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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
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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
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Commission file number 000-14879
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Cytogen Corporation
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-2322400
- --------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organizatiion Identification Number)
650 College Road East, Suite 3100, Princeton, NJ 08540-5308
-----------------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
Registrant's Telephone Number, Including Area Code: (609) 750-8200
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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 .
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at November 10, 2003
- --------------------------------- --------------------------------
Common Stock, $.01 par value 12,906,353
CYTOGEN CORPORATION
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION.............................................. 1
Item 1. Consolidated Financial Statements (unaudited)................. 1
Consolidated Balance Sheets as of September 30, 2003 and
December 31, 2002.......................................... 2
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2003 and 2002................... 3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2003 and 2002 ......................... 4
Notes to Consolidated Financial Statements.................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 27
Item 4. Controls and Procedures....................................... 27
PART II. OTHER INFORMATION................................................. 28
Item 2. Changes in Securities and Use of Proceeds..................... 28
Item 5. Other Information............................................. 30
Item 6. Exhibits and Reports on Form 8-K.............................. 30
SIGNATURES.................................................................. 33
-i-
PART I - FINANCIAL INFORMATION
------------------------------
Item 1 - Consolidated Financial Statements (unaudited)
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share and per share data)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- -------------
ASSETS:
Current assets:
Cash and cash equivalents ...................................... $ 12,828 $ 14,725
Accounts receivable, net ....................................... 1,708 1,778
Inventories .................................................... 2,357 1,262
Other current assets ........................................... 1,199 643
-------- --------
Total current assets ......................................... 18,092 18,408
Property and equipment, net ...................................... 625 1,072
Quadramet license fee, net ....................................... 7,888 -
Other assets ..................................................... 686 414
-------- --------
$ 27,291 $ 19,894
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term liabilities ....................... $ 76 $ 80
Accounts payable and accrued liabilities ....................... 5,796 4,427
Deferred revenue ............................................... 31 385
-------- --------
Total current liabilities .................................... 5,903 4,892
-------- --------
Long-term liabilities ............................................ 2,534 2,614
-------- --------
Deferred revenue ................................................. - 1,800
-------- --------
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, 25,000,000 shares authorized,
10,992,382 and 8,758,235 shares issued and outstanding
at September 30, 2003 and December 31, 2002, respectively .... 110 88
Additional paid-in capital ..................................... 381,354 366,884
Deferred compensation .......................................... (1) (4)
Accumulated deficit ............................................ (362,609) (356,380)
-------- --------
Total stockholders' equity ................................... 18,854 10,588
-------- --------
$ 27,291 $ 19,894
======== ========
The accompanying notes are an integral part of these statements.
2
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
2003 2002 2003 2002
--------- --------- --------- --------
REVENUES:
Product related:
ProstaScint ................................... $ 1,519 $ 1,914 $ 4,738 $ 5,961
Quadramet ..................................... 1,159 - 1,159 -
NMP22 BladderChek ............................. 116 - 239 -
BrachySeed .................................... - 698 240 1,715
OncoScint ..................................... - 48 - 158
-------- -------- -------- --------
Total product sales .................... 2,794 2,660 6,376 7,834
Quadramet royalties ........................... 191 376 1,105 1,385
-------- -------- -------- --------
Total product related .................. 2,985 3,036 7,481 9,219
License and contract .......................... 2,520 65 2,827 345
-------- -------- -------- --------
Total revenues ......................... 5,505 3,101 10,308 9,564
-------- -------- -------- --------
OPERATING EXPENSES:
Cost of product related revenues ................ 2,154 1,154 3,964 3,449
Research and development ........................ 900 1,331 2,504 6,876
Equity loss in joint venture .................... 714 1,006 2,680 2,114
Selling and marketing ........................... 1,464 1,433 3,940 4,508
General and administrative ...................... 1,169 1,664 3,985 4,374
-------- -------- -------- --------
Total operating expenses ............... 6,401 6,588 17,073 21,321
-------- -------- -------- --------
Operating loss ......................... (896) (3,487) (6,765) (11,757)
LOSS ON INVESTMENT ................................ - (516) - (516)
INTEREST INCOME ................................... 32 75 91 224
INTEREST EXPENSE .................................. (46) (43) (139) (127)
-------- -------- -------- --------
Loss before income taxes ............... (910) (3,971) (6,813) (12,176)
INCOME TAX BENEFIT ................................ - - (584) -
-------- -------- -------- --------
NET LOSS .......................................... $ (910) $ (3,971) $ (6,229) $(12,176)
======== ======== ======== ========
BASIC AND DILUTED NET LOSS PER SHARE .............. $ (0.08) $ (0.46) $ (0.65) $ (1.46)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ........ 10,866 8,660 9,570 8,353
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
3
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $ (6,229) $(12,176)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................ 544 560
Stock-based compensation expenses .................... 505 781
Amortization of deferred revenue ..................... (2,154) (345)
Stock-based milestone payments ....................... - 2,033
Asset impairment ..................................... 115 396
Loss on disposition of assets ........................ 28 -
Loss on investment ................................... - 516
Changes in assets and liabilities:
Receivables, net ................................... 70 959
Inventories ........................................ (1,095) 711
Other assets ....................................... (965) 85
Accounts payable and accrued liabilities ........... 1,404 (848)
Other liabilities .................................. - 390
-------- --------
Net cash used in operating activities .................. (7,777) (6,938)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of product rights .................................. (8,000) (1,000)
Net proceeds from sale of equipment ......................... - 100
Purchases of property and equipment ......................... (12) (103)
-------- --------
Net cash used in investing activities .................. (8,012) (1,003)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ...................... 13,976 12,962
Payment of long-term liabilities ............................ (84) (84)
-------- --------
Net cash provided by financing activities .............. 13,892 12,878
-------- --------
Net increase (decrease) in cash and cash equivalents ........ (1,897) 4,937
Cash and cash equivalents, beginning of period .............. 14,725 11,309
-------- --------
Cash and cash equivalents, end of period .................... $ 12,828 $ 16,246
======== ========
The accompanying notes are an integral part of these statements.
4
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY
BACKGROUND
Cytogen Corporation and its subsidiaries ("Cytogen" or the "Company")
of Princeton, New Jersey is a product-driven, oncology-focused biopharmaceutical
company. Cytogen markets proprietary and licensed oncology products through its
internal specialty sales force: Quadramet(R) (a skeletal targeting therapeutic
radiopharmaceutical for the relief of pain due to bone metastases);
ProstaScint(R) (a monoclonal antibody-based imaging agent used to image the
extent and spread of prostate cancer), and NMP22(R) BladderChek(TM) (a
point-of-care, in vitro diagnostic test for bladder cancer). Cytogen has
exclusive U.S. marketing rights to Combidex(R) (an ultrasmall superparamagnetic
iron oxide contrast agent for magnetic resonance imaging of lymph nodes) that is
pending clearance by the U.S. Food and Drug Administration (the "FDA"). The
Company's pipeline is comprised of product candidates at various stages of
clinical and pre-clinical development, including fully human monoclonal
antibodies and cancer vaccines based on prostate specific membrane antigen
("PSMA") technology, which Cytogen exclusively licensed from Memorial
Sloan-Kettering Cancer Center.
Cytogen has had a history of operating losses since its inception. The
Company currently relies on two products, ProstaScint and Quadramet, for
substantially all of its revenues. In addition, the Company has, from time to
time, stopped selling certain products, such as BrachySeed and OncoScint CR/OV,
that the Company previously believed would generate significant revenues for its
business. The Company's products are subject to significant regulatory review by
the FDA and other federal and state agencies, which requires significant time
and expenditures in seeking, maintaining and expanding product approvals. In
addition, the Company relies on collaborative partners to a significant degree,
among other things, to manufacture its products, to secure raw materials, and to
provide licensing rights to their proprietary products for the Company to sell
and market to others.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Cytogen
and its subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
BASIS OF PRESENTATION
The consolidated financial statements and notes thereto of Cytogen are
unaudited and include all adjustments, which in the opinion of management, are
necessary to present fairly the financial condition and results of operations as
of and for the periods set forth in the Consolidated Balance Sheets,
Consolidated Statements of Operations and Consolidated Statements of Cash Flows.
All such accounting adjustments are of a normal, recurring nature. The
5
consolidated financial statements do not include all of the information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America and should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K, as amended, filed with the Securities and Exchange Commission, which
includes financial statements as of and for the year ended December 31, 2002.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any other
interim period or for a full year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, cash in banks and all
highly-liquid investments with a maturity of three months or less at the time of
purchase.
INVENTORIES
The Company's inventories are primarily related to ProstaScint and
NMP22 BladderChek. Inventories are stated at the lower of cost or market using
the first-in, first-out method and consisted of the following (all amounts in
thousands):
September 30, 2003 December 31, 2002
------------------ -----------------
Raw materials.................... $ - $ 506
Work-in-process.................. 1,089 39
Finished goods................... 1,268 717
------------ ------------
$ 2,357 $ 1,262
============ ============
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," if
indicators of impairment exist, management assesses the recoverability of the
affected long-lived assets by determining whether the carrying value of such
assets can be recovered through undiscounted future operating cash flows and
eventual disposition of the asset. If impairment is indicated, management
measures the amount of such impairment by comparing the carrying value of the
assets to the present value of the expected future cash flows associated with
the use of the asset. During the three months ended September 30, 2003, the
Company recorded a charge of $115,000 to cost of product related revenues in the
accompanying consolidated statements of operations for the asset impairment
associated with a licensing fee previously paid by the Company related to NMP22
BladderChek (see Note 11).
6
NET LOSS PER SHARE
Basic net loss per common share is based upon the weighted average
common shares outstanding during each period. Diluted net loss per common share
is the same as basic net loss per share because the inclusion of common stock
equivalents would be antidilutive due to the Company's losses.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities," which
addresses the consolidation by business enterprises of variable interest
entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For variable interest entities that existed
prior to February 1, 2003, companies must complete their evaluations of the
entities and consolidate those where they are the primary beneficiary in
financial statements issued for the first interim or annual period ending after
December 15, 2003. The Company is currently evaluating the impact of this
Interpretation.
OTHER COMPREHENSIVE LOSS
Other comprehensive loss in 2002 consisted of an unrealized loss on a
marketable security. For the three and nine months ended September 30, 2002, the
net unrealized holding losses of that security were $321,000 and $860,000,
respectively, and as a result, the comprehensive loss for the three and nine
months ended September 30, 2002 was $4.3 million and $13.0 million,
respectively. There were no marketable securities outstanding during the nine
months ended September 30, 2003 and therefore no other comprehensive gains or
losses.
STOCK-BASED COMPENSATION
The Company follows the intrinsic value method of accounting for
stock-based employee compensation in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. The
Company records deferred compensation for option grants to employees for the
amount, if any, by which the market price per share exceeds the exercise price
per share at the measurement date, which is generally the grant date.
The Company follows the disclosure provisions of SFAS 123 "Accounting
for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." Had compensation cost for
options been recognized in the consolidated statements of operations using the
fair value method of accounting, the Company's net loss and net loss per share
would have been as follows (all amounts in thousands, except per share data):
7
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- --------------------------------
2003 2002 2003 2002
----- ---- ---- ----
Net loss, as reported...................... $ (910) $ (3,971) $ (6,229) $ (12,176)
Add: Stock-based employee
compensation expense
included in reported net loss........... 2 95 3 586
Deduct: Total stock-based
employee compensation
expense determined under
fair value-based method for
all awards.............................. (382) (998) (1,094) (2,672)
----------- ----------- ------------ ------------
Pro forma net loss........................ $ (1,290) $ (4,874) $ (7,320) $ (14,262)
=========== =========== ============ ============
Basic and diluted net loss per
share, as reported.................... $ (0.08) $ (0.46) $ (0.65) $ (1.46)
=========== =========== ============ ============
Pro forma basic and diluted net
loss per share........................ $ (0.12) $ (0.56) $ (0.76) $ (1.71)
=========== =========== ============ ============
RECLASSIFICATION
Certain reclassifications have been reflected in the 2002 consolidated
financial statements to conform with the 2003 presentation.
2. EQUITY LOSS IN PSMA DEVELOPMENT COMPANY LLC
In June 1999, Cytogen entered into a joint venture with Progenics
Pharmaceuticals Inc. ("Progenics," and collectively with Cytogen, the
"Members"), to form The PSMA Development Company LLC (the "Joint Venture"). The
Joint Venture is currently developing antibody-based and vaccine
immunotherapeutic products utilizing Cytogen's exclusively licensed PSMA
technology. The Joint Venture is owned equally by Cytogen and Progenics.
Cytogen accounts for the Joint Venture using the equity method of
accounting. Through November 2001, Progenics was obligated to fund the initial
$3.0 million of the development costs related to the Joint Venture. Beginning in
December 2001, Cytogen began to recognize 50% of the Joint Venture's operating
results in its consolidated statements of operations. The Joint Venture is
expected to continue to incur losses in future years if an agreement between the
Members is reached and the Joint Venture's operations are funded. For the three
months ended September 30, 2003 and 2002, Cytogen recognized $714,000 and $1.0
million, respectively, of such losses. For the nine months ended September 30,
2003 and 2002, Cytogen recognized $2.7 million and $2.1 million, respectively,
of such losses. As of September 30, 2003 and December 31, 2002, the carrying
value of Cytogen's investment in the Joint Venture was $371,000 and $1,000,
respectively, which represents Cytogen's investment to date in the Joint Venture
less its cumulative share of losses and is recorded in other assets. Selected
financial statement information of the Joint Venture is as follows (all amounts
in thousands):
8
BALANCE SHEET DATA: SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- --------------
Cash........................................................ $ 965 $ 290
Prepaid expenses............................................ 7 -
-------- -------
Total Assets.................................... $ 972 $ 290
======== =======
Accounts payable and accrued expenses....................... $ 247 $ 304
Capital contributions....................................... 17,498 11,399
Accumulated deficit......................................... (16,773) (11,413)
-------- --------
Total Liabilities and Equity.................... $ 972 $ 290
======== ========
INCOME STATEMENT DATA:
THREE NINE
MONTHS ENDED MONTHS ENDED FOR THE PERIOD
SEPTEMBER 30, SEPTEMBER 30, FROM JUNE 15, 1999
--------------------------- --------------------------- (INCEPTION) TO
2003 2002 2003 2002 SEPTEMBER 30, 2003
--------- --------- --------- --------- -------------------
Interest income....... $ 1 $ - $ 2 $ 4 $ 231
Total expenses........ 1,430 2,012 5,362 4,232 17,004
---------- --------- -------- --------- ---------
Net loss.............. $ (1,429) $ (2,012) $ (5,360) $ (4,228) $ (16,773)
========= ========= ========= ========= =========
In July 2003, the Members agreed to: (i) an updated work plan governing
the activities of the Joint Venture for the remainder of 2003, including the
execution of various third-party contracts; (ii) a budget for the Joint
Venture's operations for 2003 and respective capital contributions of the
Members; and (iii) an amended services agreement pursuant to which the Members
will provide research and development and related services for the remainder of
2003. In October 2003, Cytogen contributed an additional $950,000 to the Joint
Venture and has therefore satisfied its financial commitments to the Joint
Venture through the end of 2003. The Joint Venture's work plan, budget, and
other operational and financial matters relating to periods after 2003 will
require the further agreement of the Members prior to January 1, 2004 in order
for the Joint Venture to continue to receive operating funds thereafter.
3. LITIGATION
On March 17, 2000, Cytogen was sued in the U.S. District Court for the
District of New Jersey by M. David Goldenberg ("Goldenberg") and Immunomedics,
Inc. (collectively "Plaintiffs"). Plaintiffs allege that Cytogen's ProstaScint
product infringes a patent purportedly owned by Goldenberg and licensed to
Immunomedics. Cytogen believes that ProstaScint does not infringe this patent
and that the patent is invalid and unenforceable.
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 Cytogen's
9
products or technology. In addition, Cytogen has 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.
On April 29, 2003, the District Court granted Cytogen's motion for
summary judgment of non-infringement and dismissed Plaintiffs' complaint.
Plaintiffs have appealed that ruling to the U.S. Court of Appeals for the
Federal Circuit. The appeal is now fully briefed, but the Court has not yet set
a date for the argument.
4. INCOME TAXES
During the first quarter of 2003, the Company sold its New Jersey state
net operating loss and research and development credit carryforwards, which
resulted in the recognition of $584,000 of income tax benefit. This benefit has
been recognized because the sale has been approved by the necessary New Jersey
state authorities and the Company has completed the sale with a qualified buyer.
5. SALES OF COMMON STOCK
In June 2003, the Company entered into a securities purchase agreement
pursuant to which the Company sold 1,052,632 shares of its common stock to
certain institutional investors at $4.75 per share, resulting in net proceeds of
approximately $4.6 million. In connection with the sale, the Company issued to
the investors warrants to purchase 315,790 shares of its common stock with an
exercise price of $6.91 per share. The warrants are exercisable until June 6,
2008.
In July 2003, the Company entered into a securities purchase agreement
pursuant to which the Company sold 1,172,332 shares of its common stock to
certain institutional investors at $8.53 per share, resulting in net proceeds of
approximately $9.4 million. In connection with the sale, the Company issued to
the investors warrants to purchase 1,172,332 shares of its common stock with an
exercise price of $12.80 per share. In addition, the Company also issued: (i)
warrants to purchase 100,000 shares of its common stock at an exercise price of
$12.80 per share to a consultant as part of its compensation for services
rendered in connection with this financing; and (ii) warrants to purchase an
aggregate of 250,000 shares of its common stock at an exercise price of $10.97
per share, to certain stockholders, in connection with such stockholders' waiver
of certain rights in connection with this financing. All warrants issued in
connection with this financing are exercisable until July 10, 2008 and become
automatically exercised, in full, if the closing price of the Company's common
stock is at least 130% of the exercise price then in effect ($16.64 or $14.26,
as applicable) for 30 consecutive trading days. Upon receipt of written notice
by the Company of such automatic exercise, the holders of the warrants must
exercise such warrants by paying the Company the exercise price times the number
of shares of common stock issuable upon exercise.
See Note 11 for a subsequent event related to the sale of common stock.
6. WARRANTS ISSUED TO CONSULTANTS
In June 2003, the Company issued to consultants warrants to purchase an
aggregate of 100,000 shares of its common stock at an exercise price of $5.65
per share for consulting services. The warrants are exercisable in 12 equal
10
installments on each monthly anniversary from the date of issuance and are
exercisable through June 10, 2006. The Company recorded the fair value of these
warrants in the amount of $497,000 in its consolidated statement of operations
for the second quarter of 2003 using the Black-Scholes pricing model.
7. STOCK OPTION PLANS
At the Company's 2003 Annual Meeting of Stockholders held on June 10,
2003, the stockholders of the Company approved a proposal to amend its 1995
Stock Option Plan to increase the maximum number of shares of the Company's
common stock available for issuance thereunder from 450,263 to 650,263 shares
and to reserve an additional 200,000 shares in connection with such increase.
8. REACQUISITION OF QUADRAMET
In June 2003, the Company announced that it had entered into an
agreement with Berlex Laboratories Inc. ("Berlex") to reacquire marketing rights
to Quadramet in North America and Latin America in exchange for an upfront
payment of $8.0 million and royalties based on future sales of Quadramet,
subject to Cytogen obtaining any necessary financing for the reacquisition.
Cytogen reacquired marketing rights to Quadramet on August 1, 2003 and, in
accordance with that agreement, Cytogen began recording all revenue from the
sales of Quadramet. Cytogen will no longer receive royalty revenue from Berlex.
The up-front license payment of $8.0 million was capitalized in the third
quarter of 2003 as Quadramet license fee in the accompanying consolidated
balance sheet and is being amortized over approximately twelve years, which is
the estimated performance period of the agreement. During the three and nine
months ended September 30, 2003, Cytogen recorded $112,000 of such amortization
as cost of product related revenues in the accompanying consolidated statement
of operations.
In 1998, under a separate agreement, the Company had licensed the
marketing rights to Quadramet to Berlex, in exchange for, among other things, an
up-front, non-refundable license fee. In connection with the adoption of U.S.
Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101") effective January 1, 2000, the
Company deferred $2.8 million of such license fee net of associated costs. Under
SAB 101, this amount was recorded as deferred revenue to be recognized over the
estimated performance period. In August 2003, the 1998 license was terminated
and as a result, the remaining unamortized deferred revenue of $1.9 million was
recognized as license and contract revenue in the accompanying consolidated
statement of operations during the third quarter of 2003.
9. MANUFACTURING COMMITMENT
As a result of the Company's recent reacquisition of marketing rights
to Quadramet, the Company assumed all of Berlex's obligations under a
Manufacturing and Supply Agreement with Bristol Meyers Squibb, including an
obligation to pay manufacturing costs of at least $3.7 million annually through
2005. As of September 30, 2003, the Company is obligated to pay approximately
$926,000 in such manufacturing costs for the remainder of 2003.
11
10. ANTISOMA RESEARCH LIMITED
In September 2003, Antisoma Research Limited ("Antisoma") acquired
certain royalty rights to Antisoma's lead product, R1549 (formerly Pemtumomab),
from Cytogen. In connection with Antisoma's acquisition of such rights, Antisoma
made a cash payment to Cytogen of $500,000 which the Company recognized as
revenue because it has no continuing involvement in this arrangement. Antisoma
has agreed to make an additional payment of $500,000 upon the first commercial
sale, if any, of the R1549 product. In return, Cytogen relinquished its right to
receive royalties equivalent to 1.65% of future net sales, if any, of the R1549
product.
11. SUBSEQUENT EVENTS
On October 30, 2003, Matritech, Inc. and Cytogen Corporation executed
an Amended and Restated Distribution Agreement (the "Restated Agreement")
modifying the Distribution Agreement originally entered into by the parties on
October 18, 2002. Under the terms of the Restated Agreement, which took effect
on November 8, 2003, Cytogen has a non-exclusive right to sell NMP22 BladderChek
to urologists until December 31, 2003 and an exclusive right to continue to sell
NMP22 BladderChek to oncologists for the term of the Restated Agreement. The
term of the Restated Agreement expires on December 31, 2004 and is renewable
annually thereafter upon the mutual consent of the parties. The parties also
have agreed to remove the requirement that Cytogen sell a minimum quantity of
NMP22 BladderChek in order to maintain its exclusivity.
In November 2003, the Company issued and sold 1,863,637 shares of its
common stock to certain institutional investors at $11.00 per share resulting in
gross proceeds to the Company, before transaction costs, of approximately $20.5
million.
In November 2003, Cytogen entered into a Settlement Agreement and
Mutual Release (the "Settlement Agreement") with DSM Biologics Company B.V.
("DSM") to terminate a development agreement previously entered into between the
two companies in 2000 for certain development activities with respect to
ProstaScint. As of September 30, 2003, Cytogen has a liability recorded of
$730,000 in the accompanying consolidated balance sheet to DSM. As a result of
the Settlement Agreement, Cytogen will record an expense reversal of $580,000 to
research and development in the fourth quarter of 2003 and a corresponding
reduction in accounts payable and accrued expenses.
12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains "forward-looking" statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included in this Quarterly Report on Form
10-Q regarding our strategy, future operations, financial position, future
revenues, projected costs, prospects, plans and objectives of management are
forward-looking statements. The words "anticipates," "believes," "estimates,"
"expects," "intends," "may," "plans," "projects," "will," "would" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. Such
forward-looking statements involve a number of risks and uncertainties and
investors are cautioned not to put any undue reliance on any forward-looking
statement. We cannot guarantee that we will actually achieve the plans,
intentions or expectations disclosed in any such forward-looking statements.
Risk factors that could cause actual results to differ materially include those
identified in our Annual Report on Form 10-K for the year ended December 31,
2002, as amended, under the caption "Additional Factors That May Affect Future
Results" and those under the caption "Risk Factors," as included in certain of
our other filings, from time to time, with the Securities and Exchange
Commission. Investors are cautioned not to put undue reliance on any
forward-looking statement. Any forward-looking statements made by us do not
reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures or investments we may make. We do not assume, and specifically
disclaim, any obligation to update any forward-looking statements, and these
statements represent our current outlook only as of the date they are made.
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes thereto contained
elsewhere herein, as well as in our Annual Report on Form 10-K for the year
ended December 31, 2002, as amended, and from time to time in our other filings
with the Securities and Exchange Commission.
SIGNIFICANT DEVELOPMENTS IN 2003
PRODUCT DEVELOPMENTS. In January 2003, we provided Draximage Inc.
with notice of termination for each of our License and Distribution Agreement
and Product Manufacturing and Supply Agreement with respect to both of
Draximage's BrachySeed I-125 and BrachySeed Pd-103 products. In April 2003, we
entered into an agreement with Draximage to formally terminate each of these
agreements. We no longer accept or fill new orders for the BrachySeed products.
In June 2003, we entered into an agreement with Berlex Laboratories, a
U.S. affiliate of Schering AG, Germany, whereby marketing rights held by Berlex
Laboratories to market Quadramet (Samarium Sm 153 Lexidronam) in North America
and Latin America would be returned to us in exchange for an upfront payment of
$8.0 million and royalties based on future sales. Effective August 1, 2003, we
completed the reacquisition of such rights and began marketing Quadramet through
our internal specialty sales force.
13
In October 2003, we entered into an amendment and restatement of our
Distribution Agreement with Matritech originally entered into on October 18,
2002. Under the terms of this restated agreement, which took effect on November
8, 2003, we have a non-exclusive right to sell NMP22 BladderChek to urologists
until December 31, 2003 and an exclusive right to continue to sell NMP22
BladderChek to oncologists through the term of the restated agreement which is
December 31, 2004. All minimum sales requirements were removed from the
agreement.
BUSINESS DEVELOPMENTS. In June 2003, we announced that we had formed a
partnership with Siemens Medical Solutions and the University Hospitals of
Cleveland to promote advances in prostate cancer imaging. Also in June 2003, we
announced the formation of an alliance with GE Medical Systems, a unit of
General Electric Company, to market a total molecular imaging system to help
evaluate the extent and spread of prostate cancer by integrating GE Medical's
Infinia(TM) Hawkeye(R) imaging system with our ProstaScint imaging agent.
In July 2003, in connection with our joint venture with Progenics
Pharmaceuticals, Inc., we and Progenics agreed to an updated work plan, budget
and services agreement for the remainder of 2003. Mutual agreement of the
parties will be required with respect to such agreements for periods beyond
December 31, 2003.
In September 2003, we received $500,000 from Antisoma as a result of
Antisoma's acquisition of certain royalty rights to its lead product, R1549
(formerly Pemtumomab), from us. Antisoma has agreed to make an additional
payment of $500,000 upon the first commercial sale, if any, of the R1549
product. In return, we relinquished our right to receive royalties equivalent to
1.65% of future net sales, if any, of the R1549 product.
FINANCING DEVELOPMENTS. In June 2003, we issued and sold 1,052,632
shares of our common stock at $4.75 per share for aggregate net proceeds of $4.6
million. In connection with such financing, we also issued warrants to purchase
315,790 shares of our common stock with an exercise price of $6.91 per share.
The warrants are exercisable until June 6, 2008.
In July 2003, we issued and sold 1,172,332 shares of our common stock
at $8.53 per share and issued warrants to purchase 1,172,332 shares of our
common stock, resulting in net proceeds of approximately $9.4 million. In
addition, we issued warrants to purchase an aggregate of 350,000 shares of our
common stock to a consultant and certain stockholders in connection with this
financing. All warrants issued in connection with this financing are exercisable
until July 10, 2008 and become automatically exercised, in full, if the closing
price of our common stock is at least 130% of the exercise price then in effect
($16.64 or $14.26, as applicable) for 30 consecutive trading days. The net
proceeds from this financing were used in our reacquisition of certain marketing
rights from Berlex and related expenses.
In November 2003, we issued and sold 1,863,637 shares of our common
stock to certain institutional investors at $11.00 per share resulting in gross
proceeds to us, before transaction costs, of approximately $20.5 million.
14
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
REVENUES. Total revenues for the third quarter of 2003 were $5.5 million
compared to $3.1 million for the same period in 2002. Product related revenues,
which include product sales and royalties, accounted for 54% and 98% of total
revenues for the third quarters of 2003 and 2002, respectively. License and
contract revenues accounted for the remainder of revenues.
QUADRAMET. Berlex Laboratories marketed Quadramet in the United
States through July 31, 2003. On August 1, 2003, we reacquired marketing rights
to Quadramet from Berlex and began marketing Quadramet through our internal
specialty sales force. On August 1, 2003, we began recording all revenue from
our sales of Quadramet. Royalty revenue from sales of Quadramet in the third
quarter of 2003 was $191,000 through July 31, 2003 compared to $376,000 in the
full quarter of 2002. Cytogen recorded Quadramet sales of $1.2 million from
August 1, 2003 through September 30, 2003 for the third quarter 2003. Quadramet
sales and royalties combined accounted for 45% and 12% of product related
revenues for the third quarter of 2003 and 2002, respectively. Effective upon
the reacquisition of such marketing rights, we no longer receive royalty revenue
from Berlex for Quadramet and pay royalties to Berlex on our sales of Quadramet.
Currently, we market Quadramet only in the United States. Schering AG, Germany,
through its subsidiary CIS Bio International, will continue to market Quadramet
in Europe as a direct licensee of Dow Chemical Company. We believe that the
future growth and market penetration of Quadramet is dependent upon, among other
things: (i) new clinical data supporting the expanded and earlier use of
Quadramet in various cancers; (ii) novel research supporting combination uses
with other therapies, such as chemotherapeutics and bisphophonates; and (iii)
establishing the use of Quadramet at higher doses to target and treat primary
bone cancers. We cannot assure you that we will be able to successfully market
Quadramet or that Quadramet will achieve greater market penetration on a timely
basis or result in significant revenues for us.
PROSTASCINT. ProstaScint sales were $1.5 million for the third
quarter of 2003, a decrease of $395,000 from $1.9 million in the third quarter
of 2002. Sales of ProstaScint accounted for 51% and 63% of product related
revenues for the third quarters of 2003 and 2002, respectively. ProstaScint has
historically been a challenging product for physicians and technologists to use,
in part due to inherent limitations in nuclear medicine imaging. While we
believe that the period to period decrease in ProstaScint sales that we have
experienced is due, to a large degree, to such challenge, we also believe that
such decline in ProstaScint revenue may be reversed depending upon, among other
things, the implementation and continued research relating to the following: (i)
advances in imaging technology; (ii) new product applications; and (iii)
improvements in healthcare reimbursement practices. We cannot assure you that we
will be able to successfully market ProstaScint, or that ProstaScint will
achieve greater market penetration on a timely basis or result in significant
revenues for us.
NMP22 BLADDERCHEK. NMP22 BladderChek sales during the third quarter of
2003 were $116,000 which represented 4% of our total product related revenues.
We began promoting NMP22 BladderChek to both urologists and oncologists in the
United States in November 2002 using our internal sales force. On October 30,
2003, we entered into an Amended and Restated Distribution Agreement with
15
Matritech whereby, effective November 8, 2003, we have the right to
non-exclusively market NMP22 BladderChek to urologists through December 31, 2003
and also exclusively market NMP22 BladderChek to oncologists through the term of
the amended agreement, which is December 31, 2004. We cannot assure you that we
will be able to successfully market NMP22 BladderChek, or that NMP22 BladderChek
will achieve greater market penetration on a timely basis or result in
significant revenues for us.
BRACHYSEED. BrachySeed sales during the third quarter of 2002 were
$698,000, which represented 23% of product related revenues in the third quarter
of 2002. Effective January 24, 2003, we stopped accepting and filling new orders
for the BrachySeed I-125 and BrachySeed Pd-103 products. In April 2003, we
entered into an agreement with Draximage to formally terminate our agreements
with respect to these products.
ONCOSCINT. OncoScint CR/OV sales during the third quarter of 2002 were
$48,000. We stopped selling OncoScint CR/OV in December 2002 in order to focus
our efforts on other oncology products, primarily because the market for
OncoScint CR/OV for colorectal cancer diagnosis was negatively affected by
positron emission tomography or "PET" scans which have shown the same or higher
sensitivity than OncoScint CR/OV.
LICENSE AND CONTRACT REVENUES. License and contract revenues were $2.5
million and $65,000 for the third quarters of 2003 and 2002, respectively. Under
SAB 101, which we adopted in 2000, license revenues from certain up-front,
non-refundable license fees previously recognized in prior years were deferred
and are being amortized over the estimated performance period. In the third
quarter of 2003, we recognized $2.0 million of previously deferred license
revenue compared to $65,000 for the same period in 2002. Such increase from the
prior year period is due primarily to our recognition of the remaining
unamortized deferred revenue in the amount of $1.9 million related to an
up-front license payment net of associated costs, which we received from Berlex
Laboratories in 1998 for granting them the marketing rights to Quadramet. In
August 2003, the 1998 license agreement was terminated and we reacquired those
rights from Berlex Laboratories. In addition, during the third quarter of 2003,
we recognized $500,000 from Antisoma in connection with Antisoma's acquisition
of certain royalty rights to its lead product, R1549 (formerly Pemtumomab),
because we have no continuing involvement in this arrangement, and $59,000 of
contract revenues for limited research and development services provided by us
to The PSMA Development Company LLC, our joint venture with Progenics
Pharmaceuticals Inc. The level of future revenues for the remainder of 2003, if
any, for contract services provided to the joint venture may vary and will
depend upon the extent of research and development services required by the
joint venture.
OPERATING EXPENSES. Total operating expenses for the third quarter of 2003 were
$6.4 million compared to $6.6 million in the same quarter of 2002.
COST OF PRODUCT RELATED REVENUES. Cost of product related revenues for
the third quarter of 2003 were $2.2 million compared to $1.2 million in the same
period of 2002. The increase from the prior year period is due to the August
2003 initiation of manufacturing costs for Quadramet and royalties to Berlex on
our sales of Quadramet. Also included in the 2003 cost of product related
revenues is amortization of the up-front payment to Berlex to reacquire
Quadramet, inventory reserves for excess ProstaScint and NMP22 BladderChek due
to
16
shelf-life expiration issues and a non-cash charge of $115,000 for the
impairment of the carrying value of an up-front license fee associated with
NMP22 BladderChek, which we believe will not be recoverable given our projected
sales volumes. The increase is partially offset by lower costs associated with
our discontinuation of BrachySeed sales in January 2003.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
third quarter of 2003 were $900,000 compared to $1.3 million in the same period
of 2002. The current year expenses reflect costs associated with our efforts to
explore new applications for ProstaScint such as image guided therapies and
imaging enhancements. The decrease from the prior year period is attributable
primarily to cost-saving measures implemented in September 2002 as a result of a
restructuring at our subsidiary AxCell Biosciences. During the third quarters of
2003 and 2002, we incurred $382,000 and $956,000, respectively, in expenses
relating to AxCell's operations. In September 2002, we significantly reduced
AxCell's workforce to reduce the cash expenditures relating to AxCell in order
to leverage our oncology franchise.
EQUITY LOSS IN JOINT VENTURE. Our share in the equity loss in The PSMA
Development Company LLC, our joint venture with Progenics Pharmaceuticals, Inc.
was $714,000 during the third quarter of 2003 compared to $1.0 million in the
same quarter of 2002 and represented 50% of the joint venture's operating
losses. We own equally the joint venture with Progenics, account for the joint
venture using the equity method of accounting and share equally with Progenics
the costs of the joint venture. On July 14, 2003, we agreed with Progenics, in
connection with the joint venture: (i) to an updated work plan governing the
activities of the joint venture for the remainder of 2003, including the
execution of various third-party contracts; (ii) to a budget for the joint
venture's operations for 2003 and related capital contributions of the parties;
and (iii) to an amended services agreement pursuant to which each party to the
joint venture will provide research and development and related services for the
remainder of 2003. The joint venture's work plan, budget, and other operational
and financial matters relating to periods after 2003 will require the further
agreement between us and Progenics prior to January 1, 2004 in order for the
joint venture to continue to receive operating funds thereafter. We may incur
significant and increasing costs in the future to fund our share of the
development costs from the joint venture, although we cannot assure you that any
further agreements between us and Progenics will be reached regarding the joint
venture.
SELLING AND MARKETING. Selling and marketing expenses for the third
quarter of 2003 increased marginally to $1.5 million compared to $1.4 million in
the same period of 2002. Increases in selling and marketing efforts on NMP22
BladderChek, which was introduced to the market in November 2002, and Quadramet,
which we reacquired from Berlex Laboratories in August 2003 were substantially
offset by the discontinuation of our selling and marketing activities related to
the BrachySeed products in January 2003.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
third quarter of 2003 were $1.2 million compared to $1.7 million in the same
period of 2002. The decrease from the prior year period is primarily due to a
charge of $830,000 in 2002 related to the restructuring of AxCell and a
stock-based compensation charge in 2002 for a key employee. The decrease is
partially offset by increased insurance, legal and professional fees in 2003.
17
LOSS ON INVESTMENT. We recorded a non-cash charge of $516,000 during
the third quarter of 2002 for an impairment in the carrying value of our
investment in shares of Northwest Biotherapeutics Inc.'s common stock, which we
had received as part of our acquisition of Prostagen in 1999. The fair value of
such investment, based on the quoted market prices, had dramatically decreased
from its original carrying value of $516,000. Based on an evaluation of the
financial condition of Northwest and the then current stock price, we concluded
that the decline was other than temporary and that the carrying amount of this
investment would not be recoverable.
INTEREST INCOME/EXPENSE. Interest income for the third quarter of 2003
was $32,000 compared to $75,000 in the same period of 2002. The decrease from
the prior year period is due to a lower average yield on investments and lower
average cash balances in 2003. Interest expense for the third quarter of 2003
was $46,000 compared to $43,000 in the same period of 2002. Interest expense
includes interest on outstanding debt and finance charges related to various
equipment leases.
NET LOSS. Net loss for the third quarter of 2003 was $910,000 compared
to $4.0 million reported in the third quarter of 2002. The net loss per share
for the third quarter of 2003 was $0.08 based on weighted average common shares
outstanding of 10.9 million, compared to a net loss per share of $0.46 based on
weighted average common shares outstanding of 8.7 million for the same period in
2002.
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
REVENUES. Total revenues for the nine months ended September 30, 2003
were $10.3 million compared to $9.6 million for the same period in 2002. Product
related revenues, which include product sales and royalties, accounted for 73%
and 96% of total revenues for the nine months ended September 30, 2003 and 2002,
respectively. License and contract revenues accounted for the remainder of
revenues.
QUADRAMET. Berlex Laboratories marketed Quadramet in the United
States through July 31, 2003. On August 1, 2003, we reacquired marketing rights
to Quadramet from Berlex and began marketing Quadramet through our internal
specialty sales force. On August 1, 2003, we began recognizing all revenue from
our sales of Quadramet. Royalty revenue from sales of Quadramet for the nine
months ended September 30, 2003 was $1.1 million through July 31, 2003 compared
to $1.4 million in the same period of 2002. During the nine months ended
September 30, 2003 Cytogen recorded Quadramet sales of $1.2 million from August
1, 2003 through September 30, 2003. Quadramet sales and royalties combined
accounted for 30% and 15% of product related revenues for the nine months ended
September 30, 2003 and 2002, respectively. Effective upon the reacquisition of
such marketing rights, we no longer receive royalty revenue from Berlex for
Quadramet and pay royalties to Berlex on our sales of Quadramet. Currently, we
market Quadramet only in the United States. Schering AG, Germany, through its
subsidiary CIS Bio International, will continue to market Quadramet in Europe as
a direct licensee of Dow Chemical Company. We believe that the future growth and
market penetration of Quadramet is dependent upon, among other things: (i) new
clinical data supporting the expanded and earlier use of Quadramet in various
cancers; (ii) novel research supporting combination uses with other therapies,
18
such as chemotherapeutics and bisphophonates; and (iii) establishing the use of
Quadramet at higher doses to target and treat primary bone cancers. We cannot
assure you that we will be able to successfully market Quadramet or that
Quadramet will achieve greater market penetration on a timely basis or result in
significant revenues for us.
PROSTASCINT. ProstaScint sales were $4.7 million for the nine months
ended September 30, 2003, a decrease of $1.3 million from $6.0 million for the
same period of 2002. Sales of ProstaScint accounted for 63% and 65% of product
related revenues for the nine months ended September 30, 2003 and 2002,
respectively. ProstaScint has historically been a challenging product for
physicians and technologists to use, in part due to inherent limitations in
nuclear medicine imaging. While we believe that the period to period decrease in
ProstaScint sales that we have experienced is due, to a large degree, to such
challenge, we also believe that such decline in ProstaScint revenue may be
reversed depending upon, among other things, the implementation and continued
research relating to the following: (i) advances in imaging technology; (ii) new
product applications; and (iii) improvements in healthcare reimbursement
practices. We cannot assure you that we will be able to successfully market
ProstaScint or that ProstaScint will achieve greater market penetration on a
timely basis or result in significant revenues for us.
NMP22 BLADDERCHEK. NMP22 BladderChek sales during the nine months ended
September 30, 2003 were $239,000 which represented 3% of our total product
related revenues. We began promoting NMP22 BladderChek to both urologists and
oncologists in the United States in November 2002 using our internal sales
force. On October 30, 2003, we entered into an Amended and Restated Distribution
Agreement with Matritech whereby, effective November 8, 2003, we have the right
to non-exclusively market NMP22 BladderChek to urologists through December 31,
2003 and also exclusively market NMP22 BladderChek to oncologists through the
term of the amended agreement, which is December 31, 2004. We cannot assure you
that we will be able to successfully market NMP22 BladderChek or that NMP22
BladderChek will achieve greater market penetration on a timely basis or result
in significant revenues for us.
BRACHYSEED. BrachySeed sales during the nine months ended September 30,
2002 were $1.7 million, which represented 19% of our product related revenues.
Effective January 24, 2003, we stopped accepting and filling new orders for the
BrachySeed I-125 and BrachySeed Pd-103 products. In April 2003, we entered into
an agreement with Draximage to formally terminate our agreements with respect to
these products. Sales of BrachySeed products in 2003 totaled $240,000.
ONCOSCINT. OncoScint CR/OV sales during the nine months ended September
30, 2002 were $158,000. We stopped selling OncoScint CR/OV in December 2002 in
order to focus our efforts on other oncology products, primarily because the
market for OncoScint CR/OV for colorectal cancer diagnosis was negatively
affected by positron emission tomography or "PET" scans which have shown the
same or higher sensitivity than OncoScint CR/OV.
LICENSE AND CONTRACT REVENUES. License and contract revenues were $2.8
million and $345,000 for the nine months ended September 30, 2003 and 2002,
respectively. Under SAB 101, which we adopted in 2000, license revenues from
certain up-front, non-refundable license fees previously recognized in prior
years were deferred and are being amortized over the estimated performance
19
period. In the nine months ended September 30, 2003, we recognized $2.2 million
of previously deferred license revenue compared to $345,000 for the same period
in 2002. Such increase from the prior year period is due primarily to our
recognition of the remaining unamortized deferred revenue in the amount of $1.9
million related to an up-front license payment net of associated costs, which we
received from Berlex Laboratories in 1998 for granting them the marketing rights
to Quadramet. In August 2003, the 1998 license agreement was terminated and we
reacquired those rights from Berlex Laboratories. In addition, during the nine
months ended September 30, 2003, we recognized $500,000 from Antisoma in
connection with Antisoma's acquisition of certain royalty rights to its lead
product, R1549 (formerly Pemtumomab), because we have no continuing involvement
in this arrangement and $158,000 of contract revenues for limited research and
development services provided by us to The PSMA Development Company LLC, our
joint venture with Progenics Pharmaceuticals Inc. The level of future revenues
for the remainder of 2003, if any, for contract services provided to the joint
venture may vary and will depend upon the extent of research and development
services required by the joint venture.
OPERATING EXPENSES. Total operating expenses for the nine months ended September
30, 2003 were $17.1 million compared to $21.3 million in the same period of
2002.
COST OF PRODUCT RELATED REVENUES. Cost of product related revenues for
the nine months ended September 30, 2003 were $4.0 million compared to $3.4
million in the same period of 2002. The increase from the prior year period is
due to the August 2003 initiation of manufacturing costs for Quadramet and
royalties to Berlex on our sales of Quadramet. Also included in the 2003 cost of
product related revenues is amortization of the up-front payment to Berlex to
reacquire Quadramet, inventory reserves for excess ProstaScint and NMP22
BladderChek due to shelf-life expiration issues and a non-cash charge of
$115,000 for the impairment of the carrying value of an up-front license fee
associated with NMP22 BladderChek, which we believe will not be recoverable
given our projected sales volumes. The increase is partially offset by lower
costs associated with our discontinuation of BrachySeed sales in January 2003.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
nine months ended September 30, 2003 were $2.5 million compared to $6.9 million
in the same period of 2002. The current year expenses reflect costs associated
with our efforts to explore new applications for ProstaScint such as image
guided therapies and imaging enhancements. The decrease from the prior year
period is attributable primarily to a non-cash milestone expense of $2.0 million
in 2002 related to the progress of dendritic cell prostate cancer clinical
trials at Northwest Biotherapeutics, decreases in research and development
expenditures relating to AxCell as a result of a restructuring in September 2002
and the termination in 2003 of an agreement with DSM Biologics relating to the
development of a new manufacturing process for ProstaScint, which resulted in a
saving of $551,000 in 2003. During the nine months ended September 30, 2003 and
2002, we incurred $1.2 million and $3.3 million, respectively, in expenses
relating to AxCell's operations. In September 2002, we significantly reduced
AxCell's workforce to reduce the cash expenditures relating to AxCell in order
to leverage our oncology franchise.
20
EQUITY LOSS IN JOINT VENTURE. Our share in the equity loss in The PSMA
Development Company LLC, our joint venture with Progenics Pharmaceuticals, Inc.
was $2.7 million during the nine months ended September 30, 2003 compared to
$2.1 million in the same period of 2002 and represented 50% of the joint
venture's operating losses. We own equally the joint venture with Progenics,
account for the joint venture using the equity method of accounting and share
equally with Progenics the costs of the joint venture. On July 14, 2003, we
agreed with Progenics, in connection with the joint venture: (i) to an updated
work plan governing the activities of the joint venture for the remainder of
2003, including the execution of various third-party contracts; (ii) to a budget
for the joint venture's operations for 2003 and related capital contributions of
the parties; and (iii) to an amended services agreement pursuant to which each
party to the joint venture will provide research and development and related
services for the remainder of 2003. The joint venture's work plan, budget, and
other operational and financial matters relating to periods after 2003 will
require the further agreement between us and Progenics prior to January 1, 2004
in order for the joint venture to continue to receive operating funds
thereafter. We may incur significant and increasing costs in the future to fund
our share of the development costs from the joint venture, although we cannot
assure you that any further agreements between us and Progenics will be reached
regarding the joint venture.
SELLING AND MARKETING. Selling and marketing expenses for the nine
months ended September 30, 2003 decreased to $3.9 million from $4.5 million in
the same period of 2002. The decrease from the prior year period is due
primarily to the discontinuation of selling and marketing activities relating to
BrachySeed products in January 2003, partially offset by selling and marketing
efforts for NMP22 BladderChek and Quadramet.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
nine months ended September 30, 2003 were $4.0 million compared to $4.4 million
in the same period of 2002. The decrease from the prior year period is primarily
due to a charge of $830,000 in 2002 related to the restructuring of AxCell and
stock-based compensation charges in 2002 for a key employee. The decrease is
partially offset by increased insurance, legal and professional fees as well as
by stock-based compensation expenses related to warrants granted to certain
consultants in 2003.
LOSS ON INVESTMENT. We recorded a non-cash charge of $516,000 during
the third quarter of 2002 for an impairment in the carrying value of our
investment in shares of Northwest Biotherapeutics Inc.'s common stock, which we
had received as part of our acquisition of Prostagen in 1999. The fair value of
such investment, based on the quoted market prices, had dramatically decreased
from its original carrying value of $516,000. Based on an evaluation of the
financial condition of Northwest and the then current stock price, we concluded
that the decline was other than temporary and that the carrying amount of this
investment would not be recoverable.
INTEREST INCOME/EXPENSE. Interest income for the nine months ended
September 30, 2003 was $91,000 compared to $224,000 in the same period of 2002.
The decrease from the prior year period is due to a lower average yield on
investments and lower average cash balances in 2003. Interest expense for the
nine months ended September 30, 2003 was $139,000 compared to $127,000 in the
same period of 2002. Interest expense includes interest on outstanding debt and
finance charges related to various equipment leases.
21
INCOME TAX BENEFIT. During the first quarter of 2003, we sold our New
Jersey state net operating loss and research and development credit
carryforwards, which resulted in the recognition of a $584,000 income tax
benefit. Assuming the State of New Jersey continues to fund this program, which
is uncertain, the future amount of net operating losses and tax credits which we
may sell will also depend upon the allocation among qualifying companies of an
annual pool established by the State of New Jersey. We did not recognize any
such benefits during the nine months ended September 30, 2002.
NET LOSS. Net loss for the nine months ended September 30, 2003 was
$6.2 million compared to $12.2 million reported in the same period of 2002. The
net loss per share for the nine months ended September 30, 2003 was $0.65 based
on weighted average common shares outstanding of 9.6 million, compared to a net
loss per share of $1.46 based on weighted average common shares outstanding of
8.4 million for the same period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents were $12.8 million as of September 30,
2003, compared to $14.7 million as of December 31, 2002. Net cash used for
operating activities for the nine months ended September 30, 2003 was $7.8
million compared to $6.9 million in the same period of 2002. The increase from
the prior year period is due primarily to our build-up of ProstaScint
inventories during the nine months ended September 30, 2003 and to our increased
funding to the PSMA Development Company, LLC, our joint venture with Progenics
Pharmaceuticals, Inc.
Historically, our primary sources of cash have been proceeds from the
issuance and sale of our stock through public offerings and private placements,
product related revenues, revenues from contract research services, fees paid
under license agreements and interest earned on cash and short-term investments.
In January 2003, we received $584,000 relating to a sale of our New
Jersey state net operating losses and research and development credits. Assuming
the State of New Jersey continues to fund this program, which is uncertain, the
future amount of net operating losses and tax credits which we may sell will
also depend upon the allocation among qualifying companies of an annual pool
established by the State of New Jersey.
In June 2003, we entered into a securities purchase agreement pursuant
to which we sold 1,052,632 shares of our common stock to certain institutional
investors at $4.75 per share, resulting in net proceeds of approximately $4.6
million. In connection with the sale, we issued to the investors warrants to
purchase 315,790 shares of our common stock with an exercise price of $6.91 per
share. The warrants are exercisable until June 6, 2008.
In July 2003, we entered into a securities purchase agreement pursuant
to which we sold 1,172,332 shares of our common stock to certain institutional
investors at $8.53 per share, resulting in net proceeds of approximately $9.4
million. In connection with the sale, we issued to the investors warrants to
purchase 1,172,332 shares of our common stock with an exercise price of $12.80
per share. In addition, we also issued: (i) warrants to purchase 100,000 shares
of our common stock at an exercise price of $12.80 per share to a consultant as
part of its compensation for services rendered in connection with this
financing; and (ii) warrants to purchase an aggregate of 250,000 shares of our
common stock at an exercise price of $10.97 per share, to certain of our
22
stockholders, in connection with such stockholders' waiver of certain rights in
connection with this financing. All warrants issued in connection with this
financing are exercisable until July 10, 2008 and become automatically
exercised, in full, if the closing price of our common stock is at least 130% of
the exercise price then in effect ($16.64 or $14.26, as applicable) for 30
consecutive trading days. Upon receipt of written notice by us of such automatic
exercise, the holders of the warrants must exercise such warrants by paying us
the exercise price times the number of shares of common stock issuable upon
exercise. The net proceeds from this financing were used in our reacquisition of
certain marketing rights from Berlex and related expenses.
In August 2003, we paid to Berlex an up-front payment of $8.0 million
to reacquire the marketing rights to Quadramet. Accordingly, effective August 1,
2003, we began recording all revenue from sales of Quadramet. Effective upon the
reacquisition of such marketing rights, we no longer receive royalty revenue
from Berlex and pay Berlex royalties on our sales of Quadramet. As a result of
the reacquisition, we have assumed all of Berlex's obligations under a
Manufacturing and Supply Agreement with Bristol Meyers Squibb, including an
obligation to pay manufacturing costs of at least $3.7 million annually through
2005. Such obligation for the remainder of 2003 is approximately $926,000. In
addition, we expect our Quadramet sales and marketing expenses to increase which
may result in an increase in our sales and product gross margin.
In September 2003, Antisoma acquired certain royalty rights to
Antisoma's lead product, R1549 (formerly Pemtumomab), from us. In connection
with Antisoma's acquisition of such rights, Antisoma made a cash payment to us
of $500,000 and has agreed to make an additional payment of $500,000 upon the
first commercial sale, if any, of the R1549 product. In return, we relinquished
our right to receive royalties equivalent to 1.65% of future net sales, if any,
of the R1549 product.
In November 2003, we issued and sold 1,863,637 shares of our common
stock to certain institutional investors at $11.00 per share resulting in gross
proceeds to us, before transaction costs, of approximately $20.5 million.
We have historically relied upon revenues from sales of the BrachySeed
products to partially fund ongoing operations. For the nine months ended
September 30, 2003 and 2002, revenue from the sale of BrachySeed products was
$240,000 and $1.7 million, respectively. In December 2002, we served notice of
termination of our agreements with Draximage, and in April 2003, entered into an
agreement with Draximage to formally terminate each of our License and
Distribution Agreement and Product Manufacturing and Supply Agreement with
respect to both the BrachySeed I-125 and BrachySeed Pd-103 products. As of
January 24, 2003, we no longer accept or fill new orders for the BrachySeed
products.
Beginning in December 2001, we began to equally share the costs of the
joint venture with Progenics. In October 2003, we contributed an additional
$950,000 to the joint venture and have therefore satisfied our financial
commitment to the joint venture through the end of 2003. The joint venture is
funded by equal capital contributions from each of Progenics and Cytogen in
23
accordance with an annual budget approved by the joint venture's management
committee. On July 14, 2003, we agreed with Progenics, in connection with this
joint venture: (i) to an updated work plan governing the activities of the joint
venture for the remainder of 2003, including the execution of various
third-party contracts; (ii) to a budget for the joint venture's operations for
2003 and related capital contributions of the parties; and (iii) to an amended
services agreement pursuant to which each party to the joint venture will
provide research, development and related services for the remainder of 2003.
The joint venture work plan, budget, and other operational and financial matters
relating to periods after 2003 will require the further agreement between us and
Progenics prior to January 1, 2004 in order for the joint venture to receive
operating funds thereafter. We may incur significant and increasing costs in the
future to fund our share of the development costs from the joint venture
although we cannot assure you that any further agreements between us and
Progenics will be reached regarding the joint venture.
Our capital and operating requirements may change depending upon
various factors, including: (i) whether we and our strategic partners achieve
success in manufacturing and commercializing our proprietary and licensed
products; (ii) the amount of resources which we devote 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.
Our financial objectives are to meet our capital and operating
requirements through revenues from existing products and licensing arrangements.
To achieve our strategic objectives, we 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 us in either cash
or stock in addition to the costs associated with developing and marketing a
product or technology. However, we believe 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,
if ever. To fund these strategic and operating activities, we may sell equity or
debt securities as market conditions permit or enter into credit facilities.
We have incurred negative cash flows from operations since our
inception, and have expended, and expect to continue to expend in the future,
substantial funds to implement our planned product development efforts,
including acquisition of products and complementary technologies, research and
development, clinical studies and regulatory activities, and to further our
marketing and sales programs. We expect that our existing capital resources
combined with the gross proceeds before transaction costs of approximately $20.5
million received from the sale of our common stock in November 2003 should be
adequate to fund our operations and commitments well into 2005. We cannot assure
you that our business or operations will not change in a manner that would
consume available resources more rapidly than anticipated. We expect that we
will have additional requirements for debt or equity capital, irrespective of
whether and when we reach profitability, for further product development costs,
product and technology acquisition costs, and working capital.
Our future capital requirements and the adequacy of available funds
will depend on numerous factors, including: (i) the successful commercialization
of our products; (ii) the costs associated with the acquisition of complementary
24
products and technologies; (iii) progress in our product development efforts and
the magnitude and scope of such efforts; (iv) progress with clinical trials; (v)
progress with regulatory affairs activities; (vi) the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights; (vii) competing technological and market developments; and
(viii) the expansion of strategic alliances for the sales, marketing,
manufacturing and distribution of our products. To the extent that the currently
available funds and revenues are insufficient to meet current or planned
operating requirements, we will be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners and
others, or through other sources. There can be no assurance that the financial
sources described above will be available when needed or at terms commercially
acceptable to us. If adequate funds are not available, we may be required to
delay, further scale back or eliminate certain aspects of our operations or
attempt to obtain funds through arrangements with collaborative partners or
others that may require us to relinquish rights to certain of our technologies,
product candidates, products or potential markets. If adequate funds are not
available, our business, financial condition and results of operations will be
materially and adversely affected.
COMMITMENTS
We have entered into various contractual obligations and commercial
commitments. The following table summarizes our contractual obligations as of
September 30, 2003 (all amounts in thousands):
LESS THAN 1 TO 3 4 TO 5 MORE THAN
1 YEAR YEARS YEARS 5 YEARS TOTAL
---------- --------- ---------- ----------- -----------
Long-term debt(1) ......................... $ 40 $ 2,280 $ - $ - $ 2,320
Capital lease obligations.................. 76 25 - - 101
Facility leases............................ 616 540 - - 1,156
Other operating leases..................... 37 - - - 37
Manufacturing and research and
development contracts..................... 510 347 260 1,010 2,127
Capital contribution to joint venture(2) .. 950 - - - 950
Minimum royalty payments(3)................ 441 2,000 2,000 10,000 14,441
------- ------- ------- ------- -------
Total................................ $ 2,670 $ 5,192 $ 2,260 $11,010 $21,132
======= ======= ======= ======= =======
(1) In August 1998, we received $2.0 million from Elan Corporation, plc in
exchange for a convertible promissory note. The note is convertible
into shares of our common stock at $28 per share, subject to
adjustments, and matures in August 2005. The note bears annual
interest of 7%, compounded semi-annually, however, such interest was
not payable in cash but was added to the principal for the first 24
months; thereafter, interest is payable in cash. The note contains
certain non-financial covenants.
(2) In October 2003, we contributed an additional $950,000 to our joint
venture with Progenics, The PSMA Development Company LLC, and have
therefore satisfied our financial commitments to the joint venture
through the end of 2003. The joint venture's work plan, budget, and
other operational and financial matters relating to periods after 2003
will require the further agreement between us and Progenics prior to
January 1, 2004 in order for the joint venture to continue to receive
operating funds thereafter. In subsequent periods, we may incur
significant and increasing costs to fund our share of the development
25
costs from the joint venture, although we cannot assure you that any
further agreements between us and Progenics will be reached regarding
the joint venture. Such funding amount may vary dependent upon, among
other things, the results of the clinical trials and research and
development activities, competitive and technological developments,
and market opportunities
(3) Cytogen acquired from The Dow Chemical Company an exclusive license
for Quadramet for the treatment of osteoblastic bone metastases in
certain territories. The agreement requires us to pay Dow royalties
based on a percentage of net sales of Quadramet, or a guaranteed
contractual minimum payment, whichever is greater, and future payment
upon achievement of certain milestones. Future annual minimum
royalties due to Dow are $1.0 million per year in 2003 through 2012
and $2.0 million in 2013 through 2015.
In addition to the above, we are obligated to make certain royalty
payments based on sales of the related product and certain milestone payments if
our collaborative partners achieved specific development milestones or
commercial milestones.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 to our Consolidated Financial Statements in our
Annual Report on Form 10-K for the year ended December 31, 2002, as amended,
includes a summary of our significant accounting policies and methods used in
the preparation of our Consolidated Financial Statements. The following is a
brief discussion of the more significant accounting policies and methods used by
us. The preparation of our Consolidated Financial Statements requires us 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. Our actual results could differ materially from
those estimates.
REVENUE RECOGNITION
We recognize revenue from the sale of our products upon shipment, which
is when title and risk of loss passes to our customers. We do not grant price
protection to customers. Prior to our reacquisition of Quadramet from our
marketing partner, Berlex Laboratories in August 2003, we recognized Quadramet
royalty revenue on Quadramet sales made by Berlex, during each period as Berlex
sold the product. As a result of the reacquisition, effective as of August 1,
2003, we began recognizing revenue from the sales of Quadramet upon shipment,
which is when title and risk of loss passes to our customers.
The Securities and Exchange Commission has issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition," which provides guidance on the
recognition of up-front, non-refundable license fees. Accordingly, we defer
up-front license fees and recognize them over the estimated performance period
of the related agreement, when we have continuing involvement. Since the term of
the performance periods is subject to management's estimates, future revenues to
be recognized could be affected by changes in such estimates.
26
ACCOUNTS RECEIVABLE
Our accounts receivable balances are net of an estimated allowance for
uncollectible accounts. We continuously monitor collections and payments from
our customers and maintain an allowance for uncollectible accounts based upon
our historical experience and any specific customer collection issues that we
have identified. While we believe our reserve estimate to be appropriate, we may
find it necessary to adjust our allowance for uncollectible accounts if the
future bad debt expense exceeds our estimated reserve. We are subject to
concentration risks as a limited number of our customers provide a high percent
of total revenues, and corresponding receivables.
INVENTORIES
Inventories are stated at the lower of cost or market, as determined
using the first-in, first-out method, which most closely reflects the physical
flow of our inventories. Our products and raw materials are subject to
expiration dating. We regularly review quantities on hand to determine the need
for reserves for excess and obsolete inventories based primarily on our
estimated forecast of product sales. Our estimate of future product demand may
prove to be inaccurate, in which case we may have understated or overstated our
reserve for excess and obsolete inventories.
CARRYING VALUE OF FIXED AND INTANGIBLE ASSETS
Our fixed assets and certain of our acquired rights to market our
products have been recorded at cost and are being amortized on a straight-line
basis over the estimated useful life of those assets. If indicators of
impairment exist, we assess the recoverability of the affected long-lived assets
by determining whether the carrying value of such assets can be recovered
through undiscounted future operating cash flows. If impairment is indicated, we
measure the amount of such impairment by comparing the carrying value of the
assets to the present value of the expected future cash flows associated with
the use of the asset. Adverse changes regarding future cash flows to be received
from long-lived assets could indicate that an impairment exists, and would
require the write down of the carrying value of the impaired asset at that time.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have operations subject to risks of foreign currency
fluctuations, nor do we use derivative financial instruments in our operations
or investment portfolio. As of September 30, 2003, we had $2.3 million of debt
outstanding with a fixed interest rate of 7%. We do not have exposure to market
risks associated with changes in interest rates, as we have no variable interest
rate debt outstanding. Changes in interest rates could expose us to market risk
associated with a fixed interest rate debt. We do not believe that this debt
will have material exposure to market risks associated with interest rates.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our management,
with the participation of our chief executive officer and principal financial
officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
27
September 30, 2003. In designing and evaluating our disclosure controls and
procedures, our management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applied its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on this evaluation, our chief executive officer and chief financial
officer concluded that, as of September 30, 2003, our disclosure controls and
procedures were (1) designed to ensure that material information relating to us,
including our consolidated subsidiaries, is made known to our chief executive
officer and chief financial officer by others within those entities,
particularly during the period in which this report was being prepared and (2)
effective, in that they provide reasonable assurance that information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms.
(b) Changes in internal controls. No change in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) occurred during the fiscal quarter ended September 30, 2003 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
June 6, 2003 Financing
On June 6, 2003, we entered into a securities purchase agreement with
certain institutional investors pursuant to which we issued and sold 1,052,632
shares of our common stock at $4.75 per share and issued warrants to purchase
315,790 shares of the our common stock with an exercise price of $6.91 per
share. In addition, we entered into registration rights agreements with the
investors in this financing. Pursuant to the registration rights agreement, we
filed a registration statement on Form S-3 with the Securities and Exchange
Commission on July 3, 2003 to register all of the shares of our common stock
issued to the investors and all of the shares to be issued to the investors upon
exercise of such warrants. Such registration statement was declared effective by
the Securities and Exchange Commission on September 23, 2003.
28
No underwriter was employed by us in connection with the issuance of
the securities described above. We believe that the issuance of the foregoing
securities was exempt from registration under Section 4(2) of the Securities Act
of 1933, as amended, as transactions not involving a public offering. Each of
the recipients acquired the securities for investment purposes only and not with
a view to distribution and had adequate information about us.
July 10, 2003 Financing
In July 2003, we entered into a securities purchase agreement pursuant
to which we sold 1,172,332 shares of our common stock to certain institutional
investors at $8.53 per share, resulting in net proceeds of approximately $9.4
million. In connection with the sale, we issued to the investors warrants to
purchase 1,172,332 shares of our common stock with an exercise price of $12.80
per share. In addition, we also issued: (i) warrants to purchase 100,000 shares
of our common stock at an exercise price of $12.80 per share to a consultant as
part of its compensation for services rendered in connection with this
financing; and (ii) warrants to purchase 125,000 shares of our common stock at
an exercise price of $10.97, to each of Bonanza Master Fund Ltd. and BayStar
Capital II L.P., in connection with such entities' waiver of rights in
connection with this financing. All warrants issued in connection with the
financing are exercisable until July 10, 2008 and become automatically
exercised, in full, if: (i) the closing price of the our common stock (or in
case no sales are reported on any given trading day, the average of the closing
bid and asked prices of our common stock on the NASDAQ National Market for such
trading day) is at least 130% of the exercise price then in effect for 30
consecutive trading days; and (ii) a registration statement to register such
shares of common stock to be issued upon such exercise has been declared
effective by the Securities and Exchange Commission. Upon receipt of written
notice by us of such automatic exercise, the holders of the warrants must
exercise such warrants by paying us the exercise price times the number of
shares of common stock issuable upon exercise. Furthermore, we paid a consultant
$500,000 as part of its compensation for consulting services that it rendered in
this financing. On August 1, 2003, $8.0 million of such proceeds received by us
from this financing was used to make an upfront payment to reacquire the
marketing rights to Quadramet from Berlex Laboratories, Inc.
In addition, we entered into registration rights agreements with the
investors in this financing. Pursuant to the registration rights agreement, we
were required to register all of such shares of our common stock issued to the
investors, and all of the shares to be issued to the investors upon exercise of
such warrants. Pursuant to the registration rights agreement, we filed a
registration statement on Form S-3 with the Securities and Exchange Commission
on October 1, 2003 to register all of such shares of our common stock, and all
of the shares to be issued to the investors upon exercise of such warrants,
issued in the July financing. Such registration statement on Form S-3 was
declared effective by the Securities and Exchange Commission on October 6, 2003.
No underwriter was employed by us in connection with the issuance of
the securities described above. We believe that the issuance of the foregoing
securities was exempt from registration under Section 4(2) of the Securities Act
29
of 1933, as amended, as transactions not involving a public offering. Each of
the recipients acquired the securities for investment purposes only and not with
a view to distribution and had adequate information about us.
ITEM 5. OTHER INFORMATION
On September 4, 2003, Christopher P. Schnittker joined Cytogen as our
Vice President and Chief Financial Officer. We entered into a Change of Control
Severance Agreement with Mr. Schnittker upon his commencement of employment with
us.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Description
10.1 Securities Purchase Agreement by and among Cytogen Corporation and the
Purchasers (as defined therein) dated July 10, 2003. Filed as an
exhibit to our Current Report Form 8-K, dated July 10, 2003, filed
with the Securities and Exchange Commission on July 11, 2003, and
incorporated herein by reference.
10.2 Form of Common Stock Purchase Warrant issued by Cytogen Corporation in
favor of each Purchaser (as defined therein) dated July 10, 2003.
Filed as an exhibit to our Current Report Form 8-K, dated July 10,
2003, filed with the Securities and Exchange Commission on July 11,
2003, and incorporated herein by reference.
10.3 Registration Rights Agreement by and among Cytogen Corporation and the
Purchasers dated July 10, 2003. Filed as an exhibit to our Current
Report Form 8-K, dated July 10, 2003, filed with the Securities and
Exchange Commission on July 11, 2003, and incorporated herein by
reference.
10.4 Manufacturing and Supply Agreement by and among Cytogen Corporation,
Berlex Laboratories, Inc. and DuPont Pharmaceuticals Company dates
November 13, 1998 and effective as of January 1, 1999. Filed herewith.
*
10.5 Termination Agreement between Cytogen and Berlex Laboratories, Inc.,
dated June 16, 2003. Filed herewith.*
10.6 Assignment Agreement between Cytogen and Berlex Laboratories, Inc.,
dated August 1, 2003. Filed herewith.
30
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
32 Certification pursuant to 18 U.S.C. Section 1350. Filed herewith.
* We have submitted an application for confidential treatment with the
Securities and Exchange Commission with respect to certain provisions
contained in this exhibit. The copy filed as an exhibit omits the
information subject to the confidentiality application.
(b) Reports on Form 8-K
On July 3, 2003, we filed a Current Report on Form 8-K, dated
June 18, 2003, under Item 5, announcing that we issued a joint press
release with Advanced Magnetics, Inc. regarding the publication of
clinical data in the New England Journal of Medicine.
On July 11, 2003, we filed a Current Report on Form 8-K, dated
July 10, 2003, under Item 5, announcing that we entered into a
securities purchase agreement with certain institutional investors
pursuant to which we issued and sold an aggregate of 1,172,332 shares
of our common stock at $8.53 per share and also issued warrants to such
investors to purchase an aggregate of 1,172,332 shares of our common
stock with an exercise price of $12.80 per share.
On July 14, 2003, we filed a Current Report on Form 8-K, dated
July 14, 2003, under Item 5, announcing that we reached certain
agreements with Progenics Pharmaceuticals, Inc. regarding our joint
venture with Progenics.
On July 15, 2003, we filed a Current Report on Form 8-K, dated
July 15, 2003, under Item 5, announcing that we issued a joint press
release regarding presentations made at the International Society for
Magnetic Resonance in Medicine's 11th Scientific Meeting, of data
showing that magnetic resonance with Combidex aids in the non-invasive
diagnosis of metastatic lymph nodes.
On August 1, 2003, we filed a Current Report on Form 8-K, dated
August 1, 2003, under Item 5, announcing that we reacquired the
marketing rights held by Berlex Laboratories to Quadramet in North and
Latin America, in exchange for an upfront payment of $8.0 million and
royalties based on future sales.
On August 14, 2003, we furnished a Current Report on Form 8-K,
dated August 14, 2003, under Item 9, containing a copy of our earnings
release for the periods ended June 30, 2003 (including financial
statements) pursuant to Item 12 (Results of Operations and Financial
Condition).
31
On November 3, 2003, we filed a Current Report on Form 8-K,
dated October 30, 2003, under Item 5, announcing our execution of an
amendment and restatement of the Distribution Agreement originally
entered into between Cytogen and Matritech.
On November 5, 2003, we furnished a Current Report on Form 8-K,
dated November 5, 2003, containing a copy of our earnings release for
the period ended September 30, 2003 (including financial statements)
pursuant to Item 12 (Results of Operations and Financial Condition).
On November 7, 2003, we filed a Current Report on Form 8-K,
dated November 7, 2003, under Item 5, announcing that we entered into a
securities purchase agreement with certain institutional investors
pursuant to which we issued and sold an aggregate of 1,863,637 shares
of our common stock at $11.00 per share.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOGEN CORPORATION
Date: November 12, 2003 By: /s/ Michael D. Becker
---------------------- --------------------------------------------
Michael D. Becker
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 2003 By /s/ Christopher P. Schnittker
---------------------- --------------------------------------------
Christopher P. Schnittker
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
33