
6,886
|
|
Fixed
assets, net
|
|
|
29,251
|
|
|
|
27,706
|
|
Deferred
tax assets
|
|
|
3,357
|
|
|
|
4,950
|
|
Other
assets, net
|
|
|
3,227
|
|
|
|
3,329
|
|
Total
assets
|
|
$
|
215,331
|
|
|
$
|
216,998
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
22,929
|
|
|
$
|
20,748
|
|
Accrued
liabilities
|
|
|
11,223
|
|
|
|
25,048
|
|
Total
current liabilities
|
|
|
34,152
|
|
|
|
45,796
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undesignated
preferred stock, $.001 par value, 1,817,795 shares authorized; none issued
and outstanding
|
|
|
--
|
|
|
|
--
|
|
Common
stock, $.001 par value, 48,000,000 shares authorized; 34,200,000 and
34,180,000 shares issued and outstanding in 2008 and 2007
|
|
|
34
|
|
|
|
34
|
|
Additional
paid-in capital
|
|
|
153,530
|
|
|
|
150,379
|
|
Accumulated
other comprehensive income
|
|
|
158
|
|
|
|
95
|
|
Retained
earnings
|
|
|
27,457
|
|
|
|
20,694
|
|
Total
stockholders’ equity
|
|
|
181,179
|
|
|
|
171,202
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
215,331
|
|
|
$
|
216,998
|
|
The
accompanying notes are an integral part of these financial
statements.
LIFECELL
CORPORATION
STATEMENTS
OF OPERATIONS
(
dollars in thousands, except per
share data
)
(unaudited)
|
|
Three
months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
Product
revenues
|
|
$
|
54,317
|
|
|
$
|
42,744
|
|
Research
grant revenues
|
|
|
112
|
|
|
|
218
|
|
Total
revenues
|
|
|
54,429
|
|
|
|
42,962
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
|
17,065
|
|
|
|
12,416
|
|
Research
and development
|
|
|
6,963
|
|
|
|
5,168
|
|
General
and administrative
|
|
|
6,392
|
|
|
|
4,828
|
|
Selling
and marketing
|
|
|
12,718
|
|
|
|
10,124
|
|
Total
costs and expenses
|
|
|
43,138
|
|
|
|
32,536
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
11,291
|
|
|
|
10,426
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income, net
|
|
|
897
|
|
|
|
969
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
12,188
|
|
|
|
11,395
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
5,425
|
|
|
|
4,968
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,763
|
|
|
$
|
6,427
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.19
|
|
Diluted
|
|
$
|
0.19
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing net income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
34,013,000
|
|
|
|
33,058,000
|
|
Diluted
|
|
|
34,914,000
|
|
|
|
34,142,000
|
|
The
accompanying notes are an integral part of these financial
statements
LIFECELL
CORPORATION
STATEMENTS
OF CASH FLOWS
(
dollars in
thousands
)
(unaudited)
|
|
Three
months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,763
|
|
|
$
|
6,427
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,494
|
|
|
|
910
|
|
Deferred
taxes
|
|
|
4,705
|
|
|
|
2,063
|
|
Excess
tax benefit from stock-based compensation
|
|
|
(3,067
|
)
|
|
|
(321
|
)
|
Stock-based
compensation
|
|
|
3,161
|
|
|
|
2,329
|
|
Provision
for bad debt
|
|
|
2
|
|
|
|
42
|
|
Inventory
net realizable value provision
|
|
|
73
|
|
|
|
553
|
|
Gain
on disposal of fixed assets
|
|
|
(2
|
)
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(2,344
|
)
|
|
|
(298
|
)
|
Inventories
|
|
|
(6,081
|
)
|
|
|
(4,097
|
)
|
Prepayments
and other
|
|
|
1,494
|
|
|
|
378
|
|
Accounts
payable and accrued liabilities
|
|
|
(7,645
|
)
|
|
|
(1,601
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash (used) provided by operating activities
|
|
|
(1,447
|
)
|
|
|
6,385
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from maturities and sale of investments
|
|
|
15,710
|
|
|
|
11,769
|
|
Purchases
of investments
|
|
|
-
|
|
|
|
(12,413
|
)
|
Proceeds
from sale of equipment
|
|
|
5
|
|
|
|
-
|
|
Capital
expenditures
|
|
|
(2,940
|
)
|
|
|
(1,561
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used) in investing activities
|
|
|
12,775
|
|
|
|
(2,205
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Cash
paid to employees in lieu of vested common stock
|
|
|
(4,817
|
)
|
|
|
-
|
|
Proceeds
from exercise of common stock options
|
|
|
1,448
|
|
|
|
682
|
|
Excess
tax benefit from stock-based compensation
|
|
|
3,067
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used) provided by financing activities
|
|
|
(302
|
)
|
|
|
1,003
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
11,026
|
|
|
|
5,183
|
|
Cash
and cash equivalents at beginning of period
|
|
|
26,819
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
37,845
|
|
|
$
|
15,183
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for income taxes
|
|
$
|
-
|
|
|
$
|
875
|
|
The
accompanying notes are an integral part of these financial
statements.
LIFECELL
CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(unaudited)
The
accompanying unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally
included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations. This financial information should be
read in conjunction with the financial statements and notes thereto included
within the Company’s Annual Report on Form 10-K for the year ended December 31,
2007.
The
unaudited financial statements reflect all adjustments (consisting only of
normal recurring adjustments) which in the opinion of management are necessary
for a fair statement of financial position, results of operations and cash flows
for the periods presented. The financial results for interim periods
are not necessarily indicative of the results to be expected for the full year
or future interim periods.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No.
157”). SFAS No. 157 defines fair value, establishes a framework and gives
guidance regarding the methods used for measuring fair value, and expands
disclosures about fair value measurements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods of those fiscal years. In February 2008, the FASB released a
FASB Staff Position (FSP FAS 157-2— Effective Date of FASB Statement No. 157)
which delays the effective date of SFAS No. 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually) to
fiscal years beginning after November 15, 2008. The partial adoption of SFAS No.
157 on January 1, 2008, for financial assets and liabilities did not have a
material impact on the Company’s financial position, results of operations or
cash flows. The Company's financial instruments consist of cash and
cash equivalents, short-term and long-term investments in marketable securities,
accounts receivable, accounts payable and certain current
liabilities. Fair value for these investments are based on readily
available market prices.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115," which provides a fair value option election that permits
entities to irrevocably elect to measure financial assets and liabilities
(except for those that are specifically scoped out of the Statement) at fair
value as the initial and subsequent measurement attribute, with changes in fair
value recognized in earnings as they occur. SFAS No. 159 permits the fair value
option election on an instrument-by-instrument basis at initial recognition of
an asset or liability or upon an event that gives rise to a new basis of
accounting for that instrument. The adoption of SFAS No. 159 on
January 1, 2008, for financial assets and liabilities did not have a material
impact on the Company’s financial position, results of operations or cash
flows.
The
Company’s significant accounting policies are disclosed in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2007. The Company
has not materially changed its significant accounting policies.
Inventories
consist of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
(dollars
in thousands)
|
|
Unprocessed
tissue and materials
|
|
$
|
25,388
|
|
|
$
|
24,213
|
|
Tissue
products in-process
|
|
|
7,292
|
|
|
|
7,933
|
|
Tissue
products available for distribution
|
|
|
17,862
|
|
|
|
12,121
|
|
Inventories,
net
|
|
$
|
50,542
|
|
|
$
|
44,267
|
|
Fixed
assets consist of the following:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars
in thousands)
|
|
Machinery
and equipment
|
|
$
|
15,462
|
|
|
$
|
14,905
|
|
Leasehold
improvements
|
|
|
26,031
|
|
|
|
23,973
|
|
Computer
hardware, furniture and fixtures
|
|
|
5,310
|
|
|
|
5,275
|
|
Computer
software
|
|
|
3,083
|
|
|
|
2,809
|
|
|
|
|
49,886
|
|
|
|
46,962
|
|
Accumulated
depreciation and amortization
|
|
|
(20,635
|
)
|
|
|
(19,256
|
)
|
Fixed
assets, net
|
|
$
|
29,251
|
|
|
$
|
27,706
|
|
The tax
provision for the three months ended March 31, 2008 and 2007 represents Federal
and state income taxes. The Company's effective rate of 44.5% and
43.6%, respectively, differs from the U.S. Federal statutory rate due to the
impact of stock-based compensation which cannot currently be recognized for tax
purposes, and state income taxes, net of the federal benefit. The
increase in the effective tax rate was primarily due to the expiration of the
credit for increasing research activities. Qualified research
expenditures after December 31, 2007 are no longer eligible for tax
credits. In the three months ended March 31, 2008 and 2007, the
Company realized $3.1 million and $361,000, respectively, of tax benefits
related to the exercise of employee stock options and vesting of restricted
stock. These tax benefits were recorded as a direct credit to
stockholder’s equity, and therefore, had no impact on the Company’s tax
provision.
6.
|
Share-Based
Compensation
|
The
LifeCell Corporation Equity Compensation Plan authorizes the issuance of various
forms of stock-based awards, including incentive and non-statutory stock
options, stock purchase rights, stock appreciation rights, and restricted and
unrestricted stock awards. A total of 5,850,000 shares were
authorized to be issued under the Plan through March 1, 2010. At
March 31, 2008, there were 678,000 shares available for future awards under the
Plan.
The
Company recognizes share-based compensation in accordance with the provisions of
Statement of Financial Accounting Standards No. 123R, (‘SFAS 123R”) “Share-Based
Payment”. Share-based compensation expense was $3.2 million and $2.3
million for the quarters ended March 31, 2008 and March 31, 2007,
respectively. In addition, there was $875,000 and $317,000 of
stock-based compensation cost capitalized in inventory at March 31, 2008 and
March 31, 2007, respectively. As of March 31, 2008, $29.9 million of
total unrecognized compensation costs related to non-vested stock options and
restricted stock is expected to be recognized over a weighted average period of
2.1 years.
Stock
Options
A summary
of stock option activity for the three months ended March 31, 2008 is as
follows:
|
Number
of shares
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Life
|
|
Aggregate
Intrinsic Value (in thousands)
|
Outstanding
at December 31, 2007
|
1,813,000
|
|
$
|
17.61
|
|
|
|
|
|
Granted
|
450,000
|
|
$
|
43.20
|
|
|
|
|
|
Exercised
|
(111,000)
|
|
$
|
13.08
|
|
|
|
$
|
3,104
|
Forfeited
or canceled
|
(47,000)
|
|
$
|
29.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2008
|
2,105,000
|
|
$
|
23.05
|
|
7.8
years
|
|
$
|
39,941
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at March 31. 2008
|
804,000
|
|
$
|
11.83
|
|
6.6
years
|
|
$
|
24,265
|
Stock
option awards issued by the Company generally vest over four years and have a
ten year life. The Company estimates the fair value of stock options using the
Black-Scholes option-pricing model and records the compensation expense ratably
over the service period.
The fair
value of stock options granted during each of the periods was estimated using
the following assumptions:
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Volatility
|
|
|
49.3
|
%
|
|
|
56.1
|
%
|
Expected
term (years)
|
|
|
5.36
|
|
|
|
5.69
|
|
Risk
free interest rate
|
|
|
2.2%
- 3.2
|
%
|
|
|
4.3%
- 4.6
|
%
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The
weighted average grant date fair value of stock options granted during the first
quarter of 2008 was $20.74 per share.
In
connection with the stock option exercises during the three months ended March
31, 2008, the Company received proceeds of $1.5 million.
Restricted
Stock
The
Company grants restricted stock to employees and directors that entitle the
holders to receive shares of the Company’s common stock upon the fulfillment of
certain service and/or performance conditions. The fair value of
restricted stock is based on the market price of the Company’s stock on the date
of grant and is recorded as compensation expense ratably over the service
period, generally three to four years. For restricted stock awards
that also have performance conditions, the compensation expense is based on the
expected future performance.
A summary
of restricted stock activity for the three months ended March 31, 2008 is as
follows:
|
|
Non-vested
Number of shares
|
|
|
Weighted
Average Grant-Date Fair Value
|
|
|
Aggregate
Intrinsic Value (in thousands)
|
|
Balance
at December 31, 2007
|
|
|
323,000
|
|
|
$
|
22.62
|
|
|
|
|
Granted
|
|
|
242,000
|
|
|
$
|
42.70
|
|
|
|
|
Vested
|
|
|
(45,000
|
)
|
|
$
|
21.53
|
|
|
$
|
1,972
|
|
Forfeited
|
|
|
(15,000
|
)
|
|
$
|
35.30
|
|
|
|
|
|
Balance
at March 31, 2008
|
|
|
505,000
|
|
|
$
|
32.16
|
|
|
|
|
|
7.
|
Net
Income per Common Share
|
The
following table sets forth the computation of basic and diluted net income per
common share:
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars
in thousands, except per share data)
|
|
Net
income
|
|
$
|
6,763
|
|
|
$
|
6,427
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
34,013,000
|
|
|
|
33,058,000
|
|
Denominator
for basic net income per share
|
|
|
34,013,000
|
|
|
|
33,058,000
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
Common
stock options
|
|
|
660,000
|
|
|
|
710,000
|
|
Restricted
stock
|
|
|
241,000
|
|
|
|
374,000
|
|
Denominator
for diluted net income per common share
|
|
|
34,914,000
|
|
|
|
34,142,000
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per common share
|
|
$
|
0.20
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per common share
|
|
$
|
0.19
|
|
|
$
|
0.19
|
|
The
calculation of net income per common share for the quarters ended March 31, 2008
and 2007 excludes potentially dilutive common stock of 652,000 in 2008 and
911,000 in 2007 because their inclusion would be antidilutive.
The
components of comprehensive income, net of tax, were as follows:
|
|
Three
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(dollars
in thousands)
|
|
Net
income
|
|
$
|
6,763
|
|
|
$
|
6,427
|
|
Other
comprehensive gain:
|
|
|
|
|
|
|
|
|
Change
in net unrealized holding gain on available for sale
investments
|
|
|
63
|
|
|
|
2
|
|
Comprehensive
income
|
|
$
|
6,826
|
|
|
$
|
6,429
|
|
9.
|
Commitments
and Contingencies
|
Litigation
In
September 2005, the Company recalled certain human-tissue based products because
the organization that recovered the tissue, Biomedical Tissue Services, Ltd.
(“BTS”), may not have followed the FDA’s requirements for donor consent and/or
screening to determine if risk factors for communicable diseases
existed. The Company promptly notified the FDA and all relevant
hospitals and medical professionals. The FDA subsequently determined
that patients who received tissue implants prepared from BTS donor tissue might
be at a heightened risk of communicable disease transmission, and recommended
those patients receive appropriate testing. The Company did not
receive any donor tissue from BTS after September 2005.
The
Company has been named, along with BTS and many other defendants, in lawsuits
that relate to this matter. With the exception of the individual
plaintiff cases discussed below, the suits purport to serve as class actions for
persons receiving transplants who are not physically injured, but instead seek
medical monitoring and/or damages for emotional distress. All of
these cases are venued in New Jersey as part of a Multi-District Litigation
(“MDL”). The Company has been successful in obtaining a voluntarily
dismissal of every such class action, with the exception of one case that
purports to only involve LifeCell products (“Watling”).
In
addition, several suits, including a class action, have been filed in Federal
Court in Rochester, New York and State Courts in New Jersey and Philadelphia
Court of Common Pleas that seek compensatory damages from BTS and all processing
defendants that received and used BTS-originated tissue, including
LifeCell. Plaintiffs are the next-of-kin of the donors who did not
authorize BTS to remove the tissue at issue. The Rochester cases
which have been transferred to the MDL will be the subject of motions to
dismiss. The other cases remain in the State Courts.
There has
also been approximately 30 individual plaintiff cases filed in which those
persons also seek compensatory damages for emotional distress and/or future
medical monitoring. None of the individual plaintiffs claim any
present physical injury. With the exception of twelve cases that were
filed in the State Court in New Jersey and four cases in the State Court in
Pennsylvania, all of the individual cases have been transferred to the
MDL.
Finally,
the Company has been named in three cases filed in the State Court of New
Jersey, (“Turpyn”, “Wirkler” and “Guzman”) and one case in the MDL (“Robinson”),
in which those plaintiffs allege to have contracted a disease from LifeCell’s
product. Those cases are in the earliest stages of discovery and it
is not presently confirmed that any plaintiff has been diagnosed with a disease
nor is it known whether there is any casual relationship to the LifeCell
product.
The
Company intends to vigorously defend each case. The Company will
pursue dismissal of all cases which do not involve its product being at
issue. The Company believes it is not currently possible to estimate
the likelihood of an unfavorable outcome and/or the impact, if any, that the
ultimate resolution of these cases could have on the Company’s operations,
financial position or cash flow. The Company maintains insurance
coverage for events and in amounts that it deems appropriate. There
can be no assurance that the level of insurance maintained will be sufficient to
cover the claims or that all of the claims will be covered by the terms of any
insurance.
On April
14, 2008, a purported stockholders class action complaint, captioned Richard
Bauer v. LifeCell Corporation et al., was filed by a stockholder of LifeCell in
the Chancery Division of the Superior Court of New Jersey in Somerset County,
naming LifeCell, its directors and Kinetic Concepts, Inc., a Texas corporation
(“KCI”) as defendants. The complaint alleges causes of action against
the defendants for breach of fiduciary duties in connection with the proposed
acquisition of LifeCell by KCI (see Note 10. Subsequent Event) and seeks relief
including, among other things, (i) preliminary and permanent injunctions
prohibiting consummation of the Offer and the Merger and (ii) payment of the
plaintiff's costs and expenses, including attorneys' and experts'
fees. The lawsuit is in its preliminary stage. LifeCell
and KCI believe that the lawsuit is without merit and intend to defend
vigorously against the lawsuit.
On April
7, 2008, KCI and Leopard Acquisition Sub, Inc., a newly formed Delaware
corporation and a wholly owned subsidiary of KCI (“Purchaser”), entered into an
Agreement and Plan of Merger. On April 21, 2008, the Purchaser
commenced a cash tender offer to purchase all of the issued and outstanding
shares of common stock, par value $0.001 per share, of the Company at a price
per share equal to $51.00. Following the consummation of the offer,
the Purchaser is expected to merge with and into the Company, pursuant to which
each outstanding share of Common Stock not purchased in the offer will be
converted into the right to receive the offer price, except for those shares
held by the Company, KCI or the Purchaser, and other than those shares with
respect to which appraisal rights are properly exercised. After the
merger, the Company will continue to exist as a wholly owned subsidiary of
KCI.
The Offer
will remain open for at least 20 business days, subject to
extension. The obligation to accept for payment and pay for the
shares of Common Stock tendered in the Offer is subject to customary conditions,
including, among other things: (1) the tender of a majority of the total number
of outstanding shares of Common Stock, calculated on a fully diluted basis, (2)
the expiration or termination of any waiting period (and any extensions thereof)
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (3)
the absence of injunctions prohibiting the Offer or the Merger, (4) the accuracy
of the representations of the Company, subject to certain materiality
exceptions, (5) compliance in all material respects with covenants of the
Company, (6) absence of a material adverse effect on the Company since December
31, 2007 and (7) completion of Purchaser's and KCI's financing pursuant to the
terms of an executed Commitment Letter among Purchaser, KCI and the lenders
dated April 7, 2008.
The
Merger Agreement contains customary representations, warranties and covenants of
the parties. In particular, the Merger Agreement contains
restrictions on the Company’s ability to solicit third party proposals or
provide information to, or participate in discussions or negotiations with,
third parties regarding competing proposals. However, the Merger
Agreement contains customary exceptions that allow the Company to provide
information to, and participate in discussions or negotiations with, third
parties with respect to competing proposals in certain limited
circumstances.
The
Company may terminate the Merger Agreement under specified circumstances in
order to enter into a definitive agreement implementing a Superior Proposal (as
defined in the Merger Agreement). If the Company terminates the
Merger Agreement to enter into a Superior Proposal or if the Merger Agreement is
terminated by KCI under certain other specified circumstances, the Company is
required to pay KCI a termination fee equal to $50 million.
If the
Merger Agreement is terminated by the Company under certain specified
circumstances (including KCI’s failure to consummate the Merger under certain
specified circumstances, including the failure to complete the financing
described above), KCI will be required to pay or cause to be paid to the Company
a fee of $50 million.
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
The
following discussion of our results of operations and financial condition should
be read in conjunction with the Financial Statements and Notes included in Part
I. “Financial Information”.
This
report contains forward looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 under Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended.
Forward-looking
statements include statements with respect to our beliefs, plans, objectives,
goals, expectations, anticipations, assumptions, estimates, intentions, and
future performance, and involve known and unknown risks, uncertainties and other
factors, which may be beyond our control, and which may cause our actual
results, performance or achievements to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements.
All
statements other than statements of historical fact are statements that could be
forward-looking statements. You can identify these forward-looking statements
through our use of words such as “may,” “will,” “can” “anticipate,” “assume,”
“should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,”
“estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,”
“intend,” “target,” “potential,” and other similar words and expressions of the
future.
Forward-looking
statements may not be realized due to a variety of factors, including, without
limitation:
|
·
|
the
failure of the KCI transaction to be
consummated;
|
|
·
|
the
failure to maintain, increase, or replace revenues from the sale of our
AlloDerm products;
|
|
·
|
the
failure to comply with government regulations, including the
FDA;
|
|
·
|
changes
in the regulatory classification of our
products;
|
|
·
|
our
inability to obtain required premarket clearance or approval of our
products for new intended uses;
|
|
·
|
limitations
on the pricing of our allograft
products;
|
|
·
|
potential
for disease transmission by our
products;
|
|
·
|
claims
for damages by third parties, including product liability
claims;
|
|
·
|
our
dependence on a limited number of sources for human cadaveric
tissue;
|
|
·
|
negative
publicity about the use of donated human tissue in medical
procedures;
|
|
·
|
changes
in third-party reimbursement
practices;
|
|
·
|
disruption
to our operations;
|
|
·
|
the
effects of competition;
|
|
·
|
our
inability to protect our intellectual
property;
|
|
·
|
reliance
on independent sales and marketing agents and distributors to generate
part of our revenues;
|
|
·
|
our
inability to develop and commercialize new products;
and
|
|
·
|
the
other factors listed under “Risk Factors” in our annual report on Form
10-K for the year ended December 31, 2007 and other reports that we file
with the Securities and Exchange
Commission.
|
All
forward-looking statements are expressly qualified in their entirety by this
cautionary notice. You are cautioned not to place undue reliance on
any forward-looking statements, which speak only as of the date of this
report. We have no obligation, and expressly disclaim any obligation,
to update, revise or correct any of the forward-looking statements, whether as a
result of new information, future events or otherwise. We have
expressed our expectations, beliefs and projections in good faith and we believe
they have a reasonable basis. However, we cannot assure you that our
expectations, beliefs or projections will result or be achieved or
accomplished.
Supervision
and Regulation — Securities and Exchange Commission
We
maintain a website at www.lifecell.com. We make available free of
charge on our website all electronic filings with the SEC (including proxy
statements and reports on Forms 8-K, 10-K and 10-Q and any amendments to these
reports) as soon as reasonably practicable after such material is electronically
filed with or furnished to the SEC. The SEC maintains an internet
site (http://www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC.
We have
also posted policies, codes and procedures that outline our corporate governance
principles, including the charters of the board’s audit, compensation,
nominating and corporate governance committees, and our Code of Ethics covering
directors and all employees and the Code of Ethics for senior financial officers
on our website. These materials also are available free of charge in print to
stockholders who request them in writing. The information contained
on our website does not constitute a part of this report.
In the
following discussions, most percentages and dollar amounts have been rounded to
aid the presentation. As a result, all such figures are
approximations.
OVERVIEW
We
develop, process and market biological soft tissue repair products made from
allograft and xenograft tissue. Surgeons use our products to restore
structure, function and physiology in a variety of reconstructive, orthopedic
and urogynecologic surgical procedures. Our allograft products
include: AlloDerm, for plastic reconstructive, general surgical, burn and
periodontal procedures; GraftJacket, for orthopedic applications and lower
extremity wounds; AlloCraftDBM, for bone grafting procedures; and Repliform, for
urogynecologic surgical procedures. Strattice, a xenograft product,
is intended for certain plastic reconstructive and general surgical
procedures. Our research and development initiatives include programs
designed to support the marketing of our products in current clinical
applications, potentially extend their use into new surgical applications and to
expand our product line in the rapidly growing biosurgery market.
Revenue
and Expenses
Revenues
.
We market
AlloDerm and Strattice for plastic reconstructive and general surgical
applications through our direct sales organization. AlloDerm and
Strattice are primarily sold to hospitals for use by general and plastic
surgeons. Our products for orthopedic and urogynecologic procedures
are marketed through independent sales agents and distributors. Our
strategic sales and marketing partners include: Wright Medical Group, Inc. for
GraftJacket and GraftJacket Xpress; Stryker Corporation for AlloCraftDBM; Boston
Scientific for Repliform; and BioHorizons for periodontal applications of
AlloDerm. In 2008, we expect our revenues to increase as we introduce
Strattice and further penetrate the reconstructive market.
Cost of products
sold
.
Cost of products
sold consists primarily of fees paid to tissue recovery organizations, tissue
procurement support costs, labor, overhead and supplies costs related to the
processing of our tissue-based products. Cost of products sold also
includes depreciation, freight handling and packaging costs. In 2008,
we expect cost of products sold to increase slightly as a percentage of total
revenue due to additional costs for procuring and processing larger allograft
pieces of tissue and due to inefficiencies of producing Strattice in a pilot
facility.
Research and
development
.
Research and
development, or R&D, expenses consist primarily of personnel costs within
our research, product development and clinical functions, as well as the costs
associated with pre-clinical and clinical studies and other product development
related costs. We expense all R&D costs in the period
incurred. R&D expenditures are expected to increase as a
percentage of revenue in 2008.
General and
administrative
.
General and
administrative, or G&A, expenses consist primarily of salaries and other
related costs for personnel serving the executive, finance, information
technology, human resources and regulatory affairs functions, as well as legal
fees, accounting fees and insurance costs. In 2008, we expect G&A
costs to increase as we add personnel to support our growth, however, we
anticipate a slight decrease in G&A costs as a percentage of total
revenue.
Selling and
marketing
.
Selling and
marketing expenses consist primarily of personnel costs within our sales,
marketing and customer support functions, commissions paid to our sales
representatives and costs associated with medical education, market research and
promotional activities. In 2008, we expect sales and marketing
expenses to increase due to the expansion of our sales force by 14 at the end of
2007, and higher marketing costs associated with the product launch of
Strattice.
RESULTS
OF OPERATIONS
The
following table includes information from our Statements of Operations, the
relative percentage that those amounts represent to total revenue and the
percentage change in those amounts from period to period.
|
|
Three
Months Ended
|
|
|
Percentage
of
|
|
|
%
Increase
|
|
|
|
March
31,
|
|
|
Total
Revenue
|
|
|
(Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
vs. 2007
|
|
Net
Revenues:
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
Reconstructive
revenues
|
|
$
|
49,435
|
|
|
$
|
37,658
|
|
|
|
91
|
%
|
|
|
88
|
%
|
|
|
31
|
%
|
Orthopedic
revenues
|
|
|
3,375
|
|
|
|
2,960
|
|
|
|
6
|
%
|
|
|
7
|
%
|
|
|
14
|
%
|
Urogynecologic
revenues
|
|
|
1,507
|
|
|
|
2,126
|
|
|
|
3
|
%
|
|
|
5
|
%
|
|
|
-29
|
%
|
Product
Revenues
|
|
|
54,317
|
|
|
|
42,744
|
|
|
|
100
|
%
|
|
|
99
|
%
|
|
|
27
|
%
|
Research
Grant Revenues
|
|
|
112
|
|
|
|
218
|
|
|
|
*
|
|
|
|
1
|
%
|
|
|
-49
|
%
|
Total
Net Revenues
|
|
|
54,429
|
|
|
|
42,962
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Products Sold
|
|
|
17,065
|
|
|
|
12,416
|
|
|
|
31
|
%
|
|
|
29
|
%
|
|
|
37
|
%
|
Research
and Development
|
|
|
6,963
|
|
|
|
5,168
|
|
|
|
13
|
%
|
|
|
12
|
%
|
|
|
35
|
%
|
General
and Administrative
|
|
|
6,392
|
|
|
|
4,828
|
|
|
|
12
|
%
|
|
|
11
|
%
|
|
|
32
|
%
|
Selling
and Marketing
|
|
|
12,718
|
|
|
|
10,124
|
|
|
|
23
|
%
|
|
|
24
|
%
|
|
|
26
|
%
|
Total
Costs and Expenses
|
|
|
43,138
|
|
|
|
32,536
|
|
|
|
79
|
%
|
|
|
76
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Operations
|
|
|
11,291
|
|
|
|
10,426
|
|
|
|
21
|
%
|
|
|
24
|
%
|
|
|
8
|
%
|
* less
than 1%.
Three
Months Ended March 31, 2008 and 2007
Revenues
Total
revenues for the three months ended March 31, 2008 increased by $11.4 million,
or 27%, to $54.4 million compared to $43.0 million for the same period in
2007. The increase was attributable to a 27% increase in product
revenues to $54.3 million in the current period as compared to $42.7 million in
the prior year.
Revenues
generated from the use of our products in reconstructive surgical procedures
increased by $11.8 million, or 31%, to $49.4 million in the three months ended
March 31, 2008 compared to $37.7 million in the same period in
2007. The growth was primarily driven by increased demand for
AlloDerm in complex hernia repair and breast reconstruction
procedures. AlloDerm revenues increased 30% to $47.8 million in the
three months ended March 31, 2008 compared to $36.8 million in the same period
of 2007. Revenues from Strattice, which was launched in the first
quarter of 2008, totaled $1.1 million.
Orthopedic
product revenue grew by $415,000, or 14%, to $3.4 million in the three months
ended March 31, 2008 from $3.0 million in 2007. This revenue growth
resulted primarily from increased demand for our GraftJacket
products. GraftJacket revenues were $2.9 million in 2008 compared to
$2.5 million in the same period in 2007.
Revenues
generated from the use of our Repliform product in urogynecologic surgical
procedures decreased by $619,000, or 29%, to $1.5 million in the three months
ended March 31, 2008 compared to $2.1 million for the same period in
2007.
Our
independent sales and marketing agents and distributors generated 11% of our
total product revenue in the three months ended March 31, 2008 compared to 14%
in 2007. Wright Medical Group represented 5% of our total product
revenues in the three months ended March 31, 2008 compared to 6% for the same
period in 2007. No other individual independent sales agent or
distributor generated more than 5% of our total product revenues in the three
months ended March 31, 2008.
Research
grant revenues were $112,000 in the first quarter of 2008 compared to $218,000
in 2007. As of March 31, 2008, approximately $738,000 of approved
grant funding was available to fund future research and development
expenses.
Costs
and expenses
Cost of
products sold for the three months ended March 31, 2008 was $17.1 million, or
31% of product revenues, compared to cost of products sold of $12.4 million, or
29% of product revenue for the same period in 2007. The increase in
cost of products sold as a percentage of product revenue was the result of
increases in costs associated with the procuring and processing of larger
allograft tissue grafts and due to inefficiencies of producing Strattice in a
pilot facility.
Total
research and development expenses increased by $1.8 million, or 35%, to $7.0
million in the three months ended March 31, 2008 compared to $5.2 million for
the same period in 2007. The increase was primarily attributable to
higher: (i) operating supplies, (ii) payroll and related expenses associated
with increased headcount and annual merit increases, and (iii) professional fees
and expenses related to pre-clinical studies.
General
and administrative expenses increased by $1.6 million, or 32%, to $6.4 million
in the three months ended March 31, 2008 compared to $4.8 million for the same
period in 2007. The increase was primarily attributable to
higher: (i) professional fees, (ii) payroll and related expenses
associated with increased headcount and annual merit increases, and (iii)
employee recruitment expenses.
Selling
and marketing expenses increased by $2.6 million, or 26%, to $12.7 million for
the three months ended March 31, 2008 compared to $10.1 million for the same
period in 2007. The increase was primarily attributable
to: (i) higher selling expenses, principally payroll, commissions and
travel and entertainment resulting from the expansion of our direct sales force
and (ii) an increase in marketing and medical education program expenses for
AlloDerm and Strattice. Selling and marketing expenses included agent
fees of $689,000 and $1.0 million, respectively, in the three months ended March
31, 2008 and 2007.
Interest
and other income, net
Interest
and other income, net decreased by $72,000, or 7%, to $897,000 in the three
months ended March 31, 2008 compared to $969,000 in the same period in 2007 due
to a decrease in the interest rate earned on invested cash.
The
provision for income taxes increased by $457,000, or 9%, to $5.4 million in the
three months ended March 31, 2008 compared to $5.0 million in the same period in
2007, reflecting an effective income tax rate of 44.5% and 43.6%,
respectively. The increase in the effective tax rate was primarily
due to the expiration of the credit for increasing research
activities. Qualified research expenditures after December 31, 2007
are no longer eligible for tax credits. If Congress enacts
legislation which retroactively reinstates the research tax credit, a tax
benefit will be recognized at that time.
LIQUIDITY
AND CAPITAL RESOURCES
At March
31, 2008, we had $86.8 million in cash, cash equivalents and short-term
marketable securities and $6.5 million in long-term marketable
securities. Working capital increased to $138.8 million at March 31,
2008 from $128.3 million at December 31, 2007. The increase in
working capital resulted primarily from increases in inventories, accounts
receivable and a decrease in accrued liabilities, partially offset by a decrease
in cash, cash equivalents and short term investments.
We used
$1.4 million of cash for operating activities for the quarter ended March 31,
2008 compared to generating $6.4 million in cash in the same period in
2007. In the first quarter of 2008, the most significant uses of cash
included an $7.6 million reduction in accounts payable and accrued liabilities
and a $6.1 million increase in inventories to support future
growth. The reduction in accounts payable and accrued liabilities
were primarily the result of payments of payroll taxes, annual bonuses, and a
non-product related settlement.
Capital
expenditures were $2.9 million and $1.6 million, respectively, for the quarters
ended March 31, 2008 and 2007. Capital expenditures in 2008 included
$2.1 million of leasehold improvements for the expansion of our facility with
the balance for the purchase of manufacturing and computer
equipment.
Our
financing activities used $302,000 for the quarter ended March 31, 2008 compared
to $1.0 million generated for the same period in 2007. During the
quarter ended March 31, 2008, certain employees elected to surrender vested
shares to satisfy their tax withholding obligations. As a result, the
Company funded $4.8 million in tax withholding payments and did not issue
110,000 shares of common stock.
The
following table reflects a summary of our contractual cash obligations as of
March 31, 2008:
|
|
Payments
Due by Period
|
|
(dollars
in thousands)
|
|
Total
|
|
|
Less
than
1 year
|
|
|
1 –
3
years
|
|
|
3 –
5
years
|
|
|
More
than
5 years
|
|
Operating
leases
|
|
$
|
8,329
|
|
|
$
|
1,141
|
|
|
$
|
2,254
|
|
|
$
|
2,114
|
|
|
$
|
2,820
|
|
Licensing
agreement
|
|
|
10,438
|
|
|
|
813
|
|
|
|
2,125
|
|
|
|
2,500
|
|
|
|
5,000
|
|
Total
contractual cash obligations
|
|
$
|
18,767
|
|
|
$
|
1,954
|
|
|
$
|
4,379
|
|
|
$
|
4,614
|
|
|
$
|
7,820
|
|
Purchase
orders or contracts for the purchase of raw materials and other goods and
services are not included in the table above. We are not able to
determine the aggregate amount of such purchase orders that represent
contractual obligations, as purchase orders may represent authorizations to
purchase rather than binding agreements. Although we have entered
into contracts for services, the obligations under these contracts were not
significant, and the contracts generally contain clauses allowing for
cancellation without significant penalty.
We have
also entered into employment agreements with certain executive officers that
provide for potential payments and benefits upon employment
termination. Such payments and benefits have not been included in the
table above since potential payments are contingent upon uncertain future
events.
At the
end of 2005, we commenced a multi-year facility expansion at our Branchburg, New
Jersey facility to increase office space, research labs and processing
capacity. Capital expenditures associated with the ongoing facility
project are estimated to be approximately $13.1 million in 2008. In
addition, we estimate spending a total of $7.2 million for production, research
and development, and computer equipment in 2008.
We
believe that our current cash resources, together with anticipated product
revenues and committed research and development grant funding, will be
sufficient to finance our planned operations, research and development programs
and capital expenditure requirements in the foreseeable
future. However, we may need additional funds to meet our long-term
strategic objectives, including the completion of potential
acquisitions. We have no commitments for any future funding, and
there can be no assurance that we will be able to obtain additional funding in
the future through debt or equity financings, collaborative arrangements or
other sources on terms acceptable to us, or at all. Any additional
equity financing may be dilutive to stockholders, and debt financing, if
available, may involve significant restrictive covenants.
Critical
Accounting Policies / Estimates
For the
period ended March 31, 2008, there were no changes to our critical accounting
policies as identified in our annual report of Form 10-K for the year ended
December 31, 2007.
Item
3.
Quantitative and Qualitative
Disclosures About Market Risk
.
We are
exposed to changes in interest rates primarily from our investments in certain
marketable securities, consisting principally of fixed income debt
securities. Although our investments are available for sale, we
generally hold such investments to maturity. Our investments are
stated at fair value, with net unrealized gains or losses on the securities
recorded as accumulated other comprehensive income (loss) in shareholders’
equity. Net unrealized gains and losses were not material at March 31, 2008 or
2007.
Item
4.
Controls
and Procedures
.
|
a.
|
Disclosure
controls and procedures.
|
During
the first quarter of 2008, our management, including the principal executive
officer and principal financial officer, evaluated our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) related to the recording, processing, summarization and
reporting of information in our reports that we file with the SEC. These
disclosure controls and procedures have been designed to ensure that material
information relating to us, including our subsidiaries, is made known to our
management, including these officers, by other of our employees, and that this
information is recorded, processed, summarized, evaluated and reported, as
applicable, within the time periods specified in the SEC’s rules and forms. Due
to the inherent limitations of control systems, not all misstatements may be
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. Our controls and procedures can only provide
reasonable, not absolute, assurance that the above objectives have been
met.
Based on
their evaluation as of March 31, 2008, our principal executive officer and
principal financial officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) are effective to reasonably ensure that the information
required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.
|
b.
|
Changes
in internal controls over financial
reporting.
|
There
have been no changes in our internal control over financial reporting that
occurred during our last fiscal quarter to which this Quarterly Report on Form
10-Q relates that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART
II. OTHER INFORMATION
Item
1.
Legal
Proceedings
In
September 2005, we recalled certain human-tissue based products because the
organization that recovered the tissue, Biomedical Tissue Services, Ltd.
(“BTS”), may not have followed the FDA’s requirements for donor consent and/or
screening to determine if risk factors for communicable diseases
existed. We promptly notified the FDA and all relevant hospitals and
medical professionals. The FDA subsequently determined that patients
who received tissue implants prepared from BTS donor tissue might be at a
heightened risk of communicable disease transmission, and recommended those
patients receive appropriate testing. We did not receive any donor
tissue from BTS after September 2005.
We have
been named, along with BTS and many other defendants, in lawsuits that relate to
this matter. With the exception of the individual plaintiff cases
discussed below, the suits purport to serve as class actions for persons
receiving transplants who are not physically injured, but instead seek medical
monitoring and/or damages for emotional distress. All of these cases
are venued in New Jersey as part of a Multi-District Litigation
(“MDL”). We have been successful in obtaining a voluntarily dismissal
of every such class action, with the exception of one case that purports to only
involve our products (“Watling”).
In
addition, several suits, including a class action, have been filed in Federal
Court in Rochester, New York and State Courts in New Jersey and Philadelphia
Court of Common Pleas that seek compensatory damages from BTS and all processing
defendants that received and used BTS-originated tissue, including
us. Plaintiffs are the next-of-kin of the donors who did not
authorize BTS to remove the tissue at issue. The Rochester cases
which have been transferred to the MDL will be the subject of motions to
dismiss. The other cases remain in the State Courts.
There has
also been approximately 30 individual plaintiff cases filed in which those
persons also seek compensatory damages for emotional distress and/or future
medical monitoring. None of the individual plaintiffs claim any
present physical injury. With the exception of twelve cases that were
filed in the State Court in New Jersey and four cases in the State Court in
Pennsylvania, all of the individual cases have been transferred to the
MDL.
Finally,
we have been named in three cases filed in the State Court of New Jersey,
(“Turpyn”, Wirkler” and Guzman”) and one case in the MDL (“Robinson”) in which
those plaintiffs allege to have contracted a disease from our
product. Those cases are in the earliest stages of discovery and it
is not presently confirmed that any plaintiff has been diagnosed with a disease
nor is it known whether there is any causal relationship to our
product.
We intend
to vigorously defend each case. We will pursue dismissal of all cases
which do not involve our product being at issue. We believe it is not
currently possible to estimate the likelihood of an unfavorable outcome and/or
the impact, if any, the ultimate resolution of these cases could have on our
operations, financial position or cash flow. We maintain insurance
coverage for events and in amounts that it deems appropriate. There
can be no assurance that the level of insurance maintained will be sufficient to
cover the claims or that the all of the claims will be covered by the terms of
any insurance.
On April
14, 2008, a purported stockholders class action complaint, captioned Richard
Bauer v. LifeCell Corporation et al., was filed by a stockholder of LifeCell in
the Chancery Division of the Superior Court of New Jersey in Somerset County,
naming LifeCell, its directors and KCI as defendants. The complaint
alleges causes of action against the defendants for breach of fiduciary duties
in connection with the proposed acquisition of LifeCell by KCI and seeks relief
including, among other things, (i) preliminary and permanent injunctions
prohibiting consummation of the Offer and the Merger and (ii) payment of the
plaintiff's costs and expenses, including attorneys' and experts'
fees. The lawsuit is in its preliminary stage. LifeCell
and KCI believe that the lawsuit is without merit and intend to defend
vigorously against the lawsuit.
Item
1a.
Risk
Factors
This Item
1A should be read in conjunction with “Item 1A. Risk Factors” in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2007.
Failure to complete the proposed
Merger could negatively affect us
. Consummation of the
transactions contemplated by the Merger Agreement is subject to customary
closing conditions, including (1) in the case of the Purchaser’s offer to
purchase all of the issued and outstanding shares of Common Stock (the “
Shares
”), at least a majority
of the Shares outstanding on a fully-diluted basis being validly tendered into
the offer and not withdrawn; (2) in the case of the Merger, the approval of our
stockholders if less than 90% of the Shares are acquired by Purchaser following
the closing of the offer; (3) the expiration or termination of any waiting
period (and any extensions thereof) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, (3) the absence of injunctions prohibiting
the offer or the Merger; and (4) completion of Purchaser’s and KCI’s financing
pursuant to the terms of an executed commitment letter among Purchaser, KCI and
the lenders dated April 7, 2008. There can be no assurance that a
majority of the Shares will tender pursuant to the offer or that our
stockholders will approve the Merger Agreement (if required), or that the other
conditions to the completion of the offer and the Merger will be
satisfied. In connection with the Merger, we are subject to the
following risks:
|
·
|
the
current market price of the Company’s Common Stock may, to some degree,
reflect a market assumption that the Merger will occur, and a failure to
complete the Merger could result in a decline in the market price of such
stock;
|
|
·
|
the
occurrence of any event, change or other circumstances that could give
rise to a termination of the Merger
Agreement;
|
|
·
|
the
outcome of any legal proceedings that may be instituted against us,
members of our Board of Directors and others relating to the Merger,
including any settlement of such proceedings that may be subject to court
approval;
|
|
·
|
the
inability to complete the Merger due to the failure to obtain stockholder
approval (if required) or the failure to satisfy other conditions to the
consummation of the Merger;
|
|
·
|
the
failure of the Merger to close for any other
reason;
|
|
·
|
our
remedies against KCI and the Purchaser with respect to certain breaches of
the Merger Agreement may not be adequate to cover our
damages;
|
|
·
|
the
proposed transactions disrupt current business plans and
operations;
|
|
·
|
the
proposed Merger may create difficulties in attracting
employees;
|
|
·
|
the
number of days during which the Merger transaction is pending may create
difficulties in retaining key
employees;
|
|
·
|
the
effect of the announcement of the Merger on our business relationships,
operating results and business generally;
and
|
|
·
|
the
costs, fees, expenses and charges we have and may incur related to the
Merger.
|
Except
for the additional risks described above, there have been no other material
changes in the risk factors provided in “Item 1A. Risk Factors” in our Annual
Report on Form 10-K for the fiscal year ended December 31,
2007.
Item
5.
Other
Information
On April
7, 2008, Kinetic Concepts, Inc., a Texas corporation (“KCI”), and Leopard
Acquisition Sub, Inc., a newly formed Delaware corporation and a wholly owned
subsidiary of KCI (“Purchaser”), entered into an Agreement and Plan of Merger
(the “Merger Agreement”). On April 21, 2008, the Purchaser commenced
a cash tender offer (the “Offer”) to purchase all of the issued and outstanding
shares of common stock, par value $0.001 per share, of the Company at a price
per share equal to $51.00. Following the consummation of the Offer,
the Purchaser is expected to merge with and into the Company (the “Merger”),
pursuant to which each outstanding share of Common Stock not purchased in the
offer will be converted into the right to receive the offer price, except for
those shares held by the Company, KCI or the Purchaser, and other than those
shares with respect to which appraisal rights are properly
exercised. After the Merger, the Company will continue to exist as a
wholly owned subsidiary of KCI.
The Offer
will remain open for at least 20 business days, subject to
extension. The obligation to accept for payment and pay for the
shares of Common Stock tendered in the Offer is subject to customary conditions,
including, among other things: (1) the tender of a majority of the total number
of outstanding shares of Common Stock, calculated on a fully diluted basis, (2)
the expiration or termination of any waiting period (and any extensions thereof)
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (3)
the absence of injunctions prohibiting the Offer or the Merger, (4) the accuracy
of the representations of the Company, subject to certain materiality
exceptions, (5) compliance in all material respects with covenants of the
Company, (6) absence of a material adverse effect on the Company since December
31, 2007 and (7) completion of Purchaser's and KCI's financing pursuant to the
terms of an executed Commitment Letter among Purchaser, KCI and the lenders
dated April 7, 2008.
The
Merger Agreement contains customary representations, warranties and covenants of
the parties. In particular, the Merger Agreement contains
restrictions on the Company’s ability to solicit third party proposals or
provide information to, or participate in discussions or negotiations with,
third parties regarding competing proposals. However, the Merger
Agreement contains customary exceptions that allow the Company to provide
information to, and participate in discussions or negotiations with, third
parties with respect to competing proposals in certain limited
circumstances.
The
Company may terminate the Merger Agreement under specified circumstances in
order to enter into a definitive agreement implementing a Superior Proposal (as
defined in the Merger Agreement). If the Company terminates the
Merger Agreement to enter into a Superior Proposal or if the Merger Agreement is
terminated by KCI under certain other specified circumstances, the Company is
required to pay KCI a termination fee equal to $50 million.
If the
Merger Agreement is terminated by the Company under certain specified
circumstances (including KCI’s failure to consummate the Merger under certain
specified circumstances, including the failure to complete the financing
described above), KCI will be required to pay or cause to be paid to the Company
a fee of $50 million.
Item
6.
Exhibits
|
2.1*
|
Agreement
and Plan of Merger, dated as of April 7,
2008
|
|
|
Certification
of our Chief Executive Officer, Paul G. Thomas, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
|
Certification
of our Chief Financial Officer, Steven T. Sobieski, pursuant to Section
302 of the Sarbanes-Oxley Act of
2002
|
|
|
Certification
of our Chief Executive Officer, Paul G. Thomas and Chief Financial
Officer, Steven T. Sobieski, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
*
|
Incorporated
by reference to Exhibit 2.1 to the Company’s current report on Form 8-K
dated April 7, 2008.
|
SIGNATURES
Pursuant
to the requirements 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.
|
LIFECELL CORPORATION
|
|
|
|
|
Date: April
24, 2008
|
By:
/s/ Paul G.
Thomas
|
|
Paul
G. Thomas
|
|
Chairman
of the Board,
|
|
President
and Chief Executive Officer
|
|
(Principal
Executive Officer)
|
|
|
|
|
Date:
April 24, 2008
|
By:
/s/ Steven
T. Sobieski
|
|
Steven
T. Sobieski
|
|
Vice
President, Finance
|
|
Chief
Financial Officer and Secretary
|
|
(Principal
Financial Officer)
|
|
|
|
|
Date: April
24, 2008
|
By:
/s/ Bradly C.
Tyler
|
|
Bradly
C. Tyler
|
|
Controller
|
|
(Principal
Accounting Officer)
|
Lifecell Corp (MM) (NASDAQ:LIFC)
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