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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
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 March 31, 2004
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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
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-2322400
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) 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 May 1, 2004
- ------------------------------ --------------------------
Common Stock, $.01 par value 15,508,493
CYTOGEN CORPORATION
TABLE OF CONTENTS
-----------------
Page
----
PART I. FINANCIAL INFORMATION.................................................. 1
Item 1. Consolidated Financial Statements (unaudited)..................... 1
Consolidated Balance Sheets as of March 31, 2004
and December 31, 2003......................................... 2
Consolidated Statements of Operations for the Three Months
Ended March 31, 2004 and 2003................................. 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2004 and 2003 ................................ 4
Notes to Consolidated Financial Statements........................ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 22
Item 4. Controls and Procedures........................................... 22
PART II. OTHER INFORMATION..................................................... 22
Item 5. Other Information................................................. 22
Item 6. Exhibits and Reports on Form 8-K.................................. 22
SIGNATURES...................................................................... 24
-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)
MARCH 31, DECEMBER 31,
2004 2003
---------- ------------
ASSETS:
Current assets:
Cash and cash equivalents ......................................... $ 8,351 $ 13,630
Short-term investments ............................................ 16,635 16,585
Accounts receivable, net .......................................... 1,257 1,445
Inventories ....................................................... 1,575 1,887
Other current assets .............................................. 1,228 975
--------- ---------
Total current assets ............................................ 29,046 34,522
Property and equipment, net ......................................... 648 595
Quadramet license fee, net .......................................... 7,546 7,720
Other assets ........................................................ 999 858
--------- ---------
$ 38,239 $ 43,695
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term liabilities .......................... $ 75 $ 76
Accounts payable and accrued liabilities .......................... 3,901 5,125
--------- ---------
Total current liabilities ....................................... 3,976 5,201
--------- ---------
Long-term liabilities ............................................... 2,485 2,454
--------- ---------
Commitments and Contingencies
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,
12,863,167 and 12,857,488 shares issued and outstanding
at March 31, 2004 and December 31, 2003, respectively ........... 129 129
Additional paid-in capital ........................................ 401,669 401,649
Accumulated deficit ............................................... (370,020) (365,738)
--------- ---------
Total stockholders' equity ...................................... 31,778 36,040
--------- ---------
$ 38,239 $ 43,695
========= =========
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 ENDED MARCH 31,
----------------------------
2004 2003
--------- ---------
REVENUES:
Product related:
Quadramet ............................................... $ 1,854 $ -
ProstaScint ............................................. 1,727 1,620
Other ................................................... 1 265
-------- --------
Total product revenues ............................. 3,582 1,885
Quadramet royalties ..................................... - 449
-------- --------
Total product related revenues ..................... 3,582 2,334
License and contract .................................... 19 143
-------- --------
Total revenues ..................................... 3,601 2,477
-------- --------
OPERATING EXPENSES:
Cost of product related revenues .......................... 2,399 910
Selling, general and administrative ....................... 3,755 2,378
Research and development .................................. 940 833
Equity in loss of joint venture ........................... 809 880
-------- --------
Total operating expenses ........................... 7,903 5,001
-------- --------
Operating loss ..................................... (4,302) (2,524)
INTEREST INCOME ............................................ 64 36
INTEREST EXPENSE ............................................ (44) (47)
-------- --------
Loss before income taxes ........................... (4,282) (2,535)
INCOME TAX BENEFIT .......................................... - (584)
-------- --------
NET LOSS .................................................... $ (4,282) $ (1,951)
======== ========
BASIC AND DILUTED NET LOSS PER SHARE ........................ $ (0.33) $ (0.22)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .................. 12,860 8,763
======== ========
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)
THREE MONTHS ENDED MARCH 31,
-----------------------------
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $ (4,282) $ (1,951)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ..................... 265 163
Stock-based compensation expenses ................. 11 5
Amortization of deferred revenue .................. - (96)
Non-cash interest income .......................... (50) -
Loss on disposition of assets ..................... 3 -
Changes in assets and liabilities:
Receivables, net ................................ 188 359
Inventories ..................................... 312 (576)
Other assets .................................... (394) (1,102)
Accounts payable, accrued liabilities and
other liabilities ............................. (1,226) (357)
-------- --------
Net cash used in operating activities ............. (5,173) (3,555)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ...................... (77) -
-------- --------
Net cash used in investing activities ............. (77) -
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................... 9 5
Payment of long-term liabilities ......................... (38) (44)
-------- --------
Net cash used in financing activities ............. (29) (39)
-------- --------
Net decrease in cash and cash equivalents ................ (5,279) (3,594)
Cash and cash equivalents, beginning of period ........... 13,630 14,725
-------- --------
Cash and cash equivalents, end of period ................. $ 8,351 $ 11,131
======== ========
Supplemental disclosure of cash flow information:
Capital leases ........................................... $ 74 $ -
======== ========
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
Founded in 1980, Cytogen Corporation (the "Company" or "Cytogen") of
Princeton, New Jersey is a product-driven, oncology-focused biopharmaceutical
company that develops and commercializes a balanced portfolio of oncology
products that address the unmet medical needs of patients and the physicians
that serve them. The Company directly markets Quadramet(TM) (samarium Sm-153
lexidronam injection), ProstaScint(R) (capromab pendetide) kit for the
preparation of Indium In-111 capromab pendetide, and NMP22(R) BladderChek(R)
(nuclear matrix protein-22) in the United States. The Company has exclusive
United States marketing rights to Combidex(R) (ferumoxtran-10), an
investigational molecular imaging agent consisting of lymphotropic
superparamagnetic nanoparticles used in conjunction with magnetic resonance
imaging to aid in the diagnosis of metastatic lymph nodes, which is under review
by the U.S. Food and Drug Administration. The Company is also developing
therapeutics targeting prostate-specific membrane antigen (PSMA), a protein
highly expressed on the surface of prostate cancer cells and the neovasculature
of solid tumors.
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 OncoScint CR/OV and the
BrachySeed products, 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 financial statements
of Cytogen and its subsidiaries. All 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
consolidated financial statements do not include all of the information and
5
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, filed with the Securities and Exchange Commission, which includes
financial statements as of and for the year ended December 31, 2003. 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.
SHORT-TERM INVESTMENTS
Short-term investments at March 31, 2004 and December 31, 2003 were
$16.6 million and consisted of U.S. government agency notes. The Company has the
ability and intent to hold these securities until maturity. Held-to-maturity
securities are recorded at amortized cost, adjusted for the accretion of
discounts or premiums. Discounts or premiums are accreted over the life of the
related security on a straight-line basis. Dividend and interest income are
recognized when earned. These securities mature at various times through
December 2004.
INVENTORIES
The Company's inventories are primarily related to ProstaScint.
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):
MARCH 31, 2004 DECEMBER 31, 2003
-------------- -----------------
Raw materials........................ $ 11 $ 11
Work-in-process...................... 1,089 1,089
Finished goods....................... 475 787
-------- ---------
$ 1,575 $ 1,887
======== =========
NET LOSS PER SHARE
Basic net loss per common share is calculated by dividing net loss by
the weighted average common shares outstanding during each period. Diluted net
loss per common share is the same as basic net loss per share within each three
month period ended March 31, 2004 and 2003, because the inclusion of common
stock equivalents, which consist of stock warrants and options, would be
antidilutive due to the Company's losses.
6
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 (revised December 2003) ("FIN 46R"),
"Consolidation of Variable Interest Entities" ("VIEs"), which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaced FASB Interpretation No. 46 ("FIN
46") which was issued in January 2003. The Company is required to apply FIN 46R
to variable interests in VIEs created after December 31, 2003. For variable
interests in VIEs created before January 1, 2004, FIN 46R applied beginning on
March 31, 2004. For any VIEs that must be consolidated under FIN 46R that were
created before January 1, 2004, the assets, liabilities and noncontrolling
interests of the VIE initially are measured at their carrying amounts with any
difference between the net amount added to the balance sheet and any previously
recognized interest being recognized as the cumulative effect of an accounting
change. If determining the carrying amounts is not practicable, fair value at
the date FIN 46R first applies may be used to measure the assets, liabilities
and noncontrolling interest of the VIE.
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
prostate-specific membrane antigen ("PSMA") technology. The Joint Venture is
owned equally by Cytogen and Progenics (see Note 2).
The Company believes that the Joint Venture meets the criteria to be
considered a variable interest entity, however Cytogen is not the primary
beneficiary of this relationship and therefore is not required to consolidate
the Joint Venture under the requirements of FIN 46R. The adoption of FIN 46R had
no impact on the Company's consolidated financial statements. Cytogen accounts
for the Joint Venture using the equity method of accounting.
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
MARCH 31,
-------------------------------
2004 2003
---- ----
Net loss, as reported................................... $ (4,282) $ (1,951)
Add: Stock-based employee compensation
expense included in reported net loss ............. 11 1
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards............. (233) (351)
----------- -----------
Pro forma net loss...................................... $ (4,504) $ (2,301)
=========== ===========
Basic and diluted net loss per
share, as reported................................. $ (0.33) $ (0.22)
=========== ===========
Pro forma basic and diluted net
loss per share..................................... $ (0.35) $ (0.26)
=========== ===========
RECLASSIFICATION
Certain amounts in prior years' consolidated financial statements have
been reclassified to conform to the current year presentation.
2. EQUITY LOSS IN THE PSMA DEVELOPMENT COMPANY LLC
In June 1999, Cytogen entered into a joint venture with Progenics to
form the PSMA Development Company LLC. The Joint Venture is owned equally by
Cytogen and Progenics. Cytogen accounts for the Joint Venture using the equity
method of accounting. Cytogen has recognized 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 provided an
agreement between the Members is reached on research program goals and budgets
for periods after 2004 and the Joint Venture's operations are funded. In 2004,
Cytogen expects to provide $4.2 million in funding for the development of the
PSMA technologies through the Joint Venture, $950,000 of which was funded as of
March 31, 2004. Cytogen has not committed to fund the Joint Venture beyond
December 31, 2004 at this time, except for obligations under existing
contractual commitments as of that date. For the three months ended March 31,
2004 and 2003, Cytogen recognized $809,000 and $880,000, respectively, of the
Joint Venture's losses. As of March 31, 2004 and December 31, 2003, the carrying
value of Cytogen's investment in the Joint Venture was $690,000 and $550,000,
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:
MARCH 31, DECEMBER 31,
2004 2003
---------- ------------
Cash ............................................................... $ 2,307 $ 1,173
Accounts receivable from Progenics Pharmaceuticals,
a related party................................................... - 108
-------- --------
Total assets............................................... $ 2,307 $ 1,281
======== ========
Accounts payable to Progenics Pharmaceuticals, a related party...... $ 582 $ -
Other accounts payable and accrued expenses......................... 361 199
-------- --------
Total liabilities.......................................... 943 199
-------- --------
Capital contributions............................................... 21,298 19,398
Accumulated deficit................................................. (19,934) (18,316)
--------- --------
Total stockholders' equity................................. 1,364 1,082
--------- --------
Total liabilities and stockholders' equity................. $ 2,307 $ 1,281
========= ========
INCOME STATEMENT DATA:
THREE
MONTHS ENDED FOR THE PERIOD
MARCH 31, FROM JUNE 15, 1999
------------------------ (INCEPTION TO
2004 2003 MARCH 31, 2004
--------- --------- ------------------
Interest income.............. $ 3 $ - $ 237
Total expenses............... 1,621 1,759 20,171
--------- --------- ---------
Net loss..................... $ (1,618) $ (1,759) $ (19,934)
========= ========= =========
3. BRISTOL-MYERS SQUIBB MEDICAL IMAGING, INC.
As a result of the Company's reacquisition of marketing rights to
Quadramet from Berlex Laboratories Inc. ("Berlex") in August 2003, the Company
assumed all of Berlex's obligations under a manufacturing and supply agreement
with Bristol-Myers Squibb Medical Imaging, Inc. ("BMSMI"). Effective January 1,
2004, the Company entered into a new manufacturing and supply agreement with
BMSMI whereby BMSMI manufactures, distributes and provides order processing and
customer services for Cytogen relating to Quadramet. Under the terms of the new
agreement, Cytogen is obligated to pay at least $4.2 million annually through
2008, unless terminated by BMSMI or Cytogen on two years prior written notice.
This agreement will automatically renew for five successive one-year periods
unless terminated by BMSMI or Cytogen on two years prior written notice. During
the first quarter of 2004, Cytogen incurred $1.1 million of manufacturing costs
9
for Quadramet, all of which is included in cost of product related revenues. The
Company also pays BMSMI a variable amount per month for each order of Quadramet
placed to cover the costs of customer service, which is included in selling,
general and administrative expenses.
4. LITIGATION AND OTHER RELATED MATTERS
On March 17, 2000, the Company was served with a complaint filed
against us in the United States District Court for the District of New Jersey by
M. David Goldenberg and Immunomedics, Inc. (collectively "Plaintiffs"). The
litigation claims that the Company's ProstaScint product infringes a patent
purportedly owned by Goldenberg and licensed to Immunomedics. The patent sought
to be enforced in the litigation has now expired; as a result, the claim, even
if successful, would not result in an injunction barring the continued sale of
ProstaScint or affect any other of the Company's products or technology. The
Company believes that ProstaScint did not infringe this patent, and that the
patent was invalid and unenforceable. In addition, the Company 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. However, given the uncertainty associated with
litigation, the Company may incur material expenditures. On December 17, 2001,
Cytogen filed a motion for summary judgment of non-infringement of the asserted
claims of the patent-in-suit. The Plaintiffs opposed that motion and filed their
own cross-motion for summary judgment of infringement. On July 3, 2002, the
Court denied both parties' summary judgment motions, with leave to renew those
motions after presenting expert testimony and legal argument based upon that
testimony. The parties subsequently presented expert testimony and submitted
additional briefing. On April 29, 2003, the Company's motion for summary
judgment of non-infringement of all asserted claims was granted, Plaintiffs'
motion for summary judgment of infringement was denied and the case was ordered
closed. On May 12, 2003, Plaintiffs filed a Notice of Appeal regarding this
decision to the U.S. Court of Appeals for the Federal Circuit, and subsequently
filed their opening brief on July 28, 2003. On September 22, 2003, Cytogen filed
its responsive brief. On October 23, 2003, Plaintiffs filed their reply brief.
The appeal is now fully briefed and oral argument was held on March 2, 2004. The
Court has not indicated when it expects to issue a ruling, however given the
uncertainty associated with litigation, the Company cannot give any assurance
that the litigation could not result in a material adverse effect on the
Company's financial condition, results of operations or liquidity.
In connection with a recent review of certain of the Company's
intellectual property, it was determined that the Company was the recipient,
beginning in 1998, of correspondence from legal counsel representing the former
employer of Dr. Julius Horoszewicz, the sole inventor on the principal United
States patent covering ProstaScint. Such correspondence alleged that the patent
rights to Dr. Horoszewicz's discoveries were the property of such former
employer and that Dr. Horoszewicz had no right to assign them to the Company.
The Company vigorously disputed those allegations, and the Company has no record
of the matter having been pursued by such former employer subsequent to August
2000.
The Company believes that in view of the marketing of the technology
covered by the patent through the sale of ProstaScint by the Company, the
Company's right to use the underlying technology in its continuing production
and sale of ProstaScint should not be at risk. However, if such claims were
reasserted, and if it were to be concluded that Dr. Horoszewicz in fact had no
10
right to assign the patent to the Company, a court could determine that the
Company has no right to use the technology covered by the patent or that any
royalties paid by or payable by the Company in respect of the use of the patent
should have been paid in the past, and should in the future be payable, to Dr.
Horoszewicz's former employer in lieu of Dr. Horoszewicz. The amount of any such
payments, and the Company's liability for them, is not presently determinable,
and the Company cannot give any assurance that an adverse determination could
not result in a material expenditure to the Company or have a material adverse
effect on the Company's financial condition, results of operations or liquidity.
Under the Company's agreement with Dr. Horoszewicz, Dr. Horoszewicz
has agreed to indemnify the Company against damages based upon Cytogen's
ownership of the rights assigned by Dr. Horoszewicz.
5. SUBSEQUENT EVENT
In April 2004, the Company issued and sold through a registered direct
offering 2,570,000 shares of its common stock at $10.10 per share, resulting in
net proceeds to the Company of approximately $24.0 million.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q 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. 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. Factors that could cause actual results to differ
materially, include, but are not limited to those identified in our Annual
Report on Form 10-K for the year ended December 31, 2003 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 given.
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, 2003 and from time to time in our other filings with the
Securities and Exchange Commission.
OVERVIEW
Founded in 1980, Cytogen Corporation of Princeton, New Jersey is a
product-driven, oncology-focused biopharmaceutical company that develops and
commercializes a balanced portfolio of oncology products that address the unmet
medical needs of patients and the physicians that serve them. We directly market
Quadramet(TM) (samariUM Sm-153 lexidronam injection), ProstaScint(R) (capromab
pendetide) kit for the preparation of Indium In-111 capromaB pendetide, and
NMP22(R) BladderChek(R) (nuclear matrix protein-22) in the United States. We
have exclusive UniTEd States marketing rights to Combidex(R) (ferumoxtran-10),
an investigational molecular imaging agent consisting oF lymphotropic
superparamagnetic nanoparticles used in conjunction with magnetic resonance
imaging to aid in the diagnosis of metastatic lymph nodes, which is under review
by the U.S. Food and Drug Administration. We are also developing therapeutics
targeting prostate-specific membrane antigen (PSMA), a protein highly expressed
on the surface of prostate cancer cells and the neovasculature of solid tumors.
Full prescribing information for our products is available at www.cytogen.com or
by calling 1-800-833-3533. For more information, please visit our website at
www.cytogen.com, which is not part of this Quarterly Report on Form 10-Q.
12
SIGNIFICANT EVENTS IN 2004
CAPITAL RAISING
In April 2004, we issued and sold 2,570,000 shares of our common stock
for $10.10 per share through a registered direct offering resulting in net
proceeds of approximately $24.0 million. The shares in this transaction were
registered under our existing shelf registration on Form S-3, which was declared
effective by Securities and Exchange Commission on October 30, 2003.
APPOINTMENT OF SENIOR VICE PRESIDENT OF SALES AND MARKETING
In April 2004, Thomas S. Lytle joined the Company as Senior Vice
President of Sales and Marketing. Mr. Lytle will oversee strategic sales and
marketing initiatives for our existing and future oncology products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
REVENUES
INCREASE/(DECREASE)
2004 2003 $ %
---- ---- --------- -------
(ALL AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
Quadramet.................................
Product Sales (commenced August 2003)... $ 1,854 $ - $ 1,854 n/a
Royalties (ceased July 2003) ........... - 449 (449) (100)%
ProstaScint .............................. 1,727 1,620 107 7%
NMP22 BladderChek
(commenced November 2002) ............... 1 25 (24) (96)%
BrachySeed (ceased January 2003) ......... - 240 (240) (100)%
License and Contract ..................... 19 143 (124) (87)%
-------- -------- --------
$ 3,601 $ 2,477 $ 1,124 45%
======== ======== ========
Total revenues for the first quarter of 2004 were $3.6 million
compared to $2.5 million for the same period in 2003. Product related revenues,
which include product sales and royalties, accounted for 99% and 94% of total
revenues for the first quarters of 2004 and 2003, respectively. License and
contract revenues accounted for the remainder of revenues.
QUADRAMET. Cytogen recorded Quadramet sales of $1.9 million for the
first quarter of 2004 compared to $449,000 of Quadramet royalty revenue during
the first quarter of 2003. Quadramet sales and royalties accounted for 52% and
19% of product related revenues for the first quarters of 2004 and 2003,
respectively. 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
13
specialty sales force. Effective upon the reacquisition of such marketing
rights, we no longer receive royalty revenue from Berlex for Quadramet and we
pay royalties to Berlex on our sales of Quadramet. On August 1, 2003, we began
recognizing product revenue from 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 bisphosphonates; and (iii) establishing the use of
Quadramet at higher doses to target and treat primary bone cancers. We cannot
provide any assurance 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 $1.7 million for the first
quarter of 2004, an increase of $107,000 from $1.6 million in the first quarter
of 2003. Sales of ProstaScint accounted for 48% and 69% of product related
revenues for the first quarters of 2004 and 2003, 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 in the past 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
advances in imaging technology, new product applications and the validation of
PSMA as an independent prognostic indicator. We cannot provide any assurance
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 first quarter of
2004 were $1,000 compared to $25,000 in the first quarter of 2003. 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 had the right to non-exclusively market
NMP22 BladderChek to urologists through December 31, 2003 and have the right to
exclusively market NMP22 BladderChek to oncologists through December 31, 2004.
We cannot provide any assurance 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 first quarter of 2003 were
$240,000, which represented 10% of product related revenues. Effective January
24, 2003, we stopped accepting and filling new orders for the BrachySeed
products. In April 2003, we entered into an agreement with Draximage Inc., the
radiopharmaceutical subsidiary of Draxis Health, Inc., to formally terminate our
agreements with respect to these products.
LICENSE AND CONTRACT REVENUES. License and contract revenues were
$19,000 and $143,000 for the first quarters of 2004 and 2003, respectively.
Under SAB 101, which we adopted in 2000, license revenues from certain up-front,
14
non-refundable license fees previously recognized were deferred and were being
amortized over the estimated performance period. During the first quarter of
2003, we recognized $96,000 of previously deferred license revenue. The deferred
revenue was fully recognized as of December 31, 2003. During the first quarter
of 2004, we recognized $12,000 of contract revenues compared to $47,000 in the
first quarter of 2003 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 2004, 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
INCREASE/(DECREASE)
2004 2003 $ %
---- ---- --------- ------
(ALL AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
Cost of product related revenues............. $ 2,399 $ 910 $ 1,489 164%
Selling, general and administrative.......... 3,755 2,378 1,377 58%
Research and development..................... 940 833 107 13%
Equity in loss of joint venture.............. 809 880 (71) (8)%
-------- -------- --------
$ 7,903 $ 5,001 $ 2,902 58%
======== ======== ========
Total operating expenses for the first quarter of 2004 were $7.9
million compared to $5.0 million in the same quarter of 2003.
COST OF PRODUCT RELATED REVENUES. Cost of product related revenues for
the first quarter of 2004 were $2.4 million compared to $910,000 in the same
period of 2003. The increase from the prior year period is due to our
assumption, in August 2003, of the responsibility for manufacturing costs for
Quadramet and contractual increases in 2004 related to our new agreement with
Bristol Myers Squibb Medical Imaging, royalties to Berlex on our sales of
Quadramet and the amortization of the up-front payment to Berlex to reacquire
Quadramet. The increase is partially offset by lower costs associated with our
discontinuation of BrachySeed products in January 2003.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the first quarter of 2004 were $3.8 million compared
to $2.4 million in the same period of 2003. The increase from the prior year
period is due to the expansion of our sales force, the implementation of other
marketing initiatives for our existing products, including Quadramet, which we
reacquired from Berlex in August 2003 and increased legal and professional fees.
As of May 1, 2004, we employed 38 people in sales and marketing. The employees
in sales and marketing included 8 Regional Oncology Specialists and 23 Regional
and Territory Managers. We had 31 employees in sales and marketing as of
December 31, 2003 and 27 as of December 31, 2002. In 2004, we began expanding
our sales force and implementing other marketing initiatives associated with the
commercialization of our existing and future oncology products which will
increase current expenditure levels.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
first quarter of 2004 were $940,000 compared to $833,000 in the same period of
2003. The current year expenses reflect our product development efforts in
15
support of new and expanded uses for Quadramet and ProstaScint, partially offset
by the reduction in certain research activities at our AxCell Biosciences
subsidiary. During the first quarter of 2004 and 2003, we incurred $251,000 and
$450,000, respectively, in expenses relating to AxCell's operations.
EQUITY IN LOSS OF JOINT VENTURE. Our share of the loss of the PSMA
Development Company LLC, our joint venture with Progenics (the "Joint Venture"),
was $809,000 during the first quarter of 2004 compared to $880,000 in the same
quarter of 2003 and represented 50% of the Joint Venture's operating losses. We
own the Joint Venture equally with Progenics, account for the Joint Venture
using the equity method of accounting and share equally with Progenics the costs
of the Joint Venture. In 2004, we expect to provide $4.2 million in funding for
the development of PSMA technologies, $950,000 of which was funded as of March
31, 2004. We have not committed to fund the Joint Venture beyond December 31,
2004 at this time, except for obligations under existing contractual commitments
as of that date. 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 provide any assurance that any further agreements between us and
Progenics will be reached regarding the Joint Venture.
INTEREST INCOME/EXPENSE. Interest income for the first quarter of 2004
was $64,000 compared to $36,000 in the same period of 2003. The increase in 2004
from the prior year period is due to higher average cash balances in 2004.
Interest expense for the first quarter of 2004 was $44,000 compared to $47,000
in the same period of 2003. Interest expense includes interest on outstanding
debt and finance charges related to various equipment leases that are accounted
for as capital leases.
INCOME TAX BENEFIT. During the first quarter of 2003, we sold a portion
of our New Jersey state net operating losses and research and development credit
carryforwards, which resulted in the recognition of $584,000 in income tax
benefit. No such sales occurred in the first quarter of 2004. Assuming the State
of New Jersey continues to fund this program, which is uncertain, the future
amount of net operating losses and research and development credit carryforwards
which we may sell will also depend upon the allocation among qualifying
companies of an annual pool established by the State of New Jersey.
NET LOSS. Net loss for the first quarter of 2004 was $4.3 million
compared to $2.0 million reported in the first quarter of 2003. The basic and
diluted net loss per share for the first quarter of 2004 was $0.33 based on 12.9
million weighted average common shares outstanding, compared to a basic and
diluted net loss per share of $0.22 based on 8.8 million weighted average common
shares outstanding for the same period in 2003.
16
COMMITMENTS
We have entered into various contractual obligations and commercial
commitments. The following table summarizes our contractual obligations as of
March 31, 2004 (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) ................................. $ - $ 2,280 $ - $ - $ 2,280
Capital lease obligations.......................... 76 37 23 - 136
Facility leases.................................... 603 883 197 - 1,683
Other operating leases............................. 11 18 7 - 36
Manufacturing and research and
development contracts(2) ......................... 4,519 4,507 260 978 10,264
Investor relations and consulting services......... 890 105 - - 995
Capital contribution to joint venture(3) .......... 3,250 - - - 3,250
Minimum royalty payments(4)........................ 1,210 2,000 2,000 4,623 9,833
------- -------- ------- -------- -------
Total........................................ $10,559 $ 9,830 $ 2,487 $ 5,601 $28,477
======= ======= ======= ======== =======
(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 through August
2000; thereafter, interest is payable in cash. The note contains
certain non-financial covenants, with which we were in compliance as
of March 31, 2004.
(2) As a result of the August 2003 reacquisition of marketing rights to
Quadramet, we assumed all of Berlex's obligations under a
manufacturing and supply agreement with BMSMI, including an obligation
to pay manufacturing costs. Effective January 1, 2004, we entered into
a new manufacturing and supply agreement with BMSMI whereby BMSMI
manufactures, distributes and provides order processing and customer
services for us relating to Quadramet. Under the terms of the new
agreement, we are obligated to pay at least $4.2 million annually
through 2008, unless terminated by BMSMI or us on a two year prior
written notice. This agreement will automatically renew for five
successive one-year periods unless terminated by BMSMI or us on a
two-year prior written notice. Accordingly, we have not included
commitments beyond March 31, 2006.
(3) In 2004, we expect to provide $4.2 million in funding for the
development of the PSMA technologies through our joint venture with
Progenics, $950,000 of which was funded as of March 31, 2004. We have
not yet committed to fund the Joint Venture beyond December 31, 2004
at this time, except for obligations under existing contractual
commitments as of that date. 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 be sure that any further
agreements between us and Progenics will be reached regarding the
Joint Venture.
(4) We acquired an exclusive license from The Dow Chemical Company 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 payments upon
achievement of certain milestones. Future annual minimum royalties due
to Dow are $1.0 million per year in 2004 through 2012 and $833,000 in
2013.
17
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.
LIQUIDITY AND CAPITAL RESOURCES
CONDENSED STATEMENT OF CASH FLOWS:
2004
--------------------------
(ALL AMOUNTS IN THOUSANDS)
Net loss........................................ $ (4,282)
Adjustment to reconcile net loss to net cash
used in operating activities................ (891)
---------
Net cash used in operating activities........... (5,173)
Net cash used in investing activities........... (77)
Net cash used in financing activities........... (29)
---------
Net decrease in cash and cash equivalents....... $ (5,279)
=========
OVERVIEW
Our cash and cash equivalents were $8.4 million as of March 31, 2004,
compared to $13.6 million as of December 31, 2003. The decrease in cash and cash
equivalents from the December 31, 2003 balance was primarily due to increased
operating expenditures in 2004, including costs to manufacture, promote and
support our existing oncology products and to expand our internal sales force.
During the first quarter ended March 31, 2004 and 2003, net cash used for
operating activities was $5.2 million and $3.6 million, respectively. In 2004,
we expect operating expenditures to increase over 2003 levels.
As of March 31, 2004, our total cash, cash equivalents and short term
investment were $25.0 million compared to $30.2 million as of December 31, 2003.
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.
2004 CAPITAL RAISING EVENTS
In April 2004, we sold 2,570,000 shares of our common stock to certain
institutional investors for $10.10 per share through a registered direct
offering, resulting in net proceeds of approximately $24.0 million.
OTHER LIQUIDITY EVENTS
In 2003, we reacquired the marketing rights to Quadramet from Berlex.
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 assumed all of Berlex's
18
obligations under a manufacturing and supply agreement with BMSMI. Effective
January 1, 2004, we entered into a new manufacturing and supply agreement with
BMSMI whereby BMSMI manufactures, distributes and provides order processing and
customer services for us relating to Quadramet. Under the terms of the new
agreement, we are obligated to pay at least $4.2 million annually through 2008,
unless terminated by BMSMI or us on two years prior written notice. For the
first quarter 2004, we incurred $1.1 million of manufacturing costs for
Quadramet. This agreement will automatically renew for five successive one-year
periods unless terminated by BMSMI or us on a two year prior written notice. We
also pay BMSMI a variable amount per month for each Quadramet order placed to
cover the costs of customer service. 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.
Beginning in December 2001, we began to equally share the costs of the
Joint Venture with Progenics. We expect to provide funding of $4.2 million in
2004, of which $950,000 was funded as of March 31, 2004. We have not committed
to fund the Joint Venture beyond December 31, 2004 at this time, except for
obligations under existing contractual commitments as of that date. We may incur
significant and increasing costs in the future to fund our share of the
development costs from the Joint Venture. Such funding amount in subsequent
periods 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.
We acquired an exclusive license from The Dow Chemical Company 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 payments upon achievement of certain
milestones. Future annual minimum royalties due to Dow are $1.0 million per year
in 2004 through 2012 and $833,000 in 2013.
Our financial objectives are to meet our capital and operating
requirements through revenues from existing products and licensing arrangements.
To achieve these 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,
with the net proceeds of $24.0 million from the sale of our common stock in
April 2004, should be adequate to fund our operations and commitments into 2007.
19
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
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.
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, 2003 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
Product related revenues include product sales by Cytogen to its
customers and Quadramet royalties. Product sales are recognized when products
are shipped, which is when the customer takes ownership and assumes risk of
loss, and when the collection of the relevant receivable is probable, persuasive
evidence of an agreement exists and the sales price is fixed and determinable.
The Company does not grant price protection to its customers.
Prior to the reacquisition of marketing rights to Quadramet from our
marketing partner, Berlex Laboratories, in August 2003, we recognized royalty
revenue on Quadramet sales made by Berlex during each period as Berlex sold the
20
product. As a result of our reacquisition, effective August 1, 2003, we began
recognizing revenue from the sales of Quadramet and no longer receive Quadramet
royalty revenue.
License and contract revenues include milestone payments and fees under
collaborative agreements with third parties, revenues from research services,
and revenues from other miscellaneous sources.
In 2003, Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB
104") replaced Staff Accounting Bulletin No. 101, "Revenue Recognition In
Financial Statements" ("SAB 101"), which the Company adopted in 2000. The
provisions related to non-refundable, up-front license fees were unchanged in
SAB 104 compared to SAB 101. Accordingly, we defer non-refundable, 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
performance periods is subject to management's estimates, future revenues to be
recognized could be affected by changes in such estimates.
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
21
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 March 31, 2004, 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. However, downward changes in interest rates could expose
us to market risk associated with any fixed interest rate debt.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our management,
with the participation of our chief executive officer and chief 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 March
31, 2004. 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 March 31, 2004, 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 March 31, 2004 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 14, 2004, Thomas S. Lytle joined Cytogen as our Senior Vice
President of Sales and Marketing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Description
10.1 First Amendment to Sublease Agreement, by and between Cytogen
Corporation and Hale and Dorr LLP dated as of February 10, 2004.
Filed herewith.
10.2 Manufacturing and Supply Agreement by and between Cytogen
Corporation and Bristol-Myers Squibb Medical Imaging, Inc.
effective as of January 1, 2004. Filed herewith.*
14.1 Code of Business Conduct and Ethics, as amended. Filed herewith.
31.1 Certification of President and Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2 Certification of Senior Vice President and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
32.1 Certification of President and Chief Executive Officer pursuant
to 18 U.S.C. Section 1350. Filed herewith.
32.2 Certification of Senior Vice President and Chief Financial
Officer 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 March 4, 2004, we furnished a Current Report on Form 8-K, dated
March 4, 2004, containing a copy of our earnings release for the period ended
December 31, 2003 (including financial statements) pursuant to Item 12 (Results
of Operations and Financial Condition).
On April 14, 2004, we filed a Current Report on Form 8-K disclosing
correspondence related to the technology underlying our ProstaScint product.
On April 15, 2004, we filed a Current Report on Form 8-K relating to
our sale and issuance of 2,570,000 shares of our common stock to certain
investors.
On May 4, 2004, we furnished a Current Report on Form 8-K dated May
4, 2004, containing a copy of our earnings release for the period ended March
31, 2004 (including financial statements) pursuant to Item 12 (Results of
Operations and Financial Condition).
23
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: May 7, 2004 By: /s/ Michael D. Becker
---------------- --------------------------------------------
Michael D. Becker
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 7, 2004 By: /s/ Christopher P. Schnittker
---------------- ---------------------------------------------
Christopher P. Schnittker
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
24