Its head seemingly barely above water, Organogenesis Inc. tried to allay fears regarding the company’s future after filing its annual report and disclosing its auditor’s worries.
The company incurred a net loss of about $30.1 million, or 86 cents per basic and diluted share for 2001, compared to a net loss of approximately $28.6 million, or 85 cents per basic and diluted share the previous year. The loss marked the third straight year the company posted negative numbers. Auditor PricewaterhouseCoopers LLP, of New York, said Organogenesis might not possess adequate funds to continue as a going concern in the next year.
“The going concern opinion [from Pricewaterhouse-Coopers] may have some deleterious effects on the company,” President and CEO Steven Bernitz said during a conference call. “We may face more demanding payment terms from our suppliers, it may affect borrowing ability and will likely cause concern among our investors.”
PricewaterhouseCoopers pointed to little or no growth for Apligraf, Organogenesis’ lead product, no growth of the company’s FortaFlex surgical products, as well as no new product launches as reasons for concern. A potential delisting from the American Stock Exchange also is troublesome, which would result in default on outstanding convertible debt.
“In this highly scrutinized accounting environment, I believe that [PricewaterhouseCoopers’ accounting method] is more conservative than it has been in the past,” Bernitz said. “We certainly do not dispute that if this scenario occurs, we [would] have insufficient cash to fund our current operations for a full year without additional capital.”
The company admitted it has been under review by the American Stock Exchange concerning both the minimum requirements for shareholders’ equity and for posting losses in two of the past three years.
“So it’s the combination of those two we are deficient on the stockholders’ equity, and we have lost money the last three years,” Chief Financial Officer John Arcari said.
Bernitz said the vast majority of convertible note holders also are significant stockholders, meaning their actions in the event of a delisting from the American Stock Exchange would be difficult to predict.
But Canton, Mass.-based Organogenesis said it views such a worst-case scenario as unlikely.
“They took our first-quarter revenue and multiplied times four, and said that is the [accounting] methodology,” Arcari said. “That’s the revenue [PricewaterhouseCoopers] believes should be considered for your cash-flow forecasting for the year.”
According to its most recently filed quarter report, revenues for the fourth quarter ended Dec. 31 doubled from previous year figures, while the net loss for the period was up slightly over the comparable quarter. Quarterly revenues totaled $3.3 million compared to $1.5 million for the fourth quarter of 2000, while the net loss grew slightly to $7.5 million, from $7.4 million reported in the prior-year quarter.
Organogenesis said it has sufficient liquidity to finance operations and break even by the end of the year, pointing to a private placement of approximately $16 million in net proceeds of common and preferred stock, completed last month. In February, the company reduced its work force by 16 percent, a move meant to save approximately $5 million annually. In the first quarter of fiscal 2002, it said it reserved approximately $406,000 by severing 37 employees.
Additionally, the company said its products, deals and pipeline should continue to help sustain operations.
Organogenesis’ lead product, Apligraf living skin substitute, is FDA approved to treat diabetic foot ulcers and venous leg ulcers, but the company said in its year-end statement it is currently at low-production volume.
In the conference, though, Bernitz painted a brighter picture for the future of Apligraf, globally marketed by Basel, Switzerland-based Novartis Pharma AG.
“There is very little, if any, data to support, for instance, zero growth of Apligraf,” he said. “It has grown consistently it was up approximately 25 percent first quarter over first quarter [last year], and approximately 4 percent to 5 percent first quarter from fourth quarter. Annualized, either method gets you to somewhere between 15 [percent] and 25 percent.”
Organogenesis also is developing bioengineered surgical products based on its FortaFlex technology, with FortaPerm and FortaGen already FDA cleared for marketing.
Organogenesis also pointed to a development and marketing agreement with Warsaw, Ind.-based Biomet Inc. for orthopedic and periodontal surgery products as potential revenue.
Organogenesis’ pipeline includes Vitrix living dermal replacement, FortaFill soft-tissue augmentation and Revitix regenerative skin complex. It continues to seek third-party funding for several of its long-term research programs, including a collagen-based, off-the-shelf coronary vascular graft, a liver assist device and a pancreatic islet cell transplantation program.
The company stated in its year-end statement that if adequate funds are not available, it would delay, scale back or eliminate certain programs or license to third parties certain products or technologies it would otherwise undertake in-house.
Organogenesis’ stock (AMEX:ORG) fell 16 cents Wednesday, or 15.8 percent, to close at 85 cents.