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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
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OR
|_| 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 000-14879
CYTOGEN CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-2322400
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
600 College Road East, CN5308, Princeton New Jersey 08540-5308
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (609) 750-8200
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the registrant's voting shares of
Common Stock held by non-affiliates of the registrant on March 1, 2001, based on
$3.69 per share, the last reported sale price on the NASDAQ National Market on
that date, was $282 million.
The number of shares of Common Stock, $.01 par value, of the registrant
outstanding as of March 1, 2001 was 77,380,205 shares.
The following documents are incorporated by reference into the Annual Report on
Form 10-K: Portions of the registrant's definitive Proxy Statement for its 2001
Annual Meeting of Stockholders are incorporated by reference into Part III of
this Report.
TABLE OF CONTENTS
Item Page
---- ----
PART I
1. Business............................................................. 1
2. Properties........................................................... 34
3. Legal Proceedings.................................................... 34
4. Submission of Matters to a Vote of Security Holders.................. 34
PART II
5. Market for the Company's Common Equity and Related
Stockholder Matters................................................ 35
6. Selected Financial Data.............................................. 37
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 39
7A. Quantitative and Qualitative Disclosures about Market Risk........... 45
8. Financial Statements and Supplementary Data.......................... 45
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................ 45
PART III
10. Directors and Executive Officers of the Company...................... 46
11. Executive Compensation............................................... 46
12. Security Ownership of Certain Beneficial Owners and Management....... 46
13. Certain Relationships and Related Transactions....................... 46
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 47
EXHIBIT INDEX............................................................... 47
SIGNATURES.................................................................. 51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................. 53
PART I
Item 1. Business
Business
Overview
Cytogen is an established biopharmaceutical company with two principal lines of
business, proteomics and oncology. We are extending our expertise in antibodies
and molecular recognition to the development of new products and a
proteomics-driven drug discovery platform. We have established a pipeline of
product candidates based upon our proprietary antibody and our exclusively
licensed prostate specific membrane antigen, or PSMA, technologies. We are also
developing a proprietary protein pathway database as a drug discovery and
development tool for the pharmaceutical and biotechnology industries.
Our cancer management business currently is comprised of four marketed products,
each of which has been approved by the United States Food and Drug
Administration (the "FDA"): ProstaScint(R), a monoclonal antibody-based imaging
agent used to image the extent and spread of prostate cancer; BrachySeed(TM), a
second generation radioactive implant for the treatment of localized prostate
cancer; OncoScint(R) CR/OV, another monoclonal antibody-based imaging agent used
for the detection of colorectal and ovarian cancer; and Quadramet(R), a cancer
therapeutic agent marketed for the relief of cancer-related bone pain. We are
evolving our cancer pipeline by exploiting PSMA, which we exclusively licensed
from Memorial Sloan-Kettering Cancer Center. PSMA is a unique membrane-bound
antigen highly expressed in prostate cancer cells and in the neovasculature of a
variety of other solid tumors, including breast, lung and colon. We are
developing our PSMA technology as part of our approach to offering a full range
of prostate cancer management products and services throughout the progression
of the disease, including gene-based immunotherapy vaccines, antibody-delivered
therapeutic compounds and novel assays for detection of primary and recurrent
prostate cancer. We also plan to apply our PSMA technology, including
therapeutics and in vitro diagnostics, toward other types of cancer based upon
our experience in prostate cancer, although we cannot be certain such technology
will be commercializable in such areas. Our in vivo immunotherapeutic
development program is being conducted in collaboration with Progenics
Pharmaceuticals, Inc.
We also acquired rights to two product candidates pursuant to marketing, license
and supply agreements that we entered into in 2000. Under such agreements, we
acquired exclusive United States marketing rights to Combidex(R), a magnetic
resonance imaging contrast agent for the detection of lymph node metastases and
exclusive United States marketing rights to imaging agent Code 7228 for oncology
applications, as well as an option with respect to other applications under
certain circumstances. Combidex has received an approvable letter from the FDA
for the detection of lymph node metastases. We cannot assure you, however, that
the licensor of Combidex and Code 7228 will receive approval from the FDA to
market Combidex or Code 7228 in the United States.
Proteomics is the study of the expression, interaction and function of proteins.
Genomics is the study and identification of an organism's genetic makeup. While
genomics provides important information regarding genetic makeup, it does not
directly provide information regarding protein interactions and thus protein
function. However, genomics data can prove useful in proteomics research as a
source of obtaining complete protein sequences of ligands we have identified.
Public availability of this genomics information allows for effective
integration in our database of public and proprietary information. We recognized
in our past research that the key to understanding or developing the means to
intervene in diseases was primarily based on understanding protein interactions
rather than only through the use or study of genomics. We undertook this
approach on our own initiative and with our own funds. Our proteomics program,
under development by our subsidiary, AxCell Biosciences Corporation, is focused
on the identification of protein interaction and signaling pathways within cells
as relating to disease processes and identification of novel drug targets.
We utilize our proprietary proteomics technology to map selective
protein-protein interactions and to develop a database, called ProChart(TM)
(formerly called the Inter-Functional Proteomic Database, or IFP Database) which
includes data relating to protein signaling pathways linked to a variety of
other bioinformatic data. ProChart is designed to permit customers to integrate
existing databases, both public and proprietary, with our proprietary data to
create a "virtual laboratory" on the computer desktop of researchers involved in
drug discovery. We believe this database has significant potential commercial
value to the pharmaceutical and biotechnology industries as a means of drug
target identification, validation, screen development and lead compound
optimization faster and cheaper than with current methodologies. These
proprietary technologies are designed to provide a platform from which we can
quickly and cost-effectively determine protein-protein interactions and build
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pathways of intracellular signaling data. ProChart also offers a consolidated
platform to enable statistical and mathematical modeling of complex protein
pathways.
The Company was incorporated in Delaware on March 3, 1980 under the name
Hybridex, Inc. and changed its name to Cytogen Corporation on April 1, 1980. The
Company's executive offices are located at 600 College Road East, Princeton, New
Jersey 08540 and its telephone number is 609-750-8200.
PROTEOMICS
We are developing a proprietary protein pathway database called ProChart, as a
discovery and development tool for subscribers in the pharmaceutical and
biotechnology industries. Our bioinformatics platform is designed to identify
drug targets through the application of our novel, innovative and rapid
techniques for deriving intracellular protein pathway data. We are designing
ProChart, with our marketing partner InforMax, Inc. (NASDAQ: INMX), to permit
use of the Internet to integrate our proprietary information with a customer's
proprietary data and other information, including public genomics data.
Our technology may potentially shorten the drug discovery process by providing
efficacy and potential toxicity information while utilizing existing
high-throughput screening instrumentation. We believe that using ProChart may
permit pharmaceutical and biotechnology companies to validate protein targets
for drug discovery faster and cheaper than with current methodologies. In
addition, we believe that the development of the database will lead to the
identification of novel proteins that we may develop exclusively or with
partners. We plan to offer customers multi-year subscriptions to ProChart. We
also plan to chart increasingly greater portions of the proteome and add these
results to ProChart. Additionally, we will price our ProChart database product
in relation to the amount and quality of information that ProChart provides,
thus allowing us to potentially increase our price structure as the database
grows.
Drug discovery
The traditional drug discovery process involves testing or screening compounds
in disease models. Researchers often engage in the process with little knowledge
of the intracellular processes underlying the disease or the specific drug
target within the cell. Thus, companies must screen a very large number of
arbitrarily selected compounds to obtain a desired change in a disease model.
While this approach sometimes produces drugs successfully, we believe it has the
following limitations:
- inefficiency: it is capital intensive and time consuming in identifying
and validating targets;
- low productivity: it yields relatively few new drug candidates;
- lack of information: it provides little information about the
intracellular processes or targets, to guide target selection and
subsequent drug development; and
- risk of side effects: it often results in drug candidates with a risk
of serious side effects.
In an effort to overcome some of the difficulties associated with traditional
drug discovery, scientists have turned to genomics as a means of better
understanding the roots of disease. Scientists believed that a comprehensive
knowledge of an organism's genetic makeup would lead to more efficient drug
discovery. While useful, DNA sequence analysis alone does not lead efficiently
to new target identification, because one cannot easily infer the functions of
gene products, or proteins, and protein pathways from DNA sequence.
Proteomic technologies offer significant opportunities to improve the drug
discovery process. By focusing on protein activity levels, or expression levels,
researchers are able to learn more about the role proteins play in causing and
treating disease. Proteomics also aids in deciphering the mechanisms of disease
and increasing both the opportunity to develop drugs with reduced side effects
and an increased probability of clinical trial success. We believe proteomics
has the potential to increase substantially the number of drug targets and
thereby the number of novel new drugs.
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The current environment
The drive to understand basic biological mechanisms has led to two distinct, yet
related, approaches to the study of molecular biology, genomics and proteomics.
Genomics is the study and identification of an organism's genetic makeup.
Proteomics is the study of protein expression and protein interaction within
cells.
Structural Genomics..>Functional Genomics......................................>
Proteomics..........................>
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Technologies
ESTs Transcript tagging Protein chips Protein chips
PCR techniques MALDI-TOF Systematic gene
Mapping DNA arrays Mass Spectrometry knockouts
Positional cloning Sequencing Tandem Mass Spec Transient gene
DNA sequencing Bioinformatics (LC-MS/MS-MS) inactivation
DNA arrays Gene expression Giant 2-D gels Transgenics
Bioinformatics Bioinformatics Yeast 2- and 3-
hybrid
Phage display
(antibodies and
peptides)
Affinity assay
technologies
Bioinformatics
Algorithms
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Gene --------> mRNA --------> Protein --------> Biological
Activity
AxCell Biosciences
As seen above, drug discovery research is in a transition from emphasis on
structural genomics, to functional genomics, to structural proteomics and
finally to functional proteomics.
The two main components of genomics research are structural and functional. The
structural effort is comprised of identifying gene sequences and identifying
gene variants. This research has primarily been approached through the use of
DNA sequencing, gene mapping and positional cloning. Identification of gene
sequence does not lead directly to targets for drug discovery but does give
information that is useful to functional genomics and proteomics. Identification
of gene variants can lead to targets for drug discovery, but for the most part
they lead to pathways associated with disease. Some of the protein components of
those pathways are the ultimate targets for drug discovery.
The functional study of genomics consists primarily of gene expression. The
genes expressed in normal and diseased tissue differ, and gene expression
techniques can comprehensively distinguish between the two. Gene expression has
been studied using gel-based and chip-based technologies. Although the genes
expressed lead to potential targets in the proteins for which they code, there
are several limitations to consider:
- there may be no correlation between gene expression and protein
production;
- interactions between proteins cannot be predicted; and
- gene expression cannot account for changes to the protein once the
protein has been created.
Due to these limitations, gene expression provides a limited explanation of the
biological function of proteins within cells.
Proteomics research efforts can also be categorized as structural and
functional. Structural proteomics, or protein expression, measures the number
and types of proteins existent in normal and diseased cells. Two-dimensional gel
electrophoresis and mass spectrometry are the primary tools used in protein
expression analysis. This approach is useful in defining the structure of
proteins in a cell. Some of these proteins may be targets for drug discovery.
However, the role of the protein in the disease is still not defined.
Functional proteomics is the study of proteins' biological activities. An
important function of proteins is the transmission of biological signals using
intricate pathways populated by proteins which interact with one another.
Understanding the role proteins play in these signaling pathways allows a better
understanding of their function in cellular behavior. Aberrations in the
interaction of proteins with one another are at the heart of the molecular basis
of many diseases. We believe analysis of protein pathways will identify those
proteins that play a role in causing or preventing disease. Our proteomics
business is focused upon this area.
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The most widely used method for studying protein interactions is the yeast
two-hybrid system. We believe that this method has numerous limitations. We have
developed a different and proprietary approach to the study of functional
proteomics.
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The two-hybrid system Our system
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The rate of the throughput of the We expect to measure in excess of
yeast two-hybrid system has been 15,000 interactions per day and
improved; however, the methodology anticipate making significant progress
does not reach the throughput of our in mapping the signaling pathways in
technology. the human proteome in the next 4
years.
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The results of the yeast two-hybrid Results are passed through a series
method may be misleading, because bioinformatic filters, such as
the interactions determined using affinity and tissue expression, to
this method are cells. better determine biologically
significant interactions.
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Researchers must possess knowledge Knowledge of a protein's role in a
about a protein's role in a signaling signaling pathway is determined
pathway prior to using this system. through the application of our system.
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We believe our approach to detecting protein pathways has the following
additional distinct advantages compared to the yeast two-hybrid system:
simplicity, higher throughput data generation, direct protein interaction
measurement, fewer false positives, rapid formatting of high-throughput
screening assays and identification of specific ligands, which provide a
starting point for rational drug design.
DRUG DISCOVERY AND DEVELOPMENT PROCESS
Early Discovery......... Compound Discovery and Development..................
Lead* Pre-
Target* Target* Screen* Primary Secondary Compound clinical
Identification Validation Development Screening Screening Optimization Studies
*OUR TECHNOLOGY IS AIMED AT ACCELERATING FOUR STEPS
IN THE DRUG DISCOVERY AND DEVELOPMENT PROCESS.
We believe that target identification may be facilitated by the use of ProChart.
We anticipate that ProChart will allow identification of disease-related
alterations in protein pathways by comparing protein pathways in cells and
tissues associated with a disease model with pathways in normal tissue. We
believe that this technology will enable researchers to more efficiently
identify potential drug targets.
We also develop high-throughput screens for drug development in cases where
targets are proprietary to us. Customers may license these targets and receive
the components necessary for a high-throughput screen.
Finally, we believe that we can accelerate lead compound optimization through
the supply of related protein-component family members, or protein arrays. We
believe that these protein arrays contain the proteins with which a researcher
can test a lead compound for cross-protein interaction. Such cross-protein
interactions may also represent the side effects which the lead compound might
invoke. We believe that modifications of the structure of the lead compound
followed by further testing with the target array will lead to more efficient
lead compound optimization.
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Background
Our core proteomics technology is based on an understanding of the principles of
the binding, or molecular recognition, of antibodies to antigens. Through a
sponsored research program at the University of North Carolina at Chapel Hill,
coupled with our internal research, we studied the interactions between peptide
ligands and proteins. This research led to a better understanding of
protein-protein interactions, and ultimately to proprietary methods for
identifying and quantifying such interactions. We have a portfolio of patents
and patent applications based on inventions generated both internally and at the
University of North Carolina at Chapel Hill, relating to methods for
identification of proteins which interact in cellular pathways, and the
compositions of such proteins. Certain patents and patent applications filed on
behalf of the University of North Carolina at Chapel Hill are the subject of a
worldwide, exclusive license to us. We established AxCell Biosciences
Corporation as a subsidiary to harness the commercial potential of this
proprietary platform technology in the area of proteomics.
Our technology
We have developed several integrated, high-throughput technologies designed to
determine protein pathways quickly and cost effectively. The identification of
protein pathways is a critical step in drug discovery.
[GRAPHIC OF TECHNOLOGY FLOW CHART OMITTED]
As part of functional signaling pathways, protein interaction is mediated
through binding of a ligand sequence on one protein and a domain on another,
similar to the relationship between a lock and a key. Domains are functional
recognition sites on proteins where the actual interaction occurs with another
protein. Ligands are the regions of the other proteins that interact with the
domains. In the human proteome, domains are classified in families such as WW or
PDZ.
As seen in the above illustration, we identify domain-ligand interactions
through the use of proprietary phage display libraries. The process begins with
a domain from a known protein family such as WW. A library of peptides, which
are short sequences of amino acids (the building blocks of proteins), is exposed
to this domain to identify those peptides that act as ligands and have binding
affinity to the domain (Step 1).
We then use these ligands as probes to find other proteins that contain a domain
which exhibits an affinity to the ligands. This technique identifies the
complete family of domains that interacts with a set of ligands (Step 2). Once a
set of ligands and domains are identified, we measure the strength of affinity
between each domain and ligand (Step 3). These steps are repeated with all
signaling domains and their corresponding ligands. This approach allows us to
create the database of ligand-domain binding interactions and thus establish a
functional relationship between the set of ligands and domains (Step 4).
Using this database and computational methods, or bioinformatics, we define the
rules of interaction between domains and ligands. Using bioinformatic analyses,
each interacting protein can be identified, and through ligand-domain pairing
biological pathways can be constructed (Step 5). These biological pathways are
analogous to a circuit diagram of intracellular communication.
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Analyses of the aberrations in the interaction of proteins with one another can
then be studied to identify those proteins that play a role in causing or
preventing disease and can be targeted for drug development (Step 6).
Proprietary algorithm development
Through the use of our platform technologies described above and the data
generated with them, we plan to develop proprietary modeling and
characterization algorithms. ProChart will contain comprehensive protein
interaction and pathway data that we believe will allow the modeling and
characterization of ligands using connections to the corresponding domains. We
also plan to develop pathway models using the data in ProChart. These models
will be made available as tools within ProChart to our subscription customers.
Our proteomics products
ProChart
We intend to offer our proprietary proteomics technology to pharmaceutical and
biotech companies through the following products and services:
ProChart is designed to offer customers the opportunity to evaluate many
proteins at once by overlaying protein pathway data with other bioinformatic
information in a rational and user friendly format. We believe that users will
be able to visualize and correlate protein pathway data with all sequence,
expression, tissue distribution, structural and bibliographic information that
exists for that particular protein and pathway. ProChart can also be used to
generate protein pathway information according to a customer's needs or
interests. The end result is that companies can evaluate a large number of
targets and rationally select a subset with which they can advance to
experimentation. This database is also designed to allow a researcher to define
the best point for intervention in a protein pathway to maximize beneficial
pharmacological effects while minimizing potential toxicity.
As an example of the above described usages, AxCell's bioinformatics staff
compared publicly available single nucleotide polymorphisms (SNPs) information
(single base pair changes in DNA) from the Human Genome Project to ProChart to
determine if such changes translate into functional changes, or differences in
the way proteins bind with one another. Such aberrations in protein pathways
reflect the molecular basis of many diseases, and may lead to discovery of new
drug targets. This may also allow AxCell to develop proprietary targets or
license targets as an additional way to commercialize its proteomics technology.
Novel Protein Targets
We view proteins by their modular building blocks or domains. Every signaling
protein can be defined by its domain composition and this composition can be
compared to known proteins to determine if a protein represents a novel
composition of matter. The figure below gives an example of a known protein,
which consists of two domain 1s and one domain 2. Also shown are several novel
proteins, such as Novel 2, which is made up of five domain Cs. Since we are
measuring domain-ligand interactions, we not only define the protein but have
knowledge of the protein's function. This method of defining proteins has been
used by us in a composition of matter patent covering novel WW-domain-containing
proteins.
MODULAR VIEW OF PROTEINS
Known Protein Domain 1 -- Domain 2 -- Domain 1--
Novel 1 --Domain A -- Domain A -- Domain B -- Domain B
Novel 2 - Domain C -- Domain C -- Domain C -- Domain C -- Domain C
Novel 3 --- Domain B -- Domain B -- Domain B -- Domain B -- Domain B
In the course of identifying pathways to create ProChart, we anticipate
discovering and, where appropriate, filing patent applications on novel
proteins. We believe that some of these proprietary proteins will be important
biological targets. In these instances, we will offer those targets to our
customers for licensing fees, milestone payments and royalty payments.
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Protein Arrays
We plan to sell defined sets of known protein families, or protein arrays, for
use in lead optimization. The signaling proteins in ProChart are organized based
on their domains. Domains are interaction modules, or defined structural
recognition regions on proteins, which are the sites of specific interaction
between one protein and another. These domains are the parts of signaling
proteins where a drug may interact and alter a pathway. There are estimated to
be 60 to 80 domain families in signaling pathways. Each family may have 100 to
300 members. Customers who identify potential targets in ProChart based on a
specific interaction involving a particular domain will need that physical
protein for screening. They will also need the other family members which have
that domain in common. The relative degrees of binding to these other family
members represent the toxicity and possible side effects of a drug candidate.
In the course of generating data for ProChart, we completed mapping the protein
interactions for the known proteins of the WW domain family. This represents the
first family of protein domains for which an entire target array has been
mapped. This array may be useful in developing optimized drugs for diseases is
which the WW family has been implicated such as hypertension, muscular dystrophy
and certain immunodeficiencies.
We plan to chart the entire human proteome of intracellular protein signaling
pathways. Our existing robotics systems are designed to permit generation of
approximately 15,000 data points per day. We anticipate making significant
progress in mapping the signaling pathways in the human proteome in the next
four years. We intend to sell multi-year subscriptions to pharmaceutical and
biotechnology companies, pricing the product according to market receptivity and
the nature and quantity of information it contains.
Marketing
We previously established a collaboration with InforMax, Inc., a publicly held
bioinformatics provider. InforMax is a leader in the development of
bioinformatics software for accelerated drug discovery and has a proven track
record in software development. We are jointly designing an interface for
ProChart with InforMax that will be integrated with InforMax's GenoMax (TM)
product. GenoMax is a bioinformatics system that offers high-speed analysis of
both public and proprietary genetic databases within the security of a corporate
firewall. This system is designed to allow the subscriber to evaluate data in
ProChart, while accessing other public and private databases. We are also
developing an application programming interface for ProChart, to permit
integration with other bioinformatics platforms, including those developed by
the customers themselves. By taking advantage of an existing bioinformatic
platform, we plan to concentrate our efforts on the development of tools
specific to protein pathway data. InforMax will also lead in marketing ProChart.
InforMax has developed a Protein-Protein Interaction (PPI) module for the
GenoMax enterprise bioinformational system, a modular platform of advanced
analysis programs for genomic and proteomic applications, and successfully
integrated ProChart.
We plan to market ProChart as multi-year subscriptions allowing access to
ProChart inside the customers' corporate firewall. This subscription delivery is
facilitated using InforMax's GenoMax product into which ProChart has been
successfully integrated. These subscriptions may include collaborative
bioinformatics research projects to analyze specific pathways as requested by a
customer. Such collaborations would typically provide additional revenues, and
could also include milestone payments and royalty-based revenues from any
products emerging from the collaborative research and developed by our partner.
Our proteomics patents and proprietary rights position
Overall, our patent strategy has focused on composition and use of the proteins
and peptides which we are discovering, thus avoiding the uncertainty and
controversy associated with the patenting of genes. We believe such composition
and use claims should be important because we believe it is likely that proteins
rather than genes will be the targets for new drugs.
We will market our protein targets under arrangements that we anticipate would
include licensing fees, milestone payments and royalty payments as our customers
develop products based on these targets. We plan to market protein arrays under
a license for use and, where possible, obtain commitments for milestone payments
and royalty-based payments if the arrays contain novel protein targets
proprietary to us.
We intend to pursue aggressively patent protection for novel synthetic peptides
and novel naturally occurring polypeptides that we identify as binding to
ligands of interest, as well as for products and methods relating to the use of
these polypeptides and their respective genes as possible drug targets in
screening assays. We also intend to seek patent protection for methods and
products relating to our data analysis procedures.
-7-
Among our patents are two issued U.S. patents relating to peptides that bind to
certain molecules expressed on cancer cells. We also co-own with the University
of North Carolina at Chapel Hill an issued U.S. patent covering certain
polypeptides that contain a WW domain.
We are the exclusive licensee of certain patents and patent applications owned
by the University of North Carolina at Chapel Hill, covering parts of the
proteomics technology. These include seven issued U.S. patents relating to our
phage display libraries, methods of using phage display libraries to identify
peptides that bind to a target molecule of interest, as well as peptides that
bind to certain molecules.
Competition
We are subject to significant and increasing competition in the field of
proteomics. Many companies compete in the overall effort to understand the
complex flow from gene sequence, to transcription into messenger riboneucleic
acid, to protein expression and finally to biological activity. In addition,
most major pharmaceutical and biotechnology companies have some level of
internal activity and high interest in these areas.
The technology for analyzing the functions of proteins in a disease setting, and
for mapping interactions between proteins, is relatively new. This technology is
evolving rapidly and developments by competitors, including potential customers,
could make our technology obsolete. A number of companies compete with our
approach to analyzing the proteome, and others compete with our technology for
identification of novel proteins and use of proteins for possible drug targets.
Of the several approaches used commercially to analyze the proteome, the main
direct competitor with our technology is the yeast two-hybrid system. Three
companies, Myriad Genetics, Inc. (NASDAQ: MYGN), CuraGen Corporation (NASDAQ:
CRGN) and Hybrigenics Inc. use this method to perform large-scale cataloguing of
protein-protein interactions.
Strategic alliances
InforMax, Inc.
In September 1999, AxCell and InforMax, Inc. concluded an agreement to market
ProChart as part of an enterprise bioinformatics solution to the pharmaceutical
and biotechnology industries. The three year agreement also provides for
technology development by InforMax to link our database to InforMax's GenoMax, a
new generation of molecular biology and genetics software. In February 2001,
AxCell and InforMax announced the development of the Protein-Protein Interaction
(PPI) module for the GenoMax enterprise bioinformatics system and successfully
integrated ProChart, AxCell's growing database of human protein interactions.
AxCell has developed technology that provides both qualitative and quantitative
information about a wide range of protein-protein interactions. The integration
of ProChart with GenoMax was demonstrated publicly for the first time at the CHI
Genome Tri-Conference in San Francisco, CA, in March of 2001.
Compaq Computer Corporation
In December 1999, AxCell entered into a developer partnership with Compaq
Computer Corporation. This development program will be facilitated by Compaq's
proven Alpha architecture, high performance 64-bit systems that deliver speed
and scalability advantages. Under the agreement, Compaq has provided us with
hardware for the development of our proteomics database. In December 2000,
AxCell furthered its strategic relationship with Compaq, adding additional
hardware provided by Compaq to continue the development of ProChart. Due to
increasing laboratory data output, AxCell's computing requirements have more
than doubled and Compaq's AlphaServer cluster technology facilitated the
required expansion.
University of North Carolina
We sponsored research at, and are the exclusive licensee of certain patent and
patent applications and technology owned by the University of North Carolina at
Chapel Hill, covering the creation of long peptides that may fold to form
three-dimensional functional structures, and of libraries composed of these
peptides. The technology covered by this collaboration has been utilized, with
other technology we developed, in our proteomics program.
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Other Initiatives
We previously announced an intention to enter into a proteomics collaboration
with the Institute for Systems Biology. These collaborative efforts are still in
the preliminary phases.
We executed a Materials Transfer Agreement with the Fred Hutchinson Cancer
Research Center pursuant to which AxCell obtained the Center's prostate cancer
related cDNA libraries for research purposes.
Our scientific plan to investigate potential synergies between AxCell's
technology and Molecular Staging, Inc.'s ("MSI") Rolling Circle Amplification
Technology has been postponed. AxCell will continue to explore opportunities for
scientific collaboration with MSI going forward.
ONCOLOGY
Background
Cancer encompasses a large number of discrete diseases that afflict many
different parts of the human body. The diversity of cancer diseases and their
overall prevalence creates a large need for new and improved treatments. Cancer
is the second leading cause of death in the United States, accounting for one of
every four deaths in the United States. According to the American Cancer
Society, about 1,220,100 new cancer cases were expected to be diagnosed in 2000.
Since 1990, approximately 13 million new cancer cases have been diagnosed. The
National Institute of Health estimates overall annual direct medical costs for
cancer at over $100 billion. Treatment of breast, lung and prostate cancers
account for over half of these direct medical costs. This market is not
saturated and novel treatments often enjoy premium pricing and rapid market
acceptance. Fundamentals of the oncology market that are particularly
encouraging include:
- accelerated approval procedures adopted by the FDA to shorten the
development process and review time for cancer drugs;
- in-licensing opportunities created by a trend among large
pharmaceutical companies to concentrate on products with larger
market potential than most anticancer drugs;
- favorable pricing and reimbursement for oncology drugs; and
- a highly concentrated population of oncology healthcare
professionals which we believe allows a smaller sales force to be
effective.
We develop, commercialize and market products to improve the diagnosis and
treatment of cancer. We were founded based upon our knowledge of monoclonal
antibodies. Our research efforts in this area led to our marketed products. In
the development of our current products, we also developed expertise in
molecular recognition and in linking radioisotopes to carriers, including
antibodies, for diagnostic and therapeutic purposes. We also developed expertise
with nuclear imaging, including training of technicians and physicians, utilized
for diagnostic purposes. We have applied this knowledge primarily in the field
of prostate cancer, and for imaging/diagnostic agents for colorectal and ovarian
cancers. Our historical knowledge led to research programs, both internally and
in collaborations with academic and scientific institutions, in which we gained
additional knowledge about antibodies, proteins, identification and synthesis of
novel proteins, and antigens located by those compounds. We plan to apply our
research and development experience, coupled with our proprietary technology
rights, to build an oncology business for an integrated approach in the
intervention and progression of disease. We now have an established in-house
sales force, consisting of experienced salespersons and technical
representatives. We intend to use this sales force to sell current products and
any products which we develop or acquire.
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Product Indication Status Development/Marketing
-------- ---------- ------ ---------------------
- ----------------------------------------------------------------------------------------------------------
ProstaScint Monoclonal antibody Approved and marketed in Cytogen (United States &
diagnostic imaging agent the United States. Canada)
for staging the spread of Regulatory approval pending
prostate cancer in Canada
- ----------------------------------------------------------------------------------------------------------
BrachySeed(TM) Treatment of localized Iodine approved and Cytogen (United States)
tumors such as tumors of marketed in the United
the neck, lung, pancreas, States
breast, uterus and prostate
Palladium to be submitted
for approval in second
quarter of 2001
- ----------------------------------------------------------------------------------------------------------
OncoScint CR/OV Monoclonal antibody Approved for sale in eleven Cytogen (United States and
diagnostic imaging agent European countries and Canada)
for spread of colorectal Canada. Approved in the
and ovarian cancer United States
- ----------------------------------------------------------------------------------------------------------
Quadramet Relief of bone pain from Approved in the United Berlex (United States);
cancer spread to the bone States and Canada Cytogen (Canada)
from primary tumor
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Treatment of Refractory Evaluating Phase I results Berlex (United States);
Rheumatoid Arthritis Cytogen has marketing rights
in Canada, Europe, Japan and
certain other countries
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Treatment of disease Phase III Berlex (United States);
progression by use of Cytogen (Canada)
Quadramet, prior to onset
of pain
- ----------------------------------------------------------------------------------------------------------
PSMA Development In vivo immunotherapeutic Pre-clinical development Progenics/Cytogen LLC
product for cancer vaccine
utilizing gene and
protein-based therapy
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Prostate cancer Pre-clinical development Progenics/Cytogen LLC
antibody-based therapy
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In vitro diagnostic tests Development of a trial assay Cytogen to market
for prostate cancer
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Ex vivo dendritic cell Phase I/II clinical trials Northwest Biotherapeutics,
processing Inc.
- ----------------------------------------------------------------------------------------------------------
Pipeline--PSMA technology
Prostate specific membrane antigen, or PSMA, is a transmembrane protein that can
be used as an important marker associated with prostate cancer. PSMA has also
been found to be present in new blood vessel formation associated with other
major solid tumors. It is overexpressed in primary prostate cancer, but it is
expressed most highly in the more aggressive forms of prostate cancer, including
those that do not express prostate specific antigen, or PSA, and those that do
not respond to hormone therapy. When PSMA was compared to various PSA tests, the
presence of PSMA was a more accurate guide of the extent of cancer. However,
there are currently no commercially available assays for PSMA. Memorial
Sloan-Kettering Cancer Center identified PSMA using a monoclonal antibody
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supplied by us. A patent entitled "Prostate Specific Membrane Antigen" was
issued to Sloan-Kettering Institute for Cancer Research, an affiliate of
Memorial Sloan-Kettering Cancer Center, and we have the exclusive worldwide
license covering this technology. Subsequently, the antibody for PSMA was the
basis of our FDA-approved ProstaScint imaging product. We believe that
technology utilizing PSMA can yield novel products for the treatment and
diagnosis of cancer because of the unique characteristics of this antigen.
In 1999, Cytogen entered into a joint venture with Progenics Pharmaceuticals,
Inc. ("Progenics") to develop in vivo immunotherapeutic products utilizing PSMA.
The first of these product candidates is a therapeutic prostate cancer vaccine
utilizing the PSMA gene and a vector delivery system and the PSMA protein as a
basis of immune stimulation. We are also developing through this venture an
antibody-based immunotherapy for prostate cancer. We believe that these product
candidates, if successfully developed, could play an important role in the
treatment of prostate cancer. We believe there are significant unmet needs for
treatment and monitoring of this disease. In addition, we intend to evaluate the
utility of these therapies, as an anti-angiogenesis approach, in other cancers
where PSMA is expressed e.g., breast, colon, etc.
The joint venture is owned equally by Progenics and us. We have exclusively
licensed to the joint venture certain immunotherapeutic applications of our PSMA
patents and know-how. Progenics will fund up to $3 million of pre-clinical
development costs of the program, which we anticipate will be adequate to fund
the project through the pre-clinical stage. We and Progenics will share costs of
the program in excess of the initial $3 million for clinical development. We
have certain North American marketing rights to products developed by the
venture and a right of first negotiation with respect to marketing activities in
any territory outside North America. We anticipate marketing any products
developed upon approval by the FDA or requisite foreign regulatory bodies, as
applicable. If approved, we anticipate marketing these products with our own
sales force and will be reimbursed by the joint venture for these costs. We will
split the remaining revenues equally with Progenics on any products developed by
the venture. In connection with the licensing of the PSMA technology to the
joint venture, we will receive $2 million in payments, of which $1 million was
received during 1999 and $500,000 during 2000, and the balance will be received
by the end of 2001. We have exclusively licensed in vivo immunotherapy rights to
PSMA to this joint venture.
We licensed PSMA through our subsidiary, Prostagen, Inc., to Northwest
Biotherapeutics, Inc., for development of in vitro dendritic cell processing
immunotherapy to prostate cancer. Prostagen also licensed exclusive PSMA
manufacturing rights for immunotherapy to Northwest Clinicals, LLC, a
corporation formed and co-owned by Northwest Biotherapeutics and Prostagen. In
2000, we executed a new sublicense agreement with Northwest Biotherapetics Inc.
clarifying their rights to make and use PSMA for ex vivo prostate cancer
immunotherapy. The license agreement with Northwest Clinicals, LLC was
terminated and the manufacturing rights thereunder returned to Cytogen except
for those granted under the newly-executed license with respect to ex vivo
immunotherapy. Our joint venture agreement with Progenics required that we
reacquire our PSMA manufacturing rights by June 15, 2000, or the following would
occur: (i) Progenics will acquire co-exclusive marketing rights with us; (ii) we
will be obligated to contribute up to an additional $500,000 to the joint
venture to fund research and development; and (iii) Progenics' research and
development expense obligation will be reduced to $2.5 million. We and Progenics
are reviewing the timing and nature of actions taken regarding these
manufacturing rights in order to determine the parties' prospective rights and
obligations under the joint venture agreement.
We obtained exclusive, world-wide licenses from Molecular Staging, Inc. for
technology to be used in developing in vitro diagnostic tests using both PSMA
and PSA. Molecular Staging's Rolling Circle Amplification Technology is a novel,
patented process that creates new diagnostic opportunities. Rolling Circle
Amplification Technology is a highly sensitive, quantitative and efficient
amplification method that allows the user to detect the presence of target
molecules in a wide array of testing formats. It offers a practical method that
allows solid phase recognition and detection of target molecules either
directly, on a cell or on a biochip. Our initial goal is to deploy Molecular
Staging's technology in a new diagnostic kit for managing prostate cancer based
on detection of PSA and PSMA. We anticipate initiating a clinical trial of the
PSA assay and determining proof of concept for the PSMA test next year. We also
plan to deploy such assays for diagnosis of other tumors where PSMA is found in
associated neovasculature.
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Market potential
Diagnostic Screening Tests
The measurement of prostate specific antigen, or PSA, levels in the circulation
is the only in vitro test approved for the diagnosis, monitoring and screening
of prostate cancer in the United States. The American Cancer Society, American
College of Radiology and American Urologic Association have recommended PSA for
use in screening of asymptomatic men, in combination with a digital rectal
examination. However, in 1997, the American College of Physicians concluded that
there was no evidence of benefit from routine screening using PSA and
recommended against regular screening using this test. The American Urologic
Association, which supports screening tests for eligible men over 50 years of
age, claims that PSA and digital rectal examination screening increases the rate
of early cancer diagnosis from 30% to 40% for those not screened to 70% to 85%
for those screened with PSA. Even though a PSA test combined with a digital
rectal exam increases the chances of detection, the method generates a high
number of false positives that often lead to unnecessary biopsies. We believe
new and more accurate tests based on PSA and PSMA may offer higher specificity
and prognostic information in diagnosing primary and recurrent prostate cancer.
An estimated 23.8 million PSA tests were performed in 1998 yielding a market
value of $286 million. It is expected that this market will reach nearly $400
million in 2001 according to the 1999 Medical Data International Report. Current
estimates of the world-wide market are $400-600 million with approximately 60
million men being screened for PSA levels in the United States. In addition,
over one million biopsies are performed annually in the United States to confirm
the presence of prostate cancer following a screening. Furthermore, the
correlation of PSA values and prostatic biopsy results has failed to achieve a
level of predictability which avoids unnecessary biopsies. Our goal is to
develop an ultra-sensitive PSA test utilizing novel amplification technologies,
initially targeted for the recurrent disease setting.
A serum test for PSMA, representing a novel marker associated with more
aggressive disease, is anticipated to provide more relevant prognostic value and
improve the accuracy of evaluating prostate cancer. We anticipate providing both
tests together on a new diagnostic chip.
Immunotherapy/Vaccines
We are developing, as part of our collaboration with Progenics,
immunotherapeutics for treatment of prostate cancer. We believe immunotherapy is
a particularly attractive alternative for the treatment of advanced prostate
cancer and for prevention of recurrent disease by eliminating metastases.
Because PSMA has been identified as a unique antigen linked to prostate cancer,
it may serve as an excellent immunotherapy target.
As part of our joint venture with Progenics, we are developing both vaccine and
antibody-based immunotherapies directed to PSMA. Additionally, antibody-based
applications may also include radio labeled or toxic-conjugated agents.
We believe that there are approximately one million men annually in the United
States who are at risk for recurrent disease and/or have advanced prostate
cancer. We estimate that the potential market for a vaccine or antibody-based
treatment is greater than $500 million annually in the United States.
Our approved products
We have four marketed products, each of which has been approved by the FDA:
ProstaScint, used as an imaging agent in the diagnosis of the extent and spread
of prostate cancer; BrachySeed, a second generation radioactive implant for
prostate cancer therapy; OncoScint CR/OV, marketed as a diagnostic imaging agent
for colorectal and ovarian cancer; and Quadramet, used for relief of bone pain
from cancer that has spread to the bone from the primary tumor.
Cancer diagnostic imaging products
Our cancer diagnostic products, ProstaScint and OncoScint CR/OV, are
murine-based monoclonal antibody-based imaging agents for prostate, colorectal
and ovarian cancers. These products utilize our proprietary targeted delivery
system, employing whole monoclonal antibodies, which directs the radioisotope
Indium/111/ to malignant tumor sites. A radioisotope is an element which,
because of nuclear instability, undergoes radioactive decay and emits radiation.
The imaging products are supplied to hospitals, diagnostic imaging centers and
radiopharmacies.
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During an imaging procedure, the radiolabeled monoclonal antibody product is
administered intravenously into the patient. The antibody travels through the
bloodstream and binds to specific antigens expressed by the tumors being
studied. The radioactivity from the isotope that has been attached to the
antibody can be detected from outside the body by a gamma camera. Gamma cameras
are universally found in all nuclear medicine departments. The image captured by
the camera identifies the existence, location and extent of the radio-labeled
pharmaceutical thus identifying the sites of tumor. Based on clinical studies
conducted to date by physicians on our behalf, the imaging agents may provide
new and useful information not available from other diagnostic modalities
regarding the existence, location and extent of a specific disease throughout
the body. We believe that this information has the potential to affect the way
physicians manage their patients' individual treatments.
ProstaScint
ProstaScint is a diagnostic monoclonal antibody linked to Indium/111/ which
specifically targets PSMA. Due to the selective expression of PSMA, the
ProstaScint imaging procedure can detect the extent and spread of prostate
cancer in the body. ProstaScint is approved by the FDA for marketing in two
clinical settings: as a diagnostic imaging agent in newly diagnosed patients
with biopsy-proven prostate cancer thought to be clinically localized after
standard diagnostic evaluation and who are at high risk for spread of their
disease to pelvic lymph nodes and for use in post-prostatectomy patients in whom
there is a high suspicion that the cancer has recurred.
According to the American Cancer Society, nearly 200,000 American men were
diagnosed with prostate cancer in 2000, of whom approximately 11% are at high
risk for metastatic spread of their disease. In addition, estimates indicate
that in 2000, 40,000 to 60,000 patients previously treated for prostate cancer
developed symptoms of recurrent cancer which had not yet progressed to the point
of skeletal involvement. We believe that there are approximately 60,000 to
70,000 patients with prostate cancer in the United States who are candidates,
based on current indications, to receive a ProstaScint scan each year. We
believe that the potential market for ProstaScint is over $60 million in the
United States.
When deciding on an initial course of therapy for diagnosed prostate cancer,
physicians must first determine the extent of disease in the patient. The
accuracy of this information is vital in deciding upon an appropriate course of
therapy. Prior to the availability of ProstaScint, determining whether newly
diagnosed disease was limited to the prostate or had spread beyond the gland was
based upon statistical inference from the biopsy appearance of the tumor and the
patient's serum level of PSA. Conventional imaging methods such as CT or MRI are
all relatively insensitive because they rely on identifying significant changes
to normal anatomic structure to indicate the presence of disease. The
ProstaScint disease scan images are based upon expression of the PSMA molecule
and, therefore, can identify disease not readily detectable with conventional
procedures.
In the United States, following initial therapy, prostate cancer patients are
monitored to ascertain changes in the level of PSA. In this setting, a rise in
PSA is evidence of recurrence of the patient's prostate cancer. Knowledge of the
extent and location of disease recurrence is important in choosing the most
appropriate form of treatment. The National Comprehensive Cancer Network (NCCN),
a consortium of leading cancer hospitals, in 2000 included ProstaScint in its
Practice Guidelines for Prostate Cancer. These guidelines are published to serve
as the practice standard for the oncology community.
We also believe that ProstaScint may be useful for imaging the extent of
prostate cancer within the prostate gland. ProstaScint guided therapy may be
useful to help guide specific treatments such as prostate brachytherapy or
highly targeted external beam radiation. Brachytherapy is a treatment which
implants radiation sources into the site of the tumor; while external beam
radiation utilizes a beam of radiation directed at the cancer from a source
outside the body. We estimate that approximately half of newly diagnosed
prostate cancer patients will undergo a form of radiation treatment. The current
generation of imaging technologies enables physicians to view ProstaScint scans
incorporated with conventional imaging modalities. We believe these technologies
will create greater acceptance of ProstaScint. There are no other agents
approved for the imaging and diagnosis of prostate cancer.
OncoScint CR/OV
OncoScint CR/OV is approved by the FDA for single use with other appropriate,
commercially available diagnostic tests, to locate malignancies outside the
liver in patients with known colorectal or ovarian cancer. OncoScint CR/OV is
also approved for sale in eleven European countries and Canada. However, this
product has not yet been widely adopted by physicians for patients with these
conditions. We market OncoScint CR/OV in the United States directly through our
own sales force. The market for OncoScint CR/OV for colorectal cancer diagnosis
has been negatively affected by positron emission tomography, or "PET", scans.
The sensitivity of the PET scan in colon cancer appears to be similar or higher
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than the OncoScint CR/OV scan. Consequently, we are deemphasizing the marketing
of OncoScint CR/OV for colorectal cancer and focusing on its use in recurrent
ovarian cancer which impacts approximately 16,800 women annually.
Cancer therapeutic products
Quadramet
Quadramet, a cancer therapeutic agent, is approved by the FDA for the relief of
pain in patients with metastatic bone lesions that image on conventional bone
scan, a routinely performed nuclear medicine procedure. Quadramet consists of a
radioactive isotope, Samarium/153/, which emits beta radiation, and a chelating
agent, EDTMP, which targets the drug to sites of new bone formation.
Once tumors have metastasized to the skeleton, they continue to grow and cause
destruction of the adjacent bone. This erosion of bone stimulates new bone
formation which encircles the metastatic tumor. By targeting these areas of bone
formation, Quadramet delivers site-specific radiation which may result in
significant pain reduction.
According to American Cancer Society and National Cancer Institute statistics,
approximately 600,000 new cases of cancer that typically metastasize to bone
occurred in the United States in 1997. We believe that over 200,000 patients
each year will suffer from bone pain that is severe enough to require
intervention. Based on this information, we believe that the potential market
for Quadramet is approximately $80 million in the United States based on 20% of
this patient population.
Quadramet has many characteristics which we believe are advantageous for the
treatment of cancer bone pain, including early onset of pain relief, lasting up
to four months with a single injection; predictability of recovery from bone
marrow toxicity; ease of administration and length of pain relief. In addition,
due to its pharmacokinetic properties, the radioactive plasma half-life is only
five to six hours. Quadramet is administered as a single intravenous injection
on an outpatient basis and directly targets sites of new bone formation which
include those areas in the skeleton that have been invaded by metastatic tumors.
Quadramet exhibits high and very selective uptake in bone with little or no
detectable accumulation in soft tissue.
Berlex has initiated a Phase III B clinical trial to evaluate the extension of
the use of Quadramet to patients whose bone metastases can be visualized on
conventional bone scan, but who are not yet experiencing pain from these
metastases. We believe earlier use in the care of cancer patients could expand
the potential market for Quadramet significantly. Our continuation of these
trials will depend upon their progress and success of the trial, and on
decisions by our marketing partner Berlex to continue to fund the trial. If this
trial is successful, we plan to seek expansion of the FDA approved indication of
Quadramet for this therapeutic use in delaying progression of the onset of pain.
Realization of the full market potential of Quadramet is dependent on realizing
this expanded indication.
Current competitive treatments for severe bone cancer pain include narcotic
analgesics, external beam radiation therapy, Metastron and Novantrone.
The first non-cancer use of Quadramet under investigation is the treatment of
patients with refractory rheumatoid arthritis. We believe Quadramet can target
the diseased joints and provide a high but localized dose of radiation to the
area which may relieve the symptoms of refractory rheumatoid arthritis. We are
determining how to proceed with this possible use based upon analyzing the data
from a recently completed Phase I dose escalation study.
BrachySeed
Of the nearly 200,000 men diagnosed with prostate cancer in 2000, approximately
60% to 70% will have localized disease (cancer confined to the prostate gland).
The most common treatment options for localized disease are prostatectomy, the
surgical removal of the prostate, or brachytherapy, the implantation of small
radioactive pellets or "seeds" into the prostate. Approximately 100 seeds are
implanted during a brachytherapy procedure.
BrachySeed is a unique, second generation radioactive brachytherapy implant
developed by Draxis Health, Inc. and its subsidiary, Draximage, Inc. ("Draxis")
and marketed in the United States by Cytogen. BrachySeed's unique, single-weld
design brings a new level of accuracy, precision and safety to sealed source
implant surgery. Each BrachySeed is robotically manufactured and undergoes six
separate quality control checks to ensure uniformity.
While brachytherapy has been available since the 1970s, it has only started to
gain prominence and greater acceptance within recent years, coinciding with the
development of advanced technologies to aid seed placement. Brachytherapy is the
fastest growing treatment for localized prostate cancer and offers a number of
-14-
potential benefits compared to alternative treatments such as prostatectomy,
including rapid patient recovery, lower costs and reduced incidence of
complications such as impotency and incontinence. Given this improved
side-effect profile, the market for brachytherapy seeds has grown by 95% over
the last three years. According to the 1999 Medical Data International Report,
by 2003, it is estimated that approximately half of all newly diagnosed prostate
cancer patients will opt for brachytherapy, while radical prostatectomies will
be performed on less than 15% of patients. Independent estimates place the
current brachytherapy market at $220 million in the United States and growing by
approximately $100-200 million in three to four years.
Later this year or early next year, Draxis plans to supply Cytogen with a
second-generation palladium-based seed. The more energetic radiation from
palladium is thought to be suitable for certain aggressive forms of prostate
cancer.
Oncology Product Sales, Marketing and Distribution
We currently employ a dedicated field sales force targeting approximately 10,000
healthcare professionals. The primary objective of the sales force is to promote
our products to urologists, radiation oncologists and nuclear medicine
physicians. Within this field force are technical specialists who assist in the
training of nuclear medicine technologists and nuclear medicine physicians, and
qualify nuclear imaging centers to conduct ProstaScint imaging. We depend on our
own sales force for the sale and marketing of ProstaScint, BrachySeed and
OncoScint CR/OV products and on Berlex for United States sales, marketing and
distribution of Quadramet. Distribution of ProstaScint and OncoScint CR/OV is
handled by outside contractors and Berlex and DuPont handle the distribution of
Quadramet. We are the exclusive United States distributor for BrachySeed.
During 2000, the Company terminated its co-marketing arrangement with the Bard
Urological Division of CR Bard Company, Inc. ("Bard"). Historically, ProstaScint
has been marketed under a co-marketing arrangement with the urological division
of Bard, a marketer of a broad range of urology products. In 1999, we reached an
agreement with Bard to phase out the co-marketing agreement so that we could
undertake direct marketing responsibility for the product. We took this step
because of our view that a highly trained and dedicated internal sales force
will be able to market our high technology products most effectively and to
build a marketing capability for possible future products. The transition was
completed by mid-year 2000.
ProstaScint is a technique-dependent product that requires a high degree of
proficiency in nuclear imaging technology in order to interpret the scan. We
have established a network of accredited nuclear medicine imaging centers
through our PIE, or Partners In Excellence Program. Each PIE site receives
rigorous training, undergoes proficiency testing and is subject to ongoing
quality assurance protocols. As of December 31, 2000, there were over 350 PIE
sites, including a majority of the National Cancer Institute-designated
Comprehensive Cancer Centers. ProstaScint may only be used at PIE sites. We plan
to add PIE sites on a selective basis in order to ensure that new sites are
adequately qualified and committed to a minimum number of scans for maintaining
a high level of competence. At the present time, we bear partial expense of the
qualification of each site.
In 1999, we reacquired rights to our ProstaScint and OncoScint CR/OV products in
Canada, which were to be marketed by Faulding (Canada), Inc. We did not pay for
the return of these rights. OncoScint CR/OV is approved by the Canadian Health
Care Branch and ProstaScint is under expedited review with approval expected by
the second half of 2001. We believe these products may be marketed to major
cancer centers in Canada and will not require a significant level of resources.
However, we cannot be certain that ProstaScint will be approved in Canada, that
these products will be reimbursable under the Canadian health care system or
reimbursed on favorable economic terms, or that they will be accepted by
physicians.
In June 2000, we filed applications for regulatory approval for ProstaScint in
Europe. We received a review of our application in November 2000 and we will be
submitting a response thereto by the end of the second quarter of 2001. We are
currently assessing the viability of European marketing of ProstaScint.
Since May 1994, we have been the sole marketer of OncoScint CR/OV in the United
States. In 1996, we entered into a distribution agreement with CIS
biointernational, granting to CIS biointernational the exclusive right to
distribute and sell OncoScint CR/OV worldwide, except for in the United States
and Canada. This Agreement was terminated effective in March 2001 by mutual
agreement of the parties.
In October 1998, we entered into an exclusive agreement with Berlex
Laboratories, Inc. for the marketing of Quadramet, after terminating our
previous marketing relationship with the DuPont Merck radiopharmaceutical
division. Berlex re-launched Quadramet in March 1999. Berlex maintains a sales
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force that targets its sales efforts on the oncological community. Pursuant to
our agreement with Berlex, we are entitled to royalty payments based on net
sales of the Quadramet product and milestone payments based upon sales levels
achieved.
During the first year of launch, Quadramet was marketed principally to the
nuclear medicine community, which administers the treatment to patients.
However, the treatment is more typically prescribed by caregiving physicians,
including medical oncologists, radiation oncologists and urologists. We believe
that successful commercialization of Quadramet will depend upon marketing to
these referring physicians.
We plan to market Quadramet in Canada. We paid no costs to obtain these
marketing rights. We are evaluating whether to market Quadramet directly in
Canada or through a marketing partner.
We have no significant foreign revenues. Although we plan to sell our products
internationally, we cannot assure you that the products will be accepted by the
foreign medical community or regulators or that we will be able to sell at
adequate prices. We will incur expenses if we sell our products in foreign
countries, and if our products do not generate adequate revenues we may not be
able to recover these expenses.
Strategic Alliances and License Agreements
Draxis Health, Inc.
In December 2000, we entered into a Product Manufacturing and Supply Agreement
and a License and Distribution Agreement with Draxis to, among other things,
market and distribute BrachySeed implants for prostate cancer therapy in the
United States. Under the agreement, Draxis will supply radioactive iodine and
palladium seeds to us in exchange for royalties on sales and certain milestone
payments. The FDA granted marketing approval for BrachySeed in September 2000.
We launched the radioactive iodine BrachySeed in the United States in January
2001. We cannot be certain, however, of the market acceptance of the product or
whether this product will significantly increase our revenues.
Advanced Magnetics, Inc.
In August 2000, Cytogen and Advanced Magnetics, Inc. mutually terminated a
previously negotiated agreement pursuant to which Cytogen was to acquire
Advanced Magnetics. Instead, the two companies entered into marketing, licensing
and supply agreements (the "AVM Agreements"). Under the AVM Agreements, the
Company acquired exclusive United States rights to two product candidates,
Combidex and imaging agent Code 7228 for oncology applications. Combidex, a MRI
contrast agent for the detection of lymph node metastases, recently received an
approvable letter subject to certain conditions by the FDA, following a priority
review. Code 7228 is being developed for oncology and magnetic resonance
angiography applications and is expected to enter Phase II clinical development
during this year. The Company has rights to Code 7228 for oncology applications
only. There can be no assurance that Advanced Magnetics will receive FDA
approval to market Combidex or Code 7228 in the United States.
Progenics Pharmaceuticals, Inc.
In 1999, we entered into a joint venture with Progenics Pharmaceuticals, Inc. to
develop products utilizing our PSMA technology. The first of these products,
currently under development, is a therapeutic prostate cancer vaccine utilizing
a gene-based approach. Our current plans are that this approach, if successful
in pre-clinical development, should proceed to clinical trials in 2002. We
cannot, however, assure you that pre-clinical development will be successful or
that any products will proceed to clinical trials. We are also developing
through this venture antibody based immunotherapy for prostate cancer. We
believe that these drugs, if successfully developed, could play an important
role in the treatment or prevention of advanced prostate cancer and other
cancers where PSMA is expressed (e.g. breast, colon, etc.).
The Dow Chemical Company
In March 1993, we obtained an exclusive license from The Dow Chemical Company to
North American rights to use Quadramet as a therapeutic radiopharmaceutical for
metabolic bone disease or tumor regression for cancer caused by metastatic or
primary cancer in bone in humans, and for the treatment of disease characterized
by osteoblastic response in humans. In November 1998, Dow also extended our
exclusive rights for use of Quadramet in treating advanced rheumatoid arthritis
to Europe, Japan and other countries in addition to North America.
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Memorial Sloan-Kettering Cancer Center
In 1993, we began a development program with Memorial Sloan-Kettering Cancer
Center involving PSMA and our proprietary monoclonal antibody. In November 1996,
we exercised an option for and obtained an exclusive worldwide license to this
technology.
Molecular Staging, Inc.
We obtained an exclusive, world-wide license from privately held Molecular
Staging, Inc. for technology to be used in developing in vitro diagnostic tests
utilizing PSMA and PSA. We anticipate initiating a clinical trial of the PSA
assay and determining proof of concept for the PSMA test next year.
Elan Corp. plc
We entered into a license agreement granting Elan worldwide rights to a group of
peptides and associated technology for orally administered drugs that are
transported across the gastrointestinal epithelium, as well as rights to other
orally delivered drugs derived from the research program. Elan is responsible
for the further development and commercialization of this technology. We are
entitled to royalties from sales of any product developed and commercialized
based on this technology.
PRODUCT CONTRIBUTION TO REVENUES
Our currently marketed products and other sources of income constitute a single
business segment. ProstaScint and Quadramet account for a significant percentage
of our product-related revenues. For the years ended December 31, 2000, 1999 and
1998, revenues related to ProstaScint accounted for approximately 66%, 57% and
32%, respectively, of our total revenues while revenues related to Quadramet
accounted for approximately 19%, 9% and 17%, respectively, of our total
revenues.
RESEARCH AND DEVELOPMENT
Our research and development expenditures include projects we conducted and
payments we made to customer sponsored research programs, which for the past
three years have been immaterial. Our expenses for research and development
activities, including customer sponsored programs, were:
- 2000 -- $7.0 million
- 1999 -- $3.8 million
- 1998 -- $10.0 million
We intend to pursue research and development activities having commercial
potential and to review all of our programs to determine whether possible market
opportunities, near and longer term, provide an adequate return to justify the
commitment of human and economic resources to their initiation or continuation.
We incurred a significant increase in our research and development expenditures
during 2000 for development of proteomics technology, for development of assays
utilizing PSMA for diagnostics, and for our share of expenses for the
development with Progenics Pharmaceuticals, Inc. of immunotherapies for prostate
and other cancers and the acquisition of Combidex and Code 7228.
COMPETITION
The biotechnology and pharmaceutical industries are subject to intense
competition, including competition from large pharmaceutical companies,
biotechnology companies and other companies, universities and research
institutions. Our existing therapeutic products compete with the products of a
wide variety of other firms, including firms that provide products used in more
traditional treatments or therapies, such as external beam radiation,
chemotherapy agents and narcotic analgesics. In addition, our existing and
potential competitors may be able to develop technologies that are as effective
as, or more effective than those offered by us, which would render our products
noncompetitive or obsolete. Moreover, many of our existing and potential
competitors have substantially greater financial, marketing, sales,
manufacturing, distribution and technological resources than we do. Our existing
and potential competitors may be in the process of seeking FDA or foreign
regulatory approval for their respective products or may also enjoy substantial
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advantages over us in terms of research and development expertise, experience in
conducting clinical trials, experience in regulatory matters, manufacturing
efficiency, name recognition, sales and marketing expertise and distribution
channels. The Company believes that competition for its products is based upon
several factors, including product efficacy, safety, cost-effectiveness, ease of
use, availability, price, patent position and effective product promotion.
We expect competition to intensify in the fields in which we are involved as
technical advances in such fields are made and become more widely known. We
cannot assure you, however, that we or our collaborative partners will be able
to develop our products successfully or that we will obtain patents to provide
protection against competitors. Moreover, we cannot assure you that our
competitors will not succeed in developing therapeutic products that circumvent
our products or that these competitors will not succeed in developing
technologies or products that are more effective than those developed by us.
Notably, Nycomed-Amersham, a company with substantially greater resources than
those of the Company, is dominant in brachytherapy. In addition, many of these
companies may have more experience in establishing third-party reimbursement for
their products. Accordingly, we cannot assure you that we will be able to
compete effectively against existing or potential competitors or that
competition will not have a material adverse effect on our business, financial
condition and results of operations.
MANUFACTURING
Our products must be manufactured in compliance with regulatory requirements and
at commercially acceptable costs. ProstaScint and OncoScint CR/OV are
manufactured at a current good manufacturing practices, or cGMP, compliant
manufacturing facility in Princeton, New Jersey which is operated by Bard
BioPharma L.P., a subsidiary of Purdue BioPharma ("Purdue"). We have access to
the facility for continued manufacture of these products until January 2002. An
Establishment License Application for the facility was approved by the FDA for
the manufacture of ProstaScint in October 1996 and for OncoScint CR/OV in
December 1992. Purdue's facility is subject to routine inspections by the FDA to
assure compliance with current Good Manufacturing Practices. As a result of an
inspection held in April through May of 1999, Cytogen received an FDA Warning
Letter which identified a number of deviations from FDA requirements and
required their correction. We have adopted corrective measures for each of the
concerns identified and in January 2000 we received a letter from the FDA
informing us that our corrective actions appeared to be adequate. A subsequent
inspection in July 2000 reaffirmed this corrective action program. We expect
that this facility will allow us to meet our projected production requirements
for ProstaScint and OncoScint CR/OV in the short term. We do not anticipate,
however, that this arrangement will be continued after January 2002.
In July 2000, the Company entered into a Development and Manufacturing Agreement
with DSM Biologics Company B.V. ("DSM"), pursuant to which DSM will conduct
certain development activities with respect to ProstaScint for testing and
evaluation purposes which Cytogen intends would replace the arrangement with
Purdue, with respect to ProstaScint and OncoScint CR/OV, prior to January 2002.
Under the terms of such agreement, and subject to the regulatory approvals for
the manufacturing of ProstaScint, the parties are obligated to negotiate in good
faith a long term supply agreement. Notwithstanding the parties' obligations to
perform under the agreement or to negotiate a supply agreement in good faith,
the Company cannot be certain that DSM will satisfactorily perform its
obligations thereunder or that the parties will be able to negotiate a supply
agreement on commercially satisfactory terms, if at all. The failure by the
Company to negotiate a supply agreement on commercially reasonable terms will
have a material adverse effect on the Company's business, financial condition
and results of operations.
Any new manufacturing arrangement will be subject to FDA oversight, and
qualification of a new manufacturer with the FDA could take a significant amount
of time. Any failure to obtain such regulatory approvals will have a material
adverse effect on the Company's business, financial condition and results of
operations.
Raw materials and suppliers
The active raw materials used for the manufacture of our products include
antibodies. OncoScint CR/OV uses a monoclonal antibody which is being supplied
in commercial quantities by a single contract manufacturer, Lonza Biologics. We
anticipate that our existing supply will be able to meet our needs for
commercial quantities of monoclonal antibody for the foreseeable future in the
United States.
We currently have arrangements necessary for the production of the monoclonal
antibody for ProstaScint.
Quadramet is manufactured by DuPont pursuant to an agreement with both Berlex
and Cytogen. Some components of Quadramet, particularly Samarium153 and EDTMP,
are provided to DuPont by outside suppliers. DuPont obtains its requirements for
Samarium153 from one supplier. Alternative sources for these components may not
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be readily available. If DuPont cannot obtain sufficient quantities of the
components on commercially reasonable terms, or in a timely manner, it would be
unable to manufacture Quadramet on a timely and cost-effective basis which could
have a material adverse effect on our business, financial condition and results
of operations.
Pursuant to the terms of our Product Manufacturing and Supply Agreement with
Draxis, we rely on Draxis as the sole supplier of BrachySeed, a
second-generation radioactive pellet used in the treatment of prostate cancer.
If Draxis fails or is unable to perform under such agreement, we could
experience a material adverse effect on our business, financial condition and
results of operations.
PATENTS AND PROPRIETARY RIGHTS
Consistent with industry practice, we have a policy of using patent and trade
secret protection to preserve our right to exploit the results of our research
and development activities and, to the extent it may be necessary or advisable,
to exclude others from appropriating our proprietary technology.
Our policy is to aggressively protect our proprietary technology by selectively
seeking patent protection in a worldwide program. In addition to the United
States, we file patent applications in Canada, major European countries, Japan
and additional foreign countries on a selective basis to protect inventions
important to the development of our business. We believe that the countries in
which we have obtained and are seeking patent coverage for our proprietary
technology represent the major focus of the pharmaceutical industry in which we
and certain of our licensees will market our respective products.
We hold 39 current United States patents and 40 current foreign patents. We have
filed and currently have pending a number of additional United States and
foreign patent applications, relating to certain aspects of our technology for
diagnostic and therapeutic products, and the methods for their production and
use. We intend to file patent applications with respect to subsequent
developments and improvements, when we believe such protection is in our best
interest.
We are the exclusive licensee of certain patents and patent applications owned
by the University of North Carolina at Chapel Hill, covering parts of the
proteomics technology. These include seven issued United States patents relating
to our phage display libraries, methods of using phage display libraries to
identify peptides that bind to a target molecule of interest, as well as
peptides that bind to certain molecules. We hold an exclusive license under
certain patents and patent applications held by the Memorial Sloan-Kettering
Institute covering PSMA. We are the exclusive licensee of certain United States
patents and applications held by Dow covering Quadramet.
Among our patents are two issued United States patents relating to peptides that
bind to certain molecules expressed on cancer cells. We also co-own with the
University of North Carolina at Chapel Hill an issued United States patent
covering certain polypeptides that contain a WW domain.
We may be entitled under certain circumstances to seek extension of the terms of
our patents.
We also rely upon, and intend to continue to rely upon, trade secrets,
unpatented proprietary know-how and continuing technological innovation to
develop and maintain our competitive position. We typically enter into
confidentiality agreements with our licensees and any scientific consultants,
and each of our employees has entered into agreements requiring that they
forbear from disclosing confidential information, and in some cases assign to us
all rights in any inventions made while in our employ. We believe that our
valuable proprietary information is protected to the fullest extent practicable;
however, we cannot assure you that:
- additional patents will be issued to us in any or all appropriate
jurisdictions;
- litigation will not be commenced seeking to challenge our patent
protection or that challenges will not be successful;
- our processes or products do not or will not infringe upon the patents
of third parties; or
- the scope of patents issued will successfully prevent third
parties from developing similar and competitive products.
The technology applicable to our products is developing rapidly. A substantial
number of patents have been issued to other biotechnology companies. In
addition, competitors have filed applications for, or have been issued, patents
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and may obtain additional patents and proprietary rights relating to products or
processes that are competitive with ours. In addition, others may have filed
patent applications and may have been issued patents to products and to
technologies potentially useful to us or necessary to commercialize our products
or to achieve our business goals. We cannot assure you that we will be able to
obtain licenses of patents on acceptable terms.
We cannot predict how any patent litigation will affect our efforts to develop,
manufacture or market our products.
We are defendants in litigation filed against us in the United States Federal
Court for the District of New Jersey with respect to claims that our ProstaScint
product infringes a third-party patent. See Item 3. Legal Proceedings.
GOVERNMENT REGULATION AND PRODUCT TESTING
The development, manufacture and sale of medical products utilizing our
technology are governed by a variety of statutes and regulations in the United
States and by comparable laws and agency regulations in most foreign countries.
The Food, Drug and Cosmetic Act requires that our products be manufactured in
FDA registered facilities subject to inspection. The manufacturer must be in
compliance with current Good Manufacturing Practice (cGMP) which imposes certain
procedural and documentation requirements upon us and our manufacturing partners
with respect to manufacturing and quality control activities. Noncompliance with
cGMP can result in, among other things, fines, injunctions, civil penalties,
recalls or seizures of products, total or partial suspension of production,
failure of the government to grant premarket clearance or premarket approval for
drugs, withdrawal of marketing approvals and criminal prosecution. Any failure
by us or our manufacturing partners to comply with the requirements of cGMP
could have a material adverse effect on our business, financial condition and
results of operations.
Diagnostic and therapeutic products in the United States are regulated by the
Food Drug and Cosmetic Act and the Public Health Service Act, and by FDA rules
and regulations promulgated thereunder. These laws and regulations require
carefully controlled research and testing of products, government notification,
review and/or approval prior to marketing the products, inspection and/or
licensing of manufacturing and production facilities, adherence to cGMP,
compliance with product specifications, labeling, and other applicable
regulations.
Medical products that we develop or intend to market are subject to substantial
governmental regulation and may be classified as new drugs or biologics under
the Food Drug and Cosmetic Act. The FDA and similar health authorities in most
other countries must approve or license the diagnostic and therapeutic products
before they can be commercially marketed. In order to obtain FDA approval, an
applicant must submit, as relevant for the particular product, proof of safety,
purity, potency and efficacy. In most cases this proof entails extensive
pre-clinical, clinical and laboratory studies. Both the studies and the
preparation and prosecution of those applications by the FDA are expensive and
time consuming, and each may take several years to complete. Difficulties or
unanticipated costs may be encountered by us or our licensees in their
respective efforts to secure necessary governmental approval or licenses, which
could delay or preclude us or our licensees from marketing their products.
Limited indications for use or other conditions could also be placed on any
approvals that could restrict the commercial applications of products. With
respect to patented products or technologies, delays imposed by the government
approval process may materially reduce the period during which we will have the
exclusive right to exploit them, because patent protection lasts only for a
limited time, beginning on the date the patent is first granted in the case of
United States patent applications filed prior to June 6, 1995, and when the
patent application is first filed in the case of patent applications filed in
the United States after June 6, 1995, and applications filed in the European
Economic Community. We intend to seek to maximize the useful life of our patents
under the Patent Term Restoration Act of 1984 in the United States and under
similar laws if available in other countries.
The majority of our diagnostic and therapeutic products will likely be
classified as new drugs or biologics and will be evaluated in a series of in
vitro, non-clinical and human clinical testing. Typically, clinical testing is
performed in three phases to further evaluate the safety and efficacy of the
drug. In Phase I, a product is tested in a small number of patients primarily
for safety at one or more dosages. Phase II evaluates, in addition to safety,
the efficacy of the product against particular diseases in a patient population
that is generally somewhat larger than Phase I. Clinical trials of certain
diagnostic and cancer therapeutic agents frequently combine Phase I and Phase II
into a single Phase I/II study. In Phase III, the product is evaluated in a
larger patient population sufficient to generate data to support a claim of
safety and efficacy within the meaning of the Food Drug and Cosmetic Act.
Permission by the FDA must be obtained before clinical testing can be initiated
within the United States. This permission is obtained by submission of an
Investigational New Drug application which typically includes the results of in
vitro and non-clinical testing and any previous human testing done elsewhere.
The FDA has 30 days to review the information submitted and makes a final
decision whether to permit clinical testing with the drug or biologic. However,
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this process can take longer if the FDA raises questions or asks for additional
information regarding the Investigational New Drug application. A similar
procedure applies to medical device and diagnostic products.
After completion of in vitro, non-clinical and clinical testing, authorization
to market a drug or biologic must be granted by FDA. The FDA grants permission
to market through the review and approval of either a New Drug Application for
drugs or a Biologic License Application for biologics. These applications
provide detailed information on the results of the safety and efficacy of the
drug conducted both in animals and humans. Additionally, information is
submitted describing the facilities and procedures for manufacturing the drug or
biologic.
The Prescription Drug User Fee Act and subsequently, the Food and Drug
Administration Modernization Act of 1997 have established application review
times for both New Drug Applications and Biologic License Applications. For the
majority of new drugs and biologics, FDA is to review and make a recommendation
for approval within 12 months. For drugs and biologics designated as "priority,"
the review time is six months. This review process, however, can and frequently
does exceed these targets.
Once a drug or biologic is approved, we are required to maintain approval status
of the products by providing certain updated safety and efficacy information at
specified intervals. Additionally, we are required to meet other requirements
specified by the Food Drug and Cosmetic Act including but not limited to the
manufacture of products, labeling and promotional materials and the maintenance
of other records and reports. Failure to comply with these requirements or the
occurrence of unanticipated safety effects from the products during commercial
marketing, could lead to the need for product recall, or FDA initiated action,
which could delay further marketing until the products are brought into
compliance. Similar laws and regulations apply in most foreign countries where
these products are likely to be marketed.
Orphan Drug Act
The Orphan Drug Act is intended to provide incentives to manufacturers to
develop and market drugs for rare diseases or conditions affecting fewer than
200,000 persons in the United States at the time of application for orphan drug
designation. A drug that receives orphan drug designation and is the first
product to receive FDA marketing approval for a particular indication is
entitled to orphan drug status, a seven-year exclusive marketing period in the
United States for that indication. Clinical testing requirements for orphan
drugs are the same as those for products that have not received orphan drug
designation. OncoScint CR/OV has received an orphan drug designation for the
detection of ovarian carcinoma. Under the Orphan Drug Act, the FDA cannot
approve any application by another party to market an identical product for
treatment of an identical indication unless the party has a license from the
holder of orphan drug status, or the holder of orphan drug status is unable to
assure an adequate supply of the drug. However, a drug that is considered by FDA
to be different from a particular orphan drug is not barred from sale in the
United States during the seven-year exclusive marketing period even if it
receives marketing approval for the same product claim.
Other regulations
In addition to regulations enforced by FDA, we are also subject to regulation
under the state and local authorities and other federal statutes and agencies
including the Occupational Safety and Health Act, the Environmental Protection
Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act and the Nuclear Regulatory Commission.
Foreign regulatory approval
The regulatory approval process in Europe has changed over the past few years.
There are two regulatory approval processes in Europe for products developed by
us. Beginning in 1995, the centralized procedure became mandatory for all
biotechnology products. Under this regulatory scheme, the application is
reviewed by two scientific project leaders referred to as the rapporteur and
co-rapporteur, respectively. Their roles are to prepare assessment reports of
safety and efficacy and for recommending the approval for full European Union
marketing.
The second regulatory scheme, referred to as the Mutual Recognition Procedure,
is a process whereby a product's national registration in one member state
within the European Union may be "mutually recognized" by other member states
within the European Union.
Substantial requirements, comparable in many respects to those imposed under the
Food Drug and Cosmetic Act, will have to be met before commercial sale is
permissible in most countries. There can be no assurance, however, as to whether
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or when governmental approvals, other than those already obtained, will be
obtained or as to the terms or scope of those approvals.
HEALTH CARE REIMBURSEMENT
Our business, financial condition and results of operations will continue to be
affected by the efforts of governments and third-party payors to contain or
reduce the costs of healthcare through various means. There have been, and we
expect that there will continue to be, federal and state proposals to implement
government control of pricing and profitability of therapeutic and diagnostic
imaging agents. In addition, an increasing emphasis on managed care has and will
continue to increase the pressure on pricing of these products. While we cannot
predict whether legislative or regulatory proposals will be adopted or the
effects proposals or managed care efforts may have on our business, the
announcement of proposals and the adoption of proposals or efforts could have a
material adverse effect on our business, financial condition and results of
operations. Further, to the extent proposals or efforts have a material adverse
effect on other companies that are our prospective corporate partners, our
ability to establish strategic alliances may be materially and adversely
affected. In certain foreign markets, the pricing and profitability of our
products generally are subject to government controls.
Sales of our products depend in part on the availability of reimbursement to the
consumer from third-party payors, including Medicare, Medicaid, and private
health insurance plans. Third-party payors are increasingly challenging the
prices charged for medical products and services. To the extent we succeed in
bringing products to market, we cannot assure you that these products will be
considered cost-effective and that reimbursement to consumers will be available
or sufficient to allow us to sell our products on a competitive basis.
Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that our products are clinically useful and
cost-effective, medically necessary and not experimental or investigational.
Since reimbursement approval is required from each payor individually, seeking
approvals can be a time consuming and costly process which could require us to
provide supporting scientific, clinical and cost-effectiveness data for the use
of our products to each payor separately. If we or our collaborators are unable
to secure adequate third party reimbursement for our products, there would be
material adverse effect on its business, financial condition and results of
operations.
CUSTOMERS
During the year ended December 31, 2000, we received 52% of our total product
related, license and contract revenues from three customers, Berlex
Laboratories, Inc. (22%) and the radiopharmacy chains of Mallinckrodt Medical,
Inc. (19%) and Syncor International Corporation (11%).
EMPLOYEES
As of March 1, 2001, we employed 82 persons, 77 of which are employed full-time
and 5 part-time. Of such 82 persons, 28 were in our proteomics subsidiary,
Axcell, 4 in regulatory, 4 in clinical activities, 18 in administration and
management, and 28 in marketing and sales. We believe that we have been
successful in attracting skilled and experienced employees. None of our
employees is covered by a collective bargaining agreement. All of our employees
have executed confidentiality agreements. We consider relations with our
employees to be excellent.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
Investing in the Company's Common Stock involves a high degree of risk. You
should carefully consider the following risks together with the other
information included or incorporated by reference in this Annual Report on Form
10-K in your decision as to whether to invest in our Common Stock. If any of the
following risks or uncertainties actually occur, the Company's business,
financial condition and operating results could be significantly and adversely
affected. If that happens, the price of the Company's Common Stock could
decline, and you could lose all or part of your investment.
We Have A History Of Operating Losses And An Accumulated Deficit And Expect To
Incur Losses In The Future.
We have a history of operating losses since our inception. We had a net loss of
$27.3 million during the year ended December 31, 2000 which included one-time,
non-cash charges of $13.1 million for the acquisition of product candidate
rights and $4.3 million for the cumulative effect of accounting change following
the adoption of Securities and Exchange Commission Staff Accounting Bulletin No.
101. We had net income of $729,000 during the year ended December 31, 1999 which
included certain non-operating gains and we had net losses of $13.2 million
during the year ended December 31, 1998. The Company had an accumulated deficit
of $328.6 million as of December 31, 2000. In order to develop and commercialize
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our technologies, particularly our proteomics program and our prostate specific
membrane antigen, or PSMA, technology, and expand our oncology products, we
expect to incur significant increases in our expenses over the next several
years. As a result, we may need to generate significant additional revenue to
become profitable.
Our ability to generate and sustain significant additional revenues or achieve
profitability will depend upon the factors discussed elsewhere in this "Risk
Factors" Section, as well as numerous other factors outside of our control,
including:
- development of competing products that are more effective or less costly
than ours;
- our ability to develop and commercialize our own products and
technologies; and
- our ability to achieve increased sales for our existing products and
sales for any new products.
As a result, we may never be able to generate or sustain significant additional
revenue or achieve profitability.
We Are Heavily Dependent On Market Acceptance Of BrachySeed, ProstaScint And
Quadramet For Near-Term Revenues.
ProstaScint and Quadramet are expected to account for a significant percentage
of our product-related revenues in the near future. For the year ended December
31, 2000, revenues from ProstaScint and Quadramet accounted for approximately
95% of our product related revenues.
Because these products contribute the majority of our product-related revenues,
our business, financial condition and results of operations depend on their
acceptance as safe, effective and cost-efficient alternatives to other available
treatment and diagnostic protocols by the medical community, including:
- health care providers, such as hospitals and physicians; and
- third-party payors, including Medicare, Medicaid, private insurance
carriers and health maintenance organizations.
Our customers, including technologists and physicians, must successfully
complete our Partners in Excellence Program, or PIE Program, a proprietary
training program designed to promote the correct acquisition and interpretation
of ProstaScint images. This product is technique dependent and requires a
learning commitment on the part of users. We cannot assure you that additional
physicians will make this commitment or otherwise accept this product as part of
their treatment practices.
Berlex Laboratories, Inc. markets Quadramet in the United States through an
agreement with us entered into in October 1998. We cannot assure you that Berlex
will be able to successfully market Quadramet or that this agreement will result
in significant revenues for us. We recently obtained marketing rights to
Quadramet in Canada, but have not yet implemented a selling program. We cannot
assure you that Quadramet can be marketed effectively in Canada, or that it will
contribute significantly to our revenues.
We cannot assure you that Quadramet will be approved for additional indications,
due to uncertainty as to efficacy or safety for other purposes, regulatory
obstacles and physician preferences for existing or competing practices.
Accordingly, we cannot assure you that ProstaScint, BrachySeed or Quadramet will
achieve market acceptance on a timely basis, or at all. If ProstaScint,
BrachySeed or Quadramet do not achieve broader market acceptance, we may not be
able to generate sufficient revenue to become profitable.
Our Proteomics Program Is At An Early Stage Of Development.
We have developed and intend to continue to develop a proteomics program. This
technology involves new approaches to drug research and development and remains
commercially unproven. Our technology and development focus is primarily
directed toward offering an infrastructure to companies for the development of
drugs to treat a variety of complex human diseases. There is limited
understanding generally relating to the role of proteins in diseases, and few
products based on protein interaction discoveries have been developed and
commercialized. Even if our proteomics program is successful in identifying and
validating biological targets, there is no certainty that we or our customers
will be able to develop or commercialize products to improve human health.
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We have developed and intend to continue to develop a proteomics program. This
technology involves new approaches to drug research and development and remains
commercially unproven. Our technology and development focus is primarily
directed toward offering an infrastructure to companies for the development of
drugs to treat a variety of complex human diseases. There is limited
understanding generally relating to the role of proteins in diseases, and few
products based on protein interaction discoveries have been developed and
commercialized. Even if our proteomics program is successful in identifying and
validating biological targets, there is no certainty that we or our customers
will be able to develop or commercialize products to improve human health.
Our technology program for proteomics is still in the early stages of
development. We may not be able to populate our ProChart with information that
is useful to potential customers in a timely manner. Even if we complete and
develop successfully our proteomics technology, the technology may not be
accepted by, or be useful to, our potential customers.
In addition, the success of our proteomics technology will depend upon our
ability to use software tools to generate data that relates protein signaling
pathways to a variety of other bioinformatic data. Because of the complexity of
this data, we may not be able to detect and remedy any design defects or
software errors in its existing or future technologies, including databases.
We may not be successful in addressing or mitigating these risks and
uncertainties, and, if it is not, our business could be significantly and
adversely affected.
There Is A Limited Market For Our Potential Proteomics Products
Due to the specialized nature and anticipated cost of our proteomics technology
and services, there are a limited number of pharmaceutical and biotechnology
companies that are potential customers. In addition, demand for our proteomics
technology and services is limited because:
- our potential customers may decide to conduct in-house research
rather than subscribe to our ProChart database;
- our competitors may offer similar services at competitive prices;
- our may not be able to service satisfactorily the needs of our potential
or actual customers;
- others may publicly disclose or patent proprietary information
contained in our ProChart (including information related to protein
signaling pathways or target candidates) or relating to prostate
antigens or antibodies; and
- technological innovations may be discovered that are more advanced than
those used by or available to us.
We may not be successful in addressing or mitigating these risks and
uncertainties, and, if we are not, our business could be significantly and
adversely affected.
We Experienced Fluctuating Results Of Operations.
Our results of operations have fluctuated on an annual and quarterly basis and
may fluctuate significantly from period to period in the future, due to, among
other factors:
- variations in revenue from sales of and royalties from our products;
- timing of regulatory approvals and other regulatory announcements
relating to our products;
- variations in our marketing, manufacturing and distribution channels;
- timing of the acquisition and successful integration of complementary
products and technologies;
- timing of new product announcements and introductions by us and our
competitors; and
- product obsolescence resulting from new product introductions by us or
our competitors.
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Many of these factors are outside our control. Due to one or more of these
factors, our results of operations may fall below the expectations of securities
analysts and investors in one or more future quarters. If this happens, the
market price of our Common Stock could decline.
We May Need To Raise Additional Capital Which May Not Be Available.
We have incurred negative cash flows from operations since inception. We
expended, and will need to continue to expend, substantial funds to complete our
planned product development efforts, including its proteomics and PSMA programs.
Our future capital requirements and the adequacy of our available funds depend
on many factors, including:
- successful commercialization of our products;
- acquisition of complementary products and technologies;
- magnitude, scope and results of our product development efforts;
- progress of preclinical studies and clinical trials;
- progress toward regulatory approval for our products;
- costs of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights;
- competing technological and market developments; and
- expansion of strategic alliances for the sale, marketing and
distribution of our products.
We may raise additional capital through public or private equity offerings, debt
financings or additional collaborations and licensing arrangements. Additional
financing may not be available to us when needed, or, if available, we may not
be able to obtain financing on terms favorable to us or our stockholders. If we
raise additional capital by issuing equity securities, the issuance will result
in ownership dilution to our stockholders. If we raise additional funds through
collaborations and licensing arrangements, we may be required to relinquish
rights to certain of our technologies or product candidates or to grant licenses
on unfavorable terms. If we relinquish rights or grant licenses on unfavorable
terms, we may not be able to develop or market products in a manner that is
profitable to us. If adequate funds are not available, we may not be able to
conduct research activities, preclinical studies, clinical trials or other
activities relating to the successful commercialization of our products on a
timely basis, if at all, with the result that our business could be
significantly and adversely affected.
Our Products, Generally, Are In The Early Stages Of Development And
Commercialization And We May Never Achieve The Revenue Goals Set Forth in Our
Business Plan.
We began operations in 1980 and have been engaged primarily in research directed
toward the development, commercialization and marketing of products to improve
diagnosis and treatment of cancer and other diseases. In December 1992, we
introduced for commercial use our OncoScint imaging agent. In October 1996, we
introduced for commercial use our ProstaScint imaging agent. In March 1997, we
introduced for commercial use our Quadramet therapeutic product. These products
have not yet achieved significant commercial success. In 1998, we undertook a
restructuring to focus on the development of our PSMA and proteomics
technologies as well as the marketing of these existing products.
Our PSMA and proteomics technologies are still in the early stages of
development. We have only recently begun to incorporate our proteomics
technology into commercialized products. We may be unable to continue to
successfully develop or commercialize these products and technologies.
Our business is therefore subject to the risks inherent in the development of an
early stage biopharmaceutical business enterprise, such as the need:
- to obtain sufficient capital to support the expenses of developing our
technology and commercializing our products;
- to ensure that our products are safe and effective;
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- to obtain regulatory approval for the use and sale of our products;
- to manufacture our products in sufficient quantities and at a
reasonable cost;
- to develop a sufficient market for our products; and
- to attract and retain qualified management, sales, technical and
scientific staff.
The problems frequently encountered using new technologies and operating in a
competitive environment also may affect our business. If we fail to properly
address these risks and attain our business objectives, our business could be
significantly and adversely affected.
Our PSMA Product Development Program Is Novel And, Consequently, Inherently
Risky.
We are subject to the risks of failure inherent in the development of product
candidates based on new technologies, including our PSMA technology. These risks
include the possibility that:
- the technologies we use will not be effective;
- our product candidates will be unsafe;
- our product candidates will fail to receive the necessary regulatory
approvals;
- the product candidates will be hard to manufacture on a large scale or
will be uneconomical to market; and
- we will not successfully overcome technological challenges presented by
its potential new products.
Our objectives include developing our PSMA technology into novel cancer
therapeutics, including a cancer vaccine. To our knowledge, no cancer
therapeutic vaccine has been demonstrated effective or approved for marketing.
Our other research and development programs involve similarly novel approaches
to human therapeutics. Consequently, there is no precedent for the successful
commercialization of therapeutic products based on our PSMA technologies. We
cannot assure you that any products will be successfully developed from our PSMA
technology. If we fail to develop such products for the reasons set forth above
or for any other reason, our business could be significantly and adversely
affected.
All of Our Potential Oncology Products Will Be Subject To The Risks Of Failure
Inherent In The Development Of Diagnostic Or Therapeutic Products Based On New
Technologies.
Product development for cancer treatment involves a high degree of risk. We
cannot assure you that the product candidates we develop, pursue or offer will
prove to be safe and effective, will receive the necessary regulatory approvals,
will not be precluded by proprietary rights of third parties or will ultimately
achieve market acceptance. These product candidates will require substantial
additional investment, laboratory development, clinical testing and regulatory
approvals prior to their commercialization. We cannot assure you that we will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products.
Before we obtain regulatory approvals for the commercial sale of any of our
products under development, we must demonstrate through preclinical studies and
clinical trials that the product is safe and efficacious for use in each target
indication. The results from preclinical studies and early clinical trials may
not be predictive of results that will be obtained in large-scale testing. We
cannot assure you that our clinical trials will demonstrate the safety and
efficacy of any products or will result in marketable products. A number of
companies in the biotechnology industry have suffered significant setbacks in
advanced clinical trials, even after promising results in earlier trials.
Clinical trials or marketing of any potential diagnostic or therapeutic products
may expose us to liability claims for the use of these diagnostic or therapeutic
products. We may not be able to maintain product liability insurance or
sufficient coverage may not be available at a reasonable cost. In addition, as
we develop diagnostic or therapeutic products internally, we will have to make
significant investments in diagnostic or therapeutic product development,
marketing, sales and regulatory compliance resources. We will also have to
establish or contract for the manufacture of products, including supplies of
drugs used in clinical trials, under the current Good Manufacturing Practices of
the FDA. We also cannot assure you that product issues will not arise following
successful clinical trials and FDA approval.
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The rate of completion of clinical trials also depends on the rate of patient
enrollment. Patient enrollment depends on many factors, including the size of
the patient population, the nature of the protocol, the proximity of patients to
clinical sites and the eligibility criteria for the study. Delays in planned
patient enrollment may result in increased costs and delays, which could have a
harmful effect on our ability to develop the products in our pipeline. If we are
unable to develop and commercialize products on a timely basis or at all, our
business could be significantly and adversely affected.
Competition In Our Field Is Intense And Likely To Increase.
We face, and will continue to face, intense competition from one or more of the
following entities:
- pharmaceutical companies;
- biotechnology companies;
- bioinformatics companies;
- diagnostic companies;
- academic and research institutions; and
- government agencies.
All of our lines of business are subject to significant competition from
organizations that are pursuing technologies and products that are the same as
or similar to our technology and products. Many of the organizations competing
with us have greater capital resources, research and development staffs and
facilities and marketing capabilities.
Before we recover development expenses for our products and technologies, the
products or technologies may become obsolete as a result of technological
developments by us or others. Our products could also be made obsolete by new
technologies which are less expensive or more effective. We may not be able to
make the enhancements to our technology necessary to compete successfully with
newly emerging technologies and failure to do so could significantly and
adversely affect its business.
We Rely Heavily On Our Collaborative Partners.
Our success depends in significant part upon the success of our collaborative
partners. We have entered into the following agreements for the sale, marketing,
distribution and manufacture of our products, product candidates and
technologies:
- license from The Dow Chemical Company relating to the Quadramet
technology;
- sub-license and marketing agreement with Berlex Laboratories, Inc.
relating to the Quadramet technology which we licensed from The Dow
Chemical Company;
- agreement for manufacture of Quadramet by The DuPont Pharmaceuticals
Company (formerly the radiopharmaceuticals division of The DuPont Merck
Company);
- marketing and platform development agreement with InforMax, Inc. related
to our proteomics program;
- joint venture with Progenics Pharmaceuticals for the development of PSMA
for in vivo immunotherapy for prostate and other cancers;
- licensing agreement with Molecular Staging for technology to be used in
developing in vitro diagnostic tests using PSMA and prostate specific
antigen, or PSA;
- marketing and distribution agreement with Draxis Health, Inc. and
its subsidiary, Draximage, Inc. to market and distribute BrachySeed; and
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- marketing, license and supply agreements with Advanced Magnetics, Inc.
related to our oncology product line for products currently subject to
regulatory approval.
Because our collaborative partners are responsible for certain of our sales,
marketing, manufacturing and distribution activities, these activities are
outside our direct control. We cannot assure you that our partners will perform
their obligations under these agreements with it. In the event that our
collaborative partners do not successfully market and sell our products or
breach their obligations under our agreements, our products may not be
commercially successful, any success may be delayed and new product development
could be inhibited with the result that our business could be significantly and
adversely affected.
Our Business Could Be Harmed If Our Collaborative Arrangements Expire Or Are
Terminated Early.
We cannot assure you that we will be able to maintain our existing collaborative
arrangements. If they expire or are terminated, we cannot assure you that they
will be renewed or that new arrangements will be available on acceptable terms,
if at all. In addition, we cannot assure you that any new arrangements or
renewals of existing arrangements will be successful, that the parties to any
new or renewed agreements will perform adequately or that any former or
potential collaborators will not compete with us.
We cannot assure you that our existing or future collaborations will lead to the
development of product candidates or technologies with commercial potential,
that we will be able to obtain proprietary rights or licenses for proprietary
rights for our product candidates or technologies developed in connection with
these arrangements or that we will be able to ensure the confidentiality of
proprietary rights and information developed in such arrangements or prevent the
public disclosure thereof.
The Termination Of One Or More License Agreements That Are Important In The
Manufacture Of Our Current Products And New Product Research And Development
Activities Would Harm Our Business.
We are a party to license agreements under which we have rights to use
technologies owned by other companies in the manufacture of our products and in
our proprietary research, development and testing processes. We are the
exclusive licensee of certain patents and patent applications held by the
University of North Carolina at Chapel Hill covering part of the technology used
in the proteomics program and of certain patents and patent applications held by
the Memorial Sloan-Kettering Institute covering PSMA. We depend upon the
enforceability of our license with The Dow Chemical Company with respect to
Quadramet. If the licenses were terminated, we may not be able to find suitable
alternatives to this technology on a timely basis or on reasonable terms, if at
all. The loss of the right to use these technologies that we have licensed would
significantly and adversely affect our business.
We Have Limited Sales, Marketing And Distribution Capabilities For Our Products.
We have only recently established a sales force and have limited internal sales,
marketing and distribution capabilities for its products. We depend on Berlex
Laboratories, Inc. for the sale, marketing and distribution of Quadramet in the
United States. In locations outside the United States, we have not established a
selling presence. If we are unable to establish and maintain significant sales,
marketing and distribution efforts, either internally or through arrangements
with third parties, our business may be significantly and adversely affected.
There Are Risks Associated With The Manufacture And Supply Of Our Products.
If we are to be successful, our products will have to be manufactured through
third-party manufacturers in compliance with regulatory requirements and at
costs acceptable to us. We cannot assure you that we will be able to arrange for
the manufacture of our products on commercially reasonable terms. If we are
unable to successfully arrange for the manufacture of our products and product
candidates, we will not be able to successfully commercialize our products and
our business will be significantly and adversely affected.
ProstaScint and OncoScint CR/OV are manufactured at a cGMP compliant
manufacturing facility operated by Purdue. We have access to the facility for
continued manufacturing of these products until January 2002. We expect that
this facility will allow us to meet our projected production requirements for
ProstaScint and OncoScint CR/OV in the short term. We entered into a Development
and Manufacturing Agreement with DSM which we intend would replace the
arrangement with Purdue with respect to ProtaScint and OncoScint CR/OV prior to
January 2002. Notwithstanding the parties obligations to perform under the
agreement with DSM or to negotiate a supply agreement in good faith, the Company
cannot be certain that DSM will satisfactorily perform its obligations
thereunder or that the parties will be able to negotiate a supply agreement on
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commercially reasonable terms, if at all. The failure by the Company to
negotiate a long term supply agreement on commercially reasonable terms will
have a material adverse effect on the Company's business, financial condition
and results of operations.
Quadramet is manufactured by DuPont pursuant to an agreement with both Berlex
and Cytogen. Some components of Quadramet, particularly Samarium153 and EDTMP,
are provided to DuPont by outside suppliers. Due to radioactive decay,
Samarium153 must be produced on a weekly basis. DuPont obtains its requirements
for Samarium153 from one supplier. Alternative sources for these components may
not be readily available. If DuPont cannot obtain sufficient quantities of the
components on commercially reasonable terms, or in a timely manner, it would be
unable to manufacture Quadramet on a timely and cost-effective basis which could
have a material adverse effect on our business, financial condition and results
of operations.
We rely on Draxis as the sole supplier of BrachySeed. If Draxis fails to or is
unable to timely supply BrachySeed, we could experience a material adverse
effect on our business, financial condition and results of operations.
We and our third-party manufacturers are required to adhere to United States
Food & Drug Administration regulations setting forth requirements for current
Good Manufacturing Practices, or cGMP, and similar regulations in other
countries, which include extensive testing, control and documentation
requirements. Ongoing compliance with cGMP, labeling and other applicable
regulatory requirements are monitored through periodic inspections and market
surveillance by state and federal agencies, including the FDA, and by comparable
agencies in other countries. Failure of our third-party manufacturers or us to
comply with applicable regulations could result in sanctions being imposed on
us, including fines, injunctions, civil penalties, failure of the government to
grant premarket clearance or premarket approval of drugs, delays, suspension or
withdrawal of approvals, seizures or recalls of products, operating restrictions
and criminal prosecutions any of which could significantly and adversely affect
our business.
Failure Of Consumers To Obtain Adequate Reimbursement From Third-Party Payors
Could Limit Market Acceptance And Affect Pricing Of Our Products.
Our business, financial condition and results of operations will continue to be
affected by the efforts of governments and other third-party payors to contain
or reduce the costs of healthcare. There have been, and we expect that there
will continue to be, a number of federal and state proposals to implement
government control of pricing and profitability of therapeutic and diagnostic
imaging agents such as our products. In addition, an emphasis on managed care
increases possible pressure on pricing of these products. While we cannot
predict whether these legislative or regulatory proposals will be adopted, or
the effects these proposals or managed care efforts may have on our business,
the announcement of these proposals and the adoption of these proposals or
efforts could affect our stock price or our business. Further, to the extent
these proposals or efforts have an adverse effect on other companies that are
our prospective corporate partners, our ability to establish necessary strategic
alliances may be harmed.
Sales of our products depend in part on reimbursement to the consumer from
third-party payors, including Medicare, Medicaid and private health insurance
plans. Third-party payors are increasingly challenging the prices charged for
medical products and services. We cannot assure you that our products will be
considered cost-effective and that reimbursement to consumers will continue to
be available, or will be sufficient to allow us to sell our products on a
competitive basis. Approval of our products for reimbursement by a third-party
payor may depend on a number of factors, including the payor's determination
that our products are clinically useful and cost-effective, medically necessary
and not experimental or investigational. Reimbursement is determined by each
payor individually and in specific cases. The reimbursement process can be time
consuming. If we cannot secure adequate third-party reimbursement for our
products, our business could be significantly and adversely affected.
If We Are Unable To Comply With Applicable Governmental Regulations, It May Not
Be Able To Continue Our Operations.
Any products tested, manufactured or distributed by us or on our behalf pursuant
to FDA clearances or approvals are subject to pervasive and continuing
regulation by numerous regulatory authorities, including primarily the FDA. We
may be slow to adapt, or we may never adapt to changes in existing requirements
or adoption of new requirements or policies. Our failure to comply with
regulatory requirements could subject us to enforcement action, including
product seizures, recalls, withdrawal of clearances or approvals, restrictions
on or injunctions against marketing our products based on its technology, and
civil and criminal penalties. We cannot assure you that it will not be required
to incur significant costs to comply with laws and regulations in the future or
that laws or regulations will not create an unsustainable burden on our
business.
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Numerous federal, state and local governmental authorities, principally the FDA,
and similar regulatory agencies in other countries, regulate the preclinical
testing, clinical trials, manufacture and promotion of any compounds or agents
we or our collaborative partners develop, and the manufacturing and marketing of
any resulting drugs. The drug development and regulatory approval process is
lengthy, expensive, uncertain and subject to delays.
The regulatory risks we face also include the following:
- any compound or agent we or our collaborative partners develop must
receive regulatory agency approval before it may be marketed as a drug
in a particular country;
- the regulatory process, which includes preclinical testing and clinical
trials of each compound or agent in order to establish its safety and
efficacy, varies from country to country, can take many years and
requires the expenditure of substantial resources;
- in all circumstances, approval of the use of previously unapproved
radioisotopes in certain of our products requires approval of either
the Nuclear Regulatory Commission or equivalent state regulatory
agencies. A radioisotope is an unstable form of an element which
undergoes radioactive decay, thereby emitting radiation which may be
used, for example, to image or destroy harmful growths or tissue. We
cannot assure you that such approvals will be obtained on a timely
basis, or at all;
- data obtained from preclinical and clinical activities are susceptible
to varying interpretations which could delay, limit or prevent
regulatory agency approval; and
- delays or rejections may be encountered based upon changes in
regulatory agency policy during the period of drug development and/or
the period of review of any application for regulatory agency approval.
These delays could adversely affect the marketing of any products we or
our collaborative partners develop, impose costly procedures upon our
activities, diminish any competitive advantages we or our collaborative
partners may attain and adversely affect its ability to receive
royalties.
We cannot assure you that, even after this time and expenditure, regulatory
agency approvals will be obtained for any compound or agent developed by or in
collaboration with it. Moreover, regulatory agency approval for a drug or agent
may entail limitations on the indicated uses that could limit the potential
market for any such drug. Furthermore, if and when such approval is obtained,
the marketing, manufacture, labeling, storage and record keeping related to our
products would remain subject to extensive regulatory requirements. Discovery of
previously unknown problems with a drug, its manufacture or its manufacturer may
result in restrictions on such drug, manufacture or manufacturer, including
withdrawal of the drug from the market. Failure to comply with regulatory
requirements could result in fines, suspension of regulatory approvals,
operating restrictions and criminal prosecution.
The United States Food, Drug and Cosmetics Act requires (i) that our products be
manufactured in FDA registered facilities subject to inspection, and (ii) that
we comply with cGMP, which imposes certain procedural and documentation
requirements upon us and our manufacturing partners with respect to
manufacturing and quality assurance activities. If we or our manufacturing
partners do not comply with cGMP we may be subject to sanctions, including
fines, injunctions, civil penalties, recalls or seizures of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for drugs, withdrawal of marketing approvals and
criminal prosecution.
We Depend On Attracting And Retaining Key Personnel.
We are highly dependent on the principal members of our management and
scientific staff. The loss of their services might significantly delay or
prevent the achievement of development or strategic objectives. Our success
depends on our ability to retain key employees and to attract additional
qualified employees. Competition for personnel is intense, and we cannot assure
you that we will be able to retain existing personnel or attract and retain
additional highly qualified employees in the future.
We have an employee retention agreement with our President and Chief Executive
Officer, H. Joseph Reiser, Ph.D., which provides for vesting of stock options
for the purchase of shares of Cytogen's Common Stock based on continued
employment and on the achievement of performance objectives defined by the board
of directors. We do not have similar retention agreements with its other key
personnel. If we are unable to hire and retain personnel in key positions, our
business could be significantly and adversely affected unless qualified
replacements can be found.
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Our Business Exposes Us To Potential Liability Claims That May Exceed Our
Financial Resources, Including Our Insurance Coverage, And May Lead To The
Curtailment Or Termination Of Our Operations.
Our business is subject to product liability risks inherent in the testing,
manufacturing and marketing of our products. We cannot assure you that product
liability claims will not be asserted against us, our collaborators or our
licensees. While we currently maintain product liability insurance in amounts we
believe are adequate, we cannot assure you that such coverage will be adequate
to protect us against future product liability claims or that product liability
insurance will be available to us in the future on commercially reasonable
terms, if at all. Furthermore, we cannot assure you that we will be able to
avoid significant product liability claims and adverse publicity. If liability
claims against us exceeds our financial resources we may have to curtail or
terminate our operations.
Our Business Involves Environmental Risks That May Result In Liability.
We are subject to a variety of local, state and federal government regulations
relating to storage, discharge, handling, emission, generation, manufacture and
disposal of toxic, infectious or other hazardous substances used to manufacture
our products. If we fail to comply with these regulations, it could be liable
for damages, penalties or other forms of censure and our business could be
significantly and adversely affected.
Protection Of Our Intellectual Property Is Difficult To Obtain.
Our business and competitive positions are dependent upon our ability to protect
our proprietary technology. Because of the substantial length of time and
expense associated with development of new products, we, like the rest of the
biopharmaceutical industry, place considerable importance on obtaining and
maintaining patent and trade secret protection for new technologies, products
and processes. We have filed patent applications for our technology for
diagnostic and therapeutic products and the methods for its production and use.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including us, are generally uncertain and involve complex legal and
factual questions. Our patent applications may not protect our technologies and
products because, among other things:
- there is no guarantee that any of our pending patent applications will
result in issued patents;
- we may develop additional proprietary technologies that are not
patentable;
- there is no guarantee that any patents issued to us, our collaborators
or our licensors will provide a basis for a commercially viable product;
- there is no guarantee that any patents issued to us or our
collaborators will provide us with any competitive advantage;
- there is no guarantee that any patents issued to us or our collaborators
will not be challenged, circumvented or invalidated by third parties;
and
- there is no guarantee that any patents previously issued to others or
issued in the future will not have an adverse effect on our ability to
do business.
In addition, patent law in the technology fields in which we operate is
uncertain and still evolving, and we cannot assure you as to the degree of
protection that will be afforded any patents we are issued or license from
others. Furthermore, we cannot assure you that others will not independently
develop similar or alternative technologies, duplicate any of our technologies,
or, if patents are issued to us, design around the patented technologies
developed by us. In addition, we could incur substantial costs in litigation if
it is required to defend itself in patent suits by third parties or if it
initiates such suits. We cannot assure you that, if challenged by others in
litigation, the patents we have been issued, or which have been assigned or have
been licensed from others will not be found invalid. We cannot assure you that
our activities would not infringe patents owned by others. Defense and
prosecution of patent matters can be expensive and time-consuming and,
regardless of whether the outcome is favorable to us, can result in the
diversion of substantial financial, managerial and other resources. An adverse
outcome could:
- subject us to significant liability to third parties;
- require us to cease any related research and development activities
and product sales; or
-31-
- require us to obtain licenses from third parties.
We cannot assure you that any licenses required under any such third-party
patents or proprietary rights would be made available on commercially reasonable
terms, if at all. Moreover, the laws of certain countries may not protect our
proprietary rights to the same extent as the laws of the United States. We
cannot predict whether us or our competitors' pending patent applications will
result in the issuance of valid patents which may significantly and adversely
affect our business.
We Cannot Be Certain That Our Security Measures Protect Our Unpatented
Proprietary Technology.
We also rely upon trade secret protection for some of our confidential and
proprietary information that is not subject matter for which patent protection
is available. To help protect our rights, we require all employees, consultants,
advisors and collaborators to enter into confidentiality agreements that require
disclosure, and in most cases, assignment to us, of their ideas, developments,
discoveries and inventions, and that prohibit the disclosure of confidential
information to anyone outside Cytogen. We cannot assure you, however, that these
agreements will provide adequate protection for our trade secrets, know-how or
other proprietary information or prevent any unauthorized use or disclosure.
We Are Currently Subject To Patent Litigation.
We are a defendant in litigation filed against us in the United States Federal
Court for the District of New Jersey by M. David Goldenberg and Immunomedics,
Inc. This lawsuit was filed on March 16, 2000. The litigation claims that our
ProstaScint product infringes a patent purportedly owned by Dr. Goldenberg and
licensed to Immunomedics. The patent sought to be enforced in the litigation has
now expired. As a result, the claim, even if successful, would not result in a
bar of the continued sale of ProstaScint or affect any other of our products or
technology. However, given the uncertainty associated with litigation, we cannot
give any assurance that the litigation will not result in a material expenditure
to us.
If We Make Any Acquisitions, We Will Incur A Variety Of Costs And May Never
Realize The Anticipated Benefits.
If appropriate opportunities become available, we may attempt to acquire
businesses, technologies, services or products that it believes are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any acquisitions. If, however, we do undertake any transaction of
this sort, the process of integrating an acquired business, technology, service
or product may result in operating difficulties and expenditures and may absorb
significant management attention that would otherwise be available for ongoing
development of our business. Moreover, we may never realize the anticipated
benefits of any acquisition. Future acquisitions could result in potentially
dilutive issuances of equity securities, the incurrence of debt, contingent
liabilities and amortization expenses related to goodwill and other intangible
assets. These factors could adversely affect our results of operations and
financial condition, which could cause a decline in the market price of our
Common Stock.
Our Stock Price Has Been And May Continue To Be Volatile, And Your Investment In
Our Stock Could Decline In Value.
The market prices for securities of biotechnology and pharmaceutical companies
have historically been highly volatile, and the market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. The market price of our Common
Stock has fluctuated over a wide range and may continue to fluctuate for various
reasons, including, but not limited to, announcements concerning our competitors
or us regarding:
- results of clinical trials;
- technological innovations or new commercial products;
- changes in governmental regulation or the status of our regulatory
approvals or applications;
- changes in earnings;
- changes in health care policies and practices;
- developments or disputes concerning proprietary rights;
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- litigation or public concern as to safety of the our potential products;
and
- changes in general market conditions.
We Have Adopted Various Anti-Takeover Provisions Which May Affect The Market
Price Of Our Common Stock.
Our Board of Directors has the authority, without further action by the holders
of Common Stock, to issue from time to time, up to 5,400,000 shares of preferred
stock in one or more classes or series, and to fix the rights and preferences of
the preferred stock. Pursuant to these provisions, we have implemented a
stockholder rights plan by which one preferred stock purchase right is attached
to each share of Common Stock, as a means to deter coercive takeover tactics and
to prevent an acquirer from gaining control of us without some mechanism to
secure a fair price for all of our stockholders if an acquisition was completed.
These rights will be exercisable if a person or group acquires beneficial
ownership of 20% or more of our Common Stock and can be made exercisable by
action of our board of directors if a person or group commences a tender offer
which would result in such person or group beneficially owning 20% or more of
our Common Stock. Each right will entitle the holder to buy one one-thousandth
of a share of a new series of our junior participating preferred stock for $20.
If any person or group becomes the beneficial owner of 20% or more of our Common
Stock (with certain limited exceptions), then each right not owned by the 20%
stockholder will entitle its holder to purchase, at the right's then current
exercise price, common shares having a market value of twice the exercise price.
In addition, if after any person has become a 20% stockholder, we are involved
in a merger or other business combination transaction with another person, each
right will entitle its holder (other than the 20% stockholder) to purchase, at
the right's then current exercise price, common shares of the acquiring company
having a value of twice the right's then current exercise price.
We are subject to provisions of Delaware corporate law which, subject to certain
exceptions, will prohibit us from engaging in any "business combination" with a
person who, together with affiliates and associates, owns 15% or more of our
Common Stock for a period of three years following the date that the person came
to own 15% or more of our Common Stock unless the business combination is
approved in a prescribed manner.
These provisions of the stockholder rights plan, our certificate of
incorporation, and of Delaware law may have the effect of delaying, deterring or
preventing a change in control of Cytogen, may discourage bids for our Common
Stock at a premium over market price and may adversely affect the market price,
and the voting and other rights of the holders, of our Common Stock.
A Large Number Of Our Shares Are Eligible For Future Sale Which May Adversely
Impact The Market Price Of Our Common Stock.
A large number of shares of Common Stock already outstanding, or issuable upon
exercise of options and warrants, are eligible for resale, which may adversely
affect the market price of the Common Stock. As of March 1, 2001, we had
77,380,205 shares of Common Stock outstanding. An additional 4,983,263 shares of
Common Stock are issuable upon the exercise of outstanding stock options and
warrants. Substantially all of such shares subject to outstanding options will,
when issued upon exercise thereof, be available for immediate resale in the
public market pursuant to currently effective registration statements under the
Securities Act of 1933 (the "Securities Act"), as amended, or pursuant to Rule
701 promulgated thereunder.
In connection with our acquisition of Prostagen, Inc. in June 1999, we issued
2,050,000 unregistered shares of our Common Stock, to the then stockholders of
Prostagen, which shares may be sold from time to time pursuant to Rule 144 under
the Securities Act. Such stockholders also have certain piggyback registration
rights with respect to these shares of Common Stock. An additional 950,000
shares may be issued as contingent payments upon the happening of certain
events.
Berlex Laboratories, Inc. exercised its registration rights with respect to
1,000,000 shares of Common Stock and the Company is contractually obligated to
register these shares. A registration statement with respect to these shares was
filed on April 11, 2000 and declared effective April 27, 2000. Such registration
statement also covered 86,394 shares of Common Stock issuable to consultants
upon exercise of warrants.
In addition, on March 28, 2000, we filed with the Securities and Exchange
Commission a shelf registration statement on Form S-3 which initially covered
six million (6,000,000) shares of our Common Stock. 1,500,000 of such registered
shares were issued to Advanced Magnetics, Inc. in connection with the parties
entering into a License and Marketing Agreement in August 2000. An additional
500,000 shares, also registered on this Form S-3 Registration Statement, are
currently being held in escrow and may be released to Advanced Magnetics in the
future in accordance with the terms of such License and Marketing Agreement. In
addition, 902,601 of such shares have been issued to Acqua Wellington North
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American Equities Fund, Ltd. ("Acqua Wellington"). Also, on October 9, 2000, we
entered into an equity financing facility pursuant to which we may issue up to
$70,000,000 in shares of our Common Stock to Acqua Wellington from time to time
prior to June 9, 2002, which shares would be sold at a small discount to market
price, as determined prior to each such sale, and registered under such
registration statement. As of March 1, 2001, 1,276,557 shares have been issued
therewith.
Availability of a significant number of additional shares could depress the
price of the Company's Common Stock.
Because We Do Not Intend to Pay Any Cash Dividends On Our Shares of Common
Stock, Our Stockholders Will Not Be Able to Receive a Return on Their Shares
Unless They Sell Them.
We have never paid or declared any cash dividends on our Common Stock or other
securities and intend to retain any future earnings to finance the development
and expansion of our business. We do not anticipate paying any cash dividends on
our Common Stock in the foreseeable future. Unless we pay dividends, our
stockholders will not be able to receive a return on their shares unless they
sell them.
Item 2. Properties
We currently lease approximately 20,000 square feet of administrative space in
Princeton, New Jersey. The lease on this space expires in August 2002. We intend
to remain in Princeton, New Jersey for the foreseeable future.
We also lease approximately 9,000 square feet of laboratory and office space in
Newtown, Pennsylvania which is occupied by our AxCell Biosciences subsidiary,
under a lease expiring in 2004. In February 2001, the Company expanded the
Axcell facility by amending the lease to include approximately an additional
5,000 square feet, which additional lease space will expire in July 2006.
We own substantially all of the equipment used in our laboratories and offices.
We believe our facilities are adequate for our operations at present.
Item 3. Legal Proceedings
On March 17, 2000, we were served with a complaint filed against us in the
United States Federal Court for the District of New Jersey by M. David
Goldenberg ("Goldenberg") and Immunomedics, Inc. The litigation claims that our
ProstaScint product infringes a patent purportedly owned by Goldenberg and
licensed to Immunomedics. We believe that ProstaScint does not infringe this
patent, and that the patent is invalid and unenforceable. In addition, we have
certain rights to indemnification against litigation and litigation expenses
from the inventor of technology used in ProstaScint, which may be offset against
royalty payments on sales of ProstaScint. In addition, the patent sought to be
enforced in the litigation has now expired; as a result, the claim even if
successful would not result in an injunction barring the continued sale of
ProstaScint or affect any other of our products or technology. However, given
the uncertainty associated with litigation, we cannot give any assurance that
the litigation could not result in a material expenditure to us.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-34-
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
Cytogen's Common Stock is traded on the NASDAQ National Market (the "NNM") under
the trading symbol "CYTO."
The table below sets forth the high and low bid information for Cytogen's Common
Stock for each of the calendar quarters indicated, as reported on the NNM. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
1999 High Low
- ---- ---- ---
First Quarter............................................ 1.47 0.81
Second Quarter........................................... 1.97 0.88
Third Quarter............................................ 2.22 1.38
Fourth Quarter........................................... 3.22 1.38
2000
- ----
First Quarter............................................ 21.69 2.63
Second Quarter........................................... 10.56 2.00
Third Quarter............................................ 11.31 5.50
Fourth Quarter........................................... 7.13 1.00
As of March 1, 2001, there were approximately 4,319 holders of record of the
Common Stock and there were approximately 54,054 beneficial holders of the
Common Stock.
Cytogen has never paid any cash dividends on its Common Stock and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain any future earnings to fund the
development and growth of its business. Any future determination to pay
dividends will be at the discretion of the Company's board of directors.
The following information relates to all securities of the Company sold by the
Company during the year ended December 31, 2000 which were not registered under
the Securities Act as of the date of issuance:
1. On July 10, 2000, the Company issued options to purchase 300,000 shares of
the Company's Common Stock to Lawrence Hoffman, the Company's Vice President and
Chief Financial Officer, pursuant to the terms of a Non-Qualified Stock Option
Agreement by and between the Company and Mr. Hoffman (the "Hoffman Agreement").
Such options are exercisable at $10.141 per share, expire on July 10, 2010 and
vest at a rate of 33.3% per year beginning July 10, 2001.
The Hoffman Agreement was consummated as an incentive for and upon the
commencement of Mr. Hoffman's employment with the Company.
Such 300,000 shares of Common Stock were subsequently registered on a
Registration Statement on Form S-8 (File No. 333-48454) (the "Registration
Statement on Form S-8"), filed with the Commission on October 23, 2000.
2. On July 11, 2000, the Board of Directors of the Company revised the terms of
a Non-Qualified Stock Option Agreement by and between the Company and H. Joseph
Reiser, the Company's President and Chief Executive Officer, which agreement was
initially executed on August 24, 1998, with respect to options to purchase
2,050,000 shares of the Company's Common Stock (the "Reiser Agreement"). Such
options are exercisable at $1.0937 per share, expire on August 24, 2008, and
vest according to the following schedule:
-35-
Option Amount Vesting Date
- ------------- ------------
100,000 November 17, 1998
150,000 May 18, 2000
300,000 August 24, 2000
75,000 November 22, 2000
150,000 May 15, 2001
150,000 May 18, 2001
300,000 August 24, 2001
75,000 November 22, 2001
150,000 May 15, 2002
150,000 May 18, 2002
75,000 November 22, 2002
150,000 May 15, 2003
225,000 Subject to additional approval of the Board of Directors
The Reiser Agreement was consummated as an incentive for and upon the
commencement of Mr. Reiser's employment with the Company.
Such 2,050,000 shares of Common Stock were subsequently registered on the
Registration Statement on Form S-8.
No underwriter was employed by the Company in connection with the issuance and
sale of the securities described above. The Company claims that the issuance and
sale of all of the foregoing securities were exempt from registration under
either (i) Section 4(2) of the Securities Act as transactions not involving any
public offering, or (ii) Rule 701 under the Securities Act as transactions made
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation. Appropriate legends have been or will be
affixed to the stock certificates issued in such transactions. All recipients
had adequate access to information about the Company.
-36-
Item 6. Selected Financial Data
The following selected financial information has been derived from the
consolidated financial statements of the Company for each of the five years in
the period ended December 31, 2000, which have been audited by Arthur Andersen
LLP, the Company's independent public accountants. The selected financial data
set forth below should be read in conjunction with the consolidated financial
statements, including the notes thereto, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other information provided
elsewhere in this report.
Year Ended December 31,
-----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Statements of Operations Data: (All amounts in thousands, except per share data)
Revenues:
Product sales ......................................... $ 7,424 $ 6,971 $ 8,976 $ 5,252 $ 1,507
Royalties ............................................. 2,004 1,060 1,664 3,282 --
License and contract .................................. 1,024 3,171 9,239 5,886 4,223
-------- -------- -------- -------- --------
Total revenues ...................................... 10,452 11,202 19,879 14,420 5,730
-------- -------- -------- -------- --------
Operating Expenses:
Cost of product and contract
manufacturing revenues (1) .......................... 4,414 4,111 12,284 5,939 --
Research and development ............................... 6,957 3,849 9,967 17,913 20,539
Acquisition of marketing and technology rights (2) ..... 13,241 1,214 -- -- --
Selling and marketing .................................. 6,126 4,210 5,103 5,492 4,143
General and administrative ............................. 4,934 3,501 7,420 6,871 5,494
Equity loss in Targon subsidiary ....................... -- -- 1,020 9,232 288
-------- -------- -------- -------- --------
Total operating expenses ............................ 35,672 16,885 35,794 45,447 30,464
-------- -------- -------- -------- --------
Operating loss ...................................... (25,220) (5,683) (15,915) (31,027) (24,734)
Gain on sale of laboratory and manufacturing facilities ... -- 3,298 -- -- --
Gain on sale of Targon subsidiary ......................... -- -- 2,833 -- --
Other income (expense) .................................... 611 412 (70) 315 968
-------- -------- -------- -------- --------
Loss before income taxes and cumulative effect of
accounting change ................................ (24,609) (1,973) (13,152) (30,712) (23,766)
Income tax benefit ........................................ (1,625) (2,702) -- -- --
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of
accounting change ................................ (22,984) 729 (13,152) (30,712) (23,766)
Cumulative effect of accounting change (3) ................ (4,314) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) ......................................... (27,298) 729 (13,152) (30,712) (23,766)
Dividends, including deemed
dividends on preferred stock ........................... -- -- (119) (1,352) (4,571)
-------- -------- -------- -------- --------
Net income (loss) to common stockholders .................. $(27,298) $ 729 $(13,271) $(32,064) $(28,337)
======== ======== ======== ======== ========
Net income (loss) per common share:
Basic and diluted net income (loss) before
cumulative effect of accounting change ........... $ (0.31) $ 0.01 $ (0.24) $ (0.63) $ (0.59)
Cumulative effect of accounting change (3) .......... (0.06) -- -- -- --
-------- -------- -------- -------- --------
Basic and diluted net income (loss) ............... $ (0.37) $ 0.01 $ (0.24) $ (0.63) $ (0.59)
======== ======== ======== ======== ========
Weighted average common shares outstanding:
Basic ............................................... 73,337 67,179 56,419 51,134 48,401
======== ======== ======== ======== ========
Diluted ............................................. 73,337 68,187 56,419 51,134 48,401
======== ======== ======== ======== ========
Pro forma amounts assuming accounting
change is applied retroactively:
Net loss to common stockholders ..................... $(22,984) $ (484) $(16,373) $(32,064) $(28,337)
======== ======== ======== ======== ========
Basic and diluted net loss per common share.......... $ (0.31) $ (0.01) $ (0.29) $ (0.63) $ (0.59)
======== ======== ======== ======== ========
-37-
December 31,
----------------
Consolidated Balance Sheet Data: 2000 1999 1998 1997 1996
------------------------------------------------------------------
(in thousands)
Cash, short-term investments and restricted cash... $ 11,993 $ 12,394 $ 3,015 $ 7,401 $ 24,765
Total assets....................................... 20,416 18,605 10,900 27,555 41,543
Long-term debt..................................... 2,374 2,416 2,223 10,171 1,855
Accumulated deficit................................ (328,581) (301,283) (302,012) (288,741) (256,677)
Stockholders' equity............................... 7,218 10,549 443 9,983 32,927
(1) Prior to 1997, product sales were minimal and no revenues were derived
from contract manufacturing, therefore, cost of product sales was
immaterial and was included in research and development expenses.
(2) In August 2000, the Company licensed product rights from Advanced
Magnetics, Inc. In June 1999, the Company acquired Prostagen, Inc.
(3) In 2000, the Company recorded a non-cash charge for the cumulative
effect related to the adoption of SEC Staff Accounting Bulletin
No. 101. See Note 1 of the Consolidated Financial Statements.
-38-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains historical information as well as forward
looking statements that involve a number of risks and uncertainties. Generally,
forward looking statements can be identified by the use of phrases like
"believe", "expect", "anticipate", "plan", "may", "will", "could", "estimate",
"potential", "opportunity" and "project" and similar terms. The Company's actual
results could differ materially from the Company's historical results of
operations and those discussed in the forward looking statements. Factors that
could cause actual results to differ materially, include, but are not limited to
those identified under the caption "Additional Factors That May Affect Future
Results", provided elsewhere in this report. Stockholders are cautioned not to
put undue reliance on any forward looking statement.
Cautionary Statement
In addition to the risks discussed under the caption referred to above, among
other factors that could cause actual results to differ materially from expected
results are the following: (i) the Company's ability to access the capital
markets in the near term and in the future for continued funding of existing
projects and for the pursuit of new projects; (ii) the ability to attract and
retain personnel needed for business operations and strategic plans; (iii) the
timing and results of clinical studies, and regulatory approvals; (iv) market
acceptance of the Company's products, including programs designed to facilitate
use of the products, such as the Partners in Excellence or PIE Program; (v)
demonstration over time of the efficacy and safety of the Company's products;
(vi) the degree of competition from existing or new products; (vii) the decision
by the majority of public and private insurance carriers on whether to reimburse
patients for the Company's products; (viii) the profitability of its products;
(ix) the ability to attract, and the ultimate success of, strategic partnering
arrangements, collaborations, and acquisition candidates; (x) the ability of the
Company and its partners to identify new products as a result of those
collaborations that are capable of achieving FDA approval, that are
cost-effective alternatives to existing products and that are ultimately
accepted by the key users of the product; (xi) the success of the Company in
obtaining marketing approvals for its products in Canada and Europe; (xii) the
ability of the Company to protect its proprietary technology, trade secrets or
know-how under the patent and other intellectual property laws of the United
States and other countries; and (xiii) the ability of Advanced Magnetics to
satisfy the conditions specified by the FDA regarding approval to market
Combidex in the United States.
The following discussion and analysis should be read in conjunction with the
Financial Statements and related notes thereto contained elsewhere herein, as
well as from time to time the Company's other filings with the Securities and
Exchange Commission.
Significant Events in 2000
During 2000, the Company terminated the co-marketing arrangement with Bard
Urological Division of the C.R. Bard Company, Inc. ("Bard") to assume sole
responsibility for the marketing and sales of the Company's ProstaScint product.
The Company has expanded its sales force and believes that a highly trained and
dedicated internal sales force will be able to most effectively market the
Company's product and build capability for future products. The Company,
however, has limited experience in direct selling and can not give any assurance
as to the impact on sales by assuming selling efforts itself.
In August 2000, the Company broadened its oncology presence and strengthened its
position in the area of cancer staging and detection and therapy by entering
into marketing, license and supply agreements with Advanced Magnetics, Inc.
("AVM"). Under the terms of the AVM agreements, the Company acquired exclusive
U.S. marketing rights to two product candidates, Combidex and imaging agent Code
7228 for oncology applications. Combidex, a MRI contrast agent for the detection
of lymph node metastases received an approvable letter from the FDA, subject to
certain conditions, following a priority review. Code 7228 is being developed
for oncology and magnetic resonance angiography applications and is expected to
enter Phase II clinical development in 2001. There can be no assurance that the
Company will receive FDA approval to market Combidex or Code 7228 in the United
States.
In addition, the Company in-licensed BrachySeed, an FDA approved radioactive
implant for prostate cancer therapy, from Draximage Inc. in December 2000. The
Company plans to utilize its oncology sales force to market the radioactive
iodine BrachySeed product which was launched in January 2001. There can be no
assurance however, as to the market acceptance of the product or whether this
product will significantly increase the revenues of the Company.
-39-
Recently, the Company's subsidiary AxCell BioSciences ("AxCell") achieved a
significant milestone by successfully mapping all the interactions of the known
proteins found in the WW protein domain family, one of the estimated 60 to 80
protein domain families in the human body. AxCell expects to launch its ProChart
database product with its marketing partner, InforMax Inc., in the second
quarter of 2001. There can be no assurance, however, as to the market acceptance
of the product or whether this product will significantly increase the revenues
of the Company.
RESULTS OF OPERATIONS
Years ended December 31, 2000, 1999 and 1998
Revenues
Total revenues were $10.5 million in 2000, $11.2 million in 1999 and $19.9
million in 1998. The decrease in 2000 and 1999 from 1998 was primarily due to
lower product related revenues, the phasing out of contract manufacturing
services during 1999 and lower license and research revenues. Product related
revenues, including product sales and royalty revenues, accounted for 90%, 72%
and 54% of revenues in 2000, 1999 and 1998, respectively. License and contract
revenues accounted for the remainder of revenues.
Product related revenues were $9.4 million, $8.0 million and $10.6 million in
2000, 1999 and 1998, respectively. ProstaScint accounted for 73%, 79% and 60% of
the product related revenues in 2000, 1999 and 1998, respectively, while
Quadramet royalties and sales accounted for 21%, 13% and 31% of product related
revenues in 2000, 1999 and 1998, respectively. Sales from ProstaScint were $6.9
million, $6.4 million and $6.4 million in 2000, 1999 and 1998, respectively.
Beginning in July 2000, the Company assumed sole responsibility for selling and
marketing ProstaScint from Bard, its former co-marketing partner. The Company
took this step because it believes that a highly trained and dedicated internal
sales force will be able to market its products most effectively. The Company
cannot be certain, however, as to the effect on sales of ProstaScint as a result
of this action. The Company plans to utilize Cytogen's oncology sales and
marketing organization for the launch of BrachySeed and later Combidex, subject
to the receipt of final marketing approval of Combidex by FDA.
Royalties and sales from Quadramet were $2.0 million, $1.1 million and $3.3
million in 2000, 1999 and 1998, respectively. From the time of product launch in
1997 through June 1998, Cytogen recorded royalty revenues for Quadramet based on
minimum contractual payments, which were in excess of actual sales. Subsequent
to June 1998, the minimum royalty arrangement was discontinued and Cytogen
recorded product revenues from Quadramet based on actual sales. Beginning in
1999, Quadramet royalties are based on net sales of Quadramet by Berlex
Laboratories Inc. ("Berlex"), Cytogen's marketing partner for Quadramet. Berlex
relaunched the product in March 1999. Although Cytogen believes that Berlex is
an advantageous marketing partner, there can be no assurance that Quadramet
will, following the re-launch of the product, achieve market acceptance on a
timely basis or result in significant revenues for Cytogen.
Other product revenues include sales from OncoScint CR/OV which were $512,000,
$620,000 and $872,000 in 2000, 1999 and 1998, respectively. The Company sells
OncoScint CR/OV for diagnostic use in ovarian and colorectal cancer. The market
for OncoScint CR/OV for colorectal cancer diagnostic has been negatively
affected by positron emission tomography or "PET" scans which has been shown the
same or higher sensitivity than OncoScint CR/OV. In 1998, other product revenues
included $51,000 from autologous lymphocyte therapy ("ALT") treatments for
metastatic renal cell carcinoma. Due to the discontinuance of the program in
September 1998, the Company received no additional revenues from ALT treatments.
During 2000, the Company adopted U.S. Securities and Exchange Commission Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101") which requires up-front, non-refundable license fees to be deferred and
recognized over the performance period. The cumulative effect of adopting SAB
101 resulted in a one-time, non-cash charge of $4.3 million or $0.06 per share
in 2000, which reflects the deferral of an up-front license fee received from
Berlelx, net of associated costs, related to the licensing of Quadramet
recognized in 1998 and a license fee for certain applications of PSMA to a joint
venture formed by Cytogen and Progenics recognized in 1999. Previously, the
Company had recognized up-front license fees when the Company had no obligations
to return the fees under any circumstances. Under SAB 101 these payments are
recorded as deferred revenue to be recognized over the remaining term of the
related agreements. In 2000, the Company recognized $859,000 of license revenue
that was included in the cumulative effect adjustment as of January 1, 2000. The
Company's 1999 and 1998 results have not been restated to apply SAB 101
retroactively.
-40-
License revenues for 2000, 1999 and 1998 were $859,000, $2.0 million and $7.2
million, respectively. License revenues have fluctuated in the past and may
fluctuate in the future. In 1999, the Company recorded $1.8 million for the
licensing of certain applications of PSMA to a joint venture formed by Cytogen
and Progenics Pharmaceuticals Inc. In 1998, the Company recorded a $7.1 million
up-front licensing payment from Berlex for the marketing and manufacturing
rights of Quadramet. Had the Company been subject to SAB 101 prior to 2000,
license revenue would have been $834,000 and $143,000 in 1999 and 1998,
respectively.
Revenues from contract manufacturing and research revenues were $165,000, $1.2
million and $2.0 million in 2000, 1999 and 1998, respectively. Revenues from
contract manufacturing were $604,000 and $1.7 million in 1999 and 1998,
respectively. The Company phased out contract manufacturing services during
1999.
Operating Expenses
Total operating expenses were $35.7 million, $16.9 million and $35.8 million in
2000, 1999 and 1998, respectively. The 2000 increase from 1999 is due primarily
to the acquisition of marketing and technology rights to Combidex and Code 7228
from AVM, increased development efforts related to the proteomics program at
AxCell and PSMA technologies, and the expansion of in-house sales force. The
1999 decrease from 1998 was the result of savings from the implementation of the
Company's restructuring plan. The plan, implemented in 1998 and completed in
1999, included the sale of the manufacturing facility which eliminated excess
capacity and reduced the cost of manufacturing the Company's products, closure
of Cellcor, a subsidiary, corporate downsizing, the termination of product
development efforts through Targon, a subsidiary, and termination and curtailing
of certain basic research and clinical programs. The 2000 operating expenditures
included $13.2 million charge related to the acquisition of the marketing and
technology rights to Combidex and Code 7228, of which $13.1 million was non-cash
as the Company issued its Common Stock as consideration. The 1999 operating
expenditures included a $1.2 million non-cash charge for the acquisition of
exclusive technology rights for immunotherapy to PSMA from Prostagen Inc.
("Prostagen"). The 1998 operating expenses included $1.4 million of
restructuring costs associated with the closure of Cellcor and corporate
downsizing, $539,000 in costs related to the implementation of the Company's
turn-around plan, $4.0 million for a Quadramet manufacturing commitment and
$995,000 for manufacturing and distribution of Quadramet.
Costs of product and contract manufacturing revenues were $4.4 million, $4.1
million and $12.3 million in 2000, 1999 and 1998, respectively. The 2000
increase from 1999 was due to increased product manufacturing costs. The 1999
decrease from 1998 was due to decreased manufacturing costs associated with
decreased contract manufacturing activities in 1999 and lower manufacturing
costs for Cytogen products as a result of the sale of the manufacturing
facility. The 1999 decrease compared to 1998 is also due to the 1998 costs
associated with a one-time charge of $4.0 million for a Quadramet manufacturing
commitment and $995,000 for the manufacturing and distribution of Quadramet (see
Note 9 to the Consolidated Financial Statements).
Research and development expenses were $7.0 million in 2000, $3.8 million in
1999 and $10.0 million in 1998. These expenses principally reflect product
development efforts and support for various ongoing clinical trials. The 2000
increase from 1999 was due to increased funding for the proteomics program at
AxCell, the product development efforts related to the PSMA technologies and
costs associated with certain manufacturing development by DSM Biologics Company
B.V. ("DSM") with respect to ProstaScint (see Note 2 to the Consolidated
Financial Statements). The Company anticipates that funding for AxCell will
continue to increase. The 1999 decrease from 1998 is due to the curtailing of
certain of the Company's product development efforts including the closure of
Cellcor, the termination of basic research programs and the scale back of
various clinical programs.
Acquisition of marketing and technology rights of $13.2 million in 2000
represents a non-cash charge of $13.1 million related to the acquisition of
certain rights to product candidates Combidex and Code 7228 from AVM (see Note 3
to the Consolidated Financial Statements). In 1999, the acquisition of
technology rights was $1.2 million and represents a non-cash charge related to
the acquisition of Prostagen (see Note 5 to the Consolidated Financial
Statements).
Equity losses in Targon subsidiary was $1.0 million in 1998. The Company sold
Targon in 1998.
Selling and marketing expenses were $6.1 million, $4.2 million and $5.1 million
in 2000, 1999 and 1998, respectively. The 2000 increase from 1999 and 1998 is
due to the expansion of the Company's in-house sales force and pre-launch
marketing costs associated with the January 2001 launch of BrachySeed prostate
cancer product. Cytogen assumed sole responsibility for the selling and
marketing of ProstaScint in July 2000. The 1999 and 1998 marketing expenses
reflect efforts to establish and maintain the Partners in Excellence ("PIE")
program.
-41-
General and administrative expenses were $4.9 million, $3.5 million and $7.4
million in 2000, 1999 and 1998, respectively. The 2000 increase from 1999 is due
to expenses related to the termination of the proposed merger with AVM, stock
based compensation for a key employee, additional staffing and related costs.
The 1999 decrease from 1998 is due to various cost containing efforts in the
Company's restructuring plan implemented in 1999 and 1998 such as the closure of
Cellcor and corporate downsizing. The 1999 decrease from 1998 is also due to the
1998 restructuring costs of $1.9 million including severance and implementation
of a turn-around plan.
Gain on sale of laboratory and manufacturing facilities
The Company recorded a gain of $3.3 million during 1999 resulting from a sale of
certain of the Company's laboratory and manufacturing facilities to Purdue Bio
Pharma for net proceeds of $3.6 million in January 1999.
Gain on sale of Targon subsidiary was $2.8 million in 1998 as a result of the
sale of Cytogen's ownership interest in Targon to Elan Corporation, plc ("Elan")
(see Note 7 to the Consolidated Financial Statements).
Interest Income/Expense
Interest income was $774,000, $441,000 and $582,000 for 2000, 1999 and 1998,
respectively. The 2000 increase from 1999 is due to higher average cash balances
during 2000. The 1999 decrease from 1998 is due primarily to interest income
realized from the $10.0 million note from Targon payable to Cytogen. The note
was canceled as a result of the sale of Targon to Elan in August 1998 (see Note
7 to the Consolidated Financial Statements).
Interest expense was $163,000, $29,000 and $652,000 in 2000, 1999 and 1998,
respectively. The 2000 increase from 1999 is due to interest related to a
convertible promissory note with Elan (see Note 7 to the Consolidated Financial
Statements) and finance charges related to various equipment leases. The 1999
decrease from 1998 was due to the cancellation and satisfaction of liabilities
associated with Elan and Knoll Pharmaceuticals Company ("Knoll"). The $10.0
million note due to Elan was cancelled as a result of the sale of Targon to Elan
in August 1998. The Company paid the balance of the obligation to Knoll in
December 1998.
Income tax benefit
During 2000 and 1999, the Company sold New Jersey State net operating loss
carryforwards and research and development credits which resulted in the
recognition of a $1.6 million and $2.7 million tax benefit, respectively. Under
the current legislation, the Company may be able to sell a minimum $977,000 of
the remaining approved $3.7 million of tax benefits in 2001. The actual amount
of tax credits the Company may sell will depend upon the allocation among
qualifying companies of an annual pool established by the State of New Jersey.
Net Income/Loss
Net loss to Common Stockholders was $27.3 million in 2000 compared to a net
income of $729,000 in 1999 and a net loss of $13.3 million in 1998. Net loss per
common share in 2000 was $0.37 based on weighted average common shares
outstanding of 73.3 million. The 2000 net loss included $4.3 million or $0.06
per share for the cumulative effect of accounting change as a result of the
adoption of SAB 101. The basic and diluted net income per common share in 1999
was $0.01 based on weighted average common shares outstanding of 67.2 million
for basic and 68.2 million for diluted. The net loss per common share in 1998 is
$0.24 based on 56.4 million average common shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments were $12.0
million as of December 31, 2000, compared to $12.4 million as of December 31,
1999. The cash used for operating activities in 2000 was $9.0 million compared
to $3.9 million in the same period of 1999. The increase in cash used for
operating activities in 2000 was primarily due to continued investment in the
proteomics business at AxCell Biosciences, pre-launch marketing costs associated
with the January 2001 launch of BrachySeed prostate cancer product, increased
marketing and sales efforts for the Company's existing products and various
expenses related to the termination of the proposed merger with AVM.
Historically, the Company's primary sources of cash have been proceeds from the
issuance and sale of its stock through public offerings and private placements,
product related revenues, revenues from contract manufacturing and research
services, fees paid under license agreements and interest earned on cash and
short-term investments. In February 2000, the Company received $1.0 million from
Berlex Laboratories for the exercise of a warrant to purchase 1,000,000 shares
of Cytogen's Common Stock at $1.00 per share. In addition, during 2000 the
Company sold approximately 1.7 million additional shares of Cytogen Common Stock
for total proceeds of $3.5 million at an average price of $2.12 per share upon
the exercises of employee stock options and other warrants.
-42-
In September 2000, the Company sold to Acqua Wellington 902,601 registered
shares of Cytogen Common Stock at an aggregate price of $6.0 million or $6.647
per share. In October 2000, the Company entered into an equity financing
facility with Acqua Wellington for up to $70 million of Common Stock. Under the
terms of the agreement, over the next 20 months, Cytogen may, at its discretion,
sell additional shares of its Common Stock to Acqua Wellington at a small
discount to the market price to be determined before each sale provided the
Threshold Price, as defined therein, for the Company's stock is at least $4.00
per share. The financing facility is not subject to any minimum takedown
requirements, nor did the Company pay any financing fees or other compensation
in connection with this transaction. Pursuant to this facility, in February
2001, the Company sold to Acqua Wellington 1,276,557 shares of its Common Stock
at an aggregate price of $6.5 million or $5.092 per share.
In January 2001, the Company received cash of $1.6 million relating to the
December 2000 sale of New Jersey State net operating losses and research and
development credits. Under the current legislation, the Company may be able to
sell a minimum $977,000 of the remaining approved $3.7 million of tax benefits
in 2001. The actual amount of tax credits the Company may sell will depend upon
the allocation among qualifying companies of an annual pool established by the
State of New Jersey
In connection with the licensing of PSMA technology to a joint venture between
Cytogen and Progenics, the Company will receive $500,000 on December 31, 2001
(see Note 6 to the Consolidated Financial Statements).
The Company's capital and operating requirements may change depending upon
various factors, including: (i) whether the Company and its strategic partners
achieve success in manufacturing, marketing and commercialization of its
products; (ii) the amount of resources which the Company devotes to clinical
evaluations and the expansion of marketing and sales capabilities; (iii) results
of clinical trials and research and development activities; and (iv) competitive
and technological developments, in particular the Company may expend funds for
development of its proteomics and PSMA technologies.
The Company's financial objectives are to meet its capital and operating
requirements through revenues from existing products and licensing arrangements.
To achieve its strategic objectives, the Company may enter into research and
development partnerships and acquire, in-license and develop other technologies,
products or services. Certain of these strategies may require payments by the
Company in either cash or stock in addition to the costs associated with
developing and marketing a product or technology. However, the Company believes
that, if successful, such strategies may increase long-term revenues. There can
be no assurance as to the success of such strategies or that resulting funds
will be sufficient to meet cash requirements until product revenues are
sufficient to cover operating expenses. To fund these strategic and operating
activities, the Company may sell equity and debt securities as market conditions
permit or enter into credit facilities.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to implement its planned product development efforts,
including acquisition of products and complementary technologies, research and
development, clinical studies and regulatory activities, and to further its
marketing and sales programs. The Company expects that its existing capital
resources together with the Acqua Wellington equity line should be adequate to
fund the Company's operations for the foreseeable future. The Company cannot be
certain that it will not consume a significant amount of its currently available
resources and reasonably expects that it will have additional requirements for
debt or equity capital, irrespective of whether and when it reaches
profitability, for further development of products, product and technology
acquisition costs, and working capital.
The Company's future capital requirements and the adequacy of available funds
will depend on numerous factors, including the successful commercialization of
its products, the costs associated with the acquisition of complementary
products and technologies, progress in its product development efforts, the
magnitude and scope of such efforts, progress with clinical trials, progress
with regulatory affairs activities, the cost of filing, prosecuting, defending
and enforcing patent claims and other intellectual property rights, competing
technological and market developments, and the expansion of strategic alliances
for the sales, marketing, manufacturing and distribution of its products. To the
extent that the currently available funds and revenues are insufficient to meet
current or planned operating requirements, the Company will be required to
obtain additional funds through equity or debt financing, strategic alliances
with corporate partners and others, or through other sources. Based on the
Company's historical ability to raise capital and current market conditions, the
Company believes other financing alternatives are available. There can be no
assurance that the financing commitments described above or other financial
alternatives will be available when needed or at terms commercially acceptable
to the Company. If adequate funds are not available, the Company may be required
to delay, further scale back or eliminate certain aspects of its operations or
attempt to obtain funds through arrangements with collaborative partners or
-43-
others that may require the Company to relinquish rights to certain of its
technologies, product candidates, products or potential markets. If adequate
funds are not available, the Company's business, financial condition and results
of operations will be materially and adversely affected.
Recently Enacted Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133", which was adopted by us on January 1,
2001, provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. As we do not currently hold
derivative instruments or engage in hedging activities, the adoption of this
pronouncement is not expected to have any impact on our financial position or
results of operations for the year 2001.
-44-
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company does not have operations subject to risks of foreign currency
fluctuations, nor does it use derivative financial instruments in its operations
or investment portfolio. The Company does not have exposure to market risks
associated with changes in interest rates, as it has no variable interest rate
debt outstanding. The Company does not believe it has any other material
exposure to market risks associated with interest rates.
Item 8. Financial Statements and Supplementary Data
The response to Item 8 is submitted as a separate section of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-45-
PART 111
Item 10. Directors and Executive Officers of the Company.
The information relating to the Company's directors, nominees for election as
directors and executive officers under the headings "Election of Directors",
"Executive Officers" and "Compliance with Section 16(a) of the Exchange Act" in
the Company's definitive proxy statement for the 2001 Annual Meeting of
Stockholders is incorporated herein by reference to such proxy statement.
Item 11. Executive Compensation.
The discussion under the heading "Executive Compensation" in the Company's
definitive proxy statement for the 2001 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The discussion under the heading "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement for the 2001
Annual Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
Item 13. Certain Relationships and Related Transactions.
The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 2001 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
-46-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as a part of the Report:
(1) and (2)
The response to this portion of Item 14 is submitted as a separate
section of this Form 10-K.
(3) Exhibits --
Exhibit No.
- -----------
3.1 - Restated Certificate of Incorporation of Cytogen Corporation, as
amended. Filed as an exhibit to Form 10-Q Quarterly Report for the
quarter ended June 30, 2000 and incorporated herein by reference.
3.2 - By-Laws of Cytogen Corporation, as amended. Filed as an exhibit to
Form 10-Q Quarterly Report for the quarter ended June 30, 1999 and
incorporated herein by reference.
4.1 - Amended and Restated Rights Agreement, dated as of October 19, 1998
between Cytogen Corporation and Chase Mellon Shareholder Services,
L.L.C., as Rights Agent. The Amended and Restated Rights Agreement
includes the Form of Certificate of Designations of Series C Junior
Preferred Stock as Exhibit A, the form of Rights Certificate as
Exhibit B and the Summary of Rights as Exhibit C. Filed as an exhibit
to Form 10-Q Quarterly Report for the quarter ended September 30, 1998
and incorporated herein by reference.
10.1 - Lease Agreement, dated as of March 16, 1987, by and between
Peregrine Investment Partners I, as lessor, and Cytogen Corporation,
as lessee. Filed as an exhibit to Form 10-K Annual Report for Year
Ended January 2, 1988 and incorporated herein by reference.
10.2. - Amendment, dated as of October 16, 1987, to Lease Agreement between
Peregrine Investment Partners I and Cytogen Corporation. Filed as an
exhibit to Form S-8 Registration Statement (No. 33-30595) and
incorporated herein by reference.
10.3 - 1989 Employee Stock Option Plan. Filed as an exhibit to Form S-8
Registration Statement (No. 33-30595) and incorporated herein by
reference.+
10.4.1 - 1988 Stock Option Plan for Non-Employee Directors. Filed as an
exhibit to Form S-8 Registration Statement (No. 33-30595) and
incorporated herein by reference.+
10.4.2 - Amendment to the Cytogen Corporation 1988 Stock Option Plan for
Non-Employee Directors dated May 22, 1996. Filed as an exhibit to Form
10-Q Quarterly Report for the quarter ended June 30, 1996 and
incorporated herein by reference.+
10.5 - Standard Form of Indemnification Agreement entered into between
Cytogen Corporation and its officers, directors, and consultants.
Filed as an exhibit to Amendment No. 1 to Form S-1 Registration
Statement (No. 33-31280) and incorporated herein by reference.+
10.6 - 1989 Stock Option Policy for Outside Consultants. Filed as an
exhibit to Amendment No. 1 to Form S-1 Registration Statement (No.
33-31280) and incorporated herein by reference.+
10.7.1 - License Agreement dated as of March 31, 1993 between Cytogen
Corporation and The Dow Chemical Company. Filed as an exhibit to Form
10-Q/A-1 Amendment to Quarterly Report for the quarter ended July 3,
1993 and incorporated herein by reference.*
-47-
10.7.2 - Amendment of the License Agreement between Cytogen Corporation and
The Dow Chemical Company dated September 5, 1995. Filed as an exhibit
to Form 10-Q Quarterly Report for the quarter ended March 31, 1996 and
incorporated herein by reference.*
10.7.3 - Second Amendment to the License Agreement between Cytogen
Corporation and The Dow Chemical Company dated May 20, 1996. Filed as
an exhibit to Form 10-Q/A-1 Amendment to Quarterly Report for the
quarter ended June 30, 1996 and incorporated herein by reference.*
10.8 - 1992 Cytogen Corporation Employee Stock Option Plan II, as amended.
Filed as an exhibit to Form S-4 Registration Statement (No. 33-88612)
and incorporated herein by reference.+
10.9 - License Agreement, dated March 10, 1993, between Cytogen Corporation
and The University of North Carolina at Chapel Hill, as amended. Filed
as an exhibit to Form 10-K Annual Report for the year ended December
31, 1994 and incorporated herein by reference.*
10.10 - Option and License Agreement, dated July 1, 1993, between Cytogen
Corporation and Sloan-Kettering Institute for Cancer Research. Filed
as an exhibit to Form 10-K Annual Report for the year ended December
31, 1994 and incorporated herein by reference.*
10.11.1- Cytogen Corporation 1995 Stock Option Plan. Filed as an exhibit
to Form 10-K Annual Report for the year ended December 31, 1995 and
incorporated herein by reference.
10.11.2- Amendment No. 1 to the Cytogen Corporation 1995 Stock Option Plan
dated May 22, 1996. Filed as an exhibit to Form 10-Q Quarterly Report
for the quarter ended June 30, 1996 and incorporated herein by
reference.+
10.12 - Horosziewicz - Cytogen Agreement, dated April 20,
1989, between Cytogen Corporation and Julius S. Horosziewicz, M.D.,
DMSe. Filed as an exhibit to Form 10-K Annual Report for the year
ended December 31, 1995 and incorporated herein by reference.*
10.13 - Marketing and Co-Promotion Agreement between Cytogen Corporation
and C.R. Bard, Inc. effective August 1, 1996. Filed as an exhibit to
Form 10-Q Quarterly Report for the quarter ended September 30, 1996
and incorporated herein by reference.*
10.14 - Severance Agreement effective as of March 26, 1996 between Cytogen
Corporation and John D. Rodwell, Ph.D. Filed as an exhibit to Form
10-K Annual Report for the year ended December 31, 1996 and
incorporated herein by reference. +
10.15 - Cytogen Corporation Employee Stock Purchase Plan. Filed as an
exhibit to Form S-8 Registration Statement (No. 333-27673) and
incorporated herein by reference. +
10.16 - License Agreement between Targon Corporation and Elan Corporation,
plc dated July 21, 1997. Filed as an exhibit to Form 10Q Quarterly
Report for the quarter ended June 30, 1997 and incorporated herein by
reference.*
10.17 - Employment Agreement effective as of December 23, 1996 between
Cytogen Corporation and Dr. Graham S. May. Filed as an exhibit to Form
10-K/A-1 Amendment to Annual Report for the Year Ended December 31,
1997 and incorporated herein by reference.+
10.18 - Convertible Promissory Note dated as of August 12, 1998 between
Cytogen Corporation and Elan International Services, Ltd. Filed as an
exhibit to Form 10-Q Quarterly Report for the quarter ended June 30,
1998 and incorporated herein by reference.
10.19 - Employment agreement effective as of August 20, 1998 between
Cytogen Corporation and H. Joseph Reiser. Filed as an exhibit to Form
10-Q Quarterly Report for the quarter ended September 30, 1998 and
incorporated herein by reference.+
-48-
10.20 - License Agreement by and between Berlex Laboratories, Inc. and
Cytogen Corporation dated as of October 28, 1998. Filed as an exhibit
to Form 10-Q/A-1 Amendment to Quarterly Report for the quarter ended
September 30, 1998 and incorporated herein by reference.
10.21 - Manufacturing Space Agreement between Bard BioPharma L.P. and Cytogen
Corporation dated as of January 7, 1999. Filed as an exhibit to Form
S-1/A-1 Amendment to Registration Statement and incorporated herein by
reference.
10.22 - Employment Agreement effective as of June 10, 1997 between Cytogen
Corporation and Donald F. Crane, Jr. Filed as an exhibit to Form 10-K
Annual Report for the year ended December 31, 1999 and incorporated
herein by reference.+
10.23 - The 1999 Cytogen Corporation Non-Employee Directors Stock Option
Plan. Filed as an exhibit to Form 10-Q Quarterly Report for the
quarter ended June 30, 1999 and incorporated herein by reference.+
10.24 - Strategic Alliance Agreement between AxCell Biosciences Corporation
and InforMax, Inc. dated as of September 15, 1999. Filed as an exhibit
to Form 10-K Annual Report for the year ended December 31, 1999 and
incorporated herein by reference.*
10.25 - AxCell Biosciences Corporation Employee Stock Option Plan. Filed as
an exhibit to Form 10-K Annual Report for the year ended December 31,
1999 and incorporated herein by reference.+
10.26 - Master Loan and Security Agreement No. S7600 among Cytogen
Corporation, AxCell Biosciences Corporation and Finova Capital
Corporation dated December 30, 1999. Filed as an exhibit to Form 10-K
Annual Report for the year ended December 31, 1999 and incorporated
herein by reference.
10.27 - Amendment No. 1 to Marketing and Co-Promotion Agreement effective
as of January 1, 2000 by and between Cytogen Corporation and C.R.
Bard, Inc. Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000 and incorporated herein
by reference.
10.28 - License and Marketing Agreement by and between Cytogen Corporation
and Advanced Magnetics, Inc. dated August 25, 2000. Filed as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000 and incorporated by reference herein.*
10.29 - Development and Manufacturing Agreement by and between Cytogen
Corporation and DSM Biologics Company B.V. dated July 12, 2000. Filed
as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000 and incorporated by reference
herein.*
10.30 - Common Stock Purchase Agreement, dated September 29, 2000, by and
between Cytogen Corporation and Acqua Wellington North American
Equities Fund, Ltd. filed as an exhibit to the Company's Current
Report on Form 8-K, filed with the Commission on October 5, 2000 and
incorporated herein by reference.
10.31 - Common Stock Purchase Agreement, dated October 4, 2000, by and
between Cytogen Corporation and Acqua Wellington North American
Equities Fund, Ltd. filed as an exhibit to the Company's Current
Report on Form 8-K, filed with the Commission on October 12, 2000 and
incorporated herein by reference.
-49-
10.32 - Written Compensatory Agreement by and between Cytogen Corporation
and H. Joseph Reiser dated August 24, 1998, as revised on July 11,
2000. Filed as an exhibit to the Company's Registration Statement on
Form S-8 (File No. 333-48454), filed with the Commission on October
23, 2000, and incorporated herein by reference.+
10.33 - Written Compensatory Agreement by and between Cytogen Corporation
and Lawrence Hoffman dated July 10, 2000. Filed as an exhibit to the
Company's Registration Statement on Form S-8 (File No. 333-48454),
filed with the Commission on October 23, 2000, and incorporated herein
by reference.+
10.34 - Product Manufacturing and Supply Agreement by and between Cytogen
Corporation and Draximage Inc. dated December 5, 2000. Filed as an
exhibit to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000. Filed herewith.**
10.35 - License and Distribution Agreement by and between Cytogen
Corporation and Draximage Inc. dated December 5, 2000. Filed as an
exhibit to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000. Filed herewith.**
21 - Subsidiaries of Cytogen Corporation. Filed herewith.
23 - Consent of Arthur Andersen LLP. Filed herewith.
+ Management contract or compensatory plan or arrangement.
* Cytogen Corporation has received confidential treatment of certain provisions
contained in this exhibit pursuant to an order issued by the Securities and
Exchange Commission. The copy filed as an exhibit omits the information subject
to the confidentiality grant.
**Cytogen Corporation has requested confidential treatment of certain provisions
contained in this exhibit. The copy filed as an exhibit omits the information
subject to the confidential request.
(b) Reports on Form 8-K:
The Company filed two Reports on Form 8-K during the quarter ended December
31, 2000. On October 5, 2000, the Company filed a Report on Form 8-K relating to
the issuance and sale of 902,601 shares of the Company's Common Stock to Acqua
Wellington North American Equities Fund, Ltd. ("Acqua Wellington") for an
aggregate purchase price of $6.0 million.
On October 12, 2000, the Company filed a Report on Form 8-K relating to the
execution by the Company and Acqua Wellington of an equity financing facility
whereby the Company may, at its sole discretion and from time to time over a 20
month period beginning in October 2000, sell up to $70 million in registered
shares of the Company's Common Stock to Acqua Wellington at a small discount to
market price, as determined prior to each such sale.
(c) Exhibits:
The Exhibits filed with this Form 10-K are listed above in response to
Item 14(a)(3).
(d) Financial Statement Schedules:
None.
-50-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 30th day of March
2001.
Cytogen Corporation
By: /s/ H. Joseph Reiser
------------------------------------------------------
H. Joseph Reiser, President and Chief Executive Officer
-51-
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- ------------------------------- -------------------------------------------- --------------
/s/ H. Joseph Reiser Chief Executive Officer and President March 30, 2001
- ------------------------------- (Principal Executive Officer), and Director
H. Joseph Reiser
/s/ Lawrence R. Hoffman Vice President & Chief Financial Officer March 30, 2001
- ------------------------------- (Principal Financial and Accounting Officer)
Lawrence R. Hoffman
/s/ John E. Bagalay, Jr. Director March 30, 2001
- -------------------------------
John E. Bagalay, Jr.
/s/ Stephen K. Carter Director March 30, 2001
- -------------------------------
Stephen K. Carter
/s/ James A. Grigsby Director and Chairman of the Board March 22, 2001
- -------------------------------
James A. Grigsby
/s/ Robert F. Hendrickson Director March 30, 2001
- -------------------------------
Robert F. Hendrickson
/s/ Kevin G. Lokay Director March 30, 2001
- -------------------------------
Kevin G. Lokay
/s/ S. Leslie Misrock Director March 30, 2001
- -------------------------------
S. Leslie Misrock
-52-
Form 10-K Item 14(a)(1) and (2)
Cytogen CORPORATION AND SUBSIDIARIES
(1) Index to Consolidated Financial Statements
-------------------------------------------
The following consolidated financial statements of Cytogen Corporation and
Subsidiaries together with the related notes and report of Arthur Andersen LLP,
independent public accountants.
Page in
Form 10-K
Report of Independent Public Accountants......................................................... 54
Consolidated Balance Sheets as of December 31, 2000 and 1999..................................... 55
Consolidated Statements of Operations--Years Ended December 31, 2000, 1999 and 1998.............. 56
Consolidated Statements of Stockholders' Equity--Years Ended December 31, 2000, 1999 and 1998.... 57
Consolidated Statements of Cash Flows--Years Ended December 31, 2000, 1999 and 1998.............. 58
Notes to Consolidated Financial Statements....................................................... 59
-53-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cytogen Corporation:
We have audited the accompanying consolidated balance sheets of Cytogen
Corporation (a Delaware Corporation) and Subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cytogen Corporation and
Subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.
As explained in Note 1 to the consolidated financial statements, effective
January 1, 2000, the Company changed its method of accounting for revenue
recognition.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 1, 2001
-54-
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
December 31,
--------------------------
2000 1999
---------- ---------
ASSETS:
Current Assets:
Cash and cash equivalents ........................................ $ 11,993 $ 10,801
Short-term investments ........................................... -- 1,593
Receivable on income tax benefit sold ............................ 1,625 --
Accounts receivable, net ......................................... 1,841 2,150
Inventories ...................................................... 883 685
Other current assets ............................................. 377 465
--------- ---------
Total current assets .......................................... 16,719 15,694
Property and Equipment, net ......................................... 2,193 1,997
Other Assets ........................................................ 1,504 914
--------- ---------
$ 20,416 $ 18,605
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term debt ................................ $ 151 $ 162
Accounts payable and accrued liabilities ......................... 7,218 5,478
Deferred revenue ................................................. 859 --
--------- ---------
Total current liabilities ..................................... 8,228 5,640
--------- ---------
Long-Term Debt ...................................................... 2,374 2,416
--------- ---------
Deferred Revenue .................................................... 2,596 --
--------- ---------
Commitments and Contingencies (Note 20)
Stockholders' Equity:
Preferred stock, $.01 par value, 5,400,000 shares authorized -
Series C Junior Participating Preferred Stock, $.01 par value,
200,000 shares authorized, none issued and outstanding ....... -- --
Common stock, $.01 par value, 250,000,000 shares authorized,
75,594,000 and 70,527,000 shares issued and outstanding
at December 31, 2000 and 1999, respectively .................. 756 705
Additional paid-in capital ....................................... 335,938 311,209
Deferred compensation ............................................ (895) (82)
Accumulated deficit .............................................. (328,581) (301,283)
--------- ---------
Total stockholders' equity .................................... 7,218 10,549
--------- ---------
$ 20,416 $ 18,605
========= =========
The accompanying notes are an integral part of these statements.
-55-
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
Year Ended December 31,
-------------------------------------
2000 1999 1998
--------- --------- ---------
Revenues:
Product related:
ProstaScint ................................................ $ 6,912 $ 6,351 $ 6,378
Quadramet .................................................. -- -- 1,675
Others ..................................................... 512 620 923
-------- -------- --------
Total product sales ..................................... 7,424 6,971 8,976
Quadramet royalties ........................................ 2,004 1,060 1,664
-------- -------- --------
Total product related ................................... 9,428 8,031 10,640
License and contract .......................................... 1,024 3,171 9,239
-------- -------- --------
Total revenues .......................................... 10,452 11,202 19,879
-------- -------- --------
Operating Expenses:
Cost of product and contract manufacturing revenues ........... 4,414 4,111 12,284
Research and development ...................................... 6,957 3,849 9,967
Acquisition of marketing and technology rights ................ 13,241 1,214 --
Selling and marketing ......................................... 6,126 4,210 5,103
General and administrative .................................... 4,934 3,501 7,420
Equity loss in Targon subsidiary .............................. -- -- 1,020
-------- -------- --------
Total operating expenses ................................ 35,672 16,885 35,794
-------- -------- --------
Operating loss .......................................... (25,220) (5,683) (15,915)
Gain on sale of laboratory and manufacturing facilities ........ -- 3,298 --
Gain on sale of Targon subsidiary .............................. -- -- 2,833
Interest income ................................................ 774 441 582
Interest expense ............................................... (163) (29) (652)
-------- -------- --------
Loss before income taxes and cumulative effect
of accounting change ............................... (24,609) (1,973) (13,152)
Income tax benefit ............................................. (1,625) (2,702) --
-------- -------- --------
Income (loss) before cumulative effect of
accounting change .................................. (22,984) 729 (13,152)
Cumulative effect of accounting change (Note 1) ................ (4,314) -- --
-------- -------- --------
Net income (loss) .............................................. (27,298) 729 (13,152)
Dividends on preferred stock ................................... -- -- (119)
-------- -------- --------
Net income (loss) to common stockholders ....................... $(27,298) $ 729 $(13,271)
======== ======== ========
Net income (loss) per common share:
Basic and diluted net income (loss) before cumulative
effect of accounting change ........................ $ (0.31) $ 0.01 $ (0.24)
Cumulative effect of accounting change .............. (0.06) -- --
-------- -------- --------
Basic and diluted net income (loss) ................. $ (0.37) $ 0.01 $ (0.24)
======== ======== ========
Weighted average common shares outstanding:
Basic ............................................... 73,337 67,179 56,419
======== ======== ========
Diluted ............................................. 73,337 68,187 56,419
======== ======== ========
The accompanying notes are an integral part of these statements.
-56-
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(All amounts in thousands, except share data)
Additional Deferred Accu- Total
Common Paid-in Compen- mulated Stockholders'
Stock Capital sation Deficit Equity
----------- ----------- ----------- ----------- -------------
Balance, December 31, 1997 .................. $ 512 $ 298,212 $ -- $(288,741) $ 9,983
Sale of 3,403,011 shares of common
stock ...................................... 34 2,583 -- -- 2,617
Dividends on series B preferred stock ....... -- -- -- (119) (119)
Issuance of 7,377,054 shares of common
stock upon conversion of series B preferred
stock and accumulated dividends ............ 73 55 -- -- 128
Sale of warrants to purchase 1,000,000
shares of common stock ..................... -- 855 -- -- 855
Modification of existing warrants to purchase
260,000 shares of common stock ............. -- 131 -- -- 131
Net loss .................................... -- -- -- (13,152) (13,152)
--------- --------- --------- --------- ---------
Balance, December 31, 1998 .................. 619 301,836 -- (302,012) 443
Issuance of 2,050,000 shares of common
stock in connection with the acquisition
of Prostagen Inc. .......................... 21 1,824 -- -- 1,845
Sale of 6,527,002 shares of common
stock ...................................... 65 7,244 -- -- 7,309
Issuance of options and warrants to purchase
shares of common stock ..................... -- 221 -- -- 221
Deferred compensation related to
stock options .............................. -- 84 (84) -- --
Amortization of deferred compensation ....... -- -- 2 -- 2
Net income .................................. -- -- -- 729 729
--------- --------- --------- --------- ---------
Balance, December 31, 1999 .................. 705 311,209 (82) (301,283) 10,549
Sale of 3,567,771 shares of
common stock ............................. 36 10,342 -- -- 10,378
Issuance of 1,500,000 shares of common
stock in connection with the acquisition of
product candidates marketing rights ........ 15 13,064 -- -- 13,079
Issuance of options to purchase
shares of common stock ..................... -- 261 -- -- 261
Deferred compensation related to
stock options .............................. -- 1,062 (1,062) -- --
Amortization of deferred compensation ....... -- -- 249 -- 249
Net loss .................................... -- -- -- (27,298) (27,298)
--------- --------- --------- --------- ---------
Balance, December 31, 2000 .................. $ 756 $ 335,938 $ (895) $(328,581) $ 7,218
========= ========= ========= ========= =========
The accompanying notes are an integral part of these statements.
-57-
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Year Ended December 31,
-------------------------------------
2000 1999 1998
Cash Flows From Operating Activities:
Net income (loss) ............................................... $(27,298) $ 729 $(13,152)
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Acquisition of marketing and technology rights ............... 13,079 1,214 --
Cumulative effect of accounting change ....................... 4,314 -- --
Depreciation and amortization ................................ 1,027 1,051 1,196
Imputed interest ............................................. 29 87 81
Warrant, stock and stock option grants ....................... 261 221 163
Stock based compensation ..................................... 249 2 --
Amortization of deferred revenue ............................. (859) -- --
Write down of property and equipment ......................... -- 79 657
Gain on sale of laboratory and manufacturing facilities ...... -- (3,298) --
Gain on sale of other property and equipment ................. (148) (54) --
Gain on sale of Targon subsidiary ............................ -- -- (2,833)
Equity loss in Targon subsidiary ............................. -- -- 1,020
Changes in assets and liabilities:
Accounts receivable, net .................................. 397 (715) 2,702
Inventories ............................................... (198) (435) 193
Other assets .............................................. (1,631) (97) 4
Accounts payable and accrued liabilities .................. 1,740 (2,661) 1,944
-------- -------- --------
Total adjustments ................................. 18,260 (4,606) 5,127
-------- -------- --------
Net cash used in operating activities ..................... (9,038) (3,877) (8,025)
-------- -------- --------
Cash Flows From Investing Activities:
Net cash acquired from Prostagen, Inc. (see Note 5) ............. -- 550 --
Net proceeds from sale of laboratory and manufacturing facilities -- 3,584 --
Net proceeds from sale of other property and equipment .......... 148 714 --
(Increase) decrease in short-term investments ................... 1,593 (1,593) --
Purchases of property and equipment ............................. (1,209) (523) (100)
Purchase of product right (see Note 4) .......................... (500) -- --
Proceeds from sale of Targon subsidiary ......................... -- -- 2,000
-------- -------- --------
Net cash provided by investing activities ................. 32 2,732 1,900
-------- -------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock .......................... 10,378 9,809 51
Proceeds from issuance of notes payable ......................... -- -- 2,750
Proceeds from issuance of warrants .............................. -- -- 855
Payments of long-term liabilities ............................... (180) (878) (1,898)
Dividends on series B preferred stock ........................... -- -- (19)
-------- -------- ---------
Net cash provided by financing activities ................. 10,198 8,931 1,739
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ............ 1,192 7,786 (4,386)
Cash and cash equivalents, beginning of year .................... 10,801 3,015 7,401
-------- -------- --------
Cash and cash equivalents, end of year .......................... $ 11,993 $ 10,801 $ 3,015
======== ======== ========
The accompanying notes are an integral part of these statements.
-58-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Cytogen Corporation ("Cytogen" or "the Company" which includes the Company and
its subsidiaries) is a biopharmaceutical company with two principal lines of
business, proteomics and oncology. The Company is extending its expertise in
antibodies and molecular recognition to the development of new products and a
proteomics-driven drug discovery platform. The Company has established a
pipeline of product candidates based upon its proprietary antibody and prostate
specific membrane antigen, or PSMA, technologies. Through its subsidiary, AxCell
Biosciences Corporation, the Company is also developing a proprietary protein
pathway database called ProChart as a discovery and development tool for
subscribers in the pharmaceutical, biotechnology and agricultural industries.
Cytogen's cancer management business currently comprises four marketed
FDA-approved products: ProstaScint, used to image the extent and spread of
prostate cancer; Quadramet, marketed for the relief of cancer- related bone
pain, OncoScint CR/OV, marketed as a diagnostic imaging agent for colorectal and
ovarian cancer, and BrachySeed, implants for prostate cancer therapy. The
Company also in-licensed two product candidates, Combidex and Code 7228, two
magnetic resonance imaging agents for oncology applications. The Company is
extending its cancer pipeline by developing PSMA, which Cytogen exclusively
licensed from Memorial Sloan-Kettering Cancer Center. PSMA is a unique antigen
highly expressed in prostate cancer cells and in the neovasculature of a variety
of other solid tumors, including breast, lung and colon. The Company is
developing its PSMA technology as part of its approach to offering a full range
of prostate cancer management products and services throughout the progression
of the disease, including gene-based immunotherapy vaccines, antibody-delivered
therapeutic compounds and novel assays for detection of primary prostate cancer.
Cytogen also plans to apply its PSMA technology, including therapeutics and in
vitro diagnostics, toward other types of cancer based upon the Company's
experience in prostate cancer. The Company's in vivo immunotherapeutic
development program is being conducted in collaboration with Progenics
Pharmaceuticals, Inc.
Basis of Consolidation
The consolidated financial statements include the accounts of Cytogen and its
subsidiaries, AxCell Biosciences Corporation ("AxCell"), and Prostagen Inc.
("Prostagen"). Intercompany balances and transactions have been eliminated in
consolidation. During 1998, the financial statements also included the
investment results of Targon Corporation ("Targon"), which were accounted for on
the equity method (see Investment in Targon Subsidiary). The Company sold Targon
in the third quarter of 1998.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Statements of Cash Flows
Cash and cash equivalents include cash on hand, cash in banks and all highly
liquid investments with maturity of three months or less at the time of
purchase. Cash paid for interest expense was $99,000, $44,000 and $500,000 in
2000, 1999 and 1998, respectively. During 2000 and 1999, the Company purchased
$49,000 and $223,000, respectively, of equipment under various capital leases.
Short-Term Investments
At December 1999, the Company's short-term investments are classified as
available for sale and are carried at fair value based on quoted market prices.
-59-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Receivables
At December 31, 2000 and 1999, accounts receivable were net of an allowance for
doubtful accounts of $35,000 and $83,000, respectively. The Company charged to
expense $10,000 as a provision for doubtful accounts in 1999. At December 31,
2000, approximately $457,000 of the Company's accounts receivable balance was
due from Progenics Pharmaceuticals, Inc. ("Progenics") to be paid by December
31, 2001, as compared to $870,000 at December 31, 1999 (see Note 6).
At December 31, 2000, the Company had a $1.6 million receivable due from Public
Service Electric and Gas Company relating to a sale of New Jersey state
operating loss carryforwards and research and development credits. The Company
received the proceeds from the sale in January 2001.
Inventory
The Company's inventory is primarily related to ProstaScint and OncoScint CR/OV.
Inventory is stated at the lower of cost or market using the first-in, first-out
method and consisted of the following:
December 31,
------------
2000 1999
-------- --------
Raw materials........................................... $718,000 $529,000
Work-in process......................................... 59,000 28,000
Finished goods.......................................... 106,000 128,000
-------- --------
$883,000 $685,000
======== ========
Property and Equipment
Property and equipment are stated at cost, net of depreciation. Leasehold
improvements are amortized on a straight-line basis over the lease period or the
estimated useful life, whichever is shorter. Equipment and furniture are
depreciated on a straight-line basis over three to five years. Expenditures for
repairs and maintenance are charged to expense as incurred. Property and
equipment consisted of the following:
December 31,
------------
2000 1999
---------- ----------
Leasehold improvements.................................. $3,211,000 $3,196,000
Equipment and furniture................................. 5,668,000 4,764,000
---------- ----------
8,879,000 7,960,000
Less - accumulated depreciation and amortization........ (6,686,000) (5,963,000)
---------- ----------
$2,193,000 $1,997,000
========== ==========
In January 1999, the Company sold certain of its laboratory and manufacturing
facilities to Bard BioPharma L.P., a subsidiary of Purdue Pharma L.P.
("Purdue"), for $3.6 million, net of approximately $300,000 of transaction
costs. Cytogen also signed a three-year agreement under which two of Cytogen's
products, ProstaScint and OncoScint CR/OV, will continue to be manufactured at
its former facility. As a result of the sale, the Company recognized a gain of
approximately $3.3 million during the first quarter of 1999.
-60-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Investment in Targon Subsidiary
In March 1998, Cytogen's ownership interest in Targon decreased from 99.75% to
49.875% (see Note 7). As a result, the Company began accounting for its
investment in Targon using the equity method. Under the equity method, the
Company recognized 100% of Targon's losses through March 31, 1998 in its
consolidated statement of operations as "Equity Loss in Targon Subsidiary," with
a corresponding reduction in the carrying amount of its investment. The Company
did not recognize Targon's losses after March 31, 1998 based on the completion
of the sale of Targon in August 1998.
In August 1998 the Company sold its remaining ownership interest in Targon to
Elan Corporation, plc ("Elan") for $2.0 million (see Note 7). As a result, the
Company recorded a gain of approximately $2.8 million in 1998.
Other Assets
In October 1999, the Company sold its undeveloped land in Ewing, New Jersey for
net proceeds of $714,000. As a result of the sale the Company recognized a gain
of approximately $54,000. During 1998 the Company charged to expense $240,000 to
write down the carrying value of the land to its estimated market value.
Revenue Recognition
Product related revenues include product sales by Cytogen to its customers and
Quadramet royalties. Product sales are recognized upon shipment of the finished
goods. Royalties are recognized as revenue when earned. From the time of
Quadramet's launch in 1997 to June 1998, Cytogen recorded Quadramet royalty
revenues from DuPont Pharmaceuticals Company ("DuPont") based on minimum
contractual payments, which were in excess of actual Quadramet sales. Pursuant
to an agreement between Cytogen and DuPont in June 1998, the minimum royalty
arrangement was discontinued and Cytogen reclaimed the marketing rights to
Quadramet. Subsequent to June 1998, Cytogen recorded product revenues from
Quadramet based on actual sales. Starting in 1999, Quadramet royalties are based
on sales of Quadramet by Berlex Laboratories Inc. ("Berlex"), Cytogen's
marketing partner for Quadramet (see Note 8).
License and contract revenues include milestone payments and fees under
collaborative agreements with third parties, revenues from contract
manufacturing and research services, and revenues from other miscellaneous
sources. In 2000, the Company discontinued contract manufacturing services,
concurrent with the sale of the manufacturing and laboratory facilities (see
Property and Equipment above) and therefore received no revenue from this source
in 2000.
During 2000, the Company adopted U.S. Securities and Exchange Commission Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101") which requires up-front, non-refundable license fees to be deferred and
recognized over the performance period. The cumulative effect of adopting SAB
101 resulted in a one-time, non-cash charge of $4.3 million or $0.06 per share,
which reflects the deferral of an up-front license fee received from Berlex, net
of associated costs, related to the licensing of Quadramet recognized in October
1998 (see Note 8) and a license fee for certain applications of PSMA to a joint
venture formed by Cytogen and Progenics recognized in June 1999 (see Note 6).
Previously, the Company had recognized up-front license fees when the Company
had no obligations to return the fees under any circumstances. Under SAB 101
these payments are recorded as deferred revenue to be recognized over the
remaining term of the related agreements. For the year ended December 31, 2000,
the Company recognized $859,000 in revenue that was included in the cumulative
effect adjustment as of January 1, 2000.
Prior year financial statements have not been restated to apply SAB 101
retroactively; however the following pro forma amounts show the net loss to
common stockholders and net loss per share assuming the Company had
retroactively applied SAB 101 to the prior years:
-61-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Ended December 31
---------------------------------------------------
2000 1999 1998
------------- ------------- -------------
Net income (loss) to common
stockholders, as reported......................... $(27,298,000) $ 729,000 $(13,271,000)
============= ============= =============
Net income (loss) per common share, as reported.... $ (0.37) $ 0.01 $ (0.24)
============= ============= =============
Pro forma net loss to common
stockholders ..................................... $(22,984,000) $ (484,000) $(16,373,000)
============= ============= =============
Pro forma net loss per common stock $ (0.31) $ (0.01) $ (0.29)
============= ============= =============
Cost of Product and Contract Manufacturing Revenues
In June 1998, the Company paid DuPont $995,000 for manufacturing and
distributing Quadramet as a result of Cytogen's reacquiring the marketing rights
of Quadramet. In addition, the Company recorded a $4.0 million charge for
securing a long-term manufacturing commitment for Quadramet from DuPont (see
Note 9). Beginning in 1999, pursuant to the marketing agreement with Berlex (see
Note 8), there is no manufacturing and distribution costs related to Quadramet.
In addition, in 1999 the Company began phasing out the contract manufacturing
services to third parties which resulted in lower costs associated with these
services and incurred no further costs in 2000.
Research and Development
Research and development expenditures consist of projects conducted by the
Company and payments made to sponsored research programs and consultants. All
research and development costs are charged to expense as incurred. Research and
development expenditures for customer sponsored programs were $45,000, $194,000
and $228,000 in 2000, 1999 and 1998, respectively.
Patent Costs
Patent costs are charged to expense as incurred.
Net Income (Loss) Per Share
Basic net income (loss) per common share is based upon the weighted average
common shares outstanding during each period. Diluted net income per common
share is based upon the weighted average common shares outstanding and common
stock equivalents which represent the incremental common shares that would have
been outstanding under certain employee stock options and warrants, upon assumed
exercise of dilutive stock options and warrants. Diluted net loss per share for
2000 and 1998 is the same as basic net loss per share, as the inclusion of
common stock equivalents would be antidilutive (see Note 16).
2. DSM BIOLOGICS COMPANY B.V.
In July 2000, the Company entered into a Development and Manufacturing Agreement
with DSM Biologics Company B.V. ("DSM"), pursuant to which DSM will conduct
certain development activities with respect to ProstaScint, including the
delivery of a limited number of batches of ProstaScint for testing and
evaluation purposes. Under the terms of such agreement, and subject to the
satisfactory performance thereof by DSM and the achievement of certain
regulatory approvals for the manufacturing of ProstaScint, the parties are
obligated to negotiate in good faith a long term supply agreement.
Notwithstanding the parties' obligations to perform under the agreement or to
negotiate a supply agreement in good faith, the Company cannot be certain that
DSM will satisfactorily perform its obligations thereunder or that the parties
will be able to negotiate a supply agreement on commercially satisfactory terms,
if at all. Alternatively, the Company has the option, but not the obligation, to
enter into certain licensing arrangements with DSM on terms and conditions to be
agreed upon by the parties. In 2000, the Company recorded $559,000 of
development expenses related to this agreement.
-62-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. ADVANCED MAGNETICS, INC.
In August 2000, the Company and Advanced Magnetics, Inc. ("Advanced Magnetics"),
a developer of novel diagnostic pharmaceuticals for use in magnetic resonance
imaging (MRI), entered into marketing, license and supply agreements ("AVM
Agreements"). Under the AVM Agreements, Cytogen acquired certain rights to
Advanced Magnetics' product candidates: Combidex(R), MRI contrast agent for the
detection of lymph node metastases and imaging agent Code 7228 for oncology
applications. Advanced Magnetics will be responsible for all costs associated
with the clinical development, supply and manufacture of Combidex and Code 7228
and will receive royalties based upon product sales.
In exchange for the future marketing rights to Combidex and Code 7228, Cytogen
issued 1.5 million shares of its Common Stock to Advanced Magnetics at closing
and may issue an additional 500,000 shares, which are currently in escrow,
subject to the achievement of certain milestones. Since the Advanced Magnetics'
product candidates have not yet received FDA approval, the Company recorded a
$13.2 million charge in the accompanying consolidated statements of operations
for the acquisition of marketing and technology rights, of which $13.1 million
was non-cash and represented the fair value of the 1.5 million shares of Common
Stock issued. There can be no assurance that Advanced Magnetics will receive FDA
approval to market Combidex or Code 7228 in the United States.
4. DRAXIMAGE INC.
In December 2000, the Company entered into a Product Manufacturing and Supply
Agreement with Draximage Inc. ("Draximage") to market and distribute
BrachySeed(TM) implants for prostate cancer therapy in the U.S. Under the terms
of the agreement, Draximage will supply radioactive iodine and palladium seeds
to Cytogen in exchange for royalties on sales and certain milestone payments.
Cytogen paid Draximage $500,000 upon execution of the contract which has been
recorded as other assets in the accompanying consolidated balance sheet and will
be amortized over the ten year term of the Draximage agreement. Pursuant to the
agreement, Cytogen will pay Draximage $500,000 and $1.0 million upon the first
sale of the radioisotope Iodine-125 BrachySeeds and the palladium-103
BrachySeeds, respectively. Other payments are due Draximage upon the achievement
of certain other milestones. The Company launched the radioactive iodine
BrachySeed in the U.S. in January 2001.
5. ACQUISITION OF PROSTAGEN, INC.
On June 15, 1999, Cytogen reacquired the rights for immunotherapy to its PSMA
technology by acquiring 100% of the outstanding capital stock of Prostagen, Inc.
("Prostagen") for 2,050,000 shares of Cytogen Common Stock, plus transaction
costs. The acquisition was accounted for using the purchase method of
accounting, whereby the purchase price was allocated to the assets acquired and
liabilities assumed from Prostagen based on the respective estimated fair values
at the acquisition date. The excess of the purchase price over the fair value of
the net tangible assets of approximately $1.2 million was assigned to acquire
technology rights and has been recorded as a non-cash charge to operations in
the accompanying financial statements. Acquired technology rights reflects the
value of the PSMA technology development projects underway at the time of the
Prostagen acquisition. The Company may issue up to an additional 450,000 shares
of Cytogen Common Stock upon the satisfactory termination of lease obligations
assumed in the Prostagen acquisition.
The Company had sublicensed PSMA to Prostagen for prostate cancer immunotherapy
in 1996. In connection with the acquisition, Cytogen acquired approximately
$550,000 in cash, a minority ownership in Northwest Biotherapeutics, Inc., which
is developing PSMA for cell therapy, and a contract with Velos, Inc. for
marketing a cancer patient software management program for hospitals and health
care payors. In addition, the Company may issue up to an additional $4.0 million
worth of Cytogen Common Stock if certain milestones are achieved in the PSMA
development program. The Company may also issue up to 500,000 shares of Cytogen
Common Stock upon beneficial resolution of other contractual arrangements
entered into by Prostagen.
6. PROGENICS PHARMACEUTICALS, INC. JOINT VENTURE
On June 15, 1999, Cytogen entered into a joint venture with Progenics
Pharmaceuticals, Inc. ("Progenics") to develop vaccine and antibody-based
immunotherapeutic products utilizing Cytogen's proprietary PSMA technology. The
joint venture will be owned equally by Cytogen and Progenics. Progenics will
fund up to $3.0 million of development costs of the program. After that point,
the Company and Progenics will equally share the future costs of the program.
Cytogen has the exclusive North American marketing rights on products developed
by the joint venture. In connection with the licensing of the PSMA technology to
the joint venture, Cytogen will receive $2.0 million in payments of which $1.5
million was received to date, with the balance to be paid in December
-63-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2001. During the second quarter of 1999, Cytogen recorded approximately $1.8
million in license fee revenue based on the net present value of the future
payments (using a discount rate of 10%). In connection with the adoption of SAB
101, effective January 1, 2000 (see Note 1), the Company deferred approximately
$1.5 million of this previously recognized license fee and recognized $599,000
of the deferred revenue as license and contract revenue in 2000. The remaining
$874,000 of deferred revenue will be recognized on a straight-line basis through
June 2002, the estimated term of the development program.
7. SALE OF TARGON CORPORATION
Targon was established in September 1996 pursuant to agreements between Cytogen
and Elan, and was a majority-owned (99.75%) subsidiary of Cytogen. In March
1998, Elan exchanged its shares of the Company's Series A Convertible and
Exchangeable Preferred Stock for 50% of Cytogen's interest in Targon. In August
1998, Cytogen sold its remaining 49.875% interest in Targon to Elan for $2.0
million (see Note 1). As a result of the sale, a warrant to purchase up to
1,000,000 shares of Cytogen Common Stock previously granted to Elan and all
notes among Cytogen, Elan and Targon were cancelled. In addition, in August
1998, Cytogen received $2.0 million from Elan in exchange for a convertible
promissory note (see Note 13). The Company recognized a gain of approximately
$2.8 million in 1998 on the Targon transaction.
8. BERLEX LABORATORIES
In October 1998, Cytogen entered into an exclusive license and marketing
agreement ("Berlex Agreement") with Berlex for the manufacture and sale of
Quadramet. Under the terms of the Berlex Agreement, Cytogen received a one-time
license fee of $8.0 million in 1998, of which $4.0 million was paid to DuPont to
secure a long-term manufacturing commitment for Quadramet. Berlex also pays
Cytogen royalties on net sales of Quadramet, as well as milestone payments based
on achievement of certain sales levels. Quadramet was re-launched by Berlex in
the first quarter of 1999.
In connection with the Berlex Agreement, Cytogen granted Berlex a warrant to
purchase 1,000,000 shares of Cytogen Common Stock at an exercise price of $1.002
per share. Using the Black-Scholes option pricing model, the estimated value of
the warrant was calculated at $855,000, and was recorded as a reduction of the
one-time license fee revenue recorded in 1998, with a corresponding increase in
stockholders' equity.
In connection with the adoption of SAB 101 effective January 1, 2000 (see Note
1), the Company deferred $2.8 million of the previously recognized $4.0 million
net fee received from Berlex and recognized $260,000 of this deferred revenue as
license and contract revenue in 2000. The remaining $2.6 million of deferred
revenue will be recognized on a straight-line basis through November 2010, the
product patent life of Quadramet.
9. THE DUPONT PHARMACEUTICAL COMPANY
Pursuant to the terms of an agreement between Cytogen and DuPont, Cytogen
received from DuPont Quadramet royalty revenues of $1.7 million in 1998, based
on minimum contractual payments which were in excess of actual sales. In June
1998, the agreement was amended and the minimum royalty arrangement was
discontinued. In 1998, Cytogen terminated its marketing agreement with DuPont
and recorded as a charge to Costs of Product and Contract Manufacturing payments
to DuPont of $4.0 million for securing a long-term manufacturing commitment for
Quadramet from DuPont and $995,000 for manufacturing and distributing Quadramet
in 1998.
10. THE DOW CHEMICAL COMPANY
In 1993, Cytogen acquired from The Dow Chemical Company ("Dow") an exclusive
license for the treatment of osteoblastic bone metastases in the U.S. for
Quadramet. This license was amended in 1995 and 1998 to expand the territory to
include Canada, Latin America, Europe and Japan, in 1996 to expand the field to
include all osteoblastic diseases and in 1998 to include rheumatoid arthritis.
The agreement also requires the Company to pay Dow royalties based on a
percentage of net sales of Quadramet, or a guaranteed contractual minimum
payments, whichever is greater, and future payments upon achievement of certain
milestones. The Company recorded $802,000, $500,000 and $375,000, in royalty
expense for 2000, 1999 and 1998, respectively. Future annual minimum royalties
due to Dow are $750,000 in 2001 and $1.0 million per year thereafter through
2012.
-64-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. REVENUES FROM MAJOR CUSTOMERS
Revenues from major customers (greater than 10%) as a percentage of total
revenues were as follows:
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Berlex (see Note 8)................................ 22% 9% 36%
Progenics Pharmaceuticals, Inc. (see Note 6)....... 6 16 -
Mallinckrodt Medical Inc........................... 19 16 8
Medi-Physics....................................... 7 15 10
Syncor International Corporation................... 11 10 5
Mallinckrodt Medical Inc., Medi-Physics and Syncor International Corporation are
chains of radiopharmacies, which distribute ProstaScint and OncoScint CR/OV
kits.
Revenues from Berlex and Progenics in 2000 include the recognition of deferred
revenue following the adoption of SAB 101.
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31,
------------
2000 1999
---- ----
Accounts payable................................. $2,700,000 $1,785,000
Accrued payroll and related expenses............. 1,791,000 1,309,000
Accrued research contracts and materials......... 218,000 236,000
Accrued commission and royalties................. 205,000 404,000
Accrued professional and legal................... 755,000 422,000
Facility payable................................. 1,125,000 689,000
Other accruals................................... 424,000 633,000
---------- ----------
$7,218,000 $5,478,000
========== ==========
13. LONG-TERM DEBT
December 31,
------------
2000 1999
---- ----
Due to Elan...................................... $2,280,000 $2,200,000
Capital lease obligations........................ 245,000 378,000
---------- ----------
2,525,000 2,578,000
Less: Current portion............................ (151,000) (162,000)
---------- ----------
$2,374,000 $2,416,000
========== ==========
In August 1998, Cytogen received $2.0 million from Elan in exchange for a
convertible promissory note. The note is convertible into shares of Cytogen
Common Stock at $2.80 per share, subject to adjustments, and matures in seven
years. The note bears annual interest of 7%, compounded semi-annually, however,
such interest is not payable in cash but will be added to the principal for the
first 24 months; thereafter, interest is payable in cash. In 2000 and 1999, the
Company recorded $141,000 and $146,000, respectively, in interest expense on
this note.
-65-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company leases certain equipment under capital lease obligations, which will
expire on various dates through 2003. Property and equipment leased under
non-cancellable capital leases have a net book value of $362,000 at December 31,
2000. Payments to be made under capital lease obligations (including total
interest of $40,000) are $183,000 in 2001, $97,000 in 2002 and $5,000 in 2003.
14. COMMON STOCK
In December 1998, the Company sold to the State of Wisconsin Investment Board
3,333,334 shares of Cytogen Common Stock at an aggregate price of $2.5 million,
or $0.75 per share.
In January 1999, the Company sold 2,666,667 shares of Cytogen Common Stock to a
subsidiary of The Hillman Company for an aggregate price of $2.0 million, or
$0.75 per share. Also in January, the Company exercised a put right granted to
Cytogen under a $12.0 million equity line agreement with an institutional
investor, for the sale of 475,342 shares of Common Stock at an aggregate price
of $500,000, or $1.0519 per share.
In August 1999, the Company sold to the State of Wisconsin Investment Board
3,105,590 shares of Cytogen Common Stock at an aggregate price of $5.0 million,
or $1.61 per share.
In 2000, the Company sold 1.0 million shares of Cytogen Common Stock to Berlex
Laboratories ("Berlex") for $1.0 million or $1.00 per share upon an exercise of
a warrant (see Note 8), and approximately 1.7 million additional shares of
Cytogen Common Stock for total proceeds of $3.5 million at an average price of
$2.12 per share upon the exercises of employee stock options and other warrants.
In September 2000, the Company sold to Acqua Wellington North American Equities
Fund, Ltd. ("Acqua Wellington") 902,601 registered shares of Cytogen Common
Stock at an aggregate price of $6.0 million or $6.647 per share. In October
2000, the Company entered into an equity financing facility with Acqua
Wellington for up to $70 million of Common Stock. Under the terms of the
agreement, over the next 20 months, Cytogen may, at its discretion, sell
additional shares of its Common Stock to Acqua Wellington at a small discount to
the market price to be determined before each sale provided the Threshold Price,
as defined therein, for the Company's stock is at least $4.00 per share. The
financing facility is not subject to any minimum takedown requirements, nor did
the Company pay any financing fees or other compensation in connection with this
transaction.
15. CONVERTIBLE PREFERRED STOCK
In December 1997, Cytogen issued 750 shares of Series B Preferred Stock ("Series
B") for an aggregate price of $7.5 million. The Series B carried a dividend rate
of 6% which was payable in cash or Common Stock at the option of Cytogen. In
1998, all of the outstanding Series B was converted into 7,377,054 shares of
Cytogen Common Stock including $128,000 of accrued dividends.
16. STOCK OPTIONS
The Company has various stock option plans that provide for the issuance of
incentive and non-qualified stock options to employees, non-employee directors
and outside consultants, for which an aggregate of 7,352,635 shares of Common
Stock have been reserved. The persons to whom options may be granted and the
number, type, and terms of the options vary among the plans. Options are granted
with an exercise term of 10 years and generally become exercisable in
installments over periods of up to 5 years at an exercise price determined
either by the plan or equal to the fair market value of the Common Stock at the
date of grant. Under certain circumstances, vesting may accelerate. In January
1998, the Company cancelled unexercised stock option grants to purchase 671,555
shares ranging in price from $3.687 to $16.50 per share and issued stock option
grants to purchase 537,244 shares at $1.95 per share which equaled fair market
value at the date of grant. This repricing was not available to officers,
directors, executives and consultants of the Company. Activity under these plans
was as follows:
-66-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Aggregate
Number of Price Range Exercise
Shares Per Share Price
------ --------- -----
Balance at December 31, 1997 3,825,460 $2.06 - 17.00 $ 19,541,738
Granted 4,535,920 0.70 - 2.13 6,388,644
Cancelled (2,319,085) 1.36 - 17.00 (10,480,467)
---------- ------------
Balance at December 31, 1998 6,042,295 0.70 - 16.63 15,449,915
Granted 536,155 0.95 - 2.67 1,068,223
Exercised (231,842) 0.81 - 2.69 (306,507)
Cancelled (1,266,609) 0.80 - 8.06 (5,963,368)
---------- ------------
Balance at December 31, 1999 5,079,999 0.70 - 16.63 10,248,263
Granted 1,340,500 2.47 - 16.94 8,530,540
Exercised (1,343,439) 0.83 - 16.63 (3,210,282)
Cancelled (380,766) 0.95 - 16.94 (1,024,568)
---------- ------------
Balance at December 31, 2000 4,696,294 $0.70 - 16.94 $ 14,543,953
========== ============
The following table summarizes information about stock options at December 31,
2000:
Outstanding Stock Options
-------------------------------------------------------
Exercisable Stock Options
-------------------------------------------------------
Weighted-Average
Remaining Weighted-Average
Range of Outstanding Contractual Weighted-Average Exercisable Exercise
Exercise Prices Shares Life Exercise Price Shares Price
- --------------- ----------- ---------------- ---------------- ----------- ----------------
$ 0.70 - 1.83 2,440,265 7.6 $1.10 945,948 $1.09
1.84 - 3.67 1,126,029 8.0 2.49 375,678 2.18
3.68 - 5.50 197,500 5.2 5.04 172,650 5.04
5.51 - 7.33 343,000 7.7 5.92 91,800 6.02
7.34 - 9.17 55,500 5.5 7.80 39,200 7.67
9.17 - 11.00 503,000 9.5 10.14 - -
14.66 - 16.50 15,000 0.9 15.69 15,000 15.69
16.50 - 16.94 16,000 3.7 16.61 12,000 16.50
--------- ---------
$ 0.70 - 16.94 4,696,294 7.8 $3.10 1,652,276 $2.42
========= =========
At December 31, 2000, options to purchase 1,652,276 shares of Common Stock were
exercisable and 1,520,069 shares of Common Stock were available for issuance
under approved plans of additional options that may be granted under the plans.
Included in the above tables is an option granted to a key employee in 1998 to
purchase 2,250,000 shares of Cytogen Common Stock at an exercise price of
$1.0937 per share, of which, the vesting of 1,350,000 shares ("Performance
Options") are subject to the completion of certain performance based milestones
as determined by the Board of Directors (the "Board"). During 2000 and 1999, the
Board approved the commencement of vesting for 225,000 and 675,000 of the
Performance Options, respectively, upon the achievement of certain milestones.
In 2000 and 1999, the Company recorded $1.1 million and $84,000, respectively,
of deferred compensation related to the vesting of the Performance Options,
which represents the fair market value of Cytogen's Common Stock in excess of
the exercise price of the option on the date, which the Board determined the
performance milestones had been met. Deferred compensation is being amortized
over the three-year vesting period of the Performance Options.
-67-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company adopted an employee stock purchase plan under which eligible
employees may elect to purchase shares of Common Stock at the lower of 85% of
fair market value as of the first trading day of each quarterly participation
period, or as of the last trading day of each quarterly participation period. In
2000, 1999 and 1998, employees purchased 32,385, 29,209 and 54,023 shares,
respectively, for aggregate proceeds of $80,000, $29,000 and $41,000,
respectively. The Company has reserved 368,366 shares for future issuance under
its employee stock purchase plan.
The Company applies Accounting Principle Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and the related interpretations in accounting for
its stock options to employees. The Company follows the disclosure requirement
of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation". Had compensation cost of the Company's stock options
to employees been determined under SFAS No. 123, the Company's net loss would
have been increased to the following pro forma amounts:
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Net income (loss) to common stockholders, as reported $(27,298,000) $729,000 $(13,271,000)
Pro forma net loss to common stockholders $(30,689,000) $(1,103,000) $(16,601,000)
Basic and diluted net income (loss) per common share, as reported $(0.37) $0.01 $(0.24)
Basic and diluted pro forma net loss per common share $(0.42) $(0.02) $(0.29)
The weighted average fair value per option of the options granted under the
stock option plans during 2000, 1999 and 1998 is estimated as $5.40, $1.29 and
$0.92, respectively, on the date of grant using the Black-Scholes pricing model
with the following assumptions for 2000, 1999 and 1998: dividend yield of zero,
volatility of 120.39%, 87.99% and 78.42%, respectively, risk-free interest rate
of 5.98%, 5.85% and 5.37%, respectively, and an expected life of 5 years. The
average fair value per option ascribed to the employee stock purchase plan
during 2000, 1999 and 1998 is estimated at $1.35, $0.40 and $0.65, respectively,
on the date of grant using the Black-Scholes option pricing model with the
following assumptions for 2000, 1999 and 1998: divided yield of zero, volatility
of 109.83%, 111.48% and 84.75%, respectively, risk free interest rate of 5.52%,
4.46% and 4.88%, respectively, and expected life of three months. Because the
SFAS No. 123 method of accounting is not required to be applied to options
granted prior to January 1, 1995, the resulting pro forma compensation charge
may not be representative of that to be expected in future years.
17. RELATED PARTY TRANSACTION
Consulting services have been provided to the Company under an agreement with
the Chairman of the Board of Directors related to time spent in that function on
Company matters. Fees and expenses under this agreement were $54,000, $136,000
and $172,000 in 2000, 1999 and 1998, respectively.
18. PENSION PLAN
The Company maintains a defined contribution pension plan. The contribution is
determined by the Board of Directors each year and is based upon a percentage of
gross wages of eligible employees. The plan provides for vesting over four
years, with credit given for prior service. The Company also makes contributions
under a 401(k) plan in amounts, which match up to 50% of the salary deferred by
the participants. Matching is capped at 6% of deferred salaries. Total pension
expense was $40,000, $182,000 and $310,000 for 2000, 1999 and 1998,
respectively.
19. INCOME TAXES
As of December 31, 2000, Cytogen had federal net operating loss carryforwards of
approximately $220 million. The Company also had federal and state research and
development tax credit carryforwards of approximately $6.5 million. These net
operating loss and credit carryforwards will expire through 2020. In addition,
certain operating loss and credit carryforwards began to expire in 1995.
-68-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Tax Reform Act of 1986 contains provisions that limit the utilization of net
operating loss and tax credit carryforwards if there has been an "ownership
change". Such an "ownership change", as described in Section 382 of the Internal
Revenue Code may limit the Company's utilization of its net operating loss and
tax credit carryforwards.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Based upon the Company's
loss history, a valuation allowance for deferred tax assets has been provided:
2000 1999
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 74,800,000 $ 63,700,000
Capitalized research and development expenses 15,800,000 17,400,000
Research and development credit 6,800,000 6,500,000
Acquisition of in-process technology 800,000 1,200,000
Other, net 5,800,000 6,400,000
------------- ------------
Total deferred tax assets 104,000,000 95,200,000
Valuation allowance for deferred tax assets (104,000,000) (95,200,000)
------------- ------------
Net deferred tax assets $ - $ -
============= ============
In 1995, Cytogen acquired CytoRad and Cellcor, both of which had net operating
loss carryforwards. Due to Section 382 limitations, approximately $10 million of
CytoRad and $12.0 million of Cellcor carryforwards may be available to offset
future taxable income. A 100% valuation allowance was established on the
acquisition dates as realization of these tax assets is uncertain.
During 2000 and 1999, the Company sold New Jersey state operating loss
carryforwards and research and development credits, which resulted in the
recognition of a $1.6 million and $2.7 million tax benefit, respectively.
20. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under non-cancellable
operating leases that expire at various times through 2004. Rent expense
incurred on these leases was $1.3 million, $998,000 and $1.6 million in 2000,
1999 and 1998, respectively. Minimum future obligations under the operating
leases are $2.4 million as of December 31, 2000 and will be paid as follows:
$1.4 million in 2001, $495,000 in 2002, $213,000 in 2003, and $209,000 in 2004.
The Company is obligated to make minimum future payments under research and
development contracts that expire at various times. As of December 31, 2000, the
minimum future payments under contracts are $530,000 in 2001 and $130,000 each
year from 2002 and thereafter. In addition, the Company is obligated to pay
royalties on revenues from commercial product sales including certain guaranteed
minimum payments.
-69-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
21. CONSOLIDATED QUARTERLY FINANCIAL DATA - UNAUDITED
The following table provides quarterly data for the years ended December 31,
2000 and 1999.
Three Months Ended
-----------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
2000 2000 2000 2000
--------- -------- --------- --------
(amounts in thousands except per share data)
Total revenues .................................. $ 2,643 $ 2,435 $ 2,733 $ 2,641
Total operating expenses ........................ 4,500 4,951 19,340 6,881
-------- -------- -------- --------
Operating loss ........................ (1,857) (2,516) (16,607) (4,240)
Other income, net ............................... 111 144 158 198
-------- -------- -------- --------
Loss before income taxes and cumulative
effect of accounting change .......... (1,746) (2,372) (16,449) (4,042)
Income tax benefit .............................. -- -- -- (1,625)
-------- -------- -------- --------
Loss before cumulative effect of
accounting change ................... (1,746) (2,372) (16,449) (2,417)
Cumulative effect of accounting change .......... (4,314) -- -- --
-------- -------- -------- --------
Net loss ........................................ $ (6,060) $ (2,372) $(16,449) $ (2,417)
======== ======== ======== ========
Net loss per share:
Basic and diluted net loss before cumulative
effect of accounting change ............... $ (0.02) $ (0.03) $ (0.22) $ (0.03)
Cumulative effect of accounting change ..... (0.06) -- -- --
-------- -------- -------- --------
Basic and diluted net loss ................. $ (0.08) $ (0.03) $ (0.22) $ (0.03)
======== ======== ======== ========
Weighted average common shares outstanding ...... 71,630 72,779 73,632 75,593
======== ======== ======== ========
Amounts for each of the first three quarters of 2000 have been restated to
give effect for the implementation of SAB 101 in the fourth quarter
retroactively to January 1, 2000. The impact of the change resulted in an
increase in total revenues and corresponding decrease in loss before cumulative
effect of a change in accounting principle of $215,000 for each of the quarters
ended September 30, June 30, and March 31 as compared to amounts previously
reported in Form 10-Q filed with the SEC.
-70-
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended
------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999
-------- -------- -------- ---------
(amounts in thousands except per share data)
Total revenues .............................. $ 2,324 $ 4,450 $ 2,346 $ 2,082
Total operating expenses .................... 4,018 5,428 3,649 3,790
-------- -------- -------- --------
Operating loss ..................... (1,694) (978) (1,303) (1,708)
Gain on sale of laboratory and
manufacturing facilities ................... 3,298 -- -- --
Other income, net ........................... 53 14 71 274
-------- -------- -------- --------
Income (loss) before income taxes .. 1,657 (964) (1,232) (1,434)
Income tax benefit .......................... -- -- -- (2,702)
-------- -------- -------- --------
Net income (loss) ........................... $ 1,657 $ (964) $ (1,232) $ 1,268
======== ======== ======== ========
Basic and diluted net income (loss) per share $ 0.03 $ (0.01) $ (0.02) $ 0.02
======== ======== ======== ========
Weighted average common share outstanding
Basic .................................... 64,192 65,632 68,757 70,414
======== ======== ======== ========
Diluted .................................. 64,496 65,632 68,757 72,307
======== ======== ======== ========
-71-