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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND SPECIAL REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number: 0-25544
---------------
Miravant Medical Technologies
(Exact name of Registrant as specified in its charter)
Delaware 77-0222872
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
336 Bollay Drive, Santa Barbara, California 93117
(Address of principal executive offices, including zip code)
(805) 685-9880
(Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of voting stock held by
non-affiliates as of March 10, 2000 based upon the last sale price of the Common
Stock reported on the Nasdaq National Market was approximately $316,762,249. For
purposes of this calculation only, the registrant has assumed that its directors
and executive officers, and any person, who has filed a Schedule 13D or 13G, is
an affiliate.
The number of shares of Common Stock outstanding as of March 10, 2000 was
18,182,761.
ITEM 1. BUSINESS
General
Miravant Medical Technologies, formerly PDT, Inc., is engaged in the
integrated development of drugs and medical device products for use in
PhotoPoint(TM), our proprietary technologies for photodynamic therapy.
PhotoPoint is a medical procedure which integrates the use of proprietary
light-activated drugs, proprietary light producing devices and light delivery
devices to achieve selective photochemical destruction of diseased cells. We
believe that PhotoPoint has the potential to be a safe, cost-effective,
minimally invasive primary or adjunctive treatment for indications in a broad
number of disease areas, including ophthalmology, oncology, cardiovascular
disease and dermatology. We are currently conducting clinical trials in
ophthalmology and oncology testing our leading drug candidate, SnET2 (tin ethyl
etiopurpurin). We are developing products in collaboration with our corporate
partners, including certain subsidiaries of Pharmacia & Upjohn, Inc.,
collectively, with Pharmacia & Upjohn, Inc., referred to as Pharmacia & Upjohn
in this report.
Effective September 15, 1997, we changed our name from PDT, Inc. to
Miravant Medical Technologies.
See "--Risk Factors" for a discussion of certain risks, including those
relating to our operating losses, our early stage of the development and our
products, strategic collaborations and forward-looking statements.
Background
Photodynamic therapy is generally a minimally invasive medical procedure
that uses photoselective, or light-activated, drugs to treat or diagnose
disease. The technology involves three components: photoselective drugs, light
producing devices and light delivery devices.
Photoselective drugs transform light energy into chemical energy in a
manner similar to the action of chlorophyll in green plants. Certain
photoselective drugs accumulate and are retained in fast-growing
(hyperproliferating) cells. Hyperproliferation is a characteristic of cells
associated with a variety of diseases such as cancer, certain vascular disorders
and skin diseases such as psoriasis.
A photoselective drug is typically administered by intravenous injection.
The drug is inactive until exposed to light of a specific wavelength, which can
vary depending on the drug's molecular structure. Exposing the target cells to
the appropriate light wavelength permits selective activation of the retained
drug and initiates a chemical reaction that generates a highly reactive form of
oxygen. High concentrations of this form of oxygen lead to destruction of the
cellular membrane and, ultimately, cell death. The response of the target cells
depends on, among other factors, the drug dose, the amount of light energy
delivered, the physiology of the cell and the vasculature in the diseased areas.
Neither the drug nor the light on its own can cause the desired effect. The drug
is a catalyst which transfers energy. The chemical reaction stops when the light
is turned off. The result of this process is that diseased cells are destroyed
with minimal damage to surrounding normal tissues, offering the potential for a
more selective method of treating disease than surgery, chemotherapy or
radiation and thermal laser therapy, which can damage both normal and abnormal
tissues.
Low-power, non-thermal light can be used to activate photoselective drugs.
As a result, there is little or no risk of thermal damage to surrounding tissue,
as with traditional thermal lasers. The light is typically generated by lasers
or for certain applications, non-coherent light sources, which have been
specifically modified for use in photodynamic therapy. The light is often
delivered from the light source to the patient via specially designed fiber
optics. These fiber optic light delivery devices produce patterns of light for
different disease applications and can be channeled into the body for internal
applications.
While light of a specific wavelength is used to cause a photoselective drug
to produce chemical reactions leading to cell death, light of a different
wavelength can be used to cause the same drug to fluoresce (glow). The
fluorescent property of photodynamic drugs offers the potential for their use in
diagnostic applications.
Industry
As early as 1900, scientists observed that certain compounds localized in
tissues would elicit a response to light. Since the mid-1970s, various aspects
of photodynamic therapy have been studied and established in humans.
Photodynamic therapy is currently being studied by a variety of companies,
physicians and researchers around the world for the treatment of a broad range
of disease applications. We believe that industry development has been hindered
by various drawbacks including inconsistent drug purity and performance, costly
difficult-to-maintain lasers and non-integrated drug and device development. We
are addressing these issues as part of our business strategy and in our
development programs.
Business Strategy
Our objective is to apply PhotoPoint -- our photodynamic therapy systems,
which integrate synthetic photoselective drugs, light producing devices and
light delivery devices -- as a primary therapy in targeted disease areas and as
an adjunct to lower cost surgery or other therapies in these same or other
disease areas. Although the potential applications for our PhotoPoint systems
are numerous, our focus targets large potential market opportunities or diseases
with significant unmet medical needs. With this strategy, we believe we may be
able to accelerate regulatory processes where appropriate and facilitate
commercial success. In addition, to facilitate development, regulatory approval,
manufacturing, marketing and distribution of our products, we have or seek to
form strategic collaborations with partners who are leaders in our targeted
disease areas.
Technology and Products
We are developing synthetic photoselective drugs together with
software-controlled desktop light producing devices and fiber optic light
delivery and measurement devices for the application of PhotoPoint to a broad
range of disease indications. We believe that by being an expert in both
PhotoPoint drugs and devices, and by integrating the development of these
technologies, we can produce easy-to-use PhotoPoint systems which offer the
potential for predictable and consistent results.
Drug Technology. We hold exclusive license rights under certain U.S. and
foreign patents to several classes of synthetic, photoselective compounds,
subject to certain governmental rights. From our classes of compounds, we have
selected SnET2 as our leading drug candidate and have used SnET2 in each of our
clinical trials to date. We have granted to Pharmacia & Upjohn an exclusive,
worldwide license to use SnET2 in the field of photodynamic therapy for disease
indications in the fields of ophthalmology, oncology and urology. We are
developing other potential photoselective drugs for additional disease
applications and future partnering opportunities.
We believe that our synthetic photoselective drugs may provide the
following benefits:
o Predictable. The synthetic nature of our photoselective compounds
permits us to design drugs with a single molecular structure. We
believe that this characteristic may facilitate consistency in
clinical treatment settings, as well as predictability in
manufacturing and quality control.
o Side effects. Treatments to date have been generally well-tolerated,
with the primary side effect being a mild, transient skin
photosensitivity in some patients.
o Versatile. We can select drugs with specific characteristics, such as
activation by a particular wavelength of light. This versatility
provides us with the potential to customize our drugs for particular
uses and to take advantage of semiconductor light technology.
Light Producing Devices. Because our photoselective drugs are synthetic, we
have been able to synthesize and select our drugs to be activated by light
produced by readily available, reliable and relatively inexpensive light
sources. Our light technologies include software-controlled microchip diodes,
light emitting diode, or LED, arrays and non-thermal lasers. We are
collaborating with Iridex Corporation, or Iridex, on the development of light
producing devices for PhotoPoint in the field of ophthalmology and have
co-developed a portable, solid state diode light device which is currently being
used in clinical trials.
We believe that our diode and LED array devices offer advantages over laser
technology historically used in photodynamic therapy. For example, our
software-controlled designs offer reliability and built-in control and measuring
features. In addition, our diode systems, which are roughly the size of a
desktop computer, are smaller and more portable than traditional laser systems.
We believe that our diode systems have the potential to offer light producing
devices that will be more affordable and convenient than surgical laser systems
historically used in photodynamic therapy.
Light Delivery and Measurement Devices. We are developing and manufacturing
light delivery and measurement devices, including a wide variety of fiber optic
light delivery devices with specialized tips for use in PhotoPoint. These
devices must be highly flexible and appropriate for endoscopic use and must be
able to deliver unique patterns of uniform, diffuse light for different disease
applications. Our products include microlenses that produce a tiny flashlight
beam for discrete surface lesions, the Flex(R) cylinder diffuser which delivers
light in a radial pattern along a flexible tip for sites such as the esophagus
and spherical diffusers which emit a diffuse ball of light for sites such as the
bladder or nasopharynx. Certain of our light delivery devices have been used in
our clinical trials. We have also developed light measurement devices for
PhotoPoint including devices that detect wavelength and fluorescence to
facilitate the measurement of light or drug dose.
Targeted Diseases and Clinical Trials
We believe that PhotoPoint has potential in a wide range of applications.
We have selected, based upon regulatory, clinical and market considerations, a
number of disease applications, discussed below, on which to focus. Of these
applications, age-related macular degeneration, or AMD, currently represents our
highest priority, and represents the largest collaborative effort with our
corporate partner Pharmacia & Upjohn. Our current clinical trials use SnET2
together with light producing devices and light delivery devices either
developed on our own or in collaboration with our partners. Our decision to
proceed to clinical trials in any application depends upon such factors as
preclinical results, governmental regulatory communications, competitive
factors, corporate partner commitment and resources, economic considerations and
our overall business strategy.
Ophthalmology
We believe that PhotoPoint has the potential to treat a variety of
ophthalmic disorders, including conditions caused by neovascularization, such as
AMD, as well as other ophthalmic conditions. Neovascularization is a condition
in which new blood vessels grow abnormally under the surface of the retina or
other parts of the eye. These fragile vessels can hemorrhage, causing scarring
and damage to the nerve tissue and lead to loss of vision. AMD is the leading
cause of blindness in Americans over age 50. We are conducting clinical trials
for the treatment of choroidal neovascularization associated with AMD. We
targeted this area because of the large potential market size as well as the
potential for expedited review by governmental regulatory bodies. In June 1998,
SnET2 received fast track designation from the U.S. Food and Drug
Administration, or FDA, for the treatment of choroidal neovascularization
associated with AMD. Under the FDA Modernization Act of 1997, the FDA gives fast
track designation to drugs and devices that treat serious or life-threatening
conditions that represent unmet medical needs. The designation means that we can
submit data during the clinical trial process based on clinical or surrogate
endpoints that are likely to predict clinical benefit, and the FDA can expedite
its regulatory review. We began Phase III clinical trials for AMD in the United
States in the fourth quarter of 1998. In November 1999, we announced that we
exceeded our enrollment goal, and clinical trial enrollment was subsequently
closed in December 1999. We are collaborating with Pharmacia & Upjohn on the
co-development of SnET2 in the field of ophthalmology and are collaborating with
Iridex, through its subsidiary company, Iris Medical Instruments, Inc., on the
co-development of light devices in this field. In addition, we have conducted
preclinical studies for the treatment of other ophthalmic diseases such as
corneal neovascularization, glaucoma and diabetic retinopathy.
Cardiovascular Disease
We are investigating the use of PhotoPoint for the treatment of
cardiovascular disease. Early preclinical studies with PhotoPoint indicate that
certain photoselective drugs may be preferentially retained in the
hyperproliferating and lipid-rich components of arterial plaques, as they are in
cancer cells. We are conducting preclinical studies for the prevention of
restenosis, the renarrowing of arterial vessels following angioplasty. We
believe that PhotoPoint may provide a means of preventing restenosis, and may
even allow treatment of diffuse atherosclerosis.
Dermatology
A number of non-cancerous dermatological disorders have shown potential for
being treated with PhotoPoint. One of these is psoriasis, a chronic and
potentially debilitating skin disorder. We are currently evaluating topical
formulations of SnET2 and other compounds for psoriasis and other dermatological
diseases. We are continuing to evaluate psoriasis as a possible dermatology
indication and may advance to a clinical trial based on the progress of the
development of a topical formulation, preclinical studies, communications with
governmental regulatory agencies and other factors. Preparations include
development of light sources and delivery systems for use in dermatology
applications and protocol development for possible clinical trials.
Oncology
Cancer is a large group of diseases characterized by uncontrolled growth
and spread of hyperproliferating cells. We targeted this area for our initial
products both because of the large potential market size as well as the
potential for certain cancer treatments to receive expedited review by
governmental regulatory bodies.
Prostate Cancer. Prostate cancer is the most common malignancy in American
men, and mortality from it is second only to lung cancer. Prostate cancer
generally progresses slowly, and 58% of all prostate cancers are discovered
while still localized (cancer has not spread beyond the prostate gland). We are
conducting a Phase I clinical trial using SnET2 for the treatment of localized
prostate cancer. The decision whether or not to pursue additional clinical
trials in this area will be based in part on resulting data from this clinical
trial.
Other Cancers. In 1998, we announced that we would no longer pursue the
commercialization of cutaneous metastatic breast cancer, or CMBC. This decision
was made because of business considerations such as the need for increased
internal resources for the small market size, increased costs of meeting
regulatory approval requirements and a lack of a committed marketing partner for
this disease indication. We discontinued trials in AIDS-related Kaposi's sarcoma
for similar reasons, including our renewed focus on large market opportunities
and those with significant unmet medical need. The information we obtained from
these clinical trials has provided an invaluable amount of information on our
PhotoPoint treatment in cancer and has enabled us to advance in preclinical
studies for the treatment of a variety of other cancers. We have an existing
oncology Investigational New Drug application, or IND, under which we may choose
to submit protocols for clinical trials in oncology indications. In addition, we
continue to conduct research in oncology.
Other Disease Areas
We are investigating the use of PhotoPoint in additional disease areas. Our
decision to proceed to clinical trials depends upon such factors as preclinical
results, FDA communications, competitive factors, corporate partner commitment
and the availability of financial and internal resources, economic
considerations and our overall business strategy. This will allow us to focus
our activities and resources on disease applications which represent large
markets and significant unmet medical needs.
Strategic Collaborations
We are pursuing a strategy of establishing license agreements and
collaborative arrangements for the purpose of securing exclusive access to drug
and device technologies, funding development activities and providing market
access for our products. We seek to obtain from our collaborative partners
exclusivity in the field of photodynamic therapy and to retain certain
manufacturing and co-development rights. We intend to continue to pursue this
strategy where appropriate in order to enhance in-house research programs,
facilitate clinical testing and gain access to distribution channels and
additional technology.
Definitive Collaborative Agreements
Pharmacia & Upjohn
We have had a collaborative relationship with Pharmacia & Upjohn relating
to the development and commercialization of SnET2 since 1994. Our current
relationship is critical to our ophthalmology program.
Our original SnET2 license agreements with Pharmacia & Upjohn entered into
in 1994 and 1995 provided for:
o The co-development of, and exclusive marketing rights to, SnET2 in the
fields of oncology, urology and dermatology;
o A $13.0 million equity investment in Miravant; and
o Formulation of the SnET2 drug product.
In 1996, these agreements were amended to include the field of
ophthalmology.
In June 1998, significant amendments, referred to as the 1998 Amendments,
were made, resulting in:
o Additional financial commitment by Pharmacia & Upjohn to oncology;
o Additional flexibility in Miravant's oncology and urology programs;
o Increased reimbursement commitment by Pharmacia & Upjohn to the
ophthalmology program;
o The development and marketing rights for SnET2 in dermatology
reverting back to Miravant; and
o Transfer of the formulation of SnET2 drug product to Fresenius AG.
In February 1999, the agreements were again amended and supplemented,
collectively referred to as the 1999 Amendments, as follows:
o Pharmacia & Upjohn increased its participation in ophthalmology by
assuming operational control of the clinical and regulatory aspects of
the joint ophthalmic programs, including AMD;
o Pharmacia & Upjohn made an additional $19.0 million equity investment
in Miravant, referred to as the Equity Investment Agreement, and
extended a line of credit to Miravant of $22.5 million, referred to as
the Credit Agreement;
o Eliminated future AMD milestone payments and future oncology and
urology clinical reimbursements; and
o Added a right of first negotiation by Pharmacia & Upjohn for SnET2
marketing rights in the cardiovascular field, subject to certain
limitations.
License Agreements. Under the original 1995 development and license
agreement and the 1996, 1998 and 1999 amendments, described above, collectively
referred to as the License Agreements, we granted to Pharmacia & Upjohn an
exclusive, worldwide license to use, distribute and sell SnET2 for use in
PhotoPoint in the fields of ophthalmology, oncology, urology, and right of first
negotiation in cardiovascular diseases.
Under the License Agreements:
o Pharmacia & Upjohn is responsible for conducting certain aspects of
clinical trials involving SnET2 and to fund other current and future
preclinical studies and clinical trials conducted by us involving
SnET2;
o We are entitled to receive royalties on the sale of SnET2, payments
for certain contemplated indications upon the achievement of certain
milestones and reimbursement for certain expenses;
o Pharmacia & Upjohn has agreed to promote, market and sell SnET2 in
certain fields, subject to certain limitations, to refrain from
developing or selling other photodynamic therapy drugs in the fields
covered by the License Agreements during the agreement term; and
o Pharmacia & Upjohn has a right of first negotiation with respect to
the marketing rights to any new photodynamic therapy drug developed by
Miravant in the fields covered by the License Agreements, as well as
right of first negotiation for SnET2 for cardiovascular indications.
With respect to ophthalmology, the License Agreements remain in force for
the duration of the patents related to SnET2 or for a period of ten years from
the first commercial sale of SnET2 on a country-by-country basis, whichever is
longer. After those periods have expired, Pharmacia & Upjohn will have an
irrevocable, royalty-free, non-exclusive license to SnET2. With respect to
oncology and urology, the License Agreement remains in force for so long as
Pharmacia & Upjohn is required to pay royalties, and, under certain provisions,
may terminate the agreement as early as July 1, 2000.
Equity Investment Agreement. In connection with the 1999 Amendments, we
entered into the Equity Investment Agreement, under which Pharmacia & Upjohn
purchased from Miravant 1,136,533 shares of our Common Stock for an aggregate
purchase price of $19.0 million. This agreement is in addition to the 1995 and
1994 stock purchase agreements, under which Pharmacia & Upjohn purchased a total
of 725,001 shares of Common Stock from us for a total of $13.0 million.
Credit Agreement. In connection with the 1999 Amendments, we entered into
the Credit Agreement under which Pharmacia & Upjohn will lend us up to $22.5
million in the form of quarterly term loans to be used to support Miravant's
ophthalmology, oncology and other development programs, as well as for general
corporate purposes, subject to certain affirmative, negative and financial
covenants and requirements. In connection with the Credit Agreement, Pharmacia &
Upjohn may also receive a total of up to 360,000 warrants to purchase our Common
Stock, of which 240,000 warrants have been issued as of December 31, 1999.
Drug Supply Agreement. Under a Drug Supply Agreement we agreed to
manufacture, or have manufactured, and supply to Pharmacia & Upjohn, upon
specified payment terms, Pharmacia & Upjohn's requirements of SnET2 in finished
pharmaceutical form for clinical and commercial purposes in the area of
photodynamic therapy in the fields of oncology and ophthalmology. The Drug
Supply Agreement remains in force for the term of the License Agreements,
subject to termination under certain limited circumstances. Upon termination, we
have agreed to continue to provide SnET2 to Pharmacia & Upjohn on terms to be
negotiated by the parties.
Device Supply Agreement. Under a Device Supply Agreement, we appointed
Pharmacia & Upjohn as a non-exclusive worldwide distributor of certain
instruments developed, manufactured or licensed by Miravant that produce,
deliver or measure light, collectively known as light devices, for use with
SnET2 in photodynamic therapy in the fields contained in the License Agreements.
The Device Supply Agreement provides for the sale by Miravant to Pharmacia &
Upjohn of such light devices at specified rates and we are responsible for the
development and regulatory approval of the light devices. During the term of the
Device Supply Agreement, Pharmacia & Upjohn is prohibited from developing,
manufacturing or purchasing from third parties such light devices or
distributing or selling them for use with any photodynamic drug other than
SnET2. If, however, we decide not to or are unable to manufacture or supply a
particular light device, Pharmacia & Upjohn is entitled to manufacture that
device. The Device Supply Agreement remains in force for the term of the License
Agreements, subject to earlier termination under limited circumstances.
Iridex Corporation
In May 1996, we entered into a co-development and distribution agreement
with Iridex, a leading provider of semiconductor-based laser systems to treat
eye diseases. The agreement generally provides:
o Miravant with the exclusive right to co-develop with Iridex light
producing devices for use in photodynamic therapy in the field of
ophthalmology;
o We will conduct clinical trials and make regulatory submissions with
respect to all co-developed devices and Iridex will manufacture all
devices for such trials, with costs shared as set forth in the
agreement; and
o Iridex will have an exclusive, worldwide license to make, distribute
and sell all co-developed devices, on which it will pay us royalties.
The agreement remains in effect, subject to earlier termination in certain
circumstances, until ten (10) years after the date of the first FDA approval of
any co-developed device for commercial sale, subject to certain renewal rights.
The light producing device used in AMD clinical trials was co-developed with
Iris Medical Instruments Inc., a subsidiary of Iridex, under this agreement, and
its commercialization is governed in part by this agreement.
The University of Toledo, The Medical College of Ohio and St. Vincent Medical
Center
In July 1989, we entered into a License Agreement with the University of
Toledo, the Medical College of Ohio and St. Vincent Medical Center, of Toledo,
Ohio, collectively referred to as Toledo. This agreement provides us with, among
other items, exclusive, worldwide rights:
o To make, use, sell, license or sublicense certain photoselective
compounds (including SnET2) covered by certain Toledo patents and
patent applications, or not covered by Toledo patents or patent
applications but owned or licensed to Toledo (and which Toledo has the
right to sublicense);
o To make, use, sell, license or sublicense certain of the compounds for
which we have provided Toledo with financial support; and
o To make, use or sell any invention claimed in Toledo patents or
applications and any composition, method or device related to
compounds conceived or developed by Toledo under research funded by
Miravant.
The agreement further provides that we pay Toledo royalties on the sales of
the compounds. As of December 31, 1999, no royalties had been paid or accrued
since no drug or related product had been sold. Under the agreement, we are
required to satisfy certain development and commercialization objectives. This
agreement terminates upon the expiration or non-renewal of the last patent which
may issue under this agreement, currently 2013. By its terms, however, the
license extends upon issuance of any new Toledo patents. We do not have
contractual indemnification rights against Toledo under the agreement. Some of
the research relating to the compounds covered by the License Agreement,
including SnET2, has been or is being funded in part by certain governmental
grants under which the United States Government has or will have certain rights
in the technology developed, including the right under certain circumstances to
a non-exclusive license or to require Miravant to grant an exclusive license to
a third party.
Fresenius AG
Formulation Agreement. In August 1994, we entered into a supply contract
with Pharmacia & Upjohn to develop an emulsion formulation suitable for
intravenous administration of SnET2. Under this agreement, Pharmacia & Upjohn
agreed to the following:
o They will be our exclusive supplier of such emulsion products;
o They will manufacture and supply all of our worldwide requirements of
certain emulsion formulations containing SnET2; and
o They will not develop or supply formulations or services for use in
any photodynamic therapy applications for any other company.
This agreement continues indefinitely except that it may be terminated ten
(10) years after the first commercial sale of SnET2. Effective November 30,
1998, Pharmacia & Upjohn's rights and obligations under the Formulation
Agreement were assigned to Fresenius Kabi LLC, a subsidiary of Fresenius AG, as
part of an Asset Transfer Agreement between Pharmacia & Upjohn and Fresenius.
Operating terms of the Formulation Agreement were not changed as part of the
assignment.
Ramus Medical Technologies
In December 1996, our wholly owned subsidiary, Miravant Cardiovascular,
Inc., entered into a co-development agreement with Ramus, an innovator in the
development of autologous tissue stent-grafts for vascular bypass surgeries.
Generally the agreement provides us with the exclusive rights to co-develop our
photodynamic therapy technology with Ramus' proprietary technology in the
development of autologous vascular grafts for coronary arteries and other
vessels. Ramus shall provide, at no cost to us, products for use in preclinical
studies and clinical trials with all other preclinical and clinical costs to be
paid by us. The agreement remains in effect until the later of ten (10) years
after the date of the first FDA approval of any co-developed device for
commercial sale, or the life of any patent issued on a co-developed device,
subject to certain renewal rights.
In conjunction with the co-development agreement, we purchased a 33% equity
interest in Ramus for $2.0 million, and obtained an option to acquire the
remaining shares of Ramus. We have declined to exercise this option and the
option period has now expired. Further, we have first refusal rights and
pre-emptive rights for any issuance of new securities, whether debt or equity,
made by Ramus and Ramus must maintain certain financial and other covenants.
Additionally, we entered into a revolving credit agreement with Ramus which
provided Ramus with the ability to borrow up to $2.0 million, which has been
fully utilized. The revolving credit agreement, which was due in full in March
2000, has been subsequently extended to a period in the future, for which the
terms of the extension are currently being negotiated.
Xillix Technologies Corp.
In June 1998, Miravant purchased a 9% equity interest in Xillix
Technologies Corp. for $5.0 million. In conjunction with the investment, we also
entered into an exclusive strategic alliance agreement with Xillix to co-develop
proprietary systems incorporating PhotoPoint and Xillix's fluorescence imaging
technology for diagnosing and treating early stage cancer and pre-malignant
tissues. The agreement provides that both companies will own co-developed
products and will share the research and development costs associated with the
development program. Xillix will receive drug royalty payments from us based on
the sale of our drugs used in conjunction with the co-developed technology.
Laserscope
In April 1992, we entered into a seven (7) year License and Distribution
Agreement with Laserscope of San Jose, California, a leader in the surgical
laser industry. Under this agreement, among other terms:
o We granted to Laserscope rights to manufacture and sell a dye laser
module developed by us;
o We retained the right to manufacture and sell this system for use with
our own photoselective drugs; and
o Laserscope agreed to pay to us a license fee and royalties on
Laserscope's sales.
We had developed this light producing device prior to the development of
our current diode light systems. This agreement terminated in April 1999;
Laserscope now holds a fully paid-up, non-exclusive license to use the
technology.
Letter Agreements
Miravant has also entered into the following Letter Agreements. There is no
assurance that definitive agreements will evolve from these collaborations.
Boston Scientific Corporation
In December 1993, we executed a strategic development letter agreement with
Boston Scientific Corporation, a leading developer, manufacturer and marketer of
catheter-based medical technology, for the joint development of catheter-based
light delivery devices for photodynamic therapy in the fields of urology,
pulmonology and gastroenterology. The letter agreement is intended to provide
the framework for a more definitive agreement, relating to, among other things,
the distribution, manufacturing and licensing of developed products, and
continues until the parties enter into such an agreement.
Chiron Diagnostics
In November 1997, we executed a letter of intent with Chiron Diagnostics, a
subsidiary of Bayer Corporation and an international leader in in vitro
diagnostics, to collaborate on studies directed towards the early detection and
treatment of lung cancer. The alliance is designed to give us a potentially more
sensitive, less invasive and less costly way to identify patients in early
stages of cancer who are eligible for participation in PhotoPoint clinical
trials. In addition to assisting us in these clinical trials, Chiron has agreed
to work exclusively with us in the field of photodynamic therapy for certain
oncology indications.
Cordis Corporation
In December 1993, we executed a strategic development letter agreement with
Cordis Corporation, a Johnson & Johnson company and a leader in coronary
catheter devices, for the joint development of catheter-based light delivery
devices for photodynamic therapy in the cardiovascular field. The letter
agreement under which the parties are collaborating is intended to provide the
framework for a more definitive agreement, relating to, among other things, the
distribution, manufacturing and licensing of developed products, and continues
until the parties enter into a definitive agreement.
Medicis Pharmaceutical Corporation
In October 1997, we executed a letter of intent with Medicis Pharmaceutical
Corporation, the leading independent dermatology company in the United States,
to develop and commercialize certain PhotoPoint procedures for dermatology
applications. The letter agreement is intended to facilitate the clinical
development of PhotoPoint in dermatology and provide the framework for a more
definitive agreement, which would grant Medicis an exclusive license to
distribute and sell certain PhotoPoint products in the United States.
Research and Development Programs
Our research and development programs are devoted to the discovery and
development of drugs and devices for PhotoPoint. These research activities are
conducted in-house in our pharmaceutical and engineering laboratories or
elsewhere in collaboration with medical or other research institutions or with
other companies. We have expended, and expect to continue to spend, substantial
funds on our research and development programs.
Our pharmaceutical research program is focused on the ongoing evaluation of
our proprietary compounds for different disease applications. Among our outside
or extramural research, we are conducting preclinical studies at various
academic and medical research institutions in the United States. We are also
active in the research and development of devices for PhotoPoint. These programs
include development of fiber optic light delivery devices and measurement
devices for accuracy in dosimetry. Device research and development is presently
conducted either in-house or in collaboration with partners.
We have pursued and been awarded various government grants and contracts,
such as grants sponsored by the National Institutes of Health and the Small
Business Innovative Research Administration, which complement our research
efforts and facilitate new development.
Manufacturing
Our strategy is generally to retain manufacturing rights and maintain pilot
manufacturing capabilities and, where appropriate due to financial and
production constraints, to partner with leading pharmaceutical and medical
device companies for certain elements of our manufacturing processes. We are
licensed by the State of California to manufacture bulk drug substance at our
Santa Barbara, California facility for clinical trial use. We currently
manufacture SnET2 drug substance, light producing devices and light delivery
devices, and conduct other production and testing activities, at this location.
However, we have limited capabilities and experience in the manufacture of drug,
light producing and light delivery products and utilize outside suppliers,
contracted or otherwise, for certain materials and services related to our
manufacturing activities. Although most of our materials and components are
available from various sources, we are dependent on certain suppliers for key
materials or services used in our drug and light producing and light delivery
device development and production operations. One such supplier is Fresenius,
which processes SnET2 into a sterile injectable formulation and packages it in
vials for distribution by Miravant. We expect to continue to develop new
formulations which may or may not have similar dependencies on suppliers. In
addition, regulatory approval will be necessary before we can manufacture drug
substance for commercial use.
In February 1997, we received registration to ISO 9001 and EN 46001
signifying compliance to the International Standards Organization quality
systems requirements for design, manufacture and distribution of medical
devices. We chose to discontinue ISO 9001 as part of a cost savings program, as
it was unlikely to be used in the near future.
Marketing, Sales and Distribution
Our strategy is to partner with leading pharmaceutical and medical device
companies for the marketing, sales and distribution of our products. We have
granted to Pharmacia & Upjohn the exclusive, worldwide license to market and
sell our leading drug candidate SnET2 in certain disease fields. We have granted
to Iridex the worldwide license to market and sell all co-developed light
producing devices for use in PhotoPoint in the field of ophthalmology, subject
to certain provisions with Pharmacia & Upjohn. We have a limited letter
agreement with Medicis that provides for a worldwide license to market and sell
certain drugs for use in PhotoPoint in the field of dermatology. Also, under the
terms of our co-development arrangements with Boston Scientific and Cordis,
these companies have the option of negotiating to enter into long-term
agreements with Miravant, under which they will have a license to market and
sell the co-developed medical catheters - Boston Scientific in the fields of
urology, pulmonology and gastroenterology and Cordis in the field of
cardiovascular disease - on a worldwide basis. At this time, we have not entered
into such long-term agreements.
Where appropriate, we intend to seek additional arrangements with
collaborative partners, selected for experience in disease applications or
markets, to act as our marketing and sales arm and to establish distribution
channels for our drugs and devices. We may also distribute our products directly
or through independent distributors.
Patents and Proprietary Technology
We pursue a policy of seeking patent protection for our technology both in
the United States and in selected countries abroad. We plan to prosecute, assert
and defend our patent rights when appropriate. We also rely upon trade secrets,
know-how, continuing technological innovations and licensing opportunities to
develop and maintain our competitive position.
We are currently the record owner of thirty (30) United States patents,
expiring during the time frame 2010 through 2018, a substantial number of which
relate to certain light delivery and measurement devices and methods. We are
also the record owner of six (6) foreign patents expiring during the time frame
from 2012 to 2014. We have a number of United States (and related foreign)
patent applications filed and pending. In addition, we have exclusive license
rights under sixteen (16) issued United States patents, which expire during the
time frame from 2006 through 2013, and four (4) issued foreign patents expiring
in 2006, and under several pending United States and foreign patent
applications, relating to certain photoselective compounds, as well as rights to
four (4) method-of-use patents and one (1) co-owned formulation patent.
We obtained the majority of our photoselective compound patent rights,
including rights to SnET2, through an exclusive License Agreement with Toledo.
This agreement is the basis for our core drug technology. Certain of the
foregoing patents and applications are subject to certain governmental rights
described below.
It is our policy to require our employees, consultants, outside scientific
collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of our
relationship are to be kept confidential and not disclosed to third parties
except in specific limited circumstances. We also require signed confidentiality
or material transfer agreements from any company that is to receive confidential
data or proprietary compounds. In the case of employees and consultants, the
agreements generally provide that all inventions conceived by the individual
while rendering services to us, which relate to our business or anticipated
business, shall be assigned to us as our exclusive property.
Certain of our research, including research relating to certain
pharmaceutical compounds covered by the License Agreement with Toledo, including
SnET2, has been or is being funded in part by Small Business Innovation Research
Administration or National Institutes of Health grants. As a result, the United
States Government has or will have certain rights in the inventions developed
with the funding. These rights include a non-exclusive, paid-up, worldwide
license under such inventions for any governmental purpose. In addition, the
government has the right to require us to grant an exclusive license under any
of such inventions to a third party if the government determines that:
o Adequate steps have not been taken to commercialize such inventions;
o Such action is necessary to meet public health or safety needs; or
o Such action is necessary to meet requirements for public use under
federal regulations.
Federal law requires that any exclusive licensor of an invention that was
partially funded by federal grants (which is the case with the subject matter of
certain patents issued in our name or licensed from Toledo) agree that it will
not grant exclusive rights to use or sell the invention in the United States
unless the grantee agrees that any products embodying the invention will be
manufactured substantially in the United States, although such requirement is
subject to a discretionary waiver by the government. It is not expected that the
government will exercise any such rights or that such exercise would have a
material impact on us.
Government Regulation
The research, development, manufacture, marketing and distribution of our
products are subject to regulation for safety and efficacy by numerous
governmental authorities in the United States and other countries. In the United
States, pharmaceutical products and medical devices are regulated by the FDA
through the Food, Drug and Cosmetic Act, known as the FDC Act. The FDC Act and
various other federal and state statutes control and otherwise affect the
development, approval, manufacture, testing, storage, records and distribution
of drugs and medical devices. We are subject to regulatory requirements
governing both drugs and devices.
Drug Products. The FDA generally requires the following steps before a new
drug product may be marketed in the United States:
o Preclinical studies (laboratory and animal tests);
o The submission to the FDA of an application for an IND exemption,
which must become effective before human clinical trials may commence;
o Adequate and well-conducted clinical trials to establish safety and
efficacy of the drug for its intended use;
o The submission to the FDA of a New Drug Application, or NDA; and
review and approval of the NDA by the FDA before any commercial sale
or shipment of the drug.
In addition to obtaining FDA approval for each new drug product, each drug
manufacturing establishment must be registered with the FDA. Manufacturing
establishments, both domestic and foreign, are subject to inspections by or
under the authority of the FDA and by other federal, state or local agencies and
must comply with the FDA's current Good Manufacturing Practices, or GMP,
regulations. The FDA will not approve an NDA until a preapproval inspection of
the manufacturing facilities confirms that the drug is produced in accordance
with current drug GMPs. In addition, drug manufacturing establishments in
California must also be licensed by the State of California and must comply with
manufacturing, environmental and other regulations promulgated and enforced by
the California Department of Health Services.
Preclinical studies include laboratory evaluation of product chemistry,
conducted under Good Laboratory Practices, or GLP, regulations, and animal
studies to assess the potential safety and efficacy of the drug and its
formulation. The results of the preclinical studies are submitted to the FDA as
part of the IND. Unless the FDA objects to the IND, the IND becomes effective
thirty (30) days following its receipt by the FDA.
Clinical trials involve the administration of the investigational drug to
human subjects under FDA regulations and other guidance commonly known as Good
Clinical Practice, or GCP, requirements under the supervision of a qualified
physician. Clinical trials are conducted in accordance with protocols that
detail the objectives of the study, the parameters to be used to monitor safety
and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA
as a part of the IND. Each clinical study must be conducted under the auspices
of an independent Institutional Review Board, or IRB. The IRB considers, among
other things, ethical factors, the safety of human subjects and the possible
liability of the testing institution.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap.
o Phase I represents the initial introduction of the drug to a small
group of humans to test for safety (adverse effects), dosage
tolerance, absorption, distribution, metabolism, excretion and
clinical pharmacology and, if possible, to gain early evidence of
effectiveness;
o Phase II involves studies in a limited sample of the intended patient
population to assess the efficacy of the drug for a specific
indication, to determine dose tolerance and optimal dose range and to
identify possible adverse effects and safety risks; and
o Once a compound is found to have some efficacy and to have an
acceptable safety profile in Phase II evaluations, Phase III clinical
trials are initiated for definitive clinical safety and efficacy
studies in a broader sample of the patient population at multiple
study sites. The results of the preclinical studies and clinical
trials are submitted to the FDA in the form of an NDA for marketing
approval.
Completing clinical trials and obtaining FDA approval for a new drug
product is likely to take several years and require expenditure of substantial
resources. If an NDA application is submitted, there can be no assurance that
the FDA will approve the NDA. Even if initial FDA approval is obtained, further
studies may be required to gain approval for the use of a product as a treatment
for clinical indications other than those for which the product was initially
approved. Also, the FDA requires post-market surveillance programs to monitor
and report the drug's side effects. For certain drugs, the FDA may also,
concurrent with marketing approval, seek agreement from the sponsor to conduct
post-marketing ("Phase IV") studies to obtain further information about the
drug's risks, benefits and optimal use. Results of such monitoring and of Phase
IV post-marketing studies may affect the further marketing of the product.
Where appropriate, we may seek to obtain accelerated review and/or approval
of products and to use expanded access programs that may provide broader
accessibility and, if approved by the FDA, payment for an investigational drug
product. For instance, we requested and received fast track designation from the
FDA for the treatment of choroidal neovascularization associated with AMD. Under
the FDA Modernization Act of 1997, the FDA gives fast track designation to drugs
and devices that treat serious or life-threatening conditions that represent
unmet medical needs. The designation means that we can submit data during the
clinical trial process based on clinical or surrogate endpoints that are likely
to predict clinical benefit, and the FDA can expedite its regulatory review.
Other examples of such activities include pursuing programs such as treatment
IND or parallel track IND classifications which allow expanded availability of
an investigational treatment to patients not in the ongoing clinical trials, and
seeking physician or cross-referenced INDs which allow individual physicians to
use an investigational drug before marketing approval and for an indication not
covered by the ongoing clinical trials. However, there can be no assurance that
we will seek such avenues at any time, or that such activities will be
successful or result in accelerated review or approval of any of our products.
Medical Device Products. Our medical device products are subject to
government regulation in the United States and foreign countries. In the United
States, we are subject to the rules and regulations established by the FDA
requiring that our medical device products are safe and efficacious and are
designed, tested, developed, manufactured and distributed in accordance with FDA
regulations.
Under the FDC Act, medical devices are classified into one of three classes
(i.e., class I, II, or III) on the basis of the controls necessary to reasonably
ensure their safety and effectiveness. Safety and effectiveness can reasonably
be assured for class I devices through general controls (e.g., labeling,
premarket notification and adherence to GMPs) and for class II devices through
the use of general and special controls (e.g., performance standards, postmarket
surveillance, patient registries and FDA guidelines). Generally, class III
devices are those which must receive premarket approval by the FDA to ensure
their safety and effectiveness (e.g., life-sustaining, life-supporting and
implantable devices, or new devices which have been found not to be
substantially equivalent to legally marketed devices).
Before a new device can be introduced to the market, the manufacturer
generally must obtain FDA clearance through either a 510(k) premarket
notification or a premarket approval application, or PMA. A PMA requires the
completion of extensive clinical trials comparable to those required of new
drugs and typically requires several years before FDA approval, if any, is
obtained. A 510(k) clearance will be granted if the submitted data establish
that the proposed device is "substantially equivalent" to a legally marketed
class I or class II medical device, or to a class III medical device for which
the FDA has not called for PMAs. Currently, devices indicated for use in
photodynamic therapy, such as our devices, regardless of classification, must be
evaluated in conjunction with an IND as a combination drug-device product.
Combination Drug-Device Products. Medical products containing a combination
of drugs, devices or biological products may be regulated as "combination
products." A combination product is generally defined as a product comprised of
components from two or more regulatory categories (drug/device, device/biologic,
drug/biologic, etc.) and in which the various components are required to achieve
the intended effect and are labeled accordingly. Each component of a combination
product is subject to the rules and regulations established by the FDA for that
component category, whether drug, biologic or device. Primary responsibility for
the regulation of a combination product depends on the FDA's determination of
the "primary mode of action" of the combination product, whether drug, biologic
or device.
In order to facilitate premarket review of combination products, the FDA
designates one of its centers to have primary jurisdiction for the premarket
review and regulation of both components, in most cases eliminating the need to
receive approvals from more than one center. The determination whether a product
is a combination product or two separate products is made by the FDA on a
case-by-case basis. Market approval authority for combination photodynamic
therapy drug/device products is vested in the FDA Center for Drug Evaluation and
Research, or CDER, which is required to consult with the FDA Center for Devices
and Radiological Health. As the lead agency, the CDER administers and enforces
the premarket requirements for both the drug and device components of the
combination product. The FDA has reserved the decision on whether to require
separate submissions for each component until the product is ready for premarket
approval. Although, to date, photodynamic therapy products have been categorized
by the FDA as combination drug-device products, the FDA may change that
categorization in the future, resulting in different submission and/or approval
requirements.
If separate applications for approval are required in the future for
PhotoPoint devices, it may be necessary for us to submit a PMA or a 510(k) to
the FDA for our PhotoPoint devices. Submission of a PMA would include the same
clinical studies submitted under the IND to show the safety and efficacy of the
device for its intended use in the combination product. A 510(k) notification
would include information and data to show that our device is substantially
equivalent to previously marketed devices. There can be no assurance as to the
exact form of the premarket approval submission required by the FDA or
post-marketing controls for our PhotoPoint devices.
Post-Approval Compliance. Once a product is approved for marketing, we must
continue to comply with various FDA, and in some cases Federal Trade Commission,
requirements for design, safety, advertising, labeling, record keeping and
reporting of adverse experiences associated with the use of a product. The FDA
actively enforces regulations prohibiting marketing of products for non-approved
uses. Failure to comply with applicable regulatory requirements can result in,
among other things, fines, injunctions, civil penalties, failure of the
government to grant premarket clearance, premarket approval or export
certificates for devices or drugs, delays or suspensions or withdrawals of
approvals, seizures or recalls of products, operating restrictions and criminal
prosecutions. Changes in existing requirements or adoption of new requirements
could have a material adverse effect on our business, financial condition and
results of operations.
International. We are also subject to foreign regulatory requirements
governing testing, development, marketing, licensing, pricing and/or
distribution of drugs and devices in other countries. These regulations vary
from country to country. Beginning in 1995, a new regulatory system to approve
drug market registration applications was implemented in the European Union, or
EU. The system provides for new centralized, decentralized and national (member
state by member state) registration procedures through which a company may
obtain drug marketing registrations. The centralized procedure allows for
expedited review and approval of biotechnology and high technology/innovative
product marketing applications by a central Committee for Proprietary Medicinal
Products that is binding on all member states in the EU. The decentralized
procedure allows a company to petition individual EU member states to review and
recognize a market application previously approved in one member state by the
national route. Our devices must also meet the new Medical Device Directive
effective in Europe in 1998. The Directive requires that our manufacturing
quality assurance systems and compliance with technical essential requirements
be certified with a CE Mark authorized by a registered notified body of an EU
member state prior to free sale in the EU. Registration and approval of a
photodynamic therapy product in other countries, such as Japan, may include
additional procedures and requirements, nonclinical and clinical studies, and
may require the assistance of native corporate partners.
Competition
The pharmaceutical and medical device industries are characterized by
extensive worldwide research and development efforts and rapid technological
change. Competition from other domestic and foreign pharmaceutical or medical
device companies and research and academic institutions in the areas of product
development, product and technology acquisition, manufacturing and marketing is
intense and is expected to increase. These competitors may succeed in obtaining
approval from the FDA or other regulatory agencies for their products more
rapidly than Miravant. Competitors have also developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competitive products.
We believe that a primary competitive issue will be the performance
characteristics of photoselective drugs, including product efficacy and safety,
as well as availability, price and patent position, among other issues. As the
photodynamic therapy industry evolves, we believe that new and more
sophisticated devices will be required and that the ability of any group to
develop advanced devices will be important to market position. We believe that,
after approval, competition will be based on product reliability, clinical
utility, patient outcomes, marketing and distribution partner capabilities,
availability, price and patent position.
We are aware of various competitors involved in the photodynamic therapy
arena. We understand that these companies are conducting preclinical studies
and/or clinical trials in various countries and for a variety of disease
indications. One such company is QLT PhotoTherapeutics or QLT. We understand
that QLT's drug Photofrin(R) has received marketing approval in the United
States and certain other countries for various specific disease indications. QLT
has also received an "approvable" letter from the FDA for their drug Visudyne(R)
for the treatment of AMD, and therefore may be first to market in this disease
area.
Employees
As of March 10, 2000, we employed 147 individuals, approximately 80 of
which were engaged in research and development, 22 were engaged in manufacturing
and clinical activities and 45 in general and administrative activities. We
believe that our relationship with our employees is good and none of the
employees are represented by a labor union.
RISK FACTORS
This Annual Report on Form 10-K contains forward-looking statements, which
involve known and unknown risks and uncertainties. These statements relate to
our future plans, objectives, expectations and intentions. These statements may
be identified by the use of words such as "may," "will," "should," "potential,"
"expects," "anticipates," "intends," "plans" and similar expressions. These
statements are based on our current beliefs, expectations and assumptions and
are subject to a number of risks and uncertainties. Our actual results could
differ materially from those discussed in these statements. The factors listed
below are not intended to represent a complete list of the general or specific
risks that may affect us. It should be recognized that other risks may be
significant, presently or in the future, and the risks set forth below may
affect us to a greater extent than indicated.
RISKS RELATED TO OUR BUSINESS
Our products are in an early stage of development and may never be successfully
commercialized.
Our products are at an early stage of development and our ability to
successfully commercialize these products is dependent upon:
o Successfully completing our research or product development efforts or
those of our collaborative partners;
o Successfully transforming our drugs or devices currently under
development into marketable products;
o Obtaining the required regulatory approvals;
o Manufacturing our products at an acceptable cost and with appropriate
quality;
o Favorable acceptance of any products marketed; and
o Successful marketing and sales efforts of our corporate partner(s).
We may not be successful in achieving any of the above, and if we are not
successful, our business, financial condition and operating results would be
adversely affected. The time frame necessary to achieve these goals for any
individual product is long and uncertain. Most of our products currently under
development will require significant additional research and development and
preclinical studies and clinical trials, and all will require regulatory
approval prior to commercialization. The likelihood of our success must be
considered in light of these and other problems, expenses, difficulties,
complications and delays.
Our products may not successfully complete the clinical trials process and we
may be unable to prove that our products are safe and efficacious.
All of our drug and device products currently under development will
require extensive preclinical studies and clinical trials prior to regulatory
approval for commercial use, which is a lengthy and expensive process. None of
our products have completed testing for efficacy or safety in humans. Some of
the risks and uncertainties related to safety and efficacy testing and the
completion of preclinical studies and clinical trials include:
o Our ability to demonstrate to the FDA that SnET2 or any other of our
products is safe and efficacious;
o Our ability to successfully complete the testing for any of our
compounds within any specified time period, if at all;
o Clinical data reported may change as a result of the continuing
evaluation of patients;
o Data obtained from preclinical studies and clinical trials are subject
to varying interpretations which can delay, limit or prevent approval
by the FDA or other regulatory authorities;
o Problems in research and development, preclinical studies or clinical
trials that will cause us to delay, suspend or cancel clinical trials;
and
o As a result of changing economic considerations, competitive or new
technological developments, market approvals or changes, clinical or
regulatory conditions, or clinical trial results, our focus may shift
to other indications, or we may determine not to further pursue one or
more of the indications currently being pursued.
To date, we have limited experience in conducting clinical trials. We will
either need to rely on third parties, including our collaborative partners, to
design and conduct any required clinical trials or expend resources to hire
additional personnel or engage outside consultants or contract research
organizations to administer the clinical trials. We may not be able to find
appropriate third parties to design and conduct clinical trials or we may not
have the resources to administer clinical trials in-house.
Our ability to complete clinical trials is dependent upon the rate of
patient enrollment. Patient enrollment is a function of many factors including:
o The nature of our clinical trial protocols;
o Existence of competing protocols or treatments;
o Size and longevity of the target patient population;
o Proximity of patients to clinical sites; and
o Eligibility criteria for the trials.
There can be no assurance that we will obtain adequate levels of patient
enrollment in current or future clinical trials. Delays in planned patient
enrollment may result in increased costs, delays or termination of clinical
trials, which could have material adverse effects. In addition, the FDA may
suspend clinical trials at any time if, among other reasons, it concludes that
patients participating in such trials are being exposed to unacceptable health
risks.
Data already obtained from preclinical studies and clinical trials of our
products under development do not necessarily predict the results that will be
obtained from future preclinical studies and clinical trials. A number of
companies in the pharmaceutical industry, including biotechnology companies like
us, have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier trials. The failure to adequately demonstrate the
safety and effectiveness of a product under development could delay or prevent
regulatory clearance of the potential product and would materially harm our
business. Our clinical trials may not demonstrate the sufficient levels of
safety and efficacy necessary to obtain the requisite regulatory approval or may
not result in marketable products.
Our collaborative partners may control aspects of our clinical trials and
regulatory submission.
Our collaborative partners have certain rights to control aspects of our
product and device development and clinical programs. As a result, we may not be
able to conduct these programs in the manner we currently contemplate.
Pharmacia & Upjohn
In accordance with the 1999 Amendments, we transitioned the majority of the
operations of the Phase III clinical trials in AMD to Pharmacia & Upjohn.
Pharmacia & Upjohn will now be responsible for directly funding the majority of
the Phase III AMD clinical trial costs. We will continue to be responsible for
the majority of the preclinical studies and part of the drug and device
development and manufacturing necessary for the NDA submission in AMD and will
be reimbursed for those costs in accordance with the 1999 Amendments.
Iridex
In May 1996, we entered into a co-development and distribution agreement
with Iridex, a leading provider of semiconductor-based laser systems to treat
eye diseases. The agreement generally provides Miravant with the exclusive right
to co-develop with Iridex light producing devices for use in photodynamic
therapy in the field of ophthalmology. We will conduct clinical trials and make
regulatory submissions with respect to all co-developed devices and Iridex will
manufacture all devices for such trials, with costs shared as set forth in the
agreement.
Acceptance of our products in the marketplace is uncertain, and failure to
achieve market acceptance will harm our business.
Even if approved for marketing, our products may not achieve market
acceptance. The degree of market acceptance will depend upon a number of
factors, including:
o The establishment and demonstration in the medical community of the
safety and clinical efficacy of our products and their potential
advantages over existing therapeutic products and diagnostic and/or
imaging techniques;
o Pricing and reimbursement policies of government and third-party
payors such as insurance companies, health maintenance organizations
and other plan administrators; and
o The possibility that physicians, patients, payors or the medical
community in general may be unwilling to accept, utilize or recommend
any of our products.
We will need additional funds to continue our operations in the future.
We will need substantial additional resources to develop our products. The
timing and magnitude of our future capital requirements will depend on many
factors, including:
o The pace of scientific progress in our research and development
programs;
o The magnitude of our research and development programs;
o The scope and results of preclinical studies and clinical trials;
o The time and costs involved in obtaining regulatory approvals;
o The costs involved in preparing, filing, prosecuting, maintaining and
o The costs involved in any potential litigation;
o Competing technological and market developments;
o Our ability to establish additional collaborations;
o Changes in existing collaborations;
o Our dependence on others for development and commercialization of our
potential products;
o The cost of manufacturing, marketing and distribution; and
o The effectiveness of our commercialization activities.
We believe that our cash and anticipated sources of funding, the net
proceeds of future offerings and debt or equity financings will be adequate to
satisfy our anticipated capital needs through the second quarter of 2001. We
intend to seek any additional capital needed to fund our operations through new
collaborations, the extension of our existing collaboration or through public or
private equity or debt financings. However, additional financing may not be
available on acceptable terms or at all. Any inability to obtain additional
financing would adversely affect our business.
We have a history of significant operating losses and expect to continue to have
losses in the future, which may fluctuate significantly.
We have incurred significant operating losses since our inception in 1989
and, as of December 31, 1999, had an accumulated deficit of approximately $131.2
million. We expect to continue to incur significant, and possibly increasing,
operating losses over the next few years as we continue to incur increasing
costs for research and development, preclinical studies, clinical trials,
manufacturing and general corporate activities. Our ability to achieve
profitability depends upon our ability, alone or with others, to successfully
complete the development of our proposed products, obtain the required
regulatory clearances and manufacture and market our proposed products. No
revenues have been generated from sales of our drugs and only limited revenues
have been generated from sales of our devices. We do not expect to achieve
significant levels of revenues for the next few years. Our revenues to date have
consisted, and for the foreseeable future are expected to consist, principally
of clinical reimbursements, grants awarded, license fees, royalties, milestone
payments, payments for our devices, and interest income.
We may not be able to successfully maintain and establish collaborative and
licensing arrangements.
We have entered into collaborative relationships with certain corporations
and academic institutions for the research and development, preclinical studies
and clinical trials, licensing, manufacturing, sales and distribution of our
products. These collaborative relationships include:
o The License Agreements under which we granted to Pharmacia & Upjohn an
exclusive worldwide license to use, distribute and sell SnET2 for
therapeutic or diagnostic applications in photodynamic therapy for
ophthalmology, oncology and urology;
o Letter agreement with Boston Scientific and Cordis for the
co-development of catheters for use in photodynamic therapy;
o Letter agreement with Medicis for the clinical development of
PhotoPoint in dermatology;
o Letter agreement with Chiron for the early detection and treatment of
lung cancer;
o Definitive agreements with Iridex, Ramus and Xillix for the
development of devices for use in photodynamic therapy in the fields
of ophthalmology, cardiovascular disease and oncology, respectively;
and
o Definitive agreement with Fresenius for final drug formulation and
drug product supply.
The amount of royalty revenues and other payments, if any, ultimately paid
by Pharmacia & Upjohn globally to Miravant for sales of SnET2 is dependent, in
part, on the amount and timing of resources Pharmacia & Upjohn commits to
research and development, clinical testing and regulatory and marketing and
sales activities, which are entirely within the control of Pharmacia & Upjohn.
Pharmacia & Upjohn may not pursue the development and commercialization of SnET2
and/or may not perform its obligations as expected. Additionally, in March 2000,
Pharmacia & Upjohn announced that their merger plans entered into with Monsanto
Company are expected to be completed on or before April 1, 2000, pending
shareholder approval. We do not know what impact, if any, this consummation of
proposed merger will have on our relationship with Pharmacia & Upjohn. We have
not yet entered into any definitive collaborative agreements with Boston
Scientific, Cordis, Medicis or Chiron. These collaborations may not culminate in
definitive collaborative agreements or marketable products. Additionally,
Iridex, Ramus and Xillix may not continue the development of devices for use in
photodynamic therapy, or such development may not result in marketable products.
We are currently at various stages of discussions with other companies
regarding the establishment of collaborations. Our current and future
collaborations are important to us because they allow us greater access to
funds, to research, development or testing resources and to manufacturing, sales
or distribution resources that we would otherwise not have. We intend to
continue to rely on such collaborative arrangements. Some of the risks and
uncertainties related to the reliance on collaborations include:
o Our ability to negotiate acceptable collaborative arrangements,
including those based upon existing letter agreements;
o Future or existing collaborative arrangements may not be successful or
may not result in products that are marketed or sold;
o Such collaborative relationships may limit or restrict us;
o Collaborative partners are free to pursue alternative technologies or
products either on their own or with others, including our
competitors, for the diseases targeted by our programs and products;
o Our partners may fail to fulfil their contractual obligations or
terminate the relationships described above, and we may be required to
seek other partners, or expend substantial resources to pursue these
activities independently. These efforts may not be successful; and
o Our ability to manage, interact and coordinate our timelines and
objectives with our strategic partners may not be successful.
Our ability to establish and maintain agreements with outside suppliers may not
be successful and our failure to do so could adversely affect our business.
We depend on outside suppliers for certain raw materials and components for
our products. Such raw materials or components may not continue to be available
to our standards or on acceptable terms, if at all, and alternative suppliers
may not be available to us on acceptable terms, if at all. Further, we may not
be able to adequately produce needed materials or components in-house. We are
currently dependent on single, contracted sources for a couple of key materials
or services used by us in our drug development, light producing and light
delivery device development and production operations. Although most of our raw
materials and components are available from various sources, we are currently
developing qualified backup suppliers for each of these resources. We have or
will enter into agreements with these suppliers, which may or may not be
successful or which may encounter delays or other problems, which may materially
adversely affect our business.
We may not have adequate protection against product liability or recall.
The testing, manufacture, marketing and sale of human pharmaceutical
products entail significant inherent, industry-wide risks of allegations of
product liability. The use of our products in clinical trials and the sale of
our products may expose us to liability claims. These claims could be made
directly by patients or consumers, or by companies, institutions or others using
or selling our products. The following are some of the risks related to
liability and recall:
o We are subject to the inherent risk that a governmental authority or
third party may require the recall of one or more of our products;
o We have not obtained liability insurance that would cover a claim
relating to the clinical or commercial use or recall of our products;
o In the absence of liability insurance, claims made against us or a
product recall could have a material adverse effect on us;
o If we obtain insurance coverage in the future, this coverage may not
be available at a reasonable cost and in amounts sufficient to protect
us against claims that could have a material adverse effect on our
financial condition and prospects; and
o Liability claims relating to our products or a product recall could
negatively effect our ability to obtain or maintain regulatory
approval for our products.
We have agreed to indemnify certain of our collaborative partners against
certain potential liabilities relating to the manufacture and sale of SnET2 and
PhotoPoint light devices. A successful product liability claim could materially
adversely affect our business, financial condition or results of operations.
We have limited manufacturing and marketing capability and experience and thus
rely heavily upon third parties.
To be successful, our products must be manufactured in commercial
quantities under current GMP, prescribed by the FDA and at acceptable costs.
Although we intend to manufacture drugs and devices, we have not yet
manufactured any products in commercial quantities under GMP and have no
experience in such commercial manufacturing. We currently have the capacity, in
conjunction with our manufacturing partners Fresenius and Iridex, to manufacture
products at certain commercial levels and will be able to do so upon FDA
approval. If we receive an FDA or other regulatory approval we may need to
expand our manufacturing capabilities and/or depend on our collaborators,
licensees or contract manufacturers for the expanded commercial manufacture of
our products. If we expand our manufacturing capabilities, we will need to
expend substantial funds, hire and retain significant additional personnel and
comply with extensive regulations. We may not be able to expand successfully or
we may be unable to manufacture products in increased commercial quantities for
sale at competitive prices. Further, we may not be able to enter into future
manufacturing arrangements with collaborators, licensees, or contract
manufacturers on acceptable terms or at all. If we are not able to expand our
manufacturing capabilities or enter into additional commercial manufacturing
agreements, our business growth could be limited and could be materially and
adversely affected.
We have no direct experience in marketing, distributing and selling
pharmaceutical or medical device products. We will need to develop a sales force
or rely on our collaborators or licensees or make arrangements with others to
provide for the marketing, distribution and sale of our products. We currently
intend to rely on Pharmacia & Upjohn and Iridex for these needs for the AMD
project. Our marketing, distribution and sales capabilities or current or future
arrangements with third parties for such activities may not be adequate for the
successful commercialization of our products.
We may fail to adequately protect or enforce our intellectual property rights,
our patents and our proprietary technology.
Our success will depend, in part, on our and our licensors' ability to
obtain, assert and defend our patents, protect trade secrets and operate without
infringing the proprietary rights of others. The exclusive license relating to
various drug compounds, including our leading drug candidate SnET2, may become
non-exclusive if we fail to satisfy certain development and commercialization
objectives. The termination or restriction of our rights under this or other
licenses for any reason would likely have a material adverse impact on our
business and financial condition. Although we believe we should be able to
achieve such objectives, we may not be successful.
The patent position of pharmaceutical and medical device firms generally is
highly uncertain. Some of the risks and uncertainties include:
o The patent applications owned by or licensed to us may not result in
issued patents;
o Our issued patents may not provide us with proprietary protection or
competitive advantages;
o Our issued patents may be infringed upon or designed around by others;
o Our issued patents may be challenged by others and held to be invalid
or unenforceable;
o The patents of others may have a material adverse effect on us; and
o Significant time and funds may be necessary to defend our patents.
We are aware that our competitors and others have been issued patents
relating to photodynamic therapy. In addition, our competitors and others may
have been issued patents or filed patent applications relating to other
potentially competitive products of which we are not aware. Further, our
competitors and others may in the future file applications for, or otherwise
obtain proprietary rights to, such products. These existing or future patents,
applications or rights may conflict with our or our licensors' patents or
applications. Such conflicts could result in a rejection of our or our
licensors' applications or the invalidation of the patents. This could have a
material adverse effect on our competitive position. If such conflicts occur, or
if we believe that such products may infringe on our proprietary rights, we may
pursue litigation or other proceedings, or may be required to defend against
such litigation. Such proceedings may materially adversely affect our
competitive position, and we may not be successful in any such proceeding.
Litigation and other proceedings can be expensive and time consuming, regardless
of whether we prevail. This can result in the diversion of substantial
financial, managerial and other resources from other activities. An adverse
outcome could subject us to significant liabilities to third parties or require
us to cease any related research and development activities or product sales.
Some of the risks and uncertainties include:
o We do not have contractual indemnification rights against the
licensors of the various drug patents;
o We may be required to obtain licenses under dominating or conflicting
patents or other proprietary rights of others;
o Such licenses may not be made available on terms acceptable to us, if
at all; and
o If we do not obtain such licenses, we could encounter delays or could
find that the development, manufacture or sale of products requiring
such licenses is foreclosed.
We also seek to protect our proprietary technology and processes in part by
confidentiality agreements with our collaborative partners, employees and
consultants. These agreements could be breached and we may not have adequate
remedies for any breach. Also, our trade secrets may become known or be
independently discovered by competitors. Certain research activities relating to
the development of certain patents owned by or licensed to us were funded, in
part, by agencies of the United States Government. When the United States
Government participates in research activities, it retains certain rights that
include the right to use the resulting patents for government purposes under a
royalty-free license.
We also rely upon unpatented trade secrets, and no assurance can be given
that others will not independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our trade secrets or
disclose such technology, or that we can meaningfully protect its rights to its
unpatented trade secrets and know-how.
We may not be able to attract and retain key personnel and consultants.
Our success will depend in large part on our ability to attract and retain
highly qualified scientific, management and other personnel and to develop and
maintain relationships with leading research institutions and consultants. We
are highly dependent upon principal members of our management, key employees,
scientific staff and consultants which we may retain from time to time.
Competition for such personnel and relationships is intense, and we may not be
able to continue to attract and retain such personnel. Our consultants may be
affiliated with or employed by others, and some have consulting or other
advisory arrangements with other entities that may conflict or compete with
their obligations to us. Inventions or processes discovered by such persons will
not necessarily become our property and may remain the property of such persons
or others.
The price of our Common Stock has been and may continue to be volatile.
The market prices for our Common Stock, and the securities of emerging
pharmaceutical and medical device companies, have historically been highly
volatile and subject to extreme price fluctuations, which may have a material
adverse effect on the market price of the Common Stock. Extreme price
fluctuations could be the result of the following:
o Future announcements concerning Miravant or our collaborators,
competitors or industry;
o The results of our testing, technological innovations or new
commercial products;
o The results of preclinical studies and clinical trials by us or our
competitors;
o Technological innovations or new therapeutic products;
o Litigation;
o Public concern as to the safety, efficacy or marketability of products
developed by us or others;
o Comments by securities analysts;
o The achievement of or failure to achieve certain milestones; and
o Governmental regulations, rules and orders, or developments concerning
safety of our products.
In addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities of many emerging pharmaceutical and medical device companies for
reasons frequently unrelated or disproportionate to the performance of the
specific companies. These broad market fluctuations may materially adversely
affect the market price of the Common Stock.
Our charter and bylaws contain provisions that may prevent transactions that
could be beneficial to stockholders.
Our charter and bylaws restrict certain actions by our stockholders. For
example:
o Our stockholders can act at a duly called annual or special meeting
but they may not act by written consent;
o Special meetings can only be called by our chief executive officer,
president, or secretary at the written request of a majority of our
Board of Directors; and
o Stockholders also must give advance notice to the secretary of any
nominations for director or other business to be brought by
stockholders at any stockholders' meeting.
Some of these restrictions can only be amended by a super-majority vote of
members of the Board and/or the stockholders. These and other provisions of our
charter and bylaws, as well as certain provisions of Delaware law, could prevent
changes in our management and discourage, delay or prevent a merger, tender
offer or proxy contest, even if the events could be beneficial to our
stockholders. These provisions could also limit the price that investors might
be willing to pay for our stock. At this time we do not have a Shareholder
Rights Plan in place. In the future we may consider implementing a Shareholder
Rights Plan, however, even if implemented, there is no assurance that it will be
approved.
In addition, our charter authorizes our Board of Directors to issue shares
of undesignated preferred stock without stockholder approval on terms that the
Board may determine. The issuance of preferred stock could decrease the amount
of earnings and assets available for distribution to our other stockholders or
otherwise adversely affect their rights and powers, including voting rights.
Moreover, the issuance of preferred stock may make it more difficult for another
party to acquire, or may discourage another party from acquiring, voting control
of us.
RISKS RELATED TO OUR INDUSTRY
We are subject to uncertainties regarding health care reimbursement and reform.
Our products may not be covered by the various health care providers and
third party payors. If they are not covered, our products may or may not be
purchased or sold as expected. Our ability to commercialize our products
successfully may depend, in part, on the extent to which reimbursement for these
products and related treatment will be available from collaborative partners,
government health administration authorities, private health insurers, managed
care entities and other organizations. These payers are increasingly challenging
the price of medical products and services and establishing protocols and
formularies, which effectively limit physicians' ability to select products and
procedures. Uncertainty exists as to the reimbursement status of health care
products (especially innovative technologies). Additionally, reimbursement
coverage, if available, may not be adequate to enable us to achieve market
acceptance of our products or to maintain price levels sufficient for
realization of an appropriate return on our products.
The efforts of governments and third-party payors to contain or reduce the
cost of healthcare will continue to affect our business and financial condition
as a biotechnology company. In foreign markets, pricing or profitability of
medical products and services may be subject to government control. In the
United States, we expect that there will continue to be federal and state
proposals for government control of pricing and profitability. In addition,
increasing emphasis on managed healthcare has increased pressure on pricing of
medical products and will continue to do so. These cost controls may have a
material adverse effect on our revenues and profitability and may affect our
ability to raise additional capital.
In addition, cost control initiatives could adversely affect our business
in a number of ways, including:
o Decreasing the price we, or any of our partners or licensees, receive
for any of our products;
o Preventing the recovery of development costs, which could be
substantial; and
o Minimizing profit margins.
Further, our commercialization strategy depends on our collaborators. As a
result, our ability to commercialize our products and realize royalties may be
hindered if cost control initiatives adversely affect our collaborators.
Failure to obtain product approvals or comply with ongoing governmental
regulations could adversely affect our business.
The production and marketing of our products and our ongoing research and
development, preclinical studies and clinical trial activities are subject to
extensive regulation and review by numerous governmental authorities in the
United States, including the FDA, and in other countries. All drugs and most
medical devices we develop must undergo rigorous preclinical studies and
clinical trials and an extensive regulatory approval process administered by the
FDA under the FDC Act, and comparable foreign authorities, before they can be
marketed. These processes involve substantial cost and can often take many
years. We have limited experience in, and limited resources available for
regulatory activities and we rely on our collaborators and outside consultants.
Failure to comply with the applicable regulatory requirements can, among other
things, result in non-approval, suspensions of regulatory approvals, fines,
product seizures and recalls, operating restrictions, injunctions and criminal
prosecution. To date, none of our product candidates being developed have been
submitted for approval or have been approved by the FDA or any other regulatory
authority for marketing.
Some of the risks and uncertainties relating to United States Government
regulation include:
o Delays in obtaining approval or rejections due to regulatory review of
each submitted new drug, device or combination drug/device application
or product license application, as well as changes in regulatory
policy during the period of product development;
o If regulatory approval of a product is granted, such approval may
entail limitations on the uses for which the product may be marketed;
o If regulatory approval is obtained, the product, our manufacturer and
the manufacturing facilities are subject to continual review and
periodic inspections;
o If regulatory approval is obtained, such approval may be conditional
on the satisfaction of the completion of clinical trials or require
additional clinical trials;
o Later discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market and
litigation; and
o Photodynamic therapy products have been categorized by the FDA as
combination drug-device products. If current or future drug/device
products do not continue to be categorized for regulatory purposes as
combination products, then:
- The FDA may require separate drug and device submissions; and
- The FDA may require separate approval by regulatory authorities.
Some of the risks and uncertainties of international governmental
regulation include:
o Foreign regulatory requirements governing testing, development,
marketing, licensing, pricing and/or distribution of drugs and devices
in other countries;
o Our drug products may not qualify for the centralized review procedure
or we may not be able to obtain a national market application that
will be accepted by other EU member states;
o Our devices must also meet the new Medical Device Directive effective
in Europe in 1998. The Directive requires that our manufacturing
quality assurance systems and compliance with technical essential
requirements be certified with a CE Mark authorized by a registered
notified body of an EU member state prior to free sale in the EU; and
o Registration and approval of a photodynamic therapy product in other
countries, such as Japan, may include additional procedures and
requirements, nonclinical and clinical studies, and may require the
assistance of native corporate partners.
We face intense competition and technological uncertainty.
Many of our competitors have substantially greater financial, technical and
human resources than we do, and may also have substantially greater experience
in developing products, conducting preclinical studies or clinical trials,
obtaining regulatory approvals and manufacturing and marketing. Further, our
competitive position could be materially adversely affected by the establishment
of patent protection by our competitors. The existing competitors or other
companies may succeed in developing technologies and products that are more
safe, effective or affordable than those being developed by us or that would
render our technology and products less competitive or obsolete.
We are aware of various competitors involved in the photodynamic therapy
arena. We understand that these companies are conducting preclinical studies
and/or clinical trials in various countries and for a variety of disease
indications. One such company is QLT PhotoTherapeutics or QLT. We understand
that QLT's drug Photofrin(R) has received marketing approval in the United
States and certain other countries for various specific disease indications. QLT
has also received an "approvable" letter from the FDA for their drug Visudyne(R)
for the treatment of AMD, and therefore may be first to market in this disease
area.
The pharmaceutical industry is subject to rapid and substantial
technological change. Developments by others may render our products under
development or technologies noncompetitive or obsolete, or we may be unable to
keep pace with technological developments or other market factors. Technological
competition in the industry from pharmaceutical and biotechnology companies,
universities, governmental entities and others diversifying into the field is
intense and is expected to increase. These entities represent significant
competition for us. Acquisitions of, or investments in, competing pharmaceutical
or biotechnology companies by large corporations could increase such
competitors' financial, marketing, manufacturing and other resources.
We are a relatively new enterprise and are engaged in the development of
novel therapeutic technologies, specifically photodynamic therapy. As a result,
our resources are limited and we may experience technical challenges inherent in
such novel technologies. Competitors have developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competitive products. Some of these products may have an entirely different
approach or means of accomplishing similar therapeutic, diagnostic and imaging
effects than our products. We are aware that one of our competitors in the
market for photodynamic therapy drugs has received marketing approval of a
product for certain uses in the United States and other countries. Our
competitors may develop products that are safer, more effective or less costly
than our products and, therefore, present a serious competitive threat to our
product offerings.
The widespread acceptance of therapies that are alternatives to ours may
limit market acceptance of our products even if commercialized. The diseases for
which we are developing our therapeutic products can also be treated, in the
case of cancer, by surgery, radiation and chemotherapy, and in the case of
atherosclerosis, by surgery, angioplasty, drug therapy and the use of devices to
maintain and open blood vessels. These treatments are widely accepted in the
medical community and have a long history of use. The established use of these
competitive products may limit the potential for our products to receive
widespread acceptance if commercialized.
Our products are subject to other state and federal laws, future legislation and
regulations.
In addition to the regulations for drug or device approvals, we are subject
to regulation under state, federal or other law, including regulations for
worker occupational safety, laboratory practices, environmental protection and
hazardous substance control. We continue to make capital and operational
expenditures for protection of the environment in amounts which are not
material. Some of the risks and uncertainties related to laws and future
legislation or regulations include:
o Our future capital and operational expenditures related to these
matters may increase and become material;
o We may also be subject to other present and possible future local,
state, federal and foreign regulation;
o Heightened public awareness and concerns regarding the growth in
overall health care expenditures in the United States, combined with
the continuing efforts of governmental authorities to contain or
reduce costs of health care, may result in the enactment of national
health care reform or other legislation or regulations that impose
limits on the number and type of medical procedures which may be
performed or which have the effect of restricting a physician's
ability to select specific products for use in certain procedures;
o Such new legislation or regulations may materially adversely affect
the demand for our products. In the United States, there have been,
and we expect that there will continue to be, a number of federal and
state legislative proposals and regulations to implement greater
governmental control in the health care industry;
o The announcement of such proposals may materially adversely affect our
ability to raise capital or to form collaborations; and
o Legislation or regulations that impose restrictions on the price that
may be charged for health care products or medical devices may
adversely affect our results of operations.
We are unable to predict the likelihood of adverse effects which might
arise from future legislative or administrative action, either in the United
States or abroad.
Our business involves environmental risks.
We are subject to federal, state, county and local laws and regulations
relating to the protection of the environment. In the course of our business, we
are involved in the handling, storage and disposal of materials that are
classified as hazardous. Our safety procedures for the handling, storage and
disposal of such materials are designed to comply with applicable laws and
regulations. However, we may be involved in contamination or injury from these
materials. If this occurs, we could be held liable for any damages that result,
and any such liability could materially and adversely affect us. Further, the
cost of complying with these laws and regulations may increase materially in the
future.
ITEM 2. PROPERTIES
We have entered into four leases for approximately 101,100 square feet of
office, laboratory and potential manufacturing space in Santa Barbara,
California. The first lease for approximately 18,900 square feet of space was
entered into in 1992 and the base rent, which is adjusted annually based on
increases in the consumer price index, is approximately $24,400 per month. This
lease was extended in August 1999 and expires in December 2003. The facility is
equipped and licensed to allow certain laboratory testing and manufacturing. We
manufacture and distribute our active SnET2 drug substance from this facility.
In the second half of 1996, we entered into two additional leases for
approximately 54,800 square feet of office, laboratory and manufacturing space.
Each lease provides for rent to be adjusted annually based on increases in the
consumer price index and the base rent for both leases is approximately $56,900
per month. These leases were extended in March 1999 and expire in August 2002.
Each leased property is located in a business park and is subject to a master
lease agreement. We manufacture our light producing and light delivery devices
and perform research and development of drugs, light delivery and light
producing devices from these facilities.
In July 1998, we entered into a fourth lease agreement for approximately
27,400 square feet of primarily office space. The base rent for this lease is
approximately $34,300 per month. The lease expires in October 2003 and provides
for rent to be adjusted annually based on increases in the consumer price index.
The lease also allows us the ability to sublet the property, which we did in
December 1999. The sublease agreements expire in October 2003, with rent based
upon the percentage of square footage occupied. Rental income, which is
approximately $32,900 per month, is also subject to increases based upon the
consumer price index. The leased property is located in a business park and is
subject to a master lease agreement.
For each of the four facilities noted above, we may continue to incur
additional costs for the construction of the manufacturing, laboratory and
office space associated with these facilities.
During 1997, we entered into a letter of intent with a local developer to
have a facility constructed to house our operations for the foreseeable future.
We continue to work with the developer with the expected completion date
approximately late 2001 or early 2002. Depending on our future needs and
financial capabilities we may or may not continue this project.
In July 1997, the Company began to sublease approximately 3,900 square feet
of one of its buildings to Ramus Medical Technologies. The sublease agreement
was for two years with rent based upon the percentage of square footage
occupied. The sublease was extended in September 1999 to March 2000 and
thereafter will revert to a month to month basis. Rental income from Ramus,
which is approximately $4,100 per month, is also subject to increases based upon
the consumer price index.
ITEM 3. LEGAL PROCEEDINGS
We are not currently party to any material litigation or proceeding and are
not aware of any material litigation or proceeding threatened against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Our Common Stock is traded on The Nasdaq National Market under the symbol
MRVT. From August 30, 1995 to September 12, 1997, our Common Stock was traded on
The Nasdaq National Market under the symbol PDTI. Effective September 15, 1997,
we changed our name to Miravant Medical Technologies and our ticker symbol to
MRVT. The following table sets forth high and low sales prices per share of
Common Stock as reported on The Nasdaq National Market based on published
financial sources.
High Low
---- ---
1999:
Fourth quarter.....................................$ 14.50 $ 9.00
Third quarter...................................... 11.88 7.00
Second quarter..................................... 10.13 6.31
First quarter...................................... 16.25 6.81
1998:
Fourth quarter.....................................$ 17.69 $ 6.13
Third quarter...................................... 28.75 4.69
Second quarter..................................... 36.00 21.88
First quarter...................................... 39.00 28.56
As of March 10, 2000, there were approximately 317 stockholders of record
of the Common Stock, which does not include "street accounts" of securities
brokers. Based on the number of proxies requested by brokers in connection with
our annual meeting of stockholders, we estimate that the total number of
stockholders of the Common Stock exceeds 5,500. Except for the three for two
split of the Common Stock declared for stockholders of record at July 24, 1995,
we have never paid dividends, cash or otherwise, on our capital stock and do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain future earnings, if any, to finance the growth and development of our
business. Any future determination to pay dividends will be at the discretion of
the Board of Directors and will be dependent upon our financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant. Our credit agreement with Pharmacia & Upjohn
prohibits the payment of dividends on the Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with summary historical financial data
of Miravant Medical Technologies. We have prepared this information using the
consolidated financial statements of Miravant for the five years ended December
31, 1999. The consolidated financial statements for the five fiscal years ended
December 31, 1999 have been audited by Ernst & Young LLP, independent auditors.
When you read this summary of historical financial data, it is important
that you read along with it the historical financial statements and related
notes in our annual and quarterly reports filed with the SEC, as well as the
section of our annual and quarterly reports titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Year Ended December 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
(in thousands, except share and per share data)
Statement of Operations Data:
Revenues ....................... $ 14,577 $ 10,179 $ 2,278 $ 3,598 $ 521
Costs and expenses.............. 37,639 41,788 35,065 22,113 12,416
--------------- --------------- --------------- --------------- ---------------
Loss from operations............ (23,062) (31,609) (32,787) (18,515) (11,895)
Net interest and other income... 806 3,545 2,578 2,373 185
--------------- --------------- --------------- --------------- ---------------
Net loss........................ $ (22,256) $ (28,064) $ (30,209) $ (16,142) $ (11,710)
=============== =============== =============== =============== ===============
Net loss per share (1) ......... $ (1.25) $ (1.94) $ (2.36) $ (1.37) $ (1.19)
=============== =============== =============== =============== ===============
Shares used in computing net
loss per share (1) .......... 17,768,670 14,464,044 12,791,044 11,786,429 9,861,212
=============== =============== =============== =============== ===============
December 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ----------- ------------ ------------
Balance Sheet Data:
Cash and marketable securities (2) $ 22,789 $ 11,284 $ 83,462 $ 52,098 $ 8,886
Working capital................. 24,933 11,134 80,734 51,519 6,403
Total assets.................... 34,952 23,810 93,031 59,886 11,259
Long-term obligations .......... 15,506 -- -- 21 203
Accumulated deficit............. (131,174) (108,918) (80,854) (50,645) (34,503)
Total shareholders' equity...... 14,726 19,686 87,698 56,717 8,167
- -----------
(1) See Note 1 of Notes to Consolidated Financial Statements for information concerning the computation of net loss per share.
(2) See Notes 2 and 3 of Notes to Consolidated Financial Statements for information concerning the changes in cash and
marketable securities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
General
Since our inception, we have been principally engaged in the research and
development of drugs and medical device products for use in PhotoPoint(TM), our
proprietary technologies for photodynamic therapy. We have been unprofitable
since our founding and have incurred a cumulative net loss of approximately
$131.2 million as of December 31, 1999. We expect to continue to incur
substantial, and possibly increasing, operating losses for the next few years
due to continued and increased spending on research and development programs,
the funding of preclinical studies, clinical trials and regulatory activities
and the costs of manufacturing and administrative activities.
Our revenues primarily reflect income earned from licensing agreements,
grants and royalties from device product sales. To date, we have received no
revenue from the sale of drug products and we are not permitted to engage in
commercial sales of drugs or devices until such time, if ever, as we receive
requisite regulatory approvals. As a result, we do not expect to record
significant product sales until such approvals are received.
Until we commercialize our product(s), we expect revenues to continue to be
attributable to licensing agreements and grants. We anticipate that future
revenues and results of operations may continue to fluctuate significantly
depending on, among other factors, the timing and outcome of applications for
regulatory approvals, our or our collaborative partners ability to successfully
manufacture, market and distribute our drug and device products, the level of
participation of our collaborative partners in our preclinical studies and
clinical trials and/or the restructuring or establishment of collaborative
arrangements for the development, manufacturing, marketing and distribution of
some of our products. We anticipate our operating activities will result in
substantial, and possibly increasing, operating losses for the next few years.
Under the 1998 Amendments of the License Agreements with Pharmacia &
Upjohn, we were to conduct all preclinical studies and U.S. clinical trials in
AMD and would be reimbursed by Pharmacia & Upjohn for all out-of-pocket expenses
incurred. Pharmacia & Upjohn was to conduct all international clinical trials
for AMD. The 1998 Amendments also returned to us the rights for SnET2 in
dermatology, and provided for the quarterly funding of $2.5 million for eight
quarters for use in our oncology and urology programs. In January 1999, we
entered into the Equity Investment Agreement, whereby Pharmacia & Upjohn
purchased 1,136,533 shares of our Common Stock for an aggregate purchase price
of $19.0 million, or $16.71 per share. Also, in February 1999, under a separate
Credit Agreement, Pharmacia & Upjohn extended to us up to $22.5 million in
credit, which is subject to certain limitations and requirements, including
interest at a variable rate, in the form of up to six quarterly loans or new
loans of $3.75 million each to be used to support our ophthalmology, oncology
and other development programs, as well as for general corporate purposes. To
date we have utilized $15.0 million of the line of credit and we expect to
utilize the remaining $7.5 million available during 2000. Under the terms of the
Credit Agreement and in connection with each draw-down, we are obligated to
issue Pharmacia & Upjohn a certain number of warrants based on the amount
borrowed. The exercise price of each warrant will be equal to 140% of the
average of the closing bid prices of the Common Stock for the ten trading days
immediately preceding the borrowing request for the related loan. In connection
with the first four quarterly loans received, we issued warrants to purchase
240,000 shares of Common Stock at an exercise price of $11.87 per warrant share
for 120,000 shares and $14.83 for the remaining 120,000 shares.
During the third quarter of 1998 and in connection with the 1998
Amendments, we implemented a cost restructuring program designed to focus our
resources on our core development programs, which emphasize large potential
market opportunities and unmet medical needs. Additionally, the program was
designed to utilize the cost reimbursement components of the 1998 Amendments as
well as streamline administrative activities, reduce overhead costs and
eliminate positions that were not central to our core development programs. In
February 1999, in connection with the 1999 Amendments, we refined the use of our
resources to correspond with the change in cost reimbursement and assistance
from Pharmacia & Upjohn while maintaining our core development programs. We will
continue to evaluate the use of our resources in connection with our funding
provisions, external resource assistance and as opportunities present
themselves.
In December 1999, we transitioned the majority of the operations of the
Phase III clinical trials in AMD to Pharmacia & Upjohn in accordance with the
1999 Amendments. Pharmacia & Upjohn will now be responsible for directly funding
the majority of the Phase III AMD clinical trial costs. We will continue to be
responsible for the majority of the preclinical studies and part of the drug and
device development and manufacturing necessary for the NDA submission for AMD
and will be reimbursed for those costs in accordance with the 1999 Amendments.
As a result, we anticipate our license income related to the reimbursement of
out-of-pocket or direct costs, as well as our related expenses, will decrease.
We are currently conducting clinical trials in oncology and ophthalmology.
In dermatology, we are investigating the development of topical formulations of
our photoselective drugs. Based upon the outcome of these studies and various
economic and development factors, including cost, reimbursement and the
available alternative therapies, we may or may not elect to further develop
PhotoPoint procedures in oncology, ophthalmology, dermatology or in any other
indications.
Results of Operations
The following table provides a summary of our revenues for the years ended
December 31, 1999, 1998 and 1997:
---------------------------------------------------------------------------------------------------------------------------
Consolidated Revenues 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------
License - contract research & development..................... $ 13,996,000 $ 9,314,000 $ 1,896,000
Royalties..................................................... 143,000 191,000 236,000
Grants........................................................ 438,000 674,000 146,000
---------------------------------------------------------------------------------------------------------------------------
Total revenues................................................ $ 14,577,000 $10,179,000 $ 2,278,000
---------------------------------------------------------------------------------------------------------------------------
Revenues. Our revenues increased from $2.3 million in 1997 to $10.2 million
in 1998 and to $14.6 million in 1999.
The fluctuations in license income are due to the following:
o During 1999, we recorded revenues of $14.0 million for the specific
reimbursement of out-of-pocket or direct costs incurred in preclinical
studies and Phase III clinical trials in AMD. These reimbursements
were recorded in accordance with the 1999 Amendments. The future
revenues recorded for ophthalmology cost reimbursement are expected to
decrease as we have transitioned the majority of the operations of the
Phase III clinical trials in AMD to Pharmacia & Upjohn. As a result of
this transition, we anticipate our license income related to the
reimbursement of out-of-pocket or direct costs incurred will decrease,
as well as our expenses related to Phase III clinical trials in AMD.
o During 1998, we recorded revenues of $3.1 million for the specific
reimbursement from Pharmacia & Upjohn for out-of-pocket or direct
costs incurred in preclinical studies and clinical trials in AMD from
the continuation of Phase I/II clinical trials in the first half of
1998 and the commencement of our Phase III clinical trials in the
second half of 1998. During 1997, we recorded revenues of $724,000 for
expenditures related to preclinical studies and Phase I/II clinical
trials in AMD.
o During 1998, we recorded revenues for oncology expenditures of $1.2
million under the 1995 Pharmacia & Upjohn license agreement and $5.0
million under the 1998 Amendments. In 1997 revenues of $1.2 million
were recorded for the specific reimbursement of oncology clinical
program costs in metastatic breast cancer, basal cell carcinoma,
Kaposi's sarcoma and prostate cancer. These fluctuations in revenues
are based on the timing of reimbursable costs incurred in preclinical
studies and clinical trials, as well as the structure of the payments
received under the different oncology agreements. In the last two
quarters of 1998, under the 1998 Amendments, we received two quarterly
payments of $2.5 million each which were designed to cover both the
direct and indirect costs of these programs. In 1997 and the first two
quarters of 1998, we were reimbursed for only the out-of-pocket or
direct costs incurred in these programs.
The fluctuations in grant income are due to the following:
o We were awarded a two year grant of $1.5 million in 1997. Since the
grant period began October 1 of 1997, we recorded three, twelve and
nine months worth of grant revenue in 1997, 1998 and 1999,
respectively. In 1999, 1998 and 1997, grant revenue amounted to
$438,000, $674,000 and $146,000, respectively. Grant income will
continue to fluctuate depending on the grant amount received, if any,
and the term of the grant award. We have not yet received any further
significant grants during 1999, but we will continue to pursue
obtaining these grants as a means of funding research and development
programs. There can be no assurance that we will be successful in
obtaining such grants.
The fluctuations in royalty income are due to the following:
o We earned royalty income from a 1992 license agreement with
Laserscope, which provided royalties on the sale of our previously
designed device products. The fluctuations in revenues recorded are a
function of the number of device products sold by Laserscope in each
of the respective periods. No further royalty income is expected to be
received, as the Laserscope license agreement terminated in April
1999.
In accordance with the 1999 Amendments, we will only be reimbursed for the
specific costs for preclinical studies and clinical trials in ophthalmology and
we will no longer be reimbursed for any oncology and urology program costs or
any milestone payments for AMD. In connection with the Equity Investment
Agreement and the Credit Agreement, in February 1999 we entered into the 1999
Amendments to the License Agreements which included the elimination of the
remaining future cost reimbursements for oncology and urology and any future
milestone payments in AMD.
Research and Development. Our research and development expenses of $29.7
million in 1999 were consistent with the $29.2 million in 1998 and have
increased from the $20.2 million recorded in 1997. Our research and development
expenses, net of license reimbursement and grant research and development
reimbursements, were $15.3 million, $19.2 million and $18.2 million in 1999,
1998 and 1997, respectively. Research and development expenses incurred in 1999
related primarily to:
o The costs associated with drug and device manufacturing and the
screening, treatment and monitoring of qualified individuals
participating in Phase III clinical trials for AMD and Phase I
clinical trials for prostate cancer;
o The ongoing preparation of the documentation and the collection of
data for the Phase III clinical trials for AMD and regulatory filings;
and
o The preclinical studies and development work associated with the
development of existing and new drug compounds, formulations and
clinical programs.
For the year ended December 31, 1999 as compared to the year ended December
31, 1998, we incurred substantial increases in our preclinical studies and
clinical trial costs related to the Phase III program in AMD. These increases in
1999 were offset by decreases in salary expense, consultants, drug formulation
costs for SnET2 and laser purchases. Research and development expenses increased
from 1997 to 1998 due to increased costs in our Phase I/II AMD clinical trials
as well as increased costs associated with the preparation of the documentation
and patient follow up in our CMBC clinical trials. The increase was also related
to increased costs incurred in developing new and existing drug compounds and
increased amortization expense related to our construction of new laboratory
space.
Future research and development expenses may fluctuate depending on the
level of Pharmacia & Upjohn's involvement in our Phase III AMD clinical trials,
continued expenses incurred in our preclinical studies and clinical trials in
our ophthalmology, oncology and other programs, costs associated with the
purchase of raw materials and supplies for the production of devices and drug
for use in preclinical studies and clinical trials, the pharmaceutical
manufacturing scale-up to expand drug production to commercial levels and the
expansion of our research and development programs, which includes the increased
hiring of personnel, the continued expansion of preclinical studies and clinical
trials and the development of new drug compounds and formulations.
Selling, General and Administrative. Our selling, general and
administrative expenses decreased to $7.5 million in 1999 from $9.6 million in
1998 and $13.7 million in 1997. The decrease in selling, general and
administrative expenses from 1997 to 1998 is primarily due to a $5.5 million
decrease in advertising expenses. The decrease from 1998 to 1999 is due
primarily to a decrease in costs associated with professional services received
from financial consultants, attorneys and public and media relations and a
decrease in compensation expense associated with options and warrants issued to
consultants and expense recorded for the executive option loans.
Future selling, general and administrative expenses are expected to remain
relatively consistent due to our September 1998 cost restructuring program.
Conditions which may influence these expenses are the level of support required
for research and development activities, continuing corporate development and
professional services, compensation expense associated with stock options and
warrants and financial consultants and general corporate matters.
Loss in Investment in Affiliate. In connection with the $2.0 million line
of credit we have provided to our affiliate, Ramus Medical Technologies or
Ramus, we have recorded a reserve for the entire $2.0 million outstanding credit
line balance plus accrued interest as of December 31, 1999. The $417,000 expense
recorded in 1999 represents a reserve for the final amount of borrowings under
the credit line plus accrued interest. The $2.9 million expense recorded in 1998
represents a $1.8 million reserve for funds provided to Ramus in 1998 under the
revolving credit agreement, as well as a reduction, based on 100% of Ramus'
losses for the respective period, of $895,000 related to our equity investment
made in Ramus in 1996.
Interest and Other Income. Interest and other income decreased to $1.2
million in 1999 from $3.5 million in 1998 and $2.6 million in 1997. The decrease
is directly related to the decrease in the levels of cash and marketable
securities earning interest. The level of future interest and other income will
primarily be subject to the level of cash balances we maintain from period to
period.
Interest Expense. Interest expense increased to $434,000 in 1999 from
$1,000 in 1998 and $6,000 in 1997. The increase is directly related to the
amount of borrowings under the February 1999 Credit Agreement with Pharmacia &
Upjohn and the value of the warrants issued in connection with the borrowings.
Interest expense will continue to increase in the future based on the level of
borrowings under the Credit Agreement and the value of the warrants issued in
connection with the borrowings.
As of December 31, 1999, we had approximately $139.3 million of net
operating loss carryforwards for federal income tax purposes, which expire at
various dates from the years 2002 through 2020. In addition, we had
approximately $6.7 million of research and development and alternative minimum
tax credit carryforwards available for federal and state tax purposes. We also
had a state net operating loss tax carryforward of $24.1 million, which expires
at various dates from the years 2000 to 2004. Under Section 382 of the Internal
Revenue Code, utilization of the net operating loss carryforwards may be limited
based on our changes in the percentage of ownership. Our ability to utilize the
net operating loss carryforwards, without limitation, is uncertain.
We do not believe that inflation has had a material impact on our results
of operations.
Liquidity and Capital Resources
Since inception through December 31, 1999, we have accumulated a deficit of
approximately $131.2 million and expect to continue to incur substantial, and
possibly increasing, operating losses for the next few years. We have financed
our operations primarily through private placements of Common Stock and
Preferred Stock, private placements of convertible notes and short-term notes,
our initial public offering, Pharmacia & Upjohn's purchases of Common Stock, a
secondary public offering and credit arrangements. As of December 31, 1999, we
have received proceeds from the sale of equity securities, convertible notes and
credit arrangements of approximately $215.5 million.
In September and October 1997, we entered into a private placement
offering, which was subsequently amended with respect to certain purchasers,
which provided net proceeds to Miravant of approximately $68.2 million. During
1998, under the price protection and repurchase provisions of these agreements,
we issued an additional 2,444,380 shares of Common Stock, repurchased 337,500
shares of Common Stock for $16.9 million and paid $8.6 million. During the first
quarter of 1999, we completed our price protection obligations through the
payment of $4.2 million and the issuance of 688,996 shares Common Stock and the
issuance of 450,000 warrants to purchase Common Stock at an exercise price of
$35.00 per share. As such, we have no further obligation to these purchasers
under the price protection or repurchase provisions of the Securities Purchase
Agreements and the amendments thereto.
In December 1997, the Board of Directors authorized a Common Stock
repurchase program allowing for the repurchase of up to 750,000 shares of Common
Stock. This 750,000 share repurchase authorization was in addition to and
superseded the repurchase program authorized in July 1996, which allowed for the
repurchase of up to 600,000 shares of Common Stock. We had no stock repurchases
in 1999. In 1998 we repurchased stock under the Board authorized repurchase
program which amounted to 725,000 shares at a cost of $17.9 million and in 1997
we repurchased 301,000 shares at a cost of $10.0 million. All shares repurchased
were retired. The 750,000 repurchase plan has been fully utilized and no further
repurchase programs have been authorized.
In January 1999, under the Equity Investment Agreement, Pharmacia & Upjohn
purchased 1,136,533 shares of our Common Stock for an aggregate purchase price
of $19.0 million. In February 1999, in accordance with the Credit Agreement,
Pharmacia & Upjohn also extended to us up to $22.5 million in credit over two
years to be used to support our ophthalmology, oncology and other development
programs, as well as for general corporate purposes. We are able to issue
promissory notes for the quarterly interest amounts due on the amounts borrowed
until December 2000 when the issuance of such promissory notes for the quarterly
interest due will be subject to certain restrictions. The promissory notes
mature in June 2004 and, at our option, can be repaid in the form of our Common
Stock, subject to certain limitations and restrictions as defined by the Credit
Agreement. The promissory notes accrue interest at the prime rate, which was
8.50% at December 31, 1999. To date, in accordance with the Credit Agreement, we
have received four quarterly loans for a total of $15.0 million of the available
$22.5 million. We expect to utilize the remaining $7.5 million available under
the Credit Agreement during 2000. In accordance with the Credit Agreement, we
have issued promissory notes to Pharmacia & Upjohn for the loan amounts received
and issued additional promissory notes for a total of $379,000 for the related
interest due on each of the quarterly due dates. In addition, under the terms of
the Credit Agreement and in connection with the first four quarterly loans
received, we issued warrants to purchase 240,000 shares of Common Stock at an
exercise price of $11.87 per warrant share for 120,000 shares and $14.83 for the
remaining 120,000 shares.
In June 1998, we purchased a $5.0 million, 9% equity interest in Xillix. We
received 2,691,904 shares of Xillix common stock in exchange for $3.0 million in
cash and 58,909 shares of Miravant Common Stock at the market value on the date
of the agreement of $25.06 per share, or $1.5 million. As of June 1999, the
shares received are no longer restricted and can be sold at anytime by the
Company. In addition, we entered into a strategic alliance agreement with Xillix
to co-develop proprietary systems incorporating the technology of each company
and to share the research and development costs. To date, we have not incurred
any costs under this agreement.
In April 1998, we entered into a $2.0 million revolving credit agreement
with our affiliate, Ramus. As of December 31, 1999, we have provided the entire
loan of $2.0 million to Ramus. The revolving credit line, which was due in full
in March 2000, has been subsequently extended to a period in the future, for
which the terms of the extension are currently being negotiated. In addition, in
accordance with the 1996 equity investment in Ramus, we had an exclusive option
to purchase the remaining shares of Ramus for a specified amount under certain
terms and conditions. We elected not to exercise the option, which expired March
3, 1999.
In February 1998, we agreed to guaranty a term loan in the amount of $7.6
million from a bank to a director of ours at the time. In June 1998, the
director did not stand for re-election on the Board of Directors. The loan was
due and payable on July 31, 1999 and was subsequently extended to October 31,
2000. In conjunction with the extension, we increased our security interest to
include substantially all of the personal assets of the former director.
Additionally, with the extension of the guaranty of this loan, the former
director paid to Miravant a transaction fee of $152,000. In connection with the
extension agreement, as of March 9, 2000, the former director has reduced the
outstanding balance of the loan, and our guaranty, to $3.3 million. Under the
loan agreement and the guaranty, the individual and Miravant are subject to the
maintenance of specified financial and other covenants.
In addition to receiving funds through private and public stock offerings,
we have also received funding through the exercise of warrants and stock
options. Based on the exercise prices, expiration dates and call features
contained in certain warrants, and depending on the market value of our Common
Stock, we may receive substantial additional funding through the exercise of
these outstanding warrants and stock options in the future.
For 1999, 1998 and 1997, we required cash for operations of $18.4 million,
$21.7 million and $23.8 million, respectively. The decrease in cash required for
operations from 1998 to 1999 was due to an increase in reimbursable research and
development costs incurred which was offset by a decrease in non-cash charges
for deferred compensation, stock awards and the reserve taken on the remaining
Ramus line of credit. The decrease in cash required for operations from 1997 to
1998 was primarily due to the increased funding provided by Pharmacia & Upjohn
under the June 1998 agreements for the oncology and urology program costs, as
well as increases in non-cash expenses such as depreciation, deferred
compensation, a reserve recorded on the Ramus line of credit and the reduction
of accounts payable.
For 1999 net cash used in investing activities was $4.4 million, for 1998
net cash provided by investing activities was $19.8 million and for 1997 net
cash used in investing activities was $11.2 million. From 1997 to 1999 the
fluctuations in investing activities were primarily due to the purchases and
sales of investments which were used to fund operations and were based on the
levels of cash available for investment. These fluctuations were further
affected by our investment in Xillix and the line of credit provided to Ramus in
1998 and significant capital expenditures in 1997 and 1998, which were primarily
related to laboratory construction costs.
For 1999 net cash provided by financing activities was $30.6 million, in
1998 net cash used in financing activities was $42.5 million and in 1997 net
cash provided by financing activities was $59.1 million. Cash provided by
financing activities in 1999 was primarily attributed to Pharmacia & Upjohn's
$19.0 million equity investment and $15.0 million provided under the Pharmacia &
Upjohn Credit Agreement. The significant use of cash for financing activities in
1998 was related to purchases of our Common Stock under the Board authorized
repurchase program as well as purchases of our Common Stock and the payment of
cash under the price protection provisions of the Amended Securities Purchase
Agreement. Cash provided in 1997 was directly related to the private placement
offerings, which was offset by repurchases of our Common Stock under the Board
authorized repurchase program.
We invested a total of $9.1 million in property and equipment from 1996
through 1999. During 1998, we entered into a new lease agreement for an
additional facility, for which we have completely subleased in December 1999. We
expect to continue to purchase property and equipment in the future as we
continue to expand our preclinical, clinical and research and development
activities as well as the buildout and expansion of laboratories and office
space.
Our future capital funding requirements will depend on numerous factors
including:
o The progress and magnitude of our research and development programs,
preclinical studies and clinical trials;
o The time involved in obtaining regulatory approvals;
o The cost involved in filing and maintaining patent claims;
o Competitor and market conditions;
o Investment opportunities;
o Our ability to establish and maintain collaborative arrangements;
o The level of Pharmacia & Upjohn's involvement in our Phase III AMD
clinical trials;
o The cost of manufacturing scale-up and the cost and effectiveness of
commercialization activities and arrangements; and
o Our ability to obtain grants to finance research and development
projects.
Our ability to generate substantial funding to continue our research and
development activities, preclinical studies and clinical trials and
manufacturing, scale-up, administrative activities and additional investment
opportunities is subject to a number of risks and uncertainties and will depend
on numerous factors including:
o Our ability to raise funds in the future through public or private
financings, collaborative arrangements or from other sources;
o Our requirement to allocate 50% of the net proceeds from public or
private financings towards the repayment of the funds received under
the Credit Agreement;
o The potential for equity investments, collaborative arrangements,
license agreements or development or other funding programs with us in
exchange for manufacturing, marketing, distribution or other rights to
products developed by us;
o The amount of funds received from outstanding warrant and stock option
exercises;
o Our ability to maintain our existing collaborative arrangements;
o Our ability to liquidate our equity investments in Ramus, Xillix or
other assets;
o Our requirement to allocate 100% of the net proceeds from the
liquidation of an existing asset towards the repayment of the funds
received under the Credit Agreement; and
o Our ability to collect the loan provided to Ramus under the credit
agreement when due.
We can not guarantee that additional funding will be available to us when
needed. If it is not, we will be required to scale back our research and
development programs, preclinical studies and clinical trials and administrative
activities and our business and financial results and condition would be
materially adversely affected.
The impact of Year 2000.
In prior years, we discussed the nature and progress of our plans to become
Year 2000 compliant. In late 1999, we completed our remediation and testing of
systems. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and we believe those systems
successfully responded to the Year 2000 date change. We are not aware of any
material problems resulting from Year 2000 issues, either with our products, our
internal systems, or the products and services of third parties. The costs
incurred to assess, remediate and test the IT and Non-IT systems through 1999
were primarily fixed labor costs and were not significant. In addition, as we
have not yet encountered any significant Year 2000 disruptions in 2000, future
Year 2000 costs are also not expected to be significant. We will continue to
monitor our critical computer applications and those of our suppliers and
vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
Except for the historical information herein, the matters discussed in this
report are deemed forward-looking statements under federal securities laws that
involve risks and uncertainties. Actual results may differ materially from those
in the forward-looking statements depending on a number of factors including,
among other things, the risks, uncertainties and other factors detailed in Item
1, "Business - Risk Factors."
ITEM 7A.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates. The risks related to foreign currency
exchange rates are immaterial and we do not use derivative financial
instruments.
From time to time, we maintain a portfolio of highly liquid cash
equivalents maturing in three months or less as of the date of purchase. Given
the short-term nature of these investments and that our borrowings outstanding
are under variable interest rates, we are not subject to significant interest
rate risk.
ITEM 8.FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
The Report of Independent Accountants and the Consolidated Financial
Statements and Notes to the Consolidated Financial Statements of Miravant that
are filed as part of this Report are listed under Item 14, "Exhibits, Financial
Statement Schedules, and Reports on Form 8-K" and are set forth on pages 42
through 58 immediately following the signature page of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Index to Consolidated Financial Statements: Page
------------------------------------------- ----
Report of Independent Auditors 42
Consolidated Balance Sheets as of
December 31, 1999 and 1998 43
Consolidated Statements of Operations for the
years ended December 31, 1999, 1998 and 1997 44
Consolidated Statements of Shareholders'
Equity for the years ended December 31,
1999, 1998 and 1997 45
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997 46
Notes to Consolidated Financial Statements 47
(a)(2) Index to Consolidated Financial Statement Schedules:
---------------------------------------------------
All schedules are omitted because the required information is
not present or is not present in amounts sufficient to require submission of the
schedule or because the information required is given in the consolidated
financial statements or notes thereto.
(a)(3) Index to Exhibits:
-----------------
See Index to Exhibits on pages 59 to 60
(b) Reports on Form 8-K:
-------------------
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Miravant Medical Technologies
/S/ Gary S. Kledzik
--- ---------------
Gary S. Kledzik, Ph.D.
Chief Executive Officer and
Chairman of the Board
Dated: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ Gary S. Kledzik Chairman of the Board, Director, March 29, 2000
- ------------------------------------ and Chief Executive Officer,
Gary S. Kledzik, Ph.D. (Principal Executive Officer)
/S/ David E. Mai Director and President March 29, 2000
- ------------------------------------
David E. Mai
/S/ John M. Philpott Chief Financial Officer and Controller March 29, 2000
- ------------------------------------ (Principal Financial Officer and
John M. Philpott Principal Accounting Officer)
/S/ Larry S. Barels Director March 29, 2000
- ------------------------------------
Larry S. Barels
/S/ William P. Foley II Director March 29, 2000
- ------------------------------------
William P. Foley II
/S/ Charles T. Foscue Director March 29, 2000
- ------------------------------------
Charles T. Foscue
/S/ Jonah Shacknai Director March 29, 2000
- ------------------------------------
Jonah Shacknai
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Miravant Medical Technologies
We have audited the accompanying consolidated balance sheets of Miravant Medical
Technologies as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Miravant Medical
Technologies at December 31, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/S/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Woodland Hills, California
March 7, 2000
CONSOLIDATED BALANCE SHEETS
December 31,
1999 1998
------------------ -------------------
Assets
Current assets:
Cash and cash equivalents............................................... $ 19,168,000 $ 11,284,000
Investments in short-term marketable securities......................... 3,621,000 --
Accounts receivable..................................................... 5,717,000 3,038,000
Prepaid expenses and other current assets............................... 1,147,000 936,000
------------------ -------------------
Total current assets....................................................... 29,653,000 15,258,000
Property, plant and equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,639,000 1,720,000
Equipment............................................................... 5,495,000 5,180,000
Leasehold improvements.................................................. 4,488,000 4,232,000
Capital lease equipment................................................. 184,000 184,000
------------------ -------------------
11,834,000 11,344,000
Accumulated depreciation................................................ (8,112,000) (5,514,000)
------------------ -------------------
3,722,000 5,830,000
Investments in affiliates.................................................. 752,000 1,512,000
Loan to affiliate, net of reserve of $2.2 million and $1.8 million
at December 31, 1999 and 1998, respectively............................ -- --
Patents and other assets................................................... 825,000 1,210,000
------------------ -------------------
Total assets............................................................... $ 34,952,000 $ 23,810,000
================== ===================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable........................................................ $ 4,070,000 $ 3,541,000
Accrued payroll and expenses............................................ 650,000 583,000
------------------ -------------------
Total current liabilities.................................................. 4,720,000 4,124,000
Long-term liabilities:
Long-term debt.......................................................... 15,379,000 --
Sublease security deposits.............................................. 127,000 --
------------------ -------------------
Total long-term liabilities................................................ 15,506,000 --
Shareholders' equity:
Common stock, 50,000,000 shares authorized; 18,038,270 and
16,080,054 shares issued and outstanding at December 31, 1999 and
1998, respectively.................................................... 152,731,000 135,989,000
Notes receivable from officers.......................................... (460,000) (1,525,000)
Deferred compensation and interest...................................... (2,647,000) (2,896,000)
Accumulated other comprehensive loss.................................... (3,724,000) (2,964,000)
Accumulated deficit..................................................... (131,174,000) (108,918,000)
------------------ -------------------
Total shareholders' equity................................................. 14,726,000 19,686,000
------------------ -------------------
Total liabilities and shareholders' equity................................. $ 34,952,000 $ 23,810,000
================== ===================
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1999 1998 1997
------------------- ------------------- ------------------
Revenues:
License - contract research and development....... $ 13,996,000 $ 9,314,000 $ 1,896,000
Royalties......................................... 143,000 191,000 236,000
Grants............................................ 438,000 674,000 146,000
------------------- ------------------- ------------------
Total revenues....................................... 14,577,000 10,179,000 2,278,000
Costs and expenses:
Research and development.......................... 29,749,000 29,233,000 20,244,000
Selling, general and administrative............... 7,473,000 9,626,000 13,716,000
Loss in affiliate................................. 417,000 2,929,000 1,105,000
------------------- ------------------- ------------------
Total costs and expenses............................. 37,639,000 41,788,000 35,065,000
Loss from operations................................. (23,062,000) (31,609,000) (32,787,000)
Interest and other income (expense):
Interest and other income......................... 1,240,000 3,546,000 2,584,000
Interest expense.................................. (434,000) (1,000) (6,000)
------------------- ------------------- ------------------
Total net interest and other income.................. 806,000 3,545,000 2,578,000
------------------- ------------------- ------------------
Net loss............................................. $ (22,256,000) $ (28,064,000) $ (30,209,000)
=================== =================== ==================
Net loss per share - basic and diluted............... $ (1.25) $ (1.94) $ (2.36)
=================== =================== ==================
Shares used in computing net loss per share.......... 17,768,670 14,464,044 12,791,044
=================== =================== ==================
See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Notes Accumulated
Receivable Deferred Other
Common Stock from Compensation Comprehensive Accumulated
Shares Amount Officers and Interest Loss Deficit Total
----------- ------------- ------------ --------------- ------------- --------------- -------------
Balance at January 1, 1997....... 12,337,876 $ 108,974,000 $ -- $ (1,612,000) $ -- $ (50,645,000) $ 56,717,000
Net loss......................... -- -- -- -- -- (30,209,000) (30,209,000)
share (net of approximately
$2,627,000 of offering costs).. 1,416,000 68,173,000 -- -- -- -- 68,173,000
warrants....................... 485,799 1,080,000 -- -- -- -- 1,080,000
Issuance of stock awards......... 14,172 456,000 -- -- -- -- 456,000
Repurchases of stock............. (301,000) (10,041,000) -- -- -- -- (10,041,000)
to warrants granted, net of
cancellations.................. -- 1,809,000 -- (1,809,000) -- -- --
Amortization of deferred
compensation................... -- -- -- 1,522,000 -- -- 1,522,000
------------ -------------- ----------- --------------- ------------- --------------- ------------
Balance at December 31, 1997...... 13,952,847 $170,451,000 $ -- $ (1,899,000) $ -- $ (80,854,000) $87,698,000
Comprehensive loss:
Net loss....................... -- -- -- -- -- (28,064,000) (28,064,000)
Unrealized loss in
investment in Xillix........ 58,909 1,476,000 -- -- (2,964,000) -- (1,488,000)
-------------
Total comprehensive loss......... (29,552,000)
-------------
Exercise of stock options and
warrants....................... 551,566 2,330,000 -- -- -- -- 2,330,000
Notes receivable from officers... 83,731 179,000 (1,525,000) -- -- -- (1,346,000)
Issuance of stock awards......... 51,121 1,579,000 -- -- -- -- 1,579,000
Repurchases of stock............. (725,000) (17,911,000) -- -- -- -- (17,911,000)
under the Securities Purchase
Agreement and related amendments 2,106,880 (25,521,000) -- -- -- -- (25,521,000)
Deferred compensation related
to warrants granted and notes
from officers.................. -- 3,406,000 -- (3,406,000) -- -- --
Amortization of deferred
compensation................... -- -- -- 2,409,000 -- -- 2,409,000
----------- ------------- ------------- --------------- ------------- ------------ -------------
Balance at December 31, 1998...... 16,080,054 $ 135,989,000 $(1,525,000) $(2,896,000) $(2,964,000) $(108,918,000) $19,686,000
Comprehensive loss:
Net loss...................... -- -- -- -- -- (22,256,000)(22,256,000)
Unrealized loss in
investment in Xillix........ -- -- -- -- (760,000) -- (760,000)
-------------
Total comprehensive loss......... (23,016,000)
Issuance of stock at $16.71 per -------------
share (net of approximately
$324,000 of offering costs).... 1,136,533 18,676,000 -- -- -- -- 18,676,000
Exercise of stock options and
warrants....................... 36,202 95,000 -- -- -- -- 95,000
Notes receivable from officers... -- -- 1,065,000 -- -- -- 1,065,000
Issuance of stock awards......... 96,485 972,000 -- -- -- -- 972,000
Fulfillment of obligations
under the Securities Purchase
Agreement and related
amendments...................... 688,996 (4,204,000) -- -- -- -- (4,204,000)
Deferred compensation, deferred
interest related to warrants
granted and officer notes....... -- 1,203,000 -- (1,203,000) -- -- --
Amortization of deferred
compensation and interest....... -- -- -- 1,452,000 -- -- 1,452,000
------------ --------------- ------------- ------------ ------------- ------------ -------------
Balance at December 31, 1999.......18,038,270 $152,731,000 $ (460,000) $(2,647,000) $(3,724,000) $(131,174,000)$ 14,726,000
============ =============== ============= ============ ============== ============ =============
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
Operating activities: 1999 1998 1997
---------------- ---------------- ---------------
Net loss............................................... $ (22,256,000) $ (28,064,000) $ (30,209,000)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization....................... 2,690,000 2,736,000 1,099,000
Amortization of deferred compensation and interest.. 1,452,000 2,409,000 1,522,000
Loss on sale of property, plant and equipment....... 25,000 -- --
Reserve for loan receivable from affiliate.......... 250,000 1,808,000 --
Stock awards........................................ 972,000 1,579,000 456,000
Non-cash interest on long-term debt................. 379,000 -- --
Write-off of investment in affiliate................ -- 895,000 1,105,000
Reserve for patents................................. 412,000 -- --
Changes in operating assets and liabilities:
Accounts receivable ............................. (2,679,000) (1,349,000) 346,000
Prepaid expenses and other assets................ (235,000) (528,000) (372,000)
Accounts payable and accrued payroll............. 596,000 (1,188,000) 2,244,000
------------------ ------------------ ------------------
Net cash used in operating activities.................. (18,394,000) (21,702,000) (23,809,000)
Investing activities:
Purchases of marketable securities..................... (17,014,000) (230,660,000) (44,696,000)
Sales of marketable securities......................... 13,393,000 258,456,000 37,500,000
Investments in affiliates.............................. -- (3,000,000) --
Loan to affiliate...................................... (250,000) (1,808,000) --
Purchases of property, plant and equipment............. (551,000) (2,731,000) (3,942,000)
Sublease security deposits............................. 127,000 -- --
Purchases of patents................................... (59,000) (468,000) (17,000)
------------------ ------------------ ------------------
Net cash (used in) provided by investing activities.... (4,354,000) 19,789,000 (11,155,000)
Financing activities:
Proceeds from issuance of Common Stock, less
issuance costs...................................... 18,771,000 2,509,000 69,253,000
Proceeds from long-term debt........................... 15,000,000 -- --
Purchases of Common Stock............................. -- (17,911,000) (10,041,000)
Repayments (advances) of notes to officers............. 1,065,000 (1,525,000) --
Payments of capital lease obligations.................. -- (21,000) (38,000)
Payments of long-term obligations...................... -- -- (42,000)
Purchases of Common Stock under the Amended
Securities Agreement................................ -- (16,875,000) --
Payments for price protection obligations under the
Amended Securities Agreement........................ (4,204,000) (8,646,000) --
------------------ ------------------ ------------------
Net cash provided by (used in) financing activities.... 30,632,000 (42,469,000) 59,132,000
Net increase (decrease) in cash and cash equivalents... 7,884,000 (44,382,000) 24,168,000
Cash and cash equivalents at beginning of period....... 11,284,000 55,666,000 31,498,000
------------------ ------------------ ------------------
Cash and cash equivalents at end of period............. $ 19,168,000 $ 11,284,000 $ 55,666,000
================== ================== ==================
Supplemental disclosures:
State taxes paid....................................... $ 100,000 $ 113,000 $ 104,000
================== ================== ==================
Interest paid.......................................... $ -- $ 1,000 $ 7,000
================== ================== ==================
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Description of Business and Basis of Presentation
Miravant Medical Technologies, or the Company, is engaged in the research
and development of drugs and medical device products for use in PhotoPoint(TM),
the Company's proprietary technologies for photodynamic therapy. Effective
September 15, 1997, the Company changed its name from PDT, Inc. to Miravant
Medical Technologies. The Company is located in Santa Barbara, California.
As of December 31, 1999, the Company had an accumulated deficit of $131.2
million and expects to continue to incur substantial, and possibly increasing,
operating losses for the next few years. The Company is continuing its efforts
in research and development and the preclinical studies and clinical trials of
its products. These efforts, and obtaining requisite regulatory approval, prior
to commercialization, will require substantial expenditures. While management of
the Company believes that it has sufficient resources to fund the required
expenditures for the next eighteen months and that additional funding will be
available when required, there is no assurance that this will be the case.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results may differ from those estimates and such
differences may be material to the financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Miravant
Medical Technologies and its wholly owned subsidiaries, Miravant Systems, Inc.,
Miravant Pharmaceuticals, Inc. and Miravant Cardiovascular, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications of prior year amounts have been made for purposes of
presentation.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Marketable Securities
Marketable securities consist of short-term, interest-bearing corporate
bonds, U.S. Government obligations and municipal obligations. As of December 31,
1999, marketable securities of $3.6 million consisted of short-term,
interest-bearing municipal bonds. As of December 31, 1998, the Company held no
marketable securities. The Company has established investing guidelines relative
to concentration, maturities and credit ratings that maintain safety and
liquidity.
In accordance with Statement of Financial Accounting Standards or SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities," the
Company determines the appropriate classification of debt and equity securities
at the time of purchase and re-evaluates such designation as of each balance
sheet date. As of December 31, 1999 and 1998, all marketable securities and
certain investments in affiliates were classified as "available-for-sale."
Available-for-sale securities and investments are carried at fair value with
unrealized gains and losses reported as a separate component of shareholders'
equity. Realized gains and losses on investment transactions are recognized when
realized based on settlement dates and recorded as interest income. Interest and
dividends on securities are recognized when earned.
Investments in Affiliates
Investments in affiliates owned more than 20% but not in excess of 50%,
where the Company is not deemed to be able to exercise controlling influence,
are recorded under the equity method. Investments in affiliates, owned less than
20%, where the Company is not deemed to be able to exercise controlling
influence, are recorded under the cost method. Under the equity method,
investments are carried at acquisition cost and adjusted for the proportionate
share of the affiliates' earnings or losses. Under the cost method, investments
are recorded at acquisition cost and adjusted to fair value based on the
investment classification.
In December 1996, the Company purchased a 33% equity interest in Ramus
Medical Technologies or Ramus for $2.0 million. The investment was accounted for
under the equity method. As the Company is the main source of financing for
Ramus, the Company has conservatively recorded 100% of Ramus' loss to the extent
of the investment made by the Company, resulting in losses from affiliates of
$1.1 million and $895,000 for the years ended December 31, 1997 and 1998,
respectively and zero for the year ended December 31, 1999. The investment in
Ramus has been fully reserved for as of December 31, 1999.
In June 1998, the Company purchased a $5.0 million, 9% equity interest in
Xillix Technologies Corp. or Xillix. The Company received 2,691,904 shares of
Xillix common stock, in exchange for $3.0 million in cash and the remainder in
Miravant Common Stock at the market value on the date of the agreement, which
represented 58,909 shares of Common Stock at $25.06 per share, or $1.5 million.
The investment has been accounted for under the cost method and classified as
available-for-sale. At December 31, 1999, in accordance with the accounting for
available-for-sale securities, the investment was adjusted to the current market
value of Xillix common stock, with the resulting unrealized loss recorded as a
separate component of shareholders' equity.
Equipment and Leasehold Improvements
Equipment is stated at cost with depreciation provided over the estimated
useful lives of the respective assets on the straight-line basis. Leasehold
improvements are stated at cost with amortization provided on the straight-line
basis. The estimated useful lives of the assets are as follows:
Furniture and fixtures 5 years
Equipment 3 - 5 years
Leasehold improvements 5 years or the remaining life of the
lease term, whichever is shorter
Patents and Other Assets
Costs of acquiring patents are capitalized and amortized on the
straight-line basis over the estimated useful life of the patents, seventeen
years. Accumulated amortization was $231,000 and $175,000 at December 31, 1999
and 1998, respectively. The costs of servicing the Company's patents are
expensed as incurred. Also included in this caption are deposits and other
miscellaneous non-current assets.
Long-Lived Assets
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. No such significant
impairment losses have been identified by the Company. An impairment loss would
be recognized when the estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying amount.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion or APB Opinion No. 25 and related
interpretations in accounting for its stock option plans.
The Company also has granted and continues to grant warrants and options to
various consultants of the Company. These warrants and options are generally in
lieu of cash compensation and, as such, deferred compensation is recorded
related to these grants. Deferred compensation for warrants and options granted
to non-employees has been determined in accordance with SFAS No. 123 and
Emerging Issues Task Force or EITF 96-18 as the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured. Deferred compensation is amortized over the consulting or
vesting period.
Revenue Recognition
The Company recognizes revenues from product sales at the time of shipment
to the customer. Grant, royalty and licensing income is recognized based on the
terms of the related agreements and license income includes the reimbursement of
certain preclinical and clinical costs.
Research and Development Expenses
Research and development costs are expensed as incurred. The acquisition of
technology rights for research and development projects and the value of
equipment for specific research and development projects are also included in
research and development expenses.
Advertising
Costs incurred for producing and communicating advertising are generally
expensed when incurred. In September 1997, the Company commenced a name change
awareness and product-branding program pursuant to which advertising costs were
incurred. Advertising expense was not material for the years ended December 31,
1999 and 1998 and was $5.5 million for the year ended December 31, 1997. The
amounts incurred in 1997 were primarily associated with the name change
awareness and product-branding program.
Segment Reporting
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
established standards for the way that public business enterprises report
information about operating segments in the annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. SFAS No. 131 also established standards
for related disclosures about products and services, geographic areas and major
customers. The adoption of SFAS No. 131 did not affect the reported results of
operations or financial position of the Company. In addition, the adoption of
the new statements did not affect disclosures of segment information as the
Company is engaged principally in one aggregated line of business, the research
and development of drugs and medical device products for the use in the
Company's proprietary technologies for photodynamic therapy.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
SFAS No. 130 had no impact on the Company's net loss or shareholders' equity.
Under SFAS No. 130, the Company has elected to report other comprehensive
income, which includes unrealized gains or losses on available-for-sale
securities, in the consolidated statements of shareholders' equity.
Net Loss Per Share
The Company calculates earnings per shares in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share
reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted to common stock.
Common stock equivalent shares from all stock options and warrants for all years
presented have been excluded from this computation as their effect is
anti-dilutive.
Basic loss per common share is computed by dividing the net loss by the
weighted average shares outstanding during the period in accordance with SFAS
No. 128. Since the effect of the assumed exercise of common stock options and
other convertible securities was anti-dilutive, basic and diluted loss per share
as presented on the consolidated statements of operations are the same.
2. Credit Arrangements
Pharmacia & Upjohn
In February 1999, the Company and Pharmacia & Upjohn entered into a Credit
Agreement which will extend to the Company up to $22.5 million in credit, which
is subject to certain limitations and restrictions, to be used to support the
Company's ophthalmology, oncology and other development programs, as well as for
general corporate purposes. The Company issues promissory notes for each
quarterly loan received and for the quarterly interest amounts due on the
amounts borrowed until December 2000 when the issuance of such promissory notes
for the quarterly interest due will be subject to certain restrictions. The
promissory notes mature in June 2004 and, at the Company's option, can be repaid
in the form of Miravant Common Stock, subject to certain limitations and
restrictions as defined by the Credit Agreement. The promissory notes accrue
interest at the prime rate, which was 8.50% at December 31, 1999. In connection
with this credit, Pharmacia & Upjohn will receive a total of up to 360,000
warrants to purchase shares of Miravant Common Stock. The exercise price of each
warrant will be equal to 140% of the average of the closing bid prices of the
Common Stock for the ten trading days immediately preceding the borrowing
request for the related loan. Under the Credit Agreement, the Company will be
required to meet certain affirmative, negative and financial covenants until the
loan is fully repaid. During 1999, in accordance with the Credit Agreement, the
Company received the first four quarterly loans for a total of $15.0 million, of
the available $22.5 million, and issued 240,000 warrants to purchase Miravant
Common Stock at an exercise price of $11.87 per warrant share for 120,000 shares
and $14.83 per warrant share for the remaining 120,000 shares. Accordingly, the
Company issued promissory notes to Pharmacia & Upjohn for the total loan amounts
received of $15.0 million and issued additional promissory notes for a total of
$379,000 for the related interest due on each of the quarterly due dates. The
Company expects to utilize the remaining $7.5 million available under the Credit
Agreement during 2000. The warrants granted have been valued using a
Black-Scholes Model and this deferred interest amount of $926,400 is being
amortized to interest expense over the life of the warrants.
Ramus
In April 1998, the Company entered into a revolving credit agreement with
its affiliate, Ramus. Under this agreement, Ramus has borrowed $1.8 million and
$2.0 million as of December 31, 1998 and 1999, respectively. The unpaid
principal amount of the loans, which was used to fund Ramus' clinical trials and
operating costs, accrues interest at a variable rate (8.50% as of December 31,
1999) based on the Company's bank rate. The loan matures in March 2000 and has
been subsequently extended to a period in the future, for which the terms of the
extension are currently being negotiated. The Company has established a reserve
for the entire outstanding balance of the loan receivable at December 31, 1999
and 1998, which is included in loss in affiliate in the consolidated statements
of operations.
3. Shareholders' Equity
Collaboration with Pharmacia & Upjohn
In January 1999, the Company and Pharmacia & Upjohn, Inc., and certain
other wholly owned subsidiaries, which collectively and individually are
referred to as Pharmacia & Upjohn in this report, entered into an Equity
Investment Agreement pursuant to which Pharmacia & Upjohn purchased from the
Company 1,136,533 shares of the Company's Common Stock for an aggregate purchase
price of $19.0 million, or $16.71 per share. This price includes a premium of
approximately 20% over the ten-day average per share closing price of the Common
Stock through January 14, 1999. Additionally, in connection with the Equity
Investment Agreement and the Credit Agreement, in February 1999 the Company and
Pharmacia & Upjohn amended the 1998 Amendments of the License Agreements to
eliminate the remaining future cost reimbursements for oncology and urology and
any future milestone payments in age-related macular degeneration or AMD.
Private Placements
In September and October 1997, the Company completed three private equity
placements totaling $70.8 million, which provided net proceeds to the Company of
$68.2 million. The private placements included the issuance of 1,416,000 shares
of Common Stock at $50.00 per share, as well as one detachable Common Stock
warrant for each share of Common Stock purchased. With respect to the warrants
issued in connection with these placements, 50% were exercisable at $55.00 per
share and 50% were exercisable at $60.00 per share. Additionally, the Securities
Purchase Agreements provided price protection provisions that if on the first
anniversary of the closing of the purchase, the thirty (30) day average closing
bid price of the Common Stock for the period ending on the trading day prior to
the anniversary date is less than the closing price paid by the purchasers, then
the Company shall pay each purchaser additional cash or stock, or a combination
of both, as determined by the Company at its sole option. In October 1998, for
the purchasers of 516,000 shares, the Company satisfied its price protection
obligation by issuing an additional 2,444,380 shares of Common Stock.
Effective June 30, 1998, the Company entered into an Amended Securities
Purchase Agreement or Amendment Agreement with the purchasers of 900,000 shares
under the Securities Purchase Agreement. Included among the provisions of the
Amendment Agreement is a change in the price protection provisions. Under the
Amendment Agreement, the Company's obligation under the price protection
provision was now spread out over an eight month period beginning August 1, 1998
and ending March 1, 1999, and was determined by the difference between the
original purchase price and the thirty (30) day average closing bid price of the
Common Stock on the first day of each month beginning August 1st and ending
March 1st (each a "measurement date"). Additionally, the Amendment Agreement
included repurchase provisions which provided that the Company also had the
option to repurchase all or a part of the purchasers' shares at the original
closing price of $50.00 per share and thus eliminate all of the purchasers'
rights under the price protection provisions of the Amendment Agreement and the
Securities Purchase Agreement.
Under the Amendment Agreement, the exercise price of the original warrants
issued to certain of the purchasers under the Securities Purchase Agreement was
reduced to $35.00 and, under certain limited circumstances, the Company has the
right to redeem the warrants. Furthermore, the Lock-Up Agreement was amended to
provide that, if the Company does not repurchase the Common Stock, 1/8th of the
shares and original warrant shares were released from the lock-up on each
measurement date. In addition, if the Company did not repurchase all of the
purchasers' original 900,000 shares within sixty (60) days of the closing of the
Amendment Agreement, the Company agreed to issue an additional 450,000 warrants
to the purchasers at an exercise price of $35.00 per share within five business
days of March 1, 1999 or the early termination of the Lock-Up Agreement. The
Company issued the 450,000 warrants in March 1999 and all lock-up agreements
have expired.
In accordance with the Amendment Agreement, the Company repurchased 337,500
shares subject to the repurchase provisions of the Amendment Agreement at a cost
of $16.9 million. This repurchase eliminated the Company's obligation to issue
additional shares or pay cash under the amended price protection provisions for
the August 1, September 1 and October 1, 1998 measurement dates. For the
November 1 and December 1, 1998 measurement dates, the Company fulfilled its
price protection obligation by electing to pay the purchasers cash, which
amounted to $4.6 million and $4.0 million, respectively. In addition, the
Company fulfilled its price protection obligations for the January 1, February
1, and March 1, 1999 measurement dates by electing to pay the purchasers cash
and Common Stock, with the cash portion amounting to $1.2 million, $1.3 million
and $1.7 million, respectively and the Common Stock portion amounting to 199,746
shares, 207,072 shares and 282,178 shares, respectively. The Company has now
satisfied all of its price protection obligations under the Amendment Agreement
and, as such, the Company has no further price protection obligations under this
agreement to any of these parties. Additionally, for the purchasers of 500,000
shares under the October 1997 private placements, the Company amended their
warrant agreements by changing the warrant exercise price to $20.00 per share,
reducing the number of warrant shares issued from 500,000 warrants to 450,000
warrants and adding a call provision to the warrant agreement allowing the
Company to require the exercise of the warrants according to the terms of the
amended warrant agreements. All of the warrants issued related to these private
equity placements are exercisable and expire in December 2001. As of December
31, 1999, no warrants have been exercised.
Common Stock Repurchase Plan
In December 1997, the Board of Directors authorized a Common Stock
repurchase program allowing for the repurchase of up to 750,000 shares of Common
Stock. This 750,000 share repurchase authorization was in addition to and
superseded the repurchase program authorized in July 1996, which allowed for the
repurchase of up to 600,000 shares of Common Stock. The Company had no stock
repurchases in 1999. In 1998, the Company repurchased stock under the Board
authorized repurchase program, which amounted to 725,000 shares at a cost of
$17.9 million. In 1997 the Company repurchased 301,000 shares at a cost of $10.0
million. All shares repurchased were retired. The 750,000 repurchase plan has
been fully utilized and no further repurchase programs have been authorized.
Notes Receivable from Officers
In December 1997, the Compensation Committee of the Board of Directors
recommended, and subsequently approved, non-recourse equity loans in varying
amounts for the Company's Chief Executive Officer, President and Chief Financial
Officer. The notes, which accrue interest at a fixed rate of 5.8% and are
payable in five years, were awarded specifically for the purpose of exercising
options to acquire the Company's Common Stock and for paying the related option
exercise price and payroll taxes. The notes are collateralized by the underlying
shares acquired upon exercise. In January 1999, the Company adjusted the loan
balances to reflect a change in the amount of payroll taxes due. Payroll taxes
of $961,000 originally withheld in 1998 were refunded to the Company by the
applicable taxing agencies during 1999. As of December 31, 1999 the executive
loan balances have been reduced accordingly and are classified as a reduction of
shareholders' equity.
Stock Option Plans
The Company has five stock-based compensation plans which are described
below - the 1989 Plan, the 1992 Plan, the 1994 Plan or, as a group, the Prior
Plans, the Miravant Medical Technologies 1996 Stock Compensation Plan or the
1996 Plan and the Non-Employee Directors Stock Option Plan or the Directors'
Plan. As disclosed in Note 1, the Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans.
The Prior Plans provided for the grant of both incentive stock options and
non-statutory stock options. Stock options were granted under these plans to
certain employees and corporate officers. The purchase price of incentive stock
options must equal or exceed the fair market value of the Common Stock at the
grant date and the purchase price of non-statutory stock options may be less
than fair market value of the Common Stock at grant date. Effective July 21,
1996, the Prior Plans were superseded with the adoption of the 1996 Plan except
to the extent of options outstanding in the Prior Plans. The Company has
allocated 300,000 shares, 750,000 shares and 600,000 shares for the 1989 Plan,
the 1992 Plan and the 1994 Plan, respectively. The outstanding shares granted
under the Prior Plans vest in equal annual installments over four years
beginning one year from the grant date and expire ten years from the original
grant date.
The 1996 Plan provides for awards which include incentive stock options,
non-qualified stock options, restricted shares, stock appreciation rights,
performance shares, stock payments and dividend equivalent rights. Included in
the 1996 Plan is an employee stock purchase program which has not yet been
implemented. Also included in the 1996 Plan is a Non-Employee Directors' Stock
Option award program which provides for an automatic fully vested annual grant
on the first day of the fourth quarter of each year to each non-employee
director of a non-qualified stock option for the purchase of 7,500 shares of
Common Stock at fair market value and occasional discretionary grants. Officers,
key employees, directors and independent contractors or agents of the Company
may be eligible to participate in the 1996 Plan, except that incentive stock
options may only be granted to employees of the Company. The 1996 Plan
supersedes and replaces the Prior Plans and the Directors' Plan, except to the
extent of options outstanding under those plans. The purchase price for awards
granted from the 1996 Plan may not be less than the fair market value at the
date of grant. The maximum amount of shares that could be awarded under the 1996
Plan over its term is 4,000,000 shares. Awards granted under the 1996 Plan
expire on the date determined by the Plan Administrators as evidenced by the
award agreement, but shall not expire later than ten years from the date the
award is granted except for grants of restricted shares which expire at the end
of a specified period if the specified service or performance conditions have
not been met.
Other Stock Options
In connection with employment agreements the Company has with its
executives and certain key employees, non-qualified stock options have been
granted to purchase shares of Common Stock. The options generally become
exercisable in equal installments over four years beginning one year from the
grant date and expire ten years from the original grant date.
The following table summarizes all stock option activity:
Weighted
Average
Exercise price Exercise Stock
per share Price Options
- ---------------------------------------------------------------------------------------------
Outstanding at January 1, 1997.......... $ 0.33 - 52.25 $ 12.76 2,258,430
Granted.............................. 28.00 - 55.50 35.05 446,000
Exercised............................ 0.33 - 29.00 5.06 (262,002)
Canceled............................. 6.00 - 46.75 25.52 (200,645)
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 1997........ 0.33 - 55.50 16.80 2,241,783
Granted.............................. 8.50 - 39.00 21.21 1,117,250
Exercised............................ 0.33 - 28.00 2.43 (483,423)
Canceled............................. 4.00 - 55.50 32.82 (376,754)
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 1998........ 0.67 - 55.50 19.14 2,498,856
Granted.............................. 7.00 - 13.31 10.98 855,875
Exercised............................ 4.00 - 8.00 5.49 (29,528)
Canceled............................. 6.00 - 40.00 20.90 (171,146)
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 1999........ $ 0.67 - 55.50 $ 16.91 3,154,057
- ---------------------------------------------------------------------------------------------
Options Outstanding by Price Range at
December 31, 1999.................... $ 0.67 - 9.31 $ 5.73 1,171,907
$ 10.13 - 15.00 $13.24 909,250
$ 15.13 - 34.75 $31.37 995,400
$ 39.00 - 55.50 $43.44 77,500
Exercisable at:
December 31, 1997....................... $ 0.33 - 55.50 $11.55 1,629,942
December 31, 1998....................... $ 0.67 - 55.50 $15.45 1,227,651
December 31, 1999....................... $ 0.67 - 55.50 $17.01 1,499,069
In accordance with APB Opinion No. 25 and in connection with accounting for
the Company's stock-based compensation plans, the Company recorded total stock
compensation expense of $15,200, $31,000 and $56,000 for the years ended
December 31, 1999, 1998 and 1997, respectively, with respect to the variable
stock options and options granted at less than fair value. Additionally, in
January 1998, the Company issued loans to the Chief Executive Officer, President
and Chief Financial Officer for the purpose of exercising stock options. In
accordance with the accounting guidance for these types of loans, the Company
recorded deferred compensation of $2.7 million related to these loans. For the
years ended December 31, 1999 and 1998 the Company recorded $540,000 and
$540,000 of compensation expense related to these loans.
If the Company had elected to recognize stock compensation expense based on
the fair value of the options granted at grant date for its stock-based
compensation plans consistent with the method of SFAS No. 123, the Company's net
loss and loss per share would have been reduced to the pro forma amounts
indicated below:
1999 1998 1997
----------------------------------------- --- ----------------- -- --------------------- ---- --------------------
Net loss
As reported...................... $ (22,256,000) $ (28,064,000) $ (30,209,000)
Pro forma........................ $ (28,511,000) $ (34,371,000) $ (34,332,000)
Loss per share - basic and diluted
As reported...................... $ (1.25) $ (1.94) $ (2.36)
Pro forma........................ $ (1.61) $ (2.38) $ (2.68)
----------------------------------------- --- ----------------- -- --------------------- ---- --------------------
The fair value of each option grant was estimated using the Black-Scholes
option pricing model using the Multiple Option approach whereby a separate fair
value is computed for each vesting increment of an option. The following
assumptions were used:
1999 1998 1997
----------------------------------------- --- ----------------- --- -------------------- ---- --------------------
Expected dividend yield............. 0% 0% 0%
Expected stock price volatility..... 50% 50% 50%
Risk-free interest rate............. 6.17% - 6.77% 4.62% - 4.83% 5.71% - 5.81%
Expected life of options............ 2 - 4 years 2 - 4 years 2 - 4 years
----------------------------------------- --- ----------------- --- -------------------- ---- --------------------
The above assumptions are highly subjective, in particular the expected
stock price volatility of the underlying stock. Because changes in these
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not provide a reliable single
measure of the fair value of its stock options.
The weighted average remaining contractual life of options outstanding at
December 31, 1999, 1998 and 1997 was 7.1 years, 7.2 years and 6.6 years,
respectively.
Warrants
In connection with a private placement offering which commenced in 1993 and
continued through 1994, the Company issued one detachable Common Stock warrant
for every two shares of Common Stock purchased. Each half warrant was allocated
$0.67 of the overall $8.00 per share purchase price. In 1994 and 1993, the
Company issued detachable stock warrants in connection with the private
placement offering of 287,294 shares and 242,247 shares, respectively. Each
detachable stock warrant provides for the purchase of one share of Common Stock
at $8.00 per share with the warrants expiring on December 31, 2000. Warrants to
purchase 1,563 shares, 136,688 shares and 136,783 shares of Common Stock were
exercised during 1999, 1998 and 1997, respectively.
During 1994 and 1993, the Company issued warrants to private placement
selling agents and a corporate partner to purchase 7,216 shares and 148,449
shares of Common Stock, respectively. Each warrant provides for the purchase of
one share of Common Stock at $8.00 per share with the warrants expiring December
31, 2000. Warrants to purchase 312 shares and 125,000 shares of Common Stock
were exercised during 1998 and 1997, respectively, and no warrants were
exercised in 1999.
In January 1995, the Company, in connection with a loan received from a
principal of its designated selling agent, issued warrants to purchase 15,000
shares of the Company's Common Stock at $10.67 per share. The warrants expire
December 31, 2000. As of December 31, 1999, no warrants have been exercised.
In April 1995, the Company, in connection with consulting agreements,
issued warrants to purchase 750,000 shares of Common Stock at $10.67 per share
to various consultants. In November 1995, in connection with consulting
agreements, the Company issued warrants to purchase 55,000 shares of Common
Stock at $34.75 per share to different consultants. During 1997 and 1998, in
connection with consulting agreements, the Company issued warrants to purchase
128,000 shares and 240,000 shares, respectively, of Common Stock to various
consultants. These warrants were priced at the fair market value on the date of
grant and the prices ranged from $7.00 to $32.13 per share. All of these
warrants vest equally over the term of the agreements, generally between one and
four years. In September 1998 and June 1999, the Company issued warrants to
purchase 150,000 shares and 87,500 shares, respectively, of Common Stock at
$7.00 per share to a consultant of the Company. These shares are exercisable as
of the date of grant and expire September 1, 2003. The consulting agreements can
be terminated by the Company at any time with only those warrants vested as of
the date of termination exercisable. The warrants expire five years after the
date of issuance. As of December 31, 1999, no warrants have been exercised. The
Company recorded deferred compensation associated with the value of these
warrants of $276,000, $717,000 and $1.9 million in 1999, 1998 and 1997
respectively. The Company recorded compensation expense of $843,000, $1.8
million and $1.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
In September and October 1997, the Company, in connection with three
private equity placements, issued warrants to purchase 1,416,000 shares of
Common Stock with 50% of the warrants exercisable at $55.00 per share and 50%
exercisable at $60.00 per share. In addition, in connection with these private
equity placements, the Company also issued warrants to purchase 250,000 shares
of Common Stock to various selling agents. In accordance with the Amendment
Agreement, for the purchasers of 900,000 shares, the warrant price was amended
to be $35.00 per share and an additional 450,000 warrants at $35.00 per shares
were issued in accordance with the Amendment Agreement. Additionally, for the
purchasers of 500,000 shares under the October 1997 private placements, the
Company amended their warrant agreements by changing the warrant exercise price
to $20.00 per share, reducing the number of warrant shares issued from 500,000
warrants to 450,000 warrants and adding a call provision to the warrant
agreement allowing the Company to require the exercise of the warrants according
to the terms of the amended warrant agreements. All the warrants issued related
to the private equity placements are exercisable and expire in December 2001. As
of December 31, 1999, no warrants have been exercised.
As of December 31, 1999, the Company has reserved a total of 3,855,678
shares of its Common Stock, which may be issued upon the exercise of the
outstanding warrants, as described above and elsewhere in the notes to the
financial statements.
4. Convertible Notes Payable
In December 1994, the holders of $2.4 million in principal amount of
convertible notes exchanged their notes for shares of Common Stock at $8.00 per
share for 294,624 shares of Common Stock. The conversion also provided the
noteholders with one warrant for every two shares of Common Stock converted for
total warrants covering 147,312 shares of Common Stock. The warrants provide for
the purchase of one share of Common Stock at $8.00 per share and expire December
31, 2000. During 1995, noteholders converted an additional $550,000 in principal
amount of convertible notes for 68,748 shares of Common Stock at $8.00 per
share. During 1996, holders of the remaining $93,000 in principal amount of
convertible notes exchanged their notes for 11,562 shares of Common Stock at
$8.00 per share. For the years ended December 31, 1999, 1998 and 1997 warrants
to purchase 4,687 shares, 17,186 shares and 23,435 shares, respectively, of
Common Stock were exercised.
5. Employee Benefit Plans
The Company has available a retirement savings plan for all eligible
employees who have completed three months and 500 hours of service and who are
at least 21 years of age. The plan has received Internal Revenue Service
approval under Section 401(a) of the Internal Revenue Code. Participating
employees are 100% vested upon entering the plan and no matching contribution is
made by the Company.
On December 9, 1996, the Board of Directors approved the Miravant Medical
Technologies 401(k) - Employee Stock Ownership Plan or the ESOP which provides
substantially all employees with the opportunity for long-term benefits. The
ESOP was implemented by management on July 1, 1998 and operates on a calendar
year basis. In conjunction with the ESOP, the Company registered with the
Securities and Exchange Commission 300,000 shares of the Company's Common Stock
for purchase by the ESOP. The ESOP provides for eligible employees to allocate
pre-tax deductions from payroll which are used to purchase the Company's Common
Stock at fair market market value on a bi-weekly basis. The ESOP also provides
for a discretionary contribution made by the Company based on the amounts
contributed by the participants. The amount to be contributed by the Company is
determined by the Board of Directors prior to the start of each plan year.
Company contributions, which the Board of Directors determined to be 50% for the
1999 and 1998 plan years, are made on a quarterly basis and vest equally over a
five year period. Total Company matching contributions for 1999, 1998 and 1997
were not significant.
6. Provision for Income Taxes
Deferred income taxes reflect the net tax effects of net operating loss
carryforwards, credits and temporary differences between the financial
statements and tax basis of assets and liabilities. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows:
1999 1998
-----------------------------------------------------------
Current Non-current Current Non-current
-----------------------------------------------------------
Deferred tax assets:
Other accruals and reserves........... $ 126,000 $ -- $ 118,000 $ --
Capitalized research and development.. -- 778,000 -- 3,315,000
Net operating losses and tax credits.. -- 52,504,000 -- 47,529,000
-----------------------------------------------------------
Total deferred tax assets............... 126,000 53,282,000 118,000 50,844,000
Deferred tax liabilities:
Amortization and depreciation expense. -- 397,000 -- 234,000
Federal benefit for state income taxes 26,000 5,232,000 8,000 2,261,000
-----------------------------------------------------------
Total deferred tax liabilities.......... 26,000 5,629,000 8,000 2,495,000
-----------------------------------------------------------
Net deferred tax assets................. 100,000 47,653,000 110,000 48,349,000
Less valuation reserve.................. 100,000 47,653,000 110,000 48,349,000
-----------------------------------------------------------
$ -- $ -- $ -- $ --
-----------------------------------------------------------
The Company has net operating loss carryforwards for federal tax purposes
of $139.3 million which expire in the years 2002 to 2020. Research and
alternative minimum tax credit carryforwards aggregating $6.7 million are
available for federal and state tax purposes and expire in the years 2002 to
2014. The Company also has a state net operating loss carryforward of $24.1
million which expires in the years 2000 to 2004. Under Section 382 of the
Internal Revenue Code, the utilization of the Company's tax net operating losses
may be limited based on changes in the percentage of ownership in the Company.
7. Commitments and Contingencies
The Company has entered into agreements with various parties to perform
research and development and conduct clinical trials on behalf of the Company.
For the research and development agreements, the Company has the right to use
and license, patent and commercialize any products resulting from these
agreements. The Company does not have any financial commitments with respect to
these agreements and records these expenses as the services and costs are
incurred. The Company has also entered into licensing and OEM agreements to
develop, manufacture and market drugs and devices for photodynamic therapy and
other related uses. The agreements provide for the Company to receive or pay
royalties at various rates. The Company has recorded royalty income received
from device sales of $143,000, $191,000 and $234,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
In 1994, the Company entered into a development and commercial supply
agreement with Pharmacia & Upjohn to receive formulation and packaging services
for one of the Company's drugs at specified prices. For the years ended December
31, 1999, 1998 and 1997, the Company paid $1.3 million, $2.6 million and $3.3
million, respectively, and recorded as expense $881,000, $2.9 million and $2.9
million, respectively, primarily for the cost of drug formulation development.
In 1998, the rights and obligations under this agreement were transferred to
Fresenius Kabi LLC with operating terms remaining the same.
Under the prior and current License Agreements, Pharmacia and Upjohn has
provided the Company with funding and development for the right to sell and
market the funded products once approved. The Company will receive royalty
income based on the future drug product sales. For the years ended December 31,
1999, 1998 and 1997, the Company recorded license revenues of $14.0 million,
$9.3 million and $1.9 million, respectively, related to the billing for the
reimbursement of preclinical and clinical costs and no royalties from drug
product sales.
Certain of the Company's research has been or is being funded in part by
Small Business Innovation Research or National Institutes of Health grants. As a
result of such funding, the United States Government has or will have certain
rights in the technology developed which includes a non-exclusive, worldwide
license under such inventions of any governmental purpose and the right to
require the Company to grant an exclusive license under any of such intentions
to a third party based on certain criteria. For the years ended December 31,
1999, 1998 and 1997, the Company has recorded income from grants of $438,000,
$674,000 and $146,000, respectively.
In February 1998, the Company agreed to guaranty a term loan in the amount
of $7.6 million from a bank to a director of the Company at the time. In June
1998, the director did not stand for re-election on the Board of Directors. The
loan was due and payable on July 31, 1999, and was subsequently extended to
October 31, 2000. In conjunction with the extension, the Company increased its
security interest to include substantially all of the personal assets of the
former director. Additionally, with the extension of the guaranty of this loan,
the former director paid to the Company a transaction fee of $152,000. In
connection with the extension agreement, as of March 9, 2000, the former
director has reduced the outstanding balance of the loan, and the Company's
guaranty, to $3.3 million. Under the loan agreement and the guaranty, the
individual and Miravant are subject to the maintenance of specified financial
and other covenants.
The Company is involved in certain claims and inquiries that are routine to
its business. Legal proceedings tend to be unpredictable and costly. Based on
currently available information, management believes that the resolution of
pending claims, regulatory inquiries, and legal proceedings will not have a
material adverse effect on the Company's operating results, financial position
or liquidity position.
8. Leases
The Company leases four buildings for a total monthly rental expense of
$116,000. Three of the leases were renewed in 1999 and all four expire between
August 2002 and December 2003. The leases provide for annual rental increases
based upon a consumer price index. In July 1997, the Company began to sublease a
portion of one of its buildings to Ramus, an affiliate. The sublease agreement
was for two years with rent based upon the percentage of square footage occupied
and was extended during 1999 to March 2000. Sublease rental income from Ramus is
approximately $4,100 per month. Additionally, in December 1999, the Company
sublet one of its buildings to two separate parties. Both of the sublease
agreements expire in 2003 and provide for annual rent increases based of the
consumer price index. Sublease rental income from these parties is $33,000 per
month. Sublease rental income is netted against the Company's rent expense.
Beginning in 1993, the Company entered into capital lease agreements for
various research equipment. The leases were from one to five years and required
equal monthly payments of principal and interest, with interest ranging from 10%
to 14%. Amortization expense related to this capitalized leased equipment is
included as depreciation expense. Accumulated amortization was $176,000 and
$158,000 at December 31, 1999 and 1998, respectively. As of December 31, 1999,
the Company had no remaining capital lease obligations.
Future minimum operating lease payments, net of sublease rental income, as
of December 31, 1999 are as follows:
Lease Amount Minimum
Payable Sublease Revenues Net
------------------ -------------------- ------------------
2000.......................................... $ 1,387,000 $ 333,000 $ 1,054,000
2001.......................................... 1,387,000 395,000 992,000
2002.......................................... 1,160,000 395,000 765,000
2003.......................................... 652,000 329,000 323,000
------------------ -------------------- ------------------
Total minimum lease payments.................. $ 4,586,000 $ 1,452,000 $ 3,134,000
------------------ -------------------- ------------------
Rent expense was $1.3 million, $1.1 million and $866,000 for the years
ended December 31, 1999, 1998 and 1997, respectively, net of sublease income of
$47,000, $45,000 and $20,000, respectively.
9. Related Party Transactions
An outside director of the Company is an officer of a consulting firm,
which provides corporate financial consulting services in the areas of mergers
and acquisitions, public and private financings, strategic planning and
financial analysis. Both the consulting firm and the outside director have been
advisors to the Company since 1991 and have been involved in the Company's
private and public financings from 1991 to the present. The consulting firm was
paid $222,000 in connection with the Company's private equity placements in
1997. In connection with ongoing services provided by the consulting firm, the
Company recorded as expense $2,000, $373,000 and $178,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
In July 1996, a partner in a law firm used by the Company for outside legal
counsel was elected by the Board of Directors to serve as Secretary of the
Company. The Company paid $57,000 in connection with legal services for the
Company's private equity placements in 1997 and $86,000 related to the Pharmacia
& Upjohn Equity Investment in 1999. In connection with general legal services
provided by the law firm, the Company recorded as expense $46,000, $246,000 and
$155,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
10. Fair Value of Financial Instruments
The following is information concerning the fair value of each class of
financial instrument as of December 31, 1999 and 1998:
Cash, cash equivalents, accounts receivable and marketable securities
The carrying amounts of cash, cash equivalents, accounts receivable and
marketable equity securities approximate their fair values. Fair values of cash
equivalents and marketable securities are based on quoted market prices.
Long-Term Obligations
The carrying amount of long-term obligations approximate their fair values
due to variable interest rates on these obligations.
INDEX TO EXHIBITS
Incorporating
Exhibit Reference
Number Description (if applicable)
- ------ ----------- ---------------
3.1 Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on September 12, 1998. [D][3.1]
3.2 Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant [C][3.11]
filed with the Delaware Secretary of State on July 24, 1995.
3.3 Restated Certificate of Incorporation of the Registrant filed with the Delaware Secretary [B][3.1]
of State on December 14, 1994.
3.4 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.2]
the Delaware Secretary of State on March 17, 1994.
3.5 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.3]
the Delaware Secretary of State on October 7, 1992.
3.6 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.4]
the Delaware Secretary of State on November 21, 1991.
3.7 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.5]
the Delaware Secretary of State on September 27, 1991.
3.8 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.6]
the Delaware Secretary of State on December 20, 1989.
3.9 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.7]
the Delaware Secretary of State on August 11, 1989.
3.10 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.8]
the Delaware Secretary of State on July 13, 1989.
3.11 Certificate of Incorporation of the Registrant filed with the Delaware Secretary of State [A][3.9]
on June 16, 1989.
3.12 Amended and Restated Bylaws of the Registrant. [D][3.12]
4.1 Specimen Certificate of Common Stock. [B][4.1]
4.2 Form of Convertible Promissory Note. [A][4.3]
4.3 Form of Indenture. [A][4.4]
4.4 Special Registration Rights Undertaking. [A][4.5]
4.5 Undertaking Agreement dated August 31, 1994. [A][4.6]
4.6 Letter Agreement dated March 10, 1994. [A][4.7]
4.7 Form of $10,000,000 Common Stock and Warrants Offering Investment Agreement. [A][4.8]
4.8 Form of $55 Common Stock Purchase Warrant. [E][4.1]
4.9 Form of $60 Common Stock Purchase Warrant. [E][4.2]
4.10 Form of $35 Amended and Restated Common Stock Purchase Warrant. [F][4.1]
4.11 Form of Additional $35 Common Stock Purchase Warrant. [F][4.2]
4.12 Warrant to Purchase 10,000 Shares of Common Stock between the Registrant and Charles S. [G][4.12]
Love.*
4.13 Form of $20 Private Placement Warrant Agreement Amendment No. 1
10.1 Amendment No. 7 dated as of January 1, 1999 to Employment Agreement between the [H][10.1]
Registrant and Gary S. Kledzik.**
10.2 Amendment No. 12 dated as of January 1, 1999 to Employment Agreement between the [H][10.2]
Registrant and David E. Mai.**
10.3 Amendment No. 4 dated as of January 1, 1999 to Employment Agreement between the [H][10.3]
Registrant and John M. Philpott.**
10.4 Equity Investment Agreement dated January 15, 1999 between the Registrant and Pharmacia & [I][10.1]
Upjohn, Inc., and Pharmacia & Upjohn, S.p.A.
10.5 Credit Agreement between the Registrant and the Lender. [I][10.2]
10.6 Warrant Agreement between the Registrant and Pharmacia & Upjohn, Inc. [I][10.3]
10.7 Security Agreement between the Registrant and the Secured Party. [I][10.4]
10.8 Registration Rights Agreement between the Registrant and Pharmacia & Upjohn, Inc. [I][10.5]
10.9 Amended and Restated Ophthalmology Development & License Agreement between the Registrant [I][10.6]
and Pharmacia & Upjohn AB.
10.10 Cardiovascular Right of First Negotiation between the Registrant and Pharmacia & Upjohn, [I][10.7]
Inc.
10.11 Guaranty Letter Agreement dated August 4, 1999 between the Registrant, Michael D. Farney
and Sanwa Bank.*
10.12 Third Amendment to Term Loan Agreement dated October 31, 1999 between the Registrant,
Michael D. Farney and Sanwa Bank.
10.13 Stock Pledge Agreement dated October 27, 1999 between the Registrant, Michael D. Farney
and Sanwa Bank.*
10.14 Account Control Agreement dated October 27, 1999 between the Registrant, Michael D.
Farney and Salomon Smith Barney Inc.*
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule.
- -------------------------------------------
[A] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Registration Statement on Form S-1 (File No.
33-87138).
[B] Incorporated by reference from the exhibit referred to in brackets
contained in Amendment No. 2 to the Registrant's Registration Statement on
Form S-1 (File No. 33-87138).
[C] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended June 30,
1995, as amended on Form 10-Q/A dated December 6, 1995 (File No. 0-25544).
[D] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended September 30,
1998 (File No. 0-25544).
[E] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Registration Statement on Form S-3 (File No.
333-39905).
[F] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated June 30, 1998 (File No.
0-25544).
[G] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended March 31,
1998 (File No. 0-25544).
[H] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended March 31,
1999 (File No. 0-25544).
[I] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated January 15, 1999 (File No.
0-25544).
** Management contract or compensatory plan or arrangement.
* Confidential portions of this exhibit have been deleted and filed
separately with the Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934.